Volume XVIII, No. 8 (No. 464)
Friday, October 7, 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. You send them, we handle them. So, keep ‘em coming.
Summer Comes to an Official End
Greetings from my Canadian home. For those who know me well, it is clearly understood that the two most significant dates in the year for me are April 15 and October 14. Why? It is because we move to our beach cottage on Lake Erie in mid-April and return to the city in mid-October. Our beach house, known far and wide as Crescent Dreams, is located on the north shore of Lake Erie, a mere 17 minutes from my office in Buffalo. So, the commute to work requires crossing an international border via the Peace Bridge, clearing customs (pretty easy for those who regularly cross over) and driving along the Niagara River to the office.
By the way, we do make certain we stay here less than half a year. One day less, but less.
This is my last issue of the 2016 summer season to come from the porch. Sniff.
Martini’s in Buffalo do not compare to the Blue Martinis of Crescent Dreams.
It’s been a busy travel time these last two weeks.
For those who don’t know, most of our coverage practice is in the New York City environs. Lots of trips down there from here and from our Long Island office. If we can help you there, let us know.
Robert P. Fine Honored By Federal Judiciary:
We are real proud of Bob Fine.
Hurwitz & Fine, P.C. Founder and Chair, Robert P. Fine, was awarded the Special Service Award by the United States District Court for the Western District of New York. The award was presented at the annual Bench & Bar Dinner on Sept. 28th in Rochester “in recognition of and appreciation for extraordinary and exemplary service to the Western District of New York and its Judges; and for demonstrating extraordinary commitment, dedication, skill, and professionalism in assuring equal access to justice for all.” Mr. Fine serves as Chair, and previously as a member, of the United States District Court Magistrate Merit Selection Committee for the Western District of New York, having been selected by the Chief Judge and the District Court Judges of that Court. This Panel evaluates and recommends candidates for the position of Magistrate Judge for the Western District of New York.
Legal Elite of Western New York Announced:
Business First of Buffalo announced its 2016 Legal Elite designations. The business paper selected 134 Legal Elite honorees and six Rising Stars. No firm could have more than 15% of its lawyers so named. Hurwitz & Fine is delighted to recognize the six lawyers so named, with Larry Franco, Ann Evanko, Larry Ross, Mike Perley and yours truly named as Legal Elite and our own Jen Ehman named as one of the six “Rising Stars”.
We have great lawyers and there are great lawyers in other firms in this community. Having peer recognition is the nicest of all compliments.
DRI Annual Meeting:
We hope you’re going and we hope to see you in Boston.
Attorneys’ Fees Not Consequential Damages:
There a couple of really interesting cases in this issue, including a couple where H&F represented the insurer. Make certain you read Brian’s column where you will see that the Fourth Department held, in one of our cases, that:
Attorneys’ Fees incurred by the Insured in Commencing an Action against the Insurer to Enforce Property Coverage are not Recoverable as Consequential Damages
That’s important precedent.
Piling On – a Hundred Years Ago:
One Hundred Years Ago Today – Georgia Tech 222, Cumberland 0.
The 1916 Cumberland vs. Georgia Tech football game was the most lopsided in the history of college football, with Georgia Tech winning 222–0. The game was played on October 7, 1916, between the Georgia Tech Engineers and Cumberland College Bulldogs at Grant Field (now a part of Bobby Dodd Stadium) in Atlanta. Want to read about the game? Click here.
The head coach of the Georgia Tech Engineers? John Heisman, of later trophy fame.
Barnas on Bad Faith:
Hello again:
Anyone who takes the time to read this note on a bi-weekly basis knows how much I love sports. As a sports fan, October is right up there with April for my favorite time of the year. We have, in no particular order, playoff baseball, college football and the NFL in full swing, and hockey about to get under way. October 2 was a particularly special day for me personally. That day my two favorite teams scored important victories over teams from Boston, as the Blue Jays beat the Red Sox to clinch a playoff spot and the Bills became the first team to ever shut out the Patriots at Gillette Stadium (I know they didn’t have Tom Brady – it was still fun). Having won the Wild Card game in dramatic walk-off fashion, the Blue Jays open up an ALDS rematch with the Texas Rangers today while the Bills travel to Los Angeles looking to move over .500. I’m hoping to have more good fortune to comment on two weeks from now.
I have three cases for you this week. Zelasko marks the end to our prolonged slump of New York extra-contractual cases. In a case argued by this office, the Fourth Department concludes that an insured cannot recover its costs and attorneys’ fees incurred in bringing an affirmative action against its insurer as consequential damages under the Bi-Economy and Panasia line of cases. A good decision for insurers across New York.
In Ingaldson the Ninth Circuit holds that an Alaska law prohibiting an insurer from recouping defense costs from its insured was preempted by the Liability Risk Retention Act of 1986, 15 U.S.C. §§ 3901-3906. Note that the Second Circuit also considered the LRRA in 2014 when it concluded that New York’s direct action statute was preempted by the LRRA. The Ninth Circuit noted in its decision that the LRRA is a specific exception to the McCarran-Ferguson Act, which reserves insurance regulation to the states, for risk retention groups.
Finally, while cases regarding bad faith allegations against insurers are normally considered in this space, in Carpenter the Court of Appeals of Indiana considered what an insurer must do to show that a policyholder entered into a consent judgment in bad faith. The issue arose after a consent judgment was agreed to between the insured and the claimant that placed an underlying assault into coverage. The court found that the consent judgment was not binding on the insured because it was the product of collusion and bad faith.
See you next time.
Signing off,
Brian
Brian D. Barnas
Disrespecting the Flag is Not New – One Hundred Years Ago:
The Brooklyn Daily Eagle
Brooklyn, New York
7 Oct 1916
Bride Desecrated Flag.
Carpeted Aisle, at Wedding,
With Stars and Stripes.
How a Long Island bride thought it would be a good idea, in the scheme of church decorations, to have the aisle carpeted with American flags on which the bridal party could walk to the altar, was one of many instances related by Mrs. C. B. Melcamp, Ohio State chairman of the Committee to Prevent the Desecration of the Flag, to illustrate how often people, through ignorance, desecrate the flag, in a talk yesterday before the Elizabeth Annesley Lewis Chapter, D.A.E., at the home of Mrs. Willis H. Grant, Oceanview avenue and Alsop street, Jamaica.
The meeting was well attended and interesting. Mrs. B.L. MacCallum, regent of the chapter, presided, and there was a fine program of entertainment. Mrs. Melcamp was the speaking of the afternoon.
Miss Edna Bailey was the elocutionist and gave several selections much appreciated by the gathering. Miss Elsie Haugaard sang two patriotic songs.
Jen’s Gems:
Greetings!
Our thoughts and prayers to everyone in the path of Hurricane Matthew. We hope you and your families stay safe.
Another slow month in the New York trial courts. Since I do not have a case to discuss, I will spend this time talking about my kids. A topic I am sure everyone enjoys. Charlotte (my youngest) is already 18 months. I cannot believe how fast time flies (a phrase I say to myself about three or four times a day). She now knows about ten words. Her favorite word right now: “more.” Which is often repeated over and over again after a good book, a good snack, some face timing with grandma and papa etc. Ella has also turned into quite a good big sister. Unless of course she is looking for some attention, then she announces that Charlotte seems really tired and is probably ready for bed. Oh, kids.
In other news, I will be attending DRI’s Annual Meeting in Boston at the end of the month. If anyone is interested in attending, and has not yet registered, you still have five days. Registration ends October 11, 2016. The link is: https://www.dri.org/Event/2016AM. If you have already signed up, I will see you there!
Until next issue…
Jen
Jennifer A. Ehman
Language is a River Through Sentences – A Century Ago
The Evening World
New York, New York
7 Oct 1916
1,462,000 Grown-Ups
Here Don’t Speak English
There are Now Approximately
8,000,000 Foreign Born Residents
of the United States.
WASHINGTON, Oct. 7.—Over 1,462,000 adult male residents of the United States cannot speak English, according to the Bureau of Education.
There are now approximately 8,000,000 foreign born residents of the Unites States.
Tessa’s Tutelage:
Dear Readers:
My efforts to come up with a suitably interesting Halloween costume for a family party have been crushed by the recent clown hysteria (as if clowns were not scary enough). Costume suggestions and kid friendly Halloween jokes are welcome.
Anyhow, I took a break from costume brainstorming and found some interesting cases for this week’s article. The First Department handed down some decisions which are fairly straightforward exercises in common sense. First, an insurer submitted a doctor affidavit stating that the injured party had failed to appear for the scheduled IME. The Court was not persuaded by this because the even occurred 8 years prior and the doctor never explained how they knew the injured party didn’t appear. This is an easy enough thing to show but the Court wants to see some basis for the proffered information. Second, the insurer was prevented from arguing that the Plaintiff had lied about his military status because the denial of claim was not timely. Again, not a very complicated concept at issue but untimeliness obviously carries significant consequences. Third, we have a case where the insurer failed to show that the injured party failed to appear for EUO’s, that they properly noticed the EUO’s, and they failed to attach a proposed amended Complaint for the Court’s consideration in support of their motion to amend.
Happy reading,
Tessa
Tessa R. Scott
Lynching Not a Federal Crime 100 Years Ago – and Still Not:
The Atlanta Constitution
Atlanta, Georgia
7 Oct 1916
Want Lynching Made
a Federal Offense.
Washington, October 6—Resolution urging that lynching be made a federal offense, and that persons prosecuted for it be tried in another state from their own, were adopted today by the National Equal Rights league in a convention here attended by negro delegates from twenty-five states. Another resolution criticised [sic] President Wilson for permitting segregation of negro civil service employees, and declared for Charles E. Hughes for president.
Editor’s Note: A federal lynching law was never enacted. The states, most of them, stepped in.
Hewitt’s Highlights:
Dear Subscribers:
We have several serious injury cases this week. In one case, defendants established a prima facie case by submitting the affirmed report of an orthopedic surgeon, who examined plaintiff and found only insignificant limitations in range of motion. However, plaintiff raised a triable issue of fact by submitting affirmed reports of the doctor who treated him after the accident and an orthopedic expert who examined him two years later, and a certified copy of the MRI report prepared at the hospital where he sought treatment. Specifically, the orthopedist, upon examination, found significant limitations in range of motion. Plaintiff's expert acknowledged the MRI findings of degeneration but opined that there was no tear until the accident. In another case, a fractured rib automatically qualified as a serious injury under the statute.
I hope everyone stays safe with the upcoming Hurricane that is hitting the east coast.
Until next time,
Rob
Robert Hewitt
Phillips Federal Philosophies.
Hello, All:
If you ever want to see an interesting range of confused facial contortions, hand a coverage lawyer an opinion which concludes that there is no duty to defend under a policy, but yet there might be a duty to indemnify. An interesting case out of the Southern District this week did just that: Mount Vernon Fire Insurance Co. v. Munoz Trucking Company. Full disclosure: although not in the batter’s box on this one, Hurwitz & Fine represents intervenor-defendant Century Surety Company in this matter.
As always, thanks for reading. Until next time, enjoy your Pumpkin Spice Lattes. ‘Tis the season.
J.
Jennifer J. Phillips
Well, It was Baseball, After All:
The Pittsburgh Press
Pittsburgh, Pennsylvania
7 Oct 1916
Attention -- Ball Players,
Attired in a baseball uniform, Edward Butler, aged 52, of Alcor St., faced Magistrate E. F. Dillon at the Allegheny Police station today on a charge of drunkenness. Arrested early today in River Ave., Butler was naked, it is said, and when he was taken to the police station he was given a baseball uniform. He was discharged when he explained to Magistrate Dillon that he was to umpire a baseball game this afternoon.
“Well, I’m quite a fan myself, and the fact that the world’s series starts today, coupled with the fact that you are to umpire a game, warrants my discharging you,” said Magistrate Dillon.
Peiper’s Parsing:
Often times, this publication falls on notable Holidays. For instance, I think we had an issue come out three straight Thanksgivings. I know we’ve had, in recent past, issues on Christmas, Christmas Eve and New Year’s Day. And who doesn’t remember Dan’s repeated suggesting of smacking your love interest with meat for a Valentine’s Day gift? Even when we don’t have a built in Holiday, we make one up (see my missive about Oktoberfest from last issue). Do you know what happened on October 7th? Nuthin. Nada. Zilch.
The most notable thing from this date was Cornell welcoming its first class in 1868. I note that Georgia Tech beating Columbia College 222-0 in college football rates a distant second. So yeah. Nothing.
As for the note this week, we report an interesting decision discussing whether an indemnity clause can be enforceable when the contract in which it is located was never signed by the parties. The general rule, of course, is if the parties expect that the contract to be binding, the date of execution is not necessarily dispositive. You will note that the rule for insurance procurement clauses is often quite different.
Finally, we wish our friends to the south the very best of luck with Matthew only a few hours away from landfall. While preparation and safety are the rules of the immediate future, we remind all of the CAT teams in waiting of the CAT Toolbox which we produce annually with several other law firms. If you need a copy, or want one for a first time, please drop me a note. It is loaded with insurance regulations, and relevant law for every jurisdiction in Matthew’s path. We hope for minimal impact, but are here to assist the industry if what is forecast comes to fruition. Stay safe.
Steve
Steven E. Peiper
“Leaving the Drivers” to Their Own Devices – A Century Ago:
Democrat and Chronicle
Rochester, New York
7 Oct 1916
Autumn Leaves Are
Cause of Accidents
Make Street Cars Harder
to Control.
When the leaves begin to fall, the street railway company has an added trouble, said Elmer E. Strong, superintendent of transportation, yesterday. When the car slides past the point where it is expected to stop, often it is because the sap from fallen leaves has made it impossible for the wheels to grip the rails firmly.
When an automobile turns suddenly in front of a street car this season it is often impossible for the motorman to stop the car. On the residence streets, tracks rapidly fill with autumn leaves, and an accident may result.
Altman’s Administrative (and Legislative) Agenda:
Greetings. Our last issue discussed the Department of Financial Services’ new proposed legislation governing cybersecurity for banks and insurance carriers. This week, we cover the implications of cybersecurity events for insurance carriers. In light of recent large scale data breaches, including the hacking of Yahoo! email accounts, damages and claims for breaches will be a hot issue for insurers.
Howard
Howard B. Altman
Not the Fall, It Was the Sudden Stop at the End:
The Brooklyn Daily Eagle
Brooklyn, New York
7 Oct 1916
FALL NETS HIM $3,283
Policeman Who Dropped Down
Shaft Wins Suit
Patrolman Frederick G. Bird of the Bedford Avenue precinct, who in other days was widely known among fight fans as the sparring partner of Robert Fitzsimmons, Tom Sharkey and the late Gus Ruhlin, has been awarded a verdict of $3,283.33 by a jury before Justice Blackmar in the Supreme Court.
The verdict is for injuries sustained by Bird when he fell into an unprotected elevator shaft in the building at 437 Broadway early in the morning of December 31, 1913. Bird was on post and was trying doors of the stores and loft buildings, as the rules required him to do. He found the door of 437 open. Suspecting that burglars were inside, he summoned Patrolman Shaughnessy. Before the arrival of his brother officer, Bird went into the dark hallway and by the time Shaughnessy and other policemen got there he had fallen into the elevator shaft. His brother officers heard him groaning and lifted him out.
He is now crippled.
Wilewicz’s Wide World of Coverage:
Dear Readers,
Salutations, faithful readers. For those of you who have joined us for some time, welcome back. For those who are new to our periodical, welcome! In this column (see attached), you will find seminal and otherwise interesting decisions from the nation’s Federal Circuit Courts. Just one proverbial heartbeat away from SCOTUS, these decisions reflect national trends and often provide detailed, well-researched analyses on important points of coverage law. This week, we bring you two main themes in this edition of the WWW – environmental law and the Sixth Circuit.
First, we follow up on that now famous decision in Viking Pump that came out a few months ago (as covered in our May 6, 2016 issue: Volume XVII, No. 23 (No. 453)). You may recall that was the decision wherein the New York Court of Appeals held that all sums allocation and vertical exhaustion applies where excess policies contain (or follow form to) non-cumulation provisions. In this latest twist, in In Re Viking Pump, the Delaware Supreme Court has held that due to the nature of asbestos claims “continuing” after each instance of significant exposure, coverage is thereafter triggered in policies going forward. The court was clear to say that this did not create a “continuous” trigger, but it basically did.
Then, out of the Southern District of New York, we have Liberty Mutual v. The Fairbanks Company. There, Liberty tried to use the recent Viking Pumps decision (the New York one) to reconsider its denial of summary judgment in the middle of its action. However, as we federal practitoners all know, there is no interlocutory appeal available apart from extraordinary circumstances. Here, the Southern District did not find Viking Pumps to be extraordinary. Rather, they said that this was a dispositive issue that would have to await the conclusion of the case, including discovery and any final judgment. While we found Viking Pumps rather extraordinary, great minds can differ sometimes.
Next, we also highlight the Sixth Circuit, which was relatively prolific these last few weeks in issuing coverage-related decisions. In Dan Hale v. Travelers, we have yet another rescission case, with clear and straight forward facts. The (former) insured medical center applied for coverage in February 2012. At that time, they indisputably knew that there had been multiple complaints filed against them with the State and BBB, and at least one lawsuit was pending against them. Yet, of course, they answered “no” when asked about pending or prior claims, complaints, or suits. Given this material misrepresentation, the carrier was justified in denying coverage. An insured must be truthful and transparent in its application, or else an insurer can turn back time and void that policy as if it never existed.
In Underwriters Safety v. Travelers, we have a case with some rather sad facts, but with a clear interpretation and application of coverage law. After a university lacrosse player collapsed and died during practice, the school sought coverage under its two policies. Unfortunately, both policies had clear and unambiguous exclusions for injuries to any athletics/sports participants. Since the incident fit squarely within the language of the exclusions, there was no coverage for the claim. Not even a coverage extension could save it, since the broad exclusions applied to the policy as a whole.
That’s it, this time around. See you all in two weeks! Until next time,
Agnes
Agnes A. Wilewicz
Highlights of This Week’s Issue, Attached:
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
-
Anti-Subrogation Rule Applies Only to the Extent that Both Parties Insured Under Same Policy
-
Vacated Default Judgment Eliminates Irrebuttable Presumption of Prejudice
-
Habitational Construction Exclusion Ambiguous and Ambiguity Resolved Against Insurer
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
-
Plaintiff Was Able to Establish an Issue of Fact Despite Defendant’s Prima Facie Showing
-
Plaintiff’s Expert’s Affirmed Report and Discussion of the Medical Evidence Created an Issue of Fact When He Opined That Degenerative Changes Were Not the Cause of the Tear But Were Instead Caused by the Accident
-
Plaintiff Demonstrated She Suffered a Fractured Rib Which Is Prima Facie a Serious Injury
-
Defendant Could Not Seek Dismissal From a Nonmoving Party in a Cross-Motion
TESSA’S TUTELAGE
Tessa R. Scott
[email protected]
Litigation:
-
Doctor Affidavit Must Explain Basis for Knowledge that the Party Failed to Appear
-
An Untimely Denial of Claim Ties the Hands of the Insurer
-
Must Provide the Court with Proper Evidence that EUO Was Properly Noticed, and Include Proposed Amended Pleadings When Seeking Leave from the Court
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
-
Sanctions for Frivolous Litigation Upheld on Appeal
-
Unsigned Contract May Yet Prove to be Enforceable for Indemnity Purposes
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
-
Recent Viking Pump Decision Not Enough to Permit Interlocutory Appeal, says Southern District of New York
-
Sixth Circuit Affirms Policy Rescission Case, Where Insured Knew of Complaints and Suits Made Against it Prior to Application, but Failed to Disclose Facts (Tennessee Law)
-
Sixth Circuit Holds that Sports-Participant Exclusion Bars Coverage for Sport Participant Death, and Exclusion also Trumps Med Mal Coverage Extension (Kentucky Law)
-
Delaware Supreme Court Holds that Asbestos Claims’ Coverage Triggers Continue After Significant Exposure, but that Does not a “Continuous Trigger” Make
JEN’S GEMS
Jennifer A. Ehman
-
All’s quiet this week.
BARNAS ON BAD FAITH
Brian D. Barnas
-
Attorneys’ Fees incurred by the Insured in Commencing an Action against the Insurer to Enforce Property Coverage are not Recoverable as Consequential Damages
-
Ninth Circuit Holds that the Federal Liability Risk Retention Act Preempts Alaska State Law that Barred Recoupment of Defense Costs for Ultimately Uncovered Claims, Finds Recoupment Claim can Proceed
-
Bad Faith by the Insured: Insurer was not Bound by Consent Judgment Designed to Remake the Incident to Fall within Coverage
PHILLIPS’ FEDERAL PHILOSOPHIES
Jennifer J. Phillips
-
-
No Duty to Defend, but a Duty to Indemnify?
ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA
Howard B. Altman
-
Report on the Cybersecurity Insurance Coverage Supplement”.
EARL’S PEARLS
Earl K. Cantwell
[email protected]
-
Lack of Coverage Upheld in Construction Defect Case
All the best for you and yours. Drop me a note if we can be of assistance.
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
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
Patricia A. Fay
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
Altman’s Administrative (and Legislative) Agenda
Earl’s Pearls
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
09/30/16 Mitchell v. NRG Energy, Inc.
Appellate Division, Fourth Department
Anti-Subrogation Rule Applies Only to the Extent that Both Parties Insured Under Same Policy
NRG Energy, Inc. and Dunkirk Power, LLC (“NRG”) appeal from an order that that granted the motion of third-party defendant, International Chimney Corp. (“ICC”), for summary judgment dismissing the third-party complaint.
It appears that Hanover provided a policy to ICC and picked up NRG as an additional insured. It then commenced a third party action against ICC, in the name of its additional insured, so NRG and was trying to enforce a claim against ICC However, both parties were insured, as the real party in interest in NRG's third-party action, may not seek indemnification from ICC because, under the antisubrogation rule, "an insurer has no right of subrogation against its own insured for a claim arising from the very risk for which the insured was covered . . . even where the insured has expressly agreed to indemnify the party from whom the insurer's rights are derived' ".
However, the anti-subrogation rule only applies to the extent both parties are covered by the same policy. Although ICC met its burden on its motion of establishing as a matter of law that it was entitled to summary judgment dismissing the third-party complaint insofar as it sought indemnification up to the $1,000,000 policy limit of the Hanover commercial auto policy, it failed to meet that burden with respect to any amounts above that policy limit. ICC demonstrated that it had an umbrella policy with a limit of $25,000,000, but failed to establish that the policy afforded coverage in this instance or that NRG was covered by that policy, and thus failed to establish that the antisubrogation rule bars the third-party action for amounts above that limit. Thus, ICC's motion should have been denied insofar as the third-party complaint seeks indemnification for amounts in excess of $1,000,000.
09/28/16 Castillo v. Prince Plaza, LLC
Appellate Division, Second Department
Vacated Default Judgment Eliminates Irrebuttable Presumption of Prejudice
Castillo filed suit against Prince Plaza recover damages for personal injuries. In an order dated January 9, 2012 (the “January order”), the trial court granted a default judgment against Prince Plaza upon its failure to appear or answer the complaint. According to Prince Plaza, it did not know about the main action until February 24, 2012, when it received a copy of the January order. On February 28, 2012, Prince Plaza forwarded the summons, complaint, and the January order to its insurer, the third-party defendant Century Surety Company (“Century”). Century disclaimed coverage on the ground that it was not provided with timely notice of the action, as required by the subject insurance policy.
By a stipulated order dated June 11, 2012, Prince Plaza's default was vacated and the case restored to the active calendar. Prince Plaza then sought a judgment declaring that Century was obligated to defend and indemnify it in the main action. Century contended that Insurance Law § 3420(c)(2)(B) created an irrebuttable presumption of prejudice in Century's favor since Prince Plaza did not provide Century with notice of the occurrence or main action until after a default judgment had already been entered against Prince Plaza.
In the alternative, Century contended that Insurance Law § 3420(c)(2)(A) created a presumption in Century's favor since Century did not receive notice of the underlying accident until more than two years after it occurred.
The Second Department held that the parties having vacated the default judgment, an irrebuttable presumption of prejudice did not apply in this case. Although a default judgment was previously entered in the main action against Prince Plaza, the default judgment was vacated more than a year before Century raised Insurance Law § 3420(c)(2)(B) as a ground upon which it was not obligated to defend and indemnify Prince Plaza. Therefore, despite the fact that there had been a determination of liability, it was no longer in effect and therefore the “irrebuttable presumption” was no longer in place. The Court found that the earlier default was a “technicality”.
Further, the court rejected Century’s alternative argument that it was the insured’s burden to prove that Century was not prejudiced by untimely notice. The “prejudice statute” provides that "[i]n any action in which an insurer alleges that it was prejudiced as a result of a failure to provide timely notice, the burden of proof shall be on [the] insurer to prove that it has been prejudiced, if the notice was provided within two years of the time required under the policy".
Here, the subject policy required that notice of the occurrence and/or lawsuit be provided to Century "as soon as practicable." "Where an insurance policy requires that notice of an occurrence be given as soon as practicable,' notice must be given within a reasonable time in view of all of the circumstances". The underlying accident occurred on August 26, 2009, at a construction site on premises owned by Prince Plaza, the insured.
However, Prince Plaza was unaware of the accident because it was not present at the site and it was not informed of the accident by its general contractor or the injured plaintiff. The summons and complaint in the main action were served on Prince Plaza through the Secretary of State on or about August 26, 2011, but because Prince Plaza had failed to notify the Secretary of State of its new address, it did not receive a copy of the summons and complaint and did not initially appear in the main action. Thus, in the January order, the Supreme Court granted the plaintiffs' motion for leave to enter a default judgment against Prince Plaza, which later received a copy of the January order on February 24, 2012.
Upon receipt of the January order, Prince Plaza promptly notified Century of the accident and lawsuit, and this notice was received by Century on March 2, 2012.
Although Prince Plaza improperly failed to update its address with the Secretary of State, even imputing knowledge of the accident to Prince Plaza as of the date that the summons and complaint were served on the Secretary of State, Prince Plaza would not have learned of this lawsuit until August 26, 2011. Century received notice of the occurrence and lawsuit less than two years after that date. Therefore, pursuant to Insurance Law § 3420(c)(2)(A), it was Century's burden to prove that it was prejudiced by the delay in receiving notice. On this record, Century failed to prove that it was prejudiced by the delay in receiving notice.
09/28/16 Castillo v. Prince Plaza, LLC
Appellate Division, Second Department
Habitational Construction Exclusion Ambiguous and Ambiguity Resolved Against Insurer
Same case, different insured, different issue, different carrier, same result.
Western Heritage’s policy contained a “Habitational Construction” exclusion. It was the insured’s burden to establish that the risk fell within the policy, the insurer’s burden to prove the applicability of the exclusion and the insured’s burden to prove that an exception to the exclusion applied.
The "apartments" exception to the "Habitational Construction" exclusion in the subject policy is ambiguous as to whether there is coverage for the structure at issue. Since that ambiguity must be resolved in favor of the insured, the Supreme Court properly denied that branch of the motion of Western Heritage Insurance Company (hereinafter Western Heritage) which was for summary judgment dismissing the third third-party complaint, and granted the cross motion of King's Construction & Supplies, LLC (hereinafter King's Construction) for summary judgment declaring that the carrier was obligated to defend and indemnify it.
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
10/05/16 Delacruz v. Bonnie
Appellate Division, Second Department
Plaintiff Was Able to Establish an Issue of Fact despite Defendant’s Prima Facie Showing
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 injuries to the lumbosacral 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). However, in opposition, the plaintiff submitted competent medical evidence raising a triable issue of fact as to whether the alleged injuries to the lumbosacral region of his spine constituted a serious injury under the permanent consequential limitation of use and/or significant limitation of use categories of Insurance Law § 5102(d). Summary judgment should have been denied. No specific facts were given in the decision.
10/04/16 Mehlman v. Chain Cab Corp.
Appellate Division, First Department
Plaintiff’s Expert’s Affirmed Report and Discussion of the Medical Evidence Created an Issue of Fact When He Opined That Degenerative Changes Were Not the Cause of the Tear But Were Instead Caused by the Accident
Plaintiff alleged that he suffered a serious injury to his right ankle when defendants' taxi cab ran over his right foot, compressing it and thereby causing a tear of the posterior tibial tendon in the right ankle. He also claimed that the incident exacerbated preexisting conditions in his left ankle and lumbar spine. Defendants established their entitlement to judgment as a matter of law by submitting evidence showing that plaintiff did not sustain a serious injury to his right ankle. Defendants submitted the affirmed report of an orthopedic surgeon, who examined plaintiff and found only insignificant limitations in range of motion.
In opposition, plaintiff raised a triable issue of fact by submitting affirmed reports of the doctor who treated him after the accident and an orthopedic expert who examined him two years later, and a certified copy of the MRI report prepared at the hospital where he sought treatment The orthopedist, upon examination, found significant limitations in range of motion, thereby disputing the findings of defendants' expert. The MRI report provided objective evidence of a tear in the posterior tibial tendon, but also showed that plaintiff had extensive preexisting degeneration in that tendon and throughout his ankle. Plaintiff's expert acknowledged the MRI findings of degeneration but opined, based on his examination of plaintiff, review of medical records and the history provided, that the accident was the competent cause of plaintiff's injury since there was no evidence that any tear existed before the accident, but only degeneration consistent with plaintiff's age. Plaintiff's treating physician also opined that the condition was caused by the taxi accident. Inasmuch as defendants did not provide expert medical opinion on the issue of causation, the opinions proffered by plaintiff raised issues of fact as to whether his right ankle injury was causally related to the accident. However, dismissal of plaintiff's claims of serious injury to his left ankle and lumbar spine was warranted, since they were unsupported by any medical evidence.
09/29/16 Basden v. Liberty Lines Transit, Inc.
Appellate Division, First Department
Plaintiff Demonstrated She Suffered a Fractured Rib Which Is Prima Facie a Serious Injury
Plaintiff properly commenced the action against Westchester County and Liberty Lines in Bronx County, where she resides and defendants moved to change venue to Westchester County on the grounds that it is an action against that County. While such motions are ordinarily granted in the absence of compelling countervailing circumstances, in cases brought against defendants Liberty Lines and Westchester County, the First Department has held that CPLR 504(1) does not require a change of venue absent any showing that Westchester County is not merely a nominal party in the action. Defendants' showing was insufficient since it was unsupported by any documentary evidence, such as the indemnification contract which could indicate insurance requirements and indemnification provisions. In support of her cross motion, plaintiff demonstrated prima facie that she suffered a fractured rib, which is a serious injury within the meaning of Insurance Law § 5102(d).
09/29/16 Asiedu v. Lieberman
Appellate Division, First Department
Defendant Could Not Seek Dismissal from a Nonmoving Party in a Cross-Motion
Defendant’s cross motion for summary judgment dismissing the complaint of plaintiff Rosemary Asiedu for failure to satisfy the serious injury threshold under Insurance Law § 5102(d) was reversed. Defendant's mislabeled cross motion in response to plaintiff Nana Asiedu's motion for summary judgment, was an improper vehicle for seeking affirmative relief from plaintiff Rosemary Asiedu, a nonmoving party.
TESSA’S TUTELAGE
Tessa R. Scott
[email protected]
Litigation:
09/28/16 Healthy Way Acupuncture, P.C. v Clarendon Natl. Ins. Co.
Appellate Term, First Department
Doctor Affidavit Must Explain Basis for Knowledge that the Party Failed to Appear
Defendant-insurer's motion for summary judgment dismissing the underlying first-party no-fault action should have been denied, because it failed to submit competent proof of the assignor's nonappearance at scheduled independent medical examinations (IME).
The Doctor’s affidavits were not sufficient because they did not explain the basis for their knowledge. The failure to appear occurred 8 years prior, and the Court was not convinced the doctor remembered the incident independently.
09/27/16 Healthy Way Acupuncture, P.C. v USAA Gen. Indem. Co.
Appellate Term, First Department
An Untimely Denial of Claim Ties the Hands of the Insurer
The defendant-insurer's motion for summary judgment dismissing this first-party no-fault action should have been denied. While defendant submitted evidence showing that plaintiff's assignor misrepresented his military status in the underlying insurance policy application, defendant should have been precluded from asserting that defense as a result of its untimely denial of the claim.
09/27/16 Liberty Mut. Insurance Co. v K.O. Med., P.C.
Appellate Term, First Department
Must Provide the Court with Proper Evidence that EUO Was Properly Noticed, and Include Proposed Amended Pleadings When Seeking Leave from the Court
Plaintiff insurer sought a declaration that defendant was not entitled to no-fault insurance benefits because it failed to appear for examinations under oath (EUOs). However, plaintiffs failed to demonstrate that the EUOs were properly noticed. Counsel's affirmation may be sufficient proof that the requests for EUO were mailed, but neither the affirmation nor anything else in the record establishes that the requests were mailed in accordance with the time frames set forth in the no-fault implementing regulations. Under the circumstances, the timeliness of plaintiffs' claim denials is immaterial.
Plaintiffs also failed to establish prima facie defendant's failure to appear for the EUOs. The transcripts submitted to show defendant's failure to appear on certain dates were uncertified and unsworn and no evidence was submitted with respect to the other dates.
In support of their motion to amend, plaintiffs failed to include the proposed amended complaint or the proposed additional billings. Thus, the motion was denied without prejudice to renewal before the trial court. The motion for an injunction against arbitration or further court proceedings also was denied without prejudice to renewal, and that motion should be addressed to Supreme Court in the first instance.
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
09/28/16 Board of Managers v. Foundry Development Co., Inc.
Appellate Division, Second Department
Sanctions for Frivolous Litigation Upheld on Appeal
In litigation that spawned multiple suits, the instant discussion focuses on the third action in the series. More particularly, we are focused upon the dismissal of a legal malpractice claim that was contained as part of the third lawsuit. Therein, defendant law firm Blustein moved dismiss the action under CPLR 306-b and 3211(a). Not only was the motion granted, the Court also imposed sanctions for frivolous conduct.
On a subsequent motion, the Trial Court awarded $29,540 in attorneys’ fees incurred both by the Blustein firm and the Blustein firm’s counsel appointed by their malpractice insurer. The appellant argued that retained counsel was not entitled to fees because said fees were actually paid by Blustein’s carrier. The Court disagreed, and noted that a court has the discretion to impose sanctions for frivolity regardless of who suffered the pecuniary loss.
In addition, the Court also rejected appellant’s arguments that fees incurred by the Blustein firm in assisting their defense were not recoverable. As noted by the Appellate Division, because the Blustein partner who worked on the case provided skill, expertise and service that defense counsel’s office would have otherwise incurred, it too was compensable.
09/28/16 Seales v Trident Structural Corp.
Appellate Division, Second Department
Unsigned Contract May Yet Prove to be Enforceable for Indemnity Purposes
Plaintiff was installing a new sprinkler system as part of a renovation project at a building owned by defendants 138 West and 2794 Broadway (collectively the owners). Defendant Trident was the contractor responsible for carpentry, structural work, framing, roofing and sheetrock installation. While ascending a staircase from the fifth to the sixth floor, plaintiff allegedly was struck in the head and rendered unconscious by a piece of falling sheetrock.
Third-party defendant Trident’s president testified that shortly after the accident, he observed several 4X8 feet sheets of sheetrock leaning against the wall on the sixth floor. One sheet had fallen away from the wall and was leaning against a railing, and a portion of that sheet was broken away. A jagged piece of sheetrock 8-12 inches was on the landing of the fifth floor on the stairs. Conversely, plaintiff’s coworker testified that the piece of sheetrock that fell onto the stairwell in the vicinity of plaintiff was approximately the size of an entire sheet of sheetrock.
The trial court denied plaintiff’s motion for summary judgment on his Labor Law § 240(1) claim, and denied the owners’ cross-motion for summary judgment dismissing the Labor Law §§ 240(1), 241(6), 200 and common-law negligence claims. The trial court also denied the owners’ cross-motion on their third-party claims for common-law and contractual indemnification against Trident, and granted Trident’s cross-motion to dismiss all third-party claims against it.
The owners and Trident both moved for summary judgment on the contractual indemnity piece of this case. Owners argued that they were entitled to an aware of contractual indemnity, while Trident argued that the unsigned contract was unenforceable. With regard to the question of whether the contract was properly enforceable, the Court noted that a question of fact existed as to whether the parties wished to be bound by its terms. While an unsigned contract may be enforceable, it was owners’ obligation to come forward with evidence demonstrating both parties intent to be bound by the operative language therein.
Even if the contract was enforceable, a question still existed as to whether the events of the case at bar triggered the indemnity provision. The contract only obligated Trident to indemnity owners where Trident (or Trident’s subcontractors) negligent acts or omissions contributed to the loss. Here, Trident was unable to establish itself free of negligence, or the negligence of its subcontractors.
Lastly, the unresolved factual issues regarding negligence also precluded either side from prevailing upon motions for common law indemnification.
<<< Note: We did not discuss the Labor Law aspects of this decision, but instead focused on the peculiar indemnity issue. However, we note that there is an excellent review of Labor Law discussion found within our sister publication Labor Law Pointers. If you don’t yet receive Labor Law Pointers, please contact David Adams at [email protected] >>>
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
09/22/16 Liberty Mutual Insurance Company v. The Fairbanks Company
United States District Court, Southern District of New York
Recent Viking Pump Decision Not Enough to Permit Interlocutory Appeal, says Southern District of New York
This coverage action stems from a dispute between a number of carriers. The litigation remains pending and discovery is ongoing. Here, however, Liberty sought to move for summary judgment on the issue of allocation, in light of the Court of Appeals’ recent decision in the now-seminal Viking Pump case, as covered in our May 6, 2016 issue: Volume XVII, No. 23 (No. 453). They lost, since the District Court found a potential ambiguity in the policies. They thus applied for an order for interlocutory appeal, in an effort to have the Circuit Court look at the dispositive issue again.
The court would not have it. Citing numerous cases where interlocutory appeal has not been permitted, the Southern District held that it was not warranted in this case. Interlocutory appeal is available only if 1) “such order involves a controlling question of law”, 2) “there is substantial ground for difference of opinion”, or 3) “an immediate appeal from an order may materially advance the ultimate termination of the litigation”. None of those applied here. There were no “exceptional circumstances” that would justify a departure from the basic rule. Permitting it would not conclude the litigation and Viking Pump did not change that. The parties were thus directed to complete discovery and could revisit the dispositive issues at a later date.
09/16/16 Dan Hale v. Travelers Casualty and Surety Company
United States Court of Appeals, Sixth Circuit
Sixth Circuit Affirms Policy Rescission Case, Where Insured Knew of Complaints and Suits Made Against it Prior to Application, but Failed to Disclose Facts (Tennessee Law)
Dan and Don Hale were principals and directors of HRC Medical Centers (collectively “HRC”), which provided bio-identical hormone replacement therapy in Tennessee and other states. Prior to February 2012, there were at least seven complaints filed against that company with the Tennessee Division of Consumer Affairs, at least 64 complaints with the Better Business Bureau, and at least one pending lawsuit for breach of contract, among other things. HRC knew of them, and do not dispute that they knew of them prior to February 2012. Nevertheless, when they applied for insurance with Travelers in February 2012, they failed to disclose these facts on their application.
Indeed, the application asked: 1) whether there had been “during the past five years, or are there now pending, any securities claims, criminal actions, administrative or regulatory proceedings, charges, hearings, demands or lawsuits [...], whether or not such claim or action would be covered”; and 2) whether “the Application, or any person proposed for this insurance [has] any knowledge or information of any fact, circumstance or situation related to the [coverage] that could reasonably give rise to a claim against them”. In both instances, the insured replied “no”.
When HRC later made a claim for coverage under Travelers’ policy, the insurer rightfully disclaimed and sought to rescind. The principals of HRC then sued for coverage. On appeal, the Sixth Circuit agreed with the carrier – an insurer can rescind a policy and void it ab initio if it later discovers there was material misrepresentations made in the application for insurance. Here, the plaintiffs knew of, and did not dispute, the fact that there were outstanding demands and lawsuits pending against them prior to the application. Given these circumstances, the insurer was justified in denying coverage.
09/13/16 Underwriters Safety and Claims v. Travelers Property Casualty
United States Court of Appeals, Sixth Circuit
Sixth Circuit Holds that Sports-Participant Exclusion Bars Coverage for Sport Participant Death, and Exclusion also Trumps Med Mal Coverage Extension (Kentucky Law)
Richard Passfield was a sophomore and lacrosse playing at Bellarmine University. One morning, in October 2015, he was running timed quarter miles during practice, when he collapsed and died of sudden heart failure. Bellarmine was covered by two policies: one underwritten by Travelers, and the other by Cincinnati. Both carriers denied coverage, and coverage litigation ensued.
The Travelers policy contained an Athletic Participants Exclusion, and the Cincinnati policy contained a Sports Participants Exclusion. The former stated that “This insurance does not apply to ‘bodily injury’ to any person engaged in athletic, exercise, or sports activities...”, while the former stated that “This insurance does not apply to: bodily injury ... to any person while ... practicing for or participating in any contest or exhibition of an athletic or sports nature...” The Travelers policy also included a coverage extension for certain medical malpractice related injuries.
Ultimately, the Sixth Circuit held that both exclusions clearly and unambiguously barred coverage for this case. Passfield was indisputably participating in a sports event, and he was undeniably practicing when he collapsed and died. Based upon the plain language of the exclusions, there was no coverage for his claim. Moreover, the court further held that the coverage extension (only found in Travelers policy), was trumped by the exclusion. While coverage was broadened to include “incidental medical malpractice injury”, the exclusion applied even more broadly. “While the Endorsement broadens the policy’s definition of ‘bodily injury’”, the court wrote, “the Exclusion applies to the amended insurance policy as a whole”.
09/12/16 In Re Viking Pump, Inc. and Warren Pumps, LLC
Supreme Court of Delaware
Delaware Supreme Court Holds that Asbestos Claims’ Coverage Triggers Continue after Significant Exposure, but that does not a “Continuous Trigger” Make
This decision follows the New York Court of Appeals’ analysis, as covered in our May 6, 2016 issue: Volume XVII, No. 23 (No. 453). If you recall, the Court of Appeals found that all sums allocation and vertical exhaustion applied where excess policies contain (or follow form to) non-cumulation provisions.
Now, having the case back from New York, the Delaware Supreme Court issued a massive 83-page decision. Most of it covers procedural history, recitations of underlying facts, and various other issues that arose on the appeal. While generally following precedent in deciding most of the issues (and applying the New York decision), critically the court also addressed the trigger of coverage issue at length. Noting that asbestos cases are unique in that exposure is continuous, the coverage trigger analysis must be tailored to address this.
Both sides, the insurers and the insureds, acknowledged that asbestos-related diseases result from “gradual and continuous injurious processes”. Thus, the precise trigger date is often difficult to determine. In light of this, the Delaware court concluded that:
As to a person who ultimately develops lung cancer, mesothelioma, or non-malignant asbestos-related disease, bodily injury first occurs, for policy purposes, upon cellular and molecular damage caused by asbestos inhalation, and such cellular and molecular damage occurs during each and every period of an asbestos claimant’s significant exposure to asbestos and continues thereafter. (Emphasis in original).
Accordingly, the court held that the injury-in-fact was analyzed as a continuous process that could trigger coverage into later policy periods. The court was explicit in noting that this did not mean that a continuous trigger applied, just that the gradual and continuous nature of these particular claims necessitated multiple triggers of policy periods.
Jennifer A. Ehman
All’s quiet this week.
Brian D. Barnas
09/30/16 Zelasko Construction, Inc. v. Merchants Mut. Ins. Company
Appellate Division, Fourth Department
Attorneys’ Fees incurred by the Insured in Commencing an Action against the Insurer to Enforce Property Coverage are not Recoverable as Consequential Damages
Plaintiff commenced an action against Merchants seeking, inter alia, damages in the amount of $49,302.57 arising from Merchant's breach of its payment obligations under the "physical damage" coverage provisions of a commercial auto insurance policy. Summary judgment was granted in favor of Plaintiff. In doing so, the court awarded Plaintiff the attorneys’ fees it incurred in commencing and prosecuting the action against Merchants.
The Fourth Department reversed. It is well established that insured may not recover the expenses incurred in bringing an affirmative action against an insurer to settle its rights under the policy, and there was nothing in the policy that obligated Merchants to reimburse Plaintiff’s attorneys' fees incurred in prosecuting an action to enforce the property coverage provisions of the policy.
Importantly, the Fourth Department held that the decisions by the Court of Appeals in Bi-Economy and Panasia did not warrant a decision granting Plaintiff attorneys’ fees. The Court found no support for Plaintiff's allegation that Merchants breached its implied covenant of good faith and fair dealing by not investigating the claim before denying it, or that the insurer otherwise acted in bad faith toward plaintiff. Nor was there any justification for a conclusion that the recovery of attorneys' fees by Plaintiff was, at the time of formation of the contract, within the contemplation of the parties as an intended or foreseeable consequence of any breach.
Accordingly, Merchants was granted summary judgment and the part of Plaintiff’s complaint seeking attorneys’ fees was dismissed.
09/23/16 Attorneys Liability Protection Society v. Ingaldson Fitzgerald
United States Court of Appeals, Ninth Circuit
Ninth Circuit Holds that the Federal Liability Risk Retention Act Preempts Alaska State Law that Barred Recoupment of Defense Costs for Ultimately Uncovered Claims, Finds Recoupment Claim Can Proceed
ALPS is a risk retention group chartered in Montana that provided legal malpractice coverage to Ingaldson, a law firm located in Alaska, from April 29, 2007 to April 29, 2008. The policy covered claims arising out of provision of professional services, excluded claims arising from disputes over fees, and required Ingaldson to reimburse ALPS for fees and costs that ALPS incurred in defending non-covered claims.
In 2008 a former client brought a claim against Ingaldson concerning disbursements and withdrawals from a $150,000 retainer. The former client sought recovery of the retainer and asserted claims for restitution, disgorgement, and conversion. Ingaldson notified ALPS of the underlying suit. ALPS accepted Ingaldson’s tender of the defense in the underlying suit, but did so with the caveat that ALPS reserved all rights. ALPS explained that the underlying suit did not appear to fall within the grant of coverage, and that some of the claims fell within the policies exclusions.
Ingaldson retained independent counsel to defend it in the bankruptcy litigation, and ALPS paid the fees charged by that counsel. The court twice granted partial summary judgment against Ingaldson. On September 23, 2011, ALPS filed an action in federal district court seeking a declaration that the ALPS policy did not cover the claims against Ingaldson and that ALPS had no obligation under the policy to provide an appeal bond in the underlying suit. ALPS also sought to recover the expenses it incurred providing a defense to Ingaldson.
The district court determined that the policy did not cover the claims in the underlying suit. It also concluded that ALPS had no obligation to provide an appeal bond. Nevertheless, the district court determined that ALPS were not entitled to reimbursement of defense costs. The district court reasoned that while the policy provided ALPS with a right to reimbursement, the reimbursement provision did not comply with Alaska insurance law and was therefore unenforceable. Specifically, the district court concluded that the reimbursement provision was inconsistent with Alaska Statute § 21.96.100(d), which provides that in furnishing the insured with independent counsel, an insurer “shall be responsible only for the fees and costs to defend those allegations for which the insurer either reserves its position as to coverage or accepts coverage.” The district court rejected ALPS’ argument that the Liability Risk Retention Act of 1986, 15 U.S.C. §§ 3901-3906 preempted the Alaska Statute.
On appeal, the Ninth Circuit asked the Alaska Supreme Court to answer whether Alaska Statute § 21.96.100(d) prohibits enforcement of a recoupment clause like the one in the ALPS policy. The Alaska Supreme Court answered that it did.
Thereafter, the Ninth Circuit addressed ALPS argument that the Liability Risk Retention Act preempts the Alaska Statute. It concluded that it did.
In ALPS’ chartering state, Montana, insurers are permitted to recoup defense costs incurred in defending non-covered claims. The Liability Risk Retention Act leaves regulation of a risk retention group to the state where the risk retention group is chartered. The Ninth Circuit found that the Alaska Statute places a restriction on Alaska insurance contracts that is not contemplated by the Liability Risk Retention Act and is not precluded by all other states. Although ALPS is permitted by its chartering state, Montana, to require reimbursement of fees and costs incurred defending noncovered claims, ALPS would not be permitted to include such a provision in a contract issued in Alaska. Section 21.96.100(d) therefore “regulates” ALPS’s operations in Alaska and impermissibly conflicts with the Liability Risk Retention Act.
In addition, Ingaldson argued that ALPS was estopped from coverage and breached the implied covenant of good faith and fair dealing by failing to attend settlement conferences. The Ninth Circuit rejected this argument, holding there was no evidence Ingaldson was prejudiced by ALPS’ failure to attend settlement conferences. ALPS informed Ingaldson from the outset it intended to assert coverage defenses, provided independent counsel, and acted consistently with its view that coverage did not exist.
09/08/16 Carpenter v. Lovell’s Lounge and Grill, LLC
Court of Appeals of Indiana
Bad Faith by the Insured: Insurer was not Bound by Consent Judgment Designed to Remake the Incident to Fall within Coverage
Lovell’s Lounge operates Lovell’s Lounge and Grill (“the Lounge”) in New Castle, Indiana. In May 2012, Carpenter went to the Lounge, and within moments of entering, he was injured by Johnson. Johnson hit Carpenter in the left jaw and kicked him in the left eye. Johnson was eventually convicted of class C felony battery resulting in serious bodily injury.
In August 2013, Carpenter filed a civil action against the Lounge and Johnson based on the incident. The complaint alleged that Carpenter was brutally attacked by Johnson with numerous punches and kicks. It also alleged that Johnson was an employee of and/or performed services for the Lounge. The complaint had three counts. Count I was a claim for civil assault and battery, which alleged intentional conduct. Count II was a negligence claim based on premises liability, and Count III was a claim based on a Dram Shop Act violation.
CSU insured the Lounge under a CGL Policy. When the Lounge sought coverage for Carpenter’s complaint CSU denied coverage based on several grounds, including an assault and battery exclusion in the Policy. Thereafter, Carpenter filed an amended complaint that added an allegation that Johnson negligently came into physical contact with Johnson. CSU again denied coverage based on the assault and battery exclusion.
Carpenter and the Lounge submitted a consent judgment to the trial court, which the court approved and entered. The consent judgment provided that Johnson negligently came into physical contact with Carpenter accidentally causing him bodily injury. It also provided that Johnson was an agent of the Lounge at the time of his negligent conduct. Further, the parties agreed that Carpenter incurred damages totaling $1,125,000.
CSU commenced a declaratory judgment action. The Lounge filed a motion to dismiss, asserting that CSU’s complaint failed to state a claim because CSU was barred by collateral estoppel from litigating the facts and issues determined in the consent judgment. CSU then filed a motion to set aside the consent judgment arguing that it was the product of bad faith.
In Indiana, an insurer is normally bound by the result of litigation to which its insured is a party as long as it had notice and the opportunity to control the proceedings. This rule does not apply if the insurer defends under a reservation of rights or files a declaratory judgment action. However, Indiana law also provides that a consent judgment will not bind an insurer if it was the product of bad faith or collusion.
The court held that CSU was not bound by the consent judgment even though it did not defend the action under a reservation of rights or file a declaratory judgment action because the judgment was the product of bad faith or collusion. In a matter of first impression in Indiana, the court decided that CSU, the insurer, had the burden of showing the consent judgment was the product of bad faith or collusion by clear and convincing evidence. The court’s rationale for placing the burden on the insurer was that it did not file a declaratory judgment action before the consent judgment was approved.
Among the factors to be considered to determine if a consent judgment was procured by bad faith or collusion are unreasonableness, misrepresentation, concealment, secretiveness, lack of serious negotiations on damages, attempts to affect the insurance coverage, profit to the insured, and attempts to harm the interest of the insurer. They have in common unfairness to the insurer, which is probably the bottom line in cases in which collusion is found.
Evaluating these factors, the court concluded that the consent judgment was the product of bad faith or collusion. The stipulation that Johnson negligently came into contact with Carpenter was unreasonable in light of the criminal disposition and the allegation that Johnson brutally attacked Johnson with punches and kicks. The stipulation that Johnson was an agent of Lovell’s was also unreasonable given the lack of allegations in the complaint and evidence of an agency relationship. Finally, the lack of settlement negotiations prior to CSU’s denial of coverage supported a finding that the parties did not engage in serious negotiations on damages. In short, the court found that the parties remade the incident so that it would not fall under the party’s assault and battery exclusion.
PHILLIPS’ FEDERAL PHILOSOPHIES
Jennifer J. Phillips
09/30/16 Mount Vernon Fire Ins. Co. v. Munoz Trucking Corp. et al.
United States District Court, Southern District of New York
No Duty to Defend, but a Duty to Indemnify?
This coverage dispute stemmed from an accident wherein a dump truck being used as part of the Second Avenue subway tunnel construction in New York City struck and killed the underlying claimant. The plaintiff insurer brought the present action seeking a declaratory judgment that it is not obligated to provide a defense or indemnify the defendants, which included the insurer’s named insured Munoz Trucking Corporations and eight additional contractors, in connection with the underlying lawsuit.
The district court made short work of Mount Vernon’s potential obligations to the eight additional contractors who purported to be additional insureds under the relevant policy. That policy contained a blanket additional insured endorsement providing coverage for any person or organization for which Munoz Trucking performs work under a written contract or agreement which required that person or organization to be added as an additional insured under the policy. However, none of the contractors produced any evidence of any written contract or agreement between themselves and Munoz with the required insurance coverage provision. Mount Vernon was therefore granted summary judgment against the additional contractors.
The court next considered the insurer’s duty to defend the named insured, Munoz Trucking. The district court recognized that “[i]n New York, ‘an insurer’s duty to defend is “exceedingly broad” and distinct from the duty to indemnify.” This duty cannot be avoided unless the allegations in the underlying complaint, liberally construed, do not even potentially bring the claim within the protection purchased. Further, if any allegation falls within the scope of the risks undertaken by the insurer, regardless of how false or groundless those allegations might be, the duty to defend is triggered.
The court highlighted an auto exclusion in the relevant policy which precluded coverage for bodily injuries arising out of the ownership, maintenance, use or entrustment to others of any auto owned or operated by or rented or loaned to any insured, even where the claims against the insured allege negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others by that insured. The district court found that underlying complaint “clearly alleges that [claimant’s] death arose out of the use of an auto owned and/or operated by Munoz,” specifically the negligence and recklessness in the ownership, oversight, supervision, selection, maintenance, operation, control and/or direction of the dump truck involved in the accident. Munoz was also allegedly negligent for its knowledge of and failure to ensure that the dump truck traveled to and from the work zone only by way of designated haul routes.
The district court found that Mount Vernon did not have a duty to defend Munoz Trucking in the underlying action based on the Auto Exclusion. “[I]t is well established that it is the act giving rise to liability that is determinative, not the theories of liability alleged.” In this case, “regardless of whether the theory of liability in the Underlying Action is negligence, negligent hiring or supervision, or negligence in the decisions concerning the debris hauling routes, the act giving rise to liability is the same – an automobile accident.”
Despite concluding that, even liberally construed, there were no allegations in the underlying complaint that could potentially bring the claims against Munoz Trucking within the scope of coverage of the relevant policy, the district court went on to conclude that the issue of Mount Vernon’s obligation to indemnify Munoz “is not yet ripe for review.” “The Court recognizes that it is unusual for an insurer to potentially have a duty to indemnify, while being found to not have a duty to defend. Indeed, an insurer’s duty to defend is generally understood as being broader than its duty to indemnify.” Noting that the tests for a duty to defend and for indemnification are separate and distinct, the court continued:
“[T]he pleadings unambiguously indicate that the Auto Exclusion applies to Munoz, and thus that Mount Vernon does not have a duty to defend Munoz in the Underlying Action. However, in assessing Mount Vernon’s duty to indemnify, the court must await resolution of factual disputes in the Underlying Action, such as who owned/operated the subject truck and who employed Ulloa-Tapia, in order to assess whether the Auto Exclusion applies to Munoz. Likewise, the Court must await a determination of Munoz’s liability, in any, in the Underlying Action. For these reasons, the Court finds that a determination as to Mount Vernon’s duty to indemnify is not ripe for review.”
The district court further rejected defendants’ argument that Mount Vernon failed to timely disclaim coverage, and granted in part and denied in part this insurer’s motion for summary judgment.
Editors’ Notes: There appears to be a logical disconnect in the district court’s conclusion that a duty to indemnify could still be triggered where there is no basis for imposing a duty to defend. By reserving on the issue of indemnification, the district court is acknowledging that there is a potential in the underlying lawsuit for Munoz to be found liable for the accident in a manner that falls within the scope of the policy. That this potential may become clear only after consideration of facts outside the complaint – here, the court notes an issue of fact with respect to the ownership of the truck – is of no consequence. “[E]ven where a complaint itself does not suggest the possibility of coverage, the insurer nevertheless has a duty to defend if facts outside the complaint suggest that the claim is within the scope of the relevant insurance policy.” Wausau Underwriters Ins. Co. v. Old Republic Ge. Ins. Co., 122 F. Supp. 3d 44, 49 (SDNY 2015) (citing Fitzpatrick v. Am. Honda Motor Co., 78 N.Y.2d 61, 70 (1991)); Fieldston Prop. Owners Ass'n, Inc. v. Hermitage Ins. Co., 16 N.Y.3d 257, 264–65 (2011).
In concluding that the possibility of a duty to indemnify still exists, the district court relied on Grinnell Mut. Reinsurance Co. v. Reinke, 43 F.3d 1152, 1154 (7th Cir. 1995) for the assertion that “a conclusion that the insurer need not defend does not imply that it need not indemnify.” This Seventh Circuit case, however, applied the law of Illinois, which treats arguments about the duty to indemnify as unripe until the insured has been held liable. Further, the Grinnell court did not conclude that a duty to indemnify could exist where there is no duty to defend; instead, it considered whether the accident victim claimants could seek to enforce a duty to defend on appeal where no indemnification declaration had been issued. That court found that because a plaintiff’s theory of liability could completely change, raising additional issues which might affect the findings of the district court in that declaratory judgment action, the claimants were not yet aggrieved for the purpose of taking an appeal. Grinnell, 43 F.3d at1153 (claimants’ “interest lies in enforcing the indemnity provisions of the insurance contract, not the defense provisions”). Thus, Grinnell focused on considerations of federal appellate procedure rather than undermining the precept that a duty to defend is generally broader than the duty to indemnify. See generally Cashman v. Bayland Buildings, Inc., No. 15-C-808, 2016 WL 2766643, at *4–5 (E.D. Wis. May 12, 2016). Indeed, as stated in Atlantic Cas. Ins. Co., on which the district court also relied, there is no per se rule that a declaration by a district court resolving a dispute between an insurer and an insured with respect to a duty to indemnify is premature during the pendency of an underlying action. Atl. Cas. Ins. Co. v. Value Waterproofing, Inc., 918 F. Supp. 2d 243, 261 (S.D.N.Y.), aff'd 548 F. App'x 716 (2d Cir. 2013).
ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA
Howard B. Altman
On August 27, 2016, the National Association of Insurance Commissioners (NAIC) released its “Report on the Cybersecurity Insurance Coverage Supplement”. The data shows that identity theft remains the most common form of risk addressed by cyber-coverages in their various forms. Damage can stem not only from the disclosure of personal information, but the temporary shutdown of business (recall the flight cancellation last year, when United’s servers went down), and even bodily injury. Companies in the technology, energy, and healthcare sectors need to take the issue seriously as society continues to integrate remotely accessible and operable devices in our homes, cars, and bodies.
The NAIC culled information from carriers affording cybersecurity regarding the number of claims reported (First Party & Third Party); the premiums written and earned; direct losses paid and incurred; defense and cost containment expenses paid and incurred. NAIC found that admitted insurers wrote approximately $1.5 billion in premiums in 2015 for cybersecurity coverage. Of the $1.5 billion total, approximately one third was attributed to standalone cyber policies. The major limitation in NAIC’s report is the lack of data from what NAIC estimates to be the bulk of the insurers writing cyber coverage: non-admitted, or “surplus lines” insurers. NAIC estimates that those insurers may account for more than half of the market, given some estimates that the market currently exceeds $3 billion in premiums annually for U.S. companies.
Regarding claims, the data is limited, but NAIC found that loss ratios for stand-alone cybersecurity insurance ranged from zero to over 500%. As NAIC noted, a zero loss ratio could be indicative of good underwriting and the careful selection of risk, or simply good luck. NAIC also noted that approximately 82% of the third-party liability coverages in standalone policies were written on a claims-made basis, meaning only claims made during the policy period are covered, regardless of when an injury may have occurred. Writing claims-made coverage provides insurers with more certainty.
Bodily injury can potentially result from a cybersecurity issue, whether from interfering with a pacemaker, electronic equipment in a vehicle, or a cyberattack or failure of aviation equipment. Think Die Hard II: whether terrorist related, or simple equipment breakdown, the failure of air traffic control computers could result in catastrophic injuries and claims. Hackers have also shown they can interfere with pacemakers and insulin pumps to cause injury or death.
CGL carriers can exclude terrorist attacks and cybersecurity issues, but without these exclusions, carriers, could be on the hook. In Travelers Insurance v. Portal Healthcare Solutions (4th Cir. 2016), the Court Circuit Court of Appeals held that a data breach was covered, at least in part, by the victim company’s CGL policy the “personal and advertising injury”, which covered the “oral or written publication, in any manner, of material that violates a person’s right of privacy.” The carrier argued that “publication” meant publication by the insured, not by a hacker, but the Court said in effect that “publication is publication” and found coverage. While the Court based its decision on Virginia law, other courts, including New York with its broad duty to defend, could follow suit. In fact, the Court’s decision in Travelers was based upon the breadth of the duty to defend, noting that “ “under Virginia law, an insurer's duty to defend an insured ‘is broader than its obligation to pay’ or indemnify an insured…and that the insurer must use ‘language clear enough to avoid ... ambiguity’ if there are particular types of coverage that it does not want to provide,” Travelers Indem. Co. of Am. v. Portal Healthcare Sols., L.L.C., 644 F. App'x 245, 247–48 (4th Cir. 2016).
Earl K. Cantwell
[email protected]
03/31/16 Allied Property & Casualty Ins. Co. v. Metro North Condo. 2016 WL 1270480 (N.D. Ill. March 31, 2016).
Lack of Coverage Upheld in Construction Defect Case
The Condominium Association hired CSC Construction for window and glazing work which allegedly resulted in serious water infiltration issues because of construction errors and omissions. The Condominium Association sued CSC, and the parties settled for $700,000.00, with CSC assigning its right to recover from Allied Property and Casualty Insurance and Amco Insurance Company under its CGL policies. In a declaratory judgment action, the two insurance companies alleged that they did not have to indemnify or pay for the settlement because the underlying claims did not fall within the policies’ definition of property damage caused by an accidental occurrence.
The District Court held for the insurance companies, ruling that a construction defect is not an “occurrence” or “accident” that triggers covered property damage under a CGL policy. Rather than being accidental, a true construction defect is the likely and probable consequence of faulty workmanship. As the Court succinctly put it, there was no accident, so there was no occurrence, so there was no coverage.
This case represents another chapter in the continuing saga of whether or not CGL policies cover construction defect claims. This case primarily focused on the line of analysis holding that construction defects are not “accidental occurrences” within the meaning of liability insurance policies. Other cases have brought into play other contract terms and exclusions such as whether the construction defect caused defined “property damage” under a CGL policy, and whether contractual exclusions such as contract-assumed liability may preclude or limit coverage. Generally, the courts have been reluctant to, in effect, make a CGL policy the equivalent of a performance bond for a contractor’s work.
This issue needs to be addressed on a state by state basis since the decisions are not uniform, and even within states there are conflicting decisions. In many cases this issue has been addressed by state insurance regulation or legislation because of the common nature of the claim but widely varying judicial decisions.
This is also another example of a federal District Court analyzing and applying state (Illinois) law to the particular case presented to the best of their ability. In many similar cases, the federal courts have struggled to determine if and when a construction defect may be covered under a CGL policy, and in some cases they have “certified” the question to the state’s highest court for an answer and guidance where the issue is in doubt or there is no definitive state court ruling.
