Coverage Pointers - Volume XIX, No. 25
Volume XIX, No. 25 (No. 510)
Friday, June 1, 2018
A Biweekly Electronic Newsletter
Hurwitz & Fine, P.C.
1300 Liberty Building
Buffalo, NY 14202
Long Island Office:
535 Broad Hollow
Melville, New York 11747
Lake Placid Office
2577 Main Street
Lake Placid, NY 12946
© 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.
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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.
It has been a long couple of weeks of travel, on behalf of greater good.
ALI Restatement of Insurance Law
I had the honor of participating in my first meeting as a member of the American Law Institute and to cast a vote against some of the less industry-friendly provisions in the Restatement of Insurance Law. I commend those who fought in the trenches to try to level the playing field in the Restatement and the final product is certainly better than it was before the industry began its efforts. For example, the Reporters did eliminate the provision that would evaluate an insurer’s bad faith by considering, in part, whether its defense counsel had adequate professional liability insurance. It was clear, however, that after years of debate, the ALI was ready to move forward with a final product.
For New York courts some of the provisions, particularly those dealing with bad faith, are inconsistent with current state common law. What the courts will do with the new Restatement remains to be seen.
PLRB Claims Conference Planning Committee
For the past decade or so I’ve served on the PLRB Claims Conference Planning Committee. We were working with PLRB staff to develop the educational programming for the 2019 Claims Conference which will be held in Indianapolis from March 31 to April 3, 2019. That’s where I’ve been for the past three days and I can tell you this, there will be superb educational opportunities for you in a great and vibrant city next year. Mark it on your calendar.
“When Words Collide: Resolving Insurance Coverage and Claims Disputes,”
Earlier this year, I had the opportunity to review and contribute to an insurance book as it was being written. The book, “When Words Collide: Resolving Insurance Coverage and Claims Disputes,” was published this month and is now available on Amazon in both print and ebook formats. The author, Bill Wilson, CPCU, ARM, AIM, AAM, is a 49-year veteran of the P&C insurance industry. For almost three decades, he assisted independent insurance agents in resolving coverage and claims disputes before retiring in 2016 from the Independent Insurance Agents & Brokers of America (the Big “I”). He now blogs at www.InsuranceCommentary.com and speaks at conventions and conferences around the country on coverage, claims and emerging industry issues.
He refers to the ”When Word Collide” book as “readable reference.” While the book is intended as a dog-eared reference of practical legal and coverage doctrines that are critical in drafting and determining coverage under insurance policies, it is written in a first-person conversational tone laced with humor and illustrated with dozens of real-life coverage and claim scenarios from the author’s experience that spans six decades. His early 19 years of experience working for Insurance Services Office, Inc. (ISO) and its predecessors gives him a unique insight into how and why policy forms are drafted. Priced far less than most “insurance” books, “When Words Collide” packs significant value into its 350 pages and should be a tool in the chest of every industry professional charged with the responsibility of preventing and/or resolving insurance coverage disputes. The book can be ordered from Amazon at the links above or directly from www.WhenWordsCollideBook.com.
First Post-Carlson Case
Read the Vista Engineering decision to see the first time an appellate court begins to struggle with the question created by the Court of Appeal in Carlson. You’ll remember that in Carlson, the Court of Appeals expanded the reach of the disclaimer requirements under Insurance Law Section 3420(d) to policies issued by out-of-state carriers to companies that both had New York risks and a substantial corporate presence. However, the high court did not give any hints to the lower courts as to what constitutes a substantial corporate presence. The First Department recognized that absence of direction in Vista Engineering and punted the question back to the trial court to build a record for review. A two-judge dissent was satisfied that the “presence” was established by the size of the contract under which the insured was working at the time of the accident.
100 Years Ago – War Risk Insurance Causes Concern
Appeal to Reason
01 Jun 1918
Insurance People Frantic Over Government's Plans
From The New Appeal's Washington Bureau.
WASHINGTON.—War-risk insurance is but a beginning. That experiment, a success from the start, has shown officialdom how the various phases of the insurance question can be extended under government management and government ownership. Secretary McAdoo threatened critics that if insurance profiteers will not, in the words of Attorney General Gregory, "keep your mouth shut", he will enter actively the insurance business. This threat is about to come to pass.
There is no question in the minds of officials here that the government will not quit the insurance business with the coming of peace. War-risk insurance is too popular and successful. There seems to be no question that the soldiers, upon their return from the front, will still be able to keep their insurance policies intact at even a much lower rate.
But it is the immediate program which is worrying the insurance companies. Senator Lewis, of Illinois, is about to present a bill for government insurance of government employees and wage earners in general. This bill, to be presented to the Senate in the form of an amendment to the war risk insurance law, permits all employees of the government and all wage earners receiving up to a certain amount to take out government insurance. Those able to take out insurance in private concerns would not be allowed the government privilege, which in itself is an indictment against the privately owned concerns.
Naturally the insurance lobbyists are both busy and frantic. There is one argument which they are using, but it is an argument which has long since lost its terrors to the masses. They are branding it as "socialistic", which is another way of saying that not only will it be adopted by the administration but that it will be a success.
As you may know, softball season has started. Some of you may also know that Hurwitz & Fine is full of really great attorneys … who are really, really bad at softball. I am the captain of this very enthusiastic group of poindexters. Now, we have a few all- star athletes on the team, don’t get me wrong, but they can only do so much. I will give my team all the credit in the world for optimism, tenacity, and reliability. Last week we lost by the Mercy Rule (losing by so much that it is cruel to keep playing) and yet, this week we have 16 people ready to give it a shot again. I have a sneaking suspicion that it has more to do with the pizza and beer afterward.
Please wish us luck as we head to the field tonight. If we lose again, they might look for a new captain…
Tessa R. Scott
Editor’s Note: Tessa actually practices law, besides coaching our ne’er do well softball team. She coordinates our No Fault team and does it very well. She is also the go-to person on ride-sharing risks. Any questions, give her a shot. Sometimes she gets so caught up in the sporting angle she forgets to mention anything about the case law!
Jail-Breakers Thwarted – a Century Ago:
Democrat and Chronicle
Rochester, New York
01 Jun 1918
ALMOST ESCAPE FROM JAIL
Attempt Is Frustrated by Alertness
of Undersheriff’s Wife
Seneca Falls, May 31.—“Copper” Casey, or Thomas Casey, and Berte Densmore would have doubtless made their escape from the jail at Ovid to-day but for the alertness of Undersheriff C. P. Seeley's wife.
Casey and Densmore obtained an old knife from some unknown source. They were permitted to walk in the corridor of the jail. At the back of the corridor they slowly and carefully dug away the mortar surrounding one large stone. Shortly before noon to-day they slowly pulled the stone inward. Mrs. Seeley was working among some flowers and through a cellar window she saw the stone pulled in and then watched for a few minutes. Casey appeared in the opening. She gave an alarm. Casey withdrew and stuffed a pillow into the opening.
Mr. Seeley arrived home at just that instant. He put Casey into a more secure place and brought his associate to Waterloo. Confronted with some evidence that had been secured, Densmore began a long but complete narrative of the career of crime which the two young men have indulged in during the last three months.
John’s Jersey Journal:
This week we have special guests joining us. Always nice to have a guest with us. We have Debbie Krebs and Howard Kronberg from Keidel, Weldon & Cunningham, LLP. Debbie recently won a victory for the carrier in the U.S. District Court, District of New Jersey. The claim involved water damage and mold damage to a house. The insurance policy provided coverage for the building subject to a mold exclusion. There was also a limited giveback for mold damage. The New Jersey District Court accepted the carrier’s argument that it properly paid the claim when it paid out the full sublimit for mold damage. The case is Chobbs v US Coastal Insurance Company, 17-cv-3673.
Howard was kind enough to write up the case for us. Without further ado, Howard Kronberg:
Plaintiffs-homeowners suffered a loss due to a leak in a hot water heater valve which was located in a small enclosed crawlspace. The water only damaged the confines of the crawlspace. Because this home was not the plaintiffs’ primary residence, it was weeks before the loss was discovered. The home became humid and mold grew. The mold damage was greater than the direct water damage in the crawlspace.
Plaintiffs sued their homeowner’s insurer for not paying them more for the mold loss. US Coastal paid Plaintiffs the full amount of the damage caused directly by water under the policy’s Dwelling limits and the full amount of the separate limit for mold damage ($10,000.00). Payments were accepted by the Plaintiffs. The single dispute in this lawsuit was whether or not the Mold sublimit applied to the mold damage.
Plaintiffs argued that since mold is only and always caused by moisture and humidity i.e. water, the higher limits for a direct loss by a covered peril, water, applied and not the mold sublimit. They also sued for bad faith claims handling because the carrier did not pay the higher limits.
The carrier moved to dismissed the complaint arguing that the mold exclusion was specifically worded to cover any mold damage no matter how caused and no matter if caused in conjunction with a covered peril. Under New Jersey case law, the courts refer to this as an “anti-sequential” provision and have upheld these provisions as valid and in conformity with public policy.
Since case law supported the carrier’s reliance on the mold sublimit, the bad faith claim was also dismissed. Under New Jersey law where there is a reasonable basis for the carrier’s position under the “fairly debatable” test, punitive damages / extra-contractual claims do not lie.
My Partner Debbie Krebs gets all the credit.
Thank you, Howard and Debbie. Regular subscribers of Coverage Pointers know that we regularly congratulate other attorneys on good legal work. We congratulate Howard and Debbie on their victory. Contact Howard if you want more information.
The New Jersey Appellate Division and New Jersey Supreme Court have been silent on insurance law these past two weeks. No insurance law cases from those courts to report.
With the recent heat wave in Buffalo, I have been keeping cool by making fruit smoothies. My favorite is a mix of strawberries, peaches, lemonade, and lime sherbet. The recipe is:
3 slices frozen peaches
10 frozen strawberries
½ c. lemonade
½ c. lime sherbet
8 ice cubes
A fancy nationwide chain has a similar drink. Mine tastes very much the same at a fraction of the cost and can be made right at home. Currently accepting suggestions for the name.
‘Til Next Time,
John R. Ewell
At the Tone, the Time is …
The New York Times
New York, New York
01 Jun 1918
To all Telephone Users
On June 3rd, we will be obliged to discontinue answering requests for the "time of day."
In New York City alone, 250,000 of such requests are made daily. The answering of these calls requires the operators' services and the use of the equipment.
We have gladly furnished this special service in normal times. War conditions, however, have greatly increased the demands for necessary service, which makes it imperative that telephone facilities be conserved in every possible way.
The present supply of transportation, labor, raw material and equipment is only sufficient to meet the demands of the Government and of industries either directly or indirectly connected with the prosecution of the War. It is therefore becoming more and more necessary to reduce non-essential services of every kind.
The telephone service is necessarily affected by this general condition and its less essential uses must also be restricted.
We are sure our patrons will realize the importance of cooperating with us in this respect.
Beginning June 3rd
Please Do Not Ask the Operator for the Time of Day
NEW YORK TELEPHONE COMPANY
Peiper’s Plea (Re-Visited)
We love creative lawyering, and the Owens v. Jea Bus case reviewed below has a little bit of everything in it. In Jea Bus, the plaintiff was an employee of a company called Smart Pick. Smart Pick also employed the driver of a bus which, unfortunately, was involved in an accident. More unfortunate still, at least insofar as Ms. Owens was concerned, she was a passenger on said bus.
At the time of the accident, both driver and Ms. Owners were in the course of their employment. The bus, however, was owned by Jea Bus.
Through an earlier Workers’ Compensation Board determination, plaintiff was found to be actually the within the scope of Jea Bus’ workers’ compensation coverage. Nevertheless, plaintiff sued Jea Bus seeking damages.
Hedging her bet, however, she also sued her co-employee driver. Jea Bus, arguing that it was entitled to Section 11 protections, moved to dismiss, and its application was granted thus leaving the co-employee potentially exposed to liability. The co-employee smartly moved for summary judgment on the basis that he was a “special employee” of Jea Bus. As such, he was also entitled to denial. While the movant did not meet his burden, the special employee argument is preserved on a question of fact. A smart argument, and one not often considered.
On another note, readers of the column will know our laments over the trend in SUM/UM discovery. We’ve said it before, and for posterity we’ll say it again. A SUM/UM case is, at its core, a bodily injury case. Unless there is a legitimate coverage defense raised (and that’s rare), discovery should be limited as it would be if it was injured party v. tortfeasor. The Court of Appeals in Raffellini acknowledged a SUM/UM carriers right to defend itself in the very same manner as would an underlying tortfeasor. Where the reserves and valuation information is not discoverable in those actions, it follows they would not be discoverable in a SUM/UM action.
Oh cruel world, hear our prayers!
Indeed, someone finally did. We review below, United States Magistrate McCarthy’s recent ruling which finally recognizes that a SUM/UM claim is merely a claim for bodily injuries. A carrier does not breach its obligation under the SUM/UM claim until AFTER the plaintiff actually establishes damages. As such, where only compensatory damages are sought for bodily injuries, it follows that the ongoing harassment of claims professionals and their valuation/reserve numbers is not necessary. In fact, it’s irrelevant.
This decision, of course, follows the Fourth Department’s decision last Fall in Celani v Allstate which affirmed the understanding that reserves/valuation information in other First Party claims is also irrelevant.
Folks, if you make strong, logical and supported arguments it is patently demonstrated that Courts will listen. If you do not create a solid Record, and do not aggressively attack irrelevant and improper discovery demands, you are not giving the Court what it needs to render a thorough decision. Every discovery motion, made or responded to in any Court, must be viewed with an eye on how it would look at the appellate level.
The rule of thumb --- good records make bad law, bad records make busy lawyers.
Just a thought or two.
Steven E. Peiper
Insurance Fraud Stopped in its Tracks, Italian-style:
01 Jun 1918
CLAIM PLOT TO
MULCT RISK CO.
Hint Even That Murder
Was Done to Get Insurance
After detectives had completed an investigation in Chicago last night a statement was made by President Massey Wilson of the International Insurance company in St. Louis in which details of an alleged plot to defraud the company out of many thousands of dollars were disclosed.
It developed that an Italian fraternal society's insurance, carrying risks of $1,000 each on 1,000 Italians, had been taken over by the international company and that subsequent events caused the St. Louis company to cancel the policies.
Statement by Risk Head
Following is the statement of Mr. Wilson:
“We issued policies of $1,000 each on 1,000 Italian laborers a year ago in what is termed group insurance. The business was taken through an Italian society known as Trinacria Fratellanza Siciliana.
There was nothing unusual about the transaction, and it was not for some time that anything suspicious arose. Then we began to receive reports of deaths and claims began to be filed against the company.
These claims came in so fast that we became suspicious. We at first investigated in the usual way, and when we found that there was apparent fraud we employed the Pinkerton Detective agency.
Some of the claims we found were not valid and we refused payment. Some of the persons reported dead we found on investigation to have died from ailments with which they were afflicted when the policies were issued. These claims were not allowed.
Some Died in Italy
Then some claims were filed and the statement was made the insured had died in Italy. Of course these claims were not paid.
We have no proof that the persons who died in Italy were the ones we insured, and we have no proof that any of our insured had died in Italy.
About the reports from Chicago that murders have been committed in order to collect insurance we know nothing.
We do not contemplate instituting criminal proceedings. Inasmuch as the policies were still in the first year, and under the law we are permitted to cancel them without renewing because of the apparent fraud, we have simply refused to renew them or to carry them any longer."
We have had a lot of rain in the last few weeks. However, Memorial Day was sunny and the local town parade had a good turnout to honor those Americans who died in war and my sons marched in it in their Cub Scouts uniforms. We have been busy selecting summer camps for them and arranging a trip for them to visit my parents in sunny Florida, where the kids look forward to looking for lizards and going to LEGOLAND.
There are several serious injury cases in this issue. A couple of them involve the defendant demonstrating a prima facie case for summary judgment through the submission of experts who opine the range of motion limitations are due to degeneration. Plaintiff’s then were able to show an issue of fact by their own expert attributing it to the accident through objective measurements and comparisons. In one case, defendants were successful in comparing the range of motion limitations of the injured shoulder to the uninjured shoulder and demonstrating they were the same.
Until next time,
Divorce, California-Style – 100 Years Ago
The Los Angeles Times
Los Angeles, California
01 Jun 1918
WINS RACE TO FILE DIVORCE
Arcadia Contractor Gets Start
of Wife in Court by
Just an Hour.
A race to be the first at the Courthouse resulted in Charles w. Sutton, a building contractor of Arcadia, filing his suit for divorce against Frances W. Sutton just before 12 o’clock yesterday. Mrs. Sutton’s divorce action was filed an hour later.
Mr. Sutton alleges cruelty and charges that Mrs. Sutton is infatuated with another man. Mrs. Sutton sets up various alleged acts of cruelty on the part of Mr. Sutton. The couple was married at Santa in 1911.
Wilewicz’ Wide-World of Coverage:
I hope that everyone had a wonderful Memorial Day! We surely lucked out in terms of the weather. I think it might have been the best all-around weather weekend in years. In our house, the holiday was lovely, but somber. In an effort to be true to the spirit of the occasion, we traveled to Syracuse on Monday to decorate the tombstones of a couple of veteran family members. Memorial Day used to be known as Decoration Day, as we learned while listening to a historical podcast on the way there, during which fallen vets were honored and remembered. Indeed, one of the legends surrounding the holiday was that it started when Southern mothers started decorating not only the graves of their fallen sons, but those of the Northern men who also lost their lives but were buried far away from home. This good deed spurred nation-wide attention, and thus a national holiday was born. As my husband’s grandfather fought in the Battle of the Bulge, and his recently-departed step sister was an Army rigger, we decorated their graves with flowers and flags. It turns out that the weekend is not just about picnics and beaches, but has a truly touching back story as well.
Now, this week in coverage news, the Second Circuit did not have any cases of particular interest. We’ll be back in a couple of weeks, no doubt, with more riveting coverage of coverage.
Agnes A. Wilewicz
Elevator Girls Have Ups, Not Downs:
The Los Angeles Times
Los Angeles, California
01 Jun 1918
ELEVATOR GIRLS GIVEN
FOLLOWING a probationary trial of one month of girl elevator operators, the management of the I.N. Van Nuys Building at Seventh and Sparing streets yesterday made public its official verdict on the experiment, the first organized attempt in the city proper to actually release men for war served by the use of women. The finding was that the substitution is a success, that girls “stand up” under the work, that they handle the public well, that they are careful and reliable. The success of the Van Nuys Building’s experiment is likely to influence the management of other buildings, it is said.
The girls themselves like the work. Being an elevator girl is less arduous than being a telephone operator, in the opinion of the six active young women running the lifts in the Van Nuys Building. All gave the same verdict yesterday…
Editor’s Note: Politically incorrect language reported as printed.
Barnas on Bad Faith:
May has not been kind to the Blue Jays, who went 9-19 on the month and failed to win consecutive games at any point in the month. With Memorial Day just having passed, our playoff chances are fading fast. To make matters worse, our best trade pieces, minus JA Happ, are either injured or underperforming. It’s going to be a long summer if things don’t start turning around quick.
Speaking of unkind sports results, our firm softball team lost 23-4 last week. On the bright side, I got quite a bit of exercise in left field running to pick up singles hit by the other team. Hopefully we fare a little better this evening.
I have two cases in my column this edition. The Williams case applies Pennsylvania law to an underinsured motorist dispute between the plaintiff and Liberty Mutual. The court granted summary judgment in Liberty’s favor dismissing the bad faith claim because Plaintiff offered no evidence other than the conclusory allegations made in the pleadings. The record established that Liberty quickly and appropriately handled the claim. The Hobbs case is a nice win for our friends at Keidel, Weldon & Cunningham, LLP, in New Jersey. The court concluded that the carrier appropriately determined that a $10,000 mold limit applied to the insureds’ water loss. Accordingly, the breach of contract claim and bad faith claim were dismissed on a motion to dismiss.
Also, be sure to check out the Fisher case from the Colorado Supreme Court in Eric Boron’s column. There, the court held that insurers have a duty not to unreasonably delay or deny payment of covered benefits under Colorado’s bad faith statute, even if other components of an insured’s claim may still be reasonably in dispute.
Have a nice weekend.
Brian D. Barnas
Rushing towards Matrimony:
Buffalo Evening News
Buffalo, New York
01 Jun 1918
23 MARRIAGE LICENSES
START USUAL JUNE RUSH
June brides flocked to “Cupid’s Bower” this morning with their soon-to-be bridegrooms and obtained marriage licenses to the number of 23 in the half-day.
Among the 23 bridegrooms were six men who have attained their majority since June 5, 1917, the last draft registration day. Those applicants for permits to wed will be obliged to register for draft next Wednesday. The fact they married before the draft day will not act as grounds for a dependency claim, draft officials said this noon.
Altman’s Administrative (and Legislative) Agenda:
Greetings, Dear Readers. Well, my beloved New York Mets finished the month of May with a record of 4 and May; that is, they won 3 games all month. Someone, somewhere, please donate a relief pitcher.
In administrative news, the Department of Financial Services (DFS) published the
Amendments to New York’s Supplemental Uninsured Motorist (“SUM”) law coverage, which applies to policies issued on or after June 16, 2018.
Howard B. Altman
Knit One, Perl Two:
The Cincinnati Enquirer
01 Jun 1918
KNIT AWAY WOOL SUPPLY
American Women Asked To Confine
Their Work To Useful Articles
Washington. May 31.—Ten million American women knitting for soldiers fast are knitting away the wool supply, Representative Olney of Massachusetts told the House to-day. The Quarter-master General's Department of the army, he said, had to ask the Red Cross to suggest that the women continue their knitting to the articles most useful because of the amount of raw material used. Mr. Olney said the American domestic wool supply source had dwindled from 55,000,000 sheep five years ago to 47,000,000 sheep to-day.
Off the Mark:
Last weekend my kids and I went camping and hiking in the Catskills. We got a late start hitting the road and paid for it sitting in heavy traffic for six hours. Despite the rough start, my kids really enjoyed themselves. Their favorite parts of the trip were hiking and eating s’mores. They also preferred the ride home, which took half the time the ride up took.
This edition of “Off the Mark” discusses a construction defect case from the Supreme Court of Kentucky. In Martin/Elias Props., LLC v. Acuity, the plaintiffs purchased a home to resell for a profit. After renovating the upper floors, the plaintiff hired an individual to renovate and expand the basement. Unfortunately, that individual failed to support the existing foundation adequately before digging around it and within days, the old foundation began to crack and eventually the entire structure began to sag. The plaintiff filed a property damage claim with the basement contractor’s CGL carrier, which subsequently denied coverage on the basis that the structural damage was caused by faulty workmanship, which failed to qualify as an occurrence under the policy, and therefore, the loss was not covered. The policy defined occurrence as "an accident”, but did not define the term accident. The plaintiff argued that the damage to the property should be considered an accident triggering coverage under the CGL policy and that, at the very least, the damage done to the property above the basement should trigger coverage as an accident.
The Kentucky Supreme Court held that to determine whether an event constitutes an accident so as to afford the insured CGL policy coverage, courts must analyze the issue according to the doctrine of fortuity: 1) whether the insured intended the event to occur; and 2) whether the event was a "'chance event' beyond the control of the insured." If the insured did not intend the event or result to occur, and the event or result that occurred was a chance event beyond the control of the insured, then CGL coverage covering accidents will apply to the benefit of the insured.
The Court determined that the individual hired to renovate the basement had both intent and full control when conducting his work, which ultimately failed to support the existing structure. As such, the Court reasoned that the resulting damage throughout the property from his poor workmanship cannot be said to be a fortuitous event, and thus was not an accident. As none of the structural damage qualified as an accident triggering coverage under the CGL policy, the Court affirmed the decision of the Court of Appeals granting the carrier’s motion for summary judgment.
Until next time …
Brian F. Mark
Russian Towards Matrimony:
The Gettysburg Times
01 Jun 1918
Made Matrimony a Business
In a bigamy case in Russia in 1910 the prisoner, a beautiful young woman of some thirty summers, admitted that she had been married to sixteen husbands, running away from each in turn and taking all their portable property with her.
Welcome to another issue of Wandering Waters. I hope all of you have had a wonderful three-day weekend.
As you are aware, Wandering Waters provides a quick update on the NBA Playoffs. The NBA Playoffs are finally reaching its conclusion. After a long and hard fought run, the Warriors and the Cavs will faceoff for the fourth consecutive year in the Finals. The Cavs have the lowest odds to win in sixteen years. I am hopeful this series will go longer than predicted. I will hate to see such an exciting NBA season end in a four-game sweep of the Cavs.
With that being said, this week we have two cases from the United States District Court, Southern District of New York. I hope you enjoy
Until next time….
Larry E. Waters
What’s a Vamper?
Help Wanted - Female
Democrat & Chronicle (Rochester
June 1, 1918
Wanted – Vampers – E.P. Reed & Co.
I was curious about the term “vamper”. Its current meaning is a “seductress”, one who uses her feminine charms to seduce men. However an old English dictionary suggested a different definition:
vamper (plural vampers)
I trust that the company, a shoe company at the time, was looking for stitchers back in the day, but I don’t know.
A post-script to my May 17, 2018, column is that my son-in-law Mike Honsberger did, in fact, complete his first marathon, right here in Buffalo, New York, on our very warm and sunny Sunday morning past, crossing the finish line in the very respectable chip time of 3 hours, 50 minutes. Congratulations, Mike!
From distance running to distant, high courts of the great states of Colorado and Florida, I offer you two informative first-party coverage decisions issued within the past two weeks.
Is it permissible for an auto insurer in Colorado to withhold payment of medical bills covered under the insured’s UIM policies because other amounts sought by the insured, such as lost wages, are in dispute? The Supreme Court of Colorado says no...
The holding, though limited to Colorado UIM claims, is notable as it conflicts with policy provisions typically found in UIM policies that are intended to give the insurer the right to resolve the entire claim at one time through arbitration, other settlement, or litigation, in the same manner as a liability insurer. Have a look at the State Farm v Fisher decision, discussed below, which applies a Colorado insurance statute requiring insurers to not unreasonably delay or deny payment of “covered (first-party claim) benefits”.
Late notice causing prejudice to the insurer provides grounds for Florida appellate court to affirm trial court’s grant of summary judgment to the insurer…
When you’re litigating in a jurisdiction requiring that an insured’s late notice causes prejudice to the insurer in order to be granted a finding of no coverage, you would feel blessed to have background facts such as the De La Rosa v. Florida Peninsula Insurance Company case has. The case is worth a read for its analysis of how a property insurer may be prejudiced by late notice which created difficulties for the insurer in determining not only the cause of the water damage loss, but also, the extent of the loss and the cost of repairing the damaged property.
As always, here’s hoping this material may be helpful in or for your work. Have a great next couple of weeks.
Eric T. Boron
This week’s headlines from the attached issue:
KOHANE’S COVERAGE CORNER
Dan D. Kohane
- What is a “Substantial Business Purpose” under Carlson? We Still Don’t Know.
- MVAIC is Required to Pay its $25,000, without Requiring a Release, if there is a Judgment Against the Uninsured Motorist
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
- Issue of Fact Where Plaintiff’s Expert Found Range of Motion Limitations and Objective Evidence of Injury
- Jury Accepted Defendants’ Counsels’ Expert Who Argued Limitations Were Pre-Existence and Degenerative
- Defendant’s Evidence Showed that the Alleged Injuries Were Not Serious Injuries
- Range of Motion in Allegedly Injured Shoulder and Uninjured Shoulder Were the Same
- Plaintiff’s Experts Showed Substantial Range of Motion Limitations
Tessa R. Scott
- The Assignee Was Not an Infant, and As Such the CPLR Provision Prohibiting Arbitration Where an Infant Is a Party to the Action Was Not Applicable
- The Proof Submitted by Defendant Was Sufficient to Demonstrate the Failure to Appear for an EUO
- The Plaintiff Failed To Comply With the Order of the Civil Court and the Matter Was Dismissed
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
- Comp. Board Findings are Binding; Special Employment Status Can Trigger the Protections of the Workers’ Compensation Law
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
- Nothing of interest out of the Second Circuit this week
Jennifer A. Ehman
- Court Finds Employer’s Liability Carrier did not have to Comply with Insurance Law § 3420(d) When Denying Coverage
BARNAS ON BAD FAITH
Brian D. Barnas
- No Evidence Insurer Investigated UIM Claim in Bad Faith
- Bad Faith Claim Dismissed where Insurer Responded to the Claim, Paid the Amount Due, and did not Disregard its Duties under the Contract
JOHN’S JERSEY JOURNAL
John R. Ewell
- New Jersey Federal Court Bounces Breach of Contract and Bad Faith Lawsuit Where Carrier Paid Out the Full Sublimit for Mold
ALTMAN’S ADMINISTRATIVE (AND LEGISLATIVE) AGENDA
Howard B. Altman
- DFS Publishes the Eighth Amendment to New York’s new Supplemental Uninsured Motorist (“SUM”) Bill
OFF THE MARK
Brian F. Mark
- Supreme Court Holds Faulty Workmanship is Not an Occurrence
Larry E. Waters
- Defendants’ Motion to Dismiss Denied because there was No Failure by Plaintiff to Join a Party under Federal Rules of Civil Procedure Rule 19
- In SUM Case where Only Compensatory Damages are Sought, Discovery as to Reserves is Irrelevant and thus Unnecessary
- Plaintiff’s Motion for Reconsideration Denied because Plaintiff Failed to Show the Need to Correct a Clear Error or Prevent Manifest Injustice
Eric T. Boron
- Supreme Court Affirms Court of Appeals; Jury’s Verdict for Insured, Finding Insurer Violated Colorado Statutory Law by Unreasonably Delaying Payment of the Insured’s Medical Expenses on a UIM Claim, is Upheld, as well as the Trial Court’s Assessment of Statutory Penalties Against Insurer
- Summary Judgment for Insurer Affirmed; Late Notice of Water Damage Incident Resulted in Prejudice to Insurer Due to Passage of Time Coupled With Repairs Made, Creating Difficulty for Insurer to Determine Extent of the Loss and the Estimated Cost of Repair
Earl K. Cantwell
- Construction Contract Beneficiaries and Standing to Sue
Dan D. Kohane
Hurwitz & Fine, P.C.
1300 Liberty Building
Buffalo, NY 14202
E-Mail: [email protected]
Hurwitz & Fine, P.C. is a full-service law firm
providing legal services throughout the State of New York
Dan D. Kohane
Agnes A. Wilewicz
Jennifer A. Ehman
INSURANCE COVERAGE/EXTRA CONTRACTUAL LIABILITY TEAM
Dan D. Kohane, Chair
Steven E. Peiper, Co-Chair
Michael F. Perley
Jennifer A. Ehman
Agnieszka A. Wilewicz
Edward B. Flink
Brian D. Barnas
Howard B. Altman
Brian F. Mark
Eric T. Boron
John R. Ewell
Larry E. Waters
Diane F. Bosse
Joel R. Appelbaum
FIRE, FIRST-PARTY AND SUBROGATION TEAM
Steven E. Peiper, Team Leader
Michael F. Perley
Edward B. Flink
Eric T. Boron
Brian D. Barnas
Howard B. Altman
James L. Maswick
Jennifer A. Ehman, Team Leader
Tessa R. Scott
Jody E. Briandi, Team Leader
Diane F. Bosse
05/25/18 Vista Engineering Corp. v. Everest Indemnity Insurance Co.
Appellate Division, First Department
What is a “Substantial Business Purpose” under Carlson? We Still Don’t Know.
If you are unfamiliar with the Carlson decision, I urge you to review our November 2017 summary or look at the most recent issue of the DRI’s For the Defense. There you will find an article penned by Brian Barnas and yours truly: New York Coverage Rules are Not Just for New Yorkers Anymore, For the Defense, Volume 60, No. 5 (May, 2018). We’ll discuss the case in this review.
Here’s our first post-Carlson case trying to answer the question left open by the Court of Appeals? What is a business presence? A three-judge majority didn’t know, and would have found such a presence, even without the insured having a New York office.
It is valuable reading both the majority opinion and the dissent. This case cannot go up to the Court of Appeals as of right, since it is a non-final order. Whether an application for leave to appeal will be presented, we do not know.
In September 2010, defendant East Coast Painting (East Coast) entered into a subcontract with general contractor Vista Engineering Corporation (Vista) to perform work at the Queensboro Plaza subway station. The subcontract required East Coast to purchase insurance naming Vista and the New York City Transit Authority (TA) as additional insureds. East Coast obtained an insurance policy from defendant Everest Indemnity Insurance Company (Everest).
An East Coast employee, Soto, allegedly sustained injuries while working on the Queensboro Plaza project on June 3, 2011. Soto brought a personal injury action in the Bronx soon thereafter. By correspondence to East Coast's broker dated August 15, 2011, Vista's insurer, through its claims administrator, sought a defense and indemnification from East Coast on behalf of Vista. This tender was forwarded to Everest's claim administrator, which, in correspondence dated September 20, 2011, acknowledged receipt of the tender.
It took until November 17, 2011, but Everest's claims administrator disclaimed coverage, invoking the insurance contract's "Third Party Action Over" exclusion, which barred claims arising from injuries to East Coast's employees. The parties do not dispute that the policy excludes coverage for employees of East Coast.
The question in this case was whether Everest disclaimed timely as required by Insurance Law § 3420(d)(2), which states:
"If under a liability policy issued or delivered in this state, an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a[n]... accident occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant."
Everest argued that 3240(d)(2) applies only to insurance policies "issued or delivered" in New York. Everest argued that it is a New Jersey insurer and that it issued the policy to East Coast, a New Jersey company, and that therefore the policy was not "issued or delivered" in New York.
Supreme Court, relying upon Carlson v American Intl. Group., Inc., (130 AD3d 1477 [4th Dept 2015]), denied Vista's motion and granted Everest's cross motion, holding that because the policy was issued and delivered outside of New York State, the timeliness requirements of § 3240(d)(2) did not apply.
In Carlson v American Int'l Group, Inc. (30 NY3d 288 ), modifying the Fourth Department, the Court of Appeals held that the applicability of Insurance Law § 3420(d)(2) depends on (1) a policy covering risks located in New York, and (2) the insured being located in New York. The Carlson Court, for the first time, determined that a company was "located in" New York if it had a "substantial business presence" there (30 NY3d at 306).
Here, there was no question but that New York risks were involved. The issue before the court was whether East Coast had a substantial business presence in New York under the Court of Appeals' decision in Carlson.
The parties really did not have a chance to develop the record on this issue since the Court of Appeals decision came after briefing had been completed.
The three judge majority determined that because the Carlson Court did not set forth a specific definition of substantial business presence, and because the record is insufficiently developed concerning East Coast's business presence in New York, it remanded to allow the parties to develop the record and give Supreme Court an opportunity to meaningfully review the case in light of Carlson.
The dissent noted that the current record did contain some indicia that East Coast had a substantial business presence in New York. The payment under the subcontract was for $982,500, and there is email correspondence that the Queensboro Plaza project was East Coast's "main job." However, according to the majority, that email demonstrates why the record must be further developed before a decision can be made on summary judgment. The “main job comment was not made by an employee of East Coast but a broker”.
Appellate Division, Second Department
MVAIC is Required to Pay its $25,000, without Requiring a Release, if there is a Judgment Against the Uninsured Motorist
Rarely do we see a case involving protocols involving MVAIC obligations to pay when there is a judgment against an uninsured motorist. For those who don’t know, MVAIC is the agency created by the state to provide uninsured motorists protection when there are no policies involved that have UM protection available.
On November 3, 2004, Baker, a pedestrian, was injured by an uninsured vehicle owned by Rubin. A notice of claim was served upon the Motor Vehicle Accident Indemnification Corporation (“MVAIC”). Baker then sued Rubin in the Supreme Court, Kings County. After trial, a judgment was entered on June 3, 2016, in favor of the plaintiff is the amount of $118,871 (“underlying judgment”).
MVAIC claims that it sought, on several occasions, to tender its $25,000 statutory liability limit on the underlying judgment, and forwarded to the petitioner's counsel a release reflecting the proper statutory amount. MVAIC refused to tender payment until Baker executed the release. However, Baker did not want to release the entire underlying judgment and demanded and forwarded a release reflecting the sum of $30,108.46. The parties could not agree and Baker then commenced this action to compel the payment of the underlying judgment. MVAIC opposed the petition. The Supreme Court issued an order dated March 9, 2017, granting the petition and directed MVAIC to pay the principal sum of $38,548.67. If the amount was not paid within 30 days, Baker was permitted to enter judgment against MVAIC.
When MVAIC did not pay the sum directed in the order, the petitioner sought and obtained a judgment which was thereafter entered against MVAIC on April 13, 2017, in the total sum of $39,023.67.
"Where judgment has been entered against an uninsured defendant in favor of a qualified person, Insurance Law § 5210 provides that a qualified person may petition the court to compel MVAIC to pay the amount of a judgment against that uninsured defendant that remains unpaid, subject to the statutory limitations.” Here, the Baker petitioner demonstrated that she obtained the underlying judgment against Rubin, which remained unpaid. However, the sum sought by the by Baker, and the amount the Supreme Court directed MVAIC to pay, exceeded MVAIC's statutory limit of liability.
The maximum limit of MVAIC's liability under the Insurance Law is $25,000. The court rejected MVAIC's contention that the Baker is not entitled to interest because the delay in payment was caused by the plaintiff's failure to execute a release in the proper amount is without merit. While MVAIC has the right to a release upon the settlement of a claim, MVAIC is not entitled to such a release when ordered to pay on a judgment. Here, the underlying action was not settled, but terminated with the entry of a judgment. No release is required to be tendered before the payment of a judgment, as it is not an agreement to pay, but an obligation to pay.
While unconditional tender of a judgment amount stops the running of postjudgment interest, here, MVAIC conditioned the tender of the payment upon the execution of the release it provided. Thus, MVAIC's contention that the Baker caused the delay in payment of the underlying judgment is without merit.
However, contrary to the petitioner's contention, MVAIC's liability for interest should have been calculated based on the sum of $25,000, and such interest should have been computed from the date of entry of the unpaid underlying judgment, that is, June 3, 2016, at 9% per annum. Thus, the Supreme Court should have awarded interest in the sum of $1,934.24 (314 days x $6.16). In addition, although the court properly directed MVAIC to pay the costs awarded to the petitioner in the underlying judgment, which were $700, and the costs in this proceeding, which were $200, the court should not have directed MVAIC to pay disbursements in the sum of $275, since MVAIC is not obligated to pay disbursements pursuant to Insurance Law § 5210.
Robert E.B. Hewitt III
05/29/18 Hernandez v. Mercado
Appellate Division, First Department
Issue of Fact Where Plaintiff’s Expert Found Range of Motion Limitations and Objective Evidence of Injury
The Appellate Division held the lower court improvidently exercised its discretion in denying plaintiff's motion to renew, which sought to submit an affirmation by her treating physician that, although referred to in her opposition papers, had been inadvertently omitted from the set of papers filed in court. Plaintiff demonstrated that the omission was the result of law office failure and that consideration of the affirmation would not prejudice defendants.
Upon renewal, the Court held that Defendants established prima facie that plaintiff did not suffer serious injury to her cervical or lumbar spine through the affirmed reports of their medical experts, who found normal ranges of motion and no objective evidence of injury in the subject body parts. Defendants did not have to address plaintiff's claim of serious injury to her left shoulder, because that injury was not pleaded in the bill of particulars and was raised for the first time in opposition to their motion. However, in any event, defendants’ expert found full range of motion and absence of injury to the left shoulder, and defendants submitted plaintiff's hospital records showing that plaintiff sought no treatment for her shoulder after the accident, indicating that any shoulder condition was not causally related to the accident.
However, in opposition, plaintiff raised an issue of fact as to her cervical and lumbar spine through her physician's affirmed report, which found continuing range of motion limitations, positive results on objective tests for cervical and lumbar injury, and causally related these injuries to the accident. Plaintiff also submitted affirmed reports of MRIs of her spine performed shortly after the accident.
05/23/18 Pucci v. Trubulsky
Appellate Division, Second Department
Jury Accepted Defendants’ Counsels’ Expert Who Argued Limitations Were Pre-Existence and Degenerative
At trial, the plaintiffs presented the testimony of a neurologist who measured the range of motion of the cervical and lumbar regions of plaintiff Vincent Pucci's spine at a recent examination and found deficits of over 20%. Based on the absence of symptoms before the accident, the neurologist concluded that the accident was the cause of Vincent Pucci's injuries.
The plaintiffs' neurologist further concluded that the accident caused injuries to Brianna Pucci's right wrist and Pamela Pucci's right shoulder. The neurologist conceded that he did not measure Pamela Pucci's or Brianna Pucci's range of motion at their most recent examinations. He further conceded that he would have noted a limitation in their range of motion if that limitation had been significant.
The defendant presented the testimony of a board-certified orthopedic surgeon, who testified that he measured Vincent Pucci's range of motion at a recent examination, and that the range of motion of Vincent Pucci's cervical spine was normal. The surgeon further stated that Vincent Pucci's lumbar range of motion was better than normal. The defendant also submitted the testimony of a radiologist, who had testified, after reviewing Vincent Pucci's MRI films that the injuries to the cervical and lumbar regions of Vincent Pucci's spine were caused by age-related degeneration, and not by a traumatic event such as the accident. The jury unanimously found that none of the plaintiffs sustained a serious injury under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d).
On appeal, the Appellate Division found the plaintiffs' contention that the verdict was contrary to the weight of the evidence was without merit. A jury verdict should not be set aside as contrary to the weight of the evidence unless the jury could not have reached its verdict on any fair interpretation of the evidence. Where, as here, conflicting expert testimony is presented, the jury is entitled to accept one expert's opinion and reject that of another expert and the Appellate Court found the jury’s interpretation of the evidence was supported.
05/22/18 Choi v. Mendez
Appellate Division, Second Department
Defendant’s Evidence Showed that the Alleged Injuries Were Not Serious Injuries
The defendant met his prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendant submitted competent medical evidence establishing, prima facie, that the alleged injuries to the cervical and lumbar regions of the plaintiff's spine and the plaintiff's left shoulder did not constitute serious injuries under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d) and that, in any event, these alleged injuries were not caused by the subject accident In addition, the defendant established, prima facie, that the plaintiff did not sustain a serious injury under the 90/180-day category of Insurance Law § 5102(d) by submitting a transcript of the plaintiff's deposition testimony, which demonstrated that she missed about six weeks of work for the first 180 days following the accident. In opposition, the plaintiff failed to raise a triable issue of fact.
05/22/18 Campbell v. Drammen
Appellate Division, First Department
Range of Motion in Allegedly Injured Shoulder and Uninjured Shoulder Were the Same
Defendants established prima facie that plaintiff did not sustain serious injury within the meaning of Insurance Law § 5102(d) to his cervical or lumbar spine or right shoulder as a result of the motor vehicle accident through the affirmed reports of their radiologist, who found that any claimed injury was the result of preexisting degenerative conditions. Defendants’ submitted plaintiff's orthopedist's findings that the ranges of motion in the allegedly injured right shoulder and the uninjured left shoulder were the same. In addition, defendants pointed to the evidence that plaintiff ceased all treatment for his claimed injuries within four months after the accident. They also submitted an MRI report and an operative report contained in plaintiff's own medical records showing shoulder conditions such as bursitis and hypertrophy, which their expert explained were degenerative in nature.
In opposition, plaintiff failed to raise an issue of fact as to his claimed spinal injuries, since he submitted no opinion about whether those injuries were caused by the accident, rather than degeneration and no evidence of treatment. As for his right shoulder claim, plaintiff's orthopedic surgeon opined before performing surgery that any injuries were causally related to the accident. However, he failed to address or explain the findings in plaintiff's own MRI of hypertrophic changes and of no acute fracture or dislocation. He also did not address his own operative finding of bursitis. Moreover, plaintiff provided no explanation for his complete cessation of treatment after the surgery
05/17/18 Rodriguez v. Konate
Appellate Division, First Department
Plaintiff’s Experts Showed Substantial Range of Motion Limitations
Defendants established prima facie that plaintiff did not suffer serious injuries of a permanent nature to his cervical or lumbar spine or his knees by submitting the affirmed report of a radiologist who opined that the MRI films of those body parts showed chronic degenerative conditions that were unrelated to trauma caused by the accident. They also submitted the report of an orthopedic surgeon who, although he declined to compare plaintiff's range of motion values to normal values, found no objective evidence of injury upon recent examination using diagnostic tests.
In opposition, plaintiff raised an issue of fact by submitting affirmations by his radiologist and orthopedic surgeon, who affirmed the contents of their post-accident MRI and operative reports, finding bulging discs in the spine and meniscal tears in both knees. In addition, he submitted a narrative report by his treating physician detailing her post-accident findings of limited range of motion and other symptoms of injury and opining that the injuries were caused by the accident. Plaintiff also submitted a report from another physician, who conducted a recent examination, found continuing range of motion deficits, and attributed all of plaintiff's injuries to the accident. Since defendants did not present any evidence of preexisting bulging discs or torn menisci in plaintiff's own medical records, nothing further was required of plaintiff in opposition to their motion.
Tessa R. Scott
Appellate Division, Second Department
The Assignee Was Not an Infant, and As Such the CPLR Provision Prohibiting Arbitration Where an Infant Is a Party to the Action Was Not Applicable
The petitioner, Fast Care, provided certain medical services to its assignor, "PV.” At the time of such treatment, PV was 15 years old. PV and his mother executed an assignment of benefits, which assigned all rights and remedies to payment for health care services provided by Fast Care. Fast Care submitted claims for these services to GEICO for reimbursement of first-party no-fault insurance benefits. GEICO denied the claims on grounds of purported lack of medical necessity.
Fast Care sought arbitration of the dispute. The arbitrator dismissed the proceeding without prejudice, on the ground that Fast Care had failed to comply with the CPLR, which provides "[a] controversy involving an infant . . . shall not be submitted to arbitration except pursuant to a court order…" Fast Care appealed to a master arbitrator, who confirmed the determination. The master arbitrator further found that Fast Care lacked standing because the parent of the infant patient, rather than the infant himself, was required to execute an assignment of benefits. Fast Care then instituted this proceeding pursuant to CPLR article 75, inter alia, to vacate the arbitration award.
An arbitration award may be vacated if the court finds that the rights of a party were prejudiced by (1) corruption, fraud, or misconduct in procuring the award; (2) partiality of an arbitrator; (3) the arbitrator exceeding his or her power; or (4) the failure to follow the procedures of CPLR article 75. In addition, an arbitration award may be vacated "if it violates strong public policy, is irrational, or clearly exceeds a specifically enumerated limitation on the arbitrator's power".
An arbitration award may also be vacated where it is in " explicit conflict'" with established laws and "the strong and well-defined policy considerations' embodied therein".
The Second Department agreed with the Supreme Court that the arbitrator's award was irrational and in conflict with CPLR 1209, which applies "only where an infant is a party" to an arbitration proceeding. The infant patient was not a party to the arbitration; rather, Fast Care, as the infant's assignee, was the party that brought the arbitration. Therefore, the Second Department agreed with the court that the arbitrator disregarded established law in determining that the requirements of CPLR 1209 applied here.
Furthermore, the master arbitrator's determination that the assignment of benefits was not effective was not based on any requirement set forth in established law or regulations.
Appellate Term, Second Department
The Proof Submitted by Defendant Was Sufficient to Demonstrate the Failure to Appear for an EUO
In this action by a provider to recover assigned first-party no-fault benefits, plaintiff appeals from an order of the Civil Court which granted defendant's motion for summary judgment dismissing the complaint on the ground that plaintiff's assignor had failed to appear for duly scheduled examinations under oath (EUOs), and denied plaintiff's cross motion for summary judgment.
Contrary to plaintiff's only argument as to defendant's motion, the proof submitted by defendant was sufficient to demonstrate that plaintiff's assignor had failed to appear for the scheduled EUO.
Appellate Term, Second Department
The Plaintiff Failed To Comply With the Order of the Civil Court and the Matter Was Dismissed
In this action to recover first party no-fault benefits, Defendant argued that plaintiff's assignor had been injured during the course of employment. The Civil Court granted defendant's cross motion to the extent of holding the case in abeyance for 90 days pending the filing of an application to the Workers' Comp. Board (Board). The court further stated that if plaintiff failed to file proof of such application with the court, defendant's cross motion for summary judgment dismissing the complaint shall be granted.
Plaintiff subsequently moved for leave to renew and, upon renewal, for summary judgment and to deny defendant's cross motion for summary judgment dismissing the complaint. Defendant opposed plaintiff's motion, noting that plaintiff had failed to comply with the Civil Court's prior order. Defendant noted that plaintiff had submitted a form to the Board entitled "Claimant's Authorization to Disclose Workers' Compensation Records," over 100 days after the Civil Court's order.
The Second Department upheld the dismissal of the action. It stated, “Since plaintiff did not demonstrate that it had complied with the Civil Court's order and made a proper application to determine the parties' rights under the Workers' Compensation, the order dated July 27, 2015, insofar as appealed from, is affirmed.”
Steven E. Peiper
05/30/18 Owens v. Jea Bus Co., Inc.
Appellate Division, Second Department
Comp. Board Findings are Binding; Special Employment Status Can Trigger the Protections of the Workers’ Compensation Law
Plaintiff, an employee of Smart Pick, was injured while in the course of her employment as a “bus matron.” The bus was being driven by another Smart Pick, Inc. employee, Sibilia, and the bus was owned by Jea Bus, Inc. The incident happened in June of 2012, and plaintiff applied for workers’ compensation benefits from Smart Pick almost immediately thereafter in July of 2012.
However, in December of 2012 Jea Bus’ workers’ compensation carrier began providing the benefits. After a hearing by the Workers’ Compensation Board, it was decided that Jea Bus was plaintiff’s employer.
Fast forward some time later, and plaintiff commences a lawsuit seeking recover for bodily injuries against Jea Bus, Mr. Sibilia (the bus driver), and the driver of the vehicle which struck the bus. Jea Bus moved to dismiss on the basis that it was plaintiff’s employer, and in support cited to the previous determination reached by the Workers’ Compensation Board. Jea Bus also moved to dismiss the cross claims of Sibilia and the other driver which sought common law indemnity.
In reversing the trial court, the Appellate Division noted that employers are exempted from tort lawsuits where they are the benefit paying employer. The Court also noted that the Workers’ Compensation Board has the “primary jurisdiction” to determine the applicability of the workers’ compensation law. Here, as the Board found that Jea Bus was the employer for purposes of the workers’ compensation claim, it follows that they are entitled to Section 11 protections from the subsequent lawsuit. The finding of the Board was binding on plaintiff, and thus Jea Bus was entitled to dismissal.
It followed, too, that Jea Bus was also entitled to have common law indemnity claims dismissed against it. The only way an employer can be required to provide common law contribution/indemnity in New York is if the plaintiff sustains a grave injury. Here, plaintiff did not sustain a grave injury.
Finally, the Court affirmed the trial court’s decision to deny Sibilia’s motion for dismissal. Mr. Sibilia, creatively, argued that he was a special employee of Jea Bus at the time of the accident (essentially, the same as plaintiff). As a special employee, he argued that he should likewise be afforded the same protections from suit as Jea Bus. The Court noted that among the factors considered for determining a special employee relationship were “who controls and directs the manner, details, and ultimate result of the employee's work, and who is responsible for the payment of wages and the furnishing of equipment.”
While, in theory, Sibilia’s application would have worked, the Court found that he did not demonstrate enough evidence reach his prima facie burden on special employment status. Accordingly, Sibilia’s argument lives on for a factual determination at the lower court.
Agnes A. Wilewicz
Nothing of interest out of the Second Circuit this week.
Jennifer A. Ehman
Supreme Court, New York
Hon. Melissa A. Crane
Court Finds Employer’s Liability Carrier did not have to Comply with Insurance Law § 3420(d) When Denying Coverage
The issue in this case was whether an employers’ liability carrier was subject to the requirements of New York Insurance Law § 3420(d) and in turn obligated to issue a timely denial of coverage citing any relevant exclusions or conditions. In this case, plaintiff issued a policy of insurance to Mission Design. Mission Design’s employee was injured during a renovation project. The employee brought suit against certain entities alleging violations of New York Labor Law.
Thereafter, those entities commenced a claim against Mission Design alleging contractual, common law indemnity and contribution.
Plaintiff then brought this action seeking a declaration that the injured worker had not suffered a grave injury, and in turn no coverage would be afforded under its policy. Mission Design’s commercial general liability carrier and an excess carrier opposed the motion, not on the grounds that the injured worker did not suffer a grave injury, but instead on the basis of plaintiff’s failure to timely assert its exclusion for “liability assumed under a contract.”
In response, plaintiff did not submit evidence that a timely denial had in fact been issued, but instead argued that it did not have to do so.
The court agreed reasoning that the argument based upon § 3420(d) was unavailing as this provision does not apply to claims between insurance companies. Moreover, the court concluded (relying primary upon a decision called Preserver Ins. Co. v. Ryba, 10 NY3d 635 ) that § 3420(d) only applies to claims for bodily injury or death and not breach of contract, common law contribution and common law indemnity (those asserted against Mission Design).
NOTE: We note that last month we reported on another New York County Supreme Court decision wherein the judge reached the opposite conclusion.
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
05/23/18 Williams v Liberty Mutual Insurance
United States District Court, Eastern District of Pennsylvania
No Evidence Insurer Investigated UIM Claim in Bad Faith
Plaintiff was rear ended on February 10, 2016. Plaintiff settled the underlying claim with the tortfeasor’s insurer for the policy limits of $15,000. Defendant received notice of the underinsured claim on July 13, 2017. The claim professional assigned the claim immediately reached out to Plaintiff’s attorney and the tortfeasor’s insurer. On July 14, 2017, Defendant’s representative sent a letter to Plaintiff’s attorney acknowledging receipt of Plaintiff’s demand packed and requesting a telephone statement from Plaintiff. Consent to settle was also granted.
On July 15, 2017, Plaintiff’s attorney sent an email with a $75,000 demand. Defendant responded that medicals and a client statement were needed to evaluate the demand. The information was received on July 22, 2017, but Defendant noted internally that additional information was still required. On August 1, 2017, Plaintiff’s attorney emailed the demand packet had been reviewed. Defendant’s representative responded that he had, but was still in need of a statement from Plaintiff, as well as MRI films, in order to determine whether the injury caused a “serious impairment.” Counsel e-mailed back saying, “Sounds to me like a lot of hoops to jump through just so you can say you don’t think there’s a breach. Best option seems to filing a lawsuit, which would then allow for depositions, ime, film review, etc.” The lawsuit was filed the same day alleging breach of contract and bad faith.
Plaintiff was deposed in the lawsuit. When he was asked about his bad faith claim,
Plaintiff admitted that he had no knowledge of the investigation that was done by Defendant in connection with this claim.
Defendant moved for partial summary judgment on the bad faith claim. In Pennsylvania, bad faith is not limited to denial of a claim. Bad faith may extend to an insurer’s investigative practices or an unreasonable delay in handling or paying claims. A plaintiff bears the burden of establishing the insurer’s bad faith delay in paying the claim by clear and convincing evidence.
Here, Plaintiff offered no evidence other than the conclusory allegations in the pleadings. The undisputed evidence revealed no bad faith investigation or delay on Defendant’s part. Defendant first received notice of Plaintiff’s UIM claim in mid-July 2017—approximately eighteen months after the accident. Over the next two weeks, Defendant’s claim professional began an investigation of Plaintiff’s claims, asked for a demand packet, requested medical documents, and sought a statement from Plaintiff. When Defendant’s representative requested a signed medical authorization so he could obtain Plaintiff’s MRI films—a mere two weeks after initiating the claim process— Plaintiff’s counsel decided that litigation was the more expedient route. Following Plaintiff’s initiation of litigation on August 1, 2017, Defendant timely filed an Answer and, within another thirty days, served written discovery requests on Plaintiff, to which Plaintiff did not respond for almost four months. Defendant promptly deposed Plaintiff on January 29, 2018, and obtained expert medical evaluations on February 28, 2018 and March 2, 2018. The summary judgment motion was filed approximately nine months after Defendant received the initial notification of Plaintiff’s UIM claim.
Accordingly, Plaintiff’s bad faith cause of action was summarily dismissed.
United States District Court, District of New Jersey
Bad Faith Claim Dismissed where Insurer Responded to the Claim, Paid the Amount Due, and did not Disregard its Duties under the Contract
Plaintiffs Charles and Elizabeth Hobbs filed a Complaint on May 23, 2017 claiming that Defendants’ refusal to properly adjust a homeowners’ insurance policy constituted a breach of contract and bad faith. US Coastal issued a policy of insurance covering Plaintiffs’ second home at 116 Cedarville Avenue, Villas, New Jersey. On or about September 29, 2016, Plaintiffs discovered that a leaky valve on the hot water heater caused extensive water damage and mold growth in the crawlspace of the Property. On or about October 11, 2016, a third-party adjuster estimated that the Property had sustained $8,654 in damage as a result of the water leak and an additional $66,415 in damage as a result of the mold growth. US Coastal paid Plaintiffs $8,654 for the water damage but only $10,000 for the mold damage, citing the “Limited Mold Coverage” provision of the Policy.
Plaintiffs complain that Defendants breached their contract and acted in bad faith by failing to pay benefits due and owing under the Policy because the mold was a consequence of water damage caused by the water heater’s failure. Defendants sought dismissal of the Complaint, arguing that the $10,000 Mold Sublimit in the Policy applied to the mold damage at the Property.
Under the terms of the policy, water damage was an excluded peril, subject to an exclusion for loss caused by mold. A rider gave back mold coverage up to a $10,000 limit. Plaintiffs argued that their loss was caused by water, not mold, and that Defendants therefore were obligated to pay for the entire amount of the loss. The Policy at issue contained an anti-sequential provision applicable to the Policy’s exclusions, which stated, “We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.”
A combination of the anti-sequential clause and the mold exclusion supported the conclusion that the Policy provides coverage for damage from the broken valve but limits additional recovery to $10,000 for damage caused by mold that was caused by an undetected leak. Accordingly, the cause of action for breach of contract was dismissed because Defendants properly paid $10,000.
In addition, the claim for bad faith was dismissed because Defendants responded to Plaintiffs’ claims, paid the amounts they determined were owed under the contract, and did not disregard any obligations or unreasonably fail to investigate or settle Plaintiffs’ claims. At a minimum, Defendant’s position was fairly debatable.
Editor’s Note: Congratulations to our friends at Keidel, Weldon & Cunningham, LLP., including Debra Krebs, Howard Kronberg, and Robert Lewis, on the win!
JOHN’S JERSEY JOURNAL
John R. Ewell
05/23/18 Hobbs v. US Coastal Ins. Co.
U.S. District Court, District of New Jersey
New Jersey Federal Court Bounces Breach of Contract and Bad Faith Lawsuit Where Carrier Paid Out the Full Sublimit for Mold
US Coastal issued a policy of insurance covering the Plaintiffs’ home in Villas, New Jersey (the “Policy”). In 2016, Plaintiffs discovered that a leaky valve on the hot water heater caused extensive water damage and mold growth in the crawlspace of the property. An independent adjuster estimated that the property had sustained $8,654 in damage as a result of the water leak and an additional $66,415 in damage as a result of the mold growth. US Coastal paid Plaintiffs $8,654 for the water damage but only $10,000 for the mold damage, citing the “Limited Mold Coverage” of the Policy.
Charles and Elizabeth Hobbs (“Plaintiffs”) filed a declaratory judgment complaint against US Coastal Insurance Company. Plaintiffs contended that US Coastal breached the insurance contract and acted in bad faith because the mold was a consequence of water damage caused by the water heater’s failure. US Coastal sought dismissal of the Complaint, arguing that the $10,000 Mold Sublimit in the Policy applied to the mold damage at the property.
The Policy provided coverage for loss at the property with a $150,000 limit for the dwelling. The Policy also contained Limited Mold Coverage subject to a $10,000 limit. The Policy contained the following pertinent exclusion:
A. We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area.
10. "Fungi", Wet Or Dry Rot, Or Bacteria
"Fungi", Wet Or Dry Rot, Or Bacteria meaning, the presence, growth, proliferation, spread or any activity of "fungi", wet or dry rot, or bacteria
The policy defined “Fungi” to mean “any type or form of fungus, including mold or mildew, and any mycotoxins, spores, scents or by-products produced or released by fungi.”
However, the policy provided a limited giveback for Fungi, Wet or Dry Rot or Bacteria subject to a $10,000 limit:
LIMITED FUNGI, WET OR DRY ROT, OR BACTERIA
These limits of liability apply to the total of all loss or costs payable under this endorsement, regardless of the number of claims made or the number of locations insured under this endorsement and listed in this Schedule.
Property Coverage Limit of Liability for the Other Coverage
"Fungi", Wet or Dry Rot, or Bacteria
*Entries may be left blank if shown elsewhere in this policy for this coverage.
As such, water damage is a covered peril subject to an exclusion for loss caused by mold, with a rider giving back excluded mold coverage up to a $10,000 limit.
Plaintiffs argued that their loss was caused by water, not mold, and that the carrier was obligated to pay for the entire amount of the loss. Plaintiffs argued that the mold was the “loss,” not the “cause.” The District Court rejected this argument. The Policy contained an anti-sequential provision applicable to the Policy’s exclusions, which states “We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.”
The District Court Judge found that reading the anti-sequential clause and the mold exclusion together, “supports the conclusion that the Policy provides coverage for damage from the broken valve but limits additional recovery to $10,000 for damage caused by mold that was caused by an undetected leak.” Therefore, the District Court Judge dismissed the breach of contract claim and bad faith claim, resulting in dismissal of the entire suit.
Note: The above summary was prepared by John Ewell. It reflects my impressions alone. It does not reflect the thoughts, opinions, impressions or viewpoints of Howard Kronberg, or Keidel, Weldon & Cunningham, LLP. I would, once again, like to thank Howard for offering his insight into this case in the cover note.
Howard B. Altman
On May 30, 2018, DFS published the Eighth Amendment to New York’s new Supplemental Uninsured Motorist (“SUM”) Bill. The public comment period expires on July 30, 2018.
As we reported last week, the Bill requires all insurance policies issued after June 16, 2018, to automatically include SUM coverage, unless the insured specifically requests to opt out. The new bill requires all new car insurance policies to provide SUM coverage equal to their own injury liability limit. This means that if an insured chooses $100,000 injury liability coverage, it will, by default, also have $100,000 in SUM coverage, unless the insured signs an opt-out waiver. Previous Insurance Law only required that this coverage was available, and insurance companies were not required to inform customers of its existence. The new law will only take effect on new policies issued after June 16 and will not affect pre-existing policies, or renewals of prior policies. The new law does not apply to commercial risk policies.
The Amendments may be viewed at: https://www.dfs.ny.gov/insurance/r_prop/rp35d-text.pdf. The law, as amended, provides, in part:
Section 60-2.0 is amended as follows:
§ 60-2.0 Preamble, definitions, and applicability.
(a) (1) Except as provided in paragraph (2) of this subdivision, this Subpart implements:
(i) Insurance Law section 3420(f)(2), which requires a motor vehicle liability insurer to provide, at the option of the insured, supplementary uninsured/underinsured motorists (SUM) insurance coverage to all policyholders in New York State; and
(ii) Vehicle and Traffic Law section 1693(3), which requires minimum SUM coverage on all policies satisfying the financial responsibility requirements of that subsection.
(2) This Subpart also implements Insurance Law section 3420(f)(2-a), which requires an insurer that issues a motor vehicle liability insurance policy originally entered into on or after June 16, 2018, other than a commercial risk insurance policy, to provide SUM insurance for bodily injury, in an amount equal to the bodily injury liability insurance limits of coverage provided under the motor vehicle liability insurance policy, unless the first named insured declines the SUM insurance or selects a lower amount of coverage through a written, signed waiver; provided, however, the insurer may require that the insured’s SUM coverage limit equal the insured’s bodily injury liability insurance limit under the policy.
(b) This Subpart interprets Insurance Law sections 3420(f)(2), (2-a), and (5), and establishes a standard form for SUM coverage, in order to eliminate ambiguity, minimize confusion and maximize its utility.
(d) As used in this Subpart:
(2) commercial risk insurance means insurance against losses or liabilities arising out of the ownership, operation, or use of a motor vehicle, other than a motor vehicle predominantly used for non-business purposes when a natural person is the named insured under the policy, provided, however, that the use or operation of the motor vehicle by a transportation network company driver in accordance with Vehicle and Traffic Law Article 44-B shall not be included in determining whether the motor vehicle is being used predominantly for non-business purposes; and
(3) first named insured means the individual specified first on the declarations page of a motor vehicle liability insurance policy, and the individual’s spouse, if the spouse is a resident of the same household and specified on the declarations page.
(e) This Subpart applies to every insurance policy: (i) insuring against loss resulting from liability imposed by law for bodily injury or death suffered by any natural person arising out of the ownership, maintenance and use of a motor vehicle, by the insured; and (ii) issued or delivered by any insurer upon any motor vehicle then principally garaged or principally used in this state.
Section 60-2.1(e) is amended, section 60-2.1(f) is relettered as (g), and new sections 60-2.1(f) and (h) are added as follows:
(e) Except as provided in subdivision (f) of this section:
(1) An insurer shall offer:
(i) SUM limits, in a motor vehicle liability insurance policy with split limits, up to $250,000 per person per accident and, subject to such limit for one person, $500,000 per accident; or
(ii) a SUM limit, in a motor vehicle liability insurance policy with a combined single limit, up to $500,000 per accident.
(2) An insurer is not required to offer SUM limits in the motor vehicle liability insurance policy in the amounts specified in paragraph (1) of this subdivision, if, in lieu thereof:
(i) the insurer offers motor vehicle liability limits in amounts:
(a) greater than $100,000 because of bodily injury to or death of one person in any one accident, and, subject to such limit for one person, $300,000 because of bodily injury to or death of two or more persons in any one accident; or
(b) greater than a combined single limit of $300,000 because of bodily injury to or death of one or more persons in any one accident; and
(ii) the insurer offers, in the motor vehicle liability policy:
(a) SUM coverage with split limits of $100,000 per person per accident and, subject to such limit for one person, $300,000 per accident; or
(b) SUM coverage with a combined single limit of $300,000 per accident; and
(iii) the insurer also makes available a personal umbrella liability policy with limits up to at least $500,000, and the insurer provides SUM coverage in the umbrella policy so that the total SUM coverage in the motor vehicle liability insurance policy and the personal umbrella liability policy shall be up to at least $500,000.
(3) An insurer may offer SUM limits that exceed the amounts specified in paragraph (1) or (2) of this subdivision.
(f)(1) With regard to a motor vehicle liability insurance policy originally entered into on or after June 16, 2018 other than a commercial risk insurance policy, an insurer shall provide SUM limits in an amount equal to the bodily injury liability insurance limits of coverage provided under the motor vehicle liability insurance policy unless a first named insured declines the SUM coverage or selects a lower amount of coverage through a written waiver signed by the first named insured, subject to the requirements of Insurance Law section 3420(f)(2-a)(B); provided however, the insurer may require that the insured’s SUM coverage limit be equal to
the insured’s bodily injury liability insurance limit under the policy.
(2) A first named insured’s signed written waiver declining SUM coverage or selecting a lower amount of SUM coverage shall apply to all subsequent renewals of coverage and to all policies or endorsements that extend, change, supersede, or replace an existing policy issued to the first named insured, unless changed in writing by a first named insured.
(3) Whenever SUM coverage is declined, the policy shall provide the mandatory uninsured motorists (UM) coverage required by Insurance Law section 3420(f)(1).
The public comment period is open until July 30, 2018, however, as the law will applies to policies issued after June 16, 2018, anyone wishing to comment to DFS should do by the June 16 trigger date. DFS directs inquiries to Paul Zuckerman, at [email protected]. See also the Department’s Website.
OFF THE MARK
Brian F. Mark
04/26/18 Martin/Elias Props., LLC v. Acuity
Supreme Court of Kentucky
Supreme Court Holds Faulty Workmanship is Not an Occurrence
This declaratory-judgment action arises out of a property damage claim resulting from construction defects during the renovation of the insured’s basement. Martin Elias/Properties, LLC ("MEP") purchased an old home to renovate and resell for a profit. After completing renovations on the first, second, and third floors, MEP hired Tony Gosney to renovate and expand the basement.
While performing his work on the home, Gosney failed to support the existing foundation adequately before digging around it. Within days, the old foundation began to crack and eventually the entire structure began to sag. At this point, Gosney stopped work and notified his CGL insurer, Acuity.
Acuity recommended that MEP hire a structural engineer to evaluate the condition of the structure. MEP's structural engineer reported that the entire structure was at risk of imminent collapse and that substantial work was required to repair the damage caused by Gosney's work. After learning this, MEP made a demand for payment upon both Gosney and Acuity, but they rejected the demand. MEP then sued Gosney and Acuity in circuit court. Against Gosney, MEP claimed negligence, breach of contract, and breach of warranties. Against Acuity, MEP asserted bad faith by failing to provide coverage under its CGL policy. Gosney sought bankruptcy protection and disappeared. Efforts to locate Gosney failed, and he neither testified at trial nor participated in any way.
Acuity issued a CGL policy to Gosney, which provided that Acuity would pay for property damage if it resulted from an "occurrence." The policy defined occurrence as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." The policy did not define the term accident.
MEP and Acuity filed motions for summary judgment based on the same policy language. MEP argued that the damage to the property from Gosney's work should be considered an accident triggering coverage under the CGL policy issued by Acuity. Acuity argued that the structural damage was caused by Gosney's faulty workmanship, which failed to qualify as an occurrence under the CGL policy, and therefore, the loss was not covered by Gosney's policy.
The trial court ruled that MEP could not recover from Acuity for the damage to the basement because that damage directly resulted from the faulty work Gosney performed, thus not satisfying the requirement of an occurrence under the CGL policy. However, the trial court ruled that MEP could recover from Acuity for the damage to the structure above the basement level, reasoning that the damage to the structure above the basement was an unexpected and unintended consequence of Gosney's faulty work on the basement, making that portion of the total loss an occurrence covered by the policy.
After the issue of damages was tried before a jury and a judgment consistent with the liability ruling was issued, Acuity appealed. The Court of Appeals, in reversing the trial court judgment, focused on Gosney's intent and control over the work and held that none of the structural damage qualified as an accident triggering coverage as an occurrence under Acuity's CGL policy.
The Kentucky Supreme Court began its analysis by reviewing its prior decisions examining the term accident as contained in CGL policies. The Court held that to determine whether an event constitutes an accident so as to afford the insured
CGL policy coverage, courts must analyze the issue according to the doctrine of fortuity: 1) whether the insured intended the event to occur; and 2) whether the event was a "'chance event' beyond the control of the insured." If the insured did not intend the event or result to occur, and the event or result that occurred was a chance event beyond the control of the insured, then CGL coverage covering accidents will apply to the benefit of the insured.
Gosney's failure to support the existing structure before digging around the old foundation resulted in cracking of the original foundation that led to near destruction of the entire structure. MEP argued, that at the very least, the damage done to the property above the basement should trigger coverage as an accident. MEP attempted to rely on a general rule in Kentucky that "a CGL policy would apply if the faulty workmanship caused bodily injury or property damage to something other than the insured's allegedly faulty work product." The Court determined that the facts of this matter did not provide an opportunity to adopt such a rule because the assertion of damages is to MEP's property alone.
In its most recent decision analyzing the term accident, the Court held that the resulting damage to the home was not of an accidental nature creating a fortuitous event, but rather an unintended consequence of poor workmanship. In that case, the damage alleged to have been done by the homebuilders was the result of poor workmanship on parts of the home on which they had directly worked or of which they had direct control. Turning to this case, the Court noted that although Gosney’s work was to be done in the basement, his poor workmanship resulted in damage throughout the entire property, making it structurally unsound.
Next, the Court looked with approval to a federal district court decision involving similar facts and policy language. In the federal case, a contractor subcontracted the construction of the footer and basement for a property. The plaintiffs experienced several problems related to the settlement of the house. The damages, caused by the failure of the foundation system to support the house, included cracking to the exterior brick and mortar, the interior dry wall, and the basement floor. The federal court ruled that there was no accident because the contractor fully complied with its planned work and therefore, did not trigger an occurrence under the CGL.
In this case, Gosney had both intent and full control when conducting his work, which ultimately failed to support the existing structure. As such, the Court reasoned that it cannot be said that the resulting damage from Gosney's poor workmanship was a fortuitous event.
The Court noted that damage that results from poor workmanship would be considered an accident in laymen's terms. One would not purposefully perform substandard work for the purpose of damaging property. Accordingly, the Court focused its analysis not on whether the damage done is the type of damage that would be expected by the contractor, but rather whether the damage resulted from the actions purposefully taken by the contractor or those working under the contractor's control.
Because the actions taken by Gosney, which led to the property damage, were entirely under his control, and he fully intended to execute the plan as he did, the resulting damage throughout the property cannot be said to be an accident. As none of the structural damage qualified as an accident triggering coverage as an occurrence under Acuity's CGL policy, the Court affirmed the decision of the Court of Appeals granting Acuity’s motion for summary judgment.
Larry E. Waters
United States District Court, Southern District of New York
Defendants’ Motion to Dismiss Denied because there was No Failure by Plaintiff to Join a Party under Federal Rules of Civil Procedure Rule 19
Plaintiff as subrogated insurance carrier to Albert M. Watson Photograph, Inc. (“Watson”) commenced an action against Robert Kartheiser (“Kartheiser”) and others seeking compensation for payments made to Watson in connection with a water damage claim. Kartheiser and others moved for a motion to dismiss pursuant to Federal Rules of Procedure 12(b)(7) for failure to join Watson as a party under Rule 19.
In its analysis the court first acknowledged that a court is required under Rule 12(b)(7) to dismiss an action for failure to join a party under Rule 19. However, the court noted that a two-part test is applied to determine whether the court must dismiss an action for failure to join an indispensable party. First, the court must determine whether an absent party belongs in the suit. Second, if the absent party is required under Rule 19(a), but Joinder of the absent party is not feasible for jurisdiction or other reasons, the Court must determine if the absent party is indispensable.
Applying the two part test the court concluded that Watson was not an indispensable party. The court reasoned that there is no danger of double jeopardy. In this case, Plaintiff only sought recovery for the money it paid to Watson. In contrast, Watson sought to recover the damages that were not covered under its policy in its state-court action. Although there was a risk that a finding in one action would give collateral estoppel effect, the court found such risk alone does not render Watson as an indispensable party. Accordingly, the court denied Defendants motion to dismiss.
05/25/18 Geoghegan v. Progressive Casualty Ins. Co.
United States District Court, Western District of New York
In SUM Case where Only Compensatory Damages are Sought, Discovery as to Reserves is Irrelevant and thus Unnecessary
Plaintiff moved to compel production of Progressive’s internal valuation and reserve numbers on a SUM case. Progressive did not dispute that plaintiff had submitted a valid SUM claim, and in fact gave consent for plaintiff to resolve the matter with the underinsured tortfeasor. The only issue at hand was the appropriate value of the plaintiff’s damages.
Plaintiff argued that it was entitled to complete, unredacted production of everything in the Progressive file from the claim’s origin up until it was put into suit. Progressive countered that it would produce the file up until the time of suit, but it was redacting any mention of reserves or potential valuation of the plaintiff’s alleged injuries.
Plaintiff moved to compel the complete file.
In opposition to plaintiff’s motion to compel, Progressive argued that the claim was only for compensatory damages. There was no claim for extra-contractual damages, and in fact plaintiff conceded that it possessed no such claims. On such a Record, it followed that the only people competent to evaluate and ultimately establish plaintiff’s recovery was the trier of fact (here, the jury). Progressive’s internal evaluation was, in essence, irrelevant to the scope of plaintiff’s alleged damage, and likewise it was irrelevant to what an appropriate measure of those damages were.
The Court agreed, and in exempting reserves information from production it noted “[a]bsent a separate remedy for Progressive’s alleged failure to promptly pay SUM benefits, plaintiffs’ remaining remedy is arbitration or litigation of the value of their injuries. If that is their only remedy, then the jury’s determination of that value would be no different from that in a third party action, and Progressive’s reserves “would be irrelevant to the determination of that value, which would be the sole province of the trier of fact”.
Author Note: If you would like a copy of this decision itself for your review, please drop me a line.
United States District Court, Southern District of New York
Plaintiff’s Motion for Reconsideration Denied because Plaintiff Failed to Show the Need to Correct a Clear Error or Prevent Manifest Injustice
Plaintiff filed a motion for reconsideration of the Court’s ruling, which denied Plaintiff’s motion for summary judgment and awarded Defendant Intrepid Group LLC (“Intrepid”) and Defendant the City of New York (the “City”).
The court started its decision by noting that the decision to grant or deny a motion for reconsideration rests within the sound discretion of the district court but a reconsideration of a prior order is an extraordinary remedy. Further, the court noted that the major grounds for justifying reconsideration are an intervening change of controlling law, the availability of new evidence, or the need to correct a clear error or prevent manifest injustice.
In its analysis, the court acknowledged that the only issue is whether the portion of Plaintiff’s letters that were devoted to the Abuse or Molestation Exclusion were reservations of rights or disclaimers. The court rejected Plaintiff’s use of Century Surety Co. v. EM Windsor Construction Inc., in support of motion for reconsideration. The court reasoned that unlike in EM Windsor, Plaintiff never clarified its coverage position by sending a follow up letter unequivocally denying coverage to Defendant the City and Defendant Intrepid under the Abuse or Molestation Exclusion.
Further, the court rejected Plaintiff’s argument that there were issues of fact as to whether the Abuse or Molestation Exclusion applied to bar coverage. In rejecting Plaintiff’s argument, the court noted that Plaintiff “also claims that it had unequivocally disclaimed coverage pursuant to the [Abuse or Molestation Exclusion].” Moreover, the court noted that it had properly determined that Plaintiff could not rely on the Abuse or Molestation Exclusion because Plaintiff failed to disclaim coverage based upon that exclusion in a timely manner.
In sum, the court denied Plaintiff’s motion for reconsideration because Plaintiff failed to show the need to correct a clear error or prevent manifest injustice.
Eric T. Boron
05/21/18 State Farm v Fisher
Supreme Court of Colorado
Supreme Court Affirms Court of Appeals; Jury’s Verdict for Insured, Finding Insurer Violated Colorado Statutory Law by Unreasonably Delaying Payment of the Insured’s Medical Expenses on a UIM Claim, is Upheld, as well as the Trial Court’s Assessment of Statutory Penalties Against Insurer
The facts of this underinsured motorist (“UIM”) case are as follows. Dale Fisher was in a motor vehicle accident in which the culpable other driver only carried $25,000 in liability insurance. Fisher’s injuries from the accident required over $60,000 worth of medical care. Fisher’s State Farm UIM limits on multiple applicable policies totaled $400,000. State Farm agreed Fisher’s medical bills were covered under Fisher’s UIM policies, but disputed other amounts Fisher sought under the policies. Fisher asserted a lost wages claim from the accident, and demanded $1.35 million. State Farm consented to the $25,000 settlement of the other driver’s policy limits, and offered $59,572.10 to Fisher to settle his UIM claim. State Farm refused to pay Fisher’s covered medical bills without first resolving his entire claim, taking the position that Fisher’s medical expenses were not, as a matter of law, owed yet, because other portions of Fisher’s UIM claim were not yet resolved, and State Farm had no obligation to make piecemeal payments on the undisputed portions of Fisher’s claim. Fisher sued, alleging in relevant part, that State Farm unreasonably delayed or denied paying his medical expenses in violation of Colorado insurance law requiring payment of the undisputed medical expenses.
A jury returned a verdict for Fisher, finding State Farm’s refusal to pay Fisher’s medical bills without first resolving his entire claim constituted a violation of a Colorado insurance statute, Section 10-3-1115 C.R.S., which provides, in relevant part, insurers “shall not unreasonably delay or deny payment of a claim for benefits owed to or on behalf of any first-party [insured] claimant”, and moreover states, “[A]n insurer’s delay or denial was unreasonable if the insurer delayed or denied authorizing payment of a covered benefit without a reasonable basis for that action”. The trial court entered judgment of $400,000, the UIM policies limit, plus $122,250.32, constituting double medical expenses, a statutory penalty for violation by the insurer of the aforementioned statute. State Farm appealed, but a division of the court of appeals affirmed the jury’s verdict, and State Farm was then granted certiorari for review by the Colorado Supreme Court of the following issue arising from the court of appeals’ decision: “[W]hether the court of appeals incorrectly ruled that automobile insurers have a duty to advance partial payments on undisputed portions of an uninsured/underinsured (“UM/UIM”) claim even though the complete claim has not been resolved”.
Colorado’s Supreme Court held, “Under the plain language of section 10–3–1115, we hold that insurers have a duty not to unreasonably delay or deny payment of covered benefits, even though other components of an insured's claim may still be reasonably in dispute. Because Fisher's medical expenses were undisputedly covered under the UIM policies, but State Farm failed to pay them, we conclude that the court of appeals properly upheld Fisher's jury award under sections 10–3–1115, –1116. Therefore, we affirm the judgment of the court of appeals.” State Farm Mut. Auto. Ins. Co. v. Fisher, 2018 CO 39, ¶ 27 (emphasis added).
The term “covered benefit” in the statute is undefined. The court declined to define the statutory phrase “covered benefit” as meaning or contemplating a final, one-time payment of the UIM claim.
It is now clear in Colorado that auto insurers must pay UIM benefits piecemeal on undisputed medical expenses, and presumably on any other undisputed “covered benefits”. Failing to do so will expose insurers to risk of a statutory unreasonable delay suit, whereby the UIM claimant will seek double damages, attorneys’ fees, and costs.
The court of appeals’ affirmation, by the way, indicates the trial court also awarded Fisher statutory attorney fees of $51,000 and costs of $54,175.21. State Farm apparently did not appeal these awards to the Colorado Supreme Court, limiting its appeal only to the portion of the judgment reflecting the verdict of unreasonable delay of payment of medical benefits.
For what it is worth, the Supreme Court of Colorado observed in dictum that “State Farm and its amici strongly contend that the court of appeals' holding—which we now affirm—has increased the price of UIM premiums and reduced insurers' ability to detect fraud and inflated claims. Because the plain language of section 10–3–1115 compels the result we reach today, we think such public policy arguments would be better directed to the legislature.”
District Court of Appeal of Florida, Fourth District
Summary Judgment for Insurer Affirmed; Late Notice of Water Damage Incident Resulted in Prejudice to Insurer Due to Passage of Time Coupled With Repairs Made, Creating Difficulty for Insurer to Determine Extent of the Loss and the Estimated Cost of Repair
The case concerns a water damage claim belatedly made on a homeowners’ insurance policy which contained the usual conditions requiring the insured to give prompt notice of the loss and to show the insurer the damaged property. Here, water backed up in the insured’s bathroom shower, and seeped into the bathroom floor and sub-floor under the tile. The insured engaged a plumbing company to replace all of the drainage system for the insured’s septic tank, and at some time thereafter the insured renovated the bathroom, at the cost of $4,000, because of the water damage. It was not until 15 months after suffering the water damage that the insured made an insurance claim for $22,274 for the alleged damage to the bathroom. The claim was denied for late notice, and the insureds filed suit.
The decision tells us that at deposition the insured testified that the reason he took a long time to report his water damage claim because he was not aware of his rights under his homeowners’ insurance policy. He also acknowledged at deposition that all of the repairs to his bathroom were completed prior to the insurer’s inspection of the house. A licensed engineer engaged by the insureds
When discovery concluded, the insurer moved for summary judgment. It was conceded by the insureds that they did not provide prompt notice of their claim. Thus, under Florida law a rebuttable presumption arose that the insurer was prejudiced by the delay. The insureds asserted, in opposition to the insurer’s summary judgment motion, that the competing affidavits of the adjusters for the parties as to whether the cause of the damage could be ascertained without opening the slab of the house created an issue of fact regarding the cause of the loss. The insureds contended this showing rebutted the presumption of prejudice caused by the delay. The trial court granted the insurer’s motion for summary judgment.
The appellate court in a de novo review found that the question of prejudice was an issue of law, and that the facts concerning the late notice and completed renovations were undisputed. The appellate court affirmed, concluding the record evidence failed to overcome the presumption of prejudice. Specifically, it was noted that the insureds’ own “engineer’s report itself showed that the damage would likely have increased over time”, and, “[t]he insurer was prejudiced by a delay in investigating the claim as it would not be able to determine the damage at the time of the incident”. De La Rosa v. Florida Peninsula Ins. Co., 4D17-1294, 2018 WL 2246781, at *3 (Fla. 4th DCA May 16, 2018). The appellate court determined that while there were issues of fact regarding causation, the proffered evidence demonstrated that the insurer was “prejudiced by the passage of time in investigating the extent of the loss, and thus, the cost of repair.” Id. (emphasis in original).
Court of Appeals, New York
Construction Contract Beneficiaries and Standing to Sue
This is yet another case, or really the continuation of a case, arising from an ill-fated construction project to build a forensic laboratory for the New York City Medical Examiner adjacent to Bellevue Hospital in Manhattan. The City and The Dormitory Authority entered into a project management agreement which provided that The Dormitory Authority would finance and manage the design and construction of the laboratory. Perkins Eastman Architects, P.C. was hired to provide design, architectural, and engineering services for the project and supervise its construction.
Work began on the foundation in May 2002, but alleged failure to properly install excavation support systems caused much damage and delays. An adjacent building settled by as much as eight inches, other adjacent structures were damaged, and emergency repairs were required, all in all resulting in an 18 month delay and additional costs of $37 Million.
The Plaintiffs commenced the action in August 2006 and asserted two causes of action against Perkins – one alleging breach of contract and the other alleging negligence. Perkins moved for summary judgment to dismiss the City’s claims of breach of contract and negligence, and to dismiss The Dormitory Authority’s negligence claim as duplicative of the breach of contract claim. The case then proceeded on a twisted and tangled route through the courts.
The Trial Court granted the motion in part, dismissing the City’s breach of contract and negligence claims, but allowed The Dormitory Authority’s negligence claim to proceed on the conclusion that its negligence claim was not duplicative of the contract claim. The Appellate Division then modified that result by denying the motion for summary judgment on the City’s breach of contract claim. The Appellate Division held that the City had raised an issue of fact whether it was an intended third-party beneficiary of the contract between The Dormitory Authority and Perkins. With respect to the issue of whether the negligence claims were duplicative of the breach of contract claims, the Appellate Court held there was an issue of fact whether Perkins had assumed a duty of care independent of its contractual obligations. Seeking to extend the tortured legal path of this case, the Appellate Division granted Perkins’ motion for leave to appeal to the Court of Appeals to answer the basic question of whether the Appellate Division Order was correct. In response to its question, the Court of Appeals replied that the decision was most definitely NOT correct.
The first issue was whether the City could sue for breach of the contract between The Dormitory Authority and Perkins under which Perkins was retained for the project. The Court of Appeals started from the basic proposition that a third-party’s right to enforce the contract might exist if the third-party is the only one who can recover for breach of contract, or where it is otherwise clear from the contract that there was an intent to permit enforcement by the third-party. The Court noted that this becomes complicated due to the particular nature of construction projects, and the fact that there are often several contracts between various entities, however with the performance of all ultimately to the effect of constructing the one whole project.
The Court of Appeals held that the City was not a third-party beneficiary and could not sue for breach of the contract because the City was not the only entity that could recover under the Perkins contract. Indeed, The Dormitory Authority itself, the actual contracting party, had brought its own breach of contract claim. The Court also ruled that the contract did not expressly name the City as an intended third-party beneficiary, nor authorize the City to enforce any obligations thereunder. The City’s claim for breach of contract against Perkins should have been dismissed.
With respect to the professional malpractice / negligence claim, the Court again started from a basic proposition that a breach of contract is not to be transformed into a tort unless a legal duty independent of the contract has been violated. If the Claimant is essentially seeking enforcement of the contract, the action should proceed under the contract theory. In this case, the negligence action in the complaint against the architect was basically a restatement of the contractual obligations asserted in the cause of action for breach of contract. The Plaintiffs failed to state a malpractice cause of action against the architect because they sought only economic damages which were recoverable under the breach of contract cause of action.
Accordingly, the Order of the Appellate Division was reversed, and Perkins’ motion for summary judgment dismissing both the breach of contract claim and the negligence claim was granted.
Continuing the tortured procedural history of this case, there were two notable dissents at the Court of Appeals. One judge agreed that the breach of contract claim should have been dismissed because the City was not an intended third-party beneficiary of the contract. That judge, however, would have allowed to go forward the professional malpractice / negligence claim as ostensibly being different from the breach of contract claim. Yet another judge would have allowed both the breach of contract and negligence claims to proceed, essentially affirming the Appellate Division decision.
This case represents the interplay of basic contractual theories in the context of a complicated construction project and claims. There were different outcomes and results at the various judicial levels, and even two dissents at the Court of Appeals. Perhaps anticipating the challenge, the Appellate Division itself certified the case and the question for review up to the Court of Appeals.
This case attempts to address the question of who is a beneficiary and who may have standing to assert breach of a construction contract given the fact that a project may have several underlying contracts and sub-contracts between the various contracting parties, contractors, and trades. This case also deals with the interplay of breach of contract claims that also essentially allege malpractice and negligence against design professionals.
This construction project had severe and continuing problems, and this case is the result of significant and unusual claims, which the Court of Appeals addressed with very basic contract and tort analysis.