Coverage Pointers - Volume XIX, No. 21

Volume XIX, No. 21 (No. 506)

Friday, April 6, 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.  Call us, email us, send over those homing pigeons.  But do remember when you call, to tell me, as so many of you do, that you “have a situation”.


They tell me it’s spring, but I don’t believe it.


After the explosion of coverage decisions that led to our special edition last week, my column has nothing new to offer.  Those were the only three decisions that fall within my domain.  Accordingly, for those who did not have the opportunity to absorb their importance, I reprise those summaries in my column this week.  While there are two cases from the Court of Appeals, our highest court, the most interesting to me was Hanover Insurance v. Philadelphia Indemnity Insurance Company, a post-Burlington decision dealing with the duty to defend.  It’s worth a very close read.


Insurance Coverage Mediation and Arbitration:


Resolving the Complex without the Substantial Costs of Litigation or the Risk of Adverse Precedent 


I call it, the "Fear of Success." How often is an insurer battling another over a coverage issue on a Monday and taking the opposite position on the same question in another case on a Tuesday? If the company wins on one case, that precedent can lead to a loss, perhaps even a more significant loss, in the next case. Be fearful of success because that victory can come back to hurt your company -- or the industry -- tomorrow, next week or next year.


There are times, more often recently than not, when insurers wish to resolve complex insurance coverage disputes without the expense and costs of trial and without the risk of potentially adverse judicial precedent. We have encouraged the mediation and/or arbitration of complex insurance coverage claims and our office can assist insurers and insureds in bringing reasoned resolution to coverage disputes.


Hurwitz & Fine, P.C. offers both mediation and arbitration services. Why spend the money and the time to litigate these questions when resolution by mediation or arbitration can bring closure to hotly contested matters in relatively short order for substantially reduced costs?


I have been handling complex insurance coverage matters for over 35 years. For over 25 years, I have served as an Adjunct Professor of Insurance Law at the Buffalo Law School and serve as an expert witness in insurance coverage matters throughout the United States, Canada and in the London market. With mediation and arbitration training and certifications and years of practical experience, common sense and scholarship, I may be able to help mediate a dispute between and among insurers -- or insureds and insurers efficiently and, if successful, without the risk of harmful precedent.


For information, contact me at [email protected] or 716.849.8942.




As I look outside the window this cold and windy Thursday evening, it’s snowing.  SNOWING.  I am getting a little bored of this season.


Orlando Bound – PLRB:


I do hope I will see some of you at the PLRB Claims Conference in Orlando, week after next – April 15 – 18.  Along with my friend John Hanlon from Selective, we will be presenting on my favorite topic – Contractual Indemnification and Additional Insured status.  It will be a practical program helping the attendees to develop an approach to making and responding to tenders.  Hope to see you there and please introduce yourself to me if you are attending. 


Jen’s Gems:




Hope all is well.  I wanted to start by seconding any suggestion by Dan that you take a look at the Hanover v. Philadelphia decision.  We are now a little less than of year out from the Court of Appeals release of the Burlington Ins. Co. v. NYC Transit Authority decision, and we are now starting to see how the trial courts and appellate courts are wrangling with what the decision means and how to apply it to different sets of facts.  In the pre-Burlington world, it was essentially guaranteed that if your named insured’s employee was injured that you would be on the “hook” for any additional insureds’ defense and likely indemnity.  But, Hanover seems to say that this has changed with the shift from the "arising out" type endorsements to the "caused by" endorsements and that circumstances now exist where you can get out of both defense and indemnity relative to an injured employee.  Good read.


This week I would also suggest you take a look at my column.  I report on an interesting trial court decision captioned American Med. Alert Corp. v. Evanston Ins. Co.  This decision addresses a discovery dispute in a coverage case.  Specifically, the insurer sought to withhold claims notes starting on the date it retained coverage counsel.   The insured argued that it was entitled to unredacted copies including reserve information.  Ultimately, the court found that claim notes following the date of denial were not discoverable, but ordered an in-camera review of those records between retention of coverage counsel and the denial. 


Also, and perhaps the most interesting piece of the decision, the court ordered disclosure of reserve information (although for what period of time remains unclear from the decision).  The court reasoned that a review of the pleadings contained allegations which one could reasonably infer alleged bad faith, and since broader discovery is permitted in those cases, the court found that information appropriate for disclosure.  The court also seemed to hint that the carrier’s actions potentially where in bad faith because based on the claims notes it seemed as if the insurer believed coverage existed until it consulted coverage counsel, and then the disclaimer was issued.  In my personal opinion, I simply don't believe that relying on the opinion of counsel is bad faith, but that is just me. 


Lastly, I wanted to mention for anyone in the City that the Defense Association of New York is hosting an Insurance CLE on April 18, 2018, at 5:30 p.m.  Below is the write-up and I would encourage you to attend.


April 18, 2018 at 5:30 p.m.  -  CLE on insurance coverage titled "Insurance for the Insurance Defense Attorney."  Presented by DANY Past President Julian D. Ehrlich of Aon Risk Services Northeast, Darrell John of Conway, Farrell, Curtin & Kelly, P.C., Rona L. Platt of Enstar, and Jennifer A. Ehman of Hurwitz & Fine, P.C.  This CLE and the ensuing food, beverage and networking reception will take place at the very nice Battery Gardens inside Battery Park in lower Manhattan.  $75 for DANY members, $85 for non-members.  Register here.


Until next issue...



Jennifer A. Ehman

[email protected]


Thank You from England for Entering WW I, a Year Earlier:


The Ithaca Journal

Ithaca, New York

April 6, 1918


London Press Pays

Tribute to America


Anniversary of Our Coming Into the

War Subject of Glowing Comment


London, April 6.—Most of the leading editorials in this morning’s London newspapers are devoted to the anniversary of America’s entry into the war.  All praise the achievements of the year by the United States in her war-making program and particularly pay tribute to the labors of President Wilson.


“In this hour of anxiety and sorrow,” says the Daily Telegraph, “we have still only to be worthy ourselves of our cause to reap at length the victory of right that was assured to civilization by the act of the American people a year ago.”  Some of the other editorial expressions are:


Daily Express:  “We are proud that American soldiers, vigorous and markedly serious, as men entrusted with a great mission, and finely masculine, are actually fighting in our ranks.  We know that America is only beginning.”


Tessa’s Tutelage:


Dear Readers,


This weather has thrown us all into a state of confusion—well at least as far as our outfits go.  We have had snow, we have had wind nearing 65 mph, and we have had sunshine and 50 degree weather.   I have started keeping extra coats and boots in my office in case the weather turns.  This was not what I had in mind when I picked this weekend as “move in” weekend.  All my friends that promised to help move furniture have started to feign illness just to get out of moving boxes during snow/wind/rain/ice storms.


Nonetheless, the Courts are churning out no-fault decisions.  This week we have a particularly interesting case regarding notice of claim.  Plaintiff attempts to argue that a police accident report should have put the no-fault carrier on notice of the claim.  The Court was, rightfully, unconvinced.  Additionally, we have a loss transfer case, which highlights the standards for overturning master arbitration.


Hope you have a great week!



Tessa R. Scott

[email protected]


Down with White Bread – a Century Ago:


Democrat and Chronicle

Rochester, New York

06 Apr 1918





Federal Food Board Rule Requires Use of

25 Percent Substitutes


New York, April 5.—Baking of white bread and rolls will be discontinued throughout the United States after April 13th, according to an announcement made to-day at the local office of the Federal Food Board.  The order requiring bread and rolls after that date to contain at least 25 percent. of substitutes for flour had not yet been issued from Washington, it was said but was expected at any time. 


Twenty-one bakers and baking concerns have been summoned to appear before the Federal Food Board, Tuesday, to answer charges of violating the food regulations by not using the required percentage of substitutes in bread and rolls it was announced.  One hundred and fifty members of the fresh fruit and vegetable trade were informed that they must procure licenses immediately or their places would be closed.


Employees of the State Food Commission and the New York Federal Food Board were urged by John Mitchell, president of the commission, in a message to-day to get the plea for wheat conservation into every section of the state and encourage farmers to increase their crops for the coming season.


Ewell's Universe:


Dear Subscribers:


For those who celebrate Passover, I hope you had a nice Passover. For those who celebrate Easter, I hope you had a nice Easter. For those who don’t celebrate, I hope you had nice weekend.


I enjoyed some time off to go visit my parents. They live about an hour south of me in a very rural part of New York. A county that is famous for having more cows than people. Famous, that is, if you have heard of it. Like many in the community, my father has a farm. He raises Angus cattle. It is a hobby of his with 40 beef cows and 20 calves. He is expecting another 20 calves. Suffice to say his hobby keeps him very busy.


It is an exciting time to visit the farm. There were a few newborn Angus calves that had just been born the previous day. For those of you have never petted a baby cow, it is a remarkable experience. Within minutes of being born, the calf is up walking around, hopping around, sometimes even sprinting. Makes you wonder why it takes humans so long to learn how to walk.


I also enjoyed some time with my fiancé’s family—the soon-to-be in-laws, which I am excited about. Erin and I are wrapping up wedding planning. I now understand, quite clearly, that whenever you say the word “wedding” there is an automatic tax added (price-gouging?). I am fairly sure I could have booked everything a lot cheaper as a private party, or surprise celebration, and then just walked in wearing wedding attire and carrying a cake. Apparently, wedding packages are more expensive because they have the word “wedding” in them.


In today’s column, we have a case from the Supreme Court of Alabama. There has been a trend of these particular lawsuits across the country in recent years. A claim is brought against a homeowners’ policy alleging bad faith valuation of the claim, typically the carrier’s assessment of the actual cash value of the claim. The plaintiff then seeks class certification for other similarly situated. There’s even a website that provides a list of the current pending ones. In this particular one, the Alabama Supreme Court cut off class certification because the lead plaintiff’s claim had already been decided in an earlier action. The plaintiff’s carrier had already obtained summary judgment over her breach of contract claim, and as such, the court determined that her claims were barred by res judicata. This made her unfit to be lead plaintiff as well, resulting in certification being denied.


‘Til Next Time,



John R. Ewell

[email protected]


A Hair Raising Protest, 100 Years Ago:


Democrat and Chronicle

Rochester, New York

06 Apr 1918




Asks if She Had Not Equal Right

with Men to Earn Living


A plea that women shall be allowed to choose their occupation or trade and follow it with the same degree of freedom as the men, was sent in to the Democrat and Chronicle yesterday apropos of a recent statement in regard to incompetency in barber shops.


Miss Nora M. Carrol, an experienced barber and manicurist, said yesterday:


“If these instigators would direct their energy toward shops that cut prices, hire cheap help and pay poor wages they might do some good.  Why should manicurists and women barbers be banished?  Is not this a free country?  Cannot a woman, just because she is a woman, choose her line of work?


Have these men no sense of justice that they wish to deprive woman of honest livelihood?   Will they kindly explain how manicurists and woman barbers hurt the business?  Why should they be driven from the shops?


I am one of the woman barbers at whom this attack is directed, and Rochester is my birthplace and home.  Why should I not have the right to earn a living here in the honest manner I choose?  Is there any law prohibiting women from learning certain trades?  My trade was learned under the direction of a barber examined by the Barbers’ Board of Examiners, in Albany.  How many of these knockers have had this examination?”

Editor’s note:  Nora Carroll was eventually licensed as a barber in Rochester.


Peiper’s Predications:


We start this week with a bit of a change up; actual law.  At your convenience, we’d invite you to peruse the decision involving Safeco Insurance detailed in the column.  In that case, the insurer argued that water on the surface of the ground was “surface water.”  Not an illogical conclusion you might say. 


The Appellate Division says otherwise.  Rather than surface water being water on the ground, the Court says that surface water actually means water, which comes from a natural source, which accumulates, on the ground.  Surface water does not start as surface water, but rather usually starts as rain.  It does not remain surface water.  Water that soaks into the ground becomes “ground water.”  Water that runs into streams, rivers, lakes, etc. ceases to be “surface water” the moment it transitions to “navigable water.” 


Got it?  No?  We understand. 


Not much else from this column this week.  What can I say; ESPN has the Masters and the Frozen Four on AT THE SAME TIME.  We’re a bit distracted this week. 


See you in two weeks.



Steven E. Peiper

[email protected]


Heir Today, Gone Tomorrow – a Century Ago:


Democrat and Chronicle

Rochester, New York

06 Apr 1918


Court Denies to Snyder Heirs

Right to collect on

Big Insurance Policy


By unanimous decision the Court of Appeals yesterday afternoon affirmed the non-suit granted by Supreme Court Justice Adelbert P. Rich in the actions brought by Evelyn L. and Berenice M. Snyder to collect $40,000 from the Berkshire Life Insurance Company on policies written on the life of their father, Fred Snyder, who died on January 9, 1914. The case has been in the courts since September 2, 1914 and has been one of the hardest contested cases to arise in Monroe County in years.


The company through its attorney, William W. Armstrong, refused to pay the claims on the ground that Snyder had misrepresented the state of his health.  It was alleged that within the two years that preceded his death he had been treated by a dozen physicians in Rochester, while in his statement to the insurance company he said he had not required treatment by a physician within that period.


Justice Rich on June 30, 1915, granted a nonsuit on a motion by Mr. Armstrong for a dismissal of the complaint, at the close of the presentation of evidence, on the ground that uncontradicted evidence materially substantiated the claim of the defendant that Snyder made misrepresentations which led to the policies being issued. 


On January 3, 1917, the Appellate Division, Division, Fourth Department, unanimously affirmed the decision of Justice Rich.  Leave to appeal to the Court of Appeals was obtained and the state's highest tribunal yesterday affirmed the lower courts, ending the litigation.


Hewitt’s Highlights: 


Dear Subscribers:


On the serious injury front, there are several cases of interest this week. In one case, both plaintiffs could not explain a seven-year gap in treatment of their injuries. Further, their affidavit in opposition to the motion for summary judgment contradicted their deposition testimony and was ignored.  In another case, a plaintiff who returned to work and had few limitations other than inability to ride in a golf cart or garden could not establish he could not perform substantially all of his daily activities. Finally, the appellate court refused to set aside the determination of a jury that there was no serious injury as the jury could reject the determination of both experts.


Until next time,


Robert Hewitt

[email protected]


Not Pleasing?  Don’t Apply:



Press and Sun-Bulletin

Binghamton, New York

06 Apr 1918


Situation Wanted—Female


BUSINESS LADY of pleasing appearance wants position in office.  Several years experience in insurance, real estate and employment office.  Capable and reliable.  H-1258 care: Press


Wilewicz’ Wide-World of Coverage:


Dear Readers,


Greetings from sunny Atlanta! We’re here again for the holiday week, visiting my parents and spending some much needed time in the sun, before heading back to another Polar Vortex this weekend. At the moment it feels like early summer here, and I know that it will likely be quite painful heading back up to the Great White North. We spent the past weekend in Birmingham, where it was a balmy 80ish and the improvement on all of our moods was immeasurable. There is really something to be said about living in more southern locales.


This week, the Second Circuit was quiet on the coverage front, perhaps in light of the recent holidays. This no doubt means that there will be plenty in the coming weeks, and we will be right here reporting on anything of interest that comes down for you.


Until then,



Agnes A. Wilewicz

[email protected]


Driving the Auto Industry Craze, 100 Years Ago:


Buffalo Evening News

Buffalo, New York

06 Apr 1918





Local Distributor Says Demand

Greatly Exceeds Supply of Cars.


“The market for cars is fairly bulging with eagerness to buy—a happy condition, even though it cannot be adequately met,” says S. P. DeWitt, Dort distributor.


Our information from the Dort factory is to the effect that transportation facilities offered to any section of the country whatever, are joyfully accepted, so great is the demand for automobiles from every direction.


Therefore, if at times it becomes impossible to get cars to certain localities, due to embargoes or shortage of railroad equipment, there are dealers in other parts anxious to take all that the factories can get to them.


From here we are able to give the factory the same sort of report that comes to them from elsewhere.  If they will only give us cars we will do the rest.  There are usually three ready buyers for every car shipped by us.”


Editor’s Note:  The Dort Motor Car Company of Flint, Michigan built automobiles from 1915–1924. Founded by William Durant and J. Dallas Dort, the two remained business partners until about 1915. Dort took over the carriage business and in 1915 began to use the same plant to manufacture his Dort cars. Carriage production ended in 1917.   By 1920 Dort was the country's 13th largest automobile producer but in 1924 Dort decided to retire and he liquidated Dort Motor Car Company. He sold the factory building to AC Spark Plug.  J Dallas Dort died the following year, while on a golf course.


Barnas on Bad Faith:


Hello again:


Greetings from Buffalo where the calendar says it is spring but the weather suggests it is the middle of January.  Snow is even more depressing when the weather is supposed to be getting warmer and sunnier.  At least the weather is sunny and beautiful at Augusta National where the Masters is going on this weekend.  I always feel like the Masters is the unofficial beginning of spring around here.  Hopefully the weather will cooperate and I can find my own way out onto the golf course soon.


In my column this week I have the D.K. Property case, decided by the New York State Supreme Court, New York County.  The Court allowed the insured to proceed with a cause of action for breach of the implied covenant of good faith and fair dealing based upon allegations in the Complaint that were distinct from the breach of contract cause of action.  Somewhat curiously, the Court later concluded that Plaintiff’s claim for attorneys’ fees incurred in bringing the coverage litigation against its insurer could go forward.  This does not appear to be a change from the long-established Mighty Midgets rule.  Rather, the Court focused on the narrow exception to the rule that fees may be available if the insured can prove the carrier had no arguable basis to challenge its claims and can show no reasonable carrier would challenge the claim under the given facts.  Here, there was an allegation that National Union actually agreed with Plaintiff about the cause of the loss but denied coverage anyways.  Accordingly, the claim for attorneys’ fees was allowed to move forward.


I also have the Demase case from Florida.  If you can’t be there, write about a case from where you want to be.  To bring a first party bad faith action in Florida, an insured must show that there has been (1) a determination of the insurer's liability for coverage; (2) a determination of the extent of the insured's damages; and (3) the required notice is filed pursuant to section 624.155(3)(a).  The Court here concluded that the insurer’s decision to acknowledge coverage and pay the policy limits satisfied requirements one and two above.  Accordingly, the insureds’ bad faith case was allowed to go forward.


I’m also lucky enough to have a guest column in my space this week from Matthew Sekits and Owen Mooney from Bullivant Houser Bailey PC.  Special thanks to Bullivant’s Andy Downs for granting us permission to include their article about the Keodalah case from Washington State.  Keodalah is significant and frightening as it expands exposure for bad faith to individual claims professionals, including those who are employees of the insurance company.


Have a nice weekend.


Signing off,



Brian D. Barnas

[email protected]


Car Insurance Advertising – A Century Ago:


Times Herald

Olean, New York

06 Apr 1918


Automobile Insurance


CAN YOU afford to own your automobile?  If you can, you can’t afford to run it without




Did you ever stop to think, one little slip, one little thing goes wrong and the damages may amount to thousands?




Phone Bell 1203 for rates and insurance information


R. T. MALLERY                              FIRST NATIONAL BANK.


Altman’s Administrative (and Legislative) Agenda:  


Greetings, Dear Readers.  


Happy belated Easter and current Passover.  I am day 5 into my eight-day matzo sentence, and, well, there’s just so much matzo sandwiches and matzo brei you can eat (that’s crumbled matzo cooked with eggs) before you’re craving IHOP.  But, I did get to see my two-year-old niece for Passover, and when asked that age old question, “Why is this night different from all other nights?” she pointed to the dog and exclaimed, “because there’s a puppy!”


In administrative news, under consideration by New York’s legislature is a Bill to allow individuals to use their vehicles for ride sharing without having to classify their vehicles as commercial vehicles-for-hire or liveries.



Howard B. Altman

[email protected]


At 91, She Disliked Booze:


Middletown Times-Press

Middletown, New York

06 Apr 1918


Mrs. Robertson, 91,

Is Out to Register


Mrs. Nancy Robertson, of 38 Washington Street, 91 years of age, registered Friday and will cast a vote for a "dry" city on April 16. The example set by this aged woman should be an inspiration to every woman in the city who wants to see old John Barleycorn driven from town and has not yet registered, to do her duty at once.


Off the Mark:


Dear Readers,


My kids have had the past week off and have been enjoying the lack of homework and freedom to use their electronic devices on weekdays.  Unfortunately, they have had a little too much energy due to being stuck inside most of the week as the warm weather has still not arrived.  Luckily, there hasn’t been too much fighting.


This edition discusses a recent construction defect case from the US District Court for the Middle District of Florida, Tampa Division.  In Owners Ins. Co. v. Bobby T., Inc., the Court examined the “damage to your work” exclusion contained in the commercial general liability policy issued by plaintiff to its insured.  The Court reviewed the allegations in the underlying complaint and determined that the complaint could be reasonably interpreted to allege damage to property other than that on which the insured performed its work.  Accordingly, the Court held that the complaint alleged facts that fairly bring the suit within the policy coverage and which are not "cast solely and entirely" within the "damage to your work" policy exclusion.  As such, the plaintiffs failed to meet their burden of demonstrating that the allegations in the underlying complaint fell solely and entirely within the exclusion and any doubts as to whether the plaintiffs had a duty to defend must be resolved in favor of the insured.  As disputed issues of fact existed as to the property damaged, summary judgment was precluded.


Until next time …



Brian F. Mark
[email protected]


A Good Reason to Marry:

El Paso Herald

El Paso, Texas

06 Apr 1918


Food Offered As Prize For

Marrying in Prussian Town


Amsterdam, April 6.—To encourage matrimony, the food authorities at Bonn, Prussia, have offered to each couple which marries and settles in the town the following prize:  Thirty pounds of potatoes, two pounds of coffee substitute, two pounds of flour, two pounds of oatmeal, five pounds of sugar, two pounds of fat, and ten eggs. 


Wandering Waters:


Dear Readers,


I hope all of you have had a wonderful week. I cannot believe it is still winter.  As I am writing this, a wintery mix is falling outside my window. 


Nevertheless, the NBA playoff picture is heating up.  Today it was announced that Kyrie Irving is out for the rest of the season and the playoffs.  While this is sad news for Celtic fans, LeBron fans are rejoicing.  Once again, LeBron James has a clear path to the NBA finals out of the Eastern Conference.  Although others would argue that the Raptors are a legitimate threat, history has shown us otherwise.  The Cavs (“LeBron”) have dominated the Raptors for the last few years in the Playoffs.  Importantly, the Cavs have won the last two games against the Raptors in recent weeks.        


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


Until next time.



Larry E. Waters

[email protected]


Highlights of Today’s Issue, Attached:


Dan D. Kohane
[email protected]


[Reprise from last week’s Special Edition, for those who may have missed it]


  • Long Tail Coverage – Under Pro Rata, Time-on the Risk Method of Allocation, an Insurer is Not Liable for Years Outside of its Policy Period Where there was Not Applicable Insurance Coverage on the Market
  • The Term “With Whom” in an Additional Insured Endorsement Means What it Says – a Direct Contract is Necessary
  • Burlington Expanded – to Defense?  Hold onto Your Hats!




Robert E.B. Hewitt III

[email protected]


  • Inability to Ride a Golf Cart or to Garden Do Not Establish a Plaintiff Was Limited in Substantially All of Her Daily Activities
  • No Objective Evidence that Plaintiff’s Strains or Sprains Were the Result of the Accident
  • Seven Year Gap in Treatment Could Not Be Explained by Affidavit which Contradicted Deposition Testimony



Tessa R. Scott

[email protected]


  • No Fault Loss Transfer Arbitration Award Upheld. Standards Discussed.
  • Defendant did not establish that it sent denial letters timely
  • Police Accident Report did not constitute sufficient notice of claim




Steven E. Peiper

[email protected]


  • Water from Burst Water Main is Not Surface Water; Coverage Confirmed
  • Disposal of Vehicle Damaged in Collision was not Sufficient to Validate Motion for Spoliation Sanctions



Agnes A. Wilewicz

[email protected]


  • All’s quiet on the Second Circuit front



Jennifer A. Ehman

[email protected]


  • New York Trial Court Directs Discovery of Claims Reserve Information



Brian D. Barnas

[email protected]


  • Insured’s Breach of the Implied Covenant of Good Faith and Fair Dealing Claim and Claim for Attorneys’ Fees Incurred in Bringing an Action against its Insurer Survive Motion to Dismiss
  • Insurer’s Payment of the Policy Limits Satisfied Statutory Requirement for a Determination of the Insurer’s Liability for Coverage and the Extent of Damages
  • Take It Personally: Washington Imposes Extracontractual Liability on Claims Handlers 


John R. Ewell

[email protected]


  • In Class Action Lawsuit Alleging Bad Faith Valuation of Claims, Alabama High Court Cuts Off Class Certification (for Now)




Howard B. Altman

[email protected]


  • Shared Vehicle Legislation under Consideration




Brian F. Mark

[email protected]


  • US District Court Held that Where an Underlying Complaint Could be Reasonably Interpreted to Allege Damage to Property Other than that on Which the Insured Performed its Work, the “Damage to  Your Work” Exclusion Does not Preclude Coverage



Larry E. Waters
[email protected]


  • Insurer’s Failure to Disclaim until Fifteen Months after Having Sufficient Knowledge to do so was Unreasonable.
    Policy’s Endorsement was Unambiguous and Not Contrary to Public Policy. 

Earl K. Cantwell
[email protected]


  • Keeping Counsel’s Claim File Protected


That’s all there is and there is no more.  We do love feedback, commentary and questions.





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

1300 Liberty Building
Buffalo, NY 14202    

Office:  716.849.8942

Cell:      716.445.2258
Fax:      716.855.0874

E-Mail:  [email protected]
H&F Website:


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]


[Reprise from last week’s Special Edition, for those who may have missed it]


03/18/18       Keyspan Gas East Corp. v. Munich Reinsurance America, Inc. New York State Court of Appeals

Long Tail Coverage – Under Pro Rata, Time-On-The-Risk Method of Allocation, an Insurer is Not Liable for Years Outside of its Policy Period Where there was Not Applicable Insurance Coverage on the Market

The question before New York’s highest court is whether, under the "pro rata time-on-the-risk" method of allocation, an insurer is liable to its insured for years outside of its policy periods when there was no applicable insurance coverage on the market. The Court holds “no” – the insured in liable for years where the coverage was not available.


For the reasons explained herein, we hold that KeySpan, not Century, bears the risk for those years during which such coverage was unavailable. We, therefore, affirm the order of the Appellate Division.


This was an environmental claim arising out of gas plants owned and operated by KeySpan’s predecessor, Long Island Lighting Company (“LILCO”).  Gas production at the sites began in the late 1880s and early 1900s. After operations ceased, and decades later, the New York Department of Environmental Conservation (“DEC”) determined that there had been long-term, gradual environmental damage at both sites due to contaminants, such as tar, seeping into the ground and leeching into groundwater. The DEC required KeySpan to undertake costly remediation efforts.


Between 1953 and 1969, Century issued eight excess liability insurance policies to LILCO covering property damage. The environmental contamination at the sites occurred gradually and continuously before, during, and after the Century policy periods. It was also uncontroverted that the environmental contamination that occurred in any given year was unidentifiable and indivisible from the total resulting damages.


KeySpan did not dispute that pro rata time-on-the-risk allocation controlled under the relevant policies, but argued that Century's pro rata share should not be reduced by factoring in the years in which pollution property damage liability insurance was unavailable.  According to KeySpan, Century's expert had opined that such coverage was not available to utilities until approximately 1925, and that a "sudden and accidental pollution exclusion" was later generally adopted by the insurance industry sometime in or after October 1970.  Thus, KeySpan argued the allocation should not take into account any years prior to the availability, or after the unavailability, of the applicable coverage.


In general, two primary methods of allocation are used by the courts to apportion liability across multiple policy periods: all sums and proration.  All sums allocation "permits the insured to collect its total liability under any policy in effect during the periods that the damage occurred, up to the policy limits" (Consolidated Edison Co. of N.Y. v Allstate Ins. Co., 98 NY2d 208, 222 [2002]) [“ConEd” ].  By contrast, under pro rata allocation, assuming complete coverage, "an insurer's liability is limited to sums incurred by the insured during the policy period; in other words, each insurance policy is allocated a pro rata' share of the total loss representing the portion of the loss that occurred during the policy period" (Matter of Viking Pump, 27 NY3d at 256) [“Viking Pump”].  Pro rata shares are often, although not exclusively, calculated based on an insurer's "time on the risk," a fractional amount corresponding to the duration of the coverage provided by each insurer in relation to the total loss.


In New York, the courts have not adopted a strict pro rata or all sums allocation rule. Rather, the method of allocation is governed foremost by the particular language of the relevant insurance policy. In the ConEd case, that policy language restricted an insurer's liability to all sums incurred and occurrences happening "during the policy period" which the court held generally supports a pro rata allocation.  As we explained, the policies at issue there contained such language providing "for liability incurred as a result of an accident or occurrence during the policy period, not outside that period," and we concluded that "[p]roration of liability acknowledges the fact that there is uncertainty as to what actually transpired during any particular policy period".


We subsequently distinguished the policy language in ConEd from that presented in Viking Pump.  In Viking Pump, the presence of noncumulation and prior insurance provisions "plainly contemplate that multiple successive insurance policies can indemnify the insured for the same loss or occurrence" and, therefore, require all sums allocation.  Such provisions are inconsistent with pro rata allocation because "the very essence of pro rata allocation is that the insurance policy language limits indemnification to losses and occurrences during the policy period," such that no two insurance policies indemnify the same loss or occurrence absent overlapping or concurrent policy periods


KeySpan does not dispute that it bears the risk for those years in which property damage insurance was available to, but not purchased by, LILCO and it was, therefore, voluntarily self-insured.  KeySpan argues, however, that it should be responsible only for those years in which insurance was available in the marketplace.


The unavailability rule is inconsistent with the contract language that provides the foundation for the pro rata approach — namely, the "during the policy period" limitation — and that to allocate risk to the insurer for years outside the policy period would be to ignore the very premise underlying pro rata allocation.  Such an approach could, once a policy is triggered, impose liability in perpetuity (or retroactively to periods prior to coverage) on an insurer who issued insurance coverage for only a limited number of years, thereby eviscerating much of the distinction between pro rata and all sums allocation.


In the context of continuous harms, where the contamination attributable to each policy period cannot be proven and we draw from the contract language to distribute the harm pro rata across the policy periods, it would be incongruous to include harm attributable to years of non-coverage within the policy periods.


The very essence of pro rata allocation is that the insurance policy language limits indemnification to losses and occurrences during the policy period. The Court rejects application of the unavailability rule for time-on-the-risk pro rata allocation.


03/27/18       Gilbane Building Co., et al v. St. Paul Fire and Marine Ins. Co.

New York State Court of Appeals

The Term “With Whom” in an Additional Insured Endorsement Means What it Says – a Direct Contract is Necessary

In January 2002, the Dormitory Authority of the State of New York (“DASNY”) contracted with Samson Construction Company (“Samson”), a general contractor, for construction of a new forensic laboratory for New York City, to be built next to Bellevue Hospital.  Although the lab was constructed for use by New York City's Office of the Chief Medical Examiner, the construction documents identified DASNY as the owner.


DASNY also contracted with a joint venture between Gilbane and TDX (“Gilbane JV") for Gilbane JV to be the construction manager for the project.


DASNY's contract with Samson provided that Samson would obtain general liability insurance for the job, with an endorsement naming as additional insureds: "DASNY, the State of NY, the Construction Manager [Gilbane JV] and other entities specified on the Sample Certificate of Insurance provided by DASNY."


Samson obtained general liability insurance coverage from Liberty Insurance Underwriters (Liberty). The Sample Certificate of Insurance listed as "Additional Insureds under General Liability as respects this project: . . . Gilbane/TDX Construction Joint Venture."


In 2006, DASNY sued Samson and Perkins Eastman, Architects, P.C., the project architect, alleging that Samson damaged the excavation support system in August of 2003 by negligently removing a section of steel plating which caused the foundation of the neighboring building to settle several inches. Perkins then commenced a third-party action against Gilbane JV in 2010.  Gilbane JV provided notice to Liberty by letter in April of 2011, seeking defense and indemnity under the Liberty policy for Perkins' suit against it, which Liberty denied in July of that year.


Gilbane JV commenced this lawsuit arguing that it qualified for coverage under the Liberty policy as an additional insured.


The relevant portion of the Liberty policy is the "Additional Insured-By Written Contract" provision, which reads:


"WHO IS AN INSURED (Section II) is amended to include as an insured any person or organization with whom you have agreed to add as an additional insured by written contract but only with respect to liability arising out of your operations or premises owned by or rented to you."


(emphasis added).


Gilbane JV has no written contract with Samson denominating it as an additional insured, but argues no such contract is necessary, because that requirement would conflict with the plain meaning of the Liberty endorsement; with "well-settled rules of policy interpretation"; and with the parties' reasonable expectations.


Alternatively, Gilbane JV argues that the Liberty endorsement is, at most, ambiguous on that point, and therefore must be construed against Liberty and in favor of coverage. Gilbane JV is incorrect; the endorsement is facially clear and does not provide for coverage unless Gilbane JV is an organization "with whom" Samson has a written contract.


Here, the endorsement would have the meaning Gilbane JV desires if the word "with" had been omitted. Omitting "with," the phrase would read: ". . . any person or organization whom you have agreed by written contract to add . . .", and Gilbane JV's position would have merit. But Samson and Liberty included that preposition in the contract between them, and we must give it its ordinary meaning. Here, the "with" can only mean that the written contract must be "with" the additional insured.


Gilbane JV cited extrinsic materials, including the sample certificate of insurance in support of its argument that it reasonably expected to be covered by the policy, and relied heavily on the contract between DASNY and Gilbane JV, which required Samson, as the prime contractor, to name Gilbane JV as an additional insured on all liability policies obtained by Samson. However, "[e]xtrinsic evidence of the parties' intent may be considered only if the agreement is ambiguous, which is an issue of law for the courts to decide"  Gilbane JV might have a claim against Samson for failing to obtain additional insured status for Gilbane JV, but that breach would not permit us to rewrite Samson's contract with Liberty.


A vigorous dissent would have held that the contract between DASNY and Samson — under which Samson agreed in writing to procure a general liability insurance policy for the construction project and to name Gilbane JV as an additional insured — was sufficient to confer additional insured status upon Gilbane JV.


The dissent argued that placing the phrase "by written contract" at the end of the sentence, a placement the majority choose to ignore — it is reasonable for the average insured to expect that the phrase "by written contract" modifies only the immediately preceding infinitive "to add," such that the phrase prescribes only that the agreement by which the named insured commits to extend coverage to the purported additional insured must be evidenced in a contract reduced to writing.  In any event, because each party's reading of this language is reasonable, the endorsement is "ambiguous and thus [should be] interpreted in favor of" coverage.


Editor’s Note:  when we reported on the Appellate Division decision in this case, which was affirmed by the Court of Appeals in this opinion, we added a two word comment, which we affirm here:  Words Matter.


03/27/18       Hanover Insurance Co. v. Philadelphia Indemnity Insurance Co. Appellate Division, First Department

Burlington Expanded – to Defense?  Hold on to Your Hats!

Manhattan School was an additional named insured under a policy issued by Philadelphia to Protection Plus Security [“Protection”].  In the additional insured endorsement, the policy provided that the Manhattan School is an additional named insured "only with respect to liability for bodily injury'. . . caused, in whole or in part, by" the acts or omissions of Protection Plus in the performance of its operations for the Manhattan School.


A security guard employed by Protection Plus alleges that he slipped and fell on a recently mopped floor while working at the Manhattan School.


When "an insurance policy is restricted to liability for any bodily injury caused, in whole or in part,' by the acts or omissions' of the named insured, the coverage applies to injury proximately caused by the named insured" (Burlington Ins. Co. v NYC Tr. Auth., 29 NY3d 313, 317 [2017]). Such language in a policy does not equate to "but for" causation and is not the same as policies containing the phrase, "arising out of”.  It is not enough to merely establish a causal link to the injury.


Notably, the language in the endorsement was "intended to provide coverage for an additional insured's vicarious or contributory negligence, and to prevent coverage for the additional insured's sole negligence".


Accordingly, when a policy limits coverage to an injury "caused, in whole or part" by the "acts or omissions" of the named insured, coverage is extended to an additional insured only when the damages are the result of the named insured's negligence or some other act or omission (id. at 323).


Here, the acts or omissions of Protection Plus were not a proximate cause of the security guard's injury.  Rather, the sole proximate cause of the injury was the additional insured, and thus coverage was not available to the Manhattan School under defendant's policy.


The court declared that defendant is not required to defend and indemnify Manhattan School in the underlying action.

Editor’s Note:  This is the first case that held that an insurer, that provides AI protection, is not required to defend a purported additional insured employee of the additional insured.  This clearly appears to be an expansion of Burlington to defense obligations by the First Department, the appellate court most likely to provide coverage in employee cases.  We do note that the lower court had dismissed the negligence claims against the named insured but the broad language in the decision may open the doors to other arguments.



Robert E.B. Hewitt III

[email protected]


03/23/18       McIntyre v. Salluzzo

Appellate Division, Fourth Department

Inability to Ride a Golf Cart or to Garden Do Not Establish a Plaintiff Was Limited in Substantially All of Her Daily Activities

Plaintiff commenced this action to recover damages for injuries she sustained when the vehicle she was driving was rear-ended by a vehicle driven by defendant. Defendant moved for summary judgment dismissing the complaint, asserting, inter alia, that plaintiff did not sustain a serious injury within the meaning of the three categories alleged. With respect to the 90/180-day category, Defendant met his initial burden on the motion with respect to that category by submitting plaintiff's deposition and employment records, which indicated no difficulties with eating, dressing, or bathing, and established that plaintiff returned to work shortly after the accident and was working full-time with no restrictions approximately 30 days after the accident. Plaintiff failed to raise a triable issue of fact with respect to that category inasmuch as the limitations upon which plaintiff relied, e.g., inability to ride a golf cart or to garden, do not establish that she was limited in "substantially all" of her daily activities.


However, the Appellate Division properly denied defendant's motion with respect to the remaining two categories of serious injury alleged by plaintiff, i.e., the permanent consequential limitation of use and significant limitation of use categories. Although the physician who examined plaintiff on behalf of defendant indicated range of motion limitations of approximately 16% or less, which could be considered insignificant or inconsequential, he failed to explain the basis for his calculations, such as the basis for his opinion as to what constitutes a "normal" cervical range of motion. Thus, his conclusions were speculative and insufficient to meet defendant's burden of establishing that plaintiff's limitations were inconsequential or insignificant. Even assuming, arguendo, that defendant met his burden with respect to permanency; we conclude that plaintiff raised an issue of fact by the affirmation of her treating physician, who stated that her injuries had entered a chronic state.


03/23/18       Doucette v. Cuviello

Appellate Division, Fourth Department

No Objective Evidence that Plaintiff’s Strains or Sprains Were the Result of the Accident

Plaintiff commenced this action based on injuries sustained by plaintiff as a passenger when the vehicle in which plaintiff was a passenger, collided with the vehicle operated by defendant. The jury reached a verdict finding that defendant's negligence was not a substantial factor in causing injury to plaintiff. Plaintiffs moved pursuant to CPLR 4404 (a) to set aside the verdict and for judgment in their favor or, in the alternative, to set aside the verdict as against the weight of the evidence and for a new trial. The Appellate Division upheld the verdict finding that there was no basis to set aside the jury's verdict based on the legal insufficiency of the evidence or as against the weight of the evidence. In order to find that a jury verdict is not supported by sufficient evidence as a matter of law, there must be no valid line of reasoning and permissible inferences which could possibly lead rational people to the conclusion reached by the jury on the basis of the evidence presented at trial. In light of the evidence of plaintiff's preexisting injuries and treatment, there is a valid line of reasoning by which the jury could have concluded that plaintiff's alleged neck and/or back injuries and his consequent surgeries were not the result of the motor vehicle. Defendant’s expert found no objective evidence of a sprain or a strain and that he was simply giving plaintiff the benefit of the doubt on the issue of causation. The jury chose not to give plaintiff the same benefit of the doubt, as it was entitled to do. Indeed, the jury was entitled to reject the testimony of both plaintiffs' and defendant's experts upon determining that the facts differed from those which formed the basis of the experts’ opinions.


03/22/18       Allston v. Elliott

Appellate Division, First Department

Seven Year Gap in Treatment Could Not Be Explained by Affidavit which Contradicted Deposition Testimony

Defendant met his prima facie burden by submitting the report of a physician who opined that plaintiff Alston's cervical spine sprain and plaintiff Brown's lumbar spine sprain had fully resolved. The physician opined that, while Alston exhibited limitations in range of motion, the limitations were subjective and unsupported by any objective evidence of injury. Moreover, defendant argued that both plaintiffs' claims of serious injury were belied by their having ceased all treatment about seven years earlier, within three months of the accident, which they were required to explain.


In opposition, plaintiffs submitted affidavits that contradicted their sworn deposition testimony concerning the reasons for their cessation of medical treatment. Plaintiff Alston testified that she terminated treatment after about three months because therapy wasn't "helping" her. Plaintiff Brown testified that he terminated treatment because it made him feel worse afterwards. However, in opposition to defendant's motion, in near identical affidavits, both plaintiffs asserted that they ceased treatment because no-fault benefits were discontinued, and they could no longer afford to pay out of pocket. 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.


The unexplained seven-year period gap in treatment also renders the opinion of plaintiff Alston's medical expert speculative as to the permanency, significance, and causation of the claimed injuries. Plaintiff Brown did not offer any recent evidence of limitations, and therefore could not demonstrate that he sustained an injury involving "permanent consequential" limitation in use of a body. Moreover, the evidence that both plaintiffs returned to work shortly after the accident and ceased treatment within three months, demonstrates that their injuries were minor in nature, involving neither "significant" nor "permanent consequential" limitations in use of their spines.



Tessa R. Scott

[email protected]


03/28/18       Allstate Insurance Company v. Travelers Companies
Appellate Division, Second Department

No Fault Loss Transfer Arbitration Award Upheld. Standards Discussed.

An Allstate insured and a Travelers insured were involved in an auto accident. Travelers paid its insured $75,000, representing coverage for basic economic loss and optional basic economic loss. Pursuant to Insurance Law § 5105(a), Allstate reimbursed Travelers in the amount of $50,000 for the payment made to Travelers' insured. Travelers then sought, through arbitration, to recover from Allstate the remainder of its payment to the insured. The matter was submitted to an arbitration panel. The arbitrators determined that Travelers was entitled to recoup the entire $75,000 payment to its insured and awarded Travelers $25,000. [Intercompany arbitration (loss transfer of No Fault benefits) is allowed if at least one of the vehicles weighs more than 6500 pounds unloaded or is a vehicle used primarily for the transportation of persons or property for hire.]


Allstate filed a petition in the Supreme Court to vacate the arbitration award. Travelers opposed the petition, and requested that the award be confirmed. The Supreme Court denied the petition and confirmed the award. The court then issued a judgment in favor of Travelers in the principal sum of $25,000. Allstate appealed.


To be upheld, an award in a compulsory arbitration proceeding such as this one must have evidentiary support and cannot be arbitrary and capricious Moreover, with respect to determinations of law, the applicable standard in mandatory no-fault arbitrations is whether any reasonable hypothesis can be found to support the questioned interpretation.


Here, the arbitrators' determination that Travelers was entitled to recoup the entire payment made to its insured pursuant to basic economic loss and optional basic economic loss coverage was not arbitrary and capricious and it was rationally based on the relevant statutes and regulations.


03/23/18       Arnica Acupuncture, P.C. v Allstate Ins. Co

Appellate Term, Second Department

Defendant did not Establish that it Sent Denial Letters Timely

In this action by a provider to recover assigned first-party no-fault benefits, plaintiff sought $167.04 of an allegedly unpaid balance of its remaining claims. Defendant moved for summary judgment dismissing the complaint and plaintiff cross-moved for summary judgment.


Plaintiff correctly argued that defendant's moving papers failed to establish that the denial of claim forms had been timely mailed. As a result, defendant did not demonstrate that it is not precluded from asserting its proffered defenses. Consequently, defendant is not entitled to summary judgment dismissing the complaint.


However, plaintiff failed to establish its entitlement to summary judgment on its cross motion, as plaintiff failed to establish either that defendant had failed to deny the claims within the requisite 30-day period, or that defendant had issued timely denials of the claims that were conclusory, vague or without merit.


03/23/18       Charles Deng Acupuncture, P.C. v Citiwide Auto Leasing

Appellate Term, Second Department

Police Accident Report did not Constitute Sufficient Notice of Claim

Plaintiff moved for summary judgment, and defendant cross-moved for summary judgment dismissing the complaint on the ground that defendant had timely and properly denied the bill at issue based upon late notice of the accident. Plaintiff appealed from an order that granted defendant's cross motion.


The affidavit of defendant's claims adjuster established that defendant had timely mailed its denial of claim form, which denied plaintiff's claim on the ground that sufficient written notice of the accident had not been submitted to defendant within 30 days of its occurrence. The denial of claim form further advised plaintiff that late notice would be excused if reasonable justification for the failure to give timely notice was provided. As defendant established its prima facie entitlement to judgment as a matter of law, the burden shifted to plaintiff to demonstrate a triable issue of fact.


Plaintiff's contention that the police accident report received by defendant was sufficient to constitute notice of the accident lacks merit as, even if the police report had been received by defendant within 30 days of the accident; it indicated that there were no injuries and, as a result, it did not identify an eligible injured person.


Thus, the order was affirmed.



Steven E. Peiper

[email protected]


03/23/18       Smith v. Safeco Ins. Co. of Am.

Appellate Division, Fourth Department

Water from Burst Water Main is Not Surface Water; Coverage Confirmed

Plaintiffs commenced this action seeking coverage for water damages that they sustained to their home a result of a water main break on the street.  Essentially, the water exited the pipe, traveled across the ground and ultimately into plaintiffs’ home.  Defendant denied the claim on the basis of the surface water exclusion, and was successful in obtaining summary judgment at the trial court level.


On appeal, the Fourth Department noted that there was no definition of the term “surface water.”  As such, they applied the plain meaning as it would be understood by an ordinary policyholder.  This meaning had had previously been interpreted by the Fourth Department to mean “the accumulation of natural precipitation on the land and its passage thereafter over the land until it either evaporates, is absorbed by the land or reaches stream channels'. "  Clearly, the water at issue in this case did not qualify as surface water, thereby rendering the exclusion inapplicable.  On this basis, the Court reversed the trial court’s decision, and remanded the matter back for a hearing on damages. 


03/27/18       Gutierrez v. Reiser

Appellate Division, First Department

Disposal of Vehicle Damaged in Collision was not Sufficient to Validate Motion for Spoliation Sanctions

Plaintiff was involved in two motor vehicles collisions within 19 days.  With regard to the first incident, plaintiff was rear-ended by defendant Reiser.  Reiser later stipulated to liability, but challenged plaintiff’s claims of injuries.  During the discovery of the case, defendant learned that plaintiff disposed of the vehicle without providing it for discovery. Defendant moved for spoliation sanctions as a result.


In denying defendant’s application, the Court noted that the movant had the burden of establishing the vehicle was disposed “with a culpable state of mind.”  Here, the Record demonstrated that the vehicle was inspected after the first accident at the request of an insurance company.  She also had the vehicle inspected after the second accident.  In addition, plaintiff produced photographs of the vehicle after the first and second accidents, produced a police report, and provided deposition testimony.  On balance, the Court found that all of the other evidence was a sufficient substitute for the loss of opportunity to inspect the subject vehicle.



Agnes A. Wilewicz

[email protected]


All’s quiet on the Second Circuit front



Jennifer A. Ehman

[email protected]


03/23/18       American Med. Alert Corp. v. Evanston Ins. Co.

Supreme Court, New York County

Judge Martin Shulman

New York Trial Court Directs Discovery of Claims Reserve Information

This decision involves the scope of discovery.  Evanston issued a professional liability policy to plaintiff that went into effect on July 2, 2015.  In November, 2015, plaintiff notified Evanston of a medical malpractice lawsuit, referred to as the Lynch Action, to which it was not yet a party, but which plaintiff expected to be named.  Between November 2015 and April 2016, Evanston retained coverage counsel in conjunction with its ongoing evaluation and to decide whether to continue or deny coverage if plaintiff became embroiled in the Lynch Action as a third-party defendant.  Evanston also sought coverage could to defend the company if plaintiff decided to sue the insurer in any future coverage litigation. 


On April 27, 2016, Evanston formally notified plaintiff that it was declining coverage because plaintiff failed to notify the insurer that a claim might be made against plaintiff.  Plaintiff then went ahead and filed this declaratory judgment action. 


By order to show cause, plaintiff then sought to compel Evanston to produce unredacted versions of certain documents produced which consisted of Evanston’s claim notes generated during the period of February 16, 2016 (the date coverage counsel was retained) and November 15, 2016 (the date of commencement of the declaratory judgment action), which included information about limit reserves.


As support for its application, plaintiff directed the court to “terse findings” by Evanston adjusters recorded in the claim notes between November 20, 2015 and February 12, 2016 that plaintiff’s notification of the Lynch Action was timely and within the policy’s covered period, and that plaintiff had no knowledge prior to the effective date of the 2015 renewal policy upon which it could reasonably believe a claim against it was likely and defense was warranted. 


Against this backdrop of what plaintiff characterized as party admissions, plaintiff contended that Evanston’s factually unsupportable change in position was evidence of its bad faith denial of coverage, and limit reserve information would be probative of Evanston’s impression concerning whether or not the claim is covered.  Specifically, plaintiff submitted that if a limit reserve was set at a higher number prior to retaining new coverage counsel and then subsequently declined coverage, it would indicate the carrier did not believe plaintiff had actual knowledge of a purported professional negligence claim against it prior to renewing the policy.  Plaintiff also challenged the descriptions contained in the carrier’s privilege log as not sufficiently detailed. 


In considering the arguments, the court began by discussing whether insurance reserve information is discoverable.   It noted that Evanston deemed reserve information to be not relevant to resolve the issue of coverage and not discoverable because the establishment of a reserve may merely reflect a prudent insurer’s recognition of the risks inherent in litigation rather than an admission of coverage or liability.  In the court’s view, however, the unredacted claims notes for the period of November 2015 and February 12, 2016 seemed to tell a different story.  And, in the court’s view, since the pleadings contained allegations which alleged violation of the terms and conditions of the policy, there was implicitly a claim of bad faith, which would then warrant broader discovery.  Accordingly, in the court’s view, because of Evanston’s change of position midstream to cut off defense coverage and its perceived unproven conclusion that its reserve information is not relevant, the court determined that reserve information was discoverable and granted plaintiff’s request that the insurer produce copies of unredacted claims notes containing reserve information relevant to plaintiff’s claim under the policy. 


The court then considered whether plaintiff properly withheld all claims notes between the time coverage counsel was retain and the formal declination of coverage as work product and/or attorney-client privilege and/or prepared in anticipation of litigation.  In considering whether disclosure was appropriate, the court again highlighted that the insurer chose not to file any specific fact-based affidavit of a representative with personal knowledge of the facts.  Nevertheless, the court could, in its view, still determine that claim note entries after the denial was issued were made in anticipation of litigation.  However, the notes between the time of retention of counsel and the denial were not presumptively privileged.   Thus, the court directed that unredacted claims notes during this time be submitted to the court for in-camera review.    


NOTE:  In reviewing this decision, the part that remains unclear is whether the carrier was directed to turn over reserve information for the entire life of this claim, or if disclosure of the reserve information was only ordered for the time periods in which claims notes in general were deemed discoverable.  The decision also highlights the need for fact based affidavits when involved in these types of discovery disputes.



Brian D. Barnas

[email protected]


04/02/18       D.K. Property, Inc. v. National Union Fire Ins. Co.

Supreme Court, New York County

Insured’s Breach of the Implied Covenant of Good Faith and Fair Dealing Claim and Claim for Attorneys’ Fees Incurred in Bringing an Action against its Insurer Survive Motion to Dismiss

Plaintiff is the owner of a building located at 40 Prince Street in Manhattan that was allegedly damaged by a neighboring construction project in or around October 2014.  Plaintiff alleges that the rear wall of the neighboring building provided lateral support to the east exterior wall of plaintiff's building, and when that rear wall was demolished, plaintiff's building suffered structural movement and damage.


Defendant National Union issued a property insurance policy to Plaintiff.  Plaintiff alleged that it made a claim for coverage under the Policy, but that National Union has acted in bad faith by making unreasonable and burdensome requests for information and by failing to provide a coverage determination. Plaintiff further alleged that National Union's actions forced it to incur substantial costs and expenses, including attorneys' fees.


After a prior motion to dismiss was granted without prejudice to re-file, Plaintiff filed an amended complaint on July 14, 2017. The amended complaint contained causes of action for breach of contract and breach of the covenant of good faith and fair dealing. The pleading provided great detail regarding the efforts made by plaintiff to obtain coverage for its alleged loss between October 2014 and the filing of this action in February 2017, and detailed National Union's handling of the claim. Plaintiff alleged that National Union undertook unreasonable claims handling in bad faith, for the purpose of making the claim too expensive for plaintiff to pursue and, thereby, allegedly, inducing plaintiff to abandon its claim for coverage.  In a November 2016 meeting between the engineers hired by both sides, National Union's engineer is alleged to have expressed agreement that the negligent renovation design and construction of the neighboring building was the source of distress to plaintiff's building. Plaintiff says that it has been "abandoned" by National Union, forcing it to sue the tortfeasors in a separate action.


The amended complaint also alleged that National Union's delay and unreasonable demands for information and inspections of the premises has caused plaintiff to incur certain other expenses. In this regard, the amended complaint alleges that DK Property expended significant monies responding to National Union's requests for information, including legal fees and mitigation costs.


National Union moved for partial dismissal of the amended complaint seeking consequential damages and the separate cause of action for breach of the implied covenant of good faith and fair dealing.


First, the Court concluded that Plaintiff's good faith and fair dealing cause of action was not duplicative of the breach of contract claim.  In the first cause of action, plaintiff alleged that National Union breached its obligations under the Policy by refusing to acknowledge coverage for plaintiff's property loss, and seeks the coverage it is owed under the Policy.  The second cause of action alleged that National Union has breached the implied covenant of good faith and fair dealing by refusing to effectuate a prompt, fair, and equitable settlement of plaintiff's property damage claim; by making unreasonable and burdensome demands for information; by ignoring plaintiff's documentation demonstrating the nature, extent and cause of the damage; and by forcing plaintiff to bring a lawsuit against the tortfeasors for damages and the instant lawsuit against National Union for a determination as to coverage under the Policy.  The relief sought in the second cause of action is not for coverage under the Policy, but for plaintiff to be made whole for all of the legal and engineering fees and other costs that it has allegedly incurred as a result of National Union's alleged bad faith conduct and two-year delay in making a determination.


Thus, the Court declined to dismiss the second cause of action.


Turning to consequential damages, the Court concluded that the Complaint did not properly state a claim for damages like painting and water mitigation, which were in the nature of a property damage loss.  Rental loss also was not available as consequential damages because the Policy did not have business interruption coverage.


Plaintiff had also demanded attorneys’ fees for the costs of commencing a separate lawsuit against the tortfeasors and the legal fees in prosecuting the action for insurance coverage.  Citing Panasia, the Court concluded that the first group of attorneys’ fees may be considered reasonably foreseeable damages resulting from National Union’s bad faith in delaying resolution of the claim. 


As for the second type of fees, the Court correctly noted that an insured may not recover the legal fees it incurs in bringing affirmative action against an insurer to settle its rights to an insurance policy.  However, there is a narrow exception where the insured can prove the carrier had no arguable basis to challenge its claims and can show no reasonable carrier would challenge the claim under the given facts.  Given Plaintiff’s allegation that National Union’s own engineer agreed with Plaintiff about the cause of the loss, the Court allowed the claim for recovery of Plaintiff’s fees in prosecuting the coverage action to remain.


03/29/18       Demase v. State Farm Florida Insurance Company

District Court of Appeal of Florida, Fifth District

Insurer’s Payment of the Policy Limits Satisfied Statutory Requirement for a Determination of the Insurer’s Liability for Coverage and the Extent of Damages

Plaintiffs’ home was insured by State Farm.  In 2009, their home sustained suspected sinkhole damage.  State Farm hired Geohazards, Inc., who confirmed the existence of sinkhole activity and recommended repairs.  The repairs were performed resulting in further damage.  Geohazards re-inspected and made additional recommendations.  In 2012, a neutral evaluator agreed there was sinkhole damage and recommended repairs. The plaintiffs agreed to proceed with the neutral evaluator's recommended repairs under protest.  However, in April 2013, State Farm hired MCD of Central Florida to inspect the property.  MCD opined that there was no sinkhole activity affecting the property. When the plaintiffs persisted with their claim for insurance benefits, State Farm demanded additional documentation, inspections, and examinations under oath.  Plaintiffs complied.


On August 27, 2014, Plaintiffs served a civil remedy notice pursuant to Section 624.155 alleging that State Farm engaged in bad faith insurance practices.  The notice began a 60 day period in which State Farm could cure its alleged wrongful conduct.  While State Farm paid nothing during the 60 day period, it conceded that the home could not be repaired and tendered the policy limits on April 10, 2015.


Plaintiff’s then brought a bad faith lawsuit against State Farm.  State Farm moved to dismiss arguing that the plaintiffs did not have a determination of liability against State Farm regarding their entitlement to coverage as needed to assert a bad faith claim.


First party bad faith claims in Florida exist by statute.  To bring a bad faith action, an insured must show that there has been (1) a determination of the insurer's liability for coverage; (2) a determination of the extent of the insured's damages; and (3) the required notice is filed pursuant to section 624.155(3)(a).  However, litigation is not the only means for an insured to obtain a determination of liability and the full extent of damages.  Such a determination may be made by litigation, arbitration, settlement, stipulation, or payment of the policy limits.


Here, State Farm paid the full policy limits after the 60 day cure period had expired.  This satisfied the requirement for a final determination of the insurer’s liability and damages.  Indeed, in determining liability and damages the “key “ is not the underlying breach of contract action, but rather, the payment by the insurer.  Accordingly, the plaintiffs’ bad faith claim was allowed to go forward.


GUEST COLUMN FROM OUR FRIENDS AT BULLIVANT HOUSER BAILEY, P.C., reprinted with the permission of the authors.


03/26/18       Keodalah v. Allstate Insurance Company

Court of Appeals of Washington

Take It Personally: Washington Imposes Extracontractual Liability on Claims Handlers 
By Matthew J. SekitsOwen R. Mooney

This week, Washington's Division One Court of Appeals, decided an individual insurance claims handler can be personally liable to an insured for bad faith and violations of Washington's Consumer Protection Act. The decision is Keodalah v. Allstate Ins. Co., No. 75731-8-I, 2018 WL 1465526 (Wash. Ct. App. Mar. 26, 2018).  


Keodalah involved an underinsured motorist claim. The defendant was the claims handler who handled the UIM claim for the insurer. Last year, a Washington court concluded that a corporate insurance adjuster could be sued for "bad faith." Merriman v. American Guarantee, 396 P.3d 351 (2017). What makes Keodalah significant is it expands that exposure to individual claims professionals, including those who are employees of the insurance company.


In Washington, there is a duty of good faith under RCW 48.01.030. In Keodalah, the appellate court read the statutory language regarding "good faith" as to "all persons" involved in insurance to mean that an individual company employee claims handler could be held personally liable for bad faith conduct. The court reached this conclusion in part because in the same chapter of the code, "person" was defined as "any individual, company, insurer, association, organization, reciprocal or interinsurance exchange, partnership, business trust, or corporation." This led the appellate court to conclude the individual insurance claims handler acting as the insurer's representative fell within the statute's plain language, meaning the individual employee claims handler had a duty to act in good faith, and could be sued for breaching that duty.  


On the Consumer Protection Act claim, the appellate court concluded the existence of a contractual relationship between the individual claims handler and the policyholder was not a necessary element of the claim. In so doing, it relied, in part, on a decision by the Washington Supreme Court, Panag v. Farmers Insurance Company of Washington, 204 P.3d 885 (Wash. 2009), which held a Consumer Protection Act claim does not require proof of a consumer or other business relationship between the policyholder and the person or entity against whom the claim is brought.  


John R. Ewell

[email protected]


03/23/18       Baldwin Mutual Insurance Company v. McCain

Supreme Court of Alabama

In Class Action Lawsuit Alleging Bad Faith Valuation of Claims, Alabama High Court Cuts Off Class Certification (for Now)

McCain owned a house in Montgomery, Alabama, upon which she held a homeowner's insurance policy issued by Baldwin Mutual. That policy provided that any covered property losses would be settled “at actual cash value at the time of loss but not exceeding the amount necessary to repair or replace the damaged property.” The policy further explained “actual cash value” as follows:


Actual cash value is calculated as the amount it would cost to repair or replace covered property, at the time of loss or damage, with material of like kind and quality, subject to a deduction for deterioration, depreciation and obsolescence. Actual cash value applies to valuation of covered property regardless of whether that property has sustained partial or total loss or damage.


The actual cash value of the lost or damaged property may be significantly less than its replacement cost.


In July 2005, McCain's house was damaged as the result of a windstorm. She filed a claim with Baldwin Mutual who retained an independent adjuster to examine McCain's damaged property and to prepare an estimate to repair the damage. Baldwin Mutual paid McCain's claim in accordance with the estimate prepared by the adjuster. McCann authorized the work and Baldwin Mutual paid the funds directly to McCain's contractor. In June 2006, McCain filed another claim after her house suffered damage as a result of a lightning strike. After the same adjuster prepared an estimate, Baldwin Mutual paid the new claim in accordance with the adjuster's estimate. There was no indication that McCain sought more money from Baldwin Mutual in connection with those claims or that she was unhappy in any way with the service provided by Baldwin Mutual before she initiated this lawsuit.


On September 29, 2010, McCain filed a complaint against Baldwin Mutual. As subsequently amended, the complaint stated one claim of breach of contract and another claim generally asserting misrepresentation and suppression of material facts. The genesis of the claims is that Baldwin Mutual had wrongfully been reducing the amount paid on claims made on actual-cash-value policies inasmuch as its practice was to deduct some amount for depreciation not only of the damaged materials and the labor costs of initially installing those damaged materials (based on their condition prior to the covered damage and their expected life span), but also of the labor costs associated with the removal of the damaged materials. It is improper and impossible to depreciate those labor costs, McCain argued, because they had not previously been incurred at some defined time in the past; rather, they were being incurred at the time of the current repair.


For example, with regard to McCain's July 2005 claim, Baldwin Mutual recognized that the cost of removing damaged roof shingles was $420; however, $63 in depreciation was deducted from that amount, and Baldwin Mutual paid only $357 for that job, what it considered to be the actual cash value.


McCain claimed that thousands of Baldwin Mutual policyholders were negatively affected by Baldwin Mutual's practices and McCain also sought class-action certification of her claims. Baldwin Mutual filed a motion for a summary judgment. Baldwin Mutual contended that McCain's claims were barred by the doctrine of res judicata based upon a final judgment entered by the Calhoun Circuit Court in Baldwin Mutual Insurance Co. v. Adair, CV–2011–000002 (“the Adair litigation”), which involved the same claims and same parties. Baldwin Mutual argued that class certification should be denied because McCain's breach of contract claim was subject to res judicata.


It was undisputed that the same parties were involved in both the present action and the Adair litigation, that McCain's counterclaims in the Adair litigation were the same as her claims in the present action, and that the Adair litigation ended with a judgment on the merits against the insureds—including McCain—and in favor of Baldwin Mutual. Thus, the only remaining element of res judicata was subject-matter jurisdiction. The Alabama Supreme Court found that it was beyond dispute that the trial court had subject-matter jurisdiction over a breach of contract claim.


It further found that the earlier action proceeded to final judgment against McCain and in favor of the insurer. As such, McCain's individual claims of breach of contract were barred by res judicata. This also had the effect of making McCain unfit to serve as class representative. As such, the Alabama Supreme Court also denied class certification.



Howard B. Altman

[email protected]


Shared Vehicle Legislation under Consideration


In administrative news, New York’s legislature is considering a Bill to allow individuals to use their vehicles for ride sharing without having to classify their vehicles as commercial vehicles-for-hire or liveries."  The proposed Bill, S427/A9043, can be viewed at:


The Bill would essentially allow private automobile owners to use their car as a Zipcar: to ‘lease’ the car to individuals, known or unknown, to use for the day, week, etc.  The proposed Bill is substantially similar to previous versions of the bill. See:


The New York Insurance Association has opposed the proposed Bill, and due to concern about insuring vehicles that would be driven by individuals unknown to the owner of a vehicle, and unknown to the insurer as well.  The Bill is still being discussed and potentially revised before a vote. We will keep you apprised of its progress.


Brian F. Mark

[email protected]


03/27/18       Owners Ins. Co. v. Bobby T., Inc.

U.S. District Court for the Middle District of Florida, Tampa Division
US District Court Held that Where an Underlying Complaint Could be Reasonably Interpreted to Allege Damage to Property Other than that on Which the Insured Performed its Work, the “Damage to  Your Work” Exclusion Does not Preclude Coverage

This declaratory-judgment action arises out of an underlying construction defects action.  In September of 2009, Bahama Bay contracted with the defendant, Bobby T., Inc. (“Bobby T.”) to repair and remediate moisture intrusion problems at the exterior stairs and breezeways at Bahama Bay Resort and to prevent it from reoccurring.  The scope of work was described as shoring, demolition, framing, waterproofing, installation of siding and soffits, flashing, painting, repair of exterior columns and rails, landscaping, cleaning and pulling all permits.  Bobby T. performed the work in 2009 and 2010. 


In the underlying state court action, Bahama Bay sued Bobby T. for damages for water intrusion caused by alleged construction defects.  According to the underlying complaint, in 2014, Bahama Bay noticed signs of damage beginning to appear in the same areas as those where the original damage and subsequent repairs were made in 2009 and 2010.  Additionally, the underlying complaint alleged that signs of water damage and moisture infiltration not only appeared in areas where repairs had been made but also in areas indicating that leaks allowed water to travel from points of penetration to other parts of the exterior stairwells causing further damage and that the Resort had suffered continued damage by the ongoing water intrusion and must be repaired.


Plaintiffs Owners Insurance Company and Auto-Owners Insurance Company commenced a declaratory-judgment action seeking a declaration that they did not owe a duty to defend or indemnify their insured, Bobby T., under a Commercial General Liability Policy and Umbrella Policy relative to the underlying action.  The plaintiffs were defending Bobby T. under a reservation of rights.


Plaintiffs filed a motion for summary judgment in the declaratory-judgment action on the issue of whether they owed Bobby T. a duty to defend.  The plaintiffs argued that the allegations in the underlying complaint demonstrate that the claimed "property damage" falls within the "damage to your work exclusion" in the policies as Bahama Bay only alleged damages related to the work performed by Bobby T.


The Commercial General Liability policy issued to Bobby T. provides the following coverage for "property damage":


a. We will pay those sums that the insured becomes legally obligated to pay as damages because of . . . "property damage" to which this insurance applies.  We will have the right and duty to defend the insured against any "suit" seeking those damages.


The Policy excludes from coverage:


… Damage to Your Work "Property damage" to "your work" arising out of it or any part of it and included in the products-related operations hazard"


27. "Your Work":

a. Means:

(1) Work or operations performed by you or on your behalf, and

(2) Materials, parts or equipment furnished in connection with such work or operations.


The Court noted that the duty to defend arises when the underlying complaint alleges "facts that fairly and potentially bring the suit within policy coverage."  The Court also noted that "When an insurer relies on an exclusion to deny coverage, it has the burden of demonstrating that the allegations of the complaint are cast solely and entirely within the policy exclusion and are subject to no other reasonable interpretation."  Any doubts about whether the duty to defend has been triggered are to be resolved in favor of the insured.


After reviewing the underlying complaint, the Court determined that the plaintiffs were not entitled to summary judgment.  The Court held that the complaint could be reasonably interpreted to allege damage to property other than that on which Bobby T. performed work.  Specifically, the complaint alleges damage to property other than "[w]ork or operations performed by [Bobby T.] or on [its] behalf, [or] Materials, parts or equipment furnished in connection with such work or operations."  As such, the Court held that the complaint alleged facts that fairly bring the suit within the policy coverage and which are not "cast solely and entirely" within the "Damage to Your Work" policy exclusion.  The Court determined that at best, it was unclear from the face of the underlying complaint that the water penetration did not damage property other than the staircases and landings.  Although the complaint alleged damage to the exterior staircases and landings, the areas Bobby T. was originally hired to repair, it was not clear that no other property was damaged.  For example, the complaint alleged that in 2014, plaintiff noticed visible signs of damage beginning to appear in the same areas as those where the original damage and subsequent repairs were made in 2009 and 2010.  Signs of water damage and moisture infiltration not only appeared in areas where repairs had been made but also in areas indicating that leaks were permitting water to travel from points of penetration to other parts of the exterior stairwells causing further damage.


As such, the plaintiffs failed to meet their burden of demonstrating that the allegations in the underlying complaint fell solely and entirely within the exclusion and any doubts as to whether the plaintiffs had a duty to defend must be resolved in favor of Bobby T. As disputed issues of fact existed as to the property damaged, summary judgment on the issue of indemnification was precluded.  Accordingly, the Court denied the plaintiffs’ motion for summary judgment.



Larry E. Waters
[email protected]


03/26/18       Philadelphia Indemnity Ins. Co. v. Intrepid Group, LLC 

United States District Court, Southern District of New York

Insurer’s Failure To Disclaim Until Fifteen Months After Having Sufficient Knowledge To Do So Was Unreasonable
Plaintiff issued a Commercial General Liability Policy to named insured Aguila, Inc.  Agulia Inc., operated and managed the Fulton Family Residence.  The Policy contained an “Abuse or Molestation Exclusion” and a “Sexual or Physical Abuse or Molestation Vicarious Liability Coverage Form.”  Following the issuance of the Policy, Defendants, the City of New York (the “City”) and Intrepid Group, LLC (Intrepid), were additional insureds for purposes of the Commercial General Liability part of the policy.  However, there was a dispute as to whether the City and Intrepid qualified as additional insureds under the “Sexual or Physical Abuse or Molestation Vicarious Liability Coverage Form.”


On June 21, 2013, Steven Cardona (“Cardona”) filed a notice of claim against the City alleging that an employee of Fulton had sexually assaulted him.  The City tendered the notice of claim to Plaintiff.  On October 7, 2013, Plaintiff sent a letter to the City titled “DENIAL OF COVERAGE” in which Plaintiff informed the City that it would neither defend nor indemnity the City for the notice of the claim and the City was only an additional insured under the CGL part of the Insurance policy.


On November 7, 2013, Cardona filed a lawsuit against the City, Agulia and others.  However, Cardona did not specify that the assault, which led to his injuries, was sexual in nature.  On December 20, 2013, the City tendered Cardona’s Complaint to Plaintiff.  On March 24, 2014, Plaintiff sent a “RESERVATION OF RIGHTS/PARTIAL DISCLAIMER.” In the March 24, 2013, correspondence, Plaintiff reproduced the “Abuse or Molestation Exclusion” and the “Sexual or Physical Abuse or Molestation Vicarious Liability Coverage Form.”  In addition, Plaintiff agreed to defend the City in the Cardona suit. 


After a third-party action included Intrepid into the lawsuit, Intrepid sent a letter on June 25, 2014 to Plaintiff seeking coverage under the Policy.  The third-party did not mention sexual assault.  On September 4, 2014, Plaintiff issued a “RESERVATION OF RIGHTS/PARTIAL DISCLAIMER, in which it reproduced the Abuse or Molestation Exclusion” and the “Sexual or Physical Abuse or Molestation Vicarious Liability Coverage Form.”


On May 5, 2015, Plaintiff received a letter from Intrepid that discovery had uncovered that the assault alleged which caused his injuries was sexual in nature.  On October 11, 2016, Plaintiff filed the current declaratory judgment before the court against the City, Intrepid, and Cardona. 


The court began its analysis by noting that 3420(d)(2) creates a heightened standard for disclaimer that depends merely on the passage of time rather than on the insurer’s manifested intention to release a right as in waiver, or on prejudice to the insure as in estoppel.”  Further, the court recognized that “to comply with 3420(d)(2), any notice disclaiming coverage must unequivocal, unambiguous and properly served.” As such, the court recognized that a reservation of rights letter is not satisfactory notice of disclaimer under 3420(d)(2).


One main contention between the parties was when Plaintiff had sufficient knowledge to disclaim based upon the relevant policy provisions.   It was alleged that Plaintiff had knowledge that Cardona’s lawsuit alleged sexual assault as early as December 20, 2013.  In the alternative, Intrepid argued Plaintiff had sufficient knowledge the Cardona’s lawsuit alleged sexual assault at the latest on July 14, 2015. The court found that it was unnecessary to determine when Plaintiff’s knowledge was sufficient to disclaim.  The court reasoned that even if Plaintiff’s knowledge was not sufficient until July 14, 2015, no reasonable jury could conclude that Plaintiff satisfied 3420(d)(2), due to Plaintiff’s failure to disclaim coverage fifteen months later.  


Nevertheless, plaintiff argued that by reproducing the applicable policy provisions without explicitly disclaiming coverage based upon those provisions would be sufficient to satisfy 3420(d)(2).  The court rejected this argument.  The court reasoned that 3420(d)(2) does not permit an insurer merely to reserve its rights to disclaim rather an insurer must state that it “disclaims liability or denies coverage in the case.”  As a result, the court found that Plaintiff only disclaimed liability under 3420(d)(2) when it informed the City and Intrepid that it would invoke the “Abuse or Molestation Exclusion” in Cardona’s case.  As such, Plaintiff did not disclaim until after it had unequivocal notice that the Cardona lawsuit was based upon sexual abuse. 


In sum, the court found that Philadelphia’s unexplained delay of fifteen months between the date it learned of the grounds to disclaim coverage under the insurance policy and the date it actually disclaimed coverage was unreasonable as a matter of law.  The court granted Intrepid’s cross-motion for summary judgment and the City’s request for summary judgment and denied Plaintiff’s motion for summary judgment.


03/08/18       Read Property Group, LLC v. Hamilton Insurance Company

United States District Court, Eastern District of New York

Policy’s Endorsement was Unambiguous and not Contrary to Public Policy
Defendant, Hamilton Insurance Company issued a Commercial Property insurance policy to Plaintiff, Read Property Group LLC.  The policy provided coverage to Plaintiff for any damages sustained at the Property and 361 additional properties.  The Policy contained an endorsement titled Protective Safeguards — Heat Maintained, Form WK CP 02 11 08.  This endorsement provided in part that “[a]s a condition of this insurance, you are required to maintain an ambient temperature of not less than 50° Fahrenheit at all times throughout any building identified in the Schedule by use of a gas-fired, coal-fired, electric or similar heating system.”


On January 14, 2015, Plaintiff submitted a Property Loss notice to Defendant.  Defendant retained an adjustor to evaluate the property, evaluate the loss, and prepare a report.  On June 21, 2016, Defendant issued a declination letter, denying coverage for the claim based upon the Policy endorsement, Protective Safeguards—Heat Maintained Endorsement. 


On July 14, 2016, Plaintiff commenced an action in New York Supreme court, alleging breach of contract and seeking coverage for the loss that incurred.  On August 10, 2016, the case was removed to this court.  On August 4, 2017, Defendant moved for motion for summary judgment with the Plaintiff cross-motion for summary judgment on September 6, 2017. 


In its analysis the court first noted that “when considered in isolation and without reference to the context, almost any word can be ambiguous. . . .” The court found “maintain,” is a transitive verb” which always takes a direct object.  As such the court found since “maintain” in the endorsement is limited by the phrase “ambient temperature,” its definition could only be one that would make sense with that phrase.


The court rejected Plaintiff’s argument that a “reasonable care” standard should be read into the plain language of the Endorsement.  In rejecting this argument, the court noted that “under the plain language of the Endorsement, it is irrelevant whether the insured monitors the temperature; instead, the insured must keep the temperature in the vacant building at or above fifty degrees “at all times”—i.e., “24-hours a day, 7-days a week” 


Further, the court found the second provision of the Endorsement provides context in which to interpret the first provision.  The court concluded that when the second provision of the Endorsement is read in conjunction with the fist provision “it is unreasonable to interpret the first provision as imposing anything less than an absolute duty on the insured.”


The court rejected Plaintiff’s second argument that the Endorsement violates public policy.  In its analysis the court noted that New York courts are reluctant to find insurance policy clauses violate public policy due to the recognition of the freedom of contract. The court also noted reasoned that at least one New York State court has enforced a provision almost identical to the Endorsement in the Policy.  Further, the court reasoned that there was nothing fundamentally unfair in enforcing the insurance policy as written.  As explained by the court, Plaintiff was a sophisticated organization. 


In sum, the court concluded that the parties’ insurance contract unambiguously excludes coverage for the loss at issue, and the Court therefore grants defendant’s motion for summary judgment and denies plaintiff’s cross-motion for summary judgment.  

Earl K. Cantwell
[email protected]


02/21/18       Westridge Townhomes Owners Assoc. v. Great American

United States District Court, Western District of Washington
Keeping Counsel’s Claim File Protected

Secondary and procedural litigation wherein first party claimants attempt to discover the claim files of counsel is becoming a common and contentious occurrence. In this case, the property owner sought to obtain numerous documents prepared for the insurance company by its counsel in connection with a coverage and claim dispute. The insured was generally successful.


The Federal Court started from the general proposition that discovery may be had of any material that is non-privileged and relevant to a party’s claim or defense given the needs of the case. The insured sought documents withheld under attorney-client and work product privileges which were created as part of the coverage investigation. The Federal Court also noted a Washington State case, Cedell, which stands for a presumption that there is no attorney-client privilege as between the insured and the insurer as part of the claims adjusting process. The insurer may overcome the “presumption of discoverability” by showing that the attorney was not engaged in claims investigation, evaluating, or processing. Furthermore, documents created in the ordinary course of (insurance) business are not deemed protected by the “work product” doctrine under federal procedural rules. The insured also argued that it was making a “bad faith” claim, which would entitle it to pierce any privilege and require production of the entire claims file.


The insurance company argued that the attorney was acting as counsel, and even if he became involved in the claims process they could still claim attorney-client privilege if the attorney was an agent necessary for the provision of legal advice. The insurance company also argued that documents that were generated post-litigation were not subject to discovery, and that the “bad faith” claim was not sufficient to open up all privileged documents to discovery. Generally, the court was being asked to distinguish between documents where the attorney assisted in the claims handling process, as opposed to rendering legal advice and counsel.


The District Court generally held for the insured. However, the Court did find that the insured had failed to make a viable showing of “bad faith” that might justify piercing and discarding all assertions of privilege. The Court examined the discovery requests and the privilege logs prepared by counsel, and determined that a further camera review by the District Court was not justified in the first instance. The insurance company withheld dozens of documents listed in privileged logs, but apparently had failed to keep separate investigation and litigation files. The District Court concluded that the attorney had been working as a “claim investigator” and evaluator and that there was no attorney-client privilege for the withheld documents, at least up to and until a coverage denial letter was finalized and delivered in April 2017.


The District Court likewise concluded that the work product privilege did not attach to most of the documents and, at best, some of the documents may have been prepared for a “dual purpose” i.e. they were both claims and litigation-oriented. In conclusion, the Court held that very few documents were subject to being withheld, and that there was an insufficient showing to compel an in camera further review and assessment by the Court.


This case represents a good example of the ongoing effort by insureds to obtain counsel’s coverage files. The insured was bolstered in this case by an underlying Washington State policy that there is a “presumption” that the insurance carrier’s files are not privileged, and the burden is on the insurance company to prove the privilege and justify non-disclosure.


Since the case was presumably in Federal Court based on diversity of citizenship, the District Courts apply state substantive law but may apply their own “procedural” rules. It is therefore an issue that the Court gave deference to Washington State law on the attorney-client privilege, as opposed to federal cases defining and explaining privileged documents.


This case suggests the best practice of separating the claims and legal files at the earliest possible date, avoid comingling of documents, memoranda, reports, and the like, and do not “cut and paste” one to the other file.


This case also encourages counsel to perform actual bona fide legal work such as drafting opinions, researching case law, and analyzing policy provisions, as opposed to field work or actual claim investigation.


There should be separate funnels of reporting for the claims professional and the attorney to the carrier so as not to intermingle documents, memoranda, draft opinion letters, minutes of meetings and telephone calls, etc. The practice of conference calling and “round tabling” claims may need to exclude coverage or litigation counsel, at least at certain points in time.


Significant connection of counsel to the claims handling process, or if documents and reports are generated for a “dual purpose” of assisting the claims process as well as preparing for litigation or drafting an opinion letter, may render documents discoverable as not privileged and simply part of the claims process and file.

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