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Coverage Pointers - Volume XV, No. 17

Dear Coverage Pointers Subscribers:

Do you have a situation?  Do tell us because we do love situations.

It was a long, cold, snowy ride to and from the Third Department in Albany today.  Yuck.  Interesting appeal argued on behalf of an excess carrier.  My friend Stephen Lazare had the primary.  There were all kinds of interesting coverage issues for a hot court. 

However, the case that followed ours had to do with someone who apparently had a pet lion and for some reason, his neighbors were not too happy about it.  The Court seemed to appreciate the neighbors’ unease.

PLRB Bound in March to Indy?  :

Let me know.  We’ll be there are presenting on Additional Insured and Contractual Indemnity issues.

Coverage-palooza Month:

In our most recent issue, we described some – but not all – of the very important coverage cases that were argued at the Court of Appeals in January.  Today, there is a report on one very interesting coverage decision (not yet K2, but we can expect that at any time).  Read Steve Peiper’s note below and his column for a very interesting high court decision on the shortened statute of limitation in fire policies; here the Court of Appeals refuses to enforce a two-year policy statute of limitations in a case where the property owner was unable to rebuild his structure before the statute of limitations expired.  Dave Adams, through Steve’s column, also reports on a Labor Law decision involving illegal aliens and statutory protection for employers.  Steve also reports on a troubling decision from the Fourth Department allowing discovery of SUM claims files.

Editor’s Observation:        The two Court of Appeals decisions, decided on February 12, were argued on January 6.  K2 Investments was argued the following day, January 7.  Watch your mailboxes for a special edition.

Labor Law Pointers:

If you don’t subscribe to Labor Law Pointers, published monthly by Dave Adams and his team, you’re missing a fabulous newsletter covering New York State Labor Law construction and scaffolding litigation.  Drop him a note at [email protected] and tell him that “Dan sent you”.  I get a 10% commission on the free subscriptions.

Happy Valentine’s Day:

I hope you have done the right thing this year and have shown your Valentine the affection and appreciation that your wife/husband/partner/significant other deserves. If not, the day is not over and a traditional Valentines approach may yet be possible.

I first printed this historical gem back in 2008 and this is the second time I’ve dusted it off since then.  For those, like me, that are traditionalists, this overview may give you an idea as to how you may yet provide the perfect holiday gift:

How will you celebrate Valentine's Day?  Do you do it the modern way and send cards, candy, flowers and gifts?  I would hope not. I thought a little history of the holiday would help you recreate a more traditional approach, steeped in history.
During the third century in Rome, Emperor Claudius II who was only emperor for two short years, by the way (August 268 to January 270) was preparing to fight the Goths.  [Editor's note:  who wouldn't fight the Goths, given the opportunity?]  Anyway, he decided that single men would be better soldiers than married ones so he outlawed marriage for young men.  However, one young priest, Valentine, believing that the Emperor's decree was unjust, continued to perform weddings.  Rumor had it that he had a financial interest in a chapel and later moved to Vegas.   Claudius learned of Valentine's defiance, and had him imprisoned.  While in jail, he fell in love with the jailer's daughter and it is said that before his death, he wrote her a love letter, which he signed "From your Valentine." 

Valentine's feast day was set to commemorate his death in February 270, and that was also used to make it into a Christian holiday, the pagan Lupercalia Festival, which also celebrated the beginning of spring.  That Festival involved the sacrifice of a goat for fertility and a dog for purification.  The goat hide would be sliced into strips, dipped in sacrificial blood, and taken to the streets by young men who would slap women with the strips, apparently making the women more fertile.  Pope Gelasius, seeking to end the pagan holiday but continue the tradition, declared February 14 as St. Valentine's Day around 496 A.D.  So there you go.  Forget the card, forget the candy, and forget the flowers.  Chase your sweetheart around the room and slap him or her with dried goat strips dipped in blood, and you'll be celebrating the holiday the right way.

Just don't tell the PETA people

Peiper’s Passion on Property and Potpourri:

Happy Valentine’s Day.  Big news this week as the Court of Appeals has offered its opinion on the applicability of the two year suit limitation clause found, almost invariably, in property policies in New York.  As most of you know, New York courts have traditionally been conservative in the application of this clause.  Unless the insured could establish that it was “lulled” in to a false sense of security by the carrier, late is late and the right to sue forfeited accordingly.    

In the Executive Plaza case we review below, the Court has slightly, ever so slightly, opened the door to a more flexible standard.  The Executive Plaza case involved a situation where the insured was unable to complete repairs to a premises damaged by fire within two years of the loss.  Because it could not commence an action before the repairs were finished, the Court ruled it was reasonable and fair to permit them to start an action after the expiration of the suit limitation clause.  The decision was based on the fact that the insured had established that completing repairs within two years of the date of loss was impracticable under the circumstances. 

We would propose that th e burden of establishing “reasonableness” should and would appear to fall upon the insured.  The suit limitation clause, as we know it, remains fairly strong.  That said, with this decision, the Court has opened the door for the procrastinating insured to reinvigorate a claim that otherwise would have been barred.  I don’t see this as a major development, but it will be something to keep an eye on moving forward.

There are two very interesting Labor Law decisions that follow as well.  The first of which comes from the Court of Appeals, and was reviewed by our in-house Labor Law wonk, David Adams.  For those of you on the Labor Law Pointers list serve, you’ve already received the review.  David had in it the “mail” by 2:30 this afternoon.  Not too bad considering the decision came out this morning.   If you’re not on the list serve, and you are involved in litigation in New York, we’d encourage you to shoot David an email at your earliest convenience.

If you’re not into the whole newsletter thing, or just need/want a forum to discuss Coverage or Labor Law, by all means join us over on LinkedIn.  As you know, we have been moderating the New York Insurance Group for the past couple of years.  Just today, David launched a sister group for Labor Law Pointers.  Check it out, and let your thoughts be known.

Finally, we caution you about a rising menace to insurance companies.  The Fourth Department has issued a decision, which permits a plaintiff in a SUM action to uncover the “entire claim file”.  In reaching this conclusion, the Court noted that the “entire claim file” was “material and necessary” to the prosecution of the action.  Who, of course, wouldn’t want to uncover their opponent’s entire litigation strategy, and confidential communications?  Would an attorney for the SUM carrier be entitled to plaintiff’s file?  We think not. 

This case underscores, yet again, that a carrier faces a heavy burden to protect its file from disclosure.  It is a heavy burden, but it is not an impossible one.  The Guinness tag line from a few years ago is appropriate when dealing with overly vigorous document demands…fortune favors the bold.  We’d encourage anyone faced with an overly broad discovery demand to move immediately for a protective order.  In so moving, one might be well advised to assert concrete examples of the documents withheld and concrete reasons as to why they were withheld.  Simply saying that the demand was “overly broad” or that it sought confidential communications simply won’t cut it anymore.

Steven E. Peiper
[email protected]

One Hundred Years Ago Today -- The Babe Signs First Contract:

In 1913, St. Mary's Industrial School was playing a game against Mount St. Mary's University (then college) in Emmetsburg, Maryland. That day, Joe Engel, a former Mount St. Mary’s student who was now a pitcher for the Washington Senators, attended the game. Impressed with Ruth's pitching abilities, Engel, along with a teacher at St. Mary's, Brother Gilbert, brought Ruth to the attention of Jack Dunn, owner and manager of the then minor-league Baltimore Orioles. After watching Ruth pitch in a workout for half an hour, Dunn signed Ruth to a contract. He signed a contract for $250 a month on February 14, 1914. Since Ruth was only 19 years old, Dunn had to become Ruth's legal guardian as well; at that time, the age of majority was 25. When the other players on the Orioles caught sight of Ruth, they nicknamed him "Jack's newest babe."The reference stayed with Ruth the rest of his life, and he was most commonly referred to as Babe Ruth from then on.


Jen’s Gems;

Greetings.  I hope everyone is staying safe with this new blast of snowstorms we have been experiencing on the east coast.  It sometimes feels as if there is no end in sight to this terrible winter. 

This week I am reporting on two cases out of the trial courts that really seem to address the opposite ends of the spectrum in New York City’s housing market.   The first case involves a fire loss claim in relation to a condemned apartment building.  While the carrier was pretty certain that the fire was the result of arson, presumably due to the heightened standard in New York to prove such a claim, it instead moved for summary judgment on a vacancy provision.  The policy removed coverage if the building was vacant for more than 60 days prior to the loss.  A building was vacant if less than 31% of its total square footage was not being rented or used.  Of note, if anyone can tell me the significance of 31%, I am desperate to know.  The question ultimately considered by the court was whether sufficient evidence had been submitted to prove the tenants in fact complied with the order of condemnation. 

At the other end, I also report on a case involving a luxury condominium complex in Manhattan.  The owners tried to make the novel argument that the delay-in-completion endorsement is triggered if there is a delay in any portion of the project caused by a direct physical loss. 

Lastly, I wanted to highlight a concern that needs to be factored when considering whether legal action should be taken against an insured to recoup a deductible.  In Liberty Mut. Fire Ins. Co. v. J.T. Walker Industries, Inc., a decision out of the Fourth Circuit, the carrier brought a breach of contract action against its insured for a failure to pay the deductible on its policy after Liberty settled five underlying product defect cases.  The insured then turned around and asserted a counterclaim against Liberty for breach of the implied duty of good faith and fair dealing.  This resulted in the action being taken in a much different direction than intended. 

Until next issue…

Jennifer A. Ehman
[email protected]

Editor’s Note:  Sniff.  No Ella story?  You will disappoint your fan club.

Fitz’ Bits:

Dear Subscribers:

The groundhog saw his shadow, Long Island and New York City are once again being blasted with more snow and ice, and the south is always dealing with ice storms. Enough!  During my recent visit to Dallas, Texas, they too were experiencing a wintry mix.  As I sat on the runway watching the plane’s wings being de-iced, my thoughts turned to Marco Island, Florida, where I am fortunate to be lecturing for the Federation of Defense & Corporate Counsel (FDCC) on the Top Ten Insurance Cases decided across the Country in a few weeks.  I will surely hope for warm weather during our stay.

While the temperatures may have been chilly in Dallas, the warm welcome extended by the folks at Allstate was certainly appreciated.  I welcome our new subscribers and hope that you find the contents of our newsletter interesting and informative, as well as useful.

This week I report on yet another decision addressing coverage under a CGL policy for construction defects, this out of the Fifth Circuit, applying Mississippi law, as well as a lawsuit involving a request for social media. The courts were quiet on Coverage B decisions.
I hope you all stay warm and safe and Happy Valentine’s Day!

Til next time,

Elizabeth A. Fitzpatrick
[email protected]

Firebugs Go to Jail – A Century Ago:

The New York Times
February 14, 1914

Uphold Arson Convictions

Henry C. Freeman, head of the so-called arson trust, lost his appeal for a new trial.  Freeman was sentenced to serve not less than eight years or more than twenty-four years.  He was convicted on the testimony of Isidore Stein, known as Izzy the Painter and Moe Sliten, who took out insurance policies in the names of dummies.  The Appellate Division affirmed also the conviction of George Gtutz, who was a member of the same gang, without handing down an opinion.
Editor’s Note:  His conviction was affirmed the following January.  Izzy the Painter confessed to starting over 300 fires…

Hunter’s Hints on Serious Injury Threshold:

Hello Coverage Pointers subscribers. 

As Dan Kohane mentioned in our last, I have recently been put in charge of writing the Serious Injury Threshold column.  I am looking forward to digging into Insurance Law §5102(d) every two weeks and sharing with you, our beloved readers, all the latest Serious Injury Threshold cases from all New York appellate courts, with helpful practice hints along the way.

I have been at Hurwitz & Fine for exactly one year this week.  Prior to joining Hurwitz & Fine, I primarily practiced personal injury litigation on the plaintiff side, which gives me a unique perspective on issues and strategies involved in litigating motor vehicle accidents in New York State.  I have recently returned to my hometown, Buffalo, New York, after spending six months downstate in beautiful Long Island where I was lending a helping hand to Hurwitz & Fine's downstate office in Melville, New York (hello Beth and Aimee!).  The first-hand knowledge I gained litigating motor vehicle cases throughout Long Island, the five boroughs of New York City and the surrounding downstate counties is invaluable to my practice and an experience that helped me grow as an attorney.  That being said, I am happy to be back in cold and charming Buffalo with my wonderful family, friends and co-workers.

The New York appellate courts had a rather small output of serious injury cases in the past few weeks, giving me the opportunity to analyze only two opinions.  Both are out of the Second Department (located in the uber-hip borough of Brooklyn), and both reverse lower court orders.

I am proud to be the newest member of the Coverage Pointers team.  If any of our beloved readers have questions regarding any and all things Serious Injury, please feel free to contact me at your convenience.  Hope to talk to you soon.


Daniel T. Hunter
[email protected]


A Century Ago – Superstitions Revisited:

The New York Times
Letter to the Editor
February 14, 1914

To the Editor of The New York Times:

Mrs. Carrie Chapman Catt, in her lecture on “The World’s Superstitions and Women” this winter, explained the origin of the superstition about knocking on wood.  It was due, she said, to the barbaric idea that a woman, on becoming a mother, was unclean.  Savages thought the newly made mother blasted everything she touched or looked upon, and compelled her, therefore, to go out only at night, and to beat upon the trees to warn of her approach; and they believed that even the trees she beat upon died!  In this way arose the superstitious custom of knocking on wood to avert a calamity.

New York, February 12, 1914.

The New York Times
Letter to the Editor
February 14, 1914

A Pagan Superstition

To the Editor of The New York Times:

The habit that people have of knocking on wood, such as a table or a chair, was inherited from pagan ancestors, who believed that little gray gnomes lived in the earth, and when they wandered through the forests long ago they gently tapped on the bark of the trees for the good wishes of the fairies to protect them from the malice of the gnomes.  The rustling of the leaves or the swaying of the branches was regarded as an answer promising protection.

New York, February 13, 1914.


Audrey’s Angles:

The Florida Supreme Court hits my column again this edition with an interesting decision on whether an insured can apply an indemnity payment toward its SIR.  The Court held that with regard to the policy at issue it can.

Please know that the DRI Insurance Law Committee is currently working on dates for its Insurance Law 101, three part series for this summer.  This is a great webcast series that is designed to provide education to new claims professionals, young lawyers, law clerks, and those claims professionals and lawyers who need a refresher on the basics of reading an insurance policy, the duty to defend, and addressing bad faith claims.  You can attend those parts that interest you and can watch them without having to leave your office.  This series was presented last year and was extremely well received by claims professionals and attorneys.  If you are interested in more information please send me an email at [email protected] and I will provide you with the information once the dates are finalized.

I hope you have a Happy Valentine’s Day (or is it St. Valentine’s Day).

Audrey A. Seeley


This Week’s Highlights (from the attached issue):

Dan D. Kohane
[email protected]

  • Ambiguous Terms to be Construed Against Insurer Rather Than Determined by Fact Finder
  • An Insurer that Had Opportunity to Participate in Mandatory Arbitration and Chose Not to Appear, Cannot Relitigate Issues Decided


Daniel T. Hunter

[email protected]

  • Order Reversed as Defendants Fail to Meet Burden Regarding Plaintiff's Serious Injury
  • Triable Issue of Fact Raised by Plaintiff Reverses Lower Court


Margo M. Lagueras

[email protected]


  • EUO Transcripts Insufficient to Prove Fraud by a Preponderance of the Evidence
  • There Is No Corollary in NYS to the SSA “Treating Physician Rule”
  • Receipt of Requested Verification Triggered Pay or Deny Rule



  • Failure to Timely Object Waives Objections to Adequacy of Notice
  • Action Barred by Declaratory Judgment Against Group of Providers


Steven E. Peiper

[email protected]

Court of Appeals

  • Two Year Suit Limitation Inapplicable Where Rebuild Was Not Feasible Within Two Years of the Loss


Appellate Division, Fourth Department

  • Dispute Over Cost to Repair/Replace Property Damage does not Avoid Application of the Two Year Suit Limitation Clause



  • Employer Who Pays Undocumented Employee Workers’ Compensation Benefits is Entitled to Section 11 Protection
  • Court Again Rules that “Entire Claims File” is In Play in SUM Litigation
  • Although Plaintiff Never Actually Fell From a Height, Labor Law § 240(1) Applied Anyway


Elizabeth A. Fitzpatrick
ea[email protected]

  • No Duty to Defend Construction Defect Claims
  • Facebook Requests Overbroad


Audrey A. Seeley
[email protected]

  • Insured Can Satisfy SIR With Indemnity Payment And Maintains Superior Right Under Transfer Of Rights Provision In Policy


Cassandra A. Kazukenus
[email protected]

  • S06545 – Certificates of Insurance


Katherine A. Fijal

[email protected]

  • Choice of Law – New Jersey Law Applied.
  • Voluntary Parting Exclusion Applies to Preclude Coverage


Jennifer A. Ehman
[email protected]

  • The Term “Vandalism” Found To Be Ambiguous When Applied To Fire Loss
  • Delay-In-Completion Endorsement Covers Delay In The Entire Project, Not Individual Portions


Bad Faith

  • Punitive Damages For An Insurer’s Bad Faith Can Be Awarded Even If The Insured Suffered No Actual Damages Under South Carolina Law


Earl K. Cantwell

[email protected]




I am not happy about the groundhog’s predictions.  They seem to be coming true.  See you in a couple of weeks.
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:


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

Diane F. Bosse

Steven E. Peiper, Team Leader
[email protected]

Elizabeth A. Fitzpatrick
Cassandra Kazukenus

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
Hunter’s Hints 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]

02/11/14       69 West 9 Owners Corp. v. Admiral Indemnity Co.
Appellate Division, First Department
Ambiguous Terms to be Construed Against Insurer Rather Than Determined by Fact Finder
The insureds seek coverage from Admiral in an underlying lawsuit against the plaintiff residential cooperative and some of its board members brought by a resident shareholder. The dispute centers, in part, on the timeliness of plaintiffs' forwarding to defendant insurer of a number of documents submitted by the resident shareholder in the underlying action.

The lower court found that there was an issue of fact as to whether documents that were not produced by the insured to the carrier were "demands, notices, summonses or legal papers", undefined terms.  The First Department agreement that it was unclear whether they so constituted documents that needed to be produced but since it was unclear the interpretation of the ambiguous policy should have been resolved against the insurer, as drafter of the policy's language.

Other issues of fact on timeliness need to be resolved.

02/11/14       Tower National Insurance Company v. $1 Plus Depot, Inc.
Appellate Division, First Department
Insurer Relieved from Coverage When Additional Insured Waited 20 Months to Give Notice and Injured Party Failed to Prove that She Tried
The "additional insured" under the subject policy and Perez-Ruiz, the injured party sought coverage but Tower succeeded in securing a judgment that it had no duty to provide defense and indemnity coverage in the underlying personal injury action. Tower established that JAC's notice, made 20 months after the accident, constituted noncompliance with the condition precedent to coverage and vitiated the contract of insurance.  Likewise, the injured party failed to raise a triable issue regarding whether it was reasonably feasible for her to provide notice to Tower, since she failed to identify any "efforts" she undertook to facilitate proper notice.
Editor’s Note:  Attaboy Max and Joe.

02/04/14       Mendoza v. Farmers Insurance Company
Appellate Division, First Department
An Insurer that Had Opportunity to Participate in Mandatory Arbitration and Chose Not to Appear, Cannot Relitigate Issues Decided
The dispute in the case was between Farmers and MVAIC and focused on whether or not Farmers had properly canceled a policy.  Farmers was aware of the proceeding, submitted contentions, but did not appear at the hearing.  The court found that Farmers was bound by the outcome.  Since the issue was resolved, a separate proceeding on other benefits does not present the opportunity to reargue what was decided.

Daniel T. Hunter
[email protected]

02/05/14       Fernandez v. Xie Jain Gao
Appellate Division, Second Department
Order Reversed as Defendants Fail to Meet Burden Regarding Plaintiff's Serious Injury
The lower court granted Defendant's motion for summary judgment dismissing Plaintiff's complaint on the ground that Plaintiff did not sustain a serious injury within the meaning of Insurance Law §5102(d).

The Second Department found the Defendant's motion papers to be deficient as they failed to adequately address Plaintiff's claim of serious injury.  In her bill of particulars, Plaintiff claimed to have sustained a serious injury under the 90/180 day category of Insurance Law §5102(d).  Since Defendant failed to sustain the prima facie burden, the court found it unnecessary to determine whether Plaintiff's opposition motion papers were sufficient to raise a triable issue of fact.

Practice Tip:  When making a motion for summary judgment to dismiss because of a Plaintiff's lack of serious injury, it is important to remember that you, as the Defendant, bear the initial burden of showing that Plaintiff's injuries do not meet the threshold requirements of Insurance Law §5102(d).  A defendant cannot rely upon the insufficiency of a plaintiff's evidence to meet the initial prima facie burden.

02/05/14       Macchio v. Ndukwu
Appellate Division, Second Department
Triable Issue of Fact Raised by Plaintiff Reverses Lower Court
The Plaintiff appealed from an order of Queens County Supreme Court which granted Defendant's motion for summary judgment dismissing the complaint on the ground that Plaintiff did not sustain a serious injury.  The Appellate Division, Second Department reversed the lower court and denied the motion for summary judgment dismissing the complaint.

The Second Department notes that Defendant met the initial prima facie burden by showing Plaintiff did not sustain a serious injury through their submission of competent medical evidence which established that the injuries to Plaintiff's cervical, thoracic and lumbar spine did not constitute serious injuries under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law §5102(d).  Further, Defendant produced competent evidence that Plaintiff's cervical injury was not caused by the subject matter motor vehicle accident.

However, Plaintiff was able to raise triable issues of fact as to whether or not she sustained serious injuries to her cervical, thoracic and lumbar regions of her spine, and as to whether the alleged injury to the cervical region of her spine was caused by the motor vehicle accident.  Since Plaintiff raised triable issues of fact regarding serious injury and causation, the Second Department reversed the lower court's order and denied Defendant's motion for summary judgment to dismiss the complaint.


Margo M. Lagueras
[email protected]


01/28/14       Medical Care of WNY v Allstate Prop. & Cas. Insurance Co.
Erie County, Arbitrator Kent L. Benziger
EUO Transcripts Insufficient to Prove Fraud by a Preponderance of the Evidence
Respondent denied Applicant’s claim based on its investigation and the EUOs conducted, contending that the injured party fraudulently staged the accident by putting himself onto a slow moving vehicle in a parking lot and then falling off when the vehicle stopped.  Respondent submitted the EUO transcripts of both the assignor and the driver.  Not surprisingly, both gave very different accounts. 

The Arbitrator noted that the assignor had a history of shoulder and low back injuries and that he admitted having prior criminal convictions for domestic violence and crimes involving theft.  While the assignor produced a DVD showing the parking lot, it did not show the accident, and the police report did not corroborate any allegations of a staged accident.  Thus, the EUO transcripts were the only relevant evidence and did nothing more than provide two different versions as to the happening of the accident.  The driver did not testify at the hearing, the police were not subpoenaed, no accident reconstruction experts were retained and no other third-party evidence was submitted to support a finding of fraud.  Because fraud was the sole basis for the denial, and there was no evidence other than from interested parties, the Arbitrator determined that Respondent failed to prove fraud by a preponderance of the evidence and awarded Applicant reimbursement.

01/14/14       Proscan Radiology Buffalo v Allstate Insurance Co.
Erie County, Arbitrator Michelle Murphy-Louden
There Is No Corollary in NYS to the SSA “Treating Physician Rule”
The “treating physician rule”, codified at 20 CFR 416.927(c)(2), provides that the SSA generally gives controlling weight to the opinions of treating physicians.  Several factors may be considered, such as length and frequency of treatment and supporting evidence for the opinions, but the SSA may also choose not to give controlling weight.  The rule is a creature of Federal law and pertains to how opinion evidence is evaluated by the SSA for the purpose of determining entitlement to Supplemental Social Security Income benefits.

Here, the Arbitrator noted that, although often argued by plaintiffs’ counsel, in New York State there is no corollary “rule” and, if applied at all, it is done so at the discretion of the finder of fact when, after considering the opinion of a non-treating physician, the trier of fact determines that the treating physicians opinion outweighs that of the non-treating physician.  Moreover, to argue that the “rule” must be applied and a peer review disregarded is contrary to the well-settled law that an insurer can deny a claim on the basis of a peer review.  The No-Fault Law requires the insurers are only liable for the payment of medical expenses that are necessary and reasonable and simply because MRI findings may be positive does not change that standard.

In this case, the Arbitrator found the peer review persuasive, and that Applicant did not present any evidence to rebut the peer review.  The injured person was diagnosed with cervical and thoracic sprain/strain injuries and the MRIs were ordered after only one examination, four days after the accident.  There was no neurological testing performed, nor was there any course of conservative treatment to determine whether or not the injured person’s condition would respond and whether the testing would actually be needed.  Therefore, Applicant’s claim was denied.
Note:  See also AAA Case No. 412013094620, similarly decided by Arbitrator Murphy-Louden on 01/31/2014.

01/13/14       WJW Medical Products, Inc. v Interboro Mutual Indemnity Ins.
Erie County, Arbitrator Veronica K. O’Connor
Receipt of Requested Verification Triggered Pay or Deny Rule
At issue was the reimbursement for a Motion X brace and body sock dispensed on May 15, 2012.  On May 22, 2012, Respondent requested additional verification in the form of an affidavit from the injured person attesting to the dispensed goods.  On June 22, 2012, a second verification request was sent.  Respondent argued that the request remained outstanding at the time the arbitration was filed.  Applicant countered that the affidavit was in fact sent and produced a copy of the affidavit, together with the fax transmission report, showing that Respondent received the affidavit on January 21, 2013.  However, because the affidavit was received after the demand for arbitration was filed, Respondent contended that the demand was premature. 

The Arbitrator noted that the affidavit was submitted apart from the arbitration process, and about two months before the hearing date.  Clearly, the arbitration was filed prior to the receipt of the requested verification.  However, upon receipt of such verification, Respondent’s obligation to pay or deny the claim was nevertheless triggered, and because Respondent failed to issue a denial (or pay) within 30 days of the receipt, the Arbitrator determined that Applicant was entitled to reimbursement.


01/31/14       W.W. Medical, PC v MVAIC
Appellate Term, First Department
Failure to Timely Object Waives Objections to Adequacy of Notice
Defendant alleged that plaintiff’s assignor was not a “qualified person” entitled to no-fault benefits and relied on omissions in the notice of intent to make a claim.  The court held that, as defendant did not timely object to the alleged omissions or seek verification, it had waived any defenses regarding the sufficiency of the notice, in particular because it had previously advised the assignor that the notice was “received” and “completed in full.”  Judgment in plaintiff’s favor was affirmed.

01/10/14       Flushing Traditional Acupuncture, PC v Kemper Ins. Co.
Appellate Term, Second Department
Action Barred by Declaratory Judgment Against Group of Providers
Kemper brought a declaratory judgment action (DJ) against plaintiff and 12 other providers alleging breach of policy terms by failing to appear for scheduled examinations under oath.  Sometime after the DJ action had been filed, plaintiff commenced this action to recover no-fault benefits.  A judgment on default was entered in the DJ, and Kemper then moved to dismiss this action as barred by the judgment.  The trial court dismissed plaintiff’s complaint, and the Appellate Term affirmed, holding that the doctrine of res judicata barred the present action as any judgment in it would destroy or impair the rights established by the prior DJ judgment.


Steven E. Peiper
[email protected]

02/13/14       Executive Plaza v Peerless Ins. Co.
Court of Appeals
Two Year Suit Limitation Inapplicable Where Rebuild Was Not Feasible Within Two Years of the Loss

The facts of this case are fairly straightforward.  They are also limited to this case, and as such we propose that it may have limited precedential value moving forward. 

Plaintiff sustained excessive fire damage to an office building that it owned.  The fire occurred on February 23, 2007, and plaintiff submitted a claim for damages almost immediately.  We are advised that Peerless agreed to pay the actual cash value of the loss ($757,812.50), and that said sum was tendered without dispute from either party.  Under the policy, as with most, Peerless did not owe replacement cost until repairs to the premises were actually made.  Plaintiff recognized the limitation, and advised that it would submit the full RC claim upon completion of repairs. 

At, or near, the two year anniversary of the fire, plaintiff had still not completed repairs to the premises.  Nonetheless, apparently to protect its rights under the policy, plaintiff commenced an action against Peerless seeking to recover the remainder of the RC value of this claim.  Peerless removed the matter to Federal Court, and then immediately moved to dismiss as premature.  Peerless supported its position by arguing that RC obligations did not trigger until the premises had been repaired.  Where, as here, the repairs had not yet been made, any action to recover RC was not ripe for litigation. The Court, in adhering to standing NY law on the issue, granted the dismissal.

Fast forward eighteen months to October of 2010.  At this point, plaintiff completed repairs and again submitted a claim for RC payments to Peerless.   Peerless denied the claim this time on the basis that the suit/claim was outside the two year suit limitation clause within the policy.  Plaintiff argued that the two year suit limitation clause was unfair because in the current instance completing repairs within two years of the loss was not feasible. 

The Court of Appeals granted certiorari on request from the Second Circuit, and has now offered the following opinion on the subject.   Importantly, the Court began its analysis by reiterating the traditional rule in New York which rigidly applies the two year suit limitation clause as a hard “cut off” of all potential claims.  However, the Court notes that where, as here apparently, it is not reasonably possible to complete the repairs within the two years, and fairness dictates that the clause be relaxed.  In writing for a unanimous Court, Judge Smith noted:

It is neither fair nor reasonable to require a suit within two years from the date of the loss, while imposing a condition precedent to the suit -- in this case, completion of replacement of the property -- that cannot be met within that two-year period. A "limitation period" that expires before suit can be brought is not really a limitation period at all, but simply a nullification of the claim. It is true that nothing required defendant to insure plaintiff for replacement cost in excess of actual cash value, but having chosen to do so defendant may not insist on a "limitation period" that renders the coverage
valueless when the repairs are time-consuming.

In reaching this conclusion, Judge Smith addressed the Court’s long standing opinion in Blitman Constr. Corp. v  Insurance Co. of N. Am. which rejected the insured’s argument that a 12 month suit limitation clause was “commercially unreasonable.”  The Court noted that in the Blitman decision, the insured was permitted to bring an action under the policy prior to completing the repairs.  Here, of course, plaintiff’s attempts to preserve its rights under the policy were dismissed as premature, per policy language.

Peiper’s Point  - It would appear that the Court is following the tried and true logic that one cannot have their cake, and eat it too.  If, as here, a carrier wishes to withhold RC payment until after repairs are completed, it cannot deny a claim where the repairs “reasonably” take more than two years to finalize.  What is “reasonable” is likely a question of fact, but we would propose that the burden would fall upon the insured – who is, after all, seeking to trigger the coverage. 

We would also note that if the policy (unlike the Peerless policy at issue) does not restrict an action that is commenced pre-completion, it would appear that, ala Blitman, the suit limitation clause applies as written.

Here is a link to the decision

02/07/14       Baluk v NY Cent. Mut. Fire Ins. Co.
Appellate Division, Fourth Department
Dispute Over Cost to Repair/Replace Property Damage does not Avoid Application of the Two Year Suit Limitation Clause

Plaintiff sustained property damage after a “puff-back” from a malfunctioning furnace.  Apparently, plaintiff and NY Central could not reach a compromise on the costs to repair/replace the damage.  Unfortunately for plaintiff, however, the instant action was not commenced until more than two years after the date of loss.  As such, it was untimely under the terms of the policy and summarily dismissed.


02/13/14       NY Hosp. Med. Ctr. of Queens v Microtech Contracting Corp.
Court of Appeals
Employer Who Pays Undocumented Employee Workers’ Compensation Benefits is Entitled to Section 11 Protection

From David Adams – H&F’s own self-aware, and admitted, Labor Law Addict…

Plaintiff New York Hospital Medical Center (“Hospital”) engaged defendant Microtech Contracting (“Microtech”) to undertake demolition in a basement room housing an incinerator at the Hospital's location in Flushing, Queens.  A Microtech "supervisor" met with brothers Luis and Gerardo Lema, and hired them to perform this work.  The Lemas, originally from Ecuador, were undocumented aliens not legally employable in the United States.  At the site, Microtech supplied the Lemas with a sledge hammer and a chipping gun, and explained what they were supposed to do.  The vibrations created by use of the tools given them dislodged a metal chimney or flue attached to the wall between 11 and 20 feet above the floor, which toppled, and struck them both. 

The brothers made claims for and received workers' compensation benefits, which Microtech's insurance carrier paid.  Additionally, the Lemas sued the Hospital for violations of the Labor Law.  The trial court granted the Lemas summary judgment on liability on their causes of action grounded in Labor Law §§ 240(1) and 241(6).  The parties thereafter entered into a high-low agreement at the ensuing damages trial, and after the verdict, the judgment was paid in keeping with this arrangement.  Meanwhile, the Hospital brought this action for common-law and contractual contribution and indemnification against Microtech, alleging that Microtech was performing the work pursuant to an agreement/contract with it; Microtech breached this contract/agreement and violated the Immigration Reform and Control Act (“IRCA”) when it hired the Lemas; the Lemas were injured solely on account of Microtech's negligence; and that Workers' Comp. § 11 did not preclude its lawsuit against Microtech.

In lieu of answering, Microtech moved to dismiss the Hospital's complaint on the grounds of documentary evidence and failure to state a cause of action, taking the position that Section 11 barred the Hospital's action because evidence showed that the Lemas did not suffer a grave injury and that Microtech did not enter into the requisite written contract providing for contribution or indemnification.  Microtech further argued that absent proof of a grave injury or contractual contribution or indemnification, the Hospital did not state a claim, and contended that non-compliance with IRCA (which it disputed) would not deprive it of the protection of Section 11 since the Workers' Comp. Law applies to all workers within the state's borders regardless of their immigration status.

In opposition to Microtech's motion, the Hospital did not argue that the Lemas suffered grave injuries or that Microtech had agreed in writing to contribution or indemnification.  Rather, the Hospital argued that Microtech should not be allowed to "hid[e] behind the language of Workers' Comp. § 11 after violating a federal statute" since "New York courts have long held that they will not award a plaintiff the benefit of an illegal bargain."  The trial court granted Microtech's motion to dismiss, reasoning that "[t]he exceptions to [Section 11's] bar of claims for indemnity and contribution (against an employer providing Workers' Comp. benefits such as Microtech) do not include the circumstance here; essentially that Microtech employed unauthorized aliens who were injured on the job."

The Hospital appealed to the Appellate Division, arguing again that Microtech may not "profit" from its violation of IRCA.  The Hospital more clearly argued conflict preemption – i.e., that permitting an employer who knowingly hires undocumented workers to enjoy the tort immunity conferred by Section 11 conflicts with IRCA's goal to discourage illegal immigration by decreasing employment opportunities for undocumented workers.  In response, Microtech first argued that Section 11 barred the hospital's claim, as stated by the trial court.  Next, Microtech countered that whereas hiring an undocumented worker knowingly or without verifying employment eligibility is unlawful and exposes an employer to penalties under IRCA, this circumstance does not make IRCA "conflict [with], contradict or supersede" New York's Workers' Comp. Law.  Microtech argued that since it is well-settled that Workers’ Comp. applies to undocumented aliens, the statute logically also covers the employer who hires undocumented workers.  Third, Microtech asserted that it did not “profit” form the alleged IRCA violation because it paid premiums to its insurance carrier to obtain medical care and compensation benefits for its employees, including the Lemas. 

The Appellate Division unanimously affirmed.  Although acknowledging that precluding Microtech from receiving the protections provided by Workers' Comp. § 11 for its violations of the IRCA might support the IRCA’s ultimate goals by punishing Microtech for failing to verify the Lemas' immigration status, the Appellate Division opined that affording Microtech the economic protections of Workers' Comp. § 11 would not stand as an obstacle to the accomplishment or execution of the full purposes and objectives of Congress such that Workers' Comp. § 11 should be considered preempted.  Further, to rule in the Hospital's favor would effectively deny Microtech the economic protections it acquired under the Workers' Comp. Law in return for providing the Lemas with compensation for their injuries, as well as relieve the Hospital of its responsibility to ensure a safe construction site for workers under the Labor Law.  Accordingly, the Appellate Division held that the IRCA violations alleged did not abrogate the protection from third-party claims afforded to Microtech by Section 11.  The Hospital appealed.  

Section 11 bars third-party lawsuits for contribution and indemnification against an injured employee's employer unless the employee suffered a "grave injury," limited to death and the exclusive list of disabilities defined in the statute, or the employer agreed to contribution and indemnification in a written contract entered into with the third party prior to the accident.

The Hospital chose not to assert conflict preemption in its brief to the Court of Appeals.  Rather, the Hospital argued that the employment contracts between Microtech and the Lemas were illegal contracts unenforceable in New York Courts.  Thus, Microtech may not defend this case on the ground that the Lemas were its employees and therefore the action is barred by Section 11.  According to the Hospital, Microtech violated federal law when it hired the Lemas without asking for any documentation showing they were authorized to work in the U.S. 

The Court of Appeals noted that it was not asked to enforce or recognize rights arising from an illegal oral employment contract between Microtech and the Lemas, and Microtech was not raising any such contract as a defense to common-law contribution or indemnification.  Moreover, Section 11 does not even require an underlying employment contract. 

The Court of Appeals stated that under New York’s workers’ comp. scheme, an employee receives medical benefits and compensation for workplace injuries, regardless of fault, paid for by the employer.  In exchange, the employee gives up the right to sue the employer for personal injuries.  Section 11 “now explicitly limits an employer’s exposure to third-party liability to those situations where the employee suffers a grave injury or the employer enters into a written contract of contribution or indemnification with the third-party.” 

In this case, the Lemas did not suffer grave injuries, there was no preexisting agreement for contractual contribution or indemnification, and the Hospital does not contend that IRCA preempts Section 11.  Therefore, Microtech is entitled to the safe harbor in Section 11, and the Court of Appeals affirmed the Appellate Division’s decision.

PRACTICE POINT:  The outcome appears to me to be logical; given that the employer did in fact pay comp benefits to the plaintiffs it seems as if they lived up to their portion of the bargain.  If the plaintiffs status as un-documented workers does not preclude a recovery for lost wages, and the employer is obligated to pay comp benefits to the same un-documented employees, is seems logical that the employer would be entitled to the protection of the exclusive remedy provided under Section 11 of the workers compensation law.  I do not see this case as causing a shift in the way that Labor Law cases are prosecuted or defended, but it is an issue to be aware of.

Here is a link to the decision

02/06/14       Heimbach v State Farm Insurance
Appellate Division, Fourth Department
Court Again Rules that “Entire Claims File” is In Play in SUM Litigation
Plaintiff appears to have commenced the instant claim seeking SUM benefits under a policy issued by State Farm.  As part of the action, plaintiff served a discovery demand which sought “entire claim file.”  When State Farm objected on the ground that the request was “palpably improper”, plaintiff moved to compel its production.  The trial court granted the motion in part, but on appeal the Fourth Department granted plaintiff’s motion in its entirety. 

In reaching this conclusion, the Court noted that the “entire claim file” was “material and necessary for the prosecution of plaintiff’s action.”  The court went on to state that State Farm failed to meet its burden of establishing privilege and/or other exemptions.  Finally, the Court ruled that that actual “claims handler” responsible for plaintiff’s claim be compelled to appear at a deposition.

Peiper’s Point – This yet another case in an ever expanding trend to breakdown traditional barriers and protections of claims files.  For those of you facing a demand for documents, materials and other items which are vital to the carrier’s business interests, you would be well-advised to seek protection from the Court early on in the litigation.  The burden, as noted by the Court, is on the party seeking to avoid disclosure.  To meet the burden, the carrier must establish the general description of the exact documents withheld, and provide a concrete explanation as to why the items sought are irrelevant.  Generally, if the carrier moves expeditiously to protect its file, one can protect claims manuals, internal claims documents, communications with counsel, and proprietary documentation related to reserves, valuation and litigation strategy. 

All too often, however, insurers simply state that the documents are privileged.  That, as made crystal clear by the Court, is not enough to establish the protection. 

02/04/14       Pipia v Turner Construction Company
Appellate Division, First Department
Although Plaintiff Never Actually Fell From a Height, Labor Law § 240(1) Applied Anyway
Plaintiff sustained injury when he fell while working on a barge/platform that was afloat in a narrow waterway between Governor’s Island and Brooklyn.  As the incident occurred on navigable waters, plaintiff was entitled to, and received, workers’ compensation benefits under the Longshore and Harbor Workers’ Compensation Act (LHWCA).  Accordingly, plaintiff’s claims against his employer were dismissed under Federal Law (in a manner that is akin to NY Workers’ Compensation Law’s exclusivity protections).  

In addition, federal maritime law also precluded plaintiff’s Labor Law §§ 240(1) and 241(6) claims against owner of the barge/float, Trevcon.  Although rudimentary in look, the Court concluded that it still qualified as a “vessel” because it was designed to, and in fact did, carry people and things across water. 

On the other hand, plaintiff was permitted to assert claims under Labor Law § 200/common law negligence against Trevcon.  However, where plaintiff was unable to establish either (a) that the float presented a dangerous condition or (b) that anyone from Trevcon supervised, directed or controlled the actual work being performed by plaintiff it followed that any such claims were dismissed on motion.

With respect to the owner and general contractor, however, federal maritime law did not prohibit plaintiff proceeding in a Labor Law claim against the owner of the project Governor’s Island Preservation and Education Corporation (GIPEC) and the general contractor at the site, Turner Construction.   Although plaintiff’s fall was limited to the same level he was working on (the float), nonetheless the Court found that the loss was “gravity related” because the fall was caused by plaintiff’s efforts to avoid falling off of the float and into the water below.  As there was a finding of Labor Law § 240(1) against Turner and GIPEC, the Court did not address the Labor Law § 200 or §241(6) that were also asserted.

It is noted that the Court found Turner liable under Labor Law § 240(1) even though the contract entered into between Turner and GIPEC identified Turner as a consultant.  Because Turner was required to hire all subcontractors, manage the project, and assure compliance with time requirements, the Court reasoned that Turner was acting as a general contractor, and thus within the scope of the statute.

Finally, due to a quirk in the LHWCA, the owner of the vessel, Trevcon, was barred from prosecuting a contractual indemnification claim against plaintiff’s employer.  GIPEC and Turner also asserted contractual indemnity claims against plaintiff’s employer.  Although not barred by the LHWCA, in the current instance, neither party could establish that plaintiff’s employer clearly agreed to provide indemnity to either party.  In so holding, the Court noted that contract plaintiff’s employer entered into with Trevcon did, in fact, contain language which purported to incorporate the terms of the GIPEC/Trevcon contract.  However, where, as here, the incorporation clause at issue did not explicitly reference the indemnity rights of GIPEC/Turner neither party could present a viable indemnity claim. 

Elizabeth A. Fitzpatrick
[email protected]

02/05/14       Carl E. Woodward LLC v. Acceptance Indemnity Insurance Co.
(2014  WL535726  5th Circuit Court of Appeals)
No Duty to Defend Construction Defect Claims
In Woodward, the Court addressed the availability of insurance coverage for claims arising from allegations of negligent construction of a condominium project in South Mississippi.  The Fifth Circuit, applying Mississippi Law, ultimately determined that there was no duty on the part of the Commercial General Liability (CGL) insurer to defend the general contractor, as an additional insured on the subcontractor’s policy. 

The underlying facts relevant to the coverage issue are as follows.  Pass Marianne, LLC contracted for the construction of condominiums on the Mississippi gulf coast, retaining Carl E. Woodward.  Woodward sub-contracted with DCM Corporation for the performance of concrete work.  In November 2005, DCM obtained a CGL policy from Acceptance Indemnity Insurance Co.  DCM was present on the project from January to October 2006 and the entire project was completed in August 2007.  In October 2007, Pass Marianne sold the condominiums to Lemon Drop Properties.

Approximately one year after purchasing the condominiums, Lemon Drop sued Pass Marianne and Woodward seeking recession and actual and punitive damages for breach of contract and gross negligence.  Pass Marianne filed a cross-claim against Woodward alleging faulty construction and damage arising out of the construction.  The claims were eventually arbitrated with one of the most significant issues in the arbitration being the fault of the concrete sub-contractor, DCM. 

Woodward was an additional insured on the CGL Policy issued by Acceptance to DCM.  After Pass Marianne asserted the cross-claims against Woodward, Woodward demanded defense and indemnity from Acceptance.  Acceptance responded, refusing to defend Wood based upon the following pertinent policy language in the CGL Policy issued to DCM. 

“Who is an insured is amended to include as an insured the person or organization shown in the schedule [Woodward], but only with respect to liability arising out of your on-going operations performed for that insured.” (Emphasis added.)

In its declination, Acceptance also noted that with respect to the subcontract agreement between Woodward and DCM, substantial completion of the subject property occurred on August 6, 2007, subsequent to the policy expiration date. 

The Court, in addressing the issue of the duty of Acceptance to defend Woodward, noted the following pertinent language in the endorsement.

This insurance does not apply to “bodily injury” or “property damage” occurring after: (1) all work, including materials, parts or equipment furnished in connection with such work, on the project…to be performed by or on behalf of the additional insured (s) at the site of the covered operations has been competed;….”

The Court addressed only the issue of Acceptance’s duty to defend.  After discussing Mississippi rules of construction for the interpretation of an insurance policy, the Court discussed the plain language of the policy, which provides coverage only when damages occur during the policy period and noting the requirement that liability arise out of ongoing operations.  The Court agreed with a decision applying Mississippi Law that policy language providing coverage for liability arising out of your work requires only a causal connection to your work.  The Court further noted that the claim for liability need not be alleged during ongoing operations, but the claims must be causally related to the ongoing operations.  

Citing a decision of the Mississippi Court of Appeals in Noble v. Willington Associates, 2013 WL 6067991 and a recent decision from Mississippi Court of Appeals entitled W.R. Berkley Corp. v. Rea’s County Lane Construction Inc., 2013 WL 3884909, the court found that the claims of Pass Marianne sounding in fraud, defamation and breach of contract did not arise out of DCM’s ongoing operations of work for the condominiums. 

The Court also noted Pass Marianne’s allegation that the foundation piers did not conform to specifications, noting that such was a claim of a construction defect.  The Court noted the distinction between a performance bond, a form of insurance that guarantees the completion of the general contractor’s work on the property, with a CGL Policy, which generally protects the insured when his work damages someone else’s property.  The Court noted that the “your work” exclusion prevents a CGL Policy from morphing into a performance bond covering an insured’s own work. 

The Court concluded that while Woodward’s liability for the alleged damages was causally related to DCM’s operations, the damage here arose from completed operations, which was specifically excluded by the terms of the policy.  Because Pass Marianne’s claims fell outside the coverage of the additional insured endorsement, the Court concluded that Acceptance had no duty to defend Woodward.

02/05/14       Root v. Balfour Beatty Construction, LLC
(2014 WL 444005, Florida Appellate Court)
Facebook Requests Overbroad
Tonia Root, on behalf of her three year old son, brought an action against a construction contractor, as well as several subcontractors, for damages that the three year old suffered when he was struck by an oncoming vehicle in front of the construction site.  At the time of the accident, her son was under the care of his 17 year old aunt.  Tonia alleged that the defendants were negligent in failing to use reasonable care in keeping the construction site safe for pedestrians and alleged derivative claims for loss of parental consortium.

During the course of discovery, the defendants sought copies of postings on Tonia’s Facebook account, including counseling or psychological care obtained by Tonia before or after the accident, postings, statuses and “likes” or videos related to Tonia’s relationships with her three year old son, Gage, or her other children, both prior to, and following the accident, as well as with other family members and significant others, both prior to, and following the accident, as well as mental health, stress complaints, alcohol use or other substance use both prior to and after the accident and postings related to any lawsuit filed after the accident by Tonia Root.  Root argued that the categories were overbroad and required production of personal information irrelevant to her lawsuit and not likely to lead to the discovery of admissible evidence.  After noting that trial courts around the country have repeatedly determined that social media evidence is discoverable, the court noted that under the basic principles for evaluating discovery in Florida, the party seeking discovery must establish that it is relevant to the case’s subject matter and admissible in court or reasonably calculated to lead to evidence that is admissible.  The court found that the defendants had not met the burden as to the requested discovery.  The court also noted that the objected to discovery did not pertain to the accident, itself, or the defendant’s affirmative defenses, but rather related to Tonia’s past and present personal relationships, past and present mental health and use of alcohol or other substances and lawsuits filed by her.  The court thus quashed the objected to discovery finding that should further developments suggest that the requested information maybe discoverable, the trial court may have to review the material and camera and fashion appropriate limits and protections regarding


Audrey A. Seeley
[email protected]

02/6/14         Intervest Constr. of Jax, Inc. v. General Fidelity Ins. Co.
Supreme Court, Florida
Insured Can Satisfy SIR With Indemnity Payment And Maintains Superior Right Under Transfer Of Rights Provision In Policy.
The Florida Supreme Court was asked to answer the following two questions certified by the United States Court of Appeals, Eleventh Circuit:

  1. Whether the insurance policy at issue permits the insured to apply indemnification payments received from a third-party toward satisfaction of a self-insured retention (SIR)? and


  1. If the payments can be used toward the SIR, does the transfer of rights provision in the policy provide superior rights to be made whole to the insured or the insurer?

The underlying action giving rise to the insurance coverage dispute was a bodily injury suit against ICI Homes, Inc. (ICI) by an injured homeowner, Katherine Ferrin (Ferrin).  ICI contracted with Ferrin to construct a residence.  ICI contracted out that portion of the trim work, including attic stair installation, for the residence to Custom Cutting, Inc. (Custom). 

The contract between ICI and Custom contained an indemnity provision running ICI’s favor for any damages resulting from Custom’s negligence.

Ferrin sustained bodily injury when she fell using the attic stairs Custom installed.  Since ICI was the only named defendant in the suit it sought indemnity from Custom pursuant to the contract.

Custom had a CGL Policy with North Pointe Insurance Company (North Pointe) but ICI was not an additional insured under that policy.  ICI was insured with General Fidelity Insurance Company (General Fidelity) and that CGL policy contained a $1 million SIR.  The SIR endorsement provided that General Fidelity would only afford coverage after the SIR was exhausted.  Also, the policy contained a transfer of rights provision which granted the insurer some subrogation rights.

During mediation, a $1.6 million settlement was reached with North Pointe paying ICI, $1 million to resolve the contractual indemnity claim ICI had against North Pointe’s insured, Custom.  Thereafter, ICI would pay that $1 million to Ferrin.  A dispute arose though over whether General Fidelity or ICI was responsible for the remaining $600,000.  Each entity paid $300,000 toward the settlement but reserved the right to commence an action against the other to recoup their contribution to the settlement.

The provision of the SIR endorsement that was heavily discussed by the Court, as well as the Eleventh Circuit, was:


  1. We have no duty to defend or indemnify unless and until the amount of the “Retained Limit” is exhausted by payment of settlements, judgments, or “Claims Expense” by you.

The crux of the dispute was whether this provision required ICI to pay the “Retained Limit” from its own funds or whether those funds could come from a third party’s indemnification.  With no Florida case on point and the Court recognizing the Eleventh Circuit’s concern that none of the California cases on this issue presented before it were on point as those cases had policy language materially different from the General Fidelity policy, the Court held that the General Fidelity policy permitted ICI to apply indemnity payments toward satisfaction of the SIR.  The Court reasoned that the contract between ICI and Custom was entered into six years prior to the General Fidelity policy’s issuance.  ICI paid for indemnity protection in the purchase price of the contract with Custom, thus hedging its retained risk in this manner.  The General Fidelity policy did not contain any provision that expressly required ICI itself, and not another insurer, to pay the SIR.  Thus, the indemnity payment by North Pointe to ICI could be applied to satisfy ICI’s SIR under the General Fidelity policy.

Next, the Court turned to the question of who had superior rights to be made whole.  The General Fidelity policy provision being interpreted provided:

8.       Transfer Of Rights Of Recovery Against Others To Us

If the insured has rights to recover all or part of any payment we have made under this Coverage Part, those rights are transferred to us.  The insured must do nothing after a loss to impair them.  At our request, the insured will bring ‘suit’ or transfer those rights to us and help us enforce them.

ICI argued that it had priority to the indemnification funds as at the time ICI received the indemnity payment General Fidelity had not made any payment.  Second, ICI argued that the policy did not abrogate the “made whole doctrine.”  General Fidelity argued that the transfer of rights provision does abrogate the common law “made whole doctrine.”  The “made whole doctrine,” which Florida has acknowledged application of, provides absent a controlling contractual provision stating otherwise the insured has priority over the insurer to recover damages when there is a limited amount of indemnification available.

The Court held that the transfer of rights provision did not expressly address the priority of reimbursement and did not expressly provide that it abrogates the “made whole doctrine.”  Thus, ICI had the superior right.


Cassandra A. Kazukenus
[email protected]

S06545 – Certificates of Insurance

The Senate Insurance Company advanced to the floor this week seeking to add an Article 5 to the Insurance Law, which would pertain to certificates of insurance.  The legislation defines a certificate of insurance as “any document or instrument, no matter how titled or described, which is prepared or issued by an insurer or insurance producer as evidence of property or casualty insurance coverage.”  Specifically, the legislation clarifies that a certificate of insurance is not a policy of insurance and it “does not amend, extend or alter the coverage provided by the policy of insurance to which the certificate makes reference.” 

The legislation would include a new provision, Insurance Law §502, which would prohibit a person or governmental agency from preparing, issuing, requesting or requiring the issuance of a certificate if it knows the certificate does not comply with the following:

  1. The certificate is a standard certificate of insurance authorized by ACORD or ISO;
  2. The certificate is a form created by the carrier that has underwritten the policy referenced in the certificate; and
  3. The certificate is a form prepared, issued or requested as evidence of insurance in connection with a commercial lending transaction where the property insured under the policy serves as the primary collateral to securing the borrower’s repayment of the loan;


Further, proposed §502 would prohibit a person or governmental entity from altering, modifying, requesting or requiring the alteration of a certificate of insurance where the person or governmental entity would know that such alteration is a violation of this provision.  Likewise, no person or governmental entity may request or require that the certificate of insurance contain additional terms, conditions or language of any kind not found in the policy referenced in the certificate or an endorsement to the policy when the person or entity knows such request is in violation of this article.  Likewise, the new provision would also prohibit a person or governmental entity from requesting or requiring a certificate of insurance to reference a contract other than the policy or warrant that the policy will comply with the requirements of a particular contract.  However, the certificate may contain a contract title or description for the sole purpose of identifying the project for which the certificate was issued. 

The proposed legislation also includes an enforcement provision, §504.  This would allow the superintendent to have the power to examine and investigate the activities of any person reasonably believed to have been or is engaged in an act or practice prohibited above and will have the authority to impose any authorized penalty or remedy provided under Financial Services Law §408. 

Katherine A. Fijal
[email protected]

02/10/14       Certain Underwriters v Illinois National Ins. Co.,
United States Court of Appeals – Second Circuit – New York
Choice of Law – New Jersey Law Applied.
At issue on appeal are two insurance policies:  the Insurance Company of the State of Pennsylvania [“ICOSP”] automobile insurance policy issued to Norbert Trucking; and, Continental Casualty Company’s [“Continental”] Umbrella policy.  The United States District Court of Appeals for the Second Circuit [“Court”] was asked to consider whether applying New York’s choice-of-law principles would result in an application of New York or New Jersey law when interpreting the subject policies.

To determine which State’s law governs an insurance contract, New York applies a “center of gravity” approach, according to which “the spectrum of significant contacts – rather than a single possibly fortuitous event – may be considered.”  The Court pointed out that along with the traditionally determinative choice of law factor of the place of contracting, the New York Court of Appeals has endorsed the following factors which are identified in the Restatement [of Conflict of Laws]:  the places of negotiation and performance; the location of the subject matter; and the domicile or place of business of the contracting parties.

In applying these principles to ICSOP’s automobile insurance contract with Norbert Trucking, the Court found it apparent that New Jersey law applies.  The policy was issued in New Jersey and covers vehicles registered and garaged in New Jersey.  Moreover, the insured’s principal place of business was New Jersey.  In summary, all relevant contacts under New York’s “center of gravity” approach favor the application of New Jersey law.

ISCOP argued that New York law should govern because that is where the accident giving rise to the underlying personal injury suit occurred.  The Court disagreed and stated that ISCOP’s reliance on New York as the situs of the accident confuses the contacts that might be significant in a tort case with those that are material in a contract dispute. 

As to Continental, it acknowledged that its policy is governed by the same law as the ISCOP policy; and, Continental did not provide any compelling reasons to conclude that the Continental policy is any more connected to New York than is the ICSOP policy.

Accordingly, New Jersey law governs both the ISCOP and the Continental policies.

02/05/14       Martin, Shudt, Wallace, Dilorenzo & Johnson v. Travelers                              Indemnity
United States District Court, Northern District New York
Voluntary Parting Exclusion Applies to Preclude Coverage
The Businessowners Property Coverage Special Form issued by Travelers Indemnity Insurance Company of Connecticut [“Travelers”] provides that Defendant will pay for direct physical loss of or damage to Covered Property, including money or securities, caused by or resulting from a Covered Cause of Loss.  Covered Causes of Loss includes “risks of direct physical loss”, but excludes “loss or damage caused by or resulting from . . . [v]oluntary party with any property by your or anyone else two whom you have entrusted the property.”

In June 2012, Plaintiff lost $95,000 when someone tendered to Plaintiff what appeared to be a cashier’s check for $95,000, payable to Plaintiff.  Plaintiff believed the check represented a payment of funds owed to one of Plaintiff’s clients. Plaintiff deposited the check into its client escrow account, and after the funds were made available by the depository bank, Plaintiff wired $94,470.00 to a third-party’s bank account as instructed by the purported client.

Soon thereafter, Plaintiff learned that the $95,000 check was forged, and the bank charged Plaintiff’s account $95,000.  Further investigation revealed that this was an act of larceny.

Plaintiff submitted a claim to Travelers; and, Travelers denied coverage under the “Voluntary Parting Exclusion”.  Plaintiff contends that the Voluntary Parting Exclusion does not clearly exclude losses resulting from larceny by fraud or false pretense, and that the policy could reasonably be interpreted to cover Plaintiff’s loss.

The Court noted that on its face, the Voluntary Parting Exclusion unambiguously encompasses Plaintiff’s loss.  Plaintiff wired the funds at issue to another bank account, thereby voluntarily parting with the funds.  The Court stated that Plaintiff’s reliance on misrepresentations or false pretenses did not alter the voluntariness of that parting.

Although Travelers provided an extensive list of cases finding that a “voluntary parting” with property exclusion encompasses larcenies by false pretenses or fraud; Plaintiff responded that the cases did not support Defendant’s position because the exclusions in those cases contained explicit references to losses induced by scheme, fraud or trick, and the Travelers Voluntary Parting Exclusion lacked any such reference. Absent any such reference, Plaintiff argued, the exclusion was ambiguous. Plaintiff suggested that the Voluntary Parting Exclusion could reasonably be interpreted to encompass only gifts, loans or bailments of property.

The Court held that plaintiff’s argument failed for two reasons:  (1) the Voluntary Parting Exclusion applies to any voluntary parting with property, therefore, the exclusion was broader than those with additional limiting language; (2) Plaintiff’s proffered alternative meaning was not reasonable. The Court concluded that a reasonable insured would not expect the policy to consider a gift, loan, or bailment a “covered cause of loss” and therefore, would not expect the policy to contain an exclusion for gifts, loans or bailments. The Court stated that it would not use the strained an unnatural reading offered by Plaintiff to create ambiguity where there was none.

Plaintiff further argued that the policy must be interpreted consistent with Plaintiff’s reasonable expectations that the loss would be covered; arguing that the theft provisions of the policy clearly left the ordinary insured with the expectation that thefts of all kinds would be covered – including all types of larceny.  The Court disagreed, noting that none of the provisions referred to by Plaintiff defined theft, and although they implied that theft can constitute a direct physical loss, the Voluntary Parting Exclusion excludes loss caused by voluntary parting with property, regardless of whether those losses resulted from theft.  Furthermore, the Court could not find any specific provision of the policy defining theft or larceny in a way that would render the Voluntary Parting Exclusion inapplicable to the loss.  The Court held that the policy’s language was unambiguous, and that Plaintiff’s extrinsic discussion of theft and larceny was irrelevant to its interpretation.


Jennifer A. Ehman
                                            [email protected] 

02/05/14       Hermitage Ins. Co. v. Difuccia
Supreme Court, New York County
The Term “Vandalism” Found To Be Ambiguous When Applied To Fire Loss
This decision arises out of an alleged arson.  While it is clear from the decision that the carrier believed the fire was intentionally set by the insured, likely due to concern about its ability to prove that on summary judgment, Hermitage focused on the vacancy provision instead.  The policy at issue provided that “[i]f the building where loss or damage occurs has been vacant for more than 60 consecutive days before that loss or damage occurs:…(1) We will not pay for any loss or damage caused by any of the following even if they are Covered Causes of Loss:…(a) vandalism.”  A building was then defined as vacant unless at least 31% of its total square footage was “(i) rented to lessee or sub-lessee and used by the sub-lessee to conduct its customary operations; and/or (ii) used by the building owner to conduct customary operations.”

Here, the fire occurred on January 20, 2011, but, prior to the fire, on November 8, 2010, the Department of Housing and Buildings of the City of Yonkers issued an order of condemnation for the premises which required all tenants to vacate the premises by November 19, 2010. 

In opposition to this motion, defendant submitted affidavits from tenants that they continued to remain in the building after November 19, 2010 and, even after they left, their personal property remained. 

While the court questioned the credibility of some of the affidavits, it held that on a motion for summary judgment a court is not to decide credibility.  Thus, the court was unable to determine whether the building was vacant for at least 60 days before the fire. 

Also, the court found the term “vandalism” ambiguous as it was unclear whether it included damage by fire.  In turn, the court held that it would be up to the finder of fact to determine whether a reasonable and ordinary business person would view “vandalism” and “arson” as separate and distinct from one another, for the purpose of the vacancy exclusion, where the explicit word “arson” is not used at all in the policy. 

01/22/14       W2001Z/15 CPW Realty, LLC v. Lexington Ins. Co.
Supreme Court, New York County
Delay-In-Completion Endorsement Covers Delay In The Entire Project, Not Individual Portions
Plaintiff seeks insurance benefits under builder’s risk insurance policies issued by defendants to cover a large luxury condominium owned by plaintiff.  In exchange for an additional premium, the policies included a delay-in-completion endorsement that covered monetary losses sustained by plaintiff as a result of delays in completion of the construction complex that were caused by direct physical loss or direct physical damage to the insured project. 

In June 2007, during construction of the project, a water leak due to faulty workmanship caused physical damage to two units.  Pursuant to the policies, defendants compensated plaintiff for the damages caused by the loss.  Thereafter, a second water leak occurred in August 2007, which caused more extensive damage and affected two more units plus the lobby, foyer and concierge space.  

Plaintiff brought this action seeking to recover over $6,000,000 for lost income allegedly incurred because of delays in the closing of 84 units caused by the water leaks.  Plaintiff also sought recovery for costs associated with the retention of a separate company to investigate and test the compression adaptors and sweat joints in order to prevent similar leaks. 

While, again, defendants agreed to pay for the physical damage caused by the leaks, it declined to pay the additional amounts.  Plaintiff’s claim centered on the delay-in-completion endorsement.  It argued that the endorsement was triggered by any delay-in-completion of a particular portion of the insured project.     

In considering this argument, the court held that the delay-in- completion endorsement requires plaintiff to establish that there was a delay in completion of the insured project as a whole, and that the delay was caused by a direct physical loss or direct physical damage to the insured project.  Nothing in the policies could be interpreted as tying the date of completion to a closing date on a particular unit, rather than the entire insured project.  Since the whole unit was ready for occupancy prior to the policy’s completion date, there was no delay triggering coverage.

The court also agreed with defendants that the alleged delays were not caused by direct physical loss or direct physical damage to 80 of the individual units.  The physical damage was limited to four units, the lobby and the concierge space.  The Court rejected the argument that since these areas are common areas in which the unit owners have an undivided interest, their units also suffered a direct physical loss. 

The court then went on to also grant summary judgment to defendants on plaintiff’s claim seeking recovery of the investigation and testing costs.  The court noted that the policies contained faulty workmanship exclusions.  As the parties agreed that the leaks were caused by the faulty workmanship of the HVAC subcontractor, plaintiff’s expenses included in investigating and repairing the cause of the leaks were excluded from coverage. 

Lastly, the court addressed plaintiff’s final claim for consequential damages.  It noted, at the onset, that plaintiff failed to identify what damages it sustained which it believed were a consequence of defendants’ breach.  Plaintiff did not establish that it sustained any damages separate and apart from those it believed were covered under the policy.  Moreover, it failed to identify any conduct by defendants that might be held to constitute a failure to act in good faith.   An insurer’s failure to pay a claim in its entirety, when based on a difference in interpretation of the policy terms, does not constitute bad faith. 


Bad Faith

02/10/14       Liberty Mut. Fire Ins. Co. v. JT Walker Industries, Inc.
United States Court of Appeals, Fourth Circuit
Punitive Damages For An Insurer’s Bad Faith Can Be Awarded Even If The Insured Suffered No Actual Damages Under South Carolina Law
Liberty brought this action seeking reimbursement under its insurance policies after settlement of five product defect lawsuits.  Despite its insured’s insistence on taking the cases to trial, Liberty settled all five within the deductible limits of the applicable insurance policies.  When the insured refused to pay these amounts, Liberty commenced this action asserting breach of contract.  The insured then counterclaimed alleging that Liberty breached the terms of the policy and the implied covenant of good faith and fair dealing. 

A jury found both parties liable for contract damages and also found Liberty liable for actual and punitive damages on the insured’s bad faith claim.  After the District Court affirmed the breaches of contract, but set aside the bad faith damages, this appeal resulted. 

The court considered the issue of actual and consequential damages for bad faith separately from punitive damages.   With regard to the first, the court held that to recover actual or consequential damages, the evidence must enable the jury to determine the amount of damage with reasonable certainty or accuracy.  Here, the insured presented no evidence that the defense costs were overstated or that it would have prevailed had it proceeded to trial in the underlying cases.  Without substantial evidence supporting a finding that it would have either prevailed in the underlying lawsuits or spent less than the settlement amounts on defense and liability, the insured failed to show that it suffered damages due to Liberty’s decision to settle.  Of note, the court rejected the insured’s argument, which relied on Washington law, that it was Liberty’s burden to prove damages in instances of bad faith refusal to settle since the insurer stands in a better position of knowing the costs of litigation.

However, while the court did not find actual or consequential damages, it still went on to hold that they are not required for an award of punitive damages.  Even if the plaintiff has suffered no damage, a court may award punitive damages in bad faith tort actions for conduct willful, wanton, or reckless in disregarding a plaintiff’s rights.  Thus, in reversing the district court decision, which entirely relied on a finding of no actual damages in setting aside the award of punitive damages, the court directed that the issue be remanded to the district court for a determination as to whether the evidence supported the jury’s finding that Liberty engaged in willful, wanton, or reckless conduct.    

Earl K. Cantwell

[email protected]


Gibbs v. Allstate Insurance Co.,2013 WL 6244683 (Cal. Ct. App., 5th District, November 22, 2013).

The Gibbs were extensively remodeling their house, and during that process a fire loss event occurred.  They eventually filed suit against Allstate to recover additional losses and also additional living expenses.  Allstate defended on grounds, inter alia, it had already paid $24,000.00 in living expenses, but also that the policy had been voided by misrepresentations by the insureds as to their living arrangements because they were living in a pool house prior to the fire due to the remodeling.  A jury agreed and found for Allstate, and this decision was affirmed on appeal.

The insureds raised issues with the testimony of certain witnesses, but those issues were deemed for a jury not an appellate court to rule upon.  There was sufficient evidence that the insureds were living in the pool house before the fire.  Therefore, the insureds made a material misrepresentation when they submitted a claim for additional living expenses for having to live in the pool house.  The trial court judgment was affirmed, and Allstate was awarded costs of the appeal.

The lessons of this case are that material misrepresentations in a policy application, or in a claims submission, may provide valid grounds for both denying claims and potentially voiding a policy.  Particularly on a significant loss, it may be advisable to review the policy application to determine whether correct information was provided to underwriting, or whether the policy application contains material misrepresentations.  Likewise, false or fraudulent claims submissions may provide grounds for denial that will stand up under regulatory or legal scrutiny

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