Coverage Pointers - Volume XX, No. 8

Volume XX, No. 8 (No. 518)

Friday, October 5, 2018

A Biweekly Electronic Newsletter


Hurwitz & Fine, P.C.

1300 Liberty Building

Buffalo, NY 14202

Phone: 716-849-8900

Fax: 716-855-0874


Long Island Office:

535 Broad Hollow

Melville, New York 11747

Phone: 631-465-0700

Fax: 631-465-0313


Lake Placid Office

2577 Main Street

Lake Placid, NY 12946

Phone: 518-523-2441

Fax: 518-523-2442

© Hurwitz & Fine, P. C. 2018
All rights reserved

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


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


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


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


 Dear Coverage Pointers Subscribers:


Do you have a situation?  We love situations. 


You know, I ask that question each and every issue.  It’s become our tag line (and our friends at the Labor Law Pointers desk ([email protected]) have embraced it as well.  Why do we ask?


Folks call us when they are in need of direction, when they have an issue they haven’t confronted before, or it’s a twist on something they have.  They want someone to help them reason through a problem and we love doing that for our friends and clients.


We want to empower the people who call us.  We do not believe, as some do, that our clients need us for every difficult decision they need to make.  To the contrary; our approach is to give you the tools you need to make decisions on your own or to help you train others in your shop to do so.


So don’t be afraid to pick up the phone, if you have a “situation”.  We do love situations because when we are through with the call, or have responded to the email, we have given our clients the self-confidence to untangle or unravel whatever issue is giving them a headache.


We don’t supply aspirin.  We provide intellectual pharmaceuticals instead.


We hope to see you at the DRI Annual Meeting in San Francisco in a couple of week.  Please try to find me and say “hi”.


By the way, for those who love our 100 years ago stories, and so many of you have written to tell us so, we point out that World War I ended 100 years ago next month, on 11/11/18.  As you can tell by the stories in this issue, many of which are World War I related, our nation was still deep into the war effort – with American sacrificing many luxuries and necessities -- a month before the conflict came to an end



Jews Persecuted in Austria – It Happened During Both World Wars – Here, 100 Years Ago:



The New York Times

New York, New York

05 Oct 1918




Vienna Paper Complains of

Repression in Occupied Provinces


Special Cable to The New York Times


ZURICH, Oct. 3.—According to the Jüdische Zeitung of Vienna, Zionist societies are being persecuted by the Austrian military and civil authorities in the occupied provinces.


Thus the Hatikwa Society at Lublin was closed, with the Hebrew School adjoining.  The same methods were following in other centres of the Jewish population.  The journal asks if the present moment is opportune for such persecutions. 


Jen’s Gems:


See you in San Francisco for the DRI Annual Meeting!



Jennifer A. Ehman

[email protected]


Auto Factories Retooled for World War I – a Century Ago:


Buffalo Courier

Buffalo, New York

05 Oct 1918






New York, Oct. 4.—With government contracts in hand exceeding $800,000,000, the motor vehicle industry is rapidly being converted to war work, according to reports read today to the National Automobile Chamber of Commerce.  Some plants are operating on a twenty-five per cent basis of government work, while others have turned over their entire facilities to national undertakings.


Passenger car production is giving way to manufacture of ambulances, airplane motors, tanks, tractors, fire arms and other articles for the war programme, the report said.  The output of trucks, limited to one-third that average pre-war production, is devoted wholly to the needs of government and industries involved directly or indirectly in war work.


The general reduction of automobile manufacturing was shown by a comparison of September carload shipments, aggregating 11,700 as compared with 29,538 in the same month last year.


A review of the gasoline and tire situation indicated ample future supplies for all essential motor car driving.


John’s Jersey Journal:


Dear Subscribers:


This week was a good week at H&F. We obtained a permanent stay of arbitration for one of our carriers where New Jersey law applied. The insured, a New York resident, was involved in a car accident in New Jersey. The tortfeasor was insured with a New Jersey-issued “basic” policy. A policy that had no liability insurance. The insured made a claim for uninsured motorist benefits under his New York policy and demanded arbitration in New York. We moved in New York state court to stay the arbitration on behalf of the carrier, asserting that New Jersey law applied. We had the opportunity to explain New Jersey law to the judge sitting in New York. The judge accepted our arguments and rejected the opposition papers. We were pleased to obtain a permanent stay for the carrier, saving the carrier thousands.


Whether it’s an automobile liability claim; an uninsured or underinsured motorist claim; a casualty claim brought against a homeowners, CGL, or businessowners policy; or some other type of claim or coverage. Keep us in mind. We would love to help you navigate New Jersey law.


Erin and I are finally moved into the new house this week. The first night we nearly froze to death. A cold front came through and the temperatures dropped. The house got down to low 50s. Blankets were packed up somewhere in the dozens of boxes and totes. We shivered the first night, asking ourselves what the heating bill would look like this winter. Well, the next morning, I discovered a vent window in the downstairs bathroom. Apparently the seller left it opened. It was covered by a drape. I closed it and the house was at least five degree warmer the next night—but still cool. Finally, we went on a walkthrough of the house and found another window that had been left open. Upstairs bathroom. Again, covered by a drape. Not something you think of when you’re busy boxing up all of your possessions into cardboard boxes and moving them into a new place. Personally, I never had this issue before. I never owned drapes.


This week New Jersey’s federal court, the U.S. District Court for New Jersey, addressed the enforceability of a “protective safeguard” provision. That case is discussed in detail in the attached issue. Long story made short. The protective safeguard provision was unambiguous and enforceable. That provision required that all of the building’s electric be on working circuit breakers. The insurer’s denial of a first-party fire loss was upheld because the insured failed to comply with the condition by failing to maintain the building’s electrical system in working order and because some of the building’s electric was on a fuse box, not a circuit breaker.


The policyholder made a several creative arguments as well as the long rejected ones. The policyholder argued, the famous line, “I never read my policy.” Unsurprisingly, that was rejected. District Judge Noel Hillman offered the following insight: “Common sense would dictate that words are no more or less enforceable based on whether a person has a read them once or a hundred times.” Or never read them. I’ll save that for my next motion where this comes up.


If you receive a claim involving New Jersey law or a DJ action filed in New Jersey, keep us in mind. Hurwitz & Fine handles New Jersey coverage matters. We love situations. We love New Jersey situations.



John R. Ewell

[email protected]


Germans and Social Insurance – a Century Ago:


The New York Times

New York, New York

05 Oct 1918


Germans Raise Insurance Limit


In recognition of the decrease in the purchasing power of money due to the war, the German Federal Council has ordered that all employees who have lost their rights to old age pensions, sick and death benefits and similar social insurance through having their annual wages raised to more than $1,190 will have these rights restored in those cases where their pay does not exceed $1,666, reports the Berliner Neueste Nachrichten of Sept. 4.  Persons beginning work at salaries of over $1,190 at an occupation in itself covered by the social insurance laws are not benefited by the new order. 


Jerry’s No-Fault Navigation


Dear Subscribers,


Hello and welcome to Jerry’s No-Fault Navigation.  Your eyes and ears to the no-fault regulations.  This week, we salute the Mets Captain, David Wright, on his final game this past Saturday, September 29, 2018.  Even with a shortened career, he still managed to play the most games at third base for the Amazin’s.  And, while there is no hard and fast rule on the Hall of Fame, there are some magic numbers that guarantee a position player’s entry into Cooperstown: 3,000 hits; .300 average; 500+ home runs; MVPs; World Series rings; Gold gloves; and other factors along the same lines.  While Wright won’t make the Hall of Fame, he sure made Mets’ fans feel right in close games.


Speaking of hard and fast rules, I bring you a recent decision from the Appellate Division, Fourth Department, discussing the parameters in reviewing an arbitrator’s decision.  In short, when you agree to binding arbitration, it’s binding almost every time. Doesn’t sound Wright?  Read on for more details. 



Jerry Marti

[email protected]


Automobile Bans for the War Effort:


Poughkeepsie Eagle-News

Poughkeepsie, New York

05 Oct 1918





Washington, D.C., Oct. 4.—Fuel Administrator Garfield today refused to lift the ban on the use of automobiles for the next two Sundays as requested by Governor McCall, of Massachusetts, to aid in combating Spanish influenza.  Dr. Garfield’s action was based on advice of Acting Surgeon General Richards, of the army, that continuance of the gasoline-less Sundays would have little if any influence on the spread of the disease.


Hewitt’s Highlights: 


Dear Subscribers:


Welcome back to a new edition of Coverage Pointers. We have several cases this edition, and a couple with interesting fact patterns. A plaintiff pedestrian who had an ankle injury following an accident with a car was found to not have a serious injury where they were running within months of the accident and even ran a marathon. In another, there was an issue of fact over whether a drunk driver, who crashed into a patrol car, was a cause of the serious injury that occurred when the police officer’s foot was fractured when another police officer’s car ran over his foot as he tried to pursue. There was also a failed attempt to challenge an arbitrator’s award that determined there was no serious injury despite the arbitrator’s not setting forth the basis of his decision.   


Hope you are enjoying your autumn.  See you next edition.


Until next time,


Robert Hewitt

[email protected]


Insurance Advertisement:  Be a Man and Carry Insurance:


Burlington Daily News

Burlington, Vermont

05 Oct 1918





The Man Who Carries Sufficient


Fire Insurance


is the man who realizes his








170 College St.        Phone 638.

The Office With the Strong Companies



Editor’s Note:  Hickok’s Insurance Agency traces its history to 1821.  It was purchased by Julius Hickok in 1888. In 1893, Julius brought his son Henry into the business under the firm name of Hickok & Hickok. In 1907, Henry formed Hickok and Boardman and that business was incorporated into Hickok & Boardman, Inc., at the tender age of 109.  The Hickok and Boardman Group continues to operate in Vermont, at the ripe age of 197 years old.


Wilewicz’ Wide-World of Coverage:


Dear Readers,


As the weather cools, it looks like conference season has begun in full swing. Indeed, there are many fantastic events on the horizon, some rather soon. Not only is the wonderful DRI Insurance Coverage and Practice Symposium coming right up (NYC in November – mark your calendars!), but the American Bar Association’s TIPS Section has a number of conferences in the coming months. In February, for instance, they will be having their 27th Annual Insurance Coverage Litigation Midyear Conference, which is always a jam-packed informational week.


In the meantime, next week I’ll be attending the TIPS Fall Leadership Meeting. As you may have heard, I was recently appointed as a Vice-Chair to the Insurance Coverage Litigation General Committee of TIPS, and next week’s meeting is where all of TIPS leadership will meet to coordinate and plan for the upcoming year. I’ll report back after the conference, but in the meantime do let me know if you are interested in getting more involved in the ABA. There are many opportunities available, and the networking is unparalleled.


Now, this week in the Wide World of Coverage, we have a new one from the Second Circuit for you. In SPARTA Insurance v. Technology Insurance, at issue was whether a carrier was estopped from asserting coverage defenses where it had not expressly and explicitly asserted them from the outset. Indeed, here the carrier at issue not only picked up the defense without a clear and express coverage position letter, but they noted in an email that they were picking up the defense “without reservation”. As such, when they later found that they did have coverage defenses, they were estopped from asserting them and were on the hook, despite the fact that there might not ultimately be coverage. Just another lesson in making sure you assert your rights, disclaim promptly and in detail, and don’t say you are picking up “without reservation” if you don’t mean it.


Until next time!



Agnes A. Wilewicz

[email protected]


Insurance Coverage Issues in North Dakota:


Grand Forks Herald

Grand Forks, North Dakota

05 Oct 1918





Local Boy Killed—Guardian

Unable to be Beneficiary.


Every soldier's family should be well informed with regard to the war risk insurance law and other legislation or regulations for the benefit of soldiers and their relatives, in order to avoid the many disputes and misunderstandings which are already beginning to arise, as will be seen from a peculiar case which has attracted attention by the recent death of a local boy. An insurance policy of $1,000 had been taken out by the young man, and it looks as though it may not be paid.


The soldier's parents died when he was 5 years old. A guardian was appointed for him and although he was taken into the home and took the guardian's name he was not legally adopted. Unless legal adoption takes place no insurance can go to the guardian. In this case the soldier had made his home with the guardian for 16 years.


The insurance was made out to the guardian's wife, an aunt of the soldier but she has received word to the effect that because there was no legal adoption she is not the beneficiary.


Insurance may be collected if the beneficiary is related to the deceased soldier in the following manner:  Wife, husband, child, grandchild, brother, sister, stepbrother, stepsister, adopted brother, adopted sister, parent, grandparent, and stepparent of the insured or parent, grandparent, stepparent of the insured's wife or husband


Barnas on Bad Faith:


Hello again:


I’m excited for the start of the NHL season.  In just a couple hours I’ll be walking down the street with my father to catch the opening game of the Sabres’ season.  I would say most of us are cautiously optimistic that the Sabres will be able to improve upon their last place finish last year and put together a respectable season.  This year I’d settle for some entertaining hockey, a season that isn’t over by Thanksgiving, and some good play by our young players.  You never know - maybe we’ll get lucky and actually squeak our way into the postseason.


I have an important bad faith case from the Florida Supreme Court in my column this week.  The write up in the attached issue was provided by our good friends from McIntosh, Sawran & Cartaya, P.A. down in beautiful South Florida.  The Supreme Court of Florida reversed the appellate court and held that GEICO acted in bad faith in handling a claim against its insured.


The facts were as follows: on August 8, 2006, Harvey, the insured, was involved in an accident with John Potts.  Potts was a 51 year old father of three.  Potts died in the accident.  Harvey had a $100,000 liability policy with Geico.  Two days after the accident, Geico determined that liability was adverse to Harvey and Geico was aware of the significant exposure.  Geico’s claims adjuster sent a letter to Harvey advising that the claim could exceed the policy limits and that he had a right to an attorney. 


Potts’ estate’s law firm contacted Geico on August 14, 2006, about obtaining an interview of Harvey to determine the extent of his assets and whether he had any additional insurance.  Geico did not immediately communicate the interview request to Harvey, and, eventually the request was denied.  Three days after the request was denied, Geico tendered the policy limits along with a release and affidavit of coverage.


On August 31, 2006, Geico’s adjuster spoke with the estate’s lawyer about the requested interview.  After the conversation, the attorney faxed Geico a letter confirming why he wanted to take the statement and stating that Geico’s adjuster was unable to confirm the insured would be available.  Geico never responded to the letter.  However, the next day, Harvey called to discuss the letter.  He told the adjuster that he planned to meet with his attorney to review his financial documents and provide the information requested.  He advised that the meeting would not take place until September 5.  Unfortunately for Geico, the message about the meeting to discuss financials was never relayed to the estate’s attorney.


On September 13, 2006, about one month after the request for the statement, a wrongful death action was filed.  The jury found Harvey 100% at fault and awarded $8.47 million in damages.


The case summary in the attached issue contains a great discussion on the legal issues in the case and how it has the potential to change bad faith law in Florida.  In particular, the decision opens up the possibility of contrived bad faith claims.  The dissent in Harvey suggests the possibility of a bad faith setup in this case.  Of note, the estate’s attorney testified that in his view the insured only had $85,000 in collectible assets other than the policy.  As such, he testified that he would have recommended settling the case for the policy limits if he had been granted the interview.  However, the dissent notes that the insured had well over $1,000,000 in assets.  Thus, it’s questionable whether the case actually would have been settled for the policy limits, despite the attorney’s testimony about what he would have done.


Moreover, there was no time limited demand made by the estate, and it was never communicated that an interview was a condition to settling the claim.  While Geico could have possibly handled the request for the interview in a timelier manner, it didn’t know that failure to do so would result in a lawsuit being filed and the policy limits being rejected.


Does the fact that Geico may have handled the claim negligently mean it should be on the hook for bad faith, especially where the insured knew the estate was requesting financial information and never took any action to provide the estate with a statement or financial information?  The dissent and the appellate court didn’t think so.  Unfortunately for Geico, this wasn’t enough to carry the day.


Have a nice weekend.


Signing off,



Brian D. Barnas

[email protected]


Auto Insurance:  Was That a Thing 100 Years Ago?


The Coffeyville Daily Journal

Montgomery, Kansas

05 Oct 1918





Business Developing Rapidly as Car

Owners Comprehend Full Amount

of Protection Offered.


“Generally speaking,” says Andy Curry, local agent for the biggest exclusive automobile insurance company in the country today, automobile insurance is not very well understood by car owners, many of whom regard such insurance as an unnecessary nuisance or a necessary evil.


"The purchaser of a new car buys everything in the way of up-to-date accessories and equipment, including the same in the initial cost, with the exception of the item of insurance, and afterwards continues to buy everything necessary, in the way of fuel, oil and broken or worn out parts, including all under the classification of maintenance, but without taking into consideration, the insurance as a part of the maintenance.


"Many owners overlook the fact that for a nominal charge they may fully indemnify themselves for the loss or damage to their cars under fire, theft and collision coverage and that for a reasonable premium charge may fully protect themselves against the still greater and greater hazards of injury to persons and property, under liability and property damage insurance.


"The automobile insurance departments of the different companies have been operated as side issues, without attention to underwriting rules, rates and practices, which they have found so essential in operating other departments of insurance. Particularly is this true in the matter of rates charged and service rendered.


"Automobile insurance rates have been radically changed from time to time, apparently without rhyme or reason, and apparently without application of actual experience from adequate statistics, as usually obtained in determining rates, for it appears that there has been no uniform experience tables kept and as a consequence the rates have been a matter of guesswork, admittedly too high or too low.


Off the Mark:


Dear Readers,


My move is almost complete and the old house is basically empty.  Now we just have to finish unpacking and hope the old house sells quickly.  My fingers are crossed.  The kids have made the transition to a new school without any hiccups and seem to be enjoying it.


Not too many construction defect cases decided recently.  This edition of “Off the Mark” discusses a recent construction defect case from the US District Court for the Middle District of Florida, Fort Myers Division.   In Mid-Continent Cas. Co. v. Delacruz Drywall Plastering & Stucco, Inc., the Court examined the duty to indemnity and held that an insurer's duty to indemnify is not ripe without a determination of the insured's liability.  Nothing earth-shattering here.   


Until next time …



Brian F. Mark
[email protected]


Defrauding Matrimonial Prospects:


The San Francisco Examiner

San Francisco, California

05 Oct 1918


Mrs. Nellis Sent to

Jail for Three Months


Mrs. Alice Nellis, the wife of an officer in the United States army, was sentenced to imprisonment in the County Jail for 3 months by United States District Judge Dooling yesterday for having used the mails in a scheme to defraud. She collapsed when sentence was pronounced.


Mrs. Nellis, before her marriage eight months ago, was Mrs. Alice Francen, a real estate agent. She advertised in Denver newspapers that she was a "young and attractive widow," who desired a position as housekeeper, "object matrimony." Several men answered her letters and sent her money to defray her expenses to their homes in the East. After receiving the money she informed them that she was ill and could not travel.


Several of the prospective husbands notified the postal inspectors here. Mrs. Nellis was warned to cease the correspondence, but continued, and her arrest followed.


Edtor’s Note:  Tragic end to their story. After her discharge from jail, she volunteered as a nurse to help fight the Spanish Flu epidemic in Northern California.  She contracted the disease and died in 1919 but was cited for heroic service to help the sick and hopeless.  Her husband, Frank Nellis, a young Army lieutenant, died two months after she did, succumbing to double pneumonia and was buried with full military honors.


Wandering Waters


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


The NBA pre-season has finally started.  LeBron made his Laker home debut this past Tuesday.  While you cannot take too much stock in NBA pre-season, the Lakers appear to be much better than they were last year.  This is not a surprise given they added the best player on the planet.  In contrast, with last year the Lakers’ offense appears to be running at a much faster pace.   This will be beneficial to their team given the youth and the athletes they have at all five positions. 


While LeBron made his Laker debut, Dwayne Wade made his final pre-season debut in the NBA.  Although Dwayne Wade is retiring at the end of the season, he looked solid and happy in his first pre-season action.  However, Wade’s happiness may be related to the recent rumors involving the Miami Heat.  Recent reports indicate that Jimmy Butler’s preferred destination is now Miami, and the Timberwolves are working on finalizing a trade for their disgruntled Superstar to Miami.  Should the Heat obtain Butler without giving up any of its major pieces, the Heat will become a favorite in the Eastern Conference.  


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

[email protected]


Help Wanted – 100 Years Ago – Free Coffee


The Evening Sun

Baltimore, Maryland

05 Oct 1918



Over 16 Years of Age


Experienced and Learners.







Our workrooms are the cleanest and the

surroundings most pleasant.  Hot coffee and tea with

sugar and cream served free with lunch









608-610 Water St.


Open until 6:30


Editor’s Note:  Headley’s Chocolate Company closed its doors in 1930 after several decades in business. The building at 608 Water Street has been renovated into a beautiful office building and currently houses a ballet studio with lots of empty space available for rental.  For several years, it was the home of the National Pinball Museum, which has since tilted out of existence as well.


Boron’s Benchmarks:


Dear Subscribers:


My wife says that much of the time I am the “thinking man’s” know-it-all.  (Her words.) She says I am the thinking man’s know-it-all because I don’t often rush to judgment on issues, but once I do “reach a verdict” on something, I am convinced I am right.  Well, why wouldn’t I think I am right when I am right, right?  My dear departed Uncle Johnny often made very declarative statements, followed by his favorite question, “Am I right, or am I right?”  I admit I think that way, too, just not all the time, like he did.     


I take pride in employing what I consider to be a logical, orderly, step-by-step process to reach the vast majority of my determinations and decisions about things.  Now, you’re all wondering why is this guy an insurance coverage attorney, when he’s actually more suited to be a judge?  GREAT question.


Seriously, the fact is that most insurance coverage issues require a step-by-step process of analysis.  When in doubt, by the way, just apply the Kohane Coverage Formula: C = [(WI) – (WO)] + CPC.  Indeed, thinking it through step-by-step is usually what you need to do when analyzing additional insured coverage issues.  There’s often a contractual liability component to the additional insured coverage analysis, and, with CGL policies, there’s usually a coverage grant, exclusion, and exceptions to the exclusion to consider, and apply to the facts of the matter in question.


Boron’s Benchmarks offers for your consideration this time around a September 25, 2018, coverage decision of the Supreme Court of North Dakota which interprets and analyzes a CGL policy in order to decide additional insured coverage issues, as well as duty to defend issues.  I wouldn’t exactly call the case light reading, but, it is worthwhile reading.  The opinion sets forth a helpful overview of how courts of other jurisdictions have logically, and step-by-step analyzed and considered the meaning of the phrase “insured contract” in CGL policies, when ruling on additional insured coverage issues.


I hope this material is helpful for you and/or your work.  Have a great two weeks. 





Eric T. Boron

[email protected]


Headlines from this week’s issue, attached:


Dan D. Kohane
[email protected]


  • An Automobile Liability Policy's Territory of Coverage Clause that Covers any Accident within the United States and the Occurrence of the Accident in the Forum State is Insufficient to Confer Personal Jurisdiction over the Primary Insurer of the Offending Vehicle.
  • With Allegations that Accident Arose out of Snow Plow Contractor’s Failure to Plow and Sand, Snow Plow Contractor had Obligation to Defend, Irrespective of Truth of the Claims
  • Habitational Construction Exclusion Ambiguous and Ambiguity Resolved Against Insurer



Robert E.B. Hewitt III

[email protected]


  • Issue of Fact as to whether Drunk Driver Indirectly Caused Plaintiff Police Officer’s Serious Injury under General Municipal Law Section 205-e
  • Issue of Fact as Plaintiff’s Expert Opined that Fracture Was Caused by Accident


  • Plaintiff’s Ankle Injury Was Not a Serious Injury Where She Ran a Marathon after the Accident



Steven E. Peiper

[email protected]


  • On short hiatus out of town.



Agnes A. Wilewicz

[email protected]


  • Second Circuit holds Carrier is Estopped by Seeking Reimbursement of Past and Accruing Defense Costs, Where it Undertook the Defense without Asserting Policy Defenses or Reserving Rights to do so



Jennifer A. Ehman

[email protected]


  • Stop Work Order Issued by New York City Department of Buildings was not Sufficiently Adversarial to constitute a “Suit” Under the Terms of a Commercial General Liability Policy



Jerry Marti

[email protected]


  • Arbitrator’s Award Finding Absence of “Serious Injury” Caused by Auto Accident was Not Irrational and Reinstated



Brian D. Barnas

[email protected]


Guest column courtesy of our friends at McIntosh, Sawran & Cartaya, P.A. Special thanks to Attorney Doug McIntosh.

  • Florida Supreme Court Issues Far-Reaching Bad Faith Opinion


John R. Ewell

[email protected]


  • New Jersey Federal Court Rules That Protective Safeguards Condition Was Clear and Unambiguous, Upholds Denial of Fire Loss Where Insured Failed to Comply


Brian F. Mark

[email protected]


  • US District Court Holds that an Insurer’s Duty to Indemnify is Not Ripe Without a Determination of the Insured’s Liability



Larry E. Waters
[email protected]


  • Defendant’s Motion to Dismiss Granted because Plaintiff Assigned its Rights Under the Insurance Policy and Therefore had No Right to Prosecute Any Claims on its Behalf



                                                                                                                                                        Eric T. Boron

[email protected]


  • CGL Policy - District Court Erred in Deciding Additional Insured Coverage and Duty to Defend/Indemnify Issues


Earl K. Cantwell
[email protected]


  • Coverage for Loss by Computer not Through Computer



All for now.  Call us with your situations.



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

Dan D. Kohane
[email protected]



Agnes A. Wilewicz

[email protected]



Jennifer A. Ehman

[email protected]


Dan D. Kohane, Chair
[email protected]


Steven E. Peiper, Co-Chair

[email protected]

Michael F. Perley

Jennifer A. Ehman

Agnieszka A. Wilewicz

Edward B. Flink

Brian D. Barnas

Brian F. Mark

Eric T. Boron

John R. Ewell

Larry E. Waters

Diane F. Bosse

Joel R. Appelbaum


Steven E. Peiper, Team Leader
[email protected]


Michael F. Perley

Edward B. Flink

Eric T. Boron

Brian D. Barnas

James L. Maswick


Jennifer A. Ehman, Team Leader
[email protected]

Jerry Marti


Jody E. Briandi, Team Leader
[email protected]


Diane F. Bosse

Topical Index

Kohane’s Coverage Corner

Hewitt’s Highlights on Serious Injury

Peiper on Property and Potpourri

Wilewicz’s Wide World of Coverage

Jen’s Gems

Barnas on Bad Faith

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

Off the Mark

Wandering Waters

Boron’s Benchmarks

Earl’s Pearls


Dan D. Kohane
[email protected]


10/02/18       Repwest Insurance Co. v. Country-Wide Insurance Co.

Appellate Division, First Department

An Automobile Liability Policy's Territory of Coverage Clause that Covers any Accident within the United States and the Occurrence of the Accident in the Forum State is Insufficient to Confer Personal Jurisdiction over the Primary Insurer of the Offending Vehicle

This action arises out of a vehicular accident that occurred in North Carolina. On February 29, 2012, nonparty Ancrum, a New York resident, entered into a rental agreement with U-Haul of Huntspoint (U-Haul), located in the Bronx. The rental agreement states that the policy is excess or secondary to any other insurance coverage of Ms. Ancrum. U-Haul's excess liability insurer is plaintiff Repwest Insurance Co. (Repwest), a company incorporated under the laws of Arizona with its principal place of business in Phoenix, Arizona.


Country-Wide Insurance Co. (Countrywide) issued Ancrum a personal automobile insurance policy with liability limits of $25,000 per person/$50,000 per accident. The policy's territory of coverage clause insures against loss from liability imposed by law upon the insured for any accident "within the State of New York, or elsewhere in the United States in North America. . ." Countrywide is incorporated under the laws of Delaware with its principal place of business in New York City.


On March 2, 2012, Ms. Ancrum rear-ended a vehicle occupied by nonparties Rodriguez and Wade, in North Carolina. Repwest settled with Mr. Rodriguez on his property damage claim. Upon Repwest's demand, Countrywide reimbursed Repwest the sum of $1,509.18 as settlement of the property damage arising out of the accident. Mr. Rodriguez and Mr. Wade also claimed bodily injury. In November 2012, Repwest paid $25,000 to Mr. Rodriguez and $16,000 to Mr. Wade in full settlement for bodily injury. The two released Repwest from all claims.


Thereafter, Repwest demanded payment from Countrywide on equitable subrogation grounds. Repwest had settled the bodily injury claims under its excess liability coverage and maintained that it was entitled to reimbursement from Countrywide, the primary liability carrier.


When Countrywide failed to make the payment, Repwest commenced an action in North Carolina against Countrywide, alleging equitable subrogation seeking the principal sum of $41,000. In its complaint, Repwest asserted that North Carolina had jurisdiction over the parties as the accident occurred within the state. Countrywide was properly served with the complaint in New York on February 25, 2015. On June 8, 2015, the North Carolina court entered a default judgment against Countrywide for the amount demanded in the complaint.


Repwest brought this action in New York County to domesticate the North Carolina default judgment against Countrywide. In its supporting affirmation, Repwest argued that North Carolina's default judgment should be domesticated and enforced in New York under the precept of full faith and credit. Countrywide

cross-moved to dismiss on the ground that North Carolina lacked personal jurisdiction.


Repwest claimed that the North Carolina court properly exercised personal jurisdiction over Countrywide as the insurer of a "New York State resident motorist should have reasonably anticipated that it would have to defend itself in an action where its insured is involved in a motor vehicle accident in a sister state."


The appellate court disagreed. Although collateral attack on the merits of a sister state's judgment is not permissible; a party may nevertheless challenge the basis of the judgment court's personal jurisdiction.


Federal due process requires first that a defendant have minimum contacts with the forum state such that the defendant should reasonably anticipate being haled into court there, and second, that the prospect of having to defend a suit in [the forum state] comports with traditional notions of fair play and substantial justice.


It is essential that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.


Here, minimum contacts have not been established on this record. Countrywide did not purposefully avail itself of conducting activities within North Carolina. It is undisputed that Countrywide has never been licensed or authorized to do business in any capacity in North Carolina. At all times relevant to this suit, Countrywide has only been licensed to issue insurance policies within New York State. Countrywide has never maintained an office or employees in North Carolina. It is a company incorporated under the laws of Delaware, with its principal place of business in New York. Countrywide has never conducted or solicited business in or from North Carolina. There is a qualitative distinction between contracting to cover an insured under a territory of coverage clause and the insurer of the policy being amenable to being haled into court anywhere in the United States in a dispute with another insurer. Countrywide cannot reasonably foresee being haled into court in a state where it did not purposefully direct its activities.


09/26/18       McCoy v. Medford Landing, L.P.     

Appellate Division, Second Department

With Allegations that Accident Arose out of Snow Plow Contractor’s Failure to Plow and Sand, Snow Plow Contractor had Obligation to Defend, Irrespective of Truth of the Claims

On February 3, 2009, the plaintiff allegedly was injured when she slipped and fell on ice in a parking lot on property owned by Medford Landing, L.P. (“Medford”). The plaintiff commenced this action against Medford to recover damages for personal injuries. Thereafter, Medford commenced a third-party action against the snow plow contractors under a contract with Medford. The third-party complaint asserted claims based on contractual and common-law indemnification, as well as a cause of action sounding in breach of contract for failure to procure insurance naming Medford as an additional insured.


Medford also commenced a second third-party action against NGM Insurance Company (“NGM”), which issued a general liability insurance policy to the snow plow contractors.


On the coverage suit, the lower court granted that branch of Medford's motion which was for summary judgment declaring that it is an additional insured under the NGM policy, but denied those branches of the motion which were for summary judgment declaring that NGM is obligated to defend and indemnify Medford in the main action and to reimburse it for costs, disbursements, and attorneys' fees incurred in defending the main action. The court explained that in light of triable issues of fact "as to the liability of Medford or [the third-party defendants], the Court cannot determine at this juncture whether the plaintiff's accident would be covered under the subject insurance policy."


The appellate court found that Medford failed to establish as a matter of law that the accident arose out of the snow plow contract and thus rightly denied the motion on contractual indemnification.


However, the Medford's motion which was for summary judgment declaring that NGM is obligated to reimburse Medford for costs, disbursements, and attorneys' fees incurred in defending the main action should have been granted. An additional insured is entitled to the same coverage as if it were a named insured.


Here, Medford established, prima facie, that the allegations in the complaint suggested a reasonable possibility of coverage.  Accordingly, a duty to defend existed.


09/26/18       Castillo v. Prince Plaza, LLC

Appellate Division, Second Department

Habitational Construction Exclusion Ambiguous and Ambiguity Resolved Against Insurer

We reported on this decision in our October 7, 2016 edition (Vol, XVIII, No. 8):


Western Heritage’s policy contained a “Habitational Construction” exclusion. It was the insured’s burden to establish that the risk fell within the policy, the insurer’s burden to prove the applicability of the exclusion and the insured’s burden to prove that an exception to the exclusion applied.


The "apartments" exception to the "Habitational Construction" exclusion in the subject policy is ambiguous as to whether there is coverage for the structure at issue. Since that ambiguity must be resolved in favor of the insured, the Supreme Court properly denied that branch of the motion of Western Heritage Insurance Company (hereinafter Western Heritage) which was for summary judgment dismissing the third third-party complaint, and granted the cross motion of King's Construction & Supplies, LLC (hereinafter King's Construction) for summary judgment declaring that the carrier was obligated to defend and indemnify it.


This was a motion to reargue and it was granted in part, limiting the obligation of the carrier to indemnify only if liability is established on the non-contractual claims.



Robert E.B. Hewitt III

[email protected]


10/02/18       Fernandez v. City of New York

Appellate Division, First Department

Issue of Fact as to whether Drunk Driver Indirectly Caused Plaintiff Police Officer’s Serious Injury under General Municipal Law Section 205-e

The Plaintiff, a New York City police officer, alleges that he sustained serious injuries to his left foot and ankle as the result of a motor vehicle incident in which he was involved while on duty. He testified that the police cruiser which he was driving was struck head-on by a vehicle driven by defendant Feliciano, an alleged drunk driver, as the latter was attempting to enter the Major Deegan Expressway. Plaintiff further testified that another police car arrived shortly after, and, as he was attempting to enter that patrol cruiser in order to pursue defendant, the patrol car ran over his left foot, which sustained a fracture. Plaintiff commenced this action against the City and Feliciano, asserting a cause of action pursuant to General Municipal Law § 205-e.


Plaintiff does not dispute that, although he is suing under General Municipal Law § 205-e, he is required to demonstrate that he sustained a serious injury in order to recover against Feliciano "for personal injuries arising out of negligence in the use or operation of a motor vehicle.” For purposes of his motion, defendant Feliciano did not dispute plaintiff's allegations that he violated statutes, including Vehicle & Traffic Law § 1129(a), and that plaintiff's foot fracture is a "serious injury" within the meaning of Insurance Law § 5102. However, Feliciano argued that plaintiff cannot recover against him because there is a lack of a causal relationship between the incident involving Feliciano's vehicle and plaintiff's serious injury which was caused by the other patrol car running over his foot.  In order to prevail on his General Municipal Law § 205-e claim, plaintiff was required to show that plaintiff's injuries were caused "directly or indirectly" by Feliciano's statutory violation (General Municipal Law § 205-e [1]). Whereas "direct causation" requires that the defendant's conduct be a "substantial causative factor," an " indirect cause' is simply a factor that - though not a primary cause - plays a part in producing the result. Plaintiff's testimony that his injury occurred while he was acting as a police officer and chasing Feliciano, who had violated a traffic law, raised an issue of fact as to whether Feliciano indirectly caused plaintiff's injuries, which precluded summary judgment dismissing plaintiff's claims against him.


09/28/18       Burns v. Kroening

Appellate Division, Fourth Department

Issue of Fact as Plaintiff’s Expert Opined that Fracture Was Caused by Accident

Plaintiff commenced this action seeking damages for injuries she sustained in a motor vehicle accident in a parking lot. The Appellate Division allowed the plaintiff to amend their bill of particulars to allege a 90/180-day claim as it was pre-note of issue and leave to amend a bill of particulars is freely given.  Plaintiff only opposed that portion of the motion for summary judgment seeking to dismiss the fracture and 90/180-day categories and therefore, the motion was granted as to the significant limitation of use and permanent consequential limitation.


As for the fractured, the court that held defendant failed to meet her initial burden of establishing that plaintiff's alleged thumb fracture was not related to the accident. In any event, plaintiff raised a triable issue of fact through the affirmation of her treating physician, who opined that the thumb fracture was causally related to the accident. Defendant also failed to meet her initial burden with respect to the 90/180-day category.  Defendant's brief focused on plaintiff's proof submitted in support of her cross motion for summary judgment with respect to the issue of serious injury, but the court denied that part of the cross motion and plaintiff did not appeal. Inasmuch as defendant failed to meet her initial burden of demonstrating entitlement to judgment as a matter of law with respect to the 90/180-day category, the burden never shifted to plaintiff to demonstrate the existence of material issues of fact. 


09/28/18       Whitney v. Perrotti

Appellate Division, Fourth Department

Arbitrator’s Decision Not Irrational Where Defendant Submitted Evidence that Plaintiff’s Injuries Were Not Serious

This case arose from a motor vehicle accident that occurred when plaintiff's vehicle was struck from behind by defendant's vehicle. Plaintiff commenced this negligence action, and the parties submitted the case to binding arbitration. Following the arbitration proceeding, which was not transcribed, the arbitrator determined that defendant's negligence was the sole cause of the accident but that plaintiff failed to establish that such negligence was a substantial factor in causing plaintiff to sustain a serious injury pursuant to Insurance Law § 5102 (d). 


The Appellate Division upheld the arbitrator’s decision.   Judicial review of arbitration awards is limited. A court may vacate an arbitration award if it finds that the rights of a party were prejudiced when an arbitrator exceeded his power or so imperfectly executed it that a final and definite award upon the subject matter submitted was not made. Here, the arbitration award was not irrational. The arbitrator's determination was not irrational inasmuch as defendant submitted evidence establishing that plaintiff's injuries were not serious or were not caused by the accident. Further, at an arbitrator's failure to set forth findings or reasoning does not constitute a basis to vacate an award.


09/27/18       Heywood v. New York City Transit Authority

Appellate Division, First Department

Plaintiff’s Ankle Injury Was Not a Serious Injury Where She Ran a Marathon after the Accident

This case arose when Plaintiff, a cross-country runner, alleged that, as the result of a collision between a Transit Authority bus and a pedicab, the pedicab jumped a curb and fell over on her ankle, causing a laceration that left a scar, as well as a history of left knee dislocation and pain. The Transit Authority established prima facie entitlement to summary judgment by submitting the affirmed report of an orthopedist who, after examination of plaintiff's ankles and knees, found normal and near-normal range of motion in all planes. The orthopedist also examined the ankle scar, describing it as a healed 6 centimeter laceration with keloid scarring and no swelling. Plaintiff's own deposition testimony showed that she had resumed running within months after the accident and completed a marathon years later, indicating an absence of any significant or permanent injury to her ankles or knees. In opposition, plaintiff failed to raise an issue of fact. Plaintiff's medical records from the period after the accident demonstrated that she had full knee range of motion, the ankle scar was just 3 centimeters long, and the laceration was "healed, clean, dry and intact." The plaintiff offered photographs of the scar, without any evidence concerning when they were taken. Even accepting the photographs as a fair and accurate rendition of the scar, a reasonable person would not regard the condition depicted as "unattractive, objectionable, or as the subject of pity or scorn.” Plaintiff's expert rendered no opinion regarding whether any knee or ankle injuries resulted from the accident, and thus failed to raise an issue of fact as to whether she sustained a serious knee or ankle injury.



Steven E. Peiper

[email protected]


On short hiatus out of town.



Agnes A. Wilewicz

[email protected]


09/21/18       SPARTA Insurance Co. v. Technology Insurance Company

United States Court of Appeals, Second Circuit

Second Circuit holds Carrier is Estopped by Seeking Reimbursement of Past and Accruing Defense Costs, Where it Undertook the Defense without Asserting Policy Defenses or Reserving Rights to do so

South Nassau Communities Hospital hired Stasi Brothers Asphalt Corp. for a parking lot repaving job, with a general contractor Roadwork Ahead, Inc. on the project. During the process, a worker was injured falling into a drywell. Two carriers, SPARTA Insurance Company (Sparta) and Technology (Technology) Insurance Company disputed their respective responsibility for liability and defense of the ensuing tort suit. In short, at issue was the fact that the agreement between the property owner and general contractor stated that Sparta would undertake their defense and indemnify them.


In their initial coverage correspondence, Sparta adopted the position that its undertaking of the defense would be subject to a reservation of rights limiting coverage to the terms and conditions of the policy issued to the subcontractor. However, it did not spell out what terms and conditions might bear out that obligation. They then ultimately argued that they would not indemnify the owner due to its own negligence, and that Technology should pay for half of the defense of the claim, in light of the other insurance clause. The parties objected in that Sparta had undertaken the defense without any express and explicit reservation of its rights.


In New York, an insurer “who undertakes the defense of an insured, may be estopped from asserting a defense to coverage, no matter how valid, if the insurer unreasonably delays in disclaiming coverage and the insured suffers prejudice as a result of that delay”. Moreover, prejudice is presumed when a carrier undertakes a defense and the insured loses the right to control that defense. There, even if there is no coverage, any defenses have been waived. These principles apply to both claims made by insureds, and those made as between insurers.


Here, Sparta undertook the defense and indemnification without an express assertion of policy defenses or reservation of the privilege to do so. Indeed, in an email to the attorney for the general contractor, they merely said that they agreed to “pick up the defense and indemnification ... pursuant to the contract and policy.” Their later letter read similarly. The court found that these “communications did not suggest that Sparta planned to assert policy defenses to its coverage of the defense and indemnification, or that it was reserving the right to do so later”. Indeed, in another later email they stated that they were picking up the defense “without reservation” and gave counsel notice to close their file for Technology and open one for Sparta. As such, its later attempt to assert policy defenses had been waived and they were estopped from doing so.



Jennifer A. Ehman

[email protected]


09/18/18       Aspen Specialty Ins.  Co. v. Zurich Am. Ins. Co.

Supreme Court, New York County

Hon. Shlomo S. Hagler

Stop Work Order Issued by New York City Department of Buildings was not Sufficiently Adversarial to constitute a “Suit” Under the Terms of a Commercial General Liability Policy

The question presented to the court in this declaratory judgment action was whether Zurich was obligated to defend a stop work order issued by New York City Department of Buildings (“DOB”).   Third-Party plaintiffs’ owned property located in Manhattan.  They retained a construction manager to perform certain work on the property.  The construction manager then hired, Coastal Drilling East (“Coastal”), to perform certain excavation work on the project.


Pursuant to the agreement between the construction manager and Coastal, Coastal was required to procure insurance naming the construction manager and property owners as additional insureds.  Shortly after the work began, the construction manager and owners noticed cracking in an exterior wall of the building located on the adjacent property.   They believed the damage was caused by the construction work performed by Coastal.  The cracking was reported to the DOB, as required.


On the same day, the DOB inspected the site and issued a stop work order, a notice of violation, and a partial stop work rescind order.  The owners and construction manager submitted that the order directed that they remediate the problem to prevent further damage from occurring.  Accordingly, they entered into an indemnification agreement with the adjacent property owner.   The claim was then tendered to Zurich, Coastal’s commercial general liability insurer. 


The subject policy provided that Zurich had the right and duty to defend the insured against any “suit” seeking those damages.   “Suit” was defined to mean “a civil proceeding in which damages because of ‘bodily injury,’ ‘property damage’ or ‘personal and advertising injury’ to which this insurance applies are alleged.  Suit includes:  a. An arbitration proceeding...or b. Any other alternative dispute resolution proceedings in which damages are claimed and to which the insured submits with our consent.”  The Zurich policy also contained a broad form additional insured endorsement. 


The owners and construction manager ultimately spent in excess of $200,000 in attorneys’ fees, and in excess of $4,000,000 in costs responding to the DOB’s order and preventing further damage to adjacent property.  The central question before the court was whether the stop work order was a “suit” within the meaning of the policy. 


The court concluded that the stop work order was insufficiently “coercive” or “adversarial” to constitute the functional equivalent of a “suit.”  A stop work order is “an order by the Buildings Department to stop all work at the site, unless otherwise noted on the stop work order.”  The court reviewed the content of the stop work order and the notice of violation.  It concluded that the owners and construction manager were not directed to perform remediation work, nor where they advised that they were facing a lawsuit or imminent financial consequences for failure to comply.  It found that the statement that the owners were to take affirmative measures to reevaluate the means and methods of installation and to submit all plans and monitoring reports, indicated that the stop work order was more like an invitation to voluntary action.   Accordingly, Zurich was not obligated to defend the stop work order. 



Jerry Marti

[email protected]


09/28/18       Whitney v. Perrotti

Appellate Division, Fourth Department

Arbitrator’s Award Finding Absence of “Serious Injury” Caused by Auto Accident was Not Irrational and Reinstated

The court below vacated a no-fault arbitration award and this appeal was taken.


This case arose from a motor vehicle accident that occurred when Whitney’s vehicle was struck from behind by Perrotti’s vehicle. Plaintiff commenced this negligence action, and the parties submitted the case to binding arbitration.


Following the arbitration proceeding, which was not transcribed, the arbitrator determined that Perrotti’s negligence was the sole cause of the accident but that plaintiff failed to establish that such negligence was a substantial factor in causing plaintiff to sustain a serious injury pursuant to Insurance Law § 5102 (d). The lower court granted plaintiff's motion to vacate the arbitration award and denied the cross motion on the ground that the arbitration award was "imperfectly made" because the arbitration proceeding was not transcribed and the arbitration award failed to set forth in detail the arbitrator's reasoning. The Fourth Department reversed.


Judicial review of arbitration awards is extremely limited. As relevant here, a court may vacate an arbitration award if it finds that the rights of a party were prejudiced when an arbitrator exceeded his or her power or so imperfectly executed it that a final and definite award upon the subject matter submitted was not made.


This arbitration award is not irrational. An award is "irrational" if there is no proof whatever to justify the award. Where an arbitrator offers even a barely colorable justification for the outcome reached, the arbitration award must be upheld.  Here, the arbitrator's determination is not irrational inasmuch as defendant submitted evidence establishing that plaintiff's injuries were not serious or were not caused by the accident.


Additionally, it is well established that an arbitrator's failure to set forth his findings or reasoning does not constitute a basis to vacate an award.



Brian D. Barnas

[email protected]


Guest column courtesy of our friends at McIntosh, Sawran & Cartaya, P.A.

Special thanks to Attorney Doug McIntosh.


For more information about the case below, contact Doug McIntosh  [email protected].  


09/20/18       Harvey v. GEICO General Insurance Company

Supreme Court of Florida

Florida Supreme Court Issues Far-Reaching Bad Faith Opinion

On September 20, 2018, in a 4-3 controversial decision, the Florida Supreme Court arguably changed the landscape of Florida law on insurer "bad faith" for the foreseeable future. See Harvey v. GEICO, SC17-85, September 20, 2018 ("Harvey 2"). In the 23-page majority opinion (authored by Justice Quince and joined in by Justices Pariente, Lewis and Labarga), the high court reversed the appellate decision  rendered by Fourth District Court of Appeal. The 23-page dissent authored by Chief Justice Canady and joined by Justices Polston and Lawson, however, offers a scathing rebuke of the majority decision and essentially accuses the majority of issuing a decision that completely ignores long-standing precedent dating back over four decades in Florida jurisprudence.  As Chief Justice Canady states, "the majority's decision to reinstate the jury verdict (below) muddies the waters between negligence and bad faith and bolsters 'contrived bad faith claims'" in Florida. Harvey 2, at p. 25.


As the dissenting opinion suggests, the case bears significant scrutiny. In Harvey, the lower court trial resulted in a finding of bad faith by GEICO and awarded $8.47 million in damages against the GEICO insured, Harvey, who had purchased a $100,000 policy with GEICO. The 4th DCA reversed the verdict, finding as a matter of law that GEICO fulfilled every obligation imposed upon it under the longstanding precedent of Boston Old Colony Insurance Company v. Gutierrez, 386 So. 2d 783 (Fla. 1980), and thus could not be liable for bad faith despite trial evidence suggesting less-than-efficient and potentially negligent claim handling. See GIECO General Insurance Company v. Harvey, 208 So. 3d 810 (Fla. 4th DCA 2017) ("Harvey  1"). The intermediate appellate court relied upon Boston Old Colony and older case precedent in Campbell v. GEICO, 306 So. 2d 525 (Fla. 1974), as well as more recent federal court appellate decisions interpreting those cases, to hold that the trial court should have directed a verdict for GEICO. As the lower Court stated, while GEICO might have improved its claims process, even if GEICO's actions were negligent, "negligence alone is insufficient to prove bad faith." (citing Auto Mut. Indemnity Co. v. Shaw, 184 So. 2d 852 (1938) and Delaune v. Liberty Mutual Ins. Co., 314 So. 2d 601 (Fla. 4th DCA 1975.))  Harvey 1  also reiterated long-standing Florida law that the "standard for determining liability in an excess judgment case is bad faith rather than negligence", citing Novoa v. GEICO Indemnity Co., 542 F. App'x 794 (11th Cir. 2013)., which in turn cited to Florida's Campbell v GEICO Supreme Court precedent.  


The majority decision in Harvey 2 now appears to change the bad faith landscape in Florida. Seemingly taking umbrage at the 4th DCA's reliance on 11th Circuit Court of Appeals and federal court decisions applying Florida law to bad faith claims, the majority quashed the Fourth District's decision and stated it "misapplied precedent" in relying in part on "nonbinding federal cases that cannot be reconciled with clear (Florida Supreme Court)  precedent." Harvey 2, at p. 2-3. In its decision the high court found that the lower court's statement that "where the insured's own actions or inactions result, at least in part, in an excess judgment, the insurer cannot be liable for bad faith", was wrong and misapplied precedent. Harvey 2, at p. 20. As the dissent points out, this "effectively adopts a negligence standard for bad faith actions, even though negligent claims handling does not amount to bad faith failure to settle." Harvey 2, Canady dissent at p. 40 (citing Campbell, 306 So. 2d at 530.) As well, seeming to overlook that the seminal case of Boston Old Colony was a causation case, that resulted in a decision in favor of the insurer, the majority refused to adopt the lower court's conclusion that GEICO did not cause the excess judgment in question by its less-than perfect claims handling, and rejected the lower court's cite to Novoa v. Geico Indemnity Co. for the proposition that an insurer "does not have to act perfectly, prudently or even reasonably", but instead must "refrain from acting solely on the basis of their own interests in settlement." (where Novoa  quoted State Farm v. Laforet, 658 So. 2d 55 (Fla. 1995), for that proposition). Harvey 2, at p.12.


The Harvey 2 opinion highlights a tension in bad faith jurisprudence in Florida, with the Florida Supreme Court's majority opinion expressing the idea that while a carrier's negligence alone does not support a de facto showing of bad faith, that negligence still remains relevant to the question of bad faith under a "totality of the circumstances" analysis. The Supreme Court's majority opinion, as noted, also rejected the approach that they believed was adopted by the 4th DCA which suggested that if the insured's own actions were partially to blame for the excess judgment, there could be no bad faith as a matter of law.


Florida courts are now faced with a potential avalanche of "contrived bad faith claims" where the hindsight testimony of claimants, policyholders and their counsel can be used to provide evidence of "what would have happened" if a certain fact or issue was made known to them in the claims handling process. The only saving grace might be found in the majority decision which at least acknowledged as it must under Florida law that there "must be a causal connection between the damages claimed and the insurer's bad faith." Harvey 2, at pp. 21-22. By mentioning in footnote 3 of the opinion that use of the Florida Standard Jury Instructions for standard legal cause and optional instructions on concurrent cause and intervening cause should be considered in cases of this type, there MAY still be a way for carriers to provide evidence of the insured's, claimant's and their counsel's conduct, to a jury or fact-finder when assessing causation in the bad faith trial.  Practitioners must be mindful of this in their next bad faith trial, so that Harvey 2 isn't used to eviscerate 40 years of Florida law.


John R. Ewell

[email protected]


09/29/18       Vineland 820 N. Main Road, LLC v. U.S. Liability Ins. Co.

United States District Court, District of New Jersey

New Jersey Federal Court Rules That Protective Safeguards Condition Was Clear and Unambiguous, Upholds Denial of Fire Loss Where Insured Failed to Comply

Vineland 820 N. Main Road, LLC (“Plaintiff) owns premises located at 820 N. Main Road, Vineland, New Jersey. Plaintiff obtained property insurance with United States Liability Insurance Company (“USLIC”).


Part of the policy contained a form titled “Protective Devices Or Services Provisions” (Protective Safeguard condition”). The policy required, as a condition of insuring the building, that Plaintiff “have and maintain the Protective Devices or Services listed” in an incorporated schedule. The schedule required that “[a]ll electric is on functioning and operational circuit breakers.” The policy stated:

[USLIC] will not pay for loss or damage caused by or resulting from fire if, prior to the fire, [Plaintiff]: (1) Knew of any suspension or impairment in any protective safeguard listed in the Schedule . . . and failed to notify [USLIC] of that fact; or (2) Failed to maintain any protective safeguard listed in the Schedule . . ., and over which you had control, in complete working order.


On May 7, 2015, a fire started in the wiring on the second floor of 820 N. Main Road. Following an investigation, USLIC denied coverage for the claim based upon Plaintiff’s failure to comply with the Protective Safeguard condition.


Plaintiff sued USLIC alleging wrongful denial of claims, bad faith, failure to conduct a reasonable investigation, breach of contract, breach of implied covenant of good faith and fair dealing, breach of fiduciary duty, and requested punitive damages. USLIC moved for summary judgment.


USLIC’s expert opined that the “main electrical panel” for the second-floor apartment that caught fire was actually a “fuse panel box.” Undisputed pictures reveal that, in fact, this was a fuse panel box with four fuses. Plaintiff’s own expert admits the existence of the fuse box. Plaintiff, however, suggested that the “fused subpanel was protected by a circuit breaker.” This was inconsistent with his expert’s testimony. His expert testified that, it was unknown whether the circuit breakers function, but the fact that a tenant switched the breakers off before the fire department arrived, “suggests they did not.”


USLIC’s motion for summary judgment focused on one point. As a condition of providing insurance, Plaintiff was required to maintain operational circuit breakers for all electric at the premises; Plaintiff failed to meet this condition. Because Plaintiff failed to meet this condition, USLIC argued that it has no obligation under the insurance policy to pay for any damage caused by the fire.


Plaintiff resisted summary judgment. First, Plaintiff argued that because the use of a fuse (or a non-functioning circuit breaker) was not the cause of the fire, it was “unfair” for USLIC to deny coverage. Second, Plaintiff argued that it did not know of the “Protective Devices Or Services Provisions” and that it was an “obscure” provision of the contract. Third, Plaintiff argued that because the fuses were on a circuit breaker, denial of coverage was incorrect.


The Court began its analysis by reviewing the Protective Safeguard condition. The court found that the endorsement was unambiguous. The Court explained that:

The contract required “[a]ll electric” to be “on functioning and operational circuit breakers.” That means that all electric used in the building must only run through a circuit breaker. If, prior to a loss, these circuit breakers were not maintained “in complete working order” USLIC had no obligation to “pay for loss or damage caused by or resulting from fire.”


Upon reviewing the language of the endorsement, the Court immediately rejected Plaintiff’s argument that “the loss had to be connected to the exclusion condition in order for it to be even considered.” The Court ruled that nothing in the endorsement required that the fire be caused by or resulting from use of fuses or an inoperative circuit breaker.


Plaintiff also argued that because the company’s owner did not read the insurance policy, Plaintiff should not bound by it. Under New Jersey law, a policyholder is obliged to read the policy he receives and is bound by the policy’s clear terms. An insured cannot escape the clear terms of an insurance policy just because he has not read them.


Finally, the Court addressed the factual argument that Plaintiff’s fuses were on a circuit breaker. The Court stated that:


the fact that the fuses exist means that less than all of the electricity at the premises was on a circuit breaker.  Because electricity was running through the fuse, the electricity going through those fuses was not on a circuit breaker.

In addition, Plaintiff’s own expert admitted that the circuit breaker likely did not work. Therefore, the Court also found that Plaintiff “[f]ailed to maintain [the circuit breaker] . . . in complete working order” in violation of the policy.


Accordingly, the District Judge ruled that the denial of insurance coverage was proper. As a result, the Court granted summary judgment in full to the insurer and dismissed Plaintiff’s claims for wrongful claim denial, bad faith, failure to conduct a reasonable investigation, breach of contract, breach of implied covenant of good faith and fair dealing, breach of fiduciary duty, and punitive damages.


Brian F. Mark

[email protected]


09/24/18       Mid-Continent Cas. Co. v. Delacruz Drywall Plastering & Stucco

U.S. District Court for the Middle District of Florida, Fort Myers Division
US District Court Holds that an Insurer’s Duty to Indemnify is Not Ripe Without a Determination of the Insured’s Liability.

This declaratory-judgment action arises out of an underlying construction defects action related to the construction of single-family homes.  Delacruz Drywall Plastering & Stucco, Inc. (“Delacruz”) was hired by Beazer Home Corporation (“Beazer”), a general contractor, to perform stucco work in the construction of single-family homes.  After the homes were built, homeowners brought claims against Beazer for defective construction.  Beazer then sued Delacruz in Florida state court for its part in the construction. Beazer's claims include breach of contract, contractual indemnity, negligence, common law indemnity, and violating the Florida Building Code.


Mid-Continent issued five commercial general liability policies to Delacruz.  Mid-Continent defended Delacruz in the underlying action under a reservation of rights.


Mid-Continent commenced this declaratory-judgment action seeking a declaration as to its obligations and duties to Delacruz and Beazer relative to the underlying action.  Mid-Continent voluntarily dismissed its claims against Beazer, leaving only its claims against Delacruz.  The only remaining claims request a Court declaration that Mid-Continent has no duty to indemnify Delacruz for claims arising from the home construction.


Mid-Continent filed a motion for summary judgment and default judgment on its duty to indemnify Delacruz.  It argued that policy exclusions, which preclude coverage for Delacruz's work performed before specific dates, bar coverage for Delacruz's work in the underlying action.  Mid-Continent thus argued that it has no duty to indemnify Delacruz.  Mid-Continent further argued that because it has no duty to indemnify Delacruz, it also has no duty to defend Delacruz.  After reviewing Mid-Continent's motions for summary judgment and default judgment, the Court decided it needed more briefing from Mid-Continent on whether entering a declaratory judgment on its duty to indemnify was ripe.  The Court gave Mid-Continent the opportunity for extra briefing because it did not address the ripeness issue in either motion and its arguments hinged on the Court first deciding Mid- Continent's duty to indemnify.  In response, Mid-Continent argued that a declaration on its duty to indemnify was ripe for review.




Mid-Continent argued that the matter was ripe because its duty to indemnify was based "only on when Delacruz performed [its] work" and it was not based on a final adjudication in the underlying state case.  The Court disagreed.

The Court noted that "the ripeness doctrine involves both jurisdictional limitations imposed by Article III's requirement of a case of controversy and prudential considerations arising from problems of prematurity and abstractness that may present insurmountable obstacles to the exercise of the court's jurisdiction, even though jurisdiction is technically present."  It "protects federal courts from engaging in speculation or wasting their resources through the review of potential or abstract disputes."  Ripeness ultimately "goes to whether [a] district court had subject matter to hear the case."


In order to determine a claim's ripeness, courts consider two matters: (1) "the fitness of the issues for judicial decision, and (2) the hardship to the parties of withholding court consideration."  For an insurer's duty to indemnify, many district courts in the Eleventh Circuit have held "that an insurer's duty to indemnify is not ripe for adjudication unless and until the insured or putative insured has been held liable in the underlying action."  The Court noted that it had previously held that an insurer's duty to indemnify is not ripe without a determination of the insured's liability.


The Court held that Mid-Continent failed to provide any compelling reason to cut against the courts' prior decisions.  Although Mid-Continent's argument that its duty to indemnify depended solely on when Delacruz performed its work may be accurate, it missed the point on ripeness.  If Delacruz is not liable, it does not matter when Delacruz performed its work because indemnification is not required.  The Court stated that only time will tell how the ongoing state court case plays out.  Mid-Continent also failed to identify any hardship it would suffer if the Court withheld consideration on this issue.  Nor was it clear if Delacruz would even seek indemnification from Mid-Continent if Delacruz was found liable.  Consequently, the Court determined that Mid-Continent's duty to indemnify was not ripe, and its claims requesting a declaration on its duty to indemnify were dismissed without prejudice.


As a result, the Court held that Mid-Continent's argument on its duty to defend Delacruz also failed because they hinged on the Court first deciding Mid-Continent's duty to indemnify.  Although Mid-Continent argued that it had no duty to defend Delacruz in its motions, it never affirmatively sought this relief in its Second Amended Complaint.


Instead, the Second Amended Complaint only sought a declaration on its duty to indemnify Delacruz.  Therefore, as there were no remaining claims, the case was dismissed in its entirety without prejudice.  Accordingly, Mid-Continent’s motions were denied.



Larry E. Waters
[email protected]


09/28/18       Zurich American Ins. Co. v. Wausau Business Insurance Co.

United States District Court, Southern District of New York

Defendant’s Motion to Dismiss Granted because Plaintiff Assigned its Rights Under the Insurance Policy and Therefore had No Right to Prosecute Any Claims on its Behalf

Plaintiff Zurich American Insurance Company (“Zurich”) issued an insurance policy to Plaintiff Whiting-Turner, with effective dates of August 1, 2010 to August 1, 2011 (the “Zurich Policy”).  The Zurich Policy provided that Whiting-Turner was obligated to pay a $500,000 deductible.  In part the “Application of Recovered Amounts” under the Zurich Policy provided that Zurich has Whiting-Turner “rights and the rights of persons entitled to the benefits of this insurance to recover sums that are reimbursable under this endorsement and any Deductible Amount from anyone liable for the injury or damages.”  The “Application of Recovered Amounts” under the Zurich Policy also provided that “[t]he terms of this insurance apply irrespective of the application of any Deductible Amount(s), including those with respect to: (a.) our right and duty to investigate or defend the insured against any “suits” seeking those damages; and (b.) your duties in the event of a claim or circumstances likely to result in a claim.”


Similarly, Defendant Wausau Business Insurance Company (“Wausau”) issued a commercial general liability insurance policy to Montesano, with effective dates of January 11, 2011 to January 11, 2012 (the “Wausau Policy”).  The Wausau Policy contained a blanket additional insured, which provided in part that Wausau “will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies. . . .”  The Wausau Policy also provided coverage to Montesano for liability Montesano assumed under an “insured contract.  “The Wausau Policy defines an ‘insured contract” as “[t]he part of any other contract or agreement pertaining to your business . . . under which you assume the tort liability of another party to pay for ‘bodily injury’ or ‘property damage’ to a third person or organization, provided that the ‘bodily injury’ or ‘property damage’ is caused, in whole or in part, by you, or by those action on your behalf.”  Further, the Wausau Policy defined tort liability as “a liability that would be imposed by law in the absence of any contract or agreement.”


After the issuance of the Zurich Policy and the Wausau Policy, Brooks Shopping Centers LLC (“Brooks”) contracted with Whiting-Turner to be a general contractor for a construction project at the Cross County Shopping Center (the “Shopping Center”).  In turn, Montesano entered into a contract with Whiting-Turner to perform certain improvement to the Shopping Center (the “Montesano Contract”).  The Montesano Contract provided for Montesano to defend and indemnify, and hold Whiting-Turner and the Owners of the Shopping Center harmless for liability arising out of its work.  In addition, the Montesano Contract required that Whiting-Turner and the Owners to be listed as additional insureds on Montesano’s Commercial General Liability Policy.  Further, as required under the terms of the Wausau Policy, the J.M. Glover Agency issued a Certificate of Insurance to Whiting-Turner, listing Whiting-Turner and the Owners as additional insureds under the Wausau Policy.


Following the start of the construction project at the Shopping Center, a woman was allegedly injured when she slipped and fell at the Shopping Center on June 18, 2011.  The woman commenced a personal injury action filed in New York Supreme Court, Bronx County.  The personal injury action alleges that Brooks and Macerich Property Management Company, LLC (“Macerich”) owned, operated, and managed the Shopping Center and the woman’s injuries were the result of Brooks and Macerich’s negligence.  The defense and indemnity of Whiting-Turner and the Owners for the Underlying Action was tendered to Montesano and Wausau.   Wausau has not issued a coverage position as to the tender from Whiting-Turner and the Owners.


Zurich commenced the current action on May 16, 2016.  After receiving approval for its request to file a motion to dismiss, on June 26, 2017, Wausau filed the instant motion to dismiss all claims asserted by Whiting-Turner.


In assessing Wausau’s motion to dismiss all claims for relief by Whiting-Turner for failure to state a claim upon which relief can be granted, the court began its analysis with the legal standards of Federal Rules of Civil Procedure 12(b)(6).  The court acknowledged that to survive a motion to dismiss a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.


Next, the court discussed an assignment of a contract under New York law. The court noted that under New York law, an assignment is “a transfer or setting over of property or of some right of interest therein, from one person to another, and unless in some way qualified, it is properly the transfer of one whole interest in an estate, or chattel, or other thing.” The court also noted that an “assignment of the rights to a claim deprives the assignor of standing to bring any such claim.”


Applying New York case law, the court concluded that Whiting-Turner assigned its rights to Zurich under the Zurich Policy.  In support, the court reasoned that the “Application of Recovered Amounts” provision in the Zurich Policy was clear and unambiguous.  Specifically, the court found that the language of the “Application of Recovered Amounts” provision clearly assigns Whiting-Turner’s rights to Zurich.”  Critically, the court found that there is no language in the Zurich Policy that limits this assignment.”


However, Plaintiffs argued that the Zurich Policy does not deprive Whiting-Turner of its interest in the Deductible Amount because the “relevant provision also states that the recovered amounts will be applied to reduce the Deductible Amount reimbursed or reimbursable by Whiting-Turner as respects that injury or damages.”


The court rejected Plaintiffs’ argument.  First, the court found that the Zurich Policy did not eliminate or limit Zurich’s right to pursue exclusively Whiting-Turner’s rights to recover the Deductible amount.  Rather, as the court explained “the language simply governs the extent to which any recovered payment simply governs the extent to which any recovered payments will be applied by Zurich to the Deductible Amount in the event that Whiting-Turner has only reimbursed a portion of its obligation under the Zurich Policy.”  In addition, the court noted that Plaintiffs failed to cite to a single case supporting the proposition that where a party that assigned its right to purse recovery also retained its right to simultaneously pursue recovery by operation of its obligation to pay a deductible.”  Further, the court highlighted that it is Zurich’s obligation under the Zurich Policy to defend and indemnify the Owners from the first dollar regardless of whether Whiting-Turner pays the deductible amount.”  As such, Whiting-Turner’s obligation to pay the Deductible Amount does not in any way extinguish Zurich’s obligation to defend and indemnify the Owners in the Underlying Action.


Plaintiffs’ attempted to argue also that that the instant matter was similar to Second Circuit’s decision in Cortlandt Street Recovery Corporation v. Hellas Telecommunications I, S.A.R.L. Once again, the court rejected Plaintiffs’ argument.  The court concluded Plaintiffs’ use of the Second Circuit’s decision in Cortlandt Street Recovery Corporation was misguided.  The court noted that unlike in the Second Circuit’s decision, the Zurich Policy provision transfers entire ownership of the claim to Zurich and it does not merely give Zurich the power of attorney.  Further, the court concluded that since Whiting-Turner is not the real party in interest, it has no right to prosecute any claims on its behalf.


Accordingly, Defendant’s motion to dismiss was granted and Whiting-Turner’s claim for a declaratory judgment was dismissed.



Eric T. Boron

[email protected]


09/25/18       Borsheim Bldrs. Supply, Inc. v. Manger Ins., Inc.

Supreme Court of North Dakota

CGL Policy - District Court Erred in Deciding Additional Insured Coverage

and Duty to Defend/Indemnify Issues

The background facts are as follows.  Borsheim’s employee was injured while working on Whiting’s oil rig site, and commenced a negligence action against a Whiting subcontractor, CSI.   Whiting/CSI tendered a demand for indemnity and defense to Borsheim, citing a master service contract (“MSC”) between Borsheim and Whiting in which Borsheim agreed to defend, indemnify and hold harmless Whiting and its subcontractors.  Borsheim’s CGL insurer Mid-Continent denied coverage. Borsheim then sued Mid-Continent in North Dakota District Court alleging the insurer had breached its obligations to Borsheim under Borsheim’s CGL policy at issue.  Mid-Continent counterclaimed against Borsheim.  Eventually, Borsheim moved for summary judgment, and Mid-Continent cross-moved for summary judgment. 


District Court ruled in favor of the CGL insurer Mid-Continent in holding that Borsheim was statutorily immune from liability under North Dakota’s workers compensation act and that the CGL policy’s contractual liability exclusion applied to preclude coverage because of this immunity.  District Court further ruled CSI and Whiting were not additional insureds under the CGL policy, and that Mid-Continent did not breach its duty to defend/indemnify.  Judgment dismissing all claims against Mid-Continent with prejudice was granted by District Court.


On appeal, the Supreme Court of North Dakota reversed and remanded, in an opinion issued September 25, 2018. 


The pertinent terms and provisions of the CGL policy at issue as recited by Supreme Court’s opinion indicate Supreme Court was analyzing and interpreting the ISO Commercial General Liability Coverage Form CG 00 01 12 04.   Supreme Court noted that the Contractual Liability exclusion from coverage has its own exceptions. Most importantly, the Contractual Liability exclusion does not apply to liability for damages assumed in a contract or agreement that is an “insured contract”. So, what’s an “insured contract”?


Supreme Court noted that the CGL policy at issue contained an endorsement which amended the policy definition of “insured contract”, to, as pertinent herein, “[T]hat part of any other contract…pertaining to your business…under which you assume the tort liability of another party to pay for ‘bodily injury’…to a third person…, provided the ‘bodily injury’ is caused, in whole or in part, by you…”.  Supreme Court determined the MSC to be an “insured contract”, and thus the exception to the exclusion from coverage applied, and Supreme Court accordingly held that District Court erred in ruling the CGL policy did not provide coverage for the underlying bodily injury action of the Borsheim employee against Whiting’s CSI.


Supreme Court also consequently held Mid-Continent had a duty to defend in the underlying bodily injury action, basing its determination on this issue on its finding that CSI was an additional insured under the CGL policy.   CSI’s answer to the complaint in the underlying action alleged that Borsheim would also be at fault for the bodily injury suffered by Borsheim’s employee.  As such, and resolving any doubts about the duty to defend in the insured’s favor, as the court must do, Supreme Court concluded District Court erred in holding Mid-Continent had no duty to defend in the underlying bodily injury action.   


You see, applying step-by-step analysis, these issues get worked through and determined correctly by the court.  At least that is the way you tend to think when you are the court of final appeal, the Supreme Court, where the judges can confidently ask, after issuing opinions, “Are we right, or are we right?” 


Earl K. Cantwell
[email protected]


07/06/18       Medidata Solutions Inc. v. Federal Insurance Company

United States Court of Appeals, Second Circuit

Coverage for Loss By Computer not Through Computer

This case involved a claim for almost $6 Million in damages arising from losses from an e-mail “spoofing” program. Medidata claimed that its losses from the attack were covered by a computer fraud provision in its insurance policy with Federal Insurance, which covered losses stemming from any “entry of data into” or “change to data elements or program logic of a computer system”. Federal Insurance’s basic defense was that this particular “spoofing” attack was not covered because the policy only applied to hacking-type intrusions. The District Court had agreed with the insured, and this decision was affirmed on appeal.


While no actual “hacking” occurred, the fraudsters initiated a computer-based attack that manipulated Medidata’s e-mail system, which the parties did not dispute constituted a “computer system” within the meaning of the policy. The spoofing code enabled the fraudsters to send messages that inaccurately appeared to come from a high-ranking member of Medidata’s organization. Thus, the Court reasoned, the attack represented a “fraudulent entry of data” into the computer system, as the false spoofing code was introduced into the e-mail system. The attack also made a “change to data” since the e-mail system was altered so that it falsely indicated the sender of the messages.


Federal Insurance relied upon a case decided by the New York State Court of Appeals in 2015 where a computer fraud was not covered by a similar computer fraud provision because the fraud in that case was not on the “computer system qua computer system”, and did not entail a violation of the integrity of the computer system through deceitful and dishonest access. Rather, the fraud at issue there incidentally involved the use of computers since the company processed claims using the computers as a mechanism to carry out the fraud. In contrast, the Second Circuit said in this case the fraud clearly involved the computer system since the e-mail system itself was compromised by the inserted inaccurate messages and altered e-mail sender codes.


Federal Insurance also argued that Medidata did not sustain a “direct loss” as a result of the spoofing attack within the meaning of the policy. The spoof e-mails directed Medidata employees to transfer funds in accordance with an acquisition, and the employees made the transfers that same day. However, the Court ruled that the spoofing attack was the proximate cause of the losses. The chain of events was initiated by the spoof e-mails and unfolded directly and rapidly following their receipt. While it is true that the Medidata employees themselves had to take some action and steps to implement the transfers, the Court did not see those actions as sufficient to sever the causal relationship between the initiating spoofing attack and the losses sustained.


As the District Court explained, spoofing is the practice of disguising a commercial e-mail to make it appear to come from an address at which it actually did not originate. It involves placing initiating messages in the e-mail address other than the actual sender’s address without the consent or authorization of the user of the e-mail address whose return address is “spoofed”.


The Second Circuit concluded that Medidata’s losses were covered under the computer fraud provisions, and they therefore did not address other arguments for coverage raised and argued in the District Court.


Under the insuring language, this case notes a distinction in the language and the developing case authority of when there is actually fraud accomplished on or within the computer system. This is in contrast to other cases cited by Federal Insurance where a fraudulent scheme may have been accomplished or expedited by use of computers, but the fraud was largely implemented by computers but not directly within the computer system.


The District Court had also found coverage under funds transfer fraud coverage within the policy, but no coverage under the forgery clause in the policy. However, having found coverage to arise under the computer fraud provision, the Second Circuit did not speak further on these points. This is another example where claims for coverage are argued to fall within several possible policy provisions, each of which may have different protections and purposes, but may be potentially implicated and need to be examined and determined.


The essential point in this case is that the “spoofing attack” actually changed e-mail addresses and content within the computer system, and originated false e-mail messages in and within the computer system, leading the Second Circuit to affirm the decision of the District Court finding coverage for the loss.


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