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Coverage Pointers - Volume XVI, No. 1

Dear Coverage Pointers Subscribers:

We wish you joy and happiness and sparkles on this Fourth of July weekend.  The summer in WNY is beautiful, so far, and we expect a spectacular weekend. 

Do you have a situation?  Give us a call and we’ll see if we can help unravel it.  We love situations.

We are delighted to present to you the first issue of this new volume, as we begin our 16th year of publication.  Keep those cards and letters coming in.

One case to read in this issue is surely the beginning of mischief.  Look at the Dominicci case decided on July 3.  The Fourth Department affirmed a decision that refused to quash a subpoena directed against a liability carrier.  The carrier had scheduled an independent medical exam of a plaintiff in a lawsuit and the plaintiff’s firm sought, by subpoena, 1099’s and other records showing how often that physician was used for defense independent exams.

Will the shoe fit on the other foot when the similar subpoenas are served on plaintiff’s counsel?

 

Kathie Fijal’s Retirement

We congratulate Kathie Fijal on her retirement.  Your editor envies her and we are so sad to see her go.  We’ll announce some resulting reshuffling of columns in our next issue.

 

Continuing Education Alerts:

Careful, be very careful.  Watch around the corners.  I may be visiting you shortly, by webinar!

Insurance 101 Series – Starts Next Week – Sign up on Monday

Back by popular demand, the DRI Insurance Law Committee is proud to present an encore performance of its “Insurance 101” webcast series which will provide an excellent opportunity for claims professionals, attorneys, law clerks, and the like to be introduced to the most significant, core concepts of our practice.  The program will also be a terrific refresher for more experienced claims professionals and seasoned attorneys who want to know more about insurance coverage law.  Each webcast will be presented by the insurance industry’s top professionals in 90 minute segments as follows:

  • “The Duty to Defend” will be presented on July 9th (1:00 – 2:30 p.m. CDT) by Chuck Browning of Plunkett Cooney and Brenda Wallrichs of Lederer Weston Craig PLC.  This webcast will cover core issues relating to the “duty to defend” including when it is triggered, reservations of rights, and independent counsel.   
  • “What You Always Wanted to Know About Policies” will be presented on July 16th (1:00 – 2:30 p.m. CDT) by Shaun Baldwin of Tressler LLP and Dan Kohane of Hurwitz & Fine, P.C.   This Webcast will overview the different types of policies available in the marketplace, common policy provisions, and rules of interpretation and construction. 
  • “Coverage and Bad Faith Litigation” will be presented on August 23rd (1:00 – 2:30 p.m. CDT) by Mike Marick of Meckler Bulger Tilson Marick & Pearson LLP and Kevin Willging, Senior Counsel and Second Vice President of Travelers.  This webcast will overview litigation of coverage and bad faith lawsuits and will address claims typically asserted, common motion practice, and strategic considerations.   

 

The per-site cost for the individual segments is $150 for DRI members and $180 for non-DRI members.  Or you can purchase the entire webcast series for $300 for DRI members and $360 for non-DRI members.   Please register online at http://dri.org/Events/Webcasts!

And There is More, This Week Ahead:

 

PLRB Webinar
Tender Benders: A Practical Approach to Additional Insureds and Contractual Indemnity

From the PLRB Website:

Thursday, July 10, 2014 11:00 AM - 12:00 PM CDT
Webinar Registration

Join us for the final installment of our webinar series "Hot Topics from the Claims Conference." We know some of you could not make it to the PLRB Claims Conference this year, so we are bringing you modified versions of some of the best presentations. While there is no CE credit for these webinars, this is a great opportunity to see what you might have missed at the Conference.

When today’s mail brings a request or demand for additional insured and/or trade contract indemnity protection, both novice and seasoned claims professionals have to act both quickly and wisely.  If the tender comes from a party claiming to be owed additional insured status under an insurance policy and contractual indemnity under a trade contract, how should those requests be properly and accurately evaluated?  Similarly, how do you determine when your insured may be entitled to the protection by a trade partner or another insurer, and what tools should be harnessed to best protect your insured and your company?  Join Dan Kohane, a senior member at Hurwitz and Fine, P.C., in Buffalo, NY, as he provides you with a practical approach to unraveling the tender conundrum.

Dan plans to help you:
• Analyze and understand the differences between tenders based upon additional insured provisions found in liability policies and requests for defense and indemnity under hold harmless agreements in trade contracts;
• Develop a method and approach to identify when to tender and to whom, when to accept a tender and when to refuse;
• Understand the rights that are associated with additional insured status as compared to contractual indemnity provisions;
• Respond properly when on the receiving end of a tender and know instinctively when you should be seeking the protection of others.

Audrey’s Angles:

Happy Fourth of July!  I hope you and your family are enjoying the day.

I am remiss in not properly welcoming an addition to our firm who is affording our no-fault practice with more depth and ability to handle additional arbitrations and litigation.  We welcome Taylor Gabryel to our firm and the no-fault practice group!  Taylor is handling no-fault arbitration and litigation in Upstate New York and has easily fit in within our practice group.  We now have four attorneys who can handle no-fault matters on a state wide basis and as the practice group leader it has been exciting to see how much this practice group has grown over the years.  In the event that you have a no-fault question and you cannot reach either myself or Margo Lagueras, please feel free to reach out to Taylor.

Also, I wanted to let you know that next edition my column focus will be shifting.  I have generally, within our firm been, the one to whom the Coverage B and personal lines coverage matters gravitate.  Therefore, it makes sense that my column reflect that.  Thus, next edition my column will be officially focusing in on personal and advertising injury cases on a national basis as well as personal lines coverage in all states except New York.  The column title will be a surprise and you need to read next edition to find out what it is.

Be well and have a safe July Fourth.

Audrey
Audrey A. Seeley
[email protected]

 

Baseball Debuts:  100 Years Ago Today

The national pastime is filled with guys who played a game or two and never again and others who went on to long, successful careers and permanent enshrinement in the Hall of Fame.  Frank Madden played his first game in the Major’s a century ago today. Madden was a Major League Baseball catcher who played in two games for the Pittsburgh Rebels in 1914, debuting on this date in 1914. Nicknamed "Red", he collected one hit in two at bats, with one run batted in in his game career.  The Pittsburgh Rebels were a team in the short-lived Federal League of Baseball Clubs, a competing major league that lasted but two seasons before folding.  Surely, he is one of the thousands of footnotes in baseball history.

But for every 100 guys like Madden, there were exceptions just around the corner.  Seven days later, on July 11, the following newspaper squibb heralded another major league debut for a guy pitching his first major league game, some guy they called “Babe Ruth”:

The Wilmington Morning Star
Wilmington, North Carolina
July 12, 1914

RED SOX WIN OPENER
FROM CLEVELAND NAPS

Twirler Ruth From Orioles, Made Initial
Appearance with Red Sox

Boston, July 11.—Cleveland was defeated 4 to 3 by Boston in the opening game of the series today.  Ruth, formerly of Baltimore, made his first appearance as a local pitcher.

Peiper Popping:

Greetings from a weary traveler.  At this time last week, I was in the middle of a 3 hour panel discussion on effectively handling large losses due to catastrophic weather events. 

Two weeks ago, I had just finished up a 4 hour discussion on Agent Errors & Omissions Pitfalls in Orlando.  Being that it was within shouting distance of the most Magical Place on Earth, my wife (thankfully so) suggested that we append a few days on to the trip to visit Mickey and his friends.  I had not stepped foot in Disney World since 1984, and oddly, not much has changed since then. We also hit up Animal Kingdom and Hollywood Studios.  While I faired pretty well, my two children continue to display infinitely more energy than…well, just about any other human being I’ve ever met.

Upon landing in Buffalo, I was off again to Chicago for the CAT Toolbox Talk.  Greetings and thanks to all of you who made the trip to the  Gleacher Center to take part in the discussion.  We talk a lot about training in these columns, but the truth is we really do consider it a blessing and an obligation to take part in top notch conferences.  Rarely do I leave a presentation, and have not learned something myself.  We do love this stuff, and are always grateful at the chance to engage with other likeminded folks like yourselves. 

Speaking of agents, take a look at the Majtan case we review below.  At least in the Fourth Department, the “special relationship” test is still alive and well. 

That’s it for now.  Happy Fourth of July. 

Steve
Steven E. Peiper
[email protected]

Beth’s Bitz

Dear Subscribers:

Happy 4th of July.  I hope you are enjoying beautiful weather, the company of friends and family, and have the opportunity to sit back and relax while reading this issue of Coverage Pointers.

Addressing coverage under Coverage B, I bring you Hansen v. Sentry Insurance Co., where the Court, applying New Hampshire law, found that Sentry had no duty to afford coverage, despite creative arguments by Hansen.  Hansen, a former employee of the insured, sought coverage for claims by the former employer of unfair competition, breach of contract, misappropriation of trade secrets, and the making of harmful, false statements.

I also bring you a win by Hartford, who convinced the court of the applicability of a patent infringement exclusion to claims made against its insured, a supplier of dental instruments, in Hartford Casualty Insurance Company v. Dental USA, Inc.

Til next time,

Beth
Elizabeth A. Fitzpatrick
[email protected]

One Hundred Years Ago – T.R. Stays in the Public Eye:

The New York Times
New York, New York
July 4, 1914

ROOSEVELT’S TIME ALL FOR POLITICS;
QUITS AS EDITOR

IS OUT FOR STATE FUSION

TO OPPOSE ADMINISTRATION

Conference with Mitchel Followed
Luncheon at Which Mayor Get
Democratic Views on Fusion

Col. Roosevelt has resigned his place as contributing editor of The Outlook in order to devote all his time to politics.  This announcement will be made in The Outlook’s next issue together with the correspondence between Col. Roosevelt and Dr. Lyman Abbott.

Simultaneously with this news, comes the report from Oyster Bay that the Colonel is and has been actively engaged in laying plans for a fusion ticket in the State this Fall with an independent Democrat for Governor and representatives from the anti-Barnes Republicans and the Progressives. 

Col. Roosevelt will now become a special contributor to The Outlook, which will announce on July 11 the publication of the first of a series of special articles from his pen, the first of which is entitled “The People and Judge-Made Laws.” 
Editor’s Note:  The former President Theodore Roosevelt (1901-1909) who was also the unsuccessful candidate for President on the Progressive ticket (1912) continued fighting for progressive causes until his death in 1919.

Jen’s Gems:

Greetings!  As we enter this long weekend, I would like to wish everyone an enjoyable Fourth of July, and I hope everyone is able to spent some time with family and friends.  I personally have another reason to celebrate this weekend.  My husband and I are celebrating our 4th wedding anniversary.  I just looked this up, and per the Hallmark website, the traditional gift for the 4th anniversary is fruit/flowers.  So, my husband better have stopped at the flower shop on the way home.  I would joke that four years seems like a long time, but I am sure there are many out there that have been married much longer. 

In terms of my column this week, I would suggest reading El-Ad 250 W. LLC v Zurich Am. Ins. Co.  It is a decision out of Supreme Court, New York County addressing a Superstorm Sandy claim.  The question considered by the court was whether the $5 million aggregate annual limit for losses caused by a flood and the flood deductible applied to only physical damage to property or whether it also applied to losses resulting from a delay in completion.  Relying on the language of the policy, the court found no limitation to the type of flood loss.  An interesting discussion for sure.   

Again, Happy 4th of July and until next issue…

Jen
Jennifer A. Ehman
[email protected]

Editor’s Note: Oh Jen, he’s opted for fruit, not flowers. I think he’s bringing you a grape.  Be gracious.

The Great War – on the Brink – 100 Years Ago:

On June 28, 1914, 100 years and a few days ago, Archduke Franz Ferdinand of Austria, heir to the throne of Austria-Hungary, was assassinated by Yugoslav nationalist Gavrilo Princip in Sarajevo. This set off a diplomatic crisis when Austria-Hungary delivered an ultimatum to the Kingdom of Serbia, and international alliances formed over the previous decades were invoked. Within weeks, the major powers were at war and the conflict soon spread around the world. 

But by early July, the impact of that killing had not yet galvanized the world.

A week after the assassination, and one hundred years ago today, it was a local murder trial that was on the front page, not the possibility of a Great War.  Buried on page 6, there was a passing mention of the killing:

The New York Times
New York, New York
July 4, 1914

SARAJEVO’S PLOTTERS

The criminals of Sarajevo went back to the slaying of Alexander Il in 1881 for their model, and seem to have made a close study of it.  In that case thirty or forty young men and women plotted the crime, and distributed themselves at various points along the route the Czar was to take.  The first hand grenade failed to hit the Czar, but wounded members of the escort.  Alexander left his carriage to inquire about the injured, and a second explosive was thrown, killing him.  Others were ready had this failed.  The story of the secret organization of young assassins of Sarajevo shows a deliberate attempt to copy the older conspiracy. 

One Hundred Year Ago Today -- An Anarchist Bomb Explodes on Lexington Avenue (with credit to the Ephemeral New York website):

In 1914, labor leaders and anarchist groups had John D. Rockefeller Jr. in their sights. They blamed Rockefeller, head of U.S. Steel and one of the world’s richest men, for the Ludlow massacre—the deaths of striking workers and their families at a Rockefeller-owned mine in Ludlow, Colorado in April.

Anarchist leader and New Yorker Alexander Berkman who had served time for attempting to murder industrialist Henry Frick in 1892, called for Rockefeller’s assassination. Other anarchists and labor leaders, roughed up during a subsequent protest at Rockefeller’s Tarrytown estate, also felt that a bomb left at Rockefeller’s estate would be appropriate payback.

So out of a top-floor apartment in a tenement house on Lexington Avenue at 103rd Street, several men armed with dynamite and batteries set to work.

On July 4 – Independence Day – the bomb exploded prematurely, killing three anarchists, the girlfriend of one, and injuring other residents of the otherwise unremarkable tenement in working-class Italian East Harlem.

Four mostly mangled bodies were eventually found. The dead were IWW (International Workers of the World) leaders or followers with “anarchist leanings,” as the Times put it.

A week later, about 5,000 people came to Union Square to hear a tribute to the would-be bombers.

As officials investigated, Berkman first denied any involvement. He later admitted that he was aware that the bomb was destined for Rockefeller’s estate.

Hunter’s Hints on Serious Injury:

Dear Coverage Pointers Subscribers

We have just a few scant cases regarding serious injury in New York appellate courts for the shortened holiday weekend.  Happy Fourth of July to all, enjoy the fireworks and hotdogs, and, as always, if you have any questions regarding any and all things serious injury, please contact me at your earliest convenience.  I hope to talk you.

Dan
Dan Hunter
[email protected]

 

Independence Day:

Robert H. Jackson (1892-1954), a Western New York native, was a leading American lawyer, judge and writer.  He served as Attorney General of the United States, a Justice on the US Supreme Court and was the architect and chief prosecutor of the surviving Nazi leaders at the Nuremberg trials.  The new federal court for the USDC, Western District of New York, bears his name.  This presentation was made almost two years after World War II commenced and a few short months before Pearl Harbor was attacked.  A portion is included for your consideration on this important day:
Independence Day Address
By Robert H. Jackson
Attorney General of the United States
July 4, 1941
For nearly two years now many of us have been bewildered by the headlong course of events in Europe and not a few of us have been confused as to the course of wisdom at home. We have seen a nation which twenty years ago had been vanquished, rise up with a ferocity seldom seen in the history of mankind. We have seen vaunted armies smashed as if they were so much paper. We have seen Europe overrun and England placed in grave danger. We have seen the dictator idea spread in the world. At first its two principal proponents, communism and fascism, appeared to be mortal enemies.
Then, one day, they turned up as partners. Now they battle each other.

For nearly two years Americans have been asking each other which way safety and security lie. We have pondered the problem weighing risk against risk and danger against danger. Now at last, on this Fourth of July in 1941, the truth of our situation is coming home with increasing clarity to all Americans. We are learning the overwhelming fact that now, as in 1776, our nation together with our sister Republics on this hemisphere, faces a preponderantly hostile and undemocratic world. Now, as in 1776, we can turn to the Declaration of Independence for the principles which should guide our action.

You are lifted and inspired, like generations before you, by the majestic cadence of the boldest, the noblest, and best known of all American writings. The Declaration of Independence speaks strong doctrine in plain words. It is the world’s master indictment of oppression. The fervor of its denunciation haunts and challenges dictators everywhere and in every field of life.

But the Declaration of Independence does not stop with mere denials and negations. It sets forth great affirmations as to the permissible foundations of power and political leadership among free men. It lays down a fighting faith in the rights of man — merely as man — a faith to die by if need be, or even more bravely to live by. It impresses upon all political power the high obligation of trusteeship. It established an accountability by the governing few to the governed many. That is why men abroad who wield dictatorial powers over subject peoples would silence the reading of the Declaration of Independence, would tear all mention of it from the record, and torture all recollection of it out of the minds of men. Even at home there are some who hope it will not be read too loudly.

But the masses of warm-hearted people are reared on its strong doctrines of equality and human rights. It has exceeded every other modern pronouncement in its profound influence upon our lives, our culture, and our relations to the world. When the Constitution of the United States was adopted, its foundations were laid in the democratic idealism of the Declaration. It has been the inspiration for every later recognition of broadened human rights and for the extension of justice and security to all men. We do not claim to have reached a perfect fulfillment of its high principles. But we have achieved the nearest approach among all the nations to a classless society, to equality of rights, and to a fair distribution of opportunity and prosperity. Whenever we reproach our own imperfections, as we ought often to do, we must not forget that our shortcomings are visible only when measured against our ideals, never when put beside the practical living conditions of the rest of the world. We have by Constitution, by legislation, and by judicial decision translated the Declaration out of the language of abstract philosophy into the idiom of everyday living. We have validated democratic principles by our success.

Highlights of This Week’s Issue (attached):
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]

  • Subpoena of Demonstrate Fees Paid to Defense Examiner Allowed
  • Finding of No Physical Contact Between Vehicles Upheld and Accordingly No Valid Proceeding for Uninsured Motorist Benefits Can Be Maintained
  • AI and Supplementary Payments Confused
  • Finding of No Physical Contact Between Vehicles Upheld and Accordingly No Valid Proceeding for Uninsured Motorist Benefits Can Be Maintained
  • No Coverage Under Auto Policy for Dog Bite to Pedestrian
  • Misrepresentation of Investigator’s Credentials May Give Rise to GBL § Claim

 

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

  • Chiropractor's Affidavit Failed to Raise Triable Issue of Fact
  • Lower Court Order Reversed as Plaintiff did Raise Triable Issues of Fact
  • Kings County Order Denying Defendants' Motion for Summary Judgment Reversed
  • Defendants Failed to Meet Prima Facie Burden in Motion to Dismiss
  • Conflicting Findings in Plaintiff’s Medical Records Doom Appeal
  • Some Serious Injury Threshold Categories Thrown Out as Order is Modified

 

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

Arbitration

  • Peer Review Fails to Establish Lack of Causal Relationship
  • Test Findings by Chiropractor Misrepresenting Himself as MD Lack Credibility
  • Claim for LSO Brace Prescribed 5 Days After Accident, But Not Given to EIP Until More Than 3 Months Later, Is Denied
  • Hobby Revisited:  “Maximum Medical Improvement” Is Insufficient Reason to Deny Further Treatment IF Applicant Has Established That Treatment Continues to Be Necessary
  • Reminder: Insurer Can Deny a Claim Prior to Its Receipt of Justification for Untimely Submission of Proof of Claim

 

Litigation

  • Plaintiff’s Affidavit Regarding Defendant’s Denials Is Insufficient

 

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

  • Failure to Copy the Insured on a Cancellation Notice Not Fatal Where the Insured Previously Designated a Third Party to Receive Notices
    Bankers Liability Policy Does Not Provide Coverage for Losses Attributable to Madoff Scheme
  • Procurement of One Policy, and a Renewal Does Not Create a “Special Relationship” 
  • GOL 5-322.1 Does Not Apply Where the Contract at Issue Did Not Contemplate to Indemnity for the Movant’s Own Negligence

 

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

  • Despite Creative Arguments, No Coverage For Former Employee of Insured
  • Intellectual Property Exclusion Precludes Coverage

 

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

  • Claims Made Medical Malpractice Policy Could Not Be Cancelled With Knowledge Of Potential Claim Without Violating State Statute

 

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

  • A9763 – Proposed Amendment to CPLR – Service of Papers
  • A03696B
  • A00756A

FIJAL’S FEDERAL FOCUS
Katherine A. Fijal

[email protected]

  • Two Design Flaws in Same Structure Were Not Related

 

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

  • Claim Subject to Annual Aggregate Flood Limit
  • No Additional Insured Coverage Where Contractor Had Left the Site
  • Carrier Required to Reimburse Insured for Defense Costs Related to Counterclaims and Cross-claims Asserted in Declaratory Judgment Action

 

Bad Faith

  • Where Insurer Tendered Policy Limits In Thirty-Seven Days and Prior to a Demand, Florida Court Still Denies Motion for Summary Judgment on Bad Faith Claims; Really?!?!

 

EARL’S PEARLS
Earl K. Cantwell

[email protected]

LAW FIRM’S WIRED FUNDS AN EXCLUDED LOSS

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

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

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


NEWSLETTER EDITOR
Dan D. Kohane
[email protected]

ASSOCIATE EDITOR
Audrey A. Seeley
[email protected]

ASSISTANT EDITOR
Jennifer A. Ehman
[email protected]

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

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

Taylor F. Gabryel
Diane F. Bosse
Joel R. Appelbaum

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

Elizabeth A. Fitzpatrick
Cassandra Kazukenus

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

Margo M. Lagueras
Cassandra Kazukenus
Jennifer A. Ehman

 

APPELLATE TEAM
Jody E. Briandi, Team Leader
[email protected]

 Elizabeth A. Fitzpatrick
Diane F. Bosse

Index to Special Columns

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

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

07/03/14       Dominicci v. Ford
Appellate Division, Fourth Department
Subpoena of Demonstrate Fees Paid to Defense Examiner Allowed
Memorandum: This personal injury action arises out of a motor vehicle accident in which a vehicle operated by plaintiff was rear-ended by a vehicle operated by Thomas Ford (defendant). During the course of the litigation, defendant's insurance company, nonparty State Farm Automobile Insurance Company (State Farm), retained a physician to conduct an independent medical examination of plaintiff on behalf of defendant.

Thereafter, plaintiff's counsel served a judicial subpoena duces tecum on State Farm. The subpoena sought, inter alia, production of 1099 forms or other wage statements reflecting payments made by State Farm to the examining physician for the period from 2009 through 2011, as well as bills and invoices related to the litigation received from the examining physician, his staff or business, or from the independent examination processing company.

State Farm moved to quash the subpoena pursuant to CPLR 2304 on the ground that it was plaintiff's intent to use the subpoenaed materials to impeach the examining physician's general credibility. Plaintiff opposed the motion on the ground that she intended to use the subpoenaed documents to cross-examine the examining physician at trial with respect to his bias or interest.

The Fourth Department found affirmed the lower court’s ruling which denied the motion to quash and permitted the discovery because the amount the doctor received may be relevant on the doctor’s bias.
Editor’s Note: If this decision starts a trend to subpoena liability carrier’s financial records, you can be certain that the defense will be doing the same, serving subpoenas on plaintiff’s counsel’s office to establish the same kind of bias with regard to physicians called to testify in support of a claim.

07/02/14       In the Matter of GEICO v. Selin
Appellate Division, Second Department
Finding of No Physical Contact Between Vehicles Upheld and Accordingly No Valid Proceeding for Uninsured Motorist Benefits Can Be Maintained
The appellant sought uninsured motorist benefits, under a policy of insurance issued by the petitioner, for physical injuries she allegedly sustained in a hit-and-run accident. The petitioner commenced this proceeding pursuant to CPLR article 75 to permanently stay the arbitration of the claim.

Physical contact is a condition precedent to an arbitration based upon a hit-and-run accident involving an unidentified vehicle and the burden of proof to establish physical conduct is on the insured.  The insured must also demonstrate that the
loss sustained was caused by an uninsured vehicle, namely, that physical contact occurred, that the identity of the owner and operator of the offending vehicle could not be ascertained, and that the insured's efforts to ascertain such identity were reasonable.

Here, the judge conducted a “framed issue hearing” and determined that there was no physical conduct.  The Appellate Division declined to disturb the Supreme Court's determination.

 

06/26/14       Rojas v. New York Elevator & Electric Corp.
Appellate Division, First Department
AI and Supplementary Payments Confused
New York Elevator and ThyssenKrupp Elevator Corporation (TKE), established that, as a result of a scrivener's error, a principal of 45 West Hotel Limited Partnership signed an elevator maintenance contract for the premises owned by 45 West "on behalf of" defendant Rockrose Development Corporation, and that the true parties to the contract are 45 West and the elevator maintenance company, NYE, now succeeded by TKE.

Greater New York Insurance Company (“GNY”) failed to demonstrate conclusively that NYE and TKE are not additional insureds under the policy it issued to 45 West. Under the policy, the elevator maintenance agreement between NYE and TKE and 45 West is an insured contract. It requires 45 West to procure insurance for and indemnify NYE and TKE.

Moreover, the "Supplementary Payments - Coverages A and B" section of the policy provides that if GNY defends its insured in a suit in which the insured's indemnitee is also named as a party, then GNY will defend the indemnitee if certain conditions are met. Whether or not NYE and TKE have, as they contend, satisfied the conditions, they have stated a claim for a declaration that, under the policy at issue, GNY is obligated to provide them with a defense and indemnification.
Editor’s Note:  Huh?  Seems like the court confused AI status with Supplementary Payments provisions.  We would contend that there is no entitlement to a defense under Supplementary Payments unless all conditions precedent are met.  One cannot “state a claim” for a right to secure a defense under Supplementary Payments and then receive that defense based on the allegations.

See a discussion of the 2010 Hargob decision:

5/11/10           Hargob Realty Assoc., Inc. v. Fireman's Fund Ins. Co.
Appellate Division, Second Department
Where Contract Between Contractor and Owner Did Not Require Additional Insured Status, that Status Is Not Available Under Blanket AI Provisions. The Certificate of Insurance Does Not Change Result.
Hargob entered into a construction contract with USA Interior (USAI) with USAI to perform certain demolition work at Hargob’s premises. There was a one-page contract with a hold-harmless agreement running in Hargob’s favor. The indemnity provisions required USAI to hold Hargob harmless, for any acts or omissions of USAI except for claims arising from Hargob’s own negligence. 

Firemans Fund Insurance Company (FFIC) issued a policy to USAI with a blanket additional insurance endorsement that required FFIC to insure any entity the Named insured was required in a written contract to name as an insured.

As there was no requirement in the agreement for USAI to insure Hargob, the FFIC AI endorsement is not triggered and coverage is not afforded to Hargob. The fact that a Certificate of Insurance suggests otherwise does not create coverage.

A late disclaimer does not create coverage here because Hargob is not included in the grant of coverage and a late disclaimer cannot create coverage where none exists
Further, the supplementary payments provision of the policy, which obligates the defendant insurer to defend an indemnitee of the named insured when certain specified conditions are met, does not also afford liability coverage. Contrary to the plaintiff's contention, the supplementary payments provision did not demonstrate an intent by the defendant insurer to afford the plaintiff coverage solely on the basis that it is an indemnitee of the named insured, in the absence of the plaintiff's addition as "an insured" under Section II of the subject policy pursuant to the additional insured endorsement (see Stainless, Inc. v Employers Fire Ins. Co., 69 AD2d at 33). Liability coverage under the policy is afforded by Section I, not the supplementary payments provision. Therefore, Hargob's status as an indemnitee does not operate to confer upon it status as an additional insured, and it is, thus, not entitled to liability coverage under the subject policy pursuant to the supplementary payments provision.

06/24/14       Allstate Insurance Company v. Staib
Appellate Division, First Department
No Coverage Under Auto Policy for Dog Bite to Pedestrian
Staib sought coverage under an automobile insurance policy issued by plaintiff for injuries sustained when an unrestrained and unattended dog sitting in Staib's parked car bit Staib's niece, the infant defendant, as she walked by the vehicle.

The policy provides that plaintiff "will pay for all damages an insured person is legally obligated to pay . . . because of bodily injury or property damage . . . from claims for accidents arising out of the ownership, maintenance or use, loading or unloading of an insured auto." The infant defendant's injuries did not arise out of the "ownership, maintenance or use" of the automobile. Indeed, the vehicle itself did not produce the injury, nor did the accident arise out of the inherent nature of the vehicle.  It was merely where the dog bite took place.

06/20/14       JD & K Associates v. Selective Insurance Group, Inc.
Appellate Division, Fourth Department
Misrepresentation of Investigator’s Credentials May Give Rise to GBL § Claim
JD&K commenced this action against Selective seeking a declaration that Selective is obligated to provide coverage for its loss, an award of compensatory damages for breach of contract, and an award of compensatory and punitive damages for bad faith, misrepresentation and fraud, and deceptive acts and practices under General Business Law § 349.  There was a claim under an earth movement exclusion.

Selective failed to meet the heavy burden on their motion of establishing that the earth movement exclusion negates coverage but even if it did, a different endorsement provided coverage. The policy contained a "Broadened Water-Direct Damage" extension of coverage unambiguously provides coverage for plaintiff's loss. If there was any ambiguity between the exclusion and the endorsement, the ambiguity is resolved in favor of the policyholder.

The General Business Law § 349 claim stands. According to the decision, the Vallas employee who investigated the loss and prepared the Vallas Report was not an engineer, and Selective misrepresented his credentials to plaintiff. Plaintiff further claims that carrier’s conduct was deceptive and part of a pattern of conduct that was not unique to plaintiff, but was directed at their policyholders generally.  The court found that there was not enough proof offered to grant summary judgment and also allowed the punitive damage claim to stand as well since those damages are recoverable in a GBL 349 claim.

The bad faith claims, the claims of fraud and misrepresentation were all dismissed, however.  There is no evidence that the plaintiff’s relied on any representations made by the defendant – because they learned the representations were false – and therefore could not have detrimentally relied upon them.

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

06/20/14       Griffo v. Colby
Appellate Division, Fourth Department
Chiropractor's Affidavit Failed to Raise Triable Issue of Fact
Defendants moved for summary judgment to dismiss Plaintiff's complaint on the ground that Plaintiff did not sustain a serious injury under any category of Insurance Law §5102(d).  Defendants met their initial burden by presenting relevant medical evidence demonstrating that Plaintiff had only sustained sprains and strains in the accident which had resolved.  In opposition, Plaintiff failed to raise a triable issue of fact since the affidavit of Plaintiff's chiropractor failed to set forth any objective medical evidence, including the results of any tests performed, and merely noted that Plaintiff's range of motion shortly after the accident was accompanied by pain.  As such, the lower court's granting of Defendants' motion for summary judgment was affirmed.

 

06/25/14       King v. Chisholm
Appellate Division, Second Department
Lower Court Order Reversed as Plaintiff did Raise Triable Issues of Fact
Queens County Supreme Court granted the motion of Defendants, dismissing Plaintiff's complaint on the ground that Plaintiff did not sustain a serious injury within the meaning of Insurance Law §5102(d) as a result of the subject matter motor vehicle accident.  The Defendants met their prima facie burden of showing that Plaintiff did not sustain serious injury by submitting competent medical evidence which established that Plaintiff's injuries were not serious.  However, the Appellate Division notes that Plaintiff did meet his burden in response, and raised triable issues of fact as to whether he sustained serious injuries to his cervical and lumbar regions of his spine.

07/02/14       Henry v. Hartley
Appellate Division, Second Department
Kings County Order Denying Defendants' Motion for Summary Judgment Reversed
Defendants moved for summary judgment on the basis that Plaintiff did not sustain a serious injury, which was denied by the lower court.  The Appellate Division states that Defendants met their prima facie burden of establishing entitlement to judgment as a matter of law by submitting sufficient evidence in admissible form establishing that the injuries sustained by Plaintiff were not causally related, but were in fact degenerative in nature.  In opposition, the Plaintiff failed to raise a triable issue of fact since their expert failed to address in a non-conclusory fashion the issue of whether the injuries to Plaintiff's lumbar region and left knee were entirely the result of the subject matter motor vehicle accident.  As such, Defendants' motion for summary judgment dismissing Plaintiff's complaint is granted.

07/02/14       Villa v. Armstrong
Appellate Division, Second Department
Defendants Failed to Meet Prima Facie Burden in Motion to Dismiss
Defendants moved for summary judgment on the grounds that Plaintiff did not sustain a serious injury.  The Appellate Court states the lower court properly denied Defendants' motion since Defendants' motion papers failed to adequately address Plaintiff's claim as set forth in Plaintiff's bill of particulars.  Since Defendants did not sustain the initial prima facie burden, the Appellate Division notes it unnecessary to determining whether Plaintiff's papers in opposition were sufficient to raise a triable issue of fact.

07/03/14       Acosta v. Vidal
Appellate Division, First Department
Conflicting Findings in Plaintiff’s Medical Records Doom Appeal
Defendant moved for summary judgment on the grounds that Plaintiff did not sustain a serious injury.  The Appellate Court states the lower court properly granted Defendants' motion since Plaintiff failed to raise a triable issue of fact in opposition.

Although Plaintiff submitted medical evidence from the treating orthopedic surgeon, said evidence failed to address the conflicting findings regarding range of motion made by Plaintiff’s physical therapist one week after the motor vehicle accident.  As such, the order dismissing Plaintiff’s complaint was upheld.

07/03/14       Raucci v. Hester
Appellate Division, Third Department
Some Serious Injury Threshold Categories Thrown Out as Order is Modified
The lower court denied Defendant’s motion for summary judgment to dismiss Plaintiff’s complaint.  Defendant’s met their initial burden establishing entitlement to judgment as a matter of law by submitting sufficient evidence in admissible form establishing that the injuries sustained by Plaintiff were not “serious”.  However, as the Third Department points out, Plaintiff was able to raise triable issues of fact regarding the seriousness of the injuries under the permanent consequential limitation of use; significant limitation of use; and significant disfigurement claims.

However, the Third Department modified the lower court order by finding that Plaintiff failed to raise trial issues of fact regarding the serious injury claims under the permanent loss of use and 90/180 day categories.  The permanent loss of use claims fails since the record was devoid of any evidence suggesting Plaintiff’s injuries constituted a total loss, and the 90/180 day claims fails since the record does not reflect any restrictions on Plaintiff’s daily activities following the subject matter motor vehicle accident. 

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

Arbitration

06/13/14       Rochester Brain & Spine Neuro v Geico Ins. Co.
Erie County, Arbitrator Gillian Brown
Peer Review Fails to Establish Lack of Causal Relationship
The EIP was rear-ended in September 2012.  Following an apparently failed course of conservative treatment, in May 2013 an MRI was performed due to symptoms of stenosis and low back pain with radiation down the L4-5 distribution in both legs.  It was noted by all the treating doctors that none of these symptoms were present prior to the accident.  An anterior cervical discectomy was performed in July 2013, and in August Respondent arranged for a neurosurgical peer review which opined that the EIP’s condition was not causally related to the accident.  The Arbitrator was not persuaded by the peer review as all the other records from the EIP’s treating physicians indicated that there were no previous symptoms.  He determined that the peer review was not sufficient to prove lack of causation and deny the claim.

06/12/14       South Utica Digital Imaging v 21st Century N. America Ins. Co.
Erie County, Arbitrator Michelle Murphy-Louden
Test Findings by Chiropractor Misrepresenting Himself as MD Lack Credibility
At issue was the reimbursement for an EMG/NCV study.  The 36 year-old EIP was involved in an accident in September 2012.  Ten days later, he began treating with Timothy DelMedico, DC. with complaints of low back pain and leg numbness.  He was diagnosed with lumbar sprain/strain.  However, the only subjective complaints noted in the SOAP notes from September through the following April were of neck pain radiating into the bilateral hands with associated numbness, although Dr. DelMedico did examine the EIP’s lumbar spine on each visit and noted identical findings of decreased range of motion, altered gait, tightness in the bilateral lumbar areas, both lumbar and sacrum subluxations and positive and negative orthopedic tests.  On April 22, 2013, a bilateral lower extremity EMG/NCV was performed at Applicant’s facility by Scott DelMedico, DC.  It allegedly found an active bilateral L5 radiculopathy.

In May 2013, a peer review was performed to review the medical necessity of the study.  Among other things, the peer reviewer noted that Dr. Scott DelMedico never performed a neurological examination on the EIP on the date of testing.  In fact, Dr. Tim DelMedico similarly never performed a neurological examination and the only two that were performed were done by other doctors and were completely normal.  Based on the peer review, Respondent denied the claim.

The Arbitrator noted that, other than in the initial examination report, Dr. Tim DelMedico never again recorded any subjective complaints related to the lumbar spine.  Moreover, his SOAP notes were entirely identical in every respect except for the reported pain level of the EIP’s cervical spine.  The Arbitrator further questioned Dr. Tim DelMedico’s referral because he is Applicant’s President and therefore has a financial motivation for recommending that his patients undergo electrodiagnostic testing. 

Also troubling was the Affirmation signed by Dr. Scott DelMedico, who the Arbitrator indicated she believes is related to Dr. Tim DelMedico, stating that he has no financial interest in Applicant and is merely a “subcontracted professional” of Applicant.  In the first paragraph of the Affirmation, Dr. Scott DelMedico states that he is a Medical Doctor, and under the line for his signature was written “Scott DelMedico, MD”.  However, in the online records of the NYS Office of Professions, Dr. Scott DelMedico is listed as a chiropractor, not a medical doctor. 

The Arbitrator asked that Dr. Scott DelMedico be produced to testify on that issue but he declined to do so.  The Arbitrator therefore stated that she could only conclude that he knowingly and willfully executed the Affirmation for the sole purpose of misleading her regarding his professional status and his role in the disputed test.  She therefore found the alleged test findings to be entirely lacking in credibility and denied the claim. 

06/12/14       WJW Med Products, Inc. v Allstate Prop. & Cas. Ins. Co.
Erie County, Arbitrator Douglas S. Coppola
Claim for LSO Brace Prescribed 5 Days After Accident, But Not Given to EIP Until More Than 3 Months Later, Is Denied
The 22 year-old EIP was rear-ended in June 2013 and began a course of physical therapy, acupuncture and chiropractic treatments.  He missed one day of work as an airplane mechanic and there were no restrictions on his daily activities.  In September he underwent an IME which reported a completely negative examination and diagnosed resolved cervical, thoracic and lumbar sprain/strains.  In addition, the EIP reported no complaints, no spasms or any inability to perform his daily activities or his full time work.

The LSO brace, which apparently was prescribed five days after the accident, was not given to the EIP until over three months later, after the IME.  The Arbitrator noted that no medical records substantiating the need for continued treatment, let alone the brace, were submitted and, as such, Respondent met its burden and the claim was denied.

06/11/14       SNG Chiropractic, Inc v Allstate Insurance Co.
Erie County, Arbitrator Mona Bargnesi
Hobby Revisited:  “Maximum Medical Improvement” Is Insufficient Reason to Deny Further Treatment IF Applicant Has Established That Treatment Continues to Be Necessary
The injured party was involved in a motor vehicle accident in October 2009, allegedly sustaining injuries to her neck and back.  She began receiving chiropractic treatment with Dr. Delmonte who, in March 2012, sent her for an EMG/NCV, supposedly to determine whether a change in treatment, namely spinal decompression therapy, would be recommended.  Before performing the study, Dr. Garmone examined the EIP and noted sharp, shooting, throbbing pain, decreased range of motion in the cervical spine with a positive compression test, and numbness and weakness in her right hand.  In June 2010, Dr. Kostek had performed an IME and found no upper or lower radicular signs or symptoms.  He did, however, comment on decreased range of motion as well as numerous other findings.  He concluded that she did not appear to be progressing adequately given the amount of treatment received.

The Arbitrator first noted that where an injured party has met her burden of establishing that treatment continues to be necessary, there is no authority for denying No-Fault benefits on the basis of “maximum medical improvement.”  However, in Hobby v CNA Ins. Co., the plaintiff met her initial burden by establishing that the disputed treatment continued to be necessary.  Therefore, in the Hobby decision, the Fourth Department clearly placed the initial burden on the applicant to establish that post-IME treatment continued to be medically necessary.  This requires showing that the treatment is providing either curative or significant quantifiable palliative benefits. 

The Arbitrator pointed out that there was no evidence that the EIP continued to treat after the IME.  While clearly she saw Dr. Delmonte in 2012 around the time that he issued the letter of medical necessity for the nerve conduction studies, there were no chiropractic notes in the ECF to support Applicant’s burden of establishing that post-IME treatment continued to be necessary.  Here, Dr. Garmone’s findings were virtually identical to those identified two years earlier by Dr. Kostek, who did not dispute that the EIP had ongoing pain or symptoms.  For that reason, Dr. Kostek opined that the EIP was not making adequate progress and that, as such, further chiropractic treatment was not medically necessary.  Neither Dr. Delmonte nor Dr. Garmone submitted a rebuttal letter to support either the curative or palliative benefits of continued treatment.  As a result, Respondent’s denial based on Dr. Kostek’s IME was upheld.
Note:The Hobby decision (267 AD2d 1084 [4th Dept 1999]) has been used by Plaintiffs/Applicants for years any time an IME or Peer Review uses any language even remotely hinting at “maximum medical improvement.”  Now, at long last, the full meaning of the Fourth Department’s decision is being recognized, and explained, by a growing number of arbitrators, including Arbitrator Murphy-Louden, and now Arbitrator Bargnesi.  Bravo – in my humble opinion.

06/11/14       Geoffrey Gerow, DC v A. Central Insurance Co.
Erie County, Arbitrator Michelle Murphy-Louden
Reminder: Insurer Can Deny a Claim Prior to Its Receipt of Justification for Untimely Submission of Proof of Claim
Respondent’s Denial of Claim form indicated that it received Applicant’s claim for the period from April 6 to June 1, 2012, on June 4, 2012.  On June 13, 2012, Respondent issued a verification request seeking Applicant’s “clear and reasonable justification” for the late submission of claim and the EIP’s attendance at the next scheduled IME.  Dr. Perrie performed the chiropractic IME on June 21, 2012.  On July 12, 2012, Respondent denied the entire claim for the time period from April 6 to June 1, 2012, based solely on the failure to submit within 45 days of dates of service.  However, on July 10, 2012, Respondent issued payment at the correct fee schedule amount for the period of the claim, except for the April 6 and April 11, 2012 dates of service.  The denial for those two dates of service contains the requisite advisory language of 11 NYCRR 65-3.3(e) (the “reasonable justification” for late claim language), and Applicant conceded that he had no argument to present.  The Arbitrator therefore denied those two dates of service.

Applicant additionally disputed the denial of its claims for dates of service from August 15, 2012 to February 9, 2013, which denials were based on the chiropractic IME.  In her IME, Dr. Perrie diagnosed resolved cervical, thoracic and lumbar spine sprains, noting that the EIP had a significant history from a prior accident and that the sprain injuries from the accident at issue were superimposed on the prior injury.  Applicant argued that Dr. Perrie’s examination was “cursory” and that her opinion was “conclusory” because she did not comment on the findings of the EIP’s providers or the diagnostic test results.  Applicant also argued that because Dr. Perrie did not review any of the prior accident’s medical records, it was unknown how she could conclude that the injuries were superimposed. 

The Arbitrator disagreed.  First, she found that Dr. Perrie performed a thorough examination and, as this was an IME and not a peer review, Dr. Perrie’s opinion was based on her examination, which findings were more recent and thorough than those of Applicant.  The Arbitrator specifically pointed out that Applicant last saw the EIP three weeks before the IME and the examination on that date was “less than thorough.”  Arbitrator Murphy-Louden further found that the EIP’s history regarding the prior accident and chronic back pain was noted by Applicant during the initial consultation.  This history of chronic back pain apparently continued to be symptomatic up to the time of the accident at issue, at which point the pain reportedly increased.  Therefore, the Arbitrator concluded that it was reasonable to conclude that the injuries were superimposed. 

Given that Dr. Perrie determined that the EIP’s injuries were resolved, the burden then shifted to Applicant to demonstrate that the disputed treatment was medically necessary.  Applicant’s records for the time period from August 15, 2012 to February 9, 2013, showed that the EIP’s neck pain remained constant, while the lumbar pain worsened, with consistent reports of radiating pain into the lower extremities and feet as of September 20, 2012.  As Applicant’s records showed that the negative examinations never changed during the disputed time period, the claims were denied.

Litigation

06/13/14       J.C. Healing Touch Rehab, PC v Amica Mut. Ins. Co.
Appellate Term, Second Department
Plaintiff’s Affidavit Regarding Defendant’s Denials Is Insufficient
Plaintiff appealed the Civil Court’s Order denying summary judgment because, even though the affidavit submitted by plaintiff’s billing agent established that plaintiff mailed the claim forms to defendant and that defendant failed to pay within 30 days, the affidavit did not address whether defendant failed to deny the claims within 30 days, or that timely denials were issued but they were vague, conclusory or meritless.  As a result, the Civil Court properly denied plaintiff’s motion.

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

06/25/14       Friedman v Lincoln Life & Annuity Company of New York
Appellate Division, Second Department
Failure to Copy the Insured on a Cancellation Notice Not Fatal Where the Insured Previously Designated a Third Party to Receive Notices
Defendant issued a life insurance policy to the Ruttner Family Trust.   The policy was issued on the life of Serena Rutter.  Unfortunately, the Trust failed to keep up with premium payments.  After defendant issued a letter indicating that the premium had not been paid, the Trust was given a grace period to cure the late payments.  When the grace period lapsed, defendant cancelled the policy. 
Plaintiff argued that defendant’s cancellation notice was invalid because it was only sent to the Trust.  No copy, apparently, was ever sent to the insured.  In support of its position, plaintiff pointed to Insurance Law § 3211 which, at the time, required cancellation notices to be provided to the person insured. 
In opposition, defendant established that the insured had previously designated the Trust to receive “premium bill” notices.  Defendant also pointed to the terms of the policy at issue which clearly established that the Trust was the entity to whom notices were to be mailed.  Accordingly, Insurance Law § 3211 did not invalidate the cancellation notices because the statute itself provided that the insured could designate someone else to receive documentation from the carrier.  That, as explained above, is exactly what happened here.   As a result, the Appellate Division reversed the trial court’s decision and remanded the matter back with the directive that an Order declaring that the policy had been properly cancelled be entered. 

06/24/14       Assoc. Community Bancorp, Inc. v.  St. Paul Mercury Ins. Co.
Appellate Division, First Department
Bankers Liability Policy Does Not Provide Coverage for Losses Attributable to Madoff Scheme
Appellate Division affirmed the trial court’s decision upholding St. Paul’s disclaimer on various exclusions in a Banker’s Professional Liability Policy.  It appears most of the claims were brought by investors who lost money upon the discovery the Ponzi scheme operated by Bernie Madoff. 
To that end, the Court ruled that “Loss of Money Exclusion” barred coverage for any losses sustained to monies allegedly in Madoff controlled accounts.  The Personal Profit exclusion removed any coverage for claims alleging that plaintiff’s made profits on the handling of the Madoff accounts.  Where, as here, the banks used incoming funds to pay its own fees, the banks gained a financial advantage. 
The “Sale of Securities Exclusion” precluded coverage for claims alleging that plaintiff’s engaged in unregistered security trading by depositing investor’s funds in “omnibus accounts.”   Finally, the Court, applying Connecticut law, ruled that the “Insolvency Exclusion” applied because the loss arose due to the insolvency of Bernie Madoff’s company. 
06/20/14       Majtan v Urbanke Associates, Inc.
Appellate Division, Fourth Department
Procurement of One Policy, and a Renewal Does Not Create a “Special Relationship” 
Defendant procured a homeowner’s policy for plaintiff.  Unfortunately, the policy was cancelled due to plaintiff’s non-payment of premiums.  Adding to the misfortune, plaintiff’s home sustained fire damage 10 months later.  When he submitted the claim, the coverage had obviously lapsed. 

In response, plaintiff commenced the instant action alleging that he had relied upon the defendant’s misrepresentation that the premiums had been paid.  Defendant agent successfully argued that it had no “special relationship” with plaintiff and, as such, owed no duty to plaintiff.  The result of which ended with the dismissal of plaintiff’s suit. 

06/10/14       291 Broadway Realty Assoc. v Weather Wise Conditioning Corp.
Appellate Division, First Department
GOL 5-322.1 Does Not Apply Where the Contract at Issue Did Not Contemplate to Indemnity for the Movant’s Own Negligence
The underlying action involved nonparty Edwin Martinez asserting Labor Law claims against plaintiffs, which settled before trial.  Plaintiffs now seek contractual indemnification from Martinez's employer, defendant Weather Wise, pursuant to an indemnification provision included in its HVAC service contract with plaintiff Starbucks, which required Weather Wise to indemnify Starbucks for all claims, damages, liability, and expenses incurred by reason of its breach of its contractual warranties and obligations to Starbucks and its "negligent and/or willful acts or omissions in carrying out its obligations under th[e] [HVAC] Agreement."  Plaintiffs’ moved for summary judgment on their contractual indemnification claim and the trial court denied the motion.

On appeal, the First Department began by noting that the clause at issue does not violate General Obligations Law 5-322.1.  Although it purportedly did not contain “savings language,” a plain reading demonstrated that Starbucks did not anticipate being indemnified for losses arising from their own negligence.  However, the trial court’s denial was affirmed where, as here, there remained questions of fact as to whether Weather Wise was actually negligent.  Moreover, because the matter arose from a defective condition at the property, there also remained a question of fact as to whether Starbucks has actual or constructive notice of said condition, and thus would bear some percentage of negligence.

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

06/25/14       Hansen v. Sentry Insurance Co.
2014 WL 2872218 – 1st Circuit Court of Appeals
Despite Creative Arguments, No Coverage For Former Employee of Insured
The interesting facts leading to this coverage dispute involved Hansen’s activities as vice president of Wilcox Industries Corp.  Wilcox, a New Hampshire corporation, designs, manufactures and sells “tactical equipment” to the United States military and other federal and local government agencies.  Hansen was hired by Wilcox as a consultant initially and then began working full time for Wilcox in March 2005, serving as a vice president, until leaving Wilcox on June 15, 2007.

Hansen sought coverage under the personal and advertising injury provision of Wilcox’ commercial general liability insurance policy for claims made by Wilcox against him.  Wilcox alleged, in part, that Hansen made false statements about Wilcox and their products. 

As a vice president, Hansen had access to confidential information regarding the development of certain products, as well as knowledge of Wilcox’s current and potential customers.  During his tenure with Wilcox, he had executed a non-disclosure and non-solicitation agreement.

After leaving in June 2007, Hansen and his newly-formed company, ALST, continued to serve as a consultant to Wilcox.  He and Wilcox ultimately parted ways in February 2009.

Initially, the departure was evidently amicable, but ultimately Wilcox commenced suit against Hansen, alleging that Hansen used his knowledge of Wilcox’s trade secrets and proprietary information to develop his own competing product and thereafter selling the product using his knowledge of Wilcox’s customer base.  The underlying complaint against Hansen and his company alleged breach of contract, breach of implied covenant of good faith and fair dealing, common law and statutory unfair competition, misappropriation of trade secrets, breach of fiduciary duty, unjust enrichment, and intentional interference with contractual relations.  As is particularly pertinent to the coverage action, the complaint alleged that Hansen made harmful false statements about Wilcox and its technology, while marketing his own products to Wilcox customers.  Unfortunately for Hansen, he had not purchased commercial general liability insurance for himself and his newly-formed company and, thus, was faced with funding his own defense and potential indemnity.

When Wilcox’s CEO was deposed on June 5, 2012, he testified that Hansen absolutely made derogatory statements about Wilcox and its products during the time Hansen served as vice president.  He also testified that Hansen had formed ALST during the time he worked for Wilcox.  Based upon this testimony, Hansen again requested that Sentry afford him coverage based upon the argument that Wilcox was claiming Hansen made derogatory statements during the course of his employment.  Sentry disagreed and again denied coverage, contending that in making disparaging statements, Hansen was not carrying out his duties as an executive officer of Wilcox or otherwise acting on Wilcox’s behalf.  The District Court agreed, concluding that Hansen did not qualify as an insured based upon the allegations against him, and granted Sentry’s motion for summary judgment.  Hansen appealed.

Addressing the terms of the occurrence-based policy which identified the named insured as Wilcox and to include executive officers and directors, but only with respect to their duties as your [i.e. Wilcox’s] officers or directors, the court agreed that the policy did not provide coverage for damages arising out of Hansen or his company, ALST’s, business.  The court found Hansen’s coverage theory creative, but ultimately without merit.

06/24/14       Hartford Casualty Insurance Company v. Dental USA, Inc.
United States District Court, N.D. Illinois, Eastern Division.
Intellectual Property Exclusion Precludes Coverage
Hartford issued numerous liability policies to Dental, a supplier of dental instruments, allegedly owning several U.S. trademark registrations and patents.  Dental commenced several lawsuits, asserting patent, trademark and copyright infringement of such intellectual property and in the actions, counterclaims were brought against Dental asserting infringement by Dental of intellectual property rights.  Dental then requested that Hartford defend and indemnify Dental in the actions.

Hartford declined to afford defense under the bodily injury or property damage coverage and under the personal and advertising injury portion of the policy.

Applying Illinois law, the court first determined that under the bodily injury and property damage portion of the policy, there was no coverage, as Dental failed to demonstrate the damages sought were for bodily injury or property damage, as defined by the policy.

With respect to coverage under the personal and advertising injury portion of the policy, Hartford pointed to the intellectual property exclusion, which provided that the coverage did not apply to personal and advertising injury arising out of any violation of any intellectual property rights, such as copyright, patent, trademark, trade name, trade secret, service mark, or other designation of origin or authenticity.  The court agreed that the exclusion precluded coverage, rejecting Dental’s public policy argument that the exclusion rendered the entire insurance policy illusory.  The court noted that the policy covered injuries relating to a personal and advertising injury which potentially would cover a broad range of claims.

AUDREY’S ANGLES ON THE NATIONALLY NOTEWORTHY

Audrey A. Seeley
[email protected]

 6/24/14        Chandler v. Valentine
Supreme Court, Oklahoma
Claims Made Medical Malpractice Policy Could Not Be Cancelled With Knowledge Of Potential Claim Without Violating State Statute
On November 1, 2004, Mr. Valentine, a physician at that time, performed a fatal operation on Mr. Wurtz.  On March 10, 2005, the Oklahoma Board of Medical Licensure held a disciplinary hearing wherein Mr. Valentine's license was revoked with the ability to reapply for same in one year. 

Mr. Valentine had a claims made medical malpractice liability insurance policy (“the policy”) issued by Physicians Liability Insurance Company ("PLICO").  The policy was a claims made policy with a policy period from July 1, 2004 to December 31, 2006.  On March 14, 2005, Mr. Valentine sent written notice to his insurance agent requesting that his policy for 2005 be cancelled.  This letter was forwarded to PLICO together with a newspaper article reporting on Mr. Valentine's license revocation and referenced him performing surgery on a patient while impaired by pain medication.

On March 22, 2005, PLICO notified Valentine that the insurance policy was cancelled and offered to afford tail coverage.  A second letter was sent to Valentine stating that the policy was cancelled at his request.  It is reported that an underwriter's deposition stated that at the time of the policy cancellation the company was aware of the newspaper article and considered the fact that Valentine was no longer licensed in its decision to cancel the insurance policy.

On June 2, 2005, a wrongful death action was filed against Valentine and others.  Mr. Valentine tendered the matter to PLICO who denied insurance coverage because the claim was not made until after the policy was cancelled as well as asserting an exclusion for acts performed under the influence of intoxicating substances. 

With regard to the wrongful death action, after Valentine went through bankruptcy, a consent judgment was entered into which was ultimately in excess of $1.2 million.  The plaintiff in the wrongful death action commenced garnishment proceedings against PLICO.  PLICO denied any indebtedness as there was no insurance coverage under an insurance policy issued to Valentine.  Summary judgment was granted in favor of the plaintiff on the ground that the policy PLICO issued to Valentine was cancelled in violation of Oklahoma insurance code §3625.

The issue before the Supreme Court was whether an insurer, with knowledge that a potential claim is pending, may agree to cancel a claims made policy without violating Oklahoma Insurance Code §3625.  Section 3625 of the Oklahoma Insurance Code provides:

No insurance contract insuring against lesser damage through legal liability for the bodily injury or death by accident of any individual, or for damage to the property of any person, shall be retroactively annulled by any agreement between the insurer and the insured after the occurrence of any such injury, death, or damage for which the insured may be liable, and any such attempt at annulment shall be void.

PLICO unsuccessfully argued that this provision applies only to occurrence based policies and not claims made policies.  The Court reasoned that §3625 applies to all contracts of insurance affording coverage for damage, injury, or death.  The statute's provision focused on protecting injured parties and not on actual policy provisions.  Thus the statute does not selectively apply to occurrence based policies but not to claims made policies.

The only difference that the Court indicated would be permitted in determining whether the statute was violated with regard to a claims made policy is that the section of the Insurance Code would apply to claims made policies only when there is an agreement to cancel the policy which would eliminate a potential claim and the insurer is actually aware at the time of the agreement of the act or acts that could potentially result in a claim.

The analysis then turned to whether in this case there was an agreement between the insured and the insurer to cancel the policy and whether the insurer was aware of the alleged malpractice that could lead to a claim under the policy.  In this case, the policy did not contain a provision for cancellation on revocation of a medical license and the parties to this action agreed that Valentine did not have the right to cancel the policy.  The Court rejected any argument that Valentine's inability to cancel the policy established that PLICO's cancellation was a unilateral act thus not meeting the requirement under the statute.  The Court summarily rejected that argument and simply stated that there was an agreement between the insured and the insurer to cancel the policy.  Further, the Court looking at the evidentiary materials that were annexed to the summary judgment motion papers determined that those materials established a written offer by Valentine to cancel the policy which was accepted by PLICO with knowledge of events that could generate the wrongful death action.  Thus, the agreement to cancel was statutorily prohibited and thus void.

 

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

A9763 – Proposed Amendment to CPLR – Service of Papers

This bill did not pass the Senate, but it did pass the Assembly at the end of session.  This bill seeks to clarify that the time prescribed for measuring service of paper by mail is five days if made within the state.  The bill proposed to extend the time to six (6) days if the mailing is made from outside of the state, but within the geographic boundaries of the United States.

A03696B

Again, this bill did not pass the Senate, but it did pass the Assembly towards the end of session.  This proposed legislation sought to add a new subsection to Insurance Law 3425 which would prohibit an insurer from cancelling or non-renewing a personal auto solely because a claim filed by the insured is in dispute or because the insured filed a complaint against the insurer with the department.

A00756A

Like the other two bills mentioned, this bill did not pass the Senate, but it did pass the Assembly at the end of session. This bill seeks to create the crime of “staging a motor vehicle accident in the second degree.”  A person would be guilty of this provision if he or she, with intent and in furtherance of a fraudulent insurance action, operates a motor vehicle and intentionally causes a collision involving a vehicle.  This would be a class E felony. 

A violation in the first degree would occur if in the course of staging a motor vehicle accident in the third degree, he or she causes serious personal injury or death to another person other than a participant in the offense.  This would be a class D felony.

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

06/23/14       Dormitory Auth. of State of NY v. Continental Casualty.
United States Court of Appeals, Second Circuit –New York
Two Design Flaws in Same Structure Were Not Related
In September 1995, the Dormitory Authority of the State of New York [“DASNY”] contracted with an architectural firm to design and oversee the construction of a new building for Baruch College of the City University of New York.  Plans drawn by the architects and its subcontractors erred in their estimate of the steel requirement and in the specifications of the structural steel girts and exterior façade [“Steel Girt Tolerance Issue”].  To recover losses from the resulting delay and expense, DASNY sent a demand letter to the Architects detailing the Steel Girt Tolerance Issues in May 2002.

After the project was finished in 2001, it was discovered that excessive accumulations of snow and ice were sliding off the building onto sidewalks a considerable distance away.  In the winter of 2003-04, the architects commissioned a subcontractor to study the “Ice Control Issue”.  The study concluded that the design of the façade failed to account for temperature variations appropriate for a building in New York, and that the problem could not be solved by adding canopies, as had been hoped.  Study of the problem continued into 2005.

In 2004, Travelers Casualty & Surety Company [“Travelers”], the surety on performance bonds purchased by the Project’s general contractor, sued DASNY and the Architects.  DASNY was sued for delay-related expense and for pass-through claims from subcontractors, and the Architects were sued for contributing to the delays and for breach of professional duties.

DASNY cross claimed against the Architects, generally alleging breach of contract and negligence.  In 2005, DASNY responded to an interrogatory seeking a specification of claims; its answer identified the Ice Control Issue for the first time in the litigation.

Continental Casualty issued a claims-made policy to the Architects.  Coverage was triggered by a claim made against the Architects during the policy periods.  Two policies were implicated:  2000-02 and 2003-04.  The policies provide that “all related claims shall be considered a single claim first made and reported  . . . within the Policy years in which the earliest of the related claims was first made and reported.  “Related claims” were defined as “all claims made against [the Architects] and reported to ‘Continental] during any policy year arising out of . . .  a single wrongful act or related wrongful acts.”

In 2009, DASNY, the Architects and Continental agreed to settle DASNY’s cross-claim against the Architects in the Travelers suit:  Continental would pay DASNY approximately $3.1 million under the 2000-02 policy for the Steel Girt Tolerance Issue.  Continental would pay an additional $3 million under the 2003-04 policy if DASNY succeeded in obtaining a declaratory judgment that the Ice Control Issue did not arise out of the same related wrongful acts identified in the 2002 Demand Letter.

The district court ruled that the Ice Control Issue was not “related” to the Steel Girt Tolerance Issue, and therefore entered judgment ordering Continental to pay $3 million pursuant to the settlement agreement.   The district court also awarded prejudgment interest calculated on the basis of the average prime interest rate of 3.25% and rejected DASNY’s argument that a statutory interest rate of 9% applied pursuant to CPLR §§ 5001, 5004.

The United States Court of Appeals for the Second Circuit [“Court”] affirmed as to the declaration and vacated as to the interest.

Continental argued that the 2002 Demand Letter alleged professional negligence in terms broad enough to include all design defects in the building:  the Steel Girt Issue as w ell as the Ice Control Issue.  The letter opened with two categorical allegations:  the failure to complete design services in a timely fashion and the failure to properly coordinate services with other member of the design team.

The Court noted that by 2002, DASNY was already aware of the Ice Control Issue, but the Architects were proposing additional canopies, a fix that would be easy and cheap.  It was not until after the study conducted in the winter of 2003-04 that it became clear that the major design changes would be needed.

The Court concluded that the 2002 Demand Letter could not fairly be read to concern the Ice Control Issue and could not be fairly read as an omnibus claim concerning all architectural defects in the Baruch College building.

Continental also argued that the Steel Girt Tolerance Issue and the Ice Control Issue are “related claims” under the policy wording because they “arise out of a single wrongful act or related wrongful acts.”  The Court disagreed, finding that one has to do with the structural integrity of the building; the other, with its aesthetic design.  It was the Court’s opinion that the two issues involved different design teams and had two separate sets of contractors working on them.  Further, the problems manifested themselves at different times and resulted in different types of damage.  The solutions to each issue were wholly different.

On the issue of prejudgment interest the Court stated that New York law mandates the imposition of prejudgment interest at the rate of 9% under certain circumstances.  New York’s statutory rate applies to a “sum awarded because of a breach of performance of a contract, or because of an act or omission depriving or otherwise interfering with title to, or possession or enjoyment of, property.  The Court held that this declaratory judgment did not arise out of breach of contract or deprivation of property.  The coverage issue was comprised in a way that left unsettled a number of defenses potentially available to the insurer.  DASNY sued under the settlement agreement, which conditioned Continental’s obligation to pay upon DASNY’s success in this suit.  The Court stated that since DASNY’s entitlement to the $3 million did not arise until the declaratory judgment was rendered, the nine percent statutory rate is not applicable. For much the same reason the Court held that the district court abused its discretion by awarding prejudgment interest from the date of the settlement agreement itself.  Interest does not start accruing until there is an obligation to pay; consequently, the payment of prejudgment interest was improper.

KEEPING THE FAITH WITH JEN’S GEMS

Jennifer A. Ehman
[email protected]  

06/27/14          El-Ad 250 W. LLC v Zurich Am. Ins. Co.
Supreme Court, New York County
Claim Subject to Annual Aggregate Flood Limit
In October 2012, plaintiff was in the middle of developing a construction project on a building located in Manhattan.  Zurich had issued plaintiff a builder’s risk policy, which took effect the prior year. 

On October 29, 2012, while the policy was in effect, Superstorm Sandy caused damage to the property and, as a result, caused a delay in completion.  Plaintiff filed a $5 million proof of loss.  Zurich rejected the claims.  Zurich reasoned that its policy contained two applicable sublimits.  The policy had a submit of $108 million for “Physical Damage Coverage” and $7 million for “Delay in Completion” coverage.  The policy also contained a $5 million annual aggregate limit for losses caused by a flood.  Moreover, flood losses were subject to a deductible. 

The parties dispute whether delay in completion losses arising from a flood are subject to the flood annual aggregate limit and deductible.  Plaintiff argued that it only applies to the property damage caused by a flood and not so-called “downstream” financial losses, such as delay in completion loss.

The court disagreed.  Finding no New York case law on point, the court relied on an 8th Circuit decision, Altru Health Sys. v Am. Protection Ins. Co., involving the closure of a hospital by health official due to rising flood waters.  In that decision, the court had found that the hospital’s policy defined a flood loss as any “losses resulting from any one Flood disaster.”  Hence, the hospital’s business interruption loss “arose out of the flood,” making it subject to the sublimit.

Here, as in Altru, the court reasoned that the policy was clear as to its scope.  The policy provided “[a]s respects the peril of FLOOD, OCCURRENCE shall mean all losses or damage arising during a continuous condition as defined in the definition of FLOOD.”  As the loss would not have occurred but for a flood, it was subject to the $5 million annual aggregate limit without regard to the type of loss suffered. 

06/25/14          Consolidated Edison Co. of N.Y., Inc. v Old Republic Ins. Corp.
Supreme Court, New York County
No Additional Insured Coverage Where Contractor Had Left the Site
This action arises out of a September 24, 2008 incident in which the underlying plaintiff fell from a scooter he was riding at the site of a trench excavation on a public street at Sixth Avenue and Ninth Street in Manhattan. 

Plaintiff sued Con Ed, among others.  Con Ed tendered its defense and indemnity to Old Republic.  Old Republic had issued an insurance policy to non-party Safeway Construction, Inc. who had been retained to perform excavation, conduit installation and backfilling at the site.  Safeway had left a one and one-half inch gap between the grade of the roadway and the surface of the filled-in trench, as required by the Safeway contract with Con Ed.  At the time of the incident, Safeway had fully performed its work and had left the site. 

In response, Old Republic denied the tender on the ground that “the loss did not arise from Safeway’s work.”  It also indicated that Con Ed’s notice was late.  Following the tender denial, Con Ed commenced a third-party action in the underlying matter against Safeway and the underlying plaintiff followed suit naming Safeway as a named party defendant.  Safeway eventually moved for summary judgment, and the court granted the motion on the ground that it was not negligent.  This was then affirmed by the appellate court.

In considering the motion and cross-motion here, the court began by summarily dismissing Old Republic’s assertion that the notice was untimely.  The court found that as Old Republic had waited more than two months to disclaim after receiving notice of the suit, it had waived its right to enforce the timely notice condition of its policy. 

With regard to Old Republic’s other argument, the court agreed that it had no obligation to defend or indemnify Con Ed.  Primarily relying on the Court of Appeals decision in Worth Constr. Co., Inc. v Admiral Ins. Co., the court determined that the only significant connection between Safeway’s work and the accident was the allegation that Safeway was negligent.  Once Safeway was judicially determined not to have been liable for the Underlying Action, there was no possible liability arising out of the named insured’s work sufficient to trigger the AI endorsement.  Of interest, the court did go on to note that while a substantial connection between the accident and the risk for which additional insured coverage was obtained may exist even in the absence of liability on the part of the named insured where the person injured is an employee of the named insured, such a situation was not present here.

06/19/14          Hartford Underwriting Ins. Co. v Leardon Boiler Works, Inc.
Supreme Court, New York County
Carrier Required to Reimburse Insured for Defense Costs Related to Counterclaims and Cross-claims Asserted in Declaratory Judgment Action
This decision involves the application of the Mighty Midgets decision.   As you may recall from last issue, Mighty Midgets established the New York rule that a recovery of attorney’s fees may not be had in an affirmative action brought by an insured to settle its rights but, instead, only when the insured has been cast in a defensive posture by the legal steps an insurer takes in an effort to free itself from its policy obligations.

Here, Hartford brought this action seeking a declaration that it had no obligation to defend or indemnify its named insured, Greenman-Pederson, Inc. (“GPI”), in the underlying action, and that GPI’s other insurers owed GPI defense and indemnity instead.  GPI’s answer included counterclaims for declarations that Hartford owed such a defense and indemnity (by way of counterclaims) and cross-claimed against the other insurers.  Ultimately, the court determined that Hartford and another insurer did have a duty to defend and indemnify GPI.

When GPI sought its defense costs in this action, Hartford sought to limit the amount owed by submitting that it had no obligation to reimburse GPI for costs incurred in its prosecution of its counterclaim and cross-claims.  Hartford relied on the court’s order which only granted attorney’s fees in “defending” this action and asserted that it is settled caselaw that a litigant is not entitled to recover amounts expended in an affirmative action brought by an insured to settle its rights.

In considering the extent of the reimbursement, the court reasoned that it was uncontested that GPI did not litigate or move for summary judgment on its second, fourth and fifth counterclaims for breach of duty undertaken and negligence, violation of GBL 349 and wrongful disclaimer of coverage, respectively.  Rather, it moved on its first counterclaim, for a declaratory judgment that Hartford waived any grounds in support of a denial of coverage and is liable for GPI’s costs, and its third counterclaim for a declaration that Hartford is required to defend GPI in the underlying action.  Thus, the court held whether couched as a counterclaim or otherwise, GPI’s defensive posture in this action was triggered by virtue of Hartford’s initial action in seeking to free itself from its obligations.  Merely restating the claim in the inverse does not remove GPI from its defensive posture in this action.  Moreover, with respect to the cross-claims, GPI was compelled to assert such claims as a result of the defensive posture. 

Bad Faith

06/25/14          Kropilak v 21st Century Sec. Ins. Co.
United States District Court, M.D. Florida, Tampa Division
Where Insurer Tendered Policy Limits In Thirty-Seven Days and Prior to a Demand, Florida Court Still Denies Motion for Summary Judgment on Bad Faith Claims; Really?!?!
21st Century issued an automobile policy with limits of $10,000.00 per person and $20,000.00 per accident to Nicole Collins.  While the policy was in effect, Collins was involved in a motor vehicle accident where she struck Robert Kropilak.  Kropilak was transported to the hospital via airlift.  The police report placed fault on Collins. 

The accident was report to 21st Century the same day, and a representative was assigned to the claim.  Two days later, the representative wrote to Collins explaining the coverage limits and the possibility of excess damages. 

Thirteen days after the accident, 21st Century was faxed a lien notice relating to medical services provided to Kropilak, and a letter of representation was received from Kropilak’s retained counsel enclosing a copy of the police report.  Prior to suit being filed, thirty-seven days after the accident, 21st Century tendered its policy limit. 

Kropilak declined the offer and filed suit.  21st Century retained counsel to represent Collins in the action.  Eventually, a settlement proposal was sent to defense counsel whereby Collins would receive complete protection, the parties would agree on a $150,000 judgment and the alleged bad faith claims would be preserved.  21st Century did not accept this proposal.  The case then went to trial and the jury awarded Kropilak approximately $175,000 in damages. 

In considering this motion for summary judgment, the court held that 21st Century did indeed have a realistic opportunity to settle.  The opined that the day the insurance claim was reported to 21st Century, 21st Century claims manager noted that serious injury was probable, and that an “excess letter” needed to be sent to the insured. It was also made clear during the deposition of the claim representative that making initial contact immediately was “critical.”  The claim representative was also faxed a hospital lien in the amount of $33,880.00, and the accident report stated that Kropilak had “incapacitating injuries” and was extracted by airlift.  The claims supervisor also testified that the representative should have contacted Kropilak to offer the policy limits immediately upon review of the police report.  Based on all of these factors, the court found that 21st Century could have reasonably inferred earlier that a judgment in excess of policy limits was a possibility.

Furthermore, the court went on to hold that when given the opportunity to settle after Kropilak had refused the policy limits, 21st century did not agree to a proposed settlement of $150,000.00 when their defense counsel knew based on a pre-trial report that the estimated jury verdict range would be between $150,000 and $200,000.  Thus, the court found that a reasonable jury could find that 21st Century knew that a judgment in excess of the policy limits was likely, and injuries were so serious that the insurer had an affirmative duty to initiate settlement negotiations. Accordingly, whether 21st Century's failure to tender the policy limits until thirty-seven days after the accident and its failure to negotiate a settlement on the excess policy limits, were reasonable under the facts of this case, are material issues of fact to be submitted to the jury. 

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

LAW FIRM’S WIRED FUNDS AN EXCLUDED LOSS

Martin, Shudt, Wallace, DiLorenzo & Johnson v. Travelers Indemnity Company of Connecticut, 2014 WL 460045 (N.D.N.Y. February 5, 2014).

The Martin, Shudt Law Firm in Troy, New York had a Travelers policy that provided coverage for direct physical loss or damage of covered property, but excluded a loss resulting from a “voluntary parting” with any property by the law firm, or someone to whom the law firm entrusted the property.  The firm lost $95,000.00 in June 2012 when it wired a forged cashier’s check to a third party bank account under a mistaken belief the check was intended as a payment to one of its clients.  Travelers denied the loss claim based on a policy exclusion for “voluntary parting” with the property. 

Litigation was commenced against Travelers seeking a declaratory judgment of coverage, recoupment of the $95,000.00, and attorneys’ fees for breach of contract and bad faith.  Travelers moved to dismiss and its motion was granted based upon the “unambiguous” cited exclusion which pertained to the lost funds/check.

The court explained that the plaintiff wired the funds at issue to another bank account and thereby voluntarily parted with the funds.  The fact that the law firm wired the money in reliance upon misrepresentations or false pretenses did not alter the fact that parting of the property was voluntary.  The court rejected an argument that the exclusion was ambiguous because it did not explicitly refer to losses caused by theft or fraud. The court also rejected the law firm’s argument that it had a “reasonable expectation” that such a loss would be covered.

One lesson of this case is that clear and “unambiguous” policy exclusions can control the argument and be the decisive factor in denying a loss claim.  A second lesson is that the multitude forms of financial transactions can be complicated patterns sometimes not easily fit into traditional insurance analysis or policy language.  There are many different financial transactions, there are questions whether the cash itself is the property subject to a claim, and there are issues as to how the funds are handled that can give rise to a claim.  The third lesson to be gleaned from this case is that (once again) the Federal District Courts are generally a preferable forum in which to contest coverage issues in a thorough, hopefully fair and neutral review.

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