Coverage Pointers - Volume XIX, No. 12

Volume XIX, No. 12 (No. 495)

Friday, December 1, 2017

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


Lake Placid Office

2577 Main Street

Lake Placid, NY 12946

Phone: 518-523-2441

Fax: 518-523-2442

© Hurwitz & Fine, P. C. 2017
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.


Dear Coverage Pointers Subscribers:


Do you have a situation?  We love situations. 


Happy December.  There is so much going on.  Where do I start?  This is a long cover note but we try to bring you all there is plus a little history along the way.


This coming week, we will be in New York City for the DRI Insurance Claims & Practice Seminar, with over 700 of my closest friends.  Hope you are there.  I’m speaking about special New York coverage issues on Friday morning, 8:05 AM.  Coffee is available.  Even bagels.


Red Alert: Carlson v. American International Group


We do not issue many red alerts in Coverage Pointers.  We have one for you in this edition.


One of the cases being covered in my presentation – and there is a lengthy analysis and review in my column in the attached issue – is a November 20th decision from the New York Court of Appeals, our state’s highest court.  It is a very important decision, especially for insurers issuing policies from states OTHER than New York to insureds in other states, which have a corporate presence in New York.  The operative New York statute, Insurance Law §3420(d)(2), applies to policies “issued or delivered in New York State”.  Our highest court has now held that the statute may apply to policies issued from another state and delivered to another state, if the insured has a New York corporate presence. Those carriers will need to comply with New York disclaimer protocols, Draconian indeed. Here’s a f’rinstance:


  • An insurer that has its offices in Connecticut.  It issues a policy to a California insured and sends the policy to California.  Let’s say it is a hardware store.  That hardware store rents space and has a shop in Brooklyn and this national policy covers the risks that may arise from that business.


  • An employee of that store is hurt when she trips over a broken floor tile and hits her head on a counter, suffering a grave injury.  She sues the landlord who brings a third party action against the employer, hardware store seeking contribution for the injuries sustained.


  • Following traditional (non-New York rules), the insurer, 45 days after it was placed on notice, sends out a beautifully crafted reservation of rights letter to the insured, advising that there may not be coverage because of the employment exclusion.


  • Under Carlson, New York coverage protocols are likely to be in place.  Accordingly, because the carrier (a) sent out a reservation of rights letter, rather than a disclaimer letter, (b) waited 45 days and (c) failed to copy the injured party and the landlord on the reservation of right letter, the insurer may have lost the right to rely upon that policy exclusion and is therefore on the hook for coverage that would have been otherwise properly excluded.


PLEASE read carefully the Carlson discussion in the attached issue and if you are unfamiliar with New York coverage protocols, come to the program in New York or reach out.


Kudos to Jen Ehman:


Jen Ehman received a wonderful spotlight write up in DRI’s Covered Events, the publication of the Insurance Law Committee.  Well deserved.  Jen is just finishing up as Marketing Chair for DRI’s huge winter ICPS coverage conference and her work was a smashing success.  The crowd is likely to exceed the size of any previous DRI coverage meeting.  Read all about her …


One Hundred Years Ago: African American Soldiers on Trial for Rioting:



The Decatur Herald

Decatur, Illinois

01 Dec 2017





SAN ANTONIO, Tex., Nov. 30—A verdict has been reached in the court-martial of the 63 negroes of the 24th infantry charged with murder, mutiny and rioting, as a result of the uprising at Houston, Aug. 3 last.  The verdict will be reviewed before being made public.


Negroes Brought In.


            That a verdict had been reached was made known late today when the 63 defendant negroes were brought to the post chapel at Fort Sam Houston where the trial was held.  This compliance with military rules was the only evidence of the verdict.  The negroes were taken back to the cavalry guard house.


            Col. George Dunn, advocate general of the Southern department will now review the findings of the court-trial.  After that they will go to General J. W. Ruckman, commander of the department.  If either disapproves they may be returned to the court for further consideration but they may not be changed.  Penalties if any may be mitigated by General Ruckman may not be increased.


            The trial occupied exactly one month beginning Nov. 1.


Editor’s Note:

The riot, the trial, the verdict, the executions and the aftermath have often been described as one of the saddest moments in race relations in the 20th century.  For those who are unaware of this historical moment, and want to learn more, click here.


Jen’s Gems:




Hope everyone had a nice Thanksgiving. 


We spent the holiday at my in-laws’ house in Marion, New York.  If you are unfamiliar with Marion, it is a very small town east of Rochester named after Francis Marion, a Brigadier General in the American Revolutionary War.  That factoid comes straight from my husband.  Thank you, Mike.     


But anyways, if you read this newsletter regularly, I am sure you are aware that DRI’s Insurance Coverage and Practice Symposium will take place next week in New York City.  Since we have a good crew of Hurwitz & Finers attending (I probably made up that term), we hope many of you will be there too.  Please say hello, and I hope that you are all planning on attending the first session on Friday (which starts at 8:05 a.m.) where our own Dan Kohane will be discussing New York law, referred to as a problematic jurisdiction.  He has promised laughs, tears and to make you aware of situations you didn’t even know you had yet.  Not to be missed!


Until next issue…



Jennifer A. Ehman

[email protected]


Immigration Problems are not New – a Century Ago:



The Times

Munster, Indiana

01 Dec 2017




            Almost every house in some of our large cities has a short chain on the door, which prevents unwelcome persons from entering.  The dweller within the house can open the door a few inches, take a look at the visitor, ask him his business, make him show his credentials, and then refuse or consent to unchain the door and let him in.


            Nobody objects to it much, except book agents, bill collectors and burglars.


            Uncle Sam has a big door at New York Harbor, but he keeps a rather tight little chain on it, called Ellis Island.


            The immigrant can be stopped at the island, asked where he’s from, what’s his business, what his grandparents died of, how much money he has, and what he thinks about the weather.  He can also be asked the color of his skins and the number of red corpuscles in a cubic millimeter of his blood.


            If the answers are wrong, Ellis Island stays hooked, and the aspiring immigrant is told that our country is rather crowded and he’d better go back home.


            Of course, if you wish to split the abstract hairs of abstract justice, you might point out that when the founders of this republic began finding it they waded ashore with guns in their hands, prayer books in their pockets and swords in their teeth.


            The immigration authorities of the Indians did not examine the Pilgrim Fathers with a stethoscope.  Though they were not medical experts, they decided that it would be unhealthful to let the white men stay but it would be more unhealthful  still to try to send them away.


            We have the power and with it the right to keep bout of this country those whom we don’t like and don’t want. 


            That is, we can and do keep them out if they try to come from China, Abyssinia, Borneo, New Guinea or Siam.


            But it happens that the great majority of those who populate our asylums, jails and hospitals are not from these places, nor from the European sources of our immigration.


            They are deposited upon our shores by that magnificent, quadruple-screw, non-capsizable, non-wreckable ship, the Storkania, making daily and weekly stops to deliver passengers at every cross-roads village in the country.


            While we keep out undesirable citizens by the dozen from the ocean routes, they are coming to us in thousands from the sky.


            We are exceedingly careful about the inflow by way of Ellis Island.  Even after an immigrant arrives, he must wait several years before we allow him to vote.  But if he is so inclined, he can marry an American born woman of subnormal mind, and with sublime legality bring into this country a half-witted child every year.


Tessa’s Tutelage:


Dear Readers:


This morning I am writing this in the airport on my way to Houston to visit family. We had originally planned to make this trip at the end of August, however, Hurricane Harvey made landfall with devastating effects.  I am happy to be back on my way and, luckily, to a family that was largely unscathed.


This week there wasn’t much action in the realm of no-fault.  But what we lack in volume, we make up for in quality.  This week we have a case which gives us a little look into the ways procedure can help or hurt you.  In this case Plaintiff and Defendant moved separately for summary judgment in Civil Court.  Plaintiff won by showing that Defendant could not provide the court with adequate evidence to demonstrate that the injured party had failed to appear for an EUO (Examination Under Oath). Defendant appealed and won – but not by showing more evidence that Plaintiff failed to appear.  Defendant had something way better.  Defendant asked the Second Department to take judicial notice of a Supreme Court Order (in a declaratory judgment action) which stated that Plaintiff was not entitled to no-fault benefits. 


A Court can take judicial notice in an appellate action of things that are public record or reliable documents that cannot be questioned. The Second Department provided the Plaintiff with an opportunity to be heard on the Supreme Court Order.  The Plaintiff, unsurprisingly, could not effectively challenge the Order of the Supreme Court.  As a result, the Court’s hands were tied.  Plaintiff was already deemed ineligible to receive no-fault benefits – regardless of EUO attendance.  The Defendant prevailed in its summary judgment motion and the order of the Civil Court was reversed.


Hope you all have a nice weekend!



Tessa R. Scott

[email protected]


Death by Auto – A Century Ago:


The Buffalo Commercial

Buffalo, New York

01 Dec 1917




Figures for the First Ten Months of Year 197 Ahead of 1916.


New York, Dec. 1.—Automobiles caused the death of 801 persons in New York state during the first ten months of 1917, an increase of 197 over the figures for the corresponding period during 1916, according to a report of the national highways protective society, issued here today.  Col. Edward S. Cornell, secretary of the society, commenting on the report, predicted an even greater increase in automobile fatalities unless New York state adopts legislation designed to license every driver of an automobile.  In New Jersey, Massachusetts and Connecticut where such legislation has been put into effect, automobile fatalities have not increased commensurate with the increase in automobiles, Colonel Cornell said.  However the report of street fatalities for November in New York state, outside of New York city and in the Metropolis shows a falling off.  Automobiles caused the death of 32 persons in New York state, compared with 37 for November last year.  In New York city automobiles killed only four persons, compared with 46 in November, 1916.


Ewell's Universe:


Dear Subscribers:


I am still stuffed from Thanksgiving. This year I enjoyed two Thanksgiving dinners. The first one with my family and the second one was with my girlfriend’s family. Nobody noticed, but I kept careful tabs on who had the better turkey, stuffing, mashed potatoes, and pumpkin pie. Now I know for next year.


In today’s edition of Ewell’s Universe, we have an interesting decision from Missouri’s high court. As a matter of first impression, the Missouri Supreme Court considered whether a pollution exclusion in an insurance policy is enforceable.


The facts are rather unique. The policyholder owned a lead smelting facility in Peru.

Various lawsuits were filed by individuals living close to the facility, alleging bodily injury as a result of lead emissions. The policyholder sought reimbursement for defense costs totaling several million dollars. The policy at issue contained a pollution exclusion, but not a lead exclusion. Is there coverage? The policyholder and the trial court thought so. On appeal, the Missouri Supreme Court held that pollution exclusions are generally enforceable. There was some dispute however over whether the pollution exclusion barred the claims given that the substance-involved was lead. The policyholder argued that the pollution exclusion did not apply because lead was not specifically listed as a “pollutant.” The insurer argued that the pollution exclusion applied because the claims in the underlying actions alleged toxic releases emanating from Doe Run’s facility, which permeated the surrounding air and water. The underlying lawsuits did not allege any injuries directly caused by the storage, use, or handling of lead or metals. The Court held that the pollution exclusion unambiguously barred coverage and that the insurer had no duty to defend.


The Court was clear. The case is not precedence for excluding lead claims by the pollution exclusion. This case was unique in that the policyholder owner a lead smelting facility and was allegedly dispersing lead-containing emissions into the air. Nonetheless, the facts aside, the case has broader impact because insurers in Missouri can rest easy knowing that, depending on the wording of the exclusion, pollution exclusions are enforceable in Missouri.


‘Til Next Time,



John R. Ewell

[email protected]



Disrespecting the Flag had Consequences


Eau Claire Leader

Eau Claire, Wisconsin

01 Dec 1917





            NEW YORK, Nov. 30—In some of the public schools in Brooklyn patriotic American boys have banded together as vigilance committees.  A day or two ago a teacher discovered a paper was being passed among the children.  The document contained the following declaration:


            “To All the Boys of the Class Who Are Loyal to the Flag:


            “We, the undersigned, loyally promise to beat a boy known by the name of

---------------- for the heinous offense of insulting the American flag.  He was heard to say he would wipe his nose on the American flag.  It is an offense unpardonable.  Henceforth, every day, except he be sick, he will have to pledge his allegiance to the American Flag.  If he doesn’t he will be beaten by the smallest boy in the class until he does. 


            “Hereto signed and loyally signature.”


Peiper’s Preferences


While not a red alert case, we start this week’s note by discussing the Third Department’s holding in Sosenko v Allstate Ins. Co.  In that case, plaintiff was in the process of repairing a home that had fallen into disrepair.  Less than a month after closing on the home (and insuring it with Allstate) the premises was destroyed by fire.  At the time of the fire, there is no dispute that the home did not have electrical service, an operable furnace and there was no running water.  Power was supplied by way of an electric generator while plaintiff’s father was undertaking renovations, and water was brought to the location from off-site.  Nevertheless, because plaintiff asserted that she stayed there several nights over the preceding month, and because she intended to make a home at the location after repairs were completed, the Third Department found a question of fact on whether the insured location qualified as a “residence premises.”


Why does this matter, you might ask?  Under Coverage A (which covers the dwelling) coverage only attaches if the loss location is the insured’s “residence premises” meaning the place where the insured resides.  For several years, Courts were consistent in applying the “residence premises” before coverage for a loss could be triggered.  Then, in the fall of 2012, the Court of Appeals issued Dean v. Tower Ins. Co. which suggested the term “residence” was ambiguous because it was not defined.  When this issue is further probed, however, one will notice that the Court of Appeals’ decision affirmed the Second Department’s earlier ruling which held the term ambiguous as well but only in the circumstances of this [Dean] case, where the plaintiffs-insureds purchased the policy in advance of closing but were then unable to fulfill their intention of establishing residency at the subject premises due to their discovery and remediation of termite damage that required major renovations.”


The current case, Sosenko, follows the holding in Dean and finds the definition of the term “residence” to be ambiguous (in this case).  This, frankly, should not be surprising in light of how close the facts of both Sosenko and Dean align. 


What does this mean?  Well, to better answer that question, we start by noting what it DOES NOT mean.  The definition (or lack thereof) of “residence” is not an exclusion. Thus, contrary to what most would argue, it is not automatically construed against the drafter.  Rather, where a term is ambiguous which goes to the initial scope of coverage, the question becomes one that is fact driven – and, thus, subject to the determination of the finder of fact.  The question, it would appear, is whether given the facts of this case the term “residence” would include the fire damaged building owned by Ms. Sosenko when viewed from the standpoint of an ordinary insured.


What it also does not mean is that term “residence,” in every context, is ambiguous.  Rather, we would submit that per the rule established in Dean the question must include an analysis over whether anyone could conclude that the loss location in any given case is, in fact, questionable as a residence.  If it is clear that there is not a residence issue, unlike Sosenko and Dean, we would submit that summary judgment for the carrier remains a viable option.  


Thus, in circumstances where the home is not yet occupied due to ongoing construction, we would submit that a carrier will have a tough time denying the claim.  However, if the “residency” issue arises out of a situation where the insured clearly is living elsewhere, a carrier may still (and should) avail itself of the coverage defense.  Agree?  Disagree?  Drop me a line if you have a different take.

That’s it for this week.  We hope all had a great Thanksgiving, and I, for one, welcome the coming winter and the powdery white stuff it will bring. 



Steven E. Peiper

[email protected]


Damages for Bad Fractures, 100 Years Ago:

The Marion Star

Marion, Ohio




Rosa Sabins Alleged To Have

Been Permanently Injured.


This afternoon in the Court of Common Pleas, Rosa Sabins, an infant under eighteen years of age, by her next friend, Frances Sabins, brought suit against George Mann and Frederick J. Bloom for the sum of $10,000.  It is charged that April 8, last, Fred J. Bloom, son-in-law of George Mann, when driving an automobile owned by his father-in-law, ran into Rosa Sabins along with C. B. & M. tracks on north Main street, near Copeland avenue, permanently injuries her.  The girl’s right leg was fractured in three places.  It is claimed that the accident was due to the sole negligence of the defendants, the view being unobstructed and the girl being struck as she was walking along with her back toward the automobile.  The automobile, it is alleged, was being driven at the rate of forty miles an hour. 



Hewitt’s Highlights: 


Dear Subscribers:


I hope you all had a Happy Thanksgiving. My family had a wonderful meal made by my mother in law. I am thankful for all the readers of this column. Unfortunately, the Appellate Divisions seemed to also take a Thanksgiving break from issuing too many opinions in the serious injury area. There were two cases in which the losing side at trial attempted to have a verdict overturned. The Appellate Division decisions remind us how difficult this is as juries are the ones who weigh credibility and are allowed to choose which of two competing experts to believe. Hopefully the next edition will have more cases for us to discuss.


Until next time,


Robert Hewitt

[email protected]


How Fast is a Fastball? 

The Buffalo Enquirer

Buffalo, New York

01 Dec 1917





Expert Has Figure Out

Just How Swift the sphere

Is After It Leaves Pitcher’s

Hand – Makes Stealing Hard.


            Louisville, Ky., Dec. 1.—The average league pitcher in sending one of his fast shoots at the plate hurls the ball about as fast as the speediest automobile can travel.   This is rather surprising, as most persons would say that the ball would travel much faster than the motor.


            Frank B. Gilbreth, an efficiency expert of Providence, R.I., recently made some tests as to the speed of a thrown ball.  The results of these tests show that the average speed attained by a fast pitches is about 2.4 miles per minute.


            Previous experiments in baseball speed have been conducted along the line of electric control.  Mr. Gilbreth devised something entirely new, and it is probable that his work will be greatly expended. 

Editor’s Note:

That would be 144 miles per hour. Slight miscalculation, I think.


The fastest pitch recognized by MLB was on September 25, 2010, at Petco Park in San Diego by Cincinnati Reds left-handed relief pitcher Aroldis Chapman. It was clocked at 105.1 miles per hour.


“Cheaper by the Dozen”, the book, tells the story of time and motion study and efficiency experts Frank Bunker Gilbreth and Lillian Moller Gilbreth, and their children (said to be 11 at the start of the movie, and one baby born later, but by the end, 11 actually appear on film), as they reside in Montclair, New Jersey for many years. This fictionalized version tells the story of real-life pioneering industrial/organizational psychologist Lillian Gilbreth, her husband, and children. It was made into a film in 1950 and eventually recast in another, starring Steve Martin.

The title comes from one of Frank Sr.'s favorite jokes: it often happened that when he and his family were out driving and stopped at a red light, a pedestrian would ask, "Hey, Mister! How come you got so many kids?" Gilbreth would pretend to ponder the question carefully, and then, just as the light turned green, would say, "Well, they come cheaper by the dozen, you know," and drive off.


Wilewicz’ Wide-World of Coverage:


Dear Readers,


This week's missive is brought to you by the wifi of the U.S. District Court of the Eastern District of New York, in lovely downtown Brooklyn, where are just finished up a rather unusually contentious scheduling conference. Always good times, though. Now, winter is in the air and the City is starting to deck out for the holiday season. It's always a truly lovely time to make it to NYC. Indeed, I'll say it one last time - if you happen to have a few days free next week and can attend the DRI conference with us, drop is a line! You may be able to get free registration with a sponsor.


This week, we have one Second Circuit case to present for your reading pleasure in the Wide World of Coverage. In Nick’s Garage v. Nationwide Mutual, we highlight a relatively brief decision that may have wide potential impact (a more lengthy precedential companion decision was contemporaneously entered, and we will report on that next issue in greater depth). Here, a garage took over the insurance claims of various car owners for which the garage did repairs. First, there arose an issue of what payment was owned on those repairs, particularly in events where the damage had been fixed prior to the claim being made. Since the carrier was responsible for making the payments and making the insureds whole, whether the repairs were made or not, the issue was remanded back down to the lower court for further proceedings. Second, they also dealt with whether the carrier had engaged in any alleged deceptive practices. In short, yes and no. Read on for more details. And we’ll be back next week (well, in two weeks) for even more on this and the companion case.


Until next time (or next week, if you're attending the DRI conference),




Agnes A. Wilewicz

[email protected]


A Tire to Spare


The Kingston Daily Freeman

Kingston, New York

01 Dec 1917




Device Brought Out That Serves

Double Function of Tire Carrier and

Trunk Rack


Tires on even the lightest automobile will not last forever.  Spare tires are necessary.  For the purpose of auto tours a device has been brought out that serves the double function of a tire carrier and a truck rack.  The rack is made of structural steel and is hinged. Clamps attached supporting rods to the chassis.  Beneath is a holder that will accommodate two spare tires.  …



Barnas on Bad Faith:


Hello again:


Happy December.  I’m very much looking forward to DRI’s Insurance Coverage and Practice Symposium on December 7th and 8th at the Sheraton Times Square in Manhattan.  I’m excited for the opportunity to hopefully meet some of our readers.  Feel free to say hello if you see me at the conference.


The case in my column this week comes to you all the way from Idaho.  The insured brought a bad faith claim against Farmers based upon its handling of her underinsured motorist claim.  Farmers and the insured disputed the value of the claim, including whether her surgeries were caused by the auto accident or necessitated by pre-existing conditions.  To establish a bad faith claim in Idaho a party must show: 1) the insurer intentionally and unreasonably denied or withheld payment; 2) the claim was not fairly debatable; 3) the denial or failure to pay was not the result of a good faith mistake; and 4) the resulting harm is not fully compensable by contract damages.  Fairly debatable means there was a reasonable dispute or legitimate question over the eligibility, amount or value of the claim.


The Idaho court concluded that there was a reasonable dispute over the value of the insured’s claim, especially since an arbitrator confirmed that some of her damages were attributable to pre-existing conditions.  As such, she could not establish bad faith.  Interestingly, Idaho does recognize a cause of action for negligent claim adjustment, even though negligent adjustment is insufficient for bad faith.  Here, the insured declined to bring such a claim against Farmers, even though the lower court permitted her to amend her complaint to assert negligent adjustment.


Signing off,



Brian D. Barnas

[email protected]


Women’s Role in World War I:





City Bank Wants Those Who

Are Unmarried and Under

40 to Replace Men.




Letter Suggests Enlistment of

Nation’s Daughters as Privates

in Office and Factories.


            The National City Bank of New York in its December bulletin, issued today, declares that this country’s ability to get quickly and effectively into the war depends upon its ability to release men to the armies, and at the same time turn more men on the production of ships, airplanes, heavy guns, and ammunition. In answer to the question, “How can labor be found to give the increased output that will shorten the war and save lives?” the bank points out that the big, potential supply of labor, surpassing in quality and quantity that of old men and boys, lies in the unmarried women from 20 to 40 years of age, of the class who do not ordinarily seek employment for pay.


            “Here,” the City Bank asserts, “are several millions of alert, capable persons, who in the present social atmosphere will not work for wages, who are consumers but not producers.  This movement to bring these women into industry has started, but it is not progressing fast enough.  It needs encouragement and organization; it needs not only the personal economic appeal, but the patriotic appeal; and the same social approval and pressure that applies to the enlistment of young men in the army and navy.


Altman’s Administrative (and Legislative) Agenda:  


Greetings, Dear Readers:


I hope you all had wonderful Thanksgivings.  The legislature appears to have taken some time off for the holiday season, so I’ve nothing new to report.  So, until next time, I give you a yuletide poem:


‘Twas the month before Christmas, when thoughts turn to fun

But for us at the firm, there is work to be done.

Disclaimers to write, as the deadlines they loom

The insured’s klutzy worker, who fell and went boom.


“He was hurled to the ground!” his lawyer did say

(He just lost his balance, was really the way).

And to add to his woes, there was mounting confusion

For our policy has an employer’s exclusion.


The claims of a contractor, not matter the cause

Were barred by the employee/contractor clause.

The attorney, for all of his bluster and talking

Would need to look elsewhere to fill up his stocking.

O, the things plaintiffs say! I never would do them

Selling my soul, to “call 800-Sue-Them.”

I much prefer coverage, the field for the wise

For the policies (not like plaintiffs) tell us no lies.


A clause to interpret? The gist, the judge quizzes,

“Can you tell me, counsel, what the meaning of ‘is’ is?”

“Of course, it’s all here, in bold black and white

Merry Clauses to all, and to all a good night.”



Howard B. Altman

[email protected]


Ahh. The Accident Underlying One of New York’s Most Famous Insurance Coverage Cases:


The Buffalo Commercial

Buffalo, New York

01 Dec 1917





Justice Taylor Rules Against

Messersmith in Automobile

Insurance Case.




Although Policy Was Silent as to

Driving By Boy Under 18,

Plaintiff Cannot Recover.


In a decision handed down this morning by Justice Harry L. Taylor in special term of supreme court he holds that where a person permits and authorizes his automobile to be driven by a person under eighteen years of age, and which is prohibited by statute unless such driver is accompanied by the owner of the care or by a duly licensed chauffeur, such are owner cannot recover from an insurance company for loss sustained by him by reason of the car hitting someone and the car owner having had to pay damages.  The decision comes in the so-called Messersmith case.


Edgar C. Messersmith, a car dealer, held a policy in the American Fidelity Company indemnifying him against loss to him on account of injuries inflicted on other persons by reason of the operation of an automobile owned by the plaintiff.  Harold Messersmith, a young brother of the plaintiff, drove the care one morning with the plaintiff’s knowledge and under his orders and, while racing up Main street at about 35 miles an hour, struck a woman who was getting off a care at Main and Goodrich streets.  The care carried her about 150 feet before it was brought to a standstill.  She got judgment against Messersmith for about $4,400, which he paid, and he then sued the defendant company to compel it to pay.


The insurance company contended that the operation of the care by this boy and the ensuring mishap was a crime of which both the driver and his master were equally guilty as principals, and that the plaintiff should not recover on that account.  The plaintiff contended that the policy having been drawn by the company should be construed against it; that as it contained no exception or reservation regarding the driving of the car by a boy, the company should be held strictly to the wording of the policy.


Justice Taylor points out that the only question to be determined is whether or not the company should be made to pay for the damages done by this boy.  In this connection he says:


“Whatever might be held as to accidents caused while an automobile driver is violating a city ordinance regulating speed, for example, or under one of the many conceivable sets of circumstances differing from these here involved, it is inconceivable to me that this plaintiff can be indemnified under this Policy if on the trial it be proved, as it is pleaded in this answer, that the mishap in question was caused through the commission of a misdemeanor by the river of the automobile, and that such criminal act was participated in by this plaintiff as a principal because he authorized and commanded such sue of the automobile by the driver, knowing the driver to be under eighteen years of age.”


Justice Taylor held further that even if the policy excepted such an act as the driving of a care in violation of law it would be void as against public policy.


“A contrary holding,” reads the decision, “ would permit such an insurance policyholder not only to take advantage of his own wrong, but to profit financially from his own criminal act.  If the estate of a suicide cannot recover under a life insurance policy which is silent as to death by suicide, and this is now the law in the state of New York, surely this plaintiff cannot recover if this defendant provides what it has alleged in defense.”

Editor’s Note: In a 3-2 decision, the Fourth Department reversed Judge Taylor and the case found itself before New York’s highest court.  In a monumental decision by the Court of Appeals, Judge Cardozo, then a New York high court judge, affirmed the Fourth Department’s ruling, holding, in part, that for the purposes of insurance law, an accident is to be determined by the intention to cause a result, not to do an act


Injuries are accidental or the opposite, for the purpose of indemnity, according to the quality of the results rather than the quality of the causes….Every act, if we exclude, as we must, gestures or movements that are automatic or instinctive, is willful, when viewed in isolation and irrespective of its consequences... 


A driver turns for a moment to the wrong side of the road, in the belief that the path is clear and deviation safe. The act of deviation is willful, but not the collision supervening. The occupant of a dwelling leaves a flower pot upon the window sill, and the pot, dislodged by wind, falls upon a passing wayfarer. N. Y. City Ordinances, § 250. The position of the flower pot is intended, but not the ensuing impact.


The character of the liability is not to be determined by analyzing the constituent acts, which, in combination, make up the transaction, and viewing them distributively. It is determined by the quality and purpose of the transaction as a whole.

Messersmith v. Am. Fid. Co., 232 NY 161, 165–66 [1921]


I love the flowerpot discussion.  I have been teaching Insurance Law at the Buffalo Law School for 30+ years.  The Messersmith case is ALWAYS the first case I teach in the liability insurance section of the class.



Off the Mark:


Dear Readers,


Now that Thanksgiving is behind us, it’s time to get into the holiday spirit.  To that end, I spent last weekend digging out the decorations and putting them up.  Although I usually end up waiting for the coldest day of the year to put the lights up, I got lucky with a warm day this time.  It all went well despite a few of neighbors mocking me on the ladder.  They were not in the holiday spirit.


This edition discusses three recent construction defect cases.  The first case is from the District Court for the Northern District of Georgia, Atlanta Division.  In Allstate Ins. Co. v. Luu, the District Court held that the plaintiff had no duty to defend its insured in an underlying action asserting claims for breach of warranty, negligent construction, fraud, and violations of the Fair Business Practices Act.  In so holding, the Court noted that while the CGL policy issued by Allstate does cover “property damage”, it is well settled law in Georgia that the term “property damage” as used in a standard CGL policy necessarily refers to property that is non-defective, and to damage beyond mere faulty workmanship.  Therefore, any claims that arise as a result of faulty workmanship are not covered under such a policy.  The Court also found that the underlying claims were excluded under the policy’s property damage exclusions.  Lastly, the Court held that the claims for fraud and violations of the Fair Business Practices Act were not covered as such claims did not constitute an “occurrence”, which the policy defined as an accident.  As such, claims are inconsistent with the notion of an accident; neither claim was covered by the policy.


The next case is from the Supreme Court of New Hampshire.  In Russell v. NGM Ins. Co., the Court analyzed ensuing loss provisions and held that the ensuing loss clause in a homeowners’ policy is not triggered by the presence of mold resulting from faulty workmanship.


In Walters Beach Condo. Ass’n v. Home-Owners Ins. Co., the Court of Appeals held that in a claim involving water damage resulting from construction defects, a homeowners’ policy covers the ensuing water damage, but not the actual construction defect itself.


Until next time …



Brian F. Mark
[email protected]



Headlines from the attached issue:


Dan D. Kohane
[email protected]


  • Carriers Take Heed: New York Court of Appeals Imposes Significant Requirements on Out-of-State Insurers Issuing Policies Anywhere in the Country, Covering New York Risks if Insured has Substantial Business Presence in New York.  Insurers Must Learn how to Avoid Draconian Penalties for Failure to Follow New York Rules Requiring Prompt Disclaimers, Notice and Copying Requirements and Avoidance of Reservation of Rights Language.  Thousands Flee.

  • Failure to Provide a Policy that Covered the Risk Required by the Contract Constituted a Breach of the Promise to Provide Coverage

  • Since Tortfeasor’s Carrier Did not Timely Disclaim, its Coverage was in Place.  Therefore, that Vehicle was Not Uninsured and Uninsured Motorist Arbitration Properly Stayed

  • While a Direct Action Can Proceed Against an Insurer for a Judgment Against an Insured under a Policy, the Insurer Must be a Party to that Action


Robert E.B. Hewitt III

[email protected]


  • Defendant Failed to Adequately Address 90-180 Day Category

  • Jury Entitled to Choose between Two Conflicting Experts

  • Plaintiff Demonstrated She Suffered a Fractured Rib Which Is Prima Facie a Serious Injury



Tessa R. Scott

[email protected]


  • Judicial Notice of an Order Disqualifying the Assignor from No–Fault Coverage Prevented the Grant of Plaintiff’s Summary Judgment Motion



Steven E. Peiper

[email protected]


  • Renovations of Otherwise Unoccupied House Creates a Question of Fact on Residence Premises Denial

  • Fraud Claim Survives Even After Court Grants Rescission of Policy Due to Material Misrepresentations in the Insurance Application

  • Court, again, Applies the Two Year Suit Limitation Clause as Written



Agnes A. Wilewicz

[email protected]


  • Second Circuit Remands Case for Further Proceedings Relative to Insurer’s Position on Payment on Post-Accident Repairs and Alleged Deceptive Practices, In Part



Jennifer A. Ehman

[email protected]


  • Nothing to report.  I will call it the Thanksgiving lag. 



Brian D. Barnas

[email protected]


  • No Bad Faith where the Value of the Insured’s Claim was Fairly Debatable


John R. Ewell

[email protected]


  • As Matter of First Impression, Missouri’s High Court Rules That Pollution Exclusions are Generally Enforceable



Howard B. Altman

[email protected]


  • Legislature’s on hiatus.


Brian F. Mark
[email protected]


  • US District Court Holds that an Insured’s Faulty Workmanship Does Not Constitute “Property Damage” Under a CGL Policy

  • Supreme Court of New Hampshire Holds that Losses Directly Attributable to Negligent Workmanship do not Constitute Ensuing Losses

  • Michigan Court of Appeals Holds that in a Claim Involving Water Damage Resulting from Construction Defects, a Homeowners’ Policy covers the Ensuing Water Damage, but not the Actual Construction Defect Itself


Earl K. Cantwell
[email protected]


  • No Coverage for Opioid Abuse Claims




Our warmest wishes.



Dan D. Kohane
Hurwitz & Fine, P.C.

1300 Liberty Building
Buffalo, NY 14202    

Office: 716.849.8942

Cell:     716.445.2258
Fax:      716.855.0874

E-Mail:  [email protected]
H&F Website:


Twitter: @kohane



Hurwitz & Fine, P.C. is a full-service law firm
providing legal services throughout the State of New York

Dan D. Kohane
[email protected]



Agnes A. Wilewicz

[email protected]



Jennifer A. Ehman

[email protected]


Dan D. Kohane, Chair
[email protected]


Steven E. Peiper, Co-Chair

[email protected]

Michael F. Perley

Jennifer A. Ehman

Agnieszka A. Wilewicz

Edward B. Flink

Patricia A. Fay

Brian D. Barnas

Howard B. Altman

Brian F. Mark

John R. Ewell

Diane F. Bosse

Joel R. Appelbaum


Steven E. Peiper, Team Leader
[email protected]


Michael F. Perley

Edward B. Flink

Brian D. Barnas

Howard B. Altman

James L. Maswick


Jennifer A. Ehman, Team Leader
[email protected]

Patricia A. Fay

Tessa R. Scott


Jody E. Briandi, Team Leader
[email protected]


Diane F. Bosse

Topical Index

Kohane’s Coverage Corner

Hewitt’s Highlights on Serious Injury

Tessa’s Tutelage
Peiper on Property and Potpourri

Wilewicz’s Wide World of Coverage

Jen’s Gems

Barnas on Bad Faith
Ewell’s Universe

Altman’s Administrative (and Legislative) Agenda
Off the Mark

Earl’s Pearls


Dan D. Kohane
[email protected]


11/20/17       Carlson v.  American International Group, Inc.
New York State Court of Appeals

Carriers Take Heed: New York Court of Appeals Imposes Significant Requirements on Out-of-State Insurers Issuing Policies Anywhere in the Country, Covering New York Risks if Insured has Substantial Business Presence in New York.  Insurers Must Learn how to Avoid Draconian Penalties for Failure to Follow New York Rules Requiring Prompt Disclaimers, Notice and Copying Requirements and Avoidance of Reservation of Rights Language.  Thousands Flee.

On November 20, 2017, New York’s highest court dramatically expanded the breadth of New York Insurance Law §3420.  That section establishes the minimum requirements for liability insurance policies in the State.  For liability policies that do not include required provisions, at least as favorable to insureds and injured parties, the statute deems provisions into the policies.  The Court of Appeals held that it not only applied to policies that were issued to New York insureds or by New York insurers but also to insureds that have a presence in New York and create risks in New York.


Out-of-state insurers must take heed.  If they issue policies to companies (and perhaps individuals) who have a presence in New York (operate a business, for example), New York disclaimer requirements will apply to that policy and that insurer, even if the policy were issued by an out-of-state insurer to an insured whose home office was located outside of New York.


The Carlson decision sends a sobering message to insurers that issue policies to insureds that have a presence in New York even if the policies are sent from a non-New York office to a non-New York insured location.  Section 3420 applies to policies that cover both insureds and risks located in New York. 


Many insurers regularly issue reservation of rights letters when responding to notices of New York accidents or claims.  Often carriers that have issued policies in other states protecting against multi-state risks have not followed the New York Insurance Law §3420 mandates, i.e. to disclaim (rather than reserve their rights) within 30 days and send copies of disclaimer letters to the injured party and other claimants.  These insurers will learn that it is critical to quickly determine whether their insureds have a presence in New York State and have created a risk in New York State.  If the carriers fail to do so, they may find that their reservation of rights letters may be ineffective.  The same is the case for their exclusion-based or breach-based disclaimers if not copied to injured persons and other claimants or not sent within 30 days after they received notice.  The penalty is a significant one:  the loss of a right to rely upon policy exclusions and breaches of policy conditions.


Carlson, individually and as Administrator of his deceased wife’s estate (as an assignee of Porter) commenced a New York “Direct Action” against National Union Insurance Company (“National”) and American Alternative Insurance Company (“AAIC”) seeking to secure insurance proceeds from policies issued to MVP Delivery (“MVP”) and Porter, under NY Insurance Law 3420(a)(2).  That section permits an action against an insurer to recover liability insurance coverage if a plaintiff (turned judgment creditor) obtains a judgment against an insured defendant (turned judgment debtor) and the judgment creditor believes the insurer’s policy covers the judgment but the insurer refuses to pay it.


That statute – which contains a variety of significant provisions that govern New York liability insurance, and Draconian rules on disclaimers, only applies to policies “issued or delivered in New York.”


The New York Court of Appeals held that the term “issued or delivered” in New York applied not only to policies issued to insureds that had offices in New York and not only to insureds who received the policies in New York, but encompassed situations where both insureds and risks were located in New York State.


Claudia Carlson was killed when a truck with a DHL logo, owned by MVP and driven by Porter, crossed the double-yellow line and hit her head on. The jury awarded her Estate $20 million, which was eventually reduced to $7.3 million.  MVP’s insurer paid the Estate $1.1 million and assigned to Carlson, Porter’s right to other coverages.  There was an issue of DHL’s responsibility for the accident, but if it were responsible, National Union provided a $3 million dollar primary policy, followed by a $2 million excess policy with AAIC and then a $23 million umbrella policy with National Union.


AAIC moved to dismiss the lawsuit arguing that its policy was not “issued or delivered” in New York.  It had been issued to DHL’s predecessor, Airborne, Inc., headquartered in Washington and later assumed by DHL, headquartered in Florida.  AAIC was in New Jersey when the policy was issued.


Insurance Law Section 3420 is a “deeming statute”, requiring carriers whose policies are bound by its terms, to permit direct actions, disclaim coverage promptly, accept notice of claim from injured persons in addition to insureds and disclaim promptly in bodily injury and wrongful death cases, generally within 30 days.  Because of the statute’s disclaimer requirements, reservation of rights letters issued in such cases are usually ineffective to preserve an insurer’s right to rely upon policy exclusions and breaches of policy condition.  Accordingly, broadening the scope of policies impacted by this statute exposes insurers to significant and additional risks in New York.


In 2008, the Court of Appeals considered the same question in a case where a New Jersey insurer issued a policy to a New Jersey insured, East Coast Stucco, which covered New York risks.  The language of the statute was slightly different at that time, applying to policies “delivered or issued for delivery in this state:”


It is undisputed that the policy was actually delivered in New Jersey by a New Jersey insurer to a New Jersey insured. Was the policy nonetheless “issued for delivery” in New York? We answer in the negative.


A policy is “issued for delivery” in New York if it covers both insureds and risks located in this state (citations omitted).  By including New York as an “Item 3.C.” state, the policy covers risks located in New York. East Coast Stucco is a New Jersey company, with its only offices located in that state, so it cannot be said that the insured is located in New York. Because the policy was neither actually “delivered” nor “issued for delivery” in New York, Preserver is not required [to comply with the statute].

Preserver Ins. Co. v Ryba, 10 NY3d 635, 642 [2008].


However, in Carlson, the same court held that:


DHL is located in New York because it has a substantial business presence and creates risks in New York.  It is even clearer that DHL purchased liability insurance covering vehicle-related risks arising from vehicles when delivering its packages in New York, because its insurance agreements say so.


Again, note that East Coast Stucco, the insured in the Preserver case, also purchased liability insurance coverage to protect New York risk, because its insurance agreements say so.


The Court of Appeals held that the change in statutory language, from “issued for delivery” to “issued or delivered” broadened its application.  Applying the language to policies issued “by an insurer located in New York or by an out-of-state insurer who mails a policy to a New York address would undermine the legislative intent” of the statute.


The court specifically rejected a strong three-judge dissent holding that the dissent’s approach would wrongly exclude “an insurance policy issued by a national insurer located in Connecticut to a retailer operating in all fifty states, if the policy was delivered to the retailer’s headquarters in Arkansas – even if the policy was specifically written to cover risks in New York created by the insured’s extensive operations in this state.”


The dissenting judges noted, properly, that the majority’s “misinterpretation” of Insurance Law 3420 “enacts sweeping changes across the Insurance Law, generating substantial implications, both known and unknown”. It pointed out that the term “issued for delivery” – the phrase used in Preserver is not the phrase used in 3420 now, which is “issued or delivered”.


The dissent’s language is instructive and suggests frightening consequences:


[I]t is hardly plausible that the legislature intended to require every automobile insurer throughout the country—regardless of where the policy was issued or delivered—to comply with New York insurance statutes on the chance that the insured vehicle may be driven into New York.


The majority opinion claims that its holdings are limited to policies that cover “both insureds and risks” located in New York.  The dissent wonders whether it will be applicable when an out-of-state resident drives into New York and it owns property or vacations in New York.


What are the counseling points? When an insurer is placed on notice about a New York bodily injury or wrongful death accident, it must act quickly and respond properly:


  • It must determine whether its insured is “located in New York”.The Court of Appeals found that DHL was “located in” New York “because it has a substantial business presence”. How much business must an insured be doing to create a “substantial business presence” is unclear.


  • It needs to examine its policy to see if New York risks are covered, by policy terms.


  • If the answer to both questions is “yes” or, most importantly, if the answer to both questions “might be yes”, the insurer should err on the side of compliance with Insurance Law §3420(d)(2).


  • It must send out a coverage position letter within 30 days, which avoids reservation of rights language, uses, if necessary, complete or “partial” disclaimer language and is copied to the injured party (or his/her counsel) and any other person, entity or party who might interpose a cross-claim against the insured.


Failure to do so, when required, may well result in the loss of the insurer’s ability to rely upon otherwise valid and applicable policy exclusions or the insured’s breach of policy conditions.


The dissent suggests, understandably so, that with respect to auto policies i.e., the New York legislature did not intend for Insurance Law §3420 to require to “every automobile insurer throughout the country…to comply with New York insurance statutes on the chance that the insured vehicle may be driven into New York.” Consider:


  • Jane Roe from New Jersey commutes to New York City for work. While driving down Fifth Avenue, she runs over Max Factor, who is injured. Jane seeks coverage under her homeowners policy issued in Connecticut and mailed to her home in New Jersey. The policy contains an auto exclusion.Jane derives all of her income from her job in New York. Does Jane have a “substantial business presence” in New York? If the Connecticut homeowners carrier does not comply with the disclaimer requirements of Insurance Law §3420, will it lose its right to rely upon the auto exclusion? Is there a carve-out for nature persons? Does the “substantial business presence” requirement only apply to business corporations?

  • What about employer liability lawsuits where bodily injury is alleged? ABC, a national corporation, runs a national chain of department stores. ABC has a policy issued in CA delivered to headquarters in TX. Employee, who works at NY branch, commences action for workplace harassment and emotional distress is claimed, which in New York, constitutes “bodily injury”. If the carrier merely reserves it rights on policy exclusions, will it be precluded from relying upon them as a basis for disclaimer?


    We shall see.  In the meantime, we recommend a careful review of all New York claims.


    11/22/17       Calvitti v. 40 Garden, LLC

    Appellate Division, Third Department

Failure to Provide a Policy that Covered the Risk Required by the Contract Constituted a Breach of the Promise to Provide Coverage

On February 6, 2014, Calvitti fell on a sidewalk near the entrance of a commercial building in Poughkeepsie, owned by 40 Garden. The claim was failing to maintain the sidewalk and remove snow and ice. 40 Garden commenced a third-party action against Jacran Designs, Inc., (“Jacran”) a property maintenance company.


In that service contract, Jacran agreed to provide contractual indemnity for 40 Garden and to procure a $1 million liability policy covering its services and naming defendant as an additional insured.


Jacran and 40 Garden also signed a separate contract in which Jacran agreed to obtain and maintain such a general liability policy and to indemnify defendant and hold it harmless for any injuries or damage. 40 Garden alleged that Jacran had breached the contractual provisions by failing both to properly maintain the property and to procure liability insurance covering defendant, and that Jacran was obligated to indemnify it.


On the issue of contractual indemnity, Jacran argues that there was no proof in the record demonstrating that it had actual or constructive notice of any icy condition on the sidewalk, but that there was conflicting proof in the record. Summary judgment was therefore denied.


On the question of the provision of insurance coverage, Jacran acknowledged that it had contractual obligations to obtain such coverage and that it breached that requirement, but contended that the determination of this claim was premature in that there has not yet been a finding that 40 Garden is liable for the injuries.  Not surprisingly, the court held that Jacran was conflating its contractual indemnity argument with its separate obligation to provide coverage. 


The policy that Jacran purchased excluded, among other things, coverage for any insured parties "for the removal of snow and/or ice.”  That was the exactly the coverage required under the contract, so 40 Garden was entitled to summary judgment on this claim against Jacran.

Editor’s Note:  If 40 Garden had its own liability coverage, covering the loss, what does it get in winning this motion?


The third-party defendant tenant contends that recovery by the third-party plaintiff landlord on its cause of action based on the tenant’s failure to procure liability insurance for the landlord's benefit, as required by the parties' lease, is limited to the cost of the premiums paid by the landlord for its own liability insurance policy and any other out-of-pocket expenses,  Since the landlord procured its own liability insurance, damages are limited to its out-of-pocket expenses, including the premiums and any additional costs it may incur such as deductibles, co-payments, and increased future premiums…

Mercado v 1710 Realty Assoc., 289 AD2d 207, 207–08 [2d Dept 2001]


11/22/17       Kemper Independence Ins. Co. v. Brennan
Appellate Division, Second Department

Since Tortfeasor’s Carrier Did not Timely Disclaim, its Coverage was in Place.  Therefore, that Vehicle was Not Uninsured and Uninsured Motorist Arbitration Properly Stayed
This was an application to stay arbitration for a claim of underinsured motorist’s benefits.  American Commerce Insurance Company (“American”) and Mapfre USA (“Mapfre”) appealed, after a framed issue hearing, an order that that they would defend and indemnify their insured, Steven P. Lax, with respect to a certain motor vehicle collision that occurred on April 26, 2012, and which stayed the arbitration of the claim for underinsured motorist benefits pending the exhaustion of payments by them to William Brennan with respect to that motor vehicle collision.


On April 26, 2012, a vehicle owned and operated by Brennan was struck by a vehicle operated by Lax and owned by Hertz Vehicles (“Hertz”). In 2013, Brennan sued Lax and Hertz to recover damages for personal injuries allegedly sustained in that accident.


Brennan then made a claim with his own insurer, Kemper, for supplemental underinsured motorists (“SUM”) benefits. Kemper commenced the instant proceeding to permanently stay arbitration of that claim or, alternatively, for a framed-issue hearing. Kemper claimed that, at the time of the accident, Lax was listed as an insured on a policy of insurance issued by American and Mapfre


A framed-issue hearing was conducted. The Supreme Court found that there was coverage for Lax under the policy of insurance issued by American and Mapfre to Lax and that they did not give timely disclaimer based on an exclusion in the policy.  So, the court ordered that those carriers defend and indemnify Lax for the accident, and stayed the arbitration pending the exhaustion of payments by them to Brennan.


Since the policy did provide coverage and since there was no timely disclaimer, Kemper succeeded in staying the arbitration.  If those policies exhaust, and the SUM coverage provided by Kemper exceeds the total coverage available to the tortfeasor, the plaintiff can proceed with the SUM arbitration for amounts left after the offset of liability coverage.


11/20/17       Vargas, as Administrator v. Crown Container Co.
Appellate Division, Second Department

While a Direct Action Can Proceed Against an Insurer for a Judgment Against an Insured under a Policy, the Insurer Must be a Party to that Action
Insurance Law Section 3420(a)(2) permits recovery against a judgment debtor’s insurer. However, the insurer must be the defendant in that action.


This was a wrongful death action.  The plaintiffs was employed as a helper on a private garbage truck and sustained fatal injuries when the truck lurched backward and pinned him against a garbage dumpster. There was a wrongful death action commenced to recover damages against, among others, Advanced Fleet Maintenance, Inc. (hereinafter Advanced), which serviced the truck's transmission. The jury found that Advanced was 49.5% at fault in the happening of the accident and awarded damages to the plaintiffs. A judgment was entered in favor of the plaintiffs and against Advanced in the principal sum of $3,603,394, with statutory interest accruing from the date of the verdict. Advanced appealed from the judgment and in a companion opinion, the court reduced the verdict to $2,000,000.


Plaintiffs moved for a determination that Insurance Law § 3420(a)(2) permits recovery against Advanced or its insurer, nonparty Century Surety Company, of statutory interest payable on the judgment from the date of the decedent's death.


Insurance Law § 3420(a)(2) permits a plaintiff (who becomes a judgment creditor after a verdict in its favor) to commence an action against an insurer for the policy limits in the event that a judgment which has not been stayed remains unsatisfied for 30 days. This provision does not apply to this case because Advanced's insurer, Century Surety, is not a party to the action. Moreover, the parties stipulated that the plaintiffs would not seek to execute the judgment or collect the judgment from the insurer until all appeals were exhausted.


Robert E.B. Hewitt III

[email protected]


11/22/17       Iacobino v. Coyle

Appellate Division, Second Department

Defendant Failed to Adequately Address 90-180 Day Category

The defendant failed to meet her prima facie burden of showing that the plaintiffs did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The papers submitted by the defendant failed to adequately address the plaintiffs' claims, set forth in the bill of particulars, that they each sustained a serious injury under the 90/180-day category of Insurance Law § 5102(d). Since the defendant failed to meet her prima facie burden, it was unnecessary to determine whether the papers submitted by the plaintiffs in opposition were sufficient to raise a triable issue of fact. No facts were given.


11/22/17       Quijano v. American Transit Ins. Co.

Appellate Division, Second Department

Jury Entitled to Choose between Two Conflicting Experts
The plaintiff allegedly was injured when a cab driven by the defendant Emmanuel A. Emeka and owned by the defendant First Eight Grand Corp. hit him in the right knee and knocked him to the ground at an intersection in midtown Manhattan.  During the damages phase of the bifurcated trial, the plaintiff's treating physician presented evidence that the plaintiff sustained a tear in the labrum of his right shoulder with impingement syndrome, and that he underwent surgery to repair those injuries. The physician also presented evidence that the plaintiff had a torn meniscus in his right knee, a disc bulge in the L4-5 region of his spine, and radiculopathy in his upper and lower extremities. The physician testified that it was his opinion that all of the plaintiff's injuries were the result of trauma from the accident. The defendants presented the testimony of two expert witnesses, who disagreed with the diagnoses of the plaintiff's physician, and opined that any injuries the plaintiff had were not the result of the accident and were not serious, as defined by Insurance Law § 5102(d). The jury returned a verdict in favor of the plaintiff and awarded him, inter alia, the sums of $300,000 for past pain and suffering, $500,000 for future pain and suffering, and $800,000 for future medical expenses.


After the trial, the defendants moved, inter alia, pursuant to CPLR 4404(a) to set aside the jury verdict on the issue of damages as contrary to the weight of the evidence and for a new trial, on the basis that the plaintiff did not sustain a serious injury pursuant to Insurance Law § 5102(d) as a result of the accident. A jury verdict is contrary to the weight of the evidence when the evidence so preponderates in favor of the movant that the verdict could not have been reached on any fair interpretation of the evidence. Where, as found here by the Appellative Division, conflicting expert testimony is presented, the jury is entitled to accept one expert's opinion, and reject that of another expert. Issues of credibility are for the jury, which had the opportunity to observe the witnesses and the evidence.  The Appellate Division held that a fair interpretation of the evidence supports the jury's conclusion that, based on the evidence before it, the plaintiff sustained a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The Appellate Division also found that the damage awards were reasonable.

11/21/17       Harris v. Campbell

Appellate Division, Fourth Department

Plaintiff Demonstrated She Suffered a Fractured Rib Which Is Prima Facie a Serious Injury

Plaintiffs commenced this action seeking damages for injuries sustained by Monica Harris (plaintiff) when the vehicle that she was driving was rear-ended by a vehicle that was owned and operated by defendant. A jury subsequently returned a verdict in favor of defendant upon determining that plaintiff did not sustain a serious injury under any of the four categories in Insurance Law § 5102 (d) alleged by plaintiffs. The Appellate Court affirmed the denial of the motion to set aside the verdict.


The Appellate Court determined the trial court properly limited the testimony of one of plaintiff's treating physicians. CPLR 3101 (d) (1) applies only to experts retained to give opinion testimony at trial, and not to treating physicians, other medical providers, or other fact witnesses. Where a plaintiff's intended expert medical witness is a treating physician whose records and reports have been fully disclosed, a failure to serve a CPLR 3101 (d) notice regarding that doctor does not warrant preclusion of that expert's testimony on causation, since the defendant has sufficient notice of the proposed testimony to negate any claim of surprise or prejudice. In this case,  of plaintiff's treating physicians did not provide any expert disclosure, and during trial he indicated that, in addition to being a medical doctor, he received a Ph.D. in biomechanical engineering and he often relies on his engineering background in his medical practice. Subsequently, that treating physician was asked some questions pertaining to biomechanics, and specifically was asked about the amount of force needed to cause a lumbar injury. The Appellate division held that plaintiff did not have proper notice of defendant’s expert’s opinion regarding engineering. However, as to admitting uncertified medical records, even if this was error, the error was harmless inasmuch as those records were never published to the jury or provided to the jury during deliberations. Moreover, the records amount to only eight pages and include, inter alia, general references to pre-accident back pain, which was an issue addressed by both parties during trial.


Plaintiff also contended that the court erred in admitting in evidence photographs of plaintiff's and defendant's vehicles. The Appellate Court rejected plaintiffs' contention with respect to the photographs of plaintiff's vehicle inasmuch as it is well established that photographs showing no damage to a plaintiff's vehicle are admissible to impeach a plaintiff's credibility on the issue whether the accident caused the alleged injuries. Furthermore, even when liability is not at issue, proof as to the happening of an accident is probative and admissible as it describes the force of an impact or other incident that would help in determining the nature or extent of injuries and thus relate to the question of damages.  The jury was also entitled based on the evidence to find there was no serious injury.



Tessa R. Scott

[email protected]


11/22/17       K.O. Med., P.C. v Mercury Cas. Co

Appellate Division, Second Department

Judicial Notice of an Order Disqualifying the Assignor from No–Fault Coverage Prevented the Grant of Plaintiff’s Summary Judgment Motion

Here, defendant moved for summary judgment dismissing the complaint on the ground that plaintiff's assignor had failed to appear for duly scheduled examinations under oath (EUOs).


Plaintiff opposed the motion and cross-moved for summary judgment and was successful. Plaintiff established that defendant could not show that assignor did not appear for the EUOs. On the appeal, defendant asks the Second Department to take judicial notice of an order from the Supreme Court which granted on default a judgment declaring that plaintiff and its assignor are not entitled to no-fault coverage for the accident that is at issue in the case at bar.


Contrary to the determination of the Civil Court, plaintiff failed to show its entitlement to summary judgment, as plaintiff's cross-moving papers failed to establish that defendant had not denied the claims within the requisite 30-day period. Plaintiff had also failed to show that defendant had issued timely denial of claim forms that were conclusory, vague or without merit as a matter of law Thus, the previous order granting plaintiff's cross motion for summary judgment was reversed and plaintiff's cross motion denied.


Ordinarily, a reversal of this portion of the Civil Court's order, standing alone, would result in the matter being remitted to the Civil Court for all further proceedings. However, a court may take judicial notice "on appeal, of reliable documents, the existence and accuracy of which are not disputed" and, generally, "of matters of public record."


The Second Department gave plaintiff an opportunity to address the Supreme Court's order, but plaintiff was unable to dispute the order. As a result, it took judicial notice of the Supreme Court's superseding order, entered October 17, 2016, pursuant to the short-form order, granting defendant's motion for the entry of a default judgment and declaring that plaintiff herein and its assignor are not entitled to no-fault benefits arising out of the accident at issue.


As the Supreme Court's order bars any subsequent proceeding between the parties in the Civil Court under the doctrine of res judicata, it sufficiently appears that a party other than plaintiff is entitled to summary judgment. Accordingly, Defendant’s summary judgment motion was granted.


Basically, the Court’s hands were tied- “as any judgment in favor of plaintiff in the present action would destroy or impair rights or interests established by the order in the declaratory judgment action.”



Steven E. Peiper

[email protected]


11/30/17       Sosenko v Allstate Ins. Co.

Appellate Division, Third Department

Renovations of Otherwise Unoccupied House Creates a Question of Fact on Residence Premises Denial

Plaintiff purchased the classic “fixer-upper” on January 15, 2014.  One month later, the premises were destroyed, completely, by fire.  Because plaintiff’s father was in the process of renovating the premises, plaintiff had not yet moved in. Accordingly, Allstate denied the claim on the basis that the loss location did not qualify as the plaintiff’s “residence” premises. 


The Allstate policy used the classic definition of “insured premises” as the “residence premises.”  Moreover, the policy also defines “residence premises” as the single family structure “where the insured resides.”  The Appellate Division, following its earlier ruling in Craft v NY Central Mutual Ins. Co., noted that that the term “residence” is ambiguous because it is not defined.   The Court also noted that “the standard for determining residency…requires something more than temporary or physical presence and requires at least some degree of permanence and intention to remain.”


The Record before the Court established that plaintiff and her father had completely torn out the existing drywall, and that the building at the time of loss did not have heat, electric or running water.  Nevertheless, plaintiff testified that she slept at the premises 2 to 4 nights a week.  She also testified that she intended to move into the premises full time upon completion of the renovations. 


Allstate, however, produced evidence that suggested plaintiff reported to Allstate’s claims representative that she only stayed at the premises one time.  Moreover, she allegedly advised that she had not visited the location in the two weeks prior to the fire.  Finally, she advised that she intended to, and was in the process, of moving into an apartment at the time of the fire.  Based upon the inconsistencies in plaintiff’s testimony, and that what she is said to have reported to Allstate at the time of the fire, the Court concluded a question of fact existed as to whether the premises was, in fact, a “residence premise.”


11/30/17       Ashkenazi v AXA Equitable Life Ins. Co.

Appellate Division, First Department

Fraud Claim Survives Even After Court Grants Rescission of Policy Due to Material Misrepresentations in the Insurance Application

Plaintiff moved to enforce an insurance policy procured from defendant.  Upon appearance, defendant counter-claimed for rescission and fraud.  With regard to the rescission claim, the Court noted that plaintiff clearly overstated his financial circumstances.  Moreover, the Court likewise noted that defendant adduced evidence which established that it would not have issued the policy but for the misrepresentations contained in the insured’s application.


The Court also addressed plaintiff’s motion for summary judgment dismissing AXA’s fraud claim.  Dismissal of the fraud claim is/was important because with rescission plaintiff must return the premiums collected on the voided policy.  However, if fraud is proven, AXA might be entitled to keep the premiums as an offset of damages caused by the plaintiff’s conduct.  Here, the Record did not clearly establish whether plaintiff intended to commit fraud when it applied for coverage.  As such, a question of fact existed and plaintiff’s fraud claim continues. 


11/29/17       Hohwald v Farm Family Cas. Ins. Co.

Appellate Division, Second Department
Court, again, Applies the Two Year Suit Limitation Clause as Written

In this dispute arising from Hurricane Sandy damage, plaintiff promptly provided notice of the loss on November 1, 2012 (Sandy made landfall on 10/29/12). Apparently, Farm Family investigated the loss, and eventually denied the claim on March 10, 2014.  Plaintiff commenced the instant action on March 13, 2015. 


Farm Family immediately moved to dismiss on the basis of the two year suit limitation clause found within the policy.  As the loss occurred more than two years from the date of the loss, the Court found the action was unambiguously time-barred. In so holding, the Court rejected plaintiff’s argument of equitable estoppel as not properly raised before the Court.



Agnes A. Wilewicz

[email protected]

11/08/17       Nick’s Garage, Inc. v. Nationwide Mutual Insurance Company
United States District Court, Second Circuit
Second Circuit Remands Case for Further Proceedings Relative to Insurer’s Position on Payment on Post-Accident Repairs and Alleged Deceptive Practices, In Part

From 2007 to 2012, Nick’s Garage repaired various cars that had suffered damage, and for which the owners had submitted damage claims to their insurers. The owners subsequently designated the garage as their representative to negotiate with the carrier for coverage for the repairs. That insurer was obligated to make sufficient payments “to return the specified vehicles ... to pre-Accident condition” and under the law was obligated to pay “the lesser of the amounts for which the claimant can reasonably be expected to (1) repair the property to its condition prior to the loss; or (2) replace it with an item substantially identical to the item damaged”.


The insurer had argued that the garage could not prove that the owners had suffered damage, since the garage had repaired the vehicles to pre-accident condition and did not intend to charge the owners for the alleged deficiency in the insurance payout. However, the court found this to have been a misconception on the part of the carrier. Rather, the insurance contract required payment of the lesser of the reasonable expected cost of repairing, or replacing, the car to pre-accident condition, regardless of whether the owner could succeed in getting the repair or replacement at a bargain price or decided not to repair it at all. As the district court had granted summary judgment on this point never the less, the Second Circuit vacated and remanded for further briefing and proceedings.


Another issue in the case was whether the insurer had undertaken alleged deceptive practices, either in systematically offering to pay below-market labor rates that did not comport with its policy obligations, and/or making representations as to the availability of repair shops willing to accept the insurer’s offered payments. First, with respect to the labor rates, the Second Circuit found that there was indeed an issue of fact as to what rates were being charged, in light of conflicting affidavit and deposition testimony on the carrier’s practice relative to those rates (such as offering “labor rate concessions” that might have masked actual paid rates). Second, with regard to the availability of back-up shops,  the carrier had sent letters stating that it was “above to provide [the customer] with the identity of the repair shop that will repair your vehicle at our estimate, but under the Insurance Law, we may not recommend a repairer unless you expressly request such information”. While the garage had argued that these were misleading in that they could lead a customer to believe that a repair shop had already been chosen and retained, the court found them to have been clear and not sufficient to form the basis for a deceptive practices claim.



Jennifer A. Ehman

[email protected]


Nothing to report.  I will call it the Thanksgiving lag. 



Brian D. Barnas

[email protected]


11/29/17       Cedillo v. Farmers Insurance Company of Idaho

Supreme Court of Idaho

No Bad Faith where the Value of the Insured’s Claim was Fairly Debatable

In May 2008, Peggy Cedillo was injured in a collision while riding as a passenger on the back of a motorcycle.  About a year after the collision, she settled her claim against the motorcycle driver for $105,000, the total amount available under his insurance policy.


In July 2009, about two months after settling her tort claim, Ms. Cedillo sent Farmers a letter seeking payment under the underinsured motorist portion (UIM) of her own auto policy.  Ms. Cedillo told Farmers that her medical bills totaled $53,048.62, and she demanded payment of policy limits of $500,000 and resolution of the claim within thirty days.  On August 25, 2009, a few days before the thirty-day demand period was up, Farmers sent Ms. Cedillo a $25,000 check with a letter stating that the check represented their valuation of her UIM claim and took into account the $105,000 she received from the motorcycle driver's insurance company.


There was no further contact between the parties for a period of about six months. On March 30, 2010, Ms. Cedillo sent Farmers another letter informing it that she needed surgery.  She estimated the procedure to cost $25,000 and again made a demand for policy limits of $500,000.  Farmers responded two weeks letter by saying it was not in a position to accept or deny the demand, and that it needed to obtain medical records and documentation regarding a wage claim.


On May 7, 2010, Farmers sent Ms. Cedillo a letter advising her that it had obtained her medical records, and that the doctor's records did not document the need for surgery or support changing its evaluation of her claim.  Ms. Cedillo provided an updated medical release as requested by Farmers on July 2, 2010, approximately two months later.


On September 3, 2010, Ms. Cedillo sent Farmers another demand for policy limits. In her letter, she outlined her injuries, the impact those injuries had on her daily life, including her inability to work, and her medical bills to date (a little over $56,000) and the difficulties she was having paying those bills. She included adjusted gross wage information from past years (selected information from past tax returns) and provided a list of past treatment providers as well as new treatment providers.  Farmers responded three weeks later by asking for additional information.


A medical examination was conducted, and Farmers’ doctor attributed her ongoing pain to stress.  He also apportioned the necessity of her 2009 neck surgery equally to the collision and pre-existing conditions, including two prior accidents.  Farmers declined to change its evaluation of the claim and the case proceeded to arbitration. 


While the arbitration was pending, Ms. Cedillo underwent a second neck fusion surgery in February 2012. In May 2012, she had surgery on her right shoulder.  In October 2012, Farmers had its doctor perform another independent medical examination to evaluate Ms. Cedillo's condition following these surgeries.  The doctor did not attribute the need for the surgeries to the collision.  Nonetheless, on October 18, 2012, Farmers paid Ms. Cedillo an additional $155,000 under the UIM policy.


Eventually Ms. Cedillo was awarded $100,332.95 in arbitration on top of what she had already recovered, plus $101,948 in interest.  The arbitrator apportioned 100% of the first neck surgery and shoulder surgery to the accident.  He also apportioned 75% of the second neck surgery to the accident.


Ms. Cedillo pursued a bad faith claim against Farmers.  To establish a bad faith claim, Ms. Cedillo was required to show: 1) the insurer intentionally and unreasonably denied or withheld payment; 2) the claim was not fairly debatable; 3) the denial or failure to pay was not the result of a good faith mistake; and 4) the resulting harm is not fully compensable by contract damages.  Fairly debatable means there was a reasonable dispute or legitimate question over the eligibility, amount or value of the claim.


The Supreme Court of Idaho concluded that the claim was fairly debatable because there was a continuing debate over the amount of the claimed damages.  Indeed, even the arbitrator concluded that some of Ms. Cedillo’s damages were attributable to pre-existing conditions.  Ms. Cedillo failed to point to any specific fact that demonstrated the value of her claim was not fairly debatable.  Her expert’s contention that Farmers' behavior in relation to Ms. Cedillo's claim was “an extreme departure from norms in the insurance industry” in Idaho was conclusory and unsupported.  Poor claims management alone does not demonstrate bad faith.


However, Idaho does recognize a cause of action for negligent claim adjustment, and Ms. Cedillo was allowed to amend her complaint to add such a claim.  She declined to do so.


John R. Ewell

[email protected]


10/31/17       Doe Run Resources v. American Guarantee et al.

Supreme Court of Missouri

As Matter of First Impression, Missouri’s High Court Rules That Pollution Exclusions are Generally Enforceable

Doe Run operates a lead smelting facility in Peru. Individuals living in the vicinity of the facility sued Doe Run claiming bodily injury caused by exposure to toxic emissions emanating from the facility. The lawsuits alleged that Doe Run released harmful substances, such as lead, arsenic, cadmium, and sulfur dioxide, into the environment. Doe Run commenced this coverage action against St. Paul, among others, seeking reimbursement for costs incurred defending against those lawsuits.

St. Paul had issued a Commercial General Liability policy to Doe Run, which was in effect at the time of the alleged exposure.


When Doe Run sought coverage from St. Paul, St. Paul denied any obligation to defend Doe Run. A lawsuit followed and both parties moved for summary judgment. St. Paul argued that the policy’s pollution exclusion barred coverage of the allegations in the underlying lawsuits. In contrast, Doe Run argued that the pollution exclusion was ambiguous. The trial court found the pollution exclusion ambiguous and ruled that St. Paul had an obligation to reimburse Doe $2.1 million for the defense of the underlying actions.


St. Paul appealed to the Missouri Supreme Court. For the first time, Missouri’s high court considered whether a pollution exclusion in an insurance policy bars coverage for claims arising from alleged industrial pollution. The pollution exclusion at issue barred coverage for any injury or damage resulting from pollution on any protected person’s premises. It provided in pertinent part:


Exclusions – What This Agreement Won’t Cover

Pollution injury or damage. We won’t cover injury or damage or medical expenses that result from pollution at, on, in[,] or from any[] protected person’s premises.

Pollution means any actual, alleged, or threatened discharge, dispersal, escape, migration, release, or seepage of any pollutant.

Pollutant means any solid, liquid, gaseous, or thermal irritant or contaminant, including[] smoke, vapor, soot, fumes[,] acids, alkalis, chemicals[,] and waste.

Protected person’s premises means any premises, site, or location that is or was at any time owned, rented, leased, borrowed, or occupied by any protected person.


Doe Run argued that whether lead is a pollutant – and covered by the exclusion – is ambiguous. In response, St. Paul argued that lead, in its particulate form, is unambiguously a “pollutant.”


St. Paul’s policy did not define “irritant” or “contaminant”. The Court looked to the ordinary meaning of those terms. The Court found that lead “when released as particulate matter into the environment” is “undoubtedly” an irritant or contaminant.


The Court also considered the reasonable expectations of an insured, holding that an ordinary purchaser would not interpret the policy as providing coverage for “anything that could … irritate or contaminate.”


Since the underlying actions alleged harm caused by “particulate matter” released into the atmosphere, the Court held that “the toxic emissions expelled from Doe Run’s facilities are unequivocally a pollutant.” As such, the Missouri Supreme Court reversed the trial court’s grant of summary judgment and entered judgment in favor of the insurer.



Howard B. Altman

[email protected]


Legislature on hiatus.


Brian F. Mark
[email protected]


11/17/17       Allstate Ins. Co. v. Luu
U.S. District Court for the Northern District of Georgia, Atlanta Division
US District Court Holds that an Insured’s Faulty Workmanship Does Not Constitute “Property Damage” Under a CGL Policy.

This declaratory-judgment action arises out of an underlying construction defects action alleging property damage claims for breach of warranty, negligent construction, negligent supervision in the construction, fraud, and violations of the Fair Business Practices Act.  The defendant Adrianna Luu entered into a contract with Diamond in the Rough Solutions, Inc. (“Diamond”) for the purchase of a lot and the building of a new house.  Diamond subcontracted with a number of other entities to build the home.  After closing on the property, Luu identified a number of alleged code violations and began having problems with the house.  After the contractors denied liability, Luu commenced the underlying action.


Allstate Insurance Company had issued a standard CGL policy to Diamond, which was an in effect at all relevant time alleged in the underlying complaint.  Following the commencement of a declaratory-judgment action seeking a declaration that it had no duty to defend Diamond in the underlying action, Allstate filed a motion for summary judgment.


In analyzing Allstate’s motion, the Court noted that while the CGL policy issued by Allstate does cover “property damage”, it is well settled law in Georgia that the term “property damage” as used in a standard CGL policy necessarily refers to property that is non-defective, and to damage beyond mere faulty workmanship.  Therefore, any claims that arise as a result of faulty workmanship are not covered under such a policy.  The Court also found that the underlying claims were excluded under the policy’s standard property damage exclusions as such exclusions were designed to exclude coverage for defective workmanship by the insured builder causing damage to the work itself.  Lastly, the Court held that the claims for fraud and violations of the Fair Business Practices Act were not covered as such claims did not constitute an “occurrence”, which the policy defined as an accident.  As such claims are inconsistent with the notion of an accident; neither claim was covered by the policy.  Accordingly, Allstate was granted summary judgment.


11/15/17       Russell v. NGM Ins. Co.
Supreme Court of New Hampshire
Supreme Court of New Hampshire Holds that Losses Directly Attributable to Negligent Workmanship do not Constitute Ensuing Losses.

This declaratory-judgment action arises out of a claim for loss of use damages under a homeowners’ policy issued by the defendant.  The plaintiffs’ home was built in 2007.  In early 2015, the plaintiffs discovered mold and moisture in the attic, which were the result of faulty workmanship.  As a result of the mold, the plaintiff’s vacated the home so that the mold could be eradicated.  Thereafter, they submitted a claim for loss of use damages under their homeowners’ policy.

The defendant insurance carrier denied the claim explaining that pursuant to the “Limited Fungi, Wet or Dry Rot, or Bacteria” endorsement of the policy, mold is only covered if caused by a Peril Insured Against, and, because the mold was caused by faulty workmanship, which is an excluded peril, there is no coverage.

After their claim was denied, the plaintiffs commenced a declaratory-judgment action seeking a declaration that they were entitled to loss of use damages because mold constitutes an ensuing loss of the faulty workmanship that was not otherwise excluded under the policy.  Both parties moved for summary judgment.

The homeowners’ policy at issue was an all risk policy that insured against risk of direct loss to the dwelling and personal property if the loss is a physical loss to property.  The policy excludes losses caused by several specifically identified perils, including smog, rust or other corrosion, mold, wet or dry rot.  Under the Perils Insured Against, the policy states that any ensuing loss to property described under Coverages A, B, and C not excluded or excepted in the policy is covered.  The policy excludes coverage for losses to property caused by faulty, inadequate or defective workmanship.  An ensuing loss provision is also contained in the exclusions portion of the policy. 


The policy contains a Mold Endorsement, which modifies the policy to add to the Additional Coverages section coverage for Fungi, Wet or Dry Rot, or Bacteria and defines “Fungi” to include mold.  The additional coverage added by the endorsement includes recovery for loss caused by fungi, the cost to remove the fungi, the cost to tear out and replace any part of the building to gain access the fungi, and the cost to test the air.  Such additional coverage only applies when the loss or costs are a result of a Peril Insured Against.  The endorsement deletes the reference to mold, wet or dry rot in the exclusion for smog, rust or other corrosion and adds a seepage exclusion.  Lastly, the endorsement adds an exclusion for fungi, wet or dry rot, or bacteria, which doesn’t apply if the fungi, wet or dry rot, or bacteria results from fire or lightning.  Direct loss by a Peril Insured Against resulting from fungi, wet or dry rot, or bacteria is covered.


The plaintiffs argued that they were entitled to coverage for their loss of use because their damages constitute ensuing losses of faulty workmanship.  The Court found the plaintiffs’ reliance on the ensuing loss provisions to be misplaced and noted that when a workmanship exclusion is triggered, an ensuing loss clause applies only when there is significant attenuation between the direct result of a workmanship defect and the ultimate loss for which coverage is sought, usually due to an independent or fortuitous intervening cause. 

An ensuing loss provision excludes from coverage the normal results of defective construction, and applies only to distinct, separable, and ensuing losses.  Courts interpret ensuing loss clauses in this way to assure that the exception does not supersede the exclusion by disallowing coverage for ensuing loss directly related to the original excluded risk.  The Court concluded that the plaintiffs’ chain of reasoning – that hidden and unknown moisture caused the damage, as opposed to the faulty workmanship; that hidden and unknown moisture is not specifically excluded from the policy; that coverage accordingly applies – essentially undoes the faulty workmanship exclusion.  The Court noted that mold is a natural and expected, as opposed to a separate and independent, result of water damage, and therefore cannot be an ensuing loss of accumulated unknown and hidden moisture.  The Court held that the ensuing loss provisions in the homeowners’ policy did not entitle the plaintiffs to recover for any of their alleged ensuing losses.  Under New Hampshire law, an ensuing loss is a loss that is separate and independent from the original excluded peril.  The Court found that the plaintiffs’ losses were neither.  Rather, the mold losses were directly attributable to the initial negligent workmanship.  Accordingly, the defendant carrier was entitled to summary judgment.


11/16/17       Walters Beach Condo. Ass’n v. Home-Owners Ins. Co.
Court of Appeals of Michigan
Michigan Court of Appeals Holds that in a Claim Involving Water Damage Resulting from Construction Defects, a Homeowners’ Policy covers the Ensuing Water Damage, but not the Actual Construction Defect Itself.

This declaratory-judgment action arises from a rain storm that caused water damage to some of the plaintiffs’ condominium units.  Following the storm, the plaintiff made a claim under the defendant’s insurance policy issued to the plaintiff for the damage caused by the rain water.


Upon receipt of the claim, the defendant retained a structural and engineering firm to investigate the damage.  The investigation revealed that the water intrusions were the result of inadequate construction.  Based on the findings of the investigation, the defendant denied the claim based on the policy’s exclusion for defective construction.


The parties stipulated to the facts and filed summary judgment motions.  Notably, the plaintiff agreed that the damage was caused by construction defects.  The trial court granted the defendants motion holding that the claimed loss was subject to the defective construction exclusion.


The Court of Appeals reversed the trial court’s ruling, finding that the policy’s ensuing loss provision mandates limited coverage for damage caused by a covered loss.  The policy provides that the defendant will not pay for loss or damage caused by or resulting from any of the following.  But if loss or damage by a Covered Cause of Loss results, we will pay for that resulting loss or damage.  The defendant conceded that even though construction defects were a cause of the damage to the property, there would arguably be coverage to repair the areas damaged as a result of a subsequent covered cause of loss.  The Court held that such language requires that damage sustained due to a covered cause of loss, such as wind-driven rain, is covered under the policy even though the damage was also a result of a construction defect.  What is not covered is the actual construction defect itself.  The Court determined that the defendant was not responsible for costs associated with repairs to the exterior of the homes that constitute construction defects.  Although the defendant attempted to argue that there was no subsequent covered loss because of two other policy exclusions, there was nothing in the record to support the applicability of those exclusions.  As such, the Court reversed the trial court’s decision and remanded the case for further proceedings to determine whether the other asserted exclusions were applicable to the loss.

Earl K. Cantwell
[email protected]


11/6/17         Traveler’s Property Casualty Company v. Actavis Inc.

California Court of Appeals, Fourth District

No Coverage for Opioid Abuse Claims

In this recent major decision, the California Trial Court and an Appellate Court held that there was no insurance coverage to defend or indemnify a lawsuit brought against pharmaceutical manufacturers and distributors with respect to the sale of opioid products. 


The opioid epidemic has placed a financial strain on state and local governments and in this action the County of Santa Clara and the Court of Orange in California, and the City of Chicago, sued various pharmaceutical manufacturers and distributors alleging a deceptive marketing campaign designed to expand the market and increase sales of opioid products by promoting them for treating long-term chronic pain, a purpose for which the products allegedly were not suited.  The issue on appeal was whether there was insurance coverage based on the allegations made in these actions pursuant to commercial general liability policies. 


Travelers denied demands for defense and brought a declaratory judgment action to establish that it had no duty to defend or indemnify.  The Trial Court held that Travelers had no duty to defend  because the injuries alleged were not the result of an “accident” within the meaning of the insurance policies, and also because the claims fell within policy exclusions for the insured’s products, and relating to warranties and representations concerning those products. 


The Appellate Court affirmed and agreed that Travelers had no duty to defend.  The policies covered damages for bodily injury caused by an “accident”, a term which has been interpreted in California to exclude an insured’s deliberate acts unless the injury was caused by some other or new additional, unexpected, independent, and unforeseen happening.  The underlying actions could only be read as being based on alleged deliberate and intentional conduct by drug manufacturers producing results that were neither unexpected nor unforeseen.  In addition, the injuries allegedly arose out of the products, or alleged statements and misrepresentations made about those products, and therefore fell within products exclusions in the policies. 


The policies generally covered an “accident” which did include continuous or repeated exposure to substantially the same generally harmful conditions.  The policies also excluded “Products and Completed Work”, stating that the policies did not cover bodily injury or property damage resulting from “your products” or completed work. 


After extensive review of the underlying actions and the proceedings in the declaratory judgment action, the Trial Court concluded that the underlying complaints did not allege an accident within the meaning of an “event” or an “occurrence” under the policies, and that the Products Exclusions precluded coverage for the underlying claims. 


The Court began with a review of general principles of insurance coverage, including that determination of the duty to defend is made in the first instance by comparing the allegations of the complaint and the terms of the insurance policy.  California is also apparently an “extrinsic facts” jurisdiction, and a duty to defend may also arise when facts extrinsic to the complaint but known to the insurer may establish that the claim might be covered.  Initially, the insured must establish the existence of a potential for coverage, while the insurance company must establish the absence of any such potential.  Phrased succinctly, the insured need only show that the underlying claim may fall within policy coverage, whereas the insurer must prove that it cannot.  The Courts here concluded that there was no potential for coverage because the underlying claims arose only out of alleged deliberate conduct. 


The Court then examined the question of the definition of an “accident” or an “accidental occurrence” as an unexpected, unforeseen, or undesigned happening or consequence from either a known or an unknown cause.  Significantly, the term accident in the coverage clause refers to the actions of the insured, not necessarily the effects on a third party or actions of an injured party.  Therefore, an accident does not occur when the insured performs a deliberate act unless some other additional, unexpected, independent, and unforeseen happening occurs that results in and produces the damage.  Again, phrased succinctly, where the insured intends all of the acts that result in the injury, the event is not an accident because the insured did not intend or expect to cause injury.  Under California law, the term “accident” does not apply where an intentional act results in unintended harm. 


Continuing its analysis, the Court held that the underlying claims were based on allegations that the manufacturers engaged in deliberate conduct including a sophisticated and deceptive marketing campaign aimed at increasing the sale of opioids and enhancing sales and corporate profits.  The insureds referenced cases in West Virginia where the courts concluded that insurers had a duty to defend pharmaceutical companies in a similar lawsuit.  However, the California Court argued that the allegations in the West Virginia lawsuit were different, and the state law governing those decisions in West Virginia was different than California law.  Apparently, West Virginia law may hold that an accident means that either the act or the injury resulting from the act be unintentional.  This is at odds with California case analysis with respect to the definition of an “accident” or “accidental occurrence”.  


The Courts also ruled that Products Exclusions in the policies excluded coverage since the allegations and claims arose from the products, and what the manufacturers allegedly said (or did not say) about the products. 


This is a recent case discussing insurance coverage in the context of a significant national legal and social issue.  Although this is a serious and widespread issue, the analysis nonetheless turned on basic insurance coverage language and definitions such as “accident”, “occurrence”, “your product”, and “completed operations”. 


Based upon this opinion, it appears that the analysis and the outcome on this question could have different results in different jurisdictions based upon the meaning and interpretation of an “accidental occurrence”.  California law apparently skews to the principle that an unintended consequence of an intentional act is still not an accident.  In contrast, other jurisdictions may have legal decisions including within the meaning of an accident unintended or unexpected consequences resulting from an intentional act. 


Even though this case was a significant decision from the standpoint of both the insurance companies and the insureds, it is also noteworthy that the primary coverage analysis still revolved around the interpretation and language contained in the underlying complaint when compared to the policy terms, provisions, and exclusions. 

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