Do you have a situation? If so, bring it on, because we LOVE situations.
It is a balmy 20F degrees this evening. It was 20 last week as well, if you added together the high temps for each of the week’s seven days. The word on Punxsutawney Phil is that he isn’t leaving his hole this year so forget about predictions.
We welcome Daniel Hunter to the CP Team. Commencing next week (since there were no cases on which to report this week) Dan will be writing the Serious Injury threshold column, under the title “Hunter’s Hints on Serious Injury”. Michael Scott-Kristansen has relocated to Rochester and we wish him well.
Great celebration for Steve’s award in NY on Wednesday. More below. Attalawyer.
Writing a Reservation of Rights: A North American Compendium Now Available
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, provides a comprehensive guide to writing reservations of rights in all 50 states, the District of Columbia and Canada, including the timeframes, laws and language insurers need to keep in mind. Order your copy today!
As co-editor in chief, I can vouch for the excellence of the publication. The New York Chapter alone is worth the cost of the purchase (authored by Beth and me).
Long time CP Subscriber Berch Wiliard, was named Asbestos Unit Director in the Complex and Emerging Risks Claims Department at Liberty Mutual;
Steve “Property and Potpourri” Peiper, was presented with the Sheldon Hurwitz Young Lawyer’s Award by the New York State Bar Association’s Torts, Insurance & Compensation Law (TICL) Section;
H&F Partner Chris Potenza, was named Co-Chair of the Environmental Law Committee of the New York State Bar Association’s TICL Section;
H&F Partner Paul Suozzi, was elected by his peers to the position of Assistant Secretary of the Western New York Trial Lawyers Association;
Beth (“Bitz”) Fitzpatrick, was named Chair of the TICL Advanced Insurance Coverage Program;
Dave Thompson, Florida Association of Insurance Agents, for being such a great supporter of our publication -
Remarkable Month of Coverage Cases Argued before New York’s High Court:
It is rare that the New York Court of Appeals has more than two or three significant insurance coverage cases in any given year. This year, we have four in a month. We wanted to give you a preview of these very interesting actions. Expect decisions in the next several weeks. You will read about them first in Coverage Pointers and if they appear especially meaningful, you can expect Special Editions to appear in your electronic mailbox. Let me set them up for you:
K2 Investment Group, LLC v American Guarantee & Liability Insurance Co.
Unless you have lived under a rock over the last seven months, you know about this one. The issue before New York’s high court revolves around the consequences for failing to defend an insured. The Court held that a failure to defend led to a loss of the carrier’s ability to litigate the breadth and applicability of policy exclusions. Now the Court, on reconsideration, will decide, perhaps, that it didn’t mean to go so far. We shall see. The reargument was before the Court on January 7. We have written about the issues in a number of previous editions.
QBE Insurance Corporation v. Jinx-Proof, Inc. Here is a link to our summary of the First Department’s decision, from the January 18, 2013 issue of Coverage Pointers. The decision was very instructive and deals, quite well, with the NY rule that provides that reservation of rights letters are relatively worthless in New York. A carrier that wants to deny coverage, even when it has to defend other causes of action, must do so in unequivocal language. Here, the carrier did just what it had to do, it denied coverage (rather than reserved its rights) but defended.
This one resulted in three opinions, a 2 – 2 – 1 opinion, very rare in the world of coverage. Four votes in the two opinions declared that the carrier had no duty to defend. The App Div decision focused on the language of the coverage position letter in an assault and battery claim at a bar. The policy included an “assault and battery” exclusion in its policy (ala Mount Vernon v. Creative Housing).
I watched, with interest, the January 15, oral argument at the Court of Appeals. Frankly, if I did not know any better, I would have believed that the lawyers were arguing a completely different decision. The battle between the lawyers focused on whether the insurer’s motion for summary judgment should have been denied because it did not include a liquor liability endorsement in the motion papers, which, the insured argued, provided liquor coverage without being reduced by the assault and battery exclusion. This was not an issue that was discussed in any detail by the court below. The endorsement was not in the record and nobody seemed to really care about it until the case reached the high court.
My biggest angst about the oral argument was an expression by Judge Pigott questioning whether an insurance carrier that partially disclaims or reserves it rights, even had a right to assign defense counsel, suggesting that perhaps the insurer must tell the insured that it must (rather than has the option to) designate “independent” (Cumis or Goldfarb) counsel . That issue was not before the Court and why the questioning went in that direction, I do not know.
Country-Wide Ins. Co. v. Preferred Trucking Services Corp.
In October 2012, the First Department held that the insurer’s disclaimer of coverage was untimely, since it came approximately four months after it learned of the ground for the disclaimer, that being the insured’s lack of cooperation. The carrier argued that the disclaimer was timely; it had no basis for disclaiming coverage until it became apparent that the operator of the subject truck would not cooperate with the defense of the underlying personal injury action.
Jen Ehman had earlier reported on the motion court decision, with an extensive review of the facts, in our August 19, 2011 edition.
The Court of Appeals heard oral argument on January 15. The focus of the argument was on the question of how an insurance carrier knows that there has been a breach of the cooperation clause. The high court has previously ruled that a carrier must do all it can to secure the cooperation of an insured and only willful and avowed obstruction will justify a cooperation disclaimer. When does an insurer know that its insured has crossed the line? The policyholder argued that the insurer should have known earlier and the failure to disclaim promptly was a waiver. The insurer argued that it did not want to disclaim precipitously and tried its hardest to secure the insured’s cooperation and shouldn’t be penalized for continuing in its efforts to secure cooperation.
Voss v. Netherlands Insurance Company
Here is our summary from the July 6, 2012 issue of Coverage Pointers. This is a case that deals with the issue of agents/broker errors and omissions, “special relationships” and an insured’s duty to read the policy delivered.
Plaintiff maintained its business at a commercial warehouse that it also, presumably, owned. From the decision of the Court, it is revealed that plaintiff’s facility sustained water damage on at least three different occasions. It was alleged that all three water damage incidents resulted in a cessation of plaintiff’s business. The first two of these shutdowns resulted in business interruption payments of $3,197 and $30,000, respectively. The final incident did not result in a business interruption payment because it appears that plaintiff never “re-started” operations.
Plaintiff commenced the instant lawsuit against Netherlands (as BI carrier) and CBI (as agent/broker). With respect to its claim against CBI, plaintiff argued that CBI handled all of its insurance procurement needs. Thus, plaintiff reasoned that the CBI had breached its obligations when it failed to procure sufficient business income coverage on the premises. In so arguing, plaintiff noted that it had previously questioned the sufficiency of the coverages obtained by CBI. However, CBI assured plaintiff the amounts of coverage procured were appropriate, and CBI acknowledged that it would re-assess plaintiff’s insurance needs as the company evolved over time.
CBI moved to dismiss plaintiff’s claims on the basis that it owed no legal duty to plaintiff. Plaintiff opposed CBI’s motion on the basis that it had usurped plaintiff’s control over its insurance program, and as such, a “special relationship” between the companies was consummated. Moreover, plaintiff argued that CBI’s decision to obtain $75,000 in business interruption coverage in Policy Term 1 and 2, coupled with CBI’s decision to obtain only $30,000 of business interruption coverage in Policy Term 3 established CBI’s breach of its obligations.
The Appellate Division began by noting that it was convinced that, at a minimum, a special relationship might have existed between plaintiff and CBI. However, even if CBI owed a duty to plaintiff, there was no viable claim presented in the instant lawsuit. Plaintiff argued, in essence, that CBI failed to procure an appropriate amount of coverage in Policy Term 3. In dismissing plaintiff’s Complaint, the Court noted that plaintiff was in possession of the actual policy for months prior to the loss. As such, relying upon the old adage that an insured is deemed to know what coverage they have, the Court reasoned that if plaintiff had an objection to the amount of coverage procured by CBI, said objection had to have been raised well prior to the loss event.
Moreover, even if CBI had breached an obligation to the plaintiff, and plaintiff had timely raised the issue, there was still no claim. As noted above, Netherlands did not issue payment under Policy Term 3, and issued substantially less than the limits of Policy Terms 1 and 2, respectively. Accordingly, even if CBI had been negligent, its negligence was not the proximate cause of any loss sustained by plaintiff.
We note that Justice Carney penned a well-reasoned dissent in this matter. Essentially, Justice Carney noted that it was incongruous for the Court, on one hand, to note that CBI had usurped plaintiff’s insurance program, and, on the other hand, state that the plaintiff still had an obligation to read its policy. If, in fact, CBI had taken that role for plaintiff, it follows that CBI should be required to look out for plaintiff’s concerns.
Another relatively slow week for those of us who can’t get enough of insurance law. As noted in Dan’s column above, however, that is “fixing” to change in short order. The Court of Appeals is currently busy crafting opinions that have the potential to turn years of precedent on its head. While we are cautiously optimistic that most of the coming decisions will affirm what we have come to know as “established rules”, it goes without saying that every time the High Court offers guidance on anything insurance…one would be best served to pay attention.
On that score, please stay tuned as we will be more than happy to pass along news of the decision(s) (along with an opinion or two) as soon as they are handed down. We (the authors and contributors to CP, collectively) have a genuine interest in promoting education and candid discussion of all issues that are relevant to civil litigation. Being engaged in the process, and having an opinion, has opened countless doors to organizations that are literally teeming with bright, creative practitioners from around the country.
Occasionally, our continued commitment to industry groups leads to one of us being recognized for our involvement. As noted above, I gratefully and proudly accepted the Sheldon Hurwitz Award from the New York Bar Association’s Torts Insurance Compensation Law (TICL) Section last night in Manhattan. I am, as you now know, the latest in a series of my colleagues that have been bestowed the same honor while working at this firm. Given that it bears the name of one of the founding members of this office, it is an honor that we all take very seriously.
If my selection proves anything, it shows that we have finally run out of otherwise qualified candidates. That said, however, it also demonstrates with unmistakable clarity the firm’s continued investment in legal scholarship and in the legal community as a whole. Within the past several years, Dan, Audrey and Paul Suozzi have all been recognized for their respective contributions to the NYS Bar Association. Recognition that, for Dan and Paul at least, was long overdue.
We’re all very proud of the tradition that Shelly started, and which Dan has so dutifully carried on to even greater heights. On a personal level, I am delighted to add a very small piece to a very large legacy.
That’s it for now. We’ll be back in two weeks…or, if our friends in Albany give us something of interest to discuss in meantime, much sooner than that.
Budapest Women Will Obey Modistes, but Not a Field Marshal.
Special Cable Dispatch to The Sun.
Budapest, Jan. 30. – In consequence of the order issued by Field Marshal Feteke, the commander of the garrison here, that women would not be allowed to appear in slit skirts at any functions of the Officers Corps, all the women who had been invited to a military ball at the Casino refused to attend. The ball had to be postponed.
The women declare that they will not attend any military balls so long as the order of Field Marshall Feteke stands. One indignant woman said in an interview to-day:
“We obey the commands imposed by the Paris and Budapest modistes, but we will not obey the commander of a garrison. Besides, we like slit skirts. Moreover, we have bought our gowns and cannot afford fresh ones every day like the wives of Generals.”
This week I think it is fair to say that we are all trying to recover from the extreme cold that has been striking most of the northeast. Even in Buffalo, where cold temperatures tend not to faze us too much, we are just coming out of another round of school closures and single digit temperatures.
Beyond that news, I should mention the other big news. The New York State Bar Association honored our own Steven Pieper, known for his work on “Pieper on Property”and“ Potpourri, last night with the Sheldon Hurwitz Young Lawyers’ Award. He promises to display his new award in a heavily traveled section of his office. Something to look forward to.
In terms of my column, this week I am reporting on some really interesting decisions out of the New York trial courts. Specifically, in URS Corp. v. Zurich Am. Ins. Co., the court addresses whether injury from “toxic smoke” released during a fire triggers coverage under a pollution liability policy. While I do not want to give the ending away, it does not. Also, in a sigh of relief to the authors of denial letters out there, the court in FarmFresh Gourmet Salads LLC v. Sentinel Ins. Co. Ltd., held that issuing a letter advising the insured that no coverage would be provided because the act was “the result of an intentional act caused by or procured by the insured, or someone acting on its behalf” does not make the author liable for defamation.
Lastly, in my regular Ella update, for those that follow it, my brother and sister-in-law bought her a toy-cleaning cart with a broom, bucket and mop. So, now she walks around the house holding one paper towel and pulling the cart, saying “clean?”
A Century Ago: Medical Marijuana’s Nothing? How about Medical Cocaine:
The New York Times
January 31, 1914
TO FRAME BILL TO CURB DRUG SALES
Committee Named to Draft Measure to End Cocaine and Opium Evils.
HEALTH BOARD IS ASSAILED
Slow in Giving Reports Needed for Convictions, Says Dr. Davis—Surgeon Attacks Medical Profession
Federal and city officials who gathered in the chambers of Judge Edward Swann of General Sessions yesterday to discuss ways and means of checking the sale of habit-forming drugs heard a heated debate between members of the County Medical Society, who urged that patent medicines were the greatest spreaders of the cocaine habit, and representatives of wholesale druggists, who insisted that the doctors, and not patent medicines, were chiefly responsible.
During the session Dr. Katherine B. Davis, Commissioner of Correction, who was the only woman present in a company of thirty-five men, criticized the Health Department for slowness in responding to requests for reports needed to convict persons accused of selling cocaine and opium, while the Rev. James B. Curry, of St. James’s Church, blamed the Health Department, the County Medical Society, and the druggists without sparing any of them. He even included the Judges of the Court of Special Sessions who, he said, were “guilty of imposing such slight sentences on cocaine and opium vendors that the vendors smile as they are led away for a few days’ rest on Blackwell’s Island.”
Dr. Jackson Campbell, a surgeon attached to the Department of Correction, added the final word to the discussion when he said he as a surgeon felt it was his duty to announce that the record of the medical profession in relationship to the habit-forming drugs was such that it made him want to hang his head in shame and go forward to new reforms in company with all other agencies working toward the much-needed end.
“It is not a time,” he said, “when we surgeons can hold up our professional noses and say we are above regulation. We have had an era of freedom and what have we done? We have kept the gates wide open for the sale through the offices of privileged doctors of pernicious habit-forming drugs in large quantities. It is time that we asked in all due humility to be regulated by State and national laws that will force the keeping of a record of every grain of cocaine and opium and heroin and every habit-forming drug from the time it leaves the manufacturer’s laboratory or comes out of the Custom House until it lodges in the system of the ultimate consumer.” …
This week I celebrated three things (great things come in threes)– the temperature getting above zero, Steve Peiper being awarded the Sheldon Hurwitz Award by the State Bar, and my son’s first birthday. Well, maybe I celebrated my son’s first birthday a bit more. It is amazing that a year has gone by already and I am proud that he is growing and thriving.
Please congratulate Steve Peiper on being bestowed the Sheldon Hurwitz Award by the NYS Bar Association’s Torts, Insurance and Compensation Law Section. This award is named after one of our founding members – Sheldon Hurwitz. Dan was the first recipient of this award, before it was named after Shelly. I received this award in 2010 and Steve rightfully is being recognized with the award this year. Steve is an outstanding insurance coverage lawyer and has made great contributions to our field, which this award recognizes. Congratulations Steve; I am proud to practice law with you!
Speaking of outstanding insurance coverage lawyers, there are a multitude of them slotted to present at the DRI Insurance Law Committee’s Insurance Coverage and Claims Institute from April 2-4 in Chicago. Some of the topics presented are a review of the ISO 2013 revisions to the CGL forms, disparagement cases and the super exclusion, sharing the defense when multiple insurers owe a defense to an insured. If you would like more information on this program or need a brochure please email me at [email protected].
Audrey Audrey A. Seeley
Why Were Women Complaining 100 Years Ago?
The New York Times
January 31, 1914 Letters to the Editor
To the Editor of The New York Times:
At a meeting of the unemployed held at Cooper Union recently one woman in the audience got up to say: “Why do so many women suffer when they can have comfortable homes and $20 per month in wages?”
“There must be some very good reason why the girls all prefer to work in factories or shops under the worst conditions, rather than go into people’s homes to work,” answered the Chairman.
This is very true, but does any man or woman deserve sympathy or aid that prefers to starve rather than to accept respectable employment, which may not be altogether congenial?
Beth on Coverage B and Fitz’ Bitz:
As we say goodbye to January, I am sure I am not alone in counting down the days until spring, particularly as we have endured our second heavy snowfall in 2014 on Long Island and, like much of the country, have endured single-digit temperatures thanks to the polar vortex.
In today’s column, I discuss several decisions involving coverage issues for construction defect claims and the availability of coverage under a CGL policy. The debate continues across the country as to the availability of coverage for these claims under the CGL policy.
I also bring to your attention the U.S. Supreme Court’s decision in Daimler AG v. Bauman. While not a “coverage” decision, the decision will affect the ability of a party to obtain jurisdiction over one not a resident of the state. The pertinent facts are as follows.
In Daimler, the plaintiffs were residents of Argentina who filed suit in California federal district court, identifying Daimler Chrysler, a German public stock company, as a defendant. Daimler moved to dismiss for lack of jurisdiction. Jurisdiction over Daimler had been predicated on the contacts of Mercedes-Benz USA, a Daimler subsidiary, who was incorporated in Delaware with its principle place of business in New Jersey.
As Daimler- manufactured vehicles were distributed throughout the United States, including California, plaintiffs asserted all-purpose jurisdiction, contending that Mercedes-Benz USA was Daimler’s agent for jurisdictional purposes. The court found that Daimler was not amenable to suit in California for conduct that took place entirely outside the United States. The decision is an interesting read.
I haven’t reported lately on any issues involving social media and discovery, but today I report on a decision from the District Court of Appeal in Florida, which disqualified a judge, who sent a friend request to a litigant in a matrimonial matter over which she was presiding. When the litigant did not respond, the Judge attributed most of the marital debt to the litigant who had failed to respond and allegedly provided the husband with a disproportionately excessive alimony award. Social media continues to raise a host of issues for the courts and will likely continue to do so.
01/29/14 Ducz v. Progressive Northeastern Insurance Company Appellate Division, Second Department In Underinsurance Matter, High-Low “Settlement” Without SUM Carrier’s Consent is Breach of Policy.
Oh, we love when the court gets it right. This has been a more and more common question raised lately.
Ducz has a lawsuit against the driver of another car (the “tortfeasor”). Ducz is insured with Progressive and has a SUM (underinsured) policy with Progressive. On November 2, 2011, the Ducz sends Progressive a “consent to settle” letter advising that the tortfeasor’s insurer was offering a high-low arbitration.
Progressive responded on January 26, 2012, by indicating that it did not consent to the high-low arbitration because it would destroy Progressive’s subrogation rights.
This was beyond the 30-day period to respond. Petitioner then moves to compel arbitration but Progressive convinces that court that a SUM claim cannot be made because the limits of the tortfeasor’s policy have not been offered and that is a condition preceding to a SUM claim.
The court also found that the SUM carrier could not be compelled to consent to a high-low arbitration. Editor’s Note: Any other holding would have been unfortunate. The policy says what the policy says.
01/29/14 Dabrowski v. Metropolitan Life Insurance Company Appellate Division, First Department Oral Cancelation of Life Insurance Policy By Decedent Effective, Even Without Cancelation Notice
In September 2003, the decedent applied for a life insurance policy with his wife as beneficiary, from Metropolitan through a fellow named Pajak. Metropolitan advised the applicant, that the underwriting process revealed that he did not qualify for the "preferred" rating and that he would be required to pay a higher premium for the "standard" rating. The policy was issued giving the insured with a right to cancel the policy and obtain a refund of any premiums already paid.
The decedent died on January 11, 2004, and his wife sought to recover under the subject policy. Metropolitan claimed that in December, the insured canceled the policy because of the higher premiums. This suit followed.
The court found that the plaintiff’s claim, that no notice of cancellation was received prior to the decedent's death was without merit. As the cancellation was initiated by the decedent-insured, the defendant was not required to provide notice in order to effectuate cancellation of the subject.
01/28/14 Davis & Partners, LLC v. QBE Insurance Company Appellate Division, First Department New York Pre-Prejudice Rules Apply Under Choice of Law Analysis This was a late-notice case involving a policy that was written or renewed prior to the effective date of the “prejudice statute” – January 19, 2009. Notice was provided some 18 months after the accident and three months after the suit was file.
However, under New Jersey law, prejudice would have been required for the insurer to win on a late notice denial.
The court found, that under the standard "grouping of contacts" analysis, New York law governed. The contract involved a NY construction project, executed in NY. It contained a choice-of-law provision naming New York as the forum and the governing law of choice. The "occurrence" under the policy and the ensuing litigation occurred in New York.
These factors outweigh the fact that the insured’s principal place of business is in New Jersey. As the "principal location of the insured risk," New York has "the most significant relationship to the transaction and the parties'". Thus, defendant was not required to show prejudice as a result of the untimely notice, and its disclaimer of coverage on the ground of late notice was valid. Editor’s Note: Attaboy Max.
01/23/14 Risk Control Associates Ins. Group v. Maloof, Lebowitz, Connahan & Oleske, P.C. Appellate Division, First Department Claims Administrator Has No Privity, or Near Privity, to Commence Malpractice Against Law Firm When Administrator Had No Loss
Risk Control Associates, (“Risk Control”), a claims administrator for an insurer, commenced a legal malpractice action against a law firm. who was retained to represent the insurer in a personal injury action. While Risk Control was not in privity with the law firm, it alleged that it was in “near privity”. However, unlike an excess carrier that has to pay for a loss due to malpractice of a defense firm, Risk Control suffered no loss nor is there a claim for equitable subrogation.
01/13/14 Kaleida Health v. New York Central Mutual Fire Insurance Co. Erie County, Arbitrator Douglas S. Coppola Opinion That Surgery Was “Too Soon” Does Not Show Lack of Medical Necessity
The EIP was involved in an accident in September 2012 in which he was rear-ended by a Metro bus. He commenced chiropractic treatment and had several MRIs which revealed bulges at T11-12, T12-L1 and L1-2, an annular tear with posterior herniation at L2-3, a protrusion type herniation at L3-4, and bilateral spondylolysis with grade 1-2 anterolisthesis at L5-S-1. A chiropractic IME was performed in October 2012. According to the examining chiropractor, the examination was completely negative and there were no objective findings to support the subjective complaints. She noted, however, that the EIP stated that his pain was getting worse and chiropractic care was not helping.
In December, the EIP consulted with an orthopedic surgeon, Dr. Fishkin. In January 2013, he had a follow up consultation. It was noted that the pain was worsening and now radiated down to the EIP’s toes. Dr. Fishkin indicated that the pain and radicular symptoms were severe and completely consistent with the MRI findings. He recommended a lumbar decompression and fusion. Surgery was performed in March and Respondent then arranged for a peer review by Dr. Ferriter, an orthopedic spine specialist.
At the hearing, the EIP, Dr. Fishkin and Dr. Ferriter all testified. Dr. Ferriter’s opinion, in essence, was that the surgery was performed “too soon” and that there should have been another month of conservative care. He conceded, however, that if after the addition month there was no change, that surgery would have been necessary. He also acknowledged that he did not review the MRI films themselves.
The Arbitrator found that the decision to deny surgery claiming that more conservative care was needed was unjust in light of the fact that Respondent had denied continued chiropractic care based on the October 2013 IME. Furthermore, the peer review did not say that surgery was not necessary, but only that it was “too soon.” The Arbitrator stated that he would not second guess Dr. Fishkin’s decision that the surgery was necessary, particularly because Dr. Ferriter never stated that the decision was inconsistent with generally accepted medical practices.
01/14/14 Western New York MRI, LLP v. Geico Insurance Co. Erie County, Arbitrator Douglas S. Coppola Arbitrator Finds Carrier’s Denial a “Very Strained Attempt” to Micro-Manage
Following the motor vehicle accident on July 14, 2012, a shoulder MRI was performed on July 25, 2012, and revealed tendinopathy, arthrosis and other conditions. Respondent arranged for an orthopedic peer review which opined that rushing to order the MRI was not medically necessary because many patients with even a full tear are asymptomatic and there was no complaint of shoulder injury. The Arbitrator was not persuaded because the peer review did not address the positive findings or the letter of medical necessity by the referring doctor.
A lumbar MRI was performed on August 29, 2012, and revealed severe straightening of the lumbar lordosis due to muscle spasms. There were also findings of degeneration, desiccation, spurring and bulges. Again, Respondent arranged for a peer review which denied the reasonableness and necessity of the MRI but again did not discuss the positive findings.
On August 27, 2012, cervical and thoracic MRIs were performed pursuant to the prescription of the same treating doctor as the lumbar MRI. Respondent arranged for yet another peer review by yet a different doctor who, while noting positive findings in his history, then denied stating that the available records did not provide sufficient objective findings to support the need for the MRIs. He did not discuss the positive examination findings of the treating doctors or of the MRIs.
The Arbitrator noted that Respondent retained three different medical doctors to perform three different peer reviews covering four MRIs. None of them discussed any of the positive findings to differentiate the circumstances under which MRIs are appropriate or not. The Arbitrator contrasted the very detailed letters of medical necessity from the referring physicians and found that “[t]his is a very strained attempt by the carrier to micro-manage the medical circumstances from a medical management position for the patient when it is the burden to establish lack of medical necessity.”
01/14/14 Mark L. Delmonte, PC v. State Farm Mutual Auto. Ins. Co. Erie County, Arbitrator Douglas S. Coppola Arbitrator Rejects Applicant’s Billing Rate for DRX 9000 Treatments
While the Arbitrator determined that the peer reviews were insufficient to uphold Respondent’s denial for various reasons, he also determined that Applicant’s billing rate of $275 under CPT 95999 for the treatments with a DRX 9000 machine was not proper. Citing authority submitted by Respondent in a post-hearing brief, the Arbitrator agreed with Respondent that the correct CPT code was 97012 at $12.03 per line, representing a relative value of $2.71 per unit at a conversion factor of $4.44 (for the specific region). As such, Applicant was awarded $12.03 per treatment rather than the $275 billed. Note: In a previous, unrelated arbitration, the Arbitrator had awarded in favor of this Applicant. However, the Arbitrator was now convinced to alter his previous position. This firm represented State Farm.
01/13/14 Cameron B. Huckell, MD v. ACA Insurance Co. Erie County, Arbitrator Veronica K. O’Connor Report by the “Wrong” Specialist Cannot Support Denial
More and more we are seeing decisions where denials are not upheld because the reviewing doctor does not practice within the same specialty as the treatment being denied. In this case, Applicant is an orthopedic surgeon. The IME was performed by a physical medicine and rehabilitation specialist whose treatment recommendation was that no further treatment in his specialty was warranted. Such a report cannot support a denial for treatment rendered by an orthopedic surgeon. Note: See also Arbitrator Coppola’s decision in AAA Case No. 412013105702.
01/13/14 Lackawanna Chiropractic v. New York Central Mut. Fire Ins. Erie County, Arbitrator Veronica K. O’Connor Violation of Condition Precedent Bars Recovery
The question here was whether the assignor’s failure to appear for scheduled and rescheduled orthopedic IMEs would bar recovery for services rendered prior to the denial of the claim. The Arbitrator first found that no reasonable justification for the failure to attend the scheduled IMEs was submitted. She then noted that, while there is a dichotomy in the court decisions as to whether an assignor’s failure to attend IMEs precludes claims for services rendered prior to the non-compliance, her review of decisions and the applicable regulations persuaded her that the violation of a condition precedent bars recovery regardless of whether the services were rendered before or after the denial of the claim.
01/09/14 Scott Croce, DC v. Allstate Insurance Co. Erie County, Arbitrator Michelle Murphy-Louden Timing of Decision to Refer to Specialist Undermines Alleged Medical Necessity of Testing
On August 16, 2012, Applicant performed EMG/NCV testing on the EIP. Applicant then asserted that the testing was needed to determine, among other things, whether to refer to specialists. The Arbitrator noted that this same argument was asserted repeatedly by Applicant on many other occasions to defend his testing and it was significant that Applicant’s own treatment records negated his assertion because the referrals to specialists were actually made long before the testing was performed. Specifically in this case, referrals for right shoulder evaluation and pain management were made on June 29, 2012, and a referral to an orthopedic spine specialist was made on July 17, 2012. Also suspect was the fact that the self-referral for the EMG/NCV testing was dated July 30, 2012 but the testing was not performed until two weeks later.
The Arbitrator questioned whether this delay was perhaps because Applicant was concerned about not being able to establish medical justification after only two weeks of chiropractic treatment and one re-evaluation which did not reveal any decline in the EIP’s neurological condition. The Arbitrator also found interesting that two days before the testing, Applicant re-examined the EIP and specifically noted in his treatment plan that there was no need for diagnostic testing, yet two days later the testing was necessary even though there had been no change in the EIP’s neurological examination.
The Arbitrator stated that is was of great note that Applicant’s records were internally inconsistent and contradictory, his rebuttal letter was the usual boilerplate, and the shoulder specialist did not find Applicant’s “significant” test findings to correlate with his clinical evaluation, thus drawing into question the credibility of Applicant’s alleged test results. The Arbitrator denied Applicant’s claim noting that neurological or any diagnostic testing should not be performed simply for the sake of performing it, but rather only with the patient’s best interest in mind and to enhance care.
01/29/14 Westchester Med. Ctr. v. Geico Insurance Co. Appellate Division, Second Department Lack of Coverage Improperly Raised for First Time on Appeal
The trial court had denied plaintiff’s summary judgment motion on its first cause of action. On appeal, the court reversed finding that plaintiff made a prima facie showing by submitting admissible evidence establishing that the bill was mailed to and received by defendant, that payment was not made or denied within the requisite 30-day period, and that defendant failed to raise a triable issue of fact. The court further held that defendant’s contention, that there was a complete lack of coverage and therefore it was not precluded from disclaiming despite its failure to comply with the 30-day rule, was improperly raised for the first time on appeal and would not be considered.
01/29/14 Tung Wa Ma v New York City Transit Authority Appellate Division, Second Department Trial Court’s Decision to Grant Preclusion Remedy on a “Oral Motion” by Plaintiff is Deemed an Abuse of Discretion
NYC Transit Authority commenced this appeal after the Trial Court granted plaintiff’s “oral” motion to strike. Apparently, NYC Transit had repeatedly refused to turn over otherwise relevant documentation of their employee’s driving record. NYC Transit argued that it was not turning over the documentation because it simply no longer possessed anything responsive to that request.
At a court appearance, plaintiff requested that NYC Transit be precluded from offering their employee’s testimony at trial. Such request was “orally” made to the Court. No Notice of Motion was ever filed, nor was the case actually briefed. Despite those obvious problems, the trial court granted plaintiff’s application and entered a preclusion order under CPLR 3126.
In reversing the decision, the Appellate Division noted that the penalties enumerated in CPLR 3126 are reserved for application only where the noncompliant party displays a willful, contumacious and deliberate refusal to comply with appropriately tailored discovery demands. In this case, the Court ruled that the trial court abused its discretion by granting preclusion without permitting NYC Transit an opportunity to oppose the requested relief.
01/23/14 Pecile v. Titan Capital Group, LLC Appellate Division, First Department Court Affirms Trial Court’s Decision to “Prune” Overly Broad Discovery Demands
Plaintiffs commenced the instant lawsuit alleging sexual harassment after they were purportedly tricked into viewing explicit pictures of defendant Abrams. As part of discovery exchange, it appears that several issues arose which required the court’s intervention.
Initially, the Court directed that copies of the cd containing the explicit pictures be exchanged as part of routine discovery that is material and necessary to the prosecution of the action. Due to the sensitive nature of the photographs, however, the Court required that all parties receiving a copy of the cd agree that it would not be distributed or shown outside the context of the instant suit.
The Court declined to grant defendants’ motion to compel production of the entire cell phone/text message histories of the plaintiffs. Likewise, the Court also refused carte blanche production of plaintiffs’ entire academic and employment files. However, the Court did require production of one plaintiff’s academic records insofar as they may have been relevant to her resignation letter. Further, plaintiffs’ wage histories and job titles were also ordered to be disclosed because their respective financial “worth”, as employees of defendant, is at issue in this case.
Finally, the court again advised that criminal convictions are relevant in civil litigation; and to the extent any existed, documentation of such convictions must be produced. That said, however, any criminal convictions that were resolved under “youthful offender” status are sealed and otherwise exempt for disclosure.
Peiper’s Point – It is notable that the Court decided to “prune” defendants’ demands. As you may know, a trial court is not compelled to limit discovery demands that are, on their face, overly broad. Here, the Court elected to address the appropriate scope of defendants’ demands rather the striking them with one broad stroke of the pen.
01/22/14 Smith v Cardella Trucking Co., Inc. Appellate Division, Second Department Party Claiming Cannot Work is Subject to Voc Rehab IME
Where plaintiff placed his ability to continue to work “in issue,” the Trial Court adequately employed its discretion in compelling him to appear at an examination by defendant’s vocational rehabilitation expert.
01/21/14 Echevarria v 158th St. Riverside Housing Co., Inc. Appellate Division, First Department Contractual Indemnity Claim Fails Due to Lack of Specificity
Plaintiff was an employee of Gould Services when she sustained injury at a building owned by defendant Riverside. When she subsequently sued Riverside for damages, Riverside responded by commencing a third-party action against Gould Foundation. Apparently, Riverside maintained a contract with Gould Foundation that dated back to 1964. Said contract provided a contractual indemnification right to Riverside.
Upon appearing, the attorneys for Gould advised that they were appearing on behalf of Gould Services. Litigation, it appears, continued with Riverside never objecting to Gould’s insistence that it was representing someone other than the “named” defendant as identified in the Complaint.
Eventually, Riverside moved for summary judgment pursuant to the clause found within the 1964 Riverside/Gould Foundation agreement. Gould Services opposed on the basis that there was no evidence that that Gould Foundation agreement was still enforceable in 1999 when the incident involving plaintiff occurred. Moreover, the contract only provided rights against Gould Foundation. It provided no rights of indemnity against Gould Services, whom defendant’s counsel had advised was appearing in this case as third-party defendant.
The trial court held that because Gould Services was not named in any agreement, Riverside did not possess a viable contractual indemnity claim. The First Department, based on a plain reading of the agreement at issue, affirmed the trial court’s denial of Riverside’s claim.
It is also noted that the trial court likewise refused to enforce Riverside’s Notice to Admit which sought Gould Service’s acknowledgement that Gould Foundation owed contractual indemnification. In affirming, the Second Department ruled that as those issues were “contested issues and ultimate facts in the case,” Riverside was not permitted to simply have them deemed admitted through a routine discovery device.
01/17/14 The Travelers Indemnity Co. v. AAA Waterproofing, Inc. United States District Court, District of Colorado Coverage for Construction Defects Under the CGL Policy
In yet another action addressing coverage issues arising out of claims involving construction defects, the District Court of Colorado grappled with the issue of the appropriate method for allocating defense costs amongst various insurers in an action which was begun in 2003 and ultimately settled in March 2005 for $39,500,000. The general contractor, DRH, allegedly incurred some $1,200,000 in fees and costs. Following the settlement of the construction defect litigation, DRH attempted to negotiate with Travelers and other subcontractors’ insurers seeking to recover their $200,000 deductible and the amount that DRH’s insurer paid in defense fees and costs.
The court noted that a liability insurer’s duty to defend is a joint and several duty, such that an insurer who breaches this duty can be found liable for the entire amount of defense fees and costs and can then seek equitable contribution from any coinsurers owing the same duty to defend, citing, in addition to California, Montana and Texas, New York. The issue before the court was, under Colorado law, whether allocation should be based upon policy limits or equal shares and whether such allocation applied to all 54 subcontractors that were implicated in the underlying state court case (and their respective insurers) or only the 23 that were represented as parties in the action before the court.
After considering the policy limits based method of allocation, the court found that an equal share method would result in the most equitable allocation, particularly as numerous parties had failed to obtain the requisite insurance policies, making them, de facto, self-insurers without policy limits upon which to base their allocation. Thus, the contribution amounts would be divided into equal shares per subcontractor.
Turning to the issue of which subcontractors should be included in the allocation, the court found that Travelers’ proposal of allocating only to subcontractors represented in the case was the proper method and declined to consider allocation to nonparties. Otherwise, the court noted that, with respect to certain subcontractors from whom Travelers did not seek contribution, Travelers would, in effect, be obligated to bear those shares.
Finally, with respect to those insurers who had previously paid some amount of the defense costs of DRH, the court held that their equitable share would be offset by the amount of such payment.
01/22/14 Lexington Insurance Company v. Scott Homes Multifamily, Inc. United States District Court of Arizona Priority of Coverage
In another action involving construction defect coverage, the court in Lexington Insurance Company v. Scott Homes Multifamily, Inc. addressed issues related to the Lexington insured for claims involving construction defects. The court was asked to determine priority of coverage as between the Lexington excess policy to Scott Homes Multifamily, Inc. and other primary policies issued to subcontractors of Scott Homes Multifamily, under which Scott Homes qualified as an additional insured.
The pertinent facts of the underlying action are as follows. Silverbell contracted with Scott Homes for the construction of apartments for Silverbell. Scott Homes was insured under a primary general liability policy issued by Evanston Insurance Company, which maintained liability limits of $1,000,000. They were also insured under an excess liability policy issued by Lexington, which followed form to the Evanston policy. Scott Homes qualified as an additional insured on some of the subcontractors’ primary policies.
After Silverbell sued Scott Homes and its subcontractors for damages, Evanston, who had been affording Scott Homes a defense subject to a reservation, entered into a settlement agreement, whereby Silverbell and Scott Homes stipulated to a $6,000,000 judgment against Scott Homes. Evanston paid Silverbell the policy limit of $1,000,000 in exchange for a release and Silverbell agreed not to execute the judgment against Scott Homes. Scott Homes assigned to Silverbell all of their rights for claims arising out of the apartments against subcontractors, subcontractors’ insurers and excess insurers. The judgment stated that the $6,000,000 was awarded for claims related to and/or damages caused by the work of seven subcontractors who Scott Homes had hired.
The initial dispute amongst the parties involved which policies must be exhausted before Lexington was obligated to provide coverage under its excess policy. Lexington contended that the underlying policies were the Evanston policies, as well as any policies issued to Scott Homes’ subcontractors, under which Scott Homes qualified as an additional insured.
After examining the Lexington excess policy, which specifically referred to the Evanston policy as the applicable underlying policy and specifically identified the $1,000,000 limit of the Evanston policy, the court ultimately concluded that, based upon the specific language of the Lexington policy, it was excess only over the Evanston policy. In doing so, the court rejected Lexington’s argument that excess coverage is transitive and that if the Evanston policy was excess to the subcontractor policies and the Lexington policy excess to the Evanston policy, then the Lexington excess policy must be excess to the subcontractor policies. In doing so, the court found that such a position would contradict the Lexington excess policy’s plain language.
The parties also disagreed as to whether the Evanston policy had been exhausted, with Lexington attempting to construe the settlement agreement as including payment for uncovered damages because the term “claims” was defined as including repair and replacement of defective construction and resulting damages. Lexington argued that construction defects of this type cannot satisfy the definition of occurrence and, thus, Evanston must have paid on uncovered claims. Lexington concluded, thus, that the Evanston policy was not exhausted. The court, however, rejected this contention, noting that Lexington may not attempt to re-litigate Evanston’s coverage decision.
Finally, the court addressed Lexington’s argument that the portion of the judgment allocable to Scott Homes’ liability for subcontractors was not recoverable, as the Evanston policy limited coverage for property damage arising out of the acts of independent contractors, setting forth certain conditions which must be met to allow the coverage, including that independent contractors must name the named insured as an additional insured. Lexington’s argument was that even if the policies were exhausted, the failure of the subcontractors to procure insurance for Scott Homes excludes their liability from coverage under the Evanston policy. Since the Lexington excess policy follows form to the Evanston policy, Lexington asserted that nearly $5,000,000, the portion of the judgment allocable to property damage arising out of the acts of the subs, was not covered under the excess policy.
The court similarly rejected this argument, finding that it was an attempt to add terms to Evanston’s policy since the policy provided that Scott Homes must obtain Certificates of Insurance from independent contractors providing evidence of primary insurance, and declining to find that the subcontractors’ insurers’ failure to defend Scott Homes equated to Scott Homes not obtaining Certificates of Insurance. The court thus denied, in its entirety, Lexington’s motion for summary judgment.
01/17/14 Ewing Construction Company v. Amerisure Insurance Co. Supreme Court of Texas Applicability of Contractual Liability Exclusion
On appeal from the Court of Appeals for the 5th Circuit, the Texas Supreme Court addressed the following certified questions:
1. Does a general contractor that enters into a contract, in which it agrees to perform its construction work in a good and workmanlike manner, without more specific provisions enlarging this obligation, “assume liability” for damages arising out of the contractor’s defective work so as to trigger the contractual liability exclusion?
If the answer to Question 1 is yes, and the contractual liability exclusion is triggered, do the allegations in the underlying lawsuit, alleging that the contractor violated its common law duty to perform the contract in a careful, workmanlike and non-negligent manner, fall within the exception to the contractual liability exclusion for “liability that would exist in the absence of contract?”
The court answered the first question, “no” and, thus, did not answer the second.
In doing so, the court distinguished its decision in Gilbert Texas Construction, LP v. Underwriters at Lloyds London, 327 S.W.3d 118 (Tex. 2010), where the court held that the contractual liability exclusion, under the facts present in that action, precluded coverage for the insured.
In Ewing, the Amerisure policy included a standard contractual liability exclusion, which provided that the policy did not afford coverage for bodily injury or property damage, for which the insured was obligated to pay damages by reason of the assumption of liability in a contract or agreement. The exclusion included an exception for damages that the insured would have in the absence of the contract or agreement or that was assumed in a contract or agreement that was an “insured contract.” As Texas had previously held that a claim for an insured’s faulty workmanship can be an “occurrence” triggering coverage, the focus in Ewing was on the applicability of the contractual liability exclusion and the exceptions thereto.
While the court noted that in Gilbert, Gilbert owed the owner a duty under general law to conduct its construction operations with ordinary care so as not to damage its property, there was an additional provision in the contract between Gilbert and the owner, wherein it undertook a specific contractual obligation to repair or pay for damage to third-party property resulting from either a failure to comply with the requirements of the contract or a failure to exercise reasonable care in performing the work. The court found that the first obligation, that is, to repair or pay for damage to property of third parties resulting from a failure to comply with the requirements of the contract, extended the insured’s obligations under general law and then determined that the exclusion applied, while the exception did not.
Here, however, the insured contended, and the court agreed, that its agreement to construct the tennis courts in good and workmanlike manner did not add anything to the obligation it has under general law to comply with the contract’s terms and to exercise ordinary care in doing so. Therefore, they found it was not an assumption of liability within the meaning of the policy’s contractual liability exclusion.
The court addressed one additional argument, though not necessary to its answer, which was Amerisure’s argument that CGL policies are intended to protect an insured when the insured damages another’s property, not to serve as a performance bond covering an insured’s own work. The court disagreed, finding that Amerisure’s argument presumed that no other policy exclusions and coverage limitations would be considered. The court noted that allegations of unintended construction defects may constitute an accident or occurrence under the CGL policy.
01/24/14Chase v. Robert Loisel District Court of Appeal of the State of Florida, 5th DIstrict Judge Disqualified for Sending Friend Request to Litigant
In Chase, the petitioner, Sandra Chase, sought to disqualify the judge presiding over her and the respondent in their dissolution of marriage suit. In support of the motion to disqualify, the petitioner averred that prior to entry of final judgment, the trial court sent the petitioner, ex parte, a Facebook “friend” request. Upon advice of counsel, petitioner did not respond to the invitation. Thereafter, the trial court entered a final judgment of dissolution, allegedly attributing most of the marital debt to the petitioner and providing the respondent with a disproportionately excessive alimony award. A formal complaint by the petitioner against the trial judge followed alleging that in retaliation for her non-acceptance of the judge’s “friend” request, the award, as set forth above, was entered.
A hearing was held on the motion and the motion was denied. The petition was then filed with the Court of Appeal. The court found that, applying the standard to determine whether the motion is legally sufficient, to wit, by resolving the alleged facts accepted as true, would a reasonably prudent person fear that she could not get a fair and impartial trial before the judge. The court determined that a judge’s ex parte communication with a party presents a legally sufficient claim for disqualification, particularly where the party’s failure to respond to a Facebook “friend” request creates a reasonable fear of offending the solicitor. The court continued by noting that the “friend” request placed the litigant between the proverbial rock and a hard place, that is, either engage in improper ex parte communications with the judge presiding over the case or risk offending the judge by ignoring the judge.
The court discussed the Fourth District’s decision in Domville v. State, 103 SO.3d 184 (FLA 4th DCA 2012) rev. denied, State v. Domville, 110 SO.3d 441 (FLA 2013), where the court addressed a judge’s social networking “friendship” with the prosecutor in the underlying criminal case as being sufficient to create a well-founded fear of not receiving a fair and impartial trial in a reasonably prudent person. The court concluded that the “friending” of a party in a pending case raises far more concerns than a judge’s Facebook friendship with a lawyer. Thus, the court quashed the order denying the motion to disqualify and remanded the matter to the trial court for further proceedings consistent with their opinion.
1/17/14 Maddox v. Florida Farm Bureau District Ct. of Appeal of Florida, Fifth District Dog Attack Resulting In Two Bites to Two Victims With Separate Injuries Are Separate Occurrences Under Homeowner’s Policy.
On a motion for rehearing, the appellate court reversed the trial court’s finding of only one “occurrence” under a homeowner’s insurance policy after a child and mother were bitten by the same dog during the same dog attack. Ms. Maddox’s boyfriend owned two dogs, Dixie and Sugar. Ms. Maddox, her boyfriend, the two dogs and Ms. Maddox’s two sons, Logan and Ivan, resided in the boyfriend’s home. While Ms. Maddox was dressing Logan, Ivan began screaming. Upon rushing to the source of the screaming, Dixie was seen biting Ivan in the face. Once Dixie released her grip on Ivan’s face she then bit Ms. Maddox in the face. Both Ivan and Ms. Maddox sustained injuries.
Ms. Maddox’s homeowners insurance policy, issued by Florida Farm Bureau General Insurance Company (“Florida Farm”), contained the following pertinent insuring grant for personal liability:
All ‘bodily injury’ and ‘property damage’ resulting from any one accident or from continuous or repeated exposure to substantially the same general harmful conditions shall be considered to be the result of one ‘occurrence.’
“Occurrence” was defined as:
An accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results, during the policy period, in... ‘bodily injury’; or … ‘property damage.’
Ms. Maddox commenced a bodily injury action against her boyfriend seeking damages from injuries she sustained in the dog attack. Florida Farm commenced a declaratory judgment action seeking a declaration that there was only one occurrence under the homeowner’s insurance policy and the per occurrence limit was exhausted after payment of the policy limits for Ivan’s bodily injury claim.
The Court held there were two occurrences under the homeowner’s insurance policy. The Court reasoned that in the absence of policy language to the contrary, Koikos v. Travelers Ins. Co. is applied which adopts a “cause theory” for determining number of “occurrences.” In Koikos, Mr. Koikos rented his restaurant to a fraternity for a graduation party which resulted in an intruder shooting two guests with a single bullet as well as injuring three others. The court determined there were two occurrences for purposes of insurance coverage as each shooting of a separate victim was a separate occurrence.
A1307 Bill Seeking To Expand The Definition Of Unfair Claim Settlement Practices
This bill was before the Assembly Insurance Committee during the 2013 session, and the bill was referred to Codes where no action was taken. The Assembly Insurance Committee again referred this bill to Codes, and at this time the bill remains there. This bill proposes to add as unfair claim settlement practices:
An insurer requiring or requesting that an individual or entity deny or promote the denial of a certain percentage of claims during and
An insurer requiring or requesting that any individual or entity cancel or promote the cancellation of a set percentage of policies during a given time period.
These amendments to unfair claim settlement practices included in legislation in other states. Should this Legislation pass the Assembly, we will be sure to report.
A3832 Bill Seeking To Prohibit Discrimination In Issuing Certain Policies Because Of An Inquiry Revealing A Loss or Damage
Similar to A1307, this bill was also before the Assembly Insurance Committee during the 2013 session. During the 2013 session this bill did make it to the Assembly Floor Calendar, but there was no vote on the bill. The bill seeks to bar an insurer from reporting to an insurance support organization or similar company that collects and maintains claim history reports any inquiry made by a policyholder under a homeowners, personal lines fire, or non-business motor vehicle policy which would reveal a loss or damage to the property. Further, no insurer shall refuse to issue or renew a homeowners’, personal lines fire, or non-business motor vehicle insurance policy or impose or offer a higher rate or premium, assign a higher rating tier or category on the basis of any policyholder inquiry about a policy. Essentially, the legislation seeks to keep reporting of inquiries from policyholders about potential losses even if no claim is ever made.
01/14/14 Nichols v. UniCare Life and Health Ins. Co. United States Court of Appeals – Eighth Circuit - Arkansas Evidence Not Conclusive that Death was not an Accident.
Dana Nichols was found face down in bed, and was pronounced dead while being transported to a nearby hospital. The autopsy report indicated that her manner of death “could not be determined”. Her cause of death was mixed drug intoxication.
Sean Nichols, the surviving spouse, filed a claim for accidental death benefits under the Life and Accidental Death and Insurance Plan [“Plan”] funded by Dana’s employer, Acxion Corporation. The Plan was funded by a policy underwritten by UniCare, and UniCare also served as the claims administrator. UniCare denied the claim stating that because the cause of death was listed as “could not be determined”, it had “no choice” but to deny the claim. Nichols thereafter filed an administrative appeal and supplemented the record with prescription records, as well as letter’s from himself and Dana’s parents, recounting her recent medical problems and her social history.
UniCare denied the appeal, this time stating two reasons for the denial: (1) the manner of death was listed on the death certified as “could not be determined”, and (2) the plain excludes benefits for death caused by intoxication. Nichols then filed suit in the district court pursuant to ERISA.
Upon Nichols’ motion for summary judgment the district court, applying a de novo standard of review, found that Nichols was entitled to benefits because the cause of Dana’s death was more likely than not an accident. The district court rejected UniCare’s argument that Dana’s consumption of numerous medications was an intentional act for which she would have subjectively expected death to be a highly likely outcome. The district court noted that UniCare’s analysis was flawed because it provides no indication that UniCare attempted to ascertain Dana Nichols’ subjective expectations or whether a reasonable person in her position would have viewed her death as highly likely to occur.
With regard to the intoxication exclusion, the district court concluded that the exclusion was not intended to cover Dana’s situation because the Plan defined “intoxicated” as “legally intoxicated as determined by the laws of the jurisdiction where the accident occurred.” The district court found that a reasonable person would understand that the exclusion for intoxication was intended to apply to death caused by committing acts such as driving while intoxicated, not to situations where the immediate cause of death is ingestion of a lethal mixture of prescription drugs.
On appeal, UniCare argued that the standard of review should be abuse of discretion; that the district court impermissibly shifted the burden from Nichols having to prove entitlement to benefits to UniCare having to disprove Nichols’ entitlement; and that the district court erroneously concluded that the intoxication exclusion did not preclude an award of accidental death benefits. For the following reasons, the Eighth Circuit Court of Appeals [“Court”] disagreed with UniCare.
On the issue of abuse of discretion, the Court agreed with Nichols that the plan did not grant UniCare discretion to determine eligibility for benefits or to generally construe the terms of the plan. The Court determined that the decision being challenged on appeal has nothing to do with Dana’s enrollment in the plan. The challenged decision is the administrator’s denial of the claim for accidental death benefits. The Court pointed out that the Plan’s language in the claims section was lacking discretion-granting words. Further, there was no general grant of discretionary authority to UniCare to construe all Plan terms. As such, the Court held that the district court correctly applied an abuse-of-discretion standard of review.
As to the accidental death claim UniCare argued that there was insufficient subjective evidence of Dana’s expectations, and the objective evidence suggested that Dana’s consumption of numerous medications was an intentional act for which a reasonable person would have expected death as an outcome. The Court disagreed and determined that UniCare ignored the subjective evidence submitted by Nichols, and instead made leaps to get to the objective conclusion it desired. The Court found that there was no evidence in the record that Dana had developed a tolerance for her medications or that she took all 12 of hydrocodone pills which were missing from the bottle on the night of her death. Further, the Court found there was no evidence that Dana was suicidal. The Court agreed with the district court that all of the evidence indicated that Dana’s death was the unexpected result of ingesting prescribed medications.
Finally, the Court addressed the Intoxication Exclusion. Again, the Court agreed with the district court, noting that Arkansas law defines intoxication with reference only to the public offenses of drunk driving and public intoxication, and Dana’s death involved neither. The Court determined that when interpreting the policy language as a reasonable person, as required by Arkansas law, a reasonable Plan participant would have understood that the plan’s intoxication exclusion is intended to apply to death caused by committing such acts as driving while intoxicated, not to situations where the immediate cause of death is ingestion of a lethal mixture of drugs that have been prescribed for use by the decedent.
01/24/14 Racanelli Constr. Co., Inc. v. Black Diamond Site Dev. LLC Supreme Court, Suffolk County Moving Party Needs to Do More Than Identify Deficiencies in Opposing Party’s Position to Prevail on Summary Judgment
Racanelli Construction Company, Inc. entered into an agreement with the New York Air National Guard to install new water mains at an airport. Racanelli subcontract a portion of the work to Black Diamond including the installation of two 8-inch pipes connecting hangars A and B at the airport with a 10-inch water main that had been installed years earlier. Black Diamond completed the work in the spring of 2010.
In June 2011, Racanelli found a leak at the T-fitting that connected the 8-inch pipe to the water main near hanger B. A second leak at the L-fitting near the entry to hanger B was found a few months later. The leaks were repaired, and the cost charged to Racanelli.
Southwest Marine and General Insurance Company issued a CGL policy to Black Diamond for the period October 7, 2009 to October 7, 2010. The policy named Racanelli as an additional insured. After this claim was tendered to Southwest Marine, it denied coverage on the ground that the losses had occurred in June and September 2011, after the expiration of the policy period. When Racanelli pushed back that the work was performed in 2010, Southwest Marine responded by advising that the CGL policy was an occurrence policy, which was based on when the loss occurred, not when the work was performed.
Racanelli then commenced this DJ action. This decision arises from Southwest Marine’s motion for summary judgment, and Black Diamond’s cross-motion. In support of Southwest Marine’s motion, it argued that Racanelli could not establish that the leaks, which were not discovered until 2011, actually occurred during the policy period.
In considering this argument, the court issued a good reminder to all counsel, “Southwest Marine’s reliance on deficiencies in Racanelli’s proof is insufficient to establish its entitlement to judgment as a matter of law.”
The court then went on to address Southwest Marine’s second basis, which was that its policy exempted from coverage faulty workmanship causing damage to the insured’s work product. It declined to grant summary judgment in light of evidence submitted in opposition that, in installing the 8-inch pipes, Black Diamond may have caused damage to the existing water main.
Lastly, the court declined to grant Black Diamond’s cross-motion on Southwest Marine’s duty to defend. It found that an insurer maybe relieved of the duty to defend if it can demonstrate that an exclusion or exception to the policy coverage applies in a particular case. Since, here, there was an issue of fact, which was only going to be resolved by the submission of extrinsic proof at trial, summary judgment on the insurer’s obligation to defend was inappropriate at that point.
01/16/14 URS Corp. v. Zurich Am. Ins. Co. Supreme Court, New York County Smoke Inhalation Does Not Trigger Pollution Liability Coverage
This decision arises out of a tragic fire. At the time of the fire, the building was being redeveloped by the Lower Manhattan Development Corporation, and it retained URS Corporation to provide “owner representative services” in connection with the building. One of the subcontractors on the project was The John Galt Company.
After the fire, in which two firefighters were killed and a number injured, lawsuits were brought against URS among others. URS tendered to a number of subcontractors including The John Galt Company, and eventually brought this declaratory judgment action seeking additional insured status under policies issued by a number of carriers.
At some point, URS sought to amend its complaint to include claims against Hudson Specialty Insurance Company, who issued pollution liability coverage to The John Galt Company. The topic of this decision is Hudson’s motion to dismiss. Hudson asserted in its motion that it has not duty to defend URS in the underlying actions as it policy was intended to indemnify the insured against claims for environmental harm. For the most part, the underlying complaints simply stated that the relevant firefighter was seriously injured by the fire in the course of the performance of his duties, through no fault of his own. Two of the complaints alleged smoke inhalation as the cause of death. Hudson submitted that none of these injuries could plausibility be held to have arisen out of a “pollution condition.” In response, URS argued that the underlying actions mentioned “toxic smoke,” and the fire constituted a “release” of smoke or other contaminant, thereby qualifying as a pollution condition.
As the Court found few cases dealing with interpretation of a pollution liability policy, it looked relied on the body of case law interpreting the pollution exclusion in CGL policies. Specifically, relying on the Court of Appeals decision in Continental Casualty, an asbestos related matter, the court noted that the three places for discharge contemplated by the policy exclusion—into the land, the atmosphere, or any water course or body of water—read together support the conclusion that the clause was meant to deal with broadly dispersed environmental pollution.
Given the close identity between the traditional pollution exclusion provision and Hudson's pollution coverage provision, the court believed it was logical to conclude that the two clauses share the same purpose and are complementary, with one meant to fill the gap in coverage created by the other. Accordingly, in granting Hudson’s motion to dismiss, the court found that even allowing the somewhat excessive stress the plaintiffs place on the stray references in two of the complaints to "toxic smoke", an allegation of injury from some sort of poisonous material is not enough to qualify for coverage. The injury must be caused by the "discharge, dispersal, release or escape" of such contaminant "into or upon land, the atmosphere or any watercourse or body of water.” To read the terms "land", "atmosphere" and "watercourse or body of water" as "everywhere" would render the modifying clause misleading and useless surplusage.
01/09/14 FarmFresh Gourmet Salads LLC v. Sentinel Ins. Co. Ltd. Supreme Court, New York County Insured Claims Defamation/Libel Based on Statement in Disclaimer that Investigation Revealed Fire was Intentionally Set
Defendant denied coverage for a fire at plaintiffs’ property based on its determination that the fire was intentionally set. As a result, plaintiffs brought this action, setting forth the following causes of action: breach of contract, violation of NY GBL § 349, negligence and defamation/libel. Defendant moved for summary judgment on the defamation/libel claims and the violation of GBL § 349 claims.
The defamation/libel claim was based on the statement in defendant’s disclaimer that “Sentinel’s investigation has determined that the fire was the result of an intentional act caused by or procured by the insured, or someone acting on its behalf.” The court held that the elements of defamation “are a false statement, published without privilege or authorization to a third party, constituting fault as judged by, at a minimum, a negligence standard, and it must either cause special harm or constitute defamation per se. Truth provides a complete defense to defamation claim.”
With that said, even though a statement is defamatory, there exists a qualified privilege where the communication is made to persons who have some common interest in the subject matter. The defense of qualified privilege will be defeated by demonstrating a defendant spoke with malice.
Here, defendant established the alleged defamatory statement was made to persons who shared a common interest in the subject matter and therefore was subject to qualified privilege. The only persons that the allegedly defamatory statement was published to were plaintiffs’ lawyer and their agents handling their insurance affairs. In addition, plaintiffs presented no evidence of malice to defeat the privilege. Thus, the court granted summary judgment on these claims.
The court also dismissed the GGL claim as plaintiffs’ did not oppose defendants’ submission that plaintiffs’ had no sufficiently alleged the type of consumer-oriented deceptive practices that § 349 was intended to eradicate.
09/27/13 State Farm v. Brechbill Alabama Supreme Court Alleged Imperfect Claims Handling Does Not Equal Bad Faith
The Alabama Supreme Court held that an insurance company’s scrutiny of a wind damage claim was sufficient to avoid “abnormal” bad faith liability. Mr. Brechbill purchased a house in Alabama in 2007, and then claimed in January 2008 the house was damaged by a windstorm which damaged the roof and allegedly caused interior walls to crack and buckle. State Farm concluded that the roof damage was covered, and had an engineer investigate the interior damage. State Farm’s engineer determined that the interior damages were caused by longstanding movement and settlement of the structure, and coverage was denied under policy exclusions for wear and tear and otherwise. After more inspections and re-inspections, State Farm again denied the claim, although home inspectors hired by the property owner disputed the findings of State Farm’s engineers.
The policyholder sued State Farm for breach of contract, and both “normal” bad faith failure to pay and “abnormal” bad faith failure to investigate. State Farm moved for summary judgment, and the trial court granted the motion on the claim for the “normal” bad faith refusal to pay noting that the insurance company had a legitimate reason for failing to pay the claim. However, the trial court allowed the policyholder to proceed with the “abnormal” bad faith claim for failure to investigate, ostensibly ruling that there were factual issues whether State Farm conducted an adequate claims investigation.
After a jury trial, a jury returned a verdict in favor of the policyholder of $150,000.00 on the contract claim, and $150,000.00 on the “abnormal” bad faith claim which consisted of $150,000.00 compensatory damages and $50,000.00 in punitive damages. State Farm appealed the judgment on the “abnormal” bad faith claim.
The policyholder argued that State Farm’s investigation was “flawed” because the insurer allegedly failed to take into consideration evidence regarding the house’s condition before the alleged loss event. The Supreme Court disagreed and reversed the judgment on the “abnormal” bad faith claim. The Court ruled that, even if State Farm had disregarded or omitted some aspects of a complete claims investigation, more than bad judgment or negligence was required to sustain a bad faith claim. The Court added that the “abnormal” bad faith claim also failed because the trial court found that State Farm had a legitimate reason for denying the claim. In addition, State Farm did repeatedly review and re-evaluate the claim as engineering reports and other information were received, and it was not liable for “tortious failure” to investigate the claim.
While some parts of this case apparently fall within Alabama jurisprudence which has apparently distinguished between a “normal” bad faith failure to pay and an “abnormal” bad faith failure to investigate, some general lessons can be gleaned from this decision:
Assert and include all possible denials of claims under policy language and applicable law. You never know which claims (or parts of claims) may be sustained and go on to trial or appeals.
On motions and at trial, preserve all possible grounds for appealing either preliminary or final coverage decisions, whether made by a court or by a jury.
Document all claims correspondence and claims handling actions since it was deemed of importance in this case that State Farm did conduct an investigation, receive, review and interpret submissions by the policyholder, and the coverage denial basically came down to State Farm accepting the views of its retained experts with respect to whether the windstorm caused interior structural damage.
Both in terms of claims documentation, and subjectively, approach claims handling without a bias against coverage or the policyholder. Such an objective, neutral initial position may help convince a court of the insurance company’s good faith, or most certainly of a lack of “bad faith”.
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