Volume XIX, No. 9 (No. 492)
Friday, October 20, 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:
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Melville, New York 11747
Phone: 631-465-0700
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www.hurwitzfine.com
© 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.
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Dear Coverage Pointers Subscribers:
Do you have a situation? We love situations.
Experiment: Word Out. PDF In.
We are going to experiment with a slightly new format this issue. We are doing so at the request of several of our regular subscribers and we hope you like this modest change.
As you know, we attach the newsletter to this cover note. For the past 491 issues, we have attached a Word Document. Some servers, lately, have rejected the Word attachments, due to the possibility of malware.
As a result, we will be attaching a pdf of the Coverage Pointers to this newsletter. We are hoping it will take up less room and be less susceptible to lockouts. Everyone has a pdf reader, they are clearly ubiquitous so we are hopeful this new format will be pleasing and will appear safer to the IT folks who protect your systems.
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Seasonal Sighs:
This is officially autumn. I know that because as of the middle of October, I needed to close up my Canadian summer home on Lake Erie and move back to the US of A. It is a long move between the two homes: 10.4 miles or 16.7 km. It takes longer in kilometers. We do not move back to Canada until mid-April. The challenge for me is training my car to travel to the city house, rather than the Canadian house.
The summer siesta for the courts is over with new appellate decisions coming out with greater frequency. We include a win for our coverage team in Jen’s column, a very interesting and timely post-Burlington decision where we were able to secure additional insured coverage under two subcontractor’s policies. Defense under one, with indemnity to be decided later. Defense and indemnity in the other. Why indemnity? Because the insurer allowed the entry of a default against its named insured and thus lost the right to contest its insured liability. There is a message there. Shades of Lang v. Hanover.
We believe that Burlington is not generally as important a decision when initially determining whether there is a “duty to defend”. The duty to defend is based on the allegations in the complaint. If a carrier wants to cut off the duty to defend, it will have to establish there is no duty to indemnify. How? By declaratory judgment or underlying lawsuit.
Continuing Education – THREE GREAT PROGRAMS:
Here are three terrific continuing education programs being held in the next month or three. I am 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 (I-3)
November 9 – 10 2017
Sheraton New York Times Square
Over 100 are already scheduled to attend this blockbuster program. The Federation of Defense & Corporate Counsel 2017 Insurance Industry Institute has developed a playbook of solutions to emerging challenges. 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.
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. Therefore, 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 will 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 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 2 at 2:05 PM on additional insured and contractual indemnity issues. The topic is described 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 filling up quickly. For reservations, contact the hotel directly at 860-728-5151 and mention the Northeast Regional Claims Conference.
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.
As is typical of this program, one of the top insurance conferences of the year, there is a distinguished faculty of insurance industry leaders, experts, and coverage lawyers. Those presentations include a discussion on 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 is the link to the seminar registration page: http://bit.ly/2tMYetT
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.
How Sweet it Wasn’t – 100 Years Ago:
The US was right in the middle of the First World War and there were all kinds of shortages.
New-York Tribune
New York, New York
20 Oct 1917
Sugar Famine to Close
Candy Shops in City
Manufacturers Say the Shortage
Is Only Temporary
New York City’s candy industry, employing according to various estimates from 50,000 to 100,000 men and women faces a complete temporary tie-up as a result of the sugar shortage. Candy manufacturers said yesterday their supply had been cut off, and that unless something like a miracle occurred they would have to close down their plants in a few days until this year’s cane and sugar beet crops are available, a period of three or four weeks.
The sugar stock of the city yesterday continued to ebb. Peter H. Alnor, vice-president of the New York Retail Grocers’ Association, said there was not a grocery store in the city with ten barrels in reserve, while hundreds of stores have not seen a pound for several days, and do not expect to see any for several weeks.
But even after the new crops begin to move to the refineries there is little hope of immediate relief for the general consumer. According to an unofficial agreement between Food Administrator Hoover and the refineries, the needs of the army cantonments will be first supplied. France, long suffering from a sugar famine, will receive second consideration, it is said.
Jen’s Gems:
Greetings!
This year I am serving as Marketing Chair for DRI’s 2017 Insurance Coverage and Practice Symposium (“ICPS”), which will take place December 6-8, 2017, at the Sheraton New York Times Square in New York, New York. This event is truly the preeminent insurance coverage program of the year.
The insurance industry is ever changing, and this program offers a great opportunity to learn from speakers discussing “hot” topics along with issues frequently faced by claims professionals and counsel practicing in this area. In addition to these incredible educational opportunities, ICPS also holds networking events with hundreds of attorneys and claims professionals, including two receptions, dine-arounds, a women’s dinner, refreshment breaks, the Insurance Law Committee business meeting, and many more. This year, we are also very excited about the DRI for Life event scheduled for Wednesday, December 6, where we will need your help to “Escape The Room” at Escape the Room NYC Midtown.
There is still time to register at the discounted rate. If you book before November 6, 2017, you will save $100 off the registration fee. The deadline to reserve a hotel room at the discounted rate of $399 per night is also November 6.
For registration and to obtain the hotel information:
Seminar Registration Page: http://bit.ly/2tMYetT
Seminar Brochure: http://bit.ly/2h64LtD
Hotel Registration: http://bit.ly/2v5kkZ1
I hope you will consider attending.
Beyond this program, I also wanted to direct your attention to my column this week. I report on a decision out of New York County Supreme Court, BQE Indus., Inc. v Starr Indem. & Liab. Co. The decision involves a general contractor seeking additional insured status under policies of insurance issued to two separate subcontractors. The loss occurred when an employee of the roofing subcontractor fell through the roof of a bulkhead. The day prior to the fall, the other subcontractor had removed asbestos containing roofing materials from that location exposing the allegedly weakened terra cotta tiles below. In opposition to plaintiffs’ motion for summary judgment, and in support of their own cross-motions, the carrier for the claimed employer denied that the plaintiff was in fact its employee, and the carrier for the asbestos contractor, relying upon the Court of Appeals decision in Worth, argued the absence of a connection between its work and the fall. Considering the respective arguments, the court found that the duty to defend for both carriers was triggered based on the allegations of the underlying complaint and certain extrinsic evidence. But, the really interesting part of the decision relates to indemnity. Ultimately, the court concluded that resolution of indemnity for both carriers would have to await the outcome of the underlying action. This decision was based on different reasons relative to each carrier. For the insurer of the alleged employer, indemnity would depend on whether employment was in fact established. For the other carrier, since its insured was in default (having had its defense withdrawn due to alleged noncooperation) it had already admitted liability, thus, its carrier’s obligation to provide indemnity depended on whether any recovery was obtained by the plaintiff against the general contractor. A good read, and a win for the home team.
Until next issue…
Jen
Jennifer A. Ehman
Steed Coverage, a Century Ago:
New-York Tribune
New York, New York
20 Oct 1917
Hourless Carried
$85,000 Insurance
LAUREL, Md., Oct. 19.—When the great three-year-olds Hourless and Omar Khayyam walked to the post yesterday in their great match race only about four men knew how heavily the colts were insured. Hourless carried $85,000 and Omar Khayyam $20,000, a total of $105,000.
Captain Duhain, of the Pinkertons, and the agent of the insurance company, fearful that an accident might happen to the horses, guarded them carefully in the parade and told the throng lined up along the fence rail not to wave their hands or hats as the horses passed.
While this is a big insurance for horses, it fails to represent their real value. August Belmont would not part with Hourless for $100,000 and Wilfred Viau laughed when this sum was mentioned to him at Saratoga. The insurance on the “Persian poet” will be increased during the winter.
The horse that carries the greatest amount of insurance is Campfire. R. T. Wilson places the value of $100,000 on him last winter after the son of Olambala had won the Futurity and retired the best two-year-old of the year.
Richard Carman is anxious for another race between Hourless and Omar Khayyam before the meeting ends, but Sam C. Hildreth gave him no encouragement for another race. Hildreth feels that Hourless won so decisively that there is no question as to the relative merits of the colts.
Editor’s Note: Hourless won the Belmont Stakes in 1917. Omar Khayyam won the Derby. There could be no Triple Crown Winner because the Kentucky Derby and the Preakness were run on the same day. That only happened twice in history.
Ewell's Universe:
Dear Subscribers:
Today, we have a bad faith case from West Virginia’s high court. It was claimed that the insurer’s delay in investigating the claim and paying a settlement constituted bad faith. Notably, the insurer provided a defense to the insured throughout the entire tort action. Since the insurer was awaiting the outcome of a declaratory judgment action to determine whether there was coverage, the insurer delayed paying any settlement on the insured’s behalf. In the declaratory judgment action, it was determined that there was coverage. Thereafter, the insurer paid the settlement on behalf of its insured. Accordingly, the Supreme Court of Appeals of West Virginia dismissed the bad faith claim.
In other news, I am in the holiday spirit! Halloween is about a week away, and this weekend I am finally carving my pumpkin. I have traced my design out on paper. Now I just need to buy a pumpkin carving kit. I am also getting my Halloween costume around. I have decided to go as the “most interesting man in the world” from those Dos Equis commercials. My girlfriend is going as a bottle of Dos Equis. It should be a fun-filled evening of espousing those iconic lines that “I don't always____________, but when I do, I __________.” I have already started compiling a list, including “I don’t always make titanic jokes, but when I do I use them to break the ice.” I am also temporarily dying my hair dark gray and am looking for a fake beard to wear. I have never tried so hard to look old in my life, but I am having a good time with it. I thought holidays were fun as a kid, as a grown up, holidays are even better.
Stay laughing my friends, and have a Happy Halloween.
‘Til Next Time,
John
John R. Ewell
Military Insurance:
New York Herald
New York, New York
20 Oct 1917
SEEK $18,000,000 INSURANCE.
Soldiers and Sailors Apply for
United States Policies.
WASHINGTON, Oct. 19.—Response to the army and navy to the Treasury Department’s presentation of the new war insurance plan found expression to-day in the form of two thousand applications for insurance policies aggregating $18,000,000. The majority of the applications were for the full amount of $10,000, the maximum permitted.
To-day’s match of applications was the first general movement of soldiers and sailors toward acceptance of advantages offered under the Government’s programme.
Peiper’s Panoply:
So it turns out that Einstein did not utter the famous definition of insanity. While no one can be sure who came up with the maximum of “doing the same thing, but expecting different results” one might assume they were speaking of a coverage lawyer. Folks, repeat after me, there is no anticipation of litigation until after a decision is made to deny. Privilege is still privilege, but exemptions don’t exist in the world of insurance investigations.
As for our column this week, we tackle an interesting Court of Appeals case which addresses how polices are issued in the excess market. That market, with its entirely distinct set of rules and regulations, remains murky to most. The Waldorf case does a nice job of pulling the curtain back, at least a little, on role of a broker in issuing excess line policies.
Not to be outdone, we also review another SuperStorm Sandy case. The storm came ashore in on October 29, 2013. If we follow the timeline for Katrina and others, we’ll still be seeing Sandy decisions for another 7 or 8 years. The XL Specialty case addresses a provision that limits the number of losses and deductibles in a 72-hour period after a storm hits.
Speaking of litigation cycle times, I have been given the distinct honor (or is it honour) of joining our friends in the Canadian Defence Lawyers next week for a discussion on defending and prosecuting subrogated matters. Of the topics to be discussed, a major focus will be on cycle time, and prompt resolution of litigated subrogation claims. I am told from our friends to the North that our litigation timelines, which at times seem unbearable, are significantly shorter than Canadian courts. If you have any interest, particularly for our Canadian subscribers, please drop me a note.
That’s it for this week. See you soon.
P.S. – October 20th is National Brandied Fruit Day. Yes, that’s a real thing. Can’t imagine the lobbying budget for that organization.
Steve
Steven E. Peiper
Heads Weren’t Worth as Much 100 Years Ago:
Times Herald
Olean, New York
20 Oct 1917
APPELLATE DIVISION AFFIRMS
VERDICT IN FAVOR OF BROWN
P. S. Collins who represented Michael Brown of Reed street as his attorney in the action brought by Brown against Vacuum Oil company to recover for personal injuries, received word today that the verdict of $3,000 handed down in Brown’s favor by the trial court, had just been unanimously affirmed by the appellate division to which the case was carried by the defendant.
Brown while working beneath a scaffolding mixing chemicals used for the treatment of oils, was struck on the head by a brick let fall from the scaffold by a workman above him.
Hewitt’s Highlights:
Dear Subscribers:
The Yankees have done it again, and I may be converting my two little Mets fans into Yankees fans with this exciting playoff run. Meanwhile, my boys are playing fall baseball, soccer, and Tae Kwon Do, with basketball to start soon. Phew. The weather down on Long Island is starting to turn cold. Pumpkins are bought, and we are ready for Halloween. My six year old is going as Luigi, Super Mario’s brother. My eight year old is the Creature from the Black Lagoon.
As to the cases today, we are reminded, yet again, that if the defendant’s own expert finds significant range of motion limitations, the Court will likely find an issue of fact as to whether there is a serious injury. In another case, objective range of motion testing showed the injury had resolved. In several other cases, motions to reargue were made, in which medical evidence that was available before was presented and the court denied the motions because they could have been presented with the original papers.
I cannot believe the next edition won’t be until November. The year is going fast.
Until next time,
Rob
Robert Hewitt
Women Working Underground:
New York Herald
New York, New York
20 Oct 1917
WOMEN TRAIN TO BE
GUARDS IN SUBWAY
Fifty Being Drilled for
Fourth Avenue Line.
Fifty women began training as subway guards yesterday on the Fourth avenue trains operated by the B. R. T. in Brooklyn. Thus are Brooklyn women now entering a field of labor heretofore occupied exclusively by men.
Officers of the company want it clearly understood that this innovation in the operation of its trains is by no means an act of usurpation on the part of women who can do the work as well as men and who can be employed for less money, but on the other hand was brought on by an actual shortage of men. Moreover, they say the women employees will receive exactly the same compensation given the men who preceded them.
To demonstrate how efficiently a girl can handle the business of being a subway guard, an eight-car train, with B. R. T. officials and several newspapermen on board, was run from the Ninth avenue and Thirty-seventh street station to Sixty-second street and back again with Celia Bena, a prospective guard, as a part of the crew. In fetching tones, Celia sang out the name of stations, gave the warning “watch your step” opened and closed the doors easily and otherwise comported herself as ably as a man in the same position.
Wilewicz’ Wide-World of Coverage:
Dear Readers,
As Jen mentioned above, we hope that you have marked your calendars and plan to join us for DRI’s Insurance Coverage and Practice Symposium (“ICPS”) in New York in December. Not only is it a truly lovely time to be in the City, but the program is always second to none, the speakers world-renowned, and the networking opportunities first class. Details and links to all the pertinent registration info is above, so I won’t repeat it here, but suffice it to say, it’ll be a good time. We hope to see many of you subscribers there!
This week in the Wide World, we have but one sole Second Circuit case to present. That is, Zurich American v. Liberty Mutual brings us a construction claim coverage case with a twist. There, the issue was whether Insurance Law 3420 applied to a claim asserted by one carrier against another. After Zurich picked up for an insured it shared with Wausau, they also tendered the case to Wausau. They, however, did not disclaim until over two years later, when they outlined their coverage position in their Answer to a DJ Complaint. While Zurich had tried to argue that they were merely acting on behalf of the insured, the Second Circuit found that there was no reason to deviate from long-standing coverage principles. That is, 3420 simply does not apply to claims between insurers. End of story.
That’s it for now. Until next time,
Agnes
Agnes A. Wilewicz
Put it in Perspective:
Fair Play
Sainte Genevieve, Missouri
20 Oct 1917
Sure Enough
The ball had gone over the fence, as balls will in suburban gardens, and a small but unabashed batsman appeared at the front door to ask for it.
Then appeared an irate father.
“How dare you show yourself at my house? How dare you ask for your ball? Do you know you nearly killed one of my children with it?”
“But you’ve got ten children,” said the logical lad, “and I’ve only got one baseball.”
Barnas on Bad Faith:
Hello again:
For once I bring you this note from my office in beautiful downtown Buffalo. Buffalo is very much a border town. Much like how Tina Fey’s Sarah Palin was able to see Russia from her house, we can see Canada out our office windows.
Being so close to the Canadian border, we have naturally absorbed a number of things from Canadian culture. One of the best things that many people from Buffalo have adopted from Canada is the great and quintessentially Canadian band The Tragically Hip. I know multiple people here who have seen the Hip well over 50 times, and it is still quite common to hear the Hip on local and Canadian radio stations, at bars, and at hockey games (of course).
I had probably heard a ton of Hip songs on the radio, but I never really was aware of them or got into them until probably five or six years ago, when a friend I used to work with gave me a copy of Live Between Us to listen to. The performance of Nautical Disaster on that album, a song that never was actually made into a movie called the Nurse Patient starring Jody Foster in the role of Susan, remains one of my favorite things in music.
Having got into the band so late, I was only ever able to see them twice, but they were both memorable. During the first show at the Outer Harbor in Buffalo, it started pouring rain during Love is a First, and the rain was so bad it fried the band’s equipment. Gord and Paul came back out to play acoustic versions of Wheat Kings and Scared before we were ordered to disperse due to an incoming storm. The second time I saw them was the night the Sabres lost the draft lottery and missed out on Connor McDavid. That show was notable because the band played Fully Completely, an album full of a bunch of the Hip’s biggest hits, in its entirety. It was a great show.
Unfortunately, the Hip’s lead singer Gord Downie was diagnosed with inoperable brain cancer sometime last year, and the band announced a final tour of Canada almost immediately thereafter. I tried pretty hard to get tickets, but they sold out quick and were just too expensive on the secondary market. The last Hip concert ever was broadcast on live television across Canada, as well as here, and it was an emotional and unforgettable show. Unfortunately, I never got the chance to see the Hip again, and yesterday Gord Downie passed away. It certainly wasn’t shocking, but it was still very sad. Thanks for the music Gord, you will be missed by many.
There are three cases in my column this week. Spencer is a case from Washington that reminds us that an insured has no private cause of action under the Washington Insurance Fair Conduct Act for an insurer’s violation of the Washington Administrative Code. This is similar to New York, where there is no private cause of action for an insurer’s violation of the Unfair Claim Settlement Practices Act. In Kemp, the Eleventh Circuit concluded that USAA did not act in bad faith by failing to make a policy limits offer in the first seven to ten days in response to a settlement offer with a thirty-day deadline. USAA could not have known that the plaintiff would only have accepted the offer that early when the deadline it was given was thirty days. Finally, in Stucky, which can be found in John Ewell’s column, the court in West Virginia concludes that the insurer did not act in bad faith where it settled a claim against its insured within the policy limits at no cost to the insured. Seems legit.
Be good to each other.
Signing off,
Brian
Brian D. Barnas
While They Didn’t Take a Knee, the Issues Were the Same:
The Appeal
Saint Paul, Minnesota
20 Oct 1917
More than 7,000 colored men, women and children marched through the principal streets of Newark, New Jersey, recently in a silent protest against the wrongs, injustices and galling race prejudice now so rampant in the United States.
Altman’s Administrative (and Legislative) Agenda:
Greetings, Dear Readers. Early Happy Halloween! While I may not have children to send out in costume to bring back loads of candy, I can make myself pumpkin soup, served, of course, in the pumpkin. Or perhaps, Dear Readers, I can trick-or-treat myself. I could dress as a zombie, a vampire, or something more soulless still; a plaintiff’s attorney. “Have you been injured anything? Dial 1-(800) SUE-THEM!”
Today, I bring you New York’s Department of Financial Services new regulation to tighten New York’s No-Fault law, aimed at preventing providers from charging excessive rates where services are performed out of State. No-fault insurance provides for reimbursement of medical expenses and lost wages for a policyholder injured in an automobile accident regardless of who is at fault. The new regulation seeks to limit the amount carriers must pay (and thus ultimately limit litigation an increased premiums) when services are performed out of state.
Howard
Howard B. Altman
Arrested for Disrespecting the Flag, 100 Years Ago:
The Buffalo Commercial
Buffalo, New York
20 Oct 1917
ADMITS HE WIPED
SHOES WITH FLAG
Special to The Commercial:
Lockport, Oct. 20.—Louis Bahamann, 21 of 12 Harveu Avenue was arrested today by Detective Sergeant Costello who charges that he insulted the American Flag. The accused according to the police and four witnesses used the flag to wipe his shoes and then spit upon it. The alleged offense was committed at the Lock City Brewery some time ago. Bahamann is a native of Germany. He admitted that he wiped his shoes with the flag.
Off the Mark:
Dear Readers,
The recent trip to Pennsylvania was a great weekend getaway. The foliage was changing colors and the kids had fun in the 11-acre corn maze. After a few busy weekends, I’m looking forward to spending this weekend locally, even if that means doing some fall yard work.
This edition discusses a recent case from the Appellate Division of the Superior Court of New Jersey. In Air Master & Cooling, Inc. v. Selective Ins. Co. of Am., the Court held that a continuous-trigger theory of coverage applies to third-party liability claims involving progressive damage to property caused by an insured’s defective construction work and the last pull of that trigger, for purposes of determining the end point of a covered occurrence, happens when the nature and scope of the property damage first becomes known, or when one would have sufficient reason to know of it.
Let’s go Yankees!
Until next time …
Brian
Brian F. Mark
[email protected]
Female Help Wanted:
The Winnipeg Tribune
October 20, 1917
Wanted, Chocolate Dippers, Tom Hason and O’Brien, 433 Ross Ave.
Editor’s Note: I guess the sugar shortage didn’t extend as far as Winnipeg.
Tessa’s Tutelage:
Dear Readers:
This week it is really feeling like fall, the leaves are changing and there has been frost on my car in the morning. I have been stocking up on apple cider and making chicken soup, or more accurately, heating up pre-made stuff. This season also marks the point in the year where I turn into an 80 year old -- in bed by 9 and turning down all social events. I hope I am not the only one that this happens to.
This week we have two cases for consideration. The first reminds parties that defendant’s failure to deny a claim does not preclude it from arguing coverage exhaustion. The next case reverses the imposition of sanctions on a party because the court failed to provide it with an opportunity to be heard on the matter. As you know, no fault decisions are usually very short and to the point. Perhaps I am attempting to be judicial, or perhaps it is getting too close to 9 p.m.
My best,
Tessa
Tessa R. Scott
Headlines in This Week’s Issue, Attached:
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
-
Pre-Denial Claims File Discovery Permitted in Declaratory Judgment Action. The Saga Continues
-
Jury Verdict Upheld on Whether or Not Plaintiff’s Employer was Independent Contractor
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
-
Defendant’s Own Expert Found Limitation in the Range of Motion in the Left Shoulder Such that They Could Not Meet Their Burden
-
Objective Range of Motion Testing Showed injuries Had Resolved
-
Plaintiff Failed to Provide Justification as to Why He Could Not Have Submitted His Physician’s Affirmation With the Original Opposition
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Plaintiff Raised an Issue of Fact as to Whether He Suffered a Serious Injury to His Knee
-
Plaintiff Provided No Excuse for Why She Failed to Oppose Summary Judgment Motion
TESSA’S TUTELAGE
Tessa R. Scott
Litigation:
-
Defendant’s Failure To Deny Claim Within 30 Days Does Not Preclude A Defense That Coverage Limits Have Been Exhausted
-
A Court's Award Of Costs To Or Imposition Of Sanctions Against, A Party Or An Attorney May Be Made Only "After A Reasonable Opportunity To Be Heard
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
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With No Regulatory/Enforcement Obligations, ELANY was not Conferred a Right to Commence Legal Proceedings in New York
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Restrictive Definition of “Flood” was Limited to the Provision in Which it was Referenced Only
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
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Second Circuit Reaffirms that Insurance Law 3420 Does Not Apply to Claims Between Insurers, Even Where Notice of Disclaimer Is Indisputably Late
JEN’S GEMS
Jennifer A. Ehman
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Court Finds Duty to Defend General Contractor Triggered; Indemnity to Await Resolution of Underlying Action – A Win for the Good Guys
BARNAS ON BAD FAITH
Brian D. Barnas
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Washington Law does not Recognize a Private Cause of Action under the Insurance Fair Conduct Act for an Insurer’s Violation of the Washington Administrative Code
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Insurer Did Not Act in Bad Faith by Failing to Offer Policy Limits Seven Days after Receipt of a Demand for Settlement within Thirty Days
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Insurer Who Settled Claim Against its Insured within the Policy Limit Did Not Act in Bad Faith
EWELL’S UNIVERSE
John R. Ewell
-
Insurer who Settled Claim against its Insured within the Policy Limit Did Not Act in Bad Faith
ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA
Howard B. Altman
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New Regulations for Out-of-State No Fault Reimbursement
OFF THE MARK
Brian F. Mark
[email protected]
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New Jersey Appellate Division Holds Continuous-Trigger Theory of Coverage Applies to Third-Party Liability Claims Involving Progressive Property Damage in Construction Defect Cases
EARL’S PEARLS
Earl K. Cantwell
[email protected]
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Liquidated Damages not Covered by CGL Policy
That’s all for this week’s edition. See you in two.
By the way, I received four calls in the past week, which started with a chuckle and an “I got a situation…”
Dan
Dan D. Kohane
Hurwitz & Fine, P.C.
1300 Liberty Building
Buffalo, NY 14202
Office: 716.849.8942
Cell: 716.445.2258
Fax: 716.855.0874
E-Mail: [email protected]
H&F Website: www.hurwitzfine.com
LinkedIn: www.linkedin.com/in/kohane
Twitter: @kohane
Hurwitz & Fine, P.C. is a full-service law firm
providing legal services throughout the State of New York
NEWSLETTER EDITOR
Dan D. Kohane
[email protected]
ASSOCIATE EDITOR
Agnes A. Wilewicz
ASSISTANT EDITOR
Jennifer A. Ehman
INSURANCE COVERAGE/EXTRA CONTRACTUAL LIABILITY TEAM
Dan D. Kohane, Chair
[email protected]
Steven E. Peiper, Co-Chair
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
FIRE, FIRST-PARTY AND SUBROGATION TEAM
Steven E. Peiper, Team Leader
[email protected]
Michael F. Perley
Robert E. Hewitt, III
Brian D. Barnas
NO-FAULT/UM/SUM TEAM
Jennifer A. Ehman, Team Leader
[email protected]
Patricia A. Fay
APPELLATE TEAM
Jody E. Briandi, Team Leader
[email protected]
Diane F. Bosse
Topical Index
Hewitt’s Highlights on Serious Injury
Tessa’s Tutelage
Peiper on Property and Potpourri
Wilewicz’s Wide World of Coverage
Barnas on Bad Faith
Ewell’s Universe
Altman’s Administrative (and Legislative) Agenda
Off the Mark
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
10/18/17 Cascade Builders v. Rugar
Appellate Division, Third Department
Pre-Denial Claims File Discovery Permitted in Declaratory Judgment Action. The Saga Continues.
Cascade is general contractor for the Weatherups who own a residence in Franklin County. In May 2011, Cascade subcontracted Rugar to perform certain exterior power washing on the Weatherups' residence.
The contract between Cascade and Rugar required that Rugar hold Cascade harmless for any work performed by Rugar and obtain insurance that, among other things, named plaintiff as an additional insured and would be primary to any other insurance policies. Rugar secured that coverage from Utica First Insurance Company (“Utica”).
Thereafter, while pressure washing the residence, Rugar utilized a cleaning solution manufactured by defendant Benjamin Moore that allegedly caused damage to the exterior of the residence. Cascade, as an additional insured on the policy, thereafter submitted a coverage demand to Utica. On May 9, 2012, Utica First denied coverage as to Rugar and, on February 27, 2013, disclaimed coverage as to Cascade. Cascade’s insurance carrier, Interstate, paid the Weatherups approximately $600,000 as compensation for the damages that were sustained to the exterior of the residence. As part of the compensation agreement, the Weatherups also released Interstate and plaintiff from any further liability with respect to the damage sustained and assigned their right to bring suit for damages to both Interstate and Cascade.
Cascade then commenced the instant action seeking to recover the damages paid to the Weatherups, alleging causes of action for, among other things, negligence by Rugar and breach of contract by Utica First. Following joinder of issue,
Cascade served Utica and Rugar with a discovery demand requesting, among other things, Utica First's pre-denial claim file. Utica First provided plaintiff with a portion of the claim file and a privilege log.
Cascade wanted more: the entire pre-denial claim file, prompting Utica First to move for a protective order prohibiting disclosure of the documents in the privilege log on the ground that they were immune from discovery as material prepared in anticipation of litigation. Rugar both joined in Utica First's motion and, separately, moved for a protective order.
The lower court denied the motions of Utica First and Rugar and directed Utica First to provide plaintiff with the entirety of its pre-denial claim file. Rugar then moved for, among other things, reargument, severance of the tort action against Rugar from the breach of contract action against Utica First and to join Interstate as a necessary party. Utica First filed an affidavit in support of Rugar's motion.
The Supreme Court, upon motion, granted Rugar's motion to reargue, determining that the contents of Utica First's privilege log were immune from disclosure.
On appeal the Third Department found that the lower court was wrong when it reversed its May 2015 decision and, among other things, granted Rugar and Utica First's motions for a protective order, determining that Utica First's pre-denial claim file was immune from disclosure (see CPLR 3101 [d] [2]).
CPLR 3101 (a) entitles parties to "full disclosure of all matter material and necessary in the prosecution or defense of an action." Rugar correctly asserts that, pursuant to CPLR 3101 (d) (2), statements provided by a party to his or her insurer are conditionally immune from disclosure as material prepared in anticipation for litigation; however, it is well settled that the party claiming such immunity "has the initial burden of showing that the materials being sought were prepared solely and exclusively for litigation" and were not otherwise motivated by other relevant business concerns Cascade’s burden in this regard cannot be satisfied by wholly conclusory allegations.
"The payment or rejection of claims is a part of the regular business of an insurance company. Consequently, reports which aid it in the process of deciding whether to pay or reject a claim are made in the regular course of its business". As such, reports prepared by insurance investigators, adjusters, or attorneys before the decision is made to pay or reject a claim are not privileged and are discoverable. Notably, all the documents set forth in the subject privilege log were prepared prior to Utica First's May 9, 2012, disclaimer of coverage. We find no merit, meanwhile, to Rugar and Utica First's contention that plaintiff's August 2, 2011, letter constituted anything other than a timely filed notice of claim received in Utica First's regular course of business. The affidavit of Susan Wheaton, Utica First's Vice President of Claims, was conclusory and failed to demonstrate that the materials derived from Utica First's investigation were collected solely in anticipation of litigation. Since Utica First failed to establish that the withheld documents were prepared solely in anticipation of litigation, the burden did not shift to plaintiff to demonstrate an undue hardship justifying disclosure of the pre-denial claim file.
In speaking to counsel, the one of the big issues in this case was the refusal of the trial court to sever the coverage and tort actions. Utica First took the position, understandably so, that the actions should be severed because the jury in the underlying lawsuit should not hear about the presence of insurance coverage. The appellate court agreed, and reversed the trial court’s order with respect to severance. Accordingly, the tort action and the coverage action were severed because of the possibility of prejudice.
10/18/17 Century Surety Company v. All In One Roofing
Appellate Division, Second Department
Jury Verdict Upheld on Whether or Not Plaintiff’s Employer was Independent Contractor
All In One Roofing, LLC entered into a contract with the defendant McAlpine Construction Company, Inc. (“McAlpine”), to install a roof on a building located on real property owned by Leonard Street (“Leonard”) and another. All In One, in turn, entered into a contract with nonparty Vasyl Berezhanskyy. Jadron was hired by Berezhanskyy to work on the project. While he was performing work on the roof, Jadron allegedly fell to the ground and was injured.
Jadron sued All In One, McAlpine and Leonard Street, and Boulevard, to recover damages for personal injuries. All In One thereafter requested that Century defend and indemnify it in the underlying action pursuant to a commercial general liability policy. The plaintiff disclaimed coverage based on two policy exclusions, one for bodily injury to an employee of an "independent contractor" while such employee "is working on behalf of any insured," and another for bodily injury arising out of the acts, omissions, or negligence of any "independent contractor while working on behalf of any insured." Century claimed that Berezhanskyy was an independent contractor and his acts, omissions, and/or negligence caused Jadron's injuries.
Century commenced this action to declare that it had no obligation to defend or indemnify All In One in the underlying action. The action proceeded to a jury trial. The jury ultimately returned a special verdict finding that Berezhanskyy was not an independent contractor of All In One. In a judgment the court declared that the plaintiff owed liability insurance coverage to McAlpine and Leonard and such coverage was applicable to the claims of Jadron which were made against McAlpine, Leonard in the underlying action.
Here, based on the evidence presented, there was a valid line of reasoning and permissible inferences which could have led a rational jury to conclude that Berezhanskyy was not an independent contractor. Indeed, as noted by the Supreme Court, Berezhanskyy and Edmond Warchick, the principal of All In One, appeared to agree that there were aspects of the job that were not under Berezhanskyy's control, including the type of roof to be installed, the number of screws and plates used in the installation of certain aspects of the roof, the date the work was supposed to start, and, finally, when a second roof was discovered by Berezhanskyy after he commenced work under the contract, what to do with the second roof. As such, the jury could have reasonably concluded that Berezhanskyy was not solely responsible for the methods and means of the job and that he was not "free from the control and direction of the person for whom the services are being performed."
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
10/18/17 Barnes v. New York City Transit Authority
Appellate Division, Second Department
Defendant’s Own Expert Found Limitation in the Range of Motion in the Left Shoulder Such that They Could Not Meet Their Burden
Plaintiffs were passengers in a bus that was involved in an accident with a car. The Supreme Court granted defendant’s motion for summary judgment on the serious injury. The Appellate Division reversed finding that the NYCTA defendants had failed to submit competent medical evidence establishing, prima facie, that plaintiff did not sustain a serious injury to her left shoulder under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d), as their expert found significant limitations in the range of motion of Barnes's left shoulder.
However, the Harrison defendant met his prima facie burden of showing that Barnes did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. He submitted competent medical evidence establishing, prima facie, that Barnes did not sustain a serious injury to her left shoulder or to the cervical or lumbar regions of her spine. In opposition, however, Barnes submitted evidence raising a triable issue of fact as to whether she sustained serious injuries to her left shoulder and the cervical and lumber regions of her spine.
10/18/17 Romero v. Braithwaite
Appellate Division, Second Department
Objective Range of Motion Testing Showed injuries Had Resolved
Plaintiffs were passengers in a vehicle involved in an accident with another car. The plaintiffs commenced this action to recover damages for personal injuries, alleging that the accident was caused by the negligence of the drivers of the two vehicles, and that they each sustained serious injuries within the meaning of Insurance Law § 5102(d) as a result of the accident. The moving defendants moved for summary judgment contending that the other driver’s negligence in failing to yield the right-of-way to the vehicle operated by Brathwaite was the sole proximate cause of the accident and that plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the accident.
The Appellate Division found that the Supreme Court correctly denied that branch of their motion which was for summary judgment dismissing the complaint insofar as asserted against them on the ground that Rivera's negligence was the sole proximate cause of the accident. As a general matter, a driver traveling on a road controlled by a stop sign who fails to yield the right-of-way is in violation of Vehicle and Traffic Law § 1142(a) and is negligent as a matter of law. A driver with the right-of-way is entitled to anticipate that the other motorist will obey traffic laws that require him or her to yield (see id. at 819). However, "a driver traveling with the right-of-way may nevertheless be found to have contributed to the happening of the accident if he or she did not use reasonable care to avoid the accident.” Here, while the moving defendants submitted evidence establishing Rivera's negligence as a matter of law in contributing to the happening of the accident by failing to yield the right-of-way to the vehicle operated by Brathwaite, they failed to establish, prima facie, that Brathwaite was free from fault in the happening of the accident.
As to serious injury, the moving defendants established, prima facie, through the affirmed report of their medical expert, that plaintiff had experienced a sprain and/or strain in the cervical and lumbar regions of his spine, which had since resolved. The medical expert's diagnoses were based on objective range of motion testing of the cervical and lumbosacral regions of plaintiff's spine, as well as a review of various medical records, including MRI reports produced shortly after the accident. The medical expert also measured normal ranges of motion with respect to plaintiff's right shoulder, which had undergone arthroscopic surgery in 2001, and concluded that "there is no objective evidence of orthopedic disability or residuals" and "no orthopedic limitations." Moreover, the moving defendants had established, through plaintiff's deposition testimony that he missed, in total, two weeks of work as a result of the accident. In opposition, the plaintiffs failed to raise a triable issue of fact as to whether plaintiff sustained a serious injury within the meaning of Insurance Law § 5102(d) as a result of the accident.
10/11/17 Byun Sik Chu v. Kerrigan
Appellate Division, Second Department
Plaintiff Failed to Provide Justification as to Why He Could Not Have Submitted His Physician’s Affirmation With the Original Opposition
Defendants moved for summary judgment dismissing the complaint on the ground 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 plaintiff then moved, inter alia, for leave to renew his opposition to those branches of the defendants' separate motions, submitting in support thereof and for the first time in this action an affidavit of his physician, who conducted a "recent" examination of him, an affirmation of a radiologist, and his own affidavit. That was denied. The Appellate Division found the Supreme Court providently exercised its discretion in denying those branches of his motions which were for leave to renew. A motion for leave to renew "shall be based upon new facts not offered on the prior motion that would change the prior determination and "shall contain reasonable justification for the failure to present such facts on the prior motion.” While it may be within the court's discretion to grant leave to renew upon facts known to the moving party at the time of the prior motion, a motion for leave to renew is not a second chance freely given to parties who have not exercised due diligence in making their first factual presentation. Here, the plaintiff failed to provide reasonable justification for the failure to include his physician's affidavit, the radiologist's affirmation, and his own affidavit in opposition to those branches of the defendants' prior motions which were for summary judgment dismissing the complaint. In any event, the plaintiff's submissions in support of renewal would not have changed the prior determinations granting summary judgment to the defendants.
10/11/17 Hamdam v. Taggart
Appellate Division, Second Department
Plaintiff Raised an Issue of Fact as to Whether He Suffered a Serious Injury to His Knee
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 injury to the plaintiff's right knee 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 plaintiff raised a triable issue of fact as to whether he sustained a serious injury to his right knee under the permanent consequential limitation of use and significant limitation of use categories of Insurance Law § 5102(d). No facts were given.
10/11/17 Desuze v. Johnson
Appellate Division, Second Department
Plaintiff Provided No Excuse for Why She Failed to Oppose Summary Judgment Motion
Plaintiff’s vehicle was struck by two other vehicles. One of the defendants moved for summary judgment dismissing the complaint insofar as asserted against them on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the accident. In support, they submitted the affirmed report of an orthopedic surgeon who measured the range of motion of the cervical region of the plaintiff's spine, and found the results to be normal. Plaintiff moved to vacate the default against her. In support, she submitted the affidavit of an employee of the law firm representing her, who stated that she had been attempting to acquire the plaintiff's no-fault medical file since February of 2013, but did not acquire it until October of 2013. The plaintiff further submitted the affirmed report of a neurologist—which was not part of the missing no-fault file—who measured the range of motion of the cervical region of the plaintiff's spine on August 6, 2012. The Supreme Court denied the motion to vacate.
A party seeking to vacate an order entered upon his or her default in opposing a motion must demonstrate both a reasonable excuse for the default and a potentially meritorious opposition to the motion. The Appellate Division found that the plaintiff failed to demonstrate a reasonable excuse for her default. The plaintiff failed to offer any explanation as to why she did not oppose the motion for summary judgment by submitting the affirmed report of the neurologist who measured her range of motion in August of 2012. This report was not part of the no-fault file that the plaintiff's law firm had problems acquiring.
Tessa R. Scott
Litigation:
10/11/17 Easy Care Acupuncture, PC v MVAIC
Appellate Term, First Department
Defendant’s Failure To Deny Claim Within 30 Days Does Not Preclude A Defense That Coverage Limits Have Been Exhausted
This action, seeking recovery of assigned first party no-fault benefits, is not ripe for summary disposition. While the record reflects that defendant properly paid a portion of the submitted claims for acupuncture services pursuant to the workers' compensation fee schedule, issues remain with respect to the claims denied in by defendant on the stated basis that the maximum payment had already been made for the billed codes. The parties' respective submissions reveal the existence of triable issues of fact as to whether defendant partially exhausted the coverage by payments to another provider, and whether those payments were proper under the insurance department regulations. Defendant's failure to deny the claim within 30 days does not preclude a defense that the coverage limits have been exhausted.
10/06/17 Irina Acupuncture, P.C. v USAA Cas. Ins. Co
Appellate Term, Second Department
A Court's Award Of Costs To Or Imposition Of Sanctions Against, A Party Or An Attorney May Be Made Only "After A Reasonable Opportunity To Be Heard
In this action by a provider to recover assigned first-party no-fault benefits, defendant moved to strike the action from the trial calendar and vacate the notice of trial, or, in the alternative, to dismiss the complaint. The Civil Court, in an order entered September 9, 2015, granted the branches of defendant's motion seeking to strike the action from the trial calendar and vacate the notice of trial, and denied the branch of the motion seeking to dismiss the complaint. The court also, sua sponte, awarded defense counsel costs in the sum of $1,000 and imposed upon plaintiff's counsel sanctions in the sum of $2,500. Plaintiff appeals from so much of the order as awarded costs to defense counsel and imposed sanctions upon plaintiff's counsel.
A court's award of costs to or imposition of sanctions against, a party or an attorney may be made only "after a reasonable opportunity to be heard.” As the Civil Court failed to provide such an opportunity, the order was reversed, and the awarded costs in the sum of $1,000 to defense counsel and imposed sanctions in the sum of $2,500 upon plaintiff's counsel, is vacated.
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
10/19/17 Excess Line Association of New York v. Waldorf & Associates
Court of Appeals
With No Regulatory/Enforcement Obligations, ELANY was not Conferred a Right to Commence Legal Proceedings in New York
Pursuant to NY Insurance Law, excess line policies can only be issued by foreign insurers using specialized brokers. The brokers, in turn, are required to pay taxes on premiums earned on excess policies, and also pay a “stamping fee” to the Excess Line Association of New York (“ELANY”).
ELANY was created by statute to help facilitate compliance with the broker’s filing and record keeping obligations. The stamping fees, apparently, were a way to fund ELANY’s responsibilities. Notably, if fees went unpaid, ELANY was empowered to notify DFS of the broker’s non-compliance.
In the instant mater, defendant Waldorf was investigated by DFS. As result of the investigation, it was determined that Waldorf had failed to pay taxes on excess line premiums over a period of years. Thereafter, Waldorf agreed to pay back taxes on policies procured from 1995 – 2001. The settlement released Waldorf from future liability, and made no mention of delinquent “stamping fees” owed to ELANY.
ELANY, in 2011, a year after the DFS settlement, sued Waldorf for stamping fees allegedly owed from 1989 through 2011. Waldorf opposed on the basis that ELANY did not have capacity to file suit in New York. The trial court agreed, and dismissed the lawsuit. The Appellate Division, First Department agreed as well. The Court of Appeals granted certiorari, and also concluded that ELANY was without capacity to commence a legal action in New York.
In so holding, the Court of Appeals noted that where the entity is created solely by statute it has no common law right to commence legal proceedings. Rather, the statute creating it, or another statute, must explicitly confer capacity; or, in the alternative, the capacity is inferred. Here, there is no specific statute authorizing ELANY to commence suit.
Upon further inquiry, the legislative scheme reserved the sole power of enforcement to DFS. ELANY, on the other hand, was to act principally as “record keeper.” Moreover, when stamping fees are not paid, ELANY is instructed to notify DFS. It is not, however, granted authority to seek recovery on its own. Finally, ELANY was created as an advisory organization. All regulatory activities, and enforcement, was reserved for DFS.
In light of the foregoing, there was no basis to conclude that ELANY had either been given capacity to sue through statute, or such authority was implied through the nature of its mission.
10/12/17 XL Insurance America, Inc. v The Howard Hughes Corporation
Appellate Division, First Department
Restrictive Definition of “Flood” was Limited to the Provision in Which it was Referenced Only
Defendants purchased a flood policy from XL Specialty which contained, among other things, a sublimit of $50,000,000 for losses which arose from flood to property located in “High Hazards Flood Zones.” In addition, the policy also contained a separate provision which provided that all loss from flood within a 72 hour period were to be considered “one loss.” That provision went on to provide that “as used herein” the definition of flood did not include flood waters and storm surge from a named storm.
In the instant case, which dealt with losses occasioned by Superstorm Sandy, XL argued that the definition of flood as used in the “one loss” provision of the policy applied. As named storms were, essentially, removed from the definition of “flood,” it followed that XL owed no coverage to plaintiff.
The trial court agreed, and granted XL’s application for summary judgment. In reversing the trial court, the Appellate Division noted that the property was located in a “High Hazard” zone. As such, the $50 million flood limit was applicable on its face.
Further, the court ruled that the language of the provision XL relied upon was limited only to the number of losses and deductibles were triggered by a flood event. The definition of flood, as limited to only that section, could not be extrapolated to the other portions of the policy. As such, and having no other limitation to the definition of flood, the Court found coverage and the sublimit applied.
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
10/05/17 Zurich American Insurance v. Liberty Mutual Insurance
United States Court of Appeals, Second Circuit
Second Circuit Reaffirms that Insurance Law 3420 Does Not Apply to Claims Between Insurers, Even Where Notice of Disclaimer Is Indisputably Late
Brooks Shopping Center owns (surprise) a shopping center, which is located in Yonkers and managed by Montesano Brothers. In 2008, Brooks contracted with Whiting-Turner Contracting to serve as general contractor for a construction project. Under that contract, Whiting-Turner was required to obtain insurance for itself, its subs, and their employees, for any claims arising out of the work. Whiting-Turner obtained such a policy from Zurich, under which both Brooks and Montesano qualified as additional insureds. That policy also contained a subrogation provision relative to its deductible, which stated that “Zurich has Whiting‐ Turnerʹs ʺrights to recover any Deductible Amount from anyone liable for the injury or damagesʺ covered under the Zurich Policy and that Whiting‐Turner ʺwill do everything necessary to protect those rights for [Zurich] and to help [Zurich] enforce them.ʺ”
In 2009, Whiting-Turner entered into a subcontract with Montesano to perform underground utility work at the center, which in turn required Montesano to carry general liability insurance and name Whiting-Turner as an addition insured. Montesano procured such a policy from Wausau. As is relevant here, the Wausau Policy included an additional insured provision extending coverage to ʺany organization to whomʺ Montesano was ʺobligated by written agreement to procure additional insured coverage for ʹbodily injuryʹ caused by your acts or omissions or the acts or omissions of those acting on your behalf [i]n performance of your ongoing operations.ʺ The Wausau Policy also contained an exclusion (the ʺConstruction Exclusionʺ) providing that ʺ[t]his insurance does not apply to . . . [a]ny construction, renovation, demolition or installation operations performed by or on behalf of you, or those operating on your behalf.ʺ
In 2011, a woman initiated a suit alleging that she fell while walking through a construction site at the shopping center the previous year. She further alleged that Brook’s negligence in maintaining the construction site caused her injuries. Neither Whiting-Turner nor Montesano were named in that suit. Nevertheless, in October 2011, Whiting-Turner reported the complaint to Zurich, stating that it believed Montesano was responsible for it. Zurich thereafter notified Montesano and Wausau, and demanded defense and indemnification for Brooks and Whiting-Turner. Zurich eventually retained counsel for Brooks and started a third party action against Montesano. They also started a DJ action against Wausau for coverage.
Notably, however, Wausau’s first disclaimer of coverage came within its Answer to the DJ complaint. Though they knew about the underlying action a full two years before the DJ was filed, they did not issue any coverage correspondence asserting coverage defenses until that Answer. While not disputing that the construction exclusion would otherwise apply, Zurich asserted that Wausau was thus late in disclaiming coverage and therefore on the hook. Typically, exclusions to coverage are waived if not timely raised in a personal injury case, namely within 30 days of notice of grounds for disclaimer.
Yet Zurich gave no reason to depart from the long-standing rule that Insurance Law 3420 does not apply to claims between insurers. Zurich was not within the “zone of interest” that 3420 protects and it was not acting in the shoes of the insured. Indeed, the DJ action was in Zurich’s name, they tendered in their own name, and prosecuted the claim in their own name. Moreover, an insurer simply cannot invoke the protection of 3420 against a co-insurer, even in cases where the mutual insured might be personally protected by that provision.
Jennifer A. Ehman
10/10/17 BQE Indus., Inc. v Starr Indem. & Liab. Co.
Supreme Court, New York County
Hon. Lynn R. Kotler
Court Finds Duty to Defend General Contractor Triggered; Indemnity to Await Resolution of Underlying Action – A Win for the Good Guys
On October 10, 2011, William Castilla allegedly sustained injury when he fell in the course of demolition, construction and/or renovation work at the Clemente Soto Velez Cultural Center as a result of a dangerous condition. At the time of the accident, BQE was the general contractor on the project. BQE had retained Dosanjh Construction to perform all roofing work, and retained Xaren Corporation to perform asbestos abatement work at the premises. Both subcontracts included requirements that the subcontractors procure insurance with BQE and the Owner as additional insured parties.
Castilla ultimately brought a lawsuit against BQE. BQE tender its defense to Dosanjh and its insurer, Endurance, and Xaren and its insurer, Starr. In response, Endurance’s third-party administrator disclaimed coverage stating that Dosanjh was off site on the date of the accident, and because coverage was excluded under the exterior work limitation endorsement. Starr acknowledged receipt, but otherwise did not respond.
BQE and Century (BQE’s insurer) then brought this declaratory judgment action.
In considering the parties’ dispositive motions, the court began its analysis by noting that the blanket additional insured endorsement in Endurance’s policy includes as an additional insured “[a]ny entity required by written contract…to be named as an insured but only with respect to liability arising out of your premises, ’your work’ for the additional insured, or acts or omission of the additional insured in connection with their general supervision of ‘your work.’” BQE argued that Castilla was working in the course of his employment for Dosanjh at the time of the accident. It directed the court’s attention to Castilla’s deposition testimony, a sign-in sheet, and BQE’s daily report from the date of the accident, and a determination by the Workers ’ Compensation Board that Castilla was an employee of Dosanjh. In response, Endurance argued that the complaint did not allege by whom Castilla was employed, and there was no indication that Castilla’s accident arose out of Dosanjh’s work. It further argued that the Workers’ Compensation decision was not binding as it was not a party to the matter, and further alleged Dosanjh did not have a full and fair opportunity to litigate employment given that he was not provided an interpreter until halfway through the proceedings.
Considering these arguments, the court noted that it was uncontested that BQE was “required by written contract…to be a named insured.” The phrase “arising out of” as used in that endorsement requires only some causal relationship between the injury and the risk for which coverage is provided. And, where the loss involves an employee of the named insured, who is injured while performing the named insured’s work under the subcontract, there is sufficient connection to trigger the additional insured “arising out of” endorsement. With regard to the duty to defend, the court found a sufficient basis based on extrinsic evidence to trigger that obligation. However, the court noted that since the claims in the underlying action are still being litigated, Endurance’s duty to indemnify must await the resolution of the underlying action, and the request at this juncture is premature.
The court next considered whether Starr had a duty to defend and indemnify BQE. Unlike the Endurance policy, Starr’s policy provides coverage to an additional insured for “bodily injury” “caused, in whole or in party, by…1. Your acts or omissions...in the performance of your ongoing operations for the additional insured.” We argued that Xaren, as the asbestos contractor, stripped the roofing insulation from the roof, which exposed the terra cotta tiles underneath and that the following day, Castilla fell through the exposed terra cotta tiles on that roof. Starr argued in response that there was no causal nexus between Xaren’s abatement work and the roof’s collapse, and that Xaren was not responsible for the poor condition of the roof. Citing the recent Burlington decision from the Court of Appeals, the court noted that the language at issues requires more than “but for” causation. Instead, proximate causation is required. The Court also cited to BP A.C. Corp. v. One Beacon, which is a duty to defend case, which held that “[w]hen the duty to defend is at issue, a liability alleged to arise out of [the sub-subcontractor’s] ongoing operations is one ‘arising out of’ such operations within the meaning of the policy.”
Relying upon the amended complaint in the underlying action, the court noted that it was alleged that Xaren performed construction and renovation work. It was further alleged that the loss was due solely by reason of the carelessness, recklessness and negligence of defendants (including Xaren). The court concluded that based on these allegations, Starr may eventually be obligated to indemnify BQE. The court rejected any reliance on the Worth decision, noting that Xaren had not been absolved of liability in the underlying action here.
With regard to indemnity, the court again found that neither side was entitled to summary judgment at this stage. But, of importance, the court noted that as Starr’s named insured’s answer was stricken in the underlying action as a result of a default, it admits all traversable allegations in the complaint. Thus, Xaren has admitted that if Castilla sustained any or all of the injuries complained of, such injuries and damages were caused in whole or in part by the wrongful conduct of Xaren. With that said, the court concluded that since it had not yet been determined whether Castilla sustained any injuries or damages as a result of the accident, the motion for indemnity was in the court’s view premature.
Lastly, the court confirmed that the Century policy issued to BQE is excess over the Endurance and Starr policies.
Editor’s Note: A win for the H&F Coverage Team.
Brian D. Barnas
10/16/17 Spencer v. State Farm Mutual Automobile Insurance Company
United States District Court, Western District of Washington
Washington Law does not Recognize a Private Cause of Action under the Insurance Fair Conduct Act for an Insurer’s Violation of the Washington Administrative Code
On September 27, 2013, Kunthea Oul ran a stop sign and crashed into Spencer’s vehicle. In October 2015 Spencer settled his claim with Ms. Oul for her policy limit of $50,000. Spencer then asserted an underinsured motorist claim with his insurance company State Farm. On October 16, 2015, State Farm paid Spencer $25,000 as the policy limit for a personal injury protection (“PIP”) claim. State Farm, however, requested that Spencer hold the money in trust subject to “appropriate offsets or setoffs.”
On November 2, 2015, Spencer, via letter from his attorney, demanded State Farm tender the $100,000 underinsured motorist policy limit. In response, State Farm requested that Spencer undergo an independent medical evaluation (“IME”). After some delay, the evaluation was scheduled for February 10, 2016. In late January or early February, Spencer cancelled the IME. Spencer asserts that he cancelled the IME because State Farm had failed to deliver a copy of his policy so that he could confirm IME requirement.
On February 4, 2016, State Farm emailed a copy of Spencer’s policy to Spencer’s counsel. On February 23, 2016, State Farm agreed to waive its PIP subrogation rights to $3,967.44 and pay for some other fees. On April 22, 2016, Spencer filed a Washington Insurance Fair Conduct Act violation notice with the Washington Insurance Commissioner (“IFCA”).
IFCA allows an insured who is unreasonably denied a claim for coverage or payment of benefits by an insurer to bring an action in the superior court of this state to recover the actual damages sustained. The insured must show that the insurer unreasonably denied a claim for coverage or that the insurer unreasonably denied payment of benefits. If either or both acts are established, a claim exists under IFCA. However, the Washington Supreme Court has held that insureds have no private cause of action under IFCA against insurers for violating the Washington Administrative Code.
The majority of Spencer’s allegations were devoted to purported violations of the Washington Administrative Code, for which no private cause of action exists. In addition, Spencer failed to show any circumstances beyond a mere disagreement over the value of his claim. Accordingly, Spencer’s extra-contractual claims were dismissed.
10/10/17 Kemp v. USAA Casualty Insurance Company
United States Court of Appeals, Eleventh Circuit
Insurer Did Not Act in Bad Faith by Failing to Offer Policy Limits Seven Days after Receipt of a Demand for Settlement within Thirty Days
USAA issued an automobile insurance policy to Buckman. In November 2010, Buckman was involved in an automobile accident that resulted in the death of Dennis Lee Kemp's wife. Buckman informed USAA of the accident on November 12, 2010. He told USAA he was not under the influence of alcohol, and he did not mention that Mrs. Kemp had died in the accident. On November 15, claims adjuster Mr. Culver had the bodily injury reserves for the claim set at the full amount of the policy limits, $100,000. Culver contacted Buckman and learned he had a lawyer, at which point he ceased contact with Buckman and sent a message to his lawyer.
On November 16, Cindy Goldstein, Kemp’s lawyer, sent a letter to USAA. The letter set conditions for settlement of the case and requested compliance within 30 days. Goldstein later testified that she would have settled the case if a check had been tendered within seven to ten business days. Between November 15 and November 23 USAA made multiple unsuccessful attempts to contact Buckman’s counsel. On November 23, USAA forwarded the November 16 letter to Buckman’s counsel and stated that if they failed to reach a settlement within Buckman’s policy limits he would be personally liable for any excess damages over his policy limit. On November 30, fourteen days after the original letter, Goldstein sent a second letter to Culver withdrawing the settlement offer. Subsequently, Kemp brought suit against Buckman.
On December 3, after speaking to Buckman’s counsel for the first time, USAA authorized an offer for the policy limit of $100,000. On December 7, USAA sent a letter to Goldstein offering to settle the case for $100,000 and stating that a check had been sent. On December 20, USAA learned that the check had not been received by Goldstein and sent a second check. Goldstein received the check on or before December 30, 2010.
On January 3, Goldstein sent a letter stating her client was reconsidering the settlement for $100,000 but included a list of requests. This list included a request that Buckman inform her if he consumed alcohol prior to the crash and who provided him with the alcohol. On January 4, USAA forwarded this letter to Buckman’s counsel, informing him to provide the information and affidavit directly to Goldstein prior to the deadline in Goldstein’s letter. USAA also informed Buckman that the decision to provide the requested information rested solely with him, but that his lawyer should discuss with him the legal ramifications of failing to provide the information requested by Goldstein. Buckman’s counsel timely sent a response to Goldstein providing all of the information requested except for the question about the consumption of alcohol. In response to that question, Buckman invoked his Fifth Amendment rights.
After this exchange, Kemp went forward with the suit against Buckman and was awarded a verdict in the amount of $10,000,000. Kemp then brought suit against USAA, alleging that they breached their duty of good faith to Buckman by not settling the claim and avoiding the excess judgment. Buckman also brought suit against USAA, and the suits were consolidated.
The Eleventh Circuit concluded that USAA’s alleged negligence did not cause the failure to settle. Kemp’s settlement offer was withdrawn only two weeks into the 30 day deadline. While Kemp’s attorney said the settlement would have been accepted if the check had been sent within seven to ten business days, there was no reason for USAA to think that at the time. Accordingly, the court concluded that USAA’s alleged negligence in not offering the full policy limits within seven to ten days of receipt of the offer with a 30 day deadline did not rise to the level of bad faith. The court also concluded that USAA did not act in bad faith by not sufficiently urging Buckman to comply with all of the conditions in the January 3 letter, including the condition relating to alcohol use. USAA asked Buckman to consult with his lawyer, and Buckman’s lawyer testified he would never let his client admit to consuming alcohol considering there was a pending criminal case.
As such, USAA was granted summary judgment dismissing the bad faith case.
10/10/17 State v. Stucky
Supreme Court of Appeals of West Virginia
Insurer Who Settled Claim Against its Insured within the Policy Limit Did Not Act in Bad Faith
CMD, a residential construction company, contracted to build a home for Chandrakant N. and Kimberly S. Shah in Charleston, West Virginia. The construction activities caused ground slippage resulting in damage to the house and property of the adjacent, downhill homeowners, Barry G. Evans and Ann M. Evans (“Plaintiffs”). The plaintiffs filed an action in the Circuit Court of Kanawha County against the Shahs and CMD seeking recovery for their damage. CMD filed a third-party complaint against its insurer State Auto alleging that State Auto delayed investigating the plaintiffs’ claim, settling the plaintiffs’ lawsuit, and indemnifying CMD. CMD asserted that, as a result, State Auto committed common law bad faith, violations of the West Virginia Unfair Trade Practices Act, and breach of contract.
State Auto initially contested coverage of the plaintiffs’ damages. After a declaratory judgment action determined there was coverage, State Auto paid CMD’s attorneys’ fees and continued to provide a defense to the plaintiffs’ lawsuit. The case was eventually settled for $325,000, and State Auto paid the amount of the settlement on CMD’s behalf. The settlement was obtained at no cost to CMD, and no adverse judgment was entered in the circuit court.
The bad faith claim against State Auto was dismissed. The record established that CMD was fully defended by State Auto through the lawsuit filed by the plaintiffs. State Auto also reached and paid a settlement within the policy limit at no cost to CMD. In addition, no judgment was ever entered against CMD. As such, the bad faith claim was dismissed. For similar reasons, the breach of contract and West Virginia Unfair Trade Practices Act claims were also dismissed.
EWELL’S UNIVERSE
John R. Ewell
10/10/17 State v. Stucky
Supreme Court of Appeals of West Virginia
Insurer who Settled Claim against its Insured within the Policy Limit Did Not Act in Bad Faith
CMD, a residential construction company, contracted to build a home for Chandrakant N. and Kimberly S. Shah in Charleston, West Virginia. The construction activities caused ground slippage resulting in damage to the house and property of the adjacent, downhill homeowners, Barry G. Evans and Ann M. Evans (“Plaintiffs”). The plaintiffs filed an action in the Circuit Court of Kanawha County against the Shahs and CMD seeking recovery for their damage. CMD filed a third-party complaint against its insurer State Auto alleging that State Auto delayed investigating the plaintiffs’ claim, settling the plaintiffs’ lawsuit, and indemnifying CMD. CMD asserted that, as a result, State Auto committed common law bad faith, violations of the West Virginia Unfair Trade Practices Act, and breach of contract.
State Auto initially contested coverage of the plaintiffs’ damages. After a declaratory judgment action determined there was coverage, State Auto paid CMD’s attorneys’ fees and continued to provide a defense to the plaintiffs’ lawsuit. The case was eventually settled for $325,000, and State Auto paid the amount of the settlement on CMD’s behalf. The settlement was obtained at no cost to CMD, and no adverse judgment was entered in the circuit court.
The bad faith claim against State Auto was dismissed. The record established that CMD was fully defended by State Auto through the lawsuit filed by the plaintiffs. State Auto also reached and paid a settlement within the policy limit at no cost to CMD. In addition, no judgment was ever entered against CMD. As such, the bad faith claim was dismissed. For similar reasons, the breach of contract and West Virginia Unfair Trade Practices Act claims were also dismissed.
ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA
Howard B. Altman
New Regulations for Out-of-State No Fault Reimbursement
The New York Department of Financial Services issued a new regulation limiting the amount that insurers can reimburse policyholders for health care services performed outside of the state. DFS’s Press Release may be viewed at:
http://www.dfs.ny.gov/about/press/pr1710101.htm
The new regulation, 11 NYCRR 68 provides in part:
(a)(1) If a professional health service reimbursable under [section 5102(a)(1) of the] Insurance Law section 5102(a)(1) is performed outside [New York] this State, the [permissible charge] amount that the insurer shall reimburse for [such] the service shall be the lower of the amount charged by the provider and the prevailing fee in the geographic location of the provider with respect to services:
(i) that constitute emergency care;
(ii) provided to an eligible injured person that is not a resident of this State; or
(iii) provided to an eligible injured person that is a resident of this State who, at the time of treatment, is residing in the jurisdiction where the treatment is being rendered for reasons unrelated to the treatment.
***
(b) Except as provided in subdivision (a) of this section, if a professional health service reimbursable under Insurance Law section 5102(a)(1) is performed outside this State with respect to an eligible injured person that is a resident of this State, the amount that the insurer shall reimburse for the service shall be the lowest of: (1) the amount of the fee set forth in the region of this State that has the highest applicable amount in the fee schedule for that service; (2) the amount charged by the provider; and (3) the prevailing fee in the geographic location of the provider.
(c) If the jurisdiction in which the treatment is being rendered has established a fee schedule for reimbursing health services rendered in connection with claims for motor vehicle-related injuries and the fee schedule applies to the service being provided, the prevailing fee amount specified in subdivisions (a) and (b) of this section shall be the amount prescribed in that jurisdiction’s fee schedule for the respective service
* * *
The regulation may be viewed in full at:
http://www.dfs.ny.gov/insurance/r_finala/2017/rf68a33txt.pdf
No-fault insurance provides for reimbursement of medical expenses and lost wages for a policyholder injured in an automobile accident regardless of who is at fault.
Under the regulation, insurers’ reimbursements for services have to be lower than the amount charged by a provider, and the prevailing fee in the geographic location of the provider with respect to services, which constitute emergency care initiated within 48-hours of a motor vehicle accident for a traumatic injury or medical condition resulting from an accident. When health care services reimbursable under the state’s no-fault law are performed on a New York resident outside of the state’s borders, the amount that an insurer can reimburse for the services is capped at the fee applicable in the region in New York that has the highest value in the no-fault fee schedule for such a service, the final rule states.
The regulation, which was first proposed in May, is in an effort to bolster the state’s no-fault insurance law that provides reimbursement of medical expenses and lost wages for a policyholder who is injured in a vehicle accident regardless of who is at fault.
The rule came after DFS became aware that some providers had been charging the prevailing fee, or more, in areas outside of New York. The fees being charged in some instances exceeded New York’s limits. DFS thus issued the new regulation limiting reimbursement to limit expenses to carriers, in doing so seeking to avoid higher premiums more litigation.
DFS Superintendent Maria Vullo said in a statement that the state’s no-fault law “ will not be abused by out-of-state providers charging excessive rates. By limiting the amounts reimbursable under no-fault law to New York parameters, the regulation eliminates abuses and ensures that policy limit amounts will provide for necessary policyholder benefits and lost wages, while leveling the playing field for New York insurers,” she said.
OFF THE MARK
Brian F. Mark
[email protected]
10/10/17 Air Master & Cooling, Inc. v. Selective Ins. Co. of Am.
Superior Court of New Jersey, Appellate Division
New Jersey Appellate Division Holds Continuous-Trigger Theory of Coverage Applies to Third-Party Liability Claims Involving Progressive Property Damage in Construction Defect Cases
This declaratory-judgment action arises out of lawsuits brought by a condominium association and unit owners for property damage and to remediate construction defects within a seven-story residential building. The insured, Air Master & Cooling, Inc. (“Air Master”), had performed work as a subcontractor on the roof and other areas in the building. The alleged construction defects involve damage resulting from water infiltration within the building.
After being named as a third-party defendant in the underlying construction defect cases, Air Master sought coverage from Selective Insurance Company of America (“Selective”) and commenced a declaratory-judgment action. Selective was one of several carriers that had issued CGL policies to Air Master over successive policy periods.
The Selective policy states that it provides coverage for bodily injury or property damage that occurs “during the policy period.” The policy defines an “occurrence” as an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” “Property damage” is defined as “physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it.” “Property damage” is also defined to include “loss of use of tangible property that is not physically injured.” Similarly, “[a]ll such loss of use shall be deemed to occur at the time of the ‘occurrence’ that caused it.”
The trial court granted summary judgment to Selective in the declaratory judgment action, finding that the property damage to the building had manifested before Selective’s policy period commenced. Air Master appealed the trial court’s decision arguing that New Jersey courts should recognize that continuous-trigger principles should govern third-party liability coverage analysis in construction defect cases that involve progressive property damage, such as water infiltration.
The continuous-trigger theory recognizes that, because certain harms such as asbestos-related diseases will progressively develop over time, “the date of the occurrence should be the continuous period from exposure to manifestation.” Under such a continuous-trigger approach, “all the insurers over that period are liable for the continuous development of the disease.” The continuous-trigger approach requires multiple successive insurers up to the point of manifestation to cover a loss.
The Appellate Division held that a continuous-trigger theory of coverage applies to third-party liability claims involving progressive damage to property caused by an insured’s allegedly defective construction work. The Court noted that the progressively-worsening nature of a variety of construction defects, such as water infiltration or mold, logically support the application of the continuous-trigger doctrine. The Court further held that the last pull of that trigger, for purposes of determining the temporal end point of a covered occurrence, happens when the essential nature and scope of the property damage first becomes known, or when one would have sufficient reason to know of it. The Court regarded the term “essential” to connote the revelation of the inherent nature and scope of that injury.
Because the factual record was insufficient to determine when the essential nature and scope of the water infiltration damage was sufficiently known, or reasonably could have been known, the Court vacated summary judgment and remanded the case for further development of the record and for reconsideration of the coverage issues.
EARL’S PEARLS
Earl K. Cantwell
[email protected]
06/28/17 Kvaerner v. Certain Underwriters at Lloyd’s London
2017 U.S. Dist. Lexis 100705 (N.D. West Virginia)
Liquidated Damages not Covered by CGL Policy
In this case, a general contractor sustained some $40 Million in losses due to a subcontractor’s actions, but was unable to have recourse against the subcontractor’s CGL insurance policy because there was no occurrence triggering coverage, and liquidated damages, which constituted most of the claim, were held to be a non-covered loss.
Kvaerner was the general contractor on a project to construct a major power plant in West Virginia. During construction, the welding subcontractor damaged welds, pipes, connections and components of the boiler which cost $4.5 Million in repairs and delayed the project some seventy-four (74) days. The project owner assessed $36 Million in liquidated damages against Kvaerner ($275,000 per day of delay). Kvaerner argued that the liquidated damages resulted from a CGL “occurrence” and constituted “property damage” to third party property, but the Court disagreed.
Note that this case was decided on cross motions for summary judgment, and apparently New York law was held to apply and govern the dispute. The boiler damage occurred because, to access weld lines, the subcontractor pulled away and apart already installed piping. In a somewhat incredible story, “thousands” of pipes were bent, and “hundreds” of reinforcing bars were bent or broken.
Kvaerner’s first contention was that, because the subcontractor used excessive force to move the piping which was neither intended nor expected, it constituted an accidental “occurrence” for which coverage was appropriate. The Court disagreed and found that the use of force and the amount of force were deliberate and sufficient to move the piping out of the way so that the subcontractor could access weld lines, as a result it was not an accidental “occurrence”. Under New York cases, an occurrence must be a “fortuitous event” to a substantial extent beyond the control of a party. A “fortuitous event” does not include losses that the insured knows of, planned, intended, or is aware are substantially certain to occur. Therefore, the Court ruled that the boiler damage was not an accidental “occurrence”.
The Court next turned to the argument that the liquidated damages were covered based on a policy provision defining property damage as “loss of use of tangible property”. However, the insurance companies argued that the liquidated damages were economic loss and non-tangible. The Court in West Virginia cited New York law to the effect that delay damages, economic damages, and loss of use damages are not covered under a CGL policy. Such claims for lost profits, delay in performance, etc. are not encompassed within the term “property damage” as defined in the policy. They constitute intangibles in contrast to the policy definition that property damage be damage to tangible property. In addition, the Court noted that the loss of use policy definition is deemed to have been caused at the time of the occurrence that caused it. Therefore, the loss of use here would have been when the subcontractor damaged the pipes, but the plant was not in use at the time, and therefore there could have been no actual loss of use at the time of the occurrence. Therefore, the Court refused to extend CGL coverage to the liquidated damages at issue.
The third argument was whether the occurrence and damages constituting the insured’s fault in performance were to its own work rather than third party property. The Court concluded that, because Kvaerner’s scope of work clearly included the boiler and any damage to it, even if caused by the subcontractor, any damage was to its own work, not third party property, and therefore was not covered by the CGL property policy.
In sum, the Court concluded that there was no CGL occurrence, liquidated damages were not “tangible property damage” losses under the CGL policy, and there was no property damage because the damage to the boiler was done to the claimant’s own work and not third party property.
This is an interesting case which reveals how a major loss can involve many inter-related policy provisions and arguments. In this case, the surely extensive briefing and argument about New York law, which the District Court in West Virginia had to apply, dealt with the definition of occurrence, the meaning of property damage, and the issue of whether any loss or damage had occurred to third party property.
One of the puzzles is how and why this subcontractor was able to inflict such damage to the piping and connections supposedly with the supervision and knowledge of Kvaerner, the general contractor. The subcontractor apparently forced much of the piping out of the way, sometimes by as much as two feet, to accommodate its welding equipment and gain access to various weld points. Pipes cracked, cross bracing broke, thousands of pipes were damaged, and by way of background, the Court noted that it was difficult to believe or argue that neither the subcontractor nor Kvaerner knew that such damage was occurring, and it was not happening by “accident”.
