Coverage Pointers - Volume XXI, No. 14

ASSOCIATE EDITOR
Agnes A. Wilewicz
[email protected]

ASSISTANT EDITOR
John R. Ewell

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

Steven E. Peiper, Co-Chair
[email protected]

Michael F. Perley
Jennifer A. Ehman
Agnieszka A. Wilewicz
Lee S. Siegel
Brian D. Barnas
Brian F. Mark
John R. Ewell
Eric T. Boron
Marina A. Barci
Diane F. Bosse
Joel R. Appelbaum

FIRE, FIRST-PARTY AND SUBROGATION TEAM
Steven E. Peiper, Team Leader
[email protected]

Michael F. Perley
Eric T. Boron
Brian D. Barnas

NO-FAULT/UM/SUM TEAM
Jennifer A. Ehman, Team Leader
Marina A. Barci

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

Diane F. Bosse

Topical Index

 Kohane’s Coverage Corner Peiper on Property and Potpourri

Dishing out Serious Injury Threshold

 Wilewicz’s Wide World of Coverage

Jen’s Gems

Barnas on Bad Faith

John’s Jersey Journal

 Lee’s Connecticut Chronicles

Off the Mark

 Boron’s Benchmarks

Barci’s Basics (on No Fault)

 Ryan’s Capital Roundup CJ on CVA and USDC(NY)

 Earl’s Pearls

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

12/24/19         Government Employees Insurance Co. v. Escoto, Appellate Division, Second Department
Sufficient Proof Offered for UM/SUM Framed Issue Hearing on Whether NC Vehicle was Involved in NY Accident

On December 28, 2016, Escoto allegedly was injured in a motor vehicle accident when, while operating his vehicle, it was struck in the rear by another vehicle in Brooklyn. The other vehicle left the scene. However, Escoto took a photograph of a North Carolina-issued license plate which was on the vehicle purportedly involved in the accident. Escoto provided that license plate number to the police officer who responded to the scene of the accident. The responding police officer recorded the plate number provided by Escoto and information concerning the make and type of the vehicle related to that plate number in the police accident report.

Escoto's vehicle was insured by GEICO.which included a supplementary uninsured/underinsured motorists (“SUM”) endorsement. Using the plate number listed in the police accident report, GEICO performed a plate search of the North Carolina DMV and identified the other car a 2014 Cadillac, was owned by proposed additional respondent Charles Roberts, Jr., and insured by the proposed additional respondent North Carolina Farm Bureau Insurance Group (“Farm Bureau”). Roberts denied any involvement in the accident. Thereafter, Farm Bureau denied Escoto's bodily injury claim which he had submitted to Farm Bureau against its policy issued to Roberts. Subsequently, Escoto demanded arbitration of his claim for uninsured motorist benefits from GEICO.
 

GEICO commenced this proceeding pursuant to CPLR article 75, inter alia, to permanently stay arbitration of the uninsured motorist claim, or, in the alternative, to temporarily stay the arbitration pending a framed-issue hearing on the issue of whether the other vehicle involved in the subject accident was "uninsured" on the date of the accident. GEICO's petition also sought leave to join Roberts and Farm Bureau as additional respondents. In support of its petition, GEICO submitted, inter alia, a copy of the police accident report and the results of its license plate search.

Roberts and Farm Bureau moved pursuant to CPLR 3211(a)(8) to dismiss the petition insofar as asserted against them alleging lack of personal jurisdiction. They maintained that New York did not have jurisdiction over them since Farm Bureau was a North Carolina company not authorized to do business in New York and Roberts was a North Carolina resident who was not involved in the happening of the subject accident.

Here, the documents submitted by GEICO in support of the petition demonstrated the existence of sufficient evidentiary facts to establish a preliminary issue justifying a temporary stay. The police report evidenced that the other car was not uninsured

In opposition, Farm Bureau and Roberts raised questions of fact as to whether Roberts's vehicle was involved in the subject accident and whether Roberts was a nonresident at the time of the accident rendering his vehicle an "uninsured motor vehicle" within the meaning of Insurance Law article 52. Jurisdiction existed in New York to resolve the issues in a framed issue hearing.

12/18/19 Foddrell v. Utica First Ins. Co. Appellate Division, Second Department
Non-Cooperation Not Established, Even though Insured Failed Repeatedly, After being Advised of Consequences, that its Cooperation was Necessary. Thousands Flee

This was a “Direct Action” under Insurance Law § 3420(a)(2) to recover the amount of an unsatisfied judgment in favor of the Foddrells and against an insured of the Utica First (“Utica”). Utica insured Joney & Rana Construction Corp. (“J & R”).

In December 2006, the Foddrell (plaintiff) commenced an action against the third- party defendant J & R) to recover damages for personal injuries he allegedly

sustained in a construction-related accident (“underlying action”). At the time of the accident, J & R was insured by Utica First. Utica retained a law firm to represent J & R in the underlying action, and issue was joined in May 2007. Utica also retained an investigation company to locate and interview J & R's principal, Singh. On March 13, 2007, Singh provided the investigator with a written statement concerning the accident. In the statement, Singh listed his address, his home telephone number, and his cell phone number.

Thereafter, Singh failed to appear for his court-ordered deposition on October 8, 2008, and again on December 2, 2008. On April 8, 2009, after several unsuccessful attempts to contact Singh through written correspondence and telephone calls, an investigator met with Singh at his home. The investigator advised Singh that a deposition was scheduled for April 13, 2009. According to the investigator, Singh responded that he would contact J & R's attorneys. After Singh failed to appear for the deposition, Utica sent Singh a letter dated April 15, 2009, advising him that because of his lack of cooperation, Utica "will no longer agree to indemnify J & R."

In June 2009, the Foddrell moved to strike J & R's answer. The Supreme Court granted the plaintiff's motion to the extent of directing that J & R's answer would be stricken unless J & R appeared for a deposition by December 4, 2009. The court also granted a motion made by J & R's attorneys to be relieved as counsel for J & R in the underlying action.

After J & R, unrepresented by counsel, failed to appear for a deposition by December 4, 2009, the court issued an order dated September 30, 2010, inter alia, striking J & R's answer. An inquest was subsequently held on the issue of damages and, on August 13, 2013, a judgment was entered in the underlying action in favor of the plaintiff and against J & R sum of $673,422.71.

In November 2013, the plaintiff commenced this action pursuant to Insurance Law § 3420(a)(2) to recover the amount of the unsatisfied judgment from Utica. Thereafter, in April 2016, Utica commenced a third-party action against the third- party defendants, J & R and Singh, for a judgment declaring that it is not obligated to defend or indemnify J & R in the underlying action. Utica subsequently moved pursuant to CPLR 3215 for leave to enter a default judgment against the third-party defendants declaring that it is not obligated to indemnify J & R in the underlying action. Utica also moved for summary judgment dismissing the complaint and declaring that it is not obligated to indemnify J & R in the underlying action.

"To effectively deny coverage based upon lack of cooperation, an insurance carrier must demonstrate (1) that it acted diligently in seeking to bring about the insured's cooperation, (2) that the efforts employed by the insured were reasonably calculated to obtain the insured's cooperation, and (3) that the attitude of the insured, after his or her cooperation was sought, was one of willful and avowed obstruction.   Mere efforts by the insurer and mere inaction on the part of the insured, without more, are insufficient to establish non-cooperation'"
 

Here, Utica failed to meet its "heavy" burden of demonstrating J & R's non- cooperation. In support of its motion, Utica established that between January 2009 and April 2009, more than one year before J & R's answer was stricken, it made diligent efforts, through written correspondence, numerous telephone calls, and visits to Singh's home, that were reasonably calculated to bring about J & R's cooperation. Utica's submissions, however, failed to demonstrate that the conduct of J & R constituted "willful and avowed obstruction.”

Furthermore, the lower court properly denied Utica's motion to enter a default judgment against the insured declaring that it is not obligated to indemnify J & R in the underlying action. Utica established that it served the third-party summons and complaint on the third-party defendants, and that the third-party defendants defaulted. Nevertheless, since Utica failed to demonstrate the "facts constituting [its] claim," to wit, that its denial of coverage based upon lack of cooperation was proper, we agree with the Supreme Court's conclusion that Utica did not establish its entitlement to a default judgment declaring that it is not obligated to indemnify J & R in the underlying action.

Editor’s Note: Sorry, court, we disagree. What in heaven’s name is the carrier supposed to do beyond what it did? The three-point “Thrasher” test was properly described (19 NY2d 159). What else could be offered to demonstrate “willful and avowed obstruction”?

12/17/19         McGraw-Hill Education, Inc., v. Illinois National Ins. Co. Appellate Division, First Department
Exclusionary Language Does Not Preclude Coverage under Copyright Infringement Policy

This case involved the duty to defend an insured in a copyright case.

Various exclusions to coverage were cited. This was a copyright infringement policy. Exclusions I and D of the insurance policies, which preclude coverage for claims arising out of a contract, do not apply here. For a claim to "arise" out of a contract, the existence of the contract must be the "but for" cause of the loss.

Although the parties had license agreements, the licensors could have brought claims based on copyright regardless of whether a contract had ever been entered into; thus, the contract is not the “but for” cause of the loss.

Exclusion G, which precludes coverage for claims arising out of intentional violation of law or gaining profit or advantage to which the insured is not legally entitled, does not apply. The relevant policy provision with regard to infringement of copyright is in the definition of damages, which bars coverage only where it is

"judicially determined" that the violation was intentional and was carried out by a senior vice president, or someone more senior, of plaintiff.

Further, there has been no such judicial determination in the underlying actions. Defendants cannot litigate that issue in the coverage action.

Nor does the fortuity doctrine apply to bar coverage. The fortuity doctrine has been applied to insurance policies under which coverage is triggered by an "accident" or "occurrence. One of the express purposes of the policies in this case, however, was to provide coverage for a defined risk: "claims arising out of

. . . infringement of common law or statutory copyright." Thus, invoking the fortuity doctrine would render that portion of the policy illusory.

PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper [email protected]

12/26/19         Knickerbocker Village Inc. v. Lexington Insurance Company Appellate Division, First Department
Short and Sweet – Disclosure of How Other Similar First Party Claims were Handled Not Material and Necessary in Superstorm Sandy Claim

The lower court properly denied plaintiff's request to compel disclosure of information about defendants' handling of its other insureds' losses resulting from Superstorm Sandy. The requested discovery is not material and necessary to the prosecution of the claims in this action.

12/20/19         Mezzalingua v. The Travelers Indemnity Company, et al. Appellate Division, Fourth Department
What’s Good for the Goose is Good for the Gander; Discovery Rules Applied Universally to Insured and Insurer

Plaintiff commenced the lawsuit after sustaining water damage at its manufacturing facility. Apparently, rainwater entered the premises through an allegedly defective roof which was installed by Campany Roofing Company.

Plaintiff’s lawsuit asserted a negligence claim against Campany, and also sought damages in breach of contract from its insurer, Travelers, who previously disclaimed.

Importantly, upon receiving plaintiff’s claim, Travelers issued a Reservation of Rights letter on October 24, 2016. In the letter, Travelers identified an exclusion which purportedly removed coverage caused by rainwater. Thereafter, Travelers hired “litigation counsel” and “other consultants.” Ultimately, Travelers formally denied the claim on January 5, 2017.

During discovery, a dispute arose over plaintiff’s refusal to turn over documents which were prepared as part of developing its claim. Plaintiff argued that the documents were exempt from disclosure on the basis of the material prepared in anticipation of litigation doctrine, attorney-work product doctrine and the attorney/client privilege. Plaintiff moved for a protective order seeking to avoid disclosure, and Travelers and Campany moved to compel the same. The trial court ruled that all documents created by plaintiff after October 24th were protected because they were materials prepared in anticipation of litigation.
 

On appeal, the Fourth Department noted that Campany and Travelers met their initial burden of establishing the items sought were “material and necessary to their case.” The Court also noted that trial court incorrectly ruled that all documents created after October 24th were protected under a blanket rule.

The Court then recited the three ways a party can avoid disclosure; attorney/client privilege, attorney work product and material prepared in anticipation of litigation. With all three, however, once the party seeking discovery establishes the materiality of the requests, the burden then shifts to the party seeking to withhold production to establish one of the three protections.

Here, the Court ruled that plaintiff failed to meet its burden. Specifically, with regard to the material prepared in anticipation doctrine, a movant must establish the documents were prepared solely in anticipation of litigation. Mixed use reports are not subject to the exemption.

In the instant case, the items at issue where prepared by third parties as “mixed purpose reports.”                   

As such, the Court overruled the blanket October 24th trigger date adopted by the trial court, and remanded the matter back to the trial court for in camera review.

With regard to the attorney/client privilege claims, defendants established that many of the documents at issue were shared with, or prepared by, third parties. Communications made by, or in the presence of, third parties are not subject to an attorney client privilege.

The court notes, of course, that the privilege may be preserved where the third party is acting as an agent of the attorney or the client, and the expectation of confidentiality is understood by all parties. Plaintiff failed to meet its burden that the attorney/client privilege attached in this case.

Finally, the Court noted that it was that possible reports prepared by experts and/or retained consultants were subject to the attorney work product protection. As such, the documents falling within that category were also remanded to the trial court for further in camera inspection.

12/12/19         Seneca Ins. Co., Inc. v. JFR Construction Corp. Appellate Division, First Department
Disclaimer in Subcontract Protects Installer from Loss Caused by Frozen Sprinkler Pipes
 

Seneca commenced this action in subrogation after providing coverage for losses occasioned due to frozen and burst sprinkler pipes. Seneca identified JFR as the subcontractor who installed the sprinkler heads at the property, and asserted that JFR’s negligence in failing to ensure adequate heat was the cause of the loss.

In response, JFR moved for summary judgment arguing that it owed no duty to the owner of the premises (and Seneca’s named insured). Here, its contract was with Luna Development, the general contractor, and the subcontract at issue contained a specific provision which provided JFR had “no duty to protect pipes from freezing.”

In opposition, Seneca argued that JFR had an obligation under the NYC Building Code to protect pipes from freezing. However, JFR was protected from exposure by the provisions of its contract with Luna, and thus absolved from any liability.

DISHING OUT SERIOUS INJURY THRESHOLD
Michael J. Dischley 

12/05/19         Katherine Gerrity v. Gerard Taxi Inc, et al. Supreme Court, New York County
Plaintiff’s Expert Raises a Triable Issue of Fact as to Causation

Plaintiff was a pedestrian within a crosswalk struck by a vehicle operated by the defendant. The plaintiff sued to recover damages for personal injuries that she allegedly sustained in the accident. The defendants moved for summary judgment alleging that plaintiff failed to demonstrate a "serious injury" and that plaintiff’s injuries are not causally related to the underlying accident but are the result of degenerative disc disease. Defendants’ orthopedic expert opined that plaintiff’s alleged injuries were consistent with pre-existing degenerative changes and not an acute traumatic injury. Defendants’ radiological expert opined that the MRI’s reveal degenerative changes and no radiographic evidence of traumatic or casually related injury. The Court found that defendants had met their prima facie burden. In opposition, plaintiff’s responding medical submissions raised a triable issue of fact as to plaintiff’s alleged degenerative injuries. Specifically, plaintiff submitted an opinion from her doctors that specifically disagreed with defendant’s expert findings that plaintiff’s injuries are degenerative in nature and also causally related her injuries to the subject accident. As such, the Court found plaintiff raised an issue of fact precluding summary judgment.

12/11/19         Naomi Hwang v. Aliyev Ilgar, et. al. Appellate Division, Second Department
Plaintiff or Plaintiff’s Expert Must Provide Reasonable Explanation for Gaps in Treatment
 

Plaintiff was a pedestrian struck by a vehicle operated by the defendant. The plaintiff commenced this action to recover damages for personal injuries that she allegedly sustained in the accident. The defendants moved for summary judgment dismissing the complaint on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The Supreme Court denied the motion. On defendants’ appeal, the Court found the defendants met their prima facie burden. Further, the Court found that, in opposition, the plaintiff failed to raise a triable issue of fact as to causation, and neither she nor her physicians offered a reasonable explanation for her lengthy gaps in treatment from December 2013 to December 2014, and again from October 2015 to October 2017. As such, the Appellate Court found that the Supreme Court should have granted the defendants' motion for summary judgment dismissing the complaint.

WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz [email protected]

12/17/19         Dr. Robert D. Haar, M.D. v. Nationwide Mutual Fire Ins. Co. United States Court of Appeals, Second Circuit
Second Circuit Holds that there is no Private Right of Action under New York Public Health Law § 230(11)(b) in Action by Doctor against Insurance Carrier

Dr. Robert Haar, an orthopedic surgeon, sued Nationwide Mutual and alleged that they had in bad faith reported him to the New York State Office of Professional Medical Conduct (OPMC). According to prior decisions rendered in this case, Haar had provided treatment for several patients injured in accidents and insured by Nationwide. After treatment, he submitted the claims for payment and Nationwide paid some and disclaimed coverage for some. One of the claims was denied based upon peer review reports that found that there was “no cause and effect relationship” between the injuries treated and the alleged accident.

Accordingly, Nationwide submitted a complaint to the OPMC who investigated and ultimately did not take any disciplinary action against Haar.

In this most recent decision in the case, the sole question for the court was whether there is an implied private right of action under Public Health Law § 230(11)(b) for bad faith reporting of professional misconduct to the OPMC. The court noted that New York case law did not clearly resolve the issue, and thus it was ripe for appellate review. Having sent the matter back down to the New York Court of Appeals, that appellate court determined that there was no private right of action under the statute. Specifically, the Court of Appeals held that “the statutory text and legislative history do not imply a legislative intent to create a right of action under section 230(11)(b).” Finding that this was dispositive of the entire appeal, the Second Circuit affirmed and dismissed the doctor’s claim.

JEN’S GEMS

12/11/19         Wesco Ins. Co. v. Travelers Prop. Cas. Co. of Am. Supreme Court, New York County
Hon. Lucy Billing
Court Denies Property Owner Additional Insured Status for Slip and Fall

This decision arises from a slip and fall. The underlying plaintiff claims to have sustained injury “from falling on ice on the sidewalk outside Capital One’s bank in Waldman Management’s shopping center on Staten Island.”  No mention is made in the decision as to whether the injured plaintiff was entering or exiting the bank.

This declaratory judgment action was commenced by Wesco, the insurer for Waldman Management. Wesco claimed its named insured was entitled to additional insured coverage under the policy of insurance issued by Capital One’s insurer, Travelers. Travelers cross-moved.

The court began by examining the terms of the lease agreement. The lease defined “all walkways, sidewalks, driveways, stairways and parking lots which are part of the Shopping Center” as common areas.  The sidewalks are not part of the demised premises, which was limited to the ground floor of the building.

Under the lease, Waldman Management retained exclusive responsibility for removal of snow and ice from common areas. It is stated in the decision that the court in the underlying action had already found Waldman Management responsible under the lease for maintenance of the sidewalk on which the underlying plaintiff fell, and a factual issue as to whether it was liable for the injury. Apparently, there were factual questions over whether the sidewalk was a public sidewalk or a private sidewalk, and Waldman’s motion for summary judgment was denied. All claims against Capital One were dismissed in the underlying based upon a finding that it was not responsible for the icy sidewalk.

The court in the declaratory judgment action then moved to the terms of the Travelers’ policy. The policy contained an additional insured endorsement which provided coverage for any “lessor of premises which whom you have agreed in a written contact executed prior to loss to name as an additional insured,…but only which respect to liability arising out of that part of the premises leased to you.” Wesco argued that, even though the underlying plaintiff’s injury did not arise from the ownership, maintenance, or use of the premises leased to Capital One, Waldman Management’s lability arises from its ownership of the leased premises, which is all that the Travelers policy’s additional insured provision required. In considering this argument, the court reasoned that if the sidewalk on which the injured plaintiff fell was a private sidewalk, Waldman’s liability does not arise from its ownership of the premises but arises from its ownership of the entire shopping center including its commons areas, which includes the sidewalk.
 

Conversely, if the sidewalk was a public sidewalk owned by the City, Waldman’s liability arises from its ownership of the abutting real property.

The court then noted that where a lease obligates the tenant to indemnify the owner for damages arising from the leased premises or adjacent sidewalks or obligates the tenant to maintain the adjacent sidewalks, then the provisions covering the additional insured’s liability arising from the ownership, maintenance, or use of the lease premises covers a claim arising from the sidewalk’s condition. Where, as here, the lease only obligated the tenant to indemnify the owner for damages arising only from the leased premises and obligated the owner to maintain the adjacent sidewalks, then the same provision covering the additional insured does not cover a claim arising from the sidewalk's condition. Only if the lease imposes no duty on the owner to maintain the sidewalk, and the part of the sidewalk where the underlying plaintiff fell (1) "was necessarily used for access in and out" of the leased premises and (2) was part of the premises that Capital One was licensed to use under the lease, would the owner be entitled to coverage.

Wesco did not claim that the underlying plaintiff was injured in connection with his use of the leased premises and did not claim coverage for liability arising from the use of the leased premises. Second, the lease expressly provides that no part of the sidewalk was part of the leased premises, licensed to Capital One for its use, or within its control.

The court also expressly distinguished these facts from case law directing that the Travelers policy should not be viewed in strictly territorial terms, but rather in operation terms. Here, in contrast to the authority on which Wesco relied, the lease did not define Capital One's leased premises or its operations to encompass the means of access that adjoined the leased premises or operations necessary to the bank's business, such a drive-in banking facility, or a parking lot exclusively for the bank's customers. Nor did the tenant assume a maintenance obligation for an area not part of the leased premises.  The court stated that these examples are the only types of contexts that might fall within the coverage afforded. Based on this reasoning, the court granted Travelers’ motion finding that it had no duty to defend or indemnify Waldman in the underlying and denied Wesco’s motion.

BARNAS ON BAD FAITH
Brian D. Barnas [email protected]

12/20/19         Reid v. Univera Healthcare Appellate Division, Fourth Department
Plaintiff’s Claims for Violation of the General Business Law and Punitive Damages Based on Simple Breach of Contract Dismissed
 

Plaintiff commenced this breach of contract action alleging that Univera erroneously denied her Medicare Part D prescription drug coverage under the health insurance agreement between Plaintiff and Univera. Specifically, plaintiff alleged that she was prescribed a compounded drug that Univera initially covered, but that Univera improperly refused to provide coverage for that compounded drug during certain periods of time between 2013 and 2017.

Plaintiff’s General Business Law § 349 cause of action was dismissed. Univera's conduct was not consumer-oriented, rather, Plaintiff’s claims were merely a private contract dispute over insurance policy coverage, which does not affect the consuming public at large, and therefore falls outside the purview of General Business Law § 349. Furthermore, the amended complaint failed to allege that Univera engaged in a deceptive or misleading practice.

Plaintiff’s claims of tortious breach of duty of reasonable care and fraud were dismissed. Plaintiff alleged in the amended complaint that Univera owed her a duty of care stemming from the nature of the services it provided. This allegation does not constitute a tort cause of action because it simply refers to Univera's obligation to provide health insurance coverage to plaintiff under the Plan. This did not transform a simple breach of contract into a tort claim.  The claim for fraud was also dismissed because a cause of action for fraud does not arise where the only fraud alleged merely relates to a party's alleged intent to breach a contractual obligation.

Plaintiff’s claim for punitive damages was also dismissed because Univera's denial of drug coverage pursuant to the Plan was specific to plaintiff, and plaintiff did not allege such egregious conduct by Univera that would warrant punitive damages.

Plaintiff’s claim for nonpecuniary damages based on emotional distress was also dismissed. Absent a duty upon which liability can be based, there is no right of recovery for mental distress resulting from the breach of a contract-related duty.

JOHN’S JERSEY JOURNAL
John R. Ewell 

12/17/19         Citizens United Reciprocal Exch. v. AHS Hospital New Jersey Superior Court, Appellate Division
PIP Insurer Did Not Meet Standard for Overturning Arbitration Award, New Jersey Appellate Division Says

T.S. was injured in an automobile accident and sought medical treatment at AHS Hospital. T.S. was insured by CURE and had PIP coverage. AHS billed CURE $20,000 for services provided to T.S., but CURE paid less than $3,000. AHS filed a demand for arbitration for the remaining balance. The arbitrator awarded AHS the remaining balance. The arbitrator disqualified CURE’s expert and rejected the expert’s findings because she determined the methodology was unreliable and flawed. Ultimately, the arbitrator found AHS’ charges were usual, customary, and reasonable, and CURE failed to provide competent evidence to contradict AHS.
 

CURE filed an order to show cause to vacate the arbitration award. CURE argued that the arbitrator erred in rejecting its expert’s findings. The trial court denied CURE’s order to show cause because the arbitrator disqualified CURE’s auditor. Under New Jersey law, appellate review of an arbitration award is limited. The Appellate Division reviewed the record and concluded that CURE did not satisfy the high standard for appellate review of an arbitration award. Further, the Appellate Division noted that there were no public policy considerations requiring the award be overturned.

LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel [email protected]

12/20/19 Continental Casualty Co. v. Parnoff
United States Court of Appeals, Second Circuit
No Coverage under LPL Policy for Fee Dispute

In the continuing Parnoff saga (see CP 11/29/19 available here), the Second Circuit affirmed a ruling of no coverage from the District of Connecticut. Parnoff, a Connecticut attorney, sued his malpractice carrier for defense and indemnity in a dispute brought by his former client. The client, Darcy Yuille, successfully sued Parnoff in a state court action for more than $1.4 million, on claims of conversion and civil theft, together with prejudgment interest. The appellate panel in the coverage action affirmed the trial court’s order granting Continental judgment on the pleadings, holding that there was no coverage available for the former client’s claim under the Lawyer’s Professional Liability (LPL) policy.

As is typical with these professional errors and omissions policies, coverage is only triggered for claims arising from negligent acts or omissions in the performance of legal services by an insured. The Policy also excluded from the definition of damages, inter alia, claims for the return of legal fees, costs, and expenses. Here, the court confirmed that there was no coverage because the client sought the return of disputed legal fees that Parnoff transferred from an escrow account to a personal checking account he shared with his wife. “Yuille was not seeking damages caused by ‘an act or omission in [Parnoff's] performance of legal services,’” the court reasoned. As a result, the grant of coverage was not triggered and neither defense nor indemnity was owed.

Further, the award to the client of costs and interest was excluded “as injuries that are a consequence of” the disputed legal fees.

12/02/19          Akerlind v. Nationwide Mut. Ins. Co.
Connecticut Superior Court, Hartford County
Underinsured Motorist Priority of Coverage for Test Drives

A Hartford County court denied Nationwide summary judgment, holding that under the Connecticut statutory scheme its UIM policy is potentially applicable to the loss suffered by its insured. Here, Nationwide’s insured, Akerlind, was struck by a motor vehicle driven by the tortfeasor while out for a test drive – or at least that is what we can gather from the opinion. Nationwide argued that since the dealership carried a $1 million liability policy – more than the amount of the UIM coverage – that there was no underinsurance as a matter of law. But Nationwide failed to take into account the Connecticut statute governing priority of coverage in situations like these. Pursuant to Connecticut General Statutes § 14-60, a dealership’s insurance is not available when the tortfeasor has their own liability insurance. Section 14-60(a) provides that when a dealer loans a vehicle to an insured operator (e.g. a test drive), the operator's insurance “shall be the prime coverage….” If, however, the driver is uninsured, then the operator and the dealer are jointly liable by operation of law. Because Nationwide failed to show that the tortfeasor was uninsured, the court denied its motion.

OFF THE MARK
Brian F. Mark [email protected]
 

12/18/19         Certain Underwriters at Lloyd’s London v. Metro. Builders, Inc.
Appellate Court of Illinois, First Department, Third Division
Appellate Court of Illinois Holds No Duty to Defend Claims of Damage to Insured’s Work Product, But Finds Duty to Defend Claims of Damage to Building Owner’s Personal Property.

This declaratory-judgment action arises out of an underlying construction defects action related to a project involving the construction, renovation, demolition, and other related activities at three properties in Chicago. The properties involved were 1907, 1909, and 1911 West Schiller Street. The project involved converting two of the buildings (1909 and 1911) into single-family dwellings. Metropolitan Builders, Inc. (Metropolitan) was hired by the property owner as the general contractor for the construction project.

During the construction, a wall adjoining two structures collapsed. The amount of structural damage ultimately led the City of Chicago (the City) to declare the structures unsafe and demolish them. The owner of the building turned to its insurer, AIG Property Casualty Company (AIG), for indemnification and reimbursement for the damages it suffered. AIG paid the owner "a sum of over

$1,802,479.88 for repairs, demolition, construction, and other associated expenses arising from" the collapse. AIG then filed a subrogation action against Metropolitan seeking reimbursement of its payment to the property owner.

Metropolitan had obtained a permit from the City to perform construction activity to convert the 1909 and 1911 properties into single-family dwellings, but had not

obtained a permit to perform construction activity of any kind on the 1907 property. In October 2016, the structures on the 1907 property and 1909 property collapsed. Not much is known about how the collapse occurred. The allegations were that Metropolitan had constructed a new wooden framing building and removed portions of the stairway within the 1907 property, without the authorization of a permit, in addition to altering the structural integrity and lower level supports of the 1907 and 1909 properties.

The entire existing structures at the 1907 and 1909 properties collapsed, causing significant damage to the properties, "including in areas where [Metropolitan] was not conducting work." The existing structures on the properties were later deemed unsafe and demolished by the City. The underlying complaint alleged warranty and contract claims, as well as various tort claims, against Metropolitan. The various tort claims each alleged that, "[a]s a result of the aforementioned negligence, [the property owner] suffered losses including, but not limited to, damage to [its] real and personal property."

Metropolitan tendered its defense of the underlying action to its insurer, Certain Underwriters at Lloyd's London (Lloyd's). Lloyd's denied coverage and filed a declaratory judgment action, seeking a declaration that it owed no duty to defend Metropolitan. In its motion for summary judgment, Lloyd's argued that, while its insurance policy with Metropolitan required Lloyd's to defend Metropolitan for claims of liability resulting from "property damage" caused by an "occurrence," the allegations of the underlying complaint alleged neither "property damage" nor an "occurrence."

The trial court ruled that the underlying complaint adequately alleged "property damage," but held that the underlying complaint failed to allege an "occurrence" as defined by the insurance policy and thus entered summary judgment in favor of Lloyd's. Metropolitan appealed, claiming that summary judgment for Lloyd's was inappropriate, as the underlying complaint alleged an "occurrence" as well as "property damage."

In analyzing the duty to defend, the Court noted that an insurer has a duty to defend "[i]f the underlying complaints allege facts within or potentially within policy coverage."

Metropolitan had a commercial general liability (CGL) policy with Lloyd's that, in pertinent part, insured Metropolitan for liability resulting from "'property damage' [that] is caused by an 'occurrence.'"

The Court began its analysis by looking at the purpose of CGL policies. "'[C]omprehensive general liability policies are intended to protect the insured from liability for injury or damage to the persons or property of others; they are not intended to pay the costs associated with repairing or replacing the insured's defective work and products, which are purely economic losses. Finding coverage for the cost of replacing or repairing defective work would transform the policy into something akin to a performance bond.'"

Occurrence

An "occurrence" under the Metropolitan policy is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." As is typical in CGL policies, the policy did not define the term “accident.”

In the absence of a policy definition, Illinois courts typically interpret "accident" to mean "'an unforeseen occurrence, usually of an untoward or disastrous character or an undesigned, sudden, or unexpected event of an inflictive or unfortunate character.'"

The Court reiterated prior holdings that a CGL policy "does not cover an accident of faulty workmanship but rather faulty workmanship which causes an accident." Simply put, “there is no occurrence when a subcontractor's defective workmanship necessitates removing and repairing work."  Rather, the mere repair or replacement of a contractor's poor work product is considered to be the "'natural and ordinary consequences of faulty workmanship,'" not an "'accident.'" The Court noted that while a CGL policy will not insure a contractor for the cost of correcting construction defects, 'damage to something other than the project itself does constitute an "occurrence" under a CGL policy'"

Property Damage

The Policy defines "property damage" in relevant part as "physical injury to tangible property, including all resulting loss of use of that property." The Court reviewed case law examining what constitutes “property damage” and acknowledged that the prevailing rule is that to constitute "property damage" in CGL policies with definitions like the one at issue, the property's appearance must be altered in some measurable way, but it must also be property beyond that of the contractor's work product. If the only property injured is the very project on which the contractor was working, then the damages sought are merely economic losses stemming from disappointed commercial expectations. They are contractual damages for the cost of repair or replacement or to make the property owner whole for the diminution in the property's value. Such damages are not recoverable in a CGL policy. But again, allegations of damage to property other than the project itself, requiring more than mere repair or replacement, constitute "proper damage" under the CGL policy.

Underlying Allegations

The Court next looked to the allegations in the underlying complaint to determine whether they alleged “property damage” that was caused by an “occurrence.”

The underlying complaint alleged two different kinds of damages suffered by the property owner: "losses including, but not limited to, damage to both [the property owner's] real and personal property."

The Court agreed with Lloyd's that the damage to the real property is not covered by the CGL policy. Metropolitan was the general contractor on the job, with overall responsibility for the renovation and conversion of the properties' existing structures into single-family housing. Instead of rehabbing and converting them, Metropolitan's allegedly faulty workmanship led to their collapse and ultimate demolition. Thus, the collapse of the structures was not an "accident" or "occurrence" but was, instead, the natural and ordinary result of faulty workmanship on the contractor's work product.

Metropolitan argued that the underlying complaint alleged damage to parts of the property on which Metropolitan was not working. However, the properties were under the responsibility of Metropolitan, as general contractor, to convert the structures into single-family homes. Even if the damage extended to parts of the project on which Metropolitan was not currently working, it was still part of Metropolitan's scope and responsibility, and thus was part of the project itself.

The Court reached a different conclusion, however, with regard to the second claim of damages alleged in the underlying complaint—the claim of damage to the property owner's "personal property." The damage alleged to the property owner's personal property is, quite obviously, damage to something other than the project itself. To be sure, the underlying complaint gave no description whatsoever of what "personal property" of the owner was damaged—furniture, computers, appliances, keepsakes, etc. It was the unspecified nature of that personal property, in fact, that led Lloyd's to argue that no damage to personal property has been alleged whatsoever.

The Court noted that the underlying complaint did allege that the personal property was owned by the property owner. The Court further noted that it has specifically rejected the notion that the alleged damage to "personal property" must be specifically identified in the underlying complaint to trigger coverage for an "occurrence."

In considering whether an insurer has a duty to defend, the underlying complaint and the insurance policy are read in favor of coverage "unless it is clear from the face of the underlying complaints that the allegations fail to state facts which bring the case within, or potentially within, the policy's coverage." The Court held that it was certainly not "clear" from the underlying complaint that the allegation of damage to the owner's personal property falls outside the definition of "occurrence."

Although the underlying complaint was vague as to whether AIG covered the damaged personal property, the Court noted that it was not "clear from the face of the underlying complaint" that AIG did not cover claims of damage to the owner's personal property. In fact, the underlying complaint did allege that AIG paid the owner for “other associated expenses.” The Court found no reason why that could not include payment for damage to the owner's personal property.

Thus, the Court held that however vague they may be, the underlying complaint's allegations at least potentially satisfied the policy's definition of "occurrence."

And because the damage to the owner's personal property was beyond a mere contractual damages claim for repair or replacement of the contractor's work product, it likewise constituted "property damage" under the policy.

The Court determined that the admittedly vague references to damage to the property owner's "personal property" were enough to allege "property damage" caused by an "occurrence" under the policy. The allegations were enough to trigger the insurer's duty to defend.

Accordingly, the Court reversed the trial court’s decision, holding that the underlying complaint alleged sufficient facts to require Lloyd's to defend Metropolitan.

BORON’S BENCHMARKS
Eric T. Boron [email protected]

12/17/19         Zannini v Phenix Mutual Fire Ins. Co. Supreme Court of New Hampshire
Homeowner’s Insurance – Summary Judgment for Insurer Affirmed – One- Year Suit Limitation Period Enforceable

Plaintiffs' residence sustained “significant flooding” as the result of burst pipes. The opinion provides the following additional background facts:

[T]he house was insured by the defendant, and the plaintiffs filed a claim for water damage. The defendant sent an adjuster to investigate, who instructed the plaintiffs to remove the floor of the house so that he could investigate the area underneath. After they did so, the house began to collapse, and the plaintiffs repaired its framing to prevent it from collapsing completely. As a result of removing the floor, the plaintiffs “suffered a complete loss [of the house] and direct physical loss of [their] personal property and use of the [house] for a substantial amount of time.” On May 3, 2016, the defendant sent the plaintiffs a letter denying coverage of the damage caused by the collapse.
 

The policy’s “Suit Against Us” provision provided for the following: “No action can be brought unless the policy provisions have been complied with and the action is started within one year after the date of loss.”

After the May 3, 2016 denial letter was issued by Phenix Mutual, a series of letters were exchanged over the next 20 months or so reflecting, generally, the parties’ exchange of further information and discussions about whether there might be any potential for resolving the denied claim, despite Phenix Mutual’s denial. To be clear, Phoenix Mutual never withdrew its denial of the claim in any of the correspondence exchanged.

Nearly two years after the pipes burst, plaintiffs filed a declaratory action against Phenix Mutual, alleging breach of contract. Phenix Mutual moved for summary judgment on the ground that the policy’s one-year time-limitation for suing Phenix Mutual expired before plaintiffs filed their suit. Plaintiffs opposed arguing:

1. the suit limitation provision is unenforceable because it is against public policy; and

2. genuine issues of material fact existed as to whether plaintiffs either waived or was estopped from asserting the one-year time limit as a defense. The trial court, the Superior Court of New Hampshire, granted Phenix Mutual’s summary judgment motion, concluding that allowing parties to contract for a shorter period to initiate an action than the statutorily prescribed limitation period does not violate the public policy of the State of New Hampshire. The trial court further concluded that the provision was not unreasonable, and not unenforceable, because the plaintiffs did not show that it was impossible for them to comply with the provision. Finally, the trial court concluded that the back and forth communications between the parties' counsel did not create an issue of material fact as to whether Phenix Mutual tolled the one-year period, was estopped from asserting it as a defense, or, waived it.

The Supreme Court of New Hampshire’s opinion affirming the grant of summary judgment for Phenix Mutual cited, as you may imagine, both New Hampshire case law and New Hampshire statutory law in upholding summary judgment for Phenix Mutual. Likely of interest to many of you, and certainly to me, is footnote “3” of the Supreme Court’s opinion noting that courts of other states, including Georgia and New Jersey have upheld one-year time-limitation provisions contractually provided for in insurance policies.

Finally, the Supreme Court of New Hampshire’s opinion analyzes, discusses, and distinguishes the Executive Plaza, LLC v Peerless Ins. Co. decision of the New York Court of Appeals in 2014 (22 N.Y.3d 511) that held a two-year time- limitation provision was “unreasonable as applied because it included a condition precedent that could not be met within two years”. New Hampshire’s Supreme Court distinguished the Executive Plaza facts, most notably indicating the suit limitation provision at issue in Executive Plaza functioned, under the unique facts of that particular insurance claim, as a “nullification of the claim,” and not a limitation period. The Supreme Court of New Hampshire recognized that, notwithstanding the New York Court of Appeals’ ultimate ruling in Executive Plaza, the New York Court of Appeals had actually noted in its opinion that there was nothing “inherently unreasonable” about a two-year limitation period, and that it had previously upheld one-year and six-month limitation periods in other cases that had come before it.

In the end, what distinguished Executive Plaza from the Zannini’s case was that there is nothing in the Zannini’s record on appeal showing that they could not comply with the policy provisions within the one-year period. The time-limitation provision in the Phenix Mutual policy thus did not function as a “nullification” of the Zunnini’s claim.

BARCI’S BASICS (ON NO FAULT)
Marina A. Barci

12/12/19         Global Liberty Ins. Co. v. Acupuncture Now, P.C. Appellate Division, First Department
Fee Schedule Amount for Acupuncture Treatment Can be Considered under both the Chiropractic and Physician’s Fee Schedule

The issue in this action was what fee schedule is applicable to reimbursement of a licensed acupuncturist who provided services to eligible individuals injuries in motor vehicle accidents. Acupuncture does not have its own fee schedule under the no-fault regulations. Global sought a declaration that licensed acupuncturists were entitled to payment of no-fault insurance benefits only as set forth in the workers’ compensation fee schedule, not under the fee schedule for physicians.

Under the no-fault regulations, coverage for necessary medical expenses shall not exceed the charges permissible under the workers’ compensation fee schedule except under “unique circumstances.” The most common unique circumstance occurs when a service is reimbursable but there is no adopted or established fee schedule application to the provider. Where there is no established fee schedule, the permissible charge for the service shall be the prevailing fee in the geographical location for the provider, subject to review by the insurer for consistency with charges permissible for similar procedures under schedules already adopted or established. Thus, because there is no adopted fee schedule applicable to licensed acupuncturists, consideration for what charges are permissible for similar procedures under already established fee schedules is required.

Here, Global relied on a 2004 informal opinion letter from the Department of Financial Services that stated insurers can pay the rates established for doctors and chiropractors instead of a higher prevailing fee in the geographical location of the provider so long as there is review for consistency with the charges permissible for similar procedures under either fee schedule (essentially the same requirement under the current no-fault regulations). However, this letter did not give any guidance as to which particular fee schedule should be applied to a licensed acupuncturist, even though DFS was aware that the fee schedules for acupuncture services performed by chiropractors were lower than the fee schedules for the same services performed by physicians.
 

Acupuncture Now brought a proposed rule amendment by DFS from 2010 into play, which sought to clarify inconsistent court rulings that acupuncture treatments are primarily a service performed and billed by licensed acupuncturists and that such treatments merit reimbursement at the same rate medical doctors receive for comparable service. This raised an issue of fact as to whether the physicians’ fee schedule should apply in this case. Courts have held that an insurer may use the workers’ compensation fee schedule for acupuncture services performed by chiropractors to determine the amount which a licensed acupuncturist is entitled to receive, however such holdings do not prevent the use of the physician’s fee schedule.

Here, Global did not proffer sufficient evidence to establish that the claims Acupuncture Now made were improperly billed or that they were in excess of the amounts permitted by the fee schedule. Acupuncture Now also submitted an affidavit from a licensed acupuncturist who averred that he was consistently reimbursed by workers' compensation insurers at the physician rates, for over 15 years, which Global did not rebut. Therefore, the Court affirmed that the issue of overbilling was premature prior to the completion of discovery.

The Appellate Division also joined the recommendation of the Appellate Term that the Superintendent of Insurance should consider adopting a fee schedule including licensed acupuncturists to resolve these issues.

Editor’s Note: Ryan’s column addresses that the WCB has adopted a fee schedule for acupuncturists that will go into effect in October 1, 2010 for no-fault.

RYAN’S CAPITAL ROUNDUP
Ryan P. Maxwell [email protected]

Legislative List

12/20/19         VETOED: Pretrial Verdict Offset Selection For Non-Settling Defendants
New York State Legislature
Vetoed Bill Would Have Required Non-settling Defendants to Select A Verdict Offset Before Trial

Before the holidays, Governor Cuomo vetoed a bill that would have meant drastic changes to the course of litigation and settlement practices as far as the eye could see. The vetoed bill would have required non-settling defendants to select their verdict offset before trial. H&F’s own V. Christopher Potenza, Esq. wrote a blog post earlier this year outlining the dire straits this bill posed to the defense bar:
 

The [proposed] amendment to General Obligations Law § 15-108 provides that, in tort cases where one defendant has settled, that remaining defendants must elect, prior to trial, whether to reduce liability by the amount of the settlement or by the amount of the equitable share of damages delegated to the settler in the verdict.  Currently, a non-settling defendant makes that “choice” after the verdict when the percentage of liability is determined, and presumably just elects the greater off-set. Advocates for this change (take a guess) argued that the current format deters settlements because it rewards non-settlors in instances where the settling tortfeasor's payment turns out to exceed what the trier of fact later determines to be the settlor's equitable share of the damages. Further, the non-settlor was able to deduct settlor's equitable share whether or not the settlor actually could have paid such sum. By now requiring the non-settlor to make this choice before trial, and before the percentages of liability are known, there is conceivably an added incentive to settle since they face the risk of making a bad choice. This decision must be made in writing or in open court prior to opening statements, or as soon as practical after a settlement is made known. In the event there are settlements by multiple defendants, the amounts must be aggregated, so that a non-settlor cannot selectively choose the monetary amount against one settling defendant, and percentage of liability against another. Non-settling defendants do not have to agree amongst themselves on which off-set to take however, and each non-settling defendant can make an independent decision. The statute further purports to codify that settling defendants would be immune from not only contribution claims, but also common- law indemnity claims (but not contractual indemnity). The law is slated to take effect on January 1, 2020, and will apply only to actions and proceedings commenced on or after such date.

It will be very interesting to see how this plays out in practice. Currently, if a settlement is deemed confidential by the settling parties, the amount of the settlement is not discoverable by the other parties until there is a post-trial hearing to determine the off- sets. As a defendant now has to now make a pretrial decision on the offset, is that settlement amount now a mandatory disclosure? How can a defendant make an informed decision without knowledge of either the settlement amount or the percentage of liability? I guess the thought is that if you increase the risk, you increase the likelihood of a settlement. You also increase the risk that a plaintiff will obtain more in settlements than a verdict if multiple defendants “overpay” by not knowing the amount of other settlements and have no determination on percentages of liability.
 

Governor Cuomo, in vetoing the bill, noted that “[i]n the absence of available settlement information, the potential exists for non-settling defendants to pay more than their equitable share and for plaintiffs to become unjustly enriched by receiving monetary amounts in excess of the rendered verdict. I support the public policy of this bill which encourages settlements in civil actions, however, the proposed legislation is not an effective means to that end. Numerous stakeholders have raised concerns with this approach, with many stating this change will unfairly tip the balance too far in favor of a settlement. Based on the foregoing reasons, I am constrained to veto this bill.”

The balance of settlement discussions remains intact, for now.
 

12/20/19         Direct Recovery Against Third-Party Defendants New York State Legislature
Bill Delivered to Governor Would Allow Plaintiffs to Recover Directly Against Third Party Defendants in Certain Actions

The New York State Legislature delivered a bill to the Governor that would alter the course of defense litigation immensely, by permitting a plaintiff to recover directly against a third party defendant found to be liable to the defendant in certain actions. As H&F’s own V. Christopher Potenza, Esq. reported earlier this year:

[The proposed] Section 1405 to the CPLR will be created to expressly permit a plaintiff to recover and collect an unsatisfied judgment or portion of a judgment directly against a third-party defendant found liable for contribution or indemnification. Direct recovery, however, is not authorized against a third- party defendant in those circumstances in which the third-party claim would have been barred by the “Grave Injury Statute” of Section 11 of the Worker's Compensation Law. The goal apparently, is to protect the ability of a plaintiff-judgement creditor to enforce their rights against a third-party by preserving the ability for the plaintiff-judgement creditor to pursue a judgment or cause of action against a third-party even if such claim or cause of action is extinguished in the bankruptcy of a defendant-judgement debtor.  This act is to take effect immediately, and shall apply to all judgments entered by plaintiffs on or after such date.
 

Now that this bill has officially been delivered to the governor’s office, we will keep our eyes peeled for the fate of this legislation, which no doubt would fundamentally change the nature of various legal actions in New York.

12/16/19         Insurance Fraud Prevention Measures New York State Legislature
Governor Signs New Legislation Granting Immunity for Reports of Suspected Fraud to the National Insurance Crime Bureau

Last Monday, Governor Cuomo signed into law chapter 656 of the Laws of 2019, which grants immunity for reports of suspected fraud made by or to the National Insurance Crime Bureau, a nonprofit dedicated to the investigation and prosecution of insurance fraud. With this law, New York follows in the footsteps of states like California, Florida, Pennsylvania, and Texas who have already taken steps to provide adequate protections to organizations that compile data on the state and national level from insurance companies and federal, state, and local law enforcement. The purpose of the law is to broaden the exchange of information among those fighting fraud, in the hopes of catalyzing an immediate boost in information sharing in New York.

Prior to amendment, Financial Services Law § 405 provided civil immunity to those subject to the insurance law who, in the absence of fraud or bad faith, provide:

1. information relating to suspected violations of the banking law or the insurance law furnished to law enforcement officials, their agents and employees;
2. information relating to suspected violations of the banking law or the insurance law furnished to other persons subject to the provisions of this chapter; and
3. information furnished in reports to the financial frauds and consumer protection unit, its agents or employees or any state agency investigating fraud or misconduct relating to financial fraud, its agents or employees.

This latest amendment provides a new subsection (d) indicating that civil immunity is also extended to those individuals who provide “information furnished to or from the National Insurance Crime Bureau............................................... ”

The bill took effect immediately.

Regulatory Wrap-Up

12/18/19         Update to SUM Regulations For Stretch Limousines
Department of Financial Services
Emergency Adoption of Amendment to SUM Regulations Due to Recent Change to Insurance Law Section 3420(f) Liability Limit for Limousines

Earlier this year, Governor Cuomo signed into a law Chapter 59, Part III, Section 19 of the Laws of 2019, which amended Insurance Law section 3420(f) to require that any policy insuring against loss resulting from liability imposed by law for bodily injury or death suffered by any natural person arising out of the ownership, maintenance and use of an altered motor vehicle or stretch limousine, having a seating capacity of eight or more passengers and used in the business of carrying or transporting passengers for hire, provide supplementary uninsured/underinsured motorist (“SUM”) coverage for bodily injury in an amount of a combined single limit of $1,500,000 because of bodily injury or death of one or more persons in any one accident. DFS’ emergency adoption of the Ninth Amendment to 11 NYCRR 60-2 reflects the amendments made by Section 19 and adds a definition of “altered motor vehicle” or “stretch limousine” consistent with Department of Motor Vehicles regulation 15 NYCRR section 79.20(f)(2).

11 NYCRR 60-2.0(a) has been amended to include a new sub-section (3) providing that the amendments to Insurance Law § 3420(f) are further implemented by way of that subpart. Additionally, 11 NYCRR 60-2.1(g) has been amended to include a new sub-section (g)(2) providing that:

an insurer providing coverage insuring against loss resulting from liability imposed by law for bodily injury or death suffered by any natural person arising out of the ownership, maintenance and use of an altered motor vehicle, commonly referred to as a “stretch limousine”, having a seating capacity of eight or more passengers used in the business of carrying or transporting passengers for hire, shall provide SUM coverage in the amount of $1,500,000 because of bodily injury to or death of one or more persons in any one accident for any policy issued, renewed, altered, or modified on or after January 1, 2020.

For the purposes of this paragraph, an “altered motor vehicle” or “stretch limousine” shall mean a vehicle altered so as to have an extended chassis,

In DFS’ Statement of the Reasons for the Emergency Measure, Superintendent Linda Lacewell explained that “[s]ince insurers have already begun renewing insurance policies that will take effect January 1 or later, and need to know to which vehicle owners they must provide this SUM coverage, it is imperative that this rule be promulgated on an emergency basis for the public’s general welfare.”

This amendment is scheduled to be published in the State Register on December 31, 2019, with public comment expiring on March 2, 2020.

12/18/19         WCB Fee Schedule Postponed for New Providers
Department of Financial Services
WCB Fee Schedule Postponed for Certain Providers

On November 19, 2019, the Workers’ Compensation Board adopted amendments to fee schedules for certain medical fee schedules under 12 NYCRR 329, 333, 343, and 348. DFS has postponed the implementation of such fee schedules under Article 51 of the Insurance Law for the purposes of the no- fault reparations system for persons injured in motor vehicle accidents.

Insurance Law § 5108(b) specifically authorizes the Superintendent to adopt the fee schedules prepared and established by the Chairman of the Workers’ Compensation Board (the “Chair”) or to promulgate fee schedules for health care benefits payable under the no fault system for any services for which the Chair has not prepared and established; and subsection (c) prohibits a provider of health services, as defined in Article 51, from demanding or requesting any payment in addition to the amount authorized pursuant to Insurance Law Section 5108.

In April 2019, Workers’ Compensation Law § 13-b was amended to permit licensed acupuncturists, nurse practitioners and licensed clinical social workers to become authorized to treat injured workers, starting in 2020. The new fee schedule applied to these newest providers.

DFS acknowledge the purpose of such fee schedule to the purposes of workers’ compensation, but cautioned that:

the immediate adoption of a new fee schedule that covers acupuncturists, physical therapists, and occupational therapists, coupled with the substantial increase in chiropractic fee schedule rates, will have a significant adverse impact on the no-fault system, to wit: insurers will not have an opportunity to study the cost impact from a substantial increase in chiropractic rates; insurers and providers will not be afforded sufficient time to change their internal bill processing systems to comport with the Chair’s most recent significant amendments to the fee schedules; and the adoption of those fee schedules . . . likely will result in inaccurate billing by providers and incorrect reimbursements from insurers. These issues ultimately will increase fee schedule disputes in arbitration and the courts.
 

(DFS Regulatory Impact Statement) Thus, DFS believed it necessary to delay the adoption of these new fee schedules until October 1, 2020 for use in no-fault pursuant to Insurance Law § 5108.

12/17/19         Procedures For Adjudicatory Proceedings Before DFS Department of Financial Services
Proposed Amendment to Unify DFS’ Adjudicatory Procedures Among Banking, Insurance, and Other Financial Services Industries

In 2011, the New York Legislature consolidated the former New York State Banking and Insurance Departments into the Department of Financial Services (“DFS”), establishing one agency responsible for the regulation and oversight of banking, insurance, and other financial services industries. In the wake of this fundamental change, separate rules governing the adjudicatory proceedings for banking and insurance proceedings have coexisted. This proposed amendment would replace those coexisting rules with a new regulation, added to 23 NYCRR, that unifies the procedures for DFS adjudicatory proceedings.

Since 2011, the Superintendent of Financial Services was afforded with more expansive authority than that once held by the heads of the individual Banking and Insurance Departments. To that end, this proposed regulation repeals Supervisory Procedure G 111 of the Banking regulations (3 NYCRR) and Part 4 of the Insurance regulations (11 NYCRR), in favor of a new Part 2 to 23 NYCRR to encompass all persons who may be subject to a Department adjudicatory proceeding. New Part 2 to 23 NYCRR continues to uphold the public policy of expeditious and impartial adjudicatory proceedings and comply with the requirements of Executive Order No. 131 (December 4, 1989), which remains in effect pursuant to Executive Order No. 2 (January 1, 2011).

DFS contends that the coexistence of two separate, adjudicatory procedures limits the ability it has to meet present needs. Specifically, DFS has expressed an intent to hold hearings on investigations and enforcement activities that may have an impact upon both the Insurance and Banking authority of the Department, and others that may have an impact upon authority contained solely in the Financial Services Law.
 

This new 23 NYCRR 2, entitled “Rules Governing the Procedures for Adjudicatory Proceedings Before the Department of Financial Services” is scheduled to be published in the State Register on December 31, 2019, with public comment expiring on March 2, 2020.

From the Filings Cabinet

“I’ve got nothing for you. Head back to camp.” – Jeff Probst, since I was 11

CJ on CVA and USDC(NY)
Charles J. Englert III 

12/16/19         Cartagena et al v. Homeland Ins. Co. of New York
United States District Court, Southern District of New York Ambiguous Terms are Construed Liberally in Favor of the Insured (applying Florida law)

Plaintiffs brought this action against defendant to assert plaintiffs’ rights to a defense provided by the defendant in an underlying action. Defendant then brought a motion to dismiss the action, which the court ruled on based upon the summary judgment standard. The defendant’s motion was based upon the following grounds: (i) the insurance policy at issue excludes the claim in the underlying action because the underlying plaintiff was an independent contractor and (ii) the causes of action asserted by the underlying plaintiff are not covered by the policy. The underlying action, Elliot v. Cartagena et al., alleges that the plaintiff took an unfinished song written and recorded by Elliot and made a final version of that song, which went double platinum. In the underlying action Elliot seeks a declaration that he is either the sole author and owner of the song, or that he is a joint author with the Plaintiffs. Plaintiffs submitted a claim for coverage to defendants under plaintiffs’ Music Professional Liability Insurance Policy (the “Policy”), which provides coverage for claims brought against the insured for: infringement of copyright, plagiarism, Piracy, and misappropriation of ideas under implied contract or other misappropriation or ideas or other information.

Plaintiffs being Florida residents and defendant being a corporation domiciled in New York, the court was forced to determine which state law would govern. The court, being in New York, applied the choice of law rules of New York. The court decided that because the insureds (plaintiffs) were domiciled in Florida, and transacted business mostly in Florida, Florida law would apply. Therefore, applying Florida law, an insurer has a duty to defend its insured based solely on the allegations in the complaint.

The court ruled that the allegations in the underlying action triggered coverage under the policy. The policy issued to plaintiffs covers: infringement of copyright, plagiarism, Piracy, and misappropriation of ideas under implied contract or other misappropriation or ideas or information. Piracy was the only term defined in the policy.

The underlying complaint alleged that plaintiffs’ plagiarized Elliot’s work. Plagiarism being undefined in the policy, forced the court to determine the ordinary meaning of the term. The court determined that an ordinary person would define plagiarism as deliberately and knowingly using another’s work as your own. The underlying complaint alleged that plaintiff used Elliot’s work without credit to Elliot, and plaintiff passed that work off as their own. As the policy specifically names pilgrims as a covered peril, the court ruled that defendant’s duty to defend was triggered.

The underlying complaint also fairly alleges misappropriation. Defendant argued that because Elliot was alleging joint ownership of the musical work, he could not allege that the work was misappropriated. The court disagreed, again applying the meaning an ordinary person would use. The court determined that the ordinary understanding of misappropriation was the use of another’s property in a dishonest way. Therefore, even with Elliot alleging he was a joint owner of the musical work, plaintiff’s use of the work was a misappropriation of it, therefore the complaint correctly alleges misappropriation and the duty to defend was triggered.

Defendant also contended that Exclusion B in the Policy precludes coverage for the underlying action. Exclusion B of the Policy excludes coverage for claims “against the Insured by any past, present or future Insured, joint venturer or Independent Contractor seeking compensation, an accounting or recovery of profits or royalties or claiming an ownership interest in the Insured’s Work.” Defendant argues that Elliot was an independent contractor or joint venturer by way of implied agreement. While it is true that plaintiff paid Elliot a small sum after plaintiff used Elliot’s work, this does not make Elliot an independent contractor or joint venturer. The court held that because Elliot did not provide plaintiff with permission to use his work until after, as the underlying complaint is written, there is no possibility Elliot was working under an implied agreement with the plaintiffs. Accordingly, the exclusion did not apply.

Accordingly, the court denied defendants motion and granted summary judgment in favor of the plaintiffs, holding that the duty of the defendant to defend plaintiff’s in the underlying lawsuit was triggered.

EARL’S PEARLS
Earl K. Cantwell
 

08/09/19          Metal Pro Roofing, LLC v. The Cincinnati Ins. Co.
Court of Appeals of Indiana
Underwriting and Sales Materials Deemed Relevant to Coverage Dispute
 

In February 2013, the insured discovered that someone hacked into their bank account and stole approximately $80,000. They made claim to Cincinnati for coverage based on “forgery or alteration” and “inside the premises-theft of money and securities” coverage descriptions. The claim was denied and the insurance company initiated a declaratory judgment action to confirm the coverage declination. On cross motions for summary judgment, the Trial Court granted summary judgment in favor of Cincinnati. It held that the claim losses were not covered under the policies, and related claims of bad faith were also dismissed.

The insured then amended their counterclaim and alleged that, even if the computer hacking losses were not covered, certain language in Cincinnati’s quotations to obtain their business lead them to “believe” that such losses would be covered if they purchased the coverage.

Cincinnati again moved for summary judgment arguing that the asserted language in the sales quotations did not amount to a representation that computer-hacking losses would be covered, and that even if it could be so construed there was an appropriate disclaimer set forth in the materials. The referenced sales literature did refer to protecting the insured’s money “inside your bank” from computer hackers. The disclaimer stated that “This is not a policy. For complete statement of the coverage and exclusions, please see the policy contract.” The Trial Court again granted Cincinnati’s motion for summary judgment, and furthermore concluded that the evidence indicated that the insured had not read or relied upon the alleged sales materials, and that the lack of reliance would be “fatal” to any claim of alleged fraud or misrepresentation.

On appeal, the Appellate Court concluded that the loss did not fall under the “forgery or alteration” coverage because there was no evidence that the computer hacker “signed” anything or signed the name of another person or organization. There was no “forgery”, i.e., false signing, and no “alteration” that was part of the hack. Likewise, there was no coverage under the “inside the premises” coverage because there was no evidence that the hacker was inside the insured’s business or that the loss was an “inside job”.

However, the Appellate Court concluded that the Trial Court erred in granting summary judgment in favor of Cincinnati based on the claim that the sales quotations for the insurance coverage “lead them to believe” that computer-hacking losses would be covered if they purchased the coverage. The Appellate Court concluded that it was possible to read the sales quotations as a “false representation” that the coverage included coverage against any loss of money or securities on deposit in a financial institution from computer hackers. The Court stated that it would be “entirely reasonable” for a prospective insured to read the language to mean that, if you want to be covered by theft from computer hackers, you should buy this policy endorsement.

The Appellate Court overruled the “lack of reliance” argument by noting that the insured’s representative had only testified that he did not read or rely upon the

Cincinnati’s assertion regarding the disclaimer in the sales materials was deemed not sufficient to “neutralize” or render misleading quotation language otherwise proper. It was left to the “finder of fact” to determine whether the disclaimer, which appeared in fine print on the bottom of the quotations, was effective.

Cincinnati also argued that it could not be held liable for any “misrepresentations” because the quotations were given to the insured by the insurance agency and not by Cincinnati itself. While true, the Appellate Court ruled that Cincinnati had sent the quotations to the agent who in turn gave the quotations to the insured as part of an overall insurance proposal.

Therefore, the basic holding in the case that there was no coverage under the cited policy provisions was affirmed. However, summary judgment on the basis of the alleged “fraudulent” or deceptive sales quotations was reversed.

This case represents a disturbing example of extra-contractual information being used to challenge a coverage disclaimer, particularly where the insured alleged underwriting and sales materials which they allegedly saw and relied upon. This represents a relatively new theory of using extra-contractual information and documentation outside of the policy itself in an effort to bootstrap coverage, or at least avoid summary judgment on the issue of coverage.

The Appellate Court’s refusal to give credit to the disclaimer in the sales materials is also disturbing since that would seem to be an issue of law rather than an issue of fact. Allowing a jury, for example, to determine the legal effectiveness of a disclaimer seems inappropriate if the disclaimer in the first instance was lawful and proper. While no statute or regulation was cited, the Appellate Court seemed to emphasize that the disclaimer was “in fine print at the bottom of the sales materials” as a reason to question its validity, although it was not demonstrated or even argued that the disclaimer was not in proper form or violated any state insurance law, rule, or regulation.

On another front, this case represents a good example where coverage for cyber-losses in traditional policies can be difficult to determine and recover since many traditional policy terms and provisions are simply not applicable to the various forms of cyber-losses, which in this case was a computer hack. As the Appellate Court noted, trying to put cyber-losses into traditional property and liability policies and terms is like “putting a square peg in a round hole”. In this case, the computer hack was not a forgery, nor was it an internal theft of money or securities. Other issues frequently arise in these cases as to whether a cyber- loss is a defined occurrence, whether there is covered property damage, and whether certain exclusions apply. The best means and method of obtaining coverage for cyber-losses is to review, negotiate, and procure specific cyber insurance coverage rather than rely upon traditional property insurance or CGL coverage.

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