Coverage Pointers - Volume XV, No. 13

Dear Coverage Pointers Subscribers:

Merry Christmas and a Happy New Year to all.

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

I enjoyed seeing so many folks down at the DRI winter program in NYC.  Kudos to the Insurance Law Committee on another blockbuster program.

Back by popular demand, or cuz I like it, our 2010 Christmas poem is reprinted at the end of this letter.  Enjoy.  I send my special thanks to those elfish characters, Tim Sullivan, Rich Traub, John Intondi and Mike Perley, whose handiwork contributed to this little ode.

Thousands Flee – Bad Trend Developing?

Our loyal readership knows that when we see a particularly awful case, we add the phrase “Thousands Free” to our headline.  You will see it twice in this issue and the topic for which fleeing is taking place is the same, discoverability of attorney-client material.

I am concerned about a growing trend that appears to allow discovery of what I would consider attorney-client privileged material.  There are two Second Department decisions, Melworm (reported in my column) and Donohue (reported in Steve’s) permitting a policyholder to secure in discovery communications between insurer and its coverage counsel, if that communication was made before the decision to deny coverage was finalized.  Are the courts telling us that insurers may not seek coverage advice without it being discovered by the other side?  I hope not.

That’s just bad stuff.  Why should a carrier’s communication with its attorney on strategy, coverage, investigation and the like be subject to disclosure?  And if this trend continues, will this change how coverage counsel operates?

Stay tuned.


Peiper’s Postulates:

It is often said “’Tis better to give than receive.” 

While that may be true with Christmas gifts, it is respectfully submitted with case law, ‘tis far better to receive.  As you will recall, last issue's commentary on the possibility of insurers being able to seek reimbursement of defense fees was a surely in a mark in the "receive" column.  To keep the universe in harmony, however, all gifts accepted must be balanced with a "give" down the road.  This week's issue announces the unfortunate payback. 

In 2012, yours truly penned (ok no one really pens anything anymore) the following paragraph...

It is clearly established under New York law that an attorney-client privilege exists where “a communication is made within the context of the relationship for the purpose of obtaining legal advice,” and the communication is intended to be, and is actually kept, confidential.  Abu Dhabi Commercial Bank v. Morgan Stanley, 2011 US Dist. LEXIS 116850 (SDNY, 2011).  In an insurance context, it is submitted that the First Department’s decision in Brooklyn Union Gas Co. v. Am. Home Assurance Co. (23 AD3d 190, 803 NYS2d 532 [1st Dept., 2005]) is particularly instructive.  The Court noted that documents related to the ordinary claims investigation of an insurance company are not privileged. Id. at 191.  However, the First Department also unequivocally held that “attorney work product” applies to documents prepared by counsel acting as such, and to materials uniquely the product of the lawyer’s learning and professional skills such as those reflecting an attorney’s legal research, analysis, conclusions, legal theory or strategy” (emphasis supplied). Id.   The Court went on to state that attorney-client communications were protected so long as the communication was confidential and “primarily or predominantly a communication of legal character.”  Id.

What I wrote in the above paragraph, could be distilled into one sentence:

The attorney-client privilege has traditionally been, and must continue to be, sacrosanct. 

That is, of course, until this week.  Two decisions reviewed below, Donahue and Melworm, both appear to suggest that attorney communications between lawyer and carrier, which, by their nature are intended to be confidential, are fair game so long as they were issued prior to the insurer's decision to deny coverage.  This is a troubling trend, and may very well lead to a profound change in the way insurers assess particularly sticky coverage situations.  Read for yourself, but we'd recommend staying away from sharp objects as you do.

To prove that we're full of good news five days before Christmas, we also bring you the curious decision of Auqui.  As a Valentine's Day 2013 treat to defense lawyers and insurers alike, the Court of Appeals ruled that a determination by an ALJ in a Workers' Compensation action could have a collateral estoppel impact on the same injured party's ability to re-litigate the severity of their injury in a subsequent personal injury action.  

That was the rule for, oh, about ten months.   On December 10, 2013, the Court of Appeals, upon reconsideration, decided that the ALJ's opinion was not to have preclusive effect upon a  personal injury action.  In the process, the high court voided its previous 4-1 decision, with a 5-0 unanimous reversal.  We understand the Court's decision.  We don’t like it, but we do understand it….and yes, yes, it is rare to see the Court overturn its precedent so quickly.

We apologize for closing out 2013 on such a sour note, so we look forward to 2014 with renewed optimism.

Alas, dear readers, don't fret.  The Court's reversal on Auqui means that the cosmos is aligned for a similar reversal when the Court takes up the K2 decision after it returns from Holiday Recess (or at least we hope). 

‘Tis better to receive than give, indeed.  

Steven E. Peiper
[email protected]

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 in January in perhaps three forms, book, disk and e-book.  I’ve read the chapters; they are terrific.  Click here to preorder

The Numbers Game -- The Good Faith Streak Continues

The first issue of Coverage Pointers was published on July 9, 1999.  Here’s a bit of trivia.  Since our first issue, we have NEVER reported on a New York appellate case finding any insurer liable for bad faith under any kind of policy.

Why is that?  It is because the last time a New York state appellate court has upheld a finding of bad faith against a New York insurer was on June 11, 1998, when the Court of Appeals handed down its decision in Smith v. General Accident Insurance Company.  That decision was rendered 15 years, six months and nine days ago, just under a year before our publication first hit the cyber-universe.  Therefore, as we have done for these oh so many years, we continue our count:  it has been 5671 calendar days since a NY court has held an insurer liable for bad faith.

Mike’s Musings:

Thank you for all your questions over the last year.  I hope you have enjoyed reading as much as I have enjoyed writing this approximately bi-monthly column on serious injuries.  The Third Department has issued the last serious injury decision we will report on this year and, it just so happens, it is worth a read.  My favorite decisions are those that pull back the veil on the Courts’ thinking and do more than just recite the usual watered down “defendant’s orthopedist opined that the condition was degenerative.”  Cases like those are a worthy review of the basics, but they do not help much when you are looking at the specifics of a particular case.  Of course, they cannot all be this good, but I will take them as often as I can get them.

Michael Scott-Kristansen
[email protected]

Editor’s Note:  Thanks Mike for handling this year’s count.

The Year in Review:

  • In 2013, there was a lot of moving around on the CP team as the firm continued to grow.  Audrey’s Angles switched from giving us Angles on No-Fault to Angles on the Nationally Noteworthy.  Margo stopped musing about serious injuries so that she could muse about No Fault and Michael Scott-Kristansen picked up by providing missives where Margo left off.  We also added a new and important member to not only the Coverage Pointer’s team, but also the Hurwitz & Fine team, Elizabeth Fitzpatrick.  Beth now enriches Coverage Pointers with her Banter and FITZ’ BITS.  We reported on 611 cases this year.  504 of those cases were appellate court decisions and 107 were lower court decisions.  Of these cases, 129 appeared in my column, 58 in Margo’ Musings, 23 in Audrey’s Angles, 98 in Steve’s Property and Potpourri, 26 in Beth’s Banter and BITZ,36 in Kathie’s, 85 from Jen, 27 from Earl, and 109 from Michael S-K.  Cassie gave us 26 different articles to ponder and Mike Perley dropped in one week to give us one.  We also reported on an additional 110 arbitrations, which are not part of our case count, in the no-fault column, and both Andrew Downs from Bullivant Houser Bailey, P.C. and the FDCC contributed one case and 14 cases respectively.  This year was a light year for appellate cases, 18% less, but the lower court cases were up over 27%.  What can we say?  The appellate courts had a quiet year and allowed the lower courts to speak a little more loudly. 
  • The CP team reported on 746 appellate cases and 84 lower court decisions for a total of 830 summaries in the year 2012.  We moved Jen from lower court decisions to a new column on Bad Faith and replaced her first with Marc Schulz and then traded him for Jon Gorski. Of the appellate reviews, 135 decisions appeared in my column, 204 in Margo’s Musing’s, 179 in Audrey’s Angles, 107 in Steve’s Property and Potpourri, 38 in Cassie’s, 31 in Kathie’s, 15 from Jen, 10 from Mike Perley and even one from Paul Suozzi. There were, as indicated, 84 lower court reviews in the column Jon now prepares and a perfect 26 articles from Earl. How do we compare to previous years? Pretty favorably.
  • In 2011, we added Cassie’s Capital Connection column in April. We reported on 652 appellate decisions and 98 lower court reviews for a total of 750 decision summaries. Of the appellate reviews, 151 appeared in my column, 188 in Margo’s Musings, a record 183 in Audrey’s Angles, 87 in Steve Peiper Property and Potpourri column and 43 in Kathie’s Fijal’s Federal Focus case review. In addition to those, Jen contributed the 98 lower court summaries, Earl penned 26 weekly Pearls and Mike Perley added several Liening Tower summaries. Cassie Kazukenus gave us 22 reports from Albany. Paul Suozzi contributed a guest column on municipal law.
  • In 2010, we added Jen's Gems early in the year. We reported on 641 appellate decisions and 71 lower court reviews, for a total of 712 summaries. There were a paltry 137 in my column, 214 in Margo's, 159 in Audrey's Angles, Steve tackled 89 property and potpourri opinions, Kathie covered 42 federal court decisions and Jen added 76. We also offered 28 Earl's Pearls articles, a couple from Scott Duquin's Lead Paint series, and a few from Mike Perley on the topic of Medicaid Secondary Payer.
  • In 2009, we had a mere 557 appellate decisions to review, with 173 appearing in my column, 206 in Margo's, 93 in Audrey's, 81 in Steve's and four in Kathie Fijal's federal case review, which was added towards the end of the year.
  • In 2008, we summarized 679 appellate coverage decisions. I had an easy year, with an even 200 summaries. Margo and her predecessor reviewed 226 "serious injury" threshold cases. Audrey was a mite busier with 176 appellate and arbitration awards covered in Audrey's Angles. Steve about tripled his workload reviewing 77 in his offering.
  • In 2007, we reported on 651 New York appellate decisions involving insurance coverage. I summarized 276 opinions in my column, some 226 "serious injury" threshold cases were reviewed, and Audrey Seeley gave us angles on 123 No Fault decisions. Steve Peiper reviewed 26 first party and "potpourri" appeals.


Jen’s Gems:

The cases reported on this week out of the New York trial courts and bad faith arena each seem to contain a succinct, digestible bit of guidance for the attorney and claims professional alike.  From the trial courts, we are reminded that you need to have a supported basis for redactions of discovery materials.  We are also reminded that the changes to New York Insurance Law §3420 only apply to policies of insurance issued after January 17, 2009.  With regard to bad faith, a carrier cannot establish the monitory threshold for diversity jurisdiction based on the possibility of a bad faith counterclaim.  Wait.  As I write this, I am now wondering if I have just talked 95% of the readers out of actually looking at the column. 

Last week I a great time in New York at DRI’s Insurance Coverage Practice Symposium and I had the pleasure of meeting many dedicated Coverage Pointers subscribers.  It was great to meet everyone and, admittedly, the best part was that I just narrowly avoided the foot of snow that dropped on Buffalo.

Therefore, we are down to just a few more shopping days before Christmas.  While every year I intend to get everything done early, it never seems to actually happen.  Most likely, I will spend this weekend picking up all of the last minutes items.  On that note, I hope everyone has a joyous holiday season and is able to spend it with those most dear. 

Happy Holidays.

Jennifer A. Ehman
[email protected]


K2 Investments, Status:

For those who have been following the K2 Investments decision through the appeal process, the oral argument on the reconsideration of the June Order is scheduled for January 7th.  Briefs of the parties, as well as the amicus briefs, are available for review by clicking her to take you to the CourtPass website.  In the box that says Search by Party Names¸ simply type in K2 and when you get to the K2 page, click on the top entry, which will take you to the filed briefs for the January argument

Audrey’s Angles:

The DRI Insurance Law Committee’s Insurance Coverage and Practice Symposium in New York last week broke attendance records and had over 650 people attend.  One topic that was of interest was about the American Law Institute’s 2010 Principles of the Law of Liability Insurance.  While some may be dismissive of this endeavor as it projects what the law should be and at times is contrary to what the law might be in a particular state, rest assured that it is something you need to be familiar with in your practice.  If you would like more information on the ALI please do not hesitate to contact me at [email protected].

This edition provides a case from Wisconsin involving an intentional injury exclusion that requires the insurer to establish by objective and subjective intent to invoke same.  Some light reading while enjoying a cup of cocoa and looking at the Christmas tree.

This is my last edition before the New Year and I hope that you and your family have a Merry Christmas and a safe New Year!


Audrey A. Seeley
[email protected]

A Century Ago – Women and Sports a Concern:

New York Times
December 20, 1913


Prof. Shaw Warns Against Suffrage
and Arduous Sports

To the Editor of The New York Times:

I take the liberty of addressing you on the subject of a lecture I recently gave in London, which has attracted a little notice in some of the American papers.  What I said in speaking of “The Nervous Factor in Women’s Health,” was not intended to be of universal application, but was meant to apply especially to the extremists who allow their enthusiasm to lead them to transcend what I ventured to think was wise or good for their mental and bodily health.

For instance, the question of the franchise—the merits of which I did not discuss—seemed to me to afford an illustration of the strain and stress to which those who have taken up the subject ardently are of necessity exposed.  The same with sport.  Though moderate indulgence is of undoubted excellence for women, the excess to which competition is carried is an undoubted evil.

I have seen many young women rendered thin and nervous by an amount of physical exertion, to which many hours in the day have been exclusively devoted, altogether unsuitable for the need of their organization.  The subject of the marriage market in connection with a prodigal pursuance of sport I have discussed at length in an article on “The Morality of Sport,” in Baily’s Magazine for November and December of the present year.

I hope that in expressing myself forcibly I did not offend the sentiments and the regard that we will have with due reverence for the well-being and the happiness of women, a happiness which may be imperiled unless those who are keenly interested are gently warned of the hidden rocks on which they may be stranded. 

T. Claye Shaw, M.D.
Fellow of the Royal College of Physicians,
Emeritus Professor of Psychological
Medicine, St. Bartholomew’s Hospital.
Beth’s Bitz:

Dear Subscribers:

It was wonderful to see so many of you at the DRI Insurance Coverage Symposium in New York City on December 12th and 13th. As always, the program presented an excellent opportunity to gain insights on the latest coverage decisions issued by courts across the country and to hear about trends in other jurisdictions. I stayed until the bitter end for an excellent presentation on the evolving law regarding construction defect coverage, a topic upon which I wrote in my last column, noting that New Jersey may join the ranks of states with legislation requiring coverage under a commercial general liability policy for “faulty workmanship.”

Following the construction defect theme, I report this week on a decision issued by the Sixth Circuit Court of Appeals where the Eastern District of Kentucky held that a subcontractor’s allegedly faulty preparation of a building pad, that resulted in the subsequent settling and structural damages to the building, was not an occurrence within the meaning of the commercial general liability policy. 

In other news, from the world of social media, I read an interesting article that concluded that teens are turning away from Facebook, favoring Twitter, due to the so-called Levi’s affect. Like Levi jeans, which were a cool young brand until parents started wearing them, the same thing has happened with Facebook, according to the article.

I hope you all have a wonderful holiday.  See you in 2014.


Til next time,
Elizabeth A. Fitzpatrick
[email protected]


Priest Sentenced To Death – One Hundred Years Ago:


The New York Times
December 20, 1913


Tombs Physician Says Prisoner
Told of a Message
Commanding a Sacrifice.


Schmidt, Says Father Huntman,
Had Embezzled Money from
Collections and Retained Fees 

Dr. Perry Lichtenstein, physician of the Tombs prison and an examiner in lunacy for the State of New York, told yesterday at the trial of Hans Schmidt, the priest, for the murder of Anna Aumuller, of conversations with Schmidt in the Tombs which led him to believe that Schmidt was insane. 

In a conversation with Dr. Lichtenstein, immediately after Schmidt was locked in the Tombs, the priest said that he had received an inspiration ten days before committing the murder and had heard the words:

“Anna must be offered up as a sacrifice for love and affection.”

Hans B. Schmidt (1881– February 18, 1916) was a Roman Catholic priest convicted of murder, and the only one to be sentenced to death in the United States, and that occurred a century ago today.

While serving in New York, in St. Boniface Church Schmidt met Anna Aumüller, the attractive housekeeper for the rectory who had recently emigrated from Austria. Despite his subsequent transfer to a church in a distant area of the city, Schmidt and Anna continued a secret sexual relationship. It was later revealed that they were married in a secret ceremony of dubious legality, which Schmidt performed himself. However, after discovering that Anna was pregnant, Schmidt slashed her throat on the night of September 2, 1913, dismembered the body, and threw the pieces into the East River

Once the body was discovered, a police investigation led to Schmidt and he was arrested and charged with the murder. After feigning insanity during his first trial, which ended with a hung jury, Schmidt was eventually convicted of first degree murder and sentenced to death in the electric chair. On February 18, 1916, Schmidt was executed at Sing Sing Prison; he remains the only priest ever executed for murder in the United States. Click here for pictures.


The Cover Story of Christmas:

Christmas Coverage
A Policy for Saint Nicholas

Dan D. Kohane
With apologies to Clement Moore (or less)
From our late December 2010 edition with thanks to the Christmas Elves:
Tim Sullivan, John Intondi, Mike Perley and Rich Traub

T'was the night before Christmas, and all through the land,
Few coverage advisors were still in demand.
The policies still showed on both desk and on screen.
My eyes only open with thanks to caffeine.

Most company's adjusters had left for the day;
And most coverage lawyers had little to say.
It was surely the moment to turn out the light,
Shut down the computer, put work out of sight.

Then the phone started chirping, it startled my poise,
not the typical ring-tone, but an odd sounding noise.
It jingled like sleigh bells, instead of a "ding,"
I knew I must answer, despite everything.

A Christmas Eve caller? What could be the need?
But the sound of the music, would just not recede.
I was really not looking for Christmas Eve banter,
Imagine my shock when the caller was Santa!

"I need some advice, sir" said a somber Saint Nick,
"My Christmas Eve Policy is three inches thick."
I don't mean to bother, but I'm wrought with confusion
"I don't understand this new 'Gifting Exclusion.'"

"It carves out the nasties, the mean and the haughty.
It favors the good ones and leaves out the naughty.
My coverage appears to have holes like Swiss Cheese,
I'm afraid if I'm sued, I will twist in the breeze."

"A products exclusion? A chimney one too?
Elf employment exception, I'm screwed through and through.
Just what is still covered? I sure am confounded,
With all of these issues, I'm fear that I'm grounded."

"With a sleigh full of sacks and reindeer at the ready,
I'm starting to feel just a tad too unsteady.
My belly has acid, my knees are a'quiver
With millions and millions of toys to deliver."

"I want you to help me, I fear a disclaimer.
This policy's scary; I need you to tame her.
We must surely save Christmas, for good girls and boys,
And Amazon won't refund "squat" on the toys.

The holiday challenged, I sure knew my mission
We needed to craft a new ISO edition
Santa needed an ally, a comrade, a fighter,
On the opposite side was a Grinch Underwriter.

I am sure you'd imagine how hard it would be
To secure for Saint Nick a late night policy,
Without coverage gaps, so that Santa could fly,
To save Christmas Day, we were destined to try.

The person in charge of the coverage for Nick,
Had left the shop early, was feeling quite sick.
Perhaps it was sadness, or guilt or just gumption,
He thought he'd killed Christmas, a well-placed assumption.

In order to soften his hardening heart.
We had to play coy, we had to be smart.
We needed to dazzle that Grinch with our guile,
To show him the risk was sure worth his while.

Worse yet, betwixt and between stood a broker,
A bloodsucker culled from the mind of Bram Stoker.
Through him we must go, around or about,
He'd bring pressure to bear, he's really got clout.

"It's Santa," we'd say, "who'd sue him for cash?"
"Another broker can get us a better deal in a flash.
We'll go to the market if a deal can't be made;"
The Grinch saw his bonus beginning to fade.

From the cream of the crop, a new team we'd assemble,
To get Santa bound and to weaken his tremble.
We'd send out the e-mail, we'd tweet and we'd twitter
We needed to find the best of the litter.

The other apt choice, as the time slipped on by,
Was to use those fine people, to make him comply.
By plane and by car, by boat and by train.
We beckoned this family to join in refrain.

And gather they did, first a few then a score,
Lawyers and brokers, claims folks and more
More than a choir, it was surely a throng,
Together they gave voice to a beautiful song.

And they reached that man's spirit, his heart and his soul,
And in no time at all, they'd accomplished their goal.
"Give me my pen", the Grinch yelled to his clerk.
I knew then and there that our ploy it had worked.

"Exclusions begone! Limitations not there!
We'll provide him his coverage, no need to beware."
And so it was written, and Santa could jet,
And Christmas was saved, the best Yuletide yet.

On cold winter night, when you're hearing his jingle,
When the children are sleeping and in comes Kris Kringle,
Remember that coverage protected his flight,
Happy Christmas to all, and to all a good night.


This Week’s Headlines:

Dan D. Kohane
[email protected]

  • Rescission of Policy Granted With Underwriting Affidavit and Protocols Establishing that Insure Would Not Have Issued Same Policy
  • UM Claimant Loses Uninsured Motorist Benefits By Failing to Notify DMV Within 24 Hours of Accident
  • Policy Covering Property Manager as Additional Insured Only Applied to Party That Was Property Manager During Policy Period and Accident During Policy Period
  • Pre-Claim Denial Attorney-Client Communications Must Be Produced in Discover.  Thousands Flee
  • Insurer Failed to Justify Delay in Disclaiming and Therefore Lost Its Right to Do So
  • MVAIC Ordered to Arbitration
  • Some Success by Subcontractor Insurers in Seeking Favorable Declaration in Long Island Construction Defect Coverage Action


Michael P. Scott-Kristansen

[email protected]

  • 90/180-day Claim Fails Where Plaintiff Missed Work for Other Reasons and Did Not Miss Any Job Interviews as a Result of the Accident
  • Defendant Prevails Over Plaintiff Who Fails to Submit an Admissible Expert Opinion
  • Continuing Limitations to Spine Sufficient for Significant or Permanent Consequential Limitation of Use
  • Physician’s Finding of Significantly Limited Range of Motion in Cervical Extension Enough for a Serious Injury


Margo M. Lagueras

[email protected]


  • No-Fault Places Burden on Peer Reviewer to Establish Lack of Medical Necessity
  • Proper Denial of Claim Form Must Include Information Called for in the Form



  • Affidavit of Service Is Insufficient to Show That EUO Letters Were Mailed in Compliance With Regulations
  • Signature on a Certificate of Conformity is “Presumptively Genuine”
  • Decision in Arbitration Does Not Warrant Dismissal of Suit
  • Late Verification Request Is Not Invalid:  It Merely Shortens Time to Pay or Deny
  • Defendant Is Not Required to Show Policy Contains Provision for Verification by EUO


Steven E. Peiper

[email protected]

First Party

  • ALL Reports Authored Prior to the Decision to Deny Coverage are Fair Game in Discovery Exchange – Thousands Flee


Court of Appeals

  • Broad Language of Excess Policy Triggers Its Obligation to Pay Pre-Judgment Interest
  • Workers Compensation Decision Precludes Re-litigation of the Timeline of Plaintiff’s Disability from Work


Appellate Division

  • Greenwich’s Mistake Cannot Be Vital’s Gain Where Vital Had Nothing to Do With the Loss in Question
  • Relation Back Doctrine Ruled Inapplicable Where Plaintiff Knew of Proposed Defendants Identity


Elizabeth A. Fitzpatrick
[email protected]

  • Faulty Workmanship Not an Occurrence


Audrey A. Seeley
[email protected]

  • Intentional Conduct Exclusion Requiring Both Subjective and Objective Intent Not Established to Bar Insurance Coverage for Accident Resulting From Insured Avoiding Arrest


Cassandra A. Kazukenus
[email protected]

  • Governor Cuomo Vetoes Certificates of Insurance Bill – Assembly Bill 3107-D
  • DFS Approves Esurance Program Which Will Help Prevent Teens From Using Cell Phones While Driving


Katherine A. Fijal

[email protected]

  • Claims for Reformation Fail Where Assault and Battery Exclusion Applies
  • Court Certifies Question to New York Court of Appeals


Jennifer A. Ehman
[email protected] 

  • Reserves and Estimates of Cost for Investigation of Claim Appropriate for Redaction; Identification of Steps Taken or Intended to Take to Investigate Claim Not Privileged
  • Insurance Law §3420(a)(6) Only Applies to Policies Issued or Renewed After January 17, 2009; Injured Party Does Not Gain Independent Right to Sue Alleged Tortfeasor’s Insurer To Challenge Late Notice Denials on these Pre-Amendment Policies
  • Plaintiff Cannot Support Diversity Jurisdiction Based On Exposure Due to Potential Bad Faith Counterclaim


Earl K. Cantwell

[email protected]


Thanks for sticking with us for another great year.  All the best for the holidays and a fabulous new year.

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

A Biweekly Electronic Newsletter

Hurwitz & Fine, P.C.
1300 Liberty Building
Buffalo, NY 14202
Phone: 716-849-8900
Fax: 716-855-0874

Long Island Office:
535 Broad Hollow
Melville, New York 11747
Phone: 631-465-0700
Fax: 631-465-0313

© Hurwitz & Fine, P. C. 2013
All rights reserved

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

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

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

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

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]

12/18/13       James v. Tower Insurance
Appellate Division, Second Department

Rescission of Policy Granted With Underwriting Affidavit and Protocols Establishing that Insure Would Not Have Issued Same Policy
To establish its right to rescind an insurance policy, an insurer must demonstrate that the insured made a material misrepresentation. A misrepresentation is material if the insurer would not have issued the policy had it known the facts misrepresented. To establish materiality as a matter of law, the insurer must present documentation concerning its underwriting practices, such as underwriting manuals, bulletins, or rules pertaining to similar risks that show that it would not have issued the same policy if the correct information had been disclosed in the application.

Here, Tower demonstrated its right to judgment by submitting an affidavit from their underwriting manager and relevant portions of their underwriting manual which showed that they would not have issued the same policy if the application had disclosed that the subject premises would not be owner occupied.  Game, set and match.
Editor’s Note:  Note, if carrier can prove that it would not have issued the SAME policy, rescission available upon proper proof.  It should not matter, and did not matter, that insurer might have issued different policy.

12/18/13       GEICO v. Bartlett
Appellate Division, Second Department
UM Claimant Loses Uninsured Motorist Benefits by Failing to Notify DMV within 24 Hours of Accident
In an Uninsured Motorist proceeding, insurer moved to stay arbitration on ground that Bartlett, in violation of the policy, failed to report the accident to the police or to the Commissioner of Motor Vehicles within 24 hours of the accident. The insurer timely and property disclaimed and the insurer was properly entitled to stay arbitration.

12/18/13       ABM Mgmt. Corp. v. Harleysville Worcester Insurance Co.
Appellate Division, First Department
Policy Covering Property Manager as Additional Insured Only Applied to Party That Was Property Manager During Policy Period and Accident During Policy Period
On June 11, 2007, Hernandez was fatally injured when a major artery in his arm was severed by a shattered glass entrance door of a building owned by Booth.  From 2002 through 2006, ABM acted as property manager for the owner. Harleysville issued a policy to Booth, in effect from June 1, 2007, to June 1, 2008.

When Hernandez’ estate sued ABM, the former property manager tendered the defense to Harleysville, because the policy extended coverage to real estate managers. Not surprisingly, Harleysville denied coverage because ABM wasn’t the property manager when the accident occurred or at any time during the effective dates of the Harleysville policy.

The reasonable expectations of a businessperson would conclude that the policy was intended to cover the person or entity acting as the owner's real estate manager during the policy's effective dates and for "occurrences" which occur within those dates. To extend this coverage to the owner's prior real estate managers and to acts or omissions outside the policy's effective dates would improperly rewrite the parties' agreement to include coverage which was never intended.
Editor’s Note:  It would have been pretty sad had the Court found otherwise.

12/18/13       Melworm v. Encompass Indemnity Company
Appellate Division, Second Department
Pre-Claim Denial Attorney-Client Communications Must Be Produced in Discover.  Thousands Flee.

On a first party claim, Encompass issued a policy insuring the plaintiffs' boat, and the plaintiffs made a claim under that policy asserting that the boat had been vandalized. The defendants denied the claim. The plaintiffs commenced this action, inter alia, to recover damages for breach of the insurance policy, and moved, among other things, to compel the defendants to produce an unredacted copy of an electronic claims diary prepared by an employee of the defendants, as well as certain letters from the defendants' counsel to the defendants.

The material sought by the plaintiffs had been created prior to the defendants' denial of the claim, and the defendants' counsel drafted the letters while counsel conducted an investigation of the claim on behalf of the defendants. In opposition to the motion, the defendants argued that the material was protected by the attorney-client privilege.

The payment or rejection of claims is a part of the regular business of an insurance company. Consequently, reports which aid it in the process of deciding which of the two indicated actions to pursue are made in the regular course of its business. Reports prepared by insurance investigators, adjusters, or attorneys before the decision is made to pay or reject a claim are thus not privileged and are discoverable, even when those reports are mixed/multi-purpose reports, motivated in part by the potential for litigation with the insured.

As the materials sought by the plaintiffs were prepared as part of the defendants' investigation into the claim, and were not primarily and predominantly of a legal character. Therefore, the defendants failed to meet their burden of establishing that the materials sought by the plaintiffs were immune from discovery because they were protected by the attorney-client.
Editor’s Note:  This is a growing and disturbing trend.  It one thing to find that investigation reports are “mixed use” reports and discoverable, if generated before a claim is denied.  In this author’s opinion, it is quite another to compel production of attorney-client communications.  What the court is encouraging is earlier denials of coverage.  Sad.

12/18/13       Okumus v. National Specialty Insurance Company
Appellate Division, Second Department
Insurer Failed to Justify Delay in Disclaiming and Therefore Lost Its Right to Do So
Insurance Law § 3420(d) requires an insurance carrier to give its insured and the injured party written notice of a disclaimer of coverage as soon as is reasonably possible. Where there is a delay in providing the written notice of disclaimer, the burden rests on the insurance company to explain the delay. Here, the explanation offered for the delay is an assertion that there was a need to investigate issues that will affect the decision on whether to disclaim.  The burden is on the insurance company to establish that the delay was reasonably related to the completion of a necessary, thorough, and diligent investigation.

Here, the insurer did not establish that the delay was justified by a necessary or diligently conducted investigation into the possible grounds for the disclaimer so the disclaimer was invalid and the insurer had to defend and indemnify the insured.  The reason offered by the insurer for the delay was not outlined in the decision.

12/18/13       Osorio v.  MVAIC
Appellate Division, Second Department
MVAIC Ordered to Arbitration
Osorio was hurt when struck by a car in the Bronx. He filed a claim with MVAIC, alleging that he was struck by an unidentified motor vehicle and indicated that he has no other insurance in his household.

When MVAIC denied coverage, Osorio filed a petition to compel MVAIC to arbitrate and provided a copy of the police incident report, which stated that the police department received "multiple calls" indicating that a pedestrian had been struck by a car and that the pedestrian could be heard screaming in the background. It also indicated that the petitioner told the responding officer that he did not know what happened. MVAIC opposed the petition, asserting that the petitioner had not provided proof of physical contact between himself and a motor vehicle.

Osorio demonstrated that he filed a notice of claim with the MVAIC, he was a qualified person, he was not operating an uninsured motor vehicle or a motor vehicle in violation of an order of suspension or revocation at the time of the accident, he has a cause of action against the operator and owner of the motor vehicle which struck him, and that all reasonable efforts had been made to ascertain the identity of the motor vehicle which struck him. In addition, the petitioner established, through the police incident report, that there was physical contact between him and the unidentified motor vehicle, and the police were notified within 24 hours of the incident.
Editor’s Note:  For those less familiar with NY insurance law, MVAIC is the agency created to providing uninsured motorist (UM) protection for injured parties who do not have access to any other UM coverage.  It is a creature of statute, Article 52 of the Insurance Law and requires very precise protocols be followed.

12/11/13       QBE Insurance Corporation v. Adjo Contracting Corporation
Appellate Division, First Department
Some Success by Subcontractor Insurers in Seeking Favorable Declaration in Long Island Construction Defect Coverage Action
This is the monumental water infiltration construction defect case involving Archstone and Tocci in Long Island.  Our office was involved for several years, representing Farm Family Insurance Company and we were one of the five subcontractor-insurer defendants granted summary judgment.  Most, if not all, of the other subcontractor-insurer defendants appealed that Order and this is the result of that appeal.  Background is in order.

Archstone and others (“Archstone”) built a complex of rental apartments in Long Island. In 2003, Archstone-Smith Operating Trust (“ASOT”) entered into a general contract with Tocci for the construction. Tocci, entered into trade agreements with numerous subcontractors. The construction took place in stages, ending in 2007, although tenants began moving in prior to 2007.

Because of extensive water intrusion and mold growth, Archstone terminated all tenant leases effective March 31, 2008.  Class actions were filed by tenants (“tenant action), later consolidated, and one other individual law suit remains against Archstone (“Hunter action”). Archstone then sued Tocci seeking indemnification.

Archstone sued Tocci (the “construction action”) for its losses.  Archstone and Travelers, which insured Tocci, sought defense and indemnification from the insurers of the numerous subcontractors hired for the project (the “insurers”).

One of the insurers, QBE commenced this action for a judgment declaring, inter alia, that it had no duty to defend and indemnify Tocci in the “construction action,” the tenant action or the Hunter action. Travelers and Archstone then commenced a second third-party action against the insurers seeking an adjudication of those issues. Travelers moved for summary judgment declaring that the insurers were required to defend Tocci in the construction action and Archstone moved for summary judgment declaring that the insurers were required to defend it in the consolidated tenant action and the Hunter action.

Many of the insurers cross moved for summary judgment seeking a declaration that each of them had no duty to defend Archstone.

The motion judge determined that all of the appealing insurers had a duty to defend Archstone and most had an obligation to defend Tocci as well.

One appeal, some of the insurers were successful in securing summary judgment in their favor:

  • Hartford established that Archstone did not qualify as an additional insured under its policies. Hartford's policies provide that an organization is an additional insured when the named insured has agreed, in writing, in a contract or agreement, that such organization be added as an additional insured on the policy. Here, the contract between Tocci and Hartford's named insured only required the named insured to supply evidence that it maintained insurance.


  • Erie and Penn National policies only provide coverage for bodily injury and property damage caused by an "occurrence," which is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Both carriers, insuring the same insured over different periods of time, argued that Pennsylvania law applies to their policies and that there is a conflict between New York and Pennsylvania law as to the interpretation of the term "occurrence."  

New York courts have generally acknowledged that, while a commercial general liability policy does not insure for damage to the work product itself, it insures "faulty workmanship in the work product which creates a legal liability by causing bodily injury or property damage to something other than the work product."  Here, the tenants claimed damage to their personal property and thus an occurrence.  However, under Pennsylvania law, not only are damages to the work product itself not considered an occurrence, but "damages that are a reasonably foreseeable result of the faulty workmanship is also not covered under a commercial general liability policy."  Mold growth and resulting sickness and property damage would likely be considered by the Pennsylvania courts not to be fortuitous, but rather to be, from an objective standpoint, a reasonably foreseeable, natural consequence of faulty workmanship which allowed water to infiltrate the buildings.

Under choice of law principles, the jurisdiction with the most significant relationship to the transaction and the parties' will generally be the jurisdiction which the parties understood was to be the principal location of the insured risk.'"  However, when a policy covers risk in multiple states, the state of the insured’s domicile is regarded as a proxy for the principal location of the insured risk.  So, Pennsylvania law applies and the court finds that since the damage was foreseeable, no occurrence took place.

  • ACE and Zurich issued their policies in Texas, but there is no relevant conflict between New York and Texas law regarding the use of extrinsic evidence in determining an insurer's duty to defend.  The New York “four corners” rules are similar to the Texas “eight corners rule.”


ACE correctly argued that it has no duty to defend Archstone in the tenant action or the Hunter action, and Liberty Mutual Fire Insurance Company (hereinafter Liberty Mutual) correctly argues that it has no duty to defend Archstone in the consolidated tenant action, because the Archstone entity that qualifies for additional insured coverage under their policies was not a defendant in those actions.

  • Several carriers argued that they had no duty to defend because of late notice.  Since there were personal injury claims, those carriers had an obligation to disclaim promptly on that issue and did not.


[Editor’s Interim Note:  since there is no obligation to quickly disclaim coverage for property damage claims, those insurers should still be able to argue that insofar as property damage claims are concerned, the late notice disclaimer may be viable.]

  • Five carriers convinced the appellate court that there are no allegations in the Hunter action that implicate the work of their named insureds. With respect to that action, Archstone can only point to the allegation that Archstone, "its agents, servants, representatives and/or employees were negligent in the . . . construction of the Archstone Complex." Thus, none of these insurers has a duty to defend Archstone in the Hunter action.


  • As to the consolidated tenant action and the construction action, the allegation in the consolidated tenant action complaint that the tenants' damages were caused, in part, by “water infiltration” is broad enough to keep the waterproofing companies carriers’ defending.


Michael P. Scott-Kristansen
[email protected]

12/19/13       Thomas v. Ku
Appellate Division, Third Department
90/180-day Claim Fails Where Plaintiff Missed Work for Other Reasons and Did Not Miss Any Job Interviews as a Result of the Accident
The defendants’ motion for summary judgment was properly granted.  The plaintiff was in a vehicle that was rear-ended by the defendants in July 2010.  The plaintiff complained of head, neck, and back pain in the emergency department.  The plaintiff then did not seek treatment for another three months, when he was examined by his surgeon.  This surgeon had performed a C6-7 fusion on the plaintiff in 2009 for injuries the plaintiff sustained in 2008 from weightlifting.  The surgeon did not detect any damage to the fusion site and referred the plaintiff to physical therapy.

The plaintiff went to physical therapy for two months and then, apparently, ceased treatment.  Based on the Court’s timeline, that puts the plaintiff at December or January 2011.  In January 2011, the plaintiff was examined by Luis Mendoza, whose education or specialty is not indicated by the Court.  Over one year later and independent medical exam was performed on behalf of the defendants and the plaintiff did not Mr. Mendoza again until July 2012.

The plaintiff asserted 90/180-day, permanent consequential limitation of use, and significant limitation of use injuries.  The defendants met their burden by submitting the plaintiff’s deposition testimony that he sought limited medical treatment, that his visit to Mendoza was at the direction of his attorney, and that he missed work after the accident because he was preparing to find new employment.  The plaintiff did not miss any job interviews because of the accident and he began new employment in March 2011.
Editor’s Note:        Although the Court does not say it, this testimony was clearly primarily relevant to the 90/180-day injury claim.

The defendants also submitted their IME expert’s report, which stated that the plaintiff’s decreased range of motion resulted from pre-existing degenerative changes and the prior cervical spine fusion and that the plaintiff has no current, causally-related injury.

Because the defendants met their burden on the issue of causation, the plaintiff was required to come forward with “objective medical evidence distinguishing his preexisting condition from the injuries claimed to have been caused by this accident.”  Mr. Mendoza made no attempt to distinguish the preexisting condition in his first report and did so in a conclusory/cursory fashion.  Further, his opinion on causation was based in part on an incorrect assumption: that the plaintiff had been out of work since the accident.  The plaintiff, therefore, failed to meet his burden of rebutting the defendants’ evidence.
Editor’s Note 2:     Because the plaintiff’s burden only arises with respect to the issues for which the defendant meets his or her burden, the plaintiff must specifically rebut every contention the defendant makes that would entitle him or her to summary judgment.
12/5/13         Rickert v. Diaz
Appellate Division, First Department
Defendant Prevails Over Plaintiff Who Fails to Submit an Admissible Expert Opinion
The defendant’s motion for summary judgment was improperly denied.  The plaintiff alleged she sustained significant limitations of use and permanent consequential limitations of use to her knee, shoulder, cervical spine, and lumbar spine.

The defendant established a lack of causation with respect to every body part for which the plaintiff alleged a serious injury.  The defendant’s radiologist provided a detailed explanation of why the MRI films showed only preexisting degenerative changes to the plaintiff’s cervical spine, knee, and shoulder.  The defendant’s orthopedist then opined that MRI films of the plaintiff’s lumbar spine showed temporary “soft tissue injury superimposed on underlying degenerative processes.”

The defendant also established a lack of a permanent consequential limitation of use.  The defendant submitted his orthopedist’s findings, based on an examination of the plaintiff four years after the accident, that the plaintiff had full range of motion and negative clinical test results in every body part that allegedly sustained a serious injury.

The plaintiff failed to meet her burden, in turn, because all her experts’ reports were unaffirmed.  The plaintiff submitted some of these reports to the court as certified business records, which is permissible; however, the opinions and diagnoses within such reports are not admissible as business records.  The court notes that even if the reports were admissible, they show only minor limitations pursuant to recent examinations and the examining physician did not compare his or her range of motion findings to normal.  Therefore, the plaintiff’s reports did not support her position anyway.

12/10/13       Lee v. Cornell University
Appellate Division, First Department
Continuing Limitations to Spine Sufficient for Significant or Permanent Consequential Limitation of Use
The Defendants met their burden of demonstrating the absence of a serious injury by submitting the affirmation of an orthopedist who examined the plaintiff and her medical records.  In turn, however, the plaintiff created a question of fact as to whether she suffered a significant or permanent consequential limitation of use to her cervical and lumbar spines.  The plaintiff’s orthopedic surgeon stated that the plaintiff had a limited range of motion shortly after the accident and continues to have such limited range of motion.  The plaintiff’s surgeon also reviewed the plaintiff’s MRIs and concluded that the bulging and herniated discs were causally related to the accident.

The plaintiff also sufficiently explained her gap in treatment as her physician concluded, after a series of examinations, that any further treatment would be palliative.

12/11/13       Patterson v. Metropolitan Suburban Bus Auth.
Appellate Division, Second Department
Physician’s Finding of Significantly Limited Range of Motion in Cervical Extension Enough for a Serious Injury
The lower court properly denied the defendants’ motion for summary judgment, but the denial was based upon incorrect reasoning.  The lower court held the defendants failed to establish the absence of a 90/180-day injury.  The defendants, however, submitted the plaintiff’s deposition transcript, which showed the plaintiff did not miss any work as a result of the accident.  The defendants, therefore, met their burden on the 90/180-day injury. 

The defendants actually failed to establish the absence of a significant limitation of use.  Their expert examined the plaintiff and found that her cervical spine had a significant limitation in range of motion.  The limitation was only in the cervical spine’s ability to extend, but that was sufficient to create an issue of fact for trial.  Further, the opinion of the defendant’s expert regarding causation was conclusory.


Margo M. Lagueras
[email protected]


12/09/13       Rochester Brain & Spine Neuro v. Geico Ins. Co.
Erie County, Arbitrator Douglas S. Coppola
No-Fault Places Burden on Peer Reviewer to Establish Lack of Medical Necessity
The EIP had a long history of Fibromyalgia and cervical and lumbar pain.  She also had a prior motor vehicle accident in 2011.  Some months following the subject accident, she had an epidural injection that was denied based on a peer review.  The peer reviewer discussed the appropriateness of the care rendered and the need to do physical therapy and other conservative care before undergoing such injections.  He noted the EIP’s long history of pain and prior epidural injections and opined that the reimbursement for this injection should be denied because causality was “not established with regard to spine pain in the mva.”  The Arbitrator disagreed, however, and commented that under no-fault, the peer reviewer and carrier are under a burden of proof to establish the lack of medical necessity.  Simply stating that an EIP had prior pains and problems and that therefore treatment is related to those prior conditions, without any explanation to support that the mva did not cause or exacerbate the pre-existing conditions, or even comment as to whether treatment for the prior injuries was ongoing at the time of the subject accident, does not carry that burden.

12/07/13       Applicant v. Allstate Insurance Co.
Erie County, Arbitrator Michelle Murphy-Louden
Proper Denial of Claim Form Must Include Information Called for in the Form
The EIP was involved in an accident in May 2005.  The issue here was reimbursement for a memory foam mattress, pilates treatments, a back brace and prescriptions.  Denials were based on the failure to submit claims within 45 days of the dates of service, lack of medical necessity and lack of causal relationship. 

As regards the memory foam mattress, the NF-10 indicated that the claim was received in June 2008 and denied in April 2013.  As such, the denial was grossly late and that fact precluded the carrier from relying on the 45-day rule and even though the defense of lack of causal relationship is not subject to waiver even where the denial is untimely, there is a presumption of causal relationship that attached to the claim in the first instance and that must be rebutted with admissible evidence.  Here however, Respondent failed to submit any peer review, IME or other competent medical evidence to support the claimed lack of causality.

With respect to the pilates treatment, back brace and prescriptions, these claims were also denied in April 2013, based on the same grounds as the memory foam mattress.  However, Respondent never indicated on the NF-10s when the claims had been received.  The Arbitrator noted that a proper denial of claim form must include the information called for in that form, including the date on which the claim was received by the carrier.  Although the Arbitrator provided Respondent with additional time to submit a post-hearing brief supporting the sufficiency of its denials, none was submitted and, as such, the denials were not upheld.


12/12/13       Interboro Ins. Co. v. Perez
Appellate Term, First Department
Affidavit of Service Is Insufficient to Show That EUO Letters Were Mailed in Compliance With Regulations
Plaintiff sought a declaration that coverage did not exist as to all the defendants based solely on defendant Perez’s failure to appear for an EUO.  The motion court granted defendants’ cross motion to compel plaintiff to accept their late answers as the attorney’s affirmation explained that the minor delay was due to an office computer inputting error, there was no history of willful neglect, and plaintiff did not suffer any prejudice.  The court further determined that there was insufficient evidence that Perez had been properly notified of the EUOs as the affidavit of service submitted in support of plaintiff’s motion for default was insufficient to establish that the EUO scheduling letters were mailed in compliance with the no-fault regulations.  Furthermore, plaintiff failed to provide objective proof that the letters were mailed to Perez.

12/03/13       Olmeur Med., P.C. v. Nationwide Gen. Ins. Co.
Appellate Term, Second Department
Signature on a Certificate of Conformity is “Presumptively Genuine”
The Civil Court denied defendant’s motion based on non-appearance at an EUO on the grounds that the certificate of conformity that accompanied the affidavit of defendant’s out-of-state employee was defective, even after defendant sought to cure the defect by attaching a rectified certificate to its reply papers.  On appeal, the court determined that the certificate complied with Real Property Law § 299-a (2)(a), which provides that the signature on the certificate “shall be presumptively genuine” and that the qualifications of the individual signing as a person authorized to make the certificate “shall be presumptively established by the recital thereof in the certificate.”  Therefore, the certificate should have been treated as if taken within the state.

With respect to the motion based on the EUO non-appearance of plaintiff’s assignor, defendant submitted an affirmation from the attorney who was to take the EUO, which established proper mailing of the notices.  Defendant also submitted an affidavit from its special claims representative and the out-of-state affidavit from its centralized administrative team supervisor which together established that the denial had been timely mailed.  Given that attendance at an EUO is a condition precedent to coverage and defendant established the assignor’s non-compliance, defendant’s motion should have been granted.  On appeal, the complaint was dismissed.

11/29/13       Queens Arthroscopy & Sports Med. v. Unitrin Direct Ind. Co.
Appellate Term, Second Department
Decision in Arbitration Does Not Warrant Dismissal of Suit
After execution of an assignment of benefits and provision of services, plaintiff commenced this action in Civil Court to recover assigned no-fault benefits.  At the same time, plaintiff’s assignor commenced an arbitration proceeding for a determination as to which insurance company, Unitrin or Arch, should provide him with no-fault coverage.  Plaintiff moved for summary judgment and, the next day, the arbitrator rendered a decision directing Arch, as the first company to receive notice, to commence processing plaintiff’s claims.  Defendant opposed plaintiff’s motion and, based on the arbitrator’s decision, cross-moved to dismiss.  The Civil Court granted plaintiff’s motion and denied defendant’s cross motion.  On appeal, the Appellate Term affirmed finding that plaintiff met its prima facie burden.  In opposition and in support of its cross-motion, defendant submitted the affirmation of its counsel who argued that the action was barred by the arbitration decision.  The court disagreed.  Plaintiff was not named in the arbitration proceeding and was not in privity with its assignor, who was a named party, because the assignment of benefits was executed before the arbitration proceeding was commenced and plaintiff did not have a full and fair opportunity to be heard in the arbitration.  As a result, the action was not subject to dismissal by virtue of the arbitration award.

11/26/13       Eagle Surgical Supply, Inc. v. Allstate Indem. Co.
Appellate Term, Second Department
Late Verification Request Is Not Invalid:  It Merely Shortens Time to Pay or Deny
Defendant denied plaintiff’s claims based on the plaintiff’s failure to appear for duly scheduled EUOs.  On appeal, plaintiff argued that defendant’s first scheduling letter was untimely.  The court noted that, although raised for the first time on appeal, the argument could be considered because it was one of law on the face of the records so it could not have been avoided if it had been previously raised.  However, the court found that defendant’s first letter, which was nine days late (24 days after receipt of claim rather than within 15 days), merely reduced the time to pay or deny the claim from 30 days to 21 days.  Because defendant mailed its denial 20 days after plaintiff failed to appear for the final scheduled EUO, it was timely and plaintiff’s argument without merit.

11/26/13       Dream Acupuncture, P.C. v. State Farm Fire & Cas. Co.
Appellate Term, Second Department
Defendant Is Not Required to Show Policy Contains Provision for Verification by EUO
Among other things, plaintiff argued that defendant was required to demonstrate that the policy contains a provision for using EUOs as methods of verification.  This argument is meritless because, as of April 5, 2002, the mandatory PIP endorsement contains an EUO provision.  Because the accident occurred in 2007, the policy would necessarily contain the EUO provision, making it unnecessary for defendant to produce the policy to prove its existence.


Steven E. Peiper
[email protected]

First Party

12/11/13       Donohue v. Fokas
Appellate Division, Second Department
ALL Reports Authored Prior to the Decision to Deny Coverage are Fair Game in Discovery Exchange – Thousands Flee
This matter has its origins in a fire that began at a premises owned by defendant Fokas.  In the course of battling the fire, the adjacent premises partially exploded causing damage to it and injuring a fire fighter at that location.  Non-party National Fire covered the premises owned by Mr. Fokas.

After the adjacent property owner’s carrier paid the loss for the explosion, two days later it commenced a subrogation action against Mr. Fokas.  This loss, as with Fokas’ property loss, triggered the liability portion of the National Fire policy.  A year later, the injured fire fighter commenced a personal injury action against both Mr. Fokas, as well as the owner of the adjacent property that exploded (which also happened to be the actual situs of where plaintiff sustained injury).
During the course of the personal injury litigation, plaintiff subpoenaed the fire loss file that National Fire had prepared during its investigation of Mr. Fokas’ claim.  That file, apparently, contained a Cause and Origin report.  National Fire, not surprisingly, moved to quash production of that report.

In addressing the motion to quash, the Second Department noted that the burden of non-production (i.e., establishing the report was privileged as material prepared in anticipation of litigation) fell squarely upon National Fire. The court went on to explain that reports made before the “decision is made to pay or reject a claim are thus not privileged and are discoverable.”  This is the case even where the reports at issue are “mixed/multi-purpose reports, motivated in part by the potential for litigation with the insured.”

Here, the Court held that National Fire could not meet its burden to avoid production of the documents.  In so holding, the Court established (or reiterated depending on your point of view) a bright line rule for when a document moves squarely into the “material prepared in anticipation of litigation” realm.  That line is crossed at the moment the insurer has made a “firm decision to disclaim coverage.”  In reaching this conclusion, the Court specifically noted the date the insurer made a decision to investigate the legitimacy of a loss was “irrelevant.”

Finally, the Court did note that the trial court should have conducted an in camera inspection beforehand to ensure opinions and conclusions (which would have been privileged) were properly redacted. 

Peiper’s Point – This issue has been argued for some time.  Most of the time, carriers were successful in protecting confidential reports.  This decision, however, appears to blow the lid off of any protections for items prepared “pre-disclaimer,” and could/should fundamentally change the way insurers conduct investigations.   Carriers beware.   


Court of Appeals

12/17/13       Ragins v. Hospitals Ins. Co., Inc.
Court of Appeals
Broad Language of Excess Policy Triggers Its Obligation to Pay Pre-Judgment Interest
Plaintiff commenced this action against defendant HIC, his excess carrier, on the theory that HIC must pay interest on a $1,100,000 judgment.  By way of background, a $1,100,000 judgment was entered against plaintiff.  Plaintiff’s now defunct primary carrier, through the liquidator, paid the limit of that policy ($1,000,000) shortly after the judgment was entered.  Importantly, however, the primary policy’s Supplementary Payments section specifically excluded payment of post-judgment interest after it had remitted its policy limits in satisfaction of a judgment. 

In contrast, the excess policy authored by HIC provides coverage for any sum in excess of the underlying insurance.  The Court of Appeals interpreted the otherwise undefined term “sum” broadly to mean, essentially, any amount, of any loss, attributable to an otherwise covered claim.  This included both pre-judgment, as well as post-judgment interest. 

Because the primary policy excluded interest after it paid its portion of the judgment, any interest, along with any other unpaid portion of the judgment, fell within the terms of the excess policy issued by HIC.

12/10/13       Auqui v. Seven Thirty One Ltd. Partnership
Court of Appeals
Workers Compensation Decision Precludes Re-litigation of the Timeline of Plaintiff’s Disability from Work
Okay, anyone who saw this coming…pat yourself on the back.  In our March 1st issue of Coverage Pointers we reported on a Court of Appeals decision that applied collateral estoppel to preclude re-litigation of the extent of plaintiff’s injuries in a third-party tort action where an ALJ had ruled plaintiff had no future disability in a workers’ compensation proceeding.  That decision resulted in a 4-1 decision, with Judge Pigott writing the only dissent.  Judge Rivera, it appears, did not take part in this decision.

Our write up follows:

02/14/13 Auqui v. Seven Thirty One Ltd. Partnership
Court of Appeals
Workers’ Compensation Decision Precludes Re-litigation of the Timeline of Plaintiff’s Disability from Work
The instant case involves a work place accident involving Jose Verdugo. As a result of the incident, Mr. Verdugo sought treatment for head, neck and back injuries, as well as post-traumatic stress disorder. As it was a work-related incident, Mr. Verdugo filed for, and received, workers’ compensation benefits from 2004 through 2006. In the interim, Mr. Verdugo also commenced a 2005 personal injury action against the owner of the parcel where the incident occurred.

By way of a January 24, 2006 decision from the Workers’ Compensation Board, it was determined that Mr. Verdugo was no longer disabled from returning to work. That finding was challenged by Mr. Verdugo, and in February of 2007, an Administrative Law Judge ruled that Mr. Verdugo’s disability ended on the date of the WCB determination and that no further treatment was necessary.

As a result of these rulings, defendant moved to preclude plaintiff from re-litigating the duration of the injury. Where, as here, the party had a full and fair opportunity litigate the case, defendants argued that collateral estoppel precluded any reargument.

In holding for the defendant, the Court of Appeals noted that determinations of administrative agencies will be given preclusive effect where they address issues of fact. Here, the duration of plaintiff’s injuries, was, in the Court’s eyes, a question of fact, and collateral estoppel was appropriate. The decision was bolstered by evidence that plaintiff had presented expert testimony, cross-examined witnesses for the defendant compensation carrier, and submitted a litany of medical reports. Accordingly, plaintiff was unable to re-litigate issues related to Mr. Verdugo’s lost earnings and compensation for medical expenses.

Judge Pigott penned the only dissent in this matter, and argued that the decision by the WCB (and subsequently the ALJ that presided over the appeal) was, by its very nature, a decision of law and fact. Accordingly, there should be no preclusive effect given. Judge Pigott reasoned that the determination as to an injured workers’ compensation benefits should be limited to that proceeding, and should not be permitted to bar the injured party from pursing these claims in subsequent civil litigation.

The Court granted reconsideration, and used that opportunity to reverse its position.  In a unanimous 6-0 opinion, with Judge Rivera participating on reconsideration, the Court ruled that the decisions of an ALJ in a related workers’ compensation claim will not have preclusive collateral estoppel effect. 

In reaching the conclusion, the Court noted that quasi-judicial proceedings (like the WC hearing) would normally be given preclusive effect if there was a full and fair opportunity to litigate the issues.  In the instant case, upon reconsideration, the Court noted that the mission statement of a workers’ compensation proceeding is far different than a tort action. 

The WC proceeding is focused “on the act.”  In other words, the Court ruled that a WC proceeding is focused on the claimant’s ability to return to work.  On the other hand, a third-party tort action is focused “on the larger question of the impact of the injury over the course of plaintiff’s lifetime.”  While the two questions are related, the Court noted that the two could not be said to be identical in scope and focus. 

The Court then went on to discuss the differences in the procedures governing how a WC claim proceeds, and contrasted that process with our civil litigation process.  The WC proceeding, obviously, is more expedited and limited in its focus.  It was this recognition that appears to have altered the Court’s view on this issue.  In light of the differences between scope, focus, and institutional protocol and processes, the Court now finds that a finder of fact in a tort proceeding should not be bound by the “narrow finding of the Board regarding the duration of plaintiff’s injury or his need for further medical treatment.” 

Appellate Division

12/17/13       Vital Realty, LLC v. Greenwich Ins. Co.
Appellate Division, First Department
Greenwich’s Mistake Cannot Be Vital’s Gain Where Vital Had Nothing to Do With the Loss in Question
In a recent issue, we reviewed the case where Greenwich commenced a subrogation action in the name of the wrong entity.  In that case, the Court understandably permitted Greenwich to amend its Complaint to correct the error. 

Now, in this issue, we get the other side of that issue.

11/21/13          Greenwich Ins. Co. v. New Amsterdam Assoc.
Appellate Division, First Department
CPLR 2001 Permits Plaintiff to Amend its Complaint to Identify the Proper Subrogor
Plaintiff commenced this action as a subrogee after paying a fire loss. Unfortunately, plaintiff named Vital Equities as the subrogor when, in fact, the loss had been paid to Vintage Realty, LLC. Importantly, Vital and Vintage were both related, and had been operating under the same managing member.

Because the “real party in interest” was Greenwich, and because Vital and Vintage were related, the Court permitted Greenwich to amend its Complaint to identify the appropriate party as “subrogor.” In reinstating plaintiff’s Complaint, the Court noted that the trial court should have exercised its discretion under CPLR 2001 to remedy what was a minimal error.

In an effort to seize upon Greenwich’s error, Vital realty commenced an action for damages related to the claim submitted by, and paid to, Vintage.  Vital, as we are told by the Court, had no loss and was, other than unity in a management company, unrelated to Vintage.  Nonetheless, Vital argued that because Greenwich named it in the subrogation complaint and admitted Vital was the owner of the premises, albeit mistakenly, it was entitled to recovery.

Not surprisingly, Vital’s claim was dismissed. Somewhat surprisingly, costs and/or sanctions were not awarded!

12/05/13       Greater NY Mut. Ins. Co. v. Coach, Inc.
Appellate Division, First Department
Relation Back Doctrine Ruled Inapplicable Where Plaintiff Knew of Proposed Defendants Identity
Plaintiff commenced this action as a subrogee. Apparently, after the expiration of the relevant statute of limitations, plaintiff attempted to amend its Complaint to add non-party JLG as a defendant.  However, whereas here, the plaintiff was well aware that JLG was on the jobsite and performed work thereat, the Court held that plaintiff was unable to rely upon the “relation back doctrine” to save its claims.


Elizabeth A. Fitzpatrick
[email protected]

11/19/13       Liberty Mutual Fire Ins. Co. vs. Kay & Kay Contracting,
Faulty Workmanship Not an Occurrence
Sixth Circuit Court of Appeals
Interpreting Kentucky law, the Court concluded that a subcontractor’s allegedly fault preparation of a building pad, that resulted in the subsequent settling and structural damages to the building constructed thereon, was not an “occurrence” within the meaning of a commercial general liability policy covering property damage caused by an “occurrence,” defined as it typically is, as an accident, including continuous or repeated exposure to substantially the same general harmful conditions. The Court reversed the District Court and remanded with instructions to enter judgment for the insurer.

Liberty Mutual issued a CGL policy to Kay & Kay as the named insured, including MW Builders as an additional insured. Walmart contracted with MW Builders as a general contractor to build a new Walmart store in Kentucky. MW Builders then subcontracted with Kay & Kay to perform site preparation work and construct the building pad for the new store.

After Kay & Kay had completed the building pad and the building had been erected, Walmart notified MW Builders that there were cracks in the buildings walls. Walmart demanded that MW Builders remedy the problems and resulting damage and MW Builders then demanded that Kay & Kay remedy the issues and indemnify MW Builders from Walmart’s claim. Kay & Kay denied liability and demanded coverage from Liberty Mutual under its CGL policy.

The CGL policy included the standard ISO language and definition of “occurrence” as set forth above. Accident was an undefined term. In analyzing the issue, the Court noted that the threshold issue was whether there was an “occurrence” within the meaning of the CGL policy. They found that the Supreme Court of Kentucky had not previously addressed the specific issue, but considered Cincinnati Insurance Co. vs. Motorists Mutual Insurance Co., decided by the Supreme Court of Kentucky in 2010, where the court, concluding that the question was a difficult one on which the courts of numerous other states had reached differing conclusions, adopted what it said appeared to be the majority view, to wit, that claims of faulty workmanship, standing alone, are not occurrences under CGL policies.

The Court found that in so holding, ultimate liability falls to the one who performed the negligent work, instead of the insurance carrier and will also encourage contractors to choose their subcontractors more carefully instead of having to seek indemnification from the subcontractors after their work failed to meet the requirements of the contract. The Court did note in a footnote that it appeared that a CGL policy would apply if the faulty workmanship caused bodily injury or property damage to something other than the insured’s allegedly faulty work product.


Audrey A. Seeley
[email protected]

12/12/13       Fetherston v. Parks, et al.
Court of Appeals, Wisconsin
Intentional Conduct Exclusion Requiring Both Subjective and Objective Intent Not Established to Bar Insurance Coverage for Accident Resulting From Insured Avoiding Arrest
Michael Parks (“Parks”) was operating a motor vehicle at approximately 60 miles an hour in a 25 mile an hour zone when he passed a police car.  When the police car turned around and activated its lights, Parks accelerated to 90 miles an hour.  He continued along the road weaving in and out of traffic and passing other motor vehicles on the left and right.  When Parks passed a semi tractor-trailer on the right and lost control of the motor vehicle, he hit gravel, resulting in him coming back into the lane directly in front of the semi tractor-trailer.  Parks hit Gregory and Heather Fetherstons’ (“Fetherston”) vehicle in the oncoming lane of traffic.

The Fetherstons commenced a bodily injury action against Parks as well as his automobile liability insurer, American Family, who denied insurance coverage to Parks based upon the intentional acts exclusion.

The intentional acts exclusion of that policy provided that the insurance policy afforded no coverage to “bodily injury or property damage caused intentionally by, or at the direction of, and substantially certain to follow from the act of an insured person.”  American Family’s summary judgment motion was denied by the Circuit Court on the basis that while Parks’ conduct was admittedly intentional, it was not intended to injure the Fetherstons.  Also, the nexus between the criminal and traffic-ordinance-violating conduct and the Fetherstons’ injuries were not established as substantially certain.

A bench trial ensued wherein American Family argued not that Parks subjectively intended to hurt the Fetherstons, but that his reckless driving was substantially certain to cause injury and thus the intentional injury exclusion applied barring insurance coverage in the underlying action.  The Circuit Court determined that the intentional injury exclusion applied and the appeal ensued. 

The Court in reviewing the intentional injury exclusion determined that the exclusion would apply if the insurer could establish that Parks intentionally caused harm and Parks’ conduct is substantially certain to result in harm.  The former was characterized as subjective intent and the latter was characterized as objective intent.  The Court went on to discuss that objective intent exists when an intentional act is substantially certain to produce injury regardless of whether the individual subjectively intended to cause the harm or injury.  Interestingly, this intentional injury exclusion required the insurer to demonstrate both subjective and objective intent.

The Court held that there was no dispute between the parties that Parks’ driving was sufficiently reckless as to be substantially certain to result in an injury.  Yet there was no finding whether Parks actually planned to cause injury.  Despite this, the Court looked at Parks’ contention that he did not have a subjective intent to cause injury to others using the highway and that American Family conceded this point.  The Court further pointed to American Family’s opening statement wherein it did not contend Mr. Parks subjectively intended to hurt anyone.  Thus the Court held in light of the parties’ mutual concessions on subjective intent, the exclusion was not satisfied and did not apply to bar insurance coverage.


Cassandra A. Kazukenus
[email protected]

Governor Cuomo Vetoes Certificates of Insurance Bill – Assembly Bill 3107-D

             In June the Assembly and Senate passed Assembly Bill 3107-D which would have barred governmental entities, corporations and individuals from requesting an altered form of a standard ACCORD Certificate of Insurance.  For example, the current practice of altering a certificate of insurance in an attempt to create additional insured status under a specified contract would not be allowed. 

             Thanks to our friend, Tim Dodge, we learned that Governor Cuomo vetoed this Legislation.  Below is the veto message from Governor Cuomo:


I am returning herewith, without my approval, the following bill:

Assembly Bill Number 3107-D, entitled:

"AN  ACT  to amend the insurance law, in relation to certificates of insurance"


This bill would amend the Insurance Law to require that State agencies and other parties use only the expressly enumerated, standardized certificate of insurance forms specified in the bill to issue or obtain certification of the insurance coverage held by contract counterparty.  The bill would also prohibit any alteration of these forms.

State agencies frequently require counterparties to  complete  certificates  of  insurance  that  convey  detailed  information sufficient to ensure that their insurance policies meet  the  specific  liability  and other  coverage requirements under a given State contract. The standardized forms mandated in this bill, however, are generic in nature and will not convey such detailed policy coverage information.

For the foregoing reasons, I am disapproving this bill. However, the Department of Financial Services will examine the manner in which

certificates of insurance are used by State agencies and identify any means by which such use may be improved.

This bill is disapproved.                   (signed) ANDREW M. CUOMO

 DFS Approves Esurance Program Which Will Help Prevent Teens From Using Cell Phones While Driving

A program developed by Esurance was approved by the Department of Financial Services this week which will allow insureds to install a device in their cars which helps prevent teens from texting and calling while driving.  The installation of the device is free, and it allows parents to create customized block lists that can stop specified cell phone activities if the car is in motion.  The technology is installed into the vehicle that a teen drives and utilizes an Esurance app which is installed on the teen’s phone.  This app along with the vehicle technology can limit the use of text, email, app usage such as Facebook and phone calls while driving.  There is no limit to calls to 911, and you can set up the program to allow the teen to receive texts and phone calls from certain numbers such as their parents. 

The app and technology can also monitor the teen’s driving behavior which includes speeding, hard braking, fast acceleration and other activities.  Per Esurance’s website it also tracks mileage, location, and time of each trip. It can also alert you if the device is removed.  Esurance has also created a web portal to customize the device and review their teens’ driving habits. 

In order to obtain the device from Esurance, the policyholder will need to list their teen driver on the policy. 


Katherine A. Fijal
[email protected]

12/11/13       Atlantic Casualty Ins. Co. v. Coffey
United States Court of Appeals, Second Circuit – New York Law
Claims for Reformation Fail Where Assault and Battery Exclusion Applies
In this appeal Theodore J. Coffey [“Coffey”] argues that the district court erred in its determination that Atlantic Casualty Insurance [“Atlantic”] was entitled to summary judgment and claim that he is entitled to reformation of the insurance contract to the language of the original 2006 policy, both on grounds of fraud and under Hay v. Star Fire Ins. Co., 77 N.Y. 235 (1879), and under New York Ins. Law §3420(d).  Coffee argued that Atlantic violated §3420(d) because its disclaimer letters referred to a later version of the assault and battery exclusion rather than the one included in the 2006 contract thereby waiving its ability to rely on the exclusion.

The Second Circuit Court of Appeals [“Court”] concluded that Coffey’s arguments lacked merit.  Essentially, the Court determined that even if it assumed that Atlantic did alter Coffey’s insurance policy without proper notice, Coffey’s claims still fail because – as Coffey all but admitted in his papers – the original assault and battery exclusion excludes coverage for this claim.

In analyzing Paragraph 1(a) – the assault and battery exclusion – the Court concluded that the language clearly covered the assault in the underlying action, pointing out that under New York law, a cause of action that would not have arisen but for an assault is barred by the assault and battery exclusion. Further noting that paragraph 1(a) appeared without material change in all five versions of the insurance contract issued to Coffey. Accordingly, reformation of the 2010 policy to the 2006 version would still not provide Coffey with grounds to recover.

Coffey went on to argue that Atlantic waived any reliance on the 2006 version of the exclusion because under New York law, an insurer must “give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant.”  N.Y. Ins. Law §3420(d)(2).  Moreover, such notice “must promptly apprise the claimant with a high degree of specificity of the ground or grounds on which the disclaimer is predicated” or the insurer will waive its right to rely on that ground for excluding coverage.

The Court disagreed noting that §3420(d) is intended to ensure clear notice to insured parties of the precise exclusion that the insurer invokes.  Therefore, even if the disclaimer letter has misquoted or partially omitted the language of an exclusion in a policy, New York Courts have held that the disclaimer remains valid as long as it is identified the applicable policy exclusion and set forth the factual basis for the insurer’s position that the claim fell within a policy exclusion with sufficient specificity to satisfy the statutory mandate and purpose.

The Court concluded that Atlantic clearly invoked the assault and battery exclusion in the letters disclaiming liability, giving Coffey sufficient notice of the particular language on which Atlantic relied in its determination that coverage was excluded, as well as its rationale.  Accordingly, Atlantic was entitled to judgment.

Editor’s Note:        In the June 7, 2013 edition of coverage pointers were reported on the following case.  At that time the United States Court of Appeals certified certain questions to the New York Court of Appeals.  By way of update the Court granted the motions made on behalf of United Policyholders and on behalf of the Public Adjusters Association to file amicus briefs.

05/23/13       Executive Plaza, LLC v. Peerless Ins. Co.
United States Court of Appeals Second Circuit – New York Law
Court Certifies Question to New York Court of Appeals
The issue the court faced in this case was the interplay between two provisions in fire insurance policy.  The first required the insured to file suit on the policy within two years.  The second required the insured, when seeking replacement costs, to replace the damages property before bringing suit.  The question is what happens to insured property that cannot reasonably be replaced within two years?

Executive Plaza, LLC [“Executive”] owns a building insured by Peerless Insurance Company [“Peerless”].  The policy had liability limits of $1,000,000.  On February 23, 2007 a fire destroyed the building, and Executive timely notified Peerless of the damage.  Within days, Executive had retained both an architect and a construction company.  By July 2007, Peerless had paid Executive the actual cash value of the property, $757,812.50, less certain adjustments.

In the years after the building was originally erected, zoning laws had changed.  To rebuild, Executive needed a variance and other forms of consent from local governmental entities.  Despite first submitting its application for review in June 2007, a final building permit was not granted until November 2008.  By October 2010, Executive had “substantially replaced” the property.

On February 23, 2009, before it had completed rebuilding the property but within the two year limitations period, Executive filed suit in New York State Supreme Court, Nassau County, to recover replacement costs under the policy.  Peerless removed the case to the Eastern District of New York on diversity grounds.  Since construction had not yet been completed, the district court dismissed the claim as not yet ripe.  Executive did not appeal.

After having substantially replaced the property, on October 5, 2010, more than two years after the loss, Executive sent Peerless a demand letter to recover an additional $242,087.50.  Peerless rejected the demand and Executive filed suit in New York State Supreme Court, Nassau County, and Peerless again removed the action the Eastern District of the New York on diversity grounds.  The district court dismissed the action as time barred.

In analyzing this matter the Second Circuit Court of Appeals [“Court”] determined that the New York State Court of Appeals has not resolved the issue presented.  The Court of Appeals has interpreted the suit limitations provision alone, but never the replacement cost provision.  Further, the court found no controlling precedent interpreting the suit limitations clause in light of the replacement cost provision.

Although the Court may attempt to predict what the Court of Appeals would do, it concluded that the cases available provided little predictive value as to how the Court of Appeals would resolve the issue.

The Court also pointed out that the question to be certified implicates important matters of state law – including identifying the contours of property insurance policies; and, the state’s strong interest in supervising highly regulated industries. Further pointing out that the policy at issue here insures against fire related losses, and the legislature’s codification of a standard fire insurance policy, which creates a floor for fire insurance coverage throughout New York State, underscores the Legislature’s concern for coverage in this field.  The Court took the position that state courts are better equipped to consider the ramifications of the issues presented here.

Finally, the Court noted that the question certified is purely legal, and an answer would resolve the appeal.

Accordingly, the court certified the following question to the New York Court of Appeals:

If a fire insurance policy contains 
(1)      a provision allowing reimbursement of replacement                         costs only after the property was replaced and                               requiring the property to be replaced “as soon as                            reasonably possible after the loss”; and
(2)      a provision requiring an insured to bring suit within                          two years after the loss;

Is an insured covered for replacement costs if the insured property cannot reasonably be replaced within two years?

We will continue to monitor this case and report any decision rendered by the Court of Appeals.


Jennifer A. Ehman
                                            [email protected] 

12/04/13       34-06 73, LLC v. Seneca Ins. Co., Inc.
Supreme Court, New York County
Reserves and Estimates of Cost for Investigation of Claim Appropriate for Redaction; Identification of Steps Taken or Intended to Take to Investigate Claim Not Privileged
This decision addresses the production of certain records likely maintained in defendant’s claims file.  Defendant redacted the documents at issue relying on attorney-client privilege/work product privilege and material prepared in anticipation of litigation. 

The court reiterated the well settled rule that an insurance carrier cannot claim documents are prepared in anticipation of litigation until it makes a firm decision to deny coverage.  Since all the documents here were created before the date of denial, they were not shielded from discovery on that ground. 

The court then considered the individual redactions to determine whether the attorney-client privilege applied.  To fall within in this category, the communication from the attorney to the client must be made for the purpose of facilitating the rendition of legal advice or services.  The documents must be of a legal character, and documents prepared in the ordinary course of business are not privileged, even if prepared by an attorney. 

The court found that certain communications between the property adjuster and counsel detailing legal strategy were privileged.  Also, reserves are not discoverable in actions to determine coverage, and information relating to estimates of cost of investigation and paying the claim are privileged.  But, details concerning steps taken to investigate or the intention to take these steps even if by an attorney without legal advice or strategy were not privileged. 

Take Away:  This case is a great reminder of what is appropriate for redaction when making disclosures. 

12/04/13       Alfonso v. Zurich Am. Ins. Co.
Supreme Court, Kings County
Insurance Law §3420(a)(6) Only Applies to Policies Issued or Renewed After January 17, 2009; Injured Party Does Not Gain Independent Right to Sue Alleged Tortfeasor’s Insurer To Challenge Late Notice Denials on these Pre-Amendment Policies
Plaintiff was allegedly struck on December 15, 2004, by a heating unit that fell from the ceiling of a building leased by Zurich’s insured, Delmar Sales, Inc. (“Delmar”).  He eventually brought suit.  In a letter dated May 22, 2007, Zurich disclaimed coverage to Delmar based on late notice.  While we do not know by whom, it appears that Delmar was being represented in the underlying action.

Plaintiff then brought this action and moved, by order to show cause, for a declaration that Zurich was obligated to compensate him for any judgment he obtained against Delmar.  At the time of this motion, the underlying action was on the trial calendar and no judgment had been obtained. 

In support of Plaintiff’s motion, he relied on Insurance Law § 3420 (a)(6), which provides that “with respect to a claim arising out of…personal injuries of any person, if the insurer disclaims liability or denies coverage based on failure to provide timely notice, then the injured person…may maintain an action directly against insurer, in which the sole question is the insurer’s disclaimer or denial based upon failure to provide timely notice.”  However, in this case, plaintiff could not rely on the provision because it was enacted in 2008 and only applies to insurance policies issued after January 17, 2009.  The provision is not retroactive.  Accordingly, the court denied the motion based on a lack of standing, and dismissed the action.

Bad Faith

12/11/13       Mendota Ins. Co. v. Rodriguez
United States District Court, M.D. Florida
Plaintiff Cannot Support Diversity Jurisdiction Based On Exposure Due to Potential Bad Faith Counterclaim
Elizabeth Michael was injured in an automobile accident with Carlos Rodriguez.  At the time of the loss, Rodriguez was a scheduled driver under an auto policy issued by Mendota with limits of $10,000 per person and $20,000 per accident.  Mendota assumed the defense of the action, and by agreement the action was submitted to arbitration.  Rodriguez failed to respond to Mendota’s counsel’s attempts to get in contact with him and failed to appear at the arbitration hearing.  An arbitration award was rendered against him, and the vehicle owner. 

Mendota then brought his action seeking a declaration that it was not obligation to provide any coverage to Rodriguez including paying the judgment because he breached the cooperation clause.  The complaint alleged that the court had diversity jurisdiction because the parties are diverse and the matter involved an arbitration award in excess of the jurisdictional amount. 

Defendant Douglas Stalley, in his capacity as guardian of Michael’s property, moved to dismiss the Complaint for lack of subject matter jurisdiction because the amount in controversy was only the $10,000 policy limit plus prospective fees and costs. In response, Mendota amended its complaint alleging that the amount in controversy exceeded $75,000 because Stalley intended to collect the eight million dollar arbitration award from Mendota.  The carrier pointed to opposing counsel’s website advertising huge recoveries even where insurance coverage is $10,000. 

The Court agreed with Stalley and held that it lacked subject matter jurisdiction over this case because the value of the litigation from Mendota’s perspective did not exceed $75,000.  For purposes of establishing standing, the Court held that the arbitration award was irrelevant.  First, at the time the complaint was filed, the award and not yet been reduced to a judgment, and second, Mendota could not rely on an unfiled counterclaim to establish the amount in controversy.  This was especially true as a coverage determination is required before an action for insurance bad faith can proceed.  In other words, if Mendota were to succeed in this action, Stalley would be estopped from alleging bad faith. 


Earl K. Cantwell

[email protected]


A recent California court decision considered an outrageous claim of mayhem caused by an offending bush, and ruled that the insurance company must come to the defense of the property owners.  Shelton v. Fire Insurance Exchange, 2013 WL 3874978 (Cal. Ct. App., 2d District, July 25, 2013).  The insureds owned a rental property in Malibu, California, and were sued by their neighbor who alleged that a hedge on their property exceeded the height permitted by the County and neighborhood bylaws.  Not only did the neighbor allege that the hedge prevented her from having a safe view when exiting her driveway causing emotional and physical injury, she claimed this contributed to stress-related diverticulitis and a subsequent surgery to remove a portion of her colon.  The neighbor sued the insureds for emotional damages and, of course, punitive damages for possessing a very wicked and bad bush. 

The property owners requested that their insurance company defend them against the claim, but the insurer disclaimed on several grounds.  One ground was that the policy only covered damages from a sudden, accidental occurrence, which was not a growing hedge.  The insurance company also claimed that the policy only covered injuries from physical harm and not emotional distress.  The insurance company also claimed the suit alleged intentional action by the insureds rather than an “accidental” occurrence. 

The trial court held for the insurance company concluding that the suit essentially claimed damages from intentional acts by the property owners and therefore there was no coverage.  However, the appellate court came to the rescue of the property owners and their marauding shrubbery.  The appeals court reversed the trial court and ruled that the insurance company was bound to defend the lawsuit.  Beating around and through bushes, the appeals court addressed and rejected the three (3) major grounds for the insurance company’s disclaimer. 

First, the policy definition of a “sudden event” included continuous or repeated exposure to the same condition, which arguably expanded the definition of occurrence to include both sudden and gradual events.  Blossoming growth on the bush was arguably such a gradual event. 

The appeals court then ruled that legal authority has clearly held that the term “bodily injury” encompasses alleged physical injury resulting from emotional distress, which claims were within the pleadings.

Lastly, the appeals court held that the intentional act limitation was not operative because there were elements of negligence and claims of lax trimming and care of the hedge in the claim.  Therefore, there was potential coverage, the insurance company had to defend the claim and the culprit hedge, and the insureds were even awarded costs on appeal. 

The first lesson of this case is to not pick fights with litigious neighbors (certainly not in California).  A second lesson might be to tend a nice, attractive garden rather than a huge, mean, and menacing hedge.  The third lesson is that no matter how ridiculous a claim may seem, application of basic insurance language and principles will guide you through the hedge maze.

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