Coverage Pointers - Volume XIX, No. 17

Volume XIX, No. 17 (No. 501)

Friday, February 9, 2018

A Biweekly Electronic Newsletter

 

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. 

Do remember, that the newsletter, Coverage Pointer is attached to this cover note.  This is our summary, cover notes, and historical tidbits.  Some prefer this over the attachment, we understand!  However, for pure insurance at its best, open the attached newsletter and dig right in.

Thanks to my friends at the Canadian Defence Counsel for inviting me to speak on Reservations of Rights Letters at the organization’s Annual Insurance Conference in Toronto this week.  Great audience, great people, indeed.

An early Happy Valentine’s Day to all.  It’s almost Presidents’ Day as well.

 

Underinsured Motorist Offset for Settlements from Non-Auto Defendants?

Read about the Redeye case from the Fourth Department in my column.  Our fourth win on this same case.

 

Presidential Biography List

Those who know me best (or those who are regular readers of CP) know that my secret passion is U.S. Presidential history.  Some years ago, I decided to read presidential biographies in order and tried to find the best of the best read.  I published that list after my reading was complete.  Each year, in the issue just before Presidents’ Day, I publish an update on my reading and do so below.  The underscored titles are books I’ve read since Presidents’ Day, 2017. I added 14 this year. I do read other genres as well.  I welcome comments and recommendations of other titles.  The Presidents are listed by number.

P.S. Some of the books (e.g. The Quartet, War of the Roosevelts) focus on more than one president but are only listed once).  Here, in order of Presidents, is my list of completed biographies (actually, I am not quite through with the Last 100 Day – FDR at War and Peace, but close enough):
 

1. His Excellency, George Washington (Ellis); First Entrepreneur, How George Washington Built His and the Nation’s Prosperity (Lengel)

2. John Adams (McCullough)

3. Thomas Jefferson, the Art of Power (Meachem); Thomas Jefferson and the Tripoli Pirates: The Forgotten War That Changed American History (Kilmead); America’s Jefferson (Fenster)

4. James Madison: A Biography (Ketcham); The Quartet (Ellis)

5. The Last Founding Father: James Monroe and a Nation's Call to Greatness (Unger)

6. John Quincy Adams (Unger)

7. Andrew Jackson-- American Lion (Meacham); Andrew Jackson – Miracle of New Orleans, (Kilmead), Avenging the People, Andrew Jackson, The Rule of Law and the American Nation (Opal)

8. Martin Van Buren (Widmer)

9. William Henry Harrison (Collins)

10. John Tyler (May)

11. A Country of Vast Designs – James Polk (Merry)

12. Zachary Taylor (John S.D. Eisenhower)

13. Millard Fillmore (Finkelman)

14. The Expatriation of Franklin Pierce (Boulard)

15. James Buchanan (Baker); Worst. President. Ever (Strauss)

16. Team of Rivals (Goodwin); The Impeachment of Abraham Lincoln (Carter);  Killing Lincoln (O'Reilly), Lincoln and the Abolitionists (Kaplan), Six Encounters with Lincoln (Pryor)

17. History of the Impeachment of Andrew Johnson (Ross)

18. Ulysses S. Grant in War and Peace (Brands); American Ulysses (White)

19. Fraud of the Century: Rutherford B. Hayes, Samuel Tilden, and the Stolen Election of 1876 (Morris), Grant (Chernow)

20. Destiny of the Republic: A Tale of Madness, Medicine and the Murder of a President -- Garfield (Millard)

21. Chester Alan Arthur (Karabell), The Unexpected President – The Life and Times of Chester A. Arthur (Greenberger)

22. Grover Cleveland (Graff)

23. A Compilation of Messages and Papers of the President - Benjamin Harrison

24. Grover Cleveland (Graff)

25. The President and the Assassin: McKinley, Terror, and Empire at the Dawn of the American Century (Miller)

26. Theodore Rex (Morris), Theodore Roosevelt (Autobiography), The Bully Pulpit (Goodwin), Bully Pulpit (Goodwin),  The River of Doubt: Theodore Roosevelt's Darkest Journey (Millard), Forging a President – How the Wild West Created Teddy Roosevelt (Hazelgrove), The War of the Roosevelts (Mann)

27. The Tea Party President by William Howard Taft; Charles Stanfield Davis

28. Woodrow Wilson (Brands)

29. Warren Harding (Dean); The President’s Daughter (Britton)

30. Calvin Coolidge, Man from Vermont (Fuess)

31. Herbert Hoover (Leuchtenburg); Herbert Hoover in the White House (Rappleyea)

32. Traitor to His Class -- FDR (Brands); War of the Roosevelts (Mann); His Final Battle (Lelyveld); Commander in Chief (Hamilton); The Last 100 Days – FDR at War and Peace (Woolner)

33. Citizen Soldier -- Harry Truman (Donald); The General and the President (Brands)

34. Eisenhower: Soldier and President (Ambrose); Eisenhower, In War and Peace (Smith), Ike and McCarthy (Nichols)

35. < > (Sorensen), Kennedy and King (Livingston)

    The Path to Power -- LBJ (Caro), The Passage of Power (Caro)

36. The Conviction of Richard Nixon (Reston), Nixon, the Triumph of a Politician (Ambrose) Nixon, the Education of a Politician (Ambrose)

37. Write It When I'm Gone -- Ford  (DeFrank)

38. Jimmy Carter (Zelizer)

39. Dutch - Reagan (Morris; Ronald Reagan (Sutherland)

40. George Herbert Walker Bush (Wicker); Destiny and Power (Meachem)

41. First in His Class (Bill Clinton); My Life (Autobiography)

42. Decision Points -- George W. Bush (Autobiography)

43. The Bridge – Barach Obama (Remnick)

44. Understanding Trump (Gengrich), Fire and Fury – Inside the Trump White House (Wolff)

Miscellaneous: 

• Presidents’ Club  (Gibbs and Duffy)

• Benjamin Franklin: An American Life, (Isaacson)

• Rebel Yell, The Violence, Passion and Redemption of Stonewall Jackson,
  (Gwynne)

• Dead Presidents: An American Adventure into the Strange Deaths and Surprising Afterlives of Our Nation's Leaders (Carlson)

• The American Sprit (McCullough)

• Unusual for their Times – On the Road with America’s First Ladies (Och)

   

  Sending Those Soldiers Cigarettes, 100 years Ago:  

 

Middletown Times-Press

Middletown, New York

09 Feb 1918

 

BOYS VERY GLAD

TO GET TOBACCO

 

Letters to Donors

Show Appreciation

 

Evidences of the hearty appreciation of the tobacco sent by the residents of this city and vicinity, to the boys at the front, through the medium of the Times-Press, are constantly being received by the donors.  Among the recent notes are the following:

E. L. McCrea, of 71 Sprague Avenue, has received the following from R. V. Nichols, of the 52d Aero Squadron Air Service, in France:  “Just a line to thank you for the tobacco received at Christmas.  It is sure appreciated by the boys.”

C. E. Canfield, of 31 Mill Street, has received the following from Sergeant James Watson, in France:  “your gift was appreciated more, I believe, than you really anticipated.  It is with real pleasure that we men at the front realize the whole-souled, generous support of those who are standing back of us in the homeland.”

Mrs. L. H. Fallis, of 50 Broad Street, has received two acknowledgements of gifts of tobacco.  They were from Sergeant John Jennings, of Battery B, 7^th Regiment, C. A. C., and Sergeant H. B. Rowland, of Co. F, 10^th Engineers.  Both of these men are with the American Expeditionary force in France.

Carl J. Giering, of 9 North Street, has received a grateful acknowledgment of his gift of tobacco from Corporal Edward L. Costello, of Bat. B, 7^th Reg., C.A.C.

 

Tessa’s Tutelage:

Dear Readers:

This week we have three matters involving dismissal of Plaintiff’s complaint.  The first concerns a Plaintiff who failed, repeatedly, to provide discovery demands to Defendant.  This became a major issue for Plaintiff because it failed to provide the specific documents that the Court ordered it to provide.  Furthermore, Plaintiff failed to provide any explanation for its failure.  Although a pretty harsh punishment, it is unsurprising that the Court dismissed Plaintiff’s claim.

Next up we have two parties, and these two parties are both really bad at follow through. Plaintiff commenced the action, and then Defendant failed to Answer.  Plaintiff was apparently a very laid back entity, because it gave Defendant seven years to Answer.  At the seven-year mark Plaintiff moved for a default judgment.  Defendant, who had never answered, opposed the default motion and cross moved to dismiss the case.  The Court agreed with Defendant.  The Plaintiff had failed to explain why it had waited seven years to move for default.  The rule of thumb is to get that default motion in under the year mark (best practice is, of course, before the year mark).

Finally we have a Plaintiff whose case that flipped and flopped more than your typical politician.  The final question before the Court involved the NF-6 form.  As you may know, NF-6 forms are an employer wage verification form.  An insurer will send this form to the purported employer of the eligible injured party. The insurer does not have to pay any claim that is not verified.  In this case, the insurer never got the NF-6 back.  This, however, was not grounds for dismissal of Plaintiff’s claim.  The reason is that the information contained in the NF-6 had already been provided to the insurer. The Third Department held that the use of the NF-6 form was not required so long as the necessary information had been provided.

Hope you all have a great week.

 

Tessa

Tessa R. Scott

 

Some Things Never Change (N.B. This does not apply to my office, of course)

 

St. Louis Post-Dispatch

St. Louis, Missouri

09 Feb 1918

 

His Working Schedule

 

“How long has that clerk worked for you?” asked the Caller.

“About four hours,” replied the Boss.”

“I thought he had been here longer than that,” said the Caller.

“He has,” said the Boss.  “He has been here for four months.”—Milwaukee Sentinel.

 

Ewell's Universe:

Dear Subscribers:

Fidget spinners, matcha, craft beer. They’re “in”. I predict fidget spinners and matcha will be looked back on as a fad. Like it or not, bad faith claims are in vogue too. Across the country, claimants are putting more thought and energy into framing bad faith claims against insurers. This trend appears nationwide as regularly reported by Mr. Brian Barnas in his column, Barnas on Bad Faith.

Today, we have an example where considerate effort has been expended to frame a bad faith claim under an elder abuse statute (just when you thought you saw it all!). In a lawsuit filed in federal court in Oregon, a group of insureds and their representatives commenced a bad faith action, seeking class action certification, which cited their legal basis as Oregon’s elder abuse statute. The issue reached the Oregon Supreme Court who held that claimants cannot use the state’s elder abuse statute to state a claim for bad faith. This decision is yet another example of how bad faith claims have exploded in popularity, not unlike the fidget spinner. It also exemplifies how claimants are sometimes looking beyond bad faith statutes in an effort to get high damage awards such as treble damages and attorneys’ fees. The decision is certainly a victory for insurers who issue policies in Oregon.

‘Til Next Time,

 

John

John R. Ewell

 

Editor Note:  What is a “matcha”?

 

Pitcher Catches Cash – 100 Years Ago:

 

Star-Gazette

Elmira, New York

09 Feb 1918

 

ALEXANDER’S DEMANDS

FROM CUBS TO BE MET

 

Chicago, Feb. 9.—Grover Cleveland Alexander will play with the Chicago National League team next season, and any grievance he may have against the club will be adjusted to the pitcher’s satisfaction.  President Weeghman declared yesterday, in reply to Alexander’s statement that he must have a $10,000 bonus and a salary of $10,000 a year.

“Nothing but war will keep Alexander out of the game,” said Weeghman.  “Bonus, salary and any other matters will be ironed out to his satisfaction”.

Editor’s Note: Cleveland had a 30 – 13 record in 1917, so it’s no surprise that the Cubs wanted to keep him.  However, WW I interfered.  After pitching only three games in the 1918 season, Alexander was drafted into the Army.  He sustained hearing loss and had epileptic seizures after his discharge, but continued pitching until his retirement in 1930, at age 43. He was elected to the Hall of Fame in 1938 and only one of 11 Hall of Famers that list Philadelphia as their primary team.  Alexander finished his 20-year career with 373 wins, tied for third-most all-time behind Cy Young and Walter Johnson. Ninety of Alexander’s wins were shutouts, best for second all-time behind Johnson’s 110. He also claimed five ERA titles, three Triple Crowns, and a World Series ring with St. Louis in 1926.

 

Hewitt’s Highlights: 

Dear Subscribers:

We, again, only have one case this week, from the Fourth Department.  Plaintiff’s labral tear was not deemed a serious injury due to the fact that plaintiff did not establish any limitations resulting from the tear. Though there was some mild rotation limitations of 10 degrees, that was deemed only slightly diminished and not enough.

I hope you all have a Happy Valentine’s Day with your loved ones.

Until next time,

 

Rob
Robert Hewitt

 

What’s in the News Today was There 100 Years Ago – Although the Penalty was Different:

 

Palladium-Item

Richmond, Indiana

09 Feb 1918

 

Drove Family Out of House Was Charge

 

Adolph Sitloh was arrested Friday evening at his home, 616 South Twelfth Street, when the police were called there by his wife.  Sitloh was charged with assault and battery on his wife.

His wife said that he came home drunk and drove the family from the house by beating them.

Sitloh told the police that the trouble was caused by a boarder, whose name he gave as Mills when Mills refused to pay his bills.  He said that he and Mills had a quarrel at the supper table.  He denied being drunk.

He was fined $5 and costs and sent to jail when he failed to pay the fine. 

 

Peiper’s Pouting:

Our letter this week comes from the darkest of times.  I recognize that the longest days of the year fall on the Winter Solstice, but with Christmas and New Year’s the days don’t seem quite so long. Let me tell you about late January/early February in Buffalo, NY.  It’s cold. It’s snowy.  It’s dreary.  The hockey team is terrible, and the football season is over. Oh yeah, one more thing, it’s cold.  Like really unrelenting cold.    

Now that I have you all depressed, things are looking up.  Valentine’s Day marks the annual return of pitchers and catchers to Spring Training, and as such warm summer nights can’t be too far off.  St. Patrick’s Day is a mere 5 weeks away and hey, let’s face it, extended snow and cold makes for great skiing.  

And, even still, if you wish to hibernate, the Winter Olympics start in a few hours.  That should carry you almost to March.  Watch the curling.  You’ll love; even if you’ll never actually understand it.

As for this week’s decision, the Tri-State case from the Second Department is worth making a note about.  It is not because the decision is particularly earth shattering.  Rather, it’s a comment in dicta at the end that is worth noting.  The Court in that case overturned a trial court’s decision to strike Tri-State’s Answer.  The discovery sanction was based, principally, on Tri-State refusing to produce records from other insureds/claims.  A reasonable objection given the circumstances.  In affirming the objection, the Court ruled that the discovery sought was not necessary and proper for the prosecution of the action.  That’s a relevancy objection, and you’ll not find many examples of it being employed successfully by insurance companies.  The one notable exception was the Fourth Department’s ruling in Celani v Allstate Ins. Co. that held that reserve information was not relevant in an insurance coverage case.  So many times, we jump directly to the question of privilege, but perhaps we might too be sure to properly preserve our objections to the propriety of the discovery requested.  Recall, of course, any such objection MUST be made timely to avoid the application of waiver. 

That’s about all I have for this week.  Happy Valentine’s Day to all. 

P.S.   While snow is good for the downhill, it does not make for good backyard ice skating.  For those of you following along with my follies, we have skated a total of three days this year.  Those days have been marvelous, and have resulted with me holding a commanding lead over my eight-year old in our rolling pond hockey game.  Unfortunately, the January freeze/thaw cycle has killed my ice, and the February doldrums have killed my desire to Zamboni. 

 

Steve

Steven E. Peiper

[email protected]

 

Heatless Mondays During WW I – A Century Ago:

 

Poughkeepsie Eagle-News

Poughkeepsie, New York

09 Feb 1918

 

ONE MORE

HEATLESS MONDAY

 

Coming Week Will Probably

Be the Last—Suspended in

Eight Southern States

 

Washington, D.C., Feb. 8.—Continued improvements in weather and transportation conditions will bring an end to the heatless Mondays program after its enforcement next Monday, Fuel Administrator Garfield announced tonight.

Suspension of the program immediately in eight southern states was authorized today by Dr. Garfield after the receipt of reports showing that higher temperatures have relieved the coal shortage in the south to such an extent that further closing is made unnecessary.  The states included are:  North and South Carolina, Tennessee, Georgia, Florida, Alabama, Mississippi and Louisiana.

Dr. Garfield was more hopeful over the general outlook tonight than at any time for weeks past. 

 

Wilewicz’ Wide-World of Coverage:

Dear Readers,

The Second Circuit was quiet this week, at least where it comes to coverage cases. I’m sure they’ll be addressing some in the coming weeks, and we, in turn, will be sure to bring you the latest. In the meantime, if you’re looking to get away from the not-so-lovely weather we’ve been having this winter, note that there are plenty of wonderful insurance coverage conferences put on by the American Bar Association in the coming weeks that might pique your fancy. Conferences that are conveniently held in warmer climates.

To wit:

February 22-24, 2018: The 26th Annual Insurance Coverage Litigation Midyear Conference in Phoenix. This program hosts a variety of coverage topics, including managing catastrophic/complex claims, international ADR, pollution exclusion decisions, employment practices coverage, and much more. Information and registration information can be found here:

February 28-March 3: The 2018 Insurance Coverage Litigation Committee CLE Seminar in Tucson. This 30th anniversary program hosts both lawyers and insurance industry professionals for cutting-edge presentations on a myriad of topics. There will be plenary, breakout, and round-table discussions, along with invaluable networking opportunities and outdoor activities. Information and registration can be found here:

March 1-3: The 2018 Property Insurance Law Committee Spring CLE Conference: What Keeps You Up At Night? in Nashville. This program will include speakers, both lawyers and industry professionals, from both sides of the aisle discussing expert analysis and cutting edge issues unique to property coverage law. Added bonus – this program includes access to a Honky Tonk Highway Tour for attendees. Information and registration can be found here:

If you do plan on attending any of the above, drop us a line – as we’ve said before, we’ll say again, it’s always great to put a face to a name and meet our dear readers now and then. I’ll be in Tucson for the ICLC meeting, so please let me know if you’ll be there.

Until next time!

 

Agnes

Agnes A. Wilewicz

[email protected]

 

Poetic Insurance Doesn’t Just Come from Howard:

 

The Columbus Daily Advocate

Columbus, Kansas

09 Feb 1918

 

H. B. Henderson has taken to writing insurance advertisements poetry.  He probably does on the theory that if a man loses his property by fire, and has no insurance, he will swear in black verse, so H.B. proposes to talk to him in the language he can understand. 

 

Barnas on Bad Faith:

Hello again:

The Patriots did not win the Super Bowl this year.  I feel like it is always a successful football season when the Patriots don’t win the Super Bowl.  You can’t take the other five away from them (unfortunately), but it always feels good when they don’t add another one.

My current favorite story in the world of sports has to be the Cleveland Cavaliers.  The Cavaliers, despite still having arguably the best basketball player in the world, are terrible right now.  Not only do the Cavaliers appear to have no interest in trying on defense, but it also appears that they all hate each other.  Trading away Kyrie Irving, who apparently also hated LeBron, does not appear to be working.  Apparently, the Cavaliers also realized their team is a tire fire because they traded half of their team before the trade deadline.  Hopefully for them the new guys fit in better than the guys they sent out.  If not, at least the Cavs got one title during LeBron’s second tour of duty in the Land.

I have three cases in my column today.  Oltz is, as far as I can recall, the first Montana case to make it into my column.  Interestingly, Montana has a statute that precludes an insured from bringing an action for bad faith in connection with the handling of an insurance claim.  However, this statute does not prohibit a claim for breach of the implied covenant of good faith and fair dealing against an insurer.  The court dismissed the Oltzes claims for breach of contract, bad faith, and violation of the implied covenant as their property damage claim was not covered under the policy and Safeco did not breach the implied covenant.

Banuelos is a case from Texas, in which the court held that the insured could not maintain claims against Wellington for contractual and extra-contractual damages after Wellington paid the full amount of the appraisal award.

Finally, in Bellezza, the insured brought claims against LM General seeking uninsured motorist benefits and damages for bad faith.  The Middle District of Florida noted in its decision that potential recovery on a bad faith claim against an insurer may not be considered when determining if the amount in controversy requirement for diversity jurisdiction has been satisfied.  The rationale is that the bad faith claim does not accrue until the underlying action for insurance benefits has been resolved in favor of the insured, and a bad faith cause of action cannot exist absent a determination that the insurer is liable on the policy.  At the time of removal, such a determination has not yet been made.

Enjoy your weekend.

Signing off,

 

Brian

Brian D. Barnas

[email protected]

 

Equal Pay for Woman? Heavens Forbid:

 

The Daily Gate City and

Constitution-Democrat

February 9, 1918

 

One Thing After Another.

Marshalltown Times-Republican:  Also next thing you know the women will be demanding equal pay for equal work and the president will be backing them up in it. 

 

Altman’s Administrative (and Legislative) Agenda:  

Greetings, Dear Readers,

For the first time in ages, there is nothing new on the legislative front.  Maybe DFS saw its shadow and returned to its hole for six more weeks of winter? So, a Valentine’s Day poem for you:

It’s once again that time of year

To celebrate those we hold dear

With chocolate and with loving talk

On candy hearts that taste like chalk

Though if you’re single, what’s the fun

Of cake and dinner set for one?

But, alas, I’m 5’6”

And thus, out of the dating mix

For women seek “dark, handsome, tall”

Not short and quirky, not at all.

So, for me, this Valentine

Once again, alone I’ll dine

Though single there is one good perk:

I will skip straight to dessert.

Happy Valentines’ Day, one and all! 

 

Howard

Howard B. Altman

[email protected]

 

Prohibition in Quebec – A Century Ago:

 

The Washington Post

Washington, District of Columbia

09 Feb 1918

 

VOTES QUEBEC “BONE DRY.”

Assembly Unanimous Under Threat of

Government’s Resignation.

 

Quebec Feb 8—Under what was virtually a threat of the resignation of the government Sir Lomer Gouin succeeded in the assembly yesterday in having “bone dry” prohibition for the province of Quebec carried unanimously. 

A caucus of the liberal members two weeks ago gave the government a free hand in the matter of the liquor traffic.  The government thereupon introduced a bill for total prohibition and the prime minister insisted that the members accept it or express want of confidence in the government.

Editor’s Note:  It lasted two years.

 

Off the Mark:

Dear Readers,

This edition of Off the Mark comes to you from San Diego where I’m attending the DRI Products Liability Conference.  I’m looking forward to learning about a number of interesting topics, not to mention an escape from the cold weather in the Northeast.  It’s my first trip to California, and I’m excited to see the Pacific Ocean. 

This issue discusses a construction defect case from the District Court for the Eastern District of Pennsylvania.  In Atain Ins. Co. v. East Coast Bus. Fire, Inc., the plaintiff insurer sought a declaration that it owed no duty to defend or indemnify its insured relative to an underlying action asserting claims for breach of contract and faulty workmanship.  The defendant attempted to oppose the relief sought by claiming that the underlying complaint also asserted a negligence claim, which is covered under the plaintiff’s policy.  The Court reviewed each negligence claim and determined that such claims were essentially claims for breach of contract and faulty workmanship, which do not constitute an “occurrence” under a CGL policy.  Accordingly, the Court issued a declaration that the plaintiff insurer owed no duty to defend or indemnify its insured relative to the underlying action.

Until next time …

 

Brian

Brian F. Mark
[email protected]

 

Mothers-in-Law Not Permitted to Interfere:

 

Arkansas City Daily Traveler

Arkansas City, Kansas

09 Feb 1918

 

MOTHERS-IN-LAW.

 

Are Subject of Decision by Kansas

State Supreme Court

 

Topeka, Kans., Feb. 9.—Some new law governing the interference of a mother-in-law in matrimony was laid down by the supreme court.

The court held that the parents of a 19-year-old son owe no legal duty towards the son’s wife, “except not to meddle intentionally with their son’s affections for his wife.”  The court further decreed that a mother-in-law is not guilty of alienating her son’s affections for his wife “merely because she disliked the wife and regretted the son’s marriage.’

The decision was made in an order setting aside a judgment of $5,000 which Hallie Cooper secured in the Allen county district court against the parents of her 19-year-old husband.

 

Wandering Waters

I hope all of you enjoyed Super Bowl Sunday.  Although defense was optional, the game turned out to be enjoyable.  Unlike last year, I was happy not to be a fan of a team on the wrong side of Super Bowl history (i.e., I am a Falcons fan).  This year I learned football is quite exciting when you want both teams to lose. 

With that being said, here is another issue of Wandering Waters.  This issue features two cases, one from the Western District and one from the Eastern District.  I hope you enjoy.    

 

Larry

Larry E. Waters

 

 

Headlines from the attached issue:

 

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

• In Application to Stay Uninsured Motorists Arbitration, Court Properly Considered Documents of Rebuttal, Even Though the Documents Did Not Rebut the Documents Offered in Response to Motion to Stay Arbitration.

• Letter Demanding Full Payment of SUM Benefits (with Request for Arbitration Buried in Fourth Paragraph of Letter) Not Deceptive, Commencing 20-Day Time to Start Article 75 Proceeding to Stay Arbitration.  Fact that there was Already a Pending Article 75 Proceeding to Stay UM Arbitration Made No Difference.

• Fourth Department Rejects Application to Reconsider Redeye.  Settlement from Dram Shop Action Reduces Recovery under SUM Policy under Condition 11

• No Duty to Defend Polluter in Criminal Proceedings under Environmental and Professional Liability Policies, under both New York and Georgia Law

• Additional Insured has Obligation to Give Timely Notice of an Accident or Claim.  Notice to Excess Carrier Focuses on Whether Insured Reasonably Should have Known that the Claim would Exhaust Primary Coverage.  Excess Carrier 37-Day in Denying Coverage Based on Late Notice is Untimely as a Matter of Law.

• While a County can be Self-Insured for Auto Coverage, it is Still Obligated to Provide Uninsured Motorist Benefits

• The Court, Not the Arbitrator, Must Determine Whether a SUM (Supplementary Uninsured /Underinsured) Exclusion Applies

 

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

Robert E.B. Hewitt III

• Labral Tear Not Enough for Serious Injury Without Evidence of Limitation Caused by Tear

 

TESSA’S TUTELAGE

Tessa R. Scott 

• Plaintiff’s Failure To Abide By The Court’s Order, Without Excuse, Warranted Dismissal Of Plaintiff’s Claim

• A Failure To Enter A Default Judgment Against Defendant For Over A Year, Without Reasonable Excuse, May Run The Risk Of Dismissal

• A Wage Loss Claim Is Not Precluded By The Absence Of A Nf-6 Form If The Information Has Been Provided Elsewhere

 

PEIPER ON PROPERTY (and POTPOURRI)

Steven E. Peiper

[email protected]

• Plaintiff Not Entitled to Default Judgment Awarding Defense and Indemnity Where there was No Pending Claim to Defend

• Carrier’s Objection to Production of Materials Related to Other Insured Justified as not Necessary and Proper for Prosecution of Instant Action

• Because Continuous Breach of Contract may have Occurred Less than Six Years Prior to the Commencement of the Action, Plaintiff’s Claims were not Time Barred

 

WILEWICZ’S WIDE WORLD OF COVERAGE

Agnes A. Wilewicz

[email protected]

• Second Circuit quiet this week.

 

JEN’S GEMS

Jennifer A. Ehman

• Nothing on which to report.

 

BARNAS ON BAD FAITH

Brian D. Barnas

[email protected]

• Montana Law Barred Action for Bad Faith in Connection with the Handling of the Insureds’ Claim

• Full Payment of Appraisal Award Entitled Insurer to Summary Judgment on the Insured’s Contractual and Extra-Contractual Claims

• Bad Faith Cause of Action could not be Factored into Amount in Controversy Calculations at the Time of Removal

 

EWELL’S UNIVERSE
John R. Ewell

• Oregon Supreme Court Guts Bad Faith Suit Brought Under Elder Abuse Statute

 

ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA

Howard B. Altman

• Nothing from the agencies.

 

OFF THE MARK
Brian F. Mark

[email protected]

• US District Court Holds that Claims for Breach of Contract and Faulty Workmanship do not Constitute an “Occurrence” Under a CGL Policy and Therefore, Insurer had No Duty to Defend or Indemnify its Insured Relative to Underlying Action Asserting Such Claims.

.

WANDERING WATERS

Larry E. Waters

• Documents Prepared after the Commencement of Litigation but Prior to the Denial of Coverage is Not in Itself Precluded from a Determination that such Documents are Protected by Attorney-client Privilege

• No Duty to Defend or Indemnify When the Underlying Incident falls within the Auto Exclusion of the Policy and the Insurer had Extrinsic Evidence that the Alleged Claim had no Reasonable Possibility of Coverage

•  

EARL’S PEARLS
Earl K. Cantwell

• Insurance Coverage for Construction Defects:  Two Opposite Approaches and Outcomes

 

 

All for now. Don’t forget your Valentine, or send something to Howard.

 

Dan

 

 

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

 

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

Brian D. Barnas

Howard B. Altman

Brian F. Mark

John R. Ewell

Larry E. Waters

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

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

Wandering Waters

Earl’s Pearls

 

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

 

02/08/18       Hereford Insurance Company v. Vazquez

Appellate Division, First Department

In Application to Stay Uninsured Motorists Arbitration, Court Properly Considered Documents of Rebuttal, Even Though the Documents Did Not Rebut the Documents Offered in Response to Motion to Stay Arbitration

Hereford insured a vehicle that was hit in the rear by a Mercedes Benz that left the scene of the accident. After respondent Vazquez, a passenger in the Hereford vehicle, demanded uninsured motorist arbitration. Hereford commenced this proceeding seeking to stay the arbitration and add additional respondents, including State Farm and Kelly Lyons (“Lyons”).

Hereford claimed that the Mercedes was owned by Lyons and that State Farm had issued a policy insuring the Mercedes. State Farm neither admitted nor denied the allegations relating to coverage. In reply, Hereford submitted documents demonstrating that the Mercedes had been sold to Lyons three days before the accident, and insured by State Farm under the same policy number.

Absent any surprise or prejudice to State Farm, which was aware that Hereford claimed that State Farm, the motion court providently exercised its discretion in considering the documents submitted by Hereford in reply. Notably, Hereford could have sought leave to amend the petition based on the same documents, leading to the same outcome.

There were "sufficient evidentiary facts" to establish a "genuine preliminary issue" justifying the stay, the motion court properly stayed arbitration.

Editor’s Note:  The decision was based on the “no harm, no foul” rule.  We can understand the objection to the court considering documents in rebuttal, when the insurer who objected to the stay, did not really oppose the application.  Those documents should have been submitted in support of the original motion.  Court found that there was no real prejudice and the petition could have been amended.  We can understand the “purist’s argument” that would have led to a reversal.

 

02/07/18       Matter of Ameriprise Insurance Company v. Sandy

Appellate Division, Second Department
Letter Demanding Full Payment of SUM Benefits (with Request for Arbitration Buried in Fourth Paragraph of Letter) Not Deceptive, Commencing 20-Day Time to Start Article 75 Proceeding to Stay Arbitration.  Fact that there was Already a Pending Article 75 Proceeding to Stay UM Arbitration Made No Difference

Oral Sandy (“Sandy”) claimed he was injured in a hit-and-run accident on May 4, 2014.  He filed a claim for uninsured motorist benefits (“UM”).  On May 13, 2015, Sandy’s insurer, Ameriprise, commenced an Article 75 proceeding to permanently stay arbitration, claiming that the accident was excluded under the policy.

On November 2, 2015, Sandy's attorney sent Ameriprise a certified letter, return receipt requested, requesting payment in full of the entire amount of the supplementary uninsured motorist (hereinafter SUM) coverage under the policy.

The fourth paragraph of the letter contained a notice of intention to arbitrate, and stated that unless Ameriprise applied to stay arbitration within 20 days after receipt of the notice, Ameriprise would be precluded from objecting, inter alia, that a valid agreement to arbitrate was not made or complied with. On January 26, 2016, Sandy's attorney sent Ameriprise an American Arbitration Association request for arbitration form dated January 25, 2016. On February 12, 2016, Ameriprise commenced this proceeding to stay arbitration on the grounds, inter alia, that there was an action pending in New York County and that the underlying incident was not covered under the insurance policy.

"Where an insurance policy contains an agreement to arbitrate, CPLR 7503 (c) requires a party, once served with a [notice of intention to arbitrate], to move to stay such arbitration within 20 days of service of such [notice], else he or she is precluded from objecting'". Here, the proceeding was not commenced within 20 days of the receipt of the November 2, 2015, notice of intention to arbitrate.

In order for the 20-day limitation period to be enforceable, the notice of intention to arbitrate must comply with the requirements of CPLR 7503(c). Here, contrary to Ameriprise's contention, the November 2, 2015, notice complied with all the statutory requirements.

Ameriprise failed to establish that the November 2, 2015, notice of intention to arbitrate was deceptive and intended to prevent it from timely contesting the issue of arbitrability.

Editor’s Note:  Watch for those Demands for UM and SUM arbitration and Remember the 20-Day Time to File Application for Stay – or Else.  See GEICO v. Williams, below.

 

02/02/18       Redeye v. Progressive Insurance Company

Appellate Division, Fourth Department

Fourth Department Rejects Application to Reconsider Redeye.  Settlement from Dram Shop Action Reduces Recovery under SUM Policy under Condition 11

We need to tell the story from the beginning.  It’s a long story, but a victory for the good guys, once again.

We have written about this topic and this case on a number of occasions. In November 2015, the Fourth Department agreed with the Second Department’s September 2012 decision in the Weiss case, and held that settlement dollars received from a Dram Shop act settlement duplicated recovery of SUM benefits and thus reduced the maximum amount an injured party would received under a claim for Supplementary Uninsured/Underinsured Motorists benefits claim.  In Weiss, the SUM policy was $500,000.  The Court found that the $100,000 received from the automobile tortfeasor, together with the $255,000 settlement in the “Dram Shop” claim against the bar, totaled $355,000.  Accordingly, since there was a SUM policy of $500,000 and the two settlements offset the recovery, only $145,000 was available under the SUM policy ($500,000 - $355,000 = $145,000).

In November 2015, the Fourth Department, in the Redeye decision, with a nod to Weiss, came up with the same analysis in a case your Editor handled at that court:

 

11/13/15       Redeye v. Progressive Insurance Company

Appellate Division, Fourth Department

Another Win for the Good Guys – Settlement from Dram Shop Action Reduces Recovery under SUM Policy under Condition 11

Redeye brought a lawsuit to recover supplementary uninsured/underinsured motorist (SUM) benefits from defendant, his auto insurer. While a pedestrian, he was injured when a drunk driver struck a car that was propelled into him.  Redeye sued the drunk driver as well as a fire company that allegedly served the driver alcoholic beverages prior to the accident, and he received a settlement from both. Progressive denied Redeye’s claim for SUM benefits, stating that coverage was exhausted by the recovery from both the driver and the fire company, prompting him to commence this action.

Redeye conceded that the SUM coverage is properly reduced by the amount he recovered from the driver's insurer. He contended, however, that it was improper to reduce the SUM coverage from the amount he received from the fire company under its general liability insurance policy. The Fourth Department rejected that contention.

Condition 11 (e) of the SUM endorsement under defendant's policy provided that SUM coverage shall not duplicate . . . any amounts recovered as bodily injury damages from sources other than motor vehicle bodily injury liability insurance policies or bonds.

Here, the payment plaintiff received from the fire company's insurer was for bodily injury damages, and thus the amount of SUM benefits available to plaintiff was properly reduced by that amount.  The policy is not ambiguous and condition 11 does not conflict with condition 6 of the SUM endorsement.  Condition 6 provides that the maximum payment under the SUM endorsement is the difference between the SUM limit and any payments received from a motor vehicle bodily injury liability policy.

It does not state that the difference is "the" SUM payment that is to be given to plaintiff, but rather it states that the difference is the "maximum" payment, which the average insured would understand to mean that it could be further reduced.  Condition 6 and condition 11 together resulted in a reduction in the SUM benefits available by the total settlement received by plaintiff in his prior action.

Then, in 2016, the Second Department stepped away from its decision in Weiss, in the GEICO v. Sherlock decision:

 

06/18/16       Matter of Government Empls. Ins. Co. v Sherlock

Appellate Division, Second Department

Do Dollars Received from Non-Auto Defendants Reduce SUM Recoveries?  Departments Now Split.  Second Department Overrules Its Own Precedent.

This is an important decision.

Sherlock was killed in Long Island when the vehicle he was driving collided head-on with a car driven by Maldonado. Maldonado, who was being pursued by the Old Brookville police, failed to negotiate a curve in the road and crossed the center and into the path of Sherlock's vehicle.

Sherlock was insured under a GEICO policy that provided underinsured motorist benefits (supplemental uninsured/underinsured motorist (“SUM”) with a per person liability limit of $250,000. Maldonado was covered by a liability policy issued by New York Central with a per person liability limit of $50,000.

Sherlock's widow, Tramontozzi commenced a personal injury action against the Maldonado and the Police Department.  New York Central offered to settle the action on behalf of Maldonado for the $50,000 limit of the New York Central policy, Tramontozzi Sherlock sought, and received, GEICO's consent to the settlement.

After mediation, the Police Department offered to settle the action insofar as asserted against them for $425,000, the money coming from a professional policy. Tramontozzi accepted that offer. She also sought benefits under the SUM endorsement of the GEICO policy.

This is where it gets interesting.

GEICO denied Tramontozzi SUM benefits.  Why?

The Second Department, in Weiss v Tri-State Consumer Ins. Co. (98 AD3d 1107), had previously held that under Conditions 6 and 11(e) of the SUM endorsement, the SUM coverage was reduced and entirely offset by the $50,000 payment Tramontozzi Sherlock received from New York Central and the $425,000 she received from the police department public risk professional policy insurer.   While the decision doesn’t mention it, the Fourth Department adopted the holding is Weiss in a case I handled for Progressive, called Redeye, and discussed below.  The Court of Appeals denied leave to hear the appeal in Redeye.

So, after she received GEICO's denial of her claim, Tramontozzi filed a request for arbitration. GEICO then commenced this proceeding to permanently stay arbitration. Under constraint of Weiss, the motion court granted GEICO's petition and permanently stayed arbitration. Tramontozzi and the appeal followed

The question here surrounds the “non duplication” restrictions imposed by Condition 11 of the SUM endorsement. Previously, in the Weiss case, the Second Department held that the money received from insurers OTHER than the auto insurers (in this case, the $425,000 received from the police department, would reduce the available SUM benefits as they duplicate pain and suffering recovery.

As the court held in Weiss, “condition 11 is aimed at preventing double recoveries for the same injuries”.  The provision:

"11. Non-Duplication. This SUM coverage shall not duplicate any of the following:

(a) benefits payable under workers' compensation or other similar laws;

(b) non-occupational disability benefits under article nine of the Workers' Compensation Law or other similar law;

(c) any amounts recovered or recoverable pursuant to article fifty-one of the New York Insurance Law or any similar motor vehicle insurance payable without regard to fault;

(d) any valid or collectible motor vehicle Medical payments insurance; or

(e) any amounts recovered as bodily injury damages from sources other than motor vehicle bodily injury liability insurance policies or bonds".

The Court held that the key to a proper understanding of condition 11 is the recognition that "shall not duplicate" is not aimed at preventing an insured from seeking full compensation by combining partial recoveries from several tortfeasors, but at preventing double recoveries for their bodily injuries.

Tramontozzi claimed in her request for arbitration that the bodily injury damages are in the millions of dollars. Presumably, if Maldonado defendants' policy had contained the same $250,000 liability limit that the GEICO policy provided, Tramontozzi would have been able to obtain $250,000 from the Maldonado defendants' insurer as well as the $425,000 from the Old Brookville defendants' insurer. Tramontozzi seeks only, through her claim under the SUM endorsement to be in the same position she would have been in had the Maldonado defendants not been underinsured relative to the GEICO policy.

 The Second Department then walked away from Weiss:

To the extent that Weiss can be interpreted to require that the amount of SUM coverage be reduced without regard to the actual amount of bodily injury damages suffered, it should no longer be followed.

Inasmuch as the full amount of the insured's bodily injury damages from the collision on May 30, 2010, has not as yet been determined, Tramontozzi was held to be entitled to proceed to arbitration.

Editor’s Note:  This is a sea change.  In the Weiss case the same court had held that the money received from a dram shop carrier would considered when determining whether or not SUM benefits would be recoverable.  Why? Because of the language in the policy providing that SUM benefits should not duplicate “any amounts recovered as bodily injury damages from sources other than motor vehicle bodily injury liability insurance policies or bonds".

That leads us to last Friday’s decision by the Fourth Department.  Counsel for Redeye brought an application to renew or reargue order in Redeye, arguing that since the Second Department had departed from Weiss in the GEICO v. Sherlock decision, the Fourth Department should follow suit.

“No,” said Justice John O’Donnell at the motion court.  Too late.  The appellate process had come to an end in Redeye after the Court of Appeals denied the application for leave to appeal.  All good cases must come to an end.

In its decision just rendered by the Fourth Department, that court agreed.  Too late to come here on this case.  Call it a motion to reargue or one to renew, every case must come to an end and the Redeye decision could not be reconsidered so many months after the judicial process had been exhausted.

 

02/02/18       Certified Environ’l Services, Inc. v. Endurance America Ins. Co.

Appellate Division, Fourth Department

No Duty to Defend Polluter in Criminal Proceedings under Environmental and Professional Liability Policies, under both New York and Georgia Law

The plaintiff was indicted by a grand jury and later convicted upon a jury verdict of aiding and abetting violations of the Clean Air Act but the conviction was vacated on appeal and the matter was remitted for a new trial. It then pleaded guilty to the criminal charge of negligently releasing into the ambient air a hazardous air pollutant, i.e., asbestos, thereby negligently placing other persons in imminent danger of death or serious bodily injury in violation of 42 USC § 7413 (c) (4).

Plaintiff was sentenced to a probationary period and agreed to pay restitution. During the criminal action, plaintiff sought a defense and coverage under insurance policies issued by two insurers, American Safety and Indian Harbor. American Safety issued a policy of environmental professional liability coverage, while Indian Harbor issued a policy that included professional liability and pollution liability coverage.

Both insurers disclaimed any duty to defend or indemnify plaintiff in the criminal action. After the conclusion of the criminal action, plaintiff commenced this declaratory judgment and breach of contract action seeking to recover its defense costs.

The American Safety policy is governed by Georgia law, which provides that, where the language fixing the extent of liability of an insurer is unambiguous and but one reasonable construction is possible, the court must expound the contract as made.  The Fourth Department concluded that the policy is unambiguous and does not require American Safety to provide a defense with respect to the criminal action under the environmental professional liability coverage, which provides that American Safety has the right and duty to defend plaintiff against any claim' or suit seeking covered damages. A “claim" is defined as "any written demand, notice, request for defense, request for indemnity, or other legal or equitable proceeding against [the insured] by a person or entity for, covered damages arising out of plaintiff's negligent acts, errors, or omissions. "Covered damages" include all “claim related costs," which in turn are defined as "all costs and expenses associated with the handling, defense, settlement or appeal of any claim' or suit.' "

Plaintiff contended that the "claim" was its demand requesting a defense and indemnity from American Safety for plaintiff's negligent acts and that the "covered damages" were its attorneys' fees and other costs incurred in the criminal action. However, that is not a "claim" within the meaning of the policy inasmuch as it was not made against the insured but rather, in this case, was made by the insured.  In other words, nobody was suing plaintiff for damages.

The Indian Harbor policy, on the other hand, is governed by the law of New York, where it is well settled that "a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms".  

As with the American Safety policy, the court concluded that the Indian Harbor policy is unambiguous and does not require Indian Harbor to provide a defense on the criminal action under either the professional liability or pollution liability coverage.

The professional liability coverage requires Indian Harbor to defend plaintiff "against any suit," which is defined as "a civil proceeding." Inasmuch as there was no civil proceeding against plaintiff in this case, there was no "suit" and, thus, Indian Harbor had no duty to defend under the professional liability coverage.

The pollution liability coverage requires Indian Harbor to pay those sums that [insured] becomes legally obligated to pay as compensatory damages as a result of a claim first made against it and provides that Indian Harbor has the duty to defend plaintiff "against any suit' seeking those compensatory damages." Plaintiff contends that, inasmuch as the allegations of the indictment against plaintiff, if true, could have resulted in civil claims and liability against plaintiff, Indian Harbor had a duty to defend plaintiff in the criminal action.

The court rejected that argument. The contract unambiguously provides that Indian Harbor has a duty to defend plaintiff against civil suits only. Inasmuch as there was no suit against the insured, Indian Harbor had no duty to provide a defense.

Editor’s note: Kudos to Brian Margolies who works with our good friends at the Traub, Lieberman firm for his success on this one.

 

02/01/18       Liberty Mutual Fire Insurance Co. v. Navigators Insurance Co.

Appellate Division, First Department

Additional Insured has Obligation to Give Timely Notice of an Accident or Claim.  Notice to Excess Carrier Focuses on Whether Insured Reasonably Should have Known that the Claim would Exhaust Primary Coverage.  Excess Carrier 37-Day in Denying Coverage Based on Late Notice is Untimely as a Matter of Law

An insurer's duty to cover the losses of its insured is not triggered unless the insured gives timely notice of loss in accordance with the terms of the insurance contract. Even if the insurance policy were construed as specifying that only the named insured . . . was required to provide notice of occurrences, demands and suits to [the insurer], the duty to give reasonable notice as a condition of recovery is implied in all insurance contracts. . . and is applicable to an additional insured.

Where notice to an excess carrier is at issue, the focus is on whether the insured reasonably should have known that the claim against it would likely exhaust its primary insurance coverage and trigger its excess coverage, and whether any delay between acquiring that knowledge and giving notice to the excess carrier was reasonable under the circumstances.

Here, we find that Liberty Mutual's November 17, 2010 letter was sufficient to provide notice of claim to Navigators. However, even if the June 2010 supplemental bill of particulars implicated Navigators' excess policy, and the notice was untimely, Navigators' disclaimer, issued 37 days later, was untimely as a matter of law.

 

01/31/18       County of Suffolk v. Johnson

Appellate Division, Second Department
While a County can be Self-Insured for Auto Coverage, it is Still Obligated to Provide Uninsured Motorist Benefits

Johnson, an employee of Suffolk Bus Corporation, was involved in an accident with an uninsured motor vehicle while driving a vehicle owned by the County of Suffolk. Johnson filed a claim against the County for uninsured motorist benefits, and the County denied the claim.

Johnson then filed a demand for arbitration of her uninsured motorist claim against the County. The County commenced this proceeding pursuant to CPLR article 75 against Johnson and State Farm, Johnson’s private automobile insurance carrier, seeking a permanent stay of arbitration on the ground that, pursuant to Vehicle and Traffic Law § 370, the County was exempt from providing uninsured motorist benefits.

State Farm cross-petitioned, to permanently stay arbitration of an uninsured motorist claim made by Johnson against it and to direct the County to provide primary uninsured motorist benefits to Johnson.

Although the Legislature authorized municipalities to be self-insured pursuant to the exception in Vehicle and Traffic Law § 370(1), it did not exculpate them from the responsibility of providing uninsured motorist protection.

 

01/31/18       Government Employees Insurance Company v. Williams

Appellate Division, Second Department
The Court, Not the Arbitrator, Must Determine Whether a SUM (Supplementary Uninsured /Underinsured) Exclusion Applies

Williams was hurt as a result of a collision involving his motorcycle and an automobile. Allstate insured the car had had a $25,000/$50,000 liability policy.  Allstate offered the full $25,000 to Williams.

Williams then made a claim under a supplementary uninsured/underinsured motorists (“SUM”) endorsement in a GEICO automobile insurance policy issued to a relative with whom Williams allegedly lived. That policy had SUM limits of $100,000 per person and $300,000 per incident. GEICO disclaimed coverage on the grounds that Williams was not an "insured" as that term was defined under the GEICO policy, and that the claim was subject to a policy exclusion in the SUM endorsement.

Williams requested arbitration of his SUM claim. GEICO commenced a proceeding to temporarily stay arbitration pending a hearing on the issue of whether Williams was an "insured" under the GEICO policy and the issue of whether the claim was subject to the policy exclusion in the SUM endorsement. The lower court denied the application for the stay pending a hearing on the issue of whether the claim was subject to the policy exclusion in the SUM endorsement.

The SUM endorsement in the GEICO policy provided, that SUM coverage did not apply "to bodily injury to an insured incurred while occupying a motor vehicle owned by that insured, if such motor vehicle is not insured for SUM coverage by the policy under which a claim is made, or is not a newly acquired or replacement motor vehicle covered under this terms of this policy." This policy exclusion excludes from SUM coverage compensation for bodily injuries sustained by an insured when injured in a motor vehicle accident while occupying a motor vehicle he or she owns, which vehicle was not covered under the policy.

The trial court must determine whether or not that exclusion applies – that is not an issue for an arbitrator.  GEICO met its initial burden of demonstrating that a factual issue exists as to the applicability of this exclusion. GEICO submitted the SUM benefits claim form, signed by Williams and the policyholder, which disclosed that Williams was operating his motorcycle at the time of the accident and that the motorcycle purportedly had coverage under a different GEICO policy at the time of the accident. Therefore, a hearing should have been held to determine if the exclusion applied.
 

Editor Note: Every few months we remind you of protocol with respect to SUM (underinsured motorists) proceedings.  If demand for arbitration for SUM benefits is made and the insurer, to which the demand is made, believes that a policy exclusion or condition would or might bar coverage OR wants to conduct discovery before the arbitration hearing, the carrier must bring a special proceeding, under CPLR Article 75, in New York State Supreme Court.  That application must be made within twenty (20) days of the arbitration demand or the right to rely upon policy exclusion or breaches of policy conditions will be waived and lost.  As this court correctly noted, the arbitrator is not empowered to rule on the applicability of endorsement exclusions.

 

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

Robert E.B. Hewitt III

 

02/02/18       Koneski v. Seppala

Appellate Division, Fourth Department

Labral Tear Not Enough for Serious Injury Without Evidence of Limitation Caused by Tear

Plaintiff commenced this action seeking damages for injuries he allegedly sustained when the vehicle he was driving was rear-ended by defendant’s vehicle. The Appellate Division concluded that defendants' own submissions in support of their motion raised a triable issue of fact with respect to causation. Defendants' expert physician, who conducted a medical examination of plaintiff, concluded in two affirmed medical reports that the onset of pain in plaintiff's right hip approximately five days after the accident was consistent with a prior degenerative condition that became symptomatic spontaneously and was not consistent with an acute, traumatic labral tear in the right hip sustained in the accident. Defendants, however, also submitted medical records from plaintiff's treating orthopedic surgeon, who opined that it was more likely than not that a spontaneous symptomatic hip injury did not occur and that the labral tear in the right hip observed in a post accident MRI resulted from the accident.

However, defendants met their initial burden on the motion insofar as they established that plaintiff did not sustain a serious injury with respect to the categories of permanent consequential limitation of use and significant limitation of use, and that plaintiff failed to raise a triable issue of fact. With respect to those two categories, the Court of Appeals has held that whether a limitation of use or function is significant or consequential (i.e., important . . .) relates to medical significance and involves a comparative determination of the degree or qualitative nature of an injury based on the normal function, purpose and use of the body part.  In support of their motion, defendants submitted the medical reports and affirmation of their expert physician who, after reviewing plaintiff's medical records and MRI and conducting an examination of plaintiff, opined that there was no objective medical evidence of a serious injury.  Among other things, defendants' expert physician noted that the range of motion testing conducted by the orthopedic surgeon just over a month after the accident showed that plaintiff exhibited normal abduction and only mild or slight reductions of 10 degrees in flexion and adduction. The medical examination of plaintiff conducted by defendants' expert physician 2½ years later likewise revealed only mild diminishment in certain types of movement. Defendants thus established that the limitations from plaintiff's right hip injury were "minor, mild or slight," which the lower court properly classified as "insignificant" or inconsequential within the meaning of the statute

Contrary to plaintiff's contention, his submissions in opposition to the motion were insufficient to raise a triable issue of fact. The mere existence of a labral tear is not evidence of a serious injury in the absence of objective evidence of the extent of the alleged physical limitations resulting from the injury and its duration. Here, the affirmation of plaintiff's orthopedic surgeon reflects that, just over a month after the accident, plaintiff exhibited normal abduction, adduction, and external rotation, and slightly diminished flexion and internal rotation within 10 degrees of the normal range of movement. The orthopedic surgeon's postsurgical evaluation of plaintiff eight months after the accident showed that plaintiff exhibited full flexion without pain, as well as external and internal rotation within the normal range of movement. Such limitations are insufficient to meet the serious injury threshold with respect to the two categories at issue on appeal.

 

TESSA’S TUTELAGE

Tessa R. Scott

 

01/19/18       Action Potential v United Servs. Auto. Ass

Appellate Term, Second Department

Plaintiff’s Failure To Abide By The Court’s Order, Without Excuse, Warranted Dismissal Of Plaintiff’s Claim

In this action by a provider to recover assigned first-party no-fault benefits, defendant answered the complaint and served demands for discovery. Thereafter, defendant moved to compel plaintiff to provide discovery. Defendant argued in support of its motion that it sought discovery from plaintiff in connection with its defense that plaintiff was ineligible for reimbursement of no-fault benefits.

By order entered September 21, 2015, the Civil Court granted defendant's motion and directed plaintiff to provide "verified responses to defendant's discovery demands, including answering interrogatories, producing management agreements, lease agreements, corporate records, federal and state tax returns, and bank records within 60 days of this order."

Plaintiff failed to provide responses in the allotted time.  Thus, Defendant moved to dismiss the case on the ground that plaintiff had failed to comply with the Court’s Order. In response to Defendant’s motion to dismiss, Plaintiff served its opposition to the motion along with its responses to defendant's discovery demands.  Strikingly, and rather Confoundingly, Plaintiff failed to produce the documents which the court had previously ordered it to produce. As you can imagine the Court was not particularly impressed and ultimately dismissed Plaintiff’s complaint. 

The Second Department upheld the dismissal. This is pretty unsurprising because the determination of whether to strike a pleading for failure to comply with court-ordered discovery lies within the sound discretion of the motion court.  The Second Department explained that “Although dismissing a complaint pursuant to CPLR 3126 is a drastic remedy, it is warranted where a party's conduct is shown to be willful, contumacious or in bad faith.” Plaintiff’s failure to provide the documents, as ordered, or any excuse for that failure was deemed to be willful contumacious and or bad faith.

 

01/26/18       Citywide Med. Servs. v Metropolitan Cas. Ins.

Appellate Term, Second Department

A Failure To Enter A Default Judgment Against Defendant For Over A Year, Without Reasonable Excuse, May Run The Risk Of Dismissal

Plaintiff commenced this action in 2006 to recover assigned first-party no-fault benefits. Defendant defaulted in answering, and, more than seven years later, plaintiff moved for the entry of a default judgment. Thereafter, Defendant moved to dismiss the complaint on the basis that the case had been abandoned.

The Civil Court denied the motion and cross motion but permitted defendant to submit an answer and directed plaintiff to file a notice of trial. Defendant appealed.

A party who fails to initiate a proceeding for the entry of a default judgment within a year of the default must establish a reasonable excuse for the delay and "demonstrate that the complaint is meritorious, failing which the court on motion, must dismiss the complaint as abandoned"

Here, plaintiff failed to establish a reasonable excuse for the delay.  Plaintiff's counsel asserted only that, in 2006, there was a possible settlement entered into between the parties. One letter does not establish ongoing settlement discussions. “Moreover, plaintiff submitted "neither a verified complaint nor an affidavit by a party with personal knowledge setting forth the factual basis for the claim.”

Accordingly, defendant's cross motion to dismiss the complaint was granted.

 

02/01/18       Freligh v Government Empls. Ins. Co

Appellate Division, Third Department

A Wage Loss Claim Is Not Precluded By The Absence Of A Nf-6 Form If The Information Has Been Provided Elsewhere

Plaintiff commenced this action to recover no-fault benefits for lost wages that he allegedly would have received from a new job that he had been offered but not yet started. Supreme Court denied defendant's motion for summary judgment dismissing the complaint. This Court reversed, granted the motion and dismissed the complaint Then the Court of Appeals reversed, finding "[t]riable issues of fact . . . as to plaintiff's claim for lost wages," and remitted the matter so that this Court could address any issue "raised but not determined" on the initial appeal.

Thus, the remaining issue was whether defendant was provided with proper verification of plaintiff's claim for lost wages. "[A]n insurer must pay or deny only a verified claim", which ordinarily requires "its receipt of verification of all of the relevant information requested.” Additionally, the insurer must "accept proof of claim submitted on a form other than a prescribed form if it contains substantially the same information as the prescribed form." Basically, the insurer gets the necessary information, but there is no specific form.

Defendant argued that it did not receive a completed NF-6 form (employer's wage verification report) from VW Parts, Inc., the intended employer. VW Parts indicated that it never received an NF-6 form to complete. Nonetheless, plaintiff had already provided defendant with plaintiff's employment application to VW Parts and a signed employment offer providing details of the proffered work.

Defendant further argued that that those documents did not provide all of the information contained on a completed NF-6 form. However, defendant further connected with the principal of VW Parts "for an interview and verification of employment" that could have been used to obtain the remainder. Thus, defendant was not entitled to summary judgment dismissing the complaint on that basis.

 

PEIPER ON PROPERTY (and POTPOURRI)

Steven E. Peiper

[email protected]

 

02/08/18       Tertiary, Inc. v Liberty Mut. Fire Ins. Co.

Appellate Division, First Department

Plaintiff Not Entitled to Default Judgment Awarding Defense and Indemnity Where there was No Pending Claim to Defend

Liberty appealed from the entry of a default judgment awarded in favor of plaintiff.  Apparently, plaintiff commenced a declaratory judgment seeking a directive that it is entitled to a defense and indemnity in an underlying tort action that has not yet been filed.  

In reversing the trial court, the Appellate Division noted that a default judgment establishing a defense and indemnity obligation is premature where there is no pending action for which a defense is necessary.

In addition, the Court acknowledged that Liberty’s motion to compel plaintiff to accept its Answer should have been granted where, as here, Liberty established the default was caused by an administrative oversight, there was no willful refusal to appear, and that the plaintiff suffered no prejudice from Liberty’s delayed appearance in the action.

 

1/31/18         Gray v Tri-State Consumer Ins. Co.

Appellate Division, Second Department

Carrier’s Objection to Production of Materials Related to Other Insured Justified as not Necessary and Proper for Prosecution of Instant Action

Plaintiff commenced this action seeking recovery for damaged allegedly covered under a homeowners’ policy.  Tri-State responded by asserting a counter-claim for concealment and fraud.  Tri-State eventually moved for summary judgment and plaintiff cross-moved to strike Tri-State’s answer for refusal to participate in discovery.  The trial court denied the summary judgment application, and then, unbelievably, struck Tri-State’s Answer as a discovery sanction.

On appeal, the Second Department first addressed the merits of Tri-State’s motion.  The court noted that triable issues of fact existed as to whether Tri-State breached its own obligations by failing to render payment within 60 days of a Proof of Loss. In addition, the Court found questions of fact over whether, in producing the Proof of Loss, plaintiff intentionally submitted an inaccurate proof.  Further, Tri-State’s motion to dismiss the consequential damages claims was denied where the movant could not establish the damages claimed were “not within the contemplation of the parties at the time of contracting.” 

It wasn’t all bad for Tri-State, however, as the Court reversed the decision to strike the defendant’s Answer.  Here, Tri-State responded to discovery, and supplemental discovery demands.  It withheld, on relevancy grounds, responses to only two supplemental demands which sought production of materials from claims submitted by other insureds.  On the Record before the Court, such actions were not willful and contumacious.  This was particularly true where, as here, the carrier’s objection was proper. 

 

02/08/18       The Krog Corp. v The Vanner Group, Inc.

Appellate Division, Third Department

Because Continuous Breach of Contract may have Occurred Less than Six Years Prior to the Commencement of the Action, Plaintiff’s Claims were not Time Barred

Plaintiff alleges that it joined a workers’ compensation trust at the recommendation of its long time insurance broker, Vanner.  Plaintiff belonged to, and participated in, the Trust from 1999 through April 17, 2008.  It was later learned that Vanner was also a managing agent and marketing partner of the Trust.

The Workers’ Compensation Board recognized that the Trust was insolvent in 2010, and thereafter in December of 2010 sought repayment of the deficit from current and former members (including Krog).

On March 24, 2014, Krog commenced a lawsuit against Vanner alleging therein that Vanner used its role to improperly place membership in the Trust.  In addition, Krog also alleged that Vanner was, in part, responsible for the trust deficit leading to its insolvency.  Krog sought recovery under several theories of liability including, breach of contract, unjust enrichment, negligence, negligent misrepresentation, aiding and abetting fraud, aiding and abetting breach of fiduciary duties, common law indemnification and RICO violations.  On motion, the trial court dismissed all claims as either failing to state of a viable cause of action or as time barred by application of the relevant statute of limitations.

The Appellate Division summarily agreed that the Complaint failed to state a cause of action for RICO violations and for recovery under a common law indemnification theory.  It also ruled that unjust enrichment and negligence claims were beyond the applicable statute of limitations.  Nevertheless, the remaining claims required a more detailed look at the application of relevant time limitations.

The court started by noting that statute of limitations generally run “when a contract is breached.”  However, where the contract is continuously breached (as here) the statute is essentially reset so as to trigger “anew” on each related breach.  Here, there is no argument that the claims of breach of contract occurred, continuously, from 1999 through April 17, 2008 when it left the trust.  Recall, this action was commenced on March 25, 2014, and thus actions prior to March 25, 2008 would be outside the six year statute of limitations governing breach of contract. 

That said, breaches occurring between March 25, 2008 and April 17, 2008 would be within the time to commence a claim.  Because plaintiff alleged that the actions giving rise to the breach of contract occurred throughout its entire time in the trust, it followed that at least some of the actions took place between 3/25/08 and 4/17/08.  Accordingly, plaintiff presented a claim that was not subject to a statute of limitations dismissal.

As aiding and abetting fraud, aiding and abetting breach of fiduciary duty, and negligent misrepresentation also follow a six year statute of limitations trigger, to extent any conduct fell within the March/April of 2008 window plaintiff’s claims are also timely. 

 

WILEWICZ’S WIDE WORLD OF COVERAGE

Agnes A. Wilewicz

[email protected]

Second Circuit quiet this week.

 

JEN’S GEMS

Jennifer A. Ehman

Nothing to report.

 

BARNAS ON BAD FAITH

Brian D. Barnas

[email protected]

 

02/05/18       Oltz v. Safeco Insurance Company of America

United States District Court, District of Montana

Montana Law Barred Action for Bad Faith in Connection with the Handling of the Insureds’ Claim

The Oltzes own a home at 11 Golf Drive, in Whitefish, Montana, and purchased their homeowner's coverage from Safeco.  In the summer of 2015, the Oltzes noticed instability in the deck posts of their home and that the deck was beginning to pull away from the house. 

The Oltzes contracted with Teksu Rivera of Native, Way, Inc. to investigate and repair their deck.  Rivera inspected the deck in July and advised the Oltzes to stop using it.  After discovering that the area where the deck attached to the home was rotted, Rivera and his employees began removing portions of the deck for safety reasons.  During the removal, a portion of the deck collapsed completely.  Subsequent removal of the home's siding revealed water damage extending in a triangular pattern from the roof to the deck.  The damage at the level of the deck was roughly 15 feet wide, and the deck had pulled away from the house where the attachment points were rotted out.

The Oltzes submitted a claim to Safeco.  Following an investigation, the Oltzes ultimately issued a letter citing policy exclusions for losses resulting from continuous or repeated seepage or leakage of water, inherent defect, weather, faulty, inadequate or defective design, workmanship and construction, and wet or dry rot.  The letter also cited the Additional Property Coverage for Collapse, which, according to Safeco, excluded coverage for decks unless the loss is a direct result of the collapse of the dwelling or part of the dwelling to which it is attached.

The Oltzes filed a suit against Safeco for, among other things, breach of contract, breach of the covenant of good faith and fair dealing, and common law bad faith.  The court ruled in favor of Safeco on the breach of contract claim.

Turning to the extra-contractual claims, Safeco argued the Oltzes' claims for breach of the covenant of good faith and fair dealing and common law bad faith were barred by Montana's Unfair Trade Practices Act.  Montana law provides that an insured may not bring an action for bad faith in connection with the handling of an insurance claim.  As such, the Oltzes’ common law bad faith claim was dismissed. 

However, that section of Montana law does not preclude a claim for breach of the implied covenant of good faith and fair dealing.  The court nonetheless ruled in favor of Safeco on the implied covenant claim.  Safeco did not deal dishonestly with the Oltzes during the investigation.  Rather, it promptly investigated the claim, sent reservation of rights letters, kept the insureds up apprised of the status of its investigation.

 

01/31/18       Wellington Insurance Company v. Banuelos

Court of Appeals of Texas, San Antonio

Full Payment of Appraisal Award Entitled Insurer to Summary Judgment on the Insured’s Contractual and Extra-Contractual Claims

Victor Banuelos submitted a claim to Wellington for damages to his property resulting from a storm.  Richard Barkkume of J&D Claim Services, Inc. inspected the property on behalf of Wellington and estimated that damage to the furnace vents, ventilation turbine, a furnace rain cap, and rear elevation totaled $902.40.  Wellington denied coverage for the damage to the roof and shed.  Barkkume recommended the claim be closed without payment because the loss did not exceed the homeowner insurance policy's deductible.

Banuelos then filed suit against Wellington and Barkkume for breach of contract, breach of the duty of good faith and fair dealing, violations of the prompt payment and unfair settlement provisions of the Texas Insurance Code, and violations of the Texas Deceptive Trade Practices Act.  Thereafter, Wellington invoked the appraisal clause in Banuelos's policy.  Through the appraisal process, it was determined that Banuelos suffered property damage, including damage to the roof and shed, in the amount of $10,797.62.  After deducting for depreciation and the policy's deductible, the net appraisal award due was $8,946.70, which Wellington paid to Banuelos.

The Court of Appeals held that Wellington’s payment of the appraisal award entitled it to summary judgment on both the insured’s contractual and extra-contractual claims. 

 

01/31/18       Bellezza v. LM General Insurance Company

United States District Court, Middle District of Florida

Bad Faith Cause of Action could not be Factored into Amount in Controversy Calculations at the Time of Removal

Bellezza was insured under an automobile insurance policy issued by LM General Insurance Company.  The policy provided uninsured motorist limits of $250,000.  On February 4, 2016, Bellezza was injured when his car was struck in a Whole Foods parking lot.  Bellezza sent a demand letter to LM seeking the policy limits and explaining that his medical bills totaled $8,368.66.  The demand letter also described projected future damages and loss of the enjoyment of life.

Bellezza then filed a lawsuit against LM after it refused to tender the policy limits.  The complaint contained causes of action for breach of contract and bad faith.  LM timely removed the case to federal court based upon diversity of citizenship.  As for the $75,000 amount in controversy requirement, LM noted that the policy limits and demand were both $250,000.

The court concluded that the record was devoid of evidence to suggest that Bellezza’s damages exceed $75,000.  Notably, the court declined to consider any claim for bad faith claims handling at the removal stage.  At the time of removal, the bad faith claim is abated, unripe, and not subject to consideration in the court’s amount in controversy calculations.  The rationale is that the bad faith claim does not accrue until the underlying action for insurance benefits has been resolved in favor of the insured, and a bad faith cause of action cannot exist absent a determination that the insurer is liable on the policy.  At the time of removal, such a determination has not yet been made.

 

EWELL’S UNIVERSE
John R. Ewell

 

01/19/18       Bates v. Bankers Life and Casualty Co.

Supreme Court of Oregon

Oregon Supreme Court Guts Bad Faith Suit Brought Under Elder Abuse Statute

Plaintiffs are elderly Oregonians or their successors who purchased long-term healthcare insurance policies sold by Bankers Life and Casualty Company (“Bankers”). These policies are designed to provide health services for elderly people who can no longer care for themselves and are intended to cover expenses for in-home care providers, assisted living facilities, and nursing homes.

Plaintiffs allege that Bankers developed onerous procedures to delay and deny insurance claims including failing to answer phone calls, losing documents, delaying or denying claims without notifying policyholders, denying claims for reasons that did not comport with Oregon law, and paying policyholders less than what they were owed under their policies. Plaintiffs claimed that Bankers delayed and denied insurance benefits to which Plaintiffs were entitled under their policies.

The plaintiffs asserted, among others, a claim against Bankers for elder abuse. At the trial court level, Bankers moved to dismiss the elder abuse claim. The federal district court dismissed plaintiffs’ elder abuse claim for failure to state a claim, determining that the elder abuse statute did not provide a bad faith cause of action. Plaintiffs appealed the judgment dismissing the elder abuse claim to the Ninth Circuit, who certified the following question to the Oregon Supreme Court:

Does a plaintiff state a claim under Oregon[’s] [elder abuse statute] for wrongful withholding of money or property where it is alleged that an insurance company has in bad faith delayed the processing of claims and refused to pay benefits owed under an insurance contract?

Oregon’s Supreme Court ruled in favor of the insurer, holding that allegations that an insurance company, in bad faith, delayed the processing of claims and refused to pay benefits owed to vulnerable persons under an insurance contract do not state a claim under Oregon’s elder abuse statute.

Oregon’s elder abuse statute, ORS 124.110, provides, in part:

(1) An action may be brought under ORS 124.100 for financial abuse in the following circumstances:

…

(b)  When a vulnerable person requests that another person transfer to the vulnerable person any money or property that the other person holds or controls and that belongs to or is held in express trust, constructive trust or resulting trust for the vulnerable person, and the other person, without good cause, either continues to hold the money or property or fails to take reasonable steps to make the money or property readily available to the vulnerable person when:

(A) The ownership or control of the money or property was acquired in whole or in part by the other person or someone acting in concert with the other person from the vulnerable person; and

(B) The other person acts in bad faith, or knew or should have known of the right of the vulnerable person to have the money or property transferred as requested or otherwise made available to the vulnerable person.

A plaintiff who is successful in an elder abuse action can recover three times the plaintiff’s economic and noneconomic damages, as well as attorney fees.

Plaintiffs sought to bring themselves within the words of the elder abuse statute by arguing that the insurance benefits that Bankers was contractually obligated to pay them constituted “money or property” that “belong[ed] to” them. Bankers responded that the elder abuse statute simply does not apply to an insurer-insured relationship. Bankers asserted that it did not “hold” or “control” any “money or property” owned by plaintiffs; rather, plaintiffs purchased insurance from Bankers in exchange for the payment of premiums. Those payments became Bankers’ money, and, in return, plaintiffs received insurance policies. Bankers asserted that its  obligation is to pay benefits to which plaintiffs are entitled under the policy terms, but that does not make the amounts that Bankers is contractually obligated to pay “the money or property” of plaintiffs.

To resolve this interpretive dispute, the court reviewed the text of the statute.  It concluded that “a careful reading of the abuse statute supports the interpretation urged by Bankers.” The court found that “the money or property” that plaintiffs transferred to Bankers—premiums—was factually and legally different from the insurance policy benefits plaintiffs claim Bankers is withholding from them. As such, the court determined that plaintiffs were unable to establish the first element of their elder abuse claim.

Since plaintiffs could not show that the same money or property had been “acquired” from plaintiffs by Bankers, as plainly required by the statute, the Court held that the plaintiffs failed to state a legal claim against the insurer under the state elder abuse statute.

 

ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA

Howard B. Altman

Nothing from the agencies.

 

OFF THE MARK
Brian F. Mark

[email protected]

 

01/31/18       Atain Ins. Co. v. East Coast Bus. Fire, Inc.
U.S. District Court for the Eastern District of Pennsylvania
US District Court Holds that Claims for Breach of Contract and Faulty Workmanship do not Constitute an “Occurrence” Under a CGL Policy and Therefore, Insurer had No Duty to Defend or Indemnify its Insured Relative to Underlying Action Asserting Such Claims.

This declaratory-judgment action arises out of an underlying construction defects action relative to the installation, service and maintenance of a fire suppression system in a restaurant.  The defendant, East Coast Business Fire, Inc. (“East Coast”) was hired by Xiao Chen and Huo Jin Li to install service and maintain a fire suppression system in their restaurant.  The system included automatic sprinklers above the cooking equipment, smoke detectors, and fire extinguishers.  East Coast was required to service and maintain the system twice a year.

On January 4, 2016, a fire destroyed the restaurant.  As a result of the failure of the smoke detectors, the fire was enabled to spread to the second and third floors of the property.  The Philadelphia Fire Department determined that the fire suppression system had not been properly installed or maintained.  Thereafter, Chen and Li filed suit against East Coast in state court for breach of contract, negligence, unjust enrichment, and negligent misrepresentation.

East Coast was insured under a commercial general liability insurance policy issued by the plaintiff, Atain Insurance Company (“Atain”).  Atain agreed to defend East Coast in the underlying action under a reservation of rights.  Atain then commenced this declaratory-judgment action seeking a declaration that it had no duty to defend or indemnify East Coast in the underlying action.  Atain argued that the underlying claims were not covered under its policy as the claims arose from faulty workmanship and breach of contract, and not from an “occurrence.”

In order to determine whether any of the claims in the underlying complaint were potentially covered by the Atain policy, the Court examined the policy and the allegations in the complaint.  The subject policy states that Atain will pay those sums that the insured becomes legally obligated to pay as damages resulting from a claim or suit brought against an insured because of “bodily injury” or “property damage” to which this insurance applies.  Coverage applies only to “bodily injury” and “property damage” that is caused by an “occurrence.”  The policy defines “occurrence” as an accident, including continuous or repeated exposure to substantially the same general harmful conditions.

In its motion for summary judgment, Atain argued that it had no duty to defend or indemnify East Coast because the underlying action was for breach of contract, which is not an “occurrence” as defined by the policy.  In opposition to the motion, East Coast argued that there was also a claim for negligence, which is covered.

The Court noted that breach of contract claims are not covered under general liability policies and that general liability policies are intended to protect insureds from accidental injuries, not damages arising out of contractual disputes.  Claims for faulty workmanship are not covered because they do not qualify as an “occurrence.”  Thus, a CGL policy does not cover claims in an underlying action that arise out of or relate to the contract between the parties.

Applying these principles, the Court held that because the underlying claim for breach of contract arose out of East Coast’s contractual obligations, they are not a covered “occurrence.” 

The underlying claim couched as negligence alleged that East Coast failed to properly install, inspect, service, and maintain the fire suppression system and smoke detectors – work they had entered into a contract to perform.  The underlying plaintiff’s also contended that East Coast relied on unskilled employees, agents, and/or contractors to perform its contracts.  As these faulty workmanship allegations are grounded in contract, they too are not a covered “occurrence.” 

With regard to the unjust enrichment claim, the Court noted that such a claim is an equitable claim that may not be brought when there is an express contract between the parties.  In this case, there was a written contract, wherein East Coast contracted to install, service, and maintain the fire suppression system.  An allegation that it failed to perform is an allegation that it breached the contract, not that it was unjustly enriched.  In the underlying complaint, the plaintiffs contend that East Coast unjustly profited from the service and maintenance fees because it failed to properly install, inspect, service, and maintain the system and equipment.  As these allegations clearly speak to contractual obligations, no coverage is owed for such claims. 

In the last claim, styled as negligent misrepresentation, the underlying plaintiffs claim that East Coast negligently misrepresented that in exchange for the annual fees to service, inspect, and maintain the fire suppression system, the equipment would operate in the event of a fire.  The Court held that despite being cast as a negligent misrepresentation claim, this was a claim for breach of warranties, not for negligence.

The Court held that in essence, the claims for negligence, unjust enrichment, and negligent misrepresentation were for faulty workmanship and breach of contract.  As claims of faulty workmanship do not arise out of an accident, such claims do not qualify as an “occurrence” under a general liability policy.  Because the claims against East Coast arose from faulty workmanship, and not from an “occurrence,” they are not covered under the Atain policy.  Accordingly, the Court granted Atain’s motion for summary judgment and declared that Atain owed no duty to defend or indemnify East Coast relative to the underlying action.

 

WANDERING WATERS

Larry E. Waters

 

01/31/18       Cimato v. State Farm Fire and Casualty Company

United States District Court, Western District of New York

Documents Prepared after the Commencement of Litigation but Prior to the Denial of Coverage is Not in Itself Precluded from a Determination that such Documents are Protected by Attorney-client Privilege

On January 8, 2014, a water pipe burst caused damage to the insured’s home and personal property.  On June 21, 2014, the insurer remitted a partial payment for the loss.  On January 6, 2016, Plaintiff commenced an action in New York State Supreme Court, claiming breach of the homeowner’s insurance contract and seeking to enforce the appraisal provision.  On February 4, 2016, the action was removed to federal court based upon diversity of citizenship.  On March 14, 2016, Defendant denied Plaintiff’s claim.  Subsequently, Plaintiff motioned to compel Defendant to disclose documents, which Defendant claimed were privileged.

The disputed documents were created subsequent to the commencement of litigation but prior to the denial of the claim.  Plaintiff argued that such documents were discoverable because those documents were prepared in the ordinary course of business.  In contrast, Defendant argued the documents were prepared in relation to the litigation as the documents consisted of communications regarding the lawsuit commenced by the Plaintiff. 

In its analysis, the Court acknowledged first that Rule 501 of the Federal Rules of Evidence requires that the substantive law of the forum state govern the issue of privilege in diversity cases.  As such, the court recognized that in New York State, “reports prepared by insurance investigators, adjustors or attorneys before the decision is made to pay or reject a claim are not privileged as materials prepared in anticipation of litigation.”  The Court concluded the documents not claimed to be subject to attorney-client privilege and prepared before the denial were discoverable.

Concerning the remainder of the disputed documents, Defendant argued such documents were protected by attorney-client privilege.  Defendant contended that the documents withheld as privileged communications were made to outside counsel regarding its legal rights and obligations.  Further, Defendant argued the documents were intended to remain confidential.  In response, Plaintiff argued the documents were exempt from the protection afforded by the attorney-client privilege as they were created prior to a determination of coverage.  In its analysis, the Court noted, the “critical inquiry is whether the communication was made in order to render legal advice or services to the client.”  The court noted the “fact that the documents were created prior to a determination to deny Plaintiff’s claim does not preclude a determination that the documents are protected by attorney-client privilege.”  In sum, the Court ordered the documents be provided to the Court with the portions of the documents which Defendant seeks to protect as privileged highlighted.    

 

01/31/18       Striker Sheet Metal II Corp., v. Harleysville Ins. Co. of New York

United States District Court, Eastern District of New York

No Duty to Defend or Indemnify When the Underlying Incident falls within the Auto Exclusion of the Policy and the Insurer had Extrinsic Evidence that the Alleged Claim had no Reasonable Possibility of Coverage
Defendant issued Plaintiff a commercial general liability policy, with effective dates from April 1, 2011, to April 1, 2012 (the “Policy”).  The Policy contained an Auto Exclusion, which provided no coverage for “Bodily injury or property damage arising out of the ownership, maintenance, use or entrustment to others of any . . . auto . . . owned or operated by or rented or loaned to any insured.  Use includes operation and loading or unloading.”  The policy also defined loading or unloading.  Subsequent to the Policy, Plaintiff entered into a subcontractor agreement with Trystate Mechanical, Inc. (“Trystate”).  On January 10, 2012, Randal Fiore, an employee of Plaintiff, allegedly suffered injuries during the course of his employment at the Construction Site.  Allegedly, Mr. Fiore was injured when he tripped on construction debris while he was removing a hand truck from a truck owned by Plaintiff.  On July 19, 2012, Defendant received a notice of occurrence/claim.  On July 26, 2012, Defendant sent a disclaimer letter to Plaintiff, stating that the “Auto Exclusion” applied.  On August 9, 2012, Trystate sent a letter to Plaintiff and Defendant stating that Plaintiff had an obligation to defend and indemnify Trystate pursuant to the subcontractor’s agreement.  On September 17, 2012, Defendant sent a second disclaimer letter to Plaintiff disclaiming coverage based on the Auto Exclusion.

Mr. Fiore filed a personal injury action on February 27, 2014.  On August 29, 2016, Plaintiff filed this declaratory judgment action, which Defendant removed to federal court.  Defendant moved for summary judgment on July 11, 2017.  Plaintiff crossed moved for summary judgment on August 15, 2017.  

In deciding whether Defendant had a duty to Indemnify, the Court first had to decide whether the Auto Exclusion was clear and unambiguous.  The Court found the language of the Auto Exclusion was clear and unambiguous.  The Court previously found similar policy language as unambiguous. 

Next, the Court had to determine whether the Auto Exclusion “specifically contemplates the circumstances in this case.”  Initially, the Court noted, “[b]ecause this is a general liability insurance policy rather than an automobile insurance policy, exclusions are subject to narrow interpretation.”  In its analysis, the Court noted that New York law subscribes to the “complete operations” doctrine when interpreting the loading and unloading clauses in insurance policies.  The “complete operations” doctrine applies “not only to the immediate transference of the goods to or from the vehicle but the complete operation of transporting the goods between the vehicle and the place from or to which they are being delivered.”  Based upon the facts provided, the Court concluded that it was undisputed that Mr. Fiore was in the process of removing HVAC ductwork from the Plaintiff’s truck and delivering it to the Construction site when he sustained the alleged injuries.

Plaintiff attempted to argue that, while the injuries occurred during the unloading process, the alleged injuries occurred from a condition unrelated to the process of unloading.  The Court rejected this argument.  First, the Court noted, New York law requires the Defendant to demonstrate that the accident resulted from some act or omission related to the use of the vehicle.  Second, the Court acknowledged that it had to view the facts in the light most favorable to Plaintiff.  As such, the Court adopted Plaintiff’s version of the events in which Mr. Fiore was injured on the ramp in the course of carrying HVAC ductwork to the Construction Site.  Even under these facts, the Court concluded the alleged injuries occurred in a construction zone and that Mr. Fiore was injured prior to the ultimate delivery of the goods.  As such, the Court found there was a direct causal connection between the incident and the unloading of Plaintiff’s truck, and the Auto Exclusion applied. Therefore, the Court found Plaintiff was not entitled to Indemnification under the Policy.   

Next, the Court decided whether Defendant had a duty to defend.  In its analysis, the Court noted the existence of extrinsic evidence, which excluded the possibility that Plaintiff was covered by the Policy, released Defendant of its duty to defend in the Underlying Action.  The Court reasoned that since there is no genuine dispute that the alleged injury was caused by the delivery of the goods, there is no possible legal or factual basis in which the Policy applies.  In addition, the facts known to Defendant through extrinsic evidence conclusively established that no possible factual or legal basis to which Defendant might eventually be obligated to indemnify Plaintiff under the policy.  Specifically, the Court referenced an email sent by Plaintiff almost a year and half prior to the lawsuit.  The email informed Defendant that Mr. Fiore was injured during the unloading process of the Plaintiff-owned truck.  The Court concluded that all the alleged liability fell within the Auto Exclusion and there was no reasonable possibility of coverage.  As such, Defendant had no duty to defend. 

 

EARL’S PEARLS
Earl K. Cantwell

 

09/27/16       Swiss Re International SE v. Comac Investments, Inc.,

U.S. District Court Northern District of California 

Insurance Coverage for Construction Defects:  Two Opposite Approaches and Outcomes

Cases keep coming down from courts in various states on whether there is CGL coverage for claims of defective construction.  In this California case, Swiss Re brought a declaratory judgment action concerning its duty to defend and indemnify Comac Investments under four CGL policies issued from 1998 – 2002.  In the underlying action, a Homeowners’ Association sought several million dollars in damages for alleged construction defects at a development of 23 housing units and 7 townhouses.  Swiss Re represented Comac in the underlying action, subject to a complete reservation of rights, and filed the declaratory judgment action.  The insurance company made a motion for summary judgment for a declaration of no coverage, and the California Court granted that motion. 

The Court first ruled that, under California law, allegations of defective construction did not constitute a covered “accident”.  This is because, although the construction was allegedly defective, the act of so doing was a deliberate, intentional act and not “unexpected” or “unforeseen”.  The Court generally cited to cases holding that the term “accident” does not apply where an intentional act results in unintended harm. 

There was also an exclusion in the policy denying coverage for damages “expected or intended from the standpoint of the insured”, which paralleled a California statute prohibiting insurance for “willful acts’” of an insured.  The Court held that, again, the allegations of construction defect fell within the “intentional acts” exclusion, as well as the California statutory prohibition. 

This case represents a fairly standard analysis, but one on which courts have differed whether a construction defect is an “accident” or a covered “occurrence”.  Several courts have adhered to the reasoning of this case that, even if unintended harm and consequences result, installing defective construction is not an “accident” because it is a deliberate act. 

Likewise, construction defects may not be covered under a CGL policy based on several common policy exclusions, such as the one in this case for intentional acts.  Other common policy “exclusions” that may come into play deal with work in place, completed operations, “your work”, and claims incurred because of a contractual agreement. 

Although not covered in this case specifically, another common issue is whether defect damages fall within the policy definition of damages or a covered loss.  Some courts have parsed the issue and held that loss or damage to the actual construction is not covered, but if there is secondary damage to existing or pre-existing building elements that might be within the scope of covered damages. 

Courts which have resisted allowing coverage for construction defects under a CGL policy have, ultimately, approached the issue from a perspective that a CGL policy is intended to be a liability insurance policy, and not a “performance bond” or a warranty for the construction.

 

08/04/16       Cypress Point Condominium Association, Inc. v. Adria Towers, LLC,

Supreme Court of New Jersey  

This New Jersey case reaches a contrary result on a different legal conclusion.  The Condominium Association brought an action against the General Contractor, the contractor’s insurers, and various subcontractors, seeking coverage under CGL policies for consequential damages allegedly caused by the subcontractors’ defective work.  The Trial Court granted summary judgment in favor of the insurance companies, however a first Appellate Court reversed.  The case then went on to the Supreme Court of New Jersey, which affirmed the decision of the Appellate Court. 

One of the essential arguments in the case was whether rainwater damage caused by faulty workmanship constituted “property damage” and a covered “occurrence” under CGL policies.  The Trial Court granted summary judgment to the insurance companies on the essential basis that there was no property damage or “occurrence”, as defined by the policies, to trigger coverage.  The Appellate Courts held that the damages caused by the faulty workmanship did constitute “property damage”, and there was an “occurrence”, within the covering language of the CGL policies.

The essential claims of construction defect were roof leaks and water infiltration at interior window jambs and sills.  The insurers made cogent arguments that such construction defects are not a covered accident or occurrence, and also cited cases and arguments that, at most, CGL policies might only provide coverage for damage to other property but not to the construction itself.  The New Jersey Supreme Court held that the alleged water infiltration caused by faulty workmanship constituted property damage caused by an occurrence where the policy defined an occurrence as an “accident”, and there was no allegation that the subcontractor “intentionally” performed faulty work. 

A second issue in the case was whether an exclusion in the CGL policies eliminating coverage for the cost of repairing damage to the contractor’s own work (commonly known as a “your work” exclusion) precluded coverage.  However, this argument was rejected as well largely because the exclusion expressly stated it did not apply if the damages arose out of work performed by a subcontractor.

The Appellate Courts accepted the argument that consequential harm caused by defective construction work is an “accident”, essentially ruling that CGL policies provide coverage for “faulty workmanship” that causes “accidental” harm or “unintended” damage.  The New Jersey courts focused upon the outcome of allegedly defective work, and if a poor outcome was not expected or intended, i.e. an accident, it would be covered under the CGL policies.  Other courts have emphasized the actual acts involved, and held that, regardless of the consequences, defective construction is not an accident since the construction itself is an intentional, directed act, albeit misguided, resulting in unfortunate consequences.  This case focuses on the outcome and damages; i.e., the unintended consequences, in defining an “accidental occurrence”.

This case, although from a major commercial jurisdiction, may be a minority view.  Many other courts have held that there is no coverage for construction defects under CGL policies, or have limited any such recovery to damage to pre-existing structures not part of the actual construction itself. 

It is important to note that there were several parties who filed amicus curiae briefs with the New Jersey Supreme Court given the importance of this issue.  Almost all of them were on behalf of groups supporting policyholders, builders, and general contractors who would normally be seeking to cram down CGL coverage onto their subcontractors’ CGL insurance policies.  It is worth noting, and perhaps unfortunate, that there was no similar effort by the insurance industry to brief this issue to the New Jersey Supreme Court to “push back” on these points. 

 

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