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Coverage Pointers - Volume XVII, No. 9

Volume XVII, No. 9 (No. 439)

Friday, October 23, 2015

 

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. 2015
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?  I hope not, but if you do, call.  We love situations.  It is Thursday, and I’m in an airport somewhere, I think JFK.  Hope all of you are more grounded that I am!  Been a busy few weeks with depositions hither and yon.  Steve is down in Brooklyn preparing to select a jury in a Super Storm Sandy case.  Those things happen, not usually all at once.

 

But, those who have tried to find me have, hopefully, succeeded and that’s always a good thing.

 

We are delighted to share another issue with you.

 

Congratulations to Beth Fitzpatrick for being asked to speak at the prestigious FDCC Insurance Industry Institute, presently underway in NYC.

 

DRI’s Insurance Law and Claims Conference – NEXT WEEK:

 

DRI's Insurance Law Committee specifically designed a brand new kind of program for insurance executives, in-house counsel, and claim professionals. DRI's conference is a one-day program, October 28, in Hartford, Connecticut. This program will cover multiple issues impacting the insurance industry, while providing CLE/CE credit and great networking opportunities.

 

October 28, 2015

Hilton Hartford

Hartford, Connecticut

 

  • Defending under a Reservation of Rights is not always the smart option. This program will discuss when and why you should not reserve rights.
  • Recent decisions are modifying the attorney–client privilege and work product doctrine. How will these trends affect the discovery of claim files and attorney opinions and communications?
  • How to handle policy limit demands and high exposure claims with questionable coverage, collusive settlements, and the presence of excess carriers.
  • How SARS, Ebola and other pandemics and catastrophes are affecting insurers.
  • How is the new ALI Restatement of Liability Insurance being written and who will benefit? You will also learn how the insurance industry is responding, what it still has to fear and tactics to avoid big and emerging institutional bad faith risks.

 

I will be speaking on the “privilege” issue, a very important one, in light of recent appellate cases recently reported. Hope to see you there.

 

Cassie’s Capital Connection:

 

Greetings from Albany where I sit writing this in our kitchen while my exceptionally patient husband bakes cookies with our two-year-old son, who was responsible for the stirring.  It is evident my son will also need a bath after because he is currently covered in flour despite his self-proclaimed expertise in stirring.  The cookies are necessary for his pre-school class’s cookie party tomorrow for all the families.  This is our first time having to bake for his “school,” and it is novel now.  I’m sure that will wear off eventually.

 

On the legislative front, it remains quiet here in Albany, and it likely will until the Legislature comes back in January.  However, DFS did recently issue Circular Letter 7 (2015) which seeks to provide guidance to financial guaranty insurers regarding New York’s prohibition against rebating and improper inducements to bond purchases intended to induce the underwriter of the bond issuance to procure bond insurance from the insurer.

 

I hope that my house remains standing after this baking experiment, and I will be back in two weeks!

 

Cassie

Cassandra A. Kazukenus

[email protected]

 

Don’t Call Collect:  A Century Ago:

 

Poughkeepsie Eagle-News

Poughkeepsie, New York

23 OCT 1915

 

TRANS-ATLANTIC PHONE

EXPERIMENTS BEGAN IN JUNE

 

Paris, Oct. 22, 7:20 p.m.—The experiments which resulted in the successful transmission this week of the human voice by wireless telephone between Arlington, Va., and the Eiffel Tower here were begun last June at the request of the naval bureau at Washington.

 

Lieutenant Commander W. R. Saylee, naval attachee at the American embassy to France, conducted the experiments on this side of the ocean and he was assisted by H. E. Shreeve, of the American Telephone and Telegraph Company, who brought the apparatus from the United States.

 

Although the Eiffel Tower is constantly in use for military telegraphy, the French government readily agreed to suspend all communication both from the Eiffel Tower and from other French wireless stations at intervals so as to give the Americans every opportunity.  The experiments went on even during the battle of Champagne.

 

Hewitt’s Highlights:

 

Dear Subscribers:

 

With our last issue before Halloween, I hope that you have acquired your pumpkins, decorated your houses and picked your costumes. My six year old has chosen to be Anger from the movie Inside Out and my four year old is going to be Super Mario. They are trying to convince me to dress up as Popeye when I take them trick or treating.

 

As for the serious injury cases this edition, there are several decisions issued by the First and Second Departments. The cases remind that it is not enough for an expert to make a conclusory statement about causation or the seriousness of the injury but the expert must be specific and point to specific items in the testing, reports, or films in order for the Court to take the opinion seriously. The cases this week also remind that sometimes, there is no way to avoid an issue of fact when it becomes a battle of conflicting experts.  In two of the cases, the relatively young age of the plaintiff allowed the court to find an issue of fact as to whether there truly was degeneration or the injury was caused by the accident. Finally, a reminder that all issues addressed by an expert must be addressed by the opposing expert or the court will likely give credence to the first expert’s opinion on the unopposed issue.

 

Until next time,

 

Rob
Robert Hewitt

[email protected]

 

Life before Labor Law § 240(1), a Hundred Years Ago:

 

 

The Brooklyn Daily Eagle

Brooklyn, New York

23 OCT 1915

 

WINS $4,000 DAMAGE SUIT

 

Worker Gets Verdict Against American

Concrete Steel Co.

 

Alvin Powelson, 36 years old, of Nutley, N.J., formerly a resident of Far Rockaway, obtained a verdict of $4,000 in the Queens County Supreme Court, before Justice Blackmar, yesterday, in this suit against the American Concrete Steel Company, his former employer.  Powelson was working June 12, 1914, on a building on Central Avenue, Far Rockaway, when a scaffold broke in the middle, dropping him forty feet.  Both wrists were fractured and he was confined in a hospital eleven weeks, and for a period of forty-four weeks was unable to work.  He contended that he lost wages at the rate of $33 a week for that time.

 

Wilewicz’s Wide World of Coverage:

 

Dear Readers,

 

What a busy time of year! School is barreling forward, the Courts are in high gear, and work is mounting daily around here. On a personal note, my family and I are also moving this weekend (first new house!), and the result is that there simply are not enough hours in the day. At least we get an extra one back in a few weeks.

 

This week in the Wide World of Coverage, we bring you just one case, but it proffers all three things this column seeks every two weeks – a Second Circuit case, about insurance, and touching upon environmental law – all on one! In Two Farms v. Greenwich, a gas station operator purchased pollution and remediation liability insurance. While it excluded losses based upon or arising out of the existence of underground storage tanks and associated piping, there was an endorsement that provided scheduled exceptions for listed tanks. Another endorsement contained a sublimit for those scheduled storage tanks.

 

Of course, when the insured’s scheduled, underground storage tank leaked thousands of gallons of gas into the ground, they wanted a little more coverage than the sublimit provided. So, they argued that the term “underground storage tank” meant different things in the two endorsements. They acknowledged a broad interpretation (thereby creating coverage) on the first endorsement, but sought a narrow interpretation of the same terms in the second endorsement (thereby making the sublimit inapplicable). Not surprisingly, the Court plainly ruled that the insured “cannot have it both ways”. With an unambiguous term, only one meaning applied, across the entire policy. The terms that created coverage in the first instance could also limit that coverage elsewhere.

 

Enjoy. See you in a couple of weeks!

 

Agnes

Agnes A. Wilewicz

[email protected]

 

If This Happened Now, Rather Than 100 Years Ago, The Judicial Conduct Commission Would Come Knocking:

 

The Brooklyn Daily Eagle

Brooklyn, New York

23 OCT 1915

 

JUDGE AS LAWYER

LOSES THE CASE

 

Crane Volunteers as Counsel for

Jackier, but Directs Verdict Against Him

 

MUST STAND BY AGREEMENT

 

Jackier Says He Is Bankrupt and

$1,000 Rent Is a Liability

 

Justice Crane in the Queens County Supreme Court yesterday took the part of a lawyer who failed to appear for his case and volunteered his services as attorney to Sidney Jackier of Far Rockaway.  Jackier accepted the offer and not only lost his case but Justice Crane directed, that the jury find a verdict against him.  Jackier, however, although not satisfied with the decision was satisfied that he received a fair trial at the hands of Justice Crane.

 

The suit was brought by Hattie Haffner Brady, wife of ex-Alderman Brady of Far Rockaway, as executrix of the estate of her first husband, Charles Haffner.  When the case was called, Jackier's attorneys had failed to put in an appearance, but a clerk from his office stated that his employer would be in court in half an hour.  That time was waited, but no lawyer appeared.  It was then that Justice Crane volunteered to look after Jackier's interests.

 

The testimony developed the fact that Jackier, on August 25, 1909, signed a lease for the Neptune Park Hotel, on Greenwood Avenue, near Lockwood Avenue, Far Rockaway, which is part of the Haffner estate.  He was to pay a rental of $5,000 for five years.  After four years, he gave up the hotel and the suit was brought to recover $1,000 in rent, due under the contract.

 

When all of the testimony was in, Justice Crane told Jackier that he would have to live up to his agreement and he directed the jury to find judgment for Mrs. Brady.

 

Jackier then told the justice that he had been declared a bankrupt.  A stay was then granted in order to give Jackier time to present papers to the court showing that this debt of $1,000 was in his list of liabilities.  If it is, he will escape payment.

 

Peiper’s Pleadings:

 

As it turns out, the writers of Back to the Future II were wrong about more than flying cars.  The Cubs will not win the World Series, at least not this year.  From my seat at  the Jury Coordination Part in 360 Adams Street, it appears that many a Yankee fans have turned, at least temporarily so, into National League fans.  Fun to have October baseball in NY, and fun, if only temporarily, to get swept up in the Mets hysteria.

 

As for this week’s issue, we are beginning to see more decisions rolling out from the Courts.  That said, we remain a bit slow this week.  By next issue, we’ll no doubt be back to full capacity.   In the meantime, enjoy the last few weeks of nice weather, enjoy the foliage, and find your skis.  Winter’s right around the corner.

 

Steve

Steven E. Peiper

[email protected]

 

Governor Talks, Nobody Walks:

 

 

Poughkeepsie Eagle-News

Poughkeepsie, New York

23 Oct 1915

 

CHARGE FOSS WITH CRIMINAL LIBEL

 

Boston, Oct. 22.—Probable cause was found today against Former Governor Eugene N. Foss in an action for criminal libel brought against him in the municipal court by Dennis D. Driscoll, a labor leader.  Foss was held for the grand jury on $100 bail.

 

Driscoll, secretary of the Trades Union Liberty League, alleged that Foss alleged in a recent speech that while he was governor, Driscoll sought to be appointed prison commissioner and promised in return to call off a strike then in progress in factories owned or controlled by Foss.

 

Editor’s Note:  These things do get resolved ….

 

Fairbanks Daily Times

Fairbanks, Alaska

6 Nov 1915

 

SUIT AGAINST FOSS

IS ENDED SPEEDILY

 

BOSTON, Nov. 5.—The libel suit which was instituted against former Governor Foss by Dennis Driscoll was dismissed today, following an agreement between counsel.

 

Fitz’s Bits:

 

Dear Subscribers:

 

This week I write to you from the Federation of Defense & Corporate Counsel-Insurance Industry Institute in New York City, which features, as always, a spectacular faculty and cutting edge topics, including several panels addressing cyber security and data breaches.  I have just returned from the New York State Bar Association Torts, Insurance and Compensation Law Section’s Fall Meeting in Orlando, Florida, where I was delighted to moderate a panel on cyber risks and cyber insurance, which, as those of you who read my column know, is a frequent topic.  Special thanks to Betsy Woudenberg, founder and CEO of IntelligenceArts and Kelly Geary, Senior Vice President of Lemme Insurance.  Our presentation evoked a lively dialogue with the audience and is clearly a topic on everyone’s minds these days.

 

I also recently had the opportunity to serve as chair of the New York State Bar Association Law School for Insurance Professionals program and lectured in New York City on additional insured coverage and on emerging risks at Touro Law School, including cyber insurance and data breaches, coverage for drones and insurance issues relating to Uber.  The future of insurance, as cars become more and more autonomous, is certain to change dramatically. Recently, Volvo released a statement that it would accept all liability for accidents occurring when its cars are in autonomous mode, following similar statements by Google and Mercedes. The focus in future car accidents may well be products liability, rather than on an individual driver/owner and their insurer. Certainly, fascinating issues that we will be confronting in the years ahead.

 

Cyber security is certain to remain a prominent topic, as data breaches and the resulting costs associated with investigating and remediating the breaches will likely cause more and more companies to explore insurance products, which may offset the associated costs.  In a recent article that appeared in the Harvard Law School Forum on Corporate Governance and Financial Regulation, author Dan Ryan discussed the National Association of Insurance Commissioners’ (NAIC) efforts in the development of cyber security examination manuals for insurers, which are intended to help state insurance regulators identify cyber security risks and communicate a uniform set of control requirements to insurers and other related entities.

 

Another week-another data breach lawsuit-this brought in federal court in New York against health care provider Excellus Health Plan Inc. and Lifetime Healthcare Inc. alleging the healthcare provider (1) failed to implement security measures designed to prevent this attack; (2) failed to employ security protocols to detect the breach; and (3) failed to maintain basic security measures that would have ensured that data would be harder to access or steal, particularly given the fact that their systems harbor medical and other private data. The Complaint also alleges that Excellus failed to timely notify consumers of the breach.  The hack evidently began two years ago, but was only recently discovered.  According to a report from Accenture, cyber attacks over the next five years will cost U.S. health systems $305 billion in cumulative lifetime revenue.

 

Til next time,

 

Beth

Elizabeth A. Fitzpatrick

[email protected]

 

Highlights of This Week’s Issue:

 

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

 

  • Carrier’s Commenced of Action to Establish it Acted in Good Faith Could be Venued in County Where Carrier’s Home Office  Was Located
  • Without Proof that SUM Carrier Suffered Prejudice, Delay in Send the Insurer the Suit Papers against the Tortfeasor Will Not Lead to a Loss of Coverage
  • Arbitration Award Upheld
  • Adversary Proceeding and Merger Litigation are Separate Proceedings for Purposes of D&O Policies
  • Carrier Properly Denied Coverage in Pre-Prejudice Late Notice Case
  • Claims by Two Reinsurer’s Sufficient Distinct to Justify Severance

 

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

Robert E.B. Hewitt III

[email protected]

 

  • Defendant Could Not Have Personal Injury Case Dismissed Against Her On Grounds of Collateral Estoppel and Res Judicata Even Though Co-defendant’s Motion For Summary Judgment Based on Lack of Serious Injury Was Granted
  • Defendant’s Established Lack of a Permanent Consequential Damage or Significant Limitations to the Left Knee As Plaintiff Had Full Range of Motion But Limitations Of Range of Motion to the Left Shoulder Caused That Claim to Survive Summary Judgment
  • Plaintiff’s Doctors Which Found Multiple Disc Herniations and Bulging Discs and Significant Range of Motion Limitations Shortly After the Accident and Just Prior to the Motion Enough to Raise an Issue of Fact As to Serious Injury
  • Plaintiff’s Failure to Oppose Summary Judgment Found Reasonable Where Plaintiff’s Attorney Received Physician’s Narrative Report Near the Return Date Which She Needed to Oppose Motion Papers and Then Attorney Suffered Sudden Injury Making Her Unable to Timely Oppose The Motion
  • Competing Expert Reports As to Causation and The Permanency of Injury Led to Denial of Summary Judgment Motion Based on an Issue of Fact With Plaintiff’s Expert Noting a 27 year old Plaintiff Was Not Likely to Have Degenerative Disc Bulge
  • Plaintiff’s Expert Failed to Compare Decreased Range of Motion in Shoulder To Normal Value or Provide Range of Motion Numbers And Failed To Address Defendants’ Expert’s Finding of Degenerative Changes When Plaintiff’s Expert Made Conclusory Statements of Causation
  • Plaintiff’s Evidence Was Enough To Raise an Issue of Fact As To Whether His Chin and Neck Scars Constituted Serious Injury
  • Defendants Failed to Establish a Lack of Serious Injury to Plaintiff’s Right Knee

 

MARGO’S MUSINGS ON NO FAULT

Margo M. Lagueras

 

Arbitration

 

  • Peer Review Fails to Provide Factual Basis for Denial of MUA
  • Arbitrator Finds Claim Not Time Barred

 

Litigation

 

  • Reimbursable Health Care Service Performed Outside New York State Is Subject to That Location’s Permissible Charge

 

PEIPER ON PROPERTY (and POTPOURRI)

Steven E. Peiper

[email protected]

 

  • Coverage Limit Set Forth in a Coverage Extension Was Enforceable as Written
  • Without Proof of Increase in Value Post-Purchase, Diminution of Value Claim is Unsupported

FITZ’S BITS

Elizabeth A. Fitzpatrick

[email protected]

 

  • At the FDCC Insurance Industry Institute

 

 

WILEWICZ’S WIDE WORLD OF COVERAGE

Agnes A. Wilewicz

[email protected]

 

  • In Interpreting Sublimit Endorsement, Second Circuit Finds the Insured Cannot Argue Both Broad and Narrow Interpretations of the Same Terms; Those that Grant Coverage Can Also Limit Them

 

CASSIE’S CAPITAL CONNECTION

Cassandra A. Kazukenus

[email protected]

 

  • Circular Letter 7 (2015)

 

KEEPING THE FAITH WITH JEN’S GEMS

Jennifer A. Ehman

[email protected]

 

  • Trial Court finds that Injured Party’s Status as an Employee Working in Furtherance of his Employment on the Jobsite was enough to Trigger Coverage under Additional Insured Endorsement

 

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

 

  • Exclusion for Contractual Claims

 

 

That’s all there is and there ain’t no more this week.  Keep the faith.

 

By the way, out here in Western New York, our baseball team is the AAA Buffalo Bisons, the farm team for the Toronto Blue Jays.  I am a long time Bison season ticket holder.  However, I grew up (from age nine) as a Met fan.

 

It’s hard to know for whom to root.

 

Dan

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

1300 Liberty Building
Buffalo, NY 14202   

Office:                        716.849.8942

Cell:                            716.445.2258
Fax:                            716.855.0874

E-Mail:                        [email protected]
H&F Website:           www.hurwitzfine.com

LinkedIn:                   www.linkedin.com/in/kohane

Twitter:                       @kohane

 

.

 

Hurwitz & Fine, P.C. is a full-service law firm
providing legal services throughout the State of New York


NEWSLETTER EDITOR
Dan D. Kohane
[email protected]

 

ASSOCIATE EDITOR

Audrey A. Seeley

[email protected]

 

ASSISTANT EDITOR

Jennifer A. Ehman

[email protected]

 

INSURANCE COVERAGE TEAM
Dan D. Kohane, Team Leader
[email protected]
 

Michael F. Perley

Elizabeth A. Fitzpatrick

Audrey A. Seeley

Steven E. Peiper

Cassandra Kazukenus

Jennifer A. Ehman

Taylor F. Gabryel

Agnieszka A. Wilewicz

Diane F. Bosse

Joel R. Appelbaum

 

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

Elizabeth A. Fitzpatrick
Cassandra Kazukenus
 

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

 

Cassandra Kazukenus
Jennifer A. Ehman

Taylor F. Gabryel

 

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

 Elizabeth A. Fitzpatrick

Diane F. Bosse

 

Topical Index

Kohane’s Coverage Corner

Hewitt’s Highlights on Serious Injury
Margo’s Musings on No Fault

Peiper on Property and Potpourri

Fitz’ Bits

Wilewicz’s Wide World of Coverage

Cassie’s Capital Connection

Keeping the Faith with Jen’s Gems
Earl’s Pearls

 

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

 

10/23/15       Healthcare Professionals Insurance Company v.  Parentis
Appellate Division, Third Department

Carrier’s Commenced of Action to Establish it Acted in Good Faith Could be Venued in County Where Carrier’s Home Office  Was Located

In February 2014, an Erie County jury awarded defendants Donald Schultz and Katherine Schultz a verdict in a medical malpractice action totaling $8.6 million against defendant Michael A. Parentis. At the time of the verdict, Parentis had liability insurance coverage totaling $2.3 million per claim through a $1.3 million policy with defendant Medical Liability Mutual Insurance Company (“MLMIC”) and a $1 million excess coverage policy with Healthcare Professionals Ins. Co, (“HPIC”).

 

HPIC commenced a declaratory judgment action in Albany County seeking a determination that it acted in good faith during settlement negotiations in the underlying action and that its obligation to indemnify Parentis is limited to $1 million. In his answer, Parentis asserted a counterclaim alleging that plaintiff acted in bad faith by refusing to tender the maximum coverage under the policy and enter into a settlement with the Schultzes during jury deliberations.

 

Parentis moved to change venue of the action from Albany County to Erie County.

 

A discretionary change of venue may be granted when the moving party is able to demonstrate that the "convenience of material witnesses and the ends of justice will be promoted by the change”.

 

Here, the attorney retained by MLMIC to represent Parentis in the underlying action, and Parentis' attorney in this action, and Parentis each submitted an affidavit in support of the motion to change venue. Parentis averred that his orthopedic practice located in Erie County would be burdened by a trial of the action in Albany County. The lawyer said that he would be inconvenienced because he resides and works in Erie County.

 

While the Schultz’s did not appear in support of the motion, their attorney, submitted an affidavit wherein he averred that Donald Schultz, an amputee, would be burdened by having to travel to Albany County and that the lawyer himself would be inconvenienced if he were forced to leave his active law practice located "in the Western New York area" to attend a trial in Albany County. Although the MLMIC claims representative who attended the underlying trial was characterized as a "key witness," Parentis did not submit an affidavit by that individual to explain how he or she would be inconvenienced by a trial in Albany County.

 

The Court found no reason to change venue.

Editor’s Note:        Interesting tactical move by the insurer, to bring an action to establish it had NOT committed bad faith (and thereby select the venue)

 

10/21/15       Matter of New York Schools Insurance Reciprocal v. Staines

Appellate Division, Second Department

Without Proof that SUM Carrier Suffered Prejudice, Delay in Send the Insurer the Suit Papers against the Tortfeasor Will Not Lead to a Loss of Coverage

This was an application to stay arbitration of a claim made under for

Supplementary uninsured/underinsured motorist (SUM) benefits. The regulatory policy requires a person seeking those benefits to "immediately" forward to the [insurer] the summons and complaint in his action against the motorist who was allegedly at fault in the subject accident.” However, under fairly well established case law, without a demonstration that the insurer suffered prejudice, the failure to promptly notify will not lead to a loss of benefits.  No prejudice was demonstrated here and thus the application to stay arbitration was denied.

 

05/21/15       Allstate Insurance Company v. Labunska

Appellate Division, Second Department

Arbitration Award Upheld

This was an application to vacate an arbitration award although it is not clear in what kind of a proceeding, other than it was mandatory.  Where, as here, review of a compulsory arbitration award is sought, "decisional law imposes closer judicial scrutiny of the arbitrator's determination" than would be warranted when reviewing an award made after a consensual arbitration.  To be upheld, the award "must have evidentiary support and cannot be arbitrary and capricious”.  Here, the award had evidentiary support and did not appear to be arbitrary and capricious.  It was therefore upheld.

 

10/15/15       American Casualty Company of Reading, P.A., v, Gelb
Appellate Division, First Department

Adversary Proceeding and Merger Litigation are Separate Proceedings for Purposes of D&O Policies

The defendants are former directors and officers of Lyondell Chemical Company who seek insurance coverage for their defense of an adversary proceeding commenced by the creditors committee in Lyondell's bankruptcy proceeding. The bankruptcy proceeding was commenced in 2009 by Lyondell, a company with which it had merged in 2007, and about 90 of their subsidiaries.

 

Before the merger was consummated, a shareholder brought a putative class action challenging the merger price and alleging that Lyondell's directors and officers had failed to get the best price possible for the company. Plaintiffs provided a defense for the directors and officers in that action, which eventually was dismissed. For the purpose of prosecuting the adversary proceeding, the creditors committee's claims were assigned to a litigation trust.

 

Defendants seek coverage for the adversary proceeding under excess directors and officers liability policies issued by plaintiffs to Lyondell in various layers over the course of two separate policy periods running from 2006 to 2007 and from 2007 to 2013. This excess coverage was to follow form to Lyondell's primary coverage. The primary insurer provided a defense for the directors and officers in the adversary proceeding. However, after the primary policies were exhausted and the defense was tendered to plaintiffs, plaintiffs commenced this action for a declaration that they have no obligation to defend defendants in that proceeding.

 

Plaintiffs argue that both the merger litigation commenced in 2007 and the adversary proceeding commenced in July 2009 arose out of the merger transaction and therefore must be treated as a single, unified claim that came into existence when the merger litigation was commenced, and that since that claim came into existence during the 2006-2007 policy period, it is subject to the exclusion in the 2006-2007 policies for claims brought by or on behalf of Lyondell against any of its own directors or officers (the "insured versus insured" [IVI] exclusion). In April 2009, the IVI exclusion was narrowed, as announced by the primary insurer as part of its "Select Form," so that it no longer excluded claims brought or maintained by, inter alia, a bankruptcy creditors committee.

 

The court found that the two proceedings, while arising from the merger, are wholly different, with different parties, different allegations, and different causes of action.

 

In essence, the merger litigation was premised on the allegation that the price per share set by Lyondell's directors and officers was too low, while the adversary proceeding is premised on the allegation that the price was in a sense too high, supported by unsustainable revenue projections and requiring excessive leverage by Lyondell to finance and consummate the transaction.

 

Thus, the adversary proceeding claim came into existence in July 2009, after the Select Form had been announced, and is not subject to the IVI exclusion.

 

10/15/15       Bridge Street Contracting Inc. v. Everest National Ins. Co.

Appellate Division, First Department

Carrier Properly Denied Coverage in Pre-Prejudice Late Notice Case

Everest properly disclaimed coverage based on Bridge Street's late notice of the underlying cross claims and third-party claims, and Everest was not required to show prejudice Everest was not participating in the defense of any party to the underlying action when Bridge Street was served with the cross claims and third-party claims against it, and the record shows that Everest first learned of the claims more than a year after they were asserted’

 

Everest's prior disclaimers were only partial disclaimers based solely on the workers' compensation and employer's liability exclusions in its policy, and they were issued before Everest received notice of the underlying cross claims and third-party claims against Bridge Street. Accordingly, Everest did not waive its late notice defense, and immediate notice of the cross claims and third-party claims would not have been "useless."

 

10/09/15       Utica Mutual Insurance Co. v. American Re-Insurance Co.

Appellate Division, Fourth Department

Claims by Two Reinsurer’s Sufficient Distinct to Justify Severance

Utica commenced a breach of contract/declaratory judgment action against defendants, American Re-Insurance Company, now known as Munich Reinsurance America, Inc. (Munich), and Transatlantic Reinsurance Company (Transatlantic), seeking enforcement of reinsurance policies issued by them to plaintiff. After answering the complaint, Munich moved to sever the claims against it from those against Transatlantic. According to Munich, there are no common questions of law or fact between the claims, and plaintiff's sole purpose in joining them was to avoid removal of the claims against Munich to federal court.

 

Here, although the claims against both defendants relate to insurance payments made by plaintiff to the same insured for asbestos-related losses, defendants have no relationship to one another, and the claims arise from different reinsurance contracts, were triggered by different underlying umbrella polices, and involve different time periods. Moreover, defendants asserted different affirmative defenses, and a finding of liability against one defendant will not impact the liability of the other. Under those circumstances, the lower court did not abuse its discretion in granting Munich's severance motion.

 

 

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

Robert E.B. Hewitt III

[email protected]

 

10/21/15                 Reyes v. Ruiz

Appellate Division, Second Department

Defendant Could Not Have Personal Injury Case Dismissed Against Her On Grounds of Collateral Estoppel and Res Judicata Even Though Co-defendant’s Motion For Summary Judgment Based on Lack of Serious Injury Was Granted

The Appellate Division affirmed the denial of a motion by defendant Sanchez’s motion pursuant to CPLR 3211(a)(5) to dismiss the complaint insofar as asserted against her as barred by the doctrines of collateral estoppel and res judicata. The plaintiff allegedly was injured in a three-car accident occurring on February 20, 2009, when the defendant Sanchez, traveling on Northern Boulevard in Queens, approached the intersection at 126th Street and collided with the plaintiff's vehicle. The defendant Ruiz, driving behind the plaintiff's vehicle, was unable to stop in time and collided with the plaintiff's disabled vehicle. Thereafter, the plaintiff commenced this action against Ruiz and Sanchez to recover damages for personal injuries.

 

 By order dated April 16, 2013, the Supreme Court granted a motion by Ruiz for summary judgment dismissing the complaint insofar as asserted against him 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 accident, upon finding that the plaintiff failed to raise a triable issue of fact in opposition to Ruiz's prima facie showing. By order dated April 22, 2013, the Supreme Court denied a separate motion by Sanchez for summary judgment dismissing the complaint insofar as asserted against her on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) because Sanchez failed to meet her prima facie burden on her motion. Thereafter, Sanchez, inter alia, moved to dismiss the complaint insofar as asserted against her pursuant to CPLR 3211(a)(5) as barred by the doctrines of collateral estoppel and res judicata, based upon the order dated April 16, 2013. The trial court denied that branch of Sanchez's motion.

 

The Appellate Division noted that, in general, the doctrines of collateral estoppel and res judicata bar, under certain circumstances, relitigating in a subsequent action issues and causes of action, respectively, that were already finally decided in a prior action However, the doctrines of collateral estoppel and res judicata cannot be used in a single action in the manner proffered by Sanchez herein. The Court did not get into why one motion was granted on lack of serious injury while the other was not.

 

10/20/15                Adu v. Kirby

Appellate Division, Second Department

Defendant’s Established Lack of a Permanent Consequential Damage or Significant Limitations to the Left Knee As Plaintiff Had Full Range of Motion But Limitations Of Range of Motion to the Left Shoulder Caused That Claim to Survive Summary Judgment

Appellate Division modified the lower court’s dismissal of the action, reinstating part of the case. The Appellate Court found that Defendants made a prima facie showing that plaintiff did not sustain permanent consequential or significant limitations in the cervical spine, thoracolumbar spine, left knee, or left shoulder as a result of the subject motor vehicle accident by submitting an affirmed report by their medical expert, who determined, after examining plaintiff, that plaintiff had full range of motion, negative clinical test results, and no neurological deficits. In opposition, plaintiff failed to raise a triable issue of fact with respect to his cervical spine, thoracolumbar spine, and left knee, since he submitted no objective medical evidence to substantiate his claim that he suffered "permanent consequential" or "significant" limitations of use of those body parts.

 

However, the Appellate Division found plaintiff raised a triable issue of fact as to a serious injury to his left shoulder by submitting affirmed reports by a diagnostic radiologist who opined that an MRI showed injuries to the shoulder, and by his orthopedic surgeon, who examined plaintiff on numerous occasions and found limitations in range of motion. The orthopedist's opinion as to causation and permanence, based on his examinations, coupled with the radiologist's MRI report that plaintiff sustained a partial thickness undersurface tear of the supraspinatus tendon, was found to be sufficient to raise a triable issue of fact

Defendants established prima facie that plaintiff did not sustain a serious injury under the 90/180-day category by relying on plaintiff's bill of particulars, which did not include a 90/180-day claim, and his deposition testimony that he did not miss any work after the accident. The Appellate Division found Plaintiff's testimony that he was unable to jump rope, play soccer, and lift heavy baggage with his left hand failed to raise an issue of fact whether his claimed injuries prevented him from performing substantially all of the material acts which constituted his usual and customary daily activities.”

 

At trial, if plaintiff establishes a serious injury to his left shoulder, he may recover for all injuries causally related to the accident, even those that do not meet the serious injury threshold.

 

10/20/15                Castillo v. Abreu

Appellate Division, First Department

Plaintiff’s Doctors Which Found Multiple Disc Herniations and Bulging Discs and Significant Range of Motion Limitations Shortly After the Accident and Just Prior to the Motion Enough to Raise an Issue of Fact As to Serious Injury

Appellate Division modified the lower court’s dismissal of plaintiff’s claim of serious injury to his left shoulder, lumbar spine, or cervical spine within the meaning, to deny the motion with respect to plaintiff's claims of serious injury to his lumbar spine and cervical spine, and otherwise affirmed. The Appellate Division found 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 shoulder by submitting the affirmed reports of an orthopedic surgeon, who found full range of motion in all parts, and a radiologist, who concluded that the MRI of plaintiff's left shoulder was normal and without evidence of acute injury.  In opposition, plaintiff raised a triable issue of fact as to his lumbar spine and cervical spine by submitting the affirmed MRI reports of a radiologist, who found multiple disc herniations in the lumbar spine and bulging discs in the cervical spine, and the report of his chiropractor, who measured significant limitations in spinal range of motion both shortly after the accident and recently. Defendants' orthopedic expert did not dispute that any spinal injuries were causally related to the accident, and plaintiff's chiropractor opined that there was a causal relationship, since plaintiff was only 19 years old and had no prior symptoms. Plaintiff's chiropractor also provided an explanation for his gap in treatment sufficient to raise an issue of fact.

 

Plaintiff, however, did not submit objective medical evidence sufficient to raise an issue of fact as to the existence of a serious shoulder injury causally related to the accident. His radiologist stated that his MRI revealed only evidence of edema indicative of recent trauma. At trial, if plaintiff establishes a serious injury to his spine, he may recover for all injuries causally related to the accident, even those that do not meet the serious injury threshold.

 

10/20/15                Jang v. All Mobile Video, Inc.

Appellate Division, First Department

Plaintiff’s Failure to Oppose Summary Judgment Found Reasonable Where Plaintiff’s Attorney Received Physician’s Narrative Report Near the Return Date Which She Needed to Oppose Motion Papers and Then Attorney Suffered Sudden Injury Making Her Unable to Timely Oppose The Motion

Serious injury is only mentioned tangentially in this matter. The Appellate Division reversed the lower court’s denial of plaintiff’s motion to vacate a default, and the dismissal of the Complaint was vacated.   The Appellate Division found the plaintiff’s proffered excuse for failing to oppose defendants' motion for summary judgment to be reasonable. Plaintiffs' attorney affirmed that she only received the physician's narrative report, without which she could not prepare opposition papers, until near the return date of the motion and that before that date she suffered a sudden illness and pain for which she had to be heavily sedated, and as a consequence she was unable to communicate with her office about seeking an adjournment. The Appellate division also found that Plaintiffs provided affirmed medical experts' reports demonstrating potentially meritorious claims of serious injury under Insurance Law § 5102(d) without specifying any further detail about the claim.

 

10/20/2015   Rabb v. Mohammed

Appellate Division, First Department

Competing Expert Reports As to Causation and The Permanency of Injury Led to Denial of Summary Judgment Motion Based on an Issue of Fact With Plaintiff’s Expert Noting a 27 year old Plaintiff Was Not Likely to Have Degenerative Disc Bulge

The Appellate Division reversed the lower court’s grant of summary judgment. It found Defendants established prima facie that plaintiff did not suffer any serious injury as a result of the subject motor vehicle accident by submitting an affirmed report by a radiologist who found that the MRI of the left knee showed no injury and opined that the MRI of the lumbar spine showed only a disc bulge of degenerative origin unrelated to any trauma. In addition, they submitted an affirmed report by an orthopedic surgeon who opined that the conditions purportedly found by plaintiff's orthopedic surgeon could not have been causally related to the accident.  In opposition, plaintiff raised triable issues of fact by submitting an affirmation by his treating orthopedist, which reviewed the MRI films, and concluded, based on his examinations and observations during surgery, that plaintiff suffered permanent injuries to his knee and lumbar spine.

 

The orthopedist found limitations in range of motion shortly after the accident and persisting after treatment and arthroscopic surgery. He opined that the injuries were traumatically induced by the accident, noting that the MRI films showed no evidence of degeneration and that plaintiff was just 27 years old at the time of the accident, thereby raising an issue of fact as to causation

 

Defendants failed to establish that plaintiff did not sustain an injury of the 90/180-day category, since they neither disputed plaintiff's evidence that he did not return to work for more than three months following the accident nor provided evidence that he was able to perform his usual and customary activities during the relevant period. Moreover, as indicated, in opposition to defendants' prima facie showing, plaintiff raised an issue of fact as to causation with his treating physician's evidence.

 

10/15/2015   Walker v. Whitney

Appellate Division, First Department

Plaintiff’s Expert Failed to Compare Decreased Range of Motion in Shoulder To Normal Value or Provide Range of Motion Numbers And Failed To Address Defendants’ Expert’s Finding of Degenerative Changes When Plaintiff’s Expert Made Conclusory Statements of Causation

The Appellate Division Affirmed Grant of Summary Judgment to the Defendants. The Appellate Court found that Defendants established that plaintiff did not sustain serious injuries as a result of the motor vehicle accident. Defendants submitted the affirmed reports of an orthopedist and neurologist who found full range of motion in all parts, and of a radiologist who found that the MRI films showed degenerative disc disease in the spine, mild acromioclavicular (AC) joint osteoarthritis in the shoulder, and no evidence of causally related injury.  In opposition, plaintiff failed to raise a triable issue of fact. He submitted no admissible medical evidence in support of his claim of serious injury to his cervical and lumbar spine, and the records did not become admissible merely because defendants' experts reviewed them.

 

The only admissible evidence is an affirmation from plaintiff's orthopedic surgeon, who last examined plaintiff shortly after the arthroscopic procedure. He indicated that following surgery, plaintiff had a "decreased range of motion in his left shoulder," but did not provide measurements of the actual ranges of motion or a normal value for comparison. He also did not provide evidentiary support for his conclusory statement that plaintiff's shoulder condition were related to the accident, nor did he address the opinions of defendants' experts that any shoulder injury was due to ongoing pathology and degenerative changes.

 

Although the unaffirmed MRI report of plaintiff's radiologist, like that of defendant's expert radiologist, found "mild" hypertrophic changes of the AC joint, plaintiff's expert failed to address those findings and explain why they were not the cause of the injury. The Appellate Division also noted that the surgeon's statement did not address the conclusions by defendants' doctors that as of 2012, plaintiff had regained a full range of motion in his left shoulder, which is relevant to the claim of permanent injury.

 

10/14/2015   Pope v. Concorde Cab Company

Appellate Division, Second Department

Plaintiff’s Evidence Was Enough To Raise an Issue of Fact As To Whether His Chin and Neck Scars Constituted Serious Injury

The Appellate Division reversed the grant of summary judgment in favor of defendants. In support of their respective motions for summary judgment dismissing the complaint insofar as asserted against each of them, the defendants submitted competent evidence establishing, prima facie, that the scars on the plaintiff's chin and neck did not constitute  significant disfigurements as defined by Insurance Law § 5102(d). In opposition, however, the plaintiff raised a triable issue of fact as to whether the scars on his chin and neck constituted serious injuries. Unfortunately, the opinion does not discuss what evidence was submitted by plaintiff.

 

10/14/2015   Gega v. Lubin

Appellate Division, Second Department

Defendants Failed to Establish a Lack of Serious Injury to Plaintiff’s Right Knee

The Appellate Division again reversed the grant of summary judgment to the defendants. The Appellate Division found that defendants, moving separately, but relying on the same evidence and arguments, failed to meet their respective prima facie burdens of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The papers submitted by the defendants failed to adequately address the plaintiff's claim, set forth in the bill of particulars, that he sustained a serious injury under the 90/180-day category of Insurance Law § 5102(d). No details were provided. Moreover, the Appellate Division found that defendants' papers failed to adequately address the plaintiff's claim, set forth in the bill of particulars, that he sustained a serious injury to his right knee under the permanent consequential limitation of use and significant limitation of use categories of Insurance Law § 5102(d). Again, no details were provided. In light of the defendants' failure to meet their respective prima facie burdens, it was unnecessary to determine whether the papers submitted by the plaintiff in opposition were sufficient to raise a triable issue of fact.

 

MARGO’S MUSINGS ON NO FAULT

Margo M. Lagueras

 

Arbitration

10/15/15       Jerry J Tracy, Physician PLLC v Geico Ins. Co.

Erie County, Arbitrator Mona Bargnesi

Peer Review Fails to Provide Factual Basis for Denial of MUA

The disputed MUA was performed on June 27, 28 and 29, 2014.  Respondent then arranged for a peer review by Dr. Ramnanan which was performed in September 2014.  The reviewer opined that since the EIP could be manipulated in the office without difficulty, there was no need for MUA.  The Arbitrator found the peer review insufficient to prove lack of medical necessity.  Although the reviewing doctor reviewed records including MRIs showing multiple disc herniations, and surgical evaluations, he did not address any of the many significant findings.  As a result, in failing to provide specifics of the claim, it was conclusory and insufficient.

 

10/13/15       Empi, Inc. v Geico Ins. Co.

Erie County, Arbitrator Gillian Brown

Arbitrator Finds Claim Not Time Barred

At issue was reimbursement for an interferential stimulator prescribed on October 28, 2008 and denied on the basis of a peer review by Dr. Bazos dated November 24, 2008.   The denial was dated November 26, 2008 and the demand for arbitration was sent on November 7, 2014 (received by AAA on November 21, 2014).  The question presented was whether the cause accrues from the date of denial or from some other date.  Respondent argued that the statute of limitations had run.  The Arbitrator disagreed noting that “[a]n action for No-Fault benefits is barred by the statute of limitations where it is commenced on a date which is later than six years plus 45 days (the deadline for submitting proof of claim) plus 30 days (the insurer’s deadline for denying the bill or requesting additional verification) after the date of service.” (quoting Wexford Med., P.C. v Commerce Ins. Co., 40 Misc3d 133(A) [App Term 1st Dept, July 19, 2013]).  Having determined that the claim was not time barred, the Arbitrator then considered the merits of the denial and determined that Dr. Bazos’ peer review was insufficient because, among other things, it cited to a single study concerning TENS units which are not the same as interferential stimulators.

Note:  This failure to distinguish one device from the other is an ongoing issue with peer reviewers which needs to be addressed.

 

Litigation

 

10/08/15       Surgicare Surgical Assoc. v National Interstate Ins. Co.

Appellate Term, First Department

Reimbursable Health Care Service Performed Outside New York State Is Subject to That Location’s Permissible Charge

Provided, of course, that the location where the reimbursable service was performed has enacted a medical fee schedule prescribing the permissible charge for the service.  Specifically, 11 NYCRR 68.6 provides that where the service reimbursable under Insurance Law 5102(a)(1) “is performed outside New York State, the permissible charge for such service shall be the prevailing fee in the geographic location of the provider.”

 

In this case, plaintiff provided services for an arthroscopic knee surgery at its New Jersey location and billed $10,800.  Defendant insurer reimbursed $5,996.67, and plaintiff sought to recover the difference.  The court agreed with defendant that it properly relied on the fee schedule in New Jersey to establish the “prevailing fee” and demonstrate compliance by payment in accordance with that fee schedule.

 

As interpreted by the Superintendent of Insurance (Ops Gen Counsel NY Ins. Dept No 03-04-03 [April 2003]), the “prevailing fee in the geographic location of a provider” is the “permissible” reimbursement rate authorized in the foreign jurisdiction.  To allow plaintiff to bill at a higher rate would undermine the purpose of Insurance Law 5108 and defeat the objectives of the No-Fault Law.

 

PEIPER ON PROPERTY (and POTPOURRI)

Steven E. Peiper

[email protected]

 

10/21/15       Viznitz v Church Mutual Ins. Co.

Appellate Division, Second Department

Coverage Limit Set Forth in a Coverage Extension Was Enforceable as Written

Two of plaintiff’s dormitories sustained fire damage in 2012.  As a result of the fire loss, plaintiff was forced to relocate several students into temporary housing for 3 ½ months while repairs were undertaken.  The temporary housing increased the total loss an additional $236,000.

 

Church adjusted the claim, and agreed to provide coverage for the property damage portion of the loss.  However, with respect to the temporary housing costs, Church maintained that such claim fell within the Institutional Income and Extra Expense portion of the policy.  That portion was limited, by clear endorsement, to $10,000.

 

Plaintiff challenged the endorsement on the basis of an alleged ambiguity, and the Court summarily rejected the argument.  Essentially, the Court held that the language of the $10,000 limit of liability was plain and unambiguous.  The only way that the limit could be increased was if the Declarations Page provided for an increased limit.  Here it did not, and accordingly coverage was limited to the amount specified by the policy terms.

 

10/09/15       Angielczyk v Lipka

Appellate Division, Fourth Department

Without Proof of Increase in Value Post-Purchase, Diminution of Value Claim is Unsupported

This case has its origins in a small claims dispute involving $5,200 of alleged diminution of value to a “vintage” (circa 1996) jaguar.  Plaintiff argued that he had sustained more than the cost of repairs to his vehicle because it was “mostly original,” and it was not worth as much as it had been pre-accident.

 

The Court noted that, traditionally, the test for damages is the lesser of either (a) the difference between the fair market value immediately before and immediately after the collision, or (b) the cost to repair the vehicle to the pre-loss condition.  Here, there was no dispute that the money paid for repairs put the vehicle in the same condition that it was prior to the loss.

 

In so holding, the Court also rejected plaintiff’s claim that he was entitled to additional damages based upon a diminution of value.  Here, unfortunately, plaintiff presented no proof that the car had actually increased in value since his original purchase.  As such, the limited exception which permits diminution in value was not satisfied, and he was only entitled to repair costs. 

 

FITZ’S BITS

Elizabeth A. Fitzpatrick

[email protected]

 

At the FDCC Insurance Industry Institute.

 

 

WILEWICZ’S WIDE WORLD OF COVERAGE

Agnes A. Wilewicz

[email protected]

 

10/16/15       Two Farms Inc. v. Greenwich Insurance Co.

United States Court of Appeals, Second Circuit

In Interpreting Sublimit Endorsement, Second Circuit Finds The Insured Cannot Argue Both Broad And Narrow Interpretations Of The Same Terms; Those That Grant Coverage Can Also Limit Them

In this case, Greenwich Insurance issued a pollution and remediation liability policy to Two Farms, a gas station and convenience store operator. The policy contained a number of exclusions, including one for liability resulting from losses “based upon or arising out of the existence of any underground storage tank(s) and associated piping”. Carved out of that was an exception for certain specified tanks and piping that were listed on an endorsement and expressly not subject to the exclusion. These instead did have coverage, but also a sublimit applied that capped the coverage amount for each loss or remediation relative to that tank, and its associated piping, at $1,000,000.

 

As luck would have it, in 2009 Two Farms discovered that one of its underground storage tanks had discharged several thousand gallons of gasoline beneath one of its stations. They alleged that three devices on the exterior of the tank caused the loss – the “O-ring”, the containment sump, and the sensor. Two Farms made a claim, and Greenwich paid $1,000,000 pursuant to the endorsement and sublimit. Nevertheless, Two Farms sued the carrier, on the theory that there were multiple meanings of the terms “underground storage tank(s) and associated piping” found in the policy and thus their use in the sublimit endorsement should be narrowly defined.

 

The Second Circuit did not agree. Noting that the insured acknowledged that the terms should be broadly interpreted in the context of the exception to the exclusion (thus providing them coverage in the first place), they could not argue for both – “Simply put, Two Farms cannot have it both ways”. They could not argue for both narrow and broad interpretations of the same terms. Moreover, the insured did not present any reason for varying meanings within the same phrase in the same policy. As such, there was no ambiguity in the terms. Essentially, those which created coverage could also limit the extent of that coverage.

 

 

CASSIE’S CAPITAL CONNECTION

Cassandra A. Kazukenus

[email protected]

 

Circular Letter 7 (2015)

 

The purpose of this Circular Letter is to provide guidance for all financial guaranty insurers regarding the applicability of New York’s prohibition against rebating and improper inducements to bond purchases intended to induce the underwriter of the bond issuance to procure bond insurance form the insurer.

        

Insurance Law §6904(g) precludes financial guaranty insurers from providing anything of value to prospective purchasers of bond insurance as an inducement to make that purchase.  DFS clarifies that a financial guaranty insurer’s purchase of bonds that it is insured is not “per se problematic.”  In fact, Ins. Law §6902(a)(4) specifically allows a financial guaranty insurer to invest up to 4% of its admitted assets in any entity that it has insured.

        

Notwithstanding the above, a financial guaranty insurer cannot offer to purchase bonds in an effort to influence the bond underwriter to procure insurance.  As explained by DFS, a bond underwriter’s major objective is to sell the entire bond issue as quickly as possible so that it may free up its capital for future underwritings.  Thus, a financial guaranty insurer’s commitment to purchase part of a bond offering or clean up an underwriting by purchasing any bonds that may otherwise remain unsold constitutes a “valuable thing” that is an improper inducement of the underwriter to purchase bond insurance.  As a result, DFS recommends financial guaranty insurers bifurcate their investment and insurance functions so that such decisions are made independently of insurance underwriting activities.

 

 

KEEPING THE FAITH WITH JEN’S GEMS

Jennifer A. Ehman

[email protected]

 

10/13/15       Leon D. DeMatteis Constr. Corp. v. Utica Natl. Assur. Co.

Supreme Court, New York County

Trial Court finds that Injured Party’s Status as an Employee Working in Furtherance of his Employment on the Jobsite was enough to Trigger Coverage under Additional Insured Endorsement

This was an application to reargue a prior decision issued by the trial court.

An employee of Spieler & Ricca Electrical Co. Inc. (“Spieler”) was injured on the jobsite.  The construction manager at the time was Leon D. DeMatteis Construction (“DeMatteis”).

 

Prior to the start of the work, Spieler entered into an agreement with DeMatteis in which it agreed to hold DeMatteis harmless and to provide insurance coverage.  Presumably, in compliance with this agreement, Spieler obtained a policy of insurance from Utica National.  The broad form additional insured endorsement contained in the Utica policy provided coverage “only [t]o the extent that [DeMatteis] is held liable for [Spieler’s] acts or omissions arising out of and in the course of ongoing operations performed by [Spieler].”

 

Utica denied coverage for this claim submitting that DeMatteis did not qualify as an additional insured and based on late notice.  DeMatteis and its insurer, QBE, brought this action.

 

The court initially granted DeMatteis’ motion for summary judgment, and denied Utica’s cross-motion.  Relying on the Court of Appeals decision in Regal, the court found that coverage had been triggered.  It noted that Spieler’s employee was walking up a set of stairs on the premises and slipped and fell on debris in the stairway.  Although Utica contended the employee’s injury did not arise from Spieler's electrical work, but rather that it was DeMatteis' employees who failed to clear the debris on the stairway on which he slipped, the court stressed that the focus of the inquiry (for insurance purposes) was on the general nature of the operation in which plaintiff was engaged at the time of the alleged incident.  Given the foregoing, DeMatteis needed to only show that the injury originated, was incident to, or connected with Spieler's operations for DeMatteis.  Because Spieler had a contractual obligation to clear debris from its work area, even if DeMatteis also had a duty to clean up any debris left on the premises, DeMatteis could be held liable for Spieler's omission of its contractual duty to clean up any such debris in its work area.  Accordingly, the injury "arose out of" Spieler's operations and fell within the scope of the additional insured endorsement of Utica's policy.  And, even if, as Utica claimed, the employee’s injury may have been caused by a subcontractor other than Spieler, and Spieler was not liable, this was deemed irrelevant in considering whether DeMatteis is an additional insured under Utica's policy given that the employee was injured in furtherance of Spieler's work at the site.

 

In its application to reargue, Utica submitted that the court improperly broadened the language of the additional insured endorsement.  Relying on the First Department’s recent decision in Burlington Ins. Co. v. NYC Transit Authority, the court denied the motion to reargue.  It held that although an issue of fact exists with respect to liability, as will be decided in the underlying action, this does not preclude a determination that Utica is required to defend DeMatteis in the underlying action as an insurer may be relieved of its duty to defend only if it can establish, as a matter of law, that there is no possible factual or legal basis upon which it might eventually be obligated to indemnify its insured, or by proving that the allegations fall wholly within a policy exclusion.  Accordingly, a finding of liability is not required to determine whether DeMatteis is an additional insured under the Utica policy because the duty to defend is broader than the duty to indemnify, and a possible factual basis does exist for indemnification since evidence in this action indicated that the Spieler’s employee was working in the area where the accident happened and Spieler had a duty to prevent the unsafe condition that caused the underlying accident.

 

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

 

6/08/15         AXIS Insurance Co. v. Inter/Media Time Buying Corp.

Central District of California

Exclusion For Contractual Claims

Biotab Neutraceuticals, a vitamin retailer, hired Inter/Media for advertising services.  Eventually, Inter/Media sued Biotab in 2012 for unpaid bills for services rendered.  In response, Biotab alleged counterclaims for breach of contract, fraud, unfair business practices, etc. Among other things, Biotab alleged that Inter/Media “farmed out” the advertising work to other parties in violation of their advertising agreement, and then charged higher commissions and mark-ups for those services.  Biotab also alleged that Inter/Media failed to provide proof of specific ads placed, and that Inter/Media had charged top dollar rates for ads that actually were placed in less expensive time slots or publications.  In response and defense to the counterclaims, Inter/Media sought coverage from Axis Insurance for defense under an errors and omissions endorsement in its multi-media liability policy.  Axis denied the claim and also filed a declaratory judgment action.

 

The Central District of California U.S. District Court found that many of the alleged counterclaims arguably fell within the coverage of the endorsement, but a policy exclusion for claims arising out of actual or alleged breach of contract precluded coverage.  In reviewing the counterclaims, the Court held that the allegations flowed from Inter/Media’s alleged contractual obligations, and that there was an “inextricable linkage” between the contract and the alleged misdeeds resulting in the conclusion that the breach of contract exclusion applied.  Consequently, the Court granted partial summary judgment to Axis.

 

This case is a good example of where coverage might arguably apply to some or all claims, but an exclusion existed and prevailed to limit, modify, or exclude coverage.

 

This case also raises the cautionary tale of the possible consequences of a professional or service firm suing for invoices and fees owed which may trigger counterclaims with consequent insurance coverage, reporting and counsel issues.

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