Coverage Pointers - Volume XVI, No. 7

Dear Coverage Pointers Subscribers:

You have a situation?  We love situations. 

Welcome to autumn.  It’s a beautiful time in Western New York and Southern Ontario, but the recognition that the next season is the one that starts with “W”.  Ahh well.

Our appellate courts are back in session and we’re starting to see the autumnal surge of appellate opinions.  There are a few interesting ones in this week’s issue.

Grave Injuries and Coverage Solutions:

Consider this question, an easy one for New York practitioners.  In, for example, the typical construction accident/Labor Law lawsuit, where the plaintiff receives Workers Compensation benefits for his or her injury, when can the plaintiff’s employer become a party in the action?  The answer is quite straightforward.  There are two occasions.  First, the employer can be brought into the lawsuit as a third party defendant if it has entered into a trade contract with an enforceable hold-harmless and indemnity agreement.  Secondly, if the plaintiff/employee has sustained a “grave injury” as defined by the Workers Compensation law, it can be a third party defendant for common law negligence/contribution claims.

OK, so who protects the employer for a lawsuit sounding in contractual indemnity and common law contribution claims?  Again, that’s another easy one for the New York practitioner.  If there is a commercial general liability policy and there is an “insured contract” exception to the contractual liability exclusion and the indemnity agreement qualifies as an “insured contract”, the CGL carrier has the obligation to respond to that claim.  The Workers Compensation/Employer’s Liability (WC/EL) carrier has the obligation to respond to the common law claims under “Coverage B” of that policy.

So far, so good.

Now, let’s assume that the employer doesn’t have a CGL policy or that the policy otherwise excludes that contractual claim?  Then what?  Well, if there is a grave injury claim, the WC/EL carrier has to defend that claim and the entire lawsuit (and indemnify only if there is a finding of grave injury (assuming all coverage defenses properly protected).

One more step.  Now, let’s imagine that the WC/EL carrier does not believe that the plaintiff actually suffered a grave injury?  Can it instruct defense counsel to move to dismiss that claim?  If it does so, and is successful and there is a valid contractual claim for which there is no coverage, defense counsel would be leaving his or her client uninsured.  Therefore, counsel may be hesitant to do so.

What SHOULD the WC/EL carrier do, then, to get that issue resolved?  Can it intervene in the underlying lawsuit?  Should it wait until there is a verdict and then refuse to pay it?  Should it commence a Declaratory Judgment Action? 

This week’s issue offers a First Department case, National Union v, 221-223 W. 82 Owners Corp, decided, on Thursday, September 25, where the DJ option was tried successfully.

Legal Elite

The annually compiled Business First and the Buffalo Law Journal list of the “Legal Elite of WNY” comes out this week and five of the firm’s attorneys have been voted to the list by peers from across the WNY legal community by. Please join me in congratulating my partners Robert Fine, Larry Franco, Harry Mooney and Ann Evanko. I was also honored to make the list and was in fact named to the Legal Elite’s Top 10: Best of the Best list. It was a terrific surprise and I am truly honored.

When the reporter called an interview with me “to see what makes me tick” word got out internally and the firm held an impromptu contest to determine what makes me tick, with prizes awarded and everything.

The conclusion was that I get all shivery every time I receive a call about a situation.  Shivery? Hmm.

Upcoming Programs for Insurance Professionals:

DRI Insurance Coverage and Practice Symposium
New York City
December 4-5, 2014
Click here for program brochure and registration

DRI’s Insurance Coverage and Practice Symposium is the preeminent annual gathering for insurance executives, claims professionals, and outside counsel who specialize in insurance coverage disputes. Our attendees consistently comment that the faculty quality is of the highest caliber, and this year is no exception. The faculty, consisting of a New York Court of Appeals judge and insurance professionals and practitioners from across the nation, will share their invaluable insights about pivotal court rulings that will affect insurance jurisprudence nationwide, recent trends in professional liability coverage and extra-contractual actions against insurers, and what insurers can and should do when confronted with the possibility of settling a mixed claim. Please join your fellow coverage practitioners and professionals and avail yourself of this superb CLE and networking opportunity, together with all that DRI and New York City in December have to offer.

Law School for Insurance Professionals
Sponsored by the New York State Bar Association Torts, Insurance and
Compensation Law Section

Need a refresher course on how to write an effective coverage position or disclaimer letter?  Thinking of writing a Reservation of Rights letter but you know that they are often ineffective in New York?  Dealing with liens and discovery issues and priority of coverage questions and feel like you’re drowning?

We can help you.

If you haven’t signed up for the NYS Bar’s signature program for claims professionals, there is still time, but don’t miss the opportunity.  Our own Beth Fitzpatrick serves as state-wide co-chair and Beth and I will both be presenting the “primer” course on coverage letters in three of the five cities:

Registration Fee - $90 | Discounted rate for CPCU and RIMS Members - $80
Group Rate (for groups of 5 or more) - $80 per person

To Register:

  • Online at
  • Call: 1.800.582.2452 (U.S. and Canada) or 518.463.3724 in the Albany and surrounding area
  • Mail to:

State Bar Service Center
New York State Bar Association
One Elk Street
Albany, NY 12207

  • Fax to 518.463.5993

Friday, September 19, 2014

Tuesday, September 30, 2014

Friday, October 17, 2014
Long Island

Monday, October 20, 2014
New York City

Monday, October 27, 2014

  • Back to the Basics and Beyond: Crafting a proper disclaimer, the right to independent counsel, claw back on defense costs, and the after of the K2 decision.


Elizabeth A. Fitzpatrick, Esq. (Long Island & New York)
Dan D. Kohane, Esq. (Buffalo)

  • Discovery Dilemmas – Give Them What? New case law affecting the discoverability of documents, counsel reports, and preservation of materials.
  • Assessing the Priority of Coverage: Multiple insurers on the risk – who owes defense, allocation of defense and indemnity, equitable subrogation, recovering from other responsible insurers.
  • Liens, Liens Everywhere: subrogation versus lien interests, duty to protect Medicare interest under Medicare Secondary Payer Act, Medicare replacement plan interests, extinguishment of subrogation claims under GOL 5-335, and ERISA plan rights of reimbursement.
  • An Update on Auto Liability and Coverage Issues: spousal  coverage, permissive use, arising out of the use of rental vehicles.
  • Interactive Presentation Involving the Use of an Expert / Mediator / Judge:

Intruder/Negligent security cases. This panel consisting of an expert and attorneys skilled in this area of the law will address general issues regarding these cases, the use of experts, investigation that may be undertaken, defenses and coverage issues.
Law School for Insurance Professionals

Happy Birthday FTC:

September 26, 1914:  President Wilson signs into a law a bill creating the Federal Trade Commission.  Make certain you send the good folks there an anniversary gift.  It may be subject to duties, taxes and fees.

Audrey’s Angles:

My Alaskan adventure was amazing!  I am happy to be home though and get back into the office. While I was gone, Dan Kohane was bestowed with another, well deserved award by his peers.  Please join me in congratulating Dan for being voted by his peers as one of the Legal Elite of Western New York – Top 10 most highly regarded attorneys in Western New York!!  This is a newly created award and we are excited and proud that Dan is one of the first recipients.  Congratulations Dan and thank you for being such an excellent role model for the next generation!

We do our best to keep our readers apprised of high quality education and networking opportunities and the DRI Insurance Coverage and Practice Symposium is one you must consider.  DRI’s Insurance Law Committee is presenting the Insurance Coverage and Practice Symposium - its annual, premier program in New York City from December 4-5.  This year it is in a new location – the New York Marriott Marquis. 

This year the program has an exceptional keynote speaker, the Honorable Robert S. Smith, an Associate Judge of the New York Court of Appeals.  For those who practice in New York or handle New York matters, you know that 2014 saw an unprecedented number of insurance coverage decisions from New York’s highest court.  It is a rare privilege to have a Judge from New York’s highest court in this setting and should not be missed. 

Registration and hotel information, and a link to the program brochure, is available via  It is recommended that you register for the program and book your hotel now.  Also, if you are a claims professional or in-house counsel you may be eligible for free registration to this program.  If you need more information please contact me at [email protected].
Audrey A. Seeley
[email protected]

A Century Ago – WW I – The Siege of Antwerp Begins:

Following the fall of the forts at Liege in Belgium on 16 August 1914, King Albert I ordered a withdrawal of Belgium's remaining 65,000 troops to Antwerp, another fortress city (along with Namur).

Together with 80,000 garrison troops, Antwerp's ring of 48 outer and inner forts presented formidable opposition to von Kluck's German First Amy's flank.  Von Kluck had chosen to bypass Antwerp in the German army's advance through Belgium and into France.  Nevertheless, the presence of so many troops at its flank presented a constant threat.

This danger transpired into sorties conducted from the forts on 24-25 August and 9 September, designed by the Belgians to distract the Germans from their attack upon the British and French at the Battles of Mons and Charleroi.  German General von Boseler was given the task of capturing Antwerp.  Assigned a force of five divisions of mostly reserve forces and 173 guns, artillery bombardment began firing upon the outer south-east forts on 28 September.  As at Liege and at Namur, the use of heavy guns such as the powerful Big Bertha (a 420mm siege howitzer), effectively put the forts out of commission.

The British Cabinet, led by Prime Minister Herbert Asquith, viewed with great disquiet the siege of Antwerp, fearful that once the city and its forts had been captured, the German forces would quickly move towards the channel ports, possibly threatening Britain itself.

Consequently the British decided on 1 October to re-deploy a division of troops originally intended for the British Expeditionary Force led by Sir John French.  The following day, the Germans succeeded in penetrating two of the city's forts.

Receiving a request from the Belgian government for more assistance, the British dispatched a further 6,000 Royal Navy troops, 2,000 on 4 October and 4,000 on the following day.  The original division of 22,000 troops was also en route for Ostend.

Landing at Ostend on 6 October the British naval forces were too late; the Belgian government relocated from Antwerp to Ostend the same day, with the city itself evacuated the following day under heavy artillery bombardment, formerly surrendered by its Military Governor, General Victor Deguise to the Germans on 10 October.

German forces continued to occupy Antwerp until its liberation in late 1918. 

Cassandra’s Capital Connections:

On the last Coverage Pointers day, I was in the middle of our move from our old house to our new house all of a quarter of a mile away, and I was too frazzled to get a cover note.  I suspect it was a good thing I did not have a bigger move.  I think I am just now starting to get back into my normal routine and rhythm and find where I packed and unpacked our items.

Generally things are pretty quiet on the regulatory front in Albany in large part due to the campaigning that is currently ongoing.  However, Governor Cuomo recently signed new legislation which directs the Department of Environmental Conservation to establish sea level rise predictions in the tidal Hudson River.  This is another piece of legislation which arises out of storms Sandy and Irene.  Additionally, Governor Cuomo signed legislation amending the CPLR provisions pertaining to the deposition of non-parties.  This legislation is discussed at length in my column. 

That is all I have for this week on the Albany front, but I am openly soliciting Halloween costume ideas for an 18 month old.  He has a party and trick or treating with his cousins planned.  Have a great weekend!

Cassandra A. Kazukenus
[email protected]

Editor’s Note: With Cassie in Albany, Joel Appelbaum in Orange County

Happy Birthday (100th) Jack LaLanne:

Jack LaLanne, would have celebrated his 100th birthday today.  The fitness guru who inspired television viewers to trim down, eat well and pump iron for decades before diet and exercise became a national obsession, died just a few years back at the age of 96.

LaLanne ate healthy and exercised every day of his life up until the end.  He left behind his wife of 51 years, Elaine LaLanne. He maintained a youthful physique and joked in 2006 that "I can't afford to die. It would wreck my image."

LaLanne, along with Vic Tanney, were the TV pioneers of fitness.

"The only way you can hurt the body is not use it," LaLanne said. "Inactivity is the killer and, remember, it's never too late."

His workout show was a television staple from the 1950s to the '70s. LaLanne and his dog Happy encouraged kids to wake their mothers and drag them in front of the television set. He developed exercises that used no special equipment, just a chair and a towel.

He also founded a chain of fitness studios that bore his name and in recent years touted the value of raw fruit and vegetables as he helped market a machine called Jack LaLanne's Power Juicer.

In addition to his wife, he is survived by two sons, Dan and Jon, and a daughter, Yvonne.  I have befriended Elaine LaLanne on Facebook but was unable to secure a greeting for my CP friends, at least, not yet.

Peiper’s Proposals:

When last we wrote to you, the Buffalo Bills had just authored an upset over the Chicago Bears, EJ Manuel was the toast of the town, and estoppel required prejudice…which of course, required, detrimental reliance.  In two weeks, the Bills’ stock has dramatically fallen, EJ’s bust at the Hall of Fame is, shall we say, less than complete, and the Second Department has cast considerable doubt over what constitutes estoppel in a coverage case. 

In the B&R case reviewed in Dan’s column, the Appellate Division voids a late notice disclaimer due to estoppel.  The reasoning, you might ask, was that a defense provided under a reservation of rights, for five months, prejudiced the insured.   We query aloud how you can have detrimental reliance (a hallmark of prejudice and, therefore, estoppel) when you were put on notice of the potential coverage defense.  Generally, courts have held that ROR’s in fact serve as an inoculation to an estoppel argument.  While the carrier’s decision to delay a late notice disclaimer may have constituted common law waiver, we respectfully propose that its actions fell far short of estoppel.

We also note the Best v Tishman case reviewed below.   Last week we wrote about the need to remove Labor Law 200 claims in order to clear a path toward contractual indemnification.  The Best decision is, in fact, the best example of this we’ve seen to date.     For those of you interested in Labor Law, and who may be new to Coverage Pointers, be sure to check out our sister publication Labor Law Pointers which is headed up by David Adams.  David’s team produces a monthly summary of every appellate level Labor Law decision.  It has become quite a resource.  Interested, drop a note to Dave at [email protected].

That’s it for now.    Cheers.

Steven E. Peiper
[email protected]

Oldest Civil War Pensioner Dies, 100 Years Ago Today:
New York Times
September 26, 1914


Oldest Man in New York, a Raftsman,
Was Married Four Times

Micajah Weiss, aged 114 years, the oldest man in New York State and perhaps in the United States, died yesterday at his home in Beaver Rook, Sullivan County, of old age.  He fought in the civil war and at the time of his death was the oldest veteran on the pension list.

The centenarian was born at Dancing Rift, Penn.  He was marred four times.  He was the father of two children by the first wife, but both died in infancy.  No relatives survive him.  For fifty-five years Mr. Weiss engaged in lumbering and had taken hundreds of rafts down the Delaware to Easton, Trenton, and Philadelphia, many times walking back.  He had never worn glasses but there had not been much need for them, as he could neither read nor write.  He never used tobacco, though he took a glass of whisky whenever he felt like it. 

Hunter’s Hints on Serious Injury Threshold:

Hello beloved Coverage Pointers readers:

I want to start by thanking our friends in Syracuse, New York for welcoming Dan Kohane and me last week so that we could share the gospel of New York State Serious Injury Threshold law.  It was an all-around enjoyable and informative morning with some great people.  As always, if any of our dear readers are interested in a presentation on New York State Serious Injury Threshold law, I am more than happy to come out and present at your place of business.

The Appellate Division, Second Department, again keeps this column alive this week with a few more cases dealing with serious injury issues.  As always, if anyone has any questions regarding any and all things serious injury, please do not hesitate to contact me.  I look forward to hearing from all of you.

Daniel T. Hunter
[email protected]

I Love That Brute – Divorce – 100 Years Ago:

The Brooklyn Daily Eagle
Brooklyn, New York
September 26, 1914


Mrs. Witt Says She Would
Wrong Herself if She Accepted It.


Court Gives Wife Permission to
Withdraw Default and Assert Her Rights.

In a remarkable affidavit submitted to the Supreme Court, Mrs. Emily Witt has informed Justice Crane that she had permitted him to give her husband, Samuel Witt, a divorce decree by not defending the suit, because she saw in that move a way to be rid of her “brute of a husband” and a “short cut to freedom and happiness.”

Mrs. Witt’s explanation of why she allowed the suit against her to be won by default is that she thought any sacrifice was worth the result until she realized that she had wronged not only herself, but the court and her two little children as well.  She has been given permission to open her default and defend her husband’s suit and had filed a counter-claim in which she accuses her husband of living openly with his first wife, from whom he was divorced some years ago.  Justice Crane today allowed $50 counsel fee to her attorney, Andrew J. Smith, and in the event that Witt does not bring his suit to trial promptly Mrs. Whitt may ask for alimony. …

Headlines in This Week’s Issue Attached:

Dan D. Kohane
[email protected]

  • Declaratory Judgment Action Commenced by Employers Liability Carrier to Successfully Establish Lack of Grave Injury and Absence of Defense Duty
  • Zurich Liable for E&O Claim as Agent of Underwriting Carrier, American Guarantee.  Five Month Delay in Denying Coverage on Grounds of Late Notice – Where Prompt Disclaimer Not Statutorily Required – Prejudiced Insured
  • Reservation of Rights Did Not Help Insurer In Application to Stay UM Arbitration, Defense of Non-Permissive Use Fails When No Proof Offered Questions of Fact on MVAIC Eligibility Precludes Summary Determination

Daniel T. Hunter
[email protected]

  • Summary Judgment for Defendant Reversed
  • Lower Court Order Reversed as Triable Issue of Fact Surrounding "Serious Injury" is Found to Exist
  • Trial Court Order Affirmed as Defendants Failed to Meet their Initial Burden

Margo M. Lagueras
[email protected]


  • Carrier Fails to Establish Both Necessary Elements to Support Denial Based on Intoxication
    Reimbursement for Dynamic Motion X-Ray Denied
  • Claim for Lumbar Surgery Upheld Where Accident Aggravated Pre-Existing Conditions
  • Total Left Hip Replacement Surgery Denial as Not Related to MVA
  • Medical Necessity for LSO Not Found Where Prescription Pre-Dated MRI
  • EIP’s Wage Loss Testimony Not Credible on Virtually Any Point – Claim Denied



  • Defendant Fails to Address Proper Geographic Location


Steven E. Peiper
[email protected]


  • Motion to Extend Time to Answer Granted Where Previous Extensions Had Been Offered by Plaintiff, and No Prejudice Resulted from Delay
  • Dismissal of Labor Law § 200 Claim, Clears the Path for Contractual Indemnification
  • Clerical Error, when Coupled with Meritorious Defense, Results in Default Being Vacated

Elizabeth A. Fitzpatrick
[email protected]

  • Working hard in mediation.

Audrey A. Seeley
[email protected]

  • Homeowner’s Policy with Intentional Act Exclusion and Severability Clause Creates Policy Ambiguity and Insurance Coverage for Negligent Supervision Claim


Cassandra A. Kazukenus
[email protected]

  • Witness Representation at Depositions: Amendment to CPLR §3113


Jennifer A. Ehman
[email protected] 

  • Court Examines Reinsurance Certificates; Discusses Prompt Notice Provisions
  • Insured Failed to Provide Timely Notice of Occurrence Where It Submitted a Notice of Claim, but then Withdrew It


Of Interest…

  • Ohio Court Finds CGL Policy Unambiguously provides that a Trailer is an “Auto”


Earl K. Cantwell

[email protected]

  • Discoverability of Loss Preserves Are as Clear as Mud


For those celebrating the Jewish New Year, we wish you Shana Tovah, Happy New Year.

Stay in touch, we love to hear from you.

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
Diane F. Bosse
Joel R. Appelbaum

Steven E. Peiper, Team Leader
[email protected]

Elizabeth A. Fitzpatrick
Cassandra Kazukenus

Audrey A. Seeley, Team Leader
[email protected]

Margo M. Lagueras
Cassandra Kazukenus
Jennifer A. Ehman

Taylor F. Gabryel

Jody E. Briandi, Team Leader
[email protected]

 Elizabeth A. Fitzpatrick
Diane F. Bosse

Index to Special Columns

Kohane’s Coverage Corner
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

Dan D. Kohane
[email protected]

09/25/14       National Union Fire Ins. Co. v. 221-223 West 82 Owners Corp., Appellate Division, First Department
Declaratory Judgment Action Commenced by Employers Liability Carrier to Successfully Establish Lack of Grave Injury and Absence of Defense Duty
Under New York law, in a third party claim an employer, the claim can only survive if there it is claimed that the plaintiff sustained a grave injury as defined in the Workers Compensation Law (§11) or there is a claim for contractual indemnity.

In this case, there were claims for both and the workers compensation/employer’s liability carrier – National Union -- undertook the defense of the lawsuit.  It then commenced a declaratory judgment action seeking to determine that there was no grave injury and that it had no obligation to defend the contractual liability claim because of an exclusion.

Why did it do that?  Defense counsel could not move to dismiss the common law claim because it would have left the client uninsured, since it did not have contractual liability coverage.

National Union was entitled to rely on the underlying plaintiff's bill of particulars to make a prima facie showing that the ligament and meniscal tears he allegedly sustained do not qualify as "grave injuries" within the meaning of Workers' Compensation Law § 11.  The underlying plaintiff failed to allege that he had lost the use of his knee, let alone the use of his  There was no evidence indicating that further discovery will yield material and relevant evidence. Accordingly, National Union has no obligation to defend or indemnify JRP for the underlying common-law indemnification and contribution claims.  Of course, National Union is not obligated to defend or indemnify JRP for the underlying contractual indemnification claim, since its policy clearly excludes coverage for "liability assumed under a contract."

JRP's argument that it will be prejudiced if National Union withdraws from its defense is unavailing, as National Union expressly reserved its rights to disclaim coverage, and JRP failed to demonstrate prejudice

09/24/14       B & R Consolidated, LLC v. Zurich American Insurance Co.
Appellate Division, Second Department
Zurich Liable for E&O Claim as Agent of Underwriting Carrier, American Guarantee.  Five Month Delay in Denying Coverage on Grounds of Late Notice – Where Prompt Disclaimer Not Statutorily Required – Prejudiced Insured; Reservation of Rights Did Not Help Insurer
Zurich is the professional liability carrier for Powell, at attorney.  B & R, Powell’s former client, sued Powell claiming that Powell represented B & R in a real estate transaction.  In that transaction, Halegua loaned $450,000 to Lyons in 2006.  Lyons paid off the loan by sending payment to Powell in his capacity as B & R’s attorney but Powell kept the payment a secret.  Instead, Powell paid installments from the loan out of his IOLA account or personal bank account.

Eventually, the law firm was found guilty of breach of fiduciary duties to B&R and a judgment in favor of B & R in the principal sum of $585,056.18 was entered against Powell and his wife, a codefendant in the underlying action.

Powell notified the Zurich of B & R's claims against him 51 days after receiving the summons and complaint in the underlying action and counsel was assigned to defend him. Eighteen days after Powell provided notice to the defendants; they sent Powell a letter reserving their right to disclaim coverage based upon certain policy exclusions and his failure to give timely notice of the commencement of the action against him.  Zurich did not disclaim for another five months and it was based on untimely notice. Zurich advised Powell that it would no longer defend him.

With judgment in hand against Powell, B & R, the former client, now judgment debtor, commenced a direct action against Zurich under Insurance Law 3420(b).   That section allows a judgment creditor to sue an insurer it believes is responsible for a judgment directly.

Zurich contended that it was not a proper party to this action under Insurance Law § 3420(b) because it did not issue the subject policy.  It presented the policy declaration page which stated that the issuing company was American Guarantee.

B & R established in opposition to the defendants' motion and in support of its cross motion that an apparent agency relationship existed between Zurich and American Guarantee which extended potential vicarious liability to Zurich. In addition to the presence of Zurich's logo on documents created and distributed by American Guarantee, B & R demonstrated that Zurich's claims counsel was assigned to handle Powell's case, that the assigned counsel was required to follow Zurich's guidelines and to submit bills to Zurich, and that Powell was contacted by Zurich's Customer Care Center regarding the claim and was directed to file his claim on. This evidence of Zurich's direct participation in the administration of Powell's claim is sufficient to establish, prima facie, that an agency relationship existed between Zurich and American Guarantee such that Zurich may be held liable to B & R.

As to the lateness of the disclaimer, the obligation to disclaim promptly, established under 3420(d)(2) of the Insurance Law only applies to bodily injury and wrongful death cases, not legal malpractice cases.  Under common law principles, in non-bodily injury cases, the insured must demonstrate prejudice to estop an insurer from denying coverage when the disclaimer has not been promptly made.  Here, the court found that there was prejudice in the five-month delay in disclaiming coverage, based upon this record, B & R made a sufficient showing of prejudice to Powell due to the defendants' late disclaimer such that the defendants are estopped from disclaiming.  The Court went on to find that Zurich had enough information to disclaim promptly (which of course has little to do with estoppel).

Editor’s Note:  A couple of points worth making. The “agency” issue between Zurich and American Guarantee was, we suggest, wrongly decided.  The underwriting carrier is the appropriate party in an action based on a policy.  Even if Zurich acted as American Guarantee’s agent, that should only impute Zurich’s conduct to the disclosed principal American Guarantee, and should not impose liability on Zurich.

Secondly, we suppose the prejudice established here was the representation by defense counsel for five months prior to disclaimer.  We get that.  However, it is important to note that the reservation of rights to disclaim on late notice, issued just a few days after American Guarantee was placed on notice, did not provide the carrier with any help in convincing the court that the insured was not prejudiced.  We note that ROR letters are not often used in New York bodily injury cases due to prompt disclaimer requirements, did not even help the carrier in a non-bodily injury case.

09/23/14       Allstate Insurance Company v. Rolon
Appellate Division, First Department
In Application to Stay UM Arbitration, Defense of Non-Permissive Use Fails When No Proof Offered
Allstate sought a stay of arbitration of an uninsured motorists claim.  Rolon was driving, Peralla was a passenger in a two-car accident with a car owned by Cecere and operated by LaFontaine.

Allstate established that GEICO insured the Cecere by submitting the police accident report, which shows the vehicles' insurance code designations, and GEICO does not dispute that it insured Cecere's vehicle. GEICO's argued that LaFontaine did not have permission to drive the Cecere vehicle.

However, GEICO failed to come forward with any admissible supporting evidence, such as an affidavit by Cecere (GEICO's insured) or a police report of the vehicle's theft.

Accordingly, coverage with GEICO was established and the application for UM arbitration permanently stayed.

09/17/14       Hernandez v. Motor Vehicle Accident Indemnification Corp.
Appellate Division, Second Department
Questions of Fact on MVAIC Eligibility Precludes Summary Determination
There was an application for uninsured motorists coverage against MVAIC.  Hernandez claims that while riding on his scooter in Queens he was struck by an unidentified motor vehicle that fled the scene. MVAIC moved to dismiss the petition on the ground that Hernandez failed to establish his compliance with the statutory requirement that notice of the subject accident be given to a police, peace, or judicial officer within 24 hours, the satisfaction of which is a condition precedent to qualifying for benefits from the MVAIC.  It also claimed that he failed filed a notice of claim within 90 days of the accident (see Insurance Law §§ 5218[b]; 5208[a][2][A]), failed to establish that he was a "qualified person" within the meaning of the statute because he did not demonstrate that he was a resident of New York who was not an insured under a policy of insurance.

The Second Department found questions of fact that must be resolved in an evidentiary hearing.

Daniel T. Hunter
[email protected]

09/24/14       Yeong Sun Koo v. Cheng Jin Dai
Appellate Division, Second Department
Summary Judgment for Defendant Reversed
Defendant brought a motion for summary judgment to dismiss Plaintiff's claim for personal injuries as a result of a motor vehicle accident.  Defendant met his prima facie burden of showing that Plaintiff did not sustain a serious injury within the meaning of Insurance Law §5102(d) as a result of the subject matter motor vehicle accident, by submitting competent medical evidence establishing that the alleged injuries did not constitute "serious injuries" under either the permanent consequential limitation of use or significant limitation of use categories of New York State Insurance Law.

However, in opposition, Plaintiff did raise a triable issue of fact as to whether she sustained serious injuries to the cervical and lumbar regions of her spine and to her left shoulder.  As such, the Second Department reversed the lower court's order denying Defendant's motion for summary judgment.

09/24/14       Bedoya v. Kumar
Appellate Division, Second Department
Lower Court Order Reversed as Triable Issue of Fact Surrounding "Serious Injury" is Found to Exist
Plaintiff brought an action in Queens County Supreme Court to recover for personal injuries as a result of a motor vehicle accident.  Defendants made a motion for summary judgment to dismiss Plaintiff's complaint claiming that Plaintiff did not sustain a serious injury within the meaning of Insurance Law §5102(d).  In support of their motion, Defendants submitted competent medical evidence establishing that the alleged injuries to the cervical region of Plaintiff's spine did not constitute serious injuries under either the permanent consequential limitation of use or the significant limitation of use categories of Insurance Law §5102(d). 

However, the Appellate Division, Second Department found that Plaintiff was able to raise a triable issue of fact as to whether he sustained serious injuries to the cervical region of his spine.  Therefore, the Appellate Division reversed the lower court order.

09/24/14       Assemi v. Lavan
Appellate Division, Second Department
Trial Court Order Affirmed as Defendants Failed to Meet their Initial Burden
Defendants made a motion for summary judgment to dismiss Plaintiff's complaint on the ground that Plaintiff did not sustain a serious injury under New York State Insurance Law as a result of the subject matter motor vehicle accident.  The Supreme Court, Nassau County, denied Defendants' motion for summary judgment.

On appeal, the Second Department agreed with the lower court stating that Defendants failed to meet their prima facie burden of showing that Plaintiff did not sustain a serious injury since the supporting papers submitted failed to adequately address Plaintiff's claim, as set forth in Plaintiff's bill of particulars, that Plaintiff sustained a serious injury to the lumbar region of her spine under either the permanent consequential limitation of use or the significant limitation of use categories in Insurance Law §5102(d).

The Second Department further states that since Defendants did not sustain their initial burden, it is unnecessary to determine whether the papers submitted by Plaintiff in opposition were sufficient to raise a triable issue of fact.



Margo M. Lagueras
[email protected]


09/13/14       Geoffrey Gerow DC v Geico Insurance Co.
Erie County, Arbitrator Douglas D. Coppola
Carrier Fails to Establish Both Necessary Elements to Support Denial Based on Intoxication
In September 2013, the EIP was T-boned by another vehicle which fled the scene.  The EIP was transported to the hospital.  The police report did not indicate any culpability for the accident on the part of the EIP.  The medical records, however, indicated that the EIP was under the influence of drugs at the time of the accident and the carrier denied coverage based upon the policy exclusion for operating under the influence.

The Arbitrator noted that an insurer is required to prove two elements in order to establish a defense based on intoxication:  1) that the claimant was intoxicated, and 2) that the injury occurred as a result of operating the vehicle while in an intoxicated condition. 

Here, the Arbitrator determined that the fault for the accident appeared to rest entirely with the other vehicle which fled the scene.  There was no evidence produced to show that the EIP’s intoxicated state was the proximate cause of his injuries and, in fact, the police report indicated the contrary.  Therefore, the denial of coverage was found to be unjustified.

09/13/14       WNY MRI v Geico Insurance Co.
Erie County, Arbitrator Douglas S. Coppola
Reimbursement for Dynamic Motion X-Ray Denied
The 26 year-old EIP was injured in July 2013.  The disputed Dynamic Motion X-Ray was performed on September 3, 2013, purportedly for further evaluation of the soft tissue/neurological injuries.  The x-ray turned out normal.  The peer reviewer reviewed the EIP’s history which included normal range-of-motion and indications of only a mild sprain/strain which would respond to a course of conservative treatment.  The peer reviewer opined that the injuries were “minimal” and that the use of Dynamic Motion X-ray was purely investigational and not clinically indicated or medically necessary.

The Arbitrator agreed with the peer reviewer that the X-ray was performed too soon as cervical MRIs had just been performed and there had not been an adequate course of conservative care to see if that made any changes to the EIP’s condition.  In addition, the treating doctor did not submit any rebuttal to establish medical necessity for the procedure.  Therefore, the denial was upheld and the claim denied.

09/11/14       Kaleida Health v Mercury Casualty Co.
Erie County, Arbitrator Mona Bargnesi
Claim for Lumbar Surgery Upheld Where Accident Aggravated Pre-Existing Conditions
The 42 year-old EIP was injured in an accident in August 2011, and was initially seen in May 2012 by Dr. Simmons for complaints of bilateral lower extremity pain with numbness and tingling.  An MRI revealed mild disc bulges at L3-4 and L4-5, a small herniation at L4-5, mild retro listhesis, minimal anterolistheses at L5-S1 and probable spondylolysis.  In August 2012, the EIP reported that his back was “significantly more bothersome” and physical therapy produced no improvement.  Pain was radiating down his legs into his feet and hips.  In October, Dr. Simmons performed a posterior lumbar decompression and fusion at L4-S1 with instrumentation.

Respondent arranged for a peer review in November 2012.  The peer reviewer remarked on pre-existing conditions including back pain with radiculopathy and an MRI showing degenerative changes.  Based on these pre-existing conditions, the peer reviewer stated he could not establish the medical necessity of the surgery as related to the accident.  The Arbitrator noted that Dr. Simmons found the need for the surgery was related to the accident and that even though there were pre-existing conditions, the carrier did not show that those conditions were not aggravated by the accident due the peer reviewer’s failure to address the question of aggravation despite having reviewed pre-accident records.  As such, the denial for the surgery was not upheld.

09/09/14       Kaleida Health v Geico Insurance Co.
Erie County, Arbitrator Mona Bargnesi
Total Left Hip Replacement Surgery Denial as Not Related to MVA
The 43 year-old EIP was injured in May 2012, and immediately sought treatment with Conrad Williams, DC, complaining of neck, upper and lower back, left shoulder and left knee pain.  A left shoulder arthroscopy was performed in June 2013.  In September 2013, she consulted, for the first time, concerning her left hip.  An x-ray revealed severe osteoarthritis with complete loss of the articular joint space in the left hip.  The hip replacement surgery was performed in December, and subsequently denied based on a peer review performed in January 2014. 

The Arbitrator found the peer review persuasive as there was no evidence in the record of any left hip complaints until 16 months after the accident.  Both the peer reviewer and the treating doctor diagnosed osteoarthritis, a chronic condition and the EIP had seen the treating doctor many times for her shoulder complaints prior to September 2013, without ever commenting on her hip pain.  The Arbitrator concluded that the allegation of causal relationship of the hip injury to the accident was an afterthought and denied the claim.

09/09/14       WJW Med Products Inc. v Geico Insurance Co.
Erie County, Arbitrator Mona Bargnesi
Medical Necessity for LSO Not Found Where Prescription Pre-Dated MRI
In August 2013, the 20 year-old EIP injured his back in a motor vehicle accident.  In October, the treating Chiropractor prescribed the disputed LSO, to “properly support the spine and prevent further injuries” but not until two days later was the lumbar MRI performed.  It was unremarkable.  The peer review found no justification for the LSO because there was no evidence of instability or fracture and, according to generally accepted standards, it was not necessary to immobilize the spine after a sprain/strain injury. 

The Arbitrator agreed with the peer reviewer that there was no evidence of instability of fracture in the record.  Furthermore, the MRI was performed two days after the LSO was prescribed even though it was not dispensed until several days after that.  One would presume that the prescribing doctor would want to see the diagnostic tests prior to determining the presence of instability or other conditions that might warrant the need for the LSO.  In addition, the Arbitrator commented on the fact that the letter of medical necessity was a boilerplate, “identical to that in countless other cases involving this type of LSO” already seen by this Arbitrator.  A diagnosis of intervertebral disc syndrome and the presence of radicular symptoms, without more, do not equate with instability to warrant this equipment so the claim was denied.

09/09/14       Applicant v National Liability & Fire Insurance Co.
Erie County, Arbitrator Gillian Brown
EIP’s Wage Loss Testimony Not Credible on Virtually Any Point – Claim Denied
The EIP made a second claim for wage loss, the first claim having been settled prior to an award being made.  Three IMEs were performed prior to this new claim period, and a fourth was performed during this new period.  All were in distinct specialties and all determined that this EIP did not require any further treatment.  The EIP testified during the hearing and admitted, upon cross examination, that she and her supervisor at the debt collection company had a “personal relationship” and had opened numerous LLCs in her name.  She further admitted that she signed his name to various documents but denied having signed his name to her wage loss verification form. 

The Arbitrator found the IME reports to be thorough and credible and that the EIP had no injuries that would prevent her from working at her job.  He also found that her testimony was not credible.  There was no documentary proof of her earnings and her testimony that she knew nothing about the LLCs she formed with her supervisor was equally incredible.  Respondent’s denials were upheld.
Note:  We see far too many cases like this, probably because there is no downside to an applicant in bringing a bogus claim.  We only wish that the arbitrators would “discipline” applicants by exercising their discretion to impose the administrative costs on the applicant in such instances.


09/16/14       Epic Pain Mgt & Anesthesia Consultants, LLC v New York Central Mutual Fire Insurance Co.
Appellate Term, First Department
Defendant Fails to Address Proper Geographic Location
The trial court granted defendant’s motion for summary judgment based on a fee schedule argument.  On appeal, the order was reversed because, in its motion, defendant relied exclusively on the worker’s compensation fee schedule defense without addressing Regulation § 68.6 which applies when a service is performed outside New York State.  Here, the disputed epidural injections were administered in plaintiff’s New Jersey office.  Therefore, the permissible charge is the prevailing fee in the geographic area of the provider.  Defendant failed to address the prevailing fee in New Jersey’

Steven E. Peiper

[email protected]


09/23/14       Metropolitan Prop. & Cas. Ins. Co. v Braun
Appellate Division, First Department
Motion to Extend Time to Answer Granted Where Previous Extensions Had Been Offered by Plaintiff, and No Prejudice Resulted from Delay
In response to plaintiff’s motion for a default judgment, defendant cross-moved for leave to file an Answer.  In support of its motion, defendant noted that it had received a previous extension of time to appear.  They also offered the age old excuse of “law office failure.” 

While the Court noted that “law office failure” was not a compelling reason, it did, however, serve as a “good cause for the delay.”  In addition, the court noted that there was no prejudice to the carrier/plaintiff.  Finally, the court rejected the carrier’s argument that plaintiff failed to proffer a meritorious defense.  Apparently, in this instance, a meritorious defense was unnecessary to grant an extension to Answer.

09/18/14       Best v Tishman Constr. Corp. of NY
Appellate Division, First Department
Dismissal of Labor Law § 200 Claim, Clears the Path for Contractual Indemnification
In a Labor Law action, the Appellate Division noted that defendants (owner and construction manager) had established that the Labor Law § 200/Common Law Negligence claim should be dismissed.  However, the Court also noted that a question of fact existed as to potential liability under Labor Law § 241(6).

Defendants also moved for contractual indemnification against third-party defendant Solar.  The Court ruled that where, as here, defendants established themselves free of negligence (as evidenced by the dismissal of the § 200 claim), it followed that they had also established their entitled to a conditional order of indemnity.  As the only claim remaining against defendants was Labor Law § 241(6), defendants were only potentially statutorily liable.  All such awarded damages are recoverable through the indemnification protections of the trade contract. 

09/17/14       New York Hosp. Med. Ctr. of Queens v Nationwide Mut. Ins.
Appellate Division, Second Department
Clerical Error, when Coupled with Meritorious Defense, Results in Default Being Vacated
Nationwide moved to vacate a default judgment.  In support of its argument, the carrier presented an affidavit of an employee that acknowledged clerical oversight delayed the forwarding of the Summons and Complaint to counsel.  In addition, Nationwide also established potentially meritorious defense to the claim. 

Presented with both a reasonable excuse, and a potentially meritorious defense, the Appellate Division noted that public policy prefers that cases be decided on the merits.  Because there was no prejudice to the plaintiffs, and no evidence that Nationwide willfully failed to appear, the motion to vacate was granted.


Elizabeth A. Fitzpatrick
[email protected]

Witness Representation at Depositions: Amendment to CPLR §3113


Audrey A. Seeley
[email protected]

09/19/14       Heylin v. Gulfstream Prop. and Cas. Ins. 
District Crt. of Appeal, Fifth Dist., Florida
Homeowner’s Policy with Intentional Act Exclusion and Severability Clause Creates Policy Ambiguity and Insurance Coverage for Negligent Supervision Claim.
Gulfstream Property and Casualty Insurance Company (“Gulfstream”) commenced a declaratory judgment action seeking a declaration that a homeowner’s insurance policy it issued did not afford insurance coverage for a personal injury action for battery and negligent supervision against Gulfstream’s insureds, Benjamin Mutters (“Mutters”), Mutters parents and the injured party, Michael Heylin (“Heylin”), as the policy’s intentional act exclusion applied.  The trial court granted Gulfstream’s summary judgment motion and on appeal by Heylin the Court reversed and remanded the case to the trial court to enter summary judgment in favor of Heylin.

The only issue on appeal raised by Heylin was whether the negligent supervision claim was covered under the homeowner’s policy due to the ambiguity of the policy’s severability clause.  The severability clause in the Gulfstream homeowner’s policy provided, “This insurance applies separately to each ‘insured’.  This condition will not increase our limit of liability for any one occurrence.”  The Court held that the policy’s severability clause and the intentional act exclusion rendered the policy ambiguous resulting in the policy’s construction in favor of coverage for the insureds since it was substantially identical to the severability clause found ambiguous in Premier Ins. Co. v. Adams

The Court further rejected the argument that Hrynkiw v. Allstate Floridian Ins. Co. controls.  This is because in Hrynkiw the insurance policy contained a joint obligations clause and not a severability clause as in the Gulfstream homeowner’s insurance policy. The joint obligations clause in Hrynkiw resulted in depriving all insureds of insurance coverage for a loss even though one insured was the proximate cause of the loss.  Thus, Hrynkiw did not apply.

Cassandra A. Kazukenus
[email protected]

Amendment to CPLR §3113

Senate bill s5077 and Assembly bill A9077 were signed into legislation recently by Governor Cuomo amending CPLR §3113 which sets for the rules for the conduction of a deposition.  This amendment was a direct result of a Fourth Department decision, Thompson v. Mather, 70 ad3d 1436 [2010] where the court held that “counsel for a nonparty witness does not have a right to object during or otherwise to participate in a pretrial deposition” relying upon CPLR §3113(c).  This legislation was introduced at the request of the Chief Administrative judge upon the recommendation of her Advisory Committee on Civil Practice.  The sponsor’s memorandum explains that while “the Thompson Court may have correctly interpreted the literal language of the statute, our Committee believes that…in reducing counsel for a deposition witness to a ‘potted plant’, current law, as recognized in Thompson, leaves a non-party witness essentially unprotected during a deposition.” 

In light of the above observations and decision, the legislature amended subsection c of CPLR §3113.  Specifically, subsection c was amended regarding examination and cross-examination of the deponent.  Currently, this provision previously allowed the party-deponent to be cross-examined by his or her own attorney, and no rights were granted to a non-party deponent’s attorney.  The amendment to his provision now allows counsel for a non-party deponent to participate in the deposition.  Specifically, the attorney for the non-party deponent may now make objections on behalf of the non-party client in the same manner as counsel for a party to the litigation.

This amendment takes effect immediately and applies to all actions which are pending upon the effective date of the amendment as well as those actions commenced after the effective date.


Jennifer A. Ehman
[email protected] 

09/15/14       Lexington Ins. Co. v. Sirius Am. Ins. Co.
Supreme Court, New York County
Court Examines Reinsurance Certificates; Discusses Prompt Notice Provisions
This motion was brought by plaintiff, National Union Fire Insurance Company of Pittsburgh, P.A., seeking to recover against Sirius for its alleged failure to indemnity it for losses covered under four facultative reinsurance contracts.  National’s predecessor-in-interest entered into four reinsurance contracts with MONY Reinsurance Corporation (“Mony Re”) and Christiania Switzerland (“Christiania”) to reinsure excess umbrella policies issued to Foster Wheeler Energy Corp. and Foster Wheeler Corp.  Sirius is Mony Re and Christiania’s successor-in-interest.

After the contracts were entered into, Foster Wheeler was hit with a massive volume of asbestos bodily injury claims.  After pursuing various defenses and engaging in extensive negotiations, National entered into a good faith settlement agreement with Foster Wheeler and others.  National now contents that Sirius is obligated to indemnity it for a portion of the settlement.  It submitted a series of billing statements to Sirius, only one was paid. 

In considering Sirius’ obligations, the court analyzed the Mony Re certificate and the Christiania certificates separately.  Under the terms of the Mony Re certificate, “[a]s a condition precedent, the Company shall promptly provide the Reinsurer with a definitive statement of loss on any claim or occurrence reported to the Company and brought under this Certificate which involves a death, serious injury or lawsuit.”  The court reasoned that this provision made the prompt submission of a definitive statement a condition precedent to coverage.  The documentary evidence submitted demonstrated to the court that while Sirius waived its rights as to one payment, which it had already made, waiver did not occur with regard to the remaining billings.  And, as Sirius did not waive its right with respect to later billings, and National failed to fulfill the condition precedent of timely notice under the Mony Re certificate, Sirius had no obligation to indemnify National for the remaining billings. 

With regard to the Christiania certificates, the court found that the language required prompt notice shall be given of any occurrence or accident which appears likely to involve this reinsurance; however, it did not deem this to be a condition precedent to coverage.  Without it being a condition precedent, Sirius had to establish that it was prejudiced by the late notice in order to avoid its obligations.  The court found no such prejudice, but it did direct National to provide satisfactory proofs of loss to Sirius, which included its claims files.  

09/11/14       Majority Media Inc. v. Hermitage Ins. Co.
Supreme Court, Kings County
Insured Failed to Provide Timely Notice of Occurrence Where It Submitted a Notice of Claim, but then Withdrew It
Kim Richardson allegedly tripped and fell at a premises owned by Majority Media, Inc.  Two months after the incident, Hermitage’s agent received a facsimile from Skeete Agency concerning the subject claim.  After Hermitage’s agent sought additional information concerning the incident it received a separate facsimile from Skeete advising to “PLEASE IGNORE THE CLAIM FOR THE ABOVE…”  Upon receipt of this request, Hermitage’s agent did not forward the notice to its principal. 

Thereafter, eleven months later Skeete sent i another notice of this claim and a copy of the summons and complaint.  In response, Hermitage denied coverage because Majority Media, Inc. was not listed as an insured on its policy, and even if it was, the notice was late. 

In considering this position, the court began by addressing the question of whether Majority Media, Inc. was an insured.  While there was no question that the policy did not list Majority Media, Inc., the insured submitted that this was the result of an inadvertent error.  It pointed to the policy which listed the subject premises as the insured premises and presented to the court copies of insurance binders which listed Majority Media as an insured, with respect to the subject premises.  In light of this evidence, the court found a question of fact as to the intent of the parties. 

The court then went on to note that while there was a question of fact as to whether Majority Media was an insured, the notice was still late.  While Hermitage’s agent was initially provided notice, such notice was expressly withdrawn.  The court found no authority for the proposition that an insurer remains on notice after a claim has been withdrawn before any meaningful investigation could have been undertaken. 

Of Interest…

09/02/14       Sauer v. Crews
Supreme Court of Ohio
Ohio Court Finds CGL Policy Unambiguously provides that a Trailer is an “Auto”
On November 24, 2006, Julia Augenstine’s vehicle collided with a flatbed trailer owned by Stinson J. Crews and Stinson Crews Trucking (“Crews”).  During paving work, Crews parked without a permit in a no-parking zone and blocked most of Augenstine’s lane of travel.  Augenstine’s estate brought an action against Crews.  Century, Crew’s CGL carrier, denied coverage for the loss pursuant to an auto exclusion contained in the policy.

The auto exclusion provided that this insurance does not apply to “‘[b]odily injury’ or ‘property damage’ arising out of the ownership, maintenance, use or entrustment to others of any aircraft, “auto” or watercraft owned or operated by or rented or loaned to any insured…”  “Auto” was defined, in relevant part, as “[a] land motor vehicle, trailer or semitrailer designed for travel on public roads, including any attached machinery or equipment…”  However, “‘auto’ did not include ‘mobile equipment.’”   “Mobile equipment” was then defined to include “[v]ehicles not described in a., b., c. or d. above maintained primarily for purposes other than the transportation of persons or cargo.” 

Century argued that the trailer qualified as an “auto” and was not “mobile equipment” under the policy definitions.  Crews countered, and both the trial court and appellate court held, that the policy was ambiguous due to the failure to define the term “cargo” which made it unclear whether the policy was intended to exclude the trailer from coverage.  

The Supreme Court agreed with Century that the policy was unambiguous.  Viewing the policy as a whole, it clearly excluded trailers.  The policy excluded coverage for any bodily injury arising from the use of an “auto” by the insured.  This section explicitly stated that a “trailer” designed for travel on public roads is an “auto” for purposes of this policy.  Since a trailer is not of the same subclass as the land vehicles identified under the definition of “mobile equipment,” it followed that the catchall did not apply to a trailer previously excluded under the auto exclusion.  Because the court determined that trailer did not belong to the subclass of land vehicles set forth in the definition of “mobile equipment”, the precise definition of the word “cargo” was irrelevant to its analysis. 

Kudo to Richard Garner, Esq. of Davis & Young for the nice win and, even better, for the right reasons. 


Earl K. Cantwell
[email protected]

Frequently in bad faith and extra contractual litigation, claimant’s counsel attempt to get information and documents on how the insurance carrier posted loss reserves with respect to the claim in question.  The asserted relevance is that the claim adjustment process was being driven by the posted reserve, and that the posted reserve was inconsistent with the amount offered to settle the claim. 

Sometimes these arguments work and sometimes they do not.  Two recent cases decided just a week apart reflect the dichotomy.

The first case Mirarchi v. Seneca Specialty Insurance Co., 2014 WL 1673748 (Third Circuit, April 29, 2014) held that loss reserve information was not discoverable.  Mirarchi owned a pizza place in Philadelphia.  A fire damaged the restaurant, and a claim was filed with Seneca Insurance.  Seneca set a loss reserve at the $600,000.00 policy limit, but in negotiating the loss estimated the ACV at approximately $330,000.00.  The parties went to appraisal and Seneca’s appraiser increased the ACV to $450,000.00.  The dispute was ultimately submitted to an umpire who concluded that the ACV was indeed over $600,000.00, and Seneca paid the remaining balance of its policy limit.
Not to be satisfied, Mirarchi then sued alleging that Seneca acted in bad faith by delaying full payment on his claim until after the umpire’s findings.  Typically, he claimed that the $600,000.00 loss reserve “proved” that the insurer knew the claim was worth more than the $330,000.00 it initially offered to pay.

The District Court granted summary judgment to Seneca, and this was affirmed on appeal by the Third Circuit.  The District Court in granting summary judgment also denied discovery of information relating to the loss reserve.
In sustaining the ruling, the Third Circuit noted that Mirarchi failed to demonstrate any relationship between the loss reserve and ACV estimate.  The court noted that a loss reserve is an insurer’s estimate of what it could be required to pay on a claim, not necessarily what it should offer to pay.  The analysis was that reserve figures are not an evaluation of coverage based upon factual and legal investigations.  The Third Circuit ruled that Seneca was justified in relying on its first appraisal, and the fact that subsequent estimates and the umpire’s ultimate ruling assigned a greater value did not show that Seneca acted in bad faith in standing by its estimates through conclusion of the appraisal process.

The case of Paul Johnson Drywall, Inc. v. Phoenix Insurance Co., 2014 WL 1764126 (D. Arizona, May 5, 2014) reached a different conclusion and outcome.  A resort property incurred water damage after a broken waterline caused a major loss in February 2011.  The hotel owner, and its eventual assignee, sought reimbursement for repairs performed.  The claim was that the insurance company failed to pay for the repairs performed at the hotel, and the claimant sought loss reserve documents arguing that the reserve information was based on the hotel’s actual claim review and not “automatic” or general factors.  This argument was based on a prior Arizona case holding that, when a reserve calculation includes analysis of a specific claim, it is relevant to breach of contract and bad faith claims. 

The District Court agreed that the loss reserve information was relevant and discoverable in terms of explaining how and why the insurance company handled the claim in the fashion it did.  It was apparently deemed significant that the insurance company had adjusted its reserve after assessing the merits of the contractor’s claims.  The insurance company was ordered to produce un-redacted copies of the loss reserve documents identified in its privilege log. 

These cases obviously hold very differently with respect to the relevancy and discoverability of loss reserve information.  However, as noted by the Third Circuit, the loss reserve serves a different function and is based on a different theoretical calculation than what an adjuster might actually consider a claim to be worth based on factual and legal analysis.  A loss reserve setting an amount as to what the insurance company could be required to pay is not the same as what the insurance company should pay on a claim.  However, the ruling in the Arizona case is perplexing as it purports to make reserve information relevant whenever it may include an analysis of a specific claim, but the loss reserve is almost always made on a claim by claim basis.  If loss reserve documents and calculations are relevant and discoverable whenever they analyze a specific claim, this may be tantamount to arguing that this information is discoverable in virtually every case.  The decisions in these cases may also be affected by whether and to what extent the state jurisdiction embraces and allows bad faith and extra contractual claims against insurance companies.

The best initial defense to avoiding discovery of loss reserve information is to establish that loss reserves are set by regulation and guidelines for certain purposes and based on certain criteria, and the loss reserve does not necessarily reflect a determination of what the insurer actually should pay out on a claim.

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