Coverage Pointers - Volume XXI, No. 19
Volume XXI, No. 19 (No. 557)
Friday, March 6, 2020
A Biweekly Electronic Newsletter
As a public service, Hurwitz & Fine, P.C. is pleased to present its biweekly newsletter, providing summaries of and access to the latest insurance law decisions from the New York, New Jersey, and Connecticut appellate courts and Canadian appellate courts. The primary purpose of this newsletter is to provide timely educational information and commentary for our clients and subscribers.
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Dear Coverage Pointers Subscribers:
Do you have a situation? We love situations.
As a reminder and an introduction to our new subscribers. You are reading our cover note – the actual issue of Coverage Pointers – our 557th is attached. Past issues of this publication (dating back to 1999) and to our sister newsletters, are available on the NEWSLETTERS tab of our firm website.
Greetings from Scottsdale and the FDCC Winter Meeting. I do prefer 75-degree temps than the 35 in Buffalo.
On Tuesday, we participated in a fabulous CGL Boot Camp – Insurance Coverage Training Academy. With my friend – and co-presenter of many years – April Elkovitch of the Philadelphia Insurance Companies, we presented on Insurance 101 – Steps to Analyze CGL Coverage. If you’re interested in the PowerPoint or in training, let me know. It included a discussion of the patent (always) pending, Kohane Coverage Formula. My thanks to the many FDCC presenters, especially Lauren Curtis and Meryl Lieberman of Traub Lieberman and Ned Currie of Currie, Johnson and Myers, PA, whose great leadership guided this program.
I am currently in Arizona, and continuing my participation at the Federation of Defense & Corporate Counsel, winter meeting. I do like the educational program, the comradery and the warm weather!
PLRB Claims Conference:
Joined by my good friend, John Hanlon from Selective Insurance, we’ll be speaking on Contractual Liability, Additional Insured and Risk Transfer issue at the annual Claims Conference and Insurance Services Expo at the Gaylord in Washington, DC, from March 8 – 11. To find out more, click here.
We have other firm newsletters to which you can subscribe by simply letting the editor (or me) know.
Premises Pointers: This monthly electronic newsletter covers current cases, trends and developments involving premises liability and general litigation. Our attorneys must stay abreast of new cases and trends across New York in both State and Federal Court and will now share their insight and analysis with you. This publication covers a wide range of topics including retail, restaurant and hospitality liability, slip and fall accidents, snow and ice claims, storm in progress, inadequate/negligent security, inadequate maintenance and negligent repair, service contracts, elevator and escalator accidents, swimming pool and recreational accidents, negligent supervision, assumption of risk, tavern owner and dram shop liability, homeowner liability and toxic exposures (just to name a few!). Please drop a note to Jody Briandi at [email protected] to be added to the mailing list.
Labor Law Pointers: Hurwitz & Fine, P.C.’s Labor Law Pointers offers a monthly review and analysis of every New York State Labor Law case decided during the month by the Court of Appeals and all four Departments. This e-mail direct newsletter is published the first Wednesday of each month on four distinct areas – New York Labor Law Sections 240(1), 241(6), 200 and indemnity/risk transfer. Contact Dave Adams at [email protected] to subscribe.
- Products Liability Pointers: Whether the claim is based on a defective design, flawed manufacturing process, or inadequate instructions/warnings, product liability litigation is constantly evolving. Products Liability Pointers examines recent New York State and Federal cases as well as high court decisions from other jurisdictions, keeping our readers up-to-date with the latest developments and trends, and providing useful practice tips and litigation strategies. This monthly newsletter covers all areas of product liability litigation, including negligence, strict products liability, breach of warranty claims, medical device litigation, toxic and mass torts, regulatory framework and governmental agencies. Contact Brian F. Mark at [email protected] to subscribe.
Peiper on Property and Potpourri:
After last week’s trip to the IADC Mid-Year meeting in beautiful Monterey County, we’re back to home base – with only one trip to NYC this week.
From SFO to JFK to BUF, it still appears that business remains “as usual.” Even still, the reports from around the world about COVID 19 are far from comforting. The market remains skittish, and reports of significant interruptions in business shipping has been reported worldwide. This certainly raises the possibility, if not inevitability, of significant insurance issues on the first party side of things. We’re looking at those issues now, and we’d encourage you to watch this space in the weeks to come. If COVID 19 spreads as predicted, and we hope it does not, our challenges in the insurance industry are just starting.
With regard to this week, however, the docket remains relatively quiet on first party issues. We do review some interesting potpourri issues, including a good review of possible hearsay exceptions in the William Penn. Please do check them out.
A word or two before we go on the headline of the William Penn decision which reads Here, Here for Hearsay. As you may have often heard, particularly those Parliamentarians out there, the phrase is often shouted during political discussions. Is it here, here or hear, hear? Turns out, it could be both. Although the Hear, Hear (as in “listen to what’s being said”) is the more commonly accepted version, the expression could also mean that the declarant is signifying a particular point of emphasis and location.
So there you go.
That’s all for now, but “hear, here” for upcoming first party trends and useless knowledge and stay healthy in the meantime.
Steven E. Peiper
Arizona Daily Star
06 Mar 1920
Mary Pickford Says She Will Not Re-Wed
Los Angeles, March 5.—Mary Pickford will never marry again, but will devote the remainder of her lift to motion pictures, according to an interview she gave here tonight to the Los Angeles Times. This was the first statement she had made to the press since she was granted a divorce from Owen Moore Tuesday at Minden, Nev.
Editor’s Note: Never marry again, huh? How about getting married before the end of the same month?
Pickford divorced Moore on March 2, 1920, after she agreed to his $100,000 demand for a settlement. She married Fairbanks just days later on March 28, 1920. They went to Europe for their honeymoon; fans in London and in Paris caused riots trying to get to the famous couple. The couple's triumphant return to Hollywood was witnessed by vast crowds who turned out to hail them at railway stations across the United States.
When Fairbanks' romance with Sylvia, Lady Ashley became public in the early 1930s, he and Pickford separated. They divorced January 10, 1936. Fairbanks' son by his first wife, Douglas Fairbanks Jr., claimed his father and Pickford long regretted their inability to reconcile.
On June 24, 1937, Pickford married her third and last husband, actor and band leader Buddy Rogers. They adopted two children: Roxanne (born 1944, adopted 1944) and Ronald Charles (born 1937, adopted 1943, a.k.a. Ronnie Pickford Rogers).
Wilewicz’ Wide-World of Coverage:
I must admit that I’m officially spooked by all of the coronavirus chatter these days. I attended a mediation in Manhattan last week (right next door to Grand Central, no less) and seeing all of the people walking around with face masks was enough to make anyone anxious. At my house, we’ve been fully stocked with hand sanitizer wipes and antimicrobial gel and disinfectant foam for weeks, but that’s not unusual for us given all the travel that I do and with having an eighth grader in the house. Hopefully this all blows over soon.
Now, in coverage news, the Second Circuit still hasn’t been presented with many coverage cases of late, but I did find a pithy one issued the other day. In Sunham v. Diamond State, the court briefly discussed the issue of jurisdiction in declaratory judgment actions. There, an insured brought a DJ to address coverage issues with its umbrella carrier, relative to an underlying matter to which that insured was not a party. However, since the outcome of the DJ could affect the insured’s ability to recover from other parties, it clearly had a stake in the litigation, and therefore standing. An interesting and important practice point, in that sometimes you might have a great and meritorious case, but you’ll never proceed without jurisdiction in the first instance.
Until next time, stay healthy and safe!
Agnes A. Wilewicz
A Century Ago: American First? What’s Old is New Again.
The Ithaca Journal
Ithaca, New York
06 Mar 1920
That a danger may lurk in current Americanization work may seem impossible on first thought. But an article on "The Strength of America," in a recent Survey, indicates that mere is real menace in some perversions of Americanization efforts.
There is the cry of selfish employers who are more interested m maintaining a lull working force than in the true Americanization of those workers. "Teach the men to stay on their jobs—that's Americanization!" they cry, and fail to offer any incentive to self-respecting men to stay on a job in their factories.
Another group tries to silence all criticism on the part of foreign-born residents and would gauge their fitness for American citizenship by their silent acceptance of any wrongs or abuses they find in this country and their lusty but undiscriminating praise of all our works.
A third menace lies in the desire of many citizens to force foreigners to seek citizenship at once without first overcoming timidity and reluctance by fair treatment and an honest attempt to present to the bewildered new-comer all that such citizenship means.
Again, there is too much emphasis upon the mere learning of English. There are Americans who consider that the total sum of Americanization, and whose interest in the foreigner begins and ends with his introduction to our language.
In some communities, Americanization has been made the excuse for trying to blot out from the foreigner's life all the habits and traditions of the old country, including even his religion. This is a serious danger, for there is much that is good in those old-world customs, and unless he is helped to make a normal transition from them to the new ones, the foreigner is frequently all at sea and unable to grasp fully the new life.
Many an American is guilty of an attitude toward our immigrants which makes possible one or all of these evils. True Americanization is not a forcing process, but a sane and healthful growth which most foreigners would be eager to experience if only we did not pounce upon them with ill-considered theories as to what should be done to them by an external application of ready-made Americanism.
Barnas on Bad Faith:
By the time of our next issue it will officially be Spring. I must have missed winter this year. For all of you craft beer fans out there, I had a chance to check out Other Half Brewery in Brooklyn after I was done in court yesterday. The tap room itself is nothing special, but the draft list sure is. If you’re a fan of IPAs, especially hazy and unfiltered New England style, and find yourself in or near Brooklyn, I would strongly recommend checking it out. My favorites were Cerebral DDH Rare Trait and Infinity Forever Forever Infinity.
A good decision from the Vermont Supreme Court in my column today. The court, appropriately in my estimation, concludes that the phrase “date of loss” in a suit limitation clause means the date of the occurrence giving rise to the claim. The court relies on the plain language of the policy and the majority of other jurisdictions in reaching its conclusion. However, the case was remanded for the court below to consider whether the insurer had waived the limitation clause and, if appropriate, whether it had committed bad faith.
That’s all for now. Have a great weekend.
Brian D. Barnas
Record Verdict in Death Case:
Buffalo Morning Express and
Illustrated Buffalo Express
Buffalo, New York
06 Mar 1920
Record verdict is affirmed in Case of death by auto
Luther W. Tarbox given $18,000 For death of wife; youth was driving car.
The largest verdict ever awarded for the death of a woman in this country was unanimously affirmed by the appellate division at Rochester yesterday, according to word received last night by Hamilton Ward, who represented the plaintiff in the case, Luther W. Tarbox, who was given a judgment of $18,000 against Richard H. Thompson, Sr., in his supreme court action here recently to recover for the death of Mrs. Blanche Tarbox. Mrs. Tarbox was killed in a collision between the automobile in which the Tarbox family was riding and an automobile driven by Richard H. Thompson, Jr., at Amherst street and Delaware avenue on November 10, 1918.
Mr. Tarbox, who sued as executor of his wife's estate, was injured, as were two of the children, when their car was tossed from the street across the sidewalk to a vacant lot.
Justice Dudley, before whom the trial was held, charged the jury that it could find the defendant responsible, if he was permitting his son, under eighteen years old, to drive his care or if he was negligent in not preventing him from driving the car. The jury so found, and the appellate division has unanimously affirmed that ruling which is said to be new in this state.
Off the Mark:
The weather on Long Island has been getting warmer. I’ve also started to notice that the days are getting visibly longer. Although I hate losing an hour of sleep for daylight saving time, I definitely enjoy seeing more of the sun.
This edition of “Off the Mark” brings you a recent construction defect case from the US District Court for the District of New Jersey. In The Travelers Lloyds Insurance Company v. Rigid Global Buildings, LLC, the Court examined a carrier’s duty to defend and indemnify its insured relative to claims arising out of faulty workmanship related to the construction of a tennis center in New Jersey. The Court determined that summary judgment in favor of the plaintiff insurance carrier was warranted because no property damage “occurred” during the applicable policy periods, and thus the plaintiff’s policies did not cover the damages awarded in the underlying action.
Until next time …
Brian F. Mark
Talking to the Dead:
06 Mar 1920
Famous Free Lecture
"TALKING WITH THE DEAD"
By E. D. Sexton, Los Angeles, Cal.
SUNDAY, MARCH 7, 3 P.M.
ARIZONA SCHOOL OF MUSIC
North Central Avenue
Spiritualism is sweeping the world. Loved ones of the millions of soldier dead are seeking to communicate with their deceased and are being attracted by messages from the spirit world.
ARE THE DEAD CONSCIOUS?
This momentous question is drawing the attention of thousands who desire further proof that spiritistic communication is had with dead friends and relatives. Hear this noted lecturer who claims Holy Writ elucidates this and many other kindred subjects. HEAR—THEN JUDGE.
ALL SEATS FREE NO COLLECTION
Well, it appears – fingers crossed as I type this - (and, apologies for typos resulting therefrom) ol’ man winter may be on the canvas and in the process of being counted out for the 2019-2020 winter season. I was in Queens County, New York, yesterday defending a deposition, and it was sunny and 55 degrees at 8:00 in the morning there! Our own Western New York’s extended forecast seems relatively placid taking us into the mid-March time frame. I don’t know about you, but I am looking forward to brighter skies, warmer temperatures, and more opportunities to get in a little exercise in the great outdoors, while I ponder deep in insurance coverage questions at the same time, of course.
As I write this, the start of the MLB season is just a little over three weeks away. When I start seeing daily box scores again in the sports pages of the Buffalo News, I know all is right with the world. For another six months, anyway.
Now, getting to business. For this edition of Boron’s Benchmarks, your bi-weekly source for analysis of decisions issued by the high courts of the 49 states not named New York, I have selected for your perusal and consideration a decision issued on February 7, 2020, by the Supreme Court of Nebraska. It’s a case about auto liability insurance and the impact (or not) of a Nebraska statute on the limit of liability insurance coverage applicable to a claimant who is also a named insured or resides in the household of the named insured.
Until next time, get out and enjoy the extra daylight and warming temperatures, but even if you don’t or can’t, I hope you have a great next two weeks no matter what, folks.
Eric T. Boron
Me Too Movement --- What’s Old is New Again?
New York Herald
New York, New York
06 Mar 1920
$500 for Hugging His Tenant
A jury in the Circuit Court in Newark awarded $500 damages yesterday to Mrs. Hazel E. Whitney of 25 Cloverhill Place, Montclair, in her suit against Joseph R. Vannatta, her landlord. She alleged he hugged her in the hallway of her home. She sued for $2,000. Vannatta said the hallway was narrow and he only brushed against her as they were passing.
Barci’s Basics (On No Fault):
Just a quick hello this week! Check back next issue for an update on the mock trial season.
On the no-fault front, I have one case for you out of the First Department. In what is quite possibly the shortest substantive decision ever, the First Department reminds us that an assignor’s failure to appear for an IME is reason enough to deny claims from providers that treat the same.
That’s all folks,
Marina A. Barci
Owner Liable for Auto Accident – Novel Idea:
Saint Joseph, Michigan
06 Mar 1920
LIABILITY STATUS MAY BE ALTERED BY TRAVERSE AUTO CASE
TRAVERSE CITY, March 6.—Decision in the case of Andrew J. Dole, administrator versus the West Michigan Garage of this city, being heard in circuit court here, may revolutionize the Michigan status of liability in motor car accidents, according to Judge F. W. Mayne.
The West Michigan Garage sent a driver with a car to demonstrate to a prospective purchaser. In the demonstration the vehicle ran into a building and killed the prospective purchaser. His estate is suing the garage, the owner of the car and not the driver.
Ryan’s Capital Roundup:
Hello Loyal Coverage Pointers Subscribers:
I’d like to talk a little about the joys of fatherhood. Really, it’s the little things. Nobody can quite prepare you for those conversations that you have with a three-year-old who has learned new words from who knows where. Nobody can explain the heart-melting warmth resulting from a four-month old's smile—and, let me just tell you, they’re contagious. You are never really ready for the first time your son asks Alexa to play “Old Town Road” and she listens, or his rendition of Zac Brown Band’s “Chicken Fried” complete with a crystal clear “cold beer on Friday night.” Not only do I learn more about those two each and every day but knowing that they learn more about me at the same time teaches me more about myself. And this is a classroom that I can get behind.
This week, on the legislative list, we examine a bill referred to the Senate Standing Committee on Insurance proposing mandatory actuarially appropriate rate reductions for certain boating safety courses. Moreover, in the Regulatory Wrap-Up, we provide further insight into DFS’ proposed updated public access to department records regulation that was teased in last week's column, as well as DFS’ proposed adoption of NAIC’s model corporate governance regulation. Furthermore, in From the Filing’s Cabinet, we provide insight into the viability of “refer to company” language in a rate-rule manual and, spoiler alert: don’t do it.
Until next time,
Ryan P. Maxwell
Neigh to Horses:
The Tampa Times
06 Mar 1920
LONDON FORBIDS HORSES ON ROAD
British Capital Takes Advanced Step In Transportation
It is difficult to believe that as recently as 1993 a "new fangled" contraption covered its first mile without the aid of horsepower.
Today the automobile industry ranks third in importance in government manufacturing records, while there are more than 6,500,000 motor cars in use in the United States or approximately one car for every 17 persons in this country. Europe has only one for every 230 persons in its population.
London has taken the lead in barring horses from many of its thoroughfares, and American cities are considering doing the same.
The wild Buffalo weather never ends. I spent this past weekend celebrating my cousin's wedding in Lake Placid, New York. My wife and I drove through what seemed like the blizzard of the century last Thursday to get there, and then drove through rain on Monday to get home. Luckily, with nearly three feet of snow falling between last Thursday night and Friday morning, we were able to experience the best day of skiing Whiteface Mountain has seen in years. It seems that we were just in the right place at the right time!
This edition brings us back to issues related to the CVA. Below I discuss a trial court order denying a motion to dismiss claims of negligence brought against a school district under the auspice of the CVA. I discuss only the negligence claims, as they are the most relevant to possible implications of insurance law. In short, it appears the school district proffered a great deal of evidence proving that they did not have notice of any foreseeable harm the teacher being accused of abuse could have posed to plaintiff. It appears that the court will maintain a high burden when it comes to deciding whether or not an institution was negligent in the hiring, retaining, and/or supervising of alleged abusers. The decision and its possible implications when applied to insurance coverage disputes are discussed below.
Charles J. Englert, III
Republicans Against Suffrage?
Daily Arkansas Gazette
Little Rock, Arkansas
06 Mar 1920
TO BLAME G.O.P.
IF SUFFRAGE LOSES
Republican States Could Make Amendment Effective, Women Say.
Washington, March 5.—With ratification of the suffrage amendment by the West Virginia legislature still handing in the balance, the suffrage situation is defined in the following statement issued by the national Women's Party today:
"If the West Virginia legislature fails to ratify the suffrage amendment the Republican party will be responsible, since the majority of that legislature is Republican.
"If West Virginia defeats ratification three more states must be secured. Washington has called a special session for March 22 which will give the thirty-fourth state. The last two must be secured from states in which both governors and legislatures are strongly Republican: Delaware, Vermont or Connecticut.
"So far the governors of these three Republican states have refused to call special sessions. If they continue to refuse, ratification may be delayed until too late for women to vote in the fall elections. If women are denied the right to vote for the next president and Congress the Republican party must bear the full responsibility. Thirty-tree states have ratified the suffrage amendment. Thirty-six are necessary for final victory."
Dishing Out Serious Injury Threshold:
The year is flying by and Spring is almost here. We have had a pretty mild winter out on Long Island, but I’m still looking forward to enjoying the Spring weather. But, before the Spring weather makes its way to Long Island, I will be heading down to New Orleans for a long weekend in a couple weeks.
I’m pleased to bring you a threshold decision this week from our own Brian M. Webb, out of our Buffalo office. Brian was successful on a motion for summary judgment on threshold grounds despite the plaintiff undergoing a carpal tunnel release surgery and defense counsel not performing their own IME as the plaintiff’s medical records themselves did not indicate any significant restrictions.
Michael J. Dischley
Need a Better Lock:
06 Mar 1920
Alleged Robber Makes 108th Escape From Jail
LOS ANGELES, March 5.—(A.P.)—Roy Dickerman, charged with robbery of a bank at Phoenix, Ariz., made what is said to have been his one hundred and eighth escape from jail here today, when he used a crude key on his cell lock in the city prison, climbed up a ventilator shaft, and fled.
Dickerman's wife, who is in jail here, said her husband formerly was a vaudeville performer, making a specialty of freeing himself from handcuffs and other restraints. She told the police he never had been imprisoned successfully longer than two months.
Bucci on “B” :
The courts were quiet this week. I will keep monitoring the dockets and hopefully have a case for you in our next issue.
Diane L. Bucci
Superstorms are Nothing New:
The Brooklyn Daily Eagle
Brooklyn, New York
06 March 1920
Storm and Flood Leave Trail of Damage Along Whole of Long Island
Long Island today was recovering from the effects of one of the worst storms in its history.
Washouts on the Long Island Railroad at Cutchogue, Wantagh and Huntington tied up morning service. Service restored at Wantagh and Huntington by noon. Railroad tracks inundated at Springfield, Valley Stream and Merrick.
Telephone and telegraph wires down beyond Bellmore, Long Island Railroad wires to Mineola broken. Long Island, east of Mineola, isolated.
Wireless station at Sayville put out of commission by gale. Communication between coast guard station interrupted.
New England and upper New York buried under a foot of snow by blizzard. One man frozen at Monticello, N. Y.
Damage, running into hundreds of thousands of dollars caused by flooded cellars, drowned livestock and ruined supplies on Long Island. Hundreds of families suffer from cold spell as floods put out furnace fires. Sea Cliff residents cut off from gas supply.
John’s Jersey Journal:
This issue is particularly relevant for claims adjusters and claims managers who find themselves handling a New Jersey accident, but the insurance policy was issued outside New Jersey.
Out-of-State Insurer’s Challenge to New Jersey Deemer Statute Repelled
In 1995, the New Jersey Legislature enacted a deemer statute, N.J.S.A. 17:28-1.4. The deemer statute “deems” automobiles insured out-of-state to carry bodily injury liability coverage (“BI coverage”) with limits of $15,000 per person and $30,000 per accident. The same as the standard policy issued in New Jersey.
After the deemer statute was enacted, the New Jersey legislature created two forms of insurance policies: the basic and the special policy. The basic policy provides $10,000 in property damage liability coverage and $15,000 in PIP benefits, and no BI coverage. $10,000 in BI coverage can be purchased at the insured’s option. The special policy is offered to certain drivers on Medicaid. It also contains no BI coverage. Both policies allow New Jersey residents to be in compliance with the state’s minimum insurance requirements.
GEICO, an out-of-state insurer, challenged the deemer statute on several grounds. It argued that, by creating the basic and special policies, BI coverage is no longer required in New Jersey. That is, because New Jersey allows its drivers on the road without any BI coverage, the state minimums are actually zero BI coverage, and therefore, the deemer statute has no effect. The trial court and Appellate Division disagreed and ruled against GEICO. The New Jersey Supreme Court granted the petition for certification.
The New Jersey Supreme Court ruled that, despite the creation of the basic and special policy, the required compulsory insurance liability limits remain $15,000/$30,000. In the decision, the Court focused on the text of the statute to justify its ruling as well as the legislative intent—that New Jersey residents be protected in accidents caused by out-of-state vehicles.
GEICO also asserted an equal protection claim, asserting New Jersey was discriminating against out-of-state insurers in violation of the Equal Protection Clause of the 14th Amendment. This argument was also rejected. The New Jersey Supreme Court explained that New Jersey requires all insurers to provide the minimum BI coverage. It is up to New Jersey residents if they wish to opt for a basic policy (or special policy if eligible).
The Supreme Court explained that for out-of-state policies, the Legislature has made the policy choice to stick with the compulsory minimum limits. That choice – to be more protective of the Unsatisfied Claim and Judgment Fund from claims caused by out-of-state tortfeasors who may have no access to BI insurance coverage than from a claim caused by a New Jersey tortfeasor having only a basic policy – was not an irrational policy choice.
Certainly an interesting argument. GEICO’s argument was perfectly logical. New Jersey’s laws do not guarantee NJ residents that their fellow driver has BI coverage so why should NJ residents expect the same from out-of-state drivers. It’s no surprise, however, that the New Jersey courts would be protective of its citizens and unsympathetic towards out-of-state insurers. The decision will stand unless GEICO appeals to the U.S. Supreme Court who would need to accept hearing the appeal.
PIP Insurers Continue to Prosecute Alleged Fraud and Overbilling
GEICO continues to aggressively pursue PIP providers for alleged fraudulent billing, overcharges, providing unnecessary treatment. And who can blame them? GEICO sued various PIP providers in New Jersey federal court seeking $2.7 million. The PIP providers moved to dismiss GEICO’s complaint. GEICO easily survived the motion to dismiss and the case will move forward. As we have seen from similar cases, it is clear that GEICO is taking a hard line and challenging the treatment and billing practices of PIP providers.
New Jersey State Assembly Passes Anti-STOLI Legislation
Stranger-oriented life insurance policies – STOLI policies – are life insurance taken out on strangers. In June 2019, New Jersey’s Supreme Court ruled that that STOLI policies are against public policy and void. We reported on it here. The New Jersey Legislature is now working towards codifying that decision. On February 24, 2020, the Assembly passed an anti-STOLI bill 78 to 0. One person abstained (perhaps he hadn’t bet on the life of a stranger before and was uncertain if he’d ever want to). I expect the Senate to also pass the bill. If enacted, it would impose a civil penalty up to $10,000 upon violators. If you’re more interested in these insurance policies than the Russian vodka, you can read the text of the bill here. Cheers.
John R. Ewell
St. Patty’s Not a Holiday? Horrors.
Democrat and Chronicle
Rochester, New York
06 Mar 1920
MARCH 17TH NOT HOLIDAY
Bankruptcy Court Finds Occasion to Announce It Will Be Irish
As a matter of great interest, be it known that bankruptcy court will be open on March 17th, the day that is sacred to the honor of St. Patrick. This fact was brought out yesterday morning in court by Nelson P. Sanford, referee in bankruptcy, when the cases of Simon Diamond and Abraham Rosen were being heard.
The case of the first bankrupt was being adjourned and Mr. Sanford mentioned March 17th as the date for the next hearing, but David Schoenberg, Diamond's attorney, protested, until Mr. Sanford assured him that March 17th was not yet a legal holiday.
Lee’s Connecticut Chronicles:
Dear Nutmeg Newsies:
This edition, we’re coming to you live, from West Palm Beach, Florida. No, I’m not at Mara Lago and, thankfully, neither is all the commotion that follows when the President is in town. However, I did get to spend some time with another president the other day: Teddy Roosevelt, the winner of the Washington National’s President’s Race. The Nationals topped the Marlins 3-2 in Grapefruit League play. Next time we’ll be back home in the cold and wet that is a Connecticut March, but for now, it’s time to head back to the beach.
Lee S. Siegel
The York Dispatch
06 March 1920
CALLS DEL. LEGISLATURE
Action on Suffrage One Object of Special Session
By Associated Press.
Wilmington, Del., March 6.—Governor Townsend today issued a proclamation calling the Delaware legislature to special session on Monday, March 22, at Dover. The objects specified by the governor in the proclamation are:
Action on the equal suffrage amendment to the federal constitution, legislation to avoid undue increase in school taxes, and to provide more money for the new bridge across the Brandywine river in Wilmington.
While it is believed the suffrage amendment will be ratified, the outlook is said to be uncertain.
Cara’s Canadian and Cross-Border Connections (with Heather Sanderson)
This weekend, I went to Lumagination at the Buffalo Botanical Gardens, originally known as the South Park Conservatory and was designed by Frederick Olmsted, Lord & Burnham, and John Cowell (and in my opinion, reminds me of the San Francisco Botanical Gardens which was designed around the same time as the Buffalo Botanical Gardens). Lumagination is a yearly event that provides a different experience by incorporating lights and sounds throughout the Gardens. This year, the theme was Mysterious Minerals. There were geodes and sparkling string lights abound along with art installations that complemented the flora. Although I have visited the Gardens during the day, I was left feeling even more appreciative of having such a gem in our city.
Cara A. Cox
I have left Calgary’s snow and ice to spend this week in Scottsdale at the DRI Board of Directors Meeting and the FDCC Winter Meeting, where I have joined Dan and my other FDCC friends. It is terrific to re-connect with friends and colleagues from all over the continental United States and Canada. As I write this, the FDCC meeting is just starting and I am looking forward to a terrific week of first class CLE and conversation (the daily dose of sunshine will be greatly appreciated as well). Cara and I have three articles for you this week that run the gamut of back to basics insurance law in the context of a legal cannabis grow-op; coverage for online banking fraud and a look at the extra-territorial reach of privacy legislation which will impact cyber liability coverage.
One case decided earlier this year is of interest. The British Columbia Court of Appeal upheld the decision of the British Columbia Supreme Court, that the insurer was within its rights to declare a homeowners’ policy void on the basis of the failure of the insured to disclose a change in the use of the insured property that was material to the risk. The insureds did not advise the insurer that an outbuilding was being used to grow about 300 marijuana plants for medical use. A fire unrelated to the marijuana grow operation broke out and damaged the building. The policy would have paid the claim if it were not for the failure to disclose the marijuana grow-op. Therefore, even though the marijuana was being grown legally under government issued licenses and did not cause the fire, the insurer was not obliged to respond to the claim.
Sanderson Law (Alberta, Canada)
Suffrage Battles Continue:
Fayetteville, North Carolina
06 March 1920
WOMAN SUFFRAGE ON THE RAGGED EDGE
The woman suffrage amendment is not gaining votes in a way that would indicate its early adoption as a nation-wide measure. The latest news from West Virginia is that the measure will not pass the Legislature of that state. The House passed it, but the Senate has refused to do so. The New York Times, in reviewing the suffrage situation, says:
A review of the suffrage amendment situation, printed in the Times on February 22, showed that there then remained ten states which had not taken action on the constitutional amendment to extend suffrage to women, and four of these were needed to complete ratification.
Since then Oklahoma has adopted the amendment and West Virginia, despite expectation, has refused approval. The Governor of Washington, who said he would not summon the Legislature unless the state's vote was needed, issued a call this week for a session on March 22, when adoption of the amendment is certain.
This would make a total of thirty-four states that have ratified, leaving two to be obtained from the following seven: Vermont, Connecticut, Delaware, North Carolina, Florida, Louisiana and Tennessee.
The outlook for action by Florida and Louisiana is almost hopeless. North Carolina's Legislature is likely to be called together in June and ratification seems likely. Tennessee's governor has said he would not call a special session.
In the three Eastern states, Delaware, Connecticut and Vermont, the chances of even a test of ratification sentiment in the Legislature seems to rest on the ability of the suffragists to induce the governors to call special sessions for the purpose.
Woman suffrage was stronger with the people two years ago than it is today, and the reason of this is due largely to the Suffragists themselves. Somehow or other, they will do some "fool thing," here or there, that throws the fat in the fire, and their cause suffers appreciably. We believe that a majority of the voters in the well informed centers favor woman suffrage, but they are beginning to realize that perhaps it were best for the matter to stay in abeyance for a while yet, in order that the women may be "chastened," so to speak by a course of waiting.
It is reasonable to suppose that the flat failure of Miss Rankin as a Congressman (or Congresswoman) hurt woman suffrage. Certainly, she did not set the world afire in Congress, and her evident leaning toward the I. W. W. cause was no help to Woman Suffrage.
But though the day of universal suffrage may be delayed for a while, it will come eventually, and when it does, and the women get their bearings, we may look for something to "drop" in quarters where the "superior being" has had full sway all this time.
Woman Suffrage is going to be tough on those guys who, being non-entities in all else, have lorded it over the women because of being able to vote and make laws, privileges denied their far better halves.
Hope all is well. I want to remind everyone that registration is open for DRI’s 2020 Insurance Coverage and Claims Institute, April 1-3 at the Swissotel Chicago Hotel. This is going to be a great conference. Hope you can join us! Register
In terms of my column this issue, I report on an interesting trial court decision addressing notice under a claims-made policy. In the decision, despite being aware of a pending lawsuit, the insured did not report the claim to the carrier until after the policy expired and the extended reporting period passed. When the carrier declined to cover the loss, the insured argued New York Insurance Law § 3420(d) applied and because the carrier failed to issue a denial based upon late notice, it waived its ability to do so. As you will see, the court rejects this argument finding that unlike occurrence based policies, notice under a claims-made policy is a key component of coverage and a denial on that basis cannot be waived as it would undermine the very structure of these policies. A good read.
Until next issue.
Jennifer A. Ehman
Headlines from this week’s issue, attached:
KOHANE’S COVERAGE CORNER
Dan D. Kohane
- While Insured has Burden of Proving Coverage, Party who Moves for Summary Judgment (here, the Carrier) has Burden of Proof on Motion
- No Proof of Offending Vehicle and Driver? No Stay of UM Proceeding
- “Residence Premises” as Defined in Policy NOT Ambiguous. It Means What It Says and Says What It Means
- E&O Claim Survives Motion to Dismiss
- The Workers Compensation Law Disallows Lawsuits by Employees against Employers (or Third-Party Actions, without a Grave Injury) but (wait for it) Only if the Employer Provides Workers Compensation Coverage
- If there were a Written Contract that Required Additional Insured Status be Provided and that Contract was Assigned to a Different Contractor before the Loss, the Carrier that insured the Assignee may be Required to Provide Additional Insured Coverage
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
- Question of Fact on Retroactivity of Indemnity Provision Executed After Jobsite Injury
- Extension of Service Time was Appropriate in the Interests of Justice
- Here, Here for Hearsay; Unsworn statement of Non-Party Rejected as Double Hearsay
- Plaintiff’s “Employer” was Alter-Ego of the Named Defendant thus Barring the Action Under Section 11 of the Workers’ Compensation Law
DISHING OUT SERIOUS INJURY THRESHOLD
Michael J. Dischley
- Where Plaintiff’s Medical Records Did Not Indicate Any Significant Restrictions, Defendant’s Threshold Motion Granted Despite Plaintiff’s Surgery and No IME
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
- Second Circuit Finds Insured has Standing in Declaratory Judgment, Despite not Being a Party to the Underlying Action, Since it has a Personal Stake in the Outcome
Jennifer A. Ehman
- Court Finds Insurer that Issued a Claims-Made Policy Did Not Waive Disclaimer Based Upon Late Notice
- Court Dismisses Lawsuit by Injured Plaintiff Against Tortfeasor’s Agent and Broker
BARNAS ON BAD FAITH
Brian D. Barnas
- Under Vermont Law, Date of Loss as Used in Suit Limitation Clause Meant the Date of the Occurrence Giving Rise to Coverage
JOHN’S JERSEY JOURNAL
John R. Ewell
- New Jersey Supreme Court Clarifies Deemer Statute. Creation of “Basic” and “Special” Policies Did Not Alter Requirement that Out-of-State Vehicles Be Deemed to Carry $15k/$30k BI Coverage
- GEICO’s Lawsuit against PIP Providers Alleging Fraud, Overbilling, Unnecessary Treatments, and RICO Violations Proceeds Forward
LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel
- Lessons in Counting
OFF THE MARK
Brian F. Mark
- US District Court Finds No Occurrence and Thus, No Duty to Defend where No Property Damage Occurred during the Relevant Policy Periods
Eric T. Boron
- In Automobile Liability Coverage Case, Nebraska Supreme Court Strikes Down Partial Household Exclusion, Citing Nebraska Statute
BARCI’S BASICS (ON NO FAULT)
Marina A. Barci
- No-fault Assignor’s Failure to Attend IME is Enough to Deny Provider Reimbursement
RYAN’S CAPITAL ROUNDUP
Ryan P. Maxwell
- Senate Standing Committee on Insurance Referred Bill Requiring Liability Insurance Rate Reductions upon Completion of Boating Safety Course
- DFS Proposes Consensus Rulemaking to Update Outdated Regulations and Conform Public Access to Department Records With FOIL
- DFS Proposes Adoption of a NAIC Model Regulation Requiring Insurers to Maintain a Corporate Governance Framework and File a Corporate Governance Annual Disclosure
From the Filings Cabinet
- DFS Advises Filer that “Refer to Company” May Never be Used for Rates and Charges within a Rate-Rule Manual
CJ on CVA and USDC(NY)
Charles J. Englert III
- School District’s Motion to Dismiss Claims Brought under Child Victims Act Granted in Part
CARA’S CANADIAN AND CROSS-BORDER CONNECTIONS
(WITH HEATHER SANDERSON)
Cara A. Cox
Sanderson Law (Alberta, Canada)
- Court of Appeal Upholds Lower Court’s Decision in Favor of Carrier and Broker
- Coverage for Losses Caused by the Fraudulent Use of Online Banking Credentials
- The Extra-Territorial Reach of Privacy Legislation Creates Potential International Liability for American Companies
Earl K. Cantwell
- Exclusion for “Unoccupied” Property Means People Not Stuff
That’s about all there I, but there will be more in two weeks. Happy St. Patrick’s Day, in advance.
Hurwitz & Fine, P.C. is a full-service law firm providing legal services throughout the State of New York and providing insurance coverage advice and counsel in New Jersey and Connecticut.
In addition, Dan D. Kohane is a Foreign Legal Consultant, permit no. 000241, issued by the Law Society of Upper Canada, and authorized to provide legal advice in the Province of Ontario on matters of New York State and federal law.
Dan D. Kohane
Agnes A. Wilewicz
John R. Ewell
INSURANCE COVERAGE/EXTRA CONTRACTUAL LIABILITY TEAM
Dan D. Kohane, Chair
Steven E. Peiper, Co-Chair
Michael F. Perley
Jennifer A. Ehman
Agnieszka A. Wilewicz
Lee S. Siegel
Brian F. Mark
Diane L. Bucci
Brian D. Barnas
John R. Ewell
Eric T. Boron
Marina A. Barci
Ryan P. Maxwell
Charles J. Englert
Cara A. Cox
Diane F. Bosse
Joel R. Appelbaum
FIRE, FIRST-PARTY AND SUBROGATION TEAM
Steven E. Peiper, Team Leader
Michael F. Perley
Eric T. Boron
Brian D. Barnas
Jennifer A. Ehman, Team Leader
Marina A. Barci
Jody E. Briandi, Team Leader
Diane F. Bosse
Kohane’s Coverage Corner
Peiper on Property and Potpourri
Dishing out Serious Injury Threshold
Wilewicz’s Wide World of Coverage
Barnas on Bad Faith
John’s Jersey Journal
Lee’s Connecticut Chronicles
Off the Mark
Barci’s Basics (on No Fault)
Ryan’s Capital Roundup
CJ on CVA and USDC(NY)
Bucci On “B”
Cara’s Canadian and Cross-Border Connections (with Heather Sanderson)
03/04/20 McIntosh v. Ronit Realty, LLC
Appellate Division, Second Department
While Insured has Burden of Proving Coverage, Party who Moves for Summary Judgment (here, the Carrier) has Burden of Proof on Motion
In February 2014, the third-party defendant A.B.C. Tank Repair & Lining (“ABC”) was hired by Ronit Realty (“Ronit”) to perform tank removal services. McIntosh, an employee of ABC, was hurt. Crum & Forster (“Crum”) insured ABC.
McIntosh sued Ronit, and Ronit commenced a third-party action against Crum, seeking judgment declaring that Ronit was entitled to insurance coverage in connection with this action as an additional insured under the ABC policy.
Crum moved for summary judgment dismissing the third-party complaint insofar as asserted against it and declaring that it had no duty to defend or indemnify Ronit, contending that Ronit did not qualify as an additional insured under the terms of ABC policy.
Generally, in a dispute over insurance coverage, the insured bears the initial burden of establishing that the loss claimed falls within the scope of the policy. Once coverage is established, the insurer bears the burden of proving that an exclusion applies.
However, as the moving party with respect to a motion for summary judgment, Crum had the burden of establishing its prima facie entitlement to judgment as a matter of law. The failure of Crum to make the requisite prima facie showing warranted the denial of its motion regardless of the sufficiency of the opposing papers.
Editor’s Note: A conundrum wrapped in an enigma. Thoughts?
03/03/20 Global Liberty Ins. Co. v. Perez
Appellate Division, First Department
No Proof of Offending Vehicle and Driver? No Stay of UM Proceeding
Global commenced this proceeding seeking an order to permanently stay the uninsured motorist (“UM”) arbitration. On January 1, 2015, a 2011 Toyota driven by Perez was rear-ended by a vehicle. The driver of the vehicle fled the scene, and the year and make of the offensive vehicle is contested.
There are two police reports that are identical, except for the description of the year and brand of the offensive car. One report indicates that the vehicle was a 2003 Subaru, while the other report indicates that it was a 2005 Chevrolet. The license plate recorded in the police accident reports showed that it was registered to Flores. On the date of the accident, the ex-spouse of Flores reported the vehicle registered to the license plate in the police accident reports as missing or stolen. That report does not ask for the year and make of the missing vehicle.
At the hearing, a police officer testified that he responded to the accident. Officer Smith testified that the original police accident report identified a 2005 Chevrolet as the offensive vehicle. Smith was unable to explain why or how someone had changed the description of the vehicle to a 2003 Subaru, since only he could make changes to the report. Perez, on the other hand, testified that he believed the offensive vehicle that struck the rear end of his car was a blue Subaru.
The court found that the evidence did not demonstrate that the license plate registered under Flores matched a 2003 Subaru and there was no proof that Flores owned either a Subaru or a Chevrolet.
Accordingly, there was no proof that the vehicle in the accident was owned by Flores and insured at the time of the accident. Accordingly, there is no reason to stay the UM arbitration.
Editor’s Note: For those unfamiliar with NY practice in this area, if a demand is made for UM arbitration and the carrier that receives the demand believes that the offending vehicle was not uninsured (in this case, stolen or unidentified), it must make an application to the court to permanently stay arbitration (and establish, by sufficient proof) that the vehicle involved was insured. That application must be made to the court within 20 days of the arbitration demand. In this case, the application was made, a “framed issue” on the question was scheduled and conducted, but the carrier was unable to establish the existence of coverage on the offending vehicle.
03/03/20 MIC General Ins. Corp. v. Campbell
Appellate Division, First Department
“Residence Premises” as Defined in Policy NOT Ambiguous. It Means What It Says and Says What It Means
The insured admitted in a statement and the investigator's confirmed it with an inspection of the insured premises, the person seeking coverage did not reside at the premises, and was therefore, not covered by the policy.
The policy endorsement that amends the definition of "residence premises" — previously, "[t]he one-family dwelling ... where you reside" — to include three- and four-family dwellings without repeating the phrase "where you reside" is not ambiguous. The endorsement also states that "[a]ll other provisions of this policy apply," which gives effect to those portions of the policy that define "residence premises" as the place "where [the insured] reside[s]".
Editor’s Note: We’re seeing LOTS of these cases, in our office, lately.
03/03/20 Greig v. Allstate Ins. Co.
Appellate Division, First Department
E&O Claim Survives Motion to Dismiss
According plaintiffs the benefit of every favorable inference to be had from the allegations in the complaint and from plaintiff’s affidavit, insureds adequately stated causes of action against agent in connection with its alleged failure to procure an insurance policy covering the back house on plaintiffs' premises to the extent they intended. Plaintiffs sufficiently allege that such intention was communicated to Riccio prior to the fire that destroyed the back house.
02/26/20 Naula v. Utokilen, LLC
Appellate Division, Second Department
The Workers Compensation Law Disallows Lawsuits by Employees against Employers (or Third-Party Actions, without a Grave Injury) but (wait for it) Only if the Employer Provides Workers Compensation Coverage
Naula was hurt when he fell at work at premises owned by Utokilen and leased by Marin-Rojay). Following a hearing before the Workers' Compensation Board (“WCB”), Naula was awarded workers' compensation benefits. The WCB made a finding that the plaintiff's employer, Specialized Dental, was uninsured at the time of the accident. The WCB also found that the general contractor, Adapt Construction (“GC”), which failed to appear at the hearing was the general contractor and that Specialized Dental was the subcontractor on the subject construction project.
Utokilen and Marin-Rojas commenced a third-party action against Specialized Dental sounding in common-law indemnification and contribution. Specialized Dental moved for summary judgment dismissing the third-party complaint, invoking its affirmative defense based on the exclusivity provisions of Workers' Compensation Law § 11, and further arguing that it cannot be held liable in common-law contribution or indemnity to Utokilen and Marin-Rojas because the plaintiff did not sustain a grave injury within the meaning of Workers' Compensation Law § 11. Utokilen and Marin-Rojas opposed Specialized Dental's motion and cross-moved for summary judgment dismissing Specialized Dental's and Adapt's affirmative defenses based upon the exclusivity provisions of Workers' Compensation Law § 11 arguing argued that Specialized Dental cannot invoke Workers Compensation Law § 11 because it was uninsured at the time of the accident.
Workers' Compensation Law § 11 prohibits third-party claims for indemnification and contribution against an employer unless the employee has sustained a "grave injury" as defined in that statute or, as is not relevant herein, there is a written contract entered into prior to the accident or occurrence by which the employer had expressly agreed to contribution or indemnification of the claimant However, "an employer cannot benefit from the protections of Workers' Compensation Law § 11 against third-party liability when it fails to secure workers' compensation insurance".
Since Specialize Dental allowed its workers compensation coverage to lapse, it lost its ability to rely on the exclusivity of the workers compensation law, and Marin-Rojas demonstrated, prima facie, that Specialized Dental had a lapse in workers' compensation insurance at the time of the subject accident. In opposition, Specialized Dental failed to raise triable issue of fact. Accordingly, the court granted that branch of Utokilen and Marin-Rojas's cross motion which was for summary judgment dismissing Specialized Dental's affirmative defenses based on the exclusivity provisions of Workers' Compensation Law § 11, and denying Specialized Dental's motion for summary judgment dismissing the third-party complaint.
02/25/20 Travelers Property Cas. Co. v. The Burlington Ins. Co.
Appellate Division, First Department
If there were a Written Contract that Required Additional Insured Status be Provided and that Contract was Assigned to a Different Contractor before the Loss, the Carrier that insured the Assignee may be Required to Provide Additional Insured Coverage
The blanket additional insured endorsement to the policy issued by Burlington to its named insured, Sal Vio Construction Corp. provided additional insured coverage to "any person or organization for whom you [Sal Vio] are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy."
The written subcontract between Del Savio Masonry Corp. and PSVJ contained such an agreement, i.e., that Del Savio would add PSJV and Plaza as additional insureds under its policy. However, Del Savio assigned its rights and obligations under the subcontract to nonparty Sal Vio Construction Corp., and Burlington argued that it is not bound by the assignment. The Court disagreed.
Under the assignment, Sal Vio, the assignee, acknowledged that its “obligations and liabilities under the Agreement [the PSJV-Del Savio subcontract] are effective as of the date Assignor signed the Agreement (as if Assignee was the original signatory thereof)." Accordingly, "by virtue of the assignments and assumptions obligating them to be bound by the same [subcontract]," Burlington may be obligated to insure PSJV and Plaza.
However, as Burlington points out, issues of fact exist whether the assignment was made prior to the date of the underlying plaintiff's accident. The assignment expressly states that it is "effective as of the date of this Assignment." However, the assignment is not dated, and plaintiffs' evidence failed to establish prima facie the effective date.
03/03/20 Mendez v. Bank of America, NA
Appellate Division, First Department
Question of Fact on Retroactivity of Indemnity Provision Executed After Jobsite Injury
A contractual indemnity claim between Americon and Liberty is the matter at issue in this case. Americon retained Liberty to perform demolition work under a purchase order which contained terms and conditions. The terms and conditions included, among other things, a contractual indemnity provision which would otherwise appear to apply.
However, at the time of the plaintiff’s injury while in the course of his employment with Liberty, the purchase had not yet been executed. It was signed after the incident involving Mr. Mendez.
Americon argues that the although not executed, the indemnity clause is still enforceable because the parties meant that the terms and conditions would apply retroactively after execution of the document. It argued in support of its position the facts that Liberty was performing under the terms of the purchase order at the time of the incident, and Liberty procured insurance in compliance with the terms of the purchase order.
The Court noted that neither of these arguments dispositively establish the indemnify provision was meant to apply retroactively. That said, the fact that Liberty nearly completed its obligations under the contract at the time of the incident involving Mr. Mendez, and the fact that they did, in fact, procure insurance consistent with the purchase order’s requirement, both worked to create an issue of fact as to how, and when, the indemnity provision would apply.
02/27/20 Amica Ins. v. Baum
Appellate Division, Third Department
Extension of Service Time was Appropriate in the Interests of Justice
After its efforts to serve defendant were unsuccessful, plaintiff petitioned the Court for an extension of the 120 day deadline to serve its subrogation Complaint. The motion must have made its way to defendant, however, as they appeared and opposed the application on the basis that Amica failed to proffer a reasonable excuse for failing to effectuate enforceable service in the first 120 days.
The trial court granted Amica’s application, and the Appellate Division affirmed. As noted by the Court, the trial court is granted broad discretion where there is good cause show or the interests of justice compel an extension. Here, the Court noted Amica’s attempts to serve the Complaint, and agreed good cause was shown. Nevertheless, even if good cause were not established, the trial court is granted broad discretion to extend the time to serve “in the interest of justice”
02/27/20 Global Energy Efficiency Holdings v. William Penn Life Ins.
Appellate Division, First Department
Here, Here for Hearsay; Unsworn statement of Non-Party Rejected as Double Hearsay
This decision appears to center around William Penn’s attempts to introduce as evidence an alleged statement of the decedent’s wife. From a review of the relatively sparse opinion, it appears that the unsworn, unverified statement was taken during an interview conducted by an investigator hired by the carrier. Plaintiff objected to the introduction of the statement on the basis that it constituted double hearsay (ie., a statement of someone else which was recorded in a report to the insurance company).
William Penn did not go down without a fight. However, as outlined, none of its arguments for an exception to hearsay carried the day. With regard to arguing that the statement constituted a “business record,” the Court noted that decedent’s wife was under no duty to make the statement. It was not an “excited utterance” because she was not subject to a “startling event” immediately prior to the statement.
The statement was also not subject to the professional opinion exception because no evidence was adduced that it is the “type of material commonly relied on in the medical profession.” Moreover, the statement could not satisfy the test for “past recollection recorded,” because it was not signed, nor otherwise authenticated, thus giving rise to a question of its trustworthiness.
Finally, William Penn’s attempt to get the entire report into evidence via the business record exception also failed. This is because the statement was not signed/verified which was a departure from the recording investigator’s usual custom. As such, the statement (and report) were not prepared in the ordinary course of business.
02/25/20 Rodriguez v. Dairyland HP, LLC
Appellate Division, First Department
Plaintiff’s “Employer” was Alter-Ego of the Named Defendant thus Barring the Action Under Section 11 of the Workers’ Compensation Law
Chef’s Warehouse is the parent corporation, and maintained direct control over multiple subsidiaries including Dairyland USA and Dairyland HP. At the time of his injury, it is alleged that defendant was working for Chef’s Warehouse, and thus attempted to commence the instant lawsuit against Dairlyland HP. Defendant moved to dismiss the lawsuit by arguing that it was barred by application of Section 11 of the Workers’ Compensation Law.
Essentially, defendant argued that Dairyland was wholly owned by Chef’s Warehouse, and that Dairyland was nothing more than an alter-ego of Chef’s Warehouse. Indeed, the companies shared a common CEO, and “shared common administrative, financial and insurance resources.” Among the insurance resources was the Workers’ Compensation policy, purchased by Chef’s Warehouse. On this Record, the Court ruled that plaintiff’s claims were, in fact, barred, and dismissed the lawsuit accordingly.
DISHING OUT SERIOUS INJURY THRESHOLD
Michael J. Dischley
02/20/20 Scarincio v. Cerillo
Supreme Court, Warren County
Where Plaintiff’s Medical Records Did Not Indicate Any Significant Restrictions, Defendant’s Threshold Motion Granted Despite Plaintiff’s Surgery and No IME
Plaintiff commenced this action seeking to recover for injuries he allegedly sustained on June 29, 2016 when the automobile he was operating was involved in an intersection collision with an automobile operated by defendant. Plaintiff alleges that, as a result of the collision, he suffered a serious injury within the meaning of Insurance Law § 5102 and incurred an economic loss in excess of basic economic loss, as that term is defined in Insurance Law § 5102.
Following discovery, defendant moved for summary judgment dismissing the complaint, contending plaintiff did not suffer a serious injury under any of the enumerated categories set forth in the statute. Plaintiff opposed the motion, arguing that — at the very least — the records present questions of fact.
In support of defendant’s motion, plaintiff’s medical records and deposition testimony were proffered. In the verified bill of particulars plaintiff claims to have suffered injuries to his neck, both shoulders and left hand/fingers that ultimately resulted in him undergoing a carpal tunnel release surgery in April of 2019. At the time of the accident plaintiff lost three workdays immediately following the accident and then losing an additional 113 hours of work sporadically for medical appointments. His return to work was without specific medical restrictions. He was also a student at the time and claims he missed 14 days of school as a result of his injuries, although these interruptions were incurred over the course of two years and did not prevent him from graduating on time.
Review of plaintiff’s medical records from the day of the accident indicate pain in the neck and left shoulder area. There were no complaints of left hand/finger pain and the discharge diagnosis is of a cervical sprain. Several of plaintiff’s medical records indicated normal diagnostic tests and did not indicate any significant reduction in range of motion. Additionally, records from plaintiff’s own medical providers indicated that plaintiff had a 0% disability.
With regard to plaintiff’s eventual carpal tunnel surgery, on November 27, 2018, plaintiff underwent EMG/Nerve Conduction studies with a finding of “no peripheral neurological cause of the patient’s left wrist symptoms.” Nevertheless, on April 5, 2019, a left endoscopic carpal tunnel release was performed which produced “resolution of the right numbness.” After the surgical release plaintiff had “between a 75 and 90 percent” improvement and his carpal tunnel complaints diminished.
Based on the above, defendant argued that none of the plaintiff’s medical records include any physician’s diagnosis that the injuries treated are permanent as is required to establish a serious injury under the permanent consequential limitation category of the statute. Similarly, it was argued that none of the medical providers have described any medically significant limitation of use of a body function or system.
Even when viewing this evidence in a light most favorable to the plaintiff, the Court found that — even accepting the medical opinions supporting causation — the described limitations are not sufficiently medically significant to permit recovery beyond that authorized by the no-fault law.
With the burden thus shifted to plaintiff to raise a triable issue of fact regarding a significant limitation, the Court proceed with the “recognition that carpal tunnel syndrome can form the basis for a significant limitation of use under Insurance Law § 5102 (d)”. “However, where, as here, there are no significant problems after successful surgery and the residual symptoms are nothing more than mild, minor or slight impairments, no triable issues will be raised by this proof’.
As such, the Court found that plaintiff failed to raise an issue of fact sufficient to withstand summary judgment.
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
02/11/20 Sunham Home Fashions, LLC v. Diamond State Insurance Co.
United States Court of Appeals, Second Circuit
Second Circuit Finds Insured has Standing in Declaratory Judgment, Despite not Being a Party to the Underlying Action, Since it has a Personal Stake in the Outcome
Sunham Home Fashions brought an action against its umbrella insurer, Diamond State, in relation to an underlying action to which Sunham was not a party. The Second Circuit ultimately heard the appeal, but did not provide many facts in its summary order and dispositive motion decision. At issue on that appeal, however, was a jurisdictional inquiry as to whether Sunham even had standing to sue when it was not a party to the underlying case. “As a general matter”, the court wrote”, “federal appellate jurisdiction is limited by the appellant’s personal stake in the appeal. Sunham Sunham clearly has a personal stake in the judgment for LMC, since—if we were to differ with the District Court as to its grant of summary judgment for LMC—that might affect Sunham’s ability to seek reimbursement from LMC. The District Court’s decision as to LMC was thus sufficiently adverse to Sunham, so that an appeal of that decision is properly before us.” As such, they affirmed the lower court’s decision to grant summary judgment in favor of the carrier and against the insured.
Jennifer A. Ehman
03/04/20 Certain Underwriters at Lloyds, London v. Advance Tr. Co. Inc.
Supreme Court, New York County
Hon. Paul A. Goetz
Court Finds Insurer that Issued a Claims-Made Policy Did Not Waive Disclaimer Based Upon Late Notice
Defendant, Advance Transit Co. Inc., was insured under a claims-made policy issued by Plaintiff, Certain Underwriters, with a policy period of October 30, 2016 through October 30, 2017. The policy stated that insurance applies to bodily injury only if a claim against Advance is made and reported to Underwriters during the Policy Period, or the Extended Reporting Period. If the policy was renewed, Advance would also have 60 days after that expiration of the policy to report the claim to Underwriters. The policy provides no coverage for claims made during the policy period under any subsequent policy written by the Underwriters.
Here, the claims against Advance in the Underlying Action were made on May 30, 2017, when a third-party action was filed against the company. The third-party action was served on June 14, 2017. Since Advance renewed its policy, it had 60 days after expiration of the policy period, or until December 29, 2017 to report the claim to Underwriters. However, Advance failed to report the claim until January 8, 2018.
On this motion, Advance argued that it was entitled to coverage because Underwriters failed to disclaim coverage on the basis of late notice, thereby waiving its rights. In considering this argument, the court noted that while a defense to coverage may be waived, waiver cannot create coverage where none exists. And, given that this is a claims-made and reported policy, coverage for Advance’s claim does not exist unless Advance timely reports the claim to Underwriters. In turn, the defense cannot be waived based upon failure to disclaim.
Advance also argued the policy did not comply with Insurance Law § 3420(a)(5), which provides that “[w]ith respect to a claims-made policy…the policy may provide that the claim shall be made during the policy period, any renewal thereof, or any extended reporting period…” Advance argued the subject policy was required to permit reporting during the renewal period. The court disagreed referring to the statute as ambiguous, but noting that it used the word “or” as opposed to “and,” and noting that on its face this seemed to give insurers the option of requiring notice be made during any or all three of these time periods.
The court further noted that Advance’s position was inconsistent with the long-standing function of and interpretation of claims-made policies. The existence of a cutoff date is integral to these types of policies and directly relates to rate setting.
Lastly, the court rejected any argument by Advance that it provided timely notice because it placed an entity called “Claims Service Bureau” on notice. Nowhere in the policy did it direct notice to be provided to this entity, and any argument that it might be an agent of Underwriters did not vitiate language in the policy requiring written notice of the claim to Premier Claims Management, LLC. Accordingly, the court granted the Underwriters’ motion
01/10/20 Regnowski v. Narragansett Bay Ins. Co.
Supreme Court, Suffolk County
Hon. Robert Quinlan
Court Dismisses Lawsuit by Injured Plaintiff Against Tortfeasor’s Agent and Broker
This action stems from claims arising from personal injuries allegedly sustained by plaintiff as a result of an August 8, 2015 boating accident when a boat operated by non-party Joseph M. Balarezo allegedly came into contact with plaintiff resulting in the amputation of her lower extremity.
The complaint here described C.A.M. as an insurance agent and RPS as a broker involved in the placement of a renter’s policy issued by Narragansett to Balarezo. It alleges that these defendants had a duty to procure insurance for Balarezo which would have covered him for losses such as that suffered by plaintiff, and that they breached this duty in failing to properly research Narragansett and the subject policy. C.A.M. and RPS moved to dismiss on the basis that the complaint failed to state a cause of action.
The court granted the motion holding that, as a general rule, an insurance broker has a common-law duty to provide requested coverage within a reasonable time and may be held liable for negligence or breach of contract when a client establishes that a specific request was made for coverage that was not provided in the policy. On the record before the court, it was undisputed that plaintiff was not a client of RPS, therefore, plaintiff lacked standing to assert a claim upon any alleged failure to provide coverage for non-party Balarezo. And, with regard to C.A.M., it established that it is an insurance brokerage firm which never had any contact or dealing with plaintiff, plaintiff was never a client and C.A.M. never acted as an insurance broker for plaintiff. Accordingly, the complaint was dismissed with regard to these entities.
Plaintiff was covered by a homeowners policy issued by New England. The policy contained a provision stating that no action could be brought unless it was started within one year after the date of loss. Date of loss was undefined.
Plaintiff alleged that her property was damaged by water on January 18, 2010. The parties disagreed about the value of the claim and communicated about the claim over several years. Final payment was made on February 16, 2017. After New England did not agree to a request for an appraisal, Plaintiff filed a lawsuit on February 12, 2018 alleging breach of contract and bad faith. New England moved for summary judgment arguing that the claim was barred by the suit limitations clause.
Under Vermont law, suit limitation clauses are generally enforceable. Such clauses may apply to bad faith claims as well to the extent those claims are essentially breach of contract claims presented as a tort. The Vermont Supreme Court concluded that the phrase “date of loss” as used in the policy unambiguously means the date of the occurrence giving rise to coverage. In so concluding, the court considered the plain language of the policy, the policy as a whole, and determined this position was consistent with the majority of courts that have considered the question.
However, the court concluded that Plaintiff raised an issue of fact sufficient to defeat summary judgment on the issue of waiver. The court determined that the evidence of ongoing negotiations between the parties within the contractual limitation raised an issue of fact on waiver. The case was remanded for the trial court to address the plaintiff’s waiver argument and to consider the bad faith claims if necessary.
02/26/20 Felix v. Richards (AAA v. GEICO)
New Jersey Supreme Court
New Jersey Supreme Court Clarifies Deemer Statute. Creation of “Basic” and “Special” Policies Did Not Alter Requirement that Out-of-State Vehicles Be Deemed to Carry $15k/$30k BI Coverage
New Jersey’s “deemer” statute, N.J.S.A. 17:28-1.4, deems out-of-state auto policies have to carry the same $15,000 per person / $30,000 per accident bodily injury (BI) liability insurance coverage required under New Jersey’s standard policy.
Since the enactment of the deemer statute, the Legislature has created two alternate forms of lesser insurance coverage – coverage that does not automatically include BI: the basic policy and the special policy, both of which satisfy New Jersey’s compulsory insurance requirements. The New Jersey Supreme Court considered whether the enactment of the basic policy has fundamentally altered the requirements of the deemer statute, such that the amount deemed to be covered by out-of-state policies has been reduced from previously required amounts – namely $15,000/$30,000 in compulsory minimum BI liability – to the level of the basic policy, which would mean that BI coverage would no longer be required. The Court also considered the argument that a contrary reading would create an equal protection violation.
Felix’s vehicle collided with Richards’ vehicle in New Jersey. Richards was insured under a New Jersey automobile insurance policy issued by AAA. The policy provided BI liability coverage, as well as uninsured and underinsured motorist (UM/UIM) coverage. Felix was insured by GEICO under a policy written in Florida. That policy provided up to $10,000 in property liability and personal injury protection (PIP) benefits, but it did not provide any BI liability. Felix sued Richards for personal injuries, and, in a separate action, Richards sued Felix and AAA for personal injuries. AAA then filed a third-party complaint against GEICO, claiming that GEICO’s policy was automatically deemed to include $15,000/$30,000 in BI coverage and that payment would eliminate the claim for UM/UIM coverage by AAA. The trial court determined that the deemer statute applied to GEICO’s policy, rejecting the argument that the statute creates a carve-out for BI coverage based upon the basic policy, as well as GEICO’s constitutional challenge. The Appellate Division affirmed, and the New Jersey Supreme Court granted the petition for certification filed by GEICO.
The Court began its analysis by examining the plain language of the deemer statute. The deemer statute achieved its present form in 1998, when the Legislature added in the first sentence an express reference to N.J.S.A. 39:6A-3.1, which sets forth requirements for a basic policy. In the second sentence of the deemer statute, the Legislature inserted the words “subsection a” before the citation to N.J.S.A. 39:6B-1; N.J.S.A. 39:6B-1(a) contains the compulsory requirements for BI liability for motor vehicles. The Legislature did not add any mention of the basic policy or its lack of any BI required coverage to the second sentence, which GEICO agreed covers the category of insurer into which it falls. The Court emphasized that “Context is important” and found that the second sentence of the deemer statute employs words that convey a presumed requirement of some minimum BI liability coverage: “shall . . . satisfy at least.”
Moreover, the Court found that the legislative insertion of “subsection a.” must be regarded as intentional and meaningful to the Legislature. The plain language leads to one clear conclusion. The basic policy was added as a standard for insurers covered by the deemer statute’s first sentence, but the basic policy’s BI limits do not apply to insurers governed by the deemer statute’s second sentence.
Accordingly, the Supreme Court held that the Legislature’s creation of the “basic” and “special” policies (which do not have BI coverage) did not modify the deemer statute. In a New Jersey accident, out-of-state insurance policies are deemed to have BI liability of $15,000 per person and $30,000 per accident.
The Court supported its interpretation, citing the Legislative intent of the deemer statute. The intent of the deemer statute was to lessen the regulatory burden on insurers who have the most attenuated connection to motor vehicle insurance business in New Jersey—those governed by the first sentence of the deemer statute.
For insurers governed by the statute’s second sentence, like GEICO, the Legislature has never lessened their obligation to provide, or be deemed as providing, compulsory minimum liability coverage. The Legislature reaffirmed its commitment to BI coverage in the second sentence by its additional reference to subsection a. of N.J.S.A. 39:6B-The second sentence’s reference to N.J.S.A. 39:6A-3 does not establish that the Legislature implicitly intended to convert the entire second sentence’s BI requirements to the equivalent of a basic policy. First, that reference was meant to ensure that the statute encompasses both automobiles and motor vehicles.
Further, the Court found that it defies logic and sensibility that by retaining the reference to N.J.S.A. 39:6A-3, the Legislature intended to make so large scale a change to the deemer statute’s second sentence when, at the same time, the Legislature knew how to and did incorporate an explicit reference to the basic policy in the first sentence. Lastly, if the compulsory insurance obligations of insurers have dropped to the basic policy’s BI floor, it would render the “shall . . . satisfy at least” language of the deemer statute’s second sentence nonsensical. The fact that the Legislature now permits New Jersey insureds to accept zero BI coverage does not alter what remains the compulsory minimum BI liability coverage amounts that insurers writing in New Jersey must provide.
The Supreme Court also rejected GEICO’s equal protection claim. Comparing a New Jersey authorized insurer that writes in New Jersey to another New Jersey authorized insurer that writes in New Jersey and also writes in other states, the equal protection claim fell flat. The Court explained that insurers are treated the same with respect to the duty to provide minimum compulsory insurance coverage limits. There is no discriminatory classification. New Jersey insureds are the ones who have a choice to purchase less than the presumptive minimum amount that must be offered by all insurers authorized to transact automobile insurance business in this State. The obligation of in-state insurers to offer and provide that minimum is the same as the obligation imposed under the deemer statute’s second sentence on authorized insurers writing an out-of-state policy.
For those out-of-state policies, the Legislature has made the policy choice to stick with the compulsory minimum limits. The choice – to be more protective of the Unsatisfied Claim and Judgment Fund from claims caused by out-of-state insured tortfeasors who may have no access to BI insurance coverage than from a claim caused by a New Jersey tortfeasor having only a basic policy – is not an irrational policy choice.
02/24/20 GEICO v. Adams Chiropractic Center
U.S. District Court, District of New Jersey
GEICO’s Lawsuit against PIP Providers Alleging Fraud, Overbilling, Unnecessary Treatments, and RICO Violations Proceeds Forward
GEICO is suing various PIP providers (defendants), to recover more than $2.7 million “wrongfully obtained from GEICO by submitting, and causing to be submitted, thousands of fraudulent no-fault insurance charges … for purported initial examinations, follow-up examinations, chiropractic services, physical therapy services, acupuncture treatments, biofeedback training, pain management injections, and psychological diagnostic evaluations (collectively, “Fraudulent Services”). Specifically, GEICO allege that defendants billed for “unlawful, medically unnecessary, and otherwise non-reimbursable services” provided to individuals eligible for coverage (the “Insureds”) and participated in an illegal referral scheme.
GEICO asserted the following causes of action against the defendants: violations of the New Jersey Insurance Fraud Prevention Act (“NJIFPA”), RICO violations, common law fraud, and unjust enrichment. Defendants moved to dismiss the complaint.
GEICO alleges defendants provided Fraudulent Services to numerous Insureds over the course of six years and submitted claims for reimbursement to GEICO for that treatment. The Complaint pleaded, with extensive examples, that defendants treated Insureds who were involved in minor accidents, but who did not suffer from “significant long-term injuries or health problems” with “long-term, medically unnecessary course[s] of ‘treatment’ . . . pursuant to a pre-determined, fraudulent protocol . . .” rather than in response to their genuine health-care needs. The allegations sufficiently pled a claim under the NJIFPA.
The Complaint alleges that the medical corporations are each separate, corporate racketeering enterprises, in concert with the other named defendants, submitted, or caused to be submitted, fraudulent claims worth millions of dollars to GEICO between 2013 and 2019. Those submissions as pled satisfied the elements of mail fraud—a racketeering activity. Those allegations sufficiently pleaded RICO violations.
The Complaint contains numerous examples of allegedly improper billing which include descriptions of the underlying accidents leading to treatment, the type of treatment each Insured received, explanations as to why that treatment was not medically warranted, and dates when fraudulent bills were submitted to GEICO. The Complaint further alleges that defendants knew that their submissions were false, that they intended that GEICO rely on those submissions, and that GEICO did, in fact, rely on those submissions to make payments of approximately $2,700,000.00 to defendants for the Fraudulent Services. Thus, fraud was sufficiently pleaded.
The Complaint alleges that GEICO paid approximately $2,700,000.00 in fraudulent claims submitted by defendants and those payments were made for services that were medically unnecessary. GEICO sufficiently alleged claims for unjust enrichment. Accordingly, defendants’ motion to dismiss the insurers’ complaint was denied.
Note: This is a “Not for Publication” decision and does not constitute binding precedent.
LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel
02/25/20 Rutter v. Janis
Connecticut Supreme Court
Lessons in Counting
You would think that lawyers, most of us with seven years of higher education, would know how to count. Not so. It took an appeal all the way up to the Connecticut Supreme Court for lawyers to figure out how to count to 30.
The plaintiffs were passengers who were severely hurt, and one person killed, in a car driven by Luis Martins. But the operative defendant was the dealership from whom Martins (and his father) bought the car, Danbury Hyundai. You see, there was a holdup with the paperwork that prohibited the Martins from taking immediate ownership. So, the dealership provided them with a temporary dealer license plate. Connecticut law, Gen. Stat. Sec. 14-60(a), allows a dealer to provide a temporary plate while registration is pending, but for only up to 30 days. “(3) when such person has purchased a motor vehicle from such dealer, the registration of which is pending, and in any case for not more than thirty days in any year….”
Of course, the fatal accident happened on the 30th day, or was it the 29th or could it have been the 31st day? Counting is hard.
Preliminarily, we need to answer why this is important. So, the statute provides the dealership with a safe harbor from liability, but only within the 30-day window. If the accident occurs during the safe harbor window, the driver’s insurance is responsible, even though the dealership is still the technical owner of the vehicle. If, however, the driver has no insurance, then driver and dealership are jointly liable. But, outside the safe harbor provision, the dealership is liable as owner.
Now that we see why this is important, let’s do some counting.
The Martins bought the Veloster on May 9, 2013, at approximately 7 pm. The accident occurred on June 8, 2013, at approximately 3 pm. May being a 31-day month, depending on when you start and finish counting, the accident is either within or without the safe harbor. Unremarkably, the plaintiffs argued that the accident occurred on the 31st day of the loan; meanwhile, the dealership claimed that it is error to count May 9th as the first day.
As lawyers who calculate service times, answer dates, statutes of limitations, etc., we generally know that we never count the first day. The Supreme Court confirmed that this statute is no different. The Court wrote, “The statute does not define the term “days” or specify how the thirty-day period is to be computed. Nevertheless, our case law, dating back 200 years, demonstrates that the word “day” has acquired a common legal usage that illuminates our construction of § 14-60(a). This case law highlights two related concepts that lead us to conclude that the legislature intended the date on which the dealer loans the plate to the customer not to be counted toward the thirty-day limit.” The Court concluded that the word day, when not otherwise defined, means a calendar day, running from midnight to midnight and does not include partial or fractional days.
Accordingly, counting from May 10th, the accident occurred on the 30th day and, therefore, within the statute’s safe harbor provision. The Court affirmed summary judgment for the dealership.
02/13/20 Travelers Lloyds Ins. Co. v. Rigid Global
United States District Court, District of New Jersey
US District Court Finds No Occurrence and Thus, No Duty to Defend where No Property Damage Occurred during the Relevant Policy Periods
This declaratory-judgment action arises out of an underlying construction defects action related to the construction of a tennis center. In 2007, Grand Slam, contracted with non-party Beta Realty Unit 6, LLC (“Beta”) to develop an indoor tennis center. Beta worked with The Adkins Group, Inc. (“Adkins”) to design the center, and Adkins contracted with Rigid Building Systems, Ltd. (“RBS”) to manufacture a pre-engineered metal building for the site. The tennis center was built and opened for business in 2009.
On October 15, 2015, Grand Slam brought a negligence action for damages against various contractors, including RBS based on water leaks that occurred at the tennis center between 2009 and 2012, particularly following Hurricane Irene (August 2011) and Superstorm Sandy (October 2012), as well as a partial roof collapse following a snow storm in February 2014.
At oral argument on motions in limine, Grand Slam’s counsel agreed that it would not introduce “any receipts or any costs for” damages between 2009 and 2011, and the trial court entered an order that Grand Slam was “prohibited from presenting evidence of any damages from events in 2009 to 2011.”
At the underlying trial, a central theory of liability was that RBS had only designed the tennis center to a “Ground Snow Load” of thirty pounds-per-square-foot (“PSF”), when the applicable building code required a Ground Snow Load of thirty-five PSF. Grand Slam also presented evidence that, upon inspection following the partial collapse in February 2014, RBS’s pre-engineered metal structure was missing bolts, the rod bracing was not tight, and the frame was “deflected” and “deformed.” The tennis center was closed for several months for repairs following the partial collapse, and once the repairs were complete, one of the tennis center’s six courts was not usable.
Ultimately, the jury found in favor of Grand Slam and a judgment in the amount of $1,633,036.65 was entered against RBS.
Travelers Lloyds Insurance Company (“Travelers”) issued two consecutive occurrence-based commercial general liability (“CGL”) policies to RBS; the first was effective from March 1, 2009 to March 1, 2010, and the second was effective from March 1, 2010 to March 1, 2011 (the “Travelers Policy Periods”).
The Travelers Policies provide that Travelers “will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies”. To trigger coverage, bodily injury or property damage must be “caused by an ‘occurrence’ that takes place in the ‘coverage territory,’” and must occur during the policy period, subject to various exclusions contained in the policy.
“Occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same harmful conditions.” “Property damage” is defined as:
a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the “occurrence” that caused it.
Travelers commenced a declaratory-judgment action seeking a declaration that the damages awarded in the underlying action are not covered by the Travelers policies and that Travelers is not obligated to defend or indemnify RBS for the claims in the underlying action. Travelers moved for summary judgment and Grand Slam opposed same.
Travelers argued that summary judgment was warranted because no property damage “occurred” during either policy period, and thus the Travelers policies did not cover the damages awarded in the underlying action.
Travelers argued that RBS’s liability in the underlying action did not arise from any “occurrence” that took place during the Travelers Policy Periods.
As noted above, the Travelers policies define “occurrence” as “an accident, including continuous or repeated exposure to substantially the same harmful conditions.” The Court noted that in construing a nearly identical term, the New Jersey Supreme Court held: “As a general rule, the time of the ‘occurrence’ of an accident within the meaning of an indemnity policy is not the time the wrongful act was committed but the time when the complaining party was actually damaged.”
Here, Grand Slam was not “actually damaged” until after the Travelers policies had expired. Grand Slam could not—and indeed, was barred from—presenting any evidence of damages from the 2009 to 2011 time period. The $1.6 million verdict against RBS was based exclusively on the costs to repair structural damage to the tennis center from the partial roof collapse in February 2014 and the business losses that flowed from that collapse. As such, the “occurrence” which led to “property damage”—the February 2014 partial roof collapse—occurred well after the expiration of the Travelers policies. The Court noted that such a result was consistent with the interpretation of the term “occurrence” in other New Jersey construction defect cases. Because Grand Slam could not point to any proof of damages from the Travelers Policy Periods, they could not demonstrate an “occurrence” triggering coverage under the Travelers policies.
In opposition to Traveler’s motion for summary judgment, Grand Slam attempted to argue that an “occurrence” took place under the “continuous trigger” theory of injury. The continuous trigger theory was developed to address the difficulties of establishing with scientific certainty when the harmful effects of a progressive disease or injury have occurred. Courts have held that when progressive indivisible injury or damage results from exposure to injurious conditions for which civil liability may be imposed, courts may reasonably treat the progressive injury or damage as an occurrence within each of the years of a CGL policy.
Relying on case law holding that “property damage must, in fact, occur before an insurer’s liability on a CGL policy can be invoked under the ‘continuous trigger’ theory,” the Court determined that RBS was not entitled to coverage under a continuous trigger theory. The Court pointed out that all of the damages attributed to RBS in the underlying action related to the 2014 partial roof collapse. Grand Slam’s assertion that there were “water leaks at the Tennis Center ... as early as 2009,” even if accepted as true, was insufficient to trigger coverage. The Court held that Grand Slam’s reports of early leaks at the tennis center—devoid of any evidence whatsoever that they contributed to the damages assigned to RBS in the Grand Slam Action—were too “tentative” to trigger coverage.
The Court further held that even if it accepted that the 2009-2011 leaks were an occurrence that started the continuous trigger, the analysis does not end there. The next step is to determine what damage occurred during each of the triggered policy periods in order to calculate the extent of each policy’s exposure. The complete lack of any damages from the Travelers Policy Periods defeats Grand Slam’s arguments for coverage. Stated differently, the fact that no damages can even be allocated to the Travelers Policy Periods demonstrates that there is no basis for coverage.
The Court determined that because any evidence of injury during the Travelers Policy Periods is “merely tentative,” it cannot constitute an occurrence giving rise to a continuous trigger theory of coverage. As such, the Court granted Travelers’ motion for summary judgment.
Eric T. Boron
02/07/20 Shelter Mutual Ins. Co. v. Freudenburg
Nebraska Supreme Court
In Automobile Liability Coverage Case, Nebraska Supreme Court Strikes Down Partial Household Exclusion, Citing Nebraska Statute
The Nebraska Supreme Court opined recently that the district court erred in granting summary judgment to an auto insurer in the insurer’s declaratory judgment action. The Supreme Court of Nebraska’s reversal analyzed and interpreted Neb. Rev. Stat. § 60-130, finding the statute prohibits partial household exclusions set forth in an automobile liability insurance policy purporting to reduce coverage if the injured person is an insured, relative, or resident of the insured’s household. Nebraska’s Supreme Court held that Neb. Rev. Stat. § 60-130, contrary to the insurer’s contentions, applies to policies both with coverage limits at the minimum required by law and with coverage limits above the minimum required by law and that the statute “prohibits both exclusions that seek to limit, reduce, or alter the liability coverage to the minimum required by law for an injured insured or household member.”
In short, it is now established law in Nebraska, per the Nebraska Supreme Court’s recent decision, that “an automobile policy in any coverage amount is not permitted to exclude or reduce liability coverage under the policy solely on the ground the claimant is a named insured or resident in the named insured’s household.”
The background facts are as follows. Larry Freudenburg (“claimant”) suffered injuries while a passenger in a vehicle insured by a Shelter Mutual Insurance Company (“Shelter”) policy which claimant and his wife purchased. Claimant made a claim for his injuries, said to total over the $100,000 policy limit, when no other policy provided coverage. Shelter only paid claimant $25,000, equal to the minimum level of automobile policy coverage that Nebraska drivers are required to carry.
Shelter’s payment of just $25,000 was in reliance on the partial household exclusion clause in the policy, which purported to allow for a reduction in bodily injury coverage to the amount of the applicable financial responsibility law, $25,000 in Nebraska, for damages “owed to any insured, relative, or resident of an insured’s household” when no other policy provided coverage up to the minimum financial responsibility requirement.
Claimant and the Nebraska Department of Insurance disagreed, arguing that Neb. Rev. Stat. § 60-130 prohibits an automobile policy from excluding, limiting, reducing, or altering liability coverage solely because the injured person is the named insured or resides in the household with the named insured. Neb. Rev. Stat. § 60-130 provides:
Automobile liability policy means liability insurance written by an insurance carrier duly authorized to do business in this state protecting other persons from damages for liability on account of accidents occurring subsequent to the effective date of the insurance arising out of the ownership of a motor vehicle (1) in the amount of twenty-five thousand dollars because of bodily injury to or death of one person in any one accident, (2) subject to the limit for one person, in the amount of fifty thousand dollars because of bodily injury to or death of two or more persons in any one accident, and (3) in the amount of twenty-five thousand dollars because of injury to or destruction of property of other persons in any one accident. An automobile liability policy shall not exclude, limit, reduce, or otherwise alter liability coverage under the policy solely because the injured person making a claim is the named insured in the policy or residing in the household with the named insured.
The district court had ruled the Neb. Rev. Stat. § 60-130 forbade only reductions or alterations in coverage that resulted in the coverage for the insured, relative, or household member’s falling below the mandatory minimums. Claimant appealed district court’s ruling, leading to the Nebraska Supreme Court’s recent decision.
BARCI’S BASICS (ON NO FAULT)
Marina A. Barci
03/03/20 Global Liberty Ins. Co. v. Capital Chiropractic, P.C.
Appellate Division, First Department
No-fault Assignor’s Failure to Attend IME is Enough to Deny Provider Reimbursement
Capital Chiropractic was denied reimbursement of claims from Global Liberty for no-fault benefits after treating the assignor, Mr. Rigor. Global had requested that Mr. Rigor attend an independent medical examination, which Mr. Rigor failed to appear for. Capital Chiropractic then brought an arbitration to recover payment for its denied claims, which a master arbitrator granted. Global thereafter petitioned the Supreme Court (Bronx) to vacate the master arbitrator’s award and was denied. The First Department determined that the master arbitrator’s award must be vacated because it irrationally ignored the well-established precedent that Global’s policy was void ab initio, meaning treated as invalid, due to Mr. Rigor’s failure to attend the duly scheduled independent medical exams, which is a policy condition.
02/26/20 Rate Reductions for Boating Safety Course
New York State Legislature
Senate Standing Committee on Insurance Referred Bill Requiring Liability Insurance Rate Reductions upon Completion of Boating Safety Course
On February 26, the New York Assembly once again passed bill no. A5415 (same as S3688) that requires liability insurance rate reductions upon completion of a boating safety course or an advanced boating safety course. The Senate has referred this bill to the Senate Standing Committee. The bill had previously passed the assembly in June of 2019, but it died in the Senate.
The bill was introduced in acknowledgement of the “many perils and responsibilities which arise when a boat leaves the dock not only from the elements but also from other watercraft.” (Sponsor Memorandum). Thus, this bill seeks to provide boat owners with incentive to learn and follow those safety rules and procedures.
If passed, Navigation Law § 78-a would be amended to provide insurance carriers with authority to grant rate reductions upon approval of DFS for boat owners who complete a boating safety course or an advanced boating safety course. This section was previously limited to a boating safety course, without the inclusion of an advanced boating safety course.
More importantly, this bill would create Insurance Law § 2336-b, providing that rate schedules submitted to the Commissioner for boat liability insurance must provide for an appropriate rate reduction as described under Navigation Law § 78-a for boat owners who successfully complete a boating or advanced boating safety course, except those mandatory courses taken in response to boating infractions. Upon approval by DFS, this bill would allow an insurer to provide an actuarially appropriate reduction of the premium for the boat owner’s yacht or boating liability insurance.
DFS would also be empowered under the new Insurance Law § 2336-b(d) to “establish, by rule or otherwise, standards or guidelines to be used by the superintendent when reviewing the proposed boating safety course or an advanced boating safety course.
This bill would take effect January 1, 2021, with the exception that DFS would be allowed immediately to add, amend, or repeal any rule or regulation necessary to implement these provisions on January 1, 2021.
02/26/20 Public Access to Department Records
Department of Financial Services
DFS Proposes Consensus Rulemaking to Update Outdated Regulations and Conform Public Access to Department Records With FOIL
On February 11, DFS filed with the Secretary of State a new proposed consolidated rulemaking that would repeal both Public Access to Department of Financial Services Records under the Banking Law (3 NYCRR SP G 106) and Availability of Department Records under Insurance Regulation 71 (11 NYCRR 241). In their place, this proposed consensus rulemaking would create a new Part 3 to the Financial Services Law (23 NYCRR). The proposed rulemaking was published in the State Register on February 26, 2020.
DFS determined that this proposed rulemaking was a consensus rulemaking, as defined Under SAPA § 102(11), because it “merely repeals outdated regulations and adds a new regulation providing updated information regarding public access to Department records, in conformity with FOIL, [and thus] no person or entity is likely to object to this proposed rulemaking.” (Statement of Consensus Rulemaking). Part 3 of 23 NYCRR will thus outline public access to information in accordance with the Freedom of Information Law (“FOIL”) under Public Officers Law Article 6, and the regulations promulgated thereunder contained within 21 NYCRR 140.
02/26/20 Proposed Adoption of Model Corporate Governance Regulation
Department of Financial Services
DFS Proposes Adoption of a NAIC Model Regulation Requiring Insurers to Maintain a Corporate Governance Framework and File a Corporate Governance Annual Disclosure
On February 26, DFS filed a new proposed regulation (Regulation 215) with the Secretary of State that would create an entirely new section of Title 11 of the NYCRR (11 NYCRR 90) concerning Corporate Governance Annual Disclosure (“CGAD”).
Comporting with the public policy objectives promulgated by the Legislature under Article 12 of the Insurance Law (Organization and Corporate Procedure), Regulation 215 seeks to adopt the NAIC Corporate Governance Annual Disclosure Model Regulation that NAIC itself adopted in November 2014. NAIC, in passing the Model Regulation, was keenly aware of the need to “collect more detailed information on insurers’ corporate governance practices in response to the growing regulatory needs and various international developments.” See NAIC Corporate Governance Annual Disclosure Model Act, State Legislative Brief, NAIC (November 2019). NAIC saw transparency as the key to effective corporate governance and its Model Regulation reflected the need to place appropriate systems, controls and limits in place to avoid the undue concentration of authority and power.
As the CGAD Model Act and Regulation were added to NAIC’s accreditation standard as of January 1, 2020, DFS saw it fit to join 30 other states that have adopted the CGAD Model Regulation. Upon adoption, authorized insurers will be required to adopt a corporate governance framework and electronically file a CGAD.
The newly added 11 NYCRR 90.1(c) defines a “corporate governance framework” as “the structures, processes, information, and relationships used for the oversight, direction, control, and management of an insurer or system and for ensuring compliance with legal and regulatory requirements.” Pursuant to 11 NYCRR 90.3(4), in submitting a CGAD, an insurer must describe
the board of directors, or other governing body, and various committees thereof, ultimately responsible for overseeing the insurer or system, and the level or levels at which that oversight occurs;
the rationale for the current size and structure of the board of directors or other governing body;
the duties of the board of directors, or other governing body, and of each of its significant committees, and the way in which they are governed;
the way in which the board of directors’, or other governing body’s, leadership is structured, including a discussion of the roles of chief executive officer and chairperson of the board of directors, or other governing body;
the policies and practices of the most senior governing entity and significant committees thereof, [listing a number of factors to be discussed including, among others, the qualifications, independence, nomination and election, and evaluation of board members] . . . .
the policies and practices for directing senior management, . . .
the processes by which the board of directors, or other governing body, its committees, and senior management ensure an appropriate amount of oversight of the critical risk areas affecting the insurer’s business activities . . . .
If adopted, the regulation would take effect thirty (30) days after the publication of the notice of adoption in the State Register, with insurers required to file their first CGAD by December 1, 2020.
From the Filings Cabinet
03/03/20 “Refer to Company” Frowned Upon in Rate-Rule Manual
Department of Financial Services
DFS Advises Filer that “Refer to Company” May Never be Used for Rates and Charges within a Rate-Rule Manual
On March 3, DFS disapproved a rate filing for failing to submit the filing in accordance with the requirements of the Rate Filing Sequence Checklist Detailed Instructions. That checklist requires satisfaction of an insurer’s burden under New York Insurance Law Article 23, including the ability to clearly demonstrate that proposed rates are adequate, not excessive and not unfairly discriminatory. DFS indicated that inadequate support based upon experience, competition, and/or an element of judgment was provided to meet this burden.
More interestingly for our purposes, DFS suggested that the information the carrier did provide—specifically in the accompanying Rate-Rule Manual for the filing—raised certain concerns to be considered if the carrier wished to re-submit.
DFS noted that “[t]he manual pages make reference to ‘refer to company’” and that “[w]hile ‘refer to company’ is acceptable for underwriting decisions, rates and charges may NEVER be ‘refer to company’. Any risk which the insurer will write must have a rate displayed.” Additionally, DFS feared that the inclusion of a rating rule indicating that “[f]or unusual exposures and hazards, refer to company” was subjective and overbroad, to a point that may be unfairly discriminatory.
The moral of the story: The rating manual filed with DFS must justify that a rate is adequate, not excessive and not unfairly discriminatory. And no box within the Rate Filing Sequence Checklist—including a carrier’s burden under Article 23—may be left unchecked in achieving just that. “Refer to company” on a rating manual is an impermissible “punt”.
Plaintiff began this action against the defendant, alleging that she was sexually assaulted and abused by a teacher (Richard Haley) while a student in the defendant’s school district. Plaintiff alleges causes of action sounding in; negligent hiring, retention, supervision, and direction, respondeat superior, breach of fiduciary duty, breach of non-delegable duty, fraudulent concealment, negligent infliction of emotional distress, and breach of a statutory duty to report abuse.
With regard to the cause of action for negligent hiring, retention, supervision, and direction, the defendant argued that it did not have notice that the alleged abuser posed a risk of harm to the plaintiff. In support of its motion defendant proffered various documents related to Haley’s application for employment. These documents included Haley’s application for employment, resume, teaching certifications, transcripts, multiple letters of recommendation, Haley’s New York State Department of Motor Vehicles Driving Abstract, record of a physical exam, and results of a driving test. Even considering the extensive pre-employment records provided in support of its motion to dismiss, the court still found that there was not enough evidence to conclusively establish that defendant did not have notice of the danger the alleged abuser posed to plaintiff. Therefore, the court denied the defendant’s motion to dismiss causes of action sounding in negligence.
Note: While not a case that directly implicates questions of insurance law, this is the first reported CVA case where a motion to dismiss causes of action has been decided. The reasoning underlying this decision is likely to hold through many other similar motions to dismiss, and this reasoning will likely place these claims within coverage of many general liability insurance policies. Without an exclusion for sexual abuse or molestation, an insurer will remain obligated to defend and indemnify its insured until there is a judicial declaration that the insured cannot be found negligent with respect to the allegations in the complaint. The court in the above case, even when taking into account what seems to be the alleged abuser’s entire pre-employment file, still held that the school district could have known Haley posed a danger to the plaintiff. The implication a decision like this may have on coverage litigation is that courts are going to be more inclined to find that an insured was negligent when there is even a minute possibility that the insured had knowledge of the potential harm suffered by the plaintiff/claimant.
Sanderson Law (Alberta, Canada)
01/22/20 Schellenberg v. Wawanesa Mutual Ins. Co., 2020 BCCA 22
Court of Appeal for British Columbia dismissed appeal from Supreme Court of British Columbia
Court of Appeal Upholds Lower Court’s Decision in Favor of Carrier and Broker
In 2004, William and Linda Schellenberg had purchased a homeowner’s policy for their residence through their broker, Hub. The policy was underwritten by Wawanesa. The policy covered the Schellenberg’s residence. Subsequently, Mr. Schellenberg constructed a two-story outbuilding which was completed in 2012. Mr. Schellenberg advised a Hub broker about the completed outbuilding in 2012 or 2013.
Around the same time, the Schellenberger’s legally started a licensed medical marijuana grow operation in the outbuilding (for therapeutic purposes relating to their son’s pain management needed as a result of serious injuries). Although the electrical service to the house was increased from 125 amps to 200 amps prior to the completion of the outbuilding, after the outbuilding was completed, the amps were again upgraded to 400 amps in order to supply electricity to the outbuilding.
The Schellenberg’s advised the broker that the outbuilding was being used as a shop to work on cars, which was a hobby for Mr. Schellenberg and his son. Although there was later a dispute about whether the broker was advised of an electrical upgrade, the broker was not advised of the grow operation. Hub continued to assist the Schellenberg’s with obtaining policy renewals for their home and outbuilding until 2014. Each year, the insurer would send renewal documents to the Schellenberg’s and the broker would also send their customers a standard reminder letter regarding the insurer’s renewal documents and requested their customers to review their policy limits to ensure there was adequate coverage in the event of a loss. Importantly, the reminder letter included an additional attachment, “Some Coverage Notes and Recommendations”. The attachment requested customers to advise their broker about any changes, including any material changes and provided examples of material changes (e.g. “starting a home-based business/farm use” and “renovations or alterations to the building”). The attachment also directed customers to review the “Statutory Conditions” of their respective policies.
Up in Flames
On January 21, 2014, a fire occurred in the second floor of the outbuilding. After an independent adjuster inspected the premises, it was discovered that the Schellenberg’s were operating a licensed marijuana grow operation (consisting of approximately 300 plants on the first floor of the outbuilding) and that there was an electrical upgrade. It was also determined that the fire was unrelated to the grow operation. Accordingly, Wawanesa notified the Schellenberg’s it was voiding the policy as of February 1, 2011—the date it allocated for the change in use of the property—on the basis that had Wawanesa known of the change in use, it would have “declined to endorse the policy” pursuant to Section 29, condition 4 of the Insurance Act because they failed to promptly notify Wawanesa (or the broker) of a material change in risk. The Schellenberg’s then commenced an action against Wawanesa for wrongfully voiding their policy and against Hub for breach of contract and negligence for failing to ensure they had adequate coverage.
Statutory Condition 4: Material Change in Risk
A policy is void under statutory condition 4 of the Insurance Act: (1) if there was a change material to risk; (2) the change was within the insureds’ control; (3) the insureds had knowledge of the change; and (4) the insureds did not notify the insurer or agent (or broker).
The Schellenberg’s admitted that they knew of and were in control of the change but did not notify the insurer or broker but also argued they did not know the change was material to risk. Additionally, they argued they did not read the reminder letter and attachments but did advise the broker of the outbuilding once construction was completed. Conversely, the broker argued that she was not advised of the electrical upgrade or the grow operation. Accordingly, the lower court had to first address the issue of credibility.
He Said, She Said: Credibility
As noted above, there was a dispute as to what the Schellenberg’s told the broker after the outbuilding was completed. Mr. Schellenberg argued that the broker should have asked additional questions and her failure to do so resulted in inadequate coverage. However, the court sided with the broker—holding that the insureds’ version was unreasonable and likely implausible and sided with the broker’s version because it was reasonably consistent and better aligned with the contents of the policy.
Shoulda, Coulda, Woulda: Materiality and Knowledge
Wawanesa’s underwriting manager testified that Wawanesa would not insure any property with a marijuana grow operation. Although it was undisputed that the presence of a growing operation was material to the insurer, the Schellenberg’s argued they, as insureds, were required to have known or ought to have known that such changes were material—i.e. whether the knowledge of materiality was required to be subjective or objective. However, after reviewing conflicting cases regarding whether statutory condition 4 required subjective or objective knowledge of materiality, the lower court held that the condition likely required objective knowledge of materiality and expressed concern about requiring an insurer to prove an insured’s subjective knowledge regarding materiality. Nevertheless, the lower court found it was not necessary to explore subjective knowledge given insureds’ objective knowledge was demonstrable in this case.
Mr. Schellenberg knew he shoulda notified the insurer given he had received the renewal documents and reminder letter, Mr. Schellenberg coulda notified the insurer given the grow operation was likely already in operation when he spoke with the broker, and Mr. Schellenberg knew disclosing the growing operation and electrical upgrade woulda affected his premiums and coverage. Lastly, it was not believable that Mr. Schellenberg did not consider the grow operation to be risk relevant given they allegedly were concerned about telling anyone about the grow operation for fear of theft and/or robbery. Nevertheless, Mr. Schellenberg still failed to notify the insurer. Accordingly, the lower court held that the insurer properly voided the policy and the claims against the insurer were dismissed.
Broker’s Standard of Care
The court then turned to the claims against the broker. A broker’s duty of care is to provide advice to a customer about the coverage available to meet the customer’s needs, including advising of gaps and how to protect against said gaps. Although the insureds attempted to argue that they did tell the broker about the electrical upgrade, the court did not believe insureds. Additionally, the broker testified it was not her standard practice to ask her clients about marijuana grow operations even though she was aware Wawanesa did not underwrite such risks. Using the standard of care of an insurance broker in the circumstances, the court held it was not reasonably foreseeable for the broker to ask about a grow operation or changes to the electrical system. Moreover, the court held that Mr. Schellenberg would still not have been forthcoming even if the broker directly asked him about the relevant risk changes. Therefore, the claims against the broker were also dismissed.
The Schellenberg’s argued on appeal that the lower court (1) misapplied the legal tests for determining what constitutes a material risk and for establishing the standard of care of an insurance broker and (2) made palpable and overriding errors of facts, specifically, finding that the Schellenberg’s knew that the presence of the grow operation and electrical upgrade were material to the policy and the Schellenberg’s “ought” to have disclosed both to the insurer via the broker.
Upon review, the Court of Appeal found that the trial court had not made a palpable or overriding error in determining that the grow operation and electrical upgrade were material changes to the risk and that there was no error in dismissing the claims against the broker. The Court of Appeal also upheld the lower court’s finding of fact that Mr. Schellenberg would not have disclosed the material risk changes as they were required to do. Accordingly, the Court of Appeal upheld the lower court’s holding and dismissed the appellants’ appeal. The fact that the grow-operation did not cause of the fire was not material to the issue before the court which was whether the policy was void due to the failure to disclose a change material to the risk.
Cara’s Cross-Border Connection: Illusory Policies regarding Marijuana, Hemp and Cannabidiol (CBD)
Under the Controlled Substances Act (CSA), the U.S. established federal drug policy and created five schedules (classifications) of drugs and classified marijuana as a Schedule I drug, along with heroin, LSD, ecstasy, methaqualone (Quualudes), and peyote. The Schedule I drugs, as opposed to Schedule V drugs, are more strictly regulated.
However, in December of 2018, the 2018 Farm Bill was passed which legalized hemp in limited circumstances. Additionally, the ISO released five Cannabis Endorsements in September of 2019: BP 15 30-Cannabis Property Exclusion, BP 15 31 Cannabis Property Exclusion with Hemp Exception, BP 15 32-Cannabis Liability Endorsement, BP 15 33-Cannabis Liability Exclusion with Hemp Exception, and BP 15 34-Cannabis Liability Exclusion with Hemp Exception and Lessors Risks. Per the endorsements, “cannabis” is broadly defined as “any good or product that consists of or contains any amount of tetrahydrocannabinol (THC) or any other cannabinoid, regardless of whether or not any such THC or cannabinoid is natural of synthetic.” The endorsements continue and specifically note that “cannabis” includes “[a]ny plant of the genus Cannabis L. or any part thereof, such as seeds, stems, flowers, stalks, and roots, or [a]ny compound, by-product, extract, derivative mixture or combination…” (e.g. oil, hemp, edibles). Notably, the endorsements also specifically define “cannabis” to include hemp and CBD (cannabidiol, derived directly from the hemp plant but does not cause a “high”). Therefore, the three endorsements that provide for a hemp exception appear to be illusory.
Given the immense restrictions and prohibitions under American federal laws and the five Cannabis Endorsements, an insured will be hard-pressed to find a policy that would provide sufficient coverage even if the risk was in a state that had legalized marijuana (recreationally and/or medically). For example, even if the insureds in Schellenberg were forthcoming to the carrier, broker or agent about the grow operation, if the Schellenberg’s had an American policy or the risk was located in the U.S., such disclosure would have likely resulted in either rejecting the insureds’ application for insurance or denial and rescission after a claim was made. Consequently, American insureds are stuck between electing to have no coverage at all (likely a statutory violation) or pay for a policy that will likely end in the carrier denying and rescinding the policy when a claim arises given such activities are in violation of federal law and most likely, in the policy.
01/22/20 Malcolm Silver v. State Farm and Casualty, 2019 ONSC 4264
Coverage for Losses Caused by the Fraudulent Use of Online Banking Credentials
After four years of sustained effort, Gwendolyne Martinez, a consultant hired by a Toronto real estate investment company known as Malcom Silver & Co. Ltd., managed to pay off her personal credit cards. This would have been a salutary accomplishment if she had done it with her own money. But she didn’t.
Martinez used her Malcolm Silver’s online banking credentials without authorization to transfer just over $1 million from Malcolm Silver’s accounts to her own. Martinez was convicted of theft and fraud. Malcom Silver obtained a civil judgment against Martinez, but execution on that judgment was returned unsatisfied. Malcolm Silver then turned to the Forgery and Alteration endorsement on its property policy that was issued by State Farm to recoup the money that it lost through Martinez’ fraudulent online banking transfers. That endorsement read:
We will pay for loss resulting directly from forgery or alteration of any cheque, draft, promissory note, bill of exchange or similar promises payment in ‘money’ that you or your agent has issued, or that was issued by someone who impersonates you or your agent.
State Farm denied coverage on the basis that online banking is not “…[a] cheque, draft, promissory note, bill of exchange or similar promises …[of…] payment…”. In a decision released on July 15, 2019, Justice Sossin of the trial level, Ontario Superior Court of Justice agreed. That Court held that the unauthorized use of online banking, is not a “forgery’ or “an alteration” and, noting the absence of any controlling precedent, stated that an online banking transfer is a transfer of funds; it is a payment rather than a promise of payment. For both of these reasons there was no coverage available to Malcolm Silver under this endorsement.
I have confirmed that Malcolm Silver chose not to appeal and therefore this is a final decision on this endorsement. If this endorsement was issued in the United States, how might these facts have played out?
In 2015, the United States Court of Appeals, 11th Circuit, came to the same conclusion on a materially identical endorsement in Metro Brokers, Inc. v. Transportation Ins. Co. That cause also involved the use of fraudulently obtained online banking credentials which enabled unknown thieves to use online banking to transfer funds out of the insured’s accounts. The insured claimed under its Forgery and Alteration endorsement to recover about $150,000 of the money that was fraudulently transferred. The insurer in that case denied and using the same logic and findings as the Malcolm Silver case, the denial was upheld at both the trial and the appeal levels. I have not found any further American decisions on the point and therefore it appears that Canadian and American courts agree that losses caused by the fraudulent use of online banking credentials is not covered under typical forgery and alteration coverage.
Cara’s Cross-Border Connection: 01100110 01110010 01100001 01110101 01100100
In a 2nd Circuit Summary Order, the Court affirmed a S.D.N.Y. decision that a “spoofing” loss is covered under the Computer Fraud clause of the Commercial Crime Policy. The Computer Fraud clause provided coverage for losses arising from any “entry of Data into” or “change to Data elements or program logic of” a computer system. Unknown fraudsters created a “spoofing” code that enabled them to send “counterfeit” emails that appeared to have been sent from high-ranking member of the insured organization. Subsequently, the recipient, an individual within the accounts payable department and other executives within the organization were tricked into wiring money to an account, per the request of the organization’s “president”. It was later learned that the email from the “president” was part of the spoofing scheme and the president did not send an email regarding the wire transfer request. The carrier tried to argue that the incident was not covered because the emails did not cause any fraudulent change to data elements or program logic of the insured’s computer system and the insureds’ employees’ actions severed the causal relationship between the spooking attack and subsequent losses.
However, the 2nd Circuit agreed with the lower court that the spoofing attack was proximately caused by a “computer code” and “New York law does not have so strict a rule about intervening actors” under such circumstances.
02/06/20 The Extra-Territorial Reach of Privacy Legislation Creates Potential International Liability for American Companies
Cara’s Canadian Cross-Border Connection: Heather
The exponential growth in the availability of cyber insurance testifies to the growing awareness of American companies doing business on the internet that they are exposed to the potential of liability for the mis-use and loss of personal private information and for the sale of the information to third parties when there is a lack of consent for that sale.
What is not well known is the fact American companies face potential liability for privacy violations in any country in which they do business, as the privacy legislation in many countries has extra-territorial reach. Without a carefully reviewed cyber liability policy in place that covers the insured’s liability for compensatory damages, fines and penalties for privacy violations where-ever they occur, the insured faces the possibility of crippling liability that could force it to close its virtual doors.
Canada’s federal and provincial privacy legislation has extra-territorial reach.
In 2017, the Supreme Court of Canada held in Google Inc. v. Equustek Solutions Inc., 2017 SCC 34 that the rights enshrined in the British Columbia Privacy Act (and by extension, the federal Personal Information and Protection Electronic Documents Act, known as “PIPEDA”) are quasi-constitutional (a position that it had earlier endorsed in Douez v. Facebook, Inc., 2017 SCC 33, and in a ground-breaking move, ordered Google Inc. to de-index a certain offending web page everywhere – not just in Canada.
To further illustrate the extra-territorial reach of Canadian privacy legislation, on February 6, 2020, the Office of the Federal Canadian Privacy Commissioner (OPC), asked the Federal Court of Canada to initiate a reference case to determine if Facebook, Inc., a California company, violated PIPEDA when it allowed Cambridge Analytica to operate the TYDL App on the Facebook platform. The data mined by the TYDL App was sold to a data processor who sold it to various Republican campaigns during the American 2016 election campaigns.
By way of background, since November of 2007, Facebook has provided third parties with a platform that allows them to integrate their products and services with Facebook. These integrations include apps within the Facebook environment, such as games, quizzes, horoscopes, and classified ads, as well as other websites and apps that use the “Login with Facebook” feature, such as fitness trackers and film and music streaming services. For a fee paid to Facebook, each of these apps mine the data of Facebook users. By 2018, over 40 million apps and sites integrate with Facebook. However, the most infamous app was the TYDL app (This is Your Digital Life APP) which consisted of a personality quiz, amongst other things. The OPC determined that through vague and inadequate consents, the users shared their profile data (name, Facebook ID, city, profile photo), birthdate and pages the user liked with the developer of the TYDL App, Cambridge Analytica, which Cambridge then sold to another data processor who determined the likelihood of that person being swayed to a particular political point of view.
As a result of a 2018 investigation, the OPC determined that the personal data of 622,000 Canadian Facebook users had been used on the basis of these vague consents which were in conflict with the requirements of PIPEDA. The OPC presented Facebook with its findings and requested compliance, which did not occur. Accordingly, the OPC presented its investigation to the Federal Court of Canada and legal proceedings against Facebook, which I again emphasize, is a California company, are now underway. Stay tuned to this column for developments in the case.
Earl K. Cantwell
10/12/18 Katopothis v. Windsor-Mount Joy Mut. Ins. Co.
Exclusion for “Unoccupied” Property Means People Not Stuff
United States Court of Appeals, D.C. Circuit
The insureds had a vacation house and they usually left the heat on to prevent pipes from freezing and asked a friend to check on the house and retrieve mail. They did not, however, typically shut off the water supply. In February 2013, an incident occurred where the house flooded when a pipe in an upstairs bathroom separated at a joint and flooded the house. Allegedly, mold spread throughout the house which was eventually torn down and rebuilt. The insurance company denied the claim because, while the insureds were away, they failed to shut off the water where it entered the house. They eventually sued the insurance company for breach of contract and alleged $800,000 in damages.
An exclusion in the policy provided that, if the insured residence was vacant, unoccupied (meaning an absence in excess of 72 hours), or under construction, the insured had to maintain heat in the residence and shut off the water supply, or at least turn off the water supply at its source. The lower court held for the insurance company and this decision was affirmed on appeal.
The Court held that a contract is only ambiguous when the provisions in controversy are reasonably or fairly susceptible to different interpretations, but where the language of a policy is clear and unequivocal, the parties are bound to their plain meaning. The insured could not recover under the exclusion because the house remained unoccupied in excess of 72 hours and they did not shut off the water supply where it entered the residence. In that eventuality, the policy clearly excluded coverage for loss caused by discharge, leaks, or overflow from any plumbing system.
The insured argued that the exclusion effectively deleted coverage, but the Court noted that is the purpose of an exclusion. A policy is not ambiguous or contradictory because an endorsement or exclusion amends its provisions.
The insured also argued that the beach house was not vacant or unoccupied because it remained fully furnished with the accessories of daily life. The Court agreed with the lower court that, in context, this provision could only reasonably be read to refer to the absence of people. The Court also cited other cases where the phrase “unoccupied” referred to lack of habitual presence of human beings. “Unoccupied” means that no one was there even if furniture, fixtures, and personal property were not removed. Here, there was no dispute, that the insureds were away from the beach house for over 72 hours which meant the flooding occurred while the house was “unoccupied”. Therefore, the fact that the home was fully furnished and in “move-in” condition did not mean it was nonetheless “unoccupied” during the relevant period of time.
The Court also held there was nothing “hidden or deceptive” about the exclusion. It was written in plain language, listed on the cover page of the policy, and even printed on different colored paper to stand out from the rest of the policy. Therefore, the decision of the lower court was affirmed.
Part of this case involved procedural arguments about whether, when, and how the case could be appealed since the federal Circuit Courts usually only take and entertain appeals from “final orders” that completely dispose of a case. In this case, it was held that the claim against the insurance company had been completely disposed of, and a related claim against the abatement company was transferred to a different venue, so for purposes of these courts the case was completely concluded in the lower court and the Circuit Court therefore took it up on appeal.
The Court noted that exclusions in insurance policies are to be strictly interpreted, but nonetheless upheld if applicable. In this case, the phrase “unoccupied” was clearly related to whether or not people were present or resided at the property, and the fact that furniture, fixtures, and other personal property was present at the property did not mean that it was “unoccupied” for the referenced time period relevant to the exclusion.
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