Coverage Pointers - Volume XV, No. 26

Dear Coverage Pointers Subscribers:

You have a situation?  We love situations.

A special welcome to the David ‘Dave Sent Me’ Thompson Fan Club member who have joined us from the FAIA Conference in Florida.  For our new subscribers, this e-mail is our cover letter and the actual issue is attached as a MS Word file.  We use that format so that you can easily cut and paste summaries into claim files as you might find necessary.

With this issue, number 26, we close out our 15th year of publication and thank you for allowing us to visit you every two weeks.  Yes, we do this because we love doing it.  Yes, we do this because we enjoy sharing with you.  But, in a very real way, you have become our friends and partners and the feedback we receive more than makes up for the time and commitment we have invested in this happy little venture.

I had the pleasure of participating in the DRI Insurance Roundtable in Chicago this past week.  It’s always interesting to listen and learn about the challenges facing the industry.

D-Day Issue

The warmth and affection that came back to us after last week’s issue will stay with us for a very long time.

I cannot begin to even measure or describe the wonderful and touching comments we received to the Jacob Asner D-Day Anniversary story.  So many started with, “My (father, uncle, grandfather) … was in the (Battle of Normandy, European or Asian Theatre) …”

We must never forget.

Back to the mundane, insurance coverage.

Bi-Economy Rears Its Head:

The one must read decision in this week’s edition was Wednesday’s opinion by the First Department in Mutual Assoc. Admin’s, Inc. v. National Union Fire Ins. Co..  We haven’t seen too many appellate decisions on “consequential damages” since the Bi-Economy and Panasia pronouncements over six years ago.  We have one in today’s Coverage Pointers.  According to the decision, National Union was sued for breach of contract and extra-contractual (consequential) damages.  It was claimed that National Union recommended that the plaintiff accept a settlement offer, and then discontinued the payment of defense costs in an ERISA lawsuit once the plaintiff rejected the offer.  The policyholder claimed that it suffered business losses due to the claimed abandonment of defense.

The First Department would not toss out the claim because National Union could not establish, as a matter of law, that it acted in good faith.

Catastrophe Tool Box Presentation -- Next Week – in Chicago:

June 26, 2014
Gleacher Center – University of Chicago

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 at [email protected].

Audrey’s Angles:

The focus of this edition is the expected/intended harm exclusion under CGL and homeowner’s policies.  We present to you two different cases where the insurer’s exclusion contained additional limiting language other than the standard exclusion for bodily injury that is expected or intended by the insured.  One case contained an exclusion that did not afford insurance coverage for an intentional act irrespective of whether the harm sustained was intended by the insured.  The second case excluded insurance coverage for claims against an insured where the insured or its agent or employee failed to prevent or suppress an assault or battery.

Also, please note that DRI’s Personal and Advertising Injury Compendium is available and is already sitting on my office library shelf.  The scope of personal and advertising injury coverage has been hotly litigated since the introduction of Coverage B in CGL policies. Current advances in technology are spawning new claims, including breach of privacy, while the policyholders’ bar is constantly seeking to reinstate coverage for intellectual property claims—all giving rise to the issue of availability of personal and advertising injury coverage. The DRI Insurance Law Committee’s Coverage B: Personal and Advertising Injury Compendium provides a comprehensive review of issues, from their origins to those emerging issues that impact the scope and reach of this coverage part.  To order the compendium go to http://www.dri.org/Store/Product?productCode=2014-01CD. 

Audrey A. Seeley
[email protected]

An Unlucky Ballplayer – A Century Ago:

Cleveland Indians shortstop Ray Chapman stumbled his way into an unwanted record on June 20, 1914 after committing four errors in the fifth inning during a 7-1 loss to the New York Yankees at League Park II.

Chapman is not famous for that record, but for another -- fatal -- one.

On August 16, 1920, Chapman was hit in the head by a pitch thrown by Yankees pitcher Carl Mays, and died 12 hours later. He remains the only Major League Baseball player to have died from an injury received at a major league baseball game. His death led to Major League Baseball establishing a rule requiring umpires to replace the ball whenever it became dirty, and it was partially the reason the spitball was banned after the 1920 season. Chapman's death was also one of the examples used to emphasize the need for wearing batting helmets (although the rule was not adopted until over 30 years later).  A book about that pitch and that death called, The Pitch That Killed, is available on Amazon and the film rights have been optioned.

Viehl v. Doran Group, Redux:

Traub Lieberman, a firm that I hold in the highest regard, asked to comment on our review of the Viehl case in the June 6, issue.  Here is their background and analysis, which provides insight not contained in the reported decsion:

As correctly reported, Traub Lieberman Straus & Shrewsberry LLP moved on two occasions to be relieved as counsel for Didio in that case.  The first motion was denied, in part, based on Didio's representation that she would be commencing a declaratory judgment action to confirm her right to coverage.  When she failed to do so after several months, Traub Lieberman brought a second motion to be relieved as counsel.  Contrary to the discussion in the newsletter, however, neither motion was based on the existence or non-existence of insurance coverage.  In fact, in its motion papers the firm acknowledged the long standing principle that a motion to be relieved is not the proper forum in which to litigate coverage issues.  Instead, Traub Lieberman informed the court that it was ready, willing and able to continue to represent Didio after she had been advised that her professional liability insurer would no longer provide her with a defense in the Viehl action.  Toward that end, the firm requested that Didio sign a retainer agreement and pay a retainer.  Didio, however, refused to enter such an agreement.  Only after that did the firm move to be relieved as counsel, and solely on the basis of Didio's refusal to pay reasonable and necessary legal fees and expense.  The issue of whether or not coverage existed was not raised in either motion or on appeal.

In seeking to be relieved, the firm specifically distinguished its situation from that addressed by Brothers v. Burt and its progeny.  Traub Lieberman pointed out, for example, that its situation was not similar to what was at issue in Laura Accessories, Inc. v. A.P.A Warehouses, Inc., 140 A.D.2d 182 (1s Dep't 1998), where counsel sought to be relieved solely because the insured had failed to provide its insurer with timely notice of the claim.  Id. at 182.  Nor was it similar to Flans v Martini, 136 A.D.2d 498 (1st Dep't 1988), where the insurer directed counsel to move to be relieved based on the insured's failure to cooperate.   No similar arguments or facts existed in the Viehl case, where the firm was willing to continue its representation of the insured.  Moreover, the firm cited to case law holding that the Brothers court did not establish a bright line rule that a motion to be relieved as counsel should always be denied when an insurer has disclaimed coverage.  See Dillon v. Otis Elevator Co., et al., 22 A.D.3d 1 (1st Dep't 2005).  In Dillon, the court held that such a motion should be granted where there are independent grounds to be relieved as counsel.  The Dillon court also held that it is important to look at whether counsel is acting of its own accord and not at the behest of the insurer.  If so, the concerns raised in Brothers do not exist.  Id.  In Viehl, Traub Lieberman argued that the client's failure to agree to pay any defense costs or expenses provided independent grounds to be relieved as counsel and that the carrier played no part in its request to be so relieved.

Additionally, the motion at issue was not styled as a motion to renew and the trial court did not treat it as such.  Rather, the Appellate Division improperly characterized it as a motion to renew.  Having done so, the Appellate Division determined that no new issues were raised and affirmed the decision without addressing the substantive aspects of the motion.  It should be noted that, while the motion at issue was not in the form of one to renew, Traub Lieberman did identify certain new facts that had developed since it filed its initial motion to be relieved.  Specifically, in deciding the initial motion the court relied heavily on Didio's representation that she would be commencing a declaratory judgment action challenging the carrier's denial of coverage.  She had not done so by the time the second motion was filed and, in fact, has not done so to this day.  Traub Lieberman thus intends to file a motion to reargue the recent Appellate Division decision.

Cassie’s Capital Connection:

As I write this, the NYS Assembly and Senate are preparing for a long day because it is the last day of session, and I have just finished watching my sick one year old bust a move.  As a result, there is a lot of activity on all fronts, and I am reporting on several bills that were passed by both the Senate and the Assembly in the last few days.
However before I get down to the business of summarizing these bills, I would like to commend New York Insurance Association for a wonderful conference just after Memorial Day.  Not only did NYIA provide great speakers and opportunities for attendees to ask their questions of policy makers, they also provide a great atmosphere for getting to know others who work in the insurance industry. 

As always, if you would like a copy of the bills, please do not hesitate to shoot me an email.  Have a great weekend everyone!

Cassie
Cassandra Kazukenus
[email protected]      

One Hundred Years Ago:  Guy Morton Debuts:

On June 20, 1914, Guy Morton made his major league debut for the Cleveland Naps in the American League.  He ended up pitching 11 seasons for the team (which became the Indians in 1915).

He was married and died young, at the age of 41, leaving behind his five year old son Guy, Jr.  The son, soon to be known as “Moose” worked his way through the minor leagues until he finally got his big chance in the Majors, coming in as a pinch hitter in the third inning against the Washington Senators on September 17, 1954.  He faced Dean Stone, a utility pitcher who was in his second season with the Senators.

Moose struck out on three pitches.

"I just didn't do it ... I swung at them all -- one, two, three. I think the last one was a slider above the belt. I was a high-ball hitter, and I swung over it."

That was it. He never appeared in another Major League game.

For most of his life thereafter, he was Rev. Guy Morton Jr., a well-respected, well-regarded southern Baptist pastor in Ohio.  When he retired, he wrote a weekly sports column for the local newspaper.  He passed away on May 11 of this year, revered by many.

In his obituary, there was a nodding reference to his baseball career:

He earned bachelors and masters degrees at the University of Alabama, was married 63 years to wife Jean (who survives him), raised three kids, and saw a dozen grandchildren and 14 great-grandchildren come after them. Along the way, he taught school, coached sports, started youth baseball leagues in Ohio and Alabama, and counseled generations of church congregants for 55 years.

That's a far more meaningful stat line.

Hunter’s Hints:

During the last two beautiful weeks filled with sunshine, lemonade and cool breezes, the New York Appellate Division Fourth and Second Departments kept busy with serious injury threshold appeals.  Keep an eye out for the practice tip in a recent Fourth Department case where the lack of specificity regarding objective medical evidence and diagnostic testing in a Plaintiff's expert report doomed a Plaintiff's lower court victory, in a unanimous reversal granting Defendants' summary judgment motion.

I would like to thank the great people at RLI in Atlanta, Georgia for welcoming Hurwitz & Fine partner, Audrey Seeley and me, yesterday.  Special thanks to Betsy McLaughlin and Brian Combs for coordinating and participating in our presentation which included topics on New York no-fault law, New York serious injury threshold law, and loss transfer.  Again, if any of our dear Coverage Pointers readers would ever like an in-house presentation, or if you just have a quick question regarding any and all things serious injury, please do not hesitate to contact me.  I look forward to hearing from you.

Dan
Daniel T. Hunter
[email protected]

A Century Ago: A Charlie Chaplin Movie Debut – Charlotte et Le Mannequin:

Also known as Mabel’s Married Life, the film’s plot is summarized as follows: “Accosted by a masher in the park and unable to motivate husband Charlie into taking action, Mabel gets him a boxing mannequin to sharpen his fighting skills.” Click to watch

Peiper’s Present:

Greetings from the CP roadshow.  Dan is comfortably back in SummerMode at the Beach in Ontario.  Tis’ I who has the good fortune of tapping out a welcome note from my hotel room this week.  This time from Orlando where I had the distinct honor of speaking at the Florida Association of Insurance Agents Annual Convention and Educational Symposium.  I joined a panel today to discuss E&O issues facing agents, and was thoroughly impressed with the quality of materials from the course and the quality of discourse from the attendees. 

A special welcome to those of you joining us for the first time.  Welcome aboard the CP list serve.  We’re as glad to have you, as we were glad to have a small part in your Conference.  A special, special thanks to David Thompson and Brett Winans who both carried me throughout most of our four hour program this morning.   You will be hard-pressed to find two people with more knowledge than David and Brett.  It was a real pleasure to match wits with them.

From one panel, to the next.  June is training month, and this June is no different.  We’re off to the University of Chicago to join an equally impressive group at next Thursday’s CAT Toolbox.  If you haven’t heard about it, you really ought to get your eyes checked as we’ve talked about it for weeks.  Gleacher Center, University of Chicago.  Be there!

As for this week’s offering, we’d suggest you take a moment to review the Court of Appeals’ decision referencing discovery in lead paint cases.  The Court lays out an interesting test that likely didn’t please either side, but may well strike the appropriate balance.  That’s it for now.  July  4th’s right around the corner, so get out and enjoy Summer before its gone.  You’ll be glad you did. 

Steve
Steven E. Peiper
[email protected]

A Hundred Years Ago – Who Woulda Thunk?  A PoliceWOMAN:

Times Herald
Olean, New York
June 20, 1914

CHOOSE A POLICEWOMAN

Poughkeepsie Society Women Will Pay
Her Salary Until She is Regularly Appointed.

Poughkeepsie, N.Y., June 20.—Poughkeepsie now has a woman policeman.  Her salary is paid by a few women, prominent in society.

Mrs. Vincent Charles Meyerhoffer of Boston, who was engaged secretly, has begun a study of conditions here.  Her report to members of the Women’s Civil League caused them to decide to ask the city authorities to appoint her a police-woman and pay her a salary.  In the meantime they will provide the compensation.

Mrs. Meyerhoffer said:  “I am not going to wear a uniform.  I expect to be appointed a deputy sheriff, if the city does not make me a member of the force.  There is work for a woman in conjunction with the policy and the court.” 

Birdmen:

For those who are interested in aviation history, I just completed Birdmen:  The Wright Brothers Glenn Curtiss  and the Battle to Control the Skies, written by Lawrence Goldstein.  This story caught my eye, an event that occurred 100 years ago today:

The Brooklyn Daily Eagle
Brooklyn, New York
June 20, 1914

NINE AVIATORS DIE IN CRASH
IN MID-AIR DURING MIMIC WAR

Dirigible Military Airship Rammed
by Biplane While Maneuvering Near Vienna

FIERCE EXPLOSION RESULTS

Occupants of Both Air Craft Perish.
Burned and Mangled Bodies 
Fall to Earth.

Vienna, June 20—Nine aviators lost their lives today when a mimic war in the air was suddenly turned into tragic reality by the accidental ripping of a dirigible airship by a biplane while both were flying at a great height during the Austrian Army maneuvers.

Both craft were destroyed, and their occupants, nine military and naval officers and non-commissioned officers, were burned and mutilated beyond recognition.

The Austrian Army dirigible balloon Bertling ascended at Fischamend, about twelve miles from Vienna, where there is a military aviation station.  It was the intention of Captain Johann Hauwirth, the commander, to take photographs of the movement of the troops below, and then to join in the maneuvers.

The aeroplane started half an hour later from the same spot.  It was manned by Lieutenants Flatz and Hoosta. 

Beth’s Bitz:

Dear Subscribers:

Happy summer.  While summer only kicks off tomorrow, we are already busily planning this fall’s ever popular Law School for Insurance Professionals.  I am delighted to serve again as Co-Chair of the program, which will be held at five venues across New York in September and October.  We are finalizing the agenda, but it looks to be an information-packed day, addressing timely topics, with a fabulous panel of speakers.  The program will be held in Albany on September 19th, Syracuse on September 30th, Long Island on October 17th, New York City on October 20th and Buffalo on October 27th.  Additional information about the program will be coming over the next several weeks.

Today I bring you a decision from the Tenth Circuit Court of Appeals involving a coverage dispute for the alleged faulty work of the insured, who was involved in solution mining in Carlsbad, New Mexico.  For those of you who didn’t know (and who didn’t), solution mining involves injecting fresh water into an underground salt formation to dissolve the salt for the creation of brine water, which is then pumped from the formation and sold for use in the oil and gas industries.  The process creates an underground cavern, and it was liability to an adjacent landowner that spawned the coverage dispute.

Hope you enjoy.

Til next time,

Beth
Elizabeth A. Fitzpatrick
[email protected]

Gambling?  A Century Ago?

The Brooklyn Daily Eagle
Brooklyn, New York
June 20, 1914

BASEBALL POOL SMASHED

Two Men and a Woman Held for
Selling Lottery Tickets.

Charged with conducting a baseball pool, two men and a young woman were held for Special Sessions in $500 bail each when arraigned before Magistrate Herbert in the Tombs Police Court, Manhattan, today.  Those arrested were William Amos, 57 years old, of 255 East 138th street, manager of the Baseball News Company, with offices on the eleventh floor of 120 Liberty street; Alfred Pearlman, 20 years old, of 37 Marcy avenue Brooklyn, who conducts a baseball information service at 13-21 Park Row, and Miss Nellie Morgan, 22 years old, a stenographer employed by Amos, who lives at 1398 St. John’s place, Brooklyn.

The three were arrested last week in a crusade made by Anthony Comstock, aided by Deputy Police Commissioner Godley, against baseball pool “sharks.”  The charge against them comes under Section 1373 of the Penal Law in selling and having lottery tickets in their possession. 

Jen’s Gems:

In reviewing the trial court decisions published over the last two weeks it seems pretty clear that we are heading into the “summer lull.”  This is definitely the time of the year when both judges and attorneys take some time off and leave the motion making/deciding for the fall.   

What we lack in quantity this week, we certainly make up in quality.  The lone decision I report on addresses one of my favorite coverage cases, mostly because of the name: Mighty Midgets.  For those that have forgotten this one, it is the seminal case for the proposition that an insured who has been cast in a defensive posture by the legal steps an insurer takes in an effort to free itself from its policy obligations may recover attorney's fees incurred in successfully defending against the insurer’s action.  Unfortunately, this always seems to be the salt in the wounds if you lose a hotly litigated  coverage case, and are almost over the decision. 

Well, I hope everyone enjoy the (soon to be) summer sun. 

Until next issue.

Jen
Jennifer A. Ehman
[email protected]

Highlights of This Week’s Issue, which is Attached:

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

Court of Appeals:

• Duty to Disclaim Promptly Only Applies Where There is a NY Policy, a NY Accident and a Bodily Injury or Wrongful Death Claim

 

Appellate Departments:

• Consequential Damages May be Awarded Against an Insurer for Breach of Covenant of Good Faith and Fair Dealing
  Questions of Fact Preclude Summary Judgment on Classification and Subcontractor Endorsements
• Where Carrier Had No Reason to Believe Bodily Injury Had Occurred, It Had No Reason to Even Conduct an Investigation to Determine Whether There Was a Prompt Obligation to Disclaim
• Mere Mistake by Arbitrator Is Not Enough to Vacate Award

 

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

• Defendant Failures to Shoulder Initial Burden Resulting in Affirmation of Summary Judgment
• Defendants' Expert Dooms Lower Court's Order
• Plaintiff Properly Rebutted Defendants' Evidence, Leading to Reversal
• Plaintiff Properly Rebuts Defendants' Evidence, Leading to Reversal of Lower Court
• Initial Burden Rebutted Resulting in Affirmation of Lower Court's Order
• Lower Court Erred in Granting Defendants' Motion for Summary Judgment
• Medical Evidence in Opposition to Defendants' Motion Found Inadequate Resulting in Reversal
• Plaintiff's Expert's Report Insufficient to Rebut Defendants' Evidence

 

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

Arbitration:

• DME Denial Based on IME Not Mentioning DME Cannot Be Upheld
• Weak Peer Review Results in Award for Disputed Prolotherapy Treatment
• Denial of Knee Treatment Based on IME Not Mentioning Knee Not Upheld
• Denials Based On Failure to Submit Claims Within 45 Days of Service Upheld

 

Litigation:

• Plaintiff’s Burden to Explain Why Correctly Addressed EUO Notices Were Returned “Unclaimed”
• Timeliness of Denial Irrelevant Where Assignor Failed to Appear For IME

 

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

• High Court Modifies Medical Disclosure Requirements in Lead Paint Cases
• Failure to Establish Board Approval Precludes Summary Judgment on Exclusivity of Remedy under Workers’ Compensation Law

 

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

• Coverage Available for Alleged Faulty Work

 

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

• Expected Intended Harm Exclusion Bars Coverage for Injuries Sustained while Playing “Dance, Dance Revolution” 
• Assault and Battery Exclusion Precludes Bodily Injury Claim Arising Out of Negligent Security

 

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

• S5077/A9077:  Examinations Before Trial
• S6545A/A9590: Certificates of Insurance
• A9346-A/S4756-A:  Court Ordered Appraisals Under Fire Insurance Policies
• A3303-B/S1178-B:  Creates Affirmative Duty upon Host to Render Assistance to Guest

 

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

• Duty to Defend Triggered – Possibility ERISA Violations for Misclassification of Employee as Independent Contractor Arose from Negligence

 

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

• Defendant that Prevailed on Mirror Counter-Claim Entitled to Costs Injured In Defending Action Commenced by Insurance Carrier

 

EARL’S PEARLS
Earl K. Cantwell
[email protected]

• Texas Court Finds Possible Coverage for Defective Construction Under a CGL

 

Summer is surely upon us.  I’m sitting up at the Lake, watching the fish spawning, the gulls diving and the sun smiling.  Rejoice in every day we have together.
Dan
Dan D. Kohane
Hurwitz & Fine, P.C.
1300 Liberty Building
Buffalo, NY 14202    

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

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


NEWSLETTER EDITOR
Dan D. Kohane
[email protected]

ASSOCIATE EDITOR
Audrey A. Seeley
[email protected]

ASSISTANT EDITOR
Jennifer A. Ehman
[email protected]

INSURANCE COVERAGE TEAM
Dan D. Kohane, Team Leader
[email protected]

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

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

Elizabeth A. Fitzpatrick
Cassandra Kazukenus

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

Margo M. Lagueras
Cassandra Kazukenus
Jennifer A. Ehman

 

APPELLATE TEAM
Jody E. Briandi, Team Leader
[email protected]
 Elizabeth A. Fitzpatrick
Diane F. Bosse

Index to Special Columns

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

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

Court of Appeals

06/10/14       KeySpan Gas East Corporation v. Munich Re America
New York State Court of Appeals
Duty to Disclaim Promptly Only Applies Where There is a NY Policy, a NY Accident and a Bodily Injury or Wrongful Death Claim
In October and November 1994, LILCO notified defendants by letter about "environmental concern[s]" at retired MGP sites on Long Island. LILCO stated that, although no regulatory agencies had commenced a lawsuit or formal investigation, LILCO expected agency action would be "forthcoming" and that the extent of its potential liability "if any" could not yet be determined. LILCO also notified defendants that a neighboring property owner had brought a property damage claim against the company for environmental contamination and asked defendants to "acknowledge [their] duty to indemnify [LILCO] for any damages that it may incur within [the] policy limits."

The carriers sent out reservation of rights letters on several coverage defenses.  LILCO provided information indicating that it knew of a potential claim for several years.

LILCO thereafter commenced this declaratory judgment action in September 1997. In their answers, defendants asserted late notice as an affirmative defense warranting denial of coverage.

The Appellate Division held that LILCO failed, as a matter of law, to provide timely notice under the policies of environmental contamination at both the Bay Shore and Hempstead MGP sites but refused to grant the insurers summary judgment because “issues of fact remain as to whether defendants waived their right to disclaim coverage based on late notice" by "failing to timely issue a disclaimer".

The insurers reminded the Court that Insurance Law § 3420 (d) (2) provides:

"If under a liability policy issued or delivered in this state, an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant."

By its plain terms, section 3420 (d) (2) applies only in a particular context: insurance cases involving death and bodily injury claims arising out of a New York accident and brought under a New York liability policy.  If one of those factors is not present, the insurer will not be barred from disclaiming coverage "simply as a result of the passage of time," and its delay in giving notice of disclaimer should be considered under common-law waiver and/or estoppel principles.
Editor’s Note:  This case has generated a lot of trade press but was really an easy call.  The statute is clear and the high Court got it right.   All the Court had to do was read the Kohane/Fitzpatrick chapter on New York disclaimers in the DRI ROR Compendium, available here.  There was an excellent on-line discussion of this case in LinkedIn’s New York Insurance Group which we founded and manage.  We encourage you to join the nearly 1200 folks who are already members.

Appellate Departments

06/18/14       Mutual Assoc. Admin’s, Inc. v. National Union Fire Ins. Co.
Appellate Division, Second Department
Consequential Damages May be Awarded Against an Insurer for Breach of Covenant of Good Faith and Fair Dealing
The insured, Mutual, brought an action against National Union seeking damages for breach of an insurance contract.   Mutual was sued in an ERISA action and National Union refused to defend it.  Mutual alleged that as a result of the refusal to defend, Mutual had business losses and sought consequential damages.

Under the Bi-Economy and Panasia Estates decision consequential damages resulting from a breach of the covenant of good faith and fair dealing may be asserted in an insurance contract context, so long as the damages were within the contemplation of the parties as the probable result of a breach at the time of or prior to contracting.

National Union has so far failed to establish, prima facie, that it acted in good faith in recommending that the plaintiff accept a settlement offer, and then discontinuing the payment of defense costs once the plaintiff rejected the offer.  While the policy did not provide coverage for loss of earning, they can be awarded as consequential damages for a breach of contract.  Accordingly, the claim may be pursued.

06/17/14       Tower Insurance Company v. BCS Const. Services Corp.
Appellate Division, First Department
Questions of Fact Preclude Summary Judgment on Classification and Subcontractor Endorsements
Tower issued a CGL policy to BCS a commercial lines insurance policy. The policy's declarations page stated BCS's "Business Description" as "Carpentry-Painting-Drywall-Plastering-Tile-Contractor."

Elsewhere, the work to be covered was separated into five separate "classifications," namely, "Carpentry-Interior," Painting-Interior-Structures," "Dry wall or wallboard install," "Plastering or stucco work," and "Tile, Stone-Interior construction." Plaintiff issued an endorsement to the policy clarifying that "[n]o coverage is provided for any classification code or operation performed by the Named Insured not specifically listed in the Declaration of this policy." Another endorsement provided that the "policy shall not apply to [claims] arising out of operations performed for any insured by independent contractors or acts or omissions of any insured in connection with his general supervision of such operations."  The “classification endorsement” and the ‘”subcontractor endorsement” would provide the basis for a summary judgment motion discussed below.

The owners hired BCS to serve as the general contractor for a construction project that involved adding a second and third story to the premises and installing the electrical system and plumbing throughout. BCS hired several subcontractors to perform various tasks on the project, including installation of elevators, construction of the roof and steel frame, and installation of a staircase from the basement to the third floor, as well as the electrical and plumbing work. On June 10, 2008, the owners fired BCS.

Nearly two years later, Farley was hurt while sitting in a car and the building partially collapsed on him. The owners put Tower on notice of Farley's claim, asserting that while insured was performing work on a building, they did not comply with plan and they did not perform the work properly. They left the job without completing it. A wall has collapsed.”

Tower denied coverage based on the classification endorsement.

Farley commenced an action against BCS and the owners claiming that BCS was negligent in its construction of the building. Tower defended BCS.  BCS's principal, Banks, attached a sworn statement to the answer, in which he gave a timeline of events related to BCS's involvement in the project.

Banks stated that after his work permit expired, the owners hired a new contractor to continue the project and to make structural and mechanical changes to the building, blaming the problems on the replacement GC. 

Tower moved for summary judgment arguing that the policy excluded coverage for a claim that arose out of an independent contractor's work for an insured or the work out of which the claim arose was not specified in the policy. It pointed to Banks's statement, which it argued showed that BCS acted as the general contractor and project manager and that the work was performed by independent contractors. Farley and the Leonards opposed the motion on the ground that discovery was still ongoing in the underlying personal injury action.

The majority found that there was a question of fact as to the cause of the collapse and the work performed, or not performed, by BCS and refused to grant summary judgment.

A strong dissent argued that the submissions demonstrate that coverage is precluded by the policy because BCS acted as the general contractor, and its liability, if any, is premised on either non-covered work or work performed by its subcontractors

 

06/12/14       Hermitage Insurance Company v. Evans Floor Specialist, Inc. Appellate Division, First Department
Where Carrier Had No Reason to Believe Bodily Injury Had Occurred, It Had No Reason to Even Conduct an Investigation to Determine Whether There Was a Prompt Obligation to Disclaim
Evans Floor Specialist (“Evans”) was retained to refinish wood floors in a Bronx apartment and its employees Luis and Bruneau were assigned the work. On June 27, 2008, Luis and Bruneau were applying a floor finish when a spark caused the finish to catch fire.

A year later, on July 23, 2009, Luis (and his spouse) and Bruneau (and his spouse) brought a personal injury action against Evans. Hermitage commenced the present action, seeking a declaration that its policy did not cover the claims.

Hermitage relied upon an exclusion, in its CGL policy for bodily injury to an employee of the insured "arising out of and in the course of: (a) Employment by the insured; or (b) Performing duties related to the conduct of the insured's business."

Evans defaulted in the action; the Luis and Bruneau defendants answered, and contended that Hermitage's disclaimer of coverage was untimely. The motion court denied Hermitage's motion for a default judgment against Evans, and, granting the Luis and Bruneau defendants' cross motion, declared that Hermitage was required to defend and indemnify Evans in the personal injury action.

Evans delayed in its disclaimer but contended that it had no idea that there was a bodily injury claim being asserted.  The court agreed that it had no reason to suspect same.  The notice of occurrence/claim supplied to Hermitage on June 30, 2008 merely stated, in the box provided for a description of the occurrence, "insd states that one of his employees started at first [sic] at insds residence by pulling a vacuum cord." In the box provided for the name and address of injured persons or damaged property, it stated, "unknown, sedwick ave bronx."

The information that was provided indicated only the possibility of a property damage claim by the owner of the apartment; it contained nothing to indicate that anyone was injured in the fire.

Because Hermitage received a claim form that only indicated the potential for a property damage claim by the owner of the apartment, and nothing to indicate that anyone was injured in the fire, and learned of the bodily injury claim only when it received a letter dated July 2, 2009 from the Luis and Bruneau defendants' counsel, its disclaimer on July 30, 2009, after it conducted an initial investigation and determined that the two men were Evans's employees and were injured in the course of their work, was timely.
Editor’s Note:  This case and the one discussed above from the Court of Appeals reminds us that the “30-day” rule for disclaimers does not apply to property damage cases or those involving non-NY policies or accidents.

06/12/14       In re American Country Insurance Company v. Mariany
Appellate Division, First Department
Mere Mistake by Arbitrator Is Not Enough to Vacate Award
An Uninsured Motorist arbitration award is not subject to vacatur due to an arbitrator's mistake of fact or law or disregard for the plain words of the parties' agreement. Rather, the court must find that the award is "totally irrational or violative of a strong public policy and thus in excess of the arbitrator's powers".

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

06/11/14       Natal v. Frazer
Appellate Division, Second Department
Defendant Failures to Shoulder Initial Burden Resulting in Affirmation of Summary Judgment
The Second Department affirmed the order granting summary judgment to Plaintiff since Defendant failed to meet the prima facie burden of showing that Plaintiff did not sustain a serious injury within the meaning of Insurance Law §5102(d).  Defendant failed to adequately address Plaintiff's claims as set forth in Plaintiff's bill of particulars, specifically that she sustained serious injury to the lumbar region of her spine and to her right hip under the permanent consequential limitation of use and significant limitation of use categories, and that she sustained a serious injury under the 90/180 day category.  Since Defendant did not sustain the initial prima facie burden, the court notes it is unnecessary to determine whether or not Plaintiff's papers in opposition were sufficient to raise a triable issue of fact.  Accordingly, the lower court's decision was affirmed.

 

06/11/14       Miller v. Bratsilova
Appellate Division, Second Department
Defendants' Expert Dooms Lower Court's Order
The Second Department reversed the lower court's order, which granted Defendants' motion for summary judgment dismissing Plaintiff's complaint on the ground that Plaintiff did not sustain a serious injury.  The Second Department found that Defendants failed to meet their prima facie burden showing that Plaintiff did not sustain a serious injury as a result of the subject matter motor vehicle accident because Defendants' own expert found significant limitations in the range of motion of both of Plaintiff's shoulders.  The court also notes it is unnecessary to determine whether Plaintiff's papers in opposition were sufficient to raise a triable issue of fact since Defendants did not meet the initial prima facie burden.

 

06/11/14       Giampino v. Tazzi
Appellate Division, Second Department
Plaintiff Properly Rebutted Defendants' Evidence, Leading to Reversal
The Second Department found the lower court was correct in determining that Defendants met the prima facie burden of showing that Plaintiff did not sustain a serious injury.  Defendants submitted competent medical evidence establishing that the alleged injuries to Plaintiff's cervical and lumbar spine did not constitute a serious injury under either the permanent consequential limitation of use or the significant limitation of use categories of Insurance Law §5102(d).  However, the lower court failed to recognize that Plaintiff raised triable issues of fact as to whether she sustained a serious injury to the cervical and lumbar regions of her spine.  As such, the issues of fact raised by Plaintiff properly rebut Defendants' medical evidence and the lower court's order granting Defendants'' summary judgment motion was reversed.

06/11/14       Frelow v. Leung
Appellate Division, Second Department
Plaintiff Properly Rebuts Defendants' Evidence, Leading to Reversal of Lower Court
The Second Department reversed the order of Supreme Court, Kings County which granted Defendants' motion for summary judgment dismissing Plaintiff's complaint on the grounds that Plaintiff did not sustain a serious injury within the meaning of Insurance Law §5102(d).  Defendants did meet their initial prima facie burden, establishing that the injuries Plaintiff claims to have suffered to her spine did not constitute serious injuries under either the permanent consequential limitation of use or the significant limitation of use categories.  Defendants also put forth evidence stating the injury to Plaintiff's spine was not caused by the subject matter motor vehicle accident.  However, as the Second Department notes, Plaintiff raised triable issues of fact as to whether the injuries sustained to the cervical and lumbar regions of Plaintiff's spine were serious injuries.  Plaintiff also rebutted Defendants' evidence by raising an issue of fact as to whether the alleged injury to the cervical spine was caused by the accident.  As such, Plaintiff properly rebutted Defendants' evidence, and the Kings County order granting Defendants' motion for summary judgment was reversed.

06/11/14       Culpepper v. Randy Express Cab Corp.
Appellate Division, Second Department
Initial Burden Rebutted Resulting in Affirmation of Lower Court's Order
The Second Department affirmed the lower court's order denying Defendants' motion for summary judgment since Plaintiff raised triable issues of fact as to whether she sustained a serious injury to the cervical region of her spine, properly rebutting Defendants' evidence.

06/11/14       Ciuffo v. Testa
Appellate Division, Second Department
Lower Court Erred in Granting Defendants' Motion for Summary Judgment
Defendant moved for summary judgment to dismiss Plaintiff's complaint on the ground that Plaintiff did not sustain a serious injury as a result of a motor vehicle accident.  The Second Department held that Defendants' papers submitted in support of their motion failed to adequately address Plaintiff's claim as set forth in Plaintiff's bill of particulars, specifically that Plaintiff sustained a serious injury to the cervical region of his spine under either the permanent consequential limitation of use or significant limitation of use categories of New York State Insurance Law.  Since Defendants failed to meet their initial prima facie burden, the lower court erred in granting their motion for summary judgment dismissing plaintiff's complaint.

06/13/14       Applebee v. Beck
Appellate Division, Fourth Department
Medical Evidence in Opposition to Defendants' Motion Found Inadequate Resulting in Reversal
Defendant moved for summary judgment on the ground that Plaintiff did not sustain a serious injury, and met their initial burden by submitting the affidavit and affirmed report of a physician who examined Plaintiff on Defendants' behalf, alleging Plaintiff's injuries were not causally related to the accident but, instead, were the result of the Plaintiff's preexisting degenerative disc disease.  The burden then shifted to Plaintiff to submit competent medical evidence based on objective findings and diagnostic tests which raised a triable issue of fact.  The Fourth Department found that Plaintiff failed to submit any expert medical evidence in opposition to the motion, and thus failed to address the conclusion of Defendants' expert that the changes in Plaintiff's spine were degenerative in nature.  Plaintiff argued that evidence establishing the existence of bulging discs is sufficient to raise a triable issue of fact, however, the Fourth Department notes that proof of a herniated or bulging disc without objective medical evidence establishing a significant physical limitation alone is not sufficient to establish a serious injury.  As such, the Fourth Department granted Defendants' motion for summary judgment, dismissing Plaintiff's complaint in its entirety.

06/13/14       French v. Symborski
Appellate Division, Fourth Department
Plaintiff's Expert's Report Insufficient to Rebut Defendants' Evidence
Defendants' moved for summary judgment to dismiss Plaintiff's complaint, and submitted proper medical evidence establishing that the pain in Plaintiff's neck and shoulder was related to preexisting degenerative conditions and that there was no evidence of acute traumatic injury arising from the subject matter accident.  Further, Defendants established that Plaintiff suffered only a mild injury as a result of the accident as opposed to a significant or permanent injury.  Further, the Fourth Department notes that Plaintiff not miss any work as a result of his injuries, and examination by Plaintiff's own physician showed he regularly had a full range of motion in his neck and back.

Since Defendants met their initial burden, the burden of proof shifted to Plaintiff to come forward with evidence addressing Defendants' claimed lack of causation.  The Fourth Department notes that although Plaintiff's physician stated Plaintiff had a disability in his neck in the range of 30% to 60%, the expert failed to identify the range of motion tests she conducted upon Plaintiff or otherwise explain how she arrived at that conclusion.  Further, Plaintiff's physician, who acknowledged Plaintiff's preexisting degenerative conditions, failed to specify how such conditions were caused or further exacerbated by the subject matter motor vehicle accident.  As such, the lower court's order was affirmed.

PRACTICE NOTE:  It is of the utmost importance that IME reports contain sufficient information.  All objective tests performed by the IME physician must be described, as well as normal ranges of motions for the tests.  Further, if preexisting conditions are noted, the physician must describe the effect of that existing condition on Plaintiff's post-accident injuries.

 

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

Arbitration

06/06/14       Amherst Medical Supply, LLC v Allstate Insurance Co.
Erie County, Arbitrator Veronica K. O’Connor
DME Denial Based on IME Not Mentioning DME Cannot Be Upheld
The injuries allegedly occurred in March 2012, and an interferential unit was prescribed in June, with monthly ancillary kits including electrodes, lead wires and replacement batteries, billed at $110.12 each, being sent to the EIP each month.  In September, an IME determined that the EIP should perform home exercises but that she was not in need of any further formal treatment.  Based on the IME, Respondent denied further treatment effective October 1, 2012.  The dates of service in August, September and October were partially paid, the balance being denied as in excess of the allowed fee schedule.  The bills for dates of service in November, December and January were denied based upon the IME.

The Arbitrator determined that no additional payment was due for the three partially paid bills as they were paid in accordance with the Medicaid DME Fee Schedule which, in addition to setting a per unit price, limits the maximum allowable units per month and does not allow for separate shipping charges.  Thus, where Applicant billed at 10 units, the bills were properly reduced to 2 units, the maximum allowed. 

However, although similarly reduced to the correct fee schedule amounts, Applicant was awarded for the bills denied based on the IME as the Arbitrator noted that the IME report made no recommendation regarding the DME and, therefore, could not support the denials.

05/27/14       Applicant v Permanent General Assurance
Erie County, Arbitrator Kent L. Benziger
Weak Peer Review Results in Award for Disputed Prolotherapy Treatment
The 15-year old EIP’s left ankle was seriously injured and required arthroscopy with debridement and a Strayer procedure.  He later required a second procedure for left ankle synovitis, including extensive debridement.  He underwent physical and massage therapy and then commenced prolotherapy, also referred to as proliferation or regeneration injection therapy.  It involves injecting the affected tendon or ligament with a non-pharmacological and non-active irritant solution, supposedly to strengthen the weakened connective tissue and reduce pain.  Platelet Rich Plasma Prolotherapy, which involves drawing the patient’s blood and separating the platelets from the plasma, was also used and injected into the affected area. 

Initially, the treatment was reimbursed but the carrier later issued a denial based on an IME during which the examining doctor made positive findings but did not recommend prolotherapy treatment.  Citing several authoritative sources, the examining doctor found that, in this case where there was synovitis in the joint, prolotherapy would not be beneficial.  Applicant, an osteopath, submitted other sources supporting platelet rich plasma injections.

While recognizing the ongoing debate as to the effectiveness of prolotherapy and its acceptance, or not, by the medical community, the Arbitrator found the peer review to be unpersuasive, in good part, as we have recently repeatedly seen, due to the age of the authority cited by the peer reviewer (articles 10-15 years old).  In contrast, Applicant cited to more recent authority which was unrebutted by Respondent.  In addition, the Arbitrator found the peer reviewer’s opinion that the treatment would not provide relief was conclusory and insufficient as it failed to explain how the services were inconsistent with generally accepted medical practices or whether they would provide any palliative benefits.

In awarding in favor of Applicant, the Arbitrator noted that his decision was based on the facts presented in this specific case and that, with a more thorough peer review citing guidelines, Respondent might have prevailed.

05/22/14       Graham Huckell, MD v Allstate Prop. & Cas. Ins. Co.
Erie County, Arbitrator Douglas S. Coppola
Denial of Knee Treatment Based on IME Not Mentioning Knee Not Upheld
The 29-year-old sustained injuries to his back and knee in an accident on September 15, 2012.  He had chiropractic and acupuncture treatment as well as prolotherapy injections.  On May 16, 2013, an IME was performed and the report commented on some mildly decreased range of motion of the cervical and lumbar spine, which the IME doctor referred to as subjective, but no spasms.  He found no need for further orthopedic treatment, but made no mention as to the knees. 

At issue was orthopedic treatment to the left knee from August to November 2013.  No peer review of this treatment was performed, nor was the records sent to the IME doctor for comment.  Nevertheless, the bills were denied based on the IME which was silent as to the knees.  Not surprisingly, the denials were not upheld.
Note:  The treatment to the knee seems to have just squeaked under the one-year rule.

05/22/14       Kaleida Health v MVAIC
Erie County, Arbitrator Michelle Murphy-Louden
Denials Based On Failure to Submit Claims Within 45 Days of Service Upheld
The No-Fault Regulations require that claims be submitted for reimbursement within 45 days from the date the services are rendered.  In this case, the patient originally provided the wrong No Fault information to the hospital and not until months later did her attorney provide the correct information.  The hospital requested that the carrier waive the timely filing limits and consider the claim that was mailed out in a timely manner after receiving the correct information.  The carrier then requested verification and ultimately paid the claim.  However, Applicant waited some time before submitting two other claims for older dates of services than that reimbursed.  The carrier denied those other dates as untimely submitted.

The Arbitrator agreed noting that while it was understandable why the claims were not timely submitted given the facts of the case, it was not clear why Applicant did not submit the older bills at the same time that it submitted the one ultimately paid.  Instead, Applicant waited some 2 ½ months after learning of the correct insurer before submitting the other bills.  Therefore, those bills were not timely submitted, Applicant offered no explanation for the 2 ½ month delay, and the denials were upheld.

Litigation

06/09/14       MDJ Medical, PC v Praetorian Insurance Co.
Appellate Term, First Department
Plaintiff’s Burden to Explain Why Correctly Addressed EUO Notices Were Returned “Unclaimed”
On appeal the trial court is reversed and defendant’s motion for summary judgment dismissing the complaint is granted where Plaintiff’s assignor failed to appear both for properly noticed IMEs and EUOs.  With respect to the IME notices, Defendant submitted affidavits from the scheduled examining physicians establishing their personal knowledge regarding the assignor’s failure to appear and that they advised the third-party biller of the nonappearance “in the ordinary course of business.”  With regard to the EUOs, on appeal the court noted that the notices were mailed to the same address appearing on the claim forms and Plaintiff did not offer any persuasive explanation as to why they were returned “unclaimed.”  Plaintiff failed to specifically deny the assignor’s nonappearance or contest the mailing or reasonableness of the notices so its cross motion should not have been granted.

05/30/14       Healthy Way Acupuncture, PC v Allstate Insurance Co.
Appellate Term, First Department
Timeliness of Denial Irrelevant Where Assignor Failed to Appear For IME
This case just serves as a reminder that when a carrier timely and properly mails IME notices and the assignor fails to attend, the carrier is entitled to deny all claims retroactively to the date of loss, regardless of whether the denials were issued late or originally issued based on different grounds.  In this case, plaintiff did not raise any issue of fact as to the nonappearance or as to the mailing of reasonableness of the notices so the lower court’s decision granting defendant’s motion dismissing the complaint was affirmed.

 

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

06/12/14       Hamilton v Miller
Court of Appeals
High Court Modifies Medical Disclosure Requirements in Lead Paint Cases
In this decision, the Court of Appeals address two similar, yet entirely unrelated, cases out of the Fourth Department.  In both cases, plaintiff’s counsel disclosed a broadly worded Bill of Particulars which asserted 35 different injuries.  In both cases, plaintiffs also disclosed a limited amount of medical and educational records which tended to show that the plaintiffs had been exposed to lead paint as children.

In both cases, the defendants moved to compel plaintiffs to amend their Bills of Particulars to assert only those injuries for which there was proof.  In addition, defendants also moved to compel production of narrative reports and medical records establishing causation between the injuries alleged and the treatment sought by the plaintiff.  If no such records/reports were produced, defendants asked that plaintiffs be precluded from offering any future evidence at trial.  Defendants’ motions were based upon 22 NYCRR 202.17(b)(1) which requires a comprehensive report identifying injuries and other conditions which will lead to testimony at the time of trial. 

The trial court granted the motions to compel, and the Appellate Division, Fourth Department affirmed both Orders.  However, the Appellate Division also requested that the Court of Appeals review the decisions to enunciate a rule governing issues like this moving forward.  Upon appeal, the Court of Appeals’ modified the Appellate Division’s rulings but, apparently, only in cases involving lead paint which propose unique circumstances not usually seen in bodily injury cases.  For one, in a lead paint case the injuries giving rise to a Complaint may have been caused by lead paint exposure from years prior.  In a traditional injury case, the onset of the injury is relatively well defined by the trauma sustained by the plaintiff. 

 

Thus, the Court held that plaintiff is not required to provide narrative reports for claimed injuries where there is none, or very limited, medical evidence.  The holding, per the Court’s decision, is aimed at protecting against a plaintiff from being forced to seek out medical consultations early on in the litigation process. 

However, on the other hand, where medical records of a certain claimed condition exist, the plaintiff must produce reports as required under 202.17(b)(1).  If no such reports are in existence, the plaintiff is required to seek out reports from their providers to comply with the mandates of the rule.  In reaching this ruling, the Court noted that a report under 202.17(b)(1) only requires a recitation of injuries, diagnosis and prognosis.  It does not require, as urged by defendants, a finding of causation.  Issues of causation, ruled the Court, should be addressed through expert disclosure under CPLR 3101(d). 

Finally, the Court refused to permit plaintiff to establish causation by asking the Court to take judicial notice of a Federal Government study which found exposure to lead paint was hazardous. 

06/18/14       Smith-Lerner v Art Students League of New York
Appellate Division, Second Department
Failure to Establish Board Approval Precludes Summary Judgment on Exclusivity of Remedy under Workers’ Compensation Law
Plaintiff sustained injury while she was employed by defendant as an art model.  As such, she proceeded with a workers’ compensation claim and entered into a settlement under Section 32 of the Workers’ Compensation Law. 
Thereafter, plaintiff sued her employer directly for the same loss that she had previously sought workers’ compensation coverage.  Defendant immediately moved for summary judgment arguing that plaintiff had elected to take damages through the workers’ compensation system, and as such was precluded from suing her employer.  In denying the defendant’s application, the Second Department noted that a settlement under Section 32 is only effective if it has Workers’ Compensation Board approval.  Here, no such approval was established in defendant’s motion. 

BETH’S BANTER ON COVERAGE B AND FITZ’ BITS

Elizabeth A. Fitzpatrick
[email protected]

06/17/14       Mid-Continent Casualty Co. v. Circle S Feed Store LLC
(2014 WL 2724624)
Coverage Available for Alleged Faulty Work
Mid-Continent issued a commercial general liability policy, as well as excess umbrella policies, to I&W. I&W engaged in solution mining on its property in Carlsbad, New Mexico.  As a regulated entity of the New Mexico Oil Conservation Division (NMOCD) it was required to monitor subsidence and ensure that its brine removal was not washing out salt from deep within the salt bed.  It began this process in 1995 and in 2008, the NMOCD required I&W to plug its last open well, determining the well posed a threat to life and property.  The operations caused an underground cavern to form under its own property and the adjacent property owned by Circle S, where Circle S operated a feed store. 

Circle S filed suit against I&W alleging negligence, negligent trespass, nuisance, withdrawal of lateral and subjacent support, interference with and interruption of enjoyment of property and operation of business, and unjust enrichment.  They alleged that I&W’s actions caused damages to real property and structures and reduced the value of its property and business operations.  At trial, experts testified that the cavern had increased in size and the risk of it collapsing was significant.  Evidence of physical damage already caused to the structure was introduced and one expert opined that the value of Circle S’s property declined from $703,000 to $0.  The jury ultimately found I&W 100% negligent and awarded compensatory damages of $703,000 and punitives of $300,000.

Mid-Continent issued primary CGL policies from 2000 to 2009 and excess/ umbrella policies from 2000 to 2005.  The excess policy included an oil industry’s limitation endorsement which precluded coverage for loss of, damage to or loss of use of property directly or indirectly resulting from subsidence caused by subsurface operations of the insured, as well as removal of, loss of or damage to subsurface oil, gas or any other substance, and the property of others.  The District Court had determined that the endorsement applied to preclude coverage but on appeal, the Tenth Circuit reversed, finding the endorsement excluded coverage under the excess/umbrella policies, but did not affect coverage under the primary policies.  The court found that the primary policies listed several forms and endorsements incorporated into the policies, but none of them included the oil endorsement.  In a footnote, the court noted that Mid-Continent did not attempt to argue that the oil endorsement excluded coverage under the primary policies but instead contended that Circle S could not make the argument on appeal because it did not argue against the endorsement’s applicability in the District Court.  The court rejected this argument.

With respect to the issue of whether the claims against the insured constituted an occurrence within the meaning of the primary policies, the court rejected Mid-Continent’s argument that because I&W deliberately created the underground cavern that damaged Circle S’s property, there was no occurrence.  The court, instead opined that an insured’s act is not accidental only if the insured intended both the act and to cause some kind of injury or damage.  It noted that intent to cause injury or damage can be actual or it can be inferred from the nature of the act when the consequences are substantially certain to result.  Applying these concepts, the court found that the damages were within the scope of coverage because I&W neither intended the injuries nor knew that injuries were likely to result.  The court stated:

The rule Mid-Continent has presented to us would swallow the insurance.  Every harm flowing from intentional acts, whether driving a tractor or drilling a well, would not be covered because the tortfeasor intended to drive the tractor or drive the well.  This narrow scope of coverage is inconsistent with New Mexico Law.

For the same reason, the court declined to apply the intentional act exclusion.  The court also rejected Mid-Continent’s position that the damages were not property damage within the meaning of the policy, but rather constituted diminution in value of property.  The court found that the measure of damages for diminution in value of the property were available as long as the diminution was attributable to covered damage.

AUDREY’S ANGLES ON THE NATIONALLY NOTEWORTHY

Audrey A. Seeley
[email protected]

06/09/14                 American Nat. Prop. and Cas. Co. v. Hearn
Superior Court, Pennsylvania
Expected Intended Harm Exclusion Bars Coverage for Injuries Sustained while Playing “Dance, Dance Revolution” 
On September 15, 2006, Mr. Russell and Mr. Hearn, as well as a number of Mr. Russell’s friends, were hanging out in Mr. Russell’s finished basement.  Mr. Russell was playing a video game called “Dance, Dance Revolution.”  For those unfamiliar with this video game, the game plays songs and the dancer is provided with instructions on where to step on a pad with the dancer receiving points for speed and accuracy.

Mr. Russell was struck in the groin from behind by Mr. Hearn while playing Dance, Dance Revolution.  Mr. Russell was ultimately diagnosed with a left testicle torsion requiring emergency surgery.  Due to this injury, Mr. Russell allegedly from diagnostic tests may be permanently infertile.

Mr. Russell and his mother commenced a lawsuit against Mr. Hearn alleging negligence, battery, assault, negligent infliction of emotional distress, intentional infliction of emotional distress, infertility, loss of consortium, and punitive damages. The complaint was turned over to Mr. Hearn’s parents’ homeowners’ insurer, American National Property and Casualty Companies (“ANPAC”) for a defense and indemnification.

ANPAC commenced a declaratory judgment action seeking a declaration that it owed no duty to defend or indemnify Mr. Hearn in the underlying action as the complaint did not allege an occurrence and the expected or intended harm exclusion under the policy applied barring insurance coverage.  It is noted that the expected intended harm exclusion was worded to apply even if the actual injury or damage sustained was different from that expected or intended by any insured.

The Court, in reviewing the allegations in the complaint, determined that Mr. Hearn’s actions were intentional and the fact that a negligence clause of action was inserted into the complaint did not transform an intentional tort into a negligence tort requiring a duty to defend.  Likewise, even though it was claimed that Mr. Hearn did not intend the injury Mr. Russell sustained, the policy’s exclusion provided that the exclusion would apply even if the actual injury sustained was different than intended by any insured.  Accordingly, summary judgment in ANPAC’s favor was appropriate and it had no obligation to defend or indemnify Mr. Hearn in the underlying action.

6/4/14           Certain Interested Underwriters at Lloyd’s London v. LeMons
Appeals Court, Massachusetts
Assault and Battery Exclusion Precludes Bodily Injury Claim Arising Out of Negligent Security
On February 22, 2001, Mr. LeMons, a patron at Luigi’s V, Inc., d/b/a Gigi’s Pub, was attacked by several unidentified people and sustained bodily injury.  Mr. LeMons and his wife commenced a suit against Gigi’s Pub.  The LeMons alleged a negligent security theory against Gigi’s.  Gigi’s was insured through a commercial general liability policy that was issued by Certain Interested Underwriters at Lloyd’s London (“Lloyd’s”).  The CGL policy contained an assault and battery exclusion which excluded coverage for bodily injury expected or intended from the standpoint of any insured or bodily injury that arose out of an assault or battery, whether provoked or unprovoked, or out of any act or omission in connection with prevention or suppression of an assault or battery committed by any insured or an employee or agent of the insured. 

Lloyd’s undertook Gigi’s defense pursuant to a reservation of rights and during litigation Lloyd’s disclaimed coverage to Gigi’s citing the assault and battery exclusion.

Prior to a settlement in the underlying action, Lloyd’s commenced a declaratory judgment action seeking a declaration that it had no defense or indemnification obligation to Gigi’s in the underlying action commenced by Mr. LeMons.  Lloyd’s filed and was granted summary judgment in the declaratory judgment action upon the assault and battery exclusion which is the focus of this appeal.  The Court noted that the language within the CGL policy’s assault and battery exclusion was one of first impression in Massachusetts.  The dispute between the parties with regard to the assault and battery exclusion was the phrase “committed by any insured or an employee or agent of the insured.”  Lloyd’s interpretation of the exclusion was that it applied to bodily injury claims arising out of an assault or battery, whether provoked or unprovoked, no matter who committed that assault or battery.  The exclusion also excluded bodily injury for an act or omission that any insured or an employee or agent of the insured committed.  Here, the latter part of that exclusion applied to the claim for negligent security against Gigi’s. 

On the other hand, Mr. LeMons argued that the exclusion applies only when the assault or battery is committed by a Gigi’s employee or agent.  Therefore, any claim which arises from an assault or battery committed by anyone other than the insured is covered under the CGL policy.

The Court interpreted the exclusion to have two distinct parts.  The first part of the exclusion excluded insurance coverage for bodily injury that arose out of an assault or battery, whether provoked or unprovoked.  The second part of the exclusion excluded insurance coverage for bodily injury arising out of any act or omission in connection with the prevention or suppression of an assault or battery committed by any insured or an employee or agent of the insured.  In terms of whether the phrase “committed by any insured or an employee of any insured” applied to the second part of the exclusion or first part of the exclusion, the Court concluded that it applied to the second part of the exclusion and would exclude a negligent security claim. 

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

S5077/A9077 Examinations Before Trial

This Legislation passed both the Senate and the Assembly recently and amends CPLR §3113.  This new Legislation allows a non-party deponent’s counsel to participate in his client’s deposition.  Counsel for the non-party deponent will be allowed to make objections on behalf of his or her counsel in the same manner as counsel for a party to the litigation.

S6545A/A9590 Certificates of Insurance

This Legislation also recently passed both the Senate and Assembly and amends the Insurance Law to include a new article, Article 5.  Article 5 defines certificate/certificates of insurance to mean any document “which is prepared or issued by an insurer or insurance producer as evidence of property or casualty insurance coverage.”  Moreover, the definition specifically states that a certificate of insurance does not include a policy or binder, and it does not “amend, extend or alter the coverage provided by the policy” referenced in the certificate.  Likewise, a certificate will not confer to any person new or additional rights beyond what the policy specifically provides.

The new provision prohibits a person or governmental entity from requesting or requiring the certificate from containing additional terms, conditions or language of any kind not found in the insurance policy or an endorsement thereto.  Likewise, they may not request or require a certificate that contains references to a contract other than the policy or warrants that the policies reference complies with the requirements of specific contract.  The certificate may include a contract title or description for the sole purpose of identifying the project for which the certificate was issued.  Further, no person or governmental entity may request a certificate which purports to confer new or additional rights beyond what the policy referenced specifically provides.

A9346-A/S4756-A Court Ordered Appraisals Under Fire Insurance Policies

This Legislation was also recently passed by both the Senate and the Assembly, and it seeks to clarify the issues which are subject to court ordered appraisals.  Insurance Law §3408(c) is amended in this Legislation.

It now states that an appraisal will determine the actual cash value, the replacement cost, the extent of the loss or damage and the amount of the loss or damage.  Additionally, the section now makes it clear that an appraisal does not determine whether the policy actually provides coverage for any portion of the claimed loss or damage.

A3303-B/S1178-B Creates Affirmative Duty upon Host to Render Assistance to Guest

This Legislation passed both the Senate and Assembly on Wednesday and enacts the Steven Kovacs Law amending the General Obligations Law.

This new provision creates an affirmative duty upon a host, who is present and expressly invites a guest, to provide reasonable assistance to a guest who is suffering or has suffered a medical emergency which reasonably appears to threaten the life of the guest.  A host who has knowledge that assistance was needed and fails to give reasonable assistance to a guest after a request for the same will be liable for damages for the injuries sustained by the guest.  The duty is satisfied by obtaining aid from law enforcement or medical personnel.

This Legislation further states that “once a host…has undertaken to render reasonable assistance to a guest, it shall be a complete defense against any claim for damages allegedly caused by acts or omissions of such person in rendering such assistance, unless it is established that such injuries or death were caused by gross negligence on the part of such person.”

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

06/10/14       Euchner-USA, Inc. et.al v. Hartford Casualty Insurance Co.
United States Court of Appeals, Second Circuit –New York
Duty to Defend Triggered – Possibility ERISA Violations for Misclassification of Employee as Independent Contractor Arose from Negligence
In April 2011, Euchner was sued by former employee Jada Scali.  In her initial complaint Ms. Scali alleged that she was hired as a regional sales manager in 2008, that she was sexually harassed by a senior executive, that she confronted him about his conduct, that she was wrongfully terminated as an employee, that she was coerced into accept an independent sales position, and that the new position disqualified her from receiving a number of benefits reserved for the company’s employees. The complaint characterized Euchner’s conduct as unlawful, fraudulent, discriminatory and wrongful coercion.

Euchner forwarded the complaint to Hartford, which had issued a primary CGL policy and an excess policy to Euchner.  The two policy forms excluded coverage for employment related practices; but employee benefits liability was covered by an endorsement providing that Hartford would pay “those sums that the insured becomes legally obligated to pay as damages because of ‘employee benefits injury’ to which this insurance applies.”  “Employee benefits injury” was defined as an “injury that arises out of any negligent act, error or omission in the ‘administration’ of your ‘employee benefits programs.”  Coverage was excluded for civil or criminal liability arising out of “[a]ny dishonest, fraudulent, criminal or malicious act.”

In May 2011, Hartford disclaimed coverage citing the exclusion for employment related practices.  Euchner did not contest this disclaimer; but, in October 2011 Ms. Scali filed an amended complaint and added the Euchner 401-k Plan as a defendant and included causes of action under the ERISA Act of 1974.  The ERISA claims alleged that Euchner “improperly classified” Scali as an independent contractor rather than an employee.  As a result of this misclassification, she was allegedly deprived of benefits under Euchner’s 401(k) Plan.

The amended complaint was sent to Hartford.  Although the litigation consultant determined the newly added ERISA claims triggered coverage under the employee benefits liability endorsement his supervisor disagreed and Hartford disclaimed coverage on two grounds:  (1) the policy only covered employee claims, whereas Scali’s Independent Sales Management Agreement established that she had become and Independent Contractor; and (2) in any event, there was an exclusion for any liability arising out of a failure by Euchner to comply with regulatory reporting requirements associated with an employee benefits program.

After the second disclaimer, Euchner retained counsel to defend the Scali action and to continue coverage discussions with the Hartford.  When Euchner later informed Hartford of an impending settlement of the Scali action, Hartford sent another disclaimer relying on the exclusion for wrongful conduct.  In April 2012, Euchner settled the Scali Action.

Euchner filed this action and after summary judgment motions were filed by the parties, the district court ruled that Hartford had no duty to defend because the policy excluded the intentional conduct alleged in Scali’s amended complaint.  For the following reasons the United Stated Court of Appeals for the Second Circuit [“Court”] affirmed in part, and vacated and remanded in part.

The Court determined that Scali’s ERISA claims raised a reasonable possibility of negligence on Euchner’s part.  It was alleged only that Euchner misclassified her position; it was not alleged whether this misclassification was done intentionally or negligently.  The Court noted that the complaint contained allegations that bespeak malice; but none of Scali’s ERISA claims alleged that Euchner improperly classified her with the purpose of interfering with her retirement benefits. Further noting that Scali’s ERISA claims did not require a showing of intent, they stood or fell on whether, notwithstanding the classification as an independent contractor, Euchner so controlled Scali’s activities that she came within the common-law definition of employee. 

Hartford argued that its policy contained an exclusion for wrongful, intentional or fraudulent conduct.  The Court determined, however, that as to the ERISA classification, it was alleged only that it was done “improperly and unlawfully”, which is a legal conclusion and not an allegation of fact.   The Court concluded that Hartford could not show that the ERISA allegations fall entirely within the policy exclusion.

The Court also concluded that there was a reasonable possibility that the ERISA claim arose from the “administration” of Euchner’s benefit plan; and that Hartford’s argument that “administration” encompasses ministerial acts is unavailing.  The Court pointed out that classification of someone as either an independent contractor or as an employee for purposes of plan eligibility is not a matter of discretion.

Accordingly, the Court held that there was a reasonable possibility of coverage under Hartford’s policy as to Scali’s ERISA claim and Hartford had a duty to defend. On remand the Court stated that the district court should consider Euchner’s other arguments in the first instance, i.e., whether Hartford breached a duty to indemnify; and whether Euchner is entitled to attorney’s fees in this action due to Hartford’s breach of the duty to defend.

KEEPING THE FAITH WITH JEN’S GEMS

Jennifer A. Ehman
[email protected] 

06/04/14       American Home Assur. Co. v Port Auth. of N.Y. & N.J.
Supreme Court, New York County
Defendant that Prevailed on Mirror Counter-Claim Entitled to Costs Injured In Defending Action Commenced by Insurance Carrier
American Home Assur. Co. (“American”) brought a declaratory judgment action alleging that the Port Authority was named in thousands of asbestos-related injury claims arising from exposure to asbestos during the WTC project.  It sought a declaration that under the terms of its policy, it had no obligation to defend or indemnity the Port Authority against the pending claims.  The Port Authority answered and interposed four counterclaims, including one which sought the opposite relief, a declaration that American did have an obligation to defend and indemnify the Port Authority.  The Port Authority then moved for partial summary judgment against American on the duty to defend.  This court granted that motion and directed that American did have a duty to defend. 

The issue before the court in this decision is the Port Authority’s application for attorney’s fees expended in the defense of this declaratory judgment action in reliance on Mighty Midgets, Inc.  As a refresher, Mighty Midgets, Inc. held that an insured "who has been cast in a defensive posture by the legal steps an insurer takes in an effort to free itself from its policy obligations" and who prevails on the merits, may recover attorney's fees incurred in defending against the insurer's action.

In opposition, American submitted that Mighty Midgets, Inc. was inapplicable as the Port Authority had only prevailed on its counterclaim.  It did not move on the claim against it and, in turn, did not defeat or “prevail” on any claim by American.  The court disagreed holding that while neither sought summary judgment on American’s claim, the decision on the counterclaim resolved American’s mirror-image declaratory judgment claim as it concerned the duty to defend.  Accordingly, the court awarded attorney’s fees from commencement of the action through the filing of the motion for partial summary judgment.  

EARL’S PEARLS
Earl K. Cantwell
[email protected]

TEXAS COURT FINDS POSSIBLE COVERAGE
FOR DEFECTIVE CONSTRUCTION UNDER A CGL POLICY

Ewing Construction Co. Inc. v. Amerisure Insurance Co., 2014 Tex. LEXIS 39 (January 17, 2014).  A school district sued Ewing Construction for alleged defects in some tennis courts it built.  The contractor sought defense and indemnity under its CGL policy from Amerisure Insurance who denied coverage based on the policy’s “contractual liability” exclusion.  A district court agreed with Amerisure and dismissed the case, but this decision was reversed on appeal by the Texas Supreme Court.

The CGL exclusion held that the insurance was not applicable to bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement.  There was then an exception to the exclusion which further read that the exclusion did not apply to liability for damages that the insured would have in the absence of the contract.  Amerisure argued that the contractual liability exclusion applied because Ewing contractually undertook an obligation to construct the tennis courts in a “good and workmanlike manner” and so assumed liability for damages if the work did not meet that standard.  The contractor argued that such a general promise to perform in a “good and workmanlike manner” did not extend its obligations beyond any general legal duty it undertook or owed. The Texas Supreme Court agreed with the contractor and essentially found that Ewing had not assumed any liability for damages beyond any liability or exposure it would have had under “general law”.  The Court also ruled that Amerisure’s claim that Ewing failed to perform in a “good and workmanlike manner” was substantially the same under either a negligence or contract theory, as both claims contained the same basic factual allegations.

The Texas Supreme Court concluded that a general contractor who agrees to perform in a “good and workmanlike manner”, without more, does not enlarge any duty of care, and does not assume any other or greater liability for damages arising out of defective work so as to trigger the contractual liability exclusion.

Amerisure also argued that this analysis essentially transformed the CGL policy into a performance bond.  However, the Court rejected this argument finding that whether or not defective work falls within a CGL policy often hinges on different CGL policy definitions and exclusions, and an insurer may have a right to deny coverage for reasons other than the contractual liability exclusion analyzed in this case.

The last point raises an interesting part of this case since the question certified to the Texas Supreme Court focused solely on whether the allegation that the work was performed in a “good and workmanlike manner” triggered the contractual liability exclusion. The decision does not address many other issues and policy provisions and definitions which may come into play in a construction defect claim.  The net result here was that when an owner or developer files a complaint against a contractor on multiple counts, an allegation of failure of good workmanship will not automatically trigger a contractual liability exclusion to deny coverage.

The holding in this case while interesting, is limited, and in a typical case many other policy terms come into play in litigation involving construction defects.  In other cases and jurisdictions, whether or not construction defects may be covered under a CGL policy has also turned on the definition of “accidental occurrence” and other exclusions such as the “your work” exclusion.  There have also been public policy issues with some courts refusing to make a CGL policy substitute for a performance bond. 

It is also interesting that, with respect to the contractual liability issue, the only language cited from the contract was the alleged obligation to perform the work in a “good and workmanlike manner”.  There was no discussion of other possible contractual liability terms such as a contractor’s warranty or any limitation of liability terms. 

Theoretically, this case also raises interesting issues if the state is one which has adopted the “economic loss doctrine” which essentially bars tort or negligence recovery for construction defects and mandates that the parties rely upon their contractual remedies for any recovery.  In such a legal environment, it can be argued that an owner or developer might only have contractual claims with respect to any construction defects, since the economic loss doctrine would bar any non-contractual or tort claims.  If that is the case, an argument can be made that, since only contractual claims could exist, any claim could only arise out of contract, and hence be subject to a contractual liability exclusion.  In short, if only contractual claims are allowed, there is no general law duty of “ordinary care” or negligence, any claim could only arise out of contract, and a stronger argument exists that a contractual liability exclusion should apply.