Coverage Pointers - Volume XIX, No. 22

Volume XIX, No. 22 (No. 507)

Friday, April 20, 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. 


I bring you greetings from Austin, TX where I am attending the Annual Meeting of the Association of Defense Trial Attorneys, a great national organization of top trial lawyers from throughout the U.S. and Canada.  Listened to a great program this morning on how artificial intelligence is and will impact our professions, both law and insurance, in the months and years to come.


Earlier this week I had the honor of presenting at the PLRB Claims Conference in Orlando.  We welcome several new subscribers who joined the family as a result of those presentations.  Back issues of CP are available on the website,


Congratulations to Jen Ehman on a spectacular Third Department win in a first party case.  Read all about it in Peiper on Property in the issue attached.


You’ll also find interesting cases involving additional insured coverage (or lack of it), “wear and tear”, exclusivity of workers compensation, and a variety of other hot and current issues.


And for those who are here for the first time, you’ll also learn a little about what went on 100 years ago today, as reported in newspapers from around the country.


Subscriber information:


To subscribe to Premises Pointers, drop a note to Jody Briandi.

To subscribe to Labor Law Pointers, drop a note to David Adams.

To subscribe to Health Law Pointers, drop a note to Larry Ross

To add others to the Coverage Pointers subscription list, drop a note to me and provide the name and email of the new subscriber to me.


One Hundred Years Ago This Week – the Debut of a One-Game Wonder:


Regular readers know I love baseball stories and I regularly find and research the history of one-game wonders, ball players who debuted 100 years ago and only played in one Major League gameWith acknowledgment to Mark Zeigler from SABR, I introduce you to one of these players.


Earl Nycum Howard had his major league debut 100 years ago this week. Born in Everett, Pennsylvania, in June of 1893, he took a fondness to the game of baseball. At the age of 18, he joined the Gettysburg Patriots in the newly formed Class D Blue Ridge League.


Howard became the ace of the Patriots pitching staff.  In his first year on the team, he struck out 160 batters in 28 games pitched during that 1915 season.


The Denver Bears club of the Class A Western League drafted Howard off the Gettysburg roster for $300. Howard reported to the Denver club for spring training in 1916 but he was homesick, and his contract sold to the Hagerstown (Maryland) Terriers, of the Blue Ridge League.


In 1916, he struck out 188 batters and tossed a no-hitter against his former team, now known as the Gettysburg Ponies.  His prowess continued with Hagerstown in 1917 with an ERA of 1.39, and eight shutouts over 266 innings in a league record 38 games. For 1918, he signed a contract with the Milwaukee Brewers of the American Association.  Many of his age joined the war effort in Europe and the Major League teams were hungry for ball players.  The St. Louis club signed him to pitch in the majors and in 1918, he was brought up to the big club.


On April 18, 1918, the Chicago Cubs played the St. Louis Cardinals at Robison Field, with Bill Doak starting on the mound for St. Louis against Cubs lefty Hippo Vaughn. After the Cubs jumped out to a 5-0 lead in the fifth, Doak was taken off the mound in favor of left-hander Jakie May, who pitched three-plus innings, allowing one run. With St. Louis trailing 6-2 going into the eighth inning, Hendricks called in rookie Earl Howard, who made his major league debut.


Howard pitched two scoreless and hitless innings, allowing two men to reach first base on walks. After retiring the first batter he faced, catcher Bill Killefer, Howard walked Vaughn and shortstop Charlie Hollocher. Turner Barber hit a line drive into Howard's mitt, and the rookie from Everett threw to shortstop, and future Hall of Famer Rogers Hornsby to double up Vaughn at second to end the inning. Howard retired the three batters he faced in the ninth, including Fred Merkle for the final out of the ninth inning. Down by four runs, St. Louis tried to rally in the ninth, and got a two-run home run by Doug Baird, but came up short, losing 6-4. During the ninth, John Brock pinch-hit for Howard, who never got an official time at bat.


Editor’s Note: On April 24, the papers noted that Howard did not go with them on their next road trip:


The St. Louis Star and Times

St. Louis, Missouri

24 Apr 1918





Four members of the Cardinals were left at home by Manger Jack Hendricks.  They are Pitchers Earl Howard and Fred Walker, Cather Joe Sugden and Outfield Clifton Heathcote.  They will work out daily at Cardinal Field.


For utility purposes, Hendricks took Infielder Bob Wallace, Outfielder Ted Menze and Jimmy Smyth who can be used either in the infield or outfield.


That was it for Howard and he was sent back to Milwaukee before leaving baseball to join the Army Aviation Corps. When the war ended, he returned to baseball but never achieved the form he had in the minors, and never again took the mound in a major league game.


While in Milwaukee, Howard had married the former Edna Skode of that city. The Howards had two children, Charlotte Edna, and Calvin Franklin. After spending 12 years in the Milwaukee area, the Howards moved to Pennsylvania in 1930, to be close to Earl's family. Back home, Howard engaged in an insurance business, and owned a gasoline service station in Everett.


Earl died unexpectedly of pneumonia at age 43 on April 5, 1937; he is buried in Everett Cemetery.


Jen’s Gems:




It was great to see many of you at the Defense Association of New York’s CLE program yesterday, Insurance for the Insurance Defense Lawyer.  The program was held at Battery Gardens, which is restaurant located in Battery Park that has unobstructed views of the Statue of Liberty.  At times, the views, made it a bit difficult to focus on the presentation.


In terms of my column this week, I report on an interesting decision from Supreme Court, New York County.  Again, in New York, our Supreme Court is not the highest court, but instead the trial level court.  The issue considered in that decision was whether New York Insurance Law § 3420(d), which requires timely disclaims applied to a single claim against the insured for contractual indemnification.  The argument being that it is a breach contract claim and that the statute applies to tort liabilities involving bodily injury and wrongful death.  As you will see in the decision, the court wholly rejects this argument citing a number of decisions applying the statute in this context.  A good read, and there is an interesting discussion of the Court of Appeals decision in Preserver Ins. Co. v. Ryba and the limits of same.


Until next issue…



Jennifer A. Ehman

[email protected]


Women too could be Traitors, 100 Years Ago:


The San Bernardino County Sun

San Bernardino, California

20 Apr 1918


Wilson Signs Espionage

Measure for the Women


By Associated Press to THE SUN


WASHINGTON, April 19.—President Wilson signed today a bill extending provisions of the espionage act to women and requiring registration of women enemy aliens.  Within a few days the president is expected to issue a proclamation declaring women subjects of enemy countries subject to arrest and internment and ordering German women to leave Washington at some definite future time.  Women enemy aliens also will be forbidden to approach docks, wharves and warehouses under the restriction.


Tessa’s Tutelage:


Dear Readers:


I have been sitting here trying to come up with something interesting to talk about that does not revolve around the ridiculous weather we have been having … however, I came up empty.  So, in an effort to not dwell on negativity, let’s get down to the nitty-gritty of no-fault!  The Second Department was particularly active this month so we have a bunch to consider. 


My favorite case of the bunch this week is Goldstar v Mercury.  There, the Plaintiff argued that Defendant’s summary judgment motion on the basis of res judicata could not be considered.  As you may know, res judicata is a fancy way of saying claim preclusion, viz. that the claim has been litigated before so you can’t have a second bite at the apple.  To successfully argue res judicata you need to show that the claim and all claims arising out the same transaction (s) have already been litigated by the parties.  In our case, Defendant couldn’t establish that Plaintiff was a party to the previous action.  The claim had been litigated, but Plaintiff was not yet a party.  Thus, Plaintiff would not have had an opportunity to be heard in that previous litigation.  It is a true example of winning the battle but losing the war.


Have a great week,



Tessa R. Scott

[email protected]


Just as Rich Folks Could Commit Insurance Fraud:


The Los Angeles Times

Los Angeles, California

20 Apr 1918


Gang Leader





Eighteen-Year-Old Auto Heir

is Sentenced


Had Served Two Other Terms

In Oklahoma


Insurance Companies Come in

for Criticism


Automobile insurance companies that attempt to recover money paid on damaged or lost machines through criminal court action were criticized by Superior Judge Willis yesterday.


When William E. Adcox, 19 years old, was released on probation on a charge of driving the $1100 automobile of W. M. Waterman without the consent of the owner, automobile insurance agents made an effort to have Adcox pay the cost of certain damages to the care amounting to about $400.  Judge Willis yesterday turned down the proposition coldly. 


“The insurance companies are paid premiums for assuming these risks on automobiles,” he said.  “They must stand the loss.”  Adcox was given sixty days in the County Jail for being implicated in the theft of the same automobile on February 7.


Ewell's Universe:


Dear Subscribers:


Somewhere other than Buffalo, spring is in the air. The Courts are waking up and getting into full swing. This week we have several interesting cases decided by the high courts of other jurisdictions.


We begin in New Jersey. New Jersey’s high court recently considered whether an underinsured motorist (UIM) carrier is required to pay a UIM claim when its subrogation rights are totally nullified by the insured. It is surprising that the case reached New Jersey’s high court in the first place. Even more surprising that the lower court had ruled against the UIM claimant since the claimant first gave notice of his lawsuit against the tortfeasor two years after the litigation was completed. This was after the UIM claimant rejected an arbitration award for 90% of the tortfeasor’s policy (no notice given to carrier), received a settlement offer (no notice given), entered into a high-low agreement (no notice give), completed a jury trial (no notice given), and after a jury verdict (no notice given).


In New Jersey, a UIM claimant is required to provide notice to his carrier when he or she commences an action against the tortfeasor. Notice is also required: (1) whenever the insured receives an acceptable settlement offer; (2) if the tortfeasor’s insurance coverage proves insufficient to satisfy the insured’s damages; and (3) when the insured receives a settlement offer or arbitration award that does not completely satisfy the claim, because the tortfeasor is underinsured.


New Jersey’s Supreme Court set the record, and the law, straight ruling that the prejudice to the carrier was clear. By failing to provide the requisite notice to his carrier, the insured destroyed the UIM carrier’s subrogation rights.


Our second stop is in Idaho. Currently, there is a jurisdictional divide whether an “occurrence” should be viewed from the nature of the injury-causing act or from the perspective of the insured. The Idaho Supreme Court recently clarified which rule it believes to be correct. The facts are straightforward. The insureds own a campground in Idaho. The insureds’ property manager got into a dispute with a fellow camper and shot him with a .45 caliber pistol. A lawsuit ensued and coverage was sought under a policy issued to the owners of the campground. The carrier denied coverage to the insureds, the campground owners, asserting that the intentional shooting was not an “occurrence”. The carrier then commenced a declaratory judgment action seeking a declaration that there was no coverage under the policy. The case ultimately reached Idaho’s high court.


The Idaho Supreme Court clearly pronounced that Idaho is a state that looks at the act itself in determining whether there is an “occurrence”. The court declined to adopt the rule requiring that an “occurrence” be examined from the perspective of the insured. Since the claimed injuries were caused by an intentional shooting, the court held that there was no “occurrence” and therefore, no insurance coverage.


If these cases pique your interests, they are discussed in further detail in the attached issue.


‘Til Next Time,



John R. Ewell

[email protected]


Murder by a Nine-Year Old:


The Buffalo Commercial

Buffalo, New York

20 Apr 1918





“I Shot Him Because He Stole

Two Marbles From Me,” Defendant Said.


Jersey City, April 20.—A charge of murder against a nine-year-old child, Frank Muchelowski, was made in the criminal court here today.  Questioned as to why he killed Edward Ohoroski, four years old, with a rifle while they were at play yesterday the small defendant replied


“I shot him because he stole two marbles from me.”


It is alleged that after an argument over a game of marbles the Muchelowski boy ran to his home, returned with a rifle, and ordered the smaller child to hold up his hands and then shot him down. 


Editor’s Note:  I could not find the sequel to the story, so I am not sure what happened to the assailant. 


Peiper’s Praise:


Property and Potpourri also comes to you this week from the road.   I am honored to speak tomorrow at the Harmonie Group’s Spring Meeting in Las Vegas.  My topic is combating attacks on the adjustment process – including vendors and experts.  A topic with which those of us who toil in the first party arena are all too familiar.  Here’s hoping it goes well, and I find a few moments to throw a die or two before heading back east.


As for the column this week, I’m happy to note a change in tone.  While we often take an opportunity in this space to comment on decisions that may be slightly “off,” this week we’re a solid three for three in the first party arena.  We start by giving a shout out to our own Jen Ehman who beat back a spirited challenge to a coverage denial in the Superhost decision reviewed below.  Jen, as the victor, was kind enough to chronicle her success, so you’ll note the enhanced quality of the synopsis.


We also review another Third Department decision, Stephenson, wherein the Court spends some time reviewing the burst pipe exclusion found within Allstate’s policy.  It’s not the decision that is noteworthy, but rather the excellent legal work put into the Record to ensure the result.  As a movant, we always harp on making sure you meet your burden by filing out the Record.  Here, that is exactly what was done.  Counsel methodically looked at each step/clause of the exclusion at issue, and proffered evidence which spoke to each subpart.  By submitting a strong motion, the policyholder was limited in what it could do to attack.  As movant, you control the field of battle.  It’s never a good idea to permit your opponent to submit opposition which merely attempts to poke holes in your papers, rather than affirmatively arguing their position.  Measure twice, submit once.


Finally, we note the Second Department decision in Lola Roberts.  You can find it in Brian Barnas’ column.  This case had the potential for a very different outcome on consequential damages.  Again, however, good lawyering and a strong Record ruled the day.  Essentially, plaintiff’s business suffered water damage which may, or may not, have been covered.  During the adjustment process, the building became subject to a stop work order which resulted in the business never re-opening.  Plaintiff challenged the denial, and also asserted that the delay in paying the claim resulted in the loss of the business ala Bi-Economy.  Here, it was not the coverage argument that mattered (as least insofar as the consequential damages were concerned).  Rather, the proximate cause of the business closing was the stop work order, not the coverage decision.  By focusing on the right argument, counsel won a nice victory for the carrier (and, provided us with another good talking point). 


That’s it for this week.  See you in May when, hopefully, we’ve finally put our snow shovels away for the year.   



Steven E. Peiper

[email protected]


Insurance Agents Organize, a Century Ago:


Santa Ana Register

Santa Ana, California

20 Apr 1918





The Milwaukee Automobile Insurance Exchange has been organized among twenty-five motor car insurance agents at Milwaukee, Wis. It is stated that the primary object of the organization is to eliminate abuses and nuisances which have crept into the business mainly by reason of its extraordinary growth in recent years and to eliminate all persons not actively engaged in the insurance business from receiving commissions or other perquisites or from carrying on a motor car coverage business as an adjunct to a distributor’s or dealer's business. The insurance men feel that dealers and sales, especially the latter, should not divide premium commissions with agents or companies any more than they should split their commissions on car sales.


Hewitt’s Highlights: 


Dear Subscribers:


I hope spring has sprung where you are. We are getting inconsistently warm and cold weather here on Long Island mixed with a lot of rain. I spent the weekend staying on the USS New Jersey with my sons as part of the Cub Scouts. The USS New Jersey is a retired battleship that participated in World War II.   Last night, I went to a CLE in which our own Jennifer Ehman was one of the presenters at the Defense Association of New York (DANY) on the issue of “Insurance for the Insurance Defense Attorney.” She did a great job.


On the serious injury front, there are several cases. In one, the Court found for defendants because plaintiff’s treating physician did not explain her inconsistent findings regarding range of motion. Plaintiff also could not explain his cessation of treatment after only five months.  In the other case this week, plaintiff raised an issue of fact by explaining degenerative injuries as asymptomatic until the accident.  


Until next time,


Robert Hewitt

[email protected]


Universal Health Insurance?  A Novel Idea, 100 Years Ago:



The Knoxville Independent

Knoxville, Tennessee

20 Apr 1918




Little Opposition Now Evinced to

the Policy of General Health Insurance.




Secretary of New York State Federation Unreservedly in Favor of the Movement — of Benefit to Employers and Employees — is Part of British Labor Party’s Policy


General health Insurance Is a social essential In Europe. Liberals and radicals consider It a part of the alphabet of readjustment. The British labor party incorporated it in its wide program of fundamental change. An International conference of labor leaders held at Leeds during the second year of the war termed it one of the essentials of the new social order.


In previous years health Insurance has been combated in this country by labor unions and other Interests. The unions felt that their appeal would be weakened by government insurance. They took the same position concerning an eight-hour day by law. They wanted the shorter working day, but they thought that they must win it by industrial struggle rather than by legislation. There is reason to surmise that the opinion of organized labor and some of the other groups hitherto hostile to health insurance Is now shifting. Soon, perhaps, in many states the reform will be accepted as a matter of course.


Wilewicz’ Wide-World of Coverage:


Dear Readers,


A fairly brief missive this week, as I have to get back home in order to complete a massive spring cleaning currently being undertaken. We purge the closets periodically, but this time we have decided to really step it up a notch and finally get rid of some years-old clutter that we really don’t need anymore. That, and we’re hoping to get some new fancy furniture finally, and we need the room.


In terms of upcoming CLEs and networking events, do let me know if you will be attending the ABA’s TIPS Section Conference during the first week of May. This year it’s in sunny LA at the Loews Hollywood hotel, from May 2-5, 2018. Full information and brochure are online now, and it’s not too late to register. Drop me a line if you’ll be there and I’ll come find you.


Now, as for the Wild World of Coverage this week, the Second Circuit recently issued Employers Insurance Company v. Harleysville, a pretty good primer on the duty to defend, along with analyses of the employer liability exclusion and mechanical device exclusion. In that case, an electrician was killed when he was hit by a 2,400 pound battery. How such a thing happens is not entirely clear (and the pleadings were pretty vague and broad), but it had something to do with loading and unloading a vehicle. In any event, litigation ensued and declaratory judgment actions abounded, with a number of carriers involved. Long story short, the lesson of the day (as is so oft the case), was that words matter. Whether a policy uses the terms “an insured” or “the insured” can make the difference between having coverage and not. Moreover, when vehicles are involved in construction sites, not only are commercial auto policies potentially implicated, but as are general liability policies and others. Check out the decision, it’s a pretty good read.


That’s it for now. Best,



Agnes A. Wilewicz

[email protected]


Post-script to the Sinking of the Lusitania:


The New York Times

New York, New York

20 Apr 1918




Witnesses Testify to Disregard of

Danger on the Lusitania.


Ogden H. Hammond, an insurance broker, whose wife was lost when the Lusitania was destroyed by a German torpedo, testified yesterday before Judge Mayer in the Federal District Court in the hearing on the petition of the Cunard Steamship Company for a limitation of liabilities. He said that he saw no life belts on the deck during the voyage and no boat drills.  No Instructions, he said, were given to the passengers as to the boats they should get into in case of need.


James H. Brooks of the American Chain Company, Bridgeport, Conn., testified that when he left his cabin on the morning of the day the ship was torpedoed the portholes were open and to the best of his belief some of them were still open when the vessel sank.  He also said the employees assigned to lower the life boats did not appear to be familiar with that work.


This hearing will be resumed on Monday.


Barnas on Bad Faith:


Hello again:


Just a brief note from me this week as I am in the final stages of preparing for a coverage trial that is scheduled to start tomorrow in Rochester.  I have a recent first party case from the Second Department in my column this week.  There, the court concluded that the insured was not entitled to consequential damages where it was clear that a stop work order from the city, not the insurer’s handling of the claim, was the proximate cause of the insured’s failure to repair water damage to its salon.  I also have an interesting case out of Colorado where the court held that an excess insurer was required to demonstrate that the primary insurer failed to settle the underlying action in good faith to succeed on a claim for equitable subrogation after the excess insurer paid the settlement in the underlying action and looked to the primary carrier to recoup the cost.


Have a nice weekend.


Signing off,



Brian D. Barnas

[email protected]


Women on a Capital Case – a Novel Idea:


The Salt Lake Herald-Republican

Salt Lake City, Utah

20 Apr 1918




By Associated Press


SAN FRANCISCO, April 19.—For the first time in the history of California a mixed jury of men and women returned a first degree murder verdict in the superior court here today.  The verdict leaves the trial judge no option but to sentence the defendant, Antonio Lipara, to death.  Seven women were on the jury.  The verdict was reached in less than an hour.


Lipara shot and killed Marie Alioto last November.  Alioto had been one of the state’s chief witnesses in trials that resulted in the conviction of three Italians charged with the murder of Alioto’s uncle, Gaetano Ingrassia. 


Altman’s Administrative (and Legislative) Agenda:  


Greetings, Dear Readers.   Happy Birthday to my mom, Emily Altman. May this year bring to you good health and happiness!  


In administrative news, New York’s Department of Financial Services proposed an interesting idea: equip vehicles with commercial GPS devices (which are, DFS opines, safer than the phone app versions) to earn a reduced auto insurance premium. As someone who once got lost in his own office (don’t ask!), your humble writer thinks it’s a great idea.



Howard B. Altman

[email protected]


Bush and Ruth Win Two for Sox

Press and Sun Bulletin (Binghamton)

April 20, 1918


Boston – April 20 – New York came up to the Hub City yesterday to help celebrate the anniversary of the Battle of Lexington and went down to defeat in both sessions at the hands of the Red Sox.  Bush held the Yankees to four hits in the morning game and Babe Ruth sent the Yanks down to defeat in the afternoon game by a 9 to 5 score.

Editor’s note:  Everyone knows Babe Ruth and most know that he played with the Red Sox before being sold to the Red Sox in 1919.  Leslie Ambrose "Bullet Joe" Bush (November 27, 1892 – November 1, 1974) was an American Major League Baseball pitcher with the Philadelphia Athletics, Boston Red Sox, New York Yankees, St. Louis Browns, Washington Senators, Pittsburgh Pirates and the New York Giants between 1912 and 1928. Bush batted and threw right-handed. He is credited with having developed the forkball pitch.


Off the Mark:


Dear Readers,


Spring Recess is over and the kids are back to school.  Baseball is in full swing (pun intended) and basketball and hockey playoffs are here.  Maybe some spring-like weather will finally arrive soon.


This edition discusses two recent construction defect cases.  The first case, Depositors Ins. Co. v. NEU Constr. Servs., is from the U.S. District Court for the Eastern District of Missouri, Eastern Division.  In Depositors, the Court determined that an arbitration award based on breach of contract does not constitute an “occurrence.”  The Court also held that the insured’s failure to timely notify its carrier of the arbitration demand resulted in prejudice to the carrier.  Based on the lack of an “occurrence” and the insured’s failure to provide timely notice, the Court determined that the carrier owed no duty to indemnify its insured.  The second case, State Farm Fire & Cas. Co. v. DTL Mech., LLC, is from the U.S. District Court for the Eastern District of Pennsylvania.  There, the Court noted that under Pennsylvania law, faulty workmanship, even when cast as a negligence claim, does not constitute an "occurrence."  As such, the Court held that the plaintiff insurance carrier had no duty to defend or indemnify its insured relative to claims of faulty design and installation of an HVAC system.


Until next time …



Brian F. Mark
[email protected]


Help Wanted

Buffalo Evening News

April 20, 1918


Patriotic Woman to do paperhanging.  Address H. 88, News Office.


Wandering Waters:


I hope all of you have had a wonderful week. Old man winter is still around despite the month of May quickly approaching.  


Despite the frigid weather, the NBA playoffs have officially commenced.  Although it is early, the playoffs are shaping up to be quite interesting.  Unlike last year when everyone expected the Cavs and Warriors to meet in the finals, this year’s playoffs are wide open.  While the Warriors looked dominant in their first two games, the Cavs are struggling.  Currently, the Cavs are tied one game apiece in the series against the Pacers.  LeBron has been amazing but has not had a reliable second option.  Hopefully, LeBron can get the help he needs to advance deep into the playoffs.      


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


Until next time…. 



Larry E. Waters

[email protected]


This week’s issue is attached.  Here are the headlines from that issue:



Dan D. Kohane
[email protected]


  • Professional Liability Carrier, Not CGL Carriers, had Obligations to Defend and Indemnify for Claims Alleging Engineering Inspection Negligence.  However, Pre-judgment Interest Not Awarded
  • “New York Limitation Endorsement” Serves to Deny Coverage
  • Framed Issue Hearing Necessary to Test Disclaimer Based on Lack of Cooperation. Declaratory Judgment Obtained by Default does not Constitute Grounds for Collateral Estoppel.


Robert E.B. Hewitt III

[email protected]


  • Issue of Fact as to Serious Injury Leads to Reversal of Dismissal
  • Plaintiff’s Treating Physician Explained Defendant’s Expert Finding of Degeneration by Opining Plaintiff Was Asymptomatic until the Accident
  • Plaintiff Could Not Explain Cessation of Treatment after Five Months and Conflicting Reports about Range of Motion Limitations by the Treating Physician



Tessa R. Scott

[email protected]


  • An Unpleaded Defense May Serve As the Basis for Summary Judgment in the Absence of Surprise or Prejudice
  • Plaintiff Was Unable to Rebut Defendant’s Evidence That Medicine Was Not Medically Necessary
  • Defendant Was Not Required to Demonstrate That the Assignor’s Failure to Appear for the EUO Was Willful
  • Defendant Was Not Required to Demonstrate That the Assignor’s Failure to Appear for the EUO Was Willful



Steven E. Peiper

[email protected]




  • Vacant Home Damaged by Burst Pipe is Not Covered Where Insured Failed to Make Provisions to Monitor/Ensure Heat at the Premises
  • “Wear and Tear” Exclusion Precludes Coverage for Water Damage from Hurricane Irene


And Potpourri


  • Third-Party Defendant’s Default Results in Loss of Section 11 Defense
  • GOL 5-322.1 does not Preclude Indemnity where there is No Active Negligence Assigned to Party Seeking Indemnification



Agnes A. Wilewicz

[email protected]


  • Second Circuit finds Employer Liability Exclusion and Mechanical Device Exclusion not Applicable for Duty to Defend Analysis Stemming from Electrical Contractor Death



Jennifer A. Ehman

[email protected]


  • Court Finds that Section 3420 Applies to Contractual Indemnification Claims; Statute Not Limited to Tort Liabilities



Brian D. Barnas

[email protected]


  • Insured’s Claim for Consequential Damages was Dismissed where Stop Work Order, not the Insurer’s Conduct, Prevented the Insured from Completing Remedial Work
  • Excess Insurer was Required to Prove Primary Insurer Failed to Settle the Underlying Case in Bad Faith to Recover Settlement it Paid through Equitable Subrogation


John R. Ewell

[email protected]


  • New Jersey Supreme Court Affirms That Carriers Are Not Required to Pay UIM Claims Where Insured Fails to Give Notice of Suit Against The Tortfeasor
  • Idaho Supreme Court Rejects Viewing “Occurrence” from Insured’s Point of View, Holding That Intentional Shooting by Third-Party Is Not “Occurrence”



Howard B. Altman

[email protected]


  • GPS Devices

Brian F. Mark

[email protected]


  • US District Court Held that Arbitration Award Based on a Breach of Contract Claim Does Not Constitute an “Occurrence”.
  • US District Court Held that Under Pennsylvania Law, Faulty Workmanship, Even When Cast as a Negligence Claim, Does Not Constitute an "Occurrence."



Larry E. Waters
[email protected]


  • Court Concludes Neither the Duty to Defend nor the Duty to Indemnify Disputes were Suitable for Declaratory Judgment Act Discretion – Quebec Law


Earl K. Cantwell
[email protected]


  • Another Example of Contract by E-Mail (or Not)


That’s all for now.  The next issue will come from Canada.  We expect springtime to arrive just in time for our trip back to our summer home, across the border.




Dan D. Kohane

Hurwitz & Fine, P.C.

1300 Liberty Building

Buffalo, NY 14202


Office:            716.849.8942

Mobile:           716.445.2258

Fax:                716.855.0874

E-Mail:            [email protected]  


Twitter:           @kohane



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

Dan D. Kohane
[email protected]



Agnes A. Wilewicz

[email protected]



Jennifer A. Ehman

[email protected]


Dan D. Kohane, Chair
[email protected]


Steven E. Peiper, Co-Chair

[email protected]

Michael F. Perley

Jennifer A. Ehman

Agnieszka A. Wilewicz

Edward B. Flink

Brian D. Barnas

Howard B. Altman

Brian F. Mark

John R. Ewell

Larry E. Waters

Diane F. Bosse

Joel R. Appelbaum


Steven E. Peiper, Team Leader
[email protected]


Michael F. Perley

Edward B. Flink

Brian D. Barnas

Howard B. Altman

James L. Maswick


Jennifer A. Ehman, Team Leader
[email protected]

Tessa R. Scott


Jody E. Briandi, Team Leader
[email protected]


Diane F. Bosse

Topical Index

Kohane’s Coverage Corner

Hewitt’s Highlights on Serious Injury

Tessa’s Tutelage
Peiper on Property and Potpourri

Wilewicz’s Wide World of Coverage

Jen’s Gems

Barnas on Bad Faith
Ewell’s Universe

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

Wandering Waters

Earl’s Pearls


Dan D. Kohane
[email protected]


04/18/18       Valley Forge Insurance Co. v. ACE American Insurance Co.

Appellate Division, Second Department

Professional Liability Carrier, Not CGL Carriers, had Obligations to Defend and Indemnify for Claims Alleging Engineering Inspection Negligence.  However, Pre-judgment Interest Not Awarded

Cunha was injured while working on a roadway excavation project in Brooklyn. The City of New York had hired Cunha's employer, JLJ Enterprises, Inc., (“JLJ”) as the prime contractor, and HAKS Engineers, P.C. (“HAKS”), to perform engineering inspection services in connection with the project. Cunha sued the City and the City sought contractual and common-law indemnification against HAKS. The City and HAKS settled with Cunha, but proceeded to trial in the third-party action. After, inter alia, a trial and motion practice in the third-party action, eventually the Court of Appeals determined that the City was entitled to 100% indemnification from HAKS.


HAKS had a:

  • primary commercial general liability policy with the plaintiff Valley Forge Insurance Company (“Valley Forge”),
  • an excess commercial general liability policy Transportation Insurance Company (“Transportation”), and a
  • professional liability for design professionals’ policy with ACE American Insurance Company (“ACE”).


Valley Forge and Transportation (“plaintiffs”) commenced this action against ACE, HAKS, and the City, seeking a declaration that the plaintiffs were not obligated to defend or indemnify HAKS, and that ACE was obligated to reimburse Valley Forge for the costs that it had expended in defending and settling the underlying action on behalf of HAKS. ACE answered the complaint, and asserted a counterclaim seeking reimbursement of the payments that it had made to settle the underlying action on behalf of HAKS. HAKS then moved for summary judgment against ACE, seeking a declaration that ACE was obligated to defend and indemnify HAKS.


Here, the plaintiffs established that there was no coverage under the Valley Forge policy since the "professional services" exclusion was applicable to the claims asserted in the underlying action. The claims asserted by Cunha in the underlying action arose out of HAKS's "supervisory, inspection, architectural or engineering activities," and, thus, they fell within the professional services exclusion under the Valley Forge policy.


Further, the Supreme Court providently exercised its discretion in declining to award prejudgment interest to the plaintiffs.


Editor’s note: Don’t miss the importance of that last sentence of the decision.  Often people forget that in a declaratory judgment action, an award of interest in the recovery of past payments is discretionary.  While the E&O carrier was undoubtedly not pleased with being stuck with the judgment, it was not required to pay the prejudgment interest that accrued.  This is not a money judgment but a declaratory judgment, and the court has discretion not to award interest.


04/11/18       Corbel Construction Company v. Arch Specialty Ins. Co.

Appellate Division, Second Department

“New York Limitation Endorsement” Serves to Deny Coverage

Alvarez was injured while an employee of S.K Piping & Heating (“S.K.”) on April 4, 2014.  S.K. was a subcontractor to Corbel Construction (“Corbel”).  Alvarez sued Corbel to recover damages for bodily injuries.


Corbel sued Arch Specialty Insurance Company seeking coverage under its policy. Arch had denied coverage based on a policy exclusion.


In support of its cross motion, Arch established its prima facie entitlement to judgment as a matter of law by demonstrating the applicability of an exclusion in Corbel's policy. In opposition to Arch's prima facie showing, Corbel failed to raise a triable issue of fact regarding the applicability of an exception to the exclusion.


The case was silent relative to the particular policy language at issue.  With thanks to my friend Michael Glascott from Goldberg Segalla (who helped fill in the blanks) we learned that the endorsement mentioned was entitled “New York Limitation Endorsement – Work Done On Your Behalf By Uninsured Or Underinsured Subcontractors” which pertained to work done on behalf of the insured by uninsured or underinsured subcontractors.  The text of that endorsement is the following:  The New York Endorsement provides:

This endorsement modifies insurance provided under the following:


The following exclusion is added to Paragraph 2. Exclusions of Section I – Coverage A - Bodily Injury and Property Damage liability:

This insurance does not apply to any claim, “suit,” demand or loss that alleges “bodily injury” to any “worker” that in any way, in whole or in part, arises out of, relates to or results from operations or work performed on your behalf by a subcontractor, unless such subcontractor:

  1. Has in force at the time of such injury or damage a Commercial General Liability insurance policy that:
    1. Names you as an additional insured;
    2. Provides an each-occurrence limit of liability equal to or greater than $1,000,000; and
    3. Provides coverage for you for such claim, “suit,” demand or loss; and
  2. Has agreed in writing to defend, indemnify and hold harmless the Named Insured and any other insured under the policy for any claim or “suit” for “bodily injury” to any “worker” arising out of the work performed by such subcontractor, to the fullest extent allowed by law.

Corbel offered two documents to try to establish that it satisfied requirement (2).  One was a Certificate of Insurance (but not the policy) and the other was a rider to a contract which spoke to coverage but no proof that the rider had anything to do with the contract in question.

Editor’s Note:  Great work by Goldberg Segalla (Brendan T. Fitzpatrick, Michael T. Glascott, and Paul C. Steck) on this appellate victory.

04/11/18       Hereford Insurance Company v. McKoy

Appellate Division, Second Department

Framed Issue Hearing Necessary to Test Disclaimer Based on Lack of Cooperation. Declaratory Judgment Obtained by Default does not Constitute Grounds for Collateral Estoppel.
This was a proceeding seeking a permanent stay of an uninsured motorists (“UM”) arbitration.


On September 14, 2011, McKoy and two others were passengers in a car owned by Lexius and insured by Hereford Insurance Company (“HIC”). That vehicle was struck in the rear by a rental van rented by Philbert from the U-Haul of Arizona (“UHAZ”).  Repwest Insurance Company (“Repwest”) that was handing the UHAZ claim then denied coverage to Philbert, alleging that he failed cooperate in its investigation of the accident.


So, McKoy and the other filed a claim for UM arbitration and HIC brought an application to stay that arbitration, or in the alternative, seeking a framed issue hearing on the propriety of Rapwest’s denial of coverage.


In the meantime, Repwest and UHAZ commenced a declaratory judgment action seeking a determination that they were not required to defend and indemnify Philbert with respect to the underlying personal injury action, and that they had no duty to afford coverage for any claims arising out of the subject accident. Repwest and UHAZ moved for and were granted a default judgment in the declaratory judgment action. Repwest, UHI, and UHAZ then submitted further papers in this proceeding opposing the petition based on the order granting a default judgment in the declaratory judgment action.


HIC contended that since the determination in the declaratory judgment action was decided on default, the Supreme Court improperly applied the doctrine of collateral estoppel in denying that branch of the petition which sought to join Repwest, UHI, and UHAZ as additional respondents. The party seeking to invoke collateral estoppel has the burden to show the identity of the issues, while the party trying to avoid application of the doctrine must establish the lack of a full and fair opportunity to litigate. If the issue has not been litigated, there is no identity of issues between the present action and the prior determination. Since the determination in the declaratory judgment action regarding insurance coverage for the subject van was decided on default and, thus, was not actually litigated, then collateral estoppel did not apply.


As to the proof, coverage for the subject van had been disclaimed based upon Philbert's failure to cooperate in the investigation of the subject accident. In order to establish a proper disclaimer based on an insured's alleged noncooperation, an insurer must demonstrate that "it acted diligently in seeking to bring about its insured's cooperation, that its efforts were reasonably calculated to obtain its insured's cooperation, and that the attitude of its insured, after the cooperation of its insured was sought, was one of willful and avowed obstruction under the Thrasher test”.


Here, the disclaimer letter and an affirmation from the attorney assigned by Repwest to represent Philbert in the underlying personal injury action demonstrated that Philbert had not made contact with either Repwest or the attorney as of the date of the disclaimer letter. While these submissions by Repwest, UHI, and UHAZ did not establish that the disclaimer was valid and timely as a matter of law, they were sufficient to raise a triable issue of fact.


The matter is remitted for a framed issue hearing to determine whether there was sufficient proof to establish a lack of cooperation and verify the timeliness of the disclaimer.



Robert E.B. Hewitt III

[email protected]


04/18/18       Fortuna v. Daskawisk

Appellate Division, Second Department

Issue of Fact as to Serious Injury Leads to Reversal of Dismissal

No facts were given. The Appellate Division found there was an issue of fact as to whether a serious injury was demonstrated. The Court reversed the lower court’s dismissal of the case.


04/10/18       Portillo v. Island Master Locksmith, Inc.

Appellate Division, First Department

Plaintiff’s Treating Physician Explained Defendant’s Expert Finding of Degeneration by Opining Plaintiff Was Asymptomatic until the Accident

Plaintiff alleges that he was knocked off his bicycle by a van owned by defendant Island Master Locksmith and operated by defendant Mallon. With respect to the permanent consequential limitation of use and significant limitation of use categories, the Appellate Division found defendants satisfied their prima facie burden of showing that plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the accident.


In opposition, plaintiff raised a triable issue of fact as to whether he sustained a serious injury to his right shoulder, cervical spine, and lumbar. On the record before the Appellate Division, the affirmed report of plaintiff's treating physician was admissible concerning the injuries to the right shoulder, cervical spine and lumbar spine, even though relying in part on unsworn MRI and medical reports and records. However, Plaintiff's treating physician sufficiently addressed defendants' experts' findings of degeneration by opining that the injuries to the otherwise asymptomatic plaintiff were consistent with and causally related to the accident.


04/05/18       Alverio v. Martinez

Appellate Division, First Department

Plaintiff Could Not Explain Cessation of Treatment after Five Months and Conflicting Reports about Range of Motion Limitations by the Treating Physician

Defendants made a prima facie showing that plaintiff did not sustain a permanent consequential or significant limitation of use of his cervical spine, lumbar spine, or left shoulder, by submitting the report of their orthopedic expert, who found no significant limitations and negative clinical results, and opined that plaintiff had resolved sprains. His finding of a minor limitation in one plane of the left shoulder does not defeat defendants' showing that plaintiff did not have significant or permanent limitation in the use of his shoulder. In addition, defendants submitted medical reports of plaintiff's treating physician, who found normal range of motion in plaintiff's lumbar spine and left shoulder the day after the accident. They also submitted plaintiff's deposition testimony, in which he acknowledged that he had a preexisting degenerative lower back condition for which he received Social Security disability benefits, and that he stopped all treatment related to the claimed injuries when he was "cut off" five months after the accident.


In opposition, plaintiff failed to raise an issue of fact. Plaintiff's physician averred that she found significant limitations in range of motion of plaintiff's cervical spine, lumbar spine and left shoulder both shortly after the accident in 2010, and, most recently, in December 2013. However, she failed to explain the conflicting findings of full range of motion in her own reports prepared the day after the accident and in the next two months.  Moreover, plaintiff failed to adequately explain his cessation of treatment for these claimed injuries five months after the accident, notwithstanding that he had medical coverage through Medicare, and continued to see his primary care doctor regularly for other conditions. In light of the extended gap in treatment, plaintiff's physician's opinion that the more severe range-of-motion limitations she found in December 2013 were causally related to the accident was speculative.



Tessa R. Scott

[email protected]


04/06/18       Active Care Med. Supply Corp. v. Amica Mut. Ins. Co

Appellate Term, Second Department

An Unpleaded Defense May Serve As the Basis for Summary Judgment in the Absence of Surprise or Prejudice

Defendant moved for summary judgment on the ground that plaintiff's action is barred by the doctrine of res judicata, and plaintiff cross-moved for summary judgment. The Civil Court denied defendant's motion and granted plaintiff's cross motion.


While defendant failed to include res judicata as an affirmative defense in its answer or move to dismiss the complaint on that ground pursuant to CPLR 3211 (a) (5) prior to serving its answer, defendant moved for summary judgment dismissing the complaint on the ground of res judicata based upon orders in a declaratory judgment action in the Supreme Court, Kings County. The Second Department noted that "an unpleaded defense may serve as the basis for granting summary judgment in the absence of surprise or prejudice to the opposing party". Plaintiff's papers in the Civil Court failed to allege any prejudice or surprise.


"Under the doctrine of res judicata, a final adjudication of a claim on the merits precludes relitigation of that claim and all claims arising out of the same transaction or series of transactions by a party or those in privity with a party" However, plaintiff was neither named, nor served in the Supreme Court declaratory judgment action. Plaintiff was not in privity with the injured party, as the assignment of benefits had been executed before defendant commenced the declaratory judgment action. Thus, plaintiff had no full and fair opportunity to defend its interests in that action. Consequently, defendant failed to demonstrate its entitlement to summary judgment.


04/13/18       County Line Pharmacy v. Geico Ins. Co

Appellate Term, Second Department

Plaintiff Was Unable to Rebut Defendant’s Evidence That Medicine Was Not Medically Necessary

Defendant appealed from an order of the Civil Court that denied its motion for summary judgment dismissing the parts of Plaintiff’s complaint that sought to recover for prescription drugs provided to plaintiff's assignor on December 1, 2010 and December 30, 2010. The Civil Court denied Defendant’s motion because it found an issue of fact as to the medical necessity of the prescription drugs at issue.


Defendant submitted an orthopedist's affirmed report of an independent medical examination which he had performed on plaintiff's assignor. The report set forth a factual basis and medical rationale for the orthopedist's determination that the assignor's injuries had resolved and that there was a lack of medical necessity for the prescription drugs at issue. Plaintiff failed to oppose defendant's cross motion.


Accordingly, that portion of the order was reversed.


04/13/18       Goldstar Equip., Inc. v. Mercury Cas. Co

Appellate Term, Second Department

Defendant Was Not Required to Demonstrate That the Assignor’s Failure to Appear for the EUO Was Willful

Plaintiff appealed from an order of the Civil Court which granted defendant's motion for summary judgment dismissing the complaint. The Civil Court found that defendant had timely and properly denied the claims at issue on the ground that plaintiff's assignor had failed to appear for duly scheduled examinations under oath (EUOs).


Contrary to plaintiff's assertion, defendant established that the EUO scheduling letters and the denial of the claim forms had been timely mailed. The affirmation of defendant's attorney, who had been present at the court reporting office to conduct the EUO of the assignor on the scheduled dates, was sufficient to establish that the assignor had failed to appear. To the extent that plaintiff asserts that defendant did not demonstrate that the assignor's failure to appear was willful, we note that defendant established that defendant complied with the regulations (11 NYCRR part 65), and that there is no requirement to establish willfulness.


04/13/18       Healing Art Acupuncture, P.C. v. 21st Century Ins. Co

Appellate Term, Second Department

Defendant Was Not Required to Demonstrate That the Assignor’s Failure to Appear for the EUO Was Willful

Plaintiff moved for summary judgment and defendant did not oppose the motion with an affidavit or an attorney's affirmation. However, defendant relied on orders of the Supreme Court, Nassau County, in a declaratory judgment action which had been commenced by defendant herein. The Supreme Court orders granted defendant's motion for summary judgment against plaintiff herein and granted defendant's separate motion for a default judgment against plaintiff's assignor. The Supreme Court order granting defendant's motion for summary judgment held that defendant had established its founded belief that there was no coverage for no-fault benefits arising out of the accident at issue because the collision had been a staged incident. Thereafter, the Civil Court denied plaintiff's motion for summary judgment, finding that defendant has no duty to provide coverage for the accident at issue.


Plaintiff appealed from the order of the Civil Court. Thereafter, a judgment was entered in the Supreme Court that declared that the insurance policy that had been issued to plaintiff’s assignor was null and void, and that defendant herein has no duty to provide coverage for any claim for no-fault benefits made in connection with the loss in question.

While defendant did not proffer in the Civil Court an affirmation of its counsel or an affidavit in opposition to plaintiff's motion, and defendant did not annex the Supreme Court orders as exhibits to any opposition papers, a court "may in general take judicial notice of matters of public record.”

Ultimately, the Second Department held that the Civil Court properly denied plaintiff's motion for summary judgment as any judgment in favor of plaintiff in the present action would destroy or impair rights or interests established by the judgment in the declaratory judgment action and, upon a search of the record, we find that defendant established its entitlement to judgment as a matter of law. In view of the foregoing, we reach no other issue.



Steven E. Peiper

[email protected]




04/19/18       Stephenson v. Allstate Indemn. Co.

Appellate Division, Third Department

Vacant Home Damaged by Burst Pipe is Not Covered Where Insured Failed to Make Provisions to Monitor/Ensure Heat at the Premises

Plaintiff’s decedent sustained a water damage loss due to a frozen, and subsequently burst, pipe.  Allstate denied the claim on the basis of an exclusion which removed coverage for damages “caused by freezing of plumbing…while the building is vacant…unless [the insured] used reasonable care to: (a) maintain heat in the building structure; or (b) shut off the water supply…” 

Allstate eventually moved for summary judgment, and therein established the pipe broke as a result of a lack of heat in the building.  It also, as movant, proffered evidence that the property was unoccupied for the winter months and that the insured made no efforts to monitor the heating system (or its functionality) while she was not at the premises.  Finally, Allstate showed that no natural gas was consumed from 12/7 – 2/6 of the following year.


Having established vacancy, no efforts to maintain heat, and in fact evidence that no heat was kept on, the Court acknowledged that Allstate met its burden on summary judgment.  In opposition, plaintiff only submitted the affidavit of the person who provided lawn mowing/snow removal services at the premises.  The affidavit made no mention over whether he had a duty to inspect the premises to monitor heat, nor did it reference whether he ever actually inspected the premises during the time of the vacancy at issue. Accordingly, plaintiff’s opposition was insufficient to create a question of fact on whether adequate steps had been taken to ensure heat was maintained. 


04/12/18       Superhost Hotels Inc. v. Selective Ins. Co. of Am.

Appellate Division, Third Department

“Wear and Tear” Exclusion Precludes Coverage for Water Damage from Hurricane Irene

Plaintiff operated a hotel in the City of Albany which suffered extensive damage due to water intrusion during Hurricane Irene in August 2011. Selective Insurance Company of America (“Selective”) insured the hotel at the time of the loss.  After the storm, the hotel filed a claim.  Selective ultimately denied the claim pursuant to an exclusion for “wear and tear” and a limitation precluding coverage for interior damage caused by rain except in certain circumstances.


Following the denial, Plaintiff commenced this lawsuit.  At the trial court level, Selective moved for summary judgment relying upon an expert engineer’s affidavit and report that supported its grounds for denial.  Plaintiff opposed with the affidavit of a proposed window expert, who opined that the rain water had entered the building as a result of high winds-a covered cause of loss-interacting with the hotel’s windows.  The trial court granted Selective’s motion on the grounds that it had established a prima facie basis that the “wear and tear” exclusion applied, and that no triable issue of fact had been raised as the proposed expert was not qualified to render a reliable opinion on the cause of the damage and, further, based his opinions upon speculation.


The Third Department affirmed that decision.  It determined that the “wear and tear” exclusion was unambiguous even though neither term was defined in the policy.  Relying on Webster Online Dictionary, it noted that “wear and tear” is the “the loss, injury or stress to which something is subjected by or in the course of use.”  And, in the court’s view, nothing in the policy language suggested that an average insured would expect the phrase to have another meaning. 


As for its application, Selective supported it papers with an affidavit and report of an engineer with experience in “structural investigation[s] and failure determinations” who inspected the property several weeks after the storm.  The engineer’s examination revealed improper flashing detail consisting of failed caulk that had originally been installed to seal the areas where each room’s exterior walls and windows met the hotel’s concrete floors and surrounding masonry walls.  According to the engineer, the caulk had separated from these surfaces as a result of age and lack of maintenance, creating spaces through which water could migrate into the walls.  This migration had been occurring for a significant period of time.  The engineer thus opined, with a reasonable degree of engineering certainty that the water damage to the hotel during the hurricane was due to the failure of the caulk as a result of age and poor maintenance.   In the court words, “that is ‘wear and tear.’”


Finding that Selective met its burden, the Appellate Court turned to plaintiff’s opposition.  Plaintiff has submitted the affidavit of a proposed window expert, who inspected the hotel several years after the hurricane and opined, in brief, that high winds associated with the storm caused the water damage by forcing the hotel windows to bow, thus creating temporary and permanent openings through which the rain water entered. 


In considering this affidavit, the court found that the trial court did not abuse its discretion in determining his opinion lacked probative value.  While the proposed expert averred that he was the president of a construction services company that specialized in commercial glass and glazing, he had a Bachelor of Science degree in accounting and there was no indication in his resume or affidavit that he had engineering training or specific knowledge or education in identifying the causes of window failure.  And, while an expert may be qualified through long observation or actual experience, the proposed expert’s current and past employment involved sales and management responsibilities, rather than experience pertinent to the causes of window failure.  Thus, again agreeing with the trial court, the Appellate Division found that the proposed expert’s submissions did not reveal that his opinions as to the cause of the water damage were reliable. 


For the same reasons, plaintiff also failed to establish an issue of fact as to the policy’s limitation for interior damage caused by rain.  The rain limitation included an exception that allowed coverage where rain entered a building as the result of prior damage to the roof or walls resulting from a covered loss.  Without the expert’s affidavit, plaintiff had no evidence of damage to the roof or walls.


And Potpourri


04/18/18       Garbett v. Wappingers CSD

Appellate Division, Second Department

Third-Party Defendant’s Default Results in Loss of Section 11 Defense

Plaintiff sustained a serious injury to his right foot when a boiler fell and crushed it.  At the time of the incident, plaintiff was in the course of his employment with Siteworks.  Siteworks had been hired to perform work for the Wappingers School District.  Thereafter, plaintiff sued Wappingers under the usual Labor Law theories.  Wappingers, in turn, commenced a third-party action against Siteworks for common law indemnification. 


The plaintiff’s Labor Law claims are subject to questions of fact preventing dispositive relief.  With regard to Wappingers indemnity claim, it appears that Siteworks failed to appear and defaulted as a result.  In overturning the trial court, and finding a default judgment, the Appellate Division noted that “a defendant whose answer is stricken as a result of a default admits all traversable allegations in the complaint, including basic allegations of liability…”  Thus, among those allegations admitted was the fact that plaintiff sustained a “grave injury.”  As such, Siteworks potential “exclusivity” defense based upon an application of Workers’ Compensation Law 11 was lost.  Issues of damages, however, remained open regardless of the default. 


04/11/18       Marulanda v. Vance Associates, LLC

Appellate Division, Second Department

GOL 5-322.1 does not Preclude Indemnity where there is No Active Negligence Assigned to Party Seeking Indemnification

This case has its origins in a Labor Law 240(1) cause of action, which resulted in summary judgment for the plaintiff. Our focus, however, is on the third-party action commenced by Vance against its general contractor, U.S. Team.  In reversing the trial court, the Second Department noted that Vance proffered, in admissible form, a copy of a purchase agreement which contained clear indemnity language. In addition, Vance also established that it was free from any negligence related to the plaintiff’s incident.


U.S. Team’s opposition, which the clause at issue was in violation of General Obligations Law 5-322.1 was without merit.  Specifically, Vance’s exposure was purely statutory (by operation of Labor Law 240[1]).  Having no active negligence assigned against it, it followed that Vance was not seeking to be indemnified for its own negligence.  Accordingly, the provisions of the GOL were inapplicable.  



Agnes A. Wilewicz

[email protected]


04/04/18       Employers Insurance Company v. Harleysville Preferred Ins.

United States Court of Appeals, Second Circuit

Second Circuit finds Employer Liability Exclusion and Mechanical Device Exclusion not Applicable for Duty to Defend Analysis Stemming from Electrical Contractor Death

This case stems from the 2014 death of Nicholas Cavataio. He was working as an electrician for Hellman Electric Corp. at the time of his death. In particular, he was working at a construction site at the Throgs Neck Bridge in New York when he was struck and killed by a falling 2,700 pound battery. After the incident, his widow filed a tort suit against the Metropolitan Transportation Authority (MTA), the Triborough Bridge and Tunnel Authority (TBTA), and Monarch Electric Company (Monarch). In turn, the MTA and TBTA filed a third party action as against Hellman, seeking indemnification and contribution. The underlying pleadings were broad and vague, listing several theories of liability and breaches of various duties that caused the death. The Bill of Particulars asserted further breaches, including failure to use the proper pallet jack for the battery as it was being unloaded from a vehicle.


Wausau had issued Hellman a CGL policy (implicated because the decedent was their employee), while Harleysville issued a commercial auto policy to Hellman, and Travelers issued a commercial auto policy which named Monarch as an insured. The MTA and TBTA were additional insureds under all of those policies. Wausau eventually started a DJ action, contending that it had wrongfully been forced to defend Hellman, the MTA, and the TBTA, following Travelers’ and Harleysville’s disclaimers. Wausau also sought reimbursement from those carriers for the costs it had incurred.


Ultimately, at issue were exclusions found in the Harleysville and Travelers policies. First, Harleysville had invoked its mechanical device exclusion and its employer’s liability exclusion as arguments for why it did not have a duty to defend. The mechanical device exclusion in their policy stated that there was no coverage for: “”Bodily injury” or “property damage” resulting from the movement of property by a mechanical device (other than a hand truck) unless the device is attached to a covered “auto””. However, the allegations relative to the pallet jack left open the possibility of coverage here. Thus, there was at a minimum a duty to defend. Just because the allegations are inartfully pled, if there is a reasonable possibility of coverage, a defense is owed.


Second, the employer’s liability exclusion in Harleysville’s policy similarly fell short of providing a coverage defense. That exclusion stated that the policy did not provide coverage for bodily injury: “An “employee” of the “insured” arising out of and in the course of: (1) Employment by the “insured”; or (2) Performing the duties related to the conduct of the “insured’s” business . . . . This exclusion applies: (1) Whether the “insured” may be liable as an employer or in any other capacity; and (2) To any obligation to share damages with or repay someone else who must pay damages because of the injury. But this exclusion does not apply to . . . liability assumed by the “insured” under an “insured contract.”” However, the exclusion did not apply to Hellman because that entity had assumed liability under an insured contract. For the MTA and TBTA, on the other hand, the analysis was different. Here, the exclusion references employment by the insured. Since each insured’s duties, obligations, and coverages are read individually (and the MTA and TBTA were not employers here), the exclusion did not apply to them. Thus, those parties were entitled to a defense as well.


The Travelers policy had similar mechanical device exclusion, and the court referred back to its earlier analysis (though they applied Texas law, which did not differ significantly or materially here). As for its own employer liability exclusion, that too contained the substantially same wording as the Harleysville policy. The difference, however, was that the exception to Travelers’ exclusion was arguably broader. That is, an “insured contract” was defined as a contract “under which you assume the tort liability of another”. Since “You” was defined as the Named Insured (Hellman), it carved out that portion. Thus, Travelers did not have to defend Hellman due to the employer liability exclusion.



Jennifer A. Ehman

[email protected]


04/09/18       Old Republic Ins. Co. v. United Natl. Ins. Co.

Supreme Court, New York County

Hon. Shirley Werner Kornreich

Court Finds that Section 3420 Applies to Contractual Indemnification Claims; Statute Not Limited to Tort Liabilities

This decision results from a motion renew/reargue.  The question considered is whether a carrier is obligated to disclaim coverage for a claim for contractual indemnification pursuant to the requirements of New York Insurance Law 3420(d).  In the court’s prior decision, it never got to this question because it determined that claim fell within the notice provision of 3420(d), not because of the contractual law claim, but because of an unresolved common law claim against the insured when the underlying action settled.  And, in the court’s view, absent the settlement, the jury could have found the insured negligent and returned a verdict imposing liability on the common law claim.


On this motion, United National submitted “new” evidence that in fact that common law claim had been dismissed, and that the only question for the jury was damages.  Despite the court disputing that this was in fact “new” evidence, it agreed to consider same.


Nevertheless, it still affirmed its prior decision that 3420(d) applied.  United argued that where the insured was only subject to a claim for contractual identification, that provision was not implicated.  In support, it pointed to a Court of Appeals decision called Ryba v. Preserver.  In that case, the court determined that Preserver did not have to make a timely denial because the policy was not issued or delivered in New York.  But, then, in dicta, it stated: 


…even if the policy were “issued for delivery” in New York, Preserver still would not be barred from denying coverage for Almeida's breach of contract claim since Insurance Law § 3420(d) requires timely disclaimer only for denials of coverage “for death or bodily injury.”


United asserted that this language stands for the inapplicability of § 3420(d) to contractual indemnity claims. 


The court disagreed.  It submitted that a close reading of Ryba implies that § 3420(d) is applicable to such claim.  The court pointed out that in the decision there was both a contractual indemnification claim and a breach of contract (failure to procure) claim.  Throughout the decision the claims were discussed together, but when the analysis shifted to consider the viability of these claims “even if the policy were ‘issued for delivery’ in New York,” the decision distinguishes between the two claims, identifying only the breach of contract cause of beyond the statute’s scope.  The implication of this distinction is that, unlike the breach of contract claim, were the insurance policy at issued is subject to § 3420(d), the statute would still apply to the contractual indemnification cause of action.


The court was then clear that § 3420(d) is not explicitly applicable to tort liabilities.  



Brian D. Barnas

[email protected]


04/18/18       Lola Roberts Beauty Salon, Inc. v. Leading Ins. Group

Appellate Division, Second Department

Insured’s Claim for Consequential Damages was Dismissed where Stop Work Order, not the Insurer’s Conduct, Prevented the Insured from Completing Remedial Work

The plaintiff sustained water damage to the interior of its beauty salon due to a broken sprinkler pipe in a vacant space above its beauty salon.  Pursuant to a businessowners insurance policy in effect at the time of the occurrence, the plaintiff notified its insurance carrier, the defendant LIG, of the loss.  Thereafter, the plaintiff remained closed in anticipation of repairs.  Shortly after the water leak, the Buildings Department issued a stop work order to the plaintiff's landlord.  The stop work order prevented the plaintiff from securing the necessary permits for remedial work.  About 3½ months after the water leak, the defendant made a partial advance payment of insurance proceeds to the plaintiff.  At the time, the stop work order was still in place, and the plaintiff did not take any measures to lift it.  The plaintiff did not use the advance payment to repair the salon, and the salon never reopened.


The plaintiff commenced this action, alleging, among other things, that the defendant breached the businessowners insurance policy and the implied covenant of good faith and fair dealing by failing to timely investigate, adjust, and settle its insurance claim, and that their failure resulted in the demise of its business.  The plaintiff sought, among other things, consequential damages.


In an insurance contract context, consequential damages resulting from a breach of the implied covenant of good faith and fair dealing may be asserted so long as the damages were within the contemplation of the parties as the probable result of a breach at the time of or prior to contracting.  Consequential damages must be proximately caused by the breach.  The issue of proximate cause may be decided as a matter of law where only one conclusion may be drawn from the established facts.


Here, LIG established that its alleged injurious conduct in handling the plaintiff's claim was not a proximate cause of the plaintiff's loss of business.  It was undisputed that the stop work order issued shortly after the water leak, for reasons unrelated to the defendant, prevented the plaintiff from securing the necessary work permits prior to ceasing operations permanently.  Under these circumstances, even assuming that the manner in which the defendant handled the plaintiff's insurance claim was in breach of their express and implied duties, the defendant established prima facie entitlement to judgment as a matter of law dismissing the request for consequential damages.


04/05/18       Preferred Professional Ins. Co. v. The Doctors Company

Colorado Court of Appeals

Excess Insurer was Required to Prove Primary Insurer Failed to Settle the Underlying Case in Bad Faith to Recover Settlement it Paid through Equitable Subrogation

TDC issued a primary insurance policy to Dr. Singh and PPIC issued an excess insurance policy.  A medical malpractice suit was filed against Dr. Singh and other parties.  TDC defended Dr. Singh under the primary policy, which provided coverage up to $1 million.  Plaintiff offered to settle the suit for $1 million, and Dr. Singh conveyed his desire to settle.  PPIC told Dr. Singh he should accept the settlement and paid the $1 million settlement.  PPIC filed a claim for equitable subrogation, seeking payment of the $1 million from TDC.


Under Colorado law, equitable subrogation is often used as a loss-shifting mechanism, dependent on the rights, obligations, and duties between the parties as set forth in an insurance policy.   Such rights can be acquired by contract or through principles of equity.  A subrogated insurer has no greater rights than the insured, and stands in the shoes of the insured once subrogation rights are obtained.


The court held that PPIC could assert an equitable subrogation claim against TDC to the extent of Dr. Singh’s rights against TDC.  Since Dr. Singh would have been obligated to prove that TDC acted in bad faith or unreasonably under the circumstances, PPIC was required to prove the same in its equitable subrogation claim against TDC.  The court rejected TDC’s argument that proof of the insured’s liability was also required.  This was rejected because under Colorado law, the basis for tort liability for bad faith failure to settle does not ultimately depend upon the insured’s liability.


John R. Ewell

[email protected]


04/17/18       Ferrante v. New Jersey Manufacturers Insurance Group

New Jersey Supreme Court

New Jersey Supreme Court Affirms That Carriers Are Not Required to Pay UIM Claims Where Insured Fails to Give Notice of Suit Against The Tortfeasor
Robert Ferrante was involved in an automobile accident where the other motorist (“the tortfeasor”) caused the collision. Without informing his auto insurance carrier, New Jersey Manufacturers Insurance Group (“NJM”), Ferrante initiated a negligence lawsuit against the tortfeasor, who had a liability limit of $100,000 on his insurance policy. The parties participated in mandatory arbitration, which set Ferrante’s damages at $90,000. Again, without informing NJM and allowing it to exercise its subrogation rights, Ferrante rejected the award, and sought a trial de novo. He also refused a $50,000 settlement offer without notifying NJM.


Prior to the trial, Ferrante entered into a high-low agreement with the tortfeasor, which set the range of damages between $25,000 and $100,000, notwithstanding a jury verdict. Ferrante did not communicate this agreement or the trial itself to NJM, either. Following the trial, a jury awarded plaintiff $200,000 in damages, but the trial court entered a judgment of $100,000 due to the high-low agreement.


For the first time in 2011, Ferrante sent a letter to NJM notifying that he was seeking underinsured motorist (“UIM”) benefits. In the letter, Ferrante wrote that the tortfeasor was willing to settle for $100,000. However, Ferrante failed to mention the arbitration, high-low agreement, completed trial, or jury verdict. Based on this information, NJM told Ferrante to accept the offer.


NJM and Ferrante proceeded to litigation over UIM coverage. Only during a pretrial discovery exchange did Ferrante finally disclose his past dealings with the tortfeasor. NJM moved to dismiss the complaint, and the trial granted the motion, finding that Ferrante violated the policy’s notice conditions and New Jersey law by not notifying NJM of any of the proceedings with the tortfeasor.


On appeal, a split panel of the Appellate Division reversed. The majority held that because the trial court did not consider if NJM was actually prejudiced by the lack of notice, a remand was needed to determine if NJM sustained any prejudice. The lone dissenting judge disagreed that NJM must demonstrate prejudice in order to void the UIM claim. Rather, she found that Ferrante’s failure to provide any notice to NJM during the initial suit and his later omission of the trial proceedings and high-low agreement caused NJM’s subrogation rights to be “irretrievably lost.”


The New Jersey Supreme Court considered whether prejudice must be shown given the fact that Ferrante destroyed NJM’s subrogation rights. Due to the complete absence of notice by Ferrante to NJM at any point over years of litigation, including the lack of notice about the high-low agreement or completed jury trial during the UIM process, the New Jersey Supreme Court held that NJM had no obligation to pay UIM benefits.


03/30/18       Farm Bureau Mutual Ins. Co. v. Cook

Supreme Court of Idaho

Idaho Supreme Court Rejects Viewing “Occurrence” from Insured’s Point of View, Holding That Intentional Shooting by Third-Party Is Not “Occurrence”

Edgar and Laurie Cook own 200 acres of property in Bonner County, Idaho (the “Property”). The Property includes a lake, a cabin, and a campground. The Cooks allow people to use the lake and campground without charging a fee, but they solicit voluntary donations to help with the Property’s upkeep. Twenty years ago, Michael Chisholm asked the Cooks if he could stay in the cabin in exchange for maintaining the Property. They agreed and Chisholm began caring for the Property.


On June 28, 2015, Joseph Stanczak and his girlfriend were camping at the Property. Chisholm invited them into the cabin. A dispute later arose between Chisholm and Stanczak. Chisholm shot Stanczak twice with a .45 caliber handgun, then left the scene. Authorities later apprehended Chisholm and charged him with Aggravated Battery and Use of a Deadly Weapon in Commission of a Felony. Chisholm pleaded guilty and was sentenced to prison.


Stanczak sued Chisholm and the Cooks. In his complaint against the Cooks, Stanczak alleged premises liability and negligent supervision. The Cooks had an insurance policy with Farm Bureau that insures the Property for “bodily injury” resulting from an “occurrence” (“Policy”). Farm Bureau denied coverage and disclaimed any duty to defend against Stanczak’s complaint. Farm Bureau them filed a declaratory judgment action seeking a declaration that there was no coverage under the Policy, and that it did not have a duty to defend the Cooks. Farm Bureau moved for summary judgment, which was granted by the district court. The Cooks appealed to the Supreme Court of Idaho.


The Cooks contended that coverage exists under the Policy since whether an event was an “occurrence” (defined as an accident) should be viewed from the standpoint of the insured. They claimed that Chisholm shooting Stanczak—while intentional from Chisholm’s point of view—was an accident from theirs, and thus is a covered “occurrence”. In contrast, Farm Bureau asserted that the injuries on which Stanczak’s claims were based flowed directly from the intentional shooting, and thus cannot be an “occurrence” under the Policy.


The Supreme Court of Idaho noted that courts across the country do not agree on whether a third-party’s intentional act—specifically an assault—is an “occurrence” under a liability insurance policy. It explained that some courts take the position that an accident or occurrence must be viewed from the insured’s standpoint. However, numerous courts have viewed the issue of whether an event constitutes an accident or occurrence not from the standpoint of the insured but by looking at the nature of the injury-causing event. Under the “nature of the event” approach, negligence claims against an insured that directly arise out of the intentional act of a third-party are not covered because the underlying causative act is not covered.


The Idaho Supreme Court held that Idaho is a “nature of the event” state and not a “standpoint of the insured” state. Since an intentional shooting caused the injuries, the Supreme Court of Idaho held that the shooting was not an “occurrence” and affirmed Farm Bureau’s grant of summary judgment.



Howard B. Altman

[email protected]


GPS Devices:

New York’s Department of Financial Services proposed and interesting idea: equip vehicles with commercial GPS devices (which are, DFS opines, more accurate than the phone app versions) to earn a reduced auto insurance premium, the theory being that because commercial GPS systems indicate where low bridges and overpasses are, accidents involving those overpasses will be less likely (many State highways have low overpasses, and thus bar trucks). The Circular Letter can be viewed at:

A fatal accident recently occurred on Long Island’s Southern State Parkway on Long Island.  A bus carrying high school students collided with an overpass, shearing off the bus’s roof and injuring children.  News reports indicated that that a global positioning system (GPS) was in use but that it was not a commercial or professional model.  DFS thus conducted its own investigation to evaluate whether a commercial GPS could have avoided the accident.

According to DFS’s study, a GPS designed for commercial use provides information about route restrictions and low overpasses that are not included in non-commercial GPS devices, such as New York’s prohibition against commercial trucks traveling on State highways.

Although the investigation was not complete as of the date of the circular letter, DFS opined that accident tragedy could have been avoided if a commercial GPS was in use.  According to data provided by the New York State Department of Transportation (DOT), more than 700 DOT bridges and overpasses were damaged by over-height vehicles between 2009 to 2015.  The State incurred more than $125 million in costs over the last five years to repair damaged bridges and overpasses across New York.

DFS proposes that property/casualty take the lead in offering incentives to use commercial GPS systems, and thus, in DFS’s view, lower the risk of these accidents. DFS believes that property/casualty insurers must specifically consider as a matter of underwriting whether and to what extent the prospective policyholder, or existing policyholder in the case of a renewal policy, utilizes commercial GPS on the insured vehicles.  Insurers should assist and encourage policyholders to use only commercial GPS if a GPS is in use at all.

Policyholders that use commercial GPS might reduce potential loss exposure that can be reflected in lower insurance premiums. Insurers are encouraged to develop and file programs and rules in respect of commercial GPS for insurance premium discounts.

A caveat: most personal use vehicles, even large SUV’s, would not qualify as commercial vehicles, thus, as a practical matter, DFS’s advice would be of limited use to individual policy holders.  For fleets, however, be it a bus, school, or trucking, offering a premium reduction to those that equip their vehicles with and actively use a commercial GPS could save paying a signification property or liability damage claim down the line.

Brian F. Mark

[email protected]


03/29/18       Depositors Ins. Co. v. NEU Constr. Servs.

U.S. District Court for the Eastern District of Missouri, Eastern Division
US District Court Held that Arbitration Award Based on a Breach of Contract Claim Does Not Constitute an “Occurrence”.

This declaratory-judgment action arises out of an underlying construction defects action.  Joe Adams and Deanna Daughhtee ("Property Owners") hired NEU Construction Services, Inc. ("NEU") to oversee the construction of a second-story veranda for their home.  During construction, NEU's subcontractor installed an "EPDM Waterproof Membrane" on top of the concrete slab that supported the floor of the veranda.  In March 2011, the floor of the veranda began leaking into the first story of the home.  Repairs were attempted in the fall of 2012, but leaks continued resulting in substantial property damage.


Depositors Insurance Company (“Depositors”) issued NEU a CGL policy, which was effective from August 21, 2011, to August 21, 2012.  In April 2013, NEU notified Depositors of the damage.  On May 28, 2013, Depositors wrote to NEU, advising that the loss may not be covered under the Depositors policy and reserving its rights under the policy and applicable law.  On June 6, 2013, Depositors wrote to Property Owners, disclaiming coverage for any damage attributable to NEU's or its subcontractors' workmanship, absent negligence.  On August 26, 2014, Depositors disclaimed coverage to NEU on the ground that the loss was not covered under the policy.


On February 7, 2014, Property Owners commenced an arbitration action for breach of contract against NEU, seeking $485,219.43 in compensatory damages caused by the substandard installation of the EPDM membrane.  Property Owners alleged that the installation amounted to a breach of contract.  On March 24, 2015, the arbitrator awarded Property Owners $436,551.48 plus interest.  Although the arbitrator found that the damage was caused by a failure of the EPDM membrane, rather than some defect in its installation, he concluded that the failure was a breach of the contract between Property Owners and NEU.


On February 28, 2017, Depositors filed a declaratory-judgment action seeking a declaration that it was not liable to NEU for the arbitration award because NEU's breach of contract is not covered under the policy issued to NEU and because NEU failed to notify Depositors of the arbitration demand as required by the policy.  NEU answered and alleged that Depositors' May 28, 2013, June 6, 2013, and August 26, 2014, disclaimer letters absolved NEU from the notice requirement.  NEU also asserted three counterclaims alleging that Depositors is liable for the arbitration award.  Thereafter, Depositors moved for summary judgment.


In its motion, Depositors argued that it is clear under Missouri law that it is not liable to NEU.  The Depositors policy, like nearly all GCL policies, insured NEU against property damage caused by an "occurrence."  The Depositors policy defines "Occurrence" as an "accident, including continuous or repeated exposure to substantially the same harmful conditions."  Depositors pointed out that the arbitration award was for NEU's breach of contract, and noted that the arbitrator cited violations of specific sections of the contract and that Property Owners' only claim was for breach of contract.  Depositions cited to a number of Missouri cases holding that a breach of contract is not an accident and therefore not an occurrence. 


In opposition to the motion, NEU argued that the root cause of the arbitration award was the failure of the EPDM membrane and that Property Owners' decision to proceed under a breach of contract theory did not alter the accidental nature of that failure.


The Court reviewed the case law relied on by Depositors and agreed that under Missouri law a lawsuit seeking damages caused by breach of contract does not state an 'occurrence.  As such, the Court held that the arbitration award was not an "occurrence" as the term is defined in the Depositors policy, and it therefore did not trigger an indemnity obligation.


Property Owners argued that the damage arose from defective work and that their decision to pursue recovery on a breach of contract theory was secondary.  They noted that their arbitration demand included allegations that the membrane failed due to negligent design and argued that whether damage was caused by the negligent installation of the EPDM membrane was a factual dispute because a subcontractor's negligence is an unforeseen "occurrence."  The Court noted that Missouri cases have held that an award for breach of contract was not a covered occurrence even when the underlying allegations included the failure to correct deficient and defective work.  The Court pointed out that Property Owners' arbitration demand expressly identified NEU's breach of contract as the cause of action.  The Court found that Property Owners' belated attempt to argue that the award was for something other than NEU's breach to be ineffective.


With regard to the late notice of the arbitration demand, Depositors argued that NEU was precluded from coverage because it failed to meet its contractual duty to notify Depositors of the Property Owners' arbitration demand.  NEU offered no evidence that it expressly notified Depositors of the arbitration demand and did not even allege that it notified Depositors of the arbitration demand.  Based on the record before it, the Court concluded that NEU failed to adequately notify Depositors of Property Owners' arbitration demand.  Under Missouri law, an insured's failure to timely notify an insurer can relieve the insurer of its duties under the contract, but only if the failure prejudiced the insurer.  The Court held that NEU's failure to notify Depositors when Property Owners initiated the arbitration as required by the policy prejudiced Depositors and noted that Depositors' prejudice flows not from the damage to Property Owners' home, but from its inability to address their arbitration demand.  Thus, even if NEU's pre- arbitration communication put Depositors on notice of Property Owners' damage claim, it could not have adequately notified Depositors that it risked losing its opportunity to contest or settle a future arbitration demand.  The Court reiterated that NEU's duty to notify Depositors of Property Owners' arbitration demand was separate from its duty to notify Depositors of Property Owners' damage claim.  On that basis alone, the Court concluded that Depositors' letter did not waive its right to notice of the arbitration demand.  Indeed, Depositors' denial of coverage as to Property Owners' initial claim was made without the knowledge that they would eventually seek an arbitration award.  The Court also held that NEU’s reliance on Depositors' earlier denial of coverage did not support an estoppel argument as to Depositors' denial of coverage regarding the arbitration award.


In light of its findings above, the Court granted Depositors summary judgment and declared that it had no duty to indemnify NEU for the arbitration award stemming from Property Owners' demand.  Because NEU's counterclaims were premised on Depositor's failure to indemnify it for the arbitration award, the Court found that those claims failed as a matter of law.


03/30/18       State Farm Fire & Cas. Co. v. DTL Mech., LLC

U.S. District Court for the Eastern District of Pennsylvania
US District Court Held that Under Pennsylvania Law, Faulty Workmanship, Even When Cast as a Negligence Claim, Does Not Constitute an "Occurrence."

This declaratory-judgment action arises out of an underlying construction defects action related to the construction of an addition to a home.  Scott and Maria Evans hired Bianco Contractors, Inc. and Jeffrey Biancaniello ("the contractors") in mid-2014 to construct an addition onto their home.  During the course of the construction, the contractors hired DTL Mechanical, LLC (“DTL”) as a subcontractor to install a heating, ventilation and air conditioning ("HVAC") system.  A number of problems arose after the addition was completed, including problems with the HVAC installation, forcing the Evanses to reconstruct or replace portions of the addition.


As a result of the construction defects, the Evanses sued the contractors.  In the underlying action, the Evanses alleged that the contractors installed an improperly "designed, sized, vented and harmonized HVAC system," failed to comply with applicable building codes, and breached implied warranties that the HVAC system would comply with industry standards and fit for ordinary purposes.  The contractors, in turn, alleged that DTL was "responsible for the installation of the HVAC system," and that damages sustained by the Evanses were caused by DTL's negligent performance of the work.


State Farm Fire and Casualty Company insured DTL under a businessowners policy, which was effective from September 1, 2014 through September 1, 2015 ("the Policy"). The Policy provided that State Farm would "pay those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury', 'property damage' or 'personal and advertising injury'" caused by an "occurrence."  "Property damage" is defined to mean "[p]hysical injury to tangible property, including all resulting loss of use of that property," or "[l]oss of use of tangible property that is not physically injured or destroyed, provided such loss of use is caused by physical injury to or destruction of

other tangible property."  "Occurrence" is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."


State Farm declined to defend or indemnify DTL in the underlying litigation, maintaining that the allegedly negligent installation work did not constitute an "occurrence" under the Policy.  The Evanses eventually settled with the contractors and DTL.  As part of that settlement, DTL assigned the Evanses its rights to pursue "any and all insurance defense and/or indemnification declaratory judgment claims, as well as any and all bad faith claims that may apply or arise as a result of the failure and/or refusal by State indemnify and/or defend DTL as to claims asserted against DTL within the Lawsuit."


The Evanses sought indemnification from State Farm based on State Farm's alleged duty to defend and indemnify DTL in the underlying litigation.  In its declaratory judgment action, State Farm sought a declaration that it did not owe DTL a duty to defend or indemnify it and thus had no obligation to indemnify the Evanses under the assignment.  The Evanses responded by asserting thirteen counterclaims. 


State Farm filed a motion for summary judgment, arguing that the allegedly negligent installation work did not constitute an "occurrence" under the Policy.  In examining Pennsylvania case law regarding faulty workmanship claims, the Court acknowledged that faulty workmanship, even when cast as a negligence claim, does not constitute an "occurrence."  The Court next compared the terms of the Policy to the allegations in the underlying litigation to determine whether those allegations triggered coverage.  The Court noted that the factual allegations in the underlying case mirror those in which courts have refused to find a duty to defend and held that the claims asserted against DTL in the underlying litigation did not trigger State Farm's duty to defend because DTL's alleged faulty workmanship was not an "occurrence" under the Policy.  Since State Farm did not owe a duty to defend DTL, the Court ruled that the Evanses are not entitled to indemnification from State Farm. 


The Evanses relied on case law to support their position that claims involving faulty workmanship could potentially constitute "occurrences".  Upon review of the relied on cases, the Court found the cases to be distinguishable from the matter at bar as those cases involved claims of bodily injury and a product that actively malfunctioned, which could give rise to an “accident.”  Here, the claims brought against DTL in the underlying action were based solely upon the faulty design and installation of the HVAC system, not that the HVAC system actively malfunctioned or that it resulted in bodily injury.


State Farm also sought summary judgment on the thirteen counterclaims asserted by the Evanses.  State Farm argued that twelve of them fell outside the scope of the assignment from DTL to the Evanses, and that the remaining bad faith claim was meritless.


The Court determined that all of the counterclaims, other than bad faith, fell outside the scope of the assignment, and as such, the Evanses lacked standing to assert them.  The plain language of the assignment states that the Evanses may pursue against State Farm "any and all insurance defense and/or indemnification declaratory judgment claims, as well as any and all bad faith claims that may apply...."  This language unambiguously expressed intent to limit the assignment to the right to pursue the specifically enumerated claims.  The Court held that as the Evanses were not assigned the right to pursue anything other than claims for defense, indemnification and bad faith, they did not have standing as "the real party in interest."


The only counterclaim the Evanses had standing to bring was that State Farm acted in bad faith by refusing to defend or indemnify DTL.  The Court noted that Pennsylvania federal and state courts have defined "bad faith" as a frivolous or unfounded refusal to pay proceeds of a policy.  Bad faith claims cannot survive a determination that there was no duty to defend, because the court's determination that there was no potential coverage means that the insurer had good cause to refuse to defend.  Therefore, an insurer with no duty to defend or indemnify its insured could not have acted in bad faith.  As State Farm did not have a duty to defend or indemnify DTL for their faulty workmanship, it did not act in bad faith.  Accordingly, the Court granted State Farm’s motion for summary judgment.



Larry E. Waters
[email protected]


03/31/18       Lafarge Canada Inc. et al. v. American Home Assurance

United States District Court, Southern District of New York

Court Concludes Neither the Duty to Defend nor the Duty to Indemnify Disputes were Suitable for Declaratory Judgment Act Discretion – Quebec Law
Plaintiffs, Lafarge Canada Inc. (“LCI”) and Lafarge North America, Inc. (“LNA”), commenced a declaratory-judgment action against the Defendants (collectively “the Insurers”).  LNA is headquartered in Virginia and is the parent company of LCI, which is headquartered in Quebec.  From April 1, 2001 to July 1, 2012, Defendants American Home and AIG Canada issued twelve consecutive primary policies to LCI.  In addition, from 2004 to 2012, Defendant Lexington Insurance Company (“Lexington”) provided umbrella general liability coverage to LCI and issued nine policies to LNA in Virginia.  Further, LCI was issued two-umbrella general liability policies from AIG Canada in Quebec.  The umbrella policies covered property damage but only when LCI pays more than two million (Canadian currency) per occurrence not counting defense cost. 


Subsequent to the issuance of the policies of insurance, “[a] large group of Canadian plaintiffs brought suit against parties they allege were responsible for significant property damage to their homes.”  In total, there were 240 lawsuits.  In 2012, a Quebec court consolidated roughly 70 of the lawsuits into the “First Wave.”  None of the suits included Lafarge as a defendant.  Currently, a Quebec court is in the beginning stage of consolidating the remaining lawsuits into a “Second Wave.”  


On November 16, 2015, Lafarge filed an action seeking declaratory relief.  Following discovery, Plaintiffs and the Insurers moved for summary judgment as to declaratory relief. 


In deciding whether declaratory action was appropriate, the court first noted that “a declaratory action may be ripe even if the Insured has not yet incurred any liability.”  The court also noted, “even where the case or controversy requirement is met . . .  a court may nevertheless decline to hear a declaratory judgment action in an exercise of discretion.” 


The parties were in dispute as to whether Plaintiff’s claims for indemnification and defense under its insurance policies were ripe.  In its analysis, the court acknowledged that there was no per se rule that the underlying liability must be established before a court may rule on a declaratory action to establish the duty to indemnify.  However, the court found the regular practice is to require the existence of liability before exercising declaratory judgment action.  Here, the court found the underlying litigation may yet give rise to a ripe indemnification controversy if and when the Quebec court determines issues establishing a practical likelihood of some form of liability against Plaintiff.  As such, the court concluded until the Quebec court makes some determinations in the underlying case an argument for lack of ripeness exist.


Nevertheless, the court concluded that even if the indemnification issues presented were ripe for controversy, the court would not exercise its declaratory judgment action jurisdiction to rule on them.  In its analysis, the court noted that there are several non-exclusive factors to consider to guide its declaratory judgment act discretion.  The non-exclusive factors include: (1) the usefulness and potential certainty provided by a declaratory judgment; (2) interest in avoiding friction with sovereign legal systems; (3) the scope of the different proceedings; (4) the order of filing; (5) and the choice of law.


Here, the court found that friction with the Quebec court was likely.  The court found that it was likely that the potential creation of overlapping, and possibly inconsistent factual records with the Quebec court.  Further, the court found that Plaintiffs wanted the court to address issues that were unsettled Canadian law as the Quebec courts did not address the allocation of multi-year losses under multiple policies.  Moreover, the court found that Quebec law will apply to disputes concerning at least some of the policies, and New York and federal law will not apply to any of the policies at issue. As such, the court concluded the non-exclusive factors for consideration weighs against the court exercising its declaratory judgment act discretion.


The court also denied exercising jurisdiction over the remaining disputes regarding the duty to defend.  The court reasoned that the Quebec courts would be in a better position to proceed with determining the duty to defend.  Specifically, the court reasoned that the Quebec court should be given a chance to construe the allegations whether at trial or pretrial. 


In sum, the court found that neither the duty to defend dispute nor the duty to indemnify dispute is presently suitable for declaratory judgment act discretion.    


Earl K. Cantwell
[email protected]


02/01/18       Belonger Corporation Inc., etc. v. BW Contracting Services et al.

United States District Court, E.D. Wisconsin

Another Example of Contract by E-Mail (or Not)

Given the frequency and rapidity of e-mail communications, the courts are starting to decide cases where a seminal issue is whether the parties actually reached an enforceable contract primarily or purely through electronic communications. In this case, the Veterans Administration hired BW Contracting Services to construct a medical center in Milwaukee. BW hired Belonger Corporation for HVAC work. After the work was essentially completed, BW became aware that a plumbing line installed by Belonger needed repairs due to work done by another subcontractor. Belonger agreed to make the repairs, on the condition that BW issue a Change Order for the work. BW agreed and instructed Belonger to proceed with the repair work on a time and materials basis. Belonger performed the repairs for approximately $4,000 in labor and materials, but BW never actually issued a formal Change Order.


Several months later, as the story unfolds, the VA discovered that when performing the repairs Belonger misconnected the hot water and chilled water returns in certain rooms which essentially contaminated the water system for the entire hospital. Belonger fixed that error, did not charge for the work, but the VA then issued a claim to BW for $300,000 for damages due to the contamination. Belonger in time sued BW and BW’s payment bond surety under the Miller Act claiming that it was owed money for the original plumbing and HVAC work, as well as the repair charges.


BW argued that Belonger’s Miller Act claim was untimely because the action was not filed within one year of Belonger’s last work under the sub-contracts. In response, Belonger contended that the repair work subsequently performed, which was completed just a year before suit, constituted work under the original sub-contract. Therefore, the question put to the Court was whether the parties had agreed to change the original sub-contract scope to add the repair work, even absent an official Change Order, and whether the Miller Act statute of limitations had been extended or tolled by that agreement.


It was clear that the original sub-contract never called for Belonger to repair work done by another sub-contractor. The e-mail correspondence strongly suggested that Belonger relied on BW’s promise of a Change Order to be issued when it agreed to perform the repairs. A Change Order is an amendment to an original agreement, not a new sub-contract. Even though BW did not actually issue the Change Order, the Court ruled that BW failed to show that Belonger’s repair work was necessarily not work under the original sub-contract. The court appeared to discount the time bar argument based on explicit assurances to Belonger that BW would amend the original sub-contract to include the later dated repair work.


The Court’s conclusion was there was a genuine issue of material fact as to whether the parties had amended the original sub-contract to add the repair work, and the Court denied the motion for summary judgment seeking to dismiss Belonger’s Miller Act claims as time barred.


This is yet another example of courts being forced to decide whether contracts, amendments, and change orders can be created or formed by e-mail regardless of other written contract documentation or procedures. In addition to determining whether an agreement is created by e-mail, a related concern is trying to determine the terms and conditions of any such e-mail contracts. The inquiry is often whether the e-mails contain enough of the “essential terms” to create and define a contract. Another issue and possibility is that a collective e-mail thread or chain may cumulatively give rise to an enforceable legal agreement.


Very often, such as in this case, this results in a denial of summary judgment since the courts find material issues of fact in the e-mail correspondence and varying offered interpretations.


Yet another issue is the fact that these e-mail communications at times are different from the terms of the main contract documents, and the courts have to determine which terms and conditions take precedence and which became operative (or non-operative).


As in this case, another issue that arises with such “electronic contracts” is whether a party justifiably relies on e-mail communications to act or not to act in a certain fashion, and whether doctrines such as promissory estoppel, equitable tolling, and waiver and estoppel come into play to enforce or not enforce, change or not change, otherwise governing contract provisions.


This issue also arises in the context of looser “signature” standards and requirements in an electronic digital environment exemplified, for example, by the New York Electronic Signatures and Records Act (ESRA), State Technology Law §304.


Care should be taken in electronic communications to disavow any notion that an insurance policy has been procured, a certain coverage bound, on a specific endorsement obtained, and related terms that might alter or affect the issuance, terms, and conditions of any insurance policy.

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