Volume XX, No. 1 (No. 512)

Friday, June 29, 2018

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

 

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Lake Placid, NY 12946

Phone: 518-523-2441

Fax: 518-523-2442

 

www.hurwitzfine.com

© Hurwitz & Fine, P. C. 2018
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.  If you have them, we’ll help you through them.

 

Volume XX, No. 1

 

It is hard to believe that this is the first issue of Volume XX, the beginning of our 20th year of newsletter publication.  We are remarkably blessed to have such a great group of contributors and a wonderful and loyal family of subscribers.  We get so many notes, questions, comments, and so much wonderful feedback from members of the insurance industry, from lawyers, from other newsletter authors, and even the occasional comment from trial and appellate judges (or their clerks).  This has been truly a labor of love and continues to be.

 

Our sister publications continue to thrive:  Labor Law Pointers, edited by Dave Adams ([email protected]) and Premises Pointers, spear-headed by Jody Briandi ([email protected]). If you don’t subscribe to those monthly newsletters, contact my partners and tell them that Ðan, Dan the Coverage Man sent you.

 

A special thanks to our contributing authors:  Rob Hewitt, Steve Peiper, Agnes Wilewicz (who ably serves as my associate editor), Jen Ehman, Brian Barnas, Jerry (the new guy in town) Marti, John Ewell, Howard Altman, Brian Mark, Larry Waters, Eric Boron and Earl (the Pearl) Cantwell.  Every other Thursday, hopefully before 5:00 PM, they dutifully post their columns and cover notes for your education and enjoyment.  They have scoured the venues they cover for the topics under their jurisdiction to make certain you have the most up-to-date coverage decisions from courts throughout New York and the country.

 

This is our 512th edition of Coverage Pointers and the beat goes on.

 

The courts slow down for the summer (the appellate courts) but we still have a nice array of decisions to keep you reading.  If you need any information on the cases reported in the attached issue, contact the column author or the undersigned. Often, because of our relationships in the coverage community and the generosity of the lawyers who are involved in the reported decisions, we can get some behind the scenes information to answer questions you may have about the background of some of the conflicts often including strategy or questions not discussed in the reported decisions.

 

We take this opportunity to introduce our newest column, authored by Jerry Marti (who you recall from our most recent issue) has taken up the cudgels of our No Fault practice (among other areas of interest and skill).  We are pleased to present his first “cover note” for his column entitled:

 

Jerry’s No Fault Navigation

 

Dear Subscribers,

 

Hello and welcome to Jerry’s No Fault Navigation, your eyes and ears to the no-fault regulations.  In my inaugural piece, let me start by wishing everyone a Happy Fourth of July. 

 

Here are some fun facts as you celebrate our nation’s independence.  Joey Chestnut will be the returning champion to the Nathan’s Hot Dog Eating Contest in Coney Island this year. Last year, he put down a whopping 72 hotdogs (with buns) in ten minutes.  Can he duplicate last year’s performance? Only time will tell.  

 

Plus, on this date in history, July 4, 1776, the Continental Congress approved the final draft of the Declaration of Independence.  Interestingly, during the early years of the young nation, there was not much celebration surrounding this important document.  Rumor has it that the deaths of Thomas Jefferson and John Adams, both of which occurred on July 4, 1826, may have spurred interest in the date. But, it was not until 1870 that Congress first declared July 4 a national holiday.  As they say, better late than never.

 

Speaking of which, I report on a recent arbitration decision that speaks to the late filing of a no fault claim in the total amount of $141,229.76.  While the arbitration decision rejected the late filing, it was the merits of the action itself that caught the attention of the arbitrator.  Cat litter? Read on for more.

 

Jerry

Jerry Marti

[email protected]

 

 

One Hundred Years Ago:  A Memorial to The. Worst. President. Ever. (by most accounts) Approved:

 

Times Herald

Olean, New York

29 Jun 1918

 

Buchanan Statue Approved

 

Washington, June 20.—President Wilson has signed the bill authorizing the erection of a statue of James Buchanan.  The measure was passed over strong opposition in congress from Republicans, who attacked the record of Buchanan as president.  A fund for the erection of the statue was provided in the will of a relative. 

 

Editor’s Note: During Buchanan’s service as President, his niece, Harriet Lane served as White House hostess. President Buchanan, who never married, was her uncle and guardian after she was orphaned at the age of eleven. When Harriet Lane Johnston died in 1903, her will included a bequest for a statue honoring her uncle.

 

The controversy over erecting a memorial statue for James Buchanan in Meridian Hill Park began immediately. For 15 years Congress debated  or ignored voting about the statue. The bequest had to be accepted by the United States by July 2, 1918 or the monies would revert to other purposes. And it took until 1918 for Congress to resolve to allow a statue in Buchanan’s honor, and then another 10 years to finish the memorial in Meridian Hill Park.

 

John’s Jersey Journal:

 

Dear Subscribers:

 

New Jersey Long-tail Decision

 

Yesterday, the Supreme Court of New Jersey finally resolved a massive insurance coverage case. The case has been pending for 18 years and at one point had over 100 insurers in the case. The case stemmed from the policyholder’s manufacture of asbestos-containing brake pads and the nearly 150,000 asbestos injury claims that resulted.

 

For decades, Bendix Corporation manufactured brake pads which contained asbestos. Bendix obtained insurance, on a primary and excess basis, from various insurers from the 1940s through 1980s. In the 1980s, the risks presented by asbestos became abundantly clear. Insurance for asbestos injuries became unavailable in the marketplace in the late 1980s, starting with primary insurance in 1986 and then excess insurance in 1987. Bendix was subsequently acquired by Honeywell, who also acquired Bendix’s liability as successor in interest.

 

In 2000, Continental Insurance Company, one of the primary insurers for Bendix during the relevant years, sued Honeywell seeking declaratory relief concerning the rights and obligations associated with insurance coverage for the asbestos-related bodily injury claims filed against Honeywell. Honeywell implead what appears to be every insurer who may have ever issued an insurance policy to Honeywell, its predecessors, and Bendix during the pertinent period—some 100 insurers.

 

A dispute arose over allocation of the losses. The parties disputed which state’s law should govern allocation—Michigan or New Jersey. The parties also disputed whether Honeywell should be liable for the allocation because, despite the unavailability of insurance coverage, Honeywell continued to manufacture asbestos-containing products for fourteen more years.

 

The lower courts ruled that New Jersey law applied, not Michigan. The Supreme Court of New Jersey affirmed that ruling.

 

New Jersey follows the continuous trigger doctrine. Therefore, all insurance policies in effect during any part of the injurious process are in play. However, New Jersey recognizes what is called the “unavailability rule”, which requires an insured to share in an allocation of liability under the continuous-trigger doctrine only when it foregoes purchasing available insurance.

 

In this case, the excess insurers were aggravated by the fact that Honeywell continued to sell asbestos-containing products long after insurance was available for asbestos injuries. From the insurers’ perspective, the policyholder’s continued sale further aggravated the claims that began during the covered periods. As such, the insurers thought that the Honeywell should have to share in the allocation of the losses. (Makes sense to me). Therefore, the insurers argued that the New Jersey Supreme Court should adopt an exception to the unavailability rule. The excess insurers argued that, where the insured cannot purchase insurance coverage in the marketplace, but nonetheless, continues producing asbestos-containing products, the policyholders should have to share in the payment of the claims.

 

However, the New Jersey Supreme Court rejected this argument. (Can’t blame the insurers for trying!). With these facts, the Court declined to disturb well-settled New Jersey law. The Court appears to be persuaded by the fact that the policyholder ultimately stopped producing asbestos-containing products. The Court also ruled that the unavailability rule furthers New Jersey’s public policy goals of maximizing insurance resources, encouraging the spreading of risk throughout the insurance industry, promoting the purchase of insurance when available, and “simple justice”.

 

I have to say that after reading the 80-page decision, I somehow missed the “simple justice” being meted out. However, I cannot say that I am surprised by the decision. Maximizing insurance coverage available is a public policy of New Jersey courts and has been for decades. For your convenience, I have condensed the court’s novella into four short pages. Click on the attached issue if you would like to read the court’s thought process.

 

Bad Faith Bill: No Update

 

We are tracking the bad faith bill that we reported on last week. If you missed it, this is big news for insurers who write risks in New Jersey. You can read our analysis of the bill here). The bill is currently in the Assembly. It has been referred to the Assembly Financial Institutions and Insurance Committee. Once the Committee reviews it, they may make amendments to the bill. The Committee will then vote on the bill. If the Committee approves the bill, it will write up a report for the Assembly. The bill (and any amendments) would then be read in the Assembly. This process generally takes a few months. I will receive an email update as soon as the status of the bill changes.

 

Rest assured we are monitoring this bill for you.

 

‘Til Next Time,

 

John

John R. Ewell

[email protected]

 

Racist Language – Newspaper Decides to Stop Using Some of It – Only 100 Years Ago:

           

The New York Age

New York, New York

29 Jun 1918

 

“WORLD” DISCONTINUES

USE OF “DARKIES”

 

The New York World, which has the largest circulation of any morning paper in New York, has promised to discontinue the use of the term “darkies.”  In a letter to Lester A. Walton, managing editor of The Age, who informed the editors of the daily that colored Americans did not take kindly to the terms in print.  C. M. Lincoln, managing editor of the World replied in part:

 

“You are quite right in your suggestion that the word ‘darkies’ was wrong.  I am sorry it appeared and I have given order that the word shall not be used again.”

Editor’s Note:  While the New York World may have discontinued its use, the term appeared in regional newspapers, in some sections of the country, well into the 1960’s.

 

Jen’s Gems:

 

Greetings!  I report this week as a mother whose daughter officially finished her first year of real school.  Ella graduated last week from Kindergarten.  Admittedly, I got a little misty eyed watching them hand her a diploma.  It still amazes me how much she has learned in one year.  In fact, I can no longer spell words I don’t want her to know.  Now when I ask my husband if we should go out for I-C-E-C-R-E-A-M tonight, she tells me “yes.”

 

The trial courts were quiet again this week with reported decisions.  If this keeps up, I am going to start asking for submissions from readers.  Actually, not a bad idea…  If you have any recent interesting coverage decisions issued by a trial court in New York, please send them in.

 

Hope everyone has a safe and enjoyable 4th.  Until next issue…

 

Jen

Jennifer A. Ehman

[email protected]

 

A Recent Insurance Case (for those around 100 Years Ago Today):

 

The Evening World

New York, New York

29 Jun 1918

 

SYNOPSIS OF NEW LAW

 

Latest Decisions of the Court of Last Resort

 

Where one who took out a policy insuring an automobile against theft and fire had no insurable interest in the car, never having owned it, the policy was void as to him.—O’Neil v. Queen Insurance Company, Supreme Judicial Court of Massachusetts. 

Peiper on Property and Potpourri:

With the first issue of summer, we set aside any legal thoughts and instead take time to celebrate H&F’s first softball triumph of the season.  Last week, the old blue and yellow rolled to a 21-3 victory.  This marks the first, but not last (hopefully) victory of the season.  Your author was otherwise engaged, and did not make it back to the 716 in time to participate.  Cheers to H&F’s ace, Chris Potenza, for hurling a gem.

 

In honor of our smashing successes, we provide a few do’s and don’ts for all softballers as the season continues to roll on. 

 

Do  - take time to stretch and warm up.  While my attendance is a bit more sporadic these days, I did suffer an unfortunate hamstring injury a few years back. Trust me, explaining the cause of the injury to your doctor is far more embarrassing than explaining the actual injury.

 

Don’t – attempt to turn singles into doubles.  Folks, its softball.  Seriously.  We encourage station to station play.  There are no grades for effort.

 

Do – encourage more “seasoned” staff members to play

 

Don’t – encourage “seasoned” staff members to tell stories about playoff games in 1985!

 

Do – swing at everything.  No walks in slow pitch softball.  Ever!  Your author has never seen more than 3 pitches in any one at bat.

 

Don’t – discourage participation; not everyone is an All-Star.  Actually, with nearly all lawyer leagues, literally NO ONE is an All-Star.

 

Do – stay hydrated

 

Don’t – forget the ice.  No one likes warm beer.  Or, theoretically, water, soda, etc.  In reality, we repeat…no one likes warm beer.  

 

That’s it for now.  See you again in two weeks.

Steve

Steven E. Peiper

[email protected]

 

Lawmakers Unloved?  Even Then?

 

 

The Daily Advertiser

Lafayette, Louisiana

29 Jun 1918

 

EXPLAINING SOME LAW-MAKERS

 

“The whole atmosphere of Washington is a mass of complaint.  Every congressman and senator gets his viewpoint of what the country thinks from the microscopic minority who complain because they are either selfish or have a different panacea to offer, or would be wiser if they had the job.

 

“It is difficult to keep one’s balance in a situation like this.”

 

These words, from an interview with Herbert Hoover, serve as a charitable explanation of the vagaries of certain congressmen.

 

And yet, it is not so difficult to get in touch with the real opinion of the country, if a statesman really wants to.  There are newspapers and magazines to read.  There are trains to travel in, and other people to talk with besides the grouches and grafters and cranks.

 

Hewitt’s Highlights: 

 

Dear Subscribers:

 

This edition of Coverage Pointers will come out on my birthday. I look forward to celebrating it at a nice dinner with my wife. Unfortunately, my children are in Florida visiting my parents for the first time without us, so I’ll have to have a second celebration when they get back. More cake for me.

 

We are heavy on cases this time around but, unfortunately, the courts were sparse on their factual analysis. We have one case, yet again, where a defendant’s own expert made the plaintiff’s case for them, finding a significant limitation in range of motion. In another case, a defense expert’s opinion was  rejected when they attributed the injury to degeneration but failed to address the lack of complaints by plaintiff prior to the accident. In other cases, a plaintiff who missed less than three weeks of work and an infant plaintiff who missed no  school, respectively could not establish a claim of a 90/180-day category of serious injury.

 

Until next time,

 

Rob                  
Robert Hewitt

[email protected]

 

Editor’s Note:          Happy Birthday, Rob.

 

German Flags in Parades During WW I – We Don’t Think So:

 

Palladium-Item

Richmond, Indiana

29 Jun 1918

 

Deny That Kaiser’s Flag

Will Appear in Parade

 

Emphatic denial was given Saturday to a report that the German flag would be carried in the Fourth of July parade by American citizens of German extraction.

 

Henry Bode, member of the committee, said only the American flag and the colors of the Allies were to be used, and that the rumor was groundless.  No suggestion of carrying the Kaiser’s banner ever had been made in the committee meetings, he said.

 

No one knows where the report was started or for what purpose the rumor was circulated.  The presence of men of German descent in the parade is in complete harmony with the proclamation of President Wilson calling on citizens of foreign extraction to unite on July Fourth in a demonstration showing that the descendants of the immigrants are backing the government. 

 

Wilewicz’ Wide-World of Coverage:

 

Dear Readers,

 

Got World Cup fever yet?! The matches this year have been all over the place, but there has been no lack of drama. While the teams were fairly evenly matched in their groups, one could have guessed generally as to which would advance to the next round. Alas, I bet by now everyone’s bracket is busted (kudos to Barnas for providing me with the appropriate sports lingo here). Indeed, there is no one clear front runner here, and now that Germany has failed to advance (they were the reigning champs), Argentina barely advanced, and Brazil is looking mediocre, I’m not sure who to root for. Perhaps England? Columbia? France? As you may have heard, despite the nice win today, Poland did not advance. Perhaps I just won’t bother watching any more at all.

 

In any event, from the coverage world, we bring you a couple of reads to digest in between games. First, in 7001 East 71st Street LLC v. Continental Casualty, the Second Circuit analyzed an oddly worded Windstorm Exclusion. Apart from an anti-concurrent clause, the provision did not merely state that there would be no coverage for windstorm damages (unlike the policy’s explosion exclusion and earth movement exclusion, which did flat out state something like that). Instead, the exclusion at issue stated, in context and in pertinent part: “We will not pay for loss or damage caused directly or indirectly by a “Breakdown” [i.e., a sudden and accidental direct physical loss to “Covered Equipment”, which manifests itself by physical damage] that is caused by windstorm.” Since the court was not even clear as to what that meant (i.e. it was arguably ambiguous), it was interpreted against the drafting carrier.

 

Second, we have Classic Laundry and Linen v. Travelers. In that case, the Laundromat suffered a fire in 2013. Its carrier, Travelers, paid the property damage claim but asked for a sworn proof of loss on the insured’s loss of business income claim. Not only did the insured fail to provide the proof of loss, but after the carrier disclaimed coverage for that portion, the insured failed to bring their declaratory judgment action within two years. The policy had a clear two-year suit limitation provision that required any insured suing the carrier to bring its suit within two years of the happening of the claim, i.e. the direct physical loss or damage. Since they brought it after that time period, they were barred, despite the fact that the business income itself took place after the fire. The policy provision was not only clearly written, it was reasonable. Thus, their failure to timely sue barred recovery.

 

Now, a short recess and back to the games. Of course I’ll watch all the rest of them. As international futbol is essentially the only sport I follow, I wouldn’t miss them. 

 

Until next time!

 

Agnes

Agnes A. Wilewicz

[email protected]

 

Words to Live By, Perhaps.  Don’t Change Lawyers:

 

Star-Gazette

Elmira, New York

29 Jun 1918

 

Of the Two Evils

 

“Never change lawyers!”

 

The speaker was Senator Thomas of Colorado.

 

“No matter how greedily your lawyer may be bleeding you,” he said, “don’t change him.  Remember the old horse. An old horse stood under a tree patiently, thought he was all covered with horse flies.  A kind-hearted man went up to the brush the flies away, but the old horse said:

 

“‘Hold on sir.  Don’t disturb those flies.  They’re nearly full.  Drive them off, and a fresh lot will come, more hungry than the last.’” – Exchange.

 

Barnas on Bad Faith:

 

Hello again:

 

The World Cup is providing a nice summertime distraction from my uninspiring Blue Jays.  England is performing quite well, scoring wins against Panama and Tunisia on the strength of skipper Harry Kane’s five goals in only two matches.  As of this writing the Tottenham man is leading the race for the Golden Boot ahead of great strikers Romelu Lukaku and Cristiano Ronaldo.  Hopefully the Three Lions can continue their nice start to the World Cup in the knockout round against Colombia.  Things should be fine as long as it doesn’t go to penalty kicks.

 

I have two cases in my column this week.  In Monticello Road the plaintiffs’ bad faith cause of action under South Carolina law was dismissed because they failed to prove a breach of contract.  In addition, the plaintiffs’ claim for extra-contractual damages under state law against their flood insurer was dismissed.  As a reminder, the National Flood Insurance Act exclusively governs claims made on policies issued under the Act.  Thus, Plaintiffs’ state law claims were preempted by federal law.

 

The Bridgham-Morrison case is from the Ninth Circuit and applies Washington law.  Plaintiff made settlement demands under her policy’s UIM coverage prior to litigation above the amount offered by the carrier, which were rejected.  After litigation commenced, Plaintiff claimed new categories of damages she had never mentioned prior to litigation.  Part of her argument in support of her bad faith claim was that the insurer never investigated these damages.  The Court declined to hold that Washington law imposes a duty on an insurer to intuit what a plaintiff’s damages might be.  This was especially appropriate in this case as Plaintiff was represented by counsel, never claimed these damages before litigation, and refused to turn over requested records that may have helped the insurer determine the full extent of her damages.  The Court also declined Plaintiff’s argument that the insurer’s settlement offers were unreasonable because it initially offered less than was ultimately recovered.  All was not lost for Plaintiff here however, as she did eventually recover the policy maximum, albeit after commencing litigation.

 

An early Happy Fourth of July to everyone out there.

 

Have a nice weekend.

 

Signing off,

 

Brian

Brian D. Barnas

[email protected]

 

Happy Wives, Happy Lives?  Not So Sure:

 

The Twice-A-Week Messenger

Owensboro, Kentucky

29 Jun 1918

 

THE HAPPY BRIDES

 

The lady who married four soldiers in order to get a nice little income during the war and four good chances at insurance is said to hold the record for daring and numbers in this respect.  But girls who marry two soldiers for this purpose are said to be rather numerous, and girls who have married one with this motive are to be found everywhere.

 

If there is any lines of profiteering more despicable than any other, undoubtedly this is the one.  Public opinion should come down so crushingly on the girl whose motives are the least bit questionable that her life as a war bride would not be worth living. 

 

That the girl who marries in good faith and who works busily at war relief or at preparing for her future home or at any productive occupation should have her allowance of her husband’s pay is just.  It is particularly so if there are, or are to be, children.

 

But that a girl should live in idleness on the pay of four soldiers—that an idle girl should use that allowance for luxuries while her soldier husband is fighting—is almost beneath contempt.

 

It is a matter that the government would find difficult to adjust, because of the difficulty of getting at fundamental facts of motive and personal situation.  But it is a matter which the strong force of opinion of girls in their twenties should stop.  That the motives of every prospective bridge should be made questionable by the greed of a few is intolerable. 

 

Altman’s Administrative (and Legislative) Agenda:  

 

Greetings, Dear Readers.   Can you believe it’s almost the Fourth of July?  I hope you all have wonderful BBQs, parties, and trips to the beach planned.  As for me, I’m going to try to eat every hot dog, cheeseburger, and piece of traif in the NY-metro area, because come next Saturday, I’ll be Israel for 8 days.  Sun, culture, the holiest sites in the world, and…..not a piece of bacon to be found.  In the words of my people, oy vey!

 

In administrative news, the Department of Financial Services (DFS) issued guidelines governing the issuance of coverage to individuals using pre-exposure prophylaxis treatment to prevent HIV.

 

Howard

Howard B. Altman

[email protected]

 

Alien Woman:

Lansing State Journal

Lansing, Michigan

29 Jun 1918

 

Over 4,000 women alien enemies registered in Detroit.  In other words 4,000 females came to this country without any desire to become American citizens.  As the number of alien enemy registrations pile up one is struck with the laxity of our immigration laws which have permitted so many immigrants to come into America just because money making was easier. 

 

Off the Mark:

 

Dear Readers,

 

Now that school has ended, my kids have started camp.  My oldest is going to travel camp this year, which, as the name suggests, involves a number of field trips.  He is very excited as he loves visiting new places.  Camp must be good as both kids are waking up much earlier than they did for school.

 

This edition of “Off the Mark” discusses two recent construction defect cases examining the “Damage to Your Work” exclusion.   In Cincinnati Specialty Underwriters Ins. Co. v. Milionis Constr., Inc., the US District Court for the Eastern District of Washington, held that the insurer had a duty to defend its insured in an underlying construction defects action, finding that the "Damage to Your Work" policy exclusion did not necessarily preclude coverage for the claims asserted in the underlying complaint.  As the underlying allegations asserted property damage that occurred before the work was completed or abandoned, the "Damage to Your Work" policy exclusion did not exclude coverage.

 

In Southern-Owners Ins. Co. v. MAC Contrs. of Fla., LLC, the US District Court for the Middle District of Florida, Fort Myers Division, the Court determined that the "Damage to Your Work" exclusion applied.  The Court held that the exclusion unambiguously denies coverage for property damage in the event that the insured abandons or does not complete its work, which is what is alleged to have occurred in this case.

 

Until next time …

 

Brian

Brian F. Mark
[email protected]

 

Suffrage Still Under Debate, 100 Year Ago:

 

The Topeka Daily Capital

Topeka, Kansas

29 Jun 1918

 

            One reason a woman wants the ballot is that she wishes to vote against women who run for office.

 

 

Wandering Waters

 

Welcome to another issue of Wandering Waters. I hope all of you have had a wonderful week.

 

The NBA draft took place last Thursday.  I admire the young men who are selected as it is a testament to their hard work, perseverance, and dedication to the game of basketball.  Further, it provides the young men with an opportunity to not only change the lives of those around them but to build and provide for future generations. 

 

With the NBA draft over, the big focus this week is NBA Free Agency, which officially begins this weekend.  The big question is where LeBron James will play next year.  While he has many suitors, I believe he is staying with the Cavs.  I admit that I have been wrong every year LeBron James has been a free agent.  I advise that you take my prediction with a grain of salt. I hope that in the next edition I will have many trades and player movement to report.  

 

With that being said, this week we have two cases from the United States Eastern District Court of New York.  I hope you enjoy

 

Until next time…. 

 

Larry

Larry E. Waters

[email protected]

 

Baseball Debut – June 30, 1918

 

Jack Stansbury played his first major league game, 100 years ago tomorrow, with the Boston Red Sox, and was gone from the bigs within a month.  He had a batting average of .128, playing in only 21 games and would probably go down as one of the many unforgettables, but for a couple of interesting quirks in history.

 

My thanks to the Society for American Baseball for the information.

 

A 32-year old rookie, Jack was called up as big league ballplayers were sent to war.  Having hit three home runs in one game during the “dead ball” era, he was spotted by scouts when he received national press coverage.


Stansbury made his debut at third base in place of the ailing Fred Thomas in a road contest against Washington. On the mound for the Senators that afternoon: one of the great pitchers, Walter Johnson. Although hitless, Stansbury put the ball in play on every at-bat and “laid down a neat sacrifice” his first time up, according to the Boston Post’s Paul H. Shannon. The bunt helped produce a run. 


Two days later, he was called to pinch hit for the Red Sox new player, Babe Ruth, after Ruth and the team manager got into an argument about Ruth’s batting.  Ruth didn’t show the next day and Stansbury again played in his stead. But Ruth eventually returned and soon, Stansbury found himself in the minor’s where he played for close to 20 more years.

He died of Parkinson’s disease at the age of 85, no doubt with great memories of his short stint with the Sox – and as the guy who replaced Babe Ruth.

 

Boron’s Benchmarks:

 

Dear Subscribers:

 

It’s full-blown golf season here in Western New York, and I’m planning to hit the links this weekend, subtropical heat wave or not.  Now, most folks would agree golf can be a frustrating game.  One swing results in a nice high, long, straight shot, while the next swing induces an offline grounder that ends up who knows where.  I’ve heard it said that if you play but don’t keep score, you’ll find it less frustrating, and more enjoyable.  That doesn’t exactly work for me.  My analytical mind makes me suited to be a coverage attorney.  But that same analytical mind also makes me replay in my head, over-and-over, each bad shot I hit, to try to figure out what went wrong on those swings.  So, I do keep score when I play.  And I admit I do take pleasure in posting a par for a hole on my scorecard, even if I’ve duffed the ball all the way up the hole between tee and green but sank a long putt at the green to salvage that par.  May the Good Lord bless me – and you – with 18 straight one-putt greens just once in our golfing careers.

 

Now getting down to business, since the weekend is still a ways off, today’s column offers for your consideration, from the great state of Indiana, a high court decision which first considers whether policy language is ambiguous, and upon determining it is not, applies the plain, ordinary meaning to the policy language at issue, ruling in the insurer’s favor.  An excellent recap as to how a court ought to analyze insurance policies, and a welcome precedential decision for the insurer in Indiana.  

 

Here’s hoping this material may be helpful in or for your work, and Happy Independence Day next week.  If you get out for a round of golf this weekend or on the holiday, I hope you hit ‘em high, long and straight, but whether you do or don’t, may your scorecard nevertheless be par-fectly acceptable to you.  

 

Regards,

 

Eric

Eric T. Boron

[email protected]

 

Headlines from the Attached Issue:

 

KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]

 

  • In Labor Law Lawsuit, not Enough Proof to Establish whether Named Insured Subcontractor Breached its Obligation to Provide Additional Insured Coverage to Owner and General Contractor

 

 

HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW

Robert E.B. Hewitt III

[email protected]  

 

  • Defendant Did Not Miss More than Three Weeks’ Worth of Work and Did Not Qualify for 90/180-Day Category

  • Defendants Own Expert Found Significant Range of Motion Limitations

  • Injury to Lumbar Spine Not Caused by the Accident

  • Defendant Failed to Address 90/180-Day Claim by Plaintiff

  • Issue of Fact as to whether Injuries to Spine Caused by the Accident

  • Infant Plaintiffs Could Not Establish 90/180 Day Claim Where They Missed No School

  • Plaintiff Established Issue of Fact as to Injury to Cervical Spine

  • Defendants Established No Serious Injury

  • Plaintiff’s Foot Fractures Were Enough to Qualify as a Serious Injury

  • Defendant’s Expert Failed to Address Plaintiff’s Lack of Complaints Prior to Accident in Opinion that Injury Was Degenerative

 

PEIPER ON PROPERTY (and POTPOURRI)

Steven E. Peiper

[email protected]

 

  • For Law Firm, Business Income Claim Required Proof of Fees which would have been Earned (i.e., payable) Within Period of Restoration

  • Belief that Insurer wills Defend Lawsuit is Not a Reasonable Excuse for Default

 

WILEWICZ’S WIDE WORLD OF COVERAGE

Agnes A. Wilewicz

[email protected]ine.com

 

  • Second Circuit Finds Windstorm Exclusion Ambiguous as Written, Remanding Superstorm Sandy Case Down for Further Proceedings

  • Second Circuit Holds Policy’s Two-Year Suit Limitation Clause Clearly and Unambiguously Requires Cases Brought Against a Carrier Within Two Years from the Date on Which the Direct Physical Loss or Damage Occurred

 

JEN’S GEMS

Jennifer A. Ehman

[email protected]

 

  • Courts remain quiet.

 

JERRY’S NO FAULT NAVIGATION

[email protected]

 

  • No Fault Coverage not Available for Late Claim in Amount of $141,229.76

 

BARNAS ON BAD FAITH

Brian D. Barnas

[email protected]

 

  • Bad Faith Claim Failed under South Carolina Law where Plaintiffs were not Entitled to Benefits they Claimed under the Insurance Contract

  • Insurer did not Act in Bad Faith by Failing to Intuit Plaintiff’s Damages

 

JOHN’S JERSEY JOURNAL
John R. Ewell

[email protected]

 

  • In Long-tail Case, New Jersey Supreme Court Rejects Insurers’ Argument that Policyholder Should Contribute to Allocation Where Insured Continued to Manufacture Asbestos-containing Products after Insurance for Asbestos Claims No Longer Sold

 

 

ALTMAN’S ADMINISTRATIVE (AND LEGISLATIVE) AGENDA

Howard B. Altman

[email protected]

 

  • Circular Letter for PrEP Coverage

 

OFF THE MARK
Brian F. Mark

[email protected]

 

  • US District Court Holds Insurer had Duty to Defend its Insured in Underlying Construction Defects Action and that the “Damage to Your Work” Exclusion did not Necessarily Preclude Coverage Based on the Underlying Allegations

  • US District Court Holds Insurer had no Duty to Defend or Indemnify its Insured in Underlying Action based on the “Damage to Your Work” Exclusion as the Insured’s Work was Abandoned and Not Completed

 

WANDERING WATERS

Larry E. Waters
[email protected]

 

  • Defendant’s Motion to Dismiss Denied because Texas Law Allows Action brought in Name of Subrogee

  • Carrier’s Motion to Add Counterclaim against Plaintiffs and Remediation Contractor Fraudulent Misrepresentation Granted

 

BORON’S BENCHMARKS

Eric T. Boron

[email protected]

 

  • Interpreting Insurance Policies: Courts Read Insurance Policies from the Perspective of Ordinary Policyholders of Average Intelligence

 

EARL’S PEARLS
Earl K. Cantwell
[email protected]

 

 

  • Implied Waiver of Attorney-Client Privilege

 

Have a wonderful Canada Day and Fourth of July holiday.

 

 

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

[email protected]

 

ASSISTANT EDITOR

Jennifer A. Ehman

[email protected]

 

INSURANCE COVERAGE/EXTRA CONTRACTUAL LIABILITY TEAM
Dan D. Kohane, Chair
[email protected]

 

Steven E. Peiper, Co-Chair

[email protected]
 

Michael F. Perley

Jennifer A. Ehman

Agnieszka A. Wilewicz

Edward B. Flink

Brian D. Barnas

Howard B. Altman

Brian F. Mark

Eric T. Boron

John R. Ewell

Larry E. Waters

Diane F. Bosse

Joel R. Appelbaum

 

FIRE, FIRST-PARTY AND SUBROGATION TEAM
Steven E. Peiper, Team Leader
[email protected]

 

Michael F. Perley

Edward B. Flink

Eric T. Boron

Brian D. Barnas

Howard B. Altman

James L. Maswick

 

NO-FAULT/UM/SUM TEAM
Jennifer A. Ehman, Team Leader
[email protected]
 

Jerry Marti

 

APPELLATE TEAM
Jody E. Briandi, Team Leader
[email protected]

 

Diane F. Bosse
 

Topical Index

Kohane’s Coverage Corner

Hewitt’s Highlights on Serious Injury

Peiper on Property and Potpourri

Wilewicz’s Wide World of Coverage

Jen’s Gems

Barnas on Bad Faith

Jerry’s No-Fault Navigation
John’s Jersey Journal

Altman’s Administrative (and Legislative) Agenda
Off the Mark

Wandering Waters

Boron’s Benchmarks

Earl’s Pearls

 

KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]

 

06/20/18       Sullivan v. New York Athletic Club of City of New York

Appellate Division, Second Department

In Labor Law Lawsuit, Not Enough Proof to Establish whether Named Insured Subcontractor Breached its Obligation to Provide Additional Insured Coverage to Owner and General Contractor

New York Athletic Club of City of New York (“NYAC”) hired the Talisen Construction Corporation (“Talisen”) as a general contractor to renovate a bathroom on NYAC's premises. In turn, Talisen hired the Sullivan’s employer, Premier Woodcraft, Ltd. (“Premier”), as a subcontractor for the bathroom renovation. Talisen agreed to indemnify NYAC, and Premier agreed to indemnify both Talisen and NYAC "[t]o the fullest extent permitted by law," including the payment of legal fees and costs arising from defending an action in connection with the work to be performed.

 

Premier also agreed to purchase and maintain insurance that included Talisen and NYAC as additional insureds. Premier obtained insurance, which included a blanket additional insured contractors endorsement that amended the entities to be insured "to include any person or organization that [it] agree[d] in a written contract requiring insurance' to include as an additional insured," but which did not name any specific entity.

 

Sullivan and a coworker were carrying a heavy beam on their shoulders from their truck located outside of the premises to the bathroom. Sullivan felt his "knee go forward" as he neared the bottom of the steps with the beam on his shoulder, and he subsequently dropped the beam and fell to the floor. The plaintiff sustained a left knee quadriceps tendon rupture, which his medical expert opined was caused by "the excessive load of the steel beam he was carrying on his body coupled with the activity of descending stairs."

 

Negligence and Labor Law claims were pursued against NYAC and Talisen and tender were made to the plaintiff’s employer, Premier.

 

The court ruled on the Labor Law claims, dismissing the 240 cause of action. Premier moved for summary judgment dismissing, among other things, the Labor Law §§ 240(1) and 241(6) causes finding that this was not a gravitational related injury (see the next issue of Labor Law Pointers for a more thorough discussion of this question).

 

With respect to the third-party causes of action and the cross claims, Premier agreed to indemnify Talisen and NYAC "[t]o the fullest extent permitted by law," including the payment of legal fees and costs arising from defending an action in connection with the work performed by Premier. Thus, Talisen established, prima facie, that it is entitled to recover its defense costs from Premier under the clear and unequivocal terms of the parties' contract.

 

However, Premier established that the plaintiff's underlying Labor Law §§ 240(1) and 241(6) causes of action were without merit, leaving only the plaintiff's negligence causes of action against Talisen remaining. Since Talisen cannot seek contractual indemnification for its own negligence, Premier's motion which was for summary judgment dismissing the third-party cause of action and cross claim for contractual indemnification asserted against it, except insofar as those causes of action sought defense costs. 

 

The contract between Talisen and Premier further provided that Premier would purchase and maintain insurance that would include Talisen and NYAC as additional insureds. Premier did obtain insurance, which included a "blanket additional insured (contractors) endorsement." Although that endorsement amended the general insurance policy "to include any person or organization that [Premier] agree[d] in a written contract requiring insurance' to include as an additional insured," Talisen's counsel averred in a supporting affidavit that Premier's insurance company has not assumed Talisen's defense. Therefore, neither party met its prima facie burden of establishing entitlement to judgment as a matter of law on Talisen's cause of action alleging breach of the agreements to procure insurance.

 

HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW

Robert E.B. Hewitt III

[email protected]  

 

06/27/18       Anderson v. Foley

Appellate Division, Second Department

Defendant Did Not Miss More than Three Weeks’ Worth of Work and Did Not Qualify for 90/180-Day Category

The defendant met his prima facie burden of showing that the injured 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 cervical and lumbar regions of the injured plaintiff's spine were not caused by the subject. In addition, the defendant established, prima facie, that the injured plaintiff did not sustain a serious injury under the 90/180-day category of Insurance Law § 5102(d) by demonstrating that the injured plaintiff did not miss more than three weeks of work following the accident. In opposition, the plaintiffs failed to raise a triable issue of fact. No facts were given.

 

06/27/18       Nunez v. Teel

Appellate Division, Second Department

Defendants Own Expert Found Significant Range of Motion Limitations

This action arises from a motor vehicle accident that occurred on the Belt Parkway in Queens on January 29, 2011.  A defendant can establish that the plaintiff's injuries are not serious within the meaning of Insurance Law § 5102(d) by submitting the affidavits or affirmations of medical experts who examined the plaintiff and conclude that no objective medical findings support the plaintiff's claim. Here, the defendant submitted, in support of her motion, an affirmed report from her expert, who found a significant limitation in the range of motion in the cervical region of Alies's spine. Accordingly, the defendant failed to establish, prima facie, that Alies did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident.

 

06/27/18       Haring v. Tuscano

Appellate Division, Second Department

Injury to Lumbar Spine Not Caused by the Accident

The plaintiff commenced this action against the defendants to recover damages for personal injuries allegedly sustained when his bicycle was struck by the defendants' automobile. The court held defendants met their prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendants submitted competent medical evidence establishing, prima facie, that the alleged injury to the lumbar region of the plaintiff's spine was not caused by the accident. In opposition, the plaintiff failed to raise a triable issue of fact. Again, no facts were given.

 

06/20/18       Aplerin v. Herwerth

Appellate Division, Second Department

Defendant Failed to Address 90/180-Day Claim by Plaintiff

The plaintiff commenced this action to recover damages for personal injuries he allegedly sustained when a vehicle he was driving was struck by a vehicle driven by the defendant. The defendant failed to meet 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 papers submitted by the defendant failed to adequately address the plaintiff's claim, set forth in the bill of particulars, that he sustained a serious injury under the 90/180-day category of Insurance Law § 5102(d). Since the defendant failed to meet his prima facie burden, it was unnecessary to determine whether the papers submitted in opposition were sufficient to raise a triable issue of fact. No facts were given.

 

06/20/18       Apsel v. Steamy, Inc.

Appellate Division, Second Department

Issue of Fact as to whether Injuries to Spine Caused by the Accident

The plaintiff commenced this action to recover damages for personal injuries allegedly sustained by her as a result of a motor vehicle collision between a vehicle she was driving and a vehicle driven by the defendant.  The Court held the defendants met their prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendants submitted competent medical evidence establishing, prima facie, that the alleged injuries to the cervical and lumbar regions of the plaintiff's spine were not caused by the subject accident In opposition, however, the plaintiff raised triable issues of fact as to whether the alleged injuries to the cervical and lumbar regions of her spine were caused by the subject accident. No facts were given.

 

06/20/18       Romero v. Austin

Appellate Division, Second Department

Infant Plaintiffs Could Not Establish 90/180 Day Claim Where They Missed No School

The plaintiffs commenced this action against the defendants to recover damages for personal injuries allegedly sustained in an automobile accident. The defendants met their prima facie burden of showing that neither of the infant plaintiffs sustained a serious injury within the meaning of Insurance Law § 5102(d) as a result of the accident. The defendants submitted competent medical evidence establishing, prima facie, that the alleged injuries to the cervical and lumbar regions of the spines of both of the infant plaintiffs did not constitute serious injuries under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d).  In addition, the defendants established, prima facie, that neither of the infant plaintiffs sustained a serious injury under the 90/180-day category of Insurance Law § 5102(d). The transcripts of the infant plaintiffs' deposition testimony submitted by the defendants demonstrated that neither of the infant plaintiffs missed any school following the accident. In opposition, the infant plaintiffs failed to raise a triable issue of fact.

 

06/20/18       Coston v. Asitimbay

Appellate Division, Second Department

Plaintiff Established Issue of Fact as to Injury to Cervical Spine

Plaintiff was a pedestrian, was crossing Flatbush Avenue, at or near its intersection with Lafayette Avenue, when she was struck by a vehicle owned and operated by the defendant. The defendant met his prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendant submitted competent medical evidence establishing, prima facie, that the alleged injury to the cervical region of the plaintiff's spine did not constitute a serious injury under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d).  In opposition, however, the plaintiff submitted evidence sufficient to raise a triable issue of fact as to whether she sustained a serious injury to the cervical region of her spine under the permanent consequential limitation of use and significant limitation of use categories of Insurance Law § 5102(d). No facts were given.

 

06/20/18       Wilson v. Somelofski

Appellate Division, Second Department

Defendants Established No Serious Injury

This action arises from a motor vehicle accident that occurred in Brookhaven. The defendants met their prima facie burden of showing that the injured plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendants submitted competent medical evidence establishing, prima facie, that the alleged injuries to the cervical and lumbar regions of the injured plaintiff's spine did not constitute serious injuries under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d). In addition, the defendants demonstrated, prima facie, that the injured plaintiff did not sustain a serious injury under the 90/180-day category of Insurance Law § 5102(d).In opposition, the plaintiffs failed to raise a triable issue of fact. No facts were given.

 

06/15/18       Luttrell v. Vega

Appellate Division, Fourth Department

Plaintiff’s Foot Fractures Were Enough to Qualify as a Serious Injury

Plaintiff commenced this negligence action seeking damages for injuries that she sustained when a vehicle operated by defendant struck her foot while she was walking her bicycle on the street beneath an overpass.   Viewing the evidence in the light most favorable to plaintiff and affording her the benefit of every reasonable inference the Appellate Court determined defendant failed to meet his initial burden on his motion of establishing as a matter of law that plaintiff's negligence was the sole proximate cause of the accident. Defendant's own submissions raised triable issues of fact, including whether he violated his  common-law duty to see that which he should have seen as a driver through the proper use of his  and his statutory duty to exercise due care to avoid colliding with any bicyclist or pedestrian. It was uncontested that plaintiff established as a matter of law on her cross motion that she sustained fractures in her foot as a result of the accident and, therefore, she was entitled to partial summary judgment on the issue of serious injury.

 

06/15/18       Schaubroeck v. Moriarity

Appellate Division, Fourth Department

Defendant’s Expert Failed to Address Plaintiff’s Lack of Complaints Prior to Accident in Opinion that Injury Was Degenerative

Plaintiff commenced this action seeking damages for injuries that he allegedly sustained when the vehicle that he was driving was rear-ended by a vehicle operated by defendant. In his bill of particulars, plaintiff alleged that he sustained a serious injury within the meaning of Insurance Law § 5102 (d) under four categories, i.e., the permanent loss of use, permanent consequential limitation of use, significant limitation of use, and 90/180-day categories.  Contrary to defendant's contention, the Appellate Division found his own submissions in support of his motion raise triable issues of fact with respect to whether the motor vehicle accident caused plaintiff's alleged injuries. The report of defendant's expert physician does not establish that plaintiff's condition is the result of a preexisting degenerative condition inasmuch as it fails to account for evidence that plaintiff had no complaints of pain prior to the accident. 

 

However, the Appellate Division agreed with defendant that he established his entitlement to judgment as a matter of law with respect to the permanent consequential limitation of use category. Defendant met his initial burden on the motion by submitting evidence establishing as a matter of law that plaintiff did not sustain a serious injury under that category.  Defendant submitted the affidavit of his expert physician who, after examining plaintiff, noted plaintiff had no difficulty walking and had full flexion and extension in both knees. In opposition to the motion, plaintiff failed to submit objective proof of a permanent injury. However, contrary to defendant's further contention, they concluded that the lower court properly denied that part of the motion with respect to the significant limitation of use category.   Plaintiff's submissions in opposition to the motion raised an issue of fact. Those submissions included the affirmation of plaintiff's treating physician, who, after reviewing plaintiff's medical records and imaging studies, opined within a reasonable degree of medical certainty that plaintiff sustained a folded flap tear at the junction of the mid-body and posterior horn of the meniscus of his right knee, and lateral and medial meniscus tears of both knees that required surgery and were causally related to the accident. He further opined that, consistent with what he observed on the MRI and his observations during plaintiff's surgery, the meniscus tears limited plaintiff's ability to walk, sit for long periods, turn, twist, drive for long periods, climb stairs, and walk on uneven surfaces.

 

PEIPER ON PROPERTY (and POTPOURRI)

Steven E. Peiper

[email protected]

 

06/28/18       Bernstein Liebhard,LLP v. Sentinel Ins. Co.

Appellate Division, First Department

For Law Firm, Business Income Claim Required Proof of Fees which would have been Earned (i.e., payable) Within Period of Restoration

Plaintiff is an operating law firm that sustained a fire loss during the period covered by Sentinel.  The instant claim focuses on plaintiff’s claimed entitlement to business income loss resultant from the suspension of advertising which was allegedly caused by the fire.  Essentially, plaintiff argues that it lost contingency fees when it was forced to suspend advertising in the aftermath of the otherwise covered loss. 

 

Here, the policy covered “actual loss” of business income within twelve months of the fire.  Plaintiff seeks fees it argues it would have “earned” in the twelve months post fire.  The Court initially noted that fees that would not have been paid until after the expiration of the twelve month limitation are not covered.  Thus, work performed during the time period, for contingency fees which would have later been earned, is not covered.  The Court, however, suggested that fees “earned” (i.e., fees which were payable) within the twelve month period might be covered. 

 

Here, however, no such argument was presented.  Rather, plaintiff only argues that it did not sign up cases which would have resulted in earned fees down the road.  That, again, is not covered as “actual loss” within the relevant twelve month period. 

 

06/27/18       Zovko v. Quittner Realty, LLC

Appellate Division, Second Department

Belief that Insurer wills Defend Lawsuit is Not a Reasonable Excuse for Default

Plaintiff commenced this action on September 25, 2014, and service was perfected on Folor, Inc. on October 8, 2014.  Counsel to plaintiff sent correspondence to Folor on November 20, 2014 advising of the default and requesting an Answer. 

On January 5, 2015, Folor’s insurer advised that it was reserving its rights to rescind the policy.  At that time, Folor was again advised that it must immediately forward any suit papers to the insurer’s attention.

 

In February of 2015, plaintiff finally moved for a default on liability against Folor.  The default was entered, unopposed, on May 7, 2015. Thereafter, on August 17, 2015, Folor apparently provided notice to its carrier, who, in turn, denied coverage via disclaimer dated October 14, 2015. 

 

Folor finally appeared with counsel on February 2, 2016, and moved to vacate the default in March of 2016.  When the motion was refused by the court, Folor again moved to vacate the default on June 2, 2016.   The court denied this application, and the instant appeal followed.

 

To vacate an appeal, the movant must establish a reasonable excuse for the default and a meritorious defense.  Folor’s argument that it believed its insurer would defend it was not reasonable where, as here, the insurer reserved its rights and requested a copy of the Summons and Complaint. 

 

The Appellate Division further noted that the misunderstanding of who would be providing the defense was part of a “pattern of ‘repeated neglect’.”  To that point, the Court noted that Folor waited five months to vacate the original default after it learned of its carrier’s denial.  Without a reasonable excuse, the Court was not compelled to further consider the merit of Folor’s proposed defense. 

 

WILEWICZ’S WIDE WORLD OF COVERAGE

Agnes A. Wilewicz

[email protected]

 

06/26/18       7001 East 71st Street LLC v. Continental Casualty Company

United States Court of Appeals, Second Circuit

Second Circuit Finds Windstorm Exclusion Ambiguous as Written, Remanding Superstorm Sandy Case Down for Further Proceedings

7001 East 71st Street LLC (“7001”) allegedly sustained damages to its shopping center during Superstorm Sandy, at least in part, due to rainwater. Its carrier, Continental Casualty disclaimed coverage, citing their policy’s windstorm exclusion. That provision, starting with an anti-concurrent clause, read: “We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded, regardless or any other cause or event that contributes concurrently or in any sequence to the loss. ... including ... earth movement ... nuclear reaction or radiation ... war, including undeclared or civil war ... and an explosion”. Further, the provision precluded coverage for a “‘Breakdown’ that is caused by windstorm or hail” and a “breakdown” in turn is defined as a “sudden and accidental direct physical loss to ‘Covered Equipment’, which manifests itself by physical damage, necessitating its repair or replacement, unless such loss is otherwise excluded within this Coverage Form”. Thus, the court noted, the Windstorm Exclusion actually read, in relevant part and in context:

 

“We will not pay for loss or damage caused directly or indirectly by a “Breakdown” [i.e., a sudden and accidental direct physical loss to “Covered Equipment”, which manifests itself by physical damage] that is caused by windstorm.”

 

The court noted that this exclusion did not simply read “we will not pay for loss or damage caused directly or indirectly by windstorm”. It contrasted the above language with the policy’s Earth Movement Exclusion, which was clearer: “We will not pay for loss or damage caused directly or indirectly by earth movement.” Similarly, the policy’s Explosion Exclusion stated: “We will not pay for loss or damage caused directly or indirectly by an explosion.” If the Windstorm Exclusion had been drafted as clearly, then clearly there would have been no coverage. However, reading the policy as a whole, the drafter/carrier intended to distinguish between these provisions. Since there were two possible interpretations of the above-cited language, though, it was ambiguous. Since unclear provisions of a contracted are construed against the drafter, the court vacated the earlier win for the carrier and sent the matter back down for further proceedings.

 

06/26/18       Classic Laundry and Linen Corp. v. Travelers Casualty Ins. Co.

United States Court of Appeals, Second Circuit

Second Circuit Holds Policy’s Two-Year Suit Limitation Clause Clearly and Unambiguously Requires Cases Brought Against a Carrier Within Two Years from the Date on Which the Direct Physical Loss or Damage Occurred

Classic Laundry and Linen Corp (“Classic”) purchased a policy from Travelers which provided coverage for damage to Classic’s business personal property and any business income loss or incurred extra expense resulting from any covered loss. The policy’s suit limitation provision stated that “no one may bring a legal action against [Travelers] under this Coverage form unless ... the action is brought within 2 years after the date on which the direct physical loss or damage occurred.”

 

On May 1, 2013, there was a fire at Classic’s business premises. Travelers paid the business property damage claim, but denied coverage for business income and incurred expenses. The basis for the denial was, in part, Classic’s failure to timely return an executed sworn statement providing for and detailing its losses. Classic then sued Travelers on that claim in an action on March 3, 2016.

 

The Second Circuit found the suit limitation clause to be unambiguous. As above, no one could bring action against the carrier under the coverage provided unless that action was brought within two years after the “date on which the direct physical loss or damage occurred”. (emphasis supplied by the Court). New York precedent has repeatedly held that this refers to the date on which the physical loss, casualty, or accident took place, not the day on which the insured’s claim accrued. This means that the clock starts running from the occurrence, whether that be the accident at issue or fire at a property. While the business income loss might actually take place after that time, the suit limitation clause is clear. Moreover, not only did the court find the clause unambiguous, they also found it reasonable and therefore clearly enforceable. Classic’s claim for further coverage was therefore barred.

 

JEN’S GEMS

Jennifer A. Ehman

[email protected]

 

Courts remain quiet.

 

JERRY’S NO FAULT NAVIGATION

[email protected]

 

06/28/18                 Linda Jeffery and Metropolitan Casualty Ins. Company

American Arbitration Association

No Fault Coverage Not Available for Late Claim in Amount of $141,229.76

On November 4, 2016, the applicant, Linda Jeffery, claimed that she was walking near a car door that blew open and bumped her left leg. As a result, her leg became swollen that day and she subsequently went for treatment. While there was no abrasion to her left leg, she indicated that she had an infection. 

 

Nonetheless, she did not file her claim until July 17, 2017 – well over seven months after the initial date of accident.  In denying the claim, Arbitrator Mary Anne Theiss pointed out that the late filing prejudiced the respondent by preventing an investigation of the facts of the case.  But, more importantly, the arbitrator was persuaded by the lack of credibility surrounding the applicant’s claim, calling into question whether it even occurred during the use or operation of a motor vehicle.  Although not included in the decision, but raised in the respondent’s submission, the applicant had apparently submitted receipts for cat litter, cigarettes, and lunch for others as part of her claim.

 

No Fault Navigation Pointer: When contesting the late filing of claim, the credibility of the applicant and the merits of the action are important considerations to raise in a submission. Remember, just say no to the cat litter.

 

BARNAS ON BAD FAITH

Brian D. Barnas

[email protected]

 

06/25/18       Monticello Road, LLC v. Auto-Owners Insurance

United States District Court, District of South Carolina

Bad Faith Claim Failed under South Carolina Law where Plaintiffs were not Entitled to Benefits they Claimed under the Insurance Contract

Plaintiffs operate a gas station and convenience store in Columbia, South Carolina.  Plaintiffs allege that in 2016 there was a severe storm that caused damage to various gas pumps, gas equipment, inventory, and a canopy.  According to Plaintiffs, water seeped into the underground storage tanks and damaged fuel inventories. 

 

Plaintiffs submitted a claim under its AmGuard Policy seeking coverage for damage to the canopy and the gasoline pumps, but not for the underground gasoline inventory.  After investigating the claim, AmGuard issued payment for the canopy, identifying wind damage as the Covered Cause of Loss.  AmGuard, however, denied payment for the gasoline pumps.  According to AmGuard, the remainder of Plaintiffs’ claimed damages was caused by flood waters and is specifically excluded under the AmGuard Policy. 

 

Plaintiff sued AmGuard for breach of contract and bad faith.  AmGuard moved for summary judgment on both claims.  The Court agreed with AmGuard that there was no coverage for the gasoline pumps because they were damaged by flood water, which was excluded under the policy.  It was undisputed that there was no damage to the gasoline pumps.

 

The bad faith claim was also dismissed.  One of the elements of bad faith refusal to pay benefits under South Carolina law is refusal by the insured to pay benefits due under the contract.  As AmGuard’s refusal to pay benefits was justified, the bad faith cause of action failed.

 

Plaintiffs also sued AutoOwners, a Write-Your-Own program carrier participating in the National Flood Insurance Program.  AutoOwners did not move against Plaintiffs’ breach of contract claim, but did move to dismiss Plaintiffs’ claims for extra-contractual damages.  The Court concluded that Plaintiffs’ bad extra-contractual claims under state law were preempted by the National Flood Insurance Act because federal law exclusively governs claims made on policies issued under the NFIA.

 

06/22/18       Bridgham-Morrison v. National General Assurance Company

United States Court of Appeals, Ninth Circuit

Insurer did not Act in Bad Faith by Failing to Intuit Plaintiff’s Damages

After an automobile accident, NGAC paid Plaintiff the policy maximum under her personal injury protection (PIP) policy, and the motorist who struck Plaintiff’s vehicle paid his insurance policy maximum.  Plaintiff then sought to recover additional damages under her underinsured motorist (UIM) policy.  In fall 2013, after offsetting for money already received under the PIP policy and from the motorist’s insurer, NGAC offered Plaintiff an additional $20,000 to settle her claim.  In total, the insurance payments covered Plaintiff’s then-documented economic damages and gave an additional sum for non-economic damages based on internal NGAC estimates. Plaintiff rejected this offer and negotiations stalled and no settlement was reached.

 

Plaintiff hired a new attorney in late 2013, and between December 2013 and October 2014, Plaintiff’s new attorney sent many letters demanding a payment higher than the $20,000 that NGAC had previously offered.  Those letters gave little to no explanation for why a higher payment would be appropriate, and they did not document a justification for additional payments.  In early 2014 an NGAC claims adjuster had some questions about causation and asked Plaintiff for additional employment and medical documentation.  Despite repeated requests,

Plaintiff refused to turn over these documents until April 2015, on the eve of litigation.  Eventually, but only after litigation started, NGAC tendered the policy maximum.

 

Plaintiff argued that NGAC’s investigation was unreasonable because it did not include certain categories of economic and non-economic damages.  Most of these claimed damages were never mentioned by Plaintiff before litigation, and they were not included in Plaintiff’s initial demands.  Plaintiff contended that NGAC had a duty to investigate these damages whether or not she ever claimed them.

 

This argument was rejected by the Court.  NGAC granted coverage for all documented economic damages, and estimated non-economic damages based on the records Plaintiff provided.  In early communications with NGAC, Plaintiff’s counsel represented that Plaintiff had largely recovered from her injuries and was able to get back to work after her second shoulder surgery.  In such circumstances, NGAC could reasonably have concluded that the information given before NGAC’s settlement offer was all that was necessary to evaluate the claim.  That NGAC may not have covered some categories of damages did not make their investigation unreasonable, especially where Plaintiff was represented by counsel, those damages were never claimed by Plaintiff, and Plaintiff refused to turn over medical and employment documents requested by NGAC.

 

The Court declined to hold that Washington law imposes a duty on an insurer to intuit what a plaintiff’s damages might be.  While Plaintiff claimed that the valuation of her non-economic damages was too low, disagreement about the amount of damages based on available evidence cannot ground a claim for failure to investigate.

 

Plaintiff also argued that NGAC’s settlement offers were unreasonable because NGAC offered less than was ultimately recovered, and because NGAC forced Plaintiff into litigation to recover what she was owed under the policy.  A disparity between an offer and the amount ultimately recovered does not, on its own, give a basis for a claim of bad faith—the plaintiff must show something more.

 

Plaintiff contended that NGAC had two different internal estimates of damages for her shoulder injury, and that NGAC’s initial offer was based on the lower estimate. This, she claimed, supported her contention that the offer was unreasonably low.  However, the Court noted that assessing non-economic damages is hardly scientific.  An internal disagreement within NGAC about the amount of non-economic damages does not show that the second estimate on which the offer was based was unreasonable.

 

Plaintiff also argued that violations of Washington state insurance regulations are per se IFCA violations and per se good faith violations, and that there were material disputes of fact as to whether NGAC violated some of the regulations.  However, the Washington Supreme Court has held that merely violating a regulation is not a per se violation of the IFCA.  A court must still assess whether the insurer acted unreasonably.  Based on the record presented, no reasonable juror could conclude that NGAC acted unreasonably.

 

JOHN’S JERSEY JOURNAL
John R. Ewell

[email protected]

 

06/27/18       Continental Ins. Co. et al. v. Honeywell International, Inc. et al.

New Jersey Supreme Court

In Long-tail Case, New Jersey Supreme Court Rejects Insurers’ Argument that Policyholder Should Contribute to Allocation Where Insured Continued to Manufacture Asbestos-containing Products after Insurance for Asbestos Claims No Longer Sold

The Bendix Corporation (Bendix)—a corporate predecessor to Honeywell—manufactured and sold friction products (brake pads) that contained asbestos for many years. Bendix stopped using asbestos in its friction products in 2001, having continued to manufacture the items even after 1987 when insurance for asbestos-related claims for such products ceased to be available in the marketplace.

 

Beginning around 1975, Bendix began to receive liability claims asserting that asbestos in its friction products caused bodily injury to users. Bendix and its successors received approximately 147,000 claims and its insurers have spent more than $1 billion on indemnity payments.

 

In 2000, Continental Insurance Company, which wrote many primary insurance policies for Bendix during the relevant years, commenced this action seeking declaratory relief concerning the rights and obligations associated with insurance coverage for the asbestos-related bodily injury claims filed against Honeywell as successor to Bendix. Honeywell settled with Continental and most other insurers. Ten insurance policies remained at issue involved excess insurance policies issued to Bendix by Travelers and St. Paul.

 

The following matters were undisputed:

  • The friction products contained asbestos;

  • Honeywell is responsible for asbestos liabilities attributed to Bendix;

  • Excess insurance coverage for asbestos-related personal injury claims became unavailable for purchase after April 1, 1987.

     

    The case reached the New Jersey Supreme Court. The Court considered two issues:

     

  • whether the law of New Jersey or Michigan should control in the allocation of insurance liability among insurers for nationwide products liability claims.

  • whether it was error not to require the policyholder, Honeywell, to contribute in the allocation of insurance liability based on the time after which the relevant coverage became unavailable in the marketplace.

     

A. Choice of Law

 

The Court first addressed which state’s law applied.

 

Bendix was incorporated in 1929 under the laws of the State of Delaware. From 1969 and 1983, Bendix situated its executive headquarters in Michigan. The excess insurance policies were all brokered, issued, and delivered to Bendix in Michigan in the 1960s, 1970s, and 1980s. The policies did not contain a choice of law provision for allocation.

 

Bendix also had significant contacts with New Jersey. Until 1973, Bendix’s largest center of operations and payroll was in New Jersey. Honeywell is the corporate successor to Bendix. Honeywell was incorporated under the laws of the State of Delaware, but its headquarters and principal place of business have always been located in Morristown, New Jersey. Since 1983, all insurance operations for Bendix and its successors have been located in New Jersey. In total, Honeywell has purchased more than $3.5 billion in umbrella and excess insurance for Bendix’s and its successors’ liabilities from insurers whose principal places of business were located in over fourteen states and countries, including New Jersey.

 

New Jersey’s choice-of-law analysis focuses on the state that has the focuses on the state that has the most significant connections with the parties and the transaction. The Court found that New Jersey had the most significant connection. The place of performance of the insurance contract, the domicile, residence, and places of incorporation and of business of the parties were New Jersey. New Jersey was the longstanding domicile of the insured. New Jersey was also the place of performance of the contractual defense and indemnification of Honeywell. Several of the insurers were domiciled in New Jersey. Accordingly, the Court ruled that New Jersey’s relationship with the case was sufficiently significant to warrant application of New Jersey law.

 

B. New Jersey Law on Insurance Allocation

 

New Jersey employs the continuous-trigger doctrine, which was initially adopted in 1994 in the seminal case on insurance allocation, Owens-Illinois.

 

In Owens-Illinois, the New Jersey Supreme Court held “that when progressive indivisible injury or damage results from exposure to injurious conditions for which civil liability may be imposed, courts may reasonably treat the progressive injury or damage as an occurrence within each of the years of [the insurance] policy.” The Court ultimately settled on the continuous-trigger theory of liability as a matter of public policy. As such, New Jersey treats progressive injury or damage as an occurrence within each of the years of a comprehensive general liability insurance policy.

 

The Court reasoned that continuous-trigger approach would (1) make the most efficient use of the resources available to cope with environmental disease or damage, (2) encourage responsible conduct that will increase available resources; (3) spread risk among multiple insurers; (4) encourage policyholders to purchase coverage every year; and (5) serve “principles of simple justice.”

 

Since the continuous-trigger theory would implicate multiple insurance policies, the Court also adopted a methodology for allocating liability among those policies. When determining an insurer’s liability, the court is to consider both the insurer’s time on the risk and the degree of risk that insurer assumed. That methodology entails “proration on the basis of policy limits, multiplied by years of coverage.”

 

Under this methodology, determining allocation of liability among insurers whose policies cover asbestos-related diseases over a period of years considers both the insurers’ time on the risk and the degree of risk assumed. Insurers do not share a single loss under this methodology; rather, each is made responsible for losses on its watch, subject to the limits of the policy each has written, “as calculated in accordance with a formula [the Court developed as a proxy for a scientific assessment of the amount of injury happening at each phase on the continuum.”

 

The continuous-trigger method assumes the availability of insurance and incorporates recognition of an unavailability exception. As explained in Owens-Illinois, “[w]hen periods of no insurance reflect a decision by an actor to assume or retain a risk, as opposed to periods when coverage for a risk is not available, to expect the risk-bearer to share in the allocation is reasonable.” The Court thus made it clear that a policyholder is not responsible for the pro rata portion of liability that reflects a period of insurance unavailability. Courts have applied the “unavailability exception,” in accordance with the language of Owens-Illinois, to require an insured to share in an allocation of liability under the continuous-trigger doctrine only when it foregoes purchasing available insurance.

 

C. Insurers’ Request for Exception to Unavailability Doctrine

 

In this appeal, St. Paul and Travelers asked the Court to create an equitable exception to the unavailability rule, where corporations that continue to manufacture products after insurance becomes unavailable for those products would be deprived of the insurance coverage they purchased prior to that unavailability.

 

The insurers urged the Court to conclude that Honeywell’s decision to continue to manufacture and sell products containing asbestos, after insurance was no longer available, should result in requiring Honeywell to contribute to the losses from its past and future sale of those products.

 

They urged the Court to find an “exceptional circumstance” warranting departure from Owens-Illinois. Thus, they claimed that, for purposes of performing the allocation of risk, the coverage block of insurance should have been extended to include all years that Honeywell continued to manufacture the friction products. They asserted that, otherwise, application of the unavailability rule would encourage manufacturers to behave irresponsibly. Manufacturers, they argued, will be allowed to transfer the risk of that subsequent (post-insurance unavailability) conduct to their prior insurers.

 

In contrast, Honeywell primarily pointed to the record that establishes that excess insurance was no longer available after April 1987. Honeywell emphasized that it was seeking coverage only for claims alleging first exposure to a Bendix product before 1987—while Bendix and its successors had active occurrence-policy coverage for asbestos-based risks—even if manifestation occurred after that point in time. Honeywell stressed that, under existing law, their conduct after 1987 is not relevant because it does not affect the prior exposure for which they had purchased insurance. Thus, Honeywell contended, the Owens-Illinois unavailability rule applied and therefore, Honeywell did not have to contribute to the allocation. Honeywell underscored that it is inaccurate for the insurers to contend that it is seeking to foist post-1987 conduct onto insurers.

 

The Court found that the record indisputably demonstrated that excess insurance for asbestos injuries became unavailable in the marketplace in 1987. Importantly, none of the initial asbestos exposures, on which claims Honeywell sought insurance coverage, occurred after insurance became unavailable.

 

The Court found that:

 

The claimants initially were exposed to asbestos at times when the manufacturer was covered by the excess insurance policies at issue. Although the disputed policies involved in this appeal concern excess insurance, we are dealing with occurrence policies. Further, we are addressing claims pertaining to exposure to asbestos during the policy periods claimed to have caused progressive asbestos-related disease.

 

The Court held that:

 

This case simply does not present facts on which to consider abandoning the unavailability exception, let alone whether to create a novel equitable exception to that exception that would retroactively deprive parties of paid-for insurance coverage due to their post-coverage-period conduct. Sufficient justification for even contemplating taking steps to alter our allocation methodology, with its unavailability rule, is absent here. The continued application of the unavailability rule supports the public policy objectives originally intended by our prorated allocation methodology.

 

Furthermore, the Court also rejected that idea that their decision would disincentivize manufacturers from responsible behavior regarding products for which insurance becomes unavailable. It supported its reasoning, stating that the manufacturer in this case ceased its production of asbestos-containing products. Therefore, the Court affirmed the judgment of the Appellate Division.

 

ALTMAN’S ADMINISTRATIVE (AND LEGISLATIVE) AGENDA

Howard B. Altman

[email protected]

 

Circular Letter for PrEP Coverage

 

On June 22, 2018, DFS issued a Circular Letter outlining guidelines for issuing coverage to individuals using pre-exposure prophylaxis (“PrEP”) treatment to prevent HIV, and for covering the medications themselves.  PrEP is an HIV prevention strategy where individuals who are not infected with HIV but may be at risk of exposure to the virus take medication to reduce their risk of becoming infected.

 

The letter’s purpose stated purpose is to prevent discrimination by carriers against those using PrEP.  DEF determined that that charging higher premiums based upon one’s use of PrEP is impermissibly discriminatory.  This means a carrier cannot determine ‘this person uses PrEP, and is a higher risk, requiring a higher premium.’

 

The letter may be viewed in its entirety at:

https://www.dfs.ny.gov/insurance/circltr/2018/cl2018_08.htm

 

Following reports that issuers may be have been denying applications for life insurance, disability income insurance, or long term care insurance if an applicant used PrEP, DFS commenced an investigation of issuers’ underwriting guidelines and practices in New York when the applicant is engaging in or has engaged in an HIV prevention strategy, such as PrEP.  The Department concluded that adverse underwriting decisions based solely on an applicant’s use of PrEP are inconsistent with the Insurance Law.

 

Insurance Law § 4224(a)(1) prohibits a life insurer from making or permitting any unfair discrimination between individuals of the same class in the amount of premiums, or rates charged for policies of life insurance or annuity contracts.  Underwriting practices in which adverse decisions are based on an applicant’s use of PrEP violate § 4224(a)(1) because these practices result in unfair discrimination between individuals with the same level of potential exposure to HIV.  These practices result in adverse underwriting decisions for individuals who are taking steps to mitigate the risk of contracting HIV infection but no adverse underwriting decisions for individuals with the same level of potential exposure to HIV who are not taking steps to mitigate the risk. 

Issuers may underwrite for increased health risk if based on sound actuarial principles or if related to actual or reasonably anticipated experience.  However, practices that rely solely on the use of PrEP to identify and underwrite a higher risk of HIV infection are contrary to the Insurance Law. 

 

Further, Insurance Law § 4224(a)(2) and (b)(2) prohibits issuers of life insurance, disability income insurance, and long term care insurance from refusing to insure or continue to insure, limiting the amount, extent or kind of coverage, or charging a different rate for the same coverage solely because of the physical or mental disability, impairment or disease, or prior history of the disability or disease of an insured or potential insured except where the refusal, limitation or rate differential is permitted by law or regulation and is based on sound actuarial principles or is related to actual or reasonably anticipated experience. 

 

The letter further notes that according to March 2018 consumer fact sheet published by the Centers for Disease Control and Prevention entitled “PrEP 101,” the daily use of PrEP reduces the risk of contracting HIV from sex by more than 90%.

 

The letter concludes that under Insurance Law § 4224, issuers may not unfairly discriminate in their underwriting or rate setting based on an applicant’s use of HIV prevention strategies, such as PrEP.  Consumers taking steps to prevent contraction of HIV should be able to purchase life insurance, disability income insurance, and long term care insurance at fair and reasonable premium rates.  In addition, consumers should not be subject to postponement of coverage, maximum benefit periods, or exclusions for HIV solely because they are taking PrEP to mitigate the risk of contracting HIV.  

 

DFS directs questions regarding this circular letter regarding life insurance to:  Peter Dumar, Chief Insurance Attorney, Life Bureau, New York State Department of Financial Services, One Commerce Plaza, Albany, New York 12257 or by email at [email protected] and questions regarding this circular letter regarding disability income insurance or long term care insurance to:  Christina Fernet, Senior Attorney, Health Bureau, New York State Department of Financial Services, One Commerce Plaza, Albany, New York 12257 or by e-mail at [email protected].

 

OFF THE MARK
Brian F. Mark

[email protected]

 

06/21/18       Cincinnati Specialty Underwriters v. Milionis Constr., Inc.

United States District Court for the Eastern District of Washington
US District Court Holds Insurer had Duty to Defend its Insured in Underlying Construction Defects Action and that the “Damage to Your Work” Exclusion did not Necessarily Preclude Coverage Based on the Underlying Allegations

This declaratory-judgment action arises out of an underlying construction defects action involving the construction of a residential home.  Jeffrey and Anna Wood hired Milionis.

 

Construction Company ("Milionis") to serve as the general contractor for the construction of the home.  In the underlying action, the Woods allege that Milionis breached the parties' agreement by, among other things, failing to (a) perform in a workmanlike manner, (b) follow plans and specifications, (c) purchase and install required materials, (d) provide an accounting for fees, and (e) abandoning the job site. The Woods asserted claims for breach of contract, quantum meruit, promissory estoppel, breach of good faith and fair dealing, negligence, negligent misrepresentation, and violation of the Washington Consumer Protection Act.

 

After the commencement of the underlying action, Milionis tendered the suit to Cincinnati Specialty Underwriters Insurance Company (“Cincinnati”) for defense and indemnity.  Cincinnati agreed to defend the underlying suit under a reservation of rights.  Cincinnati then filed a declaratory-judgment action seeking a declaration that it did not have a duty to defend or indemnify Milionis in the underlying action.

 

Cincinnati issued a CGL policy to Milionis, effective from November 23, 2014, to November 23, 2016.  The policy provides coverage for "sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies.”  The policy contains an Independent Contractors Limitations of Coverage Endorsement, which requires Milionis to (a) obtain a formal written contract with all independent contractors and subcontractors verifying valid commercial general liability insurance, (b) obtain a formal written contract stating the independent contractor or subcontractor agrees to indemnify Milionis for any liability, and (c) verify in the contract that the independent contractor or subcontractor has named Milionis as an additional insured on the liability policy.  The endorsement provides "this insurance will not apply to any loss, claim or 'suit' for any liability or any damages arising out of operations or completed operations performed for you by any independent contractors or subcontractors unless all of the above conditions are met."

 

Milionis did not obtain written hold harmless agreements from its subcontractors and was not named as an additional insured on its subcontractors' policies.  Cincinnati moved for summary judgment based on Milionis's failure to comply with those conditions.

 

The Court noted that the duty to defend is broader than the duty to indemnify and that the duty to defend exists if the policy conceivably covers the allegations, while the duty to indemnify exists only if the policy actually covers the claim. To determine whether an insurer has a duty to defend, a court looks only at the "eight corners" of the policy and the complaint.  The Court examined the underlying complaint, which alleged statutory, contractual, and tort claims, and stated that the bases of which are conceivably covered under Milionis's CGL policy with Cincinnati.  As such, the Court held that Cincinnati had a duty to defend Milionis in the underlying suit.

 

In its motion, Cincinnati argued that it had no duty to defend Milionis in the underlying action based on the "Damage to Your Work" exclusion.  The exclusion applies to "'property damage' to 'your work' arising out of it or any part of it and included in the 'products-completed operations hazard.'"  The products liability operations hazard includes "'all bodily injury' and 'property damage' . . . arising out of 'your product' or 'your work'" if the product is no longer in the insureds' possession or the work has been completed or abandoned.  Thus, the "Damage to Your Work" policy exclusion limits coverage to property damage that occurs before the work has been completed or abandoned.

 

The Court found that the "Damage to Your Work" policy exclusion did not necessarily preclude coverage for the claims asserted in the underlying complaint.  The Woods alleged that Milionis "performed numerous tasks in a substandard and unworkmanlike manner" including "failure to assert steel columns at necessary points in the basement walls per the structural detains of the engineering and architectural drawings" and "improperly stepping down the west side foundation . . . [causing] the foundation wall to sit two feet higher than it was supposed to be."  These allegations assert property damage that occurred before the work was completed or abandoned.  Accordingly, the Court held that the "Damage to Your Work" policy exclusion did not exclude coverage based on the facts alleged in the complaint.

 

Cincinnati next argued that the Woods' claims are not covered because Milionis failed to comply with the requirements of the subcontractor endorsement.  The Court noted that this issue could not be determined from the face of the policy and the complaint.  The Court further noted that the underlying complaint alleged causes of action that extend beyond "completed operations performed for [Milionis] by any independent contractors or subcontractors."

 

Cincinnati also argued that it had no duty to indemnify Milionis for damages incurred in the underlying suit.  The Court acknowledged that the duty to indemnify turns on the insured's actual liability to the claimant and the actual coverage under the policy.  To determine coverage, an insured must establish that the loss falls within the scope of the policy's insured losses.  Because the underlying suit has not yet concluded, The Court concluded that questions of fact remain regarding the basis of Milionis's actual liability, if any, to the Woods.  Accordingly, the Court denied summary judgment on the issue of Cincinnati’s duty to indemnify.

 

06/21/18       Southern-Owners Ins. Co. v. MAC Contrs. of Fla., LLC

United States District Court for the Middle District of Florida, Fort Myers Division
US District Court Holds Insurer had no Duty to Defend or Indemnify its Insured in Underlying Action based on the “Damage to Your Work” Exclusion as the Insured’s Work was Abandoned and Not Completed.

This declaratory-judgment action arises out of an underlying construction defects action involving the construction of a residence in Florida.  In 2014, MAC Contractors of Florida, LLC (“MAC”) contracted with Paul and Deborah Doppelt (“the Doppelts”) to serve as the general contractor in the construction of a residence.  Due to a dispute between the parties, the Doppelts alleged that MAC left the job site prior to completing the residence in breach of the parties' contract and prior to the issuance of a certificate of occupancy.  Because the residence remained replete with construction defects, the Doppelts served MAC with a Notice of Defect identifying eighty-six distinct defects that were caused by MAC and/or its subcontractors that MAC failed to correct.  MAC claimed that the list of defects were simply "punch-list items."  The Doppelts alleged that this was an anticipatory repudiation and total breach of the contract.

 

On August 24, 2016, the Doppelts filed suit in state court against MAC for breach of contract, alleging construction defects.  Specifically, in the Verified First-Filed Complaint, the Doppelts alleged, among other things, "damage to wood floors and the metal roof."  Additionally, the First-Filed Complaint incorporated as an exhibit the Notice of Defect.  On November 17, 2016, the Doppelts filed an Unverified Amended Complaint alleging nearly the same allegations as the First-Filed Complaint, but stating for the first time that MAC "abandoned" the project.

 

Southern-Owners Insurance Company (“Southern-Owners”) issued two CGL policies to MAC, effective October 8, 2014 through October 8, 2015, and October 8, 2015 to October 8, 2016, (collectively, the Policies).  MAC tendered the underlying action to Southern-Owners, seeking defense and indemnity.  Southern-Owners initially accepted the demand for defense and indemnity, but notified MAC on April 10, 2017, that it would be withdrawing its defense, and withdrew the defense on May 7, 2017.

 

Southern-Owners then commenced a declaratory-judgment action seeking a declaration that it had no duty to defend or indemnify MAC for claims asserted in the underlying state action.  Southern-Owners asserted that certain policy exclusions applied and thus, it had no duty to defend or indemnify MAC for the claims asserts against it.  In its Amended Complaint, Southern-Owners alleged that there was no duty to defend MAC pursuant to the Policies because there was no "property damage" or "occurrence" as defined by the Policies, and the underlying action did not constitute a "suit" within the meaning of the Policies.  MAC filed a counterclaim seeking a declaration that Southern-Owners was obligated to defend and indemnify MAC.

 

Southern-Owners relied primarily on Exclusion l. Damage to Your Work, and the accompanying definitions of "products-completed operations hazard", "property damage", and "your work", to preclude a duty to defend in the underlying action.  These provisions state as follows:

 

Exclusion l. Damage to Your Work

"Property damage" to "your work" arising out

of it or any part of it and included in the "products

completed operations hazard."

 

"Property damage" is defined as:

 

a. Physical injury to tangible property, including all

resulting loss of use of that property.  All such loss

of use shall be deemed to occur at the time of the

physical injury that caused it; or

b. Loss of use of tangible property that is not

physically injured.  All such loss shall be deemed to

occur at the time of the "occurrence" that caused it.

 

"Your Work" is defined as:

(1) Work or operations performed by you or on your

behalf; and

(2) Materials, parts or equipment furnished in

connection with such work or operations.

 

"Products-completed operations hazard" is defined as:

a. Includes all "bodily injury" and "property damage"

occurring away from premises you own or rent and

arising out of "your product" or "your work" except:

 

(1) Products that are still in your physical

possession; or

 

(2) Work that has not yet been completed or

abandoned.  However, "your work" will be

deemed completed at the earliest of the

following times:

 

(a) When all the work called for in your

contract has been completed.

 

(b) When all of the work to be done at the

job site has been completed if your

contract call for work at more than one job

site.

 

(c) When that part of the work done at a

job site has been put to its intended use by

any person or organization other than

another contractor or subcontractor

working on the same project.  Work that

may need service, maintenance,

correction, repair or replacement, but

which is otherwise complete, will be

treated as completed.

 

In examining the duty to defend, the Court acknowledged that under Florida law, "[i]t is well settled that an insurer's duty to defend its insured against a legal action arises when the complaint alleges facts that fairly and potentially bring the suit within policy coverage.  The duty to defend must be determined from the allegations in the complaint."

 

Both MAC and Southern-Owners filed motions for summary judgment as to the duty to defend.  MAC argued that in comparing the Insuring Agreement of the Policies with the allegations in the underlying action, Southern-Owners owed MAC a defense.  MAC also argued that none of the Policies' exclusions were triggered. 

 

Southern-Owners did not dispute or discuss whether the underlying action triggered coverage under the policies, but relied upon Exclusion l. Damage to Your Work, and related definitions, to preclude coverage.  Southern-Owners argued that the underlying Amended Complaint clearly alleged that MAC "abandoned the project," which the Court must accept as true in determining the duty to defend, and the term must be given their plain and unambiguous meaning.  Therefore, Southern-Owners argued that the definition of the "products-completed operations hazard", was met. 

 

MAC responded that while the parties do not dispute that the work had not yet been completed when MAC ceased working, it argued that the assertion that MAC abandoned the project is only alleged in a conclusory fashion with no support.  MAC also argued that the "products-completed operations hazard" provision is ambiguous because it is not clear whether the word "not" modifies the term "abandoned" or "completed."  An ambiguity exists when there is more than one reasonable interpretation of policy language — one affording coverage and one excluding coverage.

 

Following its analysis, the Court concluded that Exclusion l applied and the provision was unambiguous.  As such, the Court determined that it need not resort to the rules of construction proposed by MAC.  The Court noted that MAC failed to show that the placement of the word "or" in the "products-completed operations hazard" opened the exclusion up to more than one reasonable interpretation.  The exclusion clearly applies to "your work" that was either abandoned or not completed.  The Policies' exclusionary language contemplates no coverage for work that has yet to be completed, and the Doppelts alleged that MAC failed to complete the work as contemplated by the parties' contract and MAC itself conceded that the parties "do not dispute the fact that the work had not yet been completed."  Thus, the Court held that the exclusion clause unambiguously denies coverage for property damage in the event that the insured abandons or does not complete its work, which is what is alleged to have occurred in this case.  Because Southern-Owners had no duty to defend MAC in the underlying action, the Court likewise concluded that it had no duty to indemnify MAC.  Accordingly, the Court granted Southern-Owners' motion for summary judgment.

 

WANDERING WATERS

Larry E. Waters
[email protected]

 

06/21/18       Liberty Mutual Fire Insurance Company v. BRB Sports, Inc.

United States District Court, Eastern District of New York

Defendant’s Motion to Dismiss Denied because Texas Law Allows Action brought in Name of Subrogee

Plaintiff, Liberty Mutual Insurance Company (“Liberty Mutual”) commenced this action as a subrogee of Bollinger Sports LLC (“Bollinger”).  As subrogee, Plaintiff claims breach of warranty and contractual indemnification. This matter arises out of dispute regarding an Asset Purchase Agreement (“APA”) entered into between Bollinger and Defendants BRG Sports, Inc., Bell Sports, Inc., and Vista Outdoor (collectively “Defendants”) on April 9, 2012. In the APA, Bollinger purchased a set of assets from Bell Sports, Inc. The assets included the designs of Defendant Embark Resistance Band, which Bollinger based its own product line on.  The APA included a Texas choice of law provision.

 

On April 1, 2014, Bollinger was sued for products liability by a purchaser of its product line. After the suit, Bollinger discovered that Defendant Embark Band’s product had been recalled with the Consumer Product Safety Commission (“CPSC”) for the same defect.  However, Defendant Bell Sports, Inc., failed to disclose the recall or product defect to Bollinger when it entered into the APA in 2012.  

 

Defendants moved to dismiss the Complaint pursuant to the Federal Rule of Civil Procedure 12(b)(6).  Applying Texas law, the court rejected Defendants’ argument that Texas’s “express negligence test” barred Plaintiff’s claim.  The “express negligence test”  provides that “a party that seeks ‘to indemnify the indemnities from the consequences of its own negligence must express that intent in specific terms.” The court found that Plaintiff’s claims that Defendants should indemnify it for Bell Sports’ failure to disclose the design flaws and recall was different than Plaintiff claiming that Defendant should indemnify for Bollinger’s own negligence in selling the product. 

 

In addition, the Court rejects Defendants’ argument that Plaintiff failed to allege facts showing Bell Sports, Inc., breached any specific warranty under a contract.  In rejecting Defendants’ argument, the court noted that the APA had a provision, which stated that Bell Sports, Inc., complied with all applicable laws, rules, and regulations. Further, the court noted that Bell Sports violated products liability tort law by selling the product that was recalled due to a design defect.  Accordingly, the court found that Plaintiff had alleged a specific warranty that Defendant Bell Sport, Inc., breached as Defendant Bell Sport, Inc., failed to disclose the product recall.    

 

Further, the court rejected Defendants’ argument that the APA’s anti-assignment provision bars Plaintiff from entering the lawsuit as Bollinger’s subrogee.  In its reasoning, the court acknowledged that Texas law recognizes the subrogation doctrine to the fullest extent.  In addition, the court acknowledged that Texas law recognizes equitable and contractual subrogation. Moreover, the court found that under Texas law equitable subrogation is distinct from an assignment and therefore equitable subrogation is available even where assignment is barred.  As such, the court concluded that even though Plaintiff was not contractually assigned, Plaintiff was not barred by the anti-assignment clause from bringing the subrogation claim under Texas law.  

 

In sum, the court denied Defendants’ motion to dismiss in its entirety.    

 

06/26/18       Campbell v. Mercury Casualty Company

United States District Court, Eastern District of New York

Carrier’s Motion to Add Counterclaim Against Plaintiffs and Remediation Contractor Fraudulent Misrepresentation Granted

On February 20, 2016, John and Elizabeth Campbell (collectively “Plaintiffs”), suffered water damage at their home due to a burst pipe. Plaintiffs alleged that they immediately filed a claim with Defendant and that Defendant immediately retained a non-party restoration corporation to perform initial remediation at Plaintiffs’ home. In contrast, Defendant alleged that prior to providing notice, Plaintiffs contacted the owner of LIPA to assist with the handling of the insurance claim.  Defendant alleged also that LIPA contacted and instructed Just Right to begin remediation at Plaintiffs’ home.  Further, Defendant alleged that prior to its inspection the kitchen was “gutted.”

 

After receiving the invoices for work performed, Defendant conducted an investigation of claim.  Defendant determined that Just Right had invoices for work it did not perform and that the kitchen was not damaged in the manner described by Plaintiffs.  Based upon the investigation, Defendant denied coverage to Plaintiffs for failing to preserve the damage for Defendant’s review and inspection.

 

The current decision stems from Defendant’s request to move for leave to add a counterclaim against Plaintiffs for breach of contract to recover the rental payments and permission to file a third-party complaint against the third-party defendants alleging claims of breach of contract against LIPA and Godfrey, and fraudulent misrepresentation against Just Right.

 

In the Report, the Magistrate Judge recommend that Defendant’s motion be (1) granted to the extent it seeks to add a counterclaim against Plaintiffs; (2) granted to the extent it seeks to file a third party action against third-party defendants for fraudulent misrepresentation and (3) denied to the extent that is seeks to assert a claim for breach of contract against third-party defendants.

 

In assessing the Report, the court first considered whether Defendant’s counterclaim should be granted. Plaintiffs argued that the amendment should be denied because    the counterclaim was futile, made in bad faith, and with undue delay and was prejudicial. The court rejected Plaintiffs’ contention. The court reasoned that Defendant’s counterclaim was not futile as the counterclaim presented a plausible claim for relief.  In addition, the court reasoned that Defendant’s counterclaim was not untimely as Defendant filed its motion a week after conducting the deposition of Just Right’s co-owner, which was within the normal range of conduct of litigation.  Further, the court rejected Plaintiffs’ argument that Defendant’s counterclaim was made in bad faith because Plaintiffs’ allegations were conclusory and lacked evidentiary support. 

 

Next, the court considered Defendant’s permission to file a third party-action. The court agreed with the report and denied Defendant’s motion to commence a third-party action against Godfrey and LIPA.  However, the court modified the Report to permit Defendant to proceed against Godfrey and LIPA as third-party defendants on the fraudulent misrepresentation claim as asserted against third-party defendant Just Right. 

 

In sum, the court granted Defendant’s motion to amend its answer, and granted in part Defendant’s motion to file a third-party complaint in part and denied in part.

 

As this is a very recent decision, please email if wish to have a copy of the decision. 

 

BORON’S BENCHMARKS

Eric T. Boron

[email protected]

 

06/19/18       Erie Indemnity Company v Estate of Brian L. Harris                   

Supreme Court of Indiana

Interpreting Insurance Policies: Courts Read Insurance Policies from the Perspective of Ordinary Policyholders of Average Intelligence

I know.  Your Mom always told you that you are an extraordinary person, wise beyond your years.  And so you are.  But to appreciate the analysis applied by the Supreme Court of Indiana in this case, you must imagine yourself to be reading the commercial auto insurance policy at issue as an ordinary policyholder of average intelligence.  So, Joe/Jo Average, go ahead and read on.  To yourselves, please.

 

Here the Supreme Court of Indiana analyzed an employer’s commercial automobile policy to determine whether an employee’s death was covered under the policy’s uninsured motorist coverage. The employee (Harris) had been cutting his grass on a riding lawnmower when an intoxicated, uninsured driver’s vehicle struck the riding lawnmower and killed the employee. The employee was neither a named insured nor an additional insured on the employer’s commercial auto insurance policy, and, lest you wonder, was neither operating nor occupying a scheduled vehicle.  However, the employer’s application for said commercial auto insurance policy had listed the employee as a “driver”, and the employee had been allowed up to the time of his death to drive a truck owned by the employer for both personal and business transportation. The employee’s Estate submitted a claim for uninsured motorist bodily injury and MedPay benefits under the employer’s commercial auto insurance policy’s UM Endorsement.  The insurer denied the Estate’s claim, and this litigation ensued.

 

At the trial court, the insurer moved for summary judgment, arguing, as a matter of law, the policy did not provide uninsured motorist coverage to the Estate for the employee’s death because the employee did not qualify as “you,” “others we protect,” “anyone we protect,” or “persons we protect” under the policy, including the UM Endorsement. The Estate countered with a cross-motion for summary judgment, arguing, as a matter of law, “Harris qualified as ‘others we protect’ under the ‘OUR PROMISE’ section of the UM Endorsement when he was struck and killed by an uninsured motorist.” The trial court determined the case turned upon whether the phrase “others we protect” as used in the OUR PROMISE section included the employee Harris. The trial court found the phrase ambiguous, and construed it in the Estate’s favor to include Harris. Since the trial court concluded there were no genuine issues of material fact, it granted summary judgment to the Estate. Erie appealed, and the Court of Appeals affirmed the trial court’s judgment. 

 

The Supreme Court of Indiana reviews summary judgments de novo, applying the same standard as the trial court.  The UM Endorsement at issue provides in relevant part:

 

OUR PROMISE

 

We will pay damages for bodily injury and property damage that the law entitles you or your legal representative to recover from the owner or operator of an uninsured motor vehicle or underinsured motor vehicle.

 

Damages must result from a motor vehicle accident arising out of the ownership or use of the uninsured motor vehicle or underinsured motor vehicle and involve:

 

1. [B]odily injury to you or others we protect. Bodily injury means physical harm, sickness, disease or resultant death to a person;

 

* * *

 

OTHERS WE PROTECT

 

1. Any relative, if you are an individual.

 

2. Anyone else, while occupying any owned auto we insure other than one being used without the permission of the owner.

 

3. Anyone else who is entitled to recover damages because of bodily injury to any person protected by this coverage.

 

4. If you are an individual, anyone else while occupying a non-owned auto we insure other than:

 

a. [O]ne you are using that is owned by another resident of your household.

 

b. [O]ne furnished or available for the regular use of you and any resident of your household.

 

c. [O]ne being operated by anyone other than you or a relative.

 

(Editor’s note: bolding as in original)

 

The Supreme Court’s decision recognized that before the Court would begin interpreting the policy, it was necessary to make a threshold inquiry - whether the phrase “others we protect” in the “OUR PROMISE” section of the policy in question is an ambiguous phrase amenable to judicial construction.  According to the Court, whether the phrase “others we protect” was ambiguous or not turned on whether “reasonably intelligent policyholders would honestly disagree on the policy language’s meaning”.

 

So, what say ye, Joe/Jo Average?  Is the phrase “others we protect” in the “OUR PROMISE” section of the policy in question susceptible to more than one reasonable interpretation?

 

Here, the Supreme Court of Indiana determined the phrase “others we protect” was not ambiguous.  Accordingly, the Court could not judicially construe it.  Rather, the Court gave the phrase “others we protect” its “plain meaning”, that is, as found in the OTHERS WE PROTECT explanatory section of the UM Endorsement.

 

Under that analysis, the Court determined the employee Harris did not qualify as “others we protect” under the UM Endorsement of the employer’s commercial auto insurance policy.  Supreme Court held the trial court erred in granting summary judgment to the Estate, and reversed and remanded the case to the trial court, with instructions to enter summary judgment for Erie.  

 

A big sigh of relief for Erie on this result, considering Erie had lost the argument at every court level up to the Supreme Court of Indiana.  With this precedent established, the arguably questionable formatting set forth in the Erie policy as to the “others we protect” phrase should not be problematic for Erie.  In Indiana, at least. 

 

So, it’s all’s well that ends well for the insurer on this case.  Kind of like rolling in that long putt in the end, for a par.

 

EARL’S PEARLS
Earl K. Cantwell
[email protected]

 

06/04/18       State Farm Fire and Casualty Company v. Griggs  

Supreme Court of Colorado

Implied Waiver of Attorney-Client Privilege

This case decided by the Colorado Supreme Court arises from a rather routine underlying personal injury case. The case specifically arises from a discovery dispute in an action in which State Farm’s insured, Griggs, was sued by Susan Goddard and several others due to the automobile accident. State Farm sought a declaratory judgment that Griggs breached the insurance policy by improperly executing a settlement agreement in which he waived a jury trial, consented to arbitration, and assigned to Goddard any rights that he had against State Farm. Goddard counterclaimed alleging, among other things, that State Farm acted in “bad faith” in refusing to settle her claim against Griggs and to indemnify Griggs for the judgment entered against him following the arbitration that was conducted.

 

During discovery, a State Farm adjuster testified concerning a medical lien relating to services provided by Exempla to another person injured in the accident. The adjuster testified that the lien had been reported to be $264,075, which was important because State Farm purportedly relied on the amount of this lien to determine portions of the limited insurance proceeds to allocate to each of the injured parties.

 

At some point, State Farm’s attorney, Mr. Patterson, learned that the medical lien was actually only $264.75. However, before any action was taken to correct State Farm’s misinformation, Mr. Paterson was disqualified from the case based on a prior client-attorney relationship with the law firm representing Goddard. State Farm’s new counsel disclosed the corrected lien, noting that the lienholder, Exempla, apparently was the source of the error. Goddard pursued sanctions against State Farm seeking a directed verdict on her bad faith claim, alleging that State Farm deliberately and intentionally concealed the corrected medical lien information.

 

State Farm filed an Affidavit by Mr. Patterson, which recited the facts pertinent to his involvement in the discovery process, and the information and correction of the medical lien. The District Court held that State Farm waived the attorney-client privilege with respect to Mr. Patterson because his Affidavit asserted or injected claims or defenses that focused on attorney advice and therefore required State Farm to disclose communications between its employees and Patterson. This case quickly went up for review to the Colorado Supreme Court which reversed the Trial Court decision.

 

A client impliedly waives the attorney-client privilege when he or she discloses privileged communications to a third-party, or asserts a claim or defense focusing on advice given by the attorney, thereby placing allegedly privileged communications at issue. With respect to the latter point, the Court held that a party must show that the client asserted a claim or defense that depends or relies upon the privileged information. If a claim or defense relies upon privileged information, a party should not be permitted to assert a claim or defense that relies on the privileged information while simultaneously relying on the privilege to keep that information private and confidential. In this case, the Trial Court held that State Farm had asserted such claims or defenses, but the Supreme Court disagreed.

 

First, the Affidavit submitted by Mr. Patterson contained only facts and did not assert any particular claims or defenses. It simply provided a brief account of the case history and the history of State Farm’s disclosures with respect to the medical lien. To the extent the Affidavit denied that State Farm knowingly concealed the correct medical lien, courts have held that mere denial of an allegation does not waive the attorney-client privilege. To voluntarily waive the attorney-client privilege, a party must do more than simply deny a claim or allegation.

 

Second, the Affidavit did not refer to or incorporate any advice that Mr. Patterson gave to State Farm, or even mention any communication(s) between Patterson and State Farm. On its face therefore, the Affidavit did not contain or incorporate any privileged information.

 

Third, State Farm did not offer the Affidavit in support of any claim or defense that depended on privileged information or attorney advice. State Farm submitted the Affidavit in support of its argument that it did not knowingly conceal the corrected medical lien amount, and therefore the sanction of a directed verdict on the bad faith claim would not be appropriate. This argument did not depend on any particular legal advice from Mr. Patterson, and State Farm was not attempting to use privileged information both as a sword while simultaneously using the privilege as a shield.

 

The Supreme Court therefore concluded that submission of Mr. Patterson’s’ Affidavit did not place privileged communications at issue, and therefore did not result in an “implied waiver” of attorney-client privilege.

 

This case represents the tortured and tangled legal proceedings that can emanate from even a basic automobile accident case when issues of bad faith are interjected, and here the parties were apparently operating under the mistaken assumption that the medical lien was vastly higher than the real amount.

 

Communications with an insured or third-party claimant should be carefully structured and monitored not to disclose attorney-client privileged information, and be based upon the other information in the case file and public information to the greatest extent possible. Attorney-client communications are designed to be exactly that, communications between the attorney and client, and are not to be disclosed or divulged to third parties, either expressly or impliedly, by taking positions or asserting claims that can only be supported or defended on the basis of advice of counsel.

 

This case also represents another in a long list of strategies by plaintiffs and plaintiff law firms seeking to obtain communications and notes between insurance companies and adjusters and counsel with respect to coverage, or discussion concerning the merits (or demerits), or value, of a presented claim.