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Coverage Pointers - Volume XVIII, No. 18

Volume XVIII, No. 18 (No. 474)

Friday, February 24, 2017

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. 2017
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. 

 

It’s been a beautiful spring and it’s not even spring.

 

We are so pleased to bring you another issue of Coverage Pointers.  This is the eighteenth edition in our eighteenth year of publication.  We’re joined out there by our sister publication, Labor Law Pointers, our monthly review of construction accident cases involving the New York State Labor Law.  If you don’t subscribe yet, send a note to Dave Adams at [email protected] and he’ll add you to his growing readership database.

 

Looking for a Claims Education?  Come to Boston in March:

 

PLRB Claims Conference

http://plrbclaimsconference.org

March 26-29

Boston, MA

 

Get Inspired

Get Engaged

Get Creative

 

 

Are you going to the PLRB Claims Conference in Boston? We hope so. 

 

Tremendous program, great expo and the wisdom of the ages:

 

John Hanlon, from Selective and I are putting on a bang-up presentation on Additional Insured and Contractual Indemnity.  Come to our classes and you’ll know everything you need to know about risk transfer.

 

Here’s the program and the learning objectives (and you will learn them!):

 

Session Code:  1055    Session Level:  Intermediate

Curriculum: Casualty Campus

Tuesday 10:30 - 12:00 -- Room 200
Wednesday 1:30 - 3:00 -- Room 103

John S. Hanlon, SCLA,  Complex Claims Unit Manager
Selective Insurance Group, Branchville, NJ

Dan Kohane, JD,  Senior Partner
Hurwitz & Fine, P.C., Buffalo, NY

  • Distinguish between an insurer's obligations to those who qualify as additional insureds and those who benefit from contractual indemnity obligations

  • Evaluate how tenders of defense and indemnity should be made under both policy and trade agreement

  • Describe the protocols to be considered when tenders are received under both insurance policy and contract

  • Identify the relevant factors when sending or receiving tenders

    Special Thanks:

     

    We enjoy spotlighting great coverage lawyers from other law firms who do good work.  Today’s hurrah goes to Dennis Wade from Wade Clark Mulcahy, who won a very interesting first party case in the Second Department.  Dennis was kind enough to respond favorably to my invitation to summarize that decision and you’ll find a summary of Certain Underwriters in “Peiper on Property”.  Thanks Dennis and kudos.

     

Presidential Biography List:

 

Those who know me best (or those who are regular readers of CP) know that my secret passion is US Presidential history.  Some years ago, I decided to read presidential biographies in order and tried to find the best of the best to read.  I published that list after my reading was completed.  Each year, around Presidents’ Day, I publish and update on my reading and do so below.  The underscored titles are books I’ve read since Presidents’ Day, 2016. I welcome recommendations of other titles. 

 

P.S. Some of the books (e.g. The Quartet, War of the Roosevelts) focus on more than one president but are only listed once).  I’ll wait a little on President Trump, until an even-handed biographer has enough material to write a biography.  Here, in order of Presidents, is my list of completed biographies:
 

  • His Excellency, George Washington (Ellis); First Entrepreneur, How George Washington Built His and the Nation’s Prosperity (Lengel)

  • John Adams (McCullough)

  • Thomas Jefferson, the Art of Power (Meachem); Thomas Jefferson and the Tripoli Pirates: The Forgotten War That Changed American History (Kilmead); America’s Jefferson (Fenster)

  • James Madison: A Biography (Ketcham); The Quartet (Ellis)

  • The Last Founding Father: James Monroe and a Nation's Call to Greatness (Unger)

  • John Quincy Adams (Unger)

  • Andrew Jackson-- American Lion (Meacham)

  • Martin Van Buren (Widmer)

  • William Henry Harrison (Collins)

  • John Tyler (May)

  • A Country of Vast Designs – James Polk (Merry)

  • Zachary Taylor (John S.D. Eisenhower)

  • Millard Fillmore (Finkelman)

  • The Expatriation of Franklin Pierce (Boulard)

  • James Buchanan (Baker); Worst. President. Ever (Strauss)

  • Team of Rivals (Goodwin); The Impeachment of Abraham Lincoln (Carter);  Killing Lincoln (O'Reilly)

  • History of the Impeachment of Andrew Johnson (Ross)

  • Ulysses S. Grant in War and Peace (Brands); American Ulysses (White)

  • Fraud of the Century: Rutherford B. Hayes, Samuel Tilden, and the Stolen Election of 1876 (Morris)

  • Destiny of the Republic: A Tale of Madness, Medicine and the Murder of a President -- Garfield (Millard)

  • Chester Alan Arthur (Karabell)

  • Grover Cleveland (Graff)

  • A Compilation of Messages and Papers of the President - Benjamin Harrison

  • The President and the Assassin: McKinley, Terror, and Empire at the Dawn of the American Century (Miller)

  • Theodore Rex (Morris), Theodore Roosevelt (Autobiography), The Bully Pulpit (Goodwin), Bully Pulpit (Goodwin),  The River of Doubt: Theodore Roosevelt's Darkest Journey (Millard)

  • The Tea Party President by William Howard Taft; Charles Stanfield Davis

  • Woodrow Wilson (Brands)

  • Warren Harding (John Dean)

  • Calvin Coolidge, Man from Vermont (Fuess)

  • Herbert Hoover (Leuchtenburg); Herbert Hoover in the White House (Rappleyea)

  • Traitor to His Class -- FDR (Brands); War of the Roosevelts (Mann); His Final Battle (Lelyveld); Commander in Chief (Hamilton)

  • Citizen Soldier -- Harry Truman (Donald); The General and the President (Brands)

  • Eisenhower: Soldier and President (Ambrose); Eisenhower, In War and Peace (Smith)

  • < > (Sorensen)

    The Path to Power -- LBJ (Caro), The Passage of Power (Caro)

  • The Conviction of Richard Nixon (Reston), Nixon, the Triumph of a Politician (Ambrose) Nixon, the Education of a Politician (Ambrose)

  • Write It When I'm Gone -- Ford  (DeFrank)

  • Jimmy Carter (Zelizer)

  • Dutch - Reagan (Morris; Ronald Reagan (Sutherland)

  • George Herbert Walker Bush (Wicker); Destiny and Power (Meachem)

  • First in His Class (Bill Clinton); My Life (Autobiography)

  • Decision Points -- George W. Bush (Autobiography)

  • The Bridge – Barach Obama – Remnick

  • Trump (nothing yet)

 

Miscellaneous: 

Jen’s Gems:

 

Greetings! 

 

Hope all is well.  Amazingly, when I stepped out of the office for lunch today, it was in the low sixties.  I mention this because I live in Buffalo, and it’s the middle of February.  It should be about 10 degrees with a gusty wind coming off the lake (must be global warming).    

 

My column this week reports on a decision out of New York County, Supreme Court, SL Green Realty Corp. v. Burlington Ins. Co.  The decision, which comes on a motion to reargue, is interesting because it highlights what can happen when you fail to keep the tort universe separate from the coverage universe.   When our office conducts trainings on risk transfer, we also discuss the “two universe theory,” which is that when analyzing risk transfer you have to keep the world of tort separate from the world of insurance.  The moment you try to analyze them together is when trouble strikes.  

 

In this case, a property owner sought coverage under a policy of insurance issued to a subcontractor (who had been retained by the construction manager).  While the court correctly held that the owner did not qualify as an additional insured due to the absence of privity, which was required under the relevant AI endorsement, it nonetheless found that Burlington owed a duty to the owner pursuant to the exception to the Burlington Policy’s exclusion relating to contractual liability.  This exception provided that Burlington would owe contractual liability coverage to Burlington’s named insured for any indemnity obligations arising out of an “insured contract.” 

 

On reargument, the court corrected itself noting that contrary to the finding in the original decision, the Burlington Policy’s exception to the exclusion for contractual liability for an “insured contract,” does not provide a basis for finding that Burlington owed a duty to defend the owner as a contractual  indemnitee of its named insured.  Thus, while under this exception, the Burlington Policy provided coverage to its named insured for any obligation to indemnity and/or defend the owner, it does not provide a basis for requiring Burlington to indemnify or defend the owner.   Well said!

 

Until next issue …

 

Jen

Jennifer A. Ehman

[email protected]

 

Hey, She’s Entitled (or Was):

 

The Broad Axe (Salt Lake City)

February 24, 1917

Eighty, Wants Heart Balm

Woman Is Deaf, Has Lost Right Eye and is a Little Lame

 

Utica NY – Mrs. Almyra Kingsbury is just a little on the right side of 80 years old. She is rather deaf. She has lost her right eye and her left thumb. Besides, she is a little lame.

 

But she took the stand to testify that Robert Roberts of Trenton, 76 years old and a farmer, had been so smitten with her charms at first sight that he urged her to marry him. Then she said he broke troth and she sued him for breach of promise. They met at an employment agency where he sought a housekeeper.

 

Judge Hasard told Mrs. Kingsbury’s attorney, “I think your client is clearly entitled to about six cents.” However, the case was held open for more evidence.

 

Editor’s Note:  Could not find any report on the final verdict.

 

Full Coverage, Canadian Style:    

 

My friend, Heather Sanderson, of the Calgary, Alberta, Sanderson Law, is one of the great insurance practitioners in the western part of Canada.  She posted a very interesting article about insurance fee shifting in Canada in the DRI Insurance Community blog in light of a very recent decision of the British Columbia Supreme Court.  With her permission (and with our thanks), we are reposting here, to provide an idea of what happens on this issue, north of the border.  You will find Heather’s contact information at the conclusion of the article.  Please accept, with a tip of the hat to the north and west, the Canadian spellings:

In Canada, a losing party generally pays the winning party’s party and party costs that are set under a schedule to the rules of court of the province or territory where the action took place. Those costs usually amount to about one third to one quarter of what a party actually paid to its counsel in fees in the successful pursuit of the action and usually 100% of the expenses, including expert fees.

In some rare situations, a winning party can obtain full indemnity costs: 100% reimbursement of all fees (as opposed to a portion) as well as the usual award of 100% of all disbursements (including expert witness fees and disbursements) paid by that party.

 Similar to the American position, one of those rare situations is the “duty to defend” applications and actions, where an insured files an ultimately successful action against its liability insurer who has denied the obligation to defend to extend a defence to an action under the terms of a liability policy. An insured who incurred legal costs to overturn the denial under a policy that provides a full defence at the insurer’s expense and, was ultimately successful, is entitled to reimbursement for those costs. Reimbursement of those costs from the time proceedings are initiated until such time as the insurer takes over the insured’s defence is justified on the basis that the insured proved itself entitled to receive a no-cost defence and is entitled to the costs that were incurred to force the bargain struck with the insurer: Godonoaga (Litigation Guardian of) v. Khatambakhsh (2000), 191 D.L.R. (4th) 221 [O.N.C.A.]

What about cost recovery arising from actions under first party policies where the insured is suing for indemnity rather than a defence?

If the insurer denies indemnity due to unfounded impropriety on the part of the insured, particularly when accident or disability benefits are in play, Canadian courts will almost universally award indemnity costs in order to provide the insured with complete indemnity for the failure of the insurer to honour the policy: See Coughlin v. Mutual of Omaha Insurance Co (1992), 10 O.R. (3d) 787 (Gen. Div.) and its progeny. Some courts have said that the insured’s legal bill is the foreseeable consequence of the insurer’s failure to honour the policy and is payable as a form of damages: Saskatchewan Government Insurance v. Wilson, 2012 SKCA 106.  In addition, the insured may be entitled to punitive damages: Whiten v. Pilot Insurance Co., [1996] O.J. No. 227, aff’d 2002 SCC 18.

If, rather than denying a defence under the policy, the insurer files an application or an action for a declaration from the court as its obligations to its insured; and, it is determined that the wording in issue entitles the insured to a remedy against the insurer; the insured may not be entitled to full indemnity for the costs to respond to the insurer’s application or action. In that situation, there is no denial and no breach. Rather the insurer has acted in good faith to determine its obligation to its insured under the policy and has an argument that party and party costs – i.e., partial indemnity costs are appropriate: Gore Mutual Insurance Co. v. 1443249 Ontario Ltd. (c.o.b. Enroute Towing), [2004] O.J. No. 6067 (S.C.). However, that argument does not always succeed: Deloitte & Touche Inc. v. Bennett, [2006] O.J. No. 2797 (S.C.).

 Shouldn’t a disability insurer that does not allege impropriety on the part of the insured, but proceeds with a factual denial as to the existence of disability, be in the same position as the insurer who asks the court for a ruling as to whether it owes a defence to its insured? Shouldn’t the disability insurer be able to argue that as the denial was carried in good faith in a reasoned manner, party/party costs are sufficient?

 On January 19, 2017 the British Columbia Supreme Court in Tanious v. The Empire Life Insurance Company (unreported) determined that when it comes to the payment of costs when the insured successfully proves entitlement to disability benefits which were denied, disability contracts and liability contracts are on the same plane: “…The coverage issue in …[Tanious]… does not fundamentally differ in principle from the coverage issues that arose in duty to defend cases, in which full indemnification of legal fees represented a logical extension of the contract the parties made…”. That court reasoned that when the insured is successful in a ‘duty to defend’ case, the insured receives the contractual benefit that had been wrongfully denied: A defence fully funded by the insurer. In a disability case, the successful insured receives the past benefits that the lawsuit has determined were owed to the insured. In both cases, the insureds had to incur legal costs to put themselves in the position that they would have been in had the contract been honoured. If they have to bear even a portion of their legal costs, then they have not been made whole.

 If applied widely, the reasoning in Tanious may result in insurers of all stripes paying indemnity costs for failed coverage actions in all cases, regardless of whether they are the respondent or the applicant and regardless of the merits of the denial.

Heather Sanderson
Sanderson Law
Calgary AB
(403) 837-2508

[email protected]

 

Tessa’s Tutelage:

 

Dear Readers:

 

This past weekend my siblings and I descended upon my father’s farm to assist in tapping maple trees.   Every year about 17 people come to the farm to drill holes, hammer spouts, and repair tubing to collect the sap to make maple syrup.  My dad stokes the fires and directs the crews of workers through the woods, and my grandmother and stepmother prepare enough food to feed an army.  Some years the snow is up to your hip, and others, like this year, my brothers didn’t even wear coats.  Either way, it is the signal that spring is here, and I couldn’t be happier.  I am hopeful that I can put away my shovel for the season; however, my grandmother always says that it snows three times on the daffodils…

 

This week, we have two cases of interest.  The first case involves the decision of the Supreme Court to deny Plaintiff default motion.  The Second Department found that there was no reason not to grant the unopposed motion, because Plaintiff had sufficiently proved its case.  The second case concerns the reversal of a Master Arbitrator’s award.  It doesn’t happen all that often because the standard is pretty high.  Here, the First Department concluded that the Master Arbitrator “irrationally ignored uncontroverted evidence.”     

 

I hope you all get to go outside and hear the birds singing outside!

Have a great weekend,

 

Tessa

Tessa R. Scott

[email protected]

 

Filibusters Aren’t New Either – This One Was Over Entry Into WW I:

 

The Sun

New York, New York

24 Feb 1917

 

G.O.P. SENATORS

IN FILIBUSTER

 

Republicans Threaten to

Stop All Legislation Wilson Supports.

 

SPECIAL SESSION IS AIM

 

Hope to Force President to Call

Congress to Get Full Authority

 

WASHINGTON, Feb. 23.—Republicans began a filibuster on the Senate floor today that threw into the air all plans for the remaining eight working days of the session, threatening essential pending legislation and foreshadowing opposition to any request President Wilson may make for authority to deal with the international crisis after Congress adjourns.  They did not challenge charges on the floor that they are seeking to force the President to call an extra session.

 

Although the Democrats believe the fight is aimed chiefly at the Administration’s emergency revenue bill it drew prompt and hearty support from those opposing any grant of additional power to the Executive which might result in aggressive action to protect American rights in the war zone.

 

The trouble began when the majority rejected an amendment modifying the excess profits tax provision of the revenue measure.  There was a conference presided over by Senator Lodge and participated in by leaders of both wings of the Republican Party, including Senators Penrose, Smoot, Woeks and Brandegee of the regulars and Poindexter and Morris of the Progressive group. 

 

Phillips Federal Philosophies:

 

Hello, All:

 

It’s 60 degrees out and everyone around here is still wearing their ginormous puffy coats instead of a weather-appropriate jacket.  Like wearing white after Labor Day, there are things that simply are not done (although the puffy-coat-and-shorts ensemble is not unheard of).  Plus, it’s Buffalo, so there’s always a chance of the weather turning to lake effect by the evening commute.  

 

This week we stay local with a case from the Western District of New York, just across the snowless square. In Matos v. Peerless Insurance Co., the magistrate judge, ruling on the parties’ dispositive partial summary judgment motions by consent (normally these have to be definitively ruled on by a district judge), tackled everything from claims of arson to preconditions for payment of a property’s replacement value. 

 

As always, thanks for reading. 

 

J.

Jennifer J. Phillips

[email protected]

 

Peiper’s Pouts:

 

Greetings from the friendly wifi that is my home base.  I’ve spent the last four days at a beautiful cabin in the Adirondacks, and while there discovered a few important things.

 

  1. At ten and seven, respectively, my two children are getting increasingly closer to surpassing their father’s rather meager skiing skills. 

  2. Their mother, who does not ski, is more than happy for all three of us to depart for hours on end. 

  3. Despite being in New York State, in 2017, don’t assume you’ll have reliable wifi and/or cell phone service

  4. Weak wifi does not support two tablets, two phones and a laptop.  See #3, supra

  5. The more your computer freezes, the hotter your blood boils. 

 

But enough of my personal struggles, we close February with a professional highlight.

 

Last issue we reported a nice victory for the coverage team, and again are obliged to report more good news this term.   To that end, we invite you to peruse the Muir Lake decision in our column this week.  It is additional proof that Jen Phillips’ artful touch as an appellate guru is proving to be an invaluable asset to the coverage team. 

 

That’s it for now.  See you in two weeks.

 

Steve

Steven E. Peiper

[email protected]

 

What’s Upstairs, Anyway?

 

Help Wanted

The Lima (Ohio) News

February 24, 1917

 

Upstairs Girl Wanted – First Class – at once.  Apply at the Harrod House.

 

Hewitt’s Highlights: 

 

Dear Subscribers:

                                

The Courts issued many serious injury threshold opinions since the last edition, so let’s get to it. In one case, the Appellate Division held that plaintiff’s unsigned report from his doctor was not in admissible form and thus could not establish an issue of fact when a defendant made a prima facie case. Furthermore, even if it was admissible, the doctor had not examined the cervical spine at issue and therefore, it would not have mattered even if it was in admissible form. In another case, an elderly patient was able to demonstrate an issue of fact as to whether or not the injuries were degenerative. Plaintiff’s doctor had found objectively that there were range of motion limitations, and despite his advanced age, he had no prior traumatic injuries to those areas or any record of degenerative injury.

 

In a third case, the Appellate Division noted that the experts disagreed on whether there were rib fractures and thus a serious injury. However, the Appellate Division did not find an issue of fact, as it noted that plaintiff’s expert relied solely on his feelings that there was likely a fracture, and not objective medical evidence. The MRI result he relied on was inconclusive as to whether there was a fracture and he ignored the bone scan which was ordered to determine whether a fracture existed and which found no fracture. Therefore, they dismissed the expert’s report as not based on objective medical evidence. In a fourth case, the defendants themselves cited to evidence that plaintiff was in bed for two months and out of work for ten months, and therefore could not have a 90/180-day claim dismissed.

 

One of the cases cited in the column today is signed by the Judge and contains a dissent. It is a long opinion in which the majority and the dissenting judge disagree as to whether plaintiff submitted objective medical evidence of a concussion and symptoms lasting for years. The case law holds that for significant limitation or loss of use, objective medical evidence is necessary but concussion symptoms by their nature are based largely on subjective complaints of the patient. The majority accepted plaintiff’s primary physician’s opinion that there had been changes in plaintiff’s thinking, vision, and physical limitations lasting for years after the concussion compared to before. The dissent believed the record contained little if any objective medical evidence of the changes, and what did exist, showed the changes to be minor.

 

Well, I hope you are doing well with the winter. We have had a spring-like weather today. When we next meet, it will be in March and spring will be around the corner.

 

Until next time,

 

Rob
Robert Hewitt

[email protected]  

 

“Spinster’s” Were Younger, a Century Ago:

 

The Age

Melbourne, Victoria, Australia

24 Feb 1917

 

            SPINSTER, 28,  Jewess, neat appearance, domesticated, residing parents, retired business people, wishes introduction Jewish bachelor or widower, own business preferred, view matrimony.  Holt’s.

 

 

The Age

Melbourne, Victoria, Australia

24 Feb 1917

 

            SPINSTER, 19, church member, nice looking, residing parents, wishes introduction respectable Tradesman, under 30, returned soldier honorably discharged preferred, view above.  Holt’s.

 

Wilewicz’s Wide-World of Coverage:

 

Dear Readers,

 

This missive is brought to you fresh off a visit to our sunny Melville office, and a brief respite to some of my old haunts on the Isle’s North Shore. My daughter and I make the trek a few times a year, often driving. There’s just something calming and lovely about the winding Route 17 (forever the “Future 86”). It makes for a classic road trip.

 

Now, this week in the Wide World we bring you another set of interesting ones from around the country’s Federal Circuit Courts. First, from our own Second Circuit, we have another instance of the courts reading ambiguities into policy provisions. In American Commercial v. Water Quality Insurance, at issue was whether a primary maritime policy provided for defense and investigation costs after its limit of indemnity coverage was exhausted. Since the policy proviso at issue contained the term “in addition to”, the court found it ambiguous as to what this actually meant. Since the court was confused, they found coverage. Meh.

 

Next, out of the Sixth Circuit and a carrier win, we have Orchard, Hiltz v. Phoenix Insurance. There, at issue was whether the professional services exclusions in a couple of CGL policies barred coverage for an architectural contractor’s services on a construction project. Long story short, they did. Especially where that contractor had a professional liability carrier, which picked up the defense no less, it was clear that such liabilities were not meant to be covered by a GL policy. Finding the exclusions clear, the court sided with the carrier on that one. Good stuff.

 

Until next time,

 

Agnes

Agnes A. Wilewicz

[email protected]

 

One Hundred Years Ago – Inauguration was in March:

 

The Oneonta Star

Oneonta, New York

24 Feb 1917

 

Inaugural Plans Are

Nearing Completion

 

EXTRA SESSION OF SENATE TO BE

CALLED MARCH 5

 

Washington, D.C., Feb. 23.—Details of the inaugural plans, which have been indefinite because March 4 falls on Sunday, began clearing up today with the announcement that President Wilson had called the customary session of the new senate on March 5.  A plan to abandon it has been under consideration.  The special session will include the usual ceremonies of inaugurating the vice president, which compose about one-half the day’s formalities.

 

It seems to have been decided that President Wilson will take an oath of office privately in the White House Sunday, March 4, but it has not been announced whether he will take it again at the public ceremony March 5. 

 

Editor’s note:  President Wilson did take a second, public, oath of office on March 5.  Here’s the photo.

 

Barnas on Bad Faith:

 

Hello again:

 

I write this note having just returned from a lovely vacation in Fort Lauderdale, Florida, with my beautiful girlfriend.  We went to the beach, took an air boat ride in the Everglades, drove up I-95 to West Palm Beach for Nationals and Astros spring training, and checked out a number of great restaurants/breweries in the Fort Lauderdale area.  Most of all, we soaked up some sunshine and enjoyed the beautiful warm weather.  It was wonderful.

 

Back to reality, I have three cases to report on this week.  In Product Source International, the insured stated a claim for bad faith under New Jersey law by alleging that the insurers knew they had a duty to defend the claim but failed to do so.  In Evans, the Ninth Circuit Court of Appeals instructs that under California law, an insured has no claim for bad faith against an insurer if there is no coverage under the insurance policy.  Finally, in Falcone, the Supreme Court of Oklahoma concludes that Liberty Mutual acted in bad faith by contesting the reasonableness of its insured’s medical expenses after an accident with an uninsured motorist where the relevant policy provision did not have a reasonableness provision.

 

Signing off,

 

Brian

Brian D. Barnas

[email protected]

 

“All Woman, Go Ashore”:

 

The Sun

New York, New York

24 Feb 1917

 

OCEAN BARRED TO WOMEN

 

Are Taken from Steamer From

New York for Europe at Halifax

 

HALIFAX, N.S., Feb. 23.—A number of women and children, who arrived here last night on a steamship from the United States for Europe, were taken off to-day by Government authorities under a regulation which provides that women and children may not sail from a British port for England at present.

 

Three American women aboard the liner, which arrived in port last night, were permitted to continue the voyage.  Clearance papers were refused until twenty-five Canadian women and children had been removed.  They were taken ashore in tugs. 

 

 

Altman’s Administrative (and Legislative) Agenda:  

 

Greetings, Dear Readers. 

 

Well, we’re more than halfway through winter, and although Punxsutawney Phil saw his shadow, it’s been a balmy 60 degrees on Long Island.  Only in America do we dedicate a day in February to expressing our love for vermin, then, two weeks later, dedicate a day to expressing our love for partners.  I hope your Groundhog Day and Valentines’ Day were all that you hoped, and that one or the other brought you warmth.  As for me, my Valentine was Gilmore Girls’ Lauren Graham, even if she does not know it. Lauren and I had a wonderful evening of binge watching Netflix over a chocolate molten cake, homemade by yours truly.

 

Today, I bring you the final version of New York’s new cybersecurity guidelines. Now that it’s finalized, dear reader, what shall I do with my time? Send your suggestions (or your Valentines if you’re out there, Lauren Graham) to [email protected] 

 

Howard

Howard B. Altman

[email protected]

 

Insurance Jobs, 100 Years Ago:

 

The Brooklyn Daily Eagle

Brooklyn, New York

24 Feb 1917

 

INSURANCE company; chance of advancement for bright boy; salary $6; prefer one with high school training.  H.S., Box 12, Eagle office.

 

Ewell's Universe:

 

Dear Subscribers:

 

Hopefully you're still in orbit of Ewell's Universe because today we have a well-reasoned opinion from the great state of Nebraska. In Henn v. American Family Mutual Insurance Co., Nebraska's high court considered whether insurers may depreciate labor costs in determining the actual cash value of a covered loss where the policy does not define the terms "actual cash value" and "depreciation", and does not explicitly state that labor costs will be depreciated.

 

There is a growing divide among jurisdictions on whether insurers can depreciate labor costs where the terms "actual cash value" and "depreciation" are not defined in the policy, and the policy does not explicitly state labor costs will be depreciated. Some jurisdictions, such as Arkansas, hold that "actual cash value" is ambiguous in that scenario and construe the policy against the insurer—holding that labor costs cannot be depreciated.  Other jurisdictions, such as Oklahoma, have held that labor costs can be depreciated. Jurisdictions allowing insurers to depreciate labor costs generally have adopted the "broad evidence" rule to determine the actual cash value of insured property at the time of loss. Under this rule, the trier of fact may consider any evidence logically tending to the formation of a correct estimate. Depreciation of labor costs is generally held to be consistent with the "broad evidence" rule.

 

The Nebraska Supreme Court considered the issue and held that insurers in their state may depreciate labor costs in determining the actual cash value of a covered loss even if not explicitly stated in the policy. A rising number of high courts are addressing this issue in light of the numerous putative class actions currently pending against insurers. Henn builds on the available authority supporting the position that insurers can depreciate labor costs in calculating actual cash value even when not explicitly stated in the policy. As other jurisdictions consider the issue, we are optimistic that they will consider this thorough and astute opinion from Nebraska's high court.

 

On a personal note, I decided to brighten up my office with some greenery. Yesterday, I received my first bonsai tree, a Chinese elm. If anyone has any advice or tips, feel free to drop me a note.

 

Til' next time,

 

John

John R. Ewell

[email protected]

 

 

This week’s headlines from the attached edition:

 

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

 

  • Failure to Prove Hit-and-Run Was Insured Leads to Denial of Motion to Stay SUM Arbitration

  • SUM Permanently Stays Arbitration when Disclaiming Carrier Fails to Prove it Cooperation Denial was Sustainable


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

Robert E.B. Hewitt III

[email protected]

 

  • Unsigned Report of Plaintiff’s Physician Was Inadmissible Evidence and Could Not Refute Defendant’s Expert’s Showing of No Evidence of Acute Trauma

  • Elderly Patient Demonstrated Issue of Fact Where there was no Prior Evidence of Degeneration or Injury to the Claimed Area Despite His Advanced Age

  • Plaintiff’s Expert’s Opinion that He suffered Rib Fractures Was Dismissed by the Appellate Court as it Ignored a Bone Scan That Found No Fractures and Relied on an Earlier MRI Report which Was Inconclusive

  • Defendants’ Could Not Establish Prima Facie Entitlement to Judgment on 90/180-Day Claim Where Plaintiff Confined to Bed for Two Months and Out of Work for Ten Months

  • Triable Issue of Fact as to Whether the Injury to Plaintiff’s Lumbar Spine Caused by the Accident

  • Primary Care Physician Testified that Plaintiff was Slower than and Not as Quick as Before and that the Concussion Symptoms Had Lasted Years and Were Likely Permanent Such That Plaintiff’s Injuries Were Serious In the Permanent Consequential Limitation and Significant Limitation of Use Categories

  • Motions for Summary Judgment Premature as Discovery Was Still Outstanding

  • Issue of Fact Demonstrated Where Plaintiff Immediately Complained of Injuries to Her Rib and Back and There Were Competing Medical Records Showing Both Degenerative Changes and Traumatic Injury Due to the Accident Such that a Jury Must Decide

  • Conflicting Expert Reports on the Injuries Suffered Warranted a Trial

  • Plaintiff’s Primary Care Physician’s Opinion Failed to Provide any Basis to Determine the Extent of Exacerbation of Plaintiff’s Prior Injuries

 

TESSA’S TUTELAGE

Tessa R. Scott

[email protected]

Litigation

 

  • Accordingly, The Plaintiff's Unopposed Motion For Leave To Enter A Default Judgment Against The Individual Defendants And The Corporate Medical Providers Should Have Been Granted

  • Master Arbitrator’s Award Ignored The Uncontroverted Evidence And Was Overturned

 

PEIPER ON PROPERTY (and POTPOURRI)

Steven E. Peiper

[email protected]

 

  • Builder’s Risk Policy Excludes Coverage for Contractor’s Tools which are Not a Permanent Part of the Project, and Construction Crane Fell within Scope of Exclusion

  • Water Exclusion Bars Coverage for Damaged Caused by Water Flowing into Basement of Insured Premises

 

 

Guest Columnist: Dennis M. Wade, Wade Clark Mulcahy

 

  • First Department Reads Policy as Written, Not Imagined by the Policyholder

 

WILEWICZ’S WIDE WORLD OF COVERAGE

Agnes A. Wilewicz

[email protected]

 

  • Second Circuit Finds Ambiguity in Insuring Grant of Maritime Policy, Holding Defense and Investigation Costs Recoverable in Excess of Policy Limits (New York Law)

  • Sixth Circuit Holds that Professional Services Exclusions in General Liability Policies Bar Coverage for Engineering/Architecture Negligence Claims (Michigan Law)

 

JEN’S GEMS

Jennifer A. Ehman

[email protected]

 

  • Court Fails to Keep the Tort Universe Separate from the Coverage Universe; On Reargument, Fixes its Mistake

 

BARNAS ON BAD FAITH

Brian D. Barnas

[email protected]

 

  • Insured Stated a Claim for Bad Faith against Insurers under New Jersey Law by Alleging the Insurers had No Basis for Denying the Claim for Coverage and Knew they had No Basis for Denying the Claim

  • No Coverage Equals No Bad Faith under California Law

  • Insurer Acted in Bad Faith by Contesting the Necessity of Medical Expenses Incurred by the Insured after Accident with Uninsured Motorist

 

PHILLIPS’ FEDERAL PHILOSOPHIES

Jennifer J. Phillips

[email protected]

 

  • Arson and Old Place

 

EWELL’S UNIVERSE
John R. Ewell

[email protected]

 

  • Nebraska Supreme Court Rules that Labor Costs Can Be Depreciated Even When Not Explicitly Stated in the Policy

 

ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA

Howard B. Altman

[email protected]

 

  • Final Cybersecurity Regulations.

 

 

EARL’S PEARLS

Earl K. Cantwell
[email protected]

 

  • Dietary Supplement Leads to Oversized Insurance Decision

 

 

All for now.  Keep those nice notes coming in.  We love the feedback we receive.

 

 

 

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

 

 

 

 

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

Agnes A. Wilewicz

[email protected]

 

ASSISTANT EDITOR

Jennifer A. Ehman

[email protected]

 

INSURANCE COVERAGE/EXTRA CONTRACTUAL LIABILITY TEAM
Dan D. Kohane, Chair
[email protected]

 

Steven E. Peiper, Co-Chair

[email protected]
 

Michael F. Perley

Jennifer A. Ehman

Patricia A. Fay

Agnieszka A. Wilewicz

Jennifer J. Phillips

Brian D. Barnas

Howard B. Altman

Brian F. Mark

John R. Ewell

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
Jennifer A. Ehman, Team Leader
[email protected]
 

Patricia A. Fay

 

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

 

Jennifer J. Phillips

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

Ewell’s Universe

Altman’s Administrative (and Legislative) Agenda
Earl’s Pearls

 

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

 

02/22/17       Fiduciary Insurance Company of America v. Greenridge

Appellate Division, Second Department
Failure to Prove Hit-and-Run Was Insured Leads to Denial of Motion to Stay SUM Arbitration
Fiduciary Insurance (“Fiduciary”) brought an action to stay a claim for to stay arbitration of a claim for supplementary uninsured motorist (“SUM”) benefits that was made by its insured, Greenridge. Greenridge's claim arose out of an automobile accident that occurred when his vehicle was struck by another vehicle. The other vehicle (the “hit-and-run” vehicle) did not stay at the scene of the accident. There was a framed issue hearing.

 

An insurance carrier seeking to stay the arbitration of an uninsured motorist claim has the burden of establishing that the offending vehicle was insured at the time of the accident.  Once such a prima facie case of coverage is established, the burden shifts to the opposing party to come forward with evidence to the contrary.

 

Here, the admissible evidence submitted by Fiduciary failed to establish, prima facie, the existence of insurance coverage for the hit-and-run vehicle at the time of the subject accident.   As a result, the SUM claim can proceed, there being no proof of insurance on the other car.

Editor’s Note:  This case and the next reminds us of the rules relating to Supplementary Uninsured/Underinsured Motorist coverage protocols. If a demand for arbitration is made for uninsured or underinsured motorist (SUM) benefits and the insurer the claim is made believes the coverage denial that led to the claim was in error, the SUM carrier must go to court and file an application to stay arbitration within 20 days of the demand. Otherwise the SUM carrier will lose its right to challenge the arbitrability of the claim. Watch that 20 day period.

 

02/15/17       GEICO v. Fletcher

Appellate Division, Second Department

SUM Permanently Stays Arbitration when Disclaiming Carrier Fails to Prove it Cooperation Denial was Sustainable

On June 16, 2013, a vehicle operated by the Fletcher, collided with a vehicle owned by the additional respondent BMC and operated by Abduahadov. Global Liberty (“Global”) disclaimed coverage to its insured, BMC, on the ground of lack of cooperation.

 

Fletcher then sought uninsured motorist benefits pursuant to a policy of insurance issued by GEICO.  GEICO brought an application to stay the arbitration, claiming that the Global disclaimer was invalid.  In a framed issue hearing, the lower court granted the petition, found the disclaimer invalid and permanently stayed the arbitration. The question before the court was whether the cooperation disclaimer was supportable.

 

An insurer who seeks to disclaim coverage on the ground of noncooperation is required to demonstrate that (1) it acted diligently in seeking to bring about the insured's cooperation, (2) its efforts were reasonably calculated to obtain the insured's cooperation, and (3) the attitude of the insured, after its cooperation was sought, was one of willful and avowed obstruction Mere efforts by the insurer and mere inaction on the part of the insured, without more, are insufficient to establish non-cooperation as the inference of non-cooperation must be practically compelling'.

 

Here, Global established that it made diligent efforts that were reasonably calculated to obtain the cooperation of BMC and Abduahadov but failed to provide that the conduct of BMC and Abduahadov constituted "willful and avowed obstruction.

 

Thus Global is stuck and GEICO gets the arbitration stayed.


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

Robert E.B. Hewitt III

[email protected]

 

02/23/17       Diaz v. Almodovar

Appellate Division, First Department

Unsigned Report of Plaintiff’s Physician Was Inadmissible Evidence and Could Not Refute Defendant’s Expert’s Showing of No Evidence of Acute Trauma

Defendants made a prima facie showing that plaintiff Diaz suffered no serious injuries to his spine by submitting the affirmed reports of a radiologist who opined that the MRI films of Diaz's cervical and lumbar spine were unremarkable and revealed no evidence of acute trauma. Defendants also submitted the affirmed reports of an orthopedist and a neurologist, who found normal range of motion in Diaz's cervical spine and in his lumbar spine when he cooperated.  In opposition, Diaz failed to raise a triable issue of fact since he submitted only the unsigned report of his physician, which was inadmissible. Even if the electronic signature sufficed, Diaz's physician failed to examine his cervical spine and plaintiffs submitted no evidence to rebut the findings of defendants' radiologist that Diaz had no spinal injuries.

 

As to plaintiff Lettsome, defendants met their initial burden by submitting, inter alia, the affirmed reports of their neurologist and orthopedist who found normal range of motion in his cervical spine, and of a different radiologist, who opined that the MRI of Lettsome's lumbar spine revealed chronic degenerative disc disease and a superimposed disc herniation that was likely degenerative in origin and no evidence of trauma.  In opposition, Lettsome submitted no evidence to support his cervical spine claim, but raised a triable issue of fact as to his lumbar spine by submitting an affirmed report of his treating physician, who found range-of-motion deficits both months after the accident and recently. The physician also opined that Lettsome's lumbar injuries were causally related to the subject accident. Given the absence of any evidence of degeneration or prior treatment in Lettsome's own medical records, and in light of his relatively young age, his physician's opinion sufficiently rejected the opinion of defendants' expert by attributing the injuries to a different, yet equally plausible, cause.

 

Defendants demonstrated the absence of a 90/180-day injury by relying on plaintiffs' allegations and testimony that they were confined to bed and home for less than two weeks, and plaintiffs submitted no evidence to raise an issue of fact as to those claims

 

02/23/17       Vishevnik v. Bouna

Appellate Division, First Department

Elderly Patient Demonstrated Issue of Fact where there was no Prior Evidence of Degeneration or Injury to the Claimed Area Despite His Advanced Age

In support of their motion for summary judgment, defendants failed to submit evidence addressing plaintiff's claim that he suffered a nonpermanent serious injury preventing him from performing his customary daily activities for at least 90 of the 180 days following the accident. Since defendants did not meet their prima facie burden on the sufficiency of his evidence in opposition. If the trier of fact finds that plaintiff sustained a serious injury, it may award damages to compensate him for all injuries proximately caused by the accident, whether or not they meet the serious injury threshold.

 

Defendants did make a prima facie showing that plaintiff did not sustain a serious injury to his right knee, as pleaded in his bill of particulars, or to his right shoulder, cervical spine or lumbar spine. Their expert examined plaintiff and found that he had full range of motion in each of those parts, and no permanent injuries as a result of the accident. In opposition, plaintiff submitted no medical evidence to support his claims of injury to his right knee or shoulder, and those claims were thus properly. However, plaintiff submitted the report of his treating physician and certified medical records, which were sufficient to raise issues of fact as to whether he sustained serious injuries to his cervical and lumbar spine as a result of the accident. At several examinations, his physician found objective evidence of cervical and lumbar disc injuries and significant limitations in range of motion. Further, he opined that the elderly plaintiff's injuries were causally related to the accident, notwithstanding a minimal finding of degeneration in his lumbar spine MRI, as he had no prior injuries to those parts.

 

Contrary to defendants' contentions, the physician's report was properly affirmed "under the penalties of perjury" and the certified medical records may be considered for the purpose of demonstrating that plaintiff sought medical treatment for his claimed injuries contemporaneously with the accident and continuing for a significant period of time thereafter. Further, since plaintiff demonstrated that defendants would not be prejudiced or surprised by their proposed amendments to the bill of particulars, and demonstrated the potential merit of his claims of serious injury to his cervical spine and lumbar spine, his motion for leave to amend the bill of particulars should have been granted to that extent.

 

02/23/17       Jones v. Marshall

Appellate Division, Third Department

Plaintiff’s Expert’s Opinion that He suffered Rib Fractures Was Dismissed by the Appellate Court as it Ignored a Bone Scan That Found No Fractures and Relied on an Earlier MRI Report which Was Inconclusive

Plaintiff’s pick-up truck was rear ended and plaintiff alleged a serious injury.  When a plaintiff relies upon the permanent consequential limitation and/or significant limitation of use categories, such claims must be grounded upon objective, quantitative evidence with respect to diminished range of motion or a qualitative assessment comparing the plaintiff’s present limitations to the normal function, purpose and use of the affected body organ, member, function or system. Additionally, a plaintiff must demonstrate that the limitation of use that he or she sustained was more than mild, minor or slight. Similar objective evidence, such as medically imposed limitations upon daily activities, must support a plaintiff's claim under the 90/180-day category; self-serving assertions in this regard will not suffice.

 

Defendants tendered sufficient admissible evidence — including Jones' medical records and imaging studies, his examination before trial testimony and the affidavit of defendants' expert, David Hootnick — to meet their threshold burden of establishing that Jones did not sustain a serious injury within the meaning of each of the previously enumerated categories. Plaintiffs failed to come forward with sufficient admissible proof to raise a question of fact as to their permanent consequential limitation and/or significant limitation of use claims. Plaintiffs' proof in opposition, including Jones' medical records and the affidavit tendered by Thomas McCormack (one of Jones' treating physicians), did not contain the quantitative or qualitative proof necessary to raise a question of fact as to whether Jones had sustained a serious injury under these two categories. Further, the court found that as to plaintiffs' 90/180-day claim, proof of the medically imposed limitations upon or the degree to which Jones' daily and customary activities actually were curtailed prior to September 26, 2011 (when McCormack cleared Jones to return to work with specified limitations) was both sparse and conclusory. 

 

As to the issue of whether Jones suffered a serious injury in the form of a fracture, the numerous radiological and MRI studies made clear that Jones did not suffer a fracture of his thoracic or lumbar spine as a result of the April 2011 accident, and neither plaintiffs nor their expert contend to the contrary. The record reflects, however, that there was some initial debate as to whether Jones fractured certain of his ribs — specifically, T2 and T6 on his right side and T6 on his left side — as a result of the accident. Hootnick, relying upon his review of the various imaging studies and his examination of Jones, insisted that there was no evidence that Jones had sustained any rib fractures. McCormack, on the other hand, opined that Jones had in fact fractured his ribs, citing his examination of Jones and his corresponding review of certain imaging studies. While such conflicting medical opinions generally would generally present an issue of fact for the jury to resolve, the Appellate Court held that McCormack's affidavit lacked evidentiary support and, therefore, was insufficient to defeat defendants' motion.

 

With respect to the various imaging studies, preliminary X rays of Jones' thoracic spine were deemed to be inconclusive as to the issue of a fracture due to the effect that Jones' weight had upon the quality of the films. Similarly, it did not appear that the numerous MRI studies conducted of Jones' thoracic and lumbar spine were geared toward ruling out the suspected rib fractures. Jones underwent a bone scan which did not reveal any fractures. Although McCormack's June 2011 office notes, as well as his affidavit tendered in opposition to defendants' motion for summary judgment, continued to reflect his belief that Jones indeed suffered certain rib fractures as the result of the accident, McCormack's affidavit made  no reference whatsoever to the results of the bone scan. Rather, McCormack based his opinion that Jones sustained rib fractures solely based upon inconclusive MRI films.

 

02/22/17       Detoni v. Minkens

Appellate Division, Second Department

Defendants’ Could Not Establish Prima Facie Entitlement to Judgment on 90/180-Day Claim Where Plaintiff Confined to Bed for Two Months and Out of Work for Ten Months

This case is a combination of serious injury and a malpractice case. Plaintiff’s counsel allegedly failed to commence an action before the expiration of the statute of limitations for serious injuries suffered in a motor vehicle action. She sued her attorneys and had to prove the “case within a case” i.e. that but for their negligence, she would have prevailed on her claim.   The defendants moved for summary judgment dismissing the complaint on the ground that, even if they were negligent in failing to timely commence the underlying personal injury action, the plaintiff would not have prevailed because she did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the accident. Although they prevailed, plaintiff was successful with the lower court on her motion to reargue. Motions to reargue shall be based upon matters of fact or law allegedly overlooked or misapprehended by the court in determining the prior motion, but shall not include any matters of fact not offered on the prior motion and are within the sound discretion of the court which decided the prior motion and may be granted upon a showing that the court overlooked or misapprehended the facts or law or for some reason mistakenly arrived at its earlier decision.

 

The Appellate Court held that the lower court properly granted the motion to reargue. It noted in an action to recover damages for legal malpractice, a plaintiff must demonstrate that the attorney failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession and that the attorney's breach of this duty proximately caused plaintiff to sustain actual and ascertainable damages.  To establish causation, a plaintiff must show that he or she would have prevailed in the underlying action or would not have incurred any damages, but for the lawyer's negligence.

 

The Appellate Court held that defendants failed to establish, prima facie, that the plaintiff did not sustain a serious injury under the 90/180-day category of Insurance Law § 5102(d). Among other things, the defendants submitted the plaintiff's deposition testimony that, after the accident, she was confined to bed for two months and she was out of work for approximately 10 months. Thus, the defendants failed to establish, prima facie, that, even if they were negligent in failing to timely commence the underlying personal injury action, the plaintiff would not have prevailed on the underlying cause of action. 

 

02/22/17       Miller v. Johns

Appellate Division, Second Department

Triable Issue of Fact as to whether the Injury to Plaintiff’s Lumbar Spine Caused by the Accident

No facts were given. The Appellate Court held that the defendants failed to meet their prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. It found contrary to the Supreme Court's determination, the defendants' evidentiary submissions demonstrated the existence of a triable issue of fact as to whether the alleged injury to the lumbar region of the plaintiff's spine was caused by the accident. Since the defendants failed to meet their prima facie burden, it was unnecessary to determine whether the papers submitted by the plaintiff in opposition were sufficient to raise a triable issue of fact

 

02/16/17       Rodman v. Deangeles

Appellate Division, Third Department

Primary Care Physician Testified that Plaintiff was Slower than and Not as Quick as Before and that the Concussion Symptoms Had Lasted Years and Were Likely Permanent Such That Plaintiff’s Injuries Were Serious In the Permanent Consequential Limitation and Significant Limitation of Use Categories

This is an unusual opinion that is signed by Justice Clark and there is a dissent by Justice Rose.  This was an appeal from a decision by the Supreme Court granting defendant’s motion to set aside the verdict of the jury and dismiss the complaint. Defendant's vehicle struck plaintiff's parked car as plaintiff was unloading items from his vehicle, thereby causing plaintiff's vehicle to strike plaintiff and send him a distance through the air and onto the sidewalk. Plaintiff struck the back of his head against the curb, knocking him unconscious and causing a three centimeter laceration on his scalp that required five staples. Plaintiff thereafter commenced this action, alleging that he sustained a serious injury as a result of defendant's negligence. Defendant conceded liability and the matter proceeded to trial solely on the issue of whether plaintiff sustained a serious injury within the meaning of Insurance Law § 5102 (d). Supreme Court denied defendant's motion to dismiss the complaint at the close of all the proof, and the jury ultimately returned a verdict for plaintiff finding that, as a result of defendant's negligence, plaintiff had sustained a permanent consequential limitation of use of a body organ or member and a significant limitation of use of a body function or system. The jury found against plaintiff on his 90/180-day category claim. The Supreme Court granted the motion to set aside the jury verdict and dismissed the complaint.

 

The Appellate Court noted the legislative intent underlying the No-Fault Law was to weed out frivolous claims and limit recovery to significant injuries. The Court of Appeals has held that where, as here, a plaintiff seeks to satisfy the statutory serious injury threshold under the permanent consequential limitation of use or the significant limitation of use categories, he or she must proffer objective medical evidence involving a comparative determination of the degree or qualitative nature of the injury based on the normal function, purpose and use of the body part.  The required "comparative determination" may be established by either an expert's designation of a numeric percentage of a plaintiff's loss of range of motion or an expert's qualitative assessment of a plaintiff's condition provided that the evaluation has an objective basis and compares the plaintiff's limitations to the normal function, purpose and use of the affected body organ, member, function or system. Subjective complaints alone are insufficient

 

The Appellate Court noted that the trial evidence undisputedly demonstrated that plaintiff sustained a severe head wound as a result of the accident. Immediately following the crash, plaintiff was discovered lying on the ground in a pool of blood, which was flowing from the back of his head, and plaintiff reported that he was briefly knocked unconscious. The responding paramedic testified that plaintiff's head wound had exposed fatty tissue, which indicated to him that plaintiff had sustained “a pretty good blow to the head," and that the collision must have had "great kinetic force" because it had knocked plaintiff out of his shoes. The paramedic further stated that plaintiff immediately complained of a severe headache, dizziness and increasing sensitivity to light and sound. At the emergency room, five staples were required to close the gash on plaintiff's scalp, and plaintiff remained in the hospital for two nights.

 

As to the medical evidence, at least three separate physicians examined plaintiff and determined that he sustained a traumatic brain injury — commonly known as a concussion — as a result of the accident and that he continued to suffer from post-concussive syndrome thereafter. Plaintiff's longtime primary care physician, who had known plaintiff since 1994, examined plaintiff one week after the accident and continued to treat him every two to three months through the date of trial for his ongoing complaints of dizziness, vertigo, chronic headaches, vision issues and impaired balance, memory and concentration. Plaintiff's primary care physician testified that, prior to the accident; plaintiff was a very active person with no physical or mental limitations. Relying on his knowledge of plaintiff's preaccident status as a point of reference, the primary care physician testified that he personally observed a slowdown of plaintiff's mental and physical faculties after the accident. Specifically, he testified that he had observed plaintiff wince his eyes in pain, struggle to focus and make eye contact, exhibit signs of decreased concentration, have difficulty with problem solving and word retrieval and experience balance issues. The primary care physician testified that, overall, the functionality of plaintiff's bran had become limited and he was not as quick as he used to be. To support this, the primary care physician testified plaintiff had decreased cognition, had a decrease focus with vision, and a decrease in some physical ability. The Appellate Court thus held that a valid line of reasoning and permissible inferences would support the conclusion that the primary care physician's assertion that such limitation was significant was based on his assessment of the combined cognitive and physical functioning decreases that he described.

 

The medical record also established that plaintiff was treated at the Upstate Concussion Center on an outpatient basis beginning in July 2011. A rehabilitation psychologist performed an initial psychological examination on plaintiff in July 2011 and a psychological reevaluation in May 2013 and diagnosed plaintiff as having sustained a concussion during the accident and as suffering from several physical, cognitive, and emotional symptoms that are consistent with post-concussion sequelae. During both examinations, the psychologist observed that plaintiff had a reduced language processing speed. The nurse practitioner responsible for coordinating plaintiff's care at the concussion center testified that a concussion was an alteration of normal brain function due to trauma and the symptoms included  headaches, dizziness, vision changes, issues with balance and cognitive changes. The nurse practitioner further explained that plaintiff received physical therapy to address balance issues, occupational therapy for vision rehabilitation and cognitive therapy for plaintiff's memory and concentration impairments. The physical and occupational therapy records demonstrated that plaintiff experienced some limited quantitative improvements in his balance, memory and concentration, but continued to suffer from cognitive impairments at the end of his treatment.

 

With respect to permanency, plaintiff's primary care physician and the nurse practitioner each testified that symptoms stemming from head trauma are generally permanent if they continue to present more than 12 to 18 months after the injury-producing event. Here, as plaintiff's symptoms persisted more than four years after his accident, both the primary care physician and the nurse practitioner opined that plaintiff had sustained a permanent limitation of his cognitive functioning. CT scans showed no brain abnormality but the physician testified that was no out of the ordinary because usually no injury could be seen on a CT scan. Although the primary care physician acknowledged that plaintiff's reported and ongoing complaints were subjective in nature, he testified that a concussion, by its very definition, is a subjective diagnosis. Many of plaintiff's reported symptoms, including his impaired concentration and balance and difficulty with problem solving and word retrieval, were objectively and personally observed by plaintiff's primary care physician, who had the necessary historical knowledge and ability to compare his clinical, postaccident observations of plaintiff's condition to his prior observations of plaintiff's preaccident condition.

 

The Appellate Division majority therefore held that he comparative determination of plaintiff's primary care physician, taken together with plaintiff's defined head wound and subjective complaints immediately after the accident and continuing four years later, provided the jury with a valid line of reasoning and permissible inferences that could lead it to the rational conclusion that plaintiff suffered a permanent consequential limitation of use of a body organ or member and a significant limitation of use of a body function or system. Therefore, the motion to set aside the verdict should have been denied.

 

The dissent agreed plaintiff suffered a concussion but found that was not the issue. Rather, the issue was whether plaintiff adduced the type of objective, qualitative proof of his resulting physical and cognitive limitations necessary to measure the seriousness of those limitations. The dissent noted that plaintiff's longtime primary care physician readily acknowledged that "virtually all" of plaintiff's complaints were subjective in nature, that all of the diagnostics of plaintiff’s head had come out normal" and that the neurologist and neuro-opthalmologist that he referred plaintiff to did not find anything objectively wrong with him. To the extent that the physician can be said to have compared plaintiff's limitations to plaintiff's pre-accident functioning, the physician did no more than describe plaintiff as not as quick as before and a little slower. The Dissent felt that the physician's reliance on the phrase "a little" suggests a limitation that was synonymous with "minor, mild or slight” which does not constitute a serious injury.  Similarly the nurse practitioner described the concussion as synonymous with mild traumatic brain injury. While the nurse practitioner testified that plaintiff was still symptomatic 18 months after the accident, he conceded that, because no testing was done, plaintiff's continued treatment was solely based upon his report that he was having cognitive difficulties. Therefore, the dissent felt the medical opinions regarding the present limitation to plaintiff's cognitive and physical functioning were based on his actions and complaints, which are subjective in nature, rather than objectively based medical testing.

 

02/15/17       Sodhi v. 112 Park Enters., LLC

Appellate Division, Second Department

Motions for Summary Judgment Premature as Discovery Was Still Outstanding

Procedural decision in that both parties respective motions for summary judgment were denied as premature as the motions had been made before depositions had taken place.

 

02/14/17       Frias v. Gonzales-Vargas

Appellate Division, First Department

Issue of Fact Demonstrated Where Plaintiff Immediately Complained of Injuries to Her Rib and Back and There Were Competing Medical Records Showing Both Degenerative Changes and Traumatic Injury Due to the Accident Such that a Jury Must Decide

Defendants satisfied their prima facie burden of demonstrating that plaintiff did not sustain a serious injury to her right shoulder, cervical spine or lumbar spine by submitting the reports of their orthopedists and neurologists, who found full range of motion and opined that plaintiff's injuries had resolved. They also submitted an MRI report prepared by plaintiff's radiologist, who found no evidence of a rotator cuff tear in the right shoulder, a report of a portable chest X-ray taken in the emergency room, finding no rib fracture, and the report of an expert in emergency medicine, who opined that plaintiff's emergency room records were inconsistent with her claimed serious injuries.

 

In opposition, plaintiff raised an issue of fact concerning her claimed rib fractures by submitting the affirmed report of her radiologist, who took a second X ray a month after the accident, this one including multiple views, which revealed two fractured ribs on the right side. Although the initial X ray had not revealed those fractures, the emergency room records show that plaintiff complained of right-side rib pain days after the accident, and plaintiff's treating doctor diagnosed rib fracture or contusions caused by the accident. The record thus presents a factual issue as to whether the fractures were causally related to the accident. Plaintiff also raised an issue of fact as to her claim of significant and permanent consequential limitations of use of her cervical and lumbar spine. She submitted hospital records reflecting that she did make contemporaneous complaints of neck and back pain, the affirmed reports of her treating physicians who documented limitations in range of motion shortly after the accident, and affirmed reports of her pain management specialist who found continuing significant limitations three years later. Both treating physicians opined that plaintiff's spinal injuries were causally related to the accident. Plaintiff's pain management physician relied on MRI reports, included in the record, which revealed bulging and herniated discs in her cervical spine and bulging discs in her lumbar spine. These reports may be considered as they are not the sole evidence submitted in opposition to the motion. Although a subsequent follow-up MRI of the cervical spine over a year after the accident revealed degenerative changes, the report of the MRI taken shortly after the accident included no such findings, thus presenting issues of fact not subject to determination on a motion for summary judgment.

 

Plaintiff's submissions, however, were insufficient to raise an issue of fact as to her claimed right shoulder injury, since her medical experts failed to address or explain the absence of findings of shoulder injury in her initial MRI. The additional medical affirmation that she submitted on renewal, which showed that she had surgery to repair a torn rotator cuff, acknowledged the existence of degenerative changes, but failed to adequately explain how the tear was caused by the accident three years earlier. As for plaintiff’s 90/180-day category claim, plaintiff did not submit sufficient medical or other evidence to support her claim that she was disabled for more than three months after the accident.

 

02/10/17       Cicco v. Durolek

Appellate Division, Fourth Department

Conflicting Expert Reports on the Injuries Suffered Warranted a Trial

With respect to the issue of serious injury, defendants raised a triable issue of fact in response to plaintiff’s motion concerning whether plaintiff's injuries were causally related to the accident or the result of a preexisting injury to his lumbar spine. It was not possible on the record before the Appellate Court to determine as a matter of law whether the injuries of plaintiff that were objectively ascertained after the accident were the same injuries that were objectively ascertained before the accident. To the contrary, the conflicting opinions of the parties' respective experts warranted a trial on the issue of serious injury.

 

02/10/17       Ehlers v. Byrnes

Appellate Division, Fourth Department

Plaintiff’s Primary Care Physician’s Opinion Failed to Provide any Basis to Determine the Extent of Exacerbation of Plaintiff’s Prior Injuries

Contrary to plaintiff's contention, the Appellate Division Concluded defendants met their initial burden with respect to the permanent consequential limitation and significant limitation of use categories by submitting the affirmed report of a physician who, upon examining plaintiff at defendants' request, opined, inter alia, that plaintiff sustained a self-limiting cervicothoracic strain from which she would have recovered in a few weeks after the accident and that plaintiff's other symptoms and complaints were related to a preexisting degenerative condition not caused by the accident.  None of Plaintiff’s submissions raise an issue of fact. To the extent that the opinion of plaintiff's primary care physician that the accident triggered, aggravated, and/or exacerbated certain preexisting conditions was responsive to defendants' prima facie showing of entitlement to judgment on those two categories, the primary care physician's opinion, even when read in combination with other records and reports, failed to provide any basis for determining the extent of any exacerbation of plaintiff's prior injuries.

 

TESSA’S TUTELAGE

Tessa R. Scott

[email protected]

Litigation

 

02/15/17       Allstate Prop. & Cas. Ins. Co. v Carrier

Appellate Division, Second Department

Accordingly, the Plaintiff's Unopposed Motion for Leave to Enter a Default Judgment against the Individual Defendants and the Corporate Medical Providers Should Have Been Granted

On September 11, 2011, the defendants Sharine Carrier, Roland Sebastian-Hall, and Jennine Eastmond (claimants) allegedly were injured when their vehicle was sideswiped by a U-Haul truck. After the accident the claimants sought medical treatment from, among others, the defendants Active Care Medical Supply Corp., Graham Wellness Medical, P.C., Heel to Toe Foot Center, LLC, Immediate Imaging, P.C., Jing Luo Acupuncture, P.C., Precision Medical Diagnostics of NY, P.C., and Ultra Ortho Products, Inc. (hereinafter collectively the corporate medical providers), and the defendant Amy M. Kott, MT.

 

Thereafter, the corporate medical providers and Kott sought reimbursement of no-fault benefits under an automobile liability insurance policy issued to the defendant Enis Sebastian by the plaintiff, Allstate Property & Casualty Insurance Company, the insurer of the claimants' vehicle.

 

On November 21, 2012, the plaintiff commenced the present action and all the defendants were served. On December 20, 2012, the plaintiff served the corporate medical providers with an additional copy of the summons and complaint. After the individual defendants and the corporate medical providers failed to appear or answer, the plaintiff moved by notice of motion dated August 13, 2013, for leave to enter a default judgment against them. The Supreme Court denied the unopposed motion.

 

The Second Department reversed the Supreme Court’s findings.  On a motion for leave to enter a default judgment under CPLR 3215, a plaintiff must submit proof of service of the summons and the complaint, the facts constituting the causes of action, and the defendant's default.  Here, the plaintiff provided copies of the affidavits of service, a complaint verified by the plaintiff's authorized agent, an affidavit of merit, documentary evidence, and proof that the individual defendants and the corporate medical providers had defaulted in answering the complaint.

 

The plaintiff's proof was sufficient to establish a viable cause of action. Accordingly, the plaintiff's unopposed motion for leave to enter a default judgment against the individual defendants and the corporate medical providers should have been granted.

 

Thus, the order of the Supreme Court was reversed.

 

02/23/17       Country-Wide Ins. Co. v Radiology of Westchester, P.C.

Appellate Term, First Department

Master Arbitrator’s Award Ignored the Uncontroverted Evidence and Was Overturned

As we have previously covered, it is pretty hard to reverse the decision of a Master Arbitrator because the moving party must show that the Master Arbitrator’s award was arbitrary, capricious, and contrary to settled law.  Ultimately, that means that you have to show that there is just no basis for the Master Arbitrator’s award.  Here, the moving party was able to do just that.   The First Department found that the master arbitrator's award was arbitrary because it “irrationally ignored petitioner's uncontroverted evidence establishing that the assignor failed to appear at the three scheduled examinations under oath.”

 

PEIPER ON PROPERTY (and POTPOURRI)

Steven E. Peiper

[email protected]

 

02/14/17       Lend Lease Constr. LMB, Inc. v Zurich Am. Ins. Co.

Court of Appeals

Builder’s Risk Policy Excludes Coverage for Contractor’s Tools which are Not a Permanent Part of the Project, and Construction Crane Fell within Scope of Exclusion

In our New Year’s Edition of 2016, we reported on this case when it was before the First Department.  At that time, we reported…

 

12/22/15       Lend Lease Constr. LMB, Inc. v Zurich Am. Ins. Co.

Appellate Division, First Department

Builder’s Risk Policy Does Not Provide Coverage for Tower Crane because it was an Integral Part of the Construction Project.

 

In yet another Hurricane Sandy case, Lend Lease and Extell (as owner) were in the process of erecting a 74 story mixed use building in Manhattan.  In order to complete the upper floors, Lend Lease contracted with Pinnacle II.  Pinnacle II, in turn, rented a large tower crane from its sister company, Pinnacle III.  The crane was affixed to a concrete pad on the 20th floor of the structure.  Importantly, the concrete pad, but not the crane itself, was incorporated into the building’s construction schematic.

 

As a result of a high winds which accompanied Sandy, the crane sustained significant damage.  Lend Lease and Extell sought coverage under their builder’s risk policy from Zurich.  Zurich denied the request on the basis that the policy did not provide coverage for the crane.  Specifically, the builder’s risk policy in question only provided coverage for “Property Under Construction” and “Temporary Works.”   “Temporary Works” was defined by the policy as “scaffolding…formworks…shoring, fences and temporary buildings or structures…all incidental to the project.”

 

While it was clear the crane was not “Property Under Construction,” the Court spent considerable time determining whether or not it qualified as “Temporary Works.”  In ruling that the crane did not qualify as “Temporary Works,” the Appellate Division noted that the item was not incidental (as required by the policy), but, in fact, was integral to the construction of the upper floors of the building.   The majority further supported its decision by referencing the rarely employed judicial construction tool of ejusdem generis.  Ejusdem generis is explained as “the meaning of a word in a series of words is determined ‘by the company it keeps’.”  “Temporary Works” includes work trailers and temporary offices, among other things.   While a project can continue without a temporary job office, in the court’s eyes the project at hand could not have been accomplished without the crane.  As such, it was deemed integral to the building process, and thus not incidental “Temporary Work.”

 

Further, even if the crane qualified as “Temporary Work” the Court ruled that the policy excluded all coverage for loss to a contractor’s “tools, machinery, plant and equipment…not destined to become a permanent part of the INSURED PROJECT unless specifically endorsed to the Policy.”  In so holding, the Court had no problem describing the crane as “equipment.”  The Court also resolved issues about permanency when it explained that although the pad upon which the crane rested would remain a part of the building, the crane itself would be disassembled and moved to a different job at the completion of the instant project.  As such, the Court ruled that the crane was not a permanent part of the project.  Finally, the Court brushed aside plaintiff’s claims that the coverage was illusory as it would never provide coverage for any loss to contractor’s equipment. In doing so, the Appellate Division noted that a provision is not illusory if it provides coverage “for some acts.”  Because the policy rendered some coverage benefits to the assured and the exclusion did not negate all possibilities of coverage for Temporary Works, it was enforceable.

 

In a spirited dissent, Justice Mazzarelli argued that the crane was a “temporary structure” within the meaning of the policy. As such, it qualified for coverage under the policy’s grant for “Temporary Works.”  Justice Mazzarelli also ruled that the exclusion for contractor’s equipment was too broad, and thus unenforceable.

 

Upon review of the Record, and the Appellate Division’s decision, the Court of Appeals affirmed Zurich’s denial.  Interestingly, the Court found a question of fact on the question of whether the crane was “Temporary Works.” 

 

However, the Court noted that regardless of whether the Builders’ Risk policy was triggered in the first instance, the exclusion for “contractor’s tools…not destined to become a permanent part of INSURED PROJECT” applied to bar coverage.  In support of its conclusion, the Court reasoned that while the crane was not a tool or equipment, the exclusion also precluded coverage for machinery.  Here, there was little doubt that the crane qualified as “machinery,” and likewise the Court had no difficulties in deciding that the crane, itself, was not destined to become part of the completed building. 

 

Finally, the Court rejected plaintiff’s argument that enforcement of the contractor’s tools exclusion would render coverage illusory.  As there were circumstances in which the coverage would fall outside the scope of the exclusion, it did not create a situation where the exclusion would “swallow the policy.” 

 

02/10/17       Papa d/b/a Muir Lake Assocs. v. Assoc. Indemnity Corp

Appellate Division, Fourth Department

Water Exclusion Bars Coverage for Damaged Caused by Water Flowing into Basement of Insured Premises

Plaintiff’s basement was damaged by ground water which entered the premises through a cracked electrical conduit.  The parties agreed that the water constituted “ground water,” and that it entered through the foundation. 

 

The carrier denied the claim on the basis that the policy excluded coverage for losses occasioned out of water under the ground surface pressing on or flowing or seeping through foundations.  However, in denying under the main coverage form, the Associated also acknowledged the claim did fall within a limited coverage grant of $25,000 for losses caused by ground water.   

 

Plaintiff countered that the water actually entered through a conduit which ran through the wall.  As such, plaintiff argued that the water exclusion was ambiguous in that it could be read to apply only to water which entered directly through the wall--- as opposed to through a pipe/conduit which protruded through the wall. 

 

The Appellate Division held that the language was unambiguous, and noted that there was no disagreement that the water flowed through the wall.  As such, the loss fell within the scope of the exclusion.

 

Two judges dissented reasoning that the conduit removed the loss from the scope of the broader exclusion for water flowing through the foundation.  In addition, a second exclusion which removed coverage for doors, windows and other openings did not apply either.  The dissent, relying on the principle of ejusdem generis, held that “other openings” had to be akin to a door or window.  The conduit, they held, was not similar to the function of a door/window, and thus the “other openings” exclusion did not apply.

 

Guest Columnist: Dennis M. Wade, Wade Clark Mulcahy

 

02/21/17       Certain Underwriters at Lloyd's, et al v. Essex Global Trading

Appellate Division, First Department      

First Department Reads Policy as Written, Not Imagined by the Policyholder

In Certain Underwriters at Lloyd’s London v. Essex Global Trading, a New York jeweler shipped finished jewelry and loose diamonds to Hong Kong for a week-long exhibition. To cover the risk, the jeweler purchased $50 million in coverage from London market insurers. Before the goods were shipped, the jeweler prepared and submitted to U.S. Department of Homeland Security and U.S. Customs, via its shipper and customs broker, a series of itemized memoranda specifically identifying each piece of jewelry and assigning a monetary value to each piece. The sum of the assigned values in the declaration totaled $50 million, the amount of insurance coverage purchased.

 

At the show, two of the insured’s diamonds, with a declared value of $2.6 million, were stolen in an apparent distraction theft and the insured submitted a claim.

 

The policy’s Basis of Valuation clause provided that losses were to be valued in accordance with the values from the insured’s private books and records that the insured declared to U.S. Customs through its shipper and insurance broker. After concluded a fortuitous loss took place, they paid the insured the declared value of the two stones.

 

Despite that payment, the insured claimed it was entitled to an additional $2.6 million because its private inventory records indicated that the two stolen diamonds were actually worth more than the declared values. To make this argument tenable, the insured cited the policy’s Books and Records clause, which required the insured to keep detailed books and records so that the quantum of a loss could be determined from its private (internal) records. The insured also claimed that the word “private” in the Basis of Valuation clause could be interpreted to exclude values declared to a public entity like U.S. Customs. It followed, the jeweler claimed, the policy language constituted an ambiguity that ought to be construed against Underwriters.

 

As with Judge Kornreich in the court below, the First Department rejected these arguments, and ruled that the policy language was unambiguous. Because the policy was unambiguous, the court concluded that it would be inappropriate to consider the extrinsic evidence offered by the insured in an attempt to create anecdotal evidence of ambiguity (including affidavits from the insured and a supposed expert insurance broker). The court also held the doctrine of contra proferentum inapplicable because the insured was a sophisticated policyholder.


Editor’s Note:  We thank (and congratulate) our friend Dennis Wade of the Wade Clark Mulcahy law firm, who successfully handle this matter from the motion level through the appeal, for his summary.  If you want more information about this case, contact Dennis at [email protected] or at 212-267-1900.

 

WILEWICZ’S WIDE WORLD OF COVERAGE

Agnes A. Wilewicz

[email protected]

 

02/10/17       American Commercial Line v. Water Quality Ins. Syndicate

United States Court of Appeals, Second Circuit

Second Circuit Finds Ambiguity in Insuring Grant of Maritime Policy, Holding Defense and Investigation Costs Recoverable in Excess of Policy Limits (New York Law)

American Commercial Lines (ACL) owned a barge which, in July 2008, spilled approximately 300,000 of oil into the Mississippi River. One of their insurance policies included $5,000,000 per vessel in primary maritime coverage for liabilities involved with the discharge of oil, underwritten by Water Quality Insurance Syndicate (WQIS). Following the spill, costs quickly ran up and by the end of August 2008, WQIS’s liabilities relative to the spill reached the $5 million limit.

 

At issue in this case was as to a provision in WQIS’s policy and what their obligations were after the per vessel limit was exhausted according to that policy part. In particular, the policy included Coverage C, which provided coverage for “costs and expenses incurred by [ACL] with the prior consent of WQIS for investigation of, or defense against, any liabilities covered under COVERAGE A” (wherein Coverage A provided for coverage for liabilities associated with the discharge of oil). This provision stated:

 

“The amounts payable for costs and expenses incurred by [ACL] with the prior consent of WQIS for investigation of, or defense against, any liabilities covered under COVERAGE A ... shall be in addition to the limits of liability stated in ARTICLE A(1) of PART II.”

 

The court found this provision to be ambiguous. WQIS had argued that “liabilities covered” referred to claims that it must actually pay out under Coverage A, “such that its liability under Coverage C ends after it pays $5 million in liability under Coverage A”. The insured had argued that this also included claims that could potentially be paid out under Coverage A, “without reference to the $5 million limit, because the application of the limit would not change ‘whether an incident is the type of liability covered under Coverage A’”. The court agreed with the insured and reasoned that since Coverage A and Coverage C could be read as operating independently of each other, and the two arguments proffered were both reasonable, there was an ambiguity that had to be construed against the drafting insurer.

 

01/20/17       Orchard, Hiltz & McCliment, Inc. v. Phoenix Ins. Co.

United States Court of Appeals, Sixth Circuit

Sixth Circuit Holds that Professional Services Exclusions in General Liability Policies Bar Coverage for Engineering/Architecture Negligence Claims (Michigan Law)

In 2011, the Village of Dexter, Michigan (Dexter) hired engineering and architecture firm Orchard, Hiltz (Orchard) to oversee upgrades to its wastewater treatment plant’s sludge-handling system. A.Z. Shmina (Shmina) was the general contractor. Orchard was to provide “professional engineering services” at the site, including preparation of contract and design documents for all “architectural, structural, process, plumbing, heating and ventilation, electrical and instrumentation drawings and technical specifications” for the GC. They also agreed to conduct quality assurance and control review of all drawings and specifications.

 

In terms of coverage, Shmina had a CGL policy with Phoenix, which included an additional insured endorsement. It also included an exclusion therein for “bodily injury, personal injury, or property damage arising out of the rendering of, or failure to render, any professional architectural, engineering or surveying services, including: i. The preparing, approving, or failing to prepare or approve, maps, shop drawings, opinions, reports, surveys, field orders or change orders, or the preparing, approving, or failing to prepare or approve, drawing and specifications; and ii. Supervisory, inspection, architectural or engineering activities.” One of Shmina’s contractors had a policy with a similar provision, issued by Federated Mutual, which excluded coverage for bodily injury, property damage, or personal injury caused by “any person or organization whose profession, business or occupation is that of an architect, surveyor or engineer with respect to liability arising out of the preparation or approval or the failure in preparation or approval of maps, shop drawings, opinion, reports, surveys, field orders, change orders, designs, drawings, specifications or the performance of any other professional services by such person or organization”.

 

The question in this coverage litigation was whether these professional services exclusions barred coverage. The insureds had argued that some of the underlying allegations implicated “general project operations and work place safety”, thus at least triggering a duty to defend. The Circuit Court disagreed. The courts in Michigan generally interpret professional services exclusions rather broadly. Here, the services rendered all fell squarely within the exclusion. Indeed, the court wrote, “Phoenix and Federated provided general liability policies that were never intended to cover professional negligence claims”, and here the insured’s professional liability carrier defended the case in the first instance. Thus, even if the underlying plaintiffs could prove their allegations, the insured’s liability would have been excluded under their GL policies.

 

JEN’S GEMS

Jennifer A. Ehman

[email protected]

 

01/27/17       SL Green Realty Corp. v. Burlington Ins. Co.

Supreme Court, New York County

Judge Joan A. Madden

Court Fails to Keep the Tort Universe Separate from the Coverage Universe; On Reargument, Fixes its Mistake

This decision arises out of a motion to reargue filed by Burlington.  The underlying plaintiff allegedly sustained injury while working in the course of his employment for Precision Interiors on a construction project.  The property was owned by SL Green who hired ACC as the construction manager.  ACC then hired Precision.

 

In the court’s original motion, the court found that SL Green was not an additional insured pursuant to Endorsement CG 20 33 07 04 of the Burlington policy issued to Precision due to the absence of contractual privity.  For those no familiar with this endorsement, it includes as an additional insured any person or organization for whom you are performing operations “when you and such persona have agreed in writing in a contract or agreement that such person or organization be added as an additional insured…”

 

However, in the original decision the court went on to find, nonetheless, that Burlington owed a duty to SL Green pursuant to the exception to the Burlington Policy’s exclusion relating to contractual liability, which provided that Burlington would owe contractual liability coverage to Precision for any indemnity obligations arising out of an “insured contract.” 

 

On reargument, the crux of Burlington’s position was that contrary to the court’s finding, SL Green was not an insured or an additional insured under the policy.

Upon further review, the court agreed, granted reargument and upon reargument denied SL Green’s motion for summary judgment.  The court acknowledged it error holding that contrary to the finding in the original decision, the Burlington Policy’s exception to the exclusion for contractual liability for an “insured contract,” does not provide a basis for finding that Burlington owed a duty to defend SL Green as a contractual  indemnitee of Precision.  Thus, while under this exception, the Burlington Policy provided coverage to Precision for any obligation to indemnity and/or defend SL Green (or ACC), it does not provide a basis for requiring Burlington to indemnify or defend SL Green.   

 

BARNAS ON BAD FAITH

Brian D. Barnas

[email protected]

 

02/15/17       Product Source International, LLC v. Foremost Signature Ins.

United States District Court, District of New Jersey

Insured Stated a Claim for Bad Faith against Insurers under New Jersey Law by Alleging the Insurers had No Basis for Denying the Claim for Coverage and Knew they had No Basis for Denying the Claim

Product Source International, LLC (“PSI”) held a commercial general liability insurance policy with the defendants.  The policy provided coverage for personal advertising injury, including injury arising out of the use of another’s advertising idea in an advertisement, or infringing upon another’s trade dress or trade dress or slogan in an advertisement.  The policy contained an exclusion to claims sounding in infringement of trade dress or slogan.

 

PSI was involved in litigation with Nahshin over its use of the phrase “NIC OUT” on products it sells.  PSI appealed a ruling by the Trademark Trial Appeal Board canceling its registration for the NIC OUT mark to federal court.  Nahshin brought counterclaims against PSI in that case.

 

Thereafter, PSI tendered a demand for defense of the counterclaims to the insurers.  PSI alleged that the insurers independently investigated PSI’s insurance claim, acknowledged the duty to defend and indemnify PSI, but failed to provide PSI any funds to cover litigation costs or the settlement that was reached between PSI and Nashshin.  PSI claimed that it was forced to settle the action while cross-appeals to the federal appellate court were pending because it could not afford to continue the litigation without financial assistance from the defendants-insurers.

 

PSI brought an action against the defendants alleging, among other things, bad faith.  PSI alleged that the Insurers independently investigated PSI's claim for coverage in the Nahshin Action; that the Insurers' counsel confirmed that coverage was due under the policy; that the Insurers were aware that proceedings in the Nahshin Action were costly and rapidly progressing, and aware of the status of the case; that PSI's counsel explained in correspondence that the Insurers owed a duty to defend under New Jersey law; and that the Insurers delayed the processing of the claim knowingly or in reckless disregard of the fact that they had no valid reason for doing so.

 

These allegations by PSI were sufficient to survive defendants’ motion to dismiss.  PSI stated a plausible claim that defendants’ lacked a reasonably basis for denying the claim and the defendants’ knowledge or reckless disregard of the lack of a reasonable basis in denying the claim.

 

02/15/17       Foremost Insurance Company Grand Rapids v. Evans

United States Court of Appeals, Ninth Circuit

No Coverage Equals No Bad Faith under California Law

The district court below conclude that Foremost did not have a duty to indemnify its insured based on an exclusion in the policy for bodily injury arising out of the ownership, operation, maintenance, use, loading or unloading of a recreational land motor vehicle, the entrustment of such vehicle to another person, and the negligent supervision by the insured of another person using the vehicle.

 

As such, Foremost was not liable for breach of the covenant of good faith and fair dealing.  As there was no coverage under the insurance policy, there can be no liability for bad faith on the part of the insurer under California law.

 

02/14/17       Falcone v. Liberty Mutual Insurance Company

Supreme Court of Oklahoma

Insurer Acted in Bad Faith by Contesting the Necessity of Medical Expenses Incurred by the Insured after Accident with Uninsured Motorist

Plaintiff Malinda Falcone was the passenger in her mother's car when the car was involved in an accident caused by Defendant Driver Anthony Lewis on October 5, 2013.  At the time of the accident, Ms. Falcone was an “insured” under her mother's Liberty Auto Policy.  The Defendant Driver, Mr. Lewis, was uninsured.

 

Ms. Falcone was taken to the emergency room after the accident.  She was not admitted, but medical personnel in the emergency room determined that she should be transferred to the trauma unit.  CT scans of her brain, spine, abdomen, pelvis, and x-rays were performed.  All came back normal. 

 

Ms. Falcone was billed $47,203.00 for her visit, including a $24,420.25 charge based on her trauma unit designation.  She subsequently treated for neck, knee, back pain, and severe headaches.  She was examined by a family physician, went to physical therapy, was referred to a pain management specialist, and received two cervical spine injections.  Her medical bills totaled $67,098.23.

 

Ms. Falcone submitted a claim to Liberty Mutual.  Liberty Mutual reviewed the claim and determined that the emergency room’s trauma designation was unnecessary; although records reviewers determined that the emergency room trip was appropriate.  Liberty Mutual offered to settle the claim for $37,855.23.  The offer was rejected the next day.  After the offer was rejected, Liberty Mutual reevaluated the claim, and increased its offer to $52,677.98.  This still did not include the trauma charges.  Liberty Mutual sent Ms. Falcone a check in that amount on April 17, 2014, but the check was not cashed.  On July 26, 2014, Liberty Mutual sent Ms. Falcone a letter advising her that it had paid $1,000 under the policy’s med-pay coverage and that such med-pay coverage had been exhausted.

 

Ms. Falcone and her mother brought an action against Liberty Mutual alleging bad faith and breach of contract and an action against Defendant Anthony Lewis alleging negligence.  Liberty Mutual paid the policy’s $100,000 UM limit to conclude the contract claim. 

 

On the bad faith claim, the trial court granted summary judgment in favor of Liberty.  However, the Supreme Court of Oklahoma concluded Liberty acted in bad faith.  The court drew a contrast between the UM provision in the policy and the med-pay provision.  The provisions read as follows:

UM

 

We will pay compensatory damages which an 'insured' is legally entitled to recover from the owner or operator of an 'uninsured motor vehicle' because of 'bodily injury:'

1. Sustained by an 'insured;' and

2. Caused by an accident.

 

Med pay:

 

We will pay reasonable expenses incurred for necessary medical and funeral services because of 'bodily injury:'

1. Caused by accident; and

2. Sustained by an 'insured.'

 

There was no language in the UM policy that allowed Liberty to contest the reasonableness or necessity of the medical services or expenses provided to the insured.  There was also no debate that the medical expenses incurred by Ms. Falcone were the result of bodily injury caused in an accident with Mr. Lewis, the uninsured motorist.  As such, the court concluded that Liberty ignored the plain language of the policy and had no justifiable reason for withholding payment.  The court remanded the case to the trial court to determine damages based on Liberty’s bad faith conduct.

 

PHILLIPS’ FEDERAL PHILOSOPHIES

Jennifer J. Phillips

[email protected]

 

02/02/17       Matos v. Peerless Insurance Co.

United States District Court, Western District of New York

Arson and Old Place

The plaintiff insured and the defendant insurer each cross-moved for, among other things, partial summary judgment in this insurance company dispute.  At issue was a claim Plaintiff made under his business owners policy for damages resulting from an incident wherein – as described by Plaintiff – unknown persons broke into his business, damaged and stole items, and started a fire before leaving.  The policy provisions relevant to the court’s decision included a precondition that the Insurer would “not pay on a replacement cost basis for any loss or damage … [u]ntil the lost or damaged property is actually repaired or replaced.”

 

The Insurer’s investigation into the claim found the circumstances “very odd,” and ultimately disclaimed liability and denied coverage for the claim several months later “due to dishonesty and fraud, including but not limited to statements as to the cause of the damage to the subject property.” Plaintiff subsequently sold the property.

 

One of the issues before the court was Plaintiff’s motion for summary judgment on his breach of contract claim against the insurer.  The court denied the motion.  “It is well established in New York law that direct proof of arson is seldom available and, therefore, arson can be established in civil cases by circumstantial evidence of which the financial position of the insured is often critically important.  At trial, defendants bear the burden of presenting clear and convincing evidence that the fire was incendiary in origin and that plaintiffs had a motive and the opportunity to commit the crime.”  Among the evidence referenced by the court was the declaration of the Insurer’s investigator, who noted questions raised by the failure of the alleged thieves to take high value items in the room at the time, their apparent knowledge of the security system on the premises, Plaintiff’s own unidentified phone calls immediately following his 911 call plaintiff’s prior fire loss claim on another property, and the implausible timeline of events as described by Plaintiff.

 

“On plaintiff's motion for summary judgment, however, plaintiff bears the initial burden of demonstrating that the fire was not intentionally set and that plaintiff had no motive to commit arson.  As there is no dispute that the fire was not accidental, plaintiff cannot meet his burden.”

 

“In any event, to defeat the summary judgment motion, defendant is merely required to demonstrate that plaintiff's premises may have been damaged by arson and the plaintiff may have had a motive to see the property destroyed by fire.  Defendant has proffered sufficient evidence as to motive, to wit, plaintiff's interest in selling the premises; plaintiff's testimony regarding the financial status of the business at the premises; and plaintiff's financial circumstances. Moreover, there is no dispute but that plaintiff was present when the fire was set. It is for a jury, not the Court, to assess the credibility of plaintiff's testimony as to how the fire started.”

 

Plaintiff had relied on the testimony of the representative of the Insurer who appeared for deposition in this litigation, and at that time had difficulty remembering or specifying why the claim was denied, for his argument that the disclaimer was improper.  With respect to this argument, the court noted that the “testimony is not a judicial admission that is binding on the corporation, and may be contradicted by other witnesses, the same as any other witness's testimony.” 

 

The court also addressed, among other things, the Insurer’s argument that (should the claim not have been properly disclaimed because of arson) Plaintiff was not entitled to any payment for loss at replacement cost because it was undisputed that he failed to repair or replace the property.  The court acknowledged that, under New York law, “replacement cost coverage inherently requires a replacement (a substitute structure for the insured) and costs (expenses incurred by the insured in obtaining the replacement).”  However, in the cases supporting that proposition, the insurer had paid the plaintiff the actual cash value of the damaged building.  In cases such as this where an insurer refused to pay any monies at all under the policy, the insurer made it impossible for an insured to fulfill this condition precedent.  Further, even though there was some evidence that the Plaintiff here could have afforded to replace the property, “there is no precedent to suggest that plaintiff is under an obligation to expend personal funds to satisfy a condition precedent to obtaining replacement cost coverage where the insurance company is challenging coverage in the first instance. Moreover, plaintiff's sale of the property does not preclude replacement cost coverage; the insured may replace the premises with a property with similar functionality at another location.”  Accordingly, the Insurer’s motion was denied on this issue.

 

EWELL’S UNIVERSE
John R. Ewell

[email protected]

 

02/17/17       Henn v. American Family Mutual Insurance Co.

Nebraska Supreme Court

Nebraska Supreme Court Rules that Labor Costs Can Be Depreciated Even When Not Explicitly Stated in the Policy

The Nebraska Supreme Court considered whether an insurer, in determining the "actual cash value" of a covered loss, may depreciate the cost of labor when the terms "actual cash value" and "depreciation" are not defined in the policy.

 

The policyholder, Henn, submitted a claim under her homeowner's policy issued by American Family Mutual Insurance Company ("American Family") for damage to her roof, gutters, screens, deck, and air-conditioning unit following a hailstorm. The insurance policy at issue was a replacement cost policy. Under the policy, the policyholder has two options for recovery following a covered loss: (1) receive “the actual cash value at the time of loss of the damaged portion of the building up to the limit applying to the building” or (2) receive the full replacement cost value upon completion of the repair or replacement of the damaged property. The policy did not define “actual cash value” or depreciation, or describe the methods employed to calculate “actual cash value.” The policy also did not explain how American Family determines the difference between replacement cost value and actual cost value.

 

American Family's adjuster determined that the cost to repair and replace the damaged portions of Henn's home with new materials would be $3,253. American Family subtracted $277 in depreciation to arrive at an actual cash value of $2,976. The depreciated amount includes both material costs and labor costs.

 

The policyholder filed an action seeking class certification and alleging that American Family wrongfully failed to compensate her and others similarly situated by depreciating labor costs in calculation of actual cash value for loss or damage to a structure or dwelling under its homeowner’s insurance policies. The dispute centered on whether labor costs can be depreciated in determining the actual cash value of covered damaged property under a homeowner’s insurance policy. The parties agreed that actual cash value is replacement cost minus depreciation, but disagreed as to whether the labor component can be depreciated. The policyholder argued that the language in the policy did not unambiguously allow for labor depreciation and that American Family's depreciation of labor costs resulted in underindemnification of her loss.

 

Nebraska's Supreme Court looked to other jurisdictions who have considered the issue. In 2002, the Oklahoma Supreme Court reasoned that depreciation of labor was appropriate under the broad evidence rule and that it did not lead to underindemnification. In 2013, the Arkansas Supreme Court held that the term "actual cash value" was ambiguous in an actual cash value policy and construed the policy against the insurer—holding that labor costs cannot be depreciated.

 

Nebraska's high court was persuaded by Oklahoma Supreme Court's reasoning that depreciation of labor was appropriate under the broad evidence rule and that it did not lead to underindemnification. Nebraska's high court found that the term "actual cash value" is not ambiguous, and that the unambiguous definition of actual cash value is depreciation of the whole. Since "property is a product of both materials and labor," Nebraska courts can consider any relevant evidence it its calculation of actual cash value—including labor costs. Therefore, where ‘actual cash value’ and ‘depreciation’ are not defined in the policy, insurers in Nebraska can depreciate both material costs and labor costs in determining the actual cash value of a covered loss.

 

ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA

Howard B. Altman

[email protected]

 

Final Cybersecurity Regulations

New York’s Department of Financial Services issued the final version of its Cybersecurity Regulation week, with an effective date of March 1, 2017. The final version can be viewed at:

https://www.governor.ny.gov/sites/governor.ny.gov/files/atoms/files/Cybersecurity_Requirements_Financial_Services_23NYCRR500.pdf

 

The changes from the initial proposed draft are minor, with one exception. The final regulation broadens and clarifies the limited exemption for captive insurance companies. The limited exemption applies to the following:

 

  • Entities with “fewer than 10 employees including any independent contractors of the Covered Entity or its Affiliates located in New York or responsible for business of the Covered Entity”;

     

  • Entities with “less than $5,000,000 in gross annual revenue in each of the last three fiscal years from New York business operations of the Covered Entity and its Affiliates”; or

     

  • Entities with” less than $10,000,000 in year-end total assets, calculated in accordance with generally accepted accounting principles, including assets of all Affiliates.”

 

The final version also clarifies the rule that companies must disclose, “within 72 hours, to the Secretary of DFS any cybersecurity event that either (1) must be disclosed to another government or self-regulating agency, or (2) has a “reasonable likelihood of materially harming any material part” of the normal operations of the company.  The ““reasonable likelihood” language requires companies to be more proactive in reporting potential harm.

 

Apart from these additions, the final version is unchanged from the draft proposal first issued in December 2016.

 

 

EARL’S PEARLS

Earl K. Cantwell
[email protected]

 

Wisconsin Pharmacal Company, LLC v. Nebraska Cultures of California

367 Wis. 2d 221 (2016)

Dietary Supplement Leads to Oversized Insurance Decision

This case arises because a producer of a dietary supplement brought an underlying legal action against the insured supplier of a component ingredient and its CGL insurance companies when an incorrect ingredient was supplied for incorporation into a dietary supplement.  During production, the defective ingredient supplied by Nebraska Cultures was blended with other components and then compressed into tablet form.  The tablets were ultimately supplied to Pharmacal which packaged and shipped them to retailers.

 

The primary issues addressed in this case from the Supreme Court of Wisconsin were whether incorporation of the defective ingredient into the tablets constituted “property damage” caused by an “occurrence”, and if so were there any policy exclusions applicable to negate coverage.  The Trial Court ruled in favor of the insurance companies, that ruling was reversed by an Appellate Court, but the Supreme Court reversed again and reinstated the ruling of the Trial Court.

 

The Wisconsin Supreme Court first concluded that there was no “property damage” caused by an “occurrence” because incorporating the defective ingredient into the supplement tablets did not cause damage to other property, and did not result in a “loss of use” of property.

 

The Court began its coverage analysis by stating that insurance policies are to be interpreted from the perspective of a reasonable insured.  When language in an insurance contract is unambiguous, the courts will apply its plain and ordinary meaning.  With respect to the CGL definition of property damage, the Court concluded that property damage must be to property other than to the product or completed work for which the insured may be found liable. 

 

The Court then made a sub-analysis finding that the supplement tablets were essentially an “integrated system” and that any damage was to the entire product and could not be considered damage to other property.  Combining the defective ingredient with other ingredients incorporating them into the supplement tablets formed one integrated system which constituted but one product – the tablets – and therefore no “other property” was damaged.

 

The Court ruled that, although the error in supplying the wrong ingredient essentially made the tablets worthless, this did not constitute a “loss of use” of the tablets.  The permanent loss of the entire value of the tablets was not the same as “loss of use” property damage.  The Court cited to other cases holding that property becoming essentially worthless does not necessarily constitute “property damage” caused by “loss of use”. Therefore, there was no covered “property damage”.

 

The Court then further opined that there was no covered “occurrence” because accidental provision of a defective product ingredient did not constitute an occurrence.  The tablets were intentionally manufactured, albeit with an improper ingredient, therefore there was no loss of use of other property resulting from sudden and accident physical injury to the insured’s product.  Any changes to other ingredients were not due to the defective ingredient.  The ingredients were changed in the manufacturing process which would have occurred regardless of the probiotic ingredient supplied.  The Court therefore also held that there was no property damage caused by a covered occurrence.

 

The Court also found that coverage was excluded for property damage due to “impaired property”.  The alleged loss or damage was due to incorporation of a defective ingredient, and this was deemed to fall within the policy’s “impaired property” exclusion. 

 

This case is an interesting insurance treatise touching upon many different provisions in the CGL policies, and various definitions commonly found in them.  It deals with a complicated scenario, and the difficulty in analysis is reflected from the facts that different courts rendered different decisions, and there were two dissenting judges even at the Wisconsin Supreme Court.

 

In much simpler terms, the case can be read as standing for the overall proposition that a CGL policy should not be construed as a product warranty or performance bond to remedy defective work or projects. 

 

The Court reviewed this case in an excellent analysis starting from core coverage propositions that (a) the claim must first be reviewed to see whether there is an initial grant of coverage; then (b) determine whether any exclusions preclude coverage for that claim; and (c) lastly are there any exceptions to the exclusions which might “reinstate” coverage.  This case involved a complicated review of several insurance policies in light of the underlying facts and relevant policy definitions of property damage, occurrence, accident, and impaired property.

 

This case is also a good example of the complications raised by insurance coverage questions in today’s inter-related business and manufacturing environment.

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