Coverage Pointers - Volume XXI, No. 26

Volume XXI, No. 26 (No. 565)
Friday, June 12, 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.  Bring them on.

Two anniversaries, 21 and 43.

With this issue, we complete our 21st year of continuous publication, publishing on alternating Fridays since July 1999, with the occasional special issue if there’s something breaking that simply can’t wait.  Thanks for your loyalty over these many years.

Feeling some return to a sense of normalcy, although still working from home.  I’ll feel better after a haircut, none since mid-February.  The beard is gone, though, and that’s a good sign.

Happy 43rd:

No alternative text description for this image

On June 1, Hurwitz & Fine, P.C., celebrated its 43rd anniversary.  I started at the firm as a law clerk, 45 days after the firm opened, so it’s been my home for all these many years.  I am fortunate to have worked with great lawyers and support staff, since I was nine years old.



On behalf of a carrier-client, we have filed opposition to the transfer of the federally filed cases to a MDL (Multi-District Litigation) court.  A substantial majority of carriers have supported the designation of these cases to an MDL for many reasons, but it is not unanimous.  Likewise, a substantial majority of policyholder lawyers have supported the MDL concept, but not all.

There are currently four federal courts under consider for MDL designation, IF, an MDL is approved:

  • The Northern District of Illinois
  • The Eastern District of Pennsylvania
  • The Southern District of Florida, and the latest nominee,
  • The Northern District of California

Child Victims Act:

The extension of the look-back period for Child Victims Act lawsuits, passed by both houses of the legislature two weeks ago has not yet been sent to the Governor for his consideration.  So stay tuned.

It’s been busy, indeed.  The courts have been opened for filing of new lawsuits, motions etc., so we’re getting our share of new litigation and coverage claims of all denominations – CGL, personal lines, D&O, E&O, environmental, and first party.

I’m changing offices, within our Buffalo HQ.  Had to clean out some of the bookshelves, etc., where I’ve stored paperwork for the past umpteen years.  I came across my first nationally published article – one that my late partner and coverage mentor, Shelly Hurwitz, and I wrote in 1983 (Lord, can it be 37 years ago?) on the Love Canal and the “sudden and accidental” pollution exclusion.  I had a darker shade of brown hair than I do now.  I was three years a lawyer.  Time flies.

a close up of a newspaper

Risk Transfer and Additional Insured – Case of First Impression in New York:

While other states may have dealt with this issue, although I haven’t seen those decisions, I’m pretty sure this is the first New York case that has ruled, albeit a federal court decision from the Southern District.

When the 2013 versions of the Additional Insured Endorsement were released, the language included:

2. If coverage provided to the additional insured is required by a contract or agreement, the insurance afforded to such additional insured will not be broader than that which you are required by the contract or agreement to provide for such additional insured.

Many commentators, at the time, discussed that language with respect to policy limits required in a trade contract.  So, let’s say the trade contract between the general contractor and the sub required that the general contractor be named as an additional insured for claim caused by the subcontractor’s work and be provided with limits of $1,000,000 per occurrence.  Let’s say, however, that the actual policy purchased by the subcontractor had $2,000,000 in limits.  Under the limiting language in the endorsement, only the $1,000,000 required in the trade contract would be available to the additional insured general contractor.  No surprise there.

But, how about if the trade contract provided that the general contractor be named as an additional insured and be provided with limits of $1,000,000 per occurrence for claims caused by (or arising from) the subcontractor’s “negligent acts or omissions”.  Does the trade contract limitation – only requiring coverage for “negligent acts or omissions” limit the coverage provided by under the endorsement to the subcontractor’s negligence?  “Yes,” said the District Court in a case called The Charter Oak Insurance Company v. Zurich American, reported in my column.

For purists, like me, that holding is not a surprise. I would imagine there are still some who believed that ISO was only aiming at coverage LIMITS, not the breadth of coverage.

Another great offering from Heather Sanderson, in our Canadian column, discussing the intersection of COVID19 claims with wildfires.



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.  

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

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

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

a close up of text on a white background

A closed file is a good file.  Our goal is to help you close the file effectively, efficiently and quickly.  You have files you want resolved?  Reach out.  We have great mediators.  Ann Evanko, Mike Perley and I have robust mediation practices.  Of course, we have fabulous trial lawyers as well.  Let us know what you need, what kind of situation you’re facing.  I’m certain we can help.

My favorite?  Risk transfer cases – hold harmless agreements coupled with additional insured questions?  Call.

Peiper on Property and Potpourri:

And still we wait.  Courts have returned to life, and activity is increasing daily. Decisions, however, remain scarce.  In what may be a PP&P first, we have absolutely nothing to report in this edition.  Here’s hoping new material arrives prior to next issue.

Until then, stay healthy.   

Steven E. Peiper

[email protected]


One Hundred Years Ago – Concerned About Rich Owners Buying Pennants:

New York Herald
New York, New York

12 Jun 1920

Ebbets Raps Rich Clubs That Purchase Pennants

COMMENTING on the persistent rumors that the St. Louis club purposed selling the release of Rogers Hornsby to the Giants for $150,000, Charles H. Ebbets, president of the Brooklyn club, made this comment yesterday afternoon:  “In my opinion any club that would sell the services of a player like Hornsby at this stage of the game should get out of baseball for all time.  Such a club should hang out a red flag, auction off all its available assets and retire from the national game.

“If clubs which through advantageous geographical position have acquired great wealth are to be permitted to buy up as occasion demands all the brilliant players developed by clubs less fortunate financially it merely means that the pennant is knocked down to the highest bidder.

“If Hornsby had been developed by Brooklyn and was a member of this team I would refuse twice $150,000 for his release.

“It is high time a halt was called on the practice of rick clubs buying valuable players in the midst of a close race, and thus enabling wealthy organizations to take a place in the race not warranted by their ability to develop useful playing material.”


Wilewicz’ Wide-World of Coverage:

Summer appears to have finally and almost officially arrived, and the world is slowly reopening around us just in time. These past weeks we have been preoccupied with the full work and school from home transition, but now we face another hurdle – how to keep the kids busy when most summer camps and classes have been cancelled. We had explored some of the virtual options, but they’re surprisingly expensive and paying to just have the kid glued to a screen all summer long seemed somehow wrong. We are trying to put together a craft and project plan, but it has been slow in the development as we move through the last couple of weeks of school.

In the meantime, I’ve developed some severe Zoom fatigue. It was helpful to connect at first and a nice way to keep in touch, but after weeks of near-daily meetings of having to get dressed up for the home office, I can’t wait for people to get back to the office so that I can work from home without having to put on make-up. It sounds like virtual court will be a “thing” for a long time to come (and no civil jury trials in sight), but that might be a good, prudent thing, given the circumstances.

Now, while the Second Circuit has issued quite a few opinions in the last few weeks, none of them were covering coverage. We will continue to check the dockets and report back when the next interesting insurance case pops up. In the meantime, do check out Diane’s write-up of a recent argument before the Court. We will be following for that decision in short order.

Until then,

Agnes A. Wilewicz

[email protected]


Strikers Strike (One Another), 100 Years Ago:

The Philadelphia Inquirer
Philadelphia, Pennsylvania

12 Jun 1920


Near Riot Occurred When Workers Refuse to Quit Jobs

            A near riot between striking and working girls employed in the shirtwaist factory of S. Silver, 111 North Fourth street, resulted in two arrests yesterday afternoon.  Silver and a passer-by, Morris Muller, who gave his address as 326 North Thirty-eighth street, became implicated in the melee and were taken to the Fourth and Race streets police station charged with assault and battery.

            The strikers who have been out for three weeks were outside the establishment yesterday trying to persuade colored strike-breakers to quit work, and when arguments Proved futile, a quarrel ensured, according to police.  Silver walked out on the street and was stopped by the strikers. A melee started and Anna Cohen, 38 North Eleventh street, was struck by Silver, the police say.


Barnas on Bad Faith:

Hello again:

We continue to see sports returning around the world.  Next week Premier League is starting in England, and my Spurs have a lot of work to do if we’re going to make it back to the Champions League.  The NBA has agreed on a format, a location, and a schedule, which would make game seven of the NBA Finals no later than October 12, 2020.  In addition, golf is coming back tomorrow in Fort Worth, Texas, with a really nice field at Colonial for the Charles Schwab Challenge.  We’re just going to ignore baseball, which I’ve been trying not to monitor too closely or think about because it just makes me angry.

Courts are still slow, but there is an interesting case in my column this week from Alabama.  Three insureds settled claims against them with settlement agreements that explicitly provided that the settlements could only be satisfied by the proceeds of the insurance policy.  They could not be satisfied from personal assets.  The court dismissed the bad faith claim against the insurer based on no excess judgment that the insureds could be personally liable for.  The court also dismissed the “abnormal bad faith” claim because the insurer had an arguable basis for not making payment on the settlement agreements – there was no amount that the insureds were legally liable to pay as required by the policy.  Under the agreements, the insureds themselves could never be liable for the payments.

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

Brian D. Barnas

[email protected]


Racial Tension is Nothing New:

The Kansas City Sun
Kansas City, Missouri

12 Jun 1920


            Causes for race riots are increasing in number.  The newest cause has been unearthed in Waukegan, Illinois.  A mischievous colored boy of ten years threw a stone at a passing automobile and hit and slightly hurt an occupant of the car.  A group of American sailors from a nearby naval training station waxed indignant and proceeded to march upon the colored settlement in the town of Waukegan with the avowed purpose of destroying the denizens of the place.

            Before the incident was closed, marines and the local police force were called out, two marines were shot and mortally wounded, several of the sailors were ailed, and the Chicago daily newspapers indulged in a “scare-head” orgie of startling and all-abiding intensity.

            After the battle had been won and lost, the colored people in the town resumed their daily occupations.  The sun shone benignly on the waters of Lake Michigan, and the marines and sailors nursed their outraged racial superiority and vowed vengeance upon all the “niggers in the world.”

            The latest reports are that the police have been unable to find the boy who threw the stone which started the riot.  So much for race riot causes. 


Off the Mark:

Dear Readers,

I’m happy to report that the weather down here in the NYC Metro area has finally reached that perfect point where it’s sunny and warm, with a slight ocean breeze.  Knowing that it will not be long before it becomes unbearably hot and humid, I have been taking the wife and kids out on regular bike rides every evening.  It has been very relaxing, especially since there are fewer cars on the roads. 

Speaking of fewer cars on the roads, Phase 2 started this Wednesday on Long Island, so that should change pretty quickly as many businesses are permitted to reopen.  I’m sure there are many people itching to get that long overdue haircut.  Although I learned to cut my own hair, my kids are in dire need of a major trimming.

As the courts are still operating at a slower pace, my search for interesting construction defect cases came up empty this week.

Stay safe everyone.

Brian F. Mark

[email protected]


Plagues are Nothing New, Either:

The Sandusky Register
Sandusky, Ohio

12 Jun 1920


            Government authorities are in session in Washington, making plans for keeping the United States free from bubonic plague, typhus and other epidemic diseases which are raging in many European countries and some of which have already appeared in South America and Mexico.

            Quarantine restrictions have been tightened at every port.  Steamship companies are warned to increase their regulations governing the health of passengers.  Medical advisors in the different countries keep authorities here posted as to the conditions, but even with these precautions the United States cannot be sure of its safety.

            Rats carry bubonic plague.  Body lice, commonly known to our soldiers as “cooties,” carry typhus.  Either kind of creature may slip into the country bringing his germs along, and it is well to be prepared.

            In this preparedness state and local officials should co-operate with the federal government, and every citizen should do his share as well.  Personal cleanliness and good sanitary conditions are the first essentials to checking the spread of any disease.  These are within almost everybody’s power.


Boron’s Benchmarks:

I hope this edition of our newsletter finds you healthy and hanging in there.  I am thankful that my wife and I have been healthy throughout the pandemic.  You may recall a previous cover note of Boron’s Benchmarks that announced the arrival of our first grandchild, Zoey Grace, on April 3.  This week, I got to hold Zoey Grace for the first time . . . while masked, of course.  Mere words cannot convey the joy of that experience.  “Very blessed” is the most apt phrase I can come up with for now.

This edition of Boron’s Benchmarks, the Coverage Pointers beat monitoring and reporting on insurance coverage decisions of the high courts of the 49 states not named New York, covers a decision issued last week by the Supreme Court of Iowa.  The decision reversed on appeal a grant of summary judgment by a district court to an insurer in a declaratory judgment action.  The decision analyzed and ruled on whether, under a CGL policy, the insurer had a duty to defend and indemnify the alleged tortfeasor, an employee of the insured amusement park, in the underlying tort action being pursued by the Estate of Stephen Paul Booher and Mr. Booher’s widow alleging “gross negligence” was the proximate cause of Mr. Booher’s fatal injuries.  My write-up of the decision may be found in the actual Coverage Pointers section provided with these cover notes. 

Until next time, stay healthy, hopeful, and keep hanging in there.

Eric T. Boron


Overpriced University Professors?:

Boston Post
Boston, Massachusetts

12 Jun 1920

Announce Big Salary Increases at Brown

            PROVIDENCE, R. I., June11.—Substantial increases in the salaries of professors, assistant and associate professors and instructors at Brown University has just been announced by the university corporation.  The increases will go into effect Sept. 1.  According to the new schedule the salaries will be as follows:  professors, $4500 to $6000; associate professors, $3500 to $4000; assistant professors, $2500 to $3500; instructors, $1200 to $2000.

            In additional to the above salaries there will be for all teachers who come to Brown before 1919 a liberal non-contributory pension system, duplicating all the generous provisions formerly made by the Carnegie Foundation.  Brown is making a drive for an endowment and development fund of at least $3,000,000.


Barci’s Basics (On No Fault):

Hello Subscribers!

I hope you are all still staying healthy and safe! Although there is much to discuss about the state of things going on in the U.S. with regard to systematic racism and the police, I hope these discussion topics give you an idea for a bit of a reprieve when you need to decompress from those heavy issues.

My answers to last issues topics are as follows: 1) I thoroughly enjoy the combination of Wendy’s chicken nuggets and a chocolate frosty. Fries dipped in the frosty are delicious as well, but I don’t think that is quite as strange. If you haven’t tried either, I highly suggest!; 2) I can always watch Stick It or Bring It On: In It To Win It. I will not justify, both are fun movies with impressive athletics featured throughout and if you haven’t seen them you should find them and watch them; 3) I am definitely an inner speech person, it is like closed captioning for my brain. From what I can tell based on my minimal internet research, most people process thoughts this way. Although, I had this discussion with my roommates and learned one of them processes his thoughts through pictures, which I just can’t imagine; 4) The worst meal I have ever had is tied between two, both consumed while I was studying abroad in Spain and living in a “family stay.” First, let me just tell you that it was less of a “family stay” and more of a lady who rented out all her rooms, including her own bedroom, to travelers and students. Since I was a student and there through the university, my host was supposed to feed me while I lived with her. On my very first morning, she put out cereal similar to cornflakes with what I thought was regular milk and kiwi. The kiwi was in the bowl of cereal, which I was already skeptical of, but trying not to be disrespectful I ate a spoonful and discovered that the milk was thick and pineapple flavored! I promptly spit it out and ran out of the house saying I was late for class. To this day I cannot figure out why anyone would want that for breakfast. Although I did not eat breakfast at home again, during that first week, every day when I got back from class she would make me a salad with only things she grew on her porch. I was not opposed to eating the salad but did need some protein to go along with it, so logically I asked if she could buy some protein that I could eat with my salad. I did not ask her to cook it, just to buy it for me. But she took it upon herself to cook the chicken breast she bought for my salad. Nice, right? Wrong. She did not know how to cook chicken and tried to cook it from frozen in the microwave, which I learned after I ate a piece of raw chicken and spent the rest of the night in the bathroom. The next day, she tried to pass off the same piece of chicken, re-microwaved to try to cook it more, on another salad and I, probably less politely than I could have, refused to eat it. I did try to move out of that house and into the dorms, but a girl from Kentucky moved in shortly after I complained and we got on so well I decided to stay, although I never ate anything our host put in front of me again.

That’s me for this week. For the next two weeks consider these topics:

  • What was your favorite toy as a kid?

  • How early should you get to the airport?

  • What is your favorite way to cook a potato?

  • If you are a Harry Potter fan, what is your Hogwarts House? If you are having this discussion with a non-HP fan, tell them what you think their house is and why!

Keep sending me your best answers and check back next issue for mine!

On the no-fault front, I have one case that discusses a carrier’s need to show proof of verification requests before it can show a claimant failed to comply with policy conditions.

That’s all folks,

Marina A. Barci


The Buffalo Commercial
Buffalo, New York

12 June 1920


Caruso Received Threatening Letters From Cranks; Hires Guard

By the Associated Press.

            EAST HAMPTON, N.Y., June 12—Fear that an attempt might be made to harm Gloria, infant daughter of Enrico Caruso, has caused a heavy guard of private detectives to be thrown around the singer’s estate here pending investigation of the half million-dollar jewel robbery which occurred last Tuesday.  Letters, apparently written by cranks, which have been received by Mrs. Caruso and other members of the household are being submitted to close scrutiny by the investigators.

            Every inch of the grounds around the tenor’s villa are being searched on the chance that the thief, believed to have worked from inside the house, may have buried his booty hastily.

            As an added precaution against any attempt at kidnaping, all members of the Caruso household, with the exception of Mrs. Caruso, have armed themselves, it was learned.  Mrs. Park Benjamin, Jr., sister-in-law of Mrs. Caruso, has moved from New York and is doing guard duty.  She has a reputation as a good shot.

Editor’s Note:  She wasn’t harmed.  Gloria Caruso (1919-1999), born in New York's Knickerbocker Hotel during a Caruso engagement at the Met, was the only child of Caruso's marriage to Dorothy Benjamin (1893-1955), the daughter of a literary New England family. Maestro Fernando Tanara, a well-known Venetian voice teacher, later coached Gloria, but she too abandoned thoughts of a professional singing career. Married to an American, she raised her family in the U.S. but later divorced her husband and resumed her maiden name. In 1949 she presided over the auction of Caruso's bequest to her, a collection of antique snuffboxes and watches. She maintained a lifelong interest in opera from her New York City home, and her occasional presence added a special attraction to Met activities.


Ryan’s Capital Roundup:

Hello Loyal Coverage Pointers Subscribers:

With the easing of restrictions occurring gradually everywhere, a friendly reminder that everyone is gradually easing in their own way and on their own terms. Be respectful of those proceeding with caution—they have their reasons. And any reason for caution is good enough for me.

Several write-ups in this week’s column. First, on the Legislative List, a bill has been introduced that would require travel insurance companies to provide refunds for travel cancelled due to COVID-19. Next, we travel to the regulatory front where DFS has adopted an emergency measure to ensure the prompt and fair settlement of looting and vandalism property damage claims. The Regulatory Wrap-Up also includes a note about a recent update to DFS’ website that has me curious of what’s in store.

Until next time,

Ryan P. Maxwell

[email protected]

Buffalo Courier
Buffalo, New York

12 Jun 1920


            Chicago, June 11.—The Vermont delegation to the Republican national convention yesterday sent a telegram to Gov. Clement of Vermont urging him to call a special session of the state legislature to ratify the woman suffrage amendment to the constitution and thus make the amendment effective.

Editor’s Note:  Vermont did not vote for the 19th Amendment until February 8, 1921, five months after it was ratified.


CJ on CVA and USDC(NY):

Hello all,

It seems more and more as if we are returning to normal. The WNY area is moving into Phase 3 of New York’s reopening schedule, and, although I have yet to do so, I can finally get my hair cut again. Professional sports are also making a more robust comeback this weekend with the Charles Schwab Challenge being held in Fort Worth, Texas, albeit without fans. Personally, I’ve been taking advantage of the better weather to get outside more, whether it’s a midday walk with our dog or just hanging out around my in-laws’ pool.  Being outside has made my “quarantine” much more bearable.

In this week’s column we turn back to the CVA. Most notably both houses of the New York State Legislature have approved an extension of the CVA look-back period. Provided the Governor signs the Bill, the expiration of the look-back period will be extended to August 14, 2021. This gives claimants an additional year to file civil actions for previously time-barred claims. Below I discuss the Supreme Court, Nassau County’s decision to deny a motion to dismiss 35 CVA actions brought against the Diocese of Rockville Center. Predictable, the Diocese is appealing the order, and I look forward to discussing the Appellate decision when it comes down. 

Happy Reading!

Charles J. Englert, III   


Lawyers Fighting Over Fees – 100 Years Ago:

Daily News
New York, New York

12 Jun 1920


Counsel Want All the Money, Claudia Wheeler Says

            Mrs. Claudia T. Wheeler, actress, “The Girl in the Pink Tights,” won an “empty victory,” she says, and now appeals to the Supreme Court to prevent her $12,500 judgment, obtained against her husband, Albert Gallatin Wheeler, Jr., broker, from being divided by her lawyers.

            Mrs. Wheeler in an affidavit yesterday says she needs the money, but that her lawyers, Emil E. Fuchs, Louis Frankel and Goldstein & Goldstein, will get it all for their services.

            Wheeler, who was a former member of the Stock Exchange, left his wife and took their furniture.  His wife says he owes her over $19,000 alimony arrears. 


Dishing Out Serious Injury Threshold:

Dear Readers,

First and foremost, I hope everyone is staying safe and doing well during these times. A lot has happened since our last newsletter. In light of it all, I think it is a time for everyone to do some self-reflection and self-evaluation as we, hopefully, continue along the path of reopening the country. On Long Island we officially begin Phase 2 of reopening today, and I am very much looking forward to getting a much-needed haircut.

In the Serious Injury Threshold world there have not been any substantive cases that have come down in the last few weeks. In fact, there has only been one decision pertaining to Serious Injury Threshold coming out of Supreme Court New York County. As discussed in previous issues, the necessary factor of plaintiff’s expert specifically stating that plaintiff’s injuries are not degenerative in nature was present here. As such, defendant’s motion was denied on issue of fact grounds.

Stay safe,

Michael J. Dischley


Turns Out Harding Won the Nomination for President, the Very Next Day:

The New York Times
New York, New York

12 Jun 1920

Leaders Seek Harding as Vice President; He Files Notice He Will Run for Senator

Special to The New York Times.

            COLUMBUS, Ohio, Jun 11.—Senator Harding filed his declaration as a candidate for re-election as United States Senator from Ohio at 11:58 o’clock tonight, two minutes before the expiration of the time limit.

Special to The New York Times.

            CHICAGO, June 11.—At a late hour tonight an effort was being made to induce Senator Harding to take the nomination for Vice President.

            It is the purpose of those behind this plan, and many of the national and State leaders are believed to be concerned in it, to put Harding on the ticket even if a Westerner is nominated for President.  The leaders want Harding for the strength he will add to the ticket in Ohio, which the Democrats carried in 1916.

            In reply to a direct question one of those having knowledge of the movement said that if Lowden were nominated Harding would still have the offer of the Vice Presidency, in spite of the fact that Lowden’s state and Harding’s are both Middle West.

            When asked tonight whether he would be a candidate for Vice President, Mr. Harding said:

            “I am the most likely candidate for President tonight.”

            Ex-Governor Herrick said tonight that the matter of supporting Harding for the Vice Presidential nomination was not mentioned in tonight’s conference of Ohio delegates. 


Bucci on “B”:

Hello all,

I hope everyone is safe and thriving.  It has been quite a couple of weeks.  I won’t discuss politics but so much is happening in 2020, it’s somewhat overwhelming.  I’m both excited and concerned about the lifting of the restrictions on the Covid-19 front.  I’m especially excited about the opening of the restaurants.  I miss them terribly.  Ironically, I was chosen by the litigation team to discuss what our meals have been like during the pandemic and my culinary skills are limited to frozen pizza.  Which is why I miss restaurants.  Hair salons too, I must admit.  I don’t look good in gray. 

This edition, I get to report on the oral argument between Spandex House, Inc. and the Hartford in the Second Circuit Court of Appeals, which addresses the application of the Hartford’s IP Exclusion’s exception.  Both sides did a great job, but I bet I can predict the winner.  Email me if you want to know why.

I’m also addressing a non-Coverage B case, Houston Cas. Co. v. Prosight Specialty Ins. Co.  This court appears to expand the exception to the American Rule from Mighty Midgets, which held that the insurer is obligated to pay the successful insured fees in connection with establishing coverage if the insurer files the lawsuit, thereby placing the insured in a defensive position.  In examining the reasoning behind the Mighty Midgets Rule, the court noted that the duty to defend is contractual and is triggered when the lawsuit arises out of an occurrence, which is the case in a declaratory judgment action.

Question for the readers…does a declaratory judgment action seeking to determine whether coverage exists arise out of an occurrence?

Diane L. Bucci


Newsprint Shortage Truncates Times:

The New York Times
New York, New York

12 Jun 1920

            Today The New York Times is obliged to omit 20 columns of advertisement, due to limitation of pages caused by the shortage of newsprint.


John’s Jersey Journal:

A blackboard sign on a wall

Description automatically generated

Dear Subscribers:

Life seems to be inching closer back to some realm of normalcy. Patio dining is now allowed here. This past weekend I ate at a restaurant for the first time in three months.

The restaurant was quite organized and quite busy with a two-hour wait. They took down my cell number and texted me a link to a website showing how many folks were ahead of us. We saw a number of people that came prepared for the wait with folding chairs and coolers of beer. I did not get the memo, so we went home and drove back later. The food was incredible! So much better than eating takeout in the car. Worth the two-hour wait. I have suggested to my wife we go back every day since.

Courts in New Jersey are dealing with the pandemic by considering the occasional insurance coverage case.

New Jersey Federal Court Rules Sistership Exclusion Precludes Coverage for Recall of Tainted Pizza Crust

A national food manufacturer, Nature’s Own, hired Conte’s Pasta to manufacture pizza crust. There was a listeria outbreak at the factory. Nonetheless, contaminated crusts where shipped. Trader Joe’s returned the pizza crusts to Nature’s Own and sought a full refund. Trader Joe’s eventually stopped selling the product entirely due to quality control concerns.

Nature’s Own sued Conte’s Pasta for money it lost due to the recall as well as lost future profits after Trader Joe’s ceased selling the product. Nature’s Own also alleged conversion, contending that Conte’s Pasta refused to return packaging equipment to it. Conte’s insurer refused to defend the lawsuit, and the underlying action settled three months later without any money.

Conte’s sued its insurer for reimbursement of defense costs. The New Jersey federal court ruled that the Exclusion for Recall of Products, Work or Other Property barred coverage for the damages resulting for withdrawing the pizza crust from the market. The Court further ruled that claim for future lost profits did not fall within the insuring grant. It was not “property damage”, but rather economic loss.

So far, so good for the insurer. Victory on both of the contested issues.

The case took an abrupt turn however when the court, on its own, considered whether the conversion claim was covered. Neither party briefed the conversion claim. The New Jersey federal court refused to apply the Expected or Intended Injury Exclusion to the conversion claim. It reasoned that cases interrupting tort law, have ruled a person can prevail on a tort claim for conversion without necessarily showing intentional acts or a reasonable expectation of resulting harm. Therefore, the Court ordered the insurer to reimburse the defense costs since a potentially covered claim was alleged.

As the underlying action settled three months after filing, I anticipate the defense costs were minimal.

It appears that the Court did not notice the insurance law cases that in the majority of jurisdictions conversion claims are not covered by liability policies.

The argument could have been made that, even if there was an occurrence, the “care, custody or control” exclusion applies. The property was in the insured’s care, custody, and control; the underlying complaint alleged Conte’s simply refused to return it. Of course, if you do not make the argument, you cannot expect the court to make it for you.

Cheers to the next phase of re-opening and steps towards normalcy!

John R. Ewell


End of School Whipping?:

Dunkirk Evening Observer
Dunkirk, New York

12 Jun 1920


Corporal Punishment Inconsistent With Times, Says German Instruction Minister.

            Berlin—Corporal punishment in German schools is to be abolished says a decree just promulgated by the ministry for public instruction.

            The decree declares that caning and other forms of castigation are inconsistent with the spirit of the times and should be discontinued altogether in favor of moral suasion.  It is added that in no case girls would be subject to corporal punishment.  In a year from now a report is to be made by schoolmasters and mistresses on the effects of moral suasion upon the German youth.


Lee’s Connecticut Chronicles:

Dear Nutmeg Newsies:

The Connecticut courts are back – well sort of. “Effective May 18, 2020, the Judicial Branch will resume its daily schedule of civil pre-trials, trial management conferences, and status conferences. These events will be conducted remotely, either by video link or telephone.” But there’s still no ETA on jury trials. The Judicial Branch’s website advises: “All jury service is suspended until further notice. Even if you have been summoned for jury duty, you should not report.” Also, anyone entering a courthouse (and still only some court facilities are open) must wear a mask. And, just this week the Governor repealed the suspension of appellate deadlines.

Generally, Connecticut will enter Phase 2 on June 17th. Many indoor businesses will be allowed to reopen, pursuant to the Governor’s guidelines. This effects movie theaters, gyms, hotels, and restaurants, most notably. While reports show that many areas of the country are still spiking with new COVID-19 cases, hospitalizations, and sadly deaths, Connecticut has flattened the curve. But, let’s check back in two to three weeks to see the community spread impact from the on-going demonstrations.

Be smart and be safe.

Lee S. Siegel

[email protected]


Groundbreaking for The UB South Campus:

The Buffalo Commercial
Buffalo, New York

12 June 1920


Ground has been broken at last for the greater university of Buffalo, and the time may be not far distant now when the dreams of years may become pleasant realities. The struggle for the higher education in this city has been a long one, and at times a bitter one. Now it would seem that we are to realize what many have been longing for, to the achievement of which many Buffalonians have been bending energies and talents, a university which shall be worthy of the city.

When those few spadefuls of earth were turned over on the new university  site at Main street and the Niagara Boulevard Friday afternoon there was given, then, promise of the greater future for education. The commencement exercises and the graduation of the largest class in the history of the institution furnished adequate proof of the university's thriving present.


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

Still not much going on, but I wanted to share about my relaxing weekend. However, I must first confess that I am obsessed with a cartoon show, Bob’s Burgers. I love the show so much that occasionally, I like to paint scenes from the show. Specifically, scenes that take place in the bathroom. Although it may seem odd, if you watch the show you’ll understand. E.g., “House of 1,000 Bounces”. I’ve painted two different scenes, one which hangs in our bathroom and another that hangs in our friends’ bathroom (these friends also love the show) and trying to finish a third.

Anyway, the show just completed its 10th season and most recently, has been renewed for an 11th season. I highly recommend this show if you’re looking for something lighthearted. With the most recent season having concluded, I was looking to feed my obsession when I learned there’s a Bob’s Burger version of Monopoly, which I of course bought immediately. The other part of this story is that my family never really played board games. This was not because no one wanted to play, but the fact that my older sisters were so competitive that they’d always ended up fighting.

Accordingly, there was an unspoken rule that there would be no board games played in our household, except for Scrabble, which would also almost get too competitive at times. However, I like games and we regularly host game night, but we haven’t been able to host any because of quarantine and even with just us two, we still thoroughly enjoyed playing Monopoly. It was so much fun that we played multiple rounds over the weekend and I was so inspired that I baked a Dutch Baby! See Bob’s Burgers, Season 4, Episode 8. That was my weekend and I hope all you, our subscribers, are also taking time to do things that make you happy and still reaching out to friends and loved ones. Until next time… stay safe and try out Bob’s Burgers!

Cara A. Cox


Tuesday morning was one of those gorgeous days in June when you are simply glad to be alive; the sky was a deep royal blue; the trees have all leafed out; everything seems lush thanks to our recent rain. I was drinking all of this in on my morning run … until the toe of my left shoe struck a one-inch sidewalk trip edge hidden in shadow and I pitched forward.  Sunglasses dug into my face … 5 stitches; bruised cheeks  and nose and a fractured right wrist. As our lead article states, directly or indirectly inattention can upset your day, in ways that you cannot predict. However, I will heal, and I will be back to enjoy other summer mornings on my morning run.

Heather Sanderson
Sanderson Law (Alberta, Canada)

[email protected]


Many Things Never Change, Even a Century Later:

The New York Age
New York, New York

12 Jun 1920


(Special to The New York Age)

            Chicago, Ill.—If it is enforced, the rule adopted by the National Republican Committee, offered by Senator Charles B. Warren of Michigan, will effectually put an end to lilywhiteism in the South.

            The official text of the rule as passed is as follows:

            “In view of the fact that at this session of the national committee and at previous sessions of the national committee and preceding national conventions, it has appeared that in some states, meetings of the republicans have been called in places where it was the custom and practice to deny access to colored people, the national committee gives notice through its chairman to all the organizations of the republican party that that practice must not be followed in the future in any state convention or any district convention.”


Jen’s Gems:


As many areas around the country open back up, we continue to work out of our homes a little longer.  With limited options for camp this summer, my kids are starting to get a bit restless.  They have taken to roaming the house and every 30 minutes asking me if I am done with work yet.

This week I report on two decisions from our state’s trial courts which address a blanket additional insured endorsement limiting coverage to those the named insured has agreed in a written contact to name as such.  The decisions are a good reminder that a mere obligation to purchase insurance is not the same as an agreement to obtain insurance and name another entity as an additional insured on that policy.

Until next issue, hope everyone stays well.

Jennifer A. Ehman


Dog Tax? Rough (Ruff?) Even a Century Ago?

Poughkeepsie Eagle-News
Poughkeepsie, New York

12 Jun 1920



Only Three of 200 Notified to Appear in City Court on Hand Friday—Warrants Out Today.

            About 200 persons have been notified to have their dogs licensed.  These delinquents were to appear before Judge Conger in the night court Friday and produce evidence that their dogs had been tagged.  Three of the 200 were on hand and warrants will be issued today to bring all other to justice.

            In 1919 the city officials were lax in this matter, but they are determined to have all dogs in the city licensed this year.  Delinquents are liable to arrest and imprisonment.  


Headlines from this week’s issue, attached:

Dan D. Kohane

[email protected]

  • Anti-Subrogation Rule Prevents Cross-Claims by Insureds under the Same Policy, to the Extent of Common Coverage
  • Indemnity Claims Dismissed Where Solely Negligent Party Tried to Press Liability on Others.  Insurance Procurement Claims Dismissed when Party who was to Procure Insurance Established It Did.
  • This One’s Important – a Case of First Impression in New York.  When an Additional Insured Endorsement Provides that Coverage Provided Shall be “No Broader” than that Required in the Trade Contract AND the Trade Contract Only Requires Coverage for the “Negligent Acts of the Named Insured,” the AI Endorsement Only Provides Coverage for the Negligent Acts of the Named Insured.  “No Broader Than” Means More than Limits.

Steven E. Peiper
[email protected]

  • All quiet on the property decision front.


Michael J. Dischley

  • Conflicting Expert Affidavits as to Range of Motion and Causation Lead to Question of Fact Determination


Agnes A. Wilewicz

[email protected]

  • Check back next time for the latest from the Second Circuit.


Jennifer A. Ehman

  • Agreement to Procure Insurance Is Not an Obligation to Name Entity as an Additional Insured
  • Court Declines to Reconsider Prior Decision Based Upon New Evidence Obtained in Related Matter to Which Defendants Did Not Inform the Insurers and the Court


Brian D. Barnas

[email protected]

  • Bad Faith Claims Dismissed Based on Lack of Excess Judgment as well as Reasonable Basis for not Paying Settlement Agreements


John R. Ewell

  • Sistership Exclusion Barred Coverage for Recall of Contaminated Pizza Crust. New Jersey Federal Court Finds Duty to Defend Conversion Claim where Parties Did Not Brief the Issue.


Lee S. Siegel

[email protected]

  • Excess Carrier Has No Duty to Defend or Dropdown


Diane L. Bucci

  • Grasping at Commas…in the Hartford’s IP Exclusion
  • Poking holes in Mighty Midgets


Brian F. Mark
[email protected]

  • No noteworthy decisions to report on this week.


Eric T. Boron

  • “Some, but not all, acts of gross negligence may not be accidents”, says Iowa Supreme Court


Marina A. Barci

  • Proof of Verification Request Required to Satisfy No-Fault Insurer’s Obligations in order to Obtain a Declaratory Judgment


Ryan P. Maxwell

[email protected]

Legislative List

  • Bill Introduced that Would Require Travel Insurance Companies to Provide Refunds for Travel Cancelled due to COVID-19

Regulatory Wrap-Up

  • Emergency Measure Adopted to Ensure Prompt and Fair Settlement of Looting and Vandalism Claims
  • New Addition to DFS’ Regulatory and Legislative Activities Section of the Website for Actions Under Consideration by the Department


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

  • The CVA’s Revival of Formerly Time-Barred Civil Actions Does Not Violate The New York State Constitution


Cara A. Cox

Heather Sanderson
Sanderson Law (Alberta, Canada)
[email protected]

  • When COVID-19 Recovery Combines with Floods or Wildfires


Keep the faith and stay healthy.  We’re not out of the woods yet.

Hurwitz & Fine, P.C. is a full-service law firm providing legal services throughout the State of New York and providing insurance coverage advice and counsel in New Jersey and Connecticut.

In addition, Dan D. Kohane is a Foreign Legal Consultant, permit no. 000241, issued by the Law Society of Upper Canada, and authorized to provide legal advice in the Province of Ontario on matters of New York State and federal law.

Dan D. Kohane

[email protected]

Agnes A. Wilewicz

[email protected]

John R. Ewell

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

Steven E. Peiper, Team Leader
[email protected]

Michael F. Perley

Eric T. Boron

Brian D. Barnas

Jennifer A. Ehman, Team Leader

Marina A. Barci

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

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)


Dan D. Kohane
[email protected]

06/11/20       Astrakan v.  City of New York
Appellate Division, First Department
Anti-Subrogation Rule Prevents Cross-Claims by Insureds under the Same Policy, to the Extent of Common Coverage

Astrakan was a bridge inspector, and was hurt while performing an inspection of a City bridge, pursuant to a contract providing for periodic bridge inspections to determine any necessary future repairs. The court determined that he was not engaged in an activity within the ambit of Labor Law § 240(1) or 241(6) at the time of his accident.

Neither the City (the bridge owner) or B & H, the general contractor can be held liable for plaintiff's injuries under Labor Law § 200 or the common law, because plaintiff's accident arose from the means and methods by which he gained access to his work, and neither the City nor B & H controlled those means and methods.

The City interposed a cross claim against B & H for breach of contract for failure to procure insurance, but that claim is dismissed because B & H in fact procured an insurance policy naming the City as an additional insured. To the extent of such coverage, the City and B & H's remaining cross claims against each other are barred by the anti-subrogation rule – two insureds under the same policy may not interpose claims against each other.

In any event, their cross claims against each other for common-law indemnification and contribution must be dismissed because neither the City nor B & H was negligent.  On the City's claim for contractual indemnification against B & H based on a provision in the City's permit requirements, the record does not establish whether, to the extent not barred by the anti-subrogation rule, B & H's permit requires it to indemnify the City.


06/04/20       Langer v. MTA Capital Construction Co.
Appellate Division, First Department
Indemnity Claims Dismissed
Where Solely Negligent Party Tried to Press Liability on Others.  Insurance Procurement Claims Dismissed when Party who was to Procure Insurance Established It Did.

Langer had secured summary judgment on their claims of Labor Law § 200 and common-law negligence. Here, PSJV, the entities responsible for site cleanliness and trade coordination, at a time when the project was open to the elements, covered a recessed area of the third floor, where rainwater regularly collected, with non-waterproof planking, and never inspected it for water accumulation.

Further, PSJV did not warn plaintiff or his employer that he was working under the recessed area, and when he drilled into the second-floor ceiling to affix electrical equipment, sludgy, oily water poured down onto him, causing him to lose his balance and injure himself. Thus, plaintiffs made a prima showing that the accident occurred due to a defective condition on the premises of which PSJV had actual notice, having caused and created it.  PSJV offered no proof, in response, that anyone other than it as responsible for the accident.

There was a motion for summary judgment on claims for breach of the insurance procurement provisions.  However, the parties who were alleged to be recalcitrant established that they purchased blanket endorsements to their respective policies adding as additional insureds those entities to whom they were contractually obligated to afford coverage.

The lower cvourt correctly dismissed defendants' indemnity claims as against Hatzel, as the provision in the contract between E-J and Hatzel required Hatzel to indemnify defendants only where there was evidence that Hatzel was negligent, which it was not here. Likewise, PSJV's claim against E-J for indemnity should have been dismissed as well. Defendants were correct that the contract between those parties did not require a showing of negligence, and the contract contained a "savings clause" to prevent automatically running afoul of the General Obligations Law. However, given that PSJV has been found negligent, and all other parties have been found free of negligence, there was no scenario under which E-J can be obligated to pay a portion of any judgment assessed against PSJV.

04/27/20       Charter Oak Fire Ins. Co. v. Zurich American
U.S. District Court, Southern District of New York
This One’s Important – a Case of First Impression in New York.  When an Additional Insured Endorsement Provides that Coverage Provided Shall be “No Broader” than that Required in the Trade Contract AND the Trade Contract Only Requires Coverage for the “Negligent Acts of the Named Insured,” the AI Endorsement Only Provides Coverage for the Negligent Acts of the Named Insured.  “No Broader Than” Means More than Limits

Charter Oak moved for summary judgment against Zurich, seeking that Zurich be compelled to defend one of Charter Oak’s insureds and reimburse it for defense costs.  The underlying accident was a slip-and-fall involving plaintiff Bulnes, who was injured while working on an elevator project in NYC. Bulnes was employed by Slade Industries (“Slade”) and Slade was under contract with the building owner, ASB.  Bulnes sued ASB and the complaint alleged that ASB’s negligence caused the accident.

Charter Oak insured ASB with an “other insurance” clause that placed in excess of any other policy providing its named insured with coverage added by an additional insured endorsement, a classic part of the CG 00 01 policy form…  Zurich insured Slade and its policy contained two additional insured endorsements

Both named as Additional Insureds: “only those persons or organizations where required by written contract” Under the Endorsements, Additional Insured coverage applies “only with respect to liability for [injury] caused, in whole or in part, by [Slade’s] acts or omissions or the acts or omissions of those acting on [Slade’s] behalf.”  The Additional Insured Endorsements further provide:

“If coverage provided to the additional insured is required by a contract or agreement, the insurance afforded to such additional insured will not be broader than that which [Slade is] required by the contract or agreement to provide for such additional insured.”

That “not than broader” language is what is found in the 2013 versions of the ISO additional insured endorsements.

The trade contract between Slade and ASB required Slade to provide AI coverage to ASB:

for claims caused in whole or in part by the Contractor’s negligent acts or omissions during the Contractor’s operations; and (2) the Owner as an additional insured for claims caused in whole or in part by the Contractor’s negligent acts or omissions during the Contractor’s completed operations.

So the issue before the court, the one which we want to focus on in this summary, is how the additional insured coverage provided by the endorsement ties to the trade contract.

Charter Oak argued that the Zurich Policy provides primary commercial liability coverage to ASB for the Underlying Action and that, therefore, Zurich has a duty to defend ASB. It argued that the Zurich Policy requires Zurich to indemnify ASB against any bodily injury claim “caused in whole or in part by Slade’s acts or omissions.”

Zurich argued that the “not broader than” language limits the coverage under the AI endorsement to claims arising out of the “negligent acts or omissions” of its insured, Slade because THAT was the coverage the trade contract required.  It contended that the “not broader than” language in the AI endorsement tied the endorsement to the contract and therefore, the additional insured coverage was ONLY for the NEGLIGENT acts or omissions of the named insured, Slade..

The court agreed with Zurich, that the Zurich policy incorporates the contract.   Charter Oaks argued that the “the not broader than” language in the endorsement only referred to the AMOUNT of coverage and not the BREADTH of the coverage but the court found no reason to limit the “not broader than” to the limits, since that was not the language in the endorsement.

While Zurich won that battle, it did not win the war.

The court found that there were facts ascertained in discovery that suggested, at least, that Slade was negligent, so at least there was an obligation on the part of Zurich to defend the owner under the AI endorsement.

Editor’s Note:  This decision is only available on Westlaw or LEXIS so we cannot link to it, but contact me for a copy of the decision.


Steven E. Peiper

[email protected]

All quiet on the property decision front.


Michael J. Dischley

05/28/20       German v. Hurricane Management Corp., et al.
Supreme Court, New York County
Conflicting Expert Affidavits as to Range of Motion and Causation Lead to Question of Fact Determination

Initially, multiple defendants moved for summary judgment on the issue of threshold dismissing the complaint.

Defendants argued that plaintiff failed to show that she sustained a serious injury pursuant to Insurance Law §5102(d) in that, based upon independent medical examinations by defendants’ doctors, plaintiff has suffered no permanent injuries and that her alleged injuries are degenerative in nature. Defendants further argued that plaintiff was not prevented from performing substantially all of the material acts constituting her customary daily activities for 90 out of 180 days following the accident.

In opposition, plaintiff proffered that her physicians’ medical reports which showed limited ranges of motion that conflict with defendants’ physicians’ medical reports. Furthermore, the affirmation of plaintiff’s expert specifically stated that plaintiff’s injuries are not degenerative in nature.

As there are conflicting medical reports as to limitations on plaintiff’s ranges of motion and causation, namely whether plaintiff’s injuries are degenerative or causally related to the motor vehicle accident at issue, the Court found that issue of fact exist precluding summary judgment. Thus, defendant’s threshold motion was denied.


Agnes A. Wilewicz

[email protected]

Second Circuit quiet on coverage this week.


Jennifer A. Ehman

05/29/20       Seneca Ins. Co., Inc. v. Mt. Hawley Ins. Co.
Supreme Court, New York County
Hon. Gerald Lebovits
Agreement to Procure Insurance Is Not an Obligation to Name Entity as an Additional Insured

This decision arises out of an underlying accident on a construction site.  Seven Up owned property located in Bronx, New York.  Seven Up entered into a contract with AJ Greenwich for work on the site.

AJ Greenwich procured a policy from Mt. Hawley which included as an additional insured “any person or organization for whom you are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy.”

The underlying plaintiff sustained injury when he fell from an elevated scaffold while performing work as a painter for AJ Greenwich.  The underlying plaintiff brought suit against Seven Up alleging violations of New York labor law.  Plaintiffs, which includes Seven Up’s insurer, tendered the lawsuit to Mt. Hawley who declined to defend or indemnify resulting in this lawsuit.

Plaintiffs argued entitlement to coverage based upon the Agreement, the Mt. Hawley Policy, the COI, and the depositions of two of AJ Greenwich’s principals.

The court began by examining the content of the Agreement and noted that while it requires AJ Greenwich to indemnify Seven Up and to purchase insurance coverage, it does not expressly state that AJ Greenwich is required to name Seven Up as an additional insured on its general liability coverage.  Nor, in the court’s opinion, does the COI confer additional insured coverage on Seven Up under the Mt. Hawley Policy, especially since the certificate expressly states that it is issued for information only, confers no rights upon the certificate holder, and does not amend, extend or alter coverage afforded by the policy.  Thus, the certificate in this case, does not establish that Seven Up is an additional insured under the Mt. Hawley policy since the policy itself makes no provision for coverage. Further, the deposition testimony falls outside the four corners of the policy and, as such, does not provide any basis to determine that Seven Up is an additional insured under the Mt. Hawley Policy.

Lastly, the court noted that any assertion that plaintiffs are entitled to additional discovery was unavailing since Seven Up, as one of the contracting parties, would have knowledge of any written agreement requiring AJ Greenwich to procure insurance naming it as an additional insured.  Accordingly, the court concluded that Mt. Hawley has no obligation to defend or indemnify Seven Up.


05/08/20       Union Mut. Fire Ins. Co. v. Klein
Supreme Court, New York County
Hon. David Cohen
Court Declines to Reconsider Prior Decision Based Upon New Evidence Obtained in Related Matter to Which Defendants Did Not Inform the Insurers and the Court

The Kleins obtained a homeowners policy from plaintiff, Union.  The policy excluded coverage for injuries resulting from home improvement work under the Independent or Sub-Contractors Conditions Endorsement and the exclusion for Designated Ongoing Operations.

At some point, the Kleins entered into a home improvement contract with Bengal Contracting who had an insurance policy with Arch Insurance.  Although the Bengal contract had a line item for insurance, the contract did not require that the Kleins be named as additional insureds on Bengal’s policy with Arch.  The Arch policy included a blanket additional insured endorsement which stated that an additional insured person includes those “required under a written contract with you to be named as an additional insured”

One of Bengal’s employees was injured during construction and brought suit against the Kleins.  Union disclaimed coverage and commenced this action  against the Kleins and Arch.  The court eventually granted Arch’s motion to dismiss on the grounds that the agreement did not contain language requiring the Kleins be named as additional insureds.  It also granted a cross-motion filed by Union.

It appears that after that was granted, the Kleins commenced a separate lawsuit against Bengal in order to reform their contact.  Bengal did not appear and a default was entered against the company.  Based upon that default, the Kleins moved to reargue in this case based upon new evidence, namely the reformed contract.   

As a threshold matter, the court agreed that the Order of reformation constituted new facts that were not in existence when this Court issued its prior decision.  The insurers nonetheless argued res judicata barred the Kleins from relitigating the interpretation of the contract, and that the claim for reformation should have been filed in this action.

In considering the arguments, the court noted that New York is a permissive counterclaim jurisdiction.  With that said, it does not permit a party to remain silent in the first action and then bring a second one on the basis of a preexisting claim for relief that would impair the rights and interests established in the first action.  Accordingly, as this court rendered a final determination of the interpretation of the Bengal/Klein contract and insurance policies with respect to additional insured coverage, it concluded that revisiting the Kleins’ counterclaim at this time would impair the rights previously established and reward the Kleins for “failing to timely inform Union, Arch, and this Court of the reformation action, and failing to advise the Kings County Supreme Court of the two related actions…”


Brian D. Barnas
[email protected]

06/02/20       Granite State Ins. Co. v. New Way Out Corp.
United States District Court, Southern District of Alabama
Bad Faith Claims Dismissed Based on Lack of Excess Judgment as well as Reasonable Basis for not Paying Settlement Agreements

New Way Out Corp. (“New Way”) provided services to special needs customers.  Three entities had subcontracted with New Way to perform services.  Granite issued a policy to New Way and the subcontractors were named as defendants.  New Way had a contract with a state agency, but it lost the ability to provide such services due to three incidents of physical abuse by the subcontractors’ employees.

New Way sued the subcontractors for negligence and breach of contract.  Granite assigned defense counsel to the subcontractors under the policy.  The parties to the underlying lawsuit reached a settlement.  Pursuant to that settlement, each of the subcontractors made an offer of judgment of $3 million, with the proviso that the judgment be satisfied exclusively from proceeds of the Granite policy.  Judgment was entered including the proviso about satisfaction from the insurance policy.

Granite filed a declaratory judgment action seeking a declaration that there is no coverage for the underlying settlements.  The subcontractor defendants filed counterclaims alleging breach of contract and bad faith failure to settle.  A claim of “abnormal bad faith” was also asserted.  Granite moved to dismiss.

The motion to dismiss as granted.  The insured must be exposed to personal loss from a final judgment to establish a bad faith failure to settle claim.  Here, the subcontractor defendants had not been subjected to personal loss from a final judgment.  The settlements explicitly provided they would only be settled from the insurance proceeds—not the subcontractors personal assets.  Absent a final judgment that the defendants were required to pay, no cause of action for bad faith had accrued.

The abnormal bad faith claim was also dismissed.  In Alabama normal and abnormal bad faith are not two torts but a single tort with different options for proof.  In an abnormal bad faith claim a plaintiff can prove the insurer intentionally failed to determine whether there is a legitimate or arguable reason to refuse to pay the claim.  This can substitute for the requirement that the insurer had knowledge of the absence of an arguable reason to deny the claim.  However, it cannot substitute for a lack of proof of the absence of an arguable reason itself.

Here, the court concluded that Granite had an arguable reason not to pay the judgments.  The policy only required payment of sums that the insured became legally obligated to pay as damages. The court accepted Granite’s argument that the subcontractors were not legally obligated to pay because the settlement agreements and offers of judgement explicitly preclude payment by the subcontractors. Summary judgment granted to the insurer.


John R. Ewell

05/29/20       Conte’s Pasta Co. v. Republic Franklin Ins. Co. 
United States District Court, District of New Jersey
Sistership Exclusion Barred Coverage for Recall of Contaminated Pizza Crust. New Jersey Federal Court Finds Duty to Defend Conversion Claim where Parties Did Not Brief the Issue.

Republic Franklin Ins. Co. (“RFI”) issued a commercial general liability policy to Conte’s Pasta Co., Inc. Conte’s Pasta was sued in Ohio federal court by its customer, Nature’s One, for damages flowing from a contamination incident and the events immediately occurring afterwards (“Underlying Action”).

In the Underlying Action, the complaint alleged:

  • Conte’s agreed to make gluten free pizza crusts for Nature’s One that must comply with Trader Joe’s requirements;

  • The pizza crusts were contaminated with Listeria;

  • Conte’s Pasta failed to “properly quarantine” the contaminated pizza crusts, which resulted in the pizza crusts being shipped to Trader Joe’s, which in turn, caused Trader Joe’s “to track down this inventory and take measures to prevent it from sale to the public.”;

  • Trader Joe’s “returned the entire unsold Product inventory;

  • Nature’s One was required to issue a $150,000 refund to” Trader Joe’s;

  • Thereafter, Trader Joe’s required an independent firm audit Conte’s manufacturing facility.;

  • Conte’s Pasta did not pass the audit;

  • Trader Joe’s stopped ordering Nature’s One Pizza Crusts;

  • Nature’s One lost $170,898.24 in finished goods, ingredients, and packaging that could not be sold as well as other facility and asset costs; Nature’s One lost significant profits from sales to Trader Joe’s; and

  • Nature’s One requested the return of its packaging equipment and Conte’s Pasta allegedly “refused to return the equipment.”

The Complaint asserted causes of action for breach of contract, breach of implied warranties, fraudulent inducement, conversion, unjust enrichment, negligence, negligence per se, negligent misrepresentation, and declaratory judgment.

Conte’s Pasta tendered the defense to it RFI, who denied coverage. Conte’s Pasta sued in New Jersey federal court for a declaration of coverage, damages for breach of contract, and bad faith denial of coverage. In the coverage action, RFI moved for summary judgment asserting it had no duty to defend or indemnify Conte’s Pasta.

Three distinct theories of liability are pled in the underlying complaint. First, Nature’s One sought to recover for injuries it suffered as a result of the contaminated pizza crusts (“the contamination claims”). The clearest loss under this theory of liability is the allegation that Nature’s One “was required to issue a $150,000 refund to” Trader for the contaminated pizza crusts that Trader Joe’s returned.

Second, Nature’s One also sought to recover for the losses caused when Conte’s Pasta later failed the independent food safety audit (“the failed inspection claims”). The clearest example of this second type of loss alleged in the Complaint is the allegation that Trader Joe’s stopped ordering Nature’s One Pizza Crusts altogether, thereby causing lost future profits. This necessarily must be a separate loss caused not by the contamination, but rather by the failed food safety audit, because the Complaint explicitly alleges that if Conte’s had passed the audit, “[Trader Joe’s] would restock the inventory and continue to sell the product.”

Third, Nature’s One also asserted a claim for conversion that is factually unrelated to either the contamination claims or the failed inspection claims. The conversion claim arises out of the allegation that Nature’s One provided packaging equipment owned by Nature’s One to Conte’s Pasta that Conte’s

Pasta failed to return. The complaint alleges that the equipment “is worth at least


The considered whether any one of these theories of liability was covered by the insurance policy.

A. The contamination claims

The Court found that the contamination claims were barred by the following sistership exclusion:

n. Recall of Products, Work or Other Property

Damage claimed for any loss, cost or expense incurred by you or others for the loss of use, withdrawal, recall, inspection, repair, replacement, adjustment, removal or disposal of:

(1) “Your product”;

(2) “Your work”; or

(3) Any property of which “your product” or “your work” forms a part;

if such product, work, or property is withdrawn or recalled from the market or from use by any person or organization because of a known or suspected defect, deficiency, inadequacy or dangerous condition in it.

Accordingly, the court ruled that the contamination claims were excluded from coverage.

B. The failed inspection claims

The Court found that the policy did not cover the failed inspection claims in the first instance. It was not a claim for “property damage”. The claim was based on the alleged injury to Nature’s One’s business relationship with Trader Joe’s

which allegedly resulted in loss of goodwill and lost profits. Such economic loss is not intended to be covered by commercial general liability policies. Accordingly, the Court ruled that there was no coverage for the failed inspection.

C. The conversion claim

The Parties did not brief the conversion claim. The Court looked at RFI’s disclaimer, in which it disclaimed coverage for the conversion claim citing the Expected or Intended Injury exclusion. The Court concluded that, in tort law, conversion is not necessarily intentional or expected (the cases cited in the decision are tort cases, not coverage cases). Therefore, the District Court ruled RFI had a duty to defend Conte’s Pasta, denied the insurer’s summary judgment motion, and granted the insured’s cross-motion for reimbursement of incurred defense costs.


Lee S. Siegel

[email protected]

05/29/20       First State Ins. Co. v. American Home Assurance Co.
United States District Court, District of Connecticut
Excess Carrier Has No Duty to Defend or Dropdown

A Connecticut federal court, applying California law, determined that an excess carrier had no duty to defend or dropdown and fill the gap created by an insolvent carrier. Asbestos liability exhausted the insured’s primary policies in 2002. First State, the first excess carrier, brought this declaratory judgment against other insurers in the program, for a declaration of the insurers’ obligations to defend and indemnify the bodily injury claims.

The parties agreed that there was no contractual duty to defend, but First State argued that the excess carriers voluntarily participated in the defense and thus owed a percentage of defense costs. The excess policy provided: “[Federal] shall not be called upon to assume charge of the investigation, settlement or defense of any claim made, or suits brought, or proceedings instituted against the insured, but shall have the right and be given the opportunity to be associated in the defense and trial of any such claims, suits or proceedings…” The policy further provided that upon its participation the excess carrier was bound to share in the costs. “Court costs and interest, if incurred with the consent of [Federal], shall be borne by [Federal] and other interested parties in the proportion that each party’s share of LOSS bears to the total amount of LOSS sustained by all interested parties.” The court held that there was no express duty to defend but considered whether the excess carriers owed a duty to reimburse. Finding that the excess carriers refused to partake in the insured’s defense, the carriers had no duty to reimburse First State for defense costs.

The court also found that the excess carriers were not bound to drop down and fill the gap created by insolvent insurer Constock. The excess policies, the court held, required horizontal exhaustion of all primary policies before their coverage is triggered. Here, the policy provided:

In the event of reduction or exhaustion of the applicable aggregate limit or limits of liability under said underlying policy or policies solely by reason of losses paid thereunder on account of occurrences during this policy period, this policy shall in the event of reduction, apply as excess of the reduced limit of liability thereunder....

First State argued that the excess carriers obligation to defend and indemnify should begin upon the exhaustion of the primary insurance and First State’s first excess layer. The court did not agree and found instead that the excess carriers’ obligation was a matter of the insurance contract with the insured. Finding the policy language unambiguous, the court held that the excess carriers did not bear the risk of underlying insolvency and only are obligated to pay upon payment by reason of exhaustion of all underlying coverage.

The court also rejected First State’s equitable contribution claim. Equitable contribution is a proper remedy when ‘several insurers are obligated to indemnify or defend the same loss or claim, and one insurer has paid more than its share of the loss or defended the action without any participation by the others.’ (citation omitted). First State argued that it was inequitable for the excess carriers to avoid paying. “If Fireman’s interpretation were adopted, neither Fireman nor any third layer policy holders would have to pay “because neither the Comstock layer nor the [Fireman] layer can horizontally exhaust.” Id. at 5. First State then notes that one other court “concluded [ ] it would be unfair to allow an insurer that fortuitously issued a policy excess of an insolvent policy to avoid contributing along with the other paying insurers.” Id. at 5.” The court was unpersuaded, finding that the there is no right to equitable contribution among insurers at different levels of risk.

Note: The decision indicates that there may be a split in California authority on this issue of equitable contribution, although the trial judge disagreed. This will most certainly be a ground for appeal to the Second Circuit and quite possible a basis for the panel to certify a question to the California Supreme Court. We will follow and report.


Diane L. Bucci

06/04/20       Spandex House, Inc. v. Hartford Fire Ins. Co.
United States Court of Appeals, Second Circuit
Grasping at Commas…in the Hartford’s IP Exclusion

In the underlying action, Rex Fabrics sued the Hartford’s insured, Spandex House Inc.(“Spandex”), alleging that it infringed upon copyrights through its manufacturing, distribution, sales activities, marketing and advertising of certain fabrics clothing.   The Harford denied coverage based on the Policy’s Intellectual Property Exclusion (“IP Exclusion”).  The parties agreed that the claims satisfied the Policy’s personal and advertising offense(s) of:

Copying, in your “advertisement”, a person’s or organization’s “advertising idea” or style of “advertisement”; [or] Infringement of copyright, slogan, or title of any literary or artistic work, in your “advertisement.” 

The policy’s IP exclusion bared coverage for:

(1) “Personal and advertising injury” arising out of any actual or alleged infringement or violation of any intellectual property right, such as copyright, patent, trademark, trade name, trade secret, service mark or other designation of origin or authenticity; or

(2) Any injury or damage alleged in any claim or “suit” that also alleges an infringement or violation of any intellectual property right, whether such allegation of infringement or violation is made by you or by any other party involved in the claim or “suit”, regardless of whether this insurance would otherwise apply.

Spandex argued that the Exclusion’s exception applied or was ambiguous based on traditional rules of grammar.  The exception applied if: 

The only allegation in the claim or “suit” involving any intellectual property right is limited to: 

(1)   Infringement, in your “advertisement” or “on your website” of:

(a)   Copyright;

(b)   Slogan; or

(c)   Title of any literary or artistic work; or

(2)  Copying, in your “advertisement”, a person’s or organization’s “advertising idea” or style of “advertisement”.

Spandex argued that the exception to the exclusion applied in its case even though there were claims that did not involve advertising. It stated that under New York law, the terms of an insurance policy are interpreted according to the expectations and purposes of an ordinary businessperson.  It argued the ordinary businessperson would apply traditional rules of grammar and interpret the clauses between the commas (“in your advertising” and “on your website”) as non-restrictive (nonessential) clauses.  In other words, these clauses could be removed from the exception without changing its meaning and intent.  By its reasoning, the removal of the non-essential clauses in the exception would result in an exception for “infringement of (a) copyright.”  There are several principles of contract interpretation and arguments against this position, but the Second Circuit appeared most interested the grammar issue.

Spandex argued that if the Hartford meant to apply the exception restrictively, it should not have used commas to set off the clauses. There was no need for commas in that clause.  The court asked whether language set off in commas was always interpreted as non-restrictive.  Spandex admitted that while words set off in commas can also be descriptive, they should be presumed to be non-restrictive against the drafter of the Policy because of the ambiguity the commas create.  It argued that the use of “in your advertising or on your website” was unusual and strange in the context of New York insurance law. In any event it argued, Spandex had presented a reasonable interpretation and under New York law, the clause is ambiguous because it is susceptible to more than one reasonable interpretation.

The court asked whether Spandex’s reasoning would read the advertising requirement out of the exception and render it applicable to “Infringement of Copyright; Slogan; or   Title of any literary or artistic work” which would swallow the exclusion.  Spandex argued that there would still be an advertising element necessary to satisfy the Coverage B coverage grant.      

When asked for case law supporting its argument, Spandex relied on NACS v. Bd. of Governors of Fed. Reserve Sys., 746 F.3d 474 (D.C. Cir. 2014).  The relevant issue there was whether the term “which,” which, by the way, was not set off in commas, should be read restrictively or descriptively.  The court’s decision isn’t relevant here for several including because it’s not an insurance policy interpretation case. The relevant point is that the court relied on grammar manuals such as the Chicago Manual of Style to determine whether “which” was restrictive.

Spandex also relied on Marin v. Constitution Realty, LLC, 28 N.Y.3d 666 (2017) where the New York Court of Appeals relied on the William Strunk Jr & E.B. White, the Elements of Style, to examine language in a mediation engagement agreement, which stated, “[i]f the case does not resolve at the mediation, presently scheduled for May 20, 2013, then [Golomb] will be responsible for…” The court held there, however, that the use of commas was descriptive rather than non-restrictive and the mediation could be rescheduled or scheduled for more than one day.

The Hartford countered that under New York law, insurance contracts are to be interpreted by common speech. See VAM Check Cashing Corp. v. Fed. Ins. Co.,

699 F.3d 727 (2d Cir. 2012).  Counsel noted that style manuals opine how it ought to be done, but common speech is not written that way.  Further, the Hartford argued that grammar and punctuation is only considered to clarify an ambiguous word or clause, not to create an ambiguity, and the exception was not ambiguous.  He argued that in a contract containing punctuation marks, the words and not the punctuation guide the interpretation, relying on Banco Espirito Santo, S.A. v. Concessionaria De Rodoanel Oeste, S.A., 100 A.D. 3d 100 (1st Dep’t 2012).

According to the Hartford, the Second Circuit in Lepore v. Hartford Fire Ins. Co., 800 F. App'x 29, 32 (2d Cir. 2020) (which we discussed in a previous edition of Coverage Pointers) interpreted the same policy language and found it clear and unambiguous, although note that the Lepore court wasn’t presented with the argument now presented by Spandex.

The Hartford used Section 1 of the 26th Amendment to demonstrate that clauses are not non-restrictive simply because they are set off in commas. It states, “[t]he right of citizens of the United States, who are eighteen years of age or older, to vote shall not be denied or abridged by the United States or by any State on account of age.”

The Hartford argued that:

Under Spandex House’s logic, the clause “who are eighteen years of age or older” is a non-restrictive relative clause—it begins with a relative pronoun and is set off by commas—which can be deleted without affecting the meaning of the Amendment.  Thus shorn, the Amendment would read: “the right of citizens of the United States to vote shall not be denied or abridged by the United States or by any State on account of age.” On Spandex House’s analysis, every four-year-old is constitutionally entitled to vote, since the clause “who are eighteen years of age or older” does not restrict.

The court asked why the Hartford used the commas even though, the court apparently agreed, it didn’t have to.  The Hartford argued that they were meant to signal a pause, to highlight the terms, which is a common use for commas.  Presumably, the term “or your website” was not defined because we all know that policies use commas to indicate a defined word.

The court did not only address grammar.  It did not ignore that the exception applied if the only allegation in the claim or “suit” involving any intellectual property rights is infringement in your advertising or on your website.  

Spandex recognized this but argued that if its interpretation of the exception applied, the exception would be satisfied because the allegations in the complaint, a garden variety, all sounded in copyright infringement.  However, the court asked Spandex to assume that the Hartford’s interpretation applied and explain how it could satisfy the exception when the claims asserted involve not only advertising but manufacturing, sale, etc.  Spandex argued that because claims of advertising injury had been pled, the Hartford could not conclude as a matter of law that the claims other than for advertising wouldn’t be dismissed, leaving the infringement that is causally related to the insured’s advertisements as the only remaining claim.

The court referred to the standard for determining the duty to defend under Fieldston Prop. Owners Assn., Inc. v. Hermitage Ins. Co., Inc., 16 N.Y. 3d 257 (2011) stating a defense is required if there is a reasonable possibility, based on the allegations in the complaint and information or evidence known to the insurer, that the claim may be covered.  See, Fitzpatrick v. Am. Honda Motor Co., 78 N.Y. 2d 61 (1991).   In Fieldston, the issue was whether there was a reasonable possibility that the insurer, who denied coverage based on its “other insurance” clause, had a duty to defend.

Spandex argued that it was entirely possible for coverage to attach because the claims other than advertising injury could be defeated by its defense under the First Sale Doctrine asserted against Rex Fabrics. The First Sale Doctrine, codified at 17 U.S.C. § 109, provides that an individual who knowingly purchases a copy of a copyrighted work from the copyright holder receives the right to sell, display or otherwise dispose of that particular copy, notwithstanding the interests of the copyright owner. The parties did not discuss how the First Sale Doctrine would apply to the claims against Rex Fabrics and the oral argument implied that it is not yet before the court in Rex Fabric’s action against Spandex.

Spandex buttressed this argument with the fact that the trial court’s dismissal was without prejudice in case the only claim remaining fit within the exception in the future.  Thus, according to Spandex, the trial court recognized that the possibility of coverage could not be completely ruled out, making it entirely possible that infringement that is causally related to the insured’s advertisements would be the only remaining claim.

The Hartford argued that the duty to defend is not based on speculation of what might happen.  Instead, the question is timing.  The duty is based on the record as it exists, not on what the record will be sometime in the future.  Although the cases had to be decided in the now, the court asked the Hartford what the result would be if Spandex’s theory came about.  Hartford suggested that the court would have two options.  It could conclude, contrary to Spandex’s argument, that there is no reasonable possibility of coverage based on the record before the court…Spandex’s speculation seemed unlikely.   It argued that the court could also hold that Fieldston did not apply because there were obviously covered claims in Fieldston, but the insurer denied based on its priority of coverage analysis.  Here, according to the Hartford, there were simply no covered claims pled. There was no discussion about the fact that Spandex could always refile if that eventuality occurred.

In Fieldston, the court also held that an insurer must defend all claims if even one is covered.  Spandex argued that since the advertising injury claim would be covered, the Hartford would have to cover all claims under Fieldston, and its provision to the contrary violated this rule.    The Hartford countered that the case does not involve a covered claim, so it did not have to cover any claim.

We will provide an update when the appeal is decided. 


05/27/20       Houston Cas. Co. v. Prosight Specialty Ins. Co
United States District Court, Southern District of New York
Poking holes in Mighty Midgets - Thousands Flee

In Mighty Midgets, Inc. v. Centennial Ins. Co., 47 N.Y.2d 12, 389 N.E.2d 1080 (1979), the New York Court of Appeals recognized a narrow exception to the American Rule holding that an insurer is responsible to pay the successful insured’s declaratory judgment fees and costs to obtain coverage where the insurer brings the declaratory judgement action against its insured, placing its insured in a defensive posture.  In U.S. Underwriters Ins. Co. v. City Club Hotel, LLC, 3 N.Y.3d 592, 822 N.E.2d 777 (2004), the court held that the obligation to reimburse the successful insured applied even if the insurer defended while it challenged coverage.   

In Houston Cas. Co. v. Prosight Specialty Ins. Co., No. 18 CIV. 9574 (PAE), 2020 WL 2747725, at *1 (S.D.N.Y. May 27, 2020), the court held that the successful insured can recover declaratory judgment fees even if it initiated the lawsuit.

New York University Hospitals Center (“NYUHC”) entered into an agreement with New York Marine’s insured, Nouveau Elevator Industries, Inc. (” Nouveau”), which allegedly required New York Marine to defend NYUHC as an additional insured in an underlying lawsuit.  The court noted that in this case, NYUHC initiated the actions seeking a defense, twice.  First, it brought an action against Nouveau seeking a declaration that under its agreement with the insured, the insurer was obligated to defend it as an additional insured.  Then, NYUHC’s insurer, Houston Casualty Company, sued New York Marine seeking a declaration that New York Marine was obligated to defend NYUHC as an additional insured.

New York Marine argued that the initiation of the lawsuit was dispositive on the issue of whether declaratory judgment fees were available, regardless of which party succeeds. The court disagreed, noting that the cases did not indicate the application of a bright line rule.  The court relied in part on Hervochon v. Iona Coll., No. 14 Civ.6017 (CS) (PED), 2019  WL  2451431,  at  *4–5  (S.D.N.Y. Feb. 15, 2019), report and recommendation adopted, 2019WL  1375359  (S.D.N.Y.  Mar.  27, 2019).  There, the court examined the reasoning behind the narrow exception to the American Rule and determined that the contractual duty to defend applies to any action arising out of an occurrence, including a declaratory judgment action filed by the insurer  However, stated the court, it was anomalous for the entitlement of declaratory judgment fees to rest on whether the insurer is plaintiff or defendant.  “Consequently, “in unusual circumstances, a court may look beyond the labels ‘plaintiff’ and ‘defendant’ to determine whether an insured is in an offensive or defensive position in a dispute over the duty to defend.” (citations omitted).

The case at bar was not so unusual.  The court appeared to base its holding either on the success of the insured or the legal steps the insurer has taken to free itself from its policy obligations.  The court stated that on the record, it had no question that the additional insured and/or its insurer were entitled to recover declaratory judgment fees for establishing the duty to defend. The record, according to the court, established that New York Marine and its insured resisted the now-conceded duty to defend from the outset.  The insured, filed a counterclaim in the action seeking a declaration that there was no such duty. New York Marine filed an affirmative defense of no coverage in Houston Casualty Company’s lawsuit.  The duty to defend was denied, according to the court, “persistently and seemingly reflexively” despite the clear duty based on the NYUHC/Nouveau Agreement and the New York Marine Policy.  The court noted that it did not find case law holding that the “pertinacious” denial of a duty to defend did not entitle the insured to fees incurred in the litigation.  The question is whether that behavior would be pertinacious if the insurer succeeded.  


Brian F. Mark
[email protected]

No noteworthy decisions to report on this week.


Eric T. Boron

06/05/20       T.H.E. Ins. Co. v. Glen
Iowa Supreme Court
“Some, but not all, acts of gross negligence may not be accidents”, says Iowa Supreme Court

Does a “gross negligence” pleading take a bodily injury accident out of coverage under a CGL policy?  Can “gross negligence” cause an “accident”?  These issues were analyzed and decided last week by the Iowa Supreme Court.

By way of background, the insurer T.H.E. Insurance Company filed a declaratory action in Iowa state court seeking a declaration that the insurer had no duty to defend or indemnify the insured amusement park’s employee (Mr. Glen) in an underlying tort action being pursued by the Estate of Stephen Paul Booher and Mr. Booher’s widow. The Boohers filed a mirror image counterclaim in the DJ action. The underlying tort action was stayed pending resolution of the DJ action in state court.

The parties in the state declaratory action filed cross-motions for summary judgment. The district court originally denied both parties’ motions. On reconsideration, however, the district court reversed course and held that the insurer was entitled to summary judgment.  On appeal, the Iowa Supreme Court affirmed in part and reversed in part the judgment of the district court.

Under the CGL policy at issue, “bodily injury” must arise from an “occurrence.” The policy defined “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

Here, the underlying tort action of the Estate of Stephen Paul Booher and Mr. Booher’s widow alleged the insured amusement park’s employee’s “gross negligence” caused Mr. Booher’s loss of life.  Supreme Court’s decision indicated that under Iowa state law the Estate and Mr. Booher’s widow would not have a claim against Mr. Booher’s co-employee Mr. Glen for the damages sought if the injuries were caused by mere ordinary negligence, but would have a claim if the injuries were caused by “gross negligence amounting to such lack of care as to amount to wanton neglect for the safety of another.”  The CGL policy at issue had a “Multi-Plex Liability Endorsement (MPE)” that provided additional coverage of an employee tortfeasor in an employee vs employee bodily injury liability scenario.

The insurer’s main argument was that a gross negligence claim, like that alleged in the underlying tort action, was inconsistent with the plain meanings of “accident” and “expected” in the CGL policy and falls outside the scope of coverage. The Iowa Supreme Court’s analysis noted that the phrase “an accident” is not defined in the CGL policy at issue, but under Iowa caselaw an accident is “an unexpected and unintended ‘occurrence’ so long as the insured does not expect or intend both it and some injury.  Ultimately, the Supreme Court ruled “some, but not all, acts of gross negligence may not be accidents”.  The district court’s grant of summary judgment for the insurer was reversed and the case was remanded back to district court.


Marina A. Barci

05/27/20       American Trans. Ins. Co. v. Bookman
Supreme Court, New York County
Proof of Verification Request Required to Satisfy No-Fault Insurer’s Obligations in order to Obtain a Declaratory Judgment

In this action, American Transit sought a declaratory judgment that it was not required to pay no-fault benefits to Bookman or to the other defendants (medical providers acting as Bookman's assignees). A no-fault insurer seeking a declaration of no coverage due to asserted violations of the terms of the policy must first demonstrate that it complied with each of the procedural and timeliness requirements of 11 NYCRR § 65-3.5. § 65-3.5 (a) provides, among other things, that once an insurer receives a claim for benefits, the insurer has 10 business days to provide the claimant with the forms that it requires for verification of the claim. Once the insurer receives the completed verification forms, it then has 15 business days to request further verification, such as an examination under oath. See § 65-3.5 (b). The Court found that American Transit had not satisfied that requirement here as nothing in the record reflected when it sent the necessary verification forms to Bookman, or when it received the completed verification forms back from Bookman. Absent that information, American Transit has failed to satisfy all the elements of its claim for declaratory relief.


Ryan P. Maxwell
[email protected]

Legislative List
05/28/20       Required Travel Insurance Refunds
New York State Assembly
Bill Introduced that Would Require Travel Insurance Companies to Provide Refunds for Travel Cancelled due to COVID-19

A bill has been introduced in the New York State Assembly (A10542) that would require travel insurance companies to provide refunds for travel cancelled due to COVID-19. The bill was immediately referred to the insurance committee.

The bill proposes to create New York General Business Law § 157-b entitled “Travel insurance refunds”, which would provide in full that “[a]ll travel insurance companies shall provide a  full  refund, without  any  penalty  in  the  form  of deduction of fees and regardless of any contractual cancellation period, to any resident of the state of New York who cancels travel due to coronavirus disease 2019 (COVID-19).”

The language would expire and be deemed repealed upon the expiration of the declared state of emergency.

Maxwell’s Minute: While everyone is pre-occupied with proposed legislation across the country attempting to retroactively modify the language of existing business interruption insurance to provide coverage—raising US Constitutional concerns—the New York State Assembly introduced this bill that would modify the terms of existing travel insurance contracts—retroactively.

In March, we previously wrote about guidance DFS issued concerning Cancel for Any Reason (CFAR) benefits (Circular Letter No. 4 (2020)). That guidance notes that “[s]tandard travel insurance policies typically provide coverage for trip cancellation/interruption due to various fortuitous events, but frequently exclude epidemics and pandemics. If epidemics or pandemics are covered, however, COVID-19 may qualify depending on how these terms are defined in the relevant policy.” Thus, DFS has determined that while coverage may be excluded under several travel insurance policies, it may be provided under others.

Is this not the same issue we are seeing with business interruption insurance? The terms of these policies should govern compensation provided under these policies, and legislation attempting to modify those terms retroactively potentially conflict with the Contracts Clause of the US Constitution. I do not anticipate insurer solvency being shouted from the rooftops for this area, but the concepts are the same.

Regulatory Wrap-Up

06/04/20       Prompt/Fair Settlement of Vandalism and Looting Claims
Department of Financial Services
Emergency Measure Adopted to Ensure Prompt and Fair Settlement of Looting and Vandalism Claims

On June 4, Governor Cuomo gave his daily COVID-19 press conference and indicated that he was directing DFS to enact measures to protect business owners impacted by vandalism and looting that occurred following protests across the state:

“[M]any of the businesses they looted were mom and pop businesses in distressed communities that were struggling in the first place. In New York City and Rochester, many of these businesses were essential businesses for the poorest communities in those locales and they looted mom and pop stores that don't have the resources to rebuild and reopen. So we are going to do everything that we can do to help them. The Department of Financial Services, DFS, regulates the insurance industry, they are going to direct insurers to expedite all claims for all looted businesses, free mediation services [, and] to accept photos as proof [of loss]. If a looted business has trouble with their insurance company, go to the Department of Financial Services website and they will provide relief.”

DFS did as instructed, instituting unfair claims settlement practices and claim cost control mechanisms for “any claim filed on or after May 30, 2020 for loss of or damage to real property, loss of or damage to personal property, or other liabilities for loss of, damage to, or injury to persons or property resulting from a riot or civil commotion in this State, where the superintendent has determined that it is in the best interests of the people of this State for such provisions to apply.” § 216.5(a)(2)(i).

Numerous obligations of carriers for these claims were promulgated, including that within six business days of receiving notice, a carrier must commence an investigation and furnish insured with notice of items, statements and forms required to process the claim.

Certain protections were extended to policyholders already facing COVID-19 concerns, including:

  • Notice to an agent not normally qualified to receive such notice is sufficient unless the agent notifies the person filing the claim that the agent is not so authorized.

  • Where necessary to protect health or safety, may commence immediate repairs to the exterior windows, exterior doors, and, for minor permanent repairs, exterior walls of real property.

  • Any requirement to exhibit the remains of the real or personal property may be satisfied by submitting reasonable proof of loss (without the need for a physical inspection), including

    • photographs or video recordings;

    • material samples, if applicable; and

    • inventories, as well as receipts for any repairs to or replacement of property

If more 15 business days is necessary to determine whether the claim should be accepted or rejected, a carrier must notify the claimant, in writing including the reasons additional time is needed and the anticipated completion date, including, where the insurer requires a physical inspection and the reason for that inspection. Beyond the initial extension, if the claim remains unsettled, unless the matter is in litigation or arbitration, the carrier shall, 30 days from the date of the initial letter setting forth the need for further time to investigate, and every 30 days thereafter.

Any claim that is not accepted or rejected within 15 days of receipt of the proof of loss or required notice of items, statements and forms requires the carrier to submit a report to the superintendent pursuant to §216.6(c)(3)(iii).

This emergency regulation additionally implements new mediation provisions within §216.13 allowing for mediation by an individual or small business claimants where there is a disputed claim or denial of a claim.

06/04/20       DFS Website Introduces “Pre-Proposed Outreach"
Department of Financial Services
New Addition to DFS’ Regulatory and Legislative Activities Section of the Website for Actions Under Consideration by the Department

Last week, DFS introduced a fourth category of regulatory and legislative activities. In addition to the existing “Proposed Regulations”, “Adopted on an Emergency Basis”, and “Final Adoptions”, a new “Pre-Proposed Outreach” category has been added.

Under this header, draft regulations “not currently in effect” are listed for which DFS “is considering whether to propose . . . .” Thus, “[b]efore filing such proposed regulation for publication in the State Register for a formal comment period pursuant to the New York State Administrative Procedure Act, the Department provides this draft for review and comments by interested persons and the public, including, but not limited to, small businesses and local governments.”

These drafts will allow for a 10-day comment period, with comments to be directed to a designated Agency Contact.


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

05/14/20       Mills v. Roman Catholic Diocese of Rockville Centre et al.
Supreme Court, County of Nassau
The CVA’s Revival of Formerly Time-Barred Civil Actions Does Not Violate The New York State Constitution

Author’s Note: Reference to the “Due Process Clause” refers to the New York State Constitution unless otherwise noted. The original motion was discussed in the February 7, 2020 edition of Coverage Pointers.

On November 12,2019, the Diocese of Rockville filed an omnibus motion to dismiss in the above matter arguing, inter alia, that section 3 of the CVA codified in CPLR § 214-g, providing for a one year revival of time-barred civil actions based on enumerated sexual offenses is in violation of the Due Process clause of the New York State Constitution. Defendant’s main due process argument is that, while claim revival statutes (like the CVA) are generally permissible if enacted as a reasonable response to remedy and injustice, when the claims could have been brought within the original statutory period a revival statute violates due process. The court did not agree.

The court relies on In re World Trade Ctr. Lower Manhattan Disaster Site Litig. (relied on by the defendant as well), which held that if an identifiable injustice moves the legislative to act, and the legislature’s revival of the injured party’s claims for a limited time in light of that injustice are reasonable, the revival statute is reasonable. 2017 WL 5574387, at *15 (N.Y. 2017). The court also pointed out that there is no history of a New York court striking down a claim revival statute under the Due-Process Clause. The court then outlined the legislature committee reports which stated, “In sum, it was an extraordinary confluence of events which resulted in the systematic sexual abuse of minors coming to light, and this has resulted in [the CVA], which seeks to allow victims to have their day in court and prove their claims.” 2019 New York Assembly Bill No. 2683; Legis. Bill Hist. N.Y. A.D. 2683. The court then held that, based on the legislative history, a claim revival statute is a “reasonable response to remedy the injustice of past child sexual abuse.”

The defendant also argued that claims against it for misconduct other than its own intentional or negligent misconduct (e.g. respondeat superior claims based on acts of individual perpetrators, a breach of a non-delegable duty or claims such as recklessness or gross negligence) did not fall within the claims revived by CPLR 214-g. Resolving this issue in favor of the plaintiff, the court directs our attention the statute itself. The court states:

The Legislature expressly revived “every” claim or cause of action brought against a “party” so long as the claim alleges intentional or negligent conduct by a “person” causing injury as a result of specific child sexual abuse offenses. The statute clearly differentiates between two different nouns (“party” and “person”) and two different prepositions (“against” and “by”). Thus, it is clear that the Legislature’s intention was that in some instances the “party” held liable, such as the Diocese, and the “person” committing the negligent or intentional tort, such as an employee or agent, would be different. p. 13

Therefore, the court concludes that the Legislature expected and intended the CVA to provide an avenue for a plaintiff to recover against any party that may have been even tangentially involved in the allegations of abuse.

The court adds that the defendant’s argument that a claim for recklessness or gross negligence is distinct from a claim based on an intentional or negligent act is without merit. Holding that a cause of action sounding in gross negligent is equivalent to intentional conduct, the CVA specifically allows for such claims as CPLR 214-g states that “every civil claim or cause of action” arising from “negligent or intentional acts or omissions” is revived. See Bennet v. State Farm Fire and Casualty Co., 161 A.D.3d 926 (2nd Dep’t 2018).

In sum, the court holds that child sex abuse is an injustice that the only reasonable remedy is for an injured party to be allowed to bring a claim against their abuser and that New York courts have held that as long as a revival statute is a reasonable remedy to that injustice it will not violate the Due Process Clause.

The Diocese has filed a Notice of Appeal. We will follow and report on any developments as the come to light

Note: If you would like a copy of the order, please send me an email and I’ll be happy to pass it along.


Cara A. Cox

Heather Sanderson
Sanderson Law (Alberta, Canada)

[email protected]

When COVID-19 Recovery Combines with Floods or Wildfires

What does “Directly or Indirectly” in an Exclusion Mean?

Heather’s Offering:

In April 2020, the City of Saint John, New Brunswick experienced three sewer backups in one week. The cause? “Flushable” wipes used for cleaning are clogging the sewers. Turns out they may not be “flushable” after all.

Water commissioner, Brent McGovern, suspects the problem is being exacerbated by the COVID-19 crisis: "People are naturally more attentive to cleaning and using disposable wipes in many instances at this time," said McGovern. "Please note these wipes cannot be flushed down your toilet, nor can rubber gloves, so called 'flushable wipes', paper towels, hygiene products, grease or anything of that nature."

CBC news reported that when a water and sanitary crew turned up to a blockage on Westmorland Road in Saint John, they found a blockage just downstream from a manhole. Looking further, they found a big ball of wipes that was almost as hard as concrete. Crews had to use a high-pressure sprayer to break it before it could be vacuumed up.

City utility managers in Moncton, New Brunswick and Halifax, Nova Scotia, warned residents via Twitter on March 3 and April 3 respectively that flushable wipes can cause sewer backups. The same CBC news article quotes McGovern as saying that this isn’t just an Atlantic Canada problem – it is a country-wide problem.

Most of us looking at this issue from a coverage point of view are likely to agree that the COVID-19 pandemic is an indirect cause of these sewer backups. The direct cause is the blockages caused by the wipes. Causation in this situation may be clear, but will it be clear when a business recovering from the COVID-19 restrictions (an uninsured cause of loss) is hit with a flood (when it is a covered cause of loss) or a wildfire? Those complex situations require close analysis of the facts coupled with an understanding of what “direct” and “indirect” mean when they are present in an exclusion in a commercial all risk property policy.

Typically, commercial all risk property exclusion wording reads:

“This policy excludes loss or damage directly or indirectly caused by or resulting from any of the following …”

The words “directly or indirectly” are often found in insurance policies to exclude coverage when there are concurrent causes, one of which is covered and the other which is excluded:  Economical Mutual Insurance Company v. Gill, 2017 BCCA 351, at para. 45.  Often, but not always, the words “directly or indirectly” are followed by additional language which is commonly referred to as anti-concurrent cause language. This language arose from the Supreme Court of Canada decision in Derksen v. 539938 Ontario Ltd., 2001 SCC 72 where that court held at para. 47 that the following language eliminates the need to look at direct and indirect causes of damage:

 “…regardless of any other cause or event, whether or not insured under this Policy, contributing concurrently or in any other sequence to the loss…”

This language effectively dispatches the issue of direct cause, indirect cause, or contributing cause. If the excluded cause of loss is one of the events in a causal chain, then the exclusion applies, regardless of whether it was a direct or indirect cause of the damage in issue: Smith v. State Farm and Casualty Co., 2016 Carswell Ont 4707; 1604945 Ontario Inc. v. Lloyd’s Underwriters, 2010 ONSC 1327, para. 24.

Coachman Insurance Co. v. Kraft, 2017 ONSC 1875 is an example of the interpretative result where the anti-concurrent cause language is absent. That court stated at para. 114:

For example, had the insurer wished to exclude any and all coverage under the policy where concurrent with a covered cause … it ought to have employed language identical to the language it utilized …[elsewhere]…  to exclude: “all claims arising directly or indirectly, in whole or in part, out of terrorism…”. By its terms, the “terrorism exclusion” “applies regardless of any other contributing or aggravating cause or event that contributes concurrently or in any sequence to the claim”. The absence of similar language in the “motorized vehicle” exclusion relied on by Coachman fortifies my view that it does not apply to avoid coverage for claims that are caused concurrently by a motorized vehicle used by the insured and another peril that is otherwise covered pursuant to the terms of the policy.

The flood and sewer backup exclusions and extensions that were discussed in the May 14, 2020 edition of this newsletter contain various forms of causation wording. Not all contained the post-Derksen language that contracts out of concurrent cause.  It is clear that the causation issue requires additional scrutiny when the anti-concurrent cause, post-Derksen language is absent and “directly or indirectly” stand alone.

The Basics of Policy Interpretation

So, what does “directly or indirectly” mean in an exclusion when anti-concurrent cause language is absent? First principles of policy interpretation apply. The first rule is that the words are in an exclusion and therefore, “directly or indirectly” must be given a narrow interpretation.  This is because exclusions are read narrowly against the insurer and coverage agreements are read broadly in favour of the insured: Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21 para. 28., Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, para. 24.

But there is more.  Consolidated Bathurst Export Ltd. v. Mutual Boiler & Machinery Insurance Co. (1979), [1980] 1 S.C.R. 888 (S.C.C.), pp. 901-902;  Jesuit Fathers, at para. 29 each state:

 "[T] he courts should be loath to support a construction which would either enable the insurer to pocket the premium without risk or the insured to achieve a recovery which could neither be sensibly sought nor anticipated at the time of the contract"

Each policy of insurance carries its own considerations. The Supreme Court of Canada has stated that the context of the particular insured must be taken into account. (Jesuit Fathers, para. 30.). Further, if the exclusion is ambiguous, then the reasonable expectations of the insurer and the insured must be taken into account: Progressive Homes, para. 23.

With these “40,000” foot rules in mind, what does “directly or indirectly” in an exclusion mean?

“Directly or Indirectly” in an Exclusion: Court of Appeal Cases

Any survey of the relevant cases must start with the British Columbia Court of Appeal decision Canevada Country Communities Inc. v. GAN Canada Insurance Co., 1999 BCCA 339. In that case, water froze in the sprinkler system of the insured property, breaking the pipes. Water from the broken pipes damaged walls, woodwork, carpeting and electrical work. The policy excluded losses caused indirectly by freezing but covered damage directly caused by the discharge of water from the sprinkler system. Did the loss arise directly or indirectly from freezing? The court held that the words “directly and indirectly are intended to capture the sense in which an event leads straight or immediately to its consequence.” (para. 28). In this case, freezing was the indirect cause. The discharge of water from the sprinkler system was the direct cause. The loss was covered as the direct cause of the loss was the discharge from the sprinkler system.

The Manitoba Court of Appeal decision in Minox Equities Ltd. v. Sovereign General Insurance Co., 2010 MBCA 63, is consistent with Canevada, but did not cite it. The court in that case held at para. 50 that Sovereign correctly denied coverage under a policy that excluded damage caused directly or indirectly by mould:

“Thus, as long as the evidence in the present case indicates that mould was a direct or consequential result of the seepage, rain and humidity, then the exclusion clauses would apply, absent other issues. In this case, the evidence, as so found by the trial judge, is clear that the seepage, rain and humidity present in the …[insured property]…  led to the moisture and humidity conditions in the …[insured property]… which were so conducive to mould growth.”

The British Columbia Court of Appeal again considered what “directly or indirectly” means in an all risk policy in the case of Wynward Insurance Group v. MS Developments Inc., 2016 BCCA 513. It is notable that the Court of Appeal followed its earlier decision in Canevada. MS Developments operated a restaurant in Kelowna, British Columbia. The heat wrap around a freezer drain line failed. The drain line froze and burst. Water escaped from the drain line and ran down the freezer wall onto and under the freezer floor slab as well as the walls of the building. The water under the floor slab froze and burst, causing the slab and the walls to uplift. MS Developments claimed under an all risks property policy issued by Wynward. The policy excluded damage caused directly by freezing. But that exclusion did not apply to loss or damage caused directly by rupture of pipes. The court noted that this fact pattern is identical to Canevada with one important exception. After the water ran through the burst pipes, it froze again. The damage was initially triggered by freezing (an indirect cause) but directly caused by freezing when the water froze again. The discharge of water through the broken pipes was, like the initial freezing, an indirect cause. The damage was excluded.

Do Vytlingam and Herbison apply to “Directly or Indirectly” in an Exclusion?

Strangely, the March 30, 2020 Ontario trial court decision in MDS Inc. v. Factory Mutual Insurance Company, 2020 ONSC 1924 did not refer to Canevada, Minox or Wynward, which are decisions of the British Columbia and Manitoba Courts of Appeal, even though it was interpreting “directly or indirectly” in the exclusions in a commercial all risks property policy. Instead, that court relied on a series of auto decisions that refer to “directly and indirectly” as they appear in the equivalent of a coverage agreement.  Given other holdings in MDS, it is possible to conclude that the court’s consideration of the meaning of “directly or indirectly” takes the form of comment (i.e. obiter) rather than forming part of the holding (the ratio of the case). Nonetheless, this case is worthy of discussion given that it is a recent consideration of the issue.

MDS states that the meaning of “directly or indirectly” is governed by two decisions of the Supreme Court of Canada interpreting these words in auto coverage, as well as the Court of Appeal decisions on auto coverage that follow those decisions. These cases, Vytlingam (Litigation Guardian of) v. Farmer, 2007 SCC 46 and Herbison v. Lumbermens Mutual Casualty Co., 2007 SCC 47, were rendered at the same time, as each of them considered the same issue and the same language.  The issue in each of those cases was what does “direct and indirect” in the phrase “…directly or indirectly from the use or operation of any such automobile…” mean? Those words were the trigger to whether statutory auto coverage was available. As a result, Vytlingam and Herbison were looking at “directly or indirectly” in the context of the equivalent of a coverage agreement.  These cases and the auto cases that follow them do not cite the Canevada, Minox and Wynward decisions which look at these words in commercial all risk property policy exclusions. Further, Wynward relied on Canevada and did not refer to Vytlingam and Herbison which were decided after Canevada.

Learning of this divide in the cases was a surprising development. Prior to undertaking this research, I had believed that Vytlingam and Herbison, coming after, and perhaps explaining Derksen, controlled the issue. However, the unmistakable fact is that these groups of cases do not cite each other. That creates two distinct lines of cases, one line interpreting “directly or indirectly” in the equivalent of a coverage grant (Vytlingam and Herbison and, those decisions that follow them) versus another line that interprets “directly or indirectly” in an exclusion (Canevada, Minox and Wynward). Only MDS crosses this boundary. The best explanation for this divide is not that auto insurance cases are a class of their own (Canadian cases commonly refer to cases interpreting other lines of insurance when interpreting a policy) but that “directly or indirectly” has a different meaning when it appears in a coverage grant as opposed to an exclusion.

In Vytlingam, two impaired miscreants, threw a boulder from an overpass into the traffic below, severely injuring a motorist and causing lesser injuries to two of the passengers in the same vehicle. The issue was whether the under-insured motorist coverage for the vehicle that brought the miscreants and the boulder to the scene and allowed them to escape applied. To succeed, the claimants had to prove that their claims arose “…directly or indirectly…” from the use or operation of that vehicle. The Court stated that “…It is not enough to demonstrate that “but for” .[the]…  car the tort could not have been committed in the way that it was. To suggest that any time a car is used to transport people to the scene of a tort or a crime is sufficient to engage “inadequately insured motorist” coverage stretches the intended coverage until it snaps…”. The court held that the injuries did not arise directly or indirectly from the use and operation of the miscreants’ car.

In Herbison, Fred W. was driving his truck to his hunting stand just before sunrise. He thought his vehicle’s headlights picked up a deer. Fred stopped his truck, got out, went to the back, loaded his shotgun, took aim and fired. Instead of a deer, Fred shot his friend, Harold Herbison. Fred was found liable for Harold’s injuries. Fred’s auto insurer, Lumbermens, denied any liability to indemnify Harold. Harold sued Lumbermens and that action went all the way to the Supreme Court of Canada. To succeed against Lumbermens, Harold had to prove that his injuries arose “…directly or indirectly from the use or operation” of Fred’s truck meaning that he had to prove an unbroken chain of causation between his injury and the use and operation of Fred’s truck (para. 12.). It was determined that Harold’s injury was not caused by Fred’s truck. It was caused by a bullet. Fred’s act of firing his gun was separate and apart from his act of driving. It is not enough to show that the truck in some manner contributed to Harold’s injury.  The negligent use of a firearm broke the chain of causation between the use of the truck and Harold’s injury. Harold could not succeed against Lumbermens as his injury was not caused directly or indirectly from the use or operation of Fred’s vehicle.

Herbison was followed by the Ontario Court of Appeal in Russo v. John Doe, 2009 ONCA 305 and in Martin v. 2064324 Ontario Ltd., 2013 ONCA 19 both of which are auto cases interpreting the same provision. Herbison was also followed in two auto cases from Alberta, interpreting similar provisions, Letkeman v. Ouellette, 2010 ABCA 259 and ING Insurance Co. of Canada v. Harder Estate, 2008 ABCA 201.

MDS Inc. v. Factory Mutual Insurance Company: An aberration?

The facts in MDS are complicated. The judgment is 97 pages long and contains 746 paragraphs. What follows is a very a high-level look at the facts.

The Chalk River nuclear reactor in Ontario developed a heavy water leak. The leak contained radioactive material. For public safety reasons, the reactor was shut down until the cause of the leak could be determined. After months of analysis. whihc shut-in the reactor for 15 months, it was determined that the leak was due to unanticipated corrosion. In the meantime, the insured, MDS could not obtain the isotopes produced by the undamaged/shut-in reactor. The foundation of the business conducted by MDS was the sale of these isotopes throughout the world. MDS brought a claim against its contingent business interruption coverage with Factory Mutual for its lost profits. Factory Mutual denied coverage, stating that the cause of the loss profits was excluded by reason of an exclusion for corrosion and the nuclear radiation exclusion. The court found that the corrosion exclusion did not apply to fortuitous, unanticipated corrosion.

As for the nuclear radiation exclusion, the insurer argued that the irradiation of the air around a J-rod annulus caused the corrosion which caused the leak of heavy water.  In order to establish the causal chain, the insurer retained experts to parse the cause of the leak. The court was thoroughly unimpressed with that initiative to determine cause

It would not be within the reasonable expectation of the parties at the time of entering into the Policy that to obtain recovery for loss of the supply of isotopes produced by the NRU, so fundamental to the business of MDS, that MDS would become embroiled in this lengthy ten-year battle of the experts arguing that the nuclear radiation exclusion would apply because nuclear radiation of air was taking place at the microscopic level in the J-rod annulus at the NRU. At the time of the shutdown, the NRU was producing nuclear radiation and nitric acid exactly as known and anticipated since its operations in 1974.

The insurer relied on the words “directly or indirectly” as well as the post-Derksen anti-concurrent cause language to deny coverage, in view of the indirect cause of irradiated air which, it argued, contributed to the loss or damage. According to the insurer, this meant that all that needs to be done is to show that the irradiated air was “a cause” of the leak. (para. 590) In reply to this argument, the court held that for the insurer to succeed, it must prove an unbroken chain of causation between the irradiated air and the leak, as the meaning of “directly or indirectly” is governed by Vytlingam and Herbison and the Court of Appeal cases that follow them.  That “some causation link must be found and it must constitute a link in an unbroken chain.”: Herbison, at para. 14. (para. 595). In coming to that conclusion, the court ignored the anti-concurrent cause language present in the policy and instead gave precedence to “directly or indirectly”.

However, the nuclear radiation exclusion was held to be ambiguous. As it was found to be ambiguous, the exclusion would be read in favour of the insured which means that it could not apply to irradiated air which was part of the day to day nuclear activity (para. 611) . Finally, the experts concluded that the irradiated air was not a cause (para. 599).

In view of the ambiguity in the exclusion, the court was able to assess the reasonable expectations of the parties. The court concluded that it would be outside the reasonable interpretation of the parties for the policy to exclude a loss such as this which was due to normal nuclear activity, given how a supply of isotopes was fundamental to the business of MDS.

As stated in the May 14, 2020 edition of this newsletter, the MDS decision is likely to be appealed and it will be interesting to see how the Ontario Court of Appeal will treat this interpretation if and when an appeal occurs.


This survey of Canadian law points to the conclusion that the Canevada analysis provides the clearest direction as to what “directly or indirectly” in an exclusion to a commercial all risks policy means.

According to that analysis, there must be consideration as to whether there is a straight causal line between cause and damage. If there are multiple causes, then the issue is whether a causal line exists through the chain of events. If so, then the last event causing the damage is the direct cause. If the direct cause was solely capable of producing the damage complained of, then the concurrent cause analysis has no bearing on the issue. The Ontario Superior Court of Justice decision, Algonquin Power (Long Sault) Partnership v. Chubb Insurance Company of Canada, 2003 CanLII 44422 (On SC) bears reading, as it exemplifies that situation.

However, if the direct cause was triggered by a contributing cause, then, in most cases, the contributing cause is the indirect cause.  In other words, indirect causes are those that ‘trip the dominos” triggering the last event in the chain, the direct cause.

Canevada, Minox and Wynward are not wholly inconsistent or out of step with Herbison (and Vytlingam).  However, when one is interpreting “directly or indirectly” in an exclusion, these cases are preferable authorities. This is the trio of cases that should be brought to bear when dealing with the causal issues presented by the time element claims of businesses that have been impacted by floods or wildfires amid their emergence from the COVID-19 restrictions.

Cara’s Cross-Border Connection: Lantheus v. Zurich

Although introduced above, I will compare MDS v. Factory Mutual Ins. Co. to the American case, Lantheus, which revolves around the same incident: the 15-month RNU shutdown. Lantheus Medical Imaging, Inc. v. Zurich American Ins. Co., 255 F.Supp.3d 443 (S.D.N.Y. 2015), aff’d 650 Fed.Appx. 70 (2d Cir. 2016).

  1. Similarities

Both cases have various similarities, including the following:

  • Both carriers issued an all-risk property insurance policy to their respective insured;
  • Both policies included contingent business interruption (CBI) coverage;
  • Both insureds were purchasers of isotopes that were produced at the NRU;
  • Both insureds made a claim for lost profits under their CBI policy after the 15-month shutdown of the NRU;
  • Both CBI policies contained a corrosion exclusion;
  • Neither policy provided a definition for “corrosion”; and
  • Both carriers denied their respective insureds’ claims due to the applicability of said corrosion exclusions.

However, the Southern District of New York arrived at an entirely different conclusion, which was affirmed by the Second Circuit, arguing the loss was caused in whole or in part by the excluded peril—corrosion—and therefore, there was no coverage for Lantheus. Conversely, as mentioned by my co-author, Heather, the Ontario Superior Court of Justice held the corrosion exclusion did not apply. Accordingly, how did these courts end up arriving to such different conclusions?

  1. Differences

Although there are various similarities between the fact patterns, and most notably that the claims arose from the same incident, there are some notable differences, including:

  • The Canadian court focused on the fact that there were two types of corrosion.

There was the known generalized corrosion of the outer calandria wall caused by the creation of nitric acid in the J-rod annulus as a result of leaking water from the reflect. This corrosion that occurred over a long period of time was monitored. This generalized corrosion over the entire wall of the calandria over the life of the reactor from 1974 to 2009 caused the 8 mm calandria wall to thin by approximately 0.4 to 0.5 mm. This known and anticipated generalized corrosion did not cause the leak. If it had, it is agreed by the Plaintiffs that this non-fortuitous corrosion involving the predictable wearing away of the calandria wall over time would be subject to the corrosion exclusion. [However, i]t is the second kind of unanticipated corrosion at J-41 that caused the leak of heavy water that is in issue. Causation of this corrosion is relevant to whether or not the corrosion exclusion applies.” MDS, at para 243-44 (emphasis added).

  • Both policies did not provide a definition for “corrosion” but in MDS, the carrier and insured had different opinions as to the meaning of “corrosion”. Accordingly, the Ontario Superior Court of Justice first attempted to find a meaning for “corrosion” to remedy any ambiguity. Thereafter, the court examined the insurer’s subsequent argument that the nuclear radiation exclusion applied, which has been examined above by my Canadian correspondent.
  1. Differences of Opinion

Although the Canadian court held that the corrosion exclusion did not apply due to the fortuitous, unanticipated, corrosion, the Southern District (and Second Circuit) held the corrosion exclusion did apply. First, the Southern District did not need to debate the meaning of “corrosion” because the insured and carrier both agreed with this approach, as opposed to a scientific or expert understanding. Accordingly, the court deferred to the dictionary definition of “corrosion”—“the action or process of corrosive chemical change not necessarily accompanied by loss of form or compactness; typically: a gradual wearing away or alternative by a chemical or electrochemical essentially oxidizing process (as in the atmospheric rusting of iron).” (Emphasis originally included).

Accordingly, these differences led the Canadian court to hold the corrosion exclusion to be ambiguous while its American counterpart held the corrosion exclusion to be unambiguous. After determining the corrosion was unambiguous, the Southern District then examined the effect of the anti-concurrent causation language on the corrosion exclusion’s applicability given:

the breach occurred because of a “pressure surge…act[ing] upon an already weakened point….” However, in light of the anti-concurrent causation language, this theory simply begs the question of what process caused the vessel to be “already weakened.” If the corrosion “contribute[d] concurrently or in any sequence to the loss or damage” caused by the pressure surge, then the corrosion exclusion forecloses coverage.

The court emphasized this point with reference to another Southern District case involving a homeowner’s policy where the carrier denied coverage for water damage that was caused by a burst pipe because the court found that the pipe burst was caused by “earth movement” which was excluded by the policy and the exclusion was preceded by an anti-concurrent clause provision. Alamia v. Nationwide Mut. Fire Ins. Co., 495 F.Supp.2d 362 (holding “‘an anti-concurrent’ clause… excludes coverage for damage caused by an excluded peril even when covered perils also contribute to the damage…” where “the broken pipe had been leaking water into the soil below the structure of the house for several years, causing the earth to settle and erode[,]” i.e. earth movement).

Importantly, the court then examined the crux of insureds’ argument: the effect of the anti-concurrent clause language on the corrosion exclusion. The insured argued that the corrosion exclusion did not apply because it should be narrowly interpreted to only exclude coverage for corrosion as “the gradual corrosion damage that takes place inevitably over the useful life of a machine[because the corrosion] occurred too rapidly, or not sufficiently gradually, to qualify as ‘corrosion’” (emphasis included). The court rejected this argument and noted that prior attempts to narrow the definition of “corrosion” have been rejected and “[t]he specific type of corrosion or its cause is irrelevant given the policy’s clear language.” (emphasis added).

Lantheus also argued the loss was covered because it was a “machinery breakdown—and not corrosion—[that] caused the loss.”  However, the court held that Zurich “ha[d] the better of the argument, but that this semantic difference [did] not affect the Court’s analysis of the corrosion exclusion.” Nevertheless, Lantheus’s last argument was that the policy’s “ensuing loss” exception restored coverage. Again, the court rejected this argument because the insured “conflate[d] ensuing causes of loss with the loss itself… [ ]” and the court concluded its holding in favor or Zurich by warning “[T]he exception to an exclusion should not be read so broadly that the rule—the exclusion clause—is swallowed by the exception—here, the exception for ensuing loss.” Lantheus, at 465 (internal citations omitted).

  1. Conclusion

The Ontario Supreme Court of Justice addressed the Southern District’s conclusion and distinguished it from MDS. The Ontario Supreme Court of Justice explicitly noted the language of the respective exclusions were “quite different and the exclusion clause in Lantheus appears to be more specific, confirming all corrosion is excluded.” MDS, at para 294.

In MDS, the pertinent part of the exclusion is:

This Policy excludes the following, but, if physical damage not excluded by this Policy results, then only that resulting damage is insured: …

3) deterioration, depletion, rust, corrosion or erosion, wear and tear, inherent vice or latent defect.

MDS, at 295. Conversely, the exclusion clause language in Lantheus provides:

We will not pay for loss or damage resulting from any of the following; such loss or damages is excluded regardless of any cause or event that contributes concurrently or in any sequence to the loss or damage, except as specifically provided. …

5. Developing, Latent and Other Causes The effects or cause of: … b. Deterioration, depletion, rust, corrosion, erosion, loss of weight, evaporation [,] or wear and tear[.] …

But if any of these results in a covered cause of loss, this exclusion does not apply to the loss or damage caused by the covered cause of loss. [Square brackets in original.]

MDS, at 296. Although policy language is important, what’s more significant is that the Ontario Superior Court of Justice held in favor of the insureds because the insureds argued that the corrosion, no matter how long it takes to develop, was fortuitous and unexpected. Therefore, the Canadian court held “[t]his unanticipated circumstance is the exact kind of fortuitous event usually covered in all-risk policies.” MDS, at 301

Hurwitz & Fine, P.C.
1300 Liberty Building

Buffalo, New York 14202
Phone: 716-849-8900
Fax: 716-855-0874

Long Island Office:
575 Broad Hollow Road

Melville, New York 11747
Phone: 631-465-0700
Fax: 631-465-0313

© Hurwitz & Fine, P. C. 2020
All rights reserved

Newsletter Sign Up