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Coverage Pointers - Volume XIX, No. 18

Volume XIX, No. 18 (No. 502)

Friday, February 23, 2018

A Biweekly Electronic Newsletter

 

Hurwitz & Fine, P.C.

1300 Liberty Building

Buffalo, NY 14202

Phone: 716-849-8900

Fax: 716-855-0874

         

Long Island Office:

535 Broad Hollow

Melville, New York 11747

Phone: 631-465-0700

Fax: 631-465-0313

 

Lake Placid Office

2577 Main Street

Lake Placid, NY 12946

Phone: 518-523-2441

Fax: 518-523-2442

 

www.hurwitzfine.com

© Hurwitz & Fine, P. C. 2018
All rights reserved
 

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

 

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

 

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

 

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

 

Dear Coverage Pointers Subscribers:

 

Do you have a situation?  We love situations. 

 

I received great feedback on my annual President’s Biography list from the last issue.  Glad to find so many like-minded, presidential historians who have given me great suggestions on further reading.

 

Today’s Trivia Question – answer at the end of the letter:  What two events occurred 65 years ago March 5?

 

Have you subscribed to our sister publications, Labor Law Pointers, edited by Dave Adams and Premises Pointers, edited by Jody Briandi?  No?  Shame on you!  If not, click on their names and send them an email asking to be added to the subscription list.  Tell them Dan sent you.

 

I wanted to give you a taste of these two publications. 

 

Here’s a recent case review from Labor Law Pointers:

 

01/16/18         Gutierrez v Harco Consultants Corp.

Appellate Division, First Department

Plaintiff allegedly was injured after he was struck with a piece of rebar when he was standing on footing rebar nine feet above the ground and tying up 18-foot long, 170-pound pieces of rebar that his coworkers were passing him from the ground. Plaintiff testified that as his coworkers passed him a piece of rebar, they let it go before he was ready to grab it, causing it to fall and hit him in the head which made him lose his balance and fall onto the footing rebar upon which he was standing and sustain injuries. The trial court granted plaintiff's motion for partial summary judgment on his Labor Law § 240(1) claim, and denied defendants’ motion to dismiss that claim.

 

Labor Law § 240(1) (DRA)

 

The First Department deemed plaintiff’s testimony sufficient to establish he was exposed to elevation-related hazards because assuming that the piece of rebar that allegedly struck plaintiff weighed what defendants claimed it weighed, it still presented an elevation-related risk even if it may have traveled only a short distance before striking plaintiff, relying on Marreo v 2075 Holding Co., LLC,, 106 AD3d 408, 409 (1st Dept 2013) and Cardenas v One State St., LLC,., LLC, 68 AD3d 436, 437 (1st Dept 2009).

 

The Court rejected defendants’ contention that the rebar being passed to plaintiff did not require an enumerated safety device because it was carried by hand, citing Rutkowski v New York Convention Ctr. Dev. Corp., 146 AD3d 686 (1st Dept 2017). However, the Court held plaintiff was not entitled to summary judgment because his medical treatment records created an issue of fact whether his injury was incurred in the manner described in his testimony.

 

PRACTICE POINT:  When a heavy piece of rebar is dropped onto the plaintiff the court is going to find a violation of the labor law holding that the rebar is an object which should have been secured. The court’s reliance on the Rutkowski case however might be distinguishable. As you will recall in Rutkowski two workers were passing a light bar from one to another when they dropped it on the plaintiff a level below them. In the instant case a piece of rebar was being passed by hand directly to the plaintiff and it simply did not make it from one hand to the other. The court finds these differing fact patterns to arrive at the same conclusion that the object needed to be secured. The second issue here is why the court found a question of fact and what lesson we can learn from that. The plaintiff’s medical records offer a different description of the manner in which the injury occurred, one which would not support a labor law claim. This is why it is always critical to carefully review the plaintiff’s medical records in search of any descriptions of the manner in which the accident occurred and not merely to get a better understanding of the injuries sustained.

 

Here’s one from Premises Pointers:

 

02/09/2018       Tauro v. Gary Gait and Syracuse University      

Appellate Division, Fourth Department

Primary Assumption of Risk – Summary judgment motion denied to college based on questions of fact regarding whether a college lacrosse player’s accident was the result of an assumed risk or due to an unexpected reckless act on the part of the coach

Plaintiff was a member of the women’s varsity lacrosse team at Syracuse University.  Plaintiff was injured during a practice drill designed to work on fielding ground balls.  In the drill, Syracuse coach Gary Gait (Gait was a 4 time All-American at Syracuse as a player and member of the US Lacrosse National Hall of Fame), would throw/roll ground balls at the player.  Plaintiff alleges that during the drill Gait unexpectedly made a hard overhand throw, with the ball flying directly towards her, hitting her in the head.   Plaintiff claimed that throwing the ball in this matter during a drill meant to work on fielding ground balls was a “reckless” act by Gait.

 

The university moved for summary judgment, arguing plaintiff’s claim was barred under the primary assumption of risk doctrine – that being struck in the head was a known risk in the sport of lacrosse and that by voluntarily participating as a member of the lacrosse team at practice, plaintiff had assumed the risk of being struck in the head.  New York’s Appellate Division, Fourth Department denied the University’s motion, finding a question of fact based upon plaintiff’s allegation, taken as true in deciding the motion, that the high throw was contrary to what was expected during the drill, and as a result, her coach had exposed her to an unexpected risk that she could not have assumed.

 

What is interesting about the case is that had plaintiff been hit in the head by the ball during regular drill or game, the hit would have been considered part of the expected risk of the game and the claim barred.  Consider the following:  Spiteri v. Bisson, 134 A.D.3d 799 (2nd Dept. 2015) – Spectator assumed risk of being struck by ball after entering area around lacrosse field while practice was ongoing; Bukowski v. Clarkson University, 19 N.Y.3d, 353 (2012) – College baseball pitcher assumed risk of being hit by batted ball, even if practice conditions in gym were less than ideal; and Kaminer v. Jericho Union Free School District, 139 A.D.3d 1013 (2nd Dept. 2016) - High school baseball player assumed risk of being hit in the head by errant thrown ball while walking off field after completing a fielding drill during practice. 

 

I find it inconsistent that if plaintiff was standing on the side of the field, not participating in the drill, but was struck by the same ball thrown by her coach, her claim would be barred, but her claim survives when she was aware of the throw, albeit different than she expected.  If being hit by an errant ball is part of the assumed risk of a sporting activity that includes thrown and hit balls, it would seem that being hit by an errant throw when the player is at least aware that the ball is coming towards them should also be an assumed risk.

 

Again, contact Jody or Dave for a subscription to either or both or send me an email in response to this one and I’ll forward.  I don’t get a finder’s fee.

 

Court of Appeals speaks on Facebook discovery:

 

Since our last issue, New York’s highest court has issued a decision broadening and clarifying the rules under which discovery of Facebook user’s private pages may be obtained. Read about it in Howard Altman’s column.

 

Additional Insured issues top my column this week:

 

On one, the Second Department almost got it right, but then veered off course to confuse AI and contractual liability coverage. There is a difference between a carrier’s obligations to an additional insured and its duties to its named insured under Contractual Liability coverage; the Second Department missed it.

 

You’ll find the discussion of a case called Yonkers Lodging Partnership v. Selective.  I represented Selective so I know it well. In it, Selective issued a policy to a subcontractor with an additional insured endorsement that required privity for a party to enjoy AI status. The owner, not in privity with the subcontractor brought an action seeking to be considered an additional insured. The Second Department correctly held that without privity, the owner did not qualify as an additional insured.

 

However, in a peculiar twist of words, the court then held that Selective was not entitled to summary judgment because there were “triable issues of fact as to Selective's obligations to [the owner] under the [subcontractor’s] insured contract with [contractor]”.

 

No, under the insured contract exception to the contractual liability exclusion, the insurer owes a duty to its named insured and NOT the contractual indemnitee.  It only owes a duty to the contractual indemnity if it is also an additional insured (or perhaps, if the Supplementary Payments provisions are triggered).

 

Contractual liability coverage provides protection to a named insured for claims against it under an “insured contract”.  It provides no obligations or duties running from the insurer to anybody else. There is a difference between additional insured coverage and contractual liability insurance.

 

You’ll also find a decision in the Vargas case, where the court slices, and appears in our opinion, correctly dices AI coverage and late notice.

 

Jen’s Gems:

 

Hi All,

 

Checking in from the New York Appellate Division, Third Department, where I am about to argue an appeal.  Because of my fear of being late, I elected to leave my house at 7 this morning to give me an extra two hours of contingency time for traffic, bad weather, potential meteor strike, etc.  Well, turns out I didn’t actually need all that time and now I am just two hours early hanging out in the attorney lounge.  But, still good to go over my papers again.

 

In terms of my column, nothing to report this issue.  Courts were fairly quiet.  Perhaps they are on February break too.  Hopefully have more next issue. Until then...

 

Jen

Jennifer A. Ehman

[email protected]

 

Official Language of Saskatchewan Schools, 100 Years Ago:

 

Vancouver Daily World

Vancouver, British Columbia, Canada

23 Feb 1918

 

A Step in Canadianism

 

The Saskatchewan School Trustees, in convention, have decided that English alone shall be the language of instruction in provincial schools.  Alien tongues will no longer be recognized.

 

This reform had to come.  If whole sections of Canada are not to become foreign settlements and enclaves, and in time of war, hotbeds of disloyalty, a genuine Canadianism must become the settled policy of our country.  The United States long ago recognized the danger and provided the remedy; we in Canada must do the same.

 

There is no better opportunity than the present while our foreign settlements are comparatively small.  No longer can it be urged that the barring of foreign languages in the schools will prevent immigration.  The prospect of Germans or Austrians settling in Canada for the next twenty years in any numbers is not bright. 

 

“Canada First” must be the motto of the foreign-born who wish to settle in our land.  If they cannot subscribe to this doctrine they are not wanted.  We have had our lesson.

 

Tessa’s Tutelage:

 

Dear Readers,

 

I regularly receive follow-up questions pertaining to recent decisions, questions about specific cases, and questions about the application of statutes or case law. Recently, a regular CP reader inquired about the application of “loss transfer” laws and product distributors.  A distributer, by its nature transports goods.  As you may know, loss transfer is a way for an insurer to—you’ve guessed it—transfer or recover the costs associated with a claim to another insurer.  As with all cases, it is important to consider if there is any other parties that may provide coverage for a claim.  I think of these situations as a legal form of hot potato. 

 

Nonetheless, there are certain requirements to transfer this loss onto other insurers. Namely, the right to recover exists only if at least one of the motor vehicles involved is a motor vehicle weighing more than six thousand five hundred pounds unloaded or is a motor vehicle used principally for the transportation of persons or property for hire.  As you can imagine, each word in the statute has been scrutinized and litigated.  No one wants to be left holding the bag if they don’t have to. The question for our reader boiled down to the words “for hire.”  The question was ultimately, if you have a vehicle transporting goods, does loss transfer apply?  The answer is simply, not always.  There are three questions to determine if loss transfer applies in distributor cases:

 

  1. Was the vehicle involved in the accident over 6,500 lbs. unloaded?  If yes, loss transfer applies.  If not, the inquiry continues to Question Two.   

  2. Was the vehicle principally used for transportation of persons or property?  If yes, move on to Question Three. 

  3. Does the distributor own the product?   

 

If the distributor owns the product, you are out of luck—loss transfer cannot apply.  You won’t be able to convince the Court that you have “hired” yourself. Ultimately, loss transfer does not apply to all commercial vehicles—even if it seems it should. 

 

I hope you all have a wonderful week and keep the questions coming!

 

Tessa

Tessa R. Scott

[email protected]

 

Even a Century Ago, It was Clear that Smoking was Unhealthy:

 

Norwich Bulletin

Norwich, Connecticut

23 Feb 1918

 

CIGARETTES  CONDEMNED

 

Members of Town School Committee

Warn Pupils Against Smoking

 

Secretary Sidney P. Marland of the town school committee announced that “the Killingly school committee, realizing the alarming practice of cigarette smoking by pupils in the public schools, do hereby warn them of this crime.”

 

Dealers throughout the town also are being urged not to sell cigarettes to pupils, as it is illegal to sell tobacco to persons under 16.

 

A section of the general statutes of Connecticut prohibits the use of tobacco by minors and any person under 16 years of age who shall smoke or in any way use tobacco in any public street, resort or place in any form whatsoever may be fined not more than $7.

 

The practice of cigarette smoking among pupils has increased to such proportions as to warrant the issuing of a warning.  Practically all of the boys who are addicted to the use of cigarettes know that the use of them is injurious to their health.

 

Members of the local exemption board for this district know of case after case where registrants have irregular hearts, hearts that now indicate a dangerous condition of health, due solely to cigarette smoking.  The result is that these young men are not only unfit for military service but also for the long, hard trials of civilian life, and what is true of these boys is, or will be true, of the high school boys to whom the warning has been issued by the representative of the school committee. 

 

Ewell's Universe:

 

Dear Subscribers:

 

I have exciting news. This past weekend I got engaged to my girlfriend, Erin. I flew her to Chicago, and we spent a wonderful day sightseeing, doing many touristy things like getting an authentic deep dish pizza, walking Navy Pier, and enjoying pricey drinks at the top floor of the John Hancock building. At sunset, we walked along the Lake Shore Trail which runs along Lake Michigan. With the cold, majestic lake in the foreground and impressive Chicago skyline in the background, I got down on one knee in the snow and popped the question. She said yes. I don’t think my feet have hit the ground yet, and she is very happy with her Valentine’s Day gift, an engagement ring.

 

The spot has always been, to me, the most beautiful place in Chicago. I may be right too. There were five professional photographers with tripods taking pictures of the skyline. Why Chicago? Well, I used to live there and I loved the city. I have spent many days at that very spot watching sailboats ferried across the lake by easterly winds.

 

Turning to insurance law, today’s topic is fee-shifting. Specifically, the shifting of attorney’s fees in a declaratory judgment action. In New York, we have the Mighty Midgets rule that where an insurer puts its insured into a “defensive posture” and the insured prevails, the insured may recover its attorney’s fees from the insurer. The most common example of this is where the insurer commences a declaratory judgment action against the insured. Many states have their own version of fee-shifting in insurance declaratory judgment actions, including the state of Oklahoma.

 

Last week, Oklahoma’s highest court addressed fee-shifting in insurance declaratory judgment actions. This is the first time the Oklahoma Supreme Court has ever considered the issue. Oklahoma’s Supreme Court held that the prevailing party in insurance declaratory judgment action is entitled to attorney fees and costs. The decision does not come as a surprise. Oklahoma has a statute that provides for fee-shifting in insurance declaratory judgment actions. In addition, federal courts sitting in Oklahoma have applied this rule for 33 years. The decision merely confirms the long-standing rule.

 

Interestingly, it appears to us that when the insurer secures a declaratory judgment that it has no duty to defend or indemnify its insured, it may be entitled to attorney’s fees. At least one federal court in Oklahoma has done so. For insurers in Oklahoma the fee-shifting rule can be succinctly summarized as:  To the victor go the spoils. For a carrier to properly assess risks litigation, knowing the fee-shifting rules in the particular state is a vital step.

 

‘Til Next Time,

 

John

John R. Ewell

[email protected]

 

Editor’s Note:  Attaboy on the engagement!

 

Give My Husband an All Expense Paid Trip to Europe for the War:

 

 

Buffalo Evening News

Buffalo, New York

1918 Feb 23

 

URGES DRAFT BOARD

TO TAKE HUSBAND

 

“Jus’ Take Him; He Ain’t No Good

to me,” Woman Writes.

 

Butte, Mont., Feb. 23.—It sometimes happens that a man overestimates his own importance, which was evidently the case of a Bozeman man of draft age who presented the following letter to the Gallatin county exemption board:

 

“Dear United States Army:  My husband ast me to write you a rekommend that he supports his fambly.  He cannot read so don’t tell him.  Jus’ take him.  He ain’t no good to me.  He ain’t done nothin’ but drink lemmen essence and play a fiddle since I married him eight years ago and I gotta feed seven kids of his’n. Maybe you can get him to carry a gun.  He’s good on squirrels and eatin.  Take him and welcum.  I need the grub and his bed for the kids.  Don’t tell him this, but take him.”

 

Peiper’s Pontification:

 

Perhaps Martin Scorsese has a new movie on his hands.  This time dealing with the exciting world of insurance coverage.  As all of the civilized world recalls, Mr. Scorsese’s masterful 1990’s movie Goodfellas spent a few scenes  detailing the theft of $5,000,000 in cash from the Lufthansa vault at JFK Airport.  As part of that theft, the bad guys also made off with $875,000 in jewelry.   Bet you didn’t know that, did you.  As of 2014, the FBI was still arresting people involved with the heist. Why is this relevant in this week’s Coverage Pointers.  Read below to find out. 

  

In addition to the latest caper at JFK, we’re back this week with a full serving of first party specials.  We’ve got stolen jewelry (noted above) and stolen artwork.  Not your thing?  No worries, as we also report on the latest case in the ongoing battle over what constitutes a residence premises for purposes of dwelling coverage.  As reader’s will note, the decision on residency is often fact specific with the scope of coverage turning on where an insured sleeps, eats and gets mail. The New York Central Mutual case reviewed below is no different.

 

Finally, and as a teaser for next issue, we’re advised by a reasonably good source that the Third Department might well be handing a decision on expert qualification in a first party dispute in the very near term. You’ll have to check back next time to get more information. 

 

That’s it for this week’s edition.  See you in two weeks.

 

Steve

Steven E. Peiper

[email protected]

 

Middle-Aged Woman Needed:

 

Star-Gazette

Elmira, New York

23 Feb 1918

 

MIDDLE-AGED WOMAN to devote whole or part time representing old line life insurance company in this vicinity.  Unusual opportunity.  Experience unnecessary but must have good education.  Apply R-9, Star-Gazette.

Editor’s Note:  If a women applied for the job, she would have to admit (concede, recognize, acknowledge) that she was middle-aged.  I trust the job is still open.

 

Hewitt’s Highlights: 

 

Dear Subscribers:

 

Here on Long Island, we have been enjoying some warmer weather. The ground hog apparently was wrong that there would be six more weeks of winter. On the serious injury front, we have a couple of cases that remind us that in a battle of experts as to causation, a motion for summary judgment will be denied based on finding an issue of fact. A case also states that there can be no permanent consequential limitation category of injury where soft tissue issues were found and the effect of the injuries had resolved.

 

Onward toward March. They say it comes in like a Lion.  May the serious injury cases also come in strongly by the next edition.

 

Until next time,

 

Rob
Robert Hewitt

[email protected]

 

I Wonder if this Deal is Still Available?

 

The Buffalo Enquirer

Buffalo, New York

23 Feb 1918

 

PERSONAL

 

Will exchange player-piano for fire insurance.  Apply 915 Main Street.

 

Wilewicz’ Wide-World of Coverage:

 

Dear Readers,

 

Dan and I were recently discussing our latest reads. He, as you know, is the avid Presidential biography buff, while I tend to gravitate more toward literature. We do find that we have some overlap, however, in that we’ve both enjoyed Chernow’s Alexander Hamilton, and we’re both big fans of Erik Larson.

 

Thus far this year, I’ve read over 20 books (I fly through kindle books on my treadmill), and as a counterpoint to Dan’s non-fiction lists, I thought I’d periodically share a book recommendation of my own. Indeed, I just finished Kristin Hannah’s The Nightingale. It was excellent and satisfying. Set in France during The War, it chronicles the intertwined lives of two sisters, their disparate heroics during difficult times, and a myriad of characters between them. It was beautifully written, with concise but descriptive language, that wasn’t too flowery or wordy. The plot moved very quickly and the characters were well thought out and deep. It appears to be a fictionalized account of true events, and could certainly pass as compelling non-fiction. Reminiscent of Doerr’s Pulitzer Prize Winning All The Light We Cannot See (one of the best books I’ve ever read and re-read), it is a striking not-put-downable read.

 

Now, this week on the Second Circuit front, we bring you a brief but interesting one. In Old Westbury v. American Alternative, the court addressed whether a policy’s definition of “bodily injury” included mental injuries. In particular, whether those mental injuries had to flow from a physical injury in order to qualify for coverage. The definition at issue was: “‘Bodily injury’ means bodily injury, sickness or disease sustained by a person. This includes mental anguish, mental injury, shock, fright or death resulting from bodily injury, sickness or disease.” In short, the court found that the second sentence would be superfluous if it included injuries that were purely mental in nature. Rather, the plain language of the definition indicated that they meant for mental injuries to be covered only if they were directly resulting from bodily injuries. Just another lesson in verbiage – some definitions might be broader, and some more limiting.

 

Finally, a reminder. Do let me know if you’ll be attending the American Bar Association’s 2018 Insurance Coverage Litigation Committee CLE Seminar  in Tucson next week. It’s not too late to register, I hear that a few hotel spots just opened back up, and it looks like it will be an incredible program. Hope to see some of you there!

 

Until next time,

 

Agnes

Agnes A. Wilewicz

[email protected]

 

Wandering Waters:

 

I hope all of you have enjoyed some of the recent “warm” weather.  After the periods of sub-zero weather this winter, I am convinced any day over 40 degrees is an early sign of summer.  During my four years in Buffalo, I have come to appreciate any day when it is above freezing.  Sadly, as I write this, there appears to be a wintery mix falling outside my window.  It appears winter is around for at least a few more weeks.  

 

With that being said, here is another issue of Wandering Waters.  This issue features one case from the Northern District.  I hope you enjoy.    

 

Larry

Larry E. Waters

[email protected]

 

Freedom of Speech, 100 Years Ago

 

Muskogee Times- Democrat

Muskogee, Oklahoma

23 Feb 1918

 

Mere Utterance of Disloyal

Feelings Held Not Offense

 

St. Louis, Mo., Feb. 23.—Rudolph Lipinn was freed today of a charge of having violated the espionage act.  Witnesses testified that Lipinn said: “I am going to be examined for the draft, and if I am passed I am going to hit the doctor on the nose.  I have sixty cousins in Germany and I don’t want to fight against them.  I wouldn’t fight for this country anyway:

 

The United States Commissioner before whom the hearing was held, said that under a recent ruling by the federal court in New York, a mere statement of personal feelings does not constitute violation of the espionage act, but that intent to cause disloyalty in others must be shown. 

 

Barnas on Bad Faith:

 

Hello again:

 

Pitchers and catchers have reported to Florida and Arizona to start Spring Training, and the first Spring Training games will be taking place by the time this issue is published.  It feels like spring is finally here.  This year I’ll be making the pilgrimage down to the Tampa area with my Dad to catch my Blue Jays a couple of times and play a little bit of golf.  I can’t wait to see who reported to camp in the “best shape of their life” and who is working on a new changeup.

 

I have a bit of a different case in my column this week.  The question the court addressed in Flanders was whether the underlying plaintiff was precluded from taking a judgment in excess of the policy limits against an insured who had declared bankruptcy while the case was pending.  As the insured’s debts were discharged in the bankruptcy proceedings, the plaintiff could not personally collect an excess judgment from the insured.  However, plaintiff apparently wanted to tee the case up for a bad faith argument, so she wanted a judgment in excess of the policy limits, even though she never would be able to collect it from the insured.  The court concluded that the recovery available to Plaintiff was not limited to the policy limits, choosing not to conflate the ability to seek an excess judgment with the ability to recover it. 

 

Interestingly, the bankruptcy court’s order specifically referenced a potential bad faith case, and noted that it was not discharging the ability of a third party [the plaintiff] to recover on such a claim from the debtor’s carrier.  It seems a bit odd to me that the court would be referencing possible bad faith claims long before an excess judgment had been entered against the insured.  Indeed, depositions had not yet even been completed in the underlying action at the time of the bankruptcy court’s order.

 

Enjoy your weekend.

 

Signing off,

 

Brian

Brian D. Barnas

[email protected]

 

Altman’s Administrative (and Legislative) Agenda:  

 

Greetings, Dear Readers.  

 

Yesterday, on Long Island, it was 70 degrees and sunny. Today, it’s 40 degrees and rainy.  Spring sprang!  Then recoiled, as springs are wont to do.

 

February 15, 2018, marked the first deadline to comply with portions of New York’s cybersecurity rules (discussed in my column), which rules were first enacted in March 2017. The regulations operate on a gradual/transitional basis up to March 1, 2019, when companies must be in full compliance with all mandates.

 

Howard

Howard B. Altman

[email protected]

 

Off the Mark:

 

Dear Readers,

 

The weather has been unseasonably warm the last few days and my kids have been enjoying it during their winter break.  Somehow they seem to have even more energy than usual.  My trip to California went well and I did get to see (and feel) the Pacific Ocean.  The weather there was amazing. 

 

Now that I’m back in New York, this edition fittingly discusses a case decided under New York law.  In Black & Veatch Corporation v. Aspen Insurance (UK) Ltd and Lloyd’s Syndicate 2003, the US Court of Appeals for the Tenth Circuit examined whether insurers were required to reimburse their insured for costs incurred due to damaged equipment that its subcontractor constructed.  The US Court of Appeals concluded that the district court erred in determining that a subcontractor’s faulty workmanship causing damage to an insured’s own work can never be an “occurrence.”  The Court held that the damages at issue constituted an “occurrence” under the defendant’s policy because they were accidental and harmed a third party’s property.  As such, the Court predicted that the New York Court of Appeals would decide that the damages at issue constituted an “occurrence” under the defendant’s policy.  Additionally, the Court found that the only way the “Your Work” exclusion and the “subcontractor exception” have any effect is if poor workmanship may be an occurrence under standard CGL policies.    Accordingly, the Court vacated the district court’s summary judgment decision and remanded the case for further consideration.

 

Although the decision is a bit lengthy, and that is being generous, it provides a great analytical look at the construction and history of CGL policies, including the “your work” and property damage exclusions.  It is certainly worth a read.

 

Until next time …

 

Brian

Brian F. Mark
[email protected]

 

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

 

  • An Exclusion Entitled “Exclusion — Construction Management for a Fee," Removes Coverage for Construction Manager, Even when it was Serving as General Contractor

  • Here’s the First Post-Burlington, “Duty to Defend” Case.  Rules Haven’t Changed.  BP Air Still Controls.  Also, Late Disclaimer does not Create Additional Insured Coverage but it Does Preclude Reliance on Policy Exclusions and Late Notice.

  • Almost Ain’t Good Enough.  Second Department Correctly Determines that Contractual Privity is Required to Additional Insured Coverage but then Confuses AI Coverage with Contractual Liability.  Thousands Flee.


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

Robert E.B. Hewitt III

[email protected]

 

  • Plaintiff Raised an Issue of Fact Through Affirmed Reports of Physician Who Found Significant Limitation of Motion

  • Defendant’s Expert Found Soft Tissue Injuries Such That as a Matter of Law she Did Not Suffer Permanent Consequential Limitation Category

  • Plaintiff’s Expert Created an Issue of Fact Through Physician that Opined Injury Was Traumatic in Origin

 

TESSA’S TUTELAGE

Tessa R. Scott

[email protected]

 

  • The Supreme Court Order Could Not be Considered a Final Determination Because it Did Not Declare the Rights of The Parties Involved

  • An Unpleaded Defense May Serve as the Basis for Granting Summary Judgment in The Absence of Surprise or Prejudice to the Opposing Party

  • Plaintiff Failed to Demonstrate Entitlement to Depose the Adjuster because it was Unable to Establish, On the Record, that it had Requested that Deposition

 

PEIPER ON PROPERTY (and POTPOURRI)

Steven E. Peiper

[email protected]

 

Property:

 

  • Jury Verdict Finding Residency Affirmed Where Plaintiff was Only Temporarily Staying at Son’s House to Help Provide Childcare

  • Too Late, Too Bad.  Carrier for Defaulting Armored Car Company Avoids Coverage Obligations for Jewelry Heist

  • Sale of Stolen Art Does Not Qualify as Physical Loss or Damage

Potpourri:

 

  • Motion to Dismiss Based upon an Earlier Release is Denied Where Plaintiff Established the Possibility of Fraud

 

WILEWICZ’S WIDE WORLD OF COVERAGE

Agnes A. Wilewicz

[email protected]

 

  • Second Circuit Holds Definition of “Bodily Injury” Includes Mental Injuries, Provided they Result from the Bodily Injury, as per the Definition’s Terms

 

JEN’S GEMS

Jennifer A. Ehman

[email protected]

 

  • Nothing this week.

 

BARNAS ON BAD FAITH

Brian D. Barnas

[email protected]

 

  • Insured’s Bankruptcy did not Discharge Potential Bad Faith Claim

 

EWELL’S UNIVERSE
John R. Ewell

[email protected]

 

  • Oklahoma Supreme Court Confirms Long-Standing Rule that Prevailing Party in Insurance Declaratory Judgment Action is Entitled to Attorney Fees and Costs

 

ALTMAN’S ADMINISTRATIVE (AND LEGISLATIVE) AGENDA

Howard B. Altman

[email protected]

 

  • Cybersecurity Regs

OFF THE MARK
Brian F. Mark

[email protected]

 

  • US Court of Appeals, Predicting that the New York Court of Appeals Would Decide that the Damages at Issue Constitute an “Occurrence” Under the CGL Policy, Vacated Trial Court’s Grant of Summary Judgment and Remanded the Case for Further Consideration.

 

WANDERING WATERS

Larry E. Waters
[email protected]

 

  • Defendants’ Motion for Summary Judgment granted because the Absolute Pollution Exclusion Barred Coverage for Plaintiffs’ claim   

 

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

 

  • A Tale of Appraisal, Arbitration, and Appeal

 

 

That’s all for now.  I will be at the Federation of Defense & Corporate Counsel meeting in Amelia Island next week but can be reached on my cell phone at 716-445-2258.

 

Oh yes, the answer to the trivia question: March 5, 1953 is the 65th anniversary of the death of Russian leader Joseph Stalin.  The other?  It is the 65th anniversary of my birth.  Coincidence?  You decide. 

 

 

All the best.

 

 

Dan

 

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

1300 Liberty Building
Buffalo, NY 14202    

Office: 716.849.8942

Cell:     716.445.2258
Fax:      716.855.0874

E-Mail:  [email protected]
H&F Website:  www.hurwitzfine.com

LinkedIn: www.linkedin.com/in/kohane

Twitter: @kohane

 

 

 

 

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


NEWSLETTER EDITOR
Dan D. Kohane
[email protected]

 

ASSOCIATE EDITOR

Agnes A. Wilewicz

[email protected]

 

ASSISTANT EDITOR

Jennifer A. Ehman

[email protected]

 

INSURANCE COVERAGE/EXTRA CONTRACTUAL LIABILITY TEAM
Dan D. Kohane, Chair
[email protected]

 

Steven E. Peiper, Co-Chair

[email protected]
 

Michael F. Perley

Jennifer A. Ehman

Agnieszka A. Wilewicz

Edward B. Flink

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
[email protected]
 

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]

 

02/20/18       Houston Casualty Company v. Cavan Corporation of NY, Inc.

Appellate Division, First Department

An Exclusion Entitled “Exclusion — Construction Management for a Fee," Removes Coverage for Construction Manager, Even when it was Serving as General Contractor

In July 2012, Cavan entered into a "Construction Management Agreement" (CMA) with the owners, under which Cavan agreed to function as "construction manager" for a building project on Lafayette Street in Manhattan. The CMA provides that Cavan was to receive compensation in the form of a fixed fee of $600,000, in addition to a payment of $1,700,000 as reimbursement "for all reasonable and customary staffing and overhead costs incurred by [Cavan] in the performance of its duties hereunder."

 

In October 2013, the principal of the project's sidewalk restoration contractor was injured in the course of the work and subsequently commenced the underlying personal injury action against Cavan, the owners and another entity. The complaint in the underlying action alleges that Cavan had been engaged as "the general contractor and/or construction manager" for the project.

 

The issue before the court was whether Houston Casualty (“Houston”) was obligated to defend Cavan in the underlying personal injury action pursuant to a commercial general liability insurance policy issued to Cavan. While the policy generally provides coverage for "bodily injury" arising out of Cavan's work, it contains an endorsement entitled "Exclusion — Construction Management for a Fee," providing that the insurance does not apply to losses "arising out of construction management,' regardless of whether such operations are conducted by you or on your behalf." The endorsement defines "construction management" to mean "the planning, coordinating, supervising or controlling of construction activities while being compensated on a fee basis by an owner or developer".

 

Houston had been defending Cavan but it reserved its right to recover back defense costs incurred in defending Cavan.  Cavan also brought an errors and omissions claim against it broker, Ducey, alleging negligence in procuring the policy.

 

The First Department found that Houston was entitled to summary judgment declaring that the policy does not afford Cavan coverage in the underlying action pursuant to the exclusion for construction management. Even though the complaint in the underlying action alleges that Cavan may have been acting as general contractor for the project, and notwithstanding that it may ultimately be determined in that action that Cavan was actually functioning as the project's general contractor for purposes of the claim under Labor Law § 240(1) the policy, in defining the term "construction management," excluded from coverage operations for which Cavan was "being compensated on a fee basis."

 

Under the CMA, Cavan was compensated for its work on this project by a flat fee of $600,000, plus reimbursement in a prescribed amount for overhead and staffing expenses, rather than by progress payments covering the cost of the work done by the trade contractors plus an additional increment to provide Cavan with a profit.

 

Accordingly, whether or not Cavan was acting as a general contractor, the CMA establishes that it was "being compensated on a fee basis," not a cost-of-work-plus-profit basis, and this suffices to bring its operations within the scope of the exclusion for "Construction Management for a Fee."

 

The court noted that the record reflects that in June 2013, when the policy was already in effect but before the underlying accident had occurred, Ducey, on behalf of Cavan, contacted plaintiff to request that the policy be amended to provide coverage for construction management operations. In response, Houston said that it would not remove the endorsements excluding coverage for construction management operations but would be willing to consider providing coverage for projects on which Cavan "collect[s] a fee as a construction manager" on a project-by-project basis, in exchange for payment of an additional premium at a higher rate. Cavan did not seek such additional coverage.

 

02/15/18       Vargas v. City of New York

Appellate Division, First Department

Here’s the First Post-Burlington, “Duty to Defend” Case.  Rules Haven’t Changed.  BP Air Still Controls.  Also,  Late Disclaimer Does not Create Additional Insured Coverage but it Does Preclude Reliance on Policy Exclusions and Late Notice.

This one’s a good read.

 

The City contracted with the “Joint Venture” who is turn contracted with L&L Painting (“L&L”).  L&L was required to provide additional insured coverage to the Joint Venture and the City.

 

Liberty issued a commercial general liability insurance policy to L & L. That policy contained additional insured endorsements which differed with one another.  One endorsement (“No. 4”) required coverage would be provided to someone "required by written contract signed by both parties prior to any occurrence' in which coverage is sought." Separate endorsements (“Nos. 1-3”) said that an additional insured is "any person or organization with whom you [L & L] have agreed to add as an additional insured by written contract."

 

Liberty argued that the City defendants are not additional insureds because it had no contract with them. The court held that if endorsement 4 were the only additional insured endorsement, Liberty would be correct (Gilbane Bldg. Co./TDX Constr. Corp. v St. Paul Fire & Mar. Ins. Co., 143 AD3d 146, 147-148, 151 [1st Dept 2016]). However, a contract between Liberty and the City defendants is not required under endorsements 1-3.

 

Liberty also argued that the City defendants are not additional insureds because plaintiff Robert Vargas's injury was not caused by L & L or those acting on its behalf, as required by endorsements 1-3. The limitations in endorsements 1-3 do not vitiate Liberty's duty to defend, because the second amended complaint brings the insurance claim at least "potentially within the protection purchased" (BP Air, 8 NY3d 708, 714 [2007] [internal quotation marks omitted]). The second amended complaint alleges that all defendants — which includes L & L — operated, maintained, managed, and controlled the job site. It also alleges that all defendants were negligent and failed to provide a safe job site. Thus, it is possible that plaintiff's injury was caused by L & L.

 

However, it was premature to declare that Liberty is obliged to indemnify the City defendants. The duty to defend is broader than the duty to indemnify (see e.g. id.). It has not yet been determined if L & L was the proximate cause of plaintiff's injury (see Burlington Ins. Co. v NYC Tr. Auth., 29 NY3d 313 [2017]).

 

The appellate court noted that the City did not ask the motion court to declare that Liberty was required to defend and indemnify them, so the First Department was not entirely clear why the lower court did so.

 

If the court based its decision on its finding that Liberty's disclaimer was untimely, the court found this was in error: A late disclaimer would not preclude Liberty from arguing that the City defendants were not covered under the policy because they were not additional insureds.

 

That point must be underscored.  While an insurer has an obligation to disclaim promptly under Insurance Law §3420(d)(2), a failure to do so would not turn a party that was not an additional insured into an additional insured.  The “prompt disclaimer” rules only apply to a failure to timely raise exclusions or breaches of policy conditions.

 

Accordingly, the court properly held that the timeliness of Liberty's disclaimer is relevant to whether it can assert the lead exclusion and the defense that the City defendants' notice was late as the notice requirement applies equally to both primary and additional insureds. The motion court correctly found as a matter of law that Liberty's 45-day delay in disclaiming was untimely.

 

Plaintiff commenced this action on May 9, 2013. The City defendants did not notify Liberty until they commenced their third-party action; their complaint is dated February 4, 2014, and Liberty received it on February 21, 2014. Liberty did not need to investigate to conclude that a delay in giving notice was untimely. Similarly, it did not need to investigate to conclude that the lead exclusion formed a basis for disclaiming; the third-party complaint says that the plaintiff in the underlying personal injury action alleged that he was exposed to lead dust.

 

Liberty is correct that, when a putative insured first makes a claim for coverage in a complaint, the insurer may disclaim via its answer but the City defendants/third-party plaintiffs did not waive their argument that Liberty's disclaimer was untimely by agreeing to extend Liberty's time to answer.

 

Even if, arguendo, Liberty's disclaimer were timely, the lead exclusion would not relieve Liberty of its duty to defend. Since the second amended complaint alleges that plaintiff "was poisoned by exposure to dangerously high levels of lead dust and other hazardous substances" the allegations do not "cast the pleadings wholly within that exclusion".

 

02/14/18       Yonkers Lodging Partners, LLC v. Selective Insurance Company

Appellate Division, Second Department

Almost Ain’t Good Enough.  Second Department Correctly Determines that Contractual Privity is Required to Additional Insured Coverage but then Confuses AI Coverage with Contractual Liability.  Thousands Flee.

OK, so this one is personal, as we represented Selective.

 

Yonkers Lodging Partners (“YLP”) entered into a contract with Tritec to perform construction services on YLP’s premises and on the premises of an adjoining property owner, Mack-Cali.   Tritec then entered into a subcontract with the Lea Rome for asphalt paving. Lea Rome agreed to indemnify and hold harmless Tritec and YLP for any claims arising out of the performance of the subcontracted work, but only to the extent caused by the negligence or omission of Lea Rome. Additionally, Lea Rome was required to procure and maintain a commercial general liability insurance policy naming YLP and Tritec as additional insureds.

 

Again, the contracting parties: 

 

  • < >< >< >with whom you have agreed in writing in a contract, agreement or permit that such person or organization be added as an additional insured on your policy." (Emphasis added).

     

     

    Benitez, an employee of Lea Rome as hurt and sued Tritec and Mack-Cali to recover damages for personal injuries. Tritec commenced a third-party action against Lea Rome for contractual indemnity, common-law indemnity, and contribution. Mack-Cali commenced a second third-party action against YLP, alleging that it had breached a contract pursuant to which it agreed to indemnify and hold Mack-Cali harmless for claims arising out of the performance of the construction work and to procure insurance.

     

    YLP and its carrier, Citizens Insurance (collectively, “YLP”) then sued Selective, declaring that Selective was obligated to defend and indemnify YLP in the action commenced by Benitez, claiming that YLP was an additional insured under the Selective policy and to get reimbursement for defense costs incurred.

     

    Selective (by previous counsel) admitted that YLP was an insured but claimed that the contractual exclusion applied. YLP moved for summary judgment seeking to establish that YLP was an insured.  Selective (through our office) cross-moved to amend Selective’s answer to deny additional insured status on the ground that there was no agreement and thus no privity between YLP and the Selective insured, YLP.  The highlighted language in the AI clause above required privity.

    The lower court granted Selective's cross motion for leave to serve an amended answer, denied the plaintiffs' motion for summary judgment, and, upon searching the record, awarded summary judgment to Selective, declared that Selective was not obligated to defend and indemnify YLP in the underlying action since YLP was not an additional insured due to lack of privity.

     

    YLP appealed.

     

    The Second Department determined that the lower court properly exercised it discretion when it Selective to amend its answer, there being no prejudice (as YLP has used its own counsel to defend itself since the commencement of the lawsuit).  

     

    The appellate court then determined that the lower court properly determined that YLP did not qualify as an additional insured due to the lack of privity, citing to Gilbane Bldg. Co./TDX Constr. Corp. v St. Paul Fire & Mar. Ins. Co., 143 AD3d 146, among a string of other cases.  It therefore denied YLP’s motion for summary judgment seeking defense and indemnity.

     

    So far, so good.

     

    Then, the Court, added this peculiar paragraph:

     

    However, the Supreme Court erred by searching the record and awarding summary judgment to Selective. Although YLP does not qualify as an additional insured, the Selective policy contains an exception to the contractual exclusion for liability assumed pursuant to an insured contract. There are triable issues of fact as to Selective's obligations to YLP under Lea Rome's insured contract with Tritec. Accordingly, on this record, Selective was not entitled to a declaration that it is not obligated to defend and indemnify YLP in the underlying action, or dismissal of the complaint insofar as asserted against it.

     

    I’ve offered a nickel to anyone who can make sense of it.

     

    The issue of contractual liability coverage, never in dispute, is one that would only impact coverage for the named insured, Lea Rome.  Lea Rome either had contractual liability coverage or it did not. 

     

    So, if, in the underlying case, Lea Rome was adjudicated to have an obligation to defend and/or indemnify Tritec or YLP under the trade contract, the contractual liability coverage for the insured contract would provide Lea Rome with defense and indemnity for that trade contract claim.  Selective would provide NOTHING to YLP, but would only defend and indemnify its named insured, Lea Rome. 

     

    Contractual liability coverage does not provide any coverage to YLP. Contractual liability coverage is DIFFERENT from additional insured coverage, of course.

     

    So, this statement – There are triable issues of fact as to Selective's obligations to YLP under Lea Rome's insured contract with Tritec – makes no sense.  Selective’s only obligations are to its own named insured, Lea Rome.  Perhaps Lea Rome has obligations to Tritec or YLP but NOT Selective.

     

    A motion to reargue is in the offing…


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

Robert E.B. Hewitt III

[email protected]

 

02/15/18       Moreira v. Mahabir

Appellate Division, First Department

Plaintiff Raised an Issue of Fact Through Affirmed Reports of Physician Who Found Significant Limitation of Motion

Plaintiff alleges that she sustained serious injuries to her cervical and lumbar spine following a motor vehicle accident that occurred in July 2011 when she was a passenger on a City bus. Defendants made a prima facie showing that plaintiff did not sustain serious injuries involving significant or permanent consequential limitation in use of those body parts through the affirmed reports of an orthopedic surgeon and neurologist who found normal ranges of motion, negative objective test results, and resolved sprains and strains. Defendant's neurologist explained that the limitations he measured in the lumbar spine were due to plaintiff's limited effort on examination, not any injury related to the accident.

 

However, defendants' experts did not raise any issue as to causation, since the orthopedic surgeon acknowledged that the accident caused cervical and lumbar sprain that had resolved. While their neurologist stated that the MRIs "appeared to show pre-existing herniations," he did not review the MRI films himself, and his equivocal statement was inconsistent with the referenced MRI reports, which identified specific herniations and noted no significant degenerative disc disease in the spine.

 

In opposition, plaintiff raised an issue of fact through the affirmed reports of a physician who examined her soon after the accident, and another who examined her recently and observed significant limitations in range of motion of the affected body parts, as well as positive results on objective tests for cervical and lumbar injury. Although the contents of some of the medical records submitted by plaintiff were inadmissible because they were unaffirmed, they could "be considered for the purpose of demonstrating that plaintiff sought medical treatment for h34 claimed injuries contemporaneously.

 

To the extent that defendants raised an issue as to degeneration, plaintiff's physicians adequately addressed the issue by ascribing her injuries to a different, yet equally plausible, explanation — the accident. Defendants' contention that plaintiff failed to adequately explain a cessation of treatment is unpreserved, since it was first raised in reply and may not be raised on appeal.. In any event, plaintiff's physician noted that therapy and other treatment ceased because it failed to improve her condition.

 

02/09/18       Kracker v. O’Connor

Appellate Division, Fourth Department

Defendant’s Expert Found Soft Tissue Injuries Such That as a Matter of Law she Did Not Suffer Permanent Consequential Limitation Category

Plaintiffs commenced this action seeking damages for injuries that Pamela M. Kracker (plaintiff) allegedly sustained as a result of a motor vehicle accident wherein plaintiff's vehicle was stopped at an intersection and was struck from behind by a vehicle owned and operated by defendant.

 

The Appellate Division concluded that defendant met his initial burden on the motion by submitting evidence establishing as a matter of law that plaintiff did not sustain a serious injury under the permanent consequential limitation of use and 90/180-day categories. Defendant submitted the affidavit of a physician who, after examining plaintiff and reviewing plaintiff's imaging studies, medical records and medical history, opined that plaintiff sustained a "sprain and strain" and "soft tissue injuries," which are "not serious and permanent injuries." Plaintiff testified at her deposition that she missed no work as a result of the accident, and her medical records establish that she was medically cleared to work "without restrictions" less than two weeks after the accident. In opposition, plaintiffs failed to raise an issue of fact with respect to the permanent consequential limitation of use and 90/180-day categories.

 

As to the significant limitation of use category, although defendant also met his initial burden on the motion with respect to the significant limitation of use category of Insurance Law § 5102 (d), plaintiffs raised an issue of fact by submitting the affirmation of their medical expert. Specifically, after reviewing plaintiff's medical records and imaging studies, plaintiffs' expert opined that plaintiff sustained a superior labral anterior and posterior tear to her right shoulder that required surgery and was causally related to the accident.

 

02/08/18       Hendricks v. Transcare New York, Inc.

Appellate Division, First Department

Plaintiff’s Expert Created an Issue of Fact Through Physician that Opined Injury Was Traumatic in Origin

Defendants carried their initial burden of establishing a prima facie entitlement to judgment. However, plaintiffs' submissions in opposition raised triable issues as to whether they suffered serious injuries within the meaning of Insurance Law § 5102(d) as a result of the subject accident, to the extent indicated. Plaintiffs' physician submitted an affirmation opining that the subject injuries were traumatic in origin, based on his examinations, surgical observations and review of MRI films. The medical experts' conflicting opinions on the cause and extent of these injuries raise issues of fact that must be resolved at trial.

 

TESSA’S TUTELAGE

Tessa R. Scott

[email protected]

 

02/09/18       Active Chiropractic, P.C. v 21st Century Ins. Co

Appellate Term, Second Department

The Supreme Court Order Could Not Be Considered a Final Determination Because It Did Not Declare the Rights of the Parties Involved

Prior to the commencement of this action Defendant brought a declaratory judgment action against plaintiff. Then the Defendant asserted that Plaintiff had failed to answer the Complaint. The Supreme Court stated that an unrelated branch of Defendant's motion was denied and that the "remainder of the motion [wa]s granted without opposition."

 

After the instant action was commenced in the Civil Court, plaintiff moved for summary judgment. Thereafter, Defendant cross-moved in the Civil Court for summary judgment dismissing the complaint on the ground that plaintiff's action was barred by the doctrines of res judicata and collateral estoppel. Defendant appealed from the order of the Civil Court entered November 18, 2015, which granted plaintiff's motion and denied defendant's cross motion.

 

The Second Department noted that the Supreme Court order in the declaratory judgment action merely granted the branch of defendant's motion for the entry of a default judgment against plaintiff and its assignor, but failed to make a statement declaring the rights of the parties involved, the Supreme Court order cannot be considered a conclusive final determination and, thus, can have no preclusive effect in the action at bar.  Accordingly, the order is affirmed.

 

02/09/18       Active Chiropractic, P.C. v Allstate Ins

Appellate Term, Second Department

An Unpleaded Defense May Serve as the Basis for Granting Summary Judgment in the Absence of Surprise or Prejudice to the Opposing Party

Defendant served an answer on March 5, 2013. Plaintiff moved for summary judgment and defendant cross-moved to dismiss the complaint pursuant to contending that Plaintiff's action was barred by virtue of an order a Supreme Court Order in a declaratory judgment action.

 

That Order declared that defendant was not obligated to provide coverage for no-fault claims arising out of the accident in question, and that Plaintiff was not entitled to reimbursement for services. Plaintiff did not oppose Defendant's motion in the Civil Court.

 

Defendant appealed from an order of the Civil Court which granted Plaintiff's motion finding that Defendant had failed to raise the defense of res judicata in its answer.

 

The Second Department concluded that defendant had no basis to assert res judicata prior to the commencement of the declaratory judgment action. The Court stated “[w]hile the better practice would have been for defendant to move to amend its answer after May 13, 2014, nevertheless, defendant's answer may be deemed amended to assert the affirmative defense of res judicata.”

 

02/08/18       Choice Health Chiropractic, P.C. v American 

Appellate Term, Second Department

Plaintiff Failed to Demonstrate Entitlement to Depose the Adjuster Because It Was Unable to Establish, on the Record, That It Had Requested That Deposition

The Second Department held that although Defendant did not deny plaintiff's within 30 days of receipt of that claim or of the second IME nonappearance, Defendant did establish that, upon receipt of that claim, it had timely mailed initial and follow-up requests for written verification and that it had timely denied the claim, based on the assignor's failure to appear for IMEs, within 30 days of receiving the requested verification.

 

However, as the affidavit submitted by Plaintiff was sufficient to demonstrate an issue of fact regarding Defendant's mailing of its initial and follow-up requests for written verification, there is an issue of fact as to whether defendant's time to pay or deny that claim was tolled by virtue of the pending verification requests and, thus, whether defendant's denial of plaintiff's claim was timely. Thus, Plaintiff’s motion for summary judgment, on that basis, could not be granted.

 

Moreover, Plaintiff failed to demonstrate that it had requested a deposition for the insurer’s adjuster as the affidavit of service for the deposition notice.

 

PEIPER ON PROPERTY (and POTPOURRI)

Steven E. Peiper

[email protected]

 

Property

 

02/22/18       Cotillis v New York Central Mut. Fire Ins. Co.

Appellate Division, Third Department

Jury Verdict Finding Residency Affirmed Where Plaintiff was Only Temporarily Staying at Son’s House to Help Provide Childcare

In this appeal from a jury verdict, NY Central argues that the homeowner’s policy in question did not apply to a fire loss sustained at a premises owned by plaintiff.  At the time of the fire, plaintiff apparently was staying some nights at her son’s home giving care to her grandchild during the day while her son and daughter-in-law worked.  That said, the evidence adduced at trial confirmed that plaintiff often returned to her residence throughout the week to check mail and perform household chores, stayed at the house on the weekends, took meals there, did not change her mailing address to her son’s home, and planned to return to the house after her childcare duties subsided.  It was also stated at trial that all parties knew, and understood, plaintiff’s involvement with childcare at her son’s house was short-lived. 

 

On this Record, the Court concluded that the jury did not abuse its discretion in finding that plaintiff was a resident of the fire damaged premises.  The test, as noted by the Appellate Division, only “something more than temporary of physical presence,” but rather requires “some degree of permanency.”  On the trial record, the Appellate Division noted that plaintiff met that burden.

 

In addition to the threshold issue of residency, NY Central also appealed the jury’s return of $28,900 in demolition costs.  NY Central argued that $12,500 of the awarded costs arose from asbestos control which should have been excluded from the policy by operation of the pollution exclusion.  While the Appellate Division appeared to consider whether asbestos qualified as a pollutant, the argument was rejected where asbestos did not “cause the loss” at issue.  The pollution exclusion, as written, only applied to asbestos costs which were ordered by ordinance or law requiring the insured to “test for, monitor, clean up, remove, contain, treat, detoxify, or neutralize…pollutants.”

 

Lastly, NY Central attempted to reduce the cost of ALE by half.  While the adjuster testified that plaintiff was entitled to $19,800 in rental for the adjacent unit that was damaged in the fire, plaintiff also argued she was entitled to the same amount of rent for that portion of the premises where she resided.  In reasoning that plaintiff was not entitled to pay herself rent, the Court found that plaintiff was only entitled to the $19,800 she would have recovered from the rental unit side of the property.  

 

02/20/18       AXA Winterthur Ins. Co. v Transvalue, Inc.

Appellate Division, First Department

Too Late, Too Bad.  Carrier for Defaulting Armored Car Company Avoids Coverage Obligations for Jewelry Heist

Shades of Henry Hill in this one.  The loss at issue involved the theft of 5 boxes of gold jewelry that was being shipped through JFK Airport.  At the time of the loss, RCX, an armored car company, was transporting the gold for Transvalue, Inc.  Upon notice of the loss, Transvalue made a claim for coverage to its insurer Lloyds who paid the loss. Lloyds then sought subrogation against RCX, who, in turn defaulted.

 

AXA issued a marine cargo policy to RCX which purportedly covered, on an all risk basis, the property from the time it left the sender’s premises until it was delivered to the cosignee’s premises.  However, in order for coverage to be confirmed, RCX was required to report all shipments to its brokers at the end of the month.  Failure to report a shipment resulted in the loss of coverage for RCX. 

 

In moving for summary judgment, AXA produced an underwriter who established the policy only provided coverage for those shipments declared by RCX.  Within days of the theft, RCX notified its broker of the incident.  However, at that time, it specifically advised that it was not pursing coverage under the AXA policy because it had elected not to declare the shipment.  As RCX’s obligation to declare shipments was an affirmative responsibility, its failure to disclose the matter at hand resulted in the loss of coverage which otherwise may have been available. 

 

The Court noted, too, that the policy contained a one year suit limitation clause.  Here, Transvalue (Lloyds) was aware of the RCX policy with AXA as early as February of 2006.  While not identified in the decision, the instant lawsuit commenced Transvalue was outside the year window established by policy. 

 

02/13/18       Dae Assoc., LLC v AXA Art Ins. Corp.

Appellate Division, First Department

Sale of Stolen Art Does Not Qualify as Physical Loss or Damage
This case has its nexus in the sale of stolen artwork.  Apparently, Dae sold, or brokered sale, of art that had been previously stolen.  When the theft was uncovered, the rightful owners of the property reclaimed the art work.  That left Dae responsible  to repay the unsuspecting purchasers.  Dae sought coverage from AXA who denied the claim on the basis that there was no physical loss or damage.  At best, Dae had dealt in goods with a defective title, and such a damage was not within the contemplation of the scope of the policy. 

 

Further, even if an insurable interest existed in the artwork at some point, the fact that the art was returned to rightful owners prior to Dae’s contractual obligation to repay the other purchasers effectively destroyed any such interest at the time of the loss.

 

Finally, the Court dismissed plaintiff’s attempted claim for malpractice against its broker.  While the Court acknowledged plaintiff’s evidence of a long-standing relationship, the Court also pointed out that plaintiff failed to establish “circumstances” which were “so exceptional as to support the imposition of a fiduciary duty.”  In reaching this conclusion, the Court noted the absence of any specific allegations that plaintiff and its broker discussed types of policies, the limits to purchase or other optional coverage which might have been available.

 

Potpourri

 

02/21/18       Sacchetti-Virga v Bonilla

Appellate Division, Second Department

Motion to Dismiss Based Upon an Earlier Release is Denied Where Plaintiff Established the Possibility of Fraud

Plaintiff was injured, allegedly, in a motor vehicle collision that occurred on June 15, 2015.  After the accident, plaintiff allegedly executed a Release in favor of defendant Bonilla after receiving a $1,500 payment to compensate plaintiff for her injuries.  Plaintiff subsequently commenced the instant suit, and defendant moved to dismiss on the basis that plaintiff’s claim was barred due to the language of the Release. 

 

In reviewing the trial court’s denial of defendant’s motion, the Second Department first noted that a clear and unambiguous Release will be a “jural act” which will be binding on the parties.  The Court also noted that the defendant produced the affidavit of an insurance adjuster who confirmed the discussions with plaintiff, and who also produced a copy of the Release in question.  Nevertheless, the Second Department ruled that a plaintiff raised a question of fact in its argument that defendant, or her carrier, procured the Release via fraud.  As such, where it could not be determined that the Release was “fairly and knowingly made” it followed that defendant’s motion was properly denied.

 

WILEWICZ’S WIDE WORLD OF COVERAGE

Agnes A. Wilewicz

[email protected]

 

02/08/18       Incorporated Village of Old Westbury v. American Alternative

United States Court of Appeals, Second Circuit

Second Circuit Holds Definition of “Bodily Injury” Includes Mental Injuries, Provided they Result from the Bodily Injury, as per the Definition’s Terms

In this brief decision, which nevertheless cites numerous seminal cases, the Second Circuit looked at whether a policy’s definition of “bodily injury” included mental injury. The facts were scant, but it appears that the Village sought coverage under its policy with American Alternative in order to avoid absorbing the higher deductible under a different errors and omissions policy it had with ACE. At issue was this definition of “bodily injury” in the American Alternative policy: “ ‘Bodily injury’ means bodily injury, sickness or disease sustained by a person. This includes mental anguish, mental injury, shock, fright or death resulting from bodily injury, sickness or disease.”

 

Applying New York laws of construction and precepts of insurance law interpretation, the court found no ambiguity here. Agreeing with the lower court, the Second Circuit held that the second sentence of the definition would be superfluous if “bodily injury” included purely mental injuries that were not directly caused by an independent physical bodily injury. Namely, mental injuries were covered if they resulted from bodily injuries. Citing Court of Appeals precedent, the court differentiated this language with other types of definitions, noting that this definition limited coverage for mental injuries that flowed from physical ones, by its very terms. 

 

JEN’S GEMS

Jennifer A. Ehman

[email protected]

 

Nothing new this week.

 

BARNAS ON BAD FAITH

Brian D. Barnas

[email protected]

 

02/09/18       Flanders v. Jackson

Court of Appeals of Georgia

Insured’s Bankruptcy did not Discharge Potential Bad Faith Claim

On March 29, 2015, Flanders's 16-year-old son, Raper, was a passenger in Jackson's vehicle, when Jackson lost control while rounding a curve on a road in rural Cook County at an excessive speed.  After Jackson lost control, his vehicle careened off the road and flipped over, ejecting Raper from the backseat. As a result, Raper suffered fatal injuries.

 

At the time of the accident, Jackson and the vehicle he was driving were insured by his mother's automobile insurance policy with State Farm, which provided liability limits of $25,000 per person.  Prior to filing her lawsuit, Flanders made a policy-limits demand to State Farm, which the insurer ultimately rejected.  Flanders then filed a wrongful death action against Jackson in the Superior Court of Cook County.

 

After suit was filed, Jackson—who was 18 years old and living in his mother's home at the time of the accident—filed a Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the Middle District of Georgia, listing Flanders's lawsuit as a dischargeable debt.  The bankruptcy trustee's report of possible assets included a “Possible Bad Faith Claim,” which the trustee listed as having unknown value.  The bankruptcy filing stayed the wrongful death action.

 

Thereafter, the bankruptcy court entered a consent order modifying the automatic stay and permitting Flanders's wrongful death action to proceed.  The order specifically provided: “Neither this Order nor any act of the Movant taken pursuant to such order, shall prejudice, impair or affect in any way any rights relating to any bad faith claim or judgment against the Debtor's insurer(s) arising in connection with the claim that is the subject of the Superior Court Action.”  The bankruptcy court later entered an order of discharge as to Jackson's bankruptcy, which noted that the discharge would not stop creditors from collecting from anyone else who is also liable on the debt, such as an insurance company or a person who cosigned or guaranteed the loan.

 

Jackson then moved for summary judgment in the wrongful death action arguing that his bankruptcy discharge precluded any judgment in the wrongful death action above $25,000.  Flanders argued that Jackson's bankruptcy discharge did not preclude her from seeking a judgment in excess of the insurance policy limits as a precursor to establishing State Farm's liability for a potential bad-faith-failure-to-settle claim.

 

On appeal, the court agreed with Flanders, reversing the decision of the trial court, which had held that “any judgment rendered in this case shall be limited to $25,000.”  The court noted that the discharge of a debt in bankruptcy does not extinguish the debt itself, but merely releases the debtor from personal liability for the debt.  The debt still exists and can be collected from a third party that might be liable, such as an insurer or guarantor.  Indeed, the bankruptcy court’s order explicitly held that the discharge would not prohibit any rights to any bad faith claim against Jackson’s insurers.

 

The Court also noted that Flanders’ ability to seek an excess judgment should not be conflated with her ability to collect it from Jackson.  The court looked to Florida case law holding that a defendant’s discharge in bankruptcy cannot be a legal basis upon which to compel the plaintiff to accept the liability insurance policy limits.  The Florida Court’s rationale that “if such were the case, every insurance carrier would instruct its insured to declare bankruptcy in order to limit recovery to the policy limits” was persuasive.

 

EWELL’S UNIVERSE
John R. Ewell

[email protected]

 

02/05/18       JP Energy Marketing LLC v. Commerce & Industry Ins. Co.

Supreme Court of Oklahoma

Oklahoma Supreme Court Confirms Long-Standing Rule that Prevailing Party in Insurance Declaratory Judgment Action Is Entitled to Attorney Fees and Costs
Several landowners in Payne County, Oklahoma brought suit against JP Energy associated with a fire caused during work on a crude oil pipeline. JP Energy sought coverage under various insurance policies issued to it by Alterra America Insurance Company, Navigators Insurance Company and BITCO General Insurance Company. When the insurers denied coverage and refused to provide JP Energy with a defense in related litigation, JP Energy sued in Oklahoma state court seeking declaratory relief from the insurers.

JP Energy was ultimately successful and received an award of summary judgment in its favor on insurance coverage. The award was held up on appeal. JP Energy subsequently filed a motion seeking appeal related attorney’s fees. It maintained that since it was the prevailing party in the declaratory judgment action, it was entitled to attorney’s fees pursuant to Oklahoma statute, 36 O.S.2011 §3629.

That statute provides:

A. An insurer shall furnish, upon written request of any insured claiming to have a loss under an insurance contract issued by such insurer, forms of proof of loss for completion by such person, but such insurer shall not, by reason of the requirement so to furnish forms, have any responsibility for or with reference to the completion of such proof or the manner of any such completion or attempted completion.

B. It shall be the duty of the insurer, receiving a proof of loss, to submit a written offer of settlement or rejection of the claim to the insured within ninety (90) days of receipt of that proof of loss. Upon a judgment rendered to either party, costs and attorney fees shall be allowable to the prevailing party. For purposes of this section, the prevailing party is the insurer in those cases where judgment does not exceed written offer of settlement. In all other judgments the insured shall be the prevailing party. If the insured is the prevailing party, the court in rendering judgment shall add interest on the verdict at the rate of fifteen percent (15%) per year from the date the loss was payable pursuant to the provisions of the contract to the date of the verdict. This provision shall not apply to uninsured motorist coverage.

JP Energy provided proof of loss when it requested insurers provided it with a defense and indemnity from any future losses associated with the fire.

Before this case, the Oklahoma Supreme Court had not yet rendered a decision on the issue. However, federal courts sitting in Oklahoma had awarded attorney fees pursuant to 36 O.S.2011 § 3629. The Tenth Circuit first examined prevailing party attorney fees in An-Son Corporation v. Holland--America Insurance Co. and concluded the Oklahoma Supreme Court had historically given § 3629 a broad application. The An-Son Court concluded § 3629 was applicable to declaratory judgment actions.

Subsequently, in Stauth v. National Union Fire Ins. Co. of Pittsburgh, the Tenth Circuit held that “notification to Insurers of the existence of the [underlying lawsuits], followed by the institution of the declaratory judgment action when coverage was denied would be all that was necessary to satisfy a proof of loss requirement. By succeeding in the declaratory judgment action, the insureds were deemed the prevailing party under § 3629 and awarded attorney’s fees and costs.

The court found the federal court decisions persuasive. Accordingly, JP Energy's motion for an appeal-related attorney's fee was granted. The case was remanded to the trial court to determine the amount of an attorney's fee to be awarded.

 

ALTMAN’S ADMINISTRATIVE (AND LEGISLATIVE) AGENDA

Howard B. Altman

[email protected]

 

On March 1, 2017, New York’s first-in-the-nation cybersecurity rules went into effect.  The rules (which require insurance companies and other organizations under DFS to take steps to  protect against cybersecurity breaches) go into effect on a transitional basis.  You can view the key dates on DFS’s website here:

 

http://dfs.ny.gov/about/cybersecurity.htm

 

  • February 15, 2018 - Covered Entities are required to submit the first certification under 23 NYCRR 500.17(b) on or prior to this date.

 

  • March 1, 2018 - One year transitional period ends. Covered Entities are required to be in compliance with the requirements of sections 500.04(b), 500.05, 500.09, 500.12 and 500.14(b) of 23 NYCRR Part 500.

 

  • September 3, 2018 - Eighteen month transitional period ends. Covered Entities are required to be in compliance with the requirements of sections 500.06, 500.08, 500.13, 500.14(a) and 500.15 of 23 NYCRR Part 500.

 

  • March 1, 2019 - Two year transitional period ends. Covered Entities are required to be in compliance with the requirements of 23 NYCRR 500.11.

 

The first date, February 15, 2018, was the date upon which insurers were required to certify that they have appointed a compliance officer, a kind of cybersecurity czar, and certify that the company has:

 

  1. Cybersecurity Program has been implemented/maintained;

  2. Cybersecurity Policy has drafted and implemented;

  3. Chief Information Security Officer must be designated

  4. Access Privileges must be limited;

  5. Cybersecurity Personnel must be engaged, trained and updated;

  6. Incident Response Plan must be drafted and established.

     

    By the next big date, March 1, 2018, insurers will need to have completed its first periodic risk assessment under written policies and procedures and document its findings.

     

    Most of the regulations become effective September 3, 2018.   By that date, insurers must draft and implement policies and procedures limiting the retention of certain data, and providing for its secure disposal. In addition, insurers are required by September to:  

     

    -    Establish and document an audit trail able to recreate material financial transactions and to detect and respond to certain cybersecurity events;

  7.  

    -    Draft and implement policies for security of applications used within tech environment;

     

    -    Monitor activities of authorized users; and

  8.  

    -    Satisfy encryption requirements.

     

    The final transitional date is March 1, 2019, at which time the third party service provider requirements (as well as all other applicable provisions of the Regulation) will be fully operational.  Of course, compliance will be an ongoing effort. Insurers should be diligent in seeking to prevent cybersecurity breaches, and reporting any that occur.  Compliance will be expensive, but likely not as costly as the large-scale breaches that prompted the regulations.

     

    OFF THE MARK
    Brian F. Mark

    [email protected]

     

    02/13/18       Black & Veatch Corp. v. Aspen Insurance (UK) Ltd

    U.S. Court of Appeals for the Tenth Circuit
    US Court of Appeals, Predicting that the New York Court of Appeals Would  Decide that the Damages at Issue Constitute an “Occurrence” Under the CGL Policy, Vacated Trial Court’s Grant of Summary Judgment and Remanded the Case for Further Consideration

    This declaratory-judgment action arises out of a coverage dispute between plaintiff, Black & Veatch Corporation (“B&V”) and defendants Aspen Insurance (UK) Ltd. and Lloyd’s Syndicate 2003 (collectively, “Aspen”) regarding whether Aspen must reimburse B&V for the costs B&V incurred due to damaged equipment that its subcontractor constructed at power plants in Ohio and Indiana.  The district court held that Aspen need not pay B&V’s claim under its commercial general liability (“CGL”) insurance policy because B&V’s expenses arose from property damages that were not covered “occurrences” under the policy.  The district court concluded that as the only damages involved were to B&V’s own work product arising from its subcontractor’s faulty workmanship, the policy did not provide coverage.

    B&V is a global engineering, consulting, and construction company, whose work involves engineering, procurement, and construction contracts (“EPC”).  Under an EPC contract, B&V delivers services under a single contract and supervises the project.  Typically, B&V subcontracts most, if not all, of the actual procurement and construction work.  In 2005, B&V entered into EPC contracts with American Electric Power Service Corporation (“AEP”) to engineer, procure, and construct several jet bubbling reactors (“JBRs”), which eliminate contaminants from the exhaust emitted by coal-fired power plants.  For at least seven of these JBRs, which were located at four different power plants in Ohio and Indiana, B&V subcontracted the engineering and construction of the internal components to Midwest Towers, Inc. (“MTI”). Deficiencies in the components procured by MTI and constructed by MTI’s subcontractors caused internal components of the JBRs to deform, crack, and sometimes collapse.

     

    After work on three of the JBRs was completed, AEP alerted B&V to the property damage arising from MTI’s negligent construction.  AEP and B&V then entered into settlement agreements resolving their disputes.  Under the agreements, B&V was obligated to pay more than $225 million in costs associated with repairing and replacing the internal components of the seven JBRs.

     

    B&V had obtained several insurance policies to cover its work on the JBRs.  Zurich American Insurance Company (“Zurich”) provided the primary layer of coverage for up to $4 million for damage to completed work.  Aspen provided the first layer of coverage for claims exceeding the Zurich policy’s limits under a CGL policy.  The Aspen policy provided a limit up to $25 million per occurrence and $25 million in the aggregate.

     

    The Aspen policy agrees to pay on behalf of the insured those sums in excess of the liability limit provided by other insurance policies which the insured by reason of liability imposed by law, or assumed by the insured under contract prior to the “occurrence”, shall become legally obligated to pay as damages for “bodily injury” or “property damage” ... caused by an “occurrence…”.  The policy defines “occurrence” as an accident, including continuous or repeated exposure to substantially the same general harmful conditions, that results in “bodily Injury” or “property damage” that is not expected or not intended by the insured.  “Property damage” is defined as physical injury to tangible property of a third party, including all resulting loss of use of that property of a third party…  Third party is defined as any company, entity, or human being other than an insured or other than a subsidiary, owned or controlled company or entity of an insured.  As such, the Aspen policy provides coverage for damages arising from an “occurrence,” which includes an accident causing damage to the property of a third party. The Aspen policy does not define the term “accident.”

     

    The Aspen policy contains several relevant exclusions.  The first exclusion, known as the “Your Work” exclusion, or “Exclusion F,” excludes coverage for property damage to B&V’s own completed work.  “Your Work” is defined as work operations performed by you or on your behalf by a subcontractor.  The second exclusion, known as “Endorsement 4,” excludes coverage for property damage to the particular part of real property that B&V or its subcontractors were working on when the damage occurred.  This exclusion pertains only to ongoing, rather than completed, work.  The “Your Work” exclusion contains an exception (“subcontractor exception”), which provides that the “Your Work” exclusion does not apply if the damaged work or the work out of which the damage arises was performed on the insured’s behalf by a subcontractor.  Based on this exception, the Aspen policy does not cover property damage to B&V’s own completed work unless the damage arises from faulty construction performed by a subcontractor.

    B&V submitted claims to its liability insurers for a portion of the $225 million it cost to repair and replace the defective components.  After B&V recovered $3.5 million from Zurich, it sought excess recovery from Aspen.  Following Aspen’s denial of coverage, B&V sued Aspen in federal district court for breach of contract and for declaratory judgment as to its rights under the Aspen policy.  B&V sought coverage for approximately $72 million, a portion of the total loss.  The district court denied B&V’s motion for partial summary judgment, holding that damage arising from construction defects was not an “occurrence” under the Aspen policy unless the damage occurred to something other than B&V’s own work product.  As the damages at issue occurred only to B&V’s own work product, the JBRs, the court found they were not covered.  B&V appealed the district court’s determination.

     

    The US Court of Appeals for the Tenth Circuit examined the coverage issues under New York law and concluded that the district court erred in determining that a subcontractor’s faulty workmanship causing damage to an insured’s own work can never be an “occurrence.”  The Court held that the damages constituted an “occurrence” under the Aspen policy because they were accidental and harmed a third party’s property.  As such, the Court predicted that the New York Court of Appeals would decide that the damages at issue constituted an “occurrence” under the Aspen policy.  Accordingly, the Court vacated the district court’s summary judgment decision and remanded the case for further consideration.

     

    The Court noted that New York state court decisions have not resolved whether subcontractor damages can be deemed an “occurrence” under a CGL policy containing a subcontractor exception.  The district court and Aspen relied on the decision in George A. Fuller Co. v. United States Fidelity and Guaranty Co., 613 N.Y.S.2d 152, 153 (N.Y. App. Div. 1994), which concluded that the CGL policy at issue in that case was not intended to insure against faulty workmanship in the work product itself.  The policy at issue in Fuller excluded coverage for damages to an insured’s own work, whether the damage was caused by the contractor or a subcontractor.  As set forth above, the Aspen policy specifically states that it covers damages to an insured’s own work when a subcontractor, rather than the contractor itself, performed the faulty workmanship.  The Court of Appeals found the Fuller decision to be distinguishable from the facts at issue in this case.

     

    The Court began its analysis with an in depth review of the construction and history of CGL policies, including the “Your Work” and property damage exclusions.  Next, the Court examined whether a there was a covered “occurrence.”  Although the term “accident” is not defined under the Aspen policy, the Court noted that the New York Court of Appeals has explained that a CGL policy covers damages only when they were unexpected and unintentional.  The underlying record contains no evidence that B&V expected or intended MTI or any other subcontractor to cause damage or that B&V increased the likelihood of such damages through reckless cost-saving or other measures.

     

    The Aspen policy covers costs arising from property damage and defines “property damage” as physical injury to tangible property of a third party.  The term “third party” is defined as any company, entity, or human being other than an insured.  There was no dispute that the damage to the JBRs was physical injury to tangible property.  However, Aspen attempted to argue that because the policy names AEP as an additional insured, AEP cannot be a third party.  The Court rejected this argument for two reasons.  First, AEP is an additional insured only with respect to liability for property damage arising out of operations performed by the named Insured.  In this case, the work performed by a subcontractor, MTI, not by the named insured, B&V, caused the damages.  Second, the policy contains a “separation of insureds” condition, which provides that the policy applies separately to each insured against whom claim is made or suit is brought.  Its purpose is to preserve coverage for damage claims made by one insured against another.  Thus, when AEP claimed damages against B&V, the separation of insureds clause rendered AEP a third party with respect to its claims for property damage against B&V. 

     

    In light of the above, the Court of Appeals concluded that the property damage to the JBRs constituted an “occurrence” under the Aspen policy.  The Court noted that holding otherwise would violate the New York Court of Appeal’s rule against surplusage.  Interpreting “occurrence” to exclude the damages at issue in this matter would render several policy provisions meaningless in violation of New York contract interpretation rules. 

     

    After determining that the damages at issue constituted an “occurrence”, the Court examined the “Your Work” exclusion and the “subcontractor exception.”  The “Your Work” exclusion excludes coverage for property damage to the insured’s own completed work.  The exception to the “Your Work” exclusion states that the exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.  Interpreting “occurrence” to exclude the damages at issue would render these provisions superfluous as it would be redundant to say the policy does not cover property damage to B&V’s own work if the definition of “occurrence” preemptively precludes coverage for such damages in the first instance.  Similarly, there would be no reason for the policy to state that it covers damages to the insured’s work when the damaged work was performed by a subcontractor if the basic insuring agreement does not encompass such damages.   Accordingly, the Court found that the only way the “Your Work” exclusion and the “subcontractor exception” have any effect is if poor workmanship may be an occurrence under standard CGL policies.

     

    Interpreting “occurrence” to exclude the damages at issue would also render “Endorsement 4” surplusage.  As discussed above, “Endorsement 4” pertains to ongoing work and excludes coverage for property damage to “that particular part of real property” on which B&V or its subcontractors were actively working.  If faulty workmanship resulting in damage to B&V’s own work could never trigger coverage as an “occurrence,” this part of “Endorsement 4” would be meaningless.  The Court noted that there would be no reason for “Endorsement 4” to exclude coverage only for damage to a “particular part” of the JBRs if the Policy could never cover damage to the insured’s work in the first instance.

     

    In light of the foregoing discussion, the Court held that the property damages at issue were caused by an “occurrence,” as that term is defined in the Aspen policy, because (1) B&V neither intended nor expected that its subcontractor would perform faulty work, so the damages were accidental, (2) the damages involved physical harm to the property of a third party, and (3) a contrary conclusion would render various policy provisions meaningless in violation of New York’s rule against surplusage. 

     

    The Court analyzed several cases relied on by Aspen from New York’s intermediate appellate courts and a Second Circuit decision and held that the cases (1) did not involve or failed to analyze the “subcontractor exception,” (2) involved CGL policies that were outdated, (3) relied on cases that have since been overturned, (4) involved faulty work by a contractor rather than a subcontractor, or (5) contained some combination of the above.  The Court concluded that due to these distinguishing factors, New York’s Court of Appeals would decline to find no “occurrence” under the Aspen policy.  In accordance with its findings, the Court vacated the district court’s summary judgment decision and remanded the case for reconsideration in light of its opinion.

     

    WANDERING WATERS

Larry E. Waters
[email protected]

 

02/13/18       Ben Weitsman & Son Hartford Erie Insurance Company

United States District Court, Northern District of New York

Defendants’ Motion for Summary Judgment Granted because the Absolute Pollution Exclusion Barred Coverage for Plaintiffs’ Claim   
Hartford Fire Insurance Company and Hartford Casualty Insurance Company (collectively “Hartford”) issued Plaintiff, Ben Weitsman & Son of Scranton, LLC, a primary general liability policy and an umbrella policy with effective dates of June 1, 2011, to June 1, 2012.  Similarly, Hartford issued Plaintiffs, Upstate Shredding, LLC, and Ben Weitsman & Son, Inc., a primary general liability policy and an umbrella policy with effective dates of October 1, 2011, to October 1, 2012.  Hartford did not issue any policy of insurance to remaining Plaintiffs, Upstate Shredding Disc, Inc., and Upstate Shredding Disc, Inc.

 

In relevant part, each policy issued by Hartford contained an “Absolute Pollution Exclusion.”  The general liability policy provided no coverage for “bodily injury or property damage arising out of the actual, alleged or threatened discharge, dispersal, seepage migration, release or escape of pollutants . . . .”  The general liability policy defined “Pollutants” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste . . . .”  Similarly, the umbrella policy provided no coverage for any obligation . . . alleging actual or threatened injury or damage of any nature or kind to persons or property which arises out of or would not have occurred but for the pollution hazard .  . . .”

 

On or about February 3, 2012, Hartford received notice of a claim on behalf of Plaintiff, Ben Weitsman & Son of Scranton, LLC, stemming from an underlying lawsuit.  Prior to the lawsuit, Plaintiffs operated collectively and/or individually a scrap-metal recycling facility in Lackawanna County, Pennsylvania.  The underlying lawsuit alleged that on or about November 28, 2011, Ben Weitsman & Son of Scranton, LLC’s and others’ “negligent, reckless and careless operations in connection with a scrap-metal business at a worksite caused toxic chlorine gas to be released from a cylinder/tank/Bessel store on its property.”  As a result of these actions, it is alleged that “the release of the toxic chlorine gas caused a white cloud to form” and the individuals exposed to the chlorine gas suffered bodily injury. 

 

On May 16, 2012, Hartford denied coverage based upon to the “Absolute Pollution Exclusion” within the general liability policy and the umbrella policy.  Following this denial, on June 15, 2012, Hartford received an email from the insured’s broker with an incident report attached.  On August 15, 2012, Hartford advised Plaintiff, Ben Weitsman & Son of Scranton, LLC, that the incident report appeared to be consistent with its understanding that the underlying claim stemmed from the “escape of chlorine gas into the surrounding environment and exposure to a chlorine gas cloud.”  Following this correspondence, Hartford and Plaintiff engaged in several communications in which Hartford continued to disclaim coverage.  On May 11, 2016, Plaintiffs commenced the current declaratory action in New York State Supreme Court.  On October 17, 2016, Hartford removed to federal court.  The current decision concerns Hartford’s motion for summary judgment and Plaintiffs’ cross motion.

 

The court first dismissed Plaintiff, Upstate Shredding Disc., Inc.’s, claims.  The court noted it was undisputed Hartford did not issue any polices to Upstate Shredding Disc., Inc.  Further, the court found Upstate Shredding Disc., Inc. was not added as an additional insured on any insurance policy issued by Hartford.  As such, the court granted Hartford’s motion for summary judgment to dismiss Plaintiff, Upstate Shredding Disc., Inc., claims.

 

Next, the court acknowledged Plaintiffs’ and Hartford’s main arguments in their respective brief in chief and reply brief.  One of the main contentions was whether there was a choice of law issue.  Hartford argued no choice-of-law rules were required because Plaintiffs’ coverage claims were barred under both New York and Pennsylvania law.  In contrast, Plaintiffs argued New York’s choice-of-law principles require that New York law apply to the current dispute.  Ultimately, the court agreed with Hartford’s argument and found no conflict of law exists.  The court noted that although there are some differences between the law of New York and Pennsylvania, no actual conflict of law existed.  The reasoned that under both states’ law the outcome would be the same.  Further, the court found that Defendants have established the “Absolute Pollution Exclusion” is stated in clear and unmistakable language and apply to the environmental pollution that occurred on November 28, 2011. 

 

A second main contention was whether the “Absolute Pollution Exclusion” barred coverage to the claims alleged in the underlying lawsuit.  Hartford argued it has no duty to defend or indemnify Plaintiffs as the plain language of the absolute pollution exclusions bar coverage for the claims alleged.  In contrast, Plaintiffs argued Hartford could not sustain its declaimer based upon the absolute pollution exclusion because the “injuries alleged are not the result of environmental pollution and the application of the absolute pollution exclusion would be inconsistent with its general purpose and the absolute pollution exclusion is ambiguous with respect to its application to the [claims] alleged in the [underlying lawsuit].” 

 

The court rejected Plaintiffs’ argument.  In its analysis, the court recognized chlorine as a chemical.  In addition, the court found that under the circumstances . . . “a rational fact-finder could not dispute that such a discharge, migration, release, escape and/or of pollutants was alleged in the [underlying lawsuit].”  Further, the court rejected Plaintiff’s argument that the Fourth Department “held a nearly identical definition of pollutant to be per se ambiguous.”  The court noted that unlike in Roffers’ Joint Training, Apprentice and Educ. Comm. Of W. New York v. Gen. Accidental Ins. Co. of Am., the chlorine gas cloud in this matter constituted “pollution” under the insurance policy. 

 

In sum the court granted Defendant’s motion for summary judgment dismissing all of Plaintiffs’ claims. 

 

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

 

08/22/17       Kellogg v. Middlesex Mutual Assurance Company

Supreme Court of Connecticut

A Tale of Appraisal, Arbitration, and Appeal

The plaintiff Sally Kellogg owned an historic property in Norwalk, Connecticut insured through a special restoration policy issued by Middlesex Mutual.  A large tree fell onto the roof and chimney during a storm substantially damaging the home.  Eventually, the plaintiff invoked the policy’s appraisal provision which held that the loss amount would be determined through an unrestricted arbitration proceeding.  The policyholder’s appraiser and the insurance company’s appraiser were substantially far apart, and the neutral umpire performed extensive work in visiting the property, reviewing the submissions, even conducting hearings with witnesses and experts, and issued his decision which largely favored the insurance company.  The plaintiff filed a court application seeking to vacate the arbitration award.  Plaintiff was initially successful before the trial court, but that decision was reversed on appeal. 

 

The trial court actually held eight days of a “trial” delving into the merits of the claim and the application to vacate the arbitration award.  The trial court disagreed with the amount of the arbitration award, and further interpreted the policy that it was obvious error to calculate a depreciation factor into the award.  The trial court rendered a judgment in favor of the plaintiff, vacated the arbitration award, and remanded the matter back for a new arbitration hearing.  This decision was reversed on appeal.  The appellate court essentially held that the trial court failed to properly defer to the arbitration process and accept the analysis of the arbitration panel. 

 

The appellate court noted that judicial review of arbitration decisions is narrowly confined, and courts generally will not review the evidence considered by the arbitrators, nor will they review the award for errors of fact, or even for errors of law.  Every reasonable presumption is normally made in favor of the award, and in support of an arbitration panel’s actions and proceedings.  Therefore, a court generally may vacate an unrestricted arbitration award only under very limited conditions. 

 

The appellate court noted that the trial court was generally not empowered to simply disagree with or disregard the conclusions of an arbitration panel on the questions submitted for adjudication.  Although the trial court here clearly disagreed with the amount of the award, such a disagreement did not constitute a valid legal ground to overturn the award. 

 

Although the trial court criticized the arbitration panel for calculating a depreciation factor into the award, the appellate court held that the meaning and interpretation of the policy language was a matter for the arbitration panel to decide.  Moreover, the policy language clearly permitted calculating depreciation once repairs were made and the damaged property was replaced. 

 

The appellate court, therefore, concluded that the trial court improperly vacated the arbitration award, reversed the judgment, and remanded the case with a direction to render a judgment denying plaintiff’s application to vacate the arbitration award. 

 

The first lesson of this case is that, with respect to any policy, be sure to understand and follow the appraisal/arbitration process.  The process is generally included in the policy as a vehicle to expeditiously resolve first party property damage claims. 

 

This case also illustrates that there are limited grounds upon which a party may challenge or overturn an appraisal/arbitration award.  Although in this case, the insurance company generally prevailed, this standard may at times favor the policyholder, depending on the process and the award. 

 

In this case, the Property Casualty Insurers Association of America filed an amicus brief with the appellate court, which clearly helped convince the appellate court as to the adequacy of the appraisal process, and the interest of the insurance industry in the outcome of this case.  The appraisal/arbitration claim resolution process would be severely undermined if trial courts could simply conduct their own hearings, disagree with appraisal/arbitration findings, and essentially issue their own rulings on a de novo basis. 

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