Coverage Pointers - Volume XV, No. 2

Dear Coverage Pointers Subscribers:

Situations?  You have a situation?  We LOVE situations.

Are you following us Twitter? If not, you may be up to two weeks behind in news.  If there is something of urgency, we’re tweeting @kohane for your reading pleasure.  LinkedIn fan?  Try the New York Insurance group, which we founded and oversee and where we moderate interactive discussions on timely issues.

And we do love the summer.  However, I cannot say, and I will not suggest, that I have any affection for traffic jams in Atlanta, where I spent part of this week, but I do love the summer nonetheless.

A special tip-of-the-hat to my good friends in Alpharetta where I spent a very pleasant afternoon on Tuesday and the Harmonie folks before whom I gave a short talk on the ethical methods of obtaining and securing social media information on claimants.  I joined Earl Cantwell in Atlanta for the Harmonie meeting, and he participated in a mock trial and in two other presentations. I tried to rush back to the airport (if five miles per hour on I-85 can be considered a rush,) only to have my 8:30 flight delayed until midnight and a touchdown in Buffalo at 2:00 AM.  Sheesh.

The DRI Insurance 101 Webinars are Scheduled:

We are only one week away from the DRI Insurance 101 Webinar, more information below.  The Wednesday webcast, the first of three webinar programs, will provide an overview of the different types of insurance policies available to individuals and commercial entities. It will also address “how to read” a policy, common policy provisions, how to differentiate between tort and coverage issues, how to approach and unravel coverage questions and rules of interpretation and construction.

Your humble editor is one of the two speakers on the first program.  Don’t miss this very-low cost opportunity to bring nationally prominent coverage counsel (yours truly, perhaps excepted) into your offices in three separate sessions.  Look closely at Audrey’s letter below. Click here for registration information.


Cat Toolbox Presentation and Registration is Now Open:

2013 Catastrophe Toolbox Presentation
August 21, 2013
Stamford Connecticut

Hurwitz & Fine, P.C. was pleased to be invited to join the Catastrophe Toolbox team. Alford Bolin Dowdy, LLC of Mobile, AL; Boehm Brown Harwood, P.A. of Orlando, FL; Mozley, Finlayson & Loggins, LLP of Atlanta, GA had organized and presented two fantastic conferences held in 2011 in Boston and 2012 in Atlanta. With the arrival of Sandy, the Northeast states are now included in the program and we were honored to be included on the Catastrophe Toolbox program and presentation team.

This year the program will be presented at the University of Connecticut Extension Campus in Stamford, CT on Wednesday, August 21, 2013. It will commence at 1 pm and end at 4 pm. A reception will follow. Registration will be available beginning at noon. There is no fee to attend, but we do need a head count and so require a reservation from you. You can contact one of the below named partners to make your reservation.  Seats are already beginning to fill.

We are applying for adjuster continuing education credits in a number of states including Florida, Texas and North Carolina. This year we likely will provide them electronically either on a flash drive or through a web portal with password access.

The contacts at each firm are:

Dan D. Kohane ([email protected]) and Steven E. Peiper ([email protected])
Helen Alford ([email protected]);
Janet L. Brown ([email protected]); and
Wayne D. Taylor ([email protected] ).

The states we plan to include are as follows: Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Kentucky, Kansas, Louisiana, Massachusetts, Maryland, Missouri, Mississippi, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee and Texas. The expansion includes many states in the Northeast who experienced issues with Sandy as well as a number of the tornado alley venues.

We chose Stamford CT for its central location among those still dealing with Sandy issues and its ease of access along the Northeast corridor. It is our hope that the convenient location will allow many of you to attend. We look forward to seeing you there.

Notes from Seeleyville:

There is a must-read decision from the Superior Court of Pennsylvania this edition regarding a change in the standard applied when an insurer offers a defense subject to reservation of rights and the enforcement of the policy’s consent to settle provision.  In essence, the insured has two options – accept the defense knowing that the consent to settle provision will be enforced unless the insured can demonstrate bad faith or decline the defense and if coverage is found under the policy then the insurer must reimburse the insured for defense costs and the settlement subject to the costs being reasonable, non-collusive and fair.  It raises multiple questions including whether insurers should provide more careful consideration to their coverage defenses and determine whether they wish provide an unconditional defense and will there be an influx in litigation over what is reasonable, fair and non-collusive.

It is not too late to register for the DRI “Insurance 101” webinar!  The “Insurance 101” series will provide an excellent opportunity for claims professionals, attorneys, summer associates, and law clerks, to be introduced to the most significant, core concepts of insurance coverage.  The program will also be a terrific refresher for more experienced claims professionals and seasoned attorneys who want to know more about insurance coverage law and practice.  Each webcast will be presented by the insurance industry’s top professionals in 90 minute segments as follows:

·    “What You Always Wanted to Know About Policies” will be presented on July 25th (1:00 – 2:30 p.m. CDT) by Shaun Baldwin of Tressler LLP and Dan Kohane of Hurwitz & Fine, P.C.   This Webcast will overview the different types of policies available in the marketplace, common policy provisions, and rules of interpretation and construction.   

·    “The Duty to Defend” will be presented on August 1st (1:00 – 2:30 p.m. CDT) by Chuck Browning of Plunkett Cooney and Brenda Wallrichs of Lederer Weston Craig PLC.  This webcast will cover core issues relating to the “duty to defend” including when it is triggered, reservations of rights, and independent counsel.    

·    “Coverage and Bad Faith Litigation” will be presented on August 8th (1:00 – 2:30 p.m. CDT) by Mike Marick of Meckler Bulger Tilson Marick & Pearson LLP and Kevin Willging, Senior Counsel and Second Vice President of Travelers.  This webcast will overview litigation of coverage and bad faith lawsuits and will address claims typically asserted, common motion practice, and strategic considerations.    

The per-site cost for the individual segments is $150 for DRI members and $180 for non-DRI members.  Or you can purchase the entire webcast series for $300 for DRI members and $460 for non-DRI members.   Please register online at

Audrey Seeley
[email protected]


Even 100 Years Ago, Public Smoking an Issue:

New York Times
July 19, 1913


But in Deference to Dr. Pease, Stover
Puts Aside Seats for Non-Smokers.

Commissioner Stover of the Park Department and Dr. Charles G. Pease, President of the Non-Smokers’ Protective League, have exchanged letters on the subject of smoking at the park concerts.  The Commissioner said yesterday he had received three more letters from Dr. Pease complaining about the use of tobacco.  The Commissioner asserted that he thought there ought not to be smoking in the crowd immediately in front of the bandstand, as there were persons there who were annoyed by it.  But he said that at reasonable points about the stand he was in favor not only of smoking, but of providing places where refreshing drinks and light lunches might be served.  He said he thought it would be a good idea if the terrace east of the pagoda could be graded so that small tables could be put there for those who liked to listen to music with refreshments in front of them.

He added that he was in favor or moving the bandstand to a point further west and putting all the seats in front of the orchestra, which would give a larger seating capacity.  In answer to Dr. Pease’s objection to smoking, he said that it was his duty to make the public as comfortable as possible at the concerts, and therefore he should provide places where the smokers and non-smokers would not clash. 

Margo’s Musing:

While I normally do not write cover notes, this week there is a decision to report on that frankly was long awaited.  It is the reversal by the Appellate Term, 9th and 10th Judicial Districts, in Richard E. Amato, D.C. v State Farm Insurance Company, a judgment from October 2010 of the Nassau County District Court.  The District Court had decided that an IME (Independent Medical Exam) that finds the EIP (Eligible Injured Party) to have made a full recovery, and is in no further need of treatment, is:

a snapshot of the injured parties [sic] medical condition as of the date of the IME. . .As regards the need for future treatment, the IME is nothing more than an expert’s prediction that the claimant has fully recovered or received the maximum therapeutic benefit from the treatment and does not presently need any additional treatment.

However, there is no legal reason why claims for medical treatment submitted after an “IME cut-off” has been issued should be treated any differently than claims submitted prior to the IME. . .The timely submission of a post IME cut-off claim shifts the burden to the defendant to establish a factual basis and medical rationale for its determination the treatment was unnecessary.

This decision was perplexing because it seems to be saying that an new IME would be necessary to deny each claim submitted if, in fact, that IME merely serves as a “snapshot” of the EIP on a specific day.  Moreover, would you have to do an IME on each date of service?  After all, that would be the only way to actually refute the medical necessity of the services rendered on a specific date.

But no, the Appellate Term holds that where an IME finds the EIP has reached pre-accident status, the burden shifts to the plaintiff to demonstrate, “by a preponderance of the credible evidence,” the medical necessity of subsequent treatment.  Thank you.  The world is at peace once again.

Margo M. Lagueras
[email protected]

Snake-Bit, A Century Ago:

The New York Times
July 19, 1913


Mrs. George Buscher Bitten Twice
by a Snake, but Will Live

BRANCHVILLE, N.J. – When Mrs. George Buscher of Sandyston Township awoke early this morning with a cry of pain, her husband told her to “forget it and go to sleep again.”  She did so, but shortly afterward she was awakened again by a stinging sensation in her knee.  The first pain had been in her foot. 

Buscher lighted a lamp and investigated.  He found that a copperhead snake, two feet long, had bitten his wife twice.  Buscher dispatched the snake and sent for a doctor.  Dr. Edward A. Ayers of Branchville got there at 7 o’clock, but in spite of his delay he said that the bites would not prove fatal.  Nevertheless, Mrs. Buscher is in great pain. 

Buscher believes that the snake had been in the house some time and that while the bed was open yesterday morning it crawled into a fold of the sheet.

Steve’s Stuff:

As long time readers already know, we are entering the Summer Slowdown as far as decisions go.  Not too worry this week, as we have a varied and entertaining column for your perusal. 

In an important decision out of the Fourth Department, the court applied the plain language of a broad water exclusion.  Per the plain meaning of the policy, if damage was caused by the pressure of water, coverage was excluded.  It was, and so to was plaintiff's claim.  Hopefully, a harbinger of future decisions to come.  A word of caution, though.  The decision hails from the learned Justices of Western New York.  It may have less impact than we'd like think in those court's sitting east of the Hudson.  Just kidding....sort of! 

We also review two interesting Labor Law decisions this week.  Before you read them, a quick quiz.  Plaintiff is working on a ladder when he is struck by a ceiling that collapses above.  Plaintiff falls off of the ladder, and sustains injury.  Is this a 240(1) violation?  Talk amongst yourselves, and then read below.  No cheating. 

For those of us "Up North", today's scorching 90 degrees is nearly unbearable.  It is no less pleasant at Darien Lake where I have been talked into attending yet another Bob Dylan concert.  It's his last time....or so the story goes.  Of course, I've been hearing that since 1996 which, by the way, marked the first time I saw him on his "possible last concert."   Oh well, "don't think twice" right?  

See you in two more weeks. 

Steven E. Peiper
[email protected]


One Hundred Years Ago, Divorce Law Was Different in the UK:

New York Times
July 19, 1913

The British Divorce Law – Letter to the Editor

To the Editor of The New York Times:

The divorce proceedings brought by Mrs. Cornwallis West have given rise to charges of favoritism to the plaintiff.  This favoritism is not obvious to the American reader, but to those familiar with the English divorce law it is plainly evident. 

The English law requires, where the husband has been guilty of misconduct and desertion, that the wife write a letter, “conciliatory in its nature,” requesting her husband to return to her, and the wife must also petition the court for an order granting restitution of conjugal rights, and only on her husband’s refusal is the woman entitled to receive a decree of divorce.
                                                                                    ISRAEL LUDLOW

Mike’s Mini-Missives

Well there are light weeks and there are light weeks.  The Courts only provided two cases worth looking at this week.  I was excited when the Fourth Department mentioned the frequently overlooked serious injury category, permanent loss of use (which is different from the permanent consequential limitation of use).  This category of injury often gets short shrift and I was hoping for a more in depth treatment.  My excitement, however, was misplaced. 

Just a reminder, a permanent loss of use requires that the loss of use be permanent and total.   This may seem obvious, especially since if the loss was not total, then it would merely be a permanent limitation of use, which is redundant.  However, the Appellate Division did not always require a total loss to establish a permanent loss of use (see Basset v. Romano, 136 AD2d 693 [2d Dept 1987]).

We do a fair bit of training and education here at Hurwitz & Fine, free of charge of course, and we love doing it.  If you or your team could benefit from training on no-fault serious injury law, or any other coverage topic for that matter, shoot us an email and we will figure out a way to meet your needs.

Michael Scott-Kristansen
[email protected]

Editor’s Note:  Mike, this is your first summer doing these summaries.  The courts go on summer hiatus each and every year and opinions slow to a trickle until about two weeks after Labor Day.


A Century Ago – The Mysterious Passing of Miss Alice Crispell:


Middletown, N.Y.
July 19, 1913


Wilkes Barre – The police and county authorities who are trying to solve the mystery surrounding the death of Miss Alice Crispell, aged 18, whose body was found floating in Harvey’s Lake, are today working on a half dozen theories, none of which has yet produced tangible clues.

Herbert Johns, a mine worker, who was the last person seen with the girl Friday night, and who is in jail on suspicion in connection with the case, maintains his calm demeanor, and, despite police efforts, he sticks to the details of the story he first told about his last night with the girl.

One of the principal theories the police are working on is that Johns may have had a rival for the girl’s hand.  In a letter he wrote her Sunday after she was missing two days, he mentioned a man named “Caney,” who proved to be Harrison Cann, of Wilkes Barre, who told the police he knew nothing about the circumstances of the girl’s death.  
Editor’s Note.  The mysterious death of Alice Crispell has been the subject of many stories, over the years.  In one, by F. Charles Petrillo, he describes the crime:

In the early morning of Monday, July 7, 1913, the body of 18 year old Alice Crispell was discovered floating in the lake near the Weckesser boat house ‐ near Sunset. She had been missing since July 4 after meeting a young Wilkes‐Barre miner, Herbert Johns, and sharing drinks with him at the Oneonta Hotel.

Johns was arrested for Alice’s murder ‐ but claimed Alice had left him at 11:30 p.m. and was going to walk home. Her family was not immediately alarmed since Alice often spent days visiting an aunt in Wilkes‐Barre.

There was immediate speculation that Johns was innocent. His lawyer Frank McGuigan, a lawyer later famed for criminal defense work, declared Johns innocent before even meeting “Bert” Johns.

There was no apparent motive for her death. There was speculation about a lover’s rival, Harrison Cann, but Cann denied it and he, too, believed Johns was innocent. Alice had a medical history of “fits.” Was her death accidental? The newspaper raised the question of suicide but her temperament and friends argued against this theory. 100 love letters from Johns to Alice were uncovered ‐ but did not suggest any motive to kill Alice ‐ although Johns feared Alice’s father would have shot him earlier because of his involvement with her.

A coroner’s jury found that Alice died as a result of a criminal act ‐ but exonerated Johns for lack of evidence against him. Despite the coroner’s jury, the District Attorney held Johns without bail in jail on criminal charges of first degree murder.

After a dramatic hearing in Wilkes‐Barre, and the release of autopsy reports which found Alice definitely had drowned, John’s lawyer claimed murder could not be proved and Johns could not be connected to Alice’s death. A grand jury hearing the case was directed by Judge Fuller to release Johns.

Alice’s death was never solved.  To read more, click here, for an article just published on the murder.


One Hundred Years Ago:

The Mental Deficiency Act 1913was passed by the British House of Commons, 180 to 3, providing for the removal of "feeble-minded" persons to special institutions. The only three MPs to vote against it were Josiah Wedgwood, Frederick Banbury and Handel Booth. The act would receive royal assent and take effect on April 1, 1914 and remain in effect until 1959.

Long Islands Sounds (or Beth’s Banterings):

For those of you in the New York area, we are enjoying yet another heat wave with temperatures topping 100° on Long Island and in New York City.  In an effort to “think cool” even though it’s only July, we are enthusiastically planning the ever-popular Law School for Insurance Professionals, which will be held on Long Island and Syracuse on October 10th, New York City on October 4th, Albany on September 12th and Buffalo on September 16th when, hopefully, the temperatures will be cooler.  Brochures will be emailed shortly.  If you would like more information, please reach out to me.

Coverage B decisions were quiet, but I bring you a battle over beer from Mississippi.

‘Til next time:

Elizabeth A. Fitzpatrick
[email protected]

Jen’s Gems:

I am currently writing this note from my back patio.  I dare not sit inside as it is probably 85 degrees, and my husband has already assumed the position in front of the fan.  Growing up in Buffalo, we never had central air and I never remember it being this hot.  Perhaps, global warming is finally kicking in. 

Anyways, the New York trial courts seem to be keeping busy this summer even if the appellate courts are rather quiet.  I report on some great cases this week.  Particularly interesting is National Union Fire Ins. Co. of Pittsburgh, PA v Compaction Sys. Corp. of N.J., out of Supreme Court, New York County.  The matter involved the impact of a prior settlement agreement between National Union and Compaction.  The two parties had previously settled Compaction’s claim seeking additional insured status under policies issued to another party.   After the settlement, Compaction brought a contribution claim against that other party, who was the named insured on the National Union policies.   If anyone was involved in the matter, I would be really interested to know how the case was positioned to avoid anti-subrogation issues.  Another good one to review involves Syracuse University and its attempt to obtain coverage for costs included in responding to investigation subpoenas issued in relation to the Bernie Fine matter.

Until next issue…

Jennifer A. Ehman
[email protected]

In This Week’s Issue:

Dan D. Kohane
[email protected]

  • Where Claimant was Occupying a Car That She Owned but Not Insured for SUM Coverage by the Policy Under Which the Claim Was Made, SUM Coverage Not Available
  • When Discovery in Direct Action Establishes Another Ground for Denying that Defendant is Insured Not Previously Asserted, Amendment to Pleadings is Permitted


Michael P. Scott-Kristansen

[email protected] 

  • Plaintiffs’ Injuries Were Not Permanent Consequential or Serious Limitations Because They Either Resolved or Were Too Mild
  • No 90/180-Day Claim Where Plaintiff Returns to Work and Normal Duties Within Four Weeks


Margo M. Lagueras

[email protected]


  • IME Report Not Submitted Will Not Be Considered During Hearing
  • Denial Is Not Upheld Where Respondent Fails to Establish That Peer Reviewer Is Familiar With Chiropractic Accepted Standard of Care
  • Room for Speculation and Conjecture Results in Upholding of the Denial
  • Permission and Authority Extends to Passenger



  • Absent Evidence, Finding That Assignor’s Condition Worsened After IME Would Be Speculative


Steven E. Peiper

[email protected]

  • Water Exclusion Endorsement Plainly Excludes Losses Caused by the Pressure of Subsurface Water



  • No Labor Law 240(1) Violation where the Collapsed Ceiling was not being Hoisted or Secured
  • Brokerage’s Obligation to Trading Clearing House is a Direct Financial Loss Under the Terms of its Fidelity Bond
  • Question of Fact on Sole Proximate Cause Precludes Summary Judgment; Negligence Trigger on Indemnity Agreements also Temporarily Precludes SJ
  • Carrier Mistake Is Now an Excuse for Defaulting Party


Elizabeth A. Fitzpatrick
[email protected]



Audrey A. Seeley
[email protected]

  • Significant Change In Whether Insured Bound By Consent To Settle Provision In Policy When Defense Offered Subject To Reservation Of Rights


Cassandra A. Kazukenus
[email protected]

  • Reminder Change to No-Fault Forms as Of August 1, 2013
  • Insurance Circular Letter 2 (2013)


Katherine A. Fijal

[email protected]

  • Terms of Master Services Agreement Not Enforceable by Insurer


Jennifer A. Ehman
[email protected]

  • Settlement with Additional Insured Did Not Bar Future Contribution Claim By Additional Insured Against Named Insured; Anti-Subrogation?
  • Allegations in the Complaint Trigger Duty to Defend
  • Court Finds Two Year Suit Limitation Began to Run on Date Notice of Claim was Filed with First-Party Insurer
  • Court Finds Coverage for Costs in Responding to Investigation Subpoenas


Bad Faith

  • Carrier Did Not Act in Bad Faith where Plaintiff Asserted an Uncommon Injury Following a Motor Vehicle Accident


Earl K. Cantwell

[email protected]

  • Insurance Coverage for Construction Defects Revisited


In looking at my crystal ball, I predict the next issue will come to you from Colorado Springs, but that’s just a wild guess. 

On a personal note, I celebrated my 36th anniversary with H&F this past week, July 14, having joined as a law clerk a mere 45 days after the firm opened its doors.  I was earning $3.00 an hour and was overpaid, even then.  July 14, 1977 was the beginning of a two-day blackout in NYC, with looting and mayhem of all denominations.  Thirty-six years is a long time to be anywhere.  It’s an honor to work with these fine lawyers and great staff.  I don’t expect to be here another 36 years because that would require me to work until age 96.  That ain’t in the cards.  But I’m convinced of this, the firm will be here, doing good and innovate things, staying on the cutting edge.  We like what we do.

See you in a couple of weeks.

We appreciate your kind words and helpful suggestions.


Dan D. Kohane
Hurwitz & Fine, P.
1300 Liberty Building
Buffalo, NY 14202    
Phone: 716.849.8942
Fax:      716.855.0874
E-Mail:     [email protected]

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

Dan D. Kohane
[email protected]

Audrey A. Seeley
[email protected]

Jennifer A. Ehman
[email protected]

Dan D. Kohane, Team Leader
[email protected]

Michael F. Perley
Elizabeth A. Fitzpatrick
Katherine A. Fijal
Audrey A. Seeley
Steven E. Peiper
Margo M. Lagueras
Cassandra Kazukenus
Jennifer A. Ehman

Michael P. Scott-Kristansen
Diane F. Bosse

Steven E. Peiper, Team Leader
[email protected]

Elizabeth A. Fitzpatrick
Cassandra Kazukenus
Michael P. Scott-Kristansen

Audrey A. Seeley, Team Leader
[email protected]

Margo M. Lagueras
Cassandra Kazukenus
Jennifer A. Ehman

Jody E. Briandi, Team Leader
[email protected]

 Elizabeth A. Fitzpatrick

Diane F. Bosse

Index to Special Columns

Kohane’s Coverage Corner
Michael’s Mini-Missives on Serious Injury
Margo’s Musings on No Fault

Steve on Sandy, Peiper on Property and Potpourri
Beth’s Banter on Coverage B and Fitz’ Bits
Audrey’s Angles on the Nationally Noteworthy
Cassie’s Capital Connection
Fijal’s Federal Focus
Keeping the Faith with Jen’s Gems
Earl’s Pearls

Dan D. Kohane
[email protected]

07/17/13       Government Employees Insurance Company v. Avelar
Appellate Division, Second Department
Where Claimant was Occupying a Car That She Owned but Not Insured for SUM Coverage by the Policy Under Which the Claim Was Made, SUM Coverage Not Available
This was a proceeding to permanently stay a SUM (supplementary uninsured/underinsured motorist) arbitration.

Avelar was hurt in a two-car accident.  She was a passenger in an Allstate-insured car with $25,000/$50,000 liability.  That policy also had $25,000 in SUM limits. The other car involved in the collision, was by Travelers, with $25,000/$50,000 limits. The Travelers policy was tendered and was deemed to be an offset as against the Allstate policy.  Knowing that she could not make a claim against the Allstate Policy, she made a claim under a GEICO-issued SUM policy issued to  Avelar, a relative with whom she lived, by.  That policy had SUM limits of $100,000 per person and $300,000 per incident. While acknowledging that the respondent was an "insured" under the terms of the GEICO policy, GEICO denied coverage based on a policy exclusion relating to the SUM endorsement. Avelar requested arbitration and GEICO commenced this proceeding, inter alia, to permanently stay the arbitration.

The SUM endorsement under the GEICO policy provided, in relevant part, that it did not apply "to bodily injury to an insured incurred while occupying a motor vehicle owned by that insured, if such motor vehicle is not insured for SUM coverage by the policy under which a claim is made. There is no dispute that Avelar was occupying a vehicle that she owned but was not covered under the subject policy.
Editor’s Note:  My monthly (or so) reminder that in order to challenge that arbitration based on the exclusionary language, GEICO was required (and did) make an application to the court to permanently stay arbitration within 20 days.  The arbitrator has no power to make such a determination. 

07/05/13       Williams v. New York Central Mutual
Appellate Division, Fourth Department
When Discovery in Direct Action Establishes Another Ground for Denying that Defendant is Insured Not Previously Asserted, Amendment to Pleadings is Permitted
Williams and another (“Williams”) brought a direct action against Bulluck based on injuries inflicted by Bulluck and Bullock’s home.  The defendant’s homeowners carrier, NY Central, denied coverage alleging that the conduct was intentional and that timely notice of the incident was not provided. NY Central nevertheless agreed to defend.

Williams and Bulluck settled the underlying action for the policy limit.

When the direct action was brought, NY Central alleged in its answer that the incident was not an “occurrence” within the meaning of the policy and that the notice w3as untimely.   Following depositions of Bulluck and his mother, NY Central moved to add the affirmative defense that there was no coverage because Bulluck is not "an insured" under the policy and that, inasmuch as the owner did not live at the property, the incident did not occur at an insured location.

The court denied leave to amend the answer on the ground that Williams had negotiated the settlement in the underlying action with the understanding that defendant was disclaiming coverage on the bases set forth in its disclaimer letter, and the court determined that "[t]o alter the playing field now, after several years of litigation and a judgment, with known strategies and positions in mind, would constitute unfair surprise to the [p]laintiffs and unduly prejudice them." The Fourth Department found that since the mother did live at the property and that Bulluck lived alone at the time of the incident, the proposed amendment is " not patently lacking in merit' ". If New York Central establishes its proposed affirmative defense that the claim falls outside the scope of the policy's coverage, it would have no duty to provide a timely notice of disclaimer to Bulluck, the purported insured, on that basis.  That an amended pleading may defeat a party's cause of action is not a sufficient basis for denying a motion to amend.

NY Central had expressly disclaimed coverage and reserved its right to assert further grounds for noncoverage so the carrier is not estopped from asserting a lack of coverage on the grounds set forth in the proposed amendment.

Michael P. Scott-Kristansen
[email protected] 

07/05/13       Grasso v. Finn
Appellate Division, Fourth Department
Plaintiffs’ Injuries Were Not Permanent Consequential or Serious Limitations Because They Either Resolved or Were Too Mild
The plaintiffs alleged four categories of serious injury, including permanent loss of use of a body organ, member, function or system; permanent consequential limitation of use; significant limitation of use; and a 90/180-day injury.  The defendant established that neither plaintiff suffered from any of the four serious injury types, so dismissal of the complaint was affirmed.

The court held the plaintiffs did not suffer from a permanent consequential or serious limitation of use because the defendant demonstrated that many of their injuries had resolved.  The remaining injuries were too “mild, minor, or slight” to constitute a significant or permanent consequential limitation of use.

The courts do not frequently address the permanent loss of use category.  Here the court cites to the Court of Appeals case that set forth the controlling standard.  Under Oberly v. Bangs Ambulance, Inc., 96 NY2d 295 (2001), a permanent loss of use must also be a total loss of use, not merely a limitation of use.

07/17/13       Marin v. Ieni
Appellate Division, Second Department
No 90/180-Day Claim Where Plaintiff Returns to Work and Normal Duties Within Four Weeks
The Court held summary judgment was properly granted to the defendants because they met their burden on serious injuries, causation, and the plaintiff’s 90/180-day claim.  The plaintiff, in turn, failed to meet his burden.

The defendants met their burden on the 90/180-day claim by submitting the plaintiff’s deposition testimony, which established that the plaintiff only missed one week of work and returned to normal duties four weeks after the accident.


Margo M. Lagueras

[email protected]


07/08/13       Scott Croce DC v A. Central Insurance Company
Erie County, Arbitrator Michelle Murphy-Louden
IME Report Not Submitted Will Not Be Considered During Hearing
At issue was reimbursement for upper and lower extremity EMG/NCV studies performed less than two months after the motor vehicle accident.  Each study was the subject of a separate peer review and, in both cases; the peer reviewer noted that there were no neurological deficits to warrant the EMG/NCV studies.  The peer reviewer also opined that such studies should only be performed where there is clinical evidence of progressive neurological deficits, but he failed to cite to any authoritative source in support. 

The Arbitrator found that the peer reviews were not persuasive and noted that, although the peer reviewer stated that he also performed an IME at the time of the studies and found no neurological deficits, the IME report was not submitted into evidence.  As such, Respondent’s arguments with respect to the IME report would not be considered during the hearing.

07/08/13       Scott Croce DC v Geico Insurance Company
Erie County, Arbitrator Michelle Murphy-Louden
Denial Is Not Upheld Where Respondent Fails to Establish That Peer Reviewer Is Familiar With Chiropractic Accepted Standard of Care
The EIP was involved in a motor vehicle accident in April and underwent an EMG/NCV in August 2012, which revealed an active right L5-S1 radiculopathy with evidence of polyneuropathy.  In September, a peer review of the EMG/NCV study was performed by Dr. Cohen who concluded there medical necessity had not been established.

The Arbitrator noted that chiropractic is separate and distinct from the practice of medicine so a physician’s standard is not controlling upon a chiropractor.  Dr. Cohen is not a chiropractor, and Respondent failed to establish that Dr. Cohen was familiar with the generally accepted standard of care in the field of chiropractic, or that he had the requisite skill, training, education, knowledge or experience such that it could be assumed that his opinion with regard to the medical necessity of the EMG/NCV study performed by Applicant was reliable.  Therefore, the denial was not upheld.

07/08/13       Kaleida Health v Allstate Insurance Company
Erie County, Arbitrator Kent L. Benziger
Room for Speculation and Conjecture Results in Upholding of the Denial
In a case where the issue was whether the lumbar surgery was necessary and causally related to the accident, the Arbitrator noted that this was not a case where both parties supported their positions with extensive, accurate and complete medical records, but rather one where the treatment history left room for speculation and conjecture.

Briefly, the injured person was involved in an accident in February 2010.  There were few medical records.  Then, in October 2011, she had a pre-surgical evaluation and lumbar surgery.  In June 2010, she had been examined at Respondent’s request.  The IME doctor reported a prior lumbar surgery in 2001, as well as the placement of a stimulator in 2005.  The neurological exam was normal, there was no spasm or tenderness, and orthopedic tests were normal.  The doctor opined that there was no medical necessity for orthopedic treatment or physical therapy.  Respondent then issued a denial of all benefits effective June 2010, and then a specific denial for the disputed treatment.

The Arbitrator found the IME report to be persuasive as four months after the accident the Assignor was no longer engaged in any treatment.  Moreover, the initial pre-operative report gave a history of a slip and fall in February 2010, but no mention of a motor vehicle accident.  In upholding the denial, the Arbitrator noted that Applicant would have been better served by submitting more complete treatment records to document causal relationship.

07/05/13       Applicant v Liberty Mutual Fire Insurance Company
Erie County, Arbitrator Kent L. Benziger
Permission and Authority Extends to Passenger
The issue was whether the vehicle’s owner gave permission to an employee of an auto repair shop to take an extended “courtesy drive” and, if so, did that permission extend to passengers who were not employees of the shop?  The insurer denied no-fault benefits to three passengers contending that they did not have the owner’s permission to occupy the vehicle.

The car was in the shop being repaired following a collision.  When work was almost completed, it was taken for a test drive when certain “check lights” came on.  It was then agreed between an employee and his supervisor that the employee would drive the car home for the weekend with the goal of putting about 100 miles on it to ensure it was properly repaired.  The employee testified that he then called the owner and was given permission to put the extra mileage on the car, and the supervisor testified that such courtesy drives were part of their practice, often using additional passengers to add weight to determine if there were any structural or suspension problems.  The supervisor did not recall whether the issue of additional passengers was discussed.

While the employee was driving the car with three extra passengers, another vehicle allegedly failed to yield the right of way and struck the car.  The employee testified that he informed the owner who was disappointed that there were passengers in the car.  The owner in turn testified that he was advised of the accident, but not of the passengers.  The owner testified that at no time did he give permission to operate the car outside the parameters of a typical road test. 

The Arbitrator found that the owner did not rebut the strong presumption as to conveying express or implied permission and consent to use the car which, under these facts, would extend to the passengers.  In fact, the owner had given express permission for an extended courtesy drive of about 100 miles over a weekend.  In addition, the shop did not have exclusive possession of the vehicle for more than 30 days, or exclusive use of the vehicle since the owner retained the right to enter and take his car.  Moreover, the owner did not establish that the shop or the employee were negligent or went beyond the scope of his permission and consent.  Therefore, the injured passengers qualified as EIPs because the operator had permission and authority which extended to the passengers.


06/06/13       Richard E. Amato, D.C. a/a/o Sandra Burrell v State Farm Ins. Co.
Appellate Term, 9th & 10th Judicial Districts
Absent Evidence, Finding That Assignor’s Condition Worsened After IME Would Be Speculative
On appeal, the trial court is reversed where, at the time of the IME in question, the injured party had reached pre-accident status and, once that showing was made, the burden shifted to the plaintiff to demonstrate, with credible evidence, that the disputed treatment was medically necessary.  Given that plaintiff failed to offer any evidence, to find that the assignor’s condition worsened after the IME would be, at best, speculative.

07/02/13       Synergy Med. v Praetorian Ins. Co.
Appellate Term, First Department
Unsworn Operative Notes Submitted With Attorney Affirmation Lack Probative Value
In support of its motion to dismiss the complaint, defendant submitted, among other things, a chiropractor’s sworn peer review explaining in detail that the manipulation under anesthesia [MUA] performed by plaintiff were not medically necessary according to the standards of protocol followed by the Nation Academy of MUA physicians.  In opposition, plaintiff submitted the unsworn operative reports of its principal together with its attorney’s affirmation.  These had no probative value and, even if considered, the fill-in-the-blanks findings were insufficient to withstand summary judgment.  As such, defendant’s motion should have been granted.


Steven E. Peiper

[email protected]

07/05/13       Harleysville Ins. Co. of NY v Potamianos Properties, LLC
Appellate Division, Fourth Department
Water Exclusion Endorsement Plainly Excludes Losses Caused by the Pressure of Subsurface Water
Defendant, Potamianos, owned a commercial property in Syracuse.  When a 6 inch water supply pipe burst under the plaintiff’s premises, the resulting water pressure eventually exerted enormous pressure on the property’s foundation.  The result of which caused a section of the building’s foundation to fail, thereby permitting the basement to fill with water and debris. 

Upon receipt of the claim, Harleysville immediately denied on the basis of the Water Exclusion Endorsement.  That portion of the policy provided, in relevant part, that losses occasioned by the pressure of water under the surface of the ground which flowed or seeped through foundations, floors, walls, etc.  In the instant matter, the Appellate Division noted that the loss was directly caused by the pressure of subsurface water on the insured premises’ foundation.  Accordingly, the loss plainly fell within the clear terms of the Exclusion, and coverage was thus extinguished as a result. 

In reaching this conclusion, the Appellate Division also noted that plaintiff could not avoid this outcome by pointing to previous versions of his policy with Harleysville.  Here, it was noted that Harleysville conclusively established that plaintiff was provided with a copy of the effective insuring agreement prior to the loss, and said document contained the updated Water Exclusion Endorsement.  Accordingly evidence of previous policy terms was irrelevant.


07/17/13       Flossos v Waterside Redevelopment
Appellate Division, Second Department
No Labor Law 240(1) Violation where the Collapsed Ceiling was not being Hoisted or Secured
Plaintiff was an employee of Pelar Painting.  At the time of the incident giving rise to this action, plaintiff was performing a job for Pelar at a jobsite owned by Waterside.  Apparently, plaintiff sustained injury when he was knocked from a four foot “A” frame ladder.  Plaintiff was forced from the ladder when the ceiling above him collapsed for some unknown reason. 

Plaintiff commenced the instant action alleging violations of Labor Law 240(1), 241(6) and 200.  In addition, plaintiff also alleged a common law negligence violation.  Waterside responded by filing a third-party claim for contractual indemnity against Pelar. 
On the ensuing motions, the Appellate Division held that the incident did not involve a falling object that was being “hoisted or secured.”  Thus, Labor Law 240(1) was not applicable to the loss at hand.  In addition, the Court also affirmed the dismissal of plaintiff’s Labor Law 200 claim.  It did not, however, dismiss the common law negligence claim on the basis that plaintiff had presented a possible res ipsa claim.

It followed that where there was a question of fact as to the negligence of Waterside, its motion for contractual indemnification could not be granted against Pelar.   However, Pelar’s motion was likewise denied where it was unable to establish itself free from any negligence. 

Peiper’s Point -  We realize (and agree) that this is clearly not a falling object case.  That said, plaintiff did fall from a ladder.  How, again, is this not a falling worker case under the first prong of Labor Law 240(1)?  The Appellate Division never directly addresses that part of the claim (if it existed).   The Court does note that the ladder was in good working condition, and was appropriate for the job at hand, so perhaps that was meant to address the first prong of the analysis.  I am looking forward to Labor Law Pointers’ keen insight on this issue

07/16/13       New Hampshire Insurance Company v MF Global
Appellate Division, First Department
Brokerage’s Obligation to Trading Clearing House is a Direct Financial Loss Under the Terms of its Fidelity Bond
This is an interesting read.  MF Global is, essentially, a commodities broker who trades, among other places, on the Chicago Mercantile Exchange (CME).  As part of a clearing house system to ensure the integrity of the market, when MF Global takes a loss on a particular future it is required to “settle it debts” with the clearing house of the CME at the end of each day.  Where there is a particular large loss, the clearing house will request remuneration during the middle of the trading day. 

In the instant case, a party associated with MF Global submitted a future’s option on May wheat thereby betting the price would drop and thus make the option profitable.  When the price rose the next morning, the trader sustained a loss of approximately $141 million.  Later that day, as obligated by its contract with the CME, MF Global transferred the same sum to the CME clearing house. 

Thereafter, MF Global submitted a claim under one of its bonds that it had procured from New Hampshire.  New Hampshire denied the claim on the basis that MF Global had not sustained “direct financial loss” as that term was defined in the language of the bond.  In addition, New Hampshire argued that the trader was not “an employee” as was required by the terms of the bond.

In the resulting summary judgment motions, New Hampshire did not assert the “employee” defense.  Instead, it rested its position solely on the argument that the $141 million transferred to the CME was not a direct financial loss to MF Global.  Interestingly, MF Global only opposed New Hampshire’s motion, it did not cross-move for judgment.  Nonetheless, the trial court searched the Record and ruled that (a) the trader was an employee and (b) that MF Global had sustained a direct financial loss.  Accordingly, the bond’s obligations had been triggered.

On appeal, the First Department agreed with the assessment that MF Global had sustained a compensable loss.  In so holding, the Court had little trouble in dismissing New Hampshire’s position that this was simply a third party loss for which MF Global had assumed a contractual liability. 

However, the court also noted that question of fact existed to the trader’s “employment” status as that term was defined in the bond.  In reaching this conclusion, the Court noted that the trial court had abused its discretion in searching the record to rule on an issue (the definition of employment) that had never been raised or addressed by either party in the motion papers.  In addition, the court noted that the fact this matter was in the middle of discovery exchange further supported the resulting question of fact on the application of the term “employee” to this matter. 

07/05/13       Bellreng v Lockport City School District
Appellate Division, Fourth Department
Question of Fact on Sole Proximate Cause Precludes Summary Judgment; Negligence Trigger on Indemnity Agreements also Temporarily Precludes SJ
Plaintiff, an employee of Innovative, was injured when he fell through a sheetrock ceiling.  Prior to the incident, Lockport retained Sicoli to serve as the general contractor for the project.  Sicoli then retained Guard as a subcontractor, who, in turn, subcontract part of its work to Innovative.  Plaintiff commenced the above captioned matter against Lockport and Sicoli on the basis of a Labor Law 240(1) violation.  Sicoli then asserted a third-party claim against Guard for contractual indemnification.  Guard followed suit by commencing an action for indemnification against Innovative. 

On the resulting motions for summary judgment, the Appellate Division noted a question of fact existed to preclude either side’s Labor Law 240(1) claim.  The Court noted that plaintiff’s fall qualified as “gravity” related, and thus within the protections of the statute.  At the time of the fall, however, plaintiff did not have his harness attached to a safety line (he claim it was not possible where he was), and plaintiff was walking on an area where he had been repeatedly told to avoid.  Given the question of plaintiff being the sole proximate cause of his injuries, the case was remanded to the trial court for further proceedings.

Sicoli also moved for summary judgment dismissing the Labor Law 200 claims against it, while also applying for an award of contractual indemnity against Guard.   The motion relative to plaintiff’s Labor Law 200 claim was granted where it was established that neither Lockport, nor Sicoli, exercised actual supervision, direction or control over plaintiff’s work.  In so holding, the Court noted “monitoring and oversight” of the plaintiff’ work was insufficient to establish actual supervision.  As such, Sicoli’s motion for contractual indemnity was also granted due to the fact that it had no actual negligence.

Finally, the Court denied Guard’s motion for contractual indemnity on the basis that it did not conclusively establish that Innovative was negligent.  Apparently, the clause at issue in the Guard/Innovative contract only provided indemnification where Innovative’s negligence caused the loss. 

Peiper’s Point – This case provides a nice illustration of the difference between a negligence trigger and a broad indemnity clause.  Notice, there was no “negligence” trigger in the Sicoli/Guard contract.  Thus, Guard was stricken with indemnity despite the fact that it was not negligent.  On the contrary, because Guard cannot establish Innovative’s negligence (in light of the sole proximate cause issue facing plaintiff) it cannot pass through its liability until after trial. 

07/05/13       Accetta v Simmons
Appellate Division, Fourth Department
Carrier Mistake Is Now an Excuse for Defaulting Party
Plaintiff served a Summons and Complaint upon defendant Simmons.  For whatever reason, due to a communication mix up between Mr. Simmons and his insurance carrier an answer was never submitted until after Mr. Simmons defaulted.  On motion to vacate, counsel for Mr. Simmons argued that the default was caused by an error committed by his insurance company.  In so arguing, defendant also established the possibility of a meritorious defense and that plaintiff suffered no prejudice as a result his slight delay in appearing.

In vacating the default, the Appellate Division agreed that defendant met his burden of establishing that the plaintiff was not prejudiced by the delay, and that defendant possessed the possibility of a meritorious defense.  In addition, defendant convinced the Court that a mistake by his insurance company could constitute a reasonable excuse.  Thus, it was within the trial court’s sound discretion to grant defendant’s application to vacate.

In reaching this decision, the Court explicitly overruled its standing precedent on this issue which had held “an excuse that the delay…was caused by defendant’s insurance carrier is insufficient.”  Apparently, now, such an excuse is acceptable.  



Elizabeth A. Fitzpatrick
[email protected]


In Association Casualty Insurance Co. v. Major Mart, Inc., the Northern District of Mississippi on July 8, 2013, found that Association Casualty was obligated to defend its insured under Coverage B of its policy in connection with a counterclaim brought against Major Mart and its president, asserting that they engaged in “guerilla warfare” designed to ruin Mitchell after a dispute arose over the pricing of Anheuser-Busch products in Major Mart’s store.  Mitchell claimed that Major Mart breached the covenant of good faith and fair dealing, committed slander and defamation, tortiously interfered with business relations and converted neon beer signs. 

In response to the tender, Association Casualty issued a reservations of rights letter to Major Mart, indicating that their interpretation of the policy led to the conclusion that no duty to defend existed, but that they would provide a defense, reserving their right to reimbursement upon a determination by the court that confirmed no duty to defend arose.  Applying Mississippi law and examining Coverage B “Personal and Advertising Injury,” the court concluded that policy exclusions for “knowing violation of rights of others,” “material published with knowledge of falsity” and “breach of contract” did not exclude coverage under the insurance policy.  Because the court found that the counterclaim alleged actions and conduct which fell outside the exclusions, the court found that Association Casualty did, in fact, have a duty to defend its insured in connection with the counterclaim. 


In another decision addressing the use of social media for discovery purposes in a bodily injury lawsuit, the District Court in Indiana granted the defendant’s motion to compel the production of the Facebook archives of the plaintiffs in Higgins v. Koch Development Corp.  The plaintiffs had visited Holiday World and Splashin’ Safari and went on an attraction called Bahari River.  The plaintiffs alleged that an employee of the waterpark negligently turned on an electric breaker, resulting in plaintiffs’ exposure to high concentrations of acid and bleach, which they claimed caused serious personal injuries and their development of breathing disabilities. 

After they brought a bodily injury lawsuit, they were deposed and testified that they maintained Facebook pages.  Defendant requested access to the content and plaintiffs used Facebook’s Download Your Information Expanded Archive mechanism to preserve their Facebook data in electronic format.  Thereafter, the defendant served a second request for production requesting their Facebook information, to which the plaintiffs objected claiming that the request violated their privacy since their pages were set up so that only people they chose could view their profiles.  They also argued that the privacy of nonparties would be violated because photographs and information uploaded by nonparties and published on their pages would be discovered. 

The court discussed Federal Rule of Civil Procedure 26, which dictates that parties engage in broad, liberal discovery encompassing any matter that bears on, or that reasonably could lead to other matter that could bear on, any issue that is or may be in the case.  The court noted that postings on Facebook and other social media present a unique challenge for courts due to their relative novelty and their ability to be shared by or with someone besides the original poster.  After noting that the defendant must make a threshold relevancy showing of the need for the private information so that the requests would not constitute a fishing expedition, they ultimately found that the plaintiffs’ expectation of privacy did not dictate denying the motion to compel.  They also discounted the plaintiffs’ claim that the defendant’s request violated the privacy of their Facebook friends, who had posted on their walls or tagged them in posts.  The court did limit the time period within which the postings would be available, commencing on the date of the accident through April 2013. 



Audrey A. Seeley
[email protected]

7/10/13         Babcock & Wilcox Co., et. al. v. American Nuclear Insurers
Superior Court, Pennsylvania
Significant Change In Whether Insured Bound By Consent To Settle Provision In Policy When Defense Offered Subject To Reservation Of Rights.
The Superior Court of Pennsylvania has held that when an insurer offers an insured a defense subject to a reservation of rights the insured has two options:

  • Accept the defense but be unqualifiedly bound by the consent to settle provision in the insurance policy; or
  • Decline the defense and afford a defense at the insured’s expense permitting the insured to retain full control of not only the defense but also settlement of the underlying action, thereby permitting the insured to recover from the insurer, if coverage is found, defense costs and settlement costs, subject to a fair, reasonable, and non-collusive standard.


Here, the coverage dispute had a lengthy history between the parties which warrants review.  Since 1958, American Nuclear Insurers (“ANI”), or perhaps its predecessor, afforded nuclear hazard insurance coverage to two facilities – Apollo and Parks.  These facilities are presently owned and operated by Babcock & Wilcox Company (“B&W”) and previously owned and operated by Atlantic Richfield Company (“ARCO”).  It is noted that from 1958 until 1979 the coverage afforded to each facility went from $3 million to $160 million.

In 1994, five individuals and three purported class representatives commenced an action against B&W and ARCO alleging bodily injury and property damage to due radioactive emissions from the Apollo and Parks facilities.  Thereafter, amended complaints were filed adding approximately 300 plaintiffs.  This action was deemed the Hall Case.

In 1998, eight test cases from the Hall Case were tried before one jury resulting in verdicts in excess of $36 million.  Yet, due to evidentiary errors, a new trial was granted.  It was during this time that an insurance coverage dispute arose between ANI and B&W and ARCO.  The dispute was the amount of coverage available to indemnify B&W and ARCO as well as ANI must provide separate counsel to B&W and ARCO.  With the new trial pending, ANI filed a declaratory judgment action against B&W and ARCO to resolve this dispute.  In addition, ANI alleged B&W breached the insurance contract and acted in bad faith.  B&W responded by filing a separate declaratory judgment action against ANI seeking to resolve apparently the same coverage issues and also alleged ANI engaged in bad faith.  These two actions were consolidated.

In 2001, the trial court issued an order with regard to all parties partial summary judgment motions declaring that ANI had a duty to pay for separate counsel for B&W and ARCO as well as defend their separate interests in the Hall Case.  ANI filed a motion for reconsideration, which was granted, and the trial court held again that ANI had a duty to provide separate counsel for ARCO and B&W in the
Hall Case.  On appeal that order was affirmed.

Thereafter, in the Hall Case the plaintiffs settled their claims against B&W, through the efforts of B&W’s retained counsel, for less than policy limits.  B&W funded the settlement and then sought indemnity from ANI.  ANI disagreed with the settlement decision and refused to reimburse B&W for the settlement or defense costs.  ANI’s position was that it had no obligation to make any payment to B&W as B&W breached the consent to settle provision in the insurance contract.  The Court indicated that the consent to settle provision precluded the insured from settling claims, acceding to any judgment, or otherwise interfering with ANI’s right to conduct the defense of the Hall Case and determine whether a settlement offer should be accepted. 

Prior to trial, in 2009, the parties obtained a trial court opinion, in ANI’s favor, regarding the legal standard that applied to ANI’s insurance coverage obligations with regard to the consent to settle provision.  B&W proposed that if the insurer breaches the duty to consent to a reasonable settlement within policy limits then the insured can settle the underlying action without the insurer’s consent, without forfeiting insurance coverage, so long as the settlement is reasonable and entered into in good faith.  ANI proposed that the bad faith standard from Cowden and its progeny should apply.  The Cowden case is the seminal case in Pennsylvania regarding the insurer’s obligation to accept a settlement within policy limits when there is little possibility of a verdict or settlement within the limits of the policy.  Thus, the consent to settle provision under the contract must be enforced and bar coverage for B&W’s settlement unless B&W can show by clear and convincing evidence that:

  • There was no real chance of a defense verdict in the Hall Action;
  • There was little possibility of a verdict or settlement within policy limits;
  • ANI’s decision to proceed with trial was not based on a bona fide belief that there was a good possibility of prevailing, based upon all the circumstances of the case; and
  • ANI’s decision to proceed to trial, instead of settling, was made dishonestly.


After further undetailed proceedings, in 2011 the trial court revisited the legal standard that the jury should apply and came to a significantly different conclusion than it did in 2009.  The trial court held that no distinction existed between the instant case where the insurer was defending subject to a reservation of rights and a case where the insurer denied a defense and indemnity.  Thus, the trial court rejected the Cowden standard and instead applied the standard set forth in the Alfiero case which distilled to its simplest terms would entitle B&W to reimbursement of the settlement so long as the settlement was fair, reasonable, and non-collusive.  Obviously, this does not balance the parties’ interests as the insured accepted the defense by the insurer and then breached the consent to settle provision of the policy when it disagreed with the insurer’s decision on settlement.  The case then proceeded to a jury trial using the standard in the Alfiero case and the verdict was that B&W was entitled to reimbursement for the settlement of the Hall Action. 

On appeal, the sole issue before the Court was whether ANI had the right to deny coverage for the unauthorized settlement payments in the Hall Action when the consent to settle provision afforded that right to ANI, ANI was performing its obligations under the policy by providing B&W with a defense to the tune of $40+ million, and ANI’s decision to continue defending the Hall Action comported with the standard in the Cowden decision.  In essence, must B&W comply with the consent to settle provision in the insurance policy when ANI afforded a defense, which B&W accepted, subject to a reservation of rights.  The Court recognized while this issue was of first impression it has already been addressed in multiple other states and federal courts. 

The Court recognized the broad defense obligation an insurer has in Pennsylvania and that this obligation is counterbalanced by a finding that an insurer can afford a defense subject to a reservation of rights without breaching the insurance contract.  Further, the Court recognized Pennsylvania cases which have protected the insurer’s right to control the defense when proffered subject to a reservation of rights.  It was recognized that a conflict can arise between the insured and insurer when a defense is afforded subject to a reservation of rights which led to a lengthly discussion on how to balance the insureds and insurers’ rights while also ensuring that the insurance contract is respected. 

Ultimately, the Court adopted the standard applied in Florida under the Taylor case, in the situation where a defense is proffered subject to a reservation of rights so as to not only balance the parties’ interests but also honor the nature of the insurance contract.  Thus, the Court held that in this situation the insured has two options:

  • Accept the defense, which results in unqualifiedly being bound by the consent to settle provision in the insurance contract.  The insurer is fully in control of the litigation with the insured having the bad faith standard set forth in Cowden as a balance to protect its interests.
  • Decline the defense, retain counsel of the insured’s choice resulting in the insured having complete control of the litigation.  If there is insurance coverage under the contract then the insured can recover its defense and settlement costs so long as those costs are fair, reasonable, and non-collusive.


The Court applying this new standard, vacated the jury verdict and directed a new trial on the questions of whether B&W rejected ANI’s proffered defense and if so whether ANI act in bad faith in declining to settle or participate in negotiations in the Hall Action.

Cassandra A. Kazukenus
[email protected]

Reminder Change to No-Fault Forms as Of August 1, 2013

As previously discussed, various No-Fault forms found in the regulations index have been amended.  The amended forms are the NF-1A, NF-1B, NF-4 and the NF-5.  Please remember to use these updated forms as of August 1, 2013!  These forms were amended to refer to the Department of Financial Services rather than the Insurance Department.

Insurance Circular Letter 2 (2013)
Property/Casualty Insurance Company Disaster Planning, Preparedness and Response

This letter sets forth the standards the standards expected of authorized property/casualty insurers in planning and preparing for as well as responding to disasters in New York State.  This letter replaces and repeals Circular Letter No. 1 (2012).

Section C of the letter sets forth requirements necessary before a disaster strikes.  It applies to all property/casualty insurers with New York direct written premium reported on their Annual Statements for a variety of lines of business, including Homeowners, personal/commercial auto and commercial multi-peril policies.  Each insurer must provide the Department a listing, by count, of property exposure information as of December 31, 2012 for personal and commercial lines (non-auto).  The information should be provided for the following categories:

  • Total building and contents insurance in force
  • Total number of policies for the lines


The insurer must also report the number of vehicles covered by comprehensive insurance and the number of policies containing such by county for both personal and commercial auto.  The term vehicle should be broadly construed and will contain any vehicle written under the lines.

The property/casualty insurers must have a Disaster Response Plan.  The plan should describe how each insurer intends to provide its policyholders with the resources needed to recover from a disaster.  At a minimum it should set forth what preparations the insurer has made with respect to:

  • Emergency response training of company personnel
  • Plans for suitable expansion of claims handling capacity including provisions to cover
    • Adequate personnel
    • Adequate IT/infrastructure for the increased claim volume
    • Catastrophe response team availability
    • Access to disaster areas and personnel identification and
    • Applications for temporary adjuster permits
  • Testing of disaster response plan and
  • Incorporation of the role of insurance company disaster liaisons and their interaction with the Department


The Disaster Response Plan, the Disaster Response Plan Questionnaire, and the Business Continuity Plan Questionnaire must be submitted by June 30, 2013.

Section D pertains to when a disaster occurs. 

When the Department activates the Insurance Emergency Operations Center (“IEOC”), the Superintendent may activate designated insurance company disaster liaisons in the emergency or disaster area.  The contacted disaster liaisons should be prepared to participate in the State’s Disaster Response Plan in the following ways:

  • A teleconference will be held following the disaster to discuss the magnitude and scope of activation plans.
  • Upon activation, the disaster liaisons will be expected to staff the IEOC at either the Albany or NYC Department offices.
  • The Department will provide a fully-equipped IEOC for use by disaster liaisons, including phone lines.


The liaison should have a qualified back up and should be a member of the insurer’s catastrophe team.  The liaison will provide coverage data and loss statistics as requested by the Department, and will transmit information about the disaster.

Additionally, in the event of an emergency or disaster, the Superintendent may issue temporary permits to individuals to as act as independent adjusters for authorized insurers as long as the insurer has applied to the Superintendent for temporary permits.  Insurers may apply as soon as a catastrophe hit, and there is no need to wait for a formal declaration of an emergency or disaster. 

Property/casualty insurers should notify the Department whenever they activate their Hurricane/Windstorm deductible. 


Katherine A. Fijal
[email protected]

07/05/13/13            Duval v. Northern Assurance Company of America
United States Court of Appeals Fifth Circuit – Texas Law & General Maritime Law
Terms of Master Services Agreement Not Enforceable by Insurer
The issue presented on this appeal is whether third-party insurers can enforce a Master Service Agreement’s [“MSA”] defense, indemnification and insurance obligations.  For the following reasons the United States Court of Appeals for the Fifth Circuit [“Court”] held the insurers could not enforce the agreement.

BHP Billiton Petroleum Deepwater, Inc.  [“BHP”] is an energy exploration company.  Effective April 18, 2006, BHP and Deep Marine Technology, Inc. [“Deep Marine”] entered into an MSA, whereby Deep Marine agreed to provide construction support vessels to BHP.  The MSA contained reciprocal indemnity obligations and required the parties to support their respective obligations with liability insurance, self-insurance, or a combination thereof.  In addition, the MSA contained a choice of law clause, stipulating that general maritime law governs interpretation of the MSA and, to the extent general maritime is not applicable, Texas law applies.

While the MSA was in effect, Glen Duval [“Duval”] an employee of Weed Group/ Deepwater Specialists, Inc., alleged injuries which occurred during an offshore personnel basket transfer from a vessel owned by Deep Marine to a tension-leg platform owned by BHP.  Duval filed suit alleging the Deep Marine’s personnel aboard the vessel were negligent. In an amended complaint he also asserted a claim against Dolphin Services, LLC, the employer of the allegedly negligent crane operator. Duval did not allege that BHP had any liability for his injuries.  On April 25, 2008, Deep Marine sought defense, additional insured status, and indemnity from BHP under the MSA.  BHP accepted tender on May 14, 2008.

On December 4, 2008, Deep Marine filed for Chapter 11 Bankruptcy in the Southern District of Texas, and Duval’s suit was automatically stayed.  In September, 2010, the Bankruptcy court entered an order permitting Duval to proceed with his claim against Deep Marine’s insurers.  Later, Duval amended his complaint to name Northern Insurance Company of America and Markel American Insurance Company [“Underwriters”], the protection and indemnity insurers of Deep Marine, as additional defendants under Louisiana’s Direct Action Statute. The following month, Underwriters filed a third-party complaint against BHP, seeking to be “fully protected, defended, indemnified and held harms and provided insurance coverage” by BHP in accordance with the MSA and purporting to tender BHP to Duval under FRCP 14(c).

Underwriters and BHP filed cross-motions for summary judgment, each disputing whether Underwriters could enforce BHP’s contractual insurance, defense, and indemnity obligations to Deep Marine after Deep Marine’s bankruptcy discharge. After a hearing the district court granted BHP’s motion, denied Underwriter’s motion and dismissed the action with prejudice.

On Appeal to this Court, the parties dispute whether the MSA requires BHP to protect, defend, indemnify, and hold harmless Underwriters against Duval’s claims.  The Court analyzed the MSA, and concluded it did not; and affirmed the district court’s order. Although BHP had an obligation to defend, indemnify and hold harmless Deep Water, it did not have the same obligation to Underwriters.

Underwriters argued that BHP waived any potential defenses to its contractual obligations by accepting Deep Marine’s tender of Duval’s claim and defending Deep Marine in the matter.  The Court found that waiver was inapplicable because although BHP accepted Deep Marine’s tender of Duval’s claim, it never indicated any obligation to Underwriters – the defense arose out the unknowable circumstances – bankruptcy.

Underwriters also made four substantive arguments in favor of their interpretation; but again, the Court disagreed.  First, Underwriters argued that even though Deep Marine will never pay damages to Duval (due to a bankruptcy order), BHP’s indemnification obligation will become enforceable once liability is established.  The Court determined, however, that even if it is assumed that the MSA requires indemnification against liability and that Deep Marine will eventually be held liable, Underwriters cannot prevail because BHP’s indemnification obligation runs only to Deep Marine.

Second, Underwriters contend that summary judgment in favor of BHP was improper because, upon their payment of any judgment of settlement to Duval, they will become subrogated to all of Deep Marine’s rights, including its rights against BHP under the MSA.  The Court was not persuaded because even if Underwriters did have a right to subrogation they would have no claim against BHP because it could obtain no greater rights than its subrogor had.  Deep marine could not incur any loss in the Duval action, so Underwriters could not seek indemnification from BHP.   Further, because BHP has agreed to continue providing Deep Marine with a nominal defense, Underwriters would not have a breach of contract claim against BHP.

Third, Underwriters argued that BHP agreed to become Deep Marine’s primary insurer against liability to members of Company Group.  The Court found that argument to be inapplicable because BHP chose to self-insure for claims under $1 million and the parties agree that Duval’s claim is not for more than $1 million. The Court held that self-insurance was not insurance as that term was used in the MSA because there was no contract with an insurance company.  The Court concluded that the additional insured and primary insurance requirements do not apply to BHP’s self-insurance.

Fourth, Underwriters argued that because discharge of the debtor does not affect the liability of any other entity on, or the property of any other entity, for such debt, the Court should enforce BHP’s contractual obligations.  Otherwise, they contend, BHP will receive a windfall.  The Court found that this argument missed the point.  Although it was true that Deep Marine’s bankruptcy did not affect the liability of any other entity, such as Underwriters to Duval, the problem Underwriters faced was that Duval did not allege that BHP had any potential liability for the claims.  BHP’s only obligation is an indemnification obligation to Deep Marine and unlike Underwriters; it had no secondary liability to injured tort victims like Duval.

Finally, the Court addressed Underwriter’s contention that they could tender BHP directly to Duval under FRCP 14 (c).  The Court held that such tender was improper because Duval had no claim against BHP.  The MSA only obligated BHP to indemnify members of the Contractor Group – Duval was only a member of the Company Group not the Contractor Group; therefore, BHP’s contractual obligations did not run to him.  Moreover, the Court pointed out that even if they did tender to Duval no claims were asserted against Duval so BHP would have no obligation to indemnify and defend him.



Jennifer A. Ehman
                                            [email protected]    

06/28/13       National Union Fire Ins. Co. of Pittsburgh, PA v Compaction Sys. Corp. of N.J.
Supreme Court, New York County
Settlement with Additional Insured Did Not Bar Future Contribution Claim By Additional Insured Against Named Insured; Anti-Subrogation?
Between 1948 and 1981, hazardous materials were disposed at the Combe Fill South Landfill in Washington and Chester Townships, Morris County, New Jersey.  Federal litigation eventually arose out of the site with intense investigation focused on the owners and operators.  The Carter Day Parties and defendant, Compaction Systems Corp. N.J. (“Compaction”), were some of the entities scrutinized. 

As part of an effort to obtain coverage for its involvement with the site, Compaction commenced a declaratory judgment action against various insurers, including plaintiff, National Union, seeking defense, indemnification, and costs related to the investigation, cleanup and remediation of the site.  The coverage it sought from National Union was as an additional insured on policies issued to a predecessor of the Carter Day Parties. 

Eventually, National Union and Compaction settled their claim.  From the decision, we don’t know whether a lump sum was paid to resolve the underlying claim or what the exact terms of the settlement were.  Thereafter, a release was entered into by the parties, in which Compaction agreed to release National Union and its predecessors, fromany and all claims, duties et al with respect to the subject insurance policies for the subject claims.  The subject claims were identified as those filed against Compaction by the United States Environmental Protection Agency, the New Jersey Department of Environmental Protection, and any other federal, state or local agencies for environmental liabilities arising out Compaction’s act or omissions.  

Two months after the release, the United States EPA and NJ EPA filed complaints against Compaction related to the site.  It is not clear how these complaints differed from what was previously filed.  Compaction then commenced a third-party action against the Carter Day Parties, along with other entities, for contribution.  Eventually, Compaction entered into a partial consent decree settling the claims against it.  As part of the settlement, it was responsible for $11,000,000 of the total amount.  Compaction then sought to purse its contribution claims. 

National Union argued in this motion that the release entered into by Compaction barred the third-party claim against its named insured. 

The court found that an examination of the relevant settlement documents revealed that they pertained to the claims asserted and filed against Compaction arising out of its alleged acts or omissions with respect to the contamination site.  Thus, Compaction was barred from seeking further compensation from National Union relating to its own acts.  To the contrary, Compaction’s claims against the Carter Day Parties sounded in contribution.  The claims were not, as National Union argued, an attempt to collect twice for the same liability.  If Compaction successfully obtained a judgment against the Carter Day Parties, which could not be satisfied, Compaction would step into their shoes as against their insurer. 

Take Away:  In reading this decision, I am curious why the anti-subrogation rule did not apply.  Where different policies involved?

06/27/13       3859 Tenth Ave. Corp. v United Natl. Special Ins. Co.
Supreme Court, New York County
Allegations in the Complaint Trigger Duty to Defend
On December 16, 2003, a fire occurred at 3859 10th Ave., New York, New York.  At the time of the fire, the property was owned by 3859 Tenth Ave. Corp.  The fire resulted in the death of a fireman. 

According to the Fire Incident Report prepared by the NYC Fire Marshall, the cause of the fire was not fully ascertainably, but probably resulted from the careless discard of smoking material by a Barta employee (the second floor tenant).  Thereafter, the fireman’s estate commenced a wrongful death action against the owner and Barta, among others.

Barta then commenced a third-party action against the 1st floor tenant, El Paraiso Corporation, and its principal alleging that the fire resulted from heat generated by electricity powering a ceiling mounted heater located in the 1st floor deli.  After review of the third-party action, the estate amended its complaint to name El Paraiso and its owner directly. 

Prior to the fire, both Barta and El Paraiso entered into lease agreements with 3859 Tenth Ave. Corp. in which they agreed to carry liability insurance naming the owner as an insured. 

3859 Tenth Ave. Corp. tendered its defense and indemnity in this action to Barta, and its carrier Zurich, and El Paraiso, and its carrier United National.  Zurich accepted the tender and expended over $400,000 in defense of the action.  United National, on the other hand, denied the tender asserting that El Paraiso was not negligent.  In response, the owner’s counsel aptly pointed out that, whether true or not, the complaint alleged it was negligent. 

Both the Zurich policy and the United National policy stated that its policy was primary, “unless…other insurance is also primary.  Then [they] will share with all that other insurance described…”

The court found that the owner was entitled to a defense under the United National policy.  The allegation in the Amended Complaint triggered United National’s duty to defend the owner as an additional insured, based on the lease agreement between 3859 Tenth Ave. Corp. and El Paraiso.  The fact that United National’s insureds and additional insureds may be liable was enough to trigger a defense.  Since Zurich already assumed the defense, United National was liable to contribute by “equal shares…, contribut[ing] equal amounts” until the policy limit is reached, and to reimburse past defense costs in an equally contributory manner. 

Lastly, the court stayed the action with respect to United National’s duty to provide indemnity coverage pending the outcome of the underlying action. 

Take Away:  Remember, the duty to defend arises whenever the allegations in a complaint against the insured fall within the scope of the risks undertaken by the insurer, regardless of how false or groundless those allegations might be.  The duty is not contingent on the insurer's ultimate duty to indemnify.

06/24/13       Bardakjian v Preferred Mut. Ins. Co.
Supreme Court, Albany County
Court Finds Two Year Suit Limitation Began to Run on Date Notice of Claim was Filed with First-Party Insurer
Plaintiffs, Mr. and Ms. Bardakjian, submitted a claim to their homeowner’s insurer for hail damage to their roof a year and a half after the property was sold.  Defendant disclaimed coverage explaining that “due to the late reporting of your claim we are not able to verify the date of loss occurred within the policy term.”  This action followed.

Defendant brought this motion for summary judgment asserting that the claim was barred under the two year policy limitations period; due to plaintiffs’ failure to provide prompt notice of the loss; and for plaintiffs’ lack of an insurable interest in the property. 

The policy provided that any suit must be “brought within two years after the loss.”  The court declined to follow establish appellate case law in New York, and instead relied on a Second Circuit decision, to determine that where the policy simply included generic language "that the limitation period would expire two years after the date of loss," that threshold referred to the date on which the claim accrued, not the date on which damage was incurred.  In other words, it determined that the loss should be measured from the date a cause of action accrued against the insurer, not the date of the hailstorm. Since plaintiffs commenced this action approximately eleven months after filing notice of their claim, the action was timely.

The court then went on to find a question of fact as to the promptness of plaintiffs’ notice.  This finding was based on an affidavit submitted by Mr. Bardakjian, which stated, without any further elaboration, that he only learned of the loss on or about December 22, 2010, and an affidavit of a meteorologist opining that a hailstorm occurred on July 16, 2009 in the area of plaintiff’s residence.

Lastly, at the time of the loss, although the deed to the property was held by BBC Development, LLC, and the policy issued to plaintiffs, the court found that Mr. Bardakjian had an insurable interest in the property.  This finding was due to his representation that he exclusively occupied the premises since 2007 and his 25% ownership interest in the LLC.

Take Away:  Huh?!? 

03/07/13       Syracuse University v National Union Fire Ins. Co. of Pittsburgh, PA
Supreme Court, Onondaga County
Court Finds Coverage for Costs in Responding to Investigation Subpoenas
Syracuse University was the named insured under a not-for-profit individual and organization insurance policy sold by defendant, National Union.  The policy provided that National Union “shall pay on behalf of the organization loss arising from a claim first made against the organization during the policy period” for “any actual or alleged wrongful acts of the organization.”  A loss included defense costs associated with defending a claim in excess of the $250,000 retention.  The term “claim” was defined in the policy as:

(1)      A written demand for monetary, non-monetary or injunctive relief; or

(2)      A civil, criminal, administrative, regulatory or arbitration proceeding for monetary or non-monetary relief which is commenced by: (i) service of a complaint or similar pleading; or (ii) return of an indictment, information or similar document (in the case of criminal proceeding); or (iii) receipt or filing of a notice of charges...

In November of 2011, Syracuse became aware of public media reports of allegations that Bernie Fine, the school’s assistant basketball coach, sexually abused two former participants in Syracuse’s basketball program.  On November 22, 2011, Syracuse gave National Union notice of the media report as a circumstance that may give rise to a claim. 

Thereafter, over the next two months, Syracuse received six subpoenas in connection with state and federal investigations.  Three subpoenas from the United States Attorney’s Office and three from the Onondaga County District Attorney’s Office.  The subpoenas required, among other things, production of electronic equipment issued to fine, a list of all secretaries who previously worked for him, a list of Fine’s hotel accommodations while traveling with the team, bus companies used, internal documents maintained regarding complaints made against Fine and records relating to road/home games.  

Syracuse provided National Union copies of the subpoenas along with the cover letter.  In response, National Union informed Syracuse that it costs in responding to the investigation subpoenas were not covered under the policy. 

In finding coverage for the costs, and denying National Union’s motion for summary judgment, the Court found that the subpoenas constituted a “written demand…for non-monetary relief,” and the investigations were “criminal proceedings for monetary or non-monetary relief which [are] commenced by:…(ii) return of an indictment, information or similar document (in the case of a criminal proceeding).”  The Court, relying on the Second Circuit Decision in MBIA, Inc. v Federal Ins. Co., which applied New York law, found that a subpoena is the primary investigative implement of the NYAG’s office for its criminal investigation. 

The court was not persuaded by National Union’s argument that Syracuse needed to be the target of the investigation.  While most of the questions dealt with Fine, Syracuse’s liability was dependent on the predicate liability of Fine as an employee.

As a result, the Court held that National Union was obligated to pay on behalf of Syracuse, its loss arising from the subpoenas in excess of the retention and to advance the plaintiff’s defense costs incurred in responding. 

Bad Faith

07/15/13       Bronick v State Farm Mutual Automobile Ins. Co.
United States District Court, D. Arizona
Carrier did not Act in Bad Faith where Plaintiff Asserted an Uncommon Injury Following a Motor Vehicle Accident
Plaintiff was injured in a rear-end automobile collision.  Five days after the accident, plaintiff for the first time complained of right ankle pain. She then underwent an evaluation where it was determined that plaintiff suffered from a rapture of her Achilles tendon, which was attributed to the accident.  

The at-fault driver was insured by United Services Automobile Association at the time of loss.  USAA paid the limits of its policy to plaintiff.

Plaintiff’s counsel then contacted State Farm concerning a claim for UIM benefits.  During the initial phone call, the State Farm adjuster questioned the mechanism for the injury. 

State Farm was then provided a complete package of plaintiff’s medical records, and the adjuster began his evaluation.  After completing the medical review, the adjuster scheduled an IME with Douglas P. Hartzler.  Dr. Hartzler examined the plaintiff and reviewed her medical records.  Ultimately, he concluded that plaintiff had chronic tendinosis of the Achilles tendon, and sustained a spontaneous rupture with minimal trauma after the accident.  He noted that in his 25 year career he had never seen an Achilles tendon rupture as a result of a motor vehicle accident. 

Following State Farm’s denial of the UIM claim, plaintiff commenced this action, which was then removed to federal court, alleging a breach of the duty of good faith and fair dealing.  

Under Arizona law, a plaintiff establishes bad faith on the part of an insurance company by showing that it acted unreasonably.  A plaintiff must show that (1) the insurer acted unreasonably and (2) either knew or was conscious that its conduct was unreasonable.  The first prong is an objective test based on reasonableness, and the second prong is a subjective test.  Notably, the court could also find an insurer liable for bad faith for acting unreasonably in how it processed a claim whether the claim was fairly debatable or not.

The court began by examining whether the claim was fairly debatable.   It opined that the claim was debatable since plaintiff failed to offer any significantly probative evidence that called into question defendant’s position. 

With regard to claims handling, plaintiff made three arguments for how State Farm acted in bad faith.  First, plaintiff argued that the adjuster made a determination of plaintiff’s claim before reviewing any of the medical evidence and tailored his evaluation to meet his initial determination.  Second, State Farm hired a doctor to perform the IME that primarily arrived at favorable conclusions for defendants.  Third, State Farm should not have retained Dr. Hartzler without contacting opposing counsel and the treating physician. 

The court rejected each of these arguments.  Since plaintiff was claiming an uncommon injury following a motor vehicle accident, State Farm acted reasonably in noting this issue from the start.  Further, the court found no prior case law that extended the law of bad faith claims to the point that simply hiring a physician that has reached favorable conclusions for insurers in the past is evidence of bad faith.  Lastly, the court found no reason that State Farm should have consulted with opposing counsel or the treating physician prior to retaining a doctor that was fully qualified to conduct the examination.


Earl K. Cantwell

[email protected]


State and Federal Courts continue to struggle with the question of whether construction defect claims may be covered by a contractor’s CGL liability policy.  A majority of courts have ruled in the negative, usually on the bases that a construction defect is not an accident or covered “occurrence”, and sometimes that the alleged claim does not fit the definition of “property damage”.  A new twist to the analysis occurred in Scottsdale Insurance Co. v. R.I. Pools, Inc., 2013 WL 1150217 (2d Cir. 2013) which considered the effect of a “subcontractor’s work” policy exception on this issue.

Several of the pool company’s customers sued for flaking and deteriorating concrete.  The pool company had installed the pools, but subcontracted with three other companies to supply and inject the concrete into the forms.  The pool company’s CGL policy excluded damages caused by its own work, but made a possible exception for damages caused by work done by a subcontractor.

Scottsdale brought a declaratory judgment action seeking a ruling that it had no obligation to defend and indemnify the pool company.  The District Court in Connecticut granted the insurance company’s motion for summary judgment, finding that Scottsdale had no duty to defend or indemnify the pool company because the allegedly faulty workmanship could not be considered an “accident” covered under the policies.

The Second Circuit reversed saying the trial court had not considered the policy exception for subcontractor’s work.  The appellate court said that the trial court’s analysis essentially read the subcontractor exception out of the policies.  Scottsdale had paid defense costs before filing the declaratory judgment action.  The Second Circuit vacated and remanded the judgment, and denied Scottsdale’s request for reimbursement for defense costs it had already expended.

This case represents a new twist in also looking at policy exclusions and exceptions in searching for possible coverage for construction defects from a contractor’s CGL policy.

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