Coverage Pointers - Volume XV, No. 23

Dear Coverage Pointers Subscribers:

Do you have a situation? We love situations.  Indeed we do.

Happy Mother’s Day.  This is a significant one, as you will see by our Hundred Years Ago story later in this issue.

Also, a happy birthday to my dad – he would have been 96 yesterday.

I just returned from the Second Annual Meeting of the American College of Coverage & Extracontractual Counsel where I remain as a founding director.  For those lawyers in private practice who have 15 years of experience as solid coverage lawyers and who otherwise meet the criteria for qualification, consider being nominated for admission.  Two years old, we have 160+ Fellows.  Information is available here:

It was so nice flying back into Buffalo this morning, across Lake Erie, to see that the ice has finally exited the Lake and is on its way over Niagara Falls.  Spring can finally start in earnest.  That’s a big deal for us.

Three Little Pigs:

Jen Ehman is doing a CLE presentation, tomorrow, on Construction Defect coverage. I suggested that she speak of the Three Little Pigs whose CD problems are well known to all. Can you imagine a better example?

Catastrophe Tool Box Presentation:

June 26, 2014 – Gleacher Center – University of Chicago, Chicago, Il

Steve Peiper and I are proud to join, again, Alford Bolin, LLC,  Boehm, Brown & Harwood, PA and Mozley Finlayson & Loggins, LLP in presenting the latest and greatest on catastrophe coverage.

Program materials will be available for: Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Indiana, Illinois, Kentucky, Kansas, Louisiana, Massachusetts, Maryland, Michigan, Missouri, Mississippi, New York, New Jersey, North Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee and Texas.

Registration is free but space is limited.  Contact Steve ([email protected]) or me ([email protected]) for further information.

Cassie’s Capital Connection:

On my way to White Plains last week, the DJ on the radio was talking about a bill that was pending in the Florida legislature which would allow lawful gun owners to carry a concealed weapon in certain situations.  One such situation, which was specifically included in the proposed legislation, was in the event of a zombie apocalypse.  This made me wonder about unusual, strange and generally silly laws and bills.   So I did what anyone would do, and I googled it.  So, did you know that in New York City you may be fined $25.00 for flirting?  The law specifically prohibits men from turning around on any city street and looking “at a woman in that way,” and if you are convicted a second time, you have to wear a pair of horse blinders when walking around. 

In my review of the activity in the New York State Senate and Assembly, I did not find any equally silly insurance related bills, but there are three that are on the Assembly debate list that I discussed below.  All three have passed the Assembly previously while going absolutely nowhere in the Senate.   

Additionally, DFS has published its Financial Frauds and Consumer Protection Division’s Annual Report.  The report details the investigations, convictions and fines levied for a variety of wrongdoings including no-fault fraud.  The report also discussed the Division’s response to Storm Sandy in 2013.  What caught my eye was the discussion on consumer complaints stemming from Storm Sandy.  Per the report, DFS “opened investigations, including issuing subpoenas of several insurance companies to determine the companies’ compliance with New York insurance claims practices laws and regulations.  The Department’s investigation has confirmed considerable claims-processing issues, specifically with respect to delays in adjuster inspections.” 

While I was not surprised to see this statement, I did find it troubling that DFS reported there were considerable claims-processing issues, but provided no other information or statistics regarding how the conclusion was made, especially considering the tens of thousands of claim arising out of the single event. 

Cassandra A. Kazukenus
[email protected]

One Hundred Years Ago:  President Wilson Proclaims First Mother’s Day:



Whereas, By a Joint Resolution approved May 8, 1914, “designating the second Sunday in May as Mother’s Day. and for other purposes,” the President is authorized and requested to issue a proclamation calling upon the government officials to display the United States flag on all government buildings, and the people of the United States to display the flag at their homes or other suitable places on the second Sunday in May as a public expression of our love and reverence for the mothers of our country;

And Whereas, By the said Joint Resolution it is made the duty of the President to request the observance of the second Sunday in May as provided for in the said Joint Resolution;

Now, Therefore, I, Woodrow Wilson, President of the United States of America, by virtue of the authority vested in me by the said Joint Resolution, do hereby direct the government officials to display the United States flag on all government buildings and do invite the people of the United States to display the flag at their homes or other suitable places on the second Sunday in May as a public expression of our love and reverence for the mothers of our country.

In witness whereof I have set my hand and caused the seal of the United States to be hereunto affixed.

Done at the City of Washington this ninth day of May in the year of our Lord one thousand nine hundred and fourteen, and of the Independence of the United States one hundred and thirty-eight.


By the President

[signed] William Jennings Bryan

Secretary of State

Seen on Facebook (and one of the best around):

Q.:       If someone from the 1950’s suddenly appeared today, what would be the most difficult thing to explain to them about life today?

A.:       I possess a device in my pocket that is capable of accessing the entirety of information known to humanity.  I use it to look at pictures of cats and get into arguments with strangers.

Fitz’ Bitz:

Dear Subscribers:

Greetings from Albany, where I will be participating in the New York State Bar Association sponsored advanced insurance coverage seminar addressing a variety of coverage-related issues, both substantive and procedural.  The full day program is also being presented in Buffalo where Steve Peiper and Jen Ehman are participating.  I will be providing an update as to the landscape after the Court of Appeals’ decision in K2 Investment Group v. American Guaranty & Liability Insurance Company.  I will also be addressing that issue at the program being held on Long Island on May 16, 2014.  There is still time to register for that program if you are interested.  If you attend either of the venues, please say hello.

Today I bring you a decision from the United States District Court, Southern District Alabama, entitled Pennsylvania National Mutual Casualty Insurance Company v. St. Catherine of Sienna Parish, where yet another court struggles with the issue of whether a commercial general liability policy affords coverage for claims involving faulty workmanship.  After analyzing prior decisions in this area, the court ultimately concludes that faulty workmanship may constitute an occurrence, but holds that Pennsylvania National has no obligation to indemnify its insured as a result of the applicability of the breach of contract exclusion.

Til next time,

Elizabeth A. Fitzpatrick
[email protected]

A Century Ago:  Snapshot of the South Carolina Governor:


And Pardon Killer of One Who Examined
Daughter Without Consent

Special to The New York Times

GREENVILLE, S.C., May 8.—Gov. Cole L. Blease, denouncing in the campaign here the proposed medical inspection of school children, said he would pardon any father for killing a physician who attempted, against the father’s will, to examine his daughter.  He also had a “thing” for pardons (more later).

Gov. Blease further asserted that the proposed law would furnish an opportunity to blight the life of an innocent girl, who was the daughter of a political enemy, by means of a false report by a doctor as to her morals.  He added that if he had a daughter and a physician should attempt, without his consent, to examine her, he would kill him.

The governor’s promise to pardon the slayer of any physician who attempted to examine his daughter, without parental permission, was made to an audience of some 1,500 cotton mill workers whom he addressed today. 

Editor’s Note:  Coleman Livingston Blease was a South Carolina politician who served as a Democratic state legislator, 90th Governor of South Carolina and a US Senator. Blease was notorious for playing on the prejudices of poor whites. He was pro-lynching and anti-black education. And as Senator, he advocated penalties for interracial couples attempting to get married, as well as criticizing First Lady Lou Hoover for inviting a black guest to tea at the White House.  He is said to have pardoned 1500 during his term, including murderers and it was suggested that his pardons may have been up for sale.

In his message to the General Assembly of South Carolina on October 14, 1914, he boasted about his racism:

I rid the State of many Negro officials, and at the same time have placed into the State treasury about $10,000. Recently I discovered that a Negro was holding an office as a member of the Board of School Trustees in Beaufort. I called by wire a meeting of the State Board of Education, a resolution was passed demanding that he be turned out, and we got rid of him. If there is any Negro now holding office in South Carolina, other than under the United States government, I don’t know it, and if I were in the United States Senate I would make a hard fight to have the United States government give these positions that are now held in this State by Negroes to our white people.

So very sad.

Hunter’s Hints:

As I strolled the streets of Downtown Buffalo on this sunny and alluring spring day, I couldn't help but notice the various construction projects throughout downtown.  Some projects were new complexes being built from freshly poured foundations, while others consisted of gutting and redeveloping centuries-old buildings.  This column is meant to build and expand the knowledge of New York State Serious Injury Threshold law for our dear readers.  That being so, please know I am always available to answer any questions and aid in the refinement of your knowledge of this category of the law, and can also present to any individual or group the foundational aspects of Serious Injury Threshold law.  Please feel free to reach out to me with any and all inquiries.  I look forward to hearing from you.

Daniel T. Hunter
[email protected]

One Hundred Years Ago:  Lunch Strike Successful:

The New York Times
New York, New York
May 9, 1914


Philadelphia Students Can Now Eat
Their Lunches Out Doors.

Special to The New York Times

PHILADELPHIA, Penn., May 8.—After eighteen months’ controversy, which resulted recently in a hunger strike, the 3,000 boy students at the Central High School here have won the privilege of bringing their own lunches and eating them outdoors, instead of having to buy the food supplied by the city and eat it inside the school at noon.  Dr. Robert Thompson, President of the school, granted their demands to-day.

As a result of the settlement of the trouble, the boys purchased their lunches to-day from the counters provided by the school and then went out in the school yard and ate them.  Last week the school lost hundreds of dollars on account of the refusal of the students to patronize the city sandwich and milk supply.

The settlement has several conditions attached, namely, that the students do not go beyond the limits of the school yard during the lunch recess, that they do not smoke or flirt with the girls, and that they refrain from throwing things at passing automobiles.  A teacher and a student will be placed at each end of the yard to see that these rules are obeyed. 

Positively Peiper:
In keeping with my promises from the past few months, there will be no commentary on the weather, Jen’s daughter, or my general procrastination when it comes to completing materials for the issue.  Although, I do note that I submitted all documentation by 4:00 pm today which is a good three or four hours earlier than usual. 

As for the issue this week, we highlight an unusual suit limitation case.  In John v State Farm, the Second Department upheld a one year suit limitation clause.

One year suit limitation clauses are fairly common around the country, but most decisions in NY expand the suit limitation to a de facto two year statute of limitations.  In keeping with a very well established set of case law, the Court mechanically applied the suit limitation time line.  You heard it here first; the two year suit limitation clause for Hurricane Sandy claims will expire on October 29, 2014.  Given the length of time it is taking to adjust FEMA claims, NY Rising claims, and the like, there will very likely be a number of claims that are never pressed until well after the two year anniversary of the storm.   Thus, giving rise to new challenges to a carrier’s ability to limit the time period for legal action against it.

We’d also suggest you take a look at the Liu v Town of East Hempstead case reviewed in the Potpourri.  Admittedly, the facts of the case are a bit sparse, but the bottom line is that a carrier may not be able to exempt themselves from a lawsuit just because a settlement was arranged with the plaintiff. 

On the training front, if you haven’t signed up for the NY Bar Association’s Insurance Coverage Seminar, your time is running short.  In fact, depending on where you are, it may have already passed.  If you have an interest, please check out the Bar Association’s website for more information. 

If you’re involved, at all, in first party coverage work, and are going to be in Chicago (or would like to visit it) on June 26th, we are very proud to announce that we’ve been asked to participate in the 2014 Catastrophe Toolbox Seminar.  As you may recall, we worked with the excellent lawyers from Alford Bolin (Alabama), Boehm Brown & Harwood (Florida) and Mozley Finlayson & Loggins (Georgia) to present the seminar in Stamford, Connecticut.  See more information above in Dan’s opening comments.

This year we’ve traded the University of Connecticut for the University of Chicago.  The geography changed, and so too did the materials.  We are happy to report that the panel will report on hot button issues in more than thirty jurisdictions from around the Country.  If you’re engaged, in any capacity with the adjustment of first party claims, this is a can’t miss event.    Please drop us a line for more information. 

That’s all for now.  See you in two weeks.

Steven E. Peiper
[email protected]

Editor’s Note:          Steve didn’t mention that during an oral argument in an Appellate Department this week, as he was rattling off a list of all the investigatory activities our client engaged in after being apprised of a claim, he was complimented by one of the Justices as having “good rhythm.”  Now there’s a first.

A Century Ago – Stalking:

The Brooklyn Daily Eagle
Brooklyn, New York
May 9, 1914


Irene Devos Says Thomas Scott Annoys Her

An 18-year-old girl appeared before Magistrate Reynolds in the Fifth Avenue Court today to complain of the attentions of a young man who had formerly been engaged to marry her.  She said she was Irene G. Devos of 436 Sixty-First Street.  The man she complained of was Thomas Scott, 23 years old, who had formerly boarded at the girl’s home.

Their engagement had been broken recently, Miss Devos told the Magistrate, but Scott persisted in annoying her by demanding a $25 check which he had given her to buy furniture. 

The Magistrate advised Scott to cease his annoyance and to settle the matter of the check in a civil court.

Here Comes the N.Y. Twist on Certificates of Insurance
Timothy Dodge, AU, ARM, CPCU
Assistant VP of Research
IIABNY, Independent Insurance Agents & Brokers of New York

In only a few more weeks, insurance producers who write construction accounts will have a new tool for satisfying demands for certificates of insurance. The form, New York Construction Certificate of Liability Insurance Addendum (ACORD 855 NY), will be available starting in June. IIABNY and a number of other insurance and construction trade groups worked together to create this form last year.

To put it in context, we worked on this form at the same time that the certificates of insurance bill was making its way through the New York State Legislature. That bill permitted the use of only standard ACORD and ISO certificates of insurance. The addendum form was supposed to meet that standard while providing all of the information that New York contractors are frequently asked to provide to third parties.

It all worked out as planned. The bill passed both chambers of the legislature. The ACORD membership approved the addendum form. Everything worked as planned, with one exception: The governor vetoed the bill. Consequently, ACORD and ISO forms are not the only game in town. Government agencies and municipalities are still free to insist on their own proprietary forms, many of which make statements that differ from the terms of the insurance policies listed on them. In my opinion, this significantly diminishes the usefulness of the new form.

Nevertheless, producers will be able to use it this summer should certificate holders demand it. As the title suggests, the addendum is a supplement to the familiar ACORD 25 Certificate of Liability Insurance; it is not a replacement. It attempts to answer these questions that certificate holders often ask:

•             Is the insurer providing coverage admitted in New York, or is it an excess line insurer? If admitted, is the policy written in New York’s free trade zone?
•             Is the commercial general liability policy the ISO form, a modification of that form, or some other proprietary form?
•             What is the form number (ISO or other) of the additional insured endorsement on the policy?
•             Does the CGL policy insure the additional insured on a primary and noncontributory basis? Does the excess or umbrella liability policy?
•             Does it cover the additional insured for injuries to employees of the named insured or subcontractors?
•             Does the CGL policy restrict or exclude coverage for:
o             Certain specific operations?
o             Contractual liability by altering the definition of “insured contract”?
o             Earth movement; excavation; explosion; collapse; underground property damage?
o             Suits by one insured against another?
o             Property damage to work performed by subcontractors?
•             Does it remove or modify the “insured contract” exception to the employer’s liability exclusion?
•             Does the CGL policy guarantee advance notice to the certificate holder if the insurer cancels it?

This is pretty detailed information. If the agency personnel completing the form do not have a good knowledge of CGL insurance, they may answer the questions incorrectly. This in turn could expose the agency to errors and omissions lawsuits. Thorough training for account managers and customer service representatives on how to answer these questions will be essential.

Highlights of This Week’s Issue (attached):

Dan D. Kohane
[email protected]

•             Court of Appeals Denies Leave to Appeal on Important Rescission Decision
•             E-mail to Named Insured’s Counsel Seeking Coverage Constituted Sufficient Notice to Carrier
•             Employee Exclusion Excluding Coverage to “Any” Insured’s Employee Excluded Coverage for Additional Insured Where Named Insured’s Employee Was Hurt
•             Excess Carrier’s Failure to Disclaim Timely on Auto Exclusion Renders Disclaimer Invalid and Ineffective
•             Under the Terms of Policy, Underlying Excess Policies Must be Exhausted by Payment Prior to High Level Excess Policy Being Implicated

Daniel T. Hunter
[email protected]

•             Plaintiff's Continuing Range of Motion Defects Three (3) Years Following the Motor Vehicle Accident Proof Enough to Reverse Lower Court Order
•             Defendants Failed to Meet Initial Burden Resulting in Reversal of Lower Court Order
•             Appellant's Papers Fail to Adequately Address Plaintiff's Claim of Serious Injury
•             Lower Court Order Modified Dismissing Plaintiff's Entire Complaint
•             Plaintiff's Motion for Summary Judgment Based solely on the 90/180 Threshold Category was Properly Denied
•             Treating Radiologist's Failure to Explain Plaintiff's Degenerative Conditions Prove Fatal to Plaintiff's Opposition
•             Collateral Estoppel Prevents Plaintiff from Maintaining a SUM Action for Personal Injuries
•             Dismissal of 90/180 Serious Injury Claim Upheld

Margo M. Lagueras
[email protected]


•             Applicant’s Findings Regarding Causality Are Conclusory and Disingenuous Given the Extent of the Assignor’s Pre-Existing Conditions
•             Failure to Timely File Notice of Claim Is Coverage Defense
•             Policy Exhaustion Is a Coverage Defense and Not Precluded at Any Time
•             Cervical DMX Not Medically Necessary Where EIP Reported Improvement After Just Two Chiropractic Treatments


•             When It Comes to EUOs, Two Strikes and You Are Out
•             Trial de Novo Unavailable Where Master Arbitration Awards Did Not Exceed $5,000

Steven E. Peiper
[email protected]

First Party:

•             Carrier Meets its Burden in Rescission Claim
•             Court Enforces One Year Suit Limitation Clause in an Auto Policy


•             Contractual Indemnification Claim Against Carrier Survives GOL 15-108 Challenge
•             Where Theft Happens Prior to Government Seizure, the Loss Falls with “Theft” Coverage of the Policy
•             Indemnity Agreement IS NOT Retroactively Applied Where Intent of Both Parties Cannot be Established

Elizabeth A. Fitzpatrick
[email protected]

•             Faulty Workmanship May be an Occurrence

Audrey A. Seeley
[email protected]

•             Nothing to Report This Edition

Cassandra A. Kazukenus
[email protected]

•             A2693 Amending Definition of Clinical Peer Reviewer
•             A3952/S4822 Prohibition On Underwriting Based Solely On Dog Breed

Katherine A. Fijal
[email protected]

•             September 11 Attack was “Act of War” Under CERCLA
•             Impaired Property, Loss of Use, Demurrage, Your Product and Your Work Exclusions Applied.

Jennifer A. Ehman
[email protected] 

•             In a Direct Action Brought by the Injured Plaintiff, Insurer was Entitled to Documents Pertaining to the Merits of the Underlying Action Including those addressing Liability, Injuries and Default Judgment 

Bad Faith:

•             Reserves Maintained by Insurer Found to Be Discoverable in Bad Faith Action

Earl K. Cantwell
[email protected]



All for now.  Keep those cards and letters and e-mails (and situations) coming in.

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

Office:             716.849.8942
Mobile:            716.445.2258
Fax:                 716.855.0874
E-Mail:            [email protected]


Dan D. Kohane
[email protected]

Audrey A. Seeley
[email protected]

Jennifer A. Ehman
[email protected]

Dan D. Kohane, Team Leader
[email protected]

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

Diane F. Bosse
Joel R. Appelbaum

Steven E. Peiper, Team Leader
[email protected]

Elizabeth A. Fitzpatrick
Cassandra Kazukenus

Audrey A. Seeley, Team Leader
[email protected]

Margo M. Lagueras
Cassandra Kazukenus
Jennifer A. Ehman

Jody E. Briandi, Team Leader
[email protected]

 Elizabeth A. Fitzpatrick

Diane F. Bosse

Index to Special Columns

Kohane’s Coverage Corner
Liening Tower of Perley
Hunter’s Hints on Serious Injury
Margo’s Musings on No Fault
Steve on Sandy, Peiper on Property and Potpourri
Beth’s Banter on Coverage B and Fitz’ Bits
Audrey’s Angles on the Nationally Noteworthy
Cassie’s Capital Connection
Fijal’s Federal Focus
Keeping the Faith with Jen’s Gems
Earl’s Pearls

Dan D. Kohane
[email protected]

05/01/14       James v. Tower Insurance Company
Court of Appeals Denies Leave to Appeal on Important Rescission Decision
We reported on this decision in our December 20, 2013 issue.  We are pleased to report that the Court of Appeals has denied leave to appeal.  Take heed of our Editor’s Note below:

12/18/13 James v. Tower Insurance
Appellate Division, Second Department

Rescission of Policy Granted with Underwriting Affidavit and Protocols Establishing that Insurer Would Not Have Issued Same Policy
To establish its right to rescind an insurance policy, an insurer must demonstrate that the insured made a material misrepresentation. A misrepresentation is material if the insurer would not have issued the policy had it known the facts misrepresented. To establish materiality as a matter of law, the insurer must present documentation concerning its underwriting practices, such as underwriting manuals, bulletins, or rules pertaining to similar risks that show that it would not have issued the same policy if the correct information had been disclosed in the application.
Here, Tower demonstrated its right to judgment by submitting an affidavit from their underwriting manager and relevant portions of their underwriting manual which showed that they would not have issued the same policy if the application had disclosed that the subject premises would not be owner occupied. Game, set and match.
Editor’s Note: Note, if carrier can prove that it would not have issued the SAME policy, rescission available upon proper proof. It should not matter, and did not matter, that insurer might have issued a different policy.

05/08/14       The City of New York v. Zurich American Insurance Company
Appellate Division, First Department
E-mail to Named Insured’s Counsel Seeking Coverage Constituted Sufficient Notice to Carrier
The underlying plaintiff alleged that he was injured when exposed to toxins at a work site while he was employed by Skanska. Skanska contracted with the City to perform reconstruction and rehabilitation at the work site, and maintained a commercial general liability insurance policy with Zurich, listing Skanska as a named insured and the City as an additional insured.

Here, the City's January 31, 2011 email to Skanska's counsel provided sufficient information for Zurich to timely disclaim coverage. The City's email stated "[k]indly please forward this onto the right carrier," and requested that Skanska's insurance carrier "pick it up now." Counsel for Skanska forwarded this email and attachment in its entirety to Skanska's insurance broker, requesting that the information be sent "to the right person," and suggesting that in the event that "the City is entitled to indemnity and or AI coverage; a takeover would make the third party action a nullity."

Zurich contends that counsel for Skanska was not its "agent."  However, the court found that notice may be provided through intermediaries where the policy, as here, merely requires that an additional insured "see to it" that the insurer receives noticed. The record also demonstrates that Zurich did have prior notice of the underlying action.

Accordingly, under the circumstances presented, Zurich's disclaimer of coverage more than one year after it received the City's communications, was untimely as a matter of law.

05/07/14       Bayport Construction Corp. v. BHS Insurance Agency
Appellate Division, Second Department
Employee Exclusion Excluding Coverage to “Any” Insured’s Employee Excluded Coverage for Additional Insured Where Named Insured’s Employee Was Hurt
Bayport had a commercial general liability insurance policy with Mt. Hawley Insurance Company (“Mt. Hawley”). Under a contract with Kiska, Bayport was a trade contractor on a project in Brooklyn. The contract required the Bayport to have insurance naming Kiska and certain others as additional insureds. The policy with Mt. Hawley contained an additional insured endorsement naming those parties as additional insureds.

Orellana, a Bayport employee was hurt on the project.  He sued Kiska and Kiska sought AI coverage under the Mt. Hawley policy. Mt. Hawley disclaimed coverage because the policy purportedly had been cancelled due to nonpayment of premiums. That coverage disclaimer was later supplemented with reliance on an Employer's Liability exclusion, which excludes coverage for "Bodily injury' to: (1) An employee' of any insured arising out of and in the course of: (a) Employment by any insured."

The plain meaning of the exclusion invoked by Mt. Hawley was that the policy did not provide coverage for damages arising out of bodily injury sustained by an employee of any insured in the course of his or her employment. Since Orellana, the plaintiff in the underlying action, was an employee of the insured, his injury is not covered by the policy. Moreover, contrary to the plaintiff's contention, this exclusion also applies to coverage for the additional insureds.  The court did not have to reach the cancellation issue, as a result.

04/29/13       Highrise Hoisting & Scaffolding, Inc. v. Liberty Ins. Under’s.
Appellate Division, First Department
Excess Carrier’s Failure to Disclaim Timely on Auto Exclusion Renders Disclaimer Invalid and Ineffective
The Liberty policy provides coverage for all "occurrences," which are defined as "accidents," so the underlying actions, which resulted from an automobile accident, would fall within the Liberty policy's broad coverage grant. The Liberty policy contains an automobile exclusion, and if a claim falls within the scope of the policy's insuring agreement, an insurer must issue a timely disclaimer pursuant to Insurance Law § 3420(d) to deny coverage based upon an exclusion. The RSUI excess policy follows the form of the Liberty primary policy because it incorporates, by reference, the terms of the underlying policy and is designed to match the coverage provided by the underlying policy.

Excess insurers have an obligation to disclaim pursuant to Insurance Law § 3420(d); accordingly, where RSUI disclaimed coverage more than seven months after receiving notice of claim, and failed to offer any explanation for its delay, RSUI's attempted disclaimer failed to comply with Insurance Law.

04/29/14       Forest Laboratories, Inc. v. Arch Insurance Company
Appellate Division, First Department
Under the Terms of Policy, Underlying Excess Policies Must be Exhausted by Payment Prior to High Level Excess Policy Being Implicated

The express terms of RSUI's policy providing excess coverage to plaintiff required the previous layer of excess coverage to be exhausted through actual payment of that policy's limit prior to RSUI being required to pay

Daniel T. Hunter
[email protected]


04/29/14       Herrera v. Dulisse
Appellate Division, First Department
Plaintiff's Continuing Range of Motion Defects Three (3) Years Following the Motor Vehicle Accident Proof Enough to Reverse Lower Court Order
The First Department found issues of fact to exist regarding whether or not Plaintiff sustained a "serious injury" under Insurance Law §5102(d) and reversed the lower court's granting of summary judgment to Defendants.  The First Department notes that Defendants' own motion papers contained medical evidence showing Plaintiff suffered a bulging disc and a twenty percent (20%) loss of use of his cervical spine shortly after the motor vehicle accident, with continuing range of motion deficits three (3) years after.

The Court goes on to say that, even assuming Defendants did meet their initial burden, Plaintiff's submissions in response are sufficient to defeat a motion for summary judgment since they contained an affirmed report of Plaintiff's examining neurologist "showing recent quantified range of motion limitations, positive tests, and permanency" providing the requisite proof of limitations and the durations of the injuries.  Finally, the First Department notes that it is not fatal to Plaintiff's claims of permanency that the discharge report prepared by his treating orthopedist indicated that Plaintiff felt "much better" and experienced "no pain" since the same report included a diagnosis of "cervical radiculitis due to disc displacement" and a twenty percent (20%) impairment of Plaintiff's cervical spine.  The Court notes that injuries can become significantly more or less severe at time passes.

04/30/14       Sencion v. Lap
Appellate Division, Second Department
Defendants Failed to Meet Initial Burden Resulting in Reversal of Lower Court Order
Defendants' motion for summary judgment, granted by the lower court, was reversed by the Second Department.  The Second Department found Defendants' motion papers did not adequately address Plaintiff's claims set forth in the bill of particulars, specifically that Plaintiff sustained a serious injury under the 90/180 day category under Insurance Law §5102(d).  Since Defendants failed to sustain their respective prima facie burden, the Court notes it is unnecessary to determine whether the papers submitted by Plaintiff in opposition were sufficient to raise a triable issue of fact.

04/30/14       Meskovic v. Walman
Appellate Division, Second Department
Appellant's Papers Fail to Adequately Address Plaintiff's Claim of Serious Injury
Defendants' motion for summary judgment was denied by the lower court.  On appeal, the Second Department notes that Defendants' motion papers failed to meet their prima facie burden of showing that Plaintiff did not sustain a serious injury since they failed to adequately address Plaintiff's claims, set forth in the Bill of Particulars, specifically that he sustained injuries to his cervical and lumbar regions of his spine.  Accordingly, the Appellate Division affirmed the lower court order, without the need to address Plaintiff's opposition papers.

05/02/14       Downie v. McDonough
Appellate Division, Fourth Department
Lower Court Order Modified Dismissing Plaintiff's Entire Complaint
The lower court granted Defendants' motion for summary judgment dismissing Plaintiff's complaint on the ground that Plaintiff cannot sustain a serious injury only with respect to the 90/180 day category.  The Fourth Department notes that Defendants' motion papers submitted an affirmed report of an orthopedic surgeon who examined Plaintiff and found no objective evidence to substantiate Plaintiff's subjective complaints of pain.  Further, diagnostic testing showed no fractures, disc herniations, subluxations, soft tissue swelling or other abnormalities throughout Plaintiff's spine.  Plaintiff returned to work as a full time housecleaner performing the same duties she performed prior to the accident less than two (2) months following the accident.  In opposition, Plaintiff submitted certified records of her treating chiropractor, including MRI reports which showed the existence of bulging discs in Plaintiff's cervical spine.  The Fourth Department notes that proof of herniated or bulging discs without additional objective medical evidence establishing that the accident resulted in significant physical limitations is not alone sufficient to establish a serious injury.  Further, the treating notes of Plaintiff's own chiropractor showed Plaintiff exhibited normal flexion and only minor, mild or slight limitations which are properly categorized as "insignificant" or inconsequential within the meaning of Insurance Law §5102(d).  Further, the Fourth Department found no objective basis for Plaintiff's headache complaints since Plaintiff offered no proof that her headaches in any way incapacitated her or interfered with her ability to work or engage in activities at home.

05/02/14       Hill v. Cash
Appellate Division, Fourth Department
Plaintiff's Motion for Summary Judgment Based Solely on the 90/180 Threshold Category Was Properly Denied
The Fourth Department notes that a causally related emotional injury, alone or in combination with a physical injury, can constitute a serious injury.  However, contrary to Plaintiff's contention, the Fourth Department found Defendants raised an issue of fact sufficient to defeat the motion by submitting records of Plaintiff's psychologist.  The Court did not go into detail as to what exactly what in those records raised an issue of fact.  Further, Plaintiff did not present objective evidence of a medically determined injury or impairment of a non-permanent nature which prevented her from performing substantially all of the material acts which constitute her usual and customary daily activities for not less than ninety (90) days during the one hundred eighty (180) days immediately following the occurrence of the injury.  As such, Plaintiff failed to demonstrate a "serious injury" under Insurance Law §5102(d).

05/06/14                 Mena v. White City Car and Limo, Inc.
Appellate Division, First Department
Treating Radiologist's Failure to Explain Plaintiff's Degenerative Conditions Prove Fatal to Plaintiff's Opposition
The First Department unanimously affirmed the lower court's order granting Defendant's summary judgment due to Plaintiff's failure to establish a serious injury pursuant to Insurance Law §5102(d).  In support of their motion, Defendants submitted an affirmed report from a radiologist asserting that Plaintiff's neck, back and shoulder injuries were degenerative in nature.  In opposition, Plaintiff's own radiologist noted degenerative conditions in MRI reports, but failed to explain why these conditions were not the cause of Plaintiff's injuries.  Further, Plaintiff's 90/180 day claim was successfully opposed by Defendants relying on Plaintiff's bill of particulars and deposition testimony that Plaintiff was confined to bed for "about one (1) week" and was home from work for only five (5) days.

05/08/14                 Clark v. Farmers New Century Insurance Co.
Appellate Division, Third Department
Collateral Estoppel Prevents Plaintiff from Maintaining a SUM Action for Personal Injuries
Plaintiff was involved in a motor vehicle accident in 2004, and claimed traumatic brain injury, cognitive defects, post-traumatic stress disorder and loss of vision.  Plaintiff commenced a personal injury action alleging a serious injury within the meaning of Insurance Law §5102(d); however, the Defendant in that action successfully moved for summary judgment.  The lower court found Plaintiff failed to proffer sufficient objective medical evidence to demonstrate that she had sustained a serious injury.  Plaintiff appealed the lower court's order, and soon thereafter asserted a claim pursuant to Supplementary Uninsured/Underinsured Motorist (SUM) endorsement contained within her automobile insurance policy issued by Defendant, Farmers New Century Insurance Co.  The Appellate Court affirmed the lower court's award of summary judgment in the previous personal injury action, and soon thereafter Defendant Farmers New Century Insurance Co. moved for summary judgment on the grounds of collateral estoppel.

The Third Department notes the equitable doctrine of collateral estoppel precludes a party from re-litigating an issue when it was clearly raised in a prior action and proceeded and decided against that party in a final judgment on the merits after a full and fair opportunity to be heard.  Since the previous court in the personal injury action found Plaintiff failed to proffer objective medical evidence to demonstrate that she suffered any causally related serious injury within the meaning of Insurance Law §5102(d), and since proof of a serious injury is a condition precedent to maintaining a SUM action for noneconomic loss, the Supreme Court properly awarded Defendant’s summary judgment based upon collateral estoppel with regard to Plaintiff's claim for noneconomic damages.

05/08/14       Galarza v. J. N. Eaglet Publishing Group, Inc.
Appellate Division, First Department
Dismissal of 90/180 Serious Injury Claim Upheld
Defendants moved for summary judgment on the basis that Plaintiff could not sustain a serious injury on the 90/180 day claim by submitted a confirmed report from an orthopedic surgeon who opined that Plaintiff's need for arthroscopic surgery on his left knee was overwhelmingly the result of a previous motor vehicle accident in 2001 which resulted in injury to Plaintiff's left femur and knee, including the surgical placement of a metal rod in Plaintiff's left femur.  Further, Defendants submitted Plaintiff's treating physician's records which showed Plaintiff has near normal range of motion in the period immediately following the accident.  As such, Defendants met their initial burden in demonstrating an absence of a serious injury that would prevent Plaintiff from essentially all of his customary daily activities during that relevant period.  In opposition, Plaintiff submitted only an affidavit asserting that he was out of work for five (5) months following the subject matter motor vehicle accident.  Since this affidavit was not supported by any evidence of a medially determined injury caused by the subject accident, Plaintiff failed to raise an issue of fact.  As such, the lower court's ruling was unanimously upheld.

Margo M. Lagueras
[email protected]


04/22/14       Graham Huckell, MD v A. Central Insurance Co.
Erie County, Arbitrator Kent L. Benziger
Applicant’s Findings Regarding Causality Are Conclusory and Disingenuous Given the Extent of the Assignor’s Pre-Existing Conditions
The Arbitrator denied Applicant’s claims for reimbursement for right knee and left shoulder surgery as not causally related to the accident of June 2, 2013, given that the Assignor’s medical history included surgeries and continuous treatment from 2010 up to the date of the accident to both areas.  Following the accident, Dr. Huckell evaluated the Assignor several times and noted that the tear of the left shoulder supraspinatus could be acute despite an MRI performed days after the accident revealing retraction, atrophy and advanced osteoarthrosis.  With regard to the right knee, Dr. Huckell stated that the complaints were exacerbated by the accident which caused previously asymptomatic osteoarthritis to become symptomatic.  However, Dr. Huckell had been treating the Assignor since 2010, had recommended a total knee arthroplasty and had previously attributed causation to the 2010 injury, similarly stating that the Assignor had pre-existing asymptomatic osteoarthritis rendered symptomatic.

Arbitrator Benziger found the peer review by Dr. Ferriter, upon which Respondent based its denials, to be persuasive.  The Arbitrator further found the findings of Dr. Huckell to be conclusory and disingenuous, particularly where his post-accident reports were contradicted by his own pre-accident office notes and reports.  The Arbitrator concluded that Dr. Huckell failed to acknowledge the extent of the Assignor’s injuries to the left shoulder and right knee prior to the June 2013 accident, that surgery to the right knee was previously planned, and that the emergency room records did not list any complaints of injury to the left shoulder.

04/22/14       A. Marc Tetro, MD v Clarendon National Insurance Co.
Erie County, Arbitrator Kent L. Benziger
Failure to Timely File Notice of Claim Is Coverage Defense
Applicant’s Assignor was involved in a motor vehicle accident in August 2007.  The Assignor’s personal injury attorney conceded that the Notice of Claim was not mail until mid-October, well beyond the statutory 30 days, and that there was reasonable justification for the delay.  Ten days after receiving the Notice, Respondent issued a general denial noting as grounds both the late Notice and the fact that the policy was not in force on the date of the accident. 

The Arbitrator noted that it is the Applicant’s burden to establish that the Notice of Claim was timely mailed.  In this case, Respondent listed the date on which it received the Notice and Applicant’s counsel conceded that the Notice was not mailed timely.  The Arbitrator also found Applicant’s arguments that Respondent did not meet its burden to be incorrect.  First, Respondent’s denial was proper and contained the required language regarding reasonable justification for late notice.  Respondent’s denial also was dated within 30 days of the receipt of claim and Applicant’s assertion that it is Respondent’s burden to submit proof of timely mailing of the denial is incorrect.  The NF-2 was dated within the 30 days and it therefore becomes Applicant’s burden to rebut that proof.  Moreover, the denial gives rise to a presumption of receipt and a conclusory statement by Applicant’s counsel does not overcome that presumption.  The Arbitrator further noted that the failure to file a timely Notice of Claim is a coverage defense that may be raised at any time even if the denial is untimely.  Where the EIP fails to timely file or offer a reasonable justification for failing to do so, he is not a covered person and a medical provider cannot seek reimbursement from the no-fault carrier.  As such, the Arbitrator denied Applicant’s claim.

04/17/14       Chiropractic Care WNY LLC v New York Central Mutual Fire Ins. Co.
Erie County, Arbitrator Kent L. Benziger
Policy Exhaustion Is a Coverage Defense and Not Precluded at Any Time
Applicant argued that some of its claims were initially denied based on an IME and could not now be denied based upon policy exhaustion.  The Arbitrator disagreed noting that policy exhaustion is a coverage defense that is not precluded if not raised in an initial denial regardless of whether or not that denial is timely.  The Arbitrator further noted that applicant was incorrect in its contention that the issue was whether the policy was exhausted at the time the claims were submitted.  The claims at issue were unverified because they were denied.  “A claim that is unverified through a denial becomes ripe for payment at the time that reimbursement is awarded – not at the time the initial bill is submitted.”  Here, Respondent determined the claims were not properly verified because the IME examiner found the services were not medically necessary.  It is not now necessary to determine whether the treatment was medically necessary as an insurer is not required to pay a claim where the policy limits have been exhausted.
Note:  Good recap of the prevailing law in New York State regarding priority of payment (Nyack v General Motor Acceptance Corp., 8 NY3d 294 [2007]).

04/11/14       Western New York MRI, LLP v Geico Insurance Co.
Erie County, Arbitrator Michelle Murphy-Louden
Cervical DMX Not Medically Necessary Where EIP Reported Improvement After Just Two Chiropractic Treatments
The 32 year old EIP was involved in an accident in November 2012.  Four days later, she presented for initial consultation with a chiropractor.  In January, the chiropractor gave her a prescription for a cervical x-ray.  A week later, he reviewed the x-ray and faxed a prescription for the cervical DMX at issue.  The DMX was performed and, according to the chiropractor’s SOAP note on January 24, 2013, he again performed chiropractic manipulations on the EIP’s cervical and thoracic spines.  A peer review was performed by Robert Sohn, DC on January 22, 2013, and the claim for the DMX was denied based on Dr. Sohn’s conclusion that it was not medically necessary.

The Arbitrator agreed with Dr. Sohn’s conclusions and upheld the denial, noting that it was not clear why the chiropractor performed over two months of manipulation therapy before assessing the EIP’s condition through diagnostic studies.  The Arbitrator also questioned why the DMX was ordered when the EIP reported improvement after only two treatments and, in fact, rated her pain as very mild.  Furthermore, the DMX obviously did not have any influence on the chiropractor’s treatment plan as he continued performing chiropractic manipulations two days after the study.


04/30/14       IDA Property Casualty Ins. Co. v Stracar Medical Services, P.C
Appellate Division, Second Department
When It Comes to EUOs, Two Strikes and You Are Out
Plaintiff established that it twice correctly noticed defendant medical providers for EUOs, that twice they failed to appear, and that timely denials of benefits were then issued based upon the material breach of the policy.  The Civil Court denied plaintiff’s motion for summary judgment and instead adjourned the matter, directing defendants to appear and testify at the EUOs. 

On appeal, the Court vacated and granted plaintiff’s motion declaring that it was not obligated to pay no-fault benefits to defendants.  Defendant-assignees breached a condition precedent of the policy by failing to appear twice to properly noticed EUOs.  Plaintiff then timely issued denials, establishing its prima facie entitlement to judgment as a matter of law.  Defendant-assignees failed to submit any evidence of a reasonable excuse for either their failure to appear, or with regard to the reasonableness or propriety of the demands for EUOs.  Only after plaintiff’s motion did defendants say they were willing to appear but the Court noted that this did not cure the breach as the insurer was entitled to obtain information regarding the claims promptly and not more than two years later.  Finding that defendants’ failure to comply with the demands for EUO was unexcused and willful, the court remitted the matter back to the trial court for entry of judgment in plaintiff’s favor.

04/30/14       Imperium Ins. Co. v Innovative Chiropractic Services, P.C.
Appellate Term, First Department
Trial de Novo Unavailable Where Master Arbitration Awards Did Not Exceed $5,000
Plaintiff insurer sought declaratory relief and review by trial de novo of five master arbitration awards issued to defendant medical providers.  The Civil court denied plaintiff’s motion for entry of a default judgment against defendants and plaintiff appealed.  The Appellate Term reiterated that de novo review of a master arbitrator’s award is limited to the grounds enumerated in CPLR Article 75, unless the award exceeds $5,000.  In these consolidated cases, none of the awards exceeded that amount so plaintiff’s complaints seeking trial de novo did not state a viable cause of action and the Civil Court properly dismissed plaintiff’s motion for default judgment.

Steven E. Peiper
[email protected]

First Party

04/30/14       Smith v Guardian Life Ins. Co. of Am.
Appellate Division, Second Department
Carrier Meets its Burden in Rescission Claim
Smith purchased a life insurance policy from defendant Guardian.  However, it was later revealed that Smith’s application contained misstatements and/or factual errors.  Guardian rescinded the policy on the basis that the policy would not have been issued had an accurate application been completed.

In affirming the rescission, the Second Department noted that a misrepresentation can be considered material even if it was made “unintentionally."  Moreover, in the instant case Guardian met its burden on motion by establishing, in admissible proof, that Guardian’s underwriting guidelines would not have issued the policy had the application been accurate. 

04/30/14       John v State Farm Ins. Co.
Appellate Division, Second Department
Court Enforces One Year Suit Limitation Clause in an Auto Policy
John insured an automobile with State Farm.  When that car was allegedly stolen, John asserted an insurance claim against State Farm.  For unknown reasons, State Farm denied the claim.  Nearly seventeen (17) months later, John commenced the instant declaratory judgment action against State Farm asserting therein that State Farm’s denial amounted to a breach of contract.

Despite New York’s long standing six (6) year statute of limitations for breach of contract claims, the policy provided that any legal action needed to be commenced within one (1) year of the claimed date of loss.  Here, John’s action brought approximately a year and ½ after the date of loss was in violation of the suit limitation clause.  As such, plaintiff’s claim was dismissed as untimely.


05/06/14       Lui v Town of East Hampton
Appellate Division, First Department
Contractual Indemnification Claim Against Carrier Survives GOL 15-108 Challenge
Plaintiff Liu appears to have commenced the instant action against NY Central and NY Central’s insured, Ecker.  NY Central also appears to have entered into a settlement agreement with Liu, and attempted to withdraw from the claim completely.  At that time, Ecker moved to amend its answer to assert cross-claims against NY Central seeking common law and/or contractual indemnification and attorneys’ fees.

NY Central opposed the motion on the basis that it would be futile, as General Obligations Law § 15-108 protected it from further exposure to plaintiff.  The Second Department agreed that Ecker’s claims for common law indemnification were, indeed, futile.  That is because under the GOL Ecker could only be liable for its own proportioned share of the negligence, and Ecker cannot shift its negligence via a common law indemnity claim. 

Notwithstanding the foregoing, the Court noted that contractual indemnity claims are not prohibited by operation of GOL § 15-108.  Here, the contract between Ecker and NY Central contemplates indemnity for liability, as well as attorneys’ fees.  As such, Ecker’s cross-claims against NY Central were not deemed futile.  Because leave to amend should be freely given, and there was no prejudice to NY Central, Ecker’s motion was granted as to the contractual indemnity claims. 

05/06/14       Omnex Group, Inc. v United States Fire Ins. Co.
Appellate Division, First Department
Where Theft Happens Prior to Government Seizure, the Loss Falls With “Theft” Coverage of the Policy
Another “float” case to report on.  This time, plaintiff retained non-party AMS to pick up cash from various locations.  The cash was supposed to have then been deposited in plaintiff’s Wells Fargo account.  Instead, AMS held the proceeds for its own use, including making loans to other parties.  AMS then used its next collection for plaintiff to cover the amounts it owed from earlier. 

When the scheme was uncovered, the FBI seized all cash from the AMS vaults which amounted to approximately $19,000,000.  Unfortunately for plaintiff, $68,000,000 dollars remained “unaccounted.”   Plaintiff submitted a claim under its policy with US Fire which, among other things, provided coverage for loss of money “outside the premises in the care, custody and control of…an armored car company.”  US Fire denied the claim on the basis that the loss was removed from coverage by operation of the government seizure of property exclusion.

In rejecting the US Fire denial, the Court noted that the loss was not caused by the seizure of AMS’ assets.  Rather, the loss giving rise to the current claim was caused due to the actions of AMS which occurred several days prior.   

05/01/14       DiNovo v Bat Con, Inc.
Appellate Division, Third Department
Indemnity Agreement IS NOT Retroactively Applied Where Intent of Both Parties Cannot be Established
Plaintiff was injured while working at a construction for his employer PGC.  PGC was at the project due to a contract executed between PGC and Bat Con.   After appearing in plaintiff’s Labor Law § 240(1) personal injury action, Bat Con commenced a third-party action against PGC seeking contractual indemnification.  PGC opposed Bat Con’s indemnity claims on the basis that the contract at issue did not contain an enforceable indemnity agreement.

The facts of the Record apparently established that PGC sent a proposal for the work to defendant in April of 2008.  That proposal, which was ultimately accepted by Bat Con, included a sample certificate of insurance and an indemnity provision which limited recovery to exposure caused by PGC’s “own negligence.”

On motion, however, Bat Con asserted it is entitled to indemnity under a separate provision.  That provision was not sent to PGC until June of 2008, which was after plaintiff’s injury which occurred in May of 2008.  Nonetheless, Bat Con argued that the terms of the contract were meant to be applied retroactively, and that PGC’s engagement in the project established their consent to the proffered indemnity clause. 

The Appellate Division noted that an indemnity provision can be given retroactive effect if both parties acknowledge they intended to apply to the loss date (regardless of the actual date of execution).  Here, however, PGC has never consented to the terms of the June 2008 indemnity agreement.  In fact, PGC submitted affidavits from representatives of the company that stated PGC never engaged Bat Con in discussions about the June 2008 indemnity clause, and never agreed to have it applied retroactively. 

Accordingly, the Third Department ruled that the June 2008 indemnity agreement was unenforceable.  In so noting, the Court also reaffirmed the long standing rule that an insurance procurement agreement does not constitute an indemnity agreement.  The fact that PGC provided a certificate of insurance, and had an insurance procurement clause in the contract, could not be imputed to create an indemnity agreement where none otherwise existed.  

Elizabeth A. Fitzpatrick
[email protected]

04/25/14       Pennsylvania National Mutual Casualty Insurance Company v. St. Catherine of Sienna Parish
United States District Court of Alabama
Faulty Workmanship May be an Occurrence
This declaratory judgment action stems from an action brought by St. Catherine against Kiker Corp., Thompson Engineering and Damon Lett Roofing.  St. Catherine contracted with Kiker to re-roof two of its buildings.  Kiker then subcontracted the roofing work to Damon Lett Roofing in May 2013.  The work was completed in 2004 and 2005, and the roofs began leaking in 2005 and 2008 on the various buildings.  Kiker returned some 40 to 50 times in an attempt to repair the problems, but could not do so.  St. Catherine hired a roofing inspector.  The shingle inspection allegedly revealed installation errors, construction defects and breaches of the scope of work set forth in Kiker’s agreement with St. Catherine.

St. Catherine commenced a lawsuit against Kiker alleging breach of contract, negligence, breach of implied/express warranties, breach of implied warranty of workmanship, common law indemnity and breach of contract.  Ultimately, after trial, a verdict of $350,000 against Kiker was returned.

Pennsylvania National, Kiker’s commercial general liability insurer, had been defending Kiker in that lawsuit, subject to a reservation of rights.  Pennsylvania National had advised Kiker that there was no coverage under the policy for any damages as a result of breach of warranty or breach of contract, as such was not considered an occurrence.

Considering motions for summary judgment in the declaratory judgment action, the court considered the definition of an occurrence as an accident, noting that under Alabama law “accident” means an unintended and unforeseen injurious occurrence; something that does not occur in the usual course of events or that could be reasonably anticipated.

The court noted that the Alabama Supreme Court in Moss v. Champion Insurance Company found an “occurrence” for CGL purposes when the contractor’s faulty workman resulted in not only a poorly constructed roof – the job the contractor had been hired to perform – but damage to other parts of the plaintiff’s home.  In U.S. Fidelity & Guaranty Co. v. Warwick, one year later, the Alabama court held that faulty workmanship itself is not an occurrence for purposes of a CGL policy.  Acknowledging the seemingly conflicting decisions in Warwick and Moss, the Alabama Supreme Court then explained in Town & Country LLC v. Amerisure Insurance that faulty workmanship may lead to an occurrence if it subjects other parts of the structure to continuous or repeated exposure to some other general, harmful condition.  The court then discussed the Alabama Supreme Court’s decision in Owners Insurance Co. v. Jim Carr Home Builder, which I addressed in our April 11, 2014 issue, where the court held that faulty workmanship could constitute an occurrence. 

The court rejected Pennsylvania’s argument that the court’s other holdings involved tort and contract claims, as opposed to only a contract claim and thus could be distinguished.  The court found that the breach of contract claim of St. Catherine, which encompassed its faulty workmanship and included damages not just for repair and replacement of the roofs, but also other property damage to the buildings, constituted an occurrence as defined in the policy.

The court then addressed the exclusions urged by Pennsylvania National, including the “your work” and “contractual liability” exclusion.  As the “your work” exclusion included an exception for work performed by a subcontractor, the court found the exclusion did not bar coverage.  However, the court did find that the “contractual liability” exclusion was applicable, barring coverage for the claims, including the implied warranty claim.  The court, thus, concluded that Pennsylvania National did not have an obligation to indemnify Kiker for the jury verdict entered against them in the underlying action.

The battle over coverage under a commercial general liability policy for faulty workmanship claims continues.


Audrey A. Seeley
[email protected]

Nothing to report this edition.

Cassandra A. Kazukenus
[email protected]

A2693 Amending Definition of Clinical Peer Reviewer

This legislation is currently on the Assembly debate list, and there is no similar legislation pending in the Senate.  This bill did pass the Assembly last year, but it died in the Senate.

The bill seeks to amend the definition of clinical peer reviewer to require the peer reviewer to not only be a licensed physician, but also trained in the same specialty the treatment being questioned was provided within.  Currently, the only qualification for a clinical peer reviewer is that the reviewer be a licensed physician.  The proposed bill would require a clinical peer reviewer to be a physician who:

  • possesses  a  current  and valid non-restricted license to practice medicine;
  • where applicable, be board certified or board eligible in THE SAME or similar specialty as the provider who typically manages the medical condition/disease or treatment under review; and
  • practicing in the specialty for at least 5 years.


A3696-B Prohibits Cancellation of Auto Insurance

This proposed legislation is also on the Assembly debate list with no similar bill introduced in the Senate.  Likewise, the bill was passed by the Assembly last year, and it died in the Senate.

The proposed legislation seeks to prohibit an insurer from cancelling or refusing to renew an automobile policy solely on the basis that a claim was filed by the insured, and the claim is in dispute.  It also seeks to prohibit cancellation or non-renewal solely on the basis that the insured filed a complaint with the insurance department.  The bill also seeks to prohibit an insurer from conditioning the renewal upon a change in limits or elimination of coverage solely because of disputed claim or insurance department complaint. 

A3952/S4822 Prohibition on Underwriting Based Solely On Dog Breed

In the Assembly, the bill is on the debate list and was passed by the Assembly last year.  The Senate version remains in the Insurance Committee for the second year at this time.

The proposed legislation seeks to prohibit a homeowners’ liability insurer from refusing to issue or renew a homeowners’ policy solely because the homeowner owns or is harboring a dog of any specific breed or mixture of breeds.  This bill also seeks to prohibit insurers from cancelling homeowners’ insurance because the homeowner owns or harbors a specific breed or dog or charging an increased premium on this basis. 

Katherine A. Fijal
[email protected]

05/02/14       In Re September 11 Litigation:  Cedar & Washington Assoc. United States Court of Appeals, Second Circuit – CERCLA        
September 11 Attack was “Act of War” Under CERCLA
Although this a decision based on statutory interpretation and not a case based on policy interpretation, the ruling made by the Second Circuit Court of Appeals [“Court”] is likely to come into play when the “acts of war” exclusion is raised in future coverage disputes.

Real Estate developer Cedar & Washington Associates, LLC, [“C & W”], sued the owners and lessees of the World Trade Center under CERCL, seeking recovery of costs incurred in remediating a nearby building contaminated by the September 11, 2001 attack on the World Trade Center. 

The district court for concluded that the attack constituted an “act of war” for purposes of CERCLA’s affirmative defense, and that the defendants were entitled to summary judgment.  The Court agreed.

The Court began its analysis by recognizing that CERCLA’s strict liability scheme casts a wide net, an “act of war” defense avoids ensnarement of persons who bear no responsibility for the release of harmful substances.  The Court noted that the decisive point was that the attacks directly and immediately caused the release, and were the “sole cause” of the release because the attacks overwhelmed and swamped the contributions of the defendants.

Analyzing CERCLA, §107(b), the Court found that a contextual reading of the statute comports with the plain meaning of “act of war” notwithstanding that the September 11, 2001 attacks were not carried out by a state or government.  War, in the CERCLA context, is not limited to opposing states fielding combatants under formal declarations.  Further, the Court pointed out that both Congress and the President in the immediate aftermath of September 11 declared that the attacks were “acts of war” and treated them as such.

The Court then went on to note that its reading of 107(b) was not at odds with precedent that “act of war” is construed narrowly in insurance contracts; stating that the purpose of an all-risk insurance contract is to protect against any insurable loss not expressly excluded by the insurer or caused by the insured. Citing, Pan Am. World Airways, Inc. v. Aetna Cas. & Surety Co., 505 F2d 989 (2nd Cir 1974)(The experienced all risk insurers should have expected the exclusions drafted by them to be construed narrowly against them, and should have calculated their premiums accordingly).  The Court noted that a narrow reading of a contractual “act of war” exclusion achieves the parties’ contractual intent and insulated the policy holder from loss – the remedial purpose of CERCLA is both different and unrelated.  The Court provided no further explanation for this statement.

We will have to wait and see if the Court’s ruling will impact future coverage decisions, but it is likely that it will be cited by both insurance company’s and policyholders in the future.

04/29/14       Blanton v. Continental Ins. Co.
United States Court of Appeals, Fifth Circuit – Texas Law
Impaired Property, Loss of Use, Demurrage, Your Product and Your Work Exclusions Applied.
On June 16, 2006, Misty and Robert Blanton, doing business as Field Service Industries [“FSI”], installed two diesel engines into the Betty L, a motor vessel owned by J.A.M. Marine Services, L.L.C. [“J.A.M.”].  J.A.M. used the Betty L to supply offshore drilling, shipping, and ocean vessels with lubricants and fuel via barge or tug deliveries. At the time of the installation, FSI was an authorized engine dealer for Alaska Diesel. 

Less than a year after installation of the engines, the engines experienced mechanical problems.  In May and June 2007, FSI performed diagnostic and repair work on both engines. According to J.A.M., FSI performed the initial diagnostic work and repairs in a substandard manner, necessitating additional repairs.  One of the engines ultimately had to be replaced, rendering the Betty L out of service for a month. J.A.M. brought suit alleging negligence and breach of contract claims.

FSI had a Maritime Services Liability Policy with Continental Insurance [“Continental”] that included Commercial General Liability (CGL) coverage and Ship Repairer’s Liability (SRL) Coverage. The policy period was from August 15, 2006 to August 15, 2007, which is after the installation of the engines on the Betty L, but included FSI’s later repair work. After being put on notice of the suit Continental denied coverage. FSI filed a breach of insurance contract action in state court seeking a judgment that Continental owned a duty to defend FSI.  Continental moved the action to federal court.

The underlying action suit between J.A.M. and FSI settled, leaving only the issue of whether Continental had a duty to defend FSI.  After motions for summary judgment were filed the district court held that Continental had no duty to defend FSI due to the presence of contractual liability exclusions in both the CGL and the SRL portions of the policy.  FSI appealed and based on a question previously certified to the Texas Supreme Court in Ewing Constr. Co. v. Amerisure Ins. Co., 690 F.3d 628 (5th Cir. 2012), the case was held in abeyance pending the Supreme Court’s answer.  On January 17, 2014 the Texas Supreme Court held that an insured’s express agreement to perform construction in a good and workmanlike manner did not enlarge its obligations and was not an “assumption of liability” within the meaning of the contractual liability exclusion.

Following the decision in Ewing, Continental conceded that the contractual liability provisions in the CGL and SRL did not apply to FSI’s claims; however, Continental maintained that several other exclusions contained in both the CGL and the SRL portions of the policy preclude coverage.  For the following reasons the Sixth Circuit Court of Appeals [“Court”] agreed with Continental.

In determining a duty to defend, the Court pointed out that Texas courts follow the eight-corners rule, also known as the complaint-allegation rule: an insurers duty to defend is determined the third-party plaintiff’s pleadings, considered in the light of policy provisions, without regard to the truth or falsity of those allegations.

The Court went on to analyze FSI claims and the various policy exclusions raised by Continental.  Claim One was based on J.A.M.’s allegations that it lost the use of the Betty L from May 14 to 17, 2007, due to the failure of the port engine, which had been installed and placed into service by FSI ten months prior to its failure. J.A.M. also claimed that it lost the use of the vessel due to the failure of the starboard engine shortly thereafter.  As to Claim One, Continental argued that Exclusion m., the Impaired Property Exclusion, eliminated coverage.  The Court agreed stating that based on the definitions of “impaired property” and “your product” in the CGL portion of the Continental policy, Claim One falls within exclusion “m” since J.A.M. alleged that the loss of use of the Betty L was due to FSI’s substandard installation of engines.  Further, in reply to FSI’s argument that the sudden and accidental exception to the exclusion applied, the Court stated that even when reading the pleadings liberally, it was clear that the engines did not suddenly cease to function.  Rather, J.A.M. alleged that the loss of use of the Betty L was the culmination of several problems beginning with the negligent installation of engines in June 2006, and continuing with a series of repairs made to the engines for various problems and May and June 2007.   The Court concluded that Exclusion “m” applied.

Claim Two alleges loss of use based on the failure of the starboard engine and loss of use during the repair period. Continental argued that Exclusion “m” applied in the CGL portion of the policy and Exclusion “e” with respect to the SRL coverage.  As to the CGL policy the Court agreed for the reason cited above.  The Court also agreed with Continental as the to the SRL portion of the policy.  Essentially, Exclusion “e” states that the policy does not apply to “demurrage, loss of time, loss of freight, loss of charter and/or similar and/or substituted expenses”.  The Court noted that the Supreme Court long ago defined demurrage as “the loss of profits or of use of a vessel pending repair or other detention”. The Court also stated that Exclusion “e” is intentionally expansive, and includes “similar and/or substituted expenses.”  Due to the need for further repairs, J.A.M. lost the use of its vessel, including the profits it could obtain by using the vessel to provide other vessels with fuel and lubricants.  The Court held that there was no ambiguity in the policy on that point, and, by its terms, there was no SRL coverage for Claim Two.

In Claim Three J.A.M. alleged that its port engine exhibited mechanical failure ten months after it was installed and that the starboard engine exhibited mechanical failure shortly thereafter. FSI sought coverage under the CGL portion of its policy; however, the court held that Exclusion “k” precludes coverage for “‘property damage’” to ‘your product’ arising out of it or any part of it.”  The Court pointed out that under Texas law, liability policies containing similar exclusions “do not insure the policyholder against liability to repair or replace his own defective work or product, but [they do] provide coverage for the insured’s liability for damages to other property resulting from the defective condition of the work, even though the injury to the work product itself is excluded.”

FSI argued that Exclusion “k” does not apply because J.A.M. alleges damage to internal parts of the engines that are not FSI’s “product”.  The Court was not persuaded, noting that the exclusion applies to “any part of” FSI’s product – which are the engines FSI handled and distributed; and, the internal parts of the engine are still components of the engine.

Claim Four encompassed J.A.M.’s allegation that the Betty L was damages as the result of FSI’s diagnostic and repair work on both engines in May and June 2007.   The Court held that since J.A.M. alleged damage to the engine, which constitutes FSI’s “product”, for the reasons discussed under Claim Three, Exclusion “k” bars coverage under the CGL portion of the policy.  In addition, the Court held that there was no SRL coverage under Exclusion “n” which applies to the “expense of redoing the work improperly performed by FSI or on FSI’s behalf or the cost of replacement of materials, parts or equipment furnished in connection therewith.”

Accordingly, the Court held that all of FSI’s claims fall within an exclusion to the CGL and SRL coverage portions of the policy; and, Continental had not duty to defend FSI.


Jennifer A. Ehman
[email protected] 

03/17/14       Brito v. Allstate Ins. Co.
Supreme Court, Bronx County
In a Direct Action Brought by the Injured Plaintiff, Insurer was Entitled to Documents Pertaining to the Merits of the Underlying Action Including Those Addressing Liability, Injuries and Default Judgment 
This action was brought pursuant to Insurance Law § 3420(a)(2), whereby an injured plaintiff may sue a tortfeasor’s insurance company to satisfy a judgment obtained against the tortfeasor.

Allstate brought this motion seeking to compel discovery pertaining to plaintiff’s claim against Allstate’s insured in the underlying personal injury action including documents and responses pertaining to the merits of that action, namely, the liability and the injuries allegedly sustained and certain documents related to the default judgment.  

The court began by reciting the Court of Appeals decision in Lang v. Hanover Insurance Company, in which it held that if an insurance company chooses to disclaim coverage, and declines to defend or indemnify an insured in an underlying action, then “under those circumstances, having chosen not to participate in the underlying suit, the insurance carrier may litigate only the validity of its disclaimer and cannot challenge the liability or damages determination…”

However, in this case, Allstate previously established that it did not receive notice of the default under after it was entered.  The court found that under these circumstances Allstate was not collaterally estopped from litigating the merits of the underlying action as it was not provided a “full and fair opportunity to contest the decision now said to be controlling.”    

In addition, the court expressed concern that Brito’s attorney in the underlying action had been disbarred because, according to the court, he allegedly engaged in fraudulent conduct by making false representations to the court that his client was entitled to a default judgment and concealing relevant facts from the court.  This potential for fraud raised the possibility that the judgment could be nullified.   

In light of these issues, the court found that the discovery Allstate sought was appropriate. 

Bad Faith

05/05/14       Paul Johnson Drywall, Inc. v. Phoenix Ins. Co.
United States District Court, D. Arizona
Reserves Maintained by Insurer Found to Be Discoverable in Bad Faith Action
The issue addressed by the court was a motion to compel Travelers to produce its reserve information in a bad faith action.  Under the federal rules, the scope of discovery is governed by Rule 26 which allows “discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense.” 

Plaintiffs asserted that the information about the reserves was relevant since an insurer acts in bad faith when it unreasonably investigates, evaluates, or processes a claim, and either knows it is acting unreasonably or acts with such reckless disregard that such knowledge may be imputed to it. 

The Court agreed that the information was relevant and discoverable.  Relying on another federal court decision, Ogandhanova, it reasoned that when calculation of the reserve amount entails an evaluation based upon a thorough factual  consideration, the information will be relevant, and vice versa.  The Court then found that Travelers failed to produce evidence that the reserve arithmetic did not include analysis of the claim’s merit.  To the contrary, the record showed that the reserve was adjusted based on Traveler’s assessment of the merits of Plaintiffs’ claim. 

The Court further was unpersuaded by Travelers argument that reserve information was not discoverable because reserves are required by statute and are uncertain estimations of liability and that the reserves set in this case were mere estimates of Travelers’ financial liability for the claim based solely upon the limited financial information available at any given time.  The Court noted that such arguments went to the weight which should be put on the evidence as opposed to its relevancy for purposes of discovery.

Earl K. Cantwell

[email protected]


Westfield Insurance Co. v. Wensmann, Inc., 2013 WL 6569952 (Minn. Ct. App., December 16, 2013).
A developer hired Wensmann Homes to design and build 18 townhouse units, and each unit had a brick arch under the rear deck which were primarily for decoration and not structural or weight-bearing.  A consultant hired by the developer in 2005 concluded that these arches were cracking and proposed a design to remedy the problem which was not used to reconstruct the existing 14 units, but which was performed on the final four units to be constructed.  In April 2007, Wensmann purchased a Commercial General Liability policy from Westfield Insurance which expired in April 2008.  The developer sued Wensmann for negligence and breach of warranties over the failed arches, and other issues such as water infiltration. 

After initially representing Wensmann, the insurance company sought a declaratory judgment to relieve it of liability on the basis of a policy exclusion for damage that the contractor was aware of prior to the policy’s effective date.  Wensmann failed to answer the declaratory judgment complaint, and the insurer obtained a default in February 2012.  The developer learned of the default when Wensmann’s attorney, paid for by the insurance company, moved to withdraw in the underlying case.  The developer moved quickly to intervene in opposition to the declaratory judgment default, and the court subsequently granted a motion to vacate the default judgment.  Westfield Insurance objected that the developer should not have been allowed to “intervene” in the declaratory judgment action, but that motion and argument was dismissed.

Westfield then moved for summary judgment, arguing that the builder knew about the property damage before the policy effective date which voided coverage.  The Trial Court agreed and granted the insurance company summary judgment in February 2013.  However, the appellate court ruled that this decision was only partially correct. 

The appellate court first said that the developer should have been allowed to intervene in the declaratory judgment action because it acted with due diligence, demonstrated a reasonable basis for its claim, and showed that it would be prejudiced by the default.  It was observed that the builder had by all accounts ceased doing business, and if the developer had any credible claim the insurance policy may be the best and perhaps only source of recovery.

The appellate court held that the Trial Court properly granted the insurance company relief from liability on the brick arches on the first 14 units because the builder was aware of problems with those arches before its policy effective date.  However, it reversed the Trial Court with respect to other alleged defects finding genuine issues of fact on the construction of the arches for the final four units, and claims for water infiltration and other defects of which the builder may not have had been aware.  The case was therefore remanded to the Trial Court to proceed on those issues.

The first lesson of this case is that some claims and coverage may be lost or denied, but others may exist or continue based on somewhat different facts or interpretation.

The second lesson of this case is that, while some claims may be lost or denied based on clear factual history or policy language, other claims may exist for liability or coverage which may have some merit, and might not be disposed of on summary judgment.  In this case, while the policy exclusion for pre-existing knowledge may have pertained to problems with the first 14 arches constructed on the initial units, that knowledge did not necessarily pertain to subsequently changed construction of the final four units, nor did it address issues concerning other alleged construction defects.

A third lesson is that it may be advisable to seek to intervene in another lawsuit to protect rights and interests that may be jeopardized, if not lost, by an adverse ruling, particularly where parties in the other litigation do not have the same stake, stamina, or reasons to litigate the important issues.  Here, the developer moved to intervene in the declaratory judgment action because the builder was essentially out of business and its lack of response to the declaratory judgment could result in a ruling leaving the developer with no recourse against the policy.

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