Coverage Pointers - Volume XXI, No. 20
Volume XXI, No. 20 (No. 559)
Friday, March 20, 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.
In some jurisdictions, newsletters such as this may be considered Attorney Advertising.
If you know of others who may wish to subscribe to this free publication, or if you wish to discontinue your subscription, please advise Dan D. Kohane at [email protected] or call 716-849-8900.
You will find back issues of Coverage Pointers on the firm website listed above.
Dear Coverage Pointers Subscribers:
Do you have a situation? We love situations. Actually, as to this particular situation, we don’t care for it one little bit.
Never before have I experienced anything like this.
We hope you are well, and those you love are well and those with whom you work, are well.
It is hard – no – it is impossible to have conceived that we would be in this state of affairs, even two weeks ago.
During this difficult and unprecedent time, the safety and well-being of our employees, along with the legal and business needs of our clients, are our top priorities. We remain committed to providing our clients with the highest quality of legal services to meet their needs during this crisis and are available to assist in all ways.
While all of our offices remain open, we have taken the following precautionary steps, following the directives of Erie County Executive Mark Poloncarz and New York Governor Andrew Cuomo:
- Our staff is currently following a work arrangement to limit the number of staff and attorneys in the office at any one time. This includes working remote and in staggered teams. The Governor has just announced that as of the end of this business week, we will be required to have 75% of our staff working from home.
- For our staff working in the office, we have placed hand sanitizer dispensers and disinfectant wipes across the office. We have stressed the importance of washing your hands frequently and are practicing social distancing in all interactions.
- All business travel has been suspended, including conferences, court appearances, and trainings. All internal and external meetings are now conducted via teleconference or Web-Ex.
But, here is my most important message.
We are here for you. You can reach me by email ([email protected]) or by phone (my cell number is 716-445-2258 and my direct dial number at the office is 716-849-8942). Feel free to reach me at either number. Steve Peiper and I will be leading the Coverage Team on alternating days in the office and we will have folks available to help you on any litigation or coverage matter).
For my brother and sister lawyers out there, and many of our subscribers are fellow practitioners from around the country, remember that you have friends here that can help you if you cannot travel, have staff shortages, etc. We are all in this together.
We have implemented a 14-day home quarantine policy for any staff returning from a personal trip with a flight/hotel stay and have asked that any employees who are sick remain at home.
As the ever-changing situation with the COVID-19 crisis progresses, we will be modifying our protocols as needed and updating you accordingly on our website and through Legal Alerts.
Hurwitz & Fine continues to monitor and analyze coronavirus updates and advise clients on matters related to the coronavirus outbreak. We are available for any concerns that you may have, by calling our main phone number at 716-849-8900. In addition, all of our teams are here to handle any questions that you may have.
Hot off the Press: Circular Letter of Providing Support to Consumers and Businesses:
My friends at NYIA, the New York Insurance Association, just advised that the DFS has issued Circular Letter 7 to regulated insurance entities providing guidance on “support for consumers and businesses impacted by Novel Coronavirus (COVID-19). DFS has outlines a number of steps insurance companies should take to held affected New Yorkers. It’s a must read.
March 19, 2020
Chief Executive Officers or the Equivalents of DFS Regulated Insurance Entities
Guidance to Department of Financial Services (“DFS”) Regulated Insurance Entities Regarding Support for Consumers and Businesses Impacted by Novel Coronavirus (COVID-19)
What is Happening in the New York Courts?
Basically, nothing. Most things are on hold EXCEPT statutory deadlines. For example, the time to take an appeal from an order or judgment remains at 30 days. The time to file an application to stay an arbitration remains at 20. Those are statutory deadlines.
Likewise, the time to send out disclaimer letters is statutory – as soon as practical – under Insurance Law §3420(d)(2). Don’t let those times slip by.
As to the appellate courts, here’s the latest on each:
- Here’s official Court Administration statement
- First Department
- Second Department
- Third Department
- Fourth Department
If you need information on New Jersey, contact John Ewell ([email protected]) and if you’re interested in Connecticut, reach out to Lee Siegel ([email protected]). Understand that these rules can change on a dime.
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.
A Century Ago: A “Cosmic” Flu Gripped the Nation:
Olean, New York
18 Mar 1920
Many American medical authorities admit themselves baffled by the current type of influenza. It has so many different manifestations, and attacks victims with so little regard to precedent and prescribed rules, that there are almost as many theories concerning its cause and cure as there are medical groups expounding them. It is interesting, therefore, to hear what a noted Oriental physician has to say about the cause of “flu,” in an article in the Indian Medical Record published in Madras.
The word "influenza," be reminds his readers simply means "influence." The disease spread all over the world a year ago when ocean-going traffic was almost at a standstill, and there were isolated cases in small villages and remote mountain districts. These facts lead Dr. M. C. Nanjunda Row to believe that the disease does not have a bacterial origin. Instead he believes:
"This pandemic must have been the result of some cosmic influence, to the investigation of which no one has as yet turned his attention, operating on the vitality of all living things, reducing their power of resistance against disease, thus rendering them easy victims to the onslaughts of many germs which exist in space already and some of which at least are probably rendered more active and virulent from the same causes. Thus this pandemic may be considered perhaps the closing era of a certain type of civilization or of a certain type of man, just as upheavals of the earth from the effect of some geological cataclysm have marked the closing date of various geological ages."
The doctor seeks no cosmic force to use as a cure for "flu." He follows much the same methods of treatment as his occidental colleagues. We almost wish, however, that the gentleman would turn attention to the investigation of this cosmic force and perhaps discover a less baneful influence with which we might put ourselves in harmony, thus routing the flu and all its train of ills. It is growing wearisome trying to fight cosmic influence with our merely human weapons.
Peiper on Property and Potpourri:
Though it has been an unprecedented two weeks, we are humbled and grateful for your interest in this week’s issue. More challenging days wait us, no doubt, but for a few minutes we hope we can bring you some sense of normalcy.
To that end, we offer commentary on an interesting case from the Second Department reviewed in the Property column this week. In the review of Baron, we discuss the nuances of the “innocent insured” doctrine. In the below few paragraphs, we take some additional time to discuss two other often overlooked issues.
The first deals with the rules surrounding ambiguity in an insurance policy. It is a major annoyance of the undersigned when I see the blanket statement that “all ambiguity is construed against the drafter.” That, respectfully, is not a correct a position. The contra preferentum standard applies to exclusions…only. The test for ambiguity in other areas of a policy (i.e., grant and scope of coverage, definitions, etc.) is the reasonable insured standard. That is to say, what you or your client believe is a reasonable interpretation is not relevant. The only appropriate question is what a reasonable insured, reading the same provision, in the same circumstances, would think.
A second issue of note raised in the Baron case reviewed below is the admissibility of EUO testimony. In this case, the coverage counsel noticed and conducted an EUO of plaintiff’s representative. No issue there, of course, as the policy provides an explicit right to conduct an EUO. The problem was that the insured’s representative was represented, and counsel knew of the representation. This sounds pretty basic, but we’ll repeat again to head off a mistake like this in the future. If someone is represented, coverage counsel cannot speak with them directly. You must, ethically, work retained counsel. The rules prohibiting solicitation of a represented party do not go away simply because you’re attempting to secure a policy right. Something to keep in mind.
A word on COVID 19 before we go. It is often said that, like trucking, insurance makes the world go round. We often underplay the importance of insurance in our day to day lives, but the industry will doubtless be called on to answer may difficult questions in the coming months. Claims don’t stop, and claims administration can’t stop either. In so responding, however, claims professionals must be every diligent to ensure compliance with deadlines and mandatory reporting requirements. This is vital even as our offices, and potentially our workforces shrink.
By way of quick reference, for adjusting a loss in NY, a carrier is instructed to meet the following guidelines as promulgated under Regulation 64 – New York Unfair Claims and Settlement Practices Act. Specifically, an insurer:
Must Acknowledge every claim within 15 days of notice
Must respond to any and all communications within 15 days
Update letters must be sent to the insured every 90 days
First Party Property Damage denials require specific language, per 216.6(h)
Claims are hard enough without the pressures that are surely to come. Don’t get tripped up by missing deadlines.
As Dan noted above, we’ll be alternating days at home base for the foreseeable future. I’m always available, however, on my cell at 716-870-7019.
That’s it for two weeks. We encourage you all to stay close to home, stay safe and stay healthy.
Steven E. Peiper
Wanna Be a Lawyer – the Rules Turned 100 Years Ago:
Democrat and Chronicle
Rochester, New York
20 Mar 1920
Bar Admission Rules Amended
Albany, March 19.—The Court of Appeals rules governing the admission of attorneys to the practice of law were amended to-day by order of the Court as to enable a law student to try his examination and be admitted to the bar after two years preliminary status in a college or university and four years professional study in a law school.
The present requirements call for another year to be spent in a law clerkship in office of a practicing attorney. Until now this clerkship requirement was only dispensed within the case of a college graduate who had taken three years in a law school.
Wilewicz’ Wide-World of Coverage:
As we navigate these new uncharted waters together, we as a team here at Hurwitz & Fine hope that you know that you can still reach out to us at any time. We all continue to work, albeit some from home, and our offices remain open. The courts may be closed for non-essential appearances, but we can still make motions, electronically file pleadings, and catch up on outstanding discovery. Many judges are conducting phone hearings, and hopefully many will also finally work through their backlog of summary judgment decisions they’ve been procrastinating on briefing and issuing. Let’s look on the bright side.
For me, as an unabashed introvert, I am personally looking forward to the next few locked-down weekends, wherein I can finally make a dent in the pile of books on my nightstand, clean out the basement, and maybe reorganize the trunk of my car. That trunk is currently filled with reusable shopping bags and pretzels, from what I last recall, and that pile of books is double stacked, so I have my work cut out for me.
Now, during this surreal time, do drop us a line if there’s anything we can do to help.
This whole national emergency is the very definition of a “situation” and we’re here for you. Whether you have coverage questions, want to discuss potential implications of changing statutes, or just need to bend an ear for a minute – know that we’re here. Give us a ring, a line, a buzz, or a smoke signal.
Stay safe everyone, and take care,
Agnes A. Wilewicz
Woman – Thief – Walks:
The Evening World
New York, New York
20 Mar 1920
COURT AIDS WIDOW WHO ADMITS THEFT
Raises Money for Woman Whose Husband Was Slain in War, and She Is Freed
A war widow, twenty-one years old, was arraigned before Magistrate Reynolds in the Fifth Avenue Court, Brooklyn, to-day on a charge of petty larceny. She was arraigned under her maiden’s name, Gertrude Wilson, but said her real name was Gertrude Miellentz. Her husband was killed in the second battle of the Marne, and afterward her infant son died.
She confessed that, being in desperate circumstances, she had stolen $52 worth of jewelry and toilet articles from her former landlady, Mrs. Lena Holman, No. 329 Fifty-seventh Street, Brooklyn. She never had received her husband’s allotment or insurance money because it was paid to his mother.
When Mrs. Holman had heard the story she said she wanted to withdraw the charge. The law requires restitution in such cases, however, and Mrs. Miellentz had pawned the property for $7 and had no money to redeem it. Magistrate Reynold and the court attaches supplied the money and the case was dropped.
Barnas on Bad Faith:
In these unprecedented and scary times, it’s nice to still have a bit of normalcy in life, so I’m happy to bring you this note and the Ridpath case in my column this week. We’re still working, either from the office or remotely, and prepared to assist you with your coverage questions and situations.
Ridpath is a nice decision from the Eastern District of Pennsylvania. The plaintiff filed a breach of contract and bad faith action after disagreeing with her insurer over SUM benefits. The complaint only contained boilerplate allegations of bad faith. The court recognized this and dismissed the bad faith cause of action since it did not plausibly allege a bad faith claim. The plaintiff was given a second bite at the apple however, as the court gave her leave to amend the complaint to correct the factual deficiencies.
On a lighter note, anyone who has ever read this note knows how much I love sports. I’m not exactly sure what I’m going to do to keep myself entertained while every major sports league in the world is on hiatus. I’ve got a couple of shows and maybe even a few video games to catch up on and keep me occupied. However, if you have any recommendations on shows, books, movies, etc., please don’t hesitate to send them my way.
That’s all for now. Wishing everyone good health and good fortune in the weeks ahead.
Brian D. Barnas
Tire Insurance – a Century Ago:
Dunkirk Evening Observer
Dunkirk, New York
20 Mar 1920
FREE! AUTO TIRE INSURANCE
From now on every tire you buy of Rhinehart is insured. Insured free against accidents of every sort, whether the trouble is your fault, or the tire’s fault.
Free tire insurance is simply this. With every tire, cord or fabric sold by US, goes a written guarantee to keep it in repair, free of charge, regardless of usage or cause of injury for a period of twelve months from day of purchase.
It is plain to be seen that only good tires would warrant a guarantee of this character. Good tires are the only kind we sell.
Two of the best standard makes—without question the finest tires made in America.
GOODRICH CORD AND FABRIC FIRESTONE CORD AND FABRIC
Try this new form of service. It takes the gamble and guess work out of tire buying, puts more miles in your tires and keeps money in your pocket.
DeForest Rhinehart & Son
65 W. Main St. Phone 155 Fredonia, N.Y.
Off the Mark:
There were no noteworthy decisions to report on this edition as Coronavirus continues to shut down the world (it seems that way at least). I’m sure things will be slow for the foreseeable future as everyone hunkers down.
I have to give big shout-out to my co-editor of our Products Liability Pointers newsletter, Chris Potenza, on obtaining a complete defense verdict on a fall from a roof Labor Law 240(1) jury trial in Ithaca, NY (Tompkins County). If you are interested in the details, please reach out to Chris directly as I’m sure he would be happy to discuss.
Stay safe everyone …
Brian F. Mark
Personals – a Century Ago:
Saskatoon Daily Star
Saskatoon, Saskatchewan, Canada
20 Mar 1920
YOUNG FARMER with some means wishes to hear from girls under 24. Object matrimony. Send description and photo first letter. Confidential. Box 1803 Star.
BACHELOR (mechanic), middle-aged, wishes to correspond with Church of England woman, aged about 33 to 40; confidential; all letters returned. Albert T. Ward, Semans, Sask.
LONELY BACHELOR GIRL, worth $300,000, wishes to hear from honorable gentlemen under 60. Object matrimony. Write Mrs. Hill, 14 East 6th St., Jacksonville, Fla.
Editor’s Note: That’s our friend, the always soliciting, and differing in value, Mrs. Hill. We write about her a lot.
What a difference two weeks makes. We hope and pray that you and yours are well.
This edition of Coverage Pointers includes my contribution, Boron’s Benchmarks, which provides coverage of breaking decisions of the high courts of the 49 states not named New York. The Supreme Court of South Dakota issued a decision last week in Western Agricultural Insurance Company v Arbab-Azzein that analyzed and ruled on the applicability to an individual’s auto liability insurance of a “vehicle used for a fee” exclusion, and a “shared-expenses car pool” exception to the exclusion. A link to the opinion is provided in our actual issue of Coverage Pointers. Spoiler alert, the exclusion applies, the exception to the exclusion does not.
It was obvious by what is posted on the South Dakota Supreme Court website that coronavirus is a huge concern throughout the state of South Dakota, just as it is here in New York State. It has quickly become evident that we are all in this together, across the U.S., and indeed the entire world. This is something I admit I fully failed to appreciate even as recently as two weeks ago when my cover note to you casually discussed the change from winter to spring - something that seems so very trivial at this point.
Despite changes being put into place by many courts over the past week or so limiting in-person appearances, we do not anticipate courts entirely shutting down. We certainly are not. Some of us, including me, may be doing some of our work from home in the short term. Notwithstanding this, we continue to offer ourselves as resources you may tap into when confronted with your next “situation”. And please know that we’re continuing to service your existing files with us and are available at your convenience to discuss any of your pending matters.
Until next time, hang in there, stay healthy, and see you in two weeks.
Eric T. Boron
100 Years Ago: Vermin: Those are Aunts, not Ants:
Buffalo, New York
20 Mar 1920
PROBE RESULTS INBUG PARLEY
Bath, N.Y., March 19.—Dr. Robert P. Bush, former Democratic Assembly leader, and now president of the board of trustees of the State Soldiers home took the witness stand today in the investigation into the affairs of the institution ordered by Governor Smith and being presided over by Lieut. Governor Walker. Dr. Bush said that as the result of a jocular statement made by him relative to vermin charges were made by Mayor George W. Peck of Elmira, another member of the board, that the home was infested with bedbugs. Dr. Bush said that thereupon a renovating expert employed by a railroad company was sent for to exterminate the vermin and the expert said there were fewer of the vermin in the whole dormitory than might sometimes be found in one colonist sleeping car.
Barci’s Basics (On No Fault):
What a crazy time it has been since the last issue. First, in case you were wondering, the mock trial team I coach made it to the playoffs, but unfortunately lost in a close round against the Erie1 BOCES Legal Academy, so they were done for the season before the schools shut down. It was a good match though, which is always more enjoyable to watch than when one team is drastically worse (or better) than the other. In other news, in an effort to detract your attention from what is going on in the world and give you something to do/talk about other than COVID-19, consider these conversation starters:
What kind of tree would you identify as, and why?
If you were a kitchen utensil, what would you be and why?
If you could have a superpower, what would it be?
What three words best describe you?
What three words do you think your friends/family would describe you with?
You’re going on a picnic and can only bring items that start with the letter “P”; what do you bring?
Ask your friends, family, coworkers, strangers, anyone these questions! Let me know your responses or the best answers you get, and I’ll answer these myself next issue!
On the no-fault front, I have one case for you out of the Kings County Supreme Court. It discusses the sections of the Insurance Law that allow for, and do not allow for, a direct action to be maintained against MVAIC. As a reminder, MVAIC is a legislatively-created, non-profit organization that provides no-fault coverage for people who are injured in a motor vehicle accident and have no insurance coverage available to them.
That’s all folks,
Marina A. Barci
Arguing Over Daily Savings Time – a Century Ago:
Democrat and Chronicle
Rochester, New York
20 Mar 1920
MEDDLING WITH TIME
After the Syracuse Common Council had adopted a “daylight-saving ordinance,” it took time to survey the result. It made a few interesting discoveries. One of them was that its authority over the clocks does not extend beyond the City Hall.
This means, among other things, that City Hall time will be an hour ahead of time in the courts, including even the municipal courts, the hours of which are regulated by the Court House clock.
It means that there will be an hour’s difference between City Hall time and railroad time, for the railroads cannot change their clocks to fit local ordinances. The same thing is true of the telegraph companies. The hotels, of course, will have to be governed by railroad time, or else have two sets of clocks.
The bankers are opposing the change, because they want banking hours in their institutions to be in harmony with banking hours in other cities. The trolley companies cannot change their clocks, because that would throw their schedules into confusion in other places.
The ordinance, in short never would have been adopted if the Common Council had investigated the subject of an independent standard of time before adopting the ordinance instead of afterwards. The Common Council of the city of Rochester has taken a wiser course.
Having the situation in Syracuse before it has an object lesson, it might adopt a resolution, in lieu of a “daylight-saving ordinance,” pointing out to those anxious to save daylight that there is nothing in the Constitution, laws or ordinances prohibiting them from setting the alarm clock ahead an hour every morning during the summer, thus achieving daylight-saving without creating conflicting standards of time and raising havoc with the clocks in general.
Ryan’s Capital Roundup:
Hello Loyal Coverage Pointers Subscribers:
With the world turned upside down, we hope that this newsletter provides you with some semblance of right side up. In insurance, we know fortuity well—and nobody saw this coming. Although nobody can predict the breadth of the ultimate outcome with any certainty, we must all do our part to contribute to the future. Stay home (if you are able)—wash your hands—take it seriously—think of others.
If you missed it, catch our Coverage Pointers - Volume XXI, No. 20 SE, where we provide updates regarding the ongoing Coronavirus and its impact on the insurance world. In this edition of Ryan’s Capital Roundup, we have provided further information promulgated by the Department of Financial Services for consumers through FAQs on business interruption, travel insurance and other areas. DFS has also refiled two expired emergency regulations concerning SUM limits for stretch limousines and consolidated DFS adjudicatory processes. Additionally, From the Filings Cabinet outlines DFS’ requirements of an insuring agreement in a commercial excess policy.
Stay safe out there. Until next time,
Ryan P. Maxwell
Bring on the Stamp Act:
Poughkeepsie, New York
20 Mar 1920
If an eight-cent trolley fare is put into effect in Poughkeepsie, it is altogether probable that walking will become popular, and the trolley company will get into a worse plight than it is now in.—Newburgh News.
Hopefully everyone is reading this edition safely tucked away at home and maintaining appropriate social distancing. The past two weeks have certainly brought a whirlwind of information and changes as COVID-19 sweeps across the US. We are hunkered down here in Buffalo, and luckily have yet to see too many cases (when looked at in light of other areas). The courts are all but closed, which is giving me a break to catch up on all my desk work and to better develop strategy for all of my files. Rest assured that even though the world has slowed down, all of us at Hurwitz & Fine are still diligently working to bring swift and favorable resolutions to all of our clients’ matters. I, for one, have used social distancing as an excuse to finally set up my home office, even though my wife may not agree that the extra monitors fit in with our décor.
This edition I bring you a case from the Eastern District of New York. The court here finds that a liability insurer’s delay in issuing a disclaimer of coverage was reasonable, as the insurer was undertaking a diligent investigation into the facts of a complicated claim. I would also like to remind everyone (as Dan did on his LinkedIn page) that the issues surrounding COVID-19 have not suspended the deadline to issue a disclaimer of coverage. I encourage you to reach out with any questions. (It would certainly help me sell my wife on the new home office set up!)
Stay in touch and stay safe!
Charles J. Englert, III
A Woman’s Right and Obligation:
The Evening World
New York, New York
20 Mar 1920
WOMEN DEMAND JURY DUTY
Say It Goes With the Franchise and
They’d Take Place of Busy Men
Asserting that jury duty is “the natural and logical sequence to the exercise of the elective franchise” and that large numbers of women without families and in independent financial circumstances are available to serve on juries, thereby release “many men whose business affairs demand their attention,” the Brooklyn Women’s Bar Association has forwarded to the Legislature in Albany an appeal for the passage of a bill permitting women to serve in the jury box.
The appeal points out that six States now have provision for women jurors and that the measure now pending in Albany leaves the service optional with women.
A number of prominent individuals including a number of jurists who are in favor of women jurors, are quoted in the appeal.
Dishing Out Serious Injury Threshold:
I hope everyone is staying safe in the midst of this growing virus. As you may know, the Courts in New York have taken precaution and shut down for the time being. While no appearances are going forward, this will hopefully give the judges, and more likely their law secretaries, time to issue opinions on some long-pending motions. As such, I hope to see at least a few substantive decisions come out in the near future. In the meantime, stay safe.
Continuing from our theme of last week, we have a case where defendant again did not retain any experts, even after a jury trial. Here, plaintiff failed to call the dentist who initially diagnosed her with an alleged fracture and did not produce any medical and/or radiological records from that treating dentist. Plaintiff solely relied on other physicians’ testimony who could only confirm what plaintiff had relayed to them about her history. Needless to say, the jury remained unconvinced of plaintiff’s history, including the alleged fracture, and found that plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident, all without defendant calling an expert.
Michael J. Dischley
A Bicycle Built for Cash:
The Buffalo Enquirer
Buffalo, New York
20 Mar 1920
HEIGHT OF MISFORTUNE!
(Special Telegram to The Enquirer.)
Lockport, March 20.—Fred V. Degnan, Niagara Falls Lawyer, was named by Referee in Bankruptcy George D. Judson as trustee in the case of James E. Devlin, a silver burnisher of Niagara Falls, at the first meeting of creditors. The assets consist of a motorcycle, which the referee directed sold at private sale. The only liability listed is a court judgment of $8,038.68 for injuries to James McCoy, a Falls man, also run down, it is alleged by the bankrupt on his motorcycle. The hearing was adjourned until March26.
A first meeting of creditors in the case of William E. Griffin, a millwright, who formerly conducted a confectionery store at Niagara Falls, finally was adjourned when report was made that there were no assets. The liabilities were given as $6,763.54.
Bucci on “B”:
Hello all. This Covid-19 situation is truly surreal. It is heartbreaking to know that so many will suffer from the actions that had to be taken to try to stop the spread of this virus. For me though, it’s business as usual. I am self-quarantined for various reasons, which is fine for me because I love to work from home.
It is true that the best comes out in people in times like this…most people at least. That’s what I’m focusing on. My friends and family insist on buying supplies and bringing them to me, cooking meals for me, taking my dog out for walks, calling me constantly. They battle about who’s going to do what so that I have what I need. I feel so silly. But I am very grateful. And I am here to help.
Diane L. Bucci
Unemployment Comp for the Innocent:
The Buffalo Times
Buffalo, New York
20 Mar 1920
Robert Lynn Cox Advocates Insurance Against Unemployment for Protection of Workingman
Robert Lynn Cox, former Buffalonian, now their vice-president of the Metropolitan Life Insurance Company, was at the Hotel Iroquois today. He will address the Life Underwriters’ Association of Buffalo at its monthly meeting at the Lafayette Hotel at noon. Mr. Cox will talk on the development of life insurance in recent years, with particular reference to welfare work, which he terms “equalizing the burdens of society.”
Mr. Cox resided in Buffalo many years, practicing law here. He was a member of the State Legislature from 1903 to 1906, representing the old Second Assembly District, which included practically the entire west side of the city. It was as a member of the Armstrong insurance investigation committee that Mr. Cox became interested in insurance. He went to New York in 1907, entering the insurance field at that time. Since that time recognition has come to him rapidly and he is now high up in the ranks of the largest insurance company in the world. …
John’s Jersey Journal:
Today’s hot topic is New Jersey’s attempt to foist the economic fallout of COVID-19 onto New Jersey’s insurers. Many alerts have gone out about the bill. But what does it say? Who does it apply to? Is there any kind of reimbursement for insurers? Did it pass this week or not? We answer these questions for you.
New Jersey Bill Requiring Insurers to Pay Business Interruption Claims Due to Coronavirus REMAINS PENDING
On Monday, March 16, 2020, the Assembly Homeland Security and State Preparedness Committee read Assembly Bill 3844 (A3844).
It reads in pertinent part:
Notwithstanding the provisions of any other law, rule or regulation to the contrary, every policy of insurance insuring against loss or damage to property, which includes the loss of use and occupancy and business interruption in force in this State on the effective date of this act, shall be construed to include among the covered perils under that policy, coverage for business interruption due to global virus transmission or pandemic… concerning the coronavirus disease 2019 pandemic.
The clear intent of the Bill is to override the Department of Banking and Insurance’s approval of the virus exclusion years earlier. The Sponsors contend that insurers should have offered business interruption coverage providing coverage for virus transmission and pandemic, but did not do so. The Sponsors’ statement indicates that global virus transmission and pandemic are generally excluded from the list of covered perils under the business interruption insurance policies. They reason that ISO has developed a rider to provide an insured with the option of purchasing such coverage, but to date, no states have yet approved the form.
Applies to Business with 100 Full-time Employees* in New Jersey
In its current form, the Bill only applies to businesses who have less than 100 employees who work in New Jersey. A full-time employee being defined as someone who works a normal work week of 25 or more hours. It appears the Legislature is focused on trying to protect small to mid-size businesses. Companies that do not have at least 100 employees in New Jersey or have more than 100 employees in New Jersey would not gain the benefit of the Bill.
If enacted the bill would take effect immediately and be retroactively to March 9, 2020, when Governor Murphy announced a State of Emergency. The text of the Bill is here.
Reimbursement for Insurers?
The Bill also sets up a process for insurers to seek relief and reimbursement from the DOBI for paying Coronavirus business interruption claims.
The DOBI would impose and collect a fee from all the businesses in New Jersey. The fee computation seems rather complicated and somewhat incomprehensible. Such fee would be determined by comparing the net insurance premiums received by the particular insurer compared to the sum total of all companies writing that insurance or coverage within New Jersey. It appears the intent is to make a reimbursement proportionate to market share. Based upon that proportion, the Commissioner of the DOBI would then calculate what amount is fair to stick New Jersey insurers with and what amount would be reimbursed. Welcome to New Jersey!
The Bill was Pulled Down from the Emergency Vote, but Remains Pending
On Monday, at about noon, the Bill was read at the Assembly Homeland Security and State Preparedness Committee. The Committee voted 4-1 to move the bill out of the Assembly Committee. This allowed the Bill to be read in the Assembly. At 2pm, Monday, the Assembly convened. An Emergency Resolution was passed allowing the Bill to read and voted on by the Assembly. The speaker of the assembly began to read the bill and setup a vote, when suddenly, they decided to pull the bill down. As such, the Assembly DID NOT vote on the bill. It has not been withdrawn and remains pending in the Assembly. The Assembly is not scheduled to meet again until May.
Many are concerned that it will invalidate the virus exclusion that the DOBI approved years earlier. Even if the bill is ultimately enacted, physical damage to the insured property is generally required to trigger business interruption coverage. The same is true for civil authority coverage. The Sponsors choice that Coronavirus be deemed “a covered peril”, perhaps intends to modify the insuring grant itself. If so, it seems to be an egregious violation of freedom of contract. Insurers never agreed to cover such losses in the first instance. If ultimately enacted, we would anticipate insurers to fight this as a violation of the insurers’ due process rights. We will continue to monitor the bill and report if it moves.
In the attached issue we have two cases for your reading pleasure. A first-party case where no coverage was owed because water damage was not a specified peril. The other case is a life insurance case where there was a beneficiary dispute, and reminds insurers that in a beneficiary dispute they can implead the insurance proceeds and let the court sort it out!
John R. Ewell
The Babe – 100 years:
New York, New York
20 Mar 1920
Home Run Monarch Makes Mightiest Hit of Career
Babe Drives De Vitalis’s Offering Nearly 500 Feet, but It Was Only in Practice
By W. J. Macbeth
JACKSONVILLE, Fla., March19.—In batting practice this afternoon “Bab” Ruth attained one of his springtime exhibitions. The burly Home Run King of the diamond drove the ball far beyond the confines of the right center field fence—a hit that would have been a home run outside the grounds of any major league ball lot.
It may be there are to be other spring home runs born to blush unseen, but few will ever attain the distance or flat trajectory that astonished the two score rail birds assembled at South Side Park to see how Ruth’s mighty shoulder can propel the spheroid when he lays the old ash fairly on a pitch.
Ruth is the only ball player ever known to have hammered a baseball from the plate over any of the fences of the Yankee training lot. His clout to-day was the second contribution of the kind. In the opening gave against Brooklyn last Saturday Ruth drove far over the right field paling, but the wind carried the drive into foul territory by thirty feet. This afternoon’s clout was just a little to the right of center field.
His Mightiest Wallop
Ruth himself believes to-day’s hit, which was made off a fast one from Mario De Vitalis, the Brown University pitcher, was one of the most remarkable batting achievements of an honorable career. He has hit balls further, but never harder.
Editor’s Note: Mario De Vitalis never made it into the Majors after playing two years in the minors. He did strike out Babe Ruth in an intra-squad game in March 1920.
Lee’s Connecticut Chronicles:
Dear Nutmeg Newsies:
Well, not much on the legal front to report from the Constitution State. Like New York, the Judicial Branch has suspended all non-emergent functions of the courts, until March 27. Frankly, that’s a bit optimistic but here’s hoping that we’re back fighting the coverage wars by then. Connecticut was hard hit by the Spanish Flu of 1918. New London, being a major trading and naval port (World War I was still raging), was the hard-hit Connecticut epicenter of the outbreak. Ultimately, some 9,000 Connecticuters were lost.
Here’s to everyone staying safe.
Lee S. Siegel
March 20, 2020:
The King Commands:
The Brooklyn Daily Eagle
Brooklyn, New York
20 Mar 1920
Gumdrop Epidemic In School Leads to Juvenile Freight Theft; 2 Lads Committed
Patchogue, L.I., March 20—A deluge of gumdrops almost demoralized the River Ave. school Thursday afternoon. Finding that almost every other child was chewing, the teachers traced the supply to Harold Mott and George Raynor, 11 and10. The boys confessed they helped themselves to a pail-full of gumdrops from the freight station and hid the booty in a lot behind Bailey’s mill. Constable Glover found the pail. It had contained 30 pounds of gumdrops, but half the contents was gone. Justice Johnson sent the boys to the State Industrial School at Industry, N. Y. They have been in trouble before.
Like many of you, I am spending more time at home lately. However, I am still trying to prepare for warmer weather. Luckily, I have two balconies and am excited to start gardening again. I have already planted a plethora of seeds indoors, including lavender and mint, and they have started to burst through their soil pods. I checked on last year’s perennials, mostly lilies, but they look like they are still sleeping. As it gets warmer, I will hopefully be able to work outside on occasion and enjoy the new and “old” plants.
Cara A. Cox
Two weeks ago, I was in Scottsdale, AZ at the FDCC conference. Four days after I returned to Calgary, the health authorities recommended that all international travelers self-isolate for two weeks. I decided it would be best to follow suit. On Sunday, Calgary declared a local state of emergency and yesterday, the Province of Alberta issued its own emergency declaration. The courts in Alberta (and most other Canadian provinces) are closed to everything save emergency applications, law firms are tele-commuting, conferences and event are cancelled or postponed, gyms, pools, arenas, ski hills are closed, retail businesses are closing, bars are shut and restaurants are becoming takeout facilities. The economic impact of COVID 19 and the drop-in oil prices will have profound economic impact. We don’t know where all of this will take us, but I do know that in times like these our personal networks are integral to all spheres of our lives and I have been grateful for mine. This newsletter is now an important part of my network and I am very pleased to have the opportunity to communicate with so many of you. Currently, there are few signs of spring, but we know it is coming and when it does, the current isolation will feel less claustrophobic and our moods will all improve. In the meantime, let’s use social media to reach out to each other and keep the conversation going.
Sanderson Law (Alberta, Canada)
Flu Epidemic Report – a Century Ago:
The Coffeyville Daily Journal
20 Mar 1920
Kansas News Notes
Topeka.—With the influenza epidemic waning rapidly, it is announced by the state health department that the total afflicted with the malady will exceed 60,000 and that the total deaths probably will exceed those of either the 1918 or 1919 epidemics. The 1918 epidemic of three months, starting in October, took a toll of 8,688 deaths among the 133,773 cases. The 1919 influenza period was a sort of relapse of the1918, coming in the early spring of the year and taking 1,300 deaths, with 41,800 cases. During the 1920 epidemic, 300 deaths were reported in a single week. In all the epidemics the majority of deaths were caused by the disease after it had developed into the pneumonia stage.
Wishing you good health.
Jennifer A. Ehman
Suffrage Battle Continues:
The News Journal
20 Mar 1920
SUFF LEADERS RUSH TO DOVER; SCENT CLOSE HOT FIGHT
Invoke Big Guns of Nation to Come Into Delaware Battle
ROOT MAY LEAD ANTIS
From Today’s Baltimore Sun.
Washington, March 19.—With suffrage and anti-suffrage forces in close conflict in Delaware, the Legislature of which will meet Monday to consider the Nineteenth Amendment, echoes of the fight are being heard here in the high councils of the Republican and Democratic Parties.
Faced by appeals from Administration officials and personal exhortations from Representative Fess, chairman of the Republican Congressional Committee, who is on the spot to fight for the amendment, anti-suffrage forces plan to bring in leaders of national importance in their party known to oppose suffrage ratification. Elihu Root is mentioned as a possible leader of the counter-attack by the local antis.
The danger to the amendment in Delaware through failure of national party leaders to keep their local followers in line is admitted by suffragists. Alice Paul, chairman of the National Woman’s Party, left Washington tonight for Dover, summoned by repeated messages from suffrage leaders in the State, who report ratification imperiled.
Thirty-four States have ratified, and favorable action by two more will put the amendment into effect. The Legislature of the State of Washington also will meet Monday to take up the amendment and prompt ratification generally is conceded.
Editor’s Note: On June 2, 1920, Delaware voted to reject the amendment. But on August 18, 1920, Tennessee became the 36th state to ratify the amendment, ensuring that all across the country, the right to vote could not be denied based on sex.
On March 6, 1923, Delaware showed its support for women’s suffrage by belatedly ratifying the 19th Amendment.
Headlines from this week’s issue, attached:
KOHANE’S COVERAGE CORNER
Dan D. Kohane
- Court Refuses to Require Insurer to Provide Coverage to an Entity for an Accident that Occurred before that Entity was Named as an Insured
- Under SUM Policy, there is an Offset for Amount Received from Tortfeasor
- Claim File Material Concerning the Defense of the Named Insured is Not Discoverable in Declaratory Judgment Action Involving Coverage
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
- Where Question of Coverage is Involved, Question of Ambiguity is Resolved on the Ordinary Policyholder Standard
- Motion to Amend Pleadings/Remand to State Court Does Not Extend Statute of Limitations
DISHING OUT SERIOUS INJURY THRESHOLD
Michael J. Dischley
- Plaintiff’s Inability to Provide Evidence that Plaintiff Sustained a Fracture at Trial Fatal to Serious Injury Claim
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
- Stay safe and sane out there, everyone. Let us know if we can help.
Jennifer A. Ehman
- Trial Court Dismisses Complaint as to Excess Carrier who Established via Documentary Evidence that its Policy included a “Wrap-Up” Exclusion and Such a Policy was in Place for the Project
- Carrier Met Its Burden Establishing Policyholder’s Claimed Damage Was the Result of Wear and Tear
BARNAS ON BAD FAITH
Brian D. Barnas
- Conclusory Allegations of Bad Faith Dismissed
JOHN’S JERSEY JOURNAL
John R. Ewell
- Specified Peril Property Policy: Pipe Break and Resulting Damage Not Covered Because Water Damage Not a Named Peril
- Third Circuit Affirms Order Awarding Life Insurance Benefits to Daughter instead of Ex-spouse
LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel
- High Bar in Connecticut to Intentional Infliction of Emotional Distress
BUCCI ON “B”
Diane L. Bucci
- Applying California Law, Violation of California’s Song-Beverly Credit Card Act, Cal. Civ. Code §1747.08, Covered
- Applying North Carolina Law, Violation of Privacy Exclusion Precludes Coverage for Insured’s Alleged Violation of the Drivers Privacy Protection Act, 18 U.S.C. §§ 2721-2725
- False Imprisonment and Violation of Privacy Claims Not an Occurrence under Coverage A and Excluded under Coverage B by the Knowing Violation of Another’s Rights exclusion
- Trademark Infringement is Not Trade Dress Infringement
OFF THE MARK
Brian F. Mark
- No noteworthy decisions to report on this edition.
Eric T. Boron
- “Vehicle Used for a Fee” Exclusion Applies to Bar Liability Insurance Coverage for Motor Vehicle Accident
BARCI’S BASICS (ON NO FAULT)
Marina A. Barci
- Plaintiff Cannot Maintain a Direct Action against MVAIC where the Identity of the Operator and Owner of Vehicle who Hit Them is Known
RYAN’S CAPITAL ROUNDUP
Ryan P. Maxwell
- DFS Provides Helpful Links to Consumer Information Regarding Health, Travel, and Business Interruption Insurance, Among Other Areas
- DFS Refiles Expired Emergency Regulation Consolidating the Rules Governing the Procedures for Adjudicatory Proceedings before DFS
- DFS Refiles Expired Emergency Regulation Further Implementing Recent Upward Amendment to SUM Limit for “Stretch Limousines”
From the Filings Cabinet
- DFS Disapproves Commercial Excess Form Filing that Declined to Pay Loss Prior to Underlying Insurer’s Payment of Loss
CJ on CVA and USDC(NY)
Charles J. Englert III
- Thirty-Five Days is Within the Reasonable Time to Disclaim Coverage Proscribed by New York Insurance Law Section 3420(d)(2)
CARA’S CANADIAN AND CROSS-BORDER CONNECTIONS (WITH HEATHER SANDERSON)
Cara A. Cox
Sanderson Law (Alberta, Canada)
- Not all Economic Losses from a Moth Infestation Are Covered Losses
- Application to Potential Canadian COVID 19 Business Interruption Claims
- Is the presence of a virus at an insured property “Physical Loss or Damage”?
Earl K. Cantwell
- “Innocent Co-Insureds” Allowed to Recover
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
Off the Mark
03/20/20 Pham Tran v. Utica First
Appellate Division, Second Department
Court Refuses to Require Insurer to Provide Coverage to an Entity for an Accident that Occurred before that Entity was Named as an Insured
Utica First issued a policy of insurance to a tenant of a premises. In September 2015, someone tripped and fell at the premise and claimed injury. The claimant later sued the tenant and the landlord seeking money damages for her alleged injuries. The landlord tendered a request to Utica First that it provide a defense and indemnity to the landlord based upon an endorsement which specifically identified the landlord as an additional insured. Utica First denied coverage, explaining that the amendatory endorsement adding the landlord was neither issued nor effective until January 2016, after the accident occurred. The landlord then sued Utica First challenging its denial.
On a motion to dismiss, the trial court originally questioned the effective date of the endorsement and denied Utica First’s motion. Utica First moved to reargue/renew and explained that the Court misread the amendatory endorsement. Upon considering Utica First’s motion to reargue/renew, the trial court agreed and dismissed the suit against Utica First.
On appeal, the Second Department upheld with the trial court’s decision following reargument, agreeing that the amendatory endorsement clearly identified the effective date, which was after the accident; thus proving that (1) sometimes, you can win a motion to reargue; and (2) in New York, an insurer need not defend a suit if “there is no possible factual or legal basis upon which it might eventually be obligated to indemnify the insured.”
Editor’s Note: Clearly the right decision. My thanks, and ATTALAYWERS to my friends, and the successful lawyers on this appeal (who were kind enough to write this summary): Sherri Pavloff and Audra Zane, two great coverage lawyers
03/18/20 Merchant v. State Farm Ins. Co.
Appellate Division, Second Department
Under SUM Policy, there is an Offset for Amount Received from Tortfeasor
The petitioner commenced the instant proceeding to modify an arbitration award in the amount of $5,000 on her claim for supplemental uninsured/underinsured motorist (hereinafter SUM) benefits, alleging that the arbitrator erred in offsetting the amount of damages sustained by $25,000, the amount she recovered from the insurance company which covered the other vehicle involved in the automobile accident.
Contrary to the petitioner's contention, the arbitrator did not err in offsetting the amount of damages sustained by the amount received from the insurance company which covered the other vehicle involved in the accident. The purpose of SUM coverage is to provide the insured with the same level of protection he or she would provide to others were the injured a tortfeasor in a bodily injury accident SUM coverage does not function as a stand-alone policy to fully compensate the insured for his or her injuries.
Editor Note: Don’t even know why there was a controversy here.
03/11/20 1415, LLC v. New York Marine & General Ins. Co.
Appellate Division, Second Department
Claim File Material Concerning the Defense of the Named Insured is Not Discoverable in Declaratory Judgment Action Involving Coverage
1415 LLC contracted with Park Developers to perform renovations on a residential building in Brooklyn. Park had 1415 named as an additional insured on a liability policy with NY Marine.
In January 2014, one of Park Developers' employees commenced a personal injury action against 1415 LLC, alleging violations of the Labor Law. 1415 LLC answered the complaint in the personal injury action and sought defense and indemnification from New York Marine. New York Marine did not respond to 1415 LLC's multiple requests.
The following year, 1415 LLC commenced a third-party action to the personal injury action, seeking indemnification from Park Developers. New York Marine provided counsel to Park Developers in the third-party action beginning on July 14, 2015. New York Marine disclaimed coverage to 1415 LLC in the personal injury action on April 6, 2016, on the ground that 1415 LLC had violated conditions to coverage. 1415 LLC then commenced this action seeking a judgment declaring that New York Marine is obligated to defend and indemnify it in the personal injury action.
The battle was over claim notes created after July 14, 2015, asserting that the notes were protected from disclosure based on the attorney-client privilege and as material prepared for litigation against 1415 LLC in the third-party action.
While CPLR 3101(a) provides for full disclosure of "all matter material and necessary in the prosecution or defense of an action," this principle is limited by CPLR 3101(b) and (c), which make "privileged matter" and "attorney's work product" absolutely immune from discovery. In addition, pursuant to CPLR 3101(d)(2), material that is prepared in anticipation of litigation "is subject to a conditional privilege, and, thus, is subject to disclosure only by a party's showing that he or she is in substantial need of the material and is unable to obtain the substantial equivalent of the material by other means without undue hardship".
The withheld material was protected by the attorney-client privilege and was privileged material prepared for litigation. Generally, the payment or rejection of claims is part of the regular business of an insurance company, and, thus, reports prepared by insurance investigators, adjusters, or attorneys before the decision is made to pay or reject a claim are not privileged and are discoverable
While the material 1415 LLC seeks from New York Marine was prepared before the determination to reject 1415 LLC's claim for defense and indemnification in the personal injury action, the withheld material concerns the defense of Park Developers in the third-party action brought by 1415 LLC.
Editor’s Note: Atta-lawyers shout out to my friend Ann Odelson from Kennedys CMK LLP, another fine coverage lawyer. Clearly the right decision.
03/11/20 Baron v. New York Mut. Underwriters
Appellate Division, Second Department
Where Question of Coverage is Involved, Question of Ambiguity is Resolved on the Ordinary Policyholder Standard
Plaintiffs solicited a quote for fire insurance from defendant Karis & Karis, Inc. Karis was able to obtain an acceptable quote, and undertook the effort to prepare the formal application of insurance for plaintiffs. As part of that process, plaintiff, Michael, was asked by Karis if plaintiffs had any “losses” in the previous five years. Michael responded by asking if “losses” meant prior insurance claims, to which Karis’ employee responded that the term “losses” was synonymous with claims. Plaintiffs, accordingly, responded in the negative.
Plaintiffs eventually submitted a claim for a fire loss that occurred during the policy. As part of its investigation, NYMU discovered that plaintiffs had damage (unspecified) over the previous five years. As such, and even though there was no “claim” submitted in connection with the previous “losses,” NYMU voided the policy due a material misrepresentation in underwriting.
Plaintiffs commenced the instant action against NYMU challenging the rescission of the policy, and also sought damages against Karis. On motions for summary judgment, plaintiffs’ argued that the term “losses” was ambiguous and thus could not provide a basis for NYMU’s rescission. In addition, and regardless of the definition of the term, the application was only signed by one of the plaintiffs, Michael. As such, it was reasoned that plaintiff’s partner, John, should still be entitled to coverage as an “innocent insured.” Plaintiffs also sought to preclude EUO testimony Michael because the deposition was taken without advising Michael’s counsel.
The trial court held that plaintiffs failed to establish, as a matter of law, that “losses” was ambiguous. The lower court also ruled that the “innocent insured” doctrine was inapplicable to this case. Finally, the court ruled that NYMU’s counsel who conducted the EUO had violated his ethical obligations by soliciting testimony from an individual he knew was represented. As such, the testimony was inadmissible in the current proceedings.
On appeal, the Second Department agreed that plaintiffs had not met their burden of establishing ambiguity in the term “losses.” The Court noted that ambiguity is not created “merely because the parties interpret them [the term(s)] differently.” The test for ambiguity is not what the parties think, but rather what would be the reasonable expectation of an average insured reading the policy.
The Second Department also agreed that the innocent insured doctrine was inapplicable to the current issue.
The Court also affirmed the trial court’s decision that NYMU’s decision to solicit the EUO testimony of a represented individual without this lawyer present resulted in the transcript being precluded from introduction in this action.
Peiper’s Point – A note on the “innocent insured” doctrine. The Court doesn’t spend much time on explaining why the argument is unavailable, but we will here.
An innocent insured comes to pass when a co-insured intentionally destroys property without the knowledge and/or consent of the purportedly “innocent party.” Put another way, an insured does not lose his or her entitlement to coverage on the basis of someone else’s act. Here, the question is not whether the policy should provide coverage based upon an act, but whether the policy should have been written in the first place.
Where there is a material misrepresentation, the question is one of rescission (ie., voiding the policy ab initio). If the policy is effectively voided, there are no insureds (innocent or otherwise) because there is no policy at issue.
Appellate Division, First Department
Motion to Amend Pleadings/Remand to State Court Does Not Extend Statute of Limitations
On December 12, 2012, plaintiff sustained fire damage as a result of the alleged malfunction of his Electrolux refrigerator. In October of 2015, the above-captioned matter was commenced against Electrolux seeking recovery on the basis of strict products liability, negligence and negligent infliction of emotional distress. Electrolux then applied to remove the matter to federal court on the basis of diversity jurisdiction.
Plaintiff responded on December 8, 2015 by moving to amend his Complaint to add P.C. Richard, the retailer, as a co-defendant. The move would destroy diversity, and result in the matter being remanded back to State Court. The motion was granted on February 23, 2016, and P.C. Richard was served on March 18, 2016.
Upon receipt, P.C. Richard moved to dismiss all causes of action on statute of limitation grounds. The action against P.C. Richard was obviously started after the expiration of the relevant statute of limitations. Thus, in response, plaintiff argued that the District Court’s decision to grant his application (which was filed before the expiration of the statute of limitations) should result in the matter being timely. The Court disagreed, and held that the CPLR did not excuse plaintiff’s failure to timely commence its claims against P.C. Richard. Moreover, the claims against this defendant did not relate back to the claims asserted against Electrolux as the two defendants would not be united in interest with regard to the speicific claims of negligence and negligent infliction of emotional distress. Finally, the Court noted the fact that plaintiff was unable to explain why P.C. Richard was not named as a defendant when the matter was first served.
DISHING OUT SERIOUS INJURY THRESHOLD
Michael J. Dischley
03/04/20 Sarnelli v. City of New York, et al.
Appellate Division, Second Department
Plaintiff’s Inability to Provide Evidence that Plaintiff Sustained a Fracture at Trial Fatal to Serious Injury Claim
In an action to recover damages for personal injuries, the plaintiff Salvatrice Sarnelli appeals from a judgment of the Supreme Court, Queens County, entered September 29, 2017. The judgment, upon a jury verdict finding that the plaintiff Salvatrice Sarnelli did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident, and upon an order of the same court dated November 17, 2016, denying plaintiff’s motion pursuant to CPLR 4404(a) to set aside the jury verdict as contrary to the weight of the evidence and for a new trial on the issue of damages.
The plaintiffs commenced this personal injury action against the defendants following a motor vehicle accident. At trial, Sarnelli testified that she injured her teeth, including the lower part of a dental bridge, when, as a result of the accident, her face hit the steering wheel of her vehicle. Sarnelli testified that she visited her dentist 11 days after the accident. She testified that another dentist, Michael Mastromarino, subsequently removed a dental bridge and four of her front teeth and replaced them with four implants. Sarnelli did not call Mastromarino as a witness. Sarnelli attempted to testify that she had cracked the root of one of her teeth, but defense counsel's objection to that testimony was sustained on the ground that Sarnelli was repeating hearsay from a dentist who was not called as a witness.
Sarnelli presented the testimony of Irving Friedman, a neurologist, who testified that Sarnelli experienced dental pain. He further testified: "I am just quoting [Sarnelli]. My jaw hit the steering wheel. I cracked my bridge. That's her history to me." Sarnelli also presented the testimony of Stanton Scott Goldstein, an oral surgeon who first examined her 16 years after the accident. Goldstein testified that "16 years later, [Sarnelli] had no lower teeth; she had an ill-fitting denture." He further testified that "dental records indicated that a tooth was fractured, the bridge became loose, subsequently that bridge was lost."
The defendants did not present any witnesses. The jury found that Sarnelli did not sustain a fractured tooth as a result of the accident and, thus, did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the accident.
Sarnelli moved pursuant to CPLR 4404(a) to set aside the verdict as contrary to the weight of the evidence and for a new trial on the issue of damages. In an order dated November 17, 2016, the Supreme Court denied the motion. On September 29, 2017, the court entered a judgment in favor of the defendants and against Sarnelli dismissing the complaint insofar as asserted by her. Sarnelli appealed.
A fracture constitutes a serious injury pursuant to Insurance Law § 5102(d). However, in the case at bar, Sarnelli presented no direct evidence that she sustained a fractured tooth as a result of the accident. Friedman testified that he was "just quoting" Sarnelli in concluding that she had sustained a fractured tooth. Goldstein testified that he did not see Sarnelli's medical records from the emergency room on the date of the accident, "believe[d]" there were X-rays of Sarnelli's jaw taken in 2000, and did not have any personal knowledge of the state of Sarnelli's jaw on the date of the accident. Sarnelli testified that after the accident, Mastromarino performed dental work on her. However, Mastromarino did not testify, and Sarnelli did not introduce into evidence Matromarino's medical records or any X-rays demonstrating that she had a fractured tooth.
As such, the Court found that a fair interpretation of the evidence supported the jury's conclusion that Sarnelli did not sustain a fractured tooth as a result of the accident and, thus, did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the accident. Therefore, the Court agreed with the Supreme Court's determination denying Sarnelli's motion to set aside the verdict as contrary to the weight of the evidence and for a new trial on the issue of damages.
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
Stay safe and sane out there, everyone. Let us know if we can help.
Jennifer A. Ehman
03/03/20 99 Church Invs. LLC v. Old Republic Ins. Co.
Supreme Court, New York County
Hon. Barbara Jaffe
Trial Court Dismisses Complaint as to Excess Carrier who Established via Documentary Evidence that its Policy included a “Wrap-Up” Exclusion and Such a Policy was in Place for the Project
99 Church Invs. LLC contracted with Tishman Construction to serve as construction manager for a project located at 99 Church Street, in Manhattan. Tishman then retained Port Morris Tile Marble Corp. to work at the project. Pursuant to the contract between Tishman and Port Morris, the latter was required to procure and maintain a CGL policy with limits of $1,000,000 per occurrence and $2,000,000 aggregate, and excess coverage. Port Morris retained the primary coverage from Old Republic and the excess coverage from AXIS. 99 Church and Tishman were named as additional insureds under both policies.
In February 2017, a former employee of Port Morris sustained injury at the project site when he fell from a ladder. He then commenced a lawsuit against 99 Church and Tishman.
Plaintiffs argue that any liability in that lawsuit arising from the work was caused by the negligence of Port Morris and its employee, and as additional insureds, Port Morris’s carriers must defend and indemnify them.
AXIS moved to dismiss the complaint on the basis that its policy included a “wrap-up” exclusion, which bared coverage for damages or liability arising from Port Morris’s work where there was a wrap or a consolidated insurance program for the project. AXIS relied upon its policy and a copy of another policy issued by ACE Group which reflected that “[a]ny ‘Enrolled Contractors’ for whom the ‘Named Insured’ contracts to furnish insurance under the ‘Controlled Insurance Program’ and who performs work at the ‘Designated Projects(s)’” is an insured, and that “Enrolled Contractor” means each contractor and subcontract that we enroll in accordance with our records. The designated premises or project on the policy was identified as 99 Church Street. AXIS further submitted a copy of the contract between Tishman and Port Morris reflecting that an Owner Controlled Insurance Program was part of the contact.
In opposition, plaintiffs submitted that AXIS’s documentary evidence should be disregarded because it was not authenticated, observing the lack of certification and AXIS’s claimed failure to submit an affidavit from an employee authenticating them and attesting to their completeness.
The court considered the arguments finding that while plaintiffs observed that the contracts and insurance policies submitted by AXIS lacked a certification verifying their authenticity, they did not challenge the documents’ authenticity, correctness or completeness, and in their complaint, they allege that the policies were procured. Consequently, as they are in possession of the documents, and offer no evidence or argument as to the inaccuracy of AXIS’s submissions, plaintiffs’ conclusory denials as to the authenticity of AXIS’s submission was insufficient. And, AXIS’s policy also reflected that coverage was precluded when the construction project had an OCIP that was sponsored or participated in by the prime contractor, general contractor, project manager, owner, or Port Morris, and the evidence presented by AXIS established that there was such a policy in place. Accordingly, AXIS’s motion was granted.
02/26/20 Fore Winds Development Corp. v. Philadelphia et al.
Supreme Court, Oneida County
Hon. David Murad
Carrier Met Its Burden Establishing Policyholder’s Claimed Damage Was the Result of Wear and Tear
This action involved a claim by plaintiff for coverage under a commercial insurance policy for water damage alleged to have been caused by the weight of ice and snow on the roof of its golf clubhouse in the winter 2016-2017. The alleged damages included the roof, an HVAC unit, interior damages throughout the building, including certain contents.
In support of its motion for summary judgment, plaintiff submitted an affidavit and report of a professional engineer and a licensed professional land surveyor who reported that he inspected the clubhouse and found extensive water-related damage. He opined that the damage was the result of a one-time storm event that resulted in four feet of snow on the facility and damaged the roof. The expert disagreed with an engineer retained by defendant who determined that the roof damage was caused by structural change, involving the cutting of roof trusses, when the HVAC united was installed.
Defendant’s expert, in contrast, opined, to a reasonable degree of engineering certainty, that the interior of the building sustained a number of water intrusions that were not attributable to one storm event, but instead the result of water entering the premises over a period of time due to defectively installed or badly deteriorated shingles, failed, decayed, and deteriorated caulking and flashing throughout the roof, and a defective transition from one area of new shingles to an older bitumen roof.
Plaintiff claimed coverage under portions of the policy pertaining to collapse, and an exception to a limitation in the policy pertaining to the thawing of snow, sleet, or ice on the building.
Defendant in opposition submitted it was plaintiff’s burden to prove the exception, and even setting that aside, coverage for this loss was unavailable as a result of the wear and tear caused by faulty, inadequate, or defective workmanship and maintenance exclusion, which formed the basis for its denial. It also submitted the collapse provision was inapplicable as the building was still standing.
In considering the papers submitted, the court held that Plaintiff, on its motion for summary judgment, failed to meet its burden as it was not clear from the curriculum vitae that Plaintiff's proposed expert, although a professional engineer, had the requisite experience with building construction and maintenance to render the relevant opinions. And, even if it was clear, his report and opinions were conclusory and without a basis. The report contained no proof that a four-foot snow event occurred at the subject premises at any time during the 2016-2017 winter season, and no analysis of the alleged snow load or effect of such a snow load on the roof. His report also ignored the evidence of previously existing and repaired water damage to the premises.
With regard to defendant’s motion, the court found it had met its burden. Through its professional engineer's reports and other competent evidence, Defendant established that the wear and tear exclusion applied to this particular case, and denial of the claim was appropriate.
Note: An Atta-Lawyer to our own Steve Peiper (first-party extraordinaire) who represented Philadelphia in this one. If you would like a copy of the decision, let me know.
03/16/20 Ridpath v. Progressive Adv. Auto Ins. Co.
United States District Court, Eastern District of Pennsylvania
Conclusory Allegations of Bad Faith Dismissed
An underinsured motorist struck Ms. Ridpath’s car while she was riding in the passenger seat. As a result of the accident, Ms. Ridpath sustained bodily injuries, including dizziness, neck pain, and acute post-traumatic cervical spine sprain and strain. Ms. Ridpath was insured by Progressive at the time of the accident. Ms. Ridpath claims that the uninsured motorist caused the accident and submitted a claim for underinsured motorist benefits to Progressive. Ms. Ridpath and Progressive could not agree on the amount of benefits that Ms. Ridpath is entitled to recover.
Ms. Ridpath sued in state court against Progressive alleging breach of contract and bad faith under 42 Pa. C.S.A. § 8371. In support of her bad faith claim, Ms. Ridpath alleged that Progressive breached its duty of good faith by (1) failing to negotiate her claim; (2) failing to properly investigate and evaluate her claim; and (3) failing to request that Ms. Ridpath submit to a defense medical examination. Progressive removed to federal court and moved to dismiss the bad faith claim.
In Pennsylvania, bad faith claims are quite fact specific and turn on the insurer’s conduct towards the insured. However, bad faith claims that fail to allege specific facts as evidence of bad faith are routinely dismissed.
The court granted Progressive’s motion because Ms. Ridpath’s bad faith claim was entirely supported by conclusory and bare-bones allegations. The court concluded that the allegations of bad faith suggested only that a bad faith claim was possible; they were insufficient to allow for a non-speculative inference that a finding of bad faith was plausible. However, the court did grant Ms. Ridpath leave to file an amended complaint to cure the factual deficiencies.
03/03/20 Cusamano v. N.J. Ins. Underwriting Ass’n
New Jersey Superior Court, Appellate Division
Specified Peril Property Policy: Pipe Break and Resulting Damage Not Covered Because Water Damage Not a Named Peril
Robert Cusamano and Julie Marzano (“plaintiffs”) own a summer vacation home in Ventnor, New Jersey. In July 2017, plaintiffs discovered water dripping out of the kitchen cabinets and covering the floor, and the kitchen ceiling had a bubble in it and was moist. A plumber determined the leak was coming from a "rotted connection" in the drain line from the tub above.
Plaintiffs' summer home was insured under a property insurance policy issued by
New Jersey Insurance Underwriting Association (NJIUA). The policy only covered the following specified perils: fire or lightning; internal explosion; windstorm or hail; explosion; riot or civil commotion; aircraft; vehicles; smoke; volcanic eruption; vandalism or malicious mischief. NJIUA denied coverage, advising plaintiffs that "[w]ater is not one of the named perils."
Plaintiffs sued NJIUA alleging breach of insurance contract and bad faith. The parties moved for summary judgment. The trial court ruled that, based upon the reasonable expectations of an ordinary insured, they would expect to have coverage for water damage. Therefore, the trial court denied the insurer’s motion and granted the insured’s summary judgment motion. NJIUA appealed.
On appeal, the New Jersey Appellate Division found that water damage from leaking pipes was not a covered peril. The policy did not list water damage from leaking pipes as a covered peril. The only mention of water was the "breakage of water” by explosion. It was not disputed the water leak that damaged plaintiffs' property came from a deteriorated pipe in the kitchen ceiling; no explosion was involved. Therefore, the peril that plaintiffs alleged caused the damages was not a "peril insured against" under the policy. Since water damage was not a covered peril, there was no coverage in the first instance. The Appellate Division reversed and dismissed the plaintiffs’ complaint.
Disclaimer: This is an unpublished decision which has precedential value in only limited circumstances.
03/12/20 Guardian Life Ins. Co. v. Gonnella and Gonnella
Third Circuit Court of Appeals (New Jersey)
Third Circuit Affirms Order Awarding Life Insurance Benefits to Daughter instead of Ex-spouse
The late Arleen Gonnella held a policy of life insurance issued through Guardian Life. Following Arleen’s death, her daughter, Tina Gonnella, and ex-husband, Joseph Gonnella, separately claimed to be the rightful beneficiary to the policy. Hoping to stay out of the argument, Guardian Life began an action under Federal Rule of Civil Procedure 22, seeking interpleader relief and a release from any liability, leaving the task of sorting out the beneficiary dispute to the District Court. The court entered an order requiring Guardian Life to deposit the proceeds of the policy with the court. It then entered a consent judgment providing interpleader relief, and dismissed Guardian Life from the action.
The court then turned to the dispute between Tina and Joseph. The policy names Joseph as the primary beneficiary. But he and Arleen divorced in 2012, and executed a Martial Settlement Agreement (the “MSA”), dividing up their marital assets. The MSA states, “[a]ll . . . life insurance policies . . . in the name or possession of the Wife not otherwise identified herein shall be the sole and separate property of the Wife, and the Husband waives any interest therein.”
Tina argued that since Joseph waived his interest in Arleen’s Guardian Life policy, under the MSA she was entitled to the death benefit as the policy’s contingent beneficiary. Joseph argued that and Arleen later modified the MSA through an oral agreement restoring his beneficiary status under the insurance policy. He bolstered his position by noting that he and Arleen enjoyed an amicable relationship after divorce, as evidenced by his continued involvement in her financial affairs, their mutual concern for each other during health emergencies, and her request to share the Gonnella family burial plot.
The Third Circuit accepted Tina’s arguments and rejected Joseph’s. Absent a written agreement modifying the MSA, the Court stated it was required to enforce the agreement. The Third Circuit affirmed granting the life insurance proceeds to Tina.
Reminder for life insurers: let the courts sort out your beneficiary dispute by impleading the insurance proceeds into the court.
LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel
03/11/20 Watkins v. City of Waterbury Board of Education
United States District Court, District of Connecticut
High Bar in Connecticut to Intentional Infliction of Emotional Distress
Anita Watkins is a 60-year-old black female teacher, originally from Guatemala, in the City of Waterbury. While its official nickname is the Brass City, locally Waterbury is better known for the giant Christ the Redeemer-like cross high atop Pine Hill visible for miles along I-84, that marks the Holy Land USA biblical theme park. Well, presumably Ms. Watkins doesn’t feel like turning the other cheek, as she sued the Board of Education for employment discrimination and intentional infliction of emotional distress.
Ms. Watkins is a highly educated and accomplished teacher. With a degree in education, and a Master of Science in educational leadership, she was the acting lead teacher in the high school’s family and consumer sciences department. However, she allegedly has hit the proverbial glass ceiling. She claims that she applied for more than twenty-five administrator positions in the Waterbury schools, but each position was awarded to a white, American-born, non-Hispanic candidate. In addition, Ms. Watkins claimed that she was denied the opportunity to “stand in” when an assistant principal is absent while others—“white, non-Hispanic, American-born and usually younger employees,” were given that opportunity. When she complained, she was warned not to make it about race.
School officials mocked her, threatened her, and following her complaints, demoted her, excluded her from leadership team meetings, school committees, and trainings. “As a result of her repeated oversight for advancement and the Board’s discriminatory practices, Watkins has been very upset, humiliated, embarrassed, helpless and emotionally devastated. Those feelings have only worsened as due [sic] to the retaliation she has suffered,” the court quoted from her complaint. Her emotional distress manifested in depression, panic attacks, bouts of tears, low self-esteem and sleeplessness.
Still, the court was unimpressed and dismissed Ms. Watkins IIED claim as a matter of law. In Connecticut, to state a claim for intentional infliction of emotional distress, a plaintiff must allege: (1) that the defendant intended to inflict emotional distress or knew or should have known that such distress was a likely result of its conduct; (2) that the conduct was extreme and outrageous; (3) that the defendant’s conduct was the cause of plaintiff’s distress; and (4) that the emotional distress sustained by the plaintiff was severe.
Interestingly, in Connecticut, whether conduct satisfies the element of extreme and outrageous conduct is a question, in the first instance, for the court. To reach the bar of extreme and outrageous, the conduct must be “regarded as atrocious, and utterly intolerable in a civilized community.... [where] recitation of the facts to an average member of the community would arouse his resentment against the actor, and lead him to exclaim, Outrageous!” the court wrote, citing Appleton, 757 A.2d at 1062. Conduct that is “merely insulting or displays bad manners or results in hurt feelings is insufficient to form the basis for an action based upon intentional infliction of emotional distress.”
Here, the court found that Ms. Watkins did not meet that high bar. The court concluded that, the Board’s “conduct is largely, though not entirely, passive…. And the Defendant is alleged to have acted with either a discriminatory motive or a retaliatory motive. But even if proven, the conduct and the motive combined, do not amount to “atrocious” conduct or conduct that is “utterly intolerable in a civilized community.” Of note, the court cited several opinions in support of its holding, but perhaps the mores of society have evolved faster than the early century decisions.
03/16/20 Brighton Collectibles v. Certain Underwriters at Lloyd's
Ninth Circuit Court of Appeals
Applying California Law, Violation of California’s Song-Beverly Credit Card Act, Cal. Civ. Code §1747.08, Covered
Brighton was sued in a putative class action in which the plaintiffs alleged that it sold its customers personal information in violation of California’s Song-Beverly Credit Card Act. The trial court held that the claim did not state an enumerated “personal and advertising injury.” The Ninth Circuit reversed, holding that the claim was covered under the offense of oral or written publication of material that violates a person’s right to privacy. The court reasoned that the Act’s overriding purpose was to protect the personal privacy of consumers. Consequently violating the Act violated the plaintiffs’ right of privacy.
Lloyd’s contended that the policy exclusion for advertising, publishing, broadcasting or telecasting done by or for the insured defeated the duty to defend. The court disagreed. It held that the word publication in the covered offense could not be interpreted in the same matter as “publication” contained in the exclusion because otherwise, all of the coverage available to the insured for the oral or written publication of material that violates a person’s right to privacy would be defeated by the publication language in the exclusion.
Instead, the publication language in the exclusion indicated that the exclusion only applied to broad public-facing marketing activities because it was grouped with “advertising, broadcasting or televising.” Brighton’s sale of consumer information to select marketers was a publication within the meaning of the covered offense, but it did not rise to the level of widespread, public-facing publishing within the meaning of the exclusion.
03/10/20 Hartford Cas. Ins. Co. v. Davis & Gelshenen, LLP.
Fourth Circuit Court of Appeals
Applying North Carolina Law, Violation of Privacy Exclusion Precludes Coverage for Insured’s Alleged Violation of the Drivers Privacy Protection Act, 18 U.S.C. §§ 2721-2725
The putative class action plaintiffs alleged that Gelshenen Law violated the Driver’s Privacy Protection Act by obtaining their names and addresses from official accident reports submitted to the Department of Motor Vehicles and using them to mail advertisements for legal services.
The court agreed with the Hartford that the exclusion for “personal and advertising injury arising out of the violation of an individual’s right to privacy created by any state or federal act, unless the insured would have been liable even in the absence of such state or federal act” applied.
The second applicable exclusion at issue was that for personal and advertising injury arising directly or indirectly from a statute, ordinance, or regulation that prohibits or limits sending, transmitting, communicating, or distributing material or information. The court did not address the application of this exclusion.
03/04/20 Nevada Capital Ins. Company v. Sego Contractors Inc.
U.S. District Court, District of Oregon
False Imprisonment and Violation of Privacy Claims Not an Occurrence under Coverage A and Excluded under Coverage B by the Knowing Violation of Another’s Rights exclusion
The underlying plaintiff alleged that she was sexually assaulted by the individual defendant from age 13 to 18 with the knowledge, permission, and encouragement of the insured corporate defendants, which were all owned by the individual defendant. Among others, she pled causes of action for false imprisonment and the invasion of privacy. The court held that all of the claims arose out of the sexual assault so there was no occurrence under Coverage A. Under Oregon law, there is no accident if “an injurious intent is necessarily inferred from [the] type of intentional conduct.”
The insureds argued that Coverage B provided coverage for plaintiff’s claims of false imprisonment and violation of privacy, which are enumerated offenses. The court concluded that the Coverage B exception for Knowing Violation Of Rights Of Another exclusion, which precludes coverage for personal and advertising injury caused by or at the direction of the insured with the knowledge that the act would violate the right of another and inflict personal and advertising injury, applied. The court also held that the policy’s employment-related practices exclusion applied because the plaintiff was apparently in the defendant’s employ.
03/16/20 Rosemoor Suites, LLC v. Harleysville Lake States Ins. Co.
U.S. District Court, District of Illinois
Trademark Infringement is Not Trade Dress Infringement
LHO sued the insured for trademark infringement and unfair competition under the Lanham Act among others. LHO alleged that the insured wrongfully used the name “Hotel Chicago,” in violation of its mark causing confusions among customers. The insured basically built a hotel a few miles from LHO’s Hotel Chicago, and named its own hotel, “Hotel Chicago.”
Harleysville argued that the acts complained of were not enumerated offenses under the Personal and Advertising coverage grant. Harleysville argued even if they were, the exclusion for “infringement of Copyright, Patent, Trade Secrets” precluded coverage. The insured argued that the exception to the exclusion for infringement, in your advertisement, of copyright, trade dress or slogan, applied.
Because the complaint could not be read to state a claim for trade dress infringement in advertising, the insured asked the court to look outside of the pleadings. It argued that the sign in front of its hotel with the words, “Hotel Chicago,” was infringement of LHO’s trade dress in its advertising.
The court first explained that the sign is not trade dress. It described trade dress as including the packaging or dressing of a product, and the design of the product. It is a total image and overall appearance and may include features such as size shape, color or color combinations, texture, graphics or even particular sales techniques.
The court noted that even if the sign outside of the insured’s hotel was an advertisement that infringed upon LHO’s trade dress, Harleysville did not have a duty to defend because there was no indication that Harleysville knew of the sign when it made its coverage determination.
OFF THE MARK
Brian F. Mark
No noteworthy decisions to report on this edition.
Eric T. Boron
03/11/20 Western Agricultural Ins. Co. v. Arbab-Azzein
South Dakota Supreme Court
“Vehicle Used for a Fee” Exclusion Applies to Bar Liability Insurance Coverage for Motor Vehicle Accident
The South Dakota Supreme Court ruled that under the facts determined through a bench trial at the circuit court in a declaratory judgment action that a “vehicle used for a fee” exclusion in a motor vehicle insurance policy bars liability insurance coverage for a motor vehicle accident, and, that the policy’s “shared-expenses car pool” exception to that exclusion does not apply. The background facts established by the bench trial are as follows. At the time of the October 24, 2013 motor vehicle accident, claimant/passenger Alaaldeen Mussa lived in Sioux Falls and worked at the JBS Swift plant in Worthington, Minnesota. Mussa did not own a vehicle and regularly rode to work with his co-worker, defendant Altayeb Arbab-Azzein, who owned a fifteen-passenger van. Arbab-Azzein drove Mussa and other co-workers from Sioux Falls to the Worthington Swift plant each day, a round-trip of approximately 125 miles. Arbab-Azzein had purchased his van in 2012 for the purpose of driving himself and others to work at Swift. Before he bought the van, Arbab-Azzein rode to work in another co-worker’s van under a similar arrangement. Arbab-Azzein was the sole driver of the van he purchased. Most of his passengers did not have driver’s licenses.
Notably, the evidence at the bench trial indicated Arbab-Azzein typically drove ten to fifteen passengers each day, and each paid Arbab-Azzein at least $40 per week, regardless of the number of passengers commuting. Some passengers had testified they believed Arbab-Azzein was operating a business. However, Arbab-Azzein did not keep track of payments received, transportation expenses, or whether he made a profit. He did not claim any of the payments received from his co-workers as income on his tax returns. Arbab-Azzein testified the $40 weekly price per passenger covered the cost of gas, tires, oil changes, insurance, and vehicle maintenance, but he did not attempt to track or calculate these expenses.
Arbab-Azzein had a motor vehicle insurance policy through Western Agricultural Insurance Company (Western Ag) at the time of the accident. Western Ag denied coverage and refused to defend Arbab-Azzein against Mazza’s bodily injury action, relying upon policy provisions excluding coverage for any vehicle being used to carry people for a fee. Western Ag filed a declaratory judgment action against Arbab-Azzein and Mussa to determine coverage. In a bench trial, the circuit court determined Western Ag’s policy exclusions were applicable and denied coverage for the accident. Mussa appealed to the South Dakota Supreme Court, which last week affirmed the circuit court’s decision.
The Western Ag policy purchased by Arbab-Azzein included medical payments and liability coverage. The policy contained a “vehicle used for a fee” exclusion applicable to each coverage.
The exclusion for vehicle liability coverage provided:
“Vehicle Used for a Fee. There is no coverage while any vehicle is being used to carry people for a fee. This exclusion does not apply to a shared-expenses car pool.”
The exclusion for medical payments coverage provided:
“Vehicle Used For a Fee or Rented to Others. There is no coverage while any vehicle is being used to carry people or property for a fee or is rented to others.”
Mussa’s argument that Western Ag failed to meet its burden to show the “vehicle used for a fee” exclusions precluded coverage in this case was rejected by the Supreme Court, upon its determination that there was “ample evidence” from the bench trial that Arbab-Azzein was charging a weekly flat fee of $40, and in some instances $45, to transport each passenger. The number of passengers would at times vary, but the rate charged by Arbab-Azzein did not change based upon the number of passengers riding in the van. Supreme Court held that the evidence supported the circuit court’s finding that (quoting the circuit court decision) “it is crystal clear from the evidence that Arbab-Azzein was charging a flat fee to transport his co-workers to the Swift facility daily.”
Supreme Court found that the policy’s medical payments exclusion precludes coverage without exception, and as such the circuit court had correctly concluded that the policy did not provide coverage for medical expenses arising from the accident. Thus, the remaining question to be analyzed by the Supreme Court was whether or not the “shared-expenses car pool” exception to the vehicle liability coverage exclusion applied to provide coverage.
Supreme Court first determined the exception was not ambiguous notwithstanding the fact that the policy did not define the phrase “shared-expenses car pool”. Supreme Court noted “most courts have found this language unambiguous” and citied handful of cases from around the country to that effect. Notably, for you New York readers, a footnote to the South Dakota Supreme Court’s decision cites Aetna Cas. & Sur. Co. v. Mevorah, 149 Misc. 2d 1011, 1015, 566 N.Y.S.2d 842 (N.Y. Sup. Ct. Nassau County 1991) as one of two cases where a court found a similar provision to be ambiguous (finding “share-the-expense” car pool language to be ambiguous because it encompasses many varieties of informal car pool arrangements). We are not aware of any subsequent New York case that has further addressed whether or not such a provision is ambiguous.
The South Dakota Supreme Court noted that its circuit court had read the language “shared-expenses car pool” too narrowly by limiting the exception to arrangements where the participants take turns driving, because insurance contract language “must be construed according to its plain and ordinary meaning” and the terms “cannot be enlarged or diminished by judicial construction.” The Supreme Court found the language “shared-expenses car pool” is broad enough to encompass more than a traditional car pool where drivers take turns driving their own vehicles, holding that “[A]n arrangement where passengers share the expenses of the ‘car pool’ is well within the language of the exception, even if only one vehicle is used exclusively for transportation.”
Nonetheless, the South Dakota Supreme Court agreed with the circuit court’s finding that Arbab-Azzein’s daily passengers were not involved in a shared-expenses arrangement under the exception to the policy exclusion. The key factor was that Arbab-Azzein was charging a flat fee of at least $40 per passenger each week, regardless of passenger fluctuation, which varied from 10 to 15 passengers, and that by so doing under any analysis he was making a “sizable profit”, according to Supreme Court. In the court’s view, this fee arrangement involved a profit-making venture by Arbab-Azzein rather than a sharing of expenses. Our New York readers will also find it notable that, in comparison, the daily driver in the Aetna Cas. & Sur. Co. v. Mevorah was only charging $3.00 per passenger per trip to take up to 8 folks in a van from Brooklyn into Manhattan in the morning and then back out of Manhattan to Brooklyn after work, a total amount of revenue not likely to be viewed by anyone as providing the driver a sizable profit given the daily tolls paid to get the vehicle into and out of Manhattan island.
BARCI’S BASICS (ON NO FAULT)
Marina A. Barci
03/09/20 Martinez-Carmona v. MVAIC
Supreme Court, Kings County
Plaintiff Cannot Maintain a Direct Action against MVAIC where the Identity of the Operator and Owner of Vehicle who Hit Them is Known
In November 2018, plaintiff was a pedestrian at Belmont Ave. and Atkins Ave. in Brooklyn, NY when he was struck by a motor vehicle. A police report was filed and named the operator of the vehicle as one Mr. Marciano. Plaintiff later learned that Mr. Marciano was not covered by insurance at the time of the accident. In December 2018, plaintiff served a notice of intention to make a claim on MVAIC, claiming that neither he nor his counsel could confirm any insurance information for the vehicle driven by Mr. Marciano.
Insurance Law § 5201(b)(2) provides that the purpose of MVAIC is to provide innocent victims of motor vehicle accidents compensation for the injury and financial loss inflicted upon them, through no fault of their own, by unidentified motor vehicles which leave the scene of the accident. Insurance Law § 5218(a) sets forth the procedure for commencing an action against MVAIC in hit and run cases, which states essentially that when the identity of the vehicle and its operator and/or owner cannot be ascertained, a qualified person under this section involved in a qualified accident can apply for coverage to MVAIC.
MVAIC contends here that the plaintiff did not demonstrate that he was a qualified person pursuant to Article 52 of the Insurance Law because the identity of the owner and operator of the vehicle involved in his accident is known. The plaintiff contends that although he knows the identity of the owner and operator of the vehicle involved in the accident, since he has determined that the individual is uninsured, he should be permitted to bring a direct action against MVAIC.
The underlying incident was not a hit and run accident as defined by Insurance Law § 5218. The identity of the owner and operator is known. Accordingly, there was no basis for permitting a direct action against MVAIC. The plaintiff must bring a direct action against the uninsured motorist. Depending on what happens thereafter, petitioner may be able to bring MVAIC into the action. For example, Insurance Law § 5209 authorizes MVAIC to defend an action against a defaulting uninsured motorist. MVAIC may do so on its own or pursuant to a motion to compel brought by the qualified injured plaintiff. Or the plaintiff may pursue and obtain a judgment against the uninsured motorist and seek recovery from MVAIC pursuant to Insurance Law § 5210. In either example, however, the relevant statute contemplates that the action has already been commenced against the offending motorist. Neither Insurance Law §§ 5209 or 5210 contemplates or authorizes a direct action against MVAIC.
03/16/20 DFS Promulgates Coronavirus Consumer Info and FAQs
Department of Financial Services
DFS Provides Helpful Links to Consumer Information Regarding Health, Travel, and Business Interruption Insurance, Among Other Areas
The DFS Website has been updated in recent days to include useful information for consumers regarding various areas including coverage available under health, travel, and business interruption insurance for coronavirus related claims, DFS press releases, as well as coronavirus-related scams and consumer complaints.
Under DFS’ Novel Coronavirus and Business Interruption Insurance – FAQs, it specifically noted that
“It is unlikely that a current business interruption policy has contemplated the coronavirus specifically. However, you should check to see if your policy has an exclusion that would disable coverage for an incident triggered by an epidemic or pandemic, which might apply as the COVID-19 situation evolves. Also, any claim would still need to be related to your property damage for coverage to be triggered.”
DFS makes clear that diminished operations or closure due to “[f]ear of COVID-19 alone is unlikely to trigger business interruption insurance coverage.” Additionally, in recognizing that authorized insurers do not write coverage for known events like COVID-19 after the fact and where the potential damage is relatively unknown, DFS advises that “although it is possible to insure specialty risks such as business interruption due to COVID-19 in the Excess Lines market,” but cautions that DFS does not recommend doing so as that market is not regulated by DFS.
Under DFS’ Novel Coronavirus (COVID-19) and Travel Insurance – FAQs, DFS provides that “[m]ost standard travel insurance policies are not likely to provide trip cancellation/trip interruption coverage related to COVID-19.” Continuing, DFS provides that:
“If you have a travel insurance policy for an upcoming trip, coverage for COVID-19 will likely depend on two key issues. The first is whether COVID-19 was “foreseeable” when the policy was issued, which depends on whether it was publicly known that COVID-19 was dangerous at the time the policy was issued. Many insurers have declared a date after which they consider COVID-19 to have become “foreseeable.” The second is whether, if COVID-19 is declared a pandemic, the policy contains a pandemic exclusion. You will also need to review your policy for any other language applicable to COVID-19.
Please note that standard travel insurance (trip cancellation/trip interruption) does not provide coverage if you choose not to travel because of COVID-19 fears or concerns.”
The Travel Insurance – FAQs also notes that, as an alternative, “Cancel for Any Reason” (CFAR) protection may:
“apply if you decide to cancel your trip because you are concerned about COVID-19. However, you can expect that CFAR benefits will typically cost between 40-60% more than a travel insurance policy and that buying a CFAR benefit now may be more expensive than it was prior to the COVID-19 outbreak. Moreover, CFAR benefits may reimburse only between 50-75% of the cost of your trip.”
There is plenty of other consumer information available for these and other areas, including health insurance. Follow the link in the header of this write-up to see what else is available.
03/16/20 Consolidated Rules/Procedures for Adjudicatory Proceedings
Department of Financial Services
DFS Refiles Expired Emergency Regulation Consolidating the Rules Governing the Procedures for Adjudicatory Proceedings before DFS
On Monday, DFS refiled with the Secretary of State a regulation consolidating the rules governing the procedures for adjudicatory proceedings before DFS on an emergency basis. It had originally filed this Emergency Regulation on December 17, 2019, which had expired as of March 2, 2020.
In justifying the emergency basis for this regulation, DFS notes that it’s “current administrative adjudication procedures, set forth in two separate sets of regulations promulgated under the Banking and Insurance Laws, are insufficient to meet the Superintendent's expanded statutory authority.” Continuing, DFS provides that DFS:
“is presently engaged in a number of critical investigations and enforcement activities for which it intends to hold hearings. Some of these matters present issues that may have an impact upon both the Banking and Insurance authority of the Department, and others that may have an impact upon authority contained solely in the Financial Services Law. As such, the Department finds that the present bifurcated rules contained in the separate Banking and Insurance regulations are inadequate for the purpose.”
These changes to the adjudicatory proceedings are made in the name of streamlining such processes between Banking and Insurance under the consolidated umbrella that is the Department of Financial Services. It repeals 11 NYCRR Part 4 and 3 NYCRR Supervisory Procedure G 111 in favor of a new 23 NYCRR Part 2.
Reviewing DFS’s filed materials, this regulation reflects much the same language and procedures encompassed by the former 11 NYCRR Part 4. The new regulation appears to be a repackaging of the same procedures currently used by DFS in handling insurance adjudications to eliminate any “inconsistencies” that may exist between procedures for insurance and banking procedures. Upon review of both 11 NYCRR Part 4 and the proposed 23 NYCRR Part 2, there does not appear to be any inconsistencies worth noting from an insurance perspective
Notably, looking at 3 NYCRR Supervisory Procedure G 111, it would appear that 23 NYCRR Part 2 makes more changes to adjudicatory procedures with respect to banking. For example, there appears to be changes to the selection of hearing officers under 3 NYCRR SP G 111.2, as compared to the new 23 NYCRR § 2.2 Hearing officer.
03/16/20 SUM Regulation Further Implements Recent Amendment to Insurance Law § 3420(f)
Department of Financial Services
DFS Refiles Expired Emergency Regulation Further Implementing Recent Upward Amendment to SUM Limit for “Stretch Limousines”
On Monday, DFS refiled with the Secretary of State the ninth amendment to 11 NYCRR 60-2 (Insurance Regulation 35-D) on an emergency basis. It had originally filed the Emergency Regulation on December 18, 2019, and, as a result, had expired as of March 2, 2020. These emergency regulations further implement Chapter 59, Part III, Section 19 of the Laws of 2019, which took effect on January 1, 2020.
That law amended Insurance Law § 3420(f) to require that any policy insuring against loss resulting from liability imposed by law for bodily injury or death suffered by any natural person arising out of the ownership, maintenance, and use of an altered motor vehicle or stretch limousine, having a seating capacity of eight or more passengers and used in the business of carrying or transporting passengers for hire, provide supplementary uninsured/underinsured motorist ("SUM") insurance for bodily injury in an amount of a combined single limit of $1,500,000 because of bodily injury or death of one or more persons in any one accident.
This emergency regulation added a new subpart (3) to 11 NYCRR 60-2(a) to memorialize the implementation of the new statutory provisions above in New York’s Insurance Regulations. Additionally, subdivision (g) of 11 NYCRR 60-2.1 was amended, recodifying the existing subparts (1) and (2) into (1)(i) and (1)(ii), and providing a new subpart (2) reading as follows:
“(2) an insurer providing coverage insuring against loss resulting from liability imposed by law for bodily injury or death suffered by any natural person arising out of the ownership, maintenance and use of an altered motor vehicle, commonly referred to as a "stretch limousine", having a seating capacity of eight or more passengers used in the business of carrying or transporting passengers for hire, shall provide SUM coverage in the amount of $1,500,000 because of bodily injury to or death of one or more persons in any one accident for any policy issued, renewed, altered, or modified on or after January 1, 2020 For the purposes of this paragraph, an "altered motor vehicle" or "stretch limousine" shall mean a vehicle altered so as to have an extended chassis, lengthened wheel base, or elongated seating area and in the case of a truck, has been modified to transport passengers in addition to having been altered.”
Since the 2019 law applied to policies issued, renewed, altered, or modified on or after January 1, insurers have already begun renewing insurance policies. DFS indicated that those insurers “need to know to which vehicle owners they must provide this SUM coverage, [and therefore] it is imperative that this rule be promulgated on an emergency basis for the public's general welfare.”
From the Filings Cabinet
03/16/20 Commercial Excess Liability Coverage Form Not Permitted to Make Payment Contingent Upon Primary Insurer’s Payment
Department of Financial Services
DFS Disapproves Commercial Excess Form Filing that Declined to Pay Loss Prior to Underlying Insurer’s Payment of Loss
On Monday, DFS disapproved a commercial excess liability coverage form filing due to, inter alia, language indicating that the policy would afford coverage only when the underlying insurance has been exhausted by payment of the underlying limits. Specifically, the insuring agreement of the form provided that “If the underlying insurance does not pay a loss, for reasons other than exhaustion of an aggregate limit of liability, then we shall not pay such loss.”
In disapproving this language, DFS indicated that such a form must “provide that the policy will afford coverage once the underlying insurance has been exhausted, without regard to whether the underlying amounts have actually been paid.” Continuing, DFS indicates that coverage “should not be contingent on the underlying insurer having actually paid the limits of liability on the underlying policy,” since the excess policy has the responsibility to pay judgments that pierce its limit of liability once the underlying policy’s limit of liability is exhausted by its obligation to pay judgments or settlements.”
03/09/20 Maxum Indem. Co. v. Oxford Interior Corp., et al.
U.S. District Court, Eastern District of New York
Thirty-Five Days is Within the Reasonable Time to Disclaim Coverage Proscribed by New York Insurance Law Section 3420(d)(2)
Plaintiff filed a complaint seeking a declaration that it had no obligation to indemnify any of the defendants who are parties to a personal injury lawsuit in state court. The parties stipulated to the facts that plaintiff issued a general liability policy to Oxford Interior Corp., effective September 12, 2016 through September 12, 2017. That general liability policy contained an exclusion titled “Exclusion – Contracted Persons.” The exclusion provided, inter alia, that coverage would not be provided to contractors, subcontractors, or independent contractors for bodily injury, property damage, personal and advertising injury, or medical payments. On January 18, 2017, Jorge Zurita filed a complaint in New York Supreme Court, Kings County, alleging negligence against all parties after he sustained injury from falling from a scaffold. On February 22, 2017, 35 days after receiving notice of the state court action, plaintiff issued a disclaimer of coverage to Oxford Interior, but also agreed to provide a courtesy defense to Oxford Interior subject to a denial of coverage. The February 22, 2017 disclaimer was also sent to Jorge Zurita and all other named parties.
Plaintiff moved for summary judgment in this action seeking a declaration that it owed no defense and indemnity to any defendant based upon the “Exclusion – Contracted Persons.” As the parties had stipulated that the exclusion applied, opposition to the motion was based upon the timeliness of plaintiff’s disclaimer. Defendants argued that New York courts interpret the language of N.Y. Ins. Law § 3420(d)(2) to mean that an insurer must disclaim coverage within 30 days of its receipt of notice of a claim or suit. The district court agreed that the “30-day” window is the general rule, but New York courts have also held that any, "delay occasioned by a 'reasonably prompt, thorough, and diligent investigation of the claim' does not render the insurer's disclaimer untimely, because an investigation is often necessary to determine whether there is any basis for disclaiming coverage." Webster ex rel. Webster v. Mount Vernon Fire Ins. Co., 368 F.3d 209,216-17 (2d Cir. 2014). Here, the district court noted that the plaintiff’s need to analyze and understand voluminous subcontracting agreements that were associated with the project at issue before being able to determine whether or not there was any potential liability, qualified as a diligent investigation. Therefore, the delay in issuing a disclaimer of coverage was not untimely.
Sanderson Law (Alberta, Canada)
02/20/20 Marvelous Mario’s v. St. Paul Fire & Marine Ins. Co
Supreme Court of Canada
Not all Economic Losses from a Moth Infestation Are Covered Losses
Yuk. Indian meal moths in cereal bars …. But wait, they also spawned 20 years of coverage litigation:
In the 1990’s, St. Paul Fire and Marine Insurance Company issued a commercial property policy with a business interruption coverage endorsement to five inter-related companies, which, together, supplied baked goods and cereal bars to supermarkets and coffee shops throughout North America.
The insured companies had a complex relationship. One company within this group, Confectionately Yours Bakeries (CYB) was the insured entity that did the baking/manufacturing. CYB leased its baking equipment from another insured company and paid rent to yet another insured company. All of these companies had common shareholders and directors, but they were separate legal entities.
In October 1999, CYB became infested with Indian Meal Moths. Cereal bars manufactured at the plant were recalled triggering a claim by CYB under the St. Paul policy for physical damage and resulting business interruption loss. St. Paul settled that claim.
After the claim was settled, CYB became financially unstable and could not meet the lease payments for its equipment and could not pay its rent. Eventually CYB went into receivership.
Thereafter, the creditors of CYB that were named insureds under the St. Paul policy made claims under the St. Paul policy to recoup the amounts that CYB failed to pay them, stating that these claims arose from the infestation and are payable under the business interruption coverage. St. Paul denied these claims stating that although the infestation was an insured peril, the economic losses of this set of CYB’s creditors is not a Direct Loss resulting from the insured peril (as per the wording in the St. Paul coverage agreement) and, therefore, the coverage agreement was not triggered. As there was no direct loss to covered property, the policy did not respond to the loss of business income sustained by these creditors.
St. Paul’s basis of denial was upheld at trial and on appeal. The words “direct loss” demand an examination as to what was the proximate cause of the loss. Proximate cause is the effective, dominant, direct and immediate cause of the loss. In this case, the direct losses that resulted from the infestation were the loss of stock that had to be destroyed due to the infestation and the lost sales that resulted from the infestation. CYB was compensated for those losses under the policy. The losses sustained by CYB’s creditors are the indirect consequence of the infestation. CYB’s insolvency, not the infestation, was the proximate cause of these losses and to pay them would amount to paying the claims twice. Insolvency, bankruptcy and receivership is not a covered peril. For all of these reasons, St. Paul was correct to deny the claim.
However, another issue arose. The same set of CYB creditors (who, again, were additional named insureds under the St. Paul policy) alleged in yet another action that was tried together with this action, that CYB’s receiver mishandled the sale of CYB’s assets and, as a result, they suffered financial losses. The trial court held that these creditors either knew, or ought to have known, about these losses at the time of sale of the assets, but they waited a full two years to sue St. Paul for coverage under the business interruption coverage. St. Paul pointed to the limitation clause in the policy which stated that all claims must be brought within one year and issued a denial:
ACTION: Every action or proceeding against the insurer for the recovery of any claim under or by virtue of this contract is absolutely barred unless commenced within one year next after the loss or damage occurs.
At trial, the Court accepted the argument that although the loss began when the assets were sold, it accrued day by day by day and didn’t solely “occur” on the day the loss was triggered. In this sense, the limitation is a rolling limitation. The trial court ordered that CYB’s creditors could claim the losses that “occurred” within one year of the date they filed their claim. The Ontario Court of Appeal disagreed and upheld St. Paul’s denial. That Court held that St. Paul had a singular obligation to pay the total of all covered losses that occurred within the time frame set by the terms of the policy. That singular obligation was the subject of the contractual limitation set out in the policy. In order for CYB’s creditors to claim a breach of that singular obligation, they had to have issued their action within one year of when they were aware that they had sustained a loss:
While the precise amount of the damages was unknown, …[CYB’s creditors] … knew at …[the time the receiver sold CYB’s assets]… that they had suffered loss or damage and under the policy… they were obliged to commence a claim within one year …[of that sale]. The fact that the extent of damages may not be known with precision does not stop the commencement of the limitation period …
On February 20, 2020, leave to appeal to the Supreme Court of Canada from the judgment of the Ontario Court of Appeal was refused and, as a result, this is the final word on these issue in Ontario. The case constitutes persuasive authority for the same issues in other Canadian provinces and territories.
Cara’s Cross Border Connection: Continuing-Wrong Doctrine
Is an insurer’s obligation to pay a business interruption claim in the United States a daily obligation, the breach of which continually resets the commencement of the limitation period?
Short answer: No.
In New York, where a contract provides for continuing performance over a period of time, each breach may reset the clock on the statute of limitations or trigger the contractual limitation. However, under the continuing-wrong doctrine, the statute of limitations is tolled to the date of the commission of the last wrongful act where there is a series of continuing wrongs. Nevertheless, there must be an affirmative breach of the contract within the applicable statute of limitations and recovery of damages is limited to the breaches committed within the applicable period. This doctrine is the exception to the general rule that the statute of limitations for breach of contract runs from the time of the breach (even if no damage occurs until later or even when an injured party is unaware of the existence of an injury or wrongful conduct). However, the continuing-wrong doctrine is like the Canadian rolling limitation period because both are predicated on continuing breaches and not the continuing effects of earlier breaches.
In the context of insurance, if an insured brings an action for breach of a contract of insurance covering business interruptions, there is only one triggering event: the denial of the claim. Any subsequent, daily losses that an insured may suffer as a result from an insurer’s denial will not reset the clock. However, such losses will may be included as part of an insurer’s breach in denying a claim for business interruption losses. In New York, in order to recover consequential damages for an insurer’s breach of an insurance policy, the insured must show only that such damages were within the contemplation of the parties as the probably result of a breach at the time of or prior to contracting.
Additionally, although an insurer has a singular obligation to pay a claim for business interruption losses, an insured may argue that their insurer made a subsequent breach in denying an “extended recovery period” claim. Extended recovery period provision is supplemental coverage in the event an insured will continue to suffer losses due to its business interruption, even after the insured resumes business operations. Therefore, under the continuing-wrong doctrine, the statute of limitations for a business interruption claim may be reset if an insurer subsequently breaches an extended recovery claim.
Cara’s Cross-Border Connection: Heather
Application to Potential Canadian COVID 19 Business Interruption Claims
This case could potentially apply to the anticipated COVID 19 business interruption claims:
- Losses must be direct: A business interruption loss by one insured company due to a covered peril does not trigger the right of other insured companies to claim business interruption losses that they sustain as a consequence of the covered loss. This is so even if they are financially dependent upon the insured entity that sustained the loss. The consequential claims are not direct losses and under most commercial property policies the losses must be proven to be direct losses.
- Contractual limitation clauses will be honoured as written: Insurers are within their rights to deny business interruption claims that have not been sued within the contractual limitation contained in the policy.
The limitation starts to run when the covered period occurs: The obligation of an insurer (if any) to pay business interruption claims is a singular obligation and does not accrue day by day. This means that the limitation begins when the covered peril that triggers the loss occurs.
I was slated to discuss an interesting Canadian appeal case on the cost of making good faulty workmanship. But the constant updates on the world-wide health emergency created by COVID 19 and the prospect of the economic losses landing at the feet of the P&C industry diverted my focus. I decided to offer my comments on that issue instead.
Is the presence of a virus at an insured property “Physical Loss or Damage”?
Canadian property insurers do not use a common commercial property/business interruption form. Each insurer has its own form, the wording of which has been gleaned from policies issued in multiple jurisdictions. In some instances, the forms used are similar to that used in the United Kingdom, others are influenced by American and Australian wording. In other cases, the wording is ‘broker wording’; forms offered by an international broker which in turn was influenced by policies issued in multiple jurisdictions.
The forms used by Canadian insurers have commonalities amongst each other, but the wording differences mean that one cannot assume that the same event will result in identical coverage across the board.
With that said, most generic commercial property wording is triggered by the presence of “physical loss or damage”. How have Canadian courts interpreted that trigger?
There are Canadian cases where insured premises have been forced to close due to the presence of odours from broken gas lines or infiltration of chemicals. But, to my knowledge, there are no Canadian cases that have considered whether the presence of bacteria or viruses in an insured property constitutes a covered cause of loss under a commercial property policy. I expect the absence of cases is due to the fact that most commercial policies contain an exclusion for any direct or indirect loss caused directly or indirectly from any virus, bacterium or other micro-organism that is capable of inducing illness. It is my understanding that these exclusions were generated by reason of the shock wave created by the settlement of the Mandarin Oriental claims in 2003.
The SARs outbreak began in China late in 2002. The pneumonia-like virus spread rapidly in Asia, killing hundreds, reducing travel to several cities and causing the cancellation or relocation of several large events. A woman who stayed at a hotel in Hong Kong that housed an infected gentleman, returned to her home in Toronto, Ontario where she fell ill and sought medical assistance. Her local hospital did not initially recognize her illness for what it was. In the meantime, the illness was rapidly spreading within the Toronto area, with the woman’s local hospital as its epicentre. When it was all over, there were 438 cases of SARs in Canada and 44 deaths.
In addition to the human toll, there were repercussions to the property and casualty industry. In 2002-2003, Mandarin Oriental International Ltd. operated hotels in Hong Kong, Malaysia, Singapore and Thailand. All of these properties lost business due to cancellations and reduced food and beverage sales stemming from the SARs outbreak. Litigation was commenced which settled. The settlement brokered by AIG Europe Ltd. is rumored to have been in the $16 million USD range.
Those insurers whose policies do not contain an exclusion that specifically excludes losses caused by viruses and bacteria will be left to deal with the issue of whether the presence of a virus is “physical loss or damage”. There are two Canadian cases that can be used to argue by analogy that the presence of a virus in a building is “direct physical loss”. Both of these cases deal with the presence of gasoline vapours in the air that rendered a building unsafe for occupation. The court held in each of these cases that the fact that the vapours rendered the insured building uninhabitable means that there is a loss that falls within the coverage agreement of a commercial property policy. A building that cannot be used is “injured”; an injured building is “damaged”: New Brunswick (Provincial Secretary) v. York (1957), 16 D.L.R. (2d) 198 (N.B. C.A.); D.P. Murphy, Inc. v. Laurentian Casualty Co. of Canada, 99 Nfld. & P.E.I.R. 331 (P.E.I. S.C.). Despite that finding, in each of the cases, the loss was not payable as the vapours were a contaminant and loss due pollutants and contaminants was excluded under each of the policies under consideration.
Declaring a virus to be a contaminant may be a stretch.
However, all, or almost all, commercial property policies contain an obligation to mitigate the business losses caused by a covered cause of loss. The presence of a virus can be mitigated by disinfection and cleaning. The ease of doing so ought to reduce the resulting loss to an amount well below the policy deductible or to an amount that is not worth pursuing.
The precise cause of the business losses must be examined. It is highly likely that the business losses are due to forced closures due to governmental order. Most commercial package policies contain coverage for closures mandated by civil authorities. However, those coverages are triggered by the presence of a covered cause of loss at a property at a property within a specified geographical radius of the insured property which re-engages the argument of whether “physical loss or damage” has occurred. If the coverage is available, it is usually time limited to a few weeks which may render claims unprofitable to pursue.
Finally, the business losses may be simply the result of a loss of market due to the generalized economic impact of COVID 19. Most policies contain loss of market exclusions that may be employed in those situations.
At this time, it seems that Canadian commercial property coverage is not a solution for impending businesses losses due to COVID 19 social distancing requirements.
Earl K. Cantwell
11/21/19 Wilson v. State Farm Fire and Cas. Co.
United States District Court, Eastern District of Michigan
“Innocent Co-Insureds” Allowed to Recover
The plaintiffs sued State Farm for denying claims arising from a fire at their home. The plaintiffs were all insured persons under the fire insurance policy. After a jury trial, it was concluded that Wilson had a wrongful connection to the fire, but that Turner, his son, and his grandchildren did not. After the trial, State Farm asked the Court to find that Turner and the grandchildren were precluded from recovering under the policy because the policy excluded coverage for “innocent co-insureds”. Turner and the grandchildren argued that Michigan law had deemed such language or restrictions void. The District Court ruled in favor of the claimants and refused to set aside the jury verdict.
The Court noted that Michigan law had taken some turns over the years. Early cases held that fraud or wrongdoing on the part of one insured could result in denial to all. Subsequently, the Michigan Supreme Court had limited this argument to be read only to bar the claim of an insured who has committed the fraud, and did not bar the claim of any insured under the policy who was innocent of fraud, under a theory that an insured often has no control over the conduct of others. In a more recent case, the Supreme Court in Michigan had held that the “innocent co-insured” doctrine covered not just fraudulent acts but other intentional conduct.
When deciding a diversity case under state law, a federal court must apply the law of the forum state’s highest court. If the state’s highest court has spoken on an issue, the District Court is bound to apply that law. In this case, the District Court felt bound by the most recent Michigan Court case which found that a policy must not be construed to deny coverage to an innocent co-insured for “intentional wrongs” of another insured.
Given some discrepancies and variances in subsequent court decisions, State Farm asked the District Court to “certify” questions to the Michigan Supreme Court for an advisory ruling. The decision whether or not to utilize the certification procedure lies within the discretion of the district court, and in this case, the District Court believed that the Michigan Supreme Court had recently and definitively ruled on the question. Therefore, State Farm’s motion for a judgment as a matter of law overturning the jury verdict was denied.
This case represents a good example of a Federal District Court seeking to determine and apply the law of the forum state to the extent possible, acknowledging that it may not always be easy to determine a definitive state law holding, and also recognizing that state legal principles can evolve or change over time. At times, the District Courts do use the “certification” procedure where they present the question to the state’s highest court to get an advisory opinion, but that procedure is used sparingly and only in the most questionable of cases since courts are reluctant to impose issues and cases onto another court’s docket.
In this case, the District Court believed that the Michigan Supreme Court had recently and definitively ruled that innocent co-insureds who are not responsible or collusive to fraudulent or intentional wrongdoing could nonetheless recover under a property insurance policy, marking a complete reversal of the earliest Michigan cases a century before which held the opposite view.
 Now owned by Travelers Inc.
 Kenford Co., Inc. v. County of Erie, 73 N.Y.2d 312 (1989)
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