Coverage Pointers - Volume XVI, No. 26

Dear Coverage Pointers Subscribers:

You have a situation?  We love situations.

With this issue, we conclude our 16th year of publication of our labor of love, Coverage Pointers.  Our first issue was emailed to about 25 subscribers on July 9, 1999.  We have several thousand who receive our newsletter directly and many more who are forwarded copies by others.  But have no fear; Volume 17 is just around the corner.  For our new subscribers, know that the actually CP newsletter is attached.  This cover letter merely introduces all the good stuff within.

Greetings from north shore of Lake Erie, the Canadian side. 

I had two excellent days at the DRI Insurance Roundtable where there was a lot of talk about some of the challenges facing the insurance industry and the practice.  Heading to St. Louis for a wedding of good friends and then, after returning Sunday, to mediations in Rochester.  No rest for the wicked.

The New York State Legislature is still in session as of Thursday evening and there has been no action, yet, on the Private Cause of Action Bill reported in our Special Edition on Friday.  Thanks to so many of you who advised that letters were being written and I know that the trade organizations were working hard to maintain peace and harmony.  My special thanks to the folks at NYIA for helping me stay in the loop.

Where in World?

Our team does get around ….

Audrey is in Chicago at the DRI Bad Faith Conference in her capacity as Chair of the DRI Insurance Law Committee.  Steve is in London, at Lloyds, as part of the team presenting the Casualty Toolbox program (yet, he did manage to submit a robust column, thanks Steve, and give my best to the wonderful team from around the country). Beth has just returned from Texas where she was presenting on coverage basics at a PLRB regional program.  Jen is preparing to return to the fold after a little time off for maternity leave.  Mike Perley just returned from a medical device conference in Georgia.   And so it goes.  You need us, we’ll be there.

This issue presents some very interesting opinions for consideration.  Read carefully the Third Department’s decision in the Landon case that deals with the very important question relating to the control of tactical defense decisions where there is disagreement between the insured defendant and its insurance-selected defense counsel. Before you read it, ask yourself the question:  if the insured defendant wants to argue “X” and its defense counsel believes that “Non-X” is the better choice, who prevails?

Also, stay tuned for Margo’s review of an important Court of Appeals decision in the no fault arena, and a special column from our own Chris Potenza reviewing two significant asbestos decisions.

Margo’s Musings on No Fault:

Court of Appeals decisions dealing with no-fault are few and far between so they definitely stand out.  This week we review one such decision: Viviane Etienne Medical Care, P.C. v Country-Wide Insurance Co., rendered on June 10, 2015.

The issue addressed is what constitutes a no-fault plaintiff’s prima facie case on a motion for summary judgment where the insurer has not timely or properly denied the claim.   Some may recall that last year we commented on the December 18, 2013 Viviane Etienne decision in which the Second Department, over a vehement two-judge dissent, reversed its prior decision in Art of Healing Medicine, P.C. v Travelers Home and Marine Insurance Co. (55 AD3d 644).  .

In Art of Healing the Second Department had affirmed both the trial court and the Appellate Term, holding that the plaintiff had not met its prima facie burden on summary judgment because it relied on an affidavit from a third-party medical biller who lacked personal knowledge sufficient to establish that the claims forms were admissible under the business records exception to the hearsay rule.  In Viviane Etienne, however, the Second Department overruled its Art of Healing decision reasoning that imposing a ‘business records’ requirement on a plaintiff was inconsistent with prior precedent which requires only that a plaintiff submit proof that the statutory billing forms were mailed and received by the carrier, and that payment was overdue (the 30-day pay or deny rule) in order to make a prima facie showing of entitlement to payment.

We predicted, correctly as it turns out, that Viviane Etienne would go to the Court of Appeals.  Well, it did, and the Court has affirmed the Second Department, but again with a two-judge dissent that is absolutely worth reading.  Please see our review in “Margo’s Musings”. 

Margo Lagueras
[email protected]

USS Arizona Christened, a Century Ago:

Anyone who has visited or knows the story of the Japanese attack on Pearl Harbor knows the USS Arizona, one of the battleships that was attacked and sank on December 7, 1941.  It had a happier day:

The Brooklyn Daily Eagle
Brooklyn, New York
19 Jun 1915


Wine and Water, Music and
Cheers, at Christening


Secretary Daniels, in Address,
Tells of Plans to Protect
Against Submarines

Uncle Sam’s greatest naval creation—the super-dreadnought Arizona, mightiest war craft ever wrought by the hand of man—was successfully launched at 1:11 o’clock this afternoon at the Navy Yard, while 50,000 persons roared a mighty cheer.

A whistle blew a signal.  Miss Esther Ross, one of Arizona’s fairest daughters, sent a wicker bottle crashing against the huge steel hull, and with a white feather of champagne—mixed with water—on her steel plates, the biggest warship of them all slipped smoothly down the greased ways into the Wallabout Basin.

Never was there a prettier launching.  Everything went according to schedule.  The bottle broke as arranged, the hydraulic jacks which held the ship were released and, with the United States Marine Band playing “The Star Spangled Banner,” the towering hulk tobogganed down the timber pathway as easily as a racing yacht slips through the water.

Editor’s Note, with Thanks to Wiki:

USS Arizona was a Pennsylvania-class battleship built for and by the United States Navy in the mid-1910s. Named in honor of the 48th state's recent admission into the union, the ship was the second and last of the Pennsylvania class of "super-dreadnought" battleships. Although commissioned in 1916, the ship remained stateside during World War I.

Shortly after the end of the war, Arizona was one of a number of American ships that briefly escorted President Woodrow Wilson to the Paris Peace Conference. The ship was sent to Turkey in 1919 at the beginning of the Greco-Turkish War to represent American interests for several months. Several years later, she was transferred to the Pacific Fleet and remained there for the rest of her career.

Aside from a comprehensive modernization in 1929–31, Arizona was regularly used for training exercises between the wars, including the annual Fleet Problems (training exercises). When an earthquake struck Long Beach, California, in 1933, Arizona‍’s crew provided aid to the survivors. Two years later, the ship was featured in a Jimmy Cagney film, Here Comes the Navy, about the romantic troubles of a sailor. In April 1940, she and the rest of the Pacific Fleet were transferred from California to Pearl Harbor, Hawaii, as a deterrent to Japanese imperialism.

During the Japanese attack on Pearl Harbor on 7 December 1941, Arizona was bombed. She exploded and sank, killing 1,177 officers and crewmen. Unlike many of the other ships sunk or damaged that day, Arizona could not be fully salvaged, though the Navy removed parts of the ship for reuse. The wreck still lies at the bottom of Pearl Harbor and the USS Arizona Memorial, dedicated on 30 May 1962 to all those who died during the attack, straddles the ship's hull.

Asbestos News:

Chris Potenza coordinates our asbestos defense work.  He wanted to make our subscribers aware of two important New York appellate decisions in the Asbestos arena.  You will find him as a guest columnist in this week’s offering.

One Hundred Candles on Mr. Haney’s Birthday Cake:

Actor Pat Buttram was born on June 19, 1915 in Addison Alabama.  He died on January 8, 1994.  Buttram went to Hollywood in the 1940s and became a “sidekick” to Roy Rogers.  However, since Rogers already had two regulars, Buttram was soon dropped. He was then picked by Gene Autry, recently returned from his World War II service in the Army Air Force, to work with him. Buttram would co-star with Gene Autry in more than 40 films, and in over 100 episodes of Autry's television show.

Buttram is remembered for his role as Mr. Haney (Eustace Haney) in the 1965 –1971 CBS television comedy Green Acres. He did voice work for several Disney animated features.

Buttram made the oft-quoted observation about the 1971 “rural purge” in which CBS cancelled many programs with a rural-related theme or setting: "CBS canceled everything with a tree — including Lassie", referring to the cancellations of Green Acres, The Beverly Hillbillies and Petticoat Junction.  Lassie actually ran until 1973.

Fitz’s Bits:

Dear Subscribers:

Greetings and happy (almost) summer!  I’ve just returned from a very rainy PLRB Regional Adjuster meeting in Dallas, Texas, where I lectured on the topic of reservations of rights and disclaimer letters.  During the two sessions I presented, I was fortunate to have an active, experienced and engaged audience, as we discussed the proper and appropriate crafting of a reservation of rights or disclaimer letter, as well as issues such as the insured’s right to independent counsel and the ability of an insurer to recoup defense costs, if it is ultimately determined that coverage was not owed. 

For any new subscribers who joined us from that meeting, welcome. 

I have no cases to report on this week, but as you know from the Coverage Pointers Special Report, we have all been intently focused on legislation which would dramatically alter an insurer’s obligations through the proposed amendment to New York Insurance Law § 2601  with respect to unfair claims and settlement practices creating a private cause of action. 

Even though it is summer and school’s out, I remind you of several programs this fall, including the NYSBA meeting in Orlando, which will include such topics as trial advocacy, with a view from the bench, cyber risks and insurance for those risks, Medicare Liens and future medical planning, effective mediations and bad faith.  Plans are also well underway for Law School for Insurance Professionals, which many of our subscribers attend annually -- more news to follow.

                                                                                    Til next time,

                                                                                    Elizabeth A. Fitzpatrick
                                                                                    [email protected]

One Hundred Years Ago: Convicted Police Officer’s Last Gasp:

The New York Times
New York, New York
19 Jun 1915


Court of Appeals Denies Last
Plea Convicted Policeman
Can Make to It


Manton Will Ask Whitman to
Let Lieutenant Governor
Pass on the Case


Mrs. Becker Plans to Circulate Petition
for Commutation of
Husband’s Sentence

Ex-Police Lieutenant Charles Becker yesterday lost the last appeal which he may make in the courts of New York from the verdict which sends him to the electric chair for complicity in the murder of Herman Rosenthal, the gambler.  Martin T. Manton of Becker’s counsel admitted last night that there was little probability of an appeal to the Federal courts, and intimated that all his hopes were pinned on an appeal for Executive clemency.

Editor’s Note:  With credit to Joe Bruno’s “On the Mob” Website, we offer you the story:

It was common knowledge that many New York police officers were on the take in the early part of the 20th century. One was Police Lieutenant Charles Becker, head of the "Strong Arm Squad" in New York City in the early 1900's. While Becker and his crew were supposed to be ridding the city of vices, such as gambling and prostitution, he was, in fact, making deals with the proprietors of such illegal establishments, where he'd receive substantial amounts of cash from them, and in return, he would turn a blind eye to their activities. It was reported, that even though Becker’s annual salary was only $2,250, he had amassed a fortune of over $100,000.

Herman "Beansy" Rosenthal was a small-time crook of very little distinction. Every time Rosenthal opened a gambling house, it was closed down in a matter of weeks. Finally, Rosenthal found the place of his dreams on West 45th Street near Broadway and took in as a partner, none other than Police Lieutenant Charles Becker. This arrangement went quite well for a while, but New York Mayor William Jay Gaynor began hearing rumors that maybe Becker was not quite doing his job in a proper manner. Mayor Gaynor started putting the screws to Becker, so Becker decided he had to make a big splash, therefore displaying his proper allegiance to the law. Becker knew no one would care less what happened to the un-connected Rosenthal, so he raided Rosenthal's gambling den, which was part Becker's, and even arrested Rosenthal's nephew to boot.

Rosenthal told Becker this was not the correct way for a "partner" to be acting. Becker said not to worry; that it was all a show for the Mayor. Becker promised that Rosenthal's nephew would soon be released, and that the joint would be back in working order in no time. Yet District Attorney Charles Whitman felt different. He immediately indicted Rosenthal, Rosenthal's nephew and several employees of Rosenthal's gambling den. Rosenthal saw right through the double-cross. He ran straight to Whitman and spilled the beans about his connections to Becker.

At first, Whitman turned a deaf ear to Rosenthal, so Rosenthal repeated his story to Herbert Bayard Swope, a crime reporter for "The New York World." Swope wrote several articles parroting what Rosenthal had said about the actions of the New York City police department, which forced Whitman to finally take strong action.

On July 16, 1912, Rosenthal was scheduled to testify before a grand jury. Becker knew he was in dire danger of going to jail for a long time, so he contacted Big Jack Zelig, whom the police considered "The Most Dangerous Man in New York City," to take care of the Rosenthal situation. The price was $1000, and Zelig sub-contracted out the work to four of his best men; Harry "Gyp the Blood" Horowitz, Frank "Whitey Lewis" Muller, Lewis "Lefty" Rosenberg and Frank "Dago Frank" Ciroficci.

At 2 am on the morning he was set to testify, Rosenthal had just finished eating in the dining room of the Hotel Metropole on West 43rd Street. As he stepped outside into the warm night air, the four gunmen shot Rosenthal dead with lead, and then escaped in a getaway car. Within an hour, Swopes woke Becker from a deep sleep, and Becker immediately launched an investigation into Rosenthal's murder. The first one arrested was Zelig, and he spilled the beans immediately, implicating Becker. The four gunmen went into hiding, but were captured a few weeks later.

On July 29, 1912, based on Zelig's testimony, Becker was arrested for murder of Herman "Beansy" Rosenthal. But even from jail, Becker had long tentacles. His next move was to make sure Zelig didn't testify against him in court. On October 5, 1912, the day before he was set to tattle on Becker officially, Zelig, now to Becker, "The Most Dangerous Rat in New York City," was shot dead on a street car by "Red Phil" Davidson.

Even without Zelig, the case against Becker and the four killers was just too strong. All five were tried, convicted and sentenced to die in the electric chair at Sing Sing prison. The four gunmen were put to death on April 13, 1914, but Becker would not give up without a fight. His last chance at saving his life was an appeal of clemency to the new Governor, who just happened to be the same Charles Whitman, who had arrested Becker and prosecuted his case. Whitman refused to commute his sentence and Becker was electrocuted in July of 1915.

Wilewicz’s Wide World of Coverage:

Dear Readers,

Summer is finally here and, after the winter we have had, it could not be more welcome. My daughter is already in her second week of summer camp and I have already managed a decent sunburn from too much gluttonous exposure to the long-awaited sunshine. After having been snowed in more often than I care to remember, I cannot be outside enough.

The Federal Courts appear to be clearing their desks and issuing as many decisions as time allows, before they retire for their own summer breaks. This week, the Wide World of Coverage brings you a number of interesting federal decisions from nearly every corner of New York State. From the Northern District, we have a fact-rich case by an insured truck driver who alleged that his brokers and carriers violated federal anti-trust laws when they rejected his claim, but he neglected to file his action within the statute of limitations provided. From the Western District, in a case stemming from asbestos-related injuries, the Court ruled that confidential settlement agreements may not be confidential in some cases. Then, from the Southern District, we have two decisions of interest. First, the Court there held that where an insurer had acknowledged a duty to defend but delayed in paying defense costs, the balance of those bills needed to meet the threshold $75,000 in order to keep the action at the federal level. Then, in a case involving arbitration clauses, the Court there held that they are binding and enforceable, even if the insured was not aware they were included in the policy.

In other news, we also have a neat property coverage case from the Sixth Circuit dealing with replacement cost values and whether an insured must replace the property before a replacement cost payment is made (surprise, surprise – it must).

Finally, though not specifically coverage-related, since I have a personal penchant for environmental claims, we bring you a Third Department case about the definition of “petroleum” under New York’s Navigation Law. It holds that including petroleum-derived chemicals would be a novel and unwarranted expansion of the definition of the term. Thus, there is no private cause of action for contamination by the petroleum-derived substance.


See you in a couple of weeks,

Agnes A. Wilewicz
[email protected]

One Hundred Years Ago:  Walking Through Words:

Times Herald
Olean, New York
19 Jun 1915


Deaf Witness Declares His Toes Would
Have Heard Whistle

Harry J. De Forest testified at Brockton, Mass., in an action for $30,000 for injuries that he hears distinctly through his feet.  De Forest is deaf and explained that he had trained his toes to perform the function of his ears.

The injuries were sustained by Morris London when a car crashed with a truck. The conductor of the car testified that the motorman blew his whistle.

De Forest said he was a passenger on the car and was positive that if the whistle had been blown his feet would have felt the sound.  He testified that through his feet he heard London’s groans after the collision.

Hewitt’s Highlights:

Dear Subscribers:

My oldest son is now approaching the end of Kindergarten. Homework is over, and as he puts it “all we do now is have fun.” I hope you are having some fun this June. As we approach summer and the end of the school year, the Courts have apparently decided to take a break from issuing serious injury cases. We have one case this issue for subscribers in which the Appellate Court ruled that even though plaintiff missed more than 90 days of work that was not determinative as to whether she established a 90/180 day serious injury. Rather defendants could rely on plaintiff’s deposition testimony and medical records showing she stayed off her foot only approximately one month.   I hope to have more to write to you about next time.
Until next time,

Robert Hewitt

[email protected]

Headlines in This Week’s Issue (Attached):

Dan D. Kohane

[email protected]

  • Assault and Battery Exclusion Effective to Deny Coverage Even When Batterer Sought a Different Target
  • Carrier’s Duty to Defend Additional Insured Not Excused by Extrinsic Evidence, i.e. Proposed Additional Insured’s Deposition (EBT) Denials of Complaint Allegations that Would Trigger Coverage
  • Who Makes the Decision as to what is in the Insured’s Best Interests?  The Insured?  Nah.


Robert E.B. Hewitt III
[email protected]

  • Plaintiff Did Not Sustain a 90/180 Day Injury Despite the Fact She missed More Than 90 Days of Work as That Was Not Determinative to the Issue


Margo M. Lagueras
[email protected]


  • Following Denial, Applicant Bears Burden of Demonstrating Treatment Is Medically Necessary
  • Illegible SOAP Notes Are Insufficient to Establish Medical Necessity
  • Applicant Has Duty to Communicate With Respondent Regarding Verification
  • Claim Not Tolled Where Provider Informs Insurer That It Is Not in Possession of Documentation Sought



  • Second Department’s Decision Affirmed


Steven E. Peiper
[email protected]

  • Lease Void under GOL § 5-321 Where the Purported Indemnitors Were Not Sophisticated Parties and the Lease was not Negotiated at Arm’s Length
  • Absent Express Provision Transferring Obligations, An Assignment of Lease does not Exempt the Original Lessee from Its Responsibilities to the Lessor
  • Lack of Execution of a Contract Creates a Question of Fact over Whether Indemnity Clause Found Therein was Enforceable
  • Indemnity Agreements are Strictly Interpreted and Where the Loss Does Not Fall Squarely within the Terms of the Agreement No Liability Attaches


V. Christopher Potenza
[email protected]

  • A Foreseeable Decision: Fourth Department Upholds Rule that Equipment Manufacturer Can be Held Liable for Asbestos Containing Component Parts
  • A Not Foreseeable Decision: the First Department Dismisses Asbestos Claim by Salvage Worker against Equipment Manufacturer Reasoning that Demolition and Salvage Work was Not the Intended or Foreseeable Use of Asbestos Containing Equipment


Elizabeth A. Fitzpatrick
[email protected]

  • Doing the Texas thing.


Agnes A. Wilewicz
[email protected]

  • Statute Of Limitations Bars Insured’s Claim against Insurer for Alleged Violations of Federal Anti-Trust Laws, State-Law Breach Claims Remain
  • In Coverage Case Arising From Asbestos-Related Claims, Confidential Settlement Agreements May Not Be As Confidential As Expected
  • Where the Duty to Defend Is Conceded But Insurer Delays in Paying Balance of Defense Bills, Balance of Legal Bills Must Still Be In Excess of $75,000 In Order To Stay In Federal Court
  • Arbitration Clause in Insurance Policy Found Enforceable and Binding, Despite Insured’s Claim It Was Unaware of Its Inclusion
  • Where Property Policy Provides For Replacement Cost, Insured Cannot Recover More Than The Cost To Replace, And Insured Must Replace The Property Before A Payment Is Made If The Policy So Provides
  • Though Chemical Perchloroethylene (PERC) Is Derived From Petroleum, It Is Not “Petroleum” Under The Navigation Law


Cassandra A. Kazukenus
[email protected]

  • S2925/A4259            Amendment to General Obligations Law 5-322.1


Jennifer A. Ehman
[email protected]

  • Maybe back next issue!


Earl K. Cantwell

[email protected]

  • Theft Loss of Five-Hour Energy Shots Shot Down


That’s all for now.  We are expecting the usual summer slowdown of reported decisions but not quite yet. 

We hope you’re having a wonderful early summer with plenty of sunshine and sufficient rain to keep you out of distress.

Keep those cards and letters coming in.

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

Topical Index

Kohane’s Coverage Corner
Hewitt’s Highlights on Serious Injury
Margo’s Musings on No Fault
Peiper on Property and Potpourri
Potenza’s Ever-Spinning World of Asbestos (Special Column)
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]

06/17/15       Parler v. North Sea Insurance Company
Appellate Division, Second Department
Assault and Battery Exclusion Effective to Deny Coverage Even When Batterer Sought a Different Target
On March 12, 2009, the plaintiff sustained injuries while a patron at a bar known as "Billy's Place" in Suffolk County, when an unknown individual struck her in the face with a bar stool during an altercation involving several other patrons. The plaintiff sued company that operated the bar, Effie’s Pub, and the property owner, 609 Montauk claiming that these “pub defendants” by their negligence failed to provide suitable security and continued to serve alcoholic beverages to visibly intoxicated patrons.  It was claimed that the pub defendants were negligent in causing and permitting her to be "wantonly, recklessly, intentionally and maliciously assaulted" and "physically battered . . . without justification."

On April 7, 2009, North disclaimed coverage based on the existence of an assault and battery exclusion and a liquor liability exclusion in an insurance policy that it had issued to the pub defendants. An insurer may disclaim coverage on the basis of a policy exclusion by demonstrating that the allegations of the complaint cast that pleading solely and entirely within the exclusion.  An exclusion for assault and/or battery applies if no cause of action would exist but for' the assault and/or battery.

Here, North Sea demonstrated its prima facie entitlement to judgment as a matter of law by establishing that the assault and battery exclusion is applicable to the claims asserted by the plaintiff against the pub defendants in the underlying action.

Contrary to the plaintiff's contention, the fact that the bar stool made physical contact with her and not the intended target does not negate the conclusion that the act was done with the intention to commit an assault or a battery.

06/17/15       GMM Realty, LLC v. St. Paul Fire and Marine Insurance Co.
Appellate Division, Second Department
Carrier’s Duty to Defend Additional Insured Not Excused by Extrinsic Evidence, i.e. Proposed Additional Insured’s Deposition (EBT) Denials of Complaint Allegations that Would Trigger Coverage
The injury plaintiff tripped on a doormat while leaving her place of employment. The employer was a tenant per written lease with a Receiver. The Receiver had a written property services contract with GMM Realty. GMM is a subsidiary of Fairfield Properties (FP). The plaintiff initially sued only FP, with boilerplate allegations owned/operated/ managed/controlled. The second amended complaint repeated the allegations against the Receiver, GMM and FP. Each of these three defendants tendered their defense to the tenant’s CGL carrier.

In 2007, the Receiver impleaded the employer for lease based claims (indemnity and insurance procurement). On 3/17/09, the tenant’s carrier accepted the defense of the Receiver, only, triggering the antisubrogation rule as to the third party action.  

On 9/30/09, the tenant’s carrier produced its policy. On 11/07/09, GMM and FP commenced this DJ action to enforce their claims for a defense as property manager, a categorically identified “Protected Person” on the tenant’s CGL policy. On 2/4/10, the carrier changed its position to accept the defense of GMM while still declining the defense of FP. FP moved for summary judgment for a declaration that the carrier owed a duty to defend. The carrier cross-moved for summary judgment for a declaration that it had no duty to defend or indemnify FP. The carrier’s papers included a copy of a deposition transcript of a FP property witness stating management was all GMM, none by FP. The court denied the FP motion and granted the carrier’s cross-motion with ruling that FP failed as a matter of law to be “otherwise referred to” in the insurance agreement as required by Sanabria v. American Home Assurance. Based on that ruling, the court held that FP’s assertion that St. Paul’s duty to defend was triggered by the underlying complaint’s allegations was without merit.

FP appealed arguing that the complaint’s allegations described FP as property manager within the policy’s definitions of Protected Person and that the duty to defend is to be measured by the face of the complaint excluding any extrinsic evidence such as the EBT transcript. The Second Department reversed for a declaration of a duty to defend. Although not stated in the opinion, the reversal and result reject the trial court’s holding that FP was not “otherwise referred to” and the insurer’s attempt to use FP deposition transcript to justify its refusal to defend
Editor’s Note:  This summary was prepared by Brian M. Hussey of counsel to Daniel J. Sweeney & Associates PLLC, White Plains, N.Y. who represented the successful appellant.  Thanks Brian.

06/11/15       Landon v. Austin Construction, Inc.
Appellate Division, Third Department
Who Makes the Decision as to What is in the Insured’s Best Interests?  The Insured?  Nah.
Landon was hurt while performing construction services on a home owned by Austin. The project also involved equipment owned by, and several employees of, defendant Austin Construction, Inc. (“ACI”). Austin and his wife are the sole shareholders and officers of ACI, and Austin cross-claimed against ACI for contribution and/or indemnification.

ACI has commercial liability insurance coverage, and its carrier selected Smith, Sovik (SSKS) to provide a defense. Austin is also entitled to a defense under the terms of his homeowners insurance policy, and a separate law firm was retained to represent him.

In a previous appeal, the court had determined that plaintiff was entitled to partial summary judgment as to his Labor Law § 240 (1) claim against Austin but that questions of fact regarding ACI's status as a contractor (or agent) on the day in question" precluded a similar award against it.

Approximately three weeks before the trial in this matter was to begin, Austin moved to disqualify SSKS as counsel for ACI. Austin argues that he is the "alter ego" of ACI, and that SSKS is impermissibly placing the interests of ACI's insurance carrier ahead of his stated wishes. Austin fears that the damages awarded at trial will exceed the liability limits of his homeowners insurance policy and that, should ACI not be held liable, he will be personally responsible for some of the award.

He has accordingly argued that he was acting in his corporate capacity in the lead-up to the injury, which would render ACI liable and bring the liability limits of its commercial liability insurance policy into play. SSKS rejected the demands of Austin that it endorse that strategy, and has instead argued that ACI is not liable because Austin was acting solely in his individual capacity. Supreme Court denied the motion to disqualify and the Third Department affirmed.

Although SSKS was retained by the insurer for ACI, "the paramount interest [SSKS] represents is that of [ACI] . . . [and] [t]he insurer is precluded from interference with counsel's independent professional judgments in the conduct of the litigation on behalf of its client".  Disqualification is therefore appropriate "where a conflicting interest [between the insurer and insured] may, even inadvertently, affect, or give the appearance of affecting, the obligations of the professional relationship. A conflicting interest exists, for example, where the defense attorney's duty to the insured would require that he [or she] defeat liability on any ground and his [or her] duty to the insurer would require that he [or she] defeat liability only upon grounds which would render the insurer liable.

SKSS has consistently argued that ACI is not liable at all. While this defense could harm the personal financial interests of Austin if it succeeds, SSKS has never represented Austin in his individual capacity. The defense advanced by SSKS clearly furthers the corporate interests of ACI, and the record is devoid of any indication that its actual goal is to recoup funds for the insurer's benefit from ACI or its principals.  There is accordingly no conflict.
Editor’s note:  This is really an interesting decision and led to a fascinating brawl in our office on the rightness or wrongness of the decision.

While not inconsistent with the same Third Department’s decision in Nelson Elec. Contracting Corp. v. Transcon. Ins. Co., 231 A.D.2d 207 (1997), a parallel question is raised. There, the court decided that where the interests of the insured and insurer are in conflict, the insured may select counsel and it retains the right to make “tactical decisions”

Where, as here, the interests of the insured are at odds with those of its insurer, the former is entitled to select independent counsel to conduct the defense so that, inter alia, tactical decisions will “be in the hands of an attorney whose loyalty to [the insured] is unquestioned”  … Inherent in this rule is the axiom that when such a conflict exists, the interests of the insured are paramount  … To hold, as defendant urges, that counsel, having been employed for the very purpose of safeguarding the interests of the insured, must nonetheless obtain the insurer's consent before pursuing a course of action tailored to serve that end, or risk a loss of coverage for “failure to cooperate”, would be untenable; it would effectively enable the insurer to take control of the defense and subordinate the insured's interests to its own. This would not only defeat the purpose of assigning independent counsel, it would pose an ethical dilemma for the insured's attorney, who, being bound to “exercise professional judgment solely on behalf of the client * * * disregard[ing] the desires of others that might impair the lawyer's free judgment” (Code of Professional Responsibility EC 5–21), cannot permit the insurer “to direct or regulate his or her professional judgment in rendering such legal services” (Code of Professional Responsibility DR 5–107[B] [22 NYCRR 1200.26(b)

Here, the question becomes, who makes the tactical decisions on behalf of the insured corporation?  Would the result have been different if the corporate board voted to direct counsel to admit its corporate responsibility?  Would counsel have to withdraw because of irreconcilable conflict and if so, what does the next attorney do differently?


Robert E.B. Hewitt III
[email protected]

06/16/15                 Nieves v. Bus Maintenance Corp.
Appellate Division, First Department
Plaintiff Did Not Sustain a 90/180 Day Injury Despite the Fact She missed More Than 90 Days of Work as That Was Not Determinative to the Issue
The Appellate Court affirmed the grant of summary judgment. Plaintiff alleged that her foot was run over by a vehicle driven defendant Morancie, causing her to fall down and suffer various injuries.  The employer defendant Logan made a prima facie showing that plaintiff did not sustain a 90/180-day serious injury within the meaning of Insurance Law § 5102(d). Logan relied on plaintiff's deposition testimony and medical records, which showed, among other things, that she stayed off her foot for "just about the first month" following the accident and was not confined to her home after the accident.  In opposition, plaintiff failed to present medical evidence showing that a medically determined, nonpermanent injury prevented her from performing substantially all of her usual and customary daily activities during the relevant period. The Appellate Court held that the fact plaintiff missed more than 90 days of work is not determinative considering her testimony and medical records. Moreover, two months after the accident, her treating doctor told plaintiff that she could bear weight on her foot and that she no longer needed crutches.


Margo M. Lagueras
[email protected]


06/09/15       Mark L. Delmonte DC, PC v Liberty Mut. Fire Ins. Co.
Erie County, Arbitrator Michelle Murphy-Louden
Following Denial, Applicant Bears Burden of Demonstrating Treatment Is Medically Necessary
The 37 year old EIP was involved in a rear-end accident in May 2012.  He underwent cervical and lumbar MRIs in June 2012 which revealed a small left midline herniation at T3-4, a mild diffuse bulge at C6-7, a very minimal bulge at L4-5 and arthritis with a degenerative disc and bulge at L5-S1.  In July 2012 he presented for chiropractic evaluation for the first time with complaints of bilateral neck pain, low back pain, and bilateral hand numbness and tingling.  Chiropractic re-evaluations were again performed in February 2013, June 2013, October 2013, December 2013, March 2014, July 2014 and November 2014. 

In July 2013, repeat MRIs were performed and revealed a small right paracentral C5-6 herniation; C6-7 osteophyte complex with a left lateral annular tear and moderate to severe right foraminal stenosis; T2-3 herniation, multilevel thoracic disc disease, annular tear and small herniation; small herniations at T4-5, T5-6, T7-8 and T9-10; herniation at T6-7; L5 spondylolysis with impingement, bulge with annular tear at L4-5; herniation and annular tear at L3-4; and annular tear and small herniation at L2-3.

In January 2014, the EIP consulted with Dr. Cameron Huckell with complaints of intermittent, non-radiating neck pain without numbness and paresthesias to the bilateral upper extremities, mid-back pain, and low back pain radiating into the right hip with numbness and paresthesias.  He reported undergoing spinal decompression with partial, temporary relief.  Dr. Huckell recommended continuing with chiropractic as long as it continued to be beneficial.

Chiropractic IMEs were performed in September 2012, December 2012 and March 2013, each time finding that the sprain/strains were resolving and that a continuation of chiropractic was warranted one time per week.  In May 2013, the EIP was re-evaluated.  At that time, he complained that he continued to treat with Applicant once per week but without any change or improvement.  The EIP also reported that he continued to work light-duty.  He was diagnosed with resolved strain/strains with associated discopathy and the IME examiner opined that further chiropractic was not necessary. 

A physiatric IME was also performed in September 2012.  The EIP was diagnosed with cervical and lumbar strain/sprain superimposed on degenerative changes and that no further treatment within the specialty of physical medicine was necessary.  Based on this IME, Respondent denied Applicant’s claim for spinal decompression.

Citing Amato v. State Farm (40 Misc 3d 129(A) [App Term, 2d Dept 2013]), the Arbitrator found the chiropractic IMEs of December 2012 and March 2013 persuasive and upheld the denials for dates of service based on each as Applicant did not meet its burden to show the continuing medical necessity of its treatment.  As for the May 2013 IME, although it was persuasive, Applicant presented records showing that the EIP’s symptoms began to worsen and the examination findings were no longer normal.  Applicant’s records also indicated a slow, steady improvement with the continued treatment.  As such, the Arbitrator found that Applicant established the medical necessity for the continued treatment and awarded reimbursement for the disputed dates of service.

With regard to the denial of the spinal decompression treatment based on the physiatric IME, the Arbitrator found it was not supported.  However, because Applicant failed to justify its charge for the “by report” service by providing the required documentation and establishing a relative value unit for the procedure, the Arbitrator dismissed that claim without prejudice.

The Arbitrator also denied the claim for a missed spinal decompression as no-fault does not cover missed appointments.  However, the Arbitrator re-calculated all the visits for which Applicant was entitled to reimbursement and made an award in that amount. 
Note:  For anyone interested in the precise calculations for the dates of reimbursed services, this award is AAA Case No. 17-14-1004-1004. 

06/09/15       Jeffrey Cianchetti, DC v Liberty Mut. Fire Ins. Co.
Erie County, Arbitrator Michelle Murphy-Louden
Illegible SOAP Notes Are Insufficient to Establish Medical Necessity
The 25 year old EIP was involved in an accident in March 2012.  Six days later she presented for initial consultation with Applicant whose hand-written notes are mostly illegible, including the diagnosis and treatment plan.  In June 2012, a chiropractic IME was performed.  The EIP complained of intermittent soreness in the cervical and upper thoracic spine.  The examining chiropractor found normal ranges of motion, no muscle spasms and negative testing overall, and diagnosed the EIP with resolved cervical and thoracic sprain/strain and no further need for chiropractic treatment.  Based on this report, Respondent denied reimbursement for dates of service in July 2012.

The Arbitrator found the IME persuasive and that, pursuant to the holding in Amato, the burden shifted to Applicant to show, by a preponderance of the credible evidence, that continuing treatment was medically necessary.  However, Applicant only submitted SOAP notes that were illegible and therefore wholly insufficient to establish medical necessity.  Therefore, the Arbitrator dismissed without prejudice the dates of service prior to the IME as there was outstanding verification for those dates.  As to the date’s post-IME, given that Applicant submitted only illegible SOAP notes, Respondent’s denials were upheld and the balance of Applicant’s claim was denied.

06/09/15       WJW Med Products, Inc. v Nationwide Ins. Co. of Am.
Erie County, Arbitrator Mona Bargnesi
Applicant Has Duty to Communicate With Respondent Regarding Verification
Even if an applicant believes it cannot respond to a verification request, or believes it is not required to respond on the ground that the request is defective or unreasonable, the applicant still has the duty to communicate with the insurer regarding such request.  That is the take-away here where Applicant sought reimbursement for a Motion X mechanical lumbar support (LSO).  Respondent requested verification in the form of a copy of the original prescription, a copy of the wholesale invoice(s), the make, model and serial number for each item billed, a copy of the instructions given to the patient, copies of sales receipts and front and back of canceled checks showing amounts paid to the supplier, and the owner’s name and that of any office manager responsible for the company’s billing.

The Arbitrator found Respondent’s request was in good faith and that Respondent had good reasons to request such documentation.  When Applicant submitted its bill, it had a duty to cooperate, which duty included responding to the verification requests.  Applicant failed to do so and, in fact, failed to respond in any manner prior to filing its arbitration demand.  In doing so, Applicant undermined the purpose of the No-Fault law which is to ensure prompt resolution of claims.  Although Applicant uploaded the prescription and other records to the AAA ADR Center, there was no indication that it replied directly to Respondent and, therefore, Applicant’s claim was properly denied.

06/04/15       Upstate MUA Chiropractic, PLLC v State Farm Fire & Cas. Co.
Erie County, Arbitrator Mona Bargnesi
Claim Not Tolled Where Provider Informs Insurer That It Is Not in Possession of Documentation Sought
At issue was reimbursement for manipulation under anesthesia (MUA) performed to the cervical, thoracic and lumbar spine, shoulders and hips on January 10 and 12, 2014.  An M.D. and a D.C. worked together to perform the procedure.  Upon receipt of the billing, Respondent requested verification from the D.C. in the form of his MUA certification and the letter of medical necessity.  The D.C. provided his certification but advised that the letter of medical necessity was in the M.D.’s possession.  Respondent nevertheless issues a follow-up verification request stating it was still waiting for the letter of medical necessity.  Some two months later, Respondent sent the D.C. a verification request for a “letter of apportionment” so as to determine the reimbursement amount due to each.  Applicant replied that MUA requires two certified MUA providers and usually requires the simultaneous participation of each so that an apportionment agreement would not be applicable as each performed 100% of their required participation.  Applicant also advised Respondent that its time to pay or deny the claim had expired.

The Arbitrator found that Applicant substantially complied and replied in good faith to Respondent’s initial verification request as Applicant provided the certification that was in his possession and advised that the letter of medical necessity was not in his possession.  In addition, even though Respondent’s request for a letter of apportionment was untimely, Applicant nevertheless again responded in good faith.  As such, the Arbitrator found that verification was not outstanding and that Respondent failed to pay or deny within the prescribed period.

Relying on Surgery Ground Rules 5 and 12, Respondent had also argued that the billing was not presented at the proper fee schedule.  Regarding Ground Rule 5 addressing “multiple procedures”, the Arbitrator concurred with other arbitrators that have held that, in the absence of expert opinion; there is not sufficient evidence to establish Respondent’s position.  The Arbitrator also reasoned that “different skills” criteria of Ground Rule 12 had been met because one provider was an M.D. while the other was a D.C.  The Arbitrator then re-calculated each CPT Code (23700 for shoulder x 2; 27275 for hip x 2; and 22505 for spine).  Pursuant to Ground Rule 12, the resulting fee schedule amount is increased by 25% and then divided 50/50 between the two providers.  The result was 25% of $2551.91 = $637.98.  So $637.98 + $2551.91 = $3189.89.  Divided 50/50 results in $1594.95 for each provider, which amount was awarded to Applicant.
Note:  Again, this is AAA Case No. 17-14-9054-2748, for those interested in understanding the rules and calculations involved in determining the correct fee schedule amounts, in this case for MUA billing.  See also, AAA Case No. 17-14-1000-9984, and 17-14-1000-6420, awards rendered on 06/04/2015 by this same Arbitrator.



06/10/15       Viviane Etienne Med. Care, PC v Country-Wide Ins. Co.
Court of Appeals
Second Department’s Decision Affirmed
In Viviane Etienne, the Second Department held that “[t]o the extent that Art of Healing imposes a ‘business record’ requirement obligating the plaintiff to establish the truth or the merits of the plaintiff’s claim, we overrule Art of Healing.”  At that time, the Second Department recognized that in Art of Healing it had departed from its own well-established precedent that a plaintiff’s prima facie burden is satisfied by “proof of billing”. 

Now the Court of Appeals affirms Viviane Etienne holding that

“plaintiff demonstrates prima facie entitlement to summary judgment by submitting evidence that payment of no-fault benefits are overdue, and proof of its claim, using the statutory billing form, was mailed to and received by the defendant insurer.  Proof evincing the mailing must be presented in admissible form, including where it is applicable, meeting the business records exception to the hearsay rule.”

The Court provides a general over-view of the workings and purpose of the no-fault scheme and also notes that “even where an insurer is precluded from raising a defense to the proof of claim form because of its failure to timely deny the claim, the plaintiff medical provider must, as an initial matter, demonstrate its entitlement to summary judgment by submission of proof in admissible form.”

The Court’s final comments:

“Contrary to the dissent’s contention, the risk of an insurer paying out fraudulent claims has been recognized by this Court; however, as we have stated that risk is part of the price paid for swift, uncontested resolution of no-fault claims.  Where no-fault benefits are not overdue, because of timely denial, the insurer’s compliance with the statute and regulations allows it to retain its right to contest the claims and prevent payment of fraudulent claims.  An insurer providing no-fault benefits, may not simply sit on its hands until litigation is commenced.  Some action is required.” (Interior citations omitted)

We all know how very difficult it is to prove fraud.  And we have all had cases where a denial based on a fraud or other lack of coverage defense was late, and ultimately was defeated, resulting in the insurer being utterly defenseless.  So is the inference that insurers should preserve defenses, all defenses, by issuing timely denials across the board and sorting it out later (unless reimbursement is known to be 100% owed)? 

The dissent, written by Judge Stein, and in which Judge Read concurred, was especially interesting and focused on the summary judgment aspect, reasoning that “neither the statutory and regulatory no-fault scheme, nor our cases concerning the preclusion doctrine, obviate a plaintiff’s burden to demonstrate its prima facie entitlement to benefits sought, as compared to only proof of billing and non-payment.” 

In other words, although the failure to pay or deny within the 30-day prescribed period carries “substantial consequences” for the insurer, on a motion for summary judgment the plaintiff should still have to meet its prima facie burden showing entitlement, i.e. that the loss arose from an automobile accident and that the expenses incurred were medically necessary.  The dissent points out that there is no language in the Insurance Law or the regulations that

“compels the conclusion that the Legislature intended to excuse a no-fault plaintiff from demonstrating entitlement to benefits as a penalty to the insurer.  The Insurance Law does not provide that, because benefits are ‘overdue’ and the insurer is therefore subject to certain enumerated repercussions, a plaintiff need not proffer admissible evidence establishing the basic elements of a no-fault claim.  Rather, the rule now adopted by the majority – that only proof of billing and the absence of timely denial or payment are required to obtain reimbursement – was derived by the Appellate Division Departments from our cases creating and defining the preclusion rule.  In my view, the extension of the preclusion doctrine by the majority in this case is misguided because out preclusion cases did not effectuate a change to a plaintiff’s burden on summary judgment.” (Interior citations omitted)

The dissenting view is that the majority “conflates the preclusion rule with the summary judgment burden.”  The central objective of the no-fault structure is to expedite claims by means of the timing rules and the preclusion doctrine provides the incentive for insurers to comply.  The statutory NF-3 verification of treatment form is a permissible proof of claim and requiring a plaintiff to submit that form in admissible form would not place an “onerous burden that would impede the timely resolution of valid claims or increase no-fault litigation.”  The preclusion rule comes into play only after a plaintiff’s prima facie case has been made and, as the dissent opines, it is not applicable here because the defendant was only seeking to hold the plaintiff to its initial summary judgment burden.

According to the dissent, the issue here was the evidentiary admissibility of the NF-3 verification of treatment forms which must be received for their truth to establish the ‘fact and amount of loss sustained’.  The dissent opines that the affidavit of the president of plaintiff’s third-party billing service did not state that he had personal knowledge of plaintiff’s record-keeping procedures or practices in creating the documents he then relied on to compile the NF-3 forms.  Therefore, he was unable to lay a foundation for the admissibility of the NF-3 forms under the business records exception to the hearsay rule, namely that inadmissible hearsay is insufficient to establish a prima facie case entitling plaintiff to summary judgment.  Because the no-fault statutes and regulations do not contain any explicit language eliminating a plaintiff’s burden to establish a prima facie case, and because the preclusion doctrine is not triggered until a prima facie showing is made, the dissent opines that there is no basis to diverge from the traditional rules governing summary judgment motions and that, accordingly, the Appellate Division order should be reversed.
Note:  Somehow, we do not believe we have heard the last on this issue.

Steven E. Peiper
[email protected]

06/17/15       Nolasco v Soho Plaza Corp.
Appellate Division, Second Department
Lease Void under GOL § 5-321 Where the Purported Indemnitors Were Not Sophisticated Parties and the Lease was not Negotiated at Arm’s Length
Third-party defendant Birnbaums purchased shares from Soho Plaza, and thereafter entered into a lease agreement for a parcel at the location.  The Birnbaum’s then retained Diamond Construction to perform work at the location.  Not surprisingly, a Diamond employee was injured in the course of the work.  He, in turn, commenced a lawsuit against Soho Plaza, as well as the management company at the location.

Soho, and the management company, commenced a third-party action against the Birnbaum’s seeking contractual indemnification pursuant to the lease agreement.  In voiding the lease indemnity provision, the Court noted that the clause was written broadly and did not exempt Soho from being indemnified for its own negligence.  In addition, and perhaps more importantly, the Court also found that the lease, and the construction contract, were not negotiated at arm’s length by sophisticated parties. 

06/10/15       City of New York v Evanston Ins. Co.
Appellate Division, Second Department
Absent Express Provision Transferring Obligations, An Assignment of Lease does not Exempt the Original Lessee from Its Responsibilities to the Lessor
In the instant case, the lessee assigned its rights under a commercial lease to a third-party.  As a result, the lessee argued that it was not obligated to procure insurance for the lessor as it was, in effect, out from under the obligations of the lease agreement.  The Second Department disagreed, and held that an assignment only implies the assignee’s agreement to take over lease payments.  Absent a specific provision transferring other obligations or strong implication that the obligation had been transferred with the assignment, the duty to procure insurance remained with the original lessee. 

06/10/15       Murphy v Eagle Scaffolding, Inc.
Appellate Division, Second Department
Lack of Execution of a Contract Creates a Question of Fact over Whether Indemnity Clause Found Therein was Enforceable
Plaintiff was injured when he fell from a scaffold that was supplied and erected by Eagle.  Eagle then commenced a third-party action against plaintiff’s employer, Keyspan.  Eagle eventually moved to dismiss the claims for common law negligence asserted by plaintiff, and, at the same time, moved for contractual indemnity against Keyspan pursuant to the terms of the scaffold rental agreement.

Keyspan opposed the motion on the basis that the agreement was unsigned on the date of the incident involving plaintiff.  While the Court noted that an indemnity agreement could be implied, even under an unsigned contract, where there is evidence that both parties to the document intended to be bound by its terms. 

Here, there was a question of fact as to whether Keyspan understood, and accepted, that it was to owe indemnity to Eagle for losses such as the claim involving Mr. Murphy.  Moreover, as Eagle was unable to absolve itself from plaintiff’s negligence claim due to a question of fact, Eagle’s indemnity claim was premature.  This is because a party cannot be indemnified for its own negligence under a construction contract.

06/10/15       Davis v  Catsimatidis
Appellate Division, Second Department
Indemnity Agreements are Strictly Interpreted and Where the Loss Does Not Fall Squarely within the Terms of the Agreement No Liability Attaches
Plaintiff was injured when he fell on snow and ice outside of property owned by defendant Catsimatidis on January 28, 2004.  At that time, the property was leased by Kentucky Fried Chicken.  However, on January 7, 2004, KFC had provided its intention to terminate the lease.  A termination notice was provided on February 6, 2004, and KFC extinguished the lease on February 29, 2004. 
When plaintiff commenced the instant action in August of 2005, defendant commenced a third-party action against KFC seeking common law indemnity/contribution and contractual indemnity.  KFC moved to dismiss the common law indemnity/contribution claims on the basis that the incident was not the result of KFC’s own negligence.  In support of its argument, KFC presented evidence that it had no duty or obligation to remove snow and ice from the front of the building. 

In moving to dismiss the contractual indemnity claims, KFC pointed to the lease language which provided that the loss had to have arisen out of the use or occupancy of the premises by KFC.  Here, where the loss did not involve KFC’s use or occupancy, and the lease specifically exempted KFC from snow removal, it followed that its motion for summary judgment should have been granted. 


V. Christopher Potenza
[email protected]

06/15/15       Matter of Eighth Jud. Dist. Asbestos Litig.
Appellate Division, Fourth Department
A Foreseeable Decision: Fourth Department Upholds Rule that Equipment Manufacturer Can be Held Liable for Asbestos Containing Component Parts
Crane Co., a manufacturer of industrial valves, appealed the denial of its summary judgment motion in an asbestos products liability action brought on behalf of the decent plaintiff who died of asbestos related mesothelioma at age 72.  The case against Crane went on to trial and the jury awarded a verdict of $3 million.  Plaintiff alleged that Crane failed to warn the decedent of the risk of asbestos in component parts, i.e., gaskets and packing, used in conjunction with its valves. Crane argued that it did not produce or sell the component parts containing asbestos; it did not place those parts into the stream of commerce, and thus cannot be liable for a failure to warn of the dangers associated with asbestos.

For years asbestos defendants have been challenging the notion that they can be held responsible for component parts in their products that they neither manufactured or supplied.  New York courts, including the Fourth Department in this case, have consistently rejected this argument by holding that a manufacturer can be held liable on a failure to warn theory, even if it did not require or recommend the use of asbestos containing component parts, if it was foreseeable that asbestos containing components parts would be used.

 Despite the unanimous decision, we will be monitoring whether this issue makes it way up to the Court of Appeals.

06/09/15       Hockler v. William Powell Co.
Appellate Division, First Department
A Not Foreseeable Decision: the First Department Dismisses Asbestos Claim by Salvage Worker against Equipment Manufacturer Reasoning that Demolition and Salvage Work was Not the Intended or Foreseeable Use of Asbestos Containing Equipment
Plaintiff alleged that he developed mesothelioma as a result of his exposure to asbestos in the course of work he did in the 1980s dismantling and salvaging scrap metal from, among other things, the steam systems in vacant buildings. Plaintiff alleged that valves manufactured by the defendant, the William Powell Company, were among the metal components that he recovered as scrap metal, and that these valves contained asbestos in their packing and gaskets. 

In a somewhat surprising decision, the First Department reversed the trial court and dismissed the claim against Powell, reasoning that even assuming Powell's valves were defectively designed, demolition and salvage work was not the intended or foreseeable use of a Powell valve.

Elizabeth A. Fitzpatrick
[email protected]

Doing the Texas thing.



Agnes A. Wilewicz
[email protected]

05/28/15       Frank Maki v. The Travelers Companies, Inc, et al.
United States District Court, Northern District of New York
Statute Of Limitations Bars Insured’s Claim against Insurer for Alleged Violations of Federal Anti-Trust Laws, State-Law Breach Claims Remain
In this bad faith claim, the insured Frank Maki lays out in painstaking detail how he was allegedly injured by the way his brokers and insurers handled his claims. In sum, Maki was a commercial truck driver. In August 2008, he met with a broker, read and signed a binder, and wrote a check for the entire annual premium for his commercial auto policy, all in one sitting. There was some confusion about who he spoke with and the identities of some of the representatives. At one point, he was told he could get his insurance card a few days later, and that it would take a while to get his full policy. In the meantime, he was to submit his new lease agreement for the truck. He did submit the needed documents and was issued an insurance card, and went about his long distance trucking work.

In the subsequent exchanges between the brokers and carriers, three pages of the lease were somehow removed and misplaced. When he returned home weeks later, Maki found a letter requesting another copy of his lease and registration, without which he was told his policy would be incomplete and not in force. He complied and submitted further copies of the lease. He never received confirmation or any other communication about the policy. Months later, in December 2008, he was involved in an accident in Tennessee and he was seriously injured. He submitted the claim after he was released from the hospital.

A few days thereafter, Maki received a refund check from his broker for the full annual premium, which he did not cash. Instead, Maki filed a complaint with the New York State Insurance Department, which began an investigation. About a month later, in January 2009, Maki received a letter from his broker stating that the policy had been canceled because of the missing lease pages. Unable to work, Maki sold his truck and began the process of recuperating.

Maki then brought this action in federal court. In it, he alleged breach of contract, fraud, group boycott in violation of the Sherman Antitrust Act, and attempted monopolization of the insurance trade, also a violation of the Sherman Act. He claimed that the insurance companies were restricting competition and preventing truck drivers from operating independently. Detailing the ways in which insurers track and monitor drivers, Maki claimed that experienced operators like him were being driven out of the market.

As a preliminary matter, the Court addressed the two counts under the Sherman Act. The defendants asserted that these claims were barred under the Act’s four year statute of limitations. The Court agreed. Maki’s cause of action under the Act, the Court said, accrued when the defendants refused to honor the insurance contract. At the latest, this was in February 2009 when Maki knew for certain that the claim would not be paid, he sold his truck, and filed his complaint with the Insurance Department. The Court rejected a “continuing violation” argument (which the Court raised on its own, since the Maki was representing himself), stating that since Maki admitted to the failure of his business, the cause of action accrued at the latest on that date. Accordingly, his federal cause of action was barred as untimely.

The Court declined to hear Maki’s remaining state law claims pursuant to its supplemental jurisdiction and dismissed the case.

06/05/15       Edna Mineweaser v. One Beacon, et al.
United States District Court, Western District of New York
In Coverage Case Arising From Asbestos-Related Claims, Confidential Settlement Agreements May Not Be As Confidential As Expected
Plaintiff Mineweaser was the executrix of her husband’s estate after he died of pleural mesothelioma from alleged asbestos exposure at work. Following trial in the state court action, a judgment was entered against a defendant, Hedman Resources, in the amount of $3,000,000. Unable to collect, Mineweaser brought an action in federal court against Hedman’s six excess insurance carriers.

The excess carriers disclaimed any obligation to the plaintiffs, relying in large part on a series of confidential settlement agreements that purportedly released them from all outstanding coverage obligations on the claim. Mineweaser moved to compel the production of these agreements, while the defendant insurers moved to enforce the confidentiality provisions and allow Hedman to file them under seal and subject to a protective order.

The Magistrate Judge here acknowledged the general rule of the Second Circuit, that it “strongly encourages the confidentiality of settling agreements in virtually all cases”. However, the Court went on to say that there is an exception to this rule. That is, the court said, there is a well-established presumption that favors full and complete access to court proceedings and judicial documents. As such, apart from exceptional circumstances, documents used in summary judgment motions should not be sealed absent “the most compelling reasons”. Here, the excess carriers did not present any compelling reasons for upholding the confidentiality provisions. Accordingly, the Court denied their motion to file the settlement agreements under seal, and granted plaintiffs’ motion to compel their production.

05/27/15       H.I.S. Juveniles Inc. v. Tokio Marine Specialty Insurance Company
United States District Court, Southern District of New York
Where the Duty to Defend Is Conceded But Insurer Delays in Paying Balance of Defense Bills, Balance of Legal Bills Must Still Be In Excess of $75,000 In Order To Stay In Federal Court
The plaintiff insured H.I.S. obtained two insurance policies, one through Tokio Marine Specialty and the other through Great American. Both carriers acknowledged a defense duty in relation to an underlying trade dress infringement and unfair competition action in Colorado District Court, under a reservation of rights.

As the Colorado action moved along, H.I.S. began to submit invoices for defense costs to the carriers. Neither insurer paid any of the invoices. Only after plaintiff began this federal court coverage action did Great American issue a check for $56,000 for legal expenses. The Colorado case continued and plaintiff submitted additional invoices to both carriers, this time seeking to recover an additional $30,000. At the initial pre-trial conference in the coverage action, the carriers raised the possibility of lack of subject matter jurisdiction. After letter briefs were submitted, the Court agreed.

First, the Court found that the crux of the case or controversy here was simply the speed of the insurer’s payments, not whether any duty was owed. The carriers had acknowledged that they owed their defense duty but were simply slow in paying on it. The reservations of rights “do not form an actionable component of any controversy” as the insurers were not seeking a declaration that they did not owe a duty to defend. Rather, the only true dispute was the sufficiency of compliance with that duty, i.e. the timing of defense payments. Thus, the Court presumed that very limited issue was the “actual controversy”.

However, since this action was brought on the basis of diversity of parties, they still needed to meet the threshold requirement of potential damages in excess of $75,000. Here, the value of the consequences which may result from the litigation is “restricted to the difference between the time value of payments on the schedule that Plaintiff insists as its due and the time value of payment on the schedule Defendants are actually paying”. The balance of the defense costs to date was only about $30,000. Even including projected interest over time, it would take many years for the balance to accrue to anywhere near the requisite $75,000. Accordingly, the Court dismissed the entire action for lack of federal subject matter jurisdiction.

06/05/15       Hudson Specialty Insurance v. New Jersey Transit
United States District Court, Southern District of New York
Arbitration Clause in Insurance Policy Found Enforceable and Binding, Despite Insured’s Claim It Was Unaware of Its Inclusion
Hudson Specialty Insurance Company issued a property insurance policy to New Jersey Transit Corporation. This policy contained a detailed arbitration clause that required the parties to arbitrate any coverage disputes. Following damage to its facilities due to Hurricane Sandy in October 2012, the insured started a declaratory judgment action against Hudson over various provisions of the policy. The carrier then moved to compel arbitration of those claims. In its defense, N.J. Transit claimed that it did not receive the arbitration clause until after it got a full copy of the policy in June of 2012. They claimed that the initial “common form” of the policy they saw before that time did not include an arbitration provision.

The Court, however, pointed to the timeline of the policy negotiation to reject the insured’s argument. First, in the email chains between Hudson’s underwriter and N.J. Transit’s broker, nowhere did the broker ever object to the inclusion of the arbitration clause. Rather, the underwriter asked that the broker review the terms and reach out if he had any questions. He never raised any objections then. Moreover, and perhaps more importantly, even after the policy was issued N.J. Transit did not object to the arbitration clause. It was only after the storm and subsequent litigation did N.J. Transit take issue with it.

Accordingly, based upon long-established contract principals, the Court held that the arbitration provision was part of an enforceable contract to which the parties manifested their intent to be bound.

The insured also argued that the arbitration provision conflicted with the policy’s service of suit endorsement. On that point, the Court found that the arbitration clause covered this coverage dispute, while the service of suit provision exists in the event a party chooses to compel arbitration, enforce and arbitration award, or opt out of arbitration altogether. Since these do not conflict, there is no ambiguity and the Court rejected N.J. Transit’s contention.

As a last ditch argument, N.J. Transit also argued that the arbitration provision was unenforceable under the definiteness doctrine, as it purportedly was missing certain key terms, such as which rules would govern arbitration, where it would be held, and whether it would be binding on the parties. The Court rejected this argument as well. Citing prior holdings that found that procedural rules are not essential terms in arbitration clauses, the Court concluded that N.J. Transit was required to arbitrate this claim.

06/09/15       Veronica Hampton v. Safeco Insurance Company
United States Court of Appeals, Sixth Circuit
Where Property Policy Provides For Replacement Cost, Insured Cannot Recover More Than The Cost To Replace, And Insured Must Replace The Property Before A Payment Is Made If The Policy So Provides
Veronica Hampton had insured her Kentucky home through Safeco before it was destroyed in a fire. Her policy provided that for replacements costs, Safeco would pay “the difference between the ‘replacement cost’ and the ‘actual cash value’ of the home. Having agreed that the actual cash value of the home was $62,500, Safeco issued Hampton a payment in that amount.

However, a few months later, Hampton advised Safeco that she was replacing the insured home with a mobile home quoted at $66,729.12. After receiving proof of her intent to do so, Safeco advised that it would pay her the difference between the replacement cost and actual cash value, or $3,229.12. Hampton, on the other hand, insisted that she was owed $45,245, or the difference between the estimated cost to replace the home that was destroyed and its actual cash value.

The Court rejected this argument. First, the Court found that diversity jurisdiction proper and an amount in controversy likely to be over $75,000 (i.e. the damages under the policy, plus interest and attorney’s fees). Next, on the merits of the claim, the Court held that the plain and ordinary meaning of the policy limited recovery to those costs “actually and necessarily incurred”. Hampton had argued that she reasonably expected that the replacement cost coverage “would be there to use toward restoring a normal life after a devastating fire”. However, the Court held that the policy limited recovery to those costs actually incurred.

Finally, the Court held that purchasing the new home was a prerequisite to payment and Safeco’s refusal before that time was not an anticipatory breach. Since the policy clearly stated that payment would be made only after the destroyed property was replaced, the insured was required to replace that property before payment was made.


06/11/15       Fairview Plaza, Inc. v. Estate of Peter J. Rigos
Appellate Division, Third Department
Though Chemical Perchloroethylene (PERC) Is Derived From Petroleum, It Is Not “Petroleum” Under The Navigation Law
Plaintiff Fairview Plaza owned a strip mall in Greenport, New York (Columbia County, just north of Duchess). From 1971 to 1993, Peter Rigos owned a laundromat that leased space from Fairview in the plaza. Following his death, his son John took over the business and entered into a new lease with Fairview, continuing the operation.

In 2002, Fairview conducted an environmental site assessment of the plaza. The results suggested that the ground and soil behind the laundromat had been contaminated with perchloroethylene, also known as PERC. This chemical had been used by the laundromat until about 1985 and had been stored in a tank near where the contamination was discovered.

Fairview then started this case against Rigos pursuant to the private cause of action granted by Navigation Law article 12. This provision permits a cause of action through which a party can recover damages sustained as a result of another’s petroleum discharge. Petroleum under the statute is defined as “oil or petroleum of any kind and in any form including, but not limited to, oil, petroleum, fuel, oil, oil sludge, oil refuse, oil mixed with other wastes and crude oils, gasoline, and kerosene”. (Navigation Law § 172). In support of its motion for summary judgment, plaintiff brought forth an expert affidavit which concluded that the groundwater “suggested a release of [PERC], a volatile petroleum-derived compound”.

In its decision, the Third Department determined that Fairview was essentially arguing for an expansion of the definition of petroleum. While PERC is a petroleum-derived chemical, the definition of “petroleum” does not include derivative chemicals. The court could not find, nor did Fairview present, any case law to support such an expansion. Rather, it found a lower court case and a federal case that held that PERC does not constitute petroleum. Accordingly, the appellate division affirmed the trial court’s dismissal of this case.


Cassandra A. Kazukenus
[email protected]

S2925/A4259          Amendment to General Obligations Law 5-322.1

This bill was passed by the Senate this week.  However, it the bill remains in the Assembly Judiciary Committee, and it does not appear that it will be voted on by the Assembly this year.  General Obligations Law §5-322.1 makes void and unenforceable broad indemnification provisions in construction contracts which require indemnification for the promisee for liability caused by or resulting from the negligence of the promisee. 

This bill would amend the current version to make it clear that a provision in a construction contract “that requires the purchase of additional insured coverage” is also void and unenforceable.  The Sponsor’s Memorandum in support of the bill explains that “additional insured provisions in construction contracts flies in the face of this prohibition and allows indemnitees to circumvent the law” regarding indemnification for its own negligent acts.


Jennifer A. Ehman
[email protected]

Maybe back next issue!

Earl K. Cantwell
[email protected]

01/29/15  W.L. Petrey Wholesale Co., Inc. v. Great American Insurance Co.  
M.D. Alaska
Theft Loss of Five-Hour Energy Shots Shot Down
In this case, a Federal Court held that a wholesaler using only “inventory calculations” to prove a theft loss was excluded from coverage for using this method as the only uncorroborated evidence to demonstrate the loss.  Petrey Wholesale supplies goods to convenient stores. They had a business insurance policy issued by Great American which provided coverage for “dishonest acts committed by an employee”.  However, an exclusion disclaimed coverage when the sole proof of loss was an inventory computation or a profit and loss computation. 

Petrey fired one of its personnel in May 2013.  Upon reviewing the inventory on his truck and in a storage unit, Petrey claimed that more than 82,000 bottles of 5-Hour Energy were missing from inventory with a value of more than $111,000.00.  A police report was filed and a claim submitted to Great American who denied the claim because it was based only on the inventory computation.  Petrey sued Great American for breach of contract and bad faith, and Great American moved for summary judgment which was granted by the District Court.

The Court concluded that the computations Petrey relied upon constituted “inventory computations” within the meaning of the exclusion.  The record also indicated that the calculations were the only real evidence Petrey offered as proof of a loss due to employee dishonesty.  As a result, there was no real evidence, apart from the inventory calculations, that any inventory was in fact stolen by anyone, let alone Petrey’s employee/driver.  While Petrey strongly argued that the employee was the only one who could have stolen the inventory, this was a supposition, there was no real evidence, and the inventory computation remained the only hard evidence offered in support of the claim.  The Court rejected Petrey’s argument that the exclusion negated the coverage because inventory calculations are the only methods available to prove such a loss.

The first lesson of this case is that insurance companies fare better on coverage and first party claims in federal courts which are more inclined to apply strict, straightforward policy definitions, meanings, definitions, and exclusions.

Secondly, to justify an employee dishonesty claim, the inventory computation of loss had to be corroborated by proof such as that the driver or other employees sold the energy drink off the books, mis-delivered the merchandise to unauthorized locations, exchanged the lucrative energy drinks for goods, money, or drugs, etc.  The nature of the coverage is for “employee dishonesty” and without corroborating evidence, the mere fact of a loss or inventory shortfall does not prove that the loss was proximately caused by employee theft.  For example, perhaps the computation was in error.  Perhaps the designated number of energy drinks had never been delivered in the first instance.  Perhaps the energy drinks became misplaced and were simply located in another warehouse or storage unit.  An inventory calculation showing a deficit may be equally reflective of bad accounting and poor inventory control and statistics as a theft by an employee.  An inventory loss could also be due to a third party, which may raise other policy issues but not an employee dishonesty claim.  Therefore, the simple proof and fact of loss via inventory computation does not provide necessary proof that the loss resulted directly from dishonest acts committed by an employee, acting alone or in collusion with others.

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