Volume XVIII, No. 9 (No. 465)
Friday, October 21, 2016
A Biweekly Electronic Newsletter
Hurwitz & Fine, P.C.
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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.
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Dear Coverage Pointers Subscribers:
Do you have a situation? We love situations.
I bring you greetings from Boston, where I’m attending the DRI Annual Meeting. Lots of friends and colleagues from around the country are here and it is always great to break bread and share experiences with those similarly situated in our ever-shrinking legal and insurance universe. As a reminder, if you ever need to find counsel in another jurisdiction, we’re happy to help you locate able and competent attorneys throughout the United States and Canada. Through our involvement in DRI, FDCC, ADTA, IADC and the Harmonie Group as well as other trade organizations, we can find counsel of any stripe in any practice area, anywhere you may need help.
In this issue, we bring you our first “thousands flee” case in a few months. Regular readers know that when we use that hashtag, we are reviewing a decision we think is fundamentally in error. This week we discuss a Fourth Department Supplemental Uninsured/Underinsured Motorists decision (SUM coverage) where the court, in our humble opinion, missed the mark. An insurer failed to file its application to stay arbitration within 20 days, but in a case where the vehicle involved was not insured under the policy. In our view, if the vehicle was not insured, there was no contract under which coverage should be provided and accordingly, missing the 20 day mark should be of no consequence. One cannot create coverage if none exists. The Fourth held that the failure to seek court relief with the 20 day period waived coverage defenses.
Dachs on SUM Coverage:
Speaking of SUM coverage, Jonathan Dachs has recently released his new book, "New York Uninsured and Underinsured Motorist Law & Practice," published by LexisNexis Matthew Bender. I have had a chance to review the publication. There is no lawyer more schooled and respected in the field of New York Uninsured and Underinsured Motorist coverage than Jonathan Dachs. This will be a wonderful desktop handbook whenever a lawyer, claims professional or judge requires clear authority and practical direction. To order a copy, click here.
One Hundred Years Ago Stories:
I know that many of you read this newsletter for the historical trivia rather than the insurance cases. We get lots of feedback on this publication and much of it deals with the “hundred years ago” vignettes.
Regular (or irregular?) readers of this newsletter know that in my cover note, I always sprinkle my “hundred years ago” stories among the letters from the CP authors. That practice started many years back, when I tried to include 100 years ago insurance coverage decisions in this column. That practice morphed into my practice of including news stories of every ilk that appears in our nation’s newspapers exactly a century before that particular issue. In today’s issue, I have conflated history with insurance and most of my century-old cases have something to do with insurance (but for the dog case, which I could not resist including).
Peiper’s Post:
If memory serves, I thought one was supposed to go to Boston in the Springtime. No? Nevertheless, in the event anyone is listening, we implore our team to please come home from Boston as there is much work to be done.
While the issue is finally back on stable footing this week with many decisions coming out in the past few days, we will use our precious space to provide a bit of an update. If you handle cases in Upstate NY, particularly in the Fourth Department, you have no doubt come across the recent decisions in Lalka and its progeny. Despite our Editor’s urging, thousands did not flee. Rather, they’re stuck here dealing with its fallout.
Recall, the Appellate Division in that case ruled that attorney reports are not necessarily exempt from discovery as they may be considered mixed use reports and thus outside the realm of the privilege. We, respectfully, disagreed with the conclusion. Lalka followed the Fourth Department’s earlier decision in Heimbach which appeared to rule that the entirety of a carrier’s claim file was discoverable in SUM actions.
We are happy to report that we have been challenging the rules enunciated in Lalka, or at the very least limiting its application, with some degree of success.
Indeed, when motions are presented to the Court which explain what is included in an insurer’s file, why certain items therein are important, proprietary and privileged, Courts are more than willing to apply the rules of discovery as they had been developed over decades. Indeed, we say with some degree of confidence, that items such as reserves, litigation strategy, and damages assessment are categorically exempt from discovery. When the Court is provided with the right arguments to consider, more times than not they issue the correct ruling.
The key, of course, is presenting the right arguments. This means understanding that it is the carrier’s burden of proving privilege or discovery exemptions. It CANNOT be done by way of attorney affidavit only. If you represent an insurer, it is your obligation to understand their business and understand how to explain their business to the Judge hearing your case. When you do it, courts listen, decisions are helpful, and your clients are happy. Who would want to flee from that?
Steve
Steven E. Peiper
A Ruff Time, a Century Ago:
Daily Arkansas Gazette
Little Rock, Arkansas
21 Oct 1916
Must Replace Trousers or
Kill His Dog
A beagle dog owned by D. L. Parker was granted nine days of grace yesterday morning by Municipal Judge Woodruff, at the end of which time he will be put to death unless his owner refunds to B. W. Fowler the price of a perfectly good pair of pants.
Parker believed he had the dog securely tied with a rope at his home, but the temperamental quadruped broke his leash as Fowler was passing the house and bit him three times, according to Fowler, each time carrying away a very necessary part of his trousers. Fowler said he has no designs against the dog’s life, but that if the necessary pay for his trousers is not forthcoming, he would ask that the hound be executed. Judge Woodruff ordered the dog tied up for nine days, at the end of which time it will be killed unless the trousers are paid for.
Altman’s Administrative (and Legislative) Agenda:
Greetings.
As our thoughts turn to fall,
The Cubs and Dodgers say “Play ball!”
And for our banished New York teams,
All of those postseason dreams.
Must say “just wait until next year?”
While sorrows drown in golf, and beer.
Though I’m not much a drinking guy;
My sorrow’s drowned in pumpkin pie.
Well, it may not be the thrill of the postseason hunt, or even the thrill of pumpkin pie, but today, I bring you the nuts and bolts of New York’s new cybersecurity regulations, and so, for you regulatory fans, play ball!
Howard
Howard B. Altman
Lusitania Life Insurance Claim – 100 Years Ago:
The New York Times
New York, New York
21 Oct 1916
VANDERBILT DEATH SUIT.
Alfred G.’s Executors Seek $150,000
Insurance on Accident Policy
A suit on an accident insurance policy to recover $150,000 for the death of Alfred G. Vanderbilt on the Lusitania on May 7, 1915, was filed in the Supreme Court yesterday against the Travelers Insurance Company. Roy C. Gasser, the attorney who brought the suit in behalf of the Vanderbilt executors, said the case would be carried to the highest court if necessary to determine the rights of holders of policies against which war riders were issued by the insurance company.
The complaint said Mr. Vanderbilt took out the policy in 1903 for $50,000, and under its terms the amount due in case of the death of the policyholder through external means while on a common carrier was increased until the amount payable at the time of Mr. Vanderbilt’s death had become $150,000. He paid eleven premiums. When the executors demanded payment of the policy, however, the insurance company declined on account of the war rider which relieved the company if the policyholder entered the war zone.
The contention of the attorney for the Vanderbilt estate is that the Lusitania travelers were not a war risk because the usual rules of international law would have prevented the Lusitania from being sunk unless the passengers were saved.
Editor’s Note:
What happened to the claim? Win for the carrier, but it took seven more years until the case was finally resolved.
The concessions of the parties that the Lusitania was sunk in accordance with instructions of a sovereign government, by the act of a vessel commanded by a commissioned officer of that sovereign government, being then operated by that said officer and its crew, all of whom were part of the naval forces of the said sovereign government, and that war was then being waged by and between Great Britain, the sovereign controlling the Lusitania, and Germany, the sovereign controlling the submarine vessel, control the conclusion which must be reached that the casualty resulted from war and that the consequences of the casualty come within the excepted portions of the policy.
Vanderbilt v. Travelers' Ins. Co., 112 Misc. 248, 252, 184 N.Y.S. 54, 56 (Sup. Ct. 1920), aff'd sub nom. Vanderbilt v. Travelers' Ins. Co., 202 A.D. 738, 194 N.Y.S. 986 (App. Div. 1922), aff'd sub nom. Vanderbilt v. Travelers' Ins. Co., 235 N.Y. 514, 139 N.E. 715 (1923)
Wilewicz’ Wide World of Coverage:
Dear Readers,
Lots to get into this week again out of the Circuit Courts. Coverage seems to be on the forefront of decisions across the country, and we here at Coverage Pointers are happy to bring you the very latest.
In Core Construction v. Crum & Forster, an insurer scored a big win in a property damage case in Florida. There, following Hurricane Wilma a condominium complex found that its new roofs had been improperly installed, thus contributing to damage to the properties. However, when an AI under Crum’s policy sought coverage, the carrier disclaimed on the basis that this was not “property damage”, which was defined as “physical injury to tangible property, including all resulting loss of use of that property”. Faulty workmanship or defective work were simply not covered under the CGL policy. There had to be something more beyond the faulty work itself, said the court. No coverage for that one.
In Markel American v. Verbeek, we have a fairly straight forward one out of the Fifth Circuit. There, the insured took out millions of dollars in loans, defaulted, and filed for bankruptcy. We don’t recommend that. When its creditors and banks all sued (surprise, surprise), they filed a claim under their D&O policy and asked for defense and indemnification. Unsurprisingly, the carrier was not pleased. They disclaimed on the policy’s Creditors Exclusion, and simultaneously filed a DJ action. The Fifth Circuit ultimately held that this exclusion, precluding claims brought by creditors in their capacity as creditors, was plain in its terms. No coverage there either.
In Galaria v. Nationwide, we bring you an interesting one of the Sixth Circuit. While not an insurance coverage case, it does deal with causes of action against carriers. There, Nationwide had suffered a massive data breach in 2012. When a class of plaintiffs sued, the carrier first won a dismissal for lack of standing to bring a claim. Essentially, the lower court said that since no actual injury had yet taken place, the plaintiffs couldn’t sue the carrier. However, the Sixth Circuit ruled otherwise. In this decision, they held that since the main objective of hacking personal data is eventual identity theft, such damage was inevitable, even if it had not happened yet. Thus, plaintiffs were able to proceed with their case against the carrier. Yikes.
Until next time,
Agnes
Agnes A. Wilewicz
Fire Claim – One Hundred Years Ago:
The Kingston Daily Freeman
Kingston, New York
21 Oct 1916
PARISH’S FACTORY
WAS SET ON FIRE
Fire Department Investigating the Fire
that Gutted the Carpet Clean Factory—Fire Started
in Wagon Shed
The fire department is investigating the fire that gutted the carpet cleaning factory of George W. Parish in the rear of No. 370 Hasbrouck Avenue. The fire was discovered at 6:45 o’clock Friday evening and an alarm was rung in from Box No. 55 to which the central station responded. The fire started in the wagon shed adjoining the factory and spread to the main building which was gutted before the fire could be extinguished. Mr. Parish said this morning he was positive the fire had been started and the fire department is of the same opinion. The wagon shed was also destroyed and a sleigh and a wagon were burned. Mr. Parish’s automobile and his horse was gotten out. Mr. Parish carried $200 insurance on the factory, $300 on the carpet cleaning machinery and $500 on the carpets. The insurance will not cover the loss. The factory was set on fire several years ago.
Tessa’s Tutelage:
Dear Readers:
I hope you had the beautiful fall weather we were experiencing the last week. I cannot believe how quickly this year is flying by. I was startled into this realization when I noticed that Home Depot has put up its Christmas decorations. I really can’t imagine why it is necessary to purchase a fake tree before Halloween, but I have never been that organized for holidays. Anyhow, we have two litigation matters this week. Both touch on the importance to properly and timely notice injured parties of upcoming Independent Medical Examinations. In the no-fault world it is crucial to carefully abide by timelines and properly record the handling of the file. As with most issues in life, a small oversight can have a snowballing effect…. I hope that’s the last mention of snow I make for a little while.
I hope you have a lovely weekend!
Tessa
Tessa R. Scott
Insurance Fraud – 100 Years Ago:
The Sun
New York, New York
21 Oct 1916
ADJUSTER ACCUSED OF THEFT
Castwell Charged With Appropriating Wrecked Motor Car
Robert E. Castwell of 176th Street and St. Nicholas Avenue, an insurance adjuster employed by the Globe Indemnity Company, was arrested yesterday charged with grand larceny by the company. Judge Rosalsky in General Sessions held him in $7,500 bail. This is the second arrest within a week of an automobile insurance adjuster.
Castwell, sent to adjust the indemnity of an automobile owned by W. E. Rosenberg of New Haven, reported that the automobile was a total wreck. He received $1,500 to settle with Rosenberg, according to the complaint. Instead of turning the machine over to the company for salvage he had it repaired, used it himself for a year and then sold it, it is charged.
Jen’s Gems:
Greetings!
This week I check in from Boston where I am attending DRI’s Annual Meeting. I actually just finished listening to a very interesting discussion about communicating with Millennials. Based on the age range provided by the presenter, a Millennial is someone born between 1980 and 2000. Much of the presentation was refuting the myth that Millennials are narcissistic and lazy. As a Millennial myself (although admittedly on the old end), that was good to hear. With that said, the portion of the discussion about the use of Snapchat left me confused about what it was and forced me to google it after the presentation was over. I must not be a cool Millennial.
Until next issue…
Jen
Jennifer A. Ehman
Collapse v. Fire, 100 Years Ago:
Adams County News
Gettysburg, Pennsylvania
21 Oct 1916
WOULD GO HIGHER
Want Myers Case Take to
United States Court
Insurance Companies which carried the insurance upon the warehouse of J. W. Myers and Co., wholesale grocers at Hagerstown, which was destroyed by fire last December, and against whom Messrs. Myers recently brought suit, have filed a motion to have the cases removed to the United States District Court for Maryland.
A provision of the statute gives the companies this right when the amount involved is above $3,000.
The Messrs. Myers some time ago brought suit against 23 insurance companies, claiming approximately $100,000 for insurance upon the destroyed building and stock.
The insurance companies contend, it is stated, that the building first collapsed and then took fire, and for this reason have refused to pay the insurance. The Messrs. Myers claim that the building caught fire and that when the timbers were burned sufficiently to weaken the loaded building it then collapsed.
Phillips Federal Philosophies:
Hello, All:
Ah, fall, when the weather turns colder and one sits by a fire with a good book, pretending that the Red Sox made it to the World Series. I can’t do anything about the ‘Sox, but as for the books – for those of you that like your literary detectives to have both poetic and a P.I. license, this week’s recommendation is Ken Bruen’s Jack Taylor novels. All of ‘em.
As for coverage cases, today we have a discussion of contractually shortened statutes of limitation from the Eastern District of New York in Nikchemny v. Allstate Insurance Company.
As always, thanks for reading.
J.
Jennifer J. Phillips
Fraud Ring – One Hundred Years Ago:
The Evening World
New York, New York
21 Oct 1916
4TH ARREST IN RISK FRAUD
Adjuster for Indemnity Company
Locked Up in Tombs
Frank McGinley of No. 122 Snedeker Avenue, Woodhaven, L.I., an adjuster for the Globe Indemnity Insurance Company of No. 45 William Street, was locked up in the Tombs to-day on an indictment charging grand larceny.
The Insurance Company alleges that through collusion with a relative he defrauded it of $825, paid out as insurance in a fake automobile accident. He is the fourth man to be arrested in the investigation of automobile insurance frauds.
Barnas on Bad Faith:
Hello again:
It seems that lamenting your favorite baseball team’s lack of postseason success is a theme in this week’s cover notes. While my Blue Jays may have made a deeper run than Jen’s Sox or Howard’s New York teams, it always stings when your season ends. While it is a small consolation, it will be nice to see a team that hasn’t won in a long time, or multiple lifetimes in the case of the Cubs, take home the World Series trophy.
I have two cases for your reading pleasure this week. In Bodnar, the Third Circuit concludes that the insurer did not act in bad faith by investigating a claim, filing a declaratory judgment action, and eventually deciding to tender the policy limit of $1 million after discovery in the DJ action confirmed the policy exclusion did not apply. Seems reasonable to me.
Cadle is a case decided under Florida Law. Florida has some particularly interesting bad faith rules. For example, an insured may recover noneconomic benefits from her UM carrier if the insured can demonstrate the existence and permanency of an alleged injury resulting from the subject automobile accident and the insurer refuses to pay the claim during a bad faith cure period. These damages are available without regard to whether the damages were caused by the insurance company. Here the insured obtained a $900,000 verdict on her SUM claim and then brought a bad faith action against GEICO to recover noneconomic benefits, which would have been the difference between the awarded verdict and the policy limit. However, there was no evidence that her injury was permanent when the claim was denied during the bad faith cure period. Thus, the insured was not entitled to recover noneconomic benefits from GEICO.
See you next time.
Signing off,
Brian
Brian D. Barnas
History of Auto Insurance – as Told 100 Years Ago:
Honolulu Star-Bulletin
Honolulu, Hawaii
21 Oct 1916
Automobile Insurance
Has Existed 20 Years
Expert on Insurance Tells of Early Stages
of Insurance of Motor Cars—First Introduced in
Great Britain 26 Years Ago—More Than 50 Companies
Now Writing Insurance on Automobiles—Collision Insurance
is Not Profitable in Hawaii
By STANTON WYATT
(Manager of Insurance Department of Schuman Carriage Co.)
Automobile insurance was first introduced by Great Britain as early as 1899, more than 20 years ago, when the motor car was considered nothing more than a plaything.
In 1900 automobile insurance first came into vogue in the United States when the demand for insurance covering an automobile against fire first occurred. At that time there were only a few companies that would write this class of Insurance on account of the large losses that were suffered. However, after the manufacturing of motor cars passed the experimental state the American companies released that the danger was not so great and today there are about 70 companies now writing this class of business.
Reasons Why
There are numerous reasons why automobiles burn. In the first place, many of the automobile manufacturers do not give proper thought or consideration to the possibilities of fire when designing a car, or deciding on the location of magnetos, carburetors or gasoline tanks. They naturally have in mind the building of a motor that will operate along the lines of least resistance.
* * *
In the states the most serious hazard to the insurance companies is the theft feature, by reason of the fact that cars so easily lose their identity. Different bodies can really be substituted and engine numbers easily changed. However, this hazard is greatly reduced in the islands where it is impossible to get away with a machine. It is true, however, that the theft hazard is steadily increasing there. There have been a number of machines stolen and wrecked within the last few months.
* * *
Careful Driving
When we say irresponsible drivers, we do not mean to cast reflections upon the examinations required in order to secure a chauffeur’s license which we believe are rigid enough. There are so many rent machines here operated by drivers on a commission basis, who anxious to make as many loads as possible, often take changes that they would not take if they owned the machine themselves.
Liability insurance is a form of protection that every responsible automobile owner should carry, for you can never tell then some careless pedestrian or child will step out in front of your machine. Then, too, there are so many bicycle riders who invariably cross from one side the road to the other, paying no attention to anyone else. This policy protects the owner on account of personal injury caused by his automobile, and also defends him in the event that suit is brought.
Hewitt’s Highlights:
Dear Subscribers:
Welcome to another column on the serious injury threshold. Also, welcome to Halloween season. My five-year-old is going to dress up as Wario, the bad version of Super Mario. My seven-year-old is dressing up as Donkey Kong, who was a bad guy when I was young but is a good guy now. They already have their costumes and are very excited for their Halloween parades and trick or treating. Since last time, the nights have grown colder down here on Long Island and the leaves have begun to change colors. Fall can be a fun time and I try to enjoy it because winter will be here before we know it.
We have two serious injury cases this week. In the first, defendants were able to succeed on summary judgment because plaintiff’s expert did not address why the degeneration found in the medical reports was not the cause of the injury. He apparently just claimed exacerbation of a prior condition without actually addressing that issue head on. The second case is an unusual Second Circuit case for this column in which the issue of serious injury actually made its way to the Second Circuit in Federal Court. As it was an appeal from a bench trial, the opinion highlights how difficult it is to overturn such a result on appeal, as the trial court judge is given deference on issues of credibility and factual findings.
Next time, it will be November. The year is just flying by.
Until next time,
Rob
Robert Hewitt
[email protected]
Highlights of this week’s issue, attached:
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
-
Court Considers Certificates of Insurance to Interpret Intention of Policy
-
If Notice under Liability Policy Comes from Injured Person (Rather than Insured) and Insurer Believe it is Late, Insurer Must Specifically Disclaim on the Injured Party’s Late Notice. Just Complaining about the Insured is Not Good Enough
-
Insurance Company’s Use of Non-Engineer to Deny Claim Does Not Constitute a GBL §349 Claim for Deceptive Trade Practices as Not Consumer Oriented
-
Failure to File Petition to Stay Arbitration Waives Claim that Motorcycle Policy was Not an Insured Vehicle on Policy. Thousands Flee.
-
No Coverage Under Additional Insured Endorsement because Trade Contract Did Not Require. Certificate of Insurance Does Not Alter Coverage. No Waiver or Estoppel Established. Additional Insured Endorsement is an Addition, Rather than Limitation of Coverage
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
-
Plaintiffs Experts Failed to Explain Degeneration and Provided No Objective Basis to Support Plaintiff’s Claim of Aggravation of Preexisting Conditions
-
Defendant’s Expert Demonstrated Objectively through Medical Evidence a Basis for His Opinion that Plaintiff’s Injuries Were Permanent and Causally Related to the Accident
TESSA’S TUTELAGE
Tessa R. Scott
[email protected]
Litigation
-
When Questions of Fact Remain, Summary Judgment Cannot be Granted
-
Vacating a Master Arbitration Decision was Inappropriate where it could not be Shown that the Required Regulatory Language was Used to Inform the Injured Party about an IME
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
Property
-
Failure to Assert Lack of Standing in Subrogation Action Waives Potential Affirmative Defense
-
Massachusetts Serves as Appropriate Forum where Plaintiff, Loss, Investigation and Witnesses all Reside in the Commonwealth
-
Carrier Fails to Show Materiality of Alleged Misrepresentations in Issuance of an Endorsement which Retroactively Applied to Create Coverage
Potpourri
-
Requirement that Insurance Recover be Sought Prior to Indemnity Claim Dooms Plaintiff’s Action
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
-
Insurer Prevails in Eleventh Circuit Property Case, Where Costs of Repairing and Replacing Improperly Installed Roof Held Not to Constitute Property Damage Under CGL Policy (Florida Law)
-
Fifth Circuit Says Creditor Exclusion in D&O Clearly and Plainly Precludes Defense and Indemnity Coverage for Insured Who Defaulted on Numerous Corporate Loans (Texas Law)
-
Sixth Circuit Holds that Data Breach Plaintiffs Can Sue Hacked Carrier, Despite No Actual Injury Yet (Ohio Law)
JEN’S GEMS
Jennifer A. Ehman
-
Court Finds Expert Affidavit Submitted in Opposition Lacks Probative Value
BARNAS ON BAD FAITH
Brian D. Barnas
-
Insurance Company did not Act in Bad Faith by Investigating Claim and Commencing a Declaratory Judgment Action to Determine the Applicability of a Policy Exclusion
-
Insurer did not Act in Bad Faith by Denying the Insured’s Demand for the Policy Limits where there was no Evidence to Suggest her Injuries were Permanent
PHILLIPS’ FEDERAL PHILOSOPHIES
Jennifer J. Phillips
-
Too Late, Two Ways
ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA
Howard B. Altman
-
Cyber-security regulations
EARL’S PEARLS
Earl K. Cantwell
[email protected]
-
Insurance Breach to be First Tried by a Jury
All the best.
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]
10/20/16 Southwest Marine and General Ins. Co. v. Preferred Ins. Co. Appellate Division, First Department
Court Considers Certificates of Insurance to Interpret Intention of Policy
Preferred (“PCIC”) failed to demonstrate the documentary evidence submitted in support of its motion to dismiss resolves all factual issues as a matter of law, and conclusively disposes of the plaintiff’s claim. While the additional insured endorsements at issue do not reference plaintiffs, plaintiffs are identified on the certificates of insurance, which is relevant to whether plaintiffs' exclusion from the endorsements was perhaps an inadvertent.
Editor’s Note: Hmm.
10/12/16 Pollack v. Scottsdale Insurance Company
Appellate Division, Second Department
If Notice Under Liability Policy Comes from Injured Person (Rather than Insured) and Insurer Believe it is Late, Insurer Must Specifically Disclaim on the Injured Party’s Late Notice. Just Complaining about the Insured is Not Good Enough
On January 11, 2009, Pollak sustained injuries when she slipped and fell on snow and ice outside her residence in Staten Island. The residence was part of a multiunit condominium at which Florite was under contract to provide snow removal services. Florite was insured under a general liability policy issued by the defendant, Scottsdale. The policy required Florite to provide the insurer with notice of an occurrence that could lead to a claim, as well as notice of a lawsuit based on a claim, "as soon as practicable."
By letter dated March 31, 2009, counsel for Pollak and her husband (hereinafter together the plaintiffs) notified Florite of the occurrence, and Florite, in turn, notified the insurer. On April 3, 2009, the insurer's investigator communicated with the plaintiffs' counsel regarding the claim and assigned an adjustor to investigate the circumstances of the occurrence.
That notice – of the occurrence – appears to have been timely.
In March 2010, the the Pollaks commenced a personal injury action against Florite (“underlying action”). The insured, Florite neither answered nor appeared in the underlying action, and never forwarded the suit papers to the insurer. In September 2010, before seeking leave to enter a default judgment against Florite, counsel for the Pollacks notified the insurer of the underlying action by sending a copy of the summons and verified complaint, medical records, and authorizations to the insurer's claim representative. By letter dated September 20, 2010, addressed to Florite and copied to the plaintiffs' counsel, the insurer notified Florite that it was disclaiming coverage due to Florite's failure to comply with the policy requirement to provide the insurer with notice of a lawsuit "as soon as practicable."
After a verdict that exceeded the $1,000,000 policy, the Pollaks brought a direct action against the carrier seeing to enforce the verdict against the policy. The insurer, in a pre-prejudice case, raised its “late notice” disclaimer as a defense to recovery.
The Second Department determined that the disclaimer was defective? Why? Because the notice of the lawsuit came from the injured party and the disclaimer letter referenced only late notice by the insured.
The injured party has a statutory right to give notice of an accident, claim or lawsuit. Where the required notice of suit is not provided by the insured, but rather by the injured party, the insurer's notice of disclaimer must address with specificity the grounds for disclaiming coverage applicable to the injured party as well as the insured, "because notice of an occurrence by the injured party constitutes prima facie compliance with the notice requirements of the policy and, if unchallenged, relieves the insured of its contractual duty to provide proper notice".
Coverage is limited to the policy limits of $1,000,000.
Editor’s Note: Not new law – the Court of Appeals made that point over 35 years ago: Although, under the facts of this case a disclaimer might have been premised on the late notice furnished by the third parties themselves to the insurer, since this ground was not raised in the letter of disclaimer, it may not be asserted now. Gen. Acc. Ins. Grp. v. Cirucci, 46 N.Y.2d 862, 864, 387 N.E.2d 223, 225 (1979)
10/07/16 JD & K Associates. LLC v. Selective Insurance Company
Appellate Division, Fourth Department
Insurance Company’s Use of Non-Engineer to Deny Claim Does Not Constitute a GBL §349 Claim for Deceptive Trade Practices as Not Consumer Oriented
JD & K Assoc. obtained a commercial insurance policy from defendant Selective Way Insurance Company (Selective Way) that provided coverage for, among other things, a building that plaintiff owned and leased to a limousine service. Selective Insurance) is an affiliate of Selective Way and serves as its claims administrator.
After two large depressions appeared in the concrete slab floor of the building insured under the policy, plaintiff submitted a claim for that loss. Selective Insurance hired Peter Vallas Associates (Vallas) to investigate the loss. Selective Way subsequently disclaimed coverage, relying upon the findings in the "Investigative Engineering Analysis Report" (report) prepared by Vallas' investigator, who was not an engineer, as well as its interpretation of the policy.
The policyholder Selective Way and Selective Insurance and on a prior appeal, the Fourth Department had concluded that plaintiff was entitled to partial summary judgment on its breach of contract cause of action inasmuch as an extension of coverage in the policy unambiguously provided coverage for plaintiff's loss. It denied, as premature, that part of the Selective companies application seeking to dismiss a deceptive acts and practices under General Business Law § 349. The plaintiff argued that Selective had misrepresented the investigator's credentials to plaintiff in disclaiming coverage for the property loss.
With discovery complete, the motion to dismiss was refiled.
Pursuant to General Business Law § 349, deceptive acts or practices in the conduct of ]any business, trade or commerce or in the furnishing of any service in this state" are unlawful and the statute provides an injured party with a private right of action to enjoin such unlawful acts or practices and to recover for violations of the statute. A plaintiff under section 349 must prove three elements: first, that the challenged act or practice was consumer-oriented; second, that it was misleading in a material way; and third, that the plaintiff suffered injury as a result of the deceptive act.
Selective’s conduct was not consumer-oriented, it did not have a “broader impact on consumers at large". Private contract disputes, unique to the parties do not fall within the ambit of the statute.
Contrary to plaintiff's contention, the information concerning defendants' prior use of Vallas' investigative services contained in the affidavit of defendants' in-house complex claims counsel, which was based upon his personal knowledge, established that defendants had not implemented any type of practice of hiring an unqualified site investigator and then misrepresenting his or her qualifications to render an investigative report as a method of deceiving unsuspecting policyholders and improperly disclaiming coverage. That the fact that defendants may have disclaimed coverage based in part on reports drafted by Vallas in a few commercial property cases closed within the last 15 years is insufficient to raise a material issue of fact whether the allegedly deceptive practice was standard or routine such that it potentially affected similarly situated consumers.
10/07/16 Allstate Insurance Company v. Cappadonia
Appellate Division, Fourth Department
Failure to File Petition to Stay Arbitration Waives Claim that Motorcycle Policy was Not an Insured Vehicle on Policy. Thousands Flee.
This is an application to stay supplementary uninsured/underinsured motorist (SUM) coverage.
Allstate issued an insurance policy for a pickup truck and two passenger vehicles. The policy provided SUM coverage to Cappadonia and also included an arbitration clause. While the policy was in effect, Cappadonia sustained personal injuries when a motorcycle he was operating was struck by an allegedly underinsured vehicle.
Although the motorcycle was not covered under the policy issued to him by petitioner, he made a claim with petitioner for SUM coverage. Allstate disclaimed coverage on the ground that the motorcycle was not covered under the policy, prompting respondent to demand arbitration pursuant to CPLR 7503 (c). More than five months after respondent's demand, Allstate commenced this proceeding to stay arbitration, asserting, as it did in the disclaimer letter, that no SUM coverage existed in connection with the accident because the motorcycle on which petitioner was riding was not a covered vehicle under the policy. In opposition, Cappadonia argued that the petition was untimely.
The court found that the petition to stay arbitration is time-barred because it was not filed within 20 days of respondent's formal arbitration demand. . Although the 20-day time limit of CPLR 7503 (c) does not apply if the parties never had "any agreement to arbitrate" (Matter of Matarasso [Continental Cas. Co.], 56 NY2d 264, 268), the "Matarasso exception is inapplicable" because "the contract at issue in this case contain[s] an arbitration provision" .So long as the subject insurance policy contains some type of arbitration agreement between the parties, as it does here, an untimely stay application which "contends that there is no coverage under [the] policy's [SUM] provisions . . . is outside the [Matarasso] exception". (Matter of Nova Cas. Co. v Martin, 57 AD3d 548, 549; see Steck, 89 NY2d at 1084; Matter of State Farm Mut. Auto. Ins. Co. v Urban, 78 AD3d 1064, 1065-1066; State Farm Ins. Cos. v DeSarbo, 52 AD3d 936, 937).
Editor’s Note: No, no, no.
Here, there was no contract covering the vehicle. The Fourth Department did not get this one right, respectfully. In support of its position it cited four cases. Let’s review them:
Nova v. Martin involved a claim where the petition argued that the other car was insured and not uninsured. It did not contest that its policy would be in play if the there was an uninsured motor vehicle that was covered by the policy.
Steck involved a claim that the offset provisions would render the UIM coverage unavailable. Yes, there was no arbitration provision in addition but the real issue there that was waived was the offset provision. State Farm did not contest that its policy provided benefits for the vehicle and the insured.
State Farm v. Urban involved a claim by State Farm that the other vehicle was uninsured. Again, it was not a carrier that claimed that there was no policy between the parties providing UIM coverage for that vehicle.
State Farm v. DeSarbo involved a claim for non-cooperation under a policy that clearly existed and would otherwise provide coverage.
See, for example Progressive Specialty Ins. Co. v. Louis, 122 A.D.3d 637, 637–38, 996 N.Y.S.2d 89, 90 (2014)
Progressive did not apply for a permanent stay of arbitration *638 within the 20–day time limitation of CPLR 7503(c). However, since the basis for the permanent stay was that the parties had never agreed to arbitrate, an exception to this time limitation applies, and the Supreme Court properly denied Louis's cross motion to dismiss the proceeding (see Matter of Matarasso [Continental Cas. Co.], 56 N.Y.2d 264, 265, 451 N.Y.S.2d 703, 436 N.E.2d 1305).
Moreover, the Supreme Court properly granted the petition for a permanent stay on the basis that the subject policy did not mandate arbitration of the subject uninsured motorist claim (see Matter of Salzman v. Electric Ins. Co., 80 A.D.3d 768, 769, 916 N.Y.S.2d 782). “A party will not be compelled to arbitrate absent evidence affirmatively establishing that the parties expressly agreed to arbitrate their disputes” (Matter of State Farm Mut. Auto. Ins. Co. v. Juma, 44 A.D.3d 963, 963, 844 N.Y.S.2d 364).
The parties did not agree to arbitrate a case involving THIS motorcycle. The 20- day rules should not apply. The claim was not within the grant of coverage.
10/06/16 Three Boroughs, LLC v. Endurance American Spec. Ins. Co.
Appellate Division, First Department
No Coverage Under Additional Insured Endorsement because Trade Contract Did Not Require. Certificate of Insurance Does Not Alter Coverage. No Waiver or Estoppel Established. Additional Insured Endorsement is an Addition, Rather than Limitation of Coverage
Endurance sought a declaration that Three Boroughs was not a named insured or additional insured under a policy issued to another contractor.
The First Department found that endurance established that the blanket additional insured endorsement in the policy issued to plaintiffs' maintenance contractor provided coverage to any person or organization that the insured is required by written contract to name as an additional insured,' and that the contract between plaintiffs and the maintenance contractor did not contain such a requirement." The Certificate of Insurance does not amend, extend or alter the coverage afforded by the policies.
The record establishes that the contractor's broker lacked the authority to bind the carrier so Endurance was not estopped on the basis of an inadequate disclaimer, since "[a]n additional insured endorsement is an addition, rather than a limitation, of coverage"
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
10/18/16 Marino v. Amoah
Appellate Division, First Department
Plaintiffs Experts Failed to Explain Degeneration and Provided No Objective Basis to Support Plaintiff’s Claim of Aggravation of Preexisting Conditions
Defendant established that plaintiff did not suffer a serious injury to his lumbar spine or right knee as a result of the motor vehicle accident at issue by submitting, inter alia, the affirmed reports of a radiologist and an orthopedist. The radiologist opined that the MRI of the lumbar spine revealed multilevel degenerative disc disease and hypertrophy, and that the MRI of the right knee showed no evidence of traumatic injury. In addition, the orthopedist opined, upon review of plaintiff's medical records, that there was no injury to plaintiff's right knee that was causally connected to the accident
In opposition, plaintiff failed to raise a triable issue of fact as to whether his lumbar spine condition was causally related to the accident because none of his medical experts addressed or explained the finding of preexisting degeneration present in his own medical records, including the operative report that plaintiff submitted which diagnosed degenerative disc disease. His orthopedist opined, based on plaintiff's medical history, that the accident exacerbated a chronic condition, but failed to explain why the degeneration shown in his own medical records was not the cause of his lumbar spine condition. Thus, the orthopedist provided no objective basis or reason, other than the history provided by plaintiff to opine that the accident aggravated the lumbar condition or that any injuries were different from his preexisting degenerative conditions.
Regarding plaintiff's right knee, defendant's orthopedist found that plaintiff's own treating surgeon found normal range of motion shortly after the accident. While other physicians who later examined plaintiff found deficits in right knee range of motion, plaintiff's expert, who opined that plaintiff's torn menisci were causally related to the accident, failed to reconcile the later findings of deficits with the earlier findings of normal range of motion.
Dismissal of plaintiff's 90/180-day claim was also appropriate since he did not provide medical evidence that supported a finding of a medically determined injury caused by the accident.
10/13/16 Peralta v. Quintero
Court of Appeals, Second Circuit
Defendant’s Expert Demonstrated Objectively Through Medical Evidence a Basis for His Opinion that Plaintiff’s Injuries Were Permanent and Causally Related to the Accident
It is unusual that this column covers a Federal Case but this was a decision by the Second Circuit and thus I felt it was important to cover. It should be noted that the case does not have precedential effect as it was made by Summary Order. Defendants were found liable to plaintiff in the amount of $392,548.66 following a bench trial. The standard for appealing a bench trial in federal court is findings of fact cannot be set aside unless clearly erroneous and the trial judge must be given due regard for his opportunity to judge the witnesses' credibility.
First, with respect to liability, the district court found that defendants failed to yield at a stop sign and crashed into the car driven by Plaintiff, who had the right of way. These findings were supported by the testimony of the police officer who responded to the scene and reported damage to Plaintiff's vehicle consistent with Plaintiff's version of events. The district court's decision not to credit defendants' version of the incident — that no collision in fact occurred — was not clear error.
Second, the district court's conclusion that Plaintiff suffered from permanent loss of range of motion in his spine as a result of the car collision was supported by the record. Specifically, Plaintiff's expert testified that Plaintiff's MRI taken on April 22, 2010, shortly after the accident, revealed foraminal stenosis at the L4-L5 vertebrae. The expert opined that the spinal damage was the cause of Plaintiff's pain, and that the injury was permanent and causally related to the car accident. The district court adopted the expert’s findings and agreed with the conclusion that the accident caused Plaintiff's injury. To the extent defendants presented contrary medical expert testimony, the district court rejected it. Because the district court's account of the evidence was plausible in light of the record viewed in its entirety it was not clearly erroneous
TESSA’S TUTELAGE
Tessa R. Scott
[email protected]
Litigation
10/19/16 Bronx Acupuncture Therapy, P.C. v Hereford Ins. Co.
Appellate Term, First Department
When Questions Of Fact Remain, Summary Judgment Cannot Be Granted
The Court determined that action, seeking recovery of assigned first-party no-fault benefits, was not ripe for summary dismissal. Even though timeliness was not raised until the appeal, the court considered the issue. It reasoned that although defendant claimed that the assignor failed to appear for two scheduled independent medical examinations (IMEs), defendant failed to show that the scheduling of the IMEs complied with the procedures and time frames set forth in Insurance Department Regulations. As a result, there was no record as to when defendant received plaintiff’s no-fault claims and thus no basis to determine the timeliness of defendant's IME requests.
10/13/16 Unitrin Advantage Ins. v Professional Health Radiology
Appellate Division, First Department
Vacating A Master Arbitration Decision Was Inappropriate Where It Could Not Be Shown That The Required Regulatory Language Was Used To Inform The Injured Party About An IME
This is an appeal from two orders. One entered January 29, 2014, which denied and dismissed petitioner Unitrin's petition to vacate a no-fault master arbitration award dated June 3, 2013, and granted respondent Professional Health Radiology a/a/o Nestor Camacho's counterclaim.
The Second Order entered March 14, 2014, denied Unitrin's petition to vacate a no-fault master arbitration award dated June 3, 2013, granted respondent Professional Health Radiology a/a/o Anggi Camacho's counterclaim to confirm the award, and denied Professional Health's counterclaim for attorney's fees in connection with the court proceeding.
First, the Court considered the decision to deny the petition to vacate the master arbitration award. The Court determined that Unitrin failed to establish that it was entitled to deny Professional Health's claims on the ground that Professional Health's assignors, Nestor Camacho and Anggi Camacho, did not appear for independent medical examinations (IMEs). The no-fault regulations include mandatory notice requirements governing insurer requests for both IMEs and examinations under oath. The regulations expressly provide that the insurer "shall inform the applicant at the time the examination is scheduled that the applicant will be reimbursed for any loss of earnings and reasonable transportation expenses incurred in complying with the request.” Unitrin failed to establish that the necessary regulatory language was contained within its letters sent to the assignors, and, based on the multiple errors committed by Unitrin, it failed to establish inadvertent law office error, or that the cases should be remanded for a new arbitration hearing.
The Court then turned to the issue of attorney’s fees. The court relied on Insurance Law which establishes the notion that if a valid claim or portion of a claim for no-fault benefits is overdue, "the claimant shall also be entitled to recover his attorney's reasonable fee, for services necessarily performed in connection with securing payment of the overdue claim, subject to [the] limitations promulgated by the superintendent in regulations." "In a proceeding for judicial review of an award by a master arbitrator, an attorney's fee shall be fixed by the court adjudicating the matter.” Thus the Court concluded that Professional Health was entitled to attorney's fees. The Court remanded the matter for further proceedings to determine those fees.
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
Property
10/20/16 AXA Art Ins. Corp. v Fortress Fine Art Storage
Appellate Division, First Department
Failure to Assert Lack of Standing in Subrogation Action Waives Potential Affirmative Defense
AXA commenced the instant action in subrogation seeking recover for alleged damage caused to a painting owned by its insured. At the time of the alleged damage, the painting was being stored by Fortress. Fortress moved to dismiss AXA’s Complaint on the basis that it failed to establish its rights as a subrogree. The First Department affirmed the trial court’s denial on the basis that Fortress failed to assert standing as an affirmative defense and it was waived as such. Moreover, even if not waived, the Court noted that AXA’s Complaint sufficiently pleaded its interest in the current litigation.
The Court also affirmed a denial of AXA’s cross motion for summary judgment. In so holding, the Court noted that AXA failed to establish that Fortress’ roof leaked, that the painting sustained damage, let alone water damage, and that Fortress knew of the leak and had an opportunity to address the issue. For any one of these reasons, AXA failed to meet its burden as movant.
10/20/16 Shipyard Quarters Marina, LLC v. New Hampshire Ins. Co.
Appellate Division, First Department
Massachusetts Serves as Appropriate Forum where Plaintiff, Loss, Investigation and Witnesses all Reside in the Commonwealth
Defendant moved to dismiss the action on forum non conviens grounds. In affirming the trial court’s dismissal, the Appellate Division noted that the underlying plaintiff and underlying action were located in Massachusetts. The loss occurred in Massachusetts and most, if not all, of the witnesses resided in Massachusetts.
The insurance policy, which was issued in New York, was not sufficient to keep the matter before a New York tribunal.
10/12/16 IPA Asset Management, LLC v. Certain Underwriters at Lloyd's
Appellate Division, Second Department
Carrier Fails to Show Materiality of Alleged Misrepresentations in Issuance of an Endorsement which Retroactively Applied to Create Coverage
Plaintiff was the partial owner of property which was damaged in a fire that occurred on May 7, 2010. Plaintiff provided notice of the fire 10 days later on May 17, 2010. On June 15, 2010, the policy was amended to provide coverage for the loss to apply retroactively back to April 26, 2010.
Thereafter, Lloyds denied the claim on the basis that the property was not owned by the insured on the date of loss. If it was owned, Lloyds further argued that the property was not added to the policy. Finally, Lloyds argued that a subsequent amendment to the policy, retroactively adding the property, was due a misrepresentation that the property was “newly acquired.”
The Appellate Division ruled that plaintiff met its burden of establishing its interest in the property, and that the policy was amended to provide retroactive coverage that pre-dated the fire loss. In opposition, the Court noted that Lloyds failed to demonstrate that plaintiff materially misrepresented the risk.
To prove material misrepresentation, the carrier must provide documentary evidence of a misrepresentation, and evidence of how such misrepresentation avoided the application of underwriting documents which would precluded the carrier from writing the risk. Here, Lloyds made no such showing, and its defenses were rejected accordingly.
Potpourri
10/11/16 Harmacol Realty Co. LLC v. Nike, Inc.
Appellate Division, First Department
Requirement that Insurance Recover be Sought Prior to Indemnity Claim Dooms Plaintiff’s Action
In an action to recover indemnity under a lease agreement, the Court denied and dismissed plaintiff’s case. In this case, a fire caused significant damage to property owned by plaintiff. Pursuant to the lease, plaintiff sought contractual damages based upon the fire loss. However, the lease at issue required, as a condition precedent, the owner to look to insurance to repair and/or replace damage. The parties to the lease were only obligated to the extent insurance did not cover the loss.
Here, plaintiff did not seek insurance payments first, and as such violated a condition precedent to commencement of any viable indemnity claim.
In a secondary issue, the Court denied plaintiff’s claims against defendant for the negligence of an independent contractor retained by Nike. In addition to not being responsible for the negligence of an independent contractor, plaintiff failed to establish that Nike failed to adequately select, instruct and/or supervise the contractor.
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
09/28/16 Core Construction Services vs. Crum & Forster Specialty Ins.
United States Court of Appeals, Eleventh Circuit
Insurer Prevails in Eleventh Circuit Property Case, Where Costs of Repairing and Replacing Improperly Installed Roof Held Not to Constitute Property Damage Under CGL Policy (Florida Law)
Crum & Forster’s insured Core Construction assisted in building a condo development in Florida. After Hurricane Wilma damaged several roofs there, the condo association and its insurer (Empire) found that the roofing had been installed improperly. Empire paid the claim and took an assignment of the associations’ claims against Core. Empire then sued Core and its subcontractor Patnode. Core was named as an additional insured under Patnode’s commercial general liability policy issued by Crum & Forster. Core requested defense, and Crum disclaimed.
The basis of the disclaimer was the fact that the defective work that had been done by Patnode did not constitute “property damage” under the policy. This was defined as “physical injury to tangible property, including all resulting loss of use of that property”. Interpreting this policy provision under Florida law, the Eleventh Circuit found no error in the coverage position. “Property damage” involves something beyond faulty workmanship or defective work. That is, the “faulty workmanship or defective work must damage the otherwise nondefective completed project”. Accordingly, there was no coverage for the claim.
09/27/16 Markel American Insurance Company v. Huibert Verbeek
United States Court of Appeals, Fifth Circuit
Fifth Circuit Says Creditor Exclusion in D&O Clearly and Plainly Precludes Defense and Indemnity Coverage for Insured Who Defaulted on Numerous Corporate Loans (Texas Law)
The Verbeeks were the owners and officers of Color Star Growers of Colorado, Inc. (Color Star), which was a wholesale distributor of flowers. As part of their business, they took out millions of dollars in numerous loans from several companies, as part of refinancing its debt. They then defaulted and filed bankruptcy.
Color Star was insured by Markel under a directors and officers policy. When the banks all started to sue Color Star, the insured sought coverage in the form of both defense and indemnification. On the same day that it denied the claim, Markel filed a declaratory judgment action in order to get out of this mess. The crux of their coverage position was the no coverage was owed by operation of the policy’s Bankruptcy and Creditors Exclusion. This stated, in pertinent part: “The Insurer shall not be liable to pay any Loss on account of, and shall not be obligated to defend, any Claim brought or maintained by or on behalf of: Any creditor of a Company or Organization in the creditor’s capacity as such, whether or not a bankruptcy or insolvency proceeding involving the Company or Organization has been commenced.”
The insured had argued that the “capacity” requirement meant that the exclusion was only triggered by claims brought by creditors “to recover for the debt owed by Color Star”, and not for claims against directors and officers for allegedly filing inaccurate statements (as had been pled). They also claimed that since the parent company of one of the banks was not bringing the suit in its capacity as a creditor, since its subsidiary was the actual creditor. Unsurprisingly, the Fifth Circuit rejected all of these arguments.
The Creditor Exclusion, the court held, precluded both defense and indemnification. Applying Texas’s “eight corners rule” (four corners of the policy and four corners of the complaint against the insured), they found that all of the allegations fell squarely into the exclusion. There plainly was no coverage for claims made against the insureds by creditors. All of the claimants were asserting claims in their capacities as creditors. The plain language of the policy thus barred coverage.
09/12/16 Mohammad S. Galaria v. Nationwide Mutual Insurance Co.
United States Court of Appeals, Sixth Circuit
Sixth Circuit Holds that Data Breach Plaintiffs Can Sue Hacked Carrier, Despite No Actual Injury Yet (Ohio Law)
In 2012, hackers broke into Nationwide’s computer network and stole personal information of over a million individual customers. The data stolen included names, dates of birth, marital statuses, genders, occupations, employers, Social Security numbers, and driver license numbers. While Nationwide took steps to help prevent and/or mitigate damages, and offered free credit reporting and other benefits, a set of plaintiffs filed a class action against the insurer.
At first, Nationwide was successful in having the case dismissed, since the plaintiffs did not have statutory standing to bring a suit (under the Fair Credit Reporting Act), and thus lacked subject matter jurisdiction. However, the Sixth Circuit took the case up and disagreed. Even though no damages had yet been incurred and plaintiffs had not yet suffered actual identity theft, the court held that it undoubtedly would. Since the point of hacking personal data was, necessarily, eventual identity theft, the court felt that plaintiffs thus had standing.
The court reasoned: “Thus, although it might not be ‘literally certain’ that Plaintiffs’ data will be misused, there is a sufficiently substantial risk of harm that incurring mitigation costs is reasonable. Where Plaintiffs already know that they have lost control of their data, it would be unreasonable to expect Plaintiffs to wait for actual misuse—a fraudulent charge on a credit card, for example—before taking steps to ensure their own personal and financial security, particularly where Nationwide recommended taking these steps. And here, the complaints allege that Plaintiffs and the other putative class members must expend time and money to monitor their credit, check their bank statements, and modify their financial accounts. Although Nationwide offered to provide some of these services for a limited time, Plaintiffs allege that the risk is continuing, and that they have also incurred costs to obtain protections—namely, credit freezes—that Nationwide recommended but did not cover. This is not a case where Plaintiffs seek to ‘manufacture standing by incurring costs in anticipation of non-imminent harm’. Rather, these costs are a concrete injury suffered to mitigate an imminent harm, and satisfy the injury requirement of Article III standing.”
Jennifer A. Ehman
10/13/16 Brady v. Tower Group Comp.
Supreme Court, Queens County
Hon. Leonard Livote
Court Finds Expert Affidavit Submitted in Opposition Lacks Probative Value
Plaintiffs brought an action seeking recovery for the destruction of their oceanfront home in Breezy Point, New York by Superstorm Sandy. Plaintiffs’ property insurer disclaimed coverage on the grounds that the damage was caused by flooding, which is excluded. Plaintiffs brought an action alleging the damage was caused by wind, which is not excluded.
The court found that the insurer meet its initial burden of establishing entitlement to summary judgment. In opposition, plaintiffs submitted an affidavit of an expert who concluded that the damage to the house was caused solely by the wind.
In considering the content of that affidavit, the court found it deficient in several respects. First, plaintiffs’ expert stated that “the photos which were taken after the storm do not indicate any water damage on the front, sides or rear of the premises.” The court noted there was uncontroverted evidence that the house was inundated in 4.5 to 6.5 feet of flood water. Furthermore, the expert offered no basis for that conclusion.
In contrast, the insurer’s expert based his conclusion on the fact that the house sustained extensive damage close to the ground and was relatively intact on its upper areas. He also supported his conclusion with reference to American Society of Civil Engineers publications.
The court concluded that an expert affidavit may be disregarded where it is speculative, conclusory, fails to set forth foundational facts, assumes facts not supported by the evidence, or fails to recite the manner in which the engineer came to his conclusions. In this case, plaintiffs’ expert’s affidavit failed to address contrary evidence, rendering the conclusions speculative. Furthermore, the affidavit failed to offer scientific data for the conclusion that a gust of wind lifted the house off its foundation and moved it. Thus, the affidavit lacked any probative value.
Brian D. Barnas
10/04/16 Bodnar v. Nationwide Mutual Insurance Company
United States Court of Appeals, Third Circuit
Insurance Company did not Act in Bad Faith by Investigating Claim and Commencing a Declaratory Judgment Action to Determine the Applicability of a Policy Exclusion
In April 2010, Stephen Bodnar owned a masonry business that was developing land in Luzerne County, Pennsylvania, for the purpose of opening a campground. Bodnar paid James Berry to work at the site. Both men were digging a trench for a sewer line when the sides of the trench collapsed. Bodnar survived, but Berry died from his injuries. Berry's widow Danielle sued Bodnar and the campground. Bodnar was insured under a commercial general liability policy with Nationwide and filed a claim with the company for indemnification. Nationwide hired a lawyer to defend Bodnar in the underlying lawsuit.
While that lawsuit was pending, Nationwide investigated Bodnar's claim to determine whether it owed coverage, which depended on whether Berry had been working for Bodnar as an employee or as a temporary worker. If the former, the policy would not cover Berry because employees were specifically excluded under the insurance policy. If Berry was a temporary worker, however, the policy would cover him. Nationwide's claim file included conflicting information about Berry's status: some evidence suggested he was an employee while other evidence suggested he was a temporary worker.
To determine its obligations under the policy, Nationwide filed a declaratory judgment action. As part of that action, Nationwide took Bodnar's deposition, and he testified that Berry was a temporary worker and not an employee. Nationwide then discontinued its declaratory judgment action, and paid Danielle Berry the policy limit of $1 million, plus interest.
Shortly after Bodnar’s deposition, and before Nationwide discontinued its declaratory judgment action, Bodnar and Berry filed this action, alleging that Nationwide handled Bodnar's claim for indemnification in bad faith and breached its contractual duty of good faith and fair dealing. The Court granted summary judgment in favor of Nationwide. The claims file showed that Nationwide evaluated Bodnar's claim, consulted with legal counsel, and tried to determine whether Berry was an employee or a temporary worker in good faith. The court also rejected the argument that Nationwide acted in bad faith by reversing course after it began its investigation where the evidence showed the investigation remained ongoing and there was conflicting evidence regarding Berry’s employment status.
Nationwide also did not act in bad faith by asserting a workers' compensation defense in the declaratory judgment action. If Berry were found to be Bodnar's employee, Pennsylvania's Workers' Compensation Act would have provided the “exclusive remedy” for Danielle Berry's claims. As a result, although Mrs. Berry might have been unable to recover damages if the workers compensation carrier denied coverage, Bodnar himself would have been immune from further liability.
09/30/16 Cadle v. GEICO General Insurance Company
United States Court of Appeals, Eleventh Circuit
Insurer did not Act in Bad Faith by Denying the Insured’s Demand for the Policy Limits where there was no Evidence to Suggest her Injuries were Permanent
On July 27, 2007, Cadle was injured in an automobile accident on I–95, when she was rear-ended by Friend. Cadle was insured by GEICO under a stacked uninsured motorist (“UM”) policy with a $75,000 limit. Friend was insured by Allstate under a policy with a $25,000 limit. Following the accident, Cadle had physical therapy, pain management, and epidural injections. From August 2007 to July 2008 Cadle had ten nerve blocks that required anesthesia, but her pain was not effectively managed.
After evaluating Cadle's medical records, GEICO offered $500 to settle her UM claim on June 3, 2008. Cadle's attorney responded by demanding the $75,000 UM limit on June 11, 2008, and including all her medical records. On July 11, 2008, GEICO offered $1,000 to settle Cadle's claim and noted that there was no final evaluation provided in the demand showing her injuries were permanent.
On September 17, 2008, Cadle filed her first Civil Remedy Notice (“CRN”) against GEICO. Almost fourteen months after Cadle's accident, the CRN advised she was still under the care of her treating physician and a neurosurgeon with whom she had discussed surgical intervention; she continued to require pain management. Her medical bills were in excess of $50,000.00 and continually increasing. During the 60–day, safe-harbor or cure period, GEICO requested Cadle's medical records from a prior surgery and did not increase its settlement offer. In a letter dated November 17, 2008, the GEICO adjuster again noted that there was no final evaluation showing her injuries were permanent.
In March 2009, Cadle sued GEICO in Florida and filed a second CRN on April 2, 2009. This CRN noted continuing treatment and possible surgical intervention. During this period, Cadle’s attorney's called GEICO and explained that Cadle was going to have surgery during the 2009 holiday season, because conservative measures had failed. The adjuster denies this call occurred. On December 15, 2009, Cadle had surgery, because of the pain she had continued to experience. Cadle's attorney sent her operative report to the GEICO staff counsel assigned to her UM case. Instead of tendering its policy limits, GEICO served Cadle with a proposal for settlement in February 2010.
In March 2013, Cadle’s UM trial was decided by a jury who awarded her a verdict of $900,000. The judgment reduced the gross verdict to the GEICO policy limits but explicitly authorized Plaintiff to bring a cause of action for bad faith against GEICO for the excess amount. Cadle filed a bad faith trial in federal court.
In order to recover damages in excess of the policy limit, Cadle had to prove the existence and permanency of her injury from the July 27, 2007, accident within the sixty-day cure period after making her claim to GEICO. The testimony at bad faith trial by both her medical expert and UM attorney confirmed that at no time during the cure period (after filing her CRN) did Cadle produce to GEICO medical evidence of the permanency of her injury. Her attorney’s statement to GEICO that Cadle was considering surgical intervention was insufficient. Based on the expert testimony, there was no way that the jury could conclude GEICO acted in bad faith. Accordingly, the court granted judgment as a matter of law and overturned the jury verdict concluding that GEICO acted in bad faith.
PHILLIPS’ FEDERAL PHILOSOPHIES
Jennifer J. Phillips
10/17/16 Nikchemny v. Allstate Insurance Company
United States District Court, Eastern District of New York
Too Late Two Ways
In this coverage dispute, the insured commenced a breach of contract action against Allstate Insurance Company based on a denied insurance claim for property damage. The policy at issue provided that “[a]ny suit or action must be brought [against the insurer] within two years after the inception of loss or damage.” The property loss occurred on October 29, 2012, and Allstate denied the claim on January 2013. The insured, however, did not commence her action until January 11, 2016.
Allstate moved to dismiss the complaint based on the expiration of the contractual statute of limitations. The insured opposed, arguing that the two-year contractual statute of limitations did not apply, or, alternatively, if it did, the limitations period did not begin to run until the date Allstate denied the insured’s claim. The district court rejected both arguments.
The court first noted that, although the default statute of limitations for a breach of contract action, including a breach of an insurance policy, is six years in New York, parties are not precluded from contracting for a shorter statute of limitations by written agreement. Noting that New York courts have consistently upheld a contractual two-year limitations period in insurance contracts, the district court found the present action untimely regardless of whether the period was calculated from the date of the occurrence or the date of the denial of the claim.
The district court nonetheless went on to reject the insured’s argument that the limitations period should be calculated from the date of Allstate’s denial of the claim. Although the legal claim for a breach of contract would generally accrue at the denial of the claim, here the policy contained specific language regarding the commencement of the limitations period: “the inception of the loss or damage.” Because that specific language was included, there was no ambiguity in the policy as to when the statute of limitations period began to run.
Finally, the district court noted that there was no hardship to insureds generally by these rulings, inasmuch as, where necessary, an insured could resort to the principles of waiver and estoppel if the failure to timely commence an action was the result of an insurer’s actions. Here, however, the insured had not, and under the relevant facts of the case could not have, raised such defenses. The district court therefore granted Allstate’s motion and dismissed the case.
ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA
Howard B. Altman
Cybersecurity Regulations
As we reported, on September 13, New York became the first in the nation to institute Cybersecurity regulations for financial services companies and insurance companies. The regulations can be found at http://www.dfs.ny.gov/legal/regulations/proposed/rp500t.pdf
We previously reported on the basic requirement to establishment and maintain a cybersecurity program and to appoint an overseer, and report on any cybersecurity event. Today, we outline the nuts and bolts of what this program must entail.
The regulations require that financial services companies and insurers (1) encrypt all non-public information concerning their clients and policyholders (§500.15); (2) implement a program to prevent unauthorized access to sensitive information (firewalls, antivirus programs, etc.) including using “multifactor authentication” to access information, in other words, at least two types of password/security access; and (3) implement a mechanism for detecting unauthorized access, or attempted breaches, of the information systems, terminating the detected breaches, and recovering from breaches.
The regulations also require that firms implement a written cybersecurity policy (See § 500.03(a)) that policy must be reviewed annually by the board of directors and approved by a senior officer responsible for compliance or information services security.
The regulations further require that appoint and train cybersecurity personnel, and that they test of the company's cybersecurity program quarterly, and, as outlined in our last issue, the cybersecurity “czar” must file periodic reports with DFS.
Earl K. Cantwell
[email protected]
04/14/16 Illinois Union Insurance Co. v. Intuitive Surgical Inc.
United States District Court, Northern District of California
Insurance Breach to be First Tried by a Jury
An insured’s breach of contract action against its insurers was pending in the Federal Court, as was the insurance companies’ action for rescission of the policy. The Federal Court ruled that the insured’s breach of contract action was entitled to first proceed as a jury trial before the insurance companies could proceed with a bench trial on their equitable claim for rescission of the policies.
Illinois Union Insurance brought an action in the Northern District of California to rescind a product liability insurance policy issued to Intuitive Surgical. The action alleged that the insured concealed from its insurance companies certain tolling agreements the company had reached with parties claiming injuries from its products. The insured subsequently filed a separate breach of contract action against the insurance companies. The insured claimed that the insurance companies failed to indemnify the company for defense and settlement of product liability claims. The question faced by the Court was whether and when to proceed with the insured’s breach of contract claim by jury trial, or the insurance companies’ claim for equitable rescission of the policies which would entail a bench trial.
The insurance companies argued that the rescission actions did not have to await a jury trial on the contract claim. However, the Court ruled that the insured’s breach of contract claim would proceed first via a jury trial. The Court cited cases and authority to the effect that, if there are mutually existing legal and equitable claims, the procedure and discretion should wherever possible be exercised to preserve and protect the right to a jury trial under the Seventh Amendment. The Court indicated that it would conduct a jury trial on the contract suit first, and then proceed with any bench trial on the actions to void the policies.
This case represents an interesting interplay between legal and equitable claims, and under the Seventh Amendment, common law breach of contract claims would be entitled to a jury trial. Historically, equitable claims for reformation and rescission of an insurance policy would proceed to a bench trial before a judge. As in this case, this can obviously have an important effect on the order of cases, claims, and proof.
This case also represents an example of where the insurance companies actually won the race to the courthouse and filed their rescission actions first, but were still relegated to follow the insured’s later-filed breach of contract claim.
