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Coverage Pointers - Volume XVII, No. 26

Volume XVII, No. 26 (No. 456)

Friday, June 17, 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. 

 

With this issue, we complete our 17th year of Coverage Pointers publication and I take this opportunity to thank our loyal readers and our tireless scribes.  This is a family affair and excels because of the contributions of each and every author.  If you read something in a column that you find interesting or helpful, please let the column author know that her or his time was well-invested. 

 

A special welcome to our new subscribers, several of whom had the pleasure (in actually, were compelled) to sit through our Coverage 101 Presentation at the FDCC Litigation Management College at Emory University in Atlanta last week. Thanks to April Elkovitch, the walrus-obsessed focused counsel from Philadelphia Insurance and my wonderful co-presenter.  Attached to this cover letter is our issue, Vol. 17, No. 26, with past issues available on the H&F Website, www.hurwitzfine.com under the Newsletter tab.

 

We received great feedback on the several paragraph rant about the Greenwich case in the most recent issue. In that decision, the Second Department stayed a declaratory judgment action, not allowing discovery to go forward, until an underlying tort action had been resolved.  The court suggested that the factual findings in the tort action might be binding on the insurer, even though the carrier was not party in that action and did not have an opportunity to present proof and make argument.  Most of the comments were supportive of my criticism of that holding although one regular reader, whose opinion I respect, thought that the court might be right in certain kinds of cases.  It’s the broad stroke that really concerns me.

 

This issue comes to you courtesy of the free Wi-Fi at the Jet Blue terminal at JFK.

 

 

Sacramento Bound -- PLRB

 

On Monday, we head to Sacramento for the PLRB Regional program.  Additional Insured and Risk Transfer for Fun and Profit or some such thing.

 

 

Health Insurer that has Paid Benefits to Auto Accident Policyholder Cannot Recover those Back from No Fault Carrier

 

Tuesday, there was a very interesting decision from the high court.  Read all about it in Tessa’s No Fault column.

 

SUM (Supplemental Uninsured/Underinsured Motorists Coverage Decision)

 

If you’re not interested is SUM coverage, disregard this section of the letter and go right to our first history discussion. It you LOVE SUM coverage, it’s worth a close read.

 

In this issue, we have another very important case and the holding creates a clear split in the Appellate Departments on the issue.  Let me spend a few moments on the topic here.  It’s about the “non duplication” provisions of the SUM (Supplementary Uninsured/Underinsured Motorists) endorsement. 

 

We begin our discussion in 2012, when the Second Department rendered its decision in Weiss v. Tri-State, reported in Vol.14, No. 7. The facts were simple.  Husband and wife (“H&W”) killed by a drunk driver with a $50,000/$100,000 liability policy, and the carrier for the offending driver offered up the policy.  H&W have SUM policy with Tri-State with $250,000 in coverage.

Dram shop claims were interposed against the bar and diner where the driver was served and those parties offer to pay the Estates a total of $255,000.  With $100,000 from the drunk driver’s carrier, the total recovery was $355,000.

The plaintiffs then filed a SUM claim against Tri-State.  Tri-State claimed that it was entitled to offset for all dollars received ($355,000) thus leaving only $145,000 in SUM available.  Plaintiffs argued that they were entitled to $400,000 ($500,000 less $100,000 in auto coverage received). They claimed that the SUM limits could not be reduced by monies received from non-auto carriers, Condition 11 provides, in part:

11. Non-Duplication. This SUM coverage shall not duplicate any of the following:

* * *

(e) Any amounts recovered as bodily injury damages from sources other than motor vehicle bodily injury liability insurance policies or bonds."

The Court held in that 2012 decision that SUM coverage is designed to provide the insured with the same level of protection he or she would provide to others were the insured a tortfeasor in a bodily injury accident.  With this limited purpose, SUM coverage does not function as a stand-alone policy to fully compensate the insureds for their injuries. Here, the maximum SUM coverage of the subject policy was $500,000 per accident.  The amount payable under that coverage was reduced, under Conditions 6(a) and 6(b), by the $100,000 paid by McGibbon's insurer, inasmuch as that amount constituted a "motor vehicle bodily injury liability insurance . . . payment" that the plaintiffs received (11 NYCRR 60-2.3 [f]).  Further, the Dram Shop claims were settled for a total of $255,000.  The Dram Shop recovery constitutes, under Condition 11(e), an amount "recovered as bodily injury damages from sources other than motor vehicle bodily injury liability insurance policies or bonds."  Condition 11 does not allow duplicate recovery of such damages.

 

Consequently, under the terms of the SUM endorsement, the plaintiffs' receipt of the Dram Shop recovery reduces, by that same $255,000, the amount payable under the SUM endorsement. The plaintiffs are not penalized by this reduction, since they received the maximum amount for which they are covered under the SUM endorsement: $100,000 from McGibbon's policy, $255,000 from or on behalf of the Dram Shop defendants, and $145,000 from Tri-State defendants.

 

In November, 2015, the Fourth Department agreed with the Second Department in our case, Redeye, reducing a SUM recovery by the amount the SUM claimant received in a dram shop settlement.  Neither case looked at the full value of the injuries

 

Now, in the Sherlock in this issue, the Second Department opined that the amount received from a non-auto defendant police department professional liability policy (a source other than a motor vehicle bodily injury liability insurance policy) should be considered in relationship to the full value of the case, not just the amount of coverage contrary to its decision in Weiss and recognized it:  To the extent that Weiss can be interpreted to require that the amount of SUM coverage be reduced without regard to the actual amount of bodily injury damages suffered, it should no longer be followed.  It then sent the matter off to arbitration

 

So, now we have a split:  Redeye v. Sherlock.  No doubt, at some point, the Court of Appeals will weigh in and settle the score.

Late Notice, Defaults and Conundrums:

See the Fay De Realty Corp. case, a real head-scratcher, in my column and Steve’s note about that decision, which immediately follows.

Peiper’s Pleadings:

I like my place in this publication. Covering the first party world, plus anything else in the Appellate Division that looks interesting, leads to a varied, informative and entertaining column.  At least, I hope some of you think so.  My role happily cedes the third-party world to our Editor who has laboriously covered virtually every casualty insurance case reported in the last 17 years. 

The cover letter, of which you are reading right now, is another avenue which provides a forum for me to wade into liability world.  Rarely do I take the opportunity, but I will do so today.  Pardon me, if I simply do not understand the Second Department’s decision in Fay Da Realty.   Allow me to explain.

Since Insurance Law 3420 was amended in 2009 the decisions addressing prejudice in late notice cases have been scarce.  We fully appreciate and understand the nuances that need to be explored in a statute that prior to January of 2009 never existed.  Some things, however, seemed relatively clear, to me at least.

If you are filing an application for summary judgment on a late notice defense (pre or post-negligence), a carrier must establish three things.  One - when the incident was made known to the insured.  Two - when the notice was made known to the insurer.  Three - what the policy actually required.  At that point, simple arithmetic established whether notice was “late.”  If it was, the burden shifted to the insured to come forward with an excuse.  These rules, I would submit, did not change in January of 2009. 

In Fay Da, the facts are undisputed.  The underlying plaintiff sustained injury in 2010.  Default was entered against Fay Da in September of 2013.  Fay Da alleges it did not know about the default until November of 2014 when it promptly notified Peerless.   Thus, on the Record before the Court, at a minimum Fay Da had to have been aware of the loss in September of 2013.  Notice was not provided until November of 2014.  Simple arithmetic again.  That’s a delay of 14 months, and every court in NY would have held it was late as a matter of law.  Prejudice, per the statute is established irrebutably, because a default was entered prior to notice.  Indeed, 14 months earlier in fact.

We don’t see the issue here; well, I don’t see the issue.  Respectfully, Fay Da’s argument that it did not know about the loss until November of 2014 should have fallen on deaf ears.  The Court, you know the one who entered default judgment against it, presumably determined that Fay Da was properly served.  We trust Court’s don’t go handing out default judgments without proof of service.  If Fay Da was properly served, it follows then that they were judicially determined to have been on notice.  Period, right? 

If they were not properly served, would not the better alternative been to move to vacate the default?  Did they try that?  Nope. Fay Da settled the judgment with the injured party, and then commenced the lawsuit against Peerless.  So, by settling and not challenging the default, does not Fay Da acknowledge proper service?  If so, how then do they argue a question exists based upon notice? 

To quote Dan, what is a carrier supposed to do?  I would submit, and will continue to advocate, if there is a default judgment when notice is provided, the carrier can disclaim, confidently.   If not, why have the default standard in the first place? 

I cede the rest of my time on this issue to the Coverage Corner.  I could rant about how the NYU/Rocanova standard does not apply to third-party cases, but alas I’ve done enough for today and you’ve seen that argument on these pages before.

Happy Friday!

Steve

Steven E. Peiper

[email protected]

 

Gun Violence, 100 Years Ago Today:

 

Middletown Times- Press

Middletown, New York

17 Jun 1916

HUNTING CROWS,
HE SHOOTS HIS TOES

Fosterdale, June 17—George Neill, a well-known farmer of this place, got up early Monday morning and went out to shoot crows which were raiding his corn field.

He held his shot gun in his right hand, cocked and pointed downward, when he saw a crow.  In his haste to pull the gun up to the shoulder he pulled the trigger and the charge of shot went through the toe of his right boot.  The charge, which was so close to the foot as not to scatter, cut off the toe next to the little one and grazed the adjoining toes.  Mr. Neill drove to Jeffersonville and had Dr. LaValley attend to his injuries, and it is expected the wounds will rapidly heal, though he will be minus a toe.

 

PHILLIPS FEDERAL PHILOSOPHIES:

 

Hello, All:

 

This week saw my return to the gym after what my sore muscles tell me was an extended absence.  Now, I know it’s been awhile since I’ve made an appearance at Pilates, but I think having the ambulance idling in the parking lot was overkill. 

 

The first case this week, Liberty Insurance Corporation v. Admiral Insurance Company, comes from the Northern District of New York. In Liberty, the District Court discusses how to calculate defense fees when the prevailing party in a coverage action was represented by in-house counsel.  The second case this week comes from just across Niagara Square from my office.  In Cincinnati Insurance Company v. Roy’s Plumbing, Inc., the Western District of New York considers whether a total pollution exclusion is applicable where the insured, a contractor performing sewer repairs in the Love Canal area of Niagara Falls, did not fit the mold of a traditional industrial polluter.

 

As always, thanks for reading.

 

J.

Jennifer J. Phillips

[email protected]

 

Attorney in Trouble, 100 Years Ago:

 

The Cincinnati Enquirer

Cincinnati, Ohio

17 June 1916

 

ATTORNEY

Is Sent To Penal Farm

Because He Disappeared During

Trial of Gene Williams

 

Schoolteacher, Wanted as Witness,

Says Mayor Bunch Forced Him

To Leave State.

 

SPECIAL DISPATCH TO THE ENQUIRER.

 

Muncie, Ind., June 16.—For having absented himself from the state during the trial of Gene Williams, former Deputy Prosecuting Attorney, who was convicted last week of having taken part in a conspiracy to solicit and accept bribes, Thomas V. Miller, a young attorney, today was sentenced to the State penal farm for 60 days and fined $25 by Judge Fred Gause, of Newcastle, trial Judge in the Williams case.

 

Lloyd Cooley, a young school teacher, and also an attorney, who was wanted by the state as a witness against Williams, was arraigned on a contempt charge, and he charged that Mayor Rollin H. Bunch made him leave the state.

 

Judge Gause immediately placed Cooley under $1,000 bond and ordered that he be a witness before the grand jury.  Cooley told the Court that Bunch drove him to Marion, Ind., in his (Bunch’s) automobile. 

 

Just a few minutes before Cooley made his charge before the court, Sheriff Albert O’Harra arrested Mayor Bunch on two charges of assault and battery with intent to commit murder and one of unlawfully having placed dynamite.  Chief of Police William A. McIlvaine, who was arrested yesterday on a charge of assault and battery with intent to commit murder and having unlawfully placed dynamite, again was arrested this morning on another charge of attempted murder.  Patrolman Ed Quirk also was arrested on a charge that he attempted to murder Frank Whitney, a dry worker.

 

The dynamiting of the home of Attorney Wilbur Ryman, who is now Special Prosecutor before the grand jury, is alleged in two joint indictments against the Mayor, Chief of Police and Gene Williams.

 

“Bat” Masterson, who figured in the troubles of former Mayor Donn Roberts, of Terre Haute, was a witness today before the grand jury.

 

The Mayor and Chief of Police say the latest charges against them are absolutely ridiculous. 

 

Editor’s Note:  What happened to young attorney Miller?  Not a man with sustaining luck.

 

Rushville Republican

Rushville, Indiana

24 Nov 1930

 

THOMAS MILLER DIES INSTANTLY;

DRIVER ARRESTED

 

Automobile in Which Prominent

Criminal Attorney Was Riding

Strikes Parked Machine

 

TWELVE-GALLON KEG

OF ALCOHOL IN CAR

 

Herman Templin, Driver, Will

Face Manslaughter Charge

Today, Coroner Announces

 

Winchester, Ind., Nov. 23—(AP)—Thomas V. Miller, 45, prominent Muncie criminal lawyer, was killed instantly today in an automobile accident here.  He suffered a fractured skull when the automobile in which he rode, driven by Herman Templin, 47, Muncie furniture salesman, struck an automobile belonging to Judge A. L. Nichols, of the Indiana Appellate court, in front of Nichols’ home.

 

Sheriff Lee Briner arrested Templin, in whose car he said he found a 12-gallon keg and a pint bottle of alcohol.  Coroner O. W. Hinshaw said manslaughter charges will be place against Templin in circuit court tomorrow.

 

Miller gained statewide prominence when he assisted the late Thomas H. Adams in exposing alleged corruption in Indiana government and also as an attorney for D. C. Stephenson, a former Ku Klux Klan leader now serving a life term for murder. 

 

TESSA’S TUTELAGE:

 

Dear Readers,

 

This week we have a rather exciting and interesting case from the Court of Appeals. The issue presented in this appeal is whether a health insurer who pays for medical treatment that should have been covered by the insured's no-fault automobile insurance carrier, may maintain a reimbursement claim against the no-fault insurer within the framework of the Comprehensive Motor Vehicle Reparations Act. The Court held that it may not.  We have a 5-2 decision with Judge Fahey and Judge Rivera dissented on principles of equitable subrogation and the Plaintiff should have been able to advance their argument. As such, this case has sparked a little debate and discussion here at Hurwitz & Fine.  I would love to hear your thoughts on this one!

 

Additionally, we have a case from the Appellate Division, First Department, which discusses the applicability of notification requirements for verification to EUOs scheduled prior to the Insurance Company’s receipt of the claim.

 

Hope you all have a wonderful week,

 

Tessa

Tessa R. Scott       

[email protected]

 

They Wanted Obamacare a Century Ago:

 

Lawrence Daily Journal-World

Lawrence, Kansas

17 Jun 1916

 

WANTS GOVERNMENT HEALTH INSURANCE

 

Public Health Service Physician Advocates It

 

MADE ADDRESS TO PHYSICIANS

 

Says it Will Not Weaken Individual

Effort, Properly Used

 

System Would be of Greatest Help to

Poor Workmen and Their Families

 

Detroit, Mich., June 17.—Government health insurance administered under federal or state jurisdiction will not weaken individual effort.  Instead it will make the individual stronger by making him more independent economically.  This conclusion was stated by Dr. B. S. Warren of the United States Public Health Service in a paper before the American Medical Association at its annual meeting here today.  Dr. Warren was detailed by the Public Health Service over two years ago to undertake an exhaustive investigation of government-administered health insurance, and is the author of the recent report on this subject issued by the United Sates Public Health Service.

 

“Everything points to the necessity of government-administered health insurance if the health and well-being of American wage earners are to be properly conserved,” Dr. Warren said.  “Preventable disease, caused by poverty and lack of co-operation and systematic effort by health-conserving agencies, is now causing havoc among American industrial workers.”

 

“Under a system of health insurance for wage earners administered by the state, the poorest of workmen and their families could secure adequate medical and surgical treatment through the use of a fund to be supplied by payments of 50 cents per week for each employee—25 cents to be contributed by the employee, 20 cents by the employer, and 5 cents by the community through taxation.”  


HEWITT’S HIGHLIGHTS:

 

Dear Subscribers:

 

Welcome to another addition, subscribers. I would like to wish an early Happy Father’s Day to all the fathers out there, and hope you have a relaxing weekend. The school year is ending and my youngest graduates from preschool this week while my oldest finishes first grade. Happy Graduation day to all of you have graduates in your family.  Be proud of such an important accomplishment.

 

This edition, we have numerous serious injury threshold cases. In one case, a defendant’s expert found range of motion limitations, but stated his opinion that they were self-imposed. Unfortunately, the court found that the expert had not described the basis for his opinion, and an issue of fact was therefore found. In another case, a worker’s compensation physician had opined in a worker’s compensation case that the injuries were work related. However, plaintiff’s treating physician found the injuries to be due to a car accident that occurred the month after the work accident. Therefore, the court found an issue of fact. In another case, a gap in treatment was adequately explained by the plaintiff lacking the resources to continue treatment for a time, and resuming treatment when he had the money to do so. Finally, the courts continue to conclude there is an issue of fact when a very young plaintiff has injuries with the implication being that they are unlikely to be degenerative.

 

Until next time,

 

Rob
Robert E. Hewitt

[email protected]

 

Too Snugg a Relationship, 100 Years Ago:

 

Durham Morning Herald

Durham, North Carolina

17 Jun 1916

 

MRS. UMSTEAD IS

SEEKING DIVORCE

 

Civil proceedings have been instituted by Mrs. Anna Gribble Umstead through her attorneys, Brawley and Gantt, in which she is seeking an absolute divorce from her husband, E. T. Umstead.  The complaint charges non-support of Mrs. Umstead and her child by the defendant and alleges that Umstead had improper relations with Addie Snuggs and other women.  It also alleges that the defendant was imprisoned in jail in Hopewell, Va., charged with felony, that he escaped from jail while serving a sentence and is at present a fugitive from justice.  Mrs. Umstead, who formerly lived in Durham, is a native of Ohio and has since moved to Fosteria, Ohio, where she resides with her parents, Mr. and Mrs. C. A. Gribble.  It is not known where Umstead is at the present time and the possibility that he will contest the granting of a divorce seems quite remote. 

 

WILEWICZ’ WIDE WORLD OF COVERAGE:

 

Dear Readers,

 

Once again we have tons to get to this week, so let’s dive right in. For those who miss my obligatory notes about the weather and changing seasons – summer is here! Enjoy it while it lasts. Winter is coming.

 

First off, we have a cyber-liability case that is already being hailed as the first to substantively interpret the provisions of an express cyber liability policy. In P.F. Chang’s v. Federal Insurance, the insured restaurant suffered a data breach that resulted in tens of thousands of credit card numbers being published online. While the carrier paid a considerable sum in relation to the claim, the insured also wanted coverage for fees and assessments that the credit card companies had imposed pursuant to their credit card processing agreements. In a very well-written and clear opinion, the District Court of Arizona found that while some of those assessments may have been covered in the first instance, there were exclusions that barred coverage for all of them. These exclusions included those for contractual assumption of liability and for obligations undertaken with the consent of the insured. Since the insured had agreed to the terms of the contract, and essentially agreed to indemnify the credit card companies, there was no further coverage as to all of those assessments and fees. (That was quite a blow to the insured, as the assessments totaled nearly $2 million.) The court also rejected the insured’s attempt at applying the “reasonable expectations doctrine”, which could have conformed the coverage to what it was expected to have covered – but there simply was no evidence that extraneous fees and such were ever expected to have been covered under the policy. We will be certain to follow this one, to see if the Circuit Court wants to take up these issues. Stay tuned!

 

Next, we have a lesson in the power of explicit language in a coverage position letter. In Nationwide v. Shearer, Nationwide picked up the defense of its insureds when they were sued following a sewage spill. In its reservation of rights letter, however, Nationwide expressly reserved its rights, noted the potential applicability of various pollution- and spill-related exclusions, reserved its right to withdraw that defense, and made clear that its assumption of the defense “shall not be deemed to be a waiver of or estoppel of these and all rights under the policy and applicable law”. Thus, when they withdrew, two years into the litigation, the insureds were out of luck. The court said that there was no estoppel, waiver, or evidence of fraud or prejudice. Despite the inconvenience it might cause for the insured, the insurer was able to withdraw, particularly since it had been so upfront from the outset and everyone was in agreement that the exclusions otherwise applied. 

 

Finally, in Northwest Pipe v. RLI, we bring you a case out of the Ninth Circuit. There, RLI insured a pipe company which was alleged to have been involved in contamination of a Superfund site in Oregon. As an umbrella carrier, RLI disclaimed and argued that it did not have to provide the insured with a defense, particularly where other carriers were already defending. The Circuit Court disagreed. Since RLI was the only carrier on the risk for that one policy year, its defense duty was triggered by the occurrence that allegedly happened in that year. As such, even though it was an umbrella carrier, it had to split the defense costs with the primary layers.

 

See you all in a couple of weeks!

 

Agnes

Agnes A. Wilewicz

[email protected]

 

JEN’S GEMS:

 

Greetings! 

 

We are now in full summer mode at my house.  Last weekend we finished planting flowers and mulching our beds.  We may even move on to painting exterior trim soon. 

 

Mostly, we are just trying to compensate for the fact that our yard is increasingly starting to look like a child’s amusement park.  The stuff just seems to creep in, and before you know it there is a sandbox, water table, trampoline (no judgment, it is a small one and yes I checked my homeowners policy, its covered), power wheels etc., and the neighbors are giving you disapproving looks.

 

Although that could also be due to fact that Ella, my four year old, asked someone passing by house the other day if they “wanted to fight.”  In her defense, she was talking to their dog (she doesn’t like dogs) and we had recently read the Grouchy Ladybug (by Eric Carle), in which the bad tempered lady bug routinely asks animals bigger than him if they “want to fight.”    

 

That is why we plant the flowers, routinely mow the lawn and perhaps I should consider taking that book out of the rotation.  We don’t need any more strikes against us.      

 

In terms of my column this week, I would highlight D.C. Dev. LLC v. Endurance Am. Specialty Ins. Co., a decision from New York County.  It is a good case to site for the proposition that a contractual obligation to hold a party harmless is not an obligation to provide it additional insured status, and does not trigger the standard additional insured endorsement. 

 

Hope everyone has a nice weekend, and until next issue…

 

Jen

Jennifer A. Ehman

[email protected]

 

The Socialist Want Unemployment Insurance – a Century Ago:

 

The Pantagraph

Bloomington, Illinois

17 Jun 1916

 

Want Employment Insurance Bill.

 

Emil V. Kuhne, of Chicago, in speaking on Socialist methods of dealing with unemployment, advocated unemployment insurance and suggested that Alderman Kennedy and Representatives C. M. Masden and Joseph M. Mason, both of Chicago, and Socialist members of the legislature, work in the interest of an employment insurance bill to be presented to the general assembly.

 

A motion was made by J. L. Engdahl, of Chicago, that the committee on constitution frame an amendment to provide for the election of national committeemen on a majority of the while number of ballots cost in the referendum election was referred to that committee. 

 

BARNAS ON BAD FAITH:

 

Hello again:

 

My letter for this edition is being penned shortly before another Hurwitz & Fine Thursday night softball game.  This is my first year as a player on the Hurwitz & Fine softball team.  While I understand that the firm’s recent softball success has been limited, this year we are going to make Hurwitz & Fine Softball great again.  In one month of play we have already matched last season’s win total.  Although we had a bitter defeat last week, I’m feeling good about our chances tonight.  I’m hoping to report on many more wins in the future.

 

It has been quiet on the bad faith front in New York for these last couple weeks.  This week my column features a couple of bad faith decisions from beyond our borders.  My column this week also features a decision by the Southern District of New York in MIC General Insurance Company v. Chambers, in which the Southern District of New York determined that the definition of “residence premises,” as modified by a three and four family dwelling endorsement, did not unambiguously require the insured to reside at the insured property.

 

One interesting side issue considered in that case that I want to briefly comment on relates to the well-established Mighty Midgets rule.  In New York, when an insured successfully defends itself against a declaratory judgment action commenced by its insurance company the insured is entitled to recover attorney’s fees.  In Chambers, the underlying plaintiff, who opposed the summary judgment motion, argued that she was entitled to attorney’s fees and costs because her participation benefitted the insured, who was pro se.  The court declined to expand the Mighty Midgets rule in this way.  It noted that the rule flows from the contractual relationship between the insured and the insurer.  Merely being on the same side of the v. as the insured in a declaratory judgment action commenced by the insurer is not a sufficient basis for recovery of attorney’s fees.

 

I want to wish a very Happy Father’s Day to all of the dads out there, especially my own.  I expect that we will be continuing our annual Father’s Day tradition of watching the final round of the US Open together.

 

See you next time.

 

Signing off,

 

Brian

Brian D. Barnas

[email protected]

 

Baseball – Great Fettle: Don’t You LOVE this Kind of Reporting on a No-Hitter?:

 

The Sun

New York, New York

17 Jun 1916

 

LONG TOM HUGHES

HURLS NO HIT GAME

 

Only Three Pirates Get on

Base, Two on Walks and

One on an Error.

 

WAGNER WHIFFS TWICE

 

Boston, June 16.—Long Tom Hughes did not allow the Pirates a hit or a run today, while the Braves got two tallies because of passes to Maranville.

 

Only three visitors reached first base, two on passes and one on an error.  Tom was in great fettle.  The visitors rapped the ball into the air when they connected.  Wilhoit camped under several long flies.  The locals had only three assists.  Wagner struck out twice, being the third out in the final session on three swings.

 

The Rabbit walked in the opener and advanced on a single by Snodgrass.  Wilhoit’s pop fell into Kantlehner’s mitt and when the latter threw over Wagner’s head Maranville scored.  Harrmon passed the Rabbit in the eighth and he went to third on another hit by Snodgrass, scoring on a double steal. 

 

 

Highlights of this Week’s Issue, attached:

 

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

 

  • Where Insured Claims it Received Notice of the Accident Three Days before it Gave Notice (Even Though After Default was Taken) It May Be That Notice is Timely – Thousands Wonder Whether They Should Flee
  • Since It is Not Clear Whether Underlying Plaintiff was an Insured under Policy; Carrier has to Defend Even in Face of Insured v. Insured Exclusion
  • Application to Stay SUM Arbitration was Not Timely Made
  • Do Dollars Received from Non-Auto Defendants Reduce SUM Recoveries?  Departments Now Split.  Second Department Overrules Its Own Precedent. 
  • Consolidation Underlying Tort Action with Coverage Action Rejected.
  • Appropriate to Consolidate Personal Injury Action with APIP (No Fault Subrogation) Action against Same Defendant
  • Limited Discovery Permitted in E&O Claim against Insurance Broker
  • The Fact and Just the Facts


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

Robert E.B. Hewitt III

[email protected]

 

  • Defendant Established that there was No Serious Injury to the Plaintiff’s Shoulder
  • Defendant’s Expert’s Opinion that the Range of Motion Limitations He Found were Self-Imposed Was Not Explained by Objective Medical Evidence
  • Defendant Failed to Meet their Burden and the Motion Was Denied
  • Conflict between Plaintiff’s Treating Surgeon before the Workers Compensation Board as to a Work Related Injury and His Treating Physician for the Car Accident as to Whether the Injury was Pre-Existing Led to Issue of Fact
  • Plaintiff’s Admission that He Did Not Miss Any Days of Work Following the Accident Doomed His Claim of a 90/180-Day Category of Serious Injury
  • CT Scan Reports Found that Plaintiff’s Herniated and Bulging Discs Had Degenerative Changes Which Were Not Adequately Explained by Plaintiff’s Treating Chiropractor Leading to Grant of Summary Judgment
  • Plaintiff’s Expert Opinion that there was a Significant Limitation to Plaintiff’s Shoulder was Rejected where there was No Medical Basis for the Opinion
  • Lower Court Should Have Considered Upon Renewal the Notarized Affidavit of Plaintiff’s Chiropractor Which Would Have Created an Issue of Fact
  • Injury to Shoulder Did Not Constitute a Serious Injury
  • Injury to Shoulder and Back Did Not Constitute a Serious Injury
  • Plaintiff Was Twenty Years Old and Had No Prior Knee or Back Symptoms and Therefore Issue of Fact as to Whether the Accident Caused the Injuries
  • Plaintiff’s Expert who Examined Her Three Years after the Accident Failed to Address Defendant’s Expert’s Opinion that Ankle Injury was Congenital
  • Plaintiff’s Prior Treatment for Arthritis Led to Summary Judgment in Favor of Defendants as Plaintiff’s Expert Did Not Address this Degenerative Condition

 

TESSA’S TUTELAGE
Tessa R. Scott

[email protected]

 

·       Health Insurer that Paid what Should Have Been Paid by No Fault Carrier Cannot Seek Reimbursement from No Fault Carrier

  • The Notification Requirements for Verification Requests Do Not Apply To EUOS That Are Scheduled Prior To the Insurance Company's Receipt of a Claim Form

 

PEIPER ON PROPERTY (and POTPOURRI)

Steven E. Peiper

[email protected]

 

  • Sponsor’s Multiple Claims against Window Supplier Die Multiple Deaths
  • Out-of-Possession Landlord is Outside of Liability Exposure
  • Graves Amendment DOES NOT Exempt Claims of Active Negligence against Lessor of Vehicle
  • Undated Contract Precludes Summary Judgment on Indemnity Claim
  • Labor Law Pop Quiz - Repair = 240, Maintenance = No 240 

 

WILEWICZ’S WIDE WORLD OF COVERAGE

Agnes A. Wilewicz

[email protected]

 

  • In Landmark Cyber Liability Case, District Court of Arizona Finds No Coverage for Credit Card Processing Assessments/Fees Following Data Breach
  • Third Circuit Finds That Insurer Who Expressly Reserved Rights to Withdraw the Defense Can Do So, Even Years into the Case
  • Ninth Circuit Holds Umbrella Carrier on the Hook for Defense, Even Where Other Carriers Are Already Defending

 

JEN’S GEMS

Jennifer A. Ehman

[email protected]

 

  • Questions of Fact Found Relative to Application of Primary Endorsement
  • Written Contract Requiring the Additional Insured Status Necessary to Trigger Additional Insured Endorsement

 

BARNAS ON BAD FAITH

Brian D. Barnas

[email protected]

 

  • Insurer did not Act in Bad Faith by Denying Claim Even though there was Conflicting Evidence Regarding the Cited Exclusions
  • Insurer had an Arguable Basis to Deny the Claim where there was a Question of Fact Regarding the Insured’s Failure to Cooperate
  • Definition of Residence Premises was Ambiguous Based on Provisions of Endorsement

 

PHILLIPS’ FEDERAL PHILOSOPHIES

Jennifer J. Phillips

[email protected]

 

  • Defending Defense Costs
  • Pollutants Precluded

 

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

 

  • Another Tale of Sex, Lies, and Insurance: Insurance Fraud Does Not Require Actual Payment

 

Happy Father’s Day.  Remember, if you have a situation, and everyone does, give us a call…

 

 

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]

 

06/15/16       Fay Da Realty Corp. v. Peerless Insurance Company

Appellate Division, Second Department

Where Insured Claims it Received Notice of the Accident Three Days before it Gave Notice (Even Though After Default was Taken) It May Be That Notice is Timely – Thousands Wonder Whether They Should Flee

The plaintiff seeks to recover damages against the defendants for their refusal to provide coverage and a defense under the terms of a commercial general liability insurance policy issued by the defendant Peerless Insurance Company on December 17, 2009.

 

It is claimed that on November 7, 2014, Fay De Realty’s (“Realty”) president, Chow, first learned that a money judgment in the principal amount of $101,180 had been entered on September 5, 2013, against the plaintiff on its default, in favor of an individual named Velastegui.  When Realty’s attorneys contacted Velastegui's attorney, they learned that Velastegui had allegedly sustained personal injuries on January 9, 2010, when she slipped and fell on a sidewalk in front of a commercial property owned by the Realty.

 

Three days after first learning of the underlying action, the Realty notified its insurance agent of the judgment. The agent, in turn, notified Peerless who subsequently denied coverage and disclaimed any duty to defend or indemnify the plaintiff. After paying a sum that Velastegui's attorney agreed would constitute full satisfaction of the judgment, Realty commenced this action against the Peerless claiming a breach of the insurance contract.

 

Peerless moved to dismiss the complaint, it argued that the Realty’s submission of a notice of claim after entry of the default judgment in the underlying action was inherently prejudicial and, therefore, justified the denial of coverage. The lower court held that Peerless’ purported showing of prejudice was insufficient, without more, to warrant dismissal of the complaint.

 

In order to deny coverage based on a late notice of claim, the insurer must first show that the plaintiff failed to give notice "required to be given by such policy within the time prescribed therein". Here, the facts alleged in the complaint—which, for purpose of a motion pursuant to CPLR 3211(a)(7) must be deemed to be true-- state that the plaintiff had no knowledge of the underlying action, or the resulting default judgment, until November 7, 2014.

 

Peerless did not produce a copy of the policy, and made no attempt to show that the Realty’s conduct, as alleged in the complaint, was in breach of the notice requirements of the policy.

 

However, there is no valid claim for punitive damages or attorneys' fees under the facts alleged in the complaint.

Editor’s Note: There is an irrebutable presumption of late notice if carrier receives notice after a default it taken against the insured yet here, court held that notice to the insurer may be timely.  A conundrum wrapped in an enigma.  What is the carrier to do?

 

06/15/16       Boro Park Land Co., LLC v. Princeton E.S.L. Ins. Co.
Appellate Division, Second Department
Since It is Not Clear Whether Underlying Plaintiff was an Insured under Policy; Carrier has to Defend Even in Face of Insured v. Insured Exclusion

Boro Park Land Co., LLC (“Boro Park”), owned certain premises located in Brooklyn, which it leased to Boro Park Operating Co., LLC (“the Center”), for the operation of a nursing home. Princeton Excess Surplus Lines Insurance Company (“Princeton”) issued a Senior Living Professional Liability, General Liability, and Employee Benefits Liability policy (“policy”) to the Center. Boro Park was named as an additional insured under the policy, as required by the lease agreement.

 

Wickham, an employee of the Center, slipped and fell in the parking garage of the Center when she arrived at work. Wickham sued Boro Park alleging negligence (“underlying action”). Boro Park forwarded the summons and complaint to Sedgwick Princeton's third-party claims administrator, which was received on December 5, 2012. In a letter dated December 14, 2012, Princeton denied coverage under the policy, inter alia, based upon the "Insured Versus Insured" exclusion in the policy.

 

Boro Park then sued Princeton seeking defense and indemnity in the underlying action.

 

An insurer can be relieved of its duty to defend if it establishes as a matter of law that there is no possible factual or legal basis on which it might eventually be obligated to indemnify its insured under any policy provision.  To be relieved of its duty to defend on the basis of a policy exclusion, the insurer bears the heavy burden of demonstrating that the allegations of the complaint in the underlying action cast the pleadings wholly within that exclusion, that the exclusion is subject to no other reasonable interpretation, and that there is no possible factual or legal basis upon which the insurer may eventually be held obligated to indemnify the insured under any policy provision.

 

Here, Princeton disclaimed coverage based upon the "Insured Versus Insured" exclusion, which excluded "any claim' made by or for the benefit of, or in the name or right of, one current or former insured against another current or former insured." As it is not clear from the language of the exclusion at issue whether Wickham, as an employee, was an "insured" as that term was defined in the policy the provisions are ambiguous and subject to more than one interpretation.  Thus, the Supreme Court correctly determined that Princeton failed to establish its prima facie entitlement to judgment as a matter of law.

 

Accordingly, the court properly denied Princeton's motion for summary judgment dismissing the complaint, and granted that branch of Boro Park's cross motion which was for summary judgment declaring that Princeton is obligated to defend Boro Park in the underlying action, and declared that Princeton is so obligated.

 

06/08/16       Progressive Casualty v. Garcia

Appellate Division, Second Department

Application to Stay SUM Arbitration was Not Timely Made

Did Progressive file its application to stay arbitration of SUM benefits timely?  CPLR 7503(c) requires that an application to stay arbitration be made within 20 days after service of a notice of intention to arbitrate. Unless a party makes an application for a stay of arbitration within the 20-day period, CPLR 7503(c) precludes it from seeking a judicial determination on its objections to arbitration. As an exception to this rule, however, a motion to stay arbitration may be entertained when its basis is that the parties never agreed to arbitrate.

 

Here, Progressive Casualty Insurance Company (hereinafter Progressive) commenced this proceeding to permanently stay arbitration more than 20 days after service upon it the notices of intention to arbitrate.

 

Progressive argued that arbitration should be stayed on the ground that the appellants' accident did not involve an adverse "motor vehicle," but rather an all-terrain vehicle.  That issue relates to whether certain conditions of the insurance contract were complied with so as to entitle the appellants to uninsured motorist benefits, and therefore, had to be asserted within the 20-day time limit.

 

06/08/16       GEICO v. Tramontozzi

Appellate Division, Second Department

Do Dollars Received from Non-Auto Defendants Reduce SUM Recoveries?  Departments Now Split.  Second Department Overrules Its Own Precedent. 

This is an important decision.

 

Sherlock was killed in Long Island when the vehicle he was driving collided head-on with a car driven by Maldonado. Maldonado, who was being pursued by the Old Brookville police, failed to negotiate a curve in the road and crossed the center and into the path of Sherlock's vehicle.

 

Sherlock was insured under a GEICO policy that provided underinsured motorist benefits (supplemental uninsured/underinsured motorist (“SUM”) with a per person liability limit of $250,000. Maldonado was covered by a liability policy issued by New York Central with a per person liability limit of $50,000.

 

Sherlock's widow, Tramontozzi commenced a personal injury action against the Maldonado and the Police Department.  New York Central offered to settle the action on behalf of Maldonado for the $50,000 limit of the New York Central policy, Tramontozzi Sherlock sought, and received, GEICO's consent to the settlement.

 

After mediation, the Police Department offered to settle the action insofar as asserted against them for $425,000, the money coming from a professional policy. Tramontozzi accepted that offer. She also sought benefits under the SUM endorsement of the GEICO policy.

 

This is where it gets interesting.

 

GEICO denied Tramontozzi SUM benefits.  Why?

 

The Second Department, in Weiss v Tri-State Consumer Ins. Co. (98 AD3d 1107), had previously held that under Conditions 6 and 11(e) of the SUM endorsement, the SUM coverage was reduced and entirely offset by the $50,000 payment Tramontozzi Sherlock received from New York Central and the $425,000 she received from the police department public risk professional policy insurer.   While the decision doesn’t mention it, the Fourth Department adopted the holding is Weiss in a case I handled for Progressive, called Redeye, and discussed below.  The Court of Appeals denied leave to hear the appeal in Redeye.

 

So, after she received GEICO's denial of her claim, Tramontozzi filed a request for arbitration. GEICO then commenced this proceeding to permanently stay arbitration. Under constraint of Weiss, the motion court granted GEICO's petition and permanently stayed arbitration. Tramontozzi and the appeal followed

 

The question here surrounds the “non duplication” restrictions imposed by Condition 11 of the SUM endorsement. Previously, in the Weiss case, the Second Department held that the money received from insurers OTHER than the auto insurers (in this case, the $425,000 received from the police department, would reduce the available SUM benefits as they duplicate pain and suffering recovery.

 

As the court held in Weiss, “condition 11 is aimed at preventing double recoveries for the same injuries”.  The provision:

 

"11. Non-Duplication. This SUM coverage shall not duplicate any of the following:
 

(a) benefits payable under workers' compensation or other similar laws;

(b) non-occupational disability benefits under article nine of the Workers' Compensation Law or other similar law;

(c) any amounts recovered or recoverable pursuant to article fifty-one of the New York Insurance Law or any similar motor vehicle insurance payable without regard to fault;

(d) any valid or collectible motor vehicle Medical payments insurance; or

(e) any amounts recovered as bodily injury damages from sources other than motor vehicle bodily injury liability insurance policies or bonds".

 

The Court held that the key to a proper understanding of condition 11 is the recognition that "shall not duplicate" is not aimed at preventing an insured from seeking full compensation by combining partial recoveries from several tortfeasors, but at preventing double recoveries for their bodily injuries.

 

Tramontozzi claimed in her request for arbitration that the bodily injury damages are in the millions of dollars. Presumably, if Maldonado defendants' policy had contained the same $250,000 liability limit that the GEICO policy provided, Tramontozzi would have been able to obtain $250,000 from the Maldonado defendants' insurer as well as the $425,000 from the Old Brookville defendants' insurer. Tramontozzi seeks only, through her claim under the SUM endorsement to be in the same position she would have been in had the Maldonado defendants not been underinsured relative to the GEICO policy.

 

The Second Department then walked away from Weiss:

 

To the extent that Weiss can be interpreted to require that the amount of SUM coverage be reduced without regard to the actual amount of bodily injury damages suffered, it should no longer be followed.

 

Inasmuch as the full amount of the insured's bodily injury damages from the collision on May 30, 2010, has not as yet been determined, Tramontozzi was held to be entitled to proceed to arbitration.

Editor’s Note:  This is a sea change.  In the Weiss case the same court had held that the money received from a dram shop carrier would considered when determining whether or not SUM benefits would be recoverable.  Why? Because of the language in the policy providing that SUM benefits should not duplicate “any amounts recovered as bodily injury damages from sources other than motor vehicle bodily injury liability insurance policies or bonds".

 

11/13/15       Redeye v. Progressive Insurance Company

Appellate Division, Fourth Department

Another Win for the Good Guys – Settlement from Dram Shop Action Reduces Recovery under SUM Policy under Condition 11

Redeye brought a lawsuit to recover supplementary uninsured/underinsured motorist (SUM) benefits from defendant, his auto insurer. While a pedestrian, he was injured when a drunk driver struck a car that was propelled into him.  Redeye sued the drunk driver as well as a fire company that allegedly served the driver alcoholic beverages prior to the accident, and he received a settlement from both. Progressive denied Redeye’s claim for SUM benefits, stating that coverage was exhausted by the recovery from both the driver and the fire company, prompting him to commence this action.

 

Redeye conceded that the SUM coverage is properly reduced by the amount he recovered from the driver's insurer. He contended, however, that it was improper to reduce the SUM coverage from the amount he received from the fire company under its general liability insurance policy. The Fourth Department rejected that contention.

 

Condition 11 (e) of the SUM endorsement under defendant's policy provided that SUM coverage

 

shall not duplicate . . . any amounts recovered as bodily injury damages from sources other than motor vehicle bodily injury liability insurance policies or bonds.

 

Here, the payment plaintiff received from the fire company's insurer was for bodily injury damages, and thus the amount of SUM benefits available to plaintiff was properly reduced by that amount.  The policy is not ambiguous and condition 11 does not conflict with condition 6 of the SUM endorsement.  Condition 6 provides that the maximum payment under the SUM endorsement is the difference between the SUM limit and any payments received from a motor vehicle bodily injury liability policy.

 

It does not state that the difference is "the" SUM payment that is to be given to plaintiff, but rather it states that the difference is the "maximum" payment, which the average insured would understand to mean that it could be further reduced.  Condition 6 and condition 11 together resulted in a reduction in the SUM benefits available by the total settlement received by plaintiff in his prior action.

 

Now there is clearly a split in the Department on this issue and it is ripe for Court of Appeals review.

 

06/07/16       McGinty v. Structure-Tone
Appellate Division, First Department

Consolidation Underlying Tort Action with Coverage Action Rejected.

This was an application to consolidate a tort action with a coverage action.  The First Department denied the request.  The lawsuits do not involve common questions of law or fact; they involve different contracts, different parties, and different factual issues.

 

Moreover, litigating an insurance coverage claim together with the underlying liability issues is inherently prejudicial to the insurer.  In this case, consolidation in this case would result in a single action involving the insured, the insurance policy, and the construction of that policy.

Editor’s Note: There are ways to efficiently join coverage and tort actions for the purposes of discovery and for other reasons and even to find ways to jointly try certain coverage and tort lawsuit while avoiding prejudice.  Take some “outside the box” thinking.

 

06/08/15       Nesbitt v. Town of Carmel
Appellate Division, Second Department

Appropriate to Consolidate Personal Injury Action with APIP (No Fault Subrogation) Action against Same Defendant

Nesbitt commenced this action to recover damages for personal injuries allegedly sustained as a result of a motor vehicle accident. Her insurer, IDS, suing as subrogee of Nesbitt, commenced a subrogation action to recover no-fault benefits it paid on behalf of Nesbitt, under an additional personal injury protection endorsement (“APIP subro action”), for economic loss arising from the same motor vehicle accident. The defendant, Shaw, a party to both the personal injury action and subrogation action, moved to consolidate the two actions.

 

Under the circumstances of this case, it was procedurally proper for Shaw, a party to both actions, to file his motion to consolidate in the personal injury action. Further, under the circumstances of this case, given the common issues of law and fact, and lack of demonstrable prejudice, Shaw's motion to consolidate should have been granted.

 

06/07/15       STB Investments Corporation v. Sterling & Sterling, Inc.
Appellate Division, First Department

Limited Discovery Permitted in E&O Claim against Insurance Broker

STB, et al was real estate owners and managers.  They brought an “errors and omissions” (malpractice) case against Sterling, an insurance broker, in the event they were held liable in an underlying personal injury and wrongful death action arising out of a building collapse. STB claims that Sterling failed to obtain umbrella insurance on the demolished building, and failed to advise plaintiffs that no such insurance was in place. Sterling seeks to compel STB to produce certain requested documents.

 

STB’s communications with insurance brokers about topics OTHER than demolition insurance are not "material and necessary" in the defense of this action, including the allegation that the parties had a "special relationship" justifying insurance broker liability.  STB does not base the claim of a special relationship on a "course of dealing over an extended period of time".  They base it on a particular "interaction regarding a question of coverage" - namely, insurance for the demolition project. Accordingly, communications with other insurance brokers are not relevant unless they concern the demolition project.

 

Documents concerning the underlying actions are not material and necessary - at least not at this time. In the event STB is awarded damages in the underlying actions, no further information will be necessary to calculate defendant's damages — the amount awarded, up to the alleged $35 million policy limit.

 

In the event the underlying actions settle, defendant may be entitled to "a trial as to the reasonableness of the amounts paid in settlement", once damages are awarded or a settlement entered, Sterling may also be entitled to discovery regarding whether the awards are punitive in nature, and thus not indemnifiable, Discovery on this issue is premature.

 

Sterling is entitled to limited discovery on the issue of proximate causation, i.e., whether and at what rate or under what conditions plaintiffs would have obtained insurance, but for defendant's alleged negligence.

 

06/07/16       Dryden Mutual Insurance Company v. Goessl

New York Court of Appeals

The Fact and Just the Facts

In this insurance coverage dispute, plaintiff Dryden Mutual Insurance Company (Dryden Mutual) seeks a declaratory judgment that it does not have a duty to defend and indemnify defendant Stanley Goessl in an underlying tort action. Dryden also seeks a declaration that defendant Main Street America Group (Main Street) has a duty to defend and indemnify Goessl.

 

To determine which insurance policy provides coverage to Goessl, the courts below were required to apply principles of contract interpretation to the insurance policies. In doing so, a factual question arose and the lower courts reached opposite conclusions, based on their own findings of fact, as to whether Dryden Mutual or Main Street has a duty to defend and indemnify Goessl.  The Court found that the Appellate Divisions factual findings more nearly comported with the weight of the evidence.

Editor’s Note:  We previously reported on the Appellate Division decision in Volume 15, No. 24. 

 

This Court of Appeals case is not particularly important but for one significant observation.  The Court of Appeals had NO DIFFICULTY in noting that there were factual findings that were rendered in a declaratory judgment action.  Unlike the Greenwich case which we hollered about in the most recent issue, the Court did not suggest that it was inappropriate to find facts in a DJ action and that the proper method to resolve facts was to await the determination in the underlying lawsuit.


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

Robert E.B. Hewitt III

[email protected]

 

06/15/16                 Washington v. Pichardo

Appellate Division, Second Department

Defendant Established that there was No Serious Injury to the Plaintiff’s Shoulder

The Appellate Court affirmed the lower court’s grant of summary judgment to the defendant.  The Appellate Division agreed the defendant met his prima facie burden of showing that the appellant did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. He submitted competent medical evidence establishing, prima facie, that the alleged injury to the appellant's right shoulder 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, the appellant failed to raise a triable issue of fact. No facts are given in the opinion.

 

06/15/16       Salvemini v. Twinco Supply Corp.

Appellate Division, Second Department

Defendant’s Expert’s Opinion that the Range of Motion Limitations He Found were Self-Imposed Was Not Explained by Objective Medical Evidence

The Appellate Court reversed the grant of defendant’s summary judgment motion. In support of their motion for summary judgment dismissing the complaint, the Appellate Division held 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 defendants submitted, inter alia, the affirmed report of Edward A. Toriello, an orthopedic surgeon, who reviewed the plaintiff's medical records and performed a physical examination of the plaintiff at the request of the defendants. Upon examining the plaintiff, Toriello found that the plaintiff had significant limitations in the range of motion in the cervical and lumbar regions of his spine. Toriello's conclusion that the limitations were self-imposed was not adequately explained or substantiated with objective medical evidence. Moreover, the defendants also submitted a medical report of one of the plaintiff's own treating physicians who opined that the plaintiff's limitations in the range of motion in the cervical and lumbar regions of his spine were causally related to the subject motor vehicle accident.

 

06/15/16                Hilaire v. Trotta

Appellate Division, Second Department

Defendant Failed to Meet their Burden and the Motion Was Denied

The Appellate Court affirmed the lower court’s denial of motion for summary judgment, holding 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. Accordingly, the Appellate Division held that the Supreme Court properly denied the defendant's motion for summary judgment dismissing the complaint, without regard to the sufficiency of the plaintiff's opposition papers.  No facts were given.

 

06/10/16                Gatti v. Schwab

Appellate Division, Fourth Department

Conflict between Plaintiff’s Treating Surgeon before the Workers Compensation Board as to a Work Related Injury and His Treating Physician for the Car Accident as to Whether the Injury was Pre-Existing Led to Issue of Fact

In this action to recover damages for serious injuries allegedly sustained by plaintiff in a motor vehicle accident, defendant claimed that plaintiff's claimed spinal injuries were a result not of that accident, but of a work-related motor vehicle accident that occurred on two weeks previously. In opposition to the motion, plaintiff abandoned her claim of serious injury with respect to the 90/180-day category of Insurance Law § 5102 (d). Otherwise the Appellate Court held the Supreme Court properly denied the motion with respect to the remaining two categories of serious injury alleged by plaintiffs in their bill of particulars because defendant established his entitlement to judgment as a matter of law with regard to whether plaintiff, as a result of the subject accident, sustained a permanent consequential limitation of use or a significant limitation of use of her cervical and lumbar spine. Defendant submitted, among other evidence, the testimony of plaintiff's treating orthopedic surgeon before the Workers' Compensation Board.

 

That testimony was to the effect that plaintiff's cervical and lumbar injuries were 100% attributable to the November 30, 2012 accident and thus were preexisting. In opposition to the motion, however, plaintiffs raised a triable issue of fact with respect to defendant's claim of lack of causation. In his affirmation, plaintiff's treating surgeon directly addressed the matter of causation, opining that the subject collision was the sole cause of plaintiff's C6-7 disc injury, and the cause of an aggravation of her previously sustained neck and lower back injuries, which was supported by medical evidence. Defendant's challenges to the opinions of plaintiff's surgeon raise issues for the trier of fact. 

 

06/10/16       Pastuszynski v. Lofaso

Appellate Division, Fourth Department

Plaintiff’s Admission that He Did Not Miss Any Days of Work Following the Accident Doomed His Claim of a 90/180-Day Category of Serious Injury

In this action to recover damages for injuries arising from an automobile accident, defendants appeal from an order denying their motion for summary judgment dismissing the complaint. The complaint, as amplified by the bill of particulars, sought recovery under three categories of serious injury, i.e., the permanent consequential limitation of use, significant limitation of use, and 90/180-day categories.

 

The Appellate Division only agreed that the Supreme Court erred in denying the motion with respect to the 90/180-day category. With respect to the permanent consequential limitation of use and significant limitation of use categories that, although defendants met their initial burden, plaintiff raised triable issues of fact with respect to those two categories. Plaintiff submitted, inter alia, affirmations from both his treating physician and a neurological expert that provided objective proof of spasm in his lumbar spine and proof showing quantitative restrictions in the range of motion in his lumbar spine.  In addition, plaintiff raised an issue of fact whether there was a gap in his treatment by submitting the affirmation of his treating physician stating that the physician continuously treated plaintiff from the date of the accident until the present date. With respect to the 90/180-day category, however, defendants met their initial burden by submitting excerpts of plaintiff's deposition testimony in which plaintiff admitted that he did not miss any full days of work after the accident.

 

06/09/16       Francis v. Nelson

Appellate Division, First Department

CT Scan Reports Found that Plaintiff’s Herniated and Bulging Discs Had Degenerative Changes Which Were Not Adequately Explained by Plaintiff’s Treating Chiropractor Leading to Grant of Summary Judgment

The Appellate Division reversed the Supreme Court’s denial of summary judgment. The Appellate Division held the lower court properly granted reargument to plaintiff based on plaintiff's contention that the unaffirmed CT scan reports prepared by her radiologist could be considered, because they had been referenced and relied upon by defendant's medical expert in diagnosing preexisting degenerative changes in plaintiff's cervical and lumbar spine. However, the reports do not avail plaintiff. Although they found herniated and bulging discs, they also found degenerative changes, including osteophyte formations at multiple levels, and plaintiff's treating chiropractor, while acknowledging the findings of degeneration, did not adequately address those findings or explain why degeneration was not the cause of the claimed spinal injuries. Defendants made a prima facie showing that all of plaintiff's other claimed injuries had resolved and that her claimed knee injury preexisted the accident. In opposition, plaintiff did not provide any medical evidence to rebut defendants' showing.

 

06/08/16       Wong v. Cruz

Appellate Division, Second Department

Plaintiff’s Expert Opinion that there was a Significant Limitation to Plaintiff’s Shoulder was Rejected where there was No Medical Basis for the Opinion

The Appellate Division reversed the judgment of the jury in favor of plaintiff in the amount of $90,000 and dismissed the case. The facts are as follows: while riding his bicycle, the plaintiff was struck and injured by a truck. The plaintiff commenced this action to recover damages for personal injuries resulting from the accident, and was awarded summary judgment against the defendants on the issue of liability. The action proceeded to a trial on the issue of damages, at which the plaintiff was required to present prima facie proof that he sustained a serious injury under Insurance Law § 5102(d). At the close of the plaintiff's case, the defendants moved pursuant to CPLR 4401 for judgment as a matter of law on the ground that the plaintiff failed to establish, prima facie, that he sustained a serious injury to his right shoulder. The Supreme Court denied the motion. At the conclusion of the trial, the jury determined, inter alia, that the plaintiff suffered a significant limitation of use of his right shoulder, and awarded damages in the principal sums of $60,000 for past pain and suffering and $30,000 for future pain and suffering.

 

The Supreme Court also denied the defendants' post-verdict motion pursuant to CPLR 4404(a) to set aside the verdict on the ground that the plaintiff failed to establish, prima facie, that he sustained a serious injury under the significant limitation of use category of Insurance Law § 5102(d). A motion pursuant to CPLR 4401 or 4404 for judgment as a matter of law may be granted only where the trial court finds that, upon the evidence presented, there is no rational process by which the fact trier could base a finding in favor of the nonmoving party. The Appellate Division viewed the evidence in the light most favorable to the plaintiff, and found there was no rational process by which the jury could find that the plaintiff established that the injury to his right shoulder constituted a serious injury under the significant limitation of use category of Insurance Law § 5102(d). Although the plaintiff's sole expert opined that the plaintiff's right shoulder sustained a significant limitation, no objective evidence was provided as to the extent of the alleged limitation


06/08/16       Defina v. Daniel

Appellate Division, Second Department

Lower Court Should Have Considered Upon Renewal the Notarized Affidavit of Plaintiff’s Chiropractor Which Would Have Created an Issue of Fact

The facts are as follows: The plaintiff and the defendant were involved in a motor vehicle collision on an entrance ramp to the Wantagh Parkway in Nassau County. The plaintiff commenced this action to recover damages for injuries she allegedly sustained as a result of the accident. The defendant moved for summary judgment dismissing the complaint on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident, submitting in support the affirmed report of a physician. In opposition, the plaintiff submitted an unnotarized statement of a chiropractor. The Supreme Court granted the defendant's motion for summary judgment, finding that the statement of the plaintiff's chiropractor had not been submitted in admissible form. Thereafter, the plaintiff moved for leave to renew her opposition to the defendant's motion for summary judgment. In support, she submitted a notarized affidavit of the chiropractor and an affirmation of her attorney, who stated that he mistakenly included the unnotarized copy of the chiropractor's statement with the plaintiff's opposition papers instead of the notarized affidavit.

 

The Supreme Court denied the plaintiff's motion for leave to renew but the Appellate Division reversed; finding the Supreme Court improvidently exercised its discretion in denying the plaintiff's motion for leave to renew. The Appellate Division held that the inadvertent mistake of the plaintiff's attorney in including the unnotarized statement of the chiropractor with the plaintiff's opposition papers, rather than the notarized affidavit, was tantamount to law office failure and constituted a reasonable justification for the plaintiff's failure to provide the affidavit to the court in opposing the original, which would have showed an issue of fact.

 

06/08/16       Campos v. Sabella

Appellate Division, Second Department

Injury to Shoulder Did Not Constitute a Serious Injury

The Appellate Division reversed the denial of summary judgment. 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. The defendant submitted competent medical evidence establishing, prima facie, that the alleged injury to the plaintiff's right shoulder 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 her right shoulder. No facts were given.

 

06/08/16       Marrow v. Torres

Appellate Division, Second Department

Injury to Shoulder and Back Did Not Constitute a Serious Injury

The Appellate Division held the defendant met 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 defendant submitted competent medical evidence establishing, prima facie, that the alleged injuries to the cervical and lumbar regions of the plaintiff's spine, as well as to the plaintiff's left shoulder, 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 addition, the defendant demonstrated, prima facie, that during the 180-day period immediately following the subject accident, the plaintiff did not have an injury or impairment which, for more than 90 days, prevented her from performing substantially all of the acts that constituted her usual and customary daily activities. In opposition, the plaintiff failed to raise a triable issue of fact.

 

06/07/16       Santana v. Centeno

Appellate Division, First Department

Plaintiff Was Twenty Years Old and Had No Prior Knee or Back Symptoms and Therefore Issue of Fact as to Whether the Accident Caused the Injuries

The Appellate Division held that defendants made a prima facie showing that plaintiff did not sustain a serious injury involving a permanent consequential or significant limitation in use of his spine or right knee by submitting the affirmed report of their orthopedic expert who, after examining plaintiff, found full range of motion, absence of functional limitations or neurological symptoms, and opined that the knee condition would not have been caused by the accident and that any knee or spinal injuries were fully resolved. In opposition, plaintiff raised a triable issue of fact as to his right knee and lumbar spine injuries by submitting the affirmation of his treating physician, who found persisting limitations in range of motion, and affirmed MRI reports providing objective medical evidence of injury to the right knee and lumbar spine.

 

Given that plaintiff was 20 years old and had no prior knee or back symptoms, his doctor's opinion that the injuries were directly caused by the accident was sufficient to raise an issue of fact as to causation. Plaintiff adequately addressed the gap in his treatment by submitting his deposition testimony and an affidavit in which he attested that he stopped treatment because he could not afford to pay for it after his no-fault benefits had expired, and later resumed treatment when a payment arrangement was made with his doctor. Plaintiff, however, did not submit objective medical evidence of injury to his cervical spine, or any evidence that any limitation in use of his cervical spine range of motion persisted.  At trial, if plaintiff establishes a serious injury to his right knee and lumbar spine, he may recover for all injuries causally related to the accident, even those that do not meet the serious injury threshold. Plaintiff's testimony that he missed only three or four days of work after the accident defeats his 90/180-day claim.

 

06/07/16       Anthony P. v. Abdou

Appellate Division, First Department

Plaintiff’s Expert who Examined Her Three Years after the Accident Failed to Address Defendant’s Expert’s Opinion that Ankle Injury was Congenital

Defendants made a prima facie showing that plaintiffs did not sustain serious injuries involving permanent consequential or significant limitations in use of the body parts they claim were injured through the affirmed report of their orthopedic expert, who found full range of motion in all allegedly injured body parts. However, defendants' reliance on certain numbers in the computerized range of motion studies contained in plaintiffs' medical records to show that plaintiffs had only "minor" limitations after the accident was held to be unavailing by the Appellate Division. Defendants relied on percentages indicating "impairment" without explaining what those numbers mean. The range-of-motion measurements recorded in those same studies, when compared with the normal values provided, actually demonstrated limitations in range of motion in the body parts claimed to have been injured.

 

Plaintiff Anthony P. raised a triable issue of fact as to whether he sustained a serious injury to his right knee and cervical spine.  He submitted MRI findings showing right knee ligament tears, which were confirmed by his surgeon, who viewed the tears during arthroscopic surgery, opined that the injury was causally related to the accident, and found persisting limitations in use. He also submitted a cervical spine MRI showing disc bulges, and his physicians found limitations in range of motion and related these injuries to the subject accident. 

 

Keyvanna H.'s claim of injury to her ankle should be dismissed, because she failed to raise an issue of fact in opposition to defendants' expert opinion that her ankle condition was a congenital condition that could not have been caused by the accident; the expert also noted that Hopkins's radiologist found that the foot and ankle MRIs taken after the accident were normal. Keyvanna's own medical records reflect that she had "congenital anomalies" in her foot and ankle, which diagnosis was not explained by the physician who saw her three years after the accident and opined that she had sustained an injury to her ankle that was causally related to the accident. However, Keyvanna, who was 11 years old at the time of the accident, raised a triable issue of fact as to whether she sustained a serious injury to her lumbar spine. She submitted MRI reports providing objective medical evidence of injury to the lumbar spine, and her treating physician found limitations in range of motion that were causally related to the accident At trial, if either plaintiff establishes a serious injury to any body part, he or she may recover for all injuries causally related to the accident, including those that do not meet the serious injury threshold.

 

06/07/16       Aflalo v. Alvarez

Appellate Division, First Department

Plaintiff’s Prior Treatment for Arthritis Led to Summary Judgment in Favor of Defendants as Plaintiff’s Expert Did Not Address this Degenerative Condition

Plaintiff alleges that she suffered a left knee injury and exacerbation of a right knee condition as a result of a motor vehicle accident. The Appellate Division held defendant established, prima facie, that plaintiff did not sustain serious injury to either knee by submitting the affirmed report of an orthopedist, who found normal ranges of motion and negative test results, and diagnosed resolved sprains in both knees. The orthopedist noted that plaintiff did not disclose any preexisting conditions and that he had reviewed post-accident medical records only. Defendant also submitted the transcript of plaintiff's deposition, where she testified that she had been diagnosed and treated for arthritis in her right knee months before the motor vehicle accident. In opposition, plaintiff failed to raise an issue of fact as to either her left knee or her right knee. As to her alleged left knee injury, her medical expert found only slight limitations in range of motion, which are insufficient for purposes of Insurance Law § 5102(d). It is noted that the MRI report of plaintiff's radiologist, which compared MRIs taken before and after the accident, did not provide evidence of any injuries that were distinct from her preexisting condition. Her medical expert also failed to adequately explain or describe the tests he used to measure the range of motion limitations that he found during his examination of plaintiff.

 

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

 

06/14/16       Aetna Health Plans v Hanover Ins. Co.

Court of Appeals

Health Insurer that Paid what Should Have Been Paid by No Fault Carrier Cannot Seek Reimbursement from No Fault Carrier

Herrera sustained injuries while operating a vehicle insured by defendant Hanover Insurance Company. At the time of the accident, Herrera also had private health insurance through plaintiff Aetna Health Plan. Although Aetna alleges that the bills should have been paid by Hanover, the no-fault insurer, the medical providers submitted some of their bills for treatment directly to Aetna.

 

Aetna commenced this action against Hanover and moved for summary judgment, arguing that Hanover breached its contract of insurance with its assignor, Herrera. Aetna claimed that as the assignee of Herrera's claim for no-fault benefits; it stood in the shoes of Herrera and was entitled to reimbursement.

 

Hanover opposed the motion arguing that Aetna lacked standing and was not entitled to direct reimbursement because it was an insurance company and not a provider of health care services, the only type of assignee permitted by regulation.  Hanover also argued that Aetna was not in privity of contract with Hanover. Supreme Court agreed with Hanover and also concluded that Aetna could not sustain a cause of action under subrogation principles because "there was no authority permitting a health insurer to bring a subrogation action against a no-fault insurer for sums the health insurer was contractually obligated to pay its insured."  The Appellate Division unanimously affirmed.

 

This Court agreed with the lower court and rejected Aetna’s argument that it stood in Herrera's shoes because Herrera assigned her no-fault rights to it. The Court reasoned that Aetna’s argument failed for two reasons. First, since Herrera's health care providers were able to bill and recoup payment from Aetna, an assignment by Herrera of her no-fault rights had already been made, leaving her with no rights to assign to Aetna. Second, by its very language, the no-fault regulation permits only the insured — or providers of health care services by an assignment from the insured — to receive direct no-fault benefits. Because Aetna did not fall under the term "health care provider," Herrera could not assign her rights to it.


Justice Stein concurred and concluded:

 

However, Judge Stein wrote separately to address the dissent's analysis of Aetna's equitable subrogation claim. In her view, the Supreme Court properly dismissed the complaint because Aetna's claims were inconsistent with, and would improperly supplant, the no-fault statutory scheme crafted by the legislature.  Judge Stein concluded that the principles of equitable subrogation did not apply under the circumstances presented.


Judge Fahey crafted the dissent:

 

Judge Fahey was swayed by plaintiff’s argument that its involvement in payment for Herrera's medical care was the result of Herrera's medical providers mistakenly submitted bills for treatment to plaintiff when, in fact, such bills should have been tendered to defendant. He noted “those facts speak to the core problem underlying this appeal, that is, that plaintiff, as Herrera's health insurer, paid medical expenses arising from the accident that defendant, Herrera's no-fault insurer, should have paid and has since refused to pay.”

 

06/09/16       Mapfre Ins. Co. of N.Y. v Manoo

Appellate Division, First Department

The Notification Requirements for Verification Requests Do Not Apply To EUOS That Are Scheduled Prior To the Insurance Company's Receipt of a Claim Form

Plaintiff's insured was involved in an automobile accident. Thereafter, he received treatment from Active Care, at which time he executed an assignment of benefits. Prior thereto, plaintiff had referred Manoo's claim for no-fault benefits for investigation due to inconsistencies in his statements as to treatment.

 

By letter dated February 3, 2012, plaintiff requested an EUO to confirm the facts and circumstances of Manoo's loss and the treatment he received. Manoo did not appear on for his EUO. By letter, dated February 23, 2012 the EUO was rescheduled. When Manoo again failed to appear the EUO was rescheduled, by letter dated March 16, 2012, for a third and final date. Manoo failed to appear.

 

At that time, plaintiff commenced this action seeking a declaratory judgment that defendants are ineligible to receive no-fault reimbursements due to Manoo's failure to comply with a condition precedent to coverage.  Supreme Court initially granted plaintiff’s motion; however, upon granting reargument, the court denied summary judgment. The court held that plaintiff did not establish that its initial request for an EUO was made within the proper time frame set required by the regulations, because it submitted no proof as to when it received Active Care's NF-3 form. 

 

The First Department reversed.  This Court reasoned that Plaintiff had made a showing of its entitlement to summary judgment dismissing Active Care's claim for first-party no-fault benefits by establishing that it timely and properly mailed the notices for EUOs to Manoo and that Manoo failed to appear at his initial and follow-up EUOs. The record establishes that plaintiff requested Manoo's initial EUO by letter dated February 3, 2012. Although Active Care's NF-3 form is dated February 7, 2012, plaintiff was entitled to request the EUO prior to its receipt thereof.

 

The notification requirements for verification requests do not apply to EUOs that are scheduled prior to the insurance company's receipt of a claim form. Once Active Care presented its claim dated February 7, 2012, plaintiff was required to comply with the follow-up provisions. Plaintiff established that it fulfilled its obligation under by rescheduling Manoo's EUOs within 10 days of his failure to appear at each scheduled exam.

 

PEIPER ON PROPERTY (and POTPOURRI)

Steven E. Peiper

[email protected]

 

06/16/16       Residential Bd. of Mgrs. of 310 W. 52nd St. Condo. v. El-Ad 52

Appellate Division, First Department

Sponsor’s Multiple Claims against Window Supplier Die Multiple Deaths

El-Ad was a sponsor and owner of a condominium building which became the focus of a construction defect lawsuit.  El-Ad, in turn, commenced a third-party action against Wausau alleging breach of contract, breach of warranty, negligence, common law indemnification and contractual indemnification/contribution.  Wausau was alleged to have supplied defective windows to second third-party defendant Ecker Window Corp.  Ecker, it appears, was retained as a subcontractor for the project. 

 

Wausau moved against El-Ad’s claims for breach of warranty and breach of contract as barred by the relevant 4 year statute of limitations as set forth under UCC 2-725. 

 

El-Ad’s claims for contractual indemnity/contribution also failed where there was no contract between Wausau and El-Ad.  Importantly, El-Ad was not a third-party beneficiary of the Wausau/Ecker contract, and the Wausau/Ecker contract did not incorporate the terms of the El-Ad’s contract with other parties.

 

Finally, the negligence claims were dismissed where, as here, it could not be established that Wausau owed a duty of care to El-Ad or plaintiff.  Where no duty existed, it followed that the common law contribution claim of El-Ad also failed. 

 

Peiper’s Point – Nice bit of handling by counsel to Wausau.  Counsel understood the requirements of all the claims asserted by El-Ad, and technically attacked each one. 

 

06/15/16       Mendoza v Manila Bar & Restaurant Corp.

Appellate Division, Second Department

Out-of-Possession Landlord is Outside of Liability Exposure

Plaintiff was injured when she slipped and fell upon an allegedly slippery substance located in the bathroom of an establishment operated by defendant Manila.  As a result, plaintiff sued Manila as the tenant of the premises and Valcarel as the owner.

 

Valcarel moved for summary judgment dismissing plaintiff’s claims against him on the basis that he was an “out of possession” landlord.  Where, as here, the landlord establishes that it relinquishes control and maintenance of the premises to another party no liability can attach. 

 

Valcarel’s motions for contractual indemnification and/or failure to procure insurance against Manila were denied because Valcarel never actually asserted the claim as a duly pleaded cross-claim.  The Court refused to entertain a theory that had not been previously preserved where it was raised, for the first time, at summary judgment.

 

Moreover, where it was held that Valcarel was not liable to plaintiff, his claim for common law indemnity against Manila was denied as academic.

 

Peiper’s Point – The question of whether a dismissed defendant possesses a valid indemnity claim against a co-defendant for attorneys’ fees continues to get murkier.  Here, apparently, dismissal of the indemnity claim for fees was granted.  That is not always the case, however. 

 

06/15/16       Anglero v Hanif

Appellate Division, Second Department

Graves Amendment DOES NOT Exempt Claims of Active Negligence against Lessor of Vehicle

Plaintiffs were passengers in a car which was struck by a U-Haul operated by defendant Hanif.  In the instant action, plaintiff sued the driver of the car in which he was riding, Mr. Hanif (as driver of the U-Haul) and U-Haul.  Importantly, each cause of action alleged individual counts of negligence.  With respect to U-Haul, it was alleged that U-Haul improperly maintained the vehicle prior to Mr. Hanif’s rental of the same.

 

U-Haul moved to dismiss the lawsuit under both CPLR 3211(a)(1) [failure to state a cause of action] and (a)(7) [documentary evidence].  Essentially, U-Haul argued that the Graves Amendment exempted it from liability because it was a commercial lessor of vehicles.  While the Graves Amendment surely would have exempted U-Haul from vicariously liability claims which arose out of Mr. Hanif’s active negligence, the Court noted that in the instant case there was a direct claim of negligence levied against U-Haul.  Under such circumstances, plaintiff had pleaded a cause of action which survived a 3211(a)(1) challenge.

 

Moreover, because the motion was not converted to a motion for summary judgment, the Court also ruled that U-Haul failed to meets its burden under 3211(a)(7).  In support of its position, U-Haul submitted the affidavit of an investigator who opined that the collision was intentionally staged.  The Court noted that the affidavit was not documentary evidence, and further that the trial court was not permitted to examine the affidavit for purposes of evaluating the evidentiary support of the pleading.

 

To add insult to injury, the Court also addressed U-Haul’s motion to renew based upon new evidence.  The Court ruled that the motion was properly denied where, as here, U-Haul could not offer a sufficient reason for the failure to include the evidence as part of the initial application. 

 

06/07/16       Perez v Rye Depot, LLC

Appellate Division, First Department

Undated Contract Precludes Summary Judgment on Indemnity Claim

As relevant, Rye commenced a third-party action against GFX seeking contractual indemnification.  Unfortunately, the signed contract was undated and no one could conclusively testify as to when it was executed.  Where the contract was not proven to have been executed prior to the loss, nor could the posited indemnitee establish its intent to apply retroactively, Rye’s claims failed on a question of fact.

 

06/07/16       McCrea v Arnlie Realty Co., LLC.

Appellate Division, Second Department

Labor Law Pop Quiz - Repair = 240, Maintenance = No 240 

Plaintiff was employed by Brick when, while in the course of his employment, he was struck by a falling elevator at a building owned by Arnlie.  Plaintiff sued Arnlie under Labor Law 240(1), and Arnlie, in turn, commenced a third-party action against Brick. 

 

Plaintiff’s motion for summary judgment under Labor Law 240(1) was granted where he was able to demonstrate he was a worker, engaged in a repair, and was struck by a falling object.  The Court noted that Mr. McCrea was not engaged in maintenance because his work was unrelated to “ordinary wear and tear.”  Moreover, although not being hoisted or secured at the time of the impact, the elevator was a falling object because it required being secured so that Mr. McCrea could complete his work.

 

Arnlie’s motion to dismiss the Labor Law 200 claim was denied where a question of fact remained as to whether it exercised supervision, direction or control of Mr. McCrea’s actual work.  Under such circumstances, where Arnlie’s negligence remained a question of fact, its claim for common law indemnification was similarly denied.

 

Finally, Brick’s motion to dismiss the common law indemnity claim against it was denied where a question of fact existed as to whether it provided workers’ compensation insurance for Mr. McCrea as Brick’s employee.

 

Peiper’s Point Couple of things worth noting in this case. First, “repair” is an enumerated active under Labor Law 240(1), “maintenance” is not.  If Mr. McCrea was engaged in routine maintenance odds are good no liability would attach. Because this was a response to a discreet issue, it qualified as “repair” and thus the language of the statute was triggered. 

 

Also, recall Section 11 of the Workers’ Compensation Law prohibits a third-party from suing plaintiff’s employer for common law indemnity – unless (1) the injured party sustains a “grave injury” or (2) there is no workers’ compensation coverage purchased.  Here, it appears there was no grave injury, but the possibility that Mr. McCrea was not covered by workers’ compensation potentially exposes Brick to common law indemnity claims.

 

WILEWICZ’S WIDE WORLD OF COVERAGE

Agnes A. Wilewicz

[email protected]

 

05/26/16       P.F. Chang’s China Bistro, Inc. v. Federal Insurance Company

United States District Court, District of Arizona

In Landmark Cyber Liability Case, District Court of Arizona Finds No Coverage for Credit Card Processing Assessments/Fees Following Data Breach

In 2014, restaurant chain P.F. Chang’s purchased a CyberSecurity policy from Chubb. As an entity that conducts more than 6 million credit card transactions a year, this was a high exposure risk, which warranted a hefty premium. The policy in turn covered damages related to data breaches, including “privacy injury” – defined as “injury sustained or allegedly sustained by a Person because of actual or potential unauthorized access to such Person’s Record, or exceeding access to such Person’s Record”. “Record” included “any information concerning a natural person that is defined as (i) private personal information; (ii) personally identifiable information ... pursuant to any federal, state ... statute or regulation, ... where such information is held by an Insured Organization or on the Insured Organization’s behalf by a Third Party Service Provider” or “an organization’s non-public information that is ... in an Insured’s or Third Party Service Provider’s care, custody, or control”. A Third Party Service Provider was defined as “an entity that performs the following services for, or on behalf of, an Insured Organization pursuant to a written agreement: (A) processing, holding or storing information; (B) providing data backup, data storage or data processing services”.

 

When the restaurant suffered a data breach that resulted in the publication of tens of thousands of credit card numbers online, they sought coverage. Part of the claim was paid and the carrier reimbursed the insured for over $1.7 million in costs incurred as a result. However, pursuant to the restaurant’s agreements with its banks and credit card companies, they were also assessed a variety of fees and assessments, as calculated by the card companies. P.J. Chang’s paid these fees, rather than risk a disruption in credit card processing, and asked Chubb to reimburse them. The carrier disclaimed.

 

In a detailed opinion interpreting Arizona law, the court ultimately found no coverage for these assessments under the policy. While some of the assessments may arguably have fallen into the coverage grant, they were subject to the policy’s exclusions. Specifically, the court wrote “that both Exclusions D.3.b [assumption of liability] and B.2 [obligation undertaken with consent of insured] as well as the definition of Loss bar coverage. In reaching this decision, the Court turned to cases analyzing commercial general liability insurance policies for guidance, because cybersecurity insurance policies are relatively new to the market but the fundamental principles are the same. Arizona courts, as well as those across the nation, hold that such contractual liability exclusions apply to ‘the assumption of another’s liability, such as an agreement to indemnify or hold another harmless’”. The insured’s agreements with the credit card companies expressly contemplated that P.J. Chang’s would reimburse them for penalties, assessments, and fees. The court interpreted this to mean that the insured had agreed to indemnify them. As such, those exclusions precluded coverage for all of the assessments.

 

Finally, in the alternative P.F. Chang’s had also argued that the Reasonable Expectation Doctrine should apply to create coverage, since they expected costs and fees associated with data breaches to be covered under their cyber liability policy. However, they failed to meet their burden of proof on that one. First, they needed to prove that their expectation was objectively reasonable. Yet, there was no evidence of that. While losses directed related to the breaches may have been covered, there was no evidence to support the idea that tangential or peripheral assessments and fees would have been.

 

05/26/16       Nationwide Property and Casualty Ins. Co. v. Randy Shearer, et al.

United States Court of Appeals, Third Circuit

Third Circuit Finds That Insurer Who Expressly Reserved Rights to Withdraw the Defense Can Do So, Even Years into the Case

The Shearers owned property that experienced an unfortunate sewage discharge and resultant damage. They sued Nationwide’s policyholders (unnamed in this decision) for trespass, nuisance, and violations of state environmental law, as a result. Nationwide undertook the defense of its insured under an express reservation of rights. In that coverage position letter, the carrier expressly reserved its right to later deny coverage upon the conclusion of its investigation, detailed the policy’s exclusions for pollution or biological deterioration, and noted other policy provisions. In a supplemental ROR letter, Nationwide “cautioned each Policyholder to ‘be aware that as the facts are determined, [Nationwide] may assert the right to deny coverage and withdraw from the handling of this claim for any valid reasons that may arise”. It further stated that its assumption of the defense “shall not be deemed to be a waiver of or estoppel of these and all rights under the policy and applicable law”.

 

About two years into the case, Nationwide filed a DJ action and sought a declaration that it no longer had to defend, as the exclusions in the policy applied to preclude coverage for the claim. The Policyholders did not dispute the applicability of those exclusions, but argued instead that Nationwide was estopped from withdrawing the defense because so much time had lapsed. Interpreting Pennsylvania law, the Third Circuit rejected the insureds’ arguments. Nationwide had expressly reserved its rights to later disclaim, and had very clearly stated that it would withdraw if the facts shook out such that the exclusions clearly applied. While equitable estoppel is indeed a doctrine of “fundamental fairness”, the insureds were not actually prejudiced by the withdrawal and Nationwide did do everything above board, as it were. With no fraud and no prejudice at issue, the insurer was entitled to get out of the defense of the case.

 

05/13/16       Northwest Pipe Company v. RLI Insurance Company

United States Court of Appeals, Ninth Circuit

Ninth Circuit Holds Umbrella Carrier on the Hook for Defense, Even Where Other Carriers Are Already Defending

Northwest Pipe had policies with RLI, ACE, and Wausau. When they received letters from the USEPA, they sought coverage for the alleged environmental contamination at an Oregon Superfund site. RLI disclaimed coverage, including both a duty to defend and indemnify, for a number of reasons, including the fact that other insurers were already defending and because they believed the “other insurance” clause of their policy obviated the duty to defend.

 

In a brief 4-page decision interpreting the matter under Oregon law, the Ninth Circuit rejected RLI’s arguments. RLI had a duty to defend because there was an alleged “occurrence” within their policy period. The EPA letters contemplated the possibility that the contamination on the site occurred during RLI’s policy period, when no other insurers were on the risk. Moreover, despite RLI’s status as an umbrella insurer, the policy’s “other insurance” provision did not change that conclusion. With no other policy in play for that particular policy year, they were on the hook for the defense, too. That “duty does not depend on whether other insurers are defending claims”.

 

JEN’S GEMS

Jennifer A. Ehman

[email protected]

 

06/07/16       National Union Fire Co. of Pittsburgh, Pa v. Merchants Mut. Ins. Co.

Supreme Court, New York County

Hon. Robert Reed

Questions of Fact Found relative to Application of Primary Endorsement

This decision arises from a motion to renew/reargue.  The court issued a prior decision denying plaintiff’s motion for summary judgment due to deficiencies in the record.  In considering this motion, the court granted the motion to reargue, but upon reargument denied the motion again.

 

Plaintiff issued a commercial general liability policy to a property owner, Lidestri Foods, Inc.  Defendant issued an excess policy to DDS Utilities, Inc., a contractor.  The underlying action involved an injury to an employee of DDS on Lidestri’s property.  The case was settled with DDS’ primary policy paying its limit and plaintiff paying the remaining amount.  Plaintiff then brought this action seeking reimbursement. 

 

Defendant took the position that Lidestri did qualify as an insured under its policy and even if it did, coverage under its policy was excess.  Plaintiff argued the excess policy was follow form and the primary carrier had already acknowledged its status as an additional insured since it pay its policy limit on Lidestri’s behalf.  Plaintiff also relied upon the contents of a Primary endorsement in defendant’s policy which stated “[w]ith respect to the additional insured shown below, the insurance provided by this policy is excess only over such coverage as is provided the Additional Insured by ‘underlying insurance’ listed in the schedule of ‘underlying insurance’ of this policy.  No other insurance available to the Additional Insured shall be primary or contributory with this insurance.  Rather, any such other insurance shall be considered excess of the insurance provided by this policy…”  The endorsement than had a space for the named of the insured and “endorsement effective,” both of which were blank. 

 

In considering plaintiff’s motion for summary judgment, the court found questions of fact precluding.  It declined to rule on Lidestri’s status as an additional insured finding instead that the motion was defeated because questions of fact existed as to the application of the Primary endorsement.  Specifically, the court pointed to questions concerning the impact of the omission of required information identifying the insured on the endorsement, and the consequence of the endorsement’s effective date which was six months prior to the date of loss. 

 

03/11/16       D.C. Dev. LLC v. Endurance Am. Specialty Ins. Co.

Supreme Court, New York County

Hon. Eileen A. Rakower

Written Contract Requiring the Additional Insured Status Necessary to Trigger Additional Insured Endorsement

D.C. Developer retained Matic Construction Corp. to perform certain construction work at its property.  DC and Matic entered into a contract whereby Matic agreed to hold harmless and indemnity the property owner and architect. 

 

Thereafter, the adjoining property owner commenced suit against DC, Matic and the architect claiming negligent construction and damage to its property.  At the time of the alleged loss, Matic was insured under a policy of insurance issued by Endurance.  DC and the architect requested that Endurance provide them with a defense and indemnification. 

 

While Endurance undertook the defense of Matic, it denied coverage to DC and the architect due to the absence of any provision in the contract whereby Matic agreed to provide same, a requirement to trigger Endurance’s additional insured endorsement.

 

This action was then brought and Endurance moved for summary judgment.  In opposition, DC and the architect submitted certificates of insurance and affidavits attesting that it was their belief that the indemnification provision in the contract was sufficient to reflect the agreement between the parties that Matic would procure insurance for the job and that they would be named as additional insureds. Claims were further made that when Matic applied for coverage it requested that they be added as additional insureds, and Matic’s insurance agent assured them that the policy properly reflected the contents of the certificates of insurance. 

 

In granting Endurance’s motion for summary judgment, the Court held that the additional insured endorsement required a written contract or agreement “that such person or organization be added as an additional insured.” As there was no evidence of any such agreement between Matic and DC directing Matic to add DC and the architect as additional insureds, the endorsement was not triggered.  While the contract entered between DC and Matic contained a contractual indemnity provision, the contract did not contain a provision that required Matic to add them as additional insureds.

 

BARNAS ON BAD FAITH

Brian D. Barnas

[email protected]

 

06/13/16       Myerski v. First Acceptance Insurance Company, Inc.

United States District Court, Middle District of Pennsylvania

Insurer did not Act in Bad Faith by Denying Claim Even though there was Conflicting Evidence Regarding the Cited Exclusions.

Plaintiff was the permissive driver of his mother Sara Morris' car on April 19, 2015, when he was involved in a crash with an uninsured vehicle.  Plaintiff suffered bodily injuries, and he was obligated to pay for medical expenses.  He also suffered wage loss and loss of earning capacity.  First Acceptance insured the subject vehicle and provided $15,000 of UM benefits and $5,000 of first party medical benefits.  However, Plaintiff did not reside with Morris.  On the day of the crash, Morris informed First Acceptance of the accident and advised that Plaintiff was not named on the policy and did not reside with her.

 

On August 25, 2015, First Acceptance advised Morris they were denying coverage for the damage to her vehicle based on the regular and frequent use exclusion in the policy.  Subsequently, First Acceptance allegedly advised that it was denying all claims under the policy because Plaintiff did not reside with Morris.  Plaintiff and Morris hired an attorney who subsequently engaged in correspondence with First Acceptance.  Among the items sent to First Acceptance was a statement by Plaintiff that he resided with Morris and drove the subject vehicle 6 days a week.

 

Plaintiff commenced an action against First Assurance alleging claims for breach of the covenant of good faith and fair dealing, statutory bad faith, negligence, and vicarious liability.  The court granted First Assurance’s motion to dismiss the bad faith claims.  It reasoned that First Assurance had a reasonable basis to deny the claim based on the policy exclusions for residence and frequent use, even though there was conflicting evidence about residence.  The court also concluded that First Assurance did not act in bad faith relative to the first party medical benefits and UM claims, which were not supported with evidence and were inconsistent with the investigation.

 

The court also dismissed the claim for breach of the covenant of good faith and fair dealing because the implied covenant of good faith and fair dealing does not give rise to an independent cause of action where a breach of contract claim has been lodged

 

 

06/09/16       R&G Investments & Holdings, LLC v. American Family Insurance Company

Court of Appeals of Georgia

Insurer had an Arguable Basis to Deny the Claim where there was a Question of Fact Regarding the Insured’s Failure to Cooperate.

R&G Investments owned a residential apartment complex insured by American Family.  When American Family issued the insurance policy in December 2011, R&G Investments had only recently bought the apartments and had decided to renovate them.  In February 2012, the apartment complex was unoccupied and undergoing extensive renovation.  The renovations to the individual apartment buildings were in various stages of completion. One night that month, several of the unoccupied apartment buildings, including Building S, were damaged by vandalism.  R&G Investments sought coverage for the loss from American Family.

 

Thereafter, in November 2012, a water pipe burst in one of the apartment units in Building T, causing flooding in that unit and several adjacent ones.  The renovations to Building T had been completed by that time, but only one of the eight units in the building had been leased to a tenant.  R&G Investments also sought coverage for this loss from American Family.

 

R&G Investments ultimately sued American Family, seeking payment of the insurance proceeds for the vandalism and water damage to the apartment buildings, as well as bad faith penalties and attorney fees for American Family's refusal to pay the claims. American Family answered, denying liability, and asserted several defenses, including that coverage of the losses was barred by the policy's vacancy exclusion and by R&G Investments' failure to fully cooperate with American Family's investigation of the claims.

 

R&G moved for summary judgment, arguing that (1) it was entitled to coverage for the vandalism, (2) the policy’s vacancy exclusion did not apply, (3) it had fully cooperated with American Family’s investigation, and (4) American Family acted in bad faith.  The trial court denied the motion.  It concluded that the vacancy exclusion was applicable and found an issue of fact on the remaining motion grounds.

 

On appeal, the court concluded the policy’s vacancy exclusion applied because less than 31% of the building was being used by R&G for its customary business activities.  That is, less than 31% of the apartment space was occupied before the loss.  However, the court ruled that the property was not vacant based on the policy’s vacancy definition, which stated that a building was not vacant if it was undergoing renovations.  In so ruling, the court rejected the affidavit of American Family’s adjuster, relied upon by the trial court to find an issue of fact on the renovation issue, as inadmissible.  Thus, the only evidence before the court on the renovation issue was the affidavit of R&G’s rental manager, who testified that the property was undergoing a major renovation at the time of the loss.

 

The court also upheld the trial court’s denial of R&G’s summary judgment motion on its bad faith claim.  The court opined that there was a question of fact as to whether R&G complied with the investigation, including a question of fact as to whether American Family properly demanded an examination under oath.  Thus, at a minimum, there was a factual question as to whether American Family had a reasonable ground for contesting the vandalism claim and good cause for resisting payment to R&G Investments.

 

06/08/16       MIC General Insurance Company v. Chambers

United States District Court, Southern District of New York

Definition of Residence Premises was Ambiguous Based on Provisions of Endorsement.

Shawn Chambers owned a three-family home located at 913 East 227th Street in the Bronx, New York (the “property”).  Shawn purchased the property from his parents, Ferdinand and Pertie Chambers, sometime between 2000 and 2004, and lived there for approximately three years.  Shawn moved out in or about 2007, and he did not live on the property since.  His parents did not live there either; they have lived elsewhere in the Bronx for the better part of forty years.  Instead, Shawn rented the property out to tenants.

 

In February 2015, MIC issued an Expanded Homeowner's Policy (the “Policy”) to Shawn.  Shawn was the sole named insured; his parents were not named on the Policy.  Under the Policy, MIC agreed to defend and indemnify Shawn against a claim for damages based on bodily injury caused by an accident at the “insured location,” which was defined to include the “residence premises.”  The Policy defined “residence premises,” as:

 

a. The one family dwelling, other structures, and grounds; or

b. That part of any other building;

where you reside and which is shown as the “residence premises” in the Declarations.

 

“Residence Premises” also means a two family dwelling where you reside in at least one of the family units and which is shown as the “residence premises” in the Declarations.

 

That definition is modified by an endorsement, which reads:

 

For an additional premium, the definition of “residence premises” is amended to include the three or four family dwelling described in the Declarations of this policy.

 

All other provisions of this policy apply.

 

The Policy also contained exclusions for: (1) any claim arising out of a premises owned by Shawn or rented to others that was not an insured location; and (2) any claim arising out of the rental of any premises other than an insured location.  Insured location was defined to include the residence premises.

 

On February 25, 2015, Allen, a tenant at the property, filed a complaint against Shawn Chambers, Pertie Chambers, and Ferdinand Chambers alleging that her son was injured when a radiator mounted to the ceiling fell on him.  MIC disclaimed coverage on the ground that the lawsuit fell within the exclusions mentioned above because Shawn did not reside at the property.

 

MIC commenced a declaratory judgment action and moved for summary judgment on its duty to defend and indemnify Shawn Chambers in the lawsuit arising out of Allen’s claims.  It also moved for summary judgment against Ferdinand and Pertie Chambers, arguing that they were not insureds under the Policy.

 

First, the court concluded that MIC had a duty to defend Shawn.  In so ruling, it rejected MIC’s argument that the definitions of “residence premises” unambiguously required the insured to reside at the insured property for that location to be considered a “residence premises” and “insured location.”  The court concluded that the policy contained three distinct definitions of “residence premises,” including the definition in the three or four family endorsement, which did not include the language “where you reside.”  Accordingly, the court concluded that the definition of “residence premises” was ambiguous.

 

The court also rejected MIC’s argument that the language in the endorsement that “all other provisions of this policy apply” required the insured to live at the insured property.  In so ruling the court stated that the fact that the other two definitions of “residence premises” contained language requiring the insured to live in the insured property did not mean that the fact that the insured must reside at the “residence premises” was a freestanding provision of the Policy.  The court further stated that if MIC wanted to include a residence requirement in the endorsement it could have drafted such a provision and included it in the Policy.

 

Next, the court granted MIC’s motion for summary judgment and concluded that it had no duty to defend or indemnify Ferdinand or Pertie Chambers.  Ferdinand and Pertie were not named insureds on the Policy, and they were not covered under the Policy’s definition of “insured” because they did not reside with Shawn.

 

The court also denied Allen’s motion for attorney’s fees and costs.  Allen, who was not an insured, argued that Shawn enjoyed the benefits of her participation in the action, and, thus, she should be entitled to attorney’s fees because MIC cast its insured in a defensive posture by commencing the declaratory judgment action.  The court declined to extend the Mighty Midgets rule this way because there was no contractual relationship between Allen and MIC.

 

While the court concluded that MIC was required to defend Shawn Chambers it concluded that the question of its duty to indemnify was not yet ripe.  Accordingly, the court decided to await judgment in the underlying case, and it denied MIC’s motion for summary judgment with respect to its duty to indemnify with leave to renew after completion of the underlying action.

 

PHILLIPS’ FEDERAL PHILOSOPHIES

Jennifer J. Phillips

[email protected]

 

06/07/16       Liberty Insurance Corporation v. Admiral Insurance Company

Northern District of New York

Defending Defense Costs

Plaintiff Liberty Insurance Company commenced this coverage action for Defendant Admiral Insurance Company’s alleged breach of its liability insurance coverage obligations in relation to two state court actions.  Following summary judgment motions, the district court found that Admiral had the primary policy applicable to the insureds in the state court actions, and granted summary judgment to Liberty.

 

At issue in this decision was the amount of Admiral’s obligation to pay defense costs for the state court actions.  Upon receiving Liberty’s invoices and expenses, Admiral did “not dispute that the services for which Liberty seeks reimbursement were reasonable and necessary in the defense” of the insureds, but objected that Liberty failed to offer “adequate proof of payment for the reimbursement it seeks because it only produced invoices detailing the amount of time spent on the state court actions without proof that those costs had actually been paid by Liberty.”  Admiral further objected that “Liberty’s in-house attorneys should only be reimbursed for their time based on their actual individual salaries, rather than by the rates that Liberty attributed to their legal work in its invoices.” 

 

The district court rejected both arguments.  With respect to the lack of proof of payment, the district court recognized that, in this situation, because the defendant was obligated to pay the expenses, there was no logical basis to require an insured to first advance a payment he or she was not required to make.  The district court further found no need to limit the reimbursement for Liberty’s attorneys to the “actual hourly wage as reflected by their salary, rather than at an hourly wage that would be paid to outside counsel.”  The court recognized that the Second Circuit relies on a method of calculating a reasonable hourly rate to determine the appropriateness of any award of attorneys’ fees.  “This analysis focuses on the prevailing rates of attorneys in a given geographic area to determine what a paying client would pay for representation, rather than relying solely on the rate that the attorney may receive from an in-house position.” Based on that analysis, the district court found that the rates used in Liberty’s invoices were “well within the reasonable rate for attorneys in the Northern District.”

 

06/10/16       Cincinnati Insurance Company v. Roy’s Plumbing, Inc.

Western District of New York

Pollutants Precluded

This insurance coverage dispute results from underlying litigation alleging injuries resulting from the wrongful dumping of toxic substances and the negligent remediation of contamination in the Love Canal neighborhood of Niagara Fall, New York.  Named in the litigation was Defendant Roy’s Plumbing, a plumbing, heating, and cooling contractor that was involved in a multiyear program of sewer refurbishment in the Love Canal area.  The allegations against Defendant included that Defendant “knew or should have known of the possibility of the presence of dangerous chemicals within the sewers and/or otherwise in proximity to [the] work” but “failed to exercise due care to prevent the possibility of the escape of such chemicals,” and that Defendant “knew or should have known of the environmental and health risks posed by the presence of the NAPL residue and other chemicals on the roadway and in the residential sewer or drain system, and should have exercised due care by taking appropriate remedial action to contain the toxins.”

 

Defendant advised the Plaintiff Insurer of the claim upon learning that it might be named in the underlying action.  Less than a week later, Plaintiff disclaimed coverage under a “Total Pollutant Exclusion,” which precludes coverage for “ ‘[b]odily injury’ or ‘property damage’ which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release, escape or emission of “pollutants” at any time.” A “pollutant” was defined under the policy as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, petroleum, petroleum products and petroleum by-products, and waste. Waste includes materials to be recycled, reconditioned or reclaimed.”

 

In this declaratory judgment action, the district court found that the Plaintiff Insurer had established that it had no duty to defend as a matter of law.  In reaching that conclusion, the court first rejected Defendant’s argument that the “Total Pollutant Exclusion” was ambiguous and overly broad in light of its ordinary and expected business of repairing sewer systems. The district court found that, although Defendant “did not fit the mold of a traditional industrial polluter,” New York law nonetheless recognizes that this particular exclusion is applicable “for any claim involving the discharge or dispersal of any waste, pollutant, contaminant or irritant regardless of the source of the claim.” (Emphasis in original).

 

The district court next rejected Defendant’s argument that coverage was available because “as least some of the injuries alleged in the Underlying Litigation are the result of sewage, not of hazardous waste.” The district court noted that New York law determines the applicability of a policy exclusion depending on the nature of the injury alleged, not exclusively on the nature of the substance released.  The injuries alleged in the underlying litigation at issue included “birth defectschromosomal abnormalities, bone marrow abnormalities, cardiac conditions, pulmonary symptoms, unexplained fevers, skin conditions, behavioral problems, learning disabilities, and loss of teeth.” The district court further noted that the fact that “sewage” was not specifically named in the Total Pollutant Exclusion was irrelevant where the exclusion defined “pollutant” as “any solid, liquid, gaseous or thermal irritant or contaminant, including... chemicals [and] waste.”  “Under this broad definition, and under New York law, it is the substance's ability to cause injuries resulting in contamination and irritation, rather than the specific identification of the substance in the exclusion that is significant.”

 

Thus, because the underlying complaint alleged “only injuries arising in the context of traditional environmental pollution and caused by substances of a polluting character,” the policy exclusion applied and the Plaintiff Insurer had no duty to defend.

 

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

 

01/19/16       State v. Goodwin

New Jersey

Another Tale of Sex, Lies, and Insurance: Insurance Fraud Does Not Require Actual Payment

The New Jersey State Supreme Court recently ruled that an individual commits insurance fraud under the state Insurance Fraud Statute in making a false statement that has the capacity to affect the claim decision, notwithstanding the fact that the fraud was discovered and no payment was actually made.  As a result, Mr. Goodwin’s conviction for insurance fraud was restored. 

 

Mr. Goodwin had reported that his girlfriend’s car was stolen after it was found severely damaged by fire.  His “excuse” for reporting the car stolen was that he did not want his girlfriend to know he had driven it to the other location to see another woman.  He later admitted to parking the car where it was found, but denied setting it on fire.  Progressive Insurance Company, which insured the vehicle, refused to pay the loss following its investigation. 

 

Goodwin was charged with arson, attempted theft by deception, and insurance fraud.  A jury convicted him of insurance fraud, but not guilty on the other offenses.  A first appeal court reversed the insurance fraud conviction based on an argument that the trial court should have instructed the jury that insurance fraud required actual reliance, i.e. payment, based on the false statements.  However, the New Jersey Supreme Court reversed on the government’s appeal.

 

The New Jersey statute makes it illegal to knowingly make a false statement of material fact as part of a claim for payment under an insurance policy.  The Court noted that there is no language in the statute making liability turn on whether the insurance company relied on the false statement and paid the loss.  Although the statute does not define “material fact”, it referenced other statutes which defined a falsity as material if it could have affected the outcome or disposition of the matter.  The Court also noted that it is not good public policy to allow an individual to escape criminal prosecution merely because the insurance company conducted a thorough investigation which revealed fraud before the claim was actually paid. 

 

Lastly, the Court concluded that the jury verdict was not inconsistent as his acquittal on the theft and arson charges was independent of the charge of knowingly making a false statement of material fact for reimbursement on the insurance claim.

 

Consequently, the Supreme Court reversed the lower appellate court and reinstated his conviction for insurance fraud.

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