Coverage Pointers - Volume XXI, No. 15

Dan D. Kohane
[email protected]

ASSOCIATE EDITOR
Agnes A. Wilewicz
[email protected]

ASSISTANT EDITOR
John R. Ewell
[email protected]

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

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

Michael F. Perley
Jennifer A. Ehman
Agnieszka A. Wilewicz
Lee S. Siegel
Brian D. Barnas
Brian F. Mark
John R. Ewell
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
[email protected]

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]

01/09/20         Pruss v. Infiniti of Manhattan, Inc. Appellate Division, First Department
Settlement on the Record by Insurer Hired Counsel is Binding on Insured, Even if Insurance Coverage Diminished by Carrier’s Insolvency. Insured Must Pay (in this case, $4,000,000).

An interesting case, indeed.

Pruss was a pedestrian, struck by a car owned by Infinite of Manhattan (“Infiniti”) and driven by Seck. The case settled in open court for $8,875,000. Tower Insurance was Infiniti’s primary carrier. Tower retained Lester, Schwab, Katz & Dwyer, LLP as trial counsel for the Infiniti defendants. On April 20, 2016, the parties' counsel and representatives of the insurers appeared in Supreme Court, New York County , to attempt settlement. This included an offer of $9,000,000, to be apportioned $5,000,000 from Tower, $3,875,000 from Great American, and the balance from GEICO on behalf of the remaining individual defendants, Blanchette and Rorech. The matter did not settle at that time, and was adjourned to August 10, 2016.
 

On July 28, 2016, a conservator was appointed for Tower in an action in California.

Two weeks later, on August 10, 2016, counsel for the parties entered into a stipulation of settlement for $9,000,000, so ordered by Justice Silver, that stated, "Infini[ti] & Seck - $8,875,000." In parentheses, the stipulation noted "Tower - $5 mil; Great American $3.875 mil." The stipulation also stated that defendant Blanchette would pay $100,000 and defendant Rorech would pay $25,000.

Blanchette, Rorech, and Great American paid their portions of the settlement, leaving $5,000,000 owed by the Infiniti defendants to be paid by Tower.

On August 24, 2016, after certain negotiations regarding the form of the release, plaintiff's counsel sent the executed general release to Lester Schwab Katz & Dwyer LLP and Fabiani Cohen & Hall, the Infiniti defendants' trial co-counsel, which were retained by Great American. Plaintiff's counsel provided ap CPLR 5003-a notice stating that if payment was not received in 21 days, judgment would be entered against the Infiniti defendants, including interest, costs, and disbursements.

On September 13, 2016, the court in the California action approved a proposed conservation and liquidation plan for Tower, which by merger became CastlePoint National Insurance Company.

On October 30, 2016, plaintiff's counsel received an email from a senior claim analyst for AmTrust North America (Tower's third-party administrator), stating that CastlePoint's conservator had analyzed the claim settlement and advised that they would not honor the settlement because it occurred after the conservancy order. The analyst stated that the conservator offered to pay $1,000,000 cash and would provide a pre-approved claim against the estate for the $4,000,000 balance.

On March 30, 2017, CastlePoint was declared insolvent by the California Superior Court, and it was placed into liquidation.

Almost a full year after the settlement, on August 9, 2017, Justice Silver conducted an on-the-record factual hearing with all the attorneys who were present at the August 10, 2016 settlement conference. The attorney representing CastlePoint both then and at the August 10, 2016 settlement stated:

"On July 28th of 2016, CastlePoint was placed into conservation. I and my law firm did not learn about that conservation [order] until August 8th of 2016 [two days before the settlement agreement was signed by the parties]. Neither I, nor my law firm, were ever provided with the Conservation Order that was issued on July 29th of 2016. However, before I appeared on August 10th of 2016, I can't recall whether it was Monday, Tuesday or Wednesday, August 8, August 9 or August 10, but I had a conversation with AmTrust, who was the third-party administrator managing CastlePoints' policies, and confirmed that I still had the authority to appear in this Court and represent that that $5 million that had previously been offered was still available to be offered and paid in cash to Pruss.”

* * *

"I didn't receive any instructions or communications from AmTrust, CastlePoint or the conservator relating to how the conservation might impact the settlements or any settlement authority, and no one ever communicated to me that that $5 million was not available in cash for purposes of the settlement. Therefore, I appeared, I made that representation to Your Honor and to all counsel and I stand by that representation."

The court held that Infiniti is bound by the settlement and has to pay the $4,000,000 insurance shortfall.

The court held that Infiniti defendants' argument that their counsel was not authorized to enter into the settlement and that they did not participate in the settlement negotiations is without merit, inasmuch as their attorneys had apparent authority to bind them to the settlement. A settlement is considered binding even where a client is not present at the time it is entered, and where the attorney does not have actual authority, if the court concludes that counsel's actions indicate apparent authority' to act on his or her client's behalf.

The burden was on the Infiniti defendants to show that their attorneys were without authority to settle the case on their behalf, and they failed to meet the burden in their motion to dismiss. Indeed, there is no evidence in the record to support the Infiniti defendants' position.

Thus, the Infiniti defendants "implicitly ratified the settlement by making no formal objection" for more than 1½ years.

New York Auto Policies Must Cover “Loading and Unloading” because the Law Requires it. A Policy that Attempts to Limit that Coverage will be Deemed to Include it. Insurer Loses Right to Rely Upon Employee Exclusion because it Failed to Raise that Exclusion in Disclaimer Letter.

Henderson owns defendant Henderson Farms (“farm”). While a tractor was being unloaded from the back of a flatbed truck on the farm, the tractor rolled over George Henderson's son, Charles, causing severe injuries. Charles and his wife Heather sued Henderson and the farm.
 

Farm Family Insurance Co. (“FFIC”) which had issued a business automobile insurance policy to Henderson commenced this action seeking a declaration that it is not obligated to defend or indemnify Henderson or the farm in the personal injury action.

FFIC is obliged to defend Henderson and the farm against allegations of negligence resulting from use of the flatbed truck. To avoid its duty to defend, an insurer must show that there is no possible factual or legal basis on which the insurer might eventually be held to be obligated to indemnify the insured under any provision of the insurance policy.

Pursuant to the Vehicle and Traffic Law Section 388, every owner of a vehicle used or operated in New York shall be liable and responsible for injuries to person or property resulting from negligence in the use or operation of such vehicle, in the business of such owner or otherwise, by any person using or operating the same with the permission, express or implied, of such owner. All policies of insurance issued to the owner of any vehicle shall contain a provision for indemnity or security against the liability and responsibility provided in this section.

Policies that leave gaps in coverage violate New York law and public policy rendering them unenforceable as to those gaps. Loading and unloading of a covered vehicle constitute “use an operation" pursuant to Vehicle and Traffic Law § 388(1) and a vehicle does not have to be in motion to be in "use or operation”.

Here, Henderson was the named insured on the policy issued by plaintiff and the flatbed truck was listed as a covered automobile. The record demonstrates that Henderson was injured while he, George Henderson, and another person were unloading a tractor from the flatbed truck. Whether Henderson was an employee of the farm or not, is of no consequence as he was unloading a covered vehicle with the permission of the named insured. FFIC cannot attempt to limit its "use" liability through policy language would violate its obligation under Vehicle and Traffic Law § 388(4) .

Based on the Court’s conclusion that plaintiff was obligated to defend because the incident involved use of the flatbed truck as a covered automobile by a named insured, it did need not to address the issue of whether the tractor itself constituted a covered automobile under the terms of the policy.

By failing to rely upon the policy's employee exclusions in its disclaimer letters or mention in the complaint those exclusions as grounds upon which it was disclaiming coverage, plaintiff waived its right to deny coverage on those grounds.

Editor’s Note: What is required by New York law cannot be written out of an auto policy. 11 NYCRR 60-1.1 requires that a permissive user be provided liability coverage for the use and operation of a motor vehicle.
 

The insurer’s better defense was the employee exclusion but the court indicated that the carrier failed to raise it in the disclaimer letter and in the DJ complaint. It concluded, therefore, that it was waived and as such unavailable as a coverage defense.

In reviewing the disclaimer letter and the court’s electronic docket, as well as the brief is that FFIC did in fact raise the employee exclusion under a “reservation of rights”. It did not disclaim but reserved rights. It was difficult to determine whether the exclusion was raised timely and the appellate briefs did not focus on that issue. What was clear, as the court indicated, is that FFIC did not plead that ground for disclaimer in the Declaratory Judgment complaint, apparently abandoning it.
 

Countrywide took a default against its insured in a Declaratory Judgment Action, Power Supply, and then the insured brought an application to vacate the default. In order to vacate the default, the insured was required to demonstrate that it did not receive notice of the summons in time to defend and that it had a meritorious defense.

The conclusory denial of receipt of the summons and complaint from the Secretary of State, although the address used was defendant's correct business address, is insufficient to rebut the presumption of service created by the Secretary of State's affidavit of service. Moreover, the insured’s attorney was aware of the action since he received a courtesy copy of the summons and complaint.

The excuse offered by the insured for why it failed to appear for two Examinations Under Oaths (EUOs): (1) the location was inconvenient; (2) it needed time to comply with the voluminous document request; (3) its counsel withdrew at the last moment due to intimidation by plaintiffs, and (4) plaintiffs failed to provide a sufficient explanation for the EUOs. However, the record demonstrates that insured agreed to the location, had sufficient time to search its records, and did not cite the need for additional time to find documents in its request for an adjournment. As to the adjournment of the second scheduled EUO purportedly because of counsel's withdrawal, it is undisputed that the attorney appeared for the EUO and defendant did not. The withdrawal occurred after the second aborted EUO.

The insured contends that the request for the EUOs was improper because the insurer failed to show how all the claims were related to an allegedly staged accident involving a single claimant and his passenger, but its principal did not deny knowledge of fraudulent claims or staged accidents, and the EUOs reasonably sought to determine whether defendant's claims were legitimate.

12/26/19         Knickerbocker Village, Inc. v. Lexington Ins. Co. Appellate Division, First Department
Appellate Division Rules Discovery of Other Claims Files Arising from Superstorm Sandy are Not Material and Relevant to the Matter at Bar

In yet another Superstorm Sandy dispute, plaintiff sought discovery of “information” related to how Lexington “handled” other claims from the infamous Halloween storm from 2015. In denying plaintiff’s motion to compel, the Appellate Division noted that the requests were not “material and necessary the prosecution of the claim.”

Potpourri

01/08/20         County of Suffolk v. US Specialty Ins. Co. Appellate Division, Second Department
Trashed Vehicle is Not “Returned” Vehicle, Surety Bond Obligations are Triggered as a Result

Defendant Cargill was arrested for DWI, and his automobile was seized by the Suffolk County Police Department as a result. Cargill was entitled to recover his vehicle during the pendency of a “civil forfeiture action,” but was required to post a $15,000 surety bond to protect the asset. Mr. Cargill was able to convince US Specialty to issue such a bond, therein naming Suffolk County as the payee.

The bond was issued to protect against Cargill’s failure to preserve or return the vehicle.

Unfortunately for all, Mr. Cargill was involved in a second accident which rendered the vehicle at issue a total loss. Accordingly, Suffolk County sought recovery from US Specialty per the bond. When US Specialty refused, the County commenced this action against Cargill, US Specialty, and a party named Zalweski who served as US Specialty’s power of attorney.

US Specialty and Zalewski moved to dismiss the Complaint, and Suffolk County cross-moved for summary judgment against US Specialty. In opposition, US Specialty argued that the terms of the bond at issue required payment if the insured failed to “preserve or return” the vehicle in question. Here, the vehicle was returned (although in a totaled condition). As such, US Specialty reasoned that Cargill had complied with the terms of the bond, and no payment was triggered.
 

In disagreeing with US Specialty’s position, the Court noted that Mr. Cargill also signed an affidavit that stated he would not sell, transfer, destroy or engage in any other disposal of the vehicle. The Court reasoned that “destruction” was equated to disposal; not, return. Accordingly, it was determined that Cargill destroyed/disposed of the vehicle, and it was not “returned” under the terms of the bond.

Plaintiff provided a supplemental bill of particulars to defendant after previously filing the Note of Issue. In response, defendant moved to compel authorizations for medical records related to the newly identified injured (namely his lumbar spine).

In affirming the trial court, the Appellate Division noted that the injuries identified in the bill of particulars were first raised after the Note of Issue, and as such defendant was entitled to additional depositions and medical examinations of plaintiff. Further, because the claims of plaintiff include an exacerbation of pre- existing conditions, defendant was entitled to fresh authorizations which were not limited in time.

12/24/19         Bohan v. DeLucia Appellate Division, Second Department
Appellate Division Upholds Jury Finding that Plaintiff Did Not Sustain a Serious Injury

Plaintiff allegedly sustained injuries to her cervical spine and a traumatic brain injury following an automobile accident with the defendant's vehicle. Following a jury trial on the issue of damages, the jury rendered a verdict in favor of the defendant, finding that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) and awarding her no damages for claimed economic loss in excess of $50,000. The plaintiff then moved pursuant to CPLR 4404(a) to set aside the verdict as contrary to the weight of the evidence, and for a new trial on the issue of damages.

The Court reasoned that a jury verdict should not be set aside as contrary to the weight of the evidence unless the jury could not have reached its verdict on any fair interpretation of the evidence. Here, the Appellate Division found that the jury's verdict finding that the plaintiff did not sustain a serious injury could be reached on a fair interpretation of the evidence. In fact, the plaintiff testified that despite her claimed injuries, she was able to continue working her "intense" schedule as a journalism producer. In addition, the defendant presented expert witness testimony showing that the plaintiff's claimed injuries either were not caused by the subject accident or were not as severe as otherwise testified to by the plaintiff's own expert witnesses.
 

As such, the Court found that the jury's verdict finding that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d), and awarding the plaintiff zero damages for economic loss in excess of $50,000, was not contrary to the weight of the credible evidence.

The plaintiffs, Timothy Wettstein and Michelle Wettstein, sued to recover damages for personal injuries that they each allegedly sustained in a motor vehicle accident that occurred on February 17, 2013. The Supreme Court granted defendant’s motion for summary judgment dismissing the complaint on the ground that neither plaintiff sustained a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident, and the plaintiffs appeal.

The Appellate Division found that the defendant met her prima facie burden of showing that the plaintiff, Michelle Wettstein, did not sustain a serious injury as a result of the subject accident. The defendant submitted competent medical evidence establishing, prima facie, that Michelle suffered from pre-existing conditions in that region, and that an anterior cervical discectomy and fusion surgery had been suggested to her approximately six months prior to the subject accident. In opposition, Michelle's examining physician failed to explain in his affirmation, in a specific and nonconclusory manner, how the subject accident exacerbated Michelle's preexisting conditions, necessitating her to undergo an anterior cervical discectomy and fusion surgery in September 2013.

The Court also affirmed the decision granting defendants’ motion for summary judgment as against the plaintiff, Timothy Wettstein, as plaintiff failed to raise a triable issue of fact. As such, the Appellate Division affirmed the decision of Supreme Court.

Second Circuit quiet on coverage at the start of the New Year.

11/26/19         Burlington Ins. Co. v. SP Realty, LLC Supreme Court, Kings County
Hon. Francois J. Rivera
Trial Court Denies Motion Based Upon Failure to Submit All Relevant Policies

This decision involved claims for reimbursement following a settlement in the underlying labor law case. The injured plaintiff was working in the course of his employment for Sutter Restoration when he sustained injury.  He brought suit against the owner (SP Realty, LLC) and the tenant, Canido Basonas Construction Corp. It appears that these entities filed a third-party action against the employer. When the settlement occurred, it appears the third-party claims were not discontinued.

The settlement was funded in the following manner: Canido’s primary (Burlington) paid a million, Canido’s excess (Nationwide) paid $1.7 million, and SP Realty’s primary paid $100,000 (Utica First). The decision indicates that

Sutter Restoration’s carrier, also Utica First, denied coverage relative to the third- party action.

This declaratory judgment action was then brought by Burlington seeking to recover from Utica First. The complaint also contained a cause of action against Nationwide wherein Burlington asserted that Nationwide was obligated to provide coverage for Canido. It then submitted that Nationwide never acknowledged this obligation in connection with the underlying action, and in turn, it paid its money as a mere volunteer. And, as a volunteer, it was entitled to any priority over Burlington to receive reimbursement from Utica First.

Nationwide answered and asserted two counterclaims. The first counterclaim alleged that Nationwide was entitled to reimbursement under the Utica First policy for amounts incurred to indemnify Canido before Burlington received any reimbursement. It also sought the same relief under the principles of equitable contribution and indemnification.

Nationwide then moved for summary judgment. The decision was not decided on the merits instead the court denied Nationwide’s motion finding that where Nationwide did not annex all the relevant policies the court could not render an opinion on priority of coverage. Specifically, Nationwide did not attach the Utica First policies. The court found that without these policies, it could not determine priority of coverage between Nationwide and Burlington.

12/30/19         Ruiz v. Liberty Mutual Fire Ins. Co.
United States District Court, Southern District of New York
Plaintiff’s Claims of Breach of the Implied Covenant of Good Faith and Fair Dealing and Consequential Damages Survived Motion to Dismiss

Plaintiff was the owner of real property located at 11 Linden Place, Middletown, New York (the “insured premises”). From September 13, 2016 to September 13, 2018, plaintiff and the insured premises were covered by a homeowners insurance policy issued and delivered to plaintiff by defendant.

On or about January 28, 2017, the insured premises flooded when a pipe burst (the “first flood”). The first flood allegedly caused damage to the insured premises and plaintiff’s personal property. Plaintiff reported the incident to defendant and submitted an insurance claim for his alleged losses. Thereafter, defendant inspected the insured premises. During the insurance adjustment of the first flood claim, a disagreement arose about the amount of plaintiff’s alleged losses. Plaintiff then demanded an appraisal pursuant to the terms of the policy.

About one year later, on January 13, 2018, the insured premises again flooded following another burst pipe (the “second flood”). The second flood allegedly caused additional damage to the insured premises and plaintiff’s personal property. Plaintiff reported the incident to defendant and submitted a second claim. Thereafter, defendant inspected the insured premises.

On March 12, 2019, over two years after the first flood, defendant sent plaintiff a letter denying both claims for coverage due to fraud or concealment. On March 29, 2019, defendant notified plaintiff by letter that it was terminating the appraisal of plaintiff’s damages from the first flood because of a coverage dispute.

Plaintiff sued. The Complaint contained one cause of action alleging breach of contract and implied covenant of good faith and fair dealing. Defendant moved to dismiss the bad faith claim and plaintiff’s claim for consequential damages and attorneys’ fees.

Defendant moved to dismiss the bad faith claim as duplicative. The court disagreed. Plaintiff alleged not only that defendant breached the policy by failing to remit appropriate coverage payments to plaintiff, but also that defendant acted with bad faith by failing properly to inspect and appraise the alleged damages.

Plaintiff also alleged defendant acted in bad faith by delaying, and then cancelling, an appraisal of damages caused by the first flood. That both claims were listed under a single heading in the complaint was not determinative.
 

Plaintiff’s claim for consequential damages also survived dismissal. Plaintiff plausibly alleged facts demonstrating he incurred additional damages as a result of defendant’s allegedly improper claims handling and subsequent claims denial, and an understanding by defendant that its denial, and delayed disposition of, plaintiff’s claims for coverage would likely cause plaintiff to suffer further losses or extra expenses.

However, plaintiff’s demand for attorneys’ fees was dismissed. Plaintiff’s contention that defendant cast him in a defensive posture by the steps it took to escape its policy obligations was rejected. The court also rejected Plaintiff’s attempt to classify the attorneys’ fees sought as consequential damages.

Plaintiff alleged that on November 24, 2018, she sustained property damage to a skylight at her home with resultant water infiltration due to heavy winds and flying debris. Plaintiff reported the loss to Defendant who inspected the damage with Plaintiff’s public adjuster present.

On December 27, 2018, Defendant issued a disclaimer of coverage for the loss due to perceived previous leaking of the skylight by presence of caulking and no evidence of physical damage to the skylight. On January 30, 2019, Plaintiff’s public adjuster responded by letter to the disclaimer, telling Defendant that caulking is not dispositive of prior leaking and that the inner shell of the skylight was shattered although not readily apparent, offered a video depicting the claimed property damage, and demanded that Defendant re-inspect the subject loss. A signed statement from Bernard Eisdorfer, the repairer of the skylight, attesting to the property damages claimed was provided.

On March 20, 2019, Defendant responded to the correspondences by reiterating the disclaimer and invoking a policy exclusion for faulty, inadequate or defective design, specifications, workmanship, repair, construction, renovation, and remodeling.

Plaintiff sued alleging breach of contract, bad faith, and violation of General Business Law § 349. Plaintiff also sought treble damages and attorneys’ fees. Defendant moved to dismiss the bad faith and General Business Law claims.

Plaintiff failed to adequately plead Defendant acted in bad faith. Plaintiff's Complaint alleged that Defendant investigated the claim before providing a basis for disclaiming coverage based upon a physical examination of the disputed damage. This behavior attributed to Defendant did not establish a gross disregard of Plaintiff’s interests, but instead stated a colorable claim for breach of contract.
 

Similarly, Plaintiff did not sufficiently plead a violation of General Business Law §349. Plaintiff alleged Defendant purposely isolated itself from the facts and failed to adequately investigate and assess Plaintiff's claim. These assertions did not state how this conduct had the required broader impact on consumers that the statute was enacted to protect.

12/19/19         OOIDA Risk Retention Group v. Klockwork et al. United States District Court, District of New Jersey
No Liability Coverage for Vehicle Not Scheduled on the Policy; No Coverage for AI’s Trailer since It Was Not Attached to a Covered Auto

Klockwork Trucking is a freight shipping and trucking company in Millville, New Jersey. Tonido Dixon is an owner-operator and the principal of Klockwork. On December 2, 2017, Smiley was driving a 1999 Freightliner tractor owned by Dixon and hauling a trailer owned by Harris Storage. Smiley struck a vehicle being operated by Graham. Smiley was driving the tractor without the permission of Dixon and/or Klockwork Trucking. Graham sued Smiley, Dixon, Klockwork, and Harris Storage claiming that their negligence caused his injuries.

OOIDA Risk Retention Group, Inc. (“OOIDA”) issued a commercial auto policy to Klockwork Trucking (the “policy”) that was in effect at the time of the accident.

The policy only covered scheduled autos. A 2007 Freightliner is the only vehicle listed. The policy only covered accidents involving scheduled drivers and Dixon is the only driver listed. The first page of the policy reads as follows:

Coverage for insured vehicles is only provided if being driven by person(s) reported to your agent and accepted by underwriters. It is extremely important that you notify us immediately to add or delete drivers. New drivers must be reported prior to engaging in any driving duties.

The policy covers scheduled vehicles only. All new and/or replacement vehicles should be reported to us immediately. It is imperative that you notify your agent prior to placing new vehicles in operation.

OOIDA agreed to defend and indemnify insureds against claims of bodily injury and property damage. The policy defines “insureds” to include the following:

(a) You for any covered “auto” [;] (b) Anyone else while using with your permission a covered “auto” you own, hire or borrow except: (1) The owner, or an “employee,” agent or driver of the owner, or anyone else from whom you hire or borrow a covered ”auto.” .

. . (c) The owner or anyone else from whom you hire or borrow a covered “auto” that is a “trailer” while the “trailer” is connected to another covered “auto” that is a power unit, or, if not connected, is being used exclusively in your business as a “motor carrier” for hire.

The policy offers liability coverage for “Specifically Described ‘autos’” where a premium charge is shown, which includes any “trailers” not owned “while attached to any power unit described in the [Schedule of Covered Autos].” By endorsement titled “ADDITIONAL INSURED”, Harris Storage is noted as an “’insured,’ but only with respect to legal responsibility for acts or omissions of a person for whom Liability Coverage is afforded” under the policy. The additional insured endorsement provides “[t]he provisions and exclusions that apply to liability coverage also apply to this endorsement.”

Dixon, the principal of Klockwork, acknowledged at his deposition that he is the only driver listed on the policy. Dixon further testified he did not put OOIDA on notice that anyone else drove the truck while Klockwork was insured with OOIDA, he did not list any other trucks on the policy, and that defendant Smiley did not have permission to drive the 1999 Freightliner.

OOIDA moved for summary judgment that it did owe liability coverage to Klockwork because the tractor and its driver (Smiley) were not scheduled on the policy and Smiley’s use was non-permissive. Harris Storage cross-moved for summary judgment asserting it was entitled to defense and indemnification as an insured and because its trailer is covered by the policy. Harris Storage contended its trailer should be covered by OOIDA because Dixon “thought he paid $150.00 for the coverage he needed to cover Harris’ trailers” and requested coverage for “non-owned shipper/broker trailers.”

On reply, OOIDA argued that coverage for Harris Storage’s trailer is conditioned upon the trailer being attached to a scheduled vehicle and that at the time of the accident, the trailer was not attached to a scheduled vehicle. OOIDA further argued that coverage for Harris Storage’s trailer is conditioned upon an authorized person driving a listed or scheduled tractor.

Consequently, the policy does not provide for coverage for a 1999 Freightliner not listed on the policy. The judge further ruled the policy only covers accidents involving a listed driver and it was not disputed that Smiley is not a listed driver.

The judge also denied the additional insured’s motion seeking coverage. At the time of the accident, Harris Storage’s trailer was not covered under OOIDA’s policy because it was not attached to a scheduled vehicle. Additionally, there was no coverage for Harris Storage because the accident at issue occurred when a non-authorized person was driving a tractor that was not listed on the policy.

12/02/19          Hernandez v. Progressive Direct Ins. Co. Superior Court of Connecticut, New Haven County
When is a Motor Vehicle Not a Motor Vehicle? When it’s a Scooter.

Continuing our look at uninsured / underinsured motorist coverage under Connecticut law, this week we have a case of first impression. Mr. Hernandez was scooting around town when Ms. Beck negligently collided head-on with Mr. Hernandez. Unfortunately for Mr. Hernandez, Ms. Beck only had $20,000 in limits, which her carrier promptly tendered. So far, nothing first impression worthy. Here’s where it gets interesting. Mr. Hernandez’s family members, of which he was a member of the household, had a $100,000 UIM policy from Progressive. Complicating matters, however, the scooter was owned by Mr. Hernandez and, of course, was not scheduled on the Progressive policy.

Progressive refused Mr. Hernandez’s claim. Why, you ask. Because the carrier relied on a common policy provision that precludes UIM coverage when an insured is operating a motor vehicle that he owned, or that was available for his regular use, but was not a covered motor vehicle under the UIM policy. It makes sense: if Mr. Hernandez has another vehicle, he could have chosen to purchase UIM coverage, and why should he get the benefit of coverage for which he didn’t pay when he was in an accident while using that very vehicle. Here’s the hiccup – is a scooter a motor vehicle? Turns out the answer is not so straight forward.

In Connecticut, General Statutes § 38a-336 governs claims for uninsured and underinsured motorist coverage. “Each automobile liability insurance policy shall provide…uninsured and underinsured motorist coverage… for the protection of persons insured thereunder who are legally entitled to recover damages because of bodily injury, including death resulting therefrom, from owners or operators of uninsured motor vehicles and underinsured motor vehicles... No insurer shall be required to provide uninsured and underinsured motorist coverage to… (ii) any insured occupying an uninsured or underinsured motor vehicle... that is owned by such insured.” General Statutes § 38a-336(a)(1)(A) and (C). And, as we can see, the exclusion is authorized by subsection (ii) of the statute.
 

Open and shut. Except, Mr. Hernandez argued that the policy's definition of motor vehicle is ambiguous. The court engaged in a determination of whether a scooter is a motor vehicle for UIM purposes. Spoiler alert – it’s not. And, the court was influenced by the state’s public policy in favor of UIM coverage.

As a member of the household who was hit by an underinsured motorist, Mr. Hernandez triggered the UIM coverage. Progressive then needed to establish the applicability of the owned motor vehicle exclusion. The court noted that the auto policy contained four different definitions of a motor vehicle at various points in the policy. An uninsured motor vehicle is defined as a “land motor vehicle.” But, in the general definitions portion of the policy, an auto is defined as “a land motor vehicle: a. of the private passenger, pickup body, or cargo van type; b. designed for operation principally upon public roads; c. with at least four wheels; and d. with a gross vehicle weight rating of 12,000 pounds or less, according to the manufacturer's specifications.” Additionally, a covered auto is defined in the general definitions as “any auto or trailer shown on the declarations page ... any additional auto; any replacement auto ... or a trailer ...” In the medical payments coverage portion of the policy, a motor vehicle is defined as “a land motor vehicle designed for use principally on public roads.”

Taken together, ambiguity ensues. “When read together, it appears that the policy defines a motor vehicle as a land motor vehicle. The policy's definition of a land motor vehicle is nonexistent and, moreover, the remaining definitions are inconsistent, ambiguous, and unhelpful in attempting to determine if the plaintiff's scooter is a motor vehicle or a land motor vehicle under the policy,” the court wrote.

Now, kudos to the court for not stopping there. The judge tried to resolve the ambiguity by turning to Connecticut statutory law. In the end, however, that did not help Progressive. General Statutes § 14-1(58), the court noted, provides that a motor vehicle is “any vehicle propelled or drawn by any nonmuscular power, except...motor-driven cycles.” Motor-driven cycles are, as defined by General Statutes § 14-1(57), “any of the following vehicles that have a seat height of not less than twenty-six inches and a motor having a capacity of less than fifty cubic centimeters piston displacement: (A) A motorcycle, other than an autocycle; (B) a motor scooter; or (C) a bicycle with attached motor, except an electric bicycle.” These definitions, the court held, support that a scooter is not a motor vehicle as a matter of law. [The record showed that the scooter had 49 cc engine.]

Since Mr. Hernandez was not occupying a motor vehicle at the time of the accident, he was entitled to coverage under the Progressive UIM policy.

Construction coverage quiet for once.

12/31/19 High Country Paving, Inc. v. United Fire & Cas. Co. Montana Supreme Court
Montana Supreme Court, Answering Certified Question Posed by Federal District Court, Says Insurer Did Not Breach Duty Owed to Policyholder in Failing to Obtain Release of its Insured where Damages Exceeded Policy Limits

The United States District Court for the District of Montana, Missoula Division, certified the following question of law to the Supreme Court of Montana:

Where liability is reasonabl[y] clear, is it a breach of an insurer’s duty to its insured to pay policy limits to a third-party in a motor vehicle accident without a release of its insured where claimed special damages are below policy limits but total damages (including general damages) exceed policy limits?

The Supreme Court of Montana accepted the certified question as written, and opined on December 31, 2019 that the answer to the certified question is “no”, with certain qualifications.

High Country Paving, Inc. (High Country purchased liability insurance from United Fire & Casualty Co. (United Fire) which included three types of coverage:

1. commercial general liability (CGL) coverage with a $1 million occurrence limit and $2 million aggregate limit; (2) commercial auto liability coverage with a $1 million limit; and (3) commercial umbrella coverage with a $2 million limit. In August 2016, during the policy period, one of High Country’s employees was involved in an accident while operating an insured vehicle. In the accident, a loaded equipment trailer came unhitched while the vehicle was under way and collided with another vehicle. The driver of the other vehicle was killed, and a passenger was seriously injured. High Country then notified United Fire.

United Fire hired attorney Pagnotta to represent High Country. High Country separately retained attorneys Tierney and Gardner of a different firm. On October 31, 2017, a demand letter was issued on behalf of the parties injured in the accident, demanding payment of “High Country Paving’s Policy Limits of $3,000,000.00 . . .” without a release for High Country. The demand letter included a description of the various claimed economic damages $1,549,881.25.

The demand letter further explained that the victims would also be seeking compensation for general damages like pain and suffering and punitive damages. On November 9, 2017, High Country’s attorney Tierney wrote to United Fire’s attorney Pagnotta and United Fire, indicating High Country objected to any settlement that did not include a release for High Country. On November 14, Pagnotta responded to the demand with a counteroffer to resolve the claims for $3 million, including a release for High Country. On November 27, the victim’s attorney refused Pagnotta’s counteroffer and renewed his original demand for payment of $3 million without a release for High Country. Also, on November 27, the victim’s attorney wrote to High Country’s attorney Tierney and demanded an additional $2.5 million from High Country.

Many further letters were exchanged between attorneys for the insurer, its insured, and the victims’ attorneys. There never was any agreement reached between the insured High Country and its insurer United Fire as to how to negotiate and resolve the victims’ claims through a settlement.  United Fire ultimately settled for the $3 million policy limit, without obtaining a release for its insured High Country. High Country continued to negotiate with counsel for the injured parties, who was asking for an additional $2.5 million from High Country beyond the policy limit on its CGL policy with United Fire. Eventually, High Country was able to obtain a release after paying another $1.275 million, along with the assignment of some potentially valuable legal claims. This lawsuit between the insured and its insurer then ensued.

The Montana Supreme Court opined as follows:

In answering the certified question as presented, it is important to note our answer to the certified question is qualified upon several factors. First, liability for the underlying accident must be reasonably clear. Second, total damages caused by the accident must be reasonably proven to exceed policy limits. Third, an insurer may be required to continue to provide a defense of its insured, even after paying policy limits without a release, depending on the language of its contract with its insured. When these factors are met, it is not a breach of an insurer’s duty to its insured to pay policy limits to an injured third-party without first obtaining a release for its insured.

The Montana Supreme Court then determined each of the recited factors was met, and on such facts, United Fire did not breach its duties to its insured.

01/02/20         Country-Wide Ins. Co. v. TC Acupuncture P.C.

Appellate Division, First Department
Claimant Who Prevails in an Article 75 Proceeding to Vacate or Confirm a No-Fault Arbitration Award is Entitled to Attorney’s Fees

TC Acupuncture prevailed in arbitration against Country-Wide. Country-Wide brought an Article 75 proceeding for review of the arbitration award and the award was confirmed. TC Acupuncture then sought attorney’s fees as they are entitled to as a claimant who prevails against an insurer in the Article 75 proceeding to vacate/confirm a no-fault arbitration award. The amount and reasonableness of the attorney’s fees are to be determined by the court adjudicating the matter under 11 NYCRR § 65-4.10(j)(4). The Supreme Court failed to award these additional fees when they originally confirmed the arbitration award, so TC Acupuncture appealed. The First Department reiterated that the Supreme Court must award TC Acupuncture attorney’s fees because it prevailed against the insurer in the Article 75 proceeding and determine the reasonableness of the fees TC Acupuncture claims to be owed.

Legislative List

01/01/20         Mandatory Licensing for Elevator Servicers New York State Legislature
Labor Law Amended to Require Licensing of Individuals Designing, Servicing, and Constructing Elevators

On New Year’s Day, Governor Cuomo signed into law Chapter 750 of the Laws of 2019, which creates a new Article 33 of the Labor Law setting forth state requirements for the licensing of persons engaged in the design, construction, inspection, maintenance, alteration, and repair of elevators and other automated people moving devices.

The bill’s Sponsor Memorandum clearly outlines the dangers inherent in the use of unsafe and defective elevators, which may be exacerbated by the “improper and uninformed manner in which some contractors and their employees design, construct, inspect, maintain, alter and repair such conveyances........................................................................... ” Providing further details to the problems posed, the Sponsor Memorandum provides:

In New York, one of the most notable instances of an elevator death is that of Suzanne Hart, a Manhattan advertising executive, in 2011. Suzanne was crushed when she tried to walk onto the elevator at her place of work and it suddenly shot upward, killing her instantly.

Even more recently, there have been multiple deaths and injuries related to elevator malfunctions. In Mount Vernon, NY, a 12-year-old boy was injured after falling into an elevator shaft when the closed elevator doors gave out under his weight. In Schenectady, NY, a restaurant owner died after being wedged beneath a dumbwaiter that was being repaired. In Washington Heights, a building supervisor was injured after an elevator slid down and struck him while he was working near an elevator shaft in the building. These are only a few instances in an array of devastating and preventable injuries and deaths.
 

The newly created Article 33 requires such licensing for, inter alia, elevators, platform lifts and non-residential stairway chair lifts, dumbwaiters, material lifts, and dumbwaiters with automatic transfer devices power driven stairways, walkways, and automated people movers. However, the Article is clear that it explicitly does not apply to personnel and material hoists; manlifts; mobile scaffolds, towers, and platforms; powered platforms and equipment for exterior and interior maintenance; conveyor and related equipment; cranes, derricks, hoists, hooks, jacks and slings; industrial trucks; portable equipment, except for portable escalators; tiering and piling machines used to move materials to and from storage located and operating entirely within one story; equipment for feeding or positioning materials including, but not limited to, machine tools and printing presses; skip or furnace hoists; wharf ramps; railroad car lifts or dumpers; stairway chairlifts for private residences; line jacks, false cars, shafters, moving platforms and similar equipment used for installing an elevator by a contractor licensed in this state; operation of inside cars (elevators); and operation of an elevator that has received a temporary certificate of occupancy.

Article 33 does also provide exclusions for the owners or lessees of private residences and the removal or dismantling of conveyances.

Governor Cuomo’s Approval Memorandum notes that although “[i]t is in the best interest of the public to ensure elevators and other people-moving conveyances are safely  constructed, repaired, and inspected,” the “implementation of the new licensing process as specified in this bill would have a significant administrative and fiscal impact on the Department of Labor” and the “overlap with existing State and local regulatory systems for elevators and other conveyances.” Thus, it was agreed that the Legislature will remedy these concerns in the upcoming session.

01/04/20         DFS Issues Cybersecurity Risk Alert Department of Financial Services
DFS Warns of Heightened Risk of Cyber Attacks from Hackers Affiliated with the Iranian Government

Unless you have had your head buried in the sand since 2019, you are probably aware that following orchestrated actions leading to the death of Qassem Soleimani, the Iranian government has vowed to retaliate against the United States. Over the weekend, the Department of Financial Services (DFS) issued a Cybersecurity Risk Alert to all regulated entities given the heightened risk of cyber attacks from hackers affiliated with the Iranian government—a government that has a history of launching cyber attacks against the United States and the financial services industry.
 

DFS provides, as an example, that:

in 2012 and 2013, Iranian-sponsored hackers launched denial of service attacks against several major U.S. banks. And the U.S. government recently advised in June 2019 it observed “a recent rise in malicious cyber activity directed at United States industries and government agencies by Iranian regime actors and proxies,” and that Iranian attackers were increasingly using highly destructive attacks that delete or encrypt data.

These types of cyber-attacks pose various issues with respect to insurance coverage that are worth discussing. Conveniently, Dan Kohane and I (properly supervised under the watchful eye of our wonderful editor, Heather Sanderson) wrote a piece recently for the Federation of Defense & Corporate Counsel’s (FDCC) 2019 I-3 Insurance Industry Institute held in New York, NY in November that touched upon ongoing litigation in Illinois concerning just such a cyber attack that was attributed to the Russian government. You can read the entire article here. I have provided a relevant excerpt below:

The ongoing litigation in Mondelez International, Inc. v. Zurich American Insurance Co. is interesting because Mondelez is asking the court to determine whether a claim for losses Mondelez suffered during the 2017 NotPetya attack is precluded by a “hostile or warlike action” exception in its Zurich all-risk property insurance policy. The NotPetya malware attack, which both the U.S. and British governments have blamed on Russian operatives, disabled infrastructure in Ukraine and compromised computer systems worldwide, according to Reuters. The virus infected two of Mondelez’s servers in June 2017 and left about 1,700 servers and 24,000 laptops owned by the company “permanently dysfunctional,” the complaint says.

In Mondelez, Zurich denied coverage under a Property Insurance Policy issued to Mondelez (the “Zurich Policy”), which specifically provided coverage for “physical loss or damage to electronic data, programs, or software, including physical loss or damage caused by the malicious introduction of a machine code or instruction . . .” and “Actual Loss Sustained and EXTRA EXPENSE incurred by the Insured during the period of interruption directly resulting from the failure of the Insured’s electronic data processing equipment or media to operate” resulting from malicious cyber damage. Despite alleged public encouragement by Zurich to purchase additional coverage for malware attacks such as NotPetya, Zurich disclaimed coverage for the attack on the basis of the policy’s “hostile or warlike action” and “terrorism” exclusions.
 

Those exclusions 3.B.2.a. and 3.B.2.f. cited by Zurich provide that “[t]his Policy excludes loss or damage directly or indirectly caused by or resulting from:

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1. hostile or warlike action in time of peace or war, including action in hindering, combating or defending against an actual, impending or expected attack by any: (i) government or sovereign power (de jure or de facto); (ii) military, naval or air force; or (iii) agent or authority of any party specified in i or ii above.

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f)    terrorism, including action taken to prevent, defend against, respond to or retaliate against terrorism or suspected terrorism, except to the extent provided in the TERRORISM coverage of the Policy. However, if direct loss or damage by fire results from any of these acts (unless committed by or on behalf of the Insured), then this Policy covers only to the extent of the actual cash value of the resulting direct loss or damage by fire to property insured.

This coverage exception for such resulting fire loss or damage does not apply to:

1. direct loss or damage by fire which results from any other applicable exclusion in the Policy, including the discharge, explosion or use of any nuclear device, weapon or material employing or involving nuclear fission, fusion or radioactive force, whether in time of peace or war and regardless of who commits the act.
    
2. any coverage provided in the TIME ELEMENT section of this Policy or to any other coverages provided in this Policy.

Any act which satisfies the definition of terrorism shall not be considered to be vandalism, malicious mischief, riot, civil commotion, or any other risk of physical loss or damage covered elsewhere in this Policy.
 

If any act which satisfies the definition of terrorism also comes within the terms of item B2a of this EXCLUSIONS clause then item B2a applies in place of this item B2f exclusion.

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Interestingly, the language in exclusion 3.B.2.f the Zurich Policy appears to account for any apparent overlap between “hostile or warlike action” and acts of “terrorism” as it was discussed in Universal Cable, and the policy at issue in that case did not include a terrorism exclusion.

This case will show if the courts take government attribution at face value as a basis for excluding damages from policy coverage since both the U.S. and British governments have blamed the attack on Russian operatives. However, some do not think the analysis will even make it this far. Brian Corcoran stated, “others have simply argued that NotPetya was not a “warlike” action for civil purposes, irrespective of the U.S. government’s public statements, and that it might better fit the definition of what President Obama once called ‘cyber vandalism.’” If Mondelez wins this case, private industry may very well see “a new market in cyberattack insurance overnight.”

In his article entitled “ War Risk Exclusions Threaten Cyber Coverage” April 1, 2019, published by The Risk Management Society, Joshua Gold raises interesting issues regarding war exclusions in the cyber insurance world:

While the Mondelez case is being fought in the context of a property insurance policy, many cyber policies do contain war exclusions. Risk managers and brokers must consider what clarity and assurances can be obtained in the marketplace to minimize the risk that insurance companies will attempt to deny coverage for cyberclaims where a state actor is allegedly involved in a hack, virus or other form of cyberattack. Additionally, the Mondelez case illustrates that, when a serious cyber loss occurs, policyholders can argue for coverage under business insurance policies like their property and crime insurance policies. Policyholders will not solely focus on stand-alone cyber insurance products when they face losses or claims to the exclusion of other lines of potentially applicable coverage. Similarly, cyber insurers are fine-tuning war exclusions to more clearly limit or exclude claims for cyber terrorism. While definitions of cyber terrorism differ, they generally include acts perpetrated electronically by any party to cause harm, intimidate the public, or for political, religious or ideological purposes. Of course, cyber underwriters, understanding the risks of cyber- attacks, may craft policies to provide first- and third-party coverages for precisely that risk.
 

Courts generally interpret “war” to require state action. An attack officially authorized and executed by a state is arguably an act of “war”. However, if the cyber-attack simply emanates from another state, is it an act of war, a terrorist act or a criminal act? Michael E. Slipsky and Saad Gul, in their article entitled “Cyber Attack of Act of (Cyber) War February 4, 2019, published in the Insurance Journal, described the dilemma this way:

These difficulties are compounded by hackers’ ability to disguise the actual attack origination point by hijacking innocent third-party machines. Attribution necessarily requires inferences and surmises because hard evidence is rare. For instance, while the media widely attributed the Sony hack to North Korea, evidence for the connection was tenuous at best. The evidentiary issues are exacerbated given that the motivation of the attackers is not always clear. Take a hypothetical attack, apparently originating from China. Is it the work of individual hackers or an intelligence unit? Is the intention to injure the United States as a nation or to gain a commercial advantage for a company? Were they acting under state orders or freelancing to make extra money?

Fred Kaplan, in his article Death, Taxes, and Cyber Attacks, April 16, 2019, published by Slate, raised the most interesting issue of all:

As more cyberattacks appear to be directed by national governments or their proxies, what would be the point of having cyber insurance if such attacks are excluded from coverage? This is the question that many clients will ask themselves if Zurich wins this case. In other words, a victory for Zurich could spawn a strategic defeat.

Consider these same difficulties for physical attacks. The September 11 attacks on the World Trade Center and other locations have been generally attributed to Al-Qaeda. The redacted declassified report of the Senate Select Committee on Intelligence suggested evidence of Saudi Arabian government involvement.

How much “involvement” is necessary before the traditional “war exclusion” is triggered?

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The Mondelez litigation remains ongoing, but it truly highlights the coverage dilemma faced in the wild-west that is cyber insurance. An interesting wrinkle in that case that truly encapsulates the issues posed in this corner of the coverage world, as provided in footnote 59 of our FDCC article, is that

It was further alleged that Zurich “publicly and . . . in its non-public dealings with actual and prospective policyholders who were considering the purchase or renewal of insurance coverage from Zurich, portrayed that NotPetya malware as a form of “ransomware” that merited the continued (if not increased) purchase of insurance coverage from Zurich.” (Citation omitted). Continuing, and in support of this allegation, Mondelez cites a statement given by Zurich’s Group Chief Risk Officer on March 5, 2018, that

Cybersecurity risks are also growing, both in their prevalence and in their disruptive potential. Attacks against business have almost doubled in five years, and incidents that would once have been considered extraordinary are becoming more and more commonplace. The financial impact of cybersecurity breaches is rising, and some of the largest costs in 2017 related to ransomware attacks, which accounted for 64% of all malicious emails. Notable examples included the WannaCry attack—which affected 300,000 computers across 150 countries—and NotPetya, which caused quarterly losses of USD 300 million for a number of affected businesses.

Insurance provides solutions to stomach-turning losses. How adequate are existing solutions for the threat posed by the Iranian government, as DFS warns? DFS’ Cybersecurity Risk Alert should serve as a warning for both insureds and carriers alike to ask this and other questions now, rather than later.

12/31/19         Forms Must Align with Spirit of § 3420(a) Notice Provisions Department of Financial Services
DFS Disapproves D&O Form Filing for Seeming Inconsistencies with Insurance Law § 3420(a) Notice Provisions

On New Years’ Eve, DFS issued a form filing disapproval to a D&O carrier based upon, inter alia, seeming inconsistencies with the nature of the notice provisions contained within New York Insurance Law § 3420(a)(3), and asked for further clarification as to how the forms abide by (a)(4) & (5).

Under New York Insurance Law § 3420(a), “[n]o policy or contract insuring against liability for injury to person . . . or against liability for injury to, or destruction of, property shall be issued or delivered in this state, unless it contains in substance the following . . . :
 

3. A provision that notice given by or on behalf of the insured, or written notice by or on behalf of the injured person or any other claimant, to any licensed agent of the insurer in this state, with particulars sufficient to identify the insured, shall be deemed notice to the insurer.
    
4. A provision that failure to give any notice required to be given by such policy within the time prescribed therein shall not invalidate any claim made by the insured, an injured person or any other claimant if it shall be shown not to have been reasonably possible to give such notice within the prescribed time and that notice was given as soon as was reasonably possible thereafter.
    
5. A provision that failure to give any notice required to be given by such policy within the time prescribed therein shall not invalidate any claim made by the insured, injured person or any other claimant, unless the failure to provide timely notice has prejudiced the insurer, except as provided in paragraph four of this subsection. . . .

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With respect to § 3420(a)(3), DFS noted that “[t]he Claim Notice provision may be inconsistent with Section 3420(a)(3) of the New York Insurance Law.” The proposed form required that “[f]or the purpose of notice provisions of this Policy shall be submitted to” a particular claims handling service by email or telephone. By seemingly restricting those agents to which an insured, injured party, or those acting on behalf of either may provide notice, the form impermissibly restricted the validity of notice “to any licensed agent of the insurer in this state” under the (a)(3), warranting disapproval.

Although not seemingly a ground for disapproval in and of itself, DFS also requested the carrier to demonstrate that the policy as a whole conforms with the requirements of Insurance Law § 3420(a)(5), which explicitly requires any form to abide by the requirements of (a)(4).

10/13/19         Assembly Bill-218 Damages: childhood sexual assault: statute of limitations
State of California
California CVA Requires Proof Institutions or Entities Had Notice of Alleged Abuse

The California “Child Victims Act” amends Sections 340 and 1002 of the California Code of Civil Procedure to expand the statute of limitations as it applies to childhood sexual assault. The nuts and bolts of the legislation are similar to the New York CVA. It would expand the statute of limitations until the age of 40 or 5 years after the victim remembers the alleged abuse, whichever is longer. While California already had one lookback window for child sex abuse claims in 2003, this legislation creates a three-year lookback window which opened on January 1, 2020. More notably for those in the insurance world are subsections 340.1(a)(2) and (3) as well as 340.1(c). These sections read:

(a) In an action for recovery of damages suffered as a result of childhood sexual assault, the time for commencement of the action shall be within 22 years of the date the plaintiff attains the age of majority or within five years of the date the plaintiff discovers or reasonably should have discovered that psychological injury or illness occurring after the age of majority was caused by the sexual assault, whichever period expires later, for any of the following actions:

2. An action for liability against any person or entity who owed a duty of care to the plaintiff, if a wrongful or negligent act by that person or entity was a legal cause of the childhood sexual assault that resulted in the injury to the plaintiff.
3. An action for liability against any person or entity if an intentional act by that person or entity was a legal cause of the childhood sexual assault that resulted in the injury to the plaintiff.

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(c) An action described in paragraph (2) or (3) of subdivision (a) shall not be commenced on or after the plaintiff’s 40th birthday unless the person or entity knew or had reason to know, or was otherwise on notice, of any misconduct that creates a risk of childhood sexual assault by an employee, volunteer, representative, or agent, or the person or entity failed to take reasonable steps or to implement reasonable safeguards to avoid acts of childhood sexual assault. For purposes of this subdivision, providing or requiring counseling is not sufficient, in and of itself, to constitute a reasonable step or reasonable safeguard. Nothing in this subdivision shall be construed to constitute a substantive change in negligence law.

Boiled down, these sections require proof of notice that the entity or person whom a victim is claiming was negligent had notice of conduct that created a risk of sexual assault, but only in the claims which allege sexual assault which occurred furthest in time form when the claim was made. This is a win for those of us defending these actions. One of the issued most difficult to grapple with in these cases is what and insured knew, and when they knew it. By placing the burden on the claimant insurers will have a much less difficult time establishing what, if any coverage applies.

08/28/19         Otsuka America, Inc. v. Crum & Forster Specialty New York County Supreme Court
Coverage Counsel Communications Discoverable

The plaintiff was a manufacturer of dietary supplements who purchased an insurance policy from Crum & Forster for insured events such as accidental contamination, malicious product tampering, adverse publicity, and government recall. In June 2016, the plaintiff recalled certain products which allegedly caused a loss under the policy in the amount of $9 Million. Crum & Forster disclaimed coverage, and in litigation the parties disputed whether certain documents in Crum & Forster’s privilege log were discoverable. A total of 13 documents were at issue which the Court reviewed in camera and issued its decision essentially requiring disclosure of all of them.

The Court first started with basic definitions that the attorney-client privilege only extends to communications between attorney and client. Attorney work product applies only to documents prepared by counsel acting as counsel, and to materials which are uniquely the product of legal counsel such as those reflecting legal research, analysis, and legal theory or strategy.

One of the documents was a memorandum which appeared to consist of facts concerning the product recall with notations about the policy terms. The Court rejected the attorney work product privilege because there is no indication that there was any legal advice, legal recommendations, or attorney “thought process” in the content of this memorandum. The attorney-client privilege claim was also rejected because the memorandum was not predominately a communication of a legal character.

The Court next looked at some email communications and again concluded that the content was not primarily or predominately of a legal character. One of the primary disputes was the indication that the Court believed that many of the documents involved counsel acting essentially as claims analysts and not a legal investigation.

The Court then looked at some correspondence and also concluded that the documents were not attorney work product because they were not documents prepared by counsel “acting as such”, and did not contain materials uniquely the product of a lawyer’s learning and professional skills.  In short, the Court was of the opinion that these were claims processing communications and not legal communications. This is particularly an issue in coverage cases because claimants maintain that the payment or rejection of claims is part of the regular course of business of an insurance company, and claims processing and handling documents are alleged to be in the regular course of business and therefore discoverable.