Coverage Pointers - Volume XV, No. 19

Dear Coverage Pointers Subscribers:

Do you have a situation?  We love situations.  Send them along.

An early Happy St. Patrick’s Day to the usually Irish and the temporarily Irish.

Greetings from Naples, Florida where I had been attending the Federation of Defense & Corporate Counsel Winter Meeting and just plain hiding out from snow and cold.  On Saturday, I’ll be on my way to Indianapolis for the PLRB Claims Conference.

This week’s issue includes a case involving the rarely invoked, Prompt Pay Law, which presents ominous threats of future litigation.

News Flash:

We’re delighted to announce that we’ve added yet another fabulous attorney to our state-wide litigation department and to our coverage team, a lawyer with superb depth in coverage, regulatory and tort analysis.

Joel Appelbaum Joins Hurwitz & Fine and its Coverage Team:

Hurwitz & Fine is pleased to welcome Joel R. Appelbaum to the firm’s ever-growing Insurance Coverage Practice Team. Joel brings extensive experience in coverage, regulatory and tort claims analysis, trial preparation strategy, declaratory judgment actions, arbitrations and mediations. Having worn many hats and advised both carriers and law firms extensively in claims handling and operational efficiencies, Joel is a dynamic facilitator and coach on best practices for the insurance coverage industry. He has been a highly respected corporate counsel, an insurance carrier claims and coverage attorney and managing partner at his own firm. He has tried high-exposure cases, acted as primary coverage counsel for multi-state insurer clients and has litigated and arbitrated all issues relating to coverage.

Joel served as Corporate Claims Counsel for seven and a half years directing coverage litigation that included personal lines, commercial lines, trucking, and watercraft coverages. He lectured extensively on coverage and litigation management at Progressive for claim departments in New York, Florida, New Jersey and at its Corporate Headquarters in Ohio.

He also served as Corporate Counsel for Global Liberty Insurance Company addressing regulatory matters and coverage litigation.

As Of Counsel to the firm, Joel will be handling complex coverage work, civil trials, arbitrations and other similar matters from his office in Orange County and will cover the Poughkeepsie, Newburgh, Middleton and New York metropolitan areas, as well as assisting as necessary the firm’s Albany and Long Island offices. We enthusiastically welcome Joel to the team and hope you will welcome him as well. He can be reached at [email protected].

Continuing Education:

With K2 out of the way and the Court of Appeals giving us a break this week let’s discuss some upcoming education programs, in order of their scheduling:

PLRB Claims Conference – Indianapolis – March 16-19:

Over the years, we have had the good fortune of meeting many Coverage Pointers subscribers at PLRB Claims Conferences.  We hope and trust that this year is no exception.  I am delighted to partner with Kipper Burke, Div. VP & Sr. Claims Counsel
Great American P&C Group, for a second year, for an expanded presentation entitled and described as follows:

Contractual Indemnity Provisions & Additional Insured Liability Coverage
Session Code:  1055    Session Level:  Intermediate
Monday                1:30 - 5:00     -- Grand 2 & 3
Wednesday         8:30 - 12:00   -- Grand 2 & 3

  • Distinguish between an insurer's obligations to those who qualify as additional insureds and those who benefit from contractual indemnity obligations
  • Evaluate how tenders of defense and indemnity should be made under both policy and trade agreement
  • Describe the protocols to be considered when tenders are received under both insurance policy and contract
  • Identify the relevant factors when sending or receiving tenders

 

This will be a hands-on workshop, using real-life examples, and those who attend will leave with a practical and useful approach to the interrelationship between contractual indemnity and additional insured obligations.  We will be discussing tenders of defense and indemnity under both trade contracts and policies and strategic responses to tenders received.

The pre-registration for these two programs approaches 110 already.  Please stop by and say “hello”.  Let me know ahead of time if you plan on attending so we can say “hello”.

FDCC Litigation Management College:

Registration is now open for the premier Litigation Management College, conducted by the Federation of Defense & Corporate Counsel at Emory University in Atlanta, to be held June 8-12, 2014. The registration fee for both the College and Graduate programs is $995 ($1095 after April 15, 2014), which covers all educational sessions, course materials, snacks and beverages, receptions and meals. The College is held at the Emory Conference Center. 

This is not your typical “sit and take notes” seminar—it is a rigorous week for professionals interested in upgrading their skill set. There will be in depth sessions on preparation of case plans, budgeting, negotiation, evaluating liability exposures, insurance coverage issues, among others. Students will also gain hands-on experience negotiating in mediations, presenting to the group, and giving depositions. Each LMC student will also give a videotaped mock deposition.  This is an interactive program where all students are engaged and actively participate in all of its phases. 

This year’s program will feature negotiation expert, Marty Latz, who will teach the art of negotiation tactics and strategy. 

Click for additional information and on-line registration.

You will leave exhausted and excited – having learned lessons that you’ll use for a lifetime and having met new friends. Seating is extremely limited so register early, and save $100 by doing so. 

Note that there are two tracks during the College, which also offers a Graduate Program for claims professionals who have already completed the College program, or managers with over 10 years of claims management experience. 

For information, contact:

Todd A. Roberts
Dean of Admissions
[email protected]

DRI -- INSURANCE 101 – Three Part Webcast Series:

Just announced, by popular demand, the DRI Insurance Law Committee Insurance 101 series will return this summer.  Highly successful and extremely well received in 2013, this is a series of live programs that can be watched from the convenience of your offices or homes.  This three-part series will provide a terrific opportunity to introduce a broadly defined educational program for claims professionals and attorneys alike. Diary these dates:

  • 7/09/14 Insurance 101: The Duty to Defend
  • 7/16/14 Insurance 101: What You Always Wanted to Know About Policies
  • 7/23/14 Insurance 101: Coverage and Bad Faith Lawsuits

 

Shaun McParland Baldwin from the Tressler firm and I will be a presenting the July 16 program which will include discussions on:

  • What coverage is provided under a Commercial General Liability Policy, Workers’ Compensation and Employers Liability Policy, Employment Practices Liability Insurance Policy, Business Auto Policy, Directors and Officers Liability Insurance, Property Insurance Policy, Homeowner’s Policy, Personal Auto Policy, and Umbrella and Excess Policies, and how to read those policies;
  • Methodology to isolate and analyze coverage questions;
  • How courts typically construe policies of insurance, including the common rules of interpretation and construction

 

Beth’s Bitz:

It was wonderful to see so many of you last week at the Federation of Defense & Corporate Counsel conference in sunny Florida.  While I don’t expect that we will be feeling the warm temperatures that we were treated to in Florida here on Long Island anytime soon, I am confident that the worst is behind us, particularly with Spring a mere week away.

Keeping with the theme of sunshine and palm trees and as a belated Happy Fat Tuesday, I bring you a case from (where else) the Circuit Court in Louisiana involving the applicability of the “coconut exclusion” in a policy issued by Lloyds to the Zulu Social Aid and Pleasure Club arising out of the errant throwing of a coconut by a rider in the Zulu parade which hit the plaintiff in the face, allegedly causing injuries.  Faith Brooks, et al. v. Zulu Social and Pleasure Club, Inc., et al., Court of Appeals, Fourth Circuit, State of Louisiana, March 6, 2013. 

In a decision from the District Court of Maryland, M. Consulting and Export, LLC v. Travelers, 2014 WL 793980 decided February 27, 2014 the Court granted Traveler’s motion for summary judgment finding that coverage was not available under a Commercial General Liability Policy for a claim that arose when the insured, Wine and Spirits Expo, LLC d/b/a Cork N Bottle, failed to fulfill its contract with Plaintiff, M. Consulting and Export, LLC to provide 500 cases of sparkling wine. The Court found that the claim did not qualify as an “occurrence” and neither was “property damage” sustained.  Additionally, the Court found that even were an occurrence and property damage present, the exclusion for physical injury to tangible property would nonetheless preclude coverage. 

Finally, I end with another case which illustrates the perils of social media-this one cost dad $80,000.

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

 

Protecting the Health of Women, One Hundred Years Ago:

The New York Times
March 14, 1914
Page One

CURES WOMEN OF SMOKING

Clinic Established in Chicago by
Anti-Cigarette League

CHICAGO, March 13. – A clinic for women smokers was established to-day by the Anti-Cigarette League, which has been successful in breaking up the cigarette habit of boys who have appeared in the Juvenile Court.  The treatment is simply spraying the throat with a solution of nitrate of silver.

“Fifteen women have already been treated by us,” asserted Lucy Page Gaston, President of the league.  “In every instance the desired aversion for cigarettes was the result.  Our first feminine applicant was a chorus girl who began puffing cigarettes in a spirit of bravado.  One of her associates taught her how to inhale, and the habit obtained such a hold on her that she often rose in the night for a smoke.

“We are opening the clinic because we believe there are thousands of girls and women in Chicago who would rid themselves of the vice if they had the opportunity.”

It is intended to treat women smokers who are sent to the House of Correction.

Editor’s Note:  For a biographical sketch of Lucy Page Gaston, anti-cigarette crusader and candidate for President of the United States, click here.

Jen’s Gems:

Hopefully, after dealing with our second blizzard of the year, we can officially be done with winter.  I think I can speak for our entire region when I say that we have had enough.  I did however get a brief break from the weather last weekend when my husband, Ella and I spent a few days in Florida.  We even did the rite of passage for all parents and took Ella to Disney World for a day.  I was convinced that the characters would scare her and the rides would make her nervous, but she LOVED it.  The entire time we were there she just kept saying “more rides, more rides.”  She also perfected “photo bombing” other kids pictures with Mickey.  It is amazing how fast a two-year old can break loose, and get in someone else’s picture.   

But anyways, the reported decisions out of the trial courts were thin.  Of note, we do report on a decision from New York County, which applies the First Department holding that “caused by,” in an additional insured endorsement, is not substantially different from “arising out of.”   Our office continues to disagree with this line of cases.  If the carrier meant “arising out of,” it would have said “arising out of.”  We now wait to see whether this can be challenged in a different department.

Happy St. Patrick’s Day.  Until next issue…

Jen
Jennifer A. Ehman
[email protected]

One Hundred Years Ago – a King with Manners:

The New York Times
March 14, 1914
Page 1

KING SAVES HER BLUSHES.

Has Slit-Skirted Woman Escorted
from Belgian Court Ball

BRUSSELS, March 13. – Noticing that the dress of a woman at the Court ball was extremely décolleté and her skirt slit up the side, King Albert whispered to the Court Marshal, who offered his arm to her and led her out of the ballroom.

At the entrance the Marshal said, with a bow:  “His Majesty noticed that you had torn your dress up one side and requested me to escort you to your carriage, so that you might return home and have the damage repaired.” 

Hunter’s Hints on Serious Injury:

We have a lot of serious injury cases to get to in this edition.  Just as our fair city was buried by a blizzard yesterday (our second of this extremely long and cold winter) so was I buried by serious injury threshold ruling from New York Appellate Courts.

We have some interesting modifications to lower court rulings and a scar case where the plaintiff and his attorney's motion papers differ completely as to where exactly the Plaintiff suffered the alleged disfigurement.

Happy Paddy's Day to all, and, as always, I look forward to fielding any and all questions regarding serious injury.

Dan
Daniel T. Hunter
[email protected]

 

Insurance Fraud, Nothing New – a Century Ago:

The New York Times
March 14, 1914
Page 1

PRISON FOR CAP. FISH

Five Years for Burning His Yacht
to Get $15,000 Insurance

BOSTON, March 13. – Capt. John A. Fish of New York was sentenced today to five years in the Federal prison at Atlanta for burning his yacht Senta in Edgartown Harbor on Oct. 25, 1910, in order to gain $15,000 insurance money.

An appeal on a writ of error was taken by counsel, which acted as a stay, but Fish’s bail was increased from $10,000 to $15,000.  It was furnished by a surety company and he was released. 

In moving sentence, United States District Attorney French said that Fish when 21 years old deserted from the United States Army.  At that time he was an orderly at West Point.

Several friends of the prisoner from New York asked the court to be lenient and his counsel recounted the bravery while in the British Army in South Africa which earned him service medals.

The fire that destroyed the yacht occurred at night.  Fish aroused his guests in time for them to escape.  He denied that he knew how the blaze originated. 

Peiper’s Pleasures:

After last month's upheaval, we return to more normal form in this week’s edition.  Please take a moment to review our First Party offerings, and pay particular attention to the First Department's review of what it means to be "In Transit."  We would respectfully disagree with the Court's decision that, in essence, being still is really just the same as getting ready to move.

Switching gears as bit.  As you know, we've been closely following the expanding trend toward unfettered discovery of insurer's internal files.  This week, the industry strikes back in the ongoing production wars.  For the first time, the Appellate Division ruled that discovery of an insured's financial records is appropriate where the dispute turned on a residency question.  We applaud the creativity of defense counsel in that case.  The discovery demands were not used to establish an address, but rather to lock down the movements of the plaintiff in the time period surrounding the loss.  If, for instance, the ATM receipts establish several withdrawals, over the period of several months, in Naples, Florida, the insurer's arguments gain much more strength.

Speaking of Florida, tomorrow I'll be dropping yet another family member off at the airport for a trip to the Sunshine State. 

What can I say...home life mimics work life.

For me, I have a four city tour lined up for myself next week.  Instead of Naples, Sarasota, Orlando and the like, however, I'll be in Rochester, Lyons, Utica and Brooklyn.    Anyone up for a trade? 

That's it for now.  Happy St. Patrick's Day.

Steve
Steven E. Peiper
[email protected]

Dairy Crimes – A Century Ago:

Brooklyn Daily Eagle
March 14, 1914

MILK THIEF DENIED FREEDOM.

Klein Must Stay In Jail Pending
His Appeal

Justice Kapper in Special Term of the Supreme Court today declined to grant a certificate of reasonable doubt to Isador Klein who was convicted in the Court of Special Sessions on the specific charge of stealing two bottles of milk and sentenced to sixty days in jail. A milk company made the charge against Klein and it was alleged that Klein’s thefts had been frequent and that he was not an ordinary milk thief who stole to keep a family from starving.  Justice Kapper read the record and in his opinion declared that the conviction seemed to be fair and would undoubtedly be affirmed after the appeal is argued. 

 

In This Week’s Edition attached:

KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]

  • Insured Not Permitted to Amend Complaint to Allege Consequential Damages Against Insurer
  • Race to the Courthouse Wins Venue. Trying to Claim Downstate Venue Preference, Insured Joins Later Commenced Declaratory Judgment Action with Earlier Commenced Rescission Action and Changes Venue to Court Where Underlying Lawsuit Commenced.  On Appeal, Joined Case Sent Back to Buffalo.
  • While Demand for Uninsured Motorist Arbitration May Have Been Secreted in Stack of Medical Records, the Claims Adjuster was Careless in Not Discovering It When Looking Through Those Records
  • Prompt Pay Law Creates Private Cause of Action for Health Care Providers to Seek Significant Penalties for Late Payment of Health Insurance Claims
  • By Participating in Uninsured Motorist Arbitration Without Raising Statute of Limitations Defense, that Defense is Waived

 

HUNTER’S HINTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Daniel T. Hunter

[email protected]

  • Defendant’s Motion Reversed
  • Defendant Failed to Meet Prima Facie Burden in Summary Judgment Motion
  • Summary Judgment Motion Affirmed
  • Serious Injury Motion Modified    
  • Court Modifies Trial Court Order
  • Placement of Scar Reverses Order
  • Failure to Provide Contemporaneous Medical Evidence Fatal to Plaintiff’s Claims                      
  • Defendant’s Motion Papers Did Not Meet Initial Burden
  • Defendant’s Motion Papers Did Not Meet Initial Burden (x2)
  • Defendant’s Motion Papers Did Not Meet Initial Burden (x3)
  • Court Modifies Order by Rejecting Permanency Claim

 

MARGO’S MUSINGS ON NO-FAULT
Margo M. Lagueras

[email protected]

Arbitration

  • Lack of Causal Relationship Defense Fails in Light of No Evidence of Pre-Existing Conditions
  • Failure to Prove Delivery of Billed For DME Constitutes Failure to Prove Claim

 

Litigation

  • Defendant Not Entitled to Serve “Knee-Jerk” EBT Notices
  • Jurisdiction Not Established Over Defendant

 

PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper

[email protected]

  • Bank Records Fair Game in Discovery When Evaluating Residency
  • “In Transit” Coverage Includes Stops During the Shipping Process
  • Subrogation Claims Must Be Explicitly Asserted; Carrier Cannot Piggy-Back Off of the Insured’s Concurrent Bodily Injury Action

 

BETH’S BANTER OF COVERAGE “B” AND FITZ’ BITS
Elizabeth A. Fitzpatrick
[email protected]

  • Coconut Exclusion Addressed
  • Disappearing Wine Does Not Allege an Occurrence
  • Facebook Posting Costs $80,000

 

AUDREY’S ANGLES ON THE NATIONALLY NOTEWORTHY
Audrey A. Seeley
[email protected]

  • Nothing to report this week.

 

CASSIE’S CAPITAL CONNECTION
Cassandra A. Kazukenus
[email protected]

  • A1307 Expanding The Description of Unfair Claim Settlement Practices
  • S6700/A8745 Construction Insurance Transparency Act of 2014

 

FIJAL’S FEDERAL FOCUS
Katherine A. Fijal

[email protected]

  • The Manufacturing Defect Exclusion in a Yacht Policy
  • Did Cheerleader’s Injury Take Place During a “Practice Session”?

 

KEEPING THE FAITH WITH JEN’S GEMS
Jennifer A. Ehman
[email protected]

  • Court Applies First Department Case Law Holding that “Caused By” and “Arising Out Of” Do Not Have Significantly Different Meanings

 

Bad Faith

  • Bad Faith Causes of Action Dismissed

 

EARL’S PEARLS
Earl K. Cantwell

[email protected]

  • Double Check Notices and Correspondence to Policyholders

 

That’s all for now – Spring is just around the corner.

 

Dan
Dan D. Kohane
Hurwitz & Fine, P.C
.
1300 Liberty Building
Buffalo, NY 14202    

Office:            716.849.8942
Mobile:           716.445.2258
Fax:                716.855.0874
E-Mail:            [email protected]
Website:         www.hurwitzfine.com
LinkedIn:       www.linkedin.com/in/kohane

 

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

NEWSLETTER EDITOR
Dan D. Kohane
[email protected]

ASSOCIATE EDITOR
Audrey A. Seeley
[email protected]

ASSISTANT EDITOR
Jennifer A. Ehman
[email protected]

INSURANCE COVERAGE TEAM
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
Joel R. Appelbaum

FIRE, FIRST-PARTY AND SUBROGATION TEAM
Steven E. Peiper, Team Leader
[email protected]

Elizabeth A. Fitzpatrick
Cassandra Kazukenus

NO-FAULT/UM/SUM TEAM
Audrey A. Seeley, Team Leader
[email protected]

Margo M. Lagueras
Cassandra Kazukenus
Jennifer A. Ehman

APPELLATE TEAM
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
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

KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]

03/12/14       30-40 East Main Street Bayshore, Inc., v. Republic Franklin Ins.
Appellate Division, Second Department
Insured Not Permitted to Amend Complaint to Allege Consequential Damages Against Insurer
Plaintiff had moved to amend its complaint to add a claim for certain consequential damages. Although leave to amend should be freely given in the absence of prejudice or surprise the proposed amendment is palpably devoid of). Here, the inability of the plaintiffs to recover an attorney's fee, costs, and interest as consequential damages in this affirmative action against their insurer is clear and free from doubt.

03/12/14       Nova Casualty Company v. RPE, LLC
Appellate Division, Second Department
Race to the Courthouse Wins Venue. Trying to Claim Downstate Venue Preference, Insured Joins Later Commenced Declaratory Judgment Action with Earlier Commenced Rescission Action and Changes Venue to Court Where Underlying Lawsuit Commenced.  On Appeal, Joined Case Sent Back to Buffalo.
We commenced a policy rescission action in Erie County, where Nova had its offices.  The underlying case was in Queens.  The insured commenced a declaratory judgment action seeking to enforce coverage, moved to join the rescission action with the DJ action and keep them both in Queens. The Queens County Supreme Court ordered the Erie County case to be joined in Queens, even though it was first commenced.

On appeal, the Second Department reversed, and sent both the rescission action and the declaratory action to Erie County.  The evidence presented in connection with the application to place venue in Queens County based on the convenience of material witnesses failed to satisfy his burden of proof under the venue statute or establish any other special circumstances.  Moreover, contrary to the contention of the underlying plaintiff, the convenience of the parties, their employees, and their experts is not relevant to a determination of a motion for a change of venue. Accordingly, venue was properly placed in Erie County, where the first action was commenced.
Editor’s Note:  A win for the good guys – Atta lawyer, Jen Ehman

03/06/14       Government Employees Insurance Company v. Giamo
Appellate Division, First Department
While Demand for Uninsured Motorist Arbitration May Have Been Secreted in Stack of Medical Records, the Claims Adjuster was Careless in Not Discovering It When Looking Through Those Records
An application to stay uninsured or underinsured motorists’ arbitration must be brought within 20 of service of the arbitration demand whenever an insurer believes that the arbitration should not proceed.  It is a strict statute of limitation period.

The record indicates that respondent served the arbitration demand at issue upon petitioner on October 25, 2012, but petitioner did not initiate the instant petition until April 2013. Accordingly the petition was plainly untimely and should have been denied.

The insurer argued that the arbitration demand was purposely concealed in the October 2012 package that included a copy of respondent's medical records but did not provide an affidavit from someone with personal knowledge.   Rather, petitioner's claims adjuster wrote to respondent's counsel on November 5, 2012, acknowledging that it had received his "demand letter," and wrote again on December 3, 2012, indicating that, after careful consideration, it was denying the claim based upon a finding that the injuries did not meet the applicable medical threshold, a conclusion that must have been made after review of the records provided. Under such circumstances, rather than demonstrate concealment, the record indicates that petitioner was likely careless in failing to note the demand.

03/05/14       Maimonides Medical Center v. First United Amer. Life Ins. Co.
Appellate Division, Second Department
Prompt Pay Law Creates Private Cause of Action for Health Care Providers to Seek Significant Penalties for Late Payment of Health Insurance Claims
Insurance Law § 3224-a, known as the Prompt Pay Law, imposes standards upon insurers for the "prompt, fair and equitable" payment of claims for health care services. The statute sets forth time frames within which an insurer must either pay a claim, notify the claimant of the reason for denying a claim, or request additional information. An insurer that fails to comply with the provisions of the Prompt Pay Law is obligated to pay the full amount of the claim, with interest.

The court, in this case, finds that the Prompt Pay Law affords claimants a private right of action to recover payment for health care services based on a violation of the statute.  It does not just give enforcement powers to the New York State Department of Financial Services.

In this case, the hospital provided services to six patents that had supplemental Medicare policies issued by First United.  The hospital billed the carrier for $19 million in services and the insurer paid about $4 million.

Maimonides commenced this action against First United to recover the balance owed for its care of the six patients on theories of breach of contract, violation of the Prompt Pay Law, and unjust enrichment. The complaint detailed the service dates and the amount of the bills issued by Maimonides to First United for each of the patients, and alleged that, despite repeated demands for payment in full, First United failed to pay the balance owed. Maimonides also alleged that First United never provided written notice, as required by the Prompt Pay Law, that it was not obligated to pay in full the amounts billed by Maimonides for services furnished to the six patients.

The Prompt Pay Law requires an insurer to pay undisputed claims within 30 days after receipt of an electronic submission or within 45 days after receipt by other means (see Insurance Law § 3224-a[a]). If a claim is disputed, the insurer is obligated to pay the undisputed portion of the claim, if there is any, and, within 30 days of receipt of the claim, notify the policyholder, covered person, or health care provider in writing of the specific reason that the insurer is not liable to pay the claim. In the alternative, the insurer may request additional information necessary to determine its potential liability with respect to payment of the claim. An insurer that fails to comply with the provisions of the Prompt Pay Law is obligated to pay the health care provider or the person submitting the claim the full amount of the claim, plus 12% interest per annum, to be computed from the date the claim was required to be paid.

The insurer argued that enforcement of this statute is with the Department of Financial Services and does not create a private cause of action.

After a review of the legislative history of the statute, the court finds that enforcement of the right to recover interest at 12% per annum on the outstanding obligation, as well as the full payment due to a health care provider or patient, upon a finding of violation, is not solely vested in the Superintendent.
Editor’s Note:  Will the floodgates open?  Will the Court of Appeals accept this case for review?

03/04/14       Liberty Mutual Insurance Company v. Mohabir
Appellate Division, First Department
By Participating in Uninsured Motorist Arbitration Without Raising Statute of Limitations Defense, that Defense is Waived
The Mohabirs' vehicle was insured by Liberty Mutual and was struck by a truck that left the scene of the accident.  The Mohabirs send a demand for uninsured motorists’ arbitration dated July 11, 2007.  It was sent twice, on July 12, 2007 (arriving July 13) and July 31, 2007 (arriving August 1),

By petition dated August 20, 2007, Liberty moved to permanently stay the arbitration, asserting, among other things, that the offending vehicle had a policy of insurance with Progressive Insurance, and was owned and driven by Singh.  A framed issue hearing was held and the court found in favor of Liberty determining that the offending vehicle was owned by Singh and insured by Progressive and thus there was no claim available for uninsured motorist benefits.

The issue before the court was whether the petition to stay arbitration was filed timely, within 20 days of the arbitration demand.

The court found that under the particular circumstances of this case, the statute of limitations defense was waived.  The respondents after serving the request for arbitration a second time on July 31, 2007, they participated in the litigation for five years, during which time they failed to raise the CPLR 7503(c) defense in their opposition to petitioner's applications for a stay, in the prior appeal in which this Court ordered a framed issue hearing on coverage issues, or at the framed issue hearing itself,
Editor’s Note:  Once every two or three months we have the opportunity to remind you that an insurer believing that an uninsured motorists arbitration should not proceed because, for example, insurance actually exists for the other vehicle in the car, or that there was no physical contact in a hit-and-run claim, MUST file a motion in State Supreme Court to stay arbitration.  That motion must be filed within 20 days of the arbitration demand or rights are forfeited.

 

HUNTER’S HINTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Daniel T. Hunter
[email protected]

03/04/2014     Prince v. Lovelace
Appellate Division, First Department
Defendant’s Motion Reversed
Defendant’s summary judgment motion was initially granted, dismissing Plaintiff’s complaint on the ground that Plaintiff did not suffer a serious injury.  However, the First Department found Defendant’s expert orthopedist to be too equivocal in his findings and not thorough enough in his testing of Plaintiff.  Further, Plaintiff did raise an issue of fact by proffering his treating physician’s surgical report which casually connected Plaintiff’s knee injury to the accident.

03/05/2014     Johnson v. Burke
Appellate Division, Second Department
Defendant Failed to Meet Prima Facie Burden in Summary Judgment Motion
The Second Department reversed a Kings County order which granted Defendant’s motion for summary judgment on the ground that Plaintiff did not suffer a qualifying injury under New York State Insurance Law 5102(d).  The order was reversed because Defendant’s motion papers failed to adequately address Plaintiff’s injury claims as put forth in Plaintiff’s bill of particulars.

03/06/2014     Kendig v. Kendig
Appellate Division, First Department
Summary Judgment Motion Affirmed
Defendant’s motion for summary judgment dismissing Plaintiff’s complaint for failure to demonstrate a serious injury was affirmed by the First Department.  Defendant’s expert found no limits to Plaintiff’s range of motion and rather found degenerative changes not caused by the accident. Plaintiff’s motion papers failed to produce any objective medical evidence regarding her wrist injury, nor did they contain evidence rebutting the statement that Plaintiff’s injuries were degenerative in nature.

03/06/2014     Johnson v. KS Transportation Inc.
Appellate Division, First Department
Serious Injury Motion Modified
Plaintiff alleged injuries to her spine and knee suffered as a result of being struck by a car, and subsequently underwent knee surgery to repair meniscal tears and patella femoral traumatic arthropathy.  Defendants moved for summary judgment and presented evidence from an orthopedic surgeon showing the spinal injuries were not casually related to the underlying accident.  The orthopedic surgeon and radiologist submitted evidence showing that Plaintiff’s knee injuries were degenerative in nature.

In response, Plaintiff submitted disability certificates showing she was “totally incapacitated”.  Disability certificates are admissible if they are not the sole proof put forward to rebut a serious injury motion for summary judgment.  Plaintiff’s expert radiologist found a diffuse trabecular injury and knee tears which he casually related to the accident, thus raising an issue of fact and rebutting Defendants’ arguments.  As such, the First Department reversed the lower court’s order dismissing Plaintiff’s complaint as to the significant limitation injury only.  The First Department found Plaintiff’s proof lacking to sustain a 90/180 injury cause of action, and thus did not reverse as to that claim. 

03/06/2014     Diaz v. Guzman
Appellate Division, First Department
Court Modifies Trial Court Order
Defendants made a prima facie showing that neither Plaintiff in the lawsuit suffered a serious injury by submitting a physician’s report finding normal ranges in motion in all the allegedly injured body parts, and found the spinal injuries to be not related to the accident.  Further, a radiologist opined that Plaintiff Gomez suffered no trauma to his right knee.

Both Plaintiff’s proffered evidence relating their injuries to the accident and raised issues of fact regarding the seriousness of the injuries under New York State Insurance Law 5102(d).  However, Defendants demonstrated that neither Plaintiff satisfied the 90/180 category of 5102(d).  As such, the lower court’s order was modified dismissing Plaintiffs’ 90/180 cause of action and allowing the permanent consequential and significant limitation causes of action to proceed.

03/11/2014     Christopher V. v James A. Leasing, Inc.
Appellate Division, First Department
Placement of Scar Reverses Order
It was error for the lower court to consider a new “significant disfigurement” serious injury claim raised for the first time in Plaintiff’s supplemental bill of particulars, which was put forth in opposition to Defendants motion for summary judgment.  In any event, Defendants put forth evidence showing Plaintiff did not suffer a significant disfigurement as both Plaintiff’s deposition testimony and the emergency room records contradict the supplemental bill of particulars’ allegation as to the nature and location of the scar.  As such, the order denying Defendants’ motion for summary judgment was reversed.

03/11/2014     Henchy v. VAS Express Corp.
Appellate Division, First Department
Failure to Provide Contemporaneous Medical Evidence Fatal to Plaintiff’s Claims            
Defendants moved for summary judgment to dismiss Plaintiff’s lawsuit for lack of a serious injury.  In support of the motion, Defendants presented an affirmed radiologist report which opined that there was no casual nexus between the left knee injury and the accident, and that Plaintiff had full ranges of motion, negative test results and no neurological disabilities regarding her alleged spinal injuries.

Plaintiff opposed the motion and cross-moved to amend the bill of particulars.  In opposition, Plaintiff provided medical records showing she first treated for her injuries over six (6) months after the accident.  The court determined that her failure to provide medical evidence contemporaneous to the accident was fatal to her claim, and affirmed the lower court’s order.  Regarding Plaintiff’s cross-motion, the First Department did not allow a supplemental bill of particulars, noting that Plaintiff failed to demonstrate the merits of her newly proposed claims.

03/12/2014     Ponce v. Moyse
Appellate Division, Second Department
Defendant’s Motion Papers Did Not Meet Initial Burden
Defendants failed to meet their initial burden of showing that Plaintiff did not sustain a serious injury within the meaning of Insurance Law 5102(d) since their papers did not adequately address Plaintiff’s claim, as set forth in the bill of particulars, that Plaintiff sustained a serious injury under the 90/180 category of 5102(d).  As such, the lower court’s order was affirmed.

03/12/2014     Sablo v. Westbrook
Appellate Division, Second Department
Defendant’s Motion Papers Did Not Meet Initial Burden
As in Ponce, decided the same day by the Second Department, Defendants failed to meet their initial burden of showing that Plaintiff did not sustain a serious injury within the meaning of Insurance Law 5102(d) since their papers did not adequately address Plaintiff’s claim, as set forth in the bill of particulars, that Plaintiff sustained a serious injury under the 90/180 category of 5102(d).  As such, the lower court’s order was affirmed.

03/12/2014     Williams v. Lapidus
Appellate Division, Second Department
Defendant’s Motion Papers Did Not Meet Initial Burden
Again, as in Ponce and Sablo , above, decided the same day by the Second Department, Defendants failed to meet their initial burden of showing that Plaintiff did not sustain a serious injury within the meaning of Insurance Law 5102(d) since their papers did not adequately address Plaintiff’s claim, as set forth in the bill of particulars, that Plaintiff sustained a serious injury under the 90/180 category of 5102(d).  As such, the lower court’s order was affirmed.

03/13/2014     Swift v. New York Transit Authority
Appellate Division, First Department
Court Modifies Order by Rejecting Permanency Claim
Defendants moved for summary judgment and met their burden by establishing that Plaintiff did not suffer a serious injury.  Plaintiff presented medical evidence demonstrating injuries to her spine and left knee.  However, Plaintiff’s chiropractor report opining on her spinal injuries was not notarized, and therefore is inadmissible to rebut Defendants’ motion.  Luckily for Plaintiff, the medical evidence showing injury to her knee was admissible and met the burden by creating a question of fact regarding the seriousness of her knee injury.  The First Department, having found no evidence that Plaintiff suffered any permanent injury, modified the trial court’s order and dismissed the permanent loss of use cause of action of Insurance Law 5102(d).

The Court notes that should Plaintiff prevail at trial, she will be able to recover for all injuries suffered, including those to her spine.

 

MARGO’S MUSINGS ON NO-FAULT
Margo M. Lagueras
[email protected]

Arbitration

02/28/14       Kaleida Health v Geico Insurance Co.
Erie County, Arbitrator Veronica K. O’Connor
Lack of Causal Relationship Defense Fails in Light of No Evidence of Pre-Existing Conditions
Following an accident in July 2011, the EIP underwent cervical surgery in January 2013.  The billing was denied based on a peer review by Andrew Bazos, MD, who concluded that the surgery, while perhaps necessary, was not causally related to the accident.  The Arbitrator determined that Applicant’s submissions sufficiently established causality as the records indicated ongoing complaints as early as two weeks after the accident and the MRI study revealed cervical herniations with impingement but no evidence of disc degeneration or stenosis.

02/25/14       RS Medical v National Liability & Fire Insurance Co.
Erie County, Arbitrator Michelle Murphy-Louden
Failure to Prove Delivery of Billed For DME Constitutes Failure to Prove Claim
The EIP was involved in an accident in September 2011 and first consulted with Dr. Ameduri in May 2012.  A prescription for a three-month trial of an RS-4i was allegedly written by Cynthia Skrypek, RPA, on June 5, 2012.  However, the evidence submitted showed that Dr. Skrypek’s first consultation with the EIP was not until June 14, 2012, at which time she recommended a TENS unit, not the interferential/EMS unit.  In August, it was noted by another physician that the EIP had a TENS unit.  Thereafter, in August 2012, Dr. Skrypek allegedly wrote a prescription for the purchase of an RS-4i unit.  However, the signature on the June RS-4i prescription had no similarity to Dr. Skrypek’s signature on the August prescription. 

To clarify, the Arbitrator requested the telephonic testimony of T.B., listed on the August prescription as Applicant’s account manager.  After several re-scheduling’s, Applicant produced W.F., who stated, among other things, that she was not involved in the EIP’s claim, did not know who signed the prescriptions in this case, and did not know if T.B. was still employed by Applicant.  The Arbitrator held that the failure to prove delivery of the billed for supplies constitutes a failure to prove the facts and amount of the claim.  The fact that Applicant presented the testimony of an employee who was not involved in the claim and who had no knowledge of the claim resulted in a negative inference.  The Arbitrator additionally noted that it was very unlikely that a doctor would not know the difference between a TENS unit and the RS-4i interferential muscle stimulator, such that they would consistently mistakenly refer to an RS-4i as a TENS unit.  As a result of all of the issues with the evidence submitted by Applicant, the claim was denied. 

Litigation

03/05/14       Ralph Medical Diagnostics, P.C. v Mercury Casualty Co.
Appellate Term, First Department
Defendant Not Entitled to Serve “Knee-Jerk” EBT Notices
Plaintiff sought to recover just under $3500 for a surgical procedure.  Defendant interposed an answer with 48 affirmative defenses, served discovery demands including 22 written interrogatories, an expert witness demand, demand for discovery and inspection and notices for oral depositions.  Plaintiff timely responded to the interrogatories and demand for discovery and inspection.  Defendant voiced no objection and then moved for summary judgment to dismiss the complaint for lack of medical necessity or, alternatively, to compel the EBT of the treating doctor.  The trial court denied the motion and defendant appealed to compel the deposition.

On appeal, the court affirmed finding no need to disturb the discretionary determination of the lower court.  While acknowledging that there could be situations where a deposition might be material and necessary, here plaintiff turned over the operative report and an affidavit explaining the medical rationale for the procedure.  Defendant did not articulate a need for the EBT.  In the no-fault world, an insurer is not entitled to serve an EBT notice in “knee-jerk” fashion without demonstrating why the responses to interrogatories and document demand are lacking.  According to the court, allowing such conduct would subvert the purpose of no-fault to ensure prompt payment of claims and would magnify the cost of litigation.

02/14/14       Flatlands Medical, P.C. v AAA Insurance
Appellate Term, Second Department
Jurisdiction Not Established Over Defendant
Defendant cross-moved for summary judgment contending that it had not been properly served and that the court lacked jurisdiction.  The court denied both plaintiff’s motion, and defendant’s cross-motion.  Defendant then moved to renew and re-argue contending that the out-of-state affidavit by its corporate officer, submitted in support of its cross-motion, was in compliance with CPLR 2309(c) and that the court should have considered the facts alleged.  Plaintiff argued that the affidavit was inadmissible and that the facts contained would not have changed the outcome.  Upon hearing defendant’s motion, the court granted the cross-motion on non-jurisdictional grounds.

On appeal, the court noted that defendant’s failure to submit a proper certificate of conformity with the out-of-state affidavit was not a fatal error.  As to the merits, the court found the record devoid of any indication as to how or where service was made upon defendant.  Defendant demonstrated that it was not authorized to conduct business in New York so jurisdiction could not be obtained pursuant to Insurance Law 1212.  Defendants further established that it did not directly, or through any affiliate or subsidiary, provide, write or sell insurance in New York or to New York residents.  As such, jurisdiction could not be obtained pursuant to Insurance Law 1213.  Similarly, jurisdiction could not be obtained under the long-arm statute whose requirements are akin to section 1213.  The affidavit of defendant’s corporate officer sufficiently established that there was no transaction of business in New York State, let alone New York City, and the mere act of the insurer’s insured driving into New York State was not sufficient to give a New York court jurisdiction over the out-of-state insurer.

PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
[email protected]

03/12/14       Clemente v Interboro Insurance Company
Appellate Division, Second Department
Bank Records Fair Game in Discovery When Evaluating Residency
Interboro perfected this appeal after its motion to compel was denied by the trial court.  Apparently, Interboro was defending its decision to deny coverage on the basis that loss location was not plaintiff’s primary residence.  As part of that litigation, Interboro sought production of the insured’s bank statements and ATM receipts which would tend to show their location during the time period in question.  In reversing the trial court, the Second Department noted that the document requests, which were limited in time, were appropriate. 

03/11/14       CashZone Check Cashing Corp. v.  Vigilant Ins. Co.
Appellate Division, First Department
“In Transit” Coverage Includes Stops During the Shipping Process
Plaintiff, a check cashing agency, purchased an insurance bond from Vigilant. The bond, in part, covered losses arising during the “transit” of monies from one CashZone location to another. 

In the instant case, CashZone retained the services of Mount Vernon to act as the armored car company for CashZone’s transfer of monies between locations.  Essentially, Mount Vernon would take cash from the Federal Reserve in New York City to its vault.  At the vault, Mount Vernon would count and sort the cash.  Mount Vernon would also retrieve money from CashZone’s “financial centers.”  Finally, Mount Vernon would service CashZone’s automated teller machines.  This process included “loading” ATM cassettes, and retrieving cassettes where the cash inside had been depleted by ATM users. 

In short, Mount Vernon was paid to secure and move large amounts of paper money between the Federal Reserve and CashZone’s facilities.  Apparently, principals at Mount Vernon were stealing monies that belonged to CashZone while the notes were at the Mount Vernon vault. 

While it was clear that Mount Vernon was responsible for the loss, Vigilant disclaimed coverage on the basis that the loss did not occur while the notes were “in transit.”  Rather, as argued by Vigilant, the loss occurred after the money had been delivered to the vault, but before it was shipped to its next destination.

In opposition, CashZone argued that the brief “layover” at the Mount Vernon vault was simply a delay in the overall shipping process.  However, as the notes were always in the process of being moved from CashZone controlled locations to the Federal Reserve they were always “in transit” when at the Mount Vernon vault.  As such, coverage was triggered under the Vigilant bond. 

In resolving the matter in favor of CashZone, the Court engaged in a lengthy discussion over what the term “in transit” meant in New York law.  This included reference to the traditional rule that “goods, even though temporarily at rest, were still on their way.”  As such, the Court reasoned that the temporary stopover at the Mount Vernon vault was merely part of a “continuous shipping process.” 

03/06/14       Peterson v New York State Elec. & Gas Corp.
Appellate Division, Third Department
Subrogation Claims Must Be Explicitly Asserted; Carrier Cannot Piggy-Back Off of the Insured’s Concurrent Bodily Injury Action
Plaintiffs commenced the instant action against NYSEG after they were injured in a house explosion which was caused by the buildup of natural gas.  The explosion also damaged an adjacent garage that was owned by plaintiff.  Erie Insurance provided coverage on the gas station which sustained approximately $50,000 in damages as a result of the explosion. 

At some point, plaintiff, along with other injured members of his family, sought damages for personal injuries sustained in the explosion.  Although not clear, it appears that plaintiff also sued Erie for coverage related to the loss at the garage.

During the pendency of the litigation, Erie settled its portion of the claim asserted by the plaintiffs.  Thereafter, just before trial, Erie also attempted to sever a “subrogation claim” from the plaintiff’s personal injury action.  Again, we assume that Erie was attempting to recovery its $50,000 settlement from NYSEG.

Plaintiff eventually settled and resolved its personal injury action against NYSEG.  At that time, the Court also denied Erie’s motion to sever the remaining “subrogation claim.” 

On appeal, the Third Department affirmed the denial of Erie’s motion to sever.  In reaching this conclusion, the Court noted that Erie could only bring an independent subrogation action – or – in the alternative, move to intervene in the plaintiff’s case.  Here, where they did neither, they did not have a valid subrogation claim, and as such there was nothing to sever. 

To avoid the dismissal of the action, Erie argued that plaintiffs’ complaint asserted a theory of recovery against NYSEG for damages paid by Erie.  However, in rejecting that argument, the Court noted that there was no reference to plaintiffs making a claim for property damage at the garage.  Moreover, a Bill of Particulars cannot be used to create an argument that was never pled in the first place.  A Bill of Particulars is only used to amplify previously plead causes of action, not create new ones. 

BETH’S BANTER OF COVERAGE “B” AND FITZ’ BITS
Elizabeth A. Fitzpatrick
[email protected]

03/06/13       Faith Brooks, et al. v. Zulu Social and Pleasure Club, Inc.
Court of Appeals, Fourth Circuit, State of Louisiana
Coconut Exclusion Addressed
Faith Brooks allegedly sustained injury when a coconut thrown by a rider in the Zulu parade hit her in the face.  She brought suit against Zulu and Zulu’s insurer, Lloyds, appointed counsel to represent Zulu pursuant to a reservation of rights.  As Louisiana allows the insurer to be identified as a party to the lawsuit, the Plaintiffs thereafter amended their petition to name Lloyds as a defendant.  Allegations that Zulu drivers failed to properly and safely secure its load and failing to train drivers of the motor vehicles towing the floats to make sure the rules prohibiting the throwing of objects from the floats were also alleged.

Lloyds filed a motion for summary judgment, citing the coconut throwing exclusion which provided:  “It is hereby agreed and understood that there will be no coverage for any coconut thrown in any fashion from anywhere on the float.  Coconuts may be handed from the first layer of the float only.”  In opposition, Zulu contended that it was impossible to conclude that the Lloyds’ policy excluded coverage pending adequate discovery.  The Court agreed that a meaningful opportunity to conduct discovery was necessary prior to granting summary judgment.

02/27/14       M. Consulting and Export, LLC v. Wine and Spirits Expo, LLC d/b/a Cork N Bottle
2014  WL793980 District Court of Maryland
Disappearing Wine Does Not Allege an Occurrence
Travelers issued a Commercial General Liability Policy to Wine and Spirits Expo, LLC d/b/a Cork N Bottle.  The coverage dispute between Cork N Bottle and Travelers arose out of a claim by M. Consulting and Export, LLC against Cork N Bottle for breach of contract and negligence when, pursuant to a contract to provide 500 cases of sparkling wine for shipment to West Africa, upon arrival only some 300 crates were included in the shipping container.

The Court discussed the policy’s definition of an occurrence defined, as it typically is, as an accident, which was an undefined term in the policy.  Considering the issue of whether the disappearing wine constituted an occurrence, the Court looked to the Court of Special Appeals of Maryland’s decision in Lerner Corp. v. Assurance Company of America which addressed the issue of coverage for the repair of a latent construction defect under the Comprehensive General Liability Policies.  In that action, the Court held that the carriers were not required to indemnify the insured construction managers because the costs to repair the defective façade were incurred pursuant to the construction manager’s contractual obligations.  The Court similarly found that the negligence asserted here did not constitute a covered occurrence.

The Court next determined that in any event, the damages as alleged did not constitute property damage defined as physical injury to tangible property, including all resulting loss of use of that property and loss of use of tangible property that is not physically injured.  The Court concluded that the inclusion of the term physical clearly indicated that the damage must affect the good itself, rather than Plaintiff’s use of that good.  No such damage was involved.  Furthermore, the lost use of the crates of sparkling wine did not constitute loss of use and there was thus no property damage as defined by the policy.

The Court further found that policy exclusions for damage to property that has not been physically injured, arising out of . . . a delay or failure by Cork N Bottle or anyone else acting on Cork N Bottle’s behalf to perform a contract or agreement in accordance with its terms would have precluded coverage in any event.  Travelers’ motion for summary judgment was thus granted.

02/26/14       Gulliver Schools, Inc. v. Snay
2014  WL769030 District Court of Appeal of Florida
Facebook Posting Costs $80,000
In an action involving age discrimination and retaliation against the school’s Headmaster, Snay, the Court found that Snay violated the terms and conditions of a Confidentiality Agreement when his daughter posted about the settlement on Facebook. 

When Gulliver Schools failed to renew Snay’s contract as the school’s Headmaster, Snay filed a complaint asserting claims for age discrimination and retaliation under the Florida Civil Rights Act.  The parties ultimately settled the action with the school to pay $10,000.00 in back pay, $80,000.00 as a 1099 and $60,000.00 to Snay’s attorneys.  A detailed confidentiality provision was also executed, which provided that the existence and terms of the agreement between Snay and the school were to be kept strictly confidential and that should Snay or his wife breach the confidentiality provision, a portion of the settlement proceeds (the $80,000.00) would be disgorged. 

         
Only four days after the Settlement Agreement was signed, Gulliver notified Snay that he had breached the agreement, based upon a Facebook posting of Snay’s college age daughter who posted:  “Momma and Poppa Snay won the case against Gulliver. Gulliver is now officially paying for my vacation to Europe this summer.  SUCK IT.”  The Facebook comment was sent to approximately 1,200 of the daughter’s Facebook friends, many of whom were either current or past Gulliver students.  Snay filed a motion to enforce the Settlement Agreement, arguing that the posting by his daughter did not constitute a breach.  The Court below agreed that the posting did not constitute a breach of the Confidentiality Agreement.  However, the Florida District Court reversed finding that the plain, unambiguous meaning of the agreement, that neither Snay nor his wife would either directly or indirectly disclose to anyone other than their lawyers any information regarding the existence of the terms of the parties agreement, was in fact breached through Snay’s comment to his daughter. 

The ramifications of unthinking postings on Facebook continue to be felt.

 

          AUDREY’S ANGLES ON THE NATIONALLY NOTEWORTHY

Audrey A. Seeley
[email protected]

Nothing to Report This Week.

CASSIE’S CAPITAL CONNECTION
Cassandra A. Kazukenus
[email protected]

A1307 Expanding the Description of Unfair Claim Settlement Practices

On March 3, 2014, the Assembly passed A1307 which seeks to expand the description of unfair claim settlement practices.  The Senate, however, has not passed the same or similar legislation, and A1307 has been referred to the Senate Insurance Committee.

This legislation would not alter the existing acts which are currently set forth in Insurance Law §2601.  The legislation would add two additional acts to the existing unfair claim settlement practices.  A1307 seeks to make the requirement or request that an individual or entity deny or promote the denial of a certain number or percentage of claims during any period.  Similarly, it would also make the requirement or request that an individual or entity cancel a certain percentage of policies during a given period an unfair claim settlement practice.  Although these actions had not been specifically enumerated previously, many other states include these actions in their lists of activities which are considered unfair claim settlement practices. 

S6700/A8745 Construction Insurance Transparency Act of 2014

This proposed legislation has been referred to the Insurance Committee in both the Senate and the Assembly.  This legislation would amend the insurance law enacting the "construction insurance transparency act of 2014" which would require all insurers that issue policies of liability insurance that insure against claims made under the duty imposed by the "scaffold law”  to file annual financial statements and detailed claim data with the superintendent of financial services.  Per the Sponsor’s memorandum, “this data collection will provide lawmakers with a source of reliable and accessible data that will better enable them to evaluate liability insurance in this area and assist in providing an optimal product to New York citizens.” 

The proposed legislation would create Insurance Law §342 which would apply to liability insurers that issue liability policies insuring a contractor or owner of real property located in this state against claims made by an injured worker under Labor Law §240.  Every year, an insurer must file with DFS and the public a detailed financial statement which contains at least the following information:

  1. That portion of premiums assessed and attributable to providing this coverage;
  2. Any paid judgments, settlements or losses from this coverage;
  3. The reserves for losses which may be attributable to this coverage;
  4. Incurred but not reported loss estimates which may be attributable to this coverage;
  5. Paid defense and cost containment expenses attributable to any claims made under this coverage;
  6. Case reserves for defense and cost containment experience attributable to claims made under this coverage;
  7. Incurred but not reported defense and cost containment estimates based upon such coverage;
  8. Premium and loss experience identified by policy limits and deductibles;
  9. Number of claims initiated and closed
  10. Number of claims closed with loss payments
  11. Number of open claims at the time the statement is prepared;
  12. Other expenses by category as determined by DFS to reflect the cost to the insurer to provide this coverage;
  13. Investment income realized from that portion of the premium paid for this coverage;
  14. The amount of exposure to the insurer resulting from the provision of such coverage and whether the insurer has limited the amount of coverage provided together with an estimate of the amount which might be required of the insured to purchase further coverage from an out of state excess lines provided;
  15. Amounts spent by insurer for risk management programs or the amount required to be spent by insureds at the insurer’s request;
  16. The insured’s experience and information further subdivided by quality of risk as measured by prior loss experience, contractor payroll ranges, contractor number of employee ranges, risk management participation and other identifiable difference in exposure to loss.

 

In addition to the above, the data must be separated out so that it can be determined that the claim made or paid is based partially or totally upon Labor Law §240 and not any other provision of the statutory or common law. 

DFS will then be responsible for issuing a report summarizing and explaining the information collected each year.  The report should contain recommendations to encourage the utilization of risk management programs by contractors to reduce premiums and any other steps that could be utilized to reduce premiums. 

 

FIJAL’S FEDERAL FOCUS
Katherine A. Fijal
[email protected]

03/12/14       Evan Ardente v. The Standard Fire Insurance Company
United States Court of Appeals First Circuit – Rhode Island Law
The Manufacturing Defect Exclusion in a Yacht Policy
At some point after purchasing his yacht Evan Ardente [“Ardente”] noticed that its top speed had decreased and that it was not navigating properly.  The parties agreed that these were symptoms of water damage to the yacht’s hull.  They also agreed that water was getting into the hull because the installation holes on the hull were surrounded by balsa wood (which is not waterproof) instead of laminate (which is waterproof).  Water eventually seeped into the balsa wood around the installation holes and then spread throughout the hull.

Ardente presented a claim to Standard Fire Insurance Company [“Standard Fire”], which denied the claim on the ground that the claim fell within an exclusion for manufacturing defects. 

The district court granted summary judgment in favor of Standard Fire on all of Ardente’s claims except for the breach of contract allegation.  On that claim, the district court granted Ardente summary judgment with respect to liability, interpreting the policy in such a way that the damage fell within an exception to the exclusion for manufacturing defects.  Ardente’s Standard Fire policy explicitly disclaims coverage for “loss or damage caused by or resulting from . . . [d]efects in manufacture, including defects in construction, workmanship and design other than latent defects as defined in the policy”.  This is the Manufacturing Defects Exclusion.  Although the parties agreed that the use of the balsa wood instead of solid laminate did constitute a manufacturing defect, they disagreed over whether the defect fell with the latent-defect exception. The policy defined “latent defect” as “a hidden flaw inherent in the material existing at the time of the original building of the yacht, which is not discoverable by ordinary observation or methods of testing.

The only dispute was whether the balsa wood constitutes a “hidden flaw inherent in the material”.  Standard Fire argued that the material, balsa wood, was not flawed in any way; that it was perfectly good balsa wood, and that it did what balsa wood does – absorb water. Ardente, on the other hand, argued that while the balsa wood itself was not flawed, the use of the balsa wood, instead of the solid laminate, was certainly a flaw.

The district court sided with Ardente and determined that the phrase, “flaw inherent in the material”, contained a contradiction.  The district court stated that “the word “inherent” requires that a latent defect be characteristic of or intrinsic to the material.  The word “flaw” imposes the exact opposite requirement. It includes problems with a specific piece of material, but not problems characteristic of the material itself.  In short, giving the terms their plain and reasonable meaning, there can be no such thing as an inherent flaw.”  Essentially, the district court interpreted “latent defect” to include the flawed use of unflawed material.  For the following reasons the United States Court of Appeals for the First Circuit [“Court”] disagreed.

First, the Court found that policy’s definition of “latent defect”, though not a model of precision was not self-contradictory. The Court determined giving the language its plain, everyday meaning the phrase refers to flaws in the material used to build the boat that were not noticeable. The Court stated that, if anything, the definition could be criticized not as self-contradictory, but as redundant.  Acknowledging that redundancy may be a form of ambiguity the Court pointed to the Sixth Circuit decision of TMW Enterprises, Inc. v. Fed. Ins. Co., 619 F.3d 574 (6th Cir. 2010) which pointed out that the label redundancy is not a fatal one when it comes to insurance contracts, where redundancies abound.

Next, the Court stated that even accepting that “inherent” in the policy’s definition is redundant, it failed to see how this redundancy supports the reading adopted by the district court, which essentially changed the word “material” to “yacht”, such that the “latent defect” referred to a hidden flaw in the yacht.

The Court noted that Ardente did argue that the term “material” is ambiguous and urged the Court to interpret “material” to mean not the balsa wood, but something like, “all of the stuff that is near the installation holes”. The Court did not find this argument to be persuasive because it would create surplusage, which according to one canon of contract interpretation should be avoided.  The Court held that Ardente’s interpretation of the word “material” would allow the latent-defect exception to swallow the manufacture-defect exclusion, rendering the exclusion superfluous and doing violence to the policy.  The Court noted that to say that “material” in the definition of “latent defect” refers not to an individual raw ingredient used in constructing the yacht, but rather to a composite of various raw ingredients that appears in close proximity in a particular area of the ship, yields a result that was not intended.

Accordingly, because the damage to Ardente’s yacht does not fall within the latent-defect exception to the manufacture-defect exclusion, Standard Fire was entitled to summary judgment on the breach of contract claim.

02/28/14       Patterson v. Mutual of Omaha Ins. Co.
United States Court of Appeals Eighth Circuit –Nebraska Law
Did Cheerleader’s Injury Take Place During a “Practice Session”?
Wesley Patterson was a student cheerleader at Prairie View A & M University and was paralyzed while practicing a tumbling maneuver during a gymnastics class.  Patterson sued Mutual of Omaha Insurance Company [“Mutual”] seeking coverage under the insurance policy that Mutual issued to Prairie View as a member of the NCAA.  Mutual’s policy covered student cheerleaders who are injured during cheerleading practice sessions.

The district court denied Mutual’s motion for summary judgment and granted Patterson’s motion for summary judgment after concluding that the term “practice session” in Mutual’s policy included the gymnastics class Patterson was attending when he was injured. For the following reasons the Eighth Circuit Court of Appeals [“Court”] affirmed.

Jim Price was the cheerleading team coach at Prairie View and encouraged Patterson to join the team.  As a cheerleader, Patterson was required to attend cheerleading practice from 5:30 p.m. to 8:30 p.m. every Monday through Thursday.  Price also taught Gymnastics II, a one-credit physical education class held from 1:00pm to 1:50pm every Monday and Wednesday.  Although Patterson was not enrolled in Gymnastics II he began attending the class in the fall of 2007 to practice tumbling, a form of gymnastics used in cheerleading.  Price also permitted other cheerleaders who were not enrolled in Gymnastics II to attend the class. On January 23, 2008, Patterson was attempting to perform a round-off back-handspring tuck as part of a graded skills exam in Gymnastics II when he fell and injured his spinal cord, rendering him an incomplete paraplegic.

In analyzing the policy, the Court noted that the policy contemplates four basic requirements for coverage relevant to this appeal:  (1) the student must be injured during a practice session; (2) the practice session must be authorized, organized, and supervised by the coach; (3) the practice session must take place in preparation for a Qualifying Intercollegiate Sport team competition; and (4) the practice session must be directly related to the activities of a Qualifying Intercollegiate Sport team. 

The Court further noted that the policy did not define the term “practice session”, as such the Court defined the term by referring to the Merriam-Webster Collegiate Dictionary which defines practice as “systematic exercise for proficiency” and session as “a meeting or period devoted to a particular activity”.

Although the Court stated that Mutual demonstrated that cheerleading practice during Gymnastics II differs from cheerleading practice after school, Mutual has not shown, however, that this difference matters.  The Court determined that practice sessions need not be homogeneous; they may take place at different times and at different places.   Moreover, the Court noted that the fact that Gymnastics is a class does not mean that it cannot also be a practice session.

Next, the Court addressed Price’s role in authorizing the activities that took place during Gymnastics II.  The Court found that Price had almost plenary authority, noting that Prairie View may have decided to offer Gymnastics II as a class, but it was Price who authorized the cheerleading practice during the class.

Next, the Court addressed whether the cheerleading activity during Gymnastics II was performed “in preparation for a Qualifying Intercollegiate Sport team competition.  Although the record was silent as to whether Patterson intended to use the round-off back-handspring back tuck he was practicing in Gymnastics II at a specific basketball or football game in the future, it was undisputed that Prairie View cheerleaders used tumbling routines during football and basketball games and that Patterson was performing a tumbling maneuver when he injured himself.

It was the Court’s opinion that if it were to impose such a requirement, cheerleaders at after-school practice  would have to consider, for insurance purposes, whether they were scheduled to perform each particular drill at a specific game in the near future, thereby defeating one of the central purposes of insurance, i.e., to provide the policyholder with peace of mind.

Finally, the Court addressed whether the activities during Gymnastics II were directly associated with the activities of a Qualifying Intercollegiate Sport team. The Court analyzed the policy and found examples of activities not directly associated with sport team competitions – camps, clinics, national competitions, fund-raisers, alumni events and other events not conducted by the Insured Person’s Participating School. 

The Court concluded that the relationship between what Patterson was practicing when he was injured and why he was practicing it was sufficiently close to establish that the activities during Gymnastics II were “directly associated” with a Qualifying Intercollegiate Sport team competition.

Accordingly, the Court found that all the basic requirements for coverage were met, and affirmed the decision of the lower court.

KEEPING THE FAITH WITH JEN’S GEMS

Jennifer A. Ehman
                                             [email protected] 

03/06/14       Shawmut Working & Constr. v Harleysville Ins. Co. of N.Y.
Supreme Court, New York County
Court Applies First Department Case Law Holding that “Caused By” and “Arising Out Of” Do Not Have Significantly Different Meanings
Shawmut Woodworking and Construction (“Shawmut”), the CM/GC, brought this action seeking additional insured status under its subcontractor’s insurance policy.  Shawmut hired RIVCO to perform carpentry work including sheetrock installation at a condominium renovation project. 

While RIVCO was on site, Michael Minogue, an employee, caught his foot on raised Masonite and fell sustaining injury.  Minogue brought suit against the owner and Shawmut under the New York Labor Law.  Shawmut tendered its defense and indemnity to RIVCO’s CGL carrier, Harleysville. 

In response, Harleysville denied coverage.  It submitted that the accident was not “caused in whole or in part, by your acts or omissions,” as required by the AI endorsement contained in its policy. 

The court, in considering the scope of the “caused by” language, adopted the First Department’s decision in National Union Fire Ins. Co. of Pittsburgh, PA v. Greenwich Ins. Co., which held that “caused by” and “arising out of” do not have significantly different meanings.  In turn, it found that where an employee of the named insured is injured while performing the named insured’s work, there is a sufficient connection between the work and the injury to trigger the coverage. 
Take Away:  While we recognize that the First Department has decided this issue, we continue to disagree that “caused by” and “arising out of” do not have significantly different meanings.    

BAD FAITH

02/26/14       Orient Overseas Associates v. XL Ins. America, Inc.
Supreme Court, New York County
Bad Faith Causes of Action Dismissed
Orient Overseas Associates brought this action after defendants failed to pay all property damage sustained to two office buildings during Superstorm Sandy. 

This decision addresses defendants’ motion to dismiss the allegations that they acted in bad faith in resolving the insurance claims, and their asserted recovery for extra-contractual damages including legal fees incurred and to be incurred by Orient, in pursuing this action, and punitive damages.  In granting the motion, the court began by rejecting Orient’s reliance on Bi-Economy and its assertion that New York recognizes a separate cause of action for bad faith claims handling.

Instead, the court advised that if a breach of contract is established, an insured may, if appropriate, seek consequential damages based on defendants’ claimed breach of the covenant of good faith.  The court went on to hold that even with the potential availability of consequential damages, the claim here must still fail because the consequential damages being sought are not qualified nor identified, and they are not based upon different facts than the breach of contract claim.  In order to recover consequential damages, the harm that occurred must be beyond the breach of contract. 

In addition, the court dismissed the additional bad faith causes of action as they arose out of the same dispute over whether a certain policy applied, and how it applied to specific loss of property. 

Lastly, the court dismissed the claim for attorneys’ fees. 

EARL’S PEARLS
Earl K. Cantwell

[email protected]

Double Check Notices and Correspondence to Policyholders

In Miller v. Safeco Insurance Company of America, 2013 WL 6199153 (E.D. Cal., November 27, 2013), a federal court held that there were issues of fact a jury must decide as to whether Safeco acted reasonably in denying a theft loss claim.  The underlying case is a tale of two addresses and confusion.  The policy owners rented a house in California on which they purchased renter’s insurance.  They also had a house they owned on which there was a homeowner’s policy.  Safeco sent a notice of nonrenewal which referred to the homeowner’s policy, but the policy number listed in the notice was the renter’s policy.  The policyholder disregarded the notice, believing it referred to the homeowner’s policy which was on a property they had since sold.  As bad luck would have it, there was a major burglary at their rented home, and a claim was filed with Safeco which was denied because that policy had not been renewed.  The policyholder sued Safeco for breach of contract and bad faith.

Safeco moved for summary judgment on the basis of the nonrenewal, contending that the (apparently) mistaken reference to a homeowner’s policy did not invalidate the notice of nonrenewal.  The District Court denied the motion concluding that there were factual issues whether the notice gave clear and conspicuous notice that it was the renter’s policy that was not going to be renewed.  The Court stated it was unable to conclude as a matter of law that Safeco’s claim denial based on nonrenewal of the renter’s policy was effective and reasonable.

The lesson of this case is to double check notices and correspondence to claimants and policyholders for inclusion of correct information such as dates, policy numbers, addresses, names, and policy periods.  A second look over claim correspondence can correct typographical, filing, or other errors, and avoid legal problems if not embarrassment. It is also a good practice to “team up” with someone in your department or team to review such letters since another set of fresh eyes tends to catch errors, or at least question possibly erroneous.

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