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Coverage Pointers - Volume XVII, No. 23

Volume XVII, No. 23 (No. 453)

Friday, May 6, 2016

 

A Biweekly Electronic Newsletter

 

Hurwitz & Fine, P.C.

1300 Liberty Building

Buffalo, NY 14202

Phone: 716-849-8900

Fax: 716-855-0874

                                          

Long Island Office:

535 Broad Hollow

Melville, New York 11747

Phone: 631-465-0700

Fax: 631-465-0313

 

www.hurwitzfine.com

© Hurwitz & Fine, P. C. 2016
All rights reserved
 

As a public service, Hurwitz & Fine, P.C. is pleased to present its biweekly newsletter, providing summaries of and access to the latest insurance law decisions from the New York State appellate courts.  The primary purpose of this newsletter is to provide timely educational information and commentary for our clients and subscribers. 

 

In some jurisdictions, newsletters such as this may be considered Attorney Advertising.

 

If you know of others who may wish to subscribe to this free publication, or if you wish to discontinue your subscription, please advise Dan D. Kohane at [email protected] or call 716-849-8900.

 

You will find back issues of Coverage Pointers on the firm website listed above.

 

Dear Coverage Pointers Subscribers:

 

Do you have a situation?  We love situations. 

 

Happy Mother’s Day. 

 

Those who know me well will appreciate that I am back in Crescent Dreams, Canada for the summer, in what my friend David Zizik calls “The Land of the Blue Martinis”.  We live right across the border from Buffalo, in Fort Erie, and the international commute to work is about 20 minutes if there’s Peace Bridge traffic (less, if there isn’t).

 

I started to pen this note as I awaited the oral argument of an appeal at the First Department in NYC.  All I was missing was a pen.  I’m a computer guy, a tablet user, surely not a crime these days.  Will someone explain to the First Department that modern lawyers keep notes for oral arguments on their tablets and bringing them into the courtroom should be permitted without special dispensation?  Thanks, I appreciate it.  Other Departments so permit.

 

Speaking of appeals, it’s a banner week for decisions, one of the most decision-filled issues in several months.  There are some very significant decisions summarized in the attached issue with the headlines below.

 

New York State’s highest court, the Court of Appeals, had a busy two weeks and we have three very interesting cases upon which to report.  Steve reviews an important anti-subrogation case (who doesn’t love anti-subrogation, anyway).  Agnes discusses a decision on vertical and horizontal exhaustion and Chris “Products” Potenza adds a guest column reviewing a high court decision on strict products liability.  This issue alone is worth the cost of an annual subscription to Coverage Pointers.

 

I’ll be speaking on underwriting issues in San Antonio next week, at the Central Claim Executive Association meeting.  It’s been two weeks or so since I had San Antonio BBQ, so it’s about time to return.

 

There is even a lower court decision, reported in Brian’s column, which seems to provide hope for maintaining the attorney client privilege in coverage and bad faith cases.  I have not had a chance to read it yet, but I will in detail and perhaps write more about it next issue.  Brian has a brief summary in his column.

 

I’ve written a lot about that issue lately, here and in other publications.  Just published and authored by Sean Griffin and John Ewell and yours truly:

 

Labor Law Pointers – May Issue Published:  If you have folks in your shop who follow the New York State Labor Law (scaffold statute, industrial regulations, etc.) they are missing out if they are not subscribed to our sister publication, Labor Law Pointers.  Here’s a link to the issue published yesterday morning.  Contact Dave Adams at [email protected] to subscribe.  Tell him that Dan, Dan the Coverage Man sent you.

 

There’s Still Time to Register for the Federation of Defense & Corporate Counsel Litigation Management College:

 

FDCC 21st Annual Litigation Management College

 

June 5 - 9, 2016

Emory University

Atlanta, GA

 

"LMC is perfect for claims adjusters looking to hone their litigation management skills. I valued my time at the conference, and look forward to applying the lessons learned to improve my day to day claims handling."

 

- 2014 LMC participant

 

More than a conference, the FDCC's Annual Litigation Management College (LMC) is an intensive “hands-on” program that is simply the best way for claims and litigation management professionals with five to 15 years of experience to develop their full potential. Students work together in teams and groups led by experienced claims managers and trial counsel. They learn about how to become more successful in their jobs but most importantly, they learn about themselves. Our process, perfected over two decades of experience, includes a variety of learning approaches from individual coaching through a video-taped mock deposition to a multi-day team exercise to resolve a complex case most favorably. All aspects of high-level claims management are included: communication, analysis, budgeting, preparing litigation case plans, experts, negotiations, coverage mediation and working with defense and coverage counsel.

 

More seasoned claims professionals should consider enrolling in the Graduate Program, which emphasizes the thorough understanding of coverage in an environment with hands-on coaching from veteran claims and coverage counsel. If you have a client or colleague who would benefit from being a part of this “Best in Class” program, please have him or her contact David Governo, Dean of Admissions, at 617.737.9047 or [email protected] .

 

Canadian Law:

 

My friend Sandra Corbett, QC is a partner in the Edmonton/Calgary/Yellow Knife law firm of Field Law.  She has added me to her firm’s newsletter mailing list, covering insurance and liability issues.  Very interesting comparisons between Canadian and US law.  With her firm’s permission, I’ll include the occasional snippet with a link to the newsletter and recommend that you may want to consider a subscription:

 

General information of claims practices and company personnel obtained by an insurer’s in-house counsel is not the type of confidential information that will disqualify the lawyer from acting as Plaintiff’s counsel against the insurer in a bad faith claim.

McMyn v. Manufacturers Life Insurance Co., 2015 BCSC 2205, per E.M. Meyers J. [4180]

 

Potenza on Products:

 

We are happy to present occasional columns from other lawyers in our office on topics of interest. Chris Potenza offers a summary of a timely Court of Appeals case, New York’s highest court on asbestos/product liability claims in the attached newsletter.  In this case, plaintiff tried to impose products liability obligations on a US company that may have been peripherally involved in the distribution of the product. See the attached issue.

 

Tessa’s Tutelage:

 

Dear Readers,

 

This Saturday I will be doing my best reenactment of Eliza Doolittle at the Kentucky Derby.  I have heard that it is a rather dignified affair so I have borrowed some gloves and a hat big bright enough to confuse birds flying nearby. As you know, sports are not really my jam, but if this level of fashion was involved in all sporting events, I might get more interested. In fact, since the whole thing is over before it starts I might have the requisite attention span to get swept up in the moment.  Who knows, you might spot me on T.V. yelling from the field “Come on Dover! Move your bloomin’ arse!” I will be the one in the yellow hat.

 

In the world of No-Fault, the Court explained in Progressive Cas. Ins. Co. v Metro Psychological Servs., P.C.,  how to offer proof of mailing through office practices.  The court clarified that "the office practice must be geared so as to ensure the likelihood that the item is always properly addressed and mailed.” We have two arbitration cases this week. In Empi Inc. v. DAF Cab Corp, an altercation with a cab driver led to knee injury. (Be nice to your cab driver.) Arbitrator Bargnesi concluded that an invoice tracking inquiry did not constitute proof of mailing. In Buffalo Neurosurgery Group v. Geico Insurance Co., Arbitrator Brown sought greater specificity from an IME doctor concluding that a service was not medically necessary, especially where causation seemed assured.

 

I hope that you enjoy your weekend!

 

Tessa

Tessa R. Scott

[email protected]

 

100 Years Ago:  Employee or Not?:

 

Middletown Times-Press

Middletown, New York

6 May 1916

 

ARGUE AWARD FOR

 

ACCIDENT ON O. & W.

 

Claim Man’s Injuries

Not Due to Work

 

Albany, May 6—The Appellate Division, Third Department on Thursday heard arguments in 10 appeals from awards made by the state industrial commission, in all of which E. Clarence Aiken, deputy attorney general, appeared in support of the awards made.

 

Among the claims was that of Giuseppe Caccavano against New York, Ontario and Western Railway Company, appellant.  The award was $0.15 a week for 288 weeks’ disability for the loss of his left leg, August 9, 1915.  He was employed as a laborer on a work train and while the men were being taken from work in a car in which they were ordered to remain, Caccavano climbed through a window to the roof and was knocked off when the train went through a tunnel.  It was alleged the accident did not arise out of his employment.  C. L. Andrew appeared for the appellant.

 

Judgment affirmed, Caccavano v. New York, Ontario & W. Ry. Co., 174 A.D. 900, 900, 159 N.Y.S. 1103 (App. Div. 1916)

 

Wilewicz’ Wide World of Coverage:

 

Dear Readers,

 

I have just a quick shout-out before we dive right into this week’s latest news. My brilliant, lovely, and amazing daughter turned a decade old last week! I could not be more proud of her achievements already, and cannot wait for the next ten decades of watching her develop and grow. Just had to say it.

 

Now, we had a really critical case come down since we last went to print.  From the Court of Appeals, we bring you the Matter of Viking Pump, Inc., a huge decision in the environmental coverage world, and one that is already being hailed as a big win for policy holders. In Viking, the issue was whether true excess policies (above primary and umbrella layers) could be triggered even if not all underlying layers were exhausted. The underlying claims involved many asbestos-related exposure cases, which would undoubtedly reach into the hundreds of millions of dollars in excess coverage. Critically, the policies at issue contained non-cumulation provisions and all-sums language. In reading these, the Court found a clear intent to use an all sums allocation, rather than pro rata allocation. Moreover, it found that vertical exhaustion was “conceptually consistent” with all sums allocation, and thus permitting insureds to work their way up through one policy period along the coverage tower. The result is that, provided the policies contain this language, an insured can now pick one triggered policy year and go straight up into the excess layer, even if other primary or umbrella policies exist. Probably not an underwriter’s intent, but there it is.

 

It’s a well-written and well-researched opinion, so worth the read. Enjoy.

 

See you all in a couple of weeks!

 

Agnes

Agnes A. Wilewicz

[email protected]

 

US Involvement in WWI to be Averted – Perhaps Not:

 

The News-Review

Roseburg, Oregon

6 May 1916

 

PEACE SEEN IN LAST

NOTE FROM KAISER

 

The Submarine Controversy

Thought to be Settled.

 

SUBMARINE WAR CONFINED TO WARSHIPS

 

Close Friends of Wilson Believe That

Time is Ripe for Him to Broach Peace

To Belligerent Nations

 

WASHINGTON, May 6.—The submarine issue is closed, the advisors of Wilson believe.  The White House made no comments.  Officials in touch with the situation consider the issue so completely closed that the president will not reply. Lansing may issue a statement calling attention to the essential point that Germany has ordered all submarine activities to be confined to warships.  It is believed that the issue will remain closed, and Germany will not reopen it by a resumption of undersea warfare on merchantmen.  The officials saw danger only in the fact that submarine commanders may be difficult to control.  The official test of the reply has been received, and Wilson is formulating his decision.

 

Peace Seen in Conference

 

The conference between Gerard and the Kaiser suddenly loomed large.  It is never believed that the submarine issue was seriously discussed.  Since the arrival of the reply, it is strongly believed that peace talk was a prominent part of the conference.  Several persons who are near the president, believe he should tentatively approach the belligerents on the question of a possible peace. 

 

Peiper’s Passion:

 

Happy Cinco de Mayo.  Interesting decision from the Court of Appeals this week on the anti-subrogation rule. Ask 100 insurance lawyers about the anti-subrogation rule, and 95 of them will tell you how confusing it is.  Here’s a secret…it’s really not.  The Court of Appeals, Judge Abduus-Salaam writing for the Court, makes it overwhelmingly straightforward in this week’s Millennium decision.  If you insure a party, you cannot sue that party to recover any exposure you may have had.  If you do not insure your target, feel free to “summons” away.  End of story. 

 

The case, if for no other reason, provides a great review of how policies can be obscured as part of corporate formation, reformation and un-formation.  Although not germane to the decision, the discussion reminds us to follow the policies and maybe not the insured.

 

You’ll note, if you read the write up, that I concocted a little diagram to accurately (hopefully) depict the various mergers, acquisitions, and transfers.  I’ll confess that the drawing is exactly the same thing I wrote on my legal pad as I was trying to decipher the case.  Pictures help.  Seriously.  Without fail, if you walk into any coverage lawyer in this office and start discussing a case, said lawyer will reach for a scrap of paper and sketch out the parties, their contractual relationships, and what claims are being made against whom.  A five second sketch, can save you five hours of work later.  It helps define the issues, define the parties, and sets the entire tone of the claim analysis. 

 

I have included a discussion about sketches in every lecture I’ve given the last 5 years or so, and I’ll offer again here.  Do it.  It works.

 

Steve

Steven E. Peiper

[email protected]

 

An Attack on Those Who Supported Birth Control Education – 100 Years Ago:

 

The New York Times

New York, New York

6 May 1916

 

MRS. ROSE P. STOKES

DEFIES THE POLICE

 

Distributes in Carnegie Hall

Printed Slips Regarding Birth Control

 

MOB HER TO GET THEM

 

Ben Reitman and Others Form Wedge

to Take Her from the Crow on the Stage

 

Defying the police to arrest her, Mrs. Rose Pastor Stokes, wife of J. G. Phelps Stokes, stood on the stage of Carnegie Hall last night after a meeting and passed out slips giving birth control information to all who sought them.  The meeting was a demonstration to welcome Emma Goldman on her release from prison, where she was sent for spreading birth control propaganda, but Mrs. Stokes ran away with the meeting.

 

Mrs. Stokes had announced her intention of giving out the slips in a speech in which she took a fling at the police.  Miss Goldman spoke after her, and the meeting was nearly broken up by persons climbing upon the stage to get the slips.  As soon as the meeting was over men and women, including many young men and young girls, rushed forward in a scramble for the slips.

 

Mrs. Stokes found herself in the midst of a pushing, unruly mass.  Chairs were overturned and the private policemen in the hall attempted to clear the stage to prevent damage to property, but they were unsuccessful.  Several fights were started in different parts of the stage.  The cry went up from those who were in front of the stage that Mrs. Stokes was being arrested, but Max Eastman, the Chairman of the meeting, jumped upon a chair to tell them that the disturbance resulted only from an eagerness to get the slips.

Editor’s Note:  For biographical information on Rose Pastor Stokes, click here.

 

Barnas on Bad Faith:

Hello again:

 

This weekend is always one of my favorite weekends of the year.  The weather is warming, the Kentucky Derby will be run for the 142nd time, and a big boxing match usually falls on this weekend, although I’m still bitter about how disappointing the Mayweather v. Pacquiao fight was last year.  This year, Mother’s Day also happens to fall on Derby weekend, so a very Happy Mother’s Day to all of the mothers out there, especially my own.

 

This edition of Barnas on Bad Faith features three cases addressing issues in the context of bad faith litigation.  In Lee, the Eastern District of California considers whether a plaintiff’s bad faith cause of action satisfies the amount in controversy requirement for federal diversity jurisdiction.  Please note that I was unable to find an available link to the decision at the time of publishing.  If you’re interested in reading it, send me an email at the address below and I’ll be happy to send you a copy.

 

In Travelers, the Supreme Court of Colorado overturns a bad faith verdict in the plaintiff’s favor because of failure to comply with a policy’s notice provision.  The court concluded that Travelers was not required to indemnify its insured for a settlement it entered into in connection with underlying litigation without its consent.

 

Finally, the lengthy Fox Paine case from Westchester County considers discovery in the context of bad faith litigation.  The court concludes that the insured was not entitled to discovery privileged documents solely because the action sounded in bad faith.  The court also provides interesting commentary on the discovery of claim notes and reserves. 

 

See you next time.

 

Signing off,

 

Brian

Brian D. Barnas
[email protected]

 

It’s the Latest and the Greatest for Cooking – a Century Ago:

 

Poughkeepsie Eagle-News

Poughkeepsie, New York

6 May 1916

 

WILL OBSERVE

“GAS RANGE WEEK”

 

In four thousand cities in the United States and Canada next week will be observed as “gas range week” and during that time a campaign of education will be carried on.  How to get the maximum amount of heat but of the minimum amount of gas is to be demonstrated by an expert.

 

The Central Hudson Gas and Electric Company has arranged for a demonstration in Joseph Samuels’ window at 337 Main Street, every afternoon and evening.

 

A menu, from soup to dessert, will be prepared by the demonstrator every day.  Then a table will be spread and the public will be invited to partake of the feast and see what a triumph gas cookery is.  The expert will also show how to cook with the least amount of gas; how to cut the gas bills and do better cooking. The matter of economy in kitchen space will also be shown.  In the window will be a gas range, a kitchen cabinet and other necessary furnishings.  The window contains 35 square feet. 

 

History Repeats Itself – Filling a Seat on the Supreme Court a Century Ago:

 

The Wall Street Journal

New York, New York

6 May 1916

 

WILSON STICKS TO BRANDEIS

 

Refuses to Withdraw Nomination—Satisfied Brandeis

the Man for the Place

 

Washington—President Wilson will make every possible effort to force confirmation of the nomination Louis D. Brandeis of Boston as an Associate Justice of the Supreme court.  The President has let it be known that he stands squarely behind his original Nomination.  There are suggestions that he withdraw the nomination however he has sent word that he personally investigated all of Mr. Brandeis’ qualifications and that he is convinced he is the man for the position.  He is expected to make a public statement to this effect soon.

 

Phillips Federal Philosophies:

 

Hello, All:

 

Those that have heard me talk about my favorite nephew, or that have seen any one of a couple dozen pictures I have of him on my phone, are well-aware that the young gentleman is a bit of a sports aficionado. He can speak eloquently on stats and bats from here to the Anchorage Glacier Pilots.  I, on the other hand, generally skip the Super Bowl because I don’t follow hockey.  He is nonetheless a patient tutor.  For example, I now understand that a runner in baseball doesn’t actually have to touch third base if the baseball bounced off Grandpa’s truck and rolled under the neighbor’s car.  It’s a rule.

 

Anyway, when this week’s case involved FIFA, I reached out to my personal consultant for a breakdown of what I needed to know about soccer.  Which is apparently that the New York City Football Club and Bayurn Munich are the best teams.  Oh, and one other thing:

 

It’s always more fun to be a Striker than a Defendant.

 

As always, thanks for reading.

 

J.

Jennifer J. Phillips

[email protected]

 

 

Highlights of this Week’s Issue (which is attached):

 

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

 

Court of Appeals:

 

  • Deep Throat Revisited:  Follow the Policies: Anti-Subrogation Rule Does Not Bar Claim against Corporate Successor Where the Policies In Question were Transferred from the Assets of the Predecessor Corporation Years Earlier

 

Appellate Division:

 

  • Under Ohio Law, Tortious Interference Claims are Excluded from Personal and Advertising Injury Coverage

  • Proof Fails on Establishing Staged Accidents

  • A Certificate of Insurance is Not a Policy and in This Case, There Was No Policy

  • A “Good Faith Believe in Non Liability” Requires Investigation

  • Insured’s Guilty Plea to Third Degree Assault Collaterally Estops Him from Getting Coverage, Even if He Did Not Know What Injury He Caused

  • Insurance Broker Freed from E&O Claim by Establishing that the Insured had Already Breached the Policy’s Notice Provisions by the Time It Advised the Broker of the Claim against It

  • Underlying Trade Agreement Reformed to Reflect Real Owner for Purposes of Additional Insured Coverage

.

Potenza on Products

V. Christopher Potenza

[email protected]

 

  • Ford Motor Company (Ford USA) Not Liable under Strict Products Liability for Products Distributed by British and Irish Affiliated Companies under the Theory that Ford USA was the “Global Guardian of the Ford brand” and Played a Role in “Facilitating” Product Distribution

 

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

Robert E.B. Hewitt III

[email protected]

 

  • Defendant Established Prima Facie Case through Competent Medical Evidence but Plaintiff’s Medical Evidence Created an Issue of Fact

  • Jury Verdict Should Not Be Set Aside When Rational and Based Upon a Fair Interpretation of the Evidence

  • Expert Opinion That Accident Did Not Cause Loss of Fetus Was Conclusory and Speculative and Did Not Address Normal Pregnancy until Crash

  • Defendant Failed to Meet Initial Burden Where Plaintiffs Records Showed Prior Injuries Markedly Exacerbated by Accident

  • Plaintiff’s Motion for New Trial Granted Where Judge Improperly Allowed Expert to Opine on Plaintiff’s Credibility Based on Past Drug Use

  • Defendant Entitled to Post-Surgical and Post Note of Issue IME Where Surgery Was Substantial Change in Circumstances

  • Plaintiff Failed to Submit Medical Evidence Indicating an Issue of Fact Which Led to the Granting of the Motion

  • Motion Denied Where Defendant’s Own Expert Found Significant Unexplained Limitation of Range of Motion

  • Defendant Failed to Address All Claims in Bill Of Particulars

  • Issue of Fact Where Defendant’s Expert Found Evidence of Degeneration and Plaintiff’s Expert Found No Such Evidence

 

TESSA’S TUTELAGE
Tessa R. Scott

[email protected]

 

  • An Affidavit Intended to Establish Proof of Mailing Must Demonstrate that the Mailing Procedure is Designed to Ensure that All Items are Properly Posted to The Correct Party.

  • The Invoice Tracking Inquiry Does Not Constitute Proof of Mailing.

  • An IME Report Requires a Detailed Explanation of The Factors Which Directed the Conclusion That a Procedure Was Not Medically Necessary.

 

PEIPER ON PROPERTY (and POTPOURRI)

Steven E. Peiper

[email protected]

 

  • Statements of Agent Cannot Waive or Alter Terms of Insurance Policy

 

WILEWICZ’S WIDE WORLD OF COVERAGE

Agnes A. Wilewicz

[email protected]

 

  • Court of Appeals Holds That All Sums Allocation and Vertical Exhaustion Apply Where Excess Policies Contain (or Follow Form to) Non-Cumulation Provisions

 

JEN’S GEMS

Jennifer A. Ehman

[email protected]

 

  • Court Finds Question of Fact as to the Applicability of Anti-Concurrent Causation Clause

 

BARNAS ON BAD FAITH

Brian D. Barnas

[email protected]fine.com

  • Amount in Controversy Exceeded $75,000 in Bad Faith Claim based on Plaintiff’s Claims for Emotional Distress and Punitive Damages

  • Bad Faith Verdict Overturned after Insured Failed to Notify the Insurer of Settlement

  • Insured was not Entitled to Discovery Privileged Documents Solely because Action Sounded in Bad Faith

 

PHILLIPS’ FEDERAL PHILOSOPHIES

Jennifer J. Phillips

[email protected]

 

  • A Successful Offense on Defense Costs

 

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

 

  • The Interaction of Jurisdiction and Choice of Law Provisions


Peace be with you.  Remember that when you have your health, you have everything.  Hold those with health challenges close in your heart.  We do so here.

 

Dan
Dan D. Kohane
Hurwitz & Fine, P.C.
1
300 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  

Twitter:          @kohane

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, Chair
[email protected]

 

Steven E. Peiper, Co-Chair

[email protected]
 

Michael F. Perley

Audrey A. Seeley

Jennifer A. Ehman

Patricia A. Fay

Agnieszka A. Wilewicz

Jennifer J. Phillips

Brian D. Barnas

Diane F. Bosse

Joel R. Appelbaum

 

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

 

Michael F. Perley

Robert E. Hewitt, III

Jennifer J. Phillips

Brian D, Barnas

 

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

 

Jennifer A. Ehman

 

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

 

Diane F. Bosse

 

Topical Index

Kohane’s Coverage Corner

Potenza on Products

Hewitt’s Highlights on Serious Injury

Tessa’s Tutelage
Peiper on Property and Potpourri

Wilewicz’s Wide World of Coverage

Jen’s Gems

Barnas on Bad Faith
Phillips’ Federal Philosophies

Earl’s Pearls

 

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

 

Court of Appeals:

 

05/05/16       Millennium Holdings, LLC v The Glidden Company

Court of Appeals

Deep Throat Revisited:  Follow the Policies: Anti-Subrogation Rule Does Not Bar Claim against Corporate Successor Where the Policies In Question were Transferred from the Assets of the Predecessor Corporation Years Earlier

The case at bar has its origins in the formation of Glidden Paints some 99 years ago in 1917.  Glidden operated as an independent company until 1967 when it was acquired by SCM.  Of relevance, Certain Lloyds Underwriters and Northern Assurance both underwrite policy terms from 1963 through 1968. 

 

SCM operated the company until 1986 when its assets were acquired by Hanson.  As part of the Hanson takeover, SCM was split into twenty different “fan” companies.  HSCM-6 was given the assets and liabilities of the previous Glidden operations.  Importantly, HSCM-6 was then placed into the portfolio of HSCM-20. It is noted that in addition to HSCM-6, HSCM-20 also obtained, through a separate corporate transaction, the insurance policies issued to Glidden/SCM.

 

HSCM-20 then sold all of its rights in HSCM-6 to ICI American Holdings.  HSCM-20, however, kept in its control the aforementioned insurance policies.  As part of that agreement, HSCM-20 agreed that it would indemnify ICI American Holdings for any losses or claims arising out of HSCM-6’s products (Glidden Paints) from 1986 through 1994.  In 1994, the indemnity agreement switched whereby ICI agreed to indemnity HSCM-20. 

 

Eventually, HSCM-20 became Millennium.  ICI American Holdings assigned the original HSCM-6 assets and liabilities to ANP. 

 

                   

Beginning in 1987, a number of lawsuits were filed across the nation which would test the indemnity arrangement.  Pursuant to the agreement, Millennium/HSCM-20 agreed to indemnify ANP/ICI.  However, in 1994, ANP/ICI refused to pick up the indemnity obligations per the original purchase agreement.  The result of ANP/ICI’s refusal was Millennium/HSCM-20 suing ANP/ICI in by Ohio and New York.  That case was resolved, via settlement in 2000. 

 

However, throughout the Ohio litigation, Lloyds continued to defend the underlying tort cases.  Although not relevant to the discussion, the cases appear to involve lead paint exposure. 

 

In 2000, Lloyds commenced its own declaratory judgment action in Ohio seeking judicial confirmation that it did not owe coverage to ANP/ICI.  Its position, we presume, was that the polices from 1963-68 were always in the possession of, and for the protection of, HSCM-20 (which became Millennium).  Lloyds successfully litigated its declaratory judgment action, and was awarded a decision that ANP/ICI did not qualify as an insured under the Lloyds’ policies. 

 

In 2008, Millennium sought indemnification from ANP/ICI for losses related to the previous decades of claims.  Lloyds, having no insurance obligations to ANP/ICI per the 2006 decision from Ohio, sought to intervene in that case.  Eventually, ANP/ICI settled their differences with HSCM-20/Millennium.  ANP then moved to dismiss Lloyds’ claim on the basis that it was barred by the anti-subrogation rule.

 

The trial court ruled that although ANI/ICI were not insured under the Lloyds’ policies, nevertheless the anti-subrogation rule applied because Lloyds underwrote the very risk that they sought to recover indemnity.  The Appellate Division affirmed.

 

On appeal to the Court of Appeals, the Court began its discussion by advising that a party need not be a named insured, nor an additional insured, to qualify for anti-subrogation protection.  Rather, a party simply need only be “an insured.”  Thus, permissive users are entitled to anti-subrogation protections even though they only qualify as an insured due to the fact they were driving the covered vehicle at the time of the incident.    

 

Nonetheless, here there was a judicial determination that ANP/ICI were not an insured under the Lloyds’ policies.  As such, there is nothing to bar Lloyds from prosecuting its claims for subrogation.  The result of this decision means that the exact liability that Lloyds’ underwrote is not subject to the anti-subrogation rule, even though the parties from whom subrogation is sought are liable solely because they actually purchased the liability from Lloyds’ original named insured. 

 

Got that?  In simple terms, if you’re not an insured, there is no anti-subrogation rule. 

Editor’s Note – thanks to Steve “Love that Anti-subrogation stuff” Peiper for the chart and the review.

 

Appellate Division:

 

05/05/16       Allied World National Assur. Co. v. Great Divide Ins. Co.

Appellate Division, First Department

Under Ohio Law, Tortious Interference Claims are Excluded from Personal and Advertising Injury Coverage

In December 2004, Hemisphere, a real estate development firm, entered into a licensing agreement and a service agreement (“agreements”) with IMG. The agreements allowed Hemisphere to use IMG's trade names and trademarks, as well as its services, in connection with Hemisphere's development of a network of sports-oriented resort communities.

 

For consecutive policy periods from August 10, 2005 to August 10, 2012, plaintiff, Allied World, Great Divide and New York Marine and General insurance companies issued commercial general liability insurance policies to IMG with one-year policy periods. Each policy provided, among other things, coverage for personal and advertising injury liability; accordingly, each policy obligated the insurer to defend any "suit" (including an arbitration proceeding) seeking damages for a "personal and advertising injury." "Personal and advertising injury," in turn was defined as injury arising out of, among other things, false arrest, malicious prosecution, publication of defamatory or disparaging material, publication of material constituting violation of the right to privacy, copyright or trade dress violations, and using another's intellectual property in an advertisement.

 

As relevant to this appeal, the policies contained exclusions of coverage for personal and advertising injury "caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict personal and advertising injury.'" The policies also excluded coverage for personal and advertising injury "arising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity." Finally, the policies excluded coverage for personal and advertising injury "arising out of a breach of contract, except an implied contract to use another's advertising idea in your advertisement.'"

 

Tortious interference claims were interposed. Hemisphere alleged that IMG "knowingly and intentionally" interfered with Hemisphere's business relationship by, among other things, trying to open a competing business — the same conduct Hemisphere claimed constituted a breach of the agreements. Hemisphere also claimed that IMG knowingly and intentionally interfered with other business relationships. As a result of IMG's conduct, Hemisphere claimed, it lost the opportunity to develop a resort property in New Jersey. Finally, Hemisphere alleged that IMG "knowingly and intentionally" represented that it intended to perform its obligations under the agreements when it did not, in fact, actually intend to do so.

 

In October 2012, Allied World initially disclaimed coverage for IMG because the policy excluded advertising and personal injury coverage arising out of breach of contract. Further, Allied World also reserved its right to disclaim coverage on any of the exclusions for advertising and personal injury coverage. In November 2013, however, Allied World reconsidered its position and agreed to defend IMG under a reservation of rights.

 

IMG ultimately settled the dispute by paying Hemisphere $3,250,000 and waiving IMG's counterclaims. Between August and December 2014, Allied World reimbursed IMG for defense costs totaling $2,178,170.27 in connection with the arbitration proceeding.

 

Allied World then filed this action against Great Divide and New York Marine, seeking a declaration that they were obliged to defend IMG in the arbitration proceeding because the demand for arbitration, by its claim that IMG tortiously interfered with Hemisphere's business relationships, contained allegations that fit within the "personal and advertising injury" coverage of their respective policies. Allied World further sought an order compelling Great Divide and New York Marine, under principles of equitable contribution, to reimburse Allied World for their equitable share of the $2,178,170.27 in defense costs that Allied World paid in connection with its defense of IMG in the arbitration proceeding.

 

Ohio law applies to this action because IMG’s offices were there and the policies were issued there,

 

Here, the allegations of tortious interference on the part of IMG, whether through defamatory or disparaging statements, do potentially or arguably state an offense within the scope of coverage for personal and advertising injury liability. However, even if the arbitration demand implied defamation or disparagement, the exclusion for "knowledge of its falsity" still presents a bar to coverage, as the arbitration demand specifically alleged that IMG acted "knowingly and intentionally." Indeed, Hemisphere's allegation that IMG acted "knowingly and intentionally" is consistent with the requirements of Ohio law. Specifically, Ohio courts do not recognize a cause of action for negligent interference with contract or business relations, holding instead that tortious interference requires intentional conduct

 

As to the breach of contract exclusion, Ohio courts employ an "arising out of" approach that bars coverage for advertising injury "arising out of breach of contract". In turn, the term "arising out of" has been interpreted under Ohio law to mean "flowing from," "having its origin in," or "growing out of" (id.) [internal quotation marks omitted]. Here, the alleged conduct supporting the tortious interference claim is the same alleged conduct supporting Hemisphere's breach of contract claim. Thus, when the arbitration demand is viewed in its entirety, the dispute between Hemisphere and IMG was a contractual dispute, as the "personal and advertising injury" Allied World claims Hemisphere suffered as a result of IMG's actions arose out of a breach of contract. Coverage for the dispute is therefore excluded under Great Divide and New York Marine's policies.

 

05/04/16       Progressive Advanced Insurance Co., v. McAdam

Appellate Division, Second Department
Proof Fails on Establishing Staged Accidents

On December 13, 2011, a vehicle driven by Fedee, which was owned by the McAdam and contained three passengers, was involved in a collision. Fedee and two of the passengers sought medical care, and no-fault claims were submitted by their providers to the plaintiff, which insured McAdam (hereinafter collectively the Claim One defendants).

 

On December 22, 2011, a vehicle driven by the Bellefleur, which was owned by Fedee and contained two passengers, was also involved in a collision. Bellefleur and her passengers sought medical treatment and no-fault benefits, and the no-fault claims were submitted to the plaintiff, which insured Fedee.

 

Upon investigation, Progressive claimed the accidents were intentionally staged and fraudulent. It thereafter commenced this action seeking a judgment declaring, inter alia, that it had no duty to provide coverage for the no-fault claims submitted to it by the medical providers who had provided treatment to the Claim One and Claim Two defendants because the underlying accidents were deliberate and fraudulent. Progressive moved for summary judgment on the complaint insofar as asserted against the defendant Sovereign Acupuncture, P.C. (hereinafter Sovereign) and the lower court agreed with Progressive and held that Progressive had no duty to provide coverage for the claims submitted by Sovereign.

 

An intentional and staged collision caused in the furtherance of an insurance fraud scheme is not a covered accident under a policy of insurance.  However the court find that Progressive failed to establish as a matter of law on the ground that the subject accidents were staged. The uncertified police accident reports submitted by the plaintiff were not admissible. An affidavit of its medical representative relying on inadmissible evidence that lacked personal knowledge about the two accidents was insufficient.

 

Moreover, the Progressive failed to establish, prima facie, that McAdam and Fedee were in breach of their insurance contracts with the plaintiff because several defendants failed to attend their scheduled EUOs. The plaintiff failed to submit proof of mailing or evidence from someone with personal knowledge of the mailings of the EUO requests.

 

05/04/16       Vikram Construction, Inc. v. Everest National Insurance Co.

Appellate Division, Second Department

A Certificate of Insurance is Not a Policy and in This Case, There Was No Policy

On November 13, 2007,  Perdomo allegedly was injured during the course of his employment, while employed by Teji. Teji was a subcontractor to Vikram. Vikram alleges that Teji was required to maintain a commercial general liability insurance policy naming Vikram as an additional insured.

 

Vikram contended that Teji delivered to it a "certificate of liability insurance" stating that Teji had liability insurance with Atlantic Casualty Insurance Company (“Atlantic”) and that Vikram was an additional named insured. Vikram had in its possession a certificate of insurance which was dated December 13, 2007, and stated that the policy number was BINDER121307 with a policy term running from December 13, 2007, until December 13, 2008. The certificate further stated that it was "issued as a matter of information only and confers no rights upon the certificate holder. This certificate does not amend, extend or alter the coverage afforded by the policies below."

 

Atlantic established its prima facie entitlement to judgment as a matter of law declaring that it is not obligated to defend or indemnify Vikram in the underlying action by submitting evidence demonstrating that it did not issue a policy of insurance to Teji. Atlantic submitted the affidavit of its Vice President of Claims and never issued a policy that began with the letters "BINDER".

 

In opposition to Atlantic's prima facie showing, Vikram failed to raise a triable issue of fact. Even if the certificate of insurance produced by Vikram raised a triable issue of fact as to whether Atlantic issued a policy to Teji, the effective date noted on the face of that certificate was after the date of the incident upon which the underlying action is based.

 

Furthermore, Vikram's contention that the motion was premature is without merit. A party who seeks a finding that a summary judgment motion is premature is required to put forth some evidentiary basis to suggest that discovery might lead to relevant evidence or that the facts essential to justify opposition to the motion were exclusively within the knowledge and control of the movant other than hope and speculation.

 

04/28/16       Freeway Co., LLC v. Technology Ins. Co.

Appellate Division, First Department

A “Good Faith Believe in Non Liability” Requires Investigation

The First Department reaffirmed that insured landlords cannot bury their proverbial heads in the sand after an accident occurs by failing to inquire into the reasons surrounding the accident and the injuries suffered and later, after suit is filed, rely upon a “good faith belief in non-liability” as an excuse for their failure to timely notify their insurer of the accident.

 

The facts from the trial court decision revealed that the superintendent of the building actually witnessed the accident, was aware that a subcontractor’s employee had been injured while working at the building and even told the building owner about the accident, yet it neither investigated to determine the severity of the injuries or the reason for the fall, instead assuming that  worker’s compensation was the injured worker’s recourse.  In yet another pre-prejudice case, the First Department found that such assumption “demonstrates that [the insured] unreasonably failed to keep itself informed of potential claims for damages arising from the incident” and thus, upheld the insurer’s denial of coverage based on late notice.

 

The notice received by the insurer was less than two years post-accident, and was received via a default judgment which was later vacated at the request of the insured.  Such vacatur might well have resulted in a different decision under the new prejudice rules.

Editor’s Note:  My thanks to my friend and great coverage lawyer, Sherri Pavloff, of Farber, Brocks & Zane, LLP, who both successfully handled this appeal on behalf of the carrier and wrote this summary.  She’d be happy to answer any questions you may have about the matter and she may be reached at (516)739-5100.

 

04/28/15       United Services Automobile Association v. Iannuzzi

Appellate Division, First Department, Plaintiff-Appellant-Respondent,

Insured’s Guilty Plea to Third Degree Assault Collaterally Estops Him from Getting Coverage, Even if He Did Not Know What Injury He Caused

The insured pleaded guilty to third-degree assault (Penal Code § 120.00[1] ["With intent to cause physical injury to another person, he causes such injury]"). Thus, he is collaterally estopped to litigate in this declaratory judgment action the issue of his intent to inflict bodily injury on the person he injured (the claimant).

 

While "accidental results may flow from intentional causes", the insured knew that when he hit the claimant, after flipping him over his shoulder onto the pavement, injuries could result.  The harm to the claimant was inherent in the nature of the act, although the injuries may have been more extensive than defendant intended.

 

Since the acts at issue were outside the scope of coverage, timely disclaimer pursuant to Insurance Law § 3420(d) was unnecessary.
Editor’s Note:  A fine result.  Had the term “reckless” been within the criminal statute to which a plea had been made, the results may have been different.

 

04/27/16       Rockland Exposition, Inc. v. Marshall & Sterling Enterprises

Appellate Division, Second Department

Insurance Broker Freed from E&O Claim by Establishing that the Insured had Already Breached the Policy’s Notice Provisions by the Time It Advised the Broker of the Claim against It

Rockland Exposition, Inc. (“REI”), manages automotive trade shows. Great American Assurance Company (“Great American”) issued a primary commercial general liability policy to REI, which was obtained by REI's insurance brokers. The policy provided coverage for "personal and advertising injury" up to $1,000,000 per occurrence. It also provided that Great American had a duty to defend REI in an action to recover damages covered by the policy.

 

The policy obligated REI to notify Great American "as soon as practicable of an occurrence or offense which may result in a claim." Further, in the event a claim or suit was commenced against REI, the policy obligated REI to notify Great American in writing "as soon as practicable," and "immediately send [Great American] copies of any demands, notices, summonses or legal papers received in connection with the claim or suit.'"

 

On June 27, 2008, REI received a letter from an attorney representing the Association of Automotive Service Providers “AASP” , stating that AASP had commenced an action against REI on June 25, 2008,”(“AASP action”). The complaint in the AASP action alleged that REI, which had in the past contracted with AASP to run an annual trade show, had begun running advertisements for its own competing trade show, and had, inter alia, infringed on AASP's trademark in its advertisement. REI was served with the summons and complaint in the AASP action on July 11, 2008.

 

It is further undisputed that REI did not notify Marshall & Sterling (its “broker”) of the AASP action until August 18 or 19, 2008, until 52 days after it received notice. In September 2008, REI provided the broker with a copy of the summons and complaint in the AASP action. On October 1, 2008, the broker submitted REI's claim to Great American. By letter dated October 29, 2008, Great American denied coverage based upon, inter alia, REI's breach of the policy's notice provisions.

 

REI commenced an action against Great American in the United States District Court for the Southern District of New York and Great American was able to secure summary judgment, declaring that REI’s notice was late and the policy was breached.  This was a pre-prejudice statute case. REI filed an appeal of that Order to the Second Circuit.

 

While the appeal was pending, REI commenced this action against the the broker seeking damages for breach of contract, negligence, and breach of fiduciary duty. REI alleged, inter alia, that the defendants failed to properly process REI's claim and/or provide Great American with timely notice of its claim, thereby depriving REI of the benefit of insurance coverage for which it had paid substantial premiums.

 

The broker moved for summary judgment dismissing the complaint on the ground that REI had already breached the notice provisions of the policy, thereby vitiating coverage, by the time it notified the defendants of the AASP action on August 18 or 19, 2008. The defendants argued that, as such, any actions they took in processing the claim could not have been the proximate cause of REI's alleged damages. The Supreme Court granted the defendants' motion, and REI appeals.

 

The broker defendants established their prima facie entitlement to judgment as a matter of law by establishing that REI did not notify them of AASP's action until 52 days after it was first notified that AASP had commenced the action, and by establishing that REI's 52-day delay, if unexcused, was unreasonable as a matter of law  In opposition, construing all inferences in REI's favor, REI failed to raise a triable issue of fact as to whether it had a reasonable excuse for the 52-day delay. In this regard, REI proffered two excuses: (1) that it was unable to understand the complicated language of the policy so as to ascertain whether coverage was available, and (2) that it had a good faith belief in nonliability which was premised upon the advice of its attorneys.

 

As to the first excuse, while a justifiable lack of knowledge of insurance coverage may excuse a delay in reporting an occurrence, the insured must prove not only that [it] was ignorant of the available coverage, but also that it made reasonably diligent efforts to ascertain whether coverage existed".  There was no proof offered that it made any effort to inquire as to the possibility of coverage in connection with the AASP action during the 52-day period.

 

As to the second excuse, it is is not reasonable under the circumstances of this case. The policy provided that in the event a claim or suit was brought against REI, REI must notify Great American in writing "as soon as practicable" and "immediately send [Great American] copies of any demands, notices, summonses or legal papers received in connection with the claim or suit.'" While REI may have had a good faith belief that it would not be liable to AASP, what is at issue is not whether the insured believes he [or she] will ultimately be found liable for the injury, but whether he [or she] has a reasonable basis for a belief that no claim will be asserted against it. By June 27, 2008, REI had no basis upon which to believe that a claim would not be asserted against it because it was aware that AASP had already filed an action against it in federal court. granted the defendants' motion for summary judgment dismissing the complaint.

 

04/26/16       313-315 West 125th Street L.L.C. v. Arch Specialty Ins. Co.

Appellate Division, First Department
Underlying Trade Agreement Reformed to Reflect Real Owner for Purposes of Additional Insured Coverage
313 West is the owner of the building where the plaintiff in the underlying Labor Law action was injured while working on a construction project. Solil, 313 West's managing agent, hired K & K as the general contractor for the project pursuant to a written form agreement that referred to Solil as "the Owner."

 

The General Conditions of that agreement provided, inter alia, that K & K would indemnify and hold harmless "the Owner" and its agents to the fullest extent permitted by law against claims arising out of or resulting from performance of the work.

Arch issued a commercial general liability policy of insurance to K & K. When plaintiffs tendered their defense in the underlying action, Arch denied the tender on the ground that the underlying construction contract named Solil as the Owner and did not reference 313 West. As a result, plaintiffs commenced this declaratory judgment action seeking coverage. To the extent the agreement between Solil and K & K incorrectly identified Solil as the Owner, plaintiffs sought reformation of the contract.

A claim for reformation of a written agreement must be grounded upon either mutual mistake or fraudulently induced unilateral mistake. To succeed, the party asserting mutual mistake must establish by "clear, positive and convincing evidence" that the agreement does not accurately express the parties' intentions or previous oral agreement. Parol evidence may be used and reformation is an appropriate remedy where the wrong party was named in the contract.

313 West clearly and convincingly established that K & K intended to indemnify the true owner, 313 West, and that, as a result of mutual mistake, the agreement misidentified Solil, the managing agent, rather than 313 West itself, as the "Owner" of the property where the work was to be performed.

 

The agreement was signed by Solil's director of commercial management, Joseph Grabowski, "As Agent." Grabowski testified that he "negotiated the price and . . . signed the contract for the owner," by which he meant 313 West. Other witnesses concurred. Numerous provisions in the agreement were structured around the true property owner, 313 West, as the real party in interest, for whose benefit the work was performed.

 

Accordingly, the construction contract's provision requiring K & K to procure insurance covering "the Owner" as an additional insured referred to 313 West, rather than Solil, and the amendment of the insurance policy "to include as an additional insured those persons or organizations who are required under a written contract with [K & K] to be named as an additional insured" effectively names plaintiffs as additional insureds.

 

Potenza on Products

V. Christopher Potenza

[email protected]

 

05/03/16             Finerty v. Abex Controls, et al.

New York State Court of Appeals

Ford Motor Company (Ford USA) Not Liable Under Strict Products Liability for Products Distributed by British and Irish Affiliated Companies Under the Theory that Ford USA was the “Global Guardian of the Ford brand” and Played a Role in “Facilitating” Product Distribution

In this case, the plaintiff alleged that he was exposed to asbestos during the 1970s and 1980s while replacing asbestos-containing brakes, clutches and engine parts on Ford tractors and passenger vehicles in Ireland. Plaintiff subsequently emigrated to New York and was later diagnosed with an asbestos related disease.  Suit was commenced against Ford USA, Ford UK, and Ford Ireland, among others, alleging strict products liability under the theories of defective design and failure to warn.

 

Ford USA sought dismissal of the complaint on the ground that Ford USA did not manufacture, produce, distribute or sell the parts in question, and that they were in fact manufactured, produced, distributed and sold by its wholly-owned subsidiary, Ford UK.  The trial court ruling, upheld by the Appellate Division, was that there was an issue of fact as to Ford USA’s direct responsibility for plaintiff’s injuries because  Ford USA “exercised significant control over Ford [UK] and Ford Ireland and had a direct role in placing the asbestos-containing products to which [plaintiff] was exposed into the stream of commerce".

 

The Court of Appeals refused to expand the definition of a product distributor within the stream of commerce to include a parent company whose alleged role was “in facilitating the distribution of the asbestos-containing auto parts.” There was no question that the actual manufacturer and distributor of the products in question was Ford UK.  Although Ford USA controlled the “Ford” trademark as to how it was to be used on packaging of Ford products, it did not give directives as to what warnings, if any, were required to be placed on the packaging itself.

In short, Ford USA was not a party within the distribution chain, nor did it actually place the parts into the stream of commerce.

 

Ford USA may not be held liable under a strict products liability theory merely because it provided guidance to Ford UK in the design of certain tractor components.  Ford USA, as the parent corporation of Ford UK, may not be held derivatively liable to plaintiff under a theory of strict products liability unless Ford USA disregarded the separate identity of Ford UK and involved itself directly in that entity's affairs such that the corporate veil could be pieced. 

 

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

Robert E.B. Hewitt III

[email protected]

 

05/04/16                 Park v. Buondelmonte

Appellate Division, Second Department

Defendant Established Prima Facie Case through Competent Medical Evidence but Plaintiff’s Medical Evidence Created An Issue of Fact

The Appellate Division reversed the Supreme Court’s grant of summary judgment to the defendant.  The Appellate Division held the defendant met her prima facie burden of showing that the plaintiffs did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendant submitted competent medical evidence establishing, prima facie, that the alleged injuries to the cervical and lumbar regions of Hyun H. Cho's spine and the cervical region of Ji Hye Lee's spine did not constitute serious injuries under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d).  In opposition, however, the appellants raised triable issues of fact as to whether Hyun H. Cho sustained serious injuries to the cervical and lumbar regions of his spine and whether Ji Hye Lee sustained a serious injury to the cervical region of her spine (no facts are given).

 

05/04/16                 Telesco v Blackman

Appellate Division, Second Department

Jury Verdict Should Not Be Set Aside When Rational and Based Upon A Fair Interpretation Of The Evidence

Plaintiffs appeal from an order of the Supreme Court, which denied their motion pursuant to CPLR 4404(a) to set aside so much of a jury verdict as found that the plaintiff Patricia Telesco did not sustain a serious injury under the significant limitation of use category of Insurance Law § 5102(d) as a result of the subject accident and  awarded zero damages for future pain and suffering.

 

The facts are as follows: On April 30, 2010, the injured plaintiff Patricia Telesco (hereinafter Patricia) and the defendant Kyle Blackman were involved in a motor vehicle collision in Dutchess County. At trial, the plaintiffs submitted the video deposition testimony of a neurosurgeon who first examined Patricia in August 2010. The neurosurgeon testified that he found nothing abnormal in Patricia's neurological examination, and that there were no significant limitations in her range of motion. He also reviewed films from magnetic resonance imaging and a computerized tomography scan that were performed in July 2010, and observed a thoracic disk herniation. On September 23, 2010, the neurosurgeon performed surgery on the thoracic disk herniation. When asked if he had a prognosis for Patricia's thoracic spine after the surgery, he testified: "I think her prognosis is excellent from a neurologic perspective." The defendants also presented the testimony of a neurosurgeon who examined Patricia in October 2011, who found that "essentially everything is normal."

 

The jury found that Patricia did not sustain a serious injury under the significant limitation of use category of Insurance Law § 5102(d). It did find, however, that she sustained a serious injury under the 90/180-day category of Insurance Law § 5102(d). It awarded $60,000 for past pain and suffering and zero damages for future pain and suffering. The lower court denied the motion to set aide holding that the jury's verdict was a rational decision based upon a preponderance of the evidence

 

The Appellate Division held a motion for judgment as a matter of law pursuant to CPLR 4401 or 4404 may be granted only when the trial court determines that, upon the evidence presented, there is no valid line of reasoning and permissible inferences which could possibly lead rational persons to the conclusion reached by the jury upon the evidence presented at trial, and no rational process by which the jury could find in favor of the nonmoving party. In considering such a motion, the trial court must afford the nonmoving party every favorable inference which may properly be drawn from the facts presented, and the facts must be considered in a light most favorable to the nonmovant. Moreover, a jury verdict should not be set aside as contrary to the weight of the evidence unless the jury could not have reached its verdict on any fair interpretation of the evidence,

In order to show that a plaintiff sustained a serious injury under the significant limitation of use category of Insurance Law § 5102(d), he or she must submit evidence demonstrating that he or she sustained a significant limitation in the use of a body part, in both degree and duration. The Appellate Division concluded that, based upon the evidence presented at trial, there was a valid line of reasoning and permissible inferences which could lead rational people to the jury's conclusion that Patricia did not sustain a serious injury under the significant limitation of use category of Insurance Law § 5102(d) as a result of the subject accident.  It also found the jury's verdict was also based upon a fair interpretation of the evidence. Considering that the jury found that Patricia sustained a serious injury under only the 90/180-day category of Insurance Law § 5102(d), the jury's award of zero damages for future pain and suffering did not deviate materially from what would be reasonable compensation.

 

05/04/16                 Elson v. Nunez

Appellate Division, Second Department

Expert Opinion That Accident Did Not Cause Loss of Fetus Was Conclusory and Speculative and Did Not Address Normal Pregnancy until Crash

The defendants’ appeal from an order of the Supreme Court, which denied their motion for summary judgment dismissing the complaint insofar as asserted against them on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident.  The Appellate Division affirmed.  It held that the defendants failed to make a prima facie showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The affirmed report of their medical expert opined that the plaintiff's loss of her fetus, which was confirmed approximately two weeks after the defendants' van struck the rear of the sedan in which the plaintiff was a passenger, was unrelated to the accident.

 

However, the expert's opinion was based on alleged blood test results which the defendants failed to submit on the motion, and was otherwise conclusory and speculative. Moreover, the defendants submitted the plaintiff's deposition testimony in support of their motion, and their expert's affidavit failed to address the plaintiff's testimony that her pregnancy was normal until the collision, and that the symptoms of her miscarriage began almost immediately following the collision. Since the defendants failed to meet their prima facie burden, it was unnecessary to consider whether the papers submitted by the plaintiff in opposition were sufficient to raise a triable issue of fact.

 

04/29/16       Nyhlen v. Giles

Appellate Division, Fourth Department

Defendant Failed to Meet Initial Burden Where Plaintiffs Records Showed Prior Injuries Markedly Exacerbated by Accident

The Appellate Division affirmed the denial of summary judgment to defendants’. Plaintiffs commenced this action seeking damages for injuries allegedly sustained by Marc J. Nyhlen (plaintiff) when his vehicle was rear-ended by a vehicle operated by defendant. Plaintiff alleged that, as a result of the accident, he sustained a serious injury under the permanent consequential limitation of use, significant limitation of use and 90/180-day categories.  Defendant appealed from an order denying his motion seeking summary judgment dismissing the complaint on the ground that plaintiff's injuries were preexisting, and that plaintiff did not sustain a qualifying injury as a result of the accident.

 

The Appellate Division agreed with plaintiffs that Supreme Court properly denied the motion because defendant failed to meet his initial burden of establishing that plaintiff did not sustain a qualifying injury as a result of the accident.  Addressing first the significant limitation of use category, the Appellate Division noted that defendant submitted plaintiff's deposition testimony and medical records establishing that he had, inter alia, preexisting injuries to the cervical and lumbar spine, as well as the report of an IME physician who opined that plaintiff sustained only a cervical and lumbar strain as a result of the accident.

 

Nevertheless, defendant also submitted the reports of plaintiff's treating physician, who stated that plaintiff's cervical injuries were markedly exacerbated by the accident and that the lumbar injuries were solely the result of his motor vehicle accident. The reports also provide quantitative assessments of plaintiff's limited range of motion. Thus, the Appellate Division held that the defendant failed to eliminate all issues of fact whether plaintiff sustained a significant limitation of use of the cervical and lumbar spine as a result of the accident.

 

With respect to the 90/180-day category, defendant also submitted plaintiff's medical records stating that his level of disability varied from between 50% and 100% for 18 months following the accident. Thus, based upon the physician reports and medical records, together with plaintiff's deposition testimony, the Appellate Division concluded that defendant failed to eliminate all issues of fact concerning that category. Finally, based upon the same reports and records, it concluded that defendant failed to eliminate all issues of fact with respect to the permanent consequential limitation of use category.

 

04/29/16       Dunn v. Garrett

Appellate Division, Fourth Department

Plaintiff’s Motion for New Trial Granted Where Judge Improperly Allowed Expert to Opine on Plaintiff’s Credibility Based on Past Drug Use

The Appellate Division reversed the judgment to defendants and awarded plaintiff the sum of $26,605.00 as against defendants. The Appellate Division granted those parts of the Plaintiff’s motion seeking to set aside the verdict and grant a new trial. The facts are as follows: Plaintiff commenced this action seeking damages for injuries she allegedly sustained when the vehicle she was driving was struck from behind by a passenger bus while the vehicle was stopped at a red light. The bus was operated by defendant Darnell Garrett and owned by the other defendants.

 

Defendants conceded the issue of negligence, and a trial was held on the issues of causation, serious injury, and damages. The jury found that plaintiff did not suffer a serious injury as a result of the accident but awarded plaintiff economic damages. Plaintiff moved to set aside the verdict, for a directed verdict on the issue of serious injury, and for a new trial on the issue of damages or, alternatively, for a new trial as to all remaining issues but Supreme Court denied that motion.

 

Although plaintiff conceded on appeal that there was sufficient evidence to support the jury's verdict, she contends that the court erred in denying her motion on the grounds that defense counsel's improper attacks on her credibility, along with the court's confusing jury instructions, denied her a fair trial. The Appellate Division agreed with plaintiff that she was denied a fair trial.

 

The Appellate Division noted it is well settled that a cross-examiner at trial is bound by the answers of the witness to questions on collateral matters inquired into solely to affect credibility, and extrinsic evidence cannot be used to impeach a witness's credibility after the witness has provided an answer with which the cross-examiner is unsatisfied. Here, the defense counsel asked plaintiff during cross-examination whether she had failed an employment-related drug test, a collateral issue relevant only to plaintiff's credibility. In response, plaintiff testified that the test result was a false positive that was proved false upon retesting. Defense counsel then violated the collateral evidence rule when she not only referred to a lack of evidence supporting plaintiff's assertion, but introduced the drug test result in evidence in an attempt to impeach plaintiff's credibility.

 

The impact of that improper conduct was compounded when defense counsel thereafter questioned defendant's medical expert, over plaintiff's objection, about drug use history notations in plaintiff's medical records that, according to the expert, raised questions as to plaintiff's credibility. The Appellate Division concluded that the court erred in permitting the expert to opine on plaintiff's credibility, and further erred in permitting the expert to testify about entries in another doctor's records concerning allegedly inconsistent details about the accident. Those entries, which defense counsel mentioned in summation, were germane neither to treatment nor to diagnosis and were therefore not admissible under the business records exception to the hearsay rule and, because there is nothing in the record to establish that plaintiff was the source of the information contained in them, the entries were not admissible as admissions. Finally, despite the court's pretrial ruling precluding defendants from questioning plaintiff about a personal injury claim she had filed in connection with a prior accident, defense counsel, over objection, asked plaintiff if she had been involved in any legal action related to her neck and/or back condition. Because evidence of prior accidents and lawsuits related thereto may not be used to demonstrate that plaintiff is litigious and therefore unworthy of belief, this was improper. 

 

04/29/16       Heary v. Hibit

Appellate Division, Fourth Department

Defendant Entitled to Post-Surgical and Post Note of Issue IME Where Surgery was Substantial Change In Circumstances

The Appellate Division granted a new trial on damages.  The facts are as follows: Plaintiff commenced this action seeking damages for injuries she allegedly sustained in a motor vehicle accident. In her bill of particulars, plaintiff alleged that she sustained injuries to her cervical spine that qualified as a serious injury within the meaning of Insurance Law § 5102 (d) under the permanent consequential limitation of use, significant limitation of use and 90/180-day categories. At defendants' request, a neurologist performed an independent medical examination of plaintiff, and plaintiff thereafter filed a note of issue. After the note of issue was filed, plaintiff underwent spinal fusion surgery. Defendants sent a notice to plaintiff seeking a postsurgical IME by an orthopedist.

 

When plaintiff refused to submit to the requested postsurgical IME, defendants moved, inter alia, to compel her to do so. The Supreme Court denied that part of defendants' motion seeking to compel plaintiff to submit to the IME. A jury trial was conducted. The jury rendered a verdict in plaintiff's favor on liability, finding that she was not negligent and that she sustained a serious injury under each category alleged. The jury also awarded damages for, inter alia, past and future pain and suffering. Plaintiff moved to set aside the verdict with respect to the awards for past and future pain and suffering. The lower court, granted plaintiff's motion and ordered a new trial on damages for past and future pain and suffering unless defendants stipulated to increased awards in those categories.

 

The Appellate Division concluded that the lower court erred in denying that part of defendants' motion that sought to compel plaintiff to submit to a postsurgical IME by an orthopedist, holding there is no restriction in CPLR 3121 limiting the number of examinations to which a party may be subjected, and a subsequent examination is permissible where the party seeking the examination demonstrates the necessity for it. Here, defendants demonstrated a substantial change of circumstances, i.e., plaintiff's spinal fusion surgery, that necessitated an orthopedic IME.  Although plaintiff had submitted to an IME by a neurologist, her claimed injuries were both neurological and orthopedic, and defendants were thus entitled to an orthopedic IME. Plaintiff, moreover, failed to show that her prosecution of the action would be prejudiced by the additional IME by an orthopedist. 

 

The error in refusing to compel plaintiff to submit to the postsurgical IME, however, did not affect the jury's verdict with respect to the parties' respective fault. Nor does the error affect the jury's finding that plaintiff sustained a serious injury under the 90/180-day category. That satisfies the no-fault threshold, thereby eliminating that issue from the case and permitting the plaintiff to recover any damages proximately caused by the accident. Thus, inasmuch as the jury found that plaintiff sustained a serious injury under the 90/180-day category, and the postsurgical IME would not bear on that category, the error did not warrant disturbing the verdict on liability, i.e., negligence and serious injury.

 

However, the Appellate Division found that the error in refusing to compel plaintiff to submit to a postsurgical IME by an orthopedist was relevant to the verdict on damages. It therefore exercises our authority granted a new trial on damages.\

 

04/27/16       Jean-Pierre v. Park

Appellate Division, Second Department

Plaintiff Failed to Submit Medical Evidence Indicating an Issue of Fact Which Led to the Granting of the Motion

The Appellate Division affirmed the grant of summary judgment to defendants’. The Appellate Division found defendants met their prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. In opposition, the plaintiff failed to raise a triable issue of fact.  Accordingly, the Supreme Court properly granted that branch of the defendants' motion which was for summary judgment dismissing the complaint on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident.  No factual details are given in the decision.

 

04/27/16       Davis v. D.L. Peterson Trust

Appellate Division, Second Department

Motion Denied Where Defendant’s Own Expert Found Significant Unexplained Limitation of Range of Motion

The Appellate Division reversed the grant of summary judgment to defendants and the Appellate Division found the defendants failed to meet their prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident, as one of their experts found significant limitations in the range of motion of the lumbar region of the plaintiff's spine, and did not offer an opinion as to the cause of those limitations. Since moving defendants failed to meet their prima facie burden, it was unnecessary to determine whether the papers submitted by the plaintiff in opposition were sufficient to raise a triable issue of fact.\

 

4/27/16         Dymersky v. Potash

Appellate Division, Second Department

Defendant Failed to Address All Claims in Bill of Particulars

The Appellate Division reversed the grant of summary judgment to defendants. The Appellate Division found defendants failed to meet their prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The papers submitted by the defendants failed to adequately address the plaintiff's claim, set forth in his deposition testimony and the bill of particulars, that he sustained a serious injury under the 90/180-day category of Insurance Law § 5102(d).  Since the defendants failed to meet their prima facie burden, it was unnecessary to determine whether the papers submitted by the plaintiff in opposition were sufficient to raise a triable issue of fact.\

 

04/21/16       Katherine L. v. Segura

Appellate Division, First Department

Issue of Fact Where Defendant’s Expert Found Evidence of Degeneration and Plaintiff’s Expert Found No Such Evidence

The Appellate Division reversed the grant of summary judgment to defendants as to the claim of serious injury to the cervical and lumbar spine, and otherwise affirmed. The Appellate Division held that Defendants established prima facie that plaintiff's injuries were not causally related to the motor vehicle accident, through affirmed reports by a radiologist and an orthopedic surgeon who opined that the conditions in plaintiff's cervical spine, lumbar spine, knees, and wrists were degenerative in nature and unrelated to any trauma associated with the accident, and plaintiff's own medical records, including MRI reports that contained similar findings concerning her knees.

 

In opposition, the Appellate Division held plaintiff raised an issue of fact as to her cervical and lumbar spine injuries by submitting affirmed reports by her radiologist, who found bulging and herniated discs and did not note any degeneration, and her treating doctor, who measured continuing range of motion limitations and opined that the spinal injuries were caused by the accident, in light of the 27-year-old plaintiff's lack of history of injuries or complaints and the MRI findings.  Although plaintiff did not submit reports by the doctor who treated her shortly after the accident, her current doctor averred that plaintiff had been examined and treated at the same facility by another doctor, who referred her for MRIs, which were taken one month after the accident and revealed her disc injuries.

 

This evidence of contemporaneous treatment and symptoms was sufficient to reliably connect plaintiff's spinal injuries to the accident. In contrast, the Appellate Division considered plaintiff's medical evidence insufficient to causally relate her claimed knee injuries to the accident, because her own MRIs showed evidence of degeneration, and her doctor did not address those findings and explain why they were not a cause of the injuries. Plaintiff failed to provide any medical evidence rebutting defendants' prima facie showing that the injuries to her wrists were degenerative.

 

TESSA’S TUTELAGE
Tessa R. Scott
[email protected]

 

05/04/16       Progressive Cas. Ins. Co. v Metro Psychological Servs., P.C.

Appellate Division, Second Department

An Affidavit Intended to Establish Proof of Mailing Must Demonstrate that the Mailing Procedure is Designed to Ensure That All Items are Properly Posted to The Correct Party

The plaintiffs commenced this action for a judgment declaring that they are not obligated to provide insurance coverage for any of the no-fault claims submitted to them by the defendant on the ground that the defendant failed to comply with conditions precedent to reimbursement under the no-fault laws and regulations and insurance laws of this state. After the defendant interposed its answer, the plaintiffs moved for summary judgment on the complaint. The plaintiffs argued, inter alia, that the defendant failed to comply with the provision of the insurance policy which required that the defendant submit to an examination under oath (hereinafter EUO), and therefore the plaintiffs were not obligated to provide insurance coverage for the no-fault claims submitted by the defendant. The defendant cross-moved for summary judgment, dismissing the complaint, arguing that the denial of claim letters issued by the plaintiffs were defective. The Supreme Court granted the plaintiffs' motion and denied the defendant's cross motion. The defendant appeals.

 

On appeal, the defendant contends, inter alia, that the plaintiffs' motion for summary judgment should have been denied because the plaintiffs failed to establish that the letters scheduling the EUOs at issue were timely and properly mailed. Generally, "proof that an item was properly mailed gives rise to a rebuttable presumption that the item was received by the addressee."  The presumption may be created by either proof of actual mailing or proof of a standard office practice or procedure designed to ensure that items are properly addressed and mailed.'" However, for the presumption to arise, the office practice must be geared so as to ensure the likelihood that the item is always properly addressed and mailed. "Denial of receipt by the insured[ ], standing alone, is insufficient to rebut the presumption" (id. at 829-830).

 

As the defendant correctly contends, the plaintiffs failed to establish that they timely and properly mailed the EUO letters to the defendant. The affirmation of the plaintiffs' counsel contained conclusory allegations regarding his office practice and procedure, and failed to establish that the practice and procedure was designed to ensure that the EUO letters were addressed to the proper party and properly.

 

Since the plaintiffs failed to establish their prima facie entitlement to judgment as a matter of law on the issue of the timely and proper mailing of the EUO letters, their motion for summary judgment on the complaint should have been denied, regardless of the sufficiency of the defendant's opposition papers.

 

The defendant's cross motion for summary judgment, however, was properly denied, as the defendant failed to establish that the denial of claim letters issued by the plaintiffs were conclusory, vague, or otherwise defective.

 

04/28/16       Empi Inc v. DAF Cab Corp

Arbitrator Bargnesi

The Invoice Tracking Inquiry Does not Constitute Proof of Mailing

This case arose out of a motor vehicle accident which occurred on January 23, 2010. The 23 year-old allegedly sustained injuries to his knee, ankle and back after being involved in an altercation with a cab driver.

 

Joyce Goldenberg, MD, prescribed the disputed IF unit, which was dispensed on March 4, 2010. Respondent asserted that the bill in question was not submitted until February 1, 2011, nearly one year after the date of service.

 

Respondent argued that the bill in question was not submitted until February 1, 2011, nearly one year after the date of service. Where a claimant has failed to submit its claim within 45 days after the rendition of medical services, the claim must be denied.

 

Time limitations for the submission of proof of claim shall apply unless the eligible injured person or that person's representative submits written proof providing clear and reasonable justification for the failure to comply with such time limitation. Applicant submitted an undated "invoice tracking inquiry" purportedly pertaining to the bill in question, which indicated that Applicant's bill was printed on March 11, 2010 and mailed on March 15, 2010. It also listed "reprint dates" of January 27, 2011 and October 21, 2014.

 

The invoice tracking inquiry did not constitute proof of timely mailing as it simply stated that the bill was mailed. There was no indication of the type of mailing utilized (e.g. first class mail or certified mail). In addition, the name(s) of Applicant's employee(s) who completed the Invoice Tracking Inquiry entry and actually mailed the bill was not set forth anywhere on this document, nor was the date of loss which could connect this bill to the instant claim.

 

Based on the above, Arbitrator Bargnesi denied Applicant’s claim for reimbursement.

 

05/02/16       Buffalo Neurosurgery Group v. Geico Insurance Co.

Arbitrator Brown

An IME Report Requires a Detailed Explanation of The Factors Which Directed the Conclusion that a Procedure was not Medically Necessary

This claim arises from a motor vehicle accident which occurred on 5/18/12. The EIP sustained injury to her neck, left shoulder and back, and began having "headaches, numbness and tingling." She did not lose consciousness and she did not seek emergency medical attention on the date of the accident. She went to an emergency room two days later. She then went to her physician on 6/1/12, complaining of neck pain radiating to her mid-back. On 10/22/14 she underwent the procedure which is the subject of this arbitration: a cervical spine fusion, and related procedures, performed by surgeon P. Jeffrey Lewis. Reimbursement for the procedure has been denied based on a peer review prepared by Dr. Joseph Mormino, MD, a neurosurgeon.

 

A denial claiming lack of medical necessity must be supported by a peer review, IME report or other competent medical evidence which sets forth a clear factual basis and medical rationale for denying the claim. The Respondent must establish a detailed factual basis and a sufficient medical rationale for its position that the medical service was not medically necessary.

 

Arbitrator Brown found that respondent did not met its burden of proving lack of medical necessity through sufficient competent medical evidence.  Arbitrator Brown in consideration of Dr. Mormino’s report stated “His brief discussion of his conclusion contains a recitation of several factors, with no explanation as to why he believed each particular factor was or was not important.” Arbitrator Brown concluded that the notes and records submitted clearly showed a cervical injury that is different than the one for which the EP had previous surgeries.  Arbitrator Brown noted that the IME report was not sufficient in that it did not provide any meaningful rationale to support its conclusion, especially in light of the fact that every provider has characterized it as being causally related to the accident of record.

 

PEIPER ON PROPERTY (and POTPOURRI)

Steven E. Peiper

[email protected]

 

04/28/16       Williams v Prudential Financial, Inc.

Appellate Division, First Department

Statements of Agent Cannot Waive or Alter Terms of Insurance Policy

Plaintiff’s husband purchased two separate policies of life insurance from Prudential.  Unfortunately, those policies lapsed due to non-payment of premium and could not be reinstated.  Plaintiff commenced the instant action against Prudential and her insurance agent.

 

Plaintiff claimed that the policies were extended due to certain assertions made by the agent.  However, as noted by the Appellate Division, an agent cannot waive or alter provisions of the insuring contract without the authority to do so.  Here, the agent at issue had no such authority, and Prudential’s denial was affirmed.

 

Moreover, with regard to the claim against the agent, plaintiff argued that he had breached his duty to obtain the coverage requested.  While the Court agreed that failure to maintain insurance is akin to failing to procure the coverage in the first place, here plaintiff possessed no evidence that the agent ever agreed to ensure that the policies in question did not lapse.  As such, the agent did not breach any obligation to plaintiff or her late husband.

 

WILEWICZ’S WIDE WORLD OF COVERAGE

Agnes A. Wilewicz

[email protected]

 

05/03/16       Matter of Viking Pump, Inc.

New York Court of Appeals

Court Of Appeals Holds That All Sums Allocation and Vertical Exhaustion Apply Where Excess Policies Contain (Or Follow Form To) Non-Cumulation Provisions

In what is considered to be a huge win for policyholders, the Court of Appeals has ruled that in excess policies containing non-cumulation or anti-stacking provisions, all sums is the proper allocation method, rather than pro rata allocation. Moreover, in such policies, vertical exhaustion should be applied, rather than relying on “other insurance” provisions to compel horizontal exhaustion of underlying policies.

 

That essentially means that excess layers may be liable for an entire excess environmental loss/claim, even where not all underlying policies are exhausted.

 

In terms of the meat of this case, it stems from insureds (Viking Pumps, Inc. and Warren Pumps, LLC) which acquired pump manufacturing  businesses from Houdaille Industries in the 1980s. As it happened, those acquisitions resulted in significant potential liability exposure in connection with many asbestos-related claims. Houdaille had had extensive multi-year insurance from 1972 to 1985, which the Viking companies inherited. Liberty Mutual provided about $17.5 million in primary coverage and about $42 million in umbrella excess coverage, through successive annual policies. On top of that, Houdaille also had a number of additional excess layers totaling in over $400 million in coverage – i.e. the “Excess Insurers” layers. As the Liberty layers neared exhaustion and the Excess Insurers approached exposure, this litigation ensued to determine whether the excess policies were implicated and, if so, how indemnity should be allocated across the triggered policy periods.

 

Since the majority of the Excess Insurers’ layers contained follow-form provisions, the language of the Liberty policies became critical. There, the Liberty umbrella policies provided that the insurer would “pay on behalf of the insured all sums in excess of the retained limit which the insured shall become legally obligated to pay, or with the consent of [the Insurer], agrees to pay, as damages, direct or consequential, because of: (a) personal injury ... with respect to which this policy applies and caused by an occurrence” (emphasis added). “Occurrence” was defined as “injurious exposure to conditions, which results in personal injury” which, in turn, was defined as “personal injury or bodily injury which occurs during the policy period”.

 

Further, the Liberty policies contained “non-cumulation” of liability or “anti-stacking” provisions, providing that “if the same occurrence gives rise to personal injury, property damage or advertising injury or damage which occurs partly before and partly within any annual period of this policy, then each occurrence limit and the applicable aggregate limit or limits of this policy shall be reduced by the amount of each payment made by [Liberty Mutual] with respect to such occurrence, either under a previous policy or policies of which this is a replacement, or under this policy with respect to previous annual periods thereof”. Those excess policies that did not follow form actually contained similar “Prior Insurance and Non-Cumulation of Liability” provisions.

 

In interpreting these provisions, the underlying court held that the non-cumulation and prior insurance provisions in the policies “evinced a clear and unambiguous intent to use all sums allocation”. That is, pro-rata apportionment did not apply. However, it was unable to reconcile its conclusion that vertical exhaustion thus applied, with New York precedent requiring horizontal exhaustion with respect to primary and umbrella policies. Thus, the Court of Appeals weighed in.

 

Repeatedly referencing the policy language and emphasizing general principles of contract interpretation, the Court of Appeals held that the language above was clear. The presence of the non-cumulation clause (or non-cumulation and prior insurance provision) mandated an all sums approach. Citing persuasive authority from around the country, the Court held that “it would be inconsistent with the language of the non-cumulation clauses to use pro rata allocation here. Such policy provisions plainly contemplate that multiple successive insurance policies can indemnify the insured for the same loss or occurrence by acknowledging that a covered loss or occurrence may ‘also [be] covered in whole or in part under any other excess [p]olicy issued to the [Insured] prior to the inception date’ of the instant policy”.

 

It went on to state: “By contrast, the very essence of pro rata allocation is that the insurance policy language limits indemnification to losses and occurrences during the policy period – meaning that no two insurance policies, unless containing overlapping or concurrent policy periods, would indemnify the same loss or occurrence. Pro rata allocation is a legal fiction designed to treat continuous and indivisible injuries as distinct in each policy period as a result of the ‘during the policy period’ limitation, despute the fact that the injuries may not actually be capable of being confined to specific time periods. The non-cumulation clause negates that premise by presupposing that two policies may be called upon to indemnify the insured for the same loss or occurrence. Indeed, even commentators who have advocated for pro rata allocation have recognized that non-cumulation clauses cannot logically be applied in a pro rata allocation.” The language of these policies clearly evidenced an intent to use all sums.

 

With respect to exhaustion, the insurers had tried to argue that horizontal exhaustion must apply (i.e. all primary and other underlying policy limits must be exhausted before reaching any excess coverage). They argued that the “other insurance” clauses mandated that result. The Court of Appeals rejected that premise. “Here, the Insureds are not seeking multiple recoveries from different insurers under concurrent policies for the same loss, and the other insurance clause does not apply to successive insurance policies.” Indeed, vertical exhaustion in such a case is more consistent with the language of these policies, where the excess policies span the same policy periods. “Further, vertical exhaustion is conceptually consistent with an all sums allocation, permitting the Insured to seek coverage through the layers of insurance available for a specific year. [...] Thus, in light of the language in the excess policies tying their attachment only to specific underlying policies in effect during the same policy period as the application excess policy, and the absence of any policy language suggesting a contrary intent, we conclude that the excess policies are triggered by vertical exhaustion of the underlying available coverage with the same policy period.”

 

JEN’S GEMS

Jennifer A. Ehman

[email protected]

 

04/25/16       Valle v. New York Prop. Ins. Underwriting Assn.

Supreme Court, New York County

Court Finds Question of Fact as to the Applicability of Anti-Concurrent Causation Clause

Plaintiffs’ house on Fire Island sustained damage during Hurricane Sandy.  Defendant moves for summary judgment on its policy’s water exclusion, and seeks and order dismissing the complaint.

 

Defendant’s policy provided $600,000 in coverage for plaintiffs’ house and $40,000 in contents coverage and loss of rental income.  Plaintiff also had a policy of flood insurance through Travelers.  The full limit of that policy was paid.  Defendant paid a portion of plaintiffs’ claim for damage to the roof of their house, which it determined was clearly damaged only by wind.  Plaintiffs then commenced this action.  Defendant submitted that the remaining damage was caused by flood, tidal waters or storm surge which were excluded based on the water exclusion.  And, even if wind was one of the multiple cause, as long was one of the excluded causes was a contributing cause, the loss was not covered based upon the “anti-concurrent causation clause.” 

 

In opposition, plaintiffs argued that their claim for coverage is not a “concurrent loss” within the meaning of the anti-concurrent causation clause, since the loss was limited to windstorm damage.  Plaintiffs alleged that their house was damaged when wind along caused the second floor of the neighboring house and striking the roof and southwest corner of their house splitting it in two, knocking it off its pilings onto the ground where it was ultimately subjected to water damage when it toppled into the ocean.  They claimed the loss was covered since the windstorm loss occurred before the house was caused to fall onto the ground and be affected by the water.  A concurrent loss was not involved, since any damage from water or storm surge did not occur until after the house suffered structural damage as a result of windstorm.  In support of this assertion, plaintiffs submitted reports from two structural engineers and an affidavit from a licensed home improvement contractor. 

 

In considering this argument, the court noted that an anti-concurrent causation provision applies only to multiple concurrent sequential causes of the same loss or damage (i.e. when multiple forces lead to a single direct physical loss or damage to property).  It does not apply when separate and distinct losses are caused by separate and distinct perils or physical forces. 

 

In reply, defendant submitted an expert affidavit agreeing that the second floor of the neighboring property dislodged and impacted the southwest corner of plaintiffs’ property, but opined that the wind forces were not sufficient to cause the dislodgement.  Rather, he submitted that the waves and storm surge caused the first floor to collapse and separate from the second floor.  The buoyant second floor then impacted plaintiffs’ property. 

 

Since the experts sharply disagreed as to whether wind alone, or waves and storm surge caused the second story of the neighboring house to separate from the first floor and come into contact with plaintiff’s house, the reports and affidavits raised material issues of fact as to the question of causation which could not be resolved in the context of a motion for summary judgment.

 

BARNAS ON BAD FAITH

Brian D. Barnas

[email protected]

 

05/03/16       Lee v. State Farm Mutual Automobile Insurance Company

United States District Court, Eastern District of California

Amount in Controversy Exceeded $75,000 in Bad Faith Claim based on Plaintiff’s claims for Emotional Distress and Punitive Damages

On January 22, 2015 Plaintiffs’ 2007 Mercedes E350 was allegedly stolen.  The vehicle was located in an aqueduct on January 27, 2015, and the damage to the vehicle rendered it a total loss.  Plaintiffs provided their insurance carrier, State Farm, with a notice of loss.  After an investigation, State Farm denied coverage.

 

Plaintiffs filed an action alleging breach of contract and breach of the implied covenant of good faith and fair dealing in Merced County Superior Court.  State Farm filed a notice to remove based on diversity jurisdiction.  Subsequently, Plaintiffs filed a motion to remand the action to state court.

 

The issue before the magistrate was whether the amount in controversy exceeded $75,000.  The court concluded that the value of the policy benefits in controversy, i.e. the value of the totaled vehicle, was $19,370.44.  Plaintiffs were also seeking damages for emotional distress caused by State Farm’s alleged breach of the implied covenant of good faith and fair dealing.  Plaintiffs’ complaint alleged that they had suffered mental and emotional distress in excess of the jurisdiction minimums of the state court, which was $25,000 by California statute.  Accordingly, the court determined that the amount in controversy relative to emotional distress was $25,000.

 

The court also considered Plaintiffs’ claims for punitive damages, which are available under California law for breach of implied covenant claims.  The court determined that if Plaintiffs’ allegations about State Farms’ investigation were proven true they could support a claim of punitive damages.  Therefore, the court determined that the amount of punitive damages at issue was at least $44,370.44.

 

Based on the value of the vehicle, the alleged emotional distress, and the punitive damages, the court concluded that the amount in controversy requirement was satisfied.  Having reached the threshold based on those three items, the court declined to determine if attorney fees should count towards the amount in controversy.

 

04/25/16       Travelers Property Casualty Company of America v. Stresscon Corporation

Supreme Court of Colorado

Bad Faith Verdict Overturned after Insured Failed to Notify the Insurer of Settlement

Stresscon was a subcontracting concrete company insured by Travelers.  Stresscon’s claim for relief arose from a serious construction accident in July 2007, which was caused by a crane operator employed by a subcontractor of Stresscon.  Mortenson, the general contractor that hired Stresscon, sought damages from Stresscon, which, in turn, sought indemnification from Travelers.

 

As of December 31, 2008, Travelers had not paid the damages asserted by Mortenson.  As of December 31, 2008, Mortenseon also had yet to bring a lawsuit against Stresscon.  Nonetheless, on that date Mortenson and Stresscon entered into a settlement agreement without consulting Travelers.  In March 2009 Stresscon filed suit against Travelers, the subcontracting crane company, and various other insurers.  Stresscon asserted claims of bad faith against Travelers, and ultimately won a verdict for bad faith breach of the insurance contract.

 

Before the verdict, Travelers moved for summary judgment on the ground that it owed no duty of indemnification to Stresscon for the amount of its settlement with Mortenson based on a no-voluntary-payments provision of the policy.  The provision provided, in essence, that the insured was not to voluntarily make a payment or assume an obligation or expense without Travelers’ consent.  Travelers argued that it was not required to indemnify Stresscon because it entered into the settlement with Mortenson without its consent. 

 

Travelers’ summary judgment motion was denied, and the court also denied its motion for directed verdict based on the same grounds.  The court reasoned that the no-voluntary-payments provision only relieved Travelers from its indemnity obligation if it could demonstrate it was prejudiced by the settlement, which created an issue of fact for a jury.

 

The Supreme Court of Colorado reversed and concluded that coverage was barred by the no-voluntary-payments provision.  Regarding the bad faith verdict, the court reasoned that an insured resorting to self-help couldn’t expand coverage beyond the express terms of the insurance policy.  The court also concluded that, based on these facts, Travelers was not required to demonstrate it was prejudiced by the settlement to rely on the no-voluntary-payments clause.

 

04/21/16       Fox Paine & Company LLC v. Houston Casualty Company

Supreme Court, Westchester County

Hon. Alan D. Scheinkman

Insured was not Entitled to Discovery Privileged Documents Solely because Action Sounded in Bad Faith

This case, and numerous others, arose out of the disintegration of the relationship between Fox and Paine, equal partners in a private equity management firm, FPC.  Fox was the founder of FPC and Paine was FPC’s President from 1997 through 2007.  FPC obtained a primary private equity policy underwritten by HCC and three excess policies.

 

Fox alleges that Paine and certain executives of FPC engaged in conduct detrimental to the company’s interests.  Fox commenced an action against Paine, and Paine countersued Fox.  During the course of the litigation, FPC’s policy provided coverage to Paine.  Fox brought a claim against its insurer, HCC, arguing that it breached its implied covenant of good faith and fair dealing by providing coverage to Paine, who Fox alleges was not an insured, distributing the entire limit of the policy to Paine, and failing to advise Fox of Paine’s claims against FPC.

 

The case came before the court on Fox’s motion to compel.  Fox argued, among other things, that HCC was barred from asserting any privilege as to demanded documents because the litigation sounded in bad faith.  The trial court rejected this argument.  The court noted that there are cases holding that an insurer cannot shield discovery that would otherwise be protected as attorney-client communication or attorney work product in actions where the insured alleges the insurer failed to provide a defense or failed to settle in bad faith.  However, this case did not involve a failure to settle or provide a defense.  Thus, HCC was able to assert attorney-client privilege and work product in discovery.

 

The court also rejected Fox’s argument that the entirety of HCC’s claim log should be disclosed without redaction.  In support of its argument, Fox argued that the claim log was prepared in the ordinary course of business and its form would be the same regardless of any potential litigation.  The court rejected this argument, and it refused to order disclosure of portions of the claim log that were privileged or irrelevant.

 

The court also provided an interesting commentary on discovery of reserves.  The court determined that HCC’s redaction of information regarding reserves did not prejudice Fox, and HCC was not required to provide entries regarding reserves.  The court reasoned that reserves were not relevant to the case.  In so ruling, it contrasted the case at bar with actions where an insured claims that the insurer negligently evaluated the worth of the claim.  In such cases, the amount of the reserve would be relevant.

Editor’s Note:  there’s a lot of good stuff in this decision.

 

 

PHILLIPS’ FEDERAL PHILOSOPHIES

Jennifer J. Phillips

[email protected]

 

04/27/16       Li v. Certain Underwriters at Lloyd’s, London, Axis Speciality Europe SE

Eastern District of New York

A Successful Offense on Defense Costs

Defendant Insurers sold a Directors and Officers Legal Liability Policy to the Federacion Internationale de Football Association (“FIFA”).  The policy provided, as relevant, “world-wide” coverage to “Insured Persons,” including members of FIFA’s management and supervisory bodies, for “defense costs incurred to defend any actual or alleged wrongful acts and also [i]nvestigation costs.”  The policy contained a forum selection and choice of law clause providing that, “[f]or any disputes arising under this insurance relationship, a Swiss place of Jurisdiction and the application of Swiss law shall be deemed to be agreed.”

 

Plaintiff Li, who held positions with various FIFA committees and FIFA-related organizations, was indicted in May 2015 by a grand jury in the Eastern District of New York on charges of international racketeering conspiracy and related crimes connected to his FIFA duties.  Li sought coverage for the cost of his defense and expenses related to extradition proceedings (Li was arrested in Switzerland).  The Insurers disclaimed based on an exclusion of coverage for “claims for damages” in the USA based, in part or whole, on alleged violations of what is commonly known as the Racketeer Influenced and Corrupt Organizations Act, or “RICO”. 

 

Li filed suit in state court in New York against the Defendant Insurers, and Defendants removed the matter to federal court.  Procedural hijinks ensued, following which the court ruled that, due to the pendency of the criminal charges against Li in the Eastern District, the Insurers’ voluntary appearance before the court, and the need to insure the insurance dispute did not interfere with a fair and efficient criminal trial for Li, it would assert ancillary jurisdiction over the matter despite the parties’ belated concession that no other appropriate basis for asserting subject matter jurisdiction actually existed.

 

The Insurers moved to dismiss based on the forum selection clause (requiring adjudication by a Swiss court) and on forum non conveniens (inconvenient venue) grounds. The district court found that under Swiss law –which was chosen by the policy – required the application of a particular international treaty on jurisdiction, which in turn instructed that courts interpreting this treaty were to be guided by the decisions on the European Court of Justice (“ECJ”).  So guided, the district court found precedent from the ECJ persuasive in determining that Li, although an insured under the policy, was not a signatory to that document, and as such he was not bound by the forum selection clause.  Further, any inconvenience to the Insurers from litigating in New York was outweighed by, among other things, the need for stability in the attorney-client relationship in the criminal trial.

 

Li moved for a preliminary injunction requiring the Insurers to pay his criminal defense costs while the insurance issue was being litigated. To obtain a preliminary injunction, a movant generally needs to establish irreparable harm and either a likelihood of success on the merits or sufficiently serious questions regarding the merits making these questions a fair ground for litigation and a balance of hardships tipping in the movant’s favor. The district court noted that, when a party seeking an injunction seeks to impose an affirmative obligation on a defendant, rather than merely maintain the status quo, that plaintiff must make a clear showing of his or her entitlement to that relief, or establish that “extreme or very serious damage will result from a denial of preliminary relief.”  The district court found, however, that this heightened standard did not apply “[w]here an injunction will require a party to do what it ‘should have done earlier.’” 

 

The district court noted precedent recognizing the potential extreme or very serious adverse effect on a criminal defendant from a failure to have adequate representation during the critical pre-trial phase of a criminal proceeding, effects that would have “ramifications beyond the money that will necessarily be involved.  There is the damage to reputation, the stress of litigation, and the risk of financial ruin – each of which is an intangible but very real burden.” (quoting In re World Com. Inc., Securities Litigation, 354 F.Supp.2d 455 (SDNY 2005)).  The district court therefore concluded that “[b]ecause the Insurers have refused to advance any defense costs to Li as he has incurred them, and prior to his trial, Li faces an actual and imminent injury and has established irreparable harm.”

 

In determining Li’s likelihood of success on the merits, and thus his entitlement to a preliminary injunction, the district court rejected the Insurers’ proposed bases for disclaiming coverage.  The court noted that the Insurers had abandoned their earlier reliance on the “meritless” RICO exclusion.  The court then described the policy’s terms as “generous,” providing:

 

an insured with “world-wide” coverage for “defence costs incurred to defend any actual or alleged wrongful acts.” Policy § 1.1. The Policy further provides in section 3.10, “Should the question of any wrongful intent be at issue, cover shall be granted for the defence costs.” Policy § 3.10. In addition, the Policy provides an insured with coverage for “Investigation costs,” which include costs arising from “any formal hearing, examination or inquiry by an official body into the affairs of a company or outside entity, or an Insured Person of such entity.” Policy § 1.1. The obligation to pay “Investigative costs” is triggered when an insured person “is identified in writing by an investigating official body as a target of the hearing, examination or inquiry.” Id. In addition, section 1.10, “Extradition Costs Extension,” provides coverage for “the reasonable legal fees, cost, and expenses, incurred by an insured person” arising out of extradition proceedings. Policy § 1.10.

 

 Li has made a clear showing that the Insurers are required to pay the legal costs of his defense, investigation, and extradition. First, Li is “alleged” to have committed “wrongful acts” in the indictment returned in United States v. Webb, thereby obligating the Insurers to pay his “defence costs” under the Policy. Second, the indictment has “identified [Li] in writing ... as a target” of an “inquiry” and a “hearing” by “an official body,” thus triggering the Insurers' obligation to pay his “Investigative costs.” Third, Li incurred legal fees in connection with his extradition from Switzerland to the United States, thereby triggering the Insurers' obligation to pay those fees under the “Extradition Costs Extension” provision of the Policy.

 

The district court rejected the Insurers attempt to argue that an indictment was not an “investigative proceeding” within the meaning of the policy, finding that such an interpretation was “hardly apparent from the language of the contract,” the Policy specifically included “any formal hearing” in its definition of “investigation.”

 

The court also rejected the argument that Li was not an Insured Person under the policy because he never acted in a managerial or supervisory capacity.  The court found that, by its plain terms, the policy did not limit coverage to only managerial members of FIFA committees, but expansively included any “Chairmen and executives and any person acting in a comparable function / capacity of any FIFA Commission, standing or ad-hoc committee.”

 

Finally, the district court found without merit the Insurers’ argument that there was no coverage because the indictment made it “readily clear that the claims against Li have nothing to do with his association with FIFA” and that he acted for his own “personal gain.” The court highlighted that the indictment expressly referenced Li’s service on “multiple FIFA standing committees.” Further, the Insurers had failed to “specify a relevant provision of the contract or applicable law warranting a denial of coverage on these grounds.”

 

Accordingly, the district court found that Li had established a likelihood of success on the merits.  The court further found that the balance of hardships tipped in Li’s favor, as if no injunction issued, Li would “likely be deprived of his chosen counsel at this critical time, and sustain a conviction he might otherwise have avoided, while the Insurers, in any event, are relieved of their obligation to advance funds pending a final resolution.  If, on the other hand, an injunction is issued, the Insurers face only monetary loss which may be recouped as provided in the Policy.”  The court therefore granted the preliminary injunction and ordered the Insurers to advance Li his defense costs.

 

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

 

11/24/15       State Farm Mutual Automobile Insurance Co. v. Epright

Middle District of Florida
The Interaction of Jurisdiction and Choice Of Law Provisions

The Eprights owned Chestelm Health Care, Inc., a Connecticut company, but they divided time between Florida and Connecticut.  One of them was driving a Florida-registered car owned by the company when it was involved in an accident in Connecticut in May 2013.  The wife sustained personal injuries and sued in Connecticut against her husband, the company, and the other driver.  The vehicle was insured under a policy obtained in the name of the company from a Florida agent for State Farm.  Significantly, the policy contained a choice of law provision that Florida law controls, and in this instance would exclude coverage for bodily injuries sustained by insureds and resident relatives.  State Farm filed a declaratory judgment action in Florida seeking a declaration that the choice of law provision applied and that Florida law applied (and the spouse’s claims will therefore eventually be excluded).

 

The Defendants moved to dismiss claiming that the Connecticut company, Chestelm, is not subject to personal jurisdiction in Florida, and requested that the case be transferred to Connecticut.  The motion was denied.  The Court ruled that the Connecticut company had “purposefully availed itself” in conducting business in Florida by contracting to insure the Florida-registered vehicle though the State Farm agent in Naples, Florida.  The Court stated that it should have been reasonably anticipated that any litigation regarding the policy obtained in Florida insuring a Florida registered vehicle would be decided by the Florida courts. 

 

The Court further added that the individuals were at least partly Florida residents, the policy rating was based on their Florida address, and the policy contained a Florida choice of law provision.  The fact that the car accident in question occurred in Connecticut was significant information, but it was not the basis, or controlling, of the declaratory judgment action.  The Court further noted that, on a legal policy basis, Florida had a legitimate interest in the legal and consistent interpretation of insurance policies issued within the State and their terms.

 

With respect to jurisdiction, and even determination of applicable law, the site of the claim is important, but here it was not determinative.  The second important feature of this case is that choice of law or choice of venue provisions in policies can be important not only from a procedural standpoint, but they can have substantive importance since certain state laws and regulations may or may not allow certain claims, exclusions, govern denials and disclaimers differently, and deal with insurance claims differently.  Although this motion was technically to dismiss the declaratory judgment action for lack of jurisdiction, that motion was denied, and presumably the next motion would be on a substantive basis to dismiss coverage for the spouse’s claim based upon controlling Florida (and not Connecticut) law.  The choice of law provision and the procedural motion thereby laid the foundation for the eventual substantive motion to disclaim coverage.

 

One also suspects that the Florida Court clearly saw that the claimants were essentially forum shopping, attempting to get all claims and coverage issues before Connecticut courts applying Connecticut law.  However, it is noteworthy that State Farm as well engaged in at least some minimal forum shopping by initiating the declaratory judgment action in Florida hoping to find a friendlier audience than if they initiated the declaratory judgment action in Connecticut where the personal injury suit was pending.  Indeed, the entire point of the choice of law provision was to invoke Florida law excluding coverage for the spousal claim.

 

It is also interesting that whether or not the spouse has a cause of action would be decided under Connecticut law, but whether that claim would be covered by the policy might be decided under and nixed by Florida law under the policy exclusion.  It is also interesting to query whether, if the vehicle had been registered through the corporate address in Connecticut, the decision would have been more difficult or different.

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