Coverage Pointers - Volume XIX, No. 19

Volume XIX, No. 19 (No. 503)

Friday, March 9, 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

© 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. 


A salute to the empowerment of women on International Women’s Day.


Greetings from Naples, Florida.  I can get used to warm weather.  I’ve been down here for two weeks, having attended the FDCC Meeting in Amelia Island, then visiting friends in West Palm and now with my sister-in-law and brother-in-law on the west coast.  Sadly, all of this comes to an end on Saturday, when I trek back up to Western New York for the waning days of winter.  It was so good seeing so many friends at the FDCC meeting.  My wife was kind enough to organize a surprise birthday party for me, here in Naples, with good friends attending.  I’m a lucky man.  When you have your health and your loved ones nearby, you have about everything you need.


Carlson, revisited:


This is a special reminder to non-New York based insurers that write risks in New York.  PLEASE read this carefully and contact me, or any member of our coverage team, if you have any questions.


If you read anything in this cover note, besides, of course, the 100 Years Ago stories, please read this discussion.

I want to take a moment to remind readers about the November 20, 2017 New York Court of Appeals decision in Carlson v. American International Group, Inc.  We detailed the decision in our December 1, 2017 edition, and that analysis can be found here.


Readers who are unfamiliar with the decision ought to read it and understand its implications for out-of-state insurers, particularly those who are not fluent in New York coverage protocols.  Here’s the checklist.  Note that my summary below is a general discussion of the topic and you should see your favorite coverage lawyer to understand the nuances:


The headline is this:  If …


  • an insurer from any state or Canadian province

  • issues a liability policy to an insured and

  • delivers that policy anywhere in the world, and

  • if that insured has a substantial New York presence, and,

  • if that insured creates risks in New York State, and

  • if the insured is involved in a New York accident, and where bodily injury is sustained, then

  • New York coverage protocols must be followed or the insurer may lose the right to rely upon policy exclusions and breaches of policy condition as coverage defenses.


General New York coverage protocols are established in New York Insurance Law §3420(d) and require a liability insurer:


  • to issue a coverage position letter within 30 days from the date it has completed its active investigation (if possible, within 30 days of notice of the accident or occurrence), and

  • to carefully avoid usual reservation of rights language, and

  • to use, if necessary, complete or “partial” disclaimer language, and

  • to copy that letter to the injured party (or his/her counsel) and any other person, entity or party who might interpose a cross-claim against the insured.


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


Case of First Impression: The Fourth Circuit Creates an Exception to the “Murphy Rule”.


I thank my good friend and Providence, Rhode Island coverage lawyer extraordinaire, David Zizik from the Sulloway and Hollis firm for this contribution.  Contact David here. He discusses an important decision relating to timely removal of cases to federal court.  As many practitioners have been choosing, when they can, to move declaratory judgment actions from state to federal courts, the timeliness of that removal is important to appreciate.  If you want a copy of the decision click on the “contact” link above and Dave will be happy to send along.


On February 20, 2018, the United States Court of Appeals for the Fourth Circuit decided Elliott v. Am. States Ins. Co., __F.3d __, 2018 WL 943138 (4th Cir. Feb. 20, 2018).  Elliott deals with federal removal jurisdiction in insurance cases, and is one that you and your team should be aware of.  Elliott clarifies the law in the Fourth Circuit regarding removal of cases, and is now established law in that circuit. The decision is likely to be influential when the same issue is considered by trial and appellate judges in other federal jurisdictions, as well.


Basic Facts


Loretta T. Elliott was injured in an automobile accident on January 16, 2016.  The tortfeasor’s auto liability carrier paid its $30,000 policy limits. Ms. Elliott demanded that her automobile insurer, American States Insurance Company (American States), pay her the remaining $70,000 of underinsured motorist (UIM) coverage available to her after deducting the $30,000 paid by the tortfeasor’s carrier, as required under North Carolina law.  Ms. Elliott alleged that her carrier declined to make anything other than “token offers” to resolve the claim.  She was awarded $68,010.17 of UIM benefits under American States’ policy in binding arbitration.  American States paid the full amount of the award to Ms. Elliott.


After the arbitration, Ms. Elliott brought a lawsuit against American States alleging that its handling of her UIM claim violated North Carolina’s “Unfair Claim Settlement Practices” statute, N.C. Gen. Stat. sec. 58-63-15(11). American States removed the case to the United States District Court for the Middle District of North Carolina, at Greensboro. American States moved to dismiss on the grounds that it had not committed a violation of  the “Unfair Claim Settlement Practices” statute as a matter of law.  Ms. Elliott moved to remand the case to the state court in North Carolina. The federal court in Greensboro denied Ms. Elliott’s motion to remand and granted American States’ motion to dismiss.  Ms. Elliott appealed to the Fourth Circuit.


The Fourth Circuit creates an exception to the “Murphy Rule”


Several issues were decided by the Fourth Circuit in the Elliott appeal.  One was whether the insurer had engaged in unfair settlement practices (no, the Fourth Circuit decided).  Another was whether the federal district court erred in determining that the parties were diverse in light of the provisions of 28 U.S.C. sec. 1332(c)(1) that concerns “direct actions” against insurers (again, no, the Fourth Circuit decided).  A third issue – the one I’d like to call to your special attention here – concerned Ms. Elliott’s contention that American States’ removal was untimely and therefore the district court should have remanded the case to state court on that basis.  


Ms. Elliott contended that the 30-day period for removal was triggered when North Carolina’s Commissioner of Insurance (American States’ “statutory agent for service of process” under North Carolina law) was served, not when the UIM carrier actually received the complaint 12 days later.  The Fourth Circuit rejected Ms. Elliott’s argument and affirmed the district court’s decision that removal was timely.


The Fourth Circuit noted that “the parties do not cite and we have not found published authority in this circuit or any other addressing whether the 30-day period for filing notice of removal  in [28 U.S.C. sec. 1446(b)] is triggered by service on a statutory agent.” See the opinion (attached), at Page 9.  However, the Fourth Circuit pointed to its unpublished decision in Gordon v. Hartford Fire Insurance Company, where, “as here, the defendant filed notice of removal within 30 days of actually receiving the complaint, but not within 30 days of service on its statutory agent for service of process. 105 F. App’x 476, 480 (4th Cir. 2004).” Id.  The Fourth Circuit continued:


[W]e stated [in Gordon] that “the overwhelming majority of district courts to consider the question have held that ‘[w]hen service is effected on a statutory agent, rather than on an agent appointed by the defendant, the time to remove the action to federal court does not start to run until the defendant actually has received a copy of the complaint.” Id. (quoting Lilly v. CSX Transp., Inc., 186 F. Supp. 2d 672, 673 (S.D. W. Va. 2002)) (citations omitted). In so doing, we recognized a statutory agent exception to the Murphy Rule [**see “NOTE” below] and held that when a statutory agent is served, the time to remove the case runs from the defendant’s actual receipt of the complaint.  


See id. At 480–81.


**NOTE: The “Murphy Rule” is “the general rule … that the time for counting the days for filing notice of removal under [28 U.S.C. sec. 1446(b)] starts when the defendant is formally served with the summons and complaint making the defendant an official party to the action and requiring the defendant to appear.  Murphy Bros., Inc. v. Michetti Pipe Stringing, Inc., 526 U.S. 344, 347–48 (1999) (holding that defendant’s informal receipt of the complaint did not start the time for filing).”  


Thus based upon a so-called “exception to the Murphy rule,” the Fourth Circuit rejected Ms. Elliott’s contention that the UIM carrier’s removal was untimely.  The Fourth Circuit characterized its decision (at Page 10 of the opinion) as reflecting the “majority approach,” noting that Ms. Elliott “does not cite and we cannot find a single controlling case involving service on a statutory agent that supports her view.” 


Takeaways from the Elliott Decision:


1.   No other published federal Circuit Court opinion has decided the issue of whether the 30-day period for removal under 28 U.S.C. sec. 1446(b) is triggered when a “statutory agent for service of process” is served with process, or when the defendant insurer actually receives the complaint. 


2.   The so-called exception to the “Murphy Rule” set forth in the Elliott decision is now established law in the Fourth Circuit, and is likely to be persuasive authority to at least some trial and appellate court judges when the issue arises in other federal jurisdictions.  


3.   We can envision courts in other jurisdictions taking a contrary position to Elliott, however, because of the potential difficulty in establishing when the defendant insurer actually received the complaint following service upon a “statutory agent.” As well, other judges in other jurisdictions may take a different view of the role of the “statutory agent” vis-à-vis the insurer.  If another jurisdiction views the “statutory agent” as an “agent in fact” for the insurer, for example, the outcome in that jurisdiction could be different.


4.   Carriers should always give immediate and close consideration to the issue of potential removal from state to federal court, to ensure that the 30-day removal period under 28 U.S.C. sec. 1446(b) is complied with.  If there is any doubt about how a particular jurisdiction might decide the issue of when the 30-day period is triggered, and if removal is desirable in a particular case, the carrier should remove it immediately.  


Jen’s Gems:




Hope all is well.  I am a few days back from a nice long weekend in Florida visiting my parents.  My two girls loved a little break from the snow with Ella, my five year old, spending no less than three hours every day in the pool.  After that amount of time, she normally had even made a friend or two.  Ella is naturally chatty always leading with such questions as what is your name, how old are you, what is your favor color, can you guess how old I am, did you know that this is my sister, etc. 


My column is again a bit sparse this week.  Hopefully, things will pick up soon. 


At the end of the month, I am planning on being in Chicago for DRI’s Insurance Coverage and Claims Institute.  If you are attending as well, please stop me and say hello.


Until next issue…




Jennifer A. Ehman

[email protected]


Object:  Matrimony (100 years ago):


The Guthrie Daily Leader

Guthrie, Oklahoma

09 Mar 1918


            WILL YOU write to lonely young widow worth $35,000.  Object, matrimony.  Mary, Box 584, Los Angeles, Cal.


Editor’s Note:  $35,000 in1918 had the same buying power as $629,805.84 in 2018.


Tessa’s Tutelage:


Dear Readers,


In my continued effort to return to the basics, I think it is time to consider who is a “covered person” under no-fault law. The regulations provide coverage for owners, occupants and operators of a motor vehicle.  But there is more! Coverage is afforded to pedestrians as well.  Pedestrian matters are, at times, curious. For example, people who are either operating or riding in an ATV vehicle or a motorcycle are not afforded no-fault coverage; however, if a pedestrian is involved in a collision with an ATV or motorcycle, they are afforded no-fault coverage. Moreover, not only are pedestrians covered, so are bicyclists.  That quite a few people -- drivers, passengers, pedestrians, bicyclists. 


There are some ways to get you knocked off that list, however.  Insurance companies are permitted to exclude coverage for people that have intentionally injured themselves, persons operating a vehicle under the influence, persons committing a felony, passengers who know they are riding around in a stolen car, and persons who are injured while fleeing the police or racing their car.  I can only hope that we have a case covering one of these exclusions in the near future as the back story is probably pretty amusing.


If you have any questions or situations you would like some help on, please let us know!



Tessa R. Scott

[email protected]


Trumped Charges (Not Donald):


Democrat and Chronicle

Rochester, New York

09 Mar 1918





Charges Trumped Up, Says Watson A. Brown.




Fannie D. Brown, Who Sues for Separation,

Charges That Husband Has Given Only $1.50 Week for

Six Years in Support of Home


Charging that his wife, Fannie D. Brown, framed up a tale of alleged neglect and non-support, Watson A. Brown, president of the Pilot Ribbon and Carbon Company, will oppose his wife’s motion for counsel fees and alimony, pending the trial of a separation action she has instituted, when it comes up for argument in a special term of Supreme Court next Saturday.


Mrs. Brown filed her action on Wednesday.  She charges that although her husband has adequate means to support her and their children he had contributed $1.50 a week toward the maintenance of their home, No. 12 Edgewood Park, for the last six years, and that she has been entirely dependent on her friends and her son Arling for her support.  She claims through her counsel, Richard E. White, that although Brown spent his nights at the Edgewood home, had his breakfasts there, his contributions to its support were not sufficient to pay a woman who assisted her with the housework.


Ewell's Universe:


Dear Subscribers:


They sell boat insurance don’t they? Well, in Utah, you might not need it for a jet ski. “Jet Ski” happens to be a trademarked brand by Kawasaki. However, dictionaries, ordinances, and published cases typically use “jet ski” to describe any type of personal watercraft. Where a policy such as a homeowners policy by its plain terms excludes coverage for a “jet ski”, coverage may nonetheless be afforded. As the law stands in Utah, the term “jet ski” is ambiguous unless the watercraft is actually a “Jet Ski”-branded watercraft manufactured by Kawasaki.


That brings us to today’s bad faith case. It arises from the same case described above. On a lake in Utah, the insured was piloting a personal watercraft called an AquaTrax. You could Google it or trust me when I say it looks no different than a jet ski. At the time of the loss, the insured was towing his brother-in-law behind him who sustained injury. A claim was brought against the insured’s homeowners policy that contained an exclusion for “jet skis.”


The Utah Court of Appeals found the exclusion to be ambiguous. That court reasoned that the term could theoretically apply solely to the “Jet Ski” brand of personal watercraft. The carrier declined to appeal the “ambiguity” ruling to the Utah Supreme Court and immediately paid the claim. Before stipulations had been filed, the insured counterclaimed for his declaratory judgment costs, alleging bad faith.


The bad faith claim reached Utah’s high court. Whether the term “jet ski” was ambiguous was not challenged; however, the Utah Supreme Court subtly noted it questioned the correctness of the lower court. The sole issue before the Utah Supreme Court was whether the carrier acted in bad faith. The carrier relied on advice of outside counsel, had substantial evidence of the usage of the word “jet ski”, provided a defense to its insured in the underlying tort action, commenced a declaratory judgment action to seek the court’s advice on whether the exclusion applied, and immediately paid the claim after receiving a declaration that there was coverage. So how exactly was it alleged that the carrier acted in bad faith? By losing the coverage question at the appellate level. That was the insured’s claim. Upon review, Utah’s justices held that the carrier had a fairly debatable interpretation of the term “jet ski”, and therefore, the carrier had not acted in bad faith.


The decision also suggests that if the issue of whether “jet ski” is ambiguous reaches the Utah Supreme Court, a state-wide declaration that “jet ski” is unambiguous may be in order. For carriers in Utah who exclude coverage for personal watercraft commonly referred to as “jet skis”, it may be worth a shot particularly since the court has roadmap-ed the pertinent arguments. Of course, defining the term or perhaps a new draft of the exclusion are also options for Utah carriers.


‘Til Next Time,



John R. Ewell

[email protected]


What’s Old is New Again:


Evening Times-Republican

Marshalltown, Iowa

09 Mar 1918


Conjugal Felicity.


“My wife and I never argue, so we get along beautifully.”  “How do you manage It?”  “When anything goes wrong I always figure that it was my fault and she never disagrees with me.” – Boston Transcript,


Peiper’s Premonitions:


In the event you’ve forgotten, please read all the following to remind you that July 5, 2012 was a relatively benign day in history.  A quick check of the internet proves that only three important things happened that day.


  1. Enrique Pena Nieto was elected President of Mexico.  My research did not reveal if he has ever constructed any walls, or what he paid for them if he did.  He did marry a Mexican soap opera star, which, apparently, is interesting. 

  2. Also on this date, South Korea announced it would engage in “scientific” whaling operations aimed at Minke whales.  Your author has no idea what a Minke whale is, nor, I must confess, do I care to find out. 

  3. Finally, The Shard in London was opened on July 5, 2012.  The Shard, known by its distinctive shape, was Europe’s tallest building until surpassed by several Russian projects in the years that followed.


Oh, but how we beg to differ.  Notably, July 5, 2012 was also the date we reported on the curious decision Ural v Encompass Ins. Co.  A lot has changed in the last 5 ½ years.  Indeed, Russian has built the tallest building in Europe thee different times. 


What has not changed is the battle over discovery.  When we last left the Ural saga, the Appellate Division advised Encompass to provide a privilege log identifying the reasons why certain discovery was withheld.  In the nearly 2000 days that have passed since then, Encompass, apparently, still has not provided said document.  The Second Department, along with the trial judge, does not appear to be pleased. 


In the decision reviewed below, the Second Department advises that Encompass is directed to explain to the trial court why a privilege log has not been produced.  If it turns out that no such document was ever created, the Court states, unequivocally, that Encompass cannot avail itself of any privilege claimed to be asserted. 

This, as many know, has long been the rule in the Federal Courts.  Indeed, a failure to proffer a privilege log can lead to the loss of some of the most fundamental discovery protections found in law.  State courts have been somewhat more flexible.  This, perhaps, might be changing. 


The reality is simple; If you’re citing a privilege, prepare a privilege log.  It doesn’t take that long, it’s not difficult to prepare, and oh, by the way, it’s kind of the right way to do things.   When discovery disputes are in play, act quickly, act decisively, and act appropriately.  If you’re the party seeking relief, through a protective order, you’re more likely to ensure a proper Record, and likewise more likely to present the argument which highlights why a document is entitled to protection from disclosure. 


That’s enough law for now, but we surely encourage you to read the fully write in the following column.  For more practical advice, within the next 5 days you are likely to be bombarded with brackets for the annual NCAA basketball tournament.    The State University of New York at Buffalo Bulls are looking like a strong candidate for inclusion in this year’s field.  If so, we’d suggest you consider making them a first round upset special.  Look for them on the 12 or 13 seed line.  If not there, at least know that downtown Cleveland (home of MAC Conference Tournament) offered many a choice for Bulls Supporters to drown their sorrow. 


See you in the Sweet Sixteen!



Steven E. Peiper

[email protected]


Suicide to be a Luxury:


St. Louis Post-Dispatch

St. Louis, Missouri

09 Mar 1918




St. Louis people who are tired of life have less need now to kill themselves than ever before.  Homicides, carelessness and automobiles are obviating a great deal of self-destruction.  At the present rate suicide will become obsolete, or at least a mere luxury, within a few years.


Twenty-one fewer persons found it necessary to kill themselves last year than the year before, according to the report of Coroner Vitt.  The automobiles, with an increase of 14 to their credit, made up two-thirds of the deficit.  The murderers made up the balance, and had a surplus of 33.  If the suicides had only known it, 33 more of the 186 could have save themselves the trouble.


With the abundance of involuntary deaths provided by the automobiles, the criminally careless and killers in general, not to mention the fatal accidents, more or less preventable, voluntary departures are rather supererogatory, to say the least.  This truth seems to be finding lodgment in the minds of the despondent class who supply the suicide statistics.  In the absence of other assignable cause, the decrease from 207 in 1916 to 186 in 1917 may be attributed to a growing sense of the futility of self-destruction with so many involuntary agencies available.  


Hewitt’s Highlights: 


Dear Subscribers:


We may have gotten our last blast of winter yesterday on Long Island when the weather gave us a nasty snow and ice storm. Unfortunately, I got stuck in it when my car broke down. With the weather, the towing company could not get there for four hours, so I was stuck in my car for a good portion of the evening. Luckily, everything is okay and the car is being fixed as I write this. As far as serious injury cases, the First Department issued a decision finding no serious injury where plaintiff failed to satisfactorily explain a four-year cessation of treatment. In the other First Department case, the court ignored a feigned issue of fact, where a plaintiff’s affidavit contradicted his deposition testimony.


Until next time,


Robert Hewitt

[email protected]


Policewomen – Not Quite There, a Century Ago:


The New York Times

New York, New York

09 Mar 1918




Hedges on Policewomen, and Calls

Newspapers Unfair


Police Commissioner Enright was the guest of the New York City Woman Suffrage Party last night at the headquarters, 3 East Thirty-eighth Street.  The Commissioner, who came to tell inquiring suffragists concerning the Police Department, consented after his short address to answer questions, and was bombarded with such queries as:  “When are you going to appoint women policemen.” “Why are polling places in barber shops?”  “Can’t you do something to get rid of the park loungers?  They are so dirty and unsanitary.”


As to policewomen, the Commissioner refused to commit himself.  He did not doubt that they would be valuable if some plan could be worked out to give the department latitude in choosing the right sort of persons.  He said police matrons were utilized where women could give better service than men.


The Commissioner attacked the newspapers, which he said misstated his position as soon as he took office by asserting that New York would run “wide open,” and said he hoped public opinion would compel the papers to stop condemning public officials without a chance to show what they were going to do. 


Wilewicz’ Wide-World of Coverage:


Dear Readers,


As you know, last week I attended the American Bar Association’s Insurance Coverage Litigation Committee Seminar in Arizona. In a word – it was excellent. While the schedule was so jam-packed that I did not get more than half an hour to myself to enjoy the warm Tucson sun, the programming was some of the best I have attended in my career. Not only was there a panel of federal judges discussing presentation and litigation strategies (and talking about coverage!), there was a 30 year retrospective on how the industry has changed, as well as a number of prospective talks about cyber liability issues, the latest insurance products, and national trends. I would highly recommend the conference again – let me know if you’re interested in any more information about the committee or participating in the ABA in general.


This week in the Wide World, the Second Circuit addressed whether the intentional serving of alcohol created an issue under a CGL policy or whether there was coverage for an accident that arose from that furnishing of booze. In Philadelphia Indemnity v. Central Terminal, a claim arose following a Dyngus Day fundraiser in Buffalo. For those unfamiliar with Polish customs and traditions, Dyngus Day celebrates Easter Monday with activities that are akin to our April Fool’s Day. In Buffalo in particular, with its especially large Polish expat contingent, this is a major event in the town’s Spring calendar. (Indeed, the City calls itself, very seriously, the Dyngus Day Capital of the World.) In any event, the coverage issue at hand was whether the intentional serving of alcohol took the claim outside of coverage for accidents. In short, the Second Circuit said no. Where the “total situation could be found to constitute an accident”, just because one part of the chain of events was intentional did not mean that the resultant accident was intentional. Though there may not have been coverage for a direct intentional act, here the motor vehicle accident was just that, an accident – thus there was coverage for the event.


Stay warm out there everyone. Winter is almost over!



Agnes A. Wilewicz

[email protected]


Suffrage Just Coming into its Own – a Century Ago:


The New York Age

New York, New York 

09 Mar 1918




The question of suffrage and how to vote is engaging the attention of the Stillman Mothers’ Club, which meets every Wednesday evening.  At the meeting last week Mrs. Brewer of the Woman’s Suffrage Party spoke to the club and so aroused the interest of those present that sometime was spent in answering questions at the close of the discussion.  These meetings will be held all during the month of March on Wednesdays at 8:30 p.m.  Women of this and other neighborhoods are invited to come.


The class in violin has been resumed and both old and new pupils will be received on Saturday afternoons.  The house is prepared to give help to boys and girls through our industrial classes to better fit themselves for positions and will be glad to help them find work.  A social and dance is given every Monday night, open to the neighborhood folk and their friends.  Visitors to the house are always welcomed. 


Barnas on Bad Faith:


Hello again:


I just got back from a long weekend down in the Tampa area, and I am already missing the warm temperatures and sunshine.  Spring can’t get here fast enough.


Speaking of things on the horizon, DRI’s Insurance Coverage and Claims Institute is quickly approaching.  This year’s program will be held March 21-23 at Swissôtel Chicago.  It’s set to be an excellent program with great speakers from across the country and a number of interesting topics.  I’ll be attending.  If you are also attending please stop and say hello if you happen to see me during the program or one of the networking events.


Also coming up, we’re expecting a decision on a bad faith case from the New York Appellate Division, Fourth Department in the coming weeks that will be featured here.  In the meantime, take a look at the cases from Hawaii and Connecticut featured in this edition.


Enjoy your weekend.


Signing off,



Brian D. Barnas

[email protected]


Pitchers and Catchers are Reporting – 100 Years Ago:


Buffalo Morning Express and Illustrated Buffalo Express

Buffalo, New York

09 Mar 1918


Still on the Trail of the Sunday baseball Bill

Although the legislative committee handling the matter has decided against Sunday baseball legislation this year, the bill to establish its legality has been introduced and friends of the measure are pressing it hotly.


Many influential men have written letters advising the legislation from the viewpoint of public interest. 


Altman’s Administrative (and Legislative) Agenda:  


Greetings, Dear Readers.  


Well, there’s not much new here:  Nor’easters are giving us snow, ice, and “thundersnow” of all things, which means Spring is right around the corner! 


In administrative news, New York’s Senate and Assembly are considering bill that would require auto insurers to divulge financial statements. The Bill has been considered before and never passed, but lawmakers seem to think it’s time to try again.  They are also considering a bill to repeal the flex rating system.



Howard B. Altman

[email protected]


The Buck Stops at the Warden’s Office – a Century Ago:


Democrat and Chronicle

Rochester, New York

09 Mar 1918




Principal Keeper and Four

Guards Replaced.




Superintendent of Prisons Orders Immediate

Shake-up as Result of Second Escape of

Dangerous Criminal and Makes Investigation


Albany, March 8.—John Martin, the principal keeper, and four guards at Auburn prison have been suspended as a result of the escape last night of Reynolds Forsbrey, considered by prison officials as the most dangerous and desperate criminal in the state, it was announced to-night at the office of the State Prison Department.  W. J. Halpin, assistant principal keeper at Sing Sing prison was ordered to report at Auburn to-morrow to succeed Martin.  Later to-night it was reported that Forsbrey had been traced east of Syracuse. 


Off the Mark:


Dear Readers,


Well, the warmer weather ended quickly.  The recent nor’easters have been a rough reminder that winter is sticking around a bit longer.  Despite the cold, wet, and windy weather, my kids have been talking about spring.  They already have numerous plans as to what outside activities we can do.  Hopefully, spring isn’t too far off.


This edition discusses a construction defect case from the U.S. District Court for the District of Connecticut.  In Zamichiei v. CSAA Fire & Cas. Ins. Co., the plaintiff homeowners sued their insurance carrier seeking coverage for cracking in concrete in their basement.  The cracking was the result of progressive deterioration caused by a chemical reaction in defective concrete.  The Court analyzed the additional coverages provision of the homeowners policy related to collapse and held that the policy provision was not triggered because the cracking did not occur abruptly.


Until next time …



Brian F. Mark
[email protected]


Hope it is Still for Sale:


Middletown Times-Press

Middletown, New York

09 Mar 1918


$1,000 CASH buys seven-room cottage; city water, fruit; will rent for $12 per month; bargain.  See Wheeler, Center Street.


Wandering Waters:


I hope all of you have had a wonderful week.  I attended my first Cleveland Cavilers game last Saturday.  I can confirm Cleveland has the same team it had before the all-star break.  All jokes aside, it was amazing to see one of the greatest players of all time play in person.  I acknowledge there is a debate as to whether LeBron James is the greatest basketball player of all time.  Nevertheless, it is undisputed that he is the greatest player of his generation.


With that being said, welcome to another issue of Wandering Waters.  This week we have two New York federal cases, one from the Western District and one from the Northern District. I hope you enjoy.  



Larry E. Waters

[email protected]


Headlines from attached issue:


Dan D. Kohane
[email protected]


  • Passing References to Disparagement in Anti-trust Allegations do not Justify a Defense


Robert E.B. Hewitt III

[email protected]


  • Defendants Failed to Address All Serious Injuries Alleged in Bill of Particulars

  • Plaintiff Could Not Rely on Conclusory Expert Affidavit Where Expert Did not   even Attempt to Explain Away                                                                                                                                       

  • Plaintiff’s Claim Fails Where Plaintiff Had Failed to Seek Medical Treatment for Four Years



Tessa R. Scott

[email protected]




  • There was a Rational Basis for the Master Arbitrator’s Decision

  • There was a Rational Basis for the Master Arbitrator’s Decision Regarding the “Use or Operation” of a Bus’s Lifting Mechanism and Plaintiff’s Fall



Steven E. Peiper

[email protected]


  • No Privilege Log, No Privilege

  • When Indemnitor is On Notice of Settlement of Underlying Action, Settling Parties Indemnity Claim will Survive

  • Failure to Procure Insurance for an Otherwise Self-Insured Party Results in a Defense Obligation for Breaching Party



Agnes A. Wilewicz

[email protected]


  • Second Circuit Finds Coverage for Drunk Driving Accident Following Dyngus Day Event, where Intentional Serving of Alcohol to Driver did not Bring Claims Outside of Coverage Grant



Jennifer A. Ehman

[email protected]


  • Hopefully things will pick back up again soon…



Brian D. Barnas

[email protected]


  • Argument that Insurer Refused to Consider Facts that Could Impact Coverage Raised an Issue of Fact regarding Bad Faith

  • Extra-Contractual Claims Failed in the Absence of a Viable Breach of Contract Claim


John R. Ewell

[email protected]


  • Utah Supreme Courts Holds That Carrier’s Interpretation of Jet Ski Exclusion was Fair and Not Bad Faith



Howard B. Altman

[email protected]


  • Bill to Divulge Financial Statements


Brian F. Mark

[email protected]


  • US District Court Holds Additional Coverage for Collapse Portion of Homeowners Policy was not Triggered as Cracking in Basement Walls did not Occur Abruptly



Larry E. Waters
[email protected]


  • Insurer Required to Produce All Policy Forms Sought by Plaintiff as Plaintiff Established Its Burden in Proving the Existence of a Missing Policy by Secondary Evidence   


Earl K. Cantwell
[email protected]


  • Beware the Slippery Slope of Arbitration


That’s all for now.  See you in a couple of weeks.




Dan D. Kohane

Hurwitz & Fine, P.C.

1300 Liberty Building

Buffalo, NY 14202


Office:            716.849.8942

Mobile:           716.445.2258

Fax:                716.855.0874

E-Mail:            [email protected]  


Twitter:           @kohane



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

Dan D. Kohane
[email protected]



Agnes A. Wilewicz

[email protected]



Jennifer A. Ehman

[email protected]


Dan D. Kohane, Chair
[email protected]


Steven E. Peiper, Co-Chair

[email protected]

Michael F. Perley

Jennifer A. Ehman

Agnieszka A. Wilewicz

Edward B. Flink

Brian D. Barnas

Howard B. Altman

Brian F. Mark

John R. Ewell

Larry E. Waters

Diane F. Bosse

Joel R. Appelbaum


Steven E. Peiper, Team Leader
[email protected]


Michael F. Perley

Edward B. Flink

Brian D. Barnas

Howard B. Altman

James L. Maswick


Jennifer A. Ehman, Team Leader
[email protected]

Tessa R. Scott


Jody E. Briandi, Team Leader
[email protected]


Diane F. Bosse

Topical Index

Kohane’s Coverage Corner

Hewitt’s Highlights on Serious Injury

Tessa’s Tutelage
Peiper on Property and Potpourri

Wilewicz’s Wide World of Coverage

Jen’s Gems

Barnas on Bad Faith
Ewell’s Universe

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

Wandering Waters

Earl’s Pearls


Dan D. Kohane
[email protected]


03/01/18       Carfax, Inc. v. Illinois National Insurance Company

Appellate Division, First Department
Passing References to Disparagement in Anti-trust Allegations do not Justify a Defense

The policy issued to Carfax covered loss "resulting from a Claim alleging a Wrongful Act." "Wrongful Act" is defined as "any act, error, omission, ... misstatement or misleading statement by an Insured ... that results solely in ... defamation, libel, slander, product disparagement or trade libel or other tort related to disparagement or harm to character or reputation; including, without limitation, unfair competition" (emphasis added). The policy contains an exclusion from coverage for claims alleging antitrust violations.


The underlying lawsuit alleges, broadly, that plaintiff acquired and maintained its 90% market share of VHR (vehicle history report) sales by engaging in an anticompetitive scheme. Coverage was sought because the suit alleges disparagement. It relies on the following allegations: "By contractually committing these two websites to include hyperlinks to Carfax VHRs and to exclude VHRs of any other provider, Carfax has stigmatized any listing without such a link in the eyes of consumers who infer that the absence means that the car has a blemished history." "Carfax also utilizes its inflated revenues to disparage and falsely malign dealers in order to mislead consumers into believing its VHRs are necessary and accurate."


These passing references to disparagement do not allege a "Wrongful Act." They were made "only in the context of the anti-trust claims, i.e. , as legal jargon pertinent to anti-trust and not as a means of even arguably alleging a separate claim for libel, slander or product disparagement. In any event, coverage under the policy is barred by the antitrust exclusion, and the exceptions thereto are inapplicable.

Robert E.B. Hewitt III
[email protected]


03/07/18       Cervantes v. McDermott

Appellate Division, Second Department

Defendants Failed to Address All Serious Injuries Alleged in Bill of Particulars

On April 20, 2012, the plaintiff's infant, a pedestrian, was struck by a motor vehicle driven by the defendant. The plaintiff, on behalf of the infant, commenced the instant action against the defendants. The defendants moved for summary judgment on the grounds that they were not liable for the infant's injuries, and, alternatively, that the infant did not sustain a serious injury within the meaning of Insurance Law § 5102(d). The Appellate Court held defendants failed to meet their prima facie burden of showing that the infant did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendants failed to adequately address the plaintiff's claims, set forth in the bills of particulars, that the infant sustained a serious injury to the cervical region of his spine under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d). No facts were given.


03/01/18       Latus v. Ishtarq

Appellate Division, First Department

Plaintiff Could Not Rely on Conclusory Expert Affidavit Where Expert Did not   even Attempt to Explain Away                                                                                                                                      

Plaintiff alleges that he suffered serious injuries in the area of his left hip, namely tears of his left gluteus medius muscle and anterosuperior acetabular labrum, after being struck by defendants' taxi cab while he was crossing the street. Defendants met their initial burden by submitting both the affirmed report of an orthopedic surgeon and plaintiff's own hospital and medical records, and deposition testimony. Defendant's orthopedist found full range of motion and normal tests, and opined that plaintiff's injuries had resolved. Defendants' expert was not required to review plaintiff's medical records before forming her opinion.


Plaintiff's medical records demonstrated prima facie that plaintiff ceased treatment five months after the accident, after his doctor found that he had full range of motion and that his diagnosed conditions had resolved, and that plaintiff had preexisting conditions that may have contributed to his conditions, including corrected spina bifida and osteoarthritis. Defendants thus shifted the burden to plaintiff to explain his cessation of treatment and to address why his preexisting conditions were not the cause of his current reported symptoms.


In opposition, plaintiff submitted his own affidavit and the affirmation of his orthopedist. The scrivener's error concerning the date of the accident was minor and did not warrant rejecting plaintiff's submissions entirely. Nevertheless, when reviewed on the merits, plaintiff's evidence was insufficient to raise an issue of fact. Plaintiff's physician provided only a conclusory opinion that plaintiff's injuries were caused by the accident, without addressing the preexisting conditions documented in his own MRI, or explaining why plaintiff's current reported symptoms were not related to the preexisting conditions. Further, plaintiff's claim that he ceased treatment after no-fault benefits were discontinued is unpersuasive since he acknowledged that he had private insurance through his union. Further, his prompt return to work as a stage manager, and cessation of treatment five months after the accident, were consistent with his own doctor's conclusion that his "hip strain" had resolved, and demonstrate that the injuries were minor in nature.


Plaintiff's allegation in his bill of particulars that he was confined to bed for one week and to home for two weeks, and his testimony that he was confined to bed and home for one week before returning to work, defeat his 90-180 day claim.


03/01/18       Vila v. Foxglove Taxi Corp.

Appellate Division, First Department

Plaintiff’s Claim Fails Where Plaintiff Had Failed to Seek Medical Treatment for Four Years

Plaintiff alleges that he sustained various injuries, including to his lumbar spine and shoulder, when he was struck by defendant's taxi while riding his bike. Defendant met its prima facie burden through expert medical affidavits finding full range of motion and normal test results, and a radiologist's opinion that plaintiff's MRIs were either normal or showed degenerative changes consistent with his age. Defendant also noted that plaintiff's claim of serious injury was belied by his cessation of treatment for about four years, which he was required to explain. In opposition, plaintiff submitted an affidavit that contradicted his testimony concerning the reason for his cessation of medical treatment. At his deposition, plaintiff testified that he terminated treatment after about six months because he didn't "like doctors," and, at the time of the accident, he had private insurance through his employment, and was covered by Medicaid thereafter. In his affidavit, however, plaintiff averred that he ceased treatment after three months because no-fault benefits were discontinued, and he could no longer afford to pay on his own. He further stated that an unnamed physician informed him that any further treatments would only be "palliative in nature." A party's affidavit that contradicts his prior sworn testimony "creates only a feigned issue of fact, and is insufficient to defeat a properly supported motion for summary judgment". Moreover, plaintiff's excuse of inability to pay due to lack of no-fault insurance "makes no sense" in this case, since he testified that he had other insurance. The unexplained four-year period of time in which plaintiff failed to seek treatment for any accident-related injuries, also renders the opinion of his medical expert, who provided a report in opposition to the motion, speculative as to the permanency, significance, and causation of the claimed injuries.



Tessa R. Scott

[email protected]




02/22/18       Allstate Ins. Co. v Longevity Med. Supply, Inc

Appellate Term, Second Department

There was a Rational Basis for the Master Arbitrator’s Decision

The insurer failed to demonstrate a ground pursuant to CPLR 7511 to vacate the master arbitrator's award. That is because there was a rational basis for the master arbitrator's finding that the medical provider's proof was sufficient to establish that it responded to the verification demands sent by petitioner.  Additionally, the master arbitrator had a rational basis for determining that the insurer was unable to rebut the presumption of receipt of the verification, or show that it timely acted upon receipt by paying or denying the claim, or seeking further verification. The master arbitrator's legal analysis of the arbitrator's determination was well within the scope of her authority to review and correct an error of law made by the arbitrator.


02/22/18       New York City Tr. Auth. v Physical Medicine & Rehab of NYC

Appellate Division, First Department

There was a Rational Basis for the Master Arbitrator’s Decision Regarding the “Use or Operation” of a Bus’s Lifting Mechanism and Plaintiff’s Fall

Petitioner's application to vacate the award pursuant to CPLR 7511, or for de novo review was properly denied because the award "had evidentiary support, a rational basis, and was not arbitrary and capricious."

The First Department was unconvinced by the petitioner’s reliance on a case  called Cividanes, where the Court of Appeals found that benefits were not available because the plaintiff's injury did not arise out of the "use or operation of a motor vehicle" (Insurance Law § 5104[a]). In that case, the plaintiff exited a stopped bus and fell when she stepped into a hole in the street. The Court determined that the bus was neither a "proximate cause" nor an "instrumentality" that produced her injury.

Here, the bus driver activated the lift device of the bus to assist Valerie Mathis when she boarded the bus. Subsequently, when she was exiting the bus, the bus driver refused to activate the lift device or to lower the bus. As a result, she was forced to place her walker out in the street, and then fell over while attempting to exit the bus.


Thus, the arbitrator and master arbitrator rationally found that the bus was a "proximate cause" of the injury and that the accident involved the "use or operation" of a motor vehicle.



Steven E. Peiper

[email protected]


03/08/18       Ural v. Encompass Ins. Co. of Am.

Appellate Division, Second Department

No Privilege Log, No Privilege

Some decisions have a way of turning up again, and again, and, sometimes, again.  Such is the case with this one. You may recall in our July 5, 2012 issue, we reported:


07/05/12       Ural v. Encompass Ins. Co. of Am.
Appellate Division, Second Department
GBL 349 Survives Motion to Dismiss, but Unchecked, Scattershot Discovery Demands are Stricken
The instant litigation traces its origins to a burst pipe at plaintiff’s residence which caused water damage.  Plaintiff placed a claim with his homeowners’ insurance carrier, Encompass.  After the passage of approximately one year, plaintiff commenced the instant action alleging, among other things, breach of contract, violation of Insurance Law 2601, violation of General Business Law 349, negligent infliction of emotional distress and intentional infliction of emotional distress. 


Encompass moved to dismiss plaintiff’s extra-contractual claims.  The first portion of Encompass’ motion was focused on the alleged violation of the General Business Law. 


Upon review of the arguments and evidence presented, Second Department ruled that plaintiff had sufficiently pled a bad faith lawsuit.  The court focused particular attention on the fact that plaintiff’s Complaint alleged injury as a result of a consumer-oriented deceptive trade practice that was part of a general policy adopted by Encompass to delay and discourage policy holders into ultimately accepting inadequate settlements.  The Court did not rule that the claim was, in fact, a violation of GBL 349.  Rather, the Court only noted that, when taken in a light most favorable to the non-moving party, a sufficient cause of action for this stage of the litigation had been presented.


Although this is not overly surprising, Appellate Division’s reference that a violation of GBL 349 could lead to an award of punitive damages is troubling.   In referencing its previous decision in Willner v Allstate Ins. Co., the Court noted that punitive damages can be awarded where it is established the conduct “may be considered to be ‘so flagrant as to transcend mere carelessness'.”  For those curious, we would direct you to our write up of Willner from January of 2010 (see /news/coverage-pointers-volume-xi-no-15)


The Court also refused to dismiss plaintiff’s claim under Insurance Law 2601.  As many of you know, Insurance 2601, entitled Unfair Claims Settlement Practices, provides certain monetary penalties for violations of any of several enumerated requirements.  Importantly, however, New York courts have uniformly rejected the notion that a violation of Insurance Law 2601 can give rise to a private cause of action.  Recognizing this, the First Department simply noted that the alleged Insurance Law 2601 claim is not a direct claim, per se, but rather bolsters plaintiff breach of contract claim. 


In addition, as with any extra-contractual claim, this case also created a sizable discovery dispute.  The ruling of the Court is consistent with several other discovery decisions that have come down in recent years.  For starters, the claims file is discoverable in an insurance dispute.  If a carrier seeks to withhold any information, it must present evidence (in admissible form) which details the specific items withheld, along with a specific description as to what, why and how a privilege attaches to exempt their disclosure.  Failure to identify the withheld items in a privilege log may well lead to the loss of the objections. 


On the other hand, shotgun discovery demands that are overly broad may be voided in their entirety.  The Court was clear that it will not play the role of arbitrator of a discovery dispute by picking through massive discovery demands to parse those demands which are appropriate and those which are overly broad and/or impermissibly vague.  The preferred method of addressing this type of discovery demand is to strike the entire demand, and force the party seeking discovery to write a more tailored request. 

Using these premises as guidelines, the Court ruled that the claims file was discoverable less any items withheld on the basis of a privilege.  Those items were to be provided for an in camera inspection with the Trial Court to determine whether the asserted privilege applied.  With regard to other demands, related to “trade secrets” the Court ruled that the demands were overly broad and lacking in specificity.  Accordingly, all other demands, outside of the claims file, were voided by the Court.


Nearly five years later, we’re back, this time with new and improved discovery arguments.  The Second Department’s decision in 2012 required that Encompass provide certain documentation, or provide a privilege log detailing what it was withholding and why.  Encompass never provided a privilege log; like ever. 


Encompass also refused to provide additional discovery responses which were requested after plaintiff conducted depositions of Encompass employees.  Instead, Encompass moved for a protective order seeking a ruling that the information demanded was palpably improper as previously decided in the 2012 decision.  Plaintiff responded by moving to strike Encompass’ pleading.


The trial court denied the motion for a protective order, and granted plaintiff’s motion to strike on a conditional basis.  Essentially, unless Encompass responded to the new discovery demands and produced a privilege log, their Answer would be stricken and a default judgment entered. 


On appeal, the Second Department ruled that the trial court providently exercised its discretion in denying Encompass’ protective order application.  Simply stated, the court held that the demands were sufficiently tailored to the deposition testimony and limited in time, as well as scope and sought information material and necessary to the action. 


With regard to the plaintiff’s motion, the Court was reluctant to strike Encompass’ Answer.  The holding instructed that Encompass must explain why it failed to produce a privilege log – if one existed.  If no privilege log was prepared, the Court ruled that Encompass will have waived any privilege asserted.  With regard to the new discovery sought after the Encompass depositions, the Court ruled that plaintiff had failed to establish Encompass’ refusal to produce discovery was willful and contumacious.  A sanction as serious as striking a pleading should only be entertained if Encompass continues to refuse to produce disclosure.


03/01/18       Zurich Am. Ins. Co. v. Tower Nat’l Ins. Co.

Appellate Division, First Department

When Indemnitor is On Notice of Settlement of Underlying Action, Settling Parties Indemnity Claim will Survive

Plaintiff, Don Brown, was injured in the course of his employment for Port Richmond.  Port Richmond was retained by General Contractor, Aragon, to install glass doors and partitions at building site owned by SLG and leased by General American.  Plaintiff commenced a personal injury action against SLG and Aragon which sought recovery under the New York State Labor Law. 


Aragon and SLG commenced third-party actions against General American and Port Richmond which sought contractual indemnity pursuant to the accompanying trade contracts.  At the conclusion of trial, the jury assessed damages against Aragon in the amount of approximately $1,000,000.  Mr. Brown was assessed approximately 50% comparative fault.  After the trial, the court set aside the verdict against Aragon, and Mr. Brown commenced an appeal.  During which time, Aragon, through its insurer Zurich, settled the case.


Zurich then commenced a plenary action against Port Richmond and Port Richmond’s carrier.  Zurich’s theories against Port Richmond were failure to procure insurance and, again, asserting a claim for contractual indemnity.  Port Richmond opposed on the basis that Aragon settled a case where it was not liable.  Essentially, they argued that because they did not participate in the settlement (nor were on notice of it), Aragon had to establish it would have been eventually been responsible for the damages.  However, the Court noted that where the party from whom indemnification is sought is on notice of the settlement, he/she/it is bound by any good faith settlement made by their indemnitee. 


Here, the clause at issue clearly applies to provide contractual indemnification for the loss at hand.  Further, it was also clear that Port Richmond was on notice of the action commenced by Mr. Brown, as well as its settlement.  Under such circumstances, it follows that Aragon was not required to establish its liability to the plaintiff. 


Zurich’s failure to procure insurance claim was affirmed on a question of fact.  Port Richmond moved to dismiss the claim on the basis that it was only required to provide insurance for the “owner,” and General American was a lessee of the premises.  In finding a question of fact, the Appellate Division noted that General American was identified as an “owner” in the prime contract.  With respect to Aragon’s claim for breach of failure to procure insurance, Port Richmond actually contends that Aragon was covered under the policy. Again, on this Record, the Court was not clear as to what coverage Aragon may, or may not, have been entitled to receive.


02/27/18       City of New York v. Caitlin Specialty Ins. Co.

Appellate Division, First Department

Failure to Procure Insurance for an Otherwise Self-Insured Party Results in a Defense Obligation for Breaching Party

The City of New York was sued for damages when a non-party plaintiff slipped and fell on snow and ice at the fire department Staten Island Central Office.  Plaintiff apparently fell on a temporary plywood walkway that was also warped and unsecured in addition to being slippery. 


The City, in turn, sought recovery from Security Fence, in part, due to Security Fence’s failure to procure insurance.  Security Fence served a snow removal contractor for the City, and it is undisputed that the incident fell within the exact scope of coverage that it was supposed to procure on behalf of the City.  Because the allegations of the Complaint triggered coverage, had it been purchased, the Court ruled that Security Fence had an obligation to reimburse the City all applicable defense costs. 


However, indemnity obligations are determined by the “actual basis” for the City’s liability.  The pleadings are irrelevant toward establishing a duty to indemnify.  As it was unclear where the fall was caused by snow and ice, or some other defective condition with the plywood, summary judgment on Security Fence’s indemnity obligations was denied on a question of fact.



Agnes A. Wilewicz

[email protected]


02/21/18       Philadelphia Indemnity v. Central Terminal Restoration Corp.

United States Court of Appeals, Second Circuit

Second Circuit Finds Coverage for Drunk Driving Accident Following Dyngus Day Event, where Intentional Serving of Alcohol to Driver did not Bring Claims Outside of Coverage Grant

In 2013, the Central Terminal Restoration Corporation (CTRC) held a Dyngus Day event in Buffalo. (For those who are not familiar, this is a Polish holiday that is celebrated on Easter Monday and essentially like a kind of April Fool’s Day.) At the fundraising event, CTRC allegedly served alcohol to Thomas Gilray. He then drove while intoxicated and struck two pedestrians, William Sheehan and Michael Serrano. The two men filed separate personal injury actions against CTRC and others. In large part, their claims stemmed from New York’s Dram Shop laws, which govern aspects of serving and selling alcoholic beverages, and alleged that the CTRC had served Gilray alcohol despite him being visibly intoxicated.


CTRC had two insurance policies from Philadelphia Indemnity that were implicated in this case, and the insured sought coverage under both. First, their primary policy provided a commercial general liability part as well as a liquor liability part. Their excess policy above that followed form. The CGL part provided for coverage for “bodily injury” resulting from an “occurrence” (i.e. an accident). The CGL part also included a fundraising endorsement, for which the insured paid a separate premium, as well as a liquor liability part, for which they also paid a separate premium. The liquor liability part provided coverage for “injury” claims caused by “reason of the selling, serving of furnishing of any alcoholic beverage”.


The carrier disclaimed coverage, arguing that the Gilray accident was not a covered “occurrence” because the claims arose from CTRC’s intentional non-accidental serving of alcohol. However, the Second Circuit did not buy that (nor did the trial court before it). Rather, under New York law, though an intentional act may ultimately cause damages, those damages may be considered “accidental” if the “total situation could be found to constitute an accident”. “In general, what makes injuries or damages expected or intended rather than accidental are the knowledge and intent of the insured.” Here, the accident was the vehicle collision, which was indeed indisputably an accident. The fact that it was the unintended result of an intentional act did not change that. The intentional sale was not the operative event giving rise to the legal claims at issue (under the Dram Shop laws), as that statute only requires an unlawful sale. In the end, a reading of the plain language of the coverage for “bodily injury arising out of” the Dyngus Day event, necessarily results in a finding of coverage for the claims.



Jennifer A. Ehman

[email protected]


Hopefully things will pick back up again soon…



Brian D. Barnas

[email protected]


03/05/18       State Farm Fire & Cas. Company v. Saarman Construction, LTD.
United States District Court, District of Hawaii

Argument that Insurer Refused to Consider Facts that Could Impact Coverage Raised an Issue of Fact regarding Bad Faith

Saarman was the general contractor on a golf renovation project in Waimea, Hawaii.  Ocean Tile was a tile subcontractor.  On September 16, 2015, Deponte, an Ocean Tile employee, fell while working on scaffolding and died of his injuries several hours later.  The subcontract obligated Ocean Tile to indemnify, defend, and hold Saarman harmless.


Deponte’s estate and surviving family commenced an action against Saarman.  Saarman brought a third-party action against Ocean Tile.  Ocean Tile tendered the defense of the underlying and third-party complaint to its insurer State Farm.  State Farm undertook Ocean Tile’s defense subject to a reservation of rights.  Saarman was listed as an additional insured under the policy for ongoing and completed operations.


State Farm filed a declaratory judgment action arguing that it had no obligation to indemnify Saarman and Ocean Tile.  Saarman counterclaimed alleging that State Farm had a duty to indemnify it and that State Farm breached its duty of good faith and fair dealing by defending to defend it without reservation. 


The Court concluded the employer’s liability exclusion in the policy did not apply because the subcontract between Saarman and Ocean Tile qualified as an “insured contract.”  Therefore, the exception to the employer’s liability exclusion applied.  The court also concluded that there was an issue of fact regarding Saarman’s entitlement to additional insured coverage under the policy.


Turning to Saarman’s bad faith counterclaim, the court denied State Farm’s motion for summary judgment.  Saarman alleged that State Farm breached its duty of good faith by “refusing to defend Saarman ... without reservation and/or indemnify Saarman ... for the claims made against it in the Underlying Lawsuit,” by “misrepresenting the benefits, conditions or terms of coverage, and/or by other actions inconsistent with its duties to protect the interests of its insureds and to place its interests ahead of the interests of its insureds, including Saarman.  Although State Farm appropriately defended Saarman subject to a reservation of rights, Saarman argued that State Farm refused to look beyond the pleadings and consider facts that could impact indemnity.  Accordingly, the court concluded that there was an issue of fact on bad faith.


03/05/18       Hurlburt v. Massachusetts Homeland Insurance Company

United States District Court, District of Connecticut

Extra-Contractual Claims Failed in the Absence of a Viable Breach of Contract Claim

The Hurlburts had a homeowner’s insurance policy with Massachusetts Homeland Insurance Company.  Cracking was discovered in the home’s concrete foundation.  An engineer concluded that the foundation walls needed to be replaced.  The Hurlberts made a claim under their policy, which was denied.


The Hurlburts brought a lawsuit against their insurer alleging breach of contract, breach of the duty of good faith and fair dealing, and violation of the Connecticut Unfair Trade Practices Act and the Connecticut Unfair Insurance Practices Act.


First the court concluded that the cracking and deteriorating foundation did not fall under the coverage grant of the policy because it was not “sudden and accidental direct physical loss to covered property involving collapse of a building or any part of a building.”  Indeed, there was no loss that a sudden or accidental loss had occurred.  Similarly, the policy’s collapse coverage did not apply, as the home had not yet fallen down or caved in.  The policy exclusions for cracking, deterioration, and latent defect also applied to bar coverage.


The claim for violation of the duty of good faith and fair dealing was dismissed as the insureds did not have a viable breach of contract claim.  For the same reason, the claims for violation of the Connecticut Unfair Trade Practices Act and the Connecticut Unfair Insurance Practices Act were also dismissed.


John R. Ewell

[email protected]


02/28/18       Fire Insurance Exchange v. Robert Allen Oltmanns

Supreme Court of Utah

Utah Supreme Courts Holds That Carrier’s Interpretation of Jet Ski Exclusion was Fair and Not Bad Faith

Mr. Oltmanns was piloting a Honda F-12 AquaTrax personal watercraft that was towing his brother-in-law, Brady Blackner. Mr. Blackner sustained injuries and filed a lawsuit against Mr. Oltmanns. Mr. Oltmanns tendered the defense to Fire Insurance Exchange under his homeowner’s insurance policy. Fire Insurance conducted an in-house review of Mr. Oltmanns’s claim and then submitted his claim to outside counsel for a coverage opinion. Whether the accident was deemed covered was uncertain because of the following exclusion in its liability coverage:

We do not cover bodily injury [that] . . . .

7. results from the ownership, maintenance, use, loading or unloading of:


c. jet skis and jet sleds or



Fire Insurance’s outside counsel advised Fire Insurance that he believed there was a high probability that the incident would not be covered, but that Fire Insurance should authorize him to file a declaratory judgment action seeking a determination of its responsibility to Mr. Oltmanns under the policy.


Fire Insurance filed the action and then moved for summary judgment. The district court ruled in favor of Fire Insurance, finding that the exclusion precluded coverage. Mr. Oltmanns appealed and the court of appeals reversed, holding that the term “jet ski” as used in the exclusion was ambiguous and construed the contract against the insurer in favor of the insured. Fire Insurance then settled with Mr. Blackner for the policy limit of $300,000 and paid Mr. Oltmanns’s attorney fees and expenses for his defense of that claim.


Fire Insurance did not pay for Mr. Oltmanns’s costs of defending the declaratory judgment action. Mr. Oltmanns then filed a counterclaim against Fire Insurance in the still open declaratory judgment action seeking damages for breach of the implied covenant of good faith and fair dealing, including his attorney fees for prosecuting this coverage action and the successful appeal” as well as “damages for the severe emotional distress that was caused by the coverage denial and his self-defense of a significant personal injury claim.” Fire Insurance once again moved for summary judgment and for a motion to dismiss. The district court granted summary judgment finding that Fire Insurance’s actions were reasonable because the coverage issue was “fairly debatable.” Fire Insurance then withdrew its motion to dismiss. Mr. Oltmanns appealed and the court of appeals affirmed the district court, holding that “when an insurance company proceeds in a reasonable way to resolve a difficult coverage question, its eventual loss at the appellate level does not foreclose a determination that an issue of interpretation was fairly debatable, as was the case here.”


In both his trial- and appellate-level briefing, Mr. Oltmanns advanced the same basic argument: because it was not “fairly debatable” whether the term “jet ski” encompassed a Honda F-12 Aquatrax, Fire Insurance breached its duties. The court disagreed, finding that it was more than fair for Fire Insurance to argue that its policy’s “jet ski” exclusion applied to bodily injuries resulting from the use of an Aquatrax. In litigating whether the “jet ski” exclusion encompassed Aquatrax accidents, Fire Insurance put forward substantial usage evidence suggesting that the term “jet ski” is a “genericized term for any type of personal watercraft.” The Court noted that “jet ski” is frequently treated as a generic term in dictionaries, ordinances, and court cases. The court found that the scope of the term “jet ski” may be fairly debatable.


Since the scope of “jet ski” was fairly debatable, the Utah Supreme Court affirmed that the carrier had not acted in bad faith.



Howard B. Altman

[email protected]


New York’s Senate and Assembly are considering a bill, S5510/A1228, that would require auto insurers to divulge financial statements, including data on premiums received, investment income, and profit from the sale of assets, as well as expenses including salaries, commissions, consulting fees, legal expenses, and advertising costs.  If the bill were to pass, insurers would also be required to divulge closed claims data to Department of Financial Services (“DFS”).  The bill was first proposed in 2011 and failed.  The New York Insurance Association is opposing the bill.   We will keep you apprised if and when the bill is voted on.


New York’s Senate and Assembly are also considering a bill, S4128/A3090, which would repeal the 5% flex rating system for auto insurance in New York and move towards a complete prior approval system upon this bill’s proposed sunset in 2020. We will keep you apprised if and when the bill is voted on.


Brian F. Mark

[email protected]


02/20/18       Zamichiei v. CSAA Fire & Cas. Ins. Co.

U.S. District Court for the District of Connecticut

US District Court Holds Additional Coverage for Collapse Portion of Homeowners Policy was not Triggered as Cracking in Basement Walls did not Occur Abruptly

This declaratory-judgment involves a claim made by the plaintiffs, Bart and Tammy Zamichiei, for coverage under their homeowners policy related to cracking in the concrete in their basement.  The defendant, CSAA Fire & Casualty Insurance Company (“CSAA”), issued a homeowners policy which was in effect from January 23, 2015 through January 23, 2016.


The plaintiff’s built their home in 1989 and moved in in 1990.  They have lived there continuously since that time.  Three-to-four years ago, Mr. Zamichiei observed a horizontal crack in the basement.  On September 16, 2015, consulting engineer, William Neal, P.E. inspected the subject property and attributed the cracks to Alkali Silica Reaction ("ASR").  He recommended that the concrete be replaced.  He testified that putting "poor aggregate" into the concrete when it was mixed was a "singular event" that "caused" the cracking.  He believed that the "most likely cause of the foundation distress" is a chemical reaction involving iron pyrrhotite in the concrete.  He further testified that defective material manifested in the cracking.  According to Mr. Neal, the concrete was "doomed" from the day it was poured, and impairment of it was "inevitable" based on the use of defective materials.


At the time of Mr. Neal's inspection, the foundation did not require immediate replacement and was not structurally dangerous.  Mr. Neal stated instead that "[t]he ASR will continue to deteriorate the concrete and the basement walls will bulge inward until they structurally fail."  The plaintiffs are using the property for its intended purpose, namely to live in it.  The property has neither caved in, fallen down, nor is it in imminent danger of falling down or caving in.


One month after the inspection, the plaintiffs filed a claim with CSAA for damages to the home’s foundation caused by a chemical reaction.  The plaintiffs sought coverage under the policy's Collapse provision.  CSAA denied coverage of the claim.


The Collapse provision of the CSAA policy states in pertinent part:


E. Additional Coverages

8. Collapse

* * *

a. With respect to this Additional Coverage:

(1) Collapse means an abrupt falling down or

caving in of a building or any part of a building

with the result that the building or any part of

the building cannot be occupied for its current


(2) A building or any part of a building that is in

danger of falling down or caving in is not

considered to be in a state of collapse.

(3) A part of a building that is standing is not

considered to be in a state of collapse even if it

has separated from another part of the


(4) A building or any part of a building that is

standing is not considered to be in a state of

collapse even if it shows evidence of cracking,

bulging, sagging, bending, leaning, settling,

shrinkage or expansion.

b. We insure for direct physical loss to covered

property involving collapse of a building or any part

of a building if the collapse was caused by one or

more of the following:

(1) The Perils Insured Against;

(2) Decay that is hidden from view, unless the

presence of such decay is known to an "insured" prior to collapse;

* * *

(6) Use of defective material or methods in

construction, remodeling or renovation.

c. Loss to a . . . foundation . . . is not included

under c.(2) through (6) above, unless the loss is a

direct result of the collapse of a building or any part

of a building.


* * *


CSAA filed a motion for summary judgment on the grounds that the plaintiffs’ claim is barred by the policy's two-year lawsuit limitation provision, that coverage for the loss is barred because the alleged loss occurred outside the policy period, that the policy does not provide coverage for the loss because the loss does not constitute a "collapse" under the policy, that the policy does not provide coverage for the loss because it covers "fortuitous" losses only, and that the unambiguous exclusions in the policy bar recovery for the loss.


The Court examined whether progressive deterioration caused by a chemical reaction and resulting in cracking concrete falls within a provision of plaintiffs' homeowner's  insurance policy covering collapses.  The Court determined that because the policy covers only "an abrupt falling down or caving in of a building," not the gradual deterioration of property over time, the CSAA policy excludes coverage for the damage to the plaintiffs’ basement.  As such, summary judgment was granted to CSAA.


In its motion, CSAA argued that the policy does not cover the alleged loss because the loss does not constitute a "Collapse" under the policy.  CSAA argued that because the property is still standing, has not sustained an abrupt falling down or caving in, and is still being used for its intended purpose, the property has not 'collapsed' as that term is defined.  CSAA also argued that the policy unambiguously does not cover losses caused by a chemical reaction because the technical source of the cracking is irrelevant when the loss consists of the foundation settling, shrinking, bulging or expanding.


In opposition, the plaintiffs argued that the walls in their basement are essentially caving in and, as such, the damages and losses should be covered under the policy.  They further argued that the policy does not exclude chemical reactions and that the policy language “risk of direct physical loss" expands what is considered "direct physical loss to property" under the policy.  They argued that the cracking, deterioration, and even the purported “defective materials” are simply the result of the chemical reaction that is going on in the concrete.  They argued that the conditions purportedly barring recovery are merely manifestations of a physical loss that is occurring.


In analyzing the issues, the Court noted that under Connecticut law, the substantial impairment of a wall's structural integrity is sometimes considered a collapse.  However, the policy language in the CSAA policy, unlike the language in the referenced Connecticut law, includes the phrase "abrupt," and not the word "ensue."  The plaintiffs acknowledged that the chemical reaction that resulted in the impairment of the concrete was "inevitable," and suggested that the concrete was "doomed" from the day it was initially poured, but attempted to argue that the definition of "collapse" is merely a definition of terms, whereas the remaining provisions clarify instances when collapse has not occurred.  As such, the plaintiffs argued that the term "collapse" is ambiguous in light of the qualifying language in the policy, e.g., the policy covers hidden decay, which the plaintiffs argued is a gradual process.  The Court disagreed with the plaintiffs’ arguments and referenced decisions in the District that considered similar language and found that when an insurer added "sudden and accidental"—temporal, limiting language—to the term "collapse," the phrase was unambiguous.


In light of the CSAA policy language requiring "an abrupt falling down or caving in," the Court held that a sudden loss must occur abruptly, not gradually over time.  The Court found the term "abrupt" to be unambiguous and as such, it must be "accorded its natural and ordinary meaning.  The Court looked to the dictionary definition of the term “abrupt” and found that the ordinary meaning is characterized by or involving action or change without preparation or warning.


In light of the above, the Court determined that the CSAA policy unambiguously covers only "abrupt" collapse, and that the plaintiffs failed to show that their home collapsed within the meaning of the policy.  The plaintiffs’ expert stated that, at the time of inspection, the property's foundation did not require immediate replacement and was not structurally dangerous.  Furthermore, the plaintiffs continue to use the property for its intended purpose, and it has neither caved in nor fallen down, and it is not in imminent danger of doing so.  Accordingly, the Court found that CSAA did not breach its contract with the plaintiffs by denying their claim for coverage relative to the cracked concrete in their basement walls.


In addition to the above, the plaintiffs attempted to argue that a chemical reaction constitutes a "risk of direct physical loss to property" under the Policy and therefore would be a covered loss.  CSAA responded that the plaintiffs "cannot plausibly allege that the 'loss' was the chemical reaction itself while at the same time alleging that the 'loss' consists of 'damages caused by a chemical reaction.’”  The Court agreed with CSAA’s position as the terms 'direct physical loss' and 'loss,' as used in the policy, unambiguously require some change to the detriment of the insured, and a chemical reaction—without any physical manifestations—does not fit such a requirement.


The Court noted that even if it read the term "risk" as broadening the scope of coverage under policy, the policy nonetheless excludes coverage for "risk of direct physical loss" caused by "bulging . . . , including resultant cracking, of . . . foundations and walls."  The risk to the property is that "basement walls will bulge inward until they structurally fail."  The Court pointed out that the CSAA policy also excludes coverage for "latent defect, inherent vice, or any quality in property that causes it to damage or destroy itself, and faulty . . . materials used in . . . construction."  In the matter at bar, the cracking concrete at issue was faulty at the time it was used in the construction of the property.


The plaintiffs also argued that the cost to replace the foundation should be covered under the "Additional Coverage" for reasonable repairs.  The Court agreed with CSAA’s position that the policy's "Additional Coverage" for "Reasonable Repairs" only applies where "covered property" is damaged by a "Peril Insured Against." 


The policy's Additional Coverage provision states that CSAA will pay the reasonable cost incurred by you for the necessary measure taken solely to protect covered property that is damaged by a Peril Insured Against from further damage."  The provision covers losses resulting from collapse.  The provision, however states that a part of a building that is standing is not considered to be in a state of collapse within the meaning of the policy even if "it has separated from the building" or "shows evidence of cracking or bulging."  Moreover, the provision expressly excludes loss to a foundation unless such loss is a "direct result of the collapse."  The plaintiffs failed to present evidence that their home or any part of their home has collapsed within the meaning of the provision; rather, they continue to live at the property. Therefore, the Court held that the specific exclusions under the Additional Coverage provision preempt coverage for the loss suffered by the plaintiffs.  As the subject property has not been "damaged by a Peril Insured Against," the Additional Coverage cannot be reasonably read to include the loss at issue.


Lastly, the plaintiffs argued for recovery under the policy's "ensuing loss" provision.  The ensuing loss provision expressly provides that: "We do not insure for loss to property described in Coverages A and B caused by any of the following."  Under a subsection, the policy excludes faulty, inadequate or defective . . . materials used in . . . construction."  The Court noted that the cracking concrete at issue was faulty at the time it was used in the construction of the property.


Because the Court found that the plaintiffs claim was not covered under the collapse provision and was precluded by exclusions in the policy, the Court did not address the issue of timeliness or whether the policy is an "all-risk" policy.



Larry E. Waters
[email protected]


02/26/18       Ben American Precision v. Federal Insurance Company

United States District Court, Western District of New York

Insurer Required to Produce All Policy Forms Sought by Plaintiff as Plaintiff Established Its Burden in Proving the Existence of a Missing Policy by Secondary Evidence   
American Precision Industries, Inc. (“Plaintiff”) began this action on December 16, 2014, seeking a declaration that  defendants Federal Insurance Company, Fireman’s Fund Insurance and North River Insurance Company (“North River”), must defend Plaintiff in connection to asbestos related claims asserted against Plaintiff.  Plaintiff alleged that North River issued a commercial general liability policy, with effective dates from December 31, 1974, through December 31, 1977 (the “Policy”). Plaintiff had produced secondary evidence of the Policy’s existence including contemporaneous certificates of insurance, correspondence and premium audits concerning the Policy.  However, North River failed to recognize that the Policy was ever issued. 


On July 17, 2015, Plaintiff served its first request for documents and first set of interrogatories.  In part, Plaintiff sought a complete copy or any know excerpters of the Policy, all documents concerning the Policy, efforts to locate the Policy and the types of insurance policies for which North River used the prefix ‘ML’ during the period from December 31, 1974, through December 31, 1977.  In response, North River objected to Plaintiff’s discovery requests based upon numerous grounds and asserted an affirmative defense that Plaintiff bears the burden to prove the terms of the missing Policy.  In addition, North River agreed to produce a former underwriter, Mr. Quigley for deposition.


Plaintiff discovered that Mr. Quigley testified in an unrelated matter in which he stated that North River used the prefix “ML” for “multi-peril policies, including comprehensive general liability coverage and that it used ‘COMPAC’ policy forms for policies with the ‘ML’ prefix.”  On September 27, 2016, North River’s counsel informed Plaintiff that “it was impossible to identify the policy forms or coverages without additional information including a list enumerating the specific forms used in the Policy.” However, at Mr. Quigley’s deposition he confirmed that the declarations pages with the “COMPAC” and “MLB-202” forms would be a part of the Policy.  Subsequently, Plaintiff’s filed a motion to compel among other things North River to produce “all versions of forms applicable to comprehensive general liability policies with an ML Prefix, including the ‘COMPAC.’” 


In its analysis, the court noted that under New York law the policyholder bears the burden of showing that the insurance contract covers the loss.  Further, the court recognized that under New York law an insured seeking coverage under a lost or missing policy may rely on secondary evidence to prove the existence and terms of an insurance policy, provided that the insured demonstrates it has made a diligent but unsuccessful search and inquiry for the missing policy.  Moreover, the court acknowledged that District courts within the Second Circuit have allowed witness testimony connecting vital components of coverage as reliable and competent secondary evidence of a lost policy’s terms. 


Applying the law, the court determined that the policy forms sought by Plaintiff must be produced.  The court noted that since neither party has been able to locate the Policy and North River’s affirmative defense, Plaintiff’s motion to compel these forms must be granted.  Specifically, the court noted that the policy forms sought by Plaintiff “are indisputably relevant to this its claim.”  However, the court denied Plaintiff’s request for North River to produce Mr. Quigley’s deposition testimony “from all other matters related to a lost policy issued during the 1970’s containing an ‘ML’ prefix or ‘COMPAC’ form.”  The court found this request to be unduly burdensome.  


In sum, the court ruled the policy forms sought by Plaintiff must be produced within 30 days.  Further, the court ruled that in the event North River cannot produce the policy forms, it must produce Mr. Quigley’s deposition testimony in the cases specified in Docket Number 24-3 within 60 days.               


02/21/18       360 Heros, Inc. v. Mainstreet America

United States District Court, Northern District of New York

Insured’s Motion for Preliminary Injunctive Relief Denied when Insured Failed to Establish that it Will Succeed on the Merits and the Insurer has Acknowledged its Duty to Defend and has Provided Already Some Defense Costs 
Defendant issued a policy of insurance to CNERD (the “Policy”).  Plaintiff was added as an additional insured on the Policy by endorsement. The Policy provided in part that Defendant “will pay those sums that the insured becomes legally obligated to pay as damages because of bodily injury, property damage or personal and advertising injury to which this insurance applies.” 


On April 22, 2016, Plaintiff provided notice of a copyright, trademark and patent lawsuit (the “underlying lawsuit”) to Defendant.  On August 2, 2016, Defendant issued a reservation of rights letter and provided Plaintiff with a defense in the underlying lawsuit.  Plaintiff was permitted to retain independent counsel at Defendant’s expense in the underlying lawsuit as the Reservation of Rights letter created a conflict of interest.  


On May 18, 2017, Plaintiffs commenced an action seeking relief and damages for Defendant’s alleged breach of contract.  On the same day, Plaintiff moved for preliminary injunctive relief.  Plaintiff contends Defendant’s alleged breach of contract stemmed from its failure and refusal to pay policy benefits and to Plaintiff in the underlying lawsuit. 


Plaintiff contends that Defendant’s claims representatives had agreed that litigation of all patent issues in the underlying lawsuit fall within the purview of Defendant’s defense obligations.  In addition, Plaintiff alleged since Defendant’s receipt of independent invoice, Defendants has refused to pay the amount of Plaintiff’s defense costs or legal fees associated with the underlying lawsuit.


Defendant contends that it has paid independent counsel $1,165,712.69 in legal fees and expenses but  that the duty to defend does not extend so far as to compel Defendant to pay unreasonable and excessive fess billed by independent counsel in the underlying lawsuit.   


In its analysis, the court rejected Plaintiff’s reliance on XL Specialty Ins. Co. v. Level Global Investors, L.P., and In Re WorldCom, Inc. Sec. Litig., in support of its motion for preliminary injunction.  The court found that unlike in those cases, here Defendant had acknowledged its duty to defend and continued to acknowledge the duty to defend.  In addition, the court recognized that Defendant had already paid over $1 million in defense costs. 


Further, the court found Plaintiff has failed to demonstrate that is likely to succeed on the merits in this action.  The court acknowledged that New York law provides the duty to defend extends only to reasonable fees and costs.  Further, the court noted that it had no way of determining whether Plaintiff’s independent counsel fees are reasonable because none of the disputed charges were before the court.    


In sum, the court denied Plaintiff’s motion for preliminary injunction.


Earl K. Cantwell
[email protected]


02/02/18       Adams Construction VT, LLC v. Barr Law Group,

Supreme Court of Vermont

Beware the Slippery Slope of Arbitration

Adams Construction disputed a $40,000.00 legal fee bill with the Barr Law Group. Barr filed a demand for arbitration pursuant to the fee agreement, which included an arbitration clause. A week before the scheduled hearing, Adams filed an objection to arbitration and a motion to dismiss the arbitration proceedings. The arbitrator denied the motion, held the hearing, and ruled in favor of the law firm. Adams then sought to vacate and set aside the arbitration award. Adams’ primary argument was that the law firm had not ensured that client consent to the binding arbitration agreement had been fully communicated and informed.


The Court reviewed the Vermont Arbitration Act, a variant of the Uniform Arbitration Act, and noted that there was language suggesting that a party might object to the existence of an arbitration agreement at virtually any time during the arbitration proceedings, at least up until the hearing itself. However, many cases were cited that objections to arbitration came too late and were untimely based on a theory of estoppel and waiver. Cases have held that it is important that objections to arbitration be raised at the outset to allow the issues to be addressed before the parties expend significant time and resources in arbitration. The Court reviewed cases in other jurisdictions that ruled, generally, that a party must promptly object or its participation in the arbitration process will amount to a waiver, and that was the decision and outcome in this case.


Although there exists no “clear consensus” on when a party’s participation in arbitration proceedings results in a waiver, the conduct here involved several months of substantial arbitration proceedings, the filing of pleadings, selecting the arbitration panel, engaging in discovery, attending pre-hearing conferences, etc. before any objection to arbitration was raised. The Court essentially imposed equity concepts of estoppel or waiver onto Vermont’s version of the Uniform Arbitration Act.


It should be further noted that many arbitration agreements, and the rules of many arbitration providers such as the American Arbitration Association, have rules that specifically state that the arbitrators have authority to decide such questions as to their jurisdiction. This decision correctly notes that questions of jurisdiction, scope, and proceeding with arbitration are generally, either by rule or contract or both, reserved for the arbitrator(s).


If a party participates in arbitration proceedings to the extent here, it should not be surprising if an arbitrator continues with proceedings, and courts will be reluctant to intervene or question that result.


If there is a defense or objection to arbitration of a dispute, in whole or in part, that issue should be raised with the arbitrator and/or the courts at an early stage of the proceedings. Not only as a legal but a practical matter, it is harder to persuade an arbitrator to let go of a proceeding if they have devoted extensive time to studying the case and moving the arbitration along. That is not a good way to win friends and influence people.

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