Coverage Pointers - Volume XIX, No. 13

Volume XIX, No. 13 (No. 496)

Friday, December 15, 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:

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Melville, New York 11747

Phone: 631-465-0700

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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, even if they come from clearing off your desk prior to the holiday week.


Happy Chanukah and Merry Christmas to all!  You are part of the Coverage Pointers family.  We wish you the most joyous holiday season.  Health, joy and prosperity to all.




A special greeting to those who were kind enough to attend my presentation at the DRI Insurance Coverage and Practice Symposium in New York City last week. I presented on “Hot Topics in Problem Jurisdictions,” focusing on New York.  I received a number of requests for the PowerPoint and the paper.  If interested, let me know and I’ll forward.


Part of my presentation spoke to the very important Carlson case, on which we reported in our December 1 issue of Coverage Pointers.  If you haven’t read the summary or the decision, another great place to do so is in Randy Maniloff’s 17th annual “Ten Most Significant Coverage Decision of the Year”.  At Randy’s generous invitation, I guest-authored the review of what he considers one of the ten most significant coverage decisions, nationally.  You can link to Randy’s excellent publication, which includes my discussion on Carlson, here.


This is our last issue before Christmas and Chanukah and we wish all of you the best for the season.  Each year we create, or reprise, a holiday poem for your entertainment and delight, or for ours.  This year is no different.  With a tip-of-the-hat to my co-authors, NAMIC’s Tim Sullivan and H&F’s poet extraordinaire’ Howard Altman, we provide this season’s offering.  By the way, for those who just NEED to see last year’s poem, it’s available, of course.


2017 Holiday Poem


A Fraudulent Christmas


From the Merry Elves:


Dan Kohane, Howard Altman, Tim Sullivan


With salutations and apologies to Ernest L. Thayer, author of Casey at the Bat


The outlook wasn't pretty, for the claim rep’s Christmas Eve,

As snow blanketed the city and her boss had taken leave.

Acord forms, claims and lawsuits, kept the office e-mail dinging,

T’was newly-minted angels, and they all just kept on ringing.


Papers on the table, were piled there not for show,

The claims pro felt unstable, she had somewhere else to go.

Awaiting her attention, were meals and decoration,

She had lots of guests arriving, through her gracious invitation.

One claim that needed little, in the way of extra proof;
The insured, while playing Santa, had fallen through the roof.
Another, surely not the work of criminals or vandals;
The insured had torched his kitchen, while lighting votive candles.

But one claim seemed a challenge, and caused our friend some woe;
The insured insisted a Grinch had lifted his very own Van Gogh.
She’d had penned a terse denial, but knew she’d get some flack,
And now, on Christmas Eve, she found the email pushing back.

“Your insured, I represent,” it read, “not evil folks like you,”
“And when I learned of the hot Van Gogh, I knew that we must sue.”
He screamed “bad faith,” a naughty claim that sadly could gain traction,

I’ll add a chorus of more insureds, and bring a huge class action.”

So where to turn, this Christmas Eve, with so much on the line?

With claims to pay, and pies to bake, before she drank some wine.

She knew she still must buy a tree, in a lot someplace nearby,

But “a situation” confronted her, as she let out a cry.


“I could go home and leave that mail, my ethics wouldn’t shine,”

Instead she chose, to ease her woes, with a call to Hurwitz Fine.
Back at home, old Father Elf was observing snowflake beauty,

An hour more, he’d leave this floor, but now he did his duty.


For a quiet Christmas holiday spent, with several a ‘blue martini,’

He didn’t like to be a Grinch, a nasty or a meanie.

The elf would not leave early, though he had meat to roast or smoke,

He didn’t care, nor a bit despair, that the meal might leave him broke.


The jingling phone, a dulcet tone, brought him right back to his senses,

He wondered what the call would bring, what sort of consequences?

It’s Christmas Eve, he thought, indeed, odd time to hear from clients,

It’ll take a bit, but I’ll answer it, it can’t be rocket science.


As the claim rep talked, he listened close and put his notes to paper,

A Van Gogh gone, no doubt, to pawn; if true, an evil caper.

What should he do, to see this through? He wondered as he jotted,

With experts near, if the proof is clear, the fraud could soon be spotted.

Art maestro’s reached, their spirits breached from places near and far,

He must impose, on special pros, they’d come by plane and car.

A photo from the claimant was, itself closely perused,

No doubt to some that this was fraud, while others looked confused.


Fast drafting, yes, with proofing true, he crafted a denial,

With bundled nerves, the large reserves would sit tight in its file.

The plaintiff called, he wept and bawled for a Christmas Eve decision,

And threatened all, who heard his call, of continuing derision.


Could we find a judge, who could be nudged to decide the case tonight?

“We’ll try,” he said, as he scratched his head, to leave the evening bright.

He lifted the phone, heard the dial tone drone, and called a judge or two,

“I’ll hear the case indeed” said one, so Christmas won’t be blue.

And so the court, as a last resort, brought the counsel to the bar,

The claims debated, lawyers berated, as he chomped on his cigar.

Rules imposed, then the proof was closed, the judge went back to write,

While the claim rep and the lawyers looked out into the night.


With the law abiding and the judge deciding, on this so joyous yule,
All waited on chairs, and tired stares to hear his learned rule.
The plaintiff hoped, tried not to mope, anticipating pay,

The claims rep scared, his knuckles bared, what would the good judge say?


Somewhere plaintiffs’ counsel shout and slap each other’s backs,

Celebrating with fine wine and gobbling lavish snacks.

But on Christmas Eve, we all took leave, when the judge announced the rule,

“Here’s what I’ve found, from the proof propound, as he settled on his stool.


I can’t find blame, on this Christmas claim, and I do want you to know,

“That art’s a fraud”, he said “Oh Lord, it was signed “Vinny VanGo.”


Jen’s Gems:




It was great to see many of you at DRI’s Insurance Coverage and Practice Symposium last week.  Once again, the programing was excellent (including a very informative presentation by Dan Kohane on the pitfalls in New York law).  I always find when I attend these types of seminars that there is a piece or two of information that really sticks with me and alters how I think about a certain issue or how I practice law.  That is truly what makes them worth the trip (and getting to catch up with friends is pretty fun too).


In terms of my column this week, I am reporting on two really interesting decisions from the New York trial level courts.  The first decision addresses a claim by an injured person seeking coverage under the SUM section of her same-sex partner’s automobile insurance policy.  The question posed to the court was whether the injured person qualified as an “insured” on her partner’s policy, which term was defined as “the named insured and, while residents of the same household, your spouse and the relatives of either you or your spouse.”  The injured person asserted that they were a committed couple living together as if spouses.  But, the court zeroed in on the “as if” portion of that statement finding that a marriage certificate was necessary to be considered a “spouse” under the terms of the policy.  It also rejected the argument that the injured person was a relative of the policyholder. 


The other decision I report on this week is interesting mostly because it involves an application to confirm the award of an Arbitration Forums, Inc. arbitrator.  There are a limited number of cases involving Arbitration Forums, which is why this one sticks out.  By way of background, Arbitration Forums is a not-for-profit provider of arbitration and subrogation services.  Many insurers are signatories to the Automobile Subrogation Arbitration Agreement.  By becoming a signatory, the company foregoes litigation and agrees to arbitrate (in this case) any personal or commercial automobile damage subrogation or self-insured automobile damage claims through Arbitration Forums.  The idea is that it is a simpler and less expensive way for insurers to seek subrogation in property damage situations, and other situations.


From my experience, when I get a question about Arbitration Forums, I always reread the rules and the Frequently Asked Questions section of the website due to the limited number of published decisions.  But, it is nice for the courts to chime in every once in a while.  Although if you review the decision, you will see that the court simply directs the parties back to the rules.  So, perhaps I am on the right track.


Happy Holidays!  Until next week…



Jennifer A. Ehman

[email protected]


Free Speech?  What’s That?


The New York Times

New York, New York

15 Dec 1917





BISMARCK, N.D., Dec. 14.—A sentence of five years’ in the penitentiary at Jefferson City was imposed by Judge Martin J. Wade of Des Moines on Mrs. Kate Richards O’Hare, convicted of making utterances in a speech at Bowman, N.D., last summer tending to discourage obedience to the military registration.  The sentence followed a long speech by Mrs. O’Hare, in which she reiterated her opposition to war and defied the Court.


Witnesses testified that Mrs. O’Hare declared in her speech at Bowman that “mothers who raised their sons to be ‘cannon fodder’ were no better than a farmer’s brood show,” and that “young men who are foolish enough to enlist or volunteer are only good enough for German fertilizer.”


Editor’s Note, with thanks to WikiCarrie Katherine Richards was born March 26, 1876 in Kansas.  Her father, Andrew Richards was the son of slave owners who had come to hate the institution, enlisting as a bugler and drummer boy in the Union Army at the outbreak of the Civil War in 1861. Following the conclusion of the war he had married his childhood sweetheart and moved to the western Kansas frontier, where he and his wife Lucy brought up Kate and her four siblings, raising the children as socialists from an early age.


O'Hare briefly worked as a teacher in Nebraska before becoming an apprentice machinist in her native Kansas. After being moved by a speech by labor activist Mary Harris Jones, she became drawn into socialist politics. She married fellow socialist  Frank O. O’Hare.


She unsuccessfully ran as a candidate for the Congress in Kansas on the Socialist ticket in 1910.  In the pages of the National Rip-Saw, a St. Louis-based socialist journal in the 1910s, O'Hare championed reforms in favor of the working class and toured the country as an orator.  In 1916 the Socialist Party of Missouri named O'Hare its candidate for U.S. Senate, heading the Socialist ticket in the state.


After America's entry into World War I in 1917, O'Hare led the Socialist Party's Committee on War and Militarism. For giving an anti-war speech in Bowman, North Dakota, O'Hare was convicted and sent to prison by federal authorities for violating the Espionage Act of 1917, an act criminalizing interference with recruitment and enlistment of military personnel. With no federal penitentiaries for women existing at the time, she was delivered to Missouri State Penitentiary on a five-year sentence in 1919, but was pardoned in 1920 after a nationwide campaign to secure her release. In prison, O'Hare met the anarchists Emma Goldman and Gabriella Segata Antolini, and worked with them to improve prison conditions.


After her release and the war’s end, support for the Amnesty movement waned. In April 1922, to free America’s "Political Prisoners" she led the "Children’s Crusade", a cross country march, to prod Harding to release others convicted of the same 1917 Espionage act she had been convicted. With support of the fledgling ACLU, the women and children stood at the gates of the White House for almost two months before Harding met with them, ultimately releasing many of the prisoners of conscience.


Tessa’s Tutelage:


Dear Readers:


Occasionally, when there is an interesting topic, I will feature a decision that is not from an appellate court.  This week we have a case from the District Court of Suffolk County, Third District.  This case covers three arguments put forth by Defendant including, medical necessity, New Jersey fee schedules, and whether an insurance company had an obligation to pay for services rendered by a corporation that had failed to timely file its certificate of authority.  The arguments went in order of their relative “interestingness.”


As you may know, medical necessity is not my favorite topic to write about- so let’s focus on the second and third arguments.  Defendant successfully demonstrated that the plaintiff, a NY corporation practicing in NJ, did not follow the NJ fee schedules.  Plaintiff really couldn’t offer much evidence to rebut one, so the amount claimed was reduced to reflect the fee schedule in NJ.


Finally, the defendant hoped the court would determine that plaintiff’s failure to file a certificate of authority to transact business in NJ absolved it of any duty to pay plaintiff.  Both sides came armed with arbitration decisions to support their position.  Plaintiff prevailed.  The Court pointed to NJ penalties for failure to obtain the proper certificate, and nonpayment of no-fault claims was not one of them.  The court concluded that a simple technical mistake should not require such a drastic remedy as argued by defendant.  This decision surprised me in its concern with fairness. Usually we see pretty cut and dry applications of no fault regulations i.e. this is the rule, break it and you lose out.  It will be interesting, moving forward, to see if other courts interpret this scenario in the same manner.


Hope you have a wonderful holiday!



Tessa R. Scott

[email protected]


“I’m Alive.  I’m Alive” – 100 Years Ago:


The Sun

New York, New York

15 Dec 1917




Thomas Barker, 72, Returning From

Wanderings Seeks to Recover Patrimony


Thomas Barker, whose seventy-two years sit lightly upon him by reason of an active life, has filed suit in the Supreme Court of Nassau County to prove that he is not dead.  By the terms of the formal decision of the Surrogate of Kings County, made ten years ago, Barker is dead.  By the insistence of the old man he is very much alive, and his purpose of denying the charge is to get some one of the persons who have come into his property to take care of him during the few remaining years of his life.


Two months ago Barker, an utter stranger in the community, came like Rip Van Winkle to the home of Warren Golder, on the Newbridge Road, near Bellmore, L. I., and asked, just as Old Rip had asked, if any of the family knew him.


Now Golder was Barker’s cousin, but he had not seen the ancient for forty years, and he answered the question in the negative.  Barker pulled from one pocket a faded discharge from the army, granted after the civil war.  From another he brought pictures of his father and mother and one of himself, taken in uniform.


And with this start toward coming from the legal grave he started suit against the heirs of his dead brother, Chauncey Barker, to recover his part of their father’s estate, which part consisted of one-half of two Long Island farms and of $20,000 in cash.


Ewell's Universe:


Dear Subscribers:


As I write this short note, I am sitting in a Manhattan coffee shop watching the snow fall. This is a beautiful time to be in New York City, even if it is a bit cold. I want to wish everyone Happy Holidays. Happy Hanukah to those who celebrate. Merry Christmas to those who celebrate. And a Happy Festivus to the rest.


South Dakota. World-renowned for Mount Rushmore and the Bad Lands National Park. Not a prolific state when it comes to handing down insurance law opinions. South Dakota’s highest court, the South Dakota Supreme Court, recently considered whether a professional services exclusion in a commercial general liability policy excludes coverage for errors made by surveyors. Some policies containing a professional services exclusion define what “professional services” are. Others do not. This particular policy did not. Accordingly, South Dakota considered whether a surveyor is a “professional service” within the meaning of the exclusion. It concluded that land surveying is a “professional service” and that coverage was barred by the exclusion.


This decision appears to be consistent with the intent of the insurance companies in the drafting of the contract. Professional services exclusions in commercial general liability policies are generally meant to exclude coverage for professional services such as architects, engineers, and surveyors. Claims against such persons and entities typically fall within an errors and omissions policy.


‘Til Next Time,



John R. Ewell

[email protected]


The Outcome: Shooting One’s Butler, Not So Serious, a Century Ago:


Brooklyn Daily Eagle

Brooklyn, New York

15 Dec 1917





Tried to Shoot Butler—Hears

Verdict Calmly


(Special to the Eagle.)


Mineola, L. I., December 15—Mrs. Irene Zuckerman of Cedarhurst, wife of Mortimer C. Zuckerman, an importer of skirts, was found guilty of assault in the second degree, by a jury in the County Court here last evening.  She was accused of attempting to shoot Armand Delfard, a former butler in the Zuckerman home, at his home in Inwood.  The jury recommended clemency.


Mrs. Zuckerman, a dark-eyed, comely woman, mother of two children, heard the verdict without a tremor, and when she stood before Court Clerk Daniel A. Sealey’s desk to answer his questions, she was supported by her husband.  Mrs. Zuckerman, however, needed no assistance.   She walked to the country jail unescorted.  She will be confined in jail until Monday when she will be sentenced, unless County Judge Lewis J. Smith, before whom the case was tried, signs a certificate of release. 


Punishment for second degree assault carrier with it a maximum term of five years or a fine not exceeding $1,000, or both.

Editor’s Note:          A couple of days later, the story continued …


The Brooklyn Daily Eagle

Brooklyn, New York

17 Dec 1917





(Special to The Eagle.)


Mineola, L. I., December 17—Mrs. Irene Zuckerman, wife of Mortimer C. Zuckerman of Cedarhurst, L. I., was fined $250 by Judge Louis J. Smith in the Nassau County Court here today.  A jury rendered a verdict declaring her guilty of second degree assault.


On August 17 Mrs. Zuckerman shot at her former butler, Armond Delfard, and was arrested.  The jury gave its verdict Friday night, recommending clemency, and Mrs. Zuckerman spent the week-end in the county jail.  Her husband paid her fine today and they both returned to Cedarhurst. 

Editor’s Note: the Zukerman’s were still married at the time of the 1940 Census.  Not sure about Delfard (who apparently was not injured in the shooting).


Hewitt’s Highlights: 


Dear Subscribers:


Happy Holidays! Happy Hanukkah to those who celebrate that Holiday and an early Merry Christmas to those who celebrate that one.  The New York City area now looks beautiful with lights and decorations. Thursday we travel up to Buffalo for our Holiday party and brave the extra cold and snow. We are now getting cold down in Melville as well and, unfortunately, there is very little in the way of serious injury threshold cases to keep you warm. Instead, I would like to remind subscribers that motions by defendants to dismiss cases on the basis of lack of serious injury must have the various categories in mind when deposing the plaintiff. Particularly, the 90/180-day category must be addressed as that is not something entirely demonstrable in the medical records or at the IME. Plaintiff should be pinned down as much as possible to the exact time period he was unable to do his normal daily activities. It will make a motion for summary judgment that much easier later.


Until next time,


Robert Hewitt

[email protected]


Women Pilots Not Welcome During WW I:



Elmira, New York

15 Dec 1917


Fears Rush of Women,

If He Favors Ruth Law


Washington. Dec. 15.—Secretary Baker yesterday again told Miss Ruth Law that he cannot grant her request for a commission in the aviation section of the army.  Mr. Baker took the ground that to grant Miss Law’s request would open up the way for applications by hundreds of other women not so well equipped as Miss Law.


The Secretary told Miss Law it might be possible for the War Department to accept her services as a civilian instructor. 


Wilewicz’ Wide-World of Coverage:


Dearest Readers,


The holidays are fast approaching (and in some cases have already commenced – Happy Hanukkah!), and things are getting increasingly hectic. It seems like many are already in that week-before-vacation frenzy. It’s a good time to practice a bit of mindfulness and remember to take things one at a time. We really can only do a single thing at a time if you think about it (and so say science), so take a deep breath and put one foot after the other.


Now, it was really lovely seeing so many old friends and making new connections at last week’s DRI Insurance Coverage and Practice Symposium in New York City. As expected, the speakers were stellar (including our very own Dan Kohane, despite being slotted in at 8:05 a.m. on a Friday morning, he did a great job), the networking was unparalleled, and the venue bar none. If you’re not already a member, it might be worth your while to consider at least attending a DRI event to see what it’s all about. Whether you are a lawyer or adjuster or broker or other insurance professional, you can get access to a huge network of industry people and resources, all while earning valuable continuing education credit. Drop us a line if you’re interested, and we’ll get you started.


This week, as promised, we continue the discussion of the Nick’s Garage double feature. In this one, while the Second Circuit’s opinion was a mere 49 pages, the crux of the decision focused on whether the insured had established that there was a material issue of fact that precluded summary judgment on its breach of contract claim against the insurer. With the facts echoing those in the other Nick’s Garage decision, the court looked at whether the carrier had to pay the amounts necessary to bring a vehicle back to pre-accident condition or whether it was underpaying the claims. Ultimately they found an issue of fact and a misapplication of the burdens of proof and thus remanded the case for further proceedings. No doubt we will continue to see this case pop up as it develops, and we will bring you updates on any further appellate decisions down the line. Finally, I would be remiss if I did not give many thanks to one of our soon-to-be admitted associates, Larry Waters, for his write-up of the case. Stay tuned for a future edition of Coverage Pointers, where Larry will feature with his own column – provided he passes his upcoming character and fitness text. Here’s hoping.


That’s it for this week. Happy Holidays!



Agnes A. Wilewicz

[email protected]


Old Fire:


Democrat and Chronicle

Rochester, New York

15 Dec 1917




Blaze Caused by Defective Pipe

Does $500 Damage


Warsaw, Dec. 14.—Fire early this afternoon partially destroyed the house of Wilbur Olds on Rochester Street.  It started from a defective chimney and over-headed stove in the rear of the house.  Most of the household goods in the first floor were saved but those in the second floor were not removed and were damaged somewhat by fire, smoke and water. 


The damage was mostly in the rear of the house and in the garret.  There was some insurance, but it is believed not enough to cover the loss, which will amount to several hundred dollars.  The Fire Department, though a little slow in responding, was able to put out the fire without great difficulty.


Mr. and Mrs. Olds are old people living alone.

Editor’s Note:          The “Olds” are “old people”? Cute pun.  By the way, Wilbur Olds, a working farmer and a Civil War veteran, was an ancient 71 years of age on December 15, 1917 and his wife Esther (his second) was 68.


Barnas on Bad Faith:


Hello again:


I bring you this note from my house having just returned from a long day in New York City.  I felt like a real traveling New York City lawyer today with an appearance in Kings County in the morning and Queens County in the afternoon.  Unfortunately, the weather was equally cold and windy in Buffalo and New York City today.  Winter is no longer coming; winter is here.


Here on the Coverage Team at Hurwitz & Fine, JetBlue flight schedules are of particular interest to us.  For some unknown reason, JetBlue has recently moved its early morning flight from Buffalo to JFK from an incredibly early 5:30-5:50 a.m. to an oppressively early 5:00 a.m. sharp.  It might not sound like much, but those extra 30-50 minutes make a world of difference, especially in the winter.  In fact, today I learned firsthand that the TSA Pre line in Buffalo opens at exactly 4:07 a.m.  Not only is this something I never wanted to know, but I have no idea why the TSA would select such a specific time to open the line.  Fortunately, I was assured by the extraordinarily friendly and helpful JetBlue flight crew in Buffalo that the 5:00 a.m. sharp flight will be a thing of the past come January.  Good riddance.


I have two bad faith cases from New York to report on this week, which is a rare occurrence indeed.  In GM Broadcasting Plaintiff tried to bring a breach of contract and bad faith claim against Cincinnati’s insured and Cincinnati in the same lawsuit.  Unfortunately for Plaintiff, it had not first obtained a judgment against Cincinnati’s insured that had gone unsatisfied for 30 days.  Accordingly, it lacked standing to pursue the contractual and bad faith claims against Cincinnati and the claims against the insurer were dismissed.


Head is a short case that reminds us of a simple rule.  In New York there is no independent cause of action for bad faith breach of contract arising from an insurer's failure to perform its obligations under an insurance contract.  Indeed, most cases involving alleged “bad faith claims handling” actually involve claims for breach of the implied covenant of good faith and fair dealing, which is a breach of contract claim.


Signing off,



Brian D. Barnas

[email protected]


Insurance Fraud in Buffalo, 100 Years Ago:


Buffalo Evening News

Buffalo, New York

15 Dec 1917





Court Holds “Captain Duquesne” in

$50,000 Bail in Insurance Fraud

Case—Find Spy Letter.


New York, Dec. 15.—On a charge of fraudulently submitting a false proof of fire insurance claim but more particularly because it is alleged he has been “identified and connected with the enemies of this country,” Frederick Fredericks, better known as “Captain Fritz Joubert Duquesne,” adventurer and soldier of fortune, has been held in $50,000 bail by Judge Crain in general sessions.  The prisoner, who is known also as “Captain Claude Stoughton” of the British army, was indicted by a grand jury.


District Attorney Swann issued a statement last night explaining the necessity for holding Duquesne in such high bail.


“Bail was fixed at $50,000 by Judge Crain,” Mr. Swann said, “upon the statement made in open court by Assistant District Attorney Ryttenberg that the neutrality squad had informed the district attorney that it had information in its possession showing that the defendant was identified and connected with the enemies of this country and that if bail in a lesser sum were fixed, by reason of the defendant’s connections, he would be able to obtain the bail and probably not be within the jurisdiction of the court at the time he was wanted for trial.


Altman’s Administrative (and Legislative) Agenda:  


Greetings, Dear Readers.  Happy Holidays! I have my latkes, my homemade jelly donuts (“Sufganiyot”, for those in the know) and am ready to celebrate Chanukah. Or Hanukkah. Or Hanukah.  We spell it differently each time, to keep some others guessing.  


Today, I bring you a new circular letter from New York’s Department of Financial Services, which offers guidance to insurers for coverage of medication to prevent HIV infection.



Howard B. Altman

[email protected]


Object: Matrimony:


Arizona Republic

Phoenix, Arizona

15 Dec 1917


            WANTED—To meet lady between 30 to 50 yrs.; must be jolly and good entertainer.  Object Matrimony.  Address Mr. Collins, Adams hotel.  Highest references.


Off the Mark:


Dear Readers,


Like it or not, the holidays are here.  I am not a fan of holiday shopping and the long lines that go with it.  I usually wait until the last minute to shop for gifts and this makes it even worse.  Despite knowing this, I still seem to do the same thing every year.  Luckily for me, the wife takes care of most of the shopping.   All I have to do is help wrap, which is well worth it to me. 


This edition discusses a construction defect case from the Court of Appeals of Oregon.  In Sec. Nat’l Ins. Co. v. Sunset Presbyterian Church, the Oregon Court of Appeals determined that the plaintiff insurer had a duty to defend its additional insured in an underlying construction defect action.  The Court examined the underlying complaint and the insurance procurement clause in the subcontract and held that the allegations in the underlying complaint were sufficient to trigger a duty to defend.  The Court applied an Oregon anti-indemnity statute, which voids construction agreements requiring a person to indemnify another for the indemnitees own negligence, to limit the scope of the duty to defend to the additional insured’s potential liability arising out of the named insured’s faulty work.  The Court noted that the anti-indemnity statute at issue was an exception to the general rule that an insurer with coverage of one claim must defend all claims in a complaint against an insured.

Happy holidays everyone!


Until next time …



Brian F. Mark
[email protected]


Knitting – the Great Equalizer (100 Years Ago):


The Daily Chronicle

DeKalb, Illinois

15 Dec 1917











LaSalle County Woman Makes

Record In Short Time and

is Also Teaching

Youngsters Art.


(By United Press)


Bloomington, Ill., Dec. 13 – Needles are working busily over all of Illinois.  Old and young are helping to win the war by knitting sweaters, socks and other articles for the boys in the trenches.  The weaker sex is unable to maintain a monopoly in this direction as many men have become interested. 


Jesse Williamson, Deputy County Treasurer of Douglas County, is one of the leaders in this enterprise among the men of central Illinois.  As transactions in the Treasurer’s office have been few since the tax paving period he has taken up knitting with great success.  He has completed two sweaters and one scarf and has started the third sweater.  Experts who have examined the completed articles assert the work is well done and every bit as good as that of the ordinary feminine knitter.  


Peiper’s Posting:


No poems from this portion of the issue.  Fortunately, the holiday poem fills the gap.


While the last two week’s work have produced a relatively light decision tally, we do take a moment to discuss the Clavin case we review this week.  Specifically, the portion of the case that addresses insurance procurement clauses (I know, I’m a barrel of laughs at Holiday Parties).


We, as coverage lawyers, tend to focus on the wording of the AI endorsement, at times at the expense of a good, hard reading of the “procurement” clause of the trade contract.  Trade contract provisions, be they indemnity of insurance, must be strictly construed.  Thus, by way of rule of thumb, if you want it…you gotta ask for it.  Indemnity obligations, and likewise insurance procurement obligations, are not implied. 


Here, the Court addresses the often seen verbiage “for the benefit of.”  At least in this case, the Court noted that there is no explicit request for AI status, and thus no clear obligation for the other party to act.  If you want it, you gotta ask for it.  Thus, if you don’t see “name ________ as additional insured,” coverage might not be confirmed regardless of what the AI Endorsement says. 


Just a note and a plea.  Happy Holidays. 


P.S. For those of you wondering, December 14th is World Monkey Day.  Which, I have learned, is quite inclusive…therein celebrating both New and Old World Monkeys alike.  Apes are also feted on World Monkey Day.  No word on whether Wookies also enjoy the recognition. 



Steven E. Peiper

[email protected]



Headlines from this week’s issue, attached:



Dan D. Kohane

[email protected]


  • High Court Affirms Second Department’s Decision on Policy Severability.
  • Our Review of the Appellate Division Decision is Below.
  • No Blanket Rule on that Per Occurrence Limit in Reinsurance Policy Limits Recovery of Expenses under Per Occurrence Liability Cap
  • Underinsurance Coverage: Settling with the Tort Defendant without the SUM Carrier’s Permission Defeats Coverage; Ignorance of the Policy Provisions by the Insured or her Attorney is No Excuse
  • Carrier Cannot Recover Defense Cost Incurred on behalf of its Insured because Insured Discontinued, with Prejudice, Claims Against Other Defendants


Robert E.B. Hewitt III

[email protected]


  • Plaintiff Showed an Issue of Fact With Respect to the Cervical and Lumbar Spine



Tessa R. Scott

[email protected]


  • The Fact That the Plaintiff Had Not Obtained the Proper Certificate of Authority Required In the State Of New Jersey Did Not Relieve Defendant from Payment



Steven E. Peiper

[email protected]


  • Insurance Clause Requiring Insurance “for the benefit of” was Insufficient to Create an Obligation to Procure Additional Insured Status
  • Trial Court Abused Discretion when it, Sua Sponte, Reduced Workers’ Compensation Lien to Ensure Plaintiff a Larger Recovery of Settlement



Agnes A. Wilewicz

[email protected]


  • Second Circuit Finds an Issue of Fact and Reverses Insurer’s Summary Judgment Win on Breach of Contract Claim


Jennifer A. Ehman

[email protected]


  • Non-Married Same Sex Partner Did Not Qualify as an “Insured” under SUM Endorsement
  • Insurer Precluded from Challenging Arbitration Award Where It Failed to Attach Coverage Denial Letter to Submission



Brian D. Barnas

[email protected]


  • Claimant lacked Standing to Bring Claim for Breach of the Duty of Good Faith against the Policyholder’s Carrier
  • New York does not Recognize an Independent Cause of Action for Bad Faith Breach of Insurance Contract


John R. Ewell

[email protected]


  • South Dakota Supreme Court Holds that Professional Services Exclusion Excludes Coverage for Surveyor’s Error



Howard B. Altman

[email protected]


  • Coverage for HIV Prevention


Brian F. Mark

[email protected]


  • Oregon Court of Appeals Finds Insurer had a Duty to Defend Additional Insured for Potential Liability Arising out of Insured’s Defective Work in an Underlying Construction Defects Action.


Earl K. Cantwell

[email protected]


  • Latent Construction Defects Not Covered



Our very best wishes for the holidays.



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]



12/14/17       Garcia v. Government Employees Insurance Company

New York State Court of Appeals

High Court Affirms Second Department’s Decision on Policy Severability.

Our Review of the Appellate Division Decision is Below.

06/28/17       Garcia v. Government Employees Insurance Company

Appellate Division, Second Department

Where Insured Asked for Higher Limits on Renewal but Paid Premium Only for Lower Limits, Cancellation Notice Effective.  Policy Not “Severable”.

This was an action to recover the amounts of an unsatisfied judgment pursuant to the “Direct Action” statute, Insurance Law § 3420(a)(2)

Garcia, was injured when he was struck by a vehicle in a parking lot in Brooklyn. He sued the owner, Rakowski and the permissive driver, Danielson.  Garcia obtained a judgment against both and received a partial satisfaction of that judgment,


Garcia sought to recover the unsatisfied portion of it from GEICO who issued a personal umbrella policy to Rakowski, the owner. Garcia claimed that the umbrella policy was in effect when Rakowski's vehicle struck him. GEICO disagreed, claiming that the policy had been cancelled and after 30 days went by, Garcia commenced this direct action.


GEICO contended that Rakowski's umbrella policy had been cancelled for nonpayment of premium, effective at 12:01 a.m. on May 19, 2006, only a few hours before Rakowski's vehicle struck Garcia.


In support of its motion, GEICO submitted evidence that in August 2005, Rakowski, who had a coverage limit of $1,000,000 for the period ending October 10, 2005, requested, and received, a renewal policy, for the period from October 10, 2005, to October 10, 2006, with a coverage limit of $2,000,000. Rakowski also added a rental property to the policy for that period. The increase in the coverage limit from $1,000,000 to $2,000,000 resulted in a $199 increase in the premium.


GEICO also submitted evidence that before the beginning of the renewal term, Rakowski made a $306 premium payment (the amount of the previous year's premium), but had not paid the additional $199 that was due for the increase in her coverage limit. Finally, GEICO submitted evidence that in November 2005, it had mailed Rakowski a notice informing her that her policy would be cancelled effective 12:01 a.m. on May 19, 2006, if she did not pay the remainder of the premium. The cancellation notice referenced Rakowski's policy number, which remained constant throughout the various policy periods.


Garcia argued that the payment of the previous year’s premium amount should have provided a $1,000,000 policy and that GEICO had failed to establish, prima facie, that it had validly cancelled the policy, whatever the limit of coverage.


The Supreme Court denied GEICO's motion, holding that there was a triable issue of fact as to whether Rakowski's umbrella policy was severable as to the limits of liability. GEICO appeals.


The Second Department found that the policy was not “divisible”.  When an insured has increased liability limits of an entire policy as of the inception date of coverage, but has not paid the full premium and the policy has thus lapsed, the policy is not divisible to provide coverage in a lesser amount than stated in the policy, at least where no different type of risk had been added to the policy


A strong two-judge dissent found a question of fact on severability.

Editor’s Note:  One can understand why the court is split on this one; it’s a close question although we would tend to support the majority’s view.


12/14/17        Global Reinsurance Corp. v. Century Indem. Company

New York State Court of Appeals

No Blanket Rule on that Per Occurrence Limit in Reinsurance Policy Limits Recovery of Expenses under Per Occurrence Liability Cap

The issue the high court was asked about was whether a 2004 decision in Excess Insurance Co. Ltd. v Factory Mutual Insurance Co. (3 NY3d 577 [2004]) “imposed a rule of construction that a per occurrence liability cap in a reinsurance contract limits the total reinsurance available under the contract to the amount of the cap regardless of whether the underlying policy is understood to cover expenses such as, for instance, defense costs?"


The Court of Appeals answered “no”. There is neither a rule of construction nor a presumption that a per occurrence liability limitation in a reinsurance contract caps all obligations of the reinsurer, such as payments made to reimburse the reinsured's defense costs.


There are two types of reinsurance: treaty and facultative. Under a reinsurance treaty, the cedent transfers to the reinsurer its risk under an entire line of business spanning multiple insurance policies (see Travelers, 96 NY2d at 587-588; Sumitomo Marine & Fire Ins. Co., Ltd.-U.S. Branch v Cologne Reinsurance Co. of America, 75 NY2d 295, 301 [1990]). By contrast, in facultative reinsurance, the reinsurer agrees to indemnify the cedent for all or a portion of the cedent's risk under a single policy in the event of loss (see 1A Couch on Ins. § 9:3 [3d ed. 2016]; Travelers, 96 NY2d at 587). In other words, facultative reinsurance is policy-specific.  In this case, the Court was concerned only with facultative reinsurance.


Typically, the facultative reinsurer is obligated to indemnify the cedent up to a stated upper limit.


An underlying third-party liability insurance policy will often require the insurer to either pay the insured's costs in defending covered claims, or to provide legal counsel and defend the claim itself. These expenses are distinct from indemnity payments for actual losses.


One recurring issue in reinsurance disputes is whether these defense costs, insofar as they are reinsured by a facultative reinsurance policy, count towards the limit in the reinsurance accepted clause. Global argued that, under the reinsurance accepted clause, its obligation to Century for both loss and expense payments were capped at $250,000. Century argued that this $250,000 limit applied only to losses and that Global must also pay all expenses, even if losses and expenses combined would exceed $250,000.


The opinion in Excess addressed whether a reinsurer's obligation to pay loss adjustment expenses arising from a "follow-the-settlements" clause was subject to the stated indemnification limit in the reinsurance policy. Factory Mutual Insurance Company (Factory) issued a property insurance policy to Bull Data Systems Inc. (Bull Data), covering the risk of loss or damage to Bull Data's personal computer inventory. Factory, in turn, reinsured the Bull Data policy with various reinsurers, including the respondents in that case.


A fire destroyed the warehouse where Bull Data's inventory was stored and, suspecting arson, Factory disputed coverage (see id. at 580-81). Though Factory ultimately settled the claim, it incurred approximately $35 million in loss adjustment expenses in the litigation against Bull Data (see id.). Factory then sought $12 million from the respondents, representing $7 million for the Bull Data settlement and an additional $5 million representing the reinsurers' proportional share of loss adjustment expenses. Factory argued that the reinsurers' undertaking to bear their proportion of expenses pursuant to the follow-the-settlements clause was "separate and apart from the indemnification cap on the policy," while the reinsurers countered that their aggregate liability, expenses and all, was capped at $7 million.


The Court held in the Factory case that the reinsurers were entitled to summary judgment on the issue. "Once the reinsurers have paid the maximum amount stated in the policy, they have no further obligation to pay Factory Mutual any costs related to loss adjustment expenses" (id. at 583). Having interpreted the "LIMIT" clause to impose an expense-inclusive $7 million cap, we then rejected Factory's contention that the reinsurers' obligation to indemnify it for loss adjustment expenses could supersede that clause.


Although Excess did not say that third-party defense costs under any facultative reinsurance contract are unambiguously or presumptively capped by the liability limits in the certificate, some courts have nonetheless read the decision that way.

The Excess Court was not faced with the question presently before the Second Circuit: whether there is a blanket "presumption" or "rule of construction" that a limitation-on-liability clause applies to all payments by a reinsurer whatsoever. In addition, the loss adjustment expenses were incurred in litigation between the insurer and its policyholder; they were not costs (such as third-party defense costs) that the insurer was obligated to pay under the terms of the underlying policy itself. Whether a similar (or even identical) limitation clause would apply to third-party defense costs, in a certificate reinsuring a liability insurance policy was never at issue.


12/12/17       Travelers Indemnity Company of America v. McGloin

Appellate Division, First Department

Underinsurance Coverage: Settling with the Tort Defendant without the SUM Carrier’s Permission Defeats Coverage; Ignorance of the Policy Provisions by the Insured or her Attorney is No Excuse

McGloin was injured in an automobile accident while driving a vehicle owned and insured by her employers. Through counsel she notified Travelers the insurer of the vehicle, of her intent to seek underinsured motorist benefits and she commenced an action against the driver of the other vehicle involved in the crash.


She subsequently settled the action against the other driver for the limits of his insurance policy without seeking petitioner's consent. Petitioner disclaimed coverage on the ground of the settlement of the action without its consent, in violation of the Supplementary Uninsured/Underinsured Motorists (SUM) endorsement of the policy, impaired its right to subrogation.


Respondent's assertion that she could not have been aware of provisions of the policy that were never provided to her is unavailing. The SUM endorsement is mandated by regulation (see 11 NYCRR 60-2.3) and Rules of Professional Conduct (22 NYCRR 1200.0) rule 1.1 requires an attorney to possess the requisite legal knowledge and skill reasonably necessary to represent a client.


The attorney who handled her underinsurance claim and lawsuit against the adverse driver did not testify, despite being present at the hearing. Accordingly, the Referee did not err in drawing an adverse inference against respondent on the factual issue of whether her attorney/agent had actual knowledge of the provisions of the SUM endorsement or in determining that her attorney/agent should have and actually did have such knowledge.


12/05/17       Navigators Ins. Co. v. Ironshore Indemnity, Inc.
Appellate Division, First Department

Carrier Cannot Recover Defense Cost Incurred on behalf of its Insured because Insured Discontinued, with Prejudice, Claims Against Other Defendants

Navigators sought reimbursement of defense and settlement payments it made on behalf of its insureds in the underlying action. As subrogee of its insureds, plaintiff has only the rights that its insureds have. The insureds stipulated to the discontinuance with prejudice of their defense and indemnification claims in the underlying action. Thus, plaintiff's subrogation claim is barred by the doctrine of res judicata.


Robert E.B. Hewitt III

[email protected]


12/06/17       Mardirossian v. Pearl Express Cab

Appellate Division, Second Department

Plaintiff Showed an Issue of Fact With Respect to the Cervical and Lumbar Spine

The Appellate Division held defendants met their prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendants submitted competent medical evidence establishing, prima facie, that the alleged injuries to the cervical and lumbar regions of the plaintiff's spine did not constitute serious injuries under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d). In opposition, however, the plaintiff raised a triable issue of fact as to whether he sustained a serious injury to the cervical and lumbar regions of his spine under the permanent consequential limitation of use and significant limitation of use categories of Insurance Law § 5102(d). No facts were given.



Tessa R. Scott

[email protected]


11/27/17       Professional Chiropractic Care, P.C. v State Farm Mut. Auto. Ins.

Distinct Court of Suffolk County, Third District

The Fact That the Plaintiff Had Not Obtained the Proper Certificate of Authority Required In the State Of New Jersey Did Not Relieve Defendant from Payment

This is an action to recover assigned no-fault benefits for treatment rendered to plaintiff's assignor for injuries claimed to have been sustained in a motor vehicle accident which occurred on December 30, 2012. Defendant's motion for summary judgment sought dismissal of the complaint on three separate grounds: (1) lack of medical necessity for the treatment; (2) billing in excess of the applicable fee schedule; and (3) lack of authority to do business in the State of New Jersey where the treatment was rendered, by reason of the failure of plaintiff corporation to obtain a certificate of authority to transact business, prior to the time the treatment was rendered.

Defendant’s Argument 1

As to the issue of medical necessity, both sides submitted detailed affidavits which created a question of fact.

Defendant’s Argument 2

Defendant submitted proof in the form of an affidavit by a certified coder to establish that the amount allowable by the applicable New Jersey fee schedule for the services rendered is $9,160.08. Plaintiff did not submit any evidence to rebut this proof.

Defendant’s Argument 3


Defendant argued that plaintiff, a New York professional corporation, was not authorized to transact business in New Jersey as of the dates of the treatment for which payment is sought herein. That fact is not disputed. Plaintiff claims that the failure to obtain the requisite certificate of authority was a technical violation that does not warrant granting the drastic relief of claim preclusion urged by defendant.

The reasoning urged by defendant and set forth in the arbitration awards relied upon is that plaintiff violated the New York no-fault regulations by not having been qualified to do business in New Jersey by reason of having failed to obtain a certificate of authority as required by New Jersey Law.

Defendant argued that the failure of the plaintiff health care corporation to obtain a certificate of authority for a foreign corporation to transact business means the insurer is not obligated to pay for otherwise valid billing for medical treatment. The court disagreed. “There is no dispute that the health care professionals who rendered treatment for which payment is demanded met all of the licensing requirements of the State of New Jersey to perform the health care services rendered to plaintiff's assignor.”

The court further supported its decision because the plaintiff was in fact authorized to transact business in New Jersey at the time the action was commenced. New Jersey law also expressly provides that the failure to obtain the certificate "shall not impair the validity of any contract or act of such corporation." This clearly includes the validity of the assignment of an insured's contractual right to no-fault benefits, as well as the "acts" of the duly licensed health care professional rendering the treatment for which payment is sought. Finally, the statute imposes monetary penalties for failure to obtain the requisite certificate of authority to transact business.

Thus, the State of New Jersey has in place the means by which foreign corporations who fail to obtain a certificate of authority are penalized. “None of the statutory penalties includes the relief requested by defendant in its motion.”

12/14/17       Freligh v Government Employees Ins. Co

Appellate Division, Second Department

The Court Of Appeals Reverses The Lower Court Because Questions Of Fact Remain Regarding Plaintiff’s Lost Wage Claim

The Court of Appeals reversed the decision of the lower court because it found there remained questions of fact regarding the lost wage claim. However, it did not explain the basis for its decision. 

On December 23, 2012, plaintiff allegedly sustained various injuries when the vehicle that he was operating was rear-ended by another vehicle. At the time of the accident, plaintiff, who had worked in the automotive parts and repair industry for a number of years, had been unemployed for approximately seven months. In January 2013, plaintiff submitted an application for no-fault benefits to defendant, his insurance carrier. With respect to the lost wages portion of the application, plaintiff indicated that he "was due to start [a] new job"  with Hrazanek but had been unable to work since December 23, 2012 as a result of the injuries that he had sustained in the accident. Plaintiff further indicated that details regarding his position, including his salary and the employer's name and address, would be provided.

Defendant conducted extensive discovery to disprove Plaintiff’s claim.  They found that Hrazanek’s business was in physical and financial disrepair after Hurricane Irene struck in 2011. Hrazanek attempted to say he had been planning to hire Plaintiff to work at a new location; however he had never made any efforts to open such a business, and never did.  In fact the business was sold shortly after the supposed job offer was made.  Additionally, none of  Hrazanek’s three employees made 2,000 dollars a week—the amount Plaintiff claimed he would have made. 

The Third Department concluded that Plaintiff and Hrazanek’s speculations about the business’s ability to sustain plaintiff, or plaintiff’s earning stability was immaterial.



Steven E. Peiper

[email protected]

12/05/17       Clavin v Schiavone Construction Corp.

Appellate Division, First Department

Insurance Clause Requiring Insurance “for the benefit of” was Insufficient to Create an Obligation to Procure Additional Insured Status

CAP Rents commenced a third-party action seeking common law and contractual indemnity against plaintiff’s employer.  The claim of common law indemnity was summarily rejected as it was established that Mr. Clavin did not sustain a “grave injury.”  Thus, by operation of Section 11 of the NY Workers’ Compensation Law, common law indemnity claims like CAP Rents were precluded as a matter of law. 


CAP Rents contractual indemnity claim was likewise precluded by operation of law; this time by application of General Obligations Law 5-332.1.  Apparently, the indemnity provision at issue contemplated indemnity for CAP Rents own negligence which is prohibited by the GOL.  In reading the opinion, we trust that CAP Rents argued that if it was free of negligence, then the clause was enforceable notwithstanding its improper verbiage.  The Court had wasted no time rejecting such argument on the basis that CAP Rents sole exposure was common law negligence (i.e., Labor Law 200).  As such, the only exposure CAP Rents faced was through an allocation of its own negligence.  Having no exposure for vicarious liability, it follows that CAP Rents was either liable (due to its own negligence, and thus within GOL5-322.1) or not negligent (and, as such, with nothing to be indemnified for). 


Finally, the Appellate Division reversed the trial court’s ruling which held that Schiavone failed to procure insurance for CAP Rents.  In citing the long standing rule that insurance procurement clauses must be express and specific, the Court reasoned that CAP Rents failed to sustain its burden here.  Apparently, the clause at issue only provided that Schivone was required to procure insurance ‘for the benefit of CAP Rents.”  As the clause did not include an express and specific provision requiring that CAP Rents be named as an additional insured, no such duty was created for Schiavone.


12/05/17       Fernandez v Toyota Least Trust

Appellate Division, First Department

Trial Court Abused Discretion when it, Sua Sponte, Reduced Workers’ Compensation Lien to Ensure Plaintiff a Larger Recovery of Settlement

Plaintiff settled the above-lawsuit for $37,500.   At the time, however, Hartford possessed a workers’ compensation lien for $22,408.27.  Nevertheless, the trial court issued an Order declaring that split the settlement in three equal parts of $12,500 with one part going to Fernandez, his lawyer and Hartford.  When Hartford challenged, the trial court recognized the lien, but only for $12,500. 


On appeal, the Appellate Division reversed, therein holding that the Court was without power to arbitrarily divide up the settlement agreement OR reduce Hartford’s duly enforceable lien.  While the Court is empowered to equitably divide litigation costs and fees among recipients of the recovery, the full lien amount had to be recognized as part of the process.



Agnes A. Wilewicz

[email protected]


11/08/17       Nick’s Garage v. Progressive Casualty Insurance

United States District Court, Second Circuit
Second Circuit Finds an Issue of Fact and Reverses Insurer’s Summary Judgment Win on Breach of Contract Claim

As mentioned in the last issue of Coverage Pointers, Nick’s Garage (“Garage”) repaired numerous cars and other vehicles whose owners had submitted damage claims to the Insurer.  Subsequently, the owners made Garage their designated representative to negotiate with Insurer for coverage for the repairs.  Under the Policy, the Insurer was obligated to pay the insureds the losses on a covered vehicle, that is, the amount of money sufficient to return the vehicles to their pre-loss condition.  On September 23, 2013, Garage filed an amended complaint alleging two categories of claims including that: (1) the Insurer breached its contractual obligations by failing to pay the amount necessary to return the vehicles to their pre-accident condition and; (2) the Insurer engaged in deceptive acts in handling the claims.  As to the first claim category, Garage alleged five categories of underpayments.  The Insurer moved for summary judgment in which the District Court granted due to a finding that Garage had failed to raise a genuine dispute of material fact that could support its claims that the Insurer breached its contractual obligations. 


On the current appeal, the Second Circuit disagreed and concluded that Garage did raise a genuine dispute of material fact as to the breach of contract claim.  In determining that an issue of fact existed, the Second Circuit focused primarily on the district court’s failure to appropriately apply the burden on summary judgment.  That is, the district court incorrectly placed the burden to prove the breach of contract claim on Garage regarding certain categories of underpayment.  One category of underpayment, the Insurer argued against in its motion for summary judgment, was that there was no damage suffered.  However, in light of the Policy, which required the Insurer to pay its insureds the loss on a covered vehicle, the Second Circuit found “the difference between what the Insurer paid to Garage and the amount necessary to return the vehicles to their pre-loss condition constitutes damages suffered by the insureds . . . .”  As such, an issue of genuine fact existed.  A second category of underpayment, the Insurer argued against in its motion, was the entitlement entitled to pay for non-OEM parts because the Policy provided as such.  The Second Circuit disagreed.  Through supporting affidavits submitted by Garage and a finding that the Policy simply allows the Insurer to “limit its payment to the price if Non-OEM parts when the use of such parts will repair the damaged property to its pre-loss condition,” the Second Circuit determined that Garage had raised a genuine issue of fact at to the non-OEM parts.


As to the second category of claim, the Second Court found a genuine issue of fact existed as to whether the Insurer engaged in misleading practices concerning labor rates paid.  The Insurer argued that the prevailing competitive rates were indicated “by the agreed prices for repairs with shops in the market place.”  However, the fact that repair shops may accept labor rate paid by a particular insurer to bring that shop a large volume of business and the fact that in other situations the Insurer itself paid higher rates, was sufficient to support a genuine dispute as to a relevant fact.  Moreover, the Second Circuit opined that an Insurer’s readiness to negotiate in good faith was not a bar to a finding that the Insurer misled its policyholders about its payment of prevailing rates.  

Assoc. Editor Note: Thanks to soon-to-be lawyer Larry Waters for this write-up!



Jennifer A. Ehman

[email protected]


12/07/17       Matter of Government Empl. Ins. Co. v. Minton

Supreme Court, Suffolk County

Hon. Peter Mayer, J.S.C.

Non-Married Same Sex Partner Did Not Qualify as an “Insured” under SUM Endorsement

This decision arises out of a motor vehicle accident, in which Caitlin Minton (“Minton”) was operating a vehicle when it was struck by another vehicle owned and operated by Christopher Savage.  At the time of the accident, Minton’s vehicle was insured by GEICO with limits for both BI and SUM coverage of $25,000/$50,000.  Given the minimum limits and offsets provisions of Minton’s SUM Endorsement, no coverage was available under her policy.  Seeking further recovery, Minton served GEICO with a Demand for Arbitration under a policy of insurance issued by GEICO to Minton’s same-sex partner, Vanessa Guarino, which contained BI and SUM limits of $100,000/$300,000.


The demand was based on the position that Minton resided with her partner on the date of the accident.  In response, GEICO asserted that Minton was not a resident relative, and in turn not entitled to coverage.  GEICO sought to permanently stay Minton from proceeding to SUM arbitration. 


Pursuant to paragraph 1 of the Definitions in Minton’s partner’s GEICO SUM endorsement it stated, “insured” is defined as:


(a) you [Guarino], as the named insured and, while residents of the same household, your spouse and the relatives of either you or your spouse (bold in original)...


Minton contended that since July 2014 (approximately four months prior to the accident) she and Guarino "lived together at [that] address ... in a committed relationship as if [they] were in a traditional 'spouse' relationship."


In considering this argument, the court found that it was undisputed that Minton was not a named insured under Guarino's GEICO policy. It was also beyond dispute that, despite their committed, "as if" spouses, relationship, Minton and Guarino were not legally married on the date of the accident. Therefore, Minton did not meet the definition of "insured" under Guarino's GEICO SUM endorsement by virtue of a spousal relationship.  The court also rejected any argument that Minton qualified as a “relative.”  Since Minton was neither a married spouse nor a relative of the policyholder at the time of the accident, she was not entitled to coverage under the SUM endorsement.


12/5/17         State Farm Mut. Auto. Ins. Co. v. GEICO Gen. Ins. Co.

District Court of Nassau County, First District

Hon. Scott Fairgrieve

Insurer Precluded from Challenging Arbitration Award Where It Failed to Attach Coverage Denial Letter to Submission

A vehicle owned by Adelfa Lugo, and insured by State Farm, was involved in a motor vehicle accident with another vehicle allegedly insured by GEICO.  As a result of the accident, State Farm paid Ms. Lugo $11,705.51 for her claim.  Thereafter, State Farm filed an application for arbitration with Arbitration Forums’ seeking reimbursement from GEICO for the damage to Ms. Lugo’s car.  Following the hearing, a decision was rendered granting the petition.  State Farm, pursuant to CPLR 7510, then moved for an order confirming the award and granting counsel fees.  GEICO opposed the motion, and moved to vacate the award, on the grounds that the arbitrator committed “misconduct” in that he exceeded his authority in rendering the award.


Under New York law, judicial review of arbitration decisions is extremely limited, and great deference is given to the determination of the arbitrator.  A court, however, may vacate an arbitration award if it finds that the rights of a party that participated in the arbitration were prejudiced by some misconduct in procuring the award or by the arbitrator having exceeded his power.  An excess of power occurs where the arbitrator’s award violates a strong public policy, is irrational, or clearly exceeds a specifically enumerated limitation on an arbitrator’s power as set for in the CPLR.


GEICO submitted that the arbitrator exceeded his authority by proceeding with the arbitrator and rendering the award despite GEICO having raised a lack of coverage affirmative defense.  GEICO argued that while Arbitration Forums has jurisdiction in certain circumstances to hear claims, the assertion of coverage defenses divests both Arbitration Forums and the arbitrator of such jurisdiction, and ripens the claim for judicial intervention.


In considering this assertion, the court noted that an essential component of raising such a defense is that it must be accompanied by proof of the denial.  Citing to Section 2-4 of the Arbitration Forums, Inc. Rules, it states that “[t]he parties must raise and support affirmative…defenses in the Affirmative Pleadings/Defense section or they are waived.  If a denial/disclaimer of coverage is being pled…the case will be administratively closed as lacking jurisdiction as long as a copy of the denial/disclaimer of coverage letter to the party seeking coverage for the loss…is provided as part of the evidentiary material submitted.  If no such letter is provided…the case will be heard and the arbitrator(s) will consider and rule on the coverage defense.” 


In reviewing the decision, the court noted that the arbitrator found that the evidence presented to him, which included a police report, a recorded statement, and damage photos, supported a determination that GEICO was liable for the accident.  The arbitrator also noted that GEICO had raised an affirmative defense that the policy had been cancelled for non-payment and re-instated after the date of loss. But, it never submitted any support of its defense.  In fact, the arbitrator noted that GEICO was going to submit a denial letter with policy evidence but that it was never received.


GEICO did not dispute that the denial was not submitted.  It instead argued that the arbitrator committed “misconduct” by not allowing it to supplement its papers to demonstrate a lack of coverage.  The court dismissed this argument noting that nothing in the rules obligates an arbitrator to allow the submission of supplemental papers, and no authority for same was cited.  Based upon the foregoing, the award was confirmed and the motion to vacate denied. 



Brian D. Barnas

[email protected]


12/07/17       GM Broadcasting, Inc. v. Cornelius Enterprises

Appellate Division, Third Department

Claimant lacked Standing to Bring Claim for Breach of the Duty of Good Faith against the Policyholder’s Carrier

Plaintiff leased the subject premises from defendant Cornelius for the operation of its business.  After the premises were allegedly damaged by weather in 2013, Cornelius reportedly failed to make repairs as requested by plaintiff.  According to plaintiff, leaking water resulted in the development of mold, which caused various damages and necessitated a relocation of its business.  Plaintiff attempted to negotiate a settlement of the damage claim with Cornelius' insurance carrier, Cincinnati. According to plaintiff, a representative of Cincinnati initially indicated to plaintiff that it would pay the claim upon completion of its investigation, but Cincinnati later advised plaintiff that it could find no basis for legal liability on the part of Cornelius and denied coverage.


Plaintiff thereafter commenced an action against both Cornelius and Cincinnati alleging claims against Cincinnati for breach of contract as a third-party beneficiary of Cornelius' policy with Cincinnati and breach of the duty of good faith.


Under the common law, an injured party has no direct cause of action against the insurer of a tortfeasor.  That is, an injured party, as a stranger to the policy between the insured tortfeasor and its insurer, could not, at common law, bring a claim against the tortfeasor's insurer due to the lack of privity between the injured party and the insurer, even where the injured party had obtained a judgment against the insured.  As a result of the hardships and inequities this rule created, the Legislature created a limited statutory cause of action on behalf of injured parties directly against insurers, which is applicable where the injured party has obtained a judgment against an insured and the judgment has gone unsatisfied for 30 days. 


Here, it was undisputed that plaintiff had not obtained a judgment against Cornelius, which was a condition precedent to a direct action against Cincinnati as Cornelius' insurer.  Thus, plaintiff could not avail itself of the limited statutory cause of action.  Accordingly, plaintiff failed to state a claim against Cincinnati.


12/05/17       Head v. Emblem Health

Appellate Division, First Department

New York does not Recognize an Independent Cause of Action for Bad Faith Breach of Insurance Contract

Plaintiff appealed the dismissal of her claims for fraud and bad faith breach of insurance contract.  Plaintiff’s complaint failed to allege sufficient facts to establish the element of a material misrepresentation as required for fraud.  Plaintiff's allegation that defendants entered into the insurance contract with an undisclosed intention not to perform in accordance with the contract's terms was insufficient to establish a misrepresentation or a material omission.  Thus, the fraud causes of action were correctly dismissed as duplicative of the breach of contract cause of action.


Addressing the bad faith claim, the First Department held that there is no independent cause of action for bad faith breach of insurance contract arising from an insurer's failure to perform its obligations under an insurance contract.  In so holding, the court cited prior precedent holding that most cases involving alleged “bad faith claims handling” actually involve claims for breach of the implied covenant of good faith and fair dealing, which is a breach of contract claim.


John R. Ewell

[email protected]


11/08/17       Western National Mutual Ins. Co. v. TSP, Inc.

South Dakota Supreme Court

South Dakota Supreme Court Holds that Professional Services Exclusion Excludes Coverage for Surveyor’s Error

Western National insured BHI Inc. under a commercial general liability (“CGL”) policy. In 2005, Regency hired BHI to serve as a general contractor to build four condominiums near Alexandria, Minnesota. TSP Inc. was the project architect. BHI hired LandTeam Surveying Co. (“LandTeam”) to do the project’s land surveying. LandTeam made a surveying error, and two of the condos were located too close to the property line and did not comply with county setback requirements.

In order to compensate for the error, BHI and TSP agreed to provide the funds for Regency to purchase a buffer strip of land to complete the project. TSP and BHI initially agreed to share the expense. When BHI refused to pay its share, TSP paid Regency the entire amount. TSP then sued BHI for damages arising from LandTeam’s error. BHI forwarded the suit to Western National for defense, which it refused to provide. After several years, BHI admitted liability and assigned its rights under the insurance policy to TSP.

Western National brought a declaratory judgment action against TSP, seeking a judgment that its CGL policy did not provide coverage for TSP’s claims. The parties filed cross-motions for summary judgment. The trial court granted summary judgment for TSP. The trial court stated that the professional exclusions endorsement did not bar coverage because the professional services were performed by a non-employee subcontractor. As such, the trial court ruled that the policy did not exclude coverage for work performed on behalf of the insured by a “professional subcontractor.”

On appeal, Western National argued that the trial court erred by holding that the professional services exclusion did not exclude coverage for the alleged property damage caused by LandTeam’s land-surveying error. The professional services exclusion provided that:

This insurance does not apply to “bodily injury”, “property damage” or “personal advertising injury” due to the rendering of or failure to render any professional service.

Western National argued that land surveying is a professional service and the use of any includes professional services rendered by LandTeam. In response, TSP claimed that Western National’s interpretation of the endorsement is so broad that it “would seem to cover virtually everyone working for BHI.”

The CGL policy did not define “professional service.” However, South Dakota courts had previously defined the term in CGL policies to mean those acts or services “entailing the performance of a vocation, calling, or occupation requiring learning and intellectual skill.”

The Court began its analysis by reviewing various South Dakota statutes governing land surveyors. The Court further noted that some states require surveyors to be licensed. From this, the Court concluded that since “land surveying as a vocation requir[es] specialized knowledge and … intellectual skill”, it constitutes a professional service. The Court found that TSP’s argument that including land surveying as a professional service gives an overbroad meaning to the endorsement was unpersuasive. Accordingly, the Court held that the professional services exclusion excluded coverage for any property damage caused by the land-surveying error. The Court remanded for entry of summary judgment in favor of Western National.


Howard B. Altman

[email protected]


Coverage for HIV Prevention


The New York Department of Financial Services (“DFS”) issued Circular Letter No. 21 on December 1, 2017, to offer guidance to insurers as to what benefits should be offered for HIV prevention. The letter may be viewed at:



The Circular Letter was issued in response to complaints received by DFS that that insurer were imposing unreasonable barriers to access to pre-exposure prophylaxis (“PrEP”), a prescription drug used for the prevention of human immunodeficiency virus (“HIV”). DFS received complaints that insurers used overly-stringent prior authorization requirements and improper denials of coverage. This circular letter provides direction to health insurers regarding coverage for PrEP.


Health service providers generally prescribe PrEP for HIV-negative people who are at high risk for HIV.  It has been shown to be highly effective in stopping HIV infection when taken as prescribed. Currently, the only Food and Drug Administration (“FDA”) approved drug for use as PrEP is Truvada, and The FDA recently approved a generic version of Truvada.


New York State law requires health insurance policies certain essential health benefits (“EHB”)(Insurance Regulation 62 (11 NYCRR 52.1(q) and 52.71)) similar to those currently required by the federal Affordable Care Act.  Among the EHBs are required coverage for prescription medication, and § 52.16(c) of 11 NYCRR 52 (Insurance Regulation 62) prohibits issuers offering individual, small group and large group health insurance policies from limiting or excluding coverage by type of illness, accident, treatment, or medical condition. In order to comply with these requirements, prescription drug coverage must provide coverage for PrEP.


While issuers and their utilization review agents may impose reasonable prior authorization requirements on prescription medications, insurers may not create an unacceptable barrier to coverage for individuals who would otherwise benefit from the medication. Similarly, when performing prior authorization or  review for PrEP, issuers and their utilization review agents must comply with the procedures described in Articles 49 of the Insurance Law and Public Health Law, as well as 29 C.F.R. Parts 2560 and 2590 and 45 C.F.R. Part 147, including the requirement to use appropriate written clinical review criteria when reviewing for medical necessity. Further, when making coverage determinations, issuers and their utilization review agents must do so in a non-discriminatory manner. There is no justification for denying coverage for PrEP on the ground that the patient is at risk for HIV based on his or her sexual orientation.


In the event that an insurer determines that PrEP is not medically necessary for a particular individual, the written initial adverse determination and final adverse determination must include the information set forth in Insurance Law §§ 4903(e) and 4904(c), This includes the reason for the determination, including the clinical rationale for the denial as applicable to the insured, if any; instructions on how to initiate a standard or expedited appeal and an external appeal; and notice of the availability, upon request of the insured or the insured’s designee, of the clinical review criteria relied upon to make such determination. The notice should also specify what, if any, additional information must be provided to, or obtained by, the issuer or utilization review agent in order to render a decision on the appeal.


Issuers offering prescription drug coverage must cover PrEP. Such coverage should be subject only to reasonable utilization management measures and must comply with EHB regulations, No insured may be discriminated against in the prescribing or coverage of medically necessary treatments.


DFS instructs that any questions regarding this circular letter be directed to Thomas Fusco, Supervising Insurance Attorney, Health Bureau, New York State Department of Financial Services, Walter J. Mahoney Office Building, 65 Court Street, Room 7, Buffalo, New York 14202 or by e-mail at [email protected].


Brian F. Mark

[email protected]


12/06/17       Sec. Nat’l Ins. Co. v. Sunset Presbyterian Church
Court of Appeals of Oregon
Oregon Court of Appeals Finds Insurer had a Duty to Defend Additional Insured for Potential Liability Arising out of Insured’s Defective Work in an Underlying Construction Defects Action.

This declaratory-judgment action arises out of an underlying construction defects action alleging negligence and breach of contract claims.  The defendant Sunset Presbyterian Church (“Sunset”) contracted with Anderson Construction Company (“Anderson”) to construct a main building and wings.  Anderson subcontracted with B&B Tile & Masonry Corporation (“B&B”) to perform the masonry work.  The subcontract required B&B to obtain liability insurance naming Anderson as an additional insured for liability arising out of the operations performed for Anderson by B&B.  B&B’s insurance carrier was Security National Insurance Company (“SNIC”).  The policy issued by B&B included a blanket additional insured endorsement that added, as an insured, any person or organization B&B was required by written contract to add as an additional insured to the policy.


After discovering defects and water intrusion, Sunset commenced the underlying action against Anderson.  The underlying complaint alleged that Anderson hired subcontractors and suppliers to furnish labor, material, services, supplies or equipment for the construction of a church.  Sunset alleged that architectural stone had been used to embellish the lower portions of the walls around the sanctuary and that the stone had been terminated at the level of the finish grade along the base-of-wall at hard surfaces, contrary to the manufacturer’s installation instructions.  The complaint further alleged systemic building envelope deficiencies and resulting property damage.


Anderson tendered its defense to SNIC, but SNIC refused to accept the tender.  Thereafter, Sunset settled the underlying action with Anderson and took an assignment of Anderson’s rights against its subcontractors.  Sunset asserted Anderson’s rights against B&B under an indemnity provision of the subcontract.

Upon a motion for partial summary judgment, the trial court concluded that B&B had a contractual duty to defend Anderson against Sunset’s claims for liability due to B&B’s negligence, but that the subcontract was partially voided to the extent that the indemnity provision required B&B to indemnify Anderson for the negligence of Anderson or others.  In so holding, the trial court relied on an Oregon anti-indemnity statute, which voids construction agreements requiring a person to indemnify another for the indemnitees own negligence.  In a subsequent hearing on past defense costs, Sunset, as Anderson’s assignee, argued that it was entitled to recover all of Anderson’s defense costs, not just those related to B&B’s negligence.  However, Sunset offered no proof of the B&B portion of the defense costs.  As such, the trial court ruled that Sunset failed to prove entitlement to damages for B&B’s breach of its duty to defend Anderson.


SNIC commenced this action seeking a declaration that it had no duty to defend Anderson under the terms of the insurance policy.  In its motion for summary judgment, SNIC argued that the insurance procurement provision in the subcontract was void and that the additional insured endorsement was not triggered because the underlying complaint did not allege liability arising during B&B’s “ongoing operations,” within the meaning of that term in the endorsement.  Additionally, SNIC argued that Anderson’s claim in the underlying action based on the indemnity provision presented the same defense costs and that the underlying court’s conclusion should be acknowledged in the DJ action.


The trial court in the DJ action relied on the rulings in the underlying action and held that B&B owed a duty to defend Anderson in the underlying action.  As liability for ongoing operations includes faulty work done during the construction phase that is discovered at a later time, the court refused to declare that the additional insured endorsement did not apply or that B&B did not have a duty to defend.  Nonetheless, the court concluded that SNIC was entitled to summary judgment because the amount owed for dense had been determined to be zero dollars in the underlying action.  Sunset appealed the decision.


SNIC conceded that the court erred by deciding the duty to defend based on the court’s prior zero-dollar decision on a failure of proof in the subcontract claim between Anderson and B&B.   The Court of Appeals agreed that the failure of proof under the indemnity provision in a subcontract between B&B and Anderson did not determine SNIC’s duty to defend Anderson under an insurance policy involving SNIC and Anderson.


SNIC argued that the additional insured endorsement provides that an additional insured is any person or organization B&B is required by written contract to name as an insured and that the insurance procurement provision in the subcontract is void because it requires that B&B provide more insurance for Anderson than the anti-indemnity statute permits.  Therefore, SNIC argues that because the insurance clause is void, there was no written contract requiring B&B to name Anderson as an additional insured.  The Court of Appeals rejected such an argument holding that the insurance clause is not wholly void.  Rather, such a clause can be enforced to the extent that it does not contravene the statute.  The unlawful portion of such a provision can be excised, while the lawful portion can be enforced. 


The Court held that to the extent that the provision requires B&B to obtain insurance for potential liability to Anderson for B&B’s work, there is a written contract that requires B&B to have added Anderson to the SNIC policy.  Therefore, Anderson qualifies as an additional insured under the blanket endorsement.

SNIC further argued that it had no duty to defend because the underlying complaint did not specifically allege Anderson’s liability for B&B’s work.  The Court of Appeals held that the subcontractor need not be identified by name in the complaint, nor must the general contractor’s liability be expressly attributed.  As the underlying complaint alleged that Anderson relied on the work of subcontractors and specified defects in the building envelope, including problems with masonry, such allegations could be reasonably interpreted to allege Anderson’s liability for conduct covered by SNIC’s policy.  Accordingly, the underlying complaint alleged enough to trigger a duty to defend. 


SNIC next argued that the underlying complaint failed to allege that Anderson’s liability arose out of B&B’s ongoing operations.  The Court of Appeals noted the trial court’s rejection of a temporal restriction and held that even if there was such a restriction, a duty to defend exists if the complaint alleges the possibility that Anderson could be liable for damage from defective work.  A duty to defend exists if the complaint alleges the possibility that damage occurred during ongoing operations.  As the complaint did not allege when the damage occurred in relation to when B&B was on the job, it could be reasonably be read to include damage during ongoing operations.  As such, a duty to defend existed. 


The Court of Appeals concluded that the trial court erred in granting SNIC’s motion for summary judgment.  The Court noted that the anti-indemnity statute at issue was an exception to the general rule that an insurer with coverage of one claim must defend all claims in a complaint against an insured and held that SNIC’s duty to defend was limited to Anderson’s potential liability arising out of the fault of B&B.


Earl K. Cantwell
[email protected]


12/05/16       Reginella Construction Co. v. State Farm Fire & Casualty Co.,

U.S.D.C for the Western District of Pennsylvania

Latent Construction Defects Not Covered

Mr. Eck bought a house built by Reginella in Pennsylvania in 2005, and several years later (in 2012) noticed problems with the floors on the second story of the house.  The customer eventually alleged that the contractor used faulty materials and substandard construction which caused structural problems.  State Farm insured the contractor during the policy period in which the house was built (2004-2006).  The policy covered property damage caused by an “occurrence” during the policy period.


The customer sued Reginella, who then tendered the case for defense and indemnification to State Farm.  State Farm rejected the tender on the primary basis that the alleged construction defects were not discovered until 2012.  Therefore, State Farm argued that there was no “occurrence” within the 2004-2006 policy period.  Eventually, the insured sued State Farm in 2015 for breach of contract, bad faith, unreimbursed attorneys’ fees, punitive damages and other costs.  The District Court in Pennsylvania agreed with State Farm’s principal position and granted the insurer’s motion to dismiss.  The triggering “occurrence”, the Court found, took place after State Farm’s policy had expired.


The Court admitted that the cause of the damage, the allegedly defective construction, arguably occurred within State Farm’s coverage period, but cause of injury is not necessarily determinative of the date an insurance policy is triggered unless specifically required by the language of the policy.  The Court ruled that State Farm’s coverage denial was based on a consistent reading of the insurance policy, and was legally proper with respect to coverage under occurrence-based policies.


This case is interesting, because, generally, in construction defect litigation the defect occurs at the time of defective construction during the contractor’s actual physical work.  Typically, the active negligence of the contractor is held to be the defect, which occurs during construction.  For example, cases dealing with the statute of limitations have consistently held that the statute begins to run on constructions defects from completion of actual physical work, and not when defects are discovered or first observed. 


In this case, the Court seems to be saying that manifestation of injury was the occurrence, and that did not arise until 2012, regardless of the fact that the alleged defective construction took place in 2004-2006 during State Farm’s policy period.


The Court held that there was no coverage under the State Farm 2004-2006 policy even though it was an occurrence-based policy, although this reasoning is more attuned to a claims-made policy, i.e., no visible damage and claim made until 2012.

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