Volume XX, No. 15 (No. 525)
Friday, January 11, 2019
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.
Greetings from Scottsdale, AZ, where I’m in the midst of a little hiatus from the cooler weather back home. We hope you had a great New Year and that the year is in full swing, with early successes and good health.
Please Welcome Marina Barci -- Introducing, the Newest Member of our No Fault team:
Marina is a newly admitted attorney in NYS who was sworn into the bar on 01/09/2019. After working at Hurwitz & Fine as a law clerk during law school, Marina joined as an associate in the fall and works in the No-Fault Coverage group, as well as Premises Liability, Toxic Tort, and General Ligation groups. She also writes for the Premises Pointers newsletter. While attending the University at Buffalo School of Law, Marina completed two judicial clerkships, volunteered for the WDNY’s Pro Se Assistance program, and was an intern for the WNYLC’s CLARO program, where she was able to counsel clients and argue motions in Buffalo City Court under a student practice order. She also competed in various trial advocacy and moot court competitions, as well as coached a high school mock trial team.
You can still find her coaching mock trial at the Charter High School for Applied Technologies; now as their attorney advisor (first competition is February 2nd!). When she is not at work or mock trial practice, she enjoys exploring Buffalo’s growing food scene, hiking, traveling, or reading a good book (suggestions welcome).
The New Year Begins:
The courts are slowly getting up to speed, so the number of cases in this week’s edition is a little lower than usual. However, you can be certain that we are reporting on all New York appellate coverage decisions that have been released over the last two weeks as well as selected cases from other jurisdictions.
In Brian’s column, you will find our first bad faith case of the year. Not surprisingly, it is yet another decision where an appellate court has tossed out an extra-contractual liability case.
In my offering, you will find a couple of interesting cases. In one, the Combs decision out of the First Department, an insurer was found to have wrongfully refused to defend and indemnify, the insured settled, the court found the settlement reasonable and the court found that the insurer was responsible for indemnifying the insured for the amount of the settlement. Citing to Servidone, the court held that
Having breached its contractual duty to defend [the insured] in the personal injury action, and having conceded that the settlement with the injured parties was reasonable, the [insurer] failed to meet its burden of establishing that it is not obligated to indemnify Combs for the amounts paid in settlement (see Servidone, 64 NY2d at 424-425). Contrary to the [insurer’s] contention, the evidence it presented is inconclusive as to whether the insured employed the person convicted of shooting the three people … and therefore fails to demonstrate that [the insured] could not be subject to liability on the injured plaintiffs' claims for negligent hiring, retention and supervision, even if the respondeat superior claims are found to be excluded from coverage.
Interesting decision. Is this a new standard: could not be subject to liability? The court did not look to the factual basis for the settlement.
We would note that the Court in Servidone, was not quite as generous to the insured as the court in this case. In Servidone, this is what the Court of Appeals said on the subject:
While further proceedings are required to determine the basis for Servidone's liability to Cuttino -- not from the pleadings but from the actual facts -- the burden of proof will rest with the insurer to demonstrate that the loss compromised by the insured was not within policy coverage. If the insurer does not establish that this loss falls entirely within the policy exclusion as claimed, it will have failed to sustain its …). The insured urges that it is both impossible to determine how a New Jersey court would have decided the underlying action, and unfair to require a “mock trial” when the insurer's breach has created the predicament. What the insured refers to as a “mock trial,” or a trial within a trial, is hardly new in the law. In malpractice actions, for example, a client cannot recover against an errant attorney without demonstrating that it would otherwise have succeeded on the merits (see, e.g., Kerson Co. v Shayne, Dachs, Weiss, Kolbrenner, Levy, 45 NY2d 730).* While Security to be sure breached its obligation to defend, the present uncertainties are the product not of that breach but of Servidone's voluntary, independent decision to settle, for its own perceived interests, before any determination could be made as to the basis for liability.
Servidone Const. Corp. v Sec. Ins. Co. of Hartford, 64 NY2d 419, 425 [1985]
Talk amongst yourselves.
One Hundred Years Ago – Some Things Haven’t Changed:
The New York Times
New York, New York
11 Jan 1919
JEWS OF RUSSIA
EAGER FOR ZIONISM
Councilor Rosoff Says That
Their Misery Is Greater Now
Than Under the Czar
PREPARING FOR PALESTINE
Organizations Are Already Financed for
Developing a National Existence There.
By WALTER DURANTY.
Copyright 1919 by The New York Times Company.
Special Cable to The New York Times
PARIS, Jan. 9.—In the settlement of the Near Eastern question, which is one of the most complex before the Peace Conference, it is difficult to exaggerate the importance of reconstituted Palestine, both as a “ferment of civilization” among the semi-barbarous Arab tribes and as a medium for the cultivation and development needed to restore the whole region from the sea to Mesopotamia to its ancient prosperity.
In a previous dispatch the Zionist representative, Dr. Sokoloff, outlined for The New York Times the general program of the new Jewish Commonwealth and emphasized the eagerness of the Jewish population in Russia and Central Europe to find a peaceful home in their ancient Fatherland.
Jen’s Gems:
Greetings!
Hope everyone enjoyed the holidays and Happy New Year. The new year, of course, means a lot more trips to the gym and a lot of great conferences. This year I have the privilege of serving as Vice-Chair for DRI’s 2019 Insurance Coverage and Claims Institute in Chicago on April 3-5, 2019. We have another stellar line up of outside counsel and claims professionals who are lined up to speak at the program. If you are interested in registering, follow this link.
I also wanted to highlight my column this week. We have a coverage case ripped straight from the headlines (of People magazine and ET, probably). Many of you may have read about certain tapes which were leaked to Gawker.com and the National Enquirer showing WWE wrestler, Hulk Hogan, making certain inappropriate statements and participating in sexual conduct with a friend’s wife. You may have also read about a lawsuit Hogan filed against those involved in leaking the tapes. The decision I report on this week addresses whether some of those defendants will have insurance coverage for the lawsuit. The decision contains a good summary of New York’s view on the duty to defend where the conduct was likely intentional. Enjoy.
Until next issue…
Jen
Jennifer A. Ehman
TR’s Passing – January 6, 1919, as Reported Later:
The Times and Democrat
Orangeburg, South Carolina
11 Jan 1919
ROOSEVELT WILL
Leaves All to His Widow—Estate Worth $500,000
Col. Theodore Roosevelt’s will, made in 1912, was read to members of the family at Sagamore Hill today and probably will be filed with the Surrogate of Nassau County.
Although the value of the former President’s estate was not made known, it was understood to amount to not much more than $500,000. According to Attorney George C. Cobbe, of New York, who read the will, the document provides that the entire estate, with the exception of the family silver and plate, shall be held in trust for the widow during her life and gives her power to dispose of it by will as she sees fit. In the event she leaves no will the estate is to be divided in equal parts among the children.
Editor’s Note: Those who know me best, understand my affection for presidential history. IMHO there are few more significant presidents that Theodore Roosevelt. I could spend hours on that subject,
John’s Jersey Journal:
Dear Subscribers:
Our new puppy, Donald, is getting settled in. It has become clear that he is very smart, having learned a number of tricks over the past few weeks. But is he smart enough to understand insurance coverage? I read today’s case to him today and he fell asleep almost immediately. As I write this note Donald is curled up, sleeping at my feet.
Unlike Donald, I find today’s case from the US District Court, District of New Jersey interesting. Have you ever heard of a 100 year storm? A 200 year storm? Or a 500 hundred year storm? Before today, I had not.
A 100 year storm is not necessarily something that happens once every hundred years. The term speaks to the intensity of the storm. Apparently, the term is more statistical than meteorological. A 100 year storm is an event that has a 1 in 100 chance of occurring in any given year. Likewise, a 200 year storm has a 1 in 200 chance of occurring in any given year. 500 year storm, well, you can do the math.
La Jolie is a beauty salon in Princeton, New Jersey. In 2016, a severe thunderstorm dropped five to seven inches of rain on the salon in two hours. The storm was so severe it caused flash flooding. The Court itself called the storm a two hundred to five hundred year storm. Water pooled and seeped into the lower floor, which is below street level, flooding the entire floor. La Jolie submitted a claim to its insurance company seeking coverage for the damage.
La Jolie’s policy excludes coverage for loss or damage caused by or resulting from flood, including accumulation of surface water as well as water that backs up from a sewer or drain. The policy had a limited giveback from damage solely caused by back up from a sewer or drain. That provision further stated “THIS IS NOT FLOOD INSURANCE”. It also stated that the insurer “will not pay for water or other materials that back up from any sewer or drain when it is caused by any flood.”
The focus of this lawsuit was whether the pooled water constitutes surface water, and in turn, how water accumulated at the bottom of the stairwell. The insurer argued that the pooled water was an accumulation of “flood water”, arguing that surface water on the street poured into the stairwell and then seeped into the building.
The insured took the position that no flood water entered the building. Rather, the insured argued that water originated from the roof of the building. The roof water subsequently entered the building’s drain system, the volume of which caused “over pressurization” and, in turn, water flowed back out of the sink drains, toilets, and building’s drains, including the drain which is located at the bottom of the stairwell.
How did the water accumulate at the bottom of the stairwell? Based on the arguments made, it looked like there was almost certainly an issue of fact. The Court solved the riddle and granted summary judgment to the insurer.
Why you ask? Read on in the attached issue.
John
John R. Ewell
Editor’s Note: Owning property on the lake shore, 100 year storm lines are always a subject of discussion when zoning and insurance issues are being discussed.
More on Teddy Roosevelt:
Trench and Camp
Fort Riley, Kansas
11 Jan 1919
OUR GREAT AMERICAN
IS NO MORE
Blood Clot in Artery Is the Cause of Death
Col. Roosevelt Had Been in a
New York Hospital.
WAS ROUGH RIDER LEADER
Served a Governor of
New York—Vice President.
Assumed Presidency on Death
of William McKinley
Oyster Bay, N.Y., Jan. 6.—Colonel Theodore Roosevelt died in his sleep at 4:15 o’clock this morning.
The end came when there was no one in the room.
The following statement was made to the Untied Press by Dr. G. W. Faller, of Oyster Bay, the physician who last saw the colonel:
“Colonel Roosevelt retired at 12 o’clock last night feeling much better. At 4:15 o’clock this morning he simply ceased to breathe. Death was caused probably by a pulmonary embolism.”
This pulmonary embolism Dr. Faller explained, is a blood clot upon one of the arteries of the lungs.
Peiper on Property and Potpourri
Out there teaching this week. Will be back next issues with a more robust offering.
Steve
Steven E. Peiper
Situations Wanted:
Star-Gazette
Elmira, New York
11 Jan 1919
DEAD ANIMALS REMOVED
STADELMAIER’S Rendering Works—Telephone us (2508-W) before disposing of any dead horse or cow. We remove them promptly and pay highest prices.
Editor’s Note: This might have been posted by Dwight Schrute (fade to The Office theme song ….)
Hewitt’s Highlights:
Dear Subscribers:
A Happy New Year to all readers. Hopefully the New Year is a good one for you all.
On the serious injury front, we only have a couple of cases. One involved a defendant’s expert that actually agreed with plaintiff on causation. The expert also failed to set forth range of motion limitations. In the second case, the court examined in detail several categories of injury, especially as to an alleged concussion and PTSD allegation.
Until next issue,
Rob
Robert Hewitt
For Sale – a Century Ago – Wonder if this is Still Available:
The Buffalo Times
Buffalo, New York
11 Jan 1919
EGYPTIAN LOVE AND HYPNOTIC perfume, said to give power to attract love or make others obey; bottle and instruction 25¢, three 60¢, five $1.00. B. T. Chemical Co., Box 69, Beaumont, Tex.
Wilewicz’ Wide-World of Coverage:
Back next issue.
Agnes
Agnes A. Wilewicz
Rules (Apparently) Necessary:
The Brooklyn Daily Eagle
Brooklyn, New York
11 Jan 1919
Strict Rules for Girls
Who Dance With Soldiers
(Special to The Eagle.)
Freeport, L. I., January 11.—The Freeport local committee in charge of the Soldiers and Sailors clubhouse, on Church St., has established a set of rules which they claim will be strictly enforced at the Saturday night dances. The rules are posted in a conspicuous place on the wall. They read:
-
Girls will only be admitted by invitation.
-
No girls under 18 admitted to the dances.
-
Cards can be secured by leaving name and address with duty men at the club house.
-
No cards will be given out at dances.
-
Cards are good for all Saturday dances.
-
Girls will dance one dance with each partner.
-
Exchange no names or addresses with the soldier boys at the dances.
-
Girls will not enter or leave clubhouse with men in uniform.
-
Girls invited to dance will remain in the dance room during the dance.
-
The committee reserves the right to call in cards at any time.
Barnas on Bad Faith:
Hello again:
Yesterday we welcomed two new attorneys to the bar and our law firm when Marina A. Barci, Esq. and Patrice A. Rauh, Esq., were admitted to practice. Warm congratulations to both of you. I’m looking forward to adjourning this evening to an actual bar to share a drink and welcome them to the profession -- not before 5:00 PM, of course …
I have two cases in my column this week. Weathers is an interesting one from the Second Department in New York. The case demonstrates the rule in New York that there must be a judgment in the underlying action above the policy limits in order for a plaintiff or an insured to have a viable bad faith refusal to settle claim. What’s interesting in this case is that there was a judgment, which was appealed. On appeal, the Appellate Division ordered a new trial on damages, but stated in the decision that if the plaintiff consented to reduce the verdict as directed and entered an appropriate amended judgment, it would affirm. The plaintiff did consent to reduce the verdict, but only on pain and suffering, and he sought a new trial on medical expenses. The Appellate Division concluded this was improper, and that the plaintiff was, in effect, seeking a new trial on all damages. He was not allowed to pick and choose. Thus, there was no longer an excess judgment in the underlying action, and the bad faith action filed by Weathers as assignee of the insured was premature.
I also have the Greater First Deliverance Temple case from Oklahoma which, as readers of this column know, is a bit of a problem jurisdiction for bad faith. One line from the decision, which denied the insurer’s motion to dismiss a bad faith claim, stands out. The court states that a legitimate dispute as to coverage will not act as a shield against a valid claim of bad faith. This differs significantly from the rule in New York, which is that a plaintiff cannot demonstrate that an insurer acted in bad faith where the insurer has an arguable basis for denying coverage.
Signing off,
Brian
Brian D. Barnas
WW I Ends and Women No Longer Employable:
Democrat and Chronicle
Rochester, New York
11 Jan 1919
1,000,000 Women War Workers
to Be Let Go in England
London, Dec. 5.—(Correspondence of the Associated Press).—To “demobilize” about 1,000,000 women war workers is the colossal task assigned to a special department of the Ministry of Labor. Women predominate in this new organization.
One of the most difficult of their problems will be how to satisfy a munitions worker who has been earning from $18 to $20 a week now that she is called upon to return to her former task as a family servant at from $3 to $3.25 a week. Government officials realize that this is one of the hard problems connected with the reconstruction period especially as these girls and women must sacrifice some of the freedom they have enjoyed as munitions workers and now submit to more exacting hours of work. They are appealing to the workers to adjust themselves to the new order of things as best they can, and to be willing to make sacrifices during the reconstruction as they did during the war.
Off the Mark:
Dear Readers,
Now that the holidays and New Years have passed, things have seemed to have settled down at my house. We no longer have any guests and the kids are back into their routine. They do miss the dog though.
This edition of “Off the Mark” discusses a recent construction defect case from the US District Court for the Southern District of Texas, Houston Division. In Balfour Beatty Constr., LLC v. Liberty Mut. Ins. Co., the Court examined the applicability of a Defects, Errors, and Omissions exclusion and whether the exception to the exclusion reinstated coverage. At issue here was welding slag from the insured’s operations, which had fallen down the side of the building and damaged the glass on windows below.
The Court, relying on well-settled Texas law, found that the plain and unambiguous language of the Defects, Errors, and Omissions clause excluded the plaintiffs’ claim. The Court held that the exception to the exclusion, similar to an ensuing loss provision, required at least two loss events. As there was only one instance of loss or damage in this case, the damage to the windows, the Court held that the exception did not reinstate coverage. Notably, the Court also held that the policy was not illusory as the policy still covered certain risks.
This case is a good example of a court relying solely on the plain and unambiguous language of a policy to determine the extent of coverage. "Where the language of a contract is clear, a court's inquiry should begin and end with the policy's language."
I hope all of our readers have a healthy, happy, and successful year.
Until next time …
Brian
Brian F. Mark
[email protected]
The Trains Will Run on Time:
New-York Tribune
New York, New York
11 Jan 1919
City Office to Run Care
Lines If I.R.T. Quits
Board of Estimate Refuses
Request of Railways to
Raise Fares to 8 Cents
Mayor Hylan and the other members of the Board of Estimate announced yesterday that the city administration was ready to take over the Interborough lines, both subway and elevated, if the corporation should abandon its contract,
The statement was made after the board had formally refused the Interborough’ s request to charge an eight-cent fare and had announced that a similar fate awaited the petition of the New York Railways Company for an eight-cent fare and three-cent transfer privilege.
The unanimous action of the board was based on the report of the Committee of the Whole, which said:
“There is no reason to expect that the public would receive any benefit, whatever from the payment of an eight-cent fare to the present operator or to any private operator. If the Interborough abandons its contract obligations the Board of Estimate and Apportionment is ready to undertake municipal operation and management."
Wandering Waters
Welcome to another issue of Wandering Waters. I hope all of you have had a wonderful week.
With the New Year, the NBA’s MVP discussion is building momentum. Last night, the Houston Rockets and Milwaukee Bucks played a highly anticipated matchup. The Rockets have James Harden, last year’s MVP and one of the current frontrunners for MVP this season. In addition, James Harden has been unstoppable in recent weeks. In his last eight games, James Harden has scored the second most points in such a span in NBA history. Not to be out done, the Bucks have Giannis Antetokounmpo, who has led the Bucks to the best record in the Eastern Conference and is also a MVP candidate frontrunner.
I am very happy the game lived up to its anticipation. In a thrilling back and forth contest, the game was not decided until the final moments. Giannis and Harden each played phenomenal games. However, in the end, the Bucks played a better game overall and further cemented their place on top of the Eastern Conference.
With that being said, we have one case this week from the United States District Court, Northern District of New York.
Until next time….
Larry
Larry E. Waters
The Price of Courtship:
The Buffalo Enquirer
Buffalo, New York
11 Jan 1919
SAYS HE GOT HER MONEY
BY PROMISING MARRIAGE
Detective-sergeants Kenefick and Ryan last night arrested Jacob Yaiser, 35 years old, a contractor living at No. 273 Southampton Street, for grand larceny first degree, on complaint of Miss Lois Simons of No. 405 Delaware Avenue. She alleges Yaiser, under promise of marriage, secured $785 from her on various different occasions. The police say Yaiser is married and has children, and that he has a police record.
Editor’s Note: Jacob died in 1944 and is buried in Elmlawn Cemetery in Tonawanda New York next to his wife Emma. They had one child, best we can tell.
Boron’s Benchmarks:
Happy New Year, dear readers. This note comes to you from seat 5B of Jet Blue’s 5:34 a.m. flight from Buffalo to JFK airport in New York City. This morning I am on my way, notwithstanding a touch of classic Buffalo lake effect snow overnight, to depose a Fire Marshal of the FDNY about his investigation of the cause and origin of a huge alarm fire in Queens, New York, which spread to surrounding properties and ultimately took out an entire city block of buildings. Should be interesting. This is my third deposition in five days in this case, due to adjournments of noticed depositions which my opponent sought and I granted last month. I won’t be providing a case write-up about a decision of a high court of a state other than New York, which is what I cover for Boron’s Benchmarks for Coverage Pointers, but rest assured, in two weeks I’ll do my best to make it up to you in our January 24th edition. In the meantime, have a great next two weeks.
Eric
Eric T. Boron
Huge Auto Damage Claims, 100 Years Ago:
Courier-Post
Camden, New Jersey
11 Jan 1919
THREE IN FAMILY ASK
FOR DAMAGES
Father, Mother and Son Sue
Merchantville Man as Result of
Crash of Autos
PLAINTIFF’S CARE BADLY WRECKED
Damages to the amount of $8,000 are asked in a joint suit entered this morning in the Supreme Court by Jacob, Anna and Anton Gomala, father, mother and son, who reside in Trenton, against Alva Butterfoss, of Merchantville.
On July 4th last the Gomala family was out for an airing in their Ford. They were proceeding at a fair rate of speed on the Pennington road near Ewing, Mercer county, when Butter floss came by in the opposite direction driving a bigger car.
There was a confusion in signals with the result that the cars crashed. The Gomala car was wrecked and the occupants thrown out.
Anna Gomala, wife of Jacobs and mother of Anton, claims to be permanently hurt and she seeks $5,000 damages. Jacob, the husband, wants $2,000 for loss of her services and Anton sues for $1,000 for damage to his automobile and for personal hurts.
Jerry’s No-Fault Navigation
Dear Subscribers,
When does zealous advocacy for a client cross the line and become frivolous conduct? For one Court, the pattern of plaintiff’s attorney raising the same meritless arguments over time began to take the shape of frivolous conduct. At that point, the arguments that contain no merit in law expose an attorney to possible sanctions.
Plus, while not often seen, coverage is still an issue to consider in no-fault cases. With the proper proof, an insurance carrier can prevail on summary judgment showing that the wrong party had been sued by the plaintiff provider. For further details, please read the referenced no-fault decision.
Jerry
Jerry Marti
Headlines from this weeks’ issue, which is attached:
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
- Where Insurer Breached its Duty to Defend, Reasonable Settlement by Insured Must be Indemnified
- Quick Primer on Applications to Stay Uninsured Motorists Arbitrations
- Whether a “Construction Manager” Exclusion Applies Depends on Facts, Not Title
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
- Defendants’ Experts Supported Plaintiffs’ Contentions as to Causation
- Expert’s Designation of a range of Motion Limitation Can Be Objective Evidence of Serious Injury
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
- Evidence of Post-Injury School Work, and Job Searches, Overrides Claims of Grave Injury
- Trade Contracts are Strictly Construed with Respect to Contractual Indemnification and Insurance Procurement; Failure to Plead Grave Injury Results in Dismissal of Common Law claims
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
- Under the weather this week.
JEN’S GEMS
Jennifer A. Ehman
- Trial Court Finds a Duty to Defend Complaint Alleging Invasion of Privacy and Intentional Infliction of Emotional Distress
JERRY’S NO-FAULT NAVIGATION
Jerry Marti
- Insurance Carrier Proves Lack of Coverage Defense in No-Fault Lawsuit
BARNAS ON BAD FAITH
Brian D. Barnas
- Underlying Judgment is a Necessary Predicate to a Cause of Action for Bad Faith Refusal to Settle
- Allegations that Defendant Underpaid the Insurance Claim, failed to Pay an Invoice for Work Completed, and repeatedly made “Low Ball” Offers Stated a Claim for Bad Faith
JOHN’S JERSEY JOURNAL
John R. Ewell
- New Jersey Federal Court Rules Damage to Salon from 200- to 500- Year Storm Not Covered
OFF THE MARK
Brian F. Mark
- US District Court Finds Policy Exclusion for Defects, Errors, and Omissions to be Applicable to Bar Coverage for Damage to Windows Caused by Falling Welding Slag
WANDERING WATERS
Larry E. Waters
[email protected]
- Plaintiff’s Objections to the Report-Recommendation Overruled because Plaintiff may not Maintain a Claim Against an Insurer for Failing to Pay Funds from an Insurance Policy Issued to a Third Party Unless There is a Demonstration of a Judgment Against that Third-Party Insured
BORON’S BENCHMARKS
Eric T. Boron
- On the road again.
EARL’S PEARLS
Earl K. Cantwell
[email protected]
- Denial of Coverage in Fire Loss Reversed
All for now. See you in a couple of weeks.
Hurwitz & Fine, P.C. is a full-service law firm
providing legal services throughout the State of New York
NEWSLETTER EDITOR
Dan D. Kohane
[email protected]
ASSOCIATE EDITOR
Agnes A. Wilewicz
ASSISTANT EDITOR
Jennifer A. Ehman
INSURANCE COVERAGE/EXTRA CONTRACTUAL LIABILITY TEAM
Dan D. Kohane, Chair
[email protected]
Steven E. Peiper, Co-Chair
Michael F. Perley
Jennifer A. Ehman
Agnieszka A. Wilewicz
Lee S. Siegel
Brian D. Barnas
Brian F. Mark
Eric T. Boron
John R. Ewell
Larry E. Waters
Diane F. Bosse
Joel R. Appelbaum
FIRE, FIRST-PARTY AND SUBROGATION TEAM
Steven E. Peiper, Team Leader
[email protected]
Michael F. Perley
Eric T. Boron
Brian D. Barnas
Larry E. Waters
NO-FAULT/UM/SUM TEAM
Jennifer A. Ehman, Team Leader
[email protected]
Jerry Marti
Marina A. Barci
APPELLATE TEAM
Jody E. Briandi, Team Leader
[email protected]
Diane F. Bosse
Topical Index
Hewitt’s Highlights on Serious Injury
Peiper on Property and Potpourri
Wilewicz’s Wide World of Coverage
Jerry’s No-Fault Navigation
John’s Jersey Journal
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
01/10/19 Combs v. Superintendent of Financial Services of the State of New York as Ancillary Receiver for Reliance Insurance Company
Appellate Division, First Department
Where Insurer Breached its Duty to Defend, Reasonable Settlement by Insured Must be Indemnified
The Receiver breached its duty to defend when it disclaimed coverage for Combs in a personal injury action brought against him by three individuals who were injured in a 1999 shooting at a nightclub on the ground that no valid covered claims against Combs remained in the action. Claims for respondeat superior and negligent hiring, retention, and supervision were asserted by two of the plaintiffs in the underlying action and survived summary judgment.
Having breached its contractual duty to defend Combs in the personal injury action, and having conceded that the settlement with the injured parties was reasonable, the Receiver failed to meet its burden of establishing that it is not obligated to indemnify Combs for the amounts paid in settlement. Contrary to the Receiver's contention, the evidence it presented is inconclusive as to whether Combs employed the person convicted of shooting the three people and therefore fails to demonstrate that Combs could not be subject to liability on the injured plaintiffs' claims for negligent hiring, retention, and supervision, even if the respondeat superior claims are found to be excluded from coverage.
01/0/19 Allmerica Financial Benefit Ins. v. Kokotos
Appellate Division, Second Department
Quick Primer on Applications to Stay Uninsured Motorists Arbitrations
This was a proceeding to stay an underinsured motorist (“UM”) arbitration. For those unfamiliar with New York practice, if an individual claims to have been involved in an accident with a hit-and-run vehicle, there is a requirement, among others, that physical contact with that vehicle is established. If the UM carrier believes that no physical contact has occurred, it must bring a petition to permanently stay arbitration within 20 days of the demand under Article 75 of our civil practice code This was such petition.
The lower court scheduled a “framed issue” hearing which is a fact finding hearing to determine whether or not there was physical contact. The lower court denied the application to stay, finding physical contact and this appeal ensued.
The appellate court noted that the insured has the burden of establishing that the loss sustained was caused by an uninsured vehicle, namely, that physical contact occurred, that the identity of the owner and operator of the offending vehicle could not be ascertained, and that the insured's efforts to ascertain such identity were reasonable. The court affirmed the finding that the insured lost control of his vehicle after he was struck from behind by another vehicle, which then fled the scene.
01/08/19 U.S. Specialty Ins. Co. v. SMI Construction Management, Inc
Appellate Division, First Department
Whether a “Construction Manager” Exclusion Applies Depends on Facts, Not Title
Issues of fact exist and discovery is warranted as to whether defendant performed as the construction manager on the project and therefore is subject to the insurance policy's exclusion for "Construction Management for a Fee." "The label of construction manager versus general contractor is not necessarily determinative," and this determination depends on the duties defendant was assigned and performed.
The relevant contract described defendant's duties in relation to the project owner as, inter alia, supplying an adequate supply of workers and materials and performing the work. Defendant's owner characterized defendant as both a construction manager and a general contractor, and described its work on the project as "the total supervision of ... the construction," the provision of some laborers, and supervision of maintenance and carpentry. Moreover, the contract was divided into two phases - preconstruction and construction - and defendant performed services at the inception of the project, such as working with the owner, architect, and engineer, and when the work was ready to proceed, obtained permits, hired and paid the subcontractors, and allegedly acted as a general contractor.
The insurer failed to detail how it was prejudiced by defendant's alleged 51-day delay in providing notice of the underlying accident. Its claim that, had it known that defendant was a construction manager, it would not have issued the policy, and thus coverage would be barred as a matter of law, was raised for the first time on appeal and is an unreviewable factual argument. A determination as to primacy of coverage is premature absent a liability determination, and in any event the insurer may still be obligated to defend under its policy.
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
01/09/19 Hodge v. Eloi
Appellate Division, Second Department
Defendants’ Experts Supported Plaintiffs’ Contentions as to Causation
The plaintiffs commenced this action to recover damages for personal injuries, alleging that they each sustained injuries to the cervical regions of their spine. In support of their motion, defendants submitted the affirmed reports of a neurologist who examined both plaintiffs. The neurologist did not report range-of-motion measurements for either plaintiff’s cervical spine, which made his conclusions not useful. The defendants further submitted the affirmed reports of a radiologist who reviewed MRI films of both plaintiffs' cervical spines that were taken shortly after the accident. The radiologist stated that each plaintiff sustained a cervical disc herniation that was caused by the accident, which supported plaintiff, no defendants. The appellate division held that the movants failed to meet their prima facie burden of showing that neither plaintiff sustained a serious injury within the meaning of Insurance Law § 5102(d) as a result of the accident. The papers submitted by the movants failed to adequately refute the plaintiffs' claims, set forth in the bill of particulars, that they each sustained a serious injury to the cervical region of their spines under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d).
12/27/18 Cohen v. Bayer
Appellate Division, Third Department
Expert’s Designation of a range of Motion Limitation Can Be Objective Evidence of Serious Injury
Plaintiff claimed in her bill of particulars that she injured her spine and elbow and suffers from post concussive syndrome and various psychological and emotional injuries. Further, she alleged that such injuries constituted serious injuries in the permanent consequential limitation of use of a body organ or member, significant limitation of use of a body function or system and the 90/180-day categories. To qualify as a serious injury under the significant limitation of use and permanent consequential limitation of use categories, the "limitation of use or function . . . relates to medical significance and involves a comparative determination of the degree or qualitative nature of an injury based on the normal function, purpose and use of the body part". Defendants' submissions on their motion included transcripts of plaintiff's and Defendant's deposition testimony, plaintiff's medical records, MRI and EMG results, affirmations by James Storey, a board-certified neurologist, Louis Nunez, an orthopedist, and Patrick Hughes, a neurologist, following their respective independent medical examinations. The record presented a significant factual disagreement about the nature of the accident. Plaintiff testified that it "felt like" Defendant's van was traveling "58 miles an hour" immediately prior to impact and that, upon impact, there was a "sonic boom." She testified that she remembers "flying forward" but not "flying back" and surmised that she must have lost consciousness and "whacked [her] head." She conceded that she did not report this to either the police when they arrived at the scene or to her doctor later that day. Defendant testified that he was waiting in stop-and-go traffic behind plaintiff, his foot slipped off the brake; he rolled forward at a rate of "five to eight miles an hour, max" and bumped into plaintiff's car in front of him.
At the accident scene, plaintiff declined immediate medical treatment. Instead, she dropped her daughter at school, drove home, took a bath and then visited her primary care doctor, who diagnosed a cervical and lumbar strain and recommended that plaintiff apply ice and heat to the affected area and take anti-inflammatory medication. Roughly three weeks after the accident, plaintiff was seen by her father, an orthopedist, who sent her for MRI scans of her spine and an EMG. In December 2015, she was seen by a neurologist whose diagnoses included postconcussion syndrome and posttraumatic stress. The MRI results revealed some disc herniation and bulging in plaintiff's spine, and the EMG showed "slowed ulnar nerve velocity" at the right "cubital segment." After reviewing the MRI and EMG results, the father concluded that plaintiff suffered "multiple thoracic disc herniations secondary to injury in question[,] concussion[,] [u]lnar neuritis, all causally related to the injury in question[,] [p]osttraumatic cubital tunnel syndrome, RT elbow[,] [s]uspect direct injury of the ulnar nerve and mid-humerus." From December 2015 through March 2016, plaintiff was seen by two ear, nose and throat specialists, a neurologist and two neuropsychologists. A neuropsychological evaluation, completed in January 2016, demonstrated that plaintiff's functioning ranged from lower to higher than average and that she showed "problems with effort," that is, the validity test results showed that she was giving "suboptimal effort."
Nunez's examination revealed a positive Tinel's sign in the right elbow and positive dollar bill test of the right hand. Using an inclinometer, he also measured a reduced range of motion in plaintiff's cervical spine and "thoracolumbar spine," specifying a significant percentage of loss as to flexion, extension, bending and rotation. Based on his examination and review of plaintiff's records, he concluded that plaintiff suffered a cervical and lumbar strain that was caused by the accident, but was resolving, and unresolved cubital tunnel syndrome; otherwise, Nunez opined that her "[s]ubjective complaints were in excess of what one would expect from the diagnosis." Nunez recommended continued physical therapy for the neck and back. During an April 2016 examination, Hughes also used an inclinometer and measured a specific percentage loss of range of motion in plaintiff's cervical, thoracic and lumbar spines. He concluded that plaintiff suffered a cervical, thoracic and lumbosacral strain, which, though causally related to the accident, had resolved, mild head injury and concussion, also resolved, and that the disc herniations shown on the MRI were preexisting. Storey examined plaintiff in July 2017. In Storey's view, plaintiff's failure to immediately report loss of consciousness, a head injury, and dizziness and balance issues "suggests lack of causation." With regard to the neuropsychological testing results, Storey explained the nature and purpose of the tests, including the validity test, and, with specific reference to plaintiff's results, concluded that the "tests support a psychological rather than a neurological origin for the complaints." Storey further concluded that there was no evidence of clinically significant ulnar dysfunction, that the disc herniations were trivial and preexisting and that the examination was "essentially normal."
With respect to the spine, the appellate division held that defendants' submissions failed to establish, as a matter of law, that plaintiff did not suffer a permanent consequential limitation or significant limitation of use of a body function or system as a result of the accident. Where objective medical evidence demonstrates the existence of herniated or bulging discs, "an expert's designation of a numeric percentage of a plaintiff's loss of range of motion can be used to substantiate a claim of serious injury.” Defendants' submissions included MRI evidence of plaintiff's herniated and bulging discs, and Nunez and Hughes both found objective, quantitative evidence of reduced range of motion in her spine. Nunez concluded that these findings were caused by the accident and none of the medical records indicates that plaintiff ever sought treatment for neck and back pain prior to the accident. Storey's examination did not include a measurement of plaintiff's range of motion, and he did not explain or distinguish Nunez's or Hughes' findings.
Turning to plaintiff's claim that she suffered postconcussion syndrome and an elbow injury that qualified as serious injuries, defendants' submissions were sufficient to satisfy their burden of showing otherwise. Notably, plaintiff did not immediately report hitting her head or losing consciousness. Even accepting as true that plaintiff did hit her head, Storey — after reviewing all of the medical reports, including the results of the neuropsychological examination results conducted by plaintiff's neuropsychologists, and after examining plaintiff — concluded that there was no neurologic explanation for her subjective cognitive symptoms. Similarly, according to Storey, even accepting that plaintiff injured her elbow, the injury was not "clinically significant." A prima facie case made, the burden shifted to plaintiff. To this end, plaintiff submitted affirmations from the father, Steven Rappaport, a psychiatrist, and Jaime Krepostman, an ophthalmologist. Krepostman opined that plaintiff suffered "[c]onvergence insufficiency," Rappaport opined that the accident "exacerbated" plaintiff's "unstable moods and problems concentrating, etc.," and Eagan opined that plaintiff suffered a traumatic brain injury and concussion. The court found that these submissions fell short in raising a question of fact as to plaintiff's postconcussion syndrome claim. No doctor identified an objective basis to support a finding that plaintiff suffered a head injury or resultant cognitive impairment, Krepostman did not explain how convergence insufficiency resulted from either, and no one assessed the degree or severity of plaintiff's alleged cognitive impairments or convergence insufficiency. Similarly, accepting that there was objective evidence of an elbow injury, the father opined only that this "ulnar nerve entrapment" is permanent. Because the father did not provide a "qualitative assessment," the submissions failed to demonstrate that plaintiff suffered permanent consequential or significant elbow injury as a result of the accident.
Finally, with respect to plaintiff's claim under the 90/180-day category of serious injury, only Hughes examined plaintiff prior to the expiration of the 180-day period following the accident. Because Hughes did not expressly or specifically address plaintiff's claims or limitations during the first 180 days following the accident, the court found that defendants failed to meet their burden as to this category of serious injury.
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
01/10/19 Alulema v. ZEV Elec. Corp.
Appellate Division, First Department
Evidence of Post-Injury School Work, and Job Searches, Overrides Claims of Grave Injury
Plaintiff was injured during the course of his employment, and thereafter commenced a lawsuit against ZEV Electric. ZEV then commenced a third-party action against Nationwide Maintenance, seeking common law indemnification against Nationwide as plaintiff’s employer.
Nationwide moved for summary judgment on the basis that plaintiff had not sustained a grave injury, and thereby precluding any claims for common law indemnity under Section 11 of the Workers’ Compensation Law. The trial court denied the application, but the First Department unanimously overruled the trial court and dismissed the claims.
In support of its position, the Court noted that while plaintiff continued to treat with a neurologist, such meetings were only once a month for cognitive therapy. Importantly, plaintiff testified that he had been looking for employment, and completed his GED, in the months/years after he sustained injury. The Court noted that evidence of post-concussions syndrome and depression are not, in and of themselves a “grave injury.” Rather, the injuries must also be accompanied with proof that the individual is rendered “unemployable in any capacity” as a result of the alleged brain trauma.
01/09/19 Cassese v. SVJ Joralemon, LLC
Appellate Division, Second Department
Trade Contracts are Strictly Construed with Respect to Contractual Indemnification and Insurance Procurement; Failure to Plead Grave Injury Results in Dismissal of Common Law claims
Plaintiff sustained injury to his left hand while in the employ of Tri-State. As a result, plaintiff commenced the instant action against the defendant/owner, Joralemon. Defendant reflexively commenced a third-party action against Tri-State for common law and contractual indemnification.
Tri-State moved to dismiss the third-party action on the basis that plaintiff failed to plead a viable cause of action. With respect to the common law indemnity claim, it is alleged that Joralemon failed to establish that plaintiff’s injury satisfied the definition of “grave injury” as that term is defined in the Workers’ Compensation Law. Without evidence, or the pleading of, a “grave injury,” Joralemon failed to establish its common law indemnity claim.
With regard to the contractual indemnity claim, Joralemon sought to enforce a contract that was initially executed in 1987 between a different Joralemon entity and Tri-State. Upon review of that contract, however, there was no clear indemnity clause found. Without a specific requirement that Tri-State provide indemnity, such a contractual obligation will not lie.
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
Under the weather this week.
Jennifer A. Ehman
12/21/18 Zurich Am. Ins. Co. v. Don Buchwald & Assoc., Inc.
Supreme Court, New York County
Hon. O. Peter Sherwood
Trial Court Finds a Duty to Defend Complaint Alleging Invasion of Privacy and Intentional Infliction of Emotional Distress
This decision arises out of a Florida lawsuit that made news nationally. The case was brought by Terry Gene Bollea (aka Hulk Hogan) against defendants and others for damages sustained as a result of two tapes being leaked to Gawker and the National Enquirer. The first tape included footage of Hogan have sexual intercourse with his best friend’s wife, and the second tape depicted Hogan using offensive racial epithets to describe African Americans.
Defendant, Don Buchwald & Associates, Inc. (“DBA”), is a talent and literary agency, and Defendant, Tony Burton (“Burton”), is a talent agent. One of DBA’s clients is radio personality, Michael Calta (“Calta”), and Burton is his agent at DBA. Hogan claims that Calta and Burton acted in concert to deliver the sex footage to Gawker, and that they had some involvement in the leakage of racist footage to the National Enquirer.
The original complaint filed by Hogan asserted various claims against DBA, Burton, the website, Gawker.com, and Calta alleging invasion of privacy and intentional inflection of emotional distress. Hogan then filed an amended complaint following his settlement with Gawker.com. The amended complaint asserted two new causes of action against DBA sounding in negligence – one for “negligent retention” and the other for simple negligence. Specifically, Hogan alleged that DBA acted negligently in retaining Burton as an employee because DBA knew or should have known that he was predisposed to committing wrongs. Unlike the initial complaint, the amended complaint blamed DBA and Burton for the production and dissemination of the racist footage.
At the time of the second leak, DBA and Burton were insured under commercial general liability and umbrella liability policies issued by plaintiffs. DBA and Burton tendered both the complaint and amended complaint to Zurich. Plaintiffs denied coverage. With regard to the CGL coverage, Zurich took the position that the primary policies did not insure against injunctive relief; the amended complaint did not allege “bodily injury” caused by an “occurrence” since all of DBA and Burton’s actions were alleged to be intentional and not accidental; Exclusion 2 (a) applied to bar coverage since DBA and Burton “expected” or “intended” the “bodily injury” at issue; and the claim for violation of Florida Statute 934.10 was excluded.
Zurich took a similar position relative to the umbrella policies. And, in addition, as a separate basis for denial relative to these policies, Zurich asserted that no “personal and advertising injury” was alleged, and that certain exclusions applied. Specifically, Zurich contended that if “personal and advertising injury” was present, it was “caused by or at the direction of the insured with knowledge that it would violate the rights of another” and the publication of the sex footage occurred prior to the earliest umbrella policy, which was then excluded under the policies.
The Court began by considering the primary coverage. It rejected Zurich’s argument that the amended complaint failed to allege an “occurrence.” The Court focused on prior cases in New York holding that the presence of an occurrence must be considered from the point of view of the insured seeking coverage. Was the event unexpected, unusual or unforeseen to them? Moreover, the court noted that an intentional tort may still be accidental, triggering a duty to defend, where the plaintiff in the underlying action can succeed on his or her intentional claim without actually proving intention or knowing conduct – i.e., where something less than actual intent suffices to establish liability.
Accordingly, the court held that the negligent retention and intentional infliction of emotional distress (“IIED”) causes of action both alleged an “occurrence.” The court was clear that from DBA’s perspective, Burton’s acts were not expected or intended. The court refused to read the allegation that DBA “failed to take reasonable actions to investigate, prevent, and/or avoid Burtons’ alleged misconduct” as an assertion that DBA intended the harm. It then noted that where the IIED claim alleged that DBA and Burton acted with “reckless disregard of [Hogan’s] rights” and caused him to suffer “severe emotional distress,” it was possible for Hogan to recover on the claim without establishing deliberate or intentional conduct.
With regard to the umbrella policies, the court likewise found that Zurich failed to demonstrate that the allegations in the amended complaint “cast the pleading solely and entirely within the policy exclusions…” The court spent most of its discussion addressing Zurich’s assertion concerning Coverage B. It noted that this section provides that Zurich will defend “any suit against the Insured[s] for damages” when “damages are sought for … personal and advertising injury,” i.e., “injury … arising out of … [o]ral or written publication, in any manner, of material that violates a person’s right of privacy.” Zurich argued that DBA and Burton do not qualify for coverage because they did not themselves “make” the publication at issue. The court rejected this argument finding no such requirement in the policy, and noting that even if there was such a requirement, it was alleged that DBA and Burton were co-conspirators in the release of the footage.
The court also found the exclusion for injury caused by or at the direction of the insured with knowledge that it would inflict personal and advertising injury inapplicable. It held that a review of the amended complaint revealed no assertion that DBA and Burton acted solely “with knowledge” that their acts would violate Hogan’s right. Rather, the amended complaint alleged that they acted recklessly, negligently, and they “knew or should have known” that their actions constituted a substantial violation of Hogan’s right to privacy.
Accordingly, the court concluded that DBA and Burton established that at least two of the claims in the amended complaint arose from covered events; thus, Zurich is obligated to defend the entire action.
Zurich next argued that the issue of whether Burton qualified as an insured was premature and required discovery. The court held that while it may be true that discovery is required on this issue for purposes of resolving indemnity, as it was alleged that Burton was acting within the scope of his employment, a defense was triggered in his favor as well.
Lastly, the court held that because DBA and Burton had established that they were entitled to a defense, and having been “cast in a defensive posture,” they were entitled to legal fees and costs incurred in connection with their defense of this case.
Jerry Marti
12/21/18 Natural Therapy Acupuncture, P.C. v. Omni Indem. Co. Appellate Term, Second Department
Insurance Carrier Proves Lack of Coverage Defense in No-Fault Lawsuit
In an action by a medical provider to recover no-fault benefits, the Civil Court granted defendant’s motion for summary judgment dismissing the complaint on the ground that defendant had not issued an insurance policy covering the vehicle that was involved in the subject accident. Therefore, the plaintiff had sued the wrong party. In support of its motion, defendant had submitted affidavits from one of its litigation managers, as well as an affidavit from a manager from American Independent Insurance Company (AIIC) who attested that her company, not Omni Indemnity Company, had issued the policy covering the accident in question. On appeal, the Appellate Term, Second Department, affirmed the lower court’s ruling based on defendant’s proof and the plaintiff’s failure to raise an issue of fact in response.
The Court also took issue with plaintiff attorney’s conduct, which appeared to set forth frivolous arguments. In discussing the standard, the Court noted that frivolous conduct includes the assertion of arguments that are “completely without merit in law and [which] cannot be supported by a reasonable argument for an extension, modification or reversal of existing law.” In particular, the plaintiff’s attorney had a pattern of making the same arguments in more than 20 prior actions despite the Court rejecting the same arguments on every appeal. As such, the Court directed counsel for both parties to show cause why sanctions should or should not be imposed against plaintiff’s counsel.
Brian D. Barnas
01/09/19 Weathers v. Tri State Consumer Insurance Company
Appellate Division, Second Department
Underlying Judgment is a Necessary Predicate to a Cause of Action for Bad Faith Refusal to Settle
In June 2008, a vehicle driven by Alex Rios collided with a vehicle driven by Ronald B. Weathers in Brooklyn. Thereafter, Weathers commenced a personal injury action against Rios. Rios had an insurance policy with Tri State at the time of the accident, with liability limits of $100,000 per person and $300,000 per occurrence. Pursuant to the policy, Tri State undertook Rios's defense in the personal injury action. After Weathers successfully moved for summary judgment on the issue of liability, the personal injury action proceeded to a trial on the issue of damages. The jury awarded Weathers damages in the principal sums of $450,000 for past pain and suffering, $1,000,000 for future pain and suffering, $72,000 for future physical therapy, and $125,000 for future medical expenses, and a judgment was entered upon the verdict. Rios moved to set aside the verdict and for a reduction of the awards, but the motion was denied.
Rios appealed. In a decision and order dated August 20, 2014, the Second Department reversed the judgment and remitted the matter for a new trial on the issue of damages, unless Weathers served a stipulation consenting to reducing the verdict and to the entry of an appropriate amended judgment. If he did so, the court’s order stated that the judgment would be affirmed. Weathers agreed to reduce the awards for pain and suffering, but declined to reduce the award for future medical expenses as required by the court and sought a new trial on those categories.
Subsequently, Rios assigned his rights against Tri State to Weathers. Weathers, as assignee of Rios's rights, then commenced this action alleging that Tri State acted in bad faith by refusing to settle this case for the policy limit of $100,000 and breached the implied covenant of good faith and fair dealing in handling the defense of the personal injury action on behalf of Rios. Tri State moved to dismiss the complaint.
The court granted the motion. Contrary to Weathers' contention, Second Department’s previous decision and order in the personal injury action did not permit him to accept only some of the reduced damages awards and to opt for a new trial as to other awards. Rather, the decision and order affirmed the judgment in the personal injury action only on the condition that Weathers stipulate to all of the reduced awards. His failure to do so meant that the matter was subject to a new trial on damages.
Since there was no judgment in the underlying action, the bad faith action against Tri-State was premature. Judgment in the underlying action is a necessary predicate to a cause of action alleging bad faith refusal to settle.
01/09/19 Greater First Deliverance Temple v. Guideone Mutual Ins.
United States District Court, Western District of Oklahoma
Allegations that Defendant Underpaid the Insurance Claim, failed to Pay an Invoice for Work Completed, and repeatedly made “Low Ball” Offers Stated a Claim for Bad Faith
Defendant issued a property insurance policy to Plaintiff for buildings and structures located in Oklahoma City, Oklahoma, that sustained interior water damage on October 22, 2016. Plaintiff alleged that Defendant failed to properly investigate and evaluate the claim, and failed to pay for water mitigation and restoration services that Plaintiff was required to engage on its own. Plaintiff claimed that Defendant instead made a “low ball” offer for replacement cost coverage in the amount of $26,325.20, knowing this amount was insufficient to compensate Plaintiff for its loss and intending to prolong the adjustment process so Plaintiff would be forced to accept less than the reasonable value of its claim. Plaintiff retained a general contractor to assess the damage to its property and obtained an estimate for replacement cost repairs in the amount of $276,462.43. After Plaintiff submitted this estimate, Defendant allegedly made a second “low ball” offer of $55,937.78.
Plaintiff commenced a lawsuit alleging breach of contract and bad faith. Defendant moved to dismiss. To establish a breach of the duty of good faith and fair dealing under Oklahoma law, an insured need only to show that the insurer breached the insurance contract and, in so doing, acted in a manner constituting bad faith. A legitimate dispute as to coverage will not act as an impenetrable shield against a valid claim of bad faith.
Here, the complaint alleged that Defendant underpaid the insurance claim, failed to pay an invoice for work actually completed, and repeatedly made “low ball” offers for an improper purpose. The court determined these allegations were sufficient to state a plausible claim of bad faith.
JOHN’S JERSEY JOURNAL
John R. Ewell
12/21/18 Villamil v. Sentinel Ins. Co.
U.S. District Court, District of New Jersey
New Jersey Federal Court Rules Damage to Salon from 200- to 500- Year Storm Not Covered
Sentinel issued an insurance policy (“the Policy”) to La Jolie Salon and Spa (“La Jolie”), a beauty salon in Princeton, New Jersey. La Jolie occupies two floors in the Hulfish Building. A descending stairwell, enclosed by three concrete walls, leads to La Jolie’s lower floor, which is below the street level and accessible through a glass door entrance. A landing area with a drain inlet is located at the bottom of the stairwell; the stairwell, however, is not protected by a roof and is subject to direct entry of rains, snow and all elements.
The Policy provides coverage for the “physical loss” or physical damage to Covered Property” “caused by or resulting from a covered Cause of Loss.” However, the Policy does not provide coverage for damage or loss arising from “[f]lood, including the accumulation of surface water” or “[w]ater that backs up from a sewer or drain”.
The Policy provides that “[s]uch loss or damage is excluded regardless of [whether] any other [covered] cause or event . . . contributes concurrently or in any sequence to the loss.” Notwithstanding that exclusion, the Parties entered into a separate “Stretch” agreement, which provided a limited giveback for Sewer and Drain Back Up:
17. Sewer and Drain Back Up
The following Additional Coverage is added:
We will pay for direct loss of or physical damage to Covered
Property solely caused by water that backs up from a sewer or drain. This coverage is included within the Covered Property Limits of Insurance.
THIS IS NOT FLOOD INSURANCE
We will not pay for water or other materials that back up from any sewer or drain when it is caused by any flood. This applies regardless of the proximity of the flood to Covered Property. Flood includes the accumulation of surface water, waves, tides, tidal waves, overflow of steams or other bodies of water, or their spray, all whether driven by wind or not that enters the sewer drain system.
On July 30, 2016, a severe thunderstorm, estimated to constitute a two hundred to five hundred year storm, resulted in five to seven inches of rain in two hours. Water pooled at the bottom of the stairwell next to La Jolie’s lower floor entrance, and subsequently, leaked through the building’s glass door entrance, damaging the building.
The following day, Plaintiffs reported to Sentinel that the building had “flooded,” and described the loss stating that extreme rain over the course of two hours flooded the entire lower level of the building.
Sentinel ultimately denied Plaintiffs’ insurance claim on the basis “that the cause of loss was a flood.” Plaintiffs sued Sentinel asserting breach of contract and bad faith. Sentinel moved for summary judgment asserting that Plaintiffs failed to demonstrate a genuine dispute of a material fact as to whether surface water contributed to the damage the building sustained.
The parties agreed a pool of water ultimately accumulated at the bottom of the stairwell that provides access to La Jolie’s lower level entrance, and subsequently entered the premises through the glass door of the salon. However, the parties disputed whether the pooled water constitutes surface water, and in turn, how water accumulated at the bottom of the stairwell.
Sentinel contended the water that entered the salon resulted from an accumulation of “flood water”. In support, Sentinel argued that Princeton’s storm sewer system was overwhelmed by severe rain, which ultimately caused the street immediately outside of the Hulfish Building to flood. According to Sentinel, the flood water subsequently flowed over the curb of the street and down the stairwell, where it ultimately pooled prior to entering the premises through La Jolie’s glass door. More importantly, Sentinel contended that rain water was able to form at the bottom of the stairwell as a result of the severe storm, because the “stairwell where the water collected” does not have a “roof above it and is subject to direct entry of rains, snow and all elements.”
Plaintiffs argued that the water which ultimately entered the lower floor of the salon did not constitute surface water, because it originated from the roof of the building notwithstanding the fact it was rain water. According to Plaintiffs, the roof water subsequently entered the building’s drain system, the volume of which caused “over pressurization” and, in turn, water flowed back out of the sink drains, toilets, and building’s drains, including the drain which is located at the bottom of the stairwell.
Plaintiffs contended that no flood water entered the building. Plaintiffs argued that the building’s pumps were equipped with backflow preventers, and, therefore, “none of the water that entered the building originated in the city’s sewer system.” While Plaintiffs acknowledged that the street directly outside of the building flooded, that water, as Plaintiffs argue, could not have accumulated at the bottom of the salon’s stairwell. Plaintiffs averred that the street’s eight-inch curb prevented the flood water from “flow[ing] over.” Accordingly, because the only water which could have entered the building was non-flood water, Plaintiffs maintain that coverage was improperly denied.
In order for coverage to exist, the sewer and drain back up provision required Plaintiffs to show that the salon sustained damages “solely” from water that backed up from a sewer or drain. Stated differently, Plaintiffs bore the initial burden of demonstrating that flood water did not, in any way, contribute to the damages which the building sustained. Plaintiffs relied upon three experts to carry such a burden.
The Court found that flood, as defined under the policy “include[d] the accumulation of surface water.” In the Third Circuit, “surface water” means “waters on the surface of the ground, usually created by rain or snow, which are of a casual or vagrant character, following no definite course and having no substantial or permanent existence.” Two of Plaintiffs’ expert admitted that the water which accumulated in that area included flood water. Thus, even if the Court presumed that non-flood water backed up from the lower level drain, the water which ultimately entered the building also included an accumulation of flood water. As such, the expert reports did not support the fact that the damages which the salon sustained were solely the result of an accumulation of non-flood water.
In addition, the Policy contained anti-concurrent and anti-sequential provisions, which the Court held applied. Moreover, the sewer back up an drain provisions explicitly stated “THIS IS NOT FLOOD INSURANCE and that Sentinel “will not pay for water or other materials that back up from any sewer or drain when it is caused by any flood.” Summary judgment granted to the insurer.
OFF THE MARK
Brian F. Mark
12/28/18 Balfour Beatty Constr., LLC v. Liberty Mut. Ins. Co.
U.S. District Court for the Southern District of Texas, Houston Division
US District Court Finds Policy Exclusion for Defects, Errors, and Omissions to be Applicable to Bar Coverage for Damage to Windows Caused by Falling Welding Slag
This declaratory-judgment action arises out of an underlying construction defects action related to the construction of an office building in Houston, Texas. In October 2015, Milestone Metals, Inc. ("Milestone") completed welding work near the 18th floor of Energy Center 5, an office building then under construction. The work consisted of welding a two-inch plate onto the existing building. Several months later, Milestone learned that welding slag from its operations had fallen down the side of the building and damaged the glass on windows below. Milestone had not installed the windows. As a result of the damage, the windows had to be replaced. This declaratory-judgment action concerned who was obligated to pay for the window replacement.
TCH Energy Corridor Venture, LLC ("Trammell Crow") was the developer of the project and Balfour Beatty Construction, LLC ("Balfour Beatty") was the general contractor. Trammell Crow contracted with Balfour Beatty and Balfour Beatty subcontracted with Milestone. The plaintiffs in this action were Balfour Beatty and Milestone.
The Trammell Crow—Balfour Beatty contract required Trammell Crow to acquire "builder's risk" insurance that would include the interests of Balfour Beatty and subcontractors in the project. Trammell Crow procured such insurance from Liberty Mutual Fire Insurance Company (“Liberty Mutual”) (the "Insurance Policy"). The Insurance Policy contains the following coverage provisions:
PROPERTY COVERED
"We" cover the following property unless the property is excluded or subject to limitations.
Course of Construction --
1. Coverage -- "We" cover direct physical loss or damage caused by a covered peril to "buildings or structures" while in the course of construction, erection, or fabrication.
. . . .
PERILS COVERED
"We" cover risks of direct physical loss or damage unless the loss is limited or caused by a peril that is excluded.
After learning of the window damage, Trammell Crow, Balfour Beatty, and Milestone tendered a claim to Liberty Mutual, who denied the claim. As the basis for its denial, Liberty Mutual cited the following exclusion in the Insurance Policy:
PERILS EXCLUDED
. . . .
2. "We" do not pay for loss or damage that is caused by or results from one or more of the following:
. . . .
c. Defects, Errors, And Omissions --
1) "We" do not pay [*4] for loss or damage consisting of, caused by, or resulting from an act, defect, error, or omission (negligent or not)relating to:
a) design, specifications, construction, materials, or workmanship;
b) planning, zoning, development, siting, surveying, grading, or compaction; or
c) maintenance, installation, renovation, remodeling, or repair.
But if an act, defect, error, or omission as described above results in a covered peril, "we" do cover the loss or damage caused by that covered peril.
At issue in this case was the applicability of the Defects, Errors, and Omissions exclusion. The plaintiffs argued that the Defects, Errors, and Omissions exclusion did not exclude their claim, and that even if it did, the exception to the exclusion reinstated coverage.
Liberty Mutual argued that the unambiguous, plain language of the Defects, Errors, and Omissions clause excludes coverage for plaintiffs' claim. Liberty Mutual pointed to the language excluding claims for "loss or damage . . . caused by, or resulting from an act . . . or omission (negligent or not) relating to . . . construction . . . or workmanship . . . or . . . installation." The plaintiffs contended that the Defects, Errors, and Omissions clause only applies to repairing or replacing an insured's own work. According to the plaintiffs, if an insured's work damaged other parts of the construction site on which the insured was not working, then the Defects, Errors, and Omissions exclusion would not apply.
The Court, relying on well-settled Texas law, found that the plain and unambiguous language of the Defects, Errors, and Omissions clause excluded the plaintiffs’ claim. The Court found no reason to believe that the word "construction" was meant in a technical or different sense. The Court noted that an ordinary and generally-accepted meaning of "construction" is "the process . . . of constructing something." As the claim at issue was for damage caused by an act relating to construction, i.e., the process of constructing something, it was therefore excluded.
Despite the plaintiffs’ claim that the purpose of procuring builder's risk insurance is to cover claims like the one at issue, the Court found such an argument unavailing in light of what the specific contract actually stated. The language of the specific contract controls despite what a certain type of policy is purportedly generally taken to cover.
The plaintiffs, citing to a number of case, argued that the Defects, Errors, and Omissions clause only excludes claims based on defects or damage to the plaintiffs' own work. The Court found that the cases cited by the plaintiffs demonstrated that parties can and do limit the exclusion to defects in the insured's own work when that is their intent. However, the Court aptly noted that the parties here simply did not draft their contract that way.
In order to find that the Insurance Policy provided coverage, the Court would have needed to read in language that narrowed the exclusion to cases where the loss consisted of the "cost of making good" the insured's faulty work or where damage occurred to "your work." Another alternative would have required the Court to read in language along the lines of "soundness of" before "construction"—so the Defects, Errors, and Omissions Clause would exclude "damage . . . caused by, or resulting from an act, defect, error, or omission (negligent or not) relating to . . . design, specifications, [soundness of] construction, materials, or workmanship . . ." — and thereby mute the effect of adding the word "construction." The Court noted that it may not do so. The Supreme Court of Texas has long "held that in construing insurance policies 'where the language is plain and unambiguous, courts must enforce the contract as made by the parties, and cannot make a new contract for them, nor change that which they have made under the guise of construction.'" "Where the language of a contract is clear, a court's inquiry should begin and end with the policy's language." With that in mind, the Court held that the language of the Defects, Errors, and Omissions exclusion was clear, and the Court was duty bound to enforce it as written.
At oral argument and in a footnote within their briefing, the plaintiffs raised the contention that wind contributed to the loss in this case by blowing the falling slag into the building's windows. The plaintiffs argued that the Defects, Errors, and Omissions clause "only applies when the insured's defective work was the sole proximate cause of the loss" and that "wind contributed significantly to the damage to the windows . . . ." However, the plaintiffs cited to no authority for such a contention. The Court stated that if the plaintiffs meant to invoke the concurrent causation doctrine, that doctrine is unavailing. Even if the wind was a "concurrent cause"— a cause that combined with Milestone's welding operations to cause the damage in this case—the exclusion would still be triggered. The Court cited to Texas law holding that in cases involving concurrent causation, the excluded and covered events combine to cause the plaintiff's injuries. Because the two causes cannot be separated, the exclusion is triggered. Wind alone, of course, would not have independently caused any slag damage to the building's windows, so the wind is not a "separate and independent" cause. Rather, if wind was involved at all, it was a concurrent cause: the excluded cause (the act relating to construction) and covered cause (wind) combined to cause the damage. Thus, even if the wind contributed significantly to the window damage, the Defects, Errors, and Omissions exclusion would accordingly still have been triggered.
The plaintiffs maintained that even if the Defects, Errors, and Omissions clause excluded coverage for their claim, the exception to the exclusion effectively reinstates coverage: "But if an act, defect, error, or omission as described above results in a covered peril, 'we' do cover the loss or damage caused by that covered peril." The Court disagreed with the plaintiff’s position, holding that the exception to the exclusion did not reinstate coverage in this case, and summary judgment in favor of Liberty Mutual on Plaintiffs' breach of contract claim was warranted.
Under the plaintiffs' reading of the Insurance Policy, the exception would swallow the exclusion. In so holding, the Court relied on Texas case law rejecting this type of reading. Furthermore, the Court noted that there is only one instance of loss or damage in this case: the damage to the windows. The language of the exception, however, suggests that there needs to be at least two loss events. Breaking down the policy language, the Court found that the exception calls for (1) an excluded peril that (2) "results in" a covered peril. Since a peril cannot be simultaneously excluded and covered, the clause must be referring to two separate perils, one excluded and one covered. The Court found that the "results in" language was not ambiguous and was capable of being given a definite meaning. In this case, there is only one loss, the excluded loss (window damage) caused by "an act, defect, error, or omission (negligent or not) relating to . . . construction."
The plaintiffs further argued that Liberty Mutual's interpretation "renders the policy largely illusory for many of the risks one would expect to be insured under a builder's risk policy." The Court noted that even under Liberty Mutual's interpretation, the Insurance Policy still covered certain risks. For example, the plaintiffs evidently admitted that the Defects, Errors, and Omissions exclusion would not exclude certain acts of nature or "Act[s] of God." More to the point, the Fifth Circuit has held that "when an insurance policy will provide coverage for other claims, Texas courts are unlikely to deem the policy illusory." Here, both sides conceded that the Insurance Policy will provide coverage for other claims. Accordingly, the Court determined that the Insurance Policy was not illusory. Although the policy may have been more limited than the plaintiffs expected, "Texas law does not recognize coverage because of 'reasonable expectation' of the insured.
In light of its analysis above, the Court found that the Defects, Errors, and Omissions clause excluded coverage for the plaintiffs' claim and that the exception did not reinstate coverage. As such, Liberty Mutual's denial of the plaintiffs' claim was proper, and Liberty Mutual was entitled to summary judgment on the plaintiffs' breach of contract claim. Liberty Mutual did not move for summary judgment on the plaintiffs' claims for violations of Section 541 and Section 542 of the Texas Insurance Code, and those claims remained pending.
Larry E. Waters
[email protected]
01/09/19 John Edward Bowe v. Tom Wilson, CEO Allstate Insurance
United States District, Northern District of New York
Plaintiff’s Objections to the Report-Recommendation Overruled because Plaintiff may not Maintain a Claim Against an Insurer for Failing to Pay Funds from an Insurance Policy Issued to a Third Party Unless There is a Demonstration of a Judgment Against that Third-Party Insured
This decision stems from a pro se action seeking judgment against Defendants for failure to compensate Plaintiff for injuries. Plaintiff alleges he sustained injuries when Defendants’ insured struck Plaintiff with an automobile. After Plaintiff commenced this action, the Court referred this action for a Report-Recommendation.
On December 11, 2018, the Report recommended that Plaintiff’s Second Amended Complaint be dismissed with leave to re-plead if Plaintiff cannot demonstrate that a judgment of liability against Defendant’s insured existed. In turn, Plaintiff timely objected to the Court’s Report and Recommendation dated December 11, 2018.
In assessing Plaintiff’s objections, the court noted that “[w]hen objections to a magistrate judge’s Report-Recommendation are lodged, the Court makes a de novo determination of those portions of the report or specified proposed findings or recommendations to which objections is made.” Further, the court noted that Plaintiff may not maintain a claim against the insurer for failing to pay him funds from an insurance policy issued to a third party unless he can show the existence of a judgment against that third-party insured.
Accordingly, after a de novo review, the court accepted and adopted the magistrate judge’s Report-Recommendation. Therefore, the court overruled Plaintiff’s objections and dismissed Plaintiff’s Second Amended Complaint without prejudice with a final opportunity to amend should Plaintiff demonstrate the existence of a judgment of liability against the third-party insured.
Eric T. Boron
On the road again.
Earl K. Cantwell
[email protected]
10/03/18 Tuscarora Wayne Ins. Co. v Hebron, Inc.
Pennsylvania Superior Court
Denial of Coverage in Fire Loss Reversed
In this declaratory judgment action, the insured appealed from a Trial Court order denying coverage for a fire loss. The Appellate Court agreed with the insured and reversed the denial of coverage pointers.
In May 2014 a fire started at Hebron’s vehicle dismantling facility in Harrisburg, Pennsylvania. The fire started when one of Hebron’s truck drivers was attempting to pump gas into a flatbed truck in a loading dock area outside the facility. The fire damaged Hebron’s facility as well as neighboring businesses and vehicles parked in the area. Although Hebron’s property was being used as a vehicle scrapyard, the policy contained an endorsement that excluded vehicle dismantling and stated that the insurance did not apply to property damage arising out of vehicle dismantling. However, the phrase “vehicle dismantling” was not defined in the policy.
The insurance company filed a declaratory judgment action seeking a declaration that it was not obligated to defend or indemnify Hebron for any property damage claims arising from the May 2014 fire. The Trial Court entered an order granting the insurance company’s motion and finding no coverage primarily based upon the exclusion. The Appellate Court reversed.
The Appellate Court first addressed some procedural issues, such as whether the Trial Court ruling had been a “final order” because there were potential claims outstanding of additional parties who were not a party to the action. However, the Appellate Court said the grant of summary judgment absolved the insurance company from any duty to anyone under the policy, so no possible claim could survive.
The core of the dispute was that the Trial Court found that the insurance policy excluded damages that occurred as a result of vehicle dismantling, and that fueling the truck used to retrieve vehicles for scrap and dismantling was incidental to the vehicle dismantling business, and therefore the policy excluded coverage for the resulting fire and damages. The Appellate Court ruled that this ruling was both legally and factually incorrect.
First, the Appellate Court noted that when an exclusion is involved the burden is on the insurance company to establish its application. In addition, exclusion clauses are generally strictly construed against the insurer and in favor of the insured. The Appellate Court noted the phrase “vehicle dismantling” was not defined in the policy, and therefore the words and phrases should be given their common usage and definition.
The Appellate Court ruled that, although Hebron strips vehicles for their parts, the fire was not caused by and did not arise from such scrap operations. Nothing in the chain of events involving the fire involved stripping vehicles for parts, which would be defined and required by the plain meaning of the phrase “vehicle dismantling”. The cause of the fire in this case was completely unrelated to the process and actions of stripping vehicles for parts. In fact, according to the underlying testimony, all of the actual recycling and vehicle stripping operations had ceased at least a half hour before the fire started as the truck was being filled with gas to commence the next day’s pickups and operations. The vehicle dismantling operations had ceased, and there were no “ongoing operations” of that nature at the time of the fire.
The Appellate Court concluded, that, contrary to the Trial Court’s holding, that the facts of the case did not establish a causal connection between the fire and vehicle dismantling. Hebron’s fuel storage and refueling was not a component of vehicle dismantling. The Trial Court misconstrued the facts of the case, and ran counter to the obligation to construe policy exclusions in favor of the insured. Therefore, the order in favor of the insurance company was reversed and judgment was essentially entered in favor of the insured.
This case presents a good example of where two different courts looking at the same set of facts approach the issue from two different perspectives and come to two different conclusions. The case also reiterates the common axiom that policy exclusions are generally construed strictly, or certainly in a limited fashion, against the insurance company.
Ultimately, the Appellate Court ruled that the proximate cause of the loss – the fire during refueling operations – was not within the exclusion because those actions had nothing to do (strictly speaking) with vehicle dismantling and scrap operations.
One unanswered question in the case is why, if Hebron was running a vehicle dismantling scrapyard, it would have an insurance policy that excluded coverage for vehicle dismantling operations, the core of its business? Perhaps it had another separate, specialized scrapyard / environmental policy in place roviding coverage for the core business operations in addition to the TWIC policy?
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