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Coverage Pointers - Volume XVII, No. 25

Volume XVII, No. 25 (No. 455)

Friday, June 3, 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. 

 

Thousands Flee:

 

Regular readers of this column will know that I use the term “thousands flee” when I think a monumentally awful decision has been released by an appellate court.  This issue contains one of those.  Stick with me.  I’ll get to it.

 

Welcome to the penultimate issue of Volume 17 of Coverage Pointers, which first was transmitted to 25 electronic subscribers in July 1999.  Though I was practicing in 1981, I wasn’t producing Coverage Pointers then.  I was the Assistant Sysop of the Law Special Interest Group (LAWSIG) on Compuserve starting around 1990, but that wasn’t known as a “blog”.  As a matter of fact, the term “blog” doesn’t appear with any regularity in the trade press until the 1990’s.  But I digress.

 

In 1981, the Court of Appeals issued its landmark decision in Public Service Mutual v. Goldfarb, New York’s version of Cumis, a decision handed down three years before Cumis made independent  or Cumis Counsel  a household term.  Goldfarb was a dentist, who was accused of molesting his patients while they were under anesthesia or some such thing.  The E&O policy issued to Dr. Goldfarb provided coverage for “undue familiarity” (whatever that is) and the Court held that Dr. Goldfarb was entitled to independent counsel of his choosing, whose fees would be paid by the carrier, because of the potential conflict of interest.  The policy did not cover assault and battery.

 

Interesting as that was, what is often overlooked in the Goldfarb decision was a peculiar paragraph that read as follows, the bolding being mine:

 

Furthermore, if a finding that defendant Goldfarb intended to injure defendant Schwartz is made in a special verdict, he would be precluded from seeking indemnity from his insurer for either compensatory or punitive damages flowing from this intentional causation of injury. This is so because to allow such indemnity would be to violate the “fundamental principle that no one shall be permitted to take advantage of his own wrong”.

 

Pub. Serv. Mut. Ins. Co. v. Goldfarb, 53 N.Y.2d 392, 400-01, 425 N.E.2d 810, 814-15 (1981)

 

While we have no problem with the concept that there should be no indemnity for intentional assault, it’s the first sentence that I would have dissected as somewhat non-sensical or at least, impractical.  The concept of a “special verdict”.

 

Why?

 

In the  personal injury action, the defense counsel (whether selected by the insured or the insurer) has the same obligation, to protect the interests of the defendant, Goldfarb and to do nothing to compromise its coverage interests.  The insurer, Public Service in that case, is not a party in the patient’s case against the doctor.  Accordingly, the concept of a “special verdict” in that case to determine assault or non-assault (“undue familiarity?) is problematic:

 

·       The insurer is not a party and therefore cannot present proof of assault;

·       Since it is not a party, or in privity with a party that is presenting proof, it will not be bound by that decisions in any event;

·       The defense counsel cannot ask the judge to charge the jury to answer a special question on assault because to do so would/could lead to a determination that the client has no coverage;

·       The plaintiff’s lawyer won’t present proof or ask for a special verdict because that lawyer wants coverage as well;

·       The judge can’t or won’t ask the question to the jury because nobody will request the charge and in any event, no proof of non-covered conduct would be presented to the jury.

 

Accordingly, the high court’s suggestion of a special verdict made little practical sense and since 1981, that concept has faded away.

 

So what happens?

 

Insurers commence declaratory judgment actions so that they can present the proof that isn’t being presented in the underlying action.  It is fairly established that the decision in the underlying case would not be binding on the insurer because it wasn’t a party and didn’t have the opportunity to present proof.

 

Why am I rehashing this case?  Is it because I didn’t have a chance to blog on it in 1981?  Perhaps.  But, more significantly, a First Department decision handed down on May 31 silently salutes Goldfarb and suggests a protocol which, if adopted, can cripple declaratory judgment actions in the future. 

 

If you read one case this week, read the First Department’s decision in the Greenwich case. 

 

The issue in the Greenwich was whether or not the injuries to the plaintiff arose “in whole or in part” by the actions of the named insured (so as to provide coverage for the purported additional insured).  The court held that because those issues will be resolved in the liability phase of the underlying negligence actions, all discovery and motion practice in this declaratory judgment action should be stayed pending the resolution of the liability phase in those negligence actions.

 

Five days earlier, the AXIS decision, also reported by the First Department, also left the “fact finding” to the underlying case.

 

Let me suggest the following problems with Greenwich, ala Goldfarb:

 

·       The insurer is not a party and therefore cannot present proof of the issue;

  • Since it is not a party, or in privity with a party that is presenting proof, it will not be bound by that decisions in any event;
  • The defense counsel cannot ask the judge to charge the jury to answer a special question on the issue because to do so would/could lead to a determination that the client has no coverage;
  • The plaintiff’s lawyer won’t present proof or ask for a special verdict because that lawyer wants coverage as well;
  • The judge can’t or won’t ask the question to the jury because nobody will request the charge and in any event, no proof of non-covered conduct would be presented to the jury.

Sound familiar?  Stay the discovery in the declaratory judgment action?  For what practical purpose?  So that a decision can be made in an underlying action that is not binding on the insurer?  So parties can waste thousands of dollars trying a personal injury action when it will turn out that there is no coverage after a separate and later declaratory or direct action?

Thoughts?

 

Insurance Coverage Mediation or Arbitration

 

Resolving the Complex without the Substantial Costs of Litigation

 

There are times when insurers wish to resolve complex insurance coverage disputes without the expense and costs of trial and without the risk of potentially adverse judicial precedent.  We have encouraged the mediation and/or arbitration of complex insurance coverage claims and our office can assist insurers and insureds in bringing reasoned resolution to coverage disputes.

 

I have and can serve as a mediator to help resolve complex insurance coverage disputes (and often, the parallel underlying claims).  Why spend the money and the time to litigate these questions when resolution by mediation or arbitration can bring closure to hotly contested matters in relatively short order for substantially reduced costs?

 

I have has been handling complex insurance coverage matters for over 35 years.  For over 25 years,  I have served as an Adjunct Professor of Insurance Law at the Buffalo Law School, serve as an expert witness in insurance coverage matters throughout the United States, Canada and in the London market and have arbitration and mediation certification.

 

If we can help you as a mediator, contact me at [email protected] or 716.849.8942.

 

The Electric Chair Was Humming a Great Deal a Century Ago:

 

The New York Times

New York, New York

3 Jun 1916

 

TWO DIE IN SING SING CHAIR.

 

Champlain and Supe Pay the

Death Penalty for Murders.

 

Special to The New York Times.

 

OSSINING, N. Y., June 2.—Roy Champlain and Giovanni Supe were put to death in Sing Sing this morning, the former for the murder of his uncle in Wellsville, the latter for the murder of Frederick Battiollo in Westbury.

 

Dr. Arthur A. Waite, the poisoner, heard the men being led to their death, but was unconcerned, while Oreste Shillitoni, the “Paper Box Kid,” awaiting death for the murder of John Rizzo and Policemen Heeney and Teare in this city in 1913, lost his nerve completely. 

 

He smashed his porcelain wash basin with a stool, beat against the bars of his cell and made the prison ring with hideous cries.  Principal Keeper Frederick Dorner, with Keepers Bullard and Nicholas, finally overpowered him while Dr. A. O. Squires administered a drug, which quieted the half-crazed man. 


Editor’s Note:  See the story about Dr. Waite “the poisoner” below.  By the way, in 1916, 14 were executed while sitting in “Old Sparky” in Sing Sing, including Father Hans B. Schmidt, the only priest every to be executed in the United States.

 

Killing All the Fun – 100 Years Ago:

 

The Brooklyn Daily Eagle

Brooklyn, New York

3 Jun 1916

 

BOYS SHOULDN’T ‘HITCH ON’

 

Hearing on Safety Ordinances

Held by Aldermen.

 

Hearings on four ordinances relating to the “rules of the road” were held before the Committee on Public Welfare of the Board of Aldermen yesterday afternoon.

 

These ordinances provide for the prevention of “hitching on” motor vehicles and wagons, a practice which, according to the representatives of the Safety First Society of New York present at the hearing, is the cause of many accidents to children; for guarding the unprotected side chains of motor vehicles; for eliminating the glare of automobile headlights, and for safeguarding automobiles when left unattended in the street.

 

Wilewicz’ Wide World of Coverage:

 

Dear Readers,

 

Lots to bring you this week, so we will dive right into it. We have a full complement of three Second Circuit decisions dealing with knowing violations, lightning strikes (or corrosion, as it were), and dock collapses. Then, since we are following digital and cyber coverage cases from around the country, we have an Eighth Circuit case that’s making waves in that realm.

 

First, in National Fire v. E. Mishan, the Second Circuit took up the issue of whether the duty to defend was triggered where arguably most of the claims would be barred by policy exclusions, but not all. The insured was sued in a couple of class actions that alleged violations of numerous consumer protection laws, as well as for breach of contract, unjust enrichment, and fraud. Its carriers asserted the applicability of the “knowing violation exclusion” as a bar to coverage, and thus obviated their duty to defend. However, the Second Circuit held that knowledge or intent were not actually required elements of breach of contract or unjust enrichment. Since the insured could possibly be held liable to the underlying plaintiffs for those causes of action, the insurers had a duty to defend all of the claims.

 

In Lantheus Medical v. Zurich, the Second Circuit interpreted a corrosion exclusion relative to a business interruption claim. The insured had to suspend dozens of production runs for its products when lightning struck a nuclear reactor that Lantheus depended upon, and that reactor was down for fifteen months. The carrier found evidence and had supporting expert witnesses attest to the fact that the shutdown was at least in part caused by the thinning or corroding of the reactor walls, notwithstanding the suddenness of the lightning strike. The insured instead argued that corrosion was a gradual process that happened over time and not as sudden as this breakdown was. The Circuit Court agreed with the insurer – the damage was caused at least in part by the corrosion. With a clear corrosion exclusion, there was no coverage.

 

Next, in Fireman’s Fund v. Great American, the Second Circuit wrote a tome on material misrepresentations voiding policies. In a huge 80-plus page opinion, the court interpreted the facts surrounding a dock collapse that resulted in property damage and considerable environmental remediation costs. Unfortunately, the insured evidently knew about the deteriorating condition of the dock prior to the underwriting of its various policies. They had in their possession surveys, reports, and audits that showed it was falling apart. That, coupled with uncontroverted testimony from underwriters that they would not have written the risk had they known the truth, acted to void those policies. Since they effectively never existed, there was no coverage for any of the claims.

 

Finally, in State Bank of Bellingham v. BankInsure, Inc., the Eighth Circuit found in favor of the policyholder in a digital fraudulent transfer case. There, an employee had left a computer on overnight, which permitted hackers to access the bank’s systems and transfer nearly half a million dollars into accounts overseas. The bank had had coverage under a financial institution bond, for things such as employee dishonesty and computer systems fraud. After the loss, the de facto insurer denied the claim, arguing that the parties had contracted around the Minnesota “concurrent-causation doctrine”, which would otherwise have brought the claim within the scope of coverage. The Eighth Circuit disagreed. The bond was legally considered an insurance contract and thus the doctrine did apply. Since the overriding cause of the loss was criminal activity of a third party, there was coverage for it.

 

See you all in a couple of weeks!

 

Agnes

Agnes A. Wilewicz

[email protected]

 

Humor in 1916:

 

The Brooklyn Daily Eagle

Brooklyn, New York

3 Jun 1916

 

A TRUE PROPHET.

 

One of the attractions of the church fete was a fortune teller’s tent.

 

A woman took her ten-year-old, red-haired, freckled son inside.  The woman of wisdom bent over the crystal ball.

 

“Your son will be a very distinguished man if he lives long enough!” she murmured, in deep, mysterious tones.

 

“Oh, how nice!” gushed the proud mother. “And what will he be distinguished for?”

 

“For old age,” replied the fortune teller, slowly.—Philadelphia Public Ledger.

 

Barnas on Bad Faith:

 

Hello again.

This edition of Barnas on Bad Faith is coming to you from 60 Centre Street in beautiful New York, New York. Like many of my fellow columnists and team members before me, I too am now getting the joy of preparing my Coverage Pointers from the road. Luckily, I am expecting to return in time for game 1 of the NBA Finals tonight. As a lifelong resident of Buffalo, I certainly understand all too well the long championship drought that our neighbors on Lake Erie have endured. Accordingly, you can mark me down as rooting for the Cavaliers this series, even if they did knock out my Toronto Raptors.

No New York bad faith cases to report on this week, so the cases in the column focus elsewhere. A couple of basic rules to consider this week: first, if the claimant is not a party to the insurance contract or an intended beneficiary, he may not bring a direct action against an insurer for bad faith absent a judgment or assignment.  This rule is illustrated in the McVay case from the Ninth Circuit discussed below.

Second, under Florida Law, a bad faith cause of action may not be brought against an insurer until there has been a coverage determination. The usual practice when such a claim is brought before the coverage determination is made is to abate the bad faith claim pending resolution of the coverage issue. This is exactly what the court did in DSK Group, which featured the unusual situation of an insured arguing there was no coverage under its policy.

Third, a bad faith cause of action commenced against an insurer in federal court must contain sufficient facts to state a plausible claim that the insurer acted in bad faith. Mere legal conclusions and labels are not enough. The complaint in Canizares contained insufficient facts to support the insured's bad faith claim, and, as such, it was dismissed.

Finally, it's a bit late but, in the wake of Memorial Day, I wanted to use this space to thank all of the brave men and women, past and present, of the United States Military for their service. It's important to remember their service not just on Memorial Day, but every day.

Signing off,


Brian

Brian D. Barnas

[email protected]

 

Helen Keller in the News, a Century Ago:

 

The Evening World

New York, New York

3 Jun 1916

 

TEACHING DEAF TO SING,

SUCCESS IS CLAIMED

 

COLUMBUS, O., June 3.—Teaching a deaf person to sing, a feat which hitherto has been considered impossible, has been accomplished by Mrs. Christian Born, wife of a Columbus brewer, after weeks of experimenting with Magdalene Sattler, an eighteen-year-old Cleveland student at the State school for the deaf here, according to announcement today.

 

Miss Helen Keller of New York, the eminent deaf and blind student, is in Columbus for the purpose of testing out Mrs. Born’s new process.  Thomas A. Edison, the inventor, also is said to be interested in Mrs. Born’s experiments. 

 

The new teaching method consists of facial expressions, accompanied by piano tones, which the student cannot hear.  To date the Cleveland girl has mastered more than an octave of notes. 

 

HEWITT’S HIGHLIGHTS:

 

Dear Subscribers:

 

Another new month, another edition. As the weather turns warmer and the school year begins to wrap, the serious injury cases march on. Unfortunately, in this edition, the Second Department issued many decisions in which the factual basis underlying their decision is not set forth, and just rote descriptions of the law and conclusions are given. However, there’s a couple of decisions of interest this week. In one case, we are reminded that if you hit another vehicle from behind, the presumption will be you are at fault, and you must come forth with a non-negligent reason for hitting that vehicle which does not include that the first vehicle stopped suddenly. You are expected to be far enough behind to deal with sudden stops.

 

Another issue is the use of collateral estoppel when decisions were made, such as by the workers compensation board, on issues before the court. Collateral estoppel is only available, the court tells us, when the issues and the parties are identical and the person had a full and fair opportunity to be heard. Finally, once you are in a “battle of the experts,” in which one expert finds no range of motion limitations and degenerative injury, and the other says the opposite, you are likely going to find that the motion for summary judgment will be denied, as these issues are for juries to decide.

 

Hope you enjoy yourself this summer. My beloved Yankees are struggling but the Mets are playing decent ball.

 

Until next time,

 

Rob
Robert Hewitt

[email protected]

 

Republican Convention on the Horizon:

 

Bisbee Daily Review

Bisbee, Arizona

3 Jun 1916

 

“DARK HORSE” CANDIDATE

LOOMS AT CHICAGO

But Roosevelt Is Boomed Now

With Big Chance Of Winning

Against Entire G. O. P. Field

 

REPUBLICANS TO

MEET PROGRESSIVES

 

Hughes, Root, Cummins,

Weeks, Fairbanks, Sherman

and Burton Will Also

Run For Nomination

 

CHICAGO, June 2.—There were numerous conferences between party leaders today but so far as could be learned no agreement on candidates was reached and there was no development that accurately indicated which candidate was likely to be nominated for president.

 

While on the surface the fight appears to be between Roosevelt and Hughes, or Roosevelt against the field, there was marked activity at the headquarters of the various favorite son candidates.  Managers of Root, Weeks, Burton, Fairbanks, Cummins and Sherman booms insisted that their candidates would remain in the fight until the end.  They declared that tabulating the votes claimed for Roosevelt that the nomination would go either to one of the favor sons or to a dark horse.  The plan of the old organization leaders is said to be to try and win first with Root and if they fail in this effort to give Burton, Weeks, Fairbanks and Sherman a tryout in the convention in the order named.  In the event of failing to put over any of these the plan is to try and win with a dark horse, according to reports in circulation.  Senator Warren G. Harding, of Ohio, and Governor McCall, of Massachusetts, were mentioned as possibilities. 

 

Editor’s Note:  The 1916 Republican National Convention was held in Chicago from June 7 to June 10. A major goal of the party's bosses at the convention was to heal the bitter split within the party that had occurred in the 1912 presidential campaign. In that year, Theodore Roosevelt bolted the GOP and formed his own political party, the Progressive Party, which contained most of the GOP's liberals. William Howard Taft, the incumbent president, won the nomination of the regular Republican Party.

 

This split in the GOP ranks divided the Republican vote and led to the election of Democrat Woodrow Wilson. Although several candidates were openly competing for the 1916 nomination—most prominently conservative Senator Elihu Root of New York, Senator John W. Weeks of Massachusetts, and liberal Senator Albert Cummins of Iowa—the party's bosses wanted a moderate who would be acceptable to all factions of the party.

 

They turned to Supreme Court Justice Charles Evans Hughes, who had served on the court since 1910 and thus had the advantage of not having publicly spoken about political issues in six years. Although he had not actively sought the nomination, Hughes made it known that he would not turn it down; he won the nomination on the third ballot. Former Vice-President Charles W. Fairbanks was nominated as his running mate. Hughes was the only Supreme Court Justice to be nominated for president by a major political party. Fairbanks was the last former vice president to be nominated for vice president a second time.

 

Jen’s Gems:

 

I write this note just getting back from Albany where I had an appearance this morning.  Nothing like logging nine hours in a car before 3:30 in the afternoon. 

 

Hope everyone had a nice Memorial Day weekend.  It was definitely a busy one for us.  Ella’s 4th Birthday was last week (shocking, I know), and we threw a party for her at the house on Saturday.  All week I was nervous about it raining instead the weather was about 90 degrees and sunny.  A forecast which may have been worse for our guests since we are one of the few holdouts that still do not have central air.  There are only a few days a year that Buffalo gets hot enough to need it (at least in my opinion), but Saturday was definitely one of them.    

 

In terms of my column this week, I have nothing to report.  Apparently, the trial courts are starting their summer vacations a little early.  Hopefully, I will have more to share next week. 

 

Until then…

 

Jen

Jennifer A. Ehman

[email protected]

 

Dr. Waite, the Poisoner – A Century Ago:

 

Escanaba Morning Press

Escanaba, Michigan

3 Jun 1916

 

WAITE MUST DIE;

SAYS HE IS READY

 

New York, June 2.—Dr. Arthur Warren Waite was on Thursday sentenced to die in the electric chair at Sing Sing some time during the week beginning July 10.

 

Before the confessed murderer of John E. Peck, Grand Rapids, Mich., millionaire, was sentenced, he thanked the court for the manner in which the trial was conducted.

 

“I am willing to give my life in partial payment for the wrong I have done others,” Waite said, in a speech to the court.

 

Dr. Waite was calm and displayed no emotion whatever when the sentence was pronounced.

 

Ossining, N. Y., June 1.—Dr. Waite Thursday afternoon entered the death house at Sing Sing and became prisoner No. 67821.

Editor’s Note: The Crime

Dr. Arthur Warren Waite, a dentist in New York shared his luxury apartment on Riverside Drive with his wife's retired parents. His father-in-law, John Peck, was a wealth druggist and Waite wanted the money. However, his in-law appeared healthy and Peck decided to help them to an earlier death.

Waite put together a mixture of diphtheria and influenza germs, and added these to his mother-in-law’s food. After a series of doses, the elderly woman became ill, and her condition steadily deteriorated, until she finally died in January 1916. Waite tried the same with John Peck, but it didn’t seem to work.

After several failed attempts, to hasten his father-in-law's death, he added a dose of what he described to their family servant simply as “11 medicine" to tea and soup served to Peck one evening. He died shortly thereafter, two months after his wife. The medicine was arsenic.

Unfortunately for Dr. Waite, there was a recognized test for arsenic poisoning and the investigators conducted the test and learned of the poison.

He was convicted of Dr. Peck’s death and shortly before his execution, he admitted to Mrs. Peck’s poisoning, a crime nobody had suspected.   He was put to death in the electric chair on May 24, 1917.

 

Phillips Federal Philosophies.

 

Hello, All:

 

I hope everyone enjoyed their long weekend and kickoff to summer.  I myself spend a large part of it engrossed in Joe Hill’s ‘The Fireman,’ which was surprisingly not a treatise on the use of experts in arson cases as I expected.  It was, however, excellent.  (Full-service firm here, folks, case summaries and book recommendations.)

 

This week’s fishing expedition into Second Circuit’s district courts landed an interesting issue in the form of a report and recommendation on a motion to remand a declaratory judgment coverage action back to the state court from whence it came.  The plaintiffs, purportedly additional insureds on several policies, had commenced the action against all relevant insurers, the named insured, and the claimant in a separate personal injury action.  The insurers took the party to federal court, arguing that the named insured and the claimant shouldn’t be on the guest list.  The Magistrate Judge agreed, and recommended that the district court keep the case.  Spoilers:  I disagree, and wonder if the district court will too.

 

As always, thanks for reading.

 

J.

Jennifer J. Phillips

[email protected]

 

Help Wanted Male:

June 3, 1916

Atlanta Constitution

 

Army of the United States Men Wanted.  Able-bodied, unmarried men between ages of 18 and 35; citizens of the United States who can speak, read and write the English language.  For information apply to recruiting officer, 574 Cherry Street, Macon …

 

Tessa’s Tutelage:

 

Dear Readers,

 

This week I am writing from the baseball diamond. I have been appointed Co-captain of our firm’s softball team.  Admittedly, we are not as capable with softball as we are at the practice of law.

 

This week the court was less active on the No-fault front.  As such I have included a decision by Arbitrator Brown concerning the burden of the claimant to establish medical necessity after the burden has been shifted.  

 

Wish us luck on the field!

 

Tessa

Tessa R. Scott

[email protected]

 

For Sale:

  June 3, 1916
Atlanta Constitution

 

For Sale – Automobile Coupe, 2-passenger Oakland; best suited for a doctor, against the rain and dust of summer and the cold of winter.  Price $400.  Dr. C, 817 Healy Bldg.   Bell phone Ivy 878.

 

Editor’s Note: The Oakland Motor Car Company of Pontiac, Michigan was an American automobile manufacturer and division of the General Motors. Founded in 1908, it was purchased by General Motors in 1909, the company continued to produce modestly priced automobiles until 1931 when it was absorbed into Pontiac. I’ll assume, because nobody cares, that Dr. C was selling a four-year old Oakland Coup that might have looked like this one.

 

The Legal Profession on the Editorial Page:

 

Kingston (NY) Daily Freeman

June 3, 1916

 

Business never suffers for lack of some form of activity which will furnish business for the legal profession.  The day of what were known as “line fence” cases almost faded from the courts a number of years ago.  “Hoss” cases are a rarity.  Assault and slander still maintain a respectable standing.  The insurance law is quite well settled, although new questions occur not infrequently over the rights of third parties.  The day of negligence cases almost disappeared with the passage of workmen’s compensation acts, but the increasing automobile traffic is furnishing a new class of cases, primarily for personal injuries to take their place. The European war is furnishing a new class of cases involving war contracts …

 

All these will keep the courts busy for some time and when business in that line begins to slacken, there will be something new.  Old and well-tried principles are involved in all of these cases but disputes arise over the application of the principles to certain facts and the courts must continue to remain the arbiter between litigants.  The legal profession may have its ups and downs, its busy seasons and its dull days, but until men have attained a state of perfection or else adopt pacifism in their ordinary affairs of life, there will always be opportunity for the lawyer and no immediate apprehension need to be felt that the profession will die and become forgotten.
Editor’s Note:  I didn’t know, I checked.  A “hoss case” is litigation over the ownership or care of a horse.  “Line Fence” cases deal with property lines between owners.

 

Peiper’s Postings:

 

We start this week with an observation.  Earlier today, I had occasion to visit one of the more unique courthouses we have in this State.  At least, what used to be one of our more unique courthouses.  If you have never experienced Orange County Supreme Court in all of its “tanish” concrete luster, it looked like it belonged in a Lego Movie.  That was, ahem, before flooding and subsequent mold destroyed much of the architectural “features” of the complex.  My visit today revealed that the old courthouse is being re-constructed.  While I could not yet tell what shape it would ultimately take, from a distance it appeared that it would be losing some of its geometric charm.  We’ll keep you posted. 

 

Speaking of flooding and mold, during my travels I also heard the upcoming forecast for Atlantic Hurricane Season.  While it appears that the year is projected to fall in the somewhat normal category, forecasters are expecting approximately 8 hurricanes with 2 or 3 major storms.  While New York is not Florida, as we all found out in 2011 and 2012 we are not immune from impact.   If you’re on a CAT Team, you are no doubt beginning preparations.  If we can help, please drop us a line. As  long time readers may recall, for the past several years I’ve partnered with excellent first party lawyers across the South to publish an annual CAT Update. While we currently do not have plans to conduct a live training session this summer, we will be publishing the 2016 update in the near term. If you’re interested in getting the update, or learning more, please don’t hesitate to drop me a line.

 

That’s it for now.  Hope to see those of you in the WNY area at tomorrow’s Insurance Coverage update. 

 

P.S. Having visited 30+ Supreme Court buildings in NY, my favorite remains Cooperstown which hosts the Otsego County Supreme Court – just up the street from the baseball Hall of Fame. 

 

Highlights in this week’s edition, attached:

 

 

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

 

  • Despite Snow and Ice Removal Exclusion, Insurer had Duty to Defend Snow and Ice Slip and Fall when Bill of Particulars Contained General Maintenance Claims (Under NJ Law)
  • Blanket Additional Insured Endorsement Required Both Defense and Indemnity on Primary Basis, ala Pecker Iron Works
    Question of Fact Exists on Existence of Coverage for Offending Vehicle and a Framed Issue Hearing Needs to be Conducted
  • One Can Occupy a Vehicle When Standing Outside of It. Anti-Stacking Provisions of SUM Endorsement May be Applicable
    The Policy Excludes What It Excludes
  • Court Stays Declaratory Judgment Action Pending Outcome of Tort Action; Thousands Flee
  • Cannot Resolve Underlying Factual Issue in Early Declaratory Judgment Action  


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

Robert E.B. Hewitt III

[email protected]

 

  • Defendant Failed to Address the 90/180-Day Category of Claims
  • Plaintiff Established an Issue of Fact Despite Defendant’s Medical Report Establishing a Prima Facie Case That the Injury Did Not Constitute a Serious Injury
  • Plaintiff’s 90/180-Day Claim Left Unaddressed by Defendants’ Papers
  • Prima Facie Case of No Serious Injury under the Permanent Consequential Limitation or Significant Limitation of Use Categories Rebutted by Plaintiff
  • Workers Compensation Decision not Binding on Plaintiff Where Issues in Litigation Were Not All Raised Before Workers Compensation Board
  • Defendant Demonstrated a Prima Facie Case that the Injuries to Plaintiff’s Spine Did Not Constitute A Serious Injury
  • Leave to Amend Bill of Particulars Granted Where Potentially Meritorious Even Without Showing Reasonable Excuse For the Delay
  • Battle of the Experts as to Whether Plaintiff Had Range of Motion Limitations and Degenerative Symptoms Led to Issue of Fact

 

TESSA’S TUTELAGE
Tessa R. Scott

[email protected]hurwitzfine.com

 

Litigation:

 

  • An Arbitrator's Award Directing Payment In Excess Of The Monetary Limit Of A No-Fault Insurance Policy Exceeded The Arbitrator's Power And Constituted Grounds For Vacatur Of The Award.
  • The No-Fault Policy Issued By Petitioner Was Void Ab Initio Due To Respondent's Assignor's Failure To Attend Duly Scheduled Independent Medical Exams

 

Arbitration:

 

  • A EIP's Subjective Characterization Of Pain, Contrary To Objective Testing, Does Not Prove Medical Necessity

 

 

PEIPER ON PROPERTY (and POTPOURRI)

Steven E. Peiper

[email protected]

 

  • Absent a Special Duty, a Party is Not Liable for the Negligence of an Independent Contractor
  • “Acts or Omissions” Indemnity Language Sinks Completely Unrelated Contractor
  • Agent Defeats Carriers Motion for Indemnity Due to Alleged Breach of Agreement

 

 

WILEWICZ’S WIDE WORLD OF COVERAGE

Agnes A. Wilewicz

[email protected]

 

  • Where Not Every Cause of Action Requires Showing of Knowledge or Intent, “Knowing Violation Exclusion” Insufficient to Preclude Defense Obligation, Says Second Circuit
  • Second Circuit Holds That Corrosion Exclusion Unambiguously Bars Coverage for Business Interruption Where Corroded Nuclear Reactor Was Struck by Lightning
  • Second Circuit Holds That Insured’s Failure to Disclose Deterioration Condition of Marine Dock, Which Subsequently Collapsed, Was a Material Misrepresentation Sufficient to Void the Policy
  • Eighth Circuit Finds Coverage for Digital Fraud Under Financial Institution Bond Issued to Bank, Holding Concurrent-Causation Doctrine Applied

 

JEN’S GEMS

Jennifer A. Ehman

[email protected]

 

  • Nothing to report.  Trial courts quiet.

 

BARNAS ON BAD FAITH

Brian D. Barnas

[email protected]

 

  • Conclusory Allegations of Bad Faith were Insufficient to Support Cause of Action, but Just for Now
  • Under Florida Law, Abatement of Plaintiff’s Bad Faith Claim was Proper Pending Resolution of the Coverage Dispute
  • Insurer’s Delay in Adjusting Claim Raised Jury Issue Regarding Bad Faith
  • Non-party to Insurance Contract Could not Maintain a Cause of Action for Bad Faith against Insurer

 

PHILLIPS’ FEDERAL PHILOSOPHIES

Jennifer J. Phillips

[email protected]

 

  • Diversity Jurisdiction in Declaratory Judgment Action

 

EARL’S PEARLS
Earl K. Cantwell

[email protected]

 

  • Earl’s on holiday this week; we’ll give him dispensation.

 

That’s all there is for now.  Keep those situations coming in…

 

Dan

 

Dan D. Kohane

Hurwitz & Fine, P.C.

1300 Liberty Building

Buffalo, NY 14202

 

Office:            716.849.8942

Mobile:           716.445.2258

Fax:                716.855.0874

E-Mail:            [email protected]

Website:         www.hurwitzfine.com

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

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]

 

06/02/16       CB Richard Ellis, Inc. v. Harleysville Ins. Co. of New Jersey
Appellate Division, First Department

Despite Snow and Ice Removal Exclusion, Insurer had Duty to Defend Snow and Ice Slip and Fall when Bill of Particulars Contained General Maintenance Claims (Under NJ Law)

Under New Jersey law, "[a]n insurer's duty to defend an action brought against its insured depends upon a comparison between the allegations set forth in the complainant's pleading and the language of the insurance policy".  Although the basis of the complaint in the underlying personal injury action alleged a sidewalk fall due to ice and snow, the removal of which is excluded from coverage under the Harleysville policy issued to defendant Wade Ray, the underlying complaint further alleged the underlying defendants' general negligence in the ownership, operation, management, maintenance and control of the premises and/or sidewalk where the accident occurred.

 

As amplified by the bill of particulars, the underlying defendants were also allegedly negligent in failing to safeguard, cordon off or provide warning signs in the unsafe, slippery area. Since the allegations in the underlying complaint, as amplified by the bill of particulars, do not all arise out of ice and snow removal, Harleysville's duty to defend CBRE as an additional insured under the policy issued to Wade Ray was properly triggered.

 

06/01/16       Mecca Contracting, Inc. v. Scottsdale Insurance Company

Appellate Division, Second Department

Blanket Additional Insured Endorsement Required Both Defense and Indemnity on Primary Basis, ala Pecker Iron Works

Mecca was the general contractor on a construction project known as the 49 Wilson Avenue construction project (hereinafter the project). Mecca hired the defendant Salcora to perform certain work on the project and entered into a contract with Salcora, wherein Salcora agreed to purchase and maintain various types of insurance and agreed to include Mecca as an additional named insured on the policies.

 

Salcora obtained liability insurance from the Scottsdale. While Mecca was not explicitly named as an additional insured on the policy, the policy contained a "Blanket Additional Insured Endorsement" which provided, in relevant part, that any person or organization whom Salcora was required to add as an additional insured on the policy pursuant to a written contract, would be considered an additional insured under the policy. The policy provided Salcora with primary coverage, and the Blanket Additional Insured Endorsement provided any additional insured with "excess" coverage, unless a written contract specifically required that the Scottsdale policy be primary. It is undisputed that the contract between Mecca and Salcora expressly states that the Scottsdale policy would be primary.

 

A worker for a sub-subcontractor hired by Salcora on the project site allegedly was injured when his hand became trapped under a fire escape ladder.   He sued Mecca and others, to recover damages for his personal injuries. Mecca sought coverage and a defense from Scottsdale. However, Scottsdale disclaimed coverage and refused to provide a defense.  Mecca challenged the denial.

 

Mecca established its prima facie entitlement to the declaration sought. In support of its motion, Mecca submitted, inter alia, its contract with Salcora and the subject insurance policy. In Mecca's contract with Salcora, Salcora agreed to make Mecca an additional insured under the policy. The policy provided the named insured, Salcora, with primary coverage. Under the Blanket Additional Insured Endorsement of the policy, Scottsdale agreed to provide primary coverage to any party with whom Salcora entered into a contract if such contract specifically required the Scottsdale policy to be primary. Since the policy provided Salcora with primary coverage, and Salcora agreed to make Mecca an additional insured, the contract between Mecca and Salcora constituted a contract requiring Scottsdale to provide Mecca with primary coverage, and satisfied the requirement of the Blanket Additional Insured Endorsement

 

Accordingly, Scottsdale was obligated to defend and indemnify Mecca in the underlying action and, in effect, that the Scottsdale policy is primary to any other coverage that Mecca may have procured.

 

06/01/16       Allstate Insurance Company v. Martinez
Appellate Division, Second Department

Question of Fact Exists on Existence of Coverage for Offending Vehicle and a Framed Issue Hearing Needs to be Conducted

This was an Article 75 proceeding to stay arbitration of a claim for uninsured motorists (SUM) benefits.

 

On February 13, 2012, Martinez allegedly was injured in a motor vehicle accident when his vehicle was struck by another vehicle (“the offending vehicle”). Martinez was insured with Allstate. The offending vehicle, which was operated by Doumbia, was owned Konan, registered in Virginia, and allegedly was uninsured. In September 2014, Martinez sought benefits under the SUM endorsement contained in his Allstate policy and demanded arbitration. Thereafter, Allstate commenced this proceeding to permanently stay arbitration of the appellant's claim on the ground that Doumbia was insured by a policy issued by GEICO and, as such, the offending vehicle was not an uninsured vehicle and the appellant was not entitled to SUM benefits.

 

"The party seeking a stay of arbitration has the burden of showing the existence of sufficient evidentiary facts to establish a preliminary issue which would justify the stay. Thereafter, the burden shifts to the party opposing the stay to rebut the prima facie showing.

 

Here, Allstate demonstrated, prima facie, that the offending vehicle was not uninsured for purposes of the appellant's SUM claim by submitting evidence indicating that Doumbia was covered by an automobile liability insurance policy issued by GEICO. In response, the GEICO raised a question of fact as to whether Doumbia's policy with GEICO provided coverage for the offending vehicle at the time of the subject accident.

 

Specifically, a framed-issue hearing is required to determine whether Doumbia's GEICO policy applied to this accident.
Editor’s Note:  Always good to remember that under NY law, if an insurer receives demand for arbitration seeking uninsured or underinsured (UM or SUM) benefits and it believes that the claimant is not so entitled because the offending vehicle is insured, the proper approach is to make an application to stay arbitration, in State Supreme Court, within 20 days of the receipt of the arbitration demand.  That rule applies in other cases as well, where the insurer believes that the matter should not be arbitrated.

 

06/01/16       GEICO v. Nakhla
Appellate Division, Second Department

One Can Occupy a Vehicle When Standing Outside of It. Anti-Stacking Provisions of SUM Endorsement May be Applicable

On July 17, 2012, Nakhla was driving a taxicab owned by PSK and registered to EKAM, and insured by American Transit. Nakhla was stopped at an intersection when another vehicle struck the taxicab in the rear. When Nakhla exited the taxicab to look for damage to the taxicab, the offending vehicle drove away and collided with Nakhla, who was now outside the taxicab. The offending vehicle left the scene and is unidentified.

 

GEICO insured Nakhla's personal vehicle pursuant to a policy with personal injury limits of $25,000 per person and $50,000 per occurrence, and supplementary uninsured motorist (SUM) coverage of $25,000 per person and $50,000 per occurrence. Following the accident, Nakhla claimed uninsured benefits from GEICO for injuries incurred in the second impact, contending that when the second impact occurred, he was a pedestrian rather than an occupant of the taxicab insured by American Transit. Nakhla subsequently demanded arbitration of his uninsured motorist claim.

 

GEICO argued the anti-stacking clause in its SUM endorsement.

 

GEICO argued that Nakhla was an occupant of the taxicab during both impacts and, therefore, he would have to seek coverage first from the insurer of the taxicab—American Transit. According to GEICO, coverage under its policy would only be payable if "it exceeds the coverage of a higher priority policy"—in this case the policy of American Transit.

 

Although Nakhla's personal vehicle was not involved in the accident, Nakhla qualified for SUM coverage under the GEICO policy insuring his personal vehicle under the provision which provides coverage for the named insured. However, the priority of coverage provision in GEICO's policy provided that the uninsured motorist or SUM coverage, if any, under the policy insuring the vehicle occupied by him was to be applied first, and prohibited the stacking of policies.

 

One can occupy a vehicle even when not inside of it.  The question is whether "a departure from a vehicle is occasioned by or is incident to some temporary interruption in the journey and the occupant remains in the immediate vicinity of the vehicle and, upon completion of the objective occasioned by the brief interruption, he intends to resume his place in the vehicle. Here, GEICO established that Nakhla was an occupant of the taxicab at the time of the second impact through the submission of Nakhla's examination under oath testimony, which indicated that he alighted from the taxicab after the first impact to determine whether it had been damaged. Accordingly, under the priority of coverage provision of the GEICO policy, and 11 NYCRR 60-2.3(f), any SUM coverage under the American Transit policy must be applied first.

 

However, under the anti-stacking clause of the GEICO policy, "the maximum amount such insured may recover shall not exceed the highest limit of such coverage for any one vehicle under any one policy. Since American was not a party, the American Transit policy isn’t before the court.  Matter is remanded to add American Transit and determine the policy limits and the applicability, if any, of the ant-stacking provisions.

 

06/01/16       Bingham v. 347 11th Street, LLC
Appellate Division, Second Department

The Policy Excludes What It Excludes

Charles Shabsels (“Charles”) and his wife purchased a single-family brownstone home in Brooklyn with the intention of renovating it and converting it to a multi-family home. They formed a corporation, 347 11th Street, LLC (“LLC”) to hold the subject property. Charles contacted insurance broker Community Brokerage (Community), to obtain insurance for the project. Community obtained a quote from First Mercury Insurance Company for an "owner interest only" policy. The policy contained a section entitled "EXCLUSION OF SPECIFIC OPERATIONS," which listed as excluded "All Construction Operations." Charles Shabsels accepted this policy on behalf of the LLC.

 

During construction at the subject property, a portion of an excavation collapsed, damaging an adjacent property. The owners of that property commenced an action against the Shabselses and the LLC (“owners”) seeking to recover damages for injury to their property. Owners then commenced a third party action against First Mercury and Community claiming that the owners didn’t know that the policy excluded construction coverage.

 

First Mercury’s claim to dismiss the complaint is granted.  The policy speaks for itself.

 

05/31/16       Greenwich Insurance Company v. The City of New York

Appellate Division, First Department
Court Stays Declaratory Judgment Action Pending Outcome of Tort Action; Thousands Flee

Greenwich commenced this declaratory judgment action seeking a determination that it had no obligation to defend or indemnify the City defendants in connection with six underlying lawsuits.  The City defendants are "additional insureds" on the insurance policy, as to which coverage is limited to injuries caused, in whole or in part, by the acts or omissions of the named insured, defendant Triumph.

 

In a prior appeal, this Court found that plaintiff was obliged to defend the City defendants.

 

Greenwich now sought a declaration that its duty to defend should terminate because of information uncovered in discovery.  The court refused to make that determination, holding that the duty to indemnify depends on factual issues that will be resolved in the underlying actions. Whether the injuries suffered by the individual plaintiffs in the underlying actions arose out of work performed by Triumph, as required to trigger additional insured coverage, focuses " not on the precise cause of the accident but the general nature of the operation in the course of which the injury was sustained'".

 

Because those issues will be resolved in the liability phase of the underlying negligence actions, all discovery and motion practice in this declaratory judgment action should be stayed pending the resolution of the liability phase in those negligence actions.
Editor’s Note:  Respectfully, a terrible decision on a number of fronts.  First of all, let’s remember that the insurer is NOT a party in the underlying lawsuit and isn’t given the opportunity to present evidence.  Secondly, let’s also recall that defense counsel has the insured’s interest in the forefront, not the insurer’s, and is therefore ethically prohibited from presenting evidence that would suggest to the jury that there was no coverage.  Thirdly, remember that there is NOBODY in the courtroom in the underlying lawsuit that could ask the court to present any kind of special questions to the jury.  Fourthly, as my friend Brian Hussey aptly points out, remember the Court of Appeals decision in:  First State Ins. Co. v. J & S United Amusement Corp., 67 N.Y.2d 1044, 1045-47, 495 N.E.2d 351 (1986)

 

In that case, First State sought judgment determining that it had no obligation to defend or indemnify J&S in an action commenced by Ocasio. The tort action was being defended by attorneys provided by First State under a reservation of rights.

 

Ocasio was injured when he fell under a ride known as a ”swinging gym“ at a street fair in New York City. At the time, he was 15 years of age and was assisting in the operation of the ride, which was owned by defendant McDaniel and operated by defendant J & S. The carnival policy issued by first State Insurance Company to J & S excluded any liability under the Workers' Compensation Law, any injury to an employee arising out of employment and any injury caused or contributed to by a person employed in violation of the law as to age.

 

Thus coverage of Ocasio's injuries by First State's policy turned on whether the relationship between him and J & S was one of employment.

 

The Appellate Division's held that that resolution of that issue would be available to First State in the underlying tort action between Ocasio and J & S through the remedy of special verdict at trial.

 

The Court of Appeals disagreed for very good reasons:

 

… First State is not a party to the underlying tort action, and the fact that it has provided J & S with counsel under a reservation of its right to disclaim coverage does not put it in privity with a party. To the contrary, the attorneys representing J & S, although paid by First State, are obligated to act in the interest of J & S (Public Serv. Mut. Ins. Co. v Goldfarb,53 NY2d 392, 401; Hartford Acc. & Indem. Co. v Village of Hempstead, 48 NY2d 218, 228-229;Prashker v United States Guar. Co.,1 NY2d 584, 593). First State would, therefore, have no standing to request a special verdict in the tort action.

 

The Court held that First State, being “neither party to nor a participant in the tort action, the employment determination made in that action is not conclusive with respect to its obligation to indemnify” …  Not being precluded as to that issue, it can, therefore, defend on the basis of the policy exclusions any action for indemnity brought by J & S or any direct action brought pursuant to Insurance Law § 3420 (b) by the tort plaintiffs on their judgment if they recover one.

 

The Court reminded that there is nothing wrong with a declaratory judgment proceeding in advance of an underlying lawsuit:

 

The general rule is that a declaratory judgment as to a carrier's obligation to indemnify may be granted in advance of trial of the underlying tort action only if it can be concluded as a matter of law that there is no possible factual or legal basis on which the insurer may eventually be held liable under its policy. …Unless it can be said that on the facts of this case defense by First State of an indemnity action by J & S or a direct action by the tort plaintiffs is an inadequate remedy, the Appellate Division's dismissal of the declaratory judgment action was the proper result, although ordered for the wrong reason.

 

See the AXIS case, below:

 

05/26/16       AXIS Surplus Ins. Co. v. GTJ Co., Inc.

Appellate Division, First Department

Cannot Resolve Underlying Factual Issue in Early Declaratory Judgment Action  

AXIS sought a declaration that it has no obligation to defend the City in the underlying personal injury action brought by Bari. It sought to be relieved of its duty to defend and indemnify the City, arguing that the location where Bari fell was not in an area that plaintiff's insured, defendant GTJ Co., Inc. d/b/a Shelter Express was responsible for maintaining. The City seeks, at the very least, to maintain the status quo, and to have plaintiff continue defending it.

 

Here, the four corners of the complaint in the underlying action place the allegations squarely within the responsibilities of plaintiff's insured, triggering the duty to defend. Plaintiff's primary argument, that the accident was not within its insured's area of responsibility, is properly made to Supreme Court in a motion for summary judgment dismissing Bari's complaint or at trial and cannot be resolved by this Court on a motion seeking declaratory relief.  It is after the resolution of that action where the extent of plaintiff's indemnification obligations can be fully determined,

Editor’s Note:  Same problem.  It’s not binding on the carrier, AXIS isn’t in the underlying lawsuit and the defense counsel may be limited in what it can do, ethically. 



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

Robert E.B. Hewitt III

[email protected]

 

06/01/16                 DiDomenico v. Kokur

Appellate Division, Second Department

Defendant Failed to Address the 90/180-Day Category of Claims

The Appellate Court reversed the lower court’s grant of summary judgment to the defendant.  The Appellate Division agreed with the plaintiff's contention that the defendant failed to meet her 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 defendant failed to adequately address the plaintiff's claim, set forth in the bill of particulars, that she sustained a serious injury under the 90/180-day category of Insurance Law § 5102(d). In light of the defendant's failure to meet her 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. No facts were given in the decision.

 

06/01/16                Mason v. St. Denis

Appellate Division, Second Department

Plaintiff Established an Issue of Fact Despite Defendant’s Medical Report Establishing a Prima Facie Case That the Injury Did Not Constitute a Serious Injury

The Appellate Court reversed the grant of defendant’s summary judgment motion. The Appellate Division held that defendant met his 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 the defendant submitted competent medical evidence establishing, prima facie, that the alleged injury to the lumbar region of the plaintiff's spine did not constitute a serious injury under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d). In opposition, however, the plaintiff raised a triable issue of fact as to whether she sustained a serious injury to the lumbar region of her spine. No facts were given.

 

06/01/16                Parker v. New York City Transit Authority

Appellate Division, Second Department

Plaintiff’s 90/180-Day Claim Left Unaddressed by Defendants’ Papers

The Appellate Court modified the lower court’s denial of motion for summary judgment, holding that 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.  The papers submitted by the defendants failed to adequately address the plaintiff's claim, set forth in the bill of particulars, that she sustained a medically determined injury or impairment of a nonpermanent nature which prevented her from performing substantially all of the material acts which constituted her usual and customary daily activities for not less than 90 days during the 180 days immediately following the accident.

 

06/01/16                Ricks v. Fischer

Appellate Division, Second Department

Prima Facie Case of No Serious Injury under the Permanent Consequential Limitation or Significant Limitation of Use Categories Rebutted by Plaintiff

In support of their respective motions for summary judgment dismissing the complaint, the defendants third-party plaintiffs and the third-party defendant met their prima facie burdens 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 Appellate Division held that they submitted competent medical evidence establishing, prima facie, that the plaintiff's alleged injuries did not constitute serious injuries under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102 and that, in any event, such injuries were not caused by the subject accident .In opposition, however, the plaintiff raised a triable issue of fact as to whether she sustained serious injuries to the cervical and lumbar regions of her spine under the permanent consequential limitation of use and significant limitation of use categories of Insurance Law § 5102(d), and as to whether the alleged injuries were caused by the accident. No facts were given.

 

05/25/2016   Melendez v. McCrowell

Appellate Division, Second Department

Workers Compensation Decision Not Binding on Plaintiff Where Issues in Litigation Were Not All Raised Before Workers Compensation Board

The Appellate Division agreed that the motion for summary judgment by defendants must be denied. The plaintiffs allege that the plaintiff Michael Melendez while driving a pickup truck owned by his employer during the course of his employment was involved in a motor vehicle accident with a tractor-trailer on Interstate 87 in Rockland County. The tractor-trailer was operated by the defendant Patrick McCrowell and owned by McCrowell's then-employer, the defendant Marten Transport, Ltd.  The injured plaintiff applied for workers' compensation benefits from his employer's workers' compensation carrier. In its determinations, dated July 31, 2012, and September 5, 2012, respectively, the Workers' Compensation Board found that the injured plaintiff sustained a work-related injury to his back and neck and experienced related post-traumatic headaches as a result of his work-related injury. The Workers' Compensation Board noted that the injured plaintiff had returned to work within the week and determined that, at that time, there was either no evidence or insufficient evidence that the injured plaintiff sustained a permanent restriction or loss of use as a result of the accident. Defendants relied on the Workers' Compensation Board determination, that, pursuant to the doctrine of collateral estoppel, the injured plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the accident

 

The Appellate Division held that the quasi-judicial determinations of administrative agencies are entitled to collateral estoppel effect where the issue a party seeks to preclude in a subsequent civil action is identical to a material issue that was necessarily decided by the administrative tribunal and where there was a full and fair opportunity to litigate before that tribunal.  Whether collateral estoppel should be applied in a particular case turns on general notions of fairness involving a practical inquiry into the realities of litigation. The Appellate Division held defendants failed to establish that the issue in this action were identical to that necessarily decided in the prior proceeding by the Workers' Compensation Board or that the plaintiffs were accorded a full and fair opportunity to contest the issue in that proceeding . In this action, the plaintiffs alleged that the injured plaintiff sustained an acquired traumatic brain injury in the nature of a concussive brain injury as a result of the accident, an injury which was not an issue raised before or considered by the Workers' Compensation Board.

 

With respect to the plaintiffs' cross motion, the Appellate Division held when the driver of an automobile approaches another automobile from the rear, he or she is bound to maintain a reasonably safe rate of speed and control over his or her vehicle, and to exercise reasonable care to avoid colliding with the other vehicle.  A plaintiff in a personal injury action who moves for summary judgment on the issue of liability has the burden of establishing, prima facie, both that the defendant was negligent and that he or she was free from comparative fault. A rear-end collision with a stopped or stopping vehicle establishes a prima facie case of negligence on the part of the operator of the rear vehicle, thereby requiring that operator to rebut the inference of negligence by providing a non-negligent explanation for the collision. Here, the plaintiffs established their prima facie entitlement to judgment as a matter of law by submitting McCrowell's deposition testimony, the injured plaintiff's deposition testimony, and the injured plaintiff's affidavit, which demonstrated that the injured plaintiff's vehicle was stopped in heavy traffic when it was struck in the rear by the appellants' vehicle. McCrowell's statement in his affidavit that the injured plaintiff brought his vehicle to a stop at least 150 feet behind the stopped vehicle in front of him did not adequately rebut the inference of negligence given McCrowell's deposition testimony that he was able to bring his vehicle to a stop behind the injured plaintiff's vehicle on two occasions prior to the accident in heavy stop-and-go traffic without incident during the one minute that the injured plaintiff was traveling in front of McCrowell's vehicle . Even if the injured plaintiff's vehicle came to a sudden stop, vehicle stops which are foreseeable under the prevailing traffic conditions, even if sudden and frequent, must be anticipated by the driver who follows, since he or she is under a duty to maintain a safe distance between his or her car and the car ahead.

 

05/25/2016   Villunueva v. Lawson

Appellate Division, Second Department

Defendant Demonstrated a Prima Facie Case that the Injuries to Plaintiff’s Spine Did Not Constitute a Serious Injury

The Appellate Division reversed the Supreme Court’s grant of summary judgment. The Appellate Division held that the defendant met his 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. The defendant submitted competent medical evidence establishing, prima facie, that the alleged injury to the lumbar region of the plaintiff's spine did not constitute a serious injury under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d). In opposition, however, the plaintiff raised a triable issue of fact as to whether she sustained a serious injury to the lumbar region of her spine as a result of the subject accident. No facts are given.

 

05/24/2016   Bagan v. Turner

Appellate Division, First Department

Leave to Amend Bill of Particulars Granted Where Potentially Meritorious Even Without Showing Reasonable Excuse for the Delay

The Appellate Division affirmed the lower court’s denial of defendant’s summary judgment. The Appellate Division found the motion court providently exercised its discretion in granting plaintiff's cross motion for leave to amend the bill of particulars. Although plaintiff failed to offer a reasonable excuse for her delay in seeking leave to amend, she demonstrated that the proposed amendment has potential merit by pointing to the medical records submitted by defendant Tomer, which show that two doctors who examined plaintiff after the accident noted the existence of a nasal fracture

 


05/24/2016   Birch v. 31 N. Boulevard, Inc.

Appellate Division, First Department

Battle of the Experts as to Whether Plaintiff Had Range of Motion Limitations and Degenerative Symptoms Led to Issue of Fact

The Appellate Division unanimously modified the order granting defendant’s motion for summary judgment to deny the motion as to the claims of "permanent consequential" and "significant" limitations in use of the cervical and lumbar spine, and otherwise affirmed. Plaintiff’s motion for summary judgment granted as to liability. The Appellate Division concluded that defendant made a prima facie showing that plaintiff did not sustain a serious injury to his cervical or lumbar spine or other body parts by submitting expert reports by an orthopedist and neurologist, who found full range of motion in those parts and opined that the alleged injuries had resolved. In addition, defendant submitted an affirmed report by a radiologist, who found preexisting degenerative conditions in plaintiff's cervical and lumbar spine.

 

In opposition, however, the Appellate Division held that plaintiff raised a triable issue of fact as to serious injury to his cervical and lumbar spine. His treating physician, who reviewed the MRI films, testified that they showed disc herniations and bulges at multiple levels in the cervical and lumbar spine, with no evidence of desiccation or other degenerative condition. The physician also reviewed results of electrodiagnostic testing showing radiculopathy and neuropathy, and detected spasms at several examinations. He opined that, given plaintiff's lack of symptoms before the accident and the history of the accident, the conditions were caused by the accident, thus presenting an opinion different from that of defendant's experts but equally plausible, which is sufficient to raise an issue of fact. The physician, who was not aware that plaintiff was bringing a lawsuit, did not record quantified limitations in range of motion after his examinations of plaintiff, and plaintiff was not required to present such evidence to raise an issue of fact.  At the most recent examination, the physician designated a percentage of plaintiff's loss of range of motion in certain planes, which is sufficient to raise an issue of fact Plaintiff did not present sufficient evidence to raise an issue of fact as to his other claimed injuries, but, if he demonstrates serious injury to his cervical or lumbar spine at trial, he may recover for all injuries causally related to the accident

 

Plaintiff established that defendant's driver, who drove onto the Harlem River Drive in the wrong direction, was negligent and that, as a back-seat passenger, plaintiff is entitled to summary judgment on the issue of liability.

 

 

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

 

Litigation:

 

05/31/16       Allstate Prop. & Cas. Ins. Co. v Northeast Anesthesia & Pain Mgt.

Appellate Term, First Department

An Arbitrator's Award Directing Payment In Excess Of The Monetary Limit Of A No-Fault Insurance Policy Exceeded The Arbitrator's Power And Constituted Grounds For Vacatur Of The Award.

Petitioner appealed from an order and judgment of the Civil Court of the City of New York, New York County, which denied the petition to vacate an arbitration award in favor of respondent awarding it unpaid no-fault benefits in the principal sum of $3,833.85 and granted respondent's cross-motion to confirm the arbitration award.

 

The Court held that an arbitrator's award directing payment in excess of the monetary limit of a no-fault insurance policy exceeded the arbitrator's power and constituted grounds for vacatur of the award. Petitioner's submissions-including an attorney's affirmation, showing the $50,000 policy limit, and a payment ledger listing in chronological order the dates the claims by various providers were received and paid - raised triable issues as to whether the $50,000 policy limit had been exhausted.  Therefore, the Court remanded the matter to Civil Court for a framed issue hearing on that issue.

 

Moreover, the Court held that Defendant was not precluded by 11 NYCRR 65-3.15 from paying other legitimate claims subsequent to the denial of respondent's claims.  Adopting respondent's position, which would require petitioner to delay payment on uncontested claims pending resolution of respondent's disputed claim "runs counter to the no-fault regulatory scheme, which is designed to promote prompt payment of legitimate claims"

 

05/31/16       Matter of Global Liberty Ins. Co. v Professional Chiropractic Care, P.C.

Appellate Term, First Department

The No-Fault Policy Issued By Petitioner Was Void Ab Initio Due to Respondent's Assignor's Failure to Attend Duly Scheduled Independent Medical Exams

The Master Arbitrator's award was arbitrary because it irrationally ignored the law, which petitioner insurer had presented to the Master Arbitrator, that the no-fault policy issued by petitioner was void ab initio due to respondent's assignor's failure to attend duly scheduled independent medical exams. The alleged error in petitioner's denial of claim form is of "no moment", and was not a sufficient or rational basis for the award.

 

 

Arbitration:

 

05/28/16       Munroe Chiropractic PC v Kemper Independence Insurance Co

Arbitrator Brown

An EIP's Subjective Characterization of Pain, Contrary to Objective Testing, Does Not Prove Medical Necessity.

This claim arises from a motor vehicle accident which occurred on 10/19/12. The EIP stated that she was the seat-belted driver of a vehicle which was struck from behind by another vehicle while stopped. Several days later, she saw her primary physician, complaining of tingling in her right arm, and pain in her neck and right hip. She was referred for physical therapy but stopped soon after because the time required for the appointments was too great. She began treatment with the claimant and was diagnosed with cervicothoracic somatic dysfunction and cervical and lumbar strains/sprains requiring twice weekly appointments.

 

Arbitrator Brown found that that respondent had met its burden of proving that the chiropractic services in question in question were not medically necessary. Dr. Gaiser's report was thorough and he discusses both his observations of the EIP and the results of a full range of tests he performed in his office, as well as the various medical records reviewed. He noted that she continued to work as a dental assistant without restriction. He noted that she is able to move about the office normally and he performed a full range of orthopedic testing which all showed negative results.

 

Moreover, the claimant, upon the shifting of the burden, was unable to prove medical necessity. Arbitrator Brown made clear, that in light of positive increases in range of motion and evidence of preexisting conditions, the “EIP's subjective characterization of her pain, which she described to Dr. Gaiser at one point as "10+" is not a meaningful indicator of actual symptoms.” 

 

Arbitrator Brown denied the claim in its entirety.

 

PEIPER ON PROPERTY (and POTPOURRI)

Steven E. Peiper

[email protected]

 

06/01/16                 Stanton v Oceanside Union Free School District

Appellate Division, Second Department

Absent a Special Duty, a Party is Not Liable for the Negligence of an Independent Contractor

From the facts, it appears that multiple plaintiffs were injured when they were struck by inflatable rides at a Soccer Festival.  The festival was held by Oceanside Soccer Club, and hosted at the Oceanside Union Free School District’s fields.  The Soccer Club hired Affordable Inflatables to provide the rides which caused injury.

 

The Soccer Club moved for, and was granted, summary judgment.  They successfully argued that they had no active negligence, and could not be held liable for the negligence of an independent contractor.  The Appellate Division affirmed, in part, because the Soccer Club, as a licensee, was not exercising control over the rides at the time of the incident.

 

The School District was likewise entitled to summary judgment where it established it had no actual or constructive notice of the defective condition involving Inflatables’ product.

 

Finally, the Soccer Club successful defeated Affordable Inflatables’ claim for contractual indemnification where, as here, the contract did not clearly and unambiguously contemplate indemnity running in favor of Affordable. 

 

05/25/16       Cuellar v City of New York

Appellate Division, Second Department

“Acts or Omissions” Indemnity Language Sinks Completely Unrelated Contractor

Plaintiff was injured when she allegedly struck a hole in the pavement while riding her bike.  The instant action was commenced against the City of New York and Verizon who, apparently, had a permit to perform work in the area.  Verizon, in turn, commenced a third-party action against its contractor, Corzo, seeking contractual indemnification. 


Verizon eventually moved for summary judgment after it was able to demonstrate that neither it, nor Corzo, performed any work in the vicinity of where plaintiff was allegedly injured.  Verizon also moved for summary judgment on its contractual indemnity claim.  Corzo cross-moved seeking dismissal of the indemnity claim arguing that if it was not responsible for the hole it could not be obligated to provide indemnity to Verizon.  The trial court agreed when it granted Verizon’s motion for summary judgment against the main-party allegation, but denied and dismissed Verizon’s indemnity claim

 

On appeal, the Second Department reversed.  Its opinion was based upon the language of the agreement between Verizon and Corzo which provided Corzo would indemnify Verizon for any claim arising out of its acts or omissions. The Court noted that plaintiff’s “claim” implicated Corzo’s apparent acts or omissions, and as such the clause was triggered.  It mattered not that the allegations were incorrect.  Because contract contemplated indemnity of attorneys’ fees and costs, Corzo was obligated to reimburse Verizon.  

 

Peiper’s Point – Excuse us while we shake our heads.  How, exactly, did the plaintiff allege that her injuries were caused by Corzo’s actions?  Corzo, recall, was a third-party defendant.  On a different note, should the indemnity portion of a contract not actually be driven by the findings of fact?  Here, it is undisputable that Corzo did nothing wrong. How then, he ponders aloud, did it arise from the acts or omissions? 

 

05/25/16       Lakeview Development at Carmel, LLC v Lawyers Title Ins. Co.

Appellate Division, Second Department

Agent Defeats Carriers Motion for Indemnity Due to Alleged Breach of Agreement

Plaintiff sued LTIC alleging damages due a breach of title insurance policy issued by LTIC’s agent Premier.  LTIC, in turn, commenced a third-party action against Premier therein arguing that Premier breached its agency agreement by failing to adhere to the standard of care owed by a New York State title insurance agent.  Apparently, Premier agreed to indemnify LTIC for losses caused such breaches

LTIC’s motion for summary judgment was denied when the Court received into evidence affidavits from LTIC and Premier which created a question of fact if Premier, in fact, breached the agreement.

 

WILEWICZ’S WIDE WORLD OF COVERAGE

Agnes A. Wilewicz

[email protected]

 

06/01/16       National Fire Insurance Company of Hartford, et al. v. E. Mishan & Sons, Inc.

United States Court of Appeals, Second Circuit

Where Not Every Cause of Action Requires Showing of Knowledge or Intent, “Knowing Violation Exclusion” Insufficient to Preclude Defense Obligation, Says Second Circuit

In this case, E. Mishan & Sons (d/b/a Emson) was insured under several general liability policies. When they were sued in two class action lawsuits alleging that they had deceptively trapped customers in recurring credit card charges, they sought defense and indemnification under those policies. The allegations against Emson included the assertions that the company acted as a “purveyor of data, facilitating ‘data passes’ and transferring private customer information for profit”. Specifically, the first suit alleged violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, fraud by omission, breach of contract, and unjust enrichment. The second suit alleged violations of the Michigan Consumer Protection Act, fraud by omission, breach of contract, unjust enrichment, and violations of the Telephone Consumer Protection Act.

 

Long story short, the insurers disclaimed and refused to provide the insured with a defense. They filed a declaratory judgment action seeking judicial confirmation of their position. In those cases, they insurers reasoned that since the alleged conduct was intentional and knowing, there was no duty to defend because of the knowing violation exclusion of their policies. The Second Circuit disagreed. The “duty to defend exists only ‘until it is determined with certainty that the policy does not provide coverage’”, the court said. Here, they could not conclude with certainty that the policy did not provide coverage, “because the conduct trigging the knowing violation policy exclusion is not an element of each cause of action. Therefore, Emson could be liable to plaintiffs even absent evidence that it knowingly violated its customers’ right to privacy. Furthermore, while the underlying plaintiffs allege generally that Emson acted knowingly and intentionally, the actual conduct described does not rule out the possibility that Emson acted without intent to harm”. For instance, neither the breach of contract claim nor the unjust enrichment claim required a showing of knowledge or intent. Thus, the carriers had a duty to defend the whole action.

 

05/25/16       Lantheus Medical Imaging, Inc. v. Zurich American Insurance Company

United States Court of Appeals, Second Circuit

Second Circuit Holds That Corrosion Exclusion Unambiguously Bars Coverage for Business Interruption Where Corroded Nuclear Reactor Was Struck by Lightning

The insured Lantheus experienced a supply-chain disruption in 2009 related to a nuclear plant that was struck by lightning. The plant’s fifteen-month shutdown forced Lantheus to suspend dozens of production runs for some of its products. It sought coverage under its policy with Zurich, and this litigation ensued. The main issue was whether or not the claims fell within the policy’s exclusion for corrosion. The insured had argued that corrosion was a gradual process that did not occur rapidly, such as it had in this case, and it argued that the exclusion generally contemplated a gradual process of breakdown.

 

Pulling up the District Court’s decision, we found that the exclusion read thus: “We will not pay for damage resulting from any of the following; such loss or damages is excluded regardless of any cause or event that contributes concurrently or in any sequence to the loss or damage, except as specifically provided. [...] 5. Developing, Latent and Other Causes / The effects or cause of: [...] b. Deterioration, depletion, rust, corrosion, erosion, loss of weight, evaporation[,] or wear and tear”.

 

The Second Circuit held that, even taking the facts in the light most favorable to the insured, the corrosion exclusion applied. The expert statements before the Court were properly considered and indicated that “a thinning over time of the aluminum wall of the reactor vessel, referred to as [redacted] Penetration, was a necessary component to the through-wall breach that occurred after a rapid shift in pressure”. The District Court had concluded that the legal definition of “corrosion” fully embraced this condition, and the Second Circuit agreed. Even though the full penetration of the wall took approximately twenty-nine days to occur, it was caused at least in part by corrosion. Since the exclusion unambiguously applied, the carrier was off the hook for the claim.

 

05/20/16       Fireman’s Fund Insurance Company, et al. v. Great American Insurance Company of New York

United States Court of Appeals, Second Circuit

Second Circuit Holds That Insured’s Failure to Disclose Deterioration Condition of Marine Dock, Which Subsequently Collapsed, Was a Material Misrepresentation Sufficient to Void the Policy

Signal International was insured under a number of marine, general liability, and excess liability policies. When its dry dock in Texas sank in 2009, resulting in a considerable property damage and environmental remediation claim, Signal sought coverage. However, the insured had known from numerous prior surveys, audits, and studies that the dock had been deteriorating quite some time before the policies were underwritten. Yet, when Signal applied for the coverages, they merely listed the dock as an asset to be covered, provided basic historical and structural information, and did not advise its carriers of any of the surveys or details about the dock’s condition.

 

In a sweeping 80-plus page opinion, the Second Circuit analyzed in great detail what was known and when. From the evidence, it was clear that Signal had in its possession the various surveys and studies that evidenced that deterioration. Over the years, they had patched up portions of the dock, but still never apprised the insurers of the actual condition of it. The Second Circuit noted that, under federal law, marine policies are subject to the doctrine of uberrimae fide, or “utmost good faith” in disclosure. Since a marine insurer lacks practicable means of inspecting the accuracy or sufficiency of facts relative to a risk (i.e. large sea-going vessels are not easy to inspect), it relies upon the good faith word of the insured to provide accurate information.

 

Here, the misrepresentation was clear. The insured knew, or most certainly should have known, about the conditions at the dock. Underwriters from the insurers testified that, in no uncertain terms, had they known of its status they would have written their policies differently, if they would have underwritten them at all. Since that concealment so clearly would have affected underwriting, that was grounds for voiding the policies. As void, they were judicially held as if they had never existed and there was no coverage for the dock or environmental damages.

 

05/20/16       State Bank of Bellingham v. BancInsure, Inc.

United States Court of Appeals, Eighth Circuit

Eighth Circuit Finds Coverage for Digital Fraud under Financial Institution Bond Issued to Bank, Holding Concurrent-Causation Doctrine Applied

The insured State Bank of Bellingham is a small five-person bank in Minnesota. In 2011, its computer systems were infected with malware. One day, an employee left a computer running after she left, and hackers were able to access the system and made two fraudulent transfers, totaling almost half a million dollars, into accounts overseas. Bellingham had had a financial institution bond with BancInsure, which provided coverage for losses for such things as employee dishonesty and forgery, as well as computer systems fraud. On the day of the transfer, Bellingham notified BancInsure, as well as the Federal Reserve. Ultimately, one of the transfers was reversed, but not the other. BancInsure disclaimed coverage for the remaining loss, citing the agreement’s exclusions for employee-caused losses, for theft of confidential information, and for mechanical breakdown or deterioration. Bellingham sued the carrier for coverage.

 

BancInsure argued three points: 1) that the concurrent causation doctrine did not apply to financial institution bonds; 2) that, even assuming that the concurrent causation doctrine did apply, the parties had contracted around that doctrine in the terms of the bond; and 3) that the fraudulent conduct of hacking was not the efficient and proximate cause of the loss. The Eighth Circuit rejected all of those arguments.

 

First, the court said, financial institution bonds were legally treated as insurance policies. They are contracts with similar terms, exclusions, and provide indemnification in prescribed circumstances. As de facto insurance policies, they were thus subject to the concurrent causation doctrine applied by Minnesota courts. This doctrine states that an “insured is entitled to recover from an insurer when cause of the loss is not excluded under the policy. This is true even though an excluded cause may also have contributed to the loss”. That would apply in this case.

 

Next, the court rejected BancInsure’s argument that the parties had contracted around this doctrine. While the agreement indirectly referenced indirect causation by having potentially applicable exclusions to that effect, the court found that this language was not clear enough to evidence an intent. That is, in order to prevent application of the concurrent causation doctrine, the policy or agreement would have to be clear. Here, it was not expressly stated, thus the general principle would apply.

 

Finally, applying the concurrent causation doctrine, the court concluded that the efficient and proximate cause of the loss was the illegal transfer of the money and not the employee’s violation of company procedures. The fraudulent transfers were not a “foreseeable and natural consequence” of the employee’s failure to follow computer protocols. Though that employee’s actions played a critical role, the loss was not certain nor inevitable. The “overriding cause” of the loss remained the criminal activity of a third party. Thus, there was coverage for that loss.

 

JEN’S GEMS

Jennifer A. Ehman

[email protected]

 

Nothing to report.  Trial courts quiet.

 

BARNAS ON BAD FAITH

Brian D. Barnas

[email protected]

 

05/27/16       Canizares v. Hartford Insurance Co., of Illinois

United States District Court, Eastern District of Pennsylvania

Conclusory Allegations of Bad Faith were Insufficient to Support Cause of Action, but Just for Now

The Canizareses were insured by Hartford under a comprehensive homeowners policy.  The policy covered damages to the premises as well as damages to personal property.  The Canizareses paid all premiums when due and had satisfied all conditions of their policy.  In February 2015, the Canizareses discovered that frozen pipes within their home had burst and caused extensive water damage to their home as well as to their personal property.  These damages were fully covered under the Canizareses’ insurance policy.

 

Following discovery of the damages, the Canizareses appropriately notified Hartford of their claim and requested compensation for their losses.  Hartford agreed to pay part of the claimed losses but declined to provide all of the demanded compensation.  The Canizareses allege that the unpaid expenses associated with repairing the damages were $123,314.00 as of February 19, 2016 when the Complaint was filed.  The Complaint alleged claims for breach of contract and bad faith.

 

Hartford filed a motion to dismiss arguing that the Canizareses’ bad-faith claim should be dismissed for failing to allege sufficient facts entitling them to relief.  The Complaint contained six allegations related to the bad-faith claim, all of which contained legal conclusions.  The closest the Complaint came to alleging a specific fact regarding Hartford’s handling of the claim is that Hartford “fail[ed] to respond to Plaintiffs’ claim for benefits within a reasonable period of time.”  The Canizareses, however, failed to include any specific dates detailing when the claim was submitted and when Hartford responded.  Thus, the court granted Hartford’s motion because conclusory allegations of this nature are not sufficient for a bad-faith claim to survive a motion to dismiss.

 

However, the Canizareses’ claim was dismissed without prejudice.  The court explicitly permitted them to reassert the bad faith claim in the event that they acquire appropriate evidence of Hartford’s bad faith through discovery on the breach of contract action.

 

05/26/16       DSK Group, Inc., v. Zurich American Insurance Company

United States District Court, Middle District of Florida

Under Florida Law, Abatement of Plaintiff’s Bad Faith Claim was Proper Pending Resolution of the Coverage Dispute

On or about August 22, 2008, one of Plaintiff's employees was reportedly injured on the job by a fall.  Pursuant to the insurance policy purchased by Plaintiff DSK, Defendant Zurich was entirely responsible for investigating, processing, and responding to all claims for Worker's Compensation benefits brought by Plaintiff's employees.  Plaintiff's Loss Limitation, similar to a deductible, under this policy was $250,000.00 for each occurrence, accident, or claim.  Thus, if Claimant's injury was deemed compensable, Plaintiff would be required to reimburse Zurich for up to $250,000.00 under the claim.

 

While Claimant was undergoing treatment for the injury, independent medical examinations determined that 90% of Claimant's injury was the result of a prior unrelated injury, not the workplace accident.  Thus, at most, Plaintiff's responsibility under a workers' compensation claim was for only 10% of the treatment costs.  Despite this fact, Zurich deemed the injury compensable, and the cost was then passed on to the Plaintiff through the Loss Limitation.

 

As a result of medical complications involving Plaintiff’s employee, Plaintiff exhausted the entire $250,000 Loss Limitation.  In July 2013, Plaintiff made an errors and omissions claim in writing to Defendant requesting to be reimbursed its $250,000.00 Loss Limitation.  Plaintiff argued that there should have been no coverage under the policy for the incident because the loss was caused by the prior existing injury.  Zurich, the insurer, claimed there was coverage under the policy, and sent a letter to Plaintiff which expounded at length about the difficulties in proving that the preexisting injury was the primary cause of Claimant's condition, despite acknowledging the fact that there were independent medical exam findings that the prior injury was 90% responsible for the condition.

 

Plaintiff commenced an action against Zurich, which asserted, bad faith, among other things.  Zurich moved to dismiss the bad faith claim.  The court acknowledged the unique nature of the situation, that is, the insured was the party asserting no coverage as opposed to the typical case in which the insured seeks a finding that there is coverage under the policy.

 

The court noted that the coverage issue under the policy had not yet been resolved at the time of the motion.  Under Florida Law, a bad faith insurance claim is premature until there has been a determination of coverage under the policy at issue.  Accordingly, the court decided to abate the bad faith claim pending resolution of the coverage issue.

 

05/25/16       Bruhn Farms Joint Venture v. Fireman’s Fund Insurance

United States Court of Appeals, Eighth Circuit

Insurer’s Delay in Adjusting Claim Raised Jury Issue Regarding Bad Faith

Bruhn obtained a crop-hail insurance policy.  The policy afforded coverage during the 2012 crop year for direct loss due to hail and certain other specified perils.  Bruhn sustained a significant hail loss on September 11, 2012, and reported the loss.  Although the loss occurred in early September, Bruhn did not hear from the adjuster until mid-October.

 

A team of adjusters finally arrived at the Bruhn farm until October 29, 2012.  Weather conditions were cold and windy on the two days the adjusters were at the farm, and, according to a partner of Bruhn, the adjusters spent a considerable amount of time in the barn and trucks trying to stay warm.  An expert hired by Bruhn opined that the adjusters could not have spent a sufficient amount of time in the fields over those two days to properly adjust a claim covering the number of acres over which Bruhn reported damage.

 

Bruhn disagreed with the proof of loss, which he refused to sign.  Despite the fact that Bruhn never approved the proof of loss, Fireman’s agent, RCIS, issued a net payment of $233,058, which was delivered on December 4, 2012.  Bruhn continued to dispute the amount.  Despite reconsideration of the claim, RCIS eventually determined that its original loss determinations were correct and the claim was properly adjusted.

 

Bruhn commenced an action against Fireman’s alleging breach of contract and bad faith refusal to pay the claim.  The district court granted Fireman’s motion for summary judgment, concluding that it had not breached the contract because Fireman’s followed National Crop Insurance Services manuals in adjusting the claim.  The court also held that the bad faith claim failed in the absence of the breach of contract claim.

 

Bruhn appealed.  On appeal, the Eighth Circuit overruled the district court and reversed the grants of summary judgment on the breach of contract and bad faith claims.  The court agreed with Bruhn that Fireman’s breached the contract by tendering payment for the loss without reaching an agreement with Bruhn, without entry of a final judgment, and without the filing of any appraisal award.  Although Bruhn never explicitly asked for an appraisal, the court noted that the policy did not place the burden exclusively upon Bruhn to invoke the appraisal procedure.  Bruhn also was led to believe that the claim was being reworked, which contributed to its failure to ask for an appraisal.

 

Turning to the bad faith claim, the Eighth Circuit stated that the factual issues relevant to the breach of contract claim were relevant to the bad faith claim.  Thus, the claim was allowed to survive summary judgment.  Addressing the bad faith claim specifically, the court stated that Fireman’s delay in adjusting the claim and then, for the next several months, leading Bruhn to believe the claim would be settled favorably, raised jury issues on bad faith.

 

05/20/16       McVay v. Allied World Insurance Company

United States Court of Appeals, Ninth Circuit

Non-party to Insurance Contract Could not Maintain a Cause of Action for Bad Faith against Insurer

McVay was injured when she slipped and fell in a gas station convenience store owned and operated by the Fallon Tribal Developmental Corporation, which was owned by the Fallon Paiute-Shoshone Tribe.  McVay sued the tribe, but the case was dismissed based on sovereign immunity. 

 

Subsequently, McVay brought a separate lawsuit against the Tribe’s insurer and administrator.  McVay argued that she had standing to sue the Triber’s insurer as an intended beneficiary of the Tribe’s policy.  McVay claimed she was an intended beneficiary based on the Tribe’s policy, which defined an insured as a person whom the Named Insured is obligated by virtue to provide insurance to by a written or oral contract.

 

The Ninth Circuit rejected McVay’s argument that the Indian Self-Determination Act and the Tribe’s Corporate Charter made McVay an intended beneficiary of the insurance contract.  The Act and Charter merely related to the Tribe obtaining insurance in general; they were not specific to McVay.

 

The Court also denied McVay’s bad faith claim.  Having determined that McVay was not an intended beneficiary of the insurance contract, the court ruled that McVay could not proceed directly against the Tribe’s insurers for breach of contract or breach of the duty of good faith and fair dealing.

 

PHILLIPS’ FEDERAL PHILOSOPHIES

Jennifer J. Phillips

[email protected]

 

05/24/16       County of Niagara et al. v. Liberty Mutual Ins. Co. et al.

Western District of New York

Diversity Jurisdiction in Declaratory Judgment Action

As summarized by the Magistrate Judge in his Report and Recommendation in this case, in 2007, Plaintiff County of Niagara entered into a contract with Defendant T.G.R. Enterprises, Inc. (“Contractor”) for the replacement of windows and doors at Plaintiff Niagara County Community College. The contract specified that the Contractor was obligated to procure and maintain insurance including, inter alia, commercial general liability (“GCL”), owner's and contractor's protective liability (“OCP”), and excess/umbrella liability (“EU”), and to name the County as an additional insured.  Defendant Netherlands Insurance Company issued to the Contractor the CGL policy containing an additional insured clause providing that any person or organization with whom the Contractor enters an agreement shall “be added as an additional insured.”  Defendant Excelsior Insurance Company issued to the Contractor an excess/umbrella policy which defined an insured as any person or organization qualifying as such under the Netherlands CGL policy.  Excelsior also issued an OCP policy to the Contractor naming the County, among others, as an additional insured.

 

During the performance of the project, named Defendant Michael Lombardo, an employee of the Contractor, was injured and subsequently served a notice of claim for his personal injuries on the County.  The County, in turn, demanded a defense, indemnification, and coverage from each of the Insurers.  A duty to defend was recognized under the OCP policy, but the Insurers denied coverage under all other policies.

 

Lombardo’s claim turned into a lawsuit against the County, Niagara County Community College, and the College’s board of trustees for Labor Law violations, following which the County entities commenced a third-party action against the Contractor for common law and contractual indemnification pursuant to a hold harmless clause.  The County entities also commenced a separate declaratory judgment action in state court against all Insurers, the Contractor, and Lombardo.  Two claims were asserted in the declaratory judgment action: the first sought a declaration that the Insurers had a duty to defend and indemnify the County entities in the Lombardo action, and the second sought previously incurred defense costs from the Insurers.  No claims for relief were expressly asserted against the Contractor or Lombardo.

 

The Insurers removed the declaratory judgment action to federal court.  Although the Contractor and Lombardo are New York citizens, the Insurers (who are not) argued that diversity jurisdiction nonetheless existed because the Contractor and Lombardo were only “nominal defendants.”  The Magistrate Judge interpreted this as an argument that these parties were fraudulently joined for the purpose of defeating diversity jurisdiction.  Plaintiffs moved to remand the matter back to state court, arguing that New York civil procedure rules require that the Contractor and Lombardo be named because they might be inequitably affected by the judgment.

 

The Magistrate Judge found that remand was unwarranted. In determining that the New York defendants – the allegedly injured claimant and the named insured on the policies at issue – were fraudulently joined, the Magistrate Judge relied on the fact that no claim was asserted against and no relief was requested from these nominal defendants.  “Simply put, a declaration that the Insurance Defendants owe [the County entities] a defense and indemnification will not affect [the Contractor’s ] rights to a defense and indemnification, or any right of Lombardo in the underlying state court action against the Niagara [County] entities.” 

 

Column Editor’s Note:  I question whether this is the right result. In essence, the ruling is that the Contractor, a named party the insurance contracts at issue, a named party to the construction contract potentially forming the basis for the County’s additional insured status on at least one of the policies, and a party that will be bound by and exposed to potential contractual liability from a ruling adverse to the County entities in this case is not a proper party in a declaratory judgment action. This is, at minimum, counterintuitive.  Similarly, district courts routinely recognize that an injured party possesses a justiciable case or controversy against an insurer, and has a right to be heard in a declaratory judgment action, even where the insured has defaulted.  See Acceptance Ins. Co. v. Home Med. of Am., Inc., No. 04 CIV.9338 WHP, 2005 WL 3471780, at *4 (S.D.N.Y. Dec. 20, 2005) (collecting cases).

 

Because motions to remand are considered dispositive, under the relevant procedural rules the Magistrate Judge can only make a recommendation regarding the outcome of the motion.  The parties have until next Tuesday to file objections before a district judge will consider whether to accept the recommended disposition.  JJP

 

Publication Editor’s Note:  I understand the Magistrate Judge’s ruling.  To me, there is a good argument to be made that these parties are not critical to the coverage determination and therefore, nominal.  Their presence shouldn’t defeat diversity.

 

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

 

Earl’s on holiday this week; we’ll give him dispensati

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