Coverage Pointers - Volume XVI, No. 25

Dear Coverage Pointers Subscribers:

You have a situation?  Welcome to the club.  We love situations.

We are starting to ease into the summer which will mean a more limited array of appellate decisions.  The Court of Appeals will be in summer recess as with Appellate Departments.  This is tradition and starting from late June through mid-September, there will be fewer reported decisions.  You can be sure we’ll find something to talk about.

Special thanks to my friends at the New York Insurance Association for their warm hospitality in Saratoga Springs and we welcome a few new subscribers who came on board after my crystal ball presentation.  A trip to Toronto, where I spent time with the Canadian Defence Lawyers and a New York State Bar presentation on automobile insurance issues rounded out the week.

There are a couple of very interesting decisions in this week’s edition, including a First Department decision bucking the Elacqua decision from the Third Department.  You will recall, that the Third Department has held that an insurer must tell its insured when the insured has the right to “independent” counsel (ala Cumis or its NY version, Goldfarb).  The First Department disagrees and we discuss that question below.

You will also find, in Agnes’ column, a US District Court decision on privilege.  In our most recent issue, we reviewed another attack on the insurer’s privilege to seek confidential coverage advice from coverage counsel, prior to the company making a final coverage decision.  This is a very worrisome development.  The District Court decision was much more supportive of the privilege than the Fourth Department’s decision reported recently.

We have our usual array of our “Hundred Years Ago” stories.  I get so much feedback on those, especially when we have the opportunity to top off a century old story with an interview of a descendent of the subject of our look back.  We have one of those today, and it’s a baseball story. 

If you can’t wait, click here and learn about Orie Kerlin.

Upcoming Programs:

I do want to report on two excellent insurance programs scheduled in the near future. 

FDCC Insurance Industry Institute:  October 21-23, New York Athletic Club, NYC:

As the insurance industry confronts an ever-increasing pace of change and steady barrage of emerging trends and new crises around the world, the Federation of Defense & Corporate Counsel (FDCC) Insurance Industry Institute (I-3) brings together industry leaders, senior insurance executives, and their counsel to examine key issues and challenges that can be expected to take on increasing importance over the next five years.

Rather than focus on what has already happened, I-3 strives to look forward to issues that will grow in importance over the next several years in order to allow insurance professionals and outside experts to share insights that attendees can use to guide their companies through the coming years.

Unlike many programs sponsored by attorney organizations, the majority of the I-3 speakers are not defense attorneys. Instead, the program is designed by a team led by Federation members from inside the insurance industry who have reached out to industry executives and counsel, regulators, and outside subject matter experts to provide the insights unique to the industry that only they can provide.

Click HERE for the Brochure

DANY/DRI Insurance Update and Claims Resolution Seminar – 6/25 – NYC:

DRI and the Defense Association of New York (DANY) have joined together to bring you the DANY/DRI Insurance Update and Claims Resolution Seminar on June 25 at the Down Town Association in New York City. The New York Insurance POP-UP program, for the first time, brings together New York claims professionals and attorneys to learn and network together locally. 

DANY and DRI present the 2015 New York Insurance POP-UP program in downtown Manhattan, for busy claims professionals and attorneys, without time-consuming travel and hotel expenses. Spend the day with us, earn valuable CE/CLE, build your network, and take the train home. 

Program Highlights Include:  

  • Learn from top insurance executives about current trends 
  • Strengthen your defense with biomechanics 
  • Avoid lien pitfalls and spot recovery opportunities 
  • Learn how to present and negotiate your case effectively from the very best   

DANY Members:
In order to take advantage of the DANY member discount, please register for this seminar by calling DRI at 312.795.1101. Your membership will be validated in cooperation with DANY.

CLE/Claims Adjusters Accreditation  
CLE has been applied for New York and New Jersey for 5.25 hours, including 1.5 hours of ethics credit.

Application has been made for continuing education for claims adjusters. 

Obligation of Insurer to Notify an Insured of its Right to Independent Counsel – Departments are Split:

Is there a duty to advise the insured of a right to independent counsel when that right exists?  We all know that the Third Department, in Elacqua, decided that there is an obligation to do so and a failure to do so may give right to damages under the General Business Law.  The First Department, in 2000 held differently and in this week’s edition, in the Tower Insurance case, the First Department reaffirmed its position that there is no obligation on the part of an insurer to notify its insured of that right.
Wilewicz’s Wide World of Coverage

Dear Readers,
The world of coverage is indeed wide this week, with Federal decisions ranging from New York to the First Circuit, to the Ninth Circuit in Guam.

First, to follow up on Dan’s recent discussions on privilege at the State’s appellate level, we have a New York Federal Court decision that directly addresses the issue. In a well written and clearly reasoned decision from the Eastern District, the court in Harleysville v. Sharma held that claim file materials are in fact privileged where outside counsel has been retained and a declaratory judgment coverage action has been initiated. Acknowledging that there are difficult issues on where to draw the line from documents prepared “in the regular course of business” and those prepared “in anticipation of litigation”, the Court nevertheless found that where the matter has been referred to counsel, the insurer is fairly anticipating litigation and thus the privilege attaches. This is a good step toward swinging the pendulum back in the right direction.

Next, from the First Circuit we have a case of missing policies and mysterious fact-less claims. In Cardigan Mountain, a private school recently started a declaratory judgment action against its insurer for coverage for a claim that allegedly took place during the 1967-1968 school year. Unfortunately, no one gave the circuit court any details about the facts of that case. Notwithstanding, the carrier moved to dismiss because neither the school nor the insurer could find a copy of the policy, and they asserted that the school’s complaint was insufficient to even state a cause of action. The First Circuit held that the school’s allegations were indeed enough and permitted the case to continue. On a motion to dismiss, the court said, they did not have to prove their entire case (unlike a motion for summary judgment), they just needed to plead a plausible one.

And finally, from far-flung Guam we have a coverage case with an environmental twist, featuring typhoons and pirates and thousands of gallons of oil. In Guam Industrial, a dry dock collapsed during a storm, jettisoning barrels and containers of oil into the Pacific. The insured had two policies for the dock – one that could have covered damage to the dock, and another that could have covered marine pollution. However, the insured struck out on both. They failed to obtain the proper structural integrity certification that was required under the first policy. As for the second, because (however fortunately) not a single drop of oil was spilled, the court found that no “pollution” took place and so clean up of the barrels was not covered. Interesting stuff.

See you in two weeks!

Agnieszka A. Wilewicz, Esq.
[email protected]

One Hundred Years Ago – Orie Kerlin’s Major League Debut – Including a Reminiscence from his Granddaughter:

Pittsburgh Post-Gazette
Pittsburgh, Pennsylvania
7 Jun 1915

Orie Kerlin, the Rebel third-string catcher, got into his first game after the Rebels were hopelessly lost, and put up a good article of receiving. 

Editor’s Note:  That was the story I read.  I needed to know more.  Those of you who know me well, or are regular readers, know that when I need to know more, I often find it.  I did.

You probably never heard of Orie “Cy” Kerlin.  It’s his anniversary.  Orie was a major league baseball player.  He stopped up in the Major’s for a proverbial “cup of coffee”  His career lasted all of three games.  His first game, as the news article reported, was 100 years ago tomorrow.

I learned a little bit about him online and even more from his loving granddaughter, Dianna Drake. I thought I’d pass on his story.  More about Dianna, later.

One hundred years ago, Orie Kerlin made his debut as a catcher for the Pittsburgh Rebels of the short-lived Federal League.  His career was brief but unlike most young men who have baseball aspirations, he made it to the “bigs”.  The Federal League joined the American and National Leagues, for two years, as part of the Major League.

Orie Kerlin was born on January 23, 1891 in Louisiana. His dad owned and worked in a hardware store, kind of a “general store” that is still in business today. In 1910, Orie enrolled at Louisiana State University and left there five years later.  By 1915, the Kerlin family was living in Homer, Louisiana.

Kerlin started playing baseball early in his life.  He played semi-pro ball in Texas for a few years and then in December 1914, Kerlin was signed by the Pittsburgh Rebels. Kerlin was discovered by Pittsburgh's manager, Rebel Oakes, who also lived in Homer. Rebel had been a major league ballplayer himself before he jumped to the Federal League.  It was said of him: "Rebel Oakes is a streak of Louisiana lightning. He can travel to first like the Pennsylvania Limited shooting through the Jersey meadows." - Sporting Life of May 8, 1909.

Kerlin was used as Pittsburgh's third-string catcher.  Oakes described Kerlin as being "fast as lightning, a fair batter, and a half-decent catcher". 

Kerlin made his MLB debut mid-season on June 6, 1915 against the Chicago Whales. His second game came on July 8, against the St. Louis Terriers. He made his final MLB appearance on September 1. Over his three games with Pittsburgh, he went hitless in one at bat. In the field, Kerlin played all three of his games at the catcher spot, making no errors and one passed ball.

By 1920, Kerlin was living with his parents back in Homer, Louisiana. He worked at Fomby Hardware Store in Homer with his father. A few years later, Kerlin worked as the town undertaker. Kerlin was also the president of the local saw mill.

By 1930, he was married to Lillian Kerlin of Louisiana. The Kerlins had two children, daughters June and Marthe. Kerlin died on October 29, 1974.

I had the honor of speaking with his granddaughter, Dianna Drake. She told me that Orie was oldest of a baker’s dozen of children.  Orie took over the family hardware store and funeral parlor.  Dianna was so overjoyed to speak of her grandfather who he held in the highest of esteem.  Orie has great-grandchildren who are ballplayers and perhaps so day, one of them will end up on the Majors.

She told me that the family collected pecans as a hope and placed them in mason jars.  As a 12-year old, she charged her friend money by giving tours of the embalming room and charged extra for laying on the embalming table.  Dianna also related the story of the time her brother helped her climb a tree so she could peek into the embalming room where a corpse on the table was a frightening thing to see.

Orie was a good-hearted man, teaching Dianna to drive when she was 10 years old.  During the winter months, from the hardware store he would take heaters out to families who had no heat.  He love to fish and was a great fly fisherman.  He loved life and loved talking baseball all throughout his many years. 

The mirthful Dianna called me again to relate another story.  Having mentioned her grandfather’s love of fishing and hunting, she remembered that he was often accompanied by his two dogs, “Pete” and Repeat”. 

Dianna was excited for herself and her family that someone was taking the time to tip his hat to her beloved grandfather.  Thanks, Dianna, for sharing him with us.  I am sure your family is proud.

We raise a glass to Orie on his 100th anniversary and wish his family the greatest of health and happiness in the years to come.

Dianna, if I didn’t get some of the facts right, mea culpa.  But I know this – several thousand people who didn’t know of Orie Kerlin now share in his legacy and your family’s story.  By the way, here’s his picture.

P.S.  While Orie “Cy” Kerlin may not be as famous as Cy Young, you can real about the 35 Cy’s to make it to the Major Leagues by clicking here.

Fitz’ Bits:

Dear Subscribers:

This week I review a California decision where Centex sought coverage for construction defect claims and argued that the reservation issued by the insurer created a conflict allowing their selection of independent counsel at the insurer’s request.  The court disagreed.  The issue of an insured’s right to independent counsel is an important one and the issue of what constitutes a “reasonable” fee is subject to differing interpretations.  In New York, an insurer need not necessarily advise its insured of the right to independent counsel, although the Elacqua decision, issued by the 3rd Department in 2008 counsels that an insurer who fails to do so may be guilty of a deceptive  trade practice in violation of New York GBL 349.

I enjoyed seeing many of you at the Advanced Insurance Coverage program held on Long Island on May 15th and to our new subscribers – welcome.  A few save the dates for those interested in additional programs involving coverage:  Law School for Insurance Professionals will be held at several locations across New York in September and in October, the TICL section of the NYSBA will hold our summer meeting at Universal in Orlando on October 9-11th.  It promises to be a great program and we are delighted to have several members of the judiciary participating as panelists.  As the agenda is finalized, I will provide you with more information.

Til next time,

Elizabeth A. Fitzpatrick
[email protected]

Baby Astor, the Titanic and Expenses – One Hundred Years Ago Today

The Brooklyn Daily Eagle
Brooklyn, New York
5 Jun 1915


Mrs. Madeline Astor Charges
Share of Home Upkeep but
Not Auto Rides

Mrs. Madeline Talmage Force Astor, widow of Colonel John Jacob Astor, who perished on the Titanic, today lead an accounting as general guardian of her son, John Jacob Astor, who was born August 14, 1912, following the disaster.

The infant son, by the terms of his father’s will, has from a trust fund of $3,000,000 an income of about $140,000 annually.

Mrs. Astor, in her accounting, states:  “I have been advised by my counsel, Henry A. Gildersleeve, that it is proper and reasonable there should be charged to said infant, on account of his share of the expenses, one-third of the cost of maintenance of the establishment, 840 Fifth Avenue, and one-third of the taxes paid on said premises”

Mrs. Astor’s statement then mentions that she has not charged the infant with automobile and other transportation expenses, or with a share of her summer home rent.
Editor’s Note: Madeline Talmage Force Astor was the second wife of John Jacob Astor IV.  Eighteen years old when they married, her husband, the Colonel, was 47. Eight months after the wedding, the she and her husband were on the ill-fated maiden voyage of the Titanic.  She survived the sinking but her husband did not. Their son was born a couple of months after the disaster.


Dear Subscribers:

June is here and schools are entering their last weeks. Summer is almost here. I hope it is a good one for you. As for our cases, one case stands out today in particular. It is an appeal of a jury verdict that found plaintiff sustained a serious injury and was also entitled to punitive damages, as well as compensatory damages.  In that case, the jury was presented with conflicting expert testimony regarding whether plaintiff suffered a serious injury. The Appellate Court held that the jury was entitled to credit one expert over the other. Punitive damages for defendant driver’s wanton and reckless conduct was also upheld. Although the fact that he was intoxicated was not enough to impose punitive damages, the fact he was double the legal limit, chose to drove a truck onto a bridge, and could not even remember whether he was tested at the scene for intoxication  because he  was so drunk allowed the jury to grant punitive damages.

The court reminded us that punitive damages must be determined on a case by case basis. In another case the Appellate Court affirmed the grant of summary judgment on a motion to renew where the medical expert for plaintiff corrected their report on the motion to renew after it had been found to be deficient on the motion for summary judgment.  

Until next time,

Robert Hewitt

[email protected]

Mulcted, 100 Years Ago:
Dunkirk Evening Observer
Dunkirk, New York
5 Jun 1915

IN SUM OF $5,000

Found Guilty of Alienating Affections
of Mr. Wilder’s Wife

Morristown, N. J., June 5.—After two hours’ deliberation the jury which heard the testimony in the suit of George D. Wilder, the New York broker, against Dr. George Stuart Willis of this city, for alienation of Mrs. Wilder’s affections, in the spring of 1914, brought in a verdict of $5,000 for the plaintiff.

This ended a trial that caused a sensation in fashionable circles hereabouts, and which, in the evidence adduced in court, teemed with sensation, Wilder sued Dr. Willis for $50,000 damages, but asserted on the stand that if he won the verdict he would donate the sum awarded to him to charity—probably the Red Cross.  He testified that he had refrained from shooting Dr. Willis to save his children from a greater shame.

The most sensational feature of the case was when Mrs. Wilder took the witness stand last Wednesday and admitted that Dr. Willis had kissed her on various occasions while making professional visits; that she had separated from her husband but that they had been reconciled.

She admitted her friendship with Dr. Willis, dating from Feb. 18, 1913, when he first kissed her, until April 30 of that year.  Finally she became so worried that she fell ill.  She called for the doctor, she testified, and told him she meant to confess to her husband.

Mrs. Wilder said the doctor begged her not to tell her husband.  She did confess, she said, and on the Sunday following she and her husband went to the home of Dr. Willis, where, in the presence of the doctor and his wife, Mrs. Wilder related the whole affair.
Editor’s Note:    mulct: 1. to deprive (someone) of something, as by fraud, extortion, etc.; swindle.  2. to obtain (money or the like) by fraud, extortion, etc. 3. to punish (a person) by fine, especially for a misdemeanor.

Peiper’s Parsings:

As you may recall, in issues past we have fed both Jen and Dan’s previous columns into the CP supercomputer to spit out a typical cover note.  This week, while suffering from a serious writer’s block, I thought about treating myself to that very same option.   I didn’t, however, because I was afraid I might end up with a situation of involving Jen’s daughter, Ella, presenting a coverage CLE on the shores of Lake Erie.   Yes, I know, that wasn’t very funny, but work with me here.  The writer’s block is very real for this week. 

As for this week’s offerings, we highlight the Second Department’s interesting decision regarding GOL 5-322.1.  In a taking a strict interpretation of the statute, the Court noted that, by its terms, it only applies to claims of bodily injury and property damage.  Where, as in the case at hand, the claimant only seeks economic damages, the provisions of the GOL (which prohibit a party from being indemnified for their own negligence) do not apply.   

That’s it for now.  Here’s hoping for inspiration before next issue. 

Steven E. Peiper
[email protected]
Highlights of Today’s Issue:

Dan D. Kohane
[email protected]

  • First Department Continues to Sneer at Elacqua – No Duty to Advise Insured of Right to Independent Counsel
  • Notice by a Party Not United in Interest with the Insured, Is Not Notice by the Insured
    Insurance Broker Freed of E&O Claims Against It In Absence of “Special Relationship”
  • Policy Release Upheld
  • Whether Claims Adjuster Fraudulent Induced Release is Question of Fact that Precludes Summary Judgment
  • Ambiguity in Policy Trumps Statutory Definition of Motor Vehicle and SUM Available to Snow Mobile Operator


Robert E.B. Hewitt III
[email protected]

  • Plaintiff Can Raise Triable Issues of Fact Despite Defendants’ Establishment of a Prima Facie Case of Discrimination
  • Where There Is Conflicting Expert Testimony A Jury Was Entitled Credit One Expert’s Opinion Over the Other And Jury Can Also Award Punitive Damages Where There Is Evidence of Wanton and Reckless Conduct By Driver Beyond Intoxication
  • Trial Court Should Have Granted Plaintiff’s Motion to Renew Where Plaintiff Submitted Supplemental Affirmation from Her Physician Setting Forth the Medical Tests She Employed to Arrive at the Conclusion of Loss of Range of Motion
  • Plaintiff Could Not Successful Rebut Defendants’ Medical Evidence Establishing a Prima Facie Case of Lack of Serious Injury
  • Defendant Did Not Rebut Claims in the Bill of Particulars That She Sustained a Serious Injury Under the 90/180-day Category


Margo M. Lagueras
[email protected]


  • No Reimbursement Owed Where Applicant Found to Be Unlicensed
  • Insurer Waives NF-5 Where Partial Payment Made Upon Receipt of UB-04
  • Claimant Bears Burden of Proof of Medical Necessity of Post-IME Treatments



  • Insurer Not Required to Advise Medical Provider of Scheduled IME


Steven E. Peiper
[email protected]




  • Insured Is Not Entitled to Recovery of Applied Depreciation or Deductible After Carrier Successfully Prosecutes and Resolves a Subrogation Action



  • Agent is Not Personally Liable where He Was Acting within the Scope of his Employment
  • GOL § 5-322.1 Does Not Apply Where the Sole Damage is Limited to Economic Loss


Elizabeth A. Fitzpatrick
[email protected]

  • No Conflict of Interest in Construction Defect Action


Agnes A. Wilewicz
[email protected]

  • Express Warranty Requirements in Marine Policies Are Strictly Construed; Oil Containers That Are Full but Sealed Are Not Themselves “Pollution” Unless They Leak
  • Even Where a Lost Policy Is Long Gone, Circumstantial Factual Allegations of Its Existence May Be Enough to Survive a Motion to Dismiss
  • A Claims File Is Privileged, Where Outside Counsel Has Been Retained (In Federal Cases Anyway)


Cassandra A. Kazukenus
[email protected]

  • Approval to Use Liability Certificate of Insurance Forms from the Superintendent
  • A4458/S1398            Standards for Prompt Investigation and Settlement of Claims Arising Out of States of Emergency and Disasters


Jennifer A. Ehman
[email protected]

  • Scheduled to return at month’s end.


Earl K. Cantwell

[email protected]

  • Recent Decisions on Directors and Officers (“D&O”) Coverage


That’s it for now. I’ll be teaching the insurance class at the FDCC Litigation Management College in Atlanta on Tuesday and then be out in Suffolk County for a court conference Wednesday morning.  I’ll wave from the plane.
Happy Summer!
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]


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

Dan D. Kohane
[email protected]

Audrey A. Seeley
[email protected]

Jennifer A. Ehman
[email protected]

Dan D. Kohane, Team Leader
[email protected]

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

Steven E. Peiper, Team Leader
[email protected]

Elizabeth A. Fitzpatrick
Cassandra Kazukenus

Audrey A. Seeley, Team Leader
[email protected]

Margo M. Lagueras
Cassandra Kazukenus
Jennifer A. Ehman

Taylor F. Gabryel

Jody E. Briandi, Team Leader
[email protected]

 Elizabeth A. Fitzpatrick
Diane F. Bosse

Index to Special Columns

Kohane’s Coverage Corner
Hewitt’s Highlights on Serious Injury
Margo’s Musings on No Fault
Peiper on Property and Potpourri
Fitz’ Bits
Wilewicz’s Wide World of Coverage
Cassie’s Capital Connection
Keeping the Faith with Jen’s Gems
Earl’s Pearls

Dan D. Kohane
[email protected]

06/04/15       Tower Insurance Company v. Sanita Construction Co., Inc., Defendant, Ciampa Estates, LLC, Defendant-Respondent.
First Department Continues to Sneer at Elacqua – No Duty to Advise Insured of Right to Independent Counsel
Ciampa Estates, LLC (“Ciampa”) served a judgment on November 21, 2014 on Sanita in connection with its award for contractual indemnification and defense costs, which remains unsatisfied. It then brought a direct action under Insurance Law  § 3420(a)(2) against Tower. Ciampa "steps into the shoes" of Sanita and has standing to contest Tower's disclaimer of coverage.

However, in a previous decision, Ciampa forfeited any right to coverage based on its untimely notice which we reported on in our 05/13/11 edition:

05/10/11         Ciampa Estates, LLC v. Tower Ins. Company of New York
Appellate Division, First Department
Notice by a Party Not United in Interest with the Insured, Is Not Notice by the Insured
Yet another Tower late notice case.  Here, the only timely notice of the claim was submitted, not by the insured but by one of its corporate affiliates on behalf of Ciampa, the plaintiff. Notice from another insured, or from another source, does not satisfy an insured's obligation to provide timely notice. There was no evidence that the party that provided the notice was sending the notice as an agent of the insured and since the party that did give notice was not even an insured, the two were not similarly situated.

Tower sent out its disclaimer of coverage within six days of ultimately receiving a notice of claim on behalf of Estates and that was timely.
Editor’s Note:  Attaboy Max as well as Josh Seltzer (the first of two)

Ciampa’s attempt, as a judgment creditor of Sanita, to attack the disclaimer on the doctrine of equitable estoppel, is unavailing.

Ciampa's primary argument is that Tower failed to advise Sanita of its right to independent counsel at Tower's expense. Yet, the right to independent counsel does not establish an affirmative duty on defendant's part to advise its insured of that right (compare Sumo Container Sta. v Evans, Orr, Pacelli, Norton & Laffan, 278 AD2d 169, 170 [1st Dept 2000] with Elacqua v Physicians' Reciprocal Insurers, 52 AD3d 886, 888-889 [3d Dept 2008] and Wilner v Allstate Ins. Co., 71 AD3d 155, 161 [2d Dept 2010]).

It was also incumbent on Ciampa to show that the settlement of the underlying action was improvident and that it would not have sustained the claimed damages "but for" defendant attorneys' alleged misconduct leading to the settlement". Ciampa has not challenged the reasonableness of the settlement - it simply challenges the failure to appeal the contractual indemnification order in its attempt to avoid the disclaimer of coverage. Nor has Ciampa (or Sanita) ever challenged the exclusions on which Tower relied. Thus, even if Tower's counsel had breached some duty of care to Sanita/Ciampa, such breach, combined with Ciampa's noncompliance with policy notification requirements, was not the proximate cause of any alleged harm .
Editor’s note:  Surely an interesting decision.  The First Department reaffirms its 2000 decision in Sumo that does not require a carrier to advise its insured of the right to independent counsel.  Second and Third go the other way.  Fourth hasn’t had the issue.  Oh Court of Appeals?  What sayeth you?

For the history of this dispute, and a discussion on Elacqua and Sumo, see our discussion here, an article summarizing Elacqua at the time that decision came out of the Third Department,

06/03/15       Waters Edge @ Jude Thaddeus Landing, Inc. v. B & G Group
Appellate Division,  Second Department
Insurance Broker Freed of E&O Claims Against It In Absence of “Special Relationship”
An insurance broker acting as an agent of its customer has a duty of reasonable care to the customer to obtain specifically requested coverage within a reasonable time after the request, or to inform the customer of the agent's inability to do so, but the agent owes no continuing duty to advise, guide or direct the customer insured to obtain additional coverage.  However "[w]here a special relationship develops between the broker and client, [the] broker may be liable, even in the absence of a specific request, for failing to advise or direct the client to obtain additional coverage" .

There are three situations which may give rise to such a special relationship:

  1. the agent receives compensation for consultation apart from payment of the premiums;
  2. there was some interaction regarding a question of coverage, with the insured relying on the expertise of the agent; or
  3. there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied on'


Here, the plaintiffs failed to state a cause of action against the brokers because they failed to allege the existence of a special relationship above and beyond the ordinary broker-client relationship.

05/28/15       Trans-Packers Services Corp v. National Union Fire Ins. Co.
Appellate Division, First Department
Policy Release Upheld
By its terms, the release at issue extended to all claims that Trans-Packers, or its subsidiaries, successors, and assigns, "ever had, now have, or hereafter can, shall, or may have against National Union for, upon, or by reason of, arising out of or relating in any way to the Claim and all circumstances relating thereto," and therefore encompasses all costs arising out of the March 2008 and April 2008 contamination incidents, and resolves any and all causes of action in connection with the claim, i.e., losses arising from the salmonella contamination incidents in March and April 2008.

05/27/15       Powell v. Adler
Appellate Division, Second Department
Whether Claims Adjuster Fraudulent Induced Release is Question of Fact that Precludes Summary Judgment
Powell was injured when involved with a car accident with another vehicle owned by Meryl Adler and driven by Heather Adler.  She sued the Adlers. After the Answer was filed, the Adlers moved to dismiss the case on the ground that the plaintiff executed a release of all claims against them arising out of the alleged incident, in exchange for a payment of $3,000.

A plaintiff seeking to invalidate a release due to fraudulent inducement must establish the basic elements of fraud, namely a representation of a material fact, the falsity of that representation, knowledge by the party who made the representation that it was false when made, justifiable reliance by the plaintiff, and resulting injury'". Moreover, there is a requirement that a release covering both known and unknown injuries be " fairly and knowingly made'" .
Here, the defendants established their prima facie entitlement to judgment as a matter of law by submitting the affidavit of the insurance claims adjuster and a copy of the release signed by the plaintiff, which released the defendants from any and all claims or actions arising from the accident .  However, the plaintiff submitted her own affidavit as well as the affidavit of her daughter, who was present when the release was signed. Both the plaintiff and her daughter stated, in their respective affidavits, that the insurance adjuster visited the plaintiff only three days after the accident, that the plaintiff was still taking pain medication at that time, and that the insurance adjuster stated that the money was for the plaintiff's "inconvenience" and not to compensate her for any injuries, pain, or suffering.

These submissions raised triable issues of fact as to whether, inter alia, there was fraud in the inducement of the release, and as to whether the release was fairly and knowingly.

05/27/15       State Farm Mutual Automobile Insurance Company v. Jones
Appellate Division, Second Department
Ambiguity in Policy Trumps Statutory Definition of Motor Vehicle and SUM Available to Snow Mobile Operator
Jones sustained injuries in a snowmobile accident in Lewis County. The snowmobile that he was operating collided with a snowmobile owned by nonparty Roy and insured by Nationwide Insurance. The snowmobile that Jones was operating was owned by nonparty Perino and insured by State Farm. Jones settled for the $50,000 policy limit of the Nationwide Insurance policy and, after due notice, sought to recover an additional $50,000 under the supplemental underinsured motorist (hereinafter SUM) provisions of Robert Perino's policy with State Farm (hereinafter the policy).

State Farm denied coverage on the ground that Jones was not an insured under the SUM provisions of the policy.

Jones sought to arbitrate his SUM claim, but State Farm commenced this proceeding, inter alia, to permanently stay the arbitration pursuant to CPLR 7503 on the ground that Jones was not covered by the SUM provisions of the policy.

State Farm's contended that that a snowmobile is not a "motor vehicle" as that term appears in the SUM endorsement. State Farm relies on the definition of "motor vehicle" contained in the Vehicle and Traffic Law, which specifically excludes snowmobiles (see Vehicle and Traffic Law §§ 125, 2229). Thus, State Farm argues, Jones is not insured for SUM coverage because he was not occupying a motor vehicle at the time of the accident.

The policy covered only one vehicle, a snowmobile. The policy included a "State Farm Car Policy Booklet," a standard New York SUM endorsement, and a New York snowmobile endorsement. The snowmobile endorsement amended the definitions of "car" and "private passenger car" in the policy to mean "snowmobile." The standard SUM endorsement, like the other endorsements, begins by stating, "This endorsement is a part of the policy. Except for the changes it makes, all other provisions of the policy remain the same and apply to this endorsement." The SUM endorsement defines an insured, in pertinent part, as "any other person while occupying . . . a motor vehicle insured for SUM under this policy." Neither the SUM endorsement nor any other portion of the policy provides a definition for the term "motor vehicle."

The court found that that the policy, when read as a whole, is ambiguous as to whether the term "motor vehicle" in the SUM endorsement refers to the snowmobile, the only vehicle covered by the policy and construed it against the insurer.

Robert E.B. Hewitt III
[email protected]

06/03/15                 Rzeszutko v. Raffone      
05/27/15                 Kim v. Ahn
Appellate Division, Second Department
Plaintiff Can Raise Triable Issues of Fact Despite Defendants’ Establishment of a Prima Facie Case of Discrimination
Appellate Division reversed the trial’s court’s grant of summary judgment to defendants and denied summary judgment. Defendants established a prima facie entitlement to summary judgment by submitting competent medical evidence that the alleged injuries to plaintiff’s spine did not constitute serious injuries under either the permanent consequential use categories or the significant limitation of use categories of the Insurance Law.  However, in opposition, plaintiff raised triable issues of fact as to whether she sustained serious injuries to the cervical and lumbar regions of her spine. Unfortunately the court was silent as to how those issues were raised.

05/27/15                 Chiara v. Dernago
Appellate Division, Second Department
Where There Is Conflicting Expert Testimony A Jury Was Entitled Credit One Expert’s Opinion Over the Other And Jury Can Also Award Punitive Damages Where There Is Evidence of Wanton and Reckless Conduct By Driver Beyond Intoxication
Following a jury verdict against defendant in the amount of $160,000 in compensatory damages and $70,000 in punitive damages, and a denial by the trial court of a motion to set aside the verdict, defendant appealed. The Appellate Court affirmed the jury verdict. Defendant driver was driving a commercial truck when he was involved in a three vehicle collision. Plaintiff was a passenger in one of the other vehicles. For several hours before the accident, the evidence showed plaintiff consumed multiple beers-at most 10 he testified- at a Hooters restaurant. Shortly after getting onto the George Washington Bridge, he veered from his lane more than once, rear-ending a pickup truck, and basically launching the pickup truck onto plaintiff’s vehicle. The driver got out and began “talking nonsense” to plaintiff’s vehicle’s driver, asserting he was not drunk and was stopping for the toll. He pled guilty to a misdemeanor and had a blood alcohol content of .172. The jury found him negligent and that his negligence was a substantial factor in the accident. The jury also awarded punitive damages based on a standard of “wanton, reckless and representative of a high degree of immorality.” The Jury also found a serious injury existed.

As to whether plaintiff suffered a serious injury, the Appellate Court credited the testimony of her treating physician, who stated that the injuries to the cervical spine were a direct result of the accident. The opinion was based on the lack of symptoms before the accident, the intervening act of the traumatic injury, and subsequent findings. He examined plaintiff two months after the accident, and then three years after the accident, and then one week before trial. On each occasion he made the same findings that plaintiff had significantly decreased range of motion. He conceded an MRI showed degenerations in the plaintiff’s spine but also stated it showed disc herniations caused by the accident. Therefore, the Appellate court found based on this testimony a jury could reasonably have found a serious injury in that she has a significant limitation in the use of her cervical spine, and that the injury was caused by the accident.  Where an expert is presented, a jury is entitled to accept one expert over the other, even if there is conflicting testimony.

As for punitive damages, the Court stated that driving while intoxicated alone was not enough to impose punitive damages. However, where that is combined with other evidence that the defendant engaged in wanton and reckless conduct evincing heedlessness and an utter disregard for the safety of others, punitive damages are allowed. The evidence that he consumed numerous beers, had a blood alcohol content of twice the legal limit, and then drove his box truck onto the bridge, was enough to punish him for wanton and reckless conduct.  Therefore, the jury’s decision was upheld.

05/27/15                 Charles v. Samuels
Appellate Division, Second Department
Trial Court Should Have Granted Plaintiff’s Motion to Renew Where Plaintiff Submitted Supplemental Affirmation from Her Physician Setting Forth the Medical Tests She Employed to Arrive at the Conclusion of Loss of Range of Motion
In this case, the Appellate Court seems to have allowed the plaintiff a second bite of the apple. On the original motion for summary judgment, defendants established that the alleged injuries to the cervical and lumbar regions of the spine were not serious injuries under the permanent consequential or significant limitation of use categories. Plaintiff failed to properly oppose the motion and raise an issue of fact, because the affirmation from plaintiff’s physician failed to set forth the medical tests that she used to arrive at her conclusion that plaintiff sustained a loss in the movement of the cervical and lumbar regions of the spine.

What is interesting is that on the motion to renew, plaintiff supplemented the medical report with another report from her physician this time detailing the medical tests that she employed to arrive at her conclusion that the plaintiff sustained a loss in the movement of the cervical and lumbar region of the spine. Although the trial court denied the motion to renew, the Appellate Court said the trial court should have granted it based on this supplemental affirmation, and denied summary judgment. Although on a motion to renew you can offer new facts, you must present a reasonable justification as to why they were not raised before. The decision does not state what that justification was in this case.

05/20/15                 Messina v. Anvarzadeh
Appellate Division, Second Department
Plaintiff Could Not Successful Rebut Defendants’ Medical Evidence Establishing a Prima Facie Case of Lack of Serious Injury
Defendants established a prima facie entitlement to summary judgment by submitting competent medical evidence that the alleged injuries to plaintiff’s cervical spine did not constitute serious injuries under either the permanent consequential use categories or the significant limitation of use categories of the Insurance Law. Defendants also submitted evidence that plaintiff did not sustain a serious injury under the 90/180-day category of insurance. Plaintiff failed to raise an issue of fact in opposition, so the granting of the motion was upheld.

05/20/15                 Scott v. Incigeri  Barkley v. Thomas
Appellate Division, Second Department
Defendant Did Not Rebut Claims in the Bill of Particulars That She Sustained a Serious Injury Under the 90/180-day Category
Defendants failed to establish a prima facie entitlement to summary judgment.  Defendants did not address plaintiff’s claim in the bill of particulars that she sustained a serious injury under the 90/180-day category of the Insurance Law. Defendant in Scott submitted, inter alia, an affirmed report from an independent examining orthopedist, an independent examining neurologist, and an independent evaluating radiologist; and plaintiff's own verified bill of particulars which the Appellate Division found inadequate for unstated reasons. As such, defendant did not need to raise an issue of fact.  


Margo M. Lagueras
[email protected]


05/24/15       WJW Med Products, Inc. v Geico Ins. Co.
Erie County, Arbitrator Gillian Brown
No Reimbursement Owed Where Applicant Found to Be Unlicensed
This issue has come up repeatedly with this particular provider of durable medical equipment (DME) where the equipment is dispensed to an EIP who is a resident of NYC (any one of the five boroughs).  The Arbitrator, citing the decision of Arbitrator Hershdorfer in AAA # 412014048342 [03/35/15], denied the claim due to Applicant’s failure to comply with the licensing requirements of the City of New York.

05/22/15       Erie County Medical Center v Geico Ins. Co.
Erie County, Arbitrator Douglas Coppola
Insurer Waives NF-5 Where Partial Payment Made Upon Receipt of UB-04
The issue here was that the hospital submitted its claim for reimbursement of facility fees for orthopedic surgery on a UB-04, rather than on an NF-5.  Following receipt of the bill, the carrier arranged for a peer review which found all the treatment causally related to the motor vehicle accident and medically necessary.  The carrier then partially paid the bill, without particularizing the basis for the reduction, and did not provide Applicant with an NF-5. 

Citing Circular Letter No. 1-2015 from the NYS Department of Financial Services, the Arbitrator reasoned that Respondent failed to object to the completeness of the form on which Applicant submitted its claim when it partially paid and failed to forward the NF-5.  As such, Respondent waived any defenses based upon the failure to submit the NF-5.  The Arbitrator additionally cited to the awards rendered by several other arbitrators, all finding that an insurer is required to forward an NF-5 to a hospital for completion [11 NYCRR 65-3.2(d)].  Therefore, Applicant was awarded the difference between what it had billed and what was paid, plus interest and attorney’s fees.

05/22/15       Chiropractic Care of WNY, LLC v Liberty Ins. Corp.
Erie County, Arbitrator Mona Bargnesi
Claimant Bears Burden of Proof of Medical Necessity of Post-IME Treatments
Applicant sought reimbursement for chiropractic treatments provided after an IME had determined that further treatment was not recommended because the Assignor exhibited no disability, could perform her regular work duties and activities, and because the objective findings had not improved in the past 3-4 months since the previous IME. 

The Arbitrator found the IME report contained a sufficient factual basis and medical rationale to show that continued chiropractic care was not medically necessary.  The Assignor reported that relief only lasted until the evening of the same day the treatment was rendered and that she had returned to work long before the period in dispute.  Moreover, the range of motion measurements had actually worsened during the disputed period of treatment.  Given that the claimant bears the burden of proof of establishing the medical necessity of post-IME treatment, and here Applicant failed to meet its burden of showing that the post-IME chiropractic care continued to be necessary, Respondent’s denial was upheld and Applicant’s claims denied.
Note:  In support, Arbitrator Bargnesi cites to All-In-One Medical Care, PC v GEICO, 43 Misc3d 726 [Dist Ct, Nassau County 2014].  This case reflects the holding by the Appellate Term, 9th & 10th Judicial Districts, which reversed the decision, also of the Nassau County District Court, in Amato, DC v State Farm Ins. CoSee reversal at 40 Misc3d 129 [App Term, 9th & 10th Jud Dist 2013].


05/13/15       Pugsley Chiropractic, PLLC v MVAIC
Appellate Term, First Department
Insurer Not Required to Advise Medical Provider of Scheduled IME
Defendant denied Plaintiff’s claim based on an IME which sufficiently established that the Assignor’s injuries were resolved and that there was no further need for chiropractic treatment.  On appeal, the court reversed the trial court finding that it erred in refusing to consider the IME because notice of the IME scheduling had not been provided to the medical provider.  The court reiterated that there is no requirement that an insurer provide notice of a scheduled IME to the assignor’s providers.

Steven E. Peiper

[email protected]


05/26/15       Ehrlich v American Int. Group
Appellate Division, First Department
Insured Is Not Entitled to Recovery of Applied Depreciation or Deductible After Carrier Successfully Prosecutes and Resolves a Subrogation Action
Plaintiff sustained a loss which their own carrier fully paid.  As part of the payment, AIG obtained, and then prosecuted, a subrogation claim against the tortfeasor.  That too resulted in a settlement. 

Plaintiff then, apparently, sued AIG to recover “uninsured” portions of the original loss (i.e., the deductible and applied depreciation.)  In dismissing plaintiff’s claim, the Court noted that plaintiff was not entitled to recovery any of additional proceeds from AIG. In so holding, the Court pointed out that plaintiff failed to allege that they had previously attempted to recover directly from the tortfeasor. 


05/27/15       Lido Beach Towers v Denis A. Miller Insurance Agency, Inc.
Appellate Division, Second Department
Agent is Not Personally Liable where He Was Acting within the Scope of his Employment
Soon after Superstorm Sandy hit in October of 2012, plaintiff learned that its premises was underinsured.  As a result, plaintiff brought the above claim against their insurance agent alleging that the brokerage had failed to procure and maintain adequate flood insurance limits.  As part of this action, it appears plaintiff also named Mr. Miller personally, and asserted causes of action against him for negligence and breach of contract.

Mr. Miller, a principal in the insurance agency, moved to dismiss the claims against him.  The court agreed, and in dismissing the claims of negligence noted that there was no evidence that Mr. Miller engaged in tortious conduct that was outside of his duties for the agency.  

The Appellate Division also agreed that Mr. Miller was not bound by the agreement signed between plaintiff and the Miller Agency.  A party working on behalf of a disclosed principal will not be liable for a breach of contract unless there is explicit evidence that the parties meant to personally bind the agent.  Where no evidence of such an intent existed in the present case, the breach of contract claims against Miller were also dismissed.  

05/26/15       Board of Mgrs. of Hester Gardens v Well-Come Holdings, LLC
Appellate Division, Second Department
GOL § 5-322.1 Does Not Apply Where the Sole Damage is Limited to Economic Loss
In a construction defect case, Well-Come and Poon were both sued for defective work product, defective design and negligent inspection of the work product.  Well-Come, in turn, asserted a claim for contractual indemnity based upon Poon’s allegedly negligent design.  In opposition, Poon argued that the clause was void by operation of GOL § 5-322.1. 

In rejecting Poon’s argument, the Court noted that Section 5-322.1 only applies to claims arising out of bodily injury or property damage.  Here, however, the only recovery sought from both parties was purely economic loss.  As such, the protections of the GOL did not apply, and Well-Come stated a viable claim for contractual indemnity. 

In addition, the Court also noted that the “economic loss rule” bars any claims for common law indemnification.  However, that rule is not applicable to a contractual indemnity claim as asserted herein. 



Elizabeth A. Fitzpatrick
[email protected]

05/22/15       Centex Homes v. St. Paul Fire & Marine Insurance Company,
2015 WL 2437957
Fourth District of California
No Conflict of Interest in Construction Defect Action
The action arose from an underlying construction defect claim where Centex, the developer, brought an action against subcontractors and against the subcontractors’ insurer seeking a declaratory judgment.  The court agreed with the trial court’s determination that claims by Centex regarding coverage and Centex’s right to independent counsel were not yet ripe.

In June 2013, Centex filed the action against 57 subcontractors alleging six causes of action for breach of contract to indemnify, defend and obtain insurance, for equitable indemnity and for contribution and repayment.  In the action, Centex alleged that they incurred and continued to incur defense fees and costs to defend the underlying actions.  The seventh and eighth causes of action were for declaratory relief against Travelers.  In particular, Centex alleged that the homeowners were suing for construction defects caused by subcontractors who were insured by Travelers and that Centex was a named additional insured.  They thus alleged that Travelers was obligated to defend and indemnify them and that Travelers breached its duty to defend by requiring a reservation of rights seeking to obtain full reimbursement from Centex.  In the eighth cause of action, Centex alleged that Travelers breached its duty to provide Centex with a full, complete, immediate and conflict-free defense, causing them to incur defense costs.  Travelers denied that there was a covered occurrence or property damage under its policy and further denied that there was a conflict of interest, triggering Centex’s right to independent counsel.

Reviewing the law, the court noted that there exists a large block of authority recognizing that when an insurer is obligated to provide defense for two or more insureds with adverse interest, there is a sufficient conflict of interest that the insurer must provide independent counsel for each insured at its own expense.  The court also noted, however, that a reservation of rights by an insurer does not necessarily constitute a conflict of interest requiring the assignment of independent counsel.  The conflict rather, noted the court, must be significant, not merely theoretical, and actual, not merely potential.  Thus, the court concluded that the facts alleged by Centex did not support its claim of a conflict of interest, finding that the insurer had the right to control a defense.


Agnes A. Wilewicz
[email protected]

06/01/15       Guam Industrial Services, Inc. v. Zurich American Insurance
United States Court of Appeals, Ninth Circuit
Express Warranty Requirements in Marine Policies Are Strictly Construed; Oil Containers That Are Full but Sealed Are Not Themselves “Pollution” Unless They Leak
Guam Industrial owned and operated a dry dock in, coincidentally, Guam. In early 2011, on the dock they were storing approximately 113,000 gallons of oil in various containers when the island was hit by a typhoon. The dry dock sank, taking the barrels of oil with it.

At the time, Guam Industrial maintained both a Hull and Machinery Policy and an Ocean Marine Policy. The former, underwritten by Zurich and Starr, would have provided coverage for the dock for damage resulting from certain specified perils, such as lightning, earthquake, various types of accidents and malfunctions, assailing thieves, and/or pirates (of course). The latter, also underwritten by Zurich, would have provided coverage for claims arising out of the discharge, dispersal, release, or escape of things such as oil or pollutants into or upon water.

The Hull and Machinery Policy required, as a condition to coverage, that the policyholder obtain and maintain Navy Certification for the dry dock. Guam Industrial had had a commercial certification, but it expired before the loss. They neglected to obtain a Navy Certification, the highest standard in the industry, relative to structural integrity. The Ninth Circuit held that they would follow the majority rule in concluding that the law requires strict compliance with such certifications or warrantees, even when the breach of that condition did not cause the loss. Here, it was uncontested that Guam Industrial did not have the warranty the policy required. As such, the Court found no coverage under the Hull and Machinery Policy.

The Ocean Marine Policy would have provided coverage in the event that there was a discharged, dispersal, release, or escape of pollutants into the ocean. However, as it happened no oil was released into the water. The Court noted that while the barrels or containers were clearly discharged, dispersed, and released, these are not “pollutants”. Even the policy’s “catchall” terms for “other irritants, contaminants, or pollutants” could not bring the facts into the coverage grant. Citing precedent from other Circuits, the Court stated that “the relevant act of pollution for purposes of similar insurance coverage occurs when the contaminant leaks out of a container, not when the container is disposed of”. As such, even though the containers of oil were submerged after the dock sank, the costs of retrieval were not covered.

05/27/15       Cardigan Mountain School v. New Hampshire Insurance Company
United States Court of Appeals, First Circuit
Even Where a Lost Policy Is Long Gone, Circumstantial Factual Allegations of Its Existence May Be Enough to Survive a Motion to Dismiss
Cardigan Mountain is a private middle school in Canaan, New Hampshire. In 2013, they received a demand letter asserting a claim based upon events that were alleged to have transpired during the 1967-1968 year. The First Circuit noted that they had no details about that claim or any further information about it. After receiving the demand letter, Cardigan Mountain brought a declaratory judgment action against its general liability insurer New Hampshire, seeking coverage for that claim.

Neither the school nor the insurer could find a copy of the policy in its records or files. The school did, however, pled in its complaint allegations about the existence of a 1971 New Hampshire policy it had obtained, as well as statements from its business manager who had worked at the school between 1967 and 1970. These statements included the purported fact that he knew that the school had insurance during the 1967-1968 school year, and he did not believe they had changed carriers during that time.

At the district level, the court dismissed the suit for failure to state a claim, holding that the school’s complaint against the carrier did not plausibly show the existence of the ‘67-‘68 policy. However, on appeal, the First Circuit found that in this case the school had sufficiently pled the case and reversed the district court’s decision.

Citing the specificity and factual nature of the allegations, the First Circuit held that Cardigan Mountain had provided at least circumstantial evidence that the school had a policy with this carrier at the time in question. Drawing all reasonable inferences in the school’s favor, the Court held that they had sufficiently pled a plausible claim. Reversing and remanding the case back to the district court, the First Circuit also noted that whether the school could actually prove the existence of a policy was another matter. At this stage, they had provided a plausible basis, beyond a mere possibility, for believing that New Hampshire had issued their policy, and outright dismissal was not appropriate.

05/26/15       Harleysville Worcester Insurance Company v. Mohan Sharma, M.D.
United States District Court, Eastern District of New York
A Claims File Is Privileged, Where Outside Counsel Has Been Retained (In Federal Cases Anyway)
This was a declaratory judgment action brought by Harleysville to determine whether it owed coverage in relation to an underlying sexual assault lawsuit in Supreme Court, Nassau County. Purported insureds and a Jane Doe (the underlying claimant) were named as defendants in this action.

Within days of receiving notice of the request for defense and indemnity, Harleysville had opened a coverage investigation file and hired counsel to start the declaratory judgment matter. About two weeks after that, Harleysville created a separate defense file to handling the underlying action, created a different claim number, and retained counsel to represent two of the purported insureds. It then filed this coverage case.

In discovery, Jane Doe served document requests and deposed a representative from Harleysville. Harleysville produced records, including a copy of its policy and coverage position letters, but objected to some of the requests on the grounds of privilege and/or attorney work product. Having learned at the deposition that some documents had been withheld, Jane Doe sought production of them. Harleysville subsequently agreed to produce documents related to its initial notice of the claim, its underwriting file, and the ImageRight file regarding pleadings in the underlying action, as well as supplemental written responses to its initial disclosures. Thus, this portion of the application to compel was granted on consent.

However, Jane Doe also sought to compel production of Harleysville’s litigation file, including claim notes and “documents relating to the ongoing underlying action and generated after Harleysville retained counsel and litigation commenced”. Harleysville again asserted privilege and attorney work production protection. The Eastern District Magistrate Judge agreed.

Citing Federal Rule of Civil Produce 26, which codifies the work-product doctrine, the Court stated that it understood that “In particular, insurance claim files may present difficult issues regarding where the line should be drawn between documents prepared in the ordinary course of the insurer’s business (which, by its nature, involves claim investigation and analysis) and documents prepared in anticipation of litigation”. However, documents generated after the matter has been referred to counsel are all “in anticipation of litigation”. Particularly where a claim file is not opened until after counsel was assigned, those documents are privileged.

Finally, the Court also rejected the claimant’s request for a privilege log. Noting that privilege logs are generally limited to pre-litigation documents, since the claimant was seeking documents after litigation on a claim had already ensued, she was not entitled to a privilege log identifying those documents.

Cassandra A. Kazukenus
[email protected]

Approval to Use Liability Certificate of Insurance Forms from the Superintendent
On July 28, 2015, legislation passed last year pertaining to the issuance of certificates of insurance and the language found therein goes into effect. DFS has issued a brief summary on its website as well as information as to how to obtain the Department’s approval for certificates of insurance that are not on an approved form. 

Briefly, Insurance Law §501 and §502 defines what is a certificate of insurance and prohibits a governmental entity or person from requiring, in a certificate of insurance, “the inclusion of terms, conditions or language of any kind, including warranties or guarantees, that the insurance policy provides coverage” that is not included or found in the policy referenced will take effect.  Insurance Law §502 also prohibits a certificate of insurance in New York from “amending, extending, or altering the coverage provided by the policy to which the certificate of insurance refers,” and prohibits a governmental entity or person in New York from making the issuance of a certificate of insurance a condition of the contract unless it is on a form promulgated by the insurer or is a standard certificate of insurance from an entity such as ISO. 

If the person or governmental entity requires the use of a certificate of insurance that is not promulgated by the insurer, then the person or governmental entity must obtain the Superintendent’s approval prior to using that form.  All requests for such should be emailed to [email protected].  Although the new legislation is not in effect at this time, DFS is accepting forms for approval on or after July 28, 2015. 

A4458/S1398          Standards for Prompt Investigation and Settlement of Claims Arising Out of States of Emergency and Disasters
This new bill was referred from the Assembly Insurance Committee to the Assembly Rules Committee, and it remains in the Senate Insurance Committee at this time.  The bill seeks to create a new provision under the Insurance Law titled “standards for prompt investigation and settlement of claims.”  The proposed legislation will look familiar as they are very similar to some of the regulations issued on an emergency basis after Storm Sandy.

The proposed new provision of the Insurance Law would apply to every insurer which writes policies which cover damages for real and personal property when a local state of emergency is declared and the claims arising out of such disaster.  It would require an insurer to acknowledge the receipt of all claims in writing, and should the insurer wish to investigate, including inspect the damaged property, the inspection would have to occur in accordance with the regulations to be issued by the Superintendent. 

The following regulations regarding the investigation, settlement and rejection of claims would also apply:

  • When it is necessary to protect the health and safety of the claimant, immediate repairs to windows, exterior walls, exterior doors, roofs, heating systems, water systems and electrical systems may be made with alternate proof of loss such as photographs and video recordings satisfying policy requirements. 
  • Claims filed with an agent will be deemed filed with the insurer unless the agent notifies the claimant that they are not authorized to receive notices of claims. 
  • The insurer will be required to furnish to the claimant a notification of all items, statements and forms that the insurer reasonably believes will be required to investigate the claim.
  • The insurer will have 15 business days after receipt of all items, statements and forms requested to advise, in writing, whether the claim was accepted or rejected.  A one-time extension to determine such will be allowed if it notifies the claimant, in writing, of the reasons additional time is needed to investigate. 
  • Once the claim is accepted, the insurer must advise the claimant, in writing, of the amount it is willing to offer to the settle the claim along with all applicable policy provisions regarding the right to reject and appeal the offer.
  • Where a claim is rejected, the insurer must advise the claimant, in writing, of all applicable policy provisions regarding the claimant’s right to appeal the decision.
  • The insurer must pay the claim no more than 3 business days after settlement of the claim.



Jennifer A. Ehman
[email protected]

Scheduled to return at month’s end.

Earl K. Cantwell
[email protected]

01/23/15       Progressive Casualty Insurance Co. v. Federal Deposit Insurance Corp.
N.D. Iowa
Recent Decisions on Directors and Officers (“D&O”) Coverage
Recent court decisions have narrowly interpreted policy terms and exclusions in favor of coverage for corporate directors and officers arising from failed bank and investment litigation. 

In Progressive Casualty Insurance Co. v. Federal Deposit Insurance Corp., 2015 WL 319225 (N.D. Iowa, January 23, 2015), the Court issued a favorable decision for policyholders with respect to the “insured-v-insured” exclusion and D&O policies with respect to claims brought by a receiver or trustee of a failed bank against the bank’s directors and officers.

The FDIC decided to take over and close Vantus Bank in 2009.  It then sued ex-officers and directors with respect to the purchase of $65 Million of high risk securities allegedly without due diligence or regulatory guidance.  The FDIC and the ex-officers and directors both turned to Progressive Casualty for coverage.  Progressive did provide limited defense costs on a reservation of rights, but filed a declaratory judgment action arguing that two exclusions in the D&O policy applied.  The parties each filed summary judgment motions on the issue of whether the “insured-v-insured” exclusion and the “investment loss carve-out” exclusion barred coverage.

The Court held that the “insured-v-insured” exclusion did not apply just because the FDIC had taken over some functions of bank ownership.  The conceptual issue was whether the FDIC had brought the action on behalf of Vantus Bank.  However, the Court said the FDIC acts in other capacities besides that of an owner when it becomes the receiver of a failed bank, and not all those capacities, actions, and duties are excluded by the “insured-v-insured” exclusion.

The Court also found that the “investment loss carve-out” exclusion did not apply, despite allegations that defendants breached fiduciary duties by trading in exotic securities that destroyed Vantus’ stock during the 2008 financial collapse.  The Court said that exception only applies with respect to losses caused only by market fluctuations, and does not completely bar a claim against alleged wrongful acts of the officers and directors.  The claims here were not simply market losses, but allegations of impropriety in defendants’ investment decisions and trading regarding transactions in these securities. 

As a result, both the FDIC and the ex-officers and directors obtained summary judgment confirming coverage deciding that these two common policy exclusions were not completely applicable.  A related decision is St. Paul Mercury Insurance Co. v. Hahn (C.D. Cal., October 8, 2014) wherein courts are finding defense and possible indemnity coverage even if the FDIC or other regulatory authority has taken over a failed financial institution and brought suit ostensibly for or on behalf of the bank against allegedly culpable directors and officers.

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