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Coverage Pointers - Volume XVII, No. 1

Dear Coverage Pointers Subscribers:

Do you have a situation?  We love situations. 
We wish you the most wonderful Independence Day weekend and salute our Canadian subscribers on Canada Day, just past.  We are pleased to be relaxing up at the cottage and look forward to a warm and dry weekend.
There’s all kinds of great stuff in this issue, including two high court decisions and a number of very interesting App Div renderings.
Jen and her Gems Return:
After an respectable period of confinement to celebrate the birth of her second daughter, Jen Ehman has returned to the office and to the Coverage Pointers staffWe are delighted to have her back.
DRI Insurance Law Committee’s 101 Series is Underway:
The Insurance Law Committee’s “101 Series” webcasts are fast approaching.  The three webcasts promise to be informative for new and seasoned practitioners, each providing the opportunity to learn from several of the best insurance law attorneys in the country.  The presentations include the following:
July 15, 2015 -- The Duty to Defend -- Brenda Wallrichs and Chuck Browning will present on issues such as when independent counsel is required; when a reservation of rights is required and how the duty to defend differs from the duty to indemnify. 
July 22, 2015 -- Insurance Policies -- Shaun McParland Baldwin and Dan Kohane will present on the various types of insurance policies; the methodology used to interpret insurance policies and how courts interpret and construe types of policies and policy language.
July 29, 2015 -- Coverage and Bad Faith Litigation -- Kevin Willging and Michael Marick will present on how to best posture an insurance coverage lawsuit for successful motions practice or trial on the merits; how to defend an insurer in a breach of contract or bad faith action and how to appropriately handle the filing of declaratory judgment actions on behalf of insurers. 
Each webcast is priced at one hundred and fifty dollars ($150.00), representing an incredible bargain for the information provided as well as the CLE credits that each webcast provides.  More details on the presentations and speakers as well as the brochures for each webcast can be obtained at http://www.dri.org/Events/Webcasts
Private Cause of Action Bill at Rest – Remain on Guard:
The Legislature had adjourned, subject to be being called back into session by its leaders.  The “Private Cause of Action” bill did not pass either Legislative house, although it was on the debate calendar for both, on the last day of the session.  We know that that trade organizations  -- NYIA and PCIAA fought hard to keep this bill from adoption and your calls and letters to legislators, following our special edition, were noted by the trades.  However, this issue is not dead and can come back at any time.
One Hundred Years Ago Today – Cranks Filled the Headlines:

For some reason, we have a crank theme in this week’s history offerings.  Stay tuned.  Cranky?  Not me.  I just report history as I see it.

In the 1913 version of Webster’s Dictionary, the definition of “crank” includes this:

person full of crotchets; one given to fantastic or impracticable projects; one whose judgment is perverted in respect to a particular matter.

OK, so what’s a “crotchet”?

perverse fancy; a whim which takes possession of the mind; a conceit.

He ruined himself and all that trusted in him by crotchets that he could never explain to any rational man.
Labor Law Pointers:

For those who follow or handle New York State Labor Law cases, scaffolding, ladders, safe place to work, etc., Dave Adams is the Editor-in-Chief of our sister publication, Labor Law Pointers, a monthly publication.  Here is a sample of the kind of quality reviews you’ll find in that newsletter.  Contact Dave Adams, [email protected], to be added to the subscription list.

06/25/15         Medina v 42nd & 10th Assoc., LLC
Appellate Division, First Department
Recalcitrant Worker Defense
Medina “had to” place the scaffold over the sidewalk bridge to enable him to reach windows to perform his caulking work.  He was leaning at an extreme angle against the sidewalk bridge when the scaffold collapsed and Medina fell.  The trial court denied Medina’s motion for partial summary judgment on his Labor Law § 240(1) claim, and denied defendants’ motion to dismiss the common-law negligence claims as well as violations of §§ 240(1), 241(6) and 200.

Labor Law § 240(1) (DRA)

The First Department held that defendants failed to submit sufficient evidence that Medina was a recalcitrant worker or that his own actions were the sole proximate cause in that they failed to raise an inference that there were scaffolds adequate for Medina’s task on site and that he chose not to use them after being directed to do so.  The court further noted that defendants also failed to show Medina was able to connect his safety harness before reaching the top of the sidewalk bridge or that even if he had done so, it would have prevented his fall.

PRACTICE POINT:  An essential element to the Recalcitrant Worker defense where the claim is that the plaintiff failed to use a safety device is that the safety device must have been supplied and have been available to the plaintiff to use.  As to the sole proximate cause defense it is essential that the plaintiff had been instructed to use the available and appropriate safety device.  Here the court also held that there was no evidence that the safety harness would have prevented the injury to the plaintiff underscoring the need for an expert to defend most Labor Law cases.

Labor Law § 241(6) (JAE)

The First Department then held, with regard to Medina’s Labor Law § 241(6) claim, that Industrial Code § 23-5.1(c)(1) was insufficiently specific to support a Labor Law § 241(6) claim.  As to 12 NYCRR 23-5.1(h) and 23-5.8(c)(1), issues of fact existed as to whether a “designated person” was supervising.

Labor Law § 200 and Common-Law Negligence (VCP)

The First Department reversed with respect to the Labor Law § 200 and common-law negligence and dismissed those claims since there was no evidence that defendants controlled the means or methods of Medina's work.
Cassie’s Capital Connection:
Happy 4th of July Weekend from Albany!  Hopefully, the weather will cooperate, and everyone can enjoy the weekend outdoors.  At our house we apparently have to watch out for the bobcat that has decided my yard is the place to spend a leisurely afternoon. 
It has been busy in Albany with the end of the legislative session.  As many of you know, there was an end of session push to pass legislation creating a private cause of action against insurance companies.  Ultimately, the legislation was not passed.  However, it is likely to remain an issue in upcoming legislative sessions.  This week I reported on two bills related to the insurance industry that did pass and are likely to be sent to the Governor. 

One of the bills requires DFS to examine and report to the Governor regarding the potential removal of anti-concurrent causation language on sewer backup coverage in homeowners’ policies.  Superstorm Sandy continues to impact the legislation introduced and passed in New York.  It will be interesting to see what the report to the Governor states with regard to the impact removal of the anti-concurrent causation language on the sewer backup coverage will have on homeowners’ premiums.  In the meantime, enjoy the weekend!

Cassie
Cassandra A. Kazukenus
[email protected]

Timely Disclaimers. Investigations and Case Law:

You’ll find an interesting Second Department case in my column called Imperium on the subject of timely disclaimers and the right of an insurer to investigate coverage defenses.  Utica, the successful carrier, was represented by Sherri Pavloff of Farber, Brocks & Zane, LLC and Sherri was kind enough to provide a guest summary of that decision and its importance.  Atta-lawyer!

Of Course, There’s That Other, More Literal Crank, A Century Ago:

Daily Freeman
Kingston, New York
3 July 1915

The Crank Kicked
                       
Charles H. Williams, the typewriter agent of this city, broke his right wrist while cranking his automobile on Friday afternoon. The fracture was reduced by Dr. Frank Keator and an X-ray picture taken by Dr. Harry Van Wagonen.

Wilewicz’s Wide World of Coverage:

Dear Readers,

Happy Holiday! In this edition of Wilewicz’s Wide World of Coverage, we present a couple of really interesting cases involving insurance coverage issues from around the country. From the Seventh Circuit, we have a decision by distinguished jurist Judge Posner. There, the court held that an insurer cannot intervene too late in the game, even where an insured enters into a settlement agreeing that the insurer will be on the hook for the vast majority of the final settlement amount. The court reasoned that intervention must take place closer to the time that the insurer knew or should have known about a potential interest in the outcome.

Next, from the Supreme Court of Texas, the court there addressed whether letters from the EPA to potentially responsible parties constitute a “suit” sufficient to trigger the duty to defend. Analogizing EPA proceedings to the formal legal process, the court found that they are the functional equivalent to a suit and the duty to defend attaches. Courts around the country are split on this issue and it remains unsettled in New York, so the growing body of analysis on it is invaluable for practitioners on both sides of the industry.

Finally, we bring you a couple of cases from the environmental realm, from a D.C. Circuit Court of Appeals case dealing with the procedural issue of standing, all the way down to New York’s First Department Appellate Division involving clarifying the claim accrual rules in toxic exposure cases. Fun stuff!

Safe travels to all those braving the highways this weekend. See you in a couple of weeks!

Agnes
Agnes A. Wilewicz
[email protected]

A Murderous Crank – a Century Ago:
                       
The Kingston Daily Freeman
Kingston, New York
3 July 1915

MURDEROUS CRANK
SHOOTS J. P. MORGAN

Head of Great Financial Firm Shot While in
His Summer Home in Glen Cove by an
Unknown Crank—Wounds are Not Considered
by Physicians to be Serious

New York, July 3.—J. Pierpont Morgan, head of the great financial firm of J. P. Morgan & Company, was shot twice while in his summer home at Glen Cove, L. I., early today by a man believed to be a crank.

The following statement was issued at the office of J. P. Morgan & Company at 10:35 o'clock today:

"J. P. Morgan was shot by an unknown man, presumably a crank, at 9 o'clock this morning at his home in Glen Cove.  His physicians advise that his wounds are not serious."

The news of the shooting of Mr. Morgan caused a sensation in the financial district where Mr. Morgan has been the leading figure since the death of his father in 1913.  It was expected that there would be a big break in the stock market but the official statement from the company admitting that Mr. Morgan had been shot, but stating that his wounds were not serious was issued as soon as the first rumors were circulated. 

Peiper’s Polemic:

After last week’s hiatus, I am delighted to return the CP forum.  My absence was based, in part, on a travel schedule which had me in the Tower Hill neighborhood of London at press time.  That’s my story, at least. 

Actually, I’ve had the great pleasure of meeting with several folks over the past several weeks.  I’ve learned quite a bit, and hopefully passed along a thing or two that someone will find useful.  From Saratoga to our new friends in the UK, I was surely grateful to have had an opportunity to rub elbows, and match wits, with some very bright insurance minds.

I was in London, for those of you interested, as part of the annual First Party CAT Toolbox.  The program which “meanders” through more than 30 jurisdictions and Puerto Rico addresses substantive law issues, bad faith/extra-contractual concerns, and relevant claims regulations that are absolutely essential in times of CAT response.   Yours truly has, ostensibly, all the States where snow flies.  My colleagues on the program have the good sense to live in, and lecture on, States where the weather is considerably more hospitable. 

With the season getting underway, if you’re interested in learning more about the program please do not hesitate to drop me a line.  Better yet, if you’re interested in the materials or an actual, real live performance, we’d be happy to work something out.

With respect to the column this week, we’d encourage you to take a long look at the National Union case from the Court of Appeals.  My commentary is included at the end of the write up, but I’d love to hear thoughts from all of you.  It’s generally not in my nature to read coverage grants broadly, but despite my best efforts I’m having a hard time appreciating the Court’s decision.  We tip our cap to counsel for National Union who must have presented on heckuva compelling brief and argument.

That’s all I have for now.  Enjoy the Holiday weekend, and take a moment to read the Declaration of Independence (or, at least, make your kids read it). 

P.S. – The Resolution of Independence was actually passed on 2nd July, 1776.  It was passed by 12 of the 13 delegations present, with only NY abstaining while they awaited authority from the motherland. The formal Declaration of Independence was adopted on 4th July, 1776, but was not fully signed by all delegates until sometime in 1777. 

Delaying a decision whilst awaiting explicit authority, and holding off on finalizing until months later….it turns out the Founding Fathers would have all made superb insurance lawyers. 

Steve
Steven E. Peiper
[email protected]

An Explosive Crank – A Century Ago:

The New York Times
New York, New York
3 Jul 1915

BOMB EXPLODED
IN THE CAPITOL IS WORK OF CRANK

Reception Room in the Senate
Wing Damaged by Mysterious
Blast Near Midnight.

WRECKS PHONE BOOTHS

Blows Out Windows and Injures Walls,
but Apparently Does Not Injure
Structure of Building

NO TRACE OF EXPLOSIVE

Investigation Was in progress by
Capitol Superintendent Early
This Morning

WASHINGTON, Saturday, July 3.—A tremendous explosion, believed to have been caused by some kind of bomb or infernal machine, wrecked the east reception room on the main floor of the Senate wing of the Capitol Building just before midnight last night.  No one was injured.

Officials thought that the explosive was placed there by a crank, who desired to create a sensation.  Visitors were allowed in the room during the day, and a timed machine might have been left without attracting attention. 

Part of the plastering of the ceiling and side walls of the room was shaken down, a huge mirror and a crystal chandelier were shattered, and the doors were blown open.  One of the doors, which led into the office of the Vice President, is said not to have been opened in forty years. 

Jen’s Gems:
This is my first week back since the birth of my daughter, Charlotte.  Thank you to everyone that sent their congratulations and warm wishes.  Your notes and e-mails were really appreciated.  I am sure you will all be glad to know that since I now have two daughters, I will alternate which one I discuss in these notes.  My stories will no longer be limited to just Ella’s hijinks.  I am sure Steve at least will appreciate that. 

Beyond thanking everyone that reached out to me, I also wanted to thank the great group of talented and caring lawyers we have at this firm who were willing  to fill in for me during my absence.  That of course means that if anything went wrong on one of my files, it was entirely their fault.  However, if they did a tremendous job, you should know they were merely working off a plan I had in place from the beginning. 

In terms of my column this week, I report on a recent decision out of the First Department reversing a trial court’s denial of an insurer’s motion to dismiss GBL § 349 claims.  Although the trial court denied the motion with leave to renew upon the completion of discovery, in reversing the decision, the First Department was clear that discovery could not cure the plaintiff’s pleading defects.  This decision is a good reminder that a motion to dismiss should always be considered before responding to a complaint with these types of allegations. 

Until next issue…

Jen
Jennifer A. Ehman
[email protected]

Editor’s Note:  OK, Jen’s not a crank, there are exceptions.

Aha – The JP Morgan and Senate Cranks Are One and the Same --100 Years Ago:

July 2, 1915

Bomb Rocks Capitol

A solitary figure slipped quietly into the Capitol on the Friday afternoon leading to a Fourth of July weekend. He cradled a small package containing three sticks of dynamite. The former professor of German at Harvard University, Erich Muenter, also known as Erich MuenterErich Holt or Frank Holt came to Washington to deliver an explosive message. Although the Senate had been out of session since the previous March and was not due to reconvene until December.

Muenter headed for the Senate Chamber. Finding the chamber doors locked, he decided that the adjacent Senate Reception Room would serve his purposes. He worked quickly, placing his deadly package under the Senate's telephone switchboard, whose operator had left for the holiday weekend. After setting the timing mechanism for a few minutes before midnight to minimize casualties, he walked to Union Station and purchased a ticket for the midnight train to New York City.

At 20 minutes before midnight, as he watched from the station, a thunderous explosion rocked the Capitol. The blast nearly knocked Capitol police officer Frank Jones from his chair at the Senate wing's east front entrance. Ten minutes earlier, the lucky Jones had closed a window next to the switchboard. A 30-year police veteran, the officer harbored a common fear that one day the Capitol dome would fall into the rotunda. For a few frantic moments, he believed that day had come. Jones then entered the Reception Room and observed its devastation—a shattered mirror, broken window glass, smashed chandeliers, and pulverized plaster from the frescoed ceiling.

In a letter to the Washington Evening Star, published after the blast, Muenter attempted to explain his outrageous act. Writing under an assumed name, he hoped that the detonation would "make enough noise to be heard above the voices that clamor for war. This explosion is an exclamation point in my appeal for peace."

The former German professor was particularly angry with American financiers who were aiding Great Britain against Germany in World War I, despite this country's official neutrality in that conflict.

Arriving in New York City early the next morning, Muenter headed for the Long Island estate of J. P. Morgan, Jr. Morgan's company served as Great Britain's principal U.S. purchasing agent for munitions and other war supplies. When Morgan came to the door, Muenter pulled a pistol, shot him, and fled. The financier's wounds proved superficial and the gunman was soon captured.

In jail, several days later, Muenter took his own life.  He is also suspected of poisoning his first wife and planting a timed device that exploded in a ship’s cargo hold on July 7th, the day after his death. As to motive, Muenter scoffed when reporters suggested that he was a German sympathizer. He said he was simply opposed to the "wholesale human slaughter" of war.  A violent pacifist.

Hewitt’s Highlights:

Dear Subscribers:

Summer is finally here. I hope you all enjoy some Independence Day festivities and enjoy the time with your family. The Courts this week have made up for last edition’s lack of serious injury cases by issuing quite a few this time. In one case, defendants submitted evidence of no range of motion limitations. Plaintiff attempted to establish an issue of fact by demonstrating that she had several tears. The Appellate Court held tears standing alone without any evidence of limitations were insufficient to raise a triable issue of fact as to whether a serious injury exists in those body parts. In another case, the Second Department held that a ten percent limitation of range in flexion with full extension of the left knee and the limitation of flexion in the lumbar spine was insufficient under the no-fault statute to constitute a serious injury. In another case, the Appellate Court dismissed a surgeon’s finding of significant range of motion limitations three years after surgery, when two months after surgery the same surgeon had found no such limitation and his report failed to reconcile the differences.

Happy 4th of July.

Until next time,
Rob
Robert Hewitt

[email protected]

This week’s headlines from the attached issue:

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

  • Direct Action by Judgment Creditor Can Only Be Commenced if Policy was Issued or Delivered in New York.   MCS-90 Applies Only to Named Insured
  • To Be a “Hired Vehicle”, Company Must Have Control of the Vehicle, Not the Company Operating the Vehicle
  • Project Owner Not an Insured Because Not in Privity with Subcontractor; Wrap Up Exclusion Precluded Coverage for Contractor
  • Right to Investigate Before the Insurer’s Time to Disclaim is Triggered
  • Is a Police Car a “Motor Vehicle” for the Purposes of Underinsured Motorists Coverage?  The Court of Appeals Decides the Answer is “No”.
  • SUM’s Carrier’s Request for Additional Information from Insured, Sent to the Wrong Address, Did Not Hamper Insured to Settle Claim with Tortfeasor
  • CCIP Exclusion Inapplicable to Property Owner
  • D&O Policy’s Obligation to Pay Criminal Defense Costs Ended upon Conviction and Before Appeal.  Insurer Entitled to Recoup Fees Expended


HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW

Robert E.B. Hewitt III
[email protected]

  • Defendants Failed to Establish a Prima Facie Case That Plaintiff Had Not Suffered a 90/180-day Injury
  • Establishing Tears to Body Parts Standing Alone Is Insufficient to Raise a Triable Issue of Fact as to Whether a Serious Injury Exists In Those Body Parts
  • Plaintiff Can Raise an Issue of Fact by Submitting a report By His Treating Physician Showing Tears Along With Limitations in Range of Motion And Disability
  • Defendant Establishes Entitlement to Summary Judgment Where Plaintiff Fails To Submit Evidence of a Triable Issue of Fact After Defendant Establishes a Prima Facie Case Through Submitting Competent Medical Evidence That Plaintiff Had an Insignificant Limitation of Flexion of 10%
  • Appellate Court Apparently Accepted Plaintiff’s Medical Reports Indicating Loss of Range of Motion Despite One Report Being Four Years’ Old and the Rest Being Unaffirmed
  • Plaintiff Established Issue of Fact Regarding Seriousness of Injuries and Causation
  • Plaintiff Failed to Establish an Issue of Fact as to Causation
  • Defendants Failed to Rebut Plaintiff’s Claims in His Bill of Particulars That He Suffered a Serious Injury In the 90-180-day Category
  • Plaintiff’s Surgeons Finding of Full Range of Motion in Her Knee One Month after Surgery but a Deficit in Range of Motion Three Years Later Could Not Be Used to Establish an Issue of Fact Where the Surgeon Failed to Reconcile the Differences

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

Arbitration

  • Applicant Terminated After Loss For Reasons Unrelated to Injuries Is Entitled to Lost Unemployment Benefits if Unable to Work Due to Injuries
  • Applicant Awarded Reimbursement Even Though Assignor Failed to File NF-2
  • Respondent Sustains Burden Proving Treatment Unrelated To Accident
  • Respondent’s Denial of TENS Unit Upheld Based on Normal IME Findings and No Rebutting Post-IME Treatment Records

 

Litigation

  • IME Rebuttal Must “Meaningfully Address” Contrary IME Findings

 

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

Court of Appeals

  • Computer Fraud Endorsement Only Applies to Losses Resulting from “Hacking”, No Coverage for Fraud Committed by Authorized Users

Potpourri

  • Statutorily Created Entity Has No Capacity to Sue Unless Also Explicitly Granted by Statute
  • Plaintiff’s Premium Audit Program is Compliant with the Insurance Law, and Premium Adjustment was Appropriate as a Result
  • Lack of Legal Duty Destroys Negligence Claim; GBL §349 Claim Survives
  • Failure to Establish Damage to Plaintiff was the Sole Motivation of Carrier Results in Dismissal of Tortious Interference Claim

 

FITZ’S BITS
Elizabeth A. Fitzpatrick
[email protected]

Swamped this week. 

WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
[email protected]

  • If An Insurer Wants To Intervene, It Must Do So in a Timely Manner in the Seventh Circuit
  • EPA Potentially Responsible Party Letters Are the Functional Equivalent of “Suits” Under Commercial General Liability Policies in Texas

 

Environmental Cases:

  • A Party Must Be Directly Regulated or Otherwise Affected By a Regulation In Order To Have Standing to Challenge It in Federal Court
  • In Mold Exposure Case, the Court Reiterates Claim Accrual Rule: Time Starts To Run Upon Manifestation and Symptoms, Not When Cause Is Identified

 

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

  • A8099/S5911            Allows Electronic Signatures for Continuing Education
  • A453/S1454              DFS to Investigate and Report on Use of Concurrent Causation for Sewer Backup Coverage

 

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

  • Another Bad Faith Claim Dismissed

 

EARL’S PEARLS
Earl K. Cantwell

[email protected]

  • Sometimes You Just Have To Fight the Good Fight

 

That’s all for now.  We are expecting the summer slowdown in judicial decisions but not quite yet.  They write them, we report them.

Enjoy the long holiday weekend.  Smoked salmon and smoked ribs are on my menu.  Think I’m enjoying the new smoker?  Needed a new hobby.

Happy summer.

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
Agnieszka A. Wilewicz
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, you
Diane F. Bosse

Topical Index

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

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

07/02/15       Carlson v. American International Group (I)
Appellate Division, Fourth Department
Direct Action by Judgment Creditor Can Only Be Commenced if Policy was Issued or Delivered in New York.   MCS-90 Applies Only to Named Insured
Carlson commenced this direct action pursuant to Insurance Law § 3420 (a) (2) to collect on certain insurance policies after a second amended judgment against MVP Delivery (MVP) and William Porter was entered upon a jury verdict .  American Alternative Insurance Company (“AAIC”) issued a commercial umbrella policy to Airborne, Inc. and later changed the named insured to DHL.

A direct action can be commenced against an insurer only when a policy is “issued or delivered in New York.” The parties and the court have improperly conflated the phrase "issued or delivered" with "issued for delivery," which was used in the former version of Insurance Law § 3420 (d), and therefore the definition of "issued for delivery" is not relevant here

The policy was issued in New Jersey and delivered in Seattle, Washington, and then in Florida. It was not issued or delivered in New York, and therefore the first cause of action of the complaint against AAIC must be dismissed.

Contrary to plaintiff's alternative contention he may not seek payment of the judgment against AAIC pursuant to the MCS-90 endorsement. That federally-mandated endorsement provides that "the insurer . . . agrees to pay . . . any final judgment recovered against the insured" However, the Federal Motor Carrier Safety Administration (FMCSA), which regulates the interstate trucking industry, defined the term "insured" on the MCS-90 endorsement as the named insured only.

07/02/15       Carlson v. AIG (II)
Appellate Division, Fourth Department
To Be a “Hired Vehicle”, Company Must Have Control of the Vehicle, Not the Company Operating the Vehicle
See decision above.  DHL had a cartage agreement with MVP, whereby MVP provided delivery services for DHL. In the underlying wrongful death action, the jury determined that Porter was negligent in causing the motor vehicle accident that led to the death of plaintiff's decedent, and MVP was statutorily liable for Porter's negligence as the owner of the vehicle. Plaintiff recovered from MVP's insurer and now seeks to recover under a primary and umbrella policy issued to DHL by defendant National Union and under an umbrella policy issued by AAIC.

AAIC did not issue a policy in New York (see decision above),  AIG established that it was not an insurer.

In the alternative, and with respect to National Union, plaintiff cannot maintain a section 3420 (a) (2) action against it for substantive reasons.  The primary National Union policy defined an insured as, inter alia, "[a]nyone else while using with your permission a covered auto' you own, hire or borrow." The umbrella National Union policy defined an insured as, inter alia, "[a]ny person . . . or organization with respect to any auto owned by you, loaned to you or hired by you or on your behalf and used with your permission."

The umbrella AAIC policy defined an insured as, inter alia, "any person or organization . . . included as an insured in the Scheduled Underlying Insurance," i.e., in the National Union primary policy. Thus, MVP and Porter may be an "insured" under the three policies only if the vehicle used by Porter at the time of the accident was "hired" by DHL and was being used with DHL's permission.

In order for the MVP vehicle driven by Porter to be deemed a vehicle "hired" by DHL, there must be a showing that DHL exercised control over the vehicle, and not general control over MVP. Generally, a vehicle owned by an independent contractor who contracts with the insured to perform services for the insured is not a hired automobile. There is a "distinction between hiring a company that provides transportation and hiring a truck"

07/02/15       Structure Tone, Inc. v. National Casualty Company
Appellate Division, First Department
Project Owner Not an Insured Because Not in Privity with Subcontractor; Wrap Up Exclusion Precluded Coverage for Contractor
Because project owner 200 Fifth did not contract directly with electrical contractors Kleinknecht Electric Company, the named insured on National Casualty's policy, the motion court properly found that 200 Fifth did not qualify as an additional insured.  The certificate of insurance produced by plaintiffs' broker is unavailing, as it is undisputed that no agency agreement existed between National Casualty and the broker.  Accordingly, as the claim fell outside of the policy's coverage, the carrier was not required to disclaim as to coverage that did not exist".

Plaintiffs conceded that they were being provided coverage in the underlying action "pursuant to a contractor controlled insurance program," a policy issued by another carrier, and therefore, based on the plain language of the policy. the Wrap-Up exclusionary language was triggered, precluding coverage for both plaintiffs. Assertion of the Wrap-Up Exclusion in the proposed amended answer constituted timely notice of disclaimer.

07/01/15       Imperium Insurance Company v. Utica First Insurance Co.
Appellate Division, Second Department
Right to Investigate Before the Insurer’s Time to Disclaim is Triggered
On June 13, 2005, an accident occurred on a jobsite.  On June 30, 2005, Imperium, the insurer for the owner and general contractor of the jobsite tendered a request for additional insured coverage to Utica First, asserting that the injured claimant was an employee of Utica First’s insured but providing no proof of employment (such as a C2 accident report).  Utica First commenced an investigation and, 36 days after it received Imperium’s notice, Utica First obtained a statement from its insured agreeing that the claimant was an employee of  Utica First’s insured.  Three days after receiving the statement, Utica First disclaimed coverage to its named insured and all purported additional insureds based upon an employee exclusion contained within the Utica First policy.

Imperium defended the eventual suit brought by the injured employee against the owner and general contractor and paid $2.475 million in settlement.  Imperium then sued Utica First to recover the settlement, asserting that Utica First’s denial of coverage was untimely because Utica First had no need to investigate whether the injured claimant was an employee before disclaiming since such fact was obvious based upon the mere assertion made by Imperium when it gave notice.

Not so, said the Second Department, accepting Utica First’s argument that it had to verify the applicability of the exclusion before leaving its insured without coverage, explaining that Utica First’s “delay was reasonably related to a prompt, diligent and necessary investigation to determine the relationship of the parties in the underlying action and whether an employee exclusion in the relevant insurance policy excluded coverage” , thereby reaffirming that insurers CAN investigate the validity of coverage defenses, provided they do so diligently.
Editor’s Note:  Our thanks and congratulations to you for her success on this appeal and her work in providing you this summary!

0701/15        State Farm Mutual v. Fitzgerald
New York State Court of Appeals
Is a Police Car a “Motor Vehicle” for the Purposes of Underinsured Motorists Coverage?  The Court of Appeals Decides the Answer is “No”.
In our November 8, 2013 edition, we reported on the Second Department’s decision, now reversed by the Court of Appeals in a 4-3 decision:

11/06/13       Matter of State Farm Mutual v. Fitzgerald
Appellate Division, Second Department
Is a Police Car a “Motor Vehicle” for the Purposes of Underinsured Motorists Coverage?  In a Case of First Impression, the Second Department Finds that It Is
Fitzgerald, a police officer, is a passenger in a police driven by fellow officer Knauss.  That car is involved in an accident with another and the other car was underinsured.  Fitzgerald put a claim for Supplementary Uninsured/Underinsured Motorist benefits with State Farm, under that carrier’s SUM endorsement.

In that endorsement, an "insured" is defined as the named insured (i.e., Knauss) and "any other person while occupying …any other motor vehicle …being operated by [Knauss]" [emphasis added].

State Farm filed a petition to permanently stay the arbitration, arguing that Fitzgerald was not an "insured" under the endorsement because police vehicle involved in the accident was not a "motor vehicle" for purposes of the endorsement.

An interesting question of first impression came before the court.  Under one section of the Vehicle & Traffic Law, §388(2), the section which imposes derivative liability on the owner of a vehicle for the negligence of a permissive user, a police vehicle is specifically excluded from the definition of “motor vehicle”. In another section of the Vehicle & Traffic Law, §125, which provides the general definition of “motor vehicle” for the purposes of the statute, the term includes police vehicles.

The court sides with the police officer and finds that VTL § 125, instead of VTL § 388(2), should be used to define the term "motor vehicle," as it appears in the uninsured/underinsured motorist endorsement. VTL § 125 is a general provision that defines the relevant terminology for the entire VTL.

In reversing the Second Department, the Court relied on State Farm v. Amato, 72 NY 2d 288 (1988) where the Court of Appeals determined that police cars do not need to carry uninsured motorist coverage. This case holds that police cars and not motor vehicles for the purposes of SUM coverage, and that Section 388 not 125 applies to define the vehicle for the purposes of coverage.

As indicated Police Office Fitzgerald was riding in a policy vehicle driven by fellow officer Knauss. Fitzgerald was injured when an intoxicated driver of an underinsured vehicle struck the police car. At the time, Knauss maintained an automobile liability insurance policy issued by State Farm and the policy included a SUM endorsement coverage passengers. The language of the policy provided that coverage for "any other person while occupying" Knauss' personal vehicle or "any other motor vehicle while being operated by [the named insured] or [the named insured's] spouse"

GEICO, the insurer for the tortfeasor offered Fitzgerald its policy limits of $25,000. On August 18, 2011, based on the injuries he received while occupying Knauss’ police vehicle during the accident, Fitzgerald made a demand upon State Farm for underinsured motorist arbitration under the SUM endorsement of Knauss’ policy. State Farm refused to make any payment to Fitzgerald on the ground that he had occupied a police vehicle at the time of the accident, which was not a covered "motor vehicle" within the meaning of the SUM endorsement. State Farm then filed a petition to permanently stay arbitration based on the asserted unavailability of SUM benefits for Fitzgerald.

Insurance Law § 3420 specifies the standard forms of coverage that must be included in a liability insurance policy. Subsection (e) requires automobile insurance policies to insure against civil liability for the negligence of those who drive the principal insured's car with his or her permission, saying:

"No policy or contract of personal injury liability insurance or of property damage liability insurance, covering liability arising from the ownership, maintenance or operation of any motor vehicle or of any vehicle as defined in section three hundred eighty-eight of the vehicle and traffic law, or an aircraft, or any vessel as defined in section forty-eight of the navigation law, shall be issued or delivered in this state . . . unless it contains a provision insuring the named insured against liability for death or injury sustained . . . as a result of negligence in the operation or use of such vehicle, aircraft or vessel . . ." (Insurance Law § 3420 [e] [emphasis added]).

Subsection (f) (1) mandates that automobile insurance policies feature uninsured motorist coverage and (f)(2) provides for optional SUM coverage.

As noted, Insurance Law §§ 3420 (e) and 3420 (f) (1) do not directly define "motor vehicle" in so many words, but Insurance Law § 3420 (e) does refer to "a motor vehicle or a vehicle as defined in [VTL 388 (2)]." VTL 388 is the sole provision of VTL article 11, which governs civil liability for negligence in the operation of vehicles. VTL 388 (2) states, "As used in this section, 'vehicle' means a 'motor vehicle', as defined in [VTL 125], except fire and police vehicles," and certain other vehicles not relevant here (see VTL 388 [2]).

Since Section 388 exempts police vehicles from liability coverage as decided in D’Amato, Underinsured Motorists coverage, it applies equally to SUM coverage, a subspecies of UM coverage.

06/24/15       Government Employees Insurance Company v. Arciello
Appellate Division, Second Department
SUM’s Carrier’s Request for Additional Information from Insured, Sent to the Wrong Address, Did Not Hamper Insured to Settle Claim with Tortfeasor
Arciello, a GEICO insured, was in an accident with another car driven by the tortfeasor. The tortfeasor's offered its policy limits. The insured's attorney then wrote a letter to the GEICO seeking consent to settle under Condition10. GEICO timely responded, seeking additional documentation, and indicating that Arciello should not settle without permission.

However, GEICO sent the letter to another law firm and a different address, rather than the insured’s counsel. . Although GEICO timely prepared a letter in response, which requested additional documentation and directed the insured not to settle the action without its written consent in the interim, GEICO did not send that letter to the insured's counsel, but instead sent it to another law firm at a different address.

Accordingly, at some point after the expiration of the 30-day period, the insured settled with the tortfeasor for the amount of the policy.

When the Arciello sought arbitration of his SUM claim, GEICO moved to stay arbitration, claiming that Arciello violated the policy by settling.

As a general rule, an insured who settles with a tortfeasor in violation of a policy condition requiring his or her insurer's consent to settle, thereby prejudicing the insurer's subrogation rights, is precluded from asserting a claim for SUM benefits.

However, GEICO did not establish that its letter seeking additional documentation was sent to the right address and therefore the insured had the right to settle without GEICO’s consent.

06/23/15       DD 11th Avenue, LLC v. Harleysville Insurance
Appellate Division, First Department
CCIP Exclusion Inapplicable to Property Owner
Harleysville issued a policy to S.J. Electric.  DD 11th, the property owner, sought coverage as additional insureds on that policy.  DD 11th was listed as an AI on that policy.

Harleysville declined to provide coverage, arguing, that its coverage obligations are excess to plaintiffs' own coverage through a Contractor Controlled Insurance Program (CCIP). The plain language of the Harleysville policy provides primary coverage to DD 11th.  The CCIP endorsement only pertains to the named insured, S.J. Electric. In addition, the additional insured endorsement specifically provides that "any coverage ... to an additional insured shall be excess ... unless the written contract' specifically requires that this insurance be primary ..." and S.J. Electric expressly contracted to provide plaintiffs primary.

06/23/15       Dupree v. Scottsdale Insurance Company
Appellate Division, First Department
D&O Policy’s Obligation to Pay Criminal Defense Costs Ended upon Conviction and Before Appeal.  Insurer Entitled to Recoup Fees Expended
Watts was the Chief Investment Officer for GDC.  Scottsdale provided GDC Acquisitions, LLC. Defendant Scottsdale Insurance Company issued GDC a Directors & Officers policy that covered Watts. On August 13, 2010, Watts was indicted for conspiracy to commit bank fraud, bank fraud, and making false statements.  The lower court directing Scottsdale to pay for Watt's defense in the criminal action.

Following Watt's conviction and sentencing, Scottsdale sought to be relieved of its obligation to pay for his continued defense, particularly, the appeal from his conviction that he was already pursuing. Defendant argued that the policy contained an exclusion for coverage of acts of fraud that became operable upon a "final judgment against its insured."

In the context of a criminal prosecution, it is well settled that the imposition of the sentence constitutes the final judgment against the insured. While the appeal may, at some point, relieve Watts of that judgment, the finality of it is not changed by the pendency of the appeal. Once the final judgment for fraud was entered against Watts, Scottsdale was no longer obligated to defend him.

Watts was also obligated to reimburse defendant for the monies it had expended would also entitle it to an offset on Watts’ claim for past legal fees.

HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW

Robert E.B. Hewitt III
[email protected]

07/01/15                 Walker v. Schuster
Appellate Division, Second Department
Defendants Failed to Establish a Prima Facie Case That Plaintiff Had Not Suffered a 90/180-day Injury
Plaintiff alleged in her bill of particulars that she had a meniscus tear, bursitis in her left knee, and soft tissue injuries to her back.  She underwent left knee arthroscopy and alleged she was confined to her home for one month. The trial court determined that she had not demonstrated a serious injury as defendants’ expert showed she had full range of motion in her knee and back and their radiologist indicated there was no tear. Plaintiff’s treating doctor failed to do contemporaneous range of motion testing and therefore the trial court felt that the plaintiff failed to raise an issue of fact to rebut the defendants’ prima facie case. The Appellate Court reversed on the 90/180-day injury category but unfortunately did not do any analysis on this issue. The Appellate court held that Defendants failed to meet their prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of the subject accident. They stated defendants’ papers failed to adequately address the plaintiff’s claim that she sustained a serious injury under the 90/180-day category of the Insurance Law. Therefore, the plaintiff did not have to establish an issue of fact.

06/30/15                 Acosta v. Zulu Servs, Inc.
Appellate Division, First Department
Establishing Tears to Body Parts Standing Alone Is Insufficient to Raise a Triable Issue of Fact as to Whether a Serious Injury Exists In Those Body Parts
The Appellate Court modified the grant of summary judgment by the trial court to the extent it sought dismissal of plaintiff’s claims of a permanent consequential and significant limitation of use of his cervical and lumbar spine, but otherwise affirmed.  The Appellate court found that defendants established that plaintiff did not sustain permanent consequential or significant limitations in the spine, knees, and left shoulder by submitting the affirmed report of their medical experts who determined after reviewing MRIS, that the claimed injuries were degenerative, preexisted, or were not otherwise caused by the accident. Further, defendants’ reports established that plaintiff had no range of motion limitations in his knees or left shoulder. Plaintiff submitted evidence that showed evidence of tears in his knees and left shoulder but the Court held that tears standing alone without any evidence of limitations were insufficient to raise a triable issue of fact as to whether a serious injury exists in those body parts. However, as to the cervical and lumbar spine, plaintiff raised an issue of fact as he was able to show significant deficits as to range of motion by submitting the affirmed report of the treating physician. Further, if he can establish these are serious injuries at trial, he will be able to recover damages even for the nonserious injuries to the knees and left shoulder.

Defendants met their burden of showing that plaintiff did not sustain a 90/80-day injury by relying on his deposition testimony that he was confined to bed for only three days and to home for only a month. That plaintiff missed more than 90 days of work was insufficient to raise an issue of fact.

 

06/30/15                 Ahmed v. Cannon
Appellate Division, First Department
Plaintiff Can Raise an Issue of Fact by Submitting a report By His Treating Physician Showing Tears Along With Limitations in Range of Motion And Disability
The Appellate Court modified the grant of summary judgment by the trial court to the extent it granted dismissal of plaintiff’s claims of significant and permanent consequential; limitation of use of the lumbar spine and left shoulder and significant limitation of use of the right wrist, but otherwise affirmed. 

Defendant established prima facie that plaintiff did not sustain a permanent consequential or significant limitation of use of the cervical spine by submitting his orthopedist’s and neurologist’s reports finding no significant limitations, negative clinical results, and a resolved sprain. In addition, defendant’s radiologist found degenerative disc disease and no post-traumatic changes in plaintiff’s cervical spine. Plaintiff conceded this issue on appeal

Defendant failed to establish that plaintiff did not sustain a permanent consequential or significant limitation of use of the lumbar spine resulting from the September 2010 motor vehicle accident, since his own orthopedic found a significant limitation in flexion during his July 2013 evaluation of the plaintiff. Moreover, although defendant’s radiologist found in the MRI film an unremarkable spine and no post-traumatic changes, his orthopedist’s report refers to an MRI report on the same film finding a disc bulge with herniation and impingement.

Defendant also failed to establish that plaintiff did not sustain a permanent consequential or significant limitation of use of the left shoulder. He did not submit MRI findings by his radiologist, but the orthopedist report refers to an MRI report finding a partial thickness tear of the ligament and his orthopedist and neurologist found persisting limitation in the shoulder during their July 2013 examinations of plaintiff. Defendant had not submitted proof that these injuries were not caused by the accident.

Defendant established prima facie that plaintiff did not sustain a permanent consequential or significant limitation of use of the right wrist by submitting his radiologist’s MRI report finding degenerative changes and no acute traumatic injuries. In opposition, plaintiff raised a triable issue of fact as to a significant limitation of use of his wrist by submitting his radiologist’s MRI report finding tears in the ligaments and his treating physician’s report and an orthopedist’s report finding limitations and a disability of the hand during their December 2010, February 2011, May 2011, and July 2011 evaluations. Further, the orthopedist’s opinion as to causation, which was based on his examinations, plaintiff’s reported history, and a review of the medical records, is sufficient to raise an issue of fact as to causation. Plaintiff, however, cannot rely on March 2012 and March 2014 findings of limitations to demonstrate permanency because they did not address the effects of a subsequent accident in November 2011 on the injuries.

Defendant established that the 90/180-day claim should be dismissed as the bill of particulars alleged he was confined to bed for at most only two weeks and confined to home for at most a week after the accident. Like in the last case, that plaintiff missed more than 90 days of work was insufficient to raise an issue of fact.

06/24/15                 Guevara v. Keen
Appellate Division, Second Department
Defendant Establishes Entitlement to Summary Judgment Where Plaintiff Fails To Submit Evidence of a Triable Issue of Fact After Defendant Establishes a Prima Facie Case Through Submitting Competent Medical Evidence That Plaintiff Had an Insignificant Limitation of Flexion of 10%
The Appellate Court affirmed the trial court’s granting of summary judgment. The defendants submitted competent medical evidence establishing, prima facie, that the alleged injuries to the cervical and lumbar regions of the plaintiff’s spine and to her left knee did not constitute serious injuries under either the permanent consequential limitation of use or significant limitation of use categories.

According to the trial court, Plaintiff submitted the report of an orthopedist who opined that there was evidence of a torn ligament in his left knee. That was insufficient, however, absent objective proof of the duration and extent of the alleged physical limitations. The 10% limitation of range in flexion with full extension of the left knee and the limitation of flexion in the lumbar spine were deemed insufficient under the no-fault statute. The appellate court affirmed but did not comment on the evidence submitted.

The defendants submitted further evidence that plaintiff did not sustain a serious injury under the 90/180-day category of Insurance Law §5102. In opposition, plaintiff failed to raise a triable issue of fact. Plaintiff testified that he only missed six weeks of work, which was not sufficient.

06/24/15                 Paredes v. Boudrea
Appellate Division, Second Department
Appellate Court Apparently Accepted Plaintiff’s Medical Reports Indicating Loss of Range of Motion Despite One Report Being Four Years’ Old and the Rest Being Unaffirmed
The defendants submitted competent medical evidence establishing, prima facie, that the alleged injuries to the cervical and lumbar regions of the plaintiff’s spine did not constitute serious injuries under either the permanent consequential limitation of use or significant limitation of use categories. Defendants submitted a report by a doctor wherein he compared the results elicited from the goniometer testing to the normal range of motion testing and found that Paredes’ range of motion tests were within normal limits and Paredes was not disabled as a result of the subject accident. In addition, Plaintiff testified at his deposition that after the accident he only missed fifteen days from work and was not confined to bed for any period of time. Further,

Plaintiff testified that he was not told by a physician to miss time from work.  Therefore, the Court found that defendant had established a prima facie case. Plaintiff, however, established an issue of fact as to the seriousness of the injuries according to the Appellate Court. The trial court had discounted unsworn reports from plaintiff’s physicians and a four year old report which was not contemporaneous in time, all of which indicated limitation in range of motion to the affected areas. . The Appellate Court reversed the trial court, although it did not state why it accepted the unsworn reports or the four year old report.

06/24/15                 Millard v. Aracena’s Transport, Inc.
Appellate Division, Second Department
Plaintiff Established Issue of Fact Regarding Seriousness of Injuries and Causation
The Appellate Court affirmed the denial of defendant’s motion for summary judgment. The Appellate Court found defendants established a prima facie case of summary judgment by establishing that the alleged injuries to plaintiff’s right knee did not constitute serious injuries under the permanent consequential limitation of use or significant limitation of use categories of the Insurance Law and in any event, the injuries were not caused by the accident.

The Appellate Court agreed with the trial court, however, that plaintiff had submitted evidence raising triable issues of fact with respect to the seriousness of the injuries and causation. No further details were available in the decision.

06/24/15                 Olivencia v. Depompeis
Appellate Division, Second Department
Plaintiff Failed to Establish an Issue of Fact as to Causation
The Appellate Court reversed the denial of defendant’s motion for summary judgment. The Appellate Court found defendants established a prima facie case of summary judgment under the permanent consequential limitation of use or significant limitation of use categories by establishing that the alleged injuries to plaintiff’s cervical and lumbar spine were not caused by the accident.  The Appellate Court, unlike the trial court, felt that plaintiff failed to establish an issue of fact.

06/24/15                 Wells v. Jalloh
Appellate Division, Second Department
Defendants Failed to Rebut Plaintiff’s Claims in His Bill of Particulars That He Suffered a Serious Injury In the 90-180-day Category
The Appellate Court affirmed the denial of defendant’s motion for summary judgment. The Appellate Court found defendants failed to establish a prima facie case of summary judgment under the 90/180-day category because they failed to address the Plaintiff’s allegations set forth in the Bill of Particulars.

06/23/15                 Perdomo v. City of New York
Appellate Division, First Department
Plaintiff’s Surgeons Finding of Full Range of Motion in Her Knee One Month after Surgery but a Deficit in Range of Motion Three Years Later Could Not Be Used to Establish an Issue of Fact Where the Surgeon Failed to Reconcile the Differences
The Appellate Court modified the trial court’s grant of summary judgment and denied summary judgment as to plaintiff’s claim of significant limitations of use of her right knee. Otherwise, the Appellate Court affirmed the grant of summary judgment as to the claims of serious injury to the cervical spine.

Plaintiff was injured when the taxi she was riding in struck a New York City Police Department Vehicle responding to an emergency. The moving defendants met their prima facie burden by showing through the affirmed report of their expert that plaintiff had full range of motion in her neck and right knee. The expert further concluded the injuries were not the result of trauma as there were no objective neurological findings and no edema in plaintiff’s right knee.

In opposition, plaintiff raised an issue of fact as to whether, as a result of the accident, she sustained a serious injury to her right knee involving a significant but not permanent limitation in use. Her orthopedic surgeon opined that it was necessary to perform arthroscopic surgery on plaintiff’s knee two months after the accident because she continued to be asymptomatic despite conservative treatment. During surgery, he found a meniscal tear. In addition, plaintiff underwent therapy for her knee both before and after the surgery. Plaintiff was 16 years old and previously asymptomatic, so the surgeon attributed the injuries to the accident, and not degeneration.

The medical records submitted by plaintiff show that her surgeon found full range of motion in her knee one month after surgery. While he found a deficit in range of motion upon examination three years later, the surgeon failed to reconcile his earlier normal findings with his later findings. This failure entitled defendant to summary judgment on any claim of serious injury based on the “permanent consequential limitations of use” category.

Plaintiff failed to submit medical evidence sufficient to raise an issue of fact as to whether she suffered either “significant” or “permanent consequential” limitation of use of her cervical spine as a result of the accident, since her physicians found only relatively minor limitations.

The Court noted that if plaintiff established serious injury, she could recover damages for all injuries incurred as a result of the accident, even those that do not meet the serious injury threshold.

MARGO’S MUSINGS ON NO FAULT

Margo M. Lagueras
[email protected]

Arbitration

06/18/15       Applicant v Esurance Insurance Co.
Erie County, Arbitrator Gillian Brown
Applicant Terminated After Loss For Reasons Unrelated to Injuries Is Entitled to Lost Unemployment Benefits if Unable to Work Due to Injuries
The issue is to how much is he entitled.  Applicant was involved in an accident in December 2013.  He did not miss any time from work but was terminated a month later.  He claimed he was terminated because his work “dropped precipitously.”  However, the affidavit from his employer established that he was terminated solely due to lack of available work and not as a result of his injuries.  Respondent based its denial of wage loss benefits on that affidavit. 

In support of his claim, Applicant submitted disability letters covering the entire period for which he was claiming benefits.  The Arbitrator found that it was undisputed that Applicant was disabled but that did not lose any time from work and presented no disability slip for the month he worked following the accident before being terminated.  Therefore, he was not rendered disabled until several weeks after the accident and therefore was not entitled to reimbursement of his actual wages as claimed. 

Nevertheless, Applicant was entitled to lost wages in the amount of lost unemployment benefits which he was unable to collect because he was unable to work.  However, the extended period of unemployment benefits in New York State was terminated as of August 3, 2014.  Therefore, 26 weeks is the maximum period and not 44 as Applicant claimed.  For claims after January 6, 2014, if an applicant’s high quarter is more than $4,000, then the two highest quarters are averaged together and then divided by 26 to determine the weekly wage.  Based on this formula, the Arbitrator awarded Applicant the amount he would have received as unemployment had he not been disabled due to the accident.

06/18/15       Erie County Medical Center v Merchants Mutual Ins.
Erie County, Arbitrator Douglas Coppola
Applicant Awarded Reimbursement Even Though Assignor Failed to File NF-2
This has become a familiar issue lately.  The bottom line is that an insurer cannot delay payment to a hospital facility based on non-receipt of an NF-2.  Notice of claim to an insurer can be made by submission of either the NF-2 completed by the EIP, or the NF-5 completed by the hospital facility.  So when the insurer receives the claim form from the hospital and it has not yet received an NF-2 from the EIP, it is the obligation of the insurer to forward an NF-5 to such facility for completion.  The NF-5 serves to verify the claim in the absence of the NF-2, so once the fully completed NF-5 is received, the 30-day pay or deny rule kicks in.
Note:  See Circular Letter No. 1 dated February 3, 2015 at www.dfs.ny.gov/insurance/circltr/2015/c12015_01_.pdf)

06/18/15       Kaleida Health v Geico Insurance Co.
Erie County, Arbitrator Michelle Murphy-Louden
Respondent Sustains Burden Proving Treatment Unrelated To Accident
The treatment at issue, a right total hip replacement, was rendered in mid-May 2014 and allegedly causally related to an accident which occurred in August 2009.  Respondent denied reimbursement based upon an orthopedic IME and a peer review, both finding a lack of causal relationship.  The 62 year old EIP did not seek treatment following the accident but in August 2012 presented for initial orthopedic consultation with Dr. Fishkin complaining of lower back pain radiating to the right leg and groin.  Pelvic x-rays showed bone-on-bone osteoarthritis of the right hip.  She was given an ultrasound guided right trochanteric bursa injection which provided immediate improvement in pain and function.  About three weeks later, the EIP consulted again, this time with Dr. Huckell in the same practice, complaining of right hip and groin pain associated with low back pain.  She reported that the hip pain had been present since the accident, that she had no pain before the accident, and that she had not sustained any new trauma since the accident.  Right hip w-rays reportedly showed severe osteoarthritis and she was diagnosed with right hip derangement, osteoarthritis and greater trochanter bursitis.  A total right hip replacement was recommended.  In March 2013, the EIP consulted with Dr. Iqbal with complaints of right hip pain radiating to the right groin.  Dr. Iqbal noted that the EIP had an eight month history of progressive right hip pain with “a remote history of an injury in an mva on 8/6/09.”  In April 2014, she was again seen by Dr. Huckell complaining that she was no longer able to cross her legs.  The disputed right total hip replacement was performed in May.

In March 2010, an IME had been performed.  At the time, the EIP complained of headaches, neck and low back pain, and numbness and tingling in the bilateral lower extremities.  She also reported that her pain had improved since the accident.  She was diagnosed with resolving cervical arthritic changes and sprain/strain, resolved lumbar arthritic changes and sprain/strain, and bilateral knee and bilateral foot/ankle pain, all referred from the back.  No further orthopedic treatment was found medically necessary. 
Subsequently, two arbitrations were held between Respondent and Dr. Huckell in which this IME was found to be insufficient to support the denials. 

Following the surgery, a peer review was performed by Dr. Bazos in June 2014.  Dr. Bazos found a lack of causal relationship between the replacement surgery and the accident in 2009 and, based on his report, Respondent denied applicant’s claim.  The Arbitrator found that, based on the peer review and records submitted, Respondent met its burden.  Dr. Huckell’s opinion that the EIP’s pre-existing severe right hip osteoarthritis was aggravated by the accident was based solely on the EIP’s statements that her pain began immediately after the accident.  However, the records did not support this.  In addition, in March 2013 when Dr. Iqbal saw the EIP, he had noted that she only had an eight month history of progressive right hip pain and that would coincide with the first documented complaint of right hip pain in August 2012, a full three years after the accident in question.  Based on all of this, the Arbitrator found that Respondent’s denial of the surgery as not causally related to the mva was justified.

06/15/15       Amherst Medical Supply, LLC v Geico Insurance Co.
Erie County, Arbitrator Mona Bargnesi
Respondent’s Denial of TENS Unit Upheld Based on Normal IME Findings and No Rebutting Post-IME Treatment Records
The EIP sought chiropractic treatment for complaints of neck pain and stiffness three months after an accident in which he veered into a snowbank after a tire from his vehicle came off.  Fifteen days after starting treatment, the chiropractor prescribed a TENS unit, checking off every possible goal listed on the form letter of medical necessity.  A chiropractic IME was performed which included the review of medical records from the treating chiropractor.  The IME was entirely normal and found no restrictions, and the EIP in fact indicated to the examining chiropractor that he was not even using the TENS unit. 

The Arbitrator found the IME report sufficient to support the denial and Applicant submitted no post-IME chiropractic treatment records to support the treating chiropractor’s opinion that the TENS unit and accessories were medically necessary.  The Arbitrator also noted that Applicant’s argument that the IME report did not contain any discussion as to why a TENS unit was not medically necessary had no merit because the IME doctor specifically found that no durable medical equipment was medically necessary.  Furthermore, the denial was based on an IME and not a peer review which might have discussed the specific item in more detail. 

Litigation

06/17/15       Rummel G. Mendoza, D.C., P.C. v Chubb Indem. Ins. Co.
Appellate Term, First Department
IME Rebuttal Must “Meaningfully Address” Contrary IME Findings
On appeal, the trial court was reversed and the complaint dismissed where Defendant timely denied the claims based on an IME and follow-up report by its examining orthopedist that concluded that the Assignor’s injuries were resolved and there was no need for further physical therapy treatment.  In rebuttal, Plaintiff submitted an affidavit from the treating therapist but it failed to meaningfully address the contrary findings made by the examining doctor, including normal range of motion findings of both the cervical and lumbar spine.  As such, Plaintiff failed to raise an issue of fact and summary judgment should have been granted to Defendant.
Note:  See also SMB Medical, P.C. v Federal Ins. Co., 2015 NY Slip Op 50895[U], decided June 12, 2015 by this same court.

 

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

Court of Appeals

06/25/15       Universal Am. Corp. v Nat. Union Fire Ins. Co. of Pitts, P.A.
Court of Appeals
Computer Fraud Endorsement Only Applies to Losses Resulting from “Hacking”, No Coverage for Fraud Committed by Authorized Users
This case involved a dispute over the entry of fraudulent computer data as part of a scheme to defraud Medicare payments.  In our 10/11/13 issue of Coverage Pointers, we reported:
10/01/13         Universal Am. Corp. v. Nat. Union Fire Ins. Co. of Pittsburgh
Appellate Division, First Department

Coverage for Losses Arising from Computer Hackers did not Apply to Fraudulent Claims Submitted by Authorized Users
Plaintiff sustained losses when it discovered doctors and other health care providers submitted claims through its computer payment system.  The problem occurred when it was revealed that a certain number of the claims submitted were not actually provided.  Plaintiff submitted the claim for coverage under its “Computer Systems Rider.”
National Union denied the claim on the basis that the Rider only provided coverage for losses arising out of fraudulent data entry or change of electronic data within the computer system.  National Union supported its position by establishing that the Rider was meant to apply to losses caused by computer hackers.  It was not, as urged by plaintiff, meant to cover fraud losses perpetrated by authorized users of the system.
The Appellate Division agreed, and affirmed National Union’s denial. 
After the decision, the Court of Appeals took the relatively rare step of granting certiorari on a unanimous Appellate Division decision.  This time around, we have the benefit of review of the actual language at issue.

As relevant, the language at issue provided:

COMPUTER SYSTEMS FRAUD
Loss resulting directly from a fraudulent
(1)      entry of Electronic Data or Computer Program into, or
(2)      change of Electronic Data or Computer Program within
the Insured's proprietary Computer System
Again, plaintiff argued that, by its plain terms, the Computer Systems Fraud Endorsement applied to the fraudulent entry of Electronic Data.  As the data that was entered onto their system was clearly “fraudulent”, they argued that coverage under the Endorsement should attach to the loss.
In response, National Union again argued, essentially, that the policy only provided coverage for losses resulting from the fraudulent entry into the computer system…where data was then entered.  Under National Union’s interpretation, the Endorsement only applied to losses that occurred when the insured’s system was “hacked” from an outside source.  On the other hand, the Endorsement would not trigger where the data was recorded by an authorized user.  Under such a circumstance, there would be no fraudulent entry. 
Based with the two arguments, the Court of Appeals dove, headlong, into a sort of linguistic gymnastics.  In holding that the Endorsement is clear and unambiguous, the Court stated that the term “fraudulent” modified the act of entering. The use of fraudulent, however, does not also “qualify what is actually acted upon, namely the ‘electronic data’ or ‘computer program’.”  Thus, the Court concluded that the Endorsement, by its plain and understood meaning, only applied to the wrongful entry into the system (ie., hacking). 
In further support, the Court noted that the reference in the subtitle of the Endorsement to “Computer Systems” further implies that the coverage is limited to the entry into the system.  The Court also pointed to an exclusion which precluded coverage for losses that were resultant from fraudulent instruments “which are used as source documentation in the preparation of Electronic Date, or manually keyed into a data terminal.”  According to the Court, if entry of fraudulent data was within the scope of the Endorsement then there would be no reason for a subsequent exclusion which removed coverage for fraudulent content contained in documents used to create the data.   
Finally, the Court noted that if the Endorsement was meant to cover fraudulent data, as opposed to fraudulent entry, the use of the term “entry” was unnecessary.  In other words, the Endorsement should have simply provided coverage for fraudulent data.  On balance, the Court noted that a reasonable person would have interpreted the Endorsement to be limited to hacking events, and as such coverage did not extend to fraudulent data entry by authorized users of the system. 
Peiper’s Point – Try as we might, we are still not convinced of this.  If the Endorsement was meant to apply solely to losses caused due to hacking, the Endorsement should have said so.  At the very least, it appears to us that the Endorsement is/was ambiguous, and, thus, should be have been construed in favor of coverage. 

It is noted that the Trial Court, Appellate Court and Court of Appeals all agreed with National Union.  Apparently, it’s just us and the insured that see an argument here for coverage.  While not in our nature to read coverage grants broadly, we’d submit that fair is fair in this case.   

Thoughts?  Drop us a line, and let us know. We’d love to hear from you. 

Potpourri

07/01/15       Excess Line Association of NY v Waldorf & Associates, et al.
Appellate Division, Second Department
Statutorily Created Entity Has No Capacity to Sue Unless Also Explicitly Granted by Statute
Plaintiff, a statutorily created not-for-profit association of excess line brokers, commenced the instant action on the theory that Waldorf was fraudulently misrepresenting certain policies issued through Lloyds.   Essentially, the Complaint asserts that Waldorf was trying to avoid identifying the policies as “excess lines” to avoid the fees that plaintiff charges on all excess line policies. 

Waldorf, among all other defendants, moved to dismiss the claims for failure to state a Cause of Action and for lack of capacity to sue.  In dismissing the claims, the Court noted that as a statutorily created entity the capacity to sue must also be granted within the statute.  There is no common law right of suit associated with an entity that derives its origin from statutory creation. 

Here, plaintiff is created and maintained via Insurance Law § 2130.  The plaintiff serves the Superintendent of Financial Services, and it is the Superintendent that is charged imposition of fines and punishment for violators.  Plaintiff has no private right of action for violations under the Insurance Law. As noted by the Appellate Division, when compliance with a statute is intended as a general police regulation, there is no basis for a private cause of action.

Further, claims under GBL § 340, were improper because plaintiff is “neither a consumer, nor a competitor” in the excess lines market.  The GBL § 349 claim was dismissed because plaintiff is not a consumer, nor is the injury directly caused by deceptive conduct (note:  we’re not so sure about that).

06/24/15       Inter-Reco, Inc. v Transcorp Construction Corp.
Appellate Division, Second Department
Plaintiff’s Premium Audit Program is Compliant with the Insurance Law, and Premium Adjustment was Appropriate as a Result
Plaintiff commenced the instant claim seeking recovery of premiums as part of a premium audit program that accompanied two separate policy terms running from 2002 through 2004.  To compute the premium, plaintiff employed a classification system developed by ISO.  Plaintiff’s representative testified that the premium rates under all classifications systems were the same, and the final premium (by the terms of the program) was not determined until the actual (not estimated) premium basis was paired with the appropriate classification and rate. 

Accordingly, plaintiff established that its premium audit program satisfied the requirements of the Insurance Law, and that it was entitled to the balance of unearned premiums as calculated by the audit.  

06/24/15       MVB Collision, Inc. v Allstate Ins. Co.
Appellate Division, Second Department
Lack of Legal Duty Destroys Negligence Claim; GBL §349 Claim Survives
Allstate moved to dismiss plaintiff’s claims for general negligence and violations of GBL § 349.  In granting that portion of the motion which sought to dismiss plaintiff’s negligence claims, the Court noted that the Complaint failed to properly assert that Allstate owed a duty of care.  Without the existence of a legal duty, it followed there was no basis for an allegation of negligence. 

With respect to the GBL § 349 claim, however, the plaintiff need only establish a materially misleading business practice that was geared toward consumer oriented conduct, and damages as a result.  On the Record before the Court, it was determined that plaintiff stated a cognizable claim.  Moreover, the Court also ruled that plaintiff’s motion to amend should have been granted where Allstate failed to establish that the proposed changes were palpably insufficient or patently devoid of merit.  

06/24/15       MVB Collision, Inc. v Progressive Ins. Co.
Appellate Division, Second Department
Failure to Establish Damage to Plaintiff was the Sole Motivation of Carrier Results in Dismissal of Tortious Interference Claim
Progressive successfully dismissed plaintiff’s claim for tortious interference with business where it was able to demonstrate that its actions were motivated, at least in part, on its own interests.  In order to succeed on a tortious interference claim, the plaintiff needed to establish that Progressive’s actions were motivated, solely, for the purpose of causing harm to plaintiff.

In addition, the Court reminds us that opposition based upon the lack of discovery exchange is only sufficient when the party seeking production can show why it is material and necessary to the litigation.  Where plaintiff did not establish how additional discovery would assist in the defense of the motion, its attempts to oppose based upon the need for additional discovery were denied.

Finally, the Court refused to review the Trial Court’s dismissal of plaintiff’s GBL § 349 claims where the instant appeal only sought review of the Order dismissing the tortious interference claim. 
FITZ’S BITS
Elizabeth A. Fitzpatrick
[email protected]

Swamped this week. 

WILEWICZ’S WIDE WORLD OF COVERAGE

Agnes A. Wilewicz
[email protected]

06/29/15       CE Design Ltd. v. King Supply Co. (Valley Forge Ins. Co. intervenor)
United States Court of Appeals, Seventh Circuit
If An Insurer Wants To Intervene, It Must Do So in a Timely Manner in the Seventh Circuit
This decision, written by Judge Posner, stems from an Illinois District Court class action suit filed under the Telephone Consumer Protection Act. In it, King Supply Co. allegedly sent advertising faxes to a class of entities that did not wish to receive the ads. Those entities sued King Supply, and designated CE Design as representative when their class was certified. King Supply in turn reached out to its three insurance carriers for coverage, but they all disclaimed both defense and indemnification duties. CE Design and King Supply eventually settled the action for $20 million, but agreed that King Supply would pay only $200,000 and the remainder would have to come from insurance policies. The justification for this arrangement was that if King Supply paid any more than this portion, they would be having to declare bankruptcy.

Upon learning of this proposed settlement, the insurers filed declaratory judgment actions in state court and then tried to intervene into the federal court action. They hoped to delay approval of the settlement until there was a state-court determination of coverage. The federal district court held that their intervention attempt was untimely and denied the motion. Thus, the insurers appealed to the Seventh Circuit.

The Circuit Court agreed with the lower court. The carriers should have moved to intervene years before, when they first disclaimed coverage, the Court said. It was then that they knew or should have known that the parties were likely to negotiate a settlement that might place liability upon the insurers. The Court reasoned: “The insurers should have foreseen the danger of such a settlement at the outset; had they wished to challenge it on the ground that the class counsel and King Supply were conspiring to overcompensate the class, they should have moved to intervene at the outset of the litigation, not nearly three years later, when the settlement had been negotiated and was about to be presented to the district court for approval. At that late stage the only object of the intervention could be to block the settlement and put the class action suit back to where it had been in 2009. So gratuitous an extension of a multi-year litigation should not be encouraged.”

The Court acknowledged the fact that an earlier intervention might not have been granted, as the insurers’ interests at the outset might well have been deemed too contingent on uncertain events to justify granting the motion. In such case, it might have made more sense for them to ignore the federal action entirely, rather than try to become a party to it. However, since the insurers chose to intervene at such late stage anyway, on that narrow issue they are simply untimely as a matter of law. They will have to wait to see how the appeal in the state court goes, and hope for the best.

06/26/15       McGinnes Industrial v. Phoenix and Travelers
The Supreme Court of Texas
EPA Potentially Responsible Party Letters Are the Functional Equivalent of “Suits” Under Commercial General Liability Policies in Texas
In the 1960s, McGinnes Industrial Waste allegedly dumped pulp and paper mill waste sludge into disposal pits near the San Jacinto River in Pasadena, Texas. At the time, it was covered by policies issued by Phoenix Insurance and Travelers Indemnity. In 2005, the Environmental Protection Agency started to investigate possible contamination at that site. In 2007, they sent McGinnes a general notice, stating that the company was a potentially responsible party (“PRP”) and offering an opportunity to negotiate the terms and cost of the cleanup. McGinnes tendered the claim to Phoenix/Travelers and requested a defense in the EPA’s proceedings. The insurers refused to provide a defense, asserting that the proceedings were not a “suit” under the policy. Subsequent EPA letters were issued, including requests for information, cost demands, and eventually a unilateral administrative order.

McGinnes sued the insurers in federal court, for a declaration that the policies obligated a defense obligation and reimbursement for counsel costs already incurred. The insurers won their motion for summary judgment on the duty to defend, but the court permitted an interlocutory appeal (one that does not have to take place after the conclusion of an action). The Firth Circuit certified the following question for the Texas Supreme Court’s review: “Whether the EPA’s PRP letters and/or unilateral administrative order, issued pursuant to CERCLA, constitute a “suit” within the meaning of the CGL policies, triggering the duty to defend.” The Supreme Court of Texas said: yes.

Acknowledging that a “suit” does commonly refer to proceedings in court, the Court noted that these types of cases rarely culminate in formal court proceedings. However, the Court went on to give three reasons why CERCLA proceedings were analogous to “suits” and should be covered under CGL policies. First, PRP letters or unilateral administrative orders which “command compliance” are different from a simple demand letter or threat of action letter. PRP letters are thus analogous to pleadings, EPA’s authority to issue requests for information is analogous to interrogatories, subsequent invitations to settle are analogous to mediation, and unilateral administrative orders resemble summary judgment.

Second, it was undisputed that cleanup costs under CERCLA were “damages” covered under the CGL policy at issue. However, the insurers raised the point that these damages were not the result of an “occurrence” for which coverage was contemplated. Reasoning that it would not make sense to acknowledge an indemnification duty (i.e. that they would pay for damages) but disclaim a defense obligation (i.e. the defense was never triggered due to the lack of an occurrence), the Court rejected the insurer’s argument.

Finally, the Court noted that the insurer’s interpretation of “suits”, relative to standard form policies, has been rejected by thirteen of the sixteen state high courts that have considered the issue. Though there is an admitted split among jurisdictions, a majority hold this way. Further, they noted that lower courts have similarly ruled most often in favor of the insureds on this point. Accordingly, in an effort to strive for uniform interpretation of identical insurance provisions, the Court held that “insureds in Texas should not be deprived the coverage insureds have in thirteen other states”. Thus, in Texas, EPA-issued PRP letters are the functional equivalent of “suits” under commercial general liability policies.

Environmental Cases:

06/02/15       Carbon Sequestration Council v. EPA
United States Court of Appeals, D.C. Circuit
A Party Must Be Directly Regulated or Otherwise Affected By a Regulation In Order To Have Standing to Challenge It in Federal Court
In 2010, the EPA promulgated a rule creating by designation new “Class VI” wells and prohibiting injection of “solid waste” into such wells. These wells are designed to be used in what is known as “carbon capture and storage” processes, a way of compressing and storing carbon underground, which help mitigate climate change. The compression causes the carbon to become a “supercritical fluid” that is neither liquid nor gas, but has properties of both. In 2014, EPA issued a final rule in which it determined that, in the context of Class VI wells, supercritical carbon dioxide is a “solid waste” and subject to regulation under the Resource Conservation and Recovery Act (“RCRA”) and the Safe Drinking Water Act.

In this case, petitioners The Carbon Sequestration Council, Southern Company Services, Inc., and the American Petroleum Institute brought an action against the EPA, asking the court to review the agency’s “solid waste” determination. They claimed that it would cause them to incur costs to determine whether its carbon dioxide streams were hazardous, and they claimed that this rule would presage further regulatory actions that involved their businesses. However, the D.C. Circuit found that none of these arguments availing and held that none of the parties had standing to bring the suit. On the first point, the record showed that the companies in fact did not use Class VI wells. Moreover, asserting that this rule may lead to more regulation is insufficient to establishing standing to challenge it. As such, the court would not review the EPA’s classification.

06/09/15       Keyona Vincent v. New York Housing Authority
Appellate Division, First Department
In Mold Exposure Case, the Court Reiterates Claim Accrual Rule: Time Starts To Run Upon Manifestation and Symptoms, Not When Cause Is Identified
Plaintiff had a leak in her apartment that had been ongoing since May 2010. It caused mold to form, the exposure to which exacerbated plaintiff’s asthma. She testified that starting at some point between September 2010 and February 2011, she began to have more frequent asthma attacks and hospital visits as a result. She filed her Notice of Claim against the Housing Authority in June 2011.

The Appellate Division ruled that the filing of the Notice was untimely as a matter of law. Finding that the claim accrued no later than February 2011, plaintiff took longer than 90 days to file the Notice. The court rejected plaintiff’s argument that her claim did not accrue until March 2011 when her doctor noted a connection between the symptoms and the mold exposure. Rather, the court reiterated the long-established rule, that “a cause of action for damages resulting from exposure to toxic substances accrues when the plaintiff begins to suffer the manifestations and symptoms of his or her physical condition, i.e. when the injury is apparent, not when the specific cause of the injury is identified”. The First Department further held that the lower court could not on its own deem the notice to have been filed timely, as it lacked authority to do so and plaintiff never moved for such relief.

 

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

A8099/S5911          Allows Electronic Signatures for Continuing Education
This proposed legislation passed both the Senate and Assembly recently, and it is anticipated that it will be sent to the Governor.  Currently, DES requires continuing education course providers to submit all applications for approval to provide a continuing education course or program with original signatures.  This will allow the course providers to submit electronic signatures.

This change applies to continuing education courses for agents and brokers licensed with respect to life insurance, annuities, sickness, accident and health insurance, all lines of property and casualty insurance, life settlements and title insurance. 

A453/S1454            DFS to Investigate and Report on Use of Concurrent Causation for Sewer Backup Coverage
This proposed legislation also passed both the Senate and Assembly, and it is also anticipated this will be sent to the Governor for signature.  This legislation will require the Superintendent of DFS to examine and make recommendations regarding the treatment of concurrent causation in relation to homeowners’ insurance coverage for sewer backup.  The study must include an analysis of the potential premium impact and availability of sewer backup coverage which prohibits anti-concurrent causation clauses from applying to that particular coverage.  The report would have to be made to the Governor by January 1, 2017.

The sponsor’s memorandum provides the following justification for the legislation explaining that anti-concurrent causation clauses in policies “operate to exclude coverage for loss caused by two or more concurrent factors, such as wind and flood damage, where at least one factor is covered in the policy,” and as a result, many people affected by Superstorm Sandy found the anti-concurrent causation provision barred recovery for otherwise recoverable damages.  The purpose of the examination and report will be to allow the Legislature to make an informed decision regarding the proper treatment of anti-concurrent causation clauses in policies for sewer backup insurance coverage.

KEEPING THE FAITH WITH JEN’S GEMS

Jennifer A. Ehman
[email protected]

06/23/15       Park Ave. Realty, LLC v Schindler El. Corp.
Appellate Division, First Department
Another Bad Faith Claim Dismissed
Defendant, the insurer, moved to dismiss plaintiff’s third cause of action, for bad faith in violation of General Business Law § 349, in addition to plaintiff’s request for attorneys’ fees and punitive damages.  The trial court denied the motion with leave to renew upon the completion of discovery.  

The First Department reversed holding that plaintiff had insufficiently pled the third cause of action as the allegations contained within the complaint did not encompass consumer-oriented conduct.  The court further noted that even if a plaintiff meets the threshold of alleging consumer-oriented conduct, it must then establish that defendant engaged in an act or practice that was deceptive in a material way and that plaintiff was injured by it.  Plaintiff's possession of the actual insurance policies that contained the exclusionary language upon which the denial of coverage later was based negates any finding of deceptive acts on the part of the insurers.

It then concluded that discovery cannot cure plaintiff's pleading defects, and the third cause of action, including plaintiff's request for attorneys' fees and punitive damages, should be dismissed without waiting for the completion of discovery.

Note:  This decision is a good reminder that prior to answering any complaint which contains these types of allegations; a motion to dismiss should be considered.  Removing the allegations of bad faith at an early stage negates the potential for any later discovery on these claims. 

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

01/14/15       Weaver v. State Farm Fire & Casualty Co.
United States District Court, Southern District of Mississippi
Sometimes You Just Have To Fight the Good Fight
Insurance coverage and first party claims are often susceptible to motions to dismiss and for summary judgment and a case should be assessed early and often whether all or parts of a claim for damages can be eliminated by motion practice.  Sometimes these strategies work, and sometimes they do not.  A case where an insurance company made a valiant effort on motion practice but came up short is Weaver v. State Farm Fire & Casualty Co., 2015 WL 197617 (S.D. Miss., January 14, 2015).

Rhonda Rhea died in May 2007.  She owned a home that State Farm insured.  Her will named her boyfriend as her sole primary beneficiary.  After her death, State Farm added his name to the policy.  However, Rhea’s minor daughter filed a will contest in the Mississippi state courts, and with the will contest still pending the police attempted to arrest the boyfriend on charges of sexually assaulting the daughter.  The boyfriend barricaded himself in the house, allegedly set two fires, died of smoke inhalation, and the home suffered extensive damage.  Then in a true slice of modern life the boyfriend’s estate made a claim on the insurance policy.

Now, a few more enticing bits of the story.  State Farm issued a reservation of rights letter to the effect that, since Rhea’s estate was unsettled, there was a question whether the boyfriend was the owner of the property.  State Farm eventually did deny the boyfriend’s claim arguing that the fire damage to the home did not result from an accidental occurrence.  The state courts then ruled that the minor daughter was the heir to the mother’s estate, which included the home. 

The daughter sued State Farm in District Court for the policy proceeds.  Since she was a minor, she was represented by a guardian.  State Farm moved for summary judgment on essentially three grounds, all of which were discussed in detail by the District Court but ultimately rejected. 

First, State Farm argued that the three year statute of limitations period began to run in December 2008 when it issued the reservation of rights letter to the boyfriend’s estate.  The Court rejected this argument based on a state statute protecting minors which meant the statute of limitations period did not begin to run until the daughter turned 21.  Since she had three years after that date to file suit, the lawsuit commenced in December 2013 was timely.

State Farm argued next that the daughter had no insurable interest in the property at the time of the fire.  However, the Court ruled that, because she was determined to be the mother’s sole heir, she succeeded to the mother’s insurable interest.  The Court also found it relevant that some funds from the mother’s estate had been used at some point to pay the insurance premium.  The Court ruled that the daughter had an insurable interest in the property and standing to sue.

State Farm’s third argument was that no one should recover on the policy because the fire was not accidental.  The Court rejected that argument on grounds that, as to the daughter, there was no proof that she was involved in setting the fires or acted in concert with her mother’s boyfriend to do so.  Viewed from the daughter’s point of view, the Court ruled that the property damage should be considered “accidental”.

There are several interesting lessons and points to review from this case:

  1. Notwithstanding the Court’s ruling, State Farm deserves credit in bringing a solid motion for summary judgment raising significant available defenses that involved little or no questions of fact.  The Court essentially was forced to make legal rulings on the statute of limitations, insurable interest, and accidental occurrence.  When making a motion to dismiss or for summary judgment, an insurance company is well advised to include as many possible defenses and arguments so as to give a court as many reasons as possible to grant the motion, (in whole or in part).  It must be remembered that losing summary judgment does not necessarily mean the end of the case or defense.  There may be other defenses, and a position which does not win summary judgment may still carry the day after a trial or later proceedings.
  2. This is another example where federal courts do their best to apply state substantive law to issues before them.  The questions in this case involved the accidental-intentional act issue from the point of view of the insured, and the Mississippi statute of limitations extending the minor daughter’s claim
  3. Whenever minor beneficiaries are involved there are always interesting issues involving guardianship, estate law, and state substantive statutes which tend to protect or delay fruition of a minor’s interest or legal claim.  In addition, given the ruling in the Mississippi state courts, upon being named the mother’s sole heir, the daughter not only had her own claims but also succeeded to whatever rights the mother may have had in the property and insurance proceeds.

 

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