Coverage Pointers - Volume XVI, No. 6

Dear Coverage Pointers Subscribers:

You have a situation?  We love situations.

The winds were howling here last night, bringing in a taste of autumn weather.  The summer season comes to an end at the court houses as well and within a couple of weeks, the first decisions from the fall terms will be released and our issues, so often with only threadbare offerings in the summer, will assume their more robust constitution.  In the meantime, we offer you a wrongly decided (so we say) decision from the First Department.  That cases focuses on notice requirements in disclaimer cases where tendering is only by another carrier seeking to secure contribution from a second insurer.  We serve up a few other tidbits for your edification.

We Will Not Forget But Let Us Also Remember:

As I craft this cover letter, on the 13th anniversary of the terror attacks and in the wake of horrific deaths at the hands of enemies of peace, I am reminded that we must always remain steadfast and vigilant.  I hope and pray that our government, so often torn in pieces by petty political disagreements, can remember that our internal differences are insignificant in terms of the threats we face.  We bless the memories of those who have needlessly fallen.

I have been teaching Insurance Law at the Buffalo Law School for over a quarter century.  I taught on September 12, 2001, the day after so many perished.  It was the second day of the semester and as the still-stunned students tried to grasp the enormity of our collective losses, I explained how the insurance industry would play a major role in rebuilding the lives and structures and businesses lost and damaged.  Each year, since 2001, I have started my first class with a discussion of the unenviable role played by insurance professionals in helping to restore dignity to those who have been scalded or burned by the fires of natural and human-made disasters.  Be proud of what you do.  I am certainly honored to work with you in that effort.

 

Lots of travel this week; between Tuesday and Wednesday, I was in two countries, five cities, took off or landed in three airports and drove three cars.  Nice to be home.  A special thanks to the folks in Mayfield Heights who were kind enough to invite me to participate as a coverage panelist in their Specialty Zone National Casualty Meeting.  Great people, great experience.  Delighted to be there.  Monday, Dan Hunter and I will be conducting training in Syracuse.  Actually, he’ll be doing the training and I’ll be providing the color commentary.

Hey, while I am thanking people, I’ll add a note of appreciation to the Coverage Pointers team.  No matter what is going in their busy practices and lives, they add their columns to this publication every two weeks and if they have something special to say, add a cover note.  These are busy lawyers, most of whom have young families and are involved in sports and community activities.  Yet, no matter what, they think of you and are steadfastly dedicated to helping make your jobs easier by providing summaries of important cases that you can use in your everyday work.  To our regulars:  Audrey, Margo, Steve, Jen, Beth, Daniel, Cassie, and Earl and our occasionals:  Mike, Joel, Diane, Paul, Chris a special thanks to your commitment to our efforts here.  And to Dave Adams and the Labor Law Pointers team and to Larry Ross and the Health Care Pointers team, a special thanks to you as well.

And to Terry Pegula and his $1.4 billion purchase of the Buffalo Bills, a tip of the hat to you as well.  Had the team been sold to someone else, New York State would have likely been without a football team.

One Hundred Years Ago Today: The End of the First Battle of the Marne:

This spring, we noted the 70th anniversary of D-Day, the landings on the Normandy beaches.  France was not a stranger to land battles.  One hundred years ago today, World War I was in full swing and the First Battle of the Marne came to an end.

That battle lasted from September 6–12, 1914 and was an offensive by the French army and the British Expeditionary Force (BEF) against the advancing Germans who had invaded Belgium and northeastern France and were within 30 miles of Paris.

By early September, one month after the outbreak of war, the German army had advanced deep into northeastern France, Paris was preparing for a siege, and the French troops were exhausted from their 10–12 day retreat to the south of the Marne River. The French commander in chief, General Joseph Joffre, decided to risk a counterattack. The French 6th Army under General Michel-Joseph Maunoury attacked the flank of the German General Alexander von Kluck’s 1st Army on the morning of September 6. When Kluck turned to oppose them, a 30-mile-wide gap was opened between his troops and the German 2nd Army. The Allies immediately exploited this gap by sending in the French 5th Army and troops of the British Expeditionary Force.

On September 7 and 8, Maunoury’s forces were reinforced by 6,000 infantrymen who were transported to the battle from Paris by 600 taxis, the first automotive transport of troops in the history of war. On September 8 General Franchet d’Espery’s 5th Army made a surprise night attack on the German 2nd Army and widened the gap. On the 10th the Germans began a general retreat that ended north of the Aisne River, where they dug in, and the trench warfare that was to typify the Western Front for the next three years began. In the Battle of the Marne the French threw back the massive German advance that had threatened to overrun their country and thwarted German plans for a quick and total victory on the Western Front

Beth’s Bitz

Dear Subscribers:

I write this on the 13th anniversary of the tragic events of September 11, 2001.  It is hard to believe it was 13 years ago, as the enormity of the tragedy is undiminished by the passage of those years. Today we remember all those who gave their lives, their families and friends, even as we face new threats to our country and our freedom. 

We will never forget.  God bless the USA.

The coverage world goes on and today I bring you two cases addressing coverage for claims of “faulty workmanship” under a commercial general liability policy.  The court in American Towers LLC v. BPI, Inc. applied West Virginia law to address this issue.  In, J-McDaniel, the court applied Arkansas law to find the claims were not covered under the commercial general liability policy.

Til next time,

Beth
Elizabeth A. Fitzpatrick
[email protected]

Editor’s Note:  Beth oversees our Long Island and New York area office with a growing team of great professionals

A Century Ago – Christian Jews Lecture?

Times Herald
Olean, New York
September 12, 1914

CHRISTIAN JEW
HERE IN SERIES
OF LECTURES

Joseph Cohn Will Speak at
Three Local Methodist Churches

Joseph Cohn, eminent Jewish missionary and one of the few Christian Jews in the pulpit today is in the city for a series of meetings which commence at People’s Church, Saturday evening, September 19, 1914.

Mr. Cohn is a forceful and entertaining speaker, and it is seldom that the public has the opportunity to hear one of his race.  His father was an eminent rabbi in Austria-Hungary, Leopold Cohn, who after years of study was converted to the Christian faith.

He came to New York because of the lack of opportunity for study in his home country, and was so persecuted there that he went to Scotland.  His son became a Christian missionary and has converted many of his race to his way of thinking. 

Editor’s Note:  Many of his race?  That raises a number of philosophical questions that will best be addressed when we start crafting Religious Pointers.  Don’t hold your breath for an announcement of the first issue.

Hunter’s Hints on Serious Injury:

It's the first serious injury threshold column of September, and fall is in the air.  Another light output by the appellate courts for serious injury threshold cases this issue, with only the First Department checking in with a case affirming the lower court's granting of Defendants' motion for summary judgment.

I look forward to seeing old friends and meeting new ones in Syracuse this upcoming Monday for a Serious Injury Threshold refresher presentation.  As always, if any of our dear readers have any questions or would like their own refresher presentation on New York Serious Injury Law, please contact me at your earliest convenience. 

Until next time,

Dan
Daniel T. Hunter
[email protected]

Excuses, Excuses – A Century Ago:

The Brooklyn Daily Eagle
Brooklyn, New York
September 12, 1914

WAR STOPS ALIMONY

The war was blamed for the failure of Charles Allaire, for fifteen years a Wall street employee, to pay alimony of $25 a week ordered by the Court to his former wife, Mrs. Alyce Allaire.  Allaire offered the plea to Justice Jaycox in the Supreme Court when his former wife made a motion to punish him for contempt in so far violating the court’s rule as to be $225 in arrears.  The suspension of the Stock Exchange and the failure of the company that had employed him for fifteen years deprived Allaire of the only method he knew of making a living and therefore he was at present without funds and asked for more time.  Since his first wife divorced him Allaire violated the court injunction against remarrying and informed the court that his new wife is also dependent on him for support.

Justice Jaycox yesterday declared Allaire in contempt for failure to pay up but gave him time to make good.
Editor’s Note:  Poor Mrs. Allaire. In trying to track down the end of this story, we found a piece in the Brooklyn Eagle dated January 3, 1939, 25 years later, where the New Jersey courts refused to dismiss her lawsuit against her former husband Charles, who now owed her $25,680 in alimony payments.

Jen’s Gems:

This has been a big week for us Buffalo natives and football fans.  With the purchase of the Buffalo Bills by Terry and Kim Pegula, it appears the team will be staying in the city for the foreseeable future.  A huge relief especially for my husband who professed many months back that if the Bills leave Buffalo, he is leaving too.  Also, Bon Jovi is likely relieved that perhaps people in town will start buying his albums again.  For those that have not heard, when it was rumored that Bon Jovi was leading a group of investors that sought to buy the team and move them to Toronto, a boycott was called on his music.   

In terms of my column this week, there is an interesting case that I report on out of the District Court of Appeal of Florida, Fifth District addressing attorney-client privilege in bad faith actions.  While not released for publication in the permanent law reports yet, the decision does provide some hope that the Florida courts are receding from some of their more extreme views on bad faith.  Under Florida law, unlike New York law, an injured party that obtains an excess verdict can bring an action against the tortfeasor’s insurer for bad faith even without an assignment of rights.  This is approved,based on a third-party beneficiary theory.  The issue here was, in that situation, can the injured plaintiff depose the attorney that represented the tortfeasor in the underlying action and obtain documents from him that would otherwise be privileged.  The court acknowledged that under prior law this discovery would be permitted; however, it notes that courts maybe rethinking this position.  Ultimately, the court concluded that the fact that the injured plaintiff had standing to sue, did not mean that the tortfeasor gave up her statutory attorney-client privilege; however, recognizing the uncertainty of the law in this area, the court certified the question to the Florida Supreme Court.

We will monitor this decision and let you know when the Florida Supreme Court has chimed in.

Until next issue. 

Jen
Jennifer A. Ehman
[email protected]

Baseball – September 12, 1914:

One hundred years ago today, the Boston Braves led the National League pennant race by two games, over the New York Giants.  Over in the American League, the Philadelphia Athletics had a comfortable 7 ½ game margin over the Boston Red Sox which held, finishing the season 8 ½ games ahead to the Sox.  In last place on July 4th, the Miracle Braves finished the season with a 34-10 run to win the pennant by 10 ½ games and sweeping the Philadelphia Athletics in the first four-game sweep in World Series history. 

Over in the short-lived Federal League, the Indianapolis Hoosiers and the Chicago Feds were tied for first with Indy holding on to win the pennant at the end of that season by 1 ½ games over that same Chicago franchise.  The Buffalo Buf-feds ended upon fourth.  Baseball aficionados will recall that the Federal League only existed for two years, 1914 being the first.  For those who may care (and I am certain few do), the Indianapolis franchise moved to Newark and became the Peppers while the Chicago team adopted the name Whales for the 1915 season and played in a stadium built by its owner, Charles Weeghman (Weeghman Park).  After the 1915 season, the Whales merged with the Cubs and he moved the Cubbies from West Side park into his new stadium.  It was renamed Cubs Park in 1920 and then renamed Wrigley Field in 1926.  It is the only Federal League stadium still in use.

Peiper’s Prerogatives:

We start this week out with a special thanks to our editor for giving me an interesting liability decision to discuss.  While the Second Department’s decision in Scottsdale v Beckerman would normally be found in Kohane’s Corner, its appearance a bit further down in the lineup should not obscure its importance.  In Beckerman, the Court unequivocally recognizes that the term “arising out of” is entitled to a universally broad interpretation whether it be employed in the grant of coverage (think AI endorsements) or, as in this case, in an exclusion. 

In upholding a broadly worded exclusion, the Second Department advises that courts should interpret exclusions based upon “arising out of” language by using a “but for” causation analysis.  In other words, if the loss would not have occurred”but for the” the excluded event, coverage is extinguished.  For those of us weary from battling the exceedingly broad interpretation of “arising out of” when used in AI endorsements, the Beckerman decision is welcome counter-balance.

We also review an interesting Labor Law decision in today’s column.  That decision, DePaul v NY Brush, provides another opportunity to discuss how understanding the interplay between NY Labor Law and Insurance Coverage litigation is vital to managing a carrier or client’s potential exposure.  No matter how often we discuss this issue, Labor Law 200/common law negligence claims continue to be the underappreciated teammate in a typical Labor Law lawsuit. 

While plaintiff’s focus, and perhaps rightly so, will always stay fixed on establishing Labor Law 240(1), the defendant’s focus should also be squarely on the factors governing a viable Labor Law 200 claim.  If a defendant can establish its lack of negligence (i.e., get a Labor Law 200 claim dismissed on motion), its path to indemnification is generally a clear one.  On the flip side, if a third-party defendant can create the potential for an award of active negligence against the main-party defendant, it may likewise be able to insulate itself from any exposure via common law or contractual indemnity. 

Despite the enormous importance of the allocation of negligence between and among defendants/third-party defendants, time and time again few think of this until motion practice.  We’d suggest that the time to analyze the apportionment of negligence is, at a minimum, before depositions.  Understanding how, why, and when common law negligence attaches to a worksite contractor will go a long way to protecting your bottom-line when it comes time to resolve the claim.

That’s it for now.  See you in two weeks.

Steve
Steven E. Peiper
[email protected]

Highlights of this week’s issue, attached:      

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

  • Insured Entitled to Copy of Disclaimer Letter Even Where the Claim is for Legal Fees Incurred by Another Carrier
    SUM Coverage Available for Temporary Substitute Autos
  • Broker Walks from Coverage Dispute

 

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

  • Defendants' Motion to Dismiss Affirmed

 

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

Arbitration

  • Denial Not Upheld Where Verification Requested of Wrong Party
  • Counsel’s Submission of Medical Articles Not Cited or Referenced by Medical Experts Will Not Be Considered
  • Prior Decision Regarding Wage Loss Has Collateral Estoppel Effect on New Claim

 

Litigation

  • Award of Declaratory Judgment Is Res Judicata in Action for No-Fault Benefits
  • Defendant Demonstrates Triable Issue as to Assignor’s Fraudulent Procurement of Policy
  • Defendant Not Required to Prove Verification Letters Not Tampered With
  • Court Rejects Plaintiff’s Motion to Disqualify Defendant’s Counsel

 

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

  • Issue of Fact Regarding Who Created a Dangerous Condition at Worksite Precludes Summary Judgment for All
  • Exclusion with “Arising Out Of” Language Requires a “But For” Causation Analysis
  • Plaintiff’s Attempt to Re-Serve Old Complaint in a New Action Rejected by Collateral Estoppel Principles

 

FITZ’ BITS
Elizabeth A. Fitzpatrick
[email protected]

  • Court Certifies Questions Involving Faulty Workmanship
  • No Coverage for Faulty Workmanship under CGL policy

 

AUDREY’S ALL THINGS PERSONAL
Audrey A. Seeley
[email protected]

  • Eating baked Alaska. Back next issue.

 

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

  • Proposed Amendment to Regulation 79: Mandatory Underwriting Inspection Requirements for Private Passenger Automobiles

 

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

  • Appraisers Required to State Actual Cash Value and Loss to Each Item
  • Court Examines Claim for Theft of Jewelry from Backpack in Aruba

 

Bad Faith

  • Florida Court Upholds Attorney Client-Privilege in Bad Faith Action Where Insured Did Not Assign Her Rights

 

EARL’S PEARLS
Earl K. Cantwell

[email protected]

  • Loss Profits As Direct and Not Consequential Damages        

 

Thanks for your support.
Dan
Dan D. Kohane
Hurwitz & Fine, P.C
.
1300 Liberty Building
Buffalo, NY 14202    

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

 

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


NEWSLETTER EDITOR
Dan D. Kohane
[email protected]

ASSOCIATE EDITOR
Audrey A. Seeley
[email protected]

ASSISTANT EDITOR
Jennifer A. Ehman
[email protected]

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

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

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

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

Elizabeth A. Fitzpatrick
Cassandra Kazukenus

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

Margo M. Lagueras
Cassandra Kazukenus
Jennifer A. Ehman

Taylor F. Gabryel

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

 Elizabeth A. Fitzpatrick
Diane F. Bosse

Index to Special Columns

Kohane’s Coverage Corner
Hunter’s Hints on Serious Injury
Margo’s Musings on No Fault
Peiper on Property and Potpourri
Fitz’ Bits
Audrey’s All Things Personal
Cassie’s Capital Connection
Keeping the Faith with Jen’s Gems
Earl’s Pearls

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

09/10/14       Key Fat Corp. v. Rutgers Casualty Insurance Company
Appellate Division, Second Department
Insured Entitled to Copy of Disclaimer Letter Even Where the Claim is for Legal Fees Incurred by Another Carrier
Guallpa worked for Bando Construction (“Bando”) and Bando leased property from Key Fat. Guallpa fell from a ladder, sustaining injuries. He sued Key Fat and Key Fat commenced a third-party action against Bando.

Key Fat's insurer, Seneca informed Bando and its insurer, that although it was providing defense and indemnification for the underlying action, it was requesting that Rutgers immediately assume those obligations. On March 26, 2007, Rutgers Casualty informed Bando that it was disclaiming coverage based upon a certain exclusion in the commercial general liability insurance policy it had issued to Bando (hereinafter the Policy). By letter dated April 17, 2007, Rutgers informed Seneca of the disclaimer. Key Fat was not so informed.

Pursuant to Insurance Law § 3420(d), an insurance carrier is required to provide its insured and any other claimant with timely notice of its disclaimer or denial of coverage on the basis of a policy exclusion, and will be estopped from disclaiming liability or denying coverage if it fails to do so. Although Insurance Law § 3420(d)(2) does not apply if the underlying claim does not involve death or bodily injury, contrary to Rutgers Casualty's contention, this provision is applicable where, as here, the coverage the defendant seeks to disclaim is for defense costs incurred in connection with an underlying personal injury action.

Accordingly, the plaintiffs made a prima facie showing of their entitlement to judgment as a matter of law, inter alia, declaring that Rutgers Casualty was estopped from disclaiming insurance coverage under the Policy by submitting evidence that it failed to provide a timely written notice of this disclaimer to Key Fat, a claimant in this litigation (see Insurance Law § 3420[d][2].
Editor’s Note:        We disagree with the Second Department’s decision.  This was a claim, not by the Rutgers insured, but by Rutgers for the defense costs it incurred.  It made the claim and it had the right to pursue it.  The insured was not pursing those costs because the insured did not incur them

09/10/14       Matter of State Farm Mut. Auto. Ins. Co. v O'Brien
Appellate Division, Second Department
SUM Coverage Available for Temporary Substitute Autos
O'Brien worked for Massapequa Auto Repair, Inc. Auletta, his customer, asked O'Brien to return Auletta's loaner Mercedes-Benz vehicle to Mercedes-Benz of Massapequa on his behalf. O'Brien, who was named an additional driver on the loaner vehicle agreement, acceded to Auletta's request. O'Brien sustained injuries when the Mercedes-Benz he was operating was struck in the rear by another vehicle. The vehicle that struck O'Brien's vehicle had a basic $25,000/$50,000 policy through GEICO. O'Brien then commenced a personal injury action, and GEICO tendered the full amount of the policy to settle the claim. The petitioner consented to a $25,000 settlement.

O'Brien then sought to receive compensation through Auletta's supplementary uninsured/underinsured motorist (hereinafter SUM) coverage with State Farm.  State Farm argued that the loaner vehicle was not on the policy and therefore it was not insured for SUM coverage. The parties stipulated it was a temporary substitute vehicle, loaned while Auletta’s car was being repaired.

The Second Department looked outside the SUM endorsement to find that the temporary substitute was covered for SUM. The opening language of the SUM endorsement states: "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." Moreover, the opening language of the policy states: "We define certain words and phrases below for use throughout the policy. Each coverage includes additional definitions only for use with that coverage." The general definition section includes a definition of "temporary substitute car," which is to be applied throughout the policy: "Temporary Substitute Car means a car that is in the lawful possession of the person operating it and that: 1. replaces your car for a short time while your car is out of use due to its: a. breakdown; b. servicing; c. repair; d. loss; or e. destruction; and 2. neither you nor the person operating its own or have registered."

Since only one vehicle was being insured at a time (the temporary substitute “standing in for” the insured’s vehicle, the Second Department found that the SUM coverage followed that car.

09/04/14       Dauria v. Castlepoint Insurance Company
Appellate Division, First Department
Broker Walks from Coverage Dispute
In 2008, Castlepoint issued a homeowner policy to the Dauria’s based on an application prepared and submitted on their behalf by broker Campo. After a fire in 2010, Castlepoint rescinded the policy based on its determination that the premises contained a basement apartment, which rendered it a "three family" dwelling as opposed to the "two family" designation listed on the insurance application.

In 2011, plaintiffs commenced this action against Castlepoint for breach of contract and against Campo for his alleged negligence and breach of contract in failing to procure the proper insurance policy and to properly process plaintiffs' application for insurance. Campo moved to dismiss for failure to state a cause of action and based on documentary evidence, claiming that he was never advised or had reason to believe that the premises was a three-family dwelling.

In opposition, Mr. Dauria stated that after the fire, Campo admitted that he had "messed up," and that in 2002 an investigator for Allstate, the prior insurer of the premises, had advised Campo that the house was a three-family home.

Castlepoint moved for summary judgment on the rescission question and Dauria cross moved.  The motion court found that Castlepoint did not establish that plaintiffs had made a material misrepresentation in the insurance application because three-family dwellings were not listed as an "unacceptable exposure" in Castlepoint‘s underwriting guidelines, and the policy did not exclude three-family dwellings from coverage.  The action against Campo was therefore dismissed, since coverage was established. 

Castlepoint appealed but nobody appealed from the ruling in favor of Campo.  The First Department (in a previous ruling) reversed that decision and found that Castlepoint properly rescinded.

Left without coverage, and the Daurias moved below to renew Campo's motion to dismiss.

An insurance broker can be held liable in negligence if he or she does not exercise due care in an insurance brokerage. In the order dismissing the claims against Campo, the motion court found that Campo had shown that "no significant dispute exists regarding his lack of duty to [p]laintiffs under the circumstances of this matter". The court reasoned that Campo procured the requested insurance for plaintiffs, within a reasonable time, and had no continuing duty to advise plaintiffs to procure additional insurance once this was achieved.

Having not appealed from the Campo order and there being no reason not to do so and no new facts offered, the First Department affirmed the lower court’s denial of the motion to renew.

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

09/11/14       Alvarez v. Nyll Mgt. Ltd.
Appellate Division, First Department
Defendants' Motion to Dismiss Affirmed
Defendants made a motion for summary judgment to dismiss Plaintiff's lawsuit based on Plaintiff's failure to establish a serious injury within the meaning of Insurance Law §5102(d), which was granted by the trial court.  In response to Plaintiff's appeal of the trial court's decision, the Appellate Division, First Department states that Defendants made a prima facie showing that Plaintiff did not sustain permanent or serious significant injuries to her right shoulder, right knee, and neck as a result of the subject matter motor vehicle accident.  Defendants submitted expert reports of an orthopedic surgeon and radiologist.  Defendants' orthopedic expert found full range of motion in Plaintiff's right shoulder, right knee and neck, and concluded that Plaintiff's conditions were degenerative in nature.  Plaintiff's medical records included a physician's examination finding full range of motion of Plaintiff's right knee, and the exact same range of motion in both of Plaintiff's shoulders following the accident.  Further, Plaintiff's emergency room records included her acknowledgment of a history of arthritis. 

Plaintiff failed to raise a triable issue of fact with respect to her alleged injuries in opposition to Defendants' proof.  Plaintiff's orthopedic surgeon's opinion that her shoulder, knee and spine conditions were caused by the accident and not degeneration were deemed conclusory opinions by the Appellate Division, and thus were insufficient to raise an issue of fact as to causation.  Further, this surgeon failed to address or contest the detailed findings of preexisting degenerative conditions by Defendants' experts, which were acknowledged in the reports of Plaintiff's own radiologists.  Plaintiff's surgeon also failed to address Plaintiff's history of arthritis, or the earlier conflicting findings by Plaintiff's other treating physician of normal knee range of motion and the same range of motion in both shoulders following the subject matter motor vehicle accident.  Since Plaintiff failed to raise a triable issue of fact, the Appellate Division, First Department affirmed the trial court's granting of Defendants' motion for summary judgment to dismiss Plaintiff's complaint.

The Appellate Division also stated the trial court properly dismissed Plaintiff's 90/180 day claim as Plaintiff failed to allege in her bill of particulars that she was incapacitated for at least 90 of the first 180 days following the accident.

 

MARGO’S MUSINGS ON NO FAULT

Margo M. Lagueras
[email protected]

Arbitration

09/02/14       Elite Medical Supply of NY, LLC v MVAIC
Erie County, Arbitrator Gillian Brown
Denial Not Upheld Where Verification Requested of Wrong Party
Respondent requested verification on November 5, 2013 for the dispensed LSO and MMS and on November 19, 2013 for the cervical traction unit.  Applicant responded to both requests but in January 2014 received two letters from respondent for additional information.  Specifically, those letters demanded to know whether the items had been purchased from a wholesaler, as well as requesting copies of the prescribing doctors CV, license, and a narrative from the prescribing doctor regarding medical necessity.

The Arbitrator determined that it was an abuse of the verification process to impose on a supply house the burden of providing copies of the licenses, CVs and medical notes from the prescribing doctor when respondent knew that such items would not be in applicant’s possession.  The Arbitrator therefore found the denial was improper and the verification requests should have been directed to the treating chiropractor.

08/28/14       WJW Medical Products v IDS Property Casualty Ins. Co.
Erie County, Arbitrator Kent l. Benziger
Counsel’s Submission of Medical Articles Not Cited or Referenced by Medical Experts Will Not Be Considered
At issue was the prescription of a Motion X brace.  The peer reviewer noted that the necessity of the item was not clearly described and that there was no documented trial period with efficacy rating.  He also noted that the price was grossly inflated.  Applicant submitted a US Patent and an abstract or summary detailing the structural mechanism of the brace and explaining that the purpose of this “improved” brace was to be automatically self-adjusting to exert substantially equal forces on the upper and lower portion of the torso.  The contention is that the benefit if this brace is that it is not rigid but allows body movement.  Applicant’s counsel also submitted medical articles which were not cited or discussed by the medical providers or respondent’s expert.

The arbitrator found the peer review was persuasive as the reviewer noted there had been no trial period and, under the facts of this case, the prescription was inconsistent with good and accepted medical practice.  The Arbitrator additionally commented that “many arbitrators would find it an abuse of the No-Fault system to prescribe a customized lumbar support without a trial period involving a generic brace.”  Furthermore, given that counsels are not medical experts and an arbitrator cannot determine what relevance or weight should be given to medical articles, he stated that he would not consider the articles submitted by applicant’s counsel.

08/26/14       Applicant v A. Central Insurance Co.
Erie County, Arbitrator Gillian Brown
Prior Decision Regarding Wage Loss Has Collateral Estoppel Effect on New Claim
This was the third period of lost wages claimed by applicant.  Respondent paid the first period.  The second period was arbitrated, denied, master arbitrated, and affirmed.  The Arbitrator found the issues were identical: the same EIP, same accident, same IME.  Therefore, the Arbitrator found that the prior arbitration in which wage loss was denied based on the same IME had a collateral estoppel effect on this claim.

Litigation

08/20/14       Great Health Care Chiropractic, PC v American Tr. Ins. Co.
Appellate Term, Second Department
Award of Declaratory Judgment Is Res Judicata in Action for No-Fault Benefits
While the no-fault action was pending, defendant brought a declaratory judgment action alleging that plaintiff’s assignor breached the policy by failing to appear for duly scheduled EUOs and that as a result, defendant was not obligated to pay any claims for no-fault benefits.  Plaintiff asserted that defendant did not demonstrate good cause for requesting an EUO.  Upon reargument, the trial court found that defendant demonstrated that it timely mailed EUO scheduling letters, that the assignor failed to appear, and that plaintiff failed to raise a triable issue of fact. 

Following the award of declaratory judgment, defendant submitted a supplemental affirmation in opposition to plaintiff’s motion for summary judgment asserting that plaintiff’s motion was barred by res judicata.  The trial court granted defendant’s motion and plaintiff appealed.

On appeal, the court found that plaintiff failed to establish that defendant failed to pay or deny the claims within the 30-day period or that defendant had issued a timely denial that was vague, conclusory or meritless.  As such, plaintiff failed to establish it prima facie case.  In addition, the trial court correctly determined that plaintiff’s action was barred by the doctrine of res judicata.  The fact that defendant did not serve the trial court’s order on plaintiff with notice of entry is not fatal given the binding and conclusive effect of the order.  The court also rejected plaintiff’s argument that the supplemental affirmation was untimely as defendant justified the delay and plaintiff did not demonstrate any prejudice.
Note:  See also Ultimate Health Products, Inc. v American Transit Ins. Co. decided on the same date.

08/20/14       Delta Diagnostic Radiology, PC v National Liability & Fire Ins. Co.
Appellate Term, Second Department
Defendant Demonstrates Triable Issue as to Assignor’s Fraudulent Procurement of Policy
On appeal, the trial court’s order was modified to deny plaintiff’s motion for summary judgment.  Defendant alleged that plaintiff’s assignor obtained the insurance policy in question through fraud by misrepresenting his place of residence at the time he obtained the policy and defendant’s papers were sufficient to raise a triable issue of fact.  Consequently, plaintiff’s motion should have been denied.  However, defendant’s cross motion was properly denied because defendant failed to make a prima facie showing of entitlement to judgment as a matter of law.

08/20/14       SS Medical Care, PC v Eveready Ins. Co.
Appellate Term, Second Department
Defendant Not Required to Prove Verification Letters Not Tampered With
Plaintiff moved for summary judgment and defendant cross moved on the grounds that the action was premature due to plaintiff’s failure to provide requested verification.  In support of its cross motion, defendant submitted an affidavit from its claims examiner establishing that defendant timely mailed verification, and follow-up verification requests and had not received the requested verification.  Plaintiff did not oppose the cross motion and the court noted that there was nothing in the record that would require defendant to prove that the verification request letters had not been tampered with or altered.  Given that the 30-day period to pay or deny did not begin to run because the verification requested had not been received, plaintiff’s action was premature.

08/20/14       Lotus Acupuncture, PC v State Farm Mut. Auto. Ins. Co.
Appellate Term, Second Department
Court Rejects Plaintiff’s Motion to Disqualify Defendant’s Counsel
Defendant moved for summary judgment on the grounds that plaintiff’s assignor failed to appear for duly scheduled EOUs and submitted, among other things, an affirmation from a partner in the law firm attesting to the assignor’s failure to appear.  Plaintiff cross-moved to disqualify the law firm from representing defendant on the grounds that a member of the firm was a necessary witness in the case (Rule 3.7 of the Rules of Professional Conduct, 22 NYCRR 1200.0).  The trial court granted defendant’s motion and denied plaintiff’s.  On appeal, the court affirmed.

The court found that defendant submitted sufficient proof the show that the EUO scheduling letters and denial of claim form were timely mailed and that plaintiff’s assignor failed to appear at EUOs.  Given that appearance at an EUO is a condition precedent to coverage, the trial court properly granted defendant’s motion.  Therefore, plaintiff’s request that defendant’s law firm be disqualified based on the attorney/witness rule is moot since defendant prevailed on summary judgment and there would not be any trial.  The court further commented that, in any event, plaintiff failed to establish that disqualification was warranted.

PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper

[email protected]

09/11/14       DePaul v NY Brush, LLC
Appellate Division, First Department
Issue of Fact Regarding Who Created a Dangerous Condition at Worksite Precludes Summary Judgment for All
Plaintiff, sustained injury when a wooden plank upon which he was walking broke and collapsed.  Defendants Pepsi, Holt and Brush all moved for summary judgment against plaintiff’s Labor Law 200 claims. 

In denying the claim, the Court noted that a question of fact existed as whether any of the parties created and/or knew/should have known of the dangerous condition the wooden plank presented.  To that end, the Court noted deposition testimony and photographs of the scene which appeared to establish that the plank in question was wet and showed signs of rot. Under such circumstances, the Court advised that a question of fact existed as to whether Holt, Brush or Pepsi had actual or constructive notice of the defective condition.

Notably, however, plaintiff’s Labor Law 241(6) claim was dismissed where, as here, the wooden plank did not constitute construction equipment or a temporary structure.  Because the plank was not connected to any other wooden planks, or anything else for that matter, the arrangement did not qualify as a structure. 

Lastly, the defendants’ also asserted claims for contractual indemnification against the concrete contractors Ruturra. In finding a question of fact, the Court first noted that Ruturra had a contractual obligation to keep its work areas free of debris and unsafe conditions.  The incident occurred in an area where Ruturra had performed grading work and had previously installed rebar.  This was enough, in the Court’s mind, to find a question of fact as to whether Ruturra had a duty to protect against the unsafe condition created by the wooden plank.  The Court also pointed out that even if Ruturra was responsible; defendants were still not entitled to contractual indemnification with issues of their own negligence remaining in doubt.

09/10/14       Scottsdale Ins. Co. v Beckerman
Appellate Division, Second Department
Exclusion with “Arising Out Of” Language Requires a “But For” Causation Analysis
This coverage dispute has its origins in what appears to have been a fairly messy battle of local politics.  In 2005, Entel, through his limited liability company, offered to dedicate a 1.1 acre parcel he owned as parkland.  The Board of Trustees for the Village Muttontown, of which Mr. Entel was a member, declined the dedication, and instead created a conservation easement over the parcel. 

Two years later, Mr. Entel was defeated in a mayoral election.  The newly elected mayor, Ms. Beckerman, rescinded the Board of Trustee’s 2005 resolution declining the dedication.  Mr. Entel, not surprisingly, responded by challenging the taking in both Federal and State Court.  In relevant part, the State Court action asserted, among other things, that the Village, and its various officers, failed to comply with Eminent Domain Law, failed to perform a valid SEQRA review, and breached its previous 2005 resolution which declined the dedication.

Upon receipt of the lawsuit, the Village sought coverage from Scottsdale.  In denying the claim, Scottsdale cited an exclusion which precluded coverage for losses “arising out of or resulting from a taking that involves or is anyway related to the principles of eminent domain.”  In reliance upon this exclusion, Scottsdale then proceeded with the instant declaratory judgment action.

In affirming the denial, the Second Department noted that the language of the exclusion was clear and unambiguous.  The Court noted that the term “arising out of” must be broadly construed to mean “originating from, incident to, or having connection with.”  Moreover, the term was entitled to a consistent definition regardless of whether it was employed in a grant of coverage or in an exclusion (as is the case here). 

The Court went on to explain that “arising out” exclusions are interpreted by using a “but for” test.  That is to say that if the claim could not have arisen “but for” the excluded event, coverage under the policy would be extinguished.  Here, the claims against the Village would not have existed “but for” the claims of actions in violation of an eminent domain taking. 

09/10/14       Abrahams v Commonwealth Land Tit. Ins. Co.
Appellate Division, Second Department
Plaintiff’s Attempt to Re-Serve Old Complaint in a New Action Rejected by Collateral Estoppel Principles
Plaintiff initially commenced an action against Commonwealth alleging breach of fiduciary duty.  That action was dismissed when Commonwealth’s motion for summary judgment was granted in 2009.  Nearly two and one-half years later, in 2012, plaintiff commenced a new action.   However, rather than drafting a new Complaint, plaintiff simply re-served the Complaint that was served in the previously dismissed lawsuit. 

When Commonwealth failed to answer in a timely fashion, plaintiff moved for a default judgment.  Commonwealth opposed on the basis that a default was an inappropriate remedy when the new action was barred by principles of collateral estoppel. 

In finding for Commonwealth, the Second Department noted that Commonwealth had established the decisive issue in the instant case was decided in the 2009 action.  Moreover, the Court had little difficulty in ruling that plaintiff had a full and fair opportunity to litigate that issue in the first action.   Where collateral estoppel applied, and plaintiff could not present a viable cause of action, it followed that the motion for default was properly denied by the Trial Court.

FITZ’ BITS

Elizabeth A. Fitzpatrick
[email protected]

08/18/14       American Towers LLC v. BPI, Inc., 2014 WL 4104165
United States District Court, Eastern District of Kentucky
Court Certifies Questions Involving Faulty Workmanship
In American Towers LLC, the court first determined that the facts warranted application of West Virginia law, but then determined that which version of West Virginia law applied were not clear, thereby certifying two questions to the Supreme Court of Appeals of West Virginia.

The facts underlying the coverage dispute involved a construction project in Kentucky, whereby BPI was required to build a cell tower, a compound, and an access road.  American Towers had contracted with BPI as general contractor for this project.  Less than one year after completing construction, the road collapsed, allegedly because of the faulty workmanship of BPI and its subcontractors.  American Towers sued BPI and BPI brought a cross-claim against Nationwide, claiming coverage under the Nationwide commercial general liability policy.

The court initially noted that the policy afforded coverage for property damage caused by an occurrence.  The court noted the well-trod ground by courts who have addressed the issue of whether claims for “faulty workmanship” constitute an “occurrence” within the meaning of a commercial general liability policy, defined as an accident.  The court noted that until recently, damages arising from such claims were not caused by an occurrence under West Virginia law. 

However, the court further noted that in 2013, the Supreme Court of Appeals of West Virginia overruled its prior decisions and reversed course, finding that faulty workmanship did qualify as an occurrence, such that damages resulting from such claims were covered under a commercial general liability policy (Cherrington v. Erie Insurance Property & Casualty Co., 745 S.E.2d 508 (W. Va. 2013)).  The Cherrington decision was issued after America Towers had filed the subject lawsuit and, thus, the court concluded that if Cherrington applied retroactively, then all of BPI’s damages attributable to faulty workmanship arose from an occurrence, but if it did not, then the court would be obligated to parse the damages arising from faulty workmanship from damages arising from an occurrence.  In doing so, the court noted that while the costs of repairing or replacing the faulty work product itself would not be covered under pre-Cherrington law, damage inflicted upon surrounding property may be covered under the policy. 

The court, thus, certified the question of whether Cherrington applied retroactively and, if it did not so apply and the road collapsed because it was poorly constructed, does the collapse of the road nevertheless qualify as an occurrence.  We will follow to determine how the West Virginia court answers the certified questions.

08/04/14       J-McDaniel Construction Co. Inc. v. Mid-Continent Casualty Company, 2014 WL 3805457
United States Court of Appeals, Eighth Circuit
No Coverage for Faulty Workmanship under CGL policy
In J-McDaniel the court addressed the issue of whether claims involving a subcontractor’s faulty workmanship were afforded coverage under a commercial general liability policy, applying Arkansas law.

The facts were as follows.  J-McDaniel, a residential construction general contractor, was sued by David and Susan Conrad for defects in the construction of their home, allegedly resulting from faulty workmanship on the part of the subcontractors.  J-McDaniel and the Conrads ultimately settled.  J-McDaniel had purchased a commercial general liability policy from Mid-Continent, which was in full force and effect at all times relevant to the litigation.  The policy provided coverage for property damage caused by an occurrence, defined as an accident.  The policy also included an endorsement excluding coverage for damages arising from the work of subcontractors.

The District Court dismissed the claim, noting that the Arkansas Supreme Court had previously held that defective workmanship standing alone – resulting in damages only to the work product itself- is not an occurrence, as defined under a commercial general liability policy.

J-McDaniel asserted that Mid-Continent had breached the insurance contract by refusing to defend J-McDaniel or indemnify it for the Conrad suit.  J-McDaniel conceded that under applicable Arkansas law at the time the suit was filed, the commercial general liability policy did not cover faulty workmanship.  J-McDaniel contended, however, that the legal landscape was shifting and that Arkansas Code Section 23-79-155 effectively overruled the existing case for this proposition (Essex) in 2011.  In light of this, J-McDaniel, in effect, asked the court to give retroactive effect to the cited Arkansas statute.

The court, however, rejected J-McDaniel’s argument, noting the presumption against retroactive application of statutes.  It further noted that at the relevant time period, the Arkansas Supreme Court, through its decision in Essex, had definitively answered the question of whether subcontractor work product is included within the bounds of commercial general liability coverage.  The court, thus, affirmed the judgment of the District Court, finding no obligation on the part of the commercial general liability insurer to afford coverage for the faulty workmanship claims.

AUDREY’S ALL THINGS PERSONAL

Audrey A. Seeley
[email protected]

Eating baked Alaska.

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

Proposed Amendment to Regulation 79
Mandatory Underwriting Inspection Requirements for Private Passenger Automobiles

DFS is proposing changes to Regulation 79 which pertains to mandatory inspections of private passenger automobiles.  Many of the changes are minor and appear to simply seek to clarify the expectations.  However, there are some proposed amendments which are worth mentioning. 

For instance, the definition of private passenger automobile or automobile was amended to state that it “means a vehicle as defined in VTL §125 but shall not include” an ambulance, fire vehicle, motorcycle, livery vehicle, policy vehicle, taxicab, farm vehicle or a motor vehicle weighing more than 6500 pounds unloaded. 

Additionally, the proposed amendments would add to the definition insured “any natural person who is related to the named insured by blood, marriage or adoption (including a ward or foster child), and who regularly resides in the named insured’s household, including any such person temporarily living elsewhere.

Additionally, the proposed changes clarify that there are mandatory and optional waivers of this requirement in certain circumstances.  For example, there is an optional waiver where the vehicle is at least seven model years old on the effective date of the insurance.  Also, there is a waiver available under a new policy, when the vehicle has been continuously insured for physical damage by the insurer issuing the new policy or any other insurer without a lapse in coverage as long as the prior insurer inspected the vehicle within the previous two years.

It is also proposed that an insurer must set forth the procedures for implementing any inspection waiver required or permitted in the insurer’s plan of operations, and the waiver and exceptions to the waiver must be based on underwriting criteria and uniformly applied.

A new subsection (d) to 67.3 is proposed which sets forth the steps an insurer must take when it waives an inspection which includes obtaining various forms of documentation related to the basis of the disclaimer. 

New to the regulation would be section 67.4 which relates to the deferral of the mandatory inspection requirement.  This section requires the insurer to notify the named insured of the NY mandatory physical damage inspection requirement at the time of the insured’s request for coverage.  The vehicle may be inspected prior to the effective date of the coverage but no more than 10 days after the effective date.  The notification must include the location of one or more inspection locations, of the potential consequences and that coverage will be suspended at 12:01 am on the day following the 10th day after the effective date of coverage if the inspection is not completed.  If the inspections requirements are deferred, the insurer must require the named insured to sign a prescribed form.

The proposed changes would also add two new provisions under the standards for suspension of private passenger vehicle’s physical damage coverage when the insured fails to obtain the mandatory inspection.  Any reinstatement after suspension will be effective at the time of the 10th calendar after the effective date of coverage.  Further, if the named insured makes the auto available for inspection after the coverage is suspended, the insurer must accept the inspection and reinstate the coverage effective as of the date and time of the inspection.

Additionally, an insurer cannot suspend the physical damage insurance if the named insured did not make the insured vehicle available for inspection due to the insurer’s failure to properly notify the insured of the requirement or mail or deliver the mandatory notifying the insured or obtain the acknowledgement from the insured. 

KEEPING THE FAITH WITH JEN’S GEMS

Jennifer A. Ehman
[email protected] 

08/21/14       Forman v State Farm Fire & Cas. Co.
Supreme Court, Kings County
Appraisers Required to State Actual Cash Value and Loss to Each Item
Plaintiff’s condominium apartment and the contents located therein sustained water damage stemming from a burst pipe.  At the time of the loss, the property and its contents were insured under a Condominium Unitowner’s policy of insurance issued by State Farm.  During the course of State Farm’s adjustment, it paid plaintiff $148,139.73.  Plaintiff disputed the amount and, pursuant to the policy, the parties sought to resolve the disagreement through appraisal.  The umpire issued an award with stated replacement cost at a lump sum of $190,789.80, depreciation at $37,142.83 and an actual cash value loss at a lump sum of $153,646.97.

Prior to the release of the award, plaintiff brought this action and State Farm then motion to dismiss certain causes of action.  The court considered the causes of action separately. 

Initially, the court declined to dismiss the second, third and that part of the seventh cause of action in which plaintiff sought recovery for expenses related to assessing and repairing building damage.  The court noted that under Insurance Law §3404(e), the appraisers are required to appraise the loss, stating separately actual cash value and loss to each item.  Here, there was no evidence that a detailed itemization of the building damage was ever provided by either the appraisers or the umpire.  Since the award did not itemize the cash value or the loss, it was not in compliance with statute and, therefore, unenforceable. 

The court did however dismiss the fourth and fifth causes of action which sought damage for appraisal and umpire fees and expenses.  Relying on the language of the policy, the court noted that each appraiser shall be paid by the party selecting them and other expenses of the appraisal and the compensation of the umpire shall be split equally. 

The sixth cause of action was kept in as the court found ambiguity as to whether fees and/or expenses of a public adjuster were included as the policy was silent on these expenses. 

The ninth cause of action for emotional distress was dismissed as such damages cannot be recovered in a breach of contract claim.

Likewise, the tenth cause of action was dismissed.  Absent a contractual or policy provision permitting recovery of an attorney’s fee, an insured may not recover the expenses incurred in bringing an affirmative action against a carrier. 

Lastly, the eleventh cause of action seeking punitive damages was dismissed as the court found plaintiff’s allegations insufficient to justify an award of punitive damages. 

08/21/14       Ilico Jewelry, Inc. v Hanover Ins. Group
Supreme Court, New York County
Court Examines Claim for Theft of Jewelry from Backpack in Aruba
In a situation that seems the perfect plot for a great caper movie, plaintiff’s principal, Michael Ilian, was on a business trip in Aruba.  According to his testimony, he went to Aruba to collect monies from his customers and inform them of his new line of jewelry, as well as to retrieve certain jewelry that he left with a store proprietor over 10 years prior in order to avoid paying customs duty on it. 

While visiting the store proprietor, he returned for credit 42 items valued at approximately $60,000, which Mr. Ilian placed into his backpack along with the other jewelry he was retrieving.  Later that evening, Mr. Ilian, with his backpack of jewelry, met his cousin, a competitor jeweler, for dinner.  At the restaurant, Mr. Ilian got up to go to the bathroom instructing his cousin to “watch my bag.”  When he returned however the backpack was gone.  A waitress advised that two woman approached the table after the men were seated and left with the backpack. 

Plaintiff made a claim under a Jewelers Block Insurance policy.  Defendant denied the claim and this lawsuit resulted.  On this motion to dismiss, the court determined that defendant failed to establish that the loss was excluded from coverage under the clear and unambiguous terms of the policy.   The policy’s territorial limits was modified to extend to cover property in the custody of employee, Michael Ilian for an amount of insurance of $500,000 away from premises while traveling to, from and while in the Caribbean Islands. 

The policy excluded however “all risks of loss or damage to the property insured when in transit unless the property insured is in the close personal custody and under the direct control of a Director or employee of the Assured’s firm and/or sales representatives, commission salesman or selling agents at all times other than when deposited in a bank safe and/or vault and/or while left for safekeeping with a jeweler in the trade and/or while in the custody of customs. 

In denying the motion to dismiss, the court reasoned that the goods were not covered unless shown to have been “in the close personal custody and under the direct control” of Mr. Ilian at all times, unless, as relevant here, left with a jeweler of the trade.  Given that Mr. Ilian was at least 100 feet away when the goods were stole, it could not be said that they were in his close personal custody or control.  However, it was uncontested that his cousin was a “jeweler in the trade” with whom the goods were left.  While defendant argued that this phrase did not apply as his cousin was not working as a jeweler at the time of the loss, the court found that defendant had not established its interpretation as a matter of law. 

Bad Faith

09/05/14       Boozer v. Stalley
District Court of Appeal of Florida, Fifth District
Florida Court Upholds Attorney Client-Privilege in Bad Faith Action Where Insured Did Not Assign Her Rights
Benjamin Hintz was injured in a motorcycle accident involving Emily Lynn Boozer.  At the time of the accident, Boozer’s liability for the accident was covered under a least two insurance policies issued by Allstate with total limits of $1.1 million.  Stalley, Hintz’s guardian, filed an auto negligence suit against Boozer, and Allstate retained Virgil Wright to defend her.  Settlement discussion failed to resolve the dispute and following a trial, Stalley recovered a judgment in excess of $11.1 million.  Allstate paid its policy limits leaving the remainder of the judgment unsatisfied. 

Under Florida law, a plaintiff in a personal injury action who obtains a judgment against a defendant in excess of the defendant’s insurance coverage can bring an action for bad faith against the insurance carrier without an assignment from the defendant under a third-party beneficiary theory.  Here, Stalley did not obtain an assignment, but instead brought a bad faith claim without it. 

The issue in dispute became whether Stalley could depose and obtain documents from Boozer’s attorney, Wright, without consideration of Boozer’s attorney-client privilege.  This action was brought in an effort to quash a trial court order directing such discovery. 

The court began its discussion of this issue by evolving case law in this area.  This question was first considered in Boston Old Colony Insurance Co. v Gutierrez, 325 So.2d 416 (Fla. 3d DCA 1976).  There the court reasoned that as a third-party beneficiary of the insurance policy, the underlying plaintiff stood in the same posture as that of the insured.  Just as the insured would be entitled to discovery, including deposition and production of files by the attorneys, the underlying plaintiff had the same right of discovery in furtherance of the preparation of his case.  

The court recognized that under this decision, Wright would be obligated to comply with the discovery requests.  However, it noted that decisions issued after this required the court to rethink its holding that allowed discovery of attorney-client privilege information in bad faith actions.  Specifically, in Genovese v. Provident Life & Accident Ins. Co., 74 So.3d 1064 (Fla. 2011), the Florida Supreme Court, in a first-party context, emphasized that the attorney-client was not concerned with the litigation needs of the opposing party.  Instead, the purpose of the privilege is to “encourage full and frank communication” between the attorney and the client.  This significant goal of the privilege would be severely hampered if an insurer were aware that its communications with its attorney, which were not intended to be disclosed, could be revealed upon the request of the insured. 

Ultimately, the court was persuaded by what it viewed as recent case law which receded from prior law.  The fact that Stalley may stand in Boozer’s shoes, or have an independent right to bring a bad faith action, does not mean that Boozer gave up her statutory attorney-client privilege especially as there was no indication that Stalley obtained an assignment from Boozer, and their interests are clearly adverse.  However, recognizing the uncertainty of the law, the court certified the question to the Florida Supreme Court.
Note:  This opinion has not yet been released for publication in the permanent law reports.

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

03/27/14    Biotronik A.G. v. Conor Medsystems Ireland, Ltd, 2014 WL 1237514
Loss Profits As Direct and Not Consequential Damages 
This case involved an agreement between the Plaintiff, a distributor of medical devices, and the maker of a coronary stent whereby the Plaintiff would become exclusive distributor of the stent in certain geographical areas.  There were difficulties; however, getting governmental approval for the product and Defendant took it off the market.  Plaintiff sued for breach of contract and claimed lost profits as damages.  The legal problem was that the contract in question stated that neither party would be responsible for “…any indirect, special, consequential, incidental or punitive damage with respect to any claim arising out of this agreement.”  The issue in the case therefore, was whether the alleged lost profits fell within these excluded categories, or could be considered general or direct damages for which the Plaintiff might be able to recover.

A majority of the Court of Appeals in a 4-3 decision holds that alleged lost profits can constitute general or direct damages and therefore were potentially recoverable.  Therefore, the ruling of a lower appellate court which considered them consequential damages was reversed and the damages claims were revived.

Both the majority and dissent wrote lengthy opinions, with the majority generally concluding that the alleged lost profits constituted direct or general damages which could be the “natural and probable consequence” of a breach.  In this view, the contract was to distribute the device and make money from them, and the inability to do so is deemed sufficiently “direct” and not “indirect” or “consequential”.

Another factor was whether the damages arising from the loss were from collateral arrangements with third parties not party to the contract in question.  Part of the analysis seems to suggest that, if the damages arose from financial injury from third party contracts or arrangements, those would be deemed incidental and consequential and thus subject to the contractual exclusion.  The majority held that the alleged damages flowed directly from the contract itself and were not the result of any other agreement with a non-party.

The three judge dissent considered the alleged lost profits to be consequential damages barred by the contract, as under modern legal principles and the Uniform Commercial Code such alleged lost profits would be considered consequential damages.

The first item of note in this case is that it was a very close 4-3 decision from the Court of Appeals, with both sides issuing lengthy opinions.

The second point of note is that because of various statutory and contract terms whether damages are defined as “direct” as opposed to “consequential” may be of vital importance.

The third point of note is that lost profits according to this analysis are not necessarily “consequential” damages but can be direct damages that flow from breach of the contract.  The lost profits are not always necessarily “incidental” or “consequential” damages.

The one point of distinction that “consequential” damages may arise from collateral contracts with third parties can be a useful but not necessarily a determinative point of analysis.  Under this analysis, for example, if the distributor had entered into a contract with a third party shipper to store and deliver the medical device and incurred costs from non-fulfillment of that arrangement, under the majority’s reasoning those would be “indirect” or “consequential” damages not inherently arising out of the breach of the agreement between the manufacturer and the distributor.

Another way to understand this case is to regard it in simple terms as a product distribution agreement between the manufacturer and distributor where the entire goal of the enterprise from the distributor’s point of view was to sell and distribute the medical devices at a profit.  That profit was the economic reason for the contract coming into being, and loss of that profit, to the extent it can be proven and established (which may indeed be a major point and hurdle in this case going forward), might be regarded as direct damages.  This might be opposed to, for example, costs incurred with a third party shipper, costs incurred to establish a warehouse for the product, expenses incurred in printing marketing literature for the device, expenses incurred in hiring and/or training sales representatives to sell the device, which might be more “incidental” or “indirect” from the flow of the product and dollars associated with it.

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