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Coverage Pointers - Volume XXI, No. 21

Volume XXI, No. 21 (No. 560)
Friday, April 3, 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. We don’t particularly care for the one our nation and the world is facing right now, but we will persevere and hope that we will cross back into whatever our new normalcy will become sooner rather than later.

Best wishes for good health from our hard working, socially distances, editorial staff.  From far and wide, columns come, formatted and edited and we’re sending out our issue to our subscribers.

For new subscribers, understand that attached to this cover letter is your issue of Coverage Pointers.  Enjoy both the letter and the issue and contact us if we can help.

Of course, we have put together a COVID-19 Resource Center and team, to assist you as you might need it.

If you need help in developing protocols for good faith handling of COVID-19 claims, we can help you.  Reach out to Steve Peiper, [email protected], Lee Siegel, [email protected], or to me and let’s talk.

 

How has the Practice of Law Changed with COVID-19?:

See the source image

CLOSE THE FILE --- We can help through mediation.

It is time to close files, not to sit idly by and wait for the crisis to end.  For those who join me on LinkedIn, I have been speaking on this issue for the past week almost non-stop.

This message is for defense counsel, coverage counsel, insurers, and plaintiff’s counsel as well.  This is a question you should ask yourself, those with whom you work, and those around your virtual office:

What have you done to move your matters towards resolution? I understand that the courts are closed. I know you can’t file that third discovery motion. I realize you can’t take that tenth deposition of the former employee who may have known about the weather.

This is an existential moment. Litigation as we have known it is forever changed. Claims and files will not go away by themselves.

Every day the file remains open, nobody is better off: not the insurer, the parties, not counsel, not the defendant. NOBODY.

Do SOMETHING to bring files toward conclusion. Pick up the phone, call your client, call your carrier, call your OPPONENT and MOVE the matter out of limbo. If you can’t work it out between or among the parties, find a MEDIATOR to help you. There are great mediators that can assist you, all around the country.  I can help.  I can identify others through the country who can help as well.

Be productive. Do SOMETHING to close the file.
 

Business Interruption Coverage for COVID-19 in Canada?

Heather Sanderson includes an absolutely superb article in our Canadian column on the cross-border case law on Business Interruption coverage in Canada.

See the source image

Newsletters:      

We have other firm newsletters to which you can subscribe by simply letting the editor (or me) know, including a new publication, which was created to advise on business and employment law questions:

  • Employment & Business Pointers aims to provide our clients and subscribers with timely information and practical, business-oriented solutions to the latest employment and general business law developments.  Contact Joseph S. Brown  [email protected] to subscribe.
     

  • Premises Pointers:  This monthly electronic newsletter covers current cases, trends and developments involving premises liability and general litigation. Our attorneys must stay abreast of new cases and trends across New York in both State and Federal Court and will now share their insight and analysis with you. This publication covers a wide range of topics including retail, restaurant and hospitality liability, slip and fall accidents, snow and ice claims, storm in progress, inadequate/negligent security, inadequate maintenance and negligent repair, service contracts, elevator and escalator accidents, swimming pool and recreational accidents, negligent supervision, assumption of risk, tavern owner and dram shop liability, homeowner liability and toxic exposures (just to name a few!).  Please drop a note to Jody Briandi at [email protected] to be added to the mailing list.
     

  • Labor Law Pointers:  Hurwitz & Fine, P.C.’s Labor Law Pointers offers a monthly review and analysis of every New York State Labor Law case decided during the month by the Court of Appeals and all four Departments. This e-mail direct newsletter is published the first Wednesday of each month on four distinct areas – New York Labor Law Sections 240(1), 241(6), 200 and indemnity/risk transfer. Contact Dave Adams at [email protected] to subscribe.
     

  • Products Liability Pointers:  Whether the claim is based on a defective design, flawed manufacturing process, or inadequate instructions/warnings, product liability litigation is constantly evolving.  Products Liability Pointers examines recent New York State and Federal cases as well as high court decisions from other jurisdictions, keeping our readers up-to-date with the latest developments and trends, and providing useful practice tips and litigation strategies.  This monthly newsletter covers all areas of product liability litigation, including negligence, strict products liability, breach of warranty claims, medical device litigation, toxic and mass torts, regulatory framework and governmental agencies.  Contact Brian F. Mark at [email protected] to subscribe.


Peiper on Property and Potpourri:

Just two weeks ago, I sat at my desk at the office and contemplated how things might evolve.  I haven’t been back to the office since, and I don’t know when I’ll get back.  Sound familiar?

On the lighter side, I have not shaved and haven’t had my hair cut in those two weeks either.  If this continues, I’ll be ready to herald the return of grunge.  I couldn’t grow my hair or beard back then without creating serious parental issues.  Thirty years later, my dad lives 350 miles away, but only time will tell if he can still stop me! 

We have some good cases this week.  The first deals with yet another Superstorm Sandy case.  Yep, they’re still out there.  It is a classic wind vs. water dispute which has a predictable result.  It is worth the read, though, if only for the Court’s discussion about what makes a sufficient expert affidavit.
The second case of note this week addresses an interesting question of whether a Proof of Loss needs to be “sworn.”  The result of that case might surprise you.   There are also a number of side issues discussed including failure to cooperate, false statements in the inventory list, the shifting burdens of proof on arson, and finally a good explanation of what constitutes a repudiation of an insurance policy.

You’ve all, no doubt, been bombarded with information on COVID-19.  Most of the information that has been put out has been responsible and correct.  Suffice it to say, however, we did not have this many business interruption “experts” two months ago.  Whomever you pick to be your guru, please choose wisely.

As for a parting reminder, Business Interruption coverage is just that … “interruption coverage.”  It is not Business “slow down” coverage.  Unless your policy varies, most require a “necessary suspension of operations.”  This requires a “total cessation” of activities.

So, for all you lawyers, accountants and other “hourly” billers, your work from home is an activity.  To put it in the parlance of the day, Zoom = Operations.  Operations = No Insurance.

To avoid leaving on a down note, I must tell you that I stumbled upon a replay of Game 5 of the 1986 National League Championship Series.  Keith Jackson was the play-by-play man, and he was great.  I kept watching, by the way, causing me a total cessation of my Saturday productivity.

I recall that series far better than anyone should nearly 35 years later, but man it was great.  Great players, great pitching and not one mention of WAR + or launch angle.  It was baseball as it was meant to be heard…Shea and the Astrodome might not qualify as baseball to be seen, however.  No matter the vistas, a Strawberry homerun off of Nolan Ryan is worth watching no matter how fake the grass was.

That’s it for now.  Well wishes to all.

Steve
Steven E. Peiper

[email protected]

 

Shortages – 100 Years Ago:

Various New York State Newspapers
April 3, 1920

Many people have found difficulty in purchasing hand sanitizer, toilet paper and other supplies in this time of virus crisis.  I wondered what kind of shortages the nation was facing 100 years ago, so I checked the New York paper for reports on shortages 100 years ago today. There were stories about an eclectic array:

Building Materials                Buffalo Enquirer        

Poultry                                 New York Herald

Wearing Material                 New York Herald

Nurses                                 Binghamton Press and Sun-Bulletin

Housing                               The Tablet (Brooklyn)

Labor                                   New York Daily News

Teachers                             New York Times

Paper                                  The Chat (Brooklyn)

Coal                                     New York Tribune

Potato                                 The Tablet (Brooklyn)

Wilewicz’ Wide-World of Coverage:

Dear Readers,

We hope this finds you healthy and sane. Our household is weathering this storm fairly well, with everyone having set up separate workspaces, and sticking to a routine as much as possible. My daughter does complain that the teachers have sent her home with more work than they possibly ever would have assigned in school, and that she’s never worked so much in her life. For my part, the claims and coverage situations keep coming in, so I’m still treating this like one extra-long work-from-home snow day. Snow month, rather? Meanwhile, the pets are the worse for wear around here. The cat can’t seem to find a place to rest, as we’re all up in her space every day, and she’s been picking fights with the dog and batting at her to relieve stress. Then, the dog herself looks exhausted, as her own catnaps are constantly interrupted by people getting snacks or attending conference calls.

So, this week in the Wide World of Coverage, we scoured the Circuit Courts for something a little lighter, in an effort to brighten the days a bit. Thus, from the Eleventh Circuit Court of Appeals, we found for you Princeton Excess v. Hub City Enterprises. There, the underlying complaint referenced an injury that occurred during Orlando’s annual Rum Fest in 2017, “an outdoor celebration of rum and reggae”. The insureds allegedly “either provided or allowed an extra-large, heavy, inflatable beach ball to be thrown into the air and pushed around by attendees”. The plaintiff then “used his outstretched arms and hands to push the extra-large beach ball away from him to prevent it from hitting him in the head.” He allegedly sustained severe ligament and tendon injuries, then sued the owners of the nearby bars and restaurants for negligence.

At issue was whether the ball was an “amusement device”, thus triggering an exclusion to coverage. In a brief, but amusing, decision, the court analyzed the beach ball in detail, found that as an object that could be pushed around for, um, amusement, it was indeed such a device. Apart from the specious negligence allegation itself, there was no coverage for the injury based upon the unambiguous “amusement device” exclusion. Certainly amusing indeed.

Until next time, be well.

Agnes
Agnes A. Wilewicz

[email protected]

Computer Wanted, a Century Ago:

The San Francisco Examiner
San Francisco, California

03 Apr 1920

WORK wanted by U.C. student; expert draftsman and computer.  Box 223993, Examiner, Oakland.

Barnas on Bad Faith:

Hello again:

The news is tough to watch these days.  My thoughts and prayers go out to all of those who are dealing with the effects of COVID-19.  I would also like to extend an enormous thank you to the healthcare workers, first responders, grocery store employees, delivery drivers, and other essential workers who are risking their lives to keep us as comfortable and safe as possible during these difficult times.

It is taken a while to get used to, but I think I’ve got the hang of this new working from home arrangement.  We’ve been using tools like Microsoft Teams and Zoom far more frequently, emails and phone calls are still coming in, and the federal courts are still operating for the most part.  It’s nice to have a degree of normalcy and to function similarly to how I otherwise would at the office.  Plus, the commute is way shorter and my hoodies are way more comfortable than ties.

I wrote about the Plavin case recently handed down by the New York Court of Appeals in my column this week.  It’s a New York General Business Law § 349 case where the court considered whether allegedly deceptive insurance materials distributed by a health insurer to New York City employees during open enrollment constituted consumer-oriented conduct.  Give it a read if you need a break from watching Tiger King.

That’s all for now.  Stay healthy and stay safe.

Brian
Brian D. Barnas

[email protected]

They Ran it 100 Years Ago:

The New York Times
New York, New York

03 Apr 1920

Boston Marathon on April 19.

BOSTON, April 2.—Under the auspices of the Boston Athletic Association, the twenty-fourth annual American Marathon from Ashland to Boston will be held as usual on Patriots’ Day, April 19.  The start will be made at noon.  Prizes will be given to the first eight men to finish and a souvenir to the following twenty-five.  The race will be run in accordance with A. A. U. Regulations.  Entries are receivable up to April 12, with George V. Brown of the Boston A. A., Exeter Street, this city.

Off the Mark:

Dear Readers,

Working from home has its advantages and disadvantages.  While I no longer need to wear a suit and tie every day, I get constant interruptions from the kids.  I never knew how many snacks they required throughout the day.  That said, it really is great to be around the wife and kids all day.

As anticipated, there were no construction defect decisions to report on this edition as COVID-19 has shut just about everything down.  As the federal courts remain operating, albeit in diminished capacities, I remain optimistic that there will be cases to report on before things return to normal.

Stay safe everyone …

Brian
Brian F. Mark

[email protected]

In Keeping the Promise to Report on Suffrage Activity, 100 Years Ago:

The Sentinel
Carlisle, Pennsylvania

03 Apr 1920

SUFFS MAY WIN WITH DUPONT AID

Alfred I. May Show His Power As Delaware Boss.

SENATE TO ACT MONDAY

Influence of Head of Big Power Concern

May Reverse Vote Against the Amendment.

            Dover, Del., April 3.—Though snowed under by a vote of  26 to 6 in the house, the Anthony suffrage amendment appears to have more than an equal chance of ratification by the Delaware legislature.

            Alfred I. Dupont, Wilmington millionaire and possessing a power in Delaware politics, which of late he has exercised but seldom, has swung in for suffrage.  And as a result some of the Sussex county “irreconcilables” have flopped and others are wavering.

            Word from Dupont has increased the suffrage strength  in the senate by three votes.  Instead of 9 to 8 in favor of ratification, the senate now stands 12 to 5 for “votes for women.”

            Senator Walker, who fathered the ratification resolution in the senate, said it would be reported out of committee next Monday, passed and sent to the house for concurrence.

            And present indications point strongly to the house reconsidering its vote within a week, and with the Sussex county men forced into line by Dupont reversing their action.  This would make Delaware the thirty-sixth state to ratify the federal amendment, and so give the women of the nation the ballot.

Boron’s Benchmarks:

I hope and pray that you and yours are well.  As the COVID-19 crisis deepens, I find myself doing some self-analysis of my values, priorities and perspectives.  I’ve even started tweaking some of them because of what we’re going through right now.  Certain things or issues that seemed so important, so critical, and so stress-inducing, just a few weeks ago, now seem far less so.  Other things or issues I had been spending minimal thought and energy on are now much higher priorities. Along with a changed perspective, I am reminded how much I appreciate having certain things in life I still have control of, such as my exercise program.  It seems less of a chore to keep it up in recent days, and more of a joy.  Now, presuming perspectives of parties involved in prolonged litigation may similarly be changing, or at least more open to re-evaluation, we as coverage litigators can assist you in re-thinking long-standing disputes to determine if there’s new interest in and/or ways of resolving them, short of trial.  Or short of the eve of trial.  Or only after the appeal has been briefed.  I believe we are going to see both plaintiffs and defendants who have been involved in protracted litigation begin re-thinking values and perspectives, while simultaneously longing for things they can control amidst quickly changing lives and ever-growing unknowns.  Such thoughtful litigation parties may be just where they need to be mentally to try a mediation or even strike up unguided settlement negotiations.  After all, in negotiating settlements of litigated matters, the parties get to have some say in how their dispute resolves, as opposed to having a judge or jury decide their dispute.  Please know that we are here to help you resolve even the toughest of disputed matters, and there may be no better time than the present to work at negotiating compromised but acceptable resolutions of such matters.  Let’s talk through case-specific strategies to consider, given these uncertain times, to try moving litigated disputes toward quicker and more certain resolution. I am available from 9:00 a.m. to 5:00 p.m. EST and at other times by appointment made to have such litigation settlement strategy discussions with you on my cell phone, 716-447-5806.

As nearly all of you will recall, my column in Coverage Pointers provides coverage of breaking decisions of the high courts of the 49 states not named New York.  The Supreme Court of Texas issued a decision March 20 addressing the insurer’s duty to defend the insured against liability claims put into litigation. The Court’s analysis of the “eight-corners” rule juxtaposed against the policy’s “groundless claims” clause is a very good read, clarifying only Texas state law, for sure, but nevertheless reminding us of the basics to consider when debating whether or not the insurer has a duty to defend a complaint whose allegations suggest a reasonable possibility of coverage.   A link to the opinion, plus my write-up of the case, may be found in our actual issue of Coverage Pointers.

Until next time, hang in there, stay healthy, and see you in two weeks.

Eric
Eric T. Boron

[email protected]

All Work and No Play – a Century Ago

Buffalo Evening News
Buffalo, New York

03 Apr 1920

WOMEN’S WAGE AND 8-HOUR DAY BILLS DOOMED

Advocates of Measures Believe There Is No Chance to Get Favorable Action

 

Albany Bureau

Buffalo Evening News.

            ALBANY, April 3.—Representatives of the Women’s Joint Legislative conference finally are face to face with the fact that there is no chance to get a favorable report on their pet measures, minimum wage and the eight-hour day for women and minors.

            The labor and industries committee of the assembly, of which George E. D. Brady of Buffalo is chairman, has failed to act on these measures and Monday night they go into the rules committee, which tre women in a statement issued today say commonly is known as the morgue.

            Colonel Theodore Roosevelt, introducer of the minimum wage bill, has been making strenuous efforts to get his bill reported, but in view of the displeasure he has caused the leaders by supporting the reseating of the Socialists he has less change than he ever had to get favorable action.

            Mary E. Drier, chairman of the conference, declared that not once in the five years the 48-hour week bill has been before the assembly during Speaker Sweet’s incumbency has it been permitted on the floor.  Miss Drier further said:

Blames Associated Industries.

            “The Women’s Joint Legislative conference charges the holding up of the bills largely to opposition of the Associated Manufacturers and Merchants of the state.  This charge is made on grounds that the protest against the Daly-Sweet propaganda and control of the assembly, made by the New York State League of Women Voters, was conclusive evidence that no bills such as the welfare bills can, under present conditions, be given “fair consideration their merits.”

Barci’s Basics (On No Fault):

Hello Subscribers!

I hope you are all staying safe and healthy. Last issue I gave you several conversation topics to consider and told you I would answer them myself for you this issue. Here goes: 1) I identify as a maple tree because of its strong NY roots, beauty in the fall, and the fact that it has a tough exterior but is sweet inside; 2) If I were a kitchen utensil I would be a spork because they are a bit strange but versatile and very useful for a variety of things; 3) My ideal superpower would be to teleport; 4) Three words that I think describe me would be independent, calm, and adventurous; 5) (I asked my roommate for her opinion on this one) Three words other people describe me as are honest, self-sufficient, and ambitious; and 6) My “P” picnic would consist of pickles, papaya, popcorn, pasta salad, and pomegranate juice because I can’t think of any other beverages that start with the letter. For this week, consider these conversation starters:

  • What is your camp name/what would your camp name be?

  • What was your favorite song as a kid?

  • Best April Fool’s day prank?

  • If you were going to give a TED talk, what would it be about?

Have fun with these! Don’t forget to send me your best answers and check back next issue for mine!

On the no-fault front, I have one case for you from the EDNY. It is rare that a federal court deals with no-fault issues, so the decision is rather hefty. Let me know if you would like a copy. It is a well written and thought out decision for a declaratory judgment GEICO brought against several corporations that it claimed were defrauding the no-fault system.

That’s all folks,

Marina
Marina A. Barci

[email protected]

Merchants Mutual Ad – a Century Ago:

The Buffalo Commercial
Buffalo, New York

03 Apr 1920

Policy holders pay the losses, why not share the profits?

            Save $5 to $25 on your automobile insurance.  Get into the Merchants Mutual.  Send in the coupon for quotations.

            You will share the profits.  It is the premium payer who pays the damage claims always.  If a stock company loses money, rates go up.  In mutual insurance, after calamitous losses, the members are assessed.  But the Merchants Mutual has a contract with a large indemnity company that protects its members against assessment.

            Expenses are kept low by law.  Hazardous risks are not accepted.  Claims are few and are promptly settled.

Ryan’s Capital Roundup:

Hello Loyal Coverage Pointers Subscribers:

Things have been interesting around the Maxwell house. Caring for a five-month-old and a three-year-old while you and your wife are working remotely is not how I envisioned the end of March and beyond. The bonding time has been nothing but wonderful, but here’s looking to May (or June…send help).

This edition of the Legislative List includes a link to Hurwitz & Fine’s critique of the COVID-19 business interruption bill introduced in the Assembly. That bill has been referred to the standing committee on insurance—a move we hope and pray symbolizes its rightful failure to launch. Additionally, the Regulatory Wrap-Up features an emergency measure out of DFS enacting Governor Cuomo’s Executive Order, including regulations regarding the waiver of late fees; the prohibition on reporting negative data to credit reporting agencies; and the repayment of late premiums over a one-year period.

Until next time,

Ryan
Ryan P. Maxwell

[email protected]

Caught with Whiskey During Prohibition:

Democrat and Chronicle
Rochester, New York

03 Apr 1920

Flask in Pocket Puts Carrier In Burglar Class

            New York, April 2.—A person carrying whiskey in his hip pocket is in the same category as the outlaw caught with a burglar’s kit, according to a ruling by Justice Garvin in the Brooklyn Federal Court to-day.  He held that it is justifiable for an officer without a warrant to use as evidence in a federal case liquor found in the pocket of a person who has been arrested.

            The ruling was made in the case of Frank Murphy on whim five half-pint flasks of whiskey were found after the police had arrested him on a charge of intoxication.  The defendant was turned over to the Federal authorities and prosecuted for alleged violation of the Volstead law.

CJ on CVA and USDC(NY):

Hello all,

We are now well into week two of the COVID quarantine. As my wife is an ER nurse, the only real change to our routine is that I haven’t left our house, save for walking the dog, in about two weeks. As my social calendar has quickly cleared, I’m currently filling my time reading. I’m currently working my way through The History of the Peloponnesian War, which my wife thinks is more a sign of desperation for better entertainment than actual interest in the conflict between Athens and Sparta. On that note, any and all book recommendations are happily accepted!

This edition brings two District Court cases. A case from the Southern District that reiterates the rule on using extrinsic evidence to determine whether or not the duty to defend is triggered. A case from the Western District instructs that an insurer is not precluded from asserting there is no coverage in the first instance, after relying on an exclusion in an earlier disclaimer, when the insured is relying on facts which prove there was no coverage in the first instance during litigation.

Stay in touch and stay safe!

CJ
Charles J. Englert, III
[email protected]
      

Lysol Killed Germs a Century Ago, as Well:

The New York Times
New York, New York

03 Apr 1920

Germ life Cannot Live with Disinfection

            The day you start to practice regular disinfection will be the day that disease germs cease to menace your health and that of those around you.

            Proper disinfection is not a fad—it’s just common sense and good business.  If it is cheaper and more desirable to be healthy than sick, intelligent and continual disinfection is worthwhile.

            Disinfection, proper sanitation and cleanliness mean death to disease germs—and the end of epidemics.

Lysol Disinfectant.

            Lysol Disinfectant at the moment of application kills all germ life, or prevents its creation.

            At the office:  Order Lysol Disinfectant used regularly in cuspidors, toilet-rooms, dark corners, on floors, rugs, and all surfaces.

            In the home:  Have a solution of Lysol Disinfectant sprinkled regularly in sinks, drains, toilets, garbage cans.

            A 50¢ bottle makes five gallons of powerful disinfectant; a 25¢ bottle makes two gallons.

            Remember, there is but one genuine Lysol Disinfectant—made, bottled, signed, and sealed by Lehn & Fink, Inc.

Dishing Out Serious Injury Threshold:

Dear Readers,

I hope everyone is staying safe in the midst of this virus. While restaurants and shops are shut down, I know that many of us are still hard at work at our makeshift offices. I never thought I would miss an actual office so badly. Hopefully, we start to see the light at the end of the tunnel shortly, and we come out of this more appreciative of the little things in life.

There were surprisingly few threshold cases decided in the past couple weeks, especially considering that the Courts have more time on their hands to deal with motions. Nonetheless, the cases this week both deal with plaintiff’s counsel failing to identify a necessary factor in sustaining a serious injury threshold claim. First, plaintiff was unable to demonstrate a 90/180-day injury without objective support in the record. Secondly, plaintiff’s expert failed to address evidence of degeneration. As such, in both cases, plaintiff failed to maintain their serious injury threshold claim.

Enjoy,

Michael
Michael J. Dischley
[email protected] 

Epidemics Aren’t New:

Adams County Free Press
Corning, Iowa

03 Apr 1920

Influenza Epidemics

            A British doctor, writing in the London Lancet last November, calculated, as a result of his observation of influenza epidemics, that one occurred every thirty-three weeks, though those falling in mild weather were so slight as to be hardly noticeable.  He predicted that the next epidemic would occur in January or February of this year, sixty-six weeks after the severe epidemic of 1918.  If his observations and theory are correct the next two should come in the mild weather of next September and of April, 1921.  Another one would then be due in December, 1921.  But as the germ causing the disease seems to be losing its virulence there is ground for hope that, in spite of the defenselessness of medical science in combating the epidemic, the worst is over for a good many years.

Bucci on “B”:

Hello coverage geeks.  I hope you and yours are safe and healthy and not too stir crazy.  As for me, I am definitely stir crazy.  The only time I really get any fresh air is when I take my dog out, which I usually look at as a chore.  Now it’s a saving grace.  So is work.

I did not expect to find any coverage B cases under the circumstances, given that they are generally few and far between.  I did find two this week though.  In one case, the court examines the meaning of the undefined work “publication” in the advertising injury context.  In the other, the court examines the causal connection necessary to attribute harm to an advertising injury.  Courts may be working through the backlog now that courts are closed for the most part.  I know I have some decisions that I’m waiting on for a long time.  

I’m certainly very busy, though, working on my cases, and productive too.  We all just have to keep track of what has to be filed as soon as this is over.

Speaking of filling the time, did you guys watch the Tiger King?  It is amazing how many humans are raising wild cats in captivity.  Just saying.  And before my head turns to mush, anyone read any good books lately?  Email me.  I desperately need a good recommendation because I’ve been reduced to reading a Jack Reacher book! Not really reduced.  I love a good beach read…now all we need is a beach.  The weather has not been cooperating during the stay at home order.  If it was warm and sunny, I would spend the time outside just breathing in the fresh air.

That’s all for now. Hang in there.  And don’t forget book recommendations.

Diane
Diane L. Bucci

[email protected]

Fighting the Flu Epidemic – 100 Years Ago:

Nashville Banner
Nashville, Tennessee

12 Oct 1918

CHATTANOOGA DONS INFLUENZA MASKS

Persons Coming in Contact With Public Receive Order From Health Board.

            Chattanooga, Tenn., Oct. 12.—(Special.)—In accordance with a general order issued by the health authorities, Chattanooga on Friday suddenly became a masked city, clerks in eating houses, drug stores, soft drink stands, hotel clerks and elevator boys and others coming into touch with the public donned white gauze protectors as an extra precaution against spreading influenza.

            The liberty bond parade scheduled for tonight has been called off, and all stores have been ordered to close at 6 o’clock tonight.

            Walter C. Wells, one of the best-known young men of Chattanooga, a son of J. W. Wells, a brick manufacturer, fell a victim to influenza Friday.  He had been sick only a few days.

            News was received here Friday announcing the death from pneumonia of George D. Leamon, aged 18 years who left here two weeks ago to join the navy in Los Angeles, Cal.

            Another victim is Carl Whitely, city detective.

            The disease is spreading and the resident doctors are worked down, and there is an urgent need for nurses, notwithstanding many women are volunteering.

            It is estimated that there are something like 8,000 cases of influenza, grip and pneumonia in the city limits of Chattanooga, while there are 2,600 more in the military camps at Chickamauga.

            The disease seems to be of a milder form in Chattanooga than it is at many places, and the death rate is exceedingly low, though a number of prominent people have died within the past few days.  It is estimated that there have been twenty deaths in the city during the past week.

            There were twenty-four deaths during the past twenty-four hours ending Friday morning in Fort Oglethorpe.  During this same period 224 new cases were admitted and seventeen patients discharged as cured.  Several physicians were found among the new draft men arriving at the camps, and they have been pressed into service.

John’s Jersey Journal:

A blackboard sign on a wall

Description automatically generated

New Jersey COVID19 Business Interruption Bill REMAINS PENDING

I am amazed at how much buzz this bill, A3844, has gathered across the country, and rightfully so. (We wrote it up here).

I received an email from a law firm stating incorrectly that the bill had passed the New Jersey Assembly and was going to be voted on by the Senate. This is incorrect. The Bill was pulled down from a vote on March 16, 2020. It has not moved since.  The Assembly met remotely on March 25 to vote on coronavirus legislation, however, this bill was not discussed or voted on.

On March 23, one of the main sponsors of the bill, Lou Greenwald, was interviewed by the New Jersey Law Journal. He related that:

After conversations with various stakeholders and insurance companies, we decided to hold the legislation which will allow for more time for the prime sponsor, Assemblyman Freiman, and these companies to develop a solution. … This doesn’t mean the legislation is off the table. As more and more small businesses need relief in the coming days, we will be looking for these insurance companies to be a part of the solution.

Source: New Jersey Law Journal

The New Jersey Law Journal’s article, written by Suzette Parmley, is an excellent read, and I recommend it if the New Jersey Business Interruption Bill has captured your interest.

New Jersey appears to have started a revolution as now a myriad of states are considering or voting on similar legislation.

New Jersey Property Insurers Beware of the “Sudden and Accidental” exception to Exclusions for Pollution/Underground Storage Tanks

If one thing is certain in New Jersey insurance coverage issues, it is that you cannot assume that New Jersey courts will enforce policy exclusions or policy terms as written. The Schoneboom case, discussed in the attached issue, exemplifies this.

Some New Jersey property policies exclude coverage for pollution damage and underground storage tanks. Often the policy contains an exception to the exclusions that those exclusions “do[] not apply when the discharge, dispersal, release or escape is sudden and accidental.” In 1993, the New Jersey Supreme Court ruled that this exception should not be given its plain and ordinary meaning. Instead, the pollution exclusion clause will not bar coverage unless the insurer establishes that the insured intentionally discharged a known pollutant or had specifically authorized an agent to act for it in intentionally discharging a known pollutant. So, absent evidence that the insured intentionally caused the pollution, New Jersey law deems the policy to cover the damages relating to pollution and underground storage tanks.

If you fancy yourself as a first-party guru or just have a general interest in first-party work, I recommend you read Schoneboom as it sets out New Jersey’s interpretation of this exception and their apparent contempt for it.

No Coverage for Yacht That Sunk in Calm Waters

A yacht sunk in still waters and a claim was made under an all-risk marine policy. The Third Circuit affirmed there was no coverage because the insured failed to show that there had been a fortuitous loss. Ever wonder what judges think about insurance coverage cases? Well wonder no further; here’s what they said this time:

Poems and books get written, songs sung, and movies made about sinking ships. But there’s nothing stirring or awe-inspiring about a yacht that partially sinks in calm waters while docked.  That, sadly, is the event at the center of this [insurance coverage] case.

The case serves as a reminder that, for marine insurance policies, the insured bears the burden  of  proving  that  the  loss  was  fortuitous. New York applies the same rule. Outside maritime law, the insured also has the burden of proving a covered loss.

Disagreeing with Appraisal Amount is Not a Basis to Overturn Arb. Award

Finally, in keeping with our nautical theme, we have an appraisal dispute concerning a fire-damaged boat. Dissatisfied with his insurer’s estimate, he triggered the appraisal condition. Dissatisfied with the umpire’s value he tried to vacate the award. The New Jersey federal court did not find this to be a sufficient basis at all.

I’m still getting used to working from home and all the distractions present. I am enjoying walking the dog at lunch and how the grass is greener each day, which is keeping me optimistic.

John
John R. Ewell

[email protected]

Solomonic Justice?

Buffalo Morning Express and Illustrated Buffalo Express
Buffalo, New York
03 Apr 1920

CHICKEN FOILS JUDGE

Old stunt to learn ownership fails to work this time.

Special to The Buffalo Express.

            Olean, April 2.—When two women brought a chicken into Judge Dennis Keating’s court, after an argument as to ownership, the judge ordered Policeman Michael Scheiterle to carry the cause of dissension to the street and place it between the homes of the two women.

            “Don’t shoo it or allow anyone to lure it,” said the judge. “And give it to the owner of the coop into which it goes.”

            The policeman did as instructed, but the chicken preferred some dust in the road to either coop and, after waiting an hour, Scheiterle walked away.  Then, according to information furnished the police, Mrs. Nellie Napoleone, nineteen years old, tried to shoo the chicken into her coop.  Mrs. Domonic Ceci said that she asked why the other did not obey the judge, whereupon , she said, Mrs. Napoleone struck her with a stone.

            After hearing the evidence in court today, Judge Keating said he would wait 30 days before giving sentence.  He told the women to go home and not to fight.

            The real home of the chicken has not been determined.

Lee’s Connecticut Chronicles:

Dear Nutmeg Newsies:

I think my dog would very much like me to get out of the house. I can tell, just the other day when I said, “Mocha.” That’s her name, of course, because she’s a mocha-colored rescue. I said, “Mocha, let’s go for a walk.” Well, she gave me this look that I’m sure she learned from my teenagers, that said, ‘come on dude, not again.’ And, then, can you believe it, she rolled her eyes at me as she grudgingly trudged towards the car. An hour later, back from our vigorous walk through Stratton Brook Forest, I offered her a treat. But no, she would have none of that. Apparently, I’m going to gain my Quarantine 5 all by myself. A couple of days later, while working by the back deck, I pointed out a squirrel. Mocha looked back and me and, with her eyes, said, yeah there’s lots of them, you go chase it. The next day, I was rubbing her belly and she literally just got up and walked away. She’s clearly had enough. I’m not sure that she can take a couple more months of love and affection.

Be safe everyone.

Lee
Lee S. Siegel

[email protected]
      

The Tulsa Star
Tulsa, Oklahoma

03 Apr 1920

JACKSONVILLE NEGROES BOYCOTT BIG WHITE INSURANCE COMPANY

            To boycott a business is to refuse to patronize a business.  An insult, high prices, poor service, or low wages paid to its employees, might occasion a boycott.  In fact, anything which displeases the patrons of a business might cause them to boycott it.  Organized labor employs it against employers who refuse to grant its demands.  The Chinese have used it most effectively against the Americans, the Japanese, the British, all foreigners who seek to rob them of their rich natural resources, such as coal and iron.

            It is a most powerful economic weapon because it causes business loss.  It might result in completely bankrupting a business.  It most generally forces the business to grant the demands of the patrons.

            In Jacksonville, Florida, it is re-withdrew, in a body, from the white capitalist insurance companies, on the grounds that a white insurance agent was the leader of a mob that lynched two Negroes.  Our hats off to the Negroes of Jacksonville!  Here is a most striking and commendable cause of intelligent and purposeful collective action.  They, the Negroes, substituted an economic for a physical weapon.  And it worked.  In other words, they dealt the white, Bourbon, monocratic capitalists a mortal blow in the pocketbook.  And they have driven their force arrogant, intolerant and autocratic white oppressors to the ropes and the economic referee of profits—dollars and dividends—have counted them out …

Cara’s Canadian and Cross-Border Connections (with Heather Sanderson):

Although Buffalo seems to be getting warmer and the birds are chirping in the morning, after living here for 10 years, I am still untrusting of Buffalo weather. Either way, I am enjoying taking walks around the neighborhood and running around the nearby Delaware Park (where I have “run” into—from a safe distance—co-workers and friends who I haven’t seen in weeks). Although like many of you, I am getting a little stir crazy, but the walks and runs around the neighborhood help. I also have been calling friends and family to check in and catch up and have received some good ideas on how to stay positive and busy when needed. However, the best advice I received was from a co-worker: take a break from the news and treat yourself to a binge session of TV. Stay healthy and safe everyone!

Cara A. Cox
[email protected]

Winter is over staying its welcome in Alberta. It continues to snow. The temperatures approach freezing then plummet again. The wind continues to gust and buffet us when we walk the dog. Together with our imposed hibernation due to the measures to control COVID-19, our moods are tending to be as grey as the skies. At least until yesterday when my grandson, Decker John, was born. His birth is proof positive that life is full of unabashed joy and hope and together, we are stronger than we are alone. Decker, you were born in a period of calamity but you will pull us all of it. Here’s to you.

Heather Sanderson
Sanderson Law (Alberta, Canada)

[email protected]

Saskatoon Daily Star
Saskatoon, Saskatchewan, Canada

03 Apr 1920

INSURANCE

            While once looked upon as a fad, Insurance is now the “safety valve” of business.  Without insurance, whether it be fire, life, hail, automobile, accident, or sickness, this would be a pretty tough old world for many to look back on.  Thousands can thank their good judgment in having had the protection of an Insurance policy.

WHY WAIT FOR A FIRE?

            We had a call from a client one day last week and he stated that no less than three of the men in the shop where he was employed had lost their homes this winter through fire, and not one of them had a cent of insurance.  We covered this man’s little home, placing $500 on the house, and $250 on the furniture.  The premium of $7.50 carries this for a period of three years.  We venture to say that most men would  bet that much on a baseball game, and not think much of it if they did happen to lose.  Get the Insurance habit.  It pays.

            We represent the following Companies.  Look them up.  They have the backing behind them:

  • The Winnipeg Fire Underwriters Agency.
  • The North West Fire Insurance Company.
  • The Canada Accident Assurance Company.

 

Jen’s Gems:

Greetings!

Hope everyone is safe and healthy.  This marks the third week that the attorneys at Hurwitz & Fine have been working out of our homes.  The time way from our physical office has certainly presented its challenges including (for example) learning how to use Zoom, learning how to change my voicemail message and balancing my workload while also educating my two children.  But, on the flipside, it has forced us to learn new skills or basic tasks most of us probably should have known how to do already.

I know we have all read messages sharing new and various comments on the current situation, but a friend of mine posted the message below, and I thought it was poignant so I will share it.

This may be the “hippie” in me, but I always have to look for a greater meaning in things. I have not been taking this situation at all lightly....but maybe this is all meant for a bigger purpose. (I HAVE to believe there’s a purpose).  Maybe it’s the universe’s way of telling us all to slow down. We are all over worked/underpaid, burning the candle on both ends. Kids these days have 5 million activities, parents don’t even have a chance to speak to one another, loved ones don’t even know what happening in each other’s lives for months on end.  Nobody gets 8 hours of sleep, we are all losing touch.  Maybe, just maybe, this is “the universe’s” (or whatever greater good you believe in) way of telling us all to stop, breathe, take care of ourselves, take care of one another, clean our house, clean our souls, cuddle our babies longer, play with our puppies more, read, walk, talk, re-connect. Be the people we want to be when we’re not “too busy”. This whole situation is scary, but let’s take advantage of the good in it.

Well, I will try to continue to see the good, and at least we have had a whole lot of new situations to keep us busy too.

Jen
Jennifer A. Ehman

[email protected]

Headlines from this week’s issue:

KOHANE’S COVERAGE CORNER
Dan D. Kohane

[email protected]

  • A comment on Assembly Bill A10226 regarding New York’s response to COVID-19

 

PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper

[email protected]

Property

  • Classic Wind vs. Rain Battle  - Ties Go to the Jury
  • No Requirement Under the Policy, or in the Insurance Law, that a Proof of Loss be Sworn


Potpourri

  • Race to Courthouse a Major (but not Only) Factor in Venue Selection

     

    DISHING OUT SERIOUS INJURY THRESHOLD
    Michael J. Dischley

    [email protected]

     

  • Plaintiff Failed to Demonstrate Serious Injury Threshold Under 90/180 Day Claim

  • Plaintiff’s Failure to Address Evidence of Degeneration was Fatal to Claim of Serious Injury

 

WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz

[email protected]

  • Eleventh Circuit Holds that Large Inflatable Beach Ball that Allegedly Injured Orlando Rum Fest Participant was Unambiguously an “Amusement Device” Sufficient to Trigger Amusement Device Exclusion

 

JEN’S GEMS
Jennifer A. Ehman

[email protected]

  • Trial Court Finds Permissive Use Includes Washing Out Concrete Truck

 

BARNAS ON BAD FAITH
Brian D. Barnas

[email protected]

  • Allegedly Deceptive Conduct Aimed at 600,000 City Employees during Open Enrollment was Sufficiently Consumer-Oriented to Fall within the Ambit of General Business Law §§ 349 and 350

 

JOHN’S JERSEY JOURNAL
John R. Ewell

[email protected]

  • In Federal Maritime Law, Insured Bears Burden of Proving a Fortuitous Loss to Vessel

  • Insured Could Not Vacate Arbitration Award where Umpire Awarded an Amount He Did Not Like

  • In New Jersey, “Sudden and Accidental” exception to Exclusions for Pollution / Underground Storage Tanks Does Not Mean What It Says. It Means There’s Coverage Unless Intentional Discharge of Pollutants.

 

LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel

[email protected]

  • Vanishing Underinsured Motorist Coverage

 

BUCCI ON “B”
Diane L. Bucci

[email protected]

  • There Must be a Causal Connection Between the Advertising Injury and the Harm Complained of

  • Publication Requirement Satisfied by Disclosing Information to One Third-Party Vendor

 

OFF THE MARK
Brian F. Mark
[email protected]

  • No cases to report on this edition as COVID-19 continues to shut down, or at least slow down, the courts.

 

BORON’S BENCHMARKS
Eric T. Boron

[email protected]

  • Texas’ High Court Says Insurer Must Apply “Eight-Corners Rule” of Analysis to Which There Is No “Policy-Language Exception”

 

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

[email protected]

  • GEICO Secures $1 Million Default Judgment Against Companies Accused of Defrauding the No-fault System
     

RYAN’S CAPITAL ROUNDUP
Ryan P. Maxwell

[email protected]

Legislative List

  • Assembly Member Introduces Bill that would Require All Property Policies in New York to be “Construed” to Cover Business Interruption Losses Due to COVID-19. Millions Flee.

Regulatory Wrap-Up

  • DFS Enacts Emergency Consolidated Rulemaking Implementing Governor Cuomo’s Executive Order Providing Protections to Policyholders Experiencing Financial Hardship due to COVID-19

 

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

[email protected]

  • In New York, Extrinsic Evidence that Goes to the Merits of an Action May Not Be Used to Prove that an Insurer’s Duty to Defend Is Not Triggered

  • Reliance on a Specific Exclusion Does Not Prevent an Insurer from Asserting that There Was No Coverage for A Loss in the First Instance

 

CARA’S CANADIAN AND CROSS-BORDER CONNECTIONS (WITH HEATHER SANDERSON)
Cara A. Cox

[email protected]

Heather Sanderson
Sanderson Law (Alberta, Canada)

[email protected]

  • Is Civil Authority Coverage Available for Canadian COVID-19 Economic Loss Claims?

 

EARL’S PEARLS
Earl K. Cantwell

[email protected]

  • “Innocent Co-Insureds” Allowed to Recover

 

That’s what we have for you this week.

Stay healthy!

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.


NEWSLETTER EDITOR
Dan D. Kohane

[email protected]

ASSOCIATE EDITOR
Agnes A. Wilewicz

[email protected]

ASSISTANT EDITOR
John R. Ewell
[email protected]

 

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

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

Michael F. Perley

Jennifer A. Ehman

Agnieszka A. Wilewicz

Lee S. Siegel

Brian 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
[email protected]

Michael F. Perley

Eric T. Boron

Brian D. Barnas

NO-FAULT/UM/SUM TEAM
Jennifer A. Ehman, Team Leader
[email protected]

Marina A. Barci

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

Diane F. Bosse

Topical Index
 

Kohane’s Coverage Corner

Peiper on Property and Potpourri

Dishing out Serious Injury Threshold

Wilewicz’s Wide World of Coverage

Jen’s Gems

Barnas on Bad Faith

John’s Jersey Journal

Lee’s Connecticut Chronicles

Off the Mark

Boron’s Benchmarks

Barci’s Basics (on No Fault)

Ryan’s Capital Roundup

CJ on CVA and USDC(NY)

Bucci On “B”

Cara’s Canadian and Cross-Border Connections (with Heather Sanderson)

Earl’s Pearls

 

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

Not a single case on which to report, this issue.  The appellate courts have been quite slow, understandably so.  We have been working with insurers to develop Business Interruption protocols, to assure good faith handling of claims.  We were also confronted with a poorly designed, and wrong-headed New York State Assembly bill, designed to compel the insurance industry to have their policies “construed” to cover losses for which they have never accepted a premium.

The COVID-19 crisis is a public health and economic crisis of historic proportion. The economic damage caused by this cataclysmic event cannot be resolved by the Property & Casualty Insurance Industry. Believing so will create a crisis of insurance insolvency and illiquidity that is dangerous, misguided, and short-sighted. Assembly Bill A10226 was introduced on March 27, 2020.

The New York bill parrots, in large measure, New Jersey’s COVID-19 business interruption bill that was recently introduced but then withdrawn. When not imitating the New Jersey model, New York’s version remarkably expands it.

While its sponsor’s motives may appear to some to be laudable, the bill is substantially flawed both in concept and form. The failings of the bill go beyond mere technical and grammatical deficiencies. Enactment of the bill will devastate the insurance industry and have an untold cascading effect on New York’s consumers and businesses for years to come.

Moreover, this legislation does not provide for the fast, friction-free infusion of relief to impacted New York businesses that is so urgently needed. The claim process is methodical and the massive volume of claims will undoubtedly produce bottlenecks at every stage of adjustment. This bill cannot, should not, and must not be adopted.

For a section by section analysis of the bill, our Coverage Team put together a comprehensive review.

PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper

[email protected]

Property

03/25/20       Ain v. Allstate Ins. Co.
Appellate Division, Second Department
Classic Wind vs. Rain Battle  - Ties Go to the Jury

Plaintiff’s home was significantly damaged when Superstorm Sandy pushed ashore on October 29-30, 2012.  At that time, plaintiff’s home was insured by the National Flood Insurance Program, an excess flood policy, and a Deluxe Homeowners’ policy issued by Allstate.  The court provides that plaintiff was compensated for damage caused by flood from both the primary and excess flood policies.

Allstate disclaimed coverage for any damage caused by flood/tidal waters, but acknowledged that some damage may have been attributable to wind damage and offered to resolve the claim for $10,742.02. 

Plaintiff rejected the offer, and commenced the instant lawsuit in December of 2013.  Allstate eventually moved for summary judgment on the basis that the damage was flood or flood related.  Allstate also cited the “weather” exclusion, and an exclusion which limited coverage to the predominant cause.

In support of its argument, Allstate submitted the affidavits of two retained expert engineers.  Allstate also submitted the report of plaintiff’s retained expert engineer.

With regard to the experts, the Court noted that one of the engineers noted he could not determine the extent of damage that might have been wind driven.  He did opine, however, that a large portion of the observed damage was directly attributable to wave damage and tidal forces.

Allstate’s other retained engineer opined that the predominant cause of the loss was water damage caused by the flood waters pushed by the storm.  This particular engineer then opined that he did not believe windspeeds at the home would have reached a speed which would have caused the damage asserted by plaintiff.  Any damage that would have been attributable to wind would have been minimal.

However, plaintiff’s retained expert conclusively opined that wind speeds were capable of causing structural damage to the insured dwelling.  Accordingly, plaintiff’s expert posited that it was impossible to know what losses were caused by flood and what losses were attributable to wind.

On that basis, the Court found that Allstate failed to meet its burden on its motion for summary judgment.  The first expert, who equivocated in his response, was precluded as speculative.  Where the expert could not provide testimony on the extent, if any, of wind damage, it was impossible for him to therefore conclude the loss was predominantly caused by flood.

Allstate’s second expert’s opinion was directly countered by plaintiff’s own expert engineer.  In such a circumstance, were two experts present compelling and supported views, a question of fact necessarily must result.  On that basis alone, the reliance upon the flood exclusion was insufficient to support summary judgment.

The Court also found a question of fact on the applicability of the “weather conditions” and the predominant cause of loss exclusions, respectively.  The first  provision precludes coverage for losses where a “weather condition” contributed with an otherwise excluded cause of loss.  The court noted that only the “dominant, efficient and proximate cause of loss” controlled whether the damage was covered.  As such, where a question of fact existed as to the dominant, efficient and proximate cause of the loss it followed that a question of fact as to the application of this exclusion had to be found.  Along this same logic, Allstate’s reliance upon the predominant cause exclusion was also foiled on a question of fact.  

In so holding, the Court rejected the theory that the entire storm was a “weather condition” that contributed to an excluded cause of loss (flooding). Such a conclusion would apply the weather exclusion to losses which may have otherwise been covered (wind), and thus make hurricane coverage illusory.  

 

03/20/19       Armstrong v. United Frontier Mut. Ins. Co.
Appellate Division, Fourth Department
No Requirement Under the Policy, or in the Insurance Law, that a Proof of Loss be Sworn

Plaintiff’s home was destroyed by two separate fires which occurred within 12 hours of each other.  Defendant denied the claim, and plaintiff immediately asserted the instant lawsuit alleging breach of contract.  In answering, defendant interposed an Answer with several Affirmative Defenses including arson and the fact that plaintiff failed to timely file a proof of Loss.  

United Frontier eventually moved for summary judgment on the late proof of loss issue, and plaintiff cross-moved for summary judgment on breach of contract or, in the alternative, to dismiss United Frontier’s policy defenses of arson and failure to cooperate.  Plaintiff then filed a motion seeking to amend her Complaint to assert a cause of action for anticipatory breach of contract and waiver. 

The trial court granted United Frontier’s motion for summary judgment, and the Appellate Division herein reversed.  In reaching this conclusion, the Court found that United Frontier did not meet its burden of establishing an untimely proof of loss.

The Court started by acknowledging that a failure to timely present a proof of loss is an absolute defense to a property damage claim.  However, here it appears that plaintiff may have submitted an unsworn proof of loss.  If so, the question then became whether an unsworn proof of loss form was sufficient to avoid a dismissal of the action.

Plaintiff argued that Insurance Law § 3407 only requires an insured to submit a “proof of loss” within 60 days of the carrier’s request.  The policy, likewise only requires that an acceptable proof of loss be tendered.  The court ruled that the term “acceptable” was ambiguous, and that the carrier’s letter requesting a “sworn” proof of loss was not dispositive.   

Nevertheless, because there were still issues of fact as to whether the plaintiff submitted any proof of loss (sworn or otherwise), a question of fact remained on this issue.  In reaching this conclusion, the Court rejected plaintiff’s argument that a failure to produce a duly requested proof of loss could be cured by subsequent actions. In so holding, the Court explicitly stated that there is no effective way to ameliorate a failure to comply with a basic policy condition.

Plaintiff also argued that United Frontier’s demand for proof of loss was waived due to their breach of the policy.  However, a carrier can only repudiate the terms of its policy where there was an “anticipatory breach by disclaiming with the intention or duty to shape its conduct in accordance with the provisions of the contract.”  Here, where United Frontier investigated and then denied the claim, the elements of an anticipatory breach were not found.   As such, plaintiff’s request to amend her Complaint to assert such a Cause of Action was denied.  

Finally, regardless of whether a proof of loss actually existed, there remained questions of fact as to whether United Frontier waived compliance.  In support of this position, plaintiff represented that United Frontier repeatedly advised that she did have to do anything else to support her claim.  Because there evidence that United Frontier’s agents affirmatively represented that plaintiff had complied with the policy, it followed a question of fact existed as to whether United Frontier had waived the obligation present a proof of loss.  

With regard to the noncooperation matter, the Court again found questions of fact as to whether plaintiff gave truthful disclosures in the inventory statement.  While plaintiff argues, in sworn testimony, that the inventory list is accurate, the plaintiff’s roommate gave testimony that some of those items never existed or were the property of the roommate.

The Court also affirmed the trial court’s decision to deny plaintiff’s request to strike Unite Frontier’s arson defense.  Plaintiff failed to establish, as the moving party, that the fire was not intentionally set or, in the alternative, that she did not participate in its ignition.  The evidence adduced by United Frontier was that the fire was, in fact, intentionally set, and that plaintiff may have been a participant in that act.

Potpourri

03/26/20       XL Specialty Ins. Co. v. Continental Cas. Co.
Appellate Division, First Department
Race to Courthouse a Major (but not Only) Factor in Venue Selection

Defendant sought to dismiss this matter on the basis of a previously pending matter and/or forum non conveniens.  Here, plaintiff started this action one day before defendants started a substantially similar action in Delaware.  In affirming the trial court’s denial of Continental’s motion, the Appellate Division noted that New York courts generally follow a “first in time” rule which generally defers to the Court who first obtained jurisdiction.

The First Department noted, however, the “first in time” rule is not dispositive where the two actions were started at nearly the same time.  However, even looking beyond the time of the filing, the Court ruled that New York possessed a “more substantial nexus” to the parties and the dispute.      

DISHING OUT SERIOUS INJURY THRESHOLD
Michael J. Dischley

[email protected]

03/05/20       Ashleigh Abreu v. Su-Wang Miller, et al.
Appellate Division, First Department
Plaintiff Failed to Demonstrate Serious Injury Threshold Under 90/180 Day Claim

In an action to recover damages for personal injuries, the plaintiff appeals from a judgment of the Supreme Court, Bronx County, entered July 23, 2018, which granted defendants' motions for summary judgment dismissing plaintiff 90/180-day claim.

The Court found that defendant established prima facie entitlement to judgment as a matter of law on the 90/180-day claim. Defendants submitted the affirmed report of an orthopedic surgeon, showing normal range of motion in plaintiff's cervical and lumbar spine with no evidence of tenderness or spasm, and plaintiff's own records showing only minor limitations in range of motion. Defendants therefore showed the absence of serious injury that would prevent plaintiff from performing substantially all of her usual and daily customary activities during the relevant time period. Moreover, plaintiff's bill of particulars noted that she was not confined to her bed or home for any period of time, and plaintiff testified that she was confined to her home for only a few weeks following the accident.

In opposition, the Court found that plaintiff failed to raise a triable issue of fact. Her subjective complaints of continuing pain and the inability to work are insufficient to demonstrate a 90/180-day injury without objective support in the record. The statement of plaintiff's physician that she is "disabled" is insufficient to sustain her 90/180-day claim, as this statement related only to her ability to perform her prior work as a mail carrier. He did not indicate why plaintiff was "disabled" from this job, explain which aspects of the job she could not perform, or address her ability to perform activities of daily living. Furthermore, the physician's 2012 notation that plaintiff could perform her customary activities as tolerated is at least partially inconsistent with his opinion as to her disability.

As such, the appellate division unanimously affirmed the lower Court decision.

 

03/12/20       Tanya Stovall v. The New York City Transit Authority, et al.
Appellate Division, First Department
Plaintiff’s Failure to Address Evidence of Degeneration was Fatal to Claim of Serious Injury

In an action to recover damages for personal injuries, the plaintiff appeals from a judgment of the Supreme Court, New York County, entered January 11, 2019, which granted defendants' motions for summary judgment dismissing the complaint based on plaintiff's inability to establish that she suffered a serious injury to her cervical spine or lumbar spine within the meaning of Insurance Law § 5102(d).

The Court found that defendants satisfied their prima facie burden by submitting the reports of their orthopedic surgeons, who found only slight limitations in one plane of each body part, and opined that plaintiff's injuries had resolved. Their experts set forth the findings in plaintiff's own MRI and x-ray reports of degenerative conditions in the cervical and lumbar spine. In addition, defendants noted that plaintiff had ceased all treatment within months of the accident.

In opposition, plaintiff's neurologist, who did not examine her until over two years after the accident, found that she had no range of motion limitations in her cervical spine and only minor limitations in her lumbar spine. Further, plaintiff's expert failed to address the evidence of degeneration noted on her own MRI and x-ray reports, or explain why the degenerative conditions could not have caused her limitations. As such, the Court opined that plaintiff failed to raise a triable issue of fact.

Finally, plaintiff's affidavit stating that she stopped treatment because her insurance coverage stopped conflicts with her earlier sworn testimony that she stopped because she felt better, and thus created only a feigned issue of fact insufficient to defeat defendants' properly supported motions for summary judgment.

As such, the appellate division unanimously affirmed the lower Court decision.

 

WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz

[email protected]

03/30/20       Princeton Excess and Surplus v. Hub City Enterprises, Inc.
U.S. Court of Appeals, Eleventh Circuit
Eleventh Circuit Holds that Large Inflatable Beach Ball that Allegedly Injured Orlando Rum Fest Participant was Unambiguously an “Amusement Device” Sufficient to Trigger Amusement Device Exclusion

Robert Hunt was attending Orlando’s “Rum Fest 2017” when he was allegedly hurt. This festival, which featured rum and reggae, was put on by a complex of bars, restaurants, and nightclubs in Downtown Orlando, and it included a variety of amusements. One of those objects was an “extra-large, heavy, inflatable beach ball to be thrown into the air and pushed around by attendees”. Hunt claimed that he sustained severe ligament and tendon injuries when he “used his outstretched arms and hands to push the extra-large beach ball away from him to prevent it from hitting him in the head.” Thus, in his suit against the complex, he alleged five various instances of negligence, stemming from purported duties owed to participants.

In the related coverage action, the complex’s carrier had issued a commercial general liability policy with standard defense and indemnification language. At issue, however, was the policy’s “Amusement Devices” Exclusion. The exclusion barred coverage for any loss allegedly arising out of the use of an “amusement device,” which is defined non-exhaustively to include, among other things “1. Any mechanical or non-mechanical ride; 2. Any device that requires the user to strike, punch, or kick; 3. Rock climbing walls, Velcro walls and similar scaling devices; 4. “Moon Bounces,” “Moon Walks,” “Space Walks,” and similar inflatable games and devices; 5. Laser tag, bungee jumping, Sumo wrestling, human spheres, slides, water slides and similar games and devices; 6. Gymnastic equipment; 7. Mechanical bull, horse, surfboard, skateboard and similar devices; 8. Dunking booth or tank; and 9. Trampoline.”

The district court found this language unambiguous, “although it suffered from a deplorable lack of serial comma” and found no defense or indemnity obligation. The Circuit Court found the same. Considering the facts alleged in the complaint alone, it was clear that the beach ball injury involved an “amusement device”. The list in the exclusion was not exhaustive, so the fact that it was not expressly listed was not dispositive. Rather, since the ball was “struck” or “pushed” by Rum Fest attendees at one another, it was a “device that requires the user to strike, punch, or kick” it around. As the allegations fell entirely within the exclusion, neither a defense nor indemnification were owed. 
 

JEN’S GEMS
Jennifer A. Ehman

[email protected]

03/16/20       American States Ins. Co. v. Graphic Arts Mut. Ins. Co.
Supreme Court, New York County
Hon. Debra A. James
Trial Court Finds Permissive Use Includes Washing Out Concrete Truck

On or about October 25, 2016, the County of Nassau commenced the underlying action alleging that as a result of a series of illegal discharges of waste from the facilities of Commercial Corp. and/or Ready Mix, located on Rushmore Street in Westbury, New York.  A blockage occurred of a nearby storm water drainage system.  Specifically, the blockage was caused by the process of washing out the concrete mixing trucks  This process created a concrete slurry, which flowed downhill under the force of gravity and entered the drain causing a blockage and flooding conditions in or around Rushmore Street. 

Ready Mix took the position that it did not own the concrete mixing trucks, and that the trucks at issue were owned by Commercial Concrete.  Nova issued a Commercial Auto Policy to Commercial Concrete which listed on its declarations 37 vehicles (most of these were concrete mixers).  The insuring agreement stated that “Who is an insured” includes, in relevant part, “[a]nyone else while using with your [the Named Insured’s’ permission a covered auto you own, hire or borrow…”

Ready Mix’s insurers tendered the company’s defense to Nova, who denied coverage claiming that Ready Mix was not a “permissive user” because Ready Mix did not “use” the Commercial Concrete trucks at issue.

In opposition, plaintiffs (Ready Mix’s insurers) argued that the claims against Ready Mix were alleged to arise from the washing out of the concrete mixing trucks and that these acts of cleaning or washing the concrete mixing trucks were an integral part of the mechanisms of these types of trucks and their overall function. 

The court considered this argument and found a duty to defend was triggered as the allegations in the underlying complaint suggested a reasonable possibility of coverage.  New York courts have held that to establish “use” 1) the accident must arise from the “inherent nature” of the automobile; and 2) the automobile must produce the injury, which is established by showing negligence in the use of the vehicle.  Accordingly, here, the washing out of the concrete truck was essential to the use of the truck.  It had to be done at the end of every date of use to prevent the hardening of the concrete.  This washing was, therefore, directly connected to the use, or inherent nature, of the vehicle.  In turn, the allegations in the amended complaint concerning Ready Mix’s negligent washing out of the concrete trucks, allegedly owned by Commercial Concrete, supported a finding that Ready Mix was a permissive user of the trucks at issue and created questions concerning coverage, entitling Ready Mix to a defense.

The court then concluded that since the trucks were owned by Commercial Concrete, the coverage under Commercial Concrete’s auto policy was primary to Ready Mix’s own auto coverage.

 

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

03/24/20       Plavin v. Group Health Inc.
New York Court of Appeals
Allegedly Deceptive Conduct Aimed at 600,000 City Employees during Open Enrollment was Sufficiently Consumer-Oriented to Fall within the Ambit of General Business Law §§ 349 and 350

New York City offers its employees and retirees their choice of health insurance plans as part of their compensation and retirement packages.  Plaintiff is a retired New York City police officer, who received health insurance coverage through the health care plan of defendant Group Health Incorporated (GHI).  GHI is a not-for-profit corporation, operating as an indemnity insurer, that offers City employees its "Comprehensive Benefits Plan," which provides in-network coverage and partial reimbursement for out-of-network services.

The GHI Plan was among 11 plans the City offered to approximately 600,000 employees and retirees on an annual or biannual basis.  The terms of these plans were negotiated between the City, the insurance vendors, and the New York City Municipal Labor Committee, which was comprised of various employee unions. Prior to enrollment, the City distributed plan descriptions prepared by each insurer, including one prepared by GHI.  GHI also created its own online summary of benefits and coverage, which was available on its website.  If the GHI plan was selected, the City sponsored and paid the entire cost of the premium.  Plaintiff claimed that GHI represented that its plan provided extensive out-of-network coverage and the freedom to choose any provider worldwide.

Beginning in 1984, Plaintiff annually selected the GHI Plan, yet he was not provided with a certificate of insurance or a reimbursement schedule. From 2014 through 2015, Plaintiff's wife received numerous medical services, which GHI determined were out-of-network.  As a result, contrary to plaintiff's expectations based on the summary materials provided or available to him, GHI covered only a modicum of the medical claims, leaving plaintiff responsible for payment of the balance. For example, one medical provider billed $512.66 for services, for which GHI ultimately allowed reimbursement of $21.

Plaintiff filed suit alleging that GHI violated General Business Law §§ 349 and 350 based on alleged misleading statements and omissions in its summary materials about the plan.  GHI moved to dismiss.  The dispositive issue was whether GHI had engaged in consumer-oriented conduct.

The Court of Appeals concluded that it had.  While the underlying insurance contract was negotiated by sophisticated entities, the open enrollment period involving hundreds of thousands of City workers and retirees resembled a traditional consumer sales environment.  The court found it significant that the allegedly misleading summary materials were created directly by GHI, and this marketing was critical to GHI’s efforts to induce individuals to select its plan.  Plaintiff also claimed that he relied on the summary materials in selecting GHI’s plan and that caused him to pay additional premiums and medical expenses for his wife.  Thus, the court concluded that GHI's alleged dissemination of information to hundreds of thousands of City employees in order to solicit their selection of its plan is precisely the sort of consumer-oriented conduct that is targeted by General Business Law §§ 349 and 350.

Finally, the court noted that the General Business Law does not impose a requirement that consumer-oriented conduct be directed to all members of the public.  The open enrollment involving over 600,000 employees and retirees with a choice of 11 health plan options was sufficiently consumer-oriented.

 

JOHN’S JERSEY JOURNAL
John R. Ewell
[email protected]

03/24/20       Chartis Property. Cas. Co. v. Inganamort
U.S. Court of Appeals, Third Circuit (New Jersey)
In Federal Maritime Law, Insured Bears Burden of Proving a Fortuitous Loss to Vessel

The  Inganamorts left  their  65-foot  fishing vessel, Three  Times  a  Lady,  docked  behind  their residence in  Boca  Raton,  Florida.    In  September  2011,  when they  were  at  their  home  in  New  Jersey,  the Inganamorts received the news that Three Times a Lady had partially sunk causing serious damage.  They reported  the  loss  to  their  insurance  company, Chartis,  with whom they had an  all-risk policy. Chartis   sent   a   claims   specialist   to inspect  the  vessel.   The specialist reported  three  inches  of  standing  water  in  the starboard forward cabin bilge and multiple potential sources of water ingress, including a hole in the hull the size of a screw. He also found that the electrical breakers were “severely rust-stained  and  blackened  from  an  electrical  failure”,  and subsequent testing “revealed obvious water intrusion”. The  final  review  of  the  vessel confirmed the claim specialist’s initial findings and also identified that the ship’s battery charger was not working, and without a source of power, the ship’s bilge pumps had ceased functioning.   Despite  that  state  of  disrepair,  the  Inganamorts pressed Chartis for payment on their insurance policy.

Chartis sued in the United States District Court for the District of New Jersey, seeking  declaratory judgment that Chartis was not liable for the damage to Three Times  a Lady.

An all-risk insurance policy, which protects against fortuitous  losses,  meaning  losses  that  are  unexplainable  or “dependent on chance.” But  just  because  an insured need not “show the precise cause of loss to demonstrate fortuity”,  that  does  not  mean  an  all-risk  policy covers  all  damage. To  enjoy  coverage,  the  insured must prove that the loss was indeed fortuitous. For marine insurance policies, the insured bears the burden  of  proving  that  the  loss  was  fortuitous. When a vessel sinks in   calm   waters,   for   example,   an   insured   may   create   a presumption  of  fortuitous  loss  by  establishing  that  the  vessel was seaworthy before sinking. There must be some showing that the loss occurred by chance.

The Inganamorts’ primary argument was that they were  not  required  to  prove  fortuity. This was incorrect  as  a  matter  of  law. They also attempted to show fortuity by asserting that the loss was due to heavy rainfall. But Chartis’s statement of undisputed  facts notes that there is “no data to support [the] theory that [Three Times a Lady] was subject to ‘heavy rains’ on any date.”

The Court bent over backwards to try to find coverage for the yacht owners, but to no avail. They noted that:

Even if we were tempted to look beyond   the   statement   of   undisputed   facts,   the   evidence elsewhere in the record does not support the assertion that the loss was due to heavy rainfall. Not even the Inganamorts’ own expert could say with  assurance that there was heavy rainfall in the area at the relevant time.

Accordingly, since the insureds failed to carry their burden of proving a fortuitous loss, the Third Circuit affirmed the grant of summary judgment to the marine insurer.

 

03/23/20       Resch v. Catlin Indem. Co.
U.S. District Court, District of New Jersey
Insured Could Not Vacate Arbitration Award where Umpire Awarded an Amount He Did Not Like

Todd Resch sued to vacate an arbitration award issued in the context of a dispute between him and his insurer, Catlin Indemnity Company, over his fire-damaged boat.

Resch owns a pleasure boat that was damaged while it was docked in a marina located in Stony Point, New York after a nearby boat caught fire. Resch made a claim for the damage under an insurance policy (the “Policy”) that he held with Catlin. The surveyor Resch hired determined that the boat was a total loss. Catlin’s surveyor disagreed and found the damages to be approximately $45,000.

Unable to resolve the dispute, Resch invoked the appraisal provision in the Policy. An impartial umpire was appointed. The umpire inspected the boat and reviewed the parties’ submissions. The umpire determined that the cost of repair to be approximately $45,000. Resch, dissatisfied with the umpire’s value, filed a petition to vacate the arbitration award.

Under the Federal Arbitration Act, a court may vacate an arbitration award where the arbitrator exceeded his powers or “so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” Resch contended the umpire exceeded his powers by allegedly determining the amount of the “actual loss,” which he claims was beyond the issues submitted to the umpire. However, it was undisputed that the Policy calls for the umpire to determine the “extent of related damages or reasonable repairs” and that the parties tasked him with doing so.

The Court found that the umpire’s report was rationally grounded in the materials provided to him and his own inspection of the boat. Therefore, the Court ruled that the petition fell “well short” of the standards for vacatur of an arbitration award.

 

03/19/20       Schoneboom v. Allstate New Jersey Ins. Co. et al.
New Jersey Superior Court, Appellate Division
In New Jersey, “Sudden and Accidental” exception to Exclusions for Pollution / Underground Storage Tanks Does Not Mean What It Says. It Means There’s Coverage Unless Intentional Discharge of Pollutants.

In 2006, Schoneboom (“plaintiff”) purchased a home in Montclair, New Jersey. In 2010, it was discovered that underground storage tank (UST) at the property had leaked fuel oil into the soil and groundwater. Plaintiff’s home was insured by Allstate.

Plaintiff filed a claim with Allstate. The Allstate policy contained the following relevant exclusions:

… we do not cover loss consisting of or caused by any of the following:

15. a) [w]ear and tear, aging, marring, scratching, deterioration, inherent vice, or latent defect.

d) [r]ust or other corrosion.

***

The policy also included the following provisions:

15. We do not cover . . . property damage consisting of or caused by, the discharge, dispersal, release or escape of oil, fuel oil, kerosene, liquid propane or gasoline intended for or from storage tank(s) located at the address stated on the Policy Declarations. This exclusion does not apply when the discharge, dispersal, release or escape is sudden and accidental.

16. We do not cover any liability imposed upon any insured person by any governmental authority . . . for property damage consisting of or caused by the discharge, dispersal, release or escape of oil, fuel oil, kerosene, liquid propane or gasoline intended for or from storage tank(s) located at the address stated on the Policy Declarations. This exclusion does not apply when the discharge, dispersal, release or escape is sudden and accidental.

17. We do not cover any loss, cost or expense arising out of, consisting of or caused by any request, demand or order that any insured person test for, monitor, clean up, remove, contain, treat, detoxify, or neutralize or in any way respond to or assess the effects of oil, fuel oil, kerosene, liquid propane or gasoline intended for or from storage tank(s) located at the address stated on the Policy Declarations. This exclusion does not apply when the discharge, dispersal, release or escape of oil, fuel oil, kerosene, liquid propane or gasoline is sudden and accidental.

Allstate rejected the claim. The denial letter explained that no coverage existed because “the leaking UST [did] not result[] in a sudden and accidental direct physical loss.” Plaintiff sued Allstate alleging breach of contract and bad faith.

The parties filed competing summary judgment motions for whether coverage existed under the policy. Allstate argued that there was no coverage for the losses alleged in the complaint because the leaking UST was not a sudden and accidental direct physical loss. The judge denied plaintiff's motion and granted Allstate's, dismissing plaintiff’s complaint against Allstate with prejudice. Plaintiff appealed.

On appeal, plaintiff argued that the trial judge did not apply Allstate's

"sudden and accidental" provisions correctly under New Jersey law.

In 1993, the New Jersey Supreme Court in Morton v. General Accident addressed a similar exclusion in a commercial general liability policy and determined for public policy reasons the "sudden and accidental" exception should not be given its plain meaning. Instead, the pollution exclusion clause will not bar coverage unless the insurer establishes that the insured intentionally discharged a known pollutant or had specifically authorized an agent to act for it in intentionally discharging a known pollutant.

A leak is not "sudden and accidental", however, if there is evidence of a failure to maintain. In order to make it inconsistent and intentional, there must be some evidence that the insured failed to act or acted intentionally by ignoring a known hazard.

Here, Allstate never supported its motion with evidence that plaintiff was negligent by failing to maintain the oil tank. To the contrary, the evidence on summary judgment revealed that plaintiff continually employed professionals to service the tank and she followed their recommendations. Allstate provided no suggestion as to what more plaintiff could have done under the circumstances.

Therefore, the Appellate Division agreed with plaintiff that she was entitled to coverage under the “sudden and accidental exception” and reversed the grants of summary judgment.

Disclaimer: This is an unpublished decision which has precedential value in only limited circumstances.

Note: New Jersey insurance coverage is a world of its own. Reading the policy alone, there would appear to be no coverage. However, the New Jersey courts dislike this exclusion and have revised it to require intentional conduct. Coverage is not always logical. Sometimes it is what the Courts say it is.
 

LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel

[email protected]

02/11/20       Knapp v. Century-National Ins. Co.
Connecticut Superior Court, New Haven County

Vanishing Underinsured Motorist Coverage

The court agreed with Century-National that Mr. Knapp made his automobile insurance policy disappear. In 2014, Mr. Knapp was in a car accident with an underinsured driver. After receiving the limits of the other driver’s liability insurance, he made a UIM claim with his carrier, Century-National – or was it really still his carrier? You see, the police accident report showed that Mr. Knapp’s insurance was with GEICO, something that Century-National picked up on. So, investigation revealed that at some point during the Century-National policy period but before the accident, Mr. Knapp also obtained automobile liability insurance with UIM coverage from GEICO (but without cancelling the Century-National policy). Century-National, perhaps a bit miffed and hurt by the ghosting, denied Mr. Knapp’s claim. It claimed that there was a self-destruct provision in the policy that makes it disappear under these circumstances. The policy provided, in part, “[I]f you obtain other insurance on your covered auto, any similar insurance provided by this policy will terminate as to that auto on the effective date of the other insurance.” Poof! The coverage with Century-National simply disappears. The trial court agreed. “[T]his court finds that the defendant Century-National Insurance Company's insurance policy was not in effect when the plaintiff's alleged accident occurred and the defendant has no obligation to afford underinsured or uninsured motorist benefits to the plaintiff pursuant to the policy that was effectively terminated.”

There’s no word if GEICO magically appeared in Century-National’s place, but we suspect that Mr. Knapp’s statute of limitation expired. Conn. Gen. Stat. Sec. 38a-336 provides an insured with 3 years from date of accident to bring suit or, if properly tolled, within 180 days from exhaustion of the limits of all applicable liability policies.

Note: The opinion is not presently available from the Judicial Branch website. Feel free to contact me for a copy.

 

BUCCI ON “B”
Diane L. Bucci
[email protected]

03/31/20       Value Wholesale, Inc., v. KB Insurance Co. LTD
United States District Court, Eastern District of New York

There Must be a Causal Connection Between the Advertising Injury and the Harm Complained of

Abbott Laboratories sued Value Wholesale Inc. alleging claims for trademark and trade dress infringement, fraud, racketeering, unfair competition, and other illegal and wrongful acts.

Abbott sold blood glucose test strips for diabetic patients under its FreeStyle ® and FreeLite ® trademarks.  There were some differences in the advertising and packaging between the test strips sold in the US and those sold internationally, which were sold at “markedly lower prices.”

Abbott alleged that Value engaged in a in a wrongful scheme to import, advertise, and distribute boxes of the international tests strips with Abbott marks and sell them in the US at a lower price.

According to Abbott, the US consumer expected a certain quality, packaging and overall image from its test strips because of Abbott’s extensive branding, marketing, and quality control efforts in the US.  The unauthorized importation, advertisement, and subsequent distribution of international test strips to US consumers would cause consumer confusion, mistake, and deception to Abbott’s detriment, including damaging the goodwill of Abbott’s valuable trademarks.

Value tendered the Abbot lawsuit to its insurer, KB Insurance Company, for a defense.  KB denied the claim on the grounds that Abbott did not allege an advertising injury and even if it did, the claim was precluded by the policy’s intentional acts exclusion.

The court determined that the acts complained of fell within the offense of injuries allegedly resulting from Values use of another’s advertising idea in its advertisement, or infringing upon another’s copyright, trade dress or slogan in its advertisement.

KB argued that the injuries complained of did not satisfy either offense because they there was no causal connection between Abbott’s harm and Value’s advertising, which is necessary to satisfy the advertising coverage grant. 

Acknowledging the confusion among courts regarding the required causal connection, the court stated, “[t]he causation inquiry asks not whether ‘the injury could have taken place without the advertising,’ but whether the advertising contributed materially to the injury.  Because Abbott specifically alleged that Value’s advertising caused harm, the coverage grant was satisfied, arguably under both offenses, at least with respect to the duty to defend.

KB then argued that the insured had to have acted intentionally in diverting the international test strips and selling them in the US.  That would certainly seem to be the case but the court disagreed because claims were asserted under the Lanham Act.  Under the Lanham Act, the claimant does not have to prove intent because the statute provides for strict liability.  The court did not examine whether the Data Compromise Endorsement provided coverage since coverage existed under the referenced offenses.

Please email me if you would like a copy of the decision.

 

03/21/20    W. Bend Mut. Ins. Co. v. Krishna Schaumburg Tan, Inc.
Illinois Appellate Court, Sixth District
Publication Requirement Satisfied by Disclosing Information to One Third-Party Vendor

The trial court granted summary judgment to the insured, Krishna, in connection with West Bend’s duty to defend against Sekura’s claim that Krishna violated her statutory right to privacy under the Biometric Information Privacy Act (Act) (740 ILCS 14/1 et seq. (West 2014)).  Krishna’s tanning salon required customers to have their fingertips scanned for identification purposes.  Allegedly without Sekura’s permission, Krishna disclosed her biometric data to a third-party vendor, SunLync.

At issue was whether Krishna’s acts were either enumerated offenses:

d. oral or written publication of material that slanders or libels a person or organization; or

e. oral or written publication of material that violates a person's right of privacy.

The trial court found that the claim fell within the grant of publication of materials that violate a person’s right to privacy.   On appeal, West Bend argued that there was no personal and advertising injury coverage because the information was not published within the meaning of the enumerated offenses.  West Bend argued that publication in this context meant the communication of information to the public at large.   West Bend relied on Valley Forge Insurance Co. v. Swiderski Electronics, Inc., 223 Ill. 2d 352, 362, 307 Ill.Dec. 653, 860 N.E.2d 307 (2006) for its position.  There, the Supreme Court examined the definition of publication and found that it applied where the insured communicated information to the public.

The court held that while the definition of publication of course included communication of information to the public at large, it was not necessarily so limited.  Reviewing Black’s law dictionary, the court noted that in the defamation context, publication to a single person other than the defamed satisfied the policy.  It reasoned that because the defamation and privacy rights offenses were sequential in the same part of the policy, the meaning of publication in the violation of the right to privacy offense was presumed to apply as it would with respect to the offense of  defamation.  The court also noted that the word was not defined and relied partly on the strong presumption against a provision that could be easily defined and was not.

West Bend then argued that the exclusion for “Violation of Statutes That Govern E-Mails, Fax, Phone Calls or Other Methods of Sending Material or Information” defeated coverage.  West Bend argued that the exclusion was meant to apply to statutes that lend themselves to class actions and pose a significant insurance risk.  The court disagreed and held the exclusion only applied to certain methods of communication to restrict unsolicited automated telephone calls and unsolicited faxes for commercial advertisement of promotional purposes.   

The Policy also contained an endorsement which provided coverage under certain circumstances for personal data compromise, which was defined to include disposal or abandonment or personal identifying information or personally sensitive information…but the failure to use appropriate safeguards had to be accidental, not reckless or deliberate. The court did not reach this issue because it found coverage under an the reference enumerated offenses that required West Bend to defend.

 

OFF THE MARK
Brian F. Mark
[email protected]

No cases to report on this edition as COVID-19 continues to shut down, or at least slow down, the courts.

 

BORON’S BENCHMARKS
Eric T. Boron

[email protected]

03/20/20       Richards v. State Farm Lloyds
Supreme Court of Texas
Texas’ High Court Says Insurer Must Apply “Eight-Corners Rule” of Analysis to Which There Is No “Policy-Language Exception”

Most if not all of you have heard, perhaps more often than you’d like, that “the duty to defend is broader than the duty to indemnify”.  Fine.  But what circumstances actually trigger the duty to defend?  What analysis should be employed by the insurance company in determining whether there is a duty to defend?  If you are a Texas insurer, the Supreme Court of Texas has clarified Texas law on the duty to defend analysis through this decision, which responded to the following certified question from the Fifth Circuit:  “Is the policy- language exception to the eight-corners rule articulated in B. Hall Contracting, Inc. v. Evanston Insurance Company, 447 F. Supp.2d 634 (N.D. Tex. 2006), a permissible exception under Texas law?”

Briefly, here’s the pertinent background facts in Richards. Ten-year old Jayden Meals died in an ATV accident while under the supervision of his grandparents, State Farm’s insureds, Janet and Melvin Richards.  The Richards were sued by Jayden’s mother alleging negligent supervision and instruction led to Jayden’s death.  A dispute ensued as to whether State Farm owed the Richards a defense to the mother’s action under the Richards’ homeowners insurance policy with State Farm.

The eight-corners rule of analysis of duty to defend questions limits the insurer to considering the allegations set forth within the four corners of the liability complaint, plus the terms and provisions set forth within the four corners of the insurance policy in question.  Nothing beyond what is said in those two documents may be considered by the insurer in determining whether it has a duty to defend, says the eight-corners rule.  Here, however, State Farm possessed extrinsic evidence, that is, factual evidence beyond the facts alleged in the complaint of Jayden’s mother, which State Farm argued it ought to able to apply to its duty to defend analysis.  State Farm’s extrinsic evidence included a police report showing the ATV accident occurred off the Richards’ property, and, court papers showing that due to a custody order Jayden was actually an insured under the Richards’ homeowner’s policy.

Federal district court ruled the eight-corners rule did not apply under these circumstances, and the extrinsic evidence could be considered regarding State Farm’s duty to defend.  This was because, according to the federal district court, the policy in question contained no provision saying State Farm would in fact defend “groundless, false, or fraudulent” claims. In light of the extrinsic police report and extrinsic custody order, the district court granted summary judgment to State Farm, finding there was no duty to defend.  The Texas Supreme Court’s decision referred to the federal district court’s decision as having improperly applied a “policy-language exception” to the eight-corners rule, and responding to the Fifth Circuit’s certified question found the federal district court’s analysis to have misapplied Texas law on the duty to defend analysis issue.  Supreme Court clarified that in Texas the eight corners rule is to be applied to the duty to defend issue, regardless of whether (or not) the policy in question contained a “groundless-claims” clause or provision.

 

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

[email protected]

03/20/20       GEICO v. Lexington Medical Diagnostic Services, P.C.. et al.
U.S. District Court, Eastern District of New York

GEICO Secures $1 Million Default Judgment Against Companies Accused of Defrauding the No-fault System

Dr. Nadel incorporated and owned both Lexington and LN. These providers were transient and operated out of at least 24 different multi-disciplinary no-fault clinics. It was alleged that these companies engaged in a fraudulent scheme to submit no-fault claims to GEICO for reimbursement that involved unlawful kickbacks made by Nadel for patient referrals, medically unnecessary services, misrepresentations about patients’ injury severity, and the utilization of a predetermined fraudulent billing protocol. GEICO sought a declaratory judgment relieving it of liability for both companies pending insurance claims due to their fraudulent billing practices. In addition, GEICO made a claim against Lexington only based on that company’s breach of a condition precedent to coverage for a representative failing to appear at duly scheduled EUOs. In the third and fourth causes of action, GEICO sought monetary damages for the claims it has already paid based on theories of common law fraud and unjust enrichment.

An attorney initially appeared on the companies’ behalf to request a pre-motion conference in anticipation of a motion to dismiss. Before filing that motion, however, the attorney withdrew because he could not contact Nadel. No one has appeared since for the companies, nor have they ever answered the Complaint or moved to dismiss it. Thus, GEICO moved for default judgment. When a defendant defaults, the court must accept as true all well-pleaded allegations in the complaint, except those pertaining to the amount of damages. With respect to liability, a defendant’s default does no more than concede the complaint’s factual allegations; it remains the plaintiff’s burden to demonstrate that those uncontroverted allegations, without more, establish the defendant’s liability on each asserted cause of action. If the defaulted complaint suffices to establish liability, the court must conduct an inquiry sufficient to establish damages to a “reasonable certainty.” Here, GEICO presented testimony of a claims manager, as well as a declaration from him with exhibits that included compilations of payment information that summarize the no-fault payments GEICO paid Lexington and LN, tax forms that GEICO filed reflecting the amounts it paid to them at relevant times, and database reports listing pending no-fault arbitration claims Lexington and LN filed against GEICO for medical services performed.

As for entitlement to declaratory judgment as a result of the default, GEICO specifically sought that Lexington and LN have no right to receive payments for their outstanding bills to GEICO for medical services because they acted fraudulently in submitting them. Under New York law, an assertion of defenses against payment of a no-fault insurance claim or bill must affirmatively plead compliance with the applicable mandatory time limit for responding to insurance claims. GEICO established either that it has timely denied payment, that it requested additional verification with no response, or that the time to respond the claim has not elapsed. The pendency of these claims, and GEICO’s demonstrated compliance with its obligations under New York’s no-fault insurance law, is a sufficient predicate for declaratory relief. Thus, GEICO is no liable to pay Lexington or LN their pending insurance claims.

Related to GEICO’s claim against Lexington only for breaching a condition precedent, GEICO made multiple formal requests for the examination under oath of a representative from Lexington. The Court found these requests were timely and based upon the application of the objective standards justifying the examinations under oath sought. Lexington failed to appear for any of the scheduled examinations under oath. As a result, Lexington breached a condition precedent to coverage and GEICO is therefore not responsible for the payment of those claims for which examinations under oath were sought and Lexington failed to appear.

In order to establish its common law fraud claim, GEICO had to establish that each of the companies made a material misrepresentation of fact with knowledge of its falsity and that GEICO reasonably relied on it and suffered damages as a result. GEICO provided a detailed showing that each of the companies misrepresented the complexity and comprehensiveness of the examinations and tests allegedly performed, that they were medically necessary, that they were provided, and that they were accurately coded. The complaint’s unrebutted assertions also establish that Lexington and LN knew their submissions to be false as GEICO provided a detailed description of the fraudulent scheme, citing specific misrepresentations about the proper billing codes for and necessity of certain procedures that the defendants could not have made without knowledge of their falsity. GEICO also specifically alleged, and the default established, that Lexington and LN scattered the services billed among several corporations or under Dr. Nadel’s name in order to avoid detection. Further, GEICO showed that the claims submitted were falsely verified and that the companies acted to conceal their fraud since GEICO was under an obligation to process the claims within 30 days and insurers can justifiably rely on claims forms submitted under New York no-fault laws, which suffices to show GEICO’s justifiable reliance on the misrepresentations. Therefore, GEICO was entitled to judgment on its fraud claim against Lexington and LN.

To prevail on its unjust enrichment claims, GEICO was required to establish that the companies benefitted at its expense, i.e. one party received money or a benefit at the expense of another. Here, GEICO adequately alleged that Lexington and LN benefitted when they received payment from GEICO by fraudulently submitting claims for which they were ineligible. Thus, GEICO was entitled to judgment on its unjust enrichment claims.

Having established Lexington and LN’s liability for fraud and unjust enrichment, GEICO was then required to submit its damages with “reasonable certainty.” GEICO contended that it was entitled to $956,308.04. The claims manager who testified calculated this sum by isolating each individual insurance claim it received from any entity associated with the companies given taxpayer identification number. Based on that evidence, the entire damages claim was awarded to GEICO.

 

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

Legislative List

03/27/20       Assembly Introduces Bill Requiring Business Interruption Coverage For Duration of COVID-19 Pandemic
New York State Assembly
Assembly Member Introduces Bill that would Require All Property Policies in New York to be “Construed” to Cover Business Interruption Losses Due to COVID-19. Millions Flee.

On Friday, March 27, Assembly Member Robert Carroll introduced a bill that threatens the stability of the entire insurance market. That bill would require all property policies in the state to be retroactively “construed” to contain coverage for business interruption that occurs during this emergency. It would be funded by mandatory contribution from insurers. It is ill-conceived, seemingly unconstitutional and would crush the property and casualty industry that is so vital to the operation of our economy now and after the pandemic has subsided.

In a summary drafted over the weekend by several Hurwitz & Fine attorneys, including Dan Kohane, Steve Peiper, Lee Siegel, and myself, entitled “Assembly Bill A.10226 – The COVID-19 “Business Interruption Bill”: The Cure is Worse than the Solution,” we offered our gut reaction to exactly what’s wrong with this bill. I have excerpted the introduction below:

The COVID-19 crisis is a public health and economic crisis of historic proportion. The economic damage caused by this cataclysmic event cannot be resolved by the Property & Casualty Insurance Industry. Believing so will create a crisis of insurance insolvency and illiquidity that is dangerous, misguided, and short-sighted. Assembly Bill A10226 was introduced on March 27, 2020. The New York bill parrots, in large measure, New Jersey’s COVID-19 business interruption bill [[FN1] that was recently introduced but then withdrawn. When not imitating the New Jersey model, New York’s version remarkably expands it.

While its sponsor’s motives may appear to some to be laudable, the bill is substantially flawed both in concept and form. The failings of the bill go beyond mere technical and grammatical deficiencies. Enactment of the bill will devastate the insurance industry and have an untold cascading effect on New York’s consumers and businesses for years to come. Moreover, this legislation does not provide for the fast, friction-free infusion of relief to impacted New York businesses that is so urgently needed. The claim process is methodical and the massive volume of claims will undoubtedly produce bottlenecks at every stage of adjustment.

This bill cannot, should not, and must not be adopted.  

*         *         *

Maxwell’s Minute: Although we mentioned it briefly in the piece above, I think there are legitimate Constitutional concerns that we do not get to discuss frequently in our insurance coverage practice.

As concerning as it is that the Legislature would require coverage for a “covered peril” that is not currently listed among the policy provisions, it’s more concerning that, as written, the Legislature appear to force insurers to contract with insureds, retroactively, for a type of coverage (business interruption) not originally contemplated by the parties. Although rarely invoked successfully, I believe mandatory coverage for business interruption during the COVID-19 pandemic would run afoul of the contracts clause of the United States Constitution (Art. I, § 10). Article I, § 10 provides that “No State shall . . . pass any . . . law impairing the Obligation of Contracts.” The scope of the contracts clause since the Supreme Court’s decision in Home Building & Loan Association v. Blaisdell, 290 U.S. 398 (1934), has been restricted to a two-part test. First, is there a substantial impairment of a contractual relationship? If there is a substantial impairment, then courts ask second whether it serves a significant and legitimate public purpose that is reasonably related to achieving that goal? The second, and more challenging prong amounts to a glorified rational basis review.

I first note that there appears to be a substantial impairment of the contractual relationship. An insurer/insured relationship is most simply boiled down to the provision of certain specified insurance coverages in exchange for the payment of an appropriately calculated premium reflecting those coverages procured. This legislation fundamentally alters that equation to the benefit (and windfall) of the insured, who either did not procure coverage for business interruption coverage in the first place, or business interruption coverage for government ordered shutdowns due to COVID-19—and lacking direct physical loss or damage. For the more challenging second prong of the Blaisdell analysis, we believe it is possible to argue that although finding a remedy for the economic challenges faced by New York businesses during this pandemic that suffer losses that are not covered under their business interruption insurance is a significant and legitimate public purpose, retroactively adding business interruption coverage for the government ordered, COVID-19 shutdown is not reasonably related to achieving that goal. It would leave the insurance industry in shambles and cause other policyholders claims under genuine, bargained-for coverages irreparable harm.

Regulatory Wrap-Up

03/30/20       DFS Emergency Rulemaking Enacts Governor’s Executive Order 202.13
Department of Financial Services
DFS Enacts Emergency Consolidated Rulemaking Implementing Governor Cuomo’s Executive Order Providing Protections to Policyholders Experiencing Financial Hardship due to COVID-19

On March 29, 2020, Governor Andrew M. Cuomo issued Executive Order 202.13, which, among other things, imposes a moratorium on an insurer, other than a life insurer, cancelling, non-renewing, or conditionally renewing any property/casualty insurance policy issued to a property/casualty policyholder for a period of 60 days, for any property/casualty policyholder facing financial hardship as a result of the COVID-19 pandemic. The Executive Order also directed the Superintendent of Financial Services to promulgate emergency regulations necessary to implement the Executive Order, including regulations regarding the waiver of late fees; the prohibition on reporting negative data to credit reporting agencies; and the repayment of late premiums over a one-year period. This was adopted as an emergency measure as necessary “[t]o help ease the extensive economic burden brought about by the COVID-19 pandemic, and in compliance with EO 202.13, . . . for the public’s general welfare.” DFS has also issued a press release summarizing the provisions of this emergency regulation.

The emergency promulgation of this consolidated rulemaking created a new 11 NYCRR Part 229. Specifically, 11 NYCRR § 229.4 of this Consolidated Rulemaking prohibited any insurer from imposing any late fees or reporting any policyholder to a credit reporting / debt collection agency for an untimely payment of premium if that policyholder can demonstrate financial hardship as a result of the COVID-19 pandemic.

Under 11 NYCRR § 229.5, an insurer must permit a policyholder who cannot make a timely payment of premium due to financial hardship as a result of the COVID-19 pandemic, including those already issued a nonpayment cancellation notice prior to the effective date of the Executive Order, to pay such premium over a 12-month period. Notably, insurers are required to accept a written attestation from a policyholder as proof of financial hardship as a result of the COVID-19 pandemic.

Additionally, this consolidated rulemaking creates a new 3 NYCRR Part 405 of the Banking Regulations. Part 405 makes clear that where a premium finance agreement contains authority enabling the premium finance agency to cancel any insurance contract, and policyholder does not make an installment payment due to financial hardship as a result of the COVID-19 pandemic, the premium finance agency cannot cancel the insurance contract for at least 60 days, including any contractual grace period, for a property/casualty insurance contract.

Additionally, 11 NYCRR § 229.6, and 3 NYCRR § 405.6(a)(1) governs the return of unearned premiums to premium finance agencies following the 60-day period described in 3 NYCRR Part 405. Where a premium finance agency cancels the property/casualty insurance policy based on nonpayment at any time prior to the next succeeding installment payment, the insurer is required to return to the premium finance agency for the benefit of the property policyholder, subject to the terms of the policy, but no later than 60 days after the effective date of such cancellation, the gross unearned premiums that are due under the property/casualty insurance policy on a pro rata basis, calculated as if the property/casualty insurance policy had been canceled 60 days prior to the effective date of such cancellation.

Maxwell’s Minute: The biggest takeaway from this for me is that a showing of “financial hardship” is as simple as attesting to same; my word is my bond. We are all feeling hardship in one way, shape, or form. I can certainly attest to that. But is that alone sufficient? DFS says “yes”.

 

CJ on CVA and USDC(NY)
Charles J. Englert III
[email protected]

03/19/20       Travelers v. Harleysville
U.S. District Court, Southern District of New York
In New York, Extrinsic Evidence that Goes to the Merits of an Action May Not Be Used to Prove that an Insurer’s Duty to Defend Is Not Triggered

This action arises out of an underlying auto accident, where it is alleged that construction fencing at a jobsite located on a CUNY campus, where Plaintiff’s insured (the general contractor) and defendant A.K.S. International (the subcontractor) were working, caused limited visibility and therefore caused the underlying accident.  Plaintiff has provided a defense in the underlying actions to the general contractor but seeks a declaration that defendants must assume that defense as Plaintiff’s insured is an additional insured under the A.K.S. International general liability policy.

The Harleysville Policy provides "additional insured" coverage to Genesys (the general contractor), CUNY, and New York State for "liability caused, in whole or in part, by the acts or omissions of [A.K.S]." Harleysville denied coverage to all parties other than A.K.S International based on the police accident report, which suggested that the driver’s vision was obstructed by an SUV parked on the street, and deposition testimony of the negligent driver who testified that the fencing did not play a role in the auto accident.

Traditionally an insurer’s duty to defend is triggered when the allegations of the complaint in the underlying injury action suggest a reasonable possibility of coverage. However, "a narrow, but widely recognized exception to the rule allows an insurer to refuse or withdraw a defense if. . . extrinsic [evidence]. . . unrelated to the merits of plaintiff's action, plainly take[s] the case outside the policy coverage.'" Employers Ins. Co. of Wausau v. Kingstone Ins. Co., No. 17 CV 3970 (SDA), 2019 WL 7040427, at *7 (S.D.N.Y. Dec. 4, 2019).

Here, in applying the exception to the rule governing an insurer’s duty to defend, the court holds that the terms of the Harleysville policy’s additional insured provision apply, and Harleysville must provide a defense to Genesys, CUNY, and New York State. The court recognizes that there is extrinsic evidence that suggests A.K.S.’s fence may not have been the cause of the accident but recognizes that the extrinsic evidence provided goes to the merits of the action. The information in the police report and the drivers testimony goes directly against the merits of the injured party’s claims against A.K.S. Accordingly, the court granted plaintiff’s motion, holding that Harleysville must assume the defense of Genesys, CUNY, and New York State by way of the additional insured provision in the Harleysville policy issued to A.K.S.

 

03/25/20       Satispie, LLC v. Travelers
U.S. District Court, Western District of New York

Reliance on a Specific Exclusion Does Not Prevent an Insurer from Asserting that There Was No Coverage for A Loss in the First Instance

Plaintiff is a pie manufacturing business that sells unbaked frozen pies to commercial customers for retail sale. Defendant issued a commercial insurance policy to plaintiff that contains an endorsement which includes “equipment breakdown” as a covered cause of loss. The “equipment breakdown” endorsement includes a $25,000 limitation for property damage caused by ammonia contamination. During the policy period plaintiff’s cold-storage facility was subject to an ammonia leak. Plaintiff timely notified defendant of the leak and indicated to the defendant that the contents of the cold storage were contaminated. Plaintiff was then contacted by a representative of defendant and told that an adjuster would be assigned to investigate the loss. Plaintiff was subsequently told by an employee of his insurance broker that plaintiff could dispose of the contaminated contents. Defendant then sent an inspector who only inspected the cold-storage equipment, and not the product inside of it. Subsequent to this inspection plaintiff disposed of allegedly contaminated products, and then sent non-contaminated products to a facility where they would be turned into animal feed. Plaintiff then opened two claims, one for loss of pie products, and the other for equipment breakdown. Defendant only provided coverage for the equipment breakdown claim and denied the loss of product claim. The loss of product claim was denied based upon the policy’s exclusion for losses caused by food spoilage.

Plaintiff argued that the defendant improperly denied its loss of product claim based on the food spoilage exclusion, and thus breached the contract entered into by plaintiff and defendant. Plaintiff argued that the product in the cold storage facility was not rendered inedible, as the product was fully sealed and therefore not contaminated by ammonia. The court held, that accepting the plaintiff’s contention that the product was not contaminated by ammonia, plaintiff cannot show that is suffered a loss covered by the policy.

The Policy covers “direct physical loss of or damage to Covered Property” from a “Covered Cause of Loss,” and “Covered Cause of Loss” is further defined as “risks of direct physical loss,” unless subject to an exclusion or limitation. Applying New York Law, the court held that the burden of proving the insurance contract covers the loss lies with the insured. In the instant case, plaintiff did not assert that any of the products in cold storage were ever physically damaged. Therefore, coverage was not owed in the first instance.

Plaintiff goes on to argue that defendant’s earlier reliance on the exclusion for food spoilage makes the argument that the loss was without the scope of coverage in the first instance unsalable. Citing the New York Court of Appeals the District Court holds that “a disclaimer of liability, based on specified exclusions . . ., does not effect a waiver of an insurer’s defense (in other words, no preclusion obtains) that the claim was outside the scope of the insuring clause of the policy.” Cent. Gen. Hosp. v. Chubb Grp. of Ins. Companies, 90 N.Y.2d 195, 201 (1997). Therefore, the defendant’s reliance on the specific exclusions in their earlier denial does not prevent defendant from arguing that coverage was not triggered in the first instance if plaintiff now maintains that the product was never damaged. The court then opined that the no reasonable jury would find that defendant breached its contract with plaintiff and dismissed the breach of contract cause of action. 
 

CARA’S CANADIAN AND CROSS-BORDER CONNECTIONS (WITH HEATHER SANDERSON)
Cara A. Cox
[email protected]

Heather Sanderson
Sanderson Law (Alberta, Canada)

[email protected]

 

Cara’s Cross-Border Connection: Heather

Is Civil Authority Coverage Available for Canadian COVID-19 Economic Loss Claims?

At the end of January 2020, COVID-19 left China on a world tour, causing economic havoc everywhere it landed.  Businesses have closed, but their bills continue to pile up.  Rent, equipment leases and salaries are eroding any margins that businesses large and small may have had.  The sizable government bailouts are just coming on stream and it is unknown how many businesses will be saved.  In the meantime, more and more business owners are looking at their business interruption forms under their commercial property policies, searching for some sort of economic salvation.

Colin Simpson, the CEO of the Insurance Brokers Association of Ontario is quoted in the Canadian Underwriter (March 24, 2000, Will commercial BI policies cover pandemics after COVID 19?) as saying “business interruption was never designed to respond to pandemics … .”

The Canadian government has put together an $71 billion CDN aid package to help businesses and workers cope with the looming economic recession triggered by the initiatives to slow the transmission of COVID 19.  To put that amount in perspective, it is forecasted that an earthquake in Canada, which is an insured peril, is estimated to cause insured damage in the range of $20 billion-$30 billion CDN.  The reason why an earthquake is an insured peril, and a pandemic is not, is because earthquakes have territorial limits to damage whereas pandemics cut across all regions and economic sectors. In a pandemic situation, underwriters cannot assess who it is going to affect and how quickly it is going to spread.  There is no information available that would allow an underwriter to define the pandemic risk, quantify it and then price it and then further determine if the product would be affordable.

Some business cohorts may have chosen to purchase cover that will specifically provide for business interruption arising from notifiable or infectious diseases.  As a result, certain notifiable disease extensions to existing commercial property policies may cover the COVID 19 claims if other policy terms and conditions are met.  However, this coverage is far from generalized or common.   Further, some organizations may have purchased specialized contingent business interruption coverage, standalone business interruption coverage and supply chain disruption coverage that may be triggered as a result of the World Health Organization declaration of a pandemic.   The number of policies in that cohort would be few and specialized.

That cohort of business aside, in Canada, according to the Insurance Bureau of Canada, “generally, commercial insurance policies and traditional business interruption policies do not offer coverage for business interruption or supply chain disruption due to a pandemic such as COVID 19.”

There may be no intent to cover the economic consequences of pandemics under general commercial property wording, but that intent does not govern the outcome of a contested claim.  The wording of each individual contract will determine that outcome.  The Canadian property and casualty industry will soon be inundated with claims for payment under the civil authority coverage of most commercial policies, as well as the business interruption coverage.  The barrage of claims under the civil authority coverage is the first coverage in line for these claims and is the focus of this article.

Basics of Civil Authority Coverage in Canada

Civil authority coverage is nonstandard and therefore each insurer’s policy is likely unique. With that said, there are common elements:

  1. There must be a denial of access to the insured property.
  2. The denial of access must be due to an incident of physical damage to a nearby property (most policies contain a specific geographic distance that defines what is a ‘nearby property’). 
  3. Damage to that nearby property must be due to a peril covered under the policy in issue. 
  4. There is a limit to the length of time the coverage applies. It is usually between 15 and 30 days.
  5. Civil authority coverage almost always has a deductible in the form of a waiting period. The typical range is 24-72 hours.

A version of this coverage reads:

We will pay your actual loss of revenue when a civil authority denies access to an insured location as a direct result of physical loss or damage by a covered cause of loss to property not at an insured location. We will pay for loss of revenue for up to four consecutive weeks while access to an insured location is denied.

Most policies go on to state that the policy insures against “…risks of direct physical loss of or damage to the property insured…”.

The question that must be answered in relation to each claim for civil authority coverage arising from the measures put in place to control the transmission of the COVID-19 virus is whether a denial of access has occurred and whether the denial of access is due to an incident of direct physical loss of or damage to a nearby property?

Governmental Orders that Directly or Indirectly Resulted in Business Closure

I have taken an in-depth look at the process and reasons which led to the closure of non-essential businesses in Alberta and Ontario in order to fully understand the factual basis of the closure of non-essential business in each of those provinces.

Until March 27, 2020 Alberta indirectly closed businesses in Alberta by prohibiting the movement of people within Alberta. In Ontario, non-essential businesses were open until March 24, 2020 when the in-person, public services that they offered were closed as part of measures to address the public health emergency.
 

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    On March 15, 2020, the City of Calgary, Alberta issued a Declaration of Local Emergency under the provincial Emergency Protection Act and a City of Calgary by-law which closed all City run libraries, arenas, gyms, pools, cancelled concerts and closed museums.  Restaurants and bars could operate, but only at 50% of the usual occupancy load up to a maximum of 250 occupants. On March 17, the Province of Alberta issued a declaration of public emergency under the Public Health Act in order to control the spread of the virus. Once the provincial declaration was in place, the City of Calgary rescinded its occupancy requirements and the same requirements were immediately imposed by the provincial authorities. The wording of the provincial order is of utmost importance. It did not close businesses. Rather, it prohibited the movement of people within the province:

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    In response to this order, the hospitality trade suffered an immediate drop in business. Further, on March 17, 2020 some large “big box” retailers, such as the Hudson Bay Company closed all of its stores across Canada (not just in Alberta) for two weeks. This venerable Canadian retailer joined a host of other well-known companies who closed all of their North American stores on the same day for a two-week period.  Independent stores and other retailers who remained open suffered social media shaming leading to “voluntary” closures (as opposed to a closure mandated by a civil authority). On March 27, 2020, when the number of community transmitted infections took a serious jump, the Province of Alberta escalated the restrictions by issuing another order under the Public Health Act reducing the permissible gatherings to 15 people and adding a business restriction:

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    Those non-essential retailers that chose to close in the middle of the month are now joined by all other non-essential businesses and are now prohibited by provincial order from offering services to the public from a location that is accessible to the public until the rate of infection drops to a level that can be managed by the health care system.  This does not mean that business owners cannot access their premises. It simply means that they cannot offer services to the public from their premises.

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In Ontario, the major cities and the Province took action in concert to control the transmission of COVID-19. On March 17, 2020 at 7:30 a.m., both the City of Toronto and the Province of Ontario declared a public health emergency stating “…WHEREAS the outbreak of a communicable disease namely COVID-19 coronavirus disease constitutes a danger of major proportions that could result in serious harm to persons…” a declaration of a state of emergency under the the Emergency Management and Civil Protection Act.  Under that declaration, it was closures recommended extended to all recreation programs, libraries, private schools, daycares, churches and other faith settings, as well as bars and restaurants, except those that offer take out or delivery.  Businesses continued to operate.

However, when the rates of infection escalated, the province reached into its emergency management toolbox and on March 24, 2020, at 11:59 p.m. took the further step of closing non-essential businesses:

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This step was authorized by legislation which enables the Ontario provincial cabinet to "close any place, whether public or private, including any business, office, school hospital or other establishment or institution" if cabinet believes it "necessary and essential in the circumstances to prevent, reduce or mitigate serious harm to persons or damage to property".

In this case, the March 24, 2020 declaration is very clear that it was imposed to protect the health and safety of Ontario residents:

Although Ontario and Alberta used different approaches to the problem, by March 27, 2020, the result was the same: Non-essential businesses in Alberta and Ontario were prohibited from offering services to the public in order to protect the health and safety of the populations within the boundaries of each of those provinces.

As a result of a series of orders issued in British Columbia, all public facing food and beverage dining room and strictly liquor services are closed; all schools and post-secondary institutions are closed to students; all non-essential businesses are no longer open to the public. Saskatchewan, Newfoundland and Labrador have issued similar orders to British Columbia. Until the end of March, Manitoba took an approach similar to Alberta by regulating the movement of people, but by the end of the month, their orders were similar to British Columbia and all non-essential public facing services and facilities have been closed. Nova Scotia, New Brunswick and Prince Edward Island have each issued a series of orders that have the same impact as the other provinces.

Do the Orders Deny Access?

The orders in Alberta, Ontario and the other provinces are not evacuation orders; they deny use of the property to generate revenue, but do not deny access in a formal sense (as is the usual case in the event of a natural disaster where no access of any kind in permitted into restricted areas). The properties affected by the orders can be maintained, inspected or repaired by their owners; security can be maintained; they can be accessed to obtain essential supplies to sustain remote work by employees. As a result, there is a real factual issue of whether these orders are in fact “denial of access orders” that would trigger civil authority coverage.

Is the closure of a business to prevent the transmission of disease “physical damage to property”?

Assuming that a denial of access has occurred that triggers the civil authority coverage, is the denial of access due to the presence of “direct physical loss or damage” to a neighbouring property?  It must be remembered that businesses were closed to prevent the transmission of disease, not because disease was proven to be present.

Is the threat that disease could be present sufficient?

The answer is dependent upon the wording in issue in each policy. If the coverage is triggered by ‘direct physical loss or damage to property’, then the answer is “highly unlikely”. If the coverage is triggered by ‘injury to or damage to property’, then the answer is “possibly”:

Hildon Hotel (1963) Ltd. v. Dominion Insurance Corp. Ltd. (1968), 66 W.W.R. 289 (B.C.S.C.), this is a trial level decision considering coverage for liability for an incident in which wharves belonging to the Harbours Board became temporarily unusable because of an accident soaking them in oil which was caused by the insured. Coverage was dependent upon whether there was “…an injury to or destruction of property…” within the meaning of the coverage agreement of the insured’s CGL policy. The oil dissipated when the wharves, and their piles, were sprayed with an emulsion. The court held that “injury” is a concept that is distinct from “damage”. Injury to property is the infringement of a property right. Damage to property is a pecuniary loss of property. In this case, the wharves were “injured” as vessels could not use the oil coated wharves. The insured’s liability to the Harbours Board was liability for property damage within the meaning of the coverage agreement of the CGL policy as it was “…an injury to or destruction of property…”.

Canadian Equipment Sales & Service Ltd. v. Continental Ins. Co. (1975), 9 O.R. (2d) 7 (C.A.), an appeal level decision, considered whether an insured who negligently dropped a piece of pipe (called a coupon) into a pipe that was being joined to form a pipeline had coverage for the resulting loss of use of the pipeline while the project owner determined whether the coupon in the pipeline was a problem. If the coupon blocked the pipeline, then cooling water would not reach chemical reaction tanks. That could cause a blowout and a fire. The insured was liable for the cost of labour and materials in an unfruitful attempt to locate the piece of pipe. It became apparent that the piece of pipe had settled out of the way and did not present a hazard. The Ontario Court of Appeal held that the costs for which the insured was liable constituted “…an injury to or destruction of property…” as the pipeline was impaired or imperfect from them moment the coupon entered the pipeline,  The Court of Appeal stated “…I am of the view that the dropping of the coupon into the pipe, on the accepted findings of Mr. Justice Callon, was an injury to the pipeline, and Dow Chemical, from that moment, had an imperfect or impaired pipeline.  This was “…an injury to or destruction of property….” within the meaning of the policy.

Privest Properties Ltd. v. Foundation Co. of Canada Limited, (1991), 57 BCLR (2d) 88 (B.C. S.C) The issue in this case was whether several different insurers had an obligation to defend an insured that installed spray fireproofing material in a building. The fireproofing contained asbestos. The allegation was that the presence of the asbestos meant that the building owners were unable to repair, maintain or renovate the building without causing the release of asbestos fibres. The presence of asbestos fibres was described as an inherently dangerous element in the building. There was no allegation of physical injury or damage to any part of the building. The building owners further alleged that they were obliged to undertake the removal and replacement of all of the fire proofing that contained asbestos at substantial cost, expense, and inconvenience.  The insuring agreement of one of the policies in issue covered “…Damage to or destruction of property. Another insuring agreement in another policy read “…injury to or destruction of property…”. The Court found that the claims advanced by the plaintiffs alleged facts which, if proven, would constitute "injury to property" in the sense of an infringement of intangible property or an incorporeal right. The Court held that the presence of asbestos is “…"injury to property" in the sense of an infringement of intangible property or an incorporeal right.” In that sense it is also damage to property and therefore there was an obligation to defend under both of those policies. However, the presence of and the cost of removing the asbestos laced fireproofing did not constitute “…physical injury or damage to or loss of use of tangible property…” which were the operative words of the coverage agreements of other insurers and those policies were not triggered.

In Privest Properties Ltd., the Court reviewed all of the relevant cases, including Hildon Hotel, and Canadian Equipment Sales & Service. At paras. 168 and 169, the court concluded that "damage to property" and "injury to property" have the same meaning when contained in a clause in an insurance policy which provides coverage:

While the word "damage" may have a narrower meaning than that of "injury", they are quite similar …I believe that when they are considered in the context of an insuring agreement, to which a liberal interpretation should be given, as opposed to the context of an exclusion clause in which any ambiguity will be resolved against the insurer, they are synonymous.

D.P. Murphy Inc. v. Laurentian Casualty Company of Canada (1992), 315 A.P.R. 331 (P.E.I S.C. T.D.) is a trial level decision of the Prince Edward Island Supreme Court that considered whether a loss of revenue caused by the forced evacuation of a Tim Hortons coffee shop due to the presence of gasoline fumes was covered by a business interruption policy that covered the Tim Hortons outlet. Coverage was dependent upon whether the presence of the fumes was a covered cause of loss defined as “…all risks of direct physical loss of or damage to the property insured…”. Evidence was led that the Tim Hortons was in a stand-alone building next door to a Wendy’s and a Shell gas station. The gasoline fumes emanated from a storm sewer outside the Tim Hortons. Fumes were present inside the buildings housing all three businesses. There was speculation that someone had poured gasoline into the storm sewer causing the fumes. Regardless of the cause, gasoline fumes entered each of these buildings, posing a danger to the occupants. All of these buildings were evacuated by an order issued by a city fire inspector. The Tim Hortons sustained a loss of revenue and turned to its insurer who denied coverage. The insurer took the position that there was no physical damage to the insured property and, therefore, the loss of revenue was not caused by a risk of direct physical loss or damage to the property insured; that the words “direct physical” modifies “damage” as well as “loss”. The insured argued that “damage” simply means “injury” and that the injury does not have to be a direct physical injury; that the presence of the fumes in the Tim Hortons is damage caused by a gas leak; there was an order by a civil authority to evacuate; the losses were sustained and that coverage has been established. With very little discussion, the court hearing the case held that “…In the present case, the presence of gasoline fumes in the air to the extent that the building was unsafe for occupation constituted damage or injury to the neighbouring premises.” The court then went on to hold that the gasoline fumes were a contaminant and therefore the damages were excluded from coverage by an exclusion for losses caused by contamination.

Protrux Systems Inc. v. Insurance Corp. of British Columbia, 2004 BCSC 1194, is a 2004 British Columbia trial level decision.  A tractor-trailer truck overturned into a river in British Columbia.  It was carrying a load of chipboard.  The chipboard ended up in the river and the issue was whether the cost of removing board was property damage obligating the liability insurer of the tractor trailer unit to respond to the cost of removing the board.   ICBC insured the tractor-trailer and stated that the chipboard did not cause property damage and therefore there was no obligation to respond to the cost to remove it.  The chipboard did not damage the riverbed and did not pollute the water.  There was no evidence that the presence of the chipboard interfered with navigation on the river or fishing.  However, the court found that the presence of the chipboard constituted an obstruction in the river.  The court went on to hold that the Provincial Crown had a right to have the river restored to its original state and in that sense the river was damaged and the costs of removing the chipboard were covered under the ICBC liability policy.

Westside Transport Inc. v.  Continental Insurance Company, 2004 BCSC 1195, is another Columbia trial level decision that was released at the same time as the Protrux decision.   In that case a tractor-trailer unit carrying eight rolls of paper weighing 48,000 pounds overturned, depositing the rolls of paper into a lake in British Columbia.   The issue was whether the rolls of paper in the lake constituted damage to property of another.   The court held that property damage did occur:

The rolls of paper in the lake constituted an immediate obstruction to persons using the lake for boating, fishing or swimming. I infer that the character of the lake and an area adjacent to the lake was changed by the deposit of several large rolls of paper (6,000 lb. each) and that it would be necessary to expend considerable work and money to restore the lake and the land to its original condition.

Jessy’s Pizza (Bedford) v. Economical Mutual Insurance Co., 2008 NSSM 38 (Nova Scotia Small Claims Court). Jessy’s Pizza was a pizza shop in Bedford, Nova Scotia that was in rented premises on the ground floor of a two-storey building. There was another commercial establishment beside the pizza shop and apartments were on the second floor. The building was heated by an oil-fired furnace. The oil was supplied by two steel oil drums that were connected by a supply line. Due to vandalism, the supply line ruptured. The ruptured line was not immediately detected and leaked for some time. The operators of Jessy’s Pizza began noticing an odour. The landlord investigated; the ruptured line was found and repaired but the odour continued. The smell got so bad that simply leaving the doors and windows open did not dispel it. Customers would come in, place their orders, then wait in their cars rather than submit to the fumes. Ultimately the pizza shop was forced to close. After that, it was determined that oil had seeped into the ground below the building. The floor of the building was removed and the oil plume below the building was evacuated. Jessy’s Pizza held a commercial property policy that covered the rented premises against “…all risks of direct physical loss of or damage to the property insured…”. The Court followed D.P. Murphy and held that the policy applied to the presence of the odour that forced the closure of Jessy’s Pizza.

Smith v. Inco Ltd., 2011 ONCA 628, leave to appeal to the Supreme Court of Canada refused, 2012 CarswellOnt 4932 (S.C.C.) and reconsideration and rehearing of the leave to appeal to the Supreme Court of Canada refused 2014 Carswell Ont 12113 (S.C.C.). The Town of Port Colborne sits on the north shore of Lake Erie, Ontario. The town features white sand beaches, a spectacular marina and intriguing old stone buildings. During the American civil war, it sheltered the wife of Jefferson Davis, the president of the Confederacy. It’s other claim to fame is the refinery at the end of Nickel Street. From 1918 to 1984, Port Colborne was the home of Inco’s nickel refinery, which in the 1940’s and 1950’s was the largest in the world. Ore mined in Sudbury Ontario was transported to the Port Colborne refinery. From there the ore was loaded onto barges and, via the St. Lawrence Seaway, made its way all over the world. In 2000, the owners of some 7,000 properties in Port Colborne sued Inco for depositing nickel particulate on their property. There was no evidence that the particulate was a danger to health. It was alleged that the value of the property belonging to the class was less than it would otherwise be in view of the stigma associated with the presence of the particulate. Damages were claimed in private nuisance and on the basis that Inco was strictly liable.

The trial judge concluded that the particulate matter released by the refinery and landing on the surrounding properties had resulted in decreased property values to the owners.  The trial court determined that Inco was liable on the basis of strict liability and nuisance.  The court awarded $36 million to the owners.  In 2011, the Ontario Court of Appeal granted Inco’s appeal and overturned the trial court’s award of damages. Its reasoning with respect to trial judge’s findings on the tort of “nuisance” has parallels to the claims that are likely to arise from the COVID 19 pandemic.

The tort of nuisance in Canada takes two forms: being held liable for an act indirectly causing physical injury to land or substantially interfering with the use or enjoyment of land.  This case proceeded on the basis that particulate had caused indirect physical injury to land.  The trial court found that the fact that the particulate was present in the soil was sufficient physical damage or physical injury to support liability in nuisance.  The Court of Appeal disagreed, saying,

“… we think the trial judge erred in finding that the nickel particles in the soil caused actual, substantial, physical damage to the claimant’s lands.  In our view a mere chemical alteration in the content of soil, without more, does not amount to physical harm or damage to the property …   To constitute physical harm or damage, a change in the chemical composition must be shown to have had some detrimental effect on the land itself or rights associated with the use of the land…. The claimants cannot show, and indeed did not attempt to show, that the nickel particles in the soil had any impact on their ability to use their properties for any purpose.  Where the nuisance is said to flow from the physical harm to land caused by the contamination of that land, the claimants must show that the alleged contaminant in the soil had some detrimental effect on the land or its use by its owners.  In this case, potential health concerns were the only basis upon which it could be said that the nickel particles harmed the land of the claimants.  It was incumbent on the claimants to show that the nickel particles caused actual harm to the health of the claimants or at least posed some realistic risk of actual harm to their health and well-being …   Had the claimant shown that the nickel levels in the properties posed a risk to health, they would have established that those particles caused actual, substantial, physical damage to their properties.  However, the claims as advanced and as accepted by the trial judge were not predicated on any actual risk to health or well-being arising from the particles in the soil.  The result of the trial would presumably have been the same had it been established beyond peradventure that nickel particles of any level had no possible effect on human health.”

Generally Speaking, Are Non-Essential Businesses Closed under
Provincial COVID-10 Control Measures entitled to Civil Authority Coverage?

In order to establish entitlement to the civil authority coverage, the insured, who has the burden of proof, will have to establish that there was a denial of access to the insured property issued by a civil authority due to the presence of a covered cause of loss at a neighbouring property.

At the risk of being repetitive, there is an argument that the various provincial orders do not constitute a denial of access to insured property. Generally speaking, these orders are in place to prohibit public facing activities on the insured property to control the spread of the COVID-19 virus.

If the orders do constitute a denial of access issued by a civil authority, then there is a further argument that the closures were not mandated by reason of the presence of virus in a particular location. Rather, they were mandated by reason of the need to distance members of the public to halt transmission of disease and halt groups of people from congregating.

If there is no evidence that virus was present at a particular location, then will it be sufficient to argue that coverage is triggered by the threat that virus could be present?  If the policy language is substantially similar to the usual coverage agreement which reads “…all risks of physical loss or damage to property…”  then, as illustrated in Privest Properties and the Smith v. Inco cases, the insured will be required to prove something more than a concern or fear that the virus was present in order to trigger coverage under the policy.

In all of the cases discussed above, there was a proven impairment to the use of the building: oil deposits, fumes, a lost coupon, proven presence of asbestos. Those impairments were not ephemeral, nor threatened, nor potential. These impairments resulted in physical changes to the property in issue.  As indicated in the Smith v. Inco case, proof that the impairment exists; that the impairment poses a risk to human health, will be a strong argument that the coverage requirement that physical loss or damage to the property insured exists.

These cases also show that if the policy language does not require proof of “physical” loss or damage to the property insured, then it is possible that proof of a concern or potential for infection at the property described in the policy may be sufficient to establish entitlement to civil authority coverage.

The facts of each claim and the policy wording in each situation will be all important and therefore key questions are:

  1. Did the insured business close voluntarily?

  2. Was it ever ordered to be closed?

  3. What is the wording of the order that forced the insured business to close?

  4. Who gave the order and under what legislative authority was it given?

  5. Was there any evidence that COVID-19 was present at the insured premises? (obtain all test results and analysis and/or secure it)

  6. Did the insured business close in relation to the proven presence of COVID-19 on the premises


Limits of Civil Authority Coverage

Civil authority coverage is often limited in its scope. There is usually a waiting period (72 hours is common) and that the coverage only applies for a few weeks after coverage commences (two to three weeks is common). If coverage exists, then the interruption in earnings must be due to the denial of access by a civil authority up to the maximum period stipulated in the coverage. A 2013 British Columbia trial level decision, Strata Plan KAS3058 v. St. Paul Fire and Marine Insurance Co., 2013 BCSC 2197 emphatically held that losses incurred after the denial of access is lifted are outside the ambit of the civil authority coverage and are not the covered.

Cara’s Cross-Border Connection: Canada vs. U.S. Civil Authority Orders

After having read various provincial public health orders from Canadian counterparts, it is clear that Canada has enacted a county-wide response to COVID-19. Many of the provincial orders explicitly express the need to coordinate across provinces and offices in order to mitigate the spread of the virus. By the end of March, all the Canadian provinces have issued province-wide public health orders. Conversely, the U.S. has various orders across states, some states only have orders issued to parts of the state, and some states still have not have issued any orders (as of April 2, 2020, Arkansas, Iowa, Nebraska, North Dakota, and South Dakota do not have any orders in place). However, as the virus spreads and eventually makes it way to the more rural parts of the U.S., this will likely change.

When examining civil authority coverage claims, there will need to be a case-by-case assessment to determine when specific cities, counties, or states issued orders and the extent of restrictions imposed not only to people but businesses. As Heather noted above, the facts of each claim and the policy wording in each situation will be all important and the key questions will need to be answered.

…Next Issue … Interpreting the coverage grant of a typical loss of earnings form in a COVID-19 closure scenario.

 

EARL’S PEARLS
Earl K. Cantwell

[email protected]

11/21/19       Wilson v. State Farm Fire and Cas. Co.
U.S. 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.  

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