Volume XVIII, No. 3 (No. 459)
Friday, July 29, 2016
A Biweekly Electronic Newsletter
Hurwitz & Fine, P.C.
1300 Liberty Building
Buffalo, NY 14202
Phone: 716-849-8900
Fax: 716-855-0874
Long Island Office:
535 Broad Hollow
Melville, New York 11747
Phone: 631-465-0700
Fax: 631-465-0313
www.hurwitzfine.com
© Hurwitz & Fine, P. C. 2016
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.
Greetings from La Malbaie, Charlevoix, Quebec, where I am attending the Annual Meeting of the Federation of Defense & Corporate Counsel. As part of a great panel of lawyers, I took part in the FDCC’s initial Coverage Masters’ Program speaking on the protection of the attorney client privilege with regard to cover opinions. Good stuff.
Pardon the brevity but I’m dancing between meetings and functions.
Few decisions from the Courts this week as decisions generally slow to a trickle during the dog days of summer.
Introducing, Howard Altman, the newest member of the H&F Coverage Team:
Resident in our Melville Office, we are pleased to introduce Howard Altman, a well-experienced coverage lawyer, who has joined our Melville staff.
Howard Altman focuses his practice on insurance coverage and appellate litigation. He has litigated declaratory judgment actions in state and federal courts, arising under health, life, auto and commercial general liability policies. He also has experience in ERISA litigation, having defended insurance carriers against claims for life, medical and disability benefits under ERISA-governed plans throughout the country. He has advised carriers on ERISA preemption, fiduciary responsibility, Social Security integration, Medicare rights, and deceptive trade practices.
Howard also has extensive experience in appellate and motion practice involving Labor Law §§ 200, 240(1), 241(6), premises liability, general negligence and insurance coverage disputes, and has obtained favorable decisions on behalf of carriers and insureds in the First and Second Departments of the Appellate Division.
He earned his J.D. from Hofstra School of Law where he served as Associate Editor for the Labor & Employment Law Journal. He is looking forward to a long and happy career at Hurwitz & Fine, and is thrilled to be part of the coverage and litigation team.
Howard added: “I am an avid baker, especially if chocolate is involved. I play the piano, but only by ear, and I spend my weekends in the backyard, with my crazy Goldendoodle, Barney.”
Welcome aboard Howard! We will need to find you a CP column.
Announcing:
2016 LAW SCHOOL FOR INSURANCE PROFESSIONALS
Co-sponsored by the NYSBA Torts, Insurance & Compensation Law Section (TICL) and New York Insurance Association, Inc. (NYIA)
Join insurance industry professionals and their counsel for a unique program involving direct interaction between some of New York’s top insurance and defense attorneys and the industry they serve. Law School for Insurance Professionals is a full-day seminar where coverage and defense attorneys share their knowledge and experience with insurance professionals from around the State. This course does not carry MCLE or CE credit. Attendees will receive a certificate of attendance.
Attend to receive insights and updates on current legal issues that the savvy insurance professional won’t want to miss.
New York City | September 15, 2016
NYS Insurance Fund | 199 Church Street, New York, NY 10007
Buffalo | September 16, 2016
University at Buffalo School of Law | O'Brian Hall (Room 104), Buffalo, New York 14260
Albany | September 16, 2016
New York State Bar Center | One Elk Street, Albany, NY 12207
Long Island | September 22, 2016
Touro Law School | 225 Eastview Drive, Central Islip, NY 11722
Time: 9:00am-4:20pm (lunch is included)
Cost including lunch and program book:.
-
Registration fee: $105
-
Group rate (5 or more from the same company): $95 each
-
10% discount for New York Insurance Association (NYIA) or TICL Section members ($94.50 individual, $85.50 group rate)
-
Law Student: $15
Registration:
By Phone: (800) 582-2452 (M-F, 8am-5pm). Please mention the event code for your location: NYC (TICLIPNY16) | Buffalo (TICLIPBU16) | Albany (TICLIPAL16) | Long Island (TICLIPLI16)
Questions? Contact [email protected] or call Kathy Plog at (518) 487-5681.
Program Agenda:
8:30-8:55am Registration
8:55-9:00am Welcome and Announcements
9:00-9:50am Claims Investigations
9:50-11:00am Interactive Presentation with an Expert Engineer: Homeowner's Insurance
11:00-11:10am Break
11:10-12:05pm Claims Handling Practices
12:05-1:05pm Networking Lunch (included)
1:05-2:00pm The Construction Site Accident
2:00-2:55pm Premises Liability
2:55-3:05pm Break
3:05-4:15pm Interactive Presentation: Verdict, Value, and Settlement: How Much is This Case Worth?
4:15-4:20pm Closing Remarks and Adjournment
Program Faculty includes Jen Ehman and Dan Kohane in Buffalo and Steve Peiper in Albany
Barnas on Bad Faith:
Hello again:
Having made it back from South Carolina relatively unburnt, this week I am enjoying something that is rare among the coverage lawyers here at Hurwitz & Fine: an entire week of working from my office. However, I did have the pleasure of attending the CLM Upstate New York Chapter networking event aboard the USS Little Rock on Tuesday with Steve Peiper. It was a wonderful event and a pleasure to meet many claims professionals and members of the coverage bar from Western New York.
As many familiar with Buffalo know, the USS Little Rock is a decommissioned United States Cleveland-class light cruiser that calls the Buffalo and Erie County Naval & Military Park home. To get to the event, I had to walk through the Naval Park. As I was walking through I couldn’t help but notice dozens of people walking around aimlessly looking at their phones. While seeing people walking around looking at their phones is hardly abnormal in 2016, seeing so many gathered in one place is a bit odd. Until recently that is.
You see, the Naval Park is home to numerous PokeStops. If you don’t know what a PokeStop is you probably have not been swept up in the cultural phenomenon that is Pokemon Go. As for me, I snagged a couple of Pidgeys and Weedles on my way from the ship back to my car. My hard work was rewarded as I acquired sufficient Pidgey candies to evolve my Pidgeotto into a Pidgeot and enough Weedle candies to evolve my Kakuna into a Beedrill. If you have no idea what that means you probably didn’t grow up in the nineties like I did. However, our own Steve Peiper has you covered this week with an outsider’s prospective on Pokemon Go.
The well of New York extra-contractual liability cases remains dryer than my rain-deprived lawn. Thus, we look elsewhere once again this week. In MI Windows, the Middle District of Florida considered two interesting issues: (1) whether failure to raise a bad faith claim in a prior action based on breach of the insurance contract precluded the plaintiff from making the claim in a later action; and (2) whether the insured’s failure to settle claim, brought seven years after settlement, was time-barred by the statute of limitations. Unfortunately for the insurer, the court concluded that the plaintiff could bring its failure to settle claim and that it was not time barred.
In Treo Staffing, the Middle District of Louisiana concludes that there is no coverage for the plaintiff for unpaid wages it was required to pay to its employees by the Department of Labor. As there is no coverage, the court also ruled that there was no basis for bad faith based on the insurer’s failure to pay.
See you next time.
Signing off,
Brian
Brian D. Barnas
Editor’s Note: I did not understand one word of it.
Marital Discord – 100 Years ago:
The Brooklyn Daily Eagle
Brooklyn, New York
29 Jul 1916
HE WOOS AND RUNS AWAY
Takes Fiancées’ Money With
Him—Victims Complain.
A man who proposes to women, gets them to mortgage their property and give him the money, and then breaks the engagement by default, taking the mortgage money with him, is being sought by District Attorney O’Leary of Queens County today. Even the engagement rings that the man buys and leaves with his victims turn green with use, it is said.
No less than four women have complained to his office recently that they have been mulcted of sums from $500 to $1,600. One of the women is a nurse in the Rockaways and was taken in to the tune of $1,200. Another woman, a widow living in Elmhurst, told the District Attorney that she had mortgaged property for $1,600, and that the man has it all. The third victim lives in the Bronx, and parted with $500. The fourth of the group is a Ridgewood woman, and contributed $1,000 to the treasury of the multiple suitor.
None of the names were given out by the District Attorney today.
HEWITT’S HIGHLIGHTS:
Dear Subscribers:
We are in the summer slowdown and as such, I only have one case for you today. The Second Department dismissed a claim alleging a 90/180-category of serious injury. Defendant’s successfully had that dismissed on summary judgment by submitting deposition testimony from plaintiff that showed she only missed two days of work following the accident. While that is not determinative, the courts often look to how much work time was missed following an accident for this category and seem to place much weight on it. It is important in a deposition for a defendant to explore all of the activities plaintiff is claiming she can no longer do in detail, as well as how much work time was missed. This category often winds up surviving if the record is not properly developed at deposition.
It is has been hot on Long Island and the heat wave continues. I hope you are having some fun this summer and staying cool.
Until next time,
Rob
Robert Hewitt
[email protected]
He Danes to Survive – A Century Ago:
The New York Times
New York, New York
29 Jul 1916
King of Denmark
Escapes Drowning
LONDON, July 28.—King Christian of Denmark had a narrow escape from drowning this afternoon through the capsizing of a boat which he was sailing near Aarhus, says a Reuter dispatch from Copenhagen.
The King went out alone in a small sailboat and a sudden puff of wind capsized the craft, throwing the King into the water.
The King swam to the overturned craft, and, pulling himself upon it, sat astride the keel, where his plight was observed from the shore. Boats immediately hastened to his assistance and rescued him, none the worse for his immersion.
It’s About Time – 100 Years Ago:
The New York Times
New York, New York
29 Jul 1916
BARS OPIUM AND COCAINE
Royal Proclamation Forbids Imports
Into United Kingdom
LONDON, July 28.—The importation of opium and cocaine into the United Kingdom is prohibited by a royal proclamation issued today.
There has been considerable agitation lately in this country against the sale of cocaine, which, it is said, has been used in increasing quantities during the last few years and, particularly, has become the habit of many people since the war began.
Wilewicz’ Wide (or Wild) World of Coverage:
Dear Readers,
While New York State courts may be in a summer slump, the Circuit Courts have yet to take their summer vacations. This week in the Wild World of Coverage, we have cases from Maryland, Illinois, and Ohio for your reading pleasure.
First, in Ellicott City Cable v. Axis, out of the District Court of Maryland, a pseudo-cyber liability case involving the definition of the term “data”. Ellicott City was sued by DirecTV for allegedly splicing its satellite TV feeds and providing them to more residents than they should have been. So, DirecTV sued for that, and threw in a claim for fraud. Axis disclaimed coverage because of two exclusions, one excluding claims for unauthorized use of data and one excluding claims for intentional unauthorized access into data. Long story short, the District Court found that the term “data” was ambiguous at best, but was not meant to include TV signals, which come in both digital and analog. Moreover, since the fraud allegation was thrown in, there was at least a duty to defend the claim.
Next, in Cincinnati Insurance v. H.D. Smith, out of the Seventh Circuit, we have a “public nuisance” case for which coverage was found. Here, the state of West Virginia sued H.D. Smith, a drug manufacturer, for contributing to the state’s epidemic of prescription drug use. The state had quantifiable damages as a result of having to help those citizens affected, and so they sued a number of drug companies. H.D. Smith’s policy provided coverage for damages alleged “because of bodily injury”, which the court found to be broader than other policies which provided coverage “for bodily injury”. Here, since the state alleged damages because of bodily injury, the duty to defend that claim was triggered, as it was potentially covered.
Finally, in Construction Contractors v. Federal, we have a known loss case. Construction Contractors was victim to an employee theft that spanned many years. They bought an insurance policy, notified the carrier of the claim prior to inception, but did not learn of the exact details of the fraud until after the policy was bound. The Sixth Circuit held, in light of the policy’s terms, there was no coverage. While the policy contained a Loss Discovered option, the insured knew of the crime before and it constituted one loss (it was essentially just one employee). Remember kids, insurance coverage is meant for future, fortuitous events, not as recompense for something you know about.
See you all in a couple of weeks!
Agnes
Agnes A. Wilewicz
The Wisdom of Solomon, A Century Ago:
The Sun
New York, New York
29 July 1916
Tooth for Tooth, Court’s Ruling.
San Francisco, July 28.—“An eye for an eye and a tooth for a tooth,” was the verdict of Police Judge Oppenheim when William Bernstein and Robert Cuthbertson, newsboys, appeared before him on a charge of disturbing the peace, by engaging in a fist fight in which Cuthbertson lost a front tooth.
They were released after Judge Oppenheim had ordered Bernstein to get Cuthbertson a new tooth.
Peiper’s Popped a Screw:
We start by thanking our friends at CLM for hosting a nice event on Tuesday in the Buffalo harbor. Beautiful weather, cold drinks and an opportunity to catch up with folks who actually live in the 716 area code. You know you travel a fair amount when colleagues start the conversation with the inevitable “haven’t seen you in a long time.” My advice to them is to hang out by the Jet Blue gates at the airport, and you’re bound to see a H&F coverage lawyer.
I was glad that Brian joined us for the event, if for nothing else, than helping to explain the absurdity of this Pokemon thing. I have never felt so out of the loop as I am with the Pokemon craze – and yes it is a craze. Go to a park this weekend, and look around if you don’t believe me. While I recognize I am not a leader of pop culture anymore, usually I have some understanding of what is going on.
My grasp, apparently, is becoming decidedly more tenuous.
Perhaps I have passed the Rubicon, but I don’t understand the app, the reason why you would ever want to “play” it, and what enjoyment people apparently derive from it. What’s more, honestly, I don’t want to understand, and I’m fairly relieved I don’t want to understand it.
If you, however, give a hoot, I offer a brief sane people’s guide to Pokemon as adopted from, where else, Wiki. There are several “Pokemon,” and while the unindoctrinated might call the characters, I have been advised that is seriously “uncool.” There are a series of these things, and some of the more popular ones…or so I’ve told include:
Pikachu (ピカチュウ Pikachū) are mouse-like creatures, and were the first "Electric-type" Pokémon created, their design intended to revolve around the concept of electricity.They appear as mouse-like creatures that have short, yellow fur with brown markings covering their backs and parts of their lightning bolt shaped tails. They have black-tipped, pointed ears and red circles on their cheeks, which can spark with electricity. In Pokémon Diamond and Pearl, gender differences were introduced; a female Pikachu now has an indent at the end of its tail, giving it a heart-shaped appearance. They attack primarily by projecting electricity from their bodies at their targets. Within the context of the franchise, a Pikachu can transform, or "evolve" into a Raichu when exposed to a "Thunderstone". In later titles an evolutionary predecessor was introduced named "Pichu", which evolves into a Pikachu after establishing a close friendship with its trainer.
Pidgey (ポッポ, Poppo), known as the Tiny Bird Pokémon, resembles a small, plump-bodied bird. It is a brown color, with a lighter colored throat and belly. The tips of its wings share this cream color. Both its feet and beak are a pinkish-gray color. Its plumage is fairly nondescript, particularly compared to its evolutions Pidgeotto and Pidgeot. It has black markings around its eyes and a small crest of brown and cream feathers above its eyes. Pidgey are docile and prefer to avoid conflict. If disturbed, however, it can ferociously strike back and will use its wings to stir up clouds of sand in an attempt to distract its would-be opponent and escape. Pidgey also uses this technique to bring its preferred prey of small insects into the open. Pidgey seems to possess magnetoception, as it is capable of returning to its nest from any location without fail.
Loredana Lipperini, author of Generazione Pókemon: i bambini e l'invasione planetaria dei nuovi, commented that while Pidgey's name was based on pigeon, it more closely resembled a sparrow. GamesRadar editor Brett Elston attributed Pidgey's popularity to being commonly seen in the anime as well as being a solid Pokémon. The Independent described Pidgey as a "cute-looking monster" and a "moderately angry pigeon."
Charizard (リザードン Rizādon, Lizardon) is the evolved form of Charmeleon, which is the evolved form of Charmander. Whereas its pre-evolutions Charmander andCharmeleon are ground-bound lizard-like creatures, Charizard resembles a large traditional European dragon. Charizard are primarily orange, with blue-green wing membranes and a cream-colored belly. The video games describe Charizard as having wings that can carry them close to an altitude of 4,600 feet, flying across the sky and constantly seeking powerful opponents to challenge. They can breathe intense flames that can melt any material, but will never use their fire breath on a less powerful opponent. If Charizard become angry, the flame at the tip of their tail can flare up in a whitish-blue color.[40] Because of their reckless behavior, Charizard are known to unintentionally cause wildfires.
Squirtle (ゼニガメ, Zenigame) is the Tiny Turtle Pokémon, capable of moving either on two feet or on all fours. Their skin is a light blue, and they possess a long, curled tail. When feeling threatened, Squirtle withdraw their limbs into their brown-orange shells and spray water from their mouth with great force, either to attack their opponent or merely to intimidate it. If attacked anyway, their shells are extremely resilient, and provide excellent protection. It shelters itself in its shell, then strikes back with spouts of water at every opportunity. Squirtle's shell is not merely used for protection. The shell's rounded shape and the grooves on its surface help minimize resistance in water, enabling this Pokémon to swim at high speeds.
Again, we thank Wiki for assisting me to prepare the most ridiculous column I’ve ever typed.
By the way, lest you think this has no relevance to the real world, at least one Presidential Campaign is using the app (or the apps power to move people) as a way to troll for potentially unregistered voters. Just today, Forbes released an article discussing the loss of productivity of American workplaces. It has more users that Twitter, and people are spending more time on it than Facebook.
Yes, the collapse of humankind is closer to us with each passing day. Happy Friday!
Steve
Steven E. Peiper
Editor’s Note: Thanks for that gibberish. Next column, maybe a focus on coverage issues relating to the craze, Steve, unless the fad is over by then. We can only hope.
Signs Signs, Everywhere is Signs
The Sun
New York, New York
29 July 1916
Overlooked Their Own Sign
PHILADELPHIA, July 28.—While Dayton Dickerson, 31, of Philadelphia and Joseph B. Turner, 20 of Glassboro, N. J., were painting a sign warning others of danger at a crossing of the Pennsylvania Railroad in Pennsauken Township they were run down by a train. Dickerson was killed and Turner severely injured.
Phillips Federal Philosophies.
Hello, All:
Welcome to the time of year where people slowly fade away, Langoliers’ style*, to mysterious places called “lake houses” and “beach condos.” I worry about these disappearances and feel that it is my duty to explore this phenomenon further – for safety. I unfortunately lack access to such far-off lands, so, should anyone wish to contribute to the research, feel free to send cottage keys and boathouse passwords on over to the office….
Two cases this week: In the first, Pettengill v. Fireman’s Fund the District of Connecticut recognizes and considers whether an insurer has the right to a set-off in the amount paid to an insured’s mortgagee in an action by the insured, despite the insurer claiming that the policy was void due to the insured’s fraud. Next, the district court in University of Pittsburgh v. Lexington Ins. Co. and AXIS Ins. Co. considers the strict notice requirements under a claims-made policy. Full disclosure, although not in the batter’s box on this particular set of motions, Hurwitz & Fine represents AXIS in this matter.
(*Gratuitous Stephen King reference. You’re welcome.)
As always, thanks for reading.
J.
Jennifer J. Phillips
Help Wanted – One Hundred Years Ago Today:
The Scranton Republican
July 29, 2916
Experienced or unexperienced (sic) men from 21 to 30 to travel in vaudeville as hypnotic subjects. Apply Room 13-14 Burr Building between 11 a.m. until 2 p.m.
Tessa’s Tutelage:
Dear Readers,
This week In the land of litigation we have Chirocare Chiropractic Assoc. v State Farm Mut. Auto. Ins. Co. where the court finds that the District Court incorrectly dismissed an entire action on the basis that defendant objected to payments in excess of the Worker’s Compensation Fee Schedule. The Court held that the District Court should have first reviewed Defendant’s claim that the treatments were not medically necessary. In Hu-Nam-Nam v New York Cent. Mut. Fire Ins. Co., the Court held that when a doctor bills for services that were rendered by her employee, she cannot list her own social security number. Instead, an employer identification number must be used.
I am pleased to bring you an arbitration case. In Shalise Carter v. A. Central Insurance Company, Arbitrator Murphy-Louden reconsidered the issue of standing based upon revocation of assignment. She held that a medical provider may only revoke/release the assignment when benefits are not payable because of lack of coverage and/or when the injured party violates a policy condition through his or her own actions or conduct.
On a more personal note, please cheer Hurwitz & Fine on as we try to remain eligible for the playoffs!
Tessa
Tessa R. Scott
News from Canada, Courtesy of our friends at Field Law
The Alberta government has announced that it is in the process of updating the regulations involved in the 2004 auto insurance reform, namely the Minor Injury Regulation, Alta Reg 123/2004; the Diagnostic and Treatment Protocols Regulation, Alta Reg 116/2014; the Automobile Accident Insurance Benefits Regulations, Alta Reg 352/1972 (re Section B benefits) and the Automobile Insurance Premiums Regulation, Alta Reg 117/2014. The government has published a Consultation Paper with respect to each of these regulations and has invited stakeholders to submit their views with respect to these regulations by August 31, 2016. The Alberta Civil Trial Lawyers Association (representing the local Plaintiffs' Bar) is expected to respond. Insurers may wish to do so as well.
Summary of This Week’s Decisions, in the Attached Issue:
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
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The Owner Failed to Establish that the Contractor Breached its Obligation to Provide it with Additional Insured Status
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No Proof Offered that there was a Failure to Use Commercially Reasonable Efforts to Have Party Added as an Additional Insured
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
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Plaintiff Could Not Meet the 90/180-Day Category of Serious Injury Where She Only Missed Two Days of Work Following the Accident
TESSA’S TUTELAGE
Tessa R. Scott
[email protected]
Litigation
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District Court Erred When It Granted the Summary Judgment Motion On The Basis Of Excessive Fee Schedule Charges Without First Considering Medical Necessity
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Where A Doctor Bills For Services Performed By That Doctor's Employee, It Is Impermissible For the Doctor To Bill Using His Or Her Own Social Security Number
Arbitration
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A Medical Provider May Only Revoke/Release the Assignment When Benefits are Not Payable Because of Lack Of Coverage and/or When The Injured Party Violates a Policy Condition Through His or Her Own Actions or Conduct
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
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District Court of Maryland Finds That Television Programming Is Not “Data” Under Multimedia Liability Policy, Holding Term Ambiguous At Best
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Applying Illinois Law, Seventh Circuit Finds Duty to Defend Triggered in Suit By the State of West Virginia Against Drug Manufacturer Alleging “Public Nuisance”
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Sixth Circuit, Applying Ohio Law, Finds No Coverage for Employee Theft Known Prior to Policy Inception
JEN’S GEMS
Jennifer A. Ehman
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Court Finds that Primary Non-Contributory Endorsement Overrides Self-Insured Retention
BARNAS ON BAD FAITH
Brian D. Barnas
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Insured was Not Precluded from Raising a Bad Faith Failure to Settle Claim by its Failure to Raise the Claim in a Prior Breach of Insurance Contract Action
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No Coverage under the Policy Equals No Bad Faith for Failure to Pay
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PHILLIPS’ FEDERAL PHILOSOPHIES
Jennifer J. Phillips
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The Set Off is On
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Strict Notice Requirements under Claims-Made Policies
EARL’S PEARLS
Earl K. Cantwell
[email protected]
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Insurance Company Wins Race To the Courthouse
That’s all there is and there ain’t no more. Have a lovely couple of weeks and we’ll see you back home.
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
Audrey A. Seeley
ASSISTANT EDITOR
Jennifer A. Ehman
INSURANCE COVERAGE TEAM
Dan D. Kohane, Chair
[email protected]
Steven E. Peiper, Co-Chair
Michael F. Perley
Audrey A. Seeley
Jennifer A. Ehman
Patricia A. Fay
Agnieszka A. Wilewicz
Jennifer J. Phillips
Brian D. Barnas
Howard B. Altman
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
Audrey A. Seeley, Team Leader
[email protected]
Jennifer A. Ehman
APPELLATE TEAM
Jody E. Briandi, Team Leader
[email protected]
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
Earl’s Pearls
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
07/28/16 Rodriguez v. Heritage Hills Society, Ltd.
Appellate Division, First Department
The Owner Failed to Establish that the Contractor Breached its Obligation to Provide it with Additional Insured Status
The owner failed to establish prima facie that the contractor breached its contractual obligation to procure an insurance policy naming it as an additional insured. The insurance policy procured by MJC defines an additional insured as "any person or organization to whom the Named Insured has agreed by written contract to provide coverage." The owner submitted no evidence that it has not been insured by the contractor’s insurance company.
07/26/16 Marquez v. L & M Development Partners, Inc.
Appellate Division, Second Department
No Proof Offered that there was a Failure to Use Commercially Reasonable Efforts to Have Party Added as an Additional Insured
Marquez was hurt while working as a laborer at a worksite owned by 11 Broadway. He fell one story through a plywood-covered hole in the floor of a ramp. The general contractor was Congress Builders (CB”). 11 Broadway had entered into a contract with Pro Safety Services, LLC (“PSS”), wherein PSS agreed to provide "loss control and safety consulting services" at the work site (“Consultant Agreement”).
The plaintiff sued the GC Congress Builders, and PSS, alleging violations of Labor Law §§ 200, 240(1), and 241(6), and common-law negligence. PSS and 11 Broadway asserted cross claims against each other for, among other things, indemnification and contribution. PSS then commenced a second-third party action against 11 Broadway s, contribution and common-law indemnification, and the failure to use commercially reasonable efforts to cause Congress Builders and its subcontractors to name PSS as an additional insured on their liability insurance policies. 11 Broadway Affordable and 11 Broadway Residential counterclaimed in the second third-party action for, inter alia, contribution, common-law indemnification, and contractual indemnification against PSS.
On the claim that that 11 Broadway failed to procure insurance naming PSS as an additional insured, there must be proof that a contract provision required that such insurance be procured and that the provision was not complied with'".
The Consultant Agreement only required 11 Broadway Residential and 11 Broadway Affordable to "use commercially reasonable efforts" to have PSS named as an additional insured on Congress Builders' and its subcontractors' liability insurance policies. PSS failed to submit any evidence to demonstrate that 11 Broadway did not use commercially reasonable efforts to cause PSS to be named as an additional insured.
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
07/27/16 Ferazzoli v. Hamilton
Appellate Division, Second Department
Plaintiff Could Not Meet the 90/180-Day Category of Serious Injury Where She Only Missed Two Days of Work Following the Accident
The defendant met his prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendant submitted competent medical evidence establishing, prima facie, that the alleged injury to the injured plaintiff's lumbar 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 addition, the defendant demonstrated, prima facie, that the injured plaintiff did not sustain a serious injury under the 90/180-day category of Insurance Law § 5102(d) by submitting a transcript of the injured plaintiff's deposition testimony, which demonstrated that she missed only two days of work following the accident.
TESSA’S TUTELAGE
Tessa R. Scott
[email protected]
Litigation
07/20/16 Chirocare Chiropractic Assoc. v State Farm Mut. Auto. Ins. Co.
Appellate Term, Second Department
District Court Erred When It Granted the Summary Judgment Motion On The Basis Of Excessive Fee Schedule Charges without First Considering Medical Necessity
Defendant moved for summary judgment dismissing the complaint, asserting that it had timely and properly denied the claims at issue on the ground of lack of medical necessity. Defendant also argued that a portion of each claim sought to be recovered was in excess of the amount permitted by the workers' compensation fee schedule and such excess amount should be dismissed.
Defendant's denial of claim forms indicated that no payments had been made on the claims merely that the fees were over the allowable amount. Plaintiff made no arguments regarding the fee schedule issue. The District Court granted defendant's motion to dismiss the complaint, stating that the court's "determination is made on the basis of defendant's considering medical necessity reserved fee schedule defense."
Plaintiff argued on appeal that its opposition papers in the District Court were sufficient to raise a question of fact as to both the fee schedule defense and defendant's claim that the services rendered lacked medical necessity.
This Court noted that the District Court never addressed the portion of Defendant’s motion seeking summary judgment dismissing the complaint on the ground of lack of medical necessity. When defendant indicated that it had made no payments on the claims, it was only seeking to dismiss so much of the complaint in excess of the workers' compensation fee schedule. Therefore, it was error for the District Court to have awarded defendant summary judgment dismissing the entire complaint on that basis.
The District Court should have first addressed defendant's claim for summary judgment dismissing the complaint on the ground of lack of medical necessity, as that defense was potentially dispositive of the entire action. Accordingly, the order was reversed and the matter remitted to the District Court.
07/20/16 Hu-Nam-Nam v New York Cent. Mut. Fire Ins. Co.
Appellate Term, Second Department
Where A Doctor Bills For Services Performed By That Doctor's Employee, It Is Impermissible For the Doctor to Bill Using His or Her Own Social Security Number
Defendant moved for summary judgment dismissing the complaint, asserting that it had timely and properly denied plaintiff's claim based on improper billing. The claim form, which had been submitted to defendant by plaintiff under her social security number, indicated that the services had been performed by her employee, Dr. Samuel Theagene. Plaintiff's counsel described plaintiff as an "unincorporated solo practitioner," argued that use of Plaintiff’s social security number was proper even when billing for services of an employee. The Civil Court denied defendant's motion, finding, among other things, that there were questions of fact regarding the relationship between plaintiff and the treating doctor. This Court Reversed.
A billing provider seeking to recover no-fault benefits for services rendered to an assignor must provide, at the bottom of the claim form, a taxpayer identification number either in the form of a social security number or an employer identification number. Social security numbers are used to identify individual persons, while employer identification numbers are used to identify employers.
An individual who is an employer or who is engaged in a trade or business as a sole proprietor should use an employer identification number since an employer identification number is required if the taxpayer pays wages to one or more employees. Thus, it is permissible for a billing provider operating as a sole proprietor to use his or her own social security number on the claim form if it is the billing provider who rendered the services in question. However, where a doctor bills for services rendered by a treating provider in that doctor's employ, it is impermissible for the doctor to bill using his or her own social security number.
The order was reversed and defendant's motion for summary judgment dismissing the complaint is granted.
Arbitration
7/27/16 Shalise Carter v. A. Central Insurance Company
Arbitrator Murphy Louden
A Medical Provider May Only Revoke/Release the Assignment When Benefits Are Not Payable Because Of Lack of Coverage and/or When the Injured Party Violates a Policy Condition through His or Her Own Actions or Conduct
The Applicant in this case sought reimbursement in the amount of $5,263.55 for chiropractic treatment allegedly rendered to Ms. Carter for injuries allegedly arising out of a motor vehicle accident. Respondent argued that Applicant was not the proper party to bring the action as the purported Revocation of the Assignment of Benefits was invalid.
On April 28, 2014, Ms. Carter executed an Assignment of Benefits Form appointing Mark L. Delmonte, D.C. P.C. as her Assignee. As Ms. Carter’s Assignee, Mark L. Delmonte, D.C. P.C. assumed all rights, privileges, and remedies on Ms. Carter’s behalf and Ms. Carter, by assignment, divested herself of the right to pursue reimbursement for the health care services in dispute.
A purported Release of No-Fault Benefit Assignment was included in the Applicant’s application for reimbursement. Respondent maintained that the purported release was invalid as it revokes the Assignment of Benefits unilaterally, or without the consent of the other party. The only signature included on the “release” was that of Ms. Carter’s Assignee, Dr. Delmonte. Furthermore, the purported “release” was not dated. Respondent argued that there was no evidence demonstrating that Ms. Carter consented to the revocation of the Assignment of Benefits. Moreover, Respondent maintained that the “release” appeared to be an authorization to arbitrate on Mark L. Delmonte, D.C. P.C.’s behalf and not an actual revocation of the Assignment of Benefits.
In response to Respondent’s argument, the Applicant submitted prior arbitration awards of Arbitrator Murphy-Louden wherein the Arbitrator held that revocations nearly identical to the one submitted were sufficient to confer standing on the injured parties
Arbitrator Murphy-Louden stated that: “By the terms of the prescribed No-Fault Assignment of Benefits, a medical provider may only revoke/release the assignment when benefits are not payable because of lack of coverage and/or when the injured party violates a policy condition through his or her own actions or conduct.”
This decision is notable because Arbitrator Murphy-Louden rejected her prior awards and found that the Release of Assignment submitted did not confer standing upon the Applicant to pursue arbitration. Thus the claim was dismissed without prejudice.
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
07/22/16 Ellicott City Cable, LLC, et al. v. Axis Insurance Company
United States District Court, District of Maryland
District Court of Maryland Finds That Television Programming Is Not “Data” Under Multimedia Liability Policy, Holding Term Ambiguous At Best
Ellicott City Cable (ECC) provided television, internet, and phone services to a couple of small Maryland communities. They contracted with DirecTV and others to obtain those services, including satellite television programming. To protect themselves, ECC purchased successive multimedia liability policies with Axis that provided coverage for suits seeking damages for specified media “occurrences”. When they were sued by DirecTV for allegedly redistributing programming over cable systems and splitting those cables in order to provide TV to more homes than they contracted for, as well as for fraud, EEC asked Axis to defend the claims.
The Axis policy, however, had two exclusions upon which the carrier relied to disclaim coverage. First, “for or arising out of any actual or alleged ... unauthorized access to, unauthorized use of, or unauthorized alteration of any computer or system, hardware, software, program, network, data, database, communication network or service, including the introduction of malicious code or virus by any person...”. Axis argued that the subject programming was “data” and thus fell within the scope of this exclusion.
Second, the policy excluded alleged or actual claims of “intentional unauthorized access to, unauthorized use of, tampering with or introduction of a computer virus or malicious code into data or systems by any Insured or person who would qualify as an Insured but for their acts being outside the scope of their duties as a partner, ... except that this exclusion shall not apply to any Insured who did not commit, acquiesce or participate in the actions that gave rise to the Claim”. Similarly, the argument was that the programming at issue was “data” and also that the allegations all sounded in intentional conduct.
The Maryland District Court rejected both arguments. First, it held that the undefined term “data” was ambiguous. The television programming at issue could have been either digital or analog, meaning that the analog claims could be covered but not the digital ones. Moreover, the court drew a distinction between information conveyed over the internet versus television programming signals. It said “to interpret “data” as including DirecTV’s television programming would effectively broaden the scope of the exclusion to eliminate any coverage for piracy”, which likely was not the intent. Thus, since ambiguities are construed against the drafter, the programming was not “data” within the meaning of the exclusions. As a result, the court held that at a minimum Axis had a duty to defend the claims. It reinforced this holding by further stating that the fraud allegations did not arise from the excluded allegations, and since at least one claim was potentially covered, the duty to defend was triggered.
07/19/16 Cincinnati Insurance Company v. H.D. Smith, L.L.C.
United States Court of Appeals, Seventh Circuit
Applying Illinois Law, Seventh Circuit Finds Duty to Defend Triggered in Suit by the State of West Virginia against Drug Manufacturer Alleging “Public Nuisance”
According to the State of West Virginia, they are facing an “epidemic of prescription drug use” in the state, one that is causing hundreds of millions of dollars in damage to its citizens, and consequently taxpayers. In response, West Virginia recently sued H.D. Smith and other pharmaceutical distributors, seeking to hold them liable for knowingly running “pill mills” and fueling the epidemic. In short, the suit alleged that these companies were creating a “public nuisance” for which the taxpayers could seek recompense. H.D. Smith was insured under a general liability policy with Cincinnati, so they made a claim for defense and indemnification relative to the suit. Cincinnati disclaimed, arguing that the suit did not seek damages “because of bodily injury”, as required under the policy terms.
Interpreting Illinois law, the Seventh Circuit held that a duty to defend was triggered, however. The policy indeed stated that coverage would be provided for damages alleged “because of bodily injury”. This, the court said, broader than policies that provided coverage only for damages “for bodily injury”, as other general liability policies do. The court reasoned “here, West Virginia alleged that its citizens suffered bodily injuries and the state spent money caring for those injuries – money that the state seeks in damages. On its face, West Virginia’s suit appears to be covered by Cincinnati’s policy” and it thus owed a defense. The court also noted that the complaint actually alleged numerous legal theories and sought a variety of remedies, only one of which needed to be potentially covered in order to trigger the duty.
07/11/16 Construction Contractors Employer Group, LLC v. Federal Insurance Company
United States Court of Appeals, Sixth Circuit
Sixth Circuit, Applying Ohio Law, Finds No Coverage for Employee Theft Known Prior to Policy Inception
Construction Contractors Employer Group (CCEG) is a trade organization for construction employers, where subscribers can transfer funds to cover payroll, taxes, benefits, and administrator costs, and the CCEG takes care of making all of those payments. CCEG, in turn, outsourced some of its operations to AlphaCare. Over the years, AlphaCare could not meet its obligations and ultimately falsified some of its financial statements and failed to pay taxes. The crimes continued through July 2012, when the agreement between the two entities was terminated. In January 2013, CCEG applied for crime coverage insurance with Federal, and listed on its application the facts, as they knew of them to date, and notified the carrier of the prior fraud and tax issues stemming from AlphaCare and its principals. Coverage was bound and the policy incepted in March 2013.
In May 2013, CCEG determined exactly how the misappropriated funds had gone missing and was able to detail how subscriber funds were funneled to other sources from 2002 to 2009. CCEG thus made a claim for that crime under its liability policy. Naturally, the carrier disclaimed. However, the policy had three key provisions applicable here: 1) the policy had a “Loss Discovered” option, which excluded coverage for “any loss that an Insured is aware of prior to the inception date of [the] Policy”; 2) under the Limits of Liability section, the policy stated:
“All loss resulting from a single act or any number of acts of the same Employee or Third Party, and all loss whether such act or acts occurred before or during the Policy Period, will be treated as a single loss and the applicable Limit of Liability set forth in Item 2 of the Crime Declarations will apply, subject to Section X Liability for Prior Losses.”; and
3) the policy contained a section called “Liability for Prior Losses”, which provided that for the Loss Discovered option “coverage will be available for loss sustained at any time and Discovered during the Policy Period”. “Discovered” was defined as “knowledge acquired by an Executive or Insurance Representative of an Insured which would cause a reasonable person to believe a covered loss has occurred or an occurrence has arisen that may subsequently result in a covered loss”, but excluding losses “sustained prior to the inception date of any coverage” as well as where “the exact amount or details ... are unknown”.
Despite these policy terms, the insured argued that coverage was owed because it only later discovered the exact details and causes of the misappropriations. The Sixth Circuit disagreed. Here, there was more than mere suspicion of a loss, one employee at the heart of the theft, and the insured knew about it prior to the inception of the policy. Thus, since CCEG discovered the wire fraud prior to the execution of the policy and it constituted one loss, there was no coverage.
Jennifer A. Ehman
07/21/16 Arch Ins. Co. v. Old Republic Ins. Co.
Supreme Court, New York County
Hon. Shlomo S. Hagler
Court Finds that Primary Non-Contributory Endorsement Overrides Self-Insured Retention
Old Republic issued a policy of insurance to EFCO. EFCO was retained by Bovis to install windows on a construction project. EFCO subbed out a portion of the work to K&M. An employee of K&M sustained injury while on site.
The employee brought a claim against Bovis and other parties. Bovis then sought coverage from Old Republic and Arch Insurance (although not explicitly stated in the decision, my guess is that Arch was the insurer for K&M).
The question examined in the decision is whether the Old Republic policy afforded coverage for this loss. The Old Republic policy contained a $1,000,000 self-insured retention. The policy stated that regardless of the other insurance provisions, this insurance is excess over the self-insured retention.
In challenging Old Republic’s coverage position, Arch argued that the self-insured retention endorsement was overridden by a primary and noncontributory endorsement, which provided that coverage would be primary to and non-contributory with any other insurance available if required in an agreement.
In consider the relationship between these endorsements, the court agreed with Arch finding that the primary and non-contributory endorsement was clearly triggered. It also found that the policy’s self-insured retention and the primary and non-contributory endorsements were contradictory. It noted a policy cannot afford coverage to an additional insured that is primary and non-contributory and at the same time require that the additional insured itself spend $1,000,000 before the policy provides any coverage. The primary and non-contributory endorsement was found to control over the self-insured retention, as it was added later and must be assumed to express the latest intentions of the parties. Thus, the court found that Old Republic was obligated to defend and indemnify Bovis in the underlying action.
The court then considered the method of sharing and found that since both policies were primary, they were to share by equal amounts.
Brian D. Barnas
07/18/16 MI Windows & Doors, LLC v. Liberty Mutual Fire Insurance Company
United States District Court, Middle District of Florida
Insured was Not Precluded from Raising a Bad Faith Failure to Settle Claim by its Failure to Raise the Claim in a Prior Breach of Insurance Contract Action
MI Windows & Doors and MI Home Products are window and sliding-glass-door manufacturers that purchased commercial liability insurance from Liberty Mutual. In 2002 Liberty Mutual defended the insureds against five Alabama actions, each brought by a condominium against the insureds for defective windows and doors that caused water damage. In 2006 the insureds, without Liberty Mutual, settled the actions for $4.6 million - $3 million for the damage to the windows and doors and $1.6 million for water damage caused as a consequence of the faulty windows and doors.
In 2007, after Liberty Mutual refused to indemnify the insureds for the settlement money, the insureds sued Liberty Mutual in Florida for breach of the insurance policy. In 2013 a final judgment determined that the policy excluded coverage for the $3 million in window and door damage, but the $1.6 million for water damage due to the faulty windows and doors was covered.
The insureds then sued Liberty Mutual in 2014 to recover the $3 million not covered by the insurance policy. After improperly bringing the claim under Florida law initially, the insured’s eventually brought a claim for, among other things, bad faith failure to settle under Alabama law.
Liberty Mutual moved to dismiss the bad faith failure to settle claim. In support of its motion, Liberty Mutual made two arguments. First, it argued that the insureds were precluded from brining the bad faith claim because they did not assert it in the prior Florida breach of insurance contract action. Second, Liberty Mutual claimed that the two-year statute of limitations for bad faith failure to settle had expired.
The court rejected both of Liberty Mutual’s arguments. First, the court concluded that a breach of insurance contract claim does not arise out of the same transaction or occurrence as a bad faith failure to settle claim. A claim for breach of an insurance policy arises out of an insurer’s refusal to indemnify an insured. In contrast, a bad faith failure to settle claim arises out of an insurer’s failure to settle an underlying claim against an insured.
Turning to Liberty Mutual’s second argument, the court concluded that the two-year statute of limitations for bad faith failure to settle began to run at the conclusion of the breach of contract action in 2013. It reasoned that the conclusion of the 2013 action was the first time the insureds were aware they had personal liability above the limits of the Liberty Mutual policy. Thus, the insured’s timely commenced the bad faith failure to settle claim in 2014.
07/15/16 Treo Staffing, LLC v. Axis Surplus Insurance Company
United States District Court, Middle District of Louisiana
No Coverage under the Policy Equals No Bad Faith for Failure to Pay
Treo Staffing is in the business of supplying employees to its clients. Treo handles the payment of those employees. The Department of Labor determined that Treo improperly calculated and paid overtime wages between July 4, 2012 and July 3, 2014. As a result, Treo staffing was required to pay almost $600,000.00 in unpaid wages to its employees.
National Union issued an insurance policy to Treo with a policy period of April 13, 2014 to April 13, 2015. The policy provides coverage for damages the insured is required to pay by reason of a wrongful act to which the insurance applies. The policy has a provision that requires the first wrongful act to take place during the policy period for there to be coverage.
After Treo agreed to pay its employees the unpaid wages, it demanded coverage from National Union. National Union refused coverage, and Treo filed a lawsuit to recover under the policy and for bad faith damages. National Union moved for summary judgment on both the policy and bad faith claims.
The court granted summary judgment to National Union on both claims. The court found that Treo’s claim was not covered by the insurance policy. The policy had language that stated “all related Wrongful Acts or series of interrelated Wrongful Acts shall be deemed to be one Wrongful Act and shall be deemed to have occurred when the first of such Wrongful Acts occurred.” The first violation by Treo was on July 4, 2012, and all of the violations concerned failure to properly pay employees. Thus, under the policy, all of Treo’s wrongful acts were one wrongful act, occurring first on July 4, 2012. There was no coverage because the National Union policy began on April 13, 2014.
The court also granted summary judgment on the bad faith claims. It concluded that National Union’s failure to pay was not arbitrary and capricious because there was a genuine good faith dispute over the applicability of coverage.
PHILLIPS’ FEDERAL PHILOSOPHIES
Jennifer J. Phillips
07/18/16 Pettengill v. Fireman’s Fund Insurance Co.
District of Connecticut
The Set Off is On
The plaintiff insured commenced this action for, among other things, breach of an insurance policy issued by the defendant insurer following fire damage to the insured’s property. The insurer denied the claim on the grounds of fraud, misrepresentation and concealment. While this action was pending, the bank which held the mortgage on the insured’s property, which was listed as a mortgagee on the relevant policy, brought a separate action against the insurer. The insurer settled with the bank for $600,000.
At issue in this decision was whether the insurer was entitled to summary judgment on its rights to a set-off of $600,000 against any monetary verdict in the insured’s favor. The insured argued that, because the insurer claimed the insurance policy was void due to the insured’s alleged fraudulent acts, its claim for set-off was barred. The district court disagreed, noting that “legal theories are not considered to be judicial admissions” and could be pled in the alternative. Because the insured “failed to demonstrate that she has not benefitted from the $600,000 reduction to her mortgage paid by [the insurer],” the district court granted partial summary judgment to the insured on this affirmative defense.
07/21/16 University of Pittsburgh v. Lexington Ins. Co. and Axis Ins. Co.
Southern District of New York
Strict Notice Requirements under Claims-Made Policies
In this coverage dispute, the insured, an architectural firm working for the University of Pittsburgh, submitted “an industry-standard Acord General Liability Notice of Occurrence/ Claim” to Lexington Insurance Company on the last day of the coverage period of its claims-made policy. The description of the occurrence on that form provided only that “[s]enior management has been advised by University of Pittsburg[h] that this project is experiencing problems and delays in its early stages.”
The University of Pittsburgh, previously granted permission to prosecute this suit in place of the insured, moved for summary judgment declaring that this notice was adequate to trigger coverage under the Lexington policy. The district court disagreed, noting that, under the Pennsylvania law that applied, “[f]ailure to comply with the reporting provision of a ‘claims made’ policy precludes coverage. Although a harsh consequence, ‘claims made’ policies, and their reporting provisions, are enforceable.” This was different than occurrence-based policies, which are liberally and practically construed.
The district court found the notice given by the insured to be “perfunctory,” failing to list the specific information required by the Lexington policy including descriptions of the professional services rendered by the insured, the injury or damage that had or might result in a claim, and the actual or alleged breach of the insured’s professional duty. The notice actually given by the insured, in contrast, “could mean just about anything.” The University’s motion for partial summary judgment against Lexington was therefore denied.
EARL’S PEARLS
Earl K. Cantwell
[email protected]
01/26/16 Selection Management Systems, Inc. v. Torus Specialty Insurance Co.
Northern Division of California
Insurance Company Wins Race To the Courthouse
The lawsuit originated in two policies issued by Torus to Selection Management Systems (“SMS”). One policy provided coverage between 2013 and 2014 and the second from 2014-2015, both policies having $1 Million liability limits. SMS, an employment screening company, settled a first class action lawsuit which alleged it violated California law by issuing background reports containing adverse information on applicants that was older than seven years. Two additional class actions were subsequently filed against SMS in California and Ohio.
The insurance dispute arose between Torus and SMS over whether the two new class actions were covered under the first policy, which was nearly exhausted, or the “unused” second policy period.
Torus sued on November 25, 2015 in Ohio seeking a declaration that the two new class actions were covered only by the first policy. A scant 8 hours later, SMS filed in California alleging that Torus was in breach of contract in failing to provide coverage under the second policy. Torus moved to have the California lawsuit dismissed under the “first to file rule”. This motion to dismiss was granted by the California District Court.
The Court reviewed the “first to file rule” and stressed three factors: the chronology and history of the actions and dispute, similarity of the parties, and identity of the issues alleged. The Court ruled that all these factors were satisfied in giving precedent to the first filed action in Ohio. SMS argued that a negligible time had passed between filing of the two cases, and that the first filed case was merely an “anticipatory” filing. It cited these arguments as a basis to ignore the “first to file rule”. The Court ultimately disregarded these arguments and granted the motion to dismiss the California action.
However, the California Court did note that SMS in the Ohio case had filed a motion to transfer the case to the Northern District of California, and that the Ohio Court might subsequently decide either to keep the case or transfer it back to California, so the last chapter in the story might not have been written.
The first lesson of this case is that the choice of forum can have a significant impact in the outcome of litigation, and even dictate what substantive law will be applied to a dispute. Litigating in a preferable forum certainly has an outcome on the strategy and convenience of the case. As in most strategic conflicts, the high ground frequently belongs to the winner of the race to the courthouse.
One interesting question is whether, if the first filed claim had been a state court proceeding, would the second federal court been so accommodating and defer to the filed claim in Ohio state court. It is also interesting to note that, if the Ohio Court granted the motion to transfer venue, the case would be remanded and transferred to California in any event.
