Coverage Pointers - Volume XV, No. 7

Dear Coverage Pointers Subscribers:

There are some “truth is stranger than fiction” situations presented to us in the calls we receive and we love those calls.  Why?  It is simple. We love situations.  Hit us with your best ones.  The more challenging they are, the more convoluted they appear, the more hairs you are pulling out, the more we enjoy.  That is the beauty of having a robust coverage practice with offices throughout New York.  Do remember that we have great lawyers in Albany and Long Island able to represent you anywhere in New York State.

It’s Nice to Be Recognized:

The Business First 2013 Legal Elite of Western New York hits newsstands today, highlighting 100 Western New York lawyers and limiting the number of lawyers per firm to be included. Hurwitz & Fine is proud to have five of its Members recognized as outstanding in their fields by their peers in the Western New York legal community by Buffalo Business First and Buffalo Law Journal.

  • Ann E. Evanko – Labor & Employment
  • Robert P. Fine – Corporate & Securities
  • Lawrence C. Franco – Estates & Trusts
  • Dan D. Kohane  – Insurance
  • Harry F. Mooney – Personal Injury Defense


One Hundred Years Ago – Divine Intervention:

New York Tribune
New York, September 27, 1913


Engineer’s Experiments Confirm
Dr. Morris’s Theory

To the Editor of The New York Times: 

I am very pleased to be able to confirm the theory of Dr. Morris, given in The Times.

As a consulting engineer for capitalists in Europe I was asked while residing in California, fifteen years ago to investigate the claims of two brothers who had invented what they called a magneto electric instrument which, when carried in the hands like a divining rod, could be made to discover any mineral substance, as well as water and oil, by simply using special amalgams in cartridge tips like pistol cartridges. 

My instructions were to find if the instrument was of a scientific character like a magnet that would work independently of the will of the operator, and what its value would be in the field.  I very quickly found that its indications depended entirely, as Dr. Morris says, on the unconscious co-ordination of mind and muscle of the operator, but I found far more than that.  I found that the mind must be specially sensitive to ethereal radiations from the subterraneous regions of the earth as well as surface indications, and that it could be guided and controlled by the thought radiations of other minds.

Furthermore I found tha, (contrary to what Dr. Morris says) the senses played no part in the indications when those proved to be correct; that, in fact, one of the requirements of an accurate operator is to be able to so concentrate the attention on what he wishes to find as to exclude all sensible phenomena, and to have such strong faith in this instrument as to believe that he would not possibly make a mistake.

New York, September 25, 1913


Fitz’ Bits:

Dear Subscribers:

I report this week on a 5th Circuit decision where the court found an inconsistency in a commercial general liability policy between an exclusion removing coverage for the named insured and the coverage grant for an additional insured, as well as a 4th Circuit decision where the court found “liking” a Facebook page is protected speech.  I have no cases to report on social media and discovery.  Perhaps litigants are learning the lessons taught by case law in New York and involving discovery requests, which are that the demands should be narrowly tailored so as not to be considered a fishing expedition. 

I look forward to seeing many of you at the FDCC Insurance Industry Institute in New York City next week and at Law School for Insurance Professionals in New York City on October 4th and on Long Island on October 10th.

Til next time,

Elizabeth A. Fitzpatrick
[email protected]


We’re So Social -- H&F Social Media:

If you like us here, we’re available in other social media locales:

  • Twitter: @kohane
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K2 Investments:

As you learned early from our most recently special CP mailing, the Court of Appeals has agreed to reconsider its June 2013 decision in K2 Investments.  We are delighted to report that the insurance industry, through its trade groups, will be seeking amicus status so that its voice can be heard on this very important decision.  Watch this space.


Mike’s Missives on Serious Injury Threshold:

I was presented with another No-Fault question this past week.  Apparently a trial court somewhere in New York denied a defendant’s motion for summary judgment for failing to attach all the plaintiff’s medical records.  I hope you have the same reaction I did.  Huh?

Generally in New York, you must include all medical records upon which your expert relied in forming his or her opinion and those records must be in admissible form.  This rule derives from the more basic rule of evidence that an expert must have a proper foundation for his or her opinion and that foundation must be in the record.  An expert may also rely upon facts he or she personally observes, such as pursuant to a medical examination (IME), but those facts must also be introduced in admissible form.  This is satisfied where the IME doctor recites the facts in his or her affirmed report.

I have never heard, however, of a requirement that a defendant place all the defendant’s medical records before the court to prevail on a motion for summary judgment.  One could conceive of situations where a court might deny a motion for summary judgment because there is an inconsistency apparent from the records actually submitted.  The court might, in that circumstance, decide it needs more or all of the remaining medical records to resolve the issue.  Absent this issue, I cannot conceive of the basis for such a ruling.  Therefore, without seeing the ruling, I am of the cautious opinion that this is a solid basis for seeking appellate review.

If you have come across this situation, or any other situation you want to discuss for that matter, send me an email.  I am sure you are familiar with our love for situations by now.

Michael P. Scott-Kristansen
[email protected]


Law School for Insurance Professionals:

We enjoyed meeting the 35 or so who attended the Buffalo venue for the Law Schools for Insurance Professionals. The program is being reprised on Friday, October 4, 2013 in New York City and on Thursday October 10th in Syracuse and Long Island with our own Beth Fitzpatrick presenting on Tips for Writing a Great Position Letter and Avoiding the Common Pitfall in both the NYC and Long Island locations.

The topics include:

  • Back to the Basics
  • Strategic Use of the Declaratory Judgment Action — Understanding the Direct Action Statute in NY
  • The Use of Social Media In Claims Investigations, Discovery and Jury Selection
  • The Role of the Insurance Professional In Bad Faith Litigation
  • So Many Liens – So Little Time
  • What’s My Case Worth?


FDCC Insurance Industry Institute (I-3):

We hope to see you, next week, at the I-3.  Click here for brochure and additional information

When?           October 2 - 4, 2013
Where?          New York Athletic Club on Central Park South in NYC

The I-3 has earned an international reputation as the premier conference of senior level insurance executives.  I will be there and hope you will as well.  This will be:

  • 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

New York Insurance Association (NYIA) Effective Claims Management CE Seminar:

We hope to meet NYIA members at their two Effective Claims Management Seminars being hosted in Syracuse on October 10 and in Rye Brook (Westchester County) on October 17.  Steve Peiper and I will be presenting on Strategic Approaches to Contractual Indemnity and Additional Insured tenders and on the K2 Investments decision and its impact on New York claims handling.  Go the NYIA site for more info.


DRI Insurance Coverage and Practice Symposium –
When:            December 12, December 13, 2013
Where:           Sheraton New York Times Square 811 7th Avenue at 53rd Street New York, NY 10019

Click here for details.

DRI’s Insurance Coverage and Practice Symposium is the premier professional educational event on the subject of insurance coverage and claims. This year’s faculty is comprised of insurance industry leaders and nationally known attorneys, who will provide insightful education and practice tips on some of the most important insurance coverage and claims issues facing coverage attorneys and the insurance industry today. The symposium also provides an excellent opportunity for networking in New York City during the holidays with some of the best practitioners and professionals in the insurance coverage and claims arena.

Jen’s Gems:

Greetings.  With the week near a close, I will be heading to Toronto, Canada tomorrow morning to attend a portion of The Harmonie Group Fall Conference.  Should be a nice day, and we can surely expect some great speakers and some great northern hospitability.

In terms of my column this week, I am reporting on an interesting federal court decision from the Middle District of Alabama, Scottsdale Insurance Company v. Alabama Municipal Insurance Corp.  This case has everything true insurance coverage geeks love:  choice of law, bad faith claims, and even the “hammer clause.”   It is an unusual set of facts, but the most noteworthy aspect, in my opinion, is the court’s rejection of any argument that the carrier acted in bad faith.  The discussion by the court seemingly acts as a “how to list” for good faith claims handling.  A separate article on the decision is slated to appear in the October issue of Covered Events, the Insurance Law Committee of DRI’s electronic newsletter, and is worth a read.   

Until next week…

Jennifer A. Ehman
[email protected]


Once Hundred Years Ago Today, John Howard Merritt’s Moment in the Sun:

The San Antonio Light
September 28, 1913
Dodgers Dump Giants

Nap Rucker Grants “Would Be’s” Four Swats

BROOKLYN, N.Y. Sept. 27—The Dodgers closed their home season by shutting out the Giants, 4 to 0.  Rueker pitched tight ball, granting the "would be" champions only four -scattered hits. Demaree was pounded for eleven safeties, Cutshaw and Wheat being the big swatters. The latter drove the ball over the right field fence.

The Giants captured the National League pennant, despite that loss, because the second place Phillies lost as well. As the New York Times put it, "The Phillies may now win all of their remaining games and the Giants lose all of theirs and the New York’s will be victors by one full game. Hurrah!"

In the 1913 World Series, the Philadelphia Athletics beat the New York Giants four games to one. The Series itself was an ironic face-off, as the Giants and A's would eventually become crosstown rivals with the Giants moving to San Francisco at the end of the 1957 season and the A’s moving to Kansas City in 1955 and then to Oakland in 1968.  They next met in the earthquake-damaged 1989 World Series.

The box score noted that a fellow named Merritt played left field but never got up to bat.

John Howard Merritt was one of those ballplayers who stepped onto a major league diamond once, and never again.

It appears that late in that game, he went out in the field for Red Murray, one of the Giants great outfielders.  He committed no errors and the box score doesn’t indicate whether a ball was even hit to him.  As a player, he never stepped onto a major league field again as a player

Merritt’s baseball history is brief, but he had his one singular moment:

  • September 15, 1913: Drafted by the New York Giants from Knoxville (Appalachian) in the 1913 rule 5 draft.
  • September 29, 1913: Purchased by Memphis Chickasaws (Southern Association) from the Giants where he vanished from baseball lore.


Peiper’s Passion:

Now, this is more like it.  After several issues of impatiently waiting, we’re back in business this week.  Be sure to check out the Charter Oak case discussed in my column for some interesting law on when interest is triggered under a home owner’s policy.  We’d also recommend reviewing the case involving the Hess Corporation for an interesting discussion on the breadth of Releases that were executed years before a potential claim.

On a different note, please permit me a brief digression on the use of coverage counsel.  Just prior to the last issue, I participated in a webinar that David Adams and I put together.   As part of that discussion, I focused on how coverage counsel can be used to assist in brokering resolution of a Labor Law claim at the mediation stage.  The point we made there, and I make again now, is that coverage counsel can be used for more than opining on the applicability of an exclusion.  The very term “coverage counsel” can be misleading.  Coverage counsel really is counsel to the insurance company and the insurance industry as a whole.  In the right case, retaining counsel early on will allow a carrier to have a better control over discreet and/or obscure legal issues that pop up in the defense of the case.  It also provides another eye to manage the ever present threats of bad faith floated by plaintiff’s counsel.

Case in point.  We were recently retained to serve as counsel to a carrier, who was hit, early on, with a demand to settle letter from the plaintiff’s lawyer.  This letter included the usual language, and also made the demand for the policy limits time sensitive; to wit, plaintiffs posited “pay our demand within 10 days or you, evil insurance company, will be in bad faith.”  Of course, the Court of Appeals in Pavia has long rejected these kinds of unsubstantiated demands.  The carrier in that case retained us to respond to the so called “hammer letter,” to which we timely and forcefully did.  The carrier, however, kept us involved in settlement negotiations up through trial. 

The involvement, we hope, provided some level of comfort for the claims professionals that were grappling with a potentially high exposure case that had a low likelihood of liability being found against the insured.  While counsel cannot remove the questions over when, if ever, settlement is appropriate, what they can do is assist the process by assuring that all obligations of the carrier are addressed in a timely and appropriate manner.

Bad faith litigation is a “gotcha” law at its finest.  Time after time we are retained as counsel after a verdict exhausts the policy, and all dealings and communications on the file are final.  I would propose, in the right circumstances, the best way to litigate a bad faith case is to engage in the process long before the jury is in deliberations. 

Doing so has its advantages.  Under those conditions, if an ECL claim is brought, the carrier is able to litigate the case from a “good faith” perspective.   Think about it.  Would you rather litigate a case with the prevailing argument of “look at what we didn’t do wrong” as is often the case in ECL claims, or, on the other hand, would you rather  take the position of  “look at all we did right.” 

This shift in focus makes all the difference in the world on ECL litigation.   It leads to better results, and more importantly leads to much better nights’ sleep during the course of the litigation. 

Just my two cents.  Happy Oktoberfest. 

Steven E. Peiper
[email protected]


New York Politics Mystify the Brits a Century Ago:

The New York Times
September 27, 1913


With So Many Foes, Why Does
Such an Institution Still Exist?  Asks The Times


Murphy as a Disciple of Cosimo de’ Medici
In Observing Mere Forms of Democracy

By Marconi Transatlantic Wireless
Telegraph to The New York Times.

LONDON, Saturday, Sept. 27 – A propos of the forthcoming New York elections and Tammany’s power, The Times, in an editorial to-day, asks how it is, since there are more people in New York against Tammany than for it, Tammany is allowed to exist.

“To a foreigner the astonishing thing is not that there should now be again a chance of Tammany’s defeat,” it says, “but that such an institution should continue to exist at all.”

“What is the secret of its vitality?  Partly, no doubt, Tammany flourishes because it possesses both the authority of age and experience that has enabled it to enlarge and perfect its electoral machinery.  Moreover, it is the official branch in New York of the national Democratic Party, and is thus often able to evade its reputation by a whole-hearted appeal to party loyalty.”

“The whole elaborate system of American elections, moreover, with its primary conventions and excessive demands on the average citizen’s interest in politics, plays directly into the hands of this body of political experts, who can devote their whole time to its manipulation.”

“Florence and Milan in the Middle Ages both made the discovery that there was no easier way of building up a despotism than by a strict observance of all outward forms of democracy.  Tammany in New York made the same discovery, and there are aspects in which one may even be permitted to regard Mr. Murphy, the reigning boss, as no more than a reproduction of the Italian podesta and a distant disciple of Cosimo de’Medici.”


My Best E-mail of the Week:

Put It in the category:  Why I Should Have an Inferiority Complex?

A client and I were trying to touch base, each of us bouncing from conference call to conference call.  So, she sent me a message, “are you available?”  I called her, but no answer.  I then received this e-mail, which came in the moment she returned my call:

I am here - just saw that you were calling and did not want to pick up!

It took me 30 seconds to stop laughing.


A Century Ago – Panama Canal Passes First Test:



Tugboat Steams Successfully
From Sea Level to Level of Gatun Lake


Thousands Along Canal Banks
Join Demonstration – No Hitch in
Performing Feat

Panama, September 26. – The most important step thus far toward the operation of the Panama Canal took place to-day, when the seagoing tugboat Gatun, drawing twelve and a half feet of water, was successfully passed through the Gatun locks and to-night floats on the bosom of Gatun lake. 

This was the first attempt made to operate the locks on the canal, and the result was highly pleading to Colonel Goethals, chairman of the canal commission, and canal officials generally.  All day long hundreds of persons, men, women and children, withstood the burning rays of the tropic sun to see the act of passing the first vessel from sea level to the level of Gatun Lake, which today had reached a height of a little more than sixty-five feet, or within twenty feel of its normal level. 

Labor Law Pointers:

To complete your collection of litigation and coverage newsletters, so sign up for Dave Adams’ very popular newsletter, Labor Law Pointers.  Published monthly, it provides you with all the important Labor Law/construction-site accident decisions in New York, and the counseling points and insight that make it all worthwhile.

Just send Dave a note at [email protected].  Just tell him I sent you and he’ll add you to the subscription list for half of the usual cost.  Free.

A Century Ago:  The Law Isn’t Color Blind:

New York Tribune
New York, September 27, 1913


White White Almost Sentenced
In Negro White’s Stead

Judge Swann was about to impose sentence yesterday upon a pale youth who answered to the name of Charles E. White, when the policeman who made the arrest interposed.

“This is the wrong White, your honor,” said the policeman.  “This White is white; the right White is black.”

The white White was sent back to the Tombs and the black White will be sentenced on Monday. 


Headlines from This Week’s Issue of Coverage Pointers:

Dan D. Kohane
[email protected]

  • Court of Appeals Grants Review of Cumulation Clause Case
  • Default Sustained Against Insurer in Direct Action
  • SUM Arbitration Demand Served on TPA Starts the 20-Day Clock Ticking


Michael P. Scott-Kristansen

[email protected]

  • Plaintiff Defeats Motion for Summary Judgment by Producing Enough Evidence to Create a Question Regarding Seriousness and Causation


Margo M. Lagueras

[email protected]


  • Treatment Was Not Ascertainable Within One Year Post-Accident
  • Denial Based on IME Findings Contrasting Sharply With Other IME Findings Is Not Upheld
  • Acknowledgment of Receipt of Claim Form Does Not Concede Facts in It
  • Respondent Fails to Establish That Injury Did Not Arise Out of Use or Operation
  • Respondent’s Denial Is Upheld Where Applicant’s Ongoing Conditions Are Not Causally Related
  • Portion of IME Report Which Opines That Earlier Surgery Was Not Medically Necessary or Causally Related Also Comprises a Peer Review
  • Denial for Lumbar MRI Upheld Where There Were No Complaints of Lumbar Pain



  • Defendant Properly Used the Workers’ Compensation Fee Schedule for Acupuncture Services Performed by Chiropractor


Steven E. Peiper

[email protected]

  • Identity Theft Resulting in Fraudulent Mortgage Qualifies for Coverage Under Title Insurance; Question of Fact on Whether Mortgagee’s Own Negligence Excludes Coverage
  • Interest on a Home Owner’s Policy Runs When Payment of Principle is Due
  • No GOL 5-322.1 Protection Where No Proof of Negligence on the Purported Indemnitee
  • General Releases ONLY Bar Claims that Were Anticipated at the Time of the Execution


Elizabeth A. Fitzpatrick
[email protected]


  • “Your Work Exclusion” is Ambiguous



  • The First Amendment and Facebook


Audrey A. Seeley
[email protected]

  • In Continuous Property Damage Claim, Insurer Has Contribution Claim Against Co-Insurer for Defense Costs
  • Expected/Intended Injury Exclusion in Homeowner’s Policy Applies in Fatal Officer Shooting While Investigating a Crime


Cassandra A. Kazukenus
[email protected]

  • Final Adoption of Amendment to 11 NYCRR 60-2: SUM Coverage Applicable To Employees and Volunteers of Fire And Ambulance Services


Katherine A. Fijal

[email protected]

  • A Warning to Counsel to Behave with Civility; Was Plaintiff “Occupant”


Jennifer A. Ehman
[email protected]

  • Wrongful Death Claim Does Not Avoid Exclusion for Claims among Insureds
  • Direct Contracting Required Under Additional Insured Endorsement
  • Where the Owner May Be Entitled to Coverage as an Additional Insured under Policies of Insurance Issued to Two Different Subcontractors, “Other Insurance” Provision Dictates Priority of Coverage  


Bad Faith

  • Bad Faith Not Found Under Alabama Law


Earl K. Cantwell

[email protected]


That’s all she wrote.

Stay in touch.  We love hearing from you.

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]

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

Dan D. Kohane
[email protected]

Audrey A. Seeley
[email protected]

Jennifer A. Ehman
[email protected]

Dan D. Kohane, Team Leader
[email protected]

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

Michael P. Scott-Kristansen
Diane F. Bosse

Steven E. Peiper, Team Leader
[email protected]

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

Audrey A. Seeley, Team Leader
[email protected]

Margo M. Lagueras
Cassandra Kazukenus
Jennifer A. Ehman

Jody E. Briandi, Team Leader
[email protected]

 Elizabeth A. Fitzpatrick

Diane F. Bosse

Index to Special Columns

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

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

Dan D. Kohane
[email protected]

09/17/13       Nesmith v. Allstate Insurance Company
New York State Court of Appeals
Court of Appeals Grants Review of Cumulation Clause Case
The high court seems interested in insurance this year.  We reported on this Fourth Department decision earlier this year, which has now been accepted for review by the Court of Appeals
02/01/13       Nesmith v. Allstate Insurance
Appellate Division, Fourth Department
In Lead Paint Coverage Litigation, Exposure of Two Sets of Children in Same Apartment During Two Separate Tenancies Still Considered One Occurrence; Non-Cumulation Clause Disallows Stacking of Coverage
This was a lead paint non-cumulation coverage case.  Wilson had three consecutive policies with Allstate, covering property in Rochester, the first commencing in November 1991.  That policy had a per-occurrence limit of $500,000.  In 1993, two children were exposed to lead paint in the home and the family moved out shortly thereafter.  That family started a lawsuit as did the family of two children of a subsequent tenant who were also exposed to lead in the same apartment.  While the second case was pending, the first settled for $350,000.

Allstate argued that, under the non-cumulation clause in the policy, there would only be $500,000 for all the lead exposures in the apartment, so it offered the remaining $150,000 in the second case.  The plaintiffs in the second case and Allstate agreed to have the court determine the amount of coverage and that if the court found that the non-cumulation clause limited the coverage to $150,000, they would take it and if not, they would recover the full $500,000.

The policy provision at issue states:

Regardless of the number of insured persons, injured persons, claims, claimants or policies involved, our total liability under the Family Liability Protection coverage for damages resulting from one accidental loss will not exceed the limit shown on the declarations page.  All bodily injury and property damage resulting from one accidental loss or from continuous or repeated exposure to the same general conditions is considered the result of one accidental loss.

In the Hiraldo case, the Court of Appeals had earlier interpreted the same clause and found that the language would not permit the limits of three consecutive policies to be added together.

The mere fact that the property owners therein renewed their policy for two additional policy periods does not permit the plaintiffs to recover more than a single policy limit.  And based upon the clear language of the policy at issue here, the number of claims and claimants does not require the insurer to pay more than its single policy limit.

The question before the court was whether the exposure of different children to lead paint in the apartment over different tenancies is still considered to have resulted from “continuous or repeated exposure to the same general conditions.”  The court sided with the insurer.

The evidence establishes that the lead paint that injured the second set of children is the same lead paint that was present in the apartment when the first set of children lived there.  Inasmuch as the claims arise from exposure to the same condition, and the claims are spatially identical and temporally close enough that there were no intervening changes in the injury-causing conditions, they must be viewed as a single occurrence within the meaning of the policy.

09/18/13       Lissauer v. Guide One Specialty Mutual Ins. Co.
Appellate Division, Second Department
Default Sustained Against Insurer in Direct Action.
This was a “Direct Action” under Insurance Law § 3420(a)(2) to recover the amount of an unsatisfied judgment in favor of the plaintiff and against Guide One’s purported insured.

It appears that a default judgment had been entered against Guide One in the Direct Action; the lower court refused to open the default.  The Appellate Division agreed.

09/18/13       Deluca v. Arch Insurance Group
Appellate Division, Second Department
SUM Arbitration Demand Served on TPA Starts the 20-Day Clock Ticking
Arch appeals from a judgment against it in the amount of $775,000.  This was a SUM (underinsured arbitration) matter.  It was commenced by service of the demand on the Third Party Administrator (“TPA”) who had been handing the underlying matter.  The court found that service on the TPA was sufficient.

The arbitration award is subject to closer scrutiny because it was the result of compulsory arbitration (that is, the insurer had no choice). To be upheld, an award in a compulsory arbitration proceeding must have evidentiary support and cannot be arbitrary and capricious."  The court found that the award had evidentiary support and did not duplicate workers compensation benefits.
Editor’s Note:  While we am not suggesting that service on the TPA was designed to cause the insurer to waive its rights, let this serve as our reminder of the 20-day rules for moving to stay UM and SUM arbitrations.  If an insurer believes that the claim should not be arbitrated, it must bring an application in State Supreme Court within 20 days of the arbitration demand.  Here, the carrier may have lost some of that time because the demand was served on the TPA.

Michael P. Scott-Kristansen
[email protected]

09/18/13       Mackins v. Javed
Appellate Division, Second Department
Plaintiff Defeats Motion for Summary Judgment by Producing Enough Evidence to Create a Question Regarding Seriousness and Causation
The defendants established by competent medical evidence that the plaintiff did not suffer a permanent consequential or serious limitation of use to her lumbar spine, cervical spine, or left shoulder.  The defendants also established that the plaintiff’s injuries to her spine and shoulder were not caused by the accident. 

The defendant’s motion for summary judgment, however, was improperly granted because the plaintiff submitted sufficient evidence to create a question of fact regarding both (1) whether her spine and shoulder injuries were serious within the meaning of Insurance Law § 5102(d), and (2) whether her injuries were caused by the accident. 

Margo M. Lagueras

[email protected]


09/13/13       Frank S. Tang v. Allstate Prop. & Cas. Ins. Co.
Erie County, Arbitrator Douglas S. Coppola
Treatment Was Not Ascertainable Within One Year Post-Accident
The EIP was injured on March 10, 2011.  In August, an IME was performed and no further chiropractic treatment was recommended as the EIP had discontinued treatment because she felt it was providing only short term relief.  Apparently, there was no further treatment of any type until January 2013, when the EIP consulted with Applicant.  Respondent claimed that the treatment by Applicant was well beyond the one year period from the date of loss and there were no medical records suggesting the need for any further treatment after March 10, 2012.  The Arbitrator agreed that the no-fault regulations bar consideration of the billings as the EIP did not undertake treatment within a year from the date of the injury or within one year from the date of the denial based on the IME.

09/12/13       Vascular Intervention Assocs. v. Liberty Mut. Fire Ins. Co.
Erie County, Arbitrator Douglas D. Coppola
Denial Based on IME Findings Contrasting Sharply With Other IME Findings Is Not Upheld
The EIP was involved in an accident in September 2010.  At issue was a discogram performed in February 2013.  MRIs were positive for a C5-6 herniation and a November 2010 chiropractic IME found positive objective findings and recommended continuing conservative care.  After the chiropractic IME, a neurologic IME, which was not contained in the record, was performed.  It referred to the C5-6 herniation as causally related it to the accident.  Work was restricted to light duty: no sitting for more than 45 minutes, no standing for more than 30 minutes and no walking for more than 15 minutes.  Lifting and driving restrictions were also noted.  Nevertheless, the IME recommended denial of any further neurological treatment.  Following this IME, the carrier arranged for an orthopedic IME which was performed by Dr. Scarpinato and was in the record.  She determined that the complained of knee sprain was pre-existing, that the cervical and lumbar sprains had resolved, and that there was no need for further treatment.  There were also other evaluations in the record noting the herniation, cervical pain with numbness and tingling into both hands, pain going down into the upper back, limited range of motion, and an aggravation of the EIP’s pre-existing anterior cruciate ligament tear in her knee.  Ultimately, Applicant performed a discogram that revealed multi-level annular tears at C3-4, C4-5 and C5-6.

The Arbitrator found that the only basis to deny the discogram would be Dr. Scarpinato’s IME of a year and a half earlier.  However, he determined that the IME was not persuasive, particularly in light of the positive findings of the other IME examiners.  In addition, Dr. Scarpinato did not even comment on the positive MRIs.  As Respondent chose not to avail itself of the opportunity to request a supplemental peer review from either the examining neurologist or the orthopedist, the Arbitrator determined that Applicant adequately refuted the IMEs and established the medical necessity of its treatment.

09/12/13       Applicant v. Allstate Ins. Co.
Erie County, Arbitrator Michelle Murphy-Louden
Acknowledgment of Receipt of Claim Form Does Not Concede Facts in It
Applicant sought reimbursement for chiropractic treatment that was denied based on a chiropractic IME.  Although Applicant obtained a release of assignment, which gave her standing to pursue the arbitration, she failed to present as evidence the claim forms that were submitted to the insurer.  This failure cannot be cured by the submission of the denial of claim forms because, although a denial constitutes acknowledgment of the receipt of the claim, it does not concede the facts set forth in the claim or establish any other element of Applicant’s prima facie case.  Neither Applicant nor Respondent submitted the disputed bills, but it was Applicant’s burden to do so, not Respondent’s.  As such, the claim was dismissed without prejudice. 

09/12/13       Jordan Conrad DC v. Liberty Mut. Ins. Co.
Erie County, Arbitrator Veronica K. O’Connor
Respondent Fails to Establish That Injury Did Not Arise Out of Use or Operation of a Motor Vehicle
Applicant’s assignor alleged she was a pedestrian struck by a vehicle that backed up into her.  According to the police report, she was entering the ER at Sisters Hospital when a pickup backed into her.  She claimed that it left the scene, but that she managed to get the license plate number.  Respondent denied benefits on the basis that the injuries did not arise out of the use or operation of a motor vehicle.

In support of its claim, Applicant submitted no hospital records to show any treatment resulting from the accident, or as to why the assignor was at the ER to seek treatment prior to the accident.  However, Respondent did not submit any investigative report or the transcripts of the testimony of two witnesses.  Therefore, the Arbitrator concluded that she could not uphold Respondent’s denial because Respondent failed to submit sufficient documentation showing that the injury did not arise out of the use or operation of a motor vehicle and thus refute Applicant’s claim.

09/12/13       Applicant v. MetLife Auto & Home Ins. Co.
Onondaga County, Arbitrator Mary Anne Theiss
Respondent’s Denial Is Upheld Where Applicant’s Ongoing Conditions Are Not Causally Related
Applicant was involved in a motor vehicle accident in May 2006.  Prior to that, in the nineties, she had back surgery, a slip and fall in 1995 and another car accident, date unknown.  This accident occurred at noon, and she had quit her job as an LPN that morning.  Apparently she had another job lined up.  She received Social Security benefits stemming from the 1995 accident until 2000.  Then she received benefits again starting two months after the 2006 accident, but with respect to the 2000 auto accident.  She took Percocet and Flexeril prior to the 2006 date of loss on a daily basis.

In October 2006, Dr. Daniel Carr performed an IME and noted Applicant had numerous non-physiological findings that were difficult to attribute to any organic orthopedic problems.  He also noted that she was extremely overmedicated, a poor historian and that there was no indication that any of her MRI findings were attributable to the 2006 accident.  Dr. Carr opined that she could work at her normal job, that there was no objective evidence of permanency, and that she had reached pre-accident status. 

Previously, the Arbitrator had found that Applicant had an aggravation of a pre-existing condition but at the time of the 2006 IME, her inability to work was not related to the 2006 accident.  Subsequently, in September 2012, Dr. Carr performed another IME.  He noted no spasms, full range of motion and concluded that Applicant had chronic back syndrome dating as far back as 1997.  The Arbitrator agreed that Applicant did not have any ongoing causally related problems and that any ongoing treatment related to her pre-accident condition.  The Arbitrator denied Applicant’s claim noting that her decision with regard to lost wages was previously determined in two other decisions and affirmed in Master Arbitration. 
Note:  Our own Michael Scott-Kristansen successfully represented Respondent in this matter.

09/11/13       Surgical Assocs. of WNY v. Allstate Prop. & Cas. Ins. Co.
Erie County, Arbitrator Kent L. Benziger
Portion of IME Report Which Opines That Earlier Surgery Was Not Medically Necessary or Causally Related Also Comprises a Peer Review
At issue was the medical necessity and causal relationship of a cervical surgery.  The EIP stated that, prior to being struck by a drunk driver, he had no neck problems and excellent range or motion, even though he had undergone a spinal fusion from C3 to C7 several years earlier.  Three months after the accident, the same surgeon performed cervical surgery, this time removing a spinal plate at C4-5 and C6-7, performing an anterior total C3-4 discectomy with decompression, and an anterior C3-4 fusion with bone graft and fixation.  Two months later, an IME was performed by Dr. McGlowan who diagnosed a cervical and lumbosacral strain superimposed on significant pre-existing conditions.  He also opined that the basis for the recent spine surgery was not related to the accident but rather to the adjacent disc disease due to the prior cervical spondylitic condition.

The Arbitrator found the IME to be unpersuasive because that portion opining that the prior surgery was not medically necessary or causally related comprised a peer review and was insufficient as it did not adequately address the positive MRI findings or the history of prior neck pain which had reportedly resolved prior to the accident.  In addition, Dr. McGlowan did not discuss the exacerbation of degenerative changes, which are covered under no-fault, or cite any authoritative publications to support that the surgery was not necessary or causally related to the accident.  In contrast, the Arbitrator found the surgeon’s records to be more persuasive and awarded the reimbursement sought.

09/05/13       Orthopedic Assocs. of Dutchess County v. Geico Ins. Co.
Erie County, Arbitrator Kent L. Benziger
Denial for Lumbar MRI Upheld Where There Were No Complaints of Lumbar Pain
Two days after the motor vehicle accident, the EIP consulted with Applicant with complaints of neck and right shoulder pain, and also of some pain in her fingertips radiating from her neck.  Applicant prescribed a cervical MRI “with scouts of the thoracic and lumbar spine”.  The following day, the EIP underwent a neurological exam, which was normal.  Approximately one week later, the cervical MRI was performed, revealing mild C6-7 degenerative changes and foraminal narrowing.  Eight days later, Applicant performed a lumbar MRI which did not reveal central canal or neural foraminal narrowing.  Applicant then re-evaluated the EIP and noted that there was no significant pathology on the lumbar MRI.  The physical exam was normal and the impression was of low back pain, C5-6 right-sided stenosis, and right upper extremity radiculopathy.

Respondent denied the MRIs based upon orthopedic peer reviews, which determined that there were no neurological findings to justify the cervical MRI that was, therefore, premature.  As for the lumbar MRI, the orthopedic peer review noted that there were no specific complaints of pain, so there was no necessity for ordering the lumbar MRI based on the objective clinical information, particularly given that most strains resolve within six to eight weeks.

The Arbitrator found the peer reviews persuasive and denied reimbursement.  The cervical MRI was performed less than two weeks after the accident and with no positive neurological findings.  The lumbar MRI was performed not only in the absence of neurological findings, but also in the absence of pain and with no diagnosis of a lumbar injury.


09/13/12       Flushing Traditional Acupuncture, PC v. Geico Ins. Co.
Appellate Term, Second Department
Defendant Properly Used the Workers’ Compensation Fee Schedule for Acupuncture Services Performed by Chiropractor
The Civil Court denied plaintiff’s summary judgment motion seeking reimbursement of acupuncture services and granted defendant’s, dismissing the complaint.  The Appellate Term agreed that defendant properly used the workers’ compensation fee schedule to determine reimbursement for acupuncture services rendered by a chiropractor and billed under codes 97813 and 97814.  

However, defendant failed to address services for an “initial evaluation” billed under code 99202 and therefore should not have been granted summary judgment with respect to that part of the complaint that sought reimbursement for that amount.  Nevertheless, plaintiff was not entitled to summary judgment on that claim because the affidavit in support of its motion did not establish that the claim form was not timely denied or that it was timely denied but that the denial was conclusory, vague or meritless as a matter of law.  Therefore, the Civil Court’s order was modified to deny that portion of defendant’s motion seeking dismissal of the claim for the initial evaluation.

Steven E. Peiper

[email protected]

09/25/13       Countrywide Home Loans, Inc. v. United Gen. Tit. Ins. Co.
Appellate Division, Second Department
Identity Theft Resulting in Fraudulent Mortgage Qualifies for Coverage Under Title Insurance; Question of Fact on Whether Mortgagee’s Own Negligence Excludes Coverage
In January of 2005, Mr. Ahmed applied for a mortgage from Countrywide.  The only problem is he applied for the mortgage while posing as a Mr. Lodhi.  Almost a year later, Countrywide learned that Mr. Ahmed had stolen the identity of Mr. Lodhi.  Upon this revelation, Countrywide executed a satisfaction of mortgage in favor of Mr. Lodhi.  Thereafter, Countrywide notified defendant United of its claim under the title insurance policy United had issued on the property. 

Three and one-half years later, United disclaimed all coverage obligations.  United’s position was that Countrywide’s decision to issue a satisfaction of the mortgage to Mr. Lodhi violated the conditions of the policy.  In addition, United also disclaimed on the basis that the identity theft did not create a “title defect” that was covered by the policy.  Finally, United denied the claim on the basis that Countrywide’s failure to follow its own procedures “created” the loss. 

The trial court granted United’s motion on the basis that it was Countrywide’s decision to issue a satisfaction of mortgage extinguishing any interest it had in the property.  The trial court also held that Countrywide’s failure to properly verify the purchaser’s identity also resulted in a loss of coverage.

In reversing the trial court, the Appellate Division first noted that an “inability to enforce a security interest against real property” was plainly covered by the terms of the policy.  Where, as here, the invalidity of lien falls within the grant of coverage, coverage may only be lost by the application of an exclusion.  Here, no exclusion applied and coverage was affirmed accordingly. 

The Court also held that the satisfaction of the mortgage was irrelevant, under the current circumstance, with regard to Countrywide’s claim for coverage.  Because the mortgage was issued under forged documents, the mortgage itself was void ab initio.  As such, the loss occurred prior to the satisfaction of mortgage.  Finally, the Court found that a question of fact existed as to whether the exclusion for losses “created…by plaintiff [Countrywide]” applied. 

09/25/13       Ginsburg v. Charter Oak Fire Ins. Co.
Appellate Division, Second Department
Interest on a Home Owner’s Policy Runs When Payment of Principle Is Due
Plaintiff’s residence was damaged by a fire in March 2005.  As part of the adjustment of that claim, Charter Oak paid up to the limit of the policy for personal property.  In addition, Charter Oak also paid approximately $1,000,000 in real property losses.  Mr. Ginsburg challenged that payment under the real property section of the policy, and the matter was eventually submitted to appraisal.  The appraisal returned a finding of an additional $508,304.17, and Charter Oak further remitted that payment in satisfaction of the claim.

Prior to the appraiser’s decision, plaintiff commenced the instant action.  Upon receipt of the appraiser’s opinion, plaintiff requested interest on the additional $508,000 under CPLR § 5001.  In denying the request for interest, the Court noted that Charter Oak’s policy provided that payment was not due until 60 days after receipt of an executed proof of loss and appraiser’s report.  Where, as here, the payment was made within the 60 day time period after the appraiser’s report was submitted, interest never began to accrue.   This is because the policy would not have been breached as to payment obligations until after the expiration of the 60 day window.   In so holding, the Court noted the general rule that interest does not accrue until “payment of principal is due.”

The Court also rejected plaintiff’s argument that it was entitled to greater than the policy limit for personal property.  In deciding this issue, the Court relied upon the clear and unambiguous terms of the policy that established a personal property limit of $722,644. 

09/25/13       Grant v. City of New York
Appellate Division, Second Department
No GOL § 5-322.1 Protection Where No Proof of Negligence of the Purported Indemnitee
Plaintiff sustained injury when he fell from a ladder while in the course of his employment with A&S Electric.  At the time of the fall, plaintiff was working on a building owned by the City of New York.  NYC, in turn, commenced a third-party action against A&S Electric for contractual indemnification. 

Importantly, at the motion stage of this case, NYC established that it did not supervise, direct or control the work of the plaintiff.  As such, it was not liable to plaintiff for common law negligence.  It followed that NYC was, in fact, entitled to contractual indemnity against A&S Electric.

A&S Electric argued that because the indemnity clause conceivably provided indemnification for NYC’s own negligence, the provision was voided by operation of General Operations Law § 5-322.1.  That argument failed where, as here, it was established that NYC was not negligent. 

In so holding, the Court also reminded us that liability under Labor Law § 240(1) is statutory.  It does not, contrary to A&S’ argument, establish any degree of negligence against NYC.  

09/18/13       Burnside 711, LLC v. Amerada Hess Corp.
Appellate Division, Second Department
General Releases ONLY Bar Claims that Were Anticipated at the Time of the Execution
In 2010, plaintiff was ordered to remediate ground contamination at a premises it currently owned.  Thereafter, in 2011, plaintiff commenced the instant action against Hess arguing that the contamination arose from Hess’ occupancy of the location from 1964-1979. 

Hess responded by moving to dismiss on the basis of two general Releases it executed with the previous owner of the location.  Applying the plain meaning of the Releases at issue, the trial court dismissed plaintiff’s complaint.  However, in reversing, the Appellate Division noted that Releases cannot be construed to “cover matters that the parties ‘did not desire or intend to dispose of.’”  Here, because Hess could not establish that the Releases were intended to dispose of its potential obligations to future owners, a question of fact existed resulting in Hess’ motion being denied.


Elizabeth A. Fitzpatrick
[email protected]


08/16/13State Auto Insurance Companies v. Harrison County Commercial Lot, LLC
Fifth Circuit, U.S. Court of Appeals
“Your Work Exclusion” is Ambiguous
In State Auto Insurance Companies v. Harrison County Commercial Lot, LLC, the 5th Circuit, applying Mississippi law, found an ambiguity in a Commercial General Liability Policy issued to insured, Shoemake, which included the standard exclusion for property damage to “your work.”  The policy also included an endorsement adding HGM as an additional insured, which expressly provided coverage for “property damage” caused by “your,” that is the named insured’s, acts or omissions. 

HGM was hired as a general contractor for the construction of a shopping center and HGM hired Shoemaker as a sub-contractor.  Litigation ensued alleging a variety of claims, including deficiencies in the building’s drywall, which HGM attributed to Shoemake’s negligence.

State Auto brought a declaratory judgment action contending it was not obligated to afford coverage for HGM.  They contended that the policy's denial of coverage to primary insured Shoemake for “ ‘property damage’ to ‘your work’ “ precludes HGM, as additional insured, from receiving coverage based on Shoemake's negligence. HGM claims coverage based on the endorsement, which “modifies” the policy, adds HGM as additional insured, and expressly provides coverage for  ‘property damage’ ... caused ... by ... [y]our”—that is, Shoemake's —“acts or omissions ....While State contended that an additional insured obtains no rights greater than those of the primary policyholder, the court found that the endorsement extended coverage to HGM, the additional insured, for property damage caused by the named insured’s acts, while excluding coverage to the insured for that very thing.  As a result of the ambiguity, the court found in favor of coverage. 


09/18/13Bland, et al. v. Roberts
Fourth Circuit, Virginia
The First Amendment And Facebook
Is “liking” a Facebook page protected speech under the First Amendment?  The 4th Circuit Court of Appeals on September 18, 2013 found that it was.  The plaintiffs sued the sheriff of the City of Hampton, Virginia.  In the suit, they alleged that the sheriff, B.J. Roberts, retaliated against the plaintiffs in violation of their First Amendment rights by not reappointing them because they had “liked” his electoral opponent. 

The plaintiffs were all former employees of the Hampton Sheriff’s Office.  Roberts was up for re-election against Jim Adams, who had worked in the Sheriff’s Office for 16 years.  After the sheriff won re-election, he reappointed 147 of his 159 fulltime employees.  Those not reappointed included the 6 plaintiffs.  The plaintiffs contended that the sheriff violated their First Amendment right to free association when he refused to reappoint them based upon their lack of political allegiance and further alleged that he violated their First Amendment right to free speech.

In a lengthy decision addressing a number of other issues, the court found that “liking” a candidate’s campaign page is the Internet equivalent of displaying a political sign in your yard, which the Supreme Court has held is substantive speech.


Audrey A. Seeley
[email protected]

9/16/13         Potomac Ins. Co. of Ill. v. Pennsylvania Mfrs. Ass’n. Ins. Co.
Supreme Court, New Jersey
In Continuous Property Damage Claim, Insurer Has Contribution Claim Against Co-Insurer for Defense Costs
The underlying action resulting in the instant claim for contribution of defense costs was a property damage claim spanning approximately 10 years.  The insured had five different insurers who issued CGL policies, all of which were placed on notice of the claim and suit. A few insurers, notably OneBeacon who is the center of this action, provided a defense to the insured while Potomac Insurance Company of Illinois (“PMA”) and Royal Insurance Company of America (“Royal”) disclaimed insurance coverage to the insured.

Thereafter, the insured filed a declaratory judgment action against PMA and Royal, which was arbitrated.  After the delivery of the arbitration award, the parties settled with PMA contributing $150,000 toward the resolution of the underlying action.  The settlement agreement, which was only executed by PMA, contained a general release by the insured of any claims it had regarding PMA’s obligation to pay defense costs in the underlying action.

Within days of the settlement document being signed, the insured settled the underlying action for $700,000 with contribution from OneBeacon and Royal as well as one other insurer.

The issue regarding defense costs incurred by OneBeacon and others in the underlying action remained outstanding.  OneBeacon advised PMA and Royal of the total amount of defense costs in the underlying action and proposed an allocation among the insurers, including 20% from PMA.  OneBeacon employed the “continuous trigger” methodology applied in the Owens-Illinois case.  PMA and Royal declined to pay the proposed share and this action ensued.

The primary issue before the Court, which was of first impression, was whether an insurer can assert a contribution claim against a co-insurer for a property damage manifesting over several years.  The Court held that it could and found the allocation methodology in the Owens-Illinois case and its progeny applicable here.  The Court, relying upon Owens-Illinois, provided four reasons why such a contribution claim should be recognized:

  1. Stronger incentive for all responsible insurers to be proactive and prompt in their involvement in the claim.  Thus resulting in efficient use of resources of the insurers, litigants and court;
  2. Promotion of early settlement;
  3. Additional incentive to insureds to secure sufficient coverage on an annual basis; and
  4. Achieves a principle of fairness and does not reward recalcitrance by an insurer.


9/11/13         Birkholz v. Cruckson
Court of Appeals, Wisconsin
Expected/Intended Injury Exclusion in Homeowner’s Policy Applies in Fatal Officer Shooting While Investigating a Crime.
In the early morning of March 20, 2011, a woman reported that Germantown Mutual Insurance Company’s (“Germantown”) insured, James Cruckson, sexually assaulted her and was holding her and her young daughter in an unknown location.  The police investigated the woman’s accusation by going to Cruckson’s home; announcing their presence; and beginning to search the house.  While in the home, shots were fired injuring two officers.  Simultaneously, Cruckson began firing at backup officers as they arrived at the scene outside his home.  Officer Birkholz was one of the backup officers who was fatally wounded by one of those shots.  The entire tragic event ended with 48 rounds being fired and Cruckson taking his own life.

Officer Birkholz’s widow filed a wrongful death action against Cruckson’s estate and commenced an action against Germantown.  Germantown disclaimed insurance coverage to Cruckson upon the homeowner policy’s expected/intended injury exclusion and the fact that the incident was not an “occurrence” under the policy.

The Court of Appeals held that the incident was not an “occurrence” and the exclusion was properly invoked.  The Court held that there was no “occurrence” as from the insured’s perspective there was no accident.  The term “occurrence” was defined as an accident resulting in bodily injury or property damage.  Whether there is an accident is determined from the insured’s perspective and not the injured party’s perspective.  Thus, there was no “occurrence” within the insuring grant of the homeowner’s policy.

Also, the Court held that the expected/intended injury exclusion applied, barring insurance coverage.  The Court reasoned that the exclusion is analyzed using a reasonableness standard.  In other words, what a reasonable person in the insured’s shoes would be “substantially certain” would result.  Here, the Court concluded that any reasonable person who fires over 40 rounds from an upstairs window where police cars and officers are assembling knows with substantial certainty that serious injury or even death can result.

Cassandra A. Kazukenus
[email protected]

Final Adoption of Amendment to 11 NYCRR 60-2
SUM Coverage Applicable To Employees And Volunteers Of Fire And Ambulance Services

I had previously discussed the Legislation associated with this regulatory change, but I wanted to take the time to bring to your attention that the regulation implementing the changes to the SUM Endorsement took today, September 26, 2013.  The SUM endorsement’s definition of insured has added the following language:

(2)      any person while acting in the scope of that person's duties for you, except with respect to the use and operation by such person of a motor vehicle not covered under this policy, where such person is:

(i)       your employee and you are a fire department;
(ii)      your member and you are a fire company, as defined in General Municipal Law section 100;
(iii)      your employee and you are an ambulance service, as defined in Public Health Law section 3001; or
(iv)     your member and you are a voluntary ambulance service, as defined in Public Health Law section 3001;

Per the Sponsor’s memorandum of the related Legislation, these changes to the Insurance Law would make it clear that when a fire department or ambulance service purchases an insurance policy that includes SUM coverage, “such coverage extends to both professional and volunteer fire fighters and emergency services workers who are employed by or members of the fire department or ambulance service and who are injured while acting within the scope of the their duties” as long as a covered vehicle was being used.   

The change was necessary, per the Legislature, because the Courts have consistently held “that when the insured named on a policy is an entity such as a fire department or ambulance service, SUM coverage does not extend to individual fire fighters and emergency service workers who are injured if they were outside a covered vehicle at the time the injury occurred.” 

Katherine A. Fijal
[email protected]

09/24/13       Bennett v. State Farm Mutual Automobile Insurance Co.
United States Court of Appeals Sixth Circuit –Ohio Law Applied
A Warning to Counsel to Behave with Civility; Was Plaintiff “Occupant”
The opening paragraph of this decision is “[T]here are good reasons not to call all opponent’s arguments ‘ridiculous’” – which is what State Farm called Plaintiff’s principal argument.  The reasons the Sixth Circuit Court of Appeals [“Court”] said, include civility; the near certainty that overstatement will only push the reader away (especially when, as here, the hyperbole appears on page one of the brief); and that, even where the record supports an extreme modifier, “the better practice is usually to lay out the facts and let the court reach its own conclusions.”  The Court then stated, “the biggest reason is more simple, the argument that State Farm derides as ridiculous is instead correct.”

The facts are that on November 9, 2010, Barbara Bennett was walking her dog along a road in Garfield Heights, Ohio when she was struck by a vehicle driven by Robert Pastel.  The parties stipulated that Pastel’s negligence caused the accident.  They also stipulated that the impact threw Bennett onto the vehicle’s hood, where she sustained bodily injuries.

The question presented to the district court was whether Bennett was an “occupant” of the vehicle, as that term is defined by State Farm’s policy, at the time she was on the vehicle’s hood.  If she was, then she is entitled to coverage for the injuries; if not, she is not.

The district court held that Bennett was not an occupant of the vehicle, and granted summary judgment to State Farm.  For the following reasons the Court reversed.

The argument that State Farm called “ridiculous” was that Bennett was an occupant of the vehicle per the policy terms. The Court conceded that as a matter of ordinary English usage, one might be skeptical that Bennett was an “occupant” of the vehicle during the time she was on the hood; however, the Court also stated that the parties to a contract can define its terms as they wish – and State Farm did so in its policy.  The State Farm policy defined “occupying” as, “in, on, entering or alighting from.”  As noted above, the parties had stipulated that Bennett was on the vehicle, specifically, on its hood, and that she suffered bodily injury while she was there.  The Court held that based on the policy terms Bennett was an “occupant” of the vehicle and entitled to coverage for the additional injuries she received while on the hood.

One of the arguments made by State Farm was that in order to determine if Bennett was an occupant of the vehicle, the Court should ask whether she had some “intrinsic relationship” with the vehicle, rather than whether she was “on” it.  The Court disagreed, finding that in this case they had no reason to explore Bennett’s relationship with the car.  In those cases which applied the extrinsic relationship test, a gray area existed concerning whether a person was an occupant of the vehicle.  In this case, however, it was the Court’s opinion that the policy marked out its zone of coverage – the policy’s terms control.
Editor’s Note:  Was it policy terms or lack of civility that was the deciding factor?  You decide.


Jennifer A. Ehman
                                            [email protected]    

09/24/13       Matter of Estate of Courtney v. Dryden Mut. Ins. Co.
Supreme Court, Cortland County
Wrongful Death Claim Does Not Avoid Exclusion for Claims Among Insureds
Randall Courtney and his wife, Margaret, were both killed when a tractor trailer they owned and were riding – with Randall operating – flipped.  At the time of the loss, they had in place a homeowner’s policy issued by defendant.  When the administrators of the estate of Margaret Courtney commenced a wrongful death action against plaintiff, defendant denied coverage. 

The policy excluded coverage for liability “for bodily injury to you and, if residents of your household, your relatives, any other person under the age of 21 in your care or in the care of your resident relatives.”  While plaintiff argued that the exclusion did not apply to wrongful death claims, because they are brought on behalf of a deceased insured’s distributees, the court disagreed.  Finding this was an issue of first impression in New York, and in affirming the denial of coverage, the court relied on a similar Ohio case, which reasoned that since the wrongful death claim stems solely from an insured's bodily injury, the wrongful death claim is excluded from coverage. 

Notably, this exclusion was distinguished from that contained in the Court of Appeals decision, Cragg; a decision in which the court found the exclusion at issue ambiguous.  In that matter, the provisionexcluded coverage for “bodily injury to an insured person…whenever benefit of this coverage would accrue directly or indirectly to an insured person.”  Thus, unlike here, it was not clear whether it applied to a noninsured party.

09/13/13       Turner Constr. Co. v. Harleysville Worchester Ins. Co.
Supreme Court, New York County
Direct Contracting Required Under Additional Insured Endorsement
The underlying plaintiff, Joseph Pipia, allegedly sustained injury while working on a rehabilitation project on certain piers off of Govenor’s Island. 

At the time of the loss, Pipia was working in the course of his employment with JES Plumbing & Heating Corp.  JES was retained by Trevcon (the general contractor).  The contact entered into by JES and Trevcon required that JES provide certificates of insurance reflecting the inclusion of Trevcon, Turner (the construction manager), and NYC Economic Development as additional insureds. 

Following the loss, plaintiffs in this action, tendered their defense in the underlying matter to JES’ liability insurer, Harleysville.  Harleysville denied coverage based on late notice, and asserted that inadequate information was provided to make a determination as to whether the entities in fact qualified as additional insureds under the policy.  Nevertheless, Harleysville noted that any coverage was limited to those entities for whom JES was “performing operations when [JES] and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on [JES’] policy.”  As JES only contracted directly with Trevcon, the AI coverage was limited to that entity. 

In relying primarily on the First Department decision in AB Green Gansevoort, LLC v. Peter Scalamandre & Sons, Inc., the court agreed and found that only Trevcon, who actually had an agreement with JES, qualified as an additional insured.  It rejected any argument by the other plaintiffs that the main agreement was incorporated into the subcontract. 

Lastly, the court considered the late notice argument as it pertained to Trevcon.  In this preprejudice case, the court determined that Trevcon did not notify Harleysville of the underlying accident until approximately 71 days after the underlying action was commenced.  While Trevcon argued it had a good faith belief in nonliability, primarily because it did not supervise Pipia’s work, the court noted that the standard is not whether the insured believes that he will ultimately be found liable for the injury, but rather whether he has a reasonable basis for a belief that no claim will be asserted against it.  Here, Trevcon knew of the accident shortly after it occurred.  It also knew that Pipia had been airlifted from the scene.  In light of this information, Trevcon should have recognized the possibility of the subject policy’s involvement, and tendered to Harleysville.  

09/11/13       Travelers Prop. Cas. Co. of Am. V. Selective Ins. Co. of NY
Supreme Court, New York County

Where the Owner May Be Entitled to Coverage as an Additional Insured under Policies of Insurance Issued to Two Different Subcontractors, “Other Insurance” Provision Dictates Priority of Coverage   
This decision addresses priority of coverage.  Plaza, the owner of a premises located at 250 Hudson Street, retained Tri-State Dismantling Corporation (“Tri-State”) to perform certain demolition work, and Belway Electric (“Belway”) to perform electrical work.

While the project was ongoing, Albert Zunno, a journeyman employed by Belway, sustained injury when he slipped and fell on certain debris.  Testimony from a co-worker indicated that the debris was a piece of iron or steel.  Another witness indicated that the pipe was part of a sprinkler system dismantled by Tri-State prior to the accident. 

Both the Plaza/Tri-State agreement and Plaza/Belway agreement contained an obligation that Plaza be named as an additional insured on a primary policy of insurance.  Selective Insurance Company of New York issued a CGL policy to Belway while American International Specialty Lines Insurance Company insured Tri-State. 

Under the AI endorsement contained in the American policy, an entity is entitled to additional insured coverage where required by a written contact and where the bodily injury arises out of the named insured’s work for that additional insured.  The court determined that should the trier of fact find that the accident arose out of the work of American’s named insured, Plaza would be entitled to coverage. 

Likewise, the Selective policy recognized as an additional insured, persons or organization which Belway agreed in writing in a contract or agreement to be additional insureds “with respect to liability arising out of [Belway’s] ongoing operations performed for that insured.”  Again, the court found that should the tier of fact determine that the accident arose out of Belway’s ongoing operations performed for Plaza, it would be entitled to AI coverage under the Selective policy.

The court then issued a condition directive finding that if the policies are triggered, priority would be based on the respective “other insurance” clauses.   Both policies contained the endorsement CG 00 01 10 01 “other insurance” language, which essentially provides that the coverage is primary unless the other coverage falls into certain enumerated categories.  The court found that none of the enumerated categories were present, and that both policies provided primary coverage.  Thus, coverage, to the extent it applies, would be on a co-primary basis, with each insurer contributing equal amounts until that entity has paid it applicable limits of insurance or none of the loss remains, whichever comes first.   

Bad Faith

09/16/13       Scottsdale Ins. Co. v. Alabama Municipal Ins. Corp.
United States District Court, M.D. Alabama
Bad Faith Not Found Under Alabama Law
Defendant, Alabama Municipal Insurance Company (“AMIC”), is a non-profit mutual insurance company that issues policies to Alabama governmental entities.  AMIC purchased a professional liability policy from Scottsdale Insurance Company (“Scottsdale”) to cover errors and omissions arising from AMIC’s claims handling.  Notably, the Scottsdale policy was the result of a partnership between Scottsdale and the National Association of Mutual Insurance Companies (“NAMICO”) as NAMICO was not otherwise licensed to issue policies in Alabama. 

On November 24, 2009, Billie Vernon Edmondson (“Edmondson”) was involved in a single vehicle accident in Troup County, Georgia.  At the time of the loss, the van he was driving was owned by the Town of Woodland, Alabama (‘the Town”), and insured under a policy the Town had with AMIC.  Edmonson’s passengers filed suit against him and the Town in Superior Court, Troup County.  AMIC assigned defense counsel to represent its insureds. 

These suits ultimately resulted in judgments against Edmondson and the Town in the amount of $4 million.  Following their issuance, the Superior Court issued an order declaring that the limit of the Town’s liability policy, issued by AMIC, was $2 million rather than the $100,000 per occurrence limit under Alabama’s law limiting municipal liability. 

Unhappy with this determination, AMIC and its insureds commenced a separate declaratory judgment action in Alabama seeking a contrary decision.  They likewise filed a notice of appeal from the underlying litigation.  In response, the underlying plaintiffs filed a bad faith action against AMIC.  They sought recovery of the entire amount of the verdict, including the amounts in excess of the $2 million policy limit, based on AMIC’s failure to settle. 

AMIC tendered its defense in the bad faith lawsuit to Scottsdale.  NAMICO, acting as administrator for Scottsdale, received the bad faith lawsuit, acknowledged the claim, and immediately retained counsel to represent AMIC.  NAMICO elected to assign the same attorney to defend the bad faith action, and to assume handling of the appeal in the underlying litigation. 

When the claim was tendered, NAMICO’s Claims Manager also requested a copy of AMIC’s claims file.  Following his review of the file, NAMICO issued a reservation of rights letter listing certain policy exclusions that might negate Scottsdale’s duty to indemnify AMIC. The review raised serious doubts about whether the Alabama law limiting liability would apply.  This concern was echoed by the newly assigned defense counsel.  She also cautioned that if the appeal was unsuccessful AMIC liability could be close to $6 million. 

Nine days before the appeal was to be heard, the underlying plaintiffs offered to accept the $2 million policy limit.  In light of this offer, and NAMICO’s concerns as to the viability of AMIC’s legal argument, it felt that a $2 million settlement maybe the “best case.”  NAMCIO then met with AMIC’s Litigation Manager and President to express this position.  AMIC, however, advised that it felt the limit applied and that it did not want to settle the case. 

At this point, NAMICO invoked the “hammer clause” in the Scottsdale policy.  Facing the prospect of funding its own defense, AMIC suggested that it pay the first $200,000, and the remaining portion of the settlement would be split between AMIC and Scottsdale/NAMCIO.  Scottsdale/NAMICO eventually agreed, but reserved the right to recover their portion of the payment.  When Scottsdale filed a declaratory judgment action to determine each party’s respective obligations, AMIC counterclaimed for breach of contract and bad faith. 

In considering the cross-motions for summary judgment, the court discussed the breach of contract argument first and then the bad faith claim.  The court held that Scottsdale did not breach its contract by reserving its rights as the contractual liability exclusion did in fact apply to the bad faith claim against AMIC.  Moreover, Scottsdale was under no duty to indemnify AMIC for amounts paid under insurance contracts issued by AMIC and for which AMIC collected premiums.  The $2 million dollar settlement was compensation for a loss AMIC insured.   

The court then discussed the bad faith claim.  AMIC alleged normal bad faith, abnormal bad faith, and a breach of the enhanced duty of good faith.  The “normal” bad faith claim was based on Scottsdale’s alleged lack of an arguable reason for refusing to pay the $900,000 AMIC paid towards the settlement, and Scottsdale’s enforcement of the “hammer clause.”  To prove “normal” bad faith, the insured has to establish, among other things:  (1) the existence of a contract and a breach thereof; (2) an intentional refusal by the insurer to pay the insured’s claim; (3) the absence of a reasonably legitimate or arguable reason for that refusal; and (4) actual knowledge of this absence.  Here, without the most basic finding of a breach of contract, the elements could not be met. 

For abnormal bad faith, it must be proven that the insurer intentionally or recklessly failed to properly investigate or evaluate a claim.  It can also be established by a showing that the insurer created its own debatable reason for denying the claim or relied on ambiguous portions of the policy.  Here, contrary to AMIC’s assertions, NAMICO thoroughly investigated and evaluated the claim.  The relevant claims notes submitted by AMIC document numerous updates in the underlying litigation and demonstrate that defense counsel analyzed various legal strategies, including AMIC’s preferred method of attempting to apply Alabama’s limit on tort recovery against governmental entities. 

Finally, while AMIC asserted that Scottsdale violated its enhanced duty of good faith towards AMIC, based on it allegedly forcing AMIC to accept the plaintiff’s settlement offer, this likewise was not support by the record.  While AMIC claimed Scottsdale’s invocation of the “hammer clause” demonstrated a greater concern for Scottsdale’s monetary interest than AMIC’s, the court found that the enhanced duty of good faith did not preclude Scottsdale from invoking the “hammer clause.”  Acting in good faith does not mean requiring Scottsdale to gamble on AMIC’s legal theory.  If AMIC truly believed it would prevail on appeal, it was free to pay for the appeal to continue and defend itself in the bad faith action.  Should AMIC win, Scottsdale would have to reimburse AMIC for the costs of its defense.  Based on this record, it could not be said that Scottsdale was acting out of a greater concern for its own financial interest. 


Earl K. Cantwell

[email protected]

As between commercial or business entities, courts are increasingly willing to honor contractual limitations periods, even if they indirectly or directly contravene state Civil Procedure Laws.  Brisbane Lodging, L.P. v. Webcor Builders, Inc., 216 Cal. App. 4th 1249 (June 3, 2013).  Brisbane Lodging entered into a contract with Webcor Builders to design and construct a hotel.  A standard AIA form was used which provided that all causes of action relating to the contract work would accrue from the date of “substantial completion” of the project.  The hotel was substantially completed on July 31, 2000. 

Eventually, alleged problems and defects were found and in May, 2008.   Brisbane then sued Webcor.  The builder moved for summary judgment contending that the action was time-barred based on the contractual accrual date.  Webcor asserted that the statute of limitations began to run on the date of substantial completion, July 31, 2000.  The Trial Court ruled that the contractual provision clearly and unambiguously abrogated any “delayed discovery rule” with respect to latent defects in the California state procedural code and dismissed the action, granting summary judgment to Webcor. 

On appeal, the hotel argued that the “delayed discovery rule” should be applied since it was a plaintiff who (allegedly) did not learn of causes of action until post-construction.  However, the Appeals Court noted that many other states and authorities have enforced the relevant AIA provision holding it to be valid and enforceable.  The Appeals Court emphasized that this contract was freely entered into and negotiated by parties represented by legal counsel for a sophisticated commercial construction project.

The Appeals Court further noted that latent defects present unusually vexing statute of limitations problems due to just such arguments over when an owner discovers or “should have discovered” a defect.  The Appeals Court noted that the AIA contract tying the accrual of the statute of limitations to a date certain avoids the uncertainty surrounding the “discovery rule”, and provides a sense of security to the parties by setting a date beyond which they should no longer be exposed to potential liability.  The Court noted that parties should be allowed to “strike their own bargains” and voluntarily contract in a manner which may eliminate certain risks, but also eliminate or limit certain rights at the same time.
Based on such sentiments, the Appeals Court also rejected an argument that the contractual provision violated “public policy”.  Particularly where the parties are on an equal footing as sophisticated commercial contractors, the Appeals Court saw no reason why the parties should not be given the ability and freedom to contract and structure such risk shifting in a mutually agreeable manner.  The decision of the Trial Court dismissing the claim against the builder was affirmed.
The first lesson of this case is that courts are increasingly enforcing contractual statutes of limitations and similar provisions inserted to limit risk, or at least the time period over which risk may exist or accrue.  These provisions often directly or indirectly alter state procedural statutes such as statutes of limitations which might allow for longer periods of time.

Arguments that statutes designed to protect individuals should take precedence over such contract terms are less persuasive to the courts if the parties are commercial or business entities, as opposed to residential construction or consumer protection statutes.

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