Volume XVIII, No. 26 (No. 483)
Friday, June 16, 2017
A Biweekly Electronic Newsletter
Hurwitz & Fine, P.C.
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Buffalo, NY 14202
Phone: 716-849-8900
Fax: 716-855-0874
Long Island Office:
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Melville, New York 11747
Phone: 631-465-0700
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www.hurwitzfine.com
© Hurwitz & Fine, P. C. 2017
All rights reserved
As a public service, Hurwitz & Fine, P.C. is pleased to present its biweekly newsletter, providing summaries of and access to the latest insurance law decisions from the New York State appellate courts. The primary purpose of this newsletter is to provide timely educational information and commentary for our clients and subscribers.
In some jurisdictions, newsletters such as this may be considered Attorney Advertising.
If you know of others who may wish to subscribe to this free publication, or if you wish to discontinue your subscription, please advise Dan D. Kohane at [email protected] or call 716-849-8900.
You will find back issues of Coverage Pointers on the firm website listed above.
Dear Coverage Pointers Subscribers:
Do you have a situation? We love situations. Special double-header – Coverage Pointers and the premier issue of Premises Pointers.
Happy Father’s Day. You may want to know about its history. Glad you asked and we express thanks to history.com for the background. We’ve added some color:
On July 5, 1908, a West Virginia church sponsored the nation’s first event explicitly in honor of fathers, a Sunday sermon in memory of the 362 men who had died in the previous December’s explosions at the Fairmont Coal Company mines in Monongah. It was a one-time commemoration and not an annual holiday.
The next year, a Spokane, Washington, woman named Sonora Smart Dodd, one of six children raised by a widower, tried to establish an official equivalent to Mother’s Day for male parents. She went to local churches, the YMCA, shopkeepers and government officials to drum up support for her idea, and she was successful: Washington State celebrated the nation’s first statewide Father’s Day on June 19, 1910. In 1917, she urged people to “Do a Good Deed” on Father’s Day.
Newspaper articles from the time indicated in Seattle, red roses were worn to honor one’s living father on Father’s Day, white roses to honor the deceased. The SUN, in New York, suggested a rose of any color would be appropriate. A June 22, 1917 editorial in the Brooklyn Daily Eagle suggested that there should be no Mother’s Day or Father’s Day. The author suggested that having a holiday to remember one had a mother was “arrant nonsense”. He continued: “[i]f we continue to create holidays in this country, we shall have as many as Spain or Italy, where about half of the time is wasted. Americans believe in work; the less idle time, the better.
Slowly, the holiday spread. In 1916, President Wilson honored the day by using telegraph signals to unfurl a flag in Spokane when he pressed a button in Washington, D.C. In 1924, President Calvin Coolidge urged state governments to observe Father’s Day.
Today, the day honoring fathers is celebrated in the United States on the third Sunday of June: Father’s Day 2017 occurs on June 18; the following year, Father’s Day 2018 falls on June 17.
ANNOUNCING . . . PREMISES POINTERS, Hurwitz & Fine’s newest newsletter:
Hurwitz & Fine is pleased to announce the launching of Premises Pointers, a monthly electronic newsletter that will cover current cases, trends and developments involving premises liability and general litigation. Because we are a firm that specializes in the handling of premises liability matters throughout New York State, it is critical for our attorneys to stay abreast of new cases and trends across New York in both State and Federal Court. Our hope is that this newsletter will allow you and your teams to do the same!
Our premises liability team consists of myself, Todd C. Bushway, V. Christopher Potenza, Tessa R. Scott, Anastasia M. Stumpf and Jamey L. Maswick. We will cover a wide range of topics that will include retail, restaurant and hospitality liability, slip and fall accidents, snow and ice claims, storm in progress, inadequate/negligent security, inadequate maintenance and negligent repair, service contracts, elevator and escalator accidents, swimming pool and recreational accidents, negligent supervision, assumption of risk, tavern owner and dram shop liability, homeowner liability and toxic exposures (just to name a few!).
As the newsletter editor, my goal is to provide content that will be valuable to those of you who are also involved in handling these types of cases. For anyone who would like to be included on our subscription list, please e-mail me directly at [email protected] or let Dan know at [email protected] . Attached as a courtesy is our first edition for your reading pleasure. I look forward to hearing from you!
Jody
Jody E. Briandi
[email protected]
Labor Law Pointers
In addition to the ever popular Coverage Pointers we have, for the past 6 years, provided our ever not quite so popular Labor Law Pointers newsletter. (Note, this is self-deprecating!).
Labor Law Pointers summarizes and analyzes every case from the four Appellate Departments and the Court of Appeals which deal with any issues Labor Law or risk transfer related. We offer practice tips on handling specific factual or legal conundrums which may come up in the cases we analyze and generally discuss the NYS Labor Law in a way designed to help Claims Professionals, Insurance Professionals and Attorneys understand and address this Draconian law. A new edition comes out the first Wednesday of each month,
If you are interested in receiving Labor Law pointers please feel free to simply click on the hyperlink David Adams which will bring up my email address or simply hit reply and we will see to it that you are added to the distribution list.
Hope to hear from you soon.
David
David R. Adams
With this issue of Coverage Pointers, we complete our 18th year of electronic publication.
There weren’t too many electronic newsletters when our first issue was sent out to about 25 subscribers on July 18, 1999, and we daresay, not a single insurance coverage newsletter. We’ve grown a bit since then, with thousands of subscribers throughout the New York State, the US, Canada and Europe. Thanks for being there for us, for many of you, for well over a decade.
This week’s edition comes to you from Riverside California, this week’s home of the PLRB Western Regional Adjuster’s Conference. I was pleased to join Karen Kapela from State Farm Mutual Automobile Insurance Conference in presenting on Emerging Homeowners Claims.
If you missed us here, we’ll be at the PLRB Central Regional on September 6-7 in New Orleans and the Eastern Regional, on October 6-7 in Jacksonville. Click here for more information.
I do have a dilemma. I won a bottle of Grey Goose Vodka at a vendor raffle last night (I write this on Thursday morning). If I bring it home, I’ll have to check my luggage. Since I arrive at 1:15 AM, do I want to wait for my bags or should I sacrifice the Grey Goose.
As I write this, I think the vodka will win.
It was a good couple of weeks in the courthouses for the H&F Coverage Team. Kudos and attalawyers to Agnes Wilewicz and Brian Barnas for a great win at the Second Circuit Court of Appeals in a homeowners residence case – you’ll find the decision discussed in Agnes’ column. With the help of Jennifer Phillips, we were pleased to bounce a coverage case from Minnesota to New York, where it belonged. The matter, sued in Minnesota state court by the policyholder for tactical reasons, was promptly removed to federal court and then, upon motion, venue changed to the Northern District of New York.
Bad Faith Legislation – Red Alert:
Anyone who knows New York insurance will verify that the Empire State is not a bad faith state. The last time any appellate court in New York held a carrier liable for bad faith was 19 years (and five days) ago on June 11, 1998. But it is “silly season” in Albany, as the legislative session is coming toward and end. The plaintiffs’ bar tries, every few years, to slip bad faith legislation through the Assembly and Senate in the closing days and this year, two bills are under consideration.
We urge you to read Howard Altman’s extended column note below as well as his extended column in the attached issue of Coverage Pointers and write your Senator or Assembly Member to express you views on this dangerous legislation.
That’s all, from me, for now. Lucky you. More to read below and in the attached issue of Coverage Pointers
Jen’s Gems:
Greetings,
After sending out this note, I am getting on a plane to New York City. We are doing a three generation mother/daughter weekend. It will include my mother and my daughter, Ella. Poor Charlotte is getting left home, but as Ella tells her, “it is for big girls.” We have not finalized our plans, but we did get tickets to see Aladdin on Friday night. Since Ella found out about the trip, whenever possible, she tells everyone that she is going to “Broadway.” I think we are also planning on going to the Museum of Natural History and maybe the planetarium. It will be the first time in a long time the that I get to go to the City as a tourist instead of for work.
Beyond my travel plans, we are already starting to feel the impact of the Burlington decision. In fact, we even received a note last week from an carrier declining to pick up a tender based on “new case law.” The decision is certainly worth reading and/or reading.
Until next issue…
Jen
Jennifer A. Ehman
Anti-War Activities Prosecuted:
The Sun
New York, New York
16 Jun 1917
BERKMAN AND EMMA GOLDMAN
HELD FOR PLOT
Accused of Inducing Young Men
to Violate Registration Law.
BOTH LOCKED IN TOMBS
“Literature” in Office of Anarchist
Publications Seized as Evidence.
Emma Goldman and Alexander Berkman were arrested yesterday afternoon charged with conspiracy against the Government in inducting young men to break the selective conscription law by not registering. If convicted they can be imprisoned for two years and fined $10,000 apiece, and can also be deported for preaching anarchy, both being aliens.
United States Marshal McCarthy served the warrants on the pair, who love to be called “the best known anarchists in America,” in the little Harlem office where they have been publishing Mother Earth and the Blast. He said it was the best thing he ever did in his life.
Tessa’s Tutelage:
Dear Readers,
It is finally feeling like summer out there! This is great news for me because I am competing in my first Dragon Boat race as a fundraiser for breast cancer. Admittedly, I was disappointed to find out that a dragon boat did not, in fact, have any dragons on it, however, it is pretty cool nonetheless. Basically it looks like a giant canoe with 20 rowers, a drummer, and a captain who yells and screams until you row on the beat. It is a really awesome moment when all the rowers are moving in unison – man does the boat feel like it is flying! If anyone is in the Buffalo area, feel free to stop by Riverworks. Fingers crossed I won’t be the reason the boat capsizes.
We have an arbitration case from Arbitrator Bargnesi regarding a back brace and a multimode stimulator unit. The real take away from this case is the importance of proper billing codes for service providers. But I suppose that is the rub. Chiropractors and physical therapists are oftentimes using new products/services which are not enumerated in the no-fault billing codes. Now this can be a sticky area to navigate for both sides. Basically, a service provider will have to provide sufficient evidence to establish the basis for their fee and should be billing using codes that correspond to similar services. But what is sufficient, and how do you pick the right codes?! Arbitrator Bargnesi doesn’t really touch on that in this decision. Instead, she dismisses the case, as it relates the MMU, so the claimant can refile and use the right codes. She also determined that the back brace was medically necessary and Claimant won a portion of its claim.
Also, in the courts we have a Second Department case involving policy exhaustion. The moral of the story here is that if you are going to claim policy exhaustion, you need to show that it was exhausted at the time the claims at issue were deemed complete.
Tessa
Tessa R. Scott
Fatal Attraction – 100 Years Ago:
Coshocton Morning Tribune
Coshocton, Ohio
16 Jun 1917
Love Cools
Quite Soon
Not so many months ago The Tribune carried a touching story regarding the marriage of two aged parties who were sweethearts in their schooldays some forty years ago. They had been separated, the lady married and her husband died and then she met her school-day sweetheart and the old love returned.
It developed Friday, however, that her ardor shortly cooled for two weeks after the marriage, she began suit for divorce. The suit was dropped Friday because the defendant is dead.
Ewell's Universe:
Dear Subscribers:
One of my favorite things about writing this column is that I am always tracking modern insurance issues developing across the country. In today’s issue of Ewell’s Universe, we have a case on the enforceability of an Earth Movement exclusion while the other concerns an insurer’s right to work-product protection.
In our case from West Virginia, some rocks and soil fell down a slope and damaged a motorcycle shop. This gave occasion for West Virginia’s high court to consider whether the policy’s Earth Movement exclusion was ambiguous. This particular exclusion excluded coverage for “Landslide, including any earth sinking, rising, or shifting related to such event”. The policyholder argued that the exclusion was unambiguous and did not exclude damage caused by rockfall due to man-made events. The insurer countered, that the earth movement exclusion excluded coverage for all earth movement regardless of whether the movement was caused by an act of nature of otherwise caused. As this was a matter of first impression, West Virginia looked to New York law to guide its decision. A few years ago, a New York Court held that the policy language “regardless of whether [the loss] is caused by an act of nature or is otherwise caused” is unambiguous. The justices were convinced and followed suit. Accordingly, West Virginia’s high court held that the Earth Movement exclusion was unambiguous and barred coverage for landslides whether caused by man-made events or naturally occurring ones.
In our case from Texas, various homeowners sued several insurers alleging underpayment of their property loss claims. During discovery, the policyholder attorneys demanded that the insurer produce all billing invoices it received from its attorneys who worked on the case. As one can imagine, billing entries are a direct reflection of the insurer’s litigation strategy. Billing invoices document the steps that an attorney takes on behalf of the insurer, and is a window into the attorney’s thought process and analysis of the case. As such, the insurer objected on the basis of work product privilege, attorney-client privilege, and several other grounds. The Texas Supreme Court found that the insurer did not put attorney fees at issue. The insurer was not seeking to recover its own attorney fees from the homeowners, and had stipulated that it would not use its own billing records to contest the homeowners’ attorney fees. Thus, because the insurer had not waived the work-product privilege, the Court held that the insurer’s billing invoices were protected work product. The case is a good read and emphasizes why an attorney’s mental impressions should be protected. It also highlights the unfair advantage that opposing counsel could gain if the billing records were disclosed, including a “roadmap” of the insurer’s litigation strategy for litigating related cases.
Finally, I congratulate Agnes and Brian on their victory at the Second Circuit.
Until Next Time,
John
John R. Ewell
World War I Draft Opposition:
The Cincinnati Enquirer
Cincinnati, Ohio
16 Jun 1917
SOLDIERS DISPERSE CROWD
At Anti-Conscription Mass Meeting in New York.
SPECIAL DISPATCH TO THE ENQUIRER.
New York, June 15.—National guardsmen tried vainly for nearly two hours to-night to disperse a riotous crowd that had assembled around a hall in the heart of the East Side in which an anti-conscription mass meeting had been held earlier in the evening.
The anger of the crowd was aroused because guardsmen and police had seized, after the close of the meeting, 25 men who were suspected of not having registration cards.
Not until the guardsmen drew their side arms were they able to drive away the crowd.
Seven men were arrested by order of a national guard Sergeant after a Socialist meeting in an uptown hall.
Phillips Federal Philosophies:
Hello, All:
A thank you and big shout out to David Thompson of the Florida Association of Insurance Agents who brought to our attention an interesting case out of the Florida appellate courts.
In Kendall South Medical Center v. Consolidated Insurance Nation, a Florida appellate court considered an insured’s not first, not second, but fourth attempt to sufficiently state a claim for negligent procurement of an insurance policy. What’s interesting about this case is that there is no dispute that the insured received exactly the policy and coverage it requested; however, a coinsurance clause resulted in the insured receiving far less than that coverage limit after suffering significant water damage to its facilities and medical equipment. Ultimately the court found that the insured has sufficiently stated a claim for negligent procurement because the agent provided a policy that did not meet the insured’s expressed needs and failed to explain that different coverage was required to meet those expressed needs.
Notably, in New York, a similar claim of negligence may be able to be asserted based on a “special relationship” between a broker and insured, such as where “there was some interaction regarding a question of coverage, with the insured relying on the expertise of the agent.” However, there “no continuing duty to advise, guide or direct a client to obtain additional coverage.” Nicotera v. Allstate Ins. Co., 147 AD3d 1474 (4th Dep’t 2017).
As always, thanks for reading.
J.
Jennifer J. Phillips
Humiliation – Expensive Penalty:
Middletown Times-Press
Middletown, New York
16 Jun 1917
GETS A VERDICT AGAINST HOTEL
Mrs. Saidee Disbrow
Hurd Wins Action
Poughkeepsie, June 16 – Mrs. Saidee Disbrow Hurd, wife of Robert C. Hurd, engaged in the real estate business at Pawling this week, won a verdict of $2,500 in the Supreme Court here in her action for $20,000 damages against the Astor Hotel Company, New York. The action was tried before Justice Platt and a jury, and was brought as the result of alleged humiliating treatment the plaintiff received from the hotel management after embracing her husband at the door of her room on the evening of August 17 last.
Mrs. Hurd was at the hotel with a woman friend. Her husband arrived at the hotel and coming upon him unexpectedly as she opened the door of her room she threw her arms about his neck and kissed him. He stepped inside the room for a minute and later returned. When they came out and walked down the corridor they were approached by David Mitchell Pepper, assistant manager of the hotel. Mrs. Hurd and her husband both testified Mr. Pepper said to Mr. Hurd: “It was reported to me this woman solicited you and took you into her room. Also that she has followed you down the corridor,”
When Mr. Hurd expostulated, according to the wife’s testimony, Mr. Pepper said:
“Well, if you are Mrs. Hurd and if he is Mr. Hurd, that put a different face on the matter.”
Mr. Pepper and the other witnesses for the hotel maintained that the investigation was conducted in a courteous manner and denied that the word “solicited” was used or that any reflection was cost upon either Mr. Hurd or Mrs. Hurd.
Peiper the Pundit:
What a difference two weeks make. When last we left you, we lived in a world where “caused by” meant “arising out of” and vice versa. With a very well-crafted opinion, Justice Rivera gave hope to grammarians everywhere. Words have meanings, or so I recall someone ranting, and Justice Rivera keenly recognized that truism in her decision.
Judge Rivera’s decision, and Judge Fahey’s dissent, did not take long to come to a head either. The decision was handed down on June 6th. On June 13th, I had the opportunity to participate in oral argument on just what “proximate cause” means in an additional insured context, how is it established, must it be established before AI obligations trigger, and just what exactly is the current meaning of “in whole or in part.” Again, for those of you who have read the Burlington decision, you know there are answers to some of those questions. With any good case, however, every answer creates three more questions. We’re looking forward to being in the discussion as the Burlington decision shapes coverage arguments for the foreseeable future.
We also take a moment to formally welcome and recognize a new sister publication to our ranks. As you now have seen, Jody Briandi has recruited an excellent cast of reporters to bring you the inaugural edition of Premises Pointers. They will review those very few cases that slip through the Coverage Pointers and Labor Law Pointers drag net, and round out our civil litigation team. Please look for Jody’s e-mail with the newsletter in the coming days. You will be well informed, and maybe entertained a bit as well.
Finally, we close the issue out with a plea for help. As all frequent flyers out there would doubtless agree, the choice of snack is vitally important. This is particularly true, as with yours truly this week, where you don’t have time to contemplate lunch prior to your flight. The old standby, bag of peanuts, is still a solid choice. Simple, classic, utilitarian. While surely not as neat, a bag of chips is also a fine in-flight distraction. What is not, however, is the all too frequent choice of cheese crackers or chocolate chip cookies. Note to a certain airline famous for its deeply hued potato chips, drop the crackers/cookies routine. America demands nuts and chips, and nuts and chips it should have.
Steve
Steven E. Peiper
Georgia Peach, Leading the League:
Harrisburg Telegraph
Harrisburg, Pennsylvania
16 Jun 1917
TY COBB BACK
IN HIT COLUMN
“Georgia Peach” Is Once
More Leading American League
Chicago, June 16.—For the first time since August, 1916, Ty cobb is leading the American League in batting. The Detroit star deposed Tris Speaker of Cleveland, to whom the surrendered championship batting honors last season. The Georgian’s average is .353. Speaker is three points behind him. Cobb has driven out sixty-one hits in forty-seven games, including twelve doubles, nine triples and one home run.
Ruth, the Boston pitching star, who has won eleven out of fourteen games, also is hitting at a terrific pace, having an average of .415 for sixteen games. Ed Chapman, of Cleveland, was dethroned as the leading base stealer, Roth, a teammate, nosing him out with seventeen. Boston is showing the way in team hitting with an average of .242.
Editor’s Note: Ty Cobb ended up the season with a league best batting average .383, some 30 points ahead of St. Louis Brown slugger, George Sisler. (Ruth didn’t do so badly, with a batting average of .325, but that didn’t land him in the top 10). Cobb also completed the season with a slugging percentage of .570. His nearest rival was Tris Speaker, the Cleveland Indian centerfielder at .486. Ruth checked out at .472. Cobb also lead the league in hits, doubles and triples.
Hewitt’s Highlights:
Dear Subscribers:
June is here which brings Father’s Day, the beginning of summer, the end of school in New York, and near the end of the month, my 40th birthday! My children are most excited about the fact that there are only four more full days, and three half days, left of school.
We have several serious injury cases this edition. One reminds us that the independent medical examination report must be sworn to under penalties of perjury or it will not be considered competence evidence. As a practice matter, during depositions, one should ask the plaintiff whether his injuries prevented him from performing his usual and customary daily activities during the dispositive time period — namely, the 180 days immediately following the occurrence of the injury. Further, if the defendant’s own expert found range of motion limitations that were significant, he is likely to lose the motion for summary judgment.
I hope everyone has a Happy Father’s Day and beginning of summer.
Until next time,
Rob
Robert E. Hewitt
Object Matrimony:
The Fort Wayne Journal-Gazette
Fort Wayne, Indiana
16 Jun 1917
WANTED—Farmer, widower, wants housekeeper to work on farm; object matrimony. Address J 388, Journal-Gazette.
Wilewicz’ Wide-World of Coverage:
Dear Readers,
Tons of great stuff coming your way in the Wide World of Coverage this week, so let’s dive right into it. First things first, dear readers, do you recall just a couple of issues ago I was arguing a little case before the Second Circuit Court of Appeals? Well, its decision was already handed down, and it’s a good one. In MIC v. Chambers, we represented MIC, who had disclaimed coverage for a claim on a homeowners policy, since the insured admittedly did not reside or live at the property at the time of the incident (or for years before). The Southern District had found an ambiguity in the expanded definition of “residence premises” without much of a real explanation. But the Second Circuit read the policy as a whole and found it very clear. During argument, I had noted that the words “resident” or “reside” were found a mere 91 times throughout the 35ish pages of the policy, but the decision did not make mention of that. Rather, since the Dec Page referenced an owner-occupied property and the language of the policy as a whole was otherwise clear, the residency requirement existed. Since the insured did not reside there, there was no coverage. The potential exposure was the full $1 million policy limit, so the stakes were high, but we did it. Read the brief decision (linked in the attached edition of CP), it’s pretty great, if I do say so myself. Major kudos to Brian Barnas who assisted in drafting all of the motion and appellate paperwork.
We also have a pile of other cases to report on this week as well. In the Second Circuit’s Continental Casualty v. Boughton, we have a rescission case where there was a question of whether the rescission was waived by later amendments to the policy or whether the insurer had unreasonably delayed in filing its rescission suit. Since the amendment was just administrative (address/name changes) and the jury had found that there was no unreasonable delay, the rescission stood.
Out of the Ninth Circuit, we bring you American Economy v. Harford, where an insured allegedly installed spy software to track personal information on rented laptops. Since the policy at issue excluded coverage categorically for any injuries that arose out of any act or omission that allegedly violated any statute that governed distribution or transmission of material, and the pleadings fell squarely within that, there was no coverage.
Finally, two cases out of the Eighth Circuit. First, 3M v. Nation Union. There, 3M had a blanket crime policy, under which it made a claim when its employee benefit plan assets were invested with a company that was later found guilty of fraudulent investment. However, since that property/asset was not actually owned by 3M, the court found that there was no coverage for its loss. Second, in Food Market v. Scottsdale, in a brief decision the court found that an insured’s delay of seven months in reporting a claim was unreasonable, particularly in light of the fact that the policy required notice “as soon as practicable”.
Stay cool, everyone.
Until next time,
Agnes
Agnes A. Wilewicz
Legislative Hijinks:
Times Herald
Olean, New York
16 Jun 1917
CONCERNING HEELS
The attempt to legislate high heels out of existence has failed. The women, or rather the shrewd men who make a profit by setting women’s fashions, have triumphed. The state senate of Illinois killed the proposed measure.
It deserved killing. If the shogun of Japan, at the height of the power of that military regime, could not keep women from powdering their faces, it is a fairly safe wager that the feeble executive powers of the state of Illinois would prove utterly unequal to the task of keeping women from walking on their toes. The law, if passed, would have been the deadest kind of a dead letter.
The way to cut down heels lies through science, not through legislative halls. Take a moving picture of the wabbling, uncertain, and most ungraceful waddle of the woman wearing three-inch heels and one of the free, graceful walk of the woman who has discarded such hobbies. Show these contracting pictures in all the movie theaters for a few weeks, and you will accomplish more for rational shoe reform than all the bills the legislature could pass twixt this and doomsday.
Barnas on Bad Faith:
Hello again:
One of the major recurring themes at the excellent DRI Insurance Bad Faith Seminar in Boston two weeks ago was “problem states” for bad faith claims from the prospective of insurers. This week, Barnas on Bad Faith journeys to two of those states. First, we have the Jones case from Louisiana. The court there concludes that Geico did not act in bad faith by delaying payment on a UM claim while it was litigating a dispositive choice of law issue. However, the court concluded that there was a triable issue of fact as to whether Geico knowingly misrepresented facts relating to the policy to avoid liability coverage.
Meanwhile, in Hanson, a case from federal court in Washington, the court concluded that State Farm’s handling of the insured’s UIM claim did not amount to bad faith. Any delay in receiving medical records was attributable to the insured’s attorney, and State Farm properly relied on the insured’s attorney to provide it with relevant medical information.
In addition, the Farhat case announces a simple rule: extra-contractual claims, including bad faith, are barred and preempted in the context of the national flood insurance program. Simple enough.
Also this week, take a look at Howard’s letter and column to see some proposed legislative changes that could have a big impact on bad faith law in our home state of New York.
Happy Father’s Day to my dad and to all of the dads out there. Enjoy the US Open.
Signing off,
Brian
Brian D. Barnas
Altman’s Administrative (and Legislative) Agenda:
Greetings, Dear Readers. All is well by me. Sunday, Chaya and I visited the wineries of Eastern Long Island, after which I made Chaya a from-scratch dinner complete with a chocolate molten cake decorated with a powdered sugar heart for dessert. I am happy to report, Dear Readers, Chaya lived to tell the tale: No food poisoning, no breakup. The powdered sugar heart may have even won me hers. Say it with me, Dear Readers: “awwww!”
It has been a scorcher of a week here on Long Island, both for the temperatures—in the mid 90’s all week—and for the NY legislature’s new proposed laws creating an expanded, and expansive private right of action for bad faith.
New York’s Senate has proposed Bill 6443-A, which would add a new section to Insurance Law § 2601 (the ‘bad faith’ statute) creating a private right of action for policy holders’ whose claims are denied or delayed without “substantial justification”.
The Assembly’s proposed bill, A8004, goes even further. It proposes adding a new section to Insurance Law §3240(b) permitting any party covered by §3420, policy holders, claimants and the like, to seek unlimited damages in excess of policy limits where a carrier fails to “promptly” settle a claim.
Both proposed bills are being opposed by Industry leaders, including the New York Insurance Association (“NYIA”), Property and Casualty Insurers Association (“PCI”), and for good reason. The bills could cost carriers, and ultimately their insureds, billions of dollars according to studies conducted for NYIA and PCI. New York has historically required level of “egregious” conduct by a carrier, aimed at the public at large, in order to impose damages for bad faith. These bills could greatly expand that liability, and, if passed, will no doubt result in a steep spike in litigation.
We urge anyone interested in opposing these bills to write to their senator or assembly representative.
You can contact Senate to voice your concerns at:
https://www.nysenate.gov/contact
You can find your State Senator to write directly by registering at:
https://www.nysenate.gov/registration/nojs/form/start/find-my-senator
You can find and contact your Assembly representative through the following links:
http://assembly.state.ny.us/mem/search/
http://assembly.state.ny.us/mem/
True to our “got a situation?” pledge, we at Hurwitz & Fine would be happy to assist you, whether in fighting the adoption of these bills, or in fighting for your rights should they pass.
Thank you all,
Howard
Howard B. Altman
Off the Mark:
Dear Readers,
As many of you know, the firm recently celebrated its 40th anniversary with an amazing cruise along the Buffalo River. The weather was perfect as was the atmosphere and the food. Still being new to the firm, I enjoyed getting to know more of the many great minds of the firm. I also enjoyed learning about the history along the Buffalo River. On another happy note, it’s almost the end of another school year and my kids are starting to get excited about the summer.
Recently, the U.S. District Court for the District of New Hampshire examined whether a claim for the costs of repairing defective work constitutes a covered occurrence. In Fletch’s Sandblasting & Painting, Inc. v. Colony Ins. Co., the insured was retained to strip, repair, prime and finish certain structures with a fireproofing material. The insured subcontracted out the application of the fireproofing material to a subcontractor, but remained responsible for preparing (repairing and priming) the structures’ surfaces beforehand. The insured allegedly performed the preparation work negligently and in an unworkmanlike manner. As a result, when the subcontractor later applied the fireproofing material, it failed to adhere. The insured then allegedly induced the subcontractor to expend and commit further time and resources to correct defects caused by the insured’s poor workmanship. The subcontractor sued the insured asserting a negligence claim alleging that the insured failed to properly prepare the surfaces, failed to follow the job specifications, misrepresented the adequacy and compatibility of the products it applied to the surfaces and failed to adequately protect the work from the weather.
After analyzing the coverage issues, the Court held that a claim for defective workmanship did not constitute a covered occurrence under a CGL policy because the costs sought to be recovered were incurred to repair the insured’s defective work rather than to compensate the subcontractor for damage to other property that resulted from the defective work. In holding that the underlying complaint did not assert a covered occurrence, the Court noted that CGL policies are designed to insure against fortuitous, unanticipated events that give rise to tort liability for physical injury to the person or property of others. CGL policies are not designed to cover business risk itself, which occurs as a consequence of the insured not performing well. Accordingly, a CGL policy does not include coverage for a contractor’s failure of workmanship, even where another contractor detrimentally relies on or remediates it. The Court also found that the exclusion contained in the insured’s policy, excluding claims that stem from property damage to that particular part of any property that must be restored, repaired or replaced because ‘your work’ was performed incorrectly on it, was applicable, even if the property damage that gave rise to the claim was caused by an “occurrence”.
Until next time …
Brian
Brian F. Mark
[email protected]
Our Issue is Attached – Here are the Headlines:
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
- There’s No Business Like Snow Business
- Warning: If a Carrier Lets its Insured Litigate a Coverage Issue, it May be Doomed by the Result, even if the Carrier Could have Won the Case
- Later Adopted Primary/Non Contributory Endorsement Trumps Inconsistent Self Insured Retention Provisions for Additional Insured
- Collateral Estoppel Warning
- Where Carrier Wrongfully Denies Coverage, it has No Right to Complain about Hourly Rates Charged.
- What is “Foul” May Not Necessary be Hazardous. There is a Duty to Defend Claim of “Malodorous” Odors, Even in the Face of a Hazardous Material Exclusion
- Temporary Stay of Underinsured Motorists Arbitration Permitted for Discovery
- Standards for Policy Rescission Reviewed
- Application to Stay Arbitration Not Untimely where Claimant First Filed Lawsuit
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
- Defendant’s Experts Found Full Range of Motion and No Neurological Deficits
- Defendant’s Expert Contended that Plaintiff Suffered Degenerative Injury but Failed to Account for the Injury Being Asymptomatic Prior to the Accident
- Defendant’s IME Report Was Not Accepted as Competent Evidence as it was Not Affirmed under Penalties of Perjury
- Defendant’s Experts Found Significant Range of Motion Limitations
- Defendant’s Expert Found No Fracture Suffered by Plaintiff in the Subject Accident
- Plaintiff Failed to Provide Objective Evidence of Range of Motion Limitations
- Plaintiff Raised Issue of Fact as to Lumbar Region of His Spine
TESSA’S TUTELAGE
Tessa R. Scott
Litigation
- Policy Exhaustion Must Be Established At The Time The Claims Were Deemed Complete
Arbitration
- Service Providers Must Use The Proper No-Fault Codes For Billing Purposes
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
- Carrier who does not pay Defense or Indemnity Acquires no Rights of Subrogation
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
- Second Circuit Finds that Expanded Definition of Residence Premises in Homeowners Policy Unambiguously Requires Insured to Live at the Property; Where He Admittedly Did Not, There Was No Coverage (NY Law)
- Second Circuit Holds that Insurer Properly Rescinded Policy, Where It Never Ratified or Otherwise Accepted the Coverage and Filed its Rescission Action Promptly (NY Law)
- Eighth Circuit Holds that Insured’s Interest in Earnings on Funds Invested by Fraudsters was not “Ownership” Pursuant to its Crime Policy (Minn. Law)
- Ninth Circuit Holds that Liability Insurers Owed no Duty to Defend Insured Accused of Spying and May Recoup Defense Costs Incurred (Montana Law)
- Eighth Circuit Finds it Impracticable for Insured to Wait Seven Months before Notifying Indemnity Insurer of Lawsuit (Minn. Law)
JEN’S GEMS
Jennifer A. Ehman
- Court Finds that Company Involved in Joint Venture Failed to Provide Timely Notice
BARNAS ON BAD FAITH
Brian D. Barnas
- GEICO did not Act in Bad Faith by Contesting Choice of Law Issue that would have Precluded Coverage, but Issue of Fact Existed as to whether GEICO Intentionally Misrepresented Policy Terms
- Extra-Contractual Claims against Insurers who Issue National Flood Insurance Program policies are Barred and Preempted
- Headlines by Drake
PHILLIPS’ FEDERAL PHILOSOPHIES
Jennifer J. Phillips
- Fourth Time’s the Charm in Florida
EWELL’S UNIVERSE
John R. Ewell
- West Virginia’s High Court Declares That Earth Movement Exclusion is Not Ambiguous and Applies to Earth Movement Caused by Natural and Man-Made Events
- Texas Supreme Court Rules That Insurer’s Billing Records Are Protected Work Product and Not Relevant Where Insurer Did Not Put Attorney Fees at Issue
ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA
Howard B. Altman
- New York’s Senate has proposed Bill 6443
OFF THE MARK
Brian F. Mark
[email protected]
- New Hampshire Federal Court Holds that Costs to Repair Inferior Work do not Constitute a Covered Occurrence Under a Commercial General Liability policy
EARL’S PEARLS
Earl K. Cantwell
[email protected]
- Carbon Monoxide Not Covered Due To Pollution Exclusion
Thanks all. Want to subscribe to Premises Pointers or Labor Law Pointers? Send me an email at [email protected]
Dan
Dan D. Kohane
Hurwitz & Fine, P.C.
1300 Liberty Building
Buffalo, NY 14202
Office: 716.849.8942
Mobile: 716.445.2258
Fax: 716.855.0874
E-Mail: [email protected]
Website: www.hurwitzfine.com
Twitter: @kohane
LinkedIn: www.linkedin.com/in/kohane
Hurwitz & Fine, P.C. is a full-service law firm
providing legal services throughout the State of New York
NEWSLETTER EDITOR
Dan D. Kohane
[email protected]
ASSOCIATE EDITOR
Agnes A. Wilewicz
ASSISTANT EDITOR
Jennifer A. Ehman
INSURANCE COVERAGE/EXTRA CONTRACTUAL LIABILITY TEAM
Dan D. Kohane, Chair
[email protected]
Steven E. Peiper, Co-Chair
Michael F. Perley
Jennifer A. Ehman
Agnieszka A. Wilewicz
Edward B. Flink
Patricia A. Fay
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]
06/14/17 Petersen v. Miller Auto Parts
Appellate Division, Second Department
There’s No Business Like Snow Business
Petersen was injured when she slipped and fell on ice in the parking lot. She was a member of, the tenant, Scorpis, LLC (“Scorpis”), which leased a portion of the property from MSP Realty (“MSP”).
She and her husband sued MSP, Miller Auto Parts and Mt. Kisco Truck & Auto Parts (the last two named, collectively referred to as “Auto Parts”. Auto Parts then brought an action against Scorpis, claiming that the lease between Scorpis and MSP obligated Scorpis to maintain the parking lot. They also claimed that a breach of that contract entitled them contractual indemnification.
Scorpis disagreed and counterclaimed for common law indemnification.
The appellate court reviewed the lease containing the indemnification provision is between MSP Realty and Scorpis. Since the Auto Parts defendants were not parties to the lease, they could not rely upon it for contractual indemnification. There was no proof offered as to what role Auto Parts had with respect to the property.
The appellate court reversed the grant of summary judgment directing Scorpis to provide Auto Parts with insurance coverage, because there was no action for declaratory relief.
As to MSP’s request for contractual indemnity, the record was not clear as to which party had the responsibility for clearing snow.
06/13/17 Mt. Hawley Insurance Company v. Penn-Star Ins. Co.
Appellate Division, First Department
Warning: If a Carrier Lets its Insured Litigate a Coverage Issue, it May be Doomed by the Result, even if the Carrier Could have Won the Case
Mt. Hawley brought this action in its capacity as subrogee of its insured, the Marlite, a general contractor on a construction project. Marlite had hired W.R. Precision, Inc. to be the steel work subcontractor on the project, and W.R. Precision, in turn, subcontracted its work to nonparty J & B.
An employee of J&B was injured in the course of the work and commenced a prior action against Marlite, among others. Mt. Hawley, as Marlite's insurer, tendered Marlite's defense of the prior action to Penn-Star, W.R Precision's insurer, based on the claim that Marlite was an additional insured under W.R. Precision's policy.
Penn-Star disclaimed coverage on the basis of an exclusion in the insurance policy for the work of independent contractors. Before the settlement of the prior action, the Appellate Term determined that Penn-Star defendant (W.R. Precision's insurer), was not obligated to indemnify or defend either W.R. Precision or Marlite because of that exclusion in its policy.
In the universe of contractual indemnity, and as part of the settlement of the prior action, a judgment was entered in favor of Marlite against W.R. Precision requiring W.R. Precision to indemnify Marlite for its liability in the prior action under the terms of the contract between the two parties.
Mt. Hawley, standing in Marlite’s shoes as subrogee, then brought a direct action against Penn-Star, as Marlite's subrogee, commenced this action, pursuant to Insurance Law § 3420(b), against defendant, as W.R. Precision's carrier, to recover the amount the general contractor plaintiff had paid to settle the prior action on Marlite's behalf. It argued that Penn-Star had not timely disclaimed coverage in a timely manner and thus Penn-Star’s disclaimer was invalid.
Penn-Star moved to dismiss the lawsuit arguing that the parties had already litigated the question and the Appellate Term had already decided that Penn-Star had no obligation to provide coverage: collateral estoppel.
In the prior action, which has been finally determined, Appellate Term held that defendant has no duty to defend or indemnify W.R. Precision, its named insured, or Marlite, which claimed to be an additional insured under W.R. Precision's policy, because of the policy's exclusion of coverage for injuries to persons employed by independent contractors.
Mt. Hawley was in the same position as Marlite had been in the previous lawsuit. It had no greater rights than Marlite and Marlite had already had its day in court.
The issue of coverage having fully been litigated by Mt. Hawley’s subrogor, its carrier has no greater rights.
Editor’s Note and Warning: While we can surely appreciate the court’s position, since the earlier appellate decision specifically dealt with the same insurance coverage questions, this decision puts the GC’s carrier at risk. While surely not suggesting that this occurred in this instance, what happens if the insured fails to raise valid claims for coverage because its coverage counsel overlooked legal issues that could have been raised, but were not.
For example, let’s say, in the earlier appeal Marlite argued against the applicability of the exclusion but failed to argue that the exclusion was not timely raised and therefore waived? What then? According to this court, Marlite’s unsuccessful litigation forever precludes Mt. Hawley from challenging the untimeliness and ineffectiveness of the disclaim.
Carriers are on notice – if you leave the coverage challenge to your insured to do so on its own dime and with its own counsel, you may pay the price if the lawsuit is not properly and aggressively handled.
06/13/17 Arch Insurance Company v. Old Republic Insurance Company
Appellate Division, First Department
Later Adopted Primary/Non Contributory Endorsement Trumps Inconsistent Self Insured Retention Provisions for Additional Insured
The lower court found that Old Republic Insurance Company (“ORIC”) is required to share in the defense of Bovis Lend Lease, on an equal basis with Arch.
The First Department found that the policy's conflicting self-insured retention (SIR) clause and private and non-contributory (PNC) endorsement cannot be reconciled as to Bovis, an additional insured. It concluded that the PNC endorsement, which was added after the effective date of the policy containing the SIR clause and made effective retroactively, is controlling.
The clause expressly provides that it "modifies" the relevant coverage to provide to an additional insured "primary insurance on a non-contributory basis" if such coverage is required by the contract between the named insured and the additional insured, as is the case here. The subsequently agreed-to PNC endorsement's requirement of "primary insurance on a non-contributory basis" is, on its face, inconsistent with, and therefore overrides, the original policy's $1,000,000 SIR provision.
6/13/17 Nationwide Mut. Ins. Co v. U.S. Underwriters Ins. Co.
Appellate Division, First Department
The First Department affirmed the grant of U.S Underwriters Insurance Company’s (“USU”) motion to dismiss based Nationwide’s complaint as barred by collateral estoppel and res judicata when Nationwide brought successive declaratory judgment actions against USU relating to the same underlying action.
In short, the Court found that the doctrine of res judicata meant that no coverage existed for Nationwide’s insured Artimus under USU’s policy, despite the fact that there was never a “declaration” of coverage in the initial action. The Court found that because the issue (the applicability of the employer exclusion) was decided against Artimus, this barred Artimus’s claim for coverage of its indemnity judgment it obtained in the underlying action against USU’s named insured, Armadillo, despite the fact that Armadillo never appeared in the first DJ action. Having had the opportunity to litigate the question, and choosing not to do so, Nationwide was precluded from seeking the relief in a different application.
In the first DJ action, Nationwide, as subrogee of Artimus Construction Corp., Inc. (“Amitrus”) and Artimus, as subrogee of Armadillo Construction Corp. (“Armadillo”) brought a DJ action against USU seeking coverage for Artimus as an additional insured under USU’s policy issued to Artimus.
USU had denied coverage to Artimus (not Armadillo) based on late notice of occurrence and various exclusions in the policy.
USU filed a pre-answer motion to dismiss the first declaratory judgment action. The motion court (Cahn, J.) granted the motion, finding that USU was relieved from providing coverage to Artimus because of (a) late notice of the claim by Artimus to USU and (b) the policy's exclusion for employee injuries. Armadillo did not appear in the action. The court noted that, while "USU is entitled to an order granting its motion to dismiss; it is not entitled to a declaration of its rights vis-a-vis plaintiffs and/or co-defendant Armadillo." In so doing, the court said that granting a declaratory judgment in USU’s favor would be "inappropriate at this juncture because [USU] has not interposed an answer affirmatively seeking such relief." The action was severed and continued as to Armadillo.
In or about May 2011, the underlying action settled for approximately $1.55 million. Nationwide contributed to the settlement on Artimus's behalf. Artimus also obtained a default judgment on its third-party indemnification claim against Armadillo. On or about May 12, 2012, Artimus moved to restore its claims against Armadillo to the active calendar in the declaratory judgment action. In granting the motion, the court cited to Justice Cahn's earlier decision in the action and observed that no decision had been made concerning Armadillo's entitlement to coverage.
On or about November 21, 2013, the default judgment against Armadillo in the underlying action was referred to a special master for an inquest on damages; on July 16, 2014, judgment was entered against Armadillo, in Artimus's favor, in the amount of $987,051.60. On July 24, 2014, Artimus served the judgment on Armadillo, which did not respond. On October 23, 2014, Artimus forwarded the judgment to USU for payment in accordance with Insurance Law § 3420(a). On October 24, 2014, USU, through counsel, acknowledged receipt of the judgment, but declined to pay, citing Justice Cahn's decision in Artimus's declaratory judgment action.
After 30 days, Nationwide and Artimus, as subrogees of Armadillo, commenced a second action against USU. USU moved to dismiss, arguing, inter alia, that the doctrines of res judicata and collateral estoppel barred this action, based on Justice Cahn's order in the prior declaratory action. In opposition, Nationwide and Artimus argued that they could not be precluded from pursuing this action because the issue of Armadillo's coverage rights had never been adjudicated. They pointed out that Justice Cahn's order was based on a pre-answer motion to dismiss and that there was no judgment entered in the lawsuit declaring or otherwise determining Armadillo's rights under the USU policy.
Justice Reed granted USU's motion to dismiss the complaint, concluding that Artimus, as Armadillo's subrogee, was collaterally estopped from bringing the instant action, because it was in privity with Armadillo, and whatever rules of collateral estoppel applied to Armadillo would also apply to Artimus (and its subrogee, Nationwide). The court found that as a consequence, Artimus was bound by Justice Cahn's order. The court found that the action was barred by the doctrine of res judicata.
The First Department affirmed, noting that Artimus was the subrogee of Armadillo's rights and thus in privity with Armadillo, and thus bound by the court’s finding of ‘no coverage’ made against Armadillo. The Court noted that the doctrine of res judicata "applies not only to claims actually litigated but also to claims that could have been raised in the prior litigation", and that a "transactional analysis" (the principle that once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy) barred the second DJ action, because the issues in the new action were addressed in the prior action, even if no declaration was actually issued. The Court found that “by bringing this action as subrogees of Artimus and Armadillo under Insurance Law § 3420, Nationwide and Artimus are essentially seeking to relitigate Artimus's claims for coverage” which had been determined in the prior action.
Justice Acosta, dissenting, disagreed, finding that “neither Artimus nor Armadillo had a full and fair opportunity to litigate the issue of whether Armadillo would be covered under the USU policy.” Armadillo's default in the declaratory judgment action meant its rights were never fully adjudicated. Justice Acosta further noted that Justice Cahn stated that the issuance of any declaration concerning Armadillo's rights under the USU policy was inappropriate because USU had not interposed an answer affirmatively seeking that relief, and noted that Artimus's indemnification claim against Armadillo was a separate claim from the question of whether Artimus was covered for the direct personal injury claim against it.
Editor’s Note: Thanks to Howard Altman for an assist on this one.
06/13/17 Cohen Brothers Realty Corp v. RLI Insurance Company
Appellate Division, First Department
Where Carrier Wrongfully Denies Coverage, it has No Right to Complain about Hourly Rates Charged.
Cohen was managing agent of a building; RLI provides it with commercial general liability (CGL) coverage. Vasquez fell while replacing tile on a drop ceiling and died. Cohen’s vice president of management notified Cohen’s broker for the CGL coverage
On October 3, 2008, nonparty engineer David Vasquez fell and fatally hit his head while replacing tile in the drop ceiling of the building's loading dock. On the date of the accident, plaintiff's vice president of management contacted plaintiff's insurance broker for the CGL policy. The broker told her it was a workers compensation (WC) matter and the CGL policy was inapplicable. Nobody notified RLI. The WC carrier, State Insurance Fund (SIF) was notified.
A year later, the adminstratrix of the estate sought pre-action discovery to frame a complaint. At that time, RLI was notified and RLI denied coverage based on late notice and on exclusions. Since there was a grave injury, SIF defended Cohen.
In May 2009, the Estate sued Cohen and SIF defended it. Greenberg Trauig was selected by Cohen to defend it. SIF contributed $150/hour in defense costs with Cohen paying the rest. The hourly rate was $795.
Following the Court's decision in Vasquez v Cohen Bros. Realty Corp. (105 AD3d 595 [1st Dept 2013]), holding that issues of fact required trial of Cohen Brothers' "special employer" [defense, the Vasquez litigation was settled for $2.5 million. Cohen paid $1 million; its excess insurer paid the remaining $1.5 million.
Cohen then sued its broker and RLI. The court found that the delay in notifying RLI was due to a reasonable and good faith belief that this was only a workers compensation claim.
RLI then argued that the voluntary payment doctrine would preclude recovery of the amounts paid to Greenberg Traurig. The court held that since RLI denied coverage, it lost its right to complain about the handling of the defense and the negotiation of the fees.
SIF’s $150 contribution is not a ceiling on fees.
Editor’s note: It appears that the question of whether the $795 was a reasonable hourly fee remains open for a judicial determination when the matter is remanded for a hearing.
06/09/17 Hillcrest Coatings, Inc. v. Colony Insurance Company
Appellate Division, Fourth Department
What is “Foul” May Not Necessary be Hazardous. There is a Duty to Defend Claim of “Malodorous” Odors, Even in the Face of a Hazardous Material Exclusion
Hillcrest sought a declaration that Colony was required to defend and indemnify it in an underlying environmental lawsuit. The tort plaintiffs alleged that Hillcrest plaintiffs operated their "glass, plastic and paper recycling facility" in a negligent fashion, allowing hazardous materials and substances to be discharged into and to contaminate the areas where the tort plaintiffs resided and worked.
The tort plaintiffs further alleged that the Hillcrest plaintiffs "operated their facility in a way that has caused a malodorous condition to be created in the surrounding neighborhood."
The Colony CGL policy contained a hazardous materials exclusion, which provided that the insurance would not apply to bodily injury, property damage or personal and advertising injury "which would not have occurred in whole or [in] part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of hazardous materials' at any time." Hazardous materials were defined as “pollutants’, lead, asbestos, silica and materials containing them."
Pollutants were defined as "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed."
The Fourth Department found that the insurer had a duty to defend Hillcrest,
The duty to defend arises whenever allegations of an underlying complaint suggest “a reasonable possibility of coverage,' " even if facts outside the pleadings " indicate that the claim may be meritless or not covered' “Moreover, "exclusions are subject to strict construction and must be read narrowly.
Here, liberally construing the allegations set forth in the second amended complaint in the underlying action the court that there is a reasonable possibility of coverage, and that defendant therefore did not meet its heavy burden of establishing as a matter of law that the hazardous materials exclusion precludes coverage. The tort plaintiffs alleged in the second amended complaint that the Hillcrest plaintiffs' operation of the facility "caused a malodorous condition to be created in the surrounding neighborhood."
Foul odors are not always caused by the discharge of hazardous materials. Inasmuch as there is a reasonable possibility of coverage, the court properly declared that defendant is obligated to defend the Hillcrest plaintiffs in the underlying tort action and ordered defendant to reimburse them for the cost of the defense.
06/09/17 Matter of Arbitration between Liberty Mutual and Kadah
Appellate Division, Fourth Department
Temporary Stay of Underinsured Motorists Arbitration Permitted for Discovery
This was a dispute over supplemental uninsured motorist (SUM) coverage. Liberty Mutual filed a petition seeking a permanent stay of an arbitration seeking those benefits. It claimed it had no responsibility to provide SUM coverage because the underlying insurance policies had not been exhausted. In the alternative, petitioner sought a temporary stay of arbitration to allow for discovery.
The court found that Liberty was not entitled to a permanent stay of arbitration but was entitled to conduct some discovery on the merits of the SUM claim including an IME and the disclosure of medical records so a temporary stay is granted.
06/07/17 Indian Harbor Insurance Company. v. SP & K Construction
Appellate Division, Second Department
Standards for Policy Rescission Reviewed
This was a rescission action, with Indian Harbor seeking a determination that the policy it issued to its policyholder was null and void.
To establish the right to rescind an insurance policy, an insurer must show that its insured made a material misrepresentation of fact when securing the policy. A misrepresentation is material if the insurer would not have issued the policy had it known the facts misrepresented. To establish materiality as a matter of law, the insurer must present documentation concerning its underwriting practices, such as underwriting manuals, bulletins, or rules pertaining to similar risks that show that it would not have issued the same policy if the correct information had been disclosed in the application
The court found that the insurer did not present sufficient proof to secure summary judgment on the issue of material misrepresentation so the matter will proceed to trial. The decision did not advise what was offered as proof.
06/06/17 Allstate Insurance Company v. Howell
Appellate Division, First Department
Application to Stay Arbitration Not Untimely where Claimant First Filed Lawsuit
This was an application to stay an underinsured motorist (SUM) arbitration.
The argument made was that the application to stay was untimely filed. The 20-day time restrictions set forth at CPLR 7503(c) do not apply where, as here, the claimant first filed a lawsuit instead of a demand for arbitration. Once waived, the right to arbitrate cannot be regained, even by the respondent's failure to timely seek a stay of arbitration".
That Allstate participated, under objection, in the arbitration is immaterial. Even if the arbitration had been completed and an award issued, the award would be subject to vacatur on the ground that the arbitrator lacked authority to conduct the arbitration.
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
06/15/17 Moore-Brown v. Sofi Hacking Corp.
Appellate Division, First Department
Defendant’s Experts Found Full Range of Motion and No Neurological Deficits
Defendants made a prima facie showing that plaintiff did not sustain a serious injury to her cervical spine by submitting the expert report of an orthopedist, who found full range of motion and opined that plaintiff's alleged injuries had resolved. Those findings were consistent with the conclusion of defendants' neurologist who found no neurological deficits and a limitation in one plane of range of motion, which did not undermine his conclusion that plaintiff, suffered no permanent injury as a result of the accident. Defendants' neurologist also relied on plaintiff's MRI report, which showed preexisting degenerative disc disease in her cervical spine, in concluding that she suffered no traumatic injury causally related to the accident.
Defendants further demonstrated an absence of causation through the report of an expert in emergency room medicine, who opined that plaintiff's post-accident medical records showing no complaints of neck pain and a normal cervical exam, were inconsistent with any claim of traumatic injury to her cervical spine. Furthermore, plaintiff testified that she did not seek treatment for her claimed cervical spine injuries from a neurologist until some eight months after the accident, which is too remote in time to establish a causal relationship between her claimed injuries and the accident. In opposition, plaintiff failed to raise an issue of fact as to whether she sustained a serious injury to her cervical spine causally related to the accident.
06/15/17 McIntyre v. Village of Liberty
Appellate Division, Third Department
Defendant’s Expert Contended that Plaintiff Suffered Degenerative Injury but Failed to Account for the Injury Being Asymptomatic Prior to the Accident
In October 2012, as plaintiff Richard McIntyre was driving out of a parking lot, a dump truck, operated by defendant Keith Smith and owned by defendant Village of Liberty, backed into his vehicle. Here, McIntyre testified in his hearing pursuant to General Municipal Law § 50-h that, after the accident, he started to feel pain in both of his hands and went to see his chiropractor for such pain. The orthopedic surgeon who examined McIntyre at defendants' request, however, found no evidence of thenar or hypothenar atrophy or sensory dysfunction and that McIntyre had minimal decreases in range of motion in his hands and wrists. The orthopedic surgeon concluded that McIntyre did not have any numbness and that there was no indication that he needed treatment for his hands and wrists. Based on the foregoing, the Appellate Division concluded that defendants satisfied their burden with respect to these alleged hand and wrist injuries. In opposition to defendants' motion, plaintiffs failed to raise a material issue of fact as to these injuries. Assuming, without deciding, that the narrative report and operative report from McIntyre's physician was in admissible form, the physician did not give any opinion as to whether McIntyre sustained an injury to his hands and wrists. As such, dismissal of the claim to the extent premised upon the alleged hand and wrist injuries was proper.
With respect to the right shoulder injury, the Appellate Division did not dismiss it. Defendants relied, in part, on an affirmed report from a radiologist, who reviewed, among other things, an MRI taken of McIntyre's right shoulder in January 2013. The radiologist noted in his report that his impression of McIntyre's MRI was "[d]iffuse tendinopathy and fraying of the supraspinatus and infraspinatus tendon with 15 x 12 mm complete tear supraspinatus and fatty infiltration myotendinous junction" and concluded that McIntyre's MRI revealed findings that were "longstanding in nature." The orthopedic surgeon likewise noted in his report that McIntyre's MRIs revealed "degenerative findings that cannot be causally related to the accident of [October 2012]." Critically, however, they do not address the fact that such condition "had reportedly been asymptomatic prior to the accident.” In this regard, McIntyre testified that, prior to the October 2012 accident, he neither experienced problems with his right shoulder nor received medical treatment for it. The orthopedic surgeon's opinion was also partly based on his misapprehension that McIntyre did not seek out immediate medical attention after the accident. To the contrary, McIntyre testified at his General Municipal Law § 50-h hearing that, after the accident, he felt pain in his right shoulder and, shortly thereafter, he went to see his chiropractor. McIntyre's chiropractor examined him and noted that a shoulder depression test produced a positive response as to McIntyre's right shoulder. Upon the chiropractor's recommendation, McIntyre began physical therapy for his right shoulder. Indeed, the orthopedic surgeon found significant decreases in range of motion upon testing of McIntyre's right shoulder. Defendants' own papers failed to establish that McIntyre's alleged right shoulder injury was preexisting and not causally related to the accident.
06/15/17 Snare v. Capitaland Taxi, Inc.
Appellate Division, Third Department
Defendant’s IME Report Was Not Accepted as Competent Evidence as it was Not Affirmed under Penalties of Perjury
A taxicab owned by defendants and driven by one of defendants' employees collided with the rear of plaintiff’s vehicle. Plaintiffs argue that defendants failed to meet their initial summary judgment burden regarding the claim of serious injury under the 90/180-day category. The Appellate Division agreed, noting that the record refutes defendants' contention that plaintiffs did not allege this category in their bill of particulars, and, in any event, the Supreme Court fully addressed the merits of whether Snare suffered a serious injury under the 90/180-day category. Defendants primarily relied upon the IME report and Snare's deposition testimony in support of their motion for summary judgment. The IME report, however, does not constitute competent evidence and should not have been considered by Supreme Court in assessing whether defendants met their initial burden inasmuch as the independent medical examiner did not affirm that the report was true under the penalties of perjury.
As for Snare's deposition testimony, which was taken more than two years after the accident, he was not asked whether his injuries prevented him from performing his usual and customary daily activities during the dispositive time period — namely, the 180 days immediately following the occurrence of the injury. In light of this, we find that defendants failed to meet their "initial burden of establishing with competent medical evidence that he did not suffer a serious injury under the 90/180-day category.
06/14/17 Kang v. Guillen
Appellate Division, Second Department
Defendant’s Experts Found Significant Range of Motion Limitations
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 failed to submit competent medical evidence establishing, prima facie, that the plaintiff did not sustain a serious injury to his right shoulder or the cervical and lumbar regions of his spine under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d), as the defendants' expert found significant limitations in the range of motion of those body parts.
06/09/17 Maietta v. Snyder
Appellate Division, Fourth Department
Defendant’s Expert Found No Fracture Suffered by Plaintiff in the Subject Accident
Even assuming, arguendo, that plaintiff met her initial burden of establishing as a matter of law that she sustained a fracture as a result of the subject accident the Fourth Department concluded that defendants raised an issue of fact to defeat the cross motion. According to the affirmed report of the physician who examined plaintiff on behalf of defendants, which defendants submitted in support of their motion for summary judgment dismissing the complaint, plaintiff did not sustain a fracture in the subject accident. Plaintiff had abandoned on appeal her reliance in her cross motion on any of the other categories of serious injury set forth in her bills
06/09/17 Paternosh v. Wood
Appellate Division, Fourth Department
Plaintiff Failed to Provide Objective Evidence of Range of Motion Limitations
Plaintiffs commenced this action seeking damages for injuries allegedly sustained in an accident in which the vehicle he was driving was struck by a vehicle operated by defendant. In their bill of particulars, plaintiffs alleged that plaintiff sustained a serious injury under three categories set forth in Insurance Law § 5102 (d). Defendant met his burden by submitting evidence establishing that plaintiff sustained only temporary cervical and thoracic strains rather than any significant injury to his spine as a result of the and that his alleged range of motion limitations were not supported by objective evidence. In opposition to the motion, plaintiffs failed to raise a triable issue of fact. Plaintiff's medical records are not sufficient to raise an issue of fact because there is no evidence that the muscle spasms and range of motion limitations referenced therein were objectively ascertained. Although there is objective evidence that plaintiff had a vertebral fracture and plaintiffs presented evidence that the fracture was caused by the accident, they failed to present evidence, for purposes of their claim under the significant limitation of use category that the fracture resulted in qualifying restrictions in the use of plaintiff's spine.
06/07/17 Henry v. McGeachy
Appellate Division, Second Department
Plaintiff Raised Issue of Fact as to Lumbar Region of His Spine
In support of her motion for summary judgment dismissing the complaint, the defendant submitted competent medical evidence establishing, prima facie, that the alleged injury to the lumbar region of the plaintiff's spine did not constitute a serious injury under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d). In opposition, however, the plaintiff raised a triable issue of fact as to whether he sustained a serious injury to the lumbar region of his spine under the permanent consequential limitation of use and significant limitation of use categories of Insurance Law § 5102(d). No facts were given.
Tessa R. Scott
Litigation
06/02/17 Ortho Passive Motion, Inc. v Allstate Ins. Co
Appellate Term, Second Department
Policy Exhaustion Must Be Established At the Time the Claims Were Deemed Complete
Following a nonjury trial in this action by a provider to recover assigned first-party no-fault benefits, the Civil Court awarded plaintiff a judgment in the principal sum of $2,114.50. The Civil Court noted that the parties had stipulated that defendant had timely denied the claims at issue. The judgment was entered but eight months later, defendant appealed seeking to modify the judgment on the ground that the coverage limits of the insurance policy had been exhausted. Plaintiff opposed the motion.
Defendant argued that there were no funds available to pay the judgment because the $50,000 policy limit in basic personal injury protection had been exhausted. Defendant's motion papers failed to establish an exhaustion of the coverage limits of the insurance policy at issue, as defendant failed to demonstrate that the policy had been exhausted at the time the claims at issue were deemed complete.
Furthermore, defendant did not argue that there was a technical defect or ministerial mistake in the judgment "not affecting a substantial right of a party." Thus, defendant there was no basis to disturb the judgment.
Accordingly, the judgment was affirmed.
Arbitration
06/15/17 Elite Medical Supply v Geico
Arbitrator Mono Bargnesi
Service Providers Must Use the Proper No-Fault Codes for Billing Purposes
In this matter the assignee moved to recover reimbursement for 1,839.13 for a lumbar brace and multimode stimulator unit (MMS). The injured party, aged 41, claimed to have injured his back. He sought chiropractic treatment, where it was determined that he had limited range of motion in his back. A MRI established the existence of herniated discs at L3-4 and L4-5. Ultimately he was prescribed with the brace and MMS.
First, the claim for reimbursement for the MMS was ultimately dismissed because of a previous decision by Arbitrator Murphy Louden which dealt with the same Claimant for the same MMS service. (Docket number: 17-15-1014-1472) There, Arbitrator Murchy Louden determined the MMS claim should be dismissed so that applicant could re-file arbitration with proper proof of acquisition costs so that the proper fee could be established. Basically this is the same medical provider who hasn’t quite figured out how to bill for this procedure. Using the proper No-Fault codes is very important and could lead to a dismissal or denial of a claim for reimbursement.
The LSO reimbursement was more straightforward. Arbitrator Bargensi determined that the peer review utilized to establish Respondent’s position was not sufficient to establish lack of medical necessity.
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
06/13/17 Ironshore Indem., Inc. v W&W Glass, LLC
Appellate Division, First Department
Carrier who does not pay Defense or Indemnity acquires no Rights of Subrogation
Ironshore commenced this action as purported subrogree of non-party Related Companies. The only problem with that position, apparently, was that Ironshore never actually paid for Related Companies’ defense in the underlying tort action, nor did Ironshore contribute any money toward settlement. Not surprisingly, the Trial Court dismissed this action on the basis that Ironshore had no subrogation rights, and accordingly could not prosecute the current action.
Moreover, plaintiff’s subrogation claims for common law indemnity against defendants were improper because there was no claim for grave injury. As such, without a grave injury, any claim for common law indemnity is barred by operation of Workers Compensation Law 11.
Peiper’s Point – Ironshore’s attempt at subrogation was foiled by Related Companies, who, on its own behalf, intervened in the matter to submit proof that Ironshore had done nothing to acquire subrogation rights in the first place. Unbelievably, Ironshore argued that Related Companies, the entities they did not defend, nor indemnify, had no interest in the action, and as such their intervention motion should be denied. The Appellate Court, not surprisingly, rejected this portion of Ironshore’s argument as well.
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
06/14/17 MIC General Insurance Company v. Chambers
United States Court of Appeals, Second Circuit
Second Circuit Finds that Expanded Definition of Residence Premises in Homeowners Policy Unambiguously Requires Insured to Live at the Property; Where He Admittedly Did Not, There Was No Coverage (NY Law)
MIC General had issued an Expanded Homeowners Policy to Shawn Chambers. This covered a three family residential property, where allegedly an injury occurred to an underlying claimant. Under the policy, Chambers would have been entitled to a defense and indemnification of the claim, but only if it was caused by an occurrence to which the policy applied. The policy excluded coverage, however, for injuries arising out of premises that were not an “insured location”. That, in turn, was defined as the “residence premises”, which meant:
“Residence premises” means: a. The one family dwelling, other structures, and grounds; or b. That part of any other building; where you reside and which is shown as the “residence premises” in the Declarations. “Residence premises” also means a two family dwelling where you reside in at least one of the family units and which is shown as the “residence premises” in the Declarations.
By endorsement, and for an additional premium, the policy amended that definition to include “the three or four family dwelling described in the Declarations of this policy”. Those Declarations explicitly identified the property as the “Owner”-occupied, three-family residence where the alleged injuries took place.
Read all together, the Second Circuit wrote, “these provisions unambiguously require Chambers to reside at the ‘residence premises’ in order to trigger MIC’s duty to defend”. The argument in opposition had been that the words “where you reside” were not contained in the amended definition. However, the court rejected this argument as the language of the policy was otherwise clear. There was no other reasonable interpretation here that might have sparked an ambiguity, given the fact that the endorsement itself made reference to the Declarations and the fact that it was expanding the definition of “residence premises” and “all other provisions of this policy apply”.
The best language of the decision: “In construing the terms of a policy, “the question is not simply whether the insurer could have phrased the provision differently” but “whether the provision, as written, is sufficiently clear and precise” in light of the reasonable expectations of the average policy holder and the language of the policy as a whole. The language of the homeowners policy at issue here, read as a whole and with an eye to the risks insured, is clear. It cannot reasonably be read to provide coverage to the noted “Residence premises” if Chambers did not reside at that location.”
06/05/17 Continental Casualty Company v. Joseph J. Boughton
United States Court of Appeals, Second Circuit
Second Circuit Holds that Insurer Properly Rescinded Policy, Where It Never Ratified or Otherwise Accepted the Coverage and Filed its Rescission Action Promptly (NY Law)
Continental Casualty insured Marshall Granger & Company, LLP (though this decision is silent on the type of policy or coverages). At some point, Continental learned that the policy had been procured through material misrepresentations, so they sought to rescind that policy. In the interim, when a claim arose, Continental paid some of the insured’s defense costs and amended the policy to reflect the correct name and address of the insured. Continental’s declaratory judgment action progressed, and these issues made their way to the Second Circuit. First, it was argued that rescission was improper because Continental had (1) ratified the policy and (2) unreasonably delayed in filing its rescission suit. The prevailing rule on rescission is that an insurer may not rescind a policy if, after having the requisite knowledge of the insured’s fraud, it commits an act that affirms the policy. This is “ratification.” Moreover, an insurer cannot unreasonably delay in seeking judicial confirmation of a rescission claim.
On the first issue, it was argued that Continental ratified the policy by amending it. However, his amendments in question merely changed the insured’s name and address, and he court found that such “ministerial changes” are insufficient to constitute ratification. Next, it was argued that Continental ratified the policy by paying defense costs to one of Marshall Granger’s owners. The court held that this did not constitute ratification because Continental had a legal obligation to make this payment. Finally, it was argued that Continental’s issuance of a notice of non-renewal constituted ratification. Yet, while a cancellation notice may constitute ratification, a non-renewal notice may not, thus the court rejected this argument.
On the second issue, the court noted that the jury instruction regarding the insurer’s duty to file for rescission promptly did not contain any prejudicial error, and the court found that even if the jury instruction was incorrect, such error would be harmless and would not have influenced the jury’s verdict. Thus, since the jury had found that the carrier had “moved with dispatch”, as the jury instructions and case law require, they timely and appropriately proceeded.
05/31/17 3M Company v. Nation Union Fire Insurance Company
United States Court of Appeals, Eighth Circuit
Eighth Circuit holds that Insured’s Interest in Earnings on Funds Invested by Fraudsters was not “Ownership” Pursuant to its Crime Policy (Minn. Law)
3M Company purchased a blanket crime policy issued by five insurers. 3M invested its employee-benefit-plan assets in an investment company, which was later found guilty of fraudulent investment diversion. 3M ultimately recovered its capital contribution, but felt it should also recover the loss of earnings from legitimately made investments. 3M made a claim to recover the loss of these stolen earnings under the “Employee Dishonesty” provision in its insurance policy. That provision provided, in relevant part: “The [Insurers] shall be liable for direct losses of Money, Securities, or other property caused by Theft or forgery by any Employee of any Insured acting alone or in collusion with others.”
The policy also contained a requirement that insured property must be owned by the insured. 3M argued that this requirement did not apply to coverage for theft of “other property” under the Employee Dishonesty provision, thus if 3M did not ‘own’ the stolen earnings, coverage for its loss would not be precluded. 3M alternatively argued that it did own the lost earnings because it had a right to possess them. The insurers denied coverage due to the lack of ownership.
The phrase “other property” was not defined in the policy, so the Eighth Circuit reasoned that since the word “property” traditionally denotes some form of ownership, the ownership requirement must apply to the Employee Dishonesty provision. The court found 3M’s interpretation that ‘other property’ is not ‘insured property’ to be an unreasonable one, thus the only reasonable interpretation of the Employee Dishonesty provision is that coverage is limited to property which is owned by the insured. The court held that 3M’s interest in the lost earnings did not amount to ‘ownership’ and therefore coverage was properly denied.
05/26/17 American Economy Ins. Co. v. Hartford Fire Insurance Company
United States Court of Appeals, Ninth Circuit
Ninth Circuit Holds that Liability Insurers Owed no Duty to Defend Insured Accused of Spying and May Recoup Defense Costs Incurred (Montana Law)
Aspen Way is a franchisee of Aaron’s, Inc., a lease-to-own furniture, electronics, and home appliances retailer. Aspen Way was sued for allegedly using spy software to track customers’ personal information on rented laptops. The issue in this case was whether Aspen Way’s liability insurers, Liberty Mutual and Hartford (the insurers), owed a duty to defend Aspen Way in the two underlying actions (the Byrd and Washington complaints).
The insurers’ policies covered, in part, allegations of personal injury arising out of the oral or written publication “of material that violates a person’s right to privacy.” Coverage was excluded when injury arose out of any act or omission that allegedly violated any statute that governs the distribution or transmission of material, but the insurers still agreed to represent Aspen Way pursuant to a reservation of the right to recoup defense costs if it was later determined that coverage was excluded.
The Ninth Circuit found that Liberty Mutual’s coverage was triggered by the Byrd complaint, but not the Washington complaint. The court found that even if coverage was triggered by the Washington complaint, the exclusion would preclude coverage. Similarly, the court found that Hartford’s coverage was triggered by the Byrd complaint, yet the exclusion precluded coverage, and that Hartford owed no duty to defend Aspen Way in the Washington action because the misconduct was alleged to have occurred after the Hartford policies expired. Therefore, the Ninth Circuit held that the insurers had no duty to defend Aspen Way and could recoup defense costs pursuant to its reservation of rights.
05/25/17 Food Market Merchandising v. Scottsdale Indemnity Company
United States Court of Appeals, Eighth Circuit
Eighth Circuit Finds it Impracticable for Insured to Wait Seven Months before Notifying Indemnity Insurer of Lawsuit (Minn. Law)
Food Marketing Merchandising, Inc. (FMM) had a business and management indemnity policy issued by Scottsdale Indemnity Company (Scottsdale). The policy only covered claims made during the policy period and reported to the insurer pursuant to the notification provision, which provided: “The Insureds shall, as a condition precedent to their rights to payment . . . give Insurer written notice of any Claim as soon as practicable, but in no event later than sixty (60) days after the end of the Policy Period.”
A former employer sued FMM in January 2014 and FMM did not notify Scottsdale until August 2014 (during the policy period), while nevertheless seeking defense and indemnification. Scottsdale ultimately denied coverage. The issue before the court was whether FMM gave notice “as soon as practicable.” The Eighth Circuit held that FMM did not give timely notice, as it failed to present evidence to explain why waiting over seven months after the suit to make a coverage claim could be reasonably interpreted as “as soon as practicable.” The court reasoned that because timely notice is unambiguously a condition precedent to coverage under the policy, FMM had no claim for indemnity coverage.
Jennifer A. Ehman
06/05/17 Davis Constr. Corp. v. Hartford Acc. & Indem. Co.
Supreme Court, Suffolk County
Hon. James Hudson
Court Finds that Company Involved in Joint Venture Failed to Provide Timely Notice
The facts of this decision are a bit complex, so bear with me. Hartford issued a series of policies to a joint venture, Hendrickson Brothers, Inc. and Davis Construction Corp. While these policies were in place, the joint venue performed work for nonparty Southwest Sewer District in several towns including Islip. After completing the work, the municipal entities, including the Town of Islip and the Suffolk County Water Authority (“SCWA”), sued alleging that the sewer work was not properly backfilled and supported causing roadways and facilities to lose grade, settle, collapse and otherwise disintegrate, which manifested in 1985. Both Hendrickson and Davis were sued. Hendrickson notified Hartford of the pending actions against it.
Although Hartford originally disclaimed coverage, by court order dated December 6, 1996, following the commencement of a declaratory judgment action, it was ultimately determined that the company had a duty to defend. Thereafter, on March 5, 1999, a number of the municipalities entered into a settlement agreement, settling all claims with Hendrickson and its insurers. Hartford submitted that the settlement was made utilizing only policies issued to Hendrickson, individually, not the joint venture. The agreement apportioned damages on a 50/50 basis between the two contractors and agreed to only seek the balance from Davis. Hendrickson was fully released. It was acknowledged in the agreement that the joint venture was dissolved.
Despite evidence that proper service was performed upon Davis, it did not provide immediate notice. Instead, by letter dated May 10, 2011, counsel for Davis notified Hartford for the first time of the actions commenced against it. In response, the Hartford disclaimed coverage on the ground that Davis and SCWA failed to timely notify Hartford of the suits, and failed to forward copies of the lawsuit to Hartford as soon as practicable. This action was then commenced.
Hartford moved to dismiss the complaint, and the plaintiffs cross-moved to knock out certain affirmative defenses.
In this pre-prejudice case, the court began by reviewing the case law advising that the requirement to notify the insurer of a covered claim is a condition precedent to coverage.
The court found that Hartford had met its burden. Relying upon an affidavit submitted by a claim specialist, it found that Davis failed to provide Hartford with timely notice of the underlying lawsuits at issue. It submitted that Davis’ first notice of the SCWA lawsuit did not come until the May letter from counsel, and notice of the Islip lawsuit did not occur until two years later when Hartford was provided the amended summons and amended complaint. The court was clear that the May letter identified the defendant in the SCWA lawsuit as Davis and not the joint venture, no pleadings were included. Hartford’s ultimate position was that notice provided two decades after the loss was unreasonable as a matter of law.
Hartford also argued that no showing of diligence in attempting to ascertain the identity of the insurer and expeditiously notify that insurer was made. Hartford further argued that at the time that SCWA and Islip entered into the settlement agreement in 1999 that specifically listed the alleged policies at issue in this coverage action, both SCWA and Islip were aware of Hartford’s identity as an insurance carrier for the joint venture, but waited another decade before providing notice. Moreover, SCWA and Islip did not have standing to bring this action since neither SCWA nor Islip obtained a judgment against Davis or the joint venture in connection with the underlying actions.
Lastly, Hartford submitted that the settlement agreement barred these claims since based upon the language of the agreement SWCA and Islip released all claims against Hartford “to the extent they in any way relate to or arise out of any Sewer Construction work by Hendrickson Brothers.” The release included claims that were raised or could have been raised in the prior coverage action brought by Hendrickson against Harford, and in which SCWA and Islip intervened. This also included work performed by Davis as part of the joint venture with Hendrickson.
In response, plaintiffs made certain arguments based on New York Partnership Law, and issues involving service. They then argued that standing existed because they were third-party beneficiaries of the Southwest Sewer District contracts, and by virtue of privity with the County, SCWA and Islip possessed independent standing as additional insureds under those contracts.
In considering the arguments, the court found that plaintiffs were confusing service of process with providing notice to Hartford. Since Hartford was not a partner in the joint venture, no service of the respective complaints could have been made upon it and the facts remained that neither Davis nor Hendrickson, as Plaintiffs’ alleged agent of the joint venture, gave timely notice to Hartford of the suits commenced against Davis as a required condition precedent to Hartford’s duty to defend. Plaintiffs’ further contention that Hartford had constructive notice of the Davis actions during settlement talks in the Henrickson matter was deemed unavailing. Thus, the court declined to declare that Hartford had a duty to defend Davis in the underlying actions.
Lastly, the court rejected any argument that Hartford was collaterally estopped from denying coverage to Davis by the Nassau County Supreme Court’s determination in the coverage action, which held that Hartford was obligated to provide Hendrickson a defense. In that matter notice was not an issue, and Davis was not a party.
Brian D. Barnas
06/14/17 Jones v. Government Employees Insurance Company
Court of Appeal of Louisiana, Fourth Circuit
GEICO did not Act in Bad Faith by Contesting Choice of Law Issue that would have Precluded Coverage, but Issue of Fact Existed as to whether GEICO Intentionally Misrepresented Policy Terms
In June 2011 Jones was involved in an automobile accident in New Orleans. The other driver was at fault and insured by Allstate. In June 2012, Jones settled his claim against Allstate for the policy limits of $15,000.00. Jones then sought to recover from GEICO under his policy's UM coverage. GEICO declined coverage claiming that Jones failed to obtain GEICO's approval prior to settling and releasing Allstate, in direct contravention to Jones' Georgia issued policy and Georgia statutory law. It was eventually determined through litigation that Louisiana law, not Georgia law, applied.
GEICO appealed the choice of law ruling. While the appeal was pending, Jones filed a motion to enforce the November 2014 judgment, which the trial court denied in June 2015. The trial court's judgment concluding that Louisiana law applied Jones' UM claim was affirmed on appeal. Motions for summary judgment were then filed on whether GEICO handled the UM claim in bad faith. While motions were pending, GEICO paid Jones.
Jones argued that GEICO acted in bad faith by when it delayed paying the claim in violation of statutory time limitations. However, the court concluded that the delay was not in bad faith because GEICO delayed making payment because it was litigating the choice of law issue. The choice of law issue was dispositive as to whether GEICO was obligated to pay the claim. GEICO’s decision to litigate the choice of law issue was reasonable, as there was a legitimate question as to whether Georgia or Louisiana law applied given the Georgia address provided by Jones and the evidence of Jones connections to Louisiana. Further, the fact that the appeal on the choice of law issue resulted in a 2-1 split decision at the appellate level further demonstrated the potential merit and reasonableness of GEICO’s position. As GEICO has a legitimate reason for delaying payment, it did not act in bad faith by delaying payment.
Jones also argued that GEICO acted in bad faith by misrepresenting pertinent facts regarding UM coverage by omission. Jones claimed that GEICO knew the policy at issue was a Georgia policy and took advantage of the fact that Jones believed the policy was a Louisiana policy by not informing him that specific language was required in his settlement with Allstate to preserve his UM claim. GEICO claimed it reasonably issued Jones a Georgia policy because Jones provided a Georgia address, and he never asked for the policy to be changed to Louisiana. The court concluded that there was an issue of fact as to whether GEICO knowingly misrepresented facts relating to the policy to avoid coverage liability, as questions of intent and credibility are not appropriate for summary judgment.
06/08/17 Farhat v. Texas Farmers Insurance Company
United States District Court, Northern District of Texas
Extra-Contractual Claims against Insurers who Issue National Flood Insurance Program policies are Barred and Preempted
Plaintiff sought recovery under a flood insurance policy issued by Texas Farmers under the government’s National Flood Insurance Program. Defendant denied coverage. Plaintiff appealed the denial, and his appeal was denied because there was no evidence of a general and temporary condition of flooding that would trigger coverage under the policy. Plaintiff commenced a lawsuit alleging breach of contract, Texas Insurance Code violations, unfair claims settlement practices, breach of the duty of good faith and fair dealing, and failure to comply with the Texas prompt payment statute. Plaintiff also sought to recover attorney’s fees and interest.
Plaintiff’s extra-contractual claims were dismissed because extra-contractual claims, including claims for attorney’s fees, are barred and preempted in the context of the national flood insurance program. Interest is also not authorized, before or after judgment. As such, all claims besides the breach of contract claim were dismissed.
06/06/17 Hanson v. State Farm Mutual Automobile Insurance Company
United States District Court, Western District of Washington
Headlines by Drake
On August 9, 2013, Plaintiff Eileen Hanson was struck by a vehicle driven by an underinsured motorist. In June 2014, Plaintiff's counsel advised Defendant that Plaintiff would be asserting a UIM claim under her automobile insurance policy. On September 17, 2014, Plaintiff sent Defendant a UIM bodily injury demand package. Plaintiff commenced an action against the at fault driver and settled for $50,000.
On November 17, 2014, Defendant offered Plaintiff $50,367.16 in “new money” to settle the claim. Defendant's internal records indicate it evaluated Plaintiff's UIM claim in a range of values between $50,367.16 and $70,367.16. On November 28, 2014, Plaintiff’s counsel asked for a written explanation of the initial offer, and Ms. Beason responded on December 4, 2014, with an explanation. On December 11, 2014, Defendant paid Plaintiff the initial offer, $50,367.16 in new money. The letter attached to the check stated Defendant looked “forward to continuing to negotiate a final settlement. If there is any new information that you feel would be beneficial to this end, please feel free to contact [Defendant].”
On January 14, 2015, Plaintiff’s counsel sent a letter contesting the value of the claim. A second letter was sent on February 4, 2015, asking for a response to the first letter. Defendant sent a letter dated February 11, 2015, noting attempts to try to contact Plaintiff’s counsel. Over the next few months the parties corresponded about a possible independent examination and agreed to an in-person interview at Plaintiff’s counsel’s office. An independent neuropsychological report was eventually conducted, and the doctor concluded that Plaintiff was not suffering from any cognitive impairment from the auto accident. After reviewing the report, Defendant's evaluation of Plaintiff's claim did not change. However, on December 8, 2015, in a further attempt to settle and resolve the case, Defendant offered another $10,000 in new money. The offer was rejected and Plaintiff filed an action.
Defendant moved for summary judgment dismissing the bad faith claim, among others. The bad faith claim was dismissed on summary judgment. The record demonstrated that Defendant properly evaluated Plaintiff’s injuries, properly obtained and considered relevant medical evidence, properly relied on an independent neuropsychological report, properly offered a settlement amount within the range it evaluated the claim, and was not responsible for any delay in obtaining medical evidence or investigation of the claim.
PHILLIPS’ FEDERAL PHILOSOPHIES
Jennifer J. Phillips
05/10/17 Kendall South Medical Center v. Consolidated Ins. Nation
District Court of Appeal of Florida, Third District
Fourth Time’s the Charm in Florida
In this case, a Florida appellate court considered whether an insured sufficiently stated a claim for negligent procurement of an insurance policy against its insurer based on the actions of its agent. Notably, there was no dispute in this case that the insured, a medical center in North Miami Beach, requested from the insurer’s agent and obtained from that agent a commercial property coverage policy in the amount of $100,000 covering the property, medical equipment, supplies and improvements. Instead, the problem resulted from the fact that the policy obtained “a 90 percent coinsurance clause,” which imposes a penalty upon an insured that purchases property coverage that is far less than the full value of the covered property.
After obtaining the policy, the insured suffered a loss in excess of $260,000 as a result of water damage when the sprinkler system on the premises leaked during maintenance. As a result of the coinsurance clause, the commercial property policy provided coverage in the amount of only $16,562.67.
In considering the insurer’s motion to dismiss the negligent procurement cause of action for failure to state a claim, the appellate court recognized that, under Florida law, an insurance agent or broker who undertakes to obtain insurance coverage for another person and fails to do so may be held liable for resulting damages for negligence. “[A]n agent is required to use reasonable skill and diligence, and liability may result from a negligent failure to obtain coverage which is specifically requested or clearly warranted by the insured's expressed needs.” This duty can include advising of the availability and desirability of obtaining higher limits, depending on the scope of the agents undertaking.
The appellate court found that the insured had, finally, stated a negligent procurement claim by alleging that it informed the insurer’s agent: “(i) that both the physical contents of the subject premises and the improvements thereon were each valued in excess of $100,000, and (ii) that it wanted to procure just $100,000 of insurance with respect thereto, [therefore] it was incumbent upon the agent to apprise [the insured] of the effect of the coinsurance clause, and to explain that different coverage was required to meet [the insured]'s expectations.”
The insurer’s argued that dismissal was warranted because the agent had in fact explained the policy, including the coinsurance provision, to the insured; this explanation fulfilled the agent’s duty; and the insured received the insurance requested and never asked for a higher level of insurance given the value of its medical equipment. However, the court noted that these were arguments on the factual merits, and at this stage of the proceedings, it mattered only that the insured had stated a claim. The court specifically noted it was not expressing an opinion on the validity of these arguments.
Finally, the appellate court specifically clarified that “[i]n reaching this decision, we do not at all imply that an agent or broker has a general duty of knowing and/or valuing the contents and improvements of the premises either before procuring, or thereafter renewing, a commercial insurance policy. Nor, given the current state of the pleadings, is this a case where it has been alleged by the plaintiff that an agent or broker has a general duty to explain a coinsurance clause to any insured before issuing such a policy. Rather, when an insured alleges that it specifically communicated its insurance needs to an agent who then undertook to procure a policy addressing such needs, the insured states a cause of action for negligent procurement where it also alleges that, without providing an explanation that different coverage was required, the agent procured a policy not meeting those expressed needs.”
EWELL’S UNIVERSE
John R. Ewell
06/01/17 Erie Insurance Property and Cas. Co. et al. v. Chaber
West Virginia’s High Court Declares That Earth Movement Exclusion is Not Ambiguous and Applies to Earth Movement Caused by Natural and Man-Made Events
Supreme Court of Appeals of West Virginia
Dmitri Chaber (Plaintiff) owns property in St. Albans, West Virginia, part of which is leased to a motorcycle shop. In 2014, rock and soil had fallen down the steep slope behind the property, damaging the motorcycle shop. Plaintiff submitted a claim for property damage to his insurance carrier, Erie. The policy contained an exclusion for Earth Movement, which provided “ We do not cover… Landslide, including any earth sinking, rising, or shifting related to such event…” Erie denied coverage based upon the policy’s earth movement exclusion. Plaintiff sued Erie, asserting, among others, breach of contract, violations of the West Virginia Unfair Trade Practices Act, and fraud. Plaintiff also sought a declaratory judgment as to whether coverage existed.
At a bench trial, Erie’s engineering expert opined that the damage was caused by a rock fall resulting from seasonal climate change. Plaintiff’s expert opined that improper excavation was the cause of rock fall. Erie’s claims professional testified that it was irrelevant under the policy whether the earth movement occurred as a result of natural or man-made causes because damages due to earth movement, whether such movement is caused by natural or man-made forces, are clearly excluded under the policy. The trial court ruled against the insurer concluding that the policy did not exclude damage caused by rock fall due to man-made events. Erie appealed.
Erie argued that the earth movement exclusion clearly and unambiguously excludes coverage for all earth movement, regardless of whether such movement was caused by an act of nature or was otherwise caused, quoting the pivotal policy language: “This exclusion applies regardless of whether any of the above . . . is caused by an act of nature or is otherwise caused.”
After noting that this was an issue of first impression, the Court looked to an analogous New York insurance case for guidance. The New York case, Harleysville v. Potmianos Properties, held that the policy language “regardless of whether [the loss] is caused by an act of nature or is otherwise caused” is unambiguous. 108 A.D.3d 110 (4th Dept 2013). The West Virginia Supreme Court followed suit, stating “We have unearthed no authority for a finding of ambiguity in this exclusionary phrase.” The Court held that the policy clearly and unambiguously excludes coverage for a landslide resulting from a natural event or otherwise. Accordingly, the Court ruled that the Earth Movement exclusion was unambiguous, and applied regardless of whether the loss was caused by a man-made or a naturally occurring event.
06/09/17 National Lloyds Ins. Co., Wardlaw Claims Service
Texas Supreme Court Rules That Insurer’s Billing Records Are Protected Work Product and Not Relevant Where Insurer Did Not Put Attorney Fees at Issue
Supreme Court of Texas
The Texas Supreme Court addressed whether a party’s attorney-billing information is discoverable when the party challenges an opposing party’s attorney-fee request as unreasonable or unnecessary but neither uses its own attorney fees as a comparator nor seeks to recover any portion of its own attorney fees.
Following two hail storms in 2012, insured homeowners sued various insurers, alleging underpayment of insured property-damage claims. The lawsuits were consolidated into a single multidistrict litigation (MDL) court for pretrial proceedings including discovery. In these four MDL cases, individual homeowners sued the insurer, asserting statutory, contractual, and extra-contractual claims. Among other damages, the homeowners sought attorney fees incurred in prosecuting their statutory and contractual claims. In addition to assailing the merits of the homeowners’ liability claims, the insurer asserts the homeowners’ attorney-fee claims are excessive for a case of comparable complexity in the relevant locality.
Though the insurer was not making a claim for attorney fees, the homeowners submitted interrogatories requesting hourly rates, total amount billed, and total reimbursable expenses; and requests for production seeking all billing invoices; payment logs, ledgers, and payment summaries; audits; and any documents pertaining to flat-rate billing. The insurer objected on the basis that the requested discovery was overly broad, irrelevant, protected by the attorney-client and work-product privileges. Notably, the insurer stipulated that it would not use its own billing invoices received from its attorneys to contest the reasonableness of the homeowners’ attorney’s fees. Relying on authority from other jurisdictions, the homeowners argued that trial courts have discretion to order disclosure of an opposing party’s attorney-fee information and could permissibly compel production in this case.
The Texas Supreme Court found that, cumulatively, billing records constitute a “mechanical compilation” of information that reveals an attorney’s strategy and thought processes. Accordingly, the Court held that a request to produce all billing records invades a party’s work-product privilege, stating:
When a party neither seeks to recover its own attorney fees nor attempts to use its attorney-billing records to challenge the opposing party’s attorney fees, the party’s attorney should not be restricted in the preparation or presentment of his or her billing records by the prospect that they might have to be revealed in their entirety. Further, these billing records … reveal the attorney’s thought processes concerning the prosecution or defense of the case.
The homeowners’ attorneys argued that redaction of the privileged material should be sufficient to protect any privileged information. The Court disagreed, emphasizing that, the “chronological nature of billing records reveals when, how, and what resources were deployed”, and thus, reveals the attorney’s thought processes and strategies. Accordingly, the Court held that requests for production of all billing invoices, payment logs, payment ledgers, payment summaries, documents showing flat rates, and audits invade the zone of work-product protection.
The Court acknowledged that an opposing party may waive its work-product privilege through offensive use—such as by relying on its billing records to contest the reasonableness of opposing counsel’s attorney fees or to recover its own attorney fees. However, in this case, the insurer stipulated it would not use its own billing records to contest the homeowners’ attorney fees and the insurer was not seeking to recover its own attorney fees from the homeowners.
In addition, the Court did not foreclose the possibility that billing records may also be protected from compelled disclosure by the attorney-client privilege. However, the insurer in this particular case failed to establish a prima facie showing that attorney-client privilege applied. The Court also ruled that the insurer’s billing records in this case were not relevant as a matter of law.
Finally, it is worth noting that the Court recognized that if it had allowed disclosure of the insurer’s billing records, it would provide the policyholders’ attorneys with a “roadmap” of how the insurer plans to litigate other MDL cases.
ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA
Howard B. Altman
New York’s Senate has proposed Bill 6443, which would add a new section to Insurance Law § 2601 (the ‘bad faith’ statute) which creates a private right of action for policy holders’ whose claims are denied or delayed without “substantial justification”.
The Assembly’s proposed bill, A8004, goes even further. It proposes adding a new section to Insurance Law §3240(b) permitting any party covered by §3420, policy holders, claimants and the like, unlimited damages in excess of policy limits where a carrier fails to “promptly” settle a claim.
The proposed bills, discussed in detail below, could cost carriers millions of dollars, seeking to permit not only insureds, but injured claimants, to recover damages beyond the policy limits, where the carrier fails to promptly settle or pay a claim.
Before delving into the proposed bills, it is helpful to review where New York’s law on bad faith claims currently stands.
A. New York’s Current Law on Bad Faith Claims
New York’s law on bad faith stems from the Court of Appeals’ seminal holding in Bi-Econ. Mkt., Inc. v. Harleysville Ins. Co. of N.Y., 10 N.Y.3d 187, 128 (2008) in which the Court held that an insured could seek consequential damages from an insurer carrier where the insurer carrier improperly denied a claim.
In Bi–Economy, the insured, a meat market, suffered a fire in October 2002, resulting in the complete loss of food inventory and structural damage to the building. Bi–Economy was insured by a Harleysville policy that provided business interruption insurance for up to one year from the date of the fire. Harleysville offered to pay only seven months of Bi–Economy's claim for lost business income, despite the fact that the policy provided for a full 12 months. Bi–Economy never resumed business operations.
Bi–Economy commenced a DJ action against Harleysville, asserting causes of action for bad faith claims handling, tortious interference with business relations and breach of contract, seeking consequential damages for “the complete demise of its business operation in an amount to be proved at trial.” Bi–Economy alleged that Harleysville improperly delayed payment for its building and contents damage and failed to timely pay the full amount of its lost business income claim. Bi–Economy further alleged that, as a result of Harleysville's breach of contract, its business collapsed, and that liability for such consequential damages was reasonably foreseeable and contemplated by the parties at the time of contracting.
The Court of Appeals, reversing the decision of the Appellate Division, held that Bi-Economy could seek consequential damages from Harleysville as a result of Harleysville’s alleged “bad faith.”
In another case decided simultaneously with Bi-Economy, Panasia Estates, Inc. v. Hudson Ins. Co., 10 N.Y.3d 200, 202–04, 886 N.E.2d 135, 136–37 (2008), the Court of Appeals explained that “an insured may recover foreseeable damages, beyond the limits of its policy, for breach of a duty to investigate, bargain for and settle claims in good faith”, and held that “consequential damages resulting from a breach of the covenant of good faith and fair dealing may be asserted in an insurance contract context, so long as the damages were ‘within the contemplation of the parties as the probable result of a breach at the time of or prior to contracting’ ”
Despite these holdings, New York continued to take a narrow view of bad faith claims.
First, before the newly-proposed amendments to Insurance Law §2601, which statue prohibits insurers' unfair claim settlement practices, New York did not recognize private right of action under the statute. See New York University v. Continental Ins. Co., 1995, 87 N.Y.2d 308, 639 N.Y.S.2d 283 (Statute prohibiting unfair claim settlement practices by insurer does not permit private right of action in favor of insured and, therefore, does not impose tort duty of care flowing to insured separate and apart from insurance policy; thus, punitive damages are not available for violation of the statute.); Rocanova v. Equitable Life Assur. Soc. of U.S., 1994, 83 N.Y.2d 603, 612 N.Y.S.2d 339 (No private cause of action can be maintained for unfair insurance settlement practices.).
Even after Bi-Economy, New York’s courts held that in order to recover consequential damages, a private party must not only demonstrate egregious tortious conduct by which he or he was aggrieved, but also that such conduct was part of pattern of similar conduct directed at public generally/ Rocanova v. Equitable Life Assur. Soc. of U.S., 83 N.Y.2d 603, 634 N.E.2d 940 (1994); Toussie v. Allstate Ins. Co., No. 15-CV-5235 (ARR)(PK), 2016 WL 6537670, at *3 (E.D.N.Y. Nov. 3, 2016).
B. Proposed Assembly Bill A8004
New York’s State Assembly has proposed bill A8004 proposes adding a new section to Insurance Law §3240(b) which would provide that “a liability insurer may be sued for and the plaintiff may recover compensatory damages in excess of the limits of the policy when the insurer failed to effectuate prompt and fair settlement of the claim and considered its interests to the detriment of the insured so as to cause the rendering of a judgment in excess of the policy limits.” A summary of proposed bill can be viewed at:
http://assembly.state.ny.us/leg/?bn=A08004&term=2017
The full text of the proposed bill can be viewed at:
§3420 currently provides:
(b) Subject to the limitations and conditions of paragraph two of subsection (a) of this section, an action may be maintained by the following persons against the insurer upon any policy or contract of liability insurance that is governed by such paragraph, to recover the amount of a judgment against the insured or his personal representative:
(1) any person who, or the personal representative of any person who, has obtained a judgment against the insured or the insured's personal representative, for damages for injury sustained or loss or damage occasioned during the life of the policy or contract;
(2) any person who, or the personal representative of any person who, has obtained a judgment against the insured or the insured's personal representative to enforce a right of contribution or indemnity, or any person subrogated to the judgment creditor's rights under such judgment; and
(3) any assignee of a judgment obtained as specified in paragraph one or paragraph two of this subsection, subject further to the limitation contained in section 13-103 of the general obligations law.
N.Y. Ins. Law § 3420 (McKinney)
The new proposed bill provides:
The People of the State of New York, represented in Senate and Assembly, do enact as follows:
Section 1. Section 3420 of the insurance law is amended by adding a subsection (b-1) to read as follows:
(b-1) An action may also be maintained by the persons identified in
paragraphs one, two and three of subsection (b) of this section against the insurer to recover compensatory damages from such insurer to the full extent of the judgment against the insured, not limited to the policy limits and not subject to the limitations and conditions of paragraph two of subsection (a) of this section, where the insurer failed to effectuate a prompt and fair settlement of a claim or any portion thereof, and the insurer failed to reasonably accord at least equal or more favorable consideration to its insured's interests as it did to its own interests, and thereby exposed the insured to a judgment in excess of the policy limits.
***
(Proposed Bill A8004, emphasis supplied).
Thus, the first sentence of the proposed bill (“an action may be maintained by persons identified in paragraphs one, to and three) would allow injured claimants who obtain judgments against an insured to maintain claims against carriers in excess of policy limits, where the carrier fails to settle “thereby exposing the insured to a judgment in excess of the policy limits.”
This is a dangerous bill for clear reasons. Should a claimant bring a claim that could exceed the insured’s policy limits, and the carrier does not or cannot settle (take, for example. A $5,000,000 Labor Law claim, where the plaintiff would never accept a $1,000,000 settlement) the carrier could be on the hook for five times its policy limit or more, simply for being unable to settle. The proposed bill mentions nothing about reasonable efforts to settle; it mentions nothing of instances where settlement offers are rejected; there is not even a mention of what “prompt” or “fair” mean.
The New York Insurance Association (“NYIA”) is filing an Opposing Memo to the proposed Bill, in which it argues that the proposed bill is “unnecessary with an unwarranted imposition of substantial costs on all New York insurance consumers without any real additional benefit”, and that the bill, if adopted, would be “costly to the majority of New York policyholders and will actually slow down the payment of claims.”
NYIA’s Opposition points out that New York has already crated a remedy against bad faith through the Bi-Economy decision, and the current version of Ins. Law §2601, which permits DFS to penalize carriers for unfair settlement practices. NYIA points out, and your author agrees, that the proposed legislation ends up only benefitting plaintiff attorneys who are seeking large compensatory awards.
It is noteworthy that no other State allows aggrieved claimants to seek damages beyond the policy limits. A survey of the 50 States’ bad faith laws can be viewed at:
http://uphelp.org/sites/default/files/publications/Final%20-%20Bad%20Faith%20Survey.pdf
The proposed legislation, which goes further than any law in the nation, will serve only to increase claims costs exponentially, and with it, increase insureds’ premiums.
C. Senate Bill 6443
The State Senate’s proposed legislation, Bill 6443, seeking to amend N.Y. Ins. Law §2601 to allow a private right of action, can be found at:
https://www.nysenate.gov/legislation/bills/2017/s6643
The statute currently provides:
§ 2601. Unfair claim settlement practices; penalties
(a) No insurer doing business in this state shall engage in unfair claim settlement practices. Any of the following acts by an insurer, if committed without just cause and performed with such frequency as to indicate a general business practice, shall constitute unfair claim settlement practices:
(1) knowingly misrepresenting to claimants pertinent facts or policy provisions relating to coverages at issue;
(2) failing to acknowledge with reasonable promptness pertinent communications as to claims arising under its policies;
(3) failing to adopt and implement reasonable standards for the prompt investigation of claims arising under its policies;
(4) not attempting in good faith to effectuate prompt, fair and equitable settlements of claims submitted in which liability has become reasonably clear, except where there is a reasonable basis supported by specific information available for review by the department that the claimant has caused the loss to occur by arson. After receiving a properly executed proof of loss, the insurer shall advise the claimant of acceptance or denial of the claim within thirty working days;
(5) compelling policyholders to institute suits to recover amounts due under its policies by offering substantially less than the amounts ultimately recovered in suits brought by them;
(6) failing to promptly disclose coverage pursuant to subsection (d) or subparagraph (A) of paragraph two of subsection (f) of section three thousand four hundred twenty of this chapter; or
(7) submitting reasonably rendered claims to the independent dispute resolution process established under article six of the financial services law.
(b) Evidence as to numbers and types of complaints to the department against an insurer and as to the department's complaint experience with other insurers writing similar lines of insurance shall be admissible in evidence in any administrative or judicial proceeding under this section or article twenty-four or seventy-four of this chapter, but no insurer shall be deemed in violation of this section solely by reason of the numbers and types of such complaints.
(c) If it is found, after notice and an opportunity to be heard, that an insurer has violated this section, each instance of noncompliance with subsection (a) hereof may be treated as a separate violation of this section for purposes of ordering a monetary penalty pursuant to subsection (b) of section one hundred nine of this chapter. A violation of this section shall not be a misdemeanor.
N.Y. Ins. Law § 2601 (McKinney)
|
As discussed above, the statute currently does not permit a private right of action. The new prosed bill seeks to change this. The proposed bill provides: |
|
|
Section 1. The insurance law is amended by adding a new section 2601-a
2 to read as follows:
2601-A. UNFAIR CLAIM SETTLEMENT PRACTICES; CIVIL REMEDY.
An insurer doing business in this State shall be liable to the holder of a policy issued, issued for delivery for in this State or renewed pursuant to Article thirty-four of this Chapter for damages as provided in this section upon such policy holder proving by a preponderance of the evidence that such insurer’s refusal to pay or unreasonable delay by the insurer in payment to the policy holder of the amounts claimed to be due under a policy was not substantially justified.
(A) An insurer is not substantially justified in refusing to pay or unreasonably delaying payment when the insurer:
(1) Intentionally, recklessly, or by gross negligence fails to provide the policy holder with accurate information concerning policy provision concerning policy provisions at any time during the insurer-policyholder relationship, including but not limited to the claim after which a claim has been made by the policy holder;
(2) Failed to effectuate in good faith a prompt, fair and equitable settlement of a claim submitted by such policyholder in which liability of such insurer to such policyholder was reasonably clear;
(3) Failed to provide a timely written denial of a policyholder’s claim, in whole or in part, upon a thorough investigation of such claim, with a full and complete explanation of such denial or partial denial, including references to specific policy provisions or findings of fact as a result of such investigation wherever possible;
(4) Failed to make a final determination and notify the policyholder in writing of its position on both liability for, and the insurer’s valuation of a claim, within six months of the date on which it is received actual or constructive notice of the loss upon which the claim is based;
(5) Failed to act in good faith by compelling the policyholder to institute suit to recover amounts due under its policy by offering substantially less than the amounts ultimately recovered by such policyholder; or
(6) Failed to promptly proceed with the appraisal process once it has been demanded by a policyholder in any claim where coverage for apportion of the claim has been accepted by the insurer and a disagreement exists between the insured and the insure with respect to the value of covered property or the amount, or extent of the covered loss
(B) Any policyholder may recover damages, as provided in subsection (E) of this section, from an insurer subject to the of this section, from an insurer subject to the provisions of this section either as part of an action to recover under the terms of an insurance policy or in a separate action; provided, however, that the policy holder files with the insurer on a form approved by the superintendent and provided upon issuance of a policy and upon notice of a claim to the policy holder by the insurer notice of an intent to bring an action pursuant to this section, with a recitation of:
(1) the facts and circumstances giving rise to the action;
(2) the name or names of any employee, agent or legal representative, including but not limited to any independent adjuster whose services have been retained by the insurer for the purposes of adjusting the subject claim, involved in the claim, to the best knowledge of the policy holder; and
(3) reference to any specific policy provisions or language the policy holder considers the insurer to be in violation of, to the best knowledge of the policy holder.
An insurer who is the subject of the civil remedy notice shall have sixty days from the filing of the required notice to bring the claim to closure to the satisfaction of the policy holder and within the provisions of the underlying coverage provisions of the subject insurance policy, and the policy holder shall have no basis for an action thereon thereafter.
(C) the rights enumerated in this section are not the exclusive remedies available to the policy holder and do not preclude any common law claims or other statutory claims that may exist or rise.
(D) in any trial of a cause of action asserted against an insurer pursuant to this section, evidence of settlement discussions, offers to compromise, loss reserves amounts, and any other evidence of the claims settlement process of the subject claim, whether such evidence is writ ten and verbal, shall be admissible.
(e) a policy holder may recover:
(1) actual damages;
(2) consequential damages;
(3) reasonable attorney's fees or other fees incurred by the insured
to enforce the claim at any stage thereof; and
(4) interest at twice the statutory rate reflected in section five
thousand four of the civil practice law and rules, to be measured from
The date of breach or the date sixty days after the filing with the insurer of a sworn proof of loss, whichever is earlier?
For the purposes of consequential damages, it shall be presumed that
Such consequential damages were reasonably within the contemplation of
The parties at the time of contracting.
(F) All amounts recovered from an insurer in any action authorized by
This section other than actual damages shall be excluded by the insurer
In any rate filing to be submitted to the superintendent and shall not
Constitute any portion of a premium charged to any policy holder.
Furthermore, the existence or resolution of a dispute subject to this
Section shall not be considered in any decision to issue, issue for
Delivery in the state or renew any policy to a policy holder.
S 2. This act shall take effect on the one hundred eightieth day after
It shall have become a law, and shall apply to all policies issued,
Issued for delivery in the state, or renewed on or after such date, and
Provided, further, shall apply to all claims pending or initiated on or
After such date.
***
Many portions of this proposed bill could have the opposite effect of facilitating settlement: Subsection (D), for example, which seeks to make settlement negotiations admissible, will have a chilling effect on settlement discussions. Likewise, setting a bright-line six month rule to determine claims (Subsection (A) (4)), when it is possible that the carrier would only have scant information regarding a claim, will stifle, not promote, the “fair and equitable” review and resolution of a claim. Section (A)(2), which makes it bad faith where a carrier “failed to effectuate in good faith a prompt, fair and equitable settlement of a claim submitted by such policyholder” will increase costs. What is “prompt.”? How can a “fair” settlement be reached without full investigation? It’s like that old joke: You can have it done fast or you can have it done right, but not both.
Subjecting a carrier to paying interest at “twice the statutory rate” on losses, a mere sixty days after being notified of a loss (subsection (D)(4)) will do nothing more than increase claims and litigation costs to prohibitively expensive levels.
By and large these proposed bills, though styled as means to protect insureds, will only serve to complicate and stifle settlements, increase claims costs, increase litigation and line the pockets of plaintiffs’ attorneys. We urge any of you interested in fighting this unfair legislation to contact your lawmaker to express your disapproval.
You can contact Senate to voice your concerns at:
https://www.nysenate.gov/contact
You can find your State Senator to write directly by registering at:
https://www.nysenate.gov/registration/nojs/form/start/find-my-senator
You can find and contact your Assembly representative through the following links:
http://assembly.state.ny.us/mem/search/
http://assembly.state.ny.us/mem/
OFF THE MARK
Brian F. Mark
[email protected]
06/06/17 Fletch’s Sandblasting & Painting, Inc. v. Colony Ins. Co.
U.S. District Court, District of New Hampshire
New Hampshire Federal Court Holds that Costs to Repair Inferior Work do not Constitute a Covered Occurrence Under a Commercial General Liability policy
In this declaratory-judgment action, Fletch’s Sandblasting and Painting, Inc. (“Fletch’s”) sought a determination that it is entitled to coverage under a commercial general liability policy issued by Colony Insurance Company (“Colony”) relative to an underlying complaint filed against it by Thick Tech Systems, Inc. (“Thick Tech”). The underlying complaint alleges that the United States Navy retained Methuen Construction Company (“Methuen”) as a general contractor to make repairs at the Portsmouth Naval Shipyard. Methuen subcontracted with Fletch’s to strip, repair, prime and finish certain structures with an intumescent fireproofing product. Fletch’s, in turn, subcontracted the application of the fireproofing material to Thick Tech, but remained responsible for preparing (repairing and priming) the structures’ surfaces beforehand.
Fletch’s allegedly performed the preparation work negligently, in an unworkmanlike manner, and not in accordance with the job specifications. As a result, when Thick Tech later applied the fireproofing material, it failed to adhere. Fletch’s then allegedly induced Thick Tech to expend and commit further time and resources to correct defects caused by Fletch’s poor workmanship by promising Thick Tech that it would be paid for the additional work and supplies. Fletch’s failed to pay Thick Tech in full.
As a result, Thick Tech sued Fletch’s for breach of contract, quantum meruit, fraudulent inducement and negligence. The negligence claim, the only relevant claim in this matter, asserts that Fletch’s was negligent because it failed to properly prepare the surfaces, failed to follow the job specifications, misrepresented the adequacy and compatibility of the products Fletch’s applied to the surfaces and failed to adequately protect the work from the weather.
The Colony policy contains a standard grant of coverage where coverage for “bodily injury” or “property damage” is provided only if caused by an “occurrence”. “Occurrence” is defined as an accident, including continuous or repeated exposure to substantially the same general harmful conditions. The policy also contains an exclusion for “property damage” to that particular part of any property that must be restored, repaired or replaced because ‘your work’ was performed incorrectly on it.
Colony filed a motion for summary judgment on the ground that there is no coverage for faulty workmanship claims. The first ground relied on by Colony is that the negligence claim is not covered because the property damage that gave rise to the claim was not caused by an “occurrence”. In the alternative, Colony argued that even if there was an “occurrence”, Fletch’s is not entitled to coverage because its claim arises out of a type of property damage that is specifically excluded from coverage.
In the underlying action, Thick Tech alleges that the costs it seeks to recover from Fletch’s were incurred because Fletch’s negligently performed the surface preparation work on the structures Thick Tech agreed to fireproof. It is well settled law in New Hampshire that defective work, standing alone, does not constitute an occurrence, because the fortuity implied by reference to accident or exposure is not what is commonly meant by a failure of workmanship. Rather, coverage is only triggered when the defective workmanship causes damage to property other than the work product.
In analyzing the coverage issues, the Court concluded that Thick Tech’s claim was likely for the labor and material costs incurred to strip the unsuccessfully fireproofed surfaces, redo the surfaces, and reapply the fireproofing material. Based on this analysis, the Court held that Thick Tech’s claim was a non-covered claim for defective workmanship because the costs sought to be recovered were incurred to repair Fletch’s defective work rather than to compensate Thick Tech for damage to other property that resulted from the defective work. In holding that the underlying complaint did not assert a covered occurrence, the Court noted that CGL policies are designed to insure against fortuitous, unanticipated events that give rise to tort liability for physical injury to the person or property of others. CGL policies are not designed to cover business risk itself, which occurs as a consequence of the insured not performing well. Accordingly, a CGL policy does not include coverage for a contractor’s failure of workmanship, even where another contractor detrimentally relies on or remediates it.
Lastly, the Court examined the exclusion contained in the Colony policy excluding claims that stem from property damage to that particular part of any property that must be restored, repaired or replaced because ‘your work’ was performed incorrectly on it. Rejecting Fletch’s claim that the exclusion only applies if the damaged property that gives rise to a claim against an insured is owned by the party that brings the claim, the Court held that the exclusion applies regardless of whether Thick Tech owns the property it repaired. As such, the exclusion was found to be applicable and bar coverage even if the property damage that gave rise to the claim was caused by an “occurrence”.
In light of the above findings, the Court granted Colony’s motion for summary judgment.
Earl K. Cantwell
[email protected]
03/09/17 Colony Insurance Company v. Victory Construction, LLC
United States District Court, District of Oregon
Carbon Monoxide Not Covered Due To Pollution Exclusion
A District Court in Oregon recently held that carbon monoxide that was the subject of an underlying action constituted a “pollutant” within the meaning of the pollution exclusion in a CGL policy. The Court began its analysis with some standard insurance coverage interpretation axioms. Under Oregon law, the insured bears the burden of proving coverage, while the insurer has the burden of proving an exclusion to coverage. If a complaint against an insured does not contain allegations of covered conduct, the insurer has no duty to defend or indemnify. The courts construe insurance policy exclusions narrowly. Oregon law adheres to the “four corners” concept, meaning that interpretation of an insurance policy generally is a question of law confined to the “four corners” of the policy without regard to any extrinsic evidence. The Federal Court noted that its task in a diversity action is to try to determine and apply state law as closely as possible, and apply and enforce state law without regard to the federal forum.
The Court noted initially that court decisions addressing the pollution exclusion generally fall into two categories. Some courts apply the exclusion literally because they find the terms to be clear and unambiguous. Some courts have applied the exclusion to carbon monoxide poisoning. Other courts have limited the pollution exclusion to situations involving typical “environmental pollution”, either because they find the terms of the exclusion ambiguous, or because they find that a different interpretation would contradict a policyholder’s reasonable expectation.
None of the parties, nor the Court, could find an Oregon court case providing guidance on how to assess the scope of the pollution exclusion with respect to carbon monoxide. The Court concluded that the only plausible interpretation of the policy was that carbon monoxide is a pollutant, and thus covered by the pollution exclusion. Therefore, the insurance company had no duty to defend or indemnify the contractor in the underlying lawsuit.
The language in question defined a pollutant as any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. The insured argued that carbon monoxide was neither an irritant nor a contaminant. The insurance company, on the other hand, asserted that under the policy definition carbon monoxide was included, and the Court agreed that under the policy language carbon monoxide is either an irritant or a contaminant, and thus a pollutant under the exclusion. While not finding any Oregon authority on point, the court did point to other courts that have concluded that carbon monoxide is a “pollutant” as defined in various pollution exclusion clauses.
This case presents a good primer on traditional norms of policy interpretation, and on how courts approach insurance coverage issues. This case also represents yet another good example of a Federal District Court sitting in a diversity case attempting to determine what is the law of the state, often in the absence of clear or compelling state court legal precedent.
