Coverage Pointers - Volume XVII, No. 2

Dear Coverage Pointers Subscribers:

Eight times in the past two weeks, by my count, did I receive a call where the conversation started:  “Hey, can you help me?  I have a situation…”.  We do chuckle when those calls come in because you KNOW we love situations.

National Foundation for Judicial Excellence:

I write to you from Chicago, where I am attending the annual symposium sponsored by the NFJE, the National Foundation for Judicial Excellence.  I was program chair of the symposium a few years back and am just beginning my service as a member of its Board of Directors.   The organization provides educational programming to state appellate judges and well over 100 will be in attendance from most of the states in the union.

The National Foundation for Judicial Excellence was incorporated in October 2004 and has 501(c)(3) charity status.  NFJE joins bar associations, law schools, think tanks and other non-profit organizations that strive to strengthen and preserve the civil justice system.  Its mission is to:

Address important legal policy issues affecting the law and civil justice system by providing meaningful support and education to the judiciary, by publishing scholarly works and by engaging in other efforts to continually enhance and ensure judicial excellence and fairness for all engaged in the judicial process

To carry outs its mission, NFJE will host an Annual Judicial Symposium each summer.  In addition, NFJE will publish scholarly works and engage in other activities to continually enhance the rule of law and the administration of justice.

NFJE has four Officers and twelve Board Members.  The Officers and Board Members, along with NFJE’s staff, are active in the work of NFJE’s committees which include Ethics, Fundraising, Governance, Program Content, Public Relations, Publications, and Visionary. 

I’d urge you to consider having your firm or company make a tax deductible contribution to this excellent  and worthy organization; www.nfje.net is the website.

Summer Slowdown Doesn’t Mean a Lack of Interesting Cases:

While there is the usual summer slowdown of appellate decisions is upon us, we still have some interesting tidbits for your review.  If you are going to read one case carefully and consider its importance, look at the summary of Castlepoint Insurance Company v. Hilmand Realty, LLC in my column, which comes with a guest commentator, the successful advocate on the case, Suzanne  Saia, from The Law Office of Steven G. Fauth, LLC.  What’s so interesting about that case?  It deals with a very tricky question.  If a carrier is denying coverage for breach of a policy condition, for example, late notice, can it still provide its insured with a defense?  If it provides a defense, is it impliedly waiving the claim that the insured has breached the policy agreement and therefore abandoning its defense?

DRI Insurance Law Committee’s 101 Series is Underway:

The Insurance Law Committee’s “101 Series” webcasts here.  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 first presentations was on Wednesday and the other two, with yours truly as part of the second, are on the two Wednesday’s following:

• July 15, 2015-The Duty to Defend-Brenda Wallrichs and Chuck Browning presented 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 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 M. 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

Agnes Wilewicz Makes the News:

Buffalo Business First did an interesting profile on our Agnes Wilewicz.  She joined our coverage team about three months ago and is running at full speed.  Anges is a linguist and a member of the International Association of Forensic Linguists and if you want to learn a little more about that click here.

Cassie’s Capital Connection:

Greetings from a spring like Albany!  I just got back from a long weekend in Iowa where we celebrated my grandmother and her twin-sister’s 90th birthdays.  Both had seven kids apiece, so needless to say, there were a lot of us at the party.  My two-year old son had many highlights which essentially involved motorized vehicles of all varieties.  He flew on an airplane, rode in a “big truck”, drove a combine and a tractor, and he drove a boat.  Basically, he was spoiled rotten the whole weekend!

With regard to the action in Albany, there is not a lot happening with the ending of the Legislative session.  In my column I did provide a summary of DFS’ annual report to the Governor and Legislature.  To me, the focus of the report was enforcement activity and the recovery of fines, penalties and claims.  Enjoy the weekend!

Cassie
Cassandra A. Kazekenus
[email protected]

Lusitania’s Sinking Continues to Make the Press:

In our May 8th issue, we carried the newspapers clippings reporting on the 100th anniversary of the sinking of the Lusitania.  For those who don’t know the story, that issue carries a treasure trove of information.  The newspapers continue to report on the sinking months later.

Middletown Times-Press
Middletown, New York
17 July 1915

LUSITANIA VERDICT
MAKES NEW CHARGE
                       
(International News Service' Special Wire to Times-Press)

London, July 17—That the liner Lusitania was destroyed with a loss of more than 1,000 lives by two torpedoes fired by German submarines without warning and not by an explosion of ammunition in her cargo, is the chief feature of the verdict rendered by Lord Merney, who presided at the investigation into the sinking of the Cunarder.

The verdict criticizes the failure of Captain William T. Turner to follow the directions given him by the British admiralty, but sums up the judgment against the German admiralty in these words:

"The whole blame for the catastrophe rests solely upon those who plotted and committed the crime."

The verdict declares that the Lusitania was attacked not merely with view to sinking her but also with the purpose of causing loss of life.

The Lusitania was unarmed, she carried no concealed grounds, no trained gunners and no trained troops, the verdict says.  The vessel had on board a number of cases of cartridges which were entered in her manifest but had no other ammunition on board.

"Complaints of the survivors, about the condition of the life boats were ill founded," the verdict says.

"Reasonable and practical measures were taken by those in charge of the ship after the attack was made."

Jen’s Gems:

Greetings!  This marks my third week back.  At this point, I continue to deal with all the difficulties associated with having two kids instead of just one.  This includes the challenge of getting two kids out of the house in the morning.    Between getting them dressed, feed and packed for the day, I am impressed if I can get it done in under an hour and a half.  I can only imagine the mental checklist you must need when you have more than two kids.  I am also happy to report that Ella continues to take the addition of her new sibling in stride.  She routinely asks to include Charlotte in our activities such a reading books and playing games.  What I also think is impressive is that Ella has figured out a new delay tactic for bedtime.  She recognizes that if the baby cries right when it is time for her to go to bed, she gets to say up longer.  So now anytime Charlotte makes the slightest noise around bedtime, Ella informs me that I need to feed the baby and put her to bed.  And, that she will stay downstairs while I do it.  Smart girl.

In terms of my column this week, since we are now in the middle of summer, the trial courts are in a bit of a lull.  However, I do report on one case from New York County which addresses the impact of negligence on a party seeking additional insured coverage.  In granting coverage to the property owner, the decision relies on the line of cases out of the First Department which hold that "caused by" is the same as "arising out of," a position I continue to disagree with.  Words should have meaning, right?  If the policy meant "arising out of," it would have used the phrase  "arising out of."

Well, until next issue...

Jen
Jennifer A. Ehman
[email protected]

One Game Wonder – 100 Years Ago Today:

Herbert Hill broke into the Majors on July 17, 1915.  He pitched two innings for the Cleveland Indians in the second game of a double-header against the Senators.  He faced six batters, gave up no runs, one hit, and walked two in a game against the Washington Senators. 

According to a story on the letsgotribe website, by Jason Lukehart, only 74 players have appeared in one and only one game for the Indians, also known as the Blues, Bronchos and Naps. Of the 74, 43 of them appeared as pitchers, 31 of them as positions players, pinch hitters or pinch runners. Most of those players made their single appearance a long time ago. In the last fifty years, only 14 players have played a lone game for the Indians, seven of them as relief pitchers, four as a catcher, two as a pinch hitter, and one  as a left fielder.

Seven players have been charged with the loss in their only game with the Indians. The most recent of that group was Johnny Vander Meer (famous for being the only pitcher in history to throw back-to-back no-hitters). He spent almost his entire career with Cincinnati, but came to the Indians in 1951. He gave up 6 runs in 3 innings in what would be the final game of his MLB career.

Other lowlights include Bock Baker, who gave up 13 runs on 23 hits back in 1901, presumably before dying on the mound. Doc Hamann gave up "only" 6 runs in his only game, back in 1922, but he didn't retire a single hitter, giving him a beautiful ERA of infinity.

Herbert Hill in 1915 is the only player to throw more than one shutout inning in his only game with the team (he threw two). Meanwhile, he doesn't qualify as one of these 74 players, but there is one man who delivered three shutout innings in his only game as a pitcher for the Indians: Rocky Colavito. Rock accomplished it on August 13, 1958, during the second game of a doubleheader. Among the nine outs he recorded, he got future Hall of Famer Al Kaline on a ground ball back to the mound.

Hewitt’s Highlights:

Dear Subscribers:

We are halfway through July as the summer flies by. I hope you are enjoying it.  The Appellate Courts have a few serious injury cases that I highlight  today. In one in particular is a reminder that separate defendants who are both unified in arguing a lack of serious injury can actually work against each other when their experts each present reports for the respective motions for summary judgment in which the experts’ analysis do not exactly match each other. If the defendants’ interests align at least on the serious injury threshold issue, it may be better at times to share the expert, split the fee, and present a unified front when moving for summary judgment. Otherwise, differences in the expert’s analysis of the plaintiff’s injuries can provide an avenue for an issue of fact to be found by the courts. It is at least something to think about to avoid falling into a trap where the experts both agree there are no serious injuries, but for slightly different reasons.

Until next time,
Rob
Robert Hewitt
[email protected]

Turkish Retribution, a Century Ago:

The New York Times
New York, New York
17 Jul 1915

TIED IN SACKS, DROWNED.

Old Punishment Revived for
Enemies of Those in Power in Turkey.

Special Cable to The New York Times.

ATHENS, (Dispatch to The London Daily Chronicle.)—Recently the Turkish Government expelled all Secretaries who on the outbreak of the war were left at the English and Russian Embassies in order to guard the archives.  Now the Turks have meted out the same treatment to M. Ledoux, who remained behind in Constantinople to look after the property of the French Embassy.
           
M. Ledoux has just arrived at Athens.  He stated that he regards the situation at Constantinople as critical.  Many Old Turks have been done away with in a manner which used to find favor in Abdul Hamid's eyes.  They were tied in sacks and thrown into the Bosporus during the night.

The relations between the Turks and the Germans, M. Ledoux adds, are not at all good, and the Germans make no secret of their intention, if they win, to turn Turkey into a German protectorate.

Peiper’s Perceptions:

The middle issue of July usually brings with it the beginning of our s-l-o-w season.  Not so much this year, as we bring you three property cases and an interesting potpourri decision addressing staged accidents.  While none of these cases are particularly earth shaking, they are all good “meat and potato” decisions addressing issues that you will look at within the next thirty days.   

For a practice tip this week, we note the Second Department’s decision in the Congregation Beth Shalom case.  In that case, the carrier’s motion for summary judgment was denied where it  could not demonstrate that no other portion of the policy applied.  We see this every few months, and it bears repeating again.  If moving, a carrier must not only establish that the exclusion it is relying upon applies, but also that no other portion of the policy applies as well.  This is generally not an issue with third party cases, but with multiple coverage extensions and grants in first party policies, it is routinely a stumbling block for insurers.  Don’t be stumbled, be comprehensive in motions papers. 

That’s all for now.  Today, quite possibly, is our nicest day of Summer so far.  In that spirit, I am going to abruptly end this note and go enjoy what’s left of the evening.  See you in two weeks.

Steve
Steven E. Peiper
[email protected]
More Cranks, 100 Years Ago:

We had lots of cranks in focus in our most recent issue.  More this time:

The New York Times
New York, New York
17 Jul 1915

PRO-GERMAN CRANK
HELD IN WASHINGTON

Weinschenk, Head of "International
Information Bureau,"
Arrest by Federal Agents

SENT TO INSANE ASYLUM

            Wrote Letters to President—Says
He Will "Pull Off" Something
to Startle the World

Special to The New York Times

WASHINGTON, July 16.—Frank Z. Weinschenk, 53 years old, an American of German descent, was arrested tonight by J. M. Nye, one of President Wilson's Secret Service guards, and three Washington detectives, on a charge of insanity and was sent to the Washington Asylum for examination and observation.

The Secret Service has reliable information that Weinschenk has received within the last few years about $200,000 from a brother in Wichita, Kan., who manages an estate in which both have an interest, and has used this money to conduct anti-Masonic propaganda.  He extended his propaganda since the European war began sending out pre-German and anti-British literature.  Before coming to Washington, Weinschenk had maintained anti-Masonic bureaus in Zurich, Munich, Rome, and Chicago. 

Fitz’ Bits:

Dear Subscribers:

It’s hard to believe it is the middle of July already.  We are only two months away from the NYSBA Law School for Insurance Professionals program which will be held on September 10th in  Rochester, September 17th in New York City, September 18th in Albany and September 24th in Long Island at Touro Law School.  We are including some of the tried and true topics, including liens, as there have been some significant developments over the past year, as well as a panel addressing emerging topics, such as cyber-security and data breaches and coverage issues arising from Uber.  Auto coverage issues and the ISO forms for additional insured coverage are also included on the program agenda.  It is certain to be an informative event with lots of great information and opportunities for networking and I hope to see many of you there.

In today’s column, I report on Viking Pump Inc. v Century Indemnity Co., in which the Delaware Supreme Court recently certified a question to the New York Court of Appeals regarding the proper method of allocating when multiple policy periods are implicated, all sums or pro rata, and whether horizontal exhaustion applies only to primary and umbrella policies or also to excess policies.  The allocation issue arises where an insured has a claim that spans multiple policy periods, as often occurs in the environmental claim context.  Some jurisdictions utilize an “all sums” approach, which allows the insured to seek recovery from any policy invoked for the entire loss up to policy limits.  The insurer in that context bears the burden of seeking contribution from any other insurer whose policy is or should be implicated. Under the pro rata approach , the allocation is spread across the policy years implicated by the loss or damage, including years where the insured had inadequate limits or where the insurer has gone into liquidation.  Insureds thus favor the all sums approach. We will await the Court of Appeals’ answer to the certified questions!

Til next time,

Beth
Elizabeth A. Fitzpatrick
[email protected]

Oh, We Forgot to Mention:

For those of you who keep score, our previous issue was the Volume XVII, No. 1.  This is the second issue of our 17th continuous year of publication.  Thanks for all of your support.

Wilewicz Wide (or Wild) World of Coverage:

Dear Readers,

Greetings from a sunny and warm Buffalo! How often do we get to say that? Hopefully it is sunny and warm where you are as well. This week in the Wide World of Coverage, we bring you some fascinating fact patterns and a couple of series of unfortunate events. My daughter’s current literary obsession is the Series of Unfortunate Events (she took a short break from re-reading the Harry Potter series for the fourth time) and with each case that I came across this week, the fact patterns seemed increasingly unfortunate to me. At least the coverage issues were interesting.

We start with a decision from the Southern District of New York, written by the distinguished and Honorable Judge Scheindlin (of e-discovery/Zubulake fame, and a personal role model of mine). In SI Ventures, the court heard a rather novel argument asserted by an insured – that consent provisions of policies, that require notifying the insurer before undertaking environmental clean-up, should be void as against public policy. The insured proposed that the consent requirement somehow impeded compliance with environmental regulations and was thus against public interest. However, citing a string of precedent, the Court rejected this argument. Consent provisions have been upheld many times over, as unambiguously requiring notification. An insured cannot avoid the plain language of the insurance contract.

Next, also from the Southern District, in Merrick Bank an insured tried to amend its complaint against its insurer after litigating a declaratory judgment action for a couple of years (and losing a partial summary judgment motion). So late in the game, they tried to assert a cause of action for reformation of the policy. Suddenly, they thought that perhaps there had been a mutual mistake in what they had intended for the policy to provide. The Court, however, also rejected their rather novel argument. Not only would it be futile to assert it now, since they had no proof of a mistake, but it would unduly delay the case and prejudice the carrier. Amendments are freely given, but that does not mean always.

Finally, we have a couple of really interesting ones from around the nation’s Circuit Courts that are worth a read. From the Sixth Circuit, a very unfortunate series of events involving a ball game, crushing inflatable slides, and an inflatable slide exclusion. Then, from the Ninth Circuit, a discussion about what the word “use” means in the context of vehicles. Apparently, the Ninth Circuit isn’t clear, under California law. There is certain to be a follow up on that one.

See you in a couple of weeks!

Agnes
Agnes A. Wilewicz
[email protected]

This Week’s Headlines from the Attached Issue:

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

• A Failure to Submit to the Court the Policy Provisions Allegedly Violated Leads to a Failure to Secure the Relief Requested
• In First Impression Case, Late Notice Disclaimer Does Not Estop Insurer from Defending and Seeking Declaratory Relief
• Court Applies Common Law Waiver Principles, It Says, to Property Damage Denial and Finds Insurer Waived Coverage Defenses
• In Direct Action, Injured Plaintiff Has No Greater Rights, and Stands in the Shoes, of Insured

 

HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
[email protected]

• Plaintiff Cannot Rely on Its Surgeon’s Conclusory Opinion That the Current Accident Exacerbated Pre-Existing Conditions When He Never Reviewed the Films of Plaintiff’s Injuries from the Prior Accident
• Summary Judgment Denied Because Defendants Submitted Conflicting Expert Reports in Their Respective Motions for Summary Judgment
• Plaintiff Raised Issue of Fact When Her Orthopedist Presented Objective Proof of Injury After Reviewing All of the Documentations And Making Her Own Range of Motion Measurements
• Appellate Court Set Aside the Amount Awarded By a Jury for Damages Finding That the Herniated Discs Requiring Surgery Justified an Award of Five Times Greater For Past Pain and Suffering and Over Three Times Greater For Future Pain and Suffering at a Minimum

 

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

Arbitration

• Denial Based Upon Fee Schedule Upheld Where Rebuttal Affidavit Is Conclusory
• In Light of MRI, Orthopedic Reports and Surgical Findings, IME Stating Injury Resolved and Range Of Motion Restrictions Appeared “Volitionally Restricted” Did Not Support Surgery Denial
• Respondent Failed To Preserve Defense of Defective AOB
• Manipulation in Conscious State Is Pre-Condition for MUA

 

Litigation

• EIP’s Claim That He “Feels Worse” Will Not Support Denial

 

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

Property

• Dispositive Motion Fails Where Carrier Cannot Establish the Lack of Any Possibility of a Covered Cause of Loss
• After Carrier Meets Its Burden of Establishing Coverage Defense, the Burden Shifts to the Insured to Demonstrate the Application of an Exception to the Exclusion
• Policy Limit Applying to “All” Claims Meant What it Said

 

Potpourri

• Public Policy Precludes Recovery for Staged Accidents

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

• Delaware Court Certifies Questions to New York Court of Appeals

 

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

New York Federal

• Consent Provisions in Policies Are Not Void As Against Public Policy in New York
• While Leave to Amend A Complaint Is Freely Given, That Leave Will Be Denied If It Will Be Futile, Unduly Delay, Or Cause Prejudice

 

Federal Circuit Courts Around the Country

• A Third Party to a Liability Policy Cannot Maintain a Claim against a Broker for Failure to Procure Insurance, Says the Sixth Circuit
• The Ninth Circuit Does Not Know What “Use” Of a Vehicle Means, For Coverage Purposes, Under California Law

 

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

• DFS Annual Report to the Governor and Legislature

 

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

• Owner Entitled to Additional Insured Coverage Under Policy Issued to Insured Party’s Employer

 

Bad Faith

• Plaintiff’s Attorney Admonished for Bringing Questionable Bad Faith Actions

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

• Limits of Professional Malpractice Insurance

 

That’s all we wrote.  We’ve reach the mid-point of our summer in Canada and I’m already getting grouchy.  Keep those cards and letters coming in. Cheer me up, wouldya please?

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]

07/15/15       Matter of Allstate Insurance Company v. Laldharry
Appellate Division, Second Department
A Failure to Submit to the Court the Policy Provisions Allegedly Violated Leads to a Failure to Secure the Relief Requested
The Laldharrys sought uninsured motorist benefits after they were allegedly injured in a hit-and-run motor vehicle accident. Allstate commenced this proceeding to permanently stay arbitration.

A court considers, on a motion to a motion to compel or to stay arbitration: (1) whether the parties made a valid agreement to arbitrate; (2) if so, whether the agreement has been complied with; and (3) whether the claim sought to be arbitrated would be time-barred if it were asserted in State court".

Here, Allstate does not allege, pursuant to CPLR 7503(b), that the parties did not have an agreement to arbitrate or that the respondents' claim was time-barred. Further, while Allstate alleged that the respondents failed to comply with the terms of the uninsured motorist provisions of the subject policy, it did not submit a copy of the portions of the policy which allegedly contained those terms.

Accordingly the application was denied.

07/09/15       Castlepoint Insurance Company v. Hilmand Realty, LLC
Appellate Division, First Department
In First Impression Case, Late Notice Disclaimer Does Not Estop Insurer from Defending and Seeking Declaratory Relief
Insurer did not take factually inconsistent positions in hiring counsel to represent its insureds in vacating their default in the personal injury action, thereby allowing for a continued defense and preservation of the insureds' rights, and moving for a declaration that coverage under the policy was vitiated by untimely notice of claim in the event coverage was triggered.

The Appellate Division affirmed the lower courts grant of CastlePoint’s motion, finding that the laws which govern a motion to vacate a default judgment and laws regarding notice of an occurrence upon an insurer differ in that service upon the Secretary of State is not actual notice of a suit for purposes of vacating a default in answering a complaint but notice upon the Secretary of State is actual notice to the insured for purposes of the notice provisions in the insurance policy. 

Moreover, the lower court correctly found that CastlePoint cannot be estopped from arguing that Hilmand breached the prompt notice requirement in the policy because it was not a party or in privity with a party in the underlying action Rather, Hilmand was a party in the underlying action with an attorney hired by CastlePoint to defend it during the pendency of the declaratory judgment action merely advocated successfully on behalf of Hilmand to vacate the default against it.  The appellate court held that Hilmand, the defendant in the underlying action with counsel retained by CastlePoint, is not the same party as CastlePoint, the plaintiff in the instant declaratory judgment action. 
.Editor’s Note:  The holding described in the first paragraph, above, is an important one.  By recollection, it may be one of first impression in the insurance arena.  It has been risky to undertake the defense of a case when there is a late notice defense for fear that the insured would argue, as was done here, that an insurer that denies coverage cannot undertake its insured’s defense.  However, since the Court of Appeal’ decision in Hanover v. Lang, which suggested such a protocol (defend and bring the DJ) we were more optimistic that such an approach would be sustained.  Too bad late notice denials are becoming a thing of the past.  Kudos to Coverage Pointers subscriber, Suzanne  Saia, from The Law Office of Steven G. Fauth, LLC for this great decision and for this summary..

07/09/15       Estee Lauder Inc. v. OneBeacon Insurance Group, LLC
Appellate Division, First Department
Court Applies Common Law Waiver Principles, It Says, to Property Damage Denial and Finds Insurer Waived Coverage Defenses
OneBeacon waived its right to assert the affirmative defense of late notice when it failed to raise that ground in its letter of disclaimer to plaintiff.  The Court did not decide this case on statutory waiver (which only applies to bodily injury or wrongful death cases under Insurance Law Section 3420(d)(2) but on common law waiver.  This one seems destined for reversal

The court held that It notes that under New York law, "an insurer is deemed, as a matter of law, to have intended to waive a defense to coverage where other defenses are asserted" and the insurer knows of "the circumstances relating to its defense of untimely notice" and states that OneBeacon did not dispute that it had such knowledge long before it sent the 2002 letters (id.at 36). Thus, in a matter involving property damage claims, it relied on the common law for the proposition that "[a] ground not raised in the letter of disclaimer may not later be asserted as an affirmative defense.

The Court did note that the Court of Appeals frowned on an earlier decision in the same case: In KeySpan Gas E. Corp. v Munich Reins. Am., Inc. (23 NY3d 583 [2014]) the Court of Appeals stated that "[t]o the extent Estee Lauder Inc. v OneBeacon Ins. Group, LLC (62 AD3d 33 [1st Dept 2009]) ... and other Appellate Division cases hold that Insurance Law § 3420(d)(2) applies to claims not based on death and bodily injury, those cases were wrongly decided and should not be followed".
Editor’s Note:  No matter how the court couches it, it is waiver principles without proof that the insurer had abandoned this defense.  Sorry, don’t buy it.

07/08/15       Spencer v. Tower Insurance Group Corporation
Appellate Division, Second Department
In Direct Action, Injured Plaintiff Has No Greater Rights, and Stands in the Shoes, of Insured
The plaintiff was injured when she slipped and fell at premises owned by Zacharia. Tower had previously issued a homeowner's insurance policy to Zacharia. The plaintiff commenced an action to recover damages for personal injuries against Zacharia and others. While that action was pending, Tower commenced an action against the plaintiff and Zacharia in the Supreme Court, New York County, for a judgment declaring that it had no duty to defend or indemnify Zacharia in the underlying personal injury action.

Tower won that action on the ground that Zacharia never resided at the premises, as required by the policy. The plaintiff ultimately obtained a judgment against Zacharia in the personal injury action. The plaintiff subsequently commenced this action to compel Tower to pay the amount of the judgment.

Here, the plaintiff is in privity with Zacharia for the purpose of the application of collateral estoppel. When a plaintiff maintains a direct action against an insurer pursuant to Insurance Law § 3420, the plaintiff stands in the shoes of the insured and can have no greater rights than the insured. Here, the plaintiff, by proceeding directly against Tower, does so as subrogee of Zacharia's rights and is subject to whatever rules of estoppel would apply to Zacharia.

Further, the issue considered and decided on the merits in the declaratory judgment action was identical to the issue presented in the instant action, namely, whether Tower was obligated to defend or indemnify Zacharia in the personal injury action. In addition, the plaintiff had a full and fair opportunity to litigate the issue in the declaratory judgment action. Accordingly, the plaintiff is precluded from relitigating the issue in the instant action.

 

HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
[email protected]

07/09/15                 Garcia v. Feigelson
Appellate Division, First Department
Plaintiff Cannot Rely on Its Surgeon’s Conclusory Opinion That the Current Accident Exacerbated Pre-Existing Conditions When He Never Reviewed the Films of Plaintiff’s Injuries from the Prior Accident
The lower court’s grant of summary judgment to defendants was affirmed. The Appellate Division determined that Defendant made prima facie showing that plaintiff’s claimed injuries to his spine and shoulder were not causally related to a 2009 motor vehicle accident.  The Appellate Division credited the report of a radiologist who opined that plaintiff’s 2009 MRIs showed degenerative disc changes and tendinosis, and that the conditions were unchanged from those shown in MRIs taken following a prior 2006 motor vehicle accident. Based on his review and comparison of the MRI films, the radiologist opined that there was no radiological evidence of any injury caused or exacerbated by the 2009 accident.

Plaintiff’s opposition was held to have not raised an issue of fact. Plaintiff submitted the affirmed report of his orthopedic surgeon, who examined him one year after the accident and performed a lumbar spine discectomy, and arthroscopic surgery on his right shoulder. The Appellate Division noted that while the surgeon mentioned plaintiff had been treated in 2006 for claims of neck, back, and shoulder injuries, he did not review the 2006 MRI films or reports. Therefore, his statements that the 2006 injuries were aggravated by the 2009 accident were conclusory. He also did not rule out the preexisting conditions as the reason plaintiff needed surgery or had current limitations. The 2009 MRI reports submitted do not address causation or compare the results to the 2006 MRIs.

07/09/15                 Johnson v. Salaj
Appellate Division, First Department
Summary Judgment Denied Because Defendants Submitted Conflicting Expert Reports in Their Respective Motions for Summary Judgment
The Appellate Court modified the grant of summary judgment to defendants and reinstated the claims of “significant” and “permanent consequential” limitations in use of her left knee.

Defendants could meet their burden of showing that plaintiff had not suffered a serious injury by submitting medical affirmations concluding that no objective medical findings support plaintiff’s claim that she suffered an injury resulting in permanent or significant limitations in use of her knee, and if objective evidence exists, that the injury was caused by a preexisting condition and not the accident.  Defendants’ motions failed because defendants submitted conflicting expert reports. One expert found full normal range of motion in the left knee and the other found limitations in range of motion which was not explained. Further, their expert radiologists also disagreed. While one radiologist opined that a partial ACL tear was degenerative in origin, the other defendant’s radiologist stated that it could have been caused by the accident, or by prior injury or by surgery, but presented no evidence of any prior knee injury or surgery. Therefore, there was no prima facie case established as to lack of causation.

Although the burden did not shift, had it shifted, the Appellate Division noted that Plaintiff raised an issue of fact through the affirmation of her orthopedic surgeon, who reported findings of limited range of motion, as well as other signs of knee injury both before the surgery and two years later. Further, he attributed the cause of the injury to the accident, noting the absence of any prior complaints of knee pain or dysfunction.

As for the 90/180-day claim, plaintiff presented no evidence in support and the fact plaintiff shortly went back to work undermined the claim.

07/09/15                 Michels v. Badolato
Appellate Division, First Department
Plaintiff Raised Issue of Fact When Her Orthopedist Presented Objective Proof of Injury After Reviewing All of the Documentations And Making Her Own Range of Motion Measurements
The Appellate Court affirmed the grant of summary judgment by the trial court except to the dismissal of the plaintiff’s claims off serious injury to the lumbar spine. Defendants made a prima facie showing of the absence of a significant or permanent consequential limitation of use of the spine and right knee by submitting plaintiff’s expert orthopedist and neurologist’s report showing full range of motion, negative clinical test results, and the absence of neurological deficits. However, in opposition, plaintiff submitted sufficient medical evidence to raise an issue of fact as to whether she suffered a serious injury to her lumbar spine causally related to the accident. Plaintiff submitted the affirmation of her orthopedic expert, who, upon comparison of pre-accident and post-accident MRI films, opined that plaintiff had sustained a herniated disc, superimposed over preexisting degenerative bulges, which could only be traumatically induced and causally related to the accident. This evidence provided objective proof of serious injuries, especially as the orthopedist also reviewed physical therapy records documenting range of motion limitations after the accident, and measured quantified limitations in range of motion upon two evaluations.

However, plaintiff failed to raise a triable issue of fact as to her claims of serious injury to the cervical spine and right knee. As to the cervical spine, plaintiff failed to submit any proof of resulting physical limitations. While plaintiff's physician found a spasm on examination, plaintiff did not submit any medical evidence explaining why the degenerative changes found in the X-ray study she submitted were not the cause of her cervical spine symptoms.

Plaintiff also failed to submit any evidence of contemporaneous injury or treatment to her right knee. The MRI study performed 10 months after the accident was insufficient to demonstrate any causal relationship between the injury and the accident. While one of plaintiff's doctors measured her right knee range of motion shortly after the accident, that doctor did not indicate the normal range of motion and did not diagnose any knee injury.   However, if the jury at trial determines that plaintiff sustained a serious injury to the lumbar spine, it may award damages for all of plaintiff's injuries causally related to the accident.

07/02/15                 Swatland v. Kyle
Appellate Division, Fourth Department
Appellate Court Set Aside the Amount Awarded By a Jury for Damages Finding That the Herniated Discs Requiring Surgery Justified an Award of Five Times Greater For Past Pain and Suffering and Over Three Times Greater For Future Pain and Suffering at a Minimum
Plaintiff commenced this action seeking damages for injuries she allegedly sustained in a motor vehicle accident. Following a trial, the jury found that plaintiff sustained a serious injury under the significant limitation of use category set forth in Insurance Law § 5102 (d) and awarded damages for past medical expenses, past pain and suffering, and future pain and suffering. The judgment awarded plaintiff money damages in the amount of $30,000 for past pain and suffering and in the amount of $15,000 for future pain and suffering. The plaintiff made a motion to set aside the verdict as to damages, which was granted by the Appellate Court

The Appellate Court rejected plaintiff's contention that Supreme Court erred in limiting the cross-examination of defendants' medical expert with respect to fees he received in connection with referrals made by defendants' former counsel, as that is entrusted to the discretion of the trial court. The nature and extent of cross-examination is entrusted to the trial court's discretion and there was no abuse. However, the Appellate Court agreed with plaintiff that the court erred in denying that part of her post-trial motion seeking increases in the damage awards for past and future pain and suffering or, in the alternative, a new trial on damages. The jury found that plaintiff sustained a serious injury under the significant limitation of use and 90/180-day categories but awarded only $30,000 for past pain and suffering and $15,000 for future pain and suffering. In view of plaintiff's testimony and the medical evidence that plaintiff sustained herniated discs at C5-C6 and C6-C7 that required surgery, the Appellate Court concluded that the award of damages deviated materially from what would be reasonable compensation for the injuries she sustained. The Appellate Division felt that $150,000 for past pain and suffering and $50,000 for future pain and suffering were the minimum amounts the jury could have awarded as a matter of law based on the evidence at trial and therefore granted a new trial on damages for past and future pain and suffering only unless defendants stipulate to increase the award of damages for past pain and suffering to $150,000 and for future pain and suffering to $50,000.

MARGO’S MUSINGS ON NO FAULT

Margo M. Lagueras
[email protected]

Arbitration

07/09/15       Erie County Medical Center v Geico Insurance Co.
Erie County, Arbitrator Mona Bargnesi
Denial Based Upon Fee Schedule Upheld Where Rebuttal Affidavit Is Conclusory
Right proximal humeral osteotomy with internal fixation was performed on the 57 year old EIP following right shoulder injury caused by the motor vehicle accident.  While Respondent did not dispute the medical necessity of the surgery, it denied the claim based upon improper fee scheduling.  Applicant assigned APR-DRG 315 and, because a loss of severity was not indicated, a level 1 was assigned.  The claim was submitted on a UB-04 for $15,100.39, with an estimated amount of $12,844.53.  

Respondent submitted its in-office correspondence and its DRG calculations to the ADR Center.  It stated that, based on the NY Health Care Reform Act of 2000 and the recent no-fault rates for discharge in effect after 01/01/2014, the correct amount due was $8,553.15.  It then became Applicant’s burden to show that the charges either involved a different interpretation of the schedule, or that there was an inadvertent miscalculation or error.  In opposition, Applicant submitted the affidavit of its “Revenue Integrity Manager” responsible for systematic audits of medical records and coding.  He stated that the correct DRG was 315 with a loss of severity of 2 due to the open reduction and internal fixation to repair the nonunion of an earlier fracture.  He claimed that the correct reimbursement was $13,341.34.

The Arbitrator found that the affidavit did not adequately address Respondent’s calculations or the recent no-fault rates.  Moreover, the statement that the correct DRG was “315 with an SOI” was conclusory and unsupported and did not comment at all as to why the bill submitted did not include a loss of severity rating in the first place.  As such, the Arbitrator upheld the denial.

07/08/15       Ambulatory Surgery Center of WNY v Geico Insurance Co.
Erie County, Arbitrator Gillian Brown
In Light of MRI, Orthopedic Reports and Surgical Findings, IME Stating Injury Resolved and Range Of Motion Restrictions Appeared “Volitionally Restricted” Did Not Support Surgery Denial
The EIP was T-boned by a turning vehicle which failed to yield the right of way.  He initially complained of left elbow injury and underwent a course of physical therapy.  He then had left shoulder arthroscopic surgery, reimbursement for which was denied based on an IME by an orthopedic surgeon.  The examining surgeon opined that the left shoulder and left elbow strains/sprains were resolved.  However, he made no mention of a note from Buffalo Orthopedic Group indicating that the EIP’s shoulder was severely injured and that he could not even hold a cup of coffee.  An MRI revealed a probable left shoulder tear and this was confirmed during the surgery.  The Arbitrator noted that this called into question the reliability of the entire IME as the examining surgeon stated that the EIP’s range of motion was “volitionally restricted” while the medical records made clear that the surgery was medically necessary.  As such, reimbursement was warranted.

07/06/15       Scott A. Croce, DC, PC v Geico Insurance Co.
Erie County, Arbitrator Mona Bargnesi
Respondent Failed To Preserve Defense of Defective AOB
During the hearing, Respondent for the first time argued that the AOB was defective and that Applicant did not have standing to bring the arbitration.  However, a sufficient AOB is not part of a medical provider’s prima facie case and the insurer waives any defense as to the sufficiency of the AOB if it did not timely object to its completeness or seek verification.  As such, the Arbitrator determined that Respondent waived that defense.

As to the issue of medical necessity, Respondent arranged for an IME to be performed to assess the medical necessity of the chiropractic treatments.  An MRI revealed an L4-5 herniation indenting the thecal sac and impinging on the L5 nerve root.  During the examination, although the EIP reported a pain level of 10/10, the examining chiropractor found full range of motion and several negative orthopedic tests.  He diagnosed resolved lumbar strain and opined that no further chiropractic treatment was reasonable or necessary.

The Arbitrator found the IME report to be unpersuasive given that the examining chiropractor, while noting in bold the findings of the MRI, he failed to comment on its significance or on the EIP’s reported 10/10 pain level.  As such, the Arbitrator stated that it strained credulity that the sprain was resolved in light of the MRI and Applicant’s findings so reimbursement was awarded.

07/01/15       Upstate MUA Chiropractic, PLLC v Safeco Ins. Co. of Indiana
Erie County, Arbitrator Michelle Murphy-Louden
Manipulation in Conscious State Is Pre-Condition for MUA
The 26 year old EIP first consulted with Applicant on June 2, 2014.  On June 13, 14 and 15, 2014, Applicant performed MUA.  A peer review was performed and the reviewing chiropractor noted that, according to Applicant, the EIP had “intractable” pain of the thoracic and pelvic regions, yet no imaging studies were performed prior to performing the MUA.  In addition, the first MUA report stated that since the patient had reached a plateau in treatment, Mu would be performed.  The reviewing chiropractor noted, however, that merely reaching a plateau was not an indication for MUA and that the MUA guidelines provide, as a pre-condition for MUA, that manipulation in the conscious state must be the therapy of choice.  Here, there was no proper pre-MUA evaluation, no indication that passive range of motion palpation was performed or that there were adhesions within the regions of complaint.  Furthermore, the billing and the operative reports indicated distinct providers performing the procedures.  Based on the peer review, Respondent denied the claim in part for the MUA performed on June 14, 2014.

The Arbitrator noted that Arbitrator Bargnesi had previously rendered her award involving the MUA performed on June 13, 2014, denying the claim based on the same peer review.  Applicant did not appeal that determination and, as such, the Arbitrator found that the elements of the doctrine of collateral estoppel were met and that, as a result, Applicant’s claim for June 14, 2014, was also denied.
Note:  As often is seen, the three consecutive days of MUA treatment are brought in separate arbitrations.  While there may be some reason that escapes us, we suspect that in many cases the purpose is to be able to collect attorneys’ fees times three, which may result in more than the capped amount for a single arbitration.  Of course, now and then Applicant’s plan backfires, as it did here (and the claim for the June 15th MUA presumably will also be denied).

Litigation

06/30/15       Easy Care Acupuncture, PC v A. Central Ins. Co.
Appellate Term, First Department
EIP’s Claim That He “Feels Worse” Will Not Support Denial
Defendant moved for summary judgment based on a peer review and affidavit by the peer reviewer.  Defendant claimed that the EIP reported that after two months of treatment he felt worse.  The court found that, without an objective medical explanation by the peer reviewer, this was insufficient to eliminate all triable issues of fact.  Moreover, the peer reviewer stated that the right shoulder injury was outside his area of expertise and he would have to defer to the appropriate specialist.  Such a comment certainly cannot permit a determination as to the medical necessity of continued treatment related to that injury.  As such, on appeal the trial court was reversed and defendant’s motion denied.

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

Property

07/15/15       Congregation Beth Shalom of Kingsbay v Lev Bais Yaakov
Appellate Division, Second Department
Dispositive Motion Fails Where Carrier Cannot Establish the Lack of Any Possibility of a Covered Cause of Loss
Plaintiff leased its building to defendants for use as a religious school.  At some point during the course of its occupancy, defendant constructed a classroom on the roof of the premises.  It is alleged that the faulty construction of the premises resulted in damage to the roof, which ultimately permitted water to enter the premises causing damage.  Upon receipt of the subsequent claim, Philadelphia Insurance Company denied the tender on the basis of the faulty workmanship exclusion.

Philadelphia moved for summary judgment and a declaration that no coverage existed due to the application of the faulty workmanship exclusion.  In denying the motion, the Court noted that Philadelphia had not sufficiently established that the loss did not occur due to vandalism.  As such, a question of fact existed as to the cause of the loss and Philadelphia’s motion was denied accordingly.

07/15/15       Copacabana Realty, LLC v Fireman’s Fund Insurance Co.
Appellate Division, Second Department
After Carrier Meets Its Burden of Establishing Coverage Defense, the Burden Shifts to the Insured to Demonstrate the Application of an Exception to the Exclusion
Fireman’s Fund denied plaintiff’s claims for loss of certain property on the basis of an exclusion (the Court does not tell us which one).  Fireman’s Fund established that the exclusion applied to the loss and, as such, the burden shifted to the insured to come forward with any evidence suggesting that an exception to the exclusion may have been triggered, as well.  Were, as here, the insured cannot meet that burden, the carrier’s motion for declaratory relief is correctly granted.

07/07/15       El-Ad 250 West, LLC v Zurich Am. Ins. Co.
Appellate Division, First Department
Policy Limit Applying to “All” Claims Meant What it Said
Flood policy, by its terms, contained a broad $5,000,000 policy limit for all losses.  Plaintiff argued that the limit was only applicable to losses caused by physical damage, and conversely losses that were resultant from delays in completion of repairs were not subject to the policy limit.  The Court, in giving plain meaning to the terms of the policy, held that the policy was meant to apply to all claims.  As such, there was no basis to conclude that claims for delays in completion were outside the stated policy limits.

Potpourri

07/08/15       Oriental v U-Haul Co. of Arizona
Appellate Division, First Department
Public Policy Precludes Recovery for Staged Accidents
Plaintiff was a passenger in a livery vehicle driven by Mr. Jacques when it was struck by a U-Haul van.  Plaintiff subsequently commenced the instant action for personal injuries sustained as a result of the collision.  As part of U-Haul’s investigation, however, it was revealed that plaintiff and Mr. Jacques staged the accident in an effort to obtain insurance proceeds.
Where, as here, the claimant engages in criminal conduct which results in a serious violation of law, he or she is precluded from recovery by operation of NY Public Policy.  Staging an accident for pecuniary gain is such an activity, and the claims against U-Haul and the owner of the livery vehicle were dismissed accordingly.

FITZ’S BITS

Elizabeth A. Fitzpatrick
[email protected]

6/25/15                   Viking Pump Inc. v. Century Indemnity Company, C.A. No. 1465
Delaware Supreme Court
[Delaware Court Certifies Questions to New York Court of Appeals]

By order entered June 10, 2015, the Delaware Supreme Court certified two questions to the New York Court of Appeals:  (1) Under New York Law, is the proper method of allocation to be all sums or pro rata when there are non-cumulation and prior insurance provisions?  (2) Given the court’s answer to question no. 1, under New York law and based on the policy language at issue here, when the underlying primary and umbrella insurance in the same policy period has been exhausted, does vertical or horizontal exhaustion apply to determine when a policyholder may access its excess insurance?   The New York Court of Appeals accepted the certified questions on June 25, 2015 and the case is presently being briefed.

The coverage dispute arose in the context of claims against Houdaille Industries, a large industrial conglomerate briefly owned by the plaintiffs, two industrial pump manufacturers of asbestos-containing products.  Coverage was purchased by Houdaille from 1972 through 1985 through Commercial Comprehensive General Liability coverage consisting of occurrence-based primary and umbrella insurance from Liberty Mutual and layers of excess coverage above the Liberty policies.  In total, there were 35 excess policies through 20 different carriers.

As you can expect, based upon the number of years and multitude of different carriers, there is a lengthy and complex history which is beyond the scope of this column.

The parties attempted to resolve the matter through summary judgment and the court noted that the parties submitted over 50 briefs, letters and other supplemental materials regarding the summary judgment motion.  Ultimately, the case was presented to a jury, with the four major topics; exhaustion, defense obligations, trigger and non-cumulation/prior insurance clauses.  The court found that the jury substantially returned a plaintiff’s verdict, with the court acknowledging that “reading each policy closely and without extrinsic evidence, the verdict must be refined to conform to the policy’s unambiguous meaning.”

There were thereafter post-trial briefs filed.  The court upheld the verdict as to the injury in fact trigger, i.e. injury occurs through significant exposure to asbestos fibers even before manifestation.  The court also found that horizontal exhaustion is the law in New York and therefore must be applied.  As you are aware, horizontal exhaustion requires that all policies on one level must be exhausted before moving up the tower of coverage to the umbrella or excess policies.  The court had found that plaintiff must exhaust all primary policies, then all umbrella policies, and then first layer excess policies, and so on, but later held that after exhausting the primary and umbrella layers, it could then tap which excess tower would afford coverage. Thus, the issue of whether horizontal exhaustion applies to every layer or only the primary and umbrella layers is one of the issues to be addressed by the New York Court of Appeals.

Turning to the allocation issue, the Court noted that allocation and exhaustion are different, as allocation controls how a policy pays, while exhaustion controls when a policy pays.  The court’s prior grant of summary judgment to Viking Pump, applying the “all sums” allocation, was premised in part on the “non-cumulation” and “prior insurance” clauses included in the policies which limited the stacking or accumulation of insurance policy limits over time to one policy limit.  The court found the clauses to be incompatible with the theory endorsed by the insurer, i.e. pro rata allocation. 

We will be closely watching for the Court of Appeals’ decision.

WILEWICZ’S WIDE WORLD OF COVERAGE

Agnes A. Wilewicz
[email protected]
New York Federal

07/10/15       SI Venture Holdings v. Catlin Specialty Insurance
United States District Court, Southern District of New York
Consent Provisions in Policies Are Not Void As Against Public Policy in New York
SI Venture is a real estate company that was insured by Catlin. Its policy contained a consent provision which required that the insured notify its carrier of any pollution condition, in writing, should one arise. In response, written consent was required, but as per the terms of the policy this consent would not be unreasonably withheld. Coverage would not otherwise be triggered.

In February 2013, SI Venture tested the soil at one of its Staten Island properties and found that it was contaminated with petroleum. The level was such that SI Venture was obligated by law to dispose of it. So, it did. Then, about six months later, it made a claim under its policy with Catlin, to recover about $250,000 worth of clean-up costs. Catlin denied this request, citing the consent provision of the policy. SI Venture admittedly failed to notify the carrier before it undertook the clean-up.

SI Venture then brought this declaratory judgment action in Federal Court. In it, they presented the Southern District with an issue of first impression in New York – whether a contract that requires an insured party to seek approval from its insurer before expending funds for environmental clean-up is void as against public policy. The insured acknowledged that it had not obtained the carrier’s consent. However, they asserted the novel argument that the consent provision was unenforceable as it impeded compliance with environmental regulations and was thus not in the public interest.

In a clear and well-reasoned decision, Judge Scheindlin rejected SI Venture’s argument. She held that consent provisions have been upheld as clear and enforceable. Detailing New York precedent at both the State and Federal levels, she reiterated the standards under New York law for interpreting unambiguous policy provisions in their plain and ordinary meaning, along with numerous cases that have upheld consent provisions in policies issued in New York as routinely enforced conditions to coverage. The Judge wrote that SI Venture’s argument “is either legally innovative or legally precarious – and very likely both”. Regardless, the court saw SI Venture’s argument as an attempt to “revolutionize” New York insurance law. More importantly, neither SI Ventures nor the court found any case law in support of this change in the rules.

Thus, finding Catlin’s consent provision no different from any other typical one, the court denied SI Venture’s dispositive motion, and granted Catlin’s cross motion. The court reasoned that “as written, the Consent Provision strikes a sensible balance between competing interests”; in that the insurer wants notice before it consents but agrees that it will not unreasonably withhold it, which would otherwise give the insured a reason to complain. The Judge deferred to the State’s Court of Appeals, should SI Venture seek a change in standing precedent.

07/07/15       Merrick Bank Corp. v. Chartis Specialty Insurance Co.
United States District Court, Southern District of New York
While Leave to Amend A Complaint Is Freely Given, That Leave Will Be Denied If It Will Be Futile, Unduly Delay, Or Cause Prejudice
Chartis was sued by its insured Merrick, presumably for a declaratory judgment as to coverage. Though the court did not recite the facts of its case in the decision, it appears that an issue arose as to whether Chartis’ policy would cover Merrick’s indemnification obligations owed by independent sales organizations (“ISOs”) with which Merrick worked. Earlier in the case, Chartis won partial summary judgment to the effect that its “other insurance” provision limited Chartis’ liability to amounts in excess of other available sources of indemnity available to Merrick.

Over two years after it started this action, Merrick moved to amend its complaint to add a claim for contract reformation. It asserted that the intent in entering into the insurance contract was for Chartis “to provide coverage without regard to [Plaintiff’s] indemnification rights against its ISO in the absence of fraud”. Merrick claimed that it was a mutual mistake between it and the carrier, and thus the policy should be reformed to reflect that.

The court, however, denied the request to amend. In this decision, it cited three grounds. First, acknowledging that an application for permission to amend generally is assessed on the less stringent motion to dismiss standards under FRCP 12(b)(6), the court noted that if the request is made late in litigation, the stricter summary judgment standard will be applied. That is, the court would view the request like a dispositive motion. In so doing, the court analyzed whether the insured had even demonstrated mutual mistake. In this case, Merrick had presented no evidence of a mutual mistake in its papers. It presented no evidence of an oral argument that was improperly written down, instead asserting that the parties had misunderstood the legal effect of the policy terms. This, the court found, was no basis for reformation. As such, reformation would be futile.

Further, the court also held that there would be undue delay as well as prejudice to the insurer to allow an amendment this late in the litigation. Merrick knew or should have known about a potential mutual mistake when Chartis asserted in its answer that the indemnification-related provision limited liability on an excess basis. Merrick should have brought up its request to amend then. Giving no reason for its delay, Merrick could not assert it now. Finally, discovery had been done and dispositive motions had already been briefed in the case. To amend the complaint now would likely create the need for more discovery and another set of motions for summary judgment. This would not only be unnecessarily expensive but also prejudicial to Chartis. Accordingly, Merrick’s request to amend the complaint was denied.

Federal Circuit Courts Around the Country

07/15/15       Kimberly Johnson v. Doodson Insurance Brokerage, Inc.
United States Court of Appeals, Sixth Circuit
A Third Party to a Liability Policy Cannot Maintain a Claim against a Broker for Failure to Procure Insurance, Says the Sixth Circuit
At issue in this case was whether an injured third party to a liability policy can maintain a claim against an insurance broker for failure to procure the proper insurance that would otherwise have covered the claim. Here, the Cleveland Indians hired National Pastime Sports to put together “Kids Fun Day” events at their games. These events included various children’s activities, such as inflatable castles and inflatable slides. The contract between the Indians and National Pastime required that they secure a $5,000,000 comprehensive liability policy. National Pastime applied for insurance through Doodson Brokerage, which secured them a policy with New Hampshire Insurance. Unfortunately, the policy they secured contained what the court aptly called “a fatal gap”. It had an exclusion for injuries caused by inflatable slides.

In June 2010, Douglas Johnson attended a game on a Kids Fun Day. While admiring a wall of fame display, an inflatable slide collapsed onto him and crushed him. He died several days later from his injuries. After a series of lawsuits, John’s estate obtained a $3.5million default judgment against National Pastime. Also in one of those cases, the Sixth Circuit ruled that the inflatable slide exclusion barred coverage under New Hampshire’s policy. Unable to collect on the judgment, Johnson’s estate sued the broker for negligence and breach of contract.

Affirming the District Court’s decision, the Sixth Circuit here tossed the case against the broker. For the negligence claim, the court reasoned that the broker did not owe Johnson any tort duty. Relying not only on Michigan precedent, but also citing case law from around the country, the court held that there is no independent tort duty to a third party to comply with a contractual obligation to obtain insurance. That is, “failing to perform a contractual obligation to procure insurance against suits by injured parties does not implicate a risk of harm that the broker had any common law duty to prevent”.

As for the breach of contract claim, the court rejected Johnson’s arguments as well. As a third party to the contract at issue, Johnson simply could not state a claim related to its breach. If Johnson was able to prove he was the intended third-party beneficiary or at least a member of a class of people directly referred to in the contract, he might have had a chance. However, as a member of the public at large, that class is simply too broad to qualify for third-party beneficiary status. 

07/06/15       Lillian Gradillas v. Lincoln General Insurance Company
United States Court of Appeals, Ninth Circuit
The Ninth Circuit Does Not Know What “Use” Of a Vehicle Means, For Coverage Purposes, Under California Law
In this published decision, the Ninth Circuit certified the following question to be answered by the Supreme Court of California: “When determining whether an injury arises out of the “use” of a vehicle for purposes of determining coverage under an automobile insurance policy and an insurance company’s duty to defend, is the appropriate test whether the vehicle was a ‘predominating cause/substantial factor’ or whether there was a ‘minimal causal connection’ between the vehicle and the injury?”

The case before it involved a set of truly unfortunate events. In January 2008, Lillian Gradillas, her husband, and other paid passengers boarded a party bus owned by American Bus Lines and operated by Kenneth Nwadike. The group was transported to a night club and most of the passengers were admitted to the club. However, Lillian and another female passenger lacked proper identification at the time. As it was raining, the driver, Gustavo Rosales, invited the women back into the bus to wait. They agreed, and Rosales drove them to an empty, dark parking lot across the street from the club, where he parked the vehicle. His relative, whom the decision does not identify, was also on the bus at the time. In that lot, after the other woman went to the bathroom, Rosales’ relative blocked the bathroom door and Rosales raped Lillian. The Gradillas reported the incident and Rosales later pled guilty to felony sexual assault.

Meanwhile, Lincoln General had issued the business auto policy to American Bus Lines, as well as a commercial general liability policy to Nwadike d/b/a American Bus Lines. That business auto policy provided coverage for accidents and resulting from the ownership, maintenance, or use of a covered auto. Lincoln General denied coverage under that policy, but for a time agreed to provide Nwadike a defense under the CGL policy (which it eventually withdrew).

The Gradillases filed suit in California state court and Nwadike stipulated to a $2,500,000 judgment. They entered into a covenant in which the Gradillases would not enforce that judgment but in exchange Nwadike assigned his rights against Lincoln General to them. The case was removed to federal court. The Northern District of California court ruled that the stipulated judgment was reasonable and Lincoln General had breached its duty to defend because the bus was a temporary substitute and the injuries resulted from the “use of” the bus. Lincoln General then appealed to the Ninth Circuit.

The series of unfortunate events continued. Though arguably intentional acts were involved here, in the state court Lincoln General failed to raise the argument that the injury was not an “accident” under the policy and that the bus was not a qualifying substitute vehicle. It had waived them on appeal. Therefore, the only question left before the court was whether the injuries arose out of the use of the party bus such that Lincoln General had a duty to defend. More unfortunate still, the Ninth Circuit’s reading of California precedent found that two different standards were being applied to “use” of vehicle cases: either courts held that a “predominating cause/substantial factor” test applied, or the standard that the “vehicle need not be, in the legal sense, a proximate cause of the injury” for “use” to apply.

As such, the Ninth Circuit certified the question and requested clarification from the California Supreme Court.

WWW note: We will be following this one and let you all know what happens. There is a fine line between the various definitions of “use” and courts around the country have come down in different ways. It will be very interesting to see what the influential California courts have to say.

 

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

DFS Annual Report to the Governor and Legislature
This report to the Governor and Legislature sets forth those actions which DFS considers major accomplishments, as well as information regarding enforcement actions, regulatory and legislative activities, and summaries of the supervised institutions.  In short, much of the focus of the report was based upon enforcement activity and consumer protection.  If you wish to review the report it can be found at http://www.dfs.ny.gov/reportpub/annual/dfs_annualrpt_2014.pdf

With regard to DFS major accomplishments, DFS reported that its aggressive approach to Wall Street enforcement was a success and pointed to a few enforcement actions as proof.  Specifically, DFS pointed to its $6 Billion in penalties against the world’s largest banks, insurers, and mortgage companies for misconduct, including money laundering and foreclosure abuse.  Additionally, while DFS made it clear that it does not have authority to bring criminal prosecutions, the report states that it took actions “to expose and penalize misconduct by individual senior executives” as well.  These actions included banning multiple senior executives from participating in the operation of DFS regulated entities.  DFS also pointed to its successful enforcement actions against bank consulting companies for their roles in aiding those entities whitewash misconduct through the utilization of a statute that is more than 100 years old. 

DFS also pointed to the creation of a state-level consumer financial protection bureau as a major accomplishment.  This was done to accomplish one of Governor Cuomo’s key missions given to DFS – the protection of consumers.  The report generally stated that it achieved this mission through “a number of victories for New Yorkers against abusive lenders and insurance companies.”  Additionally, DFS worked to combat illegal online payday lending that charges interest rates over 1,000% by cutting those lenders access to the bank payment system.  Another area of consumer protection was achieved through the creation of new regulations to help consumers combat aggressive debt collection practices. 

DFS also pointed to its assistance in the recovery of $1 Billion in unpaid life insurance benefits by working with life insurers in New York.  Not surprisingly, DFS also pointed to its aid in helping New Yorkers recover after natural disasters.  DFS’ report states that it helped consumers recover and deal with insurers and other financial institutions in the wake of natural disasters such as Superstorm Sand and Irene.  This help was, in part, done through the deployment of DFS Mobile Command Centers, and through the steps taken by the Department to speed up relief payments.

DFS also listed as a major accomplishment its continued addressing of new financial products and risk.  In support of this assertion, DFS pointed to its work as an international leader in “sounding the alarm” on the threat cyber hacking poses.  As a result of this risk, DFS has taken a number of actions to make insurers and banks strengthen their cyber defenses.  The report also detailed the work DFS has undertaken in the virtual currency regulatory area which includes the nation’s first comprehensive regulatory framework for firms which deal in virtual currency.

The report also provides a summary of the work performed by the various bureaus in DFS.  With regard to the Property Bureau, the summary states that as a result of investigations of property and casualty insurers, “New York policyholders and claimants were refunded premiums and interest in excess of $1.8 million.  Companies also stipulated to enforcement penalties of $2,845,750.”

With regard to the Financial Frauds and Consumer Protection Division, DFS reported that its function is “combating insurance and banking fraud.”  The Consumer Assistance Unit found within this bureau purportedly recovered $40,804,348 for 6646 consumers, and this money included refunds from insurers, reinstatement of lapsed coverage, payment for denied medical claims, and coverage of disaster-related claims that had been previously denied.

KEEPING THE FAITH WITH JEN’S GEMS

Jennifer A. Ehman
[email protected]

07/07/15       Aspen Specialty Ins. Co. v. Ironshore Indem. Incorporated
Supreme Court, New York County
Owner Entitled to Additional Insured Coverage Under Policy Issued to Insured Party’s Employer
In this decision, an elevator repairman was injured while working at a hotel.  He sued the hotel to recover for his injuries.  At the time of the incident, there was a maintenance and repair contract in place between his employer and the hotel owner. The contract contained an insurance procurement provision requiring the employer to name the owner as an additional insured on a CGL policy. 

Presumably in compliance with this agreement, the employer obtained a CGL policy from Ironshore.  The Ironshore police defined an insured, in relevant, part as any organization for whom you are performing operations pursuant to a written contract.  The definition then stated that such organization was an additional insured only with respect to liability for “bodily injury” caused in whole or in part by the named insured’s “acts or omissions.” 

In the injured party’s complaint, he asserted that while performing work for the hotel, he descended an interior flight of stairs that collapsed, causing him to fall and sustain injury.  When the hotel owner tendered the complaint, Ironshore denied coverage submitting that the accident was unrelated to the employer’s work, and that injury was the sole result of the hotel owner’s negligence. 

The hotel owner’s carrier then brought this action.  Defendants immediately moved to dismiss. 

The motion court held that defendants failed to meet their burden of establishing that the owner was not entitled to additional insured coverage.  Citing W&W Glass Sys., Inc. v. Admiral Ins. Co. and its progeny, the court held that “caused by” is not materially different from “arising out of.”  Since “arising out of” means “originating from, incident to, or having connection with,” where, as here, an employee is injured while performing the named insured’s work pursuant to a written contract there is a sufficient connection to trigger additional insured coverage and fault is immaterial. 

The motion court then granted Aspen’s cross-motion holding that Ironshore must defend the hotel owner. 

Bad Faith

07/09/15       Striegel v. American Family Mutual Insurance Company
United States District Court, D. Nevada
Plaintiff’s Attorney Admonished for Bringing Questionable Bad Faith Actions
Defendant’s insured was involved in a motor vehicle accident.  As a result of the accident, seven individuals including plaintiffs filed bodily injury claims.  At the time of the accident, defendant provided auto coverage with limits of $100,000 per person and $300,000 per occurrence.

Approximately one month after the accident, plaintiffs’ attorney sent defendant a letter indicating that he would be willing to settle his clients claims for the per person policy limits provided that the amounts were received within two weeks with confirmation of same.  The letter also included a list of providers and signed medical authorizations. 

A few months later defendant wrote to plaintiffs’ counsel requesting medical authorizations, a list of all providers and advising that because seven people were involved in the accident, it would not be able to settle any individual claims presented until demands for all injured parties were received.  In support of this motion, defendant submitted evidence that it never received the time limited demand letter. 

Plaintiffs then filed suit.  The insured and plaintiffs reached an agreement whereby plaintiffs would make an offer of proof, and the insured would assign plaintiffs any claims he might have against defendant in exchange for a covenant not to executed the judgment against the insured, personally.    

Defendant then filed an interpleader in state court.  By stipulation, the policy limits where distributed among the seven claimants.  Each of the seven claimants, with the exception of plaintiffs, agreed to dismiss their cases against the insured with prejudice.  Shortly thereafter, plaintiffs brought this action alleging, among other things, breach of the implied covenant of good faith and fair dealing.   

In granting summary judgment in favor of defendant, the court held that plaintiffs had not presented any evidence from which a reasonable trier of fact would conclude that defendant acted in bad faith.  Rather, the record demonstrated that defendant acted reasonably throughout the claims process.  Defendant submitted evidence that it did not receive the time limited demand letter, and even if it had, when the demand was made, defendant had not received complete medical documentation from plaintiffs to properly evaluate the claim.  It also had not received complete documentation or demands from the other claimants.  Thus, the court found no genuine issue of material fact regarding whether defendant’s actions constituted bad faith. 

Of interest, the court admonished plaintiffs’ counsel for bringing the action.  It noted that this case involved similar facts to many cases filed by the attorney in this district.  It noted this attorney’s modus operandi of imposing unreasonable time constraints on demands in order to set up a bad faith claim.  The court then advised that it would be forwarding this Order to the State Bar of Nevada for disciplinary review. 

 

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

03/10/15       Taylor v. Bar Plan Mutual Insurance Co.
Missouri Supreme Court
Limits of Professional Malpractice Insurance
In this case, Missouri state courts held that a former client could not recover under a lawyer’s malpractice insurance policy because it excluded coverage for claims arising from investments.  Taylor retained attorney Wirken to handle legal claims concerning a trust.  Taylor made loans totaling $250,000 to Wirken’s firm.  The attorney drafted and personally guaranteed the loans, which also provided for payment of attorneys’ fees in the event of default.  Wirken did not advise Taylor to consult with another lawyer prior to making the loans in violation of Missouri Rules of Professional Conduct, and Wirken never repaid the loans.  Taylor also made three loans totaling $260,000.00 to one of Wirken’s clients at exorbitant interest rates of over 30%.  Those loans were also never repaid. 

Taylor sued Wirken for breach of fiduciary duty.  A court entered judgment in favor of Taylor for over $900,000.00 in damages, and Taylor then brought an action against the insurance company attempting to collect on the judgment.  It should be noted that attorney Wirken eventually voluntarily surrendered his law license and was disbarred.

The trial court granted the insurance company’s motion for summary judgment which was primarily based on a policy exclusion precluding coverage for any claim based on the attorney’s capacity and actions in connection with an investment or enterprise in which the attorney owned an equity interest.  The Missouri Supreme Court affirmed the trial court decision.

The Supreme Court held that the term “investment” and in exclusion encompassed the loans because they involved the client expending money for profit or income in an enterprise or financial arrangement in which the attorney had an interest.  The courts rejected the attempted distinction between a loan and an equity investment with the exclusion covering only the latter.

This case is a reminder that professional malpractice insurance is generally intended to protect the professional from the results of errors and omissions in transacting and handling the professional retainer at hand.  Legal malpractice insurance is generally not intended to apply to investments or investment advice, whether or not the attorney is directly involved in the transaction.  The same is also true if and when an attorney becomes embroiled in business dealings and transactions with clients.  The losses here related to investment or business losses and not losses from deficient legal advice or service.