Coverage Pointers - Volume XV, No. 14

Dear Coverage Pointers Subscribers:

Situation?  You have a situation?  We love situations. 

The holidays are a quiet time for the courts, but they get back into full swing next week.

Happy New Year.  We wish you health and success in the year to come.  From those in the mid-west and in New York, we are hopeful that the weather is kind to you.

For those who wonder whether people can live in Buffalo in the winter and survive to talk about it, I will give you a little bit of trivia.  I started working at H&F on July 14, 1977, not quite six months after the Blizzard of ’77.  This is my 36th Buffalo winter working downtown.  In all those years, I was snowed into the office only once, overnight, and I remember it was on December 11, 2000, the day the US Supreme Court heard the oral argument in the Gore-Bush vote counting case.  Fortunately, I had a delivery of wine from California to keep me company.

Presidential History Update:

About 19 months ago, I decided to read US presidential biographies – or in some cases, autobiographies -- in order.  In some cases, I read more than one on a president, including two or three books on Teddy Roosevelt (including his autobiography), three books on President Nixon, two of the four Caro books on Johnson, two books on Clinton (including his lengthy autobiography).  I have moved along quite nicely, from Washington to Bill Clinton and have learned (or relearned) US history through these volumes.

There are biographies available for each US President, downloadable from the iBooks store or on the Kindle.

I took a step back in time over the last couple of weeks, reading Doris Kearns Goodwin’s newest book: The Bully Pulpit -- Theodore Roosevelt, William Howard Taft, and the Golden Age of Journalism.  It’s a great read about two men who ended up battling, both unsuccessfully, in the 1912 Presidential race, won by Woodrow Wilson, a little known New Jersey governor.  That race may well be a precursor to 2016, with a moderately progressive Democrat, a radically progressive independent and a Tea-Party candidate Republican.

If anyone has any interest in a similar endeavor – reading the biographies, not running for President – I’d be happy to put together my reading list.

I just downloaded President George W. Bush’s autobiography, Decision Points.  We’re nearing the end of this project.

Beth’s Bantering on Coverage “B”:

Dear Subscribers:

As we on Long island await our first blizzard of 2014, I wish you all a Happy New Year and all the best in 2014.  I look forward to a year of interesting decisions and discussions.

As always, once the holidays end, my mind turns to training and visiting all of you across the country, something that I enjoy greatly.  It is important for me to meet with our many clients face-to-face and I am always happy to provide coverage updates in a variety of contexts.  If you would like to schedule a training program in your office, please feel free to contact me via telephone or email, and I will work with you to prepare a program that meets the needs of your organization.
As you know, I have spent the last several columns talking about coverage decisions and legislation involving claims for construction defect or faulty workmanship throughout the country.  There is an excellent article, which appears in Mealey’s Reports, entitled “Construction Defect Coverage Summary 2013”  I encourage any of you involved in this litigation to read the article.

While I did not locate any additional decisions on this issue in the last two weeks of December, I bring to you a decision involving Coverage B (for personal and advertising injury), in a decision issued by the Southern District of Ohio, entitled Assurance Company of America v. Waldman.  

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

One Hundred Years Ago This Week: World's First Scheduled Air Flights:

Author: C. V. Glines
Source: Aviation History Magazine

On January 1, 1914, the St. Petersburg-Tampa Airboat Line was born – the world's first scheduled airline using winged aircraft. A plaque on the entrance to St. Petersburg International Airport proclaims: "The Birthplace of Scheduled Air Transportation."

Traveling in that first passenger airplane made of wood, fabric and wire was a far cry from flying in today's comfortable, air-conditioned airliner. From all accounts, however, those first airline flights were not so bad, provided you did not mind sitting out in the breeze with water spraying in your face. Passengers sat on a wooden seat in the hull of a two-place seaplane that did not have a windshield and rarely flew more than five feet above the water. That is the way it was on that momentous day in sunny Florida only a decade after Orville and Wilbur Wright made their historic first flights at Kitty Hawk, N.C.

The driving force behind the St. Petersburg­ – Tampa Airboat Line was Percival Elliot Fansler, a Florida sales representative for Kahlenberg Brothers, a Wisconsin manufacturer of diesel engines for fishing boats. He recalled later: "My appetite for speed was whetted by my experiences in racing boats. Having heard that Tony Jannus had made his famous trip down the Mississippi in a flying boat, I started correspondence with Tom [Benoist]. After receiving two or three letters that dealt with the details and capabilities of the boat, the idea popped into my head that instead of monkeying around with the thing to give 'jazz' trips, I would start a real commercial [air]line from somewhere to somewhere else. My experience in Florida led me to conclude that a line could be operated between St. Petersburg and Tampa. The distance was about 23 miles – some 15 of which were along the shore of Tampa Bay and the remainder over open water. I wrote to Tom about the scheme and he became immediately enthusiastic."

Fansler, as general manager of the airline, fixed the price of a one-way ticket at $5 for the 22-minute trip. Passengers were allowed a maximum weight of 200 pounds gross, including hand baggage. "Excess weight [was] charged at $5 per hundred pounds, minimum charge 25 cents," according to the handbills distributed throughout the two cities. Besides operating two scheduled flights per day, six days a week, Fansler recalled that "our agreement with our backers permitted us to indulge in special flights at any price we cared to name, and we made a number of these trips at $10 to $20 each."

Charter flights could be arranged from St. Petersburg to several other Florida sites--Pass-a-Grille, Clearwater, Tarpon Springs, Bradenton, Sarasota, Palmetto, Safety Harbor and Egmont Key. Advertisements for these flights stated they would cost $15 and "trips covering any distance over water routes [would be made] from the waters' surface to several thousand feet high at passenger request."

Jen’s Gems:

As we closeout 2013, it is always nice to reflect on all that has happened over the past year.  Personally, this year I was blessed to see my little girl grow a year older, take her first steps and say her first words.  Professionally, I have gotten to spend another year improving my craft and learning from some of the best attorneys in the business.  It was truly a great year. 

Also, with the year ending, I wanted to highlight some trivia Dan included in the last issue.  It has now been over 15 years since a New York appellate level court upheld a finding of bad faith against an insurance carrier.  In the New Year, we will wait and see whether this streak is broken, and, if by some chance it is, we can guarantee that we will let you know. 

Until next issue…

P.S. For those that expressed concern and outrage last issue due to the lack of an “Ella” reference, I have made sure to include her this week.  A terrible oversight on my part.  My apologies.

Jennifer A. Ehman
[email protected]

Editor’s Note: Forgot to mention the weather, Jen.  Have no fear, we have it covered.

A Century Ago – a Little Harder to Be a Lawyer, But Not Hard Enough to Require a College Degree (See highlighted language below):

We are honored to have Diane Bosse as part of our firm and coverage team.  She also serves as Chair of the New York State Board of Law Examiners.  Operating under the auspices of the New York State Court of Appeals, the New York State Board of Law Examiners is responsible for administering the bar examination to candidates seeking admission to practice law in the State of New York.  Diane, this one’s for you:

New York Times
January 3, 1913


The New Rules Set High Standard
of Training and Character

To the Editor of The New York Times:

Multiplied criticisms of the law, the Judges, and the lawyers have unhappily become fashionable in the past few years.  Many of them have been sound and, of course, unanswerable.  In your editorial entitled “Admission to the Bar”, there are statements, based upon an annual report made by President Butler of Columbia University, which are neither fair nor sound, and they should not be permitted to wing their way through the destructive atmosphere of criticism without having attached to them a strong and clear denial.

For five years the Committee on Admissions of the New York County lawyers’ Association, of which I have the honor to be the Chairman, has been engaged in the work of raising the standard of admission to the bar of the State of New York, and, with the co-operation of the Association of the Bar of New York city, of Brooklyn, and of the State Bar Association, and with the special aid of the Appellate Division of the First Department the Court of Appeals made rules, which became effective on July 1, 1912, which lengthened the term of apprenticeship of law students to four years, when not college graduates, and also required a full year of actual service in the office of a practicing lawyer.  These rules are too long to quote, but they are quite accessible to you or to Dr. Butler.  Suffice it that they have resulted in the establishment of a curriculum which, with the previous preparations in law schools and in offices, cannot fail to produce a class of men very liberally supplied with the necessary learning to enter the profession of the law. 

It seems to me that Dr. Butler believes in the view that all lawyers should be college graduates.  But such a doctrine cannot exist in this county, however, important and desirable it may be, and no court would be willing to demand such a requirement as a prerequisite to admission to practice law.  The best we can do, and that we have done, is to establish rules, which will operate upon all students and prepare and qualify them for the profession.

Again, as to character, The Committee on Character of the First Department is one of the best that we have had in that line for many years.  Under the supervision of the Appellate Division, it has done most excellent work, and no applicants can pass through the sieve of their careful scrutiny without possessing a good moral character and fair intellectual training.  …

Chairman, Committee on Admissions,
New York County Lawyers’ Association

Editor’s Note:  John Dos Passos was the father of a son by the same name, and the offspring authored The U.S.A. trilogy, comprising the novels The 42nd Parallel,; 1919, and The Big Money.

Peiper’s Pantomime:

Greetings.  We welcome a new calendar year with a turn of the page.  Unfortunately, we also start 2014 much the same way we ended last year…with a relatively slim offering. Be sure to check out the First Department’s interesting decision on dog bites.  Growling dog = okay.  Putting growling dog in a headlock = high degree that you might get bitten; and you’d deserve it to.  The Second Department also reviews the standard for proving fraud against an insurance company.   Not a common occurrence, but an interesting review nonetheless. 

Since we are limited in what we have to report this week, we take time to thank those of you with whom we’ve worked over the past twelve months.  The passing of each year gives all an opportunity to reflect on long standing relationships, as well as the new friendships we’ve formed over the past year.  Thanks for your readership, and best wishes for a health and prosperous New Year.

Steven E. Peiper
[email protected]
Editor’s Note:  Steve is a hunter.  This afternoon, I noticed a deer head mounted on his office wall.  It was quite the sight.  Oh, it was inflatable, a Christmas gift from Estelle, his paralegal, who apparently bagged it herself.

Former President’s Son to Marry –100 Years Ago:

The New York Times
January 3, 1914


Ex-President’s Second Son Engaged
to Daughter of Ambassador Willard

Young Roosevelt, Engineer, is in
Brazil with Father – Fiancé a
Friend of His Sister, Mrs. Derby

Special to The New York Times
RICHMOND, Va., Jan. 3. – By cable to friends in Richmond, Ambassador to Spain and Mrs. Joseph E. Willard of Richmond and Washington today announced the engagement of their daughter, Miss Belle Wyatt Willard, to Kermit Roosevelt, the second son of ex-President and Mrs. Theodore Roosevelt.  It is understood that the wedding will be celebrated at the American Embassy in Madrid next April, the exact date and place not being stated in the cablegram.

Miss Willard made her debut two years ago, and is one of the most admired of the younger society set in Richmond.  She is of blond type, rather small, and with clear-cut features.  During the last two seasons, she has been prominent in the social life of Richmond, Washington, Baltimore, New York, and at Hot Springs, Va.  It was while at the latter resort that she met Miss Ethel Roosevelt, now Mrs. Richard Derby, who was the guest of the Willards on a long motor ride through Virginia.  …

Editor’s Note:  Kermit and Belle Willard had four children. He battled with depression for his entire life and ended up committing suicide in 1943.   He was not the namesake for Kermit the Frog.


Mike’s Missives on Serious Injury Threshold:

For your New Year’s Resolution, consider a training program on Serious Injury Threshold.

This week, the First Department is keeping us on our toes.  Both decisions contain interesting analysis that we crave, but they are also potentially misleading.  One decision focuses more on the plaintiff’s evidence than the defendants’ even though the basis of the decision is that the defendants did not meet their burden.  This appears contrary to the usual formula, which does not even consider the plaintiff’s evidence in cases where the defendants fail to meet their burden.  The other decision accepts a chiropractor’s affirmation as evidence despite the fact that, unlike medical doctors’ affirmation, chiropractors’ affirmations are not admissible.  The Court did not explicitly state its intent to reform established precedent, so I would not take either of these as a radical change in case law.

We are hoping for an exciting new year here at Hurwitz & Fine.  I know New Year’s resolutions, much like top ten lists and regrets about over imbibing, are common this time of year, but I always value the opportunity, whether it is on January 1st, May 29th, October 23rd, or any other day, to self-evaluate and plan for future success.  If you need a refresher on no-fault serious injuries, are hiring new staff that could use training on serious injuries, or made it your New Year’s resolution to prevail on more serious injury cases, drop me a line and we will happily make arrangements to come out to see you.  And no, there is no charge.

Michael Scott-Kristansen
[email protected]


In This Week’s Issue (which is attached) you will find the cases carrying these headlines:


Dan D. Kohane
[email protected]

  • NYCM Bitten by the Bear; Default Entered Against the Carrier in Direct Action Lawsuit
  • And Sometimes You Bite the Bear.  Default Against Policyholder Vacated
  • Call the Claim What You Want, Broker Did Not Have “Special Relationship” to Sustain a Claim Against It – Guest Columnist


Michael P. Scott-Kristansen

[email protected]

  • Expert Opinion That Surgery Was Minor Is Insufficient to Establish a Lack of Serious Injury
  • Causal Relation Can Be Established Despite Preexisting Degenerative Conditions Where Plaintiff Was Asymptomatic Before the Accident


Margo M. Lagueras

[email protected]


  • Applicant’s Reliance on Template Rebuttal Letter Is Insufficient to Refute Peer Review
  • $80 Attorney’s Fees Is Maximum Due When Case Settles During Conciliation
  • Should the Offsets Allowed for Social Security Disability Benefits Include the Payments for Health Insurance?
  • Should a Prior Settlement Be Vacated When It Is Discovered That the Policy Was Previously Exhausted?
  • The IME or Peer Report Upon Which a Denial Is Based Must Form Part of Respondent’s Submission
  • Burden of Proving Disability Falls Squarely Upon Applicant’s Shoulders



  • Proof of Second Request for Verification Is Necessary to Show 30-Day Period Tolled Indefinitely
  • Certification in MUA Goes to Weight, Not Admissibility of Testimony
  • Prescription for DME Filled After Effective Date of Denial Requires Rebuttal


Steven E. Peiper

[email protected]

  • Fraud Claim Against Title Insurer Dismissed Due to Good Faith Belief in the Accuracy of Information Conveyed to Policyholder
  • Dog’s Growling or Showing of Teeth Does Not Put Owner on Notice of Vicious Propensities


Elizabeth A. Fitzpatrick
[email protected]

Beth’s Banter on Coverage “B”

  • No Personal Advertising Injury Coverage Available



Audrey A. Seeley
[email protected]

  • Snowed in.


Cassandra A. Kazukenus
[email protected]

  • Public Adjuster Conflicts of Interest: Governor Cuomo Signs Into Law S5775 as Chapter 546 of the Laws of 2013


Katherine A. Fijal

[email protected]

  • Policy Unambiguous in its Intent to Cover Only Residential Roofing


Jennifer A. Ehman
[email protected]

  • Arbitrator Exceeded Authority when She Rendered an Award Against Insurer Even Though No-Fault Benefits Were Exhausted
  • Excess Insurer Required to Contribute Minimum Limit of Insurance Required in Contract; No Set Off Received for Amount Paid by Primary Carrier


Bad Faith

  • Insured Fails to Establish a Prerequisite Breach of Contract
  • Eastern District of Pennsylvania Considers the Potential for Punitive Damages and Attorneys’ Fees When Determining Whether Monetary Threshold for Jurisdiction Has Been Met 


Earl K. Cantwell

[email protected]



Again, best wishes for the 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


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]

12/26/13       Lema v. New York Central Mutual Fire Insurance Company
Appellate Division, Second Department
NYCM Bitten by the Bear; Default Entered Against the Carrier in Direct Action Lawsuit
On November 10, 2005, Lema was hurt in a car accident with a vehicle insured by New York Central Mutual (“NYCM”). A suit was commenced against NYCM's insureds and judgment was taken in the Civil Court of the City of New York, in the sum of $33,396.03, constituting the principal sum of $25,000, plus interest (“underlying judgment”).

This is the second Direct Action commenced by Lema under Insurance Law § 3420(a)(2) to recover the proceeds of the underlying judgment against the defendant's insureds from the carrier.

In the first action, the lower court denied Lema’s motion for summary judgment on the complaint on the ground that the underlying judgment was "not properly served" upon the insurance carrier.  However, while that action was pending, the plaintiff's attorney re-served the defendant with a copy of the underlying judgment against the insureds but that action was thereafter dismissed when the parties failed to appear at a compliance conference.

Once that action was dismissed, Lema started this action, alleging that the underlying judgment was served upon the defendant, 30 days had elapsed, and the judgment remained unsatisfied, which are the facts that need to be alleged to comply with the 3420(a)(2) Direct Action statute.

After the time to answer this second action had lapsed, NYCM moved to dismiss the complaint on the ground that there was another action pending.  Since the motion was made after the time to answer had lapsed, and no answer had been served, Lema cross-moved for leave to enter a default judgment.

The lower court granted NYCM’s motion and denied Lema’s cross motion, on the ground that "this action is duplicative of a previous, currently pending matter."

This court found that (a) the NYCM’s motion to dismiss the second action was untimely and without merit because the dismissal of the first lawsuit was not on the merits and could be recommenced.  The court found that NYCM failed to establish a reasonable excuse for its default. It also found a lack of merit to the defense.
Editor’s Note:  A harsh result.  Very harsh.  Remember the court found that the insurer failed to establish a reasonable excuse for the default? Wasn’t the excuse offered one of law office failure?  Isn’t that enough?  The judges were a little kinder in the next decision, although the court did find some potential merit in the next case.

12/26/13       Allstate Insurance Company v. Grodzki
Appellate Division, Second Department
And Sometimes You Bite the Bear.  Default Against Policyholder Vacated
This was a proceeding pursuant to CPLR article 75 to permanently stay arbitration of an uninsured motorist claim.  The insured, Grodzki, failed to appear at a framed issue hearing and a default was entered against him. He then filed an application to vacate that judgment arguing that the default was caused by his lawyer’s “law office failure” and that there was a potentially meritorious defense to the petition.  The court found potential merit and excused the law office failure.

12/17/13       Structure Tone, Inc. v. Niland
Appellate Division, First Department
Call the Claim What You Want, Broker Did Not Have “Special Relationship” to Sustain a Claim Against It
This matter concerns a negligent misrepresentation claim by a general contractor against the broker of a subcontractor with regard to a payment / performance bond.  Structure Tone was the general contractor on a construction project to build dorms for the Pennsylvania State System of Higher Education. Kullman Building Corporation (“KBC”) was to provide the modular dorm units for the job. Cook, Hall & Hyde, Inc. (“CHH”) was the broker for KBC for other matters, but was never actually asked by KBC to procure a bond here. About a year into the project, KBC walked off the job and Structure Tone, having no recourse to a bond, had to replace the contractor at a distressed contract cost.

Structure Tone sued CHH alleging that it reasonably and detrimentally relied on CHH’s alleged misrepresentations regarding the size and availability of a bonding program for KBC, and that a bond was forthcoming. In an effort to deal with the non-existence of a bond, counsel for Structure Tone also cleverly argued that the representations of the size of the bonding program was an indicium of the financial strength of KBC, without which they would not have agreed to subcontract with KBC.

The lower court granted CHH’s pre-answer motion to dismiss holding that (a) any representations made by CHH to KBC could not support Structure Tone’s negligent misrepresentation claims against  CHH, (b) there could be no material misrepresentation claim as there was no predicate “Special Relationship” between the parties, and (c) in any event, Structure Tone’s reliance on the specific misinformation complained of was unreasonable as a matter of law. Structure Tone appealed.

The First Department unanimously affirmed the dismissal of the negligence and negligent and fraudulent misrepresentation claims.  The court first found that the simple negligence claim was essentially the same as the negligent misrepresentation claim, which did not exist due to a lack of a “Special Relationship.”  In so holding, they reaffirmed that brokers generally do not hold unique or special expertise and that a business relationship is insufficient to give rise to a relationship of trust or confidence.

Further, they held that a statement made to another cannot be justifiably relied upon to satisfy the elements of a misrepresentation claim. Finally, as to the letter representations on bonding capacity and the issuance of a bond, the court held that there was no justifiable reliance as the issuance of a bond was contingent on underwriting negating the reasonable belief that a bond was in existence.
Editor’s Note:  Kudos and thanks to Howard S. Kronberg of Keidel, Weldon & Cunningham, LLP, White Plains, counsel for the successful broker in this matter, for the summary and case note.


Michael P. Scott-Kristansen
[email protected]

12/31/13       Nelson v. Tamara Taxi, Inc.
Appellate Division, First Department
Expert Opinion That Surgery Was Minor Is Insufficient to Establish a Lack of Serious Injury
The lower court granted the defendants’ motion, but in an opinion that deviates from the courts’ more formulaic approach to these cases, the Appellate Division held the decision was incorrect.  The defendants failed to meet their burden of establishing a lack of serious injury.

The collision was hard enough to push the front end of the defendant-taxi in and to break the axle of the plaintiff’s vehicle.  The plaintiff alleged he sustained injury to his spine, shoulder, and knee as a result.

The plaintiff received physical therapy for his shoulder before undergoing a subacromial decompression, an extensive bursectomy, and an acromioplasty.  Three years post-surgery, the plaintiff still experienced pain and limited range of motion in his shoulder.  The defendant submitted expert evidence that the surgery performed was a minor procedure that did not reflect permanent orthopedic impairment.  The Court also noted that the plaintiff had a prior injury to his shoulder.  The plaintiff, however, asserted that his shoulder injury was an exacerbation of a prior, less severe injury that had fully resolved.  Also, a previous decision of the First Department held that this kind of injury, requiring this kind of surgery, may constitute a serious injury, so the expert evidence was not credited.

As for the plaintiff’s spine, an MRI of which revealed bulges at C4-5 and L4-5 and a herniation at L5-S1, the defendants’ expert observed a sixty degree limitation in the flexion of the plaintiff’s lumbar spine out of a possible ninety degrees.

As for the plaintiff’s knee, the opinion of the defendants’ expert, upon examining his MRI, that the menisci appeared intact was insufficient in light of the opinion of the plaintiff’s expert that the MRI showed a probable tear of the posterior horn of the medial meniscus.  Further, the plaintiff experienced tenderness and restricted range of motion in his knee.

The defendants also argued that the plaintiff’s gap in treatment showed an absence of a permanent injury.  The plaintiff, however, testified that he stopped treating when his no-fault benefits were terminated because he could not afford continued care.
Editor’s Note: If you read this case, you will note that the court addresses the plaintiff’s evidence as well as the defendants’; however, do not let this throw you.  The defendant still bears the initial burden and cannot rely upon the insufficiency of the plaintiff’s evidence to meet its burden for a motion for summary judgment.

12/24/13       Aviles v. Villapando
Appellate Division, First Department
Causal Relation Can Be Established Despite Preexisting Degenerative Conditions Where Plaintiff Was Asymptomatic Before the Accident
The defendant met its burden regarding the 25-year-old plaintiff’s cervical and lumbar spine injuries by establishing, through affirmed physician reports, that the plaintiff suffered only sprains and strains that had fully resolved.  The defendant’s radiologist found chronic preexisting conditions and no evidence of trauma or causally related injury on the MRI films.  The plaintiff’s own radiologist also found degenerative disc disease.

The plaintiff, however, rebutted the defendant’s evidence, so the defendant’s motion for summary judgment should have been denied.  The plaintiff’s radiologist, although finding degenerative changes, disagreed that there was no radiographic evidence of traumatic injury.  The plaintiff’s chiropractor affirmed that the plaintiff suffered significant limitations in range of motion shortly after the accident and still exhibited such limitations on recent examination.  The chiropractor further opined that the plaintiff’s injuries were causally related because although the plaintiff had preexisting degenerative changes, he was asymptomatic before the accident.
Editor’s Note: The First Department’s decisions are leaving many traps for the uninitiated this issue.  Chiropractor’s affirmations are not admissible evidence.  It is likely that, in this case, the defendant merely failed to oppose the plaintiff’s showing on this basis.


Margo M. Lagueras
[email protected]


12/26/13       Elite Medical Supply of NY, LLC v. Allstate Ins. Co.
Erie County, Arbitrator Michelle Murphy-Louden
Applicant’s Reliance on Template Rebuttal Letter Is Insufficient to Refute Peer Review
At issue was the reimbursement for a lumbosacral orthosis (LSO), denied based upon a peer review.  The day following the June 2012 accident, the 29-year old EIP presented for an initial chiropractic evaluation with Nicholas Abramo, DC, complaining, in part, of back pain.  Dr. Abramo diagnosed ligament laxity, lumbar segmental dysfunction, lumbosacral disc displacement/herniation, lumbosacral radiculopathy/radiculitis, myospasm, and myofascitis.  He listed the previous treatment rendered as being “MD, DC, ER.”  He also immediately prescribed an LSO and chiropractic treatment 5 times per week.  Notably, the EIP’s second visit with Dr. Abramo was not until seven weeks later, at which time the LSO was dispensed.

In September, a peer review was performed to review the medical necessity of the LSO.  Based on the peer reviewer’s opinion, the claim was denied.  In November, Dr. Abramo allegedly wrote a rebuttal letter to the peer review.  The Arbitrator found the rebuttal letter to lack credibility, and that the articles cited did not support Applicant’s position.  First, the Arbitrator noted that the rebuttal letter was a template authored by Applicant, and provided to the referring doctors, in which the only patient-specific information was the EIP’s name, age and date of the accident.  The letter also failed to discuss any specifics of the peer review or any of the specific complaints of the EIP.  As such, the letter was insufficient to rebut the peer review.  With regard to the articles cited in the letter, one did not refer to the type of LSO dispensed, and the other was irrelevant and actually supported the peer reviewer’s opinion as it did not discuss the use of the LSO as part of a chiropractic treatment plan. 

In denying the claim, the Arbitrator also noted that when the EIP returned to Dr. Abramo seven weeks after the first and only consultation, the Doctor summarily dispensed the LSO without any reexamination.  This was particularly significant because on the NF-2, which was completed on the same day as the second consultation, the EIP’s only complaints of injury were to the neck and left shoulder.  Therefore, there was nothing to support the need for the LSO.
Note:  See also AAA Case No. 412013082226, Elite Medical Supply of NY, LLC v Allstate Ins. Co., similarly decided by Arbitrator Murphy-Louden on 12/26/13, discussing a virtually identical rebuttal letter – this one allegedly authored by Alan Furman, DC.

12/26/13       Matthew T. Christopher v. Geico Ins. Co.
Erie County, Arbitrator Kent L. Benziger
$80 Attorney’s Fees Is Maximum Due When Case Settles During Conciliation
Applicant filed for arbitration on July 18th.  AAA’s initiation letter dated July 29th indicated that Respondent’s submission was due by August 28th.  The parties reached a settlement agreement and, on August 27th, Respondent sent in a letter to AAA stating that the case was settled and that it had forwarded the settlement check as well as a check representing the $40 filing fee and $80 attorney’s fees to Applicant.  On October 18th, AAA scheduled a telephonic hearing.  During the hearing, Applicant’s counsel argued that it was due 20% of the first party benefits, plus interest, paid.  Respondent contended that the case settled during the conciliation period and that, as such, it had paid the correct amount of attorney’s fees.  The Arbitrator found that, as a matter of fact, the case settled on August 27th, before Respondent’s submission was even due, while the arbitration phase did not commence until October 18th.  Therefore, Applicant was only due the $80 attorney’s fee paid.

12/20/13       Applicant v. Allstate Ins. Co.
Erie County, Arbitrator Kent L. Benziger
Should the Offsets Allowed for Social Security Disability Benefits Include the Payments for Health Insurance?
Applicant claimed no-fault lost wage benefits following her accident in March 2010.  She received benefits in the amount of $1,478.40 (after the mandatory 20% reduction) from Respondent each month up until the termination of benefits.  She also received social security disability payments, in varying amounts, from August 2012 to March 2013.  Applicant contended that the payment for health insurance premiums included in her social security disability payments should not be included in the offset taken by Respondent.

The Arbitrator disagreed.  The mandatory PIP endorsement provides that first party benefits include payments equal to basis economic loss reduced by “(b) amounts recovered or recoverable on account of personal injury to an eligible injured person under State or Federal laws providing social security disability or workers’ compensation benefits, or disability benefits under article 9 of the New York Workers’ Compensation Law.”  Therefore, the Arbitrator reasoned that the full amount of the social security disability award, including the amounts payable for the health insurance premiums, is the amount of the offset to which the no-fault carrier is entitled. 

12/20/13       John Bialecki, D.C. v. Garrison Prop. & Cas. Ins. Co.
Erie County, Arbitrator Kent L. Benziger
Should a Prior Settlement Be Vacated When It Is Discovered That the Policy Was Previously Exhausted?
Soon after filing for arbitration, Applicant and a claim representative for Respondent reached an agreement to settle the dispute.  The agreement was put in writing and the claim representative, believing funds remained on the policy, issued the checks which were mailed and received by Applicant.  However, One day after the checks were sent, and before they were cashed, Respondent advised Applicant that the policy was exhausted and that the checks should not be cashed (Respondent’s error was apparently due to its failure to apply certain wage loss offsets).

Respondent argued that the agreement should be voided based on unilateral mistake and because a carrier’s obligation ceases upon policy exhaustion.  The Arbitrator first noted that there is a strong public policy in favor of the enforcement of settlement agreements and it was clear that, in this case, there had been an offer, acceptance, consideration, mutual assent, and an intent to be bound.  The Arbitrator additionally found that Respondent did not submit proof that coverage was exhausted prior to the submission of all the claims in dispute and, in fact, numerous claims for the services in dispute had been denied based on claimed policy exhaustion prior to the date on which Respondent now claimed the policy exhausted.  If so, then the previous denials based on policy exhaustion prior to the exhaustion date now claimed by Respondent would be incorrect.  Citing Mazzola v CNA (145 Misc 2d 896 [1989]), the Arbitrator determined that the circumstances of this settlement agreement did not present the elements required for its enforcement to be “unconscionable.”  Therefore, the Arbitrator determined that the agreement would not be voided.

12/19/13       Western New York MRI, LLP v. Geico Ins. Co.
Erie County, Arbitrator Veronica K. O’Connor
The IME or Peer Report Upon Which a Denial Is Based Must Form Part of Respondent’s Submission
This seems obvious, but it nevertheless is sometimes overlooked, as it was here where reimbursement for a lumbar MRI was denied based on an orthopedic examination which terminated, among other things, diagnostic testing.  Upon review of the ECF, the Arbitrator determined that, while Respondent’s submission contained two chiropractic IME reports, it did not contain a copy of the orthopedic IME which formed the basis for the denial of the bill in dispute.  The result is an award in Applicant’s favor.

12/19/13       Applicant v. Geico Ins. Co.
Erie County, Arbitrator Michelle Murphy-Louden
Burden of Proving Disability Falls Squarely Upon Applicant’s Shoulders
In a detailed decision, Arbitrator Murphy-Louden reminds us all that it is not Respondent’s burden to disprove, but rather Applicant’s burden, in the first instance, to present evidence to prove its claims.  This includes proof of the timely submission of a notice of claim (be it by way of an NF-2, NF-5, MV-104, or other accident report indicating injuries to the EIP [11 NYCRR 65-3.3]), copies of the bills in dispute and evidence, if applicable, to support a wage loss claim such as disability notes or medical records. 

Although ultimately the Arbitrator determined that she could not hold that Respondent did not receive timely written notice of claim, she nevertheless determined that Applicant failed to support his claim for medical expenses and wage loss as he did not submit copies of any of the medical bills allegedly submitted to the insurer, records or testimony regarding the accident, injuries, treatment allegedly received, or of any disability following the accident.  Nor did Applicant establish that he sustained a compensable wage loss claim because he failed to submit any financial records proving income, or any testimony regarding pre-accident employment and income to support a claim for loss of earnings. 

The Arbitrator reiterated that Applicant’s or Respondent’s submission of the Denial of Claim forms (NF-10) only constitutes acknowledgement of the receipt of the claims, but does not concede the facts set forth in them and, therefore, cannot cure the defect in Applicant’s prima facie case.  Again, the initial burden for proving a claim, be it for medical expenses, or disability for wage loss purposes, “falls squarely upon Applicant’s shoulders” and where, as here, Applicant fails to offer any support, his claims must be denied.


12/26/13       Westchester Med. Ctr. v. Allstate Ins. Co.
Appellate Division, Second Department
Proof of Second Request for Verification Is Necessary to Show 30-Day Period Tolled Indefinitely
After it received the hospital’s NF-5 claim form, Defendant requested verification.  However, it failed to show that the 30-day period to pay or deny was indefinitely tolled following its first verification request because it failed to send a second request within 10 days after the expiration of the original request’s 30-day period as required under the regulations.  Absent proof of mailing of the second request, the pay or deny period was not indefinitely extended.

12/24/13       Drew DeMarco, PC v. Allstate Ins. Co.
Appellate Term, First Department
Certification in MUA Goes to Weight, Not Admissibility of Testimony
At the commencement of trial, the parties stipulated to the credentials and expertise of Defendant’s chiropractor.  Nevertheless, on redirect, the trial court precluded the chiropractor from testifying as an expert on MUA (manipulation under anesthesia) procedures because he admittedly was not certified to perform MUA.  On appeal, the court reversed and ordered a new trial because the chiropractor was qualified as a chiropractic expert by stipulation and, therefore, did not need to be certified as a MUA specialist to offer an opinion regarding the medical necessity of the disputed procedure.  The lack of certification goes only to the weight given to the testimony, but not to its admissibility.

12/20/13       Total Equipment, LLC v. Mercury Cas. Co.
Appellate Term, Second Department
Prescription for DME Filled After Effective Date of Denial Requires Rebuttal
Even where, as here, the prescription was written before the IME which determined the injuries had resolved, the fact that it was not filled until after the effective date of the denial shifted the burden to Plaintiff to rebut Defendant’s prima facie showing of lack of medical necessity.  Plaintiff’s submission of only an attorney affirmation and a copy of the prescription was not sufficient to raise a triable issue of fact.


Steven E. Peiper
[email protected]

12/19/13       McColgan v. Brewer
Appellate Division, Third Department
Fraud Claim Against Title Insurer Dismissed Due to Good Faith Belief in the Accuracy of Information Conveyed to Policyholder
This matter comes to us out of a right of way (ROW) dispute involving a landlocked ten acre parcel that plaintiff purchased in 2005.  At the time of the purchase, plaintiff procured a title insurance policy from Chicago Title.  Unfortunately, nary a year after plaintiff took ownership over the parcel, the ROW’s enforceability was challenged.

After lengthy litigation, the Appellate Division confirmed that the ROW was, in fact, not enforceable.  Plaintiff also, apparently, resolved its breach of contract claim against Chicago Title, but nevertheless maintained the current action alleging fraud against the carrier, as well as its agent Abbacy.  Essentially, plaintiff maintained that Abbacy knew the policy did not cover the ROW in question.  However, for reasons unsaid, it was argued that Abbacy advised the policy would respond in order to avoid litigation between plaintiff and Chicago Title.

Chicago Title moved to dismiss the fraud claim on the basis that even if Abbacy had made misrepresentations to plaintiff, any such statements were outside the scope of Abbacy’s authority to act as an agent.  Moreover, Chicago Title presented arguments that established Abbacy’s statements were made with the good faith belief that the claim did, in fact, fall within the scope of coverage. 

To establish fraud, the claimant must establish that Abbacy made a misrepresentation with knowledge of the falsity and with the intent of inducing reliance.  Here, because the evidence adduced in the Record established that Abbacy’s employees had a good faith belief that their statements were correct, it follows that plaintiff’s claim for fraud fails. 

12/31/13       Gervais v. Laino
Appellate Division, First Department
Dog’s Growling or Showing of Teeth Does Not Put Owner on Notice of Vicious Propensities
Plaintiff sustained injuries when she was bitten by a dog owned by defendant.  At the time of the incident, the dog in question had gotten its paw stuck in a fence.  Plaintiff asserts that she approached the dog to closer assess the situation.  Defendant, on the other hand, alleges that plaintiff attempt to free the dog by grabbing it around the head and neck. Shockingly, the dog either scratched or bit plaintiff in this process.

In moving for summary judgment, defendant produced a litany of supporting documents including four affidavits of neighbors and a Kennel Club “Good Citizens” certificate.  In rebuttal, the defendant was only able to produce an affidavit of a neighbor who testified that the dog in question had frequently growled and shown its teeth to her dogs. 

In dismissing the claim, the Court noted that a dog showing its teeth and/or growling does not give rise to knowledge of its vicious propensities.  As such, plaintiff failed to raise an issue of fact.


Elizabeth A. Fitzpatrick
[email protected]

Beth’s Banter on Coverage “B”

12/18/13       Assurance Company of America v, Waldman
(Southern District of Ohio) 2013 WL 666 9249
No Personal Advertising Injury Coverage Available
The dissolution of one accounting firm and formation of new firms by the principals spawned a series of lawsuits, which led to the coverage decision which the court addressed in Assurance Company of America v. Waldman, 2013 WL 666 9249.  In Waldman, the court determined that there was no coverage available for damages resulting from lawsuits alleging  that one of the principals in a newly formed firm, Kenneth Pitcher, breached his fiduciary duty as trustee of the profit-sharing trust in the prior firm and another lawsuit involving the  disclosure of confidential information to the IRS for the purpose of causing the principals of one of the newly firms difficulties with the IRS. 

The parties had agreed that the only coverage which might be available under a commercial general liability policy and umbrella policy would be pursuant to Coverage B of the policies, which insured against losses due to personal and advertising injuries.  The insurer contended that the damages did not constitute “bodily injury” or “property damage” and neither were they caused by an “occurrence,” and sought a declaration that it owed neither defense nor indemnity in connection with the suits.  The insured counterclaimed for breach of contract and bad faith in connection with its refusal to defend or indemnity them in the suits.

The Court discussed the policy’s definition of “personal and advertising injury” defined as oral or written publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services and oral or written publication of materials that violates a person’s right of privacy.

While the Court noted that initially, the cited provisions appeared to provide coverage to the insured because the litigation involved the insured’s alleged disparagement of the former principals of the accounting firm in his alleged disclosure of information in which they had privacy interests, the Court found that another section of the CGL Policy excluded coverage of the claim.  In particular, the Court cited the exclusion for injury “caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict ‘personal and advertising injury’.”  The Courts found that the exclusion precluded coverage. 

With respect to the claim for breach of the insured’s fiduciary duty, the Court, similarly found that the policy did not afford coverage, both because the suit did not constitute a claim by an “employee, former employee or the beneficiaries or legal representatives thereof,” but rather was a lawsuit by a former trustee of the plan and, more importantly, that the insured’s decision to sue was not a negligent act, error or omission in the administration of the benefit program, but rather was an intentional act and, therefore, not afforded coverage under the policy. 

Ultimately, thus, the Court determined that no coverage was available under Coverage B of the policies. 



Audrey A. Seeley
[email protected]

Snowed in.

Cassandra A. Kazukenus
[email protected]

Public Adjuster Conflicts of Interest: Governor Cuomo Signs Into Law S5775 as Chapter 546 of the Laws of 2013

Chapter 546 (S5775) effective as of January 1, 2014 seeks to create clear conflict of interest standards for public adjusters.

S5775 was passed by the Assembly and Senate last June, and the Governor signed the legislation into law in late December.  This legislation creates a new subsection under Insurance Law §2108 as well as a new subsection under Insurance Law §2110. 

The new provisions under Insurance Law §2108 state that every public adjuster has an affirmative duty “to act on behalf and in the best interests of the insured when negotiating for or effecting the settlement of an insurance claim…”  Notably, the provision requires the public adjuster to provide notice to the insured of any compensation the public adjuster receives from any referral made for services, work or repairs relating to any insurance claim wherein the public adjuster is representing the insured.  While the new provisions initially state that a public adjuster many not receive compensation from these referrals, it is clear that compensation is allowed as long as the compensation is “prominently and clearly disclosed to the insured” in a written memorandum.  This also applies where the public adjuster has a financial or ownership interest in the referred entity.  Likewise, if the public adjuster is related to the individual referred to the insured, the public adjuster must disclosure relationship. Additionally, this provision has now clarified that any referral compensation received by the public adjuster is to be included in the compensation provided by the insured to the public adjuster, and the total cannot exceed the maximum the public adjuster may charge. 

Additionally, under Insurance Law §2110, the Superintendent may suspend or revoke the public adjuster’s license if the public adjuster has not acted in the best interest of the insured during the settlement negotiations or has failed to make the above disclosures.

Katherine A. Fijal
[email protected]

12/20/13       Atlantic Casualty Ins. Co. v. Greenwich Ins. Co.
United States Court of Appeals, Second Circuit – New York Law
Policy Unambiguous in its Intent to Cover Only Residential Roofing
Greenwich Insurance Company [“Greenwich”] appeals from an opinion and order of the district court, following a bench trial, granting Atlantic Casualty Insurance Company’s [“Atlantic”] motion for a declaratory judgment that it need not defend or indemnify its insured, Value Waterproofing, Inc. [“Value”].  For the following reasons the United States Court of Appeals, Second Circuit [“Court”] affirmed.

The facts were laid out in detail in the decision rendered by the district court in Atlantic Cas. Ins. Co. v. Value Waterproofing, Inc., 918 F.Supp.2d 243 (S.D.N.Y. 2013).  Essentially, Atlantic is an insurance company that issued a commercial general liability insurance policy to Value for the period 5/12/09 to 5/12/10.  Kentucky Fried Chicken [“KFC”] owned non-residential property located at 685 Lenox Avenue in New York [“Property”].  The building was a two story structure with a barrel vaulted roof.

A major snow storm hit New York City on February 25-26, 2010; or February 26 or 27 the roof collapsed.  KFC was aware of the collapse on February 27, 2010.  Value was informed of the collapse on the same day.  The New York City Department of Buildings ordered the demolition of the second floor of the property.  Demolition began at the property on March 3, 2010, and was completed on March 17th.

On September 2, 2010, Greenwich, the insurer for KFC sent a letter to Atlantic notifying it of the collapse that occurred on the property.  Atlantic received notice on September 8 and began its investigation on September 9.  On or about October 4, 2010, Atlantic made the decision to decline coverage.  The primary basis for denying coverage was that the district court had adequate evidence in the record to support a finding that the agents for Atlantic and the insured, Value, intended to issue an endorsement providing coverage for residential roofing only and that an endorsement limiting coverage to residential roofing was issued to the insured.

Before the district court, and on appeal, Greenwich argued that the language of the policy endorsement, “ROOFING-RES” is inherently ambiguous, noting that “RES” itself was a typo graphical error and the endorsement was supposed to read “ROOFING-RESD”.  The Court held that even if the district court erred in finding “ROOFING-RES” unambiguous on its face, the district court properly found that the extrinsic evidence presented at trial makes clear that the term is intended to refer to residential roofing.  In fact, Greenwich’s own expert testified that he understood that the ISO generally divides roofing covering into commercial and residential policies, and that he understood “RES” to refer to residential.  Further, the agents for both the insurer and the insured testified to the same understanding.  The Court found that to be sufficient record evidence to find both that the parties agreed on coverage limited to residential roofing, and that, in any event, the insurance term “RES” customarily refers to residential policies.

Although not addressed by the Court because it determined there was no coverage under the policy, the district court also found that Atlantic was prejudiced by its failure to receive timely notice of the claim.  Essentially, the district court found that Atlantic showed that the late notice [six months after the collapse] materially impaired its ability to investigate the claim and defend against it.  The district court determined that the late notice prevented the plaintiff from being able to independently ascertain potential causes of the collapse – information which would be highly relevant to an investigation and defense of a claim like the one made here.  The district court pointed out that while Atlantic had not submitted evidence of the investigation done by KFC and its insurer before it was completed, nor shown precisely how that investigation may have been biased or incomplete, it need not do so in order to carry its burden of showing prejudice.  There was no dispute that Atlantic had a right to inspect the roof; and, the defendants denied Atlantic an opportunity to make that inspection. 

The district court concluded that it was unreasonable to impose upon Atlantic to burden to show precisely how it would have been advantaged by that inspection.  The district court held that where the best physical evidence was available to only one side but not the other because of an unreasonable failure to provide notice, prejudice has been shown.

Jennifer A. Ehman
                                            [email protected] 

12/12/13       Allstate Ins. Co. v. Countrywide Ins. Co.
Supreme Court, New York County
Arbitrator Exceeded Authority when She Rendered an Award Against Insurer Even Though No-Fault Benefits Were Exhausted
Allstate brought this action seeking to vacate an arbitration award rendered in favor of Countrywide.  The burden of vacating an arbitration award is heavy and requires a showing of:  (i) corruption, fraud or misconduct in procuring the award; or (ii) partiality of an arbitrator appointed as a neutral, except where the award was by confession; or (iii) an arbitrator exceeded his power or so imperfectly executed it that a final and definite award upon the subject matter submitted was not made; or (iv) failure to follow the procedure of this article, unless the party applying to vacate the award continued with the arbitration with notice of the defect and without objection.

Here, where the arbitrator directed Allstate to reimburse Countrywide for no-fault benefits paid to its insured even though the Allstate policy was exhausted, her authority was exceeded.  Such excess of authority constitutes grounds of vacatur of an award.  Of note, even though Allstate raised the issue of policy exhaustion, but did not submit proof of the exhaustion to the arbitrator, Allstate was not precluded from offering such proof at this time. 

12/02/13       New York State Ins. Fund v. Everest Natl. Ins. Co.
Supreme Court, New York County
Excess Insurer Required to Contribute Minimum Limit of Insurance Required in Contract; No Set Off Received for Amount Paid by Primary Carrier
El Sol Contracting and Construction Corp. (“El Sol”) was hired by the Triboro Bridge & Tunnel Authority (“TBTA”) to perform work on a bridge.  The contract required El Sol to procure primary CGL insurance in El Sol’s name, with a limit of liability of $2 million per occurrence, and an additional insured endorsement naming the TBTA.   

While the work was ongoing, an El Sol employee fell and died at work.  The fall prompted the underlying action which was settled for $3,450,000.  Liberty Mutual, El Sol’s primary carrier, contributed $1,000,000 exhausting its limits.  Everest, the excess carrier, paid $1,500,000 and the State Insurance Fund paid the remaining $950,000.

The issue addressed here is a dispute between Everest and the SIF concerning which was responsible to pay the third million of the settlement.  The crux of the dispute was a disagreement over the meaning of Section II – Who Is an Insured, 2(b)(i) contained in the Everest policy.  This provision includes as an insured “[a]ny additional insured qualifying as such under the first underlying insurance, but only…[w]here coverage is required to be provided to an additional insured under a contract or agreement.  However, the Limits of Insurance afforded the additional insured in this paragraph shall be the lesser of the following:  i. The minimum limits of insurance required in the contract or agreement between you and the additional insured; or ii. The Limits of Insurance shown in the Declarations of the Policy.” 

SIF argued that Everest was required to contribute the $2 million minimum limit of insurance required in the contract.  Everest in response submitted that it was entitled to offset from the $2 million lower limit of coverage the $1 million per occurrence limit that was available from the Liberty policy. 

The court sided with SIF finding that the average insured could reasonably expect $2,000,000 in coverage under the Everest policy.   

Bad Faith

12/23/13       Metlife Auto & Home Ins. Co. v. Reid
United States District Court, N.D. Alabama
Insured Fails to Establish a Prerequisite Breach of Contract
This decision arises out of a claim that the insurer failed to settle within the policy limits. 

Metlife issued a homeowners policy to James Certain, with a liability limit of $100,000.  In way of background, in 2006, Certain was arrested and subsequently indicted for the criminal offense of kidnapping, sexual abuse and domestic violence following a sexual encounter with Christy Reid.  Certain pled guilty to lesser offenses of unlawful imprisonment in the first degree and assault in the third degree (misdemeanors). 

Thereafter, Reid brought suit against Certain based on five intentional torts-assault, battery, false imprisonment, intentional inflection of emotional distress and wanton misconduct- as well as a claim of negligence.   

Metlife provided a defense in the action subject to a reservation of rights based on the lack of an occurrence, and exclusions for intentional loss, abuse and emotional and mental anguish.  Metlife also commenced this declaratory judgment action.  Separate attorneys and claims adjusters were assigned to each suit. 

In the underlying action, Certain’s defense counsel advised Metlife that she did not see a chance of prevailing at trial, and that a verdict would likely be far in excess of the policy limit. 

Reid’s counsel made a policy limits demand.  Metlife countered with an offer of $5,000, which was rejected.  No additional money was offered. 

Before trial, Certain died, and the Estate was substituted into the action.  Thereafter, Reid was awarded $2.2 million ($1 million in compensatory damages and $1.2 in punitive damages) at trial.  Following the verdict, the Estate filed an answer in the declaratory judgment action and set forth four counterclaims:  breach of contract, breach of the enhanced obligation of good faith, negligent failure to settle and bad faith failure to settle.  The Estate entered into a forbearance agreement with Reid wherein Reid agreed not to execute on the judgment, and the Estate agreed not to appeal the judgment, until the present declaratory judgment proceeding was resolve. 

Thereafter, presumably due to concern about the outcome of this action, Metlife and Reid reached a settlement agreement.  Metlife agreed to pay $1.1 million to Reid in full satisfaction of the judgment, and Reid agreed to release all property liens and claims against the Estate.  In light of this settlement, Metlife moved to dismiss and/or for summary judgment on Estate’s counterclaims.  While the parties agreed that the breach of contract claims were moot, the Estate maintained its position that Metlife had acted in bad faith. 

In granting Metlife’s motion for summary judgment, the court noted that the presence of insurance coverage is a prerequisite for liability for a bad faith failure to settle a claim with the insurance company’s money.  Here, the plain language of Certain’s homeowner’s insurance policy excluded coverage for this loss.  The undisputed facts in the case established that Certain’s acts were intentional, criminal and of a sexual nature. 
Take Away:  Ouch. 

12/20/13       Minissale v. State Farm Fire & Casualty Co.
United States District Court, E.D. Pennsylvania
Eastern District of Pennsylvania Considers the Potential for Punitive Damages and Attorneys’ Fees When Determining Whether Monetary Threshold for Jurisdiction Has Been Met 
Water damaged the flooring in plaintiffs’ home.  When the claim was submitted to their homeowner’s insurance carrier, State Farm, it was denied.  As a result, they brought this action in state court alleging breach of contract and bad faith.  They sought damages “in excess of $50,000 together with interest and costs and the costs of suit, counsel fees as permitted by law…” 

Following receipt of the complaint, State Farm served a Request for Admission that total damages would did not exceed $50,000, $75,000 and $150,000.  Plaintiffs’ responded that they reserved their right to amend or supplement their response and that “[i]t is specifically denied that plaintiffs’ total damages do not exceed $75,000.”  Based on this response, State Farm sought removal of the action to federal court. 

While there was no dispute as to diversity, the question considered in this decision was whether the jurisdictional threshold was met.   

The court held that while there was some disagreement, the majority of opinions in the Eastern District of Pennsylvania found that a plaintiff’s refusal to dispute the amount in controversy alone is insufficient to show subject matter jurisdiction.  However, in calculating the amount in controversy, the court did need to consider the potential for actual and punitive damages and attorneys’ fees.  Under the Pennsylvania statute governing damages following findings of bad faith, there was no cap on the amount recoverable.  Accordingly, since plaintiffs could recover, in additional to the actual damages, punitive damages and attorneys’ fees, for which there is no cap, it is more than likely that the plaintiffs’ can recover more than $75,000.

This victory for State Farm, unfortunately, was short-lived as the court went on to find that the Notice of Removal was untimely since State Farm exceeded the 30 days to file, after it “first ascertained” the amount in controversy.  


Earl K. Cantwell

[email protected]


An insurance policy provision is ambiguous when it is capable of two or more constructions, both of which may be reasonable.  The uncertainty may relate to the extent or existence of coverage, the peril insured against, the amount of liability, or the party or parties protected.  Courts have said that this issue must be answered through the eyes of a reasonable person in the position of the insured and, generally, ambiguities will be construed in the insured’s favor. 
These precepts were recently applied in a California case where an appeals court reversed the trial court and found coverage for a water damage claim.  Verniero v. Allstate Insurance Co., 2013 WL 3815246 (Cal.Ct.App., 2d Dist., July 22, 2013).  Homeowners discovered a water leak in July, 2007 and upon investigation about a foot of water was found in the building crawlspace.  The water supply pipe had ruptured near the foundation of the house, but outside of the house itself.  However, the water did cause the foundation to rise which damaged the framing of the home, and caused buckling in hardwood floors and cracks in the ceiling.  The homeowners submitted a claim to Allstate to pay for the repairs.  Allstate denied the claim contending that the policy’s “wear and tear” exclusion precluded coverage.  This exclusion did have an exception for a “sudden and accidental escape of water”, which Allstate contended did not apply.  The exception referred to damage caused by plumbing systems “within your dwelling”. 

The homeowners filed suit against Allstate arguing that the exception to the exclusion applied and that Allstate had incorrectly concluded that the failed plumbing system was outside the footprint of the house.  The trial court granted summary judgment to Allstate concluding that the pipe that leaked was not within the four walls of the dwelling.  On appeal, the appellate court reversed and extended coverage. 

The appeals court said the exception to the wear and tear exclusion in the policy was not as clear as the trial judge found it to be.  Allstate argued that the exception applied only if the point at which the pipe burst was within the insured’s dwelling.  However, the court noted the applicable language was capable of at least four reasonable instructions.  It could have been construed, as Allstate argued, that “within your dwelling” means location where the damage to the system or appliance occurs so that the exception only applies to the exclusion when the pipe bursts within the insured’s dwelling.  However, the appellate court noted the language could also be interpreted with “within your dwelling” modifying the immediately preceding antecedent “fire protective sprinkler system”, so that the exception to the exclusion applied to indoor sprinkler systems as opposed to external fire sprinkler systems.  In short, the appeals court said that the “within your dwelling” language could apply to the nature of the particular plumbing system and not the specific location of the leak.  There were at least two other possible interpretation/constructions of the relevant language which the court discerned, and while some favored Allstate and some favored the insured, the court ruled that any ambiguity had to be decided in favor of the insured and therefore the water damage was covered by the policy.  Interpreting the exclusion and its exception in favor of the insureds in this case protected a “reasonable expectation” that the water damage in their dwelling would be covered by the policy.

This case represents a good primer on the fundamental rule that an insurance policy is ambiguous if it is capable of two or more reasonable constructions.  This also leads to the second frequently cited rule that, if there is any construction that favors the insured and coverage, that is the presumption and direction a court will choose to enforce.

Newsletter Sign Up