Coverage Pointers - Volume XV, No. 12

Dear Coverage Pointers Subscribers:

Do you have a situation?  We love situations.  Yes, we do.

I hope to see a number of you at the DRI Insurance Coverage and Practice Symposium in New York, next week. Audrey, Beth and Jen will be there as well.  It should be a great program.

Attaboy Steve:

We are delighted to report that we have learned that our own Steven E. Peiper, has been selected as the 2013 recipient of the Sheldon Hurwitz Young Lawyer Award by the Torts, Insurance & Compensation Law (TICL) Section of the New York State Bar Association.  That award is given to a young lawyer who has made outstanding contributions to the practice of insurance law and Steve surely has done so.  He has been a speaker at scores of CLE and CE training programs, locally, regionally and nationally. He has published articles in the field and is well respected and well regarded in the fields of First Party and Casualty coverage alike.  We are so very proud of him.

He is the fifth H&F recipient of that award, posthumously named after our co-founder, Shelly Hurwitz, a true mentor to young insurance and trial lawyers everywhere.

Congrats Steve. Well deserved.


Reservation of Rights Compendium – Just Imagine …:

Just imagine if I said to you that if you were to write a check for an amount less than you pay for one hour’s work by a coverage attorney, I could provide you with an up-to-date compendium of the rules relating to writing a reservation of rights/partial disclaimer letter in New York – a how-to manual. You would think.  “Geez, that’s a pretty good deal. I’d consider writing that check.”

Just imagine if I then said: You know what, because I like you, I will toss in New Jersey and Pennsylvania free.  You would likely say, “Hey, last time I had a Pennsylvania question, I had to spend time finding a lawyer out there who could brief me on the rules.  That cost me time and, if I recall, it cost me a couple of hours of legal fees. In addition, I am not even sure that lawyer I found really knew PA coverage. This is a really good deal.”

Just imagine if I then said:  “I really, really like you.  For that same check, I’m going to throw in the other 47 states, the District of Columbia and just for good measure, the Canadian provinces. I am going to send you a North American Reservation of Rights Compendium.  It will cover all the essentials in constructing reservation of rights letters.  It will have statutory and regulatory references, answer questions about timing and recipients, Cumis (independent counsel), recoupment of legal fees and plenty more AND each chapter will be written by a coverage guru, someone who really understands that particular state or province.”

Well, folks, that is exactly what I’m saying.

Writing a reservation of rights letter, especially in a state whose law is unfamiliar, can be among the most difficult tasks insurers and coverage counsel face—especially with a policyholders’ bar waiting to seize on any lack of compliance with applicable law. The DRI Insurance Law Committee’s Writing a Reservation of Rights: A North American Compendium, slated for publication in late 2013, provides a comprehensive guide to writing reservations of rights in all 50 states and the Canadian provinces, including the time frames, laws and language insurers need to keep in mind.  It will be a necessary part of every claim professional and coverage attorney’s library.

I’m proud to be one of the two Editors-in-Chief of the Compendium and with Beth Fitzpatrick the author of the New York chapter.  The publication will be available very shortly.  I’ve read the chapters, they are terrific.  Click here to preorder

Recoupment of Defense Costs Permitted in New York. A Permissive Trend Development?:

There are complementary decisions in this week’s edition.  See Steve’s discussion of the subject below.


Jen’s Gems

I hope everyone had a restful and enjoyable Thanksgiving holiday.  Right now, I am just getting back from a quick trip to New York City, and I am feverously trying to get a cover note out to our editor before this issue goes to print (or e-mail).   I wonder why I even bother since apparently the Editorial Board of this publication feels I discuss the weather, my child and bad faith with a frequency that is bordering on predictable.  But, just so they know, I do not always go in that particular order.  Sometimes, I address the cuteness of my baby before I reference the weather.  Depends how I feel that day.   

In terms of my column this week, I would direct you to an interesting decision from the New York trial courts finding that the notice provision in a claims-made policy was ambiguous.  The court felt that when considered in light of the interrelated claims provision, it was not clear whether the insured was required to provide timely notice of each interrelated claim or whether timely notice of the first was sufficient.

Also, next week I will be back in New York City attending DRI’s annual Insurance Coverage and Practice Symposium.  I am really looking forward to the event, and hopefully I will get the chance to meet some of our readers.   

Until next issue…

Jennifer A. Ehman

Editor’s Apologetic Note:  I forgot to include Jen’s note in the previous issue.  She sent it to me but in the haste to get the issue out, it just was inadvertently left on the cutting room floor.  I reviewed it to give you the highlight.  She wrote something about the weather, a cute story about her daughter, Emma, and something about bad faith.  I am so sorry you missed it.


Beth’s Bits

I hope you all had a lovely Thanksgiving, enjoying time with family and friends and taking the opportunity to reflect on all that you are grateful for.  I am grateful for all of you who make my job so enjoyable. 

I look forward to seeing many of you next week in New York City at the DRI Insurance Coverage Symposium.   The symposium presents the opportunity for attorneys and insurance professionals from across the country to gather for two days of exceptional programming and excellent networking opportunities.

This week, I discuss an action involving coverage for allegedly slanderous comments made by a selectman in a decision issued by the District Court in  Maine and the availability of coverage for the claims under a Commercial General Liability and Professional Liability Policy.

As many of you know, throughout the country, there exists an ongoing debate as to whether claims involving faulty workmanship, i.e., construction defect claims, constitute an “occurrence” under the terms and conditions of a Commercial General Liability Policy such that coverage would be available.  Several states have enacted legislation addressing the availability of coverage for construction defect claims and last week, on November 25, 2013, the New Jersey Assembly introduced a bill that would require insurers to define “occurrence” in commercial liability policies, taken out by “construction professionals,” to include coverage for faulty workmanship.  Hawaii, South Carolina, Arkansas and Colorado previously passed laws that would allow such coverage. 

The leading case on the issue in New York remains George A. Fuller Company v. United States Fidelity & Guaranty, decided in 1994.  The court in Fuller held that a CGL policy does not insure against faulty workmanship in the work product itself, but does provide coverage for faulty workmanship in the work product that causes the owner to face liability for bodily injury or property damage.  Stay tuned!
Til next time,

Elizabeth A. Fitzpatrick                                                                

One Hundred Years Ago: Lashes: 


Delaware Wife Beater Will Suffer From the Lash
December 6, 1913
New York Sun


Wilmington, Dec. 6 – The Delaware whipping post will be in operation again to-morrow, with Warden Crawford wielding the cat-o’-nine tails.

A wife beater who will serve four months will get ten lashes, as will a thief sentenced to six months, and a housebreaker to be imprisoned three years will suffer twenty lashes. 

John Dohring, a white man who stole forty pounds of brass pipe, escaped the lashed because he was operated upon recently.
Editor’s Note:  The whipping post and pillory have a long history in Delaware. Whipping was first sanctioned as a form of punishment in 1717. By the 1840s, there was some opposition to its use and many thought reforms were needed. The Legislature did revise the code and in 1852, there was a provision that no more than 60 lashes or more than one hour in the pillory would be executed for all sentences combined. The code also stated that whippings were to be well laid on the bare back and in public with the post and pillory near the jail of each county. The pillory was abolished in 1905, but the whipping post was law until 1972. The post was last used as a form of punishment in 1952.  For more information about the whipping post, click here.


Steve’s Stuff:

Welcome back.  In this week’s issue, we report on a series of title insurance cases.  The First American decision reviewed below touches on an interesting issue that often comes up in coverage cases.  How many times have you seen this:  Policyholder has a very difficult argument seeking to trigger coverage to apply to a large loss.  Faced with an exclusion that looks clear on its face, the smart counselor retreats to the only ground available…ambiguity

The ambiguity argument is always available, and it permits the insured to focus on the rule of strict construction for exclusionary clauses.  The argument, as often made, pokes holes in the targeted exclusion by arguing what it does not say.  The focus is not on whether the language as employed is unclear, but rather  that the language could have been clearer.  All too often, courts get dragged into evaluating an exclusion on the basis of what it does not say, as opposed to what, in fact, it actually does say. 

The First American case, however, gives some traction in combating the ambiguity argument.  As we’ve always stressed, and the Court in First American rightly employs, the analysis of an exclusion is based upon the exact language set out in the policy provision.  The test for ambiguity is based upon the words actually written.  The fact that policy could have been written differently is irrelevant.  In other words “feasibility” does not trump an otherwisw clear and unambiguous policy defense.

We also make a comment about the Second Department’s decision in the Fidelity case we review below.  In that decision, the Court denies Fidelity’s claims for recoupment of defense costs because, apparently, Fidelity did not reserve its rights when it undertook the defense of its insured.  The flip side of this argument, of course, is that Fidelity’s recoupment claim may been appropriate if it had reserved its rights.  This is a position apparently endorsed by the First Department in case reviewed in Dan’s column. 

This is a major shift; particularly, in light of K2’s admonishment of carriers that do not defend.  If it has not already, it should give policyholders major pause in pushing the estoppel rule espoused in K2.

In theory, K2 will lead to more defenses being provided by for insureds. It will also lead to more coverage litigation.  That was a trade off the policyholder bar is willing to make (more defenses for more coverage litigation).  We wonder, however, if the deal still looks so good where successful carriers will be able to “claw back” defense fees they laid out in weak defense cases?  Something to ponder as we proceed in a post-K2 environment. 

P.S. A tip of the cap to Audrey who predicted a carrier’s rights to recoupment over my “spirited” dissent.  It appears, insofar as this issue is concerned, she may have been spot on. 

Steven E. Peiper
 [email protected]


Throw In Two Cents, Three Times:


Jury Awards Nominal Verdict in
Action Against The Times
December 6, 1913
New York Times


Esther Quinn, who sued The New York Times for $100,000 damages for alleged libel, got a nominal verdict of 6 cents yesterday from a Supreme Court jury before Justice Whitaker.  Miss Quinn contended that she had been damaged by the publication in The Times on September 29, 1910, of a letter written by Dr. Harry Thurston Peck.  In this letter, addressed to the Trustees of Columbia University, Dr. Peck had set forth his defense to charges contained in Miss Quinn’s complaint against him in an action for alleged breach of promise of marriage, and in various letters, which Miss Quinn asserted, she had received from Peck, which had been published in The New York World.

Alfred A. Cook, of the law firm of Leventritt, Cook & Nathan, represented The Times on the trial of the action.  Ranulph Kingsley, the reporter who obtained the Peck letter for publication in The Times, was a witness.

Neither in its answer or the suit nor in the testimony offered on the trial did The Times attempt to justify the allegation of Dr. Peck, who was suspended from his professional duties following Miss Quinn’s suit for breach of promise, but rested its defense entirely on the mitigating circumstances developed from the association of Dr. Peck and Miss Quinn from 1899 to the time of Dr. Peck’s second marriage.


Cassie’s Capital Connection

Greetings and Happy Holidays from Albany!  Not only is it the beginning of the Holiday season but it is also the beginning of that time of year where I regret not paying attention to the weather forecast before I leave the house for an appearance.  As a transplant to the Capital District from the Midwest, I sometimes forget how quickly the elevation change leads to a change in weather.  Luckily, it is warm enough today that all I saw was rain and fog while I was lost in the Catskills trying to get back to Albany.  Plus, I was only lost for about 10 minutes so it was not too bad.

One of the great things about being in the Albany office is getting the opportunity to appear in the various courts in the region and becoming more familiar with my not-so-new home area.  There are so many counties that are only an hour or two from Albany, and the experience in each can be unique.  For example, you have the courthouses in the urban areas of the Capital District such as Albany and Schenectady counties to the Oneida County Court in Utica, which is made up of a bigger mix of rural and urban individuals to those courthouses located in counties such as Herkimer and Essex, truly rural counties.  It still surprises me how many small or rural courthouses there are because we are so close to New York, Westchester and Rockland County.  Today’s appearance made me appreciate these differences.  Because the courthouse in Columbia County is being renovated, the appearance was at an old school in Claverack, and the appearance was in the gym with a Judge who also presides in Troy as well.  It is always an adventure, and I enjoy being able to provide coverage for our clients in this area.

On the Legislative front, I do not have anything to report today.  The big discussion this week is that the Moreland Commission issued its preliminary report regarding the ethics of our Legislators, and their recommendations as to how to clean up Albany.  There were no surprises – there are ethics problems in the Legislature. 

Cassandra A. Kazukenus


One Hundred Years Ago – Prayer in the Schools, Some Controversies Never Die:

New York Tribune
December 6, 1913

Minnesota Attorney General
Holds Reading Unlawful.

[By Telegraph to The Tribune]

St. Paul, Dec. 5.—Reading the Bible in public school violates the Constitution, Attorney General Lyndon A. Smith ruled to-day, in response to a request for an opinion from C. G. Shulz, State Superintendent of Education. Mr. Smith quotes an opinion by Attorney General H. W. Childs, of December 1895, holding the opening of schools with prayer unconstitutional.  Mr. Smith says that he can see no distinction between reading the Bible and opening with prayer. The Attorney General points out that under the law the Attorney General’s opinions in school matters shall have the force of law until set aside by the courts, and that Mr. Child’s opinion never has been questioned by the courts. 


Mike’s Missives on No Fault Serious Injury:

You Can Run, but You Cannot Hide From Bad Expert Opinions

First, my congratulations go out to Steve Peiper for earning the Sheldon Hurwitz Young Lawyer Award.  With all that he has accomplished, it is odd to hear him referred to as a “young lawyer.”  I suppose that only means he has many more years with which to carry his clients’ standards and contribute to the insurance coverage arena.

This week the Court of Appeals reminds us that, when it comes to trial, we cannot simply shuffle unfavorable experts’ opinions under the carpet and pretend like they do not exist.  The failure to produce a witness who would be expected to testify in a party’s favor can result in an unfavorable inference at trial.  This includes expert witnesses.  Therefore, as always, put the work in early and carefully select your experts.  Work with them so they understand the issues and are provided with all the necessary information.  It is best to assign this task to an attorney who understands the pitfalls of working with experts because mistakes here are potential gold mines for opposing counsel.  Some things cannot be avoided, but good expert management is essential to making the strongest possible argument.

Michael Scott-Kristansen


A Busy Man, A Century Ago:
New York Times
December 6, 2013

Governor to be Here When He Is
Elected President of National League

Gov. John K. Tener of Pennsylvania stated yesterday that he would be in New York next Tuesday at the meeting of the National League, when he is to be elected President to succeed Thomas J. Lynch.  Mr. Lynch said yesterday that he had received no official communication that he was to be dropped, and the only thing he knew about the situation was what he had seen in the newspapers.  Gov. Tener has entered into the baseball situation with more enthusiasm than even his best friends expected.  He has always been an ardent admirer of the game, and he will take the office as leader of the league more through sentiment than anything else.

With the advent of Gov. Tener a new state of affairs is looked for in the National League.  It is believed that Tener is taking the position with the understanding that his word will rule.  He means to govern his umpires with the same iron hand that Mr. Lynch exercised.  All petty squabbles will be forgotten, and according to the present outlook, the National League club owners look for the older league to take a new lease on life. 

The Governor took on the job on President of the National League that he held, jointly, with his position of Governor of Pennsylvania.  However, he was not paid for this job with the National League until his term ended as Governor in 1915.  He was paid the equivalent of $500,000 for his job with baseball and held it for three years.


Headlines for the Cases Reviewed in This Week’s Issue:

Dan D. Kohane
[email protected]

  • Claim Solely for Reimbursement of Legal Fees Not Covered under E&O Policy; Court Sanctions Claim for Recoupment of Legal Fees
    In Pre-Prejudice-Statute Case, Late Notice of Accident, Claim and Pleadings Leads to Loss of Coverage
  • In Application to Stay Uninsured Motorist Arbitration, UM Carrier Failed to Establish That Offending Car Was an Insured Vehicle and In Fact, Failed to Prove that Alleged Offending Vehicle was Even Involved in the Accident
  • Primacy of Tractor and Trailer Coverage Determined by Specific Policy Language
  • ROR: BAD.  Disclaimer: GOOD.  Raise Coverage Defenses Timely, If They Are Based on Policy Exclusions, or Lose Them


Michael P. Scott-Kristansen

  • Lower Court Should Have Permitted “Missing Witness” Charge Where Defendant Failed to Call Its Medical Experts
  • Treating Physician’s Opinion on Causation Not Sufficient Where There Was no Examination of Prior Medical Records and the Physician’s Notes Indicate a Preexisting Condition
  • Findings of Limited Range of Motion by a Defense Expert: Defendants Fail to Meet Burden
  • Arthritis Is Not a Serious Injury Absent Evidence of Limitations and Their Duration
  • Competent Medical Evidence Is Still the Standard and Required to Establish a Lack of Serious Injury
  • No Rational Person Could Conclude the Plaintiff Sustained a Serious Injury to His Knee
  • Plaintiffs Must Only Rebut Arguments Upon Which Defendants Meet Their Burden


Margo M. Lagueras


  • Respondent Shoots Itself in the Foot
  • Award for Applicant Despite Boilerplate Rebuttal
  • Claim Dismissed Without Prejudice for Failure to Be Licensed by NYC Department of Consumer Affairs
  • IME Insufficient Where Examiner Lacks Appropriate Credentials
  • Would Back Pain Cause a Knee to “Give Out”?
  • Denial Is Not Upheld as Peer Review Failed to Address Post-Operative Care



  • Failure to Respond to EUO Request Precludes Opposition to Request


Steven E. Peiper

[email protected]
First Party

  • Estoppel Claim Fails Where Movant Does Not Establish Prejudice; Cross-Motion Fails Where Defendant Fails to Establish “Materiality” of a Misrepresentation
  • Claim Against Agent Fails Where “Special Relationship” was not Established
  • Suggestion of “Clearer” Wording by Plaintiff Did Not Create Ambiguity Where the Exclusion was Unmistakable on its Face


  • Missing Witness Charge Appropriate Where Defendant Failed to Produce IME Physician at Trial


Elizabeth A. Fitzpatrick

Beth’s Banter on Coverage “B”

  • No Coverage for Slander



  • New Jersey Bill Would Afford Coverage for Faulty Workmanship


Audrey A. Seeley

  • Doctrine of Contra Proferentem Not Applied to Coverage Dispute Between Insurers


Cassandra A. Kazukenus

  • Just a cover note this week.


Katherine A. Fijal

  • State Law Claims Preempted by Federal Law


Jennifer A. Ehman  

  • Notice Provision in Claims-Made Policy Found to be Ambiguous
  • Court Applies Arizona Law and Declines to Dismiss Insured’s Bad Faith Claims Premised on the Insurer’s Actions Separate from its Claims Handling


Earl K. Cantwell

In Time for The Holidays:  Holiday Gift Card Dispute


We hope that you are have a glorious holiday season.  Again, we hope to see you in New York for the DRI Insurance Law program.


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]
H&F Website:
Twitter: @kohane


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

Dan D. Kohane
[email protected]

Audrey A. Seeley

Jennifer A. Ehman

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

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]

12/05/13       Certain Underwriters at Lloyd's v. Lacher & Lovell-Taylor, P.C.
Appellate Division, First Department
Claim Solely for Reimbursement of Legal Fees Not Covered under E&O Policy; Court Sanctions Claim for Recoupment of Legal Fees
A claim for the return of legal fees is not a claim for "damages" in a legal malpractice action, as defined in the professional liability policy issued by plaintiff to defendants. In support of each of the causes of action, the complaint alleges only that defendants overbilled their client; it does not allege facts tending to show that but for their negligence, they could have achieved a better result for him.

Moreover, plaintiff reserved its right to seek reimbursement of its defense costs in the event of a finding of no coverage.
Editor’s Note:  The “recoupment” part of this decision is important.  This is one of the first Appellate Division decisions sanctioning recoupment of defense costs where the carrier has reserved the right in its coverage position letter.


12/05/13       Vale v. Vermont Mutual Insurance Group
Appellate Division, Third Department
In Pre-Prejudice-Statute Case, Late Notice of Accident, Claim and Pleadings Leads to Loss of Coverage
We are probably running out of pre-prejudice-statute cases. This is one of the last stragglers.

Vale owned a motel in Saratoga Springs, insured by Vermont Mutual (“Vermont”).  On June 27, 2008, a guest of the motel fell on a rug in his room. Not letting the rug grow cold under his feet, in August he started a personal injury action in Bronx County.  Vale wrote a letter to the guest’s lawyer in in September 2008 contending, among other things, that the underlying lawsuit was fraudulent.  A supplemental summons and complaint followed in December 2008, and Vale again responded with a pro se letter.

Vermont was notified of the suit until January 23, 2009 and four days later, Vermont denied coverage based on late notice of the accident, claim and lawsuit.

Vale commenced a declaratory judgment action. The court found that there was proof that the notice of the accident, claim and lawsuit were untimely (five months late) and no good excuse was offered for the delay.  Vale knew that the guest was claiming injury based on its negligence and there was no excuse for not providing Vermont with the pleadings.  The insured’s claim that the lawsuit was fraudulent didn’t fly because there was proof that the guest was in fact registered in that room during the time alleged.


12/04/13       Farmers Insurance/Truck Insurance Exchange v. Terzulli
Appellate Division, Second Department
In Application to Stay Uninsured Motorist Arbitration, UM Carrier Failed to Establish That Offending Car Was an Insured Vehicle and In Fact, Failed to Prove that Alleged Offending Vehicle was Even Involved in the Accident
Farmers brought an action to permanently stay an arbitration proceeding for uninsured motorist (“UM”) benefits.  It claimed that the offending vehicle was insured by National Union at the time of the accident.  A framed issue hearing was conducted, and the referee determined that the National Union vehicle was not involved in the accident and therefore National Union had no obligation to defend or indemnify the owner or driver sued.

Farmers had the burden of proving that the offending vehicle was insured and failed to do so. The referee based the decision, in part, on the credibility of the witnesses who testified and that determination is subject to great deference on appeal.


12/03/13       National Continental Ins. Co. v. Countrywide Ins.
Appellate Division, First Department
Primacy of Tractor and Trailer Coverage Determined by Specific Policy Language
In May 2008, Faustino was driving a Peterbilt tractor (“tractor”) owned by Disano Trucking and insured by National.  Faustino was pulling a Talbert trailer (“trailer) owned by Disano Construction and insured by Countrywide.  National sought a declaration that its coverage was secondary or excess to the coverage of Countrywide, which was to be primary vis-a-vis any accident resulting in personal injury arising from the operation of the tractor and the trailer.

National's policy provides primary coverage for a trailer if it is owned by the insured, Disano Construction, and both the tractor and trailer involved in the accident are listed on the policy's declarations page. If not, coverage is excess. Here, neither condition was met; the trailer was not owned by Disano Construction nor was the trailer listed on the policy.

The Countrywide policy, by contrast, provides primary coverage for the tractor and any trailer connected to it. Based on this clear language, Countrywide's policy was primary, with National's coverage to be excess.


11/26/13       Hartford Underwriting Ins. Co. v. Greenman-Pederson, Inc.
Appellate Division, First Department
ROR: BAD.  Disclaimer: GOOD.  Raise Coverage Defenses Timely, If They Are Based on Policy Exclusions, or Lose Them
Hartford knew of the accident some years before it disclaimed.  It argued that its duty to disclaim was not triggered until it received the summons and complaint.  The court rejected that contention: once the insurer has sufficient knowledge of facts entitling it to disclaim, or knows that it will disclaim coverage, it must notify the policyholder in writing as soon as is reasonably possible. Even assuming that Hartford's duty to disclaim was not triggered until it received the complaint in 2008, Hartford failed to explain why it did not disclaim until 2009.

Hartford's back-up position was that it had issued reservation of rights letters, issued in 2006 and 2008, but the court found that the ROR did not constitute a clear disclaimer of coverage.  Hartford's 2006 and 2008 letters failed fulfill the essential purpose of a disclaimer: to timely and clearly inform the insured of where the insurer stands on the issue of coverage for the action and why, so that the insured can promptly consider appropriate alternatives.

As to Lloyds, it argued that the insured failed to comply with the supposed policy condition that notice is given to Aon, Limited in England. However, since that argument was not raised before, it was waived.

Finally, Lloyd's contends that if there is coverage under the OCIP Policy, it is excess to the coverage provided by Hartford and Continental. This argument should be rejected as the OCIP Policy expressly states that it provides primary insurance regardless of whether other insurance is available to the insureds.
Because Lloyd's received proper notice of the underlying claim from Hartford, but failed to disclaim in a timely manner, it too cannot raise coverage defenses.
Editor’s Note:  Yet another reminder how much courts in NY dislike Reservation of Rights letters.


Michael P. Scott-Kristansen

11/26/13       Devito v. Feliciano
Court of Appeals             
Lower Court Should Have Permitted “Missing Witness” Charge Where Defendant Failed to Call Its Medical Experts
This is not your typical serious injuries threshold case.  Actually, although a serious injury threshold determination provided the background circumstances, this case was not about the serious injury threshold at all.  I include this case purely for its relevant cautionary value.

The plaintiff sued for serious injuries sustained as a result of an auto accident and the case went to trial.  The plaintiff put on her physicians in an attempt to establish that her nose fracture and T12 fracture were caused by the accident.  The defendants, in turn, read into the record portions of a transcript from a deposition of their ear, nose, and throat physician.  Otherwise, the defendants declined to call any of their four physicians who had examined the plaintiff on their behalf.  The plaintiff sought to provide the jury with a “missing witness” charge, but the lower court denied.  The issue here, simply stated, is that it is suspicious when a party does not want to put its own medical experts on the stand.

The Court of Appeals overturned the lower courts and held that the trial court should have granted the plaintiff’s request for a missing witness charge.  Such a charge instructs the jury that it may draw an adverse inference based on the failure of a party to call a witness who would normally be expected to support that party’s version of events.  Because this was not harmless error, the Court concluded a new trial was warranted.


11/26/13       Dawkins v. Cartwright
Appellate Division, First Department
Treating Physician’s Opinion on Causation Not Sufficient Where There Was no Examination of Prior Medical Records and the Physician’s Notes Indicate a Preexisting Condition
The defendants won their motion for summary judgment regarding the plaintiff’s claim of a significant limitation of use and a permanent consequential limitation of use.  The First Department affirmed.

The defendants prevailed by meeting their burden on the issue of causation.  The defendants’ radiologist opined that the conditions in the plaintiff’s lumbar and thoracic MRIs were chronic and degenerative and showed no evidence of acute trauma.  The defendants’ neurologist, likewise, opined that the plaintiff had preexisting lumbar and cervical spine symptomology and that there was no evidence of a causally related significant injury.  The defendants also submitted the plaintiff’s medical records, showing the plaintiff was 52, obese, and had been receiving physical therapy for chronic back pain before the accident.

In opposition, the plaintiff’s radiologist found degenerative changes and her treating physician’s opinion on causation was unhelpful.  The treating physician opined that there was a causal connecting between the injuries and the accident, but the physician’s own records from the plaintiff’s first examination state that she had complained of lower back pain since 1999.  Further, the physician did not review any records of the plaintiff’s prior medical treatment.


11/26/13       Pineda v. Moore
Appellate Division, First Department
Findings of Limited Range of Motion by a Defense Expert: Defendants Fail to Meet Burden
The Court overturned judgment in favor of the defendants.  The defendants failed to meet their burden because one of their physicians found a limited range of motion in the plaintiff’s lumbar spine.

The defendants also failed to meet their burden on causation, but the Court provided no additional detail.  The plaintiff’s 90/180-day claim was properly dismissed, but the Court declined to provide additional detail because the plaintiff abandoned this issue on appeal.


11/27/13       Strenk v. Rodas
Appellate Division, Second Department
Arthritis Is Not a Serious Injury Absent Evidence of Limitations and Their Duration
The defendants established a lack of serious injury to the plaintiff’s knee.  The defendants also established a lack of a 90/180-day injury by submitting the plaintiff’s bill of particulars, which revealed that the “plaintiff returned to work on a partial basis during the relevant period of time.”

The plaintiff failed to meet his own burden of establishing a question for trial.  His orthopedic physician noted a limited range of motion in the plaintiff’s knee, but failed to provide a qualitative or quantitative assessment of that limitation.  Further, although the plaintiff established that he suffered from an arthritic condition in his knee, there was no serious injury in the absence of evidence of the extent of resulting limitations and their duration.

The plaintiff’s self-serving affidavit was insufficient to raise a triable issue of fact.
Editor’s Note: Self-serving affidavits of a plaintiff or defendant rarely carry much weight.  The Ramkumar case, the case that told us that plaintiffs can create a question of fact regarding a gap in treatment by submitting an unsubstantiated reason for the gap (see the 11/8/13 and 10/25/13 issues of Coverage Pointers), did not change this.


11/27/13       Barrera v. Klinger
Appellate Division, Second Department
Competent Medical Evidence Is Still the Standard and Required to Establish a Lack of Serious Injury
The defendant established a lack of serious injury and a lack of causation by submitting competent medical evidence.  The defendant’s motion for summary judgment was denied, however, because the plaintiff met its own resulting burden of establishing a serious injury caused by the motor vehicle accident at issue.


11/27/13       DiCariano v. County of Rockland
Appellate Division, Second Department
No Rational Person Could Conclude the Plaintiff Sustained a Serious Injury to His Knee
This was a case that proceeded to trial.  The jury found for the plaintiff and the defendants made a motion pursuant to CPLR 4404 for judgment as a matter of law.  As I said before, overturning a jury verdict is no easy feat.  Under CPLR 4404, the defendants had to show that there was no valid line or reasoning, allowing for all permissible inferences that could possibly lead rational persons to the conclusion reached by the jury.

Here the defendants met that burden.  The Court spares the reader the undoubtedly complicated details of the trial, and merely notes that the plaintiff failed to establish either a significant limitation or use or a permanent consequential limitation of use as a matter of law.

The plaintiff failed to demonstrate a significant limitation of use because the plaintiff failed to establish his knee injury was significant in degree and existed for a sufficient period of time.   The plaintiff’s knee injury was apparently “fleering in duration.”

The plaintiff failed to demonstrate a permanent consequential limitation of use because he failed to submit the results of any recent examination establishing there was any limitation to his knee of any consequence.


12/4/13         Grigore v. Kourounis
Appellate Division, Second Department
Plaintiffs Must Only Rebut Arguments Upon Which Defendants Meet Their Burden
The defendants met their burden by showing a lack of causation with respect to some of the plaintiff’s claimed injuries and the lack of seriousness with respect to the others.  The defendants’ motion for summary judgment, however, was improperly granted because the plaintiff established a question of fact regarding causation and seriousness for those same injuries.


Margo M. Lagueras


11/26/13       Elite Medical Supply of NY, LLC v. Liberty Mut. Fire Ins. Co.
Erie County, Arbitrator Kent L. Benziger
Respondent Shoots Itself in the Foot
Less than a month after the accident, the treating chiropractor prescribed an Elite Multi-Mode Stimulator to the 25-year old EIP.  Respondent’s peer reviewer cited several authoritative sources supporting his conclusion that the DME was not proven effective and, in any event, was prescribed less than one month post-accident which would be during the acute period.  The rebuttal letter by the chiropractor cited an article that studied patients whose pain had persisted more than six weeks and therefore did not serve to rebut the peer review.  However, Respondent then submitted an article that not only did not support its peer review, but actually rebutted it by extolling the benefits of electrical stimulation.  As a result, Respondent rebutted its own peer review, effectively shooting itself in the foot, and guaranteeing an award in Applicant’s favor.


11/26/13       Elite Medical Supply of NY v. New York Cent. Mut. Fire Ins. Co.
Erie County, Arbitrator Kent L. Benziger
Award for Applicant Despite Boilerplate Rebuttal
About a month after the accident, a cervical traction unit and a multi-mode stimulator were prescribed to the 28-year old EIP following a cervical MRI revealing a left paracentral C4-5 herniation and bulges at C5-6 and C6-7, and a lumbar MRI showing a small posterior herniation at L5-S1.  Respondent denied the DME based on a peer review that concluded that there were no findings of cervical radiculopathy or nerve impingement, and no authoritative support for the efficacy of cervical traction in cases involving acute neck pain.  The treating chiropractor issued a rebuttal that was essentially boilerplate to numerous others issued by providers prescribing Elite products.  The peer reviewer then issued an addendum, again noting no evidence of cervical radiculopathy as confirmed by negative EMG testing.

The Arbitrator found that the initial peer review was not persuasive with regard to the stimulator because the reviewer failed to cite to any authoritative sources to support her contention that it was not in keeping with generally accepted practices.  In addition, the peer reviewer did not discuss the positive diagnostic findings.  With respect to the cervical traction unit, the Arbitrator again found the peer review unpersuasive because contrary to the reviewer’s contentions, the medical records did evidence cervical radiculopathy and a herniated disc causing impingement.  The positive findings on the EMG testing and MRIs were not discussed by the reviewer, resulting in an insufficient peer review.


11/22/13       WJW Med. Products, Inc. v. Progressive Ins. Co.
Erie County, Arbitrator Douglas S. Coppola
Claim Dismissed Without Prejudice for Failure to Be Licensed by NYC Department of Consumer Affairs
Respondent asserted that Applicant was not entitled to be reimbursed because it was not licensed by the NYC Department of Consumer Affairs and, pursuant to the NYC Administrative Code, Section 2-426, all retailers of DME located in or operating within the five boroughs of NYC must have a license in order to sell or distribute DME.  Respondent also cited to the Insurance Department Opinion of August 1, 2003, which states that an assignee must adhere to all applicable licensing requirements of a specific locality.  Since NYC requires licensing of DME sellers, the Arbitrator found the claim was not ripe and dismissed without prejudice to provide Applicant to obtain the requisite license and then resubmit the claim.
Note:  Although not explained in the award, this matter was heard in Erie County even though it obviously involved a prescription for DME to be provided to an assignor residing within the NYC area.  It serves as a reminder to keep local requirements in mind.


11/22/13       Cameron B. Huckell, MD v. Allstate Prop. & Cas. Ins. Co.
Erie County, Arbitrator Douglas S. Coppola
IME Insufficient Where Examiner Lacks Appropriate Credentials
The assignor was receiving orthopedic care as a result of an August 2011 accident in which she sustained neck and back injuries.  Respondent arranged for an IME with Dr. Christopher Grammar, an anesthesiologist.  According to Dr. Grammar’s CV, he does not have a pain management sub specialty.  The Arbitrator noted that Respondent failed to establish that Dr. Grammar, who is not an orthopedic specialist, was familiar with the generally accepted standards of care in orthopedics or that he has the requisite skill, training, education, knowledge or experience from which it can be assumed that his opinion with regard to orthopedics is reliable.  As such, the Arbitrator determined that Dr. Grammar’s credentials would not serve to cut off the orthopedic treatment being rendered by Dr. Huckell.


11/21/13       Graham Huckell, MD v. Merchants Preferred Ins. Co.
Erie County, Arbitrator Douglas S. Coppola
Would Back Pain Cause a Knee to “Give Out”?
The EIP was involved in an accident in May 2012.  His sole complaint was back pain.  In August he underwent a chiropractic IME during which he complained only of back pain.  In September, he had a trip and fall, injuring his wrist but never mentioning any injury to the knee or that the fall was caused by the knee “giving out.”  Ultimately, in January 2013, he had an MRI of the left knee and underwent arthroscopic surgery. 

Upon receipt of the surgery bills, Respondent arranged for a peer review with Dr. Eric Freeman who noted that there were no knee complaints until nine months post-accident.  He opined that there was no causal relationship with the accident based on the extreme length of time between the accident and the first complaints and the EIP’s claim that his knee “gave out” because of his back pain.  The Arbitrator agreed that while knee pain could give rise to subsequent back pain, it was difficult to imagine how a knee would “give out” as a result of back pain.  He therefore denied the surgery base on Dr. Freeman’s persuasive report and Applicant’s failure to rebut.


11/21/13       Edward Simmons, MD v. Geico Ins. Co.
Erie County, Arbitrator Michelle Murphy-Louden
Denial Is Not Upheld as Peer Review Failed to Address Post-Operative Care
At issue was reimbursement for a lumbosacral orthosis (LSO) dispensed in April 2011, as a result to injuries sustained in July 2009.  The EIP had a lumbar MRI and underwent several types of conservative care, including chiropractic treatment, physical therapy, pain management including epidural injections, and massage therapy.  In February 2011, the EIP had an initial consultation with Applicant who recommended an updated MRI which was performed in March.  Although surgery was recommended, the EIP wished to continue with conservative care.  Ultimately in April 2011, the EIP agreed to undergo an L5-S1 discectomy with interbody fusion and instrumentation and was fitted for the LSO to take to the hospital to use following the surgery. 

In May, Respondent arranged for a peer review to consider the medical necessity of the LSO.  The reviewer opined that the LSO was not medically necessary as there was no evidence to fracture or instability, or evidence of the effectiveness of an LSO in the treatment of acute lower back pain.  The Arbitrator found the peer review to be unpersuasive as it only discussed the use of an LSO in the treatment of lower back pain but failed to discuss its use in post-operative care as was intended in this case.  In addition, the peer review discussed the use of an LSO for treatment of acute low back pain while the EIP in this case was far beyond the acute period.  Therefore, the Arbitrator determined that the denial could not be upheld.



10/29/13       Flatbush Chiropractic, PC v. State Farm Mut. Auto. Ins. Co.
Appellate Term, Second Department
Failure to Respond to EUO Request Precludes Opposition to Request
Plaintiff appealed the Civil Court’s grant of defendant’s motion for summary judgment dismissing the complaint for plaintiff’s failure to comply with properly noticed EUO requests.  Plaintiff claimed that defendant failed to establish proper mailing of the request letters and denials, and that defendant was not justified in requesting the EUO.  On appeal, the Appellate Term found that the affidavits submitted by defendant sufficiently established proper mailing.  In addition, and given that plaintiff failed to respond in any way to the EUO requests, plaintiff’s objections could not be considered and discovery to establish the reasonableness of the EUO requests was not necessary to oppose defendant’s motion as plaintiff claimed.

Steven E. Peiper

[email protected]

First Party

12/05/13       BX Third Ave. Partners v Fidelity Natl. Tit. Ins. Co.
Appellate Division, Second Department
Estoppel Claim Fails Where Movant Does Not Establish Prejudice; Cross-Motion Fails Where Defendant Fails to Establish “Materiality” of a Misrepresentation

In piecing the facts of this case together, it appears that Fidelity issued a title insurance policy to plaintiff.  In an underlying foreclosure action, Fidelity agreed to defend (and, in fact, did defend) plaintiff under the terms of the policy.  Subsequent to the conclusion of the foreclosure action, Fidelity apparently uncovered an allegedly material misrepresentation that, if known previously, would have resulted in the cancellation of the policy in question. 

Plaintiff moved for summary judgment therein arguing that Fidelity was estopped from denying the claim at this late stage.  In response, Fidelity cross-moved for summary judgment seeking a declaration of no coverage due to plaintiff’s alleged misrepresentations.  Fidelity also sought to recoup its defense costs in the underlying foreclosure action. 

Plaintiff’s motion was denied when it failed to establish prejudice due to Fidelity’s control of the defense in the underlying action.  Moreover, plaintiff’s also failed to establish the amount of damages it sought.  The unsworn appraisal estimate was an insufficient attempt at establishing claimed damages. 

On the flip side, Fidelity’s motion was denied where it failed to actually include underwriting materials which established the “materiality” of the misrepresentation.  Fidelity’s attempts to recoup defense costs were also dismissed where it failed to reserve its rights to recoupment at the time it assumed the defense.

Peiper’s Point – Compare this decision with the liability case reported in Dan’s column above.  It would appear that there now exists “recent” authority from the Appellate Division which permits recoupment where the carrier reserves its rights at the time the defense is undertaken.  Interesting….


12/04/13       Simmons v Allstate Ins. Co.
Appellate Division, Second Department
Claim Against Agent Fails Where “Special Relationship” was not Established
Plaintiff commenced the instant action against Allstate and James E. Fox Agency, Inc. after a fire loss claim was denied.  Plaintiff’s claims against the agent, specifically, alleged negligent misrepresentation and general negligence.  While the trial court initially denied the agent’s motion to dismiss, upon re-argument it reconsidered and ultimately granted the agent’s application. 

In a subsequent appeal, the Appellate Division noted any claim against an agent will fail where, as here, the movant cannot establish the existence of a special relationship.   In addition, the Court also noted that the plaintiff likewise failed to establish a negligent misrepresentation as well.  As such, the trial court’s change of position after re-argument was affirmed.


12/04/13       A. Gugliotta Dev., Inc. v First Am. Tit. Ins. Co. of NY
Appellate Division, Second Department
Suggestion of “Clearer” Wording by Plaintiff Did Not Create Ambiguity Where the Exclusion was Unmistakable on its Face
First American issued a title insurance policy on a 9 acre plot that was originally purchased by plaintiff in 2003.  At the time of the policy’s inception, First American included an exclusion for claims relating to a “trail running across the property.”  Six years later, in 2009, a third-party withdrew an offer to purchase the parcel after the trail was discovered. 

Plaintiff commenced the instant action alleging that the title insurance policy had been triggered, and that First American’s reliance upon the trail exception was improper.  The Second Department reviewed the clause at issue, and held that it specifically precluded coverage for losses arising out of the trail.  Accordingly, even strictly construing the exclusionary clause at issue, the Court ruled that the policy was not applicable to the claimed loss.  In so holding, the Court noted that plaintiff’s suggestion that the exclusion could have been written more clearly was unavailing because “such lack of specificity does not render the policy provision ambiguous.”  The Court also refused to accept extrinsic evidence which was submitted to support plaintiff’s claims for an ambiguity.

Peiper’s Point – This is a good case to keep in mind moving forward.  Often a policyholder will argue ambiguity where, as here, the policy “theoretically” could have been written differently.  The test is not “feasibility,” but rather whether the language that was employed was unclear.  If the language is fully understood on its face, the clause is enforceable regardless of what other options, varieties or permutations could have been employed.

11/26/13       Devito v Feliciano
Court of Appeals
Missing Witness Charge Appropriate Where Defendant Failed to Produce IME Physician at Trial
Devito was allegedly injured when the vehicle in which she was a passenger was struck in a rear end collision.  Plaintiff alleged fractures to her nose and back and later sued Feliciano seeking recovery for the same. The evidence elicited through pre-trial discovery established that, on the date of the accident, Ms. Devito appeared at the emergency room. At that time, plaintiff made no complaints of nasal pain.  She also appeared to walk with a steady, stable gait. 

One month after the accident, plaintiff was diagnosed with a non-displaced fracture of her nose, and two months after the accident plaintiff was diagnosed with a fracture at her T-12 vertebrae.  As part of discovery, plaintiff was evaluated by no less than four different IME physicians. 

Eventually, the matter proceeded to a two day jury trial on damages.  The trial, it appears, went decidedly in the defendant’s favor. Particularly, upon vigorous cross-examination, one of plaintiff’s own doctors conceded that it appeared plaintiff did not sustain an injury to her nose in the collision with defendant. Other’s conceded that the fact that she presented to the ER with no complaints of nasal pain was inconsistent with her allegation that her nose was broken at the time of the accident. 

With regard to the T-12 fracture, several of plaintiff’s treating physicians noted that the fracture could have been caused by a different mechanism of injury other than the car accident giving rise to the lawsuit. 

Based upon the strength of cross-examination, defendant declined to call any of its IME physicians.  Plaintiff, in turn, requested a missing witness charge from the presiding trial judge.  Defendants argued that there was no basis for a missing witness charge where, as here, their witnesses would be providing testimony that was merely cumulative of that provided by plaintiff’s treating physicians. 

The trial court agreed with defendant’s counsel.  Although it would not provide the missing witness charge, the trial court did permit plaintiff to reference defendant’s failure to call witnesses in his closing arguments.  Counsel availed himself of this opportunity, and suggested in closing that if defendant’s could prove their case they would have provided an expert physician to support their theories. 

Counsel’s closing did not work, however, as the jury returned a defense verdict therein finding a lack of causation with either the nose fracture or the fracture at T-12. 

On appeal, the Second Department affirmed the trial court’s decision on refusing the missing witness charge.  The Court of Appeals granted leave, and ultimately reversed the Second Department’s ruling.  In reaching its conclusion, the Court noted that the missing witness charge is only appropriate where the movant establishes that the witness in question (a) possessed material knowledge, (b) that was not noncumulative, and (c) was in the control of the party against whom the charge was being sought.

Defendant acknowledged that their witnesses possessed material knowledge, and were within their control.  However, defendant’s continued to maintain that since the testimony would have been cumulative, they decided against calling any witnesses.  The Court rejected this theory, and instead stated that a witness’ testimony will only be considered cumulative if their testimony is duplicative of another individual “testifying for the same party.”  Since the defense called no witnesses, there was no cumulative effect.  The defense could not rely upon the testimony of plaintiff’s witnesses to avoid producing its own witnesses during its case in chief.

In reaching its conclusion, the Court handed down the following simple and concise rule “an uncalled witness’s testimony may properly be considered cumulative only when it is cumulative of testimony or other evidence favoring the party controlling the uncalled witness.”      

Finally, the Court ruled that the trial court’s refusal to permit the missing witness charge was not cured by permitting counsel to address it during closing arguments.  As plaintiff’s case was prejudiced by the loss of an appropriate missing witness charge, the matter was remanded to the trial court for a new proceeding. 


Elizabeth A. Fitzpatrick

Beth’s Banter on Coverage “B”

11/18/13       Ruksznis v. Argonaut Insurance Company
(District Court of Maine) 2013 WL 606 3379
No Coverage for Slander
Ruksznis, who was a plumbing inspector for the town of Sangerville, sued Burgess, a selectman on the Board of Selectmen for the Town of Sangerville, alleging slander, alleging that it concerned plaintiff’s occupation and professional station and, thus, constituted slander per se.  Ruksznis alleged that he was damaged economically and in spirit.  After Ruksznis obtained a judgment in the amount of $100,000 against Burgess, he sought coverage under the CGL Policy issued by Argonaut to Burgess, claiming that coverage was owed under the Policy’s Coverage B “Personal and Advertising Injury” coverage. 

While Argonaut conceded that Burgess was an insured and that Ruksznis’ slander judgment against Burgess fell within the definition of personal or advertising injury, they contended that certain exclusions applied to preclude coverage, most notably, the Employment-Related Practices exclusion and the governmental errors and omissions exclusion.  The policy afforded coverage for personal and advertising injury, including mental anguish, humiliation and emotional distress caused by the electronic, oral, written or other publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services… however, the governmental exclusion excluded coverage for governmental errors and omissions, precluding coverage for liability arising out of any actual or alleged act, error, omission, missed statement, neglect or violation of any federal or state civil rights laws, or breach of duty, including misfeasants, malfeasants or nonfeasants by any insured in the discharge of their duties for the public entity… the focus was on the issue of whether the slander liability succumbed to the referenced exclusion. 

While the court noted that the language of the exclusion is very broad, they noted that an exception to the exclusion focused on whether the insured was discharging a duty for the public entity.  The court noted that the allegations established that Burgess was a selectperson when he made the slanderous statements, but noted that it was not plain that Burgess discharged any duty to Sangerville by defaming Ruksznis in public session. 

“Moreover, if every false and defamatory statement by a selectperson (or other municipal officer) is treated as a governmental error or omission so long as it has something to do with a municipal concern, then it is difficult to conceive of a situation in which the exclusion would not apply, effectively allowing the exclusion to swallow the otherwise clear provision of coverage for slander.”

Ultimately, the court found that the applicability of the exclusion raised questions of fact.

However, the court did find the Employment-Related Practices exclusion unambiguously excluded coverage.  Although Ruksznis contended that Burgess was an independent contractor rather than employee of the town at the time and, therefore, the exclusion did not apply to preclude coverage, the court disagreed.

The court also discussed coverage under the Professional Liability, Public Officers Liability Part.  Argonaut again conceded that Burgess was an insured under the POL Policy and that Ruksznis’ civil rights claims fell under the policy’s wrongful act coverage.  That coverage provided that Argonaut would pay damages because of a wrongful act, defined as any actual or alleged error, omission or breach of duty committed by any insured. They, however, pointed to an exclusion for employee benefits injury and any claim arising out of breach of contract or seeking damages for emotional distress or mental anguish, as well as any claim arising out of employment or application for employment with any insured or any other employment-related policies or practices.  The court found that the employment exclusion applied to preclude coverage under the POL Policy, as well.



On November 25th, Assemblyman Gary Schaer, Chair of the Assembly’s Financial Institutions and Insurance Committees, proposed legislation which would require insurers to define “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions” and “property damage or bodily injury resulting from faulty workmanship.” (Assembly Bill 4510)

This would be required in Commercial Liability Policies issued by an admitted or surplus lines insurer to a contractor or other construction professional.   Construction or other construction professional is defined as a person, sole proprietorship, partnership, corporation, limited liability company or other recognized legal entity engaging in the development, construction, installation, renovation or repair of residential, commercial or industrial property, buildings, or other structures, or improvements related thereto.  The Bill goes on to state that it shall not be construed to restrict or limit the nature or types of exclusions that an insurer includes in a Commercial Liability Policy and that it will take effect on the 90th day following enactment.  It does not indicate whether it would apply to policies issued prior to such date and the issue of retroactivity is one that has created confusion in other states having enacted such legislation.   The intended effect of the Bill is to reduce confusion in industry practices by resolving coverage issues arising from the holdings in various court decisions.  Cited are Weedo v. Stone-E-Brick; Fireman’s Insurance Company of Newark v. National Union and Pennsylvania National Mutual Casualty Insurance Co. v. Parkshore Development Corp.


Audrey A. Seeley

11/25/13       Economy Premier Assur. Co. v. Western Nat’l Mut. Ins. Co.
Court of Appeals, Minnesota
Doctrine of Contra Proferentem Not Applied to Coverage Dispute Between Insurers
Mr. Luke Hylden, while operating his father’s truck, was involved in a motor vehicle accident.  Mr. Hylden’s father lent him the truck as the car Hylden usually drove, which was owned by his mother, was inoperable.  Mr. Hylden’s parents were divorced and at the time of the accident he resided with his mother.  Mr. Hylden was an insured under each parent’s automobile liability insurance policy.  The father’s truck was insured by Economy Premier Assurance Company (“Economy Premier”) while the mother’s vehicle Hylden usually operated was insured by Western National Mutual Insurance Company (“Western National”).

Economy Premier resolved the personal injury action against Hylden for $212,000.00.  It then commenced the instant declaratory judgment against Western Mutual for reimbursement on the basis that Western Mutual afforded primary coverage to Hylden based upon the “other insurance” provision of the Western Mutual policy affording primary coverage for a “temporary loaned vehicle.”  The Economy Premier’s “other insurance” provision rendered it excess over other liability insurance.

The crux of the dispute between the two insurers was the interpretation of the undefined phrase “temporary loaned vehicle” in the Western Mutual policy.  Economy Premier argued that the phrase was ambiguous and the doctrine of contra proferentem applied, requiring the Court to construe the ambiguity in Economy Premier’s favor.

The Court, recognizing it was an issue of first impression in Minnesota, held that the doctrine of contra proferentem did not apply to a dispute between two insurers.  Thus, the policy’s ambiguous language must be analyzed from a neutral perspective.  The Court concluded that Hylden was not operating a “temporary loaned vehicle” at the time of the accident and therefore the Economy Premier policy afforded primary coverage.


Cassandra A. Kazukenus

Just a cover letter this week.

Katherine A. Fijal

11/21/13       Gunter v. Farmers Insurance Company Inc.
United States Court of Appeals, Eighth Circuit – NFIP
State Law Claims Preempted by Federal Law
After a flood caused damage to their home, Glenn and Lisa Gunter filed claims under their Standard Flood Insurance Policy [“SFIP”] with Farmers Insurance Company Inc. [“Farmers”] and their supplemental policy with American Surety Insurance Company [“American”].  Farmers promptly paid the amount claimed in the Gunters timely filed proof of loss.  When their home was later condemned as uninhabitable, the Gunters sued Farmers and American for breach of contract and various state law violations, seeking recovery for additional loss.

The SFIP policy issued by Farmers was in the amount of $87,900, and a supplemental flood insurance policy through American in the amount of $16,100.  The Gunters’ claims under these policies stated that the flood had produced cracks along the interior and exterior walls of their home.

Upon receipt of the claim Farmers sent an independent adjuster and an engineer out to inspect the property.  The engineer’s report concluded that most of the damage to the home was unrelated to the flood.  Thereafter, pursuant to the SFIP the Gunters submitted a proof of loss claim to Farmers for $12,488.04, and a building replacement proof of loss claiming $249.73.  Farmers reviewed the proof of loss in light of the engineers report and paid $12,237.77 of the Gunters’ stated loss.  Although American denied liability for any damage to the residence, it paid $1,610 for damage to a storage shed not covered by the SFIP. 

Nearly three months after the fire the Gunters’ home was condemned as uninhabitable. At that point the Gunters asked Farmers’ adjuster to inspect the property again.  Again, it was determined that the structural damage was not caused by the flood.  The Gunters then hired and independent engineer to inspect the residence – the engineer concluded that approximately 30% of the building was damaged by settlement during and after the flood.  The home was subsequently demolished and $69,487.07 then remained on their mortgage. 

The Gunters sought additional recovery under their policies asserting five claims against both Farmers and American:  (1) specific performance; (2) unjust enrichment; (3) insurance bad faith; (4) violation of the National Flood Insurance Act, Code of Federal Regulations, and federal common law; and (5) breach of contract.  The Gunters did not deny that they never filed a proof of loss for any additional recovery.

The district court granted Farmers’ motion to dismiss all but the Gunters’ breach of contract claim, concluding that state law claims for specific performance, unjust enrichment and insurance bad faith were preempted by federal law.  It also decided that the federal common law claim was essentially a re-labeled state-law claim and thus preempted as well.  The district court determined that a jury trial was unavailable on the remaining breach of contract claim and granted Farmers’ motion to quash the jury demand.  Summary judgment was granted to Farmers after the court concluded that the Gunters had failed to submit a proof of loss of any recovery above the amount the company had already paid and they could therefore not recover under the SFIP.  The district court also granted summary judgment for American, determining that the Gunters could not recover under their supplemental policy until they had exhausted their primary insurance policy with Farmers. 

In analyzing the merits of the case the United States Court of Appeals for the Eighth Circuit [“Court”] pointed out that Congress established the National Flood Insurance Program [“NFIP”] in 1968 in order to reduce the burden on the public fisc after flood disasters, 42 U.S.C. §4001.  The program is administered by the Federal Emergency Management Agency [“FEMA”].  FEMA promulgated the SFIP and directed that these policies may be issued through primary insurers known as Write Your Own [“WYO”] companies.  As fiscal agents of the Federal Government, WYO insurers deposit SFIP premiums in the United States Treasury and pay SFIP claims and litigation costs with federal money.  WYO insurers cannot vary the terms of the SFIP without express written consent from the federal insurance administrator.

In agreeing with the district court, the Court stated that the Farmers policy and all disputes arising from the handling of any claim under the policy are governed exclusively by the flood insurance regulations issued by FEMA, the National Flood Insurance Act of 1968, and Federal Common Law.

The Gunters argued that 42 U.S.C. §4081(c), which makes an “agent or broker” liable for his own tortious conduct, demonstrates Congress’ intent for state law claims to proceed against WYO insurers.  The Court disagreed, pointing out that FEMA regulations make clear that WYO companies are not “agents or brokers” as used in this part of the Code of Federal Regulations (Code).

The Court also agreed that the district court properly granted Farmers’ motion to dismiss the Gunters’ extracontractual claims brought under federal common law because they were essentially re-labeled state law claims and therefore, preempted by federal common law. Pursuant to the governing law of the SFIP, the term “federal common law”, requires courts to use “standard insurance principles when deciding coverage under the policy.  Although the Gunters did not disagree with the stated principle, they argued that the “standard insurance law principles” are set and governed by state law.  The Court held that the Gunters’ argument conflicted with the plain language and prior interpretations of the SFIP.  The Court determined that the Gunters were seeking to bring tort and extracontractual claims under federal common law to obtain state law remedies otherwise preempted. 

On the issue of whether the district court properly granted Farmers’ motion to quash the jury quash the jury request made by the Gunters; the court determined that in an action involving federal funds, a plaintiff is only entitled to a jury trial if Congress has granted that right by statute.  Inasmuch as the parties agreed that the breach of contract claim put federal funds at stake, the Court affirmed the district court’s decision that a jury trial was not available to the Gunters.

The next issue addressed by the Court was whether Farmers’ motion for summary judgment was granted because the Gunters failed to file a supplemental proof of loss.  In affirming the district court’s decision the Court noted that a proof of loss requirement is a regulatory limit on the disbursement of funds through a federal insurance program and is a condition precedent to recovery and must be strictly construed.  Strict construction of the SFIP is needed to protect sovereign immunity when federal funds are in question and to ensure uniformity in the diverse jurisdictions inundated with flood insurance disputes in the aftermath of natural disasters.

Finally, on the issue of whether the district court properly granted summary judgment to American the Court looked to the Other Insurance Clause in the American policy which clarified that the Gunters could not recover from American for flood damage to their home because they had not exhausted their primary policy with Farmers.

Jennifer A. Ehman

11/07/13       Sirius XM Radio Inc. v. XL Specialty Ins. Co.
Supreme Court, New York County
Notice Provision in Claims-Made Policy Found to be Ambiguous
This decision arises out of the merger between XM Satellite Radio Holdings Inc. (“XM”) and a subsidiary of Sirius Satellite Radio, Inc. (“Sirius”).  As a result of the merger, five separate lawsuits were filed alleging wrongdoing by the directors and officers of Sirius, XM and the newly created entity, Sirius XM Radio, Inc. (“SXM”), in connection with their efforts to have the merge approved and certain mismanagement that allegedly occurred after the merger. 

XL Specialty Insurance Company (“XL) issued a claims-made “Management Liability and Company Reimbursement Policy” to SXM, which was in effect from August 29, 2007 through August 29, 2009.  The policy had a $1 million deductible. 

The issue in this decision is the interplay between the notice provision contained in the policy and the interrelated claims provision.  The notice provision provided that “[a]s a condition precedent to any right to payment under this Policy with respect to any Claim, the Insured shall give written notice to the Insurer of any Claim as soon as practicable after it is first made…”  Now consider the interrelated claims provision, which stated “[a]ll claims arising from the same Interrelated Wrongful Acts shall be deemed to constitute a single Claim and shall be deemed to have been made at the earliest of the time at which the earliest such Claim is made pursuant to GENERAL CONDITIONS (A) (1)…if applicable.” 
SXM provided XL with a “notice of circumstance that could lead to a Claim under the policy” for the first lawsuit (Hartlieb) and, after that, it only provided notice of one other suit (Fialkov).  When XL failed to reimburse SXM for certain attorneys’ fees paid, based on a breach of the notice condition, this action was commenced. 

 XL argued in this motion to dismiss that SXM failed to give timely notice of any of the underlying claims (with the exception of Hartlieb and Fialkov) and that SXM failed to get XL’s approval before indemnifying its officers and directors for the legal fees it now seeks.   SXM countered asserting that it was not required to give prompt notice of the lawsuits after timely notice of the first suit was provided because the actions were all interrelated.  It also asserted that XL did not refuse to consent to its incurrence of legal fees. 

In reply, XL asserted that the notice provision and interrelated claims provision were completely separate, and one did not modify the other.

In considering these arguments, the court held that whether the initial notice of Claim relieved the insured of the obligation to give notice each time a later Claim was made was not sufficiently clear from the words of the policy to require dismissal of the complaint based on documentary evidence.  Accordingly, XL’s motion was denied. 

Take Away:  Irrespective of the ultimate holding, based on the concept of contra proferentem, it appears that XL’s position is now doomed.  The court found the language of a condition ambiguous.  When this type of ambiguity is found, it is generally interpreted against the insurer/drafter and in favor of the insured. 

Bad Faith                
11/22/13       Knightbrook Ins. Co. v. Payless Car Rental System
United States District Court, D. Arizona
Court Applies Arizona Law and Declines to Dismiss Insured’s Bad Faith Claims Premised on the Insurer’s Actions Separate from its Claims Handling
Michael Bovre rented a vehicle from Payless Car Rental (“Payless”).  The rental agreement contained a section advising that if you decline to purchase supplemental liability insurance, initial here.  No initials were placed next to the statement. 

Bovre was driving the rented vehicle when he collided with a motorcycle driven by Robert and Lorraine McGill.  The McGills sustained significant injuries in the accident.  They then commenced a claim against Bovre, and on the same day made a settlement demand of $1,500,000.  This demand was meant to be the limits of Bovre’s personal auto policy, the supplemental liability insurance (“SLI”) and Payless’ mandatory rental car coverage.  The personal auto carrier and Payless tendered their limits, but the supplemental liability insurers denied coverage for the loss.  As a result, Bovre could not obtain a full and final release.

Bovre sought to protect his interests by entering into an agreement in exchange for the $530,000, and an assignment of any and all rights Bovre had against the SLI insurers.  

The McGills then filed an action in state court against the SLI insurers asserting claims for breach of contract, breach of the covenant of good faith and fair dealing, and negligence.  They also asserted assigned claims for negligence and breach of the rental contract against the Payless entities. 

The McGills then sent a time-limited settlement demand for $1 million to Payless and SLI insurers that would resolve all claims.  The SLI insurers requested that Payless contribute.  Payless refused.  As a result, the SLI insurers funded the entire settlement, and obtained an assignment of all the McGills claims that had been received from Bovre, including those against Payless. 

The SLI insurers then commenced this action against Payless asserting their assigned claims for breach of contract, breach of oral contract, negligent misrepresentation and negligence, and an independent claim for equitable indemnification.  Payless filed an answer, and then moved to amend its answer to include counterclaims for bad faith. 

This decision results from Payless’ application to amend the complaint and added the counterclaim.  The SLI insurers opposed the motion on the ground that the amendment would be futile.  Payless argued that the SLI insures’ attempt to recover the settlement that they voluntarily paid to settle the bad faith claims against them violated the anti-subrogation rule.  Beyond the anti-subrogation issues, Payless also asserted that the insurers acted in bad faith when they failed to obtain a release in Payless’ favor in the settlement negotiations, demanded Payless contribute to the settlement, and obtained and asserted claims against a party to whom they owed fiduciary duties. 

The SLI insurers in reply asserted that bad faith could only arise in the context of claims handling and not in the context of underwriting activities or other business/financial disputes.

The Court disagreed, finding that bad faith claims were not limited to just claims handling.  While the SLI insurers asserted that they entered into two legal distinct relationships with Payless, one the insurer-insured relationship and the other the principal-agent relationship, the court concluded that it could not, at the pleading stage, parse the SLI insurers’ actions and claims so finely as to conclude that a fiduciary breach could not have occurred.  Such actions are better resolved in the more complete factual setting of summary judgment, and in turn leave to amend was granted. 

Earl K. Cantwell

In Time for The Holidays:  Holiday Gift Card Dispute

Ace European Group Ltd. v. Abercrombie & Fitch Co., 2013 WL 5180939 (S.D. Ohio September 13, 2013).  In 2009, A&F held a $25 holiday gift card promotion.  The retailer voided the cards January 30, 2012 even though some of the cards had no expiration date, and others had no printed information regarding expiration.  Two class-action consumer suits ensued in Ohio and California.  A&F sought coverage for those two suits from Ace which had insured A&F for “Internet liability.” 

A&F moved for partial summary judgment on the issue of liability, arguing that Ace breached the policy when it refused to defend the underlying lawsuits.  Ace cross moved for judgment on all of A&F’s claims, including a bad faith claim.  The Federal Court in Ohio ruled that Ace had to provide a defense to A&F in the underlying lawsuits which essentially alleged that the unused gift card balances had been “fraudulently” canceled. 

The Court determined that A&F was entitled to coverage under a provision of the policy allowing for coverage for unfair competition, misuse of media communication, dilution, deceptive trade practices and civil actions for consumer fraud.  Ace argued that provision was limited to unfair competition claims, and did not extend to deceptive trade practices or consumer fraud.  The Court concluded that the claims relating to civil actions for consumer fraud were covered under the policy. 

Ace also argued it did not have a duty to defend because the policy precluded coverage for breach of contract claims.  The insurance company described the core claims against A&F as breach of contract claims.  The Court did not accept this distinction, noting that the breach of contract and consumer fraud claims were legally distinct, even though the underlying factual allegations were parallel and similar.  The Court concluded that A&F was entitled to a defense of the underlying lawsuits, and that Ace breached the policy when it failed to provide defense.

This case represents the possible unintended expansion of specialty endorsements in coverages such as for Internet liability, business torts, advertising injury, deceptive trade practices, and labor and employment claims.  Although attempt is made to clearly and carefully define the occurrences giving rise to coverage, clever pleading by plaintiffs and judicial interpretations can result in expanded and possibly unintended coverage.

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