Coverage Pointers - Volume XV, No. 1

Dear Coverage Pointers Subscribers:

Situation?  You have a situation?  We love to unravel situations.

Welcome to Volume 15, No. 1 of Coverage Pointers

As we begin our fifteenth year of publication, we pause to note a very interesting factoid.  In all those years, we have not reported on a single New York appellate court decision finding a New York insurer liable for bad faith in either the first party or third party context.  Why?  It was in June of 1999, about two weeks before we began publication of this newsletter, when an appellate court last so ruled, in Smith v. General Accident.  Let the streak continue.

We wish you the happiest of Independence and Canada Day holidays and hope that you are enjoying summer. 

As always, there is a great deal of ground to cover in this week’s issue.  We welcome a passel of new subscribers and salute and thank our stalwarts over the past decade and a half.

K2 Investment

The K2 decision has been the talk of the town.  There hasn’t been this much chatter about an insurance coverage decision from New York’s highest court since the 2008 “consequential damages” decision in Bi-Economy.  Like eggs in the pan, insurers are scrambling to develop a protocol to react and respond.  Your friends at H&F want to help so we offer you a “clip and save” approach to this sea-change decision:

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We have written extensively about the recent New York State Court of Appeals decision in K2 Investment Group, LLC, et al v. American Guarantee & Liability Insurance Company, 2013 NY Slip Op. 4270 (N.Y., June 11, 2013).  We provide links here to our detailed summaries, for those who may have missed our Special Edition and recent commentaries:  we issued a Special Edition of CP and then provided extensive follow up.

In summary, New York's highest court has held that an insurance carrier that wrongfully fails to undertake an insured's defense will lose its right to rely upon policy exclusions that would have limited or eradicated its obligation to indemnify.   In other words, if an insurer breaches its duty to defend, which is determined by the allegations of the operative pleading (i.e. complaint or amended complaint), the penalty, per the Court of Appeals, is a forfeit of the ability to rely on otherwise applicable policy exclusions.  The Court focused on the concept that liability insurance is also “litigation insurance.”

To put this case in perspective the H&F CP team offers examples of how courts may interpret this decision:

CGL Policy -- Faulty Workmanship Claims:  Insured contractor builds a garden wall for a homeowner.  The garden wall collapses because of negligent construction technique, thereby damaging the flowers below.  The homeowner sues the contractor for the costs of replacing the wall ($20,000) and the damage to the flowers ($250).  The flower damage would be recoverable under the policy, but not the cost of replacing the wall. The insurer raises the appropriate workmanship exclusions in a coverage position letter, but decides not to defend the insured.  Jury awards the homeowner the full amount of the loss, ($20,250) and now an action is brought to recover that amount from the insurer.  As we read K2, the court may well award the full amount against the insurer, as a penalty for not defending the insured.

Here are a few other rather dramatic examples of how this case may be interpreted:

Homeowners’ Policy -- Business Pursuits:  Insured runs a business out of her home, selling cosmetics.  Customer, at insured's home, tries eye-liner, which ends up causing burns to her face and eye.  Customer sues insured, who turns over pleadings to homeowner insurer for defense. Pleading alleges only general premises claim.  Insured admits that she is running a business out of her home and carrier refuses to defend, based on business pursuit exclusion.  Insured defaults and a lawsuit is commenced against a carrier to enforce judgment.  Since there were no allegations of business pursuits in pleading, a court may find that insurer should have defended and insurer may be liable for the entire judgment within the policy limits.  That seems the likely result, based upon the K2 decision.

Auto Policy -- Non Permissive Use:  Thief steals a car and has an accident, injuring his passenger who brings a claim.  Policy provides coverage for use of the vehicle, but excludes coverage for an individual who does not have a reasonable belief that he or she is entitled to use the car.  Thief has been arrested and convicted of stealing the car.  When the thief is sued, with a clearly fraudulent allegation of permissive use, he asks the owner's carrier to defend him.  Insurer refuses, based on criminal conviction.  The failure to defend may result in insurer being liable for judgment against thief based upon the allegations of the complaint, which determine an insurer’s obligation to defend.

In each case, a court may well find that the allegations in the complaint required that a defense be offered to the party seeking it, since the duty to defend exists, even if the allegations of the complaint are "groundless, false or fraudulent".  The remedy suggested by the Court would be to provide a defense and commence a declaratory judgment action for a prompt resolution of the coverage issues so that the duty to defend can be terminated.  Clearly, this raises yet another issue, to wit, does the insurer have an obligation to afford independent counsel, on the insurer’s nickel, for the reasonable defense costs of independent counsel?!

Recommendations -- The Three "R"s"

The recommendations here do not constitute legal advice, as each case you may have requires individual considerations.  However, we do offer several suggestions, some of which may be labor intensive, we understand, but may save dollars in the long run.  We call the proposed protocol, The Three R's:

We strongly recommend that you review coverage decisions made over the last year (or more, if you have the resources to do so) and identify those in which you have decided not to defend an insured (or purported insured).   Secure the pleading which was filed with respect to that insured and the coverage position letter denying the insured a defense.


In light of the K2 decision, revisit the question of whether a court may find that the insurer had an obligation to defend that insured, based on the allegations in the complaint or extrinsic proof of a potentially covered claim.


If you conclude that a court may well find that the allegations, even if groundless, could have obligated that defense, reconsider whether a defense can be offered now, all the while maintaining and reaffirming your denial of indemnity.  The Court suggests what we often refer to as a courtesy defense, provided until the coverage issues are resolved in a separate declaratory judgment action (or direct action, after verdict).

Available Strategies

Understanding the consequences, what are the available options if you have uncovered files where, if you had a crystal ball and anticipated K2, you would have provided a defense?  There are several to consider and selecting one over another should be based on ultimate risk, likelihood of success, costs, forum or jurisdiction and other related factors. 

Obviously, each case is unique and governed by the factual circumstance of the events that prompted the litigation.  Thus, there is no “one-size-fits-all” solution or approach.  Careful consideration of all factors is necessary in making any decision on how to proceed.  We offer a laundry list of choices, each one worth considering in particular cases:

Maintaining the position you have taken;

  • Contact the insured, offer to defend (or undertake the costs of independent counsel) and commence a declaratory judgment action;


  • Contact the insured, offer to defend (or undertake the costs of independent counsel) and do not commence a declaratory judgment action, awaiting resolution of the coverage issues at the conclusion of the underlying case, via direct action or declaratory judgment action;
  • Offering the defense under a non-waiver agreement and commencing a declaratory judgment action.  What is a non-waiver agreement? It is a bi-lateral agreement, signed by the insured (or its counsel) and the insurer, where both sides agree that the assumption of the defense does not waive any rights that either party has with respect to insurance coverage while the parties litigate those issues in a separate, declaratory judgment action.


Again, so far, the Court has held that this “forfeiture” only applies to policy exclusions, not denials based on the grant of coverage.

If you need help in analyzing your choices and developing a strategic plan for each case, able coverage counsel can always assist.

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Audrey’s Angle:

Happy Fourth of July!  I also happen to be celebrating a decade of marriage that day, which is a great thing.

DRI has released the brochure on its Annual Meeting brochure and yet again it looks to be another great event.  The Annual Meeting will be held in Chicago this year from October 16-20th.  The theme is “Energizing Your Career: Making Rain in the Windy City.”  The block buster speakers this year are:

  • New York Times Best Selling Author, Dan Buettner discussing the principles of The Blue Zones – the Secrets of  Long Life,
  • Pulitzer Prize Winner Charles Krauthammer providing insight into “The Future of Health Care, Medicine and Bioethics,” and
  • Former Nixon White House Counsel John W. Dean, along with a lawyer and historian will present the “The Legacy of Watergate – Ethics of Representing an Entity Under Current Model Rules.”


The Insurance Law Committee, of which I am the Vice Chair, has teamed up with the Transportation Committee presenting on Thursday’s main stage “The ‘New World’ of Insurance Company/Attorney Relationships – Maintaining and Advancing Your Practice.”  We have assembled an outstanding panel of speakers – Robert J. McDade, Jr., Litigation Management Group Director for Zurich North America, Nannette Castañeda Fosen, Associate General Counsel, State Farm Insurance, Kevin Willging, Second Vice President and Senior Counsel, Travelers Insurance, and Manuel Sanchez, Sanchez Daniels & Hoffman LLP.

Also, the Insurance Law Committee will be presenting a great program on Friday regarding effective communication strategies to bridge generational differences.  Dr. Arin N. Reeves will be speaking about the conscious and unconscious biases around generational differences, such as prejudgments, learning styles, values, and stereotypes about professional potential as well as bridging those gaps to help firms and insurance company’s internally manage them.  We hope you will join us to learn how Baby Boomers, GenXers, and Millennials can work together to have more effective interactions and relationships which will ultimately build prosperous firms and companies.

If you need a copy of the Annual Meeting brochure, are interesting in holding a panel counsel meeting at it, or have a question about the meeting please contact me at [email protected].

Audrey A. Seeley

Just Announced:

Insurance 101 Webinars:  Mark Your Calendar – Allow Us Into Your Offices to Provide Training (Virtually):

Can I visit you on July 25th?  A click will do it.

The DRI Insurance Committee is proud to announce its new three-part “Insurance 101” series webinar will be held on July 25, August 1, and August 8.   The series will introduce less experienced claims professionals, coverage attorneys, and law clerks to the basic concepts of an insurance practice.  The program also will be a terrific refresher for more experienced claims professionals and seasoned coverage attorneys. 

Also, you do not have to concentrate your practice in insurance coverage to benefit from this webcast series, as there is no area of law that is not touched in some way by insurance coverage.  Please advise all those in your company and firm of these webinars as it can empower them with just enough knowledge of insurance coverage to be dangerous (or at least permit them to issue-spot and then come see you to handle the coverage issue).  We hope you and others from your office will participate, and that you will introduce your claims professional clients to this great opportunity. 

There is a stellar panel of speakers presenting at these 90 minute sessions:

  • July 25th (1:00 – 2:30 p.m. CDT) features Shaun Baldwin of Tressler LLP and your editor, Dan Kohane of Hurwitz & Fine, P.C., will be speaking on the basics of reading and interpreting an insurance policy. 
  • August 1st (1:00 – 2:30 p.m. CDT) features Chuck Browning of Plunkett Cooney and Brenda Wallrichs of Lederer Weston Craig PLC will be speaking on the duty to defend.
  • August 8th (1:00 – 2:30 p.m. CDT) features Mike Marick of Meckler Bulger Tilson Marick & Pearson LLP and Kevin Willging, Senior Counsel and Second Vice President of Travelers will be outlining coverage and bad faith litigation. 


You will have the unique opportunity to ask questions of them during their presentation so that you can maximize your learning experience.

Cost?  Unbelievably Reasonable:

Please consider making this series your firm or company’s summer educational seminar, no one needs to leave the office this summer to attend.  This webinar series is also incredibly affordable.  You pay one price per site and not per person.  Therefore, you can purchase a site and place as many people as you wish in your conference room.  What is the cost?  You can purchase the entire series for $300.  If you are only interested in one of the sessions, it can be purchased for $150 for a DRI member and $180 for a non-DRI member.  To sign up please contact Kerri Leo of DRI at [email protected]


Beth’s Bits : 

Dear CP Subscribers:

Happy 4th of July from lovely Long Island, where we are enjoying the beauty of our beaches, as they (and we) continue to recover from the wrath of Super storm Sandy. What a perfect opportunity to thank all of the heroes who make our country so great and to keep in our thoughts the families and friends of the 19 firefighters killed in Arizona this week.

In this week’s column, I am pleased to report on a pair of decisions addressing the issue of whether a commercial general liability (CGL) policy affords coverage for faulty or defective workmanship, an issue which has engendered much litigation across the country and garnered much debate amongst those advocating their respective positions. As those of you who handle these claims are well aware, defense costs alone can be astronomical.

Not surprisingly, one court concludes coverage is available, while the other opines that a CGL policy does not afford coverage for claims of defective or faulty workmanship.  The United States District Court for the District of Hawaii opined that the claims do not constitute a covered “occurrence” under a CGL policy in Nautilus Insurance Company v. 3 Builders and therefore, the court did not address the applicability of the usual gamut of raised exclusions, to wit “your work:, damage to property and/or impaired property, contractual liability and that the alleged damages were the result expected or intended acts.

In overruling its prior decisions holding that defective workmanship did not constitute a covered “occurrence,” the court quoted Justice Frankfurter, noting: “It has been said that wisdom too often never comes, and so one ought not to reject it merely because it comes late.”  So said the Supreme Court of Appeals of West Virginia in reaching the opposite conclusion of that reached by the District Court of Hawaii in Cherrington v. Erie Insurance Property and Casualty Company.  In a lengthy decision which surveyed holdings across the country, as well as its own trilogy of decisions on the issue, all of which held that coverage was not available, the Court overruled its prior decisions and then concluded that none of the cited policy exclusions was applicable to preclude coverage, finding that coverage was available under the insured’s CGL policy and joining the majority of courts who have addressed this issue nationally.

The law in New York on this issue is articulated in the oft cited decision, George A. Fuller Co. v. United States Fid. & Guar. Co., 200 A.D.2d 255, 259, 613 N.Y.S.2d 152 [1st Dept. 1994] where the court held that commercial general liability (CGL) policies do not insure against faulty workmanship in the work product itself (no “occurrence”) where damage was to premises upon which construction manager/contractor performed work.  However, New York courts find that CGL policies do insure against property damage caused by faulty workmanship to something other than the work.

I have addressed the decisions in more detail in my column and have also provided you with some tidbits on social media issues.  Have a happy and safe 4th.

Elizabeth A. Fitzpatrick
[email protected]


One Hundred Years Ago today: Marriage Found Useful to Stopping Crime:

New York Times
July 5, 1913
Page 1


Remorseless Figures of the
District Attorney Reflect
on the Unmarried.


More Convictions for Murder in the
First Degree Than Country
Ever Had Before.

The predominance of unmarried men in the criminal classes is a striking point brought out in the annual report of the Chief Clerk of the District Attorney’s office, which was made public yesterday.  According to the report, there were 2,068 convictions of unmarried men and 789 convictions of married men in the past year.  Of the women convicted, 66 were married and 100 were unmarried.  The figures for the last nine years are not so greatly in favor of the married men.  In that period there were 7,670 convictions of married men and 18,406 convictions of unmarried men.

A classification of the crimes which led to conviction shows that the married man is in the minority in practically every crime except attempted suicide.  Three married men tried to kill themselves as compared with one single man.  There were two convictions for arson.  In each case the convicted person was a married man.  Of the 3,023 men and women convicted 833 had been convicted previously.

Nearly 80 percent of the men convicted were under the age of 30 years.  Forty percent of these were under 20 years of age.  From the age of 30 the ratio gradually decreased.  There were only five convictions after the age of 70.  Out of 26,079 convictions in the last nine years, 11,052 were of persons between the ages of 21 and 30, and 8,293 were of persons between the ages of 18 and 20, making an average of about 75 percent under 30 years.


Jen’s Gems:

Initially, I hope everyone has an enjoyable and safe 4th of July.  I am heading up to my in-law’s cottage on Sodus Bay for the holiday.  While the cottage may want for some amenities, it does not want for a view.  It is positioned on a long stretch of sand bar with the bay in the front and Lake Ontario in the back, a very nice place to celebrate our nation’s independence. 

As many can relate to, we are still trying to measure and assess the impact of the Court of Appeal’s recent decision in K2, a decision we have been reporting on at length for the last few weeks.  If you have not read it yet, we strongly advise you to do so.  While the decision appears to be limited to exclusionary language within an insurance policy, the concern grows that the Court may eventually be inclined to apply the rule to grant of coverage issues as well, a scary prospect that would inevitably in my opinion lead to gamesmanship.   

In terms of cases this issue, I would encourage you to read Westchester Fire Ins. Co. v Mid-Continent Cas. Co., a district court decision out of Florida.  The case was brought by an excess carrier seeking to assert a bad faith claim against the primary insurer following a verdict that fell within its layer.  While ultimately determining that the primary carrier did not breach any duty of good faith by its refusal to settle the case pre-verdict, it found the carrier’s actions post-verdict did breach that duty. 

Again, have a nice holiday!  Till next issue…

Jennifer A. Ehman
[email protected]


A Century Ago – A Critical Look at Street Games:

The New York Times
July 5, 1913


Census of 120,000 Children
Proves They Try to Play Natural
Games Even in the Streets.


As They Play Loafers Watch Them
with Evil Suggestions – Old Games
the most Popular Still

The People’s Institute made public yesterday the results of an “instantaneous census” of the children in the streets of New York, taken between the hours of four and five o’clock on the afternoon of Saturday, April 19, by more than 500 volunteer workers from 38 different organizations.  It tells just what 120,197 boys and girls were doing in that hour of that sunny afternoon. 

According to the investigators, the analysis of the figures shows to what a remarkable extent the children devoted themselves to healthful natural play, despite the fact that they were playing in what the report calls the most dangerous and degrading playground in the world, the city streets.  The report is put forth now to indicate the great need of two things – space and supervision.

One of the great elements of danger lay in the fact that in the vicinity of the groups of playing youngsters the census takers counted 30,427 grown-up loungers.

“Above all else,” says the report, “loomed the menace of the street as a playground.  It is the most dangerous and degrading playground in the world.  The children who were playing were doing their best at healthful, clean-minded, hygienic play, but the games are carrier on in indescribable dirt and filth, with 30,000 leering loungers in streets and saloons looking on, many of them only too ready with sinister suggestions for evil.

“The result of this contact of playing children with adult loafers in the city streets is manifested every day in the children’s courts.  They constitute the worst menace of the New York children in the street, and one of the two great reasons why play supervision for children in New York, no matter where, and how we get it, must be insisted upon.  The other reason is to be found in the fact that almost 20 percent of the children in the streets were just standing around doing nothing, waiting for something to ‘turn up.’

“Of course the child without initiative, who can only follow and play the games the others tell him to, is found everywhere, but New York conditions breed them by the thousands, and they are the ones, listless and sluggish-minded, who can be reached by the so-called ‘Fagins,’ who can teach them the exciting game of stealing, or by the scores of other classes of worthless citizens who attempt to prey upon children.  It is the street influences, also, which, sooner or later, make the innocent helpful games only stepping stones to more dangerous and even criminal forms of sport.”
Editor’s Note:  Growing up in Brooklyn, playing street games, I do not recall meeting one guy named Fagin.  For 25 cents, we could buy a new Spaldeen or Pensie Pinky, and spend the better part of a day entertaining ourselves.

The People's Institute was founded in 1897 by Charles Sprague Smith to teach the theory and practice of government and social philosophy to workers and recent immigrants in New York City. It sponsored lectures, classes, concerts, and other community activities at Cooper Union and throughout New York City, though principally on Manhattan's Lower East Side. The Institute ceased operations in 1934.

Mike Missive on Serious Injury Threshold:

In the spirit of the 4th, I’m going to keep it short.  When writing about these cases I try to include enough information to make the case useful, but not include so much that your eyes glaze over with fatigue.  I am sure there are many things I write that cause some confusion because I did not hit the right balance for your particular situation.  If so, feel free to send me your questions!

This issue, the Appellate Division gave me an opportunity to again address the basics.  Among all the discussion of burdens, affirmed reports of physicians, plaintiff testimony, and recent range of motion measurements, it is easy to forget to impart some common sense to the serious injury terms, permanent consequential and significant limitation of use. 

Ultimately, whether a limitation is significant or permanent, it still must be serious.  Would a limitation be serious if it only lasted one week?  Would a limitation be serious if it lasted ten years, but consisted of a sometimes sore wrist?  We all have a common understanding that the severity of a serious injury includes consideration of how long the injury lasts and the degree of that injury.  The courts are working from a similar understanding.  Therefore, it is often helpful, especially in close cases, to go hunting for some purely subjective impressions.

Michael Scott-Kristansen
[email protected]


One Hundred Years Ago – Melon Heads:


New York Times
July 5, 1913


Defendant Cannot Try to Arouse
His Honor’s Sympathy, He Says.

Louis Segel, a youth of 17, was arrested by Policeman Storjahan of the Fifth Street Station at 4 o’clock yesterday morning for throwing melon rinds about Hamilton Fish Park and tipping over the seats.  At the Essex Market Court the policeman told Magistrate Freschi that the youth had been hanging about the park at night since last Monday, and Segal himself said he had been in the country only a year and had no home, thought he had a sister living in Brooklyn.

“This is not a case of throwing a soft rubber ball in a park,” remarked Magistrate Freschi, “but a much more serious offense, and I’m not going to send you to prison to be locked up in a cell and to wear prison clothes.  You’re exactly the kind of boy who would write to the Mayor and tell him you were doing nothing but sleeping on a bench.”

“If you have been here a year, and have no home and work only at odd jobs, you should be sent to the immigration authorities for investigation.”

Magistrate Freschi then paroled Segel in the custody of an officer of the Children’s Society till to-day for inquiry.  If he is found to be homeless and with no steady work, the immigration authorities will be informed of his case.

“You will have no chance to write to the Mayor, complaining about the officer who arrested you, and saying you were locked up in a cell with criminals,” said the Magistrate to the lad.


Cassie’s Capital Connection:

Greetings from Albany.  As Dan stated in the cover letter two weeks ago, last week was my first week back to work after my maternity leave.  I just wanted to take a moment to thank all those who have sent me well wishes.  For those who I haven’t spoken with since my return, I am not ashamed to tell anyone who asks that my son is beautiful and a genius in my unbiased opinion.  Apparently I’m not too ashamed to just make it a general announcement as well! 

I supposed I must drag myself away from writing about my little man.  First I would like to thank Steve for covering much of the legislative action that occurred during my absence.  Not surprisingly, there was a flurry of activity in response to Storm Sandy which thankfully died in the Senate.  The Storm Sandy proposed legislation included bills which sought to reduce the amount of time an insurer would have to inspect a loss after a state of emergency and a bill seeking to limit the applicability of the anti-concurrent causation clauses found in first party coverage. Much of the legislation introduced by the Assembly is troubling but not surprising in view of the severity of storms which have struck New York.  While the Senate did not pass any of these bills, I suspect that these bills will continue to be introduced, especially if New York continues to suffer from severe storms such as those which have caused so much damage recently.

While much of the legislation which was of concern to the insurance industry did not pass both houses, I will be discussing one piece of legislation which was signed by the Governor recently – Assembly bill A07828A/Senate bill S5715-A which seeks to protect tort settlements from subrogation claims from an insurer.

Cassandra Kazukenus
[email protected]


One Hundred Years Ago – President Woodrow Wilson’s Gettysburg Address:

On July 4th 1913, the 50th anniversary of The Battle of Gettysburg, President Woodrow Wilson appeared at the sacred site and spoke of its meaning. Described as a “good speech, in the July 5th New York Times, he concluded with these words

I would not have you live even to-day wholly in the past, but would wish to stand with you in the light that streams upon us now out of that great day gone by. Here is the nation God has builded by our hands. What shall we do with it? Who stands ready to act again and always in the spirit of this day of reunion and hope and patriotic fervor? The day of our country's life has but broadened into morning. Do not put uniforms by. Put the harness of the present on.

Lift your eyes to the great tracts of life yet to be conquered in the interest of righteous peace, of that prosperity which lies in a people's hearts and outlasts all wars and errors of men. Come, let us be comrades and soldiers yet to serve our fellow-men in quiet counsel, where the blare of trumpets is neither heard nor heeded and where the things are done which make blessed the nations of the world in peace and righteousness and love.

Peiper’s Pontifications:

We hoped you enjoyed the fireworks yesterday.  While 4th of July spectacles are a given, so too are spectacles in Albany.  Fortunately, however, in Albany most things tend to fizzle before any major impact is made.  That is true, at least for now, about the Assembly's proposed changes to the very core of first party insurance in New York.  The Homeowner's Bill of Rights, among other proposals, would have rewritten the very manner in which first party coverage is delivered to millions of policyholders across the State. 

While most of those proposals passed the Assembly with massive majorities in early June, to date, however, we are pleased to report that they appear to be in the very same place;  hanging in limbo somewhere between the Assembly floor and the Senate (but the Senate has adjourned).   Obviously, we join with the industry types in our opposition to these bills, and continue to hold out hope that common sense can again stem the tide.  As always, we will continue to monitor and let you know of any of notable changes.   

We also write with glee this week, as we have welcomed Cassandra Kazukenus back to the fold.  With Audrey rejoining the squad just prior to last issue, and Cassie now back, we are finally back to a full strength.  In addition to their talent as coverage lawyers, we have also missed their contributions in Coverage Pointers as well.  Be sure to keep an eye for legislative changes in Cassie's Capital Connection

That's it for now.  We hope you are enjoying the Holiday weekend.  See you in two weeks.  

Steven E. Peiper
[email protected]


In This Week’s Headlines:

Dan D. Kohane
[email protected]

  • Exclusions in Main Portion of Policy Modified Language in Policy Endorsement
  • Whether Property Owner Qualifies as AI under Subcontractor’s Policy Become Inconsequential Due to Late Reporting of Accident
  • Homeowners Carrier Did Not Enter into Contract with Insured’s Remediation Contractor and Thus Not Liable When Insured Refused to Turn over Agreed Repair Cost Payments
  • Three Months Delay in Tendering Defense by One Carrier to Another was Reasonable
  • High Court Again Denies Leave to Appeal.  SUM Carrier has Subrogation Rights against Non-Auto Defendant; Court of Appeals Refuses to Review Day Case
    Petition to Vacate Uninsured Motorists Decision by Arbitrator Was Timely But Unfounded
  • Not an Additional Insured?  Don’t Expect Coverage.


Michael P. Scott-Kristansen

[email protected]  

  • Plaintiff Lost Because He Failed to Rebut Defendant’s Evidence on Causation and Failed to Establish His Injuries Were Different From Preexisting Injuries
  • The Appearance of Limitations Two Years After an Accident Where There Were None Three Months After the Accident Is an Inconsistency That Plaintiff Must Explain
  • Chiropractor’s Order to Refrain from Working for 90 Days Is Not Sufficient Evidence Establishing a 90/180-Day Claim Where Plaintiff Returned to School Within Two Months
  • Plaintiff’s Deposition Testimony About His Treatment and Activities After the Accident Demonstrated His Injuries Were Too Minor to Be “Serious”
  • Significant Limitation and Permanent Consequential Limitation of Use Injuries Must be Sufficiently Serious in Duration and Degree to Meet No-Fault Serious Injury Threshold
  • 1.3 Inch Forehead Scar May Qualify as Significant Disfigurement


Margo M. Lagueras

[email protected]


  • Orthopedic Specialist’s Peer Review Stating Opinion Outside Area of Expertise Is Not Persuasive
  • Claim for Wage Loss Denied as Applicant Failed to Comply With Procedural Requirements of No-Fault Regulations and Respondent Was Not Permitted Proper Verification of Claim
  • Significant Prior History, Coupled With Very Minor Accident and Extremely Comprehensive Peer Review, Results in Denial of Claim
  • Respondent’s IME Bolsters Applicant’s Claim More Credibly Than Her Treating Provider
  • IME Report That Did Not Address Applicant’s Employment Did Not Support Denial of Wage Loss Benefits



  • Plaintiff’s Contention That It Was Entitled to Judgment on Different Claims Based on Prior Order Lacks Merit


Steven E. Peiper

[email protected]



  • Waiver of Subrogation Clause, Along with Mutual Release, Bars Owner’s Negligence Claim against Tenant


  • Contractual Indemnity Per Lease not in Violation of GOL, but Recovery is Limited by the Owner’s Own Negligence


Elizabeth A. Fitzpatrick
[email protected]

Construction Defect Cases



Audrey A. Seeley
[email protected]

  • Triable Issue of Fact On Whether Son Is Resident Relative of Mother and Stepfather’s Household Under Automobile Liability Policy.


Cassandra A. Kazukenus
[email protected]

  • A7828-A/S5715-A   -- Amendments to Anti-Subrogation Legislation


Katherine A. Fijal

[email protected]

  • Another Case of Consequences for Insurer’s Failure to Defend


Jennifer A. Ehman
[email protected]

  • Where Insured Retained an Insurance Broker to Assist with Business Interruption and Repair Claim, Inclusion of the Broker on Attorney Related Correspondence Did not Waive Attorney-Client Privilege
  • Insurer Does Not Breach Contract Where Insured Fails to Provide Sworn Statement in Proof of Loss
  • Eligible Injured Person’s Failure to Appear for Scheduled EUO Results in a Breach of a Condition Precedent to Coverage
  • Plaintiff’s Injuries Sustained after Falling from a Flatbed Truck After being struck by a Forklift While Unloading another Vehicle Arose out of the Use or Operation of a Motor Vehicle


Bad Faith

  • Bad Faith Action Does Not Accrue until Breach of Contract Action has been Resolved in Favor of Insured
  • Failure of Primary Carrier to Advise Excess Carrier of Post-Verdict Settlement Demand Constituted Bad Faith


Earl K. Cantwell

[email protected]



Don’t forget to subscribe to Dave Adams’ Labor Law Pointers newsletter.  If you like Coverage Pointers and its treatment of insurance coverage you’ll love Labor Law Pointers and its treatment of Labor Law Sections 240(1), 241(6), 200.  Contact Dave at [email protected].

Enjoy the summer.


Dan D. Kohane
Hurwitz & Fine, P.C
1300 Liberty Building
Buffalo, NY 14202    
Phone: 716.849.8942
Fax:      716.855.0874
E-Mail:     [email protected]
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© Hurwitz & Fine, P. C. 2013
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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:
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If you know of others who may wish to subscribe to this free publication, or if you wish to discontinue your subscription, please advise Dan D. Kohane at [email protected] or call 716-849-8900.

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

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

Dan D. Kohane
[email protected]

Audrey A. Seeley
[email protected]

Jennifer A. Ehman
[email protected]

Dan D. Kohane, Team Leader
[email protected]

Michael F. Perley
Elizabeth A. Fitzpatrick
Katherine A. Fijal
Audrey A. Seeley
Steven E. Peiper
Margo M. Lagueras
Cassandra Kazukenus
Jennifer A. Ehman

Michael P. Scott-Kristansen
Diane F. Bosse

Steven E. Peiper, Team Leader
[email protected]

Elizabeth A. Fitzpatrick
Cassandra Kazukenus
Michael P. Scott-Kristansen

Audrey A. Seeley, Team Leader
[email protected]

Margo M. Lagueras
Cassandra Kazukenus
Jennifer A. Ehman

Jody E. Briandi, Team Leader
[email protected]

 Elizabeth A. Fitzpatrick

Diane F. Bosse

Index to Special Columns

Kohane’s Coverage Corner
Michael’s Mini-Missives on Serious Injury
Margo’s Musings on No Fault

Steve on Sandy, Peiper on Property and Potpourri
Beth’s Banter on Coverage B and Fitz’ Bits
Audrey’s Angles on the Nationally Noteworthy
Cassie’s Capital Connection
Fijal’s Federal Focus
Keeping the Faith with Jen’s Gems
Earl’s Pearls

Dan D. Kohane
[email protected]

07/03/13       Soho Plaza Corp. v. Birnbaum
Appellate Division, Second Department
Exclusions in Main Portion of Policy Modified Language in Policy Endorsement
Utica First Insurance issued a contractors’ policy to Diamond.  Diamond entered in a contract with Birnbaum to renovate a cooperative apartment.  Soho and Dermer were the owners and managers of the building where the cooperative apartment was located. As required by an agreement between the Soho and the Birnbaums, the Soho and the Birnbaums were named as additional insureds under the Utica policy secured by the Birnbaums.  The Birnbaums obtained personal insurance coverage from Vigilant as primary carrier and Progressive as excess. The Progressive policy defined an "insured person" as, among others, "any person or organization with respect only to vicarious liability for the acts or omissions" of the named insured.

Nolasco, an employee of Diamond, commenced an action (hereinafter the underlying action) against the Soho and Dermer to recover damages for personal injuries he allegedly sustained while working in the Birnbaums' apartment. Soho and Dermer impleaded the Birnbaums. Utica disclaimed coverage for that third party action on the ground that the Utica policy contained an exclusion for "bodily injury to any employee of any insured [i]f such claim for bodily injury arises out of and in the course of his/her employment."  Progressive also disclaimed coverage as well.

Soho then commenced seeking an order that Utica and Progressive both had obligations to defend and indemnify it.
The court found that employee exclusion in the Utica policy protected it from defense and indemnification obligations. Progressive moved for an order denying responsibility to Soho on the grounds that they did not qualify as an insured because Soho was vicariously liable for the Birnbaums' negligence.

The Court rejected the argument that the exclusions in the main part of the Utica policy did not apply to the employee-injury endorsement.

As to Progressive’s argument, the court found that cooperative corporations could be subject to Section 240(a) liability and accordingly, there was a possibility that they could be vicariously liable for Birnbaum’s negligence.

07/02/13       Mayo v Metropolitan Opera Association, Inc.
Appellate Division, First Department
Whether Property Owner Qualifies as AI under Subcontractor’s Policy Become Inconsequential Due to Late Reporting of Accident
On or about September 3, 2008, the Met contracted to have the steel carriage rail for its automated window-washing system stripped and repainted.  The contract identified the "Contractor" as "Strauss Painting, Inc./Creative Finishes, Ltd.," but the only signature under "Contractor" was that of Strauss's vice president.  Strauss subcontracted with Creative to perform the work.

Mayo, one of Creative’s employees, climbed a ladder located on the sixth floor of the Opera House and exited onto the roof through a hatch door.  Plaintiff and his witnesses testified that the hatch door was easy to open, but difficult to close, in part because of a broken hinge, and that two hands were required to close it.

Plaintiff fell from the ladder.

The record demonstrates that the Met and Lincoln Center failed to provide adequate safety devices to protect plaintiff from the risks associated with gaining access to the Opera House roof and where liable for plaintiff's injuries under Labor Law § 240(1).

The Met seeks indemnification and contribution from Strauss and Creative and damages arising from their failure to procure owner's and contractor's liability insurance.  Strauss's vice president, who signed the general contract, testified that he was also a vice president of Creative and had authority to bind Creative to the general contract.  However, the presidents of Strauss and Creative dispute this; they claim that Creative is not bound by the general contract.  Thus, while the record demonstrates that Strauss is liable to the Met for its failure to procure insurance, issues of fact as to whether Creative was contractually obligated to procure insurance preclude a finding that Creative too is liable to the Met for a failure to procure insurance.

There are issues of fact as to whether the Met is an additional insured under the Creative policy issued by Nova.  However, in any event, the Met’s notice was untimely.  Nova’s 30-day disclaimer was timely.

06/28/13       Aggressive Co., Inc. v State Farm Insurance
Appellate Division, Fourth Department
Homeowners Carrier Did Not Enter into Contract with Insured’s Remediation Contractor and Thus Not Liable When Insured Refused to Turn over Agreed Repair Cost Payments
Aggressive was a remediation contractor.  It sued State Farm alleging that additional work authorizations signed by State Farm’s representative for construction and remediation work performed by Aggressive at the home of the State Farm’s insured, the homeowner, constituted a contract between Aggressive and State Farm assuring that State Farm would pay Aggressive directly for that work.

While Aggressive entered into a contract with the homeowner to perform remediation services following an oil spill, State Farm advised the homeowner that any additional work had to be approved by the insurer to be covered under the policy.  The State Farm rep signed three additional work authorizations. State Farm sent one check to Aggressive with the homeowners consent but refused to send the other checks to Aggressive directly.  The homeowner refused to pay Aggressive for the work.
Aggressive did not state a claim against State Farm  While State Farm authorized the work, and while one payment was made directly (at the insured’s request), there were no promises made to pay the contractor, only promises to pay the insured.

06/27/13       Illinois National Ins. Co. v Zurich American Ins. Co.
Appellate Division, First Department
Three Months Delay in Tendering Defense by One Carrier to Another was Reasonable
In the underlying action, Schiavone was sued by Boyd.  Boyd worked for one of Schiavone’s subcontractors, Baker.  Schiavone was hurt when a drilling rig fell on him.

Under the Schiavone-Baker subcontract, Schiavone was to be named as an additional insured (“AI”) on a Baker policy obtained from Zurich and in fact, did have Schiavone named.

When Boyd was hurt, Schiavone received notice of claim from Boyd in March of 2007.  The letter accused Schiavone of negligence.  Schiavone and its insurer, Illinois National, undertook an investigation of the claim, eventually determining that Zurich was the proper insurer.  On June 29, 2007, Illinois National demanded that Zurich defend and indemnify Schiavone in the underlying action.  Zurich disclaimed coverage on the ground of late notice.

Under choice of law principles, NY law would apply.  The subcontract between Baker and Schiavone involved NY construction services and Schiavone formed a joint venture in New York to perform those services, the accident and resulting litigation occurred in New York.  

However, the court found that Schiavone’s three-month delay in notifying Zurich of the claims against it was reasonable given that Schiavone needed to investigate the claim in order to determine basic facts, such as where the claim occurred, the nature of the injury, and the insurer responsible for covering
the claim.
Editor’s Note:  Three months?  Sheesh.

06/26/12       Day v OneBeacon
New York State Court of Appeals
High Court Again Denies Leave to Appeal.  SUM Carrier has Subrogation Rights against Non-Auto Defendant; Court of Appeals Refuses to Review Day Case
In March, the Court of Appeals had followed the lead provided by the Fourth Department and refused to grant discretionary review of Day case. In sum and substance, the Fourth Department recognized that a SUM carrier has subrogation rights against both auto and non-auto defendants and the policyholder’s settlement with a non-auto carrier that fails to preserve subrogation rights, can lead to a loss of coverage.  Now, the high court has denied the plaintiff’s application to reargue that motion.

Here is a review of the Fourth Department decision. Our office represented OneBeacon in this matter.

06/26/13       In the Matter of Scottsdale Ins.  Co. v. MVAIC
Appellate Division, Second Department
Petition to Vacate Uninsured Motorists Decision by Arbitrator Was Timely But Unfounded
Under CPLR 7511(a) states that "an application to vacate or modify an award may be made by a party within ninety days after its delivery."  Here, the arbitration award was rendered on September 28, 2011, and it was delivered to
the petitioner on October 31, 2011. Accordingly, the petition on January 9, 2012, was timely.

However, the award was not arbitrary or capricious and therefore should not have been vacated.

06/26/13       Matter of Southern Queens Park Assoc. v. Capitol Ins. Co.
Appellate Division, Second Department
Not an Additional Insured?  Don’t Expect Coverage.
Southern Queens Park Association (“SQPA”) is a not-for-profit corporation that operates and administers programs at a NYC park.  Irie Jam Media Group (“Irie”) applied to SQPA and was granted a permit to hold a concert at the park.  Irie purchased a policy of insurance from Capitol Ins. Co.

A number of plaintiffs sued the City, SQPA and Irie, alleging injuries that occurred during a stampede at the concert.  SQPA did not appear in the lawsuit and a default was entered.  SQPA then commenced this action seeking coverage under the Capitol policy.

The court found that SQPA was not a named or additional insured on the insurance policy that Capitol issued to Irie so it was not entitled to a defense or indemnity under the Capitol policy.  There was no proof of any detrimental reliance by SQPA on anything Capitol did to estop Capital from denying coverage.


Michael P. Scott-Kristansen
[email protected] 

06/20/13       Kamara v. Ajlan
Appellate Division, First Department
Plaintiff Lost Because He Failed to Rebut Defendant’s Evidence on Causation and Failed to Establish His Injuries Were Different From Preexisting Injuries
The plaintiff, a taxi driver who was rear-ended, alleged that he suffered permanent consequential (“PCLU”) and significant limitation of use (“SLU”) injuries to his knee, cervical spine, and lumbar spine.  The plaintiff also made a 90/180-day claim.  The First Department held the defendant’s motion for summary judgment should have been granted.

Defendant met his burden on the PCLU and SLU injuries by submitting evidence showing the plaintiff had full range of motion in the affected joints.  Defendant also met his burden on the PCLU, SLU, and 90/180-day claims by submitting admissible statements of a radiologist and an orthopedist, opining that the plaintiff had a prior knee injury and preexisting degenerative conditions in the affected joints.

In response, the plaintiff shot himself in the foot by submitting unaffirmed MRI reports that supported preexisting condition findings.  The plaintiff also submitted the admissible statements of his physicians, but they (1) failed to establish whether his preexisting conditions were different from his claimed injuries and (2) failed to explain how his limitations were caused by the claimed injuries.

The plaintiff’s PCLU claim also failed because he failed to submit sufficiently recent range of motion findings or evidence of qualitative limitations.

06/20/13       Santos v. Perez
Appellate Division, First Department
The Appearance of Limitations Two Years After an Accident Where There Were None Three Months After the Accident Is an Inconsistency That Plaintiff Must Explain
This case involved the claims of two plaintiffs, Aura and Maria, who were injured while riding in a taxi.  Both alleged serious injuries to their cervical and lumbar spines.  Ultimately, only Aura’s claim for serious injury to her lumbar spine survived the defendants’ motion for summary judgment.

The defendants met their burden on Aura’s injuries by submitting the affirmed report of a radiologist, based on an MRI, finding only degenerative injuries consistent with Aura’s age and weight.  The defendants also submitted the affirmed report of a neurologist, finding a full range of motion for both the cervical and lumbar spine.  The neurologist’s diagnosis also noted that Aura’s injuries had resolved.

The defendants met their burden for summary judgment on Maria’s injuries by submitting substantially identical evidence, except the radiologist found that her lumbar spine MRI revealed no abnormalities and that her cervical spine MRI revealed only age-related disc bulges.

Aura only rebutted the defendants showing with respect to her lumbar spine.  She submitted an affirmed report of her radiologist, opining that her MRI showed focal disc herniation in her lumbar spine.  Aura also submitted an affirmed report of her physician, opining that she was asymptomatic until the accident (based on examinations and a review of Aura’s medical records) and noting range of motion limitations in her lumbar spine immediately after the accident, 3 months after the accident, and recently.

Maria entirely failed to rebut the defendants showing.  Her own treating physician found normal ranges of motion in her cervical spine 3 months after the accident and only insignificant range of motion limitations 2 years after the accident.  The Court also held that Maria’s physician’s failure to explain why she had limitations 2 years after but not 3 months after the accident was fatal to her claim.

06/25/13       Komina v. Gil
Appellate Division, First Department
Chiropractor’s Order to Refrain from Working for 90 Days Is Not Sufficient Evidence Establishing a 90/180-Day Claim Where Plaintiff Returned to School Within Two Months
The plaintiff alleged serious injuries to her cervical and lumbar spine.  The Court held the defendant was entitled to summary judgment.

The defendant submitted the affirmed report of an orthopedist, opining that she had no range of motion limitations, and the affirmed report of a radiologist, stating that the plaintiff’s MRIs exhibited no herniation, bulging discs, or other traumatic injury.

The plaintiff submitted her chiropractor’s testimony that she suffered from range of motion limitations in her cervical and lumbar spine, but did not submit any evidence of the objective basis for her injuries (a.k.a. objective medical proof of injury to her cervical or lumbar spine.  As I explained in the last issue, plaintiffs must establish both elements to demonstrate a significant or permanent consequential limitation of use).

The chiropractor made conflicting findings in his examination, but failed to explain these.  The chiropractor also failed to explain how the plaintiff was suffering limitations despite MRI reports stating that the plaintiff exhibited no evidence of bulging or herniation (this last failure was essentially the Court reiterating the plaintiff’s failure to establish an objective basis for the injury)

As for the plaintiff’s 90/180-day claim, the Court held that the plaintiff’s chiropractor’s order to refrain from working for 90 days after the accident was not sufficient to rebut the defendant’s evidence.  The defendant demonstrated that the plaintiff was confined to bed for only 1 week after the accident and that she returned to taking college courses within two months of the accident.

06/25/13       Frias v. Son Tien Liu
Appellate Division, First Department
Plaintiff’s Deposition Testimony About His Treatment and Activities After the Accident Demonstrated His Injuries Were Too Minor to Be “Serious”
The plaintiff’s deposition testimony sabotaged his case and the Court held the defendant was entitled to summary judgment.  The plaintiff alleged either or both significant and permanent consequential limitation of use injuries to his neck, shoulder, and lumbar spine.

The defendants met their burden by submitting the affirmed report of an orthopedic surgeon who found no limitations in the plaintiff’s allegedly injured body parts.  His conclusion was based upon an examination and report, which listed the tests he performed, the numerical range of motion measurements taken, and the normal values for range of motion.  The report was sufficient evidence to entitle the defendant to summary judgment even though the surgeon did not use an instrument to take the range of motion measurements.

The defendant also submitted the plaintiff’s deposition testimony that he was a painter who returned to work 1 week after the accident and ceased treatment 4 months after the accident.  This evidence established that the plaintiff’s injuries were not sufficiently serious.

The plaintiff failed to meet his burden of demonstrating a limitation to his neck or shoulder and failed to meet his burden of demonstrating any actual injury to his lumbar spine (what is sometimes referred to as the objective basis for the injury).  The plaintiff also failed to explain the cessation of treatment 4 months after the accident.  The plaintiff’s 90/180-day claim also failed because he testified that he was confined to his home for 1 week and that his work day was shortened by 1 hour.

06/26/13       Manzano v. City of New York
Appellate Division, Second Department
Significant Limitation and Permanent Consequential Limitation of Use Injuries Must be Sufficiently Serious in Duration and Degree to Meet No-Fault Serious Injury Threshold
The plaintiff alleged serious injuries to her cervical spine.  As with almost every serious injury case we review, the defendants moved for summary judgment.  The Court held the defendants established their entitlement to summary judgment, but that the plaintiff rebutted the defendant’s evidence.

The plaintiff rebutted the defendant’s evidence by submitting the affirmed report of her physician, which contained range of motion measurements from shortly after the accident and 2 ½ years after the accident.  The physician found significant limitations during both exams.  The Court held the affirmed report created a question as to whether the plaintiff’s injuries were sufficiently serious in degree and duration, which would require a trial to resolve.

06/26/13       Borquist v. Hyde Park Cent. Sch. Dist.
Appellate Division, Second Department
1.3 Inch Forehead Scar May Qualify as Significant Disfigurement
The plaintiff alleged the scar on her forehead constituted a significant disfigurement.  The defendants moved for summary judgment and submitted photographs showing the scar was 3.5 centimeters long (1.3 inches), but clearly visible.  A significant disfigurement is a condition that is unattractive, objectionable, or the object of pity or scorn.  The Court held this scar might qualify as a significant disfigurement and that a trial would be required to resolve the issue.  The Court also acknowledged that the plaintiff underwent recent plastic surgery and that no post-surgery photographs were submitted.


Margo M. Lagueras

[email protected]


06/27/13       Pinnacle Orthopedic Spine Specialists v Geico Ins. Co.
Erie County, Arbitrator Douglas S. Coppola
Orthopedic Specialist’s Peer Review Stating Opinion Outside Area of Expertise Is Not Persuasive
The EIP was a passenger in a vehicle that was t-boned on the passenger side.  After exhausting conservative treatment options, the EIP consulted with Dr. Zair Fishkin and underwent a lumbar fusion.  Respondent requested a peer review from Dr. Andrew Bazos, an orthopedic specialist, to review the medical necessity of the surgery.  Dr. Bazos opined that the surgery was not medically necessary based solely on his belief that a person involved in that type of collision would not sustain significant trauma to the lumbar spine, even though he also stated that the injuries were causally related. 

The Arbitrator found that Respondent’s submission lacked any expert credentialing of Dr. Bazos as a biomechanical medical expert.  Because Dr. Bazos was not a biomechanical expert and it was not established that he was familiar with the general accepted standards of care in those fields, or that he had the requisite skill, training, education, knowledge or experience such that his opinion would be deemed reliable, the Arbitrator determined that the peer review was not persuasive and that Respondent’s denial was, therefore, improper.

06/27/13       Applicant v Liberty Mutual Fire Ins. Co.
Erie County, Arbitrator Kent L. Benziger
Claim for Wage Loss Denied as Applicant Failed to Comply With Procedural Requirements of No-Fault Regulations and Respondent Was Not Permitted Proper Verification of Claim
Applicant was involved in at least two motor vehicle accidents: 2006 and 2010.  In the original AR-1 Request for Arbitration, Applicant listed the date of the accident as December 23, 2006.  The Arbitrator noted that Applicant’s papers were confusing and contained inconsistent and conflicting information as to the dates of the accidents, causal relationship and lost earnings.  Two telephonic hearings were held and Applicant was directed to submit additional documents to clarify.  The proceeding was then scheduled for an in-person hearing.  On the day before the hearing, more than ten months after the initial telephonic hearing, Applicant prepared an amended AR-1 giving the date of accident as December 13, 2010, revised the amount in dispute and set forth specific contentions.  These contentions were received by both the Arbitrator and Respondent at the time of the in-person hearing.

Respondent primarily contended that proof of the wage loss claim was not submitted within 90 days as required, nor had Applicant provided clear and reasonable justification of the failure to comply with that time limitation.  Respondent further argued that the specifics of the claim with a different date of accident should not be submitted on the date of the hearing, more than a year after the filing for arbitration.  In addition, Respondent noted that no documents from the employer regarding the wage loss had been submitted. 

The Arbitrator noted that Applicant claimed to have first incurred lost wages in January 2011 and that the No-Fault application from the 2010 accident did not contain a claim for wage loss.  No proof of work loss was submitted within 90 days, nor was any justification provided.  The first notice of claim was in January 2012 through the filing of the AR-1, and that was with regard to benefits from the 2006 accident.  Wage loss is only reimbursable for three years following the accident.  Therefore, wage loss commencing in January 2011 would not be reimbursable from the 2006 accident. 

In addition, only after two telephonic hearings and more than a year and five months after the initial AR-1 did Applicant’s counsel file an amended request, which request was prepared the day before the in-person hearing.  The Arbitrator noted that this was counsel’s first “relatively coherent recitation of the lost wage claim.”  However, rather than submit an affidavit from the employer documenting the reasons and dates for job loss, Applicant’s counsel submitted a 2013 Craig List posting for the same position as proof of earnings.  Respondent argued, and the Arbitrator agreed, that the amendment was too late as Respondent was unable to properly verify the claim.  Therefore, although Applicant sustained injuries from both accidents, the disputed issue was wage loss benefits and, with respect to that, the Arbitrator denied Applicant’s claim for failure to comply with the procedural requirements of the No-fault regulations in making the claim, and for failing to submit credible evidence directly from the employer.

06/26/13       Kaleida Health v Progressive Ins. Co.
Erie County, Arbitrator Douglas S. Coppola
Significant Prior History, Coupled With Very Minor Accident and Extremely Comprehensive Peer Review, Results in Denial of Claim
The EIP had a significant history of back and neck issues, including radiating pain, for over 20 years when, in 2007, she was involved in a very minor accident in which another vehicle “rolled” into her vehicle.  Applicant rendered treatment from April to October 2011. 

Respondent submitted a peer review by Dr. Mark Smith, a Board Certified Neurosurgeon.  Dr. Smith also testified during the hearing.  Dr. Smith concluded that the motor vehicle accident was not the proximate cause of the EIP’s ongoing medical care but that rather the continuing and extensive treatment was necessary due to her significant prior conditions.  The Arbitrator denied the claim as he found Dr. Smith’s peer review, and addendum, very persuasive, and essentially unrebutted.

06/25/13       Applicant v State Farm Mut. Auto. Ins. Co.
Erie County, Arbitrator Kent L. Benziger
Respondent’s IME Bolsters Applicant’s Claim More Credibly Than Her Treating Provider
In December 2010, the 47 year old Applicant was involved in a second motor vehicle accident that exacerbated her neck and back injuries for which she was already treating (the prior accident was in February 2010).  Following the December accident, Applicant was first seen by Dr. Calabrese in mid-January 2011.  Dr. Calabrese immediately stated that the cost of physical therapy and medical evaluations for a two year period would be around $18,000. 

In March 2012, Dr. Ungerer performed an orthopedic IME and concluded that stabilization of the injuries would take six to eight months and that left shoulder surgery was recommended if Applicant did not improve with cortisone injections.  In April, Respondent issued a general denial limiting orthopedic benefits to physical therapy and left should surgery.  Wage loss benefits were also denied.

Applicant had previously received wage loss benefits for the February 2010 accident, and also received a consent award for a period under the December 2010 accident.  Applicant then brought this arbitration seeking the continuing period.  The Arbitrator first noted that Dr. Calabrese, as is his custom, prescribed “voluminous conservative care” and also “had the business foresight to generously estimate the two year cost of evaluations and physical therapy at $18,000.”  The Arbitrator also noted that Respondent issued a denial including wage loss benefits even where Dr. Ungerer found that she was not able to return to her full time job as a development aid due to the physical responsibilities.  The Arbitrator found that Dr. Urgerer’s report supported Applicant’s claim in a more credible manner than her own treating provider and he therefore apportioned the wage loss between the two accidents, awarding Applicant one-half of her earnings due to the second accident.

The Arbitrator further disagreed with Respondent’s contention that an award for lost earnings was premature because there could be a potential offset for social security disability.  While Applicant made a claim for social security benefits, and an award would be an offset to the no-fault benefits, a hearing date had not yet been set by the Social Security Board and Respondent provided no authority to support the contention that an award must await the determination by the Social Security Administration.

06/21/13       Applicant v Allstate Ins. Co.
Erie County, Arbitrator Michelle Murphy-Louden
IME Report That Did Not Address Applicant’s Employment Did Not Support Denial of Wage Loss Benefits
In October 2011, the 31 year old Applicant was injured while a passenger in a vehicle that T-boned another vehicle at about 35-40 miles per hour.  The airbags deployed.  She testified at the hearing that, at the time of the accident, she was employed as a home health aide at an assisted living facility.  She further testified that she was still undergoing chiropractic treatment but was still unable to do many of her daily activities and was waiting to see a spine surgeon. 

In October 2012, Gary Kostek, D.C., performed an IME and noted significantly decreased cervical and lumbar ranges of motion.  With respect to disability, he opined that she could perform light duty with a lifting restriction of 10 lbs., no repetitive lifting, bending or twisting and no overhead work.  Based on that IME, Respondent denied further wage loss benefits.  The Arbitrator did not find the IME to be persuasive as Dr. Kostek did not inquire as to Applicant’s employment or the duties of her position.  As such, the denial was not upheld.


06/06/13       V.S. Med. Servs., P.C. v Travelers Ins. Co.
Appellate Term, Second Department
Plaintiff’s Contention That It Was Entitled to Judgment on Different Claims Based on Prior Order Lacks Merit
It lacks merit, but not originality.  At trial, plaintiff offered no claim forms into evidence and called no witnesses.  Instead, plaintiff contended that an Order of the Civil Court from 2005 granting plaintiff summary judgment in another action on different claims entitled it to judgment on the claims at issue because the Order stated that plaintiff was entitled to recover upon a specific claim number if that claim was not paid.  Plaintiff presented 2007 deposition testimony from Defendant’s employee stating that three claims on behalf of the assignor had been denied based on a peer review.  Although that employee did not testify at trial, plaintiff argued that the deposition testimony was sufficient to make a connection between the 2005 Order and the present claims, and to prove that those claims remained unpaid.

The trial court dismissed the complaint.  Plaintiff did not offer any evidence to identify the claim forms at issue, or show that such claim forms had the claim number set forth in the 2005 Order, or establish that the claim forms remained unpaid.  The appellate term affirmed, but it was a novel argument.


Steven E. Peiper

[email protected]

06/27/13       45 Broadway Owner LLC v NYSA-ILA Pension Trust Fund
Appellate Division, First Department
Waiver of Subrogation Clause, Along with Mutual Release, Bars Owner’s Negligence Claim against Tenant
Plaintiff leased space to defendant NYSA pursuant to written lease agreement.  At Section 7.03 of the lease, both parties executed a mutual waiver of subrogation.  Moreover, at Section 7.04, the lease further provided a mutual release “with respect to any claim…with respect to its property by fire or other casualty.”  

In 2010, plaintiff informed all tenants, including NYSA, that it was shutting off water supply to the building for maintenance.  During this process, a pressure gauge connected to a supply pipe maintained by NYSA burst.  The resulting flooding caused substantial damage to other tenants in the building. 

Plaintiff commenced the instant action seeking to recover damages from NYSA as a result of their alleged negligence in maintaining the pressure gauge.  NYSA opposed the suit on the basis of the waiver of subrogation clause, as well as the Release language.  In dismissing plaintiff’s claim, the Court noted that a flood was, in fact, a “casualty” as that term was employed in the lease agreement.  Specifically, the Court noted that a “casualty” has been defined in case law as an “accident” or “unfortunate occurrence.”  Clearly, the flood qualified as an “unfortunate occurrence,” thus the Release applied to bar the claim.

06/25/13       915 2nd Pub Inc. v. QBE Insurance Corporation
Appellate Division, First Department
Appraiser’s Report Privileged as Attorney Work Product
The dispute in this case centered around the discoverability of a certain appraiser’s report.  Initially, the First Department noted that the report fell squarely within the attorney work product doctrine, and therefore was exempt from disclosure. 

In opposition, the plaintiff argued that the report was, in fact, discoverable because it had been produced to the insured’s previous counsel.  The production, it was argued, waived any expectation of a privilege.  Plaintiff’s entire argument was premised upon a singular note located within the claims file. 
Here, however, the Court refused to order production of the report. 


In dismissing plaintiff’s argument, the Court noted that plaintiff failed to produce its efforts to obtain the report, its communications (if any with prior counsel), or any other evidence that the report had been disclosed.  Without any other evidence, the Court was not inclined to order production based upon one note in the claims file. 


06/27/13       Bogdanova v Falcon Meat Market
Appellate Division, First Department
Contractual Indemnity Per Lease not in Violation of GOL, but Recovery is Limited by the Owner’s Own Negligence
Margis owned a premises; a portion of which was leased to Falcon Meat Market.  Plaintiff slipped and fell on ice, and commenced the instant action against Falcon, Margis and Margis’ property manager Milbrook. 
As part of motion practice, defendants established that snow had fallen the night before, and as such, under NYC Code that snow was not required to have been removed until after plaintiff’s fall.  In support of its own cross-motion, the plaintiff submitted an expert affidavit that opined several inches of snow had fallen days earlier, and that is the snow upon which plaintiff fell.  Obviously a question of fact resulted, and both motions were denied accordingly.

At the same time, the Court granted Margis’ application for partial summary judgment on its contractual indemnity claim against Falcon.  In so holding, the Court ruled that the lease provision in question did not violate the General Obligations Law.  As such, the judgment was granted upon the condition that it be reduced by Margis’ apportioned share (if any) of negligence. 


Elizabeth A. Fitzpatrick
[email protected]

Construction Defect Cases

In Nautilus Insurance Company v. 3 Builders, Inc., decided by the United States District Court, District of Hawaii on June 24, 2013, the Court found that the plaintiff’s claims did not constitute a covered occurrence in the first instance and, thus, did not reach the issue of the applicability of the various policy exclusions cited.

The underlying claim resulted from claims that the insured allegedly improperly installed roofs for an association of apartment managers following a recommendation by the management company that it re-roof all of its buildings.  

After the apartment owners experienced numerous problems with the performance by the Nautilus insured, 3 Builders, and other contractors, they ultimately terminated their agreement and halted work on the project.  A consultant hired by the owners determined that there were numerous defects in the construction and issued a report opining that the only viable alternative was to replace the roofs.  The contractors, including 3 Builders, did not offer to replace the roofs, nor did they offer any other remedy. Not surprisingly, litigation ensued.

The apartment owners sued 3 Builders, alleging causes of action for breach of contract, negligent and intentional misrepresentation, negligent and intentional nondisclosure, fraudulent inducement, quantum meruit and unjust enrichment, negligence and unfair and deceptive business practices.   3 Builders tendered their defense to Nautilus, which Nautilus accepted and had been providing 3 Builders with a defense for some three years.  In the resulting coverage litigation brought by Nautilus, the usual defenses were raised by Nautilus, including that construction defect claims do not constitute an occurrence under a CGL policy and in the alternative, that the exclusions for damage to your work, contractual liability, damage to property, impaired property and expected or intended injury all precluded coverage.  With respect to the policy which incepted on January 24, 2010, the insurer cited the known loss doctrine.

 Acknowledging that a duty to defend exists where there is any potential for coverage, Nautilus emphasized that there is no duty to defend where there is no potential for indemnification.  Citing to its decision in Evanston Insurance Company v. Nagano, decided in 2012, the court, after careful review of the claims alleged in the underlying action, found that all of the claims were either contract claims or claims that arose from the contract or from the contractual relationship.  The court, thus, concluded that the actions which formed the basis of the claims in the underlying proceedings were not occurrences within the meaning of the applicable policies.  Since the claims were not within the initial grant of coverage, the court did not reach the issue of whether the various exclusions Nautilus cited in the motion precluded coverage. 

However the opposite conclusion was reached by the court in Cherrington v. Erie Insurance Property and Casualty Company, decided by the Supreme Court of Appeals of West Virginia on June 18, 2013.  In the decision, the court affirmed the grant of summary judgment to Erie, finding that the insured’s homeowners and personal catastrophe umbrella policy did not provide coverage for the injuries and property damage allegedly sustained by plaintiff Cherrington.  However, the Court overruled its prior decisions which held that defective workmanship did not constitute a covered “occurrence” and then determined that none of the cited policy exclusions was applicable to preclude coverage, finding that coverage was available under the insured’s CGL policy. 

The underlying disputes arose during the construction of a home for the plaintiff by Pinnacle and defendant Mamone, who allegedly was working on his own and also as an agent of Pinnacle.  The disputes involved issues over the price for the services and furnishings provided and after the home was completed, Cherrington observed various defects in the house, including an uneven concrete floor on the ground level of the house, water infiltration through the roof and chimney joint, a sagging support beam and numerous cracks in the dry-wall and partitions throughout the house.  A lawsuit was brought by Cherrington in 2006 identifying, initially, only Pinnacle and Old White Interiors, LLC, as defendants. 

Thereafter, in 2007, an amended complaint was filed adding Mamone as a defendant.  The original and the amended complaints alleged, generally, that Pinnacle was negligent in the construction of the home, in altering the design, negligently pouring and finishing the concrete floor, finishing and painting of the house and placing and securing the foundation.  She also alleged a breach of fiduciary duty on the part of Pinnacle with respect to the cost issues and contended that she sustained damages as a result of Pinnacle’s misrepresentation and negligent acts in that her home’s fair market value had been diminished. 

In overruling its prior decisions, in which the court held that a faulty or defective workmanship claim did not constitute an occurrence, as defined within a commercial general liability policy, the Court elected to join the majority, quoting Justice Frankfurter, who said, “It has been said that wisdom too often never comes, and so one ought not to reject it merely because it comes late.”  

The Court noted that it had previously addressed the same issue in a trilogy of cases, concluding that faulty workmanship is not covered by a CGL policy, but acknowledged their acute awareness that many other Courts have considered this issue and rendered their own rulings, noting that a majority of other states have reached the opposite conclusion, either in judicial decisions or through legislative amendments to their state’s insurance statutes.  The Courts conducted a survey of the extensive case law addressing this issue across the country; ultimately concluding that, with the passage of time comes the opportunity to reflect upon the continued validity of this Court’s reasoning in the face of judicial trends that call into question a former opinion’s current soundness. 

Turning to the specific facts at issue and the policy language of the CGL policy, the Court noted that an occurrence was defined as an accident, including continuous or repeated exposure to substantially the same general harmful conditions, but did not provide a definition for “accident.”  The Court determined that the circumstances giving rise to the claimed damages or injury must not have been deliberate, intentional, expected, desired or foreseen by the insured and then concluded that the damages incurred by the plaintiff during the construction and completion of her home and/or the actions giving rise thereto were not within the contemplation of Pinnacle, the insured, when it hired the subcontractors alleged to have performed most of the defective work. 

The Court concluded that they simply could not find that the alleged damages incurred were deliberate, intentional, expected, desired or unforeseen by Pinnacle.  The Court also found that a determination that the defective workmanship was not covered by the CGL policy’s insuring clause was incongruous with the policy’s express language providing coverage for the acts of subcontractors.  In doing so, the Court, as many other Courts have previously done, looked to Exclusion L, which provides coverage for work performed by subcontractors by accepting it from the “Your Work” exclusion.  For those not familiar, the exception the Court is referring to reads: “This Exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.”  Of course, in doing so, the Court violates a basic principle of contract interpretation, to wit, coverage must exist in the first instance under the policy’s insuring agreement before consideration should be given to a policy Exclusion.  In any event, the Court concluded that a more sound approach was to find that defective work performed by a subcontractor on behalf of an insured does give rise to an occurrence under a policy of CGL insurance and that such an interpretation maintains consistency with the policy’s stated intent to provide coverage for the work of subcontractors. 

Turning to the remainder of the Insuring Agreement, the Court found that the emotional distress alleged by the plaintiff did not constitute bodily injury, but did conclude that, based upon the definition of property damage, she had, in fact, sustained such damage.  An analysis of the various exclusions resulted in the Court’s determination that the “Your Work” Exclusion applied to preclude coverage for the work of Pinnacle, but not with respect to work performed by Pinnacle’s subcontractors.  The Court found that Exclusion M precluding coverage as a result of shortcomings in “Your Product” or “Your Work,” on its face, precluded coverage for the very work of subcontractors that Exclusion L found covered under the policy and that it would not be reasonable to construe two policy conditions according to their plain language, when the operative effect of this exercise results in such incongruous results.  Thus, they found that Exclusion M did not preclude coverage.  The so-called Sistership Exclusion “Recall of Products, Work or Impaired Property,” likewise, was not applicable to preclude coverage.  The Court, however, agreed with the circuit court that the business exclusion in Mamone’s homeowner’s policy precluded coverage.  Similarly, they found that coverage was precluded under the umbrella policy based upon the application of the Business Pursuit Exclusion.


In a decision issued by the United States District Court in Kansas, the Court in Kear v. Kohl’s Department Stores, Inc., decided a discovery motion which included requests for discovery of plaintiff’s social media accounts.  The issue arose in the context of plaintiff’s lawsuit against Kohl’s, alleging violations of Title VII of the Civil Rights Act of 1964 in the form of gender discrimination, gender stereotyping, pregnancy discrimination and hostile environment created by sexual harassment. 

Defendant brought a motion to compel, which included a demand for plaintiff’s Twitter and Facebook account data between her date of hire through the date of the motion.  The plaintiff objected, contending that the requests sought documents that were irrelevant.  The Court concluded that, given the broad scope of relevancy in the discovery process, plaintiff’s activity on social media sites may lead to relevant information regarding alleged discrimination and harassment.  Significantly, the Court noted that defendant had sufficiently limited the scope of her request by seeking limited access during the relevant time frame, rather than seeking unfettered or unlimited access to plaintiff’s social media accounts.  The Court, thus, directed plaintiff to respond to the request.



Audrey A. Seeley
[email protected]

7/2/13           Sorrin v. Sentry Ins.
Court of Appeals, Wisconsin
Triable Issue of Fact On Whether Son Is Resident Relative of Mother and Stepfather’s Household Under Automobile Liability Policy.
The Court held that summary judgment was not appropriate as the decision as to whether Mr. Pearson was a resident of his mother and stepfather’s home, thus an insured under the personal automobile policy, must be left to the fact finder.

On December 17, 2008, Mr. Sorrin allegedly sustained bodily injury when he was struck by a motor vehicle operated by Mr. Pearson and owned by his girlfriend, Ms. Ristau.  Ms. Ristau’s insurer reached a policy limits settlement and the remaining dispute was a coverage one involving Mr. Pearson’s mother’s automobile liability insurer, Sentry. 

Sentry denied insurance coverage to Mr. Pearson for this incident claiming that he was not a family member who was a member of the household.  Mr. Pearson testified during his deposition that at the time of the incident he was traveling back and forth between Milwaukee and California.  This began in approximately 2008, about a year after he graduated from high school.  Mr. Pearson lived in Milwaukee during his last years of high school and after graduation with his mother and stepfather.  During and after high school Pearson worked as a model for Ford Models in Wisconsin.  However, he wanted to further develop his career for the same agency in California.  Thus, in April 2008, Pearson and his friend, Ms. Shulta, went to California in Shulta’s car taking everything with him.

Ms. Shulta testified that Pearson only took clothing and toiletries and lived temporarily in an apartment she solely leased.  Pearson never received mail at the apartment and he never paid rent.

Mr. Pearson further testified that he left Shulta’s apartment in the Summer of 2008 and lived with two cousins, whose address he could not recall, paying $500-$600 in rent.  Also, while in California he contacted a modeling agency but made little money.  He opened a bank account in November 2008, for the purpose of making it easier for his mother to send him money in California.  His IPhone account remained under his parents’ plan and his parents paid for it.  Mr. Pearson never obtained a California driver’s license and traveled back to Wisconsin up to five times when his lived in California.  Ultimately, Pearson returned to Wisconsin to live because he had to pay the deductible on Ms. Ristau’s car and couldn’t pay his rent.

Contrary to other witness’ testimony, Pearson claimed that before and after he left for California he stayed in his mother and stepfather’s upstairs bedroom.  Also, they allegedly redid the entire room while he was in California.

Now, Pearson’s mother, Ms. Stone-Bell, testified that at the time of this incident she was employed by a Sentry insurance agency.  While she was supplied with a company car by Sentry she also owned a Trailblazer, the former of which was never operated by Pearson, to her knowledge.

Ms. Stone-Bell further testified that when Pearson moved to California she believed he took all of his belongings and television.  Further, Pearson stayed in the basement and not in the upstairs bedroom as his claimed.  Ms. Stone-Bell later submitted an affidavit stating that it was her belief that Pearson did not reside in her house once he left for California.  She also claimed that Pearson never operated the Trailblazer yet Shulta contradicted that statement when she submitted a statement that Shulta rode in the Trailblazer with Pearson as well as saw him operate it.

Now, Ristau’s testimony at her deposition provided further conflicting information.  [Remember, Ristau is the girlfriend at the time of accident and Pearson was operating a vehicle she owned at the time of the accident.]  Between April and December 2008, Pearson was not permanently moving to California as she picked him up at the airport several times and took him to Stone-Bell’s home.  She saw Pearson still occupied the basement bedroom he lived in before going to California.  Further, she saw Pearson’s room was not remodeled and he had a lot of things there including a closet full of clothes and shoes.

We know generally that whether a person is a resident of a household for coverage purposes is a fact intensive inquiry and the same holds true under Wisconsin law.  The Court must consider whether the individual and named insured were: “(1) living under the same roof; (2) in a close, intimate and informal relationship; and (3) where the intended duration is likely to be substantial, where it is consistent with the informality of the relationship, and from which it is reasonable to conclude that the parties would consider the relationship.”  In addition, the Court must consider when applying these factors, with not one be controlling, things such as the person’s age; whether a separate residence was established; the person’s self-sufficiency; the frequency and duration of the stay in the family home; and the person’s intent to return.  The Court also recognized the line of cases wherein a person can have multiple residences in certain situations.

Here, the dispute between the parties was where Pearson resided from April to December 2008.  The Court applying the aforementioned factors determined that Pearson was a young man (20 years old) at the time of the accident and almost entirely dependent upon Stone-Bell for financial support.  While in California he returned to Wisconsin between three to five times and never lived independently in either state.  He never signed a lease in California; never had mail forwarded to California; stayed on the cell phone family plan in Wisconsin; never obtained a California driver’s license due to long delays in obtaining one.  The one California bank account apparently was to accommodate his mother sending him money.  It was also noted that at the time of the accident he gave the police his Wisconsin address.

The Court further concluded that Pearson had free access to his mother and step-father’s home.  Despite the discrepancy on which room he stayed in and how much “stuff” was in the home, the Court concluded that it would appear Pearson had a close, intimate, informal relationship with his mother and he could come and go as he pleased.

On the other hand, some of the facts could support a finding of California residency.  Mr. Pearson’s claimed intent on moving, permanently to California as well as Ms. Stone-Bells’ claimed belief her son no longer lived in the house.  The Court continued on to note that both Pearson and his mother’s self-interest lie with a finding Pearson is not a resident relative due to additional payment of deductibles, which Pearson may not be able to afford, as well as his mother’s employment with Sentry perhaps believing an increase in insurance rates post-accident.

Ultimately, the Court held that summary judgment was not appropriate due to the record before the Court and a trial is warranted on whether Pearson was a resident of his mother and stepfather’s household.


Cassandra A. Kazukenus
[email protected]


This legislation amends General Obligations Law §§ 5-101 and 5-335 which were originally enacted in 2009.  General Obligations Law §5-335 sought to limit a health insurers right to recover against personal injury and wrongful death settlements.  The original language of this statute was less than clear and used language which suggested that it only applied when the settlement occurred during the course of litigation.  Although the goal of this provision was to protect settlements from liens/subrogation, it was less than successful.  For instance, in one federal decision, Wurtz v. Rawlings Co., LLC, 2013 WL1248631 (E.D.N.Y), the court held that this legislation was preempted to the extent it applies to any insured employee benefit plan covered by the Employee Retirement Income Security Act of 1974, as amended (ERISA).  As explained below by the drafters of this legislation, this amendment to General Obligations Law §5-335 was proposed and enacted:

The instant legislation is intended to make clear the original purpose of  sections  5-101  and  5-335  of  the general  obligations  law  which  is to ensure that insurers will not be able to claim or access any monies paid in settlement of  a  tort  claim whether  by way of a lien, a reimbursement claim, subrogation, or otherwise so that the burden of payment for health care services,  disability payments,  lost  wage  payments or any other benefits for the victims of torts will be borne by the insurer and not any party to a settlement  of such  a  victim's tort claim.   This law is specifically directed toward entities engaged in providing health insurance, thus falling under the "savings” clause contained in ERISA, which reserves to the states the right and the ability to regulate insurance.

This legislation makes several changes to the previously enacted General Obligations Law §§ 5-101 and 5-335.  §5-101 was amended by striking the term provider for that of insurer.  It was further amended to make it clear that an insurer is an “insurance company or any other entity, which provides payment or reimbursement of health care expenses, health care disability payments, lost wage payments…”   

The remaining changes were all to §5-335.  In short the legislation was changed to make it clear that this section applies to all settlements not just settlements occurring during the course of litigation.  Essentially, the changes seek to make it clear that a health insurer may not recover its payments made from a settlement of a bodily injury or wrongful death claim.  Added to this provision is subsection (c) which states that “This section shall not apply to a subrogation or reimbursement claim for the recovery of benefits provided by Medicare or Medicaid.”

This legislation has not been sent to the Governor at this time for his signature and is not applicable as of yet.


Katherine A. Fijal
[email protected]

06/26/13       Automax Hyundai South v Zurich American Ins. Co.
United States Court of Appeals Tenth Circuit –Oklahoma Law
Another Case of Consequences for Insurer’s Failure to Defend
This declaratory judgment action arises out of a lawsuit which began in August 2007 after Tammy Moses purchased a car from Automax.  Tammy’s father, David Moses cosigned the loan for her, but unknown to Tammy and her father Mr. Moses ended up as the sole signatory on the loan. 

Tammy purchased a Hyundai Elantra which was advertised as new, but it later turned out that Tammy was not the first owner. Tammy and David learned of this prior ownership about two months after purchase when Tammy crashed the car on a road trip to Dallas. After the accident Tammy had the car towed to a nearby Hyundai dealership, where she learned of the prior sale. She also learned that the car had extensive damage to the underbody, ostensibly predating the accident.

David Moses approached Automax and requested compensation for the damage, claiming that the damage predated the sale of the vehicle to him and his daughter.  Later, he sought to rescind the sale entirely, alleging that Automax had not fully disclosed the financing terms and had defrauded him by not disclosing the prior damage.

Automax submitted the claim the Zurich which denied coverage in a February 2008 letter stating that “Our investigation into the facts and circumstances concerning the above subject claim fails to reveal any negligence on the part of our insured.” Zurich also concluded “the damage occurred after Mr. Moses took possession of the vehicle”.

Tammy and David Moses filed suit in Oklahoma State Court.  The first petition alleged causes of action for common law fraud, violation of the Truth-in-Lending Act, and violation of Oklahoma’s consumer protection statute.  The allegations contained in the petition centered on the fact that Automax had intentionally sold the Elantra as “new” when it was in fact used and damaged.  By the time the Fourth Amended Petition was served the Moseses included a cause of action for “negligence or predatory [sic] lending”, claiming that Automax had inflated David Moses income to ensure approval of the loan.  Automax contested the claims maintaining that he vehicle was not damaged or “used” for purposes of Oklahoma law when it sold the car.

At the beginning of the lawsuit Zurich defended Automax under the “Statute and Title E & O” provision of the policy, which had a maximum coverage of $25,000.  Zurich did not defend under the “occurrence” provision which had liability limits of $500,000.   The E & O provision maxed out ten months before trial and Zurich stopped defending.  Automax continued with same counsel at its own expense.

The jury returned a verdict for Moses on all claims.  The jury also found that Automax had “acted in reckless disregard of the rights of others” and had “acted intentionally and with malice towards others”; however, there was no indication as to which claims these findings applied. The jury awarded compensatory damages of $300,000 and punitive damages of $100,000.  Automax settled the case with the Moses for $300,000.

Automax attempted to have Zurich indemnify it, but Zurich refused.  Automax filed suit in the federal district court, alleging that Zurich breached the terms of their insurance contract for refusing to defend and indemnify Automax in the Moses suit and breached the covenant of good faith and fair dealing (bad faith claim). 

Zurich filed a motion for summary judgment on Automax’s breach of contract and bad faith claim; and, Automax filed a cross motion for partial summary judgment on those same claims.  The district court granted Zurich’s motion.  The court reasoned that Zurich had no duty to defend Automax under its occurrence provision because the only negligence claim in the Moses lawsuit was based on intentional conduct, and all other claims were based on intentional conduct.  Moreover, because the jury found that Automax acted intentionally and with malice the court concluded that Zurich had no duty to indemnify Automax under its occurrence provision.  The court also noted that these findings triggered the policy’s exclusion for acts done with intent to harm. 

For the following reasons the United States District Court for the Tenth Circuit [“Court”] reversed and remanded.

In analyzing Oklahoma law on an insurer’s duty to defend the Court noted that the duty to defend is triggered by the facts reasonably available at the time that the defense is demanded, not by the outcome of the lawsuit.  In reviewing the facts of the lawsuit the Court determined that the suit contemplates the possibility that Automax did not know of the damage when it sold the Elantra to the Moseses and violated the ordinary duty of care by failing to detect the damage. The Court agreed with Automax that the failure to detect damage in a car constitutes an accident [“occurrence”] under the terms of the policy, because a dealership neither expects nor intends to cause injury to its customers when it sells a car that it believes is in perfect condition.

The next question addressed by the Court was whether Zurich had sufficient notice of this possibility to trigger its duty to defend.   The Court looked to the Zurich’s denial letter which noted that its investigation failed to reveal any negligence by Automax.  The Court interpreted Zurich’s response as suggesting the possibility that the car was damaged at sale but that Automax was not aware of it.

Zurich argued that it did not have a duty to defend because the conduct alleged in the complaint was intentional.  The Court disagreed noting that Zurich’s argument failed to acknowledge that the underlying facts, and not the allegations in Moseses’ complaint, are dispositive of the duty to defend. The facts indicate that Automax may have been negligent in failing to discover preexisting damage in the vehicle and the Court held that there was nothing more required to trigger the duty to defend.  Once a duty to defend is triggered, the insurer must defend all claims – both covered and uncovered.

The Court then addressed Zurich’s duty to indemnify.  Zurich argued that it did not have to indemnify Automax for any of the settlement because all of the conduct in the lawsuit was intentional, and the jury specifically found that Automax had acted intentionally and with malice.  In particular, Zurich argued that the sole claim that raised the possibility of coverage – negligence claim, was based on intentional conduct.  On the other hand, Automax argued that the jury’s verdict was ambiguous, and that this ambiguity cuts in Automax’s favor.

In analyzing the indemnity issued the court pointed out that where there are covered and uncovered claims a special verdict would have been preferable to the general verdict that was rendered in this case.  In this case the jury’s general verdict found Automax liable under three different theories of liability – negligence, fraud/deceit, and truth-in-lending violations – but none apportioned the $300,000 damages award among the three theories nor specified the precise conduct to which the finding of intentionality and malice applied.

As a result the Court found it necessary to conclude that it is possible that covered conduct formed a part of the basis for the jury’s verdict.  Since it was possible that there were both covered and non-covered claims in the final judgment the question then the issue became who had the burden for allocating the judgment between those claims.

In analyzing this question the Court referred to past decisions which held that where both covered and non-covered causes of action are alleged, the insurer (assuming it is in charge of the defense) must request a special verdict to disentangle the facts relevant to the indemnification of the insured. Damages are presumed to be covered unless the insurer can demonstrate an appropriate allocation. The difference here is that Zurich was not in charge of the defense at the time of trial.  After reviewing decisional law in other jurisdictions, however, the Court determined that most courts which have considered the question have held that while the insured generally bears the burden of allocating between covered and non-covered claims, the burden shifts to the insurer when the insurer had an affirmative duty to defend and failed to do so.  The Court stated that placing the burden of allocation on insurers when they have a duty to defend provides an appropriate incentive for them to fulfill their defense obligations.  The Court concluded that the Oklahoma Supreme Court, if faced with this decision, would also place the burden of allocation on the insurer if the insurer wrongful refuses to defend.

Although the burden of allocation lies with Zurich the Court went on to state that because of the general verdict and the impossibility of re-trying the case, Zurich would be unable to meet its burden of allocation.  As a result of such difficulties, the Court once again analyzed the law in other jurisdictions and found the some courts have concluded in similar situations that where an insurer cannot meet is burden of allocating based on a general verdict; the insurer is forced to pay the entire judgment.  The Court ultimately determined that Zurich should have an opportunity to meet its burden of allocation but if it cannot it must pay the entire verdict.

Finally, on the bad faith claim, the Court held that because it concluded that Zurich had a duty to defend Automax under the occurrence provision and that Zurich may not have had a reasonable basis for denying coverage, summary judgment for Zurich on the bad faith issue was inappropriate. 



Jennifer A. Ehman
                                            [email protected]    

06/20/13       TC Ravenwood, LLC v National Union Fire Ins.
Supreme Court, New York County
Where Insured Retained an Insurance Broker to Assist with Business Interruption and Repair Claim, Inclusion of the Broker on Attorney Related Correspondence Did not Waive Attorney-Client Privilege
Plaintiff filed a claim for repair costs and business interruption losses after a steam turbine generator at its facility shutdown due to a crack in its rotor.  As the insurance issue was complex, plaintiff’s in-house counsel sought assistance with the claim from its broker, Marsh.  After defendants, the insurance companies, denied the claims, Marsh helped negotiate a settlement with insurer Aegis, and developed a litigation strategy for the instant action.  Marsh communicated with both outside and in-house counsel for Plaintiff, and was forwarded communications and work product from counsel. 

Defendants served a subpoena on Marsh seeking document production.  Marsh withheld certain documents alleging attorney-client privilege. 

The court began by setting forth the standard.  “In order for the [attorney-client] privilege to apply, the communication from to client must be made for the purpose of facilitating the rendition of legal advice or services, in the course of a professional relationship [and t]he communication itself must be primarily or predominately of a legal character.”  This privilege is not waived, however, if the third party is acting as an agent of the attorney or the client.   

The court found that Marsh was specifically hired by plaintiff and its counsel to explain the complex insurance policies at issue.  While plaintiff may not have complied with all procedures set forth by Marsh for obtaining litigation assistance, Marsh actually performed the work required and plaintiff had a reasonable expectation of privacy.  Thus, plaintiff’s communications to Marsh did not constitute waiver of the privilege. 

After finding that the inclusion of Marsh in the subject documents did not waive the attorney client privilege, the court then examined the specific documents dividing them into three categories:  (1) communications between Marsh and plaintiff’s counsel; (2) communications between plaintiff and its counsel that were forwarded to Marsh, or Marsh was copied on; and (3) discussion between non-attorney employees of Marsh and plaintiff discussing requests and advice from counsel.  The court found that each category was privileged. 

The court also addressed the work product privilege noting again that the privilege was not waived as Marsh was acting as plaintiff’s agent.

06/13/13       Fitzsimmons v State Farm Fire and Casualty Co.
Supreme Court, Suffolk County
Insurer does not Breach Contract Where Insured Fails to Provide Sworn Statement in Proof of Loss
Plaintiff owned a home in East Setauket, New York.  On January 28, 2005, the home sustained water damage after the boiler failed, the residence lost heat, and a pipe burst.  Plaintiff submitted a claim to State Farm, her home insurer, on February 1, 2005.  Thereafter, plaintiff retained a licensed public adjuster to assist in settlement of the claim.  In conjunction with the investigation, State Farm agreed to pay for mold testing and remediation of the damaged areas of the premises. 

In June 2005, State Farm sent a letter to the public adjuster which contained a settlement offer.  Plaintiff then submitted a sworn statement in proof of loss for the building damage in the amount of the settlement offer.  State Farm issued payment of this amount.  After payment, plaintiff insisted that the property be re-inspected for mold.  The company retained to perform the re-inspection confirmed that plaintiff’s additional complaints were not related to the loss.  After these results, no additional documents were submitted concerning additional damage.  State Farm also reached out to plaintiff and the public adjuster four times following payment of the building damages requesting information about the plaintiff’s personal property claim and the need for a proof of loss.  No response was received. 

Plaintiff then brought this action alleging breach of contract in failing to pay her claim, breach of contract in failing to pay for loss of rental income and a violation of GBL 349.  The GBL claim was immediately dismissed.  State Farm then moved for summary judgment on the remainder of the claims. 

Initially, the court refused to grant summary judgment on the first claim based on accord and satisfaction as State Farm’s affidavit was insufficient to establish as a matter of law that the plaintiff and the defendant mutually agreed that payment of the amount set forth in the sworn statement in proof of loss for building damage would discharge plaintiff’s claim.  Nevertheless, the court still granted summary judgment dismissing the cause of action as it found no breach of contract with respect to this claim.  State Farm established that it performed its obligations under the contract.  It paid all damage related to the loss and there was no additional building damage which was covered under the policy.

With respect to the personal property portion of the first cause of action, the court likewise dismissed the claim.  It cited the policy conditions that the insured shall “submit to us, within 60 days after the loss” a statement in proof of loss.  Under 3407(a) of the insurance law, “[t]he failure of any person insured…under any contract of insurance…to furnish proof of loss…as specified in such contract shall not invalidate or diminish such claim…unless such insurer or insurers shall, after such loss or damage, give to such insured a written notice that it or they desire proofs of loss…on a suitable blank form or forms.”  Here, State Farm established that it made the formal demand with a blank form.  As the failure to provide proof of loss after receipt of the blank form is an absolute defense to claim, the court dismissed this cause of action.  While plaintiff attempted to argue that dry cleaning and furniture cleaning bills were submitted to State Farm, the court found that unsworn statements of loss do not satisfy the insured’s contractual or statutory obligations. 

Lastly, the court denied the second cause of action finding no proof that plaintiff in fact rented her home.  Thus, she was not entitled to rental income. 

06/11/13       Mapfre Ins. Co. of NY v McKnight
Supreme Court, New York County
Eligible Injured Person’s Failure to Appear for Scheduled EUO Results in a Breach of a Condition Precedent to Coverage
Mapfre Insurance Company (“Mapfre”) brought this declaratory judgment action seeking a determination that it is under no obligation to pay certain no-fault benefits due to the eligible injured person’s failure to appear for an Examination Under Oath. 

As to the merits of this position, Mapfre established that its telephonic and letter requests for the EIP to appear at an EUO were reasonable.  The failure to appear for an EUO requested by the insurer when, and as often as, it may reasonably require is a breach of a condition precedent to coverage under the no-fault policy.  Further, it argued that an insurer is permitted to retroactively deny claims on the basis of the EIP’s failure to appear for an examination requested by the insurer even though the insurer denied the claims on the ground of lack of medical necessity. 

Defendants asserted in response that by repudiating liability for the loss, an insurer has excused the insured from performance of its obligations. 

Ultimately, the court concluded that this was true for bills received after the IME, but not before it.  In other words, as there were three months of treatment before the IME which could not be denied based on a negative IME, Mapfre had every right to request an EUO of the EIP to verify coverage and treatment in this matter.  Thus, summary judgment was granted against defendants on Mapfre’s first cause of action based on the failure of the EIP to appear for the EUO.  Further, Mapfre was under no obligation to provide any coverage, reimbursement or pay any invoices for any and all no-fault services for which claims/bills have been or may in the future be submitted for which an EUO was requested and the EIP failed to appear. 

06/07/13       Ellis v United Fin. Cas. Co.
Supreme Court, Kings County
Plaintiff’s Injuries Sustained after Falling from a Flatbed Truck After being struck by a Forklift While Unloading another Vehicle Arose out of the Use or Operation of a Motor Vehicle
Plaintiff was standing on top of his flatbed tow truck in a recycling yard in Brooklyn, New York.  He was getting ready to unload a van that he owned to be scrapped at the yard.  Before the van could be fork-lifted from the truck, it had to be unchained.  As plaintiff stood upon his flatbed truck unchaining his vehicle and removing a sticker from its rear windshield, the forklift, operated by an employee of the recycling yard, began to lift the van, causing it to strike the plaintiff and topple him off of his truck.

Plaintiff submitted a claim for no-fault benefits under the flatbed truck’s automobile policy issued by United Financial Casualty.  United Financial denied the claim asserting that plaintiff’s “injury did not arise out of the use or the operation of a motor vehicle.” 

The court began by setting forth the Gholson standard, in order for an injury to qualify for no-fault benefits, it must:
(1) Arise out of the inherent nature of the automobile;
(2) Occur within the natural territorial limits of the automobile and the use, loading or unloading must still be in progress; and
(3) The automobile must not merely contribute to the injury but must actually produce it.

United Financial did not dispute that the first two prongs were satisfied; instead, it contended that plaintiff’s truck did not cause his injury.  In considering the last prong, the court acknowledged the line of case that hold that the mere fact a plaintiff was loading or unloading a vehicle when injured does not in itself entitle the plaintiff to no-fault benefits if the proximate cause of the injury was an instrumentality other than the vehicle itself.  Here, however, the plaintiff was unloading his van while standing on his insured truck, and the injuries were sustained as a result of being struck while on his vehicle and falling off the truck.  Thus, the accident met all three prongs of the Gholson standard. 

Bad Faith

06/26/13       Blakely v Safeco Ins. Co. of Illinois
United States District Court, M.D. Florida
Bad Faith Action Does Not Accrue until Breach of Contract Action has been Resolved in Favor of Insured
Plaintiff was involved in a motorcycle accident with an underinsured motorist.  Plaintiff alleged that defendant its insurance carrier refused to pay him underinsured motorist benefits.  In dismissing plaintiff’s third cause of action for bad faith failure to settle an insurance claim without prejudice, the court agreed with defendant that such a claim does not accrue unless and until the underlying action for insurance benefits has been resolved in favor of the insured.  In other words, plaintiff must prove breach of contract before bad faith. 

06/21/13       Westchester Fire Ins. Co. v Mid-Continent Cas. Co.
United States District Court, S.D. Florida
Failure of Primary Carrier to Advise Excess Carrier of Post-Verdict Settlement Demand Constituted Bad Faith
Jesus Pillado suffered multiple injuries while operating a concrete mixer truck manufactured and sold by Continental Manufacturing, Inc.  Pillado alleged that the truck’s air hopper assembly dropped on him causing brain damage and fractured vertebrae.

Continental was insured under a primary policy issued by defendant with a $1,000,000 limit and an umbrella policy issued by plaintiff with a $5,000,000 limit. 

Following the accident, defendant provided a defense.  Counsel for Pillado presented economic losses exceeding $1,000,000 and also indicated that Pillado would be bringing in an expert to testify concerning the seriousness of the injuries suffered.   In the ensuing litigation, defendant’s counsel conducted a mock trial with two separate jury pools.  While both pools indicated that damages were in excess of $2,000,000, the pools were split as to the amount of Pillado’s comparative negligence.  Nevertheless, the defendant’s claims adjuster concluded that the jury would award Pillado between $1,600,000 and $2,000,000, but that 75% to 90% comparative fault would be placed on Pillado. 

Pillado’s initial demand was $3,500,000.  As litigation progressed, mediation was conducted.  During mediation, defendant eventually offered $200,000, and Pillado reduced his demand to $3,300,000.  Defendant did not increase its offer out of concern that it would be used as a base figure in future negotiations.  Throughout this process, plaintiff urged defendant to settle the case.  At points, it even offered some of its own layer if defendant would put up its $1,000,000 in coverage. 

While negotiation was ongoing, defendant began contemplating the purchase of Pillado’s workers compensation lien valued at $500,000.  The hope was that by purchasing the lien it would remove a potential stumbling block in future settlement negotiations.  The lien was eventually purchased for $55,000. 

With the lien resolved, defense counsel against approached plaintiff who indicated that he would not move from a $2,000,000 demand.  In response, defense counsel indicated that the carrier would not offer its million.  Just prior to jury selection, Pillado agreed to accept $1,000,000.  Defendant did not respond. 

As expected (in bad faith cases) the jury returned a verdict of approximately $1,700,000.  Defense counsel was of the opinion that the verdict would be reduced by a substantial amount due to the lien.  Pillado made a final demand of $1,600,000, which defendant neglect to advise plaintiff about.  Ultimately, the trial judge declined to permit a set-off for the lien and awarded almost $300,000 in costs.  This resulted in exposure to the excess policy in the amount of $705,173, and this bad faith action.   

In examining the totality of the circumstances, the court found that defendant’s pre-verdict conduct did not constitute bad faith.  The results of the mock trial neither supported nor detracted from a finding that defendant satisfied its good faith duty.  Defendant likewise acted reasonably in relying on its defense counsel’s advice.  Counsel, an accomplished trial lawyer, felt that the case was 70% defensible.  The court likewise found that defendant’s decision not to raise its offer at mediation was reasonable as Pillado refused to lower his settlement demand.

Thus as it approached a verdict, defendant did not fail to properly or promptly defend the claim against Continental. However, turning to post-verdict, the court concluded that defendant acted in bad faith in its treatment of Pillado’s $1,600,000 demand.  An insurer's duty of good faith includes advising the insured, or excess carrier in this case, of settlement opportunities. Thus, where an insured “reasonably relies on the insurer to conduct settlement negotiations, and the insurer fails to disclose settlement overtures to the insured, the jury may find bad faith.  While defendant argued that this was inadvertent, the Court found that this omission was more than mere negligence.  Defendant knew of its duty of good faith to plaintiff as the primary insurer and was fully aware of plaintiff's interest in settling the case, if only from the eight previous demands that plaintiff had made calling for a settlement.


Earl K. Cantwell

[email protected]


S.R. Residence, LLC. v. Lexington Insurance Co., 2013 WL 1204709 (S.D. Texas, March 25, 2013).

This case involved claims against two insurance companies for breach of contract and bad faith in investigating and paying claims for hurricane damage at an apartment complex.  The policyholder owned four apartment complexes in Houston insured under a "tower" of insurance coverage with several other commercial property owners.  It appears that all of the "tower" coverage was not fully in place, and the policies at issue in this case provided primary coverage and a single layer of excess insurance when Hurricane Ike occurred in 2008.  Lexington Insurance was the primary carrier with a $25 Million limit of liability for all property owners.  Alterra Excess had a total of $10 Million in excess coverage that became available after exhaustion of the Lexington policy.

Lexington paid the policyholder $1.3 Million for hurricane damage to its property.  The policyholder sued Lexington for breach of contract, bad faith, and violation of the Texas Insurance Code.  When Lexington's $25 Million policy limit was exhausted by claims from other property owners, the policyholder added Alterra as a defendant.

The case proceeded in United States District Court in Texas with Lexington and Alterra eventually moving for summary judgment.  They first argued that they had exhausted their policy limits by paying this policyholder and other insureds under the combined group insurance coverage.  Alterra also argued that the plaintiff had "failed to cooperate" in the investigation of the claim filed with it.  The Federal Court granted summary judgment to the insurance companies. 
The court papers indicated that scores of claims were filed by multiple insureds, and that both Lexington and Alterra each paid out their full policy limits under their respective policies.  The Court thereby rejected any "breach of contract" claim. 

The Court also rejected the bad faith claim first noting that a bad faith claim cannot exist without a valid breach of contract claim unless there is evidence of some "extreme" act or circumstance that causes injury independent of the policy claim (“extra-contractual”) or an insurer's failure to timely investigate and process the claim.  The Court ruled that the policyholder failed to show any injury unrelated to the basic claim for policy proceeds.  The Court also said the evidence showed that Alterra repeatedly requested information from the policyholder which was never provided.  Alterra was not required to accept or reject the policyholder's claim because the policyholder never actually submitted the requested documents or proofs of loss.

This case shows the importance in a large loss situation of determining precisely the nature and limits of all primary and then secondary or excess coverage.  In this effort, it is important to confirm exactly what primary and secondary coverage was in place at the time of the loss, as in this case there was apparently a "plan" or intent to eventually have a larger "tower" of coverage which was never fully implemented.

The case also stands for the proposition that, even in the context of a catastrophic claim and large losses, insurance companies can rightly and properly require a policyholder to submit basic information and proofs of loss in adjusting and processing the claim.  Here, the excess policyholder was exonerated in part because the claimant never submitted requested loss documents or proofs of loss.

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