Volume XVIII, No. 22 (No. 478)
Friday, April 21, 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. Whether property, casualty, environmental, or anything in between, we’ve got you “covered”. With coverage attorneys throughout New York State, we are available at your disposal for all of your questions and coverage needs. From Riverhead to the St. Lawrence, from the Hudson to Lake Erie, we are always more than happy to get to wherever coverage questions call.
This edition of Coverage Pointers has been lovingly crafted by your Associate Editor Agnes Wilewicz (that’s me), as our esteemed leader Dan is crisscrossing the country this week solving coverage dilemmas from sea to shining sea.
Did You Know?
Did you know that here at Hurwitz & Fine we have a team of no fewer than 12 fully vested coverage geeks who thrill at the opportunity to parse words, endorsements, and all manner of coverage forms in between? Did you know that we also have coverage attorneys licensed in New Jersey that can help with litigation or coverage evaluation questions you may have? Did you know that we live and breathe coverage, all day every day? Now you do.
Upcoming Events – Mark Your Calendars!
This week we’re highlighting some upcoming DRI events that might pique your interest. Save-the-date, mark your calendars, and drop us a line if you’ll be attending any or all of the events. We would love to find you and put faces to names, as they say.
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May 31-June 2, 2017 (Boston): DRI Insurance Bad Faith and Extra Contractual Liability Seminar. A seminal program providing insights from seasoned litigators in the field, as well as consultants and in-house managers, regarding emerging bad faith issues, theories, and developments.
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October 4-8, 2017 (Chicago): DRI Annual Meeting. DRI’s flagship conference, a premier education event, which provides phenomenal networking and continuing education opportunities for practitioners and industry professionals from around the country.
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December 6-8, 2017 (New York City): DRI Insurance Coverage and Practice Symposium. While information has not yet been posted online (see last year’s brochure here) it’s never too early to block off a few days in early December and join us for this premier conference on insurance coverage. Hope to see many of you there!
Kohane’s Coverage Corner:
Just a quick hello from your road-weary editor who is leaving this week’s issue in the good and capable hands of Agnes Wilewicz aided by Steve Peiper. This week brought me to NYC on Monday, home Tuesday, Columbus, Ohio Wednesday and Thursday and then back to NYC on Friday. I will be sending this out later Thursday, when I return from Ohio. They should not give frequent fliers more air miles but something else in return.
For once, I am not to blame for typos! Whee.
I’ve moved back to my summer home in Fort Erie, Ontario, on the north shore of Lake Erie. I live there for just under six months, from April to October. We call it Crescent Dreams, the Land of the Blue Martinis. If you are in Western New York or Southern Ontario, let me know and we’d be glad to offer you what is ours.
Saturday morning, I woke up in Buffalo on my move-up day to Canada, to learn that the house next door to me on the beach burned to the ground. Fortunately, we had only minor damage to our place. Nobody hurt. Scary, indeed.
Best wishes for a wonderful week.
Dan
Dan D. Kohane
Fred “’Bonehead” Merkle Traded – 100 Years Ago Today:
The Brooklyn Daily Eagle
Brooklyn, New York
21 Apr 1917
Fred Merkel Is Sold;
To Play First for Cubs
Once again Fred Merkle moves. The first sacker and utility outfielder of the Superbas has been sold to the Chicago Cubs to fill in for Vic Saier, who recently broke his leg. The price is not given. Merkle seems to have been in demand as a relief man, as he came to the Superbas from the Giants when Daubert hurt his leg last season, and McCarty, the catcher, proved a poor substitute at the initial sack.
Editor’s Note: If you don’t remember “Bonehead Merkle” from previous issues, we’ve been writing about him for years.
Jen’s Gems:
Greetings!
My little Charlotte turned two last week. It is amazing how every day she becomes more and more of her own person.
I also wanted to remind everyone that the New York Bar Association is putting on a CLE in May entitled “Updates and Hot Trending Topics Affecting Insurance Coverage.” Topics include emerging trends for cyber liability coverage, hot topics in professional errors and omission liability, and an update on consequential damages. It should be a great presentation. I will be speaking in Buffalo on Friday, May 12, 2017. My topic is preparing an effective position letter. Hope to see many of you there.
In terms of my column, as a refresher, I report on trial court decisions. In New York, our trial court is Supreme Court, while our highest court is the Court of Appeals. This week I report on a good decision from New York County Supreme Court wherein the trial judge granted a motion to dismiss an insured’s counterclaim for consequential damages. In that case, the insured claimed its attorneys’ fees constituted consequential damages. The court disagreed highlighting that in claiming entitlement to consequential damages the insured simply repeated the basis for the breach of contract claim, which was not sufficient.
Until next issue…
Jen
Jennifer A. Ehman
War Insurance – First World War – a Century Ago:
Times Herald
Olean, New York
21 Apr 1917
War Insurance Bill Signed.
Albany, April 21. – The Towner bill to permit fire insurance companies to insure against loss resulting from war was signed by Governor Whitman yesterday.
Tessa’s Tutelage:
Dear Readers:
I am writing this week’s Coverage Pointer’s from the airport as I am heading to Switzerland. This is my first vacation where I have had to worry about packing snow pants. Nonetheless, if you have any questions about this week’s no-fault cases, I might be slow to respond. It is very likely I will be in a chocolate/cheese-induced food coma for a few days.
This week we have some interesting cases. In Brooklyn Chiro the District Court should not have denied the defendant’s request for a second adjournment. The defendant, on the first day of trial, requested an adjournment because its only witness, a doctor, was unable to testify on Mondays. The court was amenable to that, but then rescheduled for another Monday. Defendant, again, asked for an adjournment and the court was unsympathetic, even though Defendant said its expert was willing to appear on Monday with eight weeks’ notice. The District Court granted plaintiff’s case without hearing Defendant’s expert testimony. The Second Department remanded the whole thing because the court was on notice that Mondays did not work for defendant’s expert.
In Healthway, the Second Department was asked to determine the correct choice of law. This one was pretty simple as the policy, accident, and the insured’s place of business was all in Massachusetts.
Finally, in Country Wide, Plaintiff argued that the arbitrator should not have been allowed to review new evidence. The Court dismissed this argument because the prior arbitration award expressly permitted the insured to re-file with additional evidence.
Hope you have a lovely weekend.
Tessa
Tessa R. Scott
Baseball – A Century Ago:
Democrat and Chronicle
Rochester, New York
22 Apr 1917
ATHLETIC HURLERS BUMPED
Washington Pounds Out Fifteen
Hits Off of Quartette of Them.
Washington, April 21.—Four of the Athletic’s pitchers were pounded for fifteen hits to-day, Washington winning 11 to 6, and breaking a losing streak that went to five straight yesterday. Walter Johnson held the visitors to two runs in six innings, being withdrawn to permit Craft to make his debut. Local errors helped the Athletics to make two of the four runs scored off the latter. Milan made five hits in as many times at bat.
Ewell's Universe:
Dear Subscribers:
This just in! …Texas Supreme Court clarifies decades of confusing precedent by announcing five rules to clarify the relationship between contract claims and extra-contractual liability claims in the insurance context.
In this landmark decision, the Texas Supreme Court noted that its precedent in these areas has led to substantial confusion among the courts, and in a lengthy opinion harmonized its prior precedent, announcing clear rules to guide the courts, litigators, insurers and insureds alike on the difference between contract claims and extra-contractual claims under Texas insurance law. Although this case was just decided, it is already being lauded as one of the biggest insurance cases of the year.
Also included in today’s edition of Ewell’s Universe is a decision from Vermont’s Supreme Court addressing when a hobby in the garage becomes a full-blown business within the scope of a business exclusion in a homeowners policy. The policyholder converted his home garage into a glassblowing studio, which later burned to the ground after the glass manufacturing equipment malfunctioned. The insurer denied coverage under the policy’s business exclusion. Thinking this was just hot air, the policyholder sued. On appeal the policyholder argued that the business exclusion did not apply because “making glass is his art” and because it is an expensive hobby or trade, he “needed to create some saleable product . . . to offset some of the cost of practicing the art form that he loves.” The Court rejected this argument because the insured himself conceded that he engaged in glassblowing as a trade, profession, or occupation, and that glassblowing generated profits for him. Both of these cases are discussed in further detail in the attached issue. Thanks for reading!
'Til Next Time,
John
John R. Ewell
A Century Ago” Object Matrimony:
The Pittsburgh Press
Pittsburgh, Pennsylvania
21 Apr 1917
YOUNG WIDOW, worth $75,000, lonely, would marry. Mrs. W. K. Hill, 14 E. Sixth St., Jacksonville, Fla.
Off The Mark:
Dear Readers,
I hope everyone reading this is doing well and starting to enjoy the warmer weather. I certainly am.
This edition of Off the Mark discusses a recent construction defect case from the Tenth Circuit. In Gerald H. Phipps, Inc. v. Travelers Property Casualty Company of America, the United States Court of Appeals for the Tenth Circuit examined coverage for damage caused by construction defects under a Builders’ Risk policy. In affirming the lower court’s granting of summary judgment to the defendant insurance carrier, the Court of Appeals held that Builders’ Risk, as defined under the policy, does not include buildings or structures that existed at the job site prior to the inception of the policy. As the damage at issue only involved items that existed at the job site prior to the inception of the policy, not the insured’s work, no coverage obligation was owed.
Until next time …
Brian
Brian F. Mark
A Smile is but a Smile:
The Akron Beacon Journal
Akron, Ohio
21 Apr 1917
Teaching Art of Smiling.
Now school girls are going to learn how to smile. Most of them, of course, are familiar with the elementary precepts for so manipulating the orbiscularis oris in conjunction with the zygomaticus major and the levator labii superioris as to arrive at the impression of an incipient laugh, expressive of cheerfulness, enjoyment, pleasure and often slight contempt. But they don’t know how to smile. Therefore a class in smiling has been listed among the courses to be given by the Girls’ Community club. All kinds of plain and fancy smiling will be taught. The only variety not listed in the curriculus, it is understood, is the one which is defined in the dictionary as American slang, meaning “Have one on me.”
Hewitt’s Highlights:
Dear Subscribers:
Spring weather is here on Long Island and with it busy times. My children have started their baseball and soccer leagues. My oldest is about to celebrate his First Communion this weekend. Family is in town. Easter was successful and many egg hunts were held. I hope you had a lovely holiday time of Easter or Passover.
On the serious injury front, we have several cases of interest. In one, the Appellate Court rejected an attempt to use a physical therapist’s affidavit to find an issue of fact. Physical therapists are not allowed to provide diagnoses and the Court held any evidence as to permanency, significance, or causation from the physical therapist would be incompetent. The Courts again reminded in another case that plaintiff’s expert cannot rely solely on plaintiff’s relation of her injuries and must find some objective medical basis for their opinion. In another, the Court rejected the defendant’s argument that plaintiff had ceased treatment as showing there was no serious injury, as the Court found that defendant did not establish a physician had opined that further treatment would be beneficial and plaintiff had testified he had been told it would not be beneficial.
Until next time,
Rob
Robert Hewitt
The First Church of Oldsmobile:
The Brooklyn Daily Eagle
Brooklyn, New York
21 Apr 1917
AUTO GOSPEL FOR BROADWAY.
The churches of the lower West Side and West Side Y.M.C.A. are planning the series of automobile gospel meetings at Broadway corners, between Forty-second and Seventy-second streets, during the summer. The schedule calls for twelve meetings each week. Last year 55,000 attended the street meetings, the total expense of which was $450.
Wilewicz’ Wide-World of Coverage:
Dear Readers,
This week’s missive is brought to you by the afterglow of a European vacation that was eventful, adventure-ful, and all around wonderful. My family and I spent 10 days in a house just outside of Athens, about a block away from the route where, according to legend, Philippides ran to deliver the news of the Greek victory over the Persians in the Battle of Marathon. It is said that he ran the 26 miles, delivered the message, and promptly died of a heart attack. Let that be a lesson. We spent quite a bit of time tracking down the statue of said Phil, to no avail, but we did stumble upon the Marathon Run Museum, which chronicles the history of the race that now bears the name. We also visited the Parthenon, Acropolis, Ancient Agora, and the Temple of Poseidon at Sounio, all of which are highly recommended if you have not been already.
And now, back to our regularly scheduled programming, with lots of coverage fun as always. In this edition of the Wide World, we have a couple of Second Circuit decisions that have come down the pike in recent weeks.
First, we review Standard Security v. Berard. In that one, the insured was undoubtedly a little blindsided when he was asked to repay some policy benefits he had claimed following an injury, when he later recovered and returned to playing professional hockey. However his claim for fraud against the insurance company came too late. Since he had knowledge of the policy provisions and had received the releases that contained the repayment language years before, he could not then bring a fraud claim if it was outside the statute of limitations. Too bad, so sad, as they say.
Then last, but not least, we have a brief decision about life insurance. In Blake v. Prudential, Mr. Blake tried to recover benefits under a life insurance after his ex-wife’s untimely passing. However, on his claim he represented that he was still her husband in order to obtain those benefits. The carrier initially granted the coverage but upon learning of the misrepresentation Blake was charged, tried, and convicted of fraud. That did not stop him from trying to recover again. This time arguing that he was still a dependent and that the coverage could be converted into a stand-along policy for him, he sought the benefit. The court did not buy it. While he might have had a chance if the divorce were recent (i.e. fewer than 90 days) or by another mechanism, it did not apply in this case. He could not convert his ex-wife’s coverage to an individual policy for himself. Interesting one!
Until next time! αντίο!
Agnes
Agnes A. Wilewicz
Flag Desecration – 100 Years Ago:
The Sun
New York, New York
21 Apr 1917
HELD FOR FLAG DESECRATION.
Curb Broker Manhandled by Crowd
for His Offence.
John K. Mills, 39 years, of 219 West Eighty-first street, who is a curb broker with a booth at 44 Broad street, was arrested early yesterday morning charged with having torn down an American flag at a recruiting booth at Columbus Circle. When he was arraigned in court later in the day both his eyes were blackened and his face was swollen, evidence of the manhandling he had undergone at the hands of a crowd before the police took him in charge.
Mills first gave a fictitious name. Magistrate Cornell asked the arresting policeman if Mills had been intoxicated, and the policeman said that although there was the odor of liquor on Mills’s breath he had been able to talk intelligently. Mills was held in $1,000 bail for examination on Monday.
Barnas on Bad Faith:
Hello again:
I would love to have a redo on the start of baseball season. My Blue Jays are officially the worst team in the league as it stands today. I certainly don’t think we’re worst team in the league bad, but a 3-12 start is next to impossible to overcome.
You can find write ups on two cases in my column this week. In Menchaca, the Supreme Court of Texas clarifies the relationship between contract claims under an insurance policy and tort claims for extra-contractual damages under the Insurance Code. The court admitted that prior Texas precedent on this issue had led to confusion, and it sought to clarify the rules in its decision. See the write up for the five rules articulated by the court.
City of Montebello is a case analyzing the hammer clause. In its decision, the Ninth Circuit concludes that the hammer clause is not limited to situations where the insured is unreasonable in rejecting a settlement offer. Such a conclusion would too narrowly restrict the applicability of the clause.
Finally, I understand that the Pennsylvania Supreme Court recently heard argument in a case called Rancosky v. Washington National Insurance. The court is reportedly considering whether the elements of a bad faith claim established in a decision named Terletsky v. Prudential remain good law, and whether a finding that a carrier acted out of self-interest or ill will is a discretionary consideration or a mandatory element of proving bad faith. Keep an eye out for that one.
That’s all for this week; have a great weekend.
Signing off,
Brian
Brian D. Barnas
Military Training at Fordham:
The New York Times
New York, New York
21 Apr 1917
FORCED DRILL AT FORDHAM.
Military Work Restored to
Curriculum After Eight Years.
After having been abandoned for eight years compulsory military work will be restored to the curriculum of Fordham University today and the students will be organized into a training regiment. Since the war started the Fordham Faculty has been deliberating over the training problem, and tit was finally decided that the best results could be obtained from a compulsory system. Application was made to the War Department for an officer to take charge of the Fordham University regiment. Because of the shortage of trained men in the Eastern Department of the regular army it was decided to detail George Daly, a Captain in the Twelfth Regiment, N. G. N.Y., to the place. Captain Daly is a Fordham graduate and has been commended by Major Gen. O’Ryan for his work on the Mexican border.
All students in the School of Arts and Sciences, the Pharmacy School, the Sub-Medical class, and the Preparatory Department at Fordham—more than 1,400 in all—will be required to rill daily. A special meeting was held yesterday for all the students who have had any military training, and temporary officers were chosen by Captain Daly for the first regular work today. It will be held from 9 to 11 o’clock, the extra time being required for proper organization. All drills will take place in the morning.
An announcement was made yesterday through the office of Dean Carleton L. Brownson of the College of the City of New York that the Faculty of the institution had voted to grant full credit for the present term’s work to all students in good standing who enter the service of the government of the United States. The college will give students who enter the farm Cadet Corps and perform its service satisfactorily the same collegiate credit as is granted to those who enter the purely military training.
Altman’s Administrative (and Legislative) Agenda:
Greetings, Dear Readers.
Happy birthday to my mother, Emily, who once tacked every poem I wrote on her refrigerator. Hi, Mom!
Passover is over, and I’m back to eating pizza, baguettes, and all those things that are so bad for me, but taste so good. Throw in the leftover Easter candy that my colleagues donated to our office, and, Dear Reader, there will be a little bit more of me (by weight) to love come next issue.
Today, I bring to you the Health and Human Services’ new regulation to limit some of the costs associated with the Affordable Care Act. Since waiting for Congress to act is like Waiting for Godot, in the meantime, this will likely be the biggest change to the ACA for some time.
Howard
Howard B. Altman
Peiper On Property (and Potpourri)
No Kohane = no fun title this week. Typos, however, are sure to remain.
We offer two interesting property cases below. The first, from the First Department, explores those rare occasions where the Court will entertain extrinsic evidence when evaluating an alleged ambiguity. It is often argued that so long as there are two interpretations ambiguity is found. When found, of course, the argument goes that the interpretation is always more favorable to the insured. That, as explained herein, is not always the case.
The other case, also dealing with ambiguity, explores the meaning of the word “claim” when construing time limits on presenting an RC loss. While we hate to admit it, counsel made a compelling case for ambiguity under the limited facts of that case.
We also take a moment to review a third-party practice case. As you know, indemnity issues are often addressed in the space. We do so, principally, because one cannot understand Coverage Law without understanding third-party practice.
In the Eisman case, the Court addresses the differences between common law indemnity and contribution. The take away, which is almost always missed, is that one cannot possess a claim for common law indemnification where there is no a claim for vicarious/statutory liability. Without such a claim, a defendant can only be responsible for its negligence. If it is not negligent, it is not liable – and, as such, there is no basis for indemnity. Conversely, if a defendant is negligent it follows there is no basis for indemnity.
That is it for this week. See you in two more.
Steve
Steven E. Peiper
Headlines from Today’s Edition:
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
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Under Texas law, Conflict of Interest Precluded Liability Insurer from Controlling Defense or Requiring Compliance with Litigation Guidelines
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Additional Insured Coverage Exists because Carrier Failed to Establish that it Properly Canceled Policy and Failed to Timely Disclaim on Policy Exclusions
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On Motion to Dismiss Based on Pleadings, Insurer In, for Now but Broker Out, for Good
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Late Notice of Claim Leads to Loss of SUM Benefits
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
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Experts Disagreed on whether Plaintiff Suffered a Fracture of the Left Elbow
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Plaintiff Created an Issue of Fact as to Whether Injury to Lumbar Spine was Serious Injury
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Defendant’s Expert Failed to Compare Range of Motion Findings to Normal
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Plaintiff’s Expert Failed to Explain Inconsistencies Between Earlier Findings of Full Range of Motion and Present Findings of Additional Deficits
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Despite Extensive Preexisting Conditions Plaintiff Demonstrated Issue of Fact as to whether Accident Exacerbated or Caused New Injuries
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No Triable Issue of Fact Raised as to Injuries to Left Elbow and Spine
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Photographs of Scars Did Not Establish as a Matter of Law that they Did Not Constitute a Significant Disfigurement
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Gap In Treatment Presented Issue of Fact Where Defendants Failed to Establish that Plaintiff’s Physician Indicated Further Treatment Would be Helpful
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Plaintiff’s Expert Must Provide Some Nonconclusory Reason for His Opinions and Cannot Just Rely on Plaintiff’s Given History
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Physical Therapist Cannot Diagnose or Make Prognoses Such that any Opinion Rendered On Permanency Significance or Causation Would Be Incompetent Evidence
TESSA’S TUTELAGE
Tessa R. Scott
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The Application of Massachusetts Law Was Appropriate Where the Policy, Accident, And The Insured’s Place Of Business Was Massachusetts
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An Arbitrator Was Permitted to Review New Evidence Pursuant to The Prior Arbitration Award
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The District Court’s Unwillingness to Adjourn Trial was Improper as it was Informed of The Expert Witness’s Inability to Testify on that Date
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
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Court Looks to Extrinsic Evidence When Evaluating Clarity of a Coverage Exclusion
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Meaning of the Word “Claim” is Ambiguous, and Carrier Loses its RC Limitation as Result
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Common Law Indemnity Claim Dismissed Where No Claim for Vicarious/Statutory Liability was Pleaded
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
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Second Circuit Holds that Insured’s Claim Against Carrier for Fraudulent Inducement is Time-Barred When Brought More Than Six Years Following Arguable Knowledge of Policy Language and Provisions
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Second Circuit Holds that Living Ex-Spouse Cannot Recover Under Life Insurance Policy and Cannot Convert Policy to Create Benefits, Where Conversion Privilege Belongs to Decedent Former Spouse
JEN’S GEMS
Jennifer A. Ehman
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Trial Court dismisses Counterclaim alleging Breach of the Covenant of Good Faith and Fair Dealing and seeking Consequential Damages as Duplicative of the Breach of Contract Claim
BARNAS ON BAD FAITH
Brian D. Barnas
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Supreme Court of Texas Clarifies the Relationship between Contract Claims under an Insurance Policy and Tort Claims for Extra-Contractual Damages under the Insurance Code
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Hammer Clause is Not Limited to Situations where the Insured is Unreasonable in Rejecting a Settlement Offer
EWELL’S UNIVERSE
John R. Ewell
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In Landmark Decision, Texas Supreme Court Announces 5 New Rules To Clarify Texas Insurance Law
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Just Hot Air? No Coverage for Glassblowing Business in Home Garage Pursuant to Business Exclusion in Homeowners’ Policy
ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA
Howard B. Altman
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ACA Regs
OFF THE MARK
Brian F. Mark
[email protected]
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Tenth Circuit Court of Appeals Affirms Lower Court’s Finding That Builders’ Risk Policy Does Not Cover Buildings or Structures Existing Prior to the Inception of the Policy (Colorado Law)
EARL’S PEARLS
Earl K. Cantwell
[email protected]
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Avoid Purely “Cut and Paste” Reservation of Rights Letters
That’s it for this week. We’ll be back in another two weeks, at which time we’ll hand the reins back to Dan, when he’s back in town.” Or something like that.
Agnes A. Wilewicz (and Steven E. Peiper)
Dan D. Kohane
Hurwitz & Fine, P.C.
1300 Liberty Building
Buffalo, NY 14202
Office: 716.849.8942
Mobile: 716.445.2258
Fax: 716.855.0874
E-Mail: [email protected]
Website: www.hurwitzfine.com
Twitter: @kohane
LinkedIn: www.linkedin.com/in/kohane
Hurwitz & Fine, P.C. is a full-service law firm
providing legal services throughout the State of New York
NEWSLETTER EDITOR
Dan D. Kohane
[email protected]
ASSOCIATE EDITOR
Agnes A. Wilewicz
ASSISTANT EDITOR
Jennifer A. Ehman
INSURANCE COVERAGE/EXTRA CONTRACTUAL LIABILITY TEAM
Dan D. Kohane, Chair
[email protected]
Steven E. Peiper, Co-Chair
Michael F. Perley
Jennifer A. Ehman
Patricia A. Fay
Agnieszka A. Wilewicz
Jennifer J. Phillips
Brian D. Barnas
Howard B. Altman
Brian F. Mark
John R. Ewell
Diane F. Bosse
Joel R. Appelbaum
FIRE, FIRST-PARTY AND SUBROGATION TEAM
Steven E. Peiper, Team Leader
[email protected]
Michael F. Perley
Robert E. Hewitt, III
Jennifer J. Phillips
Brian D. Barnas
NO-FAULT/UM/SUM TEAM
Jennifer A. Ehman, Team Leader
[email protected]
Patricia A. Fay
APPELLATE TEAM
Jody E. Briandi, Team Leader
[email protected]
Jennifer J. Phillips
Diane F. Bosse
Topical Index
Hewitt’s Highlights on Serious Injury
Tessa’s Tutelage
Peiper on Property and Potpourri
Wilewicz’s Wide World of Coverage
Barnas on Bad Faith
Phillips’ Federal Philosophies
Altman’s Administrative (and Legislative) Agenda
Off the Mark
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
04/20/17 Sabre, Inc., v. The Ins. Co. of the State of Pennsylvania
Appellate Division, First Department
Under Texas law, Conflict of Interest Precluded Liability Insurer from Controlling Defense or Requiring Compliance with Litigation Guidelines
In a case decided under Texas law, the pleadings in the underlying actions allege facts within the scope of coverage under the subject insurance policies, giving rise under Texas law to the duty to defend. Because the facts to be adjudicated in the underlying actions were the same facts upon which coverage depended, a conflict of interest existed that precluded the insurer from controlling the defense in those actions.
Because of its conflict of interest with its insured, ICSP could not have participated in the defense of the underlying action prior to its receipt of the notice, and has failed to show that it was prejudiced as required by the contract by Sabre's failure to provide notice on a timely basis.
Litigation management guidelines were not applicable because of the conflict. Issues of fact exist as to plaintiffs' claims for prompt payment under Texas Insurance Code § 542.058(a), which requires an insurer to pay a claim within 60 days after being provided all items, statements, and forms reasonably requested.
04/19/17 Unified Window Systems, Inc. v. Endurance Amer. Spec. Ins. Co. Appellate Division, Second Department
Additional Insured Coverage Exists because Carrier Failed to Establish that it Properly Canceled Policy and Failed to Timely Disclaim on Policy Exclusions
On July 31, 2012, Orellana, an employee of L.I. Exterior Specialists (“LIES”), allegedly sustained personal injuries when he fell from a ladder on the roof of a Brooklyn residence in the course of his work as a roofer. Orellana sued Unified Window Systems, Inc. (“UWS”) the general contractor who hired LIES. UWS subsequently impleaded LIES and obtained a default judgment against LIES on its contractual indemnification claim.
Endurance issued a policy to LIES and UWS timely sought additional insured coverage from the defendant Endurance. However, Endurance disclaimed coverage for the accident on the ground that the policy purportedly had been cancelled five days before the accident due to nonpayment of premiums. That coverage disclaimer was later supplemented with two policy exclusions for work performed within the five boroughs of the City of New York and for bodily injury sustained by an employee of an insured in the course of his or her employment.
UWS and its excess insurance carrier, Merchants Insurance, commenced this action seeking a declaration that Endurance is obligated to defend and indemnify UWS in the underlying action, as UWS was an additional insured under a policy obtained by LIES. They claimed that the policy was not properly canceled.
The policy provided AI coverage, as written, with a blanket additional insured endorsement providing that additional insureds are "Any entity required by written contract . . . to be named as an insured . . . but only with respect to liability arising out of [LIES'] premises, [LIES'] work' for the additional insured, or acts or omissions of the additional insured, in connection with their general supervision of [LIES'] work.'" Since the policy provided LIES with primary coverage, and LIES agreed to make UWS an additional insured, the contract between UWS and LIES constituted a contract requiring Endurance to provide UWS with primary coverage, and satisfied the requirement of the Blanket Additional Insured Endorsement.
Endurance did not provide the 15 days’ notice of cancellation required in the policy and did not follow the Insurance Law requirements to make the cancellation effective. Endurance did not provide sufficient proof of mailing of the cancellation notice, either.
Moreover, Endurance waived its right to disclaim coverage based upon the Employer's Liability and Designated Ongoing Operations exclusions because it failed to include these grounds for disclaimer in the original disclaimer letter and its disclaimer based on these exclusions was untimely as a matter of law.
04/19/17 Brannigan v. v Christie Overhead Door
Appellate Division, Second Department
on Motion to Dismiss Based on Pleadings, Insurer In, for Now but Broker Out, for Good
Nationwide contended that it was not obligated to defend or indemnify the its insured because of an exclusion in the personal liability coverage of the policy relating to injuries to relatives residing in the premises. However, the evidence did not conclusively establish that a material fact as claimed by the policyholder was not a fact at all and that no significant dispute exists regarding it.
However, the claims against the insurance broker are dismissed. To set forth a case for negligence or breach of contract against an insurance broker, a plaintiff must establish that a specific request was made to the broker for the coverage that was not provided in the policy. That was not done here.
04/12/17 GuideOne Specialty Mutual Ins. Co. v. Cruz
Appellate Division, Second Department,
Late Notice of Claim Leads to Loss of SUM Benefits
This was an application to stay uninsured (or underinsured - SUM) motorists coverage. Cruz was involved in an accident when rear-ended by Knapp. Cruz was insured by GuideOne and Knapp was insured by Allstate. Three weeks after the accident, Cruz’s lawyer wrote to GuideOne advising that since she had not yet verified Knapp’s coverage, she may be making an uninsured or underinsured motorists claim in the future. That was on May 23, 2013.
Three months later, Cruz learned the limits of Knapp’s policy. Two years after that, in March 2015, Cruz served GuideOne with a notice of intention to arbitrate an underinsured motorist claim.
GuideOne commenced this proceeding pursuant to CPLR article 75 to permanently stay the arbitration on the ground that Cruz failed to comply with the condition precedent to coverage of giving notice as soon as reasonably practicable of his underinsured motorist claim. Cruz's only argument in opposition to the petition was that his notice was timely. The Supreme Court denied the petition.
In the context of supplementary underinsured motorist (hereinafter SUM) claims, "it is the claimant's burden to prove timeliness of notice, which is measured by the date the claimant knew or should have known that the tortfeasor was underinsured
In determining whether notice was timely, factors to consider include whether the claimant has offered a reasonable excuse for any delay, such as latency of his/her injuries, and evidence of the claimant's due diligence in attempting to establish the insurance status of the other vehicles involved in the accident
The May 23, 2013, did not serve as effective notice of a SUM claim. That letter expressly admitted that Cruz's attorney had not been able "to verify the insurance coverage for the other vehicle involved in the accident" and merely recited that, as a result, a claim "may be made" for SUM benefits. Indeed, the attorney indicated that the claim could be for either uninsured motorist benefits or underinsured motorist benefits. Under these circumstances, any claim for underinsured motorist benefits was premature at that time, since Cruz had no knowledge that the offending vehicle was underinsured.
The first effective notice provided by Cruz was sent in March 2015. GuideOne correctly contends that this notice was untimely as a matter of law. The accident occurred on May 2, 2013, and Cruz learned the coverage information from Allstate on June 12, 2013. Cruz, who bears the burden, has not claimed that any of his injuries were latent or offered any other excuse for the delay in notifying GuideOne of his SUM claim. In fact, Cruz did not make any effort to establish the reasonableness of the delay but, rather, relied entirely upon the letter dated May 23, 2013. Under these circumstances, Cruz did not meet his burden of demonstrating the timeliness of his claim for SUM benefits.
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
04/19/17 Kline v. Mitchell
Appellate Division, Second Department
Experts Disagreed on whether Plaintiff Suffered a Fracture of the Left Elbow
The defendant met her prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident by submitting an expert's affirmed report and MRI report indicating that the plaintiff did not sustain a fracture to her left elbow. In opposition, however, the plaintiff raised a triable issue of fact as to whether he sustained a serious injury to his left elbow as a result of the accident. Specifically, the plaintiff submitted an affirmation from his treating physician, who concluded that an X-ray film of the left elbow revealed a fracture that was caused by the subject accident
04/19/17 Aharanoff-Arakanchi v. Maselli
Appellate Division, Second Department
Plaintiff Created an Issue of Fact as to whether Injury to Lumbar Spine was Serious Injury
No facts are given. The defendants failed to meet their prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The papers submitted by the defendants failed to adequately address the injured plaintiff'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). Since the defendants failed to meet their prima facie burden, it was unnecessary to determine whether the papers submitted by the plaintiffs in opposition were sufficient to raise a triable issue of fact.
04/19/17 Pupko v. Hassan
Appellate Division, Second Department
Defendant’s Expert Failed to Compare Range of Motion Findings to Normal
The defendants failed to meet their prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendants' expert, who examined the plaintiff, set forth range-of-motion findings for the lumbar region of the plaintiff's spine, but failed to compare those findings to what is normal, and his opinion as to the cause of the alleged injury to the lumbar region of the plaintiff's spine was conclusory and speculative. Since the defendants failed to meet their prima facie burden, it was unnecessary to determine whether the papers submitted by the plaintiff in opposition were sufficient to raise a triable issue of fact
04/18/17 Rose v. Tall
Appellate Division, First Department
Plaintiff’s Expert Failed to Explain Inconsistencies between Earlier Findings of Full Range of Motion and Present Findings of Additional Deficits
Defendants established prima facie that plaintiff did not sustain a serious injury to her lumbar spine through the affirmed reports of their neurologist, who found no limitations as a result of the accident, and radiologist, who, after review of plaintiff's MRI films, found no injuries related to the subject accident. Defendants also relied on reports prepared by plaintiff's treating neurologist, who found minimal limitations in range of motion at examinations conducted months after the accident.
In opposition, plaintiff submitted the report of her neurologist, who reviewed the MRI himself, and opined that plaintiff sustained a disc herniation as a result of the accident. However, his report was insufficient to raise a triable issue of fact because, on his initial examination, he found normal to near-normal range of motion, which did not qualify as a serious injury. Furthermore, on a more recent examination, that neurologist found a deficit in one plane and normal to near-normal range of motion in all other planes, and failed to explain the inconsistencies between his earlier findings of almost full range of motion and his present findings of additional deficits, rendering his opinion speculative. Plaintiff's showing of relatively minor limitations was insufficient to sustain a serious injury claim. Defendants also demonstrated that plaintiff did not suffer a 90/180-day claim by relying on her deposition testimony that she was confined to home and bed for just two days after the accident.
04/13/17 Moat v. Kizale
Appellate Division, Third Department
Despite Extensive Preexisting Conditions Plaintiff Demonstrated Issue of Fact as to whether Accident Exacerbated or Caused New Injuries
Plaintiff Moat, who previously had undergone two surgeries on her lumbar spine and suffered from a variety of medical issue presented at the office of her treating neurosurgeon complaining of severe and bitter back pain after the accident. More than two years (and multiple surgeries) later, Moat and her husband, derivatively, commenced this action alleging that she had sustained a serious injury within the meaning of Insurance Law § 5102 (d) as the result of defendants' negligence. Defendants’ argued Moat's various complaints relative to her lumbar and cervical spine predated the November 2010 motor vehicle accident and that the accident neither caused nor exacerbated such ailments.
Plaintiffs, as set forth in their responses to defendants' various demands for bills of particulars, contend that Moat has sustained a serious injury within the
meaning of Insurance Law § 5102 (d) under the permanent loss, permanent consequential limitation and/or significant limitation of use categories. Specifically, plaintiffs rely — in large measure — upon the following injuries/conditions: "a left L4-5 and L5-S1 disc herniation with compression of the L5-S1 nerve roots" and "a large right posterolateral C6-7 disc herniation with C7 nerve root and moderate spinal cord compression" (resulting in permanent or significant loss of range of motion in her lumbar and cervical spine), as well as a permanent or significant left foot drop, antalgic gait, inability to stand/walk/sit upright for more than 15 minutes, climb stairs, handle or finger objects with her upper extremities and/or return to work. According to plaintiffs, each of the aforementioned conditions was either caused or exacerbated by the November 16, 2010 motor vehicle accident.
The record made clear that Moat's well-documented complaints of chronic back pain predated the subject motor vehicle accident by more than five years. In August 2005, Moat presented at a local hospital emergency room with "excruciating low back pain . . . radiating into both legs" and a claimed ability to stand, sit, walk or lie down for only "short periods of time"; Moat attributed the onset of her back and leg symptoms to childbearing.
When Moat failed to respond to conservative treatment, her doctor performed "a lumbar laminectomy at L3-L4 on the left" in December 2005. Moat's symptoms "waxed and waned" following this procedure; she continued to experience both pain and a limited range of motion, and "[m]ulti[-]level small disc protrusions" were noted on the imaging study. Moat's subsequent emergency room visits in January 2009 and March 2010 disclosed complaints of "back of head headache, neck stiffness, shoulder pain and blurred vision," a history of migraine headaches, "intermittent low back pain," "[t]enderness around [the] cervical C5-C6" level and an inability to "move her hands." Similar symptoms were reported during April 2010 physical therapy sessions, wherein Moat related a history of "a back ache from her tailbone all the way up to her head as well as a migraine." On August 17, 2010, her doctor performed "[l]eft L4-L5 and L5-S1 hemilaminotomies with microdiscectomy." Moat's pre- and post-operative diagnoses were the same — "[s]evere left L5-S1 radiculopathy with partial foot drop" and "[h]erniated nucleus pulposus at L5-S1, left, with mass effect on the L5 nerve root. On November 15, 2010, one day before the motor vehicle accident at issue, Moat was seen by a physician's assistant, at which time Moat complained of "severe and bitter back pain that [could] come and go at any time and [would] get worse throughout the day." According to the history provided, Moat was "quite miserable because of the back pain and [was] looking for some relief." She had multi-level degenerative disc disease.
Following an extensive review of Moat's medical records and a physical examination conducted on June 18, 2014, defendant’s expert issued a detailed report wherein he opined that, among other things, Moat's long-standing "complaints regarding her spine and extremities . . . have no objective or organic basis"; rather, according to Hootnick, Moat's continued "physical complaints suggest florid symptom magnification" that is "consistent with malingering" and suggestive of "a major psychiatric disorder, Von Munchausens syndrome." Citing the initial post-accident MRI study, which revealed multi-level degenerative disc disease, Hootnick concluded that Moat "experienced no additional lumbar disc pathology related to the motor vehicle accident . . . prior to [November 24, 2010]" — finding instead that Moat's lumbar spine issues were the product of preexisting and degenerative conditions. Hootnick reached a similar conclusion relative to Moat's cervical spine complaints, finding that the degenerative changes noted at C6-7 were "of a non-acute nature." Finally, upon reviewing all of Moat's records and imaging studies and taking into account, among other things, her underlying history of fibromyalgia and her post-accident return to work Hootnick were of the view that none of Moat's post-accident surgeries were necessitated by the November 2010 motor vehicle accident.
The Appellate Court found defendant’s met their prima facie case. Moat's prior and long-standing complaints of lumbar and, to a lesser extent, cervical pain, her antalgic gait and limited range of motion and her two pre-accident lumbar spine surgeries reflect a documented history of extensive preexisting conditions and injuries that have produced the same types of symptoms that she now attributes to the subject accident. Accordingly, the burden shifted to plaintiffs to raise a question of fact as to whether the serious injuries claimed were caused or exacerbated by the underlying accident.
Once the defendant establishes that the plaintiff suffers from a preexisting condition, the plaintiff must provide objective medical evidence distinguishing the identified preexisting condition from the injuries claimed to have been caused by the instant accident. The Appellate Court noted that Moat's recitation of her injuries, as well as the claimed severity thereof, frequently is at odds with other evidence in the record. For example, Moat's assertions that her pre-accident low back pain was "resolved with surgical intervention," which worked "[b]eautifully," and that she "wasn't in severe pain" prior to the accident are belied by the narrative of her November 15, 2010 visit to her physician's office, which reflects that she presented complaining of "severe and bitter back pain" that had been increasing "over the last month." Plaintiffs tendered affidavits from orthopedic surgeon Herbert Sherry and neurosurgeon David Storrs, both of whom opined that Moat had suffered an exacerbation of her preexisting degenerative disc disease of the lumbar spine that, in turn, was causally related to the November 16, 2010 accident. Although defendants challenge the sufficiency of those opinions relative to Moat's lumbar spine, it was sufficient to raise an issue of fact. Furthermore, an affidavit from her physician opined that the disc protrusion noted at the L4-5 level on the November 2010 MRI was a new finding compared to the results of Moat's August 2010 MRI and, further, that the disc bulges and/or protrusions observed on the November 2010 study were at variance with what he actually observed during the course of Moat's August 2010 lumbar spine surgery, where good decompression was seen from L4 through S1. Given plaintiff’s doctor’s claim that she was satisfactorily following the August 2010 surgery, the documentation of Moat's current physical limitations in terms of standing, sitting, walking, driving, working and the like constitutes the sort of objective medical evidence that is sufficient to defeat a motion for summary judgment and place the issue of serious physical injury before a jury.
As for Moat's cervical spine, despite generalized complaints of neck pain prior to the accident and evidence of a pre-accident "osteophyte protrusion" at the C6-C7 level, which her doctor acknowledged "may have been the result of [a] natural degeneration of [Moat's] cervical spine," a January 2011 MRI of Moat's cervical spine revealed — for the first time — "a large right posterolateral C6-7 disc herniation, with associated C7 nerve root and moderate spinal cord compression." Her doctor was of the view that Moat's "mild degenerative disc disease of the cervical spine was essentially asymptomatic before the subject accident" and that "the acute herniation of her C6-7 disc" and the problems that flowed therefrom were the direct result of the trauma to Moat's neck sustained during the course of the November 2010 motor vehicle accident. Moat's documented loss of strength and decreased range of motion as set forth in the medical records was sufficient to raise a triable issue of fact on this point.
04/12/17 Dandridge v. Gonzalez
Appellate Division, Second Department
No Triable Issue of Fact Raised as to Injuries to Left Elbow and Spine
No facts are given. Defendant met his prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The plaintiff submitted competent medical evidence establishing, prima facie, that the alleged injuries to Dandridge's left elbow and to the cervical and lumbar regions of her spine did not constitute serious injuries under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d) Defendant failed to raise a triable issue of fact in opposition.
04/12/17 Garcia v. County of Suffolk
Appellate Division, Second Department
Photographs of Scars Did Not Establish as a Matter of Law That They Did Not Constitute a Significant Disfigurement
The defendants failed to meet their prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The photographs submitted by the moving defendants, depicting scars on the plaintiff's head and left shoulder, failed to establish, prima facie, that these scars did not constitute "significant disfigurement[s]" as defined by Insurance Law § 5102(d). Since the moving defendants did not sustain their prima facie burden, it was unnecessary to determine whether the papers submitted by the plaintiff in opposition were sufficient to raise a triable issue of fact. No facts were given.
04/11/17 Lindo v. Brett
Appellate Division, First Department
Gap In Treatment Presented Issue of Fact Where Defendants Failed to Establish that Plaintiff’s Physician Indicated Further Treatment Would be Helpful
Plaintiff alleges that he sustained serious injuries to his cervical spine, lumbar spine, right shoulder, and right knee as a result of a collision, on November 4, 2011, between the car he was driving and a vehicle operated by MTA Bus Company. Metropolitan Transportation Authority and MTA Bus Company moved for summary judgment dismissing the complaint on the ground that, among other things, plaintiff could not satisfy the serious injury threshold. In support, they submitted, inter alia, the affirmed reports of neurologist Iqbal Merchant, M.D. and radiologist Lewis M. Rothman, M.D. Dr. Merchant conducted a physical examination of plaintiff on April 3, 2014. He observed normal ranges of motion in plaintiff's lumbar and cervical spines, diagnosed him with resolved sprains/strains in those areas, and opined that he was not disabled and could perform all of his daily activities. Dr. Merchant did not examine plaintiff's right shoulder or knee and offered no opinion as to those claimed injuries.
Dr. Rothman reviewed MRIs of plaintiff's cervical and lumbar spines taken within approximately one and two months of the accident, respectively. Regarding the former, he observed disc desiccation throughout, and osteophyte formations at C4-C5, C5-C6, and C6-C7. There was a minimal disc bulge at C6-C7, but no evidence of acute disc herniation. He concluded that plaintiff suffered from "chronic degenerative disc disease." As to the lumbar spine, Dr. Rothman noted disc desiccation throughout, especially at L5-S1, as well as disc space narrowing, and a small herniation at L5-S1. He concluded that plaintiff suffered from degenerative disc disease. Dr. Rothman also reviewed an MRI of plaintiff's right shoulder taken less than one month after the accident. He noted that there was no evidence of fracture, a minimal hypertrophic change at the AC joint with impingement on the supraspinatus, an intact glenohumeral joint, and no evidence of tears to the labrum or rotator cuff. Finally, he reviewed an MRI of plaintiff's right knee taken less than two weeks after the accident, and stated that all ligaments and menisci appeared intact, and that there was no evidence of any tears.
Based on the foregoing, the moving defendants argued that they had satisfied their prima facie burden of establishing that plaintiff had not sustained a permanent consequential limitation to the parts of his body alleged in his verified bill of particulars. They further posited that plaintiff did not satisfy the 90/180-day category of Insurance Law section 5102(d); citing deposition testimony from plaintiff in which he acknowledged that he only missed two weeks of work as a barber after the accident. In addition, the moving defendants claimed that plaintiff's claim should be barred by the fact that, at the time of his deposition, he had not treated for his injuries in two years, and had no current appointments to see a doctor.
In opposition to the moving defendants' motion, plaintiff submitted the affirmed report of Dr. Dmitry Zhukovski, D.O., dated November 14, 2011, 10 days after the accident, the same date that Dr. Zhukovski conducted a physical examination of plaintiff. On that date, Dr. Zhukovski observed restricted ranges of motion in plaintiff's cervical spine, lumbar spine, right shoulder, and right knee. He opined that, based on the medical history related to him by plaintiff and the results of his physical examination, "the conditions described above are solely related to and have direct cause relationship [sic] to the accident mentioned above." While his clinical assessment was of sprains and contusions to the relevant body parts, Dr. Zhukovski did allow for the possibility that "these areas may be permanently weakened for an indefinite period of time resulting in significant and permanent restricted mobility." Plaintiff also submitted the affirmation of Dr. Vladimir Gressel, M.D., who conducted a physical examination of plaintiff on December 22, 2014. Dr. Gressel found limited ranges of motion in all of the body parts at issue. He concluded, based on the history provided by plaintiff and a review of available medical records, that plaintiff's injuries were causally related to the accident and traumatically induced. He opined that plaintiff was partially permanently disabled and that his impairments would predispose him to future difficulties.
The Appellate Court held that defendants satisfied their prima facie burden on their motion for summary judgment by presenting the affirmed reports of Dr. Merchant and Dr. Rothman. While Dr. Merchant did not address plaintiff's right knee or his right shoulder, Dr. Rothman read MRIs taken shortly after the accident, which he interpreted as showing normal conditions in the knee, minimal hypertrophic change in the shoulder, and chronic degenerative disc disease in the lumbar and cervical spines. Accordingly, the burden shifted to plaintiff to rebut the moving defendants' proof on both causation and permanence. However, the Court found that plaintiff’s expert Dr. Zhukovski gave a very clear opinion as to causation, having examined plaintiff only 10 days after the accident, observed his injuries, and heard from plaintiff that he had no medical history suggesting that the injuries were due to a cause separate and apart from the motor vehicle accident. This was sufficient to raise an issue of fact.
The Court rejected the moving defendants' argument regarding a so-called unexplained gap in treatment. The moving defendants failed to shift the burden on this issue, because they submitted no evidence that, at the time plaintiff stopped treatment, his doctor continued to believe that plaintiff would actually benefit from any further. Accordingly, there was a question whether plaintiff was justified in ceasing treatment because it was no longer efficacious, which makes irrelevant whether plaintiff's wife's insurance would have paid for further treatment.
04/11/17 Sanchez v. Steele
Appellate Division, First Department
Plaintiff’s Expert Must Provide Some Nonconclusory Reason for His Conclusions and Cannot Just Rely on Plaintiff’s Given History
Defendants made a prima facie showing that plaintiff did not suffer a serious injury causally related to the subject motor vehicle accident but had preexisting lumbar disc herniations, for which he received treatment after an earlier motor vehicle accident, over a year before the accident. Defendants' radiologist compared MRI films of plaintiff's lumbar spine taken before and after the subject accident, and concluded that there was no evidence of any injury caused by that accident or of any exacerbation of plaintiff's preexisting conditions. Defendants' orthopedist reviewed plaintiff's medical records, which indicated that plaintiff complained of worsening low back pain that began in March 2010, before the subject accident, and that his physician had advised him in July 2009 to undergo a discectomy. Plaintiffs' submissions were insufficient to raise a triable issue of fact as to whether the subject accident exacerbated the condition of plaintiff's lumbar spine, resulting in the need for the surgery that he underwent about two months after the accident at issue.
Plaintiffs' expert orthopedist, who examined plaintiff five years after the subject accident, failed to explain, in a specific and nonconclusory manner, how the accident exacerbated plaintiff's preexisting lumbar spine condition, for which plaintiff's own MRI reports and medical records showed that surgery had been recommended before the accident. The expert provided no objective basis or reason, other than the history related to him by plaintiff, for his opinion that the accident exacerbated the preexisting condition of plaintiff's lumbar . Nor did he provide a basis for determining the extent of any exacerbation of plaintiff's prior injuries.
04/06/17 Callahan v. Shekhman
Appellate Division, First Department
Physical therapist cannot Diagnose or Make Prognoses Such That Any Opinion Rendered On Permanency Significance or Causation Would Be Incompetent Evidence
Defendants made a prima facie showing that plaintiff did not suffer a permanent or significant limitation in use of her cervical or lumbar spine as a result of the motor vehicle accident through the submission of an orthopedic surgeon's report finding normal range of motion in each part. In opposition, plaintiff failed to raise a triable issue of fact. Plaintiff submitted affirmed reports of three physicians who treated her in the months following the accident, but none of them provided quantified results of range of motion testing or a qualitative assessment of any limitations in use resulting from injuries causally related to the accident. Plaintiff's physical therapist's findings were insufficient to raise an issue of fact, because a physical therapist cannot diagnose or make prognoses, and therefore any opinion she rendered on permanency, significance or causation would be incompetent evidence. Plaintiff presented no evidence of recent limitations in use of her neck or back to raise an issue of fact as to permanency.
Tessa R. Scott
04/07/17 Healthway Med. Care, P.C. v Commerce Ins. Co
Appellate Term, Second Department
The Application of Massachusetts Law Was Appropriate Where the Policy, Accident, And the Insured’s Place of Business Was Massachusetts
Here, plaintiff appealed from an order of the Civil Court which granted defendant's motion for summary judgment dismissing the complaint.
The Second Department held that defendant had sufficiently established that the relevant policy is a Massachusetts insurance policy, which had been issued to a Massachusetts resident for an automobile whose principal place of garaging was Worcester, Massachusetts. Moreover, the NF-2 form, which was signed by plaintiff's assignor, the insured, and proffered by defendant as an exhibit to the motion, reveals that the accident occurred in Massachusetts. In view of Massachusetts' significant contacts with the insurance contract the application of Massachusetts law to the substantive issues is proper.
Moreover, defendant's evidence including a statement by plaintiff's assignor, established that the policy limits at issue here had been exhausted in accordance with Massachusetts law, before defendant became obligated to pay plaintiff's claims at issue.
Accordingly, the order was affirmed.
04/13/17 Country-Wide Ins. Co. v GEICO Gen. Ins. Co.
Appellate Term, First Department
An Arbitrator Was Permitted to Review New Evidence Pursuant to the Prior Arbitration Award
The cross-petition to confirm the arbitration award dated January 29, 2016 was properly granted. The arbitrator's determination that respondent GEICO was entitled to recoup no-fault benefits paid through "loss transfer" reimbursement was supported by the evidence and was not arbitrary and capricious
The First Department was unconvinced by Country Wide Ins.’s that the arbitrator improperly considered new evidence. The Court disagreed because the prior arbitration award expressly provided that GEICO "should not be precluded from re-filing with additional evidence." Additionally, the Court reasoned that any purported mistake by the arbitrator in considering certain evidence was not "so gross or palpable as to establish fraud or misconduct"
04/13/17 Brooklyn Chiro & Sports Therapy, P.C. v Unitrin Direct Auto Ins.
Appellate Term, Second Department
The District Court’s Unwillingness to Adjourn Trial was Improper as it was Informed of The Expert Witness’s Inability to Testify on that Date
The service provider commenced and action to recover benefits. Thereafter a non-jury trial commenced. The defendant notified the District Court of its intention to call one expert witness to support its case. It was anticipated that the expert would testify regarding the medical necessity of the services rendered.
On the first trial date at issue, July 14, 2014, a Monday, defendant requested an adjournment, stating that its witness could not testify on Mondays. After plaintiff's witness testified, the court agreed to continue the trial, but did not announce a date. The trial was subsequently rescheduled to August 18, 2014, another Monday. At that date, defendant again requested an adjournment, stating that its witness could not testify on Mondays without at least eight weeks' notice. That request was denied, and a judgment was entered in favor of plaintiff in the amount of $8,382.42.
On review the Second Department noted that “‘The testimony of defendant's expert "was critical to the sole contested liability issue in the case,’ and there is no evidence in the record that defendant was merely seeking to delay the trial.” The Second Department also considered the fact that Defendant had informed of its expert’s willingness to appear, even on a Monday if given proper notice was given. Thus, The Second Department concluded that the District Court improvidently exercised its discretion in refusing to grant defendant an adjournment or to reschedule the trial for a day other than a Monday or to a Monday more than eight weeks later
Accordingly, the judgment was reversed and the matter is remitted to the District Court for a new trial.
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
04/13/17 Heartland Brewery, Inc. v Nova Casualty Company
Appellate Division, First Department
Court Looks to Extrinsic Evidence When Evaluating Clarity of a Coverage Exclusion
In the latest Hurricane Sandy case to be handed down, Nova Casualty Company issued plaintiff property and casualty insurance. Notably, the policy purported to exclude coverage for property located in Flood Zones A or V. When presented with the instant claim, Nova denied on the basis that the loss was located FEMA Zone AE. Nova submits that AE is a subzone of A, and thus the property falls within the scope of the exclusion. Plaintiff, on the other hand, counters that Zone AE is not a subzone, but an independent FEMA category.
In the instant case, the Court found the language of the exclusion to be ambiguous. Nevertheless, the Court also noted that a review of extrinsic evidence prior to making the determination of ambiguity was appropriate here. Specifically, the Court held “where ambiguous words are to be construed in light of extrinsic evidence or surrounding circumstances, the meaning of such words may become a question of fact for the jury.” In this case, such a question of fact was found.
03/31/17 Nicastro v New York Central Mut. Ins. Co.
Appellate Division, Fourth Department
Meaning of the Word “Claim” is Ambiguous, and Carrier Loses its RC Limitation Accordingly
This case revolved around the disputed interpretation of replacement cost language. Specifically, the provision at issue provided for ACV coverage prior to repairs. The provision then stated “[a] claim for any additional amount payable under this provision must be made within 180 days after the loss.”
Plaintiff argued that he presented a claim within 3 days of the incident when he “elected to exercise any replacement cost options which are or may become available.” NYCM countered that the provision required plaintiff to actually present a claim for RC (with performance of replacement) within 180 days of the loss. Here, that wasn’t done, and without replacement, no claim was presented.
The Fourth Department found the language to be ambiguous and as such dismissed NYCM’s defense that plaintiff was precluded from RC benefits.
In addition, the Court also ruled that NYCM’s coinsurance argument was also invalid. Plaintiff argued that because he sustained a total loss, NYCM was not able to deduct a coinsurance penalty. In joining the Third Department, the Court ruled that coinsurance penalties were applicable for partial losses. With total loss, as here, the plaintiff is entitled to full benefit of the policy up to the loss or limit available.
04/12/17 Eisman v Village of E. Hills
Appellate Division, Second Department
Common Law Indemnity Claim Dismissed Where No Claim for Vicarious/Statutory Liability was Pleaded
Plaintiff commenced this action for damages allegedly caused by the Village of East Hills. In turn, East Hills commenced a third-party action against the builder of plaintiff’s home, the architect and the landscaper. The action asserted causes of action for both common law indemnification and contribution.
The defendants moved to dismiss the claim for indemnification on the basis that East Hills was not facing a claim for statutory or vicarious liability. Rather, the only way that East Hills faced exposure was due to its own negligence. Where a party is assigned some degree of culpability, it is impossible for an indemnity claim to attach. According, the Appellate Division held that East Hills did not possess a basis for its indemnity claim.
With regard to common law contribution, however, East Hills would be entitled to an apportionment of fault between itself and the third-party defendants. Rather than arguing that a contribution claim was an impossibility, the third-party defendants instead argued that the case was barred by the economic loss doctrine. Specifically, the movants argued that East Hills’ exposure, if any, would be purely economic. Notably, pure economic loss resulting from a breach of contract does not serve as the basis for a contribution claim under Article 14 of the CPLR. To present a viable contribution claim, the claimant must be able to establish “some form of tort liability.”
In the instant case, plaintiff’s claims against East Hills were based in tort. Moreover, East Hills’ claims against the third-party defendants were premised upon their respective breaches of duty which were independent of any contractual duty. It followed that East Hills’ contribution claim survived.
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
03/27/17 Standard Security Life Ins. Co. v. Bryan Berard
United States Court of Appeals, Second Circuit
Second Circuit Holds that Insured’s Claim Against Carrier for Fraudulent Inducement is Time-Barred When Brought More Than Six Years Following Arguable Knowledge of Policy Language and Provisions
Bryan Berard was an insured under a policy issued by Standard Security. After receipt of claim benefits following an injury, he was asked to repay some of those benefits upon his successful return from that injury to professional hockey. Berard contested that repayment and countersued the carrier, alleging that the insurance company had persuaded him to execute releases and repayment agreements by misrepresenting his policy obligations to make repayments.
Upon analysis of the counterclaim for fraud against the carrier, the court ultimately sided with the insurer. Here, Berard had had access to his insurance policy and release agreements as of September 2001. However, he did not start an action or assert any counterclaim on the case against him until he “discovered” the fraud and policy language in 2013. The court found this patently untimely and thus time-barred. Moreover, the court noted he would otherwise fail on the merits in any event because of his inability to show justifiable reliance on the alleged misrepresentation on the part of the carrier. “Under New York law, where the fraudulent representation relates to matter that are not particularly within the other party’s knowledge and both parties have available to them means of ascertaining the truth ... any reliance under such circumstances ... would be unjustifiable.” Here, the insured’s possession of his policy documents and releases should have put him on notice of the alleged fraud years ago. For the purposes of the statute of limitations analysis, this put him well outside the period in which he could bring a claim.
03/21/17 Allen Blake v. The Prudential Insurance Company of America
United States Court of Appeals, Second Circuit
Second Circuit Holds that Living Ex-Spouse Cannot Recover Under Life Insurance Policy and Cannot Convert Policy to Create Benefits, Where Conversion Privilege Belongs to Decedent Former Spouse
Mr. Blake first attempted to procure life insurance benefits after the death of his ex-wife Peal. However, he falsely represented on that claim that he was the “husband” of the decedent. This fraud led to him being charged, tried, and convicted of mail fraud. Nevertheless, thereafter he sued the insurance company for breach of contract in order to seek those benefits. His argument was that he had a privilege under New York law and his group life insurance policy of the former-Mrs. Blake as a dependent could be “converted” into an independent stand-alone policy with a death benefit still payable to an ex-husband.
Short story short, the Second Circuit disagreed. If anything, that “conversion privilege” belonged to Ms. Blake. That is, Insurance Law 3220(a)(7)(D) does provide that the “conversion privilege shall be available ... upon the divorce or annulment of the marriage of the employee or member to the spouse or former spouse of such employee or member”. “Similarly, the group policy’s terms stated that when coverage of a dependent is terminated, ‘that dependent may have your insurance on the dependent ... converted to an individual life insurance contract’”. Here, Mr. Blake could not convert such a policy, as he had no right, express or otherwise, to do so. As such, he actually had no cause of action to maintain against the carrier and his claim, for the second time, failed.
Jennifer A. Ehman
04/11/17 Travelers Prop. Cas. Co. of Am. v ICCO Cheese Co., Inc.
Supreme Court, New York County
Judge Anil Singh
Trial Court dismisses Counterclaim alleging Breach of the Covenant of Good Faith and Fair Dealing and seeking Consequential Damages as Duplicative of the Breach of Contract Claim
This decision has its genesis in a series of class action lawsuits commenced by third parties alleging that Wal-Mart Stores Inc.’s brand “100% Grated Parmesan Cheese” is not 100% parmesan cheese and allegedly contains cellulose. The cheese was allegedly manufactured by ICCO Cheese Company, Inc.
Travelers issued a number of policies to ICCO. Wal-Mart tendered its defense and indemnification to ICCO under a supplier agreement. In turn, ICCO tendered and demanded coverage from Travelers in connection with Wal-Mart’s demands. Wal-Mart maintained that it qualified as an additional insured under the policies and that Travelers had a duty to defend and indemnify it in the class action cases.
Travelers commenced this declaratory judgment action seeking a declaration of the rights, duties and obligations of the parties under the policies, and a declaration that it is under no obligation to defend or indemnify ICCO or Wal-Mart relative to the class action claims.
At issue, is ICCO and Wal-Mart’s amended counterclaims alleging that Travelers breached the terms of the policies as well as its duty of good faith and fair dealing by denying coverage. ICCO and Wal-Mart claimed entitlement to extra-contractual consequential damages which could include attorneys’ fees, attorneys’ fees for this litigation and other damages.
The court started with the proposition that implicit in all contracts is a covenant of good faith and fair dealing. It then held that, however, a claim for breach of implied covenant of good faith and fair dealing may not be raised if it is premised on the same conduct that underlies the breach of contract cause of action, and is intrinsically tied to the damages allegedly resulting from the reach of contract.
Wal-Mart argued that Travelers breached its duty of good faith and fair dealing by failing to assume its responsibilities under ICCO’s policies, by failing to advise Wal-Mart that independent counsel was necessary, by failing to pay for independent counsel and by suing Wal-Mart and ICCO instead of providing coverage.
In considering these allegations, the court found any reliance on the Court of Appeals decision in Bi-Economy misplaced. It highlighted that the damages sought by defendants were attorneys’ fees incurred as a result of Traveler’s refusal to provide coverage. Wal-Mart failed to point to any provision in the insurance policies that provide a basis to recoup attorneys’ fees or other consequential damages that are reasonably foreseeable or contemplated at the time of the contracting in the event Travelers refused to provide coverage in suits brought by third-parties.
The court also noted that the same set of facts give rise to both the breach of contract counter claim and claim for consequential damages. Thus, the damages for both breach of contract and breach of the implied covenant of good faith and fair dealings are intertwined. In turn, the court granted Travelers’ motion to dismiss the counterclaim for breach of the implied covenant of good faith and fair dealing and for consequential damages.
Brian D. Barnas
04/07/17 USAA Texas Lloyds Company v. Menchaca
Supreme Court of Texas
Supreme Court of Texas Clarifies the Relationship between Contract Claims under an Insurance Policy and Tort Claims for Extra-Contractual Damages under the Insurance Code
After Hurricane Ike struck Galveston Island in September 2008, Gail Menchaca contacted her homeowner's insurance company, USAA Texas Lloyds, and reported that the storm had damaged her home. USAA sent an adjuster to investigate Menchaca's claim, and the adjuster found only minimal damage. Based on the adjuster's findings, USAA determined that its policy covered some of the damage but declined to pay Menchaca any benefits because the total estimated repair costs did not exceed the policy's deductible. About five months later, at Menchaca's request, USAA sent another adjuster to re-inspect the property. This adjuster generally confirmed the first adjuster's findings, and USAA again refused to pay any policy benefits. Menchaca sued USAA for breach of the insurance policy and for unfair settlement practices in violation of the Texas Insurance Code. As damages for both claims, she sought only insurance benefits under the policy, plus court costs and attorney's fees.
The parties tried the case to a jury. Question 1 of the jury charge, asked the jury whether USAA failed to comply with the terms of the insurance policy. The jury answered “No.” Question 2, which addressed Menchaca's statutory claims, asked whether USAA engaged in various unfair or deceptive practices, including whether USAA refused to pay a claim without conducting a reasonable investigation. As to that specific practice, the jury answered “Yes.” Question 3 asked the jury to determine Menchaca's damages that resulted from either USAA's failure to comply with the policy or its statutory violations. The jury answered “$11,350.”
Both parties moved for judgment in their favor based on the jury's verdict. USAA argued that because the jury failed to find in its answer to Question 1 that USAA failed to comply with the policy's terms, Menchaca could not recover for bad faith or extra-contractual liability as a matter of law. Menchaca argued that the court should enter judgment in her favor based on the jury's answers to Questions 2 and 3, neither of which was conditioned on a “Yes” answer to Question 1.
After considering its previous precedent on the issue, the Texas Supreme Court held as follows: An insured cannot recover policy benefits as damages for an insurer's statutory violation if the policy does not provide the insured a right to receive those benefits. An insured who establishes a right to receive benefits under the policy can recover those benefits as actual damages under the Insurance Code if the insurer's statutory violation causes the loss of the benefits. And an insured can recover benefits as actual damages under the Insurance Code even if the insured has no contractual right to those benefits if the insurer's conduct caused the insured to lose that right. If an insurer's statutory violation causes an injury independent of the insured's right to recover policy benefits, the insured may recover damages for that injury even if the insured is not entitled to receive benefits under the policy. But if the policy does entitle the insured to benefits, the insurer's statutory violation does not permit the insured to recover any actual damages beyond those policy benefits unless the violation causes an injury that is independent from the loss of the benefits. Finally, an insured cannot recover any damages based on an insurer's statutory violation if the insured had no right to receive benefits under the policy and sustained no injury independent of a right to benefits.
Having decided the above, the court remanded the case back to the trial court level for proceedings consistent with the decision.
02/21/17 Security National Insurance Company v. City of Montebello
United States Court of Appeals, Ninth Circuit
Hammer Clause is Not Limited to Situations where the Insured is Unreasonable in Rejecting a Settlement Offer
Security National, as Montebello's excess liability insurer, tendered $550,000 to Montebello, an amount seemingly sufficient (with Montebello's self-insured contribution) to settle a lawsuit claiming racial discrimination brought by an employee of Montebello. Montebello refused to settle and rejected Security National's tender, arguing that the employee's settlement demand of $1.5 million, which provided for continuing employment, was made in bad faith in light of the employee's threats to sue for continuing discrimination and retaliation.
Security National then filed a declaratory judgment action against Montebello, and Montebello counterclaimed. A “hammer clause” in the policy allowed Security to accept a settlement demand that would result in a full and final disposition of a lawsuit even if the settlement demand was not acceptable to the insured. The insurer was then allowed to tender to the insured an amount equal to the difference between the insured’s retained limit, less incurred defense costs, and the plaintiff’s settlement demand. Doing so discharged Security of liability. The interpretation of this clause was at issue in the case.
The Ninth Circuit concluded that the employee’s settlement demand was made in good faith, and would have resulted in a full and final disposition of the claims against Montebello. The court held that Montabello acted unreasonably in refusing a settlement offer because it was conditioned on continuing employment. Indeed, the hammer clause does not limit the insurer’s right to invoke the clause to instances where the insured was unreasonable in rejecting an offer. The court also rejected Montabello’s argument that it only rejected the tender from Security because it failed to include the full amount of defense costs.
PHILLIPS’ FEDERAL PHILOSOPHIES
Jennifer J. Phillips
AWOL.
EWELL’S UNIVERSE
John R. Ewell
04/07/17 USAA Texas Lloyds Co. v. Menchaca
Texas Supreme Court
In Landmark Decision, Texas Supreme Court Announces 5 New Rules To Clarify Texas Insurance Law
The Texas Supreme Court considered whether an insured can recover policy benefits based on jury findings that the insurer engaged in unfair settlement practices that resulted in the insured’s loss of benefits which the insurer “should have paid” under the policy, even though the jury also failed to find that the insurer failed to comply with its obligations under the policy.
After Hurricane Ike struck, Gail Menchaca contacted her homeowner’s insurance company, USAA Texas Lloyds, and reported that the storm had damaged her home. USAA sent an adjuster to investigate Menchaca’s claim, and the adjuster found only minimal damage. Based on the adjuster’s findings, USAA determined that its policy covered some of the damage but declined to pay Menchaca any benefits because the total estimated repair costs did not exceed the policy’s deductible. Menchaca sued USAA for breach of the insurance policy and for unfair settlement practices in violation of the Texas Insurance Code.
The parties tried the case to a jury. The jury in this case (1) failed to find that USAA failed to comply with its obligations under the insurance policy; (2) found that USAA violated the Insurance Code by failing to reasonably investigate Menchaca’s claim for policy benefits; and (3) found that USAA’s statutory violation resulted in damages of $11,350, representing the amount of policy benefits USAA “should have paid” to Menchaca.
The parties disputed the effect of these findings. USAA argued that because the jury failed to find in its answer to Question 1 that USAA failed to comply with the policy’s terms, Menchaca could not recover for “bad faith or extra-contractual liability as a matter of law.” Menchaca argued that the court should enter judgment in her favor based on the jury’s answers to Questions 2 and 3, neither of which was conditioned on a “Yes” answer to Question 1.
Based on the Texas common law, the Texas Supreme Court found that the arguments of both parties had merit, and “found it necessary to clarify the confusion resulting from [the high court’s] decisions.” The Texas Supreme Court announced five rules that address the relationship between contract claims under an insurance policy and tort claims under the Insurance Code:
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General Rule: An insured cannot recover policy benefits as damages for an insurer’s statutory violation if the policy does not provide the insured a right to receive those benefits.
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Entitled-to-Benefits Rule: An insured who establishes a right to receive benefits under the policy can recover those benefits as actual damages under the Texas Insurance Code if the insurer’s statutory violation causes the loss of the benefits.
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Benefits-Lost Rule: An insured can recover benefits as actual damages under the Texas Insurance Code even if the insured has no contractual right to those benefits if the insurer’s conduct caused the insured to lose that right.
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Independent-Injury Rule: If an insurer’s statutory violation causes an injury independent of the insured’s right to recover policy benefits, the insured may recover damages for that injury even if the insured is not entitled to receive benefits under the policy. But if the policy does entitle the insured to benefits, the insurer’s statutory violation does not permit the insured to recover any actual damages beyond those policy benefits unless the violation causes an injury that is independent from the loss of the benefits.
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No Recovery Rule: An insured cannot recover any damages based on an insurer’s statutory violation if the insured had no right to receive benefits under the policy and sustained no injury independent of a right to benefits.
“In light of the parties’ obvious and understandable confusion over [the] relevant precedent and the effect of that confusion on their arguments in this case,” the Texas Supreme Court remanded the case for a new trial consistent with the new rules announced.
04/07/17 Shriner v. Amica Mut. Ins. Co.
Vermont Supreme Court
Just Hot Air? No Coverage for Glassblowing Business in Home Garage Pursuant to Business Exclusion in Homeowners’ Policy
In 2009, Wilbur Shriner set up glassblowing equipment in the garage at his property and began making glass. Over the next three years, Shriner and a friend “sometimes made glass for a week or two, and then would shut down for weeks due to lack of money.” In 2012, the furnace exhaust system in a piece of glassmaking equipment malfunctioned and caused a fire that destroyed the garage and all of the property and equipment inside it. At the time, Shriner’s home was covered by his homeowner’s policy with Amica, which covered losses from fire and provided replacement coverage for buildings and personal property. The policy contained an exclusion for structures from which a business was conducted. Amica asserted that Shriner’s glassblowing activities constituted a “business” for the purposes of the policy’s exclusion. Accordingly, Amica paid Shriner for nonbusiness property that was destroyed in the garage and paid the maximum reimbursement permitted under the policy for “business” personal property. Shriner brought suit to recover the full amount of his claim, and the court granted summary judgment to Amica.
On appeal, Amica argued that Shriner’s glassmaking business in his garage unambiguously constitutes a “business” under the terms of the policy. Shriner and his friend maintained a website from which customers could purchase their glassware. Shriner filed a Schedule C form for business profits or losses with the Internal Revenue Services, and described his business type as “blown glass manufacturing”, and reported sales up to $30,000 a year. He also reported business expenses for items including advertising, contract labor, legal and professional services, office space, meals, and entertainment.
According to Shriner, on the other hand, “[m]aking glass is [his] art” and because it is an expensive hobby or trade, he “need[ed] to create some saleable product . . . to offset some of the cost of practicing the art form that [he] love[s].” Vermont’s Supreme Court stated: “While Shriner may be correct that glassblowing is an expensive art, his interpretation of the insurance policy is foreclosed by our precedent: he conceded that he engaged in glassblowing as a trade, profession or occupation, and glassblowing generated profits for him.” Therefore, because the policy unambiguously excluded from coverage any property connected to a trade, profession, or occupation, Shriner’s garage and glassblowing equipment were excluded. Accordingly, the Vermont Supreme Court held that the trial court properly granted summary in judgment of the insurer.
ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA
Howard B. Altman
ACA Regs
On April 13, 2017, the Department of Health and Human Services (HHS) finalized a regulation intended to stabilize the Affordable Care Act (ACA) marketplaces by creating policies beneficial to the insurance industry. The regulation may be viewed at https://www.gpo.gov/fdsys/pkg/FR-2017-02-17/pdf/2017-03027.pdf
The new regulation shortens the open enrollment period, tightens eligibility for special enrollment periods, and allows carries to offer lesser coverage (e.g., higher deductibles) in exchange for lower premiums. The changes enacted by the regulation include:
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Guaranteed Availability of Coverage: Allows issuers to require individuals to pay any outstanding premium debt from the prior 12 months of service prior to enrolling in a plan without violating guaranteed availability guidelines.
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Open Enrollment Period: Shortens the open enrollment period for 2018 from three months to six weeks. Open enrollment will now extend from November 1, 2017 to December 15, 2017, rather than until January 31, 2018.
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Special Enrollment Periods: Requires pre-enrollment verification of all applicable individual market special enrollment periods for all states served by the HealthCare.gov platform. Previously, consumers had the option to self-attest to their eligibility for special enrollment.
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Levels of Coverage: Increases the "de minimis variation" used in the actuarial variations to determine the level of coverage of a plan from +2/-2 to +2/-4 for all non-grandfathered individual and small group plans. For expanded bronze plans, the de minimis variation will be expanded from +5/-2 to +5/-4. Allows states to impose stricter AV requirements so long as they are consistent with federal law.
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Network Adequacy: Defers to states to certify whether a plan sold under a federally-facilitated exchange meets network adequacy requirements. For states that do not have the authority or means to conduct such network adequacy reviews, Centers for Medicare and Medicaid Services will now rely on an issuer's accreditation from an HHS-recognized accrediting entity.
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Essential Community Providers: Allows issuers to continue to write-in ECPs to meet the threshold requirement for certification and reduces the threshold from 30 percent to 20 percent of available ECPs in a plan's service area.
One of the main provisions of the regulation is the authority for insurers to sell less-generous policies that will feature lower premiums, but higher deductibles. Under this new provision, insurers can now sell policies that are four percentage points below ACA standards, compared with two percentage points under current regulations. Another provision, aimed at creating a more stable pool of enrollees, will reduce the current open enrollment period in half. The new open enrollment period will run from Nov. 1 to Dec. 15.
OFF THE MARK
Brian F. Mark
[email protected]
02/16/17 Gerald H. Phipps, Inc. v. Travelers Property Casualty Co.
United States Court of Appeals, Tenth Circuit
Tenth Circuit Court of Appeals Affirms Lower Court’s Finding That Builders’ Risk Policy Does Not Cover Buildings or Structures Existing Prior to the Inception of the Policy (Colorado Law)
In this case, the University of Denver hired Gerald H. Phipps, Inc. (“GHP”) to renovate and expand the University’s library. In order to avoid the costs of removing asbestos in two elevator shafts and four stairwells, the University limited the scope of the renovations in those areas. During GHP’s installation of a new roof, melting snow leaked into the building. The water damaged existing drywall and insulation in the stairwells and elevator shafts that GHP had planned to preserve and update. Prior to the water damage, GHP had completed some preliminary work in the damaged areas to designate locations for future installation of mechanical, plumbing, and electrical systems. Notably, GHP had not installed any new materials, updated any lighting fixtures, or patched and painted any existing drywall in the damaged areas prior to the water damage, as it had planned to do.
At the time the damage occurred, GHP was insured under a builders’ risk policy issued by Travelers Property Casualty Company of America (“Travelers”). After GHP placed Travelers on notice of its claim for the water damage, Travelers inspected the damaged areas and initially advised GHP that the loss was covered. GHP then hired two contractors to test and remove asbestos in the damaged areas. GHP incurred significant costs to do so.
After further review of the policy language, Travelers notified GHP that the loss was not covered after all, as the damage was only to the existing building and not to GHP’s work. Travelers took the position that although GHP had completed preliminary work in the damaged areas before the damage occurred, the policy would only cover the completed work if the water damaged material or items installed by GHP.
GHP then commenced a declaratory-judgment action seeking coverage for the damaged areas. Travelers moved for summary judgment, which the district court granted. The district court held that GHP failed to establish a loss to covered property. The court reasoned that GHP failed to introduce evidence demonstrating that the water damaged GHP’s own work in the damaged areas or that GHP sought damages for the costs of redoing its own work in those areas. The court further reasoned that the damaged areas, as existing structures, were excluded from coverage under the policy’s definition of “Builders’ Risk.” The policy defined “Covered Property” as “Builders’ Risk.” “Builders’ Risk” was defined as buildings or structures including temporary structures while being constructed, erected or fabricated at the job site and property that will become a permanent part of the buildings or structures at the job site. The policy expressly provides that “Builders’ Risk” does not include buildings or structures that existed at the job site prior to the inception of the policy.
GHP argued that based on the policy language, the entire building should be covered while it is being renovated, not just those areas the contractor is working on or had worked on. The district court noted that GHP’s argument was not raised in its opening brief and held that even if GHP could demonstrate that the policy provides coverage for the damaged areas, there is no question that the damaged areas already existed at the job site before the policy’s inception and, therefore, those areas would be excluded under the exclusionary language of the “Builders’ Risk” definition.
In addressing GHP’s argument that the policy implicitly provides coverage for loss to materials or items GHP installed on or in the damaged areas, the Court of Appeals noted that even if the policy did implicitly provide such coverage, GHP only seeks the costs or removing existing asbestos, replacing damaged insulation, and removing and replacing existing, damaged drywall. As GHP only sought recovery for the loss to the damaged areas themselves, not for any loss to its preliminary work in those areas, there is no coverage obligation as the policy expressly excludes the damaged areas from coverage as the damaged items existed at the job site prior to the inception of the policy. The Court of Appeals held that regardless of which section of the policy GHP seeks coverage under, the policy’s exclusionary language applies.
Because GHP did not seek damages for a loss to covered property, the Court of Appeals affirmed the district court’s decision granting summary judgment to Travelers.
Earl K. Cantwell
[email protected]
01/11/17 Harleysville Group Insurance v. Heritage Communities Inc.
Supreme Court, South Carolina
Avoid Purely “Cut and Paste” Reservation of Rights Letters
Two condominium developments in South Carolina were constructed between 1997 and 2000, and eventually purchasers complained of significant construction problems, primarily water intrusion. Property owners brought legal claims and the defendants were the corporate entities that developed and constructed the condominium complexes. Upon receiving notices of the lawsuits, Harleysville notified its defendants/insureds that it would provide for their defense; however Harleysville contends this was done under a full reservation of rights.
When the underlying claims went to trial, liability was essentially conceded with the real contested issues being the nature and extent of damages allegedly resulting from the negligent construction. After the jury verdicts, Harleysville filed declaratory judgment actions to determine what portion of the Judgments would be covered under its CGL policies. Harleysville contended that, under the terms of the policies, it had no duty to indemnify and pay the Judgments.
The matter was heard by a Special Referee who concluded, inter alia, that he could not allocate covered and non-covered damages, and ordered the full amount of damages in the construction defects suits applicable to Harleysville’s duty to indemnify in proportion to its “time on the risk”. The Special Referee also held that punitive damages which were awarded were covered, and that no policy exclusions applied to preclude coverage of punitive damages. The decisions of the Special Referee were essentially affirmed on appeal by the South Carolina Supreme Court.
The Court first noted that the extent of coverage for construction defects under CGL policies has resulted in considerable litigation, not only in South Carolina but across the country. South Carolina, apparently, has settled on an interpretation that costs to repair faulty construction itself are not covered under a CGL policy, but costs to repair resulting damage to otherwise non-defective components or structures are potentially covered, stressing that the really relevant policy term is “property damage”, not whether it is a covered “occurrence”.
Harleysville’s main contention was that the Special Referee erred in finding that it failed to properly reserve the right to contest coverage as to the underlying damages that constituted the faulty workmanship. The Court generally agreed with the Special Referee that “generic denials” of coverage were not sufficient, with the exception of the coverage dispute concerning punitive damages. Moreover, the Court noted that, since the insurer had the right to control the underlying litigation, where an insurer defends under a reservation of rights the insurer has a duty to inform the insured of the need for an allocated verdict separating “covered” vs. “non-covered” damages.
The Special Referee, and the Supreme Court, were critical of the alleged reservation of rights letters which “cut and pasted” a nine or ten page excerpt of various policy terms but contained no discussion of Harleysville’s position with respect to the applicability of the various provisions, or explanation of its reasons for relying on them. The Special Referee and the Court did hold that, at least with respect to punitive damages, there was a sufficient explanation set forth in the letters and given to the insureds. The Special Referee and the Court were also critical of the reservation letters because they did not advise the insureds of the need for allocation of losses between covered and non-covered losses, or reference the possible conflict of interest arising from the insurance company’s control of the defense in the underlying litigation.
Although the reservation letters were deemed sufficient with respect to punitive damages, ultimately that did not carry the day for the insurance company. With respect to punitive damages, Harleysville argued inter alia, that the jury necessarily found that the wrongdoing was not accidental and therefore a non-covered occurrence. However, the Special Referee and the Court ruled that under the policy, Harleysville was contractually obligated to indemnify insureds for sums they became legally obligated to pay as a result of the progressive water intrusion, and the policy did not specifically or logically limit such sums only to compensatory actual damages.
Putting aside the specifics of this case and particular issues of South Carolina law, the lesson of this case is to provide clear, detailed, and explanatory reservation of rights letters which communicate to an insured in reasonable terms why the insurance company is taking the position that certain provisions apply or do not apply, and therefore why there is no coverage with respect to certain causes of action, events, or damages. In this case, the “cut and paste” reservation of rights letters, which regurgitated a plethora of policy language were deemed not only by the Court but also by the Special Referee to be non-informative to the insureds and non-explanatory of why the insurance company was taking positions that these specific policy provisions applied or did not apply. The key language from the decision is that: “Despite these policy references, the letters included no discussion of Harleysville’s position as to the various provisions or explanation of its reasons for relying thereon.”
Reading between the lines of this decision, the result can also be attributed (in part) to legal decisions stating that communications with insureds should be reasonable and intelligible to a lay person, and simply “cutting and pasting” insurance policy provisions and sticking them in a letter may well not satisfy that standard of communication.
