Coverage Pointers - Volume XV, No. 8

Dear Coverage Pointers Subscribers:

Happy Canadian Thanksgiving and Columbus Day to those who celebrate.  It  is also World Egg Day, for those whose calendar of holidays is otherwise scrambled.  We celebrate all good holidays and in doing so, recognize the onset of autumn.  I prefer summer to continue but it refuses to cooperate.  We will be boarding up the summer home for the year and returning to the city house.  For those who know me well, you understand what a sad moment that is for me each and every year.

New York Insurance Association:

It was such a delight meeting new friends and old at the NYIA Effective Claims Management Seminar in Syracuse on Thursday.  Steve and I traveled out there and did presentations on contractual indemnity and additional insured issues as well as K2 Investments and its impact on defense obligations and strategy.  Thanks to Cassandra Anderson and Marc Craw for their warm hospitality and invitation and a warm welcome to several new Coverage Pointers subscribers.

DRI Annual Meeting:

Do hope to see many of you at the DRI Annual Meeting in Chicago next week.  The Federation of Defense & Corporate  Counsel is having a cocktail reception on Thursday the 17th.  If any of you are interesting in attending, let me know and I am sure I can wrangle an invitation. 

Mike’s Mini Missives:

The Appellate Division is back and going at full sprint.  The Courts issued about a dozen decisions for our entertainment and education this issue.  Despite the return to a feverish pace, it’s clear sailing on familiar waters—no boat rocking decisions.  However, as you will see, the defendants still took a beating, so let their broken hulls be a reminder for those of us that follow.

Frequently, in serious injury cases, expert reports are the key to a successful defense.  Frequently, in serious injury cases, bad expert reports wreck summary judgment motions after all the time, effort, and expense has been invested in pursuing the motion.  Although predicting outcomes is impossible, read the entire expert report and make an honest assessment of whether you have a sporting chance.  If the expert finds objective evidence of an injury, such as a disc bulge, and also provides range of motion measurements showing limited ranges of motion, that report will probably not support a motion for summary judgment. 

In this way, very detailed and lengthy expert reports can be dangerous if they are not reviewed carefully.  On the other hand, overly brief reports that contain little medical reasoning will also usually fail for being conclusory.  No matter how long the report is, it better be logically consistent, or it will not matter how much detail the report contains.

The Second Department issued a small barrage of cases denying defendants’ motions for summary judgment for failing to address every injury alleged by the plaintiffs.  While ultimately a loss, the defendants in these cases may not have failed at all.  It may be worth the investment in certain circumstances to get rid of as many claims for serious injury as possible, especially when the claims that survive are on weak factual ground.  This kind of motion may be just the trick to bring an overconfident plaintiff back to Earth and facilitate settlement.

Michael Scott-Kristansen
[email protected]

One Hundred Years Ago Today: Captain America’s Captain Born:

One hundred years ago today, Joe Simon was born and lived on to age 98. He was the first editor of Timely Comics, the company that would evolve into Marvel comics.  Along with Jack Kirby, Simon is credited with creating the champion of liberty, Captain America.  The cover of the first Captain America, published in March 1941, showed the flag-bound superhero punching Adolph Hitler in the face as he knocked the Fuhrer down to the ground.


One Hundred Years Ago, a Palindrome is Born:  “A Man, a Plan, a Canal – Panama!":

New York Times
October 11, 1913


Gamboa Dike Blown Away as
President in Washington Presses Button


Great Crowds Cheer as Waters of
Gatun Lake Pour Into Culebra
Cut — Col. Goethals Happy

Special Cable to The New York Times

PANAMA, Oct. 10.—With an explosion which shook the surrounding hills and threw huge rocks high into the air, eight tons of dynamite were set off this afternoon by President Wilson touching a button in Washington, more than 4,000 miles away.  Gamboa Dike, the last obstruction in the Panama Canal, was swept away, and the dream of centuries became a reality.

Following the explosion at two minutes past 2 o’clock the waters of Gatun Lake, which have been flowing slowly into Culebra Cut for the Last five days through five pipes thrust through the dike, rushed into the great cut, and the Panama Canal was completed except for the finishing touches and the dredging and widening of the channel.

Half an hour later, intrepid canal workers, who had been hovering about the lake in canoes, turned the noses of canoes and launches into the rapids caused by the water rushing into the cut, and while a great throng on the bank cheered wildly and the whistles of locomotives and dredges shrieked a prolonged, piercing salute, the first vessels to make the passage passed through in safety. 

Beth’s Banter:

Dear Subscribers:

It was wonderful to see so many of you at the New York State Bar Association Program, Law School for Insurance Professionals, held in New York City on October 4th and on Long Island on October 10th.  Both programs featured an excellent panel of insurance coverage and general liability attorneys, as well as Judge Silver of the Supreme Court, New York County, and Judge Farneti, of the Supreme Court, Suffolk County. 

This week, I bring you a California case discussing equitable subrogation and the right of an insurer to recoup defense costs paid when large soil subsidence claims were made against the insureds, as well as a New York Appellate case addressing discovery of a plaintiff’s Facebook page. 

Til next time,
Elizabeth A. Fitzpatrick
[email protected]

A Century Ago:  Mothers as School Teachers?  Perish the Thought:

New York Times
October 11, 1913
[Letter to the Editor]


Cannot Properly Perform Their
Duties as Mothers

To the Editor of The New York Times:

In the clamor raised against the dismissal of Mrs. Peixotto as a teacher, because she gave birth to a child, it seems to me the fundamental point is overlooked.  Her champions protect that her efficiency as a teacher was by no means affected by motherhood, but apparently no one thinks of the far greater question:  Is her efficiency as a mother affected by continuing as a teacher?
A body like the Board of Education of New York cannot afford to stand for any loss of efficiency on the part of mothers.  And since it has been proved that over three times as many hand-fed babies die as babies fed at the breast, it is clear that no woman can possibly remain efficient both as a mother and a teacher in the public schools.  The care of the infant is indeed only one phase of this important and complex problem.  Do we wish our public bodies of weight and influence in the community to declare that a mother’s duty to her offspring is not inconsistent with the daily outside work that demands the best and all the best that lies in a woman?

                                                                                    ANNIE NATHAN MEYER

Editor’s Note:  The author of that letter, Annie Nathan Meyer was a contradiction.  She ended up being the founder of Barnard College in New York City, the women’s college of Columbia University but a strident opponent of the women’s right to vote.

She was born in New York City, the daughter of Annie August and Robert Weeks Nathan. The Nathans are one of America's colonial-era Sephardic families. Meyer's childhood encountered many hardships as the Crash of 1873 damaged her parents’ financial status. In 1875 the family moved from New York to Green Bay, Wisconsin for employment opportunities.

Since she was withheld from public school by her mother's request, Meyer was self-educated and claimed to have read all of Dickens' work by the age of seven. Meyer tutored herself in order to enroll in the newly established Columbia College Collegiate Course for Women in 1885. The course did not recognize participants as fully enrolled students, for, at the time, Columbia University did not officially enroll women. On February 15, 1887, she married Alfred Meyer, a prominent physician and a second cousin.

Within weeks of her wedding, Meyer began organizing a committee to fund a women's college at Columbia in an effort to provide young women the opportunity for an education that she herself had not enjoyed. In January 1888, Meyer wrote a 2,500 word essay to The Nation arguing New York City lacked culture in comparison to other major cities because it lacked a liberal arts college for women. Meyer understood that the idea was nothing without funding. So, working with Ella Weed, she created a committee of fifty prominent New Yorkers willing to support the projected college. She overcame the opposition of the Columbia trustees with a brilliant maneuver: she named the college after F. A. P. Barnard, Columbia's recently deceased president and a strong advocate for coeducation. The college Meyer founded, Barnard College, is one of the Seven Sisters and ranks today as one of America's most elite colleges.

She later became known as an opponent of woman suffrage (in direct conflict to her sister and suffragist Maud Nathan.  Her objection to the suffrage movement appeared rooted in her concern that the platform of some of the suffragists was built on the notion that women getting the right to vote would "purify" politics. Also, "she said she was worried that uneducated people might use the vote improperly." However, once women gained the right to vote in 1920, she made efforts to promote continued quality education for women so they would make informed political decisions.

Peiper’s Personifications:

We start out this week by saying a hearty thank you to all of you who attended the NYIA conference today in Syracuse, NY.  Dan started the day off with a primer on assessing and handling third-party tenders.  I had the pleasure of speaking on New York’s Duty to Defend, and punishments arising out of K2.  It was a brand spanking new power point, and we are glad to report that the rollout went pretty smoothly.  Perhaps our IT Department should assist our friends in Washington who, as we have all heard, have had more than their share of IT problems over the past week or so. 

In any event, a while back David Adams and I kicked off our webinar programs with a Labor Law primer.  If any of you have an interest on our K2 program, please drop me a line.  If there is sufficient interest, we’d certainly consider putting another webinar together. 

Speaking of David, he had graciously made a guest appearance in this week’s Potpourri.  If you didn’t get David’s special edition of Labor Law Pointers earlier this afternoon, we republish it in my column.  As you can see, the Court of Appeals issued an interesting decision earlier today that discussed what the intended scope of the otherwise protected activity of “cleaning” is.    

By the way, if you don’t get Labor Law Pointers…what are you waiting for?

In addition to David’s column, we’d also invite you to take a gander at the Second Department’s decision in Grskovic v Holmes.  We singled out the Federal Government above, the Grskovic decision singles out the “glitches” that accompanied the NYS E-filing system.  Thankfully, the Second Department stepped in and saved an otherwise innocent plaintiff’s attorney from a bad malpractice claim. 

In summation, H&F IT Department = good…Fed and State IT Departments = not good.    That’s all we’ve got this week.  See you in two more.

Steven E. Peiper
[email protected]


In This Week’s Issue:

Dan D. Kohane
[email protected]

  • One Declaratory Judgment Action Is Enough; We Don’t Need Two
  • MVAIC Claim (Uninsured Motorist) Fails Where Petitioner Fails to Establish That the Accident Was One Where Driver and Owner Were Unknown.


Michael P. Scott-Kristansen

[email protected]

  • Aggravation of Plaintiff’s Asymptomatic Pre-Existing Condition May Be Serious Injury
  • Defendant Met Burden for Every Injury Alleged by the Plaintiff
  • Plaintiff Only Needs Enough Evidence to Create a Question Regarding One Injury to Avoid Dismissal
  • Defendants’ Motion Denied for Failure to Address 90/180-Day Injury
  • Defendant’s Motion to Dismiss Permanent Loss of Use Claim Denied as Untimely
  • Conclusory Opinions From Experts Will Not Carry a Party’s Burden
  • Defendant Will Fail to Meet Its Burden, Even Where the Evidence Is Sufficient, if Contradictions Are Found in Defendant’s Evidence


Margo M. Lagueras

[email protected]


  • Submission of the AR-1 Is Not the Equivalent of Submitting a Claim
  • Procedure for Drug Screening Did Not Constitute Double Billing
  • Respondent’s Failure to Support Assertion Through Employer Statement Results in Wage Loss Award
  • Claim for Wage Loss Denied Due to Inconsistencies in Applicant’s Proof
  • Delay in Including New AMA CPT Code in WC Fee Schedule Allows Provider to Bill Under Two Codes
  • IME Performed Two Years Prior to Surgery Provided Insufficient Basis for Denial


Steven E. Peiper

[email protected]

  • Increased Expenses Due to Code Enforcement Falls Within Policy Exclusion
  • Coverage for Losses Arising from Computer Hackers did not Apply to Fraudulent Claims Submitted by Authorized Users



  • High Court Weighs In on Definition of Cleaning For Labor Law § 240 Purposes
  • Glitch in E-Filing Remedied by CPLR §2001


Elizabeth A. Fitzpatrick
[email protected]

Fitz’ Bits:

  • Facebook Page Subject to In-Camera Review
  • Equitable Subrogation Dictates that Insurer Reimburse Defense Costs Paid By Another Insurer


Audrey A. Seeley
[email protected]

  • Under LIGA Act, in Long-Tail, Continuous Trigger Case Involving Solvent and Insolvent Insurers, the Solvent Insurer’s Policies Must Exhaust Before Insolvent Insurers Contribute


Cassandra A. Kazukenus
[email protected]

  • All Quiet on the Capital Front


Katherine A. Fijal

[email protected]

  • Are Defense Costs Exclusive of Policy Limit?


Jennifer A. Ehman
                                                    [email protected]     

Bad Faith

  • No Bad Faith under California Law Where Injured Party Did Not Communicate to the Insurer an Interest in Settlement
  • Can “Abnormal” Bad Faith Exist in Alabama in the Absence of “Normal” Bad Faith?


Earl K. Cantwell

[email protected]



Keep those cards and letters and e-mails coming in.

All the best.



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]

10/09/13         Scottsdale Ins. Co. v Indemnity Ins. Corp. RRG
Appellate Division, Second Department
One Declaratory Judgment Action Is Enough; We Don’t Need Two
Ward was hurt in a nightclub operated by MGM and sued MGM and its security company, Alpha. In accordance with Alpha’s contract with MGM, Alpha obtained a policy of insurance with Scottsdale, naming MGM as an additional insured. MGM had its own policy with Indemnity.

When Indemnity was notified of the Ward action, it tendered the defense to Scottsdale.  Scottsdale refused to defend MGM.  Indemnity started a declaratory judgment action seeking a determination that Scottsdale’s coverage went first. Scottsdale then started this declaratory judgment action seeking a ruling that Indemnity’s policy was primary.

Indemnity moved to dismiss this Scottsdale lawsuit on the grounds that the Indemnity lawsuit was first commenced and all of the issues can be resolved in that action.  The Second Department agreed that one lawsuit on the issue of coverage was quite enough and dismissed this one.

10/09/13         Matter of Harrison v. MVAIC
Appellate Division, Second Department
MVAIC Claim (Uninsured Motorist) Fails Where Petitioner Fails to Establish That the Accident Was One Where Driver and Owner Were Unknown.
Claim against the Motor Vehicle Accident & Indemnification Corporation failed because Harrison failed to demonstrate, in the petition, that the accident was one in which the identity of the owner and operator of the subject motor vehicle was unknown.

Michael P. Scott-Kristansen
[email protected]

10/04/13         Fanti v. McLaren
Appellate Division, Fourth Department
Aggravation of Plaintiff’s Asymptomatic Pre-Existing Condition May Be Serious Injury
The defendants appealed the denial of their motion for summary judgment.  The Court largely upheld the denial.  Without examining whether the defendants met their burden, the evidence submitted by the defendants as well as the plaintiff’s deposition testimony showed that the accident exacerbated the plaintiff’s pre-existing degenerative disc disease. 

The Court was careful to point out that the plaintiff’s disc disease was asymptomatic before the accident.  This should remind defendants not to rest on an expert’s opinion that a condition is pre-existing where there is evidence that the condition was previously asymptomatic and the plaintiff now suffers from some kind of limitation.

The Court did dismiss the plaintiff’s claim for permanent loss of use, however, because the plaintiff abandoned this claim.  Either party may abandon a claim or defense by failing to oppose an order or ruling against it.

10/02/13         Cox v. Sisti
Appellate Division, Second Department
Defendant Met Burden for Every Injury Alleged by the Plaintiff
The plaintiff was struck by the defendant as the plaintiff crossed the street in a crosswalk.  The plaintiff alleged that he sustained serious injuries to his cervical spine, lumbar spine, elbows, and right knee as well as a 90/180-day injury.  The defendant met his burden of demonstrating that every injury alleged by the plaintiff was not sufficiently serious, so his motion for summary judgment dismissing the complaint was granted.

10/02/13         Stanley v. Caddie Service Co.
Appellate Division, Second Department
Plaintiff Only Needs Enough Evidence to Create a Question Regarding One Injury to Avoid Dismissal
The defendants met their burden of demonstrating that the plaintiff’s shoulder, cervical, and lumbar injuries were not permanent consequential or significant limitations of use injuries.  The Court denied the defendants’ motion seeking to dismiss the complaint, however, because the plaintiff’s evidence created a question as to his shoulder injury.

10/02/13         Vacchio v. Thaler
Appellate Division, Second Department
Defendants’ Motion Denied for Failure to Address 90/180-Day Injury
The defendants’ failed to meet their burden on their motion seeking dismissal of the complaint because the defendants failed to fully address the plaintiff’s allegation in his bill of particulars that he sustained a 90/180-day injury.

This case is a simple statement of the rule that defendants must meet their burden for every alleged category of serious injury as to every allegedly injured body part to succeed in dismissing the complaint.  The Court addressed this situation repeatedly these last two weeks in the following cases:

            10/02/13         Dozier v.Lee
            Appellate Division, Second Department

            10/02/13         Edwards v. Prescott Cab Corp.
            Appellate Division, Second Department

            10/02/13         Youn Koo Lyu v. Aleksandr
            Appellate Division, Second Department

            10/02/13         Foster v. Franco
            Appellate Division, Second Department

09/27/13         O'Brien v. Bainbridge
Appellate Division, Fourth Department
Defendant’s Motion to Dismiss Permanent Loss of Use Claim Denied as Untimely
This one is not a true serious injury threshold case, but those of you concerned with litigation procedure should read on.  The plaintiff’s claim was premised on five different categories of serious injury, including permanent loss of use.  The defendant moved for summary judgment but neglected to include an argument that the permanent loss of use claims should be dismissed.  The Court held that the defendant could not move again to address the permanent loss of use claim.  More than 120 days had passed since the filing of the note of issue and the defendant failed to show good cause for his delay.

09/27/13         Clarke v. Dangelo
Appellate Division, Fourth Department
Conclusory Opinions from Experts Will Not Carry a Party’s Burden
The lower court granted the defendants’ motion for summary judgment.  The plaintiff alleged that he sustained a (1) permanent loss of use, (2) permanent consequential limitation of use, (3) significant limitation of use, and (4) a 90/180-day injury.

Because the plaintiff failed to raise any arguments to the Appellate Division regarding the permanent loss of use category, the Court deemed that category of injury abandoned.    As for the limitation categories (2 and 3), the defendants met their burden by submitting an affirmed report from a physician who examined the plaintiff.  The report explained the conclusion that the plaintiff suffered only a sprain/strain that resolved.  The report also stated that diagnostic tests showed preexisting degenerative changes unrelated to the accident.  The plaintiff’s expert, on the other hand, failed to explain his or her conclusions.  The Court held that that the plaintiff failed to carry her burden and that the defendants were entitled to summary judgment.

The Court further held for the defendants on the 90/180-day category, stating that the plaintiff once again failed to carry his burden after the defendants met theirs.

09/27/13         Summers v. Spada
Appellate Division, Fourth Department
Defendant Will Fail to Meet Its Burden, Even Where the Evidence Is Sufficient, if Contradictions Are Found in Defendant’s Evidence
The defendants’ own evidence cost them this motion.  The defendants’ expert’s opinion revealed that he agreed that there was objective evidence of an injury evident from the plaintiff’s imaging studies.  The expert also provided quantitative measurements of the plaintiff’s loss in range of motion.  The expert, therefore, created an issue of whether the injury was serious.

The expert also created an issue of fact regarding causation.  He opined that the abnormalities in plaintiff’s imaging studies were age-related; however, he also concluded, at the same time, that all the plaintiff’s medical conditions were causally related to the incident.

The defendants failed to meet their burden on the remaining 90/180-day injury because the defendants submitted evidence that showed the plaintiff, consistent with a chiropractor’s instructions, had missed work and worked with limited duties.

Margo M. Lagueras

[email protected]


10/01/13         Applicant v. Geico Insurance Co.
Erie County, Arbitrator Douglas S. Coppola
Submission of the AR-1 Is Not the Equivalent of Submitting a Claim
Although we are all aware of this, and understand the rationale behind it, it is surprising to see how often applicants still continue to try.  In this case, Respondent contended that Applicant never submitted the bills for reimbursement within 45 days of the services.  Moreover, it appeared from the record that Applicant’s health insurance paid the bills and was, in effect, attempting to recuperate through subrogation against the carrier.  That being the case, the Arbitrator found that Applicant had no standing to bring the arbitration and agreed with the carrier that the submission of an AR-1 was not the equivalent of submitting a claim under the pertinent regulations.  Applicant’s submission was limited to a chronology of billings, with no details or indication that the services rendered were actually related to the motor vehicle accident.  Accordingly, Applicant’s claim was denied.

10/01/13         RES Physical Medicine & Rehab. Servs. v. Geico Insurance Co.
Erie County, Arbitrator Douglas S. Coppola
Procedure for Drug Screening Did Not Constitute Double Billing
Applicant prescribes narcotic medications to its patients and performs drug screening to ensure compliance with New York State and FDA regulations.  A DrugSmart Cup is used to perform a preliminary toxicology screen in Applicant’s office.  This is the first step in a two-step process.  The second step involves sending the results and the Cup to Ameritox to perform a gas chromatography for mass spectrometry testing, following which the Cup is destroyed as medical waste.  Applicant bills the carrier for its in-office procedure. 

Upon receipt of the billings, Respondent requested verification and continued to send verification requests to Applicant, requesting that the Cups be sent to it, something Applicant explained repeatedly that it could not do.  The Arbitrator determined that the record established that Applicant unequivocally administered the screenings on each date of service claimed.  As such, Applicant did not “double bill” for the services as the drug kits had to be sent, by secured transport, to the outside lab for confirmation.  This is in compliance with procedures which conform to State and Federal law and DEA policies and procedures dictating that toxicology screening must be performed.

10/01/13         Applicant v. A. Central Insurance Co.
Erie County, Arbitrator Douglas S. Coppola
Respondent’s Failure to Support Assertion through Employer Statement Results in Wage Loss Award
Applicant was a 28-year-old employee crew member at Mighty Taco who was injured in a motor vehicle accident in July 2010.  During the hearing, he testified that he had not returned to work because his job required lifting heavy boxes of frozen foods as well as standing and cooking.  He further testified that his job had no “light duty” available.  In addition, he stated that a lumbar anterior discectomy and fusion at L5-S1 had been canceled due to the carrier’s denial.

Respondent’s orthopedic specialist examined Applicant four times and found range of motion deficits, mild muscle spasms and tenderness and diagnosed, in his final IME report that the cervical and lumbar sprains were resolving.  Respondent seemed to suggest that it had documentary evidence that Applicant’s employer had indicated that it would make accommodations to allow “light duty” work.  However, there was no evidence in the records and even when provided with an opportunity to upload such documentation to the ECF, Respondent did not provide anything.  Therefore, the Arbitrator had to assume that Respondent did not have such documentation before it issued the denial and Applicant was therefore awarded the claimed wage loss.

09/30/13         Applicant v. State Farm Fire and Casualty Company
Erie County, Arbitrator Kent L. Benziger
Claim for Wage Loss Denied Due to Inconsistencies in Applicant’s Proof
Applicant sought wage loss benefits from October 9, 2007, through September 20, 2009.  He was involved in two accidents, the first in 2006 and the second in 2007.  There were several issues in contention including the number of hours allegedly worked, the fact that one of his treating providers had cleared him for work, and the evidence which seemed to indicate that he did work during the period in dispute.  In addition, there was the potential issue of apportionment between the two accidents.

Applicant’s treating chiropractor noted that he was able to return to work without restrictions in November 2007.  In a narrative report dated February 2010, the chiropractor noted that Applicant had stated that he was off work from November 2006 through November 2007 and had returned to work in varying positions as an auto mechanic since then.  Applicant also submitted records from 2012 and 2013, when he underwent a left-sided L5-S1 discectomy. 

In August 2007, Dr. Inslicht performed an IME.  He found a causal relationship between the injuries sustained and the 2006 accident, but noted normal range of motion in the upper and lower extremities, except for left hip flexion, and normal range of motion of the cervical spine.  He found no need for additional physical therapy or injections and Respondent issued a denial for all additional chiropractic, physical therapy, injections, massage, acupuncture and other physical medicine and rehabilitation. 

The Arbitrator denied Applicant’s lost wage claim because numerous issues created questions about the credibility of the claim.  First, the treating chiropractor found that Applicant could return to unrestricted duty in November 2007.  While there was no dispute that Applicant at least aggravated a pre-existing condition, the Arbitrator noted that even where the injured person is unable to perform the same job responsibilities as prior to the accident and is forced to work at a reduced rate, the applicant must nevertheless document those earnings as an offset for a wage loss claim.  Applicant had the burden of establishing his claim, “which includes documenting not only proof of lost wages, but also being forthright and providing evidence where he worked during the period in dispute with dates and amounts paid.  This was not done.”  The Arbitrator also found documentation for medical treatment entirely unrelated to the 2007 accident and noted that no medical provider had given a percentage apportioning the Applicant’s condition between the two accidents. 

Furthermore, the Arbitrator noted that in response to Respondent’s showing of overpayments, Applicant’s counsel argued, without any evidence, that Applicant worked overtime and was owed the additional money.  The Arbitrator stated that even if Applicant were due any additional earnings, that amount was more than offset by Respondent’s overpayments. 

The Arbitrator further commented on Applicant’s counsel’s periodic submission of voluminous medical records from 2006 through 2013, well past the period in dispute.  He noted that despite all the late submissions, there were few medical records discussing disability and no disability notes as to the period from October 2007 to September 2009.  The Arbitrator also questioned whether Applicant’s counsel had reviewed the additional records prior to their submission because among them was the chiropractor’s narrative that noted the Applicant was working during the period in dispute.  If the narrative was incorrect, Applicant should have obtained a corrected narrative as well as narratives from other treating providers commenting on his disability during the period in dispute.

Note:  Our own Jennifer Ehman represented the Respondent in this very complex wage loss matter.

09/30/13         Buffalo Neurosurgery Group v Geico Insurance Co.
Erie County, Michelle Murphy-Louden
Delay in Including New AMA CPT Code in WC Fee Schedule Allows Provider to Bill Under Two Codes
This matter was re-assigned on remand from Master Arbitration on issues relating to collateral estoppel and the fee schedule.  With regard to collateral estoppel, days before this matter was originally heard, another arbitrator had rendered an award against Respondent in a matter brought by another provider but with the same EIP and based on the same peer review (found to be insufficient).  In this case, however, the arbitrator upheld the peer review and Applicant appealed.  The Master Arbitrator also found the peer review insufficient and remanded the case for a new hearing before another arbitrator on the issue of the fee schedule.

Arbitrator Murphy-Louden noted that the only dispute involved CPT 63075.  Respondent argued that, pursuant to the AMA’s guidelines, CPT 63075 was not to be reported with CPT 22554, even if performed by separate providers.  Applicant argued that according to the Workers’ Compensation fee schedule, the new AMA guideline regarding billing CPT 63075 with CPT 22554, and substituting instead CPT 22551, did not take effect until June 1, 2012, after the billing in dispute.  The Arbitrator agreed that even though the AMA’s guideline was changed in 2011, it was not included in the Workers’ Compensation fee schedule until the new version of June 1, 2012.  As the disputed billing took place two months before CPT 22551 became applicable, Applicant was entitled to bill both CPT 22554 and 63075.

09/27/13         Zair Fishkin MD v A. Central Insurance Co.
Erie County, Arbitrator Douglas S. Coppola
IME Performed Two Years Prior to Surgery Provided Insufficient Basis for Denial
The accident happened in December 2010.  MRIs revealed multiple disc herniations from C3 through C7 and EMG studies were also positive.  In January 2013, the EIP underwent a three-level fusion. 

In 2011, Dr. Scarpinato performed an examination and found the sprains completely resolved.  Although she reviewed the MRIs and EMG, she did not comment on the positive findings.  Following the surgery, Respondent chose not to forward any of the post-IME reports to Dr. Scarpinato for further review and comment as to causal relationship.  The Arbitrator determined that the IME report of 2011, which failed to address the diagnostic testing, was not an adequate basis to deny the surgery.  Furthermore, given that there was no active treatment at the time of the accident, and the records reflected slow but steady improvement, the ongoing care was reasonable and necessary.
See also,  AAA Case No. 412013034983, Buffalo Neurosurgery Group v. Allstate Property and Casualty Insurance Company, Arbitrator Kent L. Benziger, Erie County, September 30, 2013.

Steven E. Peiper

[email protected]

09/26/13         Conley & Tibbitts Props., LLC v. Leatherstocking Coop. Ins. Co.
Appellate Division, Fourth Department
Increased Expenses Due to Code Enforcement Falls Within Policy Exclusion
Plaintiff insured a building with Leatherstocking in Oneida County.  After a fire caused significant damage to the premises, NYS code required that an asbestos inspection before performed prior to any estimated repairs. That inspection turned up the existence of asbestos which resulted in a costly remediation project.

Plaintiff sought coverage for both the fire damage, as well as the asbestos abatement work.  Leatherstocking agreed to pay for the losses associated with the fire, but denied any additional expense arising out of the need to bring an older building “up to code.”  In affirming the denial, the Appellate Division held that the exclusion relied upon by Leatherstocking unambiguously applied to the asbestos costs. 


10/01/13         Universal Am. Corp. v. Nat. Union Fire Ins. Co. of Pittsburgh Appellate Division, First Department
Coverage for Losses Arising from Computer Hackers did not Apply to Fraudulent Claims Submitted by Authorized Users
Plaintiff sustained losses when it discovered doctors and other health care providers submitted claims to a computer payment system.  The problem occurred when it was revealed that certain of the claims submitted were not actually provided.  Plaintiff submitted the claim for coverage under its “Computer Systems Rider.”

National Union denied the claim on the basis that the Rider only provided coverage for losses arising out of fraudulent data entry or change of electronic data within the computer system.  National Union supported its position by establishing that Rider was meant to apply to losses caused by computer hackers.  It was not, as urged by plaintiff, meant to cover fraud losses perpetrated by authorized users of the system.

The Appellate Division agreed, and affirmed National Union’s denial. 


10/10/13         Soto v. J. Crew Inc.
Court of Appeals
High Court Weighs In on Definition of Cleaning For Labor Law § 240 Purposes

***Guest Commentary by Self Proclaimed Labor Law Nerd, David Adams***

I love this case.  It is the perfect application of logic to an otherwise illogical area of the law.  Here the plaintiff, an employee of a commercial cleaning company who was assigned to clean that specific store on a daily basis was dusting a six foot high wooden shelf when he and the ladder fell over causing injury to the plaintiff.  Cleaning is, of course, an enumerated activity under 240(1) of the labor law and so, the plaintiff argued; his fall from a ladder should be a covered event.

The key to this case is the question of whether this type of cleaning is a covered activity.  The court refers to its decision in Dahar v. Holland Ladder where it used an analogy to illustrate their decision not to extend the Labor Law to cover cleaning as a portion of the manufacturing process.

Indeed, the logic of plaintiff's argument here would expand the protections of Labor Law § 240 (1) even beyond manufacturing activities; the statute would encompass virtually every "cleaning" of any "structure" in the broadest sense of that term. Every bookstore employee who climbs a ladder to dust off a bookshelf; every maintenance worker who climbs to a height to clean a light fixture—these and many others would become potential Labor Law § 240 (1) plaintiffs. We decline to extend the statute so far beyond the purposes it was designed to serve.  Dahar v. Holland Ladder

The Court in Soto v J. Crew Inc. reaffirmed that commercial window washing is a covered activity, a position which makes logical sense.  Commercial window washers, like construction workers, are routinely exposed to elevation related risks which the remainder of the population simply is not.  The Court here lists the 4 factors to be analyzed to determine if the activity is cleaning as contemplated within the Labor Law. 

Per the Court of Appeals “an activity cannot be characterized as "cleaning" under the statute, if the task: 1) is routine, in the sense that it is the type of job that occurs on a daily, weekly or other relatively-frequent and recurring basis as part of the ordinary maintenance and care of commercial premises; 2) requires neither specialized equipment or expertise, nor the unusual deployment of labor; 3) generally involves insignificant elevation risks comparable to those inherent in typical domestic or household cleaning; and 4) in light of the core purpose of Labor Law § 240(1) to protect construction workers, is unrelated to any ongoing construction, renovation, painting, alteration or repair project.”

The Court went on to hold that the determination of whether the task was cleaning under 240(1) is for the court and thus appropriate for a Summary Judgment decision and is not thus a decision for the jury.  The court did, however, leave some discursion to the courts holding that “The presence or absence of any one is not necessarily dispositive if, viewed in totality, the remaining considerations militate in favor of placing the task in one category or the other.”

You may recall that I wrote on this same case when it came out of the First Department last year and continue to agree that it is a logical and appropriate decision.  This is simply not the type of accident that the Labor Law was promulgated to protect against. 

PRACTICE POINT:  Know the four elements necessary to determine if the cleaning is a covered task under the Labor Law.  Seemingly if these four elements are present it is not a Labor Law case.  The elements are; is the cleaning routine and regular, does it require specialized equipment or expertise, does it generally require insignificant elevation risk and is it unrelated to construction.  While there was some discretion built into the decision, remember that this is a decision for the court and not for a jury. 

10/09/13         Grskovic v  Holmes
Appellate Division, Second Department
Glitch in E-Filing Remedied by CPLR §2001
Logic wins again.  If any of you disagree with this opinion, karma has a way of paying even the strongest cynic back.  On May 30, 2008, Plaintiff was injured when the vehicle in which he was travelling was struck by Mr. James Cecere.  After repeated efforts to resolve the case with Mr. Cecere’s carrier, plaintiff’s counsel drafted a Summons and Complaint in April of 2011.  On April 25, 2011, plaintiff’s counsel forwarded the documents, along with check for an Index Number, to Gotham Claims Service. 

Gotham was told that it could not purchase an Index Number because effective March 1, 2011 all new actions had to be electronically filed.  On May 2, 2011, plaintiff’s counsel was advised of this change, and on May 4, 2011 plaintiff’s counsel obtained a temporary e-filing account with the Westchester County Clerk’s Office. 

On that same day, plaintiff’s counsel “filed” an electronic version of the Summons and Complaint.  During the process, plaintiff also appeared to have submitted payment of $210.00 to cover the costs of the Index Number.  Also on May 4, 2011, plaintiff’s counsel was advised by way of e-mail that the procedure had been successful.  Specifically, the e-mail from Westchester County stated, in boldface type, “Confirmation” and “the NYSCEF website has received the document(s).”

The very next day, May 5, 2011, plaintiff’s counsel’s office contacted the Westchester County Clerk’s Office to obtain the actual Index Number which had not been assigned.  Counsel was advised by the Clerk’s Office that the documents had not gotten “to their office yet.”  On June 2, 2011, plaintiff’s counsel advised the Clerk’s Office that they could no longer access the attorney’s e-filing account.  At that time, counsel’s office was advised that he had been issued a temporary training account, and that his document had not actually been timely filed with the Clerk’s Office.

On June 8, 2011, plaintiff’s counsel moved under CPLR 2001 for leave to re-file the suit papers in light of the technical defect in his attempted filing.  The trial court denied the motion noting that CPLR only forgave technical infirmities.  Section 2001, however, did not permit the Court to waive jurisdictional violations without the consent of defendant. 

In reversing the trial court, the Appellate Division noted that CPLR 2001 permits a Court to remedy mistakes “upon such terms as may be just.”  In so holding, the Court is also permitted to “disregard” mistakes, but such a decision requires a greater level of scrutiny by the Court.  Disregarding mistakes also requires that the movant establish that the opposing party was not prejudiced by the mistake.  Here, of course, defendants would have been prejudiced had the Court “disregarded” the errors in e-filing the Summons and Complaint.  Because the Court noted that it was simply a correction of a mistake, the lower level of scrutiny was appropriate and justice certainly called for reinstituting the action. 



Elizabeth A. Fitzpatrick
[email protected]

Fitz’ Bits:

09/27/13         Imanverdi v. Popovici
Appellate Division, Fourth Department
Facebook Page Subject to In-Camera Review
In Imanverdi v. Popovici, 2013 W.L. 539 7373 (4th Dep’t 2013), the Fourth Department in New York affirmed the determination of the Trial Court, which directed the plaintiff to produce the contents of a Facebook page for an in-camera review and denied their cross-motion for a protective order.  The court did not provide the details of the action, but simply noted that the Trial Court has broad discretion in supervising the discovery process and its determinations will not be disturbed absent an abuse of that discretion. 

09/27/13     American Safety Ind. Co. v. Admiral Insurance Co.
California Court of Appeal
Equitable Subrogation Dictates that Insurer Reimburse Defense Costs Paid By Another Insurer
Addressing underlying subsidence litigation and including allegations of bad faith, in American Safety Indemnity Company v. Admiral (hereinafter ASIC), the Court of Appeals of California had the opportunity to address those issues and to analyze the principle of equitable subrogation.  Initially, the court considered the language of the self-insured retention (SIR) clause included within the policy and determined that the payment of the $250,000 SIR was not a condition to the insurer’s broader obligation to provide a defense when an arguably covered claim was tendered.  The court found that given the language at issue, an insured could reasonably interpret it as providing a defense to arguably covered claims as soon as such claims were tendered and before any SIR has been paid.  As a result, they found that the defendant insurer, in the equitable subrogation action, had a duty to defend its insureds when large soil subsidence claims were made against them, without regard to the SIR provisions.  Since the defendant insurer had a duty to defend their insured, the principle of equitable subrogation required them to reimburse the defense costs of another insurer.

The underlying litigation involved claims by homeowners of physical damage to their property caused by landslides, which they contended were the result of grading of work done by Zephyr Newhall, LP and Zephyr Partners, LLC, who worked with a developer, D.R. Horton, Inc. (hereinafter Holding) to build housing on tract land which Zephyr owned.  At the time of the work, Holding was insured by Admiral, while a contractor, Ebensteiner, who was hired to grade the tract land, was insured by ASIC.  Both policies limited coverage to $1,000,000 per occurrence.  The Admiral policy included a provision designating it excess over the ASIC coverage.  The ASIC policy also afforded coverage to Holding as an additional insured.  After Holding tendered its defense of one of the claims to ASIC, who initially declined to afford coverage, they filed a bad faith lawsuit.  That suit was ultimately settled and, under the terms of the settlement, ASIC agreed to pay Holding’s defense costs.  ASIC and Admiral each contributed their respective policy limits of $1,000,000 to the settlement and ASIC, thereafter, asked Admiral to contribute to the defense costs that ASIC incurred on behalf of Holding.

Admiral refused and ASIC filed a declaratory judgment action.  In that action, ASIC alleged that Admiral was obligated to reimburse ASIC a pro rata share of the $2,000,000 on Holding’s defense.

The court discussed the elements of an insurer’s cause of action for equitable subrogation, to wit, the insurer suffers a loss for which the defendant is liable, the claimed loss was one for which the insurer was not primarily liable, the insurer has compensated the insured in whole or in part for the same loss for which the defendant is primarily liable, the insurer has paid the claim of its insured to protect its own interests and not as a volunteer, the insured has an existing assignable cause of action against the defendant, which the insured could have asserted for its own benefit had it not been compensated for its loss by the insurer, and the insurer has suffered damages caused by the act or omission upon which the liability of the defendant depends, justice requires that the loss be entirely shifted from the insurer to the defendant, whose equitable position is inferior to that of the insurer and the insurer’s damages are in a liquidated sum, generally, the amount paid.  Subrogation is purely derivative and, as such, an insurer entitled to subrogation is in the same position as an assignee of the insured’s claim and succeeds only to the rights of the insured’s standing in its insured’s shoes. 

Admiral’s principal argument was that it did not owe the Horton entities a defense obligation.  In rejecting this contention, the court found that a satisfaction of the SIR was not a condition of Admiral’s duty to defend.  It further rejected Admiral’s argument that ASIC waived its right to subrogation or acted as a volunteer.  Thus, the court affirmed the Trial Court’s determination and held that ASIC was entitled to recover.



Audrey A. Seeley
[email protected]

9/24/13           Farmer Mut. Fire Ins. Co. v. New Jersey Ins. Guar. Assoc.
Supreme Court, New Jersey
Under LIGA Act, in Long-Tail, Continuous Trigger Case Involving Solvent and Insolvent Insurers, the Solvent Insurer’s Policies Must Exhaust Before Insolvent Insurers Contribute
The central issue in this decision is whether the exhaustion provision under the New Jersey Property-Liability Insurance Guaranty Association Act (“PLIGA”) applies, instead of the Owens-Illinois methodology, for long-tail, continuous trigger cases involved solvent and insolvent insurers.  The New Jersey Supreme Court held that it does.

The PLIGA Act was created to mitigate the financial distress to insureds and claimants faced with insolvent insurers.  The PLIGA Act also created the New Jersey Property-Liability Insurance Guaranty Association (“Guaranty Association”) which is a private, not-for-profit association with members that are insurance companies licensed to issue certain New Jersey insurance policies, including property insurance.  The Guaranty Association assesses members in amounts that are necessary to pay covered claims of insolvent insurers.  Those assessments are then recouped by insurers who pass them on to policyholders via policy premiums.  The Guaranty Association is obligated to stand in the insolvent insurer’s place and afford coverage up to the policyholder’s limits, subject to a $300,000 maximum liability.

The PLIGA Act contains an exhaustion provision which requires a claimant to first exhaust the policy of a solvent insurer before the Guaranty Association will contribute.  In 2004, the PLIGA Act was amended to include an exhaustion definition that the Court noted repeated almost verbatim the language in Owens-Illinois, which refers to the continuous trigger-doctrine.

The Owens-Illinois case established a continuous trigger methodology for ensuring that, in toxic property contamination cases, there was insurance coverage available to the maximum extent possible.  Further, in terms of allocation of remediation costs, a proration scheme was adopted under Owens-Illinois.  Therefore, an insurer’s allocable share depended on the time on the risk and the degree of the risk assumed.  The Court expressly observed in Owens-Illinois that this was not the last word on the subject and over the years this methodology has been adjusted and refined to different circumstances.

In the situation where there are solvent and insolvent insurers on a long-tail environmental claim, the Owens-Illinois methodology will not apply.  Rather, the PLIGA Act’s plain meaning provides that, in the solvent and insolvent insurer situation for a continuous trigger case, the exhaustion provision requires the solvent insurers’ policy limits, in all other years, to exhaust before the Guaranty Association is obligated to contribute. 

Importantly, the Court rejected the argument that the 2004 amendment to the PLIGA Act violated the Federal and State Constitutions as the law impaired the obligation of contracts.  The Court reasoned that legislation unconstitutionally impairs a contractual obligation if three criteria are met:

  • Substantial impairment of a contractual relationship;
  • Lack of a significant and legitimate public purpose; and
  • The legislation is based upon unreasonable conditions and is unrelated to appropriate governmental objectives.


The Court held that none of the three prongs were satisfied.  Insurance is a highly regulated industry thus there is no contractual expectation.  The industry has been on notice that the Owens-Illinois methodology is not the last word on allocation.  Therefore, it could be anticipated that legislation could ensue.  Further, when looking at the public policy implications of the PLIGA Act, it was intended that the Guaranty Association be the last resort payor due to limited resources available requiring conservation of same to achieve the PLIGA Act’s goal. 

Cassandra A. Kazukenus
[email protected]

All quiet in the Capital District this week.

Katherine A. Fijal
[email protected]

09/30/13         Utica Mutual Ins. Co. v. Mutual Reinsurance America, Inc.
United States District Court Northern District New York
Are Defense Costs Exclusive of Policy Limit?
Utica Mutual Insurance Company [“Utica”] was the insurer to Goulds Pumps, Inc. [“Goulds”] a manufacturer of pumps which allegedly incorporated asbestos.  Utica issued a number of policies to Goulds, among which was an umbrella liability policy which was effective from July 1, 1973 to July 1, 1974.  The umbrella policy had a liability limit of $25 million per occurrence or in the aggregate.  Utica entered into a facultative contract of reinsurance [“Certificate”] with Munich Reinsurance America, Inc. [“Munich”] covering part of the umbrella policy.  The Certificate had a $5 million limit of liability.

Numerous asbestos related bodily injury claims had been asserted against Goulds.  In 2006 or 2007, Goulds and Utica reached a settlement agreement regarding Goulds’ claims for coverage under the umbrella policy and other policies.  Utica paid a portion of Goulds’ losses and defense costs pursuant to the settlement agreement.  Munich, pursuant to the Certificate, reimbursed Utica for $5 million of loss and expense payments made by Utica to Goulds under the umbrella policy.

Both parties acknowledge that:  (1) the Certificate requires Munich to reimburse Utica for expense payments; (2) the Certificate has a $5 million limit of liability; and (3) Munich has already reimbursed Utica for $5 million dollars of losses and expenses.  This dispute centers on whether Munich’s expense payments are subject to the limit of liability or whether Munich is obligated to pay for expenses in excess of that limit.

Munich contends that the limit of liability is expense inclusive.  Utica argues that Munich has not demonstrated that the Certificate’s limit of liability is expense inclusive because:  (1) Munich has not established the actual terms of, or applicable law governing, the Certificate; and (2) even if Munich has established the terms of the Certificate, the Certificate either unambiguously excludes expenses from the limit of liability or is ambiguous and must be interpreted using extrinsic evidence.

The Court first addressed the authenticity of the Certificate and determined that Utica’s argument was unavailing because Utica essentially admitted to the authenticity of the document when it attached a document to its complaint which contained a declarations page and a conditions page and acknowledged the declarations page was part of the Certificate. The Court held that Utica’s admission that the document was a copy of the Certificate contradicts its contention that the document and Certificate may have differed.  The Court also noted that the Complaint otherwise treated the document as accurate; and, without any limiting language, Utica alleged compliance with conditions it now claims cannot be ascertained.  The Court stated that a party that relies upon and attaches a document to its complaint cannot dispute its accuracy.

As to choice of law, the Court determined that the Certificate did not contain a choice of law provision therefore, New York Choice of Law rules applied. The Court concluded that notwithstanding Munich’s multi-state connections, those connections would be insufficient to overcome Utica’s exclusively New York connections.

On the substantive issue of interpreting the Certificate, the court pointed out that unlike liability insurance policies, reinsurance contracts are not construed against the drafter.  To interpret the Certificate, the court analyzed controlling cases on presumption of cost-inclusiveness and concluded that, contrary to Utica’s arguments, the Second Circuit and the New York Court of Appeals have implicitly rejected Utica’s interpretation in finding that similarly worded certificate limits of liability do not incorporate the cost-exclusiveness of their respective reinsured policies limits of liability.  The Court held that two cases were directly on point, Bellefonte Reins. Co. v. Aetna Cas. & Sur. Co., 903 F.2d 910 (2nd Cir. 1990) and Excess Ins. Co. Ltd. v. Factory Mut. Ins. Co., 822 N.E.2d 768 (2004) and must be followed, concluding that the Certificate’s limit of liability provision does not adopt the purported cost-exclusion of the Umbrella Policy’s limit of liability.  Further, the New York Court of Appeals has held that where there is a limit of liability clause, a certificate exempts expenses from that clause “by expressly stating that the defense costs are excluded from the indemnification limit.  Failing this, . . . reinsurers are entitled to rely on the policy limit as setting their maximum risk exposure.”  Excess Ins. Co., supra.

The Court went on to note that not only does the Certificate fail to expressly exclude expenses from the limit of liability, it affirmatively indicates that the limit of liability is applicable to expense:  the limit is described as “limit of liability” as opposed to, e.g., a “limit of loss”.  The court held that the Certificate’s limit of liability unambiguously applied to expenses.

Utica also argued that even if the Certificate is not facially ambiguous, evidence of custom and practice should be considered in its interpretation.  The court disagreed noting that the weight of authority was against Utica’s contention – under New York law, evidence of custom and practice may be admissible only if the agreement is found to be ambiguous.

Finally, Utica argued that Munich has waived its cost inclusive argument by previously paying Utica for expenses above the Certificate’s limit of liability. The Court again disagreed pointing to well settled New York law which holds that the waiver doctrine is inapplicable if the issue is the existence or nonexistence of coverage. Since Munich argued that the Certificate does not cover the expenses at issue, waiver cannot be used to create coverage.



Jennifer A. Ehman
                                                    [email protected]     

Bad Faith

10/07/13         Reid v Mercury Insurance Company
Court of Appeal, Second District, Division 8, California
No Bad Faith under California Law Where Injured Party Did Not Communicate to the Insurer an Interest in Settlement
This decision addresses whether a formal settlement offer is required in order to establish bad faith failure to settle within the policy limits.  Mercury Insurance Company (“Mercury”) issued a $100,000 per person and $300,000 per accident automobile policy to Zhi Yu Huang (“Huang”).  On June 24, 2007, Huang ran a red light causing a multivehicle accident.  Shirley Reid (“Reid”), the driver of the vehicle sustaining most of the impact, was seriously injured.  The other involved parties sustained comparatively minor injuries.  Below is the timeline set forth by the court:

  • July 18, 2007 - Mercury contained Reid’s insurance carrier to tell it that Mercury was “accepting liability and that there may be a ‘limits issue’”.
  • July 19, 2007 – Mercury’s adjuster, Patricia Feng, recommended that Mercury accept 100 percent liability.  The same day, Reid’s son, Paul Reid, advised Mercury that his mother was in intensive care and asked about Huang’s policy limits.  The request was denied until written permission from Huang was obtained.
  • Over the next few days, Ms. Feng advised that Mercury needed a recorded statement from Reid and authorizations in order to obtain pertinent medical records.
  • July 16, 2007 –Huang was advised by letter from Mercury of the possibility of an excess verdict.
  • July 27, 2007 – Paul Reid hired a lawyer, Joseph West (“West”), because he “felt [he] was being jerked around by [Mercury]” because they would not disclose the policy limits and “they couldn’t determine liability at that time…”
  • July 28, 2007 – West advised Mercury of his representation and the devastating injuries sustained by Reid.  He asked for information on policy limits and excess coverage.
  • August 2, 2007 – Entry in Mercury claims notes states that Reid’s claim is the only one that poses a possibility of excess exposure.  Mercury Claims Manager noted that investigation needed to be completed and policy tendered.  Reserves for Reid’s claim set at $100,000, policy limit;
  • August 15, 2007 – Mercury disclosed policy limits and again requested a statement of Reid along with medical authorizations.
  • October 10, 2007 – Case sued.
  • October 29, 2007 – Mercury wrote to West advising that Reid’s claim was “still pending” a recorded interview and various medical records.
  • November 8, 2007 – Mercury Claims Manager approved $100,000 settlement offer.
  • December 6, 2007 – Another follow up letter from Mercury advised that claim was “still pending” a recorded interview and various medical records.
  • January 29, 2008 – West send Mercury the medical records.
  • May 2, 2008 – Mercury tendered its policy limit.  Offer rejected.
  • Judgment was entered following bench trial against Huang for more than $5.9 million.  Huang’s bad faith claim assigned to Reid.


In this resulting bad faith action, the trial court granted Mercury’s motion for summary judgment.  It reasoned that the evidence did not show Reid ever made a settlement demand or otherwise told Mercury that Reid would accept the policy limits in full settlement.  Neither Reid’s son’s initial conversation with Ms. Feng nor Mr. West’s letter of July 28, 2007, constituted “opportunities to settle” within the meaning of the phrase. 

Liability for failure to settle is imposed not for a bad faith breach of the contract but for failure to meet the duty to accept reasonable settlements, a duty included within the implied covenant of good faith and fair dealing.

In affirming the trial court’s decision, this Court reiterated the standard in California.  In these types of cases, for bad faith liability to attach, there must be some evidence either that the injured party has communicated to the insurer an interest in settlement, or some other circumstance demonstrating the insurer knew that settlement within policy limit could feasibly be negotiated.  In the absence of such evidence, or evidence that the insurer by its conduct has actively foreclosed the possibility of settlement, there is no “opportunity to settle” that an insurer may be taxed with ignoring. 

In this case, while Mercury had an affirmative duty to explore settlement possibilities, there was no settlement offer from Reid, and no evidence from which any reasonable juror could infer that defendant knew or should have known Reid was interested in settlement.  Nor could Reid identify how Mercury’s conduct constituted an affirmative refusal to settle. 

Comment:  This case provides noteworthy instruction.  A formal settlement demand is not absolutely necessary.  But, in its absence, a plaintiff must be able to show that the insurer knew of the claimant’s interest in settlement and ignored it. 

09/27/13         State Farm Fire and Casualty Co. v Brechbill
Supreme Court of Alabama
Can “Abnormal” Bad Faith Exist in Alabama in the Absence of “Normal” Bad Faith?
Shawn Brechbill (“Brechbill”) purchased a home in Lacey Springs, Alabama.  One month before closing, he retained a home-inspection company to inspect the home.  While the inspector noted some floor squeaking, it was considered consistent with the age of the home.  No significant cracking around the interior door frames was noted.  State Farm likewise inspected the home prior to issuing a homeowners policy in order to verify that it met underwriting requirements. 

Shortly thereafter, Brechbill submitted a claim to State Farm alleging that on January 29, 2008, his house suffered damage due to a windstorm.  He claimed the winds damaged the roof and racked the structure of the residence causing interior walls to crack and buckle.  Of note, this particular windstorm was designated by State Farm as a state-wide catastrophe due to the high number of insurance claims. 

After the claim was received, a State Farm adjuster inspected the home.  While the adjuster agreed that the exterior damage to the roof and shingles was covered, and issued payment accordingly, he was less certain about the interior damage and suggested that State Farm retain an engineer to determine the cause. 

Phillip Chapski, an engineer retained by State Farm, inspected the property and prepared a report concluding, essentially, that the problems with the home predated the windstorm.  Accordingly, State Farm denied the remaining portion of the claim citing the exclusions related to wear and tear and faulty construction.  A later denial included the exclusion for earth movement.  The insured disagreed and complained that Chapski’s report ignored the fact that the issues complained of now were not present a few months before the storm.  Brechbill then showed Chapski’s report to his initial home inspector.  The home inspector issued a second report indicating that the home contained changes that had not been present at his original inspection.  This resulted in an additional report by Chapski, and Brechbill’s consultation with a second inspector. 

Not surprisingly, litigation was commenced by Brechbill against State Farm.  His complaint alleged breach of contract, “normal” bad-faith failure to pay, and “abnormal” bad faith failure to investigate. 

The ultimate question in this decision was whether the trial court’s dismissal on motion of Brechbill’s “normal” bad faith precluded a later finding by the jury of “abnormal” bad faith.  During motions, State Farm had sought to dismiss all bad faith claims.  While the court agreed that Brechbill had not created a genuine issue of material fact about whether or not State Farm had a reasonably legitimate or arguable reason to refuse to pay the claim, which barred a “normal” bad faith claim, it found a question of fact as to the adequacy of State Farm’s investigation. 

In considering this case, the court first clarified the law of bad faith in Alabama.  Contrary to the position set forth by Brechbill, there is only one tort of bad faith refusal to pay a claim.  While there are two methods to establish an actionable tort, there is only one tort.  The insured can show that either (1) no lawful basis for the refusal coupled with actual knowledge of that fact; or (2) intentional failure to determine whether or not there was any lawful basis for such refusal. 

Alabama holds that the tort of bad faith refusal to pay a claim has four elements--(a) a breach of insurance contract, (b) the refusal to pay a claim, (c) the absence of arguable reason, (d) the insurer’s knowledge of such absence--with a conditional fifth element (e) “if the intentional failure to determine the existence of a lawful basis is relied upon [i.e., the second method only], the plaintiff must prove the insurer’s intentional failure to determine whether there is a legitimate or arguable reason to refuse to pay the claim.” 

Thus, for the tort of bad faith refusal to pay, requirements (a) through (d) represent the “normal” case.  Requirement (e) represents the “abnormal” case.  With that said regardless of what method the insured relies upon, the tort of bad faith still requires proof of the third element, absence of a legitimate reason for denial. 

As the trial court acknowledged that the swearing match between the experts as to the cause of the interior damage precluded a pre-verdict judgment on the breach of contract claim, this eliminated the third element.  Without the third element, any reliance on the fifth element must fail.  Thus, the judgment of the trial court was reversed and remanded.   

Earl K. Cantwell

[email protected]


A recent California Appeals Court case denied summary judgment to an insurer in a property damage claim arising from alleged faulty workmanship on the issue of whether the occurrence took place within the policy period.  Valley Casework, Inc. v. Lexington Insurance Co., 2013 WL 3470530 (Cal. Ct. App., 4th District, July 10, 2013). 

It all started innocently enough when Valley Casework installed cabinets in a house in 2006.  In 2008, the homeowner returned home only to discover flood damage.  His insurance company paid for the repairs and then demanded that Valley make good on the cost.  The alleged cause of the damage was a cabinet that fell off of a wall, broke a faucet, and triggered the water leak.  Valley had a CGL policy with Lexington and presented the claim to its carrier who denied coverage, claiming that the occurrence fell outside the coverage period (which ended in February 2008).

Valley brought a declaratory judgment action against Lexington and submitted an affidavit claiming that the cabinet “most likely” began to fail and dislodge shortly after installation in 2006.  The policyholder argued that the time from when the cabinet began to break until it actually fell and broke the faucet should be considered one “occurrence” which happened, or started to happen, shortly after installation in 2006.  Lexington opposed this argument stating, inter alia, that the homeowner allegedly saw no clear or real indication of any failure, breakage or damage before 2008.  The Trial Court disallowed Valley’s affidavit and granted summary judgment in favor of the insurance company. 

The policyholder fared better on appeal. The Appeals Court said the lower court improperly excluded Valley’s affidavit since it was factual and provided reasonable explanations for its conclusions.  The policyholder was able to explain why breakage might have been occurring but not observed by the homeowner before the flooding incident was triggered.  This was deemed sufficient by the Appeals Court to raise a triable issue of fact about potential coverage under the policy.

The Appeals Court did uphold dismissal of a bad faith claim and affirmed summary judgment on that claim because there was no evidence that the insurance company processed the claim improperly, ignored evidence that showed possible coverage, or did not follow its own procedures or recommendations of its consultants on the issue.

The first lesson of this case is to note the expanded time definition and sequential argument of what constituted the covered “occurrence”. 
The second lesson is that a good faith coverage denial, even if later contested or overturned, does not equate to a bad faith claim.

Ultimately, one has to sympathize with the Trial Court based upon the prospect of a trial with testimony from a contractor who never saw the accident, and the homeowner who never observed any breakage or damage before the accident.

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