Volume XVIII, No. 19 (No. 475)
Friday, March 10, 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:
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Phone: 631-465-0700
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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.
For those new subscribers, a reminder. You are reading our cover note. The actual issue is attached in Word format, easy for copying and pasting case summaries into your claim files.
First, a shout-out to our sister publication, Labor Law Pointers, a must-subscribe for anyone who handles New York construction litigation. Contact Dave Adams at [email protected] for a subscription. He charges twice what we do.
This issue comes to you from Charleston, SC, where I’ve been attending the Annual Meeting of the Federation of Defense & Corporate Counsel. I was honored to serve as President of the FDCC in 2006-2007 and rejoice in the fellowship of my friends and colleagues in this great organization. We continue to look for opportunities to improve the civil justice system.
I just heard an inspirational presentation by Judge (and former College of Charleston President Alex Sanders as well as presentations on the Charleston Church Shooting from The Reverend Dr. Norville Goff, Jr., Mayor Joseph Riley, Jr, and FDCC member Wilbur Johnson. They tell a truly remarkable story of tragedy, forgiveness and unity.
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
The most significant case in this week’s issue is the one covered in Jen’s column, described below. How many times will the court apply a self –insured retention in physical and mental abuse injuries that lasted over many years?
Jen’s Gems:
Greetings,
So, it appears as if the sickness bug is finally leaving my house (knock on wood). As I am sure any parent of small children can attest, the stomach bugs are the worst. The last one that hit Ella resulted in me washing pretty much every blanket and set of sheets in my house plus a good portion of my leisurewear. But anyways, I continue to keep my figures crossed.
A must read, lower court decision on counting SIR’s for the purpose of abuse cases is highlighted in my column.
Until next issue…
Jen
Jen
Jennifer A. Ehman
Snow Cover – 100 Years Ago:
Adams County News
Gettysburg, Pennsylvania
10 Mar 1917
NO INSURANCE
AGAINST SNOW
Policies in Local Mutual Concern
Do not Carry Any provisions of this Kind.
LOSSES ARE ALL TOTAL
Ten Barns Went Down under Heavy Weight.
Most of them must be Entirely Replaced. Bad Roads.
Farmers whose barns were damaged by the snow of Sunday—many of them so extensively that new structures will be necessary—have been advised that they can recover nothing from the local insurance companies to help meet their losses.
The various mutual concerns which operate extensively in the county, having their officers, directors and agents all taken from the local towns and townships, do not have any provision in their policies against damage from snow. All of them protect against fire, some against wind storms, cyclones, and the like; and stock is covered in the lightning cause of some, if not all, of the policies, but there is nothing in any of them which could be construed as giving payment in the event of damage by snow.
Owners of the many barns which were damaged Sunday were inquiring about this on Monday and telephone calls were numerous to find just what was the status of affairs. One man sent word that his barn had blown down “in the storm” of Sunday night. He was at once informed that no one had heard of any “storm” and that barring wind of exceptional velocity he had nothing on which he could recover. Others were told the same thing.
Tessa’s Tutelage:
Dear Readers:
This week I sent out the first softball email of the year. I get very enthusiastic about wrangling people into playing … largely so I can minimize how much actual play time I have to do. I am really in it for the pizza afterward, I will be honest. The sign-up sheet has just started going around and I am confident that we will have enough players! I think this is a sign that people had more fun than they expected last year. It is also another reminder of the growth of our firm. I am so happy that we have had several additions to the Coverage team, especially as they all signed up to play!
Spring is officially upon us and that means we get to discuss something that really gets everyone going, attorney fees!!!!! Okay, maybe it is just me. What can I say? I appreciate the occasional break from “medical necessity.” Well, this week we learn about who can set an attorney fee for an appeal from a decision by an arbitrator. I will keep you in suspense because otherwise you might not read the whole case.
If you have any questions, or softball coaching tips, please shoot me an email.
My best,
Tessa
Tessa R. Scott
His Life is Worth What?
The New York Times
New York, New York
10 Mar 1917
Banker Takes Out the Largest
Insurance Ever Issued to
an Individual
YEARLY PREMIUM $112,000
Net Amount of Policy a Partial Offset to
Inheritance Taxes—Agents’ Commission $61,000
J. P. Morgan has taken out the largest life insurance policy ever written in this country outside the group insurance field. It is for $2,500,000 and calls for annual premium payments of approximately $112,000. The New York Life Insurance Company is handling the business which will be reinsured in large part among other leading companies.
Mr. Morgan’s purposed in seeing the huge policy, according to information obtained in insurance circles yesterday, was to supply an offset to the inheritance taxes to which his estate will be subject. Payment will be so arranged, it is said, that either the State or Federal Treasuries, or both, will receive the net amount of the policy. In so far as the banker’s wealth can be estimated, the sum of $2,500,000 would be no means cover both taxes, but it would meet the New York State impost on many millions of dollars.
Ewell's Universe:
Dear Subscribers:
This has been a very exciting week for me. Yesterday I was sworn in federal court in the Western District of New York. It was a very nice ceremony before Senior District Court Judge Skretny. I would especially like to thank my sponsoring attorney, Mike Perley, for his gracious words endorsing my admission. I have had the very good fortune of working at a collegial firm that has always been supportive of my growth as an attorney. I am grateful.
Meanwhile, in Ewell's Universe, we have several developments on the national front. The Oregon Supreme Court has held that an insured's transportation costs to receive medical treatment and medication are not covered benefits under the state's no-fault insurance law. Although the majority rule is that such costs are covered under a state's no-fault scheme, Oregon's high court rejected this trend in a heated 4-3 split decision. In the second case, the Supreme Court of Oklahoma considered whether the enforcement of an "Indoor Air Exclusion" violates public policy. That particular exclusion excluded claims "arising out of, caused by, or alleging to be contributed to in any way by any toxic, hazardous, noxious, and irritating pathogenic or allergen qualities or characteristics of indoor air regardless of cause." The enforceability of the exclusion became an issue after several hotel guests allegedly suffered carbon monoxide poisoning after a pool heater broke at a hotel. Oklahoma's Supreme Court held that the Indoor Air Exclusion did not violate public policy.
These cases make for an interesting read and are discussed in further detail in my column.
Until next time,
John
John R. Ewell
Do Not Die Until …
The Salina Evening Journal
Salina, Kansas
10 Mar 1917
Make sure that your widow will not fill a potter’s grave.—The Globe Life Insurance Co.—Adv.
Phillips Federal Philosophies:
Hello, All:
In keeping with my recent non-stop observations regarding the weather, a bonafide Buffalo pastime, I’m happy to report that Winter is Coming – on July 16th. (I’m a late-to-the-party Game of Thrones fan). Dress up your favorite dragon and get ready for the party.
Two cases this week, both from the Southern District: In Arch Speciality Ins. v. Farm Family Casualty Ins., the coverage debate centers on an injured employee’s decision to show up fifteen minutes early for work. The second case, U.S. Specialty Ins. Co. v. Catalent, takes us to France with a story of extortion and drugs. Well, softgels, but that doesn’t look as good on a movie poster…
As always, thanks for reading.
J.
Jennifer J. Phillips
U.S. Involvement in WW I, On the Horizon:
The Ithaca Journal
Ithaca, New York
10 Mar 1917
AMERICAN SHIPS TO FIRE AT
MERE APPEARANCE OF
HOSTILE GERMAN U-BOAT
Though Government Has Not Yet
Issued Any Order to Commanders of
Armed Merchantmen, State Department
Rules Gunners Need Not Wait
Any Action on Part of Sub
Washington, March 10.—The mere appearance of a German submarine or its periscope in the presence of an American armed merchant vessel would entitle that ship, according to State Department opinion today, to take all measures of precaution on presumption that the U-boat’s purposes was hostile. Under this ruling an American armed merchantman could fire on a German submarine the moment it is sighted without being considered as taking aggressive action. This view is based on Germany’s declared intention to sink on sight within certain zones vessels neutral as well as belligerent and whether passenger vessels, freighters or contraband carriers. …
Peiper’s Peepers:
Pardon our brevity tonight, but our deadline to go to print is in direct conflict with parent/teacher conference night. Much like my children’s curriculum, I don’t recall parent/teacher conferences being quite so intense when I once sat where they do now. Indeed, I’m not sure I could stand before my parents now and explain my strengths, weaknesses and areas for improvement. Yet, that is exactly what they did tonight. I am seriously impressed.
For the record, and as has become custom, their “reviews” were both exceptional, and as such they more than earned their trip for a dessert to celebrate. Whether it entitled them to $6.00 cupcakes that have been featured on Food Network remains up for debate, at least as far as he who paid the bill is concerned.
Our surgery distraction became a good night, however there is not much to report from the Appellate Division this week. Here’s hoping for newer material in coming weeks.
As a practical note, and as a bit of public service announcement, I remind all of you to take a look at your coverages --- and the limits thereon. Having insurance is good. Having insurance without ridiculously low limits is not good. Folks, as the saying goes “the price of poker has gone up.” Your limits from 1992, or even 2002, simply don’t go as far as they used to. Take a look, and give a call to your agent. You might be very happy you did.
One final note. Tonight the University at Buffalo Bulls begin their quest for a three-peat in the Mid-American Conference Tournament. Three wins, in three days, and it’s off to Boise, Providence, or Dayton or some such exotic place hosting the first round of the NCAA tournament. For those of you thinking it, yes, you’re right…Buffalo has a first “pod” this year again as well.
If, on Tuesday morning, you see Buffalo in your bracket, make sure you circle it. We’re 0-2 in the NCAA’s the last two years, so we’re overdue for a major bracket buster. You heard it here first.
That’s it for me this week. See you in two.
Steve
Steven E. Peiper
Object? Matrimony:
The Pittsburgh Press
Pittsburgh, Pennsylvania
10 Mar 1917
GENTLEMAN, refined young Hebrew workingman, fair, medium height, liberal religious views, elevating inclinations, recent settler, seeks acquaintance of refined young lady, commercial school graduate, willing to assist me in business; object matrimony. Write J 136, Press office.
Hewitt’s Highlights:
Dear Subscribers:
After a number of detailed opinions last edition in the serious threshold area, the Appellate Courts were stingy this week in issuing decisions with facts supporting their legal conclusions. The Second Department in particular had bare-boned opinions. One case was a technical decision in which a plaintiff tried to vacate a decision on a motion for summary judgment which they failed to put in opposition. The plaintiff’s counsel only alleged on a conclusory basis that there was law office failure but did not detail it. Therefore, the court refused to consider whether there was a meritorious defense and did not vacate the default. In another case, plaintiff could not overcome evidence in his own medical records of degeneration and prior injury. His pain management specialist issued a conclusory opinion not based on any medical evidence that lacked any medical basis, which was dismissed by the court. In another area of the body, he had normal range of motion two months after the accident, which was insufficient to support a serious injury claim. Hopefully next edition will have an examination of more detailed cases.
Until next time,
Rob
Robert Hewitt
Motor Vehicle Insurance for Sale:
Vancouver Daily World
Vancouver, British Columbia, Canada
10 Mar 1917
AUTO INSURANCE PREVENTS LOSS
Owners of Cars Seeking Protection From Loss
by Fire and Thefts—Premiums Small.
Automobile insurance in most cases received very little consideration from car owners, stated Mr. John A. Barber, of the John A. Barber Company, to The World recently. And yet thousands of dollars are lost every year in this city through fires, thefts and various other causes, when automobile insurance costs but little and would afford ample protection. “In larger cities insurance is carried on nearly every car,” stated Mr. Barber. “There are many instances of serious loss by fire, and cars are stolen every day. Of course the danger from thefts is not great in Vancouver, but the fire risk is the same as elsewhere. Just last fall a Vancouver owner had a fine new car almost totally ruined, owing to the flooding of his engine. Fire spread to the gasoline tank and before it could be extinguished, a thousand dollars’ damage had been done. Needless to say, this man today carries insurance on his car.”
Wilewicz’s Wide-World of Coverage:
Dear Readers,
This week’s column will need to be quick, as I’m just about to head out the door to have an ever-pleasant root canal. No joke. Yes, I would much rather be reading and writing about coverage (or doing just about anything else at all, seriously anything at all), but sometimes what must be done, must be done.
So, in brief, this week in the Wide World, we have but one case for y’all. This one, out of the lovely Tenth Circuit (i.e. Colorado, Kansas, New Mexico, Oklahoma, Utah, Wyoming), we present U.S. Specialty Ins. Co. v. Estate of John Earley. There, long detailed mechanical story short, a small aircraft crashed during an instructional flight, killing its two occupants. Unfortunately, the pilot endorsement of the applicable policy limited coverage for two listed pilots of that craft. The evidence demonstrated that, though one of those listed pilots was in the plane at the time of the crash, he was seated in the back and giving instructions, not operating it. Per the terms of the policy, the “aircraft must be operated in flight only by a person [listed]”. Here, it wasn’t. Thus, there was no coverage for the trainee operator.
Until next time,
Agnes
Agnes A. Wilewicz
Scoundrels in Action – But Honest Ones:
The Allentown Leader
Allentown, Pennsylvania
10 Mar 1917
SHOW GLASS BROKEN
One of the valuable show glasses in front of the Regent Theatre was broken last evening accidentally by some young men from Bethlehem. The boys it appears in fooling threw over the frame and as a result the glass broke. The glass is very expensive and instead of running away the young men stayed and paid the damage.
Barnas on Bad Faith:
Hello again:
Today marks our last edition of winter. After a couple of good snowfalls in December, my snow blower broke and I had to get it fixed. I got it back in late December. Since I got it back, I have not used it once. That’s right, through January and February in Buffalo, New York, I did not have to use my snow blower. Now that I say that, it is probably going to snow like crazy tomorrow.
Meanwhile, I’m just sitting here watching conference championship week hoping that the NCAA Tournament bubble will once again be kind to the Orange. I didn’t think they were getting in last year, and when they did they made a run all the way to the Final Four. Hopefully they can sneak in again this year and make another nice run. Best of luck also to my alma mater, UB, who heads to Cleveland looking for its third consecutive MAC Tournament title and NCAA Tournament appearance.
I have three cases in my column today. In McDaniel, the Ninth Circuit concludes that GEICO did not act in bad faith by negligently failing to accept a settlement offer for the policy limits. A conscious, deliberate, and intentional act was required to establish bad faith. In Dougherty, the Third Circuit concludes that Allstate did not deny coverage under a property policy in bad faith, as there was extensive evidence that the damage was caused by a lack of maintenance, which was excluded under the policy. Finally, JD2 reminds us that New York does not recognize a general claim for bad faith denial of insurance coverage. JD2’s breach of the implied covenant of good faith and fair dealing claim was duplicative of its breach of contract claim, and it was dismissed accordingly.
Enjoy St. Patrick’s Day and the NCAA Tournament.
Signing off,
Brian
Brian D. Barnas
Baseball Season About to Start – A Century Ago
The Evening News
Harrisburg, Pennsylvania
10 Mar 1917
BENDER DOOMED
TO MINOR FIELD
Famous Indian, Who Started Game here,
and Chief Meyers Slated for Drop
NEW YORK, March 10. – There is always something touching about the passing of an old-time baseball player, one of the men who grew up with the same and saw it develop into the sport of the nation.
It was so with Chief Bender, just as it has been true of other ball players, and there is just a shade more of emotion in this passing, for it leaves only one Indian of prominence in the major league.
Strong, healthy, quick, drilled in the outdoor sports by inherited rivalries, the Indian never has been able to completely fathom the white man’s game of baseball. Many hundreds of the copper-skinned men have been called, but very few of them, have reached the pinnacle of perfection in the majors. Bender was one of the most prominent members of his race who ever played baseball, and Chief Meyers is another. Jim Thorpe, wonder though he is at sports, is nothing more than fairly good as a ball player. Sockalexis will recall glorified athletics to many an old time fan, but he passed as they all did. Chief Johnson was a wonderful pitcher and might still be if he had cared to keep himself in condition.
Bender was purely a product of the Connie Mack school. He was picked up after making a wonderful record with the Harrisburg, PA., club, during the days of outlawry in the Tri-State league.
After a summer of illness and a season of no success, he blossomed. It was his work that did more than anything else to drive the Athletics to a pennant in 1911, and then he came through with a world’s series victory practically unaided when Jack Coombs was stricken down.
Who was Chief Bender?
The Amazon review of a recent biography, Chief Bender's Burden: The Silent Struggle of a Baseball Star describes him this way:
The greatest American Indian baseball player of all time, Charles Albert Bender was, according to a contemporary, “the coolest pitcher in the game.” Using a trademark delivery, an impressive assortment of pitches that may have included the game’s first slider, and an apparently unflappable demeanor, he earned a reputation as baseball’s great clutch pitcher during tight Deadball Era pennant races and in front of boisterous World Series crowds. More remarkably yet, “Chief” Bender’s Hall of Fame career unfolded in the face of enormous prejudice.
Altman’s Administrative (and Legislative) Agenda:
Greetings Dear Readers. We are in the home stretch of winter. The weather is warming, the sun is shining, and thoughts of snow have all but vanished. Oh wait, it’s supposed to snow here Friday. Darn you, Punxsutawney Phil, your mother was a rodent. Or vermin? But, Spring Training has started, so here’s to another year of my Mets breaking my heart. With that in mind, a poem:
Yankees fans are used to things,
Like winning games, World Series rings,
While Mets fans watch the pennant chase
From the comfort of third place
But sometimes, as two years ago
The Mets could make it to the Show
Just to blow it in five games
So the heartache’s just the same
But a Mets fan’s always ripe with hope
(Call me loyal, or a dope)
So this year, we will take it all,
And hoist the trophy, come next fall
Yes, we will have a winning team
(Hey, a fella has to dream).
Today, I bring you DFS’s new guidelines for claims personnel handling claims for Personal Injury Protection Benefits under New York’s No-Fault law. It’s no baseball poem, but I hope, Dear Reader, that it will do.
Howard
Howard B. Altman
Headlines from the Attached Issue:
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
-
Rescission Appropriate on Innocent Misrepresentation on “Number of Families Living There” where Carrier Offered Documentary Evidence Demonstrating it would Not Have Issued Policy.
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
-
Plaintiff Established Issue of Fact Despite Defendant’s Medical Evidence Establishing a Prima Facie Case
-
Issue of Fact as to Whether the Plaintiff Sustained a Serious Injury to the Cervical Region of Her Spine
-
Defendant’s Own Expert Found Significant Limitations in Range of Motion in Spine Such that Defendant Failed to Make a Prima Facie Case
-
Plaintiff Established Issue of Fact as to Injuries to Lumbar Spine
-
Plaintiff’s Own Medical Records Showed Evidence of Preexisting Degenerative Disease which Conclusory Opinion of Pain Management Specialist Couldn’t Overcome
-
Defendant Submitted Competent Medical Evidence that Established a Prima Facie Case of No Serious Injury
-
Plaintiff’s Motion to Vacate a Default Was Denied Due to Failure to Provide Reasonable Excuse
-
Issue of Fact Where Plaintiff Submitted Evidence of Injury to Cervical and Lumbar Regions
TESSA’S TUTELAGE
Tessa R. Scott
Litigation
-
Attorney's Fee In Connection With A Court Appeal from a Master Arbitration Award Will Be Fixed By the Court Adjudicating the Matter
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
-
Summary Judgment Granted to Insurer Where Utility Bills and Expert Affidavits Established Prima Facie Case that Insured Failed to Maintain Heat
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
-
Tenth Circuit Holds Pilot Endorsement Applicable to Preclude Coverage Where Owner Operator of Plane Was Not Listed on Endorsement Schedule as Pilot
JEN’S GEMS
Jennifer A. Ehman
-
Trial Court Finds that Abuse of Multiple Children over the Course of Multiple Decades by Foster Parent Constitutes Multiple Occurrences and Settlement Should be applied on a Pro Rata Basis; $250,000 SIR Applicable to All Occurrences
BARNAS ON BAD FAITH
Brian D. Barnas
-
Insurer’s Negligent Failure to Settle within Policy Limits was not Bad Faith under California Law
-
Insurer’s Denial of Coverage was Reasonable based on Expert Report Concluding that Furnace Malfunctioned because of Lack of Maintenance
-
New York does not Recognize Claim for Bad Faith Denial of Insurance Coverage
PHILLIPS’ FEDERAL PHILOSOPHIES
Jennifer J. Phillips
-
Not Saved by the Bell
-
A Spoonful of Sugar Makes the Extortion Go Down
EWELL’S UNIVERSE
John R. Ewell
-
A Narrowly Divided Oregon Supreme Court Holds that Transportation Costs to Receive Medical Care and Medications Are Not Covered PIP benefits
-
Oklahoma Supreme Court Rules that Indoor Air Exclusion Does Not Violate Public Policy
ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA
Howard B. Altman
-
No Fault Claims Handling Guidance
EARL’S PEARLS
Earl K. Cantwell
[email protected]
-
Construction Surety’s Settlement Not “Bad Faith”
Spring your clocks forward and get ready to welcome springtime.
Love your feedback. Keep those emails flying in.
Dan
Dan D. Kohane
Hurwitz & Fine, P.C.
1300 Liberty Building
Buffalo, NY 14202
Office: 716.849.8942
Mobile: 716.445.2258
Fax: 716.855.0874
E-Mail: [email protected]
Website: www.hurwitzfine.com
Twitter: @kohane
LinkedIn: www.linkedin.com/in/kohane
Hurwitz & Fine, P.C. is a full-service law firm
providing legal services throughout the State of New York
NEWSLETTER EDITOR
Dan D. Kohane
[email protected]
ASSOCIATE EDITOR
Agnes A. Wilewicz
ASSISTANT EDITOR
Jennifer A. Ehman
INSURANCE COVERAGE/EXTRA CONTRACTUAL LIABILITY TEAM
Dan D. Kohane, Chair
[email protected]
Steven E. Peiper, Co-Chair
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
Hewitt’s Highlights on Serious Injury
Tessa’s Tutelage
Peiper on Property and Potpourri
Wilewicz’s Wide World of Coverage
Barnas on Bad Faith
Phillips’ Federal Philosophies
Altman’s Administrative (and Legislative) Agenda
Earl’s Pearls
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
03/01/17 Estate of Gen Yee Chu v. Otsego Mutual Fire Insurance Co.
Appellate Division, Second Department
Rescission Appropriate on Innocent Misrepresentation on “Number of Families Living There” where Carrier Offered Documentary Evidence Demonstrating it would Not Have Issued Policy.
This was a rescission action. On November 8, 1991, Chien purchased a three-store house in Queens with three separate living units, each with its own kitchen, bathroom, and separate entrance. He insisted it was a legal two-family dwelling based on documents including its certificate of occupancy and real property tax bills. He and his wife applied for and obtained a policy of fire insurance from the defendant Otsego Mutual, indicating on their application form that the number of families in the dwelling was two.
After the house was damaged by a fire on July 15, 2011, Otsego rescinded its policy on the ground that the plaintiff and his wife had made a material misrepresentation of fact by stating on their insurance application that the house was a two-family dwelling. The plaintiff and his wife subsequently commenced this action to recover damages for breach of the subject fire insurance policy.
The lower court determined, after trial, that Otsego would not have issued the policy if the carrier knew it was a three-family home.
In order to establish the right to rescind an insurance policy, an insurer must show that its insured made a material misrepresentation of fact when he or she secured the policy. A misrepresentation is material if the insurer would not have issued the policy had it known the facts misrepresented.
Here, the plaintiff's own testimony established that his house was structurally configured as a three-family dwelling, and thus, the statement on his insurance application indicating that it was a two-family dwelling was a misrepresentation.
The plaintiff testified that he believed his house was a legal two-family dwelling; an insurer may rescind a policy if the insured made a material misrepresentation of fact even if the misrepresentation was innocently or unintentionally made. Otsego established that the plaintiff's misrepresentation was material through the uncontroverted testimony of its witnesses and documentary evidence, including its underwriting guidelines, which established that the defendant did not insure three-family dwellings, and would not have issued the subject policy if the plaintiff and his wife had disclosed that the house contained three dwelling units.
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
03/08/17 Bennett v. Stamford
Appellate Division, Second Department
Plaintiff Established Issue of Fact Despite Defendant’s Medical Evidence Establishing a Prima Facie Case
In support of their motion for summary judgment, the defendants met their prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendants submitted competent medical evidence establishing, prima facie, that the alleged injury to the cervical region of the plaintiff's spine did not constitute a serious injury under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d). In opposition, however, the plaintiff raised a triable issue of fact as to whether she sustained a serious injury to the cervical region of her spine under the permanent consequential limitation of use and significant limitation of use categories of Insurance Law § 5102(d). No facts are given.
03/08/17 Cortes v. Donaldson
Appellate Division, Second Department
Issue of Fact as to Whether the Plaintiff Sustained a Serious Injury to the Cervical Region of Her Spine
Similarly, the defendants again met their prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendants submitted competent medical evidence establishing, prima facie, that the alleged injury to the cervical region of the plaintiff's spine did not constitute a serious injury under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d).In opposition, however, the plaintiff raised a triable issue of fact as to whether she sustained a serious injury to the cervical region of her spine under the permanent consequential limitation of use and significant limitation of use categories of Insurance Law § 5102(d). Again, no facts are given.
03/08/17 Mangione v. Bua
Appellate Division, Second Department
Defendant’s Own Expert Found Significant Limitations in Range of Motion in Spine Such that Defendant Failed to Make a Prima Facie Case
The defendant failed to meet her prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendant failed to submit competent medical evidence establishing, prima facie, that the injured plaintiff did not sustain a serious injury to the cervical and lumbar regions of her spine under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d), as the defendant's experts found significant limitations in the range of motion in those regions of her spine. Since the defendant failed to meet her prima facie burden, it was unnecessary to determine whether the papers submitted by the plaintiffs in opposition were sufficient to raise a triable issue of fact. No specific facts are given.
03/08/17 Pierre-Paul v. Price
Appellate Division, Second Department
Plaintiff Established Issue of Fact as to Injuries to Lumbar Spine
Another case where the Second Department gave no facts. In support of their motion for summary judgment dismissing the complaint, the defendants met their prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendants submitted competent medical evidence establishing, prima facie, that the alleged injuries did not constitute a serious injury under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d). In opposition, however, the plaintiff raised a triable issue of fact as to whether he sustained a serious injury to the lumbar region of his spine
03/02/17 Khanfour v. Nayem
Appellate Division, First Department
Plaintiff’s Own Medical Records Showed Evidence of Preexisting Degenerative Disease which Conclusory Opinion of Pain Management Specialist Couldn’t Overcome
Plaintiff alleges that he suffered serious injuries to his cervical and lumbar spine as a result of a motor vehicle accident, and that injuries he suffered in two accidents 10 years earlier had resolved many years earlier. Defendants made a prima facie showing that plaintiff did not sustain a serious injury to his cervical or lumbar spine as a result of the subject accident by submitting expert reports by an orthopedist and neurologist, who found full range of motion in those parts and opined that the alleged injuries had resolved. Defendants also submitted a report by a radiologist, who found no sign of injury in the lumbar spine, but preexisting degenerative conditions, including disc desiccation and osteophytes, in plaintiff's cervical spine. In addition, their orthopedist reviewed plaintiff's medical records, which included an X-ray report that similarly found multilevel disc disease and osteophytes in plaintiff's cervical spine.
In opposition, plaintiff failed to raise a triable issue of fact as to either his cervical spine or his lumbar spine. As to the cervical spine claim, plaintiff submitted an MRI report finding herniations and the report of his pain management specialist who found persisting limitations in range of motion and opined that they were causally related to the accident. However, plaintiff's earlier treating physician acknowledged that plaintiff's own X-ray report revealed multilevel "disc disease" and "bilateral foraminal impingement due to foraminal osteophytes." Since plaintiff's own medical records provided evidence of preexisting degenerative changes, his pain management specialist's conclusory opinion, lacking any medical basis, was insufficient to raise an issue of fact since it failed to explain how the accident, rather than the preexisting disc disease and osteophytes, could have been the cause of plaintiff's cervical spine condition.
As to the lumbar spine claim, plaintiff submitted a radiologist's report finding a bulging disc with foraminal impingement, and his pain management specialist opined that the lumbar condition was caused by the accident. There was no evidence contradicting plaintiff's testimony that his previous back injury had fully healed some 10 years before the subject accident. However, plaintiff's post- accident treatment records show that he had normal or near normal range of motion within two months after the accident, which is insufficient to support a serious injury claim. Three years later, plaintiff's pain management specialist found arguably significant limitations in lumbar spine range of motion, but failed to reconcile his findings with the earlier conflicting findings, and defendants were therefore entitled to summary judgment.
03/01/17 Pierre v. Motley
Appellate Division, Second Department
Defendant Submitted Competent Medical Evidence that Established a Prima Facie Case of No Serious Injury
As is typical of the Second Department this week, no facts are given. Defendant established her prima facie entitlement to judgment as a matter of law dismissing the complaint by submitting evidence showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendant submitted competent medical evidence establishing, prima facie, that the alleged injury to the plaintiff's right shoulder did not constitute a serious injury under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d). In opposition, the plaintiff failed to raise a triable issue of fact.
03/01/17 Servilus v. Walcott
Appellate Division, Second Department
Plaintiff’s Motion to Vacate a Default Was Denied Due to Failure to Provide Reasonable Excuse
Technical decision in which the Appellate Division denied a motion to vacate a default. Plaintiff failed to respond to defendant’s motion for summary judgment contending that there was no serious injury suffered in a motor vehicle accident. Plaintiff was required to demonstrate both a reasonable excuse for the default and a potentially meritorious opposition to the defendant's motion. A court has the discretion to accept law office failure as a reasonable excuse where that claim is supported by a detailed and credible explanation of the default. The plaintiff's counsel's undetailed and conclusory assertion of law office failure did not constitute a reasonable excuse for the plaintiff's default and therefore it was unnecessary to determine whether she had a potentially meritorious opposition to the defendant's motion.
03/01/17 Tsildulko v. K & L Int’l Trading, Inc.
Appellate Division, Second Department
Issue of Fact Where Plaintiff Submitted Evidence of Injury to Cervical and Lumbar Regions
Again, a Second Department decision with few facts. In support of their motion for summary judgment dismissing the complaint, the defendants met their prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendants submitted competent medical evidence establishing, prima facie, that none of the alleged injuries to the cervical and lumbar regions of the plaintiff's spine constituted a serious injury under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d), and that, in any event, the alleged injuries were not caused by the subject accident. In opposition, however, the plaintiff raised a triable issue of fact as to whether he sustained serious injuries to the cervical and lumbar regions of his spine under the permanent consequential limitation of use and significant limitation of use categories of Insurance Law § 5102(d), and as to whether the alleged injuries were caused by the accident.
Tessa R. Scott
Litigation
03/01/17 Matter of GEICO Ins. Co. v AAAMG Leasing Corp
Appellate Division, Second Department
Attorney's Fee In Connection With A Court Appeal from a Master Arbitration Award Will Be Fixed By the Court Adjudicating the Matter
AAAMG Leasing Corp., as assignee of Dawn Channer (hereinafter the appellant), a medical provider which made a claim for no-fault benefits from the petitioner insurance carrier. The petitioner denied the claim, stating that the supplies provided were not medically necessary.
The appellant sought arbitration of the claim, and in an award dated April 28, 2014, the arbitrator awarded the appellant the sum of $3,870.45, plus interest, and an attorney's fee in the sum of $850.
The petitioner sought review of the arbitrator's award by a master arbitrator. The master arbitrator affirmed the original arbitration award, and awarded an additional attorney's fee in the sum of $650, which the master arbitrator stated was the maximum allowable fee.
The petitioner then commenced the instant proceeding pursuant to the master arbitration award dated August 4, 2014. The appellant cross-petitioned to confirm the arbitration award, and sought an additional attorney's fee. The petitioner opposed that demand for relief. In the alternative, the petitioner stated that the appellant's fee should be limited to $650.
In the order and judgment appealed from, the Supreme Court confirmed the arbitration award. The appeal was limited to so much of the order and judgment as denied that branch of the cross petition which was for an award of an additional attorney's fee.
The general rule is that in proceedings involving arbitration, as in other litigation, an attorney's fee is not recoverable unless provided for by agreement or statute. Pursuant to Insurance Law, if a valid claim or portion of a claim for no-fault benefits is overdue, is entitled to recover his reasonable attorney's fee, for services necessarily performed in connection with securing payment of the overdue claim. The Second Department determined that an attorney's fee for services rendered in connection with "a court appeal from a master arbitration award . . . shall be fixed by the court adjudicating the matter.” The Second Department continued to explain that a court appeal applies to a proceeding to vacate or confirm a master arbitration award.
Here, the appellant sought an attorney's fee for services rendered in connection with the court proceedings on the petition to vacate the master arbitrator's award and the cross petition to confirm the award. The Supreme Court denied the requested relief without stating the basis for that determination. To the extent the court denied relief on the ground that it lacked authority to award an additional attorney's fee, the court erred. To the extent the court denied relief on the merits, the basis for that determination is not evident from the record.
Accordingly, the matter must was remitted to the Supreme Court, Nassau County, for a determination of the amount of the additional attorney's fee to which the appellant is entitled, stating the evidentiary basis for the award. However the attorney cannot collect a fee for any time spent by the appellant's attorney in applying for and substantiating his fee.
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
02/28/17 Convention Plaza III, LLC v. Seneca Specialty Ins. Co.
Appellate Division, First Department
Summary Judgment Granted to Insurer Where Utility Bills and Expert Affidavits Established Prima Facie Case that Insured Failed to Maintain Heat
An insurer established prima facie that the “Heat Condition” endorsement applied to bar coverage. The policy's endorsement stated that loss caused by leaks or flows of water or other liquids from building systems or equipment caused by or resulting from freezing is excluded “unless ... [y]ou maintain heat in the building or structure at a minimum of 55 degrees Fahrenheit”. The insurer submitted two expert affidavits stating that the freezing water was caused by the fact that the HVAC rooftop units were turned off, and the baseboard heaters alone could not keep the internal temperature of the premises above freezing during the cold period before the January 17, 2014 loss, and indeed that the baseboard heaters could not have maintained a minimum internal temperature of 55 degrees Fahrenheit based on the premises’ electrical consumption from December 23, 2013 to January 27, 2014. In opposition, plaintiff submitted no expert affidavits, and, the affidavit by the person hired to check on the premises failed to raise an issue of fact. The First Department modified the trial court's order, granting the insurer's motion for summary judgment.
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
03/03/17 U.S. Specialty Ins. Co. v. Estate of John Charles Earley
United States Court of Appeals, Tenth Circuit
Tenth Circuit Holds Pilot Endorsement Applicable to Preclude Coverage Where Owner Operator of Plane Was Not Listed on Endorsement Schedule as Pilot
John Earley was the named insured on an aircraft insurance policy with U.S. Specialty. He owned three aircraft, each of which was listed on the policy. That policy also included a Pilot Endorsement which stated that, with regard to his North American P-51D Mustang: “THE PILOT FLYING THE AIRCRAFT. The aircraft must be operated in flight only by a person show below who must have a current and proper (1) medical certificate and (2) pilot certificate with necessary ratings as required by the FAA for each flight. These is no coverage under the policy if the pilot does not meet there requirements. 1. Mike Schlarb, Must be trained and signed off as qualified to act as PIC by a CFI approved by us[.], 2. Vlado Lenoch.”
In the summer of 2014, Earley took Schlarb in the Mustang and the two went up for an instructional flight, presumably while Earley was still training to get his wings. Earley sat in front and Schlarb in the back. Unfortunately, the Mustang crashed moments after takeoff and both men died on impact. The Mustang was totally destroyed.
U.S. Specialty started a DJ action for a declaration that its policy did not cover any potential claims arising from the crash. At issue was mainly 1) whether the Earley was even allowed to have been receiving training in that plane, and 2) since he was the one operating it, there was no coverage in light of the above pilot endorsement. Ultimately, the Tenth Circuit agreed with the insurer. The language was plain. If the Mustang was operated in flight by a person other than those two listed, there would be no coverage. Here, that particular plane could not even be operated from the back seat, so the evidence was clear. Further, although the estate wanted to read “the pilot flying the aircraft” as “the pilot in command” (i.e. that it was being “flown” from the rear seat), this argument was rejected. The controls were in the front and all of the evidence pointed to Earley being the one operating the plane. Thus, there was no coverage under the U.S. Specialty policy.
Jennifer A. Ehman
02/27/17 National Union Fire v. Roman Catholic Diocese
Supreme Court, New York County
Trial Court Finds that Abuse of Multiple Children over the Course of Multiple Decades by Foster Parent Constitutes Multiple Occurrences and Settlement Should be applied on a Pro Rata Basis; $250,000 SIR Applicable to All Occurrences
This decision arises out of a substantial settlement paid to ten individuals who had been placed as foster children in the home of Judith Leekin. The individuals suffered horrific abuse during their time with Ms. Leekin. Many of the children were placed through agencies run by the Roman Catholic Dioceses of Brooklyn. Others were placed by the City of New York. The placements began in 1985. In July 2007, all the children were removed from Ms. Leekin’s custody.
The individuals brought an action in federal court alleging 1983 and negligence claims. In this action, the individuals filed a Rule 56.1 statement, which detailed the individual acts of abuse suffered by each of them over the years. All alleged that they suffered abuse from the time of their placement in Ms. Leekin’s custody to their removal in 2007, with the exception of an individual identified as J.B., who alleged abuse until he escaped in 2004. The claimants alleged the abuse occurred in New York and Florida where she later relocated. They also alleged abuse ranging from being beaten, handcuffed, zip-tied, humiliated, threatened, secreted from the public, locked up in a basement or garage, deprived of education, denied medical treatment and starved.
Plaintiffs issued a series of sixteen consecutive commercial general liability policies to the Diocese, which were in effect between September 1, 1985 and August 31, 2001. Each of the policies contained a $250,000 Self-Insured Retention (SIR), which applied per occurrence. The policies were clear that the insurance would apply excess of the SIR.
Through the use of a funding agreement, plaintiffs settled the case, but reserved their rights to seek reimbursement from the Diocese.
Plaintiffs’ brought this action and then this motion seeking a declaration that the settlement must be allocated pro rata to the 22 annual periods of exposure between 1985 and 2007 (another insurer took over the risk in 2001). They also sought a declaration that, after the pro rata allocation, the Diocese must satisfy a $250,000 SIR for each occurrence that resulted in bodily injury to each claimant during a particular policy period.
A near identical dispute between the same parties played out before the Court of Appeals in the Roman Catholic Diocese of Brooklyn v. National Union Fire Insurance Company of Pittsburgh matter, which we reported as follows, in relevant part:
05/07/13 Roman Catholic Diocese of Brooklyn v National Union Fire Ins.
Court of Appeals
Separate Acts of Sexual Abuse are Separate Occurrences and Subject to Separate Self-Insured Retention; Allocation of Losses to the Pro-rated Among Policy Periods
This is an ongoing coverage dispute between the Roman Catholic Diocese of Brooklyn (“Diocese”) and its insurers over the apportionment of liability for a settlement on one minor plaintiff and the Diocese because of a civil action charging sexual molestation by a priest.
Only five judges took part in the decision, with a three judge majority finding that each incident of sexual abuse constituted a separate occurrence and that any potential liability should be apportioned among the several insurance policies, pro rata.
In November 2003, Alexandra, under the age of 18, through her mother, sued the Diocese and one of its priests alleging sexually abuse on several occasions from August 10, 1996 through May 2002 in a variety of geographical locations.
The Diocese settled the action for $2 million plus. National Union was one of the insurance carriers for the Diocese, providing three consecutive one-year CGL policies from August 31, 1995 – 1996, 1996-1997 and 1997-1998. For each occurrence, the National Union policy was endorsed with a $250,000 self-insured retention (“SIR”) and the liability limit of each policy was $750,000. Thus, for each occurrence, National Union’s coverage would trigger after $250,000 was paid and cap at $750,000.
National Union disclaimed coverage based on, inter alia, two exclusionary provisions referring to sexual abuse, and also asserted that the "policies have $750,000 policy limits over a $250,000 self-insured retention," and coverage is applicable only if the "bodily injury" occurred during the policy period.
When the Diocese sued for declaratory relief, seeking coverage under the 1995-1996 and 1996-1997 policies, National Union claimed that the individual occurrences were subject to multiple self-insured retentions under the Policies and limited by the availability of other “valid and collectible” insurance. The Diocese claimed that the sexual abuse was one occurrence and allocation of liability should be pursuant to a joint and several allocation methods, so that the entire amount could be paid out of the two policies. The Diocese also cross-moved.
The National Union policies at issue on this appeal define an "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." They define "bodily injury" to mean "bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time," and limit liability to bodily injury that "occurs during the policy period".
Under the “unfortunate event” test, absent policy language indicating intent to aggregate separate incidents into a single occurrence, separate incidents are separate occurrences. This approach requires consideration of "whether there is a close temporal and spatial relationship between the incidents giving rise to injury or loss, and whether the incidents can be viewed as part of the same causal continuum, without intervening agents or factors". The Court found that nothing in the language of the policies, or the definition of "occurrence," evinces intent to aggregate the incidents of sexual abuse into a single occurrence. The incidents of sexual abuse within the underlying action constituted multiple occurrences over six years in multiple locations.
They are not part of a singular causal continuum, like a chain reaction auto accident.
The Diocese argued that the policies define occurrence as including "continuous or repeated exposure to substantially the same general harmful conditions." Sexual abuse does not fit neatly into the policies' definition of "continuous or repeated exposure" to "conditions" like asbestos or lead-based paint on walls. A priest is not a 'condition' but a sentient being".
The Court compared the language in the policy to that in a California case where multiple occasions of sexual abuse were considered a single occurrence. In that case, the policy language was different: "[a]ll bodily injury and property damage resulting from any one accident or from continuous or repeated exposure to substantially the same general conditions shall be considered to be the result of one occurrence". No such language existed in this case. Secondly, the parties in the California case "agree[d] that the number of occurrences depends on the cause of injury rather than the number of injurious effects"
Separate SIR’s for Each Occurrence
Consequently, the Diocese must exhaust the SIR for each occurrence that transpires within an implicated policy from which it seeks coverage. When multiple policies are triggered and liability is allocated to each, each policy's deductible is applicable.
Allocation is to be Pro-rated, Not Joint and Several
A joint and several allocation permits the insured to "collect its total liability . . . under a policy in effect during" the periods that the damage occurred whereas a pro rata allocation "limits an insurer's liability to all sums incurred by the insured during the policy period".
A pro rata allocation is consistent with the language of the policies at issue here. By example, there is no indication that the parties intended that the Diocese's total liability for bodily injuries sustained from 1996 to 2002 would be assumed by a single insurer.
A joint and several allocation is not applicable, as the Diocese cannot precisely identify the sexual abuse incidents to particular policy periods. The minor plaintiff in the underlying action could only give a broad time-frame in which the sexual abuse was perpetrated and conceded in her complaint that she was "unable in good faith . . . to state the exact date (s), time (s), [and] place (s) of each and every assault". Proration of liability among the insurers acknowledges the fact that there is uncertainty as to what actually transpired during any particular policy period.
Applying this decision the court found that the unfortunate events test must be applied to determine how occurrences are categorized unless the policy language indicated an intent to aggregate separate incidents into a single occurrence.
Here, the court found no such language. Because the policies did not contain such language which would permit the “grouping” of the underlying injuries, the unfortunate events test applies to determine the number of occurrences. As noted above, this test considers "whether there is a close temporal and spatial relationship between the incidents giving rise to injury or loss, and whether the incidents can be viewed as part of the same causal continuum, without intervening agents or factors". Similar to the Court of Appeals decision, the court found that the incidents of abuse suffered by each of the claimants constituted multiple occurrences.
Recognizing an inability to separate the individual instances of abuse, the court noted that there was at least one “occurrence” per claimant per policy period because the injuries suffered by each claimant were unique to the claimant in a given policy year and caused by separate incidents. Thus, it held that the Diocese must satisfy a separate $250,000 SIR, per occurrence in each policy period for each claimant who was abused during that period.
Finding multiple occurrences rather than a single occurrence, the court held that it next needed to determine the appropriate allocation of defense and settlement costs. It noted that in the Court of Appeals’ case, they found that the allocation of liability should be on a pro rata basis. And, agreed that such allocation was appropriate here as well. Thus, the defense and costs of settlement should be allocated to the twenty-two annual periods of potential exposure between 1985 and 2007. In other words, “[a]ll of the costs paid to defend both the City and the agencies in the underlying lawsuit must be divided equally among all ten claimants and the one tenth share attributed to each claimant must be allocated for that claimant across all potentially triggered annual policy periods from the time the claimant was placed until that claimant was removed or escaped.”
The court then went on to reject the Diocese argument that Illinois National needed to prove that the abuse alleged in the underlying action actually occurred or that there were in fact multiple acts of abuse over many years. The court disagreed finding, instead, that all plaintiffs needed to establish was that the claimants in the underlying action alleged that these events occurred and there was a settlement of the action, agreed to by all parties including the Diocese, based on the existence of these allegations.
Brian D. Barnas
03/07/17 McDaniel v. Government Employees Insurance Company
United States Court of Appeals, Ninth Circuit
Insurer’s Negligent Failure to Settle within Policy Limits was not Bad Faith under California Law
McDaniel brought a wrongful death suit against Geico’s insured Murotani. After Geico did not settle for the $100,000.00 policy limit, the case went to trial and a California state jury awarded McDaniel over $3 million. Murotani assigned the implied duty to settle claim against Geico to McDaniel.
The court concluded that Geico did not act in bad faith by failing to settle the claim. In California, bad faith requires unreasonable conduct by a conscious and deliberate act. Here, the evidence showed that Geico’s claims adjuster inadvertently missed the deadline to respond to Plaintiff’s policy limits offer because he did not read the email containing the offer. When Geico attempted to accept the offer after the deadline, it was unaware that the deadline for acceptance had passed.
As there was no evidence that Geico intentionally allowed the settlement deadline to pass, Geico was granted summary judgment on the bad faith claim.
03/06/17 Dougherty v. Allstate Property and Casualty Insurance Company
United States Court of Appeals, Third Circuit
Insurer’s Denial of Coverage was Reasonable based on Expert Report Concluding that Furnace Malfunctioned because of Lack of Maintenance
Dougherty owned a home in Glenolden, Pennsylvania that suffered extensive damage when water escaped from the home's plumbing system. Dougherty sought coverage from Allstate for the water damage, but Allstate denied the claim based on the policy’s maintenance exclusion. Dougherty filed a lawsuit against Allstate alleging breach of contract and bad faith.
First, the court concluded that the maintenance exclusion applied to bar coverage because there was overwhelming evidence that Dougherty’s lack of maintenance caused his furnace to malfunction. The furnace was in dire need of service, and it ultimately failed when essential parts became clogged with debris and soot. The lack of heat from the failing furnace ultimately caused the pipe to freeze and led to the water damage.
The court also denied concluded that Allstate did not act in bad faith. Allstate relied on an expert report detailing the condition of the furnace, the frozen condition of the home, failure of the insured to “winterize” his home, and the insured’s characterization of the incident as a water-freeze to his public adjuster in denying coverage. This was reasonable.
02/27/17 JD2 Environmental, Inc. v. Endurance American Insurance Company
United States District Court, Southern District of New York
New York does not Recognize a Tort Claim of Bad Faith Denial of Insurance Coverage
JD2 is an environmental consulting engineering firm with expertise in underground storage tank (“UST”) systems. Avis contracted with JD2 to provide engineering services for the replacement of the UST systems at its location at John F. Kennedy International Airport. D2 retained Gemstar Construction Corporation (“Gemstar”), a subcontractor, to perform the physical replacement of the UST system. During replacement, Gemstar struck an underground obstruction, which was in fact a sewer line, creating a sinkhole in which water was observed. Avis filed suit against JD2 and Gemstar to recover the cost of the repair to the damaged sewer line.
Endurance issued an insurance policy to Gemstar with a Commercial General Liability Part (“CGL”) and a Commercial Pollution Liability Coverage Part (“CPL”). The policy contained additional insured endorsements. Based on its reading of the Policy, JD2 demanded defense and indemnification from Gemstar and Endurance, on March 12, 2012, and again on January 10, 2013. On June 6, 2014, more than two years later, Endurance replied, denying coverage to JD2 and refusing to defend or indemnify JD2 in the Avis Action. JD2 was defended in the Avis Action by another insurer, Ironshore Specialty Insurance.
JD2 commenced an action against Endurance seeking a declaration that it is an additional insured under the Endurance policy, and that Endurance’s refusal to defend JD2 in the Avis Action constitutes breach of the covenant of good faith and fair dealing.
First the court concluded that Endurance had a duty to defend JD2 under a CGL additional insured endorsement that provided coverage if JD2: (1) was an additional insured as provided in a written contract with the named insured that specifies the project underlying the Avis Action; and (2) was vicariously liable for the acts of the named insured in the Avis Action. There was no dispute that there was a contract between the named insured Gemstar and JD2. The allegations in the complaint also supported a finding of vicarious liability under the theory of respondeat superior. Thus, JD2 was an additional insured under that endorsement.
However, coverage was excluded under the Endurance policy under another additional insured endorsement. That endorsement contained an exclusion for property damage arising out of the rendering or failure to render professional architectural, engineering, or surveying services. The Complaint contained allegations relating directly to claims that JD2 failed to properly render supervisory, inspection, architectural, or engineering services. Therefore the court concluded that Endurance was not required to defend JD2 under the CGL coverage.
However, the policy’s CPL coverage was triggered. The CPL coverage provided coverage for property damage resulting from a pollution condition. The definition of pollution condition included waste. The Avis Action complaint demanded damages for the cause of waste cleanup. Thus, the court granted summary judgment to JD2 and concluded that Avis’ claims were within the CPLR and Endurance had a duty to defend JD2.
However, JD2’s good faith and fair dealing claim was dismissed on summary judgment. JD2 did not allege a tort independent of the breach of contract claim against Endurance, and New York does not recognize a generalized tort claim for bad faith denial of insurance. Thus, the good faith and fair dealing claim was redundant of the breach of contract claim.
PHILLIPS’ FEDERAL PHILOSOPHIES
Jennifer J. Phillips
03/03/17 Arch Specialty Ins. Co. v. Farm Family Casualty Ins.
Southern District of New York
Not Saved by the Bell
In this dispute between insurers, Plaintiff Arch Specialty seeks a declaration that Defendant Farm Family Casualty is required to defend and indemnify certain parties in an underlying personal injury action and reimburse Arch for the defense costs already expended on that defense. The underlying action involves an employee of Farm Family’s insured Mastercraft Masonry I, Inc., Joseph Giampa, who was allegedly injured on a construction site where Mastercraft was a subcontractor. Prior to commencement of this action, Farm Family declined to provide a defense and indemnification to Mega Contracting Group, LLC, East 138th Street Owners LLC, and Barrier Free Living Housing Development Fund in the underlying action. However, as indicated by the district court, there was no genuine dispute that each of these parties was designated as an additional insured on Mastercraft’s commercial general liability policy.
The Farm Family policy provided coverage for injuries “caused, in whole or in part, by [Mastercraft's] acts or omissions or the acts or omissions of those acting on [Mastercraft's] behalf in the performance of [its] ongoing operations.” Farm Family argued that there was no coverage for the underlying action because the Giampa’s accident had occurred fifteen minutes prior to the commencement of his work shift for Mastercraft. The district court rejected this argument:
“Farm Family's argument that Giampa had not yet officially begun his work day at the time of his injury—and that he was, therefore, not injured during the actual course of his employment—fails to frame a genuine issue of material fact. There is no dispute that Giampa's injury resulted from his work at the Project Site during the course of his employment with Mastercraft—even construing the facts in the light most favorable to Farm Family, it is clear that employees such as Giampa had to enter and leave the site in connection with their shifts. The 15-minute differential between his scheduled reporting time and the time of the accident is insufficient to support any rational inference that his presence on the site at the time of the accident was not the result of his employment as a worker in Mastercraft's operations. Indeed, Farm Family's own proffer of an ‘Employer's Report of Work-Related Injury/Illness’ form documenting the incident underscores the irrefutable connection between the employment and the accident. Giampa's injuries thus ‘arose out of’ and were ‘caused, in whole or in part, by [Mastercraft's] acts or omissions or the acts or omissions of those acting on [Mastercraft's] behalf in the performance of [its] ongoing operations’ as a matter of law, and Farm Family is obligated to indemnify the Tendering Parties under the additional insured endorsements.”
The district court further found that Arch was entitled to recoup the defense costs reasonably incurred in defending the additional insureds in the underlying action. However, because Arch failed to submit documentary evidence of such defense costs, the district court referred the matter to a magistrate judge for a damages inquest.
02/24/17 U.S. Specialty Ins. Co. v. Catalent, Inc.
Southern District of New York
A Spoonful of Sugar Makes the Extortion Go Down
This insurance coverage dispute arose out of an insurance claim filed by the defendant Catalent, Inc. (“Catalent”) for financial losses it sustained during a government-mandated suspension of manufacturing at Catalent's softgel manufacturing facility in Beinheim, France. The suspension resulted from apparent violations of quality control procedures, with pills found in the wrong product batch or on an empty shelf or floor. The parties dispute whether the overseeing government regulatory agency conclusively determined that this ‘out-of-place pills’ contamination “could be considered malicious in nature or were malicious in nature,” and the person or persons who may have intentionally contaminated the product lines were not identified.
Catalent made a claim for business interruption losses under “Hazard 4. Extortion Property Damage” of its Special Coverages Policy issued by U.S. Specialty. This “Hazard,” appearing under section II of the policy, provides coverage for a loss occasioned by reason of receipt of a direct or indirect threat to the insured, including “the pollution, contamination or alteration of stock and/or raw materials and/or finished goods” or the production of publicity that the insured’s products will be or have been so contaminated. The policy defined “loss” for Hazard 4 as “the sum of monies or the monetary value of any other consideration surrendered by or on behalf of the Insured as an extortion payment arising from one event or connected series of events.”
Notably, the parties agreed that no “Extortion Property Damage” or loss as defined in Hazard 4 of the policy occurred. Catalent instead relied on a provision found in a separate section (section III) of the policy entitled “Additional Coverage” which states that U.S. Specialty “shall indemnify [Catalent] for the following expenses … incurred directly and solely as a result of an incident covered by any of the Hazards as shown in Item 3 of the Declarations,” including Hazard 4. Catalent argued that this separate section was an “independent and ‘separate insuring agreement.’”
The district court, applying New York law in light of the parties’ agreement on this issue, rejected Catalent’s arguments as contrary to the plain language of the policy, including the “Additional Coverage” language. For example, Catalent argued that coverage could be based on the following language: “‘[w]ritten proof of LOSS and/or expense claim must be furnished to [USSIC] within ninety (90) days after the date of such LOSS and/or expense payment.’ Catalent reasons from this that an expense claim must be an allowable claim that is independent of a ‘LOSS’ claim. This notice provision merely provides the time period to submit a claim. It does not override the unambiguous language in the Policy regarding the scope of coverage.” Regardless of how framed, the district court rejected Catalent’s assertion that coverage existed, finding instead that the policy language unambiguously required a payment or expense due to an extortionate threat. Because no such payment had in fact resulted, there was no coverage for the business suspension losses, even assuming the contamination was maliciously caused.
EWELL’S UNIVERSE
John R. Ewell
02/16/17 Dowell v. Oregon Mutual Ins. Co.
Supreme Court of Oregon
A Narrowly Divided Oregon Supreme Court Holds that Transportation Costs to Receive Medical Care and Medications Are Not Covered PIP benefits
Oregon's Supreme Court recently addressed whether personal injury protection ("PIP") medical benefits in Oregon's No-Fault Statute include the insured's transportation costs to receive medical care.
Auto insurers in Oregon must provide PIP benefits to their insureds for certain automotive injury-related expenses, regardless of who is at fault in an accident. Plaintiff had an Oregon auto insurance policy issued by defendant Oregon Mutual Insurance Company. Plaintiff was injured in a motor vehicle accident. Among other expenses, plaintiff incurred $430.67 in transportation costs to attend medical appointments and to obtain medication. She then applied for PIP medical benefits under her insurance policy. The insurer paid for plaintiff's medical care, but it declined to pay for her transportation expenses to obtain her medical care. On behalf of herself and others similarly situated, plaintiff contended in her action against defendant Oregon Mutual Insurance Company that insurers must pay transportation costs incurred to obtain medical care as part of PIP medical benefits.
The PIP medical benefits at issue in this case “consist of the following payments for the injury or death of each person” covered: “All reasonable and necessary expenses of medical, hospital, dental, surgical, ambulance and prosthetic services incurred within one year after the date of the person's injury, but not more than $15,000 in the aggregate for all such expenses of the person.” The insurer responded by moving for summary judgment, arguing that Oregon's No-Fault Statute did not require it to pay for transportation costs. The trial court granted the insurer's motion for summary judgment, and the immediate appellate court affirmed.
On appeal to the Oregon Supreme Court, plaintiff argued that Oregon should adopt the majority rule that PIP benefits include the reasonable cost of travel to a health care provider, relying on decisions from high courts in other jurisdictions. Plaintiff contended that the reasoning of the high courts of Florida, Colorado, New Jersey, and Michigan were persuasive, and that accordingly, Oregon should follow suit.
The insurer responded that the text and context of the statute limit payment to the cost of services expressly listed in Oregon's No-Fault Statute that are performed by a “provider,” that is, a licensed healthcare provider. Noting that the statute refers only to ambulance services and not to other transportation, the insurer argued that PIP benefits are not meant to cover “providers of non-health care services,” such as a taxicab or bus service, or services that insureds perform for themselves, such as driving to the doctor's office.
Oregon's Supreme Court noted that the majority approach among the states is that transportation expenses to and from health care providers are reimbursable PIP expenses. The Court then distinguished Oregon's No-Fault Statute from the no-fault statutes in Florida, Colorado, New Jersey, and Michigan.
The court found that Oregon's legislature did not intend expenses for ordinary transportation to receive medical treatment or to obtain medication to be PIP benefits under Oregon law. Thus, the court concluded that Oregon law only requires an insurer to pay for healthcare bills and items that a physician or other healthcare provider prescribes for treatment, such as medications and medical supplies and equipment. Three judges dissented and would have preferred that Oregon adopted the majority rule, following courts such as Florida.
02/22/17 Siloam Springs Hotel, LLC v. Century Surety Company
Supreme Court of Oklahoma
Oklahoma Supreme Court Rules that Indoor Air Exclusion Does Not Violate Public Policy
Century Surety Company ("Century") issued a Commercial Lines Policy, including general liability insurance coverage to Plaintiff Siloam Springs Hotel, L.L.C. ("Siloam"). This policy included of Siloam's hotel in Siloam Springs, Arkansas. The policy included an "Indoor Air Exclusion" which provided that the insurance afforded by the policy does not apply to:
“Bodily injury”, “property damage”, or “personal and advertising injury” arising out of, caused by, or alleging to be contributed to in any way by any toxic, hazardous, noxious, irritating pathogenic or allergen qualities or characteristics of indoor air regardless of cause.
In 2013, several guests inside the hotel allegedly suffered bodily injury due to carbon monoxide poisoning. The carbon monoxide allegedly escaped into the air due to leakage from the hotel's indoor swimming pool heater. Siloam sought coverage under its policy from Century. Century denied based on the policy's Indoor Air Exclusion. Siloam filed a declaratory judgment action seeking a declaration that Century was obligated to provide coverage. After protracted litigation, a federal court in Oklahoma certified a single question of state law to the Supreme of Oklahoma: whether the public policy of the State of Oklahoma prohibited enforcement of the Indoor Air Exclusion.
The insured asserted that the Indoor Air Exclusion as applied to a sudden carbon monoxide leak violates public policy because it potentially denies compensation to victims under circumstances in which a reasonable person would expect that liability insurance would be available to compensate for the injury. The court rejected this argument, stating that the issue was not potential compensation to injured parties and the reasonableness of expecting it, but the enforceability of an exclusion limiting insurance coverage. The court went on to state that:
"Even were the exclusion to fully exclude the events of this cause from coverage under the insurance contract, that does not necessarily mean injured individuals will be unable to recover from Siloam itself. The insurance contract limits what Century must pay, and does not serve to limit Siloam's potential liability. Just because one believes the air they breathe might become contaminated, and expects a business should carry insurance to cover that eventuality, does not mean the law requires it"
The Supreme Court of Oklahoma found that "there is no clearly articulated public policy in Oklahoma, statutory or otherwise, that prohibits enforcement of the Indoor Air Exclusion at issue." The court further stated that "[r]egardless of the precise coverage limitations of the exclusion, Century and Siloam were free to negotiate and contract for coverage as they saw fit." Thus, the court answered the certified question in the negative, declaring that the public policy of the State of Oklahoma does not prohibit enforcement of the Indoor Air Exclusion.
ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA
Howard B. Altman
No Fault Claims Handling Guidance
The Department of Financial Services (“DFS”) issued a Circular Letter in February offering new guidance to handling Personal Injury Protection, or “PIP” claims under the No-Fault law. The letter is addressed to “all Insurers Licensed to Write Motor Vehicle Insurance in New York, Motor Vehicle Self-Insurers, and the Motor Vehicle Accident Indemnification Corporation and implicates N.Y. Insurance Law § 2601 and Article 51; and 11 NYCRR 65 (Insurance Regulation 68) The letter can be found at:
http://www.dfs.ny.gov/insurance/circltr/2015/cl2015_01.htm
The letter advises that DFS wishes to “provide guidance to no-fault insurers by clarifying various provisions in 11 NYCRR §§ 65-2 (Insurance Regulation 68-B) and 65-3 (Insurance Regulation 68-C) that concern notice/proof of claim, in light of the holdings in Sound Shore Med. Ctr. v. New York Cent. Mut. Fire Ins. Co., 106 A.D.3d 157 (2d Dep’t 2013), and Mount Sinai Hospital v. New York Cent. Mut. Fire. Ins. Co., 120 A.D.3d 561 (2d Dep’t 2014).
In Sound Shore and Mount Sinai, the Appellate Division, Second Department held that notice/proof of claim, which begins the 30-day period to pay, deny, or request additional verification, was made only after the insurer received both the NF-5 and the UB-04 in accordance with 11 NYCRR § 65-3.5(g), rather than just the UB-04, because the UB-04 alone did not contain substantially the same information as that requested on the NF-5. The Circular letter seeks to clarify the notice and verification requirements.
Background
11 NYCRR § 65-2.4(b) requires that, in the event of an accident, an insurer shall be provided with written notice identifying the injured person eligible for no-fault benefits, along with “reasonably obtainable information” regarding the time, place, and circumstances of the accident, from or on behalf of the eligible injured person, within 30 days of the accident. Pursuant to 11 NYCRR § 65-3.4(b), an insurer shall, within five business days of receiving notice of an accident, send to the eligible injured person the prescribed application for motor vehicle no-fault benefits (“NYS Form NF-2” or “NF-2”).
Pursuant to 11 NYCRR § 65-3.3(d), an insurer is deemed to receive notice of claim once it receives a completed NF-2 form from an eligible injured person or the corresponding completed hospital facility form, NYS form NF-5 (“NF-5”). Thereafter, the insurer has 30 days within which to pay or deny the claim, or else to request additional verification of the claim within the timeframes prescribed in 11 NYCRR § 65-3.5.
The prescribed form for submitting verification of a claim in response to an insurer’s request is either the NYS Form NF-3 (“NF-3”) in the case of a treating physician or other health service provider), or the NYS Form NF-4 (“NF-4”), in the case of a hospital facility. However, under 11 NYCRR § 65-3.5(f), an insurer must accept proof of claim submitted on a form other than the prescribed form if that form contains substantially the same information as the prescribed form. In otherwise, substance over form, rather than form over substance; if the carrier does not receive the information that would have been provided on the NF-05 form, it must now affirmatively request it. An insurer may request that proof of claim be submitted on the prescribed form if the other form used does not contain substantially the same information.
Obligation of No-Fault Insurers
According to the Circular letter, DFS developed the NF-5 (the hospital form) because the Department recognized that it is challenging for hospitals to ensure that an eligible injured person completes and sends to the insurer the NF-2 form necessary for the processing of no-fault claims. By law, hospitals must treat all injured persons, as opposed to other health service providers like physicians, who may refuse to treat an eligible injured person unless that person completes the requisite no-fault forms. Accordingly, the NF-5 is intended to satisfy a hospital’s prima facie burden to establish notice/proof of claim, and triggers the insurer’s obligation to pay or deny the claim within 30 days or else to seek additional verification of the claim.
Upon receipt of a UB-04 from a hospital facility that is unaccompanied by a prescribed form like the NF-5 or a substantially similar form, the insurer should provide the hospital with an opportunity to submit a completed NF-5 form to the insurer as soon as practicable, based on the clear and reasonable justification for late filing of notice/proof of claim prescribed in 11 NYCRR § 65-2.4(c). In the event the eligible injured person has previously submitted an NF-2 to the insurer, the insurer need not request an NF-5, but may seek additional verification as necessary by promptly sending the hospital an NF-4.
The letter concludes that “the Department expects that no-fault insurers will be mindful of the clarifications set forth in the circular letter, which are intended to ensure the fair and expeditious resolution of no-fault claims.”
Earl K. Cantwell
[email protected]
11/07/16 Great American Insurance Co. v. E.L. Bailey & Co., Inc.
Sixth Circuit
Construction Surety’s Settlement Not “Bad Faith”
Bailey was general contractor on a prison construction project in Ypsilanti, Michigan (one of my favorite city names of all time). Great American held the performance bond which did assign to Great American the right to settle claims related to the project. As a result of a dispute, the State withheld $411,000 in liquidated damages ($1,000/day).
Naturally, the State and Bailey sued each other in the Michigan Court of Claims. A settlement was reached where the State released Bailey’s claims in exchange for paying Great American $358,000.00 in final payment on the construction contract. Bailey contended that Great American’s settlement of its claims against the State was in “bad faith”.
It is interesting that there was an initial dispute regarding the standard for “bad faith” under Michigan Law. Bailey argued that bad faith arose where an insurer is motivated by “selfish purpose” and a desire to protect its own interests at the expense of the insured. The Court questioned this analysis given the fact that suretyship is a three way contractual relationship, and not merely an insurer-insured relationship. The Court noted that the settlement appeared to be legitimate, and that Great American had secured a significant payment which was in fact more than a mediator’s recommendation.
Bailey was also upset that Great American and the State failed to disclose the settlement agreement until the very last day. The Court noted that “concealment” may be a factor in determining bad faith, but here the contractor had warning that Great American would control the claims against the State, and also forfeited its right to control of its claim by providing security/collateral as the surety had requested.
Bailey also argued against the settlement contending that, under Michigan Law, liquidated damages are not enforceable if parties are mutually responsible for project delays. Bailey specifically blamed most of the delay on the State’s architect/engineer who allegedly designed a flawed power source for the building. In fact, earlier in the dispute, a mediator had apportioned blame for the delay to both parties with roughly two-thirds to the contractor and one third to the State. However, the Court adhered to Michigan Law which apparently states that, if delay is due to the fault of both parties, the Court does not attempt to apportion or mete out liquidated damages. In short, the Court ruled that Bailey was simply disagreeing with the monetary amount of the settlement, which is not bad faith.
Another interesting side note which may have detracted from the bad faith argument is that the contractor did not allege “bad faith” against Great American when it used portions of the main settlement proceeds to resolve outstanding claims and liens by the contractor’s own suppliers and subcontractors.
This is an interesting case interpreting and applying “bad faith” in a surety/construction context. This apparently presented some novel issues under Michigan Law interpreting and defining bad faith in such a suretyship setting. The performance bond gave Great American the right to control settlement. The surety had apparently offered to put the dispute and settlement negotiations back into the contractor’s hands if it posted sufficient collateral/security, which the contractor apparently declined to do. It was also somewhat hypocritical for the contractor to claim that the initial, overall settlement was in bad faith, but that various settlements or payments to its suppliers and subcontractors who were owed money from the contract proceeds were not somehow tainted or in bad faith.
Another unspoken but relevant notion is that in these situations, the performance bond company steps into the shoes of and “becomes” the contractor for purposes of completing the project. Since the bond company and contractor are merged and essentially the same legal persona, it is difficult to assert bad faith when dealing with and for oneself.
The bad faith claim was also most likely deflected by the fact that a settlement of $358,000.00 out of the $411,000.00 which the State withheld represented a very substantial payment in terms of the dollars and percent of funds in dispute. It was clearly not a de minimis or minimal settlement.
