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Coverage Pointers - Volume XXII, No. 1

Volume XXII, No. 1 (No. 566)
Friday, June 26, 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.

Welcome to Volume XXII, Issue No. 1 of Coverage Pointers.  We are delighted to beginning our 22nd year of continuous and regular publication and for those of you who are counting, and who isn’t, this is our 566th issue.  For those who enjoy multiplication, and I thank Alexa for assisting, if we issued a newsletter every second week since we started, we’d have issued 547 newsletters.  But we’ve also produced 19 extra-special editions when there have been significant judicial or legislative decisions that we felt could not wait until the following scheduled issue.  We’re wondering what would happen if we slow down the newsletter, would we slow down the number of coverage decisions being decided by New York Courts?

Greetings from my home-office, still wearing shorts, still enjoying the weather, still not back in the office, although that should happen (at least on a part-time basis) very soon. I am still unable to travel to Canada and enjoy my summer home, on Lake Erie, and that’s problematic. If you want a peek from our porch, click here.  Not getting there (and it’s only 18 minutes from our Buffalo home), is a First World problem. We have health and are fully employed, and our family is healthy as well.  That’s what is important.

As we await the ruling from the MDL panel on COVID-19, the action in that courtroom has slowed a bit, most parties have submitted all they are expected to submit for the court’s consideration.  We are handling a number of COVID-19 files here and Child Victim’s Act cases have continued to pour in since the court’s reopened for electronic filing.  The Governor has still not considered the extension of time to sue these cases, passed by the Legislature.  Stay tuned.

I cover two interesting cases in my column today. One that reminds New York carriers of the peculiar institution of UM/SUM (uninsured motorists, Supplementary Uninsured/Underinsured Motorist) coverage protocols.  Whenever a claim for UM or SUM arbitration is received REMEMBER that there is a 20-day statute of limitations in place to make applications to stay arbitration to secure court intervention for discovery or dismissal.  Have any questions, call, but don’t wait.

The other case reminds us of the importance of prompt and appropriate disclaimers. Here, the insurer did not raise a policy exclusion in a disclaimer letter within 30 days and lost its right to rely upon it.  Draconian penalties are imposed by New York courts on insurers that fail to follow the Insurance Law Section 3420 rules.

Don’t know about Insurance Law Section 3420(d)(2)? Let us know and we can send along an outline of the very peculiar and demanding New York rules.
 

Opioid Coverage Litigation:

For those who haven’t paid attention to the increasing number of coverage lawsuits involving claims against pharmaceutical distributors by governmental entities for costs incurred in combating the opioid epidemic, it is time to sit up and take notice.  On June 24, the Ohio Court of Appeals (mid-level appellate court), First Appellate Division, handed down a decision in Acuity v. Masters Pharmaceutical, Inc., that is worth reading.  Citing to the 2016 Seventh Circuit decision in Cincinnati Ins. Co. v. H.D. Smith, and others, the Court found that the term “damages because of bodily injury” in a CGL policy was broad enough to trigger a carrier’s obligation to defend the drug company in government claims for their economic damages.  The court noted that  “damages claimed by any person or organization for care, loss of services, or death resulting at any time from the bodily injury” may include governmental entities’ lawsuits for costs spent providing medical care from opioids, just as it may include and emergency services in response to suits against gun manufacturers, for violence caused by the insured’s firearms.  Watch this space.
 

New York Court Status – 06/24/20 Announcement:

The New York State Unified Court System announced that by tomorrow all courts outside New York City will be in phase three of a return to in-person operations. Yesterday, all courts in New York City began phase two.

Courts in the Third Judicial District (Capital District area) and Ninth Judicial District (White Plains and surrounding counties) began phase three of a gradual return to in-person operations today and Long Island will enter phase three tomorrow.

Western New York, the North Country, along with Syracuse, Binghamton and Rochester, and their surrounding counties, have already begun the third phase of a gradual return to in-person court operations.

The goal of phase three, officials said, is to increase foot traffic in the courthouse in a measured manner and extend the types of proceedings to be heard in-person to include:

  • Child support proceedings

  • Selected plea and sentencing proceedings for defendants at liberty

  • Preliminary hearings in criminal cases for defendants being held in jail on felony complaints

  • Arraignments of defendants issued desk appearance tickets

  • A limited number of bench trials in civil matters

  • Essential Family Court matters will continue to be heard in-person
     

Judges will continue to expand their use of virtual proceedings whenever legally permissible and logistically possible. Where an in-person proceeding involves an incarcerated individual, that individual shall appear virtually via electronic means unless otherwise ordered by the assigned judge.

Non-essential matters, criminal proceedings (except as noted), juvenile delinquency proceedings and mental hygiene law proceedings pertaining to a hospitalized adult will continue to be held virtually and heard by the assigned judge. Mediation/alternative dispute resolution will be conducted virtually.

Judges and clerks will coordinate to ensure that court space is used to optimize safety and efficiency. There will be staggered scheduling of court appearances, court calendars and courtroom usage to limit the number of people in courthouses and ensure that no more than half of the courtrooms are being used at any given time.

During this third phase, non-judicial staffing levels will increase modestly to support necessary administrative court functions as well as to provide support for the moderate increase in foot traffic in the courthouse. Non-reporting court staff will continue to work virtually.

“To keep up our progress as we re-establish in-person courthouse operations across the state, we must proceed cautiously, remaining vigilant in following the new safety measures and operational protocols designed to protect the health of our judges, staff and court visitors,” said Chief Judge Janet DiFiore.

Phase One measures that will remain in place to protect the health and safety of judges, staff and court visitors include:

  • Anyone entering the courthouse will be required to wear a mask.

  • All staff who interact with court visitors must wear a mask.

  • Courthouse areas will be carefully marked to ensure proper physical distancing.

  • Court facilities will be regularly sanitized.

  • Installation of acrylic barriers, hand sanitizer dispensers and other safety features in courthouse areas as needed.
     

Newsletters:      

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

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

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

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

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

 

Peiper on Property and Potpourri:

A return to normalcy this issue with three new decisions upon which to offer commentary.  Nothing particularly controversial in this edition, but the common theme that contractual language “means what it says” is abound.  The Fourth Department reminds us that having the “right” to do something is not an “obligation” to do it.  The Third Department, in turn, reminds us (particularly those who are brokers/agents) that if we are requested to procure a certain coverage we have the “obligation” (and, not the “right”) to do it. 

In any event, with COVID problems again on the horizon, we’ll focus more on the positive developments over the past two weeks.  My home now only serves as an office.  Schools across Upstate New York have adjourned for the Summer, and parents and kids alike can rejoice.

This has not lessoned the draw on my wifi, however.  Zoom has been replaced by Netflix, X-box and the constant barrage that is TikTok.  I have to be honest, I’m not really sure I know what TikTok is.  It appears to be a platform for kids to record themselves doing silly things.  I trust there are more utilitarian applications, but those don’t seem to have found their way to my house.  

Of course, having a singular purpose would be consistent with the rest of social media as best as I can tell.

  • Tik-Tok – dance moves and video selfies.
  • Instagram – detailing latest IPA releases/collaborations
  • Facebook – repository of kid/dog/cat photos
  • Twitter -  ummm, no comment.
     

I know how crabby this must sound.  I’m ok with that.  Now, get off of my lawn, and have a Happy July 4th.

Stay safe, healthy, and well.

Steve
Steven E. Peiper

[email protected]

 

April – December Wedding:

The Evening World
New York, New York

26 Jun 1920

LAWYER OF 63 WEDS GIRL OF 19, SCHOOL CHUM OF CAUGHTER

John A. Weekes, Widower, Takes Miss Elsa Schreiter for His Bride.

            The departure to-day for a honey-moon trip to White Sulphur Springs of John A. Weekes, sixty-three years old, prominent attorney and member of exclusive clubs, and his bride, who was Miss Elsa Adele Schreiter, nineteen years old, brought to light a romance that had its inception in the schoolgirl friendship of the bride and Mr. Weekes’s daughter, Miss Estelle Weekes.

            The marriage ceremony was performed in the chancery of Grace Church yesterday by the Rev. Charles L. Slattery.  Only the bride’s mother and sister, Mrs. Henry Schreiter and Miss Ruth Schreiter, and Mr. Weekes’s bachelor brothers, Harry and Frederick Weekes, were present.

            The father of the bride was Henry Schreiter, a patent lawyer, who died suddenly in Grand Central Terminal last September.  He was seventy-three years old.  Mrs. Schreiter and her two daughters resided at No. 53 Hamilton Terrace.

            While attending St. Agnes’s School, near Albany, the bride became the chum of Mr. Weekes’s daughter.  When they returned here their friendship continued and resulted in meeting Mr. Weekes.

Editor’s Note:  Elsa and John remained married for 19 years, until his death at age 82, in 1939. Elsa then lived another 49 years, passing in 1988 at age 87.

 

Wilewicz’ Wide-World of Coverage:

Dear Readers,

We keep plugging along here, with not much of an update or change from the last edition. Time is losing meaning, which is fascinating for a profession so attuned to keeping track of time in six-minute increments. Meanwhile, some socially distant summer plans are shaping up. In our household, there are digital guitar lessons, a stack of new books to read (the libraries are doing curb-side pickup, which rocks), and a bunch of paint-by-numbers spread about the dining table. That, and lots of long walks around town with our increasingly whacky rescue dog, will round out the season, I think.

Now, the Second Circuit has finally addressed a few interesting “non-essential” coverage issues. One is featured in Diane Bucci’s column below and attached, as it talks about an intellectual property exclusion decision of note. Here, we bring you one about attorney’s fees and standing. In 360Heros v. Mainstreet America, a carrier agreed to the defense of its insured, and began to pay their independent counsel’s fees. However, when the bills started to run up, the carrier questioned the reasonableness and pushed back. Litigation ensued and coverage issues abound. However, once the carrier settled the underlying case, it claimed that it no longer had to pay the defense costs since it had provided a complete defense and the matter was moot. In short, the Second Circuit found that a live controversy between the insured and carrier continued to exist, despite the underlying resolution, since it was a separate contractual issue that remained unresolved itself. Shout out to a former colleague of mine, Matt Rowan of Kenney Shelton, on this one.

Until next time,

Agnes
Agnes A. Wilewicz

[email protected]

 

Huge Step in Arkansas, a Century Ago:

The Town Talk
Alexandria, Louisiana

26 Jun 1920

Negro Nominee For Governor of Arkansas

By Associated Press.

            Forrest City, Ark., June 26.—J. H. Blount, who is the first negro to be nominated for governor of Arkansas, received his nomination at the hands of a faction of the Republican party in this state.

            Blount is about 60 years old and has made his home in this city for the past 47 years.

            The nominee was born in Jones county, Georgia, received his elementary training in the schools of Atlanta and higher education in Nashville and Chicago.  He is at present principal of the negro schools of Helena and has been connected with schools in several Arkansas towns, including Hot Springs, Texarkana and Forrest City.

            Blount is said to be in independent financial circumstances, owning over 600 acres of farmland and to teach merely for the love of the work.  He is active in many fraternal orders.

Editor’s Note:  In 1920, Thomas Chipman McRae was elected to his first term as Governor of Arkansas. In the election, McRae represented the Democratic Party, receiving 123,637 votes (66.6 percent). Wallace Townsend represented the Republican Party, receiving 46,350 votes (25 percent), and Josiah H. Blount represented the Independent Party, receiving 15,627 votes (8.4 percent). Blount, an African American school superintendent from Forest City, was the leader of a splinter GOP faction called the "Black-and-Tan Republicans," who protested the "lily-white" stand of its new leaders that included gubernatorial nominee Townsend. Blount was the first of his race to seek election as Arkansas's chief executive.

 

Barnas on Bad Faith:

Hello again:

We finally have an agreement on a baseball season.  I for one am so ready to think about launch angles, weighted runs created, and ultimate zone rating instead of pro-rated salaries and service time.  A 60-game season will be unprecedented and completely different from the normal baseball experience.  The adage of “it’s a marathon not a sprint” no longer applies and randomness abounds.  I’m not sure I like it, but Fangraphs says that the Blue Jays’ playoff odds in a 60-game season are about 15%, which is far greater than the 2% chance they had over 162.  Can’t wait to play ball.

Bad faith lawsuits are still slow, but I have an interesting one from the District of Colorado in my column today.  The court concluded that an insureds’ contractor for repairs to the damaged property could bring a statutory bad faith claim against the insurer after the insureds assigned their rights to the contractor.  Interestingly, this was just a statutory bad faith claim, the contractor did not assert a breach of contract claim.  The court concluded that the statutory bad faith claim was included in the assignment of the rights to the insurance claim.

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

Brian
Brian D. Barnas

[email protected]

 

Silent Cal, No Friend of Women:

New-York Tribune
New York, New York

26 Jun 1920

Coolidge Won’t Appeal to
State for Suffrage

From the Tribune’s Washington Bureau

WASHINGTON, June 25.—Governor Calvin Coolidge of Massachusetts, Republican Vice-Presidential candidate, will not “interfere with other states” on the question of suffrage, according to the National Woman’s Party.  This statement from the Governor’s secretary was received at National Woman’s Party Headquarters here to-night in a telegram from Vivian Pierce, national organizer of the Woman’s Party at Boston.

The telegram also reported that no statement on the suffrage issue would be issued by Governor Coolidge until his speech of acceptance after the formal notification of his nomination on July 27.

 

Big Reward, in 1920 Dollars:

The News Leader
Staunton, Virginia

26 Jun 1920

BOYS WIN AGAINST BANK

            PITTSBURGH, June 26.—Albert Bradley Jr., aged 7, and William A. Donahey Jr., aged 9, of Wilkinsburg, won their suit against the First National bank of Wilkinsburg, which claimed the $5350 the boys found hidden under a lumber pile of the Mitchell Lumber company.

“’Jack’ Bradley and I were playing pirates when I stooped down behind a lumber pile to grab a stick and ran my hand into a whole pile of money, fat rolls of $50 and $100 bills, wrapped in a newspaper,” said “Billy” Donahey.  Chief of Police Bishop thought the money was part of $30,000 stolen from the bank May 10, 1919.

Editor’s Note: That’s about $73,000 split between the two of them.  Not a bad haul.

 

Boron’s Benchmarks:

Ordinarily, I decline to indulge in any TV series whose main character is a litigator.  Same goes for such movies.  But with the COVID-19 pandemic severely limiting my free time activities, I’ve recently been cajoled by my wife into watching one such TV series.  I’m not naming the show in case it happens to be one of your all-time favorites.  But let me just say the courtroom scenes in this 90-episode series are among the most far-fetched I’ve ever seen on the big or little screen.  And that includes the movie My Cousin Vinny.

In this TV series we’ve been binge-watching over the past two weeks, the main character, who is a criminal defense attorney, ambushes and/or badgers her own witnesses after calling them to the stand, blatantly ignores directives, admonishments and reprimands from the judge, and makes all manner of improper statements and arguments in front of jurors. I find myself counting, but then losing count, of the many reasons for a mistrial – if not for sanction or worse - during these courtroom scenes.  And my poor wife gets annoyed when I either bust out laughing or yell at the screen in the middle of the courtroom scenes.  But now that we’re into season 5 of the 6-season series, I’ve resolved to just gut it out and finish watching the series. I do want to see how certain plot line mysteries get resolved at the end of the series.  And I admit it seems the courtroom scenes are becoming more tolerable for me to watch the farther we get into the series.  I am hoping no courtroom scene in season 5 or 6 will “trigger” me.  But all bets are off if I hear the judge advise one of the criminal defense attorney’s juries, “Counsel’s entire opening statement…with the exception of ‘thank you’…will be stricken from the record.”

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 Friday by the Supreme Court of Texas, Marchbanks v. Liberty Insurance Corporation.  The decision reversed on appeal a grant of summary judgment to an insurer in an insured’s breach of contract suit that had also alleged several extra-contractual claims, all relative to a denied hailstorm property damage claim under a homeowner’s policy. My write-up of the Texas Supreme Court’s 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
Eric T. Boron

[email protected]

 

Making Black Lives Matter, 100 Years Ago:

The Tulsa Star
Tulsa, Oklahoma

26 Jun 1920

Determination of Colored Voters Anticipates Trouble

(A. N. P. service)

RALEIGH, N.C., June 25—Four Hundred Negro voters registered in the primary registry for the June election have become a vital issue among the contending factions in the city.  These voters represent the balance of power and one of the factions has threatened a wholesale challenging of the vote.  Trouble is anticipated because the Negro have expressed their determination to vote as they please.

 

Barci’s Basics (On No Fault):

Hello Subscribers!

I hope you are all still staying healthy and safe! My answers to last issues topics are as follows: 1) My favorite toy as a kid was a little fake dog with wheels on the bottom that allowed me to “walk” it. Unfortunately, 4-year-old me left this dog in my front yard one day thinking that it needed some fresh air. It was stolen and I was very sad; 2) I firmly believe you only need to get to the airport an hour before boarding time; 3) My current favorite way to cook a potato is in the microwave. I am not a fan of cooking and like it to be without much clean-up. My microwave “baked” potato recipe is this: I clean the potato, rub it with olive oil, salt and pepper it, wrap it in a damp paper towel, let it cook for 7-8 minutes and voila!; 4) For all the Harry Potter fans – I am a Slytherin. Obviously, Slytherin’s get a bad rap, but I am quite proud of the characteristics that make it so, including ambition and autonomy.

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

  • What book or story has made a great impact on you?

  • If you won big in the lottery, what would be your first big spend?

  • Where is your next ideal vacation spot?
     

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

On the no-fault front, I have one case for you that discusses a provider’s alleged failure to maintain proper licensing, as well as medical necessity and fee schedule defenses.

That’s all folks,

Marina
Marina A. Barci

[email protected]

 

Our Friend, Mrs. Hill, No Longer Worth $300,000:

Independence Daily Reporter
Independence, Kansas

26 Jun 1920

PRETTY YOUNG WIDOW, worth $37,000, wishes to hear from honorable gentlemen under 60.  Object, matrimony.  Write Mrs. Hill, 14 East 6th St., Jacksonville, Fla.         6-21-1M

Editor’s note:  I am obsessed with Mrs. Hill, who has been searching for an “honorable gentleman” for many, many weeks. Her self-assessment of her worth moved between $30,000 and $300,000, depending on where and when she placed her ads. 

 

Ryan’s Capital Roundup:

Hello Loyal Coverage Pointers Subscribers:

Summer is officially here, however, I, like many, was unable to enjoy the first few days on account of seasonal allergies. The sun—it looks nice from in here. It sure does feel good to look at a nice sunny day, doesn’t it? There is always next week, once my eyes stop itching.

This week, our legislative list contains several proposed bills in the New York State Legislature. The first would render contract provisions exempting employers from COVID-19 liability void and unenforceable. The second would extend the revival of Vietnam War related phenoxy herbicide causes of action indefinitely into the future. The third would require municipalities, authorities and agencies to obtain minimum liability insurance limits of $200,000 per officer. Finally, the fourth and fifth both concern law enforcement liability for misconduct—including language with regard to protections for those officers who voluntarily intervene with others engaged in misconduct or penalties for failing to intervene with others engaged in misconduct.

Additionally, this edition of Coverage Pointers contains a republication of a piece by Ron Clark and Owen Mooney of Bullivant Houser Bailey PC, originally appearing on their website, entitled “New Washington Regulation Impacting an Insurer's ‘Adverse Notification’”. Now is as good a time as any to revise those coverage letter templates ladies and gentlemen. The Coverage Pointers team would like to thank the authors for allowing us to share their work with you, our loyal readership.

Until next time,

Ryan
Ryan P. Maxwell

[email protected]

 

I Should have Bought One a Century Ago:

Buffalo Courier
Buffalo, New York

26 Jun 1920

PASSPORT FEE NOW $9

The fee for issuing passports to citizens desirous of leaving the country has been raised from $2 to $9, according to an order received by Harris S. Williams, federal court clerk yesterday.  The new rate was put into effect immediately. 

 

CJ on CVA and USDC(NY):

Hello all,

Hopefully the world’s slow, but steady, reopening is treating you well. I was finally able to get my haircut after about four and a half months since the last one, and I feel like a new man. The weather in WNY has provided more safe opportunities to socialize with family -- I was even lucky enough to get out on the boat this past weekend. I’m looking forward to more good weather, as my father and I are taking on the task of re-siding the back of my house soon. While I’ve undertaken some relatively involved projects, never have I done something on this scale. If anyone has any tips, tricks, or advice I’d be very appreciative if you passed it along!

Onto the world of the District Courts in New York. This week I present the Western District’s take on Burlington Ins. Co. v. NYC Transit Authority. The big take away from this case is that the contract is king. When an agreement between A and B provides that A’s employee is operating as an independent contractor of B, that employee’s actions or inactions will likely be imputed to B and not A. In addition to this WDNY case, John Ewell, in his column, will be reporting on an EDNY case he successfully litigated where the Court found that the watercraft exclusion in a homeowner’s policy barred coverage for a boating accident in the Long Island Sound. Congratulations John on the victory!

Happy Reading!

CJ
Charles J. Englert, III
[email protected]
       

 

A Suit over Coats, 100 Years Ago?

Buffalo Courier
Buffalo, New York

26 Jun 1920

THEFT OF INSURED OVERCOATS MANY LEAD TO OWNERS’ ARRESTS

New York, June 25.—A new epidemic of thefts of heavily insured fur coats, just at the time when their owners had no further immediate need for them has resulted in any investigation which will ring many of the owners to trial on charges of obtaining money Under false pretenses, R. R. Brown, vice president of the American Surety company, announced today.

According to Mr. Brown, scores of New York’s “wild spenders” have stored or pawned their coats and then submitted fictitious theft claims.  Other plungers, he said, have stolen their own jewelry, silverware and money in the belief that in the epidemic of real thefts their claims would pass unchallenged. 

 

Dishing Out Serious Injury Threshold:

Dear Readers,

First and foremost, I hope everyone is staying safe and was able to safely enjoy Father’s Day with the family. Considering everything going on, time has seemed to speed up. With next week being the 4th of July, I can honestly say summer is flying by. Hopefully, we can all take the long weekend to relax and appreciate the warm weather with family and good food to bring a sense of normalcy to our lives.

In the Serious Injury Threshold world there remains little of note. However, we do have a couple of decisions to talk about. The first is out of the 2nd Department dealing with the 90/180-day category, showing how follow-up questioning during depositions as to plaintiff’s activities both before and after the subject accident, especially for an unemployed/retired plaintiff, can be significant. Also, we have a case out of the 1st Department again showing how plaintiff’s experts bear the burden rebut defense expert evidence of preexisting degenerative condition.

Stay safe,

Michael
Michael J. Dischley
[email protected]  

 

Big Raise, 100 Years Ago:

Times Union
Brooklyn, New York

26 Jun 1920

Building Workers to Ask $10 a Day, Is Prediction

            Demands by all branches of the building trades for a minimum wage of $10 a day were predicted yesterday by Edward P. Doyle, president of the Real Estate Board and secretary of the Mayor’s Conference committee in Housing, at a committee meeting.  He declared he had reliable information that such demands are now being framed.

            If these prices prevail, he added, the effect on building operations will be disastrous.  It will render it impossible to put up apartment houses to rent for less than $20 a room per month.  The effect would be to check apartment house operations. 

 

Bucci on “B”:

Hello people.  I hope everyone is staying safe and out of trouble and starting to participate in activities that were out of reach a few months ago.  I’m happy to see things start to open but still tentative given the spikes in other states.   I haven’t even had my hair done yet!

A few weeks back, we brought you the June 4th oral arguments in Spandex House’s appeal of Judge Caproni’s decision in Spandex House, Inc. v. Hartford Fire Ins. Co., 407 F. Supp. 3d 242 (S.D.N.Y. 2019).  The Second Circuit wasted no time in correctly rejecting Spandex’s argument that commas surrounding a clause in an insurance policy indicates that the clause is non-restrictive (nonessential) and can either be read out of the contract or render the policy ambiguous.  See Spandex House, 2020 WL 3263340 (2d Cir. June 17, 2020).  Imagine if the court agreed with Spandex.  All words in a policy surrounded by commas in an insurance policy would be at least ambiguous! See our write up of the Second Circuit’s decision in my column, Bucci on B.

Call or email with questions, etc.

Meanwhile, stay safe.  And hope for good weather over the weekend!

Diane
Diane L. Bucci

[email protected]

Buffalo Evening News
Buffalo, New York

26 Jun 1920

First Rocker Appears at Sing Sing Prison

            OSSINING, June 26.—For the first time in the memory of the oldest guard, a rocking chair is to make its appearance in Sing Sing prison.  Guards contributed for the purchase of the chair for Mrs. Hariet Dixon, only woman held in the prison for execution in many years, when they learned she was unable to sit comfortably on the regulation prison stools.

 

John’s Jersey Journal:

A blackboard sign on a wall

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Congratulations to Dan and the Firm on 22 years of Coverage Pointers. It is an honor to be part of a team of such talented coverage lawyers. I enjoy reading our contributors’ columns each issue.

But First a Quick Trip to New York…

While this is our New Jersey column, I also advise and litigate insurance coverage in New York. This week we report a win for the good guys in New York federal court, EDNY. We successfully obtained a declaration that a watercraft exclusion in a homeowner’s policy barred coverage for a boating accident.

The watercraft exclusion contained in most homeowner’s policy is an interesting read. The goal of the endorsement is to generally exclude coverage for boating accidents. The exceptions are written to provide coverage for small boats. At a certain point, however, the boat is powerful enough that boat liability insurance should be purchased.

The insured was boating in Long Island Sound when another boat crashed into it. A passenger onboard was injured and sued. Since no boat liability insurance existed, a claim was made against the homeowner’s policy. The homeowner’s carrier denied coverage based upon the watercraft exclusion. Using an affidavit from the investigating officer, we established that the boat was propelled by engine power, thus, triggering the exclusion.

The co-defendants and claimant stipulated there was no coverage and walked away. After which, the carrier moved against its insured. The Magistrate Judge agreed that the watercraft exclusion unambiguously applied, and therefore, recommended and reported that the homeowner’s insurer had no duty to defend or indemnify the loss. We were pleased with the result. We enjoy litigating the full gamut of coverage issues across all policy forms.

Homeowners Policies Did Not Cover Hurricane Sandy Flood Damage Due to Anti-Sequential Provision

As far as our New Jersey offerings, we have yet another Hurricane Sandy case. Having handled those cases for eight years now, New Jersey justices have become experts at hurricane cases. Efficient proximate cause also known as Appleman’s Rule? They know it. Anti-sequential provision? They know that. Even if it isn’t labeled as such.

The litigation was a family affair. The insureds were relatives who lived on the same street After Hurricane Sandy destroyed their residences, each collected the policy limit of their flood insurance. Afterwards, both sued their homeowner’s insurance carriers, both Chubb insurance companies, for coverage. Chubb denied the claims based on the surface water exclusion. The policies also clearly excluded flood and contained the New Jersey notification that the insurance policy did not cover flood.

Chubb moved for summary judgement that the surface water exclusion barred coverage. The insureds tried to avoid the exclusion by arguing the efficient proximate cause doctrine. They argued the real cause (or efficient proximate cause) was wind damage and wind is a covered peril. Chubb opposed. The policies contained language that in effect functioned as an anti-sequential cause provision:

"the words 'caused by' mean any loss that is contributed to, made worse by, or in any way results from that peril."

Both trial and appellate courts recognized this language to be, what it is, anti-sequential language. Accordingly, they ruled that the surface water exclusion applied even if there were other causes of the damage such as wind.

The insureds also argued, along the same lines, that since the houses collapsed, there should be coverage. Court did not buy that argument at all.

John
John R. Ewell

[email protected]

 

The World Court to be Seated at The Hague:

The New York Times
New York, New York

26 June 1920

JURISTS CHOOSE THE HAGUE

Unanimous for it was the Seat of the Proposed World Court.

Copyright, 1920, by The New York Times Company.

Special Cable to THE NEW YORK TIMES

            THE HAUGUE, June 25.—The commission of jurists has adopted a resolution providing that the seat of the Permanent Court of International Justice shall be located at The Hague.  The vote was unanimous.

            Although the jurists are in agreement on many questions before them, this is the first resolution which they have actually adopted.  It will bring much rejoicing to the Dutch, who have entertained hopes of such a decision.  The Dutch Government will be officially informed of the action taken and the resolution will be laid before the League Council at its next meeting.

            After taking its decision regarding the permanent location of the court the Commission discussed questions relating to the competence of the court—whether it should settle only disputes between nations or consider cases of individuals as well.  Although nothing was agreed upon, the consensus was that individuals were well protected by international jurisdictions and that if judicial action did not bring redress diplomatic action could be resorted to, and if this were not done it would indicate that plaintiff has not a good case.

            The session of the Commission will be interrupted from Saturday till Tuesday, as several of its members are going to Paris and Brussels.

 

Lee’s Connecticut Chronicles:

Dear Nutmeg Newsies:

Welcome back to summer in Connecticut—the land of the hot lobster roll. I’m sure you’re all familiar with the lobster roll as a cold, mayonnaise-based sandwich. According to the "Encyclopedia of American Food and Drink," however, the lobster roll originated as a hot dish at Perry's in Milford, Connecticut, back at the start of the Great Depression in 1929. Its popularity spread up and down the Connecticut coast, but not far beyond it. In Connecticut, the sandwich served warm is called a “lobster roll"; served cold, a "lobster salad roll." Another thing you might not know about Connecticut is that it is also home to the WWE. And, in this edition of Coverage Pointers we have an epic smackdown between contract and regulation. Today we address the question: Does a truck rental agreement incorporate the requirements of the FMSCA? A pay per view event tailor made for coverage lawyers. Read on for the answer.

Keep wearing your masks. Us Nutmeggers would love to have some out-of-state visitors to wow with our lobster rolls. But the Governor is not going to let you in until your states get control of COVID-19. So, I will wear my mask for you, and you can wear your mask for me, and soon we can share a hot, buttery lobster roll at Abbott’s. We only have 15 weeks left!

Lee
Lee S. Siegel

[email protected]
       

 

Modesty Trumps Conservation, 100 Years Ago:

New-York Tribune
New York, New York

26 Jun 1920

U.S. Puts Feminine Modesty Before Conservation of Gowns

            WASHINTON, June 25.—Conservation of cloth at the expense of womanly modesty will not be indorsed by the government representatives of the National Garment Retailers Association were told to-day by Howard Figg, assistant to the Attorney General in charge of the campaign to reduce prices.

            The retailers presented for Mr. Figg’s inspection three living models dressed in knee length gowns designed as the extreme in women’s wear for next fall.  Mr. Figg looked them over.  Then he blushed and looked away as the mannequins performed for all the world as if they were a Fifth Avenue shop.

            After a hurried discussion with representatives of the garment association, Mr. Figg fled.  Motion picture men who had heard of the performance tried to persuade him to pose with the models.  He declined, unless the scanty skirts were replaced with something a little less revealing.

            Mr. Figg refused to indicate what he considered a proper length for skirts but declared after viewing the extreme styles that skirts should “at least come below the waist.”

            The garment dealers told Mr. Figg that it takes as much cloth to make a short skirt as it does a long one, and that no economy is accomplished by saving in length.  So, the department won’t concern itself with how much skirts will cover.

            The retailers approved Mr. Figg’s suggestion that coming styles should be changed as little as possible, so that women might get the full wear out of their clothes and not feel compelled to refill their wardrobes frequently because of the differing modes.

 

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

Hello subscribers,

And it’s officially summer! Although bars are restaurants are reopening, Jim and I are still spending lots of time at home, mostly hanging out on our porch and grilling almost every night. My friends and I convened for our virtual book club. We spent about 30 minutes discussing the confusion that was Lies, Inc. but quickly devolved into catching up on pets, home searches, and what everyone was cooking. The book club is continuing, but we don’t meet for a while, so I am sneaking in two more books: The Secret Lives of Color by Kassia St. Clair and Drown by Junot Diaz. If you’re looking for a quick and fun read, I suggest anything by Junot Diaz (This is How Your Lose Her is one of my favorites). And at the recommendation of a friend, I also started watching Hulu’s Taste the Nation with Padma Lakshmi and now I am ready to test my culinary skills at more new recipes. I hope everyone is doing well and still enjoying the warm weather!

Cara A. Cox
[email protected]
 

Being at home to regularly water and fertilize my garden has produced dividends. When the tulips left, the irises, poppies and salvia took over. Every plant is beautiful on its own, but together, the mix of blue, yellow, orange and red is wonderful, diverse, complimentary. It really is a metaphor for how beautiful we all are together.

Heather Sanderson
Sanderson Law (Alberta, Canada)

[email protected]

 

The Missing Caruso Jewels, Front Page News in 1920:

New-York Tribune
New York, New York

26 Jun 1920

Insurance Firm to Withhold Payment on Caruso Jewels

Company to Ask Proof of Loss; May Examine All Members of Family  and Servants Under an Oath

            Part of the insurance upon the $400,000 worth of jewelry stolen from the summer home of Enrico Caruso, at Easthampton, L. O., on June 8 will not be paid until what the underwriters regard as clear proof of loss has been established.  This was announced yesterday by Leon M. Prince, of 19 Cedar Street, attorney for the United States Fidelity and Guaranty Company, which issued a policy of $25,000 to cover certain portions of the jewels.

            Mr. Prince said that the policy has in it a clause giving the insurance company the right to question the members of the Caruso family and all employees under oath.

            “I am going to hold an inquiry in my office, either next week or the week following,” said Mr. Prince, “and we intend to make a complete investigation.  There are two or three new leads that have been developed which we intend to follow up.  All the witnesses questioned at Easthampton will be examined, and in addition we shall ask Mr. Caruso himself to appear.”

            While Mr. Prince would not divulge the nature of the new leads that have been developed, he said that they might help in clearing up the mystery surrounding the disappearance of the jewelry.

 

Headlines from this week’s issue:

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

  • Issue of Fact as to whether Broker who May have Absconded with Premiums is Within “Chain of Brokers” so that Carrier Cannot Hide Behind Never Receiving Premium Financed Premium Payments. However,

  • Pollution and Hazardous Materials Exclusion Frees a Second Carrier.

  • It was the Insured’s Duty, not the Primary Carrier’s, to Advise the Excess Carrier that its Limits Might be in Play

  • A Regular Reminder – Shortest Statute of Limitations Known to Man, Woman or Beast.  Insurer has 20 day to Move to Stay Uninsured or SUM Arbitration for Discovery or Otherwise

  • No AI Coverage for Owner, without Privity.  Carrier’s Disclaimer on “Work-Height” Exclusion (to General Contractor) was Late since It Knew Accident was on Fifth Floor, and Loses Its Right to Rely on that Exclusion

 

PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper

[email protected]

  • Insurer was Within its Rights Under Regulation 216.7(b) to Repair an Insured Vehicle  
  • Broker’s Failure to Ensure Method of Premium Calculation Satisfied the Insured’s Request Results in Errors and Omissions Claim
  • Title Insurance has a Right, not an Obligation, to Pursue Actions to Quiet Title

 

DISHING OUT SERIOUS INJURY THRESHOLD
Michael J. Dischley
[email protected]

  • Failure to Elicit Certain Testimony During Deposition Leads to Question of Fact Finding on Defendants Motion for Summary Judgment as to 90/180 Day Category

  • Plaintiff’s Failure to Produce Expert Affidavit Addressing Defendant Expert Evidence of Preexisting Degenerative Conditions is Fatal in Opposition to Plaintiff’s Motion

 

WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz

[email protected]

  • Second Circuit Finds that a Live Controversy Exists Between Insured and Carrier for Resolution of Defense Costs Issue, Despite Underlying Settlement and Conclusion

 

JEN’S GEMS
Jennifer A. Ehman

[email protected]

  • Court Determines Real Estate Development Activities Exclusion was Applicable and Dismisses Other Insurer’s Claim for Contribution

  • Trial Court Enters Judgment Against Defaulting Insured and Severs Rest of Action

 

BARNAS ON BAD FAITH
Brian D. Barnas

[email protected]

  • Insured’s Contractor had Standing to Sue Insurer for Statutory Bad Faith due to Assignment

 

JOHN’S JERSEY JOURNAL
John R. Ewell

[email protected]

  • New York Federal Court Rules Watercraft Exclusion in Homeowners Policy Barred Coverage for Boating Accident

  • No Coverage under Homeowners Policy for Hurricane Sandy Flood Damage Due to Anti-Concurrent Provision

 

LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel

[email protected]

  • Rental Contract vs. Federal Motor Carrier Regulations: Who Wins?

 

BUCCI ON “B”
Diane L. Bucci

[email protected]

  • Grasping at Commas… in the Hartford’s IP Exclusion

  • Defamation Requires Publication 

  • An Advertising Injury is Not Covered Unless It Was the Insured’s Advertisement  

 

BORON’S BENCHMARKS
Eric T. Boron

[email protected]

  • Texas High Court Rules Insurer’s Payment of Appraisal Award Did Not Bar Claim Alleging Violation of Texas Prompt Payment Act 

 

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

[email protected]

  • Provider Denied Summary Judgment on Reimbursement of No-Fault Benefits

 

RYAN’S CAPITAL ROUNDUP
Ryan P. Maxwell

[email protected]

  • Effective August 1, Washington State to Require Insurers to Notify Insureds They May Complain to Insurance Commissioner where Insurer Provides "Adverse Notification"

  • Proposed Bill Would Declare Agreements Exempting Employers from Liability for Negligence Related to the COVID-19 Pandemic Void and Unenforceable

  • Proposed Bill Would Permanently Extend the Revival of Time Barred Actions for Injuries/Death to Vietnam Veterans Caused by Exposure to Phenoxy Herbicides in Indochina from 1961-1975

  • Proposed Bill would Require Municipalities, Authorities, and Agencies to Obtain Liability Insurance Limits of $200,000 for Each Police Officer

  • Proposed Bill would Grant Immunity for Law Enforcement Employee Intervention of Police Misconduct by Another Member of Law Enforcement (Immunity Against Police Misconduct)

  • Proposed Bill Would Grant Immunity for Law Enforcement Employee Intervention of Police Misconduct by Another Member of Law Enforcement (Liability for Failure to Intervene)

 

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

[email protected]

  • An Entity is Only an Additional Insured when All Aspects of Additional Insured Endorsement are Satisfied

 

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

[email protected]

Heather Sanderson
Sanderson Law (Alberta, Canada)

[email protected]

  • What Insurers Don’t Know Won’t Hurt Them (But May Hurt Insureds)

  • Executive Orders’ Effect on Gyms, Employees and Personal Trainers

  • Failing to Disclose a Pivot to Produce Medical Supplies Can Void Insurance Coverage

 

That’s all there is and there is no more.

Stay healthy.  Stay strong.

 

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

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


NEWSLETTER EDITOR
Dan D. Kohane

[email protected]

ASSOCIATE EDITOR
Agnes A. Wilewicz
[email protected]

ASSISTANT EDITOR
John R. Ewell

[email protected]

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

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

Michael F. Perley

Jennifer A. Ehman

Agnieszka A. Wilewicz

Lee S. Siegel

Brian F. Mark

Diane L. Bucci

Brian D. Barnas

John R. Ewell

Eric T. Boron

Marina A. Barci

Ryan P. Maxwell

Charles J. Englert

Cara A. Cox

Diane F. Bosse

Joel R. Appelbaum

FIRE, FIRST-PARTY AND SUBROGATION TEAM
Steven E. Peiper, Team Leader
[email protected]

Michael F. Perley

Eric T. Boron

Brian D. Barnas

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

Marina A. Barci
 

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

Diane F. Bosse
 

Topical Index

Kohane’s Coverage Corner

Peiper on Property and Potpourri

Dishing out Serious Injury Threshold

Wilewicz’s Wide World of Coverage

Jen’s Gems

Barnas on Bad Faith

John’s Jersey Journal

Lee’s Connecticut Chronicles

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)

 

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

06/25/20       Royal Waste Services, Inc., v. Interstate Fire & Casualty Co. Appellate Division, First Department
Issue of Fact as to whether Broker who May have Absconded with Premiums is Within “Chain of Brokers” so that Carrier Cannot Hide Behind Never Receiving Premium Financed Premium Payments. However, Pollution and Hazardous Materials Exclusion Frees a Second Carrier.

Royal, the policyholder, claimed that it paid a broker the initial premium for the excess liability coverage issued by Interstate and that the broker also procured a financing agreement for them for the balance of the premiums. The party financing the premiums paid the broker on Royal’s behalf and Roya complied with the financing agreement. Royal’s president testified that Royal only dealt with that broker, who delivered the policies to them.

Apparently, the premiums never reached Interstate and First Mercury who canceled the policies. Thereafter, three persons were killed during the term of the policies in an accident on Royal’s premises when they inhaled hydrogen sulfide fumes (the accident). Interstate disclaimed coverage.

Royal seeks a declaratory judgment that they are covered by the excess coverage policies issued by Interstate based on the payments they made to the broker and the financing company. Interstate and First Mercury asserts that the broker identified was not a part of the chain of brokers that led to them and they had no knowledge of it. First Mercury also asserts that it is not obligated to provide excess liability coverage to plaintiffs based on certain exclusions in its policy.

First Mercury has established that coverage is excluded under its policy's pollution and hazardous materials exclusions on the ground that the deaths of the decedents in the underlying action resulted from the inhalation of the toxic hydrogen sulfide fumes in the drywell where decedents were working and that injuries resulting from the release of such fumes unambiguously fall under the plain language of the broad policy exclusions at issue here.

However, neither Royal or Interstate are entitled to summary judgment. Where an insured makes timely payment to a broker in the chain of brokers and the insurer delivers the policy to the broker pursuant to the broker's request, Insurance Law § 2121 precludes the insurer from canceling the policy based on nonpayment of premiums where the broker did not remit the payment to the insurer

There were issues of fact as to whether the broker was in the “chain of brokers”.

06/25/20       Eurotech Construction Corp. v. QBE Insurance Corp.
Appellate Division, First Department
It was the Insured’s Duty, not the Primary Carrier’s, to Advise the Excess Carrier that its Limits Might be in Play

Unambiguous provisions of an insurance policy, as with any written contract, must be afforded their plain and ordinary meaning, and that the interpretation of such provisions is a question of law for the court. The plain language of the Transfer Endorsement contained within defendant's policy states:

  1. If we conclude that, based on "occurrences" offenses, claims or "suits" which have been reported to us and to which this insurance may apply, the . . . [l]imit . . . is likely to be used up in the payment of judgments or settlements, we will notify the first Named Insured, in writing, to that effect.

  2. When a limit of insurance described in paragraph a. above has actually been used up in the payment of judgments or settlements;

  3. We will notify the first Named Insured, in writing, as soon as practicable, that:

  4. Such limit has actually been used up; and

  5. Our duty to defend "suits" seeking damages subject to that limit has also ended.
     

Defendant complied with subparagraph "a." of the Transfer Endorsement when it sent its February 1, 2012 letter advising plaintiff that "[i]t is probable that the value of this matter will exceed the primary limit." Notice "as soon as practicable" is only required under paragraph "b." of the Transfer Endorsement, which had not been triggered, because the policy limits had not been "actually . . . used up in the payment of judgments or settlements." It was plaintiff's duty to place its excess insurer on notice.
 

06/24/20       State Farm Ins. Co. v. Reid
Appellate Division, Second Department
A Regular Reminder – Shortest Statute of Limitations Known to Man, Woman or Beast.  Insurer has 20 day to Move to Stay Uninsured or SUM Arbitration for Discovery or Otherwise

This was an application under Article 75 of the CPLR to temporarily stay underinsured (SUM) arbitration pending discovery.

Reid, the State Farm insured, sent State Farm a demand for supplemental underinsured motorist (SUM) arbitration, which was received by State Farm on February 14, 2019. On March 22, 2019, State Farm filed a notice of petition and petition seeking to temporarily stay the arbitration pending the completion of pre-arbitration discovery. That notice and petition were served upon counsel for Reid by first-class mail on March 22, 2019.

Reid argued that the service upon her was defective and that the proceeding was time-barred. State Farm conceded that the method of service of the notice of petition and petition did not comply with CPLR 7503(c), but asked the Supreme Court to "disregard the mistake" under its broad authority pursuant to CPLR 2001 to correct mistakes. State Farm also conceded that the petition was not timely filed within the 20-day statute of limitations but explained that its good faith efforts to comply with the court's part rules had resulted in the late filing. The lower court excuses the mistakes. The Appellate Division disagreed.

CPLR 7503(c) requires that an application to stay arbitration be made within 20 days after service of a demand to arbitrate. "This limitation is strictly enforced and a court has no jurisdiction to entertain an untimely application" . CPLR 7503(c) also directs that notice of an application to stay arbitration "shall be served in the same manner as a summons or by registered or certified mail, return receipt requested."

Despite receiving a demand to arbitrate on February 14, 2019, State Farm did not file its notice of petition and petition until March 22, 2019, which was beyond the 20-day statute of limitations. Consequently, the proceeding is time-barred.

End of discussion.  State Farm lost its right to proceed with discovery.
 

06/18/20       Dynatec Contracting, Inc. v. The Burlington Ins. Co.
Appellate Division, First Department
No AI Coverage for Owner, without Privity.  Carrier’s Disclaimer on “Work-Height” Exclusion (to General Contractor) was Late since It Knew Accident was on Fifth Floor, and Loses Its Right to Rely on that Exclusion

653 Tenth was not an additional insured under the Burlington policy issued to Rock Scaffolding, given the absence of contractual privity between Rock Scaffolding and 653 Tenth. The Burlington policy included as an additional insured, "any person(s) or organization(s) with whom you [Rock Scaffolding] agreed, because of a written contract, written agreement or permit, to provide insurance such as is afforded under this Coverage Part." However, no such contract exists between 653 Tenth, the owner, and Rock Scaffolding.

With respect to the GC, Dynatec, Burlington disclaimed – later – on a “work- height” exclusion.  Burlington knew that the verified bill of particulars and C3 form identified the accident location as the 5th floor level, this ground for disclaiming coverage was "readily apparent” based upon the documents delivered to the insurer and Burlington's failure to raise this issue with its initial disclaimer precluded it from later asserting it as a defense.  Burlington is therefore obligated to defend.

 

PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper

[email protected]

06/24/20       Bouziatis v. Allstate Ins. Co.
Appellate Division, Second Department

Insurer was Within its Rights Under Regulation 216.7(b) to Repair an Insured Vehicle   

Plaintiff’s Dodge Viper sustained significant damage in 2010.  Upon inspection of the vehicle, Allstate determined that the car could be repaired and authorized approximately $69,000 in work.  Nearly three years later, plaintiff commenced the instant action arguing that Allstate should have declared the vehicle a total loss.

Allstate submitted the relevant Insurance Regulation (11 NYCRR § 216.7[b]), and thereafter established that its decision to effectuate repairs of the insured vehicle was in compliance with its obligations as required by the Department of Financial Services.  In response, plaintiff submitted an expert report which opined (5 ½ years after the damage) that Allstate should have declared the insured vehicle a total loss. 

The Appellate Division noted that the expert submission made no mention of how the passage of the 5 ½ years impacted his analysis.  Moreover, plaintiff did not offer any other explanation as to why he continued to drive vehicle for years after it was returned from the repair shop.  Accordingly, where, as here, Allstate established compliance with the relevant regulations, and plaintiff failed to offer any proof in opposition to that compliance, summary judgment dismissing the action was appropriate.
 

06/17/20       Gibson & Cushman, LLC v. Cook Maran & Assoc., Inc.
Appellate Division, Third Department
Broker’s Failure to Ensure Method of Premium Calculation Satisfied the Insured’s Request Results in Errors and Omissions Claim

Plaintiffs retained defendant to provide insurance brokerage services in February of 2015.  The arrangement with the broker required that any premium calculation would be based upon a percentage of “gross revenue during the policy period.”  Thereafter, defendant retained a number of commercial general liability policies commencing in March of 2015. 

When the policies were provided to plaintiff in September of 2015, it was determined that they were subject to a “minimum premium due…on estimated gross revenues.”  Further, the policies procured by defendant did not have an ability to adjust (presumably downward) premiums based upon an audit.  The insurer ultimately agreed to extend the policies until September of 2016 (approximately 6 months after the initial expiration) to give plaintiff more time to prepare for their premium obligations. 

Defendant argued in its motion for summary judgment that plaintiffs’ decision to extend the policies resulted in a renegotiation of the premium terms.  By accepting the September of 2016 expiration date, plaintiffs agreed to the “minimum premium” obligation in the policies.  As such, defendants successfully argued to the trial court that plaintiffs were estopped from proceeding with a lawsuit based upon contractual language that was, in essence, ratified by plaintiffs’ resolution with the insurer.

The Appellate Division disagreed, and reversed.  In support of its position, the Court noted the standard rule that a broker is required to procure the type of policy requested.  Here, according the Third Department, the broker’s actions in procuring a policy with a “minimum premium” was not responsive to the request and instructions provided by plaintiff.  Because plaintiffs established through documentation evidence that they only wanted a policy with premiums based upon gross earnings, the Court ruled that plaintiffs met their burden for summary judgment.

In addition, the Court rejected defendants argument that plaintiffs’ decision to extend its policy term amounted to a waiver of its claims against defendant.  While they agreed to comply with the terms of the policy in exchange for an extended period, there was nothing in the record presented to the court that plaintiffs were waiving their rights to seek redress from defendant for procuring policies which contained different terms than were originally requested. 
 

06/12/20       Irma Straus Realty Corp. v. Old Republic Natl. Tit. Ins. Co.
Appellate Division, Fourth Department

Title Insurance has a Right, not an Obligation, to Pursue Actions to Quiet Title

Defendant issued a title insurance policy to plaintiff.  After completing the purchase, plaintiff learned that a neighbor was using a portion of plaintiff’s property that previously served as a common stairwell between the two properties.  When the neighbor refused to abandon the disputed area, plaintiff commenced an action to resolve the dispute.

Thereafter, plaintiff sued defendant arguing that it had an obligation to assume attorneys’ fees and costs for its claim against the neighbor.  Defendant noted that the policy provided it “shall have the right…to institute and prosecute any action or proceeding or to do any other act that in its opinion may be necessary or desirable to establish Title, as insured, or to prevent or reduce loss or damage to the Insured.”  In applying the plain language of the policy, the Appellate Division ruled that defendant was not required by the contract to assume the costs for any action to quite title.  As such, Old Republic was entitled to a declaration that it did not have any obligation to pay for any fee or cost associated with plaintiff’s lawsuit against the neighbor.  

 

DISHING OUT SERIOUS INJURY THRESHOLD
Michael J. Dischley
[email protected]

06/17/20       Rodriguez v. McCullough
Appellate Division, Second Department
Failure to Elicit Certain Testimony During Deposition Leads to Question of Fact Finding on Defendants Motion for Summary Judgment as to 90/180 Day Category

The plaintiff commenced this action to recover damages for personal injuries that he allegedly sustained in a motor vehicle accident that occurred on November 5, 2016. The defendant moved, inter alia, for summary judgment dismissing the complaint on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The Supreme Court granted that branch of the defendant's motion. The plaintiff appeals.

The Appellate Division founds that defendant failed to meet her prima facie burden of demonstrating that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendant's submissions failed to eliminate triable issues of fact regarding the plaintiff's claim, set forth in his bill of particulars, that he sustained a serious injury under the 90/180-day category of Insurance Law § 5102(d).

Specifically, the Appellate Division found that defendant's reliance upon the plaintiff's deposition testimony is insufficient to demonstrate that the plaintiff, who is retired, was not prevented from performing his usual and customary daily activities during the requisite period as the plaintiff testified, among other things, that since the accident, he cannot walk or sleep the way he used to, cannot lift anything heavy, including his grandchildren, and can no longer paint or mop. While the plaintiff's deposition testimony mentioned the limitations to his post-accident activities, it failed to describe how he performed these activities prior to the accident.

As such, the Appellate Division found that defendant failed to meet her prima facie burden of showing that the plaintiff did not sustain a serious injury under the 90/180 category. Accordingly, the Supreme Court should have denied that branch of the defendant's motion which was for summary judgment dismissing the complaint on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident.

06/11/20       Monahan v. Reyes
Appellate Division, First Department
Plaintiff’s Failure to Produce Expert Affidavit Addressing Defendant Expert Evidence of Preexisting Degenerative Conditions is Fatal in Opposition to Plaintiff’s Motion

Appeal from Order of Supreme Court, Bronx County, which granted defendants' motion for summary judgment dismissing the complaint based on plaintiff's inability to demonstrate that she suffered a serious injury to her cervical spine within the meaning of Insurance Law § 5102(d), unanimously affirmed, without costs.

The Appellate Court found that defendants satisfied their prima facie burden to show that plaintiff did not sustain a serious injury to her cervical spine by submitting the report of their orthopedic surgeon, who found that plaintiff's own MRI report showed preexisting degenerative changes not causally related to the accident. Although the orthopedic surgeon did not compare plaintiff's range of motion to normal values, he found no objective evidence of injury upon recent examination using diagnostic tests.

In opposition, the Appellate Division found that plaintiff failed to raise an issue of fact. None of her experts addressed the evidence of preexisting degenerative conditions shown in her own medical records or explained why they could not have been the cause of her conditions. Plaintiff's experts also failed to adequately address a prior motor vehicle accident which resulted in alleged neck injuries or to negate any inference that that accident was the cause of her current conditions. As such, the Appellate Division found that plaintiff failed to raise an issue of fact.

 

WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz

[email protected]

06/04/20       360Heros, Inc. v. Mainstreet America Assurance Co.
United States District Court, Second Circuit

Second Circuit Finds that a Live Controversy Exists Between Insured and Carrier for Resolution of Defense Costs Issue, Despite Underlying Settlement and Conclusion

360Heros is a company that produces camera rigs. It was a named insured on a general commercial liability (CGL) policy issued by Mainstreet America (MSA). At one point, 360Heros was sued by GoPro, Inc. (GoPro) and MSA agreed to provide a defense to that action pursuant to a partial disclaimer and reservation of rights. MSA and 360Heros agreed that the law firm of Guantlett & Associates (G&A) would represent the insured. Without objection from MSA, G&A was also to serve as coverage counsel with the understanding that only defense costs would be billed to the carrier, rather than any costs associated with a coverage action. MSA paid the first seven invoices it received from G&A, but a dispute arose thereafter. MSA claimed that some of the subsequent invoices were unreasonably high and that the costs related to a counterclaim that 360Heros had against GoPro should not have been included in the bills. Just ten days after MSA notified G&A of its intent to investigate the reasonableness of the fees, 360Heros sued MSA. They asserted claims for 1) breach of contract; 2) account stated; and 3) breach of the covenant of good faith and fair dealing. Litigation ensued.

During settlement discussions in the case, the parties were able to resolve several of their disputes. However they were unable to agree on the material term of the settlement and no full settlement was executed. Meanwhile, MSA hired independent counsel to review the invoices for reasonableness. That attorney recommended some deductions, along with a $136k credit to account for overpayments that had been made in the past. MSA then continued to pay the other defense bills but deducted portions, as recommended by their independent counsel. Around that time, the GoPro action settled for $575k. MSA indemnified the insured for the loss and paid the settlement amount on its behalf. However, they then stopped paying any further counsel invoices, claiming it was applying the $136k credit as an offset to the outstanding balances owed.

In the coverage litigation, MSA eventually moved for summary judgment, “arguing that because it had provided a complete defense to 360Heros in the GoPro action, which had now been dismissed with prejudice at no cost to 360Heros, 360Heros no longer has a stake in the litigation and the case was moot”. 360Heros opposed, arguing that a live controversy still existed. The Second Circuit reviewed and wrote:

“Article III of the Constitution limits the jurisdiction of the federal courts to live cases and controversies. One element of the case-or-controversy requirement is that plaintiff must establish . . . standing to sue," demonstrated by showing "(1) that it has suffered an injury in fact, which is (2) fairly traceable to the challenged action of the defendant, and (3) likely to be redressed by a favorable decision. Another element is mootness, which ensures that the litigant's interest in the outcome continues throughout the life of the lawsuit. Under the general rule of mootness, courts' subject matter jurisdiction ceases when an event occurs during the course of the proceedings or on appeal that makes it impossible for the court to grant any effectual relief whatever to a prevailing party.”

Moreover, under New York law, where an insured is represented by counsel of its own choosing, the insurance company’s duty to defend extends to the payment of reasonable costs and fees. Though the litigation that triggered that duty to defend was indeed resolved, the insured and carrier had yet to reach an agreement on what constituted those reasonable costs and fees. As such, a live controversy continued to exist on whether MSA had fulfilled its obligations under the Policy terms. Accordingly, it could not be dismissed for lack of subject matter jurisdiction, but needed to be remanded back down to the District Court for further proceedings.

 

JEN’S GEMS
Jennifer A. Ehman

[email protected]

05/29/20       Southwest Mar. & Gen. Ins. Co. v. Covington Specialty Ins. Co.
Supreme Court, New York County
Hon. Francis A. Kahn III
Court Determines Real Estate Development Activities Exclusion was Applicable and Dismisses Other Insurer’s Claim for Contribution

Tri-Mac Funding, LLC obtained a general commercial liability insurance policy from defendant Covington Specialty, which covered a premises located at 40 Bayside Drive, Point Lookout, New York.  The policy contained an exclusion from coverage for bodily injury “arising out of and ‘real estate development activities’ by or on behalf of any insured.”  Real estate development activities were defined in the policy as “design, site preparation, construction, marketing or sale of residential commercial or industrial buildings.”  At the time the policy was issued, the subject premises was encumbered by a single-family rental dwelling, but in its application for the policy of insurance, Tri-Mac indicated its intention to demolish the structure and to seek re-zoning with the purpose of developing the parcel to accommodate three residences.

As part of the redevelopment, JD Marine Restoration was engaged to replace a 60-foot bulkhead (waterfront retaining wall) located at the property.  During this work, an employee of JD Marine fell approximately 10 feet while working on the bulkhead project.  He then commenced a lawsuit naming, among others, Tri-Mac and sought recovery for injuries sustained.

In addition to the Covington policy, it appears Tri-Mac was also insured under a commercial general liability policy issued by plaintiff Southwest Marine.  Although Covington agreed to defend Tri-Mac under a ROR, Southwest Marine retained counsel and exercised exclusive control over the defense of the lawsuit which was eventually settlement for $425,000.  Southwest Marine then brought this action seeking contribution from Covington.

Covington moved to dismiss arguing that it was under no obligation to reimburse Southwest Marin based upon its policy exclusion for real estate development activities.  It also relied upon a classification limitation exclusion and asserted the bulkhead work constituted operations which were not classified or shown on the Commercial General Liability Coverage Part Declarations.

The court considered these arguments and held that the real estate development activities exclusion was unambiguous, and defendant had established that the accident “arose out” of Tri-Mac’s activities on the premises.  Further, there were no issues of fact that the bulkhead construction constituted “site preparation” and/or “construction” under these circumstances.  The court further rejected opposition which argued that by acknowledging a duty to defend, Covington was estopped from denying coverage and another argument based upon the respective “other insurance” clauses noting that where the Covington policy does not afford coverage there is no need to examine the other insurance clauses. 

 

05/12/20       Arch Specialty Ins. Co. v. M.T. Steel Fabricators, Inc.
Supreme Court, New York County
Hon. Nancy M. Bannon
Trial Court Enters Judgment Against Defaulting Insured and Severs Rest of Action

Arch commenced this declaratory judgment action seeking to rescind a policy of insurance it issued to M.T. Steel based on a material misrepresentation by M.T. Steel on its insurance application.  M.T. Steel did not appear in the action or opposed this motion for default judgment.

In support of its request, Arch submitted an application for insurance provided by M.T. Steel.  The application’s Commercial General Liability Section disclosed two hazards:  “Metal Erection (Decorative/Artistic)” and “Metal Work Shop.”  Total gross sales was listed as $350,000.  However, in its application, M.T. Steel failed to disclose that it was engaged in structural steel work, and had just received a contract that included significant amounts of structural steel work at a construction project located in Manhattan.  It was on this project that one of M.T. Steel’s employees fell to his death.  Based upon these misstatements, Arch denied coverage and demanded that M.T. Steel consent to the rescission of the policy.  M.T. Steel refused, leading to the commencement of this action.

Arch also submitted affidavits from various employees establishing that had the company known of M.T. Steel’s misrepresentations, it would not have entered into the insurance policy.

After reviewing Arch’s papers, the court concluded that M.T. Steel failed to appear in this action and Arch would not have issued the policy to M.T. Steel had it know that M.T. Steel performed structural steel work, such that Arch was entitled to rescind the policy.  The court also concluded that M.T. Steel breached the policy’s Representations condition.

Although M.T. Steel did not oppose the motion, a claimed additional insured and its carrier did.  The court rejected these parties’ argument that any judgment against the defaulting defendant should await resolution of the action against the rest of the defendants.  The court rejected this argument noting that “the plaintiff is entitled to a default judgment against a non-appearing defendant, and that judgment has no effect on, and the action will be severed as against, the appearing defendants.”
 

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

06/11/20       High Impact, LLC v. State Farm Fire & Cas. Co.
United States District Court, District of Colorado

Insured’s Contractor had Standing to Sue Insurer for Statutory Bad Faith due to Assignment

The Lees had an insurance policy with State Farm that insured their property in Denver.  The property sustained damages due to a hailstorm in May 2017, and the Lees filed a claim with State Farm.  After the claim was submitted, the Lees hired High Impact to repair the damage.  Pursuant to the contract, High Impact was authorized to contact and negotiate the claim with State Farm.

Disputes arose between High Impact’s estimates and State Farm’s estimates.  While the adjustment of the claim was ongoing, the Lees assigned their rights to their first party insurance claim to High Impact in exchange for High Impact repairing the damage.  State Farm eventually made payment on the claim in an amount close to High Impact’s estimate.  High Impact filed a civil lawsuit against State Farm based on alleged unreasonable delay in providing policy benefits in violation of Colorado’s statutory bad faith provision.

State Farm moved for summary judgment.  It argued that High Impact could not sue State Farm for statutory bad faith on behalf of the Lees.  The court rejected this and denied the motion for summary judgment.

State Farm argued that High Impact could not sue it because the Lees had no interest in the suit.  However, the Lees had assigned their rights to the insurance proceeds to High Impact.  High Impact could bring the statutory bad faith claim even in the absence of a breach of contract claim.  A statutory bad faith claim arises from and is a benefit of the insurance contract.  The court also concluded that the assignment and construction contract included authorization to file a suit alleging bad faith, not just breach of contract.

 

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

06/22/20       Farmers New Century Ins. Co. v. Peruggia et al.
United States District Court, Eastern District of New York
New York Federal Court Rules Watercraft Exclusion in Homeowners Policy Barred Coverage for Boating Accident

On October 5, 2017, Goldener was a passenger on a boat owned by Peruggia (the “Peruggia Boat”) in Long Island Sound. The Peruggia Boat allegedly “came in contact” with another vessel that was owned by Reilly and being operated by Mongiardo (the “Incident”). The Incident caused Goldener to sustain injury.

Prior to the Incident, Farmers issued a homeowner’s insurance policy to Peruggia that was in effect on the date of the accident (the “Policy”). The Insurance Policy included general coverage for personal liability and medical payments to others, which encompassed a duty to defend and indemnify Peruggia in suits brought against him based on a bodily injury. The Policy excluded incidents arising out of the ownership or use of an “excluded watercraft,” which included motorized or sailing boats owned by the insured (The “Watercraft Exclusion”).

Farmers investigated the Incident and its due diligence further revealed that the Peruggia Boat was not covered under the Policy because of the Watercraft Exclusion. Farmers disclaimed coverage for the Incident, but agreed to defend Peruggia in the Underlying Lawsuit as a courtesy.

Farmers filed a declaratory judgment action, seeking a declaration it does not have to defend or indemnify Peruggia with respect to claims asserted against him in the Underlying Lawsuit by virtue of the Watercraft Exclusion.

The Court began its analysis by reviewing the Watercraft Exclusion. The exclusion states that any claim involving “bodily injury” arising out of the ownership, maintenance, use, loading or unloading of an “excluded watercraft” is excluded from coverage. An “excluded watercraft” is one that is “principally designed to be propelled by engine power . . . owned by . . . an ‘insured.’” Farmers submitted, in support of its motion a sworn declaration from the police officer who investigated the boating accident at issue, which established that the Peruggia Boat was propelled by engine power.

Courts have routinely upheld the application of watercraft exclusions in cases where it clearly and unambiguously excludes coverage. The Court reasoned that since Mr. Peruggia’s insurance claim arises from the use and operation of the boat, an excluded watercraft, and is therefore not entitled to coverage under the Policy. Accordingly, Farmers had no duty to defend or indemnify its insured.

Note: The decision is unpublished. Please email me if you would like a copy of the decision.
 

05/14/20       Doerfler v. Federal Ins. Co. / Doerfler v. Chubb
New Jersey Superior Court, Appellate Division
No Coverage under Homeowners Policy for Hurricane Sandy Flood Damage Due to Anti-Concurrent Provision

Stephanie Doerfler owned a home located in Mantoloking, New Jersey and procured an insurance policy from defendant Chubb Insurance Company of America covering her real and personal property. Ronald Doerfler, who lived on the same street in Mantoloking, obtained an identical policy insuring his home from defendant Federal Insurance Company, which is also a member of Chubb.

The policies provided "deluxe contents coverage," but clearly stated that damage resulting from flood was not covered. The policies included the mandatory New Jersey notification that the policies did not cover damages from flood.

Unless an exclusion applied, the policies covered "all risk" of physical loss. The "surface water exclusion" included the following language:

[W]e do not cover any loss caused by: flood, surface water, waves, tidal water, overflow of water from a body of water, . . . ; or spray from any of these even if driven by wind.

In the exclusions sections, the policies specifically stated: "the words 'caused by' mean any loss that is contributed to, made worse by, or in any way results from that peril."

Plaintiffs also purchased separate flood insurance policies from Fidelity National Indemnity Insurance Company (Fidelity) which insured the structure of each of their homes for $250,000 and provided some coverage for the contents of their homes.

On October 29 and 30, 2012, Superstorm Sandy made landfall near Atlantic City, sixty miles south of Mantoloking. Fidelity paid plaintiffs the maximum available under their flood insurance policies.

Chubb and Federal denied both insurance claims citing the surface water exclusion. Plaintiffs sued their respective carriers for coverage and the cases were consolidated due to similar facts and legal issues. The parties filed cross-motions for summary judgment on the question of whether the surface water exclusion in plaintiffs' insurance policies barred them from recovering after their homes were destroyed in the flood that inundated their properties.

Plaintiffs argued that wind was the efficient proximate cause of the houses collapsing and contended that the surface water exclusion does not apply under the efficient proximate cause doctrine.

The efficient proximate cause doctrine, more commonly referred to as Appleman's Rule, applies to risks and exclusions where a non-covered peril is set in motion by a covered peril in a chain of causation:

Where a peril specifically insured against sets other causes in motion which, in an unbroken sequence and connection between the act and final loss, produced the result for which recovery is sought, the insured peril is regarded as the proximate cause of the entire loss. It is not necessarily the last act in a chain of events which is, therefore, regarded as the proximate cause, but the efficient or predominant cause which sets into motion the chain of events producing the loss. An incidental peril outside the policy, contributing to the risk insured against, will not defeat recovery[.] In other words, it has been held that recovery may be allowed [w]here the insured risk was the last step in the chain of causation set in motion by an uninsured peril, or where the insured risk itself set into operation a chain of causation in which the last step may have been an excepted risk.

The trial court judge concluded that the efficient proximate cause doctrine did not apply because there were no sequential causes of their losses, and therefore, denied the plaintiffs motions and granted the insurers’ summary judgment motions. Plaintiffs appealed.

The Appellate Division began its analysis by noting that the insurance policies contained a “caused by” provision that fulfilled the purpose of an anti-sequential clause. As noted above, this provision stated that "the words 'caused by' mean any loss that is contributed to, made worse by, or in any way results from that peril." Thus, because plaintiffs' policies excluded them from recovering for any loss "contributed to, made worse by, or in any way results from" or caused by "flood, surface water, waves, tidal water, [or] overflow from a body of water," their claims were barred regardless of whether wind played any role in the loss.

Plaintiffs further contended that because their residences collapsed during the flood and “building collapse” was not an excluded loss, their damages should have been covered. The Appellate Division, as with the trial court, rejected this argument as meritless. Accordingly, the Appellate Division affirmed that the homeowner’s policy did not cover the flood damage.
 

LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel

[email protected]

05/22/20       Penske Truck Leasing, LP v. Safeco Insurance Co.
United States District Court, District of Connecticut
Rental Contract vs. Federal Motor Carrier Regulations: Who Wins?

Many people don’t know that quiet, buttoned-up Connecticut, insurance and hedge fund capital of the world, is also home to the WWE – world view blown, right? In this case, we have an epic smackdown between contract and regulation. A pay per view event tailor made for coverage lawyers.

AA Metro rented a heavy truck from Penske, opting into Penske’s liability insurance. For $20/day, Penske afforded state minimum limits, which in Connecticut is a paltry $20,000. Carmelo Agosto, while driving the truck for AA Metro, rear-ended and seriously injured Joseph Belbusti. Mr. Belbusti’s Safeco policy provided underinsured motorist coverage with limits of $500,000 per person.

All seems straight forward, ah, but it’s not. Those of you who do interstate trucking cases surely picked up on my use of the word “heavy” to describe the truck. The parties agreed that the truck weighed 25,999 pounds. Connecticut, adopting the federal motor carrier safety regulations, requires that vehicles with a gross combined weight of 18,001 or more pounds must carry minimum limits of $750,000 in liability coverage. So, what are the minimum limits Penske owes before the Safeco UIM coverage kicks in? The answer is a $730,000 swing—and that is what this throwdown is about.

The Rental Agreement provides:

If Customer elects Penske Liability Coverage, Penske agrees to provide liability protection for Customer and any Authorized Operator, and no others, subject to any limitations herein, in accordance with the standard provisions of a basic automobile liability insurance policy as required in the jurisdiction in which the Vehicle is operated, against liability for bodily injury, including death, and property damage arising from use of Vehicle as permitted by the Rental Agreement, with limits as required by the state financial responsibility law or other applicable statute.

Penske argued that the contract is unambiguous that the “limits” required derive from those that attach to a “basic automobile liability” policy. Therefore, the commercial truck regulations are not implicated by the Rental Agreement. Safeco, conversely, argued that reference to the basic automobile policy is merely the type of “coverage terms, definitions, conditions and exclusions” that are standard in such a policy and has no bearing on the limits of liability required under the Rental Agreement. Who’s cuisine will reign supreme? Alright, I’m mixing references.

Penske prevailed, pinning Safeco with the most dreaded of moves – the last antecedent rule! As the court noted, the last antecedent rule of contractual and statutory construction provides that qualifying phrases, absent a contrary intention, refer solely to the last antecedent in a sentence. But, if the limiting language is separated from the preceding noun or phrase by a comma, one may infer that the qualifying phrase is intended to apply to all its antecedents, not only the one immediately preceding it.

Applying the rule, the court reasoned that:

the punctuation here parses the contractual language in a manner indicating that the qualifying language does apply to each of the previous antecedent parts. Specifically, the phrase “with limits as required by the state financial responsibility law or other applicable statute” is separated by a comma from its immediate antecedent, “against liability for bodily injury, including death, and property damage arising from use of Vehicle as permitted by the Rental Agreement,” which in turn qualifies the previous antecedent, “in accordance with the standard provisions of a basic automobile liability insurance policy as required in the jurisdiction in which the Vehicle is operated.” Because each of these phrases is separated by a comma, the “limits” required under the state’s financial responsibility law are those that flow from the “provisions” of basic automobile liability insurance.

Notwithstanding the contract interpretation, Safeco argued that the Rental Agreement was required to incorporate the regulations. Safeco claimed that if Penske’s “Customer” or “Authorized Operator” was a motor carrier, Penske was obligated to provide the coverage that the customer or authorized operator was required to maintain under the regulations. Penske knew that the vehicle exceeded 18,001 pounds, and it was bound to deliver the level of protection that AA Metro needed to procure to maintain its legal compliance

But, again, Penske slipped out of Safeco’s hold. The court refused to construe the Rental Agreement as incorporating the federal regulations absent express language. The court reasoned that Safeco was improperly imposing an insurance underwriting obligation on Penske. “Penske is not in the insurance underwriting business and this is an unreasonable interpretation of the contract provision at issue.” AA Metro was in the best position to know its obligations, not Penske, the court concluded, handing defeat to Safeco.

Author’s Note: Not that it’s referenced in the court’s opinion, but AA Metro is a seven-employee courier company in West Haven, Connecticut. According to buzzfile.com, it has annual revenues of $750,000. On the other hand, Penske Truck Leasing is part of the Penske Corporation which is a multi-national conglomerate. The leasing business alone has 36,000 employees, 2,500 locations, and a fleet of some 300,000 vehicles (according to Wikipedia). It had revenue, in 2019 of $23.2 billion (see its 2020 10-K report). So, which company was in a better position to understand the requirements imposed by the FMSCA, the company that rents out heavy trucks probably or maybe hundreds of times per day across the country with a phalanx of compliance lawyers, or the seven-employee local courier service using a truck for one day? I think the answer is obvious and the court’s factual inferences flawed. This seems to me like a good case to reargue and certainly one to appeal.
 

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

06/17/20       Spandex House, Inc. v. Hartford Fire Ins. Co.
United States District Court, 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 or clothing.   The Harford denied coverage based on the Policy’s Intellectual Property Exclusion (“IP Exclusion”).  Spandex argued that the claim fit within the exception to the IP Exclusion, which 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”.

As we reported on the June 4, 2020 oral arguments, Spandex argued that the commas around “advertisement” and “on your website” rendered them non-restrictive (nonessential) clauses which could be removed to read, “infringement of copyright.”  Spandex argued that at the very least, the exception was ambiguous.

The Court examined ambiguity in an insurance policy under New York law:

Under New York law, in determining whether policy language is ambiguous, this Court examines whether, “affording a fair meaning to all of the language employed by the parties in the contract and leaving no provision without force and effect, there is a reasonable basis for a difference of opinion as to the meaning of the policy.” The plain language of an insurance policy is construed “in light of ‘common speech’ and the reasonable expectations of a businessperson.

It held that the exception read in context unambiguously applied only where there was one claim for infringement in the insured’s advertisement or on its website of copyright, slogan, and title of a literary or artistic work.  The court noted that “in your advertisement” appears in most advertising injury policies and courts have long recognized that there has to be a causal connection between the alleged injury and the insured’s advertisement, implying that there is existing law to guide the interpretation of the policy.

The court denied that the use of commas necessarily made a clause nonrestrictive.  First, punctuation is construed only to resolve an ambiguity and there was no ambiguity.  Instead, relying on William Strunk Jr. & E.B. White, The Elements of Style 1, 3 (2d ed. 1972), the court noted that Spandex had not offered any support for the proposition that the placement of commas around a clause necessarily means it’s non-restrictive.  “Rather, its citations lend support to the distinct proposition that, if a phrase is nonrestrictive, it should be accompanied by such commas.”  The court refused to remove words from a contract.

Spandex also argued that Harford’s denial was wrongful because the complaint arguably stated a claim for advertising injury, and it was possible that the advertising injury claim could be the only claim remaining at some point in the litigation.

The court agreed with the district court that the exception didn’t apply because the compliant alleged numerous infringement claims and the exception only applied where there is only one claim and it is for advertising injury stating, “Spandex House had adduced no evidence that the Rex Fabrics Action would fundamentally transform in a manner that would give rise to a possibility of coverage.

Moreover, under Spandex House’s rule, the duty to defend would be essentially limitless, as a third party’s complaint could always be amended in the future to add a covered claim for the first time. Contrary to Spandex House’s contention, rejecting its argument does not impermissibly render the duty to defend narrower than the duty to indemnify; rather, should the Rex Fabrics Action indeed transform and, for the first time, create a “possible factual or legal basis” for indemnification, the duty to defend would attach and at that point be broader than the duty to indemnify.

Spandex also argued that the policy was unenforceable because it did not provide notice of certain endorsements that changed the coverage including some of the IP coverage.  Like the district court, the Second Circuit rejected Spandex’s argument based on the following language:

THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.” J.A. 180, 182. Moreover, Form HC00971210 stated that it was an “AMENDMENT OF EXCLUSIONS AND DEFINITION,”

This, according to the court, satisfied the requirements for providing notice of a change in the policy.

The court also rejected Spandex’s argument that the policy was illusory.  While accepting that the exception was narrow, coverage was still possible and thus the exception did not made coverage illusory.

 

06/19/20       Kaufman v. Federal Ins Co.
Ninth Circuit Court of Appeals
Defamation Requires Publication 

Kaufman’s employment with Blue Shield of California (“Blue Shield”) as its Chief Technology Officer and Vice President of Health Information Technology was terminated, apparently for several violations of the Company’s Code of Conduct, which advised that  "managers have heightened obligations as senior custodians of our Company values and culture." Kaufman allegedly breached these obligations in several ways including misuse of company credit cards, and violations of the Travel Policy.  There were two specific events relevant to the case.  In one, Kaufman set up a team building exercise at a bowling alley after hours.  Apparently, Kaufman’s girlfriend took off her shirt and was posing and taking pictures which later ended up on social media reflecting poorly on Blue Shield.   The other event involved Kaufman voicing concerns over vendor, MBI, because it did not bid on the project  as required by company guidelines and was demanding additional sums without getting any results.

Kaufman sued Blue Shield for wrongful termination in violation of public policy and the whistleblower protection statutes (the bidding issue), failure to pay earned executive incentive compensation, conversion and theft of labor, and breach of contract.

In its counterclaim, Blue Shield alleged that Kaufman: 

(1) violat[ed] Blue Shield's Travel and Expense Policy; (2) violat[ed] Blue Shield's Code of Conduct; (3) interfer[ed] with an investigation; and (4) caus[ed] reputational damage to Blue Shield,” which led Blue Shield to terminate Plaintiff's employment. Blue Shield's Cross-Complaint sought “(1) damages arising out of Kaufman's fraudulent misrepresentations, breaches of fiduciary duty, breaches of the duty of loyalty and conversion; (2) disgorgement from Plaintiff and restitution to Blue Shield of Plaintiff's personal expenses improperly charged to and paid by Blue Shield; (3) punitive damages; (4) an order dismissing Plaintiff's complaint; (5) interest; and (6) attorney's fees.”

Kaufman submitted the claim to his insurers, and they denied coverage.  Kaufman argued that the claims made by Blue Shield were covered under the personal injury provision, which included libel, slander, or defamation of character.  He alleged that the Blue Shield’s claim of reputational damage satisfied the meaning of defamation under the policy.

The court held that Blue Shield’s allegations did not raise the possibility of a defamation claim because there were no allegations that Kaufman published anything defamatory.  The court pointed out that Blue Shield alleged reputational damages as a reason for Kaufman’s termination.  It did not allege a defamatory publication caused reputational damages.

06/22/20       Hybrid Promotions, LLC v. Fed. Ins. Co.,
Ninth Circuit Court of Appeals
An Advertising Injury is Not Covered Unless It Was the Insured’s Advertisement  

The insured provided private label merchandize to Walmart.  The owner of the MMA Elite trademark sued Walmart for placing the MMA Elite trademark adjacent to or above displays that included Hybrid’s private label merchandise, which was visually similar to the trademarked merchandise. Pursuant to Hybrid’s agreement with Walmart, Hybrid’s insurer was obligated to respond to the claim.  The insurer denied coverage resulting in Hybrid’s declaratory judgment lawsuit.

The issue on appeal was whether the retail display at Walmart’s constituted an advertisement within the meaning of the Policy and (2) there was an advertising injury under the Policy. Hybrid argued that the retail display, in its entirety, was an advertisement that allegedly infringed on the MMA Elite trademark.

Advertisement was defined as “an electronic, oral, written or other notice, about goods, products or services, designed for the specific purpose of attracting the general public or a specific market segment to use such goods, products or services.”

The Policy defines an advertising injury as an “injury ... sustained by a person or organization and caused by an offense of infringing, in that particular part of your [Hybrid’s] advertisement about your [Hybrid’s] goods, products or services, [ ] upon their copyrighted advertisement; or registered collective mark, registered service mark or other trademarked name, slogan, symbol or title.”

The court did not address the question of whether a retail display constituted an advertisement. Instead, it affirmed the trial court’s dismissal of Hybrid’s claims because Hybrid didn’t do the advertising.  Hybrid did not design, pay for, possess, or set up the combination; Walmart did.  The court held:

While “close proximity” of Hybrid’s products to the MMA Elite signage arguably may be enough to show that the resulting arrangement was an “advertisement about [Hybrid’s] goods,” it is not enough to establish that the retail display was Hybrid’s advertisement about Hybrid’s goods. Similarly, with respect to the non-MMA-Elite signage and display materials that Hybrid paid for and/or designed, the contribution of materials that are used to make a different composite advertisement does not make that resulting advertisement Hybrid’s.

Accordingly, the circuit court affirmed the grant of summary judgment to the insurer.

 

BORON’S BENCHMARKS
Eric T. Boron

[email protected]

06/19/20       Marchbanks v Liberty Ins. Corp.
Supreme Court of Texas
Texas High Court Rules Insurer’s Payment of Appraisal Award Did Not Bar Claim Alleging Violation of Texas Prompt Payment Act 

The Texas Supreme Court’s decision in this insurance dispute concerned whether an insurer's payment of an appraisal award bars an insured's claims under the Texas Prompt Payment of Claims Act (TPPCA), codified as Chapter 542 of the Texas Insurance Code. The trial court (2016) and court of appeals (2018) had concluded it did bar the insured’s TPPCA claims, but the Texas Supreme Court, relying upon two 2019 decisions it had issued which had addressed this question while the appeal of Mr. Marchbanks to the Supreme Court was pending, reversed and remanded the case.

As a matter of background, the insured’s hailstorm property damage claim was denied because the insurer’s adjuster saw no storm damage.   Fifteen months later the insured requested a new inspection.  The new inspector assessed damages at less than the insured’s deductible. The insured filed suit alleging breach of contract and several extra-contractual claims. Six months after Marchbanks filed suit, Liberty successfully moved the trial court to compel appraisal. The appraisal award exceeded Liberty's prior estimates. Liberty paid the appraisal award to Marchbanks and subsequently moved for summary judgment on all his claims. The trial court granted Liberty's motion.  The court of appeals affirmed the trial court, ruling the payment of the appraisal by the insurer barred the insured’s claims under the TPPCA as a matter of law.

The court of appeals decision recited that the Texas Insurance Code sets forth the essential components of a Prompt Payment Act Claim in the text of section 542.060(a) of the Texas Insurance Code, which states:

If an insurer that is liable for a claim under an insurance policy is not in compliance with this subchapter [the Prompt Payment of Claims Act], the insurer is liable to pay the holder of the policy or the beneficiary making the claim under the policy, in addition to the amount of the claim, interest on the amount of the claim at the rate of 18 percent a year as damages, together with reasonable attorney’s fees.

Marchbanks v Liberty Ins. Corp., 558 SW3d 308, 312 [Tex App 2018], review granted, judgment revd, 18-0977, 2020 WL 3393472 [Tex June 19, 2020].

So, ultimately, at interest in this case was, well, entitlement to interest.  And attorney’s fees.  18% per year of interest.  And an unspecified amount of attorney’s fees.  This one was not what we might call a game-changing case, given the two 2019 decisions of the Texas Supreme Court addressing this same topic set the clear precedent for this decision.

 

BARCI’S BASICS (ON NO FAULT)
Marina A. Barci
[email protected]

06/15/20       Harvey Family Chiro PT & ACUP, PLLC v. Ameriprise Ins. Co.
New York City Civil Court, Bronx County
Provider Denied Summary Judgment on Reimbursement of No-Fault Benefits

Ameriprise moved for summary judgment on the grounds that (1) the provider lacked standing to receive no-fault reimbursement because it is not properly owned and controlled by licensed medical professionals as required by 11 NYCRR 65-3.16(a)(12); (2) Ameriprise timely and properly denied the claim as the medical treatment was not medically necessary; and (3) Ameriprise properly paid and denied the remainder of the claims pursuant to the New York State Workers' Compensation Fee Schedule.

First, pursuant to 11 NYCRR 65-3.16(a)(12), an insurer may withhold payment for medical services that a professional corporation provides, where there is a "willful and material failure to abide by" licensing and incorporation statutes, even if the services were provided by licensed health care providers. In order to withhold payment, the violations of incorporation and licensing statutes must be "more than merely technical and rise to the level of a grave violation such as fraud.” Ameriprise argued that the majority owner and manager of the provider PLLC was not a physical therapist or acupuncturist, the services at issue, and thus the provider was not properly licensed to provide those services. The Court disagreed because even though the majority owner of the provider received income from services provided by professionals operating under different licenses, fee splitting alone is not a violation of a licensing requirement.

As to the medical necessity argument, the Court found that the independent medical examination reports were enough to meet Ameriprise’s burden to establish that the treatment was not medically necessary but that the provider’s affidavit detailing the assignor’s medical records met its burden to show that the treatment was medically necessary. Finally, the Court determined that the fee schedule defense based solely on the attorney’s affidavit and not by an individual who was familiar with coding and fee schedules was insufficient to meet Ameriprise’s burden on that issue. Thus, Ameriprise’s motion was denied.
 

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

Guest Column—Ronald Clark and Owen Mooney of Bullivant Houser Bailey PC

08/01/20       Washington Legislative Changes

Effective August 1, Washington State to Require Insurers to Notify Insureds They May Complain to Insurance Commissioner where Insurer Provides "Adverse Notification"

Washington State Legislature

Washington will soon require insurers to notify insureds that they may contact the Washington State Office of the Insurance Commissioner for guidance should an insurer provide an "adverse notification." This requirement appears in a newly promulgated regulation, WAC 284-30-770, effective August 1, 2020. The new rule can be found here.

This new rule applies to "all insurers" and to "all insurance policies," as well as to others listed in the regulation. Under the rule, for each "adverse notification provided," the following content must be in the notice:

"If you have questions or concerns about the actions of your insurance company or agent, or would like information on your rights to file an appeal, contact the Washington state Office of the Insurance Commissioner's consumer protection hotline at 1- 800-562-6900 or visit www.insurance.wa.gov. The insurance commissioner protects and educates insurance consumers, advances the public interest, and provides fair and efficient regulation of the insurance industry."

The rule defines "adverse notification" to extend to various communications, including: a "claim denial"; a "final claim payment for less than the amount of the claim submitted"; and a "[r]escission, cancellation, termination or nonrenewal of a policy unless initiated by an insured," though "[t]his does not apply to the end of a scheduled policy term or cancellation due to nonpayment of premium."

Insurers should review this new rule, including its requirements on the font and location of the above notice, to consider and implement revisions to any procedures that they have for such notices—such as revising any "templates" that they request their claims personnel to use for these types of notifications.

           Reprinted by permission. Original article located here.

Maxwell’s Minute: The Coverage Pointers team would like to thank the authors and their team at Bullivant Houser Bailey PC for allowing us to share their work with you, our loyal readership.

Legislative List

06/16/20       Employer Exemptions From Liability Related to COVID-19 Void
New York State Senate
Proposed Bill Would Declare Agreements Exempting Employers from Liability for Negligence Related to the COVID-19 Pandemic Void and Unenforceable

Last week, a bill was introduced in the New York State Senate that proposes to render as void certain employer attempts to shield themselves from liability related to their negligent handling of the COVID-19 pandemic.

Senate Bill No. S08587 would add a new Section 5-322.4 to the New York General Obligations Law, which would apply to provisions of “any contract, agreement or understanding relating to the employment, hiring or retaining of the services of any person, including but not limited to employees, independent contractors and interns . . . .” Such agreements and understandings under the new Section would be prohibited from exempting “the employer or hiring party  from liability  for  damages  for personal  injury  or  death  caused  by or resulting from the employer's negligence in connection with the employer's or hiring party's  handling of  measures related to the COVID-19 pandemic.” Any existing provisions of that nature would be rendered void.

Notably, the proposed bill allows for such an employer or hiring party, regardless of their own negligence, to seek indemnification for damages from another responsible party “other than the employee, independent contractor [or] intern” themselves.

The bill has been referred to the rules committee.
 

06/17/20       Revival of Actions for Injury/Death of Veterans Caused by Phenoxy Herbicide
New York State Assembly
Proposed Bill Would Permanently Extend the Revival of Time Barred Actions for Injuries/Death to Vietnam Veterans Caused by Exposure to Phenoxy Herbicides in Indochina from 1961-1975

Last week, a bill was introduced in the New York State Assembly that would amend the CPLR to allow for the revival and permanent extension of time limitations related to causes of action for injury/death caused by exposure to phenoxy herbicides while serving as a member of the armed forces in Indo-China from February 28, 1961 through May 7, 1975.

In 1981, legislation was passed which revived time barred actions for such exposures to phenoxy herbicides until June 16, 2022. In doing so, according to the Sponsor Memorandum, the Legislature “found that there is creditable scientific evidence that exposure to these toxic substances have caused serious physical disabilities” and that Vietnam veterans “who were exposed to these substances have been denied access to the courts.” The Legislature found that running of the statute of limitations from the “date of injury” was inherently unjust to those that exhibited symptoms much later.

Today, as the Sponsor Memorandum asserts, there remains compelling circumstances indicating:

“a strong moral obligation by the State to revive the time

barred causes of action that have accrued in favor of citizens of this State who served in the armed forces during the Vietnam era, and had been exposed to and had come into contact with toxic chemical substances, and suffered several physical disabilities which are undetected or undiscovered in later years.”

Maxwell’s Minute: This bill seems like a no-brainer. The original legislation from 1981 had revived these actions through 2022. An 18-year-old service member deployed in Vietnam in 1975 would be 65 years-old by that original cut-off. I see no reason—none—to arbitrarily cut-off such a protection for our veterans as of that date.

All gave some, some gave all. Thank You.
 

06/18/20       Minimum  $200,000 Liability Limit Proposed For Each Police Officer
New York State Senate
Proposed Bill would Require Municipalities, Authorities, and Agencies to Obtain Liability Insurance Limits of $200,000 for Each Police Officer

Last week, a bill was introduced in the New York State Senate that would set certain minimum financial responsibility requirements for municipalities, authorities, or agencies with respect to law enforcement.

Specifically, Senate Bill No. S08601 would require such bodies to “obtain and continuously maintain a policy of liability insurance on each duly appointed police officer . . . in an amount not less than [$200,000] for covering civil rights violation claims that arise from the performance of such officer's powers and duties. Such insurance shall be used to pay any legal fees and/or judgments associated with such claims.

The bill has been referred to the rules committee.

 

06/10/20       Immunity For Law Enforcement Intervention Against Police Misconduct
New York State Assembly
Proposed Bill would Grant Immunity for Law Enforcement Employee Intervention of Police Misconduct by Another Member of Law Enforcement.

Obviously, a hot button issue today, various bills aimed at police reform are being introduced around the country. Two weeks ago, a bill was introduced in the New York State Assembly that would grant immunity from liability and professional retaliation against law enforcement officers who intervene against police misconduct committed by other members of law enforcement.

Calls for police reform largely center on systemic issues with law enforcement practices. Despite genuine, valid criticism that direct misconduct often falls upon the behavior of bad actors within departments, it is hard to ignore the impact of the cultural aspects of policing, generally. As colorfully articulated in the Sponsor Memorandum of Assembly Bill No. 10630:

Law enforcement officers in New York and around the country have come under criticism for egregious police misconduct in certain situations, especially in their interactions with the minority community. A large subject of this criticism is a culture of policing that limits and in some instances actively discourages accountability for wrongdoing. In particular officers who may wish to intervene in situations of police misconduct may be reluctant to do so because of professional repercussions and a lack of protection from liability.

In 2006, City of Buffalo Police Officer Cariol Horne intervened when a fellow officer was beating a prisoner who was handcuffed and unarmed. Following an investigation of the incident, Officer Horne was fired from her position with the BPD. This legislation is aimed to create Good Samaritan protections for officers like Horne, insulating them from professional retaliation and civil and criminal liability stemming from their intervention against police misconduct.

The bill would add a new Section 837-v to the New York Executive Law, which would provide that “[a]ny law enforcement employee who in good faith intervenes  against police  misconduct  in  compliance with this article shall have immunity from any liability, civil or criminal, that might  otherwise  result  by reason of such actions.” Additionally, such a law enforcement employee would be protected from retaliatory personnel action by a law enforcement agency following such intervention.

06/22/20       Liability for Law Enforcement Misconduct or Failure to Intervene
New York State Assembly
Proposed Bill Would Grant Immunity for Law Enforcement Employee Intervention of Police Misconduct by Another Member of Law Enforcement

This week, a bill was introduced in the New York State Assembly that would hold law enforcement officers who deprive individuals of rights, or fail to intervene in such a deprivation, accountable for civil liability.

That bill, Assembly Bill No. S08618 would impose an affirmative duty to intervene and strip such law enforcement officers of the ability to rely upon statutory limitations and immunities for liability, damages or attorney’s fees normally applicable to such conduct. (Compare to the bill above, proposing incentives for voluntary intervention).

A successful plaintiff in such an action for damages or injunctive relief would receive reasonable attorney’s fees and costs. A successful defendant may be awarded reasonable costs and attorney’s fees for defending claims deemed frivolous by the court.
 

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

06/05/20       Fireman’s Ins. Co. of Washington, D.C. v. Ace American Ins.
United States District Court, Western District of New York
An Entity is Only an Additional Insured when All Aspects of Additional Insured Endorsement are Satisfied

A mason was injured when a scaffold he was on fell during the construction of a Wegmans supermarket in Massachusetts. While the construction was being overseen by Aerotek, who provided employees and a site foreman, Tom Story, for the project by way of a staffing agreement, the mason’s employer, MP Masonry, had a direct contract with Wegmans to provide the masonry work. Included in this contract was a provision that MP Masonry would procure liability insurance for itself and Wegmans, and that MP Masonry agreed to indemnify Wegmans and its “agents, employees and representatives” from claims of “personal injury to [MP Masonry’s] employees … arising out of or resulting directly from the performance” of the Wegmans project. A personal injury action was initiated by the mason and his wife in Massachusetts naming Wegmans and Tom Story as defendants, MP Masonry’s insured, Fireman’s Insurance Company, assumed the defense of Wegmans. Aerotek’s insurer, Ace American, alleges that Fireman’s owes Story a defense, as Story was an employee, agent, or representative of Wegmans. Importantly, the staffing agreement between Aerotek and Wegmans provided that Story was an employee of Aerotek but acting as an independent contractor to Wegmans.

Fireman’s then sued Ace American seeking a declaration that Wegmans was owed a defense by Ace America through the operation of the staffing agreement. Ace America counterclaimed alleging that Story was owed a defense as an “employee, agent, or represented” of Wegmans. The court quickly dispensed of Ace American’s counterclaim, citing various New York cases which require the strict interpretation of an indemnity agreement. The court concluded that Story, as an independent contractor, did not qualify as an “employee, agent, or representative” of Wegmans and thus no indemnity was owed.

The court then turned to the question of whether or not Ace American must indemnify Wegmans and contribute to its defense pursuant to the commercial general liability (CGL) policy issued to Aerotek. The staffing agreement provided that Aerotek must add Wegmans as an additional insured on a CGL policy of insurance. Directing the court to “Endorsement 5” which states that an additional insured is any entity “whom [Aerotek] has agreed to include as an additional insured under a written contract.” The endorsement goes on to state, the entity [Wegmans] is only an additional insured “with respect to liability for “bodily injury” . . . cause, in whole or in part, by [Aerotek’s] acts or omissions or the acts or omissions of those acting on [Aerotek’s] behalf in the performance of Aerotek’s “ongoing operations,” additionally the coverage afforded to the additional insured “will not be broader than that which [Aerotek is] required by the contract or agreement to provide for such additional insured.” Citing to Burlington Ins. Co. v. NYC Transit Auth., the court concludes that Wegmans cannot obtain indemnity coverage, as “Endorsement 5” is only intended to provide coverage to an additional insured where the named insured (or one acting on its behalf) proximately caused, in whole or in part, the “bodily injury” at issue. 29 N.Y. 3d 331 (2017). As it is undisputed that Aerotek was never alleged to have directly acted in a manner that caused the mason’s injuries, the endorsement does not apply, and Wegmans is not considered an additional insured under the policy. As the court stated:

Wegmans’ potential liability in the Massachusetts action does not involve liability for bodily injuries caused by Aerotek’s own acts or the acts of someone acting on its behalf. To the extent Story caused an injury for which Wegmans may be held liable, the Massachusetts Superior Court made clear that Story caused the injury while acting on behalf of Wegmans, not Aerotek. 

Accordingly, the court denied Fireman’s claim seeking a declaration that Ace American must indemnify Wegmans in the underlying action.
 

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

Heather Sanderson
Sanderson Law (Alberta, Canada)

[email protected]

What Insurers Don’t Know Won’t Hurt Them (But May Hurt Insureds)

Cara’s Cross-Border Connection: Executive Orders’ Effect on Gyms, Employees and Personal Trainers

As various parts of New York State are about to enter Phase 4, there was excitement and anticipation for owners, employees, and customers of malls, movie theaters, and gyms. However, Governor Cuomo announced that malls, movie theaters, and gyms would not reopen as part of Phase 4. Like many, I enjoyed visiting such places, but personally, I miss the gym. Luckily, there is a beautiful park nearby and I enjoyed running around the park, especially now that it is warmer here in Buffalo. Recently, I have noticed what appear to be personal trainers helping clients in and around the park. I also learned that personal trainers are taking to social media to advertise their “at home” services, i.e. bringing clients into their own homes. Even more daring are individuals permitting patrons to enter fitness facilities for private sessions, despite the current executive orders. Of course, my first question is what are the coverage implications, if any?

Designated Premises

A lot can happen at fitness or health club: heavy weights falling on a foot, “flying” off a treadmill or incorrect direction resulting in an injury. Accordingly, like any other business, fitness facilities will also likely obtain a commercial general liability policy. But what about the instructors who have left the walls of their respective facilities and entered the homes of members or started meeting in public spaces, like parks?

Most fitness instructors would normally be covered under their employer’s supplemental professional liability policy or obtain their own professional liability policy. However, such policies generally limit coverage for an occurrence that occurs within the “designated premises”. For example, a “designated premises (or project)” endorsement may read as followed:

This insurance applies only to “bodily injury,” “property damage,” “personal and advertising injury,” and medical expenses arising out of the ownership, maintenance, or use of the premises shown in the Schedule and operations necessary or incidental to those premises.

Accordingly, the policy will likely no longer provide coverage once the instructor leaves the four walls of a club or facility. For example, a New York court held that even a “business-related” activity that occurred at a separate location was not deemed “necessary and incidental” to the designated premises.[1] Importantly, the court emphasized that to hold otherwise would wholly eviscerate the limitation of coverage in the CGL Policy to specifically designated premises. Under plaintiff’s theory, an insured with [other locations] could always claim that the operations conducted from those other non-designated [locations] were “necessary or incidental to” the operations conducted from the [designated premises]. Limiting the coverage to designated premises significantly reduces the premium charged because the insurer's exposure is significantly reduced. Expanding the coverage to include business-related activity occurring off-premises would significantly increase the insurer's risk to cover an exposure which was not intended and for which it did not receive a premium.[2]

Illegal Activities

Many businesses that have been deemed “non-essential” have started responding to their respective governor’s executive orders with litigation. However, courts are responding differently. In North Carolina, a judge held in favor of Governor Roy Cooper’s executive order prohibiting a raceway from hosting events due to the coronavirus.[3] In Judge Thomas Lambeth stated, “Dr. Cohen’s[, Secretary of the North Carolina Department of Health and Human Services,] sworn declaration makes clear that the scientific and medical data that large mass gatherings like those at [the speedway] have been linked to increased spread of COVID-19.”[4] As a result, the speedway is only permitted to host events, but to no more than 25 people.

Conversely, a judge in Michigan held in favor of gyms who challenged Governor Gretchen Whitmer’s executive orders.[5] The Michigan judge, Judge Paul Maloney concluded: “Unfortunately, on the record before it, the court has not been presented with any evidence that shows a rational relation between the continued closure of indoor gyms and the preservation of public health.”[6] After the decision, Governor Whitmer requested a stay on the judge’s injunction permitting gyms to reopen, but the judge denied this request.[7]

Whether violating an executive order is facing constitutional challenges, if found to be constitutional then what is the effect on coverage? A Second Circuit ERISA case may provide some insight. In Celerado v. GNY Auto. Dealers Health & Welfare Trust, the court held the beneficiary was not entitled to medical benefits for hospital and medical expenses arising from injuries sustained in a motor vehicle accident because of the policy’s “resulting from” and “illegal act” provision.[8] The court held:

While [the beneficiary] would have us hold that “illegal” means “criminal,” this interpretation contravenes the plain, common-sense meaning of “illegal.” The dictionary definition of “illegal” is “contrary to or violating a law or rule or regulation or something else (as an established custom) having the force of law.” Traffic infractions prohibited by the VTL may reasonably be encompassed by this definition even if they are not considered crimes in New York.[9]

If held to be constitutional, then it is likely a business which experiences an occurrence while operating in violation of an executive order could face a denial of coverage due to an “illegal acts” provision (e.g., a non-essential employee injured on the job while an executive order was in effect permitting only essential businesses to operate would face a contested workers’ compensation claim). Therefore, commercial insureds and their insurers should be aware of their states’ respective executive orders.

Cara’s Cross-Border Connection: Heather

Failing to Disclose a Pivot to Produce Medical Supplies Can Void Insurance Coverage

As Canadian public health agencies throughout the country responded to the threat posed by COVID-19, it became clear that there was a national shortage of personal protective equipment (PPE), N95 face masks, face shields, hand sanitizer and disinfectant wipes.  As there was a global need for these items, traditional markets could not keep with demand.  Canada needed a domestic solution to the problem, as our healthcare workers could not face the pandemic without protection.  Canadian companies rose to the challenge of supplying our healthcare workers with the equipment and protection that they needed.

For example, one of Canada's iconic brands, Canada Goose, known for very high end, but very warm, durable parkas, published a press release on April 9, 2020 stating that it was producing 60,000 L2 gowns per week for the next five months to fulfil a contract with the federal government to supply 1.5 million gowns.  It also had a contract with Shared Health Manitoba to produce 100,000 reusable gowns.   These gowns would be produced on a no-profit basis and any unintentional profit would be donated to federal COVID-19 relief efforts. This required retooling and the activation of its three facilities in Winnipeg, two facilities in Toronto and two near Montréal. Outdoor clothing manufacturer, Arc’teryx  also joined the race to produce medical gowns.  The company collaborated directly with health authorities to develop a prototype of a reusable medical gown and went into production.  The gowns were distributed free of charge to the British Columbia healthcare network.

Brian’s Custom Sports near Leamington Ontario, normally make hockey goalie pads.  They switched production to sewing disposable gowns for healthcare workers.  It also provided double-sided tape and foam – key elements of medical face shields – to the Windsor-Essex County medical authority.  Lethbridge Custom Canvas normally makes boat covers, tents and patio awnings but they shifted to making medical masks when the pandemic hit.  Breweries in communities across Canada pivoted to manufacturing and selling hand sanitizer.

According to a CTV News article, as of April 19, 2020, nearly 5000 small Canadian businesses had offered to retool their factory floors to provide critical personal protective equipment for medical workers.

The insurers of these businesses had issued commercial property policies priced to meet the exposure of the business disclosed in the application form. That did not include the manufacture or supply of medical equipment.

Through conversation with a few brokers in the Calgary area, I learned that most insureds that switched gears and retooled to meet the needs generated by the pandemic, contacted their brokers and developed a plan of action together with their insurers.  Most of these new initiatives were reviewed for compliance with health care regulations and requirements, then approved.  For them, coverage has continued.  However, concerns emerge for those businesses who initiated production of medical equipment without having that discussion with their brokers and insurers.

Statutory Condition #4

The basis of an insurance policy is that the insurer must understand the risk involved and intend to assume it. In order to do so, the insurer must know all the relevant information to assess the risk. “If the insured fails to disclose information or keep information back through intention, or mistake, the policy is void.”: Lee v. Canadian Northern Shield Insurance Company, 2005 BCSC 8 66, para. 42, following Carter v. Boehm (1766), 3 BURR. 1905 (K.B.).  The Insurance Acts of all Canadian common-law provinces and territories contain a statutory provision stating that an insurance contract is not rendered void or voidable by reason of a misrepresentation or failure to disclose unless the failure to disclose is material to the contract.  Materiality is always a question of fact.

Once the contract is formed, the insured has an ongoing requirement to disclose material changes affecting the insured property.   That requirement is set out in statutory condition #4 that forms part of commercial and personal lines insurance contracts issued throughout common-law Canada. That condition reads:

Any change material to the risk and within the control and knowledge of the insured avoids the contract as to the part affected thereby, unless the change is promptly notified in writing to the insurer or its local agent and the insurer when so notified may return the unearned portion, if any, of the premium paid and cancel the contract, or may notify the insured in writing that, if the insured desires the contract to continue in force, the insured must, within fifteen days of the receipt of the notice, pay to the insurer an additional premium; and in default of such payment the contract is no longer in force and the insurer shall return the unearned portion, if any, of the premium paid.

The insurance company is entitled to declare the insurance policy void in the event of material nondisclosure or misrepresentation by the insured, either at the time the policy is formed, or during the policy term:   Lavoie v. T.A. McGill Mortgage Services Inc., 2014 ONCA 257, applying Lloyd’s London, Non-Marine Underwriters v.  National Armored Limited, (1999), 174 D.L.R. 4th 493 (Ont. C.A.).

All of this means that if an insured that does not normally manufacture, supply or sell medical protective equipment, re-tools to meet the needs of the pandemic, then that insured is at risk of losing its insurance coverage for an otherwise covered claim, unless the insured received the agreement of its insurer to pivot to this new endeavour.

What About Secured Creditors?

It is important to understand that the insurer’s ability to deny indemnification to an insured who fails to disclose material facts does not prejudice the insurer’s obligation to indemnify a secured creditor listed on the policy.

The standard mortgage clause creates a contract between the mortgagee and the insurer and under the terms of that contract, the mortgagee’s right to indemnification is not prejudiced by any act, neglect, omission or misrepresentation of the insured: Royal Bank of Canada v.  State Farm Fire & Casualty Company, 2005 SCC 34.

All of this means that if the insured changes the use of the insured property without notifying the insurer;  the change of use is a material change; the insured property is destroyed by an event that would be covered by the policy if it were not for the insured’s failure to disclose the material change;  the insurer is not obliged to indemnify the insured because of the change material to the risk, but is obliged to pay out the security interest of the insured’s financial institution.

What if the Broker Makes the Disclosure?

From a business point of view, it behooves the insurance agent or broker to contact their clients to warn them about the consequence of not contacting their insurers to discuss their new business venture, even if it is not an income producing venture.

There is caselaw that would support the contention that an insurance broker or agent that becomes aware that their clients have re-tooled to manufacture pandemic medical supplies has an obligation to disclose that fact to their client’s insurers:  North Waterloo Farmers Mutual Insurance Co. v. Wylie, 1989 CarswellOnt 662 (Ont.  trial; Adams-Eden Furniture Ltd. v. Kansa General Insurance Co. (1996), 113 Man R (2d) 142 (C.A.).

What if the insured does not notify the insurance broker or agent about the change in use, but, the broker becomes aware of it and notifies the insurer? In that case the insurer cannot void the policy in the event of a claim on the basis that the insured did not disclose the change in use.  An insurer cannot insist that the policy is void because the insured did not tell the insurer what the insurer actually knew or came to its knowledge:   Coronation Insurance Company v. Taku Air Transport Ltd., [1991] 3 S.C.R. 622Mah v. Wawanesa Mutual Insurance Co. 2013 ABCA 363 (Alta. C.A.).

The Test for Materiality

The ability of an insurer to void the policy is dependent upon proof that the change in use is indeed material to the risk.   The test of materiality is measured by the standard of a reasonable insurer: Lavoie v. T.A.  McGill Mortgage Services Inc., 2014 ONCA 257.  The insurer must offer evidence from one of its underwriters that the insurer would have refused to underwrite the change in use had it been disclosed.  In most cases, most insurers augment that evidence through the evidence of an independent underwriter that indicates that the misstatement or failure to disclose is in fact material to the decision to offer insurance: Lavoie v. T.A. McGill Mortgage Services Inc.

Knowledge of Materiality

Does the Insurer have to prove that the insured knew that the change was material and had to be disclosed?

Again, Statutory Condition #4 states:

Any change material to the risk and within the control and knowledge of the insured avoids the contract as to the part affected thereby …

The words “any change material to the risk and within the control or knowledge of the insured”, creates a high standard of disclosure of a material change during the policy term: Schellenberg v.  Wawanesa Mutual Insurance Company, 2019 BCSC 196, para. 86, endorsed by the British Columbia Court of Appeal in Schellenberg v. Wawanesa Mutual Insurance Company, 2020 BCCA 22, at para. 29.  It is for the insurer to prove that the insured knew, or ought to have known, that the change was material to the insurer.  Does that mean that the insurer must prove that the insured actually knew that the change was material to the risk (a subjective standard) or, ought to have known that the change was material to the risk (objective standard)?

In Aviva Insurance Co. v. Thomas, 2011 NBCA 96 (N.B. C.A.), Chief Justice Drapeau, for the New Brunswick Court of Appeal, declined to definitively answer the question as to whether the knowledge requirement included knowledge of materiality. That court also referred to Violette c. Wawanesa Mutual Insurance Co., 2012 NBQB 47 No. 2673 (N.B. Q.B.), which decided that the insured's subjective knowledge of materiality was relevant, and Wolfe v. Western General Mutual Insurance, [2000] O.J. No. 2673 (Ont. S.C.J.), which found that the insurer was not required to prove the insured's subjective belief regarding materiality of the change of risk to the insurer.

The British Columbia Supreme Court took a careful look at this issue in Schellenberg.  Justice Margot Fleming of that Court commented “ I have some concern about the impact of requiring an insurer to prove subjective knowledge of materiality…”.   She went on to say that she would prefer the interpretation that statutory condition #4 requires proof that the insured knew that the change is significant or relevant to the insurance – in other words, presented an insurance risk.  She would also favour a requirement that the insurer must prove that the insured was wilfully blind to the obligation to disclose the change.  However, Justice Fleming did not rule that that is how statutory condition #4 ought to be interpreted. This was because she found as fact in that case that the insureds knew that the change that was not disclosed was material;  or in the alternative, ought to have known that it was material.  Justice Fleming also found that the insureds chose not to disclose it.

The British Columbia Court of Appeal in that case stated that given that the insured’s subjectively believed that the change ought to have been disclosed, there was no need for the trial judge to embark on a theoretical analysis as to whether statutory condition #4 required the insurer to prove the insured’s subjective knowledge of materiality and thus resolve the conflicting case law.

The issue of subjective versus objective knowledge will be resolved in another case on another day: Schellenberg, 2020 BCCA 22, paras. 44-49.

No Causal Connection Required

Although the issue of subjective versus objective knowledge of materiality on the part of the insured is unsettled, the case law in Canada is clear on an important point: The insurer’s ability to void the policy and deny the claim is not dependent upon proof that the loss in issue is causally related to the material change that was not disclosed.

In Marche v. Halifax Insurance Co., 2005 SCC 6 (S.C.C.), Ms. Marche and Mr. Fitzgerald bought the Fitzgerald family home in Cape Breton, Nova Scotia, converted it into two apartments and tried to find tenants.  Before tenants could be found, they moved to British Columbia to find work, leaving the house vacant.  They did not notify their insurance company, Halifax Insurance, that the house was vacant.  After a period of time, Danny Fitzgerald, brother of the named insured, moved in without permission and failed to pay any rent.  The water and electricity were cut off to induce him to leave.  That did not succeed.  The house burned.  Arson was the cause of the fire. At the time of the fire, Danny Fitzgerald’s possessions were still in the house.   The Supreme Court of Canada held that statutory condition #4 was breached and the insurer was entitled to take that position, even though the fire was not causally connected to the breach.

Relief from Forfeiture?

There is a provision in the Insurance Acts of all common-law provinces and territories in Canada that permits a court to grant relief from forfeiture of insurance coverage in the event it is inequitable for the insurer to declare a policy void due to the insured’s failure to disclose a material change in risk (or any other breach of condition in the policy).   In British Columbia and Nova Scotia, the provision is a little different than in the other provinces stating that “…a term or condition is not binding on the insured if it is held to be unjust or unreasonable by the court before which a question relating to it is tried.”

These provisions are a partial codification of the court’s equitable jurisdiction.  In order to seek equity, the insured has to come to the court with “clean hands”.  If the insured knew or ought to have known that the change in use of the insured premises would create an insurance risk and did not disclose that risk, then the insured has deliberately concealed the situation from its insurer.  In that situation, it is highly unlikely that a court would grant relief from forfeiture of insurance coverage or, in the case of a matter arising in British Columbia and Nova Scotia, declare that the forfeiture of insurance coverage is unjust or unreasonable.

However, if the situation giving rise to the requirement to disclose was rectified by the time the loss occurred, then there is a basis to argue that forfeiture of insurance coverage would in fact be   “unjust and unreasonable”.  In Marche v. Halifax, discussed above, the Supreme Court of Canada held that the trial judge was correct;  there may have been a breach of statutory condition #4 for failing to advise the insurer that the property had been vacant for a period of time, but, the insurance coverage should not be forfeited, as the insured property was not vacant at the time of the fire.

Assume then that an insured entity temporarily pivots to producing medical supplies in reaction to the COVID-19 pandemic; does not disclose the new endeavour to its insurer; then, after a period of time, discontinues the production of medical supplies and returns to its usual line of business as disclosed in the application for coverage.    Let us further assume that the entity sustains a loss once its regular line of business is up and running. The insurer’s Investigation of the loss reveals the undisclosed venture into producing medical supplies.   If the insurer voids the policy on the basis of a violation of statutory condition #4 and denies the otherwise covered claim as a result, then the insured would have a cogent argument on the basis of Marche that the violation of the condition had been rectified at the time of the loss .  Accordingly, it would be unjust and reasonable in British Columbia and Nova Scotia or inequitable in the other provinces for the insurer to maintain its position.

Good Intentions is not a Defence to Coverage Avoidance

Insureds who retooled their operations to meet the public health needs generated by the pandemic were doing the right thing.  Canada needs a domestic supply of medical equipment.  However, the decision to use insured resources to meet the public health crisis needs to be made in conjunction with the insurance company that is covering the premises.  The insured cannot unilaterally change the subject of the insurance coverage.   The facts of the Schellenberg case mentioned above drive that point home.

Linda and Bob Schellenberg lived in Chilliwack, east of Vancouver with their three adult sons, Todd, Michael and Stuart.  Todd and Michael had disabling chronic pain conditions.  Todd had become dependent on oxycodone to manage his pain.  Linda Schellenberg investigated alternatives to oxycodone for Todd and discovered medical marijuana. Linda approached a doctor as to whether it would help.  Todd and Michael were each given prescriptions for medical marijuana.  Todd and Michael’s personal use production licenses permitted them to grow 112 and 98 plants respectively.  Stuart obtained a license to grow medical marijuana for a friend with paraplegia.  He was permitted to grow 292 plants.  Together all three licenses permitted them to have 22.6 kg or about 50 pounds of dried marijuana.

Bob Schellenberg was a builder.  He built a two-story outbuilding that met all local building codes.  The lower story was made out of concrete and the upper story was wood frame construction. Sometime between 2011 and 2012, the marijuana grow operation got underway and eventually took over the ground floor of this building.  The second story was used by Bob Schellenberg for his hobby that involved tinkering with cars and would eventually become a home for Todd.    In order to grow the marijuana plants, the electrical service to the property was increased.

In January 2014, a fire destroyed the upper story of the outbuilding.  The cause of the fire was unrelated to the grow operation.    Investigation after the fire revealed that the grow-op had not exceeded its licensed amount of marijuana plants.  Further, the amount of dried marijuana on the property was within the licensed amount.  The same investigation found that the building contained a hoist, a crane, equipment and tools used to work on vehicles.  The building had dual uses.

Wawanesa Insurance Company insured the Schellenberg home from the time it was built in 2005 through to the time of the fire.  Neither Linda nor Bob Schellenberg told their broker that they were maintaining a marijuana grow operation on the insured premises, but they did disclose the fact that they had built the outbuilding which they described as a “car museum”.    After the fire, Wawanesa voided their policy and refused to cover the fire damage due to a breach of statutory condition #4. At trial, Wawanesa led evidence that the company would not have continued the coverage if they had known about the marijuana grow operation as they do not cover government-approved legal marijuana grow operations. The court accepted that the existence of the marijuana grow operation was a material change of risk. The issue before the court was whether the insurer was required to prove that Linda and Bob Schellenberg knew that the existence of the marijuana grow operation was a material change to the insurance risk and they required to notify their broker of its existence.

At trial and in pretrial examinations, Bob Schellenberg, who was the point person dealing with insurance coverage, testified that that if he had been asked, he would have disclosed the fact that they were growing marijuana.  On the other hand, he said that there had to have been an explicit question before he volunteered the information.    Neither Linda nor Bob Schellenberg willingly told anyone about the grow operation as they were concerned about being robbed.  At no time, either at pretrial examinations, or at trial, would the Schellenberg’s acknowledge that they should have known or actually did recognize that the grow operation was an insurance risk.  The trial judge found their testimony to be disingenuous (para.99):

Clearly the magnitude and complexity of the grow operation installed in their outbuilding was a significant change, very far from an ordinary use of the property, and certainly more unusual than the presence of the shop which Mr. Schellenberg did disclose. Given its elaborate infrastructure, the number of marijuana plants being grown, the amount of space they and the drying/dried marijuana occupied, and the Schellenberg's fear of being targeted, the suggestion Mr. Schellenberg never considered the grow operation relevant to their insurance is simply not believable. The suggestion becomes implausible when one considers that he was aware of the obligation to notify …[the broker]… or Wawanesa of changes in risk that could affect their premiums or coverage.

The trial court found Linda and Bob Schellenberg to be in breach of Statutory Condition #4 as they knew that the presence of the marijuana grow operation was a change relevant to the risk, significant to their insurance coverage or premiums and they failed to disclose the existence of that risk to their broker or to their insurer.   Due to the breach, Wawanesa, was within its rights to deny coverage for the fire damage and declare the policy to be void.

The Schellenbergs appealed. The British Columbia Court of Appeal agreed with the trial judge. That court held that in these circumstances it would not be unjust or unreasonable to enforce Statutory Condition #4, as the insureds deliberately failed to disclose to their insurer that they had a marijuana grow-op on the property. This finding means that they are not entitled to what is, at its core, equitable relief.

The purpose of the marijuana grow operation was to get Todd off oxycodone and onto marijuana – in essence, to save his life.  Linda & Bob Schellenberg had the best of intentions, but they chose not to discuss those intentions with their insurance company. Perhaps they believed that they would never obtain insurance coverage if they did - we just don’t know their motives.  After the fire, the family attempted to continue the grow operation in the lower floor of the building but without a roof, they could not achieve the humidity levels necessary to grow marijuana.  Without his supply of marijuana, Todd returned to oxycodone.  He died of an overdose in 2016.  

Insureds who pivot to meet the demands of the COVID-19 pandemic are to be commended. However, if they do not notify their insurance company of their plans, they risk a denial of coverage and the financial ruin that can bring.


[1] Accessories Biz, Inc. v. Linda and Jay Keane, Inc., 533 F.Supp.2d 381 (S.D.N.Y. 2008)

[2] Accessories Biz , 533 F.Supp.2d 381

[6] Id.

[8] 318 F.3d 142, 29 Employee Benefits Cas. 2281 (2d Cir. 2003).

[9] 318 F.3d at 147-48.

 

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