Coverage Pointers - Volume XX, No. 26

Volume XX, No. 26 (No. 539)

Friday, June 14, 2019

A Biweekly Electronic Newsletter

Hurwitz & Fine, P.C.

1300 Liberty Building
Buffalo, NY 14202

Phone: 716-849-8900
Fax: 716-855-0874

Long Island Office:

535 Broad Hollow
Melville, New York 11747

Phone: 631-465-0700
Fax: 631-465-0313

www.hurwitzfine.com

© Hurwitz & Fine, P. C. 2019
All rights reserved
 

 

As a public service, Hurwitz & Fine, P.C. is pleased to present its biweekly newsletter, providing summaries of and access to the latest insurance law decisions from the New York State appellate courts.  The primary purpose of this newsletter is to provide timely educational information and commentary for our clients and subscribers. 

 

In some jurisdictions, newsletters such as this may be considered Attorney Advertising.

 

If you know of others who may wish to subscribe to this free publication, or if you wish to discontinue your subscription, please advise Dan D. Kohane at [email protected] or call 716-849-8900.

 

You will find back issues of Coverage Pointers on the firm website listed above.

 

Dear Coverage Pointers Subscribers:

 

Do you have a situation?  We love situations. 

 

Received two of those calls today, starting with the tagline.  Chuckles all around.

 

And Happy Father’s Day.  Like Mother’s Day, and Valentine’s, it is one of those days with an apostrophe before the s.  When the holiday creators agreed on a common spelling, they imagined on one mother and one father.  It is, however, Presidents’ Day (although some leave out the apostrophe) and Veterans Day, without the possessive apostrophe.

 

It finally seems like summer or at least summerish.  From April to October, we live in Canada, on the soft-sand beach, north shore of Lake Erie.  The commute to the office is 17 minutes, including crossing the international border, clearing customs, etc.  When I lived in Brooklyn, it took me that long to walk over to the subway station.  For those who have visited (or plan to do so), we call our summer home, Crescent Dreams (it being on Crescent Beach) and is also known as The Land of the Blue Martinis.  It is my place of peace.  Take a peek at our Nest Cam.  You might find me on the beach with an adult beverage.

 

It has been a spring filled with all kinds of travel and I’m so delighted to be home although occasional trips to courthouses around the state and country are not unusual.  Those are usually one- or two-day trips.  On Fridays I try to work out of Crescent Dreams.

 

This issue is filled with the usual array of coverage delicacies with a trend towards uninsured/underinsured motorist cases.  We remind those who don’t regularly dance in the New York courts that once a demand for UM/SUM arbitration is received, the insurer has only 20 days to make a motion, in court, to stay arbitration, if it believes those benefits are unavailable for any number of reasons.  Likewise, if discovery in aid of arbitration is needed, that application has to be made in court within the same 20 days.  A failure to make the motion timely will lead to a waiver of many rights.  The arbitrator does not have the power to rule on legal issues and if the court isn’t asked to so rule within that time period, those legal defenses are waived.

 

On the legislative front, there are several bills before the legislature that are giving us angst.  We are working with trade organizations to help lobby against those bills or to offer constructive suggestions to improve them.  A special shout out to the good folks at NYIA, the New York Insurance Association, for their good and timely work.

 

Court of Appeals Decisions:

 

New York’s highest court is the Court of Appeals.  Our Supreme Court is our trial court and our middle level court is the Appellate Division of State Supreme Court (separated into four judicial Departments, geographically).  Of course, if you went to the west coast, California’s highest court is the Supreme Court and the middle level court is the Court of Appeal.  Nothing like consistency.

 

Few cases make it up to the Court of Appeals in New York.  Today we report on three.

 

In Marina Barci’s no fault column, she reports on the high court’s latest take on fraudulent medical providers and non-physician owned medical providers.  Surely a summary and case worth reading.

There is a very interesting decision from the Court of Appeals in an asbestos claim addressing whether a large multi-story coke oven, built on site at the former Bethlehem Steel facility, is a building/structure, or a product subjecting the manufacturer to strict products liability.  Chris “Products” Potenza summarizes it in his blog.

 

Diane Bosse summarizes a really interesting case dealing with foreign Risk Retention Groups.  Some of you may be surprised to learn that Insurance Law provisions dealing with prompt disclaimers may not apply to them.

 

For me, I’ve been blogging on LinkedIn, trying to teach young lawyers how to become experts their craft and use it to educate the industry, their sisters and brothers at the bar and their clients.  Those skills have multiple rewards.  Visit me on LinkedIn if you’re interested.  [By the way, for an guy who is a few years post-millennial,  I have almost broken the Internet with this social media offering.  One of my blog posts on this topic has generated 6500+ views in just a very few days and I received a note from LinkedIn that I was ‘trending”. Thursday afternoon’s posting had drawn several hundred in three hours.  Ain’t that cool]

 

Don’t forget to subscribe to our other publications:

 

Labor Law Pointers:  Hurwitz & Fine, P.C.’s Labor Law Pointers offers a monthly review and analysis of every New York State Labor Law case decided during the month by the Court of Appeals and all four Departments. This e-mail direct newsletter is published the first Wednesday of each month on four distinct areas – New York Labor Law Sections 240(1), 241(6), 200 and indemnity/risk transfer. Contact Dave Adams at [email protected] to subscribe.

 

Premises Pointers:  This monthly electronic newsletter covers current cases, trends and developments involving premises liability and general litigation. Our attorneys must stay abreast of new cases and trends across New York in both State and Federal Court, and will now share their insight and analysis with you. This publication covers a wide range of topics including retail, restaurant and hospitality liability, slip and fall accidents, snow and ice claims, storm in progress, inadequate/negligent security, inadequate maintenance and negligent repair, service contracts, elevator and escalator accidents, swimming pool and recreational accidents, negligent supervision, assumption of risk, tavern owner and dram shop liability, homeowner liability and toxic exposures (just to name a few!).  Contact Jody Briandi at [email protected] to be added to the mailing list.

 

Our Favorite Widow Continues to Search for a Husband and Her Worth has Returned to $100,000.

 

Reno Gazette-Journal

Reno, Nevada

14 Jun 1919

 

LONELY widow, worth $100,000, wishes to hear from honorable gentleman under 60, object matrimony.  Write Mrs. Hill, 14 E. Sixth St., Jacksonville, Fla.

 

Editor’s Note:  We have reported on Mrs. Hill’s ads over the past three issues.  Her net worth had altered from $50,000 to $100,000, depending on where she had placed her pleas for matrimonial bliss.  Remember that $100,000 in 1919 is about $1.5 million in 2019 dollars.  We checked.  There’s no home currently in that location.

 

Jen’s Gems

 

We wish all the fathers out there a Happy Father’s Day.

 

Jen

Jennifer A. Ehman

[email protected]

 

After Years of Lobbying, Protesting and Rallying, the US Senate Sends the Suffrage Amendment to the States for Ratification:

 

The Appeal

Saint Paul, Minnesota

14 Jun 1919

 

WOMEN’S SUFFRAGE WINS

 

The suffrage amendment permitting women to vote has passed the Untied States Senate and now goes to the state legislatures for ratification.

 

The Southern senators fought the amendment to a finish.  Senator Smith of South Carolina characterized the resolution as a “Pandora box of evil” and said a vote for it would be a “vote to turn loose on the South another era of race trouble.”

 

Senator Gay of Louisiana made the prediction that at least thirteen states would hold out forever against the amendment.

 

Senator Brandage of Connecticut said, “the southern Democrats have been voting down the principle of self-government.”

 

The Connecticut senator spoke of President Wilson as having “see-sawed” on the woman’s suffrage project, “with his usual facility for taking one side and then the other of a question.”

 

An amendment to limit the suffrage to white women, failed, receiving only 17 votes, including Senator Borah’s, who was the only northern man to vote for it.  The colored people of the country should note this fact in their political account books, where they have already recorded the fact the Borah some years ago voted to bar persons of the colored races from immigrating to this country. 

 

John’s Jersey Journal:

 

Dear Subscribers:

 

Insurance can seem like a bit of a gamble. But what about when insurance truly is nothing more than a gamble or wager? Such as using insurance to bet when a stranger will die and hoping the person will die soon.

 

Stranger-oriented life insurance policies – STOLI policies – is life insurance taken out on strangers. In a STOLI arrangement, a life settlement broker persuades a senior citizen to take out a life insurance policy – not to protect the person's family but for a cash payment. A STOLI policy is intended for resale before it is even issued. Generally, an investor funds a STOLI policy from the outset, which makes it possible to obtain a policy with a high face value. The investor may lend the insured the money to pay the premiums for the period of incontestability, typically two years. It is also common for an insured to buy the policy in the name of a trust and name a spouse or other loved one as the trust beneficiary. The family then sells the life insurance policy to the investors, strangers to the insured.

 

STOLI arrangements present significant legal problems: the investors have no insurable interest in the life of the insured; and STOLI policies constitute wagers on human life because strangers not only bet on how long the insured will live, but against his or her longevity.

 

STOLI polices are hated by life insurers and contravene public policy. Most states have outlawed STOLI policies. New York, for example, enacted anti-STOLI legislation in 2009 (N.Y. Ins. Law § 7815[c]; 7813[j][1]).

 

Until now New Jersey courts had never considered STOLI policies. The Supreme Court of New Jersey ruled that STOLI policies violate public policy and are void ab initio. The Supreme Court reasoned that:

 

“Betting on a human life in that way, with the hope that the person will die soon, not only raises moral concerns but also invites foul play.”

 

In voiding STOLI policies, it raises an issue if the premium should be refunded. Life insurance policies are routinely bought and sold (legally). The Court said:

Depending on the circumstances, a party may be entitled to a refund of premium payments it made on a void STOLI policy, particularly a later purchaser who was not involved in any illicit conduct.

 

The decision is summarized in the attached issue as well as a brief history of life insurance and how “insurable interest” developed. If interested, read on.

 

The New Jersey Appellate Division recently addressed the property manager provision in the CGL policy. A standard ISO-form CGL policy insures a property manager working on behalf of the named insured:

 

WHO IS AN INSURED

 

Any person … or any organization while acting as your real estate manager.

 

On page 1 of the CG 00 01, “Your” is defined to mean the named insured.

 

The building owner retained a property manager. The CGL policy under which coverage was sought, however, was issued to a tenant. The property manager could not demonstrate that it was acting on its behalf of the named insured – the tenant – and thus, the Court ruled the property manager was not insured under the tenant’s CGL policy.

 

That’s all for now.

 

John

John R. Ewell

[email protected]

 

Editor’s Note: When I say STOLI, I thought he was writing about vodka.  Shows you where my mind has gone.

 

Wisconsin Proud to be the First to Adopt the Suffrage Amendment:

 

The Daily Item

Sunbury, Pennsylvania

14 Jun 1919

 

WISCONSIN FIRST STATE

TO RATIFY SUFFRAGE

 

(Special by United Press)

 

Washington, June 14.—Wisconsin goes down in history as the first state to ratify the women’s suffrage amendment.  The State Department today settled all dispute over the question by notifying the National Woman Suffrage Association that Wisconsin had captured the honors by completing all formalities attending upon the ratification before any other state. 

 

 

 

Peiper on Property and Potpourri:

 

Greetings.  We return this week with a full column of both interesting first party decisions, but likewise a couple noteworthy potpourri offerings.   Hopefully, we get a few more weeks of decisions before the courts slow for summer recess.   

 

We’d like to draw your particular attention to the Fourth Department’s decision involving an application of the earth movement exclusion.  In that case, Valente v Utica First, the plaintiff apparently tried to avoid the language of the exclusion by arguing that the causative event was actually surface water run-off.  While not entirely clear, it sounds like a dominant and efficient cause of loss argument based upon what the trier of fact would think is the true causative event.  A noble try by the policyholder, but the Court appears to swat the argument away by holding that the earth movement, not what may have precipitated the earth movement, is the controlling event.  The court does not address the dominant and efficient cause of loss theory directly, nor does it address the anti-concurrent causation language which might have also been in play. 

 

With regard to the dominant and efficient cause of loss, the Court of Appeals has advised that we need not retreat all the way to the “metaphysical” beginnings of a loss to determine where casual chain begins.  Rather, the inquiry extends only to where the one might logically conclude the loss occurred.  Here, that is not with the introduction of water into ground.  It was rather once the ground moved. 

 

Given the construction of exclusions, however, we would not have been surprised to see the Court reach a different conclusion on dominant and efficient cause of loss.  At least, we would not have been surprised to have seen that issue held in abeyance as a question of fact.  That is, no doubt, what plaintiff was likely hoping to achieve.    That said, the motion may have been ripe for dispositive relief, by application of anti-concurrent causation language (“ACC”).  ACC, as found in most modern first party policies, cleans up the awkward analysis of what is the actual causative event.  In this policy had ACC language been employed, the “cause” of the earth movement would have been rendered irrelevant.

 

Perhaps tellingly, the decision does rely heavily on the Kula v. State Farm case which both addresses the dominant and efficient cause of loss standard, but also endorses the enforceability of ACC language in New York policies.   If we had a bet, we’d put our money on ACC language carrying the day on this one (although, parenthetically, we don’t disagree with an argument that the earth sinking was the proximate cause of the loss).   

 

As I write this week’s missive, I must admit to a growing sense of regret.  Tonight is the Corporate Challenge for Buffalo, and I signed up to run with the Firm’s Team.  It seemed like a fine idea at the time, and the run, itself, is not what is bothering me.  It’s the 62 degree rainstorm outside that has me contemplating faking a hamstring injury.  I’ll let you know next time.

 

That’s it for this week.  Happy Father’s Day to all the dads out there.  Hope you enjoy your weekend more than I’ll enjoy my shoe-soaked night! 

 

Steve

Steven E. Peiper

[email protected]

 

From the Mouth of a Babe:

 

Evening Public Ledger

Philadelphia, Pennsylvania

14 Jun 1919

 

‘DADDY!’—THAT SETTLED IT

 

Father Loses Case In Court When

Baby Recognizes

 

The word of a child only one year old won a case for his mother in the Municipal Court.

 

The defendant in the case, a comparatively young man, was summoned to court yesterday by the baby’s mother for failure to support the child.

 

Counsel for the man grilled the woman severely in his attempt to show that the defendant was not the father of the child.  While the woman was answering the questions as best she could the child toddled around near the rail in front of the judge.  Suddenly the boy saw the man and, with a cry of delight, he uttered one magical word, “Daddy.”

 

The man was startled and looked confused.  His attorney suddenly ceased cross-questioning.  The one word of unsought testimony of the child was enough for the jury, which returned a verdict of guilty.

 

Judge Gorman told the man he would have to support the baby and fixed an order to that effect. 

 

Hewitt’s Highlights: 

 

Dear Subscribers:

 

Happy Coverage Pointers Day! The weather has been beautiful on Long Island. Children’s spring activities are winding up here.  My 8-year-old son’s baseball team went to the championships in their league but, unfortunately, lost 6-5 when the opposing team hit an inside-the-park homer with two outs and two strikes. I drowned the disappointment of my son in soft serve ice cream.

 

In this edition, we have a few interesting cases. In one, plaintiff failed to explain a two-year gap in treatment. In another, a 90/180-day category claim was dismissed when plaintiff was only confined to home for 3 weeks. Finally, the Appellate Division increased the value given by a Kings County jury, valuing a rotator cuff surgery at $75,000 and an arthroscopic knee surgery at $170,000 when the jury awarded much lower amounts.

                                                                        

Until next issue,

 

Rob
Robert E.B. Hewitt III

[email protected]

 

It Takes (at least) Two (or Three) to Commit Bigamy:

 

The Buffalo Enquirer

Buffalo, New York

14 Jun 1919

 

Husband No. 2 Wants to Take Blame

For Bigamy Charge Against His Wife

 

Snuggling close to her newest husband, Edwin Mack, Jeanette Bater, eighteen years old, arrested on a charge of bigamy sat in the courtroom this morning, weeping a bit, smiling a bit, secure, however, in the midst of all her trouble because of her young husband's presence. Judge Keeler, after hearing the facts of the case decided to adjourn the trial until Monday, holding the young couple on $5,000 bail.

 

Jeanette Ehmlinger, later Bater, still later Mack, was married about eight months ago to Floyd Bater, the complainant in the present case.  According to her own story she lived with her husband only a few days. She met Mack and cupid had another victim. She fell in love with him at once. That was the beginning of the romance, and the next important step was taken June 3 when Mrs. Bater married Mack in Dunkirk.

 

Last night Husband No. 1, who was also in court this morning, glaring a bit resentfully at the picture of his wife and her husband, "No. 2" holding hands on the bench in front of him, with a couple of his friends came to the apartment of the Macks at No. 100 Oak street. " According to Mrs. Bater-Mack one of the friends carried a revolver with which he threatened youthful husband No. 2.

 

A warrant was sworn out by husband "No. 1" for the arrest of his wife, and the entire party, husbands, wife and friends appeared in court this morning. The outcome of the case is at present dubious, and it may be the couple were wasting energy and words in the argument as to which one would take the punishment. Mr. Mack insists that it is to be his privilege and right to take whatever punishment is forthcoming, whereas, clinging a bit tearfully to his arm the girl says she will accept full responsibility.

 

On Monday the case will be heard by Judge Keeler, and it is possible that both will be able to take the punishment and serve time together.

 

Wilewicz’ Wide-World of Coverage:

 

Dear Readers,

 

As summer comes into full swing here, I can’t recall a busier month in a while. I’ve been back and forth to NYC more than a few times already this June, and I have quite a number of inspections, conferences, and depositions through the balance of the month. July looks to be just as busy, but hopefully August slows a little. I’m planning a vacation toward the end of summer, for my grandmother’s 80th birthday party, in Poland. We will spend a few days first in Stockholm (never been) and we’re currently looking for recommendations for things to do. Though I’m not Swedish, my daughter has a Swedish first name, just because I liked it, and she’s very much looking forward to actually being able to get customized souvenirs with her first name pre-printed on them for once.

 

Anyway, this week in the in Wild World of Coverage, we bring you a brief technical case involving insurers that has a practical lesson. In Arch v. Pfizer, a couple of insurers had their federal court case dismissed because of a prior pending state court case in Delaware involving the same parties and issues. Generally the “first-filed” rule applies and the second action should be dismissed. However, as the court wrote, a technical reading of that rule is: “where an action is brought in one federal court and a later action embracing the same issue is brought in another federal court, the first court has jurisdiction to enjoin the prosecution of the second action, unless there are special circumstances which justify giving priority to the second action” (emphasis supplied by the court). Here, the first was a state court action, so the rule was inapplicable. Moreover, the circumstances were such that the federal court judge had retired since issuing his decision, so the Circuit Court was inclined to leave the matters in state court. A pithy read, if you’re interested. Check out the summary in the attachment here, which includes a link to the case itself.

 

Until next time!

 

Agnes

Agnes A. Wilewicz

[email protected]

 

Scabs Not Welcome:

 

The Buffalo Times

Buffalo, New York

14 Jun 1919

 

NON-STRIKING WORKMAN

THROWN INTO THE SEINE

 

By Associated Press Cable.

 

PARIS, Jun 13.—A non-striking workman at the Billancourt aviation works was seized by strikers this afternoon and thrown into the Seine River.  The director and employees of the works tried to go to assist the man but were prevented by the strikers. 

 

Barnas on Bad Faith:

 

Hello again:

 

One win away.  The Toronto Raptors are that close to winning the NBA Finals and delivering the first championship for one of the teams I support in the four major North American professional sports leagues since the Blue Jays won the World Series in 1993.  That’s a long time to wait!  It’s so long that the Raptors didn’t even exist at the time.  We have two chances to get it done: one in Oakland tonight and one more try in Toronto if necessary on Sunday.  I don’t know if I can deal with the stress of a game seven, so I hope it ends tonight.  I actually believe that we’re going to win, which will just make it all the more painful if it goes wrong.

 

Discovery is always a hot issue in bad faith cases.  In particular, the ability of the bad faith plaintiff to obtain documents that the insurer believes are protected by the attorney-client privilege is a constant source of litigation and discovery motions.  Yesterday, the Supreme Court of South Carolina issued a decision on this subject, which answered a certified question from the United States Court of Appeals, Fourth Circuit.  The plaintiffs in the bad faith action sought documents from the insurer’s file after it disclaimed coverage for its insured in the underlying construction defect case.  Mt. Hawley claimed some of the documents were protected by attorney-client privilege.

 

The Supreme Court of South Carolina decided that the mere denial of bad faith/assertion of good faith, standing alone, does not place a privileged communication “at issue” in a case such that the attorney-client privilege is waived.  The analysis must be done on a case-by-case basis to determine whether the plaintiff is entitled to the communication.  For example, where the insurer is relying on a subjective belief of good faith that was based on the opinion of counsel, such a communication may be discoverable.  However, the court imposed an additional requirement that the party seeking waiver of the attorney-client privilege must make a prima facie showing of good faith.

 

All things considered, this is a pretty good decision for insurers on discovery in bad faith cases.  Too many times courts see a bad faith cause of action and jump to the conclusion that the attorney-client privilege is inapplicable.  This is particularly problematic in New York, where some bad and overbroad case law is often cited for the proposition that the attorney-client privilege is not applicable in bad faith cases.  Hopefully this more nuanced case-by-case analysis becomes the norm around the country.

 

That’s all for now.  Happy Father’s Day to all of the dads out there.  Have a great weekend.

 

Brian

Brian D. Barnas

[email protected]

 

Some Did Not Like Daylight Savings Time, a Century Ago:

 

New York Herald

New York, New York

14 Jun 1919

 

THE MORNING TASKS.

 

Daylight Saving’s Effect on Women

Who Get Their Own Breakfast

 

To the Editor of the Sun—Sir:  As to daylight saving giving more opportunity for outdoor exercise to office workers, that is a joke.

 

I am an office worker and most of my friends are.  I have asked every one I know if advantage is being taken of this afternoon hour for tennis and the like, and have yet to find one who is taking any such exercise in the extra afternoon hour.

 

One of my woman friends, who works in an office, says she likes the new arrangement because it gives her an extra hour in which to sew at home by daylight.  I said:  “There is nothing to hinder you from getting up an hour earlier under the old arrangement and sewing before going to work.”  And so it is, I feel, with all city workers.

 

Let those who like to do some personal work or exercise by daylight get up an hour earlier in the morning and do that work or exercise, thereby not disturbing those who prefer to arise later.  Lots of people, particularly those working women who prepare their own breakfast—and their number is legion—have to get up early enough under the old time in order to get breakfast, clear up the dishes, prepare themselves for the day and get to their place of work.

 

WOMAN OFFICE WOKER

NEW YORK, June 13.

 

Off the Mark:

 

Dear Readers,

 

Despite today’s rain, the weather has been getting really nice on Long Island.  In light of the warm weather, I’ve been trying to spend as much time outdoors with the kids as they need a break from their electronic devices.  This weekend, we are traveling down to South Carolina for my nephew’s baptism.  It’s a brief stay, but we are all looking forward to it. 

 

My search came up empty for noteworthy construction defect decisions.  Maybe the Courts are enjoying the warmer weather as well. 

 

Wishing all the fathers out there a Happy Father’s Day.

 

Brian

Brian F. Mark
[email protected]

 

 

Friends … Lend me Your Ear:

 

The Standard Union

Brooklyn, New York

14 Jun 1919

 

MAIMED BY THIEF GUN

TRAP RECOVERS $300

 

Anthony Di Veto of 19 Dooley Street, Sheepshead Bay, has been awarded $300 and costs by a County Court jury as damages for injuries sustained when he unsuspectingly set off a shotgun on the premises of August Friend, a wheelwright, of Coney Island Avenue and Neck Road, that Friend had rigged up as a chicken-thief trap.

 

Friend, who had suffered frequent loss from the depredations of the thieves set the weapon inside his chicken coop with a rope attached to the trigger.  Di Veto, looking for Friend to repair his automobile pulled the cord and the gun went off, the discharge carrying away part of Di Veto’s left ear.  Di Veto sued for $2,000.

 

Wandering Waters:

 

I hope all of you had a wonderful week and welcome to another edition of Wandering Waters.   

 

The NBA finals continues with a thrilling five games thus far.  Many are surprised that the Raptors have a 3-2 lead heading into a pivotal game 6.  While the Raptors have the series lead, the Warriors have home court advantage and championship experience.  The Warriors have not only been almost unstoppable at home, they have also won some big games in recent years.  Essentially, the Warriors are battled tested and can never be counted out.

 

On the other hand, the Raptors are playing with an elevated level of confidence.  Their leader and superstar, Kawhi Leonard, continues to demonstrate he may be the best player in basketball.  With every big play and clutch moment, Leonard further cements himself into the conversation as the best player in the world. 

 

While the NBA finals has produced many great moments, there have been a few sad ones as well.  Unfortunately, Kevin Durant has suffered a season-ending Achilles injury.  Durant, who has missed a majority of the Playoffs, finally returned to the lineup for game 5.  Durant’s return was much discussed, and he did not disappoint in the time that he was on the court.  Durant was moving well, making plays and most importantly scoring points.  Heading into the second quarter, Durant already recorded double digits in the score column.  However, tragedy struck in the second quarter.  The energy in the arena immediately evaporated when he went down grabbing his lower leg.  A few days later, it was confirmed, after much speculation, that Durant injured his Achilles.  I hope that he makes a full recovery. 

 

With that said, we have one case from the Western District of New York. Until next time……

 

Larry

Larry E. Waters

[email protected]

 

Where have I Heard This Before:  Any Immigration Legislation Before Congress – 100 Years Ago:

 

New-York Tribune

New York, New York

14 Jun 1919

 

House Bill Provide Death

For All Bomb Throwers

 

New York Tribune

Washington Bureau

 

WASHINGTON, June 13.--Four bills designed to put an end to terrorism and anarchism in the United States were presented in the House to-day by Representative Aswell, of Louisiana.

 

The most important of these measures would make the offence of placing or throwing a bomb or any other explosive, with intent to destroy life or property, punishable by death.

 

The second bill would halt all immigration to the United States for a period of three years.

 

The third calls for the deportation of all alien conspirators against the government and authorizes penalties of from ten to thirty years in the penitentiary for those who return to the United States after having been deported.

 

The last bill would authorize the deportation of all aliens who, during the war, withdrew their declarations of intention to become citizens rather than serve in the military forces of the United States.

 

"I believe the sentiment of the country is unqualifiedly for such legislation," said Representative Aswell tonight. "If it is adopted by Congress the Department of Justice and the Department of Labor will be armed with ample authority to clean up and deport all Reds in this country."

 

Attorney General Palmer appeared before the House Appropriations Committee to-day in support of his request for $500,000 appropriation with which to deal with anarchistic movements in this country. There was no opposition to the requested appropriation.

 

Boron’s Benchmarks:

 

Dear Subscribers:

 

Today we consider AI.  No, not Artificial Intelligence.  Not American Idol or Allen Iverson, either.  Today we consider an Additional Insured endorsement, including its classic causation-trigger wording in the CGL policy at issue, and the Supreme Court of Rhode Island’s analysis and ruling. And why not?  After all, this column covers the high courts of states not named New York.

 

It is standard operating procedure in the construction industry for General Contractors (“GC”s) to seek to transfer liability risk onto their subcontractors.  The GC’s contracts with the subs include indemnity language.  Moreover, and more importantly for we coverage folk, the GC’s contracts with the subs also include the requirement that the sub names the GC as an “additional insured” on the sub’s liability insurance policy.  Folks get hurt at a seemingly higher percentage on construction project sites than anywhere else in the world, and it is into this kind of scenario we delve in considering the Bacon Construction case I’ve written up for this column.

 

Have a great next two weeks, folks.

     

Eric

Eric T. Boron

[email protected]

 

Even Canadian Beer May be Dangerous:

 

Calgary Herald

Calgary, Alberta, Canada

14 Jun 1919

 

DOCTORS DIFFER ON

EFFECT OF BEER

 

ATLANTIC CITY, June 13.—Opposite views regarding the effect of beers and wines of low alcoholic content on the human system were expressed by speakers before the American Medical Association in annual convention here.

 

Dr. L. Otto, of Philadelphia, said such drinks were not intoxicating, but that on the other hand, they were healthier and their sale under government supervision should be continued.  “Beer and wine of low alcoholic content,” he said, “are a real aid to digestion.”

 

Declaring there is a tendency toward excess in all beer drinking.  Dr. Leonard Fantus, of Chicago, took direct issue with Dr. Otto.  “If the alcoholic content of beer were reduced,” said Dr. Fantus, “instead of complete prohibition the beer drinkers would drink twice as much as formerly, with the same disastrous effects.”

 

Barci’s Basics (On No Fault):

 

Hello Subscribers!

 

The sun is trying to shine through and summer seems to be officially here. The heat has stayed off in my house and the windows have been opened to let all the fresh, albeit rainy, air in. The rain has been putting a damper (pun intended) on my outdoor activities, and I’m currently trying to psych myself up for the Corporate Challenge race tonight, as it is expected to downpour. Nevertheless, I expect there to be a big crowd and good food waiting for me at our tent when the rainy race is over.

 

On the no-fault front I have an important Court of Appeals case for you. The case discusses what it means to be a fraudulently incorporated medical provider and that an insurer can withhold payment for reimbursement of assigned no-fault benefits to a medical services corporations that is improperly controlled by non-physicians.

 

That’s all folks,

 

Marina

Marina A. Barci

[email protected]

 

Pigs to Save County:

Buffalo Courier

Buffalo, New York

14 Jun 1919

 

COUNTY HOGS MAY

SOLVE PROBLEM OF

GARBAGE DISPOSAL

 

At request of Supes, Council

Lays Matter Over One Week.

 

LINWOODITES UP IN ARMS

 

American Bridge Company

Lands Big Viaduct Contracts.

 

The garbage question was unanimously put over for one week by the city council yesterday after Supervisors Dorn and Wende of the finance committee requested that the board of supervisors be given an opportunity to consider the feasibility of feeding the city garbage to hogs on the county farm at Alden.

 

Commissioner Kreinheder asked that the question be tabled until further investigation could be made as when he advertised for bids he did not realize the possibility of a municipal or county piggery.  Government scientists, on a basis of the cost of grain, estimate garbage to be worth $10 or $11 a ton, he stated. 

 

Lee’s Connecticut Chronicles:

 

Dear Nutmeg Newsies:

 

In recognition of Pride Month and our continuing look at famous Connecticut jurists, this edition we recognize Connecticut’s Dean Acheson. Born in Middletown, Connecticut, Acheson is best known as a statesman, architect of the Marshall Plan, and the formation of NATO. A Yale undergrad and a Harvard Law School graduate, Acheson began his career clerking for Supreme Court Justice Louis Brandeis. After a decade in private practice, Acheson began a long and distinguished career in public service. However, little known is that he came under heavy attack in the late 1940s for his defense of State Department employees accused of being homosexual during what was to become known as the Lavender Scare. Overshadowed in history by the contemporaneous Red Scare, Senator Joseph McCarthy and others attempted to purge gays and lesbians from the federal government – a practice that impacted far more people than did the attacks on Communists. It was not until 1975 that the U.S. Civil Service Commission ended a ban on gays and lesbians in the federal civil service, and it took until 1995 for President Clinton to withdraw President Eisenhower’s 1953 Executive Order 10450 banning ‘sexual perverts’ from government service.

 

Turning to this edition’s Connecticut case, we ask the following question: When does crushed glass, power sprayed on glass windows causing $4 million in damage result in no new glass – when the windows are insured under a builder’s risk policy that excludes damage caused by renovations. In this edition of Lee’s Connecticut Chronicles, we examine a Connecticut appellate court’s take on a defect, errors, and omissions exclusion and its interplay with a resulting loss clause. 

 

Lee

Lee S. Siegel

[email protected]

 

KOHANE’S COVERAGE CORNER
Dan D. Kohane

[email protected]

  • Court of Appeals Affirms that Timely Disclaimer Requirement of Insurance Law Sec. 3420(d)(2) is Not Applicable to Non-domiciliary Risk Retention Group
  • Uninsured Motorist Carrier is Not Bound by Decision in Action in which it was Not a Party
  • Underlying Verdict Should have been Considered as Collateral Estoppel.  Heads Scratched because of Analysis.
  • Insurer Lost Right to Conduct Discovery in SUM Claim by Failing to Make Motion to Stay within 20 Days
  • An Excellent Primer on Evaluating Late Notice Disclaimers
  • Insurance Agent has No Duty to Advise Policyholder’s Decedent of Insurance Requirements under Policy – Not a Client
  • Workers Compensation Exclusivity Not Established
  • Prejudice Established to Uphold Disclaimer, Thousands Cheer

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

Robert E.B. Hewitt III

[email protected]

  • Plaintiff Failed to Explain a Two-Year Gap in Treatment
  • 90/180-Day Claim Dismissed Where Only Confined Home for Three Weeks
  • Defendant’s Own Expert Found Range of Motion Limitations
  • Rotator Cuff Injury Damages Increased to $75,000 and Knee Surgery Injury Damages Increased to $170,000 Total by Appellate Court

PEIPER ON PROPERTY (and POTPOURRI)

Steven E. Peiper

[email protected]

 

Property

  • Earth Movement Applies Even When the Ground was Compromised due to Flow of Surface Water Run-Off

Potpourri

  • Lack of Privity Destroys Claim for ERISA Lawsuit Against Employer Under a Long-Term Disability Policy
  • New York Courts are Not Required to Apply a Stay Based Upon Liquidation of an Out-Of-State Risk Retention Group

WILEWICZ’S WIDE WORLD OF COVERAGE

Agnes A. Wilewicz

[email protected]

  • Second Circuit finds that First-To-File Rule Inapplicable in Coverage Case where one Action filed in State Court and the other in Federal Court

JEN’S GEMS

Jennifer A. Ehman

[email protected]

  • Trial Court Directs Insurer to Defend Under Personal and Advertising Section of GL Policy where Complaint Uses the Word “Advertise” Irrespective of Whether the Ultimate Damages Suffered were Because of Advertisement

BARNAS ON BAD FAITH

Brian D. Barnas

[email protected]

  • A Denial of Bad Faith or Assertion of Good Faith Alone does not Place Attorney-Client Communications at Issue in a Case such that the Attorney-Client Privilege is Waived

JOHN’S JERSEY JOURNAL
John R. Ewell

[email protected]

  • In Matter of First Impression, New Jersey Supreme Court Rules that Stranger-Oriented Life Insurance Policies are Against Public Policy and Void ab initio
  • Building Property Manager Was Not Acting as Tenant’s Property Manager, and therefore, Not Insured on Tenant’s CGL Policy

LEE’S CONNECTICUT CHRONICLES

Lee S. Siegel

[email protected]

  • Builder’s Risk Policy Excludes Coverage for Contractor’s Damage to Windows
  • No Continuous Treatment Toll For TPA’s Negligence Post-Adjustment

OFF THE MARK
Brian F. Mark

[email protected]

  • No cases this week.

WANDERING WATERS

Larry E. Waters
[email protected]

  • Court Concludes Plaintiff not Entitled to Replacement Cost as Plaintiff had repeatedly disclaimed any interest in the Insured Property and Testified Unequivocally that she had no Plans to Replace the Property

BORON’S BENCHMARKS

Eric T. Boron

[email protected]

  • Commercial General Liability Insurance Policy – Summary Judgment For Insurer Affirmed – Insurer Not Obligated to Provide Additional Insured Coverage to GC

BARCI’S BASICS (ON NO FAULT)

Marina A. Barci

[email protected]

  • No-Fault Benefits Are Not Required to be Paid to Professional Service Corporations Posing as Medical Providers but Run by Non-Physicians

EARL’S PEARLS

Earl K. Cantwell
[email protected]

 

  • The Intersection of Claims Handling and Consumer Protection Statutes

 

Happy Father’s Day and keep those cards and letters coming in.

 

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


NEWSLETTER EDITOR
Dan D. Kohane
[email protected]

 

ASSOCIATE EDITOR

Agnes A. Wilewicz

[email protected]

 

ASSISTANT EDITOR

Jennifer A. Ehman

[email protected]

 

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

 

Steven E. Peiper, Co-Chair

[email protected]
 

Michael F. Perley

Jennifer A. Ehman

Agnieszka A. Wilewicz

Lee S. Siegel

Brian D. Barnas

Brian F. Mark

John R. Ewell

Larry E. Waters

Eric T. Boron

Marina A. Barci

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]
 

Marina A. Barci

 

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

 

Diane F. Bosse
 

Topical Index

Kohane’s Coverage Corner

Hewitt’s Highlights on Serious Injury

Peiper on Property and Potpourri

Wilewicz’s Wide World of Coverage

Jen’s Gems

Barnas on Bad Faith

John’s Jersey Journal

Lee’s Connecticut Chronicles

Off the Mark

Wandering Waters

Boron’s Benchmarks

Barci’s Basics (on No Fault)

Earl’s Pearls

 

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

 

06/11/19       Nadkos, Inc. v. Preferred Contractors Ins. Co.

New York State Cout of Appeals

Court of Appeals Affirms that Timely Disclaimer Requirement of Insurance Law Sec. 3420(d)(2) is Not Applicable to Non-domiciliary Risk Retention Group

Nadkos, Inc., a general contractor, sought coverage from Preferred Contractors Insurance Company Risk Retention Group LLC (PCIC), the general liability carrier for Nadkos’ subcontractor, in connection with an underlying action for injuries sustained by an employee of the subcontractor.   PCIC is a risk retention group (RRG) chartered in Montana and doing business in New York. 

 

Insurance Law § 5904 requires nondomiciliary RRGs doing business in New York to comply with New York’s unfair claims settlement practices provisions set forth in Insurance Law § 2601(a).  That provision lists acts by insurers that, if committed as a general business practice, constitute unfair settlement practices.  Insurance Law § 2601(a)(6) includes “failing to promptly disclose coverage pursuant to Insurance Law §§ 3420(d) or (f)(2)(A)”.  RRGs are otherwise generally exempt from state law regulation. 

 

After PCIC disclaimed coverage, Nadkos commenced this action seeking a declaration that the disclaimer was untimely as a matter of law under Insurance Law § 3420(d)(2) which requires certain liability insurers to disclaim coverage, as “soon as is reasonably possible.”

 

PCIC moved for summary judgment arguing that Insurance Law § 3420(d)(2) is inapplicable to it as a nondomiciliary RRG. Nadkos cross-moved for summary judgment asserting that Insurance Law § 2601(a)(6), by referencing § 3420(d) subjects PCIC to the timely disclaimer requirements of § 3420(d)(2).  After the Supreme Court granted judgment to PCIC and the Appellate Division affirmed, the Court of Appeals granted leave to appeal.

 

The Court of Appeals, in a 6-1 vote with Judge Wilson dissenting, examined the statutory text and structure as well as the legislative history of the relevant statutes and concluded that the disclosure mandates of Insurance Law § 3420(d)(1) and 3420(f)(2)(A) differ from the disclaimer provisions of § 3420(d)(2).  Insurance Law § 2601(a)(6) qualifies its reference to Insurance Law § 3420(d) by limiting its reach to an insurer’s failure “to promptly disclose coverage.”  The majority found that term distinct from an obligation to disclaim coverage and affirmed the order of the Appellate Division. 

Editor’s Note:  Thanks to Diane Bosse for her summary of this case and to Diane Bucci who successfully handled the appeal.

 

06/12/19       Country-Wide Insurance Company v. Hills
Appellate Division Second Department

Uninsured Motorist Carrier is Not Bound by Decision in Action in which it was Not a Party

On July 3, 2015, the Hills allegedly were injured when their vehicle was struck by a vehicle owned by Dulin and insured by GEICO Indemnity Company (hereinafter GEICO). The Hills served a demand for uninsured motorist (“UM”) arbitration upon their own carrier, Country-Wide.

 

Country-wide commenced this proceeding to permanently stay arbitration of the UM respondents' claim on the ground that the offending vehicle was insured at the time of the accident. In the alternative, the Country-wide sought to temporarily stay arbitration and to add Dulin and GEICO as additional respondents in the proceeding.

 

In opposition, the Hills and GEICO argued that GEICO was not liable for the payment of benefits, and that the County-wide was collaterally estopped from challenging a finding made in an underlying personal injury action entitled Hills v. Mendolia and Stenz, pending in the Supreme Court, Queens County, under Index No. 11726/15, that Dulin was not liable to pay damages to the respondents.

 

It is undisputed that the Dulin vehicle was insured by GEICO at the time of the accident. Nonetheless, GEICO and Hills contend that, based on the prior finding of Dulin's nonliability in the personal injury action, Country-wide is collaterally estopped from denying the claim for uninsured motorist benefits. Since Country-wide was not a party in that underlying lawsuit, it is not collaterally estopped.

The controversy between the petitioner and GEICO as to which insurer is liable for the payment of benefits remains to be determined.

 

Accordingly, those branches of the petition which were to temporarily stay arbitration and to add Dulin and GEICO as additional respondents should have been granted.

 

06/12/19       Zurich American Insurance v. Hereford Insurance Company
Appellate Division, Second Department

Underlying Verdict Should have been Considered as Collateral Estoppel.  Heads Scratched because of Analysis.

On January 28, 2014, a tractor owned by Cowan Systems, LLC (“Cowan”), by Aguilar, and insured by Zurich collided with the driver's side of a parked vehicle occupied by Tapia and insured by Hereford. Tapia, who allegedly sustained various injuries as a result of the accident, received $20,018.17 in no-fault benefits from Hereford.

 

In October 2014, Tapia commenced an action (hereinafter the action) against Cowan, Aguilar, and another defendant in the Supreme Court, Queens County, to recover damages for injuries allegedly sustained as a result of the accident. In or around December 2014, the action was removed to the United States District Court for the Eastern District of New York. The action proceeded to trial, and on December 15, 2016, a unanimous jury found that Tapia did not demonstrate by a preponderance of the evidence that the accident caused him to sustain injury.

 

Meanwhile, on or about November 24, 2015, via compulsory arbitration pursuant to Insurance Law § 5105, Hereford sought reimbursement from Zurich for the no-fault benefits paid to Tapia. At the arbitration hearing, Zurich submitted into evidence, inter alia, a copy of the jury verdict sheet from the action. Nonetheless, the arbitrator, upon determining that Zurich's insured was 100 percent at fault for the accident for failure to yield and that Hereford had proven all of its damages, awarded Hereford $20,018.17.

 

Subsequently, Zurich commenced this proceeding pursuant to CPLR 7511 to vacate the arbitration award, contending that the award was arbitrary and capricious insofar as the arbitrator failed to give preclusive effect to the jury verdict from the action. Hereford cross-petitioned to confirm the award.

 

To be upheld, an award in a compulsory arbitration proceeding must have evidentiary support and cannot be arbitrary and capricious.

 

The arbitration award herein was irrational and arbitrary and capricious insofar as the arbitrator failed to give preclusive effect to the jury's determination that Tapia had failed to demonstrate by a preponderance of the evidence that the accident caused him to sustain injury. Significantly, the jury's determination that Tapia did not demonstrate by a preponderance of the evidence that the accident caused him any injury precluded Hereford from recovering from Zurich via mandatory arbitration the amount of no-fault benefits paid by Hereford to Tapia with respect to the accident.  Here, the arbitrator failed to consider this provision of law in light of the jury's verdict.

 

Contrary to Hereford's contention, even though it was not a party to the action, Hereford, as subrogee, stands in place of Tapia, its subrogor, "such that it can be reasonably said that the two are in privity,' sufficient to bind [Hereford] by the prior judgment to which it was not a party of record.

Editor’s Note:  Interesting decision indeed. Zurich pays no fault benefits because of a claim that the “Eligible Injured Person” (“EIP”) was injured as a result of an auto accident. It then seeks loss-transfer of those benefits from the carrier for the other vehicle in the accident.  However, between the time no fault benefits were obtained and the time of the loss-transfer arb, the EIP/Plaintiff  brings an action against the other driver and the jury finds that the accident had nothing to do with the injuries he sustained.  The court holds that that finding is binding on the loss-transfer claim.

 

Can Zurich now sue the EIP for a return of the no fault benefits paid?

 

06/11/19       GEICO General Insurance Company v. Glazer
Appellate Division, First Department

Insurer Lost Right to Conduct Discovery in SUM Claim by Failing to Make Motion to Stay within 20 Days

This is yet another case involving an application to stay a supplemental uninsured/underinsured motorist arbitration.  Here, GEICO received a demand for arbitration on April 30 and instead of moving within that statutory 20 days, they waited three months.

 

An otherwise untimely petition to stay arbitration may be entertained when "its basis is that the parties never agreed to arbitrate, as distinct from situations in which there is an arbitration agreement which is nevertheless claimed to be invalid or unenforceable because its conditions have not been complied with" …  this case does not meet that exception.

 

Glazer’s refusal to submit to an independent medical examination or examination under oath involves a condition precedent to coverage as opposed to an issue of arbitrability. Had a timely motion been made, discovery could have gone forward. However, GEICO did not make its motion and thus waived discovery.

 

06/07/19       Underberg v. Dryden Mutual Insurance Company

Appellate Division, Fourth Department

An Excellent Primer on Evaluating Late Notice Disclaimers

There was an incident that occurred on November 14, 2008 during which Underberg sustained injuries when a security guard at a nightclub allegedly assaulted him. The nightclub was owned by Quote (“Quote”), and Dryden insured Quote. On November 13, 2009, plaintiff commenced a personal injury action against Quote and three individual defendants, one of whom he alleges was an employee of Quote and the other two he alleges are not employees but are agents of Quote. On February 17, 2011, Dryden disclaimed coverage based on the policy's assault and battery exclusion, Quote's failure to give timely notice of the incident, and Quote's failure to promptly forward lawsuit papers.

 

Plaintiff obtained a default judgment against Quote and two individual defendants and, after a nonjury trial, obtained a judgment against a third individual defendant on the issue of liability. After an inquest on damages, plaintiff obtained a money judgment against Quote and the three individual defendants. Plaintiff served defendant with a demand for payment, but defendant refused to satisfy the money judgment. A direct action was commenced by Underberg against Dryden to recover the amount covered by the policy.

 

The assault and battery exclusion applies, as all of the causes of action in the amended complaint in the underlying lawsuit are based on the assault by the security guard.

 

However, there is a triable issue of fact whether defendant issued a timely disclaimer of coverage. An insurer's reliance upon a policy exclusion to deny coverage of an incident requires a timely disclaimer. Dryden met its initial burden on its motion for summary judgment by submitting the affidavit of its claims manager, who averred that defendant was first notified of the November 14, 2008 incident on February 3, 2011, and it disclaimed coverage two weeks later, which we agree is timely as a matter of law.  However, Underberg submitted submitting the affidavit of Matthew Dole, who was one of the individuals who owned Quote on the day of the incident. Dole averred that Dole averred that he received letters from plaintiff's attorney on November 17 and 25, 2008 regarding the incident and that he forwarded those letters to defendant on or before December 31, 2008. If those averments are true, then defendant's disclaimer of coverage over two years later would be untimely as a matter of law.

 

We agree with defendant that Quote failed to comply with the policy condition requiring it to "promptly forward . . . all . . . legal papers received in connection with" the occurrence. The underlying lawsuit was commenced on November 13, 2009, but it was undisputed that defendant did not receive any of the legal papers until February 3, 2011. Nevertheless, we reject defendant's contention that it is entitled to its requested declaratory relief on the ground that Quote failed to give timely notice of the incident and failed to promptly forward the lawsuit papers to it.

 

As explained above, a triable issue of fact exists whether Quote provided notice of the incident to defendant on or before December 31, 2008, and thus there is a triable issue of fact whether Quote gave timely notice of the incident pursuant to the terms of the policy. However, even if Quote failed to provide timely notice, it is well settled that "an injured third party may seek recovery from an insured's carrier despite the failure of the insured to provide timely notice of the accident" (General Acc. Ins. Group v. Cirucci, 46 NY2d 862, 863-864 [1979]). The injured party has an independent right to provide notice to the insurer (see Insurance Law § 3420 [a] [ Lauritano v. American Fid. Fire Ins. Co., 3 AD2d 564, 568 [1st Dept 1957], affd 4 NY2d 1028 [1958]

 

Here, it is undisputed that plaintiff gave notice to defendant of the incident by sending it a letter dated February 1, 2011 along with the papers from the underlying lawsuit. While Dryden contends that plaintiff's notice and forwarding of lawsuit papers was untimely, Dryden did not disclaim coverage based on plaintiff's failure to do so, and it is now precluded from relying upon those defenses. The court concludes that Dryden’s first notice of the lawsuit was from Underberg and not from Quote.

 

Editor’s note:  Lots of counseling points in this case – let me outline them:

  • First of all, this was a pre-prejudice statute case (amazing that here are still some out there) so the court did not concern itself as to whether Dryden was prejudiced by the late notice.

  • Secondly, there is a reminder that an insurer must disclaim on breach of policy conditions, like late notice, within 30 days of the time it receives notice (if it had reason to do so immediately upon receipt).Here, Dryden claims it did disclaim within two weeks of getting notice.That would have been sufficient.However, the policyholder’s affidavit suggested that substantially earlier notice was given, so there is a question of fact on that issue, which has to be resolved by a fact finder.

  • Finally, the last part of the discussion is really important.There was a separate notice argument before the court – notice of the lawsuit (as compared to notice of the incident).The insured has a duty under the policy to give prompt notice of any lawsuit against it.However, the Insurance Law (and the Lauritano decision cited in the decision, gives the injured party (here, Underberg) a separate and distinct right (and corresponding obligation) to give its own notice.

     

    Whether the injured party’s notice is timely depends on the ability of the injury party to give notice earlier and even if the insured breaches its obligation to give notice timely, the injured party has that independent right to do so.  If the injured party is the first to give notice, and the insurer believes that the notice by the injured party was untimely, it must disclaim (again, within 30 days) and cite as a reason for the disclaimer that the injured party failed to give timely notice.  That’s the Cirucci decision referenced above.

     

    Here, that was the injured party’s argument, the insurer failed to disclaim based on the injured party’s late notice of the lawsuit and thus the carrier waived that ground.  The insurer argued that IF notice first is received from the insured, the carrier has not obligation to complain about the injured party’s late notice.  The court agreed with that but found that the fact established that notice first came from the injured party and thus the insurer waived its right to complaint about late notice of the suit papers.

     

    This case emphasizes the importance of raising, in a disclaimer latter, late notice by BOTH the insured and the injured party, if notice comes in late.

     

    As a side note, recognize that there was an “assault and battery” exclusion which is usually more specific than the usual “intentional” exclusion that is generally “exclusion a” in the CGL policy.  The courts respect assault and battery exclusions and give them much greater weight than “exclusion a”.

     

    06/07/29       Gatto v. Allstate Indemnity Company

    Appellate Division, Fourth Department

    Insurance Agent has No Duty to Advise Policyholder’s Decedent of Insurance Requirements under Policy – Not a Client

    In 2006, Rubino contacted Roman, an insurance agent, to procure a homeowner’s insurance policy covering her residence. Allstate thereafter issued Rubino a policy for the initial term of May 17, 2006 to May 17, 2007 with Rubino listed on the policy as the only insured. The policy was renewed each year thereafter and, despite the fact that Rubino died in December 2010, the policy was in force for the term of May 17, 2013 to May 17, 2014 with Rubino still listed as the only insured.

     

    After the residence was destroyed by fire in January 2014, Rubino’s daughter, Tomaino filed a claim under the policy, and Allstate disclaimed coverage.

     

    Plaintiff, who was also the administratrix of Rubino’s estate, thereafter commenced this action against Allstate and defendant. With respect to Roman, it was claimed that he breached his duty to notify Allstate of Rubino’s death and to ensure that the property was properly insured.

     

    Specifically, it was claimed that Roman was informed of the death in 2011 and again in 2012 when Tomaino made payments directly to Roman to renew the policy.

     

    Roman met his initial burden of establishing as a matter of law that he owed no duty to plaintiff, Tomaino, or the estate inasmuch as he demonstrated that none was a client.

     

    Indeed, Roman’s submissions established that Rubino alone, was his client and that, after her death, no one represented the estate until September 2014, approximately eight months after the fire and four years after her death.

     

    Furthermore, even assuming, arguendo, that Tomaino was a client, Roman established that he had no common-law duty to advise, guide, or direct her to obtain insurance coverage for additional insureds in light of decedent’s

    Death.  He demonstrated that there were no payments made to him beyond the

    alleged premium payments, that there was no interaction with Tomaino regarding questions of coverage, and that no special relationship was formed between himself and Tomaino.

     

    06/06/19       Matthews v. Bright Star Messenger Center

    Appellate Division, Second Department

    Workers Compensation Exclusivity Not Established

    Matthews claims he was hired by the defendant Bright Star and then assigned to work for the defendant Metro Data. He was hurt when he fell at the offices of the Metropolitan Museum of Art (“MMA”), which was a client of Metro Data. He sued Bright Star for personal injuries. Bright Star Prior moved for summary judgment dismissing the complaint insofar as asserted against it based on the exclusivity provisions of the Workers' Compensation.

     

    Section 11 of the Workers' Compensation Law provides that "[t]he liability of an employer prescribed by [Workers' Compensation Law § 10] shall be exclusive and in place of any other liability whatsoever" to the injured employee, except in those cases in which the employer has failed to secure workers' compensation coverage” (see also Workers' Compensation Law § 29[6]).

     

    Metro Star failed to make a prima facie showing that it was the plaintiff's general employer. It submitted the affidavit of its representative of the appellant, who stated that the plaintiff was employed by the Metro Star appellant on the date of the accident, and that the it had procured workers' compensation insurance for the plaintiff. However, the appellant also submitted Workers' Compensation Board records showing that the plaintiff had filed a claim for benefits that listed the plaintiff's employer as "Bright Star Courier." Under these circumstances, the appellant failed to demonstrate, prima facie, that it was the plaintiff's general employer.

     

    05/22/19       Villavicencio v. Erie Insurance Company
    Appellate Division, Second Department

    Prejudice Established to Uphold Disclaimer, Thousands Cheer

    On February 11, 2011, a fire occurred on the premises of one of the rental buildings owned by Elliot’s Apartments. The plaintiff was a tenant of the building.

     

    Erie Insurance Company insured the premises for first party damage and liability coverage.  The plaintiff made a claim against the building owner for damage to the plaintiff’s property that was on the premises at the time of the fire.

     

    The plaintiff then filed an action against the property owner on or about October 18, 2013, seeking to recover the value of the property that was damaged in the fire.

     

    After serving the property owner, the plaintiff took a default judgment when there was no answer interposed on its behalf.

     

    The property owners notified Erie Insurance Company on July 16, 2014, of the action by sending copies of the motion for a default and the order granting the default judgment to Erie.  This judgment was Erie's first notice of the plaintiff’s claim for damages. Thereafter, on July 25, 2014, Erie denied coverage under the liability section of the policy on the ground that the insured, although properly served with the process, failed to notify Erie of the action until after the default was granted. 

     

    On February 17, 2015, judgment was entered in  favor of the plaintiff and against the property owner in the total sum $116,876.99.  Plaintiff served a copy of the judgment on Erie.

     

    On October 13, 2015, the plaintiff commenced a direct action against Erie to recover the amount of the entered judgment.  The plaintiff asserted that Erie’s disclaimer of coverage was flawed in that Erie had suffered no prejudice by reason of the timing of the notice of the plaintiff’s claim.  It was the plaintiff’s contention that Erie, which had adjusted the insured’s first party property damage claim, should have known that the plaintiff would file a claim for property damage.

     

    The plaintiff moved for summary judgment on the judgment that had been entered against Erie’s insured.  Erie moved for summary judgment dismissing the complaint on the ground that Erie suffered irrebuttable prejudice by force of the presumption of irrebuttable prejudice pursuant to Insurance Law §3420(c)(2)(B). Both parties moved for summary judgment.

     

    The lower court granted the plaintiff’s motion and denied Erie’s cross motion.  Erie appealed. 

     

    The Appellate Division held that the statutory provision of the Insurance Law was clear and unambiguous and that the courts must give effect to the plain meaning of Insurance Law §3420(c)(2)(B) which in this case states that “an irrebuttable presumption of prejudice shall apply if, prior to notice, the insured’s liability has been determined by a court of competent jurisdiction or by binding arbitration; or if the insured has resolved the claim or suit by settlement or other compromise.”

     

    The Appellate Division reversed the lower court and held that the statute applied in this case to create the presumption of irrebuttable prejudice to Erie as the liability of Erie’s insured was determined by a court of competent jurisdiction prior to notice of the claim thereby warranting dismissal of the complaint. 

    Kudos to our Joel Appelbaum for this great win.

     

     

     

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

    Robert E.B. Hewitt III

    [email protected]

     

    06/13/19       Jackson v. Doe

    Appellate Division, First Department

    Plaintiff Failed to Explain a Two-Year Gap in Treatment

    The Appellate Division found Defendant satisfied his prima facie burden of showing that plaintiff did not sustain a serious injury to his cervical spine, lumbar spine or left wrist as a result of the 2013 motor vehicle accident. Defendant's neurologist found that plaintiff had full range of motion and negative test results in his cervical and lumbar spine, and that any injuries had resolved. The Court held Defendant's expert was not required to review plaintiff's medical records before forming his opinion. Defendant also relied on plaintiff's deposition testimony admitting that he returned to work full-time as a personal trainer within two months of the accident, received just three months of physical therapy and sought no further medical treatment following a November 2014 procedure to his lumbar spine. The court held this testimony both defeats plaintiff's 90/180-day claim and demonstrates that his injuries were not serious but were minor in nature. Defendant further pointed out that plaintiff was required to explain his extended gap in treatment following the November 2014 procedure.

     

    In opposition, the court held plaintiff failed to raise a triable issue of fact. He provided no medical evidence of serious injury to his cervical spine or wrist, but only the report of his treating physician, who first examined plaintiff's lumbar spine six months after the accident. Neither plaintiff nor the physician explained plaintiff's two separate two-year gaps in treatment. Furthermore, in the absence of any admissible evidence of contemporaneous, post-accident treatment or evaluation of his alleged injuries, plaintiff failed to raise an issue of fact as to whether his conditions were causally related to the accident.

     

    06/06/19       Streety v. Toure

    Appellate Division, First Department

    90/180-Day Claim Dismissed Where Only Confined Home for Three Weeks

    The Appellate Division found the report of defendants' expert emergency medicine physician was sufficient to establish their prima facie burden on the issue of causation insofar as the physician opined that the record of plaintiff's examination in the emergency room showed findings inconsistent with his claimed injuries. However, In opposition, plaintiff raised an issue of fact as to serious injury of a permanent nature through the submission of his pertinent medical records documenting complaints of pain and treatment to the affected body parts within days of the accident as well as the affirmed report of his treating orthopedic surgeon, who reviewed plaintiff's medical history, his own treatment of plaintiff, and plaintiff's MRIs, and who recounted his direct observations of plaintiff's injuries during surgery and opined that they were causally related to the accident. However, plaintiff's "90/180-day" claim was correctly dismissed in light of his deposition testimony that he was confined to home for only about three weeks.

     

    06/05/19       Manton v. Lape

    Appellate Division, Second Department

    Defendant’s Own Expert Found Range of Motion Limitations

    The defendants failed to meet their prima facie burden of showing that the injured plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident.  The defendants failed to submit competent medical evidence establishing, prima facie, that the injured plaintiff did not sustain a serious injury to his right shoulder under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d), as their expert found significant limitations in the range of motion of that shoulder. Further, the defendants failed to establish, prima facie, that the alleged injury to the injured plaintiff's right shoulder was not caused by the subject accident. Since the defendants failed to meet their prima facie burden, it was unnecessary to determine whether the plaintiffs' submissions in opposition were sufficient to raise a triable issue of fact.

     

    06/05/19       Coleman v. Karimov

    Appellate Division, Second Department

    Rotator Cuff Injury Damages Increased to $75,000 and Knee Surgery Injury Damages Increased to $170,000 Total by Appellate Court

    The plaintiffs, Leroy Coleman (hereinafter Leroy) and Sharese Smith Coleman (hereinafter Sharese), commenced this action to recover damages for personal injuries they allegedly sustained as the result of a motor vehicle accident. The action proceeded to a jury trial in Kings County on the issue of damages. The evidence at trial established that Leroy sustained an injury to his rotator cuff and knee as a result of the accident, and Leroy was required to attend physical therapy and eventually undergo an arthroscopic knee surgery. The evidence established that Sharese also sustained a knee injury, which, similarly, required her to attend physical therapy and eventually undergo an arthroscopic knee surgery. Sharese testified that she has difficulty walking up and down stairs and difficulty kneeling in church.

     

    The jury returned a verdict finding that Leroy did not sustain a serious injury under the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d). However, the jury found that Leroy sustained a serious injury under the 90/180-day category of Insurance Law § 5102(d) and awarded him $30,000 in damages for past pain and suffering and no damages for future pain and suffering. The jury found that Sharese sustained a serious injury under the permanent consequential limitation of use category of Insurance Law § 5102(d) and awarded her $10,000 in damages for past pain and suffering and $20,000 in damages for future pain and suffering over a period of 40 years.

     

    The plaintiffs moved pursuant to CPLR 4404(a) to set aside, as inadequate, so much of the verdict as awarded them damages. The Appellate division held a jury's determination with respect to awards for past and future pain and suffering will not be set aside unless the award deviates materially from what would be reasonable compensation. Although prior damage awards in cases involving similar injuries are not binding upon the courts, they guide and enlighten them with respect to determining whether a verdict in a given case constitutes reasonable compensation. The Appellate division held that with respect to Leroy, the award of $30,000 for past pain and suffering deviates materially from what would be reasonable compensation. The court increased this to $75,000. However, since the jury found that Leroy sustained a serious injury under only the 90/180-day category of Insurance Law § 5102(d), the jury's award of zero damages for future pain and suffering did not deviate materially from what would be reasonable compensation.

     

    With respect to Sharese, the awards of $10,000 for past pain and suffering and $20,000 for future pain and suffering deviates materially from what would be reasonable compensation, and increased it to $50,000 and $150,000, respectively.

     

    PEIPER ON PROPERTY (and POTPOURRI)

Steven E. Peiper

[email protected]

Property

 

06/07/19       Valente v. Utica First Ins. Co.

Appellate Division, Fourth Department

Earth Movement Applies Even When the Ground was Compromised due to Flow of Surface Water Run-Off

Plaintiffs submitted a claim for damage to their residence.  From the decision, it appears that the foundation of plaintiffs’ home was compromised due to shifting or sinking of earth.  Upon receipt of the claim, Utica First disclaimed on the basis of the earth movement exclusion which included losses caused by “earth sinking,” “shifting,” or “contracting.” 

 

Plaintiffs argued that the issue was caused by surface water which washed away the supporting earth.  However, in upholding Utica First’s denial, the Fourth Department rejected plaintiffs’ argument that the flow of water from a downspout compromised the soil.  The Court noted that the movement of the earth was the proximate cause of the damage, and not the flow of water.  As such the earth movement exclusion applied, and coverage was extinguished.

 

Potpourri

 

06/12/19       Arroyo v. Central Islip UFSD

Appellate Division, Second Department

Lack of Privity Destroys Claim for ERISA Lawsuit Against Employer Under a Long-Term Disability Policy

This action arises out of a long-term disability claim that plaintiff filed when she was injured in the course of her employment as a security guard with the School District.  Plaintiff was insured under long-term disability policy that the School District purchased from Sun Life.  After paying plaintiff’s claim for a period of time, benefits were revoked when it was determined that plaintiff was no longer disabled. 

At that time, plaintiff was advised that she had a right to appeal the decision and that she could also bring an action under ERISA if her appeal proved unsuccessful.  After her appeal was inevitably denied, plaintiff commenced that very claim against Sun Life and the School District.

 

The School District immediately moved to dismiss on the basis that it was not in privity of contract with plaintiff.  Plaintiff, however, countered by arguing that she was provided with Summary Plan Description which identified the School District as the plan administrator and agent for service of process.  The Summary Plan Description also states that the denial would be issued by the plan administrator.  The document also notes that plan participants have rights under ERISA 

 

Plaintiff admits that the plan is not subject to ERISA preemption, but argues that the language of the Summary Plan Description creates such a right against the School District (as plan administrator).  In rejecting plaintiff’s argument, the Appellate Division noted that an insurance policy must interpreted as if it were any other contract.  As such, one cannot be held liable under a contract to which he or she is not a party.  Here, although the Summary Plan Description indicates the School District is a plan administrator, there was nothing provided in the Record which indicates that the School District wrote, or even accepted, the language in question.  Moreover, there is nothing in actual policy which creates a cause of action under ERISA. 

 

06/04/19       Caimares v. Erickson

Appellate Division, First Department

New York Courts are Not Required to Apply a Stay Based Upon Liquidation of an Out-Of-State Risk Retention Group

Plaintiff presents this claim for medical malpractice against defendant Erickson.  Erickson, however, sought a stay of the proceedings based upon a ruling from the South Carolina Supreme Court which has frozen all matters involving the liquidation of Oceanus Insurance Company.  Oceanus, Risk Retention Group, insured Ms. Erickson at the time of the alleged malpractice. 

 

The Appellate Division appears to acknowledge that it must adhere to stays involving the Uniform Insurers Liquidation Act.  However, the Court ruled that it is not obligated to follow the stay relative to this case because the UILA doesn’t apply to Risk Retention Groups.  In so holding, the Court noted that the Full Faith and Credit Clause of the Constitution does not compel it to apply a foreign state’s ruling that conflicts with this State’s public policy of compensating tort victims.  Here, the public policy of preserving an insurer’s assets for orderly disbursement is outweighed by the public policy of permitting insured parties to prosecute their negligence claims.

 

WILEWICZ’S WIDE WORLD OF COVERAGE

Agnes A. Wilewicz

[email protected]

 

06/06/19       Arch Insurance Company v. Pfizer, Inc.

United States Court of Appeals, Second Circuit

Second Circuit finds that First-To-File Rule Inapplicable in Coverage Case where one Action filed in State Court and the other in Federal Court

In a decision scant with facts, a couple of excess insurers (Arch and U.S. Specialty), appealed a judgment that granted their insured’s motion to dismiss, in favor of a parallel action between the same parties pending in Delaware Superior Court. The lower court initially had relied on the “first-filed” rule, namely “where an action is brought in one federal court and a later action embracing the same issue is brought in another federal court, the first court has jurisdiction to enjoin the prosecution of the second action, unless there are special circumstances which justify giving priority to the second action” (emphasis added by the court).

 

However, the first-filed rule only applies to two cases that were brought in the same court. Here, one was a state court action and the other in federal court. On reconsideration, the District Court clarified that it had dismissed the federal action “in the interest of justice and judicial efficiency, as these cases should be adjudicated together”. In the meantime, to complicate matters, the assigned federal judge resigned from the federal bench since the judgment was rendered. As a result, the court found that remanding the matter would cause unnecessary delay. As such, the Second Circuit affirmed the dismissal, noting that the matters would be resolved in state court.

 

JEN’S GEMS

Jennifer A. Ehman

[email protected]

 

06/13/19       Continental Cas. Co. v. KB Ins. Co., Ltd

Supreme Court, New York County

Hon. Melissa A. Crane

Trial Court Directs Insurer to Defend Under Personal and Advertising Section of GL Policy where Complaint Uses the Word “Advertise” Irrespective of Whether the Ultimate Damages Suffered were Because of Advertisement

Plaintiff issued a general liability policy to Value Wholesale, Inc. (“Value”).  Defendant also issued a general liability policy to Value, which apparently was either in effect at the same time or the policies covered successive time periods. 

 

At some point, a lawsuit was brought against Value by Abbott Laboratories.  Abbott sells and holds the patents for FreeStyle and FreeStyle Lite blood glucose strips for people with Diabetes.  Abbott alleged that Value and numerous other defendants brought and/or distributed versions of the test strips which the defendants imported from other countries and which were not approved for sale in the United States.  They then used approved FreeStyle product boxes, sold the less costly imported products in their stead, and reaped the profits.     

 

Defendant denied coverage under the Personal and Advertising section of its policy for the claim on the basis that there was an insufficient causal nexus between Value’s alleged advertising and Abbott’s injuries.  It argued that the lawsuit arose out of a complex and fraudulent conspiracy to divert medical products to the United States and was separate from Value’s advertising injuries.  It also relied upon the exclusions for knowing acts and knowing publication of false material. 

 

The court began its analysis by considering the language of the underlying complaint which alleged that “[u]sing Abbot’s trademarks and trade dress, Defendants advertise to consumers and the market place their ability and willingness to sell FreeStyle test strips.”  The complaint further alleged that Value widely advertised the unapproved products and sold them to the public as if they were approved test strips.  The court found despite defendants’ argument that the advertisement did not ultimately contribute to the complained damages, that because the complaint alleged that the packaging and advertising of the unapproved strips contributed to Abbott’s injuries this was sufficient to trigger the duty to defend.  The court then held the exclusions relied upon by defendant did not apply as recovery could be obtained by Abbott without a finding that Value knew that its conduct would violate Abbott’s right and inflict the advertising injury at issue.  The court also highlighted the fact that while fraud was alleged there were 300 defendants in the underlying and it was possible that some acted unknowingly in the scheme.  Based upon this reasoning, defendant owed had a duty to defend.

 

BARNAS ON BAD FAITH

Brian D. Barnas

[email protected]

 

06/12/19       In re: Mt. Hawley Insurance Company

Supreme Court of South Carolina

A Denial of Bad Faith or Assertion of Good Faith Alone does not Place Attorney-Client Communications at Issue in a Case such that the Attorney-Client Privilege is Waived

The United States Court of Appeals for the Fourth Circuit certified the following question of law to the Supreme Court of South Carolina: Does South Carolina law support application of the “at issue” exception to attorney-client privilege such that a party may waive the privilege by denying liability in its answer?

 

In the underlying case Mt. Hawley insured Contravest Construction.  During the policy period, Contravest constructed a development in Beaufort County, South Carolina.  The owner of the development sued Contravest alleging defective construction.  Mt. Hawley declined to defend or indemnify Contravest.  Contravest ultimately settled the case.

 

Thereafter, Contravest and the owner sued Mount Hawley alleging bad faith failure to defend and indemnify, breach of contract, and unjust enrichment.  During discovery, the plaintiffs sought production of Mount Hawley's file on Contravest's claim for coverage relating to the Plantation Point suit and Mount Hawley's files relating to all of Contravest's claims under its policies.  Mount Hawley contended that these files contained material protected by the attorney-client privilege and produced files in redacted form with accompanying privilege logs.  The plaintiffs filed multiple motions to compel, arguing that Mount Hawley waived the attorney-client privilege as to these files. 

 

The district court adopted the recommendation of the magistrate judge, granted the motions to compel, and ordered Mount Hawley to produce the files for in camera inspection.  The district court concluded that because the plaintiffs had established a prima facie case of bad faith failure to insure, and Mount Hawley in its answer denied bad faith liability, Mount Hawley waived the attorney-client privilege with respect to the attorney-client communications in the claim files, to the extent such communications are relevant.

 

In its decision, the Supreme Court of South Carolina largely adopted the reasoning of the Arizona Supreme Court from the 2000 case of State Farm v. Lee.  There, the Arizona Supreme Court ultimately granted a motion to compel; in a bad faith case because the insurer defended its denial of coverage based on its agents' subjective understanding of the law—as informed by counsel—rather than defending exclusively on an objective reading of the disputed policy exclusions.  The mere filing of the bad faith case was not enough to waive the privilege.  Rather, it was the insurer’s affirmative assertion that its acts were reasonable based on the advice of counsel.  The Lee court acknowledged that it would be difficulty to respond to allegations of subjective bad faith without affirmatively alleging that it investigated and evaluated the law.  However, it stated that an insurer could simply do so by denying that it knew it was acting unlawfully and relying on a defense of objective reasonableness.

 

In finding Lee instructive, the court explicitly emphasized the sanctity of the attorney-client privilege.  The privilege is not waived simply by bringing or defending a laws suit.  Rather, a case-by-case analysis of the facts is necessary to determine if the privilege has been waiver. 

 

Accordingly, the court answered the certified question from the United States Court of Appeals for the Fourth Circuit by holding that a denial of bad faith and/or the assertion of good faith in the answer does not, standing alone, place a privileged communication “at issue” in a case such that the attorney-client privilege is waived.  The court imposed an additional requirement that the party seeking waiver of the attorney-client privilege make a prima facie showing of bad faith.

 

JOHN’S JERSEY JOURNAL
John R. Ewell

[email protected]

 

06/04/19       Sun Life Assurance Company of Canada v. Wells Fargo

Supreme Court of New Jersey

In Matter of First Impression, New Jersey Supreme Court Rules that Stranger-Oriented Life Insurance Policies are Against Public Policy and Void ab initio

Sun Life Assurance Company of Canada received an application for a $5 million insurance policy on the life of Nancy Bergman. The application listed a trust as the sole owner and beneficiary of the policy. Ms. Bergman’s grandson signed as trustee. The other members of the trust were all investors, and all strangers to Ms. Bergman. The investors paid most, if not all, of the policy’s premiums.

 

Sun Life received an inspection report that listed Ms. Bergman’s annual income as more than $600,000 and her overall net worth at $9.235 million. In reality, her income was about $3000 a month, and her estate was later valued at between $100,000 and $250,000. Although Ms. Bergman represented that she had no other life insurance policies, five policies were taken out on her life in 2007, for a total of $37 million.

 

Sun Life issued the policy. At the time, the trust was the sole owner and beneficiary. The policy had an incontestability clause that barred Sun Life from challenging the policy -- other than for non-payment of premiums -- after it had been “in force during the lifetime of the Insured” for two years. About five weeks after the policy was issued, the grandson resigned as trustee and appointed the investors as successor co-trustees. The trust agreement was amended so that most of the policy’s benefits would go to the investors, who were also empowered to sell the policy.

 

More than two years later, the trust sold the policy for $700,000 and the investors received nearly all of the proceeds from the sale. Wells Fargo eventually obtained the policy in a bankruptcy settlement and continued to pay the premiums.

 

After Nancy Bergman passed away in 2014, Wells Fargo sought to collect the policy’s death benefit. Sun Life investigated the claim, uncovered the discrepancies, and declined to pay. Instead, Sun Life sought a declaratory judgment that the policy was void ab initio (from the beginning). Wells Fargo counterclaimed for breach of contract and sought the policy’s $5 million face value; if the court voided the policy, Wells Fargo sought a refund of the premiums it paid.

 

The United States District Court for the District of New Jersey partially granted Sun Life’s motion for summary judgment. The court found that “this was a STOLI (stranger-originated life insurance) transaction lacking insurable interest in violation of New Jersey’s public policy.” As such, the district court declared the policy void ab initio.” The court also granted Wells Fargo’s motion to recover its premium payments, reasoning that “Wells Fargo is not to blame for the fraud here” and that “[a]llowing Sun Life to retain the premiums would be a windfall to the company.”

 

Both parties appealed. Finding no dispositive New Jersey case law, the United States Court of Appeals for the Third Circuit certified two questions of law to the Supreme Court of New Jersey:

 

  1. Does a life insurance policy that is procured with the intent to benefit persons without an insurable interest in the life of the insured violate the public policy of New Jersey, and if so, is that policy void ab initio?

     

  2. If such a policy is void ab initio, is a later purchaser of the policy, who was not involved in the illegal conduct, entitled to a refund of any premium payments that they made on the policy?

 

The Supreme Court answered “yes” to both parts of the first question. In response to the second question, a party may be entitled to a refund of premium payments it made on the policy, depending on the circumstances.

 

The Court reviewed the history of wagering concerns associated with life insurance and the development of the insurable interest requirement in response to those concerns. In New Jersey, the Legislature adopted the current insurable interest requirement in 1968. The Legislature expressly imposed an insurable interest requirement. N.J.S.A. 17B:24-1.1(a) outlines situations in which an individual has an insurable interest, as well as circumstances under which a corporation or a nonprofit or charitable entity has an insurable interest in the lives of its employees, officers, or others. Section (b) of N.J.S.A. 17B:24-1.1 bars procurement of a life insurance policy payable to someone who lacks an insurable interest in the life of the insured.

 

The Court held that:

 

A life insurance policy procured with the intent to benefit persons without an insurable interest in the life of the insured violates New Jersey public policy, and such a policy is void at the outset.

 

The Court explained that “the individual with an insurable interest must have an interest in the continued life of the insured rather than in his early death.”

The Supreme Court also ruled that the incontestability clause did not prevent Sun Life from challenging the policy. The Supreme Court held that the lack of an insurable interest can be asserted as a defense even after a policy has become incontestable. The Court reasoned that if no insurance policy ever legally came into effect, then neither did any of its provisions, including the incontestability clause.

 

The Court noted the STOLI policies are often procured using a family member who would appear to have an insurable interest. The Court recognized that the use of a family member in the scheme is to give the appearance of an insurable interest. However, because the family member’s role is only part of the effort to feign the law, no true insurable interest ever existed. That is, because the family member made a side deal to sell the policy to investors he or she never had a legitimate insurable interest in the person whose life was insured. The Court gave several hypotheticals regarding the timing of the transfer of the STOLI policy. Where a STOLI policy is obtained and immediately transferred from the family member to strangers, within a day, a week, or a month, it is clear such transaction is illegal. In a second hypothetical, where the transfer occurred after a longer period such as one year, the Court noted that it becomes more difficult to say when and if the transaction is illegal. The Supreme Court concluded that “Courts cannot devise a bright-line rule” for each type of transaction, and deferred to the Legislature and the Division of Banking and Insurance.

 

The Court stressed that it does not suggest that life settlements in general are contrary to public policy. Valid life insurance policies are assets that can be sold. An established secondary market exists for the sale of valid policies – at least two years after they are issued or earlier in certain cases – to investors who lack an insurable interest. The Court sought only to prevent procuring a STOILI policy as it wagers on the anticipated death of a stranger.
 

Since the policy was declared void, Wells Fargo sought the return of the premium it paid and funded, $1.9 million. The Supreme Court held that:

 

Depending on the circumstances, a party may be entitled to a refund of premium payments it made on a void STOLI policy, particularly a later purchaser who was not involved in any illicit conduct.

 

The Court ruled that trial courts should weigh the relevant equitable factors, such as a party’s level of culpability, its participation in or knowledge of the illicit scheme, and its failure to notice red flags.

 

Brief History of Life Insurance and the Creation of Insurable Interest

 

(Courtesy of the New Jersey Supreme Court)

 

Life insurance has been around for more than 500 years. From its earliest days, there have been concerns about who can purchase a policy on the life of another. In 1419, for example, the Venetian Senate outlawed wagers on the Pope's life and nullified many speculative bets about “how long the reigning pope would live.” Elsewhere in Europe in the fifteenth through seventeenth centuries, the frequent association of life insurance with gambling and other disreputable practices prompted governments to prohibit its practice without exception.

 

In England, life insurance was legally unrestricted until well into the eighteenth century. By then, it had become so much a mode of gambling (for people took the liberty of insuring any one's life, without hesitation, whether connected with him, or not, ...) that it at last became a subject of Parliamentary discussion. From those discussions, “the first appreciable regulation of life insurance” emerged, along with the concept that the policyholder must have “a financial interest (a so-called ‘insurable interest’) in the life or event” to be insured.

 

Section One of the Life Assurance Act of 1774 provided that

 

no insurance shall be made by any person or persons, bodies politick or corporate, on the life or lives of any person, or persons, or on any other event or events whatsoever, wherein the person or persons for whose use, benefit, or on whose account such policy or policies shall be made, shall have no interest, or by way of gaming or wagering.

 

A contract without an insurable interest would be null and void. The goal of the 1774 Act was to allow people to get the benefits of life insurance while eliminating the betting on human life it encouraged.

 

The same limitation -- the insurable interest requirement -- was adopted in the United States as well. By the nineteenth century, even in states where insurable interest statutes had not yet been enacted, “in most cases either the English statutes were considered as operative, or the older common law was followed.” As a result, the [United States] Supreme Court explained, “a man cannot take out insurance on the life of a total stranger, nor on that of one who is not so connected with him as to make the continuance of the life a matter of some real interest to him.”

 

The existence of an insurable interest distinguished valid life insurance policies from “mere wager policies.” The [U.S. Supreme] Court later addressed the complexity and importance of the [insurable interest] requirement in … 1881. As the Court explained,

 

[i]t is not easy to define with precision what will in all cases constitute an insurable interest, so as to take the contract out of the class of wager policies.... But in all cases there must be a reasonable ground, founded upon the relations of the parties to each other, either pecuniary or of blood or affinity, to expect some benefit or advantage from the continuance of the life of the assured. Otherwise the contract is a mere wager, by which the party taking the policy is directly interested in the early death of the assured. Such policies have a tendency to create a desire for the event. They are, therefore, independently of any statute on the subject, condemned, as being against public policy.

 

Sun Life Assur. Co. of Can. v. Wells Fargo Bank, N.A., 2019 WL 2345444, at *7-8 (NJ June 4, 2019) (internal quotations and citations omitted).

 

06/10/19       Diaz v. Norwood, Simotas Property Management

New Jersey Superior Court, Appellate Division

Building Property Manager Was Not Acting as Tenant’s Property Manager, and therefore, Not Insured on Tenant’s CGL Policy

Chrys S. Norwood Family, LP (“Norwood”) owns a multi-use building in Norwood, New Jersey containing commercial and residential space. Norwood hired Simotas Property Management to manage the property. The ground floor was then leased to Bon Jour Group. Sentinel Insurance Company issued a CGL policy to Bon Jour (the tenant). Simotas was not listed on the Sentinel policy issued to Bon Jour (Author’s Note: unsurprising as Norwood hired Simotas – not Bon Jour)

 

An employee of Bon Jour was injured when he slipped on ice. The employee then sued Norwood and Simotas. Simotas filed its answer, and filed a cross-claim against Sentinel seeking a declaratory judgment that it was entitled to insurance coverage on Sentinel's policy.

 

Under the lease terms with Norwood, Bon Jour had to keep the walkway clear of snow and ice. Norwood and Simotas entered into a Property Management Agreement, which outlined tasks that Simotas would perform solely on Norwood's behalf, such as screening tenants, negotiating and executing rental or lease agreements, and commencing eviction actions in Norwood's name. The Sentinel Policy did not name Simotas as an insured or an additional insured.

The Sentinel policy provided coverage to a real estate manager acting on Norwood’s behalf:

C. WHO IS AN INSURED ....

2. Each of the following is also an insured: ....

b. Real Estate Manager

Any person (other than your "employee" or "volunteer worker"), or any organization while acting as your real estate manager.

Sentinel’s policy defined “your” to mean the named insured, Norwood.

 

Simotas contended that the tenant, Bon Jour, was responsible for clearing snow and ice from the area of the accident. Simotas further argued that it was a “real estate manager” as that term was used in the Sentinel policy, as it managed real estate for another. However, Simotas never performed any snow or ice removal on Bon Jour’s behalf. Accordingly, Simotas was not able to demonstrate it was acting as Bon Jour’s real estate manager. Accordingly, because Simotas was not acting as the named insured’s  real estate manager, the Appellate Division ruled that the property management company was not insured under the policy.

 

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

 

LEE’S CONNECTICUT CHRONICLES

Lee S. Siegel

[email protected]

 

05/28/19       Viking Construction, Inc. v. 777 Residential, LLC.

Connecticut Court of Appeals

Builder’s Risk Policy Excludes Coverage for Contractor’s Damage to Windows

On appeal, Liberty Mutual successfully persuaded the Appellate Court that its defects, errors, and omissions exclusion barred coverage for its insured’s property damage claim. 777 Residential, LLC. is the owner of a high-rise at 777 Main Street in Hartford, that it was converting into a 285-unit apartment complex. Viking Construction, the general contractor, subcontracted with Armani Restoration to clean the building’s facade with a crushed glass cleaner using power washers. The cleaning damaged the building’s 1800 windows, which had to be replaced at a cost of over $4 million. 777 settled with Viking and Armani for $1.6 million and sought the balance under its Liberty Mutual issued Builder’s Risk Policy. The policy, however, provided that there is no coverage 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.” The court rejected 777’s various arguments that the exclusion was inapplicable to the façade cleaning. “On the basis of the plain meaning of the policy, therefore, the cleaning of the building's facade was part of the renovation.” 777 also argued that the exclusion only applied to the finished product, not to subcontractor’s cleaning process. The appellate court rejected this theory as well, finding that it would “render most of the exclusion's language utterly superfluous…”

 

Next, the appellate court found that the “resulting loss” clause did not restore coverage. An ensuing loss clause is an exception to an exclusion that provides that if a specified uncovered event takes place, any ensuing loss which is otherwise covered remains covered; however, the uncovered event is never covered. The court held that, on the plain language of the resulting loss clause, a loss caused by an act during a renovation is covered if the act causes a covered peril, such as a fire, and that latter peril damages the building. In finding that that the ensuing loss clause was inapplicable, the court concluded that there was only one cause of loss—the spraying of the building, which caused damage to the windows—and because that was not a covered peril, the resulting loss clause does not apply.

 

06/11/19       Evanston Ins. Co. v. William Kramer & Associates, LLC

United States Court of Appeals, Second Circuit

No Continuous Treatment Toll For TPA’s Negligence Post-Adjustment

Updating our previous report, following the Connecticut Supreme Court answering the Second Circuit’s certified question, the appellate court affirmed the district court’s ruling that the statute of limitations for negligence brought by an insurance carrier against its third-party administrator does not toll for “continuous treatment.” The Second Circuit initially concluded that Connecticut law was unclear as to “the contours of the doctrine that tolls a limitation period because of a continuing course of conduct.” The Connecticut Supreme Court agreed with the district court that the continuous course of conduct exception to the statute of limitations was inapplicable, holding that “there must be evidence of the breach of a duty that remained in existence after commission of the original wrong.” But, the Supreme Court determined that, “None of the defendant's actions after [the final payment], reasonably could be considered further performance of any of the full adjustment services previously delineated and, thus, a further continuation of that fiduciary relationship.” As a result, the appellate court affirmed judgment for the TPA.

 

OFF THE MARK
Brian F. Mark

[email protected]

 

No cases this week.

 

WANDERING WATERS

Larry E. Waters
[email protected]

 

06/06/19       Dominique Marie Porter v. State Farm Fire & Casualty Company

District Court, Western District of New York

Court Concludes Plaintiff not Entitled to Replacement Cost as Plaintiff had repeatedly disclaimed any interest in the Insured Property and Testified Unequivocally that she had no Plans to Replace the Property
The action stems from Plaintiff’s purchase of the premises located at 254 Strauss Street, Buffalo, New York. Plaintiff purchased the premises in October 2011 in a foreclosure sale. Sometime after the purchase of the premises, State Farm issued a policy of insurance dated August 26, 2013, which listed plaintiff as the insured (the “Policy”).  Following the issuance of the Policy, the premises was completely destroyed by fire on September 30, 2013.  

 

On December 16, 2013, Plaintiff testified in connection with the fire at the premises.  Plaintiff testified that she purchased the premises as an accommodation for an individual identified as her sister’s boyfriend (“Mr. Spencer”).  In addition, Plaintiff testified that she did not manage or have any interest in the premises and in fact Mr. Spencer managed, maintained, leased the premises, made renovations and paid the property taxes. Further, Plaintiff testified that she had not authority to sell the property and did not receive any economic benefit from the premises.  Moreover, Plaintiff testified that she was not involved in obtaining the Policy and did not pay the premiums.  Rather, Mr. Spencer obtained the Policy and paid the premiums. 

 

Following the first deposition, Plaintiff had a second deposition on January 28, 2016.  At the second deposition, Plaintiff testified that any money she would receive from State Farm in connection with the fire would go straight to Mr. Spencer because it was his property. 

 

On May 24, 2017, United States Magistrate Judge filing a Report and Recommendation (“R&R”).  In the R&R, the Magistrate recommended that the Court grant in part Defendant’s motion for partial summary judgment on Plaintiff’s claims for replacement cost, rental income, and personal property coverage and deny Defendant’s motion for partial summary judgment as to Plaintiff’s claim for debris cost removal.  Both parties filed objections to the R&R. 

 

The Court here began its analysis by noting that there was no objection to the R&R recommending that the Court grant summary judgment in favor of Defendant on Plaintiff’s claims for rental income and personal property coverage.

 

Next, the Court considered the R&R recommendation granting summary judgment in favor of Defendant on Plaintiff’s claim for replacement cost coverage.  The Court agreed with the Magistrate’s R&R.  First, the Court acknowledged that the matter at hand was distinguishable from the decision in Zaitchick v. American Motorists Ins. Co., 554 F. Supp. 209 (S.D.N.Y. 1982).  In Zaitchick, the court found that the actual repair or replacement of the damaged property, which was a condition precedent to the insured’s recovery of any replacement costs, was not required, where it was financially impossible for the insured to replace the damaged property without any payment from the insurance company.  In contrast to Zaitchick, the found that in this matter, “Plaintiff has repeatedly disclaimed any interest in the subject property and testified unequivocally that she had no plans to replace the property.  As such, the Court concluded that the “equitable considerations” as set forth in Zaitchick were not warranted in the present matter.  Therefore, the Court adopted the Magistrate’s R&R recommendation that the Court grant summary judgment to Defendant on Plaintiff’s claim for replacement cost coverage.

 

Next, the Court considered the Magistrate’s R&R recommendation that the Court deny Defendant’s motion for partial summary judgment on Plaintiff’s claim for debris removal coverage. The R&R relied upon a “Demolition Invoice” addressed to Plaintiff from the City of Buffalo and concluded that was “sufficient to raise a question of fact as to whether Plaintiff has incurred expenses for debris removal.”  The Court disagreed. 

 

In support, the Court noted that the “Demolition Invoice” was submitted through Plaintiff’s attorney affirmation, who lacked actual knowledge of whether the services listed in the “Demolition Invoice” are covered under the Policy.  In addition, the Court highlighted that at trial, Plaintiff’s attorney would not be permitted to testify regarding the timing and nature of the services outlined in the “Demolition Invoice.”  Further, the Court noted that it was not clear from the face of the invoice “whether these services have already occurred or are scheduled to occur in the future and the invoice fails to explain the nature of the specific services performed, and whether those services contemplated by the insurance Policy.”

 

Moreover, the Court reasoned that it had no explanation from Plaintiff as to why she now believed she is entitled to insurance proceeds under the policy for demolition removal.  Rather, the Court found Plaintiff had “clearly and unequivocally claimed no interest in the proceeds of the insurance policy as a result of the fire damage to the subject property by stating that the insurance proceeds belong to Mr. Spencer, and that she did not want any proceeds paid out to her.”  Accordingly, the Court concluded Plaintiff’s Complaint must be dismissed in its entirety.  

 

BORON’S BENCHMARKS

Eric T. Boron

[email protected]

 

06/04/19       Bacon Construction Co., Inc. v. Arbella Protection Ins. Co.

Supreme Court of Rhode Island

Commercial General Liability Insurance Policy – Summary Judgment For Insurer Affirmed – Insurer Not Obligated to Provide Additional Insured Coverage to GC

It is standard operating procedure in the construction industry for General Contractors (“GC”s) to seek to transfer liability risk onto their subcontractors.  The GC’s contracts with the subs include indemnity language.  Moreover, and more importantly for we coverage folk, the GC’s contracts with the subs also include the requirement that the sub names the GC as an “additional insured” on the sub’s liability insurance policy.  It is this scenario that led to the Bacon Construction case.

 

The case made it up to the Rhode Island Supreme Court on appeal from a grant of summary judgment in favor of the defendant, Arbella Protection Insurance Company, Inc. (Arbella or defendant). The plaintiff Bacon Construction Co., Inc. (Bacon or plaintiff) was challenging on appeal the findings of a Rhode Island Superior Court justice that Arbella is not contractually obligated to provide insurance coverage to Bacon, which is listed as an additional insured on the CGL insurance policy issued by Arbella to Bacon’s subcontractor U.S. Drywall for the construction project Bacon was GC’ing at the University of Rhode Island.

 

[Spoiler alert:  The Rhode Island Supreme Court affirmed the judgment of the Superior Court.]  (I always wanted to do that…)

 

The CGL policy's additional insured endorsement reads in pertinent part:

 

“Who is An Insured is amended to include as an additional insured any person or organization for whom you are performing operations when you and such person or organization have agreed in writing in a contract or agreement, executed prior to an ‘occurrence’, that such person or organization be added as an additional insured on your policy. Such person or organization is an additional insured only with respect to liability for ‘bodily injury’; ‘property damage’ or ‘personal and advertising injury’ caused, in whole or in part, by:

 

1. Your acts or omissions; or

 

2. The acts or omissions of those acting on your behalf;

 

in the performance of your ongoing operations for the additional insured.”

 

(Author’s Note: the italics in the quoted policy language were added by the Rhode Island Supreme Court in its opinion for emphasis.)

 

As further background, the Arbella policy clearly provides that the terms “you” and “your”, as used throughout the policy, exclusively refer to the named insured, U.S. Drywall, and the additional insured endorsement lists Bacon as an additional insured, and not as the named insured.

 

Concluding the AI (see, there’s that acronym!) endorsement of the policy Arbela issued to U.S. Drywall is fault-based, the Rhode Island Supreme Court’s opinion stated, “we are of the opinion that Bacon was entitled to additional insured coverage only upon a showing of fault attributable to U.S. Drywall or its agents.  Bacon's voluntary dismissal of all claims against U.S. Drywall and its settlement with [the claimant Thiago Almeida, an employee of Bacon’s subcontractor U.S. Drywall (“Almeida”)] Almeida [in the underlying personal injury action], preclude any finding of U.S. Drywall's negligence to trigger this contractual obligation. Accordingly, we hold that Bacon is not entitled to coverage from Arbella under its policy with U.S. Drywall for claims alleging Bacon's exclusive negligence.”

 

The Rhode Island Supreme Court also addressed the issue of duty to defend. Relying on Rhode Island’s “pleadings test,” the Supreme Court acknowledged that Bacon contended Arbella had a duty to defend Bacon because the allegations in the Almeida complaint are “potentially” within the risk covered by the Arbella policy.   However, the Supreme Court found that the Almeida complaint alleges negligence exclusively against Bacon.  Bacon’s argument that the factual allegations in the Almeida complaint are “unequivocally associated with U.S. Drywall's work at the [p]roject for Bacon” because Almeida, its employee, “would not have suffered his alleged injuries at the [p]roject were it not for U.S. Drywall's work on behalf of Bacon” was dismissed by the Supreme Court.

 

Bacon’s further assertion that, based on Almeida's allegations that he slipped on ice while working at the construction project site, “there is a clear potential jury verdict that apportions some contributory negligence to Mr. Almeida for the incident, which is within the risk covered by the Arbella [p]olicy” was also dismissed by the Supreme Court.  Supreme Court noted that after a review of the language of the insurance policy and the factual allegations contained in the Almeida complaint, the Superior Court hearing justice determined that the Almeida complaint contains only allegations against Bacon for Bacon's own negligence. The hearing justice noted that “it could be a different story had that complaint against U.S. Drywall not been dismissed[,]” but, nonetheless, concluded that the facts, as presented, do not trigger the additional insured coverage clause.  As such, the hearing judge granted summary judgment in favor of Arbella, and the Rhode Island Supreme Court agreed with such reasoning in  affirming.

 

In sum, it was determined the Arbella CGL policy issued to U.S. Drywall provides additional insured coverage only with respect to liability for injuries that were caused, at least in part, by U.S. Drywall's negligence, and there are no allegations in the Almeida complaint that U.S. Drywall's acts or omissions caused Almeida's injury. The fact that Bacon voluntarily dismissed, with prejudice, all claims against U.S. Drywall and reached a settlement agreement with Almeida is fatal because these actions extinguished any vicarious-liability claims that Bacon could have raised.   On such reasoning, Supreme Court held there was no duty to defend here.

 

Dear readers, I hope your work has been informed by this column.  Have a great next two weeks.         

 

BARCI’S BASICS (ON NO FAULT)

Marina A. Barci

[email protected]

 

06/11/19       Andrew Carothers, M.D., P.C. v. Progressive Ins. Co.

New York State Court of Appeals

No-Fault Benefits Are Not Required to be Paid to Professional Service Corporations Posing as Medical Providers but Run by Non-Physicians

As the Court said, the factual background is essential to understanding the outcome of this case. The plaintiff in this case, Andrew Carothers, M.D., P.C. was a professional service corporation formed by Dr. Andrew Carothers, a radiologist, in 2004. The company was meant to provide MRI services. It was formed after Dr. Carothers met Hillel Sher, a non-physician who owned two other companies that held three long-term leases for MRI facilities. Carothers and Sher were introduced by an MRI repair technician who knew Carothers was in financial trouble and Sher was looking for a doctor (already sounding like a recipe for disaster).

 

From 2005-2006 the plaintiff subleased the three MRI facilities and associated equipment from Sher’s companies. This lease required payment of $577,000 per month and gave only Sher the right to terminate. For context, these fees charged by Sher were exorbitant – what Sher paid for one machine was $5,950/month which he then charged the plaintiff $75,000/month for. Essentially, two months payment for the lease of one machine from Sher could have bought plaintiff that machine outright. All in all, the difference between the fair market value of six MRI scanners and what Sher charged plaintiff in one year to rent them was $4,680,000. Similarly, plaintiff paid $60,000 per year to lease nine used fax machines, even though the company could have purchased scores of new machines every year for that price.

 

Carothers opened a bank account on behalf of plaintiff and at that bank, Sher introduced Carothers to Irina Vayman, another nonphysician, whom Carothers hired as the plaintiff's executive secretary. Vayman ended up writing all the checks for the plaintiff. Vayman was also the one found the referring physicians that generated traffic for the plaintiff. Carothers was not involved in evaluating or disciplining employees, recycled the patient care protocols that had been put in place by his predecessor, and even hired another radiologist who did almost all the MRI review and interpretation.

 

Vayman was paid more than Carothers from the plaintiff, and throughout her employment transferred large sums of money from plaintiff’s bank account to her own. She paid for things like the lease on her car and water bills for a house in Las Vegas owned by Sher and made wire transfers to overseas accounts. In total, approximately $12,200,000 was funneled through plaintiff to Vayman and Sher. In addition, Vayman introduced Carothers to a tax preparer who filed fraudulent tax returns for the plaintiff. It was found that plaintiff had no books or records for their finances.

 

Sher also introduced Carothers to Medtrex, which plaintiff received loans from. Vayman was the authorized borrower for the agreements with Medtrex. Medtrex would advance loans plaintiff on a weekly basis and payments from the insurance companies were then used to pay back Medtrex’s loans and fees. Most of the scans performed at plaintiff's facilities were of patients allegedly injured in motor vehicle accidents. The patients assigned their rights to receive no-fault benefits to plaintiff, which then billed the insurance companies to recover payment on the assigned claims and thus paid off Medtrex.

 

The insurance companies eventually stopped paying plaintiff's no-fault claims in 2006. Although Carothers had not personally guaranteed the leases, he did personally guarantee the Medtrex loans and he ended up owing that company over $7,000,000. Plaintiff closed in December 2006 after Medtrex refused to make any more advances.

 

When the insurance companies stopped paying for plaintiff’s no-fault claims, plaintiff filed multiple actions to recover the unpaid claims (approximately $20,000,000). The insurers’ defense to plaintiff’s claims for reimbursement was that plaintiff was not an eligible provider under 11 NYCRR 65-3.16 (a) (12) because it was controlled by unlicensed, nonphysicians. 11 NYCRR 65-3.16 (a) (12) states that health care services will not be eligible for no-fault benefits if they fail to meet any applicable NYS or local licensing requirements. In NY, professional service corporations, like plaintiff, are required to be owned and controlled by licensed professionals (aka only doctors are allowed to run medical facilities) and cannot share profits or fees with non-licensed individuals. As an aside, only licensed physicians may practice medicine in NY, as unlicensed ones are not bound by the ethical rules that govern quality patient care.

 

Prior to this case, it had been decided in State Farm v. Mallela that 11 NYCRR 65-3.16 (a) (12) allows insurers to withhold payment for medical services provided by “fraudulently incorporated” enterprises to which patients have assigned their claims, regardless of the quality of care that such entities provided. This case further clarified the Mallela decision in holding that a finding of fraud for an insurer is not required in order for them to withhold payment to medical service corporations that are improperly controlled by non-physicians.

 

This case involved a joint trial including 54 insurers that had been consolidated into one action against plaintiff. It was argued by the insurers that Carothers was a mere figurehead and that the plaintiff was actually owned and controlled by Sher and Vayman, who are not physicians. The insurers maintained that the plaintiff was not entitled to payment because Carothers, the owner with the medical license, did not personally engage in the practice of medicine through the plaintiff.

 

The heart of the issue in this case was whether the jury was properly instructed on the elements of the insurer’s fraudulent incorporation defense, particularly the instruction that the jury could find that the plaintiff was fraudulently incorporated if they concluded that a reasonable person would say that Sher and/or Vayman were the de facto owners of the plaintiff or that the exercised substantial control over it. Plaintiff argued that the traditional elements of fraud should apply and that the court erred in failing to instruct the jury that the insurers must have established that there was a fraudulent intent at the time of plaintiff’s incorporation, or at least conduct tantamount to fraud. The court refused to accept plaintiff’s argument for the jury instructions and the jury found that the plaintiff was fraudulently incorporated and that Carothers did not engage in the practice of medicine.

The Court of Appeals found that their original use of the term “fraudulently incorporated” was misleading, and clarified that what they meant by that phrase was that a corporate practice that shows willful and material failure to abide by licensing and incorporation statutes may support a finding that the provider is not an eligible recipient of reimbursement under 11 NYCRR 65-3.16 (a) (12) without meeting the traditional elements of common-law fraud. Thus, they upheld the instructions the lower court gave to the jury and concluded that no specific finding of fraud was necessary, as the control of a professional corporation by non-professionals violates the foundational NY licensing requirements, rendering plaintiff ineligible for insurer reimbursement under the no-fault regulations.

 

Plaintiff’s other principal contention was that the lower court erred in admitting the deposition testimony of Sher and Vayman. Prior to the trial the parties stipulated that both Sher and Vayman were unavailable witnesses because they had invoked their Fifth Amendment privileges against self-incrimination and refused to answer almost every question at their depositions and would likely do the same at trial. However, the deposition transcripts were allowed to be read in their entirety at trial and the lower court instructed the jury that they could but were not required to draw an adverse conclusion about those invocations of the fifth. In NY during a civil case, the failure of a party to answer questions may be considered by a jury to assess the strength of evidence offered by the opposing party on an issue that that the witness was in the position to controvert and an unfavorable inference may be drawn against a party from the exercise of their Fifth Amendment right. The Court of Appeals here did not decide whether or not this same conclusion applies to non-party witness, as Sher and Vayman were, because the admission of the deposition testimony in this case was a harmless error as there was no reasonable view of the evidence in this case under which plaintiff could have prevailed.

 

EARL’S PEARLS

Earl K. Cantwell
[email protected]

 

11/15/18       Alpizar-Fallas v. Favero   

United States Court of Appeals, Third Circuit

The Intersection of Claims Handling and Consumer Protection Statutes

This case involved a class action claim against Progressive Garden State Insurance and one of its agents alleging that their “deceptive business practices” violated the New Jersey Consumer Fraud Act (“the CFA”). The District Court dismissed the claim characterizing it as a denial of insurance benefits, which the New Jersey appellate courts had ruled is not covered by the CFA. This Appellate Court disagreed and reinstated the claim.

 

The insured alleged that, as a result of an accident, the Progressive claims adjuster got her to sign “paperwork” to expedite the processing of her property damage claim which really was a broadly written comprehensive general release of any and all claims for all known and unknown personal injuries resulting from the motor vehicle accident. The District Court granted the insurance company’s motion to dismiss on the basis that the CFA does not apply to an insurance company’s refusal to pay benefits. It therefore dismissed the claim, and remanded the personal injury claims to the New Jersey state courts. On appeal, the insurance company argued that the CFA claim was precluded by other statutes; that the claim was not within the scope of the CFA; and that in any event the pleadings failed to conform to the requirements of the CFA and the Federal Rules of Civil Procedure.

 

The CFA compensates individual consumers with treble damages, and the rights, remedies, and prohibitions in the statute are explicitly “cumulative” to those created by other sources of law. The New Jersey Supreme Court had previously ruled that the sale of insurance was covered by the CFA, endorsing a broad application of the statute. The Appellate Court held that a claim under this CFA was not barred by or cumulative of other statutes because it created a private right of action. According the Court, the allowance of the private right of action in conjunction with other possible regulatory actions does not amount to a direct and unavoidable conflict with other statutes and regulations.

 

The Court also ruled that this case was different from an insurance company’s refusal to pay benefits since the plaintiff here did not allege that she had filed an insurance claim or that she was denied any benefits. The allegations here were based on fraud in connection with the performance of a consumer contract which was deemed to be a situation explicitly covered by the CFA. Therefore, the Appellate Court held that the New Jersey Supreme Court would likely apply the CFA to this claim.

 

The insurance company also argued that the Complaint did not conform to the heightened pleading requirements of the Federal Rules of Civil Procedure for fraud claims. However, the Appellate Court ruled that the Plaintiff had alleged precise events surrounding her CFA claim such as the date, time, and place of conduct, and provided a detailed description of that conduct and therefore satisfied FRCP the pleading standards.

 

This case represents an example of a continuing trend by plaintiffs and insureds to invoke state consumer protection laws against insurance companies and adjusters with respect to claims review and handling, in addition to “bad faith” claims. The language of the statutes is often broad, and the sale of insurance policies, payment of benefits, and denial of claims might arguably fall within their terms and provisions. In addition, some states are amending their consumer protection statutes or insurance laws and regulations to specifically bring “bad faith” claims into the statutory/regulatory scheme.

 

This case also represents an example of a federal court sitting in diversity jurisdiction having to try to “predict” how the state’s highest court would rule on a claim since the federal court is bound to apply state substantive law. In this case, the federal court, based on its review of the facts and existing state law precedent, ruled that the New Jersey Supreme Court would likely allow this claim to at least proceed past the pleading stage under the CFA. As noted in other prior articles, another device used by the federal courts in such situations is to “certify” such questions to the state’s highest court to get an advisory ruling from that court on a certain point of law which is uncertain or complex, and then apply that ruling in the case before it.

 

However, even in diversity cases federal procedural law governs in federal courts, and the additional argument was made here that the fraud claims did not pass pleading muster under the Federal Rules of Civil Procedure, which argument the Appellate Court rejected.        

 

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