Coverage Pointers - Volume XX, No. 7
Volume XX, No. 7 (No. 517)
Friday, September 21, 2018
A Biweekly Electronic Newsletter
As a public service, Hurwitz & Fine, P.C. is pleased to present its biweekly newsletter, providing summaries of and access to the latest insurance law decisions from the New York State appellate courts. The primary purpose of this newsletter is to provide timely educational information and commentary for our clients and subscribers.
In some jurisdictions, newsletters such as this may be considered Attorney Advertising.
If you know of others who may wish to subscribe to this free publication, or if you wish to discontinue your subscription, please advise Dan D. Kohane at [email protected] or call 716-849-8900.
You will find back issues of Coverage Pointers on the firm website listed above.
Dear Coverage Pointers Subscribers:
Do you have a situation? We love situations.
Interesting case on a “lack of cooperation” disclaimer in my column. Court held that the insurer did not do enough to establish lack of cooperation with respect to one defendant but worked really hard and succeeded in establishing that lack of cooperation with the other. However, in working that hard to establish a lack of cooperation it didn’t disclaim quickly enough. Which is it? Work hard and disclaim when you complete your investigation or don’t work hard enough and disclaim without proper proof?
Steve’s column contains an important case on the strict reading of insurance procurement clauses.
Long day of travel today. Thanks to my friends in Parsippany for a very pleasant day of training and conviviality. Forgot to ask if there is an interest in subscriptions down there for Coverage Pointers, Premises Pointers and/or Labor Law Pointers. Let me know and we’ll add.
Any CP subscriber who not receive our sister publications are missing excellent work! Let me know and I’ll have you added. Dave Adams spearheads Labor Law Pointers. He can be reached at [email protected] Jody Briandi edits Premises Pointers. She can be found at [email protected].
Allow me brevity today but do read the excellent issue attached.
Hope all is well. If you have not heard, DRI’s Northeast Regional Claims Conference is rapidly approaching on September 27, 2017! This one-day program is CLE/CE accredited and offers excellent networking opportunities. Back again this year are moderated lunchtime roundtables, where topics of interest will be discussed by seasoned practitioners and colleagues. There is also a networking reception following the program. Located in downtown Hartford, this conference is an easy commute and not to be missed.
This year’s faculty includes leading outside counsel and in-house representatives from across the industry. The program includes presentations on the termination of the duty to defend, the adoption of ALI’s Restatement of the Law of Liability Insurance, recent allocation and trigger of coverage decisions, deposition dos and do nots and more. I encourage you to attend and to spread the word to clients and colleagues in the Northeast.
Have a good weekend.
Jennifer A. Ehman
A Murder Never Solved – 100 Years Ago
Asheville, North Carolina
21 Sep 1918
BENJAMIN RUBIN ADMITS
KILLING LITTLE EVA RAY
Feared She Would Cause His
Return to Lorton Reformatory.
WASHINGTON, Sept . 20.—Having confessed, according to the police, that he murdered Eva Roy, a fifteen-year-old girl, near her home at Burke station, Va., August 6, Benjamin Rubin, aged twenty-one, is being held by Washington authorities for investigation before being returned to the Lorton reformatory, from which he is a fugitive. Rubin was arrested here Thursday night and is said to have told the police today that he murdered the Roy girl.
According to the police, Rubin said he was loitering in the woods near Burke station when he met the girl who was tending her father’s cows. He said, according to the police, that he killed the girl, fearing that she would inform the authorities and have him returned to the reformatory.
Police officials accepted the alleged confession made by Rubin with reserve.
Editor’s note: Eventually the court found that confession was not a real one and several others were tried and acquitted of the murder. See the article below (following John’s column) It is still unsolved a well-known mystery in that community.
John’s Jersey Journal:
The past few weeks have been a whirlwind. Between getting married, honeymooning in Jamaica, and buying a house, it has been the busiest, and best, month of my life.
The wedding was perfect. Erin looked stunning. We enjoyed a beautiful evening out on Lake Erie and the Buffalo skyline was a beautiful backdrop. The weather was perfect and everything went off without a hitch. No one missed the boat. In fact, we had extra. One couple stumbled onto the wrong boat.
Erin and I loved Jamaica. We stayed at Sandals, South Coast. If you have never done an all-inclusive, I highly recommend it. I spent most of the week in the pool playing volleyball and drinking rum punch at the swim-up bar. This was my first “beach vacation” and I loved it. After doing an all-inclusive, I cannot imagine any other way to vacation. It was the most relaxing vacation I have ever taken.
We have a special guest columnist this week. Joel McNabney, Esq. of Robinson + Cole. Joel authored a well-written write up on a business interruption case from the United States District Court, District of New Jersey, which is the federal court in New Jersey. Joel was kind enough to let us reprint it here in our newsletter:
The United States District Court, District of New Jersey recently issued a decision that is helpful in defining the scope of business interruption coverage with respect to “period of restoration” and extended business income coverage. Milk Indus. Mgmt. Corp. v. Travelers Indem. Co. of Am. (available here).
The insured in Milk Industry Management Corporation (“Milk Industry”) was a distributor of dairy and other food products. The insured contracted with a supplier of dairy and food products, whereby the insured obtained the right to warehouse and distribute the supplier’s products for a period of five years, and this term automatically renewed for subsequent two year periods (the “Agreement”). The insured then subcontracted its obligation to warehouse the products under the Agreement to a third party (the “Subcontractor”).
Approximately one year later, the Subcontractor’s facility (which was apparently a described premises) was destroyed in a fire. Ten days later, the insured terminated its contract with the Subcontractor. The insured attempted to find another warehouse to continue to fulfill its obligations under the Agreement, but the insured could not locate a suitable alternative. About eight months after the fire, the Subcontractor announced its decision not to rebuild its facility. Approximately seven months later, the insured and the supplier terminated the Agreement.
The insured submitted a claim to its insurer for BI losses and extended BI coverage in the total amount of $9.7 million. The insurer paid approximately $3 million in BI benefits but denied the insured’s claim for extended BI. The insured’s policy, in pertinent part, provided that the insurer would pay the “actual loss of Business Income [the insured] sustain[ed] due to the necessary ‘suspension’ of [the insured’s] ‘operations’ during the ‘period of restoration.’” The policy defined “period of restoration” as the period beginning at the time of a covered loss and ending “on the earlier of: (a) The date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality; or (b) The date when business is resumed at a new permanent location.” As respects extended BI, the policy stated that the insurer would pay “the actual loss of Business Income [the insured] incur[s] during the period that: (a) Begins on the date property (except ‘finished stock’) is actually repaired, rebuilt or replaced.”
The insured filed suit and moved for partial summary judgment on the issue of BI coverage contending it was underpaid. More specifically, the insured argued that the period of restoration constituted the entire unfulfilled term of the Agreement, four years plus an additional two years. In response, the insurer contended that the period of restoration should be based on the reasonable time it would have taken the Subcontractor to rebuild its facility, which the insurer estimated to be 23 months. The court observed that the policy unambiguously stated that the period of restoration ends on “the date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality . . . or the date when business is resumed at a new permanent location.” The court noted that “[b]ecause [the insured] never resumed operations at a new permanent location, the [period of restoration] is based on when the ‘property at the described premises’—[the Subcontractor’s] facility—‘should be’ rebuilt,” and the court denied the insured’s motion.
Separately, the insurer moved for partial summary judgment on the basis that there was no coverage for extended BI. The court noted that the extended BI provision in the policy “does not rely upon estimations, but rather when the property is actually repaired, rebuilt or replaced, and when operations are resumed.” The court pointed out that “[t]his difference between ‘would have’ and ‘should have’ in the BI provision and ‘actually did’ in the [e]xtended BI provision comports with the purpose of [e]xtended BI, which is to provide a cushion for the time after the [p]eriod of [r]estoration when the insured is back in business but still not doing business at the same volume as before.” (internal quotations omitted). Because the Subcontractor’s facility was never rebuilt and the insured’s operations were never resumed, the court held that the insured was not entitled to extended BI coverage and granted the insurer’s motion.
The interpretation of business interruption coverage provisions is likely to turn on the specific language of each provision. Milk Industry provides a helpful interpretation of unambiguous policy terms in the context of the purpose of business interruption coverage.
Reprinted with permission. Joel can be reached at 786.725.4119 and [email protected].
Thank you to Robinson + Cole and Joel for graciously allowing us to reprint their article.
In our attached issue, I discuss a decision from the U.S.D.C., District of New Jersey, involving Certain Underwriters at Lloyd’s, London. For those who are unfamiliar with Lloyd’s of London, it is not an insurance company. Lloyd’s is a marketplace where insurance is bought and sold. The closest analogy I can think of is Wall Street. You don’t buy stocks from Wall Street. It’s a place where stocks are bought and sold. In the same way, Lloyd’s is a place where insurance is bought and sold.
At Lloyd’s, insurance is purchased through brokers from syndicates. Syndicates are made up of corporations, individuals, or a mixture of the two. This is significant because some federal courts require that the citizenship of each member of the syndicate be pled. The District of New Jersey is one of those courts.
In this case, the Court, on its own accord, dismissed a declaratory judgment action filed by a Lloyd’s, London syndicate because they did not plead the citizenship of each member subscribing to the policy. The other parties had not even filed a motion to dismiss! Rather than allowing the syndicate to re-plead the complaint to list each member’s citizenship, the District Court granted leave to re-file only in state court. The judge clearly wanted the case out of his court!
The case is a reminder that with a Lloyd’s of London syndicate, it is sometimes necessary to plead the citizenship of each member.
John R. Ewell
Here’s the Acquittal
The Washington Herald
Washington, District of Columbia
19 Nov 1918
RUBIN FREED IN ROY CASE
Convict Who Confessed to
Murder Witness in Hall Trial.
Ben Rubin, the escaped convict, who confessed to the murder of little Eva Roy and later retracted his confession, was tried and acquitted yesterday afternoon for the crime.
The Fairfax County jurymen trying the case were convinced that Rubin had confessed to escape serving a six-year term in the District Reformatory. The man, however, had been indicted for the murder by a Fairfax grand jury, and the formality of a trial was necessary before he could be released to the local authorities.
Rubin confessed to the murder after his capture by the Washington police, but was unable to convince the authorities of the truth of his statements, when taken to the scene of the crime. After his indictment he escaped from the Fairfax jail and returned to Washington, where two days later he was recaptured by the local police. After his brief trial he was returned to the reformatory at Lorton.
Peiper’s Pitching (In):
From the Class Room - Today marked my first class of Insurance Law, the 2018 version. I, myself, toiled in that class a few years past, as have almost all of our coverage attorneys at the office.
A typical 2L would be 23/24 years old, and thus they would have been 6 or 7 on September 11th. For years, we used the World Trade Center example as a way to explain risk, insurance and occurrences. The example was one of real life. Seared, unfortunately, into our collective memories. That example, along with several others along the way, are less palpable to the students of today. Those same students, however, by all appearances, are remarkably interested participants in class and eager to learn. It is a real blessing to spend a few hours with them throughout the semester; even if it takes a bit more work to develop relatable answers.
The biggest challenge to teaching insurance law is filling in for the real professor. For those of you who’ve heard Dan Kohane lecture on things insurance (and we assume there a few thousand of you out there), it is not an easy task being the “other guy.” We made it through today, and I think I held the classes attention reasonably well. The starter returns to the fold for next class.
From One Class Room to the Another - As I write this, I just returned home from the open house at my daughter’s middle school. Middle school no longer resembles my Junior High years, and I’m thankful my curriculum was not as onerous as hers looks to be. There are still lots of rules, though. Rules about folders, and colors of folders, and width of folders. So many rules.
I don’t look back on my school years with romanticism, but perhaps those days will come as the days between then and now continue to grow. I doubt it, though.
That’s it for now. Happy Fall.
P.S. – Today’s Insurance Law class covered Reservation of Rights, a little Insurance Law 3420(d), and the Gordon/Pavia standards. If you want a personal performance, drop me a note. We’d love to come for a visit.
Steven E. Peiper
Get those Cars Off the Road – and Save Fuel for the War:
Buffalo Evening News
Buffalo, New York
21 Sep 1918
CHIEF GIRVIN FIXES TWO O’CLOCK
AS LATEST HOUR FOR AUTO DRIVERS
Peripatetic patriotism will hold sway again tomorrow. This will be the fourth occurrence of Gasless Sunday, and the fuel administration officials here hope it will be observed with the same care by autoists as in the previous weeks.
Chief Girvin believes that it is entirely within the spirit of the request to permit taxis and similar service cars to operate for late business needs at terminals up to 2 o’clock Sunday morning, and the police will be in force tonight. Two o’clock Sunday morning is the dead line for all automobiles says the chief. Doctors’ cars and funeral autos should be identified by cards if they drive tomorrow.
No word has been received here as to whether the gasless day injunction will extend through another week, but due notice of any change will be given, it was said.
Welcome back to a new edition of Coverage Pointers. The serious injury column is again small this week, as the Courts come back from the Summer doldrums. In one case, the defendant failed to address all claims in the bill of particulars, particularly the 90/180-day claim, which defendants often do not nail down at their peril, and the claims of injury to the thoracic spine. Hopefully in the next edition we will have more cases.
Looking forward to Fall and the colder and wilder weather after a hot summer. My thoughts turn to pumpkins, apple picking, and Fall festivals. See you next edition.
Until next time,
Favoritism for Ball Players Unwelcomed in Ship Yard:
New York Herald
New York, New York
21 Sep 1918
SHIPYARD WORKERS QUIT
Cramps’ Men Object to Ball
Players Working as Bosses
PHILADELPHIA, Sept. 20.—A number of workers left work at the Cramps’ shipyard here to-day because they objected to baseball players, actors, pugilists and others inexperienced in shipbuilding being placed over them as bosses. The number of men out could not be learned. Company officials who could be reached said they had no knowledge of any serious curtailment in their force. The men say the number that left the yard is large.
Charles Scott, general organizer of the Boilermakers and Shipbuilders Union, and D. J. Cavan, general organizer for the American Federation of Labor in the Delaware district, were quoted to-night as saying there is too much welfare work in the shipyards and that it retards the progress of shipbuilding. Privately owned yards, such as Cramps’, they said, never had any welfare agents until the Government sent them there at Government expense.
Wilewicz’ Wide-World of Coverage:
I love the fall. The crisp air, the sweater-weather, and all of the scents. I hesitate to admit that I am a PSL fan (the latte, not the league), though I will be the first to criticize the pumpkin-everything craze. There is a line. In any event, we decked out the house in fall trimmings as of Labor Day, and have both the pumpkin festival and apple picking on the family planner for the coming weeks. There is no verdict yet on what my daughter will be for Halloween this year, but I’m hoping to learn soon so that we don’t have to do the annual day-before run around to get final accessories.
Now, this week in the Wide World of Coverage, the Second Circuit just addressed coverage issues in the context of priest sexual abuse cases. In Hartford Roman Catholic Diocesan Corp. v. Interstate Fire & Casualty Company, at issue were whether the claims were barred under the assault and battery exclusion, and whether they were “occurrences” in the first instance. With regard to the exclusion, the court found the provision did not preclude coverage for all insureds if any one of them committed an assault, and moreover, the priests were not acting within the scope of their duties when the events happened, thus the provision was not applicable. As for the occurrence argument, these were unforeseeable events from the standpoint of the insured dioceses. As “accidents”, there was coverage under their liability policy for them.
Until next time!
Agnes A. Wilewicz
Until Loaf Do Us Part:
Buffalo Morning Express and
Illustrated Buffalo Express
Buffalo, New York
21 Sep 1918
Newlyweds find cure
for trouble in judge’s tonic
Geary, charged by wife with
violation of anti-loafing law,
must get work
Edward Geary, a negro, 36 years old, who lives with his wife in the rear of No. 71 William Street, was arraigned before Judge Standart yesterday, on complaint of his wife, charging the man with violation of the anti-loafing law. The man was turned over to Superintendent George B. Krug of the county lodging house for a job and ordered to turn over his earnings to his wife each week.
The couple were married two weeks ago after Geary had been arrested for bringing the girl, who is only eighteen years old, here from Erie, Pa., for immoral purposes. He was charged with white slavery, but on his promise to marry the girl, the charge was dismissed.
Mrs. Geary told Judge Standart that during the last week she had received only 25 cents from her husband and the week before that $1.25, for the support of herself and her eight-month-old child.
Barnas on Bad Faith:
When you care about as many sports teams as much I do you’re bound to go through some ups and downs. With the teams I like, there are usually far more downs than ups. I’ve got quite the mixed bag right now. On the one hand, Syracuse football and UB football are both off to 3-0 starts (UB for the first time ever as a FBS team) and look poised to make returns to bowl games. On the other hand, the Bills may be the worst team in the NFL, Spurs have lost three games in a row, including an almost unbelievable choke job in Champions League on Tuesday, and the Blue Jays are merely playing out the string in a season that has been over since May. Hopefully the Sabres can be added to the list of pleasant surprises when the puck drops on hockey season in a couple weeks.
I recently returned from a weekend trip that included a visit to Wrigley Field for a Cubs game on Friday night and then a trip to South Bend, Indiana, for Vanderbilt vs. Notre Dame on Saturday. I’ve been to a lot of college football games at UB Stadium and the Carrier Dome, but they don’t even compare to the experience at Notre Dame Stadium. I certainly wouldn’t label myself as a Notre Dame fan, but the trip to South Bend was easily one of the best sporting events I have ever attended in my life. The campus is beautiful, the stadium is great, and the atmosphere is incredible. I think it’s a must for any fan of college football or sports in general. I may have even had a brief moment where I got caught up in the atmosphere and considered whether I should be rooting for the Fighting Irish. Luckily, I came to my senses. I’ll be back to my roots in the stands rooting for the Orange when they play the Irish at Yankee Stadium in November.
I have two bad faith cases in the column today. Andres is a Colorado case that holds that mere invocation of the appraisal process by an insurer does not immunize it from potential bad faith liability. Taylor is a Georgia case where the insureds’ bad faith claim was dismissed because the carrier had a reasonable basis for denying coverage based upon late notice and lack of insured status.
Have a nice weekend.
Brian D. Barnas
The Winnipeg Tribune
21 September 1919
Widower age 42, Farmer, would like to meet widow about same age used to farm. Object matrimony. Correspondence strictly confidential. Write Box 8240 Tribune.
Off the Mark:
Last weekend, I did some roof repair work on a roof that was definitely steeper than I imagined. It was certainly nerve racking. Thankfully, there were no pictures taken. Being featured in an edition of Labor Law Pointers would be worse than falling. This weekend the family and I are headed to New Jersey to celebrate my niece’s first birthday. I’m happy to have a break from moving boxes.
This edition of “Off the Mark” discusses a recent construction defect case from the US District Court for the Eastern District of Pennsylvania. In Union Ins. Co. v. Selective Ins. Co. of Am., the Court examined the duty to defend an underlying action alleging faulty workmanship. The Court found that under Pennsylvania law, the definition of accident required to find an occurrence under insurance policies cannot be based upon claims of faulty workmanship. Even if the allegations of faulty workmanship were "brought under the guise of a negligence claim," there was still no "accident," and thus "no occurrence." As such, the Court found that there was no duty to defend the underlying action. Although the defendant insurer withdrew its defense after defending its insured for two years, the Court ruled that the defendant’s reservation of rights letter advising the insured that it reserved its right to withdraw its defense and disclaim coverage was proper and did not result in estoppel.
Until next time …
Brian F. Mark
The Flu Killed Many, 100 Years Ago:
120 Deaths in New England
Rochester Democrat and Chronicle
September 21, 1918
Boston – More than 120 deaths from influenza and pneumonia, 55 of them in this city were reported in New England during the 24 hours ending at 10 o’clock tonight. Although the mortality rate was the greatest in several days the health authorities said they were confident that the worst was passed.
Welcome to another issue of Wandering Waters. I hope all of you have had a wonderful week.
After a brief hiatus, I am back to discussing basketball. The NBA’s offseason continues to make the headlines. Yesterday, Jimmy Butler (one of the elite players in the NBA), requested a trade from the Minnesota Timberwolves. It is reported that Butler has a trade wish list consisting of the Clippers, the Knicks, and the Nets. There are many rumors as to why he wants out of Minnesota. Some report that he was unhappy and had a fractured relationship with his younger teammates. Others report that Butler wanted more money on a five-year extension. Reportedly, Butler turned down a five year $110 million dollar extension in the beginning of the summer. While the reasons are unknown, it does not change the fact that, once again, a NBA superstar is demanding a trade.
On a lighter and happier note, I am happy to report Dwayne Wade is returning for his final season. After a historic run, he is finally calling an end to his illustrious basketball career. In a well thought out video announcing his return, Wade discussed all the reasons why he could retire and why he wanted to return. He discussed the internal conflict between his potential selfishness and his love of the game. Watching the video provided an interesting insight into the heart and mind of a professional athlete contemplating the end of his career. While most of see the games and the paycheck, professional athletes put in a lot of time, effort, and decision making behind the scenes.
With that being said, this week we have one case from the United States District Court, Southern District of New York. I hope you enjoy.
Until next time…
Larry E. Waters
Keeping the Sailors “Dry” – 100 Years Ago:
Drastic Liquor Ruling Enforced Here
The Ithaca Journal
September 21, 1918
Hotels in Ithaca have agreed to carry out regulations prescribed by the Commission on Training Camp Activities and adopted by the New York State Hotel Association which prevent the selling of liquor in any manner which might result in its reaching a soldier or sailor. While the enforcement of the regulations is being done to the letter, the fact that there is practically only one week more in which booze may be sold here makes them of slight importance …
Yesterday, I appeared for a client on a motion in New York County Supreme Court in lower Manhattan. This is my favorite courthouse, bar none. Both the interior and the exterior of the building evoke “wow” moments for me each time I am there. The granite-faced building was designed in classical Roman style and was completed in the late 1920’s. You feel like you are approaching a great Roman temple as you walk up to the building. Etched into the granite high above the entrance to the courthouse is the inscription, “The true administration of justice is the firmest pillar of good government”. After making your way through security (something I doubt the architect ever envisioned), you enter a spectacular rotunda which provides, among other things to see, a circular mural depicting images of law and lawgivers through the ages. I always feel both a sense of history and responsibility when standing in the rotunda. Many television shows and movies have shot scenes within this courthouse, including, reportedly, the classic 1957 courtroom drama, 12 Angry Men. Sure would love to see that jury room someday. Anyway, in case you’re wondering, the judge ruled favorably to the insurance company on the motion I was appearing on. It’s always nice when that happens.
Boron’s Benchmarks offers for your consideration this time around a decision of the Appellate Court of Illinois, Third District, upholding the circuit court’s grant of summary judgment to the insurer, Pharmacists Mutual. The appellate court ruled exclusions in the policy barred coverage for water damage suffered by plaintiff, Preckshot Professional Pharmacy. The exclusion discussed in my write-up of the case concerns loss or damage caused by “water below the surface of the ground”.
We all feel for you folks in the Carolinas dealing with the awful, widespread flooding from Hurricane Florence. Our thoughts and prayers are with you. I picked a case about water damage loss for this issue, in your honor, even though it is admittedly a case where the court ruled there was not coverage for the water damage suffered by the policyholder after an underground pipe was inadvertently ruptured during boring occurring next door to the premises at issue, causing water damage to the policyholder.
In any event, I do hope this material may be helpful for you and/or your work.
Eric T. Boron
Camp Followers – 100 Years Ago
Have No Help for “Camp Followers”
Nassau Supervisors Can’t Spend Money to Care for Women in Hospitals
Brooklyn Daily Eagle
21 September 1918
Dr. Matthew Nichols, Deputy Commissioner of the State Department of Health … appeared before the Board of Supervisors yesterday in reference to the county appropriating a certain sum of money for the maintenance of young women patients described as “camp followers”. It was made very plain to the visitors that the county had no provision for the care of such persons under the terms suggested… Dr. Nichols explained that the government has not arranged for this class of work and he sought some solution of the problem through the county officials.
Jerry’s No-Fault Navigation
Hello and welcome to Jerry’s No-Fault Navigation. Your eyes and ears to the no-fault regulations. What do you think makes a great CEO? I bet many people would talk about leadership skills, with differing opinions on the qualities of a great leader. On a flight back to Buffalo recently, I found myself sitting next to the CEO of a prominent bank. Thousands of employees report to him. Many more are customers of the bank. His responsibilities, as you can imagine, are challenging on a daily basis. But, it was his humility that stood out in my mind. As we were de-boarding the plane, he turned around and helped someone with their bag. As it turns out, that someone was me. It was a small act, but it spoke volumes. Leaders do not just rely on talk, they also do. And, the great ones do it with humility.
This week, I bring you the latest decision from the appellate courts regarding a premature claim. The medical provider felt there was no good reason for the insurance carrier’s request for documentation, so it decided not to provide the documentation. Instead, it instituted a no-fault lawsuit. But, as the Court points out, it is better to do than to sue. Read on for more details.
The Kingston Daily Freeman
Horse weighing 1450 pounds. Edward T. McGill
Editor’s Note: Was McGill the owner or the horse?
Headlines from this week’s issue:
KOHANE’S COVERAGE CORNER
Dan D. Kohane
- Carrier Established Lack of Cooperation with Respect to Only One of its Two Insureds, but Its Disclaimer was Untimely and therefore Ineffective
- In a Pre-Prejudice Case, Unexcused Late Notice to an Excess Carrier Leads to Loss of Coverage
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
- Defendant Met Burden of Showing No Serious Injury
- Defendant Failed to Eliminate Issues of Fact as to Injury to Thoracic Spine
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
- Insurance Procurement Clauses Must be Given Strict Construction
- Settlement Agreement Must be Signed and Entered to be Enforceable
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
- Second Circuit Finds Coverage in Excess Policy for Archdiocese Relative to Priest Sexual Abuse and Molestation Cases in Connecticut (CT Law)
Jennifer A. Ehman
- Duty to Defend Triggered, but as Determination of Indemnity Went to Whether Loss Actually Occurred within “that Part of the Premises Leased to You,” Parties Needed to Await Outcome of the Underlying Action
JERRY’S NO-FAULT NAVIGATION
- Premature No-Fault Claim Based on Outstanding Verification Requests
BARNAS ON BAD FAITH
Brian D. Barnas
- Invoking the Appraisal Process does not Immunize an Insurer from Liability for Bad Faith
- Bad Faith Claim Dismissed where the Insurer had Reasonable Factual and Legal Grounds to Deny Coverage
JOHN’S JERSEY JOURNAL
John R. Ewell
- Some Jurisdictions Require Lloyd’s of London Syndicates to Plead Diversity of Each Underwriter
OFF THE MARK
Brian F. Mark
- US District Court Finds No Duty to Defend Underlying Action Asserting Claims for Faulty Workmanship
Larry E. Waters
- Defendants Motion Granted because the “Action Over Exclusion” Applied as a Bar to Coverage and Section 3420(d)(2) does not Apply to Claims Between Insurers
Eric T. Boron
- Damage/Loss to Property Above the Ground Excluded Because the Loss Caused By Water Originating Below the Surface of the Ground
Earl K. Cantwell
- Opinion Testimony with Respect to Value
Keep those cards and letters coming in. We love hearing from you.
Hurwitz & Fine, P.C. is a full-service law firm
providing legal services throughout the State of New York
Dan D. Kohane
Agnes A. Wilewicz
Jennifer A. Ehman
INSURANCE COVERAGE/EXTRA CONTRACTUAL LIABILITY TEAM
Dan D. Kohane, Chair
Steven E. Peiper, Co-Chair
Michael F. Perley
Jennifer A. Ehman
Agnieszka A. Wilewicz
Edward B. Flink
Brian D. Barnas
Brian F. Mark
Eric T. Boron
John R. Ewell
Larry E. Waters
Diane F. Bosse
Joel R. Appelbaum
FIRE, FIRST-PARTY AND SUBROGATION TEAM
Steven E. Peiper, Team Leader
Michael F. Perley
Edward B. Flink
Eric T. Boron
Brian D. Barnas
James L. Maswick
Jennifer A. Ehman, Team Leader
Jody E. Briandi, Team Leader
Diane F. Bosse
Appellate Division, Second Department
Carrier Established Lack of Cooperation with Respect to Only One of its Two Insureds, but Its Disclaimer was Untimely and therefore Ineffective
On July 28, 2008, Robinson and Bethea (“plaintiffs”) were involved in a motor vehicle accident with a vehicle owned by Noel and operated by Onwuzurulke. At the time of the accident, Noel was insured by Global Liberty Ins. Co. of New York (“Global”). The plaintiffs commenced an action against Noel and Onwuzurulke to recover damages for personal injuries (“underlying action”). Global sent letters dated December 20, 2010, advising Noel and Onwuzurulke of their responsibility to cooperate in the investigation and defense of the underlying action. On January 20, 2011, the defendant disclaimed coverage in the underlying action on the ground that Noel and Onwuzurulke failed to cooperate in the investigation and defense of the underlying action. On September 28, 2012, the plaintiffs obtained a judgment against Noel and Onwuzurulke in the underlying action.
The plaintiffs then commenced the instant action against Global and moved for summary judgment, seeking a judgment declaring that Global was obligated to indemnify Noel and Onwuzurulke in connection with the judgment obtained against them in the underlying action. Global sought a judgment dismissing the complaint.
To effectively deny coverage based upon lack of cooperation, an insurance carrier must demonstrate (1) that it acted diligently in seeking to bring about the insured's cooperation, (2) that the efforts employed by the insurer were reasonably calculated to obtain the insured's cooperation, and (3) that the attitude of the insured, after his or her cooperation was sought, was one of willful and avowed obstruction – the so called “Thrasher” rules based on Thrasher v.United States Liab. Ins. Co., 19 NY2d 159, 168-169. Mere efforts by the insurer and mere inaction on the part of the insured, without more, are insufficient to establish non-cooperation.
Global met these requirements with regard to Onwuzurulke. It hired an investigator to locate Onwuzurulke, the investigator communicated with him, and Onwuzurulke refused to cooperate. However, with regard to Noel, the defendant failed to meet its "heavy" burden of "proving lack of cooperation". While it repeatedly sent letters to an address, it learned early that Noel did not reside there. Further, Global’s investigator searched for Noel under an incorrect name.
However, and more critically, with respect to BOTH Noel and Onwuzurulke the disclaimers were untimely. Insurance Law § 3420(d)(2) provides that, when an insurer disclaims liability or denies coverage for bodily injury arising out of a motor vehicle accident occurring within the state, "it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant." The timeliness of an insurer's disclaimer is measured from the point in time when the insurer first learns of the grounds for disclaimer of liability or denial of coverage. A delay is considered insufficient as a matter of law where the basis for denying coverage was or should have been readily apparent before the onset of delay.
Global had sufficient information to support its alleged disclaimer of coverage on the basis of noncooperation, at the latest, as of September 20, 2010, when Onwuzurulke affirmatively refused to cooperate, Noel had missed multiple deposition dates, and the defendant's investigator had not been able to locate Noel. Under the circumstances of this case, the defendant's delay in disclaiming coverage was not "as soon as is reasonably possible" within the meaning of Insurance Law § 3420(d)(2).
Under these circumstances, the plaintiffs established their prima facie entitlement to judgment as a matter of law declaring that the defendant is obligated to indemnify Noel and Onwuzurulke in connection with the judgment obtained against them in the underlying action. In opposition, the defendant failed to raise a triable issue of fact.
Editor’s Note: If there was insufficient proof that Noel failed to cooperate, how could the disclaimer on failure to cooperate be untimely? Inquiring minds want to know.
Appellate Division, Second Department
In a Pre-Prejudice Case, Unexcused Late Notice to an Excess Carrier Leads to Loss of Coverage
On June 26, 2002, Keller was involved in a motor vehicle accident with Ferguson. At the time of the accident, Keller was driving a car and his wife was a passenger. They had leased the car from Chrysler Financial Company (“CFC”). The Kellers were insured under a primary policy with Travelers and Keller had an umbrella policy with RLI Insurance Company (“RLI”).
In 2003, Ferguson sued the Kellers and CFC. The Kellers first notified RLI of the accident and the lawsuit in August 2006, and RLI issued a disclaimer letter on September 5, 2006, denying coverage to all defendants for "late notice of suit." The Ferguson action was settled in 2007, with Daimler Chrysler Insurance Company (“DCIC”) paying $250,000 toward the settlement on behalf of its insured, CFC, and Travelers paying $250,000. Thereafter, DCIC commenced this action, as subrogee of CFC, against the Kellers, and subsequently moved, inter alia, to amend the complaint to add RLI as a defendant. Upon receipt of the motion, RLI issued a disclaimer letter to DCIC on June 3, 2010.
After RLI was added as a defendant, it moved for summary judgment dismissing the complaint insofar as it asserted allegations based on CFC's failure to provide timely notice of the occurrence, claim, and underlying suit. The lower court held that CFC did not qualify as an insured under the RLI policy, a ground not raised by either party. The Second Department found that the lower court should not have decided the motion on a ground not raised by RLI and then went on to decide the substantive motion.
RLI established its entitlement to judgment as a matter of law dismissing the complaint insofar as asserted against it based upon CFC's failure to provide timely notice of the occurrence and suit. "The insured's failure to satisfy the notice requirement constitutes a failure to comply with a condition precedent which, as a matter of law, vitiates the contract. This rule applies to excess carriers as well as primary carriers. A justifiable lack of knowledge of insurance coverage may excuse a delay in reporting an occurrence. To establish a valid excuse due to the insured's alleged ignorance of insurance coverage, the insured has the burden of proving "a justifiable lack of knowledge of insurance coverage" and "reasonably diligent efforts to ascertain whether coverage existed" upon receiving information "which would have prompted any person of ordinary prudence to consult either an attorney or an insurance broker".
RLI submitted evidence that counsel for the Kellers and CFC in the underlying action performed an investigation and learned the detailed information regarding the umbrella policy in March 2005. As such, RLI established that RLI was given no notice of the accident or lawsuit until August 2006, and CFC did not provide notice until RLI was served with DCIC's motion to amend the complaint in June 2010.
Contrary to DCIC's contention, RLI did not waive its right to deny coverage to CFC based on its disclaimer letter dated September 5, 2006, since that disclaimer denied coverage based on late notice of suit of all the defendants, not just the named insureds.
This was a pre-prejudice case, so the issue of prejudice was not before the court.
Robert E.B. Hewitt III
09/12/18 Baratov v. Robinson
Appellate Division, Second Department
Defendant Met Burden of Showing No Serious Injury
The Appellate Division found defendant had met his prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident through competent medical and other evidence not specified. In opposition, the plaintiff failed to raise a triable issue of fact.
09/12/18 Espinal v. Shortis
Appellate Division, Second Department
Defendant Failed to Eliminate Issues of Fact as to Injury to Thoracic Spine
The plaintiff commenced this action to recover damages for personal injuries allegedly sustained on July 22, 2014, when the plaintiff and the defendant were involved in a motor vehicle collision at the intersection of Hempstead Avenue and Woodview Road in Hempstead. The plaintiff commenced this action to recover damages for injuries he allegedly sustained in the collision and the lower court granted summary judgment dismissing the case finding a lack of serious injury. The Appellate Division reversed, finding the defendant failed to meet her prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject. The papers submitted by the defendant failed to eliminate issues of fact regarding the plaintiff's claims, set forth in the bill of particulars, that the plaintiff sustained a serious injury to the thoracic region of his spine under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d) and that he sustained a serious injury under the 90/180-day category of Insurance Law § 5102(d). Since the defendant did not sustain her prima facie burden, it was unnecessary to determine whether the papers submitted by the plaintiff in opposition were sufficient to raise a triable issue of fact.
Steven E. Peiper
09/19/18 Uddin v A.T.A. Constr. Corp.
Appellate Division, Second Department
Insurance Procurement Clauses Must be Given Strict Construction
Plaintiff was injured in the course of his employment for BD Builders, and commenced a lawsuit against ATA Construction (as GC) and Park Slope (as owner). ATA then commenced a third-party action against BD and Scottsdale alleging therein that BD breached its duty to procure insurance on behalf ATA. Park Slope commenced a third-party action, as well, therein asserting a claim for common law indemnity against Flan Realty. Flan then joined the claims against BD, and also asserted that BD had failed to procure insurance on Flan’s behalf. Flan also asserted a claim of contractual indemnification against BD and ATA.
Flan’s motions were dismissed when it was unable to establish itself free from any negligence. Where, as here, a party may be liable for some percentage of fault, it follows that they cannot be indemnified under either common law or contractual theories.
BD’s motion for summary judgment against ATA was granted. BD argued, successfully, that the contract did not expressly require “procurement of additional insured coverage.” As insurance procurement clauses are strictly construed, it followed that ATA had no basis for its additional insured claim. Likewise, Flan’s claims against BD for failure to procure insurance were dismissed on similar grounds.
09/19/18 Anghel v. Utica Mutual Ins. Co.
Appellate Division, Second Department
Settlement Agreement Must be Signed and Entered to be Enforceable
This matter was apparently settled, via written Stipulation, on September 15, 2015. The document was then filed with the Clerk’s Office on September 29, 2015. When plaintiff refused to issue a Release, Utica moved to compel production of the same. Plaintiff, in turn, countered with a motion to vacate the settlement. Initially, the Court noted that an agreement which is executed between the parties, and filed with the Court, is binding. The agreement is properly executed if it is signed by the party, or the party’s attorney assuming counsel had authority to bind his or her client.
Here, counsel to plaintiff did not have explicit authority to execute the settlement agreement, but he did have the apparent authority. As such, the agreement was binding and enforceable. Accordingly, the trial court directed that a Release be provided in accordance with the settlement agreement, and payment from the carrier is due within 21 days thereafter.
Agnes A. Wilewicz
United States Court of Appeals, Second Circuit
Second Circuit Finds Coverage in Excess Policy for Archdiocese Relative to Priest Sexual Abuse and Molestation Cases in Connecticut (CT Law)
The Hartford Roman Catholic Diocesan was insured by Interstate’s second-layer excess liability policy for the years of 1978-1985 (above a self-insured retention a number of other policies). When they were later sued in relation to a series of priest sexual abuse and molestation cases, they sought coverage under those policies. At one point, even the second-layer excess policy was breached. At issue, however, was whether there was actually any indemnity coverage thereunder. Interstate argued that two provisions of the policy barred coverage – the exclusion for assault and battery, and the coverage grant itself for occurrences that unintentionally and unexpectedly result in personal injury, namely whether there was even an occurrence to be covered. (A secondary claim was whether Interstate’s failure to comply with the indemnity obligation violated Connecticut’s Unfair Insurance Practices Act; an issue not addressed in this summary.)
With regard to the assault and battery exclusion, the policy contained the following language. “This coverage does not apply: (a) To liability of any Assured for assault and battery committed by or at the direction of such Assured except liability for Personal Injury or Death resulting from any act alleged to be assault and battery for the purpose of preventing injury to persons or damage to property.” The “Assured” was defined as the Archdiocese and “any official, trustee or employee of [the Archdiocese] while acting within the scope of his duties as such”. Interstate had argued that this provision meant to preclude coverage as to all assureds if any one of them committed an assault or battery. The Archdiocese asserted that the exclusion only applies to a person acting within the scope of his duties. Here, the priests were not acting within their duties when they committed the assaults, said the Court. Moreover, Interstate’s reading of the provision was incorrect. To read the exclusion as “only relating back to ‘any assured’ would obviate the limited phrase referencing who commits or directs the misconduct.”
With respect to the argument that there was no occurrence under the policy in the first instance, the Court rejected this as well. An “occurrence” was defined in the policy as “An accident or a happening or event or a continuous or repeated exposure to conditions which unexpectedly or unintentionally results in personal injury, or damage to property during the policy period.” Interstate contended that there could be no coverage for accidents or happenings that were intended, regardless if the result was intended or expected. The Court, however, looked at the alleged events in context. In each one, the Archdiocese was not on notice of the events until after they took place, for the most part. Thus, the proper inquiry was whether the injuries were expected from the standpoint of the insured. The “focus is on the intention and expectation as to the resulting injury rather than the accident itself”.
Jennifer A. Ehman
Supreme Court, New York County
Hon. Barbara Jaffe
Duty to Defend Triggered, but as Determination of Indemnity Went to Whether Loss Actually Occurred within “that Part of the Premises Leased to You,” Parties Needed to Await Outcome of the Underlying Action
Spiros Nakos and Hrissi Nakos owned a property located in Brooklyn, New York. The property was leased to a restaurant. The lease obligated the restaurant to keep the sidewalks and curbs free of snow and ice, and to procure a comprehensive policy of insurance covering the “demised premises and the entire building and property in which its forms a part of” and naming the landlords as insureds on that policy.
The restaurant appeared to have complied with the requirements through a policy issued by Defendant. On or about February 4, 2014, the underlying injured plaintiff slipped and fell on ice on the ground floor of the premises sustaining injury. A lawsuit was then brought against the landlord and restaurant. Plaintiff provided a defense to the landlords as their own carrier. The Covington policy listed Spiros Nakos as an additional insured “but only with respect to liability arising out of the ownership, maintenance or use of that part of the premises leased to you.”
Plaintiff then brought this action seeking a declaration the Covington was obligated to defend and indemnify the landlords.
The first part of the decision addresses a motion to amend to include the landlords, and to asset a claim of equitable contribution. That piece of the motion was granted to the extent that Spiros Nakos was added. No ground was found to add Hrissi Nakos as she was never named as an additional insured under the Covington policy.
The next part of the decision was plaintiff’s motion for summary judgment. In considering the request, the court found that a declaration on indemnity was premature and must await a determination of liability in the underlying action. The decisions cites to a First Department decision, Axis Surplus Ins. Co. v. GTJ Co., Inc., which found that the insurer’s argument that the accident was not within its insured’s area of responsibility could not be resolved on motion seeking declaratory relief, but would be determined after resolution of underlying action. However, the court found an obligation to defend, and directed that plaintiff be reimbursed for defense costs incurred to that date.
Appellate Division, First Department
Premature No-Fault Claim Based on Outstanding Verification Requests
Plaintiff, Village Medical Supply, Inc. instituted this action against Defendant, Travelers Property Casualty Insurance Company, for no-fault benefits. After Plaintiff submitted their claim, Travelers issued verification requests for a manufacturer’s invoice documenting the cost of the supplies to the assignor or eligible injured party. Plaintiff claimed that defendant had no “good reason” for the request, and failed to respond to the timely requests for verification. Accordingly, the Court granted Travelers’ motion for summary judgment deeming the claim for no-fault benefits as premature.
Brian D. Barnas
Court of Appeals of Colorado
Invoking the Appraisal Process does not Immunize an Insurer from Liability for Bad Faith
Andres operates a dump truck in Steamboat Springs, Colorado. The truck was insured by United. In June 2015, the truck caught on fire. It was agreed that the truck was a total loss, but the parties disagreed on the value. Andres filed a lawsuit on May 6, 2016 alleging breach of contract and bad faith denial and delay of an insurance claim. Rather than answering, United moved to compel appraisal and stay proceedings. Andres filed an amended complaint, which included a cause of action challenging the enforceability of the appraisal demand. The amended complaint was struck and the parties proceeded to appraisal.
Andres was awarded $39,507 plus $3,907 in taxes at appraisal. United paid the award and then moved for entry of judgment contending that the appraisal process resolved the claims. Andres opposed, arguing that the appraisal award did not resolve all of its claims against United.
Under Colorado law, appraisal is an act of valuing property by an authorized person. An appraisal award, by itself, does not entitled either the insured or the insurer to judgment in its favor on a breach of contract or bad faith claim. Mere invocation of the appraisal process also does not immunize an insurer from liability for a claim of bad faith. Indeed, in Colorado, bad faith may occur before invocation of the appraisal process.
Court of Appeals of Georgia
Bad Faith Claim Dismissed where the Insurer had Reasonable Factual and Legal Grounds to Deny Coverage
The Taylors own a home in Fulton County that is subject to certain protective covenants governed by Regency Oaks Neighborhood Association, Inc. (the Association). From 2011 until February 2014, Alberta Taylor served on the Regency Oaks Advisory Committee (the Committee) and held a treasurer position. As part of her service to the Committee, Alberta Taylor would send mass email bulletins to the entire community using an email address she created as a sub-account connected to her personal email address. In February 2014, the board of directors formally transitioned from a developer-managed board to a board managed entirely by homeowners in the community (the Board). The Committee was dissolved upon the formation of the Board, and Alberta resigned from the Committee and elected not to run for a position on the newly formed Board.
The Board asked that Alberta provide them with the login credentials for the email account she previously used as a member of the Committee to communicate with homeowners. Alberta explained to the Board that she would not turn over access to the email account because doing so would also surrender access to her personal account. Moreover, Alberta informed the Board that she deactivated the email account shortly after the Board was formed and her service on the Committee had ended. In response, the Board suspended the Taylors’ voting rights and access cards to community amenities, and it levied a $25 per day fine against the Taylors that constituted a lien on their property.
In September 2014, the Taylors filed suit against the Association alleging that the fines and sanctions were unenforceable. The Association filed an answer with counterclaims in October 2014 alleging breach of various duties.
The Association was insured by State Farm. The Taylors sent State Farm a letter with a copy of the Complaint in January 2015. They did not advise State Farm of the counterclaim. Shortly thereafter, State Farm provided defense counsel to the Association pursuant to a reservation of rights, but did not respond to the Taylors’ letter. In July 2016, the Taylors sent a second letter to State Farm, this time demanding insurance coverage under the Policy with respect to the Association’s counterclaims against the Taylors.
In September 2016, after a jury trial, the trial court entered judgment in favor of the Taylors for their breach of contract and fiduciary duty claims against the Association and awarded damages and attorney fees. The trial court also entered judgment in favor of the Association’s counterclaim for breach of fiduciary duty against the Taylors and awarded nominal damages. Following the resolution of the underlying lawsuit, the Taylors sent a third letter to State Farm once again demanding coverage under the Policy and reimbursement for defending the counterclaims. Counsel for State Farm responded to the third letter and denied coverage to the Taylors on the ground that the Taylors were not considered an insured under the Policy.
The Taylors sued State Farm, and State Farm’s was granted summary judgment. The court concluded that the Taylors failed to timely notify State Farm of the counterclaims. The court was unpersuaded by the Taylors’ argument that State Farm knew or should have known about the counterclaims given their representation of the Association in the underlying lawsuit. Of note, the Taylors also waived any argument that State Farm waived its untimely notice defense by denying coverage on other grounds because the argument was not raised in the trial court.
The Taylors’ bad faith claim was also dismissed. In addition to the late notice, the policy did not go into effect until three months after Alberta Taylor’s term on the committee ended. State Farm thus had multiple reasonable factual and legal grounds to deny coverage. Accordingly, summary judgment was granted dismissing the bad faith claim.
JOHN’S JERSEY JOURNAL
John R. Ewell
United States District Court, District of New Jersey
Some Jurisdictions Require Lloyd’s of London Syndicates to Plead Diversity of Each Underwriter
Dimora Ristorante is a restaurant in Norwood, New Jersey. The restaurant is owned by Gino Gjevukaj, and is located on property controlled by 100 Piermont Road Realty, Inc. (“100 Piermont”). Certain Underwriters at Lloyd’s, London, subscribing to Policy No. NAJL04463015RGL0052 (“Underwriters”) issued a commercial general liability (“CGL”) and liquor liability policy to 100 Piermont and DRI.
Suit was brought against Dimora Ristorante and 100 Piermont in New Jersey state court by an individual identified as P.P.G. (“the State Tort Case”) who alleges that she became overly intoxicated while a patron at Dimora Ristorante and was assaulted by an employee of the restaurant.
Underwriters disclaimed under the CGL policy based upon the exclusion for expected or intended injury, liquor liability exclusion, and lack of an “occurrence.” Underwriters also disclaimed coverage asserting that the restaurant worker only qualified as an insured for acts within the scope of their employment. Underwriters disclaimed coverage under the liquor liability policy based upon the exclusion for expected or intended injury and lack of an “occurrence.”
Underwriters commenced this Declaratory Judgment Action in the U.S.D.C., District of New Jersey. Underwriters sought a judgment declaring that it is not obligated to provide a defense or indemnification in the State Tort Case.
Underwriters alleged in its complaint that the court possessed diversity jurisdiction. As to its own citizenship, Underwriters alleged that “it is a business entity organized and existing under the law of England and Wales with a principal place of business located at One Lime Street, London, England.”
However, in the District of New Jersey, syndicates of Lloyd’s, London are deemed to possess the citizenship of each member for the purposes of a diversity jurisdiction analysis. Since Underwriters did not allege the citizenship of each member, the District of New Jersey dismissed the complaint without prejudice.
Rather than letting Underwriters amend their pleading to incorporate the citizenship of each of member, the District Court ruled that the declaratory judgment action should be adjudicated by the same state court overseeing the State Court Tort Case. As such, the federal court only granted Underwriters permission to re-file their action in state court.
* Disclaimer: This opinion and order is not for publication.
OFF THE MARK
Brian F. Mark
U.S. District Court for the Eastern District of Pennsylvania
US District Court Finds No Duty to Defend Underlying Action Asserting Claims for Faulty Workmanship.
This declaratory-judgment action arises out of an underlying construction defects action related to the construction of a 28 unit residential condominium development. On or about September 8, 2010, StoneGate Condominium Owners' Association ("StoneGate") filed an underlying action against Berks Homes and Berks Construction Company (collectively referred to as "Berks"), alleging that Berks defectively designed and constructed the condominium development (the "StoneGate Project"). Specifically, StoneGate alleged that Berks was responsible for certain "design and construction omissions," including, e.g., the alleged improper installation of: stucco, "roof and wall intersection flashings," "window/stucco/stone interfaces," and "window/door flashing details."
Berks commenced a third-party action against a number of parties, including Quality Stone Veneer (“QSV”) asserting claims for negligence, breach of warranty and indemnification and alleged that if Berks was found liable to StoneGate, such liability was the result of the third-party defendants' defective work on the StoneGate Project. QSV had executed a subcontract on or about November 11, 2005 with Berks to install a 500 square foot manufactured stone façade on the StoneGate Project.
QSV was insured under policies issued by both Selective Insurance Company of America ("Selective") and Union Insurance Company ("Union") during different years. Following the commencement of the third-party action, QSV provided notice to Selective. Selective initially agreed to provide a defense to QSV, subject to a reservation of rights, which included the right withdraw its defense and disclaim coverage. Selective also tendered QSV’s defense to Union. Union initially declined the tender, but after a second tender eventually agreed to also participate in a defense of QSV in the underlying action. Thereafter, Selective withdrew its defense and disclaimed coverage.
Union commenced this declaratory-judgment action against Selective to recover defense costs that it incurred in defending QSV in the underlying action. Union asserted that Selective's coverage determination and withdrawal was improper and sought a declaration that Selective was required to pay one half of all defense expenses incurred by Union in defending QSV.
From October 10, 2003, to October 10, 2008, Selective issued five consecutive Commercial General Liability ("CGL") Insurance Policies to QSV, which provided coverage, subject to the Policies' terms, conditions, exclusions and endorsements, for "bodily injury" and/or "property damage" caused by an "occurrence" during the respective policy periods. The Selective Policies define "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Union thereafter issued a Commercial General Liability Insurance Policy to QSV for the period of October 10, 2009, to October 10, 2010.
Selective filed a motion for summary judgment asserting that its withdrawal of its defense was proper. Selective’s withdrawal of its defense was based on its determination that the claims in the underlying action did not result from an "occurrence" as defined by the Selective policies. As set forth above, the relevant policies define "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."
The Court acknowledged the existence of extensive case law in Pennsylvania holding that the definition of accident required to find an occurrence under insurance policies cannot be based upon claims of faulty workmanship. The Court cited to an unrelated case involving the same Selective policies and parties (different project), where the Court found that under the policies, Selective had no duty to defend QSV in an underlying action involving faulty workmanship claims. In that case, the Court stated that even if the allegations of faulty workmanship by QSV were "brought under the guise of a negligence claim," there was still no "accident," and thus "no occurrence."
In reviewing the facts in this matter, the Court noted that the underlying claims alleged "design and construction omissions," including improper installation of stucco, "roof and wall intersection flashings," "window/stucco/stone interfaces," and "window/door flashing details." The Court found that such claims were for faulty workmanship and were not covered under the Selective policies because they did not result from an "occurrence." The Court further held that the third-party complaint filed by Berks did not trigger a coverage obligation by Selective. The third-party complaint incorporated by reference the facts contained in the underlying complaint and further stated that the faulty construction consisted of, "latent defects and deformities in the stucco in the condominium units, leaking around windows, underperforming systems, and other alleged defects in the construction and condominium units." The Court determined that such claims were all allegations of faulty workmanship. Although the third-party complaint also alleged claims against QSV for negligence, breach of warranty and indemnification, none of these claims or allegations triggered any coverage obligation for Selective under the policies in question. Therefore, the Court determined that Selective did not have a duty to defend QSV in the underlying action. Accordingly, the Court granted Selective’s motion for summary judgment.
In granting the motion, the Court also found that Selective was not estopped from withdrawing its defense as Selective properly reserved its right to withdraw its defense and disclaim coverage. Selective initially agreed to provide a defense to QSV and preserved its coverage defenses by sending a reservation of rights letter to its insured. Specifically, QSV was informed that although Selective was providing a defense in the underlying action, Selective expressly reserved the right "to withdraw any legal defense we provide for you" and to disclaim coverage. Approximately two years later, Selective withdrew its defense of QSV, after Union had agreed to participate in a defense of their mutual insured. The Court found that Selective’s defense of the case for some time before denying coverage did not somehow turn the defense it did provide into fraudulent inducement. Nor did it turn QSV's decision to allow Selective to provide them with a defense into detrimental reliance. The Court pointed out that Pennsylvania law does not state that "the duty to defend automatically 'attaches' at the outset of the litigation and cannot afterwards terminate." Further, courts have held that an insurer that had expressly preserved its coverage defenses by issuing a reservation of rights letter was not equitably estopped from withdrawing its defense, even if it had defended the insured for several years before withdrawing.
The Court found Union’s argument that Selective withdrew its defense of QSV but did not also withdraw the defense it provided to Berks in the underlying action to be unpersuasive as the policies issued by Selective to QSV and Berks were completely separate policies that were completely unrelated to each other. The Court noted, that Union failed to cite to any case law stating that an insurance company's handling of one insured's claim somehow binds it with respect to its handling of a different insured's claim. Accordingly, the Court determined that Selective's withdrawal of its defense was proper.
Larry E. Waters
United States District Court, Southern District of New York
Defendants Motion Granted because the “Action Over Exclusion” Applied as a Bar to Coverage and Section 3420(d)(2) does not Apply to Claims Between Insurers
The current matter stems from an insurance coverage dispute arising out of a personal injury lawsuit pending in New York Supreme court. Old Republic General Insurance Company (“Old Republic General Insurance”), issued a general liability insurance policy to named insured McGowan with effective dates of August 12, 2013 to August 12, 2014 (the “Old Republic Policy”). After the issuance of the Old Republic Policy, McGowan served as a general contractor for a construction project in Queens, New York. McGowan hired A&V as a subcontractor. The subcontract between McGowan and A&V required A&V to defend and indemnify McGowan for any damages or actions arising out of A&V’s work, required A&V to obtain primary and excess liability insurance to cover its work at the construction project, and required A&V to name McGowan as an additional insured on its policies. In accordance with the subcontract, A&V obtained a general liability policy from Endurance American Specialty Insurance Co. (the “Endurance Policy”) and an excess liability policy from Defendant Century (the “Century Policy”). For additional insureds, the Endurance Policy provided: “[t]he following are included as additional insureds: Any entity by written contract . . . to be named as an insured is an insured but only with respect to liability arising out of your premises, “your work” for the additional insured, or acts or omissions of the additional insured, in connection with their general supervision of “your work,” . . . [e]xcept [that] all insuring agreements, exclusions and conditions of this policy apply to such additional insured(s).”
During the course of the construction project, an A&V employee was injured when a steel beam struck his foot. The A&V employee initiated a lawsuit in New York Supreme court (the “Underlying Action”). After receiving notice of the lawsuit, Old Republic General Insurance tendered the defense and indemnification of McGowan and others to Endurance and Defendant Century on July 8, 2014.
On August 5, 2014, Century denied Old Republic General Insurance’s tender request. Century advised that there was no specific Additional Insured Endorsement for McGowan or any other party on the Century Policy, and a determination of whether McGowan qualifies as an Additional Insured will depend on the determination of Endurance as the underlying carrier. Further, Century referenced the “Action Over Exclusion” which provided that the Century Policy does not cover “injury” or “damage” to “[a]n ‘employee’ of the named insured arising out of and in the course of: (a) Employment by the Named Insured; or (b) Performing duties related to the conduct of the named insured’s business.”
On April 7, 2017, Old Republic General Insurance commenced this action in New York Supreme Court, which was subsequently removed to the current court. On May 7, 2017, Century moved for judgment on the pleadings contenting that the “Action Over Exclusion” “unambiguously precludes coverage” in the Underlying Action. In contrast, Old Republic General Insurance argued that Century waived its right to rely on the “Action Over Exclusion” by failing to issue a timely disclaimer and argued since McGowan was an additional insured under the Endurance policy, McGowan is an additional insured under the Century Policy.
In its analysis, the court noted that “[t]he fact that McGowan is an additional insured under the Century Policy does not resolve the coverage question.” Rather, as the court noted the “coverage rights of both insureds and additional insureds are limited by the exclusion set forth in the Century Policy.” The court found that the “Action Over Exclusion” in the Century Policy explicitly and unambiguously excluded coverage for injuries suffered by the employee of a named insured during his employment, whether coverage is sought by the named insured or by someone the named insured is obligated to reimburse for damages owed or paid to the injured employee. In fact, the Second Circuit in 2015 concluded that the same Century Policy language unambiguously precludes coverage for both the named insured and any additional insured in connection with an underlying action seeking damages for bodily injury sustained by the named insured’s employee. As such, the court concluded that the “Action Over Exclusion” in the Century Policy applied as a bar to coverage.
Similarly, the court rejected Old Republic General Insurance’s argument that Century waived its right to rely on the “Action Over Exclusion” by failing to issue a timely disclaimer. Old Republic General Insurance argued that Century’s denial of its tender on July 8, 2014 was untimely. In its reasoning, the court noted that “[i]t is well-settled . . . Section 3420(d)(2) does not apply to claims between insurers regardless of whether those claims are for contribution or for full defense and indemnity.” Further, the court acknowledged that the current matter involved a defense and indemnity action by one insurer against another, which Section 3420(d) does not apply. As such, the court concluded that whether or not Century gave Old Republic General Insurance notice, as soon as was reasonably possible of its disclaimer of coverage was immaterial. Accordingly, the court held Century did not waive its right to dispute coverage.
In sum, the court granted Century’s motion for judgment on the pleadings and directed the Clerk to close the case and to terminate all pending motions.
Eric T. Boron
Appellate Court of Illinois, Third District
Damage/Loss to Property Above the Ground Excluded Because the Loss Caused By Water Originating Below the Surface of the Ground
On December 10, 2015, Preckshot was operating a pharmacy in Peoria, Illinois. At that time, a contract of property insurance was in force between Preckshot and its insurer, Pharmacists Mutual. According to the undisputed facts of the case, AT & T and its subcontractor were performing directional boring behind Preckshot's pharmacy. That boring was not related to Preckshot in any way, was not performed at the behest of Preckshot, and was not done on Preckshot's premises. The boring damaged a water service line located approximately 18 inches from the Preckshot premises, causing a discharge of water that inundated the Preckshot premises above the ground. All direct physical loss and damage to the Preckshot property occurred above the surface of the ground.
Pharmacists Mutual’s investigator determined the water discharged from the damaged underground water line flowed through under a concrete slab and came up through the ground to infiltrate Preckshot’s interior. Pharmacists Mutual disclaimed, citing a policy exclusion stating, in pertinent part, “’[W]e do not pay for loss or damage caused by loss or damage caused by…water below the surface of the ground. This includes water that exerts pressure on or flows, seeps, or leaks through or into:
a) basements, whether paved or not;
b) doors, windows, or other openings;
c) foundations, floors, walls, or paved surfaces; or
d) swimming pools, septic tanks, or other structures[.]’”
The Appellate Court of Illinois, Third District, in affirming the circuit court’s grant of summary judgment to Pharmacists Mutual, applied standard and oft-quoted rules of contract interpretation in assessing Preckshot’s policy with Pharmacists Mutual. The court noted in its decision that while ambiguities in policies must be construed liberally in favor of coverage, an ambiguity does not exist simply because the parties disagree, as was the case here, on the meaning of an exclusion. Rather, the Court said, “an insurance policy must be considered as a whole; all of the provisions, rather than an isolated part, should be examined to determine whether an ambiguity exists”.
Preckshot argued the exclusion only applies to loss or damage and water which IS below the surface of the ground, and since all loss/damage suffered by Preckshot occurred above the surface of the ground, the exclusion did not apply. Pharmacists Mutual, and ultimately the Court, disagreed, because in actuality the clause “below the surface of the ground” only applies to the issue of where the damaging water originated from. The actual loss or damage need not be below the surface of the ground.
Preckshot argued that the water that seeped up through its floor was, once it entered into the premises, no longer “water below the surface of the ground”. The Court rejected that argument as reading something into the policy that was not there, and in any event, leading to an (incorrect) interpretation of the insurance contract which would render the portions of the exclusion making reference to doors, windows, walls and swimming pools – which can be either in-ground or above ground - “surplusage”. A court in interpreting a contract may not properly read into a contract presumed language reflecting additional terms that is not actually set forth in the contract.
While the opinion of the Appellate Court of Illinois, Third District in Preckshot makes no reference to whether or not the exclusion at issue contained an anti-concurrent causation clause, a water damage exclusion is one of a small number of exclusions in property insurance policies which typically do contain an anti-concurrent causation clause. As you know, the anti-concurrent causation clause specifies that “[s]uch loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.” Application of the anti-concurrent causation clause to losses caused by wind and water was the subject of extensive litigation following Hurricane Katrina, as you might imagine, and likely will be litigated further in the aftermath of Hurricane Florence.
Finally, I remind you that “water below the surface of the ground”, the phrase at issue in Preckshot, is not the same as “surface water”, a phrase also commonly set forth within a water damage exclusion. Need clarification about what “surface water” is? Our very own Steve Peiper wrote in in his insightful, yet free-spirited column back in Coverage Pointers Volume XIX, No. 21 (No. 506), issued on or about (we lawyers love saying that when we are not 100% sure of the date) Friday, April 6, 2018, about a New York case decided earlier this year addressing that issue. That case, Smith v. Safeco Ins. Co. of Am., 2018 N.Y. App. Div. LEXIS 1925 (N.Y. App. Div., 4th Dep’t March 23, 2018) defined, at least in New York for now, what “surface water” is (accumulation of natural precipitation, such as rain) and what it is not (artificial source, such as water resulting from a water main break).
Court of Appeals, Fifth Div. Georgia
Opinion Testimony with Respect to Value
During a thunderstorm in 2012, a large tree fell onto the roof of the Woodrum residence causing significant damage to the house. The property loss went to appraisal and the Georgia Farm Bureau paid the appraisal award. The insureds then brought suit seeking compensation for diminution in value to the property alleging that the tree caused a crack in the slab foundation of the house, that the value of the house was diminished by the cracked foundation, and that the diminished value was a covered loss under the policy not included as part of the appraisal award. The insureds relied upon an affidavit of the contractor who repaired their house, who opined that the value of the house was diminished by the foundation being cracked, and during his deposition he rendered an opinion that the house lost 25% of its value due to the damaged foundation.
The insurance company filed a motion to exclude him as an expert witness, and a motion for summary judgment. The Trial Court granted both motions. The Trial Court excluded the contractor’s testimony, and since there was no other evidence with respect to diminution in value, the other claims in the case was dismissed. On appeal, this decision was found to be half-right and half-wrong.
The Appellate Court agreed that the contractor’s estimate on lost value was improper as a matter of expert witness testimony. His opinion was not based on any market comparisons or related methodology, and he said he made his determination based on his experience, not upon any recognized expert method. Therefore, the Trial Court did not abuse its discretion in excluding his testimony as an expert.
However, the Appellate Court ruled that it was improper and error to exclude the contractor’s testimony as lay-witness opinion testimony with respect to value. A Georgia statute states that a witness need not be an expert or a dealer in an article or property to testify as to its value if he or she has an opportunity to form a reasoned opinion. The contractor clearly had such an “opportunity” since he performed the repair work at the residence. He was a licensed contractor, experienced in home building and remodeling, familiar with the costs of construction, he performed the repairs at the house, and claimed to be familiar with the valuation of homes based on his professional experience. He testified that the house suffered significant structural damage due to the fallen tree, that he witnessed the damage to the foundation, and that the foundation damage would cause a loss or diminution in property value.
The Appellate Court ruled that the evidence demonstrated that the contractor was qualified to give an opinion, as a lay witness, as to the amount the foundation damage diminished the value of the property. Therefore, the Trial Court’s related ruling granting summary judgment to the insurance company was reversed.
The property owner’s case was resuscitated on the appeal even though the Appellate Court held that the contractor was not an expert witness with respect to property valuation. His opinion as to value, however, was proper under the Georgia procedural rules as direct testimony by a lay witness as to market value. The Georgia statutes in fact have a specific provision covering this instance which justified lay witness testimony with respect to value, as long as the witness had “an opportunity to form a reasoned opinion”.
The outcome might have been more questionable under the Federal Rules of Evidence. Rule 701 of the Federal Rules does allow opinion testimony by a lay witness as long as it is “rationally based” and helpful to understanding the witness’ testimony or determining a fact in issue. However, it cannot and should not be based on scientific, technical, or other specialized knowledge within the scope of expert witness testimony under Federal Rule 702. The question would be whether the contractor’s practical knowledge with respect to construction and property value would be considered such “specialized knowledge” (i.e., testifying as an expert). The issue would be whether the contractor’s testimony was not based on specialized knowledge, training or experience, but because of particular knowledge by virtue of his or her occupation.
While the admission of the contractor’s testimony was sufficient to allow the property owner’s suit to escape summary judgment, whether and to what extent that testimony would hold up at a subsequent trial or hearing would be another matter entirely.
Some courts have explained this difference as being that lay testimony results from a process of reasoning familiar in everyday life, while expert testimony results from a process of reasoning which is mastered only by specialists in the field.
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