Volume XVIII, No. 21 (No. 477)
Friday, April 7, 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.
As troubles mount in the world, we take a moment to salute those who have served our nation. One hundred years ago this week, the United States entered what became known as World War I. Many think that the sinking of the Lusitania finally pushed President Wilson and Congress to join the Great War, which had been raging since July of 1914. But the Lusitania was sunk by a German submarine on May 7, 1915 and the US did not officially declare war until April 1917. Why? Many reasons, I suppose, but the two most significant was Germany’s decision to conduct unlimited submarine warfare and attack civilian ships and the Zimmermann Note (or Telegram). The Zimmermann Note was an intercepted telegram from Germany to Mexico offering a strategic alliance if the US entered the war. That alliance would include giving Mexico US territory. For those interested in the Zimmermann Note, click here.
There are couple of very interesting decisions in this issue, including our win in the Appellate Division, Fourth Department in a case on first impression, with the court endorsing the “courtesy defense”.
Travel and Training:
I’ve been a traveling fool, over the past two weeks. First, I spent a few days in Boston as a speaker, and member of the planning committee, for the PLRB Claims Conference. The topic was my favorite – Risk Transfer (Contractual Indemnity and Additional Insured Coverage) with my friend John Hanlon from Selective. We spoke to about 130 folks and a baker’s dozen or more have become Coverage Pointers subscribers (and are receiving their first issue today). Welcome. You are reading the cover letter and the issue is attached. Enjoy the history and the substance interspersed and then settle in to read the attached newsletter. For our new subscribers, drop a note and tell us what you think. Back issues are available on our website, www.hurwitzfine.com. Just click on the newsletter tab.
You will also find access to our sister publication, Labor Law Pointers and if you handle construction litigation, particularly in New York, send Dave Adams an email and ask him to add you to his mailing list: [email protected].
This week, I also spent time in Scottsdale, Arizona for client training.
Training? We provide personalized training for insurers, locally, regionally or nationally. Our goal is to empower claims professionals to take on both the routine and the complex matters that come before them. We design our training modules with empowerment in mind – to encourage and promote self-reliance.
We have provided many of these live at regional and national claims conferences or by Skype or “Go to Meeting” video conferencing.
We revise our topical list as requests come in. Here is a sample of programs provided in the past but we can craft one for you:
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Tenders, Additional Insured Obligations, Indemnity Agreements and Priority of Coverage
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Chaos Breeds Resolution: Mediation and the Role of Coverage Counsel in Resolving Chaos
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Privileges – The Best Way to Protect the Claims File from Prying Eye
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Strategic Approaches to Resolving Insurance Coverage Disputes: Do We Defend and Start a DJ? Do We Sit Back and Wait?
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Good Faith, Consequential Damages and Extra-Contractual Liability - the New York Experience
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NY Coverage Letters - Nuts & Bolts: How to Create and Write and Timely Send a Disclaimer Letter and NY’s Special Dangers with Reservation of Rights Letters
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Uninsured and Underinsured Claims Handling
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Preventing Bad Faith Claims - First Party Cases
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Preventing Bad Faith Claims - Liability Cases
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The Cooperation Clause - How to Handle
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The Primary – Excess Relationship
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No-Fault Arbitrations and Appeals: Mock Arbitrations
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The Serious Injury Threshold
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An Auto Liability Policy Primer
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A CGL Policy Primer
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A Homeowners Liability Policy Primer
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EUO's Under First Party Policies
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How to Resolve Coverage Disputes: DJ Actions, Insurance Law Section 3420 Direct Actions (Choice, Strategy and Timing)
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Insured-Selected Counsel: When is it Necessary and How to Avoid it?
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ADR and How to Get to "Yes"
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“Other Insurance”
We may be able to secure CLE and CE credit for these presentations.
Interested? Drop me a note at [email protected]
Help Wanted:
My good friends at the Meadowbrook Insurance Group are looking for a Senior Litigation Counsel. Here’s the link to the job description. The essential functions include:
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Handle complex coverage and extra contractual litigation actions as assigned.
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Research and write brief opinions on coverage issues.
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Attend and provide coverage advice in claim review meetings.
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Handle referral of other coverage requests to outside counsel.
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Recommend reserve and payment changes as appropriate to management.
United States Enters the “Great War” – World War I:
New York Herald
New York, New York
07 Apr 1917
91 SHIPS SEIZED, ALL DAMAGED
EXCEPT THE VATERLAND …
Wilson Signs Resolution, signifying
Entrance of United States Into
Conflict Against Germany
SUMMONS FLASHED TO NAVY;
FLEETS GUARD AGAINST ATTACK
U-Boats Are Reported in Gulf of Mexico—President
Endorses Compulsory Service—Calls All
to Support Country—Defines Status of Aliens
Following the signing of the joint resolution of Congress which declares a state of war existing between Germany and the United States, President Wilson issued a formal proclamation.
The signing of the resolution of Congress put the United States on a war basis automatically. The proclamation of the President sets forth the regulations which, through the authority vested in him by Congress, he deems necessary “for the public safety.”
Jen’s Gems:
Greetings!
I write this note from Chicago where I am attending DRI’s Insurance Coverage and Claim Institute. Since my birthday was yesterday, and it would have broken Ella’s heart if I was away for my birthday (she is still young enough to think birthdays are exciting), I got in this morning. The programing thus far has been fantastic.
My column this week discusses a New York trial court case where the question posed to the court was when the duty to place an excess carrier on notice of a claim is triggered. In the underlying action, the injured plaintiff submitted a supplemental bill of particulars which advised that surgery would be required and included an ad damnum figure well in excess of the primary policy limits. The court held that in view of the common place practice of exaggerating damage requests in personal injury actions, this did not yet make it reasonably clear that the excess coverage might be implicated. Instead, the trigger event was learning that the injured plaintiff has gone through with the surgery and that the value of the claim would likely go into the excess layers. A good read.
Until next issue…
Jen
Jennifer A. Ehman
Others Join as Well:
Press and Sun-Bulletin
Binghamton, New York
07 Apr 1917
CUBA TO JOIN
U.S. IN WAR
Insular Congress Is Expected
to Issue Declaration Against
Germany Tonight
New York, April 7.—The Cuban Congress tonight is expected to declare that a state of war exists between Cuba and the imperial German government, according to a cable message from E. S. Azpiazu, private secretary to President Menocal, to the Republic of Cuba news bureau here.
“Special committees of both the Cuban House and Senate, which were in session last night,” the dispatch said, “reconvened this morning and discussed President Menocal’s demand for war with Germany.
“Both houses of the Cuban Congress will meet late this afternoon and it is reliably, though as yet unofficially said, that Cuba’s formal declaration of war will come sometime tonight.”
Tessa’s Tutelage:
Dear Readers:
Hold on to your hats No Faulters, this is not a drill! We have a pretty hefty decision regarding no-fault this week!!! The Second Department’s decision in Carothers v Progressive Ins. Co. weighs in on fraudulent incorporation and no-fault law. By way of background, in New York State professional service corporations must be owned and controlled only by licensed professionals. Additionally, the Court of Appeals held that an insurance carrier may withhold payment for medical services provided by a professional corporation which has been "fraudulently incorporated" to allow non-physicians to share in its ownership and control. Here, the court was presented with tons of evidence that the corporation, which on paper was owned by a radiologist, was in fact owned and operated by non- physicians. This is a pretty big no no.
The lower court considered the fact that the radiologist seemed to have an odd business relationship with his landlord. For one, he rented MRI equipment for a monthly fee that was so high that he could have just purchased the equipment outright each month. Additionally, the good doctor didn’t recognize many of the employees, who were of course family members of his landlord. The contract between the doctor and the landlord was so one sided it stuck out like a sore thumb. To top it all off there were eight accounts associated with the business that had no tax returns associated with them… and seemed to be funneling into the landlord’s private account. All pretty hinky.
The court reviewed the jury instructions given to the jurors and concluded that they were appropriate. The lower court had provided 13 factors that the jury may wish to consider in their determination. The factors included things like, who had hiring firing responsibilities, who managed the books, who set up board of director meetings, etc etc. The Second Department was okay with these, even though they could not stand on their own. The Second Department felt that the evaluation was a totality of the circumstances.
The other interesting tidbit here is that the lower court had instructed the jury that they could draw an adverse inference from the fact that the landlord and executive secretary of the corporation had both pleaded the fifth. The Second Department determined that neither landlord nor secretary were parties to the action so a negative inference was improper. HOWEVER, because there was just so much stinkin’ evidence pointing to fraudulent incorporation, the jury’s negative inference was moot.
I encourage anyone who gets as excited about no-fault as I do to take a look at the full decision. Let me know what you think!
Tessa
Tessa R. Scott
Selective Service Adopted:
The New York Times
New York, New York
07 Apr 1917
WILSON APPROVES
STAFF’S ARMY BILL
Explains That He Regards the
Selective-Draft Plan as
Best in Emergency
AS A TEMPORARY POLICY
Hopes for Permanent Peace and Says
We Can Shape Our Future Military
Needs after the Crisis
WASHINGTON, April 6. – President Wilson issues a statement today supporting in every detail the General Staffs plan for raising an army of a million men in a year, and adding further increments when needed. The President’s statement is as follows:
“The principles embodied in the legislation presented by the War Department to the Military Committees of the Senate and House have my entire approval, and its specific recommendations embody the best judgment of the officers of the War Department. It proposes to raise the forces necessary to meet the present emergency by bringing the regular army and the National Guard to war strength and by adding the additional forces which will now be needed so that the national army will comprise three elements, the regular army, the National Guard, and the so-called additional forces, of which a first 500,000 are to be authorized immediately, and later increments of the same size as they may be needed.
Ewell's Universe:
Dear Subscribers:
More bad faith cases reaching the state’s high courts.
Last week's issue of Ewell's Universe featured a well-reasoned bad faith case from Delaware's high court. This week we have another bad faith case reaching a high court. This time in Minnesota. In an opinion published just yesterday, the Minnesota Supreme Court held that proceeds awarded to insureds pursuant to the state's bad faith statute are capped by the policy limits. If this trend continues, we may have to invite Brian Barnas from Barnas on Bad Faith over as a guest columnist.
In other news, Utah's Supreme Court held that there was no coverage under a professional errors and omission policy for a real estate agent who was not a paid a traditional real estate commission. The real estate agent negotiated a development project, pocketed $165,000 for himself, but the project failed. The investors were understandably upset and sued the real estate agent, obtaining a million dollar verdict. When it came time to pay, the investors tried to recover a million from a professional E&O policy issued to the agent's brokerage firm. Based on the policy's language, the Utah Supreme Court held that there was no coverage for the agent under the policy's language because he did not receive a traditional real estate commission. Both of these cases are discussed in further detail in my column.
This has been a pretty exciting week! My brother just bought a drone. All week I've been hearing how much fun it is to fly, and all the specs. Apparently it can fly 40 mph and ascend vertically over 14,000 feet (2 to 3 miles) per the manufacturer's specifications. Whether the FAA allows that may be a different story. I'm told there's an app for that—FAA regulations for drones. Hoping the weather is good this weekend so I can fly it.
'Til Next Time,
John
John R. Ewell
Liberty Bell Sounds the Message of War:
Natchez Democrat
Natchez, Mississippi
07 Apr 1917
LIBERTY BELL IS RUNG
PHILADELPHIA, PA., April 6—As in the days of American revolution, when something momentous occurred, the City of Philadelphia today notified its citizens of the signing by the President of the war resolution by ringing the bell at Independence Hall. From the same tower where Liberty was proclaimed in 1776, the Liberty Bell’s deep-toned successor was rung at half minute intervals for thirty minutes.
Phillips Federal Philosophies:
Hello, All:
Did you hear about those two guys who got arrested for stealing a calendar? They each got six months.
Speaking of being literal, the Eastern District of New York took its time in National Grid v. Brand Energy Services parsing out the words in not only a written agreement between a claimant and an insured, but also related emails and requests for proposal in order to determine whether National Grid qualified as an additional insured under a policy issued to Brand Energy. Spoiler: specificity matters.
As always, thanks for reading. Oh, and if you see my brother, tell him Happy Birthday. He’s the funny looking one.
J.
Jennifer J. Phillips
Life Goes on at Home – The Perfect Spouse (Part I), 100 Years Ago:
The Daily Gate City and Constitution-Democrat
Keokuk, Iowa
07 Apr 1917
10 COMMANDMENTS
FOR aHAPPY HOME
Baptist Minister at Bridgeport, Conn.,
Revises Old Bible Laws for the Modern Family
THE HUSBAND AND WIFE
Insurance Policy Covering Happy
Matrimony, Suggested by Divine, for Use in the Home
Rev. Frank E. Rideou, pastor of the Second Baptist church, Bridgeport, Conn., is a prominent figure in the lime-light of publicity because of these recent matrimonial commandments for husbands and corresponding marital admonitions for wives.
Newspaper dispatches claim that these commandments cover every contingency that might wreck a happy home, and make an insurance policy covering perfect matrimony.
The Perfect Wife
The decalogue for the perfect wife is:
1. Thou shalt not be a spendthrift. Do not squander they husband’s hard-earned money. It is sacred to him and should be to you.
2. Thou shalt not talk shop when they husband returns at night. Remember he has had shop all day. Study politics or baseball so as to interest him in something new.
3. Thou shalt not fail to have his meals on time. When the animal is fed you will have a gentleman to spend the evening with you.
4. Thou shalt not quiz they wedded husband. Do the quizzing before the marriage. Be adroit and he will tell you all.
5. Thou shalt not nag thy wedded husband. Hit him with an ax. It is more kind.
6. Thou shalt not fail to dress up for thy husband as thou didst before they marriage.
7. Thou shalt not try to fight they husband. The male has always been the best fighter of the two. Don’t fight. Crying will fetch him sooner.
8. Thou shalt not expect they husband to apologize—even when he is wrong. Let it pass. Kiss him and give him a hot steak for supper. Then forget it.
9. Thou shalt not hesitate to assure they husband that he is the greatest living man, and that thou dost admire him far more than Hughes or Roosevelt.
10. Thou shalt never remind they husband of the awful sacrifice thou didst make to marry him. If thou didst love him then there was no sacrifice.
Editor’s Note: Part II, Below:
Peiper’s Presentation:
We start out by welcoming our newest additions to the Coverage Pointers distribution network. As with any trip, last week’s visit to PLRB brought with it more than one introduction that started with “so, you’re Peiper on Property.” We thank those of you who read what we write, and thank you even more for forwarding us on to your unsuspecting colleagues.
My attendance at PLRB brought with it an opportunity to present on the coming issues which accompany driverless autos on public roads. For those of you who don’t know, tech companies and auto manufacturers are ever closer to deploying auto-driving vehicles on a routine basis. The capabilities of these vehicles now are astounding, and the sophistication is only expected to grow. There are major changes coming to the insurance industry, and traditional automobile litigation as a result. If you’re interest in learning more, please drop me a note.
Special thanks to Cheri Trites-Versluis who co-presented with me, as well as the PLRB staff who does unparalleled work in presenting the conference every year.
We conclude this week with remembering the sacrifices made in America’s forgotten war, World War I. Today, as chronicled, marks the 100-year anniversary of the United States’ formal entry into the conflagration. For what it is worth, no one actually knows why US troops were called Doughboys – although there are many interesting theories.
The British brethren, by the way, were often referred to as Tommy, which was in reference to Tommy Atkins (who, apparently, was a real British soldier, but now translates loosely as the English version G.I. Joe).
That’s it for now. See you in two weeks.
Steve
Steven E. Peiper
The Perfect Spouse (Part II):
Rules for Husband
The Ten Commandments to husbands are:
1. Thou shalt not think that thyself are it.
2. Thou shalt not praise they neighbor’s wife. Praise thine own.
3. Thou shalt not be stingy with thine wife. Thou mightiest as well be generous. She earns half the salary, anyway. Thou dost work eight hours a day, but she never knoweth when her work is ended.
4. Thou shalt not share they love for thy wife with the booze shop. She deserveth it all.
5. Thou shalt not keep any secrets from thy wife. Secrets breed suspicion and wreck confidence.
6. Thou shalt not refuse to talk with thy wife after the day’s work is over. Don’t shut up like a claim, besides if she wants to talk she can’t help it.
7. Thou shalt not fail to provide life insurance for thy wife and children.
8. Thou shalt not scold they wife when the meat burns up, as it will even in the best regulated home. Don’t rage, but go out and blow up a powder mill.
9. Thou shalt not fail to kiss thy wife good-bye in the morning.
10. Thou shalt not forget, through all the passing years that thy wife whom God hath given thee as they companion is thy superior.
Dear Subscribers:
Spring has arrived and along with it the baseball season and a new batch of decisions on serious injury. One case set forth that twenty percent limitation compared to the normal range of motion was enough to constitute a serious injury. Furthermore, even if there is a preexisting condition, exacerbation of that condition can be enough for liability. In another case, a plaintiff’s vehicle was hit by a car. Several minutes later it was hit by a second car. The court denied the first car’s argument that the court should credit plaintiff’s testimony she felt no pain after the first collision. Finally, the Court of Appeals affirmed a grant of summary judgment to defendants, which had been predicated on the findings of defendants’ expert and plaintiff’s own physician that there was degeneration.
Until next time,
Rob
Robert Hewitt
Baseball Season Begins, a Century Ago, Jack Snyder Debuts:
Jack Snyder came in to catch, late in the opening game of the season for the Brooklyn Robins on Wednesday, April 11. The defending champion Robins lost to Philadelphia, 6-5, despite a seventh inning rally that brought them within one. Snyder was a footnote. He did not start a game until two months later, and the Sun reported his success:
The Sun
New York, New York
11 Jun 1917
SNYDER’S TIMELY HIT
DEFEATS REDS
Sends Cutshaw Home with Run That Gives
Dodgers a 4 to 3 Victory
CINCINNATI, June 10.—Jack Snyder’s timely hit in the third inning drove in the winning run to-day for the Robins and beat the Reds by 4 to 3. It was Jack’s first start of the season behind the bat for the Robins. He made two hits and helped his side to win the game.
Editor’s Note: Jack Snyder. Few remember him. This was his debut game. It was his debut (and only) season.
John William Snyder caught his first of his seven Major League games for the Brooklyn Robins (predecessor name for the Brooklyn (Trolley) Dodgers. He was born in 1886 in Lincoln, Pennsylvania and died 95 years later, on December 13, 1981 in Brownsville, Pennsylvania). At the time of his death, he was the oldest living former major league player. He was up to bat 11 times in his one season career, with three singles, scored a run, knocked in one (on June 10) and allowed one passed ball. At the end of the 1917 season, he was sold to the cross-town NY Giants because the two Giants catchers were injured. However, the Giant had the maximum 22 players on the roster and the league would not sanction the sale. Snyder returned to the Dodgers but then announced his retirement in March 1918.
Off the Mark:
Dear Readers,
I’m still anxiously awaiting the nice weather one pictures when thinking of spring. After all this rain, it has got to be close, right? I certainly hope so as my kids need more outside time to use up some of that extra energy.
The first edition of Off the Mark discussed local case law from New York and New Jersey. This edition examines a recent construction defect case a little further from home. Although Harleysville Group Ins. v. Heritage Communities, Inc. focuses on the content of reservation of rights letters, including the specificity requirement, it does discuss coverage related to construction defects.
In Harleysville Group Ins. v. Heritage Communities, Inc., the South Carolina Supreme Court reiterated its prior holding that costs to repair faulty workmanship itself were not covered, but that costs to repair resulting damage to otherwise non-defective components were covered. The court also found that the insurance carrier’s reservation of rights was insufficient because it lacked specificity as to the particular grounds upon which the carrier disputed coverage.
Until the next edition of Coverage Pointers …
Brian
Brian F. Mark
Child Mortality in 1917 – Amazingly High:
The Labor World
Duluth, Minnesota
07 Apr 1917
HIGH BABE MORTALITY
WASHINGTON, April 5.—In urging the observance of baby week the children’s bureau of the federal department of labor says that approximately one in 10 of all the babies born in the United States die before completing 12 months of life.
“It was once thought,” it is stated, “that a high infant death rate indicated a greater degree of vigor in the survivors. Now it is agreed that the conditions which destroy so many of the youngest lives of the community must also result in crippling and maiming many others and must react unfavorably upon the health of the entire community.”
Barnas on Bad Faith:
Hello again:
Greetings from Chicago, Illinois, where I have the privilege of attending the DRI Insurance Coverage and Claims Institute at the lovely Loews Hotel Chicago. The program is full of great networking opportunities, interesting topics, and knowledgeable speakers. It has great to meet so many insurance coverage attorneys and claims professionals from across the country, and I’m looking forward to meeting many more before the program concludes tomorrow afternoon.
I have three cases in my column today. Williams is a case out of New Jersey where the allegations of bad faith consisted of nothing more than a conclusory allegation that the insurer recklessly disregarded the insureds’ rights. The court concluded that such an allegation was insufficient to state a claim for bad faith under the Federal Rules. Hicks is a case from the Ninth Circuit where the court concluded that the insured’s bad faith claim could survive summary judgment. The court looked at the difference between the insurer’s offer and the arbitration award and the inflammatory questioning by the insurer designed to undermine the insured’s mother’s credibility in reaching its conclusion. Finally, Saco is a bad faith failure to settle case from the Eastern District of New York.
The court denied Geico’s motion for summary judgment. There was evidence that Geico knew that a verdict above the policy limits was possible, and assigned counsel testified that he recommended settling the case for the policy limits. Despite that, an excess judgment was entered against the insured.
That’s all for this week; have a great weekend.
Signing off,
Brian
Brian D. Barnas
Life Insurance and War – One Hundred Years Ago:
The Wichita Beacon
Wichita, Kansas
07 Apr 1917
LIFE INSURANCE AND WAR
As a Rule, Companies Will Not Discriminate if You Enlist.
Insurance agents had to answer many calls yesterday, the one question being: “If I enlist, what about my life insurance?”
The usual rule has been that an extra premium was demanded or the policy was wholly invalidated if the holder engaged in military pursuits within one year after taking the policy. But many companies have omitted that. Now those who haven’t read the “fine print” want to know whether they still will be insured if they enlist.
There are almost as many different answers to the question as there are companies in the field. But in the majority of cases, the policy holder need not worry if he has had his insurance more than a year.
Altman’s Administrative (and Legislative) Agenda:
Greetings, Dear Readers, from rainy Long Island:
This week brought me a night seeing Billy Joel open the newly renovated Nassau Coliseum, and a raging sinus infection. Not necessarily in that order. I write this article in a haze of decongestants, antihistamines, cough suppressants, and an antibiotic pill large enough to choke a horse. So, Dear Reader, please forgive the lack of poem this week, and forgive me should I go astray; I am “benadrunk” (Benadrunk: adj.: Would be “snigglet”: the stupor one feels after taking Benadryl).
Today, while medication brings me a not-so-heightened level of awareness, I bring to you the House of Representative’s vote to repeal antitrust exempts for health insurers. If the bill passes the Senate, insurance carriers might be subject to challenges under Federal antitrust laws, including the Sherman Act, the Clayton Act and the Federal Trade Commission Act, whereas now, States take the lead in regulating insurers.
Howard
Howard B. Altman
Headlines from Today’s Edition:
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
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Question of Fact as to Whether Insured’s Excuse for Violating Obligations to Give Prompt Notice a Liability Policy was based on Good Faith Believe in Non-Liability
Classification Limitation Enforced, as Written -
Joining First Department, Fourth Department Finds Subcontractor’s Carrier Owes Additional Insured Status to General Contractor, When Subcontractor’s Employee is Injured, Irrespective of Subcontractor’s Negligence.
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Potential Coverage Precludes Legal Malpractice Carrier from Walking Away from Defense
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Underlying Written Contract Required Additional Insured Status for General Contractor but Proof Not Clear Whether Subcontractor was Required to Insured this Particular Owner
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Late Notice Win for Carrier. Letter to Insured Asking it to Notify Insurer and Voice Mail Message on Insured’s Agent’s Answering Machine Isn’t Notice to the Carrier. In Case of First Impression, Court Endorses Use of “Courtesy Defense”.
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
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Defendant Established There Was No Serious Injury to the Right Knee or Ankle
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Plaintiff Created an Issue of Fact as to Whether Injury to Lumbar Spine was Serious Injury
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Twenty Percent Limitation in Range of Motion to the Cervical Spine Enough to Constitute Serious Injury
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Defendants Failed to Address Whether Plaintiff was Able to Perform All or Substantially All of her Usual and Customary Activities during that Period
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Preexisting Degenerative Changes Not Related to the Condition Revealed By Physician Review of Prior Medical Records and Examination of Plaintiff
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Court Disregarded Plaintiff’s Testimony that She Felt No Pain after the First of Two Collisions and Found It Did Not Create Issue of Fact
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Plaintiff Could Not Establish Issue of Fact As She Presented No Medical Evidence to Substantiate Her Claims
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Court of Appeals Affirms Grant of Summary Judgment Because Plaintiff’s Own Expert Found Degeneration Based on Prior Accidents
TESSA’S TUTELAGE
Tessa R. Scott
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The Jury May Look at the Totality of the Circumstances when Considering a Claim of Fraudulent Incorporation
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
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Stipulation Governing Scope of Appraisal Governs Resolution of Fire Loss
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Failure to Comply with Conditional Discovery Order Results in Preclusion
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
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On holiday.
JEN’S GEMS
Jennifer A. Ehman
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Court Finds No Obligation to Place Umbrella Carrier on Notice until after Injured Plaintiff Went Through with the Recommended Surgery
BARNAS ON BAD FAITH
Brian D. Barnas
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Denial of Coverage is Not Bad Faith Conduct
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Biased Investigation, Small Arbitration Offer, and Attempts to Undermine the Insured Supported Bad Faith Claim
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Insurer’s Negotiation and Excess Verdict Created Issue of Fact on Bad Faith Failure to Settle Claim
PHILLIPS’ FEDERAL PHILOSOPHIES
Jennifer J. Phillips
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Literally Incorporated
EWELL’S UNIVERSE
John R. Ewell
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In Minnesota, Proceeds Awarded Pursuant to State's Bad Faith Statute are Capped by the Insurance Policy's Limit
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No Coverage under Professional E&O Policy for Real Estate Agent Who Was Not Paid a Real Estate Commission
ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA
Howard B. Altman
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Competitive Health Insurance Reform Act
OFF THE MARK
Brian F. Mark
[email protected]
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South Carolina Supreme Court Reiterates Its Prior Holdings That Costs to Repair Faulty Workmanship Itself Are Not Covered Under Commercial General Liability Policies, But That
EARL’S PEARLS
Earl K. Cantwell
[email protected]
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No Liability, No Indemnity
That’s all for now. Off to Greenville for a wedding. An early Happy Easter and Happy Passover. We love your feedback and if others in your shop would find this publication useful or entertaining, have them drop me a note and we’ll add them to the distribution list.
Dan
Dan D. Kohane
Hurwitz & Fine, P.C.
1300 Liberty Building
Buffalo, NY 14202
Office: 716.849.8942
Cell: 716.445.2258
Fax: 716.855.0874
E-Mail: [email protected]
H&F Website: www.hurwitzfine.com
LinkedIn: www.linkedin.com/in/kohane
Twitter: @kohane
Hurwitz & Fine, P.C. is a full-service law firm
providing legal services throughout the State of New York
NEWSLETTER EDITOR
Dan D. Kohane
[email protected]
ASSOCIATE EDITOR
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
Off the Mark
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
04/05/17 Tang v. Public Service Mutual Insurance Company
Appellate Division, Second Department
Question of Fact as to Whether Insured’s Excuse for Violating Obligations to Give Prompt Notice a Liability Policy was Based on Good Faith Believe in Non-Liability
Where a policy of liability insurance requires that notice of an occurrence be given as soon as practicable, such notice must be given to the carrier within a reasonable period of time. However, the insured's failure to give timely notice may be excused if the insured has a good-faith belief in nonliability, provided that belief is reasonable. The insured bears the burden of establishing the reasonableness of the proffered excuse.
Here, the insurer made a prima facie showing of entitlement to judgment as a matter of law based on the plaintiff's approximately two-year delay in notifying it of the underlying incident. In opposition, however, the insured plaintiff raised a triable issue of fact as to whether the delay was reasonably based on a good-faith belief in non-liability.
04/04/17 Northfield Insurance Company v. Midtown Restorations, LLC
Appellate Division, First Department
Classification Limitation Enforced, as Written
The record establishes that insurer is entitled to the declaration sought, where the underlying action seeks damages in connection with the insured's (Midtown) waterproofing work of Fortuna's premises. The subject insurance policy's Classification Limitation endorsement, as reflected in the Declarations page, limits the scope of coverage to four classifications, none of which encompass waterproofing, thereby precluding coverage.
03/31/17 Time Cap Development Corp. v. Colony Insurance Company
Joining First Department, Fourth Department Finds Subcontractor’s Carrier Owes Additional Insured Status to General Contractor, when Subcontractor’s Employee is Injured, Irrespective of Subcontractor’s Negligence.
Time Cap commenced this action seeking a declaration that Colony Insurance Company (“Colony”) is required to defend and indemnify it in an underlying personal injury action. Thereafter, Colony brought in Cincinnati Insurance Company (“Cincinnati”) seeking a declaration that Colony's coverage of Time Cap in the underlying action was excess to Cincinnati's coverage or, alternatively, that Colony and Cincinnati were coinsurers of Time Cap on a 50/50 basis.
A workman, employed by a subcontractor of Time Cap was injured when he fell from a ladder at a construction site. Time Cap, was insured by Cincinnati, and was the general contractor on that construction project. The subcontract required the subcontractor to add Time Cap as an additional insured on the subcontractor's insurance policy with Colony. Shortly after the laborer's accident, Cincinnati sent Colony a letter on Time Cap's behalf giving notice of the laborer's injuries and requesting that Colony defend and indemnify Time Cap. Colony disclaimed coverage approximately 20 months later. There is no dispute that Colony failed to disclaim coverage of Time Cap in a timely fashion. Time Cap eventually entered into a settlement agreement with the injured laborer, and the underlying action was discontinued.
Colony sought a declaration that Cincinnati owes Colony coinsurance on a 50/50 basis. According to the plain terms of the respective insurance policies, the Colony policy is Time Cap's primary insurance, the Cincinnati policy is excess insurance, and Colony may not seek contribution from Cincinnati even if Colony’s disclaimer had been timely.
On cross appeal Cincinnati contends that the court erred in denying its cross motion for summary judgment insofar as it sought a declaration that Colony has the sole obligation to indemnify Time Cap.
Cincinnati met its burden of establishing that it is entitled to judgment as a matter of law by submitting evidence in admissible form sufficient to eliminate any issues of fact. The Colony insurance policy under which Time Cap was an additional insured provided coverage "with respect to liability for bodily injury' . . . caused, in whole or in part, by . . . acts or omissions of those acting on [the subcontractor's] behalf[] in the performance of [the subcontractor's] ongoing operations for the additional insured(s) . . . " In support of its motion, Cincinnati submitted deposition testimony of witnesses to the accident establishing that the injured laborer's underlying claims arose from bodily injury that he allegedly suffered when he fell off a ladder while employed by the subcontractor on the construction project.
Although Colony contends that Cincinnati was required to establish negligence, we conclude that the deposition testimony established that the bodily injuries at issue were caused at least in part by the "acts or omissions" of one acting on the subcontractor's behalf, i.e., the injured laborer himself, regardless whether the subcontractor was negligent.
03/29/17 Vogel v. American Guarantee & Liability Insurance Company
Appellate Division, Second Department
Potential Coverage Precludes Legal Malpractice Carrier from Walking Away from Defense
Zurich issue a policy of legal malpractice insurance to the plaintiff law firm Seavey, Vogel, & Oziel, LLP (“SVO”), in effect from December 5, 2005, to December 5, 2006. As relevant here, the policy contained a provision stating that "Damages do not include . . . personal profit or advantage to which the Insured was not legally entitled . . . matters deemed uninsurable; legal fees, costs and expenses paid to or incurred or charged by the Insured, no matter whether claimed as restitution of specific funds, forfeiture, financial loss, setoff or otherwise, and injuries that are a consequence of any of the foregoing." The policy also required the insured to provide immediate notification of a claim or a potential claim.
Oziel, one of SVO’s principals had a professional and personal relationship with the Zwiebachs. In1991, Melvyn died and SVO, along with another firm, represented Judith, as the executor of his estate, in a wrongful death action, which was eventually settled for the amount of $2,010,000. The funds were deposited into the escrow account maintained by SVO for the purpose of distribution.
Although Oziel disbursed certain funds to Melvyn's four heirs, a dispute arose over the balance of the settlement proceeds, namely $274,511.67, which remained in the escrow account. Oziel represented to the Zwiebachs that these funds were needed to pay estate taxes.
In 2004, Judith Zwiebach filed a complaint with the Grievance Committee for the Tenth Judicial District. In response, Oziel argued that the retained funds represented his unpaid legal fees for services he had performed for the Zwiebach family over the previous 20 years.
In March 2006, Judith Zwiebach and her three adult children commenced an action against SVO and the individual members of the firm to recover damages for fraudulent representation in connection with the settlement documents, unlawful retention of the settlement proceeds, and breach of fiduciary duty (hereinafter the Zwiebach action). In April 2006, SVO notified Zurich, of the Zwiebach action. In August 2006, Zurich disclaimed coverage. In September 2010, a second amended complaint was served in the Zwiebach action, alleging a third cause of action sounding in negligence against Vogel, one of the principals, with regard to his supervision of SVO's escrow account. On December 22, 2010, Zurich again disclaimed coverage.
In May 2012, Vogel and SVO (hereinafter together the plaintiffs) commenced this action against, among others, AG/Zurich, alleging three causes of action: (1) breach of the legal malpractice insurance policy, (2) for a judgment declaring that AG/Zurich was obligated to defend Vogel, reimburse him for his legal fees, and indemnify him against any recovery, and (3) bad faith in denying insurance coverage.
To succeed on a cause of action alleging legal malpractice, the plaintiff must prove that (1) the defendant failed to exercise that degree of care, skill, and diligence commonly possessed and exercised by an ordinary member of the legal community, (2) such negligence was the proximate cause of the actual damages sustained by the plaintiff, and (3) but for the defendant's negligence, the plaintiff would have been successful in the underlying action. "To succeed on a motion for summary judgment, the defendant in a legal malpractice action must present evidence in admissible form establishing that the plaintiff is unable to prove at least one of these essential elements".
An insurer has a duty to defend its insured where the allegations of the complaint in the underlying action on the known facts give rise to a reasonable possibility of coverage. The duty to defend is not triggered, however, when, as a matter of law . . . there is no possible factual or legal basis upon which the insurer might eventually be held to be obligated to indemnify the claimant under any provision of the insurance policy; or when the only interpretation of the allegations against the insured is that the factual predicate for the claim falls wholly within a policy exclusion".
Zurich did not eliminate all triable issues of fact relating to the issue of its duty to defend or indemnify the plaintiffs in the underlying action. There are triable issues of fact relating to Vogel's alleged negligent supervision of the escrow account, and the application of the policy provisions to the circumstances, such that it was not established as a matter of law that the allegations in the complaint require Zurich to defend and indemnity the plaintiffs.
03/29/17 77 Water Street, Inc. v. JTC Painting & Decorating Corp.
Appellate Division, Second Department
Underlying Written Contract Required Additional Insured Status for General Contractor but Proof Not Clear Whether Subcontractor was Required to Insured this Particular Owner
The underlying action was Muhjaj v 77 Water Street, Inc., In that lawsuit, the plaintiff was seeking damages from the owner, 77 Water Street, Inc. (“77 Water”), and the general contractor, Structure Tone, Inc. (“Structure Tone”), for alleged injuries that occurred on October 26, 2009, when he allegedly slipped on debris at a renovation site and fell.
It was claimed that JTC had entered into a subcontract with Structure Tone. Structure Tone and 77 Water (the “plaintiffs”) commenced the instant action seeking a judgment declaring that Allied World Assurance Company (“Allied”), JTC's commercial general liability insurer, is obligated to defend and indemnify them in the underlying action as additional insureds under a commercial general liability policy that Allied issued to JTC.
The policy contained an endorsement entitled "Additional Insured - Owners, Lessees or Contractors - Scheduled Person or Organization" (hereinafter the endorsement), which amended the definition of "who is insured" under the policy to include entities "[a]s required by written contract" with JTC.
The plaintiffs contended that JTC and Structure Tone had entered into two written contracts, a blanket insurance/indemnity agreement and an unsigned purchase order, wherein JTC agreed to procure comprehensive general liability insurance and to name Structure Tone and 77 Water Street as additional insureds on the policy. The blanket insurance/indemnity agreement is dated June 24, 2004, and the purchase order is dated October 29, 2009. Allied and JTC argued that the plaintiffs were barred by the doctrine of collateral estoppel from asserting that JTC had agreed in a written contract to name them as additional insureds on its insurance policy. In support, they submitted proof that JTC had been granted summary judgment in the underlying action dismissing that cause of action on the ground that no written contract existed between JTC and either of the plaintiffs on the date of the accident.
The lower court held that the doctrine of collateral estoppel to preclude the plaintiffs from relitigating the issue of whether a written contract existed between JTC and either of the plaintiffs on the date of the accident, an issue which had already been determined against them in a prior order of the Supreme Court in the underlying action.
However, the plaintiffs demonstrated, prima facie, that the blanket insurance/indemnity agreement was a written contract executed by Structure Tone and JTC prior to the accident, and that it required JTC to obtain comprehensive general liability insurance naming Structure Tone as an additional insured under the policy. As such, Structure Tone qualified as an additional insured under the endorsement to JTC's commercial general liability policy with Allied.
The plaintiffs, however, failed to demonstrate, that JTC was required by written contract to name 77 Water Street as an additional insured under its commercial general liability policy with Allied. The blanket insurance/indemnity agreement requires JTC to name "specified owners" as additional insureds under its comprehensive general liability policy, and the plaintiffs failed to submit any evidence demonstrating that 77 Water Street was a specified owner. Moreover, even assuming that the purchase order constituted a "written contract" within the meaning of the endorsement, the purchase order did not require JTC to name 77 Water Street as an additional insured under its comprehensive general liability insurance policy.
Nevertheless, Allied and JTC were not entitled to summary judgment declaring that Allied was not obligated to defend or indemnify 77 Water Street in the underlying action. The complaint in the underlying action alleged that 77 Water Street was the owner of the subject property where the accident occurred, and Allied and JTC failed to demonstrate, prima facie, that 77 Water Street was not a "specified" owner within the meaning of the blanket insurance/indemnity.
03/24/17 BN Partners Associates, LLC v. Selective Way Insurance Co.
Appellate Division, Fourth Department
Late Notice Win for Carrier. Letter to Insured Asking it to Notify Insurer and Voice Mail Message on Insured’s Agent’s Answering Machine Isn’t Notice to the Carrier. In Case of First Impression, Court Endorses Use of “Courtesy Defense”.
There was a general liability policy issued to JAG. An employee of JAG was injured on property owned by BN Partners (“BN”) and leased to Golub. The underlying action arose when an employee of JAG was injured while working on property owned by plaintiff BN Partners Associates, LLC (BN) and leased to Golub Corporation under a subcontract between JAG and LeChase, the general contractor.
The employee sued BN and LeChase, the owner and GC in June 2011. Plaintiff then sued Golub on October 5, 2011.
Selective denied coverage and plaintiffs sued the Declaratory Judgment Action in November 2012. Selective alleged that plaintiffs did not timely notify Selective of the claim or the underlying lawsuit, and that plaintiffs failed to immediately forward copies of legal papers received in connection with the lawsuit.
Plaintiffs claimed that they provided timely notice because LeChase’s insurance carrier wrote to JAG and informed it of the lawsuit and advised JAG to turn the matter over to its general liability carrier, and (2) left a voicemail message with JAG's insurance agent following up on that letter.
Selective argued it did not get notice of the underlying lawsuit until December 2012, 17 months after the underlying lawsuit was commenced. It also argued that that notice to JAG's insurance agent did not suffice insofar as it was not written notice as required by the policy and was not notice to Selective's agent.
The lower court bounced the insurance claims of BN and Golub but found that there was a question of fact as to whether LeChase had seen to it that notice was given to Selective.
The Fourth Department held that LeChase did not provide Selective with notice of the claim or lawsuit as required under the policy.
The policy unambiguously requires an insured to provide Selective with written notice of a claim or lawsuit brought against an insured and to send Selective copies of any legal papers received in connection with the claim or lawsuit. Selective met its initial burden of establishing that plaintiffs failed to provide notice of the claim or lawsuit as a matter of law inasmuch as Selective's employee averred that Selective did not receive notice of the underlying lawsuit until nearly 17 months after the undisputed latest date when plaintiffs learned of the underlying lawsuit and where plaintiffs offered no excuse for the delay.
The voicemail message left with JAG's insurance agent and the letter sent to JAG informing each of the underlying lawsuits did not suffice. A telephonic voicemail message does not constitute the requisite notice in writing.
The fact that Selective's afforded JAG a courtesy defense did not raise an issue of fact with respect to the timeliness of plaintiffs' notice to Selective. We conclude that Selective used the same standard in determining whether to afford plaintiffs a defense as it did with respect to JAG and that questions concerning the reasonableness of JAG's failure to provide timely notice warranted the provision of a courtesy defense rather than an outright disclaimer of the duty to defend and indemnify.
Editor’s Note: Jen Ehman and I handled this case on behalf of Selective. A win for the good guys. This is the first case where we see a court expressly endorsing the use of the “courtesy defense” which we have always believed was sanctioned by Lang v. Hanover.
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
04/05/17 Brun v. Farminham
Appellate Division, Second Department
Defendant Established There Was No Serious Injury to the Right Knee or Ankle
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 plaintiff's right knee and right ankle 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) and, in any event, was not caused by the subject accident. The defendants also demonstrated, prima facie, that the plaintiff did not sustain a serious injury under the 90/180 category of Insurance Law § 5102(d). In opposition, the plaintiff failed to raise a triable issue of fact. Because the plaintiff did not raise any triable issues of fact as to the threshold issue of serious injury the plaintiff's motion for summary judgment on the issue of liability was properly denied, as it was academic. No specific facts were given by the court.
04/05/17 Golden v. Harlem River of Manhattan
Appellate Division, Second Department
Plaintiff Created an Issue of Fact as to Whether Injury to Lumbar Spine was Serious Injury
Another case light on facts. 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 lumbar region of the plaintiff's spine did not constitute a serious injury under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d), and that, in any event, the alleged injury was not caused by the subject accident. In opposition, however, the plaintiff raised a triable issue of fact as to whether she sustained a serious injury to the lumbar region of her spine under the permanent consequential limitation of use and significant limitation of use categories of Insurance Law § 5102(d), and as to whether the alleged injury was caused by the accident.
03/31/17 Grier v. Mosey
Appellate Division, Fourth Department
Twenty Percent Limitation in Range of Motion to the Cervical Spine Enough to Constitute Serious Injury
Appeal as to whether the court correctly denied defendant’s motion with respect to the two remaining categories, i.e., permanent consequential limitation of use and significant limitation of use. Although defendants met their initial burden on the motion by submitting competent medical evidence establishing as a matter of law that plaintiff did not sustain a serious injury under either of those categories, plaintiff raised a triable issue of fact whether she sustained a serious injury under both categories.
Whether a limitation of use or function is ‘significant' or consequential' (i.e., important) relates to medical significance and involves a comparative determination of the degree or qualitative nature of an injury based on the normal function, purpose and use of the body part. Here, in opposition to the motion, plaintiff submitted evidence that she sustained limitations to the range of motion of her cervical spine exceeding 20% when compared to the normal range of motion. Injuries to that degree have been deemed serious injuries within the meaning of Insurance Law § 5102 (d). Further, plaintiff submitted the affirmation of her orthopedic surgeon, who treated plaintiff for two years following the accident and concluded that plaintiff's condition is permanent and that the only medical option remaining is surgery.
Defendants also contend that they are entitled to summary judgment dismissing the complaint because plaintiff's injuries resulted from a preexisting condition and did not constitute the aggravation or exacerbation of a preexisting injury. However, one of defendants' experts stated that there was no evidence of any contributing preexisting condition. Further, plaintiff raised a triable issue of fact whether her injuries were caused by the accident inasmuch as her treating orthopedic surgeon concluded in his affirmation that the accident was the "competent and producing cause" of plaintiff's spinal condition and that the accident "activated latent degenerative conditions in plaintiff’s cervical spine causing them to be symptomatic," i.e., that the accident exacerbated a preexisting condition.
03/29/17 Lara v. Nelson
Appellate Division, Second Department
Defendants Failed to Address Whether Plaintiff was Able to Perform All or Substantially All of her Usual and Customary Activities during that Period
Passengers on a bus in Nassau County sued after the bus was involved in an accident with a car. The defendants, moving separately but relying on the same evidence and arguments, failed to meet their prima facie burden of showing that the appellant did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The papers submitted by the defendants failed to adequately address the appellant's claim, set forth in the bill of particulars, that she sustained a serious injury under the 90/180-day category of Insurance Law § 5102(d). Specifically, the defendants failed to demonstrate, prima facie, that the appellant was able to perform all or substantially all of her usual and customary activities during the statutory period. Since the defendants did not sustain their prima facie burden, it was unnecessary to determine whether the papers submitted by the appellant in opposition to their separate motions were sufficient to raise a triable issue of fact.
03/24/17 Brown v. Miller
Appellate Division, Fourth Department
Preexisting Degenerative Changes Not Related to the Condition Revealed By Physician Review of Prior Medical Records and Examination of Plaintiff
Defendants met their burden on the motion by submitting the affirmed report of a physician who examined plaintiff and reviewed his prior medical records. The physician concluded that plaintiff sustained only a concussion and a minor cervical and lumbosacral strain in the collision, and that those injuries had resolved. Furthermore, the physician opined that plaintiff's prior imaging studies revealed preexisting degenerative changes not causally related to the collision, and that the collision did not aggravate or exacerbate plaintiff's preexisting degenerative condition.
The burden then shifted to plaintiff to submit competent medical evidence, based on objective findings and diagnostic tests, raising a triable issue of fact Plaintiff failed to meet that burden. Although plaintiff submitted expert medical evidence establishing that he sustained injuries causally related to the collision, he failed to raise an issue of fact whether those injuries constituted serious injury within the meaning of Insurance Law § 5102.
03/24/17 Armprester v. Erickson
Appellate Division, Fourth Department
Court Disregarded Plaintiff’s Testimony that She Felt No Pain After the First of Two Collisions and Found It Did Not Create Issue of Fact
Plaintiff commenced this negligence action to recover damages for injuries that she sustained in successive motor vehicle collisions. In March 2013, plaintiff was driving her vehicle north at approximately 45 miles per hour when a vehicle driven by defendant Erickson made a left turn out of a gas station parking lot and struck the passenger side of her vehicle. Plaintiff's vehicle spun around three times and came to rest in the center lane of the road. While the parties waited for emergency personnel to arrive, a third vehicle operated by an intoxicated driver collided with plaintiff's vehicle, throwing her from the vehicle onto the pavement beneath defendant's vehicle.
Although defendant contends that plaintiff failed to establish that her injuries were attributable to the initial collision, the Appellate Court concluded that plaintiff met her initial burden by submitting her deposition testimony and the expert affirmation of her treating physician. Her physician opined with a reasonable degree of medical certainty that plaintiff suffered post-concussion syndrome, posttraumatic headaches, and cognitive dysfunction as a result of the initial collision with defendant's vehicle, and defendant does not dispute that those injuries constitute a significant limitation of use of a body function or system. The Appellate court disregarded plaintiff's deposition testimony that she did not recall having experienced pain during the few minutes between the collisions and found it did not create an issue of fact.
03/23/17 Dziuma v. Jet Taxi Inc.
Appellate Division, First Department
Plaintiff Could Not Establish Issue of Fact As She Presented No Medical Evidence to Substantiate Her Claims
Defendant made a prima facie showing that plaintiff did not suffer any serious injury through the affirmed report of its orthopedist, who found full range of motion in all affected body parts, its radiologist, who opined that the conditions shown in the spinal MRIs were degenerative and that there was no evidence of traumatic injury in the left shoulder, and its psychologist, who opined that plaintiff did not present with any evidence for any psychological disability due to the subject accident. In response, plaintiff failed to come forward with evidence to rebut defendant's showing, since she presented no medical evidence to substantiate her claims. Defendant also established prima facie that plaintiff did not sustain a 90/180-day injury by submitting her deposition testimony showing that she was not confined to home or bed for longer than about five weeks
03/23/17 Franklin v. Gareyua
Court of Appeals
Court of Appeals Affirms Grant of Summary Judgment Because Plaintiff’s Own Expert Found Degeneration Based on Prior Accidents
This is an appeal from the divided decision of the Appellate Court Franklin v. Gareyua discussed in our February 12, 2016 column. The Court of Appeals here found that the Appellate Division correctly concluded that plaintiff failed to raise a triable issue of fact as to whether he suffered a serious left shoulder injury within the meaning of Insurance Law § 5102(d) as a result of the underlying motor vehicle accident. No facts are given. However, in the Appellate Decision, it was discussed how Defendants submitted the affirmed reports of a radiologist and orthopedic surgeon, who opined that the conditions present in his left shoulder were degenerative in nature and unrelated to any trauma. Defendants also submitted plaintiff's own medical records, which found arthritis and no traumatic injury.
Specifically, the doctor opined in a radiological report to plaintiff's treating orthopedic surgeon that the post-accident X-ray of plaintiff's left shoulder showed neither evidence of a fracture or other focal osseous abnormality” nor any evidence of "dislocation." In addition, an MRI report to plaintiff's treating orthopedic surgeon by another doctor opined that the post-accident MRI of the left shoulder, while it revealed "mild AC joint arthrosis and malalignment of the AC joint" and mild bursitis, showed "no evidence of fracture, dislocation, or bone marrow abnormalities to be suspicious for bone contusions, stress fractures, or acute trabecular microfractures." The majority found that the plain import of the reports by the doctors both of which were prepared at the request of plaintiff's treating orthopedic surgeon and are included within his own medical records — is that the X ray and MRI of his left shoulder showed no evidence of traumatic injury but only of degenerative conditions such as arthrosis and bursitis.
The majority of the Appellate Division found that plaintiff failed to raise a triable issue of fact as to causation. His treating orthopedist did not refute or address the findings of preexisting degeneration and lack of traumatic injury, set forth in the reports by Dr. Lang and Dr. Lyons contained in plaintiff's own medical records, nor did the treating doctor explain why degeneration was not the cause of the left shoulder injury. Given that Dr. Lang and Dr. Lyons plainly reported that no evidence of traumatic injury was found in the x ray and MRI of the left shoulder, the majority found it was immaterial that their reports did not use the word "preexisting" to describe the degenerative conditions that were detected.
Tessa R. Scott
04/05/17 Carothers v Progressive Ins. Co.
Appellate Division, Second Department
The Jury May Look at the totality of the Circumstances when Considering a Claim of Fraudulent Incorporation.
Andrew Carothers, a radiologist, formed a professional service corporation Andrew Carothers, M.D., P.C. (hereinafter referred to as “plaintiff”). The corporation was formed to perform MRI scans at three existing MRI facilities in Brooklyn, Queens, and the Bronx.
The insurers alleged that Carothers was not the sole owner of the plaintiff; instead the plaintiff was actually owned and controlled by the plaintiff's landlord, Sher, and the plaintiff's executive secretary, Vayman. Sher and Vayman were both deposed prior to trial and both invoked their Fifth Amendment privilege at their depositions. The court charged the jury that an adverse inference could be drawn against the plaintiff based upon the invocation of the Fifth Amendment by Sher and Vayman.
Evidence was presented that Carothers over grossly overpaid rental fees for equipment, had no involvement in the management of the plaintiff, and had entered into a one sided contract with landlord. Additionally, there were also eight bank accounts with no associate tax returns, which funneled money through Sher’s other businesses.
In charging the jury on the fraudulent incorporation defense, the Civil Court instructed the jury that the defendants had to establish that Sher and/or Vayman were de facto owners of the plaintiff or that they exercised substantial control over the plaintiff. To find de facto ownership, the jury was told that it must find that Sher and/or Vayman exercised dominion and control over the plaintiff and that they shared risks, expenses, and interests in the profits and losses of the plaintiff. To find control, the jury was instructed that it must find that Sher and/or Vayman had a significant role in the guidance, management, and direction of the plaintiff. In determining the issue of whether Sher and/or Vayman were de facto owners or exercised substantial control over the plaintiff, the jury was instructed to consider the totality of the circumstances and any relevant factor.
The Civil Court also gave the jury a list of 13 factors it might want to consider, including firing and hiring practices, financial control, issuance of stock, bookkeeping etc. After consideration the jury returned a verdict finding that the plaintiff was fraudulently incorporated.
The Appeal: On appeal to this Court, the plaintiff maintained that the Civil Court's jury charge on fraudulent incorporation was improper because it permitted the jury to make a finding of fraudulent incorporation without a showing that Carothers possessed fraudulent intent at the time he incorporated the plaintiff, or engaged in criminal or fraudulent behavior.
The Second Department concluded that the Appellate Term correctly determined that the charge properly focused the jury on the question of whether Carothers was a mere nominal owner of the plaintiff, and if, in actuality, non-physicians Sher and Vayman owned or controlled the plaintiff such that the profits were funneled to them. Furthermore, it concluded that the 13 factors provided to the jury were relevant to the jury’s deliberation. Further, the Civil Court did not err in declining to instruct the jury as to common-law fraud, fraudulent intent at the time of incorporation, and the business judgment rule. Largely because compliance with the requirements of a professional corporation not end when the certificate of incorporation is filed.
Plaintiff also appealed on the basis of the instruction to apply an adverse inference to Sher and Vaymen’s invocation of the 5th. The Second Department held that no such inference may be drawn where the privilege is invoked by a nonparty witness. However, given all the evidence at trial the Second Department ultimately concluded that the error could not have affected the outcome of the trial, and thus was harmless.
Conclusion: Accordingly, the plaintiff was determined to be a fraudulent corporation.
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
03/31/17 Vitullo v New York Cent. Mut. Fire Ins. Co.
Appellate Division, Fourth Department
Stipulation Governing Scope of Appraisal Governs Resolution of Fire Loss
The dispute arises out of a fire which rendered the insured dwelling a total loss, along with additional loss to pavers, landscaping and a carriage house. After the loss was partially adjusted, the parties entered into a Stipulated Agreement which provided that the Actual Cash Value of the dwelling would be determined by binding appraisal. At that point, NY Central would pay the appraisal award and the case would be discontinued.
As contemplated, the appraisal was completed and NY Central rendered payment of the award. Plaintiff, however, refused to discontinue the action which resulted in NY Central moving to compel compliance. In overruling the trial court, the Appellate Division noted that a stipulation of settlement is a favored tool for resolution and will only be voided upon demonstration of fraud, collusion, mistake or accident. Here, there was no argument that the stipulation should be voided, and as such NY Central was entitled to dismissal of the action.
As part of its holding, the Court rejected the introduction of any extrinsic evidence where the agreement was unambiguous on its face. Here, NY Central was only required to issue payment for the loss to the dwelling. That term, dwelling, is understood to me that main house on the premises (ie., the residence). There was no basis to construe the term dwelling to items and property outside the clear terms of the agreement.
03/29/17 Patino v Carlyle Three, LLC
Appellate Division, Second Department
Failure to Comply with Conditional Discovery Order Results in Preclusion
By way of Order entered on July 21, 2014, plaintiff was required to provide HIPAA compliant authorizations to defendant within 20 days. The Order further provided that if plaintiff did not comply, plaintiff would be precluded from offering any evidence related to the non-compliant authorizations.
As relevant here, the authorizations were required to provide defendant access to plaintiff’s mental health history. When plaintiff’s authorizations did not provide access to mental health history, defendant again requested compliant authorizations. When plaintiff again failed, defendant moved for an Order of preclusion. Plaintiff opposed, and the trial court acknowledged that preclusion was an appropriate remedy.
In affirming, the Appellate Division noted that a conditional order becomes “absolute” when a party fails to comply with date certain requirements. In order to absolve their failure to comply, plaintiff needed to demonstrate a reasonable excuse and meritorious argument. Where he could proffer neither an excuse, nor an argument, opposition to preclusion order was rightfully rejected by the Court.
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
On Greek Holiday.
Jennifer A. Ehman
03/16/17 Liberty Mut. Fire Ins. Co. v. Navigators Ins. Co.
Supreme Court, New York County
Hon. Ellen M. Coin
Court Finds No Obligation to Place Umbrella Carrier on Notice until after Injured Plaintiff Went Through with the Recommended Surgery
This decision addresses when notice is required under a commercial umbrella policy. The underlying action involved a plaintiff injured on a jobsite in the course of his employment as a sprinkler fitter with V. Barile, Inc. (“Barile”). Barile entered into a subcontract with Edison Construction Management, LLC, the general contractor, relative to work at the site. Following the loss, the injured worker brought suit against Edison and the owner.
Pursuant to the terms of the subcontract, Barile was required to procure a commercial general liability policy naming Edison and the owner as additional insureds. This coverage was procured through Everest. Navigators issued Barile commercial umbrella coverage.
As the underlying action moved forward, the injured plaintiff served a bill of particulars, dated January 18, 2010, wherein he claimed injuries including cervical disc herniations, disc bulges, radiculopathy etc. along with internal derangement of the cervical, lumbar and thoracic spine. The workers’ compensation lien was claimed to be in excess of $100,000.
The injured plaintiff then underwent cervical injections in March and April of 2010.
A supplemental bill of particulars, dated June 4, 2010, was then served. The supplement added that the injured plaintiff would require cervical fusion surgery and other treatment. The injured plaintiff further asserted that he expected to sustain future economic losses totaling approximately $3,000,000 for lost wages and benefits.
On November 4, 2010, the injured plaintiff underwent surgical discectomy, which included insertion of bone grafts and screws.
On November 17, 2010, Liberty Mutual wrote to Everest and Navigators tendering the claim for defense and indemnification on behalf of Edison and the owner. A follow-up letter was then sent on December 10, 2010 to Everest with a copy to the injured plaintiff’s counsel and Navigators. Navigators acknowledged receipt of the follow-up letter, and the, by letter dated December 29, 2010, disclaimed coverage based solely upon late notice.
In May 2013, the underlying action was settled for $1,850,000. It appears that prior to the settlement Edison and the owner were granted summary judgment on their contractual indemnification again Barile. Everest paid the first $1,000,000 and Liberty Mutual contributed the remaining $850,000.
Liberty Mutual then brought this action against Navigators seeking reimbursement. On this motion, Navigators argued that Liberty Mutual knew of the severity of the injured plaintiff’s claim and the value by April 15, 2010, when the contents of the January 18, 2010 bill of particulars was posted in Liberty Mutual’s claim notes, and should have known as a matter of law that the injured plaintiff’s claim would implicate Navigators’ policy no later than July 2010, when it became aware of the supplemental bill particulars containing claims of serious injuries requiring surgery and $3 million in past and future economic loss.
Liberty Mutual argued in reply, among other things, that even if its notice was untimely, Navigators failed to issue a timely denial of coverage and thereby waived this basis for denial.
In considering the question of timely notice, the court stated that where notice to an excess liability carrier is in issue, “the focus is on when the insured reasonably should have known that the claim against it would likely exhaust its primary insurance coverage and trigger its excess coverage…” In considering the allegations in the bill of particulars, the court noted that while the June 2010 supplemental bill of particulars included an ad damnum figure in excess of the primary policy limits, namely future economic losses totaling $3 million in lost wages and benefits, in view of the commonplace practice of exaggerating damage requests in personal injury actions, this did not yet make it reasonably clear that the excess coverage might be implicated.
Instead, learning that the injured plaintiff underwent surgery was the “trigger event” that impacted the enhancement of the value of the claim by potentially triggering the excess layers of Navigators’ policy. This knowledge was not obtained by Liberty Mutual until January 7, 2011, and at that time Liberty Mutual had already sent its notice. Thus, the tender was timely.
Based on this determination, any claim that the denial was untimely was moot. In other words, since notice was not late, there was no basis for the disclaimer.
Brian D. Barnas
04/03/17 Williams v. State Farm Fire & Casualty Ins. Co.
United States District Court, District of New Jersey
Denial of Coverage is Not Bad Faith Conduct
Plaintiffs alleged that Defendant issued a policy of insurance covering their residence located at 2510 Good Intent Road, Woodbury, New Jersey and that they were entitled to coverage for a loss that took place on/or about January 12, 2016. In Count One of their Complaint, Plaintiffs alleged that Defendant refused to pay benefits allegedly due and owing to Plaintiffs under the policy and that Defendant breached the insurance policy. In Count Two, Plaintiffs alleged that Defendant breached the duty of good faith and fair dealing in processing Plaintiffs' homeowner's claim; Plaintiffs also demanded punitive damages.
Plaintiffs’ allegation of violation of the duty of good faith and fair dealing was dismissed. Plaintiffs referenced a reckless disregard for their rights, but only in a conclusory fashion. The court refused to infer that denial of coverage constituted a reckless disregard of the insureds’ rights. There were no factual allegations suggesting that State Farm did not have a reasonable basis for denying coverage.
04/03/17 Hicks v. Progressive Casualty Insurance Company
United States Court of Appeals, Ninth Circuit
Biased Investigation, Small Arbitration Offer, and Attempts to Undermine the Insured Supported Bad Faith Claim
Hicks brought a case against Progressive for bad faith insurance denial. The court reversed the grant of summary judgment in favor of Progressive by the lower court.
The court, viewing the facts in the light most favorable to Hicks, concluded that Progressive performed an inadequate and biased investigation into the accident—one that was designed to protect its own interests without any regard for Hicks's interests. Progressive immediately formed an opinion that Hicks's injury was caused by an earlier accident and never seriously considered any other possibility. Progressive purportedly based its opinion on conversations with representatives of Safeway Insurance who had an interest in minimizing Hicks's injury from the collision and failed to account for the substantial evidence that any prior injury had no bearing on the present case.
The court also supported its ruling by referencing the size of the arbitration award. Although Progressive offered to settle for $5,500 to avoid certain arbitration costs, it did not value Hicks's claim at $105,500. Rather, it took the position that Hicks's claim was worth at most $57,000 when the undisputed facts showed it was worth between $175,000 (by Progressive's own estimate) and $200,000 (by the arbitrator's).
Further, according to the court, throughout its investigation, Progressive sought to portray Hicks and his mother as liars. During arbitration, Progressive's attorney attempted to undermine Hicks's mother's credibility by asking her whether she did pornography. The court viewed this as evidence of Progressive's bias towards its insured.
03/31/17 Government Employees Insurance Company v. Saco
United States District Court, Eastern District of New York
Insurer’s Negotiation and Excess Verdict Created Issue of Fact on Bad Faith Failure to Settle Claim
On February 23, 2006, Saco collided with a car in which Kusulas was a passenger. At the time of the accident, Saco held two insurance policies issued by GEICO: an automobile policy with a policy limit of $300,000 and a personal umbrella policy, with a policy limit of $1,000,000.
In January 2007, Kusulas instituted an action against Saco in the Supreme Court of the State of New York, Kings County. The court held that Saco was fully liable for Kusulas’ injuries on summary judgment. On March 5, 2012, a jury considering only the issue of damages returned a verdict of $3,369,066.75. Following further proceedings, the state court entered judgment entered judgment for Kusulas in the amount of $2,857,900.55 on October 10, 2014. The judgment included almost $800,000.00 in interest.
Geico filed an action seeking a declaration that it was not required to pay any amount in excess of the policy limits, the policy’s did not require payments for Saco’s attorney’s fees, and Geico did not engage in bad faith. Kusulas counterclaimed alleging breach of contract by Geico and bad faith failure to settle. The parties moved for summary judgment.
The court concluded that under New York law, Geico was not required to pay prejudgment interest in excess of the policy limits.
The court, however, denied Geico’s motion for summary judgment on the bad faith cause of action. During the course of the underlying action, Kusula’s attorney demanded the policy limits. Geico’s assigned counsel assessed the settlement value of the case between $600,000 and $800,000, with a potential verdict value between $850,000 and $1,000,000. A subsequent report noted awards and settlements both above and below the policy limits in cases with similar injuries. An independent analysis by Geico concluded the estimated amounts were reasonable.
Geico had made offers of $200,000 and $300,000, which were rejected. A mediator had recommended settling the case for $1.15 million, which prompted Geico to increase the authorized offer to $450,000. However, the handling attorney never made an offer up to $450,000. Eventually during trial the policy limit was offered to Plaintiff. This offer was rejected, and the jury returned its verdict of more than $3.3 million.
The parties disagreed whether Geico’s assigned attorney put Geico on notice that the jury verdict could have exceeded the policy limits. It was undisputed that written revisions to damages estimates were never provided to Geico even though evidence uncovered in discovery suggested that assigned counsel had concerns the verdict would exceed the policy limits. Internal Geico notes also suggested that the case was large enough to exceed the policy limits.
The court concluded that there was a factual issue regarding Geico’s alleged bad faith. Geico argued that the reports showed it valued the claims at less than the policy limits and that assigned counsel failed to challenge causation at trial, which undercut the company’s assumptions about the value of the case. However, the activity log and testimony from counsel provided a reasonable basis for concluding that an excess verdict could have been predicted even before trial when a policy limit offer would likely have been accepted. Assigned counsel also testified he informed Geico directly that he believed the verdict would come in above the policy limits and urged the company to settle within the limits. Thus, Geico’s summary judgment motion with respect to bad faith was denied.
PHILLIPS’ FEDERAL PHILOSOPHIES
Jennifer J. Phillips
03/30/17 National Grid Corp. Servs., LLC v. Brand Energy Servs., LLC
Eastern District of New York
Literally Incorporated
In this insurance coverage dispute, Plaintiff National Grid seeks declarations that Defendant Ace American Insurance Company is obligated to defend and indemnify National Grid in an underlying personal injury action and that Ace’s insured, Defendant Brand Energy, is in breach of contract for failing to secure additional insured coverage for National Grid. The parties’ cross-motions for summary judgment were before the district court.
The history of this matter began when National Grid disseminated by email a request for bids for work on an asbestos removal project at one of its plants under the subject line “National Grid has invited you to participate in an event: AVS051710 INSULATION REMOVAL—MAIN STEAM AND HOT REHEAT PIPING AND SCAFFOLDING.” The email provided a link to an electronic system through which a contractor could review the specifications for the project and submit a bid for the work requested. The project specifications for this announcement stated that the contract was “to provide all … insurance to perform. All activities shall be performed in accordance with this RFP and [its] associated documentation.” The insurance requirement documents that were hyperlinked to the project specification stated that the contractor was to procure commercial general liability insurance that included an endorsement stating that “National Grid is an additional insured as respects operations relating to this contract or purchase order.”
Brand was the successful bidder for the scaffolding work on the project. As the district court explained, “there is no dispute that Grid and Brand entered into the Agreement. Nor is there a dispute that there is no stated requirement in the four corners of the Agreement that Brand name Grid as an additional insured under Brand's Policy with Ace. Therefore, the Court must determine if there has been any extrinsic document properly incorporated by reference into the Agreement, such that Brand was required to name Grid as an additional insured. If there has been proper incorporation by reference of such a document, Grid is entitled to summary judgment. Only one such document is necessary. Conversely, if there is no such document, the blanket additional insured endorsement in Brand's Policy with Ace is inapplicable since it is predicated on Brand having entered into a written contract that requires Brand to name that organization as an additional insured. Then, the Defendants are entitled to summary judgment.”
“Under New York law, an extrinsic document is deemed to be incorporated by reference only when the agreement specifically references and sufficiently describes the document to be incorporated, such that the latter may be identified beyond all reasonable doubt. A general reference to another document is insufficient as a matter of law to incorporate that other document into the subject agreement or contract.”
National Grid initially relied on Article 10 of its agreement with Brand, which stated that “The required insurance set forth in the Notice of Solicitation identified in Article 1, Paragraph B.1 of this Agreement is incorporated and hereby made part of this Agreement.” The referenced section, however, did not expressly identify or use the term “Notice of Solicitation.” It did, however, state that “[a]ll work and materials required under this Agreement shall be in accordance with the documents listed below,” including “National Grid’s RFQ#AVS051710, Doc. 18129077, and the resulting Purchase Order.”
The district court rejected National Grid’s argument that the Notice of Solicitation was synonymous with National Grid’s initial email requesting bids for the project because “the E-Mail Invitation is not listed or otherwise identified” in Article 1, Paragraph B.1 of the agreement. Further, the words “Notice of Solicitation” appeared nowhere in the email.
The district court nonetheless found in favor of National Grid because of the agreement’s reference to “National Grid’s RFQ#AVS051710, Doc. 18129077, and the resulting Purchase Order.” The court noted that, although an electronic record, “the RFQ is explicitly named and identified with a series of letters and numbers that was used for the [electronic software] bidding event and assigned a ‘Doc’ number, and so named and identified in the specific section of the Agreement as stated in the Insurance Provision, it has been specifically referenced and sufficiently described as a document to be incorporated.”
The court then separately considered whether the hyperlinked documents specifying the project’s insurance requirements were sufficiently incorporated by reference into RFQ#AVS051710 such that it could be concluded that they were also part of the written agreement between National Grid and Brand. The court found that “[t]he hyperlink to those Documents was appropriately and conspicuously located in the “Insurance Requirements” section of the RFQ, directly below the instructive statement that the Project's insurance requirements and scope of coverage where attached.
Despite neither Document referencing the RFQ or the Project, the hyperlink to them created a direct, specific avenue to access documents containing what was required to comply with Grid's insurance component of the Project. In other words, the use of the “References” hyperlink created a controlled pathway to specific documents, thereby assuaging concerns of reasonable doubt as to the documents sought to be incorporated into the Insurance Requirements section of the RFQ.”
The district court therefore found that the National Grid-Brand agreement required Brand to have National Grid named as an additional insured on the Policy, and the policy contained a blanket Additional Insured endorsement which made any organization an additional insured under the policy if Brand has entered into a written contract that required it to name that organization as an additional insured. National Grid’s summary judgment motion was therefore granted.
EWELL’S UNIVERSE
John R. Ewell
04/05/17 Wilbur v. State Farm Mut. Auto. Ins. Co.
Minnesota Supreme Court
In Minnesota, Proceeds Awarded Pursuant to State's Bad Faith Statute are Capped by the Insurance Policy's Limit
In Minnesota, when an insurer denies benefits without a reasonable basis, Minnesota's bad faith statute (Minn. Stat. § 604.18) authorizes the trial court to award certain costs to the insured if an insurer unreasonably denies insurance benefits. In Wilbur v. State Farm Mut. Auto. Ins., Minnesota's high court considered whether the proceeds awarded to an insured under Minn. Stat. § 604.18 are capped by the insurance policy limit.
In 2009, a driver rear-ended Wilbur’s car, causing personal injuries. The at-fault driver’s liability insurer paid $100,000 to Wilbur, the full amount available under the policy. Wilbur’s underinsured-motorist policy with State Farm also had a $100,000 coverage limit. Wilbur made a settlement demand on State Farm for the full $100,000 available under the policy. State Farm initially offered and paid $1,200. State Farm offered an additional $26,800 to settle the claim. Wilbur declined the offer and sued State Farm alleging breach of contract. At trial, a jury returned a verdict in Wilbur's favor in the amount of $412,764.63 as personal injury damages. The trial court reduced the verdict to $255,956.59 to account for the at-fault driver’s payment of $100,000 and other collateral-source payments. The trial court ultimately entered judgment in the amount of $98,800, subtracting State Farm’s initial $1,200 payment from Wilbur’s policy limit of $100,000.
Wilbur then amended his complaint to add a bad faith claim under Minn. Stat. § 604.18. That statute provides a remedy of “one-half of the proceeds awarded that are in excess of an amount offered by the insurer at least ten days before the trial begins or $250,000, whichever is less.” Minn. Stat. § 604.18 (emphasis added). After entering judgment on Wilbur’s breach-of-contract claim, the district court held a separate trial on his bad faith claim and concluded that State Farm had denied Wilbur insurance benefits without a reasonable basis. The district court determined that “proceeds awarded” were capped by the insurance policy limit. Wilbur appealed arguing that “proceeds awarded” under section 604.18 are not capped by the policy limit.
Minnesota's high court held that the phrase “proceeds awarded” unambiguously refers to an amount capped by the insurance policy limit. The Court reasoned that: (1) the statute itself referred to insurance policies showing that "proceeds awarded" is constrained by the limits of the policy; (2) the statute contemplates a capped settlement offer indicating that “proceeds awarded” are capped by the insurance policy limit; and (3) that the timing of the section 604.18 proceeding suggests that “proceeds awarded” are capped by the insurance policy limit. Thus, Minnesota's Supreme Court held that, under the plain language of Minnesota's bad faith statute, “proceeds awarded” to an insured are capped by the insurance policy’s limit.
03/23/17 Compton v. Houston Casualty
Utah Supreme Court
No Coverage Under Professional E&O Policy for Real Estate Agent Who Was Not Paid a Real Estate Commission
Houston Casualty issued a Professional Liability Errors & Omissions Insurance policy ("Policy") to Prudential, a real estate brokerage. While working as a real estate agent for Prudential, Robert Seegmiller ("Seegmiller") approached the plaintiffs (collectively, "Investors") with information about a potential real estate transaction in Herriman, Utah. The Investors and seller Valley View signed a Real Estate Purchase Contract ("REPC"), drafted by Seegmiller, which provided that the Investors were to deposit $705,000 into escrow as a “reservation deposit.” Valley View was to develop the tract of land into individual lots, after which the Investors would pay the final contract price. Seegmiller did not tell the Investors that he was to receive money from Valley View in exchange for bringing a buyer to the transaction. Further, the REPC did not provide that any portion of the funds to be transferred at closing would go to Prudential. Though the Investors deposited the $705,000 into escrow, Valley View failed to develop the lots as promised.
When the Investors attempted to obtain their money back from escrow, they discovered that Valley View had withdrawn the deposit and used it for various purposes, including paying Seegmiller $165,000. No portion of the $165,000 ever passed through Prudential. In an earlier lawsuit, the Investors obtained a judgment against Seegmiller totaling over $1 million. Rather than execute the judgment against Seegmiller, the Investors settled with him, acquiring any claims he might have against Prudential's insurer, Houston Casualty. The Investors brought this action alleging that Houston Casualty breached the Policy by failing to defend and indemnify Seegmiller. The Policy covered losses that arise when an insured acts “[s]olely in the performance of services as a Real Estate Agent/Broker of non-owned properties, for others for a fee.” (emphasis added). The trial court granted summary judgment for Houston Casualty on the ground that because Seegmiller had a “personal interest” in the transaction, he held “dual or competing roles” that precluded the possibility that he could have acted solely‟ as Plaintiffs' real estate agent on behalf of Prudential. The Investors appealed.
On appeal, the Investors argued that the plain language of the Policy provided coverage for the judgment rendered against Seegmiller in the earlier lawsuit. Houston Casualty countered that the district court's interpretation of the Policy was proper, and urged the court affirm the grant of summary judgment, because, among other reasons, Seegmiller was not providing services “for a fee” in that transaction.
Utah's Supreme Court affirmed the grant of the insurer's motion for summary judgment on the ground that Seegmiller was not providing services "for a fee" in the transaction. The Court reached this conclusion because the circumstances surrounding the formation of the insurance contract indicated that Prudential's agents are compensated through only one mechanism: a traditional real estate commission. The Court construed the phrase "for a fee" to mean that the real estate agent must have been providing services with the expectation of receiving a traditional real estate commission. The record contained no evidence that Seegmiller had such an expectation. Accordingly, because Seegmiller did not provide services "for a fee," the Utah Supreme Court affirmed the grant of summary judgment for the insurer
ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA
Howard B. Altman
Competitive Health Insurance Reform Act
Recently, the House of Representatives voted to pass H.R. 372, also known as the Competitive Health Insurance Reform Act of 2017, which would close the longstanding antitrust immunity granted to health insurance companies under the McCarran-Ferguson Act of 1945, which exempted the “business of insurance” from federal regulations, including some federal antitrust laws. Under McCarran-Ferguson, the business on insurance was left to be regulated by the states as they saw fit. This meant that insurers are still subject to any state antitrust laws, as well as the federal antitrust laws covering certain Sherman Act violations.
The exemption from federal antitrust regulation under McCarran-Ferguson as it exists today (that is, if the Competitive Health Insurance Reform Act of 2017 does not pass the Senate) allows insurers to pool historic loss data, which includes information on claims paid and reserves held for claims reported. It also allows insurance companies to meet and develop standard policies.
A wide range of activity is not covered by the current exemption, including health insurance mergers that are reviewed by federal antitrust agencies and bid rigging. The current exemption does not prevent state attorneys general and state insurance agencies from scrutinizing health insurer activities under state antitrust, consumer protection or trade practices laws.
The new bill, which you can view at https://www.congress.gov/bill/115th-congress/house-bill/372, provides:
Competitive Health Insurance Reform Act of 2017
(Sec. 2) This bill amends the McCarran-Ferguson Act to declare that nothing in that Act modifies, impairs, or supersedes the operation of antitrust laws with respect to the business of health insurance, including the business of dental insurance. This declaration does not apply to a contract, combination, or conspiracy to: (1) collect, compile, or disseminate historical loss data; (2) determine a loss development factor for historical loss data; (3) perform actuarial services if the collaboration does not involve a restraint of trade; or (4) develop or disseminate a standard insurance policy form if adherence to the form is not required.
Prohibitions against unfair methods of competition apply to the business of health insurance without regard to whether the business is for profit.
The proposed change to remove the exemption would be limited be the “business of health insurance”. The McCarran-Ferguson exemption would still apply to other insurance businesses, such as life, property and casualty insurance. The idea behind H.R. 372 is that without the exemption, health insurance companies would have to compete in the free market; thus increasing competition and decreasing cost.
This is not the first time Congress has considered amending the McCarran-Ferguson Act, specifically to end the exemption for health insurance companies. The House had passed similar legislation eliminating McCarran-Ferguson in its entirety in 2010, but the bill was not passed by the Senate. 2. H.R. 372 now heads to the Senate. If the bill is passed, insurance carriers might be subject to challenges under both state and federal antitrust laws, including the Sherman Act, the Clayton Act and the Federal Trade Commission Act.
It is unclear what impact the McCarran-Ferguson exemption has had in the health insurance industry to date. Opponents of the bill contend that the amendment will make little difference, in that the main thrust of antitrust regulations, oversight of mergers, is not exempted to begin with, and opponents believe that eliminating the exemption thus will have no impact on the costs of doing business or on insurance premiums. Supporters of the bill counter that the exemption has contributed to market concentration in the health insurance industry and argue that repeal is necessary to encourage competition among insurers and reduce high health care costs for consumers.
If the bill passes the Senate, Congress may also seek to remove the exemption from other insurers, such as property and casualty insurance.
OFF THE MARK
Brian F. Mark
[email protected]
01/14/17 Harleysville Group Ins. v. Heritage Communities, Inc.
Supreme Court, South Carolina
South Carolina Supreme Court Reiterates Its Prior Holdings That Costs to Repair Faulty Workmanship Itself Are Not Covered Under Commercial General Liability Policies, But That Costs to Repair Resulting Damage to Otherwise Non-Defective Components Are Covered
By way of background, the Harleysville case stems from two separate underlying actions, involving almost identical issues regarding insurance coverage for damages resulting from the defective construction of two condominium complexes. After the construction of the condominium complexes was complete and the units were sold, the purchasers became aware of significant construction problems, including building code violations, structural deficiencies and water intrusion. Thereafter, the purchasers commenced litigation against the entities that had developed and constructed the condominiums, including Heritage Communities, Inc. (and several subsidiaries).
During the period of construction from 1997 to 2000, the Heritage entities were insured under various insurance policies issued by Harleysville Group Insurance. The Heritage entities were uninsured after the last policy lapsed in 2001. After receiving notice of the lawsuits, Harleysville agreed to defend its insureds under a reservation of rights, which was described by the court as consisting of “generic states of potential non-coverage” with a cut-and-paste of most of the policy language. At each trial, Harleysville’s counsel conceded liability, which resulted in verdicts in favor of the plaintiff purchasers awarding both actual and punitive damages. Following the underlying verdicts, Harleysville commenced a declaratory-judgment action seeking a declaration that it had no duty to indemnify the Heritage entities for the verdicts. Alternatively, if the damages were found to be covered, Harleysville sought an allocation as to which portion of the verdicts constituted covered damages and whether those portions were subject to a time on the risk allocation.
In examining whether there was coverage in the first instance, the court noted the threshold question in determining coverage under a CGL policy is whether the claim at issue is for “property damage” caused by an “occurrence”. The court also noted that in its prior coverage decisions regarding construction defects, it had held that costs to repair faulty workmanship itself were not covered, but that costs to repair resulting damage to otherwise non-defective components were covered. The court focused on the term “property damage”, rather than “occurrence, holding that faulty workmanship was not covered because it did not constitute “property damage”, not because it did not meet the definition of “occurrence”. Based on such a holding, the court acknowledged that when the property damage is progressive in nature, such as water intrusion, it is impossible to determine precisely what amount of damage occurred in each policy period. Thus, where it is impracticable to calculate the exact measure of damages attributable to the injury that triggered each policy, the default rule is that an insurer’s pro-rata share of the damages is a function of the total number of years damages progressed and the portion of those years a particular insurer provided coverage.
In examining Harleysville’s reservation of rights letters, which were sent to the insureds in 2003 and 2004, the court noted that the letters did not discuss the various portions of the policy language referenced in the letters or explain why the referenced language was being relied on. Other than the claim for punitive damages, the letters failed to specify the particular grounds upon which Harleysville disputed coverage, which was insufficient to constitute a proper and valid disclaimer. Without knowing the basis upon which the insurer might dispute coverage, the insured is prejudiced by its lost opportunity to prepare a defense on its own. While a reservation of rights letter may protect an insurer’s interests, it is also intended to benefit the policyholder by alerting the policyholder to the potential that coverage may be inapplicable to the loss. A reservation of rights letter must provide fair notice to the insured that the insurer intends to assert coverage defenses or pursue declaratory relief at a later junction. Because an insurer typically has the right to control the litigation and is in the best position to see to it that damages are allocated, where an insurer defends under a reservation of rights, it has a duty to inform the insured of the need for an allocated verdict as to covered versus non-covered damages.
Having found that Harleysville did not effectively reserve the right to contest coverage, the court refused to address the applicability of the policy exclusions. Although Harleysville effectively reserved its right to contest coverage for punitive damages, the court found that the terms of the policy required Harleysville to indemnify the Heritage entities for those sums the Heritage entities became legally obligated to pay as a result of the water intrusion. The court noted that the policy did not limit “those sums” to compensatory or actual damages”.
Earl K. Cantwell
[email protected]
12/01/16 Hillside FXF, LLC v. Premier Design + Build Group, LLC
2016 Mass. Super LEXIS 814
No Liability, No Indemnity
Hillside hired Premier Design as general contractor for a Federal Express facility. As construction proceeded, the building foundation began to sink and settle. Improper fill was alleged to be the cause, and Hillside spent $3 Million to correct the problem, and then sought recovery from Premier. Premier sought to enforce indemnity clauses in its subcontract with an excavation subcontractor Lopes Construction. However, based upon Massachusetts law, and general contractual principles, the Court declined to enforce any indemnity provision.
Massachusetts has an anti-indemnity statute which voids a clause that requires a subcontractor to indemnify any party for injury to persons or damage to property not caused by the subcontractor, or its employees, agents, or subcontractors. In short, the Massachusetts statute precludes a party from being indemnified from its own negligence.
The first indemnity provision in the contract required the subcontractor to indemnify for claims or damage whether or not claimed to be due to the active, passive, or concurrent negligence or the fault of the subcontractor. Since this language potentially required Lopes to indemnify for negligently performed work it did not perform, the Court ruled that this provision violated the Massachusetts anti-indemnity statute. Likewise, a second indemnity provision in the contract encompassed work performed by others, including other project subcontractors, for whose performance Lopes had no responsibility. The Court therefore ruled that both indemnity provisions were void for violating the Massachusetts statute.
Premier attempted to argue that certain subcontract language narrowed the indemnity obligation, for example by defining “Work” as only the work Lopes had to perform. The Court did not accept this limitation as generally “Work” has a broader interpretation.
Premier also attempted to argue that the language “arising out of and in connection with” drew an inherent causal connection between Lopes’ negligence and the alleged damages. However, the Court rejected this limitation as well since the contractual language clearly extended well beyond work actually performed by Lopes.
However, the Massachusetts statute specifically relates only to indemnity, and the Court ruled that Lopes’ duty to defend survived since the duty to defend is independent of and broader than the duty to indemnify, and was not restricted by the Massachusetts statute.
In sum, this case illustrates that, with respect to indemnity there must be some connection between the indemnifying party and the alleged harm or damage. Here, since both indemnity clauses would potentially indemnify Premier for its own negligence, the clauses were deemed invalid. This case represents the application of common anti-indemnity statutes in a construction context. These statutes vary from state to state, and in this case the Massachusetts statute provides that parties may not be indemnified from claims or results of their own negligence.
Although indemnity language and additional insurance coverage are different, they are often inter-related, and this case represents a good example where the indemnity analysis reaches many of the same arguments with respect to whether an owner or contractor is considered an additional insured under a subcontractor’s liability policy. For example, the familiar refrain that the duty to defend is broader than the duty to indemnify is most frequently seen and heard in the context of additional insurance discussions and tenders.
