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Coverage Pointers - Volume XIX, No. 14

Volume XIX, No. 14 (No. 498)

Friday, December 29, 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

 

www.hurwitzfine.com

© 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. 

 

Hint:  remember the number 7141.  Be back to you in a couple of paragraphs.

 

Happy New Year to you and yours.  We hope that you had a glorious holiday season and it is being tapped off with an opportunity to ring in the New Year with your family and friends.  I’m spending my New Year’s in Scottsdale, AZ and will spend the next couple of weeks defrosting my bones.  It’s been a little nippy in Buffalo.  If you want to see the live view from my Canadian home, in Fort Erie, Ontario, just across the border from Buffalo, click here. I’ve added over 60 degrees to the ambient temperature.  Feel free to call if you want or need to chat.  It’ll break up the monotony that comes from too much sunshine.  Something always breaks when I’m out here and I can’t wait to find out what it is.

 

Back home, Steve, Jen, Agnes, and the Coverage Team stand ready, willing, and able to help as well.

 

Special thanks to Matthew M. Haar from Saul Ewing Arnstein & Lehr for a guest column on an interesting Colorado bad faith case.  You’ll find his offering in Brian Barnas’ bad faith column.  Thanks as well to our occasional columnist, Mike Perley, whose “Liening Tower of Perley” column reviews a Court of Appeals case on Workers Compensation liens. 

 

We also thank Jamey L. Maswick from our Lake Placid office, with an assist from Todd Bushway, for his review of an important Fourth Department decision which allowed plaintiff’s a broad use of the subpoena duces tecum to force doctors performing independent medical exams to turn over certain historical financial records in order to challenge the medical testimony on the basis of bias.  His note is below.

 

How Busy Were We in 2017?

 

This is the time for our yearly count. 

 

As the year winds down, we provide you with our statistical summary of Coverage Pointers activity. The CP team reported on 598 decisions as compared to 521 last year. Some 103 case reviews appeared in my column, 133 in Hewitt’s Highlights on Serious Injury, 52 in Tessa’s No Fault column, 72 in Steve’s Property and Potpourri, 36 in Agnes’ Wide World, 26 in Jen’s Gems, 60 in Brian Barnas on Bad Faith, 16 in Phillips’ Philosophies, 32 in Ewell’s Universe, 23 stories items in Howard Altman’s Administrative and Legislative Agenda, 22 from Brian “Off the” Mark, one from Mike Perley (in today’s issue), with another ­­­26 articles from Earl and his Pearls.

 

Not a bad year’s work.  Thanks to ace Law Clerk, Bill Gerken, for doing the counting.

 

More Counting – Bad Faith in New York:

 

I recently had the pleasure of addressing the DRI insurance conference in NYC, speaking about hot New York coverage issues.  I began my presentation by asking the 700+ folks in the room to raise their hand if they had a son, daughter, niece or nephew that was 19 years or younger.  A hand went up from most everyone in the room

 

I told those with raised hands that their under-19 son, daughter, niece or nephew was not alive the last time any appellate court in the State of New York affirmed a finding of “bad faith” against any insurance company writing any kind of risk.  The streak continues although each year I’m accused of potentially jinxing it by including this discussion.

 

In June of 1998, Bill Clinton was President, Sex in the City had its debut, The Boy is Mine was topping the Billboard charts, the Oklahoma City bomber conspirator Terry Nichols was sentenced to life in prison and Microsoft released “Windows 98”.  My daughter was 16, and my son was 13 (they are now 35 and 32 respectively).

 

Why do I digress as I have for a number of years in the last cover note?

 

That same month, in fact, on June 11, 1998, the highest court in the State, the Court of Appeals, handed down a decision in Smith v. General Accident, holding an insurer liable for bad faith.  That decision was the last time any appellate court in New York upheld a bad faith verdict against an insurer.  We report on this “count” every year. It has been 19 years, 6 months and 18 days (or, if you prefer, 7141 days) since any New York appellate court found conduct egregious enough to constitute actionable bad faith.

 

Anyway, that’s all you get from me this issue, other than my cache of my 100 Years Ago stories and the kind words and contributions of my hardworking authors.

 

Fourth Department Decision Makes Independent Medical Exams a Real Challenge

 

Porcia v. Binette CA 17-00843 (12/22/17)

Appellate Division, Fourth Department

 

Jamey L. Maswick

[email protected]

 

I spent the holidays in New Hampshire at the in-laws house.  Much to my chagrin, my wife’s family (including my wife) is filled with Boston sports fans.  Other than this significant shared character flaw, they are lovely and loving people.  However, this year, Christmas Eve afternoon featured a playoff game between the New England Patriots and a Buffalo Bills team that could actually see the playoffs.  All was going well until an inexplicable reversal on the field of Bills receiver Kelvin Benjamin’s excellent touchdown grab just before halftime. 

 

While I am far from a dispassionate arbiter, the referee’s ruling that replay showed no catch for the Bills by “clear and obvious visual evidence” – the standard to overturn a ruling on the field – is beyond me.  See Official Playing Rules of the National Football League, Article 15, Section 2, and Rule 3.  We all know what happened after that – the Pats came to life and the Bills most realistic shot at the playoffs was gone like Frosty the Snowman on a warm day. And then I had to listen to the family wax poetic about Tommy Brady! 

 

Don’t worry – I am back to the safety of upstate New York now.

 

Why am I writing – and I thank Todd Bushway for his input into this article as well.

 

The Fourth Department recently issued a decision that follows an earlier 2014 decision, decisions that have have wide ranging consequences for those who regularly defend personal injury cases and for insurance companies and how they handle them.  Both cases address subpoenas duces tecum, issued by plaintiff’s counsel, for records relating to payments to doctors retained by the defense to examine and evaluate an allegedly injured plaintiff.  The records are sought for cross examination and impeachment at trial.

 

The most recent case, Porcha v. Binette [155 A.D.3d 1676, (4th Dept. 2016)] was issued by the Appellate Division in November; the 2014 case is Dominicci v. Ford [119 A.D.3d 1360 (4th Dept. 2014)]. Porcha is the first decision to cite to Dominicci.

 

For those of you who do not know, an IME is an examination of a plaintiff conducted at the behest of the defendant (the IME is commonly scheduled by either defense counsel or the insurance carrier for the defendant.  The purpose of the IME can vary – to verify and/or assess a plaintiff’s claimed injuries, any question or issues of causation, the interplay and or impact of a pre-existing condition, any future impapct and limitations, th epaporpirateness of a course of treatment, as well as examine or investigate potentially fraudulent claims.  For those of you who work in the Workers Compensation and No Fault areas, IME’s are a key element in determining a carrier’s obligation for continuing treatment. In typical personal injury cases in New York, the particulars for noticing an IME are found at CPLR §3121 and 22 NYCRR §202.17.   An IME is not just an exam that results in written report - what happens frequently, as it did in this case, is that the defendant hires the IME doctor to also serve  as an expert witness at the time of trial. 

 

In Porcha, the defendants, through a company called LegalMed, had an IME conducted of the plaintiff.  The doctor who conducted the IME is noted in the decision to be employed by LegalMed.  The examining doctor was subsequently disclosed and identified as a defense trial expert.  This disclosure was met with subpoenas duces tecum, served upon the examining doctor, LegalMed and the defendant’s insurance carrier for billing and payment records to the IME doctor from all insurance carriers and counsel for a period of 5 years prior to the date of trial.

 

The named defendants and the nonparties (i.e. the doctor, LegalMed and the defendant’s carrier) all moved to quash the subpoenas.  This motion was denied, a denial upheld by the Appellate Division, Fourth Department on the basis that the records of payment to the doctor were relevant to plaintiff’s counsel’s cross examination of the IME doctor.

 

The Appellate Division’s 2014 Dominicci decision is similar.  In Dominicci, the defendant’s insurance carrier is identified as the entity that scheduled and notices the IME.  Upon disclosure of the examining doctor as a trial expert, plaintiff’s counsel served a subpoena duces tecum on the insurance carrier for all IRS 1099 forms or other records of payment to that examining doctor.  Again, a motion to quash followed.  This motion was denied by both the trial court and the Appellate Division, which held that such information is fair game for cross examination on the issues of bias or interest.

 

There are several distinctions between the Porcha and Dominicci decisions, even if not highlighted by the court in Porcha.  We here at H&F believe those distinctions follow issues that we saw (as we are sure other counsel did) in assisting our clients in addressing similar subpoenas served upon them in the wake of Dominicci.

 

In Dominicci the subpoena was served upon the carrier, which on its face, seems like the obvious starting point to show a particular IME provider is beholding to that carrier.  In practice, however, it is (a) not clear that the IME physician knows which insurance carrier may be behind a particular exam and (b) the insurance carrier is not likely making a direct payment to the IME physician.

 

In most cases, either the carrier itself or defense counsel schedules or notices an IME using a third party vendor, such as LegalMed, the provider identified in the Porcha decision.  While counsel and/or the carrier select the particular provider, there is no direct retention of that provider by counsel and/or the carrier.  The IME physician has entered into some sort of agreement with the IME vendor to coordinate any IMEs.  Counsel and/or the carrier send all medical and other records to the IME vendor, who provides them to the physician.  A report is then written by the physician, sent to the IME vendor, who then provides it to counsel and/or the carrier.  What insurance carrier may be behind the exam is not relevant in most cases and most likely is not identified in the materials sent to the physician.  Payment for the IME is made by counsel and/or the carrier to the IME vendor, who then pays the physician per the agreement between the physician and the IME vendor.  Trial testimony is typically scheduled and paid for in the same manner.  There is no direct payment by counsel or the carrier to the physician.

 

In the cases H&F handled post Dominicci, our motions to quash usually started with the fact that the carrier did not have any payment or other financial records of the type sought that would show how many exams a particular physician had performed for that carrier and how much the carrier had paid to any particular physician – all the records would show were payments to the IME vendor.

 

We believe that the facts in Porcha show an evolution in these types of subpoenas duces tecum, directly attributable to these issues.  The subpoena duces tecum is no longer limited to the defendant’s insurance carrier but includes both the IME vendor and defense counsel.  Those entities are more likely to possess records showing payments to the physician than the carrier itself.

 

Another distinction is that the Porcha subpoenas seek records related to work performed for or on behalf of all carriers and not just the carrier involved in the particular case.  Whether this is the case of a more aggressive counsel casting a wider net or a reaction to the responding entities inability to provide a carrier specific response cannot be gleaned from the case.

 

What does seem clear is that Porcha is an expansion of Dominicci, even if not described by the court as such.  More entities are now subject to plaintiff’s counsel’s subpoenas and the available records now cover all insurance carriers and/or counsel, as opposed to just those entities involved with the particular case.

 

 

We do feel that there are several issues that remain open under these decisions.   What information may the defense and/or the IME physician use to refute the inference of bias – can the particulars of any prior examination or report be identified and used?  Can the IME physician reference the number of IME cases it may handle against the volume and type of cases that provider may have in their private practice?  How does HIPAA affect any of this?  What rights does a defendant have to challenge a plaintiff’s testifying treatment provider or medical expert – is a defendant entitled to records showing how often that provider testifies for plaintiffs and how much money is received or records showing the frequency of testimony for a particular plaintiff’s attorney or firm?  How about records relating to referrals of patients?

 

We appreciate the opportunity to address you, the readers of Coverage Pointers on this topic.  Jamey and Todd regularly write for our sister publication Premises Pointers.  If you are not already a subscriber to Premises Pointers, we have a price which cannot be beat to add you to our email distribution list – completely gratis!  Please email Jody Briandi at [email protected] to have yourself added to Premises Pointers if you so desire.

 

Happy New Year and we wish everyone a safe, healthy, wealthy and wise new year and one which is free of plaintiffs’ non-party subpoenas to IME doctors in an attempt to impugn the good doc’s credibility!

 

Jen’s Gems:

 

Greetings!

 

Hope everyone had an enjoyable holiday.  This year we stayed home for Christmas, which was good considering it hit a high of about 10 degrees in Buffalo the last few days.  Those conditions along with the snow were definitely not ideal for travel. 

 

The girls were especially excited about the holiday this year.  Ella made sure that we put out milk and cookies for Santa and carrots for the reindeers too.  Admittedly, I don’t recall putting carrots out as a child, but if Ella wants carrots on that plate, we put them out.  She is such a taskmaster that watching her run through her Christmas Eve list was like watching someone mark off their groceries.  Cookies out – check (only the good ones); reindeer food on the front lawn – check; note for Santa (even including a “thank you”) – check; holiday themed pajamas – check etc.  She even went to bed early upon our insistence that Santa only comes if she is asleep.  And, while we certainly want her rested, mommy and daddy actually need that extra time to try to figure out how to assemble their new toys.  It is as if everything is made by IKEA these days and has fifty pieces. 

 

But, it is all worth it in the next morning when you get to see their little faces full of joy and excitement as they inspect the leftover crumbs on the plate (confirmation of course  that Santa had in fact come to the house and that they had been good this year). 

 

Until next year, wishing everyone a happy and healthy new year…

 

Jen

Jennifer A. Ehman

[email protected]

 

Protection Selection:

 

Local Writers of Insurance

Good Business

The Daily Chronicle (De Kalb, IL)

December 29, 19 I 17

 

Since the disastrous fire of yesterday morning when the Hadley Club was partially destroyed by fire, the insurance writers of the city have enjoyed a spurt in their business.

 

Nearly every insurance agent in the city has had calls from policyholders asking for an additional $500 or thousand dollars on policies already in effect, and some new business has been written.

 

The insurance men state that it takes a fire such as was experienced here yesterday to wake some people up to the fact that they are not carrying enough protection.

 

Tessa’s Tutelage:

 

Dear Readers:

 

I hope you are enjoying the holiday season!  This week has been a little tough in the Buffalo area.  We got tons of snow and we played the Patriots.  Sports may not be my forte, but I know that I am morally obligated, as a Buffalonian, to hate the Patriots.  Like always, the Bills provided small moments of hope here and there but ultimately produced a rather “meh” stand against our nemeses.

 

Luckily, not everything was a disappointment this week.  The Courts were either trying to clear their desks or were avoiding their in-laws because there were SO MANY cases to cover this week.  To be specific, 148 no-fault cases.  Even though no-fault decisions are typically very short, you will likely be relieved to hear that I did not cover all of them in this issue.  The nice part about having so many cases is that there is broad spectrum of topics found in the decisions.  This issue we cover allowing expert testimony in trial, questions of fact concerning car ownership, the necessity for responses to verification requests to name a few.

 

Wishing you all a bright and optimistic new year!

 

Tessa

Tessa R. Scott

[email protected]

 

Bigger Feet in 1917:

 

Soldiers’ Feet Growing

Training Spreads Them and Uncle Sam is Buying Bigger Shoes

 

The New York Times

New York, NY

December 29, 1917

Washington, Dec. 28 – The American Army at home and in France is rapidly developing larger feet on which to march to victory.  Under the hard work of military training, soldiers’ feet are expanding in length and width, and some part of General Pershing’s forces will do their work in No. 13 and 14 shoes instead of the old maximum No. 12 of the regular.  At his recommendation these two new sizes have been added to the Quartermaster’s stock.

 

A review of the army shoe situation issued today by the War Department shows that of 32,359 men examined by medical officers only 15 percent, were found to be correctly fitted with marching shoes.  The following reasons for misfits are assigned.

 

“Inclination of men to choose shoes too small: faults in methods of supervision of fitting’ insufficient numbers of larger and narrower sizes: incorrect markings of sizes by manufacturers.”

 

Ewell's Universe:

 

Dear Subscribers:

 

Living in Buffalo is at times an adventure. The snow is back and many have forgotten how to drive in it. This past week I have seen numerous cars slide through red light intersections. Simple things like driving slower and braking sooner are concepts that have long been forgotten. Days like this I would not mind living in warmer states such as Florida.

 

Speaking of Florida, this week’s case takes us to the state with palm trees and beaches—a very different scene than snowy Buffalo. Under Florida law, a construction defect case cannot be litigated unless a notice is served on the general contractor or contractors identifying the claimed defects and specifying the damages sought (“pre-suit notice”). Typically, the recovery sought is the repair of the construction defects. The Supreme Court of Florida recently considered whether these pre-suit notices in construction defect cases trigger an insurer’s duty to defend under a commercial general liability policy. CGL policies are not surety bonds; they do not guarantee a contractor’s work or performance. Yet, in a rather surprising decision, Florida’s high court held that pre-suit notices in construction defect cases trigger an insurer’s duty to defend under a CGL policy.

 

The majority decision is discussed in greater detail in the attached issue, including how the majority reached its decision. Justice Lawson disagreed and wrote a sharp dissent. He read the majority’s decision to “force-place coverage” that does not exist under the policy and emphasized the fact that a CGL carrier does not insure the contractor’s performance or the quality of the contractor’s work. He noted that a property owner could mix covered claims, such as property damage to the building, with noncovered claims in order to trigger the duty to defend. However, he explained that a commercial general liability policy was not “intended to put the insurer on the hook for all legal costs incurred as a result of its insured’s participation in a statutory presuit mechanism for resolving construction defect claims not covered by its policy.” To Justice Lawson, the majority lost sight of the fact the duty to defend is only triggered by suits seeking covered damages.

 

Moreover, the standard ISO form policy’s definition of “suit” requires the insurer’s consent in “any other alternative dispute resolution proceeding”. The court did not address this, stating that the insurer’s consent was an issue of fact. As such, it remanded the case to determine whether the insurer consented to the insured’s participation in the statutorily-required presuit process.

 

This case appears to greatly expand the duty to defend for insurers in Florida. Now, insurers in Florida may find the duty to defend triggered upon their insured’s receipt of these presuit notices. This is problematic for insurers particularly where there are no allegations of bodily injury or property damage resulting from the defects. As noted above, the majority did not make a distinction between covered claims and non-covered claims. The presuit notice itself triggered the duty to defend, according to the opinion. As a result, CGL insurers in Florida will likely be required to pay for lawyers to defend their insured’s against broad allegations of construction defects. It will be interesting to see how the Eleventh Circuit (or federal district court) resolves the issue of whether the insurer consented to the insured’s participation in the presuit process. Perhaps CGL insurers in Florida will be able to avoid defending these presuit claims by withholding their consent. We shall see how this plays out.

 

Happy New Year!!!

 

John

John R. Ewell

[email protected]

 

Divorce, 1917 Style:

GIVEN DECREE
Arizona Republic

Phoenix, Arizona

December 29, 1917

 

Describing his wife as a petulant and irritable young woman who cared nothing about him or his business, John Rittorff asked for a divorce from Mrs. Marie Rittorff, in Judge Stanford’s court yesterday.  Rittorff, who is a soda water dispenser in a local pharmacy, declared that his wife was a frivolous creature who preferred running about day and night rather than to remain at home and care for his interest.  That she was cold and abusive in her treatment of him was also charged by the husband, who said that his peace of mind had been destroyed by her actions.  The wife did not appear in court.  Rittorff, who was represented by J.E. Nelson, was granted the decree.

 

HEWITT’S HIGHLIGHTS:

 

Dear Subscribers:

 

Merry Christmas, Happy Hanukkah and Happy Holidays.  I hope you got everything you wanted. Watching my children age 8 and 7 open their presents from Santa Claus was gift enough for me. Santa came through with the much anticipated Nintendo Switch so all was right with the world. We also saw the Rockettes at Radio City Music Hall’s Christmas Spectacular and enjoyed, even though it rained, walking around New York City a few days before Christmas. The cold has also definitely hit Long Island. It is 20 degrees as I typed it.

 

We have a few cases this time but many of them are pro forma. One case raises the common issue at least in the Second Department, of failing to properly address a 90-180/day claim raised in the bill of particulars. In another case, they did address that category by using plaintiff’s deposition testimony that she only missed 2 weeks of work. In a fourth department case they did not dismiss that category because the IME doctor did not opine on plaintiff’s daily living during that period. It may be necessary to remind doctors to specifically opinion how the injuries would have affected plaintiff during that first 180 days, since they often see the plaintiff years later.

 

Have a Happy New Year!

 

Until next time,

 

Rob                  
Robert Hewitt

[email protected]

 

Want to Buy a Policy?

 

”Marriage Insurance” by Winona Wilcox

The Richmond Item

Richmond, Indiana

December 29, 1917

 

“Marriage insurance” sounds like a scheme to provide women with husbands, but it isn’t.  It is a plan to make that classic line, “and they lived happily ever afterward,” come true.

 

Therefore marriage insurance should interest man quite as much as woman, but so far it is being discussed mostly by women, as if it didn’t concern man at all: Some women talk about alimony, in much the same way.

 

Advanced feminists who think up these schemes for improving matrimony for women are divided as to the best ways of bringing marriage insurance about.  Some believe that the only insurance against domestic misery is “the fullest knowledge available of the character of the man.”  Before the wedding of course.

 

Others protest that a vocation will offer the self-respecting wife her only lasting chance of wedded bliss.

 

There are other propositions like trial marriage and separate homes for wedded pairs, but the noticeable defect of them all is that they heap all of the blame for marriage failures upon the man.  His character must be proved good; his purse must be guaranteed, full and open.

 

That a man may wish to promote the success of his own wedded life seems never to occur to these efficiency experts in matrimony.

 

Now the chances are that the average groom expects to find just as much in marriage as the bride does, and that he is just as disappointed when his dream does not come true, and that he isn’t’ the only one to blame if it fails.  Marriage insurance ought to be adjusted accordingly.

 

What the reformers need chiefly to remember is that a woman cannot be free and tied at the same time.  Probably there is no such thing as a free woman, for so long as a woman is normal she loves, and so long as a man is in her world – father, husband, son or nephew – she is his servant by the compelling force of her own devotion.

 

She is almost always perfectly happy when she is a wiling slave to her emotions.  Marriage insurance can never release her from herself.  When she is in a state of mind to demand it, she is either too unemotional or too unfair to make a desirable companion for any man.

 

Peiper’s Prudence:

 

We close out the year with a discussion over the role of brokers in the insurance field.  In two separate decisions, two separate Appellate Divisions address the duties and obligations of an insurance broker/agent in New York.  As one can easily see from the cases reviewed, the exposure for a wayward broker is great.  The route to get there, however, is often perilous for an unhappy insured. 

 

The first case worth highlighting, Vassar College, comes out of the Second Department.  In that case, the agent, apparently, failed to provide notice of lawsuit on behalf of his client, Vassar College. This left Vassar’s own CGL carrier with a $1.5 million exposure.  In that case, the Court ruled that it was possible that the broker breached a duty of care owed to his principal, and that such breach did, in fact, result in a loss of coverage.

 

The second case, Cromer, which comes to us from the Third Department, is far more interesting.  In that case, the Court highlights the care, skill and professionalism of the vast majority of agent/brokers.  In a nutshell, the owner of a building tells his broker to obtain CGL coverage.  The broker does so, but also advises that the policy will not provide coverage for injured workers.  Additional coverage can be purchased for an additional premium. 

 

The owner elects to forego additional coverage, and, not surprisingly, ends up being sued for a Labor Law 240 claim which hits for the paltry sum of $6,000,000.  To save $5,000, the owner/policyholder opened himself to 1200 times the exposure.  Not a good choice.  What does the owner elect to do?  He assigns his claim against his broker to the plaintiff, in an attempt to avoid exposure he elected, knowingly, to risk. 

 

Fortunately, the Court was unimpressed with the attempt to blame the broker.  Here, as the broker went above his obligation, and affirmatively advised of a gap in coverage for injuries to workers, the Court found that the conduct at issue was sufficient to meet any obligations.   This was so even if a “special relationship” existed which would have raised the duties owed by a broker.

 

What is unsaid, however, is that if a “special relationship” was found, and the broker had not pointed out the holes in coverage, an E&O claim might well have come about. 

 

What lessons can be learned from this tale.  For one, if you’re a broker.  You might elect to paper your file to affirmatively establish that your principal was on notice of his or her decision to purchase Swiss cheese.  You might also be careful to review the policies being procured for a client to ensure there are no glaring holes.

 

If you’re an insured, you might be certain to ask for a policy that specifically requires that coverage apply for injured workers.  This, with increasing frequency, is a requirement already found in trade contracts. 

 

If the broker relies upon the language of the trade contract, or the client affirmatively requests coverage for a certain risk, it appears a broker may become exposed if such coverage is ultimately not provided.

 

That’s it for now. Best wishes for safe and happy upcoming 2018. 

 

Steve

Steven E. Peiper

[email protected]

 

Happy 1918:

 

Employees Receive Insurance Policies

Todd Protectograph Company’s New Year’s Gift

 

Democrat and Chronicle

Rochester, NY

December 29, 1917

 

A New Year’s benefit that the Todd Protectrograph Company had planned for its factory and office people was announced yesterday afternoon.  Ralph Barstow, of the sales department, in a brief speech to the employees, said that the firm had been trying to work out some plan of showing its appreciation to its steady employees, some of whom have been with it since the business was established in 1899.  It has been decided, he said, to make a New Year’s gift of a straight life insurance policy for $1,000 to each man and woman who had been on the company’s payroll continuously for five years or more, one of $900 for four years’ service, and other amounts down to $500 for those in their first year.  The premiums on all policies have been paid by the company.

Editor’s Note: The Todd Protectograph Co. was established in 1899 by G. W. Todd. Circa 1902, the company was known as "G. W. Todd & Co." and was at 6 Exchange St., Rochester, New York. By 1916, the company was known as the Todd Protectograph Co. and they made hand-operated mechanical check protectors. In 1910, they reportedly claimed that 85,000 Protectographs were in use in businesses (e.g. banks and large companies).

There were various models produced by the company. The devices were meant to prevent unauthorized alteration of business checks using an impression made by the machine that was difficult to alter. This was a way to protect businesses against check fraud. Circa 1916, the Protectograph Check Writer devices wrote and protected checks using two colors (red for amount words, and black for denominations). The characters were "shredded" into the paper and pressure was used to force ink into the shreds (Todd Patents) circa 1916 the company also sold "Protod Chemical Fiber Checks", which could not be bleached out by forgers.

The company merged with a California company c. 1954.

 

Wilewicz’ Wide-World of Coverage:

 

Dear Readers,

 

This week’s missive comes to you from the sunny South, where we are spending the holidays with the family in Hotlanta, with some diversions here and there. Indeed, today the Wide World of Coverage is being written from Chattanooga, Tennessee, on our way to hit up another half dozen national parks along the way. We have already visited the terminus of the Appalachian Trail (actually also Amicalola Falls State Park) and the Fort Oglethorpe battlefields. Tomorrow on tap we have the Russel Cave National Monument on the border with Alabama, as well as the Little River Canyon National Preserve. A bit of driving around, but the weather has been mild and sunny, thus a mid-holiday road trip was called for in our household. [p.s. Editing of this cover note and issue is being done from just outside of Birmingham, Alabama!]

 

Now, to business, the Second Circuit recently published Pettengill v. Fireman’s Fund, which we summarize in the attached edition. In short, an insured was unhappy with a verdict that was rendered against her in a coverage action. There, she had first filed a water damage claim, which the carrier paid, and later that year she filed a fire claim. At that point, the carrier found inconsistencies in the fire claim (prior damage resubmitted), and refused to pay. The insured sued and litigation ensued. After a jury found in favor of the carrier, to the tune of over $300,000, the insured was not happy. She moved for a new trial, and the appeals went up all the way to the Second Circuit. Unfortunately for the insured, the jury had been properly instructed and there had been no miscarriage of justice. The verdict stood and the insured was on the hook to pay the carrier back. It’s a very short, interesting decision. See attached!

 

Until next time, Happy New Year!

 

Agnes

Agnes A. Wilewicz

[email protected]

 

Lazy Man Sentenced

Two Gun Carriers are Fined Heavily
Court Takes No Stock in Excuses

Buffalo Evening News

Buffalo, NY

December 29, 1917

 

Stanislaus Wojekowski of Lackawanna, arraigned before Judge Noonan in City Court today on a charge of carrying a revolver without a permit, was found guilty and sentenced to 60 days in the penitentiary.  He told the court he took the pistol and a license to carry it as security for a loan of money to a friend.

 

A fine of $100 was imposed upon Salvatore Pinnovaro of 78 Trenton Avenue, Friday, when taken before Judge Maul on a charge of carrying a revolver without a permit.  Pinnovaro said he had a license issued by a Justice of the Peace in Hamburg.  The court ruled this was not legal.

 

When he told the judge that he thought it was laziness that accounted for his being in court, Abraham Wartikowski of 13 Milnor Street was sentenced to 100 days in the penitentiary.  He was charge with vagrancy.

 

Personals:

The Pittsburgh Press

December 29, 1917

 

Dick (J.A.K) – Come home at once or telephone; everything alright and forgiven: Questionnaire to be answered.  Wilson (Kim).

 

Barnas on Bad Faith:

 

Hello again:

 

I hope everyone had a very Merry Christmas and has been enjoying the holiday season.  One thing we received for Christmas was a Google Home, so we’ve been saying “Hey Google” more than any reasonable person should over the last week.  It’s cool how many things the Google Home can do, but I think we’re still working out some of the kinks.

 

The Brown case in my column is a very interesting New York extra-contractual case from the Third Department.  First, the Third Department concludes that the plaintiff stated a cause of action pursuant to New York’s General Business Law Section 349 based upon her allegations that the insurer engaged in a consumer-oriented pattern and practice aimed at the public at large of wrongfully denying claims for no-fault benefits by pressuring the physicians it hired to perform IMEs to provide medical reports that would support the denial of benefits.  Thus, her General Business Law claims survived a motion to dismiss.

 

However, things got interesting when the court considered whether the plaintiff could recover damages for emotional distress from the insurer as consequential damages based upon the Court of Appeals’ decisions in Bi-Economy and Panasia.  The majority held that those decisions did not alter the long-standing New York rule that damages for emotional distress for breach of contract are available only in certain limited circumstances, such as a willful breach accompanied by egregious and abusive behavior.  I would have thought that was clearly the answer, but a two judge dissent would have held that Plaintiff was entitled to seek damages for emotional distress on her breach of contract claim.  Those judges reasoned that given the nature and purpose of no-fault coverage, which was at issue in the case, the insured bargains not only for monetary benefits, but also the intangible peace of mind that prompt payment will be made for medical expenses and lost wages emanating from injuries sustained in an automobile accident.  Such a benefit is within the contemplation of the parties as an integral component of the contract.  This area will bear watching in the future given the close vote in the Third Department.

 

I’m also lucky enough to have a guest case summary in my column this week.  Matthew M. Haar of Saul Ewing Arnstein & Lehr LLP has a fine write-up on an interesting bad faith case out of Colorado that deals with the “usual list” of bad faith allegations made by insureds.  Be sure to give it a read and a big thanks to Matt for the guest column!

 

Happy New Year!

 

Signing off,

 

Brian

Brian D. Barnas

[email protected]

 

Aliens Treated Differently – 100 Years Ago

 

Argus Leader

Sioux Falls, South Dakota

December 29, 1917

 

Chicago, Dec. 29 – A city ordinance denying aliens license to engage in business after May 1, 1918, unless they have taken out their first citizenship papers is in effect today.

 

Altman’s Administrative (and Legislative) Agenda:  

 

Greetings, Dear Readers.  Happy New Year!   I hope you had a great Christmases and/or Eat Chinese Food and Go to a Movie Days.  I spent my Christmas the way the good Lord: eating homemade hot wings and watching Dexter.  

 

Last week, we brought you a special edition of Coverage Pointers discussing New York’s new legislation making SUM (Supplementary Uninsured/Underinsured Motorists) coverage automatic in motor vehicle insurance policies issued after June 18, 2018, unless the insured affirmatively opts out.  This week, we bring you amendments to the bill.

 

Howard

Howard B. Altman

[email protected]

 

Railroads Claimed by Government, Baseball Not Impacted:

 

Railroad Control Will Not Affect Baseball Schedule

 

President Tener Wisely States Railroad Proposition

Should Adjust Itself – No Clubs Will Attempt Unnecessary Demands

The Buffalo Enquirer

Buffalo, NY

December 29, 1917

 

New York, December 29 – Pres. John K Tener of the National League is not anticipating any really serious handicap to traveling schedules of the major league clubs as a result of the government taking over the railroads.

 

“The Railroad proposition should readily adjust itself,” said Pres. Tener today. “At least this is my way of thinking. I am sure no clubs will try to impose on the roads should it be deemed advisable to remove passenger trains and the players. I am satisfied, have quite enough interest in their profession to suffer whatever inconveniences may arise.”

 

Off the Mark:

 

Dear Readers,

 

Well, the holiday frenzy is just about over.  I’m still recovering from the late night wrapping and the early morning wake up by excited kids.  Despite the enormous mess they make and the lack of sleep, it’s great to see their jubilant faces.  I hope all of our readers’ holidays have been great and that everyone has a safe and enjoyable new year. 

 

This edition discusses a construction defect case from the United States Court of Appeals for the Fifth Circuit.  In Lyda Swinerton Builders, Inc. v. Okla. Sur. Co., the U.S. Court of Appeals for the Fifth Circuit, applying Texas law, examined an insurer’s duty to defend.  The Court looked at the allegations of the underlying suit and measured them against the insurance policy at issue to determine whether the facts alleged presented a matter that could potentially be covered by the policy.  Reading the underlying pleadings, the Court found that there was at least a potential that the underlying suit fell within the policy’s scope of coverage, which was sufficient to trigger the carrier’s duty to defend.  In so holding, the Court affirmed the finding that the carrier was liable under the Prompt Payment of Claims Act (“PPCA”), which states that an insurer that is liable for a claim and fails to promptly respond to or pay the claim becomes liable to the policy holder or beneficiary for the amount of the claim, as well as an 18 percent per annum statutory penalty and reasonable attorney’s fees. 

Happy New Year!

 

Until next time …

 

Brian

Brian F. Mark
[email protected]

 

Headlines from this week’s issue, attached

 

 

KOHANE’S COVERAGE CORNER
Dan D. Kohane

[email protected]

 

  • Because of Definition of “Ultimate Net Loss” in Umbrella Policy, Employer’s Liability Policy with Unlimited Coverage Must be Exhausted before Umbrella Policy is Obligated to Indemnify Employer
  • To Determine Underinsured Status, Aggregate all the Settlement Money from All Auto Tortfeasors
    Subsidence Exclusion Not Clear Enough to Exclude Claims Arising from Excavation

 

LIENING TOWER OF PERLEY

Michael F. Perley

[email protected]

 

  • Court of Appeals Applies Kelly Rule to a Worker’s Compensation Schedule Loss of Use Award Rendered after Personal Injury Settlement

 

HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW

Robert E.B. Hewitt III

[email protected]

 

  • Defendant’s Doctor Expert Relied Upon Plaintiff’s Doctor’s Reports Which Found Plaintiff’s Injuries Were Pre-Existing and Thus There Was an Issue of Fact
  • Defendant Entitled to Summary Judgment as to 90-180 Day Category Where Plaintiff Testified He Only Missed Two Weeks of Work Following the Accident
  • Defendant Failed To Address 90/180-Day Category
  • Issue of Fact as to Whether Permanent Consequential Limitation of Use
  • Plaintiff Raised Issue of Fact as to whether Suffered Serious Injury to Cervical and Lumbar Spines
  • Issue of Fact as to Whether Plaintiff Suffered a Serious Injury to Lumbar Spine

 

TESSA’S TUTELAGE

Tessa R. Scott

[email protected]

 

  • Defendant Was Not Entitled to Summary Judgment Where There Was a Question of Fact Regarding the Ownership of the Vehicle
  • Defendant Never Received a Response to Its Timely Request for Verification
  • Defendant Never Received a Response to Its Timely Request for Verification
  • Defendant’s Medical Expert Should Have Been Allowed to Testify
  • Not Quite Enough Evidence To Prove That Plaintiff’s Injuries Did Not Occur As A Result Of An Insurable Event

 

PEIPER ON PROPERTY (and POTPOURRI)

Steven E. Peiper

[email protected]

 

  • As Payee of its Named Insured’s Loss, Carrier Acquired a Subrogation Claim against Broker
  • Marshall & Sterling Owed a Duty of Care to Vassar, and Breached it by Failing to Provide Timely Notice
  • Labor Law Plaintiff Fails in Attempt to Sue Owner’s Insurance Broker for Failing to Procure Coverage for Labor Law Claims
  • Spoliation Argument Rejected where No Evidence of Destruction of Evidence with a “Culpable State of Mind” or that that  Information Sought was Relevant

 

WILEWICZ’S WIDE WORLD OF COVERAGE

Agnes A. Wilewicz

[email protected]

 

  • Second Circuit Holds that Jury Verdict in Property Coverage Case Was Not Improper in Light of the Evidence and Where there was no Finding of Manifest Injustice of Miscarriage of Justice

 

JEN’S GEMS

Jennifer A. Ehman

[email protected]

 

  • Court Grants Default in Declaratory Judgment Action Where Non-Appearing Party Failed to Also Appear at Properly Noticed EUOs

 

BARNAS ON BAD FAITH

Brian D. Barnas

[email protected]

 

  • Emotional Distress Damages are not Generally Available as Consequential Damages for Breach of an Insurance Contract
  • Beware the “Usual List” of Bad Faith Allegations

 

EWELL’S UNIVERSE
John R. Ewell

[email protected]

 

  • Florida Supreme Court Expands Insurer’s Duty to Defend to Include Pre-suit Notices in Construction Defect Cases

 

ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA

Howard B. Altman

[email protected]

 

  • Chapter Amendments to SUM Legislation


OFF THE MARK
Brian F. Mark

[email protected]

 

  • US Court of Appeals Holds that Insurer had a Duty to Defend Additional Insured in an Underlying Construction Defects Action

 

EARL’S PEARLS
Earl K. Cantwell

w[email protected]

 

  • In Construction Defect Cases, the “Economic Loss Doctrine” Giveth and Taketh Away

 

 

Happy New Year.  Call if you have a situation.  You may have heard that we love those calls and look to empower you to resolve them.

 

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


NEWSLETTER EDITOR
Dan D. Kohane
[email protected]

 

ASSOCIATE EDITOR

Agnes A. Wilewicz

[email protected]

 

ASSISTANT EDITOR

Jennifer A. Ehman

[email protected]

 

INSURANCE COVERAGE/EXTRA CONTRACTUAL LIABILITY TEAM
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

 

FIRE, FIRST-PARTY AND SUBROGATION TEAM
Steven E. Peiper, Team Leader
[email protected]

 

Michael F. Perley

Edward B. Flink

Brian D. Barnas

Howard B. Altman

James L. Maswick

 

NO-FAULT/UM/SUM TEAM
Jennifer A. Ehman, Team Leader
[email protected]
 

Patricia A. Fay

Tessa R. Scott

 

APPELLATE TEAM
Jody E. Briandi, Team Leader
[email protected]

 

Diane F. Bosse
 

Topical Index

Kohane’s Coverage Corner

Liening Tower of Perley

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

 

KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]

 

12/27/17       Arthur Vincent & Sons Construction, Inc. v. Century Surety

Appellate Division, Second Department

Because of Definition of “Ultimate Net Loss” in Umbrella Policy, Employer’s Liability Policy with Unlimited Coverage Must be Exhausted before Umbrella Policy is Obligated to Indemnify Employer

Fordham University hired Arthur Vincent & Sons (“Vincent”) to install a new roof at the Lewis Calder Center. Vincent and Fordham entered into a contract whereby Vincent would indemnify Fordham and provided with additional insured coverage.

 

Bermeo, an employee of Vincent was fatally injured in a fall during the construction and a wrongful death action was commenced against Fordham. Fordham commenced a third-party action against Vincent s seeking common law (grave injury) and contractual indemnification.  Vincent had three policies, a Commercial General Liability Policy with Century, a Workers Compensation/Employer’s Liability Policy with AIG and an Excess Umbrella Policy with Admiral. The question on this appeal was whether Admiral’s policy had to respond to this claim or whether it was excess over the AIG policy.

 

Vincent, using AIG’s counsel, commenced this action seeking a judgment declaring, among other things, that Admiral is obligated under the excess liability insurance policy to defend and indemnify it against third-party claims, and to defend and indemnify Fordham as an additional insured, in the underlying wrongful death action. Admiral moved, in effect, for summary judgment declaring, among other things, that it is not obligated to defend or indemnify the Vincent in the underlying action on the ground that the employer's primary liability coverage is unlimited, thereby never triggering excess coverage.

 

Vincent moved for summary judgment, among other things, declaring that Admiral is obligated to indemnify it and Fordham in the underlying action on an excess, noncontributory basis to the coverage provided by Century. It argued that because the AIG policy excludes contractual indemnification claims, the Admiral excess policy provides it with excess coverage for those claims.

 

The Second Department held that the Admiral excess policy states that it provides coverage in the amount of the "ultimate net loss" in excess of the "underlying insurance limit." The "underlying insurance limit" is defined as the sum of the amounts applicable to any claim or "suit" from (1) the " underlying insurance,'" which is the "coverage(s) afforded under insurance policies, for the limits shown, as designated in the schedule of underlying insurance'"; and (2) "other insurance."

 

The schedule of "underlying insurance" lists the commercial general liability policy issued by Century. Although the AIG employer's liability policy issued by AIG was not listed on the schedule of underlying insurance, the coverage afforded under the Commerce policy is included in the "underlying insurance limit," because that term, by definition, includes both the policies designated in the schedule of underlying insurance and "other insurance."

 

The AIG policy contains a New York Limit of Liability Endorsement that provides the plaintiff with unlimited coverage in cases, such as the one at bar, where bodily injury to an employee arises out of and in the course of employment that is subject to and is compensable under the Workers' Compensation Law. Therefore, pursuant to the clear and unambiguous terms of the Admiral policy, excess coverage under the Admiral policy cannot be triggered with regard to Vincent.

 

12/22/17       New York Central Mutual Ins. Co. v. Baker
Appellate Division, Fourth Department

To Determine Underinsured Status, Aggregate all the Settlement Money from All Auto Tortfeasors
Baker was hurt in a car accident while riding in a car driven by Merkley.  The Merkley car was rear ended by a motor vehicle driven by Baily. When the Baily car was struck, it was propelled into oncoming traffic where it was struck by a car driven by Swartsfelder.
 

Merkley and Swartsfelder all pursued personal injury claims against Bailey and the owner of the Bailey vehicle. The Bailey vehicle was insured by nonparty carriers with a policy limit of $100,000 per accident, and those carriers offered
Baker, Merkley and Swartsfelder the policy limit, to be divided in equal amounts so that each received $33,333.33.

 

Baker then filed a claim for underinsured benefits (“SUM”) with New York Central Mutual (“NYCM”), Merkley’s insurer.  NYCM argued that it was entitled to aggregate the amounts received by Merkley and respondent from the Bailey vehicle carriers in calculating the offset for the SUM endorsement under its policy, and the amount received from the Bailey vehicle carriers was greater than that SUM limit ($50,000 per accident).

 

Once the Bailey vehicle carriers tendered the policy limit, the exclusion in the SUM endorsement that limited SUM payments to the difference between the limits of SUM coverage and the insurance payments received by Merkley and respondent from any person legally liable for bodily injuries applied. Inasmuch as NYCM properly offset the $66,666 received by respondent and Merkley from the Bailey vehicle carriers' policies against the SUM limits under the exclusion, respondent was precluded from any recovery under the SUM endorsement.

 

In the section entitled "exclusions" the SUM endorsement provides that the maximum payment under the SUM endorsement "shall be the difference between: (a) the SUM limits; and (b) the motor vehicle bodily injury liability insurance or bond payments received by the insured or the insured's legal representative, from or on behalf of all persons that may be legally liable for the bodily injury sustained by the insured."

 

12/20/17       Vertex Restoration Corp. v. Catlin Insurance Company
Appellate Division, Second Department

Subsidence Exclusion Not Clear Enough to Exclude Claims Arising from Excavation

Vertex was hired as the general contractor on a project to demolish an existing building and construct a new residential building on property owned by 36 Maspeth Avenue, LLC. In August 2007, the Vertex secured a commercial general liability insurance policy from the defendant Catlin. Sometime before December 8, 2008, while construction work was ongoing, the foundation of the adjacent building became undermined and the building was damaged. Vertex repaired the damage to the adjacent building and sought indemnification from Catlin under the liability policy. Catlin denied coverage on the ground that a subsidence exclusion in the policy excluded coverage.

 

Exclusions from coverage in an insurance policy are to be accorded a strict and narrow construction. The insurer must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case.

 

The insurer failed to establish that the subsidence exclusion applied to the plaintiff's loss. While the court did not explain, in the decision, why the exclusion was unclear, from citations by the court, it seems that there was a question whether this subsidence exclusion applied to excavation work.

 

LIENING TOWER OF PERLEY

Michael F. Perley

[email protected]

 

12/19/17       Terranova v. Lehr Construction Co.

New York State Court of Appeals

Court of Appeals Applies Kelly Rule to a Worker’s Compensation Schedule Loss of Use Award Rendered after Personal Injury Settlement

Joseph Terranova was injured in the course of his employment and collected Workers’ Compensation benefits in the amount of $21,495.99.  Terranova made a claim against the general contractor, which he resolved for an undisclosed amount of money.  At the time of the settlement, it appeared that the Workers’ Compensation lien was adjusted for Terranova’s attorney’s fees and disbursements (“cost of litigation”). What remained unresolved at the time of the settlement was Terranova’s claim for a scheduled loss of use, which was in litigation at the Workers’ Compensation Board. After the settlement, Terranova was awarded a 10% scheduled loss of use of his right leg and awarded 28.8 weeks of benefits resulting in an additional award of $9,960.00. Although it is not clear in the opinion, it appears that the Workers’ Compensation Board retained the entire amount of the award pursuant to the Workers Compensation §29 set-off it received as a result of the settlement.  Terranova argued that he was entitled to be repaid the cost of litigation for that set-off. The Workers’ Compensation Board, along with the Appellate Division disagreed.  The Court of Appeals, however, reversed.

 

To fully understand the reasoning of the Court of Appeals, it is appropriate to revisit the matter of Kelly v. State Insurance Fund (60 N.Y.2d 131 [1980]).  In that case, the Court of Appeals determined that, where the future benefits for the injured worker were ascertainable at the time of settlement, the cost of litigation for both the lien and the present value of the ascertainable future benefits would be apportioned to the injured worker, thereby reducing, or potentially eliminating the Workers’ Compensation lien.  In rare cases, this resulted in a “fresh money” cash payment from the Workers’ Compensation carrier to the injured worker. 

 

Fast forward to 2007, when the Court of Appeals addressed situations where the future indemnity benefits were not ascertainable at the time of the settlement.  In Burns v. Varriale (9 N.Y.3d 207 [2007]), the court determined that, in those circumstances, the cost of litigation would not be apportioned at the time of settlement, but required that the “carrier should … periodically pay its equitable share of the attorneys’ fees and costs based on actual benefits accrued.”  In passing, the Burns court noted that the “pay as you go process” would not apply where “a claimant does not receive benefits for death, total disability or scheduled loss of use.” (9 N.Y.3d at 217).  Relying on the carve out in Burns, the Workers’ Compensation Board and the Appellate Division noted that Terranova’s claim was for a scheduled loss of use.  Neither the Board not the Court appreciated the distinction that the scheduled loss of use had not been awarded at the time of the settlement.  The Court of Appeals noted that, since this award had not been determined, the amount was not ascertainable and, as a result, the “pay as you go” procedure in Burns would apply.  This clarified the Court of Appeals determination in Burns applying the “pay as you go” process to any wage continuation (indemnity) payment that was not ascertainable at the time the bodily injury lawsuit was concluded.

 

Finally, the Workers’ Compensation carrier also claimed that Terranova had waived his rights by executing a Section 29 Agreement, reciting that the “lien reimbursement reflects a reduction of the carrier’s lien pursuant to Kelly v. State Insurance Fund and all parties reserve their right to Burns v. Varriale.” The Court of Appeals, interpreted the plain language of that agreement incorporating what it characterized as the “proper” reading of Burns, to preserve Terranova’s rights.

 

HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW

Robert E.B. Hewitt III

[email protected]

 

12/22/17       James v. Thomas

Appellate Division, Fourth Department

Defendant’s Doctor Expert Relied Upon Plaintiff’s Doctor’s Reports Which Found Plaintiff’s Injuries Were Pre-Existing and Thus There Was an Issue of Fact

Plaintiff commenced this action to recover damages for injuries that she allegedly sustained when the vehicle she was driving was struck from behind by a vehicle driven by defendant Darnell A. Thomas. Defendants moved for summary judgment dismissing the complaint on the ground that plaintiff did not sustain a serious injury in the accident within the meaning of the three categories of serious injury alleged by her and plaintiff cross-moved for partial summary judgment on the issue of negligence. The Appellate Division held that the court properly denied defendants' motion because they failed to meet their initial burden of establishing that plaintiff's injuries were not caused by the accident.

 

Defendants contended with respect to the permanent consequential limitation of use and significant limitation of use categories of serious injury alleged by plaintiff that such injuries were preexisting, having resulted from a previous motor vehicle accident. Although defendants' expert ultimately opined in his report that plaintiff's injuries were not causally related to the accident, that report relies on plaintiff's medical records, which conclude that plaintiff sustained injuries that were causally related to the collision. The report also noted the quantitative assessments of plaintiff's physicians with respect to her limited range of motion in her cervical and lumbar spine after the accident. Thus, defendants failed to eliminate all issues of fact with respect to whether plaintiff sustained serious injuries that were causally related to the accident under those two categories.

 

The Appellate Division further conclude that defendants failed to establish their entitlement to judgment as a matter of law on the third category of serious injury alleged by plaintiff, i.e., the 90/180-day category, inasmuch as the examination by defendants' physician took place well after the relevant 180-day period, he did not opine about plaintiff's condition during that period, and defendants submitted no other evidence refuting plaintiff's claim that, as a result of her injuries, she  was unable to perform household chores, cook, or shovel light snow following the accident. In any event, plaintiff's deposition testimony, which was submitted by defendants in support of their motion, establishes that there is an issue of fact whether plaintiff could perform substantially all of her activities of daily living for not less than 90 days during the 180 days immediately following the occurrence of her injuries.

 

The lower court was also held to have properly denied plaintiff's cross motion. It is well settled that a rear-end collision establishes a prima facie case of negligence on the part of the driver of the rear vehicle and, in order to rebut the presumption of negligence, the driver of the rear vehicle must submit a non-negligent explanation for the collision. Here, the Fourth Department found there was evidence in the record that plaintiff stopped her vehicle suddenly, which is sufficient to overcome the inference of negligence and preclude an award of summary judgment. However, other cases have not found the explanation that a plaintiff stopped short to be a non-negligent explanation as the defendant driver should be able to anticipate that the driver ahead of them may stop short.

 

12/20/17       Kim v. Lemon Transportation Corp.

Appellate Division, Second Department

Defendant Entitled to Summary Judgment as to 90-180 Day Category Where Plaintiff Testified He Only Missed Two Weeks of Work Following the Accident

The Appellate Division held that 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 injury to the lumbar region of the appellant's spine did not constitute a serious injury under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d). In addition, the defendants established, prima facie, that the appellant did not sustain a serious injury under the 90/180-day category of Insurance Law § 5102(d) by submitting a transcript of the appellant's deposition testimony, which demonstrated that he missed only two weeks of work following the accident.

 

12/20/17       Stead v. Serrano

Appellate Division, Second Department

Defendant Failed To Address 90/180-Day Category

The Appellate Division found defendants failed to meet their prima facie burden of showing that the plaintiff Margaret Stead 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 defendants failed to adequately address the injured plaintiff's claims, set forth in the bill of particulars, that she sustained a serious injury under the 90/180-day category of Insurance Law § 5102(d). Since the defendants failed to meet their prima facie burden, it was unnecessary to consider whether the plaintiffs' opposition papers were sufficient to raise a triable issue of fact.


12/13/17       Hagans v. Jaber

Appellate Division, Second Department

Issue of Fact as to Whether Permanent Consequential Limitation of Use

The Appellate Division found that 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 accident. The defendants submitted competent medical evidence establishing, prima facie, that the alleged injury to the lumbar region of the plaintiff's spine did not constitute a serious injury 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 she sustained a serious injury to the lumbar region of her spine under the permanent consequential limitation of use and significant limitation of use categories of Insurance Law § 5102(d). No facts were given.

 

12/13/17       Thomas v. Pascal

Appellate Division, Second Department

Plaintiff Raised Issue of Fact as to whether Suffered Serious Injury to Cervical and Lumbar Spines

The moving 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. They 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 she sustained serious injuries to the cervical and lumbar regions of her spine under the permanent consequential limitation of use and significant limitation of use categories of Insurance Law § 5102(d). No facts were given.

 

12/13/17       Byun v. McCarthy

Appellate Division, Second Department

Issue of Fact as to Whether Plaintiff Suffered a Serious Injury to Lumbar Spine

The defendants and the plaintiff/counterclaim defendant met their prima facie burden of showing that the plaintiff Mi Ok Kim  did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The movants submitted competent medical evidence establishing, prima facie, that the alleged injuries to the appellant's left shoulder and the cervical and lumbar regions of her 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 appellant raised a triable issue of fact as to whether she sustained a serious injury to the cervical and lumbar regions of her spine and her left shoulder under the permanent consequential limitation of use and significant limitation of use categories of Insurance Law § 5102(d). Again, as is common with the Second Department, no facts were given.

 

TESSA’S TUTELAGE

Tessa R. Scott

[email protected]

 

12/22/17       Harris v Direct Gen. Ins. Co

Appellate Division, Fourth Department

Defendant Was Not Entitled to Summary Judgment Where There Was a Question of Fact Regarding the Ownership of the Vehicle

Defendant appeals from an order that denied its motion for summary judgment seeking a declaration that plaintiff was not entitled to no- fault benefits from defendant.  The Fourth Department, disagreed with Defendant’s reading of the case.

 

Defendant failed to meet its burden on the motion of establishing as a matter of law that plaintiff was not entitled to no-fault insurance benefits because the Plaintiff was not the owner of the subject motor vehicle. Defendant submitted plaintiff's testimony that he was the co-owner of the vehicle, and that he and his fiancée paid for the vehicle, its maintenance, and a Florida insurance policy that did not cover plaintiff. Nevertheless, defendant also submitted the registration, title, and insurance documents for the vehicle, all of which list plaintiff's father as the owner.

 

The Supreme Court properly determined that, there was a question of fact with regards to ownership.

 

12/22/17       Active Chiropractic, P.C. v Country-Wide Ins. Co

Appellate Division, Second Department

Defendant Never Received a Response to Its Timely Request for Verification

Plaintiff moved for summary judgment and defendant cross-moved for summary judgment dismissing the complaint. Plaintiff appeals the part of the lower court’s order, which denied plaintiff's claim for recovery for the sum of $290.64.

 

The Second Department held that defendant established that after receiving the $290.64 claim at issue, it had timely mailed initial and follow-up requests for written verification. Defendant demonstrated that it had not received the requested verification, a point Plaintiff failed to refute. As such, the 30-day period within which defendant was required to pay or deny the claim did not begin to run.

 

12/22/17       Ameriprise Ins. Co. v Kensington Radiology Group, P.C.

Appellate Division, First Department

Defendant Never Received a Response to Its Timely Request for Verification

This matter was remanded back to the Civil court for a “framed issue hearing” to determine if the $50,000 no fault policy limits had been exhausted. The First Department made it clear; an arbitrator's award directing payment in excess of the $50,000 limit of a no-fault insurance policy exceeds the arbitrator's power and constitutes grounds for vacatur of the award.”

 

Here, petitioner-insurer's submissions in support of its petition to vacate the arbitration award - including an attorney's affirmation, the policy declaration page showing the $50,000 limit and a payment ledger listing in chronological order the dates the claims by various providers were received and paid - raised triable issues as to whether the $50,000 policy limit had been exhausted by payments of no fault benefits to respondent and other providers before petitioner became obligated to pay the claims at issue here.

 

12/19/17       Jamaica Med. Plaza, P.C. v GEICO Gen. Ins. Co

Appellate Division, Second Department

Defendant’s Medical Expert Should Have Been Allowed to Testify

In a nonjury trial the sole issue was the medical necessity of the medical services. The Civil Court precluded the testimony of defendant's expert witness and granted plaintiff's motion for a directed verdict. Defendant appealed from the $4,937.42 judgment.

 

The Second Department reversed the holding of the Civil Court stating, “Defendant's expert medical witness, who was not the expert who had prepared the peer review report upon which defendant's denial of the claim at issue had been based, should have been permitted to testify as to her opinion regarding the lack of medical necessity of the services at issue in this case, which testimony would be limited to the basis for the denial as set forth in the original peer review report.”

 

12/19/17       Tyorkin v Country Wide Ins. Co

Appellate Division, Second Department

Not Quite Enough Evidence To Prove That Plaintiff’s Injuries Did Not Occur As A Result Of An Insurable Event

In this action by a provider to recover assigned first-party no-fault benefits, defendant appeals from an order of the Civil Court which granted plaintiff's motion for summary judgment and denied defendant's cross motion for summary judgment dismissing the complaint.

 

The Second Department concluded that Defendant’s evidence was insufficient to establish that plaintiff's assignor's alleged injuries did not arise from an insured incident so as to warrant the dismissal of the complaint. However, plaintiff is not entitled to summary judgment, as defendant's evidence was sufficient to demonstrate the existence of a triable issue of fact.

 

PEIPER ON PROPERTY (and POTPOURRI)

Steven E. Peiper

[email protected]


12/27/17           Vassar College v. Marshal & Sterling, Inc.

Appellate Division, Second Department

As Payee of its Named Insured’s Loss, Carrier Acquired a Subrogation Claim against Broker

Plaintiff engaged Marshall & Sterling to procure a CGL and Umbrella Policy from United Educators.  As part of a construction project, Vassar also hired Kirchhoff to perform work at the college.  Kirchhoff also used Marshall & Sterling to procure a primary CGL from ACE, and separate umbrella coverages from Diamond State and Scottsdale, respectively.  Marshall & Sterling made sure that Vassar was listed as an additional insured under all policies issued to Kirchhoff. 

 

Eventually, an injured party at the worksite commenced an action against Vassar. In turn, Vassar requested that Marshall & Sterling provided notice to all carriers (including Scottsdale and Diamond State).  Apparently, Marshall & Sterling’s notice to Diamond State and Scottsdale was untimely, as both denied due to late notice.

 

United Educators, as carrier for Vassar, negotiated a $7,000,000 settlement, of which it paid to plaintiff.  The carrier then sought reimbursement from ACE, Diamond State and Scottsdale.  We are advised that ACE and Diamond State paid their entire policy limits to United Educators.  That left a $4,000,000 short fall, and as such, we presume ACE had a $1,000,000 policy and Diamond State’s was limited to $2,000,000. We are also advised that United Educators eventually settled with Scottsdale for $2,500,000, thus leaving it unreimbursed for $1.5 million of the settlement with plaintiff.  The instant action was commenced by Vassar and by United Educators seeking reimbursement of the $1,500,000 shortfall from Marshall & Sterling.

 

Marshall & Sterling moved to dismiss therein arguing that plaintiffs had no basis to assert a claim in negligence.  The trial court denied the motion, and this appeal ensued.  The Second Department noted that the Complaint asserted a “cognizable” cause of action for negligence as asserted by United Educators.  Essentially, after paying the loss on behalf of its insured, United Educators acquired the right to pursue Marshall & Sterling’s negligence as a subrogree of Vassar. 

 

Nevertheless, because Vassar, itself, did not lose any money due to Marshall & Sterling’s negligence (the loss was absorbed by United Educator’s policy) it could not present a viable claim for negligence.  This was because it could not establish damages as a result of Marshall & Sterling’s negligence.  Accordingly, Vassar’s allegations were dismissed from the action. 

 

12/27/17           Vassar College v. Marshall & Sterling, Inc.

Appellate Division, Second Department

Marshall & Sterling Owed a Duty of Care to Vassar, and Breached it by Failing to Provide Timely Notice

In part two of this case, the Appellate Division ruled that Marshall & Sterling owed a duty to Vassar College due to the “special relationship” between the companies. As such, Marshall & Sterling had an obligation to provide timely notice to all potential carriers.  When it did not, the result was a loss of $1,500,000 in coverage that would have otherwise been available under the policy issued by Scottsdale. 

 

Where, as here, United Educators possessed a viable subrogation interest by virtue of its decision to pay Vassar’s obligations to the injured party, it followed that United Educators was permitted to prosecute Vassar’s negligence claim against Marshall & Sterling.  Accordingly, United Educators established its right to judgment against Marshall & Sterling as a matter of law.

 

12/21/17           Cromer v Rozenzweig Ins. Agency, Inc.

Appellate Division, Third Department

Labor Law Plaintiff Fails in Attempt to Sue Owner’s Insurance Broker for Failing to Procure Coverage for Labor Law Claims

Plaintiff was injured due to a fall that occurred while he was engaged in the course of a construction project.  In turn, plaintiff sued the owner of the property under a Labor Law theory.  At the close of trial, plaintiff obtained a verdict of $6.1 million dollars.  Cromer then took an assignment of that judgment, and commenced the instant action against the property owner’s insurance agents.

 

At the time of the initial suit,  the property owner Skriloff tendered its defense to the insurance company providing Commercial General Liability insurance for the risk.  That policy was procured by Rozenzweig.  The policy, however, did not coverage losses to employees, contractors or employees of contractors engaged in construction.  Not surprisingly, the carrier immediately disclaimed coverage, thus, setting up Skriloff’s (now Cromer assignee) claim. 

 

Cromer alleged causes of action sounding in breach of contract, negligence, fraud/material misrepresentation and failure to procure appropriate insurance.  Rozenzweig, and another broker Silver, moved for summary judgment.  Both motions were granted, and the Appellate Division affirmed.

 

With regard to the negligence/breach of contract claims, the Court noted that an insured is deemed to know what is in their insurance policies.  Here, it was broker’s responsibility to procure what was requested.  The record indicates that the  broker was only asked to procure a CGL policy for the premises.  Absent a request for a specific coverage from the owner, Skriloff, the brokers met their obligations by procuring a CGL policy which was issued to the owner. 

 

The argument was further bolstered by evidence that Rozenzweig actually advised Skriloff that there was no coverage for injuries to contractor’s employees.  In addition, Rozenzweig also advised that coverage for injuries to contractor’s employees could be purchased for an additional $5,000.   Skriloff, for his part, admitted in a deposition that he knew he did not have coverage for injuries to contactor’s employees, and that he assumed the contractors would have coverage for any loss. 

 

In addition, Cromer alleged that Rozenzweig owed a special duty of care because he had a “special relationship” with Skriloff.  The Court acknowledged that if a “special relationship” existed, Rozenzweig would have had an obligation to ensure that Skriloff was uninsured for damages incurred by contractor’s employees. Here, however, the court noted that special relationship or not, Rozenzweig actually did advise of the gap in coverage, and thereby met his obligations.  On that record, it was unnecessary to resolve the nature of the relationship between Rozenzweig and Skriloff. 

 

12/20/17           Goodwin v Guardian Life Ins. Co. of America

Appellate Division, Second Department

Spoliation Argument Rejected where No Evidence of Destruction of Evidence with a “Culpable State of Mind” or that that  Information Sought was Relevant

Plaintiff commenced this action after sustaining injury due to tripping over an improperly leveled elevator.  The Court noted that property owners can be liable for a defective condition in an elevator, but only where there is evidence of actual or constructive notice of the defect.  Here, there was no evidence of any notice, and as such plaintiff’s action was appropriately extinguished.

 

In addition, plaintiff also moved to strike the defendants’ respective Answers on a theory of spoliation.  The Court, in rejecting plaintiff’s motion, noted that the trial court providently exercised its discretion when it noted that plaintiff was unable to show that the information was destroyed with a “culpable state of mind.”  In addition, plaintiff also failed to show that the requested information was “relevant to the party’s claim.”

 

WILEWICZ’S WIDE WORLD OF COVERAGE

Agnes A. Wilewicz

[email protected]

 

12/21/17       Anita Pettengill v. Fireman’s Fund Insurance Company

United States Court of Appeals, Second Circuit

Second Circuit Holds that Jury Verdict in Property Coverage Case Was Not Improper in Light of the Evidence and Where there was no Finding of Manifest Injustice of Miscarriage of Justice

In 2011, as per a homeowner’s policy, Fireman’s Fund paid its insured Anita Pettengill for her claim for water damage to her home, pool house, and television (the “water claim”). Later that year, she also filed a claim for fire damage at the home as well (the “fire claim”). Fireman’s discovered some discrepancies with respect to both claims and subsequently refused to pay the fire claim. The insured then sued, asserting breach of the insurance policy. After trial, a jury found in favor of the insurer and awarded the carrier damages in the amount of $330,277.28. The insured then moved for a new trial.

 

A motion for a new trial is made pursuant to the Federal Rule of Civil Procedure 59(e). Under that provision, a new trial will only be had in order to “prevent manifest injustice”, which “exists where a jury’s verdict is wholly without legal support”. Indeed, a new trial is only warranted “if the verdict is (1) seriously erroneous or (2) a miscarriage of justice”.

 

In this case, the insured had argued that the verdict was not supported by the evidence and the jury rendered inconsistent verdicts relative to the two claims. However, for the water claim, the Second Circuit found that there was ample evidence at trial for the jury to find fraud on the part of the insured. Indeed, the court wrote that “a witness testified that the television was broken before the water damage; Pettengill told Firemanʹs Fund that the television was water‐damaged; Pettengill submitted an invoice for that damage; and Firemanʹs Fund paid her. Pettengill has not demonstrated manifest injustice, nor has the jury’s verdict resulted in a miscarriage of justice.” As for the fire claim, the insured asserted that it was inconsistent to conclude fraud, noting that the verdict found that she had breached the policy’s cooperation requirement. However, the insured misinterpreted the standards of proof. Fraud required clear and convincing evidence, and the jury was properly instructed about that. Thus, the verdict was not inconsistent and the insured did not demonstrate manifest injustice or a miscarried of justice. Accordingly, the verdicts and judgments were affirmed.

 

JEN’S GEMS

Jennifer A. Ehman

[email protected]

 

12/08/17       Country-Wide Ins. Co. v. Almanzar

Supreme Court, New York County

Court Grants Default in Declaratory Judgment Action Where Non-Appearing Party Failed to Also Appear at Properly Noticed EUOs

In this decision, issued by the Supreme Court, New York County, the court considered whether to grant a default where evidence was submitted by a no-fault insurer that the eligible insured person failed to appear for properly noticed Examinations Under Oath (“EUOs”).

 

To meet its prima facie burden on the default, the insurer needed to establish that it requested the EUOs in accordance with the procedures and time frames set forth in the no-fault implementing regulations.  With respect to an insurer's verification needs and requests, 11 NYCRR § 65-3.5 (b) states that: “[s]ubsequent to the receipt of one or more of the completed verification forms, any additional verification required by the insurer to establish proof of claim shall be requested within 15 business days of receipt of the prescribed verification forms.  Any requests by an insurer for additional verification need not be made on any prescribed or particular form…”

 

11 NYCRR § 65-3.6 (b) then provides that:   “Verification requests. At a minimum, if any requested verifications has not been supplied to the insurer 30 calendar days after the original request, the insurer shall, within 10 calendar days, follow up with the party from whom the verification was requested, either by telephone call, properly documented in the file, or by mail. At the same time the insurer shall inform the applicant and such person's attorney of the reason(s) why the claim is delayed by identifying in writing the missing verification and the party from whom it was requested.”

 

The failure of a person eligible for no-fault benefits to appear for a properly noticed EUO constitutes a breach of a condition precedent vitiating coverage as to the eligible person, including all related billing from medical providers assigned to the insurer.

 

In considering the motion papers, the court found that the insurer submitted sufficient evidence that the party seeking coverage failed to appear for his scheduled EUOs and that it complied with the applicable procedures and time frames set forth in the no-fault implementing regulations.  As such, the default was granted.

 

BARNAS ON BAD FAITH

Brian D. Barnas

[email protected]

 

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

Appellate Division, Third Department

Emotional Distress Damages are not Generally Available as Consequential Damages for Breach of an Insurance Contract

Plaintiff alleged that she became permanently disabled as a result of injuries that she sustained in an automobile accident in March 2012.  Following an independent medical examination (IME), defendant denied no-fault insurance benefits on the basis that plaintiff's injuries were preexisting and were not causally related to the accident.  Plaintiff commenced this action asserting causes of action for breach of contract, violation of General Business Law §§ 349 and 350 and intentional infliction of emotional distress, based on allegations that defendant pressured the physicians that it employed to conduct IMEs to attribute injuries to preexisting conditions and thereby facilitate the denial of claims.  Plaintiff also sought, among other relief, damages for emotional distress and punitive damages.  Defendant moved to dismiss.

 

The General Business Law causes of action survived the motion to dismiss on appeal.  Allegations that an insurer engaged in a practice of failing to investigate claims in good faith or of denying claims without regard to their viability, are sufficient to state a cognizable claim for deceptive practices pursuant to General Business Law 349.  In her complaint, plaintiff alleged that defendant engaged in a consumer-oriented pattern and practice aimed at the public at large of wrongfully denying claims for no-fault benefits by pressuring the physicians it hired to perform IMEs to provide medical reports that would support the denial of benefits.  Further, she alleged that she suffered injury as a result of that practice.  Such allegations were sufficient to plead a cause of action pursuant to General Business Law 349 and survive the pre-discovery motion to dismiss.

 

Plaintiff also sought consequential damages, including damages for emotional distress.  The Third Department dismissed the claim for emotional distress damages.  The Court cited the longstanding rule that absent a duty upon which liability can be based; there is no right of recovery for mental distress resulting from the breach of a contract-related duty.  Plaintiff did not allege the existence of any duty or relationship between her and defendant other than the contractual obligations of the parties.

 

Importantly, the Third Department rejected Plaintiff’s argument that she could seek emotional distress damages in light of Bi-Economy and Panasia.  The Third Department held that those decisions did not implicitly abandon the long-standing rule that damages for emotional distress for breach of contract are available only in certain limited circumstances, such as a willful breach accompanied by egregious and abusive behavior.  Rather those cases announced a new rule that extended the ability to recover consequential damages for breach of the covenant of good faith and fair dealing in the context of an insurance contract, subject to the same rules that otherwise limit recovery of damages for any breach of contract.

 

Plaintiff’s claim for punitive damages was also dismissed.  Plaintiff’s allegations that defendant engaged in unfair claim settlement practices did not allege a tort independent of the parties' contract sufficient to state a claim for recovery of punitive damages.

 

A two judge dissent would have held that Plaintiff was entitled to seek damages for emotional distress on her breach of contract claim in light of the Court of Appeals’ decisions in Bi-Economy and Panasia.  Given the nature and purpose of no-fault coverage, it was the dissent’s view that the insured bargains not only for monetary benefits, but also the intangible peace of mind that prompt payment will be made for medical expenses and lost wages emanating from injuries sustained in an automobile accident.  Such a benefit is within the contemplation of the parties as an integral component of the contract.

 

12/13/17       5555 Boatworks Drive LLC v. Owners Ins. Co.

[Special Guest Columnist – Matt Haar, SAUL EWING ARNSTEIN & LEHR LLP]
United States District Court, District of Colorado

Beware the “Usual List” of Bad Faith Allegations

Many of the bad faith complaints that I see include what I refer to as the "usual bad faith list" with the same cookie-cutter conclusory allegations, such as that the insurer failed to properly investigate the claim, failed to effectuate a prompt settlement, etc.  Recently the federal court in Colorado issued a decision granting summary judgment to the defendant insurer on both statutory and contractual bad faith claims based on the "usual list" (but let proceed the underlying coverage claim) where the insured offered no facts to support the conclusory claims.  5555 Boatworks Drive LLC v. Owners Ins. Co., No. 16-cv-02749, 2017 WL 6361398 (D. Colo. Dec. 13, 2017).

 

The insured claimed property damage to a roof from a hail and wind storm, and sought the cash value of the roof.  The insurer’s adjuster assessed the damages, and obtained a report from an engineer, who concluded that most of the damages were attributable to wear and tear.  The insurer denied the majority of the claim, in part reasoning that the wear and tear observed by the engineer precluded coverage.  The insured filed a complaint with claims for breach of contract and both statutory and contractual bad faith.

 

The insured claimed bad faith conduct by the insurer in several respects:

 

  1. Failing to properly investigate and evaluate Plaintiff's claims for Policy Benefits;

  2. Failing to pay Plaintiff the full benefits owed under the Policy;

  3. Failing to pay amounts under the Policy in a timely manner;

  4. Failing to effectuate a prompt, fair, and equitable settlement of Plaintiff's claims;

  5. Failure to give equal consideration to Plaintiff's rights and interests as it has given its own interests;

  6. Depriving Plaintiff of the benefits and protections of the contract of insurance;

  7. Compelling Plaintiff to institute litigation in order to recover amounts due under the Policy; and

  8. Other conduct to be revealed through discovery.

     

    All of these allegations of bad faith are so generic as to be almost meaningless, and indeed they appear over and over in policyholder complaints.  The final category, “conduct to be revealed through discovery,” suggests that the insured had no concrete basis to allege bad faith at the time of the filing of the complaint, but hoped to go fishing for some basis during discovery.  The opinion is silent as to what occurred during discovery to either establish or discredit the bad faith allegations.  The opinion is clear that, in response to the insurer’s motion for summary judgment, the insured failed to offer any specific facts to support any of its generalized allegations of bad faith, and the court appropriately dismissed all bad faith claims.

     

    When you are confronted with the “usual list,” develop a case strategy that limits the insured’s ability to go fishing for a basis for to pursue the case, and defeat the bad faith claims with specific facts that document the insurer’s reasonable handling of the claim.

    Editor’s Note:  We thank Matthew M. Haar, Esq for this guest column.  You can contact him for a copy of the decision or for more information about it, at:

     

SAUL EWING ARNSTEIN & LEHR LLP

Penn National Insurance Tower

2 North Second Street, 7th Floor | Harrisburg, PA 17101-1619

Tel: 717.257.7508 | Fax: 717.257.7581

[email protected] | www.saul.com 
 

EWELL’S UNIVERSE
John R. Ewell

[email protected]

 

12/14/17       Altman Contractors, Inc. v. Crum and Forster Specialty Ins. Co.

Supreme Court of Florida

Florida Supreme Court Expands Insurer’s Duty to Defend to Include Pre-suit Notices in Construction Defect Cases

Altman Contractors, Inc. was the general contractor for the construction of a high-rise residential condominium in Broward County, Florida. Altman was insured by Crum and Forster (“C&F”) for the project through successive commercial general liability (CGL) insurance policies. The policy provided in pertinent part:

 

We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages for “bodily injury” or “property damage” to which this insurance does not apply. We may, at our discretion, investigate any “occurrence” and settle any claim or “suit” that may result.

 

The policy defined the term “suit” as follows:

 

“Suit” means a civil proceeding in which damages because of “bodily injury,” “property damage” or “personal and advertising injury” to which this insurance applies are alleged. “Suit” includes:

a. An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent; or

b. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.

 

Chapter 558 of Florida Statutes, titled “Construction Defects,” sets forth procedural requirements before a claimant may file an action for a construction defect. Specifically, a claimant must “serve written notice of claim on the contractor, subcontractor, supplier, or design professional, as applicable” before the claimant may file an action for a construction defect.

 

The owner, Sapphire served Altman with several chapter 558 notices of claim, which cumulatively claimed over 800 construction defects in the Sapphire project. Altman notified C&F of Sapphire’s claims and demanded, pursuant to the policy, that C&F defend and indemnify Altman as to Sapphire’s claims. C&F denied that Sapphire’s notices of claim invoked its duty to defend because the notices did not constitute a “suit.” Ultimately, Altman settled all of Sapphire’s claimed construction defects without any lawsuit being filed and without C&F’s involvement.

 

Altman filed a declaratory judgment action in the United States District Court for the Southern District of Florida seeking a declaration that C&F owed a duty to defend and to indemnify it under the policy. Altman moved for partial summary judgment on the duty to defend. C&F also moved for summary judgment. The federal district court found “no ambiguity in the policy provisions at issue” and concluded that “[n]othing about the Chapter 558 process satisfies th[e] definition” of “civil proceeding.” Thus, the federal district court denied Altman’s motion for partial summary judgment and granted summary judgment for C&F. Altman appealed to the United States Circuit Court of Appeals for the Eleventh Circuit. The Eleventh Circuit certified the following to the Supreme Court of Florida.

 

Is the notice and repair process set forth in chapter 558, Florida Statutes, a “suit” within the meaning of the commercial general liability policy issued by C&F to Altman?

 

The Supreme Court of Florida held that chapter 558 falls within the term “suit” as a statutorily required presuit process aimed to encourage the claimant and insured to settle claims for construction defects without resorting to litigation. It concluded that the policy broadened the definition of “suit” to “include[],” “[a]ny other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.” The Court looked to the plain meaning of the term, “alternative dispute resolution.” It held that “alternate dispute resolution” means “[a] procedure for settling a dispute by means other than litigation.” Therefore, the Court concluded that the chapter 558 process is an “alternative dispute resolution proceeding” within the plain meaning of this policy term.

 

The court noted that the policy’s definition of “suit” requires that “such damages” be claimed in the “alternative dispute resolution proceeding.” It held that because section 558 includes “monetary payment” as a potential resolution of a chapter 558 claim,  chapter 558 provides for damages, as required by the policy’s definition of “suit”.

 

Finally, the policy’s definition of “suit” under subparagraph (b) requires C&F’s consent to Altman’s submission to the “alternative dispute resolution proceeding” in order to invoke C&F’s duty to defend Altman under the policy. However, the court did not address whether C&F consented to Altman’s participation in the chapter 558 process because it was outside the scope of the certified question and an issue of fact disputed by the parties. The court remanded the case to the United States Court of Appeals for the Eleventh Circuit for further proceedings.

 

ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA

Howard B. Altman

[email protected]

 

Chapter Amendments to SUM Legislation

As we reported last week, on December 18, 2017, New York passed new legislation,  Senate Bill S5644A, making Supplementary Underinsured Motorists coverage (“SUM”) automatically included in policies issued after June 18, 2018 unless the insured affirmatively waives the coverage.    You can view the Bill at:

 

https://www.nysenate.gov/legislation/bills/2017/s5644/amendment/a

Under the old law, and under insurance policies incepting prior to June 18, 2018, the insured was offered the option to add on SUM coverage to his or her policy.   Under the new bill. SUM coverage in policies will be automatically provided in auto policies, in an amount equal to liability coverage purchased, unless the policyholder affirmatively signs, or electronically signs, a waiver rejecting the coverage or purchasing a lower limit.

Three amendments were added to the bill this week. First, commercial risk insurance is excluded from the SUM requirements.  Second, the party with the option to accept or decline the SUM coverage is specified as the first named insured on the policy rather than any named insured under the policy.  The third amendment is ministerial: in the initial bill, the Bill initially required the waiver form to be in 12 point bolded font and contain specific language that was to be issued by the Superintendent.   Under the amendment, the wavier must simply advise the insured that he or she is waiving coverage.

 

OFF THE MARK
Brian F. Mark

[email protected]

 

12/12/17       Lyda Swinerton Builders, Inc. v. Okla. Sur. Co.
U.S. Court of Appeals, Fifth Circuit
US Court of Appeals Holds that Insurer had a Duty to Defend Additional Insured in an Underlying Construction Defects Action

This declaratory-judgment action arises out of an underlying construction defects action alleging breach of contract claims.  The plaintiff, Lyda Swinerton Builders, Inc. (“LSB”), was hired as a general contractor to build a ten-story office building.  LSB, in turn, hired numerous subcontractors, including A.D. Willis Company, Inc. (“Willis”).  The subcontract agreement between Willis and LSB defined Willis’ work as roofing, ornamental metal, metal wall panels, and rough carpentry.  The subcontract required Willis to maintain a general liability insurance policy designating LSB as an additional insured with respect to liabilities arising out of Willis’ work under the subcontract. 

 

Although the subcontract contained an indemnification provision running in favor of LSB, Willis crossed out the provision.  LSB did not countersign the agreement.

Willis obtained a commercial general liability insurance policy from Oklahoma Surety Company (“OSC”).  The policy named LSB as an additional insured, but only with respect to liability directly attributable to Willis’ performance of Willis’ work for LSB.  The additional insured endorsement stated that it only applied when Willis has agreed by written “insured contract” to designate LSB as an additional insured.  “Insured contract” was defined to include “that part of any other contract or agreement pertaining to Willis’ business … under which Willis assume[s] the tort liability of another party to pay for ‘bodily injury’ or ‘property damage’ to a third person or organization.

 

The owner of the office building project assigned its interest in the contract with LSB to Adam Development Properties, L.P. (“ADP”).  ADP filed suit in Texas state court against LSB seeking damages for breach of contract, including failure to comply with the contractual deadline for substantial completion and deficient work to the exterior façade, curtain wall systems, punch window systems, precast panel connections, the roof, dormers, the rotunda, joint sealant, drywall, fire protection systems, HVAC systems, and the electrical systems.  The initial petitions filed by ADP made reference to the failure to adequately supervise subcontractors.  LSB filed third-party petitions against various companies, including Willis.  Thereafter, the underlying petition was amended to reference the deficiencies of both LSB and the third-party defendants.

 

LSB sent correspondence to OSC seeking defense and indemnification as an additional insured.  OSC denied LSB’s request.  LSB also made similar requests to various other insurance carriers, many of which denied LSB’s request.

 

One of the insurers that had denied LSB’s request for defense and indemnification filed a declaratory-judgment action in federal District Court against LSB.  LSB filed a third-party complaint in the same action against OSC for breach of contract for failing to defend it in the state action.  The District Court found in LSB’s favor, finding that OSC owed a duty to defend LSB against ADP’s amended complaint.  The District Court also held that OSC was liable under the Prompt Payment of Claims Act (“PPCA”), which states that an insurer that is liable for a claim and fails to promptly respond to or pay the claim becomes liable to the policy holder or beneficiary for the amount of the claim, as well as an 18 percent per annum statutory penalty and reasonable attorney’s fees.  OSC appealed the District Court’s ruling.

 

Under Texas law, the duty to defend obligates an insurer to “defend the insured in any lawsuit that ‘alleges and seeks damages for an event potentially covered by the policy.’”  In determining whether OSC had a duty to defend LSB against ADP’s lawsuit, the Court of Appeals first looked to the question of whether LSB qualified as an additional insured under the OSC policy.  The Court of Appeals agreed with the District Court’s conclusion that the subcontract satisfied the policy requirement that Willis agree by written ‘insured contract’ to designate LSB as an additional insured.  As such, LSB qualified as an additional insured under the OSC policy.  OSC argued that the subcontract cannot be a written insured contract because LSB did not countersign it.  However, the Court of Appeals rejected such an argument stating that the OSC policy does not expressly state that the contract must be signed by all parties and noted that the word “written” does not impose such a requirement.

 

Next, the Court of Appeals examined whether the allegations in ADP’s lawsuit were sufficient to trigger OSC’s duty to defend.  Under Texas law, courts are required to follow the eight-corners rule, which requires looking at the facts alleged in the four corners of the underlying petition (or complaint) and measuring them against the four corners of the insurance policy, and determining whether the facts alleged present a matter that could potentially be covered by the insurance policy.  Applying the eight-corner rule, the Court of Appeals concluded that OSC had a duty to defend LSB against ADP’s lawsuit.  The Court noted the allegations in the underlying action and that the OSC policy defined OSC’s duty to defend as encompassing any suit against an insured for “property damage” to which the policy applies, making LSB an additional insured with respect to liability directly attributable to Willis’ performance of its work for LSB.  Reading the underlying pleadings, the Court found that there was at least a potential that ADP’s suit fell within the policy’s scope of coverage, which was sufficient to trigger OSC’s duty to defend under the eight-corner rule.  Accordingly, the Court of Appeals affirmed the District Court’s grant of summary judgment in favor of LSB on the duty to defend and OSC’s breach of that duty.

 

The only argument raised by OSC challenging the District Court’s grant of summary judgment in favor of LSB under the PPCA was that LSB failed to establish that OSC either had a duty to defend LSB or that OSC breached that duty.  Having rejected those assertions, the Court of Appeals affirmed the District Court’s ruling.

 

EARL’S PEARLS
Earl K. Cantwell
[email protected]

 

12/22/16       D.W. Wilburn, Inc. v. K. Norman Berry Associates

Court of Appeals of Kentucky

In Construction Defect Cases, the “Economic Loss Doctrine” Giveth and Taketh Away

An important legal doctrine to consider in construction defect cases is the “economic loss doctrine” which may preclude tort or negligence actions against parties who are not in privity of contract.  However, it is also important to keep in mind one “loophole” that may allow for such a tort claim against a design professional based on a theory of “negligent misrepresentation”. 

 

The general contractor Wilburn and the architect Berry contracted separately with a project owner for a high school renovation project.  After the project was completed, a subcontractor sued Wilburn for delay damages, and Wilburn filed a third-party complaint against Berry alleging that the architect failed to properly prepare the plans and specifications and obtain approvals, and that those omissions caused the delays.  The Trial Court ruled against Wilburn on summary judgment, apparently based on an argument that, absent contract privity, the contractor had no claim against the architect.  However, the Kentucky Court of Appeals reversed arguing that a negligent misrepresentation claim might be alleged against Berry, and the “economic loss doctrine” did not preclude such a claim. 

 

This “exception” to the economic loss doctrine is found, inter alia, in the Restatement (Second) of Torts Section 552 which generally provides that a business that supplies false information for the guidance of others in their business transactions may be subject to liability to those who justifiably rely upon the information if they fail to use reasonable care in preparing, obtaining, or communicating the information.  The Kentucky courts had apparently adopted some form of this Section 552 standard allowing negligent misrepresentation claims against a design professional. 

 

In this case, the Court noted that other jurisdictions had found no reason to exclude architects from the duty imposed under Section 552.  The Court cited two cases in North Carolina and Pennsylvania permitting suit against design professionals for violating a common law duty of care, thereby effectively bypassing the economic loss doctrine.  In the present case, Wilburn asserted that Berry’s plans, upon which it reasonably and foreseeably relied, were negligently prepared and the Court essentially agreed that the economic loss doctrine would not bar the negligent misrepresentation claim in this “architect/contractor” scenario. 

 

Among other arguments, Berry argued that the final change order and payment application for the project waived or released Wilburn’s ability to state the misrepresentation claim.  The Court held that the documentation might provide a bar to any delay damage claims against the owner.  However, because the architect was not a party to that contract, it was not shielded by the final change order and payment application.  Even though the change orders and payment applications required the architect’s signature that did not constitute a contract between the parties. 

 

The first point of this case is that in any construction defect litigation the facts must be reviewed as to whether there is a defense or preclusion of claim based upon the economic loss doctrine.  General negligence and tort claims, cross claims, and counterclaims may be precluded as between parties to a project that are not in privity of contract. 

 

Second, there are some exceptions to the economic loss doctrine, one of which is this “design professional” exception which has been adopted in several states.  It allows a “negligent misrepresentation” claim against a design professional based in tort or negligence and effectively bypasses the economic loss doctrine.

 

Third, it may be important to raise these defenses and issues early on case motions so as to remove parties and claims at the earliest possible opportunity, narrow the issues and discovery, and determine what parties will remain in the case on what claims for purposes of future litigation.  Winnowing out tort/negligence claims may also be important matters to consider with respect to any inevitable mediations and settlement discussions that might transpire down the road. 

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