Coverage Pointers - Volume XV, No. 5

Dear Coverage Pointers Subscribers:

Have a situation?  You know we do LOVE situations.

Thanks to our friends at the New York Insurance Association for including our article on K2 Investments in the Summer issue of NY Connection Magazine

Labor Day weekend is upon us already, the ceremonial conclusion of summer.  We can sense the days getting shorter but we will resist the temptation to recognize the seasonal demise.  We do know that the appellate courts will be roaring back into session over the next few weeks and the flow of insurance coverage decision will begin again.  We struggle to find reportable decisions in the summer hiatus.

Kudos:

Congrats to Cassie Kazukenus, Steve Peiper and Dan Hunter on a nice win at the Second Department on a SUM case.  Every so often, justice is done.  It was here.  There’s a report on this decision in this week’s issue.

FDCC Insurance Industry Institute (I-3):

We’ll be there – you should too!

Click here for brochure and additional information

            When?           October 2 - 4, 2013
            Where?         New York Athletic Club

The I-3 Has Earned An International Reputation As The Premier Conference For Senior Level Insurance Executives.

    • An intensive two-day futurist program taught by some of the industry’s leading professionals.
    • A cutting-edge curriculum that emphasizes some of the toughest issues executives may face, and how to be prepared to handle them effectively.
    • A rare opportunity for leaders to meet, greet and network with your high-level peers and explore issues of current and future interest.

Hotel Reservations:
New York Athletic Club
180 Central Park South
New York, NY 10019
(212) 767-7135 or (800) 699-3293, or email [email protected]
Reservation code: Federation of Defense & Corp. Counsel

Catastrophe Tool Box:

A special thanks to those who attended our presentation in Stamford Connecticut last week on catastrophe claim.  Steve and I enjoyed meeting you all and we hope the presentation was worthwhile.

Best Lawyers In America:

Hurwitz & Fine, P.C. attorneys were again kindly recognized with 12 firm attorneys listed in the newest edition of Best Lawyers in America list. Inclusion in this publication is considered a singular honor. Listed attorneys include:

  • Robert P. Fine                      Corporate Law, Health Care Law, Mergers & Acquisitions, Tax Law Trusts & Estates
  • Lawrence C. Franco            Corporate Law, Tax Law, Trusts & Estates
  • Dan D. Kohane                    Commercial Litigation, Insurance Law
  • Ann E. Evanko                     Corporate Law, Employment Law
  • Harry F. Mooney                  Civil Rights Law, Commercial Litigation, Product Liability Law, Professional Malpractice
  • Paul J. Suozzi                      Personal Injury Litigation – Defendants
  • Roger L. Ross                      Real Estate Law
  • Lawrence M. Ross               Corporate Law, Health Care Law, Tax Law
  • Michael F. Perley                 Litigation - Municipal, Personal Injury Litigation – Defendants
  • Edward C. Robinson            Elder Law
  • Audrey A. Seeley                 Insurance Law

 

Harry F. Mooney was also identified as Lawyer of the Year for 2014 in Professional Malpractice Law - Defendants. Best Lawyers compiles its lists of outstanding attorneys by conducting exhaustive surveys in which thousands of leading lawyers confidentially evaluate their professional peers. Lawyers honored as “Lawyers of the Year” have received particularly high ratings in these surveys by earning a high level of respect among their peers for their abilities, professionalism, and integrity.

 

Beth’s Bitz

Welcome to our new subscribers and happy end of summer to all.  As we enter Labor Day weekend and the unofficial end of summer, what comes to my mind is the start of school.  With school in mind, I once again invite you all to check out the New York State Bar Association sponsored Law School for Insurance Professionals, which will be held at five (5) venues across New York State in September and October 2013.  If I can assist with the registration or provide any additional information to you, please feel free to contact me.

Thinking of back to school also provides a great opportunity for me to remind all of you that we are delighted to provide training specifically tailored to your group at your offices or at another convenient location.  Particularly in light of the recent Court of Appeals’ decision, K2 Investments, we have been involved in providing training focusing specifically on how the Court of Appeals’ decision has altered the landscape for insurers in New York and best practices to avoid its harsh consequences.  If that or any other topic is of interest to you, please contact me and I will be happy to arrange a date and time to visit you.

This week I discuss several interesting decisions, one applying an earth movement exclusion, another finding the claim within the embrace of the personal and advertising injury coverage, but precluded by a policy exclusion,as the claim arose prior to the policy’s inception.  I also discuss the recent decision of Justice Scheindlin of the United States District Court, Southern District of New York, in which the court imposed sanctions on the plaintiff for failure to preserve electronically stored data and have in place a timely litigation hold.  In Sekisui American Corporation and Sekisui Medical Company Limited v Hart, the court, overruling her magistrate’s decision, found the plaintiff willfully and permanently destroyed electronically stored information (ESI) of at least two (2) key players to the litigation and failed to impose a litigation hold for more than a year after the duty to preserve arose.  As a result, the court imposed sanctions on the non-preserving party in the form of an adverse inference jury instruction.  The judge has written extensively on the issue of the ramifications of a party’s failure to put in place a litigation hold once they become aware, or should be aware, of potential litigation. The decision is a must read.

Have a wonderful Labor Day weekend. 
           
See you in September,

Beth
Elizabeth A. Fitzpatrick
[email protected]

Editor’s Note:  I couldn’t help but think of the Tempo’s 1959 classic …

 

One Hundred Years Ago:

The U.S. Naval Air Service was established upon recommendation of Admiral George Dewey.

Jen’s Gems:

It is hard to believe that we are already approaching Labor Day weekend.  It seems like we just celebrated the Fourth of July.  Where did the summer go?  At least we have a final long weekend to spend with family and friends before we start the transition into fall. 

This week I report on a “must read” decision from New York Supreme Court.  As I often remind non-New York subscribers, the Supreme Courts in New York are our version of the trial courts.  In General Motors Acceptance Corp. v. New York Central Mutual, GMAC and its insurer, American Automobile Insurance Company (AAIC), commenced an action against NYCM for failure to settle the underlying action within the primary policy limits.  Although the Court acknowledged there was evidence that the underlying plaintiff did not satisfy the No-Fault Law serious injury threshold, it pointed to other conflicting evidence indicating that she sustained a partial or total disability.  Ultimately, the Court found that the record included sufficient evidence to raise a question of fact as to whether NYCM should have known that the underlying injuries were serious, and exceeded the primary limits. 

I always find it a little troubling when carriers are leading the charge on bad faith.  We are now into our 15th year without an appellate court upholding a finding of bad faith against an insurer in New York.  While an insurer may have pushed for the bad faith action, I tend to believe that if the law is going to be made, and the recoverability of extra-contractual damages expanded in New York, let the plaintiffs’ bar do it.  Just my thought...

Have a nice weekend!  Until next issue…

Jen
Jennifer A. Ehman
[email protected]

 

Baseball Chaos:  August 30, 1913 (from BaseballLibrary.com)

The Giants score 6 runs against Grover Cleveland Alexander but the Phillies come back from the 6-0 deficit to score 8 against Christie Mathewson. With 2 outs in the top of the 9th‚ and the Phils leading 8-6 over New York, umpire Bill Brennan, acceding to a request by the wily John McGraw, orders Phils captain Mickey Doolan (Phils manager Red Dooin had been ejected during the six-run 6th) to have spectators removed from the CF bleachers where they are waving hats, newspapers, handkerchiefs and flashing mirrors to distract the batters. When Doolan refuses, Brennan forfeits the game 9-0, to the Giants. Bedlam ensues and later, when the two umpires and Giants players try to board the train at the North Philadelphia Station, they are attacked by fans. The police draw their revolvers to control the crowd. The Phils protest the forfeit and NL president Lynch will reverse the umpire and rule the game an 8-6 Phils win. The Giants then appeal. NL directors say both Brennan and Lynch are wrong, and order the game completed from the point at which it was stopped. The game was finished October 2, with the Giants winning.

Michael’s Missives on Serious Injury – Mind the Gap – and a Tip of the Hat to NYIA and DANY:

Although serious injury cases are still scarce in the Appellate Division, I have some more exciting news to relay.  A serious injuries case that we reported on last year is going up for appeal to the Court of Appeals.  The case is Ramkumar v. Grand Style Transp. Enters. Inc..  The First Department in Ramkumar held that the plaintiff did not suffer a serious injury because he failed to adequately explain a gap in his medical treatment.  The Court of Appeals typically issues only one big no-fault serious injury case per year and this case might be the one. 

The New York Insurance Association (“NYIA”), the Defense Association of New York (DANY), and the New York State Trial Lawyers Association were all granted permission to file amicus curiae briefs in the Court of Appeals.  Making the case even more interesting, Cassandra Anderson and Marc Craw at NYIA were gracious enough to permit the Coverage Pointers staff to take a sneak peak at NYIA’s brief.  We would like to thank them for the privilege.

In Ramkumar, the accident occurred on April 8, 2007.  The 23-year-old plaintiff was taken to an emergency room by ambulance, where he was diagnosed with soft tissue injuries and released with a prescription for ibuprofen.  He later was diagnosed with cervical and lumbar strain/sprain and a post-traumatic injury to his right knee.  MRIs revealed a herniation at L3-4 and L4-5 and a lateral meniscus tear.  The plaintiff underwent arthroscopic surgery for his knee on June 29, 2007.  The orthopedic surgeon then recommended physical therapy on July 5, 2007, but the plaintiff testified that he was “cut off” around February 2008, which was two years before the plaintiff submitted his motion papers.  He had not received treatment since that time.  The rule set forth by the Court of Appeals provides that a plaintiff alleging serious injuries must offer a reasonable explanation if he or she terminates therapeutic measures.  The First Department held that the plaintiff’s self-serving testimony that he was cut off from no-fault benefits did not constitute a reasonable explanation for the termination of his physical therapy treatment.

Ordinarily, a reasonable explanation based on the exhaustion of insurance coverage must be accompanied by “documentary evidence” that substantiates the exhaustion of no-fault benefits or an “indication” that the plaintiff cannot pay for treatment out of pocket.  The plaintiff offered no documentary evidence demonstrating that he had been cut off from no-fault benefits.  Further, the plaintiff was employed and living with his parents, so there was no indication that he could not pay for the treatment on his own. 

One justice in the First Department disagreed with the First Department’s decision.  After taking a shot at no-fault carriers by characterizing them as uncooperative, the justice opines that saddling plaintiffs with the requirement that they substantiate their contentions is too burdensome.  The justice interprets the First Department’s decision very broadly, stating his fear that plaintiffs will have to demonstrate their financial condition or pay for care out of pocket in cases where the gap in treatment is due to lack of insurance coverage.

In my own humble opinion, not requiring plaintiffs to substantiate their reasons for a gap in treatment would reduce the reasonable explanation requirement to a mere pleading requirement.  Plaintiffs would just assert difficulties with seeking treatment in their verified complaint to ward off any summary judgment motion on the basis of a gap in treatment.  Shifting the burden on the carrier to disprove the plaintiff’s explanation, when the plaintiff has offered no evidence beyond his or her own bare allegations, effectively puts the burden on the carrier twice and relieves the plaintiff of proving his or her own case.

The attorneys at NYIA focused heavily on two points: the reasoning behind the decision that set the law on this issue, Pommells v. Perez, and the hardship (lack thereof) imposed on the plaintiff by the First Department’s substantiation requirement.  In light of the dissenting justice’s opinion, NYIA’s efforts to show why the plaintiff plays the violin a little too loudly was particularly appropriate.  First, every no-fault claimant in New York must be provided with an Explanation of Benefits that, in addition to showing the service or benefit claimed and showing the amount paid, must also list the contact information for the carrier’s representative.  Obtaining evidence that the no-fault benefits have been exhausted, therefore, should be no great obstacle.  Secondly, to the extent the reason for the gap was due to action taken by the provider, the plaintiff should be able to call and request such information.  Indeed, I would like to add, the plaintiff has a federal right to ask for his medical records under HIPAA.

With any luck, the Court of Appeals will agree with NYIA and yours truly.  In any event, you can be sure we will be here to report on it.

Michael
Michael Scott-Kristansen
[email protected]

A Close Save – A Century Ago:

The New York Times
August 30, 1913

SHAVES CHURCHGOERS

And Paterson Court Finds It Right,
Despite Ordinance

PATERSON, N.J., Aug. 29. – It is not a crime to keep a barber shop open on Sunday providing it is for the purpose of shaving men wishing to go to church.  That was the ruling of Acting Recorder St. Lawrence made in the Police Court yesterday, and he dismissed the complaint against James Furito, who runs a shop in the West Paterson section.

The Complaint against Furito was the result of a trip made by Detective Capt. Tracey and Detective Sgt. Keppler traveled through that section of the city Sunday morning in search of violators of the city ordinance requiring barber shops to close. 

The barber admitted that he had his shop open, but held that there was a reason.  A customer, he said, had asked to be shaved or the customer could not go to church.

“Cleanliness is next to godliness,” quoted the court.  “If the barber helped this man be good by shaving him and permitting him to go to church he did a good deed and I am not the one to say him nay.  The case is dismissed.”

Peiper’s Pipings:

Another slow news week. Here’s hoping things pick before next issue.  As Dan mentioned earlier, we are proud to report the Second Department’s decision in Unitrin v. Gelbstein this week.   Due to Cassie’s outstanding legal work in crafting the argument, we were able to right a wrong that had been eating away at your reporter for the better part of two years.  Justice, sweet justice, at last.

We send a very gracious thank you to those of you who visited with us last week in Stamford at the annual CAT Toolbox.  A special tip of the cap to those of you who joined us as admitted Coverage Pointers junkies (ok, I made that last part up, but we did have attendees that openly admitted to reading the newsletter).  Thanks for reading, and thanks for coming out. 

If you have a chance to pick up the Summer issue of NYIA’s excellent claims magazine, be sure to check out the take on K2 that Dan and I had the honor of preparing.  Speaking of K2, we are starting to see those issues trickle to the forefront.  If you haven’t already, we’d recommend you get to know your chosen coverage lawyer (whomever that may be) in the near future.  The fun is just beginning. 

One final note, if you’re in the Capital District on 9/12 please consider coming out to the Law School for Claims Professionals.  We’d love to see you there. 

Steve
Steven E. Peiper
[email protected]

Mann O’ Mann – Times Were Different 100 Years Ago

BUFFALO GIRL IS VICTIM
OF WHITE SLAVER

An Actor Held in Baltimore
Charged With Violating The
Mann Act – Is Married

His Companion is Margaret Helbig,
17 Years Old — The Man Hails
From Jersey City

Baltimore, Aug 30. – Denounced by an irate father of the girl whom he alleged he lured from her home in Buffalo, Grover C. Rosenthal, 22 years old, an actor of New York, and who, according to his statement to a lieutenant of detectives, is married and has a wife and child now living in Haddon Heights, New Jersey, is being held in his city by the United States authorities on the charge of violating the Mann white slave law.  The girl is Margaret Helbig, aged 17, daughter of Henry Helbig of Buffalo.
Editor’s Note:  An item appeared in the October 31, 1913 edition of the Oakland Tribune advising that Rosenthal was acquitted after a jury trial in federal court:

This jury deliberated only five minutes. Rosenthal, whose wife and child were in court, was charged with bringing Margaret Helbig from Philadelphia to this city for immoral purposes. He said he and the young woman were on the stage together and registered at boarding houses as husband and wife, but his attorney, in his argument laid stress on the claim that there had been no attempt on the part of the accused to use the girl for commercial purposes.

In his charge to the jury, Judge Rose held that the defendant had violated the Mann act. as he construed it, if the Jury believed beyond a reasonable doubt,  "that one of the purposes in bringing this girl into the state … was to continue relations that had existed between them while together elsewhere. The character of the girl and her past life are not to be considered in determining the question of the case "

2013 Law School for Insurance Professionals

The New York State Bar Association, Torts, Insurance & Compensation Law Section has scheduled the 2013 Law School for Insurance Professionals. Our own Beth Fitzpatrick is a state-wide Co-Chair of the program. It will be presented in the following venues:
Thursday, September 12, 2013
Albany

Monday, September 16, 2013
Buffalo

Friday, October 4, 2013
New York City

Thursday, October 10, 2013
Syracuse and Long Island

Topics Include:

Back to the Basics

  • Tips for writing a great coverage position letter and avoiding the common pitfalls
  • Partial denials in New York
  • When is the insured entitled to independent counsel?
  • What are reasonable fees?
  • What do you need to tell the insured?
  • Update on case law regarding timeliness and specificity.
  • Does Ins. Law 3420 apply between insurers?
  • The impact of the K2 Investment decision on claims handling

I am speaking on this topic in Buffalo and Beth Fitzpatrick is doing the same in Long Island and NYC.

Strategic Use of the Declaratory Judgment Action— Understanding the Direct Action Statute in NY

  • When should each be used?
  • What is litigated in a direct action and who are the proper parties?
  • When are attorneys’ fees awarded to the successful litigant?

The Use of Social Media In Claims Investigations, Discovery and Jury Selection

  • How may you ethically avail yourself of information available through social media platforms?
  • How can social media be used against the insured?
  • Now that you’ve got it, is it admissible?

Steven Peiper is covering this topic in Albany.

The Role of the Insurance Professional In Bad Faith Litigation

  • Tips for preventing a claim
  • How to protect your file
  • What is discoverable and what is privileged;
  • Preparing for a deposition – do’s and don’ts.

So Many Liens – So Little Time

  • Workers’ Compensation, No-Fault, Medicare – understanding, negotiating and resolving claims involving liens
  • Intercompany reimbursement
  • The rights of health insurers.

What’s My Case Worth?
An interactive panel discussion of case values in different venues, with the assistance of a judge/mediator and with your input and participation.

Register online now at www.nysba.org/LSFIP13 to guarantee your seat at the program.

 

Highlights of This Week’s Issue:

 

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

  • Court of Appeals to Review “Acts or Omissions”  Additional Insured Endorsement Case

 

MICHAEL’S MINI-MISSIVES ON SERIOUS INJURY UNDER NO-FAULT LAW
Michael P. Scott-Kristansen

[email protected]

  • A Ten Percent Loss of Range of Motion Is Insignificant Under No-Fault
  • Experts Opining on Causation Must State a Basis for Their Conclusions

 

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

[email protected]

ARBITRATION

  • Boilerplate Rebuttal Letter Is Insufficient to Support Medical Necessity
  • Respondent Fails to Support Its Fee Schedule Argument
  • Applicant’s Request for Excess Attorney’s Fees Denied
  • Letter of Medical Necessity Is Boilerplate and Denial Is Upheld

 

PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper

[email protected]

  • Recovery of More Money than the SUM Limits Makes Any Request for SUM Arbitration Academic
  • Denial of Request for Relief Without Notice, Does Not Give Rise to Automatic Appellate Rights

 

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

  • False Claims of Native American Origin Could be Covered

 

Fitz’ Bits

  • Rules and Penalties for Spoliation
  • Earth Movement Exclusions

 

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

  • Under New Mexico Law, Malicious Prosecution Exclusion Did Not Bar Claim for Malicious Abuse of Process
  • Under Michigan Law, the Economic Loss Doctrine Did Not Bar a Negligence Claim Against an Insurance Broker

 

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

  • Regulation 64 – Emergency Regulation 11 NYCRR 216.13 Mediation

 

FIJAL’S FEDERAL FOCUS
Katherine A. Fijal

[email protected]

  • Apportionment of Loss Clause – Question Certified to Court of Appeals
  • Second Circuit Certifies Question to New York Court of Appeals Regarding Derivative Liability

 

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

 

  • Doctrine of Estoppel Did Not Apply Where Carrier Denied Coverage, But Provided a Defense

Bad Faith

  • Delays Occasioned by the Need for Further Investigation Were Not Sufficient to Establish Bad Faith
  • Question of Fact Found on Bad Faith Failure to Settle Claim Brought by

 

EARL’S PEARLS
Earl K. Cantwell

[email protected]

EMBEZZLEMENT SCHEME HELD TO BE ONE CONTINUING “OCCURRENCE”

 

That’s all for now.  See you after Labor Day.  Of course, if you happen to be in Fort Erie, Ontario on Saturday of the Labor Day Weekend, come join us at Crescent Dreams for a cookout!

A special thanks to our good friend and staunch promoter, Dave Thompson from FAIA, who keeps us supplied with his special brand of home-made goodies.

See you in a couple of weeks.

Dan

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

Michael P. Scott-Kristansen
Diane F. Bosse

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

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

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

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

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

08/20/13       Strauss Painting, Inc. v. Mt. Hawley Ins. Co.
Appellate Division, First Department
Court of Appeals to Review “Acts or Omissions” Case
The First Department has granted leave to appeal to the Court of Appeals to allow review of its decision in the Strauss Painting case reported previously.  Here is our report on that earlier decision, which is now under review.  One of the attorneys involved in the appeal advised that the Court accepted this for generic review, so it is unclear whether they will address the “acts or omissions” question, which begs for resolution.  Here is our previous report on the App Div decision.

04/11/13       Strauss Painting, Inc. v. Mt. Hawley Ins. Co.
Appellate Division, First Department
A Mixed Bag for the Insurer: A Timely Disclaimer to One Insured; an Ineffective Reservation of Rights to Another. “Acts or Omissions” Language in AI Endorsement Does Not Require Demonstration of Negligence

There was a contract between Strauss and the Metropolitan Opera (the “Met”) that obligated Strauss to purchase insurance naming the Met as an additional insured. The court determined that Mt. Hawley is obligated to defend and indemnify the Met in the underlying personal injury action. The carrier’s policy contained a blanket additional insured endorsement.

Mt. Hawley sent out a reservation of rights letter to deny on late notice, but according to the court, did not disclaim. Reservations of rights letters are not effective to preserve a late notice defense in New York and as a result, the court found that Mt. Hawley’s disclaimer was ineffective.

The court also found that the “acts or omissions” language in the AI endorsement did not require a showing of negligence on the part of the named insured, a finding inconsistent with some other decisions in NY.

However, Mt. Hawley properly and timely disclaimed coverage as to Strauss on late notice. Notice given to the broker by Strauss was not notice to the carrier.
Editor’s Note: There is a split in authority as to whether “acts or omissions” language requires (or does not require) a showing of negligence on the part of the AI.

 

MICHAEL’S MINI-MISSIVES ON SERIOUS INJURY UNDER NO-FAULT LAW
Michael P. Scott-Kristansen

[email protected] 

08/28/13       Cebron v. Tuncoglu
Appellate Division, Second Department
A Ten Percent Loss of Range of Motion Is Insignificant Under No-Fault
The facts of this case are somewhat complex because the court decided appeals from two different cases arising out of the same accident.  The first action was against the driver and owner of a car that collided with a school bus and, allegedly, caused the plaintiffs’ injuries.  The second action was against the Town of Somers and the owners of residential real estate, all of whom were sued for causing or failing to remedy a hazardous condition on the roadway.  Clearly, only the first action actually concerned no-fault serious injuries because only the first action involved allegations of negligence in the use or operation of a motor vehicle.

The defendants in the first action moved for summary judgment, which the lower court granted against two of the plaintiffs.  On appeal, the Second Department affirmed.  The defendants in the first action met their burden regarding the injuries to a particular plaintiff’s lumbar spine.  They also established, by way of deposition testimony, that the plaintiff in question did not suffer a 90/180-day injury because she only missed one day of work.

In turn, the plaintiff failed to rebut the defendant’s showing.  The plaintiff submitted medical records that were inadmissible because they were neither affirmed nor relied upon by the plaintiff’s examining physicians.  Additionally, the plaintiff’s treating physician only noted a 10% limitation in range of motion, which is insignificant.  Lastly, the plaintiff failed to demonstrate that she was unable to perform substantially all of her daily activities for not less than 90 of the first 180 days after the accident.

08/21/13       Wilson v. Rotondi
Appellate Division, Second Department
Experts Opining on Causation Must State a Basis for Their Conclusions
The defendant moved for summary judgment.  The plaintiff failed to oppose the motion, so the lower court granted summary judgment on the basis of default. 

The plaintiff then moved to vacate the award of summary judgment.  The plaintiff argued that she had a reasonable excuse for the default because her neurologist failed to provide a promised report in time to oppose the motion and that her opposition would have been meritorious.  The lower court denied the motion to vacate.

The Second Department overturned the lower court and vacated the award of summary judgment.  The plaintiff’s failure constituted a reasonable excuse because she did not exhibit a pattern of willful neglect.  Additionally, the plaintiff’s opposition was meritorious and the defendant’s motion was deficient. 

The plaintiff, for the motion to vacate, submitted the affidavit of her chiropractor, stating that she examined the plaintiff immediately after the accident and found limitations in her spinal range of motion up to 56%.  The affidavit also stated that a more recent examination revealed limitations up to 67%.  The neurologist’s affirmation, finally obtained, stated that the plaintiff suffered from a cervical disc herniation and a lumbar disc bulge caused by the accident.

The defendant’s evidence consisted of the affirmed report of an orthopedic surgeon, stating that while the plaintiff exhibit a 25% limitation in her spinal range motion, the limitation predated the accident.

The Court held that the orthopedic surgeon’s opinion on causation failed to carry the defendant’s burden because the surgeon failed to state a basis for his conclusion.  It was conclusory. 

 

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

ARBITRATION

08/22/13       Elite Medical Supply of NY, LLC v. Geico Ins. Co.
Erie County, Arbitrator Murphy-Louden
Boilerplate Rebuttal Letter Is Insufficient to Support Medical Necessity
The 63 year old EIP was involved in an accident on March 17, 2012.  On April 4th, the EIP presented for an initial consultation with Steven Ess, D.C.  Dr. Ess did not perform a physical examination, but diagnosed the EIP with cervical and lumbar sprain, segmental dysfunction and lumbosacral neuritis/radiculitis.  He also recommended x-rays, which were performed on April 5th.  The cervical x-rays found moderate DDD at C3-4 and C6-7.  The lumbar x-rays revealed mild DDD at L4-5, mild loss of disc height at L5-S1 and facet hypertrophic changes at L4-5 and L5-S1.  Dr. Ess prescribed an LSO and a multimode stimulator on May 16th.

On July 17, 2012, a peer review was performed by Dr. Notabartolo, who concluded that medical necessity had not been established for the DME and, based on that conclusion, Respondent denied the claim.  Dr. Ess then wrote a rebuttal letter disagreeing with the peer review because Dr. Notabartolo had never examined the EIP and stating that the DME was prescribed based on the EIP’s condition, subjective complaints and clinical examination findings.  Dr. Notabartolo performed peer review addendums in which he reiterated his opinion.

The Arbitrator upheld Respondent’s denial, finding Dr. Ess’ rebuttal letter lacking in credibility as it was merely a boilerplate with the only specific information being the patient’s name and date of loss.  The letter only stated the circumstances under which an LSO is covered under the Medicare National Coverage Policy and what a TENS unit is and does.  The reference to the TENS unit was not even applicable as it was not the device prescribed.  In addition, the rebuttal letter failed to meaningfully refer to or discuss Dr. Notabartolo’s opinions, including Dr. Notabartolo’s opinion that home use of an LSO and electrical muscle stimulator is outside the standard of care.  Furthermore, the Arbitrator found Dr. Ess’ statement, that the peer review should be disregarded because Dr. Notabartolo never examined the EIP, to be incredible because Dr. Ess never performed an examination during the initial consultation and there was no evidence showing that Dr. Ess performed a physical examination at any time prior to prescribing the DME.  As such, the denial was upheld.

08/20/13       Marc A. Tetro MD v. A. Central Insurance Co.
Erie County, Arbitrator Murphy-Louden
Respondent Fails to Support Its Fee Schedule Argument
At issue was reimbursement for an office visit, right shoulder x-rays, DME, right shoulder arthroscopy and physical therapy.  On behalf of Respondent, Dr. Scarpinato performed an IME which revealed decreased range of motion in both shoulders.  Dr. Scarpinato diagnosed the EIP with a bilateral shoulder sprain and opined that orthopedic treatment and physical therapy were not medically necessary.  Based on that report, Respondent denied Applicant’s claims. 

For a number of reasons, the Arbitrator did not find Dr. Scarpinato’s report persuasive.  In addition, the Arbitrator noted that the fee schedule argument with respect to the DME only quoted the applicable provision from the Regulations, but did not provide any fee schedule calculation showing how Respondent arrived at the claimed proper amount.  The Arbitrator stated that in order to prevail on the issue of fee schedule, the Respondent was required to show that its reading of the fee schedule was correct, and simply quoting the provision did not establish that.  Therefore, the Arbitrator awarded the amount claimed for the DME.

08/19/13       Borg & IDE Imaging PC v. Allstate Insurance Co.
Erie County, Arbitrator Murphy-Louden
Applicant’s Request for Excess Attorney’s Fees Denied
The EIP allegedly was in a motor vehicle accident in March 2011.  At issue was a cervical MRI performed in January 2012 and a lumbar MRI performed in March 2012.  Respondent denied both based upon two peer reviews.  The Arbitrator determined that applicant failed to rebut the finding of lack of medical necessity for the cervical MRI, but awarded Applicant reimbursement for the lumbar MRI.  Applicant then argued that it was entitled to an excess attorney’s fee due to Respondent’s attempt to use the lumbar peer review to deny the benefit when, in fact, it supported it.  While noting that the Regulations allow for excess attorney’s fees where the arbitrator or court determine that the issues in dispute are novel, unique or require extraordinary skills, the Arbitrator pointed out that the issue was simply whether lack of medical necessity for the MRI was established.  This is certainly not a unique issue in No-Fault and it did not require any extraordinary skills of services.  As such, Applicant’s request was denied.

08/19/13       WJW Medical Products, Inc v. Geico Insurance Co.
Erie County, Arbitrator Kent L. Benziger
Letter of Medical Necessity Is Boilerplate and Denial Is Upheld
At issue was a Motion X lumbar brace prescribed in January 2013 following a diagnosis of lumbar disc disorder without myelopathy.  The letter of medical necessity stated that the brace was necessary to help support the EIP’s spine while keeping her mobile and preventing or lessening muscle atrophy.  The prescribing provider indicated that his goal was to have his patients have a more active lifestyle while avoiding surgery. 

Respondent denied the claim based on the peer review of Dr. Garofalo who noted that a diagnosis of lumbar disc disorder without myelopathy does not involve spinal instability.  He also stated that scientific studies do not recommend the use of similar devices in the treatment of back pain and that the use of the devise was counterproductive to the goal of chiropractic treatment, which includes the restoration of movement and function.

The Arbitrator agreed and found the peer review far more persuasive than the boilerplate letter of medical necessity, which was similar to many others seen in other arbitrations.  The Arbitrator also commented that it was not for him to reach a determination based on the brochures and patent documents submitted by Applicant when both parties had qualified experts.  Rather, Applicant could have incorporated any medical authority on or scientific review of the benefits of a lumbar brace into a report or letter of medical necessity, but as presented, Applicant’s evidence did not rebut the peer review.  Finally, although not one of the issues raised, the Arbitrator questioned why an expensive custom-fitted brace would be prescribed for a non-surgical condition as opposed to a far less expensive generic brace that could be utilized for the trial period.  “Medical expenses should be reasonable and necessary.”

 

PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper

[email protected]

08/28/13       Unitrin Auto & Home Ins. Co. v. Gelbstein
Appellate Division, Second Department
Recovery of More Money Than the SUM Limits Makes Any Request for SUM Arbitration Academic
In this case, plaintiff was involved in a collision with two other vehicles.  At the time of the collision, Ms. Gelbstein carried a personal auto policy with SUM limits of $100,000.  One of the vehicles carried a policy limit of $50,000.  The third vehicle involved in this collision carried a commercial auto policy of $500,000. 

Ms. Gelbstein’s lawyers then negotiated a resolution of the bodily injury claim for $400,000 ($50,000 + $350,000).  However, prior to tendering Releases to the commercial auto carrier, Ms. Gelbstein’s counsel commenced a demand for arbitration for SUM benefits against Unitrin Auto & Home.  Understanding that Ms. Gelbstein recovered 4 times the amount of her SUM coverage, Unitrin understandably denied such request and timely moved for a permanent stay of arbitration. 

That request was denied by the trial court because the plaintiff argued that it had not actually received the $350,000, even though it acknowledged settlement had been agreed to months prior.  In fact, it was determined that Ms. Gelbstein’s counsel tendered the Release on the $350,000 the very same day that counsel also reported to the Trial Court such settlement was not yet finalized. 

In any event, the Second Department saw through the charade and permanently stayed the arbitration. In so holding, the Court pointed to the well-settled principle of law that an injured party is not permitted to recover SUM benefits where, as here, they collected more than their policy limit from the responsible tortfeasors.  While a demand for arbitration was permissible, payment of the $350,000 made the matter academic. 

Peiper’s Point – A tip of the cap to Cassie for excellent work on the underlying proceedings, as well as the initial Appellate Brief.  Yours truly was lucky enough to tie things up on the Reply and argue it before the Court.

Logic Prevailed for Once….Hooray for Logic!!!! 

08/21/13       Regolodo v. United States Fire Ins. Co.
Appellate Division, Second Department
Denial of Request for Relief Without Notice, Does Not Give Rise to Automatic Appellate Rights
Last issue, we reviewed a case where the Appellate Division acknowledged that a trial court could, in its discretion, grant relief to a party that had not actually filed a notice or cross-notice of motion.  Well as you may recall, we pointed out the inherent risks in seeking relief without a contemporaneous notice document.  This week, the Second Department provides us with an additional reason why every request for relief should be neatly set forth in a duly filed notice document.

In this direct action under Insurance Law 3420(a), the Appellate Division denied and dismissed plaintiff’s appeal because the apparent request for relief was not made “on notice.”  Under such circumstances, the Court advised that such an appeal was only available where the Appellate Division granted leave.  The opportunity to appeal, as a right, was lost where the plaintiff did not file a Notice of Motion at the time the application for relief was made. 
                                            
BETH’S BANTER OF COVERAGE “B” AND FITZ’ BITS

Elizabeth A. Fitzpatrick
[email protected]

In Hanover Insurance Company v Urban Outfitters, the Eastern District of Pennsylvania on August 19, 2013, found that while claims by the Navajo Nation and against Urban Outfitters for trademark infringement, trademark dilution, unfair competition, false advertising, commercial practices laws violation and for violation of the Indian Arts and Crafts Act fell within the coverage afforded by OneBeacon.  OneBeacon issued a fronting policy to Urban Outfitters providing both commercial general liability and umbrella liability coverage for policy period incepting on July 7, 2010 for which Hanover is the responsible insurer and subsequent policies issued by Hanover for policy period July 7, 2011 to July 7, 2012, coverage was precluded by the application of prior publication or first publication exclusions. 

Personal and advertising injury was defined in the policies as:  injury arising out of one or more of the following offenses:  oral or written publication, in any manner, of material that disparages a person’s or organization’s goods, products or services…oral or written publication of material that violates a person’s right of privacy…the use of another’s advertising idea in your advertisement or infringing upon another’s copyright, trade dress or slogan in your advertisement.  Advertisement was defined as a notice that is broadcast or published to the general public or specific market segments. 

The allegations against Urban Outfitters were that they displayed and sold its goods in a manner that falsely suggested they were products of the Navajo Nation, effectively misrepresenting that such goods were Indian produced or the product of an Indian Tribe.  The allegations were that since March 16, 2009, and possibly earlier, Urban Outfitters had advertised, marketed, offered, displayed for sale and sold goods in manners that falsely suggested they were Indian made and Indian product or in a traditional Indian style.  After determining that the claims fell within the insuring agreement of the policies as set forth above, the Court found that since the injurious advertisement was first published before the policy began, coverage was excluded.  As they determined that there was no potential duty to indemnify and thus no duty to defend the Urban Outfitter defendants.

FITZ’ BITS

8/15/13         Sekisui American Corp. v.  Hart
United States District Court, Sothern District of New York
Rules and Penalties Re: Spoliation
Judge Scheindlin, who you may recall, has written extensively on a party’s obligations to preserve electronic materials in the Zubulake decisions, which she states, at its simplest requires a party anticipating litigation to refrain from deleting electronically stored information (ESI) that may be relevant to the litigation.  In Sekisui, she appeared particularly moved by the fact that it was the plaintiff in the action who was accused of destroying such evidence. 

The action was one for breach of contract against the defendants in relation to Sekisui’s acquisition of American Diagnostica, Inc., a medical diagnostic products manufacturer of which defendant, Hart, was president.  During the course of discovery, Sekisui revealed that ESI and, in particular, email files belonging to certain ADI employees, including Hart, had been permanently deleted.  It was further determined that Sekisui did not institute a litigation hold until more than fifteen (15) months after sending a notice of claim to the Harts.  The Harts requested the imposition of sanctions on Sekisui for spoliation of evidence to include an adverse jury instruction based upon the destruction of the ESI, as well as sanctions for spoliation. 

After extensive briefing, Judge Scheindlin’s magistrate determined that sanctions were not appropriate.  The magistrate concluded that while the destruction could well rise to the level of gross negligence and that the destroyed emails may have been relevant to the breach of contract claim, sanctions were not appropriate because the Harts failed to produce or describe any relevant e-mail that Sekisui failed to produce, i.e. there was no showing of prejudice and that, while a former employee of Sekisui had made the decision to destroy the ESI, there was no finding of culpability as to Sekisui itself. 

The Court set forth the controlling law with respect to an adverse instruction as follows:

A party seeking an adverse inference instruction based on the destruction of evidence must establish:

  • That the party having control over the evidence had an obligation to preserve it at the time it was destroyed;
  • That the records were destroyed with a culpable state of mind; and
  • That the destroyed evidence was relative to the party’s claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.

Noting that the law does not require a showing of malice to establish intentionality with respect to spoliation, the Court found all of the elements present and determined that an adverse jury instruction was appropriate, as was the imposition of costs. 

8/27/13         Essex Insurance Company v New Jersey Pan-African Chamber of Commerce and Industry, Inc.
Appellate Court, New Jersey
Earth Movement Exclusions Clear
A New Jersey Appellate Court affirmed the trial court’s determination that an Earth movement exclusion in a policy of insurance, where the exclusion precluded coverage for bodily injury, property damage, personal injury, advertising injury or any injury loss or damages…arising out of, caused by, or contributed to or as a result of movement of land or earth regardless of whether emanating from, aggravated by or attributable to any operations performed by an insured.  Movement of land or earth included instability, subsidence, settling.  While the court noted that excavation was not specifically referenced, they found the exclusion was clear and unambiguous. 

Providing an overview of New Jersey law regarding the interpretation of insurance policies and, in particular, that the agreement will be enforced as written when its terms are clear in order that the expectation of the parties will be filled, that the terms of insurance contracts are given their “plain and ordinary meaning” with ambiguities resolved in favor of the insured and that a genuine ambiguity arises only where the phrasing of the policy is so confusing that the average policyholder cannot make out the boundaries of coverage, the court rejected the defendant’s contentions that the exclusion precluded coverage only for natural phenomena.  In language that we can embrace, the court noted:

However, courts cannot write for the insured a better policy of insurance than the one purchased.  The rule of construing insurance policies in favor of the insured may not be used to make a plain agreement ambiguous and then construe it in favor of the insured.  (Citations omitted.)

Summary judgment for the insured and a declaration that neither defense nor indemnity was owed was the result.

 

AUDREY’S ANGLES ON THE NATIONALLY NOTEWORTHY

Audrey A. Seeley
[email protected]

8/19/13         Carolina CAS Ins. Co. v. Nanodetex Corp.,
U.S. Court of Appeals, 10th Circuit
Under New Mexico Law, Malicious Prosecution Exclusion Did Not Bar Claim for Malicious Abuse of Process
The defendant insured, Nanodetex, sought insurance coverage for a counterclaim asserted against it for malicious abuse of process and tortious interference with prospective business relationships. In New Mexico, there is recognition of a new common law tort called “malicious abuse of process” which incorporates the traditional malicious prosecution and abuse of process causes of action. Nanodetex sought insurance coverage from its insurer Carolina Casualty Insurance Company (“Carolina”), for the counterclaims asserted against it.

Carolina afforded a defense to Nanodetex, but reserved its right to seek a declaratory judgment action that it was not obligated to indemnify Nanodetex for any damages related to a malicious abuse of process claim. Carolina relied upon the malicious prosecution exclusion within the insurance policy issued to Nanodetex.

Nanodetex argued that the malicious prosecution exclusion did not apply as New Mexico law recognizes significant distinctions between malicious prosecution, abuse of process, and malicious abuse of process. Meanwhile, Carolina argued that the exclusion applied since there is no distinction between the term “malicious prosecution” and “malicious abuse of process.” The Court disagreed with both parties, believing that their positions were too extreme. In short, the Court refused to merely look at the label attached to the cause of action versus the label attached to the exclusion in determining whether the exclusion applied. Instead, the Court interpreted the term “malicious prosecution” under the insurance policy to refer to a claim that is based on substantially the same elements as a traditional tort, malicious prosecution. Thus, the exclusion would apply to any claim which requires proof of nearly the same elements required to prove a common law malicious prosecution claim.

8/23/13         Cleveland Indians Baseball Co. v. New Hampshire Ins. Co.
U.S. Court of Appeals, 6th Circuit
Under Michigan Law, the Economic Loss Doctrine Did Not Bar a Negligence Claim Against an Insurance Broker
The Cleveland Indians Baseball Company (“Cleveland Indians”) entered into a contract with a non-party entity to produce “Kids Fun Day” events at Cleveland Indians baseball games during the 2010 baseball season. As part of this event, it was agreed that the non-party entity would provide an inflatable slide. Further, this non-party entity was required to procure a CGL policy naming the Cleveland Indians as an additional insured. The non-party entity engaged an insurance broker, CSI Insurance Group (“CSI”), to procure the insurance policy as required under the contract.

During a “Kids Fun Day” event, a spectator, while looking at an exhibit outside of the “Kids’ Zone” where the large inflatable slide was, was fatally injured after the large inflatable slide collapsed on him. A personal injury lawsuit resulted and when the claim was tendered to the non-party entity’s insurer, New Hampshire Insurance Company, New Hampshire Insurance Company disclaimed a defense and indemnity to the Cleveland Indians based upon the “amusement device” exclusion in the policy. Thereafter, New Hampshire commenced a declaratory judgment action, by way of a third party complaint against the Cleveland Indians, seeking a declaration it was not required to defend or indemnify under the insurance policy. This resulted in a claim being filed by the Cleveland Indians against CSI.

Several of the Cleveland Indians’ claims were based upon negligence theories and CSI sought to dismiss such claims. Applying Michigan law, the Court noted there is no requirement for parties to be in privity of contract for a party to owe a duty of care; rather, there is a separate and distinct common law duty of care owed to all the contracting party knew or reasonably should have foreseen would be injured by that contracting party’s negligent acts or omissions. Also, under Michigan law, there is an independent duty of care that must be exercised by professional service providers, such as an insurance broker, toward any third party where there is foreseeable harm and where that professional service provider has specific knowledge that his actions might harm a specific third party.

The Court reasoned that here it was reasonably foreseeable that the Cleveland Indians, as an additional insured, would be harmed if an insurance broker failed to procure the required coverage. The Court further recognized that there should not be limitless liability against an insurance broker for an entity that is a complete stranger to the relationship between the broker and the named insured. However, in this case, that was not what occurred. In this case, CSI knew that it was procuring insurance for the non-party entity as well as the Cleveland Indians for specific events. The insurance broker also was aware that the Cleveland Indians could be harmed if the correct insurance coverage was not procured.

Likewise, the Court rejected the argument that the economic loss doctrine precluded any recovery in tort for this claim. The Court held this doctrine is not a bar to recovery as this case does not involve a products liability, applied warranty, or economic recovery for a defective product, which is generally where the doctrine is most often invoked. The underlying action involved a wrongful death suit, which involves physical injury, and the Court would not be persuaded into characterizing the suit as being about economic loss.

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

Regulation 64 – Emergency Regulation 11 NYCRR 216.13 Mediation

DFS adopted the above provision setting forth the mediation regulations for Storm Sandy property damage claims.

This provision applies to any claim for loss or damage, other than those made under a flood policy, which occurred between October 26, 2012 and November 15, 2012 in the following counties:  Bronx, Kings, Nassau, New York, Orange, Queens, Richmond, Rockland, Suffolk or Westchester.  These provisions apply solely to loss or damage to real or personal property other than motor vehicles.

Insurers are required to send a notice to the claimant or its representative that they have the right to request mediation.  This notice must be sent:

  • When the insurer denies a claim in whole or in part,
  • Within 10 business days of the date that the insurer receives notification from the claimant that he or she is disputing the settlement offer made by the insurer, but only if the difference in positions is $1,000 or more, or
  • Within 2 business days when the insurer has not offered to settle within 45 days after it has received a properly executed proof of loss and all items, statements and forms that the insurer has requested.

 

This notice must be provided even if the above triggers occurred prior to the effective date (August 22, 2013) of this provision and the claim remains unresolved.  In this scenario, the notice must be provided within 10 days of the effective date of this provision.

If a request for mediation is submitted, the insurer must forward the request to the designated organization within 3 days of receiving the request.  In addition, the insurer must pay the fee for the mediation within 5 days of receiving a bill from the designated organization. 

The mediation may be conducted in a face-to-face meeting, by videoconference or by telephone conference. 

The mediation may address any disputed issue for a claim.  However, mediation will not address and the insurer will not be required to attend mediation for:

  • A dispute in property valuation that has been submitted to an appraisal process or that is the subject of a civil action filed by the insured against the insurer,
  • Any claim that the insurer has reason to believe or knows is a fraudulent transaction, or
  • Any type of dispute that the designated organization has exempted from the mediation process.

 

The insurer must participate in good faith in all mediations scheduled.  The insurer must send a representative to the mediation who is knowledgeable with respect to the particular claim; and who has authority to make a binding claims decision.  The representative must bring a copy of the policy and the entire claims file.  An insurer’s representatives cannot continually disrupt the process, become unduly argumentative or adversarial or otherwise inhibit the negotiations.  Additionally, an insurer that does not alter its original decision on the claim is not, on that basis alone, failing to act in good faith as long as it provides a reasonable explanation for its action.

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

08/29/13       Quaker Hills, LLC v. Pacific Indemnity Co.
United States Court of Appeals Second Circuit – New York Law Applied
Apportionment of Loss Clause – Question Certified to Court of Appeals
At all pertinent times, Quaker Hills, a limited liability company, owned real property in Pawling, New York, on which its principal, Trevor Davis, built a home in 2005.  The home was destroyed by fire in March 2009.  A loss covered by a homeowner’s policy issued to Quaker Hills by Pacific Indemnity Co.  [“Pacific”].  The value of the home at the time of the loss was over $14,000,000.

At the time of the fire, the Pacific policy contained an apportionment of loss clause.  Pacific stated that it added the apportionment of loss clause to provide the approximately $5,000,000 of coverage requested by Davis for a policy issued in December 2006.  Quaker Hills denied ever requesting less than full coverage under the policy.  The apportionment of loss clause remained in all policies issued by Pacific up until the time of the fire.

Quaker Hills commenced this action alleging that Pacific breached the insurance contract by refusing to pay the full stated amount of loss in the policy - $14,388,000 and to pay replacement costs.  Among other things, Quaker Hills asserted that the policy’s apportionment of loss clause was unenforceable in New York because it did not conform to the minimum requirements imposed by New York law as reflected in the State’s Standard Fire Insurance policy.

Pacific opposed Quaker Hills’ contentions regarding the apportionment of loss clause arguing that such clauses are analogous to enforceable co-insurance clauses, and that, in any event, Davis had specifically insisted on the apportionment of loss clause in order to reduce the premiums payable on the policy.  Pacific also opposed Quaker Hills’ claim for replacement costs on the ground that Quaker Hills had not been able to rebuild the house because its mortgage on the property had been recalled. 

After motions for summary judgment were filed, the district court granted the motion of Quaker Hills in so far as it sought a declaration that the Policy’s apportionment of loss clause was void under New York law and Quaker Hills was entitled to $14,388,000.  The court denied the motion of Pacific to dismiss the complaint or limit Quaker Hill’s recovery to 38% of that amount – the amount stated in the apportionment clause.

Essentially, it was the district court’s position that under New York’s Standard Fire Insurance Policy . . . the policy must at least provide the lesser of either [1] the actual cash value of the property at the time of loss; [2] the replacement cost; or [3] the value of the property as predetermined in the policy.  The district court stated that it was “unable to find specific case law in New York that addressed anything like the apportionment of loss clause here; but the court found it clear that the apportionment of loss clause was void as a matter of New York law, and that the policy must be enforced as if its terms complied with the statute.  New York Insurance Law §3404(e).  Thus, the court found that the policy’s apportionment of loss clause was void as a matter of law, and that the policy must be enforced as if its terms complied with the statute.

Although Pacific contended that the apportionment of loss clause was not void because it was analogous to co-insurance clauses, which New York courts have upheld as valid, the district court rejected the analogy.  The district court read the New York cases as finding co-insurance clauses viable only where the insured suffered a partial, rather than a total loss.

On the issue of replacement costs, the district court ruled that the Bank’s commencement of the foreclosure constituted a recall of the mortgage within the meaning of the policy, which, under the limitations stated in the “Extended Replacement Cost” provision, relieved Pacific of the obligation to pay such costs.

The Second Circuit Court of Appeals [“Court”] affirmed the district court’s denial of the claim for replacement costs and went on to analyze the available case law on the issue of the apportionment of loss clause.  After analyzing New York Insurance Law and the New York cases dealing with co-insurance clauses, the Court determined that although the apportionment of loss clause in the Pacific policy may violate the provision of New York Insurance Law §3404; on the other hand, New York public policy appears to favor co-insurance clauses because they are designed to prevent property owners from recovering full value for losses on property that they have chosen to undervalue for insurance purposes in order to be charged lower premiums.

Inasmuch as the court found no New York cases, nor any federal court cases construing New York law, dealing with apportionment of loss clauses it certified the following question to the New York Court of Appeals:

(1)          In an insurance policy that provides a stated dollar amount of loss coverage in the event of a fire, does a policy clause that, in exchange for a reduction in the premium charged, limit the insurer’s liability to a percentage of any loss violate New York Insurance Law?

              (a)      If such a clause violates New York Insurance Law, is the                     clause void, or is it voidable or subject to principles of                                   waiver or estoppel?

(2)          If such a clause is in general permissible under New York Insurance Law, is it enforceable where there has been a total loss of the subject property?

(3)          If such a clause is in general permissible under New York Insurance Law, is there a limit on the percentage of liability that can be apportioned to the insured?

08/13/13       Isabella v. Koubek
United States Court of Appeals Second Circuit – New York Law Applied
Second Circuit Certifies Derivative Liability Question to New York Court of Appeals
This case arises out of an automobile accident in New York. On November 27, 2007, Roberta Oldenborg, wife of third-party defendant vehicle owner, Michael Koubek, was driving Koubek’s car back from a business meeting when she collided with a car driven by Doris Hallock and owned by Peter Hallock.  Oldenborg’s co-worker, Matthew Isabella, was a passenger in the vehicle and was injured in the accident.  Because the injury occurred in the course of his employment, Isabella was prevented by New York’s Workers’ Compensation Law from suing Oldenborg, and he eventually obtained workers’ compensation benefits.

Isabella later filed a suit against the Hallocks in federal court.  In turn, the Hallocks filed a third-party complaint against Koubek.  Koubek argued that his wife’s statutory immunity under Section 29(6) of the New York Workers’ Compensation Law protected him from liability, and he moved for summary judgment. 

Based on the case Champ v. Estate of Hales, 10 Misc.3d 988 (Sup. Ct. 2005) the district court denied Koubek’s motion.  In Champ, the court held that a defendant in Hallock’s position could sue the owner of a car under New York V & T Law §388 even though the negligent driver of that car enjoyed statutory immunity based on Workers’ Compensation Law §29(6).

The issue presented on appeal was whether a defendant may pursue a third-party contribution claim under New York V & T Law §388 against the owner of a vehicle, where the vehicle driver’s negligence was a substantial factor in causing the plaintiff’s injuries, but the driver is protected by the exclusive remedy provisions of New York Workers’ Compensation Law § 29(6).

In reviewing the district court’s decision the Second Circuit Court of Appeals [“Court”], analyzed the opinions available from the New York Court of Appeals and intermediate New York state courts and found that they suggest that the exclusive remedy provision also bars suit against a vehicle owner when the vehicle was being used in the course of employment by the driver and a co-worker was injured. See Rauch v Jones, 4 NY2d 592 (1958)(§29(6) of the Workers’ Compensation Law prevented an injured plaintiff from suing the owner of a vehicle where, at the time of the accident, the vehicle was operated by a co-employee in the course of his employment); Naso v Lafata, 4 NY2d 585 (1958)(decided the same day as Rauch and reached the same conclusion).  In the 1983 case of Kenny v Bacolo, 61 NY2d 642, the Court noted that in that case the court appeared to have precluded derivative liability against the owner in a contribution action because direct liability against the driver was statutorily prohibited.  The Court also reviewed decisions rendered in the intermediate New York state court and concluded that they came to the same general conclusion.

The Court noted that although the Court of Appeals and intermediate state court cases made it think that Koubek should not be held liable under §388, the Supreme Court’s more recent decision in Clamp gave it pause because, as the district court recognized, the Clamp case was factually and legally indistinguishable from the present matter.  In addition, the Court pointed out that more recently in Tikhonova v. Ford Motor Company, 4 NY3d 621 (2005), the New York Court of Appeals clarified that derivative liability may arise from the negligence of an immune party under certain circumstances, depending on the relevant statutory scheme giving rise to the immunity.

Since the Court was conflicted on how to decide, it certified the following question to the New York Court of Appeals:

Whether a defendant may pursue a third-party contribution claim under New York Vehicle and Traffic Law §388 against the owner of a vehicle, where the vehicle driver’s negligence was a substantial factor in causing the plaintiff’s injuries, but the driver is protected from suit by the exclusive remedy provisions of New York Workers’ Compensation Law §29(6)?

As always, we will monitor this case and report on any decision which may be rendered by the New York Court of Appeals on this issue.

 

KEEPING THE FAITH WITH JEN’S GEMS

Jennifer A. Ehman
                                            [email protected]    

 

08/21/13       Nationwide Prop. & Cas. Ins. Co. v. Albrecht
Supreme Court, Seneca County
Doctrine of Estoppel Did Not Apply Where Carrier Denied Coverage, But Provided a Defense
The underlying action involved the sexual assault of a minor.  Nationwide denied coverage to its insured, Billi Jo Albrecht, for the loss based on an applicable exclusion.  It did however agree to provide a defense until a judicial determination was made concerning Nationwide’s right and obligations.  A letter was issued to the insured advising him of Nationwide’s position, and that this position would not waive or limit any of its rights. 

Nationwide then brought this declaratory judgment action and moved for summary judgment.  Albrecht opposed the motion by arguing that the complaint did not name the specific member of Albrecht’s household that committed the acts.  Rather, it only alleged that it was a male minor.  He also argued that Nationwide was estopped from disclaiming coverage because the underlying action had proceeded to depositions, and that to deny coverage at this point would be unduly prejudicial. 

The court rejected both arguments.  The definition of insured included “…you, and the following if residents of your household at the resident’s premises…(b) any other person under age 21 in the care of you or your relatives.”  This was sufficient to trigger the inclusion for intentional acts by the insureds which are criminal in nature and committed by an insured.

Moreover, the Court found that the doctrine of estoppel did not apply as Albrecht’s submissions were insufficient to demonstrate that he was prejudiced by the conduct of the litigation to date, or that the defense was such that the character and strategy of the lawsuit could no longer be altered. 

Bad Faith

08/23/13       Deiber v. Nationwide Mut. Ins. Co.
United States District Court, W.D. Pennsylvania
Delays Occasioned by the Need for Further Investigation Were Not Sufficient to Establish Bad Faith
Plaintiff was involved in an accident while operating a motorcycle.  He sustained multiple injuries to his spine, legs, arms and head.  At the time of accident, he was insured under a policy issued by Nationwide with limits of $100,000 per person and $300,000 per accident, and $50,000 uninsured motorist. 

Shortly after the accident, the other driver asserted a bodily injury claim against the plaintiff.  Nationwide assigned the claim to, Jennifer McCormick, a claims representative.  During the initial investigation, McCormick attempted to contact the plaintiff.  Both times, she was told by a third-party that plaintiff was recovering from his injuries, and had little to no memory of the accident.

As McCormick was unable to speak with the plaintiff, she based her initial liability assessment on the contents of the police report, and indicated that plaintiff was 100% at fault.  Thereafter, McCormick was advised that the other driver had no insurance for the vehicle he was operating.  She then offered $5,000 to settle his claim, which was accepted

Over a year later, plaintiff’s counsel contacted Nationwide to open an uninsured motorist injury claim.  This claim was then provided to a different representative who likewise reviewed the policy report, and spoke with the other driver.  He concluded initially that plaintiff was more than 51% responsible for the accident.  EUOs were then conducted of both plaintiff and the other driver.  Following those examinations, the new representative revised his opinion, and determined there was an issue of fact regarding liability and proposed binding arbitration. Nationwide then re-evaluated prior to arbitration and tendered the $50,000 policy limit.

08/14/13       General Motors Acceptance Corp. v. New York Central Mut. Fire Ins. Co.
Supreme Court, New York County
Question of Fact Found on Bad Faith Failure to Settle Claim Brought by Excess Insurers
This decision arises out of an action brought by the excess insurers for bad faith failure to settle within the primary policy limits.  The underlying plaintiff, Julia Sette, sustained injury as a result of a two-car collision.  She was a passenger in a vehicle operated by Lesly Appleby and leased by Sette’s father from GMAC.  Notably, this action was commenced prior to the enactment of the Graves Amendment

The Honda in which Sette was riding in was insured by NYCM under a personal automobile policy with liability limits of $300,000 per occurrence.  The vehicle had excess insurance through an AAIC policy issued to GMAC with a $1 million deductible.  The other vehicle involved in the loss was insured by a GEICO policy with limits of $10,000 per person. 

Sette was treated for soft tissue injuries following the accident.  She also claimed headaches and dizziness.  She then brought an action against the operator of her vehicle, GMAC and the owner/operator of the other car. 

The Sette action was eventually bifurcated, and the liability issue was tried to verdict. The jury returned a verdict finding each defendant liable and apportioning fault equally between the Appleby/GMAC vehicle and the other car.   The judge then remanded the trial on damages to Civil Court, pursuant to CPLR 325(d), finding that there was “a serious question as to whether the plaintiff can meet the threshold of a serious injury.”  Accordingly, the court felt that the amount of potential damages would not exceed the jurisdiction of the Civil Court. 

At the damages trial, the jury found that Sette had satisfied the No-Fault Law serious injury threshold in both the 90/180 impairment and the partial loss of use categories.  Sette was awarded $1.5 million, plus future lost earnings.  The matter was eventually settled for $1.5 million.  To fund the settlement, NYCM paid its $300,000, and AAIC paid the remaining $1.2 million.  It recouped a $1 from GMAC.

Plaintiffs then commenced this action alleging that NYCM acted in bad faith during the bifurcated trial significantly undervaluing the action, and refusing to enter into settlement negotiations prior to verdict. 

NYCM eventually moved for summary judgment contending that the undisputed record demonstrated that it believed Sette had not sustained a casually-related serious injury sufficient to meet the No-Fault threshold, and it contended that it had no real opportunity to settle given Sette’s refusal to settle for a reasonable amount.  In opposition, Plaintiffs asserted that NYCM failed to properly investigate and evaluate the Sette action.  It also repeatedly ignored plaintiffs’ demands to settle the action, and failed to recognize the potential magnitude of damages and financial exposure. 

A primary insurance carrier owes a duty of good faith arising out of the insurance contract to its insured and to the excess carrier, if any, to negotiate a settlement, and to protect their interests and avoid exposing them to liability by settling within the primary limits, if possible. 

The Court denied NYCM’s motion for summary judgment, along with plaintiffs’ cross-motion, on the grounds that numerous genuine issues of material fact existed regarding whether NYCM’s decision not to offer the primary policy limits to settle the Sette action was the result of a gross disregard of the interests of GMAC and AAIC.  The court considered the medical evidence, which supported NYCM’s position that her mental status was within normal limits, and that she did not suffer any intracranial abnormalities and, in turn, her injuries were purely soft tissue.  However, it also considered other medical evidence which opined that Sette was partially or totally disabled.  In certain reports, she was even diagnosed with a total loss of the sense of smell.  In addition, Sette never returned to work. 

Ultimately, the Court found that the record included evidence that NYCM should have known that Sette’s injuries were serious, and far exceed the primary limits.  This was documented by a letter from defense counsel indicating that “if a jury believes [Sette’s] injuries, it is conceivable that a verdict well into the six-figure range could be awarded.”  Further, while the demand fluxed, during the time the jury was deliberating the demand was $750,000.  At that point, plaintiffs advised that they would contribute $450,000 toward a settlement. 

Take Away:  Certainly the result of the underlying action was not favorable for GMAC or AAIC, but do we really want insurers on the frontline of bad faith actions?  While plaintiffs clearly demanded settlement, there does seem to be a real question, and one expressed by the trial court judge, that Sette did not meet the serious injury threshold.  AAIC may win this case, but down the road it may be fighting the case law it helped to create.    

 

EARL’S PEARLS
Earl K. Cantwell

[email protected]

EMBEZZLEMENT SCHEME HELD TO BE ONE CONTINUING “OCCURRENCE”

In cases involving employee theft and dishonesty, there is often litigation, driven by various deductibles and policy conditions, as to whether the underlying acts constituted one or multiple occurrences for purposes of policy definition and reimbursement.  Piles Chevrolet Pontiac Buick, Inc. v Auto Owners Insurance Co., 2013 WL 2120319 (Kentucky Court of Appeals, May 17, 2013).  The Piles dealership alleged that its book-keeper conspired with her husband to steal almost $600,000.00 from the dealership over a 9 month period of time. The allegations were that she wrote unauthorized checks to herself, and to her husband’s auto company, and also never cashed checks she and her husband wrote to pay for cars purchased from Piles.  The insurance company, Auto Owners, agreed to pay substantially less than the full amount of the loss and litigation followed. 

Citing the policy’s “one occurrence” clause, the trial court limited the damages in favor of the insurance company, and both sides appealed.  The primary legal issue was whether the embezzlement facts and scheme constituted “one occurrence” or multiple occurrences under the policy. 

On appeal, the court noted that most courts interpret an embezzlement scheme carried out by one employee as but one occurrence consisting of a series of acts, each one following the other.  Although there may be multiple acts over a period of time, the “scheme” is viewed as a unitary event.  As a result, the dealership was only entitled to about $35,000.00 in damages.  This was broken down as $15,000 for employee dishonesty, $10,000 for loss of property, and $10,000 for loss of property due to forgery. 
The insurance company argued that the forgery portion of the award was improper because the policy excluded acts committed by employees, and the bookkeeper was an employee of the dealership.  The appellate court, however, said that for a good deal of the time the bookkeeper was not a direct employee of the dealership but worked for a temp agency.  The appellate court rejected Auto Owner’s other argument that the bookkeeper did not really “forge” checks but rather deceived personnel at the dealership into signing legitimate checks she later altered.  However, the appellate court ruled that this scenario constituted forgery according to its “plain meaning”.

It does appear that a majority of courts may interpret, depending on the policy language, an embezzlement scheme carried out by one employee as but one occurrence which may limit an award under the policy, or increase deductibles which are the responsibility of the policyholder.

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