Coverage Pointers - Volume XX, No. 14

Volume XX, No. 14 (No. 524)
Friday, December 28, 2018

A Biweekly Electronic Newsletter


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.  We have dealt with many of them in the last couple of weeks, as folks cleared off their desks for the holidays.  We are so honored by your trust in us and when we can provide our business partners and friends with an open ear and helpful direction, it is immensely satisfying.

Happy New Year to you and yours.  We hope you enjoy health and prosperity in the year to come.

For the next three weeks, I’ll be on Mountain Time and can be reached at 716.445.2258.  Feel free to call, text or email.  I am always around.

We finish the year with a “thousands flee” case in Rob Hewitt’s column (a poorly decided decision where the court was simply off track).  It involves a car-bull accident.  Nuff said.

It is the end of the year, and it is time to do our annual statistical analysis.   Most importantly, each year for the past many, I’ve been able to report good news and I can do so again.  While New York courts recognize the existence of insurance company bad faith claims under certain circumstances, we continue to fend off such claims in this state.  The magic number this year is 7505.

It has been 20 years, 6 months and 17 days or 7505 days since the last time any New York State appellate court has affirmed a finding of bad faith against any carrier, under any policy for any reason.  The most recent appellate decision was Smith v. General Accident Insurance Company, decided on June 11, 1998. We are happy to see that streak continue.  It’s a good number.

Here are a few more numbers.  For the calendar year 2018, Coverage Pointers reported on 524 decisions (and coincidentally, this is our 524th iaauw – I may play those numbers in the lottery this week)..  Not a bad year’s work: How did they sort out?

  • Kohane’s Coverage Corner = 84

  • Hewitt’s Highlights on Serious Injury Under No-Fault Law = 95

  • Peiper on Property (and Potpourri) = 57

  • Wilewicz’s Wide World of Coverage = 22

  • Jen’s Gems = 21

  • Jerry’s No Fault Navigation = 15

  • Barnas on Bad Faith = 49

  • John’s Universe and Jersey Journal = 30           

  • Off the Mark = 24

  • Wandering Waters = 38

  • Boron’s Benchmarks = 17

  • Earl’s Pearls = 26

  • Liening Tower of Perley and Paint and Repair = 2        

  • Altman’s Administrative (And Legislative) Agenda = 13

  • Tessa’s Tutelage = 31

For the past 20+ years, Coverage Pointers has reported on every New York appellate coverage case and many from the lower courts and from across the country.  We hope you use it as the resource. If you go to this link on our website, you will find a search engine that will allow you to see our analyses of any of the many thousand cases we have reported on over the past two decades.  We are not fancy and we are not glossy but we strive for useful and practical.

Just a Thought about Mediation of Coverage Disputes, from the Firm:       

Insurance Coverage Arbitration & Mediation

Resolving the Complex without the Substantial Costs of Litigation or the Risk of Adverse Precedent

There are times, more often recently than not, when insurers wish to resolve complex insurance coverage disputes without the expense and costs of trial and without the risk of potentially adverse judicial precedent.  We have encouraged the mediation and/or arbitration of complex insurance coverage claims and our office can assist insurers and insureds in bringing reasoned resolution to coverage disputes.

Hurwitz & Fine, P.C. offers both mediation and arbitration services through your editor.  Why spend the money and the time to litigate these questions when resolution by mediation or arbitration can bring closure to hotly contested matters in relatively short order for substantially reduced costs?

I have been handling complex insurance coverage matters for over 35 years.  For 30 years, I have served as an Adjunct Professor of Insurance Law at the Buffalo Law School. I am also a member of the American Law Institute, the Federation of Defense & Corporate Counsel, where I served as President and Chair of the Insurance Coverage Section (FDCC), the Association of Defense Trial Attorneys and the DRI where I serve on the Steering Committee for the Insurance Law Committee.  I was a Founding Fellow and am a member of the American College of Coverage Counsel.   I have handled lots of coverage mediations and arbitrations and I lecture regionally, nationally and internationally on insurance coverage issues.

For information, contact me at [email protected]  or 716.849.8942.


Is President Wilson an Imposter?

The Evening World

New York, New York

28 Dec 1918





Talk of Proclaiming Him First Honorary President

of the German-Austrian Republic


AMSTERDAM, Dec. 28.      PRESIDENT WILSON MAY BE PROCLAIMED THE FIRST Honorary President of the German-Austrian republic, the Wiener Neues Journal declares, according to a dispatch from Vienna to-day. “A new superstition is spreading throughout Austria that President Wilson is really the late crown Prince Rudolf, whose death many did not believe,” the newspaper says.  “In Lower Austria it is popularly believed that Wilson will save Austria from a final smash-up.”


John’s Jersey Journal:

Dear Subscribers:

I hope all of you enjoyed the holiday season. Erin and I enjoyed our first Christmas in our new home. We’ve also been enjoying time with our new puppy, Donald, a hound mix. He’s four months old and is named after Donald Duck. We adopted him from a local rescue. He came all the way from Tennessee and is a bit unsure about Buffalo weather. To stay warm, he is usually sporting a knit sweater. Donald has a lot of personality. He loves meeting people and other dogs. His favorite thing to do is curl up on your lap and sleep the day away. Donald even has his own Instagram, @thedonaldgram, where he posts about his day.

If you read my column last month, you may recall the New Jersey Appellate Division’s ruling that “named insured” means the person named on the Declarations. Well, today’s case is in the same vein. The New Jersey Appellate Division ruled, in essence, where a person is not an insured, there is no coverage.

Following a house fire, Margie Thomas sought first-party benefits under her ex-boyfriend’s homeowners’ policy. The insuring grant for first-party benefits extended coverage to the named insured and any resident relative. Ms. Thomas was neither a named insured nor a resident relative. Therefore, the Court ruled she was not owed coverage. The Court also rejected her argument that the policy be reformed to include her as an insured. Ms. Thomas testified at her deposition that, with each renewal notice issued to her (ex) boyfriend, she knew that she was not listed as an insured on the policy. As such, the Court concluded Ms. Thomas knew she did not have homeowners insurance and simply chose not to obtain it. The decision makes sense to us.

The case highlights the importance of being added as a named insured where you live with someone else that owns the house and buys the insurance. Not everyone is a resident relative! If you want coverage for your personal property or coverage for incurred living expenses, you may need to be added as a named insured on the homeowners’ policy. If you pay rent to the homeowner, consider renters’ insurance.

I wish you all a happy and prosperous New Year.



John R. Ewell

[email protected]


From the Criminal Docket:

Fair Play

Sainte Genevieve, Missouri

28 Dec 1918




Mrs. Chas. Sherwood, wife of a politician at Evansville, Ind., was shot and killed by Chas. J. Roush, a friend of her husband, while he was demented.

A good many people around Toledo have been indicted for evading the draft law, and many officials are involved.

Charles Lewis, Negro, who whipped a deputy sheriff, was taken from jail at Hickman, Ky., and lynched.

Dr. Sidonic Paes, president of Portugal, was slain by an assassin at a railway station at Lisbon. His slayer was lynched.

Milo H. Piper (likely no known relation to Steve Peiper), a wealthy insurance man of Muskegon, Mich., is accused of marrying a young woman and killing her, although he was married and had a family.


Peiper Puck Drop:

This week’s note comes from the depths of the Canlan Ice Centre in Oakville, Ontario.   Neither coverage, nor Santa, brought me here. I’m merely but a fan watching my Squirt Minor (that’s a 2009 birth year for those counting at home) play a post Christmas Tournament.  Our friends to the North are fine folks indeed, but their generosity does not extend to the boundaries of the rink.  Two more tomorrow before heading back across the Peace Bridge to tend to our wounds.

In the coverage front, we are happy to report the Second Department’s common sense application of the two-year suit limitation clause. As readers of this space know, their Upstate colleagues have thrown a few curves on this issue in recent years.  Nice to see reason return.  Other than, we have a relatively quiet docket this week.

A good thing because the puck drops again in 1 hour, and my glass was just refilled in the meantime.

Happy Holidays and a hearty Cheers to all.



Steven E. Peiper

[email protected]



Fair Rental:

Middletown Times-Press

Middletown, New York

28 Dec 1918


STORE your automobile in a steam-heated garage for the winter.  Rates $3.00 and $4.00 per month.  Sam Randall, North End.  Phone S98.


Jen’s Gems:

Too busy writing appellate briefs this week.



Jennifer A. Ehman


Checking the Soon-to-Be Betrothed:

Des Moines Tribune

Des Moines, Iowa

28 Dec 1918


Ministers Favor Legislation

to Check Marriages


The legislation proposed by A. E. Minetor, Des Moines attorney, by which hasty marriages between persons not mentally or physically qualified, may be checked, has received the endorsement of the ministers of the city.

Rev. Robert Matthews believes "that it is a splendid idea."

"It is one of the great hopes of the country and I most certainly and heartily endorse it."

Rev. Lewis Gillies says, "This is the ideal which we ought to reach. There is a crying need for some such plan and I am heartily in favor of it. Of course it is an extreme view and may not be practical, but personally I think it would be a good thing."

Rev. Frank W. Mutchler, who probably marries more people than any other man in Des Moines, is very much in favor of the plan. "I am not in favor of the many promiscuous marriages resulting from chance meetings and I believe that some law should be made to check them. I am of the opinion that every person should undergo at least a physical examination before being allowed to marry."


Hewitt’s Highlights: 

Dear Subscribers:

Merry Christmas to those who celebrated; we had a wonderful Christmas here. Santa came and brought many toys (too many) for our two boys.  The only thing they did not get that they wanted was a trampoline. Santa apparently read my homeowner’s policy that excludes from coverage injuries caused to third parties while using a trampoline. The boys also sung in the Church Choir, and we drove around looking at lights and this weekend will go to the City to see the windows of the storefronts and see the Radio City Christmas Spectacular. I also hope you have a Happy New Year and a great 2019.

On the serious injury front, we have several cases. One decides for apparently the first time in New York State that a Licensed Clinical Social Worker can diagnose PTSD (which is a serious injury). In another, the court found, wrongly in my opinion, thatch an injured party in a motor vehicle had to demonstrate a serious injury when the vehicle hit an escaped bull that was on the highway.

Until next year,


Robert Hewitt


Editor’s Note: Santa was protecting you, Rob. Besides the trampoline exclusion for third parties, he knew that your HO policy, even without a trampoline exclusion, has an intra-family exclusion for suits against you by your son. 


Across the Pond:

The New York Times

New York, New York

28 Dec 1918


Will Attempt Transatlantic Flight


KANKAKEE, Ill., Dec. 27.—Lieutenant Patrick O’Brien, American aviator in British service, whose escape from German captors formed a romantic chapter in the story of the war, announced today that he would attempt to be the first to make a transatlantic flight in an airplane.  He said he hoped to make the flight in April with Captain I. F. Fuller, an American aviator still on duty in France, and Lieutenant C. C. Robinson, an American who was one of O’Brien’s comrades in the British Flying Corps, associated with him in the venture.


Wilewicz’ Wide-World of Coverage:

Dear Readers,

Happy Holidays to all! Here’s hoping that everyone is having a lovely, stress-free, and magical season. At our house, Christmas is a pretty big deal. From decorations coming up the day after Thanksgiving, with a tree fresh chopped that day, to the many dishes of Wigilia dinner on Christmas Eve, we eat too much, drink too much, and just all in all enjoy ourselves very much. Now a lull and a staycation of sorts until New Years, when we traditionally blow up hundreds of balloons throughout the evening, only to give the kids safety pins at midnight. Clean up is quite a chore the next morning, but it’s worth it.

Now, this week the Second Circuit addressed a rather interesting one as a holiday present. In Patriarch Partners v. Axis Insurance, the court discussed whether an SEC investigation ripened into a “claim” before the inception of an insurance policy, sufficient to exclude coverage for what was essentially a prior known loss. Moreover, interestingly the insured had executed a Warranty in connection with the binding of the policy, wherein they expressly warranted that they were not aware of anything that might result in a claim for which coverage might be sought under the policy. However, the insured there had been investigated by the SEC for months prior to inception, with increasing intensity and aggressiveness. They had already spent money on defense costs in relation to that investigation. When, years later that investigation ripened into a full administrative enforcement action they sought coverage for it anyway. Looking at the language of the Warranty, the court found that it did not even have to go so far as to review the policy language. The clear terms of the Warranty that the insured signed before inception precluded coverage for what were essentially known losses. It was unreasonable for the insured to think that the investigation might not develop into a claim, and they either should have informed the carrier or known that there would be no coverage for it. Very interesting stuff indeed.

So, until next time! Happy New Year!



Agnes A. Wilewicz

[email protected]


How Much was a Life Worth a Hundred Years Ago?

The Evening World

New York, New York

28 Dec 1918




Court Decides Against 6-Year-Old’s

Father on Amount


How much is a six-year-old boy worth?  The Appellate Division of the Supreme Court held yesterday that a verdict for $3,570, amounting, with costs, to $4,103, was too much to allow a father for the loss of his son.

The father is Santo De Cola, a shoemaker.  His son, Pasquale, was killed by an auto truck owned by the John Eichler Brewing Company.  After the jury had brought in its award the attorneys for the brewing company asked that the amount be reduced.  Justice Guy said he could not conscientiously do so. 

Then an appeal was taken and the higher court yesterday ordered a new trial unless De Cola should stipulate to reduce the award to $2,500.


Barnas on Bad Faith:

Hello again:

I hope everyone enjoyed Christmas and has been having a happy and healthy holiday season.  For our last issue of the year I have two cases.  The Houston Casualty case is a nice decision in which the Southern District of New York rejected an argument by the insured that gross negligence by the insurer could support a viable bad faith cause of action.  As we know, that is not the standard in New York, and the court declined to let the bad faith claim go forward accordingly.

The Moore case is a nice victory for GEICO in the Eleventh Circuit.  The panel there concluded that the lower court properly granted a new trial based upon the improper inclusion of evidence at the first trial that the claimants settled with the insurer for another defendant in considering whether GEICO acted bad faith.  On retrial, with the improper evidence excluded, the jury found that GEICO did not act in bad faith.

Have a nice weekend and a Happy New Year.



Brian D. Barnas

[email protected]


Baseball Retirement:

Poughkeepsie Eagle-News

Poughkeepsie, New York

28 Dec 1918




Cleveland, Ohio, Dec. 27.—Napoleon Lajoie, for twenty years considered to be one of the world’s greatest infielders today, announced his retirement from professional baseball.  For many years, he was considered the leading second baseman.

Last season Lajoie managed the Indianapolis team of the American Association.

Only once in his twenty-three-year career on the diamond did Lajoie belong to a pennant-winning team.  That was in 1917, when he managed the Toronto team of the International League. 


Off the Mark:

Dear Readers,

I hope everyone’s holidays went well.  This year my sister and her family are staying with us for the week.  The kids love playing with their little cousin and, of course, my sister’s dog.  It’s been great spending the holidays with them, but I am looking forward to not being woken up at the crack of dawn by a screaming 15-month old.  It will also be nice to reclaim my bed from the dog.

This edition of “Off the Mark” discusses a recent construction defect case from the US District Court for the Middle District of Florida, Tampa Division.   In Southern Owners Ins. Co. v. Gallo Building Servs., the Court examined the plaintiff insurance carrier’s duty to defend and indemnify its insured relative to an underlying construction defects action.   The Court reviewed the underlying complaint, the relevant policy language and the policy exclusion for Damage to Your Work and the Exterior Finishing System and Stucco Exclusion.  The Court held that damage beyond the scope of the insured’s work was alleged in the underlying complaint.  As such, the Court determined that the underlying complaint alleged damage to property other than that which was completed by the insured and the carrier failed to demonstrate that the allegations against its insured in the underlying complaint fell solely and entirely within the Your Work Exclusion.  Thus, the Court found that the exclusion did not bar coverage. 

With regard to the Exterior Finishing System and Stucco Exclusion, the insured argued that courts have upheld similar exclusions, even where the damages against the insured did not directly deal with the deficient exterior finishing system or stucco application.  The cases relied on related to the use of a specific product, an exterior insulating and finishing system ("EIFS"), an alternative to stucco.  The Court held that it did not have sufficient evidence to find that an ("EIFS") was used on the Project and could not determine that each allegation against the insured in the underlying complaint related to or arose out of the installation of stucco or EIFS.  Accordingly, the Court found that the carrier’s duty to defend its insured in the underlying action was not barred by the Stucco Exclusion in the CGL Policies.

Lastly, the Court noted that the duty to indemnify is not ripe for adjudication in a declaratory judgment action until there is a factual determination that the insured is liable in the underlying suit.  As there has been no factual determination as to liability in the underlying action, the Court found that the carrier’s duty to indemnify was not ripe for adjudication.

Happy New Year!

Until next time …



Brian F. Mark
[email protected]


Buffalo Lawyers Rejoice:

The Buffalo Commercial

Buffalo, New York

28 Dec 1918





The International Hands-Across-the-Sea, banquet of the Lawyers’ Club of Buffalo, to be held New Year’s eve at the Ellicott Club, is attracting considerable attention.

A large delegation of members of the Ontario Bar Association will attend.  Among the distinguished Canadians who have already signified their intention to be here are Justices Sutherland, Lennox, Kelly and Hedgins of the high court of justices of Ontario, District Attorney Cooley of Toronto, several county judges and many lawyers from Welland and other nearby Canadian counties.  H. H. Dewart, K. C. M. P. P., is among the distinguished Canadians slated to address the banqueters.  Justice Wendel Phillips Stafford of the supreme court of the United States well remembered for his remarkable address before the club on the “Life of Abraham Lincoln,” and Justice Herbert P. Bissell are others slated for addresses.

The committee in charge has received acceptances from many lawyers from Niagara, Chautauqua and other western New York counties.  Walter P. Cooke will preside. 


Wandering Waters:

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

What a great a slate of games for the NBA this past Tuesday. In the past, the Sixers and Celtics had a longstanding rivalry over Eastern Conference supremacy. Two of the greatest players in NBA history, Larry Bird and Dr. J, led their respected teams during the 1980’s.

Now, the Sixers and Celtics historic rivalry has been renewed. Each team has had a recent influx of young and superstar level talent. The Sixers now have a big three of Ben Simmons, Joel Embid, and Jimmy Butler.  Not be outdone, the Celtics now have Kyrie Irving, Al Hortford, and Jayson Tatum.  Indeed, the game this past Tuesday justified its placement at 5:30 pm on NBA’s most important regular season day. The teams played a close game throughout the first 48 minutes. However, it was Irving in overtime that was the difference. Irving caught fire and led his team to well-deserved win.  If these two teams meet in the Eastern Conference Finals, NBA fans are in for a treat this upcoming May.    

With that said, we have one case from the United States Southern District Court of New York.

Until next time…. 



Larry E. Waters


Happy New Year – 1919 on the Horizon;


Elmira, New York

28 Dec 1918




To be honest, to be kind.

To earn little, and to spend a little less.

To make, upon the whole, a family happier for his presence.

To renounce, when that shall be necessary, and not to be embittered.

To keep a few friends, but these without capitulation.

On the same grim conditions, to keep friends with himself.

Here is a task for all that a man has of fortitude and of delicacy.




Boron’s Benchmarks:

Daily celebrations, of all kinds and types, continue to uplift us, as we pass from one December holiday to the next, and to the next. We’re determined not to allow the numbing realities of next week (cursed January) to ruin what is left of our glorious December.  So for now, we party on, my friends.

Except, I am compelled to report to you in this final Boron’s Benchmarks column of 2018 on a sobering (pun intended) decision issued by the Supreme Court of Nevada, on December 13, 2018, in Century Surety Company v Andrew.  That decision, applying Nevada law, and adopting what the Court labeled “the minority view” as to whether an insurer who breaches the contractual duty to defend may be liable beyond the policy limit plus costs of defense, concludes that an insured may recover “any damages consequential to the insurer’s breach of its duty to defend”.  The Court rejected the insurer’s argument that there should be a capping at the policy limits plus defense costs for such damages.  And, bear in mind - this is not a bad faith case.

After I prepared a summary of the decision, I found that Dan Kohane received permission from Andrew Downs of the Bullivant firm to include his summary and analysis.  So, with thanks to Andy, we include his summary in my column.

So, please be reminded it is best to take very seriously the old adage, "the insurer refuses to defend at its own peril." And, let us take careful note of the Supreme Court of Nevada’s reliance upon the new Restatement of Liability Insurance, in coming to its determination that where there is potential for coverage based upon comparing the allegations of the complaint with the terms of the policy, an insurer has a duty to defend, and, most notably, “generally” facts outside of the allegations of the complaint cannot justify an insurer’s refusal to defend its insured. 

This decision is certainly a lump – if not two - of coal for the stockings of insurers this year, particularly those who issue liability policies in Nevada.  The bottom line - the always broadly-applied duty to defend should never be taken lightly, folks.



Eric T. Boron


Don’t tell Brian Barnas or Larry Waters, but College Sports are Evil, or They Were, a Century Ago:


The New York Times

New York, New York

28 Dec 1918



Ban on Paid Coaches Urged at Meeting of Collegiate

Athletic Association




Professor Marvel Lays Blame for Athletic Commercialism on School Policies


A strident note against the evils of college sports was sounded by Dean J. R. Angell of the University of Chicago at the thirteenth annual convention of the National Collegiate Athletic Association at the Hotel Astor yesterday.  A rousing philippic, written by Dean Angel, was read by his colleague, Dean W. W. Small also of Chicago, and before he got through, the extravagant football spectacle, the high paid coach, the training table, and various other features of college sports, were placed on the grill and toasted to a crisp brown.

“I do not believe,” read Dean Angell’s message, “there is any obligation on the part of the colleges to furnish the general public with substitutions for the circus, the prizefight, and the gladiatorial combat.” 

Editor’s Note:  A “philippic” is defined as “a bitter attack or denunciation, especially a verbal one”.


Jerry’s No-Fault Navigation

Dear Subscribers,

Is a medical provider entitled to no-fault benefits after the policy has been exhausted?  According to one arbitrator, the answer is no when the bill has been presented following the exhaustion of the no-fault policy. 

More interestingly, a reported case points out the cost-benefit analysis in proceeding with arbitration as opposed to the litigation on no-fault matters.  Certainly, arbitration proceedings can be more expeditious and result in a quicker award for a party.  In New York City, the volume of litigated matters can understandably lead to delays and higher case aging.  I still remember the long lines in Civil Court, Kings County.  But, even Buffalo City Court has several protocol in place before the ultimate resolution of a no-fault matter, including mandatory mediation and an arbitration-type proceeding before a party can file for a trial de novo and be heard before a Buffalo City Court Judge or jury.  In terms of cost-effectiveness, arbitrations appear to be a better choice.

But, on the flip side, arbitration comes with its own measure of costs.  First, there is less of an opportunity to limit the evidence presented at an arbitration proceeding.  For one, the evidentiary rules are more relaxed, which means that the parties are allowed to supplement their arguments even after the arbitration.  In addition, there is generally no motion practice available beyond the arbitration or post-arbitration submissions.  Moreover, the standard of appellate review in arbitration proceedings appears to be just as stringent, perhaps even more so, than trial matters.  As the appellate standard on litigated matters revolves around the concepts of “abuse of discretion” for bench trials or “reversible error” for jury verdicts, the appellate review of a no-fault arbitration award is more focused on whether the decision itself was “arbitrary or capricious.”  Indeed, unless there is no rational basis whatsoever, the appellate courts will likely affirm the master arbitrator’s decision.

As an Appellate Division, Second Department, case points out, the courts will not second guess the master arbitrator’s decision in applying the no-fault law. 

Wishing everyone a Happy Holiday and Happy New Year.  We look forward to sharing more on everything auto and the no-fault law in New York State in the upcoming year. 



Jerry Marti


Scandalous Ticket Scalping – Even 100 Years Ago:

The Evening World

New York, New York

28 Dec. 1918



Law to Curb Ticket Speculators Now in Effect


Mayor Hylan signed the new theatre ticket ordinance today, making it a law.  The ordinance provides that no seller of theatre tickets shall charge more than fifty cents (not fifty percent) in excess of the cost of the ticket as stamped thereon at the box office, plus the war tax.

Penalties for violation of the ordinance are not more than six months in jail nor more than $500 fine, or both; civil action for the recovery of a penalty of $250; complete revocation of license without opportunity of reinstatement.

Editor’s Note:  Imagine if NYC ticket scalpers were limited to charging no more that 50 cents above the ticket price or face a jail term if caught charging more!


Headlines in this week’s issue, attached:

Dan D. Kohane
[email protected]

  • Employee Exclusion in CGL Policy Says what it Means and Means what it Says

  • Reaching in through a Car Window to Open a Car Door is “Occupying” it for SUM Coverage.  Therefore, no SUM Coverage Available under another Policy for Injury Sustained When “Occupying” One’s Own Car
    Insurer Waived Argument that Uninsured Motorists Claimant was Outside Vehicle, and Thus Ineligible for Benefits, by Not Bringing Application to Stay Arbitration within 20 Days of Arbitration Filing

  • Hearing Necessary on Factual Issues Relating to MVIAC Eligibility


Robert E.B. Hewitt III

  • Biomechanical Engineer’s Opinion that Accident Could Not Have Caused Injuries Lacked Foundation

  • Defendant Failed to See All that Could Be Seen and did not Offer a Non Negligent Explanation for the Accident

  • Expert’s Conclusion That Fracture Occurred Was Devoid of Admissible Evidence to Support His Conclusion – Thousands Flee

  • Causally Related PTSD Can Constitute a Serious Injury and Can Be Diagnosed by Licensed Clinical Social Worker


Steven E. Peiper

[email protected]

  • Two Year Suit Limitation Precludes Plaintiff’s Late Lawsuit; Notice of Cancellation Also Applies to Block Plaintiff’s Claim

  • Notice of Appeal Filed on 31st Day is Untimely, and Coupled with Lack of Timely Service Results in the Loss of Plaintiff’s Appellate Rights


Agnes A. Wilewicz

[email protected]

  • Second Circuit Finds that Warranty Executed by Insured Prior to Inception, Which Attested to No Known Facts or Circumstances that Might Result in a Claim, Was Dispositive to Preclude Coverage when Pending SEC Investigation Ripened into an Enforcement Action 



That’s all folks.  Happy New Years and feel free to reach out as you need a friendly voice.


Hurwitz & Fine, P.C. is a full-service law firm
providing legal services throughout the State of New York

Dan D. Kohane
[email protected]



Agnes A. Wilewicz

[email protected]



Jennifer A. Ehman


Dan D. Kohane, Chair
[email protected]


Steven E. Peiper, Co-Chair

[email protected]

Michael F. Perley

Jennifer A. Ehman

Agnieszka A. Wilewicz

Lee S.  Siegel

Edward B. Flink

Brian D. Barnas

Brian F. Mark

Eric T. Boron

John R. Ewell

Larry E. Waters

Diane F. Bosse

Joel R. Appelbaum


Steven E. Peiper, Team Leader
[email protected]


Michael F. Perley

Edward B. Flink

Eric T. Boron

Brian D. Barnas

James L. Maswick


Jennifer A. Ehman, Team Leader

Jerry Marti


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

Off the Mark

Wandering Waters

Boron’s Benchmarks

Earl’s Pearls


Dan D. Kohane
[email protected]


12/19/18       Northfield Insurance Co. v. Fancy Gen’l. Construction, Inc.

Appellate Division, Second Department

Employee Exclusion in CGL Policy Says what it Means and Means what it Says

On October 5, 2011, Singh allegedly was hurt while working for Fancy at premises owned by Chalom and leased to Underberg. Northfield insured Fancy and the policy contained an exclusion for bodily injury to an employee if the injury occurred in the course of employment.

Sing sued Chalom and Underberg and those defendants commenced a third party action against Fancy.

Northfield then started this declaratory judgment action seeking a determination that the “injury to employee” exclusion applied and the carrier had no obligations to defend Fancy or any other party in the underlying action.

An exclusion from coverage "must be specific and clear in order to be enforced”.  This was.  The plain meaning of a policy's language may not be disregarded to find an ambiguity where none exists.

The plain meaning of the exclusion was that the policy did not provide coverage for damages arising out of bodily injury sustained by an employee of any insured in the course of his or her employment. Since Singh was an employee of Fancy General, his injuries were not covered by the policy.


12/19/18       GEICO Insurance Company v. Rice
Appellate Division, Second Department

Reaching in through a Car Window to Open a Car Door is “Occupying” it for SUM Coverage.  Therefore, no SUM Coverage Available under another Policy for Injury Sustained When “Occupying” One’s Own Car

Rice, a New York resident, was visiting his aunt in Pennsylvania. At some point during the visit, a friend of Rice's cousin requested the keys to Rice's vehicle, because the friend claimed that he had dropped his house keys in the backseat. The friend failed to return, and Rice later found his vehicle double-parked in the street. Upon approaching the vehicle, Rice placed his hand into a partially opened window to unlock the door, at which point the vehicle moved forward and dragged Rice along the roadway.

When his own insurer disclaimed coverage, Rice, who resided with his mother, made a claim under her automobile insurance policy, which contained a supplementary underinsured/uninsured motorist (hereinafter SUM) endorsement issued by the petitioner, GEICO. Rice requested arbitration, and GEICO commenced this proceeding to permanently stay arbitration.

The SUM endorsement under the policy did not apply "to bodily injury to an insured incurred while occupying a motor vehicle owned by that insured, if such motor vehicle is not insured for SUM coverage by the policy under which a claim is made “… the term "occupying" was defined in the policy as "in, upon, entering into, or exiting from a motor vehicle." GEICO was entitled to enforce the provision to disclaim coverage.

GEICO established that Rice was "occupying" his own vehicle and not the vehicle insured by GEICO under his mother's policy.


12/19/18       Banegas v. GEICO Insurance Company
Appellate Division, Second Department

Insurer Waived Argument that Uninsured Motorists Claimant was Outside Vehicle, and Thus Ineligible for Benefits, by Not Bringing Application to Stay Arbitration within 20 Days of Arbitration Filing
Banegas contended that on March 14, 2016, he and his girlfriend were passengers in a motor vehicle owned by Guerrero operated by Arias. The Guerrero vehicle was stopped in traffic on Front Street in Nassau County, when it was struck by an unidentified "hit and run" motor vehicle that fled the scene. The petitioner demanded arbitration of his uninsured motorist claim, and the respondent, GEICO Insurance Company (hereinafter GEICO), did not move to stay arbitration.

At the arbitration hearing, the petitioner and his girlfriend testified and their medical records were introduced into evidence. The arbitrator, over objection, allowed a continuance of the hearing for GEICO to call Guerrero and Arias as witnesses. As is relevant to this appeal, Arias testified that Banegas was not occupying the Guerrero vehicle at the time of the accident. The arbitrator credited Arias' testimony, finding her to be "[t]he only fully independent and fully credible witness to have testified in this matter," and further finding "that [the petitioner] was not in the vehicle at the time of this accident."

Banegas then commenced this proceeding to vacate so much of the arbitration award as denied his claim for uninsured motorists' benefits, on the ground that the arbitrator exceeded his powers by considering the issue of whether the petitioner was occupying the vehicle at the time of the accident, because that issue involved a contractual coverage defense which GEICO waived when it failed to seek a stay of arbitration.

An arbitration award may be vacated if the court finds that the rights of the moving party were prejudiced by (1) corruption, fraud, or misconduct in procuring the award; (2) partiality of an arbitrator appointed as a neutral arbitrator; (3) the arbitrator exceeding his or her power; or (4) the failure to follow the procedures of CPLR article 75. In addition, an arbitration award may be vacated if it violates strong public policy, is irrational, or clearly exceeds a specifically enumerated limitation on the arbitrator's power. 

An arbitrator's authority "extends to only those issues that are actually presented by the parties". Here, the issue presented to the arbitrator was whether the claimants, the petitioner and his girlfriend, sustained serious injuries as a result of the negligence of the operator of the hit-and-run vehicle, and if so, the reasonable compensatory value thereof.

With a hit-and-run cause of action, in order to proceed to arbitration, there must be "physical contact" by a hit-and-run vehicle to a "qualified person" (Insurance Law § 5217). Accordingly, the determination of whether the petitioner is a "qualified person" pursuant to the policy is a condition precedent to arbitration and therefore is a basis for an application to stay arbitration to be determined by the courts (see generally Matter of Nationwide Ins. Co. v McDonnell, 272 AD2d 547, 548; Matter of Unites States Fid. & Guar. Co.v Mitchell, 168 AD2d 941). Here, since GEICO never moved to stay the arbitration, it waived the ability to litigate this issue and essentially conceded that the petitioner was a covered person under the policy

That determination was for the court, NOT the arbitrator.


12/19/18       Laszlone  v. MVAIC

Appellate Division, Second Department

Hearing Necessary on Factual Issues Relating to MVIAC Eligibility

Laszlone claimed that she was a pedestrian struck by a hit-and-run (unidentified) motor vehicle. She commenced this proceeding seeking for leave to commence an action against the Motor Vehicle Accident Indemnification Corporation (hereinafter the MVAIC). The MVAIC opposed the petition, contending that the petitioner failed to establish her compliance with the statutory requirement that notice of an accident be given to a police, peace, or judicial officer within 24 hours, the satisfaction of which is a condition precedent to qualifying for benefits from the MVAIC, failed to establish that she filed a notice of claim within 90 days of the accident, and failed to establish that she was a "[q]ualified person" within the meaning of Insurance Law § 5202(b) because she did not demonstrate that she was a resident of New York State.

A petitioner seeking leave of court to commence an action against the MVAIC has the initial burden of demonstrating that he or she is a "[q]ualified person", and by making an evidentiary showing that he or she has satisfied certain other statutory requirements.

Here, there are triable issues of fact as to whether the petitioner is an uninsured resident of New York, whether the accident, which the petitioner admitted that he did not report to the police within 24 hours as required by Insurance Law § 5208(a)(2)(A), was, nonetheless, reported to the police "as soon as was reasonably possible" and whether the petitioner served a notice of claim upon the MVAIC within 90 days of the accident.  A factual hearing needs to be scheduled.



Robert E.B. Hewitt III


12/26/18       Imram v. R. Barany Monuments, Inc.

Appellate Division, Second Department

Biomechanical Engineer’s Opinion that Accident Could Not Have Caused Injuries Lacked Foundation

On April 17, 2012, the plaintiff was involved in a four-vehicle collision. At the time of the accident, the plaintiff was a passenger in the front-most vehicle. In the bill of particulars, the plaintiff alleged, inter alia, that she sustained injuries to the cervical and lumbar regions of her spine and both knees as a result of the accident. On June 5, 2015, the matter proceeded to a jury trial on the issue of damages against the defendants. During that trial, the defendants presented the testimony of a biomechanical engineering expert, Joseph McGowan. McGowan testified regarding delta-v, which is the change in velocity of a vehicle during a collision. Relying on certain photographs of the vehicle occupied by the plaintiff, a Honda CR-V, and the second front-most vehicle, a Ford Focus, which struck the Honda CR-V, damage repair estimates for both vehicles, and a crash test involving a Honda CR-V, McGowan concluded that the delta-v for the collision between the two vehicles was 5.7 miles per hour. He then utilized different crash tests to determine what happens to occupants in crashes with a similar delta-v. He concluded that the impact from the second front-most vehicle to the vehicle occupied by the plaintiff would not have caused the plaintiff's alleged injuries to the lumbar region of her spine or her knees.

Thereafter, the jury returned a verdict in favor of the defendants on the issue of damages, finding that the plaintiff did not sustain a serious injury under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d) as a result of the accident. Subsequently, the plaintiff moved pursuant to CPLR 4404(a) to set aside the jury verdict on the issue of damages in the interest of justice and for a new trial, arguing, inter alia, that McGowan's testimony on causation should have been precluded. 

The appellate division set aside the verdict, which is unusual, holding that an expert's opinion must be based on facts in the record or personally known to the witness and that a proper foundation was lacking for the admission of McGowan’s opinion. Among other things, McGowan failed to calculate the force exerted by all four vehicles, the crash test he utilized to determine the delta-v differed in several significant respects from the instant accident, and he reviewed simulations in which the weight of the dummies was not similar to that of the plaintiff.


12/21/18       Sims v. Ciccione-Burton

Appellate Division, Fourth Department

Defendant Failed to See All that Could Be Seen and did not Offer a Non Negligent Explanation for the Accident

Plaintiff commenced this negligence action to recover damages for the injuries she allegedly sustained when her vehicle was rear-ended by a vehicle owned and operated by defendants. Defendants moved for summary judgment dismissing the complaint on the ground that plaintiff did not sustain a serious injury within, inter alia, the significant limitation of use, permanent consequential limitation of use, and 90/180-day categories, and plaintiff cross-moved for partial summary judgment on the issues of negligence and serious injury.  The appellate division determined that the court erred in denying plaintiff's cross motion with respect to the issue of negligence. A rear end collision with a stopped vehicle establishes a prima facie case of negligence on the part of the driver of the rear vehicle, which defendant can rebut the presumption with a non-negligent explanation for the collision. Here, contrary to defendants' misconstruction of the record, the driver did not testify at her deposition that plaintiff suddenly stopped her vehicle and thereby precipitated the crash. Instead, the driver testified that she remembered being stopped and that she thought the car in front of began to move, so she accelerated. And next thing she knew there was a crack on her windshield. Far from constituting a non-negligent explanation for the crash, the Court found driver's deposition testimony conclusively establishes her own negligence, i.e., that she breached her duty to see what should be seen and to exercise reasonable care under the circumstances to avoid an accident.


12/20/18       Thompson v. Brown

Appellate Division, Third Department

Expert’s Conclusion That Fracture Occurred Was Devoid of Admissible Evidence to Support His Conclusion – Thousands Flee

The court (or the lawyers) made a fundamental error in this case.  It decided on the “serious injury” when there was no need to establish one – because it was an action against a non-covered person.

This is a case in which disagree with the court’s decision that plaintiff needed to demonstrate a serious injury. 

In 2010, plaintiff was driving her car westbound on Route 23 in Chenango County when she struck a bull that had entered the roadway. Plaintiff subsequently commenced this negligence action against defendants, who owned the bull and operated a nearby farm from where the bull escaped. As relevant here, following joinder of issue and discovery, plaintiff moved for partial summary judgment on the issues of liability and serious injury.

Turning first to the issue of defendants' liability, the appellate division determined a landowner or the owner of an animal may be liable under ordinary tort-law principles when a farm animal is negligently allowed to stray from the property on which the animal is kept.  Defendant Douglas O. Brown, the farm owner, testified at his deposition that the cows were tied and secured with a hemp collar. Although Brown was responsible for making sure the cows were secured each evening, Brown did not personally check each stall to see if the cows were secure. Brown was shown a picture of the collar that was used for the subject bull and admitted that it was frayed at the end where the twine broke.

Brown agreed that it looked bad and that he would replace a collar if it was in such condition. Moreover, the barn doors were kept open during the night prior to the accident to keep the barn cool. Brown testified that if an animal escaped from his property, it would be foreseeable that the animal could make its way to Route 23. Indeed, Brown stated that cows, in the past, had escaped and went to Route 23. In view of the foregoing, as well as the police accident report, plaintiff demonstrated a prima facie case of liability against defendants.

The odd part came when the court required plaintiff to demonstrate a serious injury. The Appellate Division held that seeking summary judgment that she has suffered a serious injury, tender proof demonstrating, as a matter of law, that she did and that it was causally related to the accident. In this regard, plaintiff relied on the fracture category. The only medical evidence that plaintiff submitted in support of her motion was the affirmed report of an orthopedic surgeon who conducted an independent medical examination of plaintiff. Although the orthopedic surgeon concluded that plaintiff suffered a fracture of her left fifth metacarpal as a consequence of the motor vehicle accident, the court found the record is devoid of admissible medical evidence to substantiate this conclusion. The orthopedic surgeon noted in his report that he reviewed various radiographic studies but none of them was of plaintiff's left hand. Furthermore, although the orthopedic surgeon noted in his summary of certain medical records that the radiographs revealed a nondisplaced facture of the left fifth metacarpal, these medical records were not submitted as part of plaintiff's motion. It was unclear whether the orthopedic surgeon actually reviewed the specific radiographs identified in his summary of the medical records or whether he was reiterating the finding of a fracture by a treating physician and, if so, what the source was of this finding.

Based on the foregoing, plaintiff did not meet her moving burden and, therefore, the plaintiff found that part of her motion seeking summary judgment on the serious injury issue should have been denied regardless of the sufficiency of defendants' opposition thereto.

This is simply wrong.  The serious injury threshold is only to be considered in New York State accidents involving “covered persons” against other “covered persons”. A covered person, as a defendant, would be the driver or owner of car.  Pedestrians and passengers are also “covered persons”:

Insurance Law Section 5104. Causes of action for personal injury. (a) states: Notwithstanding any other law, in any action by or on behalf of a covered person against another covered person for personal injuries arising out of negligence in the use or operation of a motor vehicle in this state, there shall be no right of recovery for non-economic loss, except in the case of a serious injury, or for basic economic loss.

Since the negligence is farmer in allowing the bull to get loose, not the motor vehicle, the serious injury standard shouldn’t apply. The defendant is a non-covered person so serious injury is not required.


12/20/18       Vergine v. Phillips

Appellate Division, Third Department

Causally Related PTSD Can Constitute a Serious Injury and Can Be Diagnosed by Licensed Clinical Social Worker

Following an automobile accident in July 2015, plaintiff commenced this action alleging that she sustained injuries to her cervical spine which triggered several "serious injury" categories.  Causally-related PTSD can constitute a serious injury. To validate such a claim, a plaintiff must present competent medical evidence through an expert's qualitative assessment of a plaintiff's condition provided that the evaluation has an objective basis and compares the plaintiff's limitations to the normal function, purpose and use of the affected body organ, member, function or system. In support of their cross motion, plaintiffs presented the affidavit of a licensed clinical social worker who diagnosed plaintiff with PTSD, causally-related to the accident.  While a physician's affirmation was certainly competent medical proof, case law has also recognized that PTSD may be diagnosed by psychiatrists, neuropsychologists and psychologists. The novel threshold question presented here is whether a Licensed Clinical Social Worker is also competent to render such an opinion. The court found they were, as they had functions comparable to a psychologist.



Steven E. Peiper

[email protected]


12/26/18       Stennett-Bailey v. Allstate Ins. Co.

Appellate Division, Second Department

Two Year Suit Limitation Precludes Plaintiff’s Late Lawsuit; Notice of Cancellation Also Applies to Block Plaintiff’s Claim

Allstate issued a residential fire policy covering a property owned by KRG.  KRG was wholly owned by plaintiff.  When plaintiff failed to timely pay the premium on the policy, Allstate mailed a notice of cancellation indicating that plaintiff had until 12:01 am on May 27, 2008 to remit payment or face the loss of coverage.  That date came and passed without any payment from plaintiff. 

Thereafter, on June 2, 2008, Allstate further provided notice of cancellation to the

mortgagee which stated the mortgagee had until June 20, 2008 at 12:01 to remit payment for past due premiums.  Plaintiff presented a check to her broker dated June 20, 2018.  Allstate rejected the payment as untimely, and mailed the returned premium back to plaintiff who, in turn, cashed the check.

Plaintiff’s property was damaged by fire in October of 2008, and the instant action commenced in October of 2014.  Allstate moved for summary judgment on the basis that the suit was untimely by application of the two year suit limitation clause found within the policy, and that the policy was cancelled in June 2008.

On appeal, the Second Department affirmed the trial court’s decision granting Allstate’s application.  The matter was time barred per the suit limitation clause, and further Allstate met its prima facie burden of establishing a proper cancellation.  In opposition, the Appellate Division rejected plaintiff’s contention that the check was actually issued to plaintiff’s broker on June 19th.  Plaintiff also argued she never received the notices of cancellation. The Court noted that plaintiff’s statement was belied by the date of the check in question (June 20th).  Moreover, the fact that she negotiated the check returning premium indicated that she received mailings from Allstate.


12/13/18       Avgush v. Jerry Fontan, Inc.

Appellate Division, First Department

Notice of Appeal Filed on 31st Day is Untimely, and Coupled with Lack of Timely Service Results in the Loss of Plaintiff’s Appellate Rights

Defendant moved for summary judgment on the basis that the plaintiff did not sustain a serious injury under Insurance Law 5102(d).  That motion was granted, and the Order memorializing the same was entered and served under Notice of Entry on August 30, 2016.  The day prior, August 29, 2016, plaintiff’s counsel sent correspondence to plaintiff advising that he was withdrawing from representation.  Thereafter, on August 31, 2016, counsel further advised that if plaintiff wished to appeal he would need to file a Notice of Appeal before September 29, 2016. 

Plaintiff, allegedly, attempted to file a Notice of Appeal on September 29, 2016 (the deadline), but his efforts were rejected by the County Clerk.  The filing, however, indicates that all relevant documentation was dated September 30, 2016, thus indicating it was filed one day late.  The Court also noted that even though the document was rejected by the Clerk’s Office, he still could have served it upon defendant.  Failure to file or serve before September 29, 2016 was a non-waivable jurisdictional defect, and results in the loss of plaintiff’s appellate rights.

The Court also noted that even if the appeal was timely filed, it would have affirmed the Trial Court’s decision to deny based upon a lack of serious injury.



Agnes A. Wilewicz

[email protected]


12/06/18       Patriarch Partners LLC v. Axis Insurance Company

United States Court of Appeals, Second Circuit

Second Circuit Finds that Warranty Executed by Insured Prior to Inception, Which Attested to No Known Facts or Circumstances that Might Result in a Claim, Was Dispositive to Preclude Coverage when Pending SEC Investigation Ripened into an Enforcement Action 

Patriarch is a private equity investment firm that, among other things, bundles distressed loans to sell to investors. They employ numerous professionals but have one founder, sole director, and officer. In 2009, the SEC sent Patriarch a letter notifying them that they were conducting an “informal inquiry” into the company, citing a case number, and requesting that they voluntarily provide documents and information. Patriarch hired outside counsel to assist, and then they complied with the requests, as well as follow up requests made in 2010. In 2011, they received another letter that made reference now to an “informal investigation”, citing the same case number. They made extensive document and information requests relating to the company’s organization and business practices, as well as information about particularly collateralized loan obligations relative to the distressed loans Patriarch sold, going back as early as 2002. Later in 2011, the SEC sought the testimony of Patriarch officers via subpoena, issuing an internal Order of Investigation that noted that Patriarch might have been in violation of securities laws. While Patriarch disputed that it ever received that Order, at one point their outside counsel did become aware of it. Further officers were interviewed and they submitted their defense costs to Patriarch, which paid them.

While all of this was taking place, Patriarch was in the process of renewing its directors and officers professional liability insurance portfolio. This consisted of a tower of D&O coverage with various carriers. On top of that, that year Patriarch’s broker recommended that they add another layer to the tower, with a further excess policy to be issued by Axis. This was quoted and bound in August 2011.

The Axis policy, which followed form to layers of coverage below it, provided coverage for “any Claim first made against an Insured during the Policy Period”. The term “Claim” was defined to include “an Investigation of an Insured alleging a Wrongful Act”. The term “Investigation”, meanwhile, was defined to include “a formal ... regulatory investigation or inquiry”, including specifically “an order of investigation or other investigation by the SEC”.

Before the policy was bound, however, Axis made its quote contingent on Patriarch executing a Warranty relative to prior claims. That is, Axis intended to have the Warranty document “eliminate the potential for Axis to come on the program and be immediately hit with a claim that the client knew was close but hadn’t been filed yet”, as wrote Patriarch’s broker in an email around that time. This Warranty provided, as signed by Patriarch’s sole officer: “This letter is provided pursuant to a request by Axis Insurance Company (“Insurer”). The information contained herein applies only to the captioned policies to be provided to the Insureds by the Insurer. It is understood and agreed that this letter is and shall be deemed to be submitted to the Insurer and material to the underwriting and acceptance of risk for the Captioned Policy. The undersigned, on behalf of Patriarch and all of its directors and officers, hereby represents that as of the date of this letter neither the undersigned nor any other director or officer of Patriarch is aware of any facts or circumstances that would reasonably be expected to result in a Claim under the Captioned Policy. It is understood that the Captioned Policy and any renewal thereof does not provide coverage for Claims relating to facts or circumstances that, as of the date of this letter, Patriarch was aware of and would reasonably have expected to result in a Claim covered by such Captioned Policy (or future renewal thereof). By executing this letter, I confirm that I understand that the Insurer is relying upon this warranty in order to incept the proposed coverage.”

Six months after the Axis policy became effective, the SEC served a subpoena on Patriarch under the same caption and case number as its prior letters. It required further information, documentation, and copies of emails from various Patriarch employees and former employees, including its current officer, going back to 2008. Patriarch then tendered this notice as a “new matter” to its various carriers. Axis acknowledged the claim but issued an express reservation of rights to deny coverage in the event of any further action. Three years later, when the SEC finally filed an administrative enforcement action against Patriarch, they sought coverage under their policies, including the one with Axis. Patriarch further notified Axis that it had exhausted all of its underlying limits and requested not only indemnification but defense from its excess layer. Litigation ensued and extensive discovery was exchanged.

Axis argued that it did not have to provide coverage for two reasons: 1) the SEC investigation was a “Claim” first made before the Axis policy incepted and was therefore not coverage; and 2) the Warranty relieved Axis of its obligations because the SEC investigation constituted “facts or circumstances” of which Patriarch was aware that could reasonably have been expected to result in a Claim. Patriarch argued that since its sole officer was not expressly aware of the SEC claims before inception, the Warranty did not apply. Moreover, they argued that the Warranty only applied to claims that might have reasonably reached the excess layer, which facts and circumstances were not known at the time of the inception.

The Second Circuit, applying New York law, sided with the carrier. The language of the Warranty was clear and the parties were aware of its intent, as evidenced by the broker’s email. The clear and unambiguous language of the Warranty was dispositive. The only reasonable view of it was that it meant to preclude coverage for claims arising from facts or circumstances of which Patriarch was aware as of the inception day and that they would reasonably have expected to result in a claim. As of the inception of the policy, Patriarch was undoubtedly aware of the SEC investigation and its escalating severity and focus. It had already accrued hundreds of thousands of dollars in defense costs relating to the claims. It was very clear that they knew of the possibility of a more formal claim or suit being filed against them. Thus, the Warranty precluded coverage and the court did not even have to dive into the policy language itself.



Jennifer A. Ehman




Jerry Marti


12/20/18       Allay Med. Servs., P.C. v. Nationwide Ins.

Civil Court of the City of New York, Kings County

Court Finds Issue with Proper Mailing of EUO Letters and Denials

Defendant moved for summary judgment based on plaintiff’s failure to attend an examination under oath.  In support of the motion, Defendant submitted an affidavit to establish that the documents were mailed on the same date that they were generated by the insurance carrier. Nonetheless, the Court denied the summary judgment motion on the grounds that the affidavit failed to establish that the mailing procedure ensured that the EUO letters and denials were addressed to the correct recipient and properly mailed.  In particular, the Court noted that the affidavit failed to identify whether the envelopes were addressed by a computer program or by an employee, how the envelopes were address to ensure the accuracy of the recipient’s address, and in what manner the envelopes were weighed and affixed with proper postage using the “mail machine.” 

For tips on establishing the proper mailing procedure of insurance carrier documents, see Ray Presutto, L.M.T., P.C. v. Travelers Ins. Co.


12/19/18       In the Matter of Acuhealth Acupuncture v. NYC Transit Authority 
Appellate Division, Second Department        

Arbitrator’s Denial of No-Fault Benefits Based on Exhausted Policy Upheld

Petitioner initiated an arbitration proceeding to recover no-fault benefits for acupuncture services following a motor vehicle accident.  In particular, the arbitrator denied the claim in its entirety based upon the exhaustion of the policy at the time that the last bill had been received by the insurance carrier. The arbitrator reasoned that it would have exceeded her authority to award reimbursement in excess of the contractual limits of the policy.

The petitioner appealed the arbitrator’s award to a master arbitrator arguing that the award was irrational, arbitrary, capricious, and incorrect as a matter of law.  After the master arbitrator affirmed the award, the Supreme Court denied the petition to vacate the master arbitrator’s award. As a result, the petitioner appealed from the Supreme Court’s Order.

In denying the petition and confirming the master arbitrator’s award, the Appellate Division, Second Department held that the master arbitrator’s decision had evidentiary support and a rational basis.  The Court’s rationale was based on the public policy of narrowly applying grounds for vacating or modifying a no-fault arbitration award.



Brian D. Barnas

[email protected]


12/21/18       Houston Casualty Co. v. Paul Ryan Associates, Inc.

United States District Court, Southern District of New York

Alleged Gross Negligence by an Insurer will not Support a Claim for Bad Faith

Paul Ryan alleged that Houston failed to defend and indemnify it against allegations that it deficiently performed under a construction contract with a third party.  Houston commenced a declaratory judgment action seeking a declaration of no coverage.  Paul Ryan asserted several counterclaims, including breach of contract and bad faith.  Houston moved to dismiss the bad faith counterclaim.

Houston argued that the counterclaim should be dismissed because it was duplicative of the claim for breach of contract.  The court agreed concluding it was clear that the counterclaim for bad faith and unfair dealing arises out of, and is explicitly premised on, the underlying insurance contract.

In opposition, Paul Ryan argued that an insurer’s gross negligence supports a claim for bad faith.  Tellingly, it cited no cases to support that rule, and the court located none on its own.  In contrast, the court cited to the New York University case, where the insured’s allegations that the insurer was “careless, negligent, reckless, and vindictive” were insufficient to state a cause of action for bad faith.


12/14/18       Moore v. GEICO General Insurance Company

United States Court of Appeals, Eleventh Circuit

Court Properly Excluded Evidence that another Insurer Settled with the Claimants in Bad Faith Trial

This case stems from a tragic car wreck on a Florida highway in which Richard Waters, drunk and on opioids, cut off Moore, a twenty-one-year-old college student.  Moore sped to catch up with Waters and when he did, the two exchanged hand gestures.  Waters caused Moore to change lanes several times and then, with Moore in the left lane and perhaps on his cell phone, Waters twice swerved his vehicle into Moore’s truck. The second time, Moore lost control, crossed the median, and ran head-on into Amy Krupp and her ten-year-old son (“victims”).  After several weeks in the hospital, Krupp died.  Her son lived, but suffered lasting brain injuries.  Moore had internal injuries and a shattered right leg. Waters drove off but was eventually arrested and sent to prison.

Waters was insured by Peak, but he had only $10,000 in property damage coverage.  Moore’s parents insured the vehicle he was driving with GEICO, but their policy provided only bodily injury coverage of $10,000 per person/$20,000 per occurrence, and $10,000 in property damage coverage.

The victims’ family hired attorney Lance Holden to represent the victims, their family members, and Krupp’s estate (collectively “claimants”). Just weeks after the car wreck, Holden made essentially identical settlement offers to both Waters’ and Moore’s insurers: If, among other things, the insurer, within twenty-one days, paid claimants the full amount of available coverage, submitted a document for claimants to sign releasing only the insureds and provided affidavits from the insureds or their insurance agents swearing that there was no other available insurance, claimants would fully release the insureds from any further liability stemming from the accident.  Waters’ insurer, Peak, complied with these conditions and claimants settled their claims against him. 

GEICO also tried to settle but failed because (1) GEICO provided a form document that released, not only its insureds, but also “all officers, directors, agents or employees of the foregoing [named insureds], their heirs, executors, administrators, agents, or assigns” and (2) GEICO provided vague affidavits from its insureds, the Moores, regarding the possible availability of additional insurance.  Claimants sued Moore in Florida state court where a jury returned a verdict of $45 million.  Moore was 10% at fault, and therefore judgment of over $4 million was entered against him.

Moore brought an action against GEICO for bad faith.  GEICO argued that it had not acted in bad faith and that, even if it had, Moore’s damages were not caused by its bad faith because claimants had no intention of ever settling the claims for the small amount of coverage he had.

Prior to trial, GEICO filed a motion in limine asking the court to prohibit Moore from presenting evidence that the underlying claim could have been settled because claimants settled with Peak and from presenting evidence relating to Peak’s claim handling.  The court denied the motion, and Moore presented evidence that Peak was able to settle the claim.  The jury concluded that GEICO acted in bad faith.

After the verdict, the court granted GEICO’s motion for a new trial, ruling that it was error to allow the jury to hear evidence of the settlement with Peak.  During the second trial no evidence of the settlement with Peak was offered and GEICO prevailed.  Moore appealed arguing that the court abused its discretion in vacating the first jury verdict.

The Eleventh Circuit concluded that the evidence of the settlement with Peak was properly excluded and warranted a new trial.  While the evidence had probative value, it was significantly outweighed by the danger of unfair prejudice.  The claim Peak settled was not identical or even substantially similar to the claim GEICO was handling.  Peak’s insured had only property damage coverage and, between that coverage and the property damage coverage that GEICO provided its insured Moore, there was no likelihood that claimants’ property damage claims would exceed that available coverage.  By contrast, GEICO provided its insured, Moore, not only property damage coverage, but also bodily injury coverage.  The amount of that bodily injury coverage, however, was minimal.  Faced with catastrophic bodily injury claims, there was a clear possibility of a bodily injury judgment against Moore that would far exceed his coverage. The claims Peak settled, then, were significantly different from the claims GEICO was handling.  Since the evidence admitted during the first trial went directly to determinative issues in the case, the court did not abuse its discretion in vacating the verdict and ordering a new trial.


John R. Ewell


12/17/18       Thomas v. Allstate New Jersey Ins. Co.

New Jersey Superior Court, Appellate Division

New Jersey Appellate Division Rules Claimant Not Insured under Homeowners Policy Where She Was Neither a Named Insured nor Resident Relative

In 1984, Margie Thomas (“plaintiff”) and Westley Graves (“Graves”) began cohabitating in a house Graves purchased. Graves obtained a homeowner’s insurance policy from Allstate, which was renewed annually over the next thirty-one years. The policy defined an insured as the named insured and any resident of the household who was related to the named insured. Throughout this entire period the only named insured was Westley Graves. Plaintiff does not contend she was a relative of Graves.

In 1987, Graves executed an assignment in which he conveyed to plaintiff a sixty-five percent interest in the house, although only Graves’s name continued to appear on the deed. In 2003, plaintiff and Graves terminated their relationship, and Graves moved out of the house. Plaintiff continued to live in the house and paid the mortgage, property taxes, and the annual premiums on the homeowner’s insurance policy. She was aware her name was not on the policy, but she did not contact Allstate to request she be added as an insured under the policy or obtain a policy that provided homeowner’s insurance coverage to her.

On March 16, 2015, a fire destroyed the house and most of its contents. Graves submitted a claim to Allstate for the loss of the real property, and plaintiff submitted a claim for the loss of her personal property and for “additional living expenses.” Allstate approved Graves’s claim and issued a check to him for $135,775 for the loss of the real property. Graves assigned the insurance proceeds to plaintiff in exchange for $1000.

Allstate rejected plaintiff’s claim for coverage for her personal property and for additional living expenses. Plaintiff filed a complaint against Allstate seeking insurance coverage under the subject policy for her claims, asserting various causes of action. At the conclusion of discovery, Allstate filed a motion for summary judgment, arguing plaintiff was not entitled to coverage under the subject policy

The trial court agreed with Allstate and dismissed the complaint, finding plaintiff was not an insured under the policy because she was neither a named insured nor a resident of the household who was related to the named insured.

On appeal, plaintiff argued the trial court erred because it failed to reform the policy and to find she was covered for her claims under the policy. Plaintiff maintained reformation was in order because she made a mistake by assuming she was covered under the policy. She further asserted that Allstate’s acceptance of the premium payments from her over the years was inequitable conduct because Allstate got the benefit of her payments without checking whether she was an insured under the policy.

The Appellate Division rejected plaintiff’s argument the policy must be reformed. During her deposition, plaintiff admitted that when she received the renewal policy each year, she knew her name was not on the policy. Therefore, the Appellate Division found that she could not now maintain she mistakenly assumed she was covered by the policy when she previously testified she was aware she was not an insured on the policy. Plaintiff failed to contact Allstate to obtain coverage.

The Appellate Division ruled that reformation on the basis of mistake is not available to plaintiff because her failure to obtain coverage was due to her own negligence. Finally, plaintiff failed to cite any authority to support her premise that Allstate’s acceptance of her premium payments without checking whether she was an insured under the policy was inequitable.

The Appellate Division affirmed the grant of summary judgment to the carrier.

Disclaimer: This is an unpublished decision which has precedential value in only limited circumstances.


Brian F. Mark
[email protected]


12/18/18       Southern Owners Ins. Co. v. Gallo Building Servs.

U.S. District Court for the Middle District of Florida, Tampa Division
US District Court Finds Policy Exclusion for Damage to Your Work and the Exterior Finishing System and Stucco Exclusion to be Inapplicable to Bar Coverage

This declaratory-judgment action arises out of an underlying construction defects action related to the construction of a condominium project.  Gallo Building Services, Inc. ("Gallo") entered into a master subcontract with KB Home Tampa, LLC ("KB Home Tampa") related to, among other things, the construction of the Willowbrook Condominium Project (the "Project"), a 51-building, 270-unit condominium project.  KB Home Tampa was the developer for the Project and served as contractor for certain portions of the Project. KB Home Fort Myers, LLC ("KB Home Fort Myers") and KB Home Orlando, LLC ("KB Home Orlando") served as contractors for certain other portions of the Project (all of the KB Home entities are collectively referred to as “KB Homes”).  All of the work at the Project was subcontracted out by KB Homes to subcontractors, suppliers and material men.

Following the completion of construction and turnover of control of the Project to the individual unit owners, Willowbrook Condominium Association, Inc. (the "Association") engaged an engineering firm to perform a turnover study at the Project.  The study ("Karins Report") identified a number of alleged construction defects and deficiencies at the Project.  The Association served a Chapter 558 Notice transmitting the Karins Report to KB Homes asserting various claims related to construction defects at the Project.  In turn, KB Homes notified the subcontractors and designers of these claims and tendered its defense.  KB Homes' tender was not accepted.

KB Homes commenced an investigation of the Association's claims and discovered additional non-conforming work performed by subcontractors.  KB Homes incurred significant costs to investigate and repair the defective work and resulting property damage at the Project, as well as significant costs to relocate residents during the course of repairs.  KB Homes filed suit against Gallo and other subcontractors in an underlying state court action.

In the underlying action, KB Homes' Third Amended Complaint and Demand for Jury Trial (the "Underlying Complaint") included 169 pages, 795 paragraphs and 158 Counts against approximately three dozen subcontractors and designers, including Gallo, in relation to their allegedly defective work on the Project, which, "caused damage to other building components, damage to other property, loss of use, and . . . relocation of residents of [Willowbrook Condominiums]."

Southern Owners Insurance Company, ("Southern") issued a series of primary commercial general liability ("CGL") policies to Defendant Gallo.  The relevant coverage provisions under the Southern policies are as follows:

1. The Insuring Agreements provide, in part, that

"[Southern] will pay those sums that the insured

becomes legally obligated to pay as damages

because of . . 'property damage' to which this

insurance applies.   [Southern] will have the right and

duty to defend the insured against any 'suit'

seeking those damages."

2. "Property damage" is defined in the CGL Policies

to include "[p]hysical injury to tangible property,

including all resulting loss of use of that property . . ."

The CGL Policies define "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."

The CGL Policies contain the following relevant coverage exclusions:

1. The Damage to Your Work Exclusion ("Your

Work Exclusion") excludes coverage for "property

damage to [Gallo's] work arising out of it or any part

of it and included in the products-completed

operations hazard." (internal quotations omitted).

The CGL policies' "your work" definition includes "[w]ork or operations performed by [Gallo] or on [Gallo's] behalf" and "[m]aterials, parts or equipment furnished in connection with such work or operations."

The "products-completed operations hazard," as used in the Your Work Exclusion, includes all "property damage occurring away from premises [Gallo] own[s] or rent[s] and arising out of . . . [Gallo's] work except . . . work that has not yet been completed or abandoned."

2. The Exterior Finishing System and Stucco

Exclusion ("Stucco Exclusion") bars coverage for

"any claim, 'suit,' action or proceeding for . .

'property damage' . . . which is in any way related to

or arising out of any 'exterior finishing system' or

exterior 'stucco' application."

The policy defines "exterior finishing system" as "an exterior insulating and finishing system applied to the exterior of a structure which incorporates any synthetic stucco or material similar in substance or purpose, and which may also include: insulating board or other material; adhesive or mechanical fasteners; and the applications of flashings, coatings, caulking or sealants.

"Stucco" is defined as "a material made of Portland cement; sand, cement, line, and/or plaster, or any combination thereof, applied as a hard covering for exterior walls."  The work of the subcontractors was "deficient within, and without limitation, the following systems:

Southern filed a complaint for declaratory judgment in the District Court for the Middle District of Florida seeking a declaration that Southern had no duty to indemnify or defend Gallo relative to the underlying action.  Specifically, Southern alleged that it owed no duty to defend Gallo in the underlying action because the Underlying Complaint did not allege property damage as defined in the CGL Policies and the Your Work and the Stucco Exclusions barred coverage.

After the filing of the declaratory-judgment action, Gallo was administratively dissolved by the Florida Department of State Division of Corporations.  Southern moved for the entry of a final declaratory judgment after a default was entered against Gallo.  The motion was granted and judgment was entered declaring that Southern owed no duty to defend or indemnify Gallo under any polices of liability insurance in connection with the underlying action.  KB Homes moved to set aside the default judgment, which the Court did.  Subsequently, Defendants KB Homes moved for summary judgment in favor of Gallo and KB Homes, seeking a declaration that Southern owed a duty to defend Gallo in the underlying action and Southern filed an opposing motion for summary judgment.

Property Damage in the Underlying Complaint

Southern argued that summary judgment was proper because the Underlying Complaint failed to allege "property damage" as defined in the CGL Policies.  Southern noted that when considering insurance policies like the CGL Policies, the Eleventh Circuit has held that the "Florida Supreme Court has drawn a distinction between 'a claim for the cost of repairing the subcontractor's defective work,' which is not covered under a CGL policy, and 'a claim for repairing the structural damage to the completed [project] caused by the subcontractor's defective work,' which is covered."  Further, according to the Eleventh Circuit, "[a] claim limited to faulty workmanship or materials is one in which the sole damages are for replacement of a defective component or correction of faulty installation."  Accordingly, there is no property damage "[i]f there is no damage beyond the faulty workmanship," unless the faulty workmanship has damaged some "otherwise non-defective" component of the project.

Southern conceded that the Underlying Complaint alleged defective work by Gallo but argued that the Underlying Complaint did not allege damage to some "otherwise non-defective" component of the Project; thus, its claims are for the replacement of a defective component or correction of a faulty installation and not property damage.

KB Homes asserted that Southern's duty to defend was triggered by the Underlying Complaint's allegations of "damage to other building components," "damage to other property," "water intrusion," and "relocation of residents."  The Court agreed with KB Homes' position as the Underlying Complaint alleged physical injury to tangible property by claiming that, in addition to faulty workmanship, defects in Gallo's work caused "damage to other building components," "damage to other property," and "property damage to the work of [KB Homes], other subcontractors and tradesman, and to other building components and materials."  Further, the Court noted that the Underlying

Complaint alleged loss of use of the Project because the defects in the subcontractors' work—including Gallo's— have "require[d] relocation of residents." 

Also, neither party alleged that Gallo's scope of work was analogous to a

"defective component," or that damaged materials are interlocking and cannot be replaced piecemeal, as the court found critical in in the case law relied on by Southern.  The Court found it telling, that in its own motion to dismiss, Southern did not argue that the Underlying Compliant failed to allege property damage, instead basing its sole argument against a duty to defend on two policy coverage exclusions.  Accordingly, the Court found that the Underlying Complaint alleged property damage sufficient to trigger Southern's duty to defend Gallo in the Underlying Action.

Southern further argued that if the allegations in the Underlying Complaint triggered Southern's duty to defend, the allegations in the Underlying Complaint fall squarely within the Your Work Exclusion or within the Exterior and Stucco Exclusion.  KB Homes maintained that the allegations did not fall solely within either exclusion.

Damage to Your Work Exclusion

Southern argued that the allegations in the Underlying Complaint fell squarely within the Your Work Exclusion because the damages sought by KB Homes arose out of alleged construction defects and deficiencies to Gallo's own work and the CGL Policies contain no subcontractor exception.  Southern argued that any distinction between the work of Gallo, KB Homes, and other contractors in the Underlying Complaint was meaningless because Southern's policies contain no subcontractor exception; thus, all alleged damages relate to the Project itself.  Under such principle, in order for the allegations to fall solely outside of the Your Work Exclusion, the Underlying Complaint must allege damage to property other than the Project.  The Court disagreed with Southern's position.

KB Homes argued that the subcontractor exception is irrelevant because here the insured, Gallo, is a subcontractor and not a general contractor.  KB Homes accurately noted that the cases cited by Southern involved an insured general contractor seeking coverage under an insurance policy for faulty work of a subcontractor.  The Court founds the analysis in Assurance Co. of Am. v. Lucas Waterproofing Co., Inc., 581 F.Supp.2d 1201 (S.D. Fla. 2008), relevant.  There, the subcontractor's scope of work was limited to waterproofing.  The Lucas court found the subcontractor's limited scope of work to be determinative, holding that only damage to the waterproofing work arising from the faulty waterproofing work was barred from coverage pursuant to the Your Work Exclusion.   Specifically, the court found that the subcontractor's limited scope of work could in no way be construed to encompass the overall construction project at issue; therefore, damage to other parts of the subject property aside from the scope of the subcontractor's work was not barred by an exclusion substantially similar to the Your Work Exclusion.   The Court noted that as in Lucas, Gallo was a subcontractor responsible for a limited scope of work within the much larger general condominium project.  Moreover, no reading of the Underlying Complaint allows the inference that Gallo's scope of work encompassed construction of the overall Project.  Rather, the Underlying Complaint reflects Gallo's limited scope of work.  Further, the Underlying Complaint states that alleged defects of Project subcontractors, including Gallo, "caused damage to other building components, damage to other property, loss of use, and require[d] relocation of residents."  Such alleged defects included, among other things, "water intrusion" and "property damage to the work of KB Homes, other subcontractors and tradesman, and to other building components and materials."  Thus, the Court held that damage beyond the scope of Gallo's work was alleged in the Underlying Complaint.

Southern also argued that this Court must make multiple inferences to find that Gallo's work resulted in damage to any part of the Project that was not Gallo's work or product as proscribed by Elite Homes, 160 F.Supp.3d 1307 (M.D. Fla. 2016).  However, the Court distinguished the case law relied on by Southern.  In Elite Homes, the insured was a single builder who performed all work on a single new structure; thus, any reference to "other property" necessarily referred to property outside of the insured's scope of work.  That was not the scenario here, where the Project involved general contractors and dozens of subcontractors who all performed work on the Project, independent of the work performed by Gallo.

Accordingly, the Court determined that the Underlying Complaint alleged damage to property other than that which was completed by Gallo and Southern failed to demonstrate that the allegations against Gallo in the Underlying Complaint fell solely and entirely within the Your Work Exclusion.  Thus, the Court found that the exclusion did not bar coverage.

Exterior Finishing System and Stucco Exclusion

Alternatively, Southern asserted that it had no duty to defend Gallo because the allegations in the Underlying Complaint fell within the Stucco Exclusion in the CGL Policies.  Southern asserted that Gallo's scope of work was entirely limited to the exterior of the Project, including the use of an exterior finishing system and stucco; thus, coverage was barred.  Specifically, Southern pointed to fifteen alleged defects attributable to Gallo in the Underlying Complaint and claims that each clearly related to the application of stucco—whether directly or indirectly.  However, other than the two parenthetical examples, Southern did not describe how each defect related to stucco or an exterior finishing system.  Moreover, Southern conceded that some of this work was not performed by Gallo.

In opposition, KB Homes argued that Gallo performed multiple scopes of work unrelated to stucco or an exterior finishing system and that the Underlying Complaint contains allegations entirely unrelated to the application of either exterior.  KB Homes pointed to the following allegations in the Underlying Complaint which caused alleged damage to the Project: framing work on buildings 15 and 20-4, house wrap work on buildings 20-23 and 33-39, "installing wall panels with gaps," and "failing to install sp2's7 at each stud per structural drawings."

Southern asserted that courts in multiple jurisdictions have universally upheld similar exclusions, even where the damages against the insured did not directly deal with the deficient exterior finishing system or stucco application.  In response, KB Homes pointed out that each case cited by Southern related to the use of a specific product, an exterior insulating and finishing system ("EIFS"), which is alternative to stucco and was not used on the Project.  Moreover, KB Homes correctly noted that the exclusion in each case is broader than the Stucco Exclusion because it extends to property damage arising from any exterior work performed by the insured if EIFS was used on the building, even if the insured did not install the EIFS, as long as an EIFS is used on any part of the structure.

The Court noted that Southern relied solely on the allegations in the Underlying Complaint related to the use of fasteners to support its contention that the Project employed EIFS, but failed to explain how a general allegation pertaining to fasteners proves that EIFS was installed.  Moreover, Southern pointed to no allegation in the Underlying Complaint that specifically referenced the EIFS product.  Furthermore, in each case relied on by Southern, the parties did not dispute that an EIFS was used on the project.

Thus, the Court held that it did not have sufficient evidence to find that an EIFS was used on the Project and could not determine that each allegation against Gallo in the Underlying Complaint related to or arose out of the installation of stucco or EIFS.  Accordingly, the Court found that Southern's duty to defend Gallo in the Underlying Action was not barred by the Stucco Exclusion in the CGL Policies.

Duty to Indemnify

The Court noted that the duty to indemnify is not ripe for adjudication in a declaratory judgment action until there is a factual determination that the insured is liable in the underlying suit.  As there has been no factual determination as to liability in the Underlying Action as of the date the motions were decided by the Court, any determination regarding Southern's duty to indemnify Gallo requires a more complete record before the court.  Accordingly, the Court found that Southern's duty to indemnify Gallo was not ripe for adjudication.



Larry E. Waters


12/20/18       Bank United , N.A. v. Merritt Environmental Consulting Corp.

United States District, Southern District of New York

Defendant’s Motion to Dismiss Granted Because Causes of Action for Breach of Contract, Professional Malpractice, and Negligent Misrepresentation were Time-Barred by New York Statute of Limitations

On July 17, 2013, BankUnited N.A. (the “Plaintiff”) and Merritt Environmental Consulting Corp. (“MECC”) executed a Master Services Agreement for MECC to provide environmental consulting services to Plaintiff at certain designated sites in assistance with Plaintiff’s underwriting of mortgage loans. In addition, Plaintiff also entered into a Master Services Agreement with Lender Consulting Services, Inc. (“LCS”), to provide environmental consulting services to assist Plaintiff in underwriting mortgage loans.  Both Master Services Agreement contained insurance clauses, which required MECC and LCS to insure and protect Plaintiff against the risk of loss caused by the services that Plaintiff hired MECC and LCS to perform. In fact, the Master Services Agreement with MECC required MECC to maintain Comprehensive General Liability Insurance with a per occurrence amount of not less than $1,000,000 with an aggregate of $2,000,000 and $50,000 fire damage and Professional Errors and Omissions coverage on a claims made basis for an amount of not less than $1,000,000 per claim and an aggregate of $1,000,000. Further, MECC was required to list Plaintiff as an additional insured except for the errors and omissions and workers compensation policies. The Master Services Agreement with LCS required LCS to procure the same insurance that MECC was required to procure under its Agreement with Plaintiff.

Prior to either Master Services Agreement, defendant Great Divide Insurance Company (“Great Divide”) issued a Commercial Lines Policy to MECC, which included defense and indemnification coverage for property damage liability, contractors pollution liability, and professional liability (the “Great Divide Policy”). The Great Divide Policy had effective dates of April 17, 2013 to April 17, 2014 (the “Great Divide Policy”). The Great Divide Policy was renewed through April 17, 2016, and included an additional insured endorsement providing coverage for general liability and contractors’ pollution liability. However, beginning April 17, 2016, MECC held an insurance policy with defendant Beazley USA Services, Inc., a/k/a Syndicate 2623/623 at Lloyd’s (“Beazley”), which included defense and indemnification coverage for property damage liability, contractors pollution liability and professional liability (the “Beazley Policy”). Similar to the Great Divide Policy, the Beazley Policy included an additional insured endorsement.

Similarly, Defendant Crum & Forster Specialty Insurance Company (“Crum”) issued an Environmental Package Policy to LCS prior to its Agreement with Plaintiff. The Environmental Package Policy included defense and indemnification coverage for property damage liability, contractors pollution liability, and professional liability and included an additional insured endorsement that covered general liability and contractors pollution liability (the “Crum Policy”). The Crum Policy had effective dates of July 6, 2013 to July 6, 2014. From July 6, 2017 to July 6, 2018, LCS held a Commercial Lines Policy from Great Divide, which included defense and indemnification coverage for property damage liability, contractors pollution liability and professional liability and included an additional insured endorsement (the “LCS Policy”).

After the issuance of the policies and the parties entering the Master Services Agreement, Plaintiff issued MECC a work order requesting a Phase 1 Environmental Site Assessment (the “ESA”) to assess the environmental risk at the property located at 105 Kisco Avenue, Mount Kisco, New York 10549 (the “Premises.”). As required under the Master Services Agreement and work order, MECC had an obligation to perform services in a manner consistent with that level of care and skill ordinarily exercised by other professional consultants under similar circumstances at the time the services are performed. On November 18, 2013, MECC conducted the ESA and prepared the Phase I Report (the “Report”).

Thereafter,  LCS reviewed the Report completed by MECC and found that MECC’s met the applicable professional standards set forth by the American Section of the International Association for Testing Materials (“ASTM”). Based upon the Report, Plaintiff loaned over $3 million to the Borrower on March 20, 2014, with the Premises mortgaged as security for repayment. However, unknown to Plaintiff, the Premises had a history of nuclear and radiological contamination that was not included in MECC’s ESA or caught by LCS’s review.

Thereafter, the Borrower commenced an action on July 9, 2015 asserting multiple claims against multiple defendants including MECC. Subsequently, Plaintiff entered into a forbearance agreement with the Borrower on May 9, 2017.

In addition, Great Divide, Beazley, and Crum (collectively the “Insurance Defendants”) denied coverage to MECC and LCS under their respected policies.

The current decision stems from Plaintiff’s Amended Complaint in this action filed on November 16, 2017. Defendants Great Divide, MECC, LCS and Beazley each filed a motion to dismiss. In addition, on September 14, 2018, Crum moved for judgment on the pleadings.

The Court began its analysis by noting that “[w]here jurisdiction rests upon diversity of citizenship, a federal court sitting in New York must apply the New York  . . . statutes of limitations.” In addition, the Court noted that under New York law any action to recover damages for malpractice, other than medical, dental or podiatric malpractice, regardless of whether the underlying theory is based in contract or tort must be commenced within three years. As such, the Court acknowledged that the where a breach of contract action is in fact a malpractice action grounded on a breach of contract to obtain a particular bargained-for result, New York law imposes a three-year statute of limitations.

Applying the well-established New York law, the Court concluded that Plaintiff’s claims for breach of contract claims against MECC and LCS to the extent Plaintiff seek relief because MECC and LCS failed to perform according to professional standards, were subject to New York’s three year statute of limitations. The Court reasoned that Plaintiff’s own factual assertions regarding MECC’s and LCS’s employees extensive work experience, the regulations and standards applicable to them, and the trust and confidence Plaintiff reposed in them by relying on their expertise, supported a finding that MECC and LCS were professionals. Further, the Court reasoned that Plaintiff could not seek to hold MECC and LCS liable for failure to meet a professional standard of care while also attempting to avoid the truncated three-year statute of limitations for processional malpractice. In fact, as the Court found, Plaintiff’s actions were exactly what the New York legislature intended to prevent when it amended the relevant statute. Accordingly, the Court concluded that New York’s three-year statute limitations applied rather than New York’s six-year statute of limitations for breach of contract claims.

Next, the Court analyzed whether New York’s three-year statute of limitations for negligent misrepresentation applied or whether New York’s six-year statute of limitations applied. First, the Court noted under New York law, “negligent misrepresentation are subject to a three-year limitations period, unless the claim is grounded upon essential allegations of actual or constructive fraud, in which case the claim is governed by a six-year limitations period.” Plaintiff argued that while it did not plead actual fraud, it pleaded constructive fraud based on the existence of a fiduciary or confidential relationship between the parties. The Court rejected Plaintiff’s argument.

Here, the Court found that Plaintiff failed to cite any authority in support of its contention that a “special relationship” is sufficient to plead constructive fraud in this context under New York law. Further, the Court found that even if a “special relationship” is sufficient to plead constructive fraud in this context, Plaintiff failed to cite support that “Certified Environmental Specialists” are in special relationship with their clients as to impose additional duties onto them. Moreover, the Court found the only misrepresentations alleged by Plaintiff were the failure to uncover the conditions, which Plaintiff alleges MECC and LCS would have found had they performed up to professional standards. Accordingly, the Court concluded that the negligent misrepresentation claim stands in the “shadow of negligence” and therefore the three-year statute of limitations applies to Plaintiff’s negligent misrepresentation claims.

After determining the appropriate New York statute of limitations to apply to Plaintiff’s claims against MECC and LCS, the Court had to determine when Plaintiff’s claims against MECC and LCS accrued. Plaintiff argued that the statute of limitations on its claims did not start until it sustained an actual injury when the Premises was rendered worthless, which Plaintiff alleges occurred no earlier than 2015. The Court rejected Plaintiff’s argument. In rebuttal, the Court relied on the Third Department’s decision in Kerbein v. Hutchison. In Kerbein, the Third Department held that the claim did not accrue when the malpractice was committed but instead accrued once the settlement agreement was entered into because that was when the plaintiff detrimentally relied on the faulty advice.” Applying the Third Department’s decision and reasoning in Kerbein, the Court concluded that Plaintiff’s breach of contract, professional malpractice, and negligent misrepresentation claims accrued by March 20, 2014, the day of the closing. Since the current action was not commenced until July 13, 2017, the Court concluded that Plaintiff’s breach of contract, professional malpractice, and negligent misrepresentation claims against MECC and LCS were time-barred. Accordingly, the Court dismissed those causes of actions against MECC and LCS. 

Next, the Court considered Plaintiff’s contention that MECC and LCS breached their contractual duties to maintain “Comprehensive General Liability” insurance.  Once again, the Court rejected Plaintiff’s argument. Here, the Court noted that under New York law, damages in a “breach of claim for failure to procure insurance are limited to that which would have been borne by the insurer had the policy been in force.”   “In light of [the] dismissal of the claims against MECC and LCS directly”, the Court found Plaintiff failed to plausibly allege any damages suffered as a result of MECC and LCS alleged failure to procure insurance. Accordingly, the Court dismissed Plaintiff’s breach of contract claims against MECC and LCS for failure to procure insurance.

Lastly, the court considered Plaintiff’s declaratory claims against the Insurance Defendants. The Court concluded that the claims against the Insurance Defendants will be dismissed unless Plaintiff shows cause why those claims should survive. Here, the Court reasoned that given Plaintiff’s claims against MECC and LCS were dismissed, there remains no cause of action against the Insurance Defendants. In support, the Court highlighted that Plaintiff’s cause of action against the Insurance Defendants each sought relief from the Insurance Defendants if “MECC is found liable” or “if LCS is found liable.”

In sum, the Court granted MECC’s and LCS’s motions to dismiss and held in abeyance Defendants Great Divide’s, Beazley’s, and Crum’s motions pending a show of cause of by the Plaintiff. 



Eric T. Boron


12/12/18       Century Surety v. Andrew

Nevada Supreme Court

Nevada Supreme Court Leaves Coal in Insurers' Holiday Stockings

With thanks to our good friend Andrew Downs from the Bullvant  Houser Bailey firm who has graciously permitted us to include this summary in this week’s issue.  Andy can be contacted at [email protected] for more information.
Late last week, the Nevada Supreme Court issued a far reaching opinion on liability insurers' duty to defend. The court held an insurer who breaches the duty to defend can be held liable for the entirety of an excess judgment in excess of policy limits, even if the insurer acted in good faith when it denied the defense. It also concluded, following the new Restatement of Liability Insurance, that insurers may not rely upon extrinsic evidence to deny a defense, although if they agree to defend they may then rely on extrinsic evidence in coverage litigation to show there was no duty to defend.

Century Surety Co. v. Dana Andrew, 134 Nev.Adv.Op 100 (December 12, 2018) resulted from a default judgment for $18,050,000 in a motor vehicle accident case.

The policy was a commercial motor vehicle policy. The coverage issue was whether the at-fault driver was acting in the course and scope of his employment at the time of the accident. The insurer determined the driver was not driving in the course and scope of employment so it denied coverage and refused to defend.

The policyholder failed to defend itself and a default judgment was entered.

Following a post-judgment assignment by the policyholder, the claimant filed suit against the insurer. The federal district court found the insurer had not breached the implied covenant of good faith and fair dealing, but it did owe a duty to defend. It then certified to the Nevada Supreme Court the question of whether the insurer's liability for failing to defend was capped at the policy limits. The Nevada Supreme Court concluded the insurer's liability was not capped so that it could be liable for the full amount of the stipulated judgment as consequential damages stemming from the breach of the duty to defend.

In concluding the insurer's liability was not capped, the Nevada Supreme Court adopted the expectancy theory of contractual damages embodied in section 347 of the Restatement (2d) of Contracts, under which recoverable damages for breach of contract extend not only to the value of the contractual performance not received, but also "any other loss, including incidental or consequential loss, caused by the breach." In reaching this conclusion, the court recognized it was adopting the minority view (most states cap liability in the absence of bad faith at policy limits), the court also referred to the final pre-adoption draft of the Restatement of Liability Insurance.

The Nevada court did not create a complete strict liability regime, however. It held the policyholder (or claimant in the policyholder's shoes) must prove the breach caused the entry of the excess judgment and also that the policyholder continued to have a duty to protect itself and mitigate its damages.

The Nevada Supreme Court's second disturbing conclusion comes in footnote 4 where it discussed the standard for determining whether a duty to defend exists. In doing so, it addressed an issue not placed before it by the certification order, stating "We take this opportunity to clarify that where there is potential for coverage based on ‘comparing the allegations of the complaint with the terms of the policy' an insurer does have a duty to defend." Again relying on the new Restatement of Liability Insurance, the court concluded insurers may not use facts outside those in the complaint as a basis for refusing to defend, but if the insurer defends it may rely on those same facts in a subsequent declaratory judgment or coverage action to argue there is no coverage and no duty to defend.

Century Surety is significant to Nevada practice. Traditionally, Nevada has largely followed California law (which follows the majority rule and allows the use of extrinsic evidence to avoid a duty to defend). By adopting a strict "four corners" standard for determining whether a defense is owed, the court has tilted the balance in favor of policyholders to a significant degree. By allowing recovery of the entire judgment without proving the insurer acted in bad faith, it has radically raised the stakes for an insurer who opts to deny a defense.


Earl K. Cantwell


06/20/18       Pain Center of SE Indiana v. Origin Healthcare Solutions, LLC

United States Court of Appeals, Seventh Circuit

Computer Contracts: Sale of Goods or Services?

A medical practice and computer software company contracted for various licenses and support services, and the legal question was whether these contracts were “predominantly” contracts for the provision of medical billing and information services or a sale of goods. The answer to this question had legal ramifications, such as what causes of action could be asserted, and what statute of limitations would apply.

The Court accepted that the software itself could be considered a “good” under the UCC. The computer programs at issue were largely pre-existing, standard programs, and there was little or no evidence that any unique or custom programming services were involved. The contracts were “mixed contracts” providing for both goods and services, and the test is whether the service aspect or the goods transfer was “predominant”. In reviewing this test, the Court looked to the language of the contract, the primary reasons for the parties entering into the contract, and the relative cost of the goods and services within the contract. Here, these considerations favored a finding that the contracts were predominantly for services rather than for goods.

The Court concluded that the software was the principal ingredient that allowed the software company to perform services, and the medical practice paid monthly for those support services. IT support and services were involved such as telephone support, online support, and electronic claim and payment submission. The software itself was licensed only when purchased in conjunction with the package of billing and support services. Thus, the “predominant” thrust of the contract was medical billing and IT services and not sale of goods, i.e. the software. Therefore, for example the four-year UCC statute of limitations did not apply, nor could the medical practice assert claims for implied warranties of merchantability and fitness for a particular purpose under UCC Article 2.

In this case, the Court accepted that the software itself could be considered a “good”, but the programs involved were standard “off the shelf” programs with little or no unique features or custom design. Court cases have split on whether and to what extent software is legally a “good” or “product”. Legally, it makes significant difference if a claim is for breach of contract for the sale of goods or for negligent provision of services a/k/a tort and negligence.

Whether the contract was for goods or services had a bearing on which statute of limitations applied, and whether claims under the UCC for breach of implied warranties associated with a sale of goods could be asserted. Therefore, in this case, UCC claims for breach of implied warranties, and other UCC claims, were rejected since the Court concluded this was “predominantly” a services contract not a sale of goods. The result in this case was that a general 10 year contract statute of limitations applied, not the UCC 4 year limitations period. Whether this contract was for goods or services might have implications on other legal issues such as insurance coverage, applicability of sales taxes, application of tort reform rules, etc.


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