Coverage Pointers - Volume XIX, No. 8

Volume XIX, No. 8 (No. 491)

Friday, October 6, 2017

A Biweekly Electronic Newsletter


Hurwitz & Fine, P.C.

1300 Liberty Building

Buffalo, NY 14202

Phone: 716-849-8900

Fax: 716-855-0874


Long Island Office:

535 Broad Hollow

Melville, New York 11747

Phone: 631-465-0700

Fax: 631-465-0313

© Hurwitz & Fine, P. C. 2017
All rights reserved

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


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


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


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


Dear Coverage Pointers Subscribers:


Do you have a situation?  We love situations. 


Greetings from Buffalo, a place I have been known to visit from time to time.  I was in Chicago, yesterday, for a Board Meeting for the National Foundation for Judicial Excellence.  If you don’t know about the NFJE, it’s worth a click and a donation.


There’s a lot of great stuff in this week’s issue including a couple of key victories by attorneys in our office, at the Second Circuit (congrats to Steve Peiper and Jen Ehman), and at the USDC for the SDNY (kudos to Brian Barnas).


Jen Ehman and Andrea Schillaci are at the DRI Annual Meeting in Chicago (I peeked in there on Wednesday).  We’re here, carrying the water.


Firm Kudos


Hurwitz & Fine, P.C. has been selected as the Federal Court Award winner for the Erie County Bar Association Volunteer Lawyers Project Inc. The award will be given at the 10th annual Champions for Justice Bash Awards Reception on Friday November 17th at the Hotel@TheLafayette, 391 Washington Street, Buffalo NY.


An extra special congratulations to Ed Robinson who will be receiving the Center for Elder Law & Justice’s Pro Bono Attorney of the Year Award at the 10th Annual Champions for Justice Bash!


Here are three great programs being held in the next month or three.  I’m fortunate to be on each of the program’s faculties.  Hope to see you there.



Federation of Defense & Corporate Counsel’s

2017 Insurance Industry Institute

November 9 – 10 2017

Sheraton New York Times Square



We are well into Act One of the 21st Century and already face a stream of trends and crises for which there is no script. The 2017 Insurance Industry Institute has developed a playbook for these exposures.


We have assembled a cast of industry and insurance thought leaders and their counsel to explore solutions to the emerging challenges. Our speakers have crafted a well-honed script to replace the improvisation often used in the past. This is a forward-looking program that features thought provoking discussions on artificial intelligence, international claims, and the criminalization of torts faced by industry executives.


We will explore catastrophic claims that result from mass disasters and intentional misconduct, and the coverage issues presented by those claims. And we will reprise the popular CEO Forum from 2015, which features CEOs discussing the opportunities presented by anticipated growth in the coming years. In Broadway terms, this program seeks to identify the next Dear Evan Hansen while capitalizing on the success of The Producers. How?


The speakers are industry leaders, insurance executives, regulators and experts who study, predict and create the future, not merely those who react to the trends. So, without further delay, the curtain on FDCC I-3 2017 is rising. We invite you to sit forward, participate and become a part of the show.  Click here for Registration

Editor’s Note:  I’ll be spearheading a panel on that program about the role of US attorneys in foreign proceedings.



Northeast Regional Claims Conference, November 2, 2017, in Hartford, CT:


I am pleased to announce that I will be speaking at the upcoming Northeast Regional Claims Conference, November 2, 2017, in Hartford, CT. 


Victoria (Vicki) Roberts, Vice-President and Counsel at Meadowbrook Insurance Group and I will be speaking at the seminar on November 2nd at 2:05 PM on additional insured and contractual discovery and inspection issues.  The topic is descried as follows:


Risk Transfer: Tag, You’re It!


Agreeing to defend can be the single most expensive proposition of a claim. This presentation will explore management and strategy when faced with potential liability exposure based on contractual promises and obligations. Differentiating between contractual indemnity and additional insured obligations is a critical distinction that governs the determination of how this ultimately affects the paying party. The direction and outcome of a claim can be greatly affected by the employment of certain endorsements, such as those requiring privity, causation, and findings of negligence.


The NE Regional Conference is a one-day program designed for insurance executives, claims professionals, and outside counsel in the Northeast who specialize in insurance coverage and casualty claims. The program is intended to provide insightful education and training on some of the most important claims issues facing the insurance industry today. Be part of the interactive networking luncheon organized by DRI, which has moderated table discussions on a variety of topics ranging from claims-handling dilemmas to emerging issues, that you want to learn more about.


I encourage you to make your hotel reservations at the Hilton Hartford as soon as possible, as the room block is limited and is expected to fill up quickly.  For reservations, contact the hotel directly at 860-728-5151 and mention the Northeast Regional Claims Conference to take advantage of the group rate of $189 single/double. The conference block rate expires on October 12, 2017, and after that date there is no guarantee that the rates will not go up. 


Come join us in Hartford for great CLE and wonderful networking opportunities!


DRI - 2017 Insurance Coverage and Practice Symposium:

I encourage you to join me at this year’s Insurance Coverage and Practice Symposium (“ICP”) which will take place on December 7-8, 2017, in New York City at the Sheraton New York Times Square.  If you have not attended ICP in the past, give some thought to doing so this year as the conference provides unparalleled educational and networking opportunities for insurance executives, claims professionals, and outside counsel. 


I have linked the presentation topics which will be put on by a distinguished faculty of insurance industry leaders, experts, and coverage lawyers.  Those presentations include what is going on in some of our more problematic insurance coverage jurisdictions, ethical considerations in defending the uncooperative insured, emerging issues under claims made and reported policies, covered and uncovered damages issues, and number of occurrences (among others).


As in years past, ICP 2017 will afford attendees with industry-leading networking opportunities and events, including Dine Arounds and Networking Receptions.  There is also no better time to experience New York City that during the holiday season. 


If you register soon, you will be able to take advantage of early registration discounts and secure a room at the Sheraton (the rooms will fill up quickly).  Here are important links to the seminar:


Seminar Registration Page:  

Seminar Brochure:  

Hotel Registration:

I will be presenting on special New York insurance problems at the DRI NYC program.

Note:  You may be entitled to free registration.  Any DRI member employed as a claims professional by a corporation or insurance company, who spends a substantial portion of his or her professional time hiring or supervising outside counsel in the representation of business, insurance companies or their insureds, associations or governmental entities in civil litigation, will be entitled to free attendance at any DRI seminar.

Jen’s Gems:


Greetings from the Windy City.  I am in Chicago this week at DRI’s Annual Meeting.  The keynote speaker this morning was supposed to be Chuck Todd from Meet the Press, but he was called away at the last moment.  John Meachum, the presidential historian and author, filled in for him.  He was fascinating.  He provided a great (and mostly non-partisan) analysis of the rise of Donald Trump and the parallels often drawn between Donald Trump and Andrew Jackson.   If you ever have the opportunity to see him speak, it is well worth it.  I also plan on picking up American Lion when I get back. 

Until next issue…



Jennifer A. Ehman

[email protected] 

Editor’s Note:          Great book, Jen.  I’d highly recommend it.  I would have loved to hear the presentation.  Sure, President Trump believes in the Jackson comparison and I think he has a portrait of President Jackson in the Oval Office.


A Shot and a Beer – 100 Years Ago:


Buffalo Enquirer

October 6, 1916

Brings Hope to Hoboken


Hoboken, N.J. October 6 – Mayor Griffin, were returned here from Washington, where he saw Pres. Wilson in an effort to have modified the recent order closing all the saloons within a half-mile of military peers here, said he was hopeful the rule would be softened, but that he did not expected to be rescinded.


Tessa’s Tutelage:


Dear Readers:


Today I took my 12-week-old puppy to the vet to get his shots.  Remy, is quite possibly the biggest scaredy-cat I know.  He recently met a toddler and cowered in the corner with his eyes closed, hoping the sticky, wobbly, mini-human would be gone when he opened his eyes.  Unfortunately for Remy, that is not how it works.  Nonetheless, Remy surprised me and loved the vet and all the treats they gave him.  I was the one that was left a little shocked.  I had been under the misimpression that my dog was a runt.  However, weighing in at 27.5 lbs., Remy is probably going to grow up to be a 100 lb. leggy dog that could happily pull a cart of children – if he could ever get over his phobia.


…oh, you wanted to hear about No-Fault too? Well this week we have two cases for your consideration.  One reminds us that insurance carriers may use Workers’ Comp fee schedule for acupuncture services performed by a chiropractor to determine an acupuncturist’s fee.  The next denied part of Defendant’s summary judgment motion on the basis that it could not provide sufficient evidence to demonstrate that it had timely mailed the IME notice. 


My best,



Tessa R. Scott

[email protected]



Ewell's Universe:


Dear Subscribers:


The saga continues.


A few months back, in July, we reported on a coverage case from New Hampshire’s Supreme Court. The facts are startling. You may recall them: a hospital worker who had Hepatitis C stole syringes of fentanyl from patients scheduled for surgery, injected himself, and then refilled the syringes with saline. The syringes containing the infected blood were then injected into the patients. Numerous patients at the hospital contracted Hepatitis C and filed suit. In the prior case, the coverage issues pertained to whether the hospital had to expend the self-insured retention in order to reach excess coverage it had purchased. That case is discussed here.


Since then, more coverage issues have arisen. This time with respect to the temp agency who hired and placed the worker at the hospital. In today’s case, the New Hampshire Supreme Court considered whether a professional services exclusion in a commercial general liability policy barred coverage for the suit brought by the affected patients. The temp agency and hospital sought coverage under a commercial general liability policy. The temp agency argued that the professional services exclusion only bars coverage if damage resulted from medical services that it performed. The temp agency contended that it only hired the hospital worker, and did not itself perform medical services. The justices on New Hampshire’s high court rejected this argument. Upon review of the policy language, the Court concluded that the professional services exclusion plainly applies to any claim that alleges bodily injury resulting from the provision of medical services, regardless of who performed those services.


A professional liability policy was issued in tandem with the commercial general liability policy. The trial court ruled that the professional liability policy did not provide coverage to the temp agency. Despite this, neither the temp agency nor hospital appealed the trial court’s ruling with respect to professional liability coverage. Upon application of the professional services exclusion in the general liability policy, coverage would have likely been available to the hospital under the professional liability policy. However, since the temp agency and hospital never appealed that part of the ruling, they forfeited coverage under the professional services liability policy. The failure to preserve arguments on appeal has stung many lawyers. It is sage advice to prepare the record for appeal and to pay careful attention to appealing adverse rulings.


‘Til Next Time,



John R. Ewell

[email protected]


A Criminal with Little Cents:


Buffalo Enquirer

Buffalo, New York

06 Oct 1917





WILKES BARRE, Pa., Oct. 6. – James Brennan, thirty-two years old, was sentenced to six months’ labor at the county poor farm today for stealing a penny from a boy in the street.


Peiper’s Puck Drop:


We started last week by promising a big decision on the discoverability of claim files.  We delivered, except that the decision came from the First Department.  In the Preferred Mutual case reviewed in the Coverage Corner, we applaud the First Department’s well-reasoned, and rightly balanced, discussion of the intersection between investigation and legal interpretation.  It is not always an easy line to draw, and we surely appreciate that. We appreciate it even more when the Court recognizes the same issue.


We’re still pretty sure there is more to come on this issue, so stay tuned. 


Special thanks to those of you who came out to the Law School for Claims Professionals in Albany last week.  We’re hopeful that you left with a few ideas.  At the conclusion of my time speaking, I asked for new recruits to the Coverage Pointers family.  I was aghast to learn that everyone there already was a subscriber, or they were too shy to admit what they’ve been missing.  If you know someone who isn’t subjected to our missives just yet (and there must be 1 or 2 out there), send them this note.  Better yet, send them this note and tell them to e-mail us.  The more the merrier. 


That’s it for today. We ask that you pardon my brevity this week, for tonight is the season opener for the local hockey team.  My son, 8 years into his Sabres heartache, requires us to be in position a full 15 minutes before warm up.  That’s 50 minutes before game time. 


Oh yeah…one more thing for those of you wondering.  Its 70 degrees, and sunny here today.  Who says you can’t have hockey in warm weather cities! 



Steven E. Peiper

[email protected]


He’s Not Dead Yet:


The Brooklyn Daily Eagle

Brooklyn, New York

05 Oct 1917




Presumption of Death of Fiancé

Not Established


The Appellate Division today reversed the judgment which Miss May Connor obtained against the New York Life Insurance Company by a jury in Judge Hylan’s part of the County Court.  Miss Connor sued to recover $1,000, the principal of a life insurance policy for her benefit, taken out by Frederick W. Winnington, a well-known athlete and bicycle rider, who was her fiancé.


Less than two months after the issuance of the policy Winnington disappeared, and his clothing and jewelry were found in a Coney Island bathing pavilion.  Miss Connor conducted an extensive search, concluded that he had been drowned and demanded his insurance.  The Appellate Division set aside the verdict on the ground that her suit was prematurely brought, as a proof of presumptive death, after a lapse of seven years, had not become effective. 


Hewitt’s Highlights: 


Dear Subscribers:


The Yankees’ fan in me is excited to see the Yankees advance into the playoffs after their one game do or die elimination, led by the great Aaron Judge who hit 52 home runs this year, a rookie record. Cleveland here we come. Unfortunately, the New York State appellate judges were not as prolific on deciding serious injury cases for this edition.  In one case, the Court highlighted the fact that a plaintiff failed to attach affirmed medical reports. In another case, the First Department was confronted with a plaintiff who had significant injuries from prior accidents.  The Appellate Court held defendants’ failed to meet their burden as to the plaintiff’s spine, as their medical experts opined the injuries were pre-existing yet also found significant range of motion limitations that they did not specifically attribute to the prior injuries.  Further, they failed to address claims of aggravation of prior injuries or compare films from prior to the accident to films after the accident.  


I hope next time to have more significant cases for the readers’ perusal next edition.


Until next time,


Robert Hewitt

[email protected]


The Start of the 1917 Series:


The Buffalo Commercial

Buffalo, New York

06 Oct 1917





All Night Long Men and Women Stand in Line to Get

Cheap Seats For Opening Clash in Baseball’s Annual

Classic—Fans Raid Lumber Yard to Get Fuel For

Bonfires—Chicago Fans Expect Cicotte to Pitch Today


Chicago, Oct. 6.—After a night of cold and rain, the skies cleared this forenoon and the prospect for the first of the world’s championship games between the Chicago Americans and the New York Nationals was for fair weather and a temperature of about 55 degrees.


All night long a line of from two to three hundred men and a few women stood in line at the windows where at ten o’clock this morning the 15,000 remaining pavilion and bleacher seats were to be sold.  It was cold and most of the night there was a drizzle of rain.  Some quit, only to reappear before dawn, but mostly they obeyed the imperative order of the god of baseball and stuck….

Editor’s Note (with thanks to Wiki, the source of all knowledge):  In the 1917 World Series, the Chicago White Sox beat the New York Giants four games to two. The Series was played against the backdrop of World War I, which dominated the American newspapers that year and next.


The strong Chicago White Sox club had finished the 1917 season with a 100–54 record: their first and only one-hundred-win season in franchise history as of 2016. The Sox's next World Series winner in 2005 would finish the regular season with a 99–63 record.


The Sox won Game 1, held 100 years ago today, in Chicago 2–1 behind a complete game by Eddie Cicotte. Happy Felsch hit a home run in the fourth inning that provided the winning margin.


Wilewicz’ Wide-World of Coverage:


Dear Readers,


Back on my feet here, recovering slowly but surely. I’m down to one crutch and ACE wraps on both knee and ankle, but I can drive again and hobble around. One day at a time here. Now, this week on the Wide World of Coverage, we bring you not one, not two, but three Second Circuit decisions of interest in the coverage realm, so let’s dive right in.


First, we present to you Cincinnati Insurance v. Harleysville – and mucho kudos to our own Steve Peiper and Jen Ehman for their win on this one! There, the Circuit Court took up an analysis of whether an additional insured Privity Endorsement required actual privity of contract to apply. While the lower court had found otherwise, the Second Circuit agreed with our plain reading interpretation. The endorsement expressly required direct contractual privity. Yet the entity seeking additional insured status did not have it. While the result should have been obvious, sometimes we have to fight the fight all the way up to the second highest court in the land.


Second, for your edification we bring you Warehouse Wines v. Travelers. There, the insured suffered an incredible, awful loss – the theft of 4,000 cases of booze. Following the thievery, they made a claim under their policy with Travelers. The carrier denied based upon the “dishonest acts” exclusion, but the insured pointed out the “carrier for hire” exception to that provision. Long story short, the court agreed with the insured that since the claim arose from carrier that Warehouse had hired to ship the libations, the exception applied and thus there was coverage. Moreover, the court bought the insured’s version of the valuation of damage. To top it off, the court also awarded prejudgment interest going all the way back to the submission of the sworn proof of loss (rather than the conclusion of the carrier’s investigation). Yikes.


Third, and finally, we have Joseph Uvino v. Harleysville. While this would have been a more apt plaintiff name for the previous case, this one deals with construction contracts. The Uvinos had hired a contractor to revamp their East Hampton home. When they weren’t happy with the results, litigation ensued, as it so often does. Unfortunately, the contractor’s policy with Harleysville was a general liability policy that did not provide coverage for the types of contractor-work claims being asserted. Since the homeowners were ultimately unable to show which of their damages, if any, would have been covered by that GL policy, there was no coverage for them thereunder.


That’s it for now. Hope you’re all doing better than I am these days.


Until next time,



Agnes A. Wilewicz

[email protected]


Woodrow Wilson Praises Congress – 100 Years Ago:


The Brooklyn Daily Eagle

Brooklyn, New York

06 Oct 1917


Work of Congress in War

Is Praised by President


Washington, October 6—The work of the Congressional session adjourning today, was praised today by President Wilson in a statement, saying:


“the needs of the Army and Navy have been met in a way that assumes the effectiveness of American arms and the war-making branch of the Government has been abundantly equipped with the powers that were necessary to make the action of the nation effective.


“The Sixty-fifth Congress, now adjourning,” the President added, “deserves the gratitude and appreciation of a people whose will and purpose I believe it has faithfully expressed.  Once cannot examine the record of tits action without being impressed by its completeness, its courage and its full comprehension of a great task.


“I believe that it has also in equal degree and as far as possible in the face of war safeguarded the rights of the people and kept in mind the considerations of social justice so often obscured in the hasty readjustment of such a crisis.


“It seems to me that the work of this remarkable session has not only been done thoroughly, but that it has also been done with the utmost dispatch possible in the circumstances of consistent with a full consideration of the exceedingly critical matters dealt with.  Best of all, it has left no doubt as to the spirit and determination of the country, but has affirmed them as loyally and as emphatically as our fine soldiers will affirm them on the firing line.” 


Barnas on Bad Faith:


I bring you this note as I am sitting in Brooklyn waiting for oral argument on a dispositive motion on an interesting first party issue.  At least it looks like a short calendar today.  I hope it is because I’m hoping to get in time to catch the bevy of sports on television tonight.  The season starts tonight for the Buffalo Sabres, and our superstar young center, Jack Eichel, is going to be staying with us for another eight years after this one.  Excitement is high for our revamped defense and new coach, Phil Housley.  The second place (behind the Bills!) New England Patriots are playing against the Buccaneers tonight as well, and the American League Division Series is about to start.  It’s a wonderful time of year.


It’s also a big day for decisions in my column.  First up, we are extremely pleased to report on a H&F win obtained by the undersigned and Agnes in the 866 East case out of the Southern District of New York.  This case focused on a rescission argument, but also take a look at the dismissal of plaintiff’s claims for breach of the duty of good faith, General Business Law 349, and Insurance Law 2601.  It always feels good to write up a win.


The Pennsylvania Supreme Court also handed down a long-awaited decision on the standard of proof in bad faith cases in the Rancosky decision.  After running through the history of bad faith law in Pennsylvania, the court announced the standard.  Previously, under the Terletsky test, a plaintiff claiming bad faith had to prove by clear and convincing evidence that: 1) the insurer did not have a reasonable basis for denying policy benefits; and 2) that the insurer knew or recklessly disregarded the lack of reasonable basis for denying the benefits.  The Supreme Court adopted the Terletsky test, which was announced by the lower Superior Court.  It then found that Terletsky’s first prong involved an objective evaluation which did not require proof of self-motive or ill will, although self-motive or ill will could be probative of Terletsky’s second, subjective prong. The Supreme Court also found that an “insurer’s knowledge or recklessness as to its lack of a reasonable basis in denying policy benefits is sufficient to establish bad faith.


That’s all for now.  Enjoy your weekend.



Brian D. Barnas

[email protected]



Avoiding Voting Fraud – Important a Century Ago as Well:


New York Herald

New York, New York

06 Oct 1917




The Perversity of the Blanket Ballot

Suggests Their Use


TO THE EDITOR OF THE SUN—Sir:  Your editorial article “Perversity of the Blanket Ballot” is timely.  You might have gone further and as a remedy suggested a voting machine of positive action.  We must come to it, from the standpoint of the efficiency and to guard against fraud and the waste of time and expense of recounts.


Again, from the hygienic standpoint, think of two or three hundred men using the one and only pencil in a booth.  Ninety per cent of them put the end of the pencil in their mouths before making their crosses.


Voting machines have got to come.  I do not know whether a satisfactory one has been built or the cost of it, but surely in the long run it will be cheaper than the hiring of poll clerks, building of booths, quantities of paper, printing, etc.


I repeat—your article is good.  These old long ballots are confusing, even to an intelligent man.  H. M. DEMAREST..


Altman’s Administrative (and Legislative) Agenda:  


Greetings, Dear Readers. 


To those celebrating the Jewish New Year, l’Shana Tova, and I hope you had an easy fast.  To the rest, as I recently wrote in a case involving a student who tripped over his own feet while sprinting down a hallway, “Happy Fall!”


As for me, Dear Readers, I continue my fruitless, though often entertaining, search for love online.  I will say only this, Dear Readers: Online dating is like a box of chocolates: you never know what you’re gonna’ get, but it will probably have nuts. But, my true love will always be Coverage Pointers.  Lucky in law, unlucky in love, as they say.


Today, I bring you New York’s Department of Financial Services new Circular Letter, offering guidance for Early Intervention programs.



Howard B. Altman

[email protected]


Ouch – Life Before Seat Belts – 100 Years Ago:


Buffalo Enquirer

Buffalo, New York

06 Oct 1917





The steering gear on an auto operated south on Richmond avenue, this morning at 7 o’clock, by Frank Gripp, thirty-eight years old, of No. 95 Fifteenth street, broke as the machine was being turned into West Delavan avenue, resulting in the car jumping the curb on the northeast side of the street, and bringing up against a tree.  Gripp was thrown out, landing on his side. 


At the same time a taxicab operated by one of its men, appeared on the scene.  The driver of the taxi stopped immediately, rescued Gripp from the wreckage of his machine, bundled him into his own car and took him to the Homeopathic hospital.  There doctors quickly revived the man.  Outside of considerable shock, Gripp is suffering from cuts and bruises.  He left the hospital this forenoon.


His machine was badly damaged.  The car ran fully twenty feet after it jumped the curb.  Its flight was stopped by the tree.  Gripp was tossed through the windshield. 


Off the Mark:


Dear Readers,


The new school year is now in full swing.  Although the homework routine is not as smooth as I would like (it never is), things have been going well.  This weekend we are taking a road trip to Pennsylvania.  With Halloween approaching, we are all looking forward to some pumpkin picking and getting lost in a crazy corn maze.


This edition discusses a case involving, in part, construction defects, which was decided last week by the District of Connecticut.  In Carlson v. Allstate Ins. Co., the plaintiffs sued their homeowner’s carrier for failing to pay for damages to their home caused by cracking concrete of the foundation walls.  The homeowner’s policies issued to the plaintiffs only provide coverage for sudden and accidental direct physical loss to the dwelling.  The policies exclude coverage for losses caused by water, collapse, wear and tear, deterioration, rust or other corrosion, cracking, and shrinking.  The policies also exclude losses caused by faulty, inadequate or defective design, specifications, workmanship, construction, and materials used in construction.  The expert engineers on behalf of the plaintiffs and the insurer agreed that the damage was the result of long-term deterioration and not a sudden and accidental loss.  It was also determined that the concrete used in the foundation was of poor quality.  The Court noted that the only evidence presented by the plaintiffs of a sudden event was the cracking, which is specifically excluded from coverage under the additional coverage for collapse portion of the policies.  As the alleged damage was not the result of a sudden and accidental event and coverage for the loss was specifically excluded under the policies, the Court granted the insurer’s motion for summary judgment, finding that the insurer had no coverage obligation to the plaintiffs.


RIP Tom Petty. 


Until next time …



Brian F. Mark
[email protected]


Here are the highlights of this week’s issue, attached:


Dan D. Kohane
[email protected]


  • CGL Policy Does Not Provide Coverage for Breach of Promise to Pay, for Foreclosure of Mechanics Liens or Unjust Enrichment.
  • Late Notice Sinks Coverage
  • The Attorney’s Role in the Fire Investigation was Unclear to the First Department, so the Matter was Remanded for a Hearing.  Was the Carrier’s Lawyer Acting as a Lawyer or Claims Investigator?  If the Former, His Communications are Privileged.  If the Latter, Perhaps He Becomes a Witness.


Robert E.B. Hewitt III

[email protected]


  • Plaintiff Raised an Issue of Fact Fulfilling Its Burden Once Defendant Demonstrated a Prima Facie Entitlement to Summary Judgment
  • Plaintiff Must Present Affirmed Medical Reports to be Admissible
  • Defendant’s Experts Did Not Reconcile Their Claim of No Serious Injury to the Defendant’s Experts Finding of Significant Range of Motion Limitation



Tessa R. Scott

[email protected]




  • Defendant Failed to Demonstrate That It Had Timely Mailed IME Notice
  • Insurer May Use Worker’s Comp Fee Schedule for Acupuncture Services Performed by a Chiropractor to Determine Acupuncturist’s Fee



Steven E. Peiper

[email protected]


  • GOL 5-321 DOES NOT Prohibit a Party from Being Indemnified for its Own Negligence
  • Statute of Limitation Defense on Indemnity Claim Rejected where Putative Indemnitee had not yet Incurred a Loss
  • Relation Back Doctrine Permits Otherwise Time-Barred Cross-Claim
  • Broad Injury Claims Permit Equally Broad Discovery Requests



Agnes A. Wilewicz

[email protected]


  • Second Circuit Holds that Privity Endorsement of Policy Unambiguously Requires Direct Privity of Contract for Additional Insured Status to Arise (NY Law)
  • Second Circuit Finds Carrier for Hire Exception Applies to Dishonest Acts Exclusion, thus Finding Coverage for Wine Theft (NY Law)
  • Second Circuit Upholds Determination that a GL Policy Does Not Provide Coverage for Contractor’s Defective Work (NY Law)



Jennifer A. Ehman

[email protected]


  • Where Property was Transferred to a Trust, Court Finds No Coverage Under Homeowners’ Policy


Brian D. Barnas

[email protected]


  • Policy was Void Ab Initio Based upon Insured’s Material Misrepresentation regarding Vacancy
  • Pennsylvania’s High Court Addresses the Standard for Bad Faith Claims


John R. Ewell

[email protected]


  • New Hampshire’s Highest Court Holds That Professional Services Exclusion in CGL Policy Applies Regardless of Who Performed the Services



Howard B. Altman

[email protected]


  • Coverage for Early Intervention Programs


Brian F. Mark
[email protected]


  • US District Court Grants Homeowner’s Motion for Summary Judgment Finding that the Alleged Damage was Unambiguously Excluded from Coverage



Earl K. Cantwell
[email protected]


  • Late Night at Bars and Insurance Coverage:  Always an Interesting Connection



We wish a Happy Thanksgiving to our Canadian friends.  We will be smoking one and roasting the other for our Canadian Thanksgiving feast here in Fort Erie, Ontario.  Sadly, we’re about to close up for the season and move back to our city house.  However, we enjoy every day at the Lake.


All the best.



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

Dan D. Kohane
[email protected]



Agnes A. Wilewicz

[email protected]



Jennifer A. Ehman

[email protected]


Dan D. Kohane, Chair
[email protected]


Steven E. Peiper, Co-Chair

[email protected]

Michael F. Perley

Jennifer A. Ehman

Agnieszka A. Wilewicz

Edward B. Flink

Patricia A. Fay

Brian D. Barnas

Howard B. Altman

Brian F. Mark

John R. Ewell

Diane F. Bosse

Joel R. Appelbaum


Steven E. Peiper, Team Leader
[email protected]


Michael F. Perley

Robert E. Hewitt, III

Brian D. Barnas


Jennifer A. Ehman, Team Leader
[email protected]

Patricia A. Fay


Jody E. Briandi, Team Leader
[email protected]


Diane F. Bosse

Topical Index

Kohane’s Coverage Corner

Hewitt’s Highlights on Serious Injury

Tessa’s Tutelage
Peiper on Property and Potpourri

Wilewicz’s Wide World of Coverage

Jen’s Gems

Barnas on Bad Faith
Ewell’s Universe

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

Earl’s Pearls


Dan D. Kohane
[email protected]


09/27/17       J.W. Mays, Inc. v. Liberty Mutual Insurance Company

Appellate Division, Second Department

CGL Policy Does Not Provide Coverage for Breach of Promise to Pay, for Foreclosure of Mechanics Liens or Unjust Enrichment

J.W. Mays, Inc. (“Mays”), the owner of a mall and D. Owens Electric, Inc. (“Owens) entered into several construction contracts, including a contract for work on the mall's roof. Owens, as general contractor, subcontracted the roofing work to the nonparty PJ Exteriors, Inc. (“PJ”) which, the plaintiff claims performed defective roofing work.


Mays terminated the work before completion and did not pay for all the work performed. Owens sued Mays to recover damages for breach of contract and unjust enrichment, and to foreclose on mechanic's liens (“Owens action”).


Owens had named Mays as an additional insured under a commercial general liability policy issued by Peerless and an umbrella policy issued by Excelsior (both part of Liberty).  Coverage for an additional insured under the policies was triggered only with respect to liability from "bodily injury," "property damage," or "personal and advertising injury" caused in whole or in part by the acts or omissions of the additional insured or those acting on the additional insured's behalf.


Mays sought defense and indemnity from the Liberty companies


No coverage is available under these policies for this breach of contract claim.  This is not a claim for bodily injury or property damage.  It is a claim for not paying bills, foreclosing mechanics liens and unjust enrichment.


09/26/17       American Guar. & Liab. Ins. Co. v. Illinois Union Ins. Co.

Appellate Division, First Department

Late Notice Sinks Coverage

In what was likely a pre-prejudice case (hard to imagine they are still out there), Illinois National was freed from defense and indemnity obligations to its insured.  The insured failed to give Illinois, its primary insurer, timely notice of the accident giving rise to the claim, thereby vitiating Illinois's obligation to provide coverage.


09/26/17       Venture v. Preferred Mutual Insurance Company

Appellate Division, First Department

The Attorney’s Role in the Fire Investigation was Unclear to the First Department, so the Matter was Remanded for a Hearing.  Was the Carrier’s Lawyer Acting as a Lawyer or Claims Investigator?  If the Former, His Communications are Privileged.  If the Latter, Perhaps He Becomes a Witness.

Preferred Mutual Insurance Company issued a homeowner insurance policy to the Ventures, providing $325,000 in coverage for their property located at 38 Morton Hill Road, Roscoe, New York, for the period from January 8, 2013 through January 8, 2014. The policy also provided $227,500 in personal property coverage.


In November 2013, a fire completely destroyed the house and all of the Ventures’ property. The policyholders allege that they provided Preferred timely notice of the fire and of their claim under the policy, including sworn proof of loss. Plaintiff Daniel Venture provided defendant with a good faith valuation of the property loss, based on his best estimate as a lay person.


The Ventures claim that during the investigation into the fire, Preferred and its attorney attempted to develop incriminating evidence against them and their sons, in an effort to avoid the carrier’s obligations under the policy and to subject the Venture’s to criminal prosecution.


In a letter dated February 14, 2014, from Preferred’s attorney, Peter Dodge of the law firm Dodge & Monroy, to Preferred’s employees, Michael McGuire and Wendy Bodie, Dodge conveyed his evaluation and analysis report of the testimony of plaintiffs' sons, Ivan Venture and Paris Venture. Dodge discussed testimony that a white Jeep, possibly belonging to the Ventures, was seen backed up to the property on November 17, 2013 (the date of the fire). He concluded that "[t]his testimony will serve to establish not only material misrepresentations on behalf of Daniel Venture, Ivan Venture and Paris Venture, but also that someone from the family was located on the premises on November 17, 2013." Dodge referenced the legal standard for arson and stated as follows:


"We note that Mr. Venture was significantly in arrears for over four years on the mortgage to the property in question. Daniel Venture also over estimated [sic] the value of the home at $394,000.00. He estimated that he owes $160,000.00. The statement of loss from Focus Investigations indicates that the actual cash value of the home was $184,275.00. The appraisal amounted between $109,000 and $137,000.00. We believe that it is highly suspicious that Mr. Venture did not go back to check on the property until one week later. It is also highly suspicious that he did not contact any investigative agencies about the fire until two weeks later. We note that the Ventures all have internal alibis as to where everyone was on November 17, 2013. However, all of the alibis are within the family except for a family friend named Martin Rabovich. We note that the investigative agency from Delaware County has indicated in their report that the fire is suspicious and that an intentional setting of the fire has not been ruled out. Our expert, Joseph Myers, opines that the fire was incendiary, through the process of deduction."


On February 28, 2014, Preferred denied coverage under the policy, citing provisions of the policy which render it void in the case of misrepresentation, concealment, or fraud, and which exclude coverage for "intentional acts." The insurer concluded, based on its investigation, that "the fire was incendiary in origin and intentionally set by you [plaintiffs] or someone on your behalf at your direction. Further, during the course of the investigation, you engaged in fraudulent conduct, swore falsely with respect to the claim and willfully concealed and misrepresented material facts." The letter sets forth in detail the testimony and evidence supporting defendant's determination.


The Ventures sued Preferred alleging breach of contract and bad faith denial and sought, in discovery, the entire claim file seeking proof of the carrier’s conclusions in its denial letter.


In response, Preferred redacted certain documents due to "privilege," and withheld on the basis of attorney-client privilege all correspondence between defendant and the Dodge law firm. The internal coverage opinion letter authored by Dodge had not been produced, and defendant did not provide them with a privilege log.


The Ventures then sought an order compelling Preferred to produce an unredacted version of the coverage memorandum, and other documents withheld on the basis of privilege, for in camera review; (2) for leave to issue a subpoena for a deposition, and production of documents for review, in camera, of attorney Peter Dodge and Dodge & Monroy; and (3) to disqualify Dodge & Monroy from representing defendant.


The court directed the file to be produced for an in camera review and then denied the Venture’s motion. The court determined that the withheld or redacted documents were subject to attorney client privilege, constituted attorney work product, were prepared in anticipation of litigation, or related only to the setting of reserves. The court further held that plaintiffs had not met their burden of showing any need for a deposition or production of documents from, or any basis for disqualification of, defendant's counsel.


The Venture’s moved to renew, arguing that that the deposition of the SIU investigator, McGuire, revealed that attorney Peter Dodge played a more significant role in the claims investigation and denial than previously understood. The Venture’s also discovered through McGuire's deposition that it was Dodge who first suggested that the claim be denied, and that he drafted the denial letter.

The motion to renew was denied and the appeal ensued.


There are three categories of protected materials, also supported by policy considerations: privileged matter, absolutely immune from discovery (CPLR 3101[b]); attorney's work product, also absolutely immune (CPLR 3101[c]); and trial preparation materials, which are subject to disclosure only on a showing of substantial need and undue hardship in obtaining the substantial equivalent of the materials by other means CPLR 3101 [d][2].   In order for attorney-client communications to be privileged, the document must be primarily or predominantly a communication of a legal character. The burden of establishing any right to protection is on the party asserting it; the protection claimed must be narrowly construed; and its application must be consistent with the purposes underlying the immunity.


Reports of insurance investigators or adjusters, prepared during the processing of a claim, are discoverable as made in the regular course of the insurance company's business. Attorney work product applies only to documents prepared by counsel acting as such, and to materials uniquely the product of a lawyer's learning and professional skills, such as those reflecting an attorney's legal research, analysis, conclusions, legal theory or strategy.  Documents prepared in the ordinary course of an insurance company's investigation to determine whether to accept or reject coverage and to evaluate the extent of a claimant's loss are not privileged and are, therefore, discoverable. In addition, such documents do not become privileged merely because an investigation was conducted by an attorney.


The Ventures contended that Dodge was not acting in a legal capacity and, rather, performed the function of a claims investigator. Preferred claims that the investigation was solely performed by McGuire, the SIU investigator, and that Dodge's role consisted of conducting EUOs and providing legal advice based thereon. It also states that all of the information requested by plaintiffs in their motion to renew was already provided to the court as part of the in camera review and, in that sense, was not new.


The appellate court was unable to determine from the record Dodge's true role in this matter. Accordingly, this matter is remanded for the lower court to make that determination.


Robert E.B. Hewitt III

[email protected]


10/04/17       Jun v. Azam

Appellate Division, Second Department

Plaintiff Raised an Issue of Fact Fulfilling Its Burden Once Defendant Demonstrated a Prima Facie Entitlement to Summary Judgment

The defendants met their 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 defendants submitted competent medical evidence establishing, prima facie, that the alleged injuries to the cervical and lumbar regions of the appellant's spine did not constitute a serious injury under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d). In opposition, however, the appellant raised a triable issue of fact as to whether she sustained a serious injury to the cervical and lumbar regions of her spine under the permanent consequential limitation of use and significant limitation of use categories of Insurance Law § 5102(d). No facts are given.


09/28/17       Rashaad v. Dewan

Appellate Division, First Department

Plaintiff Must Present Affirmed Medical Reports to be Admissible

The Appellate court denied leave to renew a motion for summary judgment based on serious threshold. Plaintiff's motion for leave to renew defendants' motion for summary judgment contained none of the medical evidence submitted on the prior motion and was therefore insufficient to permit a determination whether the prior motion should be denied upon renewal. Moreover, the motion did not contain reasonable justification for plaintiff's failure to submit affirmed medical reports in opposition to the prior motion even after being granted multiple extensions of time to oppose.


09/26/17       Karanous v. Doulalas

Appellate Division, First Department

Defendant’s Experts Did Not Reconcile Their Claim of No Serious Injury to the Defendant’s Experts Finding of Significant Range of Motion Limitation

Plaintiff alleges that, as the result of a motor vehicle accident that occurred on May 27, 2011, she suffered injuries to her cervical and lumbar spine, right shoulder, both wrists, and right knee. Plaintiff was involved in a previous accident in 2008 and a subsequent accident in 2012, which both involved claims of injury to her cervical and lumbar spine


The Court held that Defendants failed to meet their prima facie burden of establishing that plaintiff did not suffer any new or exacerbated injuries to her cervical and lumbar spine as a result of the 2011 accident. In support of their motion for summary judgment, defendants submitted the reports of an orthopedist and neurologist who opined that plaintiff suffered sprains to her cervical and lumbar spine as a result of the 2011 accident, which was superimposed on prior injuries, and that those injuries had resolved. However, their opinions that plaintiff's neck and back injuries had resolved were contradicted by their own findings of significant limitations in range of motion of plaintiff's cervical and lumbar spine. To the extent defendants' experts meant to attribute these limitations and injuries to preexisting conditions or to the subsequent 2012 accident, they did not do so clearly or unequivocally. Further, their references to degenerative disc disease lacked a factual basis since neither physician reviewed the MRI films or cited any medical records evidencing degenerative disc disease in the spine. If they had reviewed reports of MRIs performed after the 2008 accident, which showed preexisting disc bulges and herniations in the cervical and lumbar spine, they did not compare those reports to the reports of MRIs performed after the 2011 accident to demonstrate an absence of new injuries. Nor did defendants' physicians address plaintiff's claim that the 2011 accident aggravated or exacerbated her preexisting conditions.


Since defendants did not meet their prima facie burden, the burden did not shift to plaintiff and defendants' motion for summary judgment was properly denied as to the cervical and lumbar spine claims, without the need to consider plaintiff's showing in opposition. However, as to plaintiff's remaining claims, defendants met their prima facie burden by showing the absence of limitations in range of motion and normal test results upon examination. In particular, plaintiff's injured shoulder had range of motion nearly identical to the uninjured shoulder, and negative results on tests of function.  The minor, limited range of motion in the knee did not constitute a serious injury and defendants' orthopedist found normal range of motion in the wrists, and Phalen's test and Tinel's sign were negative. Plaintiff failed to submit any medical evidence to raise an issue of fact as to these claims.


If plaintiff establishes a serious injury to her cervical or lumbar spine at trial, she will be entitled to recover damages for any other injuries caused by the accident, even those that do not meet the serious injury threshold.



Tessa R. Scott

[email protected]




09/22/17       AL Acupuncture, P.C. v Geico Ins. Co.

Appellate Term, Second Department

Defendant Failed to Demonstrate That It Had Timely Mailed IME Notice

In this action, Plaintiff moved for summary judgment and defendant cross-moved for summary judgment dismissing the complaint.


The Second Department held that Defendant demonstrated that it had timely denied the claims for services rendered from July 8, 2008 to September 5, 2008 and that it had fully paid Plaintiff for the services at issue in those claims in accordance with the workers' compensation fee schedule for acupuncture services performed by chiropractors. As Plaintiff failed to rebut defendant's showing, Defendant should have won that argument on summary judgment.


However, Defendant was not entitled to summary judgment regarding the injured party’s failure to appear for the IME because the Defendant had failed to establish the timely mailing of the IME scheduling letters.


09/22/17       Charles Deng Acupuncture, P.C. v 21st Century Ins. Co

Appellate Term, Second Department

Insurer May Use Worker’s Comp Fee Schedule for Acupuncture Services Performed by a Chiropractor to Determine Acupuncturist’s Fee

Plaintiff appealed from an order of the Civil Court which granted defendant's cross motion seeking summary judgment dismissing the portions of Plaintiff’s Complaint, which sought to recover upon claims for services billed under CPT codes 97810 and 97811, and to compel disclosure.


Plaintiff failed to establish its entitlement to summary judgment, because the proof failed to establish that the claims had not been timely denied, or that defendant had issued denials that were conclusory, vague or without merit as a matter of law.

Plaintiff argued that Defendant failed to establish that Defendant's fee reductions, which had been done in accordance with the workers' compensation fee schedule for acupuncture services performed by chiropractors, were proper. However, "as a matter of law, that an insurer may use the workers' compensation fee schedule for acupuncture services performed by chiropractors to determine the amount which a licensed acupuncturist is entitled to receive for such acupuncture services.”  Moreover, Plaintiff's arguments on appeal as to Defendant's proof of mailing of the denial of claim forms lack merit.


Also, Plaintiff failed to object to the discovery demands. Thus, Plaintiff was obligated to produce the information sought by defendant.  Plaintiff failed to establish that the discovery demands served by defendant seek information which is palpably improper or privileged.



Steven E. Peiper

[email protected]


10/05/17       Reynoso v Global Mgt. Enters., LLC

Appellate Division, First Department

GOL 5-321 DOES NOT Prohibit a Party from Being Indemnified for its Own Negligence

The Court rejected third-party defendant’s argument that the indemnity provision in a commercial lease was void under GOL 5-321.  The Court noted that, as here, where a lease is negotiated at arm’s length, between sophisticated entities, the parties are free to allocate risk through insurance.  Such an allocation is not violative of GOL 5-321. 


10/03/17       Residential Bd. of Mgrs. of Platinum v 46th St. Dev., LLC

Appellate Division, First Department

Statute of Limitation Defense on Indemnity Claim Rejected where Putative Indemnitee had not yet Incurred a Loss

Plaza Construction commenced a second-third party action against V.A.L. seeking  indemnity/contribution.  V.A.L. opposed the claim, initially, as beyond the statute of limitations and thus time-barred.  That argument was rejected summarily by the Court.  Simply stated, a right of indemnity doesn’t even begin to accrue until after there is payment.  Here, payment had not yet been made, and as such the time to commence an indemnity claim had not even started to run.


In addition, V.A.L. argued that the indemnity/contribution claim should be dismissed because the contract upon which the claim was based could not be construed to provide such a right.  In support of the application, V.A.L. referenced case where the Court dismissed a similar indemnity claim.  However, in that case, the claim arose from a defect in the architect’s work.  Here, however, the defect alleged arose directly from V.A.L.’s work product.  On this Record, if a defect is to be found, it falls within the scope of the contract under which V.A.L. agreed to perform operations.  Thus, Plaza’s indemnity claim was potentially meritorious.


09/29/17       Taylor v Deubell

Appellate Division, Fourth Department

Relation Back Doctrine Permits Otherwise Time-Barred Cross-Claim

Plaintiff was injured when the bus in which she was riding skidded out of control after it ran over a pile of gravel.  The operator/owner of the bus, First Student, was named as a defendant.  In addition, plaintiff also named Masters Edge, Inc. as defendant.  Masters Edge, apparently, created the gravel pile which caused/contributed to the accident.


At the conclusion of a bifurcated liability trial, First Student sought to amend its Answer to assert a counter-claim for property damage and loss of use of the bus.  At the time of its initial Answer, First Student had asserted only a claim for common law indemnity/contribution. 


In opposing First Student’s attempt to add a new counter-claim, Masters Edge argued that the claim for property damage/loss of use was time-barred. 


In affirming the trial court, however, the Appellate Division noted that the new claim “related back” to the original pleading.  In support of the holding, the Court noted that although the amended Answer asserted a new theory of recovery it arose from the same set of facts and occurrence.  As such, the trial court did not abuse its discretion in granting the application.


09/29/17       Milligan v Bifulco

Appellate Division, Fourth Department

Broad Injury Claims Permit Equally Broad Discovery Requests

Very interesting discovery decision.  Defendant moved to compel authorizations from plaintiff’s health insurer.  In addition, plaintiff sought school records, including “special education plans, IEP and Section 504 records” respectively. The plaintiff objected, and the trial court agreed that some of the requested information was not discoverable. 


On appeal, the Fourth Department struck a different tone.  With regard to the authorizations for health insurance records, the Court  noted the “broad and all-encompassing allegations of physical injury” asserted by plaintiff.  Under such Record, the Court noted that disclosure was appropriate. 


In addition, the Appellate Division also reversed the trial court, and therein ruled that defendant was entitled to special education records and the like.  Plaintiff claims a diminished economic capacity, and the Court reasoned that production of these documents might lead to information that is material and useful for the defendant’s opposition.  In so holding, the Court recited the long standing rule governing disclosure which suggests disclosure where the demand “is reasonably calculated to lead to relevant evidence.” 


In reaching this conclusion, the Court also rejected plaintiff’s argument that the “law of the case” doctrine precluded production of the materials.  Apparently, plaintiff successfully defeated an earlier challenge for the records at issue.  The defendant did not appeal that Order, but instead renewed its application after depositions.  The Court noted that the deposition testimony “introduced additional evidence and raised further issues” thus taking the dispute out of “law of the case” protections. 


With regard to mental health records, the Court affirmed the trial court’s denial of such request.  Here, the plaintiff withdrew claims of cognitive defects and memory loss.  As such, there was no longer any basis to disclose mental health and counseling records.



Agnes A. Wilewicz

[email protected]


10/04/17       Cincinnati Insurance Co. v. Harleysville Insurance Co.

United States Court of Appeals, Second Circuit

Second Circuit Holds that Privity Endorsement of Policy Unambiguously Requires Direct Privity of Contract for Additional Insured Status to Arise (NY Law)

Jumall Little, an employee of Kimmel Company, was injured while repairing an HVAC system at a building owned by the University of Rochester Medical Center (“UR”). He sued UR, along with general contractor LeChase, and their subcontractor for that project J.T. Mauro. UR and LeChase had entered into a prime contract, LeChase and Mauro had a subcontract, and Mauro and Kimmel had a subcontract between them.


Kimmel was the named insured under a policy issued by Harleysville, while Mauro was the named insured under Cincinnati’s policy. Cincinnati alleged that the Mauro-Kimmel subcontract required Kimmel to add Mauro, UR, and LeChase as additional insureds under the Harleysville policy. Harleysville’s policy, however, had two additional insured endorsements – a Privity Endorsement and a Declaration Endorsement – and they argued that neither was applicable because of the lack of direct contract between Kimmel and UR or LeChase.


The Second Circuit wrote that the Privity Endorsement required just that – contractual privity between the parties at issue. “There must be a written agreement between the insured and the organization seeking coverage to add that organization as an additional insured.” Here, that simply did not exist. While there might be exist a breach of contract claim per the terms of the contracts themselves, the court noted, “the validity of such a claim does not modify the insured policy to say something that it does not”.


Moreover, the Declaration Endorsement also did not confer additional insured status on UR or LeChase. There, a Declaration section listed a schedule of additional insureds. But it also stated that this status was automatic “when required in construction agreement with you”. Harleysville argued that the fact that the words of the Automatic Status Heading mirror the heading of the Privity Endorsement, this indicated that the Automatic Status Heading is a reference to the Privity Endorsement, “not a designation of a blanket category of unspecified additional insureds”, and the Second Circuit agreed. Any other interpretation would render the entire endorsement meaningless.

Editor’s Note:  Kudos to Steve Peiper and Jen Ehman for this win.


09/21/17       Warehouse Wines and Spirits v. Travelers Property Casualty

United States Court of Appeals, Second Circuit

Second Circuit Finds Carrier for Hire Exception Applies to Dishonest Acts Exclusion, thus Finding Coverage for Wine Theft (NY Law)

In December 2011, Travelers had insured Warehouse Wines, when over 4,000 cases of wine and other spirits were stolen. Following the claim, Travelers disclaimed coverage on the basis of the “dishonest acts” exclusion. The insured, in turn, asserted that the “carrier for hire” exception applied to actually provide coverage in the case. Litigation ensued.


In a decision scant on facts and lacking in full text recitations of the policy provisions, the Second Circuit addressed three of Travelers’ arguments: 1) that the exception to the exclusion did not apply; 2) that the lower court’s finding of theft was unsupported due to an “unexplained discrepancy” in the prices of the items; and 3) that the insured should not have been awarded prejudgment interest from the time of submission of the sworn proof of loss, but rather from a year later when the investigation into the claim had completed.


With regard to exception to the exclusion, the crux of the issue was whether the entity that the insured hired, Bestway Logistics, was acting as a carrier or a warehouseman at the time of the loss. While the policy did not define the term “carrier for hire”, the common understanding of that term is an individual or organization that contracts to transport goods for a fee. While Bestway was at times a warehouse, in this case Warehouse Wines contracted with Bestway to ship its products from Long Island to Manhattan. Thus, the exception to the exclusion applied and there was coverage.


Second, the carrier also disputed the lower court’s finding of damages due to an “unexplained discrepancy” in the insured’s inventory records. In short, the court did not buy this argument. The insured had provided sworn statements, inventory records, and testimony to support its claim. Thus, the carrier’s argument failed. Finally, the carrier disputed the extent of the pre-judgment interest, arguing that it should be calculated from the date of the conclusion of its investigation (April 2012), rather than from the insured’s submission of its sworn proof of loss. The court did not buy that argument either. Prejudgment is calculated in a breach of contract case from the time of the breach. Here, the carrier took an adverse position to the insured when the sworn proof of loss was submitted and not paid, namely a year earlier.


09/19/17       Joseph Uvino v. Harleysville Worchester Insurance Company

United States Court of Appeals, Second Circuit

Second Circuit Upholds Determination that a GL Policy Does Not Provide Coverage for Contractor’s Defective Work (NY Law)

The Uvinos hired JBI as a construction manager to oversee the building of their home in East Hampton, New York. The project did not go smoothly and the Uvinos eventually fired JBI and litigation ensued. All told, the Uvinos claimed over $1 million in damages a result of JBI’s shoddy work. JBI had been insured under a general liability insurance policy, issued by Harleysville, which carrier eventually got involved in an effort to elude coverage.


At issue was whether the Harleysville GL policy was even applicable to a case such as this. The district court held that the policy was a general liability one, which does not cover a contractor’s defective work. Rather, coverage would only exist where the contractor’s defective work caused harm to others or others’ work or other property. That was not the case here. The Uvinos had argued that they should not have had the burden of proving what portion of the verdict represented covered damages, but the court held that this was exactly what they had to do. The carrier does not have to disprove coverage. Since they ultimately failed to adduce evidence from which a reasonable factfinder could conclude which of the damages (if any) were covered, there was no coverage under the Harleysville policy for them.



Jennifer A. Ehman

[email protected]


10/05/17       CastlePoint Ins. Co. v. Atkins
Supreme Court, New York County
Where Property was Transferred to a Trust, Court Finds No Coverage Under Homeowners’ Policy

On February 12, 2014, Jerry Marino allegedly sustained injury when he slipped and fell due to an accumulation of snow and ice on the sidewalk in front of the premises located at 1038 Eastern Parkway, Brooklyn, New York (the premises).  As a result of the fall, Marino filed the underlying personal injury action.


The premises were owned by a trust, and Arthur Atkins and his wife (the couple) were successor trustees of the trust.  The two lower-level units at the premises were occupied, respectively, by the wife’s mother and a live-in super who is involved with the maintenance of the building. The top floor was vacant and in the process of being renovated for the couple to move into.


CastlePoint issued a homeowners' policy in connection with the premises.  The policy listed Atkins as the named insured and covered accidents at the insured location, so long as the named insured or his relatives resided there.  Atkins' counsel notified CastlePoint of the underlying complaint.  CastlePoint denied coverage on the basis that the couple did not reside at the insured location on the date loss, and because it was misrepresented in the application for insurance that the premises was owned by Doris D. Lawrence (Lawrence), and that Lawrence occupied same as her primary residence.  CastlePoint added that had it known the premises were actually owned by a trust, it would not have issued the subject policy, and said misrepresentation was material.


CastlePoint brought this declaratory judgment action and moved for summary judgment.  Defendants argued in opposition that the couple became successor trustees of the trust in 2012 due to Lawrence's incapacity, and pursuant to a Certificate of Trusteeship. The deeds to both properties were amended to reflect the change in name of trustees.  They claimed that when CastlePoint issued the renewal in October 2013, it incorrectly listed "Arthur Atkins" as "named insured" without providing any designation as to the nature of his interest, although the premises was held in trust by "Arthur Atkins as Successor Trustee of the [Trust]". 


The defendants claimed that there was a mutual intent to provide coverage.  Moreover, they were in the process of renovating the premises and planned on moving in once the work was finished.


In considering the arguments, the court noted that the policy insured "residence premises" and defined that term as follows: "8. 'Residence premises' means: a. The one family dwelling, other structures, and grounds; or b. That part of any other building; where you reside and which is shown as the 'residence premises' in the Declarations.”  This language in the court’s view was unambiguous and did not cover premises at which the named insured did not reside.  The court held that it was undisputed that neither Atkins, nor his spouse, resided at the premises at the time the policy was issued, or at the time of the underlying accident.  Furthermore, it noted that a policy may limit coverage to a residential building containing a maximum number of dwelling units.  Since the premises here consisted of three dwelling units, it is a three-family dwelling, therefore the premises is not as described in the policy and does not fit within the policy definition of a covered "residence premises."


In addition, the court rejected any argument that the policy should be reformed noting that this was not a mutual mistake based upon evidence from CastlePoint that it does not issue homeowners' policies in which a trust would be named as an insured.



Brian D. Barnas

[email protected]


10/03/17       866 East 164th Street, LLC v. Union Mutual Fire Ins. Company

United States District Court, Southern District of New York

Policy was Void Ab Initio Based upon Insured’s Material Misrepresentation regarding Vacancy

Plaintiff owned a multi-level residential property consisting of three apartments and a basement.  On February 11, 2015, the property was undergoing renovations and none of its units was occupied.  On that date, plaintiff applied for an insurance policy with Union Mutual for the Property through an insurance broker.  In response to the questions in the policy application, “Is the property vacant?” and “Is the property undergoing any major renovations?” the application stated, “No.”


Union Mutual, through its third-party claims administrator, issued an insurance policy for the Property effective from February 11, 2015, to February 11, 2016.  On April 6, 2015, the Property was vandalized and plaintiff submitted a claim to Union Mutual for coverage shortly thereafter.  Upon investigating the claim, Union Mutual determined that (1) the Property was vacant and undergoing major renovations at the time plaintiff submitted its application for insurance, and (2) the Property was vacant at the time of the loss.  Specifically, the investigation revealed that the Property was “completely vacant” when the Policy was applied for, and that while a prospective tenant had signed a lease, the building did not yet have the necessary certificates of occupancy, the utilities were not operational, and no tenants were residing in the property.


Union Mutual denied plaintiff’s claim for coverage by letter dated January 25, 2016, stating: “Had the insured accurately reported that the building was vacant and was undergoing renovations, Union Mutual’s underwriting guidelines would have required the Company not to issue the Policy.”  Because of the material misrepresentation, Union Mutual declared the policy to be void ab initio and returned the policy premium under separate cover.  The refund check was accompanied by an explanation that “[t]his policy has been voided ab initio and your premium is being returned to you by this check.”  Plaintiff subsequently deposited the premium check.


Plaintiff commenced this action on May 19, 2016, alleging breach of contract, bad faith, and violation of New York General Business Law § 349.


Plaintiff’s breach of contract claim was dismissed.  The Court concluded that the building was vacant as of the date of the insurance application.  Therefore, there was no genuine dispute of material fact that the response “No” to the vacancy question constituted misrepresentation.  Union Mutual also established that the misrepresentation was material.  Union Mutual’s underwriting guidelines established that the policy would not have been issued if Plaintiff correctly answered yes to the vacancy question on the application.  Accordingly, summary judgment dismissing Plaintiff’s breach of contract claim was granted.


Plaintiff’s claim for consequential damages for breach of the duty of good faith and fair dealing was also dismissed.  Union Mutual’s denial of the claim was the factual predicate for Plaintiff’s breach of contract claim and breach of the implied duty of good faith and fair dealing.  There was no separate or independent basis for concluding that Union Mutual acted in a manner that injured Plaintiff’s rights under the insurance contract.  Thus, the claim for a breach of the implied duty of good faith and fair dealing was dismissed as duplicative of Plaintiff’s contract claim.


Plaintiff also was not entitled to consequential damages.  Plaintiff did not establish as a matter of law that Union Mutual breached the contract (or any implied duty). Nor has it established that the parties reasonably contemplated any damages beyond the value of the claim.


Plaintiff’s General Business Law § 349 claim was also dismissed.  Plaintiff set forth no concrete evidence that Union Mutual’s conduct was consumer-oriented.  The present action was about a decision as to coverage, made on the basis of facts concerning this particular insured.  Plaintiff failed to demonstrate that there was a broader impact of the alleged misconduct, i.e., that there exist other commercial property-owners who answered the application in the same way and whose policies were subsequently voided based on Union Mutual’s investigative findings.  Indeed, Plaintiff’s citations in its claims of consumer-oriented conduct were all related to Union Mutual’s conduct in this action against plaintiff itself.


Finally, Plaintiff’s allegation that Union Mutual violated Insurance Law § 2601 also failed because that statute does not give rise to a private cause of action.


09/28/17       Rancosky v. Washington National Insurance Company

Supreme Court of Pennsylvania

Pennsylvania’s High Court Addresses the Standard for Bad Faith Claims

In March of 1992, while working for the United States Postal Service (“USPS”) LeAnn Rancosky purchased a cancer insurance policy as a supplement to her primary employer-based health insurance.  The cancer policy was issued by Conseco.


The policy contained a waiver-of-premium provision, which excused premium payments in the event Rancosky became disabled due to cancer.  Pursuant to that provision, a policyholder who is “disabled,” in that she is unable to work due to cancer, is excused from paying premiums on her policy following ninety days of such disability.


On February 4, 2003, Rancosky was admitted to the hospital and was ultimately diagnosed with ovarian cancer.  Over the subsequent months, she underwent surgery and chemotherapy. Though, Rancosky did not return to her job with USPS following her February 4, 2003, hospital admission, she remained on her employer’s payroll for several months because she had accrued unused vacation and sick days.  Consequently, Conseco continued to receive payroll-deducted premiums from Rancosky until June 24, 2003, when Rancosky went on disability retirement.  As the premium payments were made in arrears, and therefore [J-27-2017] - 5 paid for the prior month’s coverage, the final premium payment extended coverage under her policy to May 24, 2003.


Beginning in April 2003, Rancosky made several attempts to obtain waiver-of premium status, claiming that she was unable to work and was thus “disabled” under her policy since her admission to the hospital in February of 2003.  She submitted waiver-of-premium forms along with the required physician statement.  Unbeknownst to Rancosky, however, the submitted physician’s statement inaccurately specified her date of disability as beginning on April 21, 2003, rather than on February 4, 2003.  Believing that the premiums had been waived Rancosky continued to submit claims over the next couple of years.


In early 2005, during an audit of its payroll-deducted premium policies, Conseco discovered, apparently for the first time, that Rancosky ceased making premium payments on her policy in June of 2003.  Despite Rancosky’s prior submissions and inquiries regarding her waiver-of-premium status in which she indicated the start date of her disability as February 4, 2003, and authorized Conseco to obtain information from her physicians and employer about her disability, Conseco informed Rancosky on January 28, 2005, that it deemed her policy to have lapsed as of May 24, 2003, the date to which her final payroll-deducted premium payment extended her coverage.


In 2006, however, following yet another recurrence of her cancer, Conseco denied Rancosky’s claim for further benefits based upon her failure to pay premiums.  In response, Rancosky sought reconsideration of Conseco’s denial of benefits.  In evaluating Rancosky’s reconsideration request, however, Conseco’s review was limited to its in-house documentation, which at that time included, among voluminous and inconsistent filings, the physician’s statement that erroneously indicated the start date of her disability as April 21, 2003.


Notwithstanding Rancosky’s eight separate authorizations permitting Conseco to contact her employer or any other person with information as to the actual start date of her disability, Conseco did not undertake any investigation to clarify the discrepancy between Rancosky’s claimed disability date of February 4, 2003, and the physician’s statement erroneously indicating April 21, 2003, as the start date of disability.  Instead, it merely accepted the inaccurate information in her physician’s statement that the start date of her disability was April 21, 2003, and took the position that her policy lapsed due to non-payment of premiums prior to the ninety-day waiting period under the waiver-of premium provision.  Consequently, it denied her request for reconsideration.

Rancosky’s breach of contract and bad faith claims were bifurcated.  The trial court found that Conseco was sloppy and even negligent in handling her claim, but ultimately found in favor of Conseco.  The Superior Court reversed, concluding that the court below erred as a matter of law in concluding that the defendant subjectively did not have a reasonable basis for denying benefits under the policy. 


Next, the Superior Court determined, based upon its independent review of the record, that the evidence did not support the trial court’s determination that Conseco had a reasonable basis for denying Rancosky benefits under her cancer policy.  Because Conseco failed to conduct any such investigation and merely accepted the incorrect information from Rancosky’s physicians that her disability began on April 21, 2003, the Superior Court determined that Conseco lacked a reasonable basis for denying Rancosky benefits.  The Superior Court then remanded to the trial court to make a determination in the first instance whether Conseco knew or recklessly disregarded its lack of a reasonable basis in denying benefits.


On appeal, the court considered the level of proof required to prove a bad faith claim.  Pennsylvania’s bad faith insurance statute provides, in full, as follows:


§ 8371. Actions on insurance policies


In an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith toward the insured, the court may take all of the following actions:


(1) Award interest on the amount of the claim from the date the claim was made by the insured in an amount equal to the prime rate of interest plus 3%.

(2) Award punitive damages against the insurer.

(3) Assess court costs and attorney fees against the insurer.


Section 8371 does not define “bad faith,” set forth the manner in which plaintiffs must prove bad faith, or distinguish the manner of proof for punitive damages from other bad faith damages.  A decision by the Superior Court in Terletsky set the standard.  The Superior Court articulated the test for bad faith as follows: “to recover under a claim of bad faith, the plaintiff must show [1] that the defendant did not have a reasonable basis for denying benefits under the policy and [2] that the defendant knew or recklessly disregarded its lack of reasonable basis in denying the claim.”  Since that decision, the Superior Court has consistently clarified that the Terletsky test did not establish a self-interest or ill-will level of culpability for bad faith.


The Supreme Court concluded that the Superior Court’s longstanding two-pronged test, first articulated in Terletsky, presented an appropriate framework for analyzing bad faith claims under Section 8371.  In particular, it concluded that the Terletsky test, and its imposition of a recklessness standard for liability under the second prong, comports with the historical development of bad faith in Pennsylvania and effectuates the intent of the General Assembly in enacting Section 8371.12.  Accordingly, the Supreme Court held that proof of an insurer’s motive of self-interest or ill-will, while potentially probative of the second prong, is not a mandatory prerequisite to bad faith recovery under Section 8371.


Turning to the facts of the Rancosky claim, the Supreme Court concluded that the trial court misapplied the test by considering Conseco’s subjective motivation in determining whether it had a reasonable basis for denying the claim.  However, the Supreme Court held that the Superior Court erred in making a specific determination as to whether the record demonstrated Conseco’s lack of a reasonable basis for denying Rancosky benefits, i.e., the first Terletsky prong.


John R. Ewell

[email protected]


09/28/17       Mass. Bay Ins. Co. v. American Healthcare Services Assoc.

New Hampshire Supreme Court

New Hampshire’s Highest Court Holds That Professional Services Exclusion in CGL Policy Applies Regardless of Who Performed the Services

David Kwiatkowski, who was infected with the Hepatitis C virus, worked as a cardiac catheter laboratory technician. While working at Exeter Hospital, Kwiatkowski diverted opioid drugs to his own use and, after injecting himself with such drugs, returned the contaminated needles to the hospital’s supply, where they were used in the treatment of numerous patients, some of whom contracted Hepatitis C (“Exeter Patients”).


Exeter contracted with Triage, a staffing company that places medical personnel in medical facilities across the country. Pursuant to these contracts, Triage placed Kwiatkowski at Exeter Hospital. In the wake of Kwiatkowski’s actions, the Exeter Patients sued, among others, Triage and Exeter. As relevant here, Arch primarily insures Triage. This appeal chiefly concerns whether and to what extent the policies that Arch issued to Triage provide coverage to Triage, as a named insured, and to Exeter, as an additional insured.


Upon commencement of this insurance declaratory judgment action, summary judgment motions were swiftly filed by the parties, including Arch, Triage, and Exeter, among others. The trial court granted summary judgment against Arch and in favor of Triage and Exeter. Arch subsequently appealed to the New Hampshire Supreme Court.


On appeal, Arch argued that the trial court erred by granting summary judgment in favor of Triage and Exeter because, among other things, the “healthcare professional services” exclusion barred coverage under the general liability coverage form.


Arch contended that the “healthcare professional services” exclusion bars coverage for claims that allege damage resulting from the provision of medical services, regardless of whether Triage performed those medical services. Triage argued that the exclusion only bars coverage if damage resulted from medical services that it performed. Thus, Triage argued that because the Exeter Patients allege that Triage negligently hired and supervised Kwiatkowski, but not that Triage performed medical services, the exclusion does not apply. Exeter argued that its own coverage is derivative of Triage’s coverage, and thus, contended that the exclusion applies to Exeter only if Triage performed medical services.


The Court reviewed the healthcare professional services exclusion and found that it provides that the insurance does not apply to any claim that alleges “‘bodily injury’ or ‘property damage’ that result[s] from the performance of or failure to perform ‘health care professional services.’” The policy defined “Health care professional services” to include, as relevant: “Medical, surgical, dental, x-ray, nursing, mental, or similar ‘health care professional services’ or treatments” and “[p]roviding or dispensing of food, beverages, medications or medical supplies or appliances in connection with [the foregoing] services.”


According to the words’ plain and ordinary meanings, the Court concluded that the healthcare professional services exclusion plainly applies to any claim that alleges bodily injury that results from the provision of medical services, regardless of whether Triage performed those services.


The Court explained that:


Contrary to Triage’s and Exeter’s interpretations, the exclusion is not restricted to situations in which Triage provided the medical services. The exclusion sets forth a type of harm for which coverage is excluded: bodily injury that results from the provision of medical services. That is precisely the type of harm that occurred in this case: the Exeter Patients’ claims allege a bodily injury (their infection with Hepatitis C) that resulted from a medical procedure (their injection with tainted medication).


Accordingly, the Court held that the healthcare professional services exclusion barred coverage under the general liability coverage form for the Exeter Patients’ claims.


Triage and Exeter alternatively argued that the healthcare professional services exclusion is ambiguous as to whether it applies only when Triage performs the medical services, and that the ambiguity must be construed in favor of coverage. They contended that Arch could have specified that the exclusion applies regardless of who performs the medical services and that its failure to do so makes the exclusion ambiguous. However, the Court disagreed, holding that there was no ambiguity in the healthcare professional services exclusion. The Court explained that the exclusion speaks for itself, and plainly applies to any claim that alleges bodily injury that results from the performance of healthcare professional services.


A separate form issued by Arch afforded professional services liability coverage to Triage and Exeter. Exeter argued that should the Court rule that the professional services exclusion in the commercial general liability form applies, then the Court should find coverage for Triage and Exeter under the professional liability form. Obviously, Arch did not appeal the trial court’s ruling that the professional liability coverage form did not provide coverage. For whatever reason, neither Exeter nor Triage raised this argument in a cross-appeal. As such, they failed to preserve this argument, forfeiting any chance of professional liability coverage.



Howard B. Altman

[email protected]


Coverage for Early Intervention Programs

New York’s Department of Financial Services issued a Circular Letter on September 21, 2017, offering guidance on insurance coverage for Early Intervention programs.   The Letter may be viewed in full at:


The letter is directed to ”all insurers authorized to write accident and health Insurance in New York State, Article 43 Corporations, Health Maintenance Organizations (“HMOs”), Student Health Plans…and Municipal Cooperative Health Benefit Plans”, and its stated intent is to “remind insurers…that they must provide a municipality or its designees and service coordinators with information on accident and health insurance policy benefits for children participating in early intervention programs upon receipt of a request for such information”.  The Letter’s unstated intent (that is, reading between the lines) is to minimize municipalities’ costs in paying for EIPs, and to ensure that the obligation to pay falls first, and primarily, on insurers.


Early Intervention Programs (EIPs) provide early intervention for children with certain mental or physical development delays or disabilities (akin to physical and rehabilitative therapies) to ease or prevent exacerbation of such conditions.


The key points of the Letter, discussed in detail below, are to remind insurers that (1) municipalities have a statutory right of subrogation against insurers where the municipality pays for EIP services that are covered by insurance; and (2) an insurer receiving a request for information regarding coverage from a municipality must respond within 15 (fifteen) days


Public Health Law § 2559(3)(a) requires EIP providers to seek payment for EIP evaluations and services from insurers, prior to claiming payment from a municipality. 


In accordance with Public Health Law § 2559(3)(d) and Insurance Law § 3235-a(c), if a child participating in an EIP is covered by an insurer under an accident and health insurance policy, the municipality and an EIP provider have a right of subrogation for reimbursement of EIP services that are also covered services under the child’s policy.  This right is limited to expenditures the municipality has paid for EIP services or for services the provider has furnished to a child covered by the policy.


The right of subrogation is valid and enforceable to the extent benefits are available under the policy, and is conditioned upon the municipality or provider sending, and the insurer receiving, a written notice and request for information (akin to a tender  letter).  Once an insurer receives the written notice and request for information, Insurance Law § 3235-a(c) provides that the insurer must provide the municipality and service coordinator with information on the extent to which benefits are available to the child covered under the policy within 15 days.  The municipality  is then required to provide the information to the EIP provider assigned to provide services to the child.


Finally, since the municipality is financially responsible for the services, not the child’s guardians, and the municipality has a right of subrogation, insurers should pay any reimbursement for early intervention services directly to the EIP provider subrogating under the policy.  Insurers should not make payment to the covered child or the child’s family.


The Circular Letter advises that any inquiries should be directed to Jeffrey J. Pohl, Supervising Insurance Attorney, by mail at New York State Department of Financial Services, Health Bureau, One Commerce Plaza, 19th Floor, Albany, New York 12257, or by email at [email protected]  and questions regarding EIP programs should be directed to the Bureau of Early Intervention at the Department of Health at (518) 473-7016 or [email protected].


Brian F. Mark
[email protected]


09/27/17       Carlson v. Allstate Ins. Co.
U.S. District Court for the District of Connecticut
U.S. District Court Grants Homeowner’s Motion for Summary Judgment Finding that the Alleged Damage was Unambiguously Excluded from Coverage

In this action, the plaintiffs commenced suit against their homeowner’s insurance carrier, Allstate Insurance Company (“Allstate”), for failing to pay for damages to their home caused by cracking concrete.  Allstate filed a motion for summary judgment arguing that the policy at issue did not cover the alleged damage.


The plaintiffs have resided at their home since 1991.  Throughout that time they have been insured by Allstate under numerous policies, each effective for a one-year term. 


The Allstate polices provide coverage for sudden and accidental direct physical loss to the dwelling.  The policies exclude coverage for losses caused by: water or any other substance on or below the surface of the ground; collapse; wear and tear, aging, marring, scratching, deterioration, inherent vice, latent defect; rust or other corrosion, mold, wet or dry rot; settling, cracking, shrinking, bulging or expansion or pavements, patios, foundations, walls, floors, roofs or ceilings.  The policies also exclude losses caused by faulty, inadequate or defective: design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction; materials used in repair, construction, renovation or remodeling; or maintenance.


Under the additional protection portion of the policies, the policies provide coverage for collapse if the collapse is a sudden and accidental direct physical loss caused by hidden decay; or defective methods or materials used in construction, repair, remodeling or renovation.  Collapse does not include settling, cracking, shrinking, bulging or expansion.


The plaintiffs first noticed cracking in their foundation walls in approximately 2011 or 2012.  The plaintiffs asked their neighbor, who was the contractor that had installed their foundation, to inspect the foundation walls.  After inspecting the foundation walls, the neighbor advised that there was a problem with the concrete.  The plaintiffs then hired an engineer to inspect the foundation.  The engineer issued a report identifying “varying levels of gypsum chalking, map cracking, and concrete surface discoloration” in the foundation walls.  He advised that if no action was taken, additional concrete deterioration would occur and the foundation could collapse. 


In 2015, the plaintiffs submitted a claim for coverage for the damage to the concrete basement walls of their home.  Following receipt of the claim, Allstate inspected the property and retained an engineer to inspect the property.  Allstate’s engineer concluded that the concrete was of poor quality and has degraded over time, which resulted in shrinkage cracks.  The deterioration is ongoing and not the result of a sudden and accidental loss. 


Based on its engineer’s findings, Allstate issued a denial of coverage for the claim based on the policy exclusions for wear and tear, deterioration, inherent vice, or latent defect; rust or other corrosion, mold, wet or dry rot; water; and faulty, inadequate or defective materials used in repair, construction, renovation or remodeling.


The plaintiffs retained an additional engineer who determined that the cracks formed as the deterioration process progressed and the concrete weakened.  During his deposition, the engineer stated that the cracking was part of a chemical process that occurred over a period of years, beginning when the concrete was poured.  He agreed with defense counsel that the process was not a sudden process.


Allstate retained two structural engineers, both of whom concluded that the deterioration of the concrete walls has been a long-term process.  Allstate also retained a concrete expert.  The concrete expert found the concrete to be of poor quality.  He also determined that the concrete deterioration was due to long-term exposure to an exterior source of water.


After submitting their claim to Allstate, the plaintiffs had their concrete basement walls removed and replaced.  In support of their breach of contract claim against Allstate, the plaintiffs argued that they were entitled to collapse coverage because the concrete walls of the basement decayed and broke apart.  The Court held that the Allstate policies only provide collapse coverage for sudden and accidental collapses.  The Court noted that there was no dispute that the process leading to the cracking of the basement walls occurred gradually.  The only evidence of a sudden event offered by one of the plaintiffs’ experts was the cracking, which is specifically excluded from coverage under the additional coverage for collapse portion of the policies.  In holding that the Allstate policies unambiguously exclude coverage for the plaintiffs’ loss, the Court granted Allstate’s motion for summary judgment.



Earl K. Cantwell
[email protected]


03/25/16       Zook v. Arch Specialty Insurance Company,

336 Ga. App. 669

Late Night at Bars and Insurance Coverage:  Always an Interesting Connection

Zook filed personal injury actions for damages arising out of an incident at the insured’s nightclub, including claims for false imprisonment, battery, malicious prosecution, and negligence.  There was also a declaratory judgment action filed against Arch Specialty with respect to coverage for those claims under the establishment’s CGL insurance policy.  The trial court granted summary judgment to Arch Specialty finding that the alleged malicious prosecution occurred outside of the policy period, and that the insurance coverage for Zook’s remaining claims was subject to a $50,000 limit under an “Assault and Battery Endorsement”, rather than the $1 Million general liability policy limit.  The Appellate Court overturned the Trial Court with respect to coverage on the malicious prosecution, but concluded that the Trial Court correctly ruled that coverage on the other claims was limited to the $50,000 endorsement. 


The police officer who responded to 911 calls that night filled out an arrest citation ordering Zook to appear in Municipal Court.  The officer wrote that Zook had committed the offense of disorderly conduct in violation of municipal ordinances.  However, eventually a jury found Zook not guilty on one battery charge.  The incident and arrest occurred on May 21, 2009, within the policy period, but the trial court ruled that its prosecution occurred outside the policy period. 


The Appellate Court noted that Georgia law had not addressed when a malicious prosecution claim “arises” or “occurs” for purposes of triggering insurance coverage.  A majority of courts hold that coverage is triggered when the insured sets in motion “the legal machinery of the state” against the person.  A minority of jurisdictions require a favorable termination of the underlying proceeding in favor of the insured to also occur within the policy period in order to trigger coverage.  Arch Specialty contended that, under either theory, the alleged malicious prosecution did not fall within the coverage period because the prosecutor did not charge Zook with the battery charge until March 1, 2010, which was outside of the policy period. 


The Appellate Court ruled that, once the establishment called 911 and gave a report to the responding officer who then “arrested” Zook, the “legal machinery of the state” was set into motion on the night of the incident.  The fact that Zook was initially arrested for disorderly conduct but ultimately prosecuted for battery was deemed irrelevant since the insured had set prosecution “into motion” on the night of the incident. 


Essentially, the Appellate Court ruled that, from the standpoint of a reasonable person in the position of the insured, coverage for injury arising from malicious prosecution occurs during the policy period if the insured’s conduct in instituting prosecution takes place during that coverage period.  The malicious prosecution coverage was triggered when the insured invoked “the legal machinery of the state” within the policy period, and it was not determinative from a coverage standpoint when the accused was acquitted, or even formally charged.  Therefore, the Appellate Court reversed the trial court’s Order granting summary judgment in favor of Arch Specialty on the malicious prosecution coverage claim. 


The Appellate Court did uphold the trial court finding that insurance coverage on the other false imprisonment and false arrest claims was subject to the $50,000 policy limit in the Assault and Battery Endorsement.  Zook argued that those claims were different from and independent to any assault or battery.  The Appellate Court disagreed concluding that assault and battery was the genesis of Zook’s claims for false imprisonment and arrest. 


This case is interesting in presenting the majority and minority views with respect to triggering insurance coverage for malicious prosecution.  Essentially the divide centers on whether the ruling in favor of the claimant on the underlying criminal action takes place within the policy period, or whether it is sufficient for charges to be filed with the authorities to trigger coverage.  The Georgia court essentially sided with the majority view that initiating or filing the prosecution triggers the coverage if that occurs within the policy period.  The claimant does not have to be actually charged, or even tried and acquitted, during the policy period. 


An interesting issue is whether simply calling 911 would have been enough to trigger malicious prosecution coverage.  If the officer had not given Zook an arrest citation that night, and if he was not formally charged until March 1, 2010, outside of the policy period, would there still be coverage?  The Court seems to opine that simply calling 911 may be sufficient to “set in motion the legal machinery of the state”, which seems to place too much emphasis and meaning upon a 911 call.  


The case also reflects the importance of endorsements to the policy expanding or limiting coverage.  Zook’s victory in this case may have been minimal in fact if his overall claims and damages were limited to the $50,000 Assault and Battery Endorsement.  He tried to argue that the nature (and even the damages) for false imprisonment and false arrest, etc. are different than assault and battery, but both courts viewed the entire incident as arising from and having its “genesis” when the claimant was struck, grabbed, etc., which was all part of the assault and battery claim. 


This case also continues the longstanding tradition of bar fights, and other late night adventures at bars, providing interesting analysis and scenarios from an insurance coverage perspective, as well as entertaining reading.

Newsletter Sign Up