Coverage Pointers - Volume XIV, No. 26

Dear Coverage Pointers Subscribers:

Situation?  You have a situation?  We embrace situations.


A special congratulations to the Family Potenza on the arrival of newborn twin boys!  Kate, Chris and the two boys are healthy.  That’s the second set of twins this year at H&F (Jen Kelleher having contributed the first set) and with Audrey, Cassie and Jen Ehman’s additions in the last few months, you can be certain we’ve altered the water supply.

Another Year Completed

With this issue, we close out our 14th year of publication and look forward, with anticipation to  Volume 15, No. 1 in two weeks.  Our first issue was July 9, 1999 and for those original 25 subscribers, we salute you.  By all accounts, we were the first electronic insurance coverage newsletter in the country and we’re the first to distribute our issues by smartphone app as well.  Thanks for being such a responsive and receptive audience.  We meet our subscribers throughout the country and Canada and are always thrilled when someone says, “Hey, we get Coverage Pointers.” 

Of course, the first comment we usually receive is about a 100 Years Ago piece, but that’s just fine with us.

We try to be a source of the most current and critical cases decided by the Courts.  Our Special Edition on the i case and subsequent updates have been redistributed, in one form or another, to many thousands of insurance industry members and attorneys.  We’ll have an article that is scheduled to appear in Monday’s New York Law Journal as well, look for the Outside Counsel column.  We thank coverage scholar Randy Maniloff for carrying our message in his wonderful publication, Coverage Opinions, one of the few must-read coverage newsletters around the country.

Anyway, thanks and we’ll keep on doing what we love to do.


Thanks to Folks in Columbus and Rochester:

I had the pleasure of traveling to Columbus on Wednesday and Rochester on Thursday (with Dave Adams) to provide some continuing education programs to two superb groups of claims professionals.  We so enjoy those presentations and interactive sessions.  A special thanks for the lasagna out in the mid-west (quite tasty) and the cake, cookies and sandwiches in the Flower (f/k/a Flour) City.

Certification of Insurance Legislation:

Moments before press time, we received word that IIABNY’s signature Certificate of Insurance bill received final passage and is heading to the Governor’s desk. It will prohibit any person from:

  • Demanding an altered or modified Certificate of Insurance;
  • Requesting a Certificate that contains Demanding an altered or modified certificate of insurance;
  • Requesting a certificate that contains terms, conditions, , or other language that is not found in the policy;
  • Requiring a producer to issue an opinion letter or similar document that violates any of the bill’s prohibitions;
  • Requiring a certificate to warrant that the insurance policy complies with the requirements of a particular contract; and,
  • Requiring a certificate that inaccurately states the insurance coverages, purports to change the coverage, or to grant rights beyond those stated in the policy.


Sounds like legislation that makes good sense.

K2 and Its Impact:

There has been nothing short of an avalanche of chatter amongst the coverage-types about the K2 decision, subject to our special issue last week.  While creative coverage lawyers each have an angle on its meaning, few are optimistic for its impact on the New York insurance industry.  This issue carries another, in-depth view. 


Audrey’s Angles on the Nationally Noteworthy:

We are delighted to have Audrey back from maternity leave.  As you can see by her letter below, her column focus will move from No Fault (ably handled by Margo and Mike) to the Nationally Noteworthy.  While she will always be the Queen of No Fault (in my heart), and while she will still head our NF team, she has shifted her column focus.  We have, therefore, retired one of our original columns, Across Borders with Audrey taking up those cudgels.


One Hundred Years Ago:  High Flying (and Fast Falling) Woman Pioneer

Georgia Thompson "Tiny" Broadwick became the first woman to parachute from an airplane, jumping from a plane piloted by aviator Glenn L. Martin over Los Angeles. Broadwick had volunteered to test Martin's invention of a "trap seat" that would allow people to bail out of an airplane more quickly.


Audrey’s Angles on the Nationally Noteworthy

Motherhood brings new opportunities and perspective both personally and professionally.  Personally, motherhood has already taught me that I need to slow down and enjoy what Aston is doing at that moment even if it means trying to stop being so Type A.  I don’t have to immediately clean up the rice cereal he smeared on every inch of his face, clothing, and highchair but I do have to stop and enjoy the moments of joy he exhibits learning how to eat solid food.  Professionally, my return to work has given me the opportunity to create a new column and contribution to Coverage PointersAudrey’s Angles on The Nationally Noteworthy.

While dubbed the Queen of No-Fault, I do render insurance coverage opinions, handle declaratory judgment actions across New York State, and monitor litigation for clients in other states.  I have loved my column on no-fault.  I still head up the no-fault practice group at the firm.  I still provide advice on no-fault matters.  My new column does not change any of this.  However, Margo Lagueras has been handling no-fault matters for clients in arbitration and litigation across New York State as well as speaking on no-fault issues since she joined Hurwitz & Fine, P.C.  Margo also took over writing the no-fault column while I was on maternity leave and she is going to continue writing it while I shift my column to reviewing noteworthy coverage cases on all states except New York.  I hope you enjoy my new column!

Audrey A. Seeley
[email protected]


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

Hurwitz & Fine, P.C. 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 Steven 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.

Beth’s Bitz

Greetings from Long Island and Happy Summer. 

The case law was light this week on Coverage B, but I am delighted to report that our Long Island office continues to flourish.  We are happy to announce that Aimee Alix has joined our office as an associate, who will be handling a variety of general liability matters, including auto accidents, premises liability and property damage claims. For the past five years, Aimee has litigated complex, multi-party tort cases including negligent construction and excavation, compromise of underground utilities, products liability claims involving mechanical defects and electrical abnormalities, plumbing failures, spontaneous combustion and various other structural, fire and flood related casualties.  From a personal standpoint, Aimee is a delightful person and we are very fortunate that she has joined the Hurwitz & Fine family!

We continue to offer training throughout the state, so please invite us to visit and provide training for your staff.  There is certainly plenty to talk about, particularly with the K2 Investment decision discussed in the Special Edition of Coverage Pointers last week.

We continue to plan Law School for Insurance Professionals which will be held in Melville, New York City, Albany, Buffalo and Syracuse.  The brochure, including agenda, should be available for the next issue of CP.  I hope to see many of you there!

Until next time, be well and don’t forget your sunscreen!

Elizabeth A. Fitzpatrick
[email protected]


A Century Ago:  Governor to Reform Sing Sing:

New York Times
June 21, 1913
Front Page


Names Board to Pick New Site
and May Ask Extra Session to Aid.


Governor Remarks That Mr. Blake’s
Report Shows Conditions
Disgraceful to the State

Special to The New York Times

ALBANY, June 20. – Gov. Sulzer followed to-day the report of the Grand Jury of Westchester County, which was that a new prison should be built to take the place of Sing Sing and that Sing Sing should be abandoned, by appointed a Commission on New Prisons.  The members are Simon W. Rosendale of Albany, Edwin M. Crocker of Byron, Commodore Albion V. Wadhams, Leon C. Weinstock of New York, and Charles W. Oberlander of Buffalo.

“For years,” the Governor said tonight, “the administrative requirements of the State Prison Department have made it evident that a new State prison was imperatively necessary in this State.  As far back as 1906 a commission for the purpose of selecting a site to erect a new State prison was provided by the Legislature, and several different commissions have investigated several different places with a view of erecting a new State prison, but notwithstanding all the money that has been spent and all the time that has elapsed, no physical evidence exists of any advance in the solution of this administrative problem.
Editor’s Note:  Sing Sing was opened in 1826 and remains open today.  The study referenced in the article, one of many, led to the installation of Thomas Mott Osborne as warden.  A radical prison reformer, his leadership led to major improvements and reforms.  Today, the original cellblock is no longer used and in 1989, the prison was finally accredited by the American Correctional Association.  Some 614 men and women were executed there, including Julius and Ethel Rosenberg, electrocuted for espionage.  The last execution took place on August 15, 1963.

Peiper’s Particular Points:

A light week on the first party side of things.  Given the bombshell dropped last week by the Court of Appeals, your author is thankful for the brief respite.  For those of you dabbling in Labor Law, we’d invite you to take a look at the Mathews v Bank of America case we review below.  A good reminder that just because the plaintiff does not fall, does not mean your free of liability.  The test is “force of gravity” not whether you fell, as the First Department not so subtly reminds us. 

As a follow up to last issue, nothing new, as of yet, out of the legislature on the proposed Bill of Rights.   The legislative session draws to a close within the next few hours, so keep your fingers crossed that Albany does what Albany does best…deadlocks. 

As announced last week in Coverage Pointers, we are thrilled to have been asked to participate in a fantastic program for CAT awareness and claims handling.  It’s in August when you’ve got nothing else going on.  If you handle CAT claims, think about joining us.  You’ll be glad you did. 

If Catastrophe Claims aren’t your thing, we have been marauding around the Country providing training (free of course, all you have to commit to is laughing at our feeble attempts at humor) on a myriad of topics.  I had the pleasure of speaking on contractual loss transfer/loss management at an industry conference in Syracuse this past week.  An excellent turnout, and an excellent program.  If you’re interested in construction litigation, contact Dave Adams or me to learn more.   After that, I hopped a plane to Chicago where I am speaking at the Harmonie meeting on ethically using social media during claims investigations. 

Steven E. Peiper
[email protected]

One Hundred Years Ago:  Smoking in Public Places Decried:

New York Times
June 21, 1913

To the Editor of The New York Times:

From this morning’s paper I see that an agitation is afoot against the smoking nuisance. Let men smoke at the right time and in the right place, but restrain them from doing so when injury might result, if necessary, by proper legislation.
I was leaving a northbound Broadway car at the corner of Beaver Street one morning some two weeks ago when the wind blew the burning ashes from a cigar smoked by a man on the car into my eyes, blinding me, so that I fell, almost fainting with pain, to the pavement where I was picked up by passersby.
I don’t suppose destiny has singled me out as a special victim of smoking accidents; on the contrary, I am convinced that similar things must happen to a great many people all the time, which would seem to make stricter regulation and rigid enforcement of existing law desirable.

                                                                                    ADELE NEUBURG

Jen’s Gem:

I did not have a chance to do this last issue, but I wanted to take a second to welcome Audrey back.  With Cassie’s return next week, it feels as if we are finally getting the band back together.  Now all we will need to do is coordinate play dates. 

If you only have a few minutes to review my column this week, I would suggest reading Old Republic Ins. Co. v United Nat. Ins. Co.  The decision, issued in New York County, Supreme Court, arises out of a Labor Law case, and illustrates some of the confusion between additional insured status and contractual indemnity.  A very interesting decision.

Until next issue.

Jennifer A. Ehman
[email protected]


One Hundred Years Ago:  Cancer Cause Confirmed:

June 21, 1913
The Evening Record – Greenville PA

Blames Earthworms for Cancer

Buffalo, NY—The Buffalo Academy of Medicine heard a new theory as to the origin of cancer.

Dr. Hiram D. Walker said that seven years' experiment, had proved to his satisfaction that cancer was a parasitic disease, and that the common garden worm was the source of the parasite which produced cancer. The transmission of the parasite from the worm to the human being came from the worm crawling over fresh vegetables which were afterward eaten.
Editor’s Note:  Dr. Walker has previously announced that his studies established that eating vegetables caused cancer, when impacted by parasites that ‘oozed” out of earthworms onto vegetables.

Mike’s Missive’s on the No Fault Serious Injury:

The Tortoise and the Hare, the Three Little Pigs, a Wise Old Owl, Little Bo Peep—it is an ancient truism that the thoughtful pig wins the race, the careful tortoise never loses his sheep, and the wise shepherd listens and looks more than she speaks.  Ok, so the specific details of nursery tales may have faded, but we should all remember their wisdom.  The path to victory is littered with the clumsy, the bombastic, and the careless.  Even a single piece of carefully marshaled evidence can defeat a goliath of ill-conceived affirmations, affirmed reports, and medical records.

Why do so many seem to forget this lesson when they go to litigation?  Because everyone is under pressure to wrap up and move on as quickly as possible?  Did their thirst for learning and intellectual curiosity die out with their dreams of world conquest?  These are not my question to answer.  In Rivera, the plaintiff submitted the affirmed reports and affirmations of three different physicians, including evidence of a herniated disc and range of motion measurements, but failed to meet his burden.  That is, leaving consideration for persuasiveness aside, the plaintiff was unable to produce the most basic evidence of a serious injury.  It may have been impossible under the circumstances or it may have been clumsy.

Either way it is useful for defendants to remember a few things.  First, take time to actually think about and strategize your case.  This can avoid litigation you will probably lose anyway, and allow you to put your best foot forward the rest of the time.  Second, the so-called soft tissue injuries, significant limitations and permanent consequential limitations of use, are not satisfied by just proving physical harm.  A herniated disc or a partially tear of the supraspinatus are not no-fault serious injuries.  They might be serious to the plaintiff, but they are not serious in court unless they are accompanied by evidence of significant limitations in function or use.  Also note, range-of-motion measurements, a popular way of demonstrating limitations, do not prove or disprove limitations unless they are accompanied by norms for comparison.

Michael Scott-Kristansen
[email protected]


Headlines in This Week’s Issue, Attached:

Dan D. Kohane
[email protected]

Court of Appeals

  • An Avalanche of New York Coverage Challenges; New York Court of Appeals Adopts Draconian Penalty for Wrongfully Refusing to Defend
  • While Coverage Would Not Exist for Claims for Disgorgement of Profits, a Duty to Defend Does Exist if the Disgorgement Was Customer Profit


Appellate Departments

  • Landlord Gets No Coverage Under Tenants’ Policies; No Need to Timely Disclaim if Landlord Was Not an Insured
  • Issue of Fact as to Whether Mother Should Have Given Carrier Notice of Accident Involving Daughter’s Injury and Potential Claim;  Issue of Fact Existed as Well on Mailing of the Disclaimer Letter
  • Under Assault and Battery Exclusion, Sublimit Applied to Reduce Coverage, Despite Premises Liability Claim
  • Dismissal of Tort Claim against Owner of a Stolen Vehicle, Does Not Speak to the Availability of Coverage for UM Notice Purposes
  • Garage Policy Not Ambiguous – Policies Provide Co-Excess Coverage
  • Carrier Wins on Delayed Disclaimer under Fractured Analysis
  • Court Permits Malpractice Pleading to be Amended to Allege Attorney Deceit
  • Pleading Against No Fault Carrier Claiming Insurer Negligently Selected and Supervised IME Doc, Who Allegedly Injured Insured During Exam, States Cause of Action


Michael P. Scott-Kristansen

[email protected] 

  • Jury Verdict in Favor of the Defendant Overturned for Being Irrational
  • Plaintiff May Be Entitled to Recover for All His Injuries Where He Demonstrates At Least One Physical Injury With Resulting Limitations
  • Plaintiff Survived Summary Judgment Regarding His Spinal Injuries Because the Defendant Provided the Objective Basis for His Injuries
  • Defendant’s Expert’s Finding of Resolved Injuries 14 Months After Plaintiff’s Expert’s Last Examination Defeats Permanent Consequential Limitations Claim
  • Recent Examination Is Required to Establish Permanent Consequential Limitation of Use, But Not Significant Limitations of Use
  • Some Textbook Burden Shifting and the Case Heads for Trial
  • Quantity Is a Poor Substitute for a Lack of Quality: Get the Right Evidence, Not More Evidence
  • Plaintiff Wins Motion for Judgment at Trial by Submitting Her Own and Her Treating Surgeon’s Testimony
  • Unauthenticated Records May Be Considered Where They Accompany Otherwise Sufficient Evidence


Margo M. Lagueras

[email protected]


  • Conclusory Opinion Regarding Medical Necessity of Surgery Results in Award of Wage Loss Benefits
  • Incorrect Denial Serves as Justification for Failure to Submit Prescription Bills Within 45 Days
  • Surgery Denial Upheld Where Surgeon Never Examined Patient Prior to Surgery
  • Assignor’s Failure to Follow-Up With Respondent to Discuss Missed IME Precludes Applicant From Reimbursement



  • Master Arbitrator Did Not Exceed His Powers as His Powers Were Not Specified in the Parties’ Agreement to Arbitrate


Steven E. Peiper

[email protected]

  • Just Because Plaintiff Didn’t Fall Does Not Mean Labor Law § 240(1) Doesn’t Apply
  • Party Seeking Appellate Review Must Be Aggrieved by the Order Appealed From


Elizabeth A. Fitzpatrick
[email protected]

  • Attorney-Client Privilege and The Common Interest Doctrine


Audrey A. Seeley
[email protected]

  • Supreme Court Answers Certified Questions On Amendment to UM Statute Eliminating Umbrella Policies From Providing Mandatory Coverage
  • Motion for Reconsideration Denied as Declaration That Insurer’s Defense Obligation Ends Once Insurer Has No Indemnification Obligation Comports With Kentucky Law


Cassandra A. Kazukenus
[email protected]

  • Sandy Legislation


Katherine A. Fijal

[email protected]

  • Advertising Injury - Insurer Has Duty to Defend but No Duty to Indemnify


Jennifer A. Ehman
[email protected]

  • Renewal Certificate Containing Mailing Address Different From Insured Premises Not Conclusive Evidence that Carrier Knew Insureds Did Not Reside at Insured Premises
  • Where Umbrella Carrier Agreed to Pay Alleged Additional Insured’s Portion of the Settlement, and then Balked, Court held that a Contract May have been Formed between the Umbrella Carrier and Additional Insured’s Primary Carrier, which was then Breached
  • No Investigation; No Inquiry; No Coverage


Bad Faith

  • Louisiana Statutory Penalties and Fees for Bad Faith Claims Handling Unavailable in Cases Where there is No Underlying Cause of Action for Failure to Pay a Legitimate Claim


Earl K. Cantwell

[email protected]



That is all for this week and Volume 14.  See you in a couple of weeks.


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]



Coverage Pointers®


Volume XIV, No. 26
Friday, June 21, 2013

A Biweekly Electronic Newsletter

Hurwitz & Fine, P.C.
1300 Liberty Building
Buffalo, NY 14202
Phone: 716-849-8900
Fax: 716-855-0874

Long Island Office:
535 Broad Hollow
Melville, New York 11747
Phone: 631-465-0700
Fax: 631-465-0313

© Hurwitz & Fine, P. C. 2013
All rights reserved

As a public service, Hurwitz & Fine, P.C. is pleased to present its biweekly newsletter, providing summaries of and access to the latest insurance law decisions from the New York State appellate courts.  The primary purpose of this newsletter is to provide timely educational information and commentary for our clients and subscribers. 

In some jurisdictions, newsletters such as this may be considered:
Attorney Advertising.

If you know of others who may wish to subscribe to this free publication, or if you wish to discontinue your subscription, please advise Dan D. Kohane at [email protected] or call 716-849-8900.

You will find back issues of Coverage Pointers on the firm website listed above.

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 B and Fitz’ Bits
Audrey’s Angles on the Nationally Noteworthy
Cassie’s Capital Connection
Fijal’s Federal Focus
Keeping the Faith with Jen’s Gems
Earl’s Pearls

Dan D. Kohane
[email protected]

Court of Appeals

06/11/13K2 Investment Group, LLC v. American Guar. & Liab. Ins. Co.
Court of Appeals
An Avalanche of New York Coverage Challenges; New York Court of Appeals Adopts Draconian Penalty for Wrongfully Refusing to Defend
The New York Court of Appeals has fundamentally altered the liability insurance coverage playing field in one of the most significant and far-reaching decisions in recent memory.  An insurer which wrongfully fails to defend an insured will lose its right to rely upon policy exclusions when litigating indemnity obligations.

What is the penalty to be assessed to a liability insurer for wrongfully denying the obligation to defend an insured?  It has been axiomatic that an insurer’s obligation to defend an insured is not based on the responsibility to indemnify.  On the contrary, the duty to defend is measured by the allegations in the complaint juxtaposed against the policy provisions:

The duty to defend arises whenever the allegations in a complaint against the insured fall within the scope of the risks undertaken by the insurer, regardless of how false or groundless those allegations might be (Goldberg v. Lumber Mut. Cas. Ins. Co., 297 N.Y. 148, 154, 77 N.E.2d 131). The duty is not contingent on the insurer's ultimate duty to indemnify should the insured be found liable, nor is it material that the complaint against the insured asserts additional claims which fall outside the policy's general coverage or within its exclusory provisions. Rather, the duty of the insurer to defend the insured rests solely on whether the complaint alleges any facts or grounds which bring the action within the protection purchased.
Seaboard Sur. Co. v. Gillette Co., 64 N.Y.2d 304, 310 [1984].

So then, what is the penalty for a failure of the insurer to understand that defense obligation when it ought to have done so?  That question was asked of the Court of Appeals almost 30 years ago.  In Servidone Const. Corp. v. Sec. Ins. Co. of Hartford (64 N.Y.2d 419, 423-25 [1985]), the high court made it clear that the breach of the obligation to defend does not create coverage where none otherwise existed.  Rather, the indemnity obligations under the policy define the coverage, and the failure to defend would not modify the insurance product to expand it beyond its accepted terms.

In Servidone¸ the insurer withdrew from the defense of a case, wrongfully, and the insured, concerned about an adverse verdict, settled the underlying claim for $50,000.  When it sought to recover the $50,000 from the insurer, the Court of Appeals made it clear that the insured was only entitled to be reimbursed for that portion of the settlement that was covered by the policy:

We agree with the dissent that an insurer's breach of duty to defend does not create coverage and that, even in cases of negotiated settlements, there can be no duty to indemnify unless there is first a covered loss.

(Servidone Const. Corp. v Sec. Ins. Co. of Hartford, 64 NY2d 419, 423-25 [1985]).

It has remained the standard for 28 years of insurance jurisprudence that the duty to indemnify requires a covered loss.  That was, until June 11th.

A unanimous Court of Appeals, without even a passing nod of farewell to Servidone¸ decided K2 Investment Group, LLC v. American Guar. & Liab. Ins. Co.(2013 NY Slip Op 04270 [06/11/2013]) and altered the well-worn paradigm. 

The facts are worthy of review.  Plaintiffs were limited liability companies that made multiple loans totaling approximately $3 million to Goldan. Daniels, an attorney, was a member of Goldan, and was an insured of American Guarantee (“American”).  Daniels was sued for legal malpractice when it was claimed that as K2’s attorney he failed to record mortgages and obtain title insurance. 

Daniels then notified his E&O carrier, American, of the malpractice claims against him, and thereafter forwarded a copy of the complaint.   In response, American denied defense and indemnity for the reason, among others, that the allegations against Daniels were not based on the rendering or failing to render legal services for others.

After this disclaimer, plaintiff made a settlement demand on Daniels for $450,000 — significantly less than the $2 million limit of American’s policy. Daniels transmitted the demand to American which rejected it by reason of two exclusions in the policy.  The first exclusion was based on the insured's capacity or status as an officer, director, etc., of a business enterprise.  The second exclusion referenced by the carrier removed coverage for any claim arising out of the alleged acts or omissions of the insured for any business enterprise in which he had a controlling interest.

Daniels, soon thereafter, defaulted in the malpractice action, and judgments totaling over $3,000,000 were entered against him. Daniels then assigned to plaintiffs all his claims against defendant, including bad faith claims.

In the instant action, plaintiff sought the policy limits for the judgment and extra-contractual coverage for bad faith. 

American opposed the claim by arguing that the allegations against Daniels arose out of his "capacity or status" as a member and owner (and thus, presumably, at least a "manager") of Goldan. Therefore, any of the claims against him logically arose from his "acts or omissions" on Goldan's behalf.

The Appellate Division, First Department, found the exclusions relied upon by American were inapplicable to the malpractice claim on which the default judgment against Daniels was based.  In a strong dissent, two Justices at the Appellate Division found that there was an issue whether or not the exclusions applied (91 A.D.3d 401).

The Court of Appeals took an entirely different approach.  To wit, it found that by breaching its duty to defend Daniels, American lost its right to rely on these exclusions in litigation over its indemnity obligation. Significantly, the high court seemed unconcerned that by so ruling, it no longer required that the coverage be afforded only for what was bargained.

The ruling, simply stated, takes a judicial eraser to policy exclusions and eschews its words in Servidone:  The duty to indemnify requires a covered loss.

In support of its position, the high court noted that in Lang v. Hanover (3 N.Y.3d 350 [2005]) it stated:

"[A]n insurance company that disclaims in a situation where coverage may be arguable is well advised to seek a declaratory judgment concerning the duty to defend or indemnify the purported insured. If it disclaims and declines to defend in the underlying lawsuit without doing so, it takes the risk that the injured party will obtain a judgment against the purported insured and then seek payment . . . Under those circumstances, having chosen not to participate in the underlying lawsuit, the insurance carrier may litigate only the validity of its disclaimer and cannot challenge the liability or damages determination underlying the judgment."

The court then went on to hold here, that if the disclaimer is found bad, the insurance company must indemnify its insured for the resulting judgment, even if policy exclusions would otherwise have negated the duty to indemnify.

However, the Court in Lang never suggested that exclusions would be written out of the policy.  Notably, that decision specifically recognized that the insurer may litigate the validity of its disclaimer.  While the Court’s ruling appeared to hold that it would disallow a subsequent challenge to the underlying liability or damage determination, it did not prevent an insurer from standing on policy exclusions or breaches of policy conditions to preclude its obligation to indemnify.

The K2decision implicitly modifies Lang as well.  If the unanimous Court means what it says, Servidone is no more and the Court no longer requires that the indemnity obligation is measured by the policy terms.

The Court summarized and further justified its decision with these words:

This rule will give insurers an incentive to defend the cases they are bound by law to defend, and thus to give insureds the full benefit of their bargain. It would be unfair to insureds, and would promote unnecessary and wasteful litigation, if an insurer, having wrongfully abandoned its insured's defense, could then require the insured to litigate the effect of policy exclusions on the duty to indemnify.

The outcome is unmistakable, the Court of Appeals has held that the failure to properly defend results in the Draconian penalty of forfeiture. 

So what, if anything, does all of this mean going forward?

In the future, insurers will have to think very differently about denying a defense to an insured.  As discussed below, the consequences may be very, very expensive.

In one sense, the decision is troubling as it signals the Court’s willingness to void what may be perfectly acceptable policy defenses.  In the instant case, it is noted that the carrier, American, had already lost its coverage argument at the Appellate Division level.  Thus, if the Court did not wish to wade into this thicket, it could have simply found the exclusion relied upon by American to have been inapplicable, thereby affirming the Appellate Court, and resolving the matter with little to no fanfare. 

That, as noted above, is not what the Court elected to do.  The broader point, and one to be concerned with here, is whether a carrier will lose an otherwise enforceable exclusion simply because it chose to deny a potential indemnity obligation.  Of course, New York courts have long held that a carrier does not have an obligation to defend a case if the insurer is able to demonstrate that it can never be charged with an obligation to indemnify.  (City of New York v. Ins. Corp., 305 A.D.2d 443 [2d Dept., 2003]; see also, Pagano v. Allstate Ins. Co., 5 A.D.3d 576 [2d Dept., 2004];  Dumblewski v. ITT Hartford Ins. Co., 213 A.D.2d 823[3d Dept., 1995]).  That long line of cases may also be in jeopardy.

Given the breadth of the duty to defend in New York, should a carrier now err, almost invariably, on the side of caution to protect against the potential loss of coverage defenses and immediately commence a declaratory judgment action to seek exculpation? 

Recall the curious decision of Hartford v. Cook as the bellwether case for the lengths to which the defense obligation has been stretched (see Auto. Ins. Co. of Hartford v. Cook, 7 N.Y.3d 131[2006]).  In Hartford v. Cook, the insured shot and killed his business associate as the decedent was menacingly approaching him.  Fearing for his safety, the insured shot decedent in the stomach in hopes of injuring to the point where the insured would avoid being attacked.  The insured argued that although he intentionally shot decedent, the event was an “occurrence” under his insurance policy, as he did not intend to kill the man.  In agreeing, the Court of Appeals held that the insured could have negligently caused the man’s death and, accordingly, a defense under the policy should have been provided. 

The breadth of Hartford v. Cook was further expanded by the Third Department’s holding in Merchant’s Insurance Company v. Weaver (31 A.D.3d 945 [3d Dept. 2006] where the carrier was required to defend its insured even though the insured had intentionally fired a flare gun into the face of the injured party.  Because there was an allegation of negligence, the Third Department found that the duty to defend had been triggered.  In New York Cent. Mut. Fire Ins. Co. v. Wood (36 A.D.3d 1048), the Third Department refused to apply the intentional act exclusion where the insured knowingly and intentionally drove his vehicle into a tent in the middle of the night to retaliate against people he knew were staying at the campsite.  In support of his argument for coverage, the insured stated that he did not know the tent was occupied at the time he drove into it.  Accordingly, the Court held that the insured’s actions may have simply been reckless, and as such, outside the scope of the intentional act exclusion. 

As noted above, the carrier who gambles on its duty to defend and loses may very well face costly consequences.

A final thought.  The Court offers a very curious and troubling bit of dicta in this final comment:

[W]e do not necessarily reject (though we do not necessarily endorse) the decision of the Appellate Division in Hough v. USAA Cas. Ins. Co. (93 A.D.3d 405 [1st Dept. 2012]). There, the court held that an insurer's "disclaimer of its duty to defend its insured in the underlying action does not bar it from asserting that its insured injured plaintiff intentionally." The Hough decision could arguably be justified on the ground that insurance for one's own intentional wrongdoing is contrary to public policy (see Messersmith v. American Fid. Co., 232 NY 161, 165 [1921]).

In the Hough case, the First Department held that a liability insurer would not lose its right to be free from indemnity obligations because it failed to deny coverage based on the lack of an occurrence.  It has long been the rule that an insurer cannot waive itself into coverage that never existed in the first place, that was not, within the grant of coverage.  Zappone v. Home Ins. Co., 55 N.Y.2d 131, 138-39 [1982].   We can only hope that the Court is not suggesting that a denial based upon a grant of coverage would lead to a loss of the right to deny coverage, a rule that would be contrary well-established New York law.

The future is clear; insurers will be less likely to walk away from defense obligations, even though it is clear that they would not have an indemnity obligation (because of the wording of the pleading and the breadth of the duty to defend).  Insurers, therefore, will likely be more aggressive is commencing and prosecuting declaratory judgment actions to determine the lack of indemnity obligations and thus, ending defense duties.

06/11/13         J.P. Morgan Sec. Inc. v Vigilant Ins. Co.
New York State Court of Appeals

While Coverage Would Not Exist for Claims for Disgorgement of Profits, a Duty to Defend Does Exist if the Disgorgement Was Customer Profit
Bear Stearns submits that the Appellate Division erred in concluding, as a matter of law, that it could not pursue coverage under its policies for any of the $160 million SEC disgorgement payment.  It acknowledges that it is reasonable to preclude an insured from obtaining indemnity for the disgorgement of its own ill-gotten gains, but contends that it was not unjustly enriched by at least $140 million of the disgorgement payment because that portion was attributable to the profits of its customers.

The risk of being ordered to return ill-gotten gains — disgorgement — is not insurable.

However, since the bulk of the disgorgement payment — approximately $140 million — represented the improper profits acquired by third party hedge fund customers, not revenue that Bear Stearns itself pocketed, the Court found that the claims were not the disgorgement of its own profits.  The rule precluding coverage for disgorgement should apply only where the insured requests coverage for the disgorgement of its own illicit gains.

In this case Bear Stearns alleges that it is not pursuing recoupment for the turnover of its own improperly acquired profits and, therefore, it would not be unjustly enriched by securing indemnity. Consequently, the Court concluded that the Insurers are not entitled to dismissal of Bear Stearns' insurance claims related to the SEC disgorgement payment.


Appellate Departments

06/20/13         333 Fifth Avenue Associates, LLC v. Utica First Ins. Co.
Appellate Division, First Department
Landlord Gets No Coverage Under Tenants’ Policies; No Need to Timely Disclaim if Landlord Was Not an Insured
Plaintiff was working for a pizzeria, borrowed an elevator key from a neighboring tenant and then fell down the elevator shaft when he attempted to enter an elevator that was not there.  Both SPN, the pizzeria and Perfume Valley, the neighboring tenant that loaned the key, had access to the elevator and the basement area where plaintiff was injured.

The Court found that the landlord was not an additional insured under Perfume Valley’s policy with Tower because the injured did not arise out of its operations.  Since the landlord did not qualify as an insured, the timeliness of Tower’s disclaimer was irrelevant.  The landlord was not an insured under SPN policy because the policy did not include an AI endorsement.

06/20/13         Hermitage Ins. Co. v.  Zaidman
Appellate Division, First Department
Issue of Fact as to Whether Mother Should Have Given Carrier Notice of Accident Involving Daughter’s Injury and Potential Claim;  Issue of Fact Existed as Well on Mailing of the Disclaimer Letter
There was a familial relationship between Sabina, the insured, and Grace, the injured person (mother/daughter) and as a result of that relationship, the insured argued that she had an excuse for not notifying the insurer about an underlying accident.  The court found that the relationship did not necessarily excuse the delay but that there was an issue of fact exists as to whether Sabina reasonably believed that no claim would be asserted against her, given that she knew that her daughter Grace had "sustain[ed] severe and permanent" injuries, described as "severe head injuries," as a result of Grace's fall on her property, had spent days with Grace in the hospital, and had cared for Grace during the "months" following the accident.

There was also an issue of fact as to whether the insurer gave the insureds written notice disclaiming coverage because of a failure to establish a standard office procedure for mailing notices.

06/19/13         American Safety Indem. Co. v. Loganzo
Appellate Division, Second Department
Under Assault and Battery Exclusion, Sublimit Applied to Reduce Coverage, Despite Premises Liability Claim
Loganzo was at a bar owned and operated by Pourhouse.  Pourhouse employees allegedly began beating Loganzo, and then chased him out of the bar and into oncoming traffic, where he was struck by a motor vehicle and sustained serious personal injuries.  He sued Poorhouse and others alleging negligent control of the premises.

Pourhouse's insurer, American Safety (“American”) brought a declaratory judgment action asserting that its assault and battery sublimit reduced its Dram Shop Coverage from $1,000,000 to $100,000.

The Court agreed, finding, under Mount Vernon, that this incident arose out of assault and battery, even though there was a premises liability claim – that was the “operative act”.

06/19/13         New York City Transit v Hill
Appellate Division, First Department
Dismissal of Tort Claim against Owner of a Stolen Vehicle, Does Not Speak to the Availability of Coverage for UM Notice Purposes
Defendant Hill was a passenger on a bus that was owned and operated by NYC Transit on September 28, 2004.  On that date, plaintiff was injured when the bus was struck by a stolen vehicle.  As a result, plaintiff commenced a personal injury lawsuit against NYC Transit, the bus driver, the driver of the stolen vehicle and the owner of the stolen car. 

By Order dated April 23, 2009, the trial court granted the owner of the stolen vehicle’s motion for summary judgment.  Thereafter, on May 10, 2012, Mr. Hill asserted a demand for uninsured motorist arbitration against NYC Transit.  NYC Transit immediately moved for a permanent stay on the basis that the claim was in excess of New York’s six year statute of limitations. 

The Appellate Division, in reviewing the denial of the petition from the trial court, noted that an underinsured motorist claim accrues on the date of the loss – or – whenever the vehicle becomes uninsured.  Here, NYC Transit established the date of loss, and as such, the burden then fell to Mr. Hill to demonstrate that the vehicle did not become uninsured until later. 

To make this point, Mr. Hill only argued that the vehicle became uninsured at the time of the April 23, 2009 Order which dismissed the owner of the stolen vehicle from the Complaint.  In denying that attempt, the Appellate Division noted that the Order only established the owner was not civilly liable for a stolen vehicle.  It did not speak to availability of coverage, and absent any additional information Mr. Hill did not present a sufficient opposition to NYC Transit’s motion to dismiss. 

06/14/13         Utica Mut. Ins. Co. v Erie Ins. Co
Appellate Division, Fourth Department
Garage Policy Not Ambiguous – Policies Provide Co-Excess Coverage
Submitted by Katherine A. Fijal
The issue before the court was priority of coverage between two garage policies.  Utica Mutual Insurance Company [“Utica”] argued that the garage policy issued by Erie Insurance Company [“Erie”] to its insured, Twin Tier Auto Transport [“Twin Tier”] was primary.  There was no dispute that the Utica policy provided excess coverage.  Erie argued that its policy was also excess and that because both policies were excess they canceled each other out resulting in both policies providing primary coverage on a pro rata basis.

The lower court agreed with Utica finding that the Erie policy was ambiguous and granted Utica’s motion for summary judgment, denying Erie’s cross motion.  Based on the lower court’s order, Utica filed a judgment against Erie in the amount of $260,803, which included defense costs and interest.  For the following reasons the Appellate Division [“Court”] reversed the lower court and vacated the judgment that was filed on behalf of Utica.

This declaratory judgment arose out a personal injury action filed by Joseph Bunk against Utica insured, Expressway Auto Auction, Inc. [“Expressway”] and its employee Edward Miller [“Bunk Action”].  On the date of his injury Mr. Bunk was attending an auto auction which was being conducted by Expressway.  Mr. Bunk was injured when he was struck by a van that was owned by Erie insured, Twin Tier, and driven by Mr. Miller, an employee of Expressway.  The Utica policy issued to Expressway contained liability limits of $1,000,000; and, the Erie policy issued to Twin Tier had liability limits of $500,000.  Prior to this Appeal, the Bunk Action was settled for $750,000, with Utica paying $500,000 and Erie paying the remaining $250,000.

In analyzing the priority of coverage, the Court looked to well settled law in New York which recognizes the right of each insurer to rely upon the terms of its own contract with its insured.  The Other Insurance Clause in the Erie policy provided that, “[T]his policy provides primary insurance for any owed auto which used by anyone we protect.  If the owned auto is being used in the course of your garage operations, this policy will provide excess insurance over all other available insurance coverage.”

The lower court determined that the Other Insurance clause in the Erie policy was ambiguous because there was no separate definition for the phrase “your garage operations”.  The Court agreed with Erie that in fact there was no ambiguity because the policy did define “your” [named insured] and “garage operations” [includes ownership of the vehicle] - unambiguously referring to Twin Tier’s “garage operations”.  The Court concluded that because the claims arising from the subject accident resulted from Twin Tier’s ownership of the vehicle, which was delivered to Expressway to be auctioned, the accident occurred in the course of Twin Tier’s garage operations as that term is defined in the policy. 

The Court also rejected Utica’s alternative contention that the Other Insurance clause is ambiguous because, considering the policy’s broad definition of “garage operations”, Erie’s coverage would always be excess.  The Court disagreed with Utica noting that the Erie policy provides “excess insurance over all other available insurance coverage.”  The Court agreed with Erie that considering this policy language, it follows that Erie’s coverage would be primary if there is no other available insurance. 

The Court held that because Utica provides two-thirds of the available coverage, it must pay two-thirds of the settlement amount, or $500,000, with Erie paying the balance.  The Court also held that Utica was also responsible for two-thirds of the defense costs. The judgment against Erie was vacated.
Editor’s Note:          Congratulations to Kathie Fijal, the author of this note, for her victory at the Fourth Department in this case.  Atta-lawyer

06/12/13         Quincy Mutual Fire Insurance Company v Enoe
Appellate Division, Second Department
Carrier Wins on Delayed Disclaimer under Fractured Analysis
Insurance Law § 3420(d)(2) provides that if an insurer shall disclaim liability or deny coverage for death or bodily injury, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant. The timeliness of an insurer's disclaimer is measured from the point in time when the insurer first learns of the grounds for disclaimer of liability or denial of coverage.  A good faith investigation on the part of the insurer can delay the obligation to deny but the burden in on the insurer to explain the delay in notifying the insured or injured party of the disclaimer.

Here, Quincy made a prima facie showing of its entitlement to judgment as a matter of law by demonstrating that it did not learn of the grounds for issuing a disclaimer until on or around April 19, 2010, when it was notified by its investigator that the defendant Martin Enoe did not live in the same residence as the plaintiffs in the underlying personal injury action during the relevant time period. Its disclaimer, 21 days later, was timely as a matter of law.  No problem with that decision.

Enoe then contended that the disclaimer issue was invalid because Quincy did not provide notice of the disclaimer to the underlying plaintiffs.  The court, citing cases that were not on point, found in favor of the insurer on this issue.  The court, we submit erroneously, that since the plaintiffs did not exercise their right to provide Quincy with independent notification of the claim, they were not required to be notified of the disclaimer.  Well, that isn’t quite right. 

The court reached the right decision but for the wrong reason.

The cases cited are those where the court recognized that an injured party has an independent right to give notice of a claim under the Insurance Law.  If it does not exercise that right, it cannot then claim that the insurer failed to deny coverage on its untimely notification.

Under 3420(d)(2) notice MUST be given to an injured party of disclaimers where there is an in-state personal injury claim. That’s exactly what the statute requires.

However, the court’s decision was right because the insured, who received notice, did not have standing to raise the injured party’s lack of receipt.

06/07/13         Duszynski v Allstate Insurance Company
Appellate Division, Fourth Department
Court Permits Malpractice Pleading to be Amended to Allege Attorney Deceit
Lambert, operating his mother Ruby’s car, struck a pedestrian.  Allstate hired staff counsel to defend both.  Ruby, the owner died.  When the personal injury case settled, Ruby’s estate agreed to pay $200,000 out of personal assets.

Plaintiff, as administratrix of Ruby’s estate, commenced the instant action alleging, inter alia, that Richardson and Bjork were negligent and committed legal malpractice while handling the defense of the personal injury action.  Sixteen months later, plaintiff moved for leave to amend the complaint to add a cause of action under Judiciary Law § 487, which alleges criminal conduct

"A violation of Judiciary Law § 487 may be established either by the defendant's alleged deceit or by an alleged chronic, extreme pattern of legal delinquency by the defendant".  With respect to the element of deceit, "[t]he operative language at issue— guilty of any deceit'—focuses on the attorney’s intent to deceive, not the deceit's success".  Here, the proposed pleading claimed that counsel intentionally deceived . . . Ruby by Richardson falsely stated to . . . her that the personal injury plaintiff was intent on settling the matter for the combined policy limits," plaintiff alleges that "Bjork/Richardson intentionally deceived [decedent] and . . . Lambert in representing to them that the [personal injury action] had been settled within policy limits and that personal assets would be exposed."

Inasmuch as plaintiff alleges that the attorneys "engaged in intentional deceit" the court concluded that plaintiff has alleged sufficient facts to state a cause of action under Judiciary Law § 487.

06/07/13         Reynolds v GEICO General Insurance Company
Appellate Division, Fourth Department
Pleading Against No Fault Carrier Claiming Insurer Negligently Selected and Supervised IME Doc, Who Allegedly Injured Insured During Exam, States Cause of Action
Reynolds, a GEICO insured, claims that he was injured a doctor performing a No Fault examination.  GEICO had retained SCS Support Claim Services, Inc. to schedule Independent Medical Examinations (IME’s) and SCS retained Ferrante. During the course of that examination, plaintiff's left knee was injured allegedly as a result of the chiropractor's manipulation of the knee. Plaintiffs commenced this action alleging, inter alia, that Geico was negligent in the selection, instruction and supervision of SCS and the chiropractor.

Geico moved to have the action against it dismissed on the ground that the doctor was an independent contractor.  The Fourth Department held that a person who hires an independent contractor may be held liable for negligence in selecting, instructing or supervising that independent contractor..

We further reject Geico's contention that the allegations in the amended complaint are insufficient to state a cause of action for negligent selection, instruction and supervision against it. On a motion to dismiss pursuant to CPLR 3211, pleadings are to be liberally construed.  The Court concluded that the amended complaint was sufficient to advise the court and Geico of the transactions and occurrences on which plaintiffs based their claim and plaintiffs have sufficiently pleaded a cause of action against Geico based upon the alleged negligent selection, instruction and supervision of SCS and the examiner.


Michael P. Scott-Kristansen
[email protected] 

06/19/13         DiBenedetto v Abreu
Appellate Division, Second Department
Jury Verdict in Favor of the Defendant Overturned for Being Irrational
The jury in this case decided the plaintiff did not suffer a serious injury.  The plaintiff moved for an order to set aside the jury verdict and award judgment for the plaintiff.  The lower court granted the plaintiff’s motion, so the defendant appealed.  The Court upheld the order in favor of the plaintiff.

Generally, in a case such as this, where the Court sets aside the verdict of a jury, a more detailed discussion of the evidence is helpful.  We are only provided, however, with a conclusory summation.  The Court held the plaintiff’s evidence established that he suffered a rotator cuff tear, a biceps tendon tear, and quantified and significant decrease in range of motion.  The defendant’s evidence did not rebut these demonstrations, so judgment for the plaintiff was required.

06/18/13         Clementson v Price
Appellate Division, First Department
Plaintiff May Be Entitled to Recover for All His Injuries Where He Demonstrates At Least One Physical Injury With Resulting Limitations
Summary judgment was granted in favor of the defendant against both plaintiffs, Clementson and Lee, in the court below.  The Appellate Division overturned judgment against Clementson because Clementson created a question of fact regarding whether he suffered a permanent consequential or significant limitation of use to his lumbar spine.  Judgment against Lee, however, was affirmed.

The defendant submitted the affirmed report of a physician, finding normal ranges of motion in every body part the plaintiffs alleged was injured.  The defendant also submitted the affirmed report of a radiologist, opining that the bulging disc in Clementson’s lumbar spine was degenerative.

Lee failed to submit any evidence to rebut the defendant’s showing.  Clementson, however, submitted the affirmation of his physician, based on various examinations, including one conducted immediately after the accident and another that was very recent, which set forth range-of-motion deficits in the plaintiff’s lumbar spine.  His physician also stated that the lumbar bulges were not degenerative because Clementson was only 23 years old and had no history of back injury.

As always, if Clementson prevails on his lumbar spine serious injury claim, he will be able to recover for all his injuries causally related to the accident.  This is so even though Clementson’s treating physician found normal range of motion in his knee and a partial tear in his left ankle with no resulting limitations.

06/18/13         Deasis v Butler
Appellate Division, First Department
Plaintiff Survived Summary Judgment Regarding His Spinal Injuries Because the Defendant Provided the Objective Basis for His Injuries
The plaintiff alleged serious injuries to his jaw and his spine.  The defendants moved for summary judgment and met their burden by submitting affirmed reports from an orthopedist and a dentist, stating that the plaintiff had full range of motion in his spine and jaw.  The dentist opined that there was no deviation, dislocation, or disability in the plaintiff’s jaw after jaw surgery.

In turn, the plaintiff submitted the affirmations of his orthopedist and oral surgeon.  The orthopedist found range of motion limitations in the plaintiff’s spine and opined that such injuries were caused by the accident, explaining that the plaintiff was only 24 years old and had no prior spine injuries.  The oral surgeon, who performed surgery on the plaintiff, found internal derangement and disc displacement in the right and left temporomandibular joints during surgery; found persisting clicking and limitations one month after surgery; opined that the plaintiff had reached maximum medical improvement as of his most recent visit; and opined that the plaintiff’s injuries were permanent, would cause significant disruptions in chewing and speaking, and would impair his social function, personal functioning, and overall quality of life.

While the plaintiff’s orthopedist provided the requisite limitations to find a serious injury to the plaintiff’s spine, it was the MRI reports of the defendant’s radiologist, confirming the existence of disc herniations and bulges that provided the objective basis for the spinal injuries.

06/18/13         Kone v Rodriguez
Appellate Division, First Department
Defendant’s Expert’s Finding of Resolved Injuries 14 Months After Plaintiff’s Expert’s Last Examination Defeats Permanent Consequential Limitations Claim
The soft tissue serious injuries, permanent consequential limitations and significant limitations of use, are so often treated together that it is a treat when the Appellate Division distinguishes between the two.  The Court, based on the evidence before it, held that the plaintiff did not suffer a permanent consequential limitation of use, but that there was a question as to whether the plaintiff suffered a significant limitation of use.

The plaintiff alleged serious injury to his cervical and lumbar spine and shoulder.  The defendant carried its burden on both categories of injury by submitting the affirmed report of an orthopedist, based on an examination of the plaintiff 2.5 years after the accident, stating that the plaintiff had full range of motion, negative test results, and resolved sprains in his spine and shoulder.  The defendant also established the lack of causation by submitting a radiologists’ affirmed report, based on an MRI, stating that the bulges and herniations in the plaintiff’s spine and the subacrominal bone spurs in his shoulder were degenerative.

In turn, the plaintiff submitted his orthopedist’s affirmed report, which included limitation findings and positive clinical test results.  The report was sufficient to establish a significant limitation of use because it showed persistent meaningful limitations as of 15 months after the accident, but it did not establish any permanent consequential limitations because it was based on an examination performed 14 months before the defendant’s orthopedist examined the plaintiff.
The plaintiff’s physician also established causation.

06/18/13         Vasquez v Almanzar
Appellate Division, First Department
Recent Examination Is Required to Establish Permanent Consequential Limitation of Use, But Not Significant Limitations of Use
The Court held that summary judgment should have been granted as to all the defendants, including one defendant that did not join the motion.  The plaintiff alleged serious injuries to her lumbar spine and left knee, as well as a 90/180-day claim. 

The defendants met their burden regarding the plaintiff’s spine by submitting the affirmed report of a radiologist based on an MRI, stating that there was no evidence of recent traumatic injury and that any changes were degenerative.  The plaintiff failed to meet her own burden because she failed to submit any admissible evidence.  She submitted only an unaffirmed MRI report.

As for the knee injury, the defendant submitted the affirmed report of an orthopedist, containing full range-of-motion findings and a preexisting condition.  The plaintiff failed to create a question regarding her knee under the permanent consequential limitation of use category because she failed to submit an objective evidence of permanent limitations based on a recent examination.

The Court takes the time to inform us that the difference between a significant limitation of use and a permanent consequential limitation of use injury is that only the later requires proof of permanence.  A recent examination, while relevant to a significant limitation of use because the extent, degree, and duration of the injury are relevant, is not required. 

That being said, the plaintiff also failed to create a question regarding her knee under the significant limitation of use category because she failed to rebut the pre-existing finding by the defendant’s expert.

The 90/180-day claim was also dismissed because the plaintiff failed to submit any objective medical evidence to substantiate her claim that her ability to do every day activities was significantly limited.

06/13/13         Abreu v NYLL Mgt. Ltd.
Appellate Division, First Department
Some Textbook Burden Shifting and the Case Heads for Trial
Summary judgment for the defendants was improperly granted where the plaintiff was able to establish at least one permanent consequential or significant limitation of use.  The plaintiff alleged knee, cervical spine, and lumbar spine injuries. 

The defendants met their burden, and shifted it to the plaintiff, by submitting the affirmed report of a neuroradiologist, opining that all of the plaintiff’s injuries were degenerative, and a neurologist’s and orthopedic surgeon’s affirmed reports, finding full ranges of motion.  The defendants’ experts were not required to review the plaintiff’s medical records because they described the tests they used to find full range of motion.

The plaintiff met her burden regarding her knee because her treating orthopedic physician stated that the plaintiff suffered from a lateral meniscus tear causally related to the accident and found limited range of motion in the knee before and after surgery.  The treating physician also addressed the degeneration claim and the plaintiff’s gap in treatment.

06/13/13         Rivera v Gonzalez
Appellate Division, First Department
Quantity Is a Poor Substitute for a Lack of Quality: Get the Right Evidence, Not More Evidence
After the defendants met their burden, the plaintiff was required to rebut the defendants’ case by producing evidence demonstrating a serious injury.  The plaintiff produced the affirmations of two physicians and two affirmed reports of another, but still failed to demonstrate a serious injury.

The affirmation of the plaintiff’s radiologist stated that the plaintiff suffered a herniated lumbar disc, but did not provide any objective medical evidence of a significant physical limitation resulting from such herniation.  To establish such physical limitation, the plaintiff submitted the affirmation of his initial treating physician, which described limited range of motion within weeks after the accident.  This affirmation was also insufficient to establish the requisite limitation because the plaintiff’s medical records showed insignificant limitations in range of motion within two months after the accident.

The affirmed reports of the plaintiff’s orthopedist, stating range of motion measurements also failed to establish significant physical limitation because the orthopedist did not compare the plaintiff’s ranges with normal ones.  Additionally, during the year after the accident, through 2007, the plaintiff’s mobility improved.  The orthopedist’s report, however, showed a loss of mobility in 2009 and 2011.  The failure to explain this inconsistency also contributed to the reports’ insufficiency.
06/12/13         Nicholas v C & F Trading Co.
Appellate Division, Second Department
Plaintiff Wins Motion for Judgment at Trial by Submitting Her Own and Her Treating Surgeon’s Testimony
This case involves a different kind of motion.  For our purposes, all you need to know is that the parties, to prevail, had to show the evidence so strongly and convincingly supported their position that no rational jury could disagree.

The plaintiff alleged a 90/180-day injury as well as permanent consequential limitation and significant limitation of use injuries.  The Court held for the plaintiff because she testified that her shoulder was problem free before the accident, she experienced excruciating pain in her shoulder after the accident and, as a result, missed seven months of work after the accident.  The plaintiff also testified she continued to experience shoulder pain in inclement weather and that her shoulder was weaker than the other.

The plaintiff’s expert also testified that the plaintiff’s shoulder abduction ROM was 120 degrees instead of 180 degrees and that her lateral rotation ROM was 25 degrees.  The expert was an orthopedic surgeon who also testified that when he performed arthroscopic surgery on the shoulder after the accident that he observed traumatic injuries.

The defendant did not produce any medical witnesses to rebut the plaintiff’s showing.

06/11/13         Feliz v Weir
Appellate Division, First Department
Unauthenticated Records May Be Considered Where They Accompany Otherwise Sufficient Evidence
This decision concerns only an allegation by the plaintiff that she sustained a 90-180 day injury.  The defendant moved for summary judgment and met its burden by submitting two physicians’ reports, as well as a chiropractor’s, all based on an examination of the plaintiff during the relevant period, which opine that the plaintiff’s injuries were fully resolved, without any resulting disabilities.

The plaintiff met her own burden in turn by submitting reports of her treating physician and a radiologist, finding evidence on her MRI of injury to her cervical spine and left knee.  She also submitted her treating physician’s testimony, stating that she suffered continuing range of motion limitations to her cervical spine and left knee that were caused by the accident and prevented her from working for the relevant time period.  The Court also considered a record of disability payments made to the plaintiff during the relevant period because, although they were not submitted in admissible form, they were not the only evidence submitted in support of the defendant’s position on the issue of disability.


Margo M. Lagueras
[email protected]


06/13/13         Applicant v Peerless Ins. Co.
Erie County, Arbitrator Douglas S. Coppola
Conclusory Opinion Regarding Medical Necessity of Surgery Results in Award of Wage Loss Benefits
Applicant was involved in a head-on collision in November 2011.  He began treating and was off work from the date of the accident through April 2012, at which time he returned to work.  He testified at the hearing that, due to the mild winter, he was called back to work in February but that he was unable to return due to his injuries.  Although his disability for that period was documented, he was not paid lost wages because Respondent contended that Applicant would not have had the seasonal employment during the winter months.  The Arbitrator agreed except for the fact that the unusually mild winter altered that usual scenario.  As Respondent, not having obtained a peer review or IME, did not present any evidence of Applicant’s ability to work, he was awarded wage loss for that period.

Applicant returned to work in April and was expected to work until October, when he was scheduled for cervical surgery.  He testified that his condition worsened during the time he was working before the surgery.  Following the surgery, Applicant was again out of work from October to December. 

An IME was performed in September.  The examiner did not comment in his report as to the causal relationship between the accident and the proposed surgery, although he did causally relate the reported injuries to the accident.  He additional indicated that further treatment was necessary with regard to both the cervical spine and right shoulder and suggested an epidural injection six weeks prior to considering surgery.  He did not, however, state that surgery was not warranted.  Following the surgery, the IME doctor wrote an addendum to consider whether the surgery was reasonable and necessary.  While he reviewed additional records, he did not review the operative report and subsequent treatment records.  He then stated, in conclusory fashion, that the surgery was not reasonable or medically necessary as it related to the accident as he did not find any neurological deficits and saw only a bulge, not a herniation, on the MRI.

The Arbitrator found the reports from the treating providers more persuasive than the IME, particularly as Applicant had no significant prior medical history and had been able to perform his physically demanding occupation.  Given that there was no evidence that Applicant could have worked during the time periods in dispute, the difference of opinion as to whether the surgery should have been performed was no sufficient to support the denial of lost wage benefits.  The Arbitrator therefore found the surgery reasonable and necessary and awarded wage loss for the second time period as well. 

06/13/13         Applicant v Esurance Ins. Co.
Erie County, Arbitrator Kent L. Benziger
Incorrect Denial Serves as Justification for Failure to Submit Prescription Bills Within 45 Days
The two issues were whether Respondent’s issuance of an incorrect denial on coverage grounds provided a justification for the failure to timely submit certain bills, and whether the Applicant had standing for reimbursement of bills from Southtowns Family Medicine.

Applicant contended that Respondent issued a “global” disclaimer which would relieve Applicant and providers from the obligation to submit claims within 45 days of service.  Respondent admitted that one claim was improperly denied as the denial was based on the driver’s intoxication, and Applicant was not the driver.  However, Respondent contended that no “global” denial was issued and, in fact, payments were made to providers, as well as wage loss benefits to Applicant, after the incorrect denial.  Therefore, Respondent argued that Applicant was still required to comply with the 45 day rule for submission of claims.

The Arbitrator found that, while the incorrect denial of one bill did not constitute a general denial, it nevertheless did serve as a reasonable justification for Applicant’s failure to timely submit the prescription bills in dispute, and for Southtowns Family Medicine to not submit additional bills, because Applicant’s counsel wrote to Respondent requesting that his benefits be reinstated explaining that he was a passenger and not the driver of the vehicle.  The Arbitrator found that this letter served as written proof of clear and reasonable justification for failure to submit the bills in dispute.  However, while awarding the amount in dispute for the prescription bills for which Applicant went out-of-pocket, the Arbitrator held that Applicant did not have standing to claim reimbursement for the Southtowns bills as no revocation of assignment was submitted.

06/11013       Buffalo Neurosurgery Group v Geico Ins. Co.
Erie County, Arbitrator Michelle Murphy-Louden
Surgery Denial Upheld Where Surgeon Never Examined Patient Prior to Surgery
The 35 year old EIP was involved in a motor vehicle accident in July 2011.  She was treated in the ER at ECMC and diagnosed with muscle strain.  She returned to ECMC four more times during July complaining of continued pain and requesting refills of the pain medications.  She returned again once in August and again in September, when it was noted that she continued to complain of back pain, but was no longer complaining of neck pain.  In October, the EIP consulted with Dr. Horvath, who found reduced cervical range of motion and recommended an upper extremity EMG/NCV study. 

In March 2012, the EIP was seen for an initial neurosurgical consultation with Dr. Lewis with complaints of neck pain radiating into the arms.  Dr. Lewis recommended an anterior cervical microdiscectomy and placement of an artificial disc.  No examination was performed.  In June, the EIP returned to Dr. Lewis advising that she was no able to obtain insurance coverage for the artificial disc procedure.  Dr. Lewis then recommended an anterior cervical microdiscectomy and fusion at C5-6 with PEEK interbody fusion cage, bone extender and anterior plate.  Again, no examination was performed.

In August, Respondent requested a peer review of the surgery performed earlier that month.  The Peer Reviewer concluded that medical necessity for the surgery had not been established and that there was no current examination performed anytime around the surgery to indicate the patient’s status.  Respondent denied reimbursement for the surgery based on the peer review. 

The Arbitrator found the peer review to be persuasive and that Applicant failed to rebut the conclusions in the peer review.  The Arbitrator commented on the fact that the examination by Dr. Horvath, a chiropractor, was not only remote in time from the surgery, but that a chiropractor’s examination would not establish the medical necessity for a neurosurgeon’s procedure.  In addition, the Arbitrator noted that, most importantly, Applicant’s submission was devoid of any proof that Dr. Lewis ever examined the EIP. The Arbitrator found disturbing that a surgeon would recommend a major surgical procedure without ever having assessed the patient’s condition for himself, and Dr. Lewis, in fact, did not ever respond to the peer review.

06/10/13         Ward Chiropractic, P.C. v A. Central Ins. Co.
Erie County, Arbitrator Veronica K. O’Connor
Assignor’s Failure to Follow-Up With Respondent to Discuss Missed IME Precludes Applicant From Reimbursement
Following the Assignor’s failure to appear for two scheduled IMEs, Respondent denied all no fault benefits.  At the arbitration hearing, the Assignor appeared and testified that she failed to appear at the first IME because she did not receive the notice as she was having problems with her mail delivery due to her move.  She further testified that although her attorney received the second notice and reminded her of the appointment, when she appeared at the scheduled location she was told by a receptionist that her name was not on the list.  She then called her attorney and lest a message, but she admitted that she never contacted Respondent to discuss the missed appointment.

The Arbitrator determined that the Assignor failed to comply with a condition precedent to coverage.  Applicant’s submission did not contain any written documentation containing a reasonable justification for the Assignor’s failure to appear for the IMEs.  As the Applicant stands in the Assignor’s shoes by virtue of the Assignment of Benefits, it possesses no greater rights than the Assignor.  As such, Respondent’s denial was upheld and the claim was denied.


06/14/13         Matter of Gee (State Farm Mut. Auto. Ins. Co.)
Appellate Division, Fourth Department
Master Arbitrator Did Not Exceed His Powers as His Powers Were Not Specified in the Parties’ Agreement to Arbitrate
In 1996, Petitioners were injured in a motor vehicle accident and commenced submitting no-fault claims for medical expenses and wage loss to Respondent.  After most of the claims were denied, Petitioners commenced a civil action in 2002, just within the statute of limitations.  In 2005, shortly before the trial date, the parties agreed to submit the matter to arbitration and requested that it be removed from the trial calendar.  Petitioners filed their request for arbitration in 2009 and Respondent moved to dismiss the claims on the ground that they were time barred as more than 12 years had passed from the accrual of the claims.  The arbitrator agreed, and a master arbitrator affirmed.  Then Petitioners commenced this action, pursuant to CPLR Article 75, to vacate and now appeal the order of the trial court dismissing the petition.

On appeal, the court agreed that Petitioners were not entitled to vacatur of the awards but found that the trial court erred in failing to confirm the awards pursuant to CPLR 7511(e).  Because Petitioners chose to pursue arbitration after having commenced a civil action, the court reasoned that its review was limited by the terms of CPLR 7511(b)(1), in other words, that the arbitrator’s determination was conclusive absent proof of fraud, corruption or other misconduct.  Contrary to Petitioners’ contentions, the arbitrator had the discretion to consider whether or not to apply the bar of the statute of limitations.  In addition, the master arbitrator did not exceed his power by making a de novo finding that the agreement to arbitrate did not include a waiver of the statute of limitations by Respondent.  Because no express limitation was placed on the master arbitrator’s power in the parties’ agreement, the master arbitrator’s finding was not in excess of his power.


Steven E. Peiper

[email protected]

06/13/13         Mathews v Bank of America
Appellate Division, First Department
Just Because Plaintiff Didn’t Fall Does Not Mean Labor Law § 240(1) Doesn’t Apply
Plaintiff, an employee of EFI, was injured while at work at a project site owned by Bank of America (“BOA”).  Thereafter, plaintiff commenced suit against BOA and a subcontractor, JVN, alleging violations of Labor Law § 240(1).  BOA & JVN, subsequently, both moved to dismiss the suit.  As part of the same motion, both entities also sought an award of contractual indemnification against EFI.

With regard to the defendants’ motion for summary judgment, the court noted that BOA failed to meets its burden.  The mere fact that plaintiff did not fall does not dispositively establish that his alleged injuries did not stem from the “direct result of the application of the force of gravity.” 

Defendant JVN’s motion for summary judgment was granted where, as here, it was able to establish that it was not an owner, general contractor, or agent of either.  To be an agent, the First Department noted that plaintiff needed to establish JVN had actual authority to supervise, direct or control the actual work at the project site.  Here, JVN had no such authority.

In this vein, it followed that the Court denied and dismissed plaintiff’s Labor Law § 200/Common Law Negligence claims.  In so holding, the Court again reiterated that neither BOA, nor JVN, had exercised any supervision, direction or control over the methods and manners of plaintiff’s activities.  As BOA and JVN were absolved of negligence, it followed that both parties were entitled to contractual indemnity against EFI (plaintiff’s employer).  The fact that the indemnity clause at issue may have been in violation of GOL § 5-322.1 was irrelevant given the dismissal of negligence claims against the proposed indemnitees. 

06/12/13         Finkelstein v Lincoln National Corp.
Appellate Division, Second Department
Party Seeking Appellate Review Must Be Aggrieved by the Order Appealed From
Plaintiffs, a family trust, procured a certain life insurance policy as part of a strategy to “pre-fund” Estate taxes.  After purchasing the policy, plaintiffs discovered that a similar policy was underwritten by a different company at a substantially discounted premium.  Accordingly, plaintiffs canceled their policy with Lincoln.  The suit, alleging that Lincoln misrepresented the terms and conditions of its program, followed shortly thereafter.  

As part of that action, plaintiffs moved to amend their Complaint to add a fourth cause of action against Lincoln, as well as add a new defendant.  Plaintiff’s claim against Lincoln was premised upon an alleged violation of Insurance Law § 4226 (prohibiting carriers from issuing deceptive materials relative to certain insurance programs).  Lincoln, naturally, opposed the motion, and the trial court agreed.

Upon appeal, however, the Second Department noted that plaintiffs had established a sufficient basis for the proposed amendment to their Complaint.  Accordingly, the proposal was not, on its face, palpably insufficient or devoid of merit.  Moreover, the Court noted that Lincoln could not have been surprised or prejudiced as a result of the motion.  As such, the trial court decision was reversed and plaintiffs were permitted an opportunity to amend their Complaint.

With regard to the other proposed addition to the Complaint, the Court refused to permit Lincoln to perfect an appeal.  Essentially, the Court noted that plaintiffs’ attempts to add a new party had no impact on the allegations set forth against Lincoln.  As such, Lincoln was not an aggrieved party to that part of the Order and had no basis to assert an appeal.

Elizabeth A. Fitzpatrick
[email protected]

06/13/13       Arkin Kaplan Rice LLP v Kaplan
Appellate Division, First Department
Attorney-Client Privilege and The Common Interest Doctrine
The Court opined on the issue of documents subject to the attorney-client privilege, discussing the “common interest” doctrine.  Noting that the attorney-client privilege belongs to the client and cannot be unilaterally waived on another’s behalf, the Court found that certain communications in plaintiff, Lisa Solbakken’s, legal file may not be subject to privilege in the context of her adverse litigation against Kaplan and Rice, but that communications between defendants, Kaplan, Rice, Solbakken and Ciampi, LLC, made during the course of Ciampi’s joint representation of them did, in fact, fall within the scope of the privilege because of the common interest doctrine and on the grounds that they had consulted Ciampi for their “mutual benefit.” 



Audrey A. Seeley
[email protected]

6/17/13           Wilson v The Automobile Ins. Co. of Hartford, Conn.
Supreme Court, Georgia
Supreme Court Answers Certified Questions On Amendment to UM Statute Eliminating Umbrella Policies From Providing Mandatory Coverage.
The Georgia Supreme Court was presented with two certified questions from the United States District Court for the Northern District of Georgia in regard to application of an amendment to uninsured motorist statute to umbrella policies. 

The two certified questions were:

  • Whether the offer/rejection requirements under the Georgia Uninsured Motorist Act apply to an umbrella policy renewed on or after January 1, 2009, and
  • Whether the 45 day notice requirements for those insureds who did not reject coverage advising of coverage options applies to umbrella policies.

The underlying facts were that in November 2001, Mr. and Mrs. Wilson (“The Wilsons”) procured a personal umbrella policy (“PUP”) from The Automobile Insurance Company of Hartford, Conn. (“Travelers”).  The Georgia UM statute at that time required umbrella polices to provide UM coverage unless the insured rejected the coverage in writing.  The Wilsons did not reject the UM coverage in writing.  Further, the PUP purportedly excluded UM coverage but was deemed by operation of law to provide same.  The Wilsons renewed their PUP annually and continued to have UM coverage by operation of law.

In 2008, the Georgia UM statute was amended which went into effect on January 1, 2009.  The amendment exempted umbrella policies from providing mandatory UM coverage, unless such coverage was provided for in the policy or an endorsement to the policy.  The amendment applied to all policies renewed in Georgia on and after January 1, 2009.

The Wilson’s PUP was renewed in November 2009, to which the 2008 amendment applied.  In October 2010, Mr. Wilson was seriously injured in a motor vehicle accident.  The Wilsons provided notice of a UM claim to Travelers.  Travelers disputed the claim contending that The Wilsons did not have UM coverage under their PUP due to the 2008 amendment to the UM statute.

The Wilson’s argued that they were entitled to UM coverage even with their 2009 renewal because their right vested prior to the adoption of the amendment.  Further, to the extent the 2008 amendment divests The Wilsons of their UM coverage then the amendment is unconstitutional since it contravenes the constitutional prohibition of retroactive laws.

The Court rejected this argument reasoning that the amendment was constitutional since it does not apply retroactively.  Rather, the amendment applies to those policies upon a renewal after the adoption of the amendment and its effective date.  Further, the amendment does not “strip” any insurance coverage from a renewed policy.  Instead, it relieves the insurers of an umbrella policy of a mandatory requirement thereby permitting the parties to negotiate the terms of a policy renewal.  The Court declined to address the issue of whether UM coverage previously implied in an umbrella policy continues with renewal or whether it modifies the policy upon renewal.  Ultimately, the Court answered the first question in the negative.

Likewise, the Court answered the second question in the negative as well.  The Court reasoned that the statute does not expressly require notice be provided with regard to umbrella policies.  Further, the statutory provision upon which The Wilsons rely upon that 45 day notice is required notice advising of “the coverage options set forth in this division.”  The Court reasoned that a plain reading of the statute was that the notice requirement pertained to the division of (b)(1)(d)(ii) and not the subsection The Wilsons rely upon.  Moreover, it would be nonsensical to require an umbrella insurer to provide notice under the statute of UM coverage options when the statute does not mandate such coverage.

6/13/13           The Netherlands Ins. Co. v. Jeffries Constr., Inc. d/b/a Jeffries Const. Co., Inc.
United States District Court, W.D. Kentucky
Motion for Reconsideration Denied as Declaration That Insurer’s Defense Obligation Ends Once Insurer Has No Indemnification Obligation Comports With Kentucky Law.
The Netherlands Insurance Company’s (“the Netherlands”) named insured, Jeffries Construction, Inc. (“Jeffries”), sought to vacate a judgment on a summary judgment motion that the Netherlands had no duty to indemnify Jeffries in an underlying action thus the Netherlands defense obligation was also extinguished.  Since no final judgment was entered, the Court converted the motion into one for reconsideration.

The Court rejected Jeffries argument that summary judgment in the Netherlands’ favor was inappropriate because the injured party did not have an opportunity to appear in the declaratory judgment action and assert its rights in opposition to summary judgment.  The injured party was not added to the declaratory judgment action until after the summary judgment motion was filed.  The Court noted though that the amended complaint adding the injured party sought the same relief as against Jeffries.  Further, the injured party appeared in the action by interposing an answer.  Jeffries failed to explain to the Court why it can assert the injured party’s interests in this matter to prevail in the instant motion, particularly when the injured party appeared in the action and was capable of protecting its own interests.

Next, the Court upheld its declaration that the Netherlands has a defense obligation to Jeffries so long as potential sources of liability remained requiring the Netherlands to indemnify Jeffries in the underlying action.  However, once those claims which the Netherlands owe an indemnity obligation to the Jeffries have been resolved thus leaving only non-covered claims remaining in the underlying action then the Netherlands at that point in the litigation has no defense obligation to Jeffries.  The Court further stated that this declaration falls within the Kentucky Supreme Court’s decisions regarding an insurer’s defense obligation.  Thus, the Court did not overstep its bounds in its declaration as Jeffries contended.

Cassandra A. Kazukenus
[email protected]

Sandy Legislation:

No news from the Senate on the Sandy-related insurance legislation that had passed the Assembly.  The Legislature is prepared to adjourn, sine die, today.

Katherine A. Fijal
[email protected]

06/11/13         CGS Industries, Inc. v Charter Oak Fire Ins. Co.
United States Court of Appeals Second Circuit – New York Law
Advertising Injury - Insurer Has Duty to Defend but No Duty to Indemnify
On December 23, 2009, Five Four Clothing, Inc. [“Five Four”] sued Wal-Mart Stores, Inc. [“Wal-Mart”] for trademark infringement based on CGS Industries, Inc. [“CGS”] use of Five Four’s  distinctive rear pocket stitching design [“FF stitching”] on jeans that CGS supplied to Wal-Mart, which Wal-Mart then sold. CGS was later added as a named defendant.  CGS tendered its claim to is liability insurer, Charter Oaks Insurance Company [“Charter Oaks”].  Charter Oaks denied coverage and eventually CGS settled the claim agreeing to pay $250,000 to Five Four on behalf of both CGS and Wal-Mart. CGS later filed this declaratory judgment action.

As to the duty to defend, the Charter Oaks policy provided that Charter Oaks will “pay those sums that the insured becomes legally obligated to pay as damages because of . . . “advertising injury” . . . to which this insurance applies”. Charter Oaks “will have the right and duty to defend the insured against any “suit” seeking those damages, even if the allegations of the “suit” are groundless, false or fraudulent.  However, [Charter] will have no duty to defend the insured against any “suit” seeking damages . . . to which this insurance does not apply.”  In addition, the policy coverage “advertising injury caused by an offense committed in the course of advertising your goods, products or services. The policy defines “advertising injury” as injury arising out of one or more specifically listed offenses, including “infringement of copyright title or slogan.”  The policy excludes coverage for advertising injury:  (1) “caused by or at the direction of the insured with the knowledge that “the act would violate the rights of another and would inflict . . . “advertising injury”; or (2) “arising out of oral, written or electronic publication of material, if done by or at the direction of the insured with knowledge of its falsity.”  It also excludes advertising injury “for which the insured has assumed liability in a contract or agreement.”

In the declaratory judgment action Charter Oaks argued that it had no duty to defend, still less to indemnify, CGS because the FF stitching is neither a “title” nor a “slogan” used in advertising, and therefore, the Underlying Action did not allege a covered infringement of title or slogan.

The Second Circuit Court of Appeals [“Court”] began its analysis by first considering whether the FF stitching could be considered a “slogan”, and looked to its prior decision Hugo Boss, Inc. v. Federal Insurance Company, 252 F.3d 608 (2nd Cir. 2001). Neither the Charter Oaks nor the Federal Insurance Company policy in Hugo Boss defined the term “slogan”.  The Court relied on its analysis in Hugo Boss which found that the vast majority of federal courts had defined “slogans” as “phrases used to promote or advertise a house mark or product mark, in contradistinction to the house or product mark itself.”  The Court determined that to hold that the stitching design on a jeans pocket is a slogan would stretch that definition beyond recognition, as the design is clearly not a phrase.

The Court held that the FF stitching was clearly and unambiguously not a slogan as that term is understood in law and used in insurance policies; therefore, insofar as the complaint in the Underlying Action rested on a claim of infringement of slogan, Charter Oaks had not duty to indemnify or defend.

The Court next examined whether the FF stitching could be considered a “title”.  As was the case with “slogan”, “title” is not defined in the Charter Oaks policy. The Court found that neither New York state law nor industry usage provides significant insight into the meaning of title, so again it looked to federal case law. The Court noted that the vast majority of federal cases are clear that in this context, i.e., in a list that includes “copyright” and “slogan”, but conspicuously does not include coverage of infringement of “trademarks” – “title” means the name or appellation of a product, and does not cover design elements such as pocket stitching that may serve as a trademark designating the origin of the product.  The Court stated that while a title need not contain words, it had not difficulty in concluding that the stitching on the back pock of a pair of jeans cannot fairly be called the name or appellation of that pair of jeans.

The Court went on to conclude, however, that while the definition of title is clean enough to bar Charter Oak’s duty to indemnify CGS, further analysis was necessary.  The Court determined that where, as here, there is any residual uncertainty as to whether a court would find “title” ambiguous, the Charter Oak still had a duty to defend, independent of the duty to indemnify.  The Court pointed out that while the vast majority of federal cases unambiguously define “title” to mean a word or phrase, a handful define title in a way that could arguably include a design or symbol, similar to the pocket stitching at issue here.  The Court stated that while it found the reasoning of these few cases to be faulty because title and trademark are not coextensive under the Hugo Boss framework, these cases have created enough legal uncertainty around the meaning to “title” to give rise to at least a temporary duty to defend, until the uncertainty surrounding the term was resolved.

The Court stated that although in its view there is not sufficient ambiguity to invoke the contra proferentem presumption that would trigger a duty to indemnify, there was nonetheless, at the time of filing of the Underlying Action, sufficient uncertainty about the scope of coverage to trigger Charter Oak’s duty to defend. The Court found that on the duty to defend, Charter Oak’s breached the policy and its remedy was to begin to defend CGS and immediately seek declaratory judgment as to the meaning of the “title”.

Next, the Court addressed the issue of whether there was an “advertising injury”.  Charter Oaks argues that the Underlying Action was not covered by the policy because Five Four did not allege that its injury stemmed from CGS advertising the jeans. The Court determined, however, that in the third amended complaint there were allegations that defendants advertised the jeans and if Charter Oak’s believed the Five Four did not intend to allege advertising by CGS or that CGS did not advertise the jeans, Charter Oaks could have begun to defend and immediately seek a bill of particulars to resolve any ambiguity in the pleadings.

The Court agreed with Charter Oaks that even if it had a duty to defend, that duty terminated once CGS and Wal-Mart’s discovery responses demonstrated that they had never advertised the jeans; however, because the issue was not properly made before the district court, the issue was waived.

Charter Oaks also argued that the Underlying Action fell within the policy’s “knowing violation” exclusion as it was explicitly premised on intentional copying.  Charter Oaks argued that this exclusion meant that it did not have to defend the Underlying Action, which alleged willful infringement.  On this issue, the Court stated that despite the boilerplate allegation of willful misconduct, Five Four’s Lanham Act section 43(a) claim did not require it to prove that CGS intended to infringe on its trademark, as such a claim does not require proof of intent to deceive. Inasmuch as at least one of the claims in the Underlying Action did not require intent, Charter Oaks was required to defend the entire action.

Finally, the Court addressed the issue of damages and held that although Charter Oak’s breached its duty to defend, the breach of that duty did not entail an obligation to pay the settlement amount in the absence of a duty to indemnify.  The Court noted that “the narrower duty to indemnify arises only if the claim for which the insured has been judged liability lies within the policy’s coverage.”  Citing the New York Court of Appeals in Servidone Construction Corp. v. Sec. Ins. Co. of Hartford, 64 N.Y.2d 419 (1985) the Court held that “an insurer’s breach of its duty to defend does not create coverage and that even in cases of negotiated settlements, there can be no duty to indemnify unless there is first a covered loss.”  Further noting that it is impermissible for a court to enlarge the bargained for coverage as a penalty for breach of the duty to defend.

Editor’s Note:          Compare this case to the case K2 Investment Group, LLC v. American Guarantee & Liability Insurance Company, decided by the New York Court of Appeals on the same date.  K2 is reported above, in Dan’s column. K2 was also reported on K2 in a special edition of coverage pointers on June 12, 2013.  We expect that the 2nd Circuit’s decision above will be re-evaluated.



Jennifer A. Ehman
                                                    [email protected]     


06/10/13         Tower Ins. Co. of N.Y. v Anderson
Supreme Court, New York County
Renewal Certificate Containing Mailing Address Different From Insured Premises Not Conclusive Evidence that Carrier Knew Insureds Did Not Reside at Insured Premises
Tower issued a homeowners policy to John and Grace Anderson.   In October 2010, the policy was renewed.  The renewal certificate contained two addresses for the insureds, the address underneath the names of the insureds in the renewal certificate was “540 Carlton Avenue, Brooklyn, NY 11238,” but the third paragraph of the renewal certificate indicated that “[t]he residence premises covered by this policy are located at the above-insured address unless otherwise stated below.

Loc: 514 Washington Ave
Brooklyn NY 11238.”

Following the renewal, Morton Duke allegedly sustained injury at 514 Washington Avenue when he fell on the front sidewalk.  The Andersons placed Tower on notice of the loss.  While investigating the claim, an adjuster at Tower conducted a telephonic interview with the Andersons’ son, John Jr., who indicated that neither he nor his parents lived at the Washington Avenue address.  In response to this information, Tower disclaimed coverage on the grounds that the Andersons did not reside at the insured location on the date of loss. 

Tower commenced this action seeking a declaration that it had no duty to defend or indemnify the Andersons in the underlying action and subsequently moved for, among other things, summary judgment.

By stipulation, Tower withdrew its motion, which left the opposition to the Andersons' cross-motion.  The Andersons challenged the disclaimer on a number of grounds.  They asserted that Tower waived its right to disclaim because it knew or had reason to know based on the renewal certificate that Andersons did not reside at the insured location.  Nevertheless, Tower still issued the renewal and continued to receive insurance premiums.  They also argued that Tower was equitably estopped from disclaiming coverage because it renewed the policy, issued a renewal certificate and collected insurance premiums.  Thus, Tower led the Andersons to believe that coverage existed on the subject premises regardless of their actual residence.  Further, they asserted that Tower did not disclaim in a timely manner pursuant to Insurance Law § 3420(d).

Evidence that Tower's renewal certificate indicated two addresses for the insureds, did not conclusively establish that Tower knew that the Andersons were not residing at the insured location (514 Washington Avenue).  While the address underneath the names of the insured in the renewal certificate was “540 Carlton Avenue, Brooklyn, NY 11238,” the third paragraph of the renewal certificate did identify the covered premises.  Thus, it could not be said as a matter of law that Tower continued to accept premiums, thereby ratifying the contract, after learning the facts necessary to declare the policy void.  Lastly, since the basis for the disclaimer was not “readily apparent” to Tower prior to the interview with John Jr., Tower’s 19-day delay in giving notice of disclaimer after learning of the ground for denying coverage was not unreasonable as a matter of law.

06/07/13         Old Republic Ins. Co. v United Nat. Ins. Co.
Supreme Court, New York County
Where Umbrella Carrier Agreed to Pay Alleged Additional Insured’s Portion of the Settlement, and then Balked, Court held that a Contract May have been Formed between the Umbrella Carrier and Additional Insured’s Primary Carrier, which was then Breached
Rye City School District (“Rye”) hired Andron Construction Corp. (“Andron”) to be the construction manager for work performed at an elementary school.  Rye then hired STS Steel, Inc. (“STS”) to provide and install steel for the school project. 

The Rye/STS contract required STS to indemnify Rye for claims arising out of the school project and to provide insurance coverage.  STS obtained a primary policy from Old Republic Ins. Co. 

STS then entered into a subcontract with Conception Bay, Inc. (“Conception”).  The STS/Conception contract required Conception to indemnify STS for claims arising out of the school project and to provide insurance.  Conception procured a primary policy from Scottsdale Insurance Company and an umbrella policy from United National Insurance Company. 

During the course of the project, an employee of Conception was injured.  The employee brought a claim against Rye and Andron, who tendered the action to STS and Conception.  They then commenced a third-party action against both entities.  STS cross-claimed and tendered its defense and indemnification to Conception under the terms of the STS/Conception contract. 

Scottsdale and Old Republic (the primary insurers) assumed the defense of Rye and Andron. 

United initially disclaimed coverage to both STS and Conception based on late notice.  At some point, however, United retreated from this position and purportedly acknowledged an obligation to fund on behalf of STS any settlement of the underlying action up to its $5 million policy limit.  Nevertheless, when settled negotiations completed, United balked and only agreed to contribute $500,000 toward settlement on behalf of Conception.  It refused to pay STS’s $1 million contribution.  Old Republic stepped in and paid the million on its insured’s behalf to prevent the settlement from falling apart, but reserved its right to recover the money from United. 

Old Republic then commenced this action alleging ineffective disclaimer of coverage, equitable estoppel and waiver.  This decision results from United’s motion to dismiss. 

Under the terms of the STS/Conception agreement, Conception only agreed to name STS as an additional insured on the primary policy, umbrella coverage was explicitly excluded since it was physically crossed out.  Non-compliance with Insurance Law 3420(d) had no impact on STS’s coverage.  Thus, the court dismissed Old Republic’s claim of ineffective disclaimer.

With regards to estoppel, Old Republic submitted that during the negotiations prior to the settlement, United agreed to pay STS’s share of the settlement.  The court found that this was essentially a breach of contract claim.  In other words, Old Republic and United entered into a contract when it was agreed that United would pay STS’s share if a settlement was reached.  By not paying, United breached that contract with Old Republic.  The court found Old Republic’s agreement to settle on behalf of its insured, STS, as sufficient consideration.  Thus, the court would not dismiss this cause of action. 

Lastly, with regard to waiver, the court dismissed this claim as it held that an insurance company does not waive its non-coverage defenses by defending the purported insured in the underlying action. 

Take Away:  The entire time I was reading this decision, I wanted to scream “what about contractual indemnity.”  Apparently, the court felt the same way.  In Footnote 2, at the end of the case, the court noted “even though United is not obligated to obtain umbrella coverage for STS under the United Policy, Conception itself may be liable to STS (or ORIC as its subrogee) under Section 4 [of the contract] for the $ 1 million sought in this action.  Therefore, Conception might have been the proper defendant, and United’s exposure would be limited to defending and indemnifying Conception for that claim.”  The court then noted that such a claim may now be time-barred.  I, however, would submit that the statute of limitations on the contractual indemnity claim doesn’t even start to run until the 2012 settlement.  Thus, there is still almost five more years to bring this claim.

05/30/13         Church of St. Paul v Zurich Am. Ins. Co.
Supreme Court, New York County
No Investigation; No Inquiry; No Coverage
On September 13, 2007, Ines Jimenez, a customer of plaintiff’s on site food bank for the needy, was reported to have fallen on the plaintiff’s basement floor.  This report was made to the plaintiff’s director of social services.  The director personally observed Ms. Jimenez seated, breathing deeply, and holding her arm.  A family member accompanying Ms. Jimenez handed the director a cell phone and asked her to call for an ambulance.  In response to that call, EMT personnel arrived, briefly examined Ms. Jimenez and escorted her to the ambulance.  Ms. Jimenez and her companion both reported to the director, in response to her inquiry, that the former had fallen while walking across the waiting area, hurting her arm.  A report of this incident was reduced to writing and filed by the director, and entered into an incident report log.  No action was taken by plaintiff in regard to the foregoing.  No inquiries were made, no investigation conducted, and no notice conveyed to the defendant. 

On June 3, 2008, plaintiff was served with process. The affidavit of service stated that personal service was made on the plaintiff’s building manager.  A summons was also served on the director of the food bank.  After receipt of these documents, no follow-up action was undertaken, no report was made to the defendant, and, apparently and surprisingly, no advice was sought from legal counsel.

On February 24, 2009, the plaintiff then received a letter from the lawyers representing Jimenez in her personal injury case, advising plaintiff that a default judgment would be entered against it.  Approximately four years after the incident, defendant was for the first time placed on notice. 

In a pre-prejudice decision, plaintiff asserted that it had a good faith belief in non-liability.  Where there was no investigation or inquiry into the incident, simply total neglect, plaintiff failed to raise a triable issue of fact that the failure to provide timely notice to defendant was in any way reasonable. 

Bad Faith

                        06/06/13         Southwest Veterinary Services, Inc. v Hartford Casualty Ins. Co.
United States District Court, W.D. Louisiana
Louisiana Statutory Penalties and Fees for Bad Faith Claims Handling Unavailable in Cases Where there is No Underlying Cause of Action for Failure to Pay a Legitimate Claim
Plaintiff is a veterinary clinic in Lake Charles, Louisiana.  The clinic was originally located at 419 Shell Beach Drive, but, in 2005, it sustained damage during Hurricane Rita and then relocated to 411 Woodruff Street.  Two months after the relocation, the clinic’s authorized officer notified its insurance agent that Hurricane Rita had destroyed the clinic at 419 Shell beach Drive, and provided the new mailing address and insured premises address.  The officer allegedly asked that this information be passed on to The Hartford, the clinic’s insurer.  A “Policy Change Endorsement” was eventually issued reflecting that The Hartford had changed the mailing address to 411 Woodruff Street.

Approximately three years later, and after numerous renewals, Hurricane Gustav struck the Lake Charles area causing damage to the clinic’s new location.  When the clinic placed a claim with The Hartford, it denied coverage noting that the Woodruff clinic was not the insured premises listed in the policy.  The clinic then commenced this action seeking damages for loss of medicine, loss of business income, loss of property, loss of records and papers, and loss of accounts, along with bad faith damages.   

At the time of the loss, policy documents clearly provided that the clinic’s mailing address was 411 Woodruff Street, and that the insured premises address was 419 Shelby Drive.  While the policy contained a coverage extension for newly acquired or constructed property, such coverage ended upon the expiration of the policy, 90 days following acquisition, or the value is reported to The Hartford, whichever occurs first.  As the relocation occurred years before damage, the extension did not apply. 

The clinic argued that a mutual mistake occurred, which required reformation of the contract.  The court rejected this claim noting that the insurer did not know the true intention.  While it could be alleged that the broker knew the truth, it was not established on the record that the broker was an agent of the insurance company as opposed to the clinic.  Thus, there was no proof that the mistake of the broker could be imputed on The Hartford. 

Nevertheless, the court went on to explain that even assuming that the broker’s actions could be imputed to The Hartford, the clinic had constructive notice of the errors in the policy period through the renewal documents for almost two years, and thus its claim was preempted.  Louisiana applies a one year preemptive period for this type of claim, which begins to run on the date that the plaintiff discovered or should have discovered the act, omission or neglect. 

Accordingly, because the court found that the clinic did not have a valid underlying claim for insurance coverage, dismissal of its bad faith claims was proper.  The statutory penalties and fees for bad faith claims handling are unavailable in cases where there is no underlying cause of action for failure to pay a legitimate claim. 

Earl K. Cantwell

[email protected]


A recent case from the Washington State Supreme Court provided complicated and important rulings in determining when an insurer is entitled to invoke attorney-client privilege in first-party bad faith cases.  Cedell v. Farmers Insurance Company of Washington, 2013  WL 633128 (Washington, February 21, 2013).  The policyholder sued Farmers Insurance alleging bad faith in processing a property damage claim.  During discovery, Farmers withheld a great deal of information citing attorney-client privilege because they hired outside counsel to provide claim coverage advice.  The trial court ruled that the damage to the home far exceeded Farmers’ settlement offer, invoked an exception to the attorney-client privilege for “fraud”, and did an in camera inspection of Farmers’ claims file.  After the inspection, the trial court ordered Farmers to provide virtually everything it had withheld and also sanctioned the insurer for refusing to provide the information.  The court essentially concluded that Farmers was not entitled to invoke the attorney-client privilege in bad faith litigation.

The next step was the Court of Appeals in Washington which reversed and held that the insurance company was indeed entitled to invoke the attorney-client privilege in a bad faith lawsuit, barring a showing of an established exception to the privilege such as actual fraud.  The appeals court held that the trial court abused its discretion by ordering the in camera file review and then disclosing information absent a factual showing of “fraud”.  However, the dispute did not stop there. 

The policy holder appealed to the Washington Supreme Court which issued an unusual 5-4 en banc decision.  Clearly this was an issue on which legitimate questions existed on both sides of the argument.  The 5-4 decision of the Washington Supreme Court reversed the appellate ruling and held that in first party insurance bad faith cases, there is no presumption of attorney-client privilege.  The privilege might exist if the insurer can demonstrate that the attorney was counseling the insurer and not performing claims review functions.  The 5 judge majority here concluded that Farmers’ attorney had actually participated and aided in investigation and adjustment of the claim by taking sworn statements from the customer and witness and by engaging in actual negotiations with the policy holder.  The court essentially ruled that these activities transcended attorney-client advice and involved claims handling on the file.

The disagreements did not end there.  Even the 4 dissenting judges said they would have affirmed the appellate court ruling that the insurer could assert the attorney-client privilege, but reversed its finding that the fraud exception applied only to “actual fraud”. 

The lessons of this case with respect to attorney-client privilege in the context of bad faith and other coverage litigation are several:

  • Claims personnel should handle and process claims.
  • Counsel should only give legal advice, and participate in reviewing the claim only in contexts where legal advice is clearly being given either in writing or in consultation.
  • In camera court reviews of claims files and documents should be resisted by carriers since local courts will often err on the side of discovery and the policy holder.
  • Counsel should not get involved in claims handling and adjustment of the loss, or else the attorney-client privilege may be lost.  Even more, the attorney may even end up becoming a witness in the case with respect to the history and decisions involved in the claims handling.  In this case, the lines and activities between adjusting and legal review of the claim became blurred resulting in very prolix and blurred legal history and rulings.

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