Coverage Pointers - Volume XXII, No. 2

Volume XXII, No. 2 (No. 567)
Friday, July 10, 2020

A Biweekly Electronic Newsletter  

As a public service, Hurwitz & Fine, P.C. is pleased to present its biweekly newsletter, providing summaries of and access to the latest insurance law decisions from the New York, New Jersey, and Connecticut appellate courts and Canadian appellate courts.  The primary purpose of this newsletter is to provide timely educational information and commentary for our clients and subscribers.  

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Dear Coverage Pointers Subscribers:

Do you have a situation?  We love situations.

We hope you had an enjoyable July 4th weekend, or Canada Day, and that your weather was as sultry as ours.  Home is still our office and will be for the foreseeable future, but I have found myself efficient, productive and, not traveling as much, having more time to be interactive with our legal staff and clients, alike.  Nothing wrong with that.  I do miss being on the road, but I am enjoying this alternative, as I dance between and among Zoom, Teams, Skype, Go to Meeting and other similar platforms.  I enjoy the visual interactivity with my clients and brother and sister lawyers.  While we are short of some of the in-office contacts with the lawyers in our office, we have weekly Coverage Team meetings to make certain that training and education continues.

I’ve been asked to return for my 34th year of teaching Insurance Law as an Adjunct Professor at the Buffalo Law School.  It’s heartwarming to know that most every practicing lawyer, under age 60 or so, who took that course at UB, was my student. Every so often, one of my 1,000+ former students, now sitting as a trial or appellate judge, reminds me of a joke I told 25 years ago (and realize, that I’m still telling the same old jokes today).  Classes start in early September, I think, and I am hopeful we can return to the physical classroom.  Otherwise, I’m prepared to teach virtually.

Risk Transfer Training:

So much of my casualty coverage work, these days, focuses on risk transfer – additional insured questions, contractual hold-harmless agreements and how the interrelationship between them impacts on the ultimate resolution of complex cases.  We are conducting, via Microsoft Teams, a regional training program on risk transfer next week for a good client.  If your shop can benefit from that training, let me know and we can arrange a date and time to help train your staff.

COVID-19 and Business Interruption Coverage:

The first substantive COVID-19 decision came down this past week and one of my colleagues will speak to it later in this letter, I am sure.  We maintain a robust inventory of COVID-19 BI lawsuits on our website and through our firm’s activity on LinkedIn. Now 593 strong, we categorize by state with summaries of each case about which we’re aware.  Likewise, we maintain an active database of legislative activity, both state and federal.

The Value of the .1:

The value of 1/10th of an hour.

One of the lawyers in my office mentioned that doing X would lead to billing a .1 and suggested that .1 isn't very much. Some may agree with him. I don't.

I offered this mathematical approach demonstrating the value of .1 in terms we can all understand, and you may share this with your office, no credit necessary.

If you add .1 a day for five days a week, you get .5. Multiply it by 50 weeks and it’s 25 hours. Multiple 25 hours by $250/hr and you have billed an additional $6,250 a year. If a decent one-liter bottle of vodka cost $20, you can buy 312.5 bottles of vodka with that $6,250.

Now, a liter is about 33 ounces. A shot is about 1 ½ ounces. If you use a double shot of vodka for a martini, three ounces, you can make about 11 martinis out of a one-liter bottle of vodka.

The bottom line is this – by giving an extra .1 hour each business day, you are making enough money for 3,437.7 martinis. Of course, if you have a heavier pour, your mileage may vary. #martini #insurance #lawyers

By the way, his response was a fair one: "if we’re drinking 3,400 martinis a year, or approximately 9.5/day, we might have some other difficulties in reaching our hours."

Editor’s Note:  I posted this mathematical observation on LinkedIn a week ago. It has received in excess of 42,000 views, hundreds of comments and shares.  I thought I would share it here.


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:

With the heat of Summer in full swing around the Country, we start off with a warning which will hopefully protect you from getting burned in the future.  In the 140 Grist, Inc. case reviewed below, the Court scorches an otherwise sound motion to dismiss due to evidentiary irregularities.  In so doing, the Appellate Division dismissed the motion without even getting to the merits of plaintiff’s opposition.

We’ve reminded folks for years to pay attention to admissibility issues when preparing a motion for dispositive relief. As you would at trial, you must properly support anything that goes to the overall Record submitted to the Court.  This includes, most notably, ensuring that you have a company representative authenticate anything authored, maintained, handled in the normal course of business.  Thus, an attorney affidavit is not the proper vehicle to introduce policy documents, disclaimers, or investigative reports. 

We had, however, also assumed that someone from the company maintaining the records could verify them as part of his or her personal knowledge.  This decision, at the very least, casts some question on that practice.  The Court specifically noted that the “adjuster affidavit” submitted in this case did not have personal knowledge of the inspection (as he didn’t conduct it), nor the disclaimer (as he didn’t write it).  We’re not so sure that the claims professional could not have properly verified these company documents, particularly if he or she was involved in the handling of the file, but we note the concerning tone of the decision.

More problematic was the submission of a “expert” report.  Consultants are, often by their very nature, experts.  As such, if you are to proffer a consultant’s report that contains scientifically supported conclusions, it is advisable to (a) ensure the report is properly verified by the expert and (b) ensure that the consultant’s expert qualifications are also presented.  Again, much the same way you would during the voir dire of an expert at trial.  Failure to do so may result in the loss of valuable pieces of evidence.

That said, not every report from a consultant is an “expert report.”  Reports of observation and normal claims handling functions would not, in our estimation, constitute an “expert opinion.”  Indeed, we’d further submit that the evidence obtained by an “expert consultant” if properly verified should likewise be admissible without proper credentialing.  An expert’s factual references of what he or she heard, saw, smelled, etc., is not “expert opinion.”   They are factual observations.  Nevertheless, these, again, are arguments best left avoided if possible.

On a lighter note, I am reminded that my wife has always said the Summer is effectively over after July 4th.  I truly hope that’s not the case this year, as it feels like Summer never really started.  With the school year fizzling, and very little travel outside of trips to the grocery store, the normal pace of Summer hasn’t quite kicked in yet.  Perhaps it won’t this year, but I’ll chose to be optimistic for now.

Indeed, signs of past activities are starting to reemerge even as of this letter.  Soccer is back, hockey is back, and swim teams are on the cusp of returning as pools are starting to re-open.  If I’m racing down the road to get a kid to a practice, normalcy, in some grand sense, will have turned.  We all could use some of that!

Steven E. Peiper

[email protected]


No Divorce if No Marriage – 100 Years Ago:

The Evening World
New York, New York

10 Jul 1920



To further improve the Constitution of the United States by an amendment making divorce impossible is the purpose of a newly formed organization which calls itself the Society for the Upholding of the Sanctity of Marriage.

The idea is first to get all clergymen to declare against the remarriage of divorced persons and then to jam an anti-divorce amendment into the Federal Constitution by processes already employed with success.

It was a foregone conclusion that the triumph of the Anti-Saloon League in abolishing personal liberty by constitutional amendment would prove an invitation to other zealous groups whose aim is to regulate the lives of their fellow-beings.

Her they come.  The Constitution is defenseless.  Marshal the forces, organize the lobbies and make way for more Nation-wide regulation.

The Anti-Divorce league should try to be logical as well as bold.

Why not an amendment abolishing marriage?

If we had to abolish alcoholic drink because some people misused it, why not abolish all marriages because some turn out badly?

Marriage is responsible for divorce.

Amend the Constitution to prohibit both.


Wilewicz’ Wide-World of Coverage:

My Dearest, Readers,

Summer is in full swing around here, and the current heatwave makes us once again (and repeatedly) very thankful that we bit the bullet and installed central air at the house a couple of years ago. I can hardly imagine life these days without it. Built in 1905, we were fortunate that our place already had a good duct system, though ultimately we do get inconsistent results and each room in the place is a different temperature. Nevertheless, while we’re all still mostly stuck at home in the sweltering throes of summer, it’s a daily reminder that this one home improvement was worth every penny.

Another good purchase of late has been our subscription to Disney+. Beyond finally getting around to watching Frozen 2, we’ve also repeatedly watched Hamilton, in all of its two-hour-forty-minute glory (with one-minute intermission). My daughter and I have seen the show live a couple of times and since then we’ve nearly burned holes in the double CD of the original cast version, memorizing pretty much the entire score along the way. The latest film is a presentation of the Broadway stage show, with original cast, and it’s certainly good. The only critique we would give is that there are far too many facial close-ups, which stage actors probably don’t anticipate, and we really could have done without all of the Groffsauce spittle.

In any event, this week in the Wide World of Coverage, the Second Circuit addressed another one, this time with regard to the right to intervene in a declaratory judgment action. In Penn-Star v. McElhatton, Penn-Star insured a company that allegedly improperly installed a roof, which resulted in a fire. Since the insured purported concealed from the carrier that it was even undertaking roofing repairs (a highly hazardous line of work), the insurance company sought to rescind the policy and started a declaratory judgment action against them. Another carrier, GNY, had insured the owner and agent of the property, which were also named insureds under the Penn-Star policy. When eventually the target insured agreed to an offer of judgment and conceded to a judicial declaration that the policy was void ab initio, GNY tried to intervene. However, they made their motion to intervene on the day the judgment was to be entered, while they knew about the case months before. The Second Circuit, like the District Court, found that this was too little, too late. A party cannot sit on its rights for months, then seek to intervene in a case at the last minute. Timeliness is a requirement for a successful intervention motion.

Until next time,

Agnes A. Wilewicz

[email protected]


A Kiss is but a Kiss – Even a Century Ago:

Buffalo Courier
Buffalo, New York

10 Jul 1920

Cosy Corner Confidences
By Mrs. Martha Wheeler

Met Boys At the Beach.

Dear Mrs. Wheeler:

My girl chum and I went to the Beach the other afternoon and met two nice boys, and we came home on the last boat, and the boy that escorted me home, insisted on kissing me good night, and said he would telephone me the next day, but I have not heard from him.  My chum had the same experience and we feel sad about it.  They were so nice.  Do you think I had best write to my friend?  He gave me an address.


It is quite probably that you will not again hear from the young man.  Do not write to him, and do not telephone.  If he wants to reach you he knows the way.  It is not a wise proceeding for a girl to take upon with strange acquaintances at the beach or anywhere else, and the man who on such short acquaintance takes liberty with a girl is not of honest intent.  Put the lad out of your mind, jot the experience down as one to be avoided in the future, and have a care hereafter. 


Barnas on Bad Faith:

Hello again:

It is unusually hot here in Buffalo, where the daily high temperature has been over 90 degrees for over a week now.  Everybody always yells at “complains about hot weather in Buffalo” guy, but I am definitely that guy.  Give me highs in the 60s over the 80s and 90s every day of the week.  At least I have air conditioning!

I have a solid decision from the Western District of Texas in my column.  The experts hired by the insurer and the insured disagreed on the cause of loss in a Hurricane Harvey claim.  Thus, motion for summary judgment to dismiss the breach of contract claim was denied.  However, the genuine dispute as to coverage between the parties and their experts lead to dismissal of the bad faith claim.  The insurer’s expert report was a reasonable basis for the denial of the claim.

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

Brian D. Barnas

[email protected]


The Babe!:

Stockton Daily Evening Record
Stockton, California

10 Jul 1920


            NEW YORK, July 10 (United Press).—Babe Ruth, Yankee home run swatter, today added another four-base drive to his season’s home run record, bringing his total to 26.  The circuit drive came in the third inning—with the bases empty—and went into the right field bleachers.  Twenty-eight thousand fans spoiled several dozen summer top pieces while Ruth trotted around the bases.

Editor’s Note:  The Babe ended up with 54 home runs in 1920. George Sisler, second to Ruth in dingers, hit 19.

Look at the 1920 American League: Babe Ruth hit more home runs that season than the entire Boston Red Sox team (22), the White Sox (37), the Indians (35), the Tigers (30), the Philadelphia Athletics (44) and the Washington Senators (36).


Off the Mark:

Dear Readers,

I hope everyone had an enjoyable Fourth of July.  We got up early and hit the beach.  The weather was perfect and the water was way warmer than I was expecting.  We did correctly anticipate large crowds and were on our way home before lunch time.  People seemed to be trying to keep proper social distances, but sufficient space was starting to become hard to find by the time we left.  After an afternoon barbeque at a local park, we made it home to watch the fireworks.  Kids and parents all slept well after that day.

This edition of “Off the Mark” brings you a recent decision from the Supreme Court of Michigan.  In Skanska United States Bldg. v. M.A.P. Mech. Contrs., the Court examined a carrier’s obligation to provide coverage to an insured whose work product was damaged by a subcontractor’s faulty work.  The Court determined that an "accident" may include unintentionally faulty subcontractor work that damages an insured's work product.

Until next time …

Brian F. Mark

[email protected]


To Vote or Not to Vote – Suffrage: 

Chattanooga Daily Times
Chattanooga, Tennessee

10 Jul 1920


(By Associated Press.)

            KNOXVILLE, July 9.—Miss Annie Bock, of Los Angeles, formerly an equal suffrage leader, in a letter to W. K. Anderson, representative in the lower house of the Tennessee legislature, urges him not to support ratification of the suffrage amendment.  Suffrage, she says, coarsens and cheapens women.

            She expresses her regret at her former activity in its behalf, saying that since suffrage has been granted there has been an alarming increase in immorality, divorce and murder in California.

            The letter follows:

            I was one of the prominent workers who helped to bring suffrage to California, and I regret it.

            A year in politics has taught me that women are intolerant, radical, revolutionary and more corrupt in politics than men.  Also all this so-called reform lends to the socialist co-operative commonwealth.

            Since suffrage there has been an alarming increase in immorality, divorce and murder in California.

            Woman suffrage has made cowards and puppets of men.  It has coarsened and cheapened women.  Were the men to vote on woman suffrage in California today it would not carry.  “90 per cent. oppose suffrage.”

            Suffragists asked suffrage that they might put only good men in office.  Now they clamor for a fifty-fifty show for all offices.  I shall do penance forever for the part I played in bringing suffrage to California.

            Please urge your colleagues not to do what  will bring regret and disaster, but to stand for that 90 per cent. of women who do not want suffrage, but are glad to trust all politics and governmental affairs to their loved husbands, fathers, sons and brothers.

            To the south, woman suffrage would bring more than calamity.


Boron’s Benchmarks:

I hope each of you is well, and your families, too.  I am well, as is my wife Beth.  I’m now four months into this working-from-home thing. I would imagine quite a few of you were already working from home before COVID-19 hit.  This is my first experience with it.  Working from home has its positives and negatives.  Happily, the firm is preparing for a return to our offices later this summer.  I’m very much looking forward to that.

Kudos to you if you recall from my personal note of two weeks ago that Beth and I have been “binge-watching” a certain ABC-TV series I shall not name that ran from 2014 to 2020.  It is about a Philadelphia criminal defense attorney/law school professor and her paid and unpaid legal associates.  The show teases the viewer with mysterious family back stories of the main characters unraveled in dribs and drabs through brief flashbacks sprinkled throughout the episodes. We’re 80 episodes into the 90-episode series.  Part of me regrets investing so much time watching such a long series.  Maybe it would have been best to have cut the “bingee-cord” weeks ago.  But I didn’t, and now of course I find myself hoping for – actually, bordering on desperate for – a satisfying series finale making my huge time investment in watching this series worth it.  There are certainly lots of story lines at this point needing to be wrapped up.  Hopefully, I am not going to find out the whole thing has just been someone’s nightmarish dream.  Like this COVID-19 pandemic is.   

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 June 30, 2020, by the Supreme Court of Montana, Reisbeck v Farmers Insurance Exchange.  The decision reversed on appeal a grant of summary judgment to an insurer, holding the District Court erred in finding Reisbeck’s UIM claim was barred by the doctrines of issue preclusion and claim preclusion.  My write-up of the Montana Supreme Court’s decision may be found in the actual Coverage Pointers section provided with these cover notes. 

Until next time, be well.

Eric T. Boron

[email protected]


A Jewish State?:

Buffalo Morning Express and
Illustrated Buffalo Express

Buffalo, New York
10 Jul 1920

Want Palestine recognized as a Jewish state

Zionist conference desires to know exact policy British will pursue.

By the Associated Press.

            London, July 9.—Dr. Max Nordau, speaking at today’s session of the international Zionist conference, demanded that the British government give an explicit definition of the policy it will pursue as the mandatory power for Palestine and define clearly the terms of the mandate so that all Jews may know just what relationship there may be expected between the Zionist organization and the British government.

            Dr. Nordau declared there should be unrestricted immigration to Palestine and that Palestine should be known as the Jewish state and not as a home for the Jews.


Barci’s Basics (On No Fault):

Hello Subscribers!

I hope you are all still staying healthy and safe! My answers to last issue’s topics are as follows: 1) There are so many books and stories that have stuck with me, but I would have to say Outliers by Malcom Gladwell is one and A Ring of Endless Light by Madeline L’Engle; 2) As boring as it is, my first big spend if I won the lottery would be to pay off my student loans. Depending on how much of my lottery winnings were left, I’d probably book a long trip to Africa or Australia and have a good time exploring those continents! 3) My next ideal vacation spot is anywhere outside the U.S.! I was meant to go on vacation in April before the pandemic hit and was between London, Portugal, or Western Canada. I guess I was lucky that I hadn’t finalized my plans before travel was cancelled, but hopefully someday soon things will calm down and vacations (other than “staycations”) will be possible again.

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

  • Any good tricks to beat the heat?

  • What is the first thing you have to do when you wake up in the morning?

  • What is your go-to recipe to bring to a potluck/party?

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 why a master arbitrator’s decision was considered rational and affirmed by the First Department.

That’s all folks,

Marina A. Barci

[email protected]


Self-Surgery – 100 Years Ago:

Buffalo Courier
Buffalo, New York

10 Jul 1920


(By Universal Service.)

            Chicago, July 9.—With steady hand and nerve and calmly going about his business as if he were performing the simplest of operations, Dr. Orlando P. Scott, a well-known surgeon of Chicago, today cut strip after strip of flesh from his own thigh and grafted them on to his wife’s foot and ankle as he rested on a portable table at his wife’s beside.

            The entire operation was performed without a single administration of an anesthetic in the presence of a number of physicians and nurses.  Sobs came from different parts of the room as Dr. Scott, without so much as a wince of pain, drove the surgeon’s knife into his own flesh and then speedily granted the strips upon his wife’s limbs.

            A fellow physician stood by him to dress his wounds.  Several times as Dr. Scott drove the knife into his thighs he turned to the witnesses of the operation, explaining technical points of the operation to them.  Many were blinded with tears.

            Dr. Scott’s act of self-sacrifice and heroism was performed to save his wife from disfigurement and possible loss of her right leg.  Mrs. Scott was injured in an automobile accident six weeks ago.  Her right leg was crushed and the flesh stripped from it in long gashes.  Gangrene set in later, and in order to avoid amputation a skin grafting operation was decided upon. 


Ryan’s Capital Roundup:

Hello Loyal Coverage Pointers Subscribers:

Like the rest of you with Disney+, we watched Hamilton this past weekend with the original Broadway cast and, I have to say, it was spectacular. As former season ticket holders to our local theatre here in Buffalo, Shea’s, we are suckers for a good show—and Hamilton is THE show. We found ourselves wondering why more shows are not taped for broad consumption. And then it dawned on us. They will be. They should be. Disney+ is not throwing away its shot…

I have headlined this week’s Ryan’s Capital Roundup with the end of an insurance-related moratorium at the hands of the Governor’s Office when COVID-19 struck. That is officially over. Also, DFS has extended the licensing extension another 30-days into August, but with online options, there really are no excuses to flirt with that deadline. On the legislative list, we have also detailed two bills. The first concerns clarification and extension of immunities granted to healthcare professionals to dental professionals and the second is a continuation of last edition’s focus on law enforcement liability reforms, this time shifting insurance requirements from the state to officers.

Until next time,

Ryan P. Maxwell

[email protected]


Risk Insurance:

The La Crosse Tribune
La Crosse, Wisconsin

10 Jul 1920


            WHATEVER may be thought about meddling in business of the average governmental agency, in one filed at least governmental interference has been successful. 

            That field is the war risk insurance, written by Uncle Sam on the lives of the service men and women who went to the front of the great war.

            Uncle Sam has given an opportunity to every service man and woman to convert his or her war risk insurance into permanent United States government life insurance.  The result is that the average amount of this insurance now held by former service men and women is $3,520.64. Before the war, the average life insurance policy, written by private companies, not including industrial insurance, was given as approximately $2,320.

            The bureau has paid out in benefits under the insurance act a total to date of $113,384,769.72.

CJ on CVA and USDC(NY):

Hello all,

It’s hard to believe another two weeks has passed us by! I hope that everyone had a safe and relaxing Fourth of July. The weather in Buffalo was absolutely perfect for a long bike ride in the morning and an afternoon spent lounging by my in-laws’ pool. My night however was not so relaxing. It seems that every one of our neighbors decided to buy an arsenal of fireworks. The noise didn’t stop until about 2 am, and our poor dog Marshal was beside himself all night. In sporting news, Formula 1 is back! While I usually spend my July following the Tour de France, I was forced to find another Euro-based sport to focus on. After watching the Netflix series “Drive to Survive” and understanding the intricacies and politics of the sport a little more, I have found F1 to be an extremely entertaining sport to follow. This week’s race was from the Red Bull Ring in Austria and proved to be extremely exciting from start to finish. I’m looking forward to diving deeper into the sport as the season progresses.

On the CVA front Governor Cuomo still has yet to sign the NYS Legislature’s extension of the CVA lookback window into law, and with the current lookback window coming to a close in just over a month, one must wonder what the holdup is. In District Court news I bring you a case from the EDNY. In interpreting an exclusion for construction operations, the court gives us some insight on how ambiguity may exist in name only, and that your expert may sometimes end up helping out the other side.

Happy Reading!

Charles J. Englert, III

[email protected]


The Price of Milk Escalates:

The San Francisco Examiner
San Francisco, California

10 Jul 1920


Advance of From 2 to 4 Cents Per Quart

Laid to Increased Cost; Women Will Investigate

            Milk prices in San Francisco will advance from two to four cents more a quart for milk after August 1, it was announced yesterday by the Milk Producers’ Association.  The wholesale price of milk will be raised from 35 cents to 40 cents a gallon.

            The increase is aid to be due to advances in the price of alfalfa and increased cost of labor.

            The present retail price of milk is 14 and 16 cents a quart.

            The producers claim that the profit now made is not sufficient to keep them in business. Milkers received $110 a month and found, and alfalfa costs $35 a ton and, according to the dairymen, the margin left from these expenses is not sufficient to live on.


Dishing Out Serious Injury Threshold:

Dear Readers,

I hope everyone had a Happy and Safe 4th of July. I was able to escape to Pennsylvania for the long weekend and enjoyed some time beside the lake with family. With the summer flying by, I hope everyone is finding time to spend with family and enjoy the summer while it lasts.

With regard to Serious Injury Threshold decisions, there have not been any decisions worth noting in the past two weeks. Hopefully, we will have some interesting decisions to report in the next issue.

Stay safe,

Michael J. Dischley

[email protected]


The Unwritten Law:

The Atlanta Constitution
Atlanta, Georgia

10 Jul 1920

“Unwritten Law” Shown the Exit by London Court


United News Staff Correspondent

            London, July 9.—Exit the “Unwritten Law.”

            A recent case in which the “unwritten law” should certainly have obtained if it is ever to obtain again, proved of great perplexity to the judge, Mr. Justice Shearman.  The husband, a man of good character, came home from France to find that another man had stolen his wife in his absence, and was continuing to meet her surreptitiously, even after his return.  He warned both the wife and lover and pleaded with the former to put an end to the liaison for the sake of their children.

            Appeals and warnings were disregarded and the husband, meeting them together on the street, fired five shots, badly wounding both.

            The jury found the husband guilty of shooting his wife with intent to do her grievous harm, recommended him to mercy, and intimated that it was a case for the unwritten law.  Justice Shearman, however, asked for a day in which to consider the question of sentence as it was one to which he must give serious  thought.

            The following day, he passed sentence of 12 months’ imprisonment. 

Bucci on “B”:

Hello Readers!

I’m sitting at my computer in front of my two giant-size windows and watching it pour like the dickens.  Maybe it will mean nice weather to follow but predictions are that it’s going to rain on and off until Tuesday.  Yuck.  Although I heard there is a water shortage so maybe it’s for the best.  Getting out into the fresh air makes such a difference these days, though, with the pandemic swirling around us,  I’m not complaining…I’m safe and comfortable and am not struggling like many through this unprecedented time.  With that being said, I want the SUN to show its smiling face soon.

Not much is new, but I did write up a First Department Coverage B case in this issue, upholding the trial court’s decision that the claims in the underlying action involved advertising injury and the knowledge exclusions did not apply.  As usual, the First Department’s decision was short and sweet.  I pulled the briefs and think that the trial court did a good job but was unable to pull the briefs in the underlying action because they were filed under seal.  Maybe I’ll be able to flesh them out for next time.

It’s literally silly how excited I get when I find a good New York Coverage B case to write about.  Maybe a little weird but who’s to judge.  Maybe you have to be a little weird to be a coverage nerd.  Speaking of nerds, I am dying for recommendations on books and new series releases if you have any?

Meantime, I hope you had a great holiday weekend and have a great weekend coming up.  Thanks for reading.  Email me with questions.  Or to chat about coverage. 

Diane L. Bucci

[email protected]


Rules Don’t Change Much – Pick Up The Phone:

The Birmingham News
Birmingham, Alabama

10 July 1920

Don’t Write—Telephone

            Letters cost from six to thirty cents and they can never be as personal, as direct and as quick as long distance telephone messages.  Many of your letters could be handled better and cheaper by using the STATION TO STATIION toll service at reduced rates.

            Why not try it?

GEO. R. KNOX, JR., District Manager,


John’s Jersey Journal:

A blackboard sign on a wall

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Dear Subscribers:

Hope you enjoyed the long weekend. Today we’re thinking about SIRs and subrogation.

SIRs Generally

We begin today with a question. Assume a CGL Policy with a $2,000,000 limit contains a self-insured retention (SIR) of $200,000. Suit alleging bodily injury is brought against the insured. The Declarations list the SIR. For whatever reason, this policy does not contain an endorsement detailing how and when the SIR applies.

Does the insurer have a duty to defend and immediately assign counsel? Or does the insured have to expend $200,000 on defense costs and/or indemnity before the insurer’s obligations are triggered?

The answer is… The insured must expend the SIR before the policy is triggered. Where there is a SIR, the policy’s coverage is essentially excess coverage. This is so because the insured agreed to self-insure the first $200,000 of any claim brought during the policy period.

SIRs and Subrogation

So with that out of the way, let’s move on to the interplay between SIRs and subrogation.

Assume the injuries are quite bad. Insured has now expended its SIR by defense costs and indemnity dollars, triggering the policy coverage. Insurer pays its $2 million policy limit to settle the case. Thereafter, insurer successfully obtains $500,000 from a negligent party. Can the carrier keep the entire settlement or does it first have to reimburse its insured?

That is the question recently considered by New Jersey’s Supreme Court.

In New Jersey, The New Jersey Supreme Court ruled that the made-whole doctrine, the doctrine that an insured must be made whole for a loss before the insurer is entitled to the subrogation recovery, does not apply to SIRs.

If the policy states that the insured transfers its right to subrogation to the insured, the insurer can keep the entire subrogation recovery. For example, the CG 00 01 contains the following subrogation condition: “If the insured has rights to recover all or part of any payment we have made under this Coverage Part, those rights are transferred to us.

The New Jersey Supreme Court reasoned that the insured, by agreeing to high SIR, received a more favorable price for the coverage it purchased. And to allow the insured to recover its SIR, would effectively re-write a better policy of insurance for the insured—a policy that effectively would not have a SIR.

            The discussion is discussed in further detail in the attached issue.

What have other jurisdictions said on the matter? Connecticut and Pennsylvania agree that an insurer who obtains subrogation recovery has no duty to reimburse for deductibles (or by extension, SIRs).

The State of Washington took the opposite approach, but there, the policy – written by the insurer – expressly stated the insurer could not keep subrogation recovery until the insured was first made whole. A different result perhaps had the insurer not written its policy in such manner.

I hope you are persevering through the pandemic. I have been dealing with the lock down by taking online guitar lessons. My wife, who enjoys silence, is less than thrilled. But I find it is a nice outlet outside of the working hours.

John R. Ewell

[email protected]


Epidemics Then and Now:

The Daily Times
Davenport, Iowa

10 Jul 1920

“Jigger” Epidemic Strike Moline; Hundreds Have ’Em

            There is an epidemic of jiggers in Moline, according to City Physician A. E. Kohler, who today stated that local physicians have reported to his office that they are daily receiving many patients suffering from the aggressive little “unwelcome visitors.”

Most of the people who have the visitors attended the celebration at Prospect park on July 5, and it is the opinion of City Physician Kohler that it was there that most of the people “got” them.  While the jiggers cause no serious trouble they are very unpleasant.

Lee’s Connecticut Chronicles:

Dear Nutmeg Newsies:

We’re going to have to make it quick, as two weeks have once again snuck up on me and taken me by complete surprise. Our esteemed editors are giving me the evil eye as the clock ticks towards deadline. In this edition, we review a rare occurrence – a decision discussing motions in limine in an insurance fraud matter.

Please keep safe. Wear a mask, wash your hands, and social distance. It’s a simple act of kindness for yourself and your communities.

Lee S. Siegel

[email protected]


Epidemics Examined:

Fair Play
Sainte Genevieve, Missouri

10 July 1920


The Transmission of Disease

            The study of epidemic diseases during the past quarter of a century has taught us much about infectious diseases spread and how to keep them from spreading. People used to believe that epidemics spread through the air by miasm, as it was called. Night air especially was regarded as deadly, and contact by means of  books or articles of clothing or the cargoes of ships was also thought to transmit disease.

Contact is certainly a means of spreading contagious diseases, but many diseases that were once regarded as contagious are no longer so considered, and the air carries infection only to a limited extent. Malaria, the very name of which means bad air, we now know is carried by mosquitoes, and the same is true of yellow fever. The infection of an ordinary cold or influenza, pneumonia, tuberculosis and other affections of the respiratory passages can spread a short  distance through the air when the person talks loudly, or splutters, coughs or sneezes; but the infectious particles of moisture so sent out quickly settle to the ground or to the furniture, the walls or the clothes of persons near at hand.

Plague, another epidemic disease at one time believed to be spread by air, is now known to be transmitted by rats and the fleas of rats. Other diseases, like cholera and dysentery, are spread abroad chiefly through the agency of water. Typhoid fever is spread by food and drink, and the food may be contaminated in a variety of ways, chiefly by handling and by flies and other insects.

An important carrier of infection is the human hand. Think of the many things the fingers touch in the course of the day, and the number of times they are carried to the nose and mouth. Physicians always caution painters to wash their hands carefully before eating, and it is equally important for others to do so. The person who washes his hands thoroughly with soap and water before sitting down to a meal avoids contaminating the food with the microbes they have collected, and so avoids exposing both himself and his table companions to the danger of infection.—Ex.


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

Hello Subscribers,

Did anyone else spend their weekend enjoying afternoon naps? If you’re left without the glories of central air, like me, then this heatwave probably slowed you down a bit. Given there are still not many places to go, I welcomed afternoon naps outside in a hammock and under the shade of a covered porch. However, the prior weekend I finally was able to visit my brother, who lives in Syracuse. We got takeout and headed to the Green Lakes State Park. There are two beautiful, glacial lakes: Green Lake and Round Lake. However, beneath the vibrant blues and greens of the water, there are reefs. One of the more noticeable reefs is known as Dead Man’s Point, located in the larger of the two lakes, Green Lake. Despite the name and warning signs, many friends have jumped off the reef to swim in what one friend described as “Caribbean-like temperatures”. However, I have not and probably will never do so. This is because my brother and I spent much of our childhood going to Green Lake for swim lessons and were told by various people that Dead Man’s Point received its name because a person got lost under these reefs and did not come back up. I tried researching this but was unable to find anything besides the interesting fact that the lakes are categorized as meromictic lakes. Holomictic lakes’ deep and surface layers of water usually mix with each other about two times a year, usually during the fall and spring. Conversely, meromictic lakes’ layers do not mix. This is due not only to the depths of the lakes (Round Lake at 170 feet deep and Green Lake at 195 feet deep), but also the tree filled hills that provide protection from strong winds. Per the New York Department of Environmental Conservation, the bottom waters (> 60-65 feet) are devoid of oxygen and without oxygen, there is no decomposition taking place in the deeper water so sediment and organic material on the lake bottom are well preserved. Accordingly, these lakes are studied by scientists and researchers because the sediment layers provide undisturbed, geological timelines (the last continental ice sheet that carved out the lakes receded 14,000 years ago). So… if you find yourself in the Central New York area, I recommend checking it out (or enjoy this photo from my recent day trip).

Stay cool, hydrated, and don’t swim in places dubbed Dead Man’s Point.

Cara A. Cox
[email protected]


The right wrist cast came off on Monday and it is liberating to be in a removable splint.  Started physio today and by the end of the week, I should be running again. It has been quite a month. Could have been a lot worse. But it wasn’t. I’m grateful.

Heather Sanderson
Sanderson Law (Alberta, Canada)

[email protected]


Bisons Pitcher Leading the League:

The Buffalo Times
Buffalo, New York

10 Jul 1920



Walter Keating of the Bisons Is Leading the League in Stolen Bases This Season.

Frank Brower of Reading by virtue of a tremendous streak of hitting safely in consecutive games, deposed Jacobson and took the lead among the International hitters with a percentage of .419.  Frank leads also in base hits with 122 and in-home runs with 20.  Pete Shields continues as leader in run scoring with 79 runs.  Walter Keating of Buffalo assumed the honor of leading base runner with 30 stolen bases, displacing his Mate Roy Dowd.  Dick McCabe tops the hurlers with 13 victories and one defeat for a pitching figure of .923.  McCabe tasted his first defeat on July 4th.  Luther Barnes of Akron kindly obliging.

Editor’s note:  Walter “Chick” Keating played in the minor leagues from 1910 – 1925, with a career batting average of .244.  He stopped in the Big Leagues on four occasions, playing in two games for the Chicago Cubs in 1913, 20 games for the Cubs in 1914 and four more in 1915.  His last trip to the bigs was in 1926, where he played in four games for the Phillies at the tender age of 35.  He compiled a career ML batting average of .089 with 0 home runs and 0 RBI in those 30 games.


Jen’s Gems:


Hope everyone is doing well.

This week I report on a decision from New York County Supreme Court addressing coverage under a workers’ compensation and employer’s liability policy.  Under New York law, claims for common law contribution or indemnification can only be maintained against an employer if the employee suffered a “grave injury,” as that term is defined by statute.  It is these claims that are covered under the 1b portion of the typical comp. policy.  In the decision I report on this week, the comp. carrier agreed to defend its named insured relative to a third-party action wherein both contractual and common law claims were asserted.  After agreeing to defend, the comp. carrier commenced a declaratory judgment action against its named insured in order to obtain a declaration that it did not provide coverage for this loss principally because the underlying plaintiff did not suffer a “grave injury.”

While this is not the first decision of this type I have seen in New York, from a purist’s perspective, it has, and still does, trouble me (although I ultimately agree there was no grave injury).  I have always been taught to keep coverage and tort law separate for purposes of analysis.  Here, the comp. carrier commenced a declaratory judgment action in order to obtain a decision on a tort claim, which it would seem, lay within the purview of the underlying trial court.  In fact, counsel for the insured make this exact argument asserting that the term “grave injury” appeared nowhere in the comp. policy and instead the existence of a “grave injury” went to whether a common law claim could be maintained (not coverage).  Counsel further argued that the court didn’t have jurisdiction to render a decision as to the permanency of the injuries since that was to be determined in the underlying.  Nonetheless, the court dismissed this argument finding jurisdiction did exist and that such a decision could be made.  Again, I ultimately agree with the resolution of the “grave injury” question, but would side with counsel for the insured that this was an issue to be decided in the tort case.  A good read.

Until next issue…

Jennifer A. Ehman

[email protected]


Headlines from this week’s issue, attached:

Dan D. Kohane
[email protected]

  • Demands for UM and SUM Arbitration Must be Properly Addressed and Served by Certified Mail, RRR, to initiate the 20-Day Time Period for the Carrier to Move to Stay

  • Disclaimer, Addressed to Insured and Copied to Additional Insureds, (Rather than Addressed to Additional Insured) was Sufficient to Place AI’s on Reasons for Disclaimer

  • Under Claims-Made Policy, “Prior Knowledge” Condition Established and Coverage Lost


Steven E. Peiper

[email protected]

  • Lack of Evidentiary Support Foils Carrier’s Summary Judgment Motion

  • Subrogation Carrier’s Release of Tortfeasor did not Preclude Plaintiff from Seeking Recovery of Additional, Otherwise Uninsured, Damages


Michael J. Dischley
[email protected]

  • No cases of substance to report.


Agnes A. Wilewicz
[email protected]

  • Second Circuit Holds that Additional Named Insureds’ Carrier Was Too Late in Seeking to Intervene in Declaratory Judgment Action, Where It Was Aware of the Case but Waited Until the Eve of Judgment to Participate


Jennifer A. Ehman

[email protected]

  • Trial Court Permits Employer’s Liability Carrier to Litigate “Grave Injury” In Declaratory Judgment Action Even though Underlying Action Still Pending


Brian D. Barnas

[email protected]

  • Genuine Coverage Dispute was Insufficient Foundation for Bad Faith Claim


John R. Ewell

[email protected]

  • New Jersey’s Highest Court Rules that Insurer who Successfully Recovers in Subrogation is Not Required to Reimburse Self-Insured Retention


Lee S. Siegel

[email protected]

  • Published Motions In Limine in Insurance Fraud Case – Very Rare


Diane L. Bucci

[email protected]

  • “Knowledge” Exclusions Do Not Bar Coverage If Underlying Plaintiff Can Prevail Without Proving the Element of Intent Even If Allegations Are that The Insured Acted Intentionally, Willfully, and/or Fraudulently 


Brian F. Mark
[email protected]

  • Michigan Supreme Court Distinguishes a Prior Holding and Holds an “Accident” May Include Unintentionally Faulty Subcontractor Work that Damages an Insured’s Work Product


Eric T. Boron

[email protected]

  • Uninsured Motorist Claim Not Barred by Doctrines of Issue Preclusion or Claim Preclusion 


Marina A. Barci

[email protected]

  • Master Arbitrator’s Award Confirming Lower Arbitration Award Correct


Ryan P. Maxwell

[email protected]

Regulatory Wrap-Up

  • DFS Emergency Rulemaking Modeled after Executive Order 202.13 Explicitly Permitted to Lapse

  • Insurance Producer Licensing Extension Amended to Span an Additional Forty-Five Days

Legislative List

  • Bill Introduced in New York State Assembly Would Provide COVID-19 Immunity Explicitly for Dentists

  • Bill Introduced in New York State Senate would Require Police Officers to Maintain Their Own Liability Insurance


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

[email protected]

  • Broadly Worded Construction Exclusion Enforced; Although Court turned to New York Labor Law to Determine Whether Subject Work Constituted “Construction Work”, Exclusion Was Not Ambiguous




Cara A. Cox

[email protected]

Heather Sanderson
Sanderson Law (Alberta, Canada)

[email protected]

  • Knowing When to Maintain Control vs. Relinquish Control: Split File Protocols and Selecting Independent Counsel


Stay cool.  Stay healthy.  Write often!



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

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

Dan D. Kohane

[email protected]

Agnes A. Wilewicz

[email protected]

John R. Ewell

[email protected]

Dan D. Kohane, Chair
[email protected]

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

Michael F. Perley

Jennifer A. Ehman

Agnieszka A. Wilewicz

Lee S. Siegel

Brian F. Mark

Diane L. Bucci

Brian D. Barnas

John R. Ewell

Eric T. Boron

Marina A. Barci

Ryan P. Maxwell

Charles J. Englert

Cara A. Cox

Diane F. Bosse

Joel R. Appelbaum

Steven E. Peiper, Team Leader
[email protected]

Michael F. Perley

Eric T. Boron

Brian D. Barnas

Jennifer A. Ehman, Team Leader
[email protected]

Marina A. Barci

Jody E. Briandi, Team Leader
[email protected]

Diane F. Bosse

Topical Index

Kohane’s Coverage Corner

Peiper on Property and Potpourri

Dishing out Serious Injury Threshold

Wilewicz’s Wide World of Coverage

Jen’s Gems

Barnas on Bad Faith

John’s Jersey Journal

Lee’s Connecticut Chronicles

Off the Mark

Boron’s Benchmarks

Barci’s Basics (on No Fault)

Ryan’s Capital Roundup

CJ on CVA and USDC(NY)

Bucci On “B”

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


Dan D. Kohane
[email protected]

07/08/20       Travelers Personal Ins. Co. v. Dratch
Appellate Division, Second Department
Demands for UM and SUM Arbitration Must be Properly Addressed and Served by Certified Mail, RRR, to initiate the 20-Day Time Period for the Carrier to Move to Stay

Travelers commenced this proceeding pursuant to CPLR article 75 for a stay of Dratch’s demand to arbitrate a claim for SUM benefits arising out of an alleged hit-and-run accident. The law requires that the application to stay be filed within 20 days of service of the demand to arbitrate [CPLR 7503(c)]. Travelers appeals.

Dratch claims that he served two demands for arbitration by certified mail, return receipt requested, and also sent demands for arbitration to Travelers by regular mail and email. However, Travelers established that the demands sent by certified mail were sent to the wrong address. In response to Travelers' showing that it never received the demands, the respondent failed to produce a signed return receipt.

The 20-day time period to seek a stay of arbitration was not triggered by the respondent's emailing or mailing by regular mail of a demand to arbitrate, as such methods of service are not authorized by CPLR 7503(c). Accordingly, Travelers was not properly served with a demand for arbitration and was not precluded from seeking a stay of arbitration by the 20-day time limit.


07/02/20       Valiant Ins. Co. v. Utica First Ins. Co.
Appellate Division, First Department
Disclaimer, Addressed to Insured and Copied to Additional Insureds, (Rather than Addressed to Additional Insured) was Sufficient to Place AI’s on Reasons for Disclaimer

Utica denied coverage on July 25, 2014, with copies to the additional insureds, and the court found that it was timely made within two days of the carrier’ initial receipt of notice of tender for a defense and indemnity. While the disclaimer was addressed directly to its insured, it clearly stated that specified exclusions in the policy, and particularly the employee exclusion, precluded any coverage to its insured or the additional insureds.

Utica copied counsel for the owner and general contractor, and the disclaimer notice was sufficiently specific to apprise the additional insureds of the reasons for a disclaimer as to them.
Editor’s Note:  The right decision. Valiant’s valiant effort to base its decision on a technicality, justifiably failed.  The purpose of the notice provisions under Insurance Law Section 3420(d)(2) is to inform the recipients of the grounds for coverage denial.  Utica did that, even if they didn’t put Valiant’s name in the addressee box.

07/01/20       American Medical Alert Corp. v. Evanston Ins. Co.
Appellate Division, First Department
Under Claims-Made Policy, “Prior Knowledge” Condition Established and Coverage Lost

Evanston had no duty to indemnify AMAC, based on the prior knowledge condition in the policy. Under the two-pronged "subjective/objective" test, the court must "first . . . consider the subjective knowledge of the insured and then the objective understanding of a reasonable [person] with that knowledge".

In applying this test, the lower court found that AMAC's admitted knowledge of the "relevant facts" in this case would lead a reasonable person in possession of those facts to "expect such facts to be the basis of a claim". Specifically, AMAC does not contest that its errors caused a "serious delay" in the underlying plaintiff receiving the "patient care she needed." Instead, its acknowledgment that directing calls promptly to doctors in situations where time was of the essence was precisely the function that the Hospital had hired it to perform. AMAC's attempts to add additional requirements to the subjective/objective test that the law does not require were properly rejected by the IAS court.

Editor’s Note:  We rarely see this litigated in New York.  Cases cited by court are all a decade old.


Steven E. Peiper

[email protected]


07/08/20       140 Grist, Inc. v. Privilege Underwriters Reciprocal Exchange
Appellate Division, Second Department

Lack of Evidentiary Support Foils Carrier’s Summary Judgment Motion

Plaintiff submitted a claim for water damage to stone veneer which was allegedly caused by wind driven rain.  Two days after the damage, plaintiff provided notice of the loss to PURE who, in turn, immediately began an investigation.  As part of that process, PURE retained an expert engineer who concluded that the claimed damage was not “sudden and accidental.”  PURE then concluded that the loss fell within an policy exclusion (we assume wear & tear), and denied the claim.

Plaintiff commenced the action several months later asserting breach of contract, and in response PURE filed a pre-Answer motion to dismiss.  The Court converted PURE’s motion into a summary judgment motion, and subsequently denied the motion.

The Appellate Division does not disclose the basis for the trial court’s decision, but nonetheless affirms the denial of PURE’s motion.  The Second Department’s decision, however, explains that PURE failed to set forth a prima facie case.  Here, the carrier submitted an affidavit from a claims professional who did not inspect the property and who did not draft the denial letter that plaintiff was challenging.  In addition, and perhaps more importantly, PURE also attached an unsworn letter from its retained engineer.  Additionally, even if the letter was properly verified, the motion did not identify the retained engineer’s credentials or methodology. 

As a result, the Court concluded that PURE had not met its burden, and accordingly affirmed the denial of plaintiff’s motion without even reaching the merits of the plaintiff’s opposition.   


07/01/20       Colabella v. Hernandez
Appellate Division, Second Department

Subrogation Carrier’s Release of Tortfeasor did not Preclude Plaintiff from Seeking Recovery of Additional, Otherwise Uninsured, Damages

Plaintiff’s vehicle sustained damage as a result of a collision with a vehicle driven by Hernandez.  Plaintiff submitted the damage to his insurance company, ACE.  ACE adjusted the loss, and paid for the repairs.   ACE then negotiated a settlement with Hernandez’s insurer, and issued a Release running in favor of Mr. Hernandez after receipt of payment. 

Plaintiff, however, now asserts additional damage in the form of diminution of value and loss of use.  Hernandez immediately moved to dismiss on the basis that the Release precluded any additional recovery.  The trial court agreed with Hernandez and dismissed the Complaint.

On appeal, the Second Department analyzed the language of plaintiff’s policy with ACE.  The policy does, as one might expect, contain a subrogation clause.  However, ACE is only permitted to subrogate losses occasioned out of damage to a vehicle when “it was being driven without permission.”  The Court interpreted this language to mean that no right of subrogation existed where, as here, the insured vehicle was being driven with permission at the time of the collision. 

The Court then explained that the right of equitable subrogation is “divisible and independent” of rights which may also be retained by the insured (i.e., uncovered / unpaid losses associated with the damage).  As such, plaintiff argued that ACE was only subrogated to, and thus could only release, claims related to the actual damage of the vehicle.  The Court agreed by noting that ACE could only bind plaintiff to those portions of the claims it actually paid. 

Moreover, the language of the policy did not even give ACE the right to recoup the damages it sought.  As such, the Court also noted that ACE could not release rights that it did not “contractually own.” 


Michael J. Dischley
[email protected]

No cases of substance to report.


Agnes A. Wilewicz

[email protected]

06/30/20       Penn-Star Ins. Co. v. Declan McElhatton
United States District Court, Second Circuit
Second Circuit Holds that Additional Named Insureds’ Carrier Was Too Late in Seeking to Intervene in Declaratory Judgment Action, Where It Was Aware of the Case but Waited Until the Eve of Judgment to Participate

In April 2017, a fire broke out at a property in Elmhurst, NY. It was allegedly caused by the negligent construction of the roof, which had been installed by Maintenance Asset Management (Maintenance). Penn-Star had insured Maintenance under a general liability policy. When the insured sought coverage for the claim, the carrier determined that Maintenance had concealed the facts that it had routinely performed roofing repairs, which was highly hazardous work that Penn-Star was not made aware of at the time of the issuance of the policy. Accordingly, Penn-Star started a declaratory judgment action against Maintenance seeking to rescind its general liability policy that it had issued.

At the time of the fire, Greater New York Mutual (GNY) insured the owner and the agent of the property, but of which were also listed as named insureds under Penn-Star’s policy. Since the fire resulted in multiple lawsuits, GNY tendered a demand for coverage to Penn-Star as well. Penn-Star notified GNY about the pending coverage litigation, though there was some dispute about the details of that notice.

Discovery was exchanged in the suit and in late 2018, Penn-Star accepted an offer of judgment from Maintenance wherein the insured agreed to declare that the policy was rescinded, void ab initio, meaning it no longer existed. However, on the day that Penn-Star moved for entry of that judgment, GNY filed a motion to intervene in the action, contending that it had an interest in the case and would be prejudiced by entry of that judgment. Further litigation ensued.

In order to successfully intervene in a matter, a party can do so as of right, or via permissive intervention. “Federal Rule of Civil Procedure 24(a) provides for intervention as of right where a movant claims an interest in the litigation and ‘is so situated that disposing of the action may as a practical matter impair or impede the movant's ability to protect its interest, unless existing parties adequately represent that interest.’ Rule 24(b), in turn, provides for permissive intervention, at the discretion of the court, to ‘anyone . . . who . . . has a claim or defense that shares with the main action a common question of law or fact.’ To intervene under either provision, ‘an applicant must (1) timely file an application, (2) show an interest in the action, (3) demonstrate that the interest may be impaired by the disposition of the action, and (4) show that the interest is not protected adequately by the parties to the action.’ The "[f]ailure to satisfy any one of these [four] requirements is a sufficient ground to deny the application.” Timeliness is determined on a rather flexible basis and the courts consider how long an applicant knew or should have known of its interest in a case before making a motion, whether there is any prejudice in the delay, and whether there were any unusual circumstances mitigating for or against a finding of timeliness.

In this case, the record showed that GNY knew or should have known about the pending declaratory judgment action in early 2018. At that time, they admitted that they had received an email from Penn-Star referencing the ongoing rescission case. While they argued that they did not know that Maintenance was not representing their interests until the offer of judgment seeking to rescind the policy, the court wrote that they should have known that Maintenance was not there to represent their interests from the outset. “While both Maintenance and GNY wanted the Policy to be upheld, their interests for seeking such an outcome were distinct.” Maintenance was seeking to uphold the policy to protect itself from potential liability, while GNY was seeking to establish Maintenance’s liability for the fire and to pursue a right of contribution under the policy. Thus, having waited until the literal day of judgment to intervene, they were untimely and waived their right to participate.


Jennifer A. Ehman

[email protected]

07/01/20       Utica Mut. Ins. Co. v. Litric
Supreme Court, New York County
Hon. Gerald Lebovits
Trial Court Permits Employer’s Liability Carrier to Litigate “Grave Injury” In Declaratory Judgment Action Even though Underlying Action Still Pending

This decision arises out of a personal injury action.  The underlying plaintiff sustained injuries as a result of a fall from an unsafe ladder on a construction site.  As a result of the accident, he suffered, among other injuries, a right shoulder rotator cuff and labral tear, left shoulder rotator and lateral cuff tear, left and right knee injuries and a laminectomy.  The underlying plaintiff sued the building owner as a result of his injuries who then commenced a third-party action against the employer alleging failure to procure insurance, contractual and common-law indemnification and contribution.

Utica Mutual issued a workers’ compensation and employers liability insurance policy to the employer, which was in effect on the date of loss.  The WC policy explicitly excludes coverage for “liability assumed by a contract.”  Utica Mutual, pursuant to an ROR and partial declination of coverage letter, agreed to defend the employer relative to the third-party action, but disclaimed coverage for contractual indemnification and breach of contract claims; and reserved its right to disclaim coverage for the common law indemnification and contribution claims if the underlying plaintiff did not sustain a grave injury.

Utica Mutual then commenced this declaratory judgment action.  It asserted there was no coverage for the breach of contract failure to procure insurance or contractual indemnification claims.  It then argued, as to the common law indemnification and contribution claim, that they were barred by Workers’ Compensation Law § 11 because the plaintiff did not suffer a ‘grave injury,” as that term is defined by statute.

The insured argued in response that there was no explicit exclusion or reference to “grave injury” in the plain language of the policy.  It also argued that the court did not have jurisdiction to make a determination as to the permanency of the plaintiff’s injuries.  Rather, that decision must be made by the underlying court.

In considering these arguments, the court noted that neither defendant disputed that the exclusion for “liability assumed under a contract” encompassed the contractual-indemnification and breach of contract claims asserted in the third-party action.  And, with regard to the common law claims, the court noted that the Utica policy required coverage for common law liability, but such coverage only existed if the injured worker suffered a “grave injury.”  The court then determined based upon the BOP, that no such injury was suffered.  The court also rejected the argument that it lacked jurisdiction to render this declaratory judgment decision while the underlying action was still pending.


Brian D. Barnas
[email protected]

06/30/20       Umang Residency LLC v. Tri-State Ins. Co. of Minnesota
United States District Court, Western District of Texas
Genuine Coverage Dispute was Insufficient Foundation for Bad Faith Claim

Tri-State issued a commercial insurance policy covering Umang’s hotel in New Braunfels, Texas.  Umang made a claim alleging extensive damage caused by Hurricane Harvey.  Tri-State investigated the claim and retained an engineer.  It denied the claim concluding that the damage was the result of wear and tear and lack of maintenance rather than the storm.

The court concluded there was an issue of fact on the breach of contract claim.  Umang’s expert opined that winds from the hurricane severely damaged the roof causing leaks that damaged the building’s interior.  Tri-State’s experts opined that the claimed loss was not caused by the storm.  This factual dispute between the experts could not be resolved on summary judgment.  The court also rejected Tri-State’s claim that it was entitled to summary judgment based on an argument that Umang could not prove its damages in terms of actual cash value or replacement cost.  The extent and valuation of damages was left to trial.

However, the bad faith claim against Tri-State was summarily dismissed. Umang argued, without any support, that Tri-State performed a biased and outcome-oriented investigation.  The only support for this claim was that Umang’s expert report conflicted with Tri-State’s experts.  However, Umang’s expert did not opine that the report Tri-State relied upon was so deficient that the insurer should have known it had no reasonable basis to deny the claim.  Rather, there was a bona-fide coverage dispute between the parties about the cause of the loss, which is insufficient to support a bad faith claim.


John R. Ewell
[email protected]

06/29/20       City of Asbury Park v. Star Ins. Co.
Supreme Court of New Jersey
New Jersey’s Highest Court Rules that Insurer who Successfully Recovers in Subrogation is Not Required to Reimburse Self-Insured Retention

In this case, the Court considered a question of law certified by the United States Court of Appeals for the Third Circuit:

Whether, under equitable principles of New Jersey law, the made-whole doctrine applies to first-dollar risk that is allocated to an insured under an insurance policy, i.e., a self-insured retention or deductible.

The question arises from a dispute between a workers’ compensation carrier and its insured, a public employer.

From February 2010 to February 2011, the City of Asbury Park (the City) had an insurance policy with Star Insurance Company (Star) that provided coverage for workers’ compensation claims against the City. The policy included a “self-insured limit retention for workers’ compensation” losses against the City in the amount of $400,000 per occurrence. In turn, Star agreed to indemnify the City for its workers’ compensation losses that exceeded the self-insured retention.

In January 2011, John Fazio, an employee of the Asbury Park Fire Department, suffered injuries while fighting a fire. He filed a workers’ compensation claim against the City, which in turn paid him $400,000, the full amount of its self-insured retention limit; Star paid $2,607,227.50, the amount exceeding the self-insured retention limit.

Fazio later filed suit against a third party for the injuries he suffered in the 2011 fire.

Fazio and the third party reached a settlement agreement for $2,700,000. Subsequently, Fazio, the City, and Star agreed that $935,968.25 of the settlement proceeds would be set aside to partially reimburse the City and Star.

Star issued a demand to recover the entire $935,968.25, contending that it was entitled to be reimbursed in full before the City could recover amounts paid on the self-insured retention. The City asserted that under the made-whole doctrine, it was entitled to be reimbursed in full before Star could assert its subrogation right. Star responded that the made-whole doctrine does not apply to self-insured retentions, as application of that doctrine in this case would unjustly enrich the City.

The City filed a declaratory judgment action against Star. The United States District Court for the District of New Jersey granted summary judgment in favor of Star, finding that “the City has no insurance coverage for the first $400,000.00”; that the parties expressly agreed under the subrogation provision that “Star has the right to substitute itself for the City and is subrogated to all of the City’s rights of recovery”; and that the made-whole doctrine does not apply to this case.

The City appealed, and the Third Circuit certified its question to the Court as an important and unresolved matter of New Jersey law.

The Court began its analysis by reviewing subrogation principles. In the insurance context, subrogation is a doctrine allowing the insurer to seek recovery from the party at fault, exercised after the insurer has indemnified its insured under the terms of an insurance policy. Subrogation rights are created in one of three ways: (1) an agreement between the insurer and the insured, (2) a right created by statute, or (3) a judicial device of equity to compel the ultimate discharge of an obligation by the one who in good conscience ought to pay it.

Under the made-whole doctrine, an insurer cannot assert a subrogation right until the insured has been fully compensated for his or her injuries. The doctrine applies when the amount recoverable from the responsible third party is insufficient to satisfy both the total loss sustained by the insured and the amount the insurer pays on the claim. New Jersey courts have long recognized and utilized the made-whole doctrine. In Culver v. Insurance Co. of North America, however, the Court stressed that courts must not only turn for guidance to equitable principles but must also “consider the contractual relevance of the specific subrogation agreement.” 115 N.J. 451, 456 (1989). Thus, courts must consider both the equitable principles of subrogation, such as the made-whole doctrine, as well as the rights agreed upon in the contract.

While the made-whole doctrine generally applies in New Jersey, New Jersey courts have never addressed the question of whether the doctrine applies to first-dollar risk, such as deductibles and self-insured retentions, borne by insureds.

Considering the equitable principles that guide the doctrine of subrogation alongside insurance policies that allocate first-dollar risk to the insured, the Court found that the made-whole doctrine does not apply to first-dollar risk allocated to the insured.

A self-insured retention or deductible is an amount of risk that the insured has agreed to assume in exchange for a lower premium cost for the insurance policy. Where the award from a subrogation action against a third party is insufficient to reimburse both the insured’s self-insured retention and the carrier’s loss in excess of the self-insured retention, to place priority of recovery with the insured would, in effect, convert the policy into one without a self-insured retention. Such interference with the contract would essentially write a better policy for the insured than the one purchased.

The Court answered the certified question in the negative. Under equitable principles of New Jersey law, the made-whole doctrine does not apply to first-dollar risk, such as a self-insured retention or deductible, that is allocated to an insured under an insurance policy.

The Court’s view of the made-whole doctrine requires a close examination of an insurance contract’s provisions to determine whether the doctrine will apply, including the effect of reading together provisions relating to self-insured retentions or deductibles and subrogation rights. Read together, if the policy at issue unambiguously provides Star with all of the City’s rights to recovery against third-party tortfeasors in the event that Star makes a payment under the policy, the made-whole doctrine would not apply in this case – it would not override the parties’ agreement.


Lee S. Siegel

[email protected]

06/19/20       Amica Mutual Ins. Co. v. Coan
United States District Court, District of Connecticut
Published Motions in Limine in Insurance Fraud Case – Very Rare

The District Court of Connecticut has done something that we don’t see too often, it published a lengthy ruling addressing motions in limine in an insurance fraud case. Amica is suing its insured for misrepresenting its loss following a residential fire. Although not an arson case, these are still among some of the toughest and often most contentious for carriers.

Shirley Williams (now deceased and represented by a bankruptcy trustee), suffered a significant fire loss to her Bridgeport, Connecticut home. A key dispute in her claim revolves around the loss of rents from a third-floor apartment. Amica alleges that Williams and her public adjusters presented contradictory lost rent claims “in an effort to inflate the amount received as the Fair Rental Value for the third-floor unit.” On that basis, Amica seeks to deny the entire claim based on the policy’s misrepresentation exclusion.

The parties sought to preclude each other’s use of allegedly inflammatory evidence, claiming it to be irrelevant, confusing, and prejudicial. The insured sought to preclude (1) evidence that the property was in foreclosure at the time of the fire; (2) evidence that Williams filed for bankruptcy after the fire; (3) evidence that Coan is the Bankruptcy Trustee; (4) evidence that marijuana, alcohol, and other drugs were present at the property during and after the fire; (5) the names and conduct of any witnesses to the fire; and (6) the cause of the fire.

Coan argued that since the fire was deemed accidental, cause and origin evidence would only serve to suggest to the jury that the fire was set intentionally. The only issue is whether Williams’ statements and conduct after the fire were material misrepresentations, false, or fraudulent are relevant, Coan suggested.

Amica, however, argued that the insured’s financial situation at the time of her claim is germane to the allegation that she intentionally overstated her loss. Amica claimed that. Williams’s financial situation is evidence of her motivation for making material misrepresentations in order to gain additional insurance funds. And, Amica contended that the condition of the third-floor unit, including the presence of illegal substances, is evidence that the unit was not rented as claimed. Amica argued that “[t]he evidence that Defendant seeks to preclude is some of the foundation upon which Plaintiff disclaimed coverage.”

As the trial court noted, motions in limine provide district courts with the opportunity to rule in advance of trial on the admissibility and relevance of certain forecasted evidence. Generally, a court should only exclude evidence on motions in limine if the evidence is clearly inadmissible on all potential grounds. Pursuant to Federal Rule of Evidence 401, evidence is relevant if: (a) it has any tendency to make a fact more or less probable than it would be without the evidence; and (b) the fact is of consequence in determining the action. Under Rule 401, the court’s determination of what constitutes ‘relevant evidence’ is guided by the nature of the claims and defenses in the cause of action.

The court noted that although the policy covers only the Fair Rental Value, Amica alleged that the Policy allows it to disclaim coverage if the insured intentionally concealed or misrepresented any material fact or circumstance. Even if evidence is probative, a court can exclude relevant evidence if its value is substantially outweighed by a danger of unfair prejudice.

Observing that this is not an arson case, the court excluded cause and origin evidence. “Consequently, the names and conduct of any witnesses to the fire as well as the cause of the fire are neither relevant nor directly probative of Amica’s claims that Ms. Williams or her representatives made material misrepresentations about the insurance policy relating to the Fair Rental Value. Furthermore, evidence about the cause of the fire may serve to confuse the jury, or unduly prejudice Ms. Williams by creating an inference that she was involved in the fire,” the court wrote (citations omitted). The court also excluded evidence of drugs and alcohol, as far more prejudicial than probative as to whether Williams misled Amica.

But the court refused to exclude the evidence of Williams’ financial condition. “Evidence of Ms. Williams’s financial situation, however, does have probative value, because this evidence makes it more or less probable that she or her representatives made material misrepresentations about rental payments received for the third-floor of the Property in order to potentially maximize the Fair Rental Value and claim with Amica. As a result, to the extent that there was evidence of the Property being in foreclosure litigation at the time of the fire, of Ms. Williams having filed for bankruptcy after the fire, and that Mr. Coan is the Bankruptcy Trustee of Ms. Williams’s estate are probative of any motivation Ms. Williams may have had regarding the value of the rental unit.”

In other rulings, the court precluded introduction by the insured of evidence related to depreciation taken by Amica. But the court refused to exclude evidence of Amica’s adjuster’s personal problems, as it may have impacted errors in his reporting concerning the insured.

And, finally, the court refused to allow evidence of Amica’s reserves. Insurance reserves are financial reserves held by an insurance company to pay out claims on the insurance policies that it issues. “Based on the parties’ representations, evidence of Amica’s insurance reserves is not relevant to the narrow issue here: misrepresentations allegedly made by Ms. Williams or her representatives in connection to the Property’s Fair Rental Value of the Property.”


Diane L. Bucci
[email protected]

07/02/20       Continental Cas. Co. v. KB Ins. Co.
Appellate Division, First Department
“Knowledge” Exclusions Do Not Bar Coverage If Underlying Plaintiff Can Prevail Without Proving the Element of Intent Even If Allegations Are that The Insured Acted Intentionally, Willfully, and/or Fraudulently 

Value Wholesale, Inc. was insured under policies with Continental Casualty Company and KB Insurance Company.  In Abbott Labs. v. Adelphia Supply USA, No. 15CV5826CBALB, 2019 WL 5696148, at *27 (E.D.N.Y. Sept. 30, 2019) Abbott Laboratories, Abbott Diabetes Care, Inc., and Abbott Diabetes Care Sales (collectively, Abbott) sued hundreds of defendants including Value alleging, among other things, that Abbott held the patent to Freestyle and Freestyle Life blood glucose strips.  These strips are used to test blood sugar levels in persons with diabetes.  Abbott sold the strips within the United States and internationally,   The US strips differed from the international strips apparently justifying a higher price for the United States product, and the international strips were not approved for sale in the United States,  Abbott alleged that the defendants sold the international strips in the United States at the higher price, using the Freestyle packaging.  Abbott asserted numerous causes of action including trademark infringement, trade dress infringement, fraud, racketeering, unfair competition, and other illegal and wrongful acts. As against Value, Abbott alleged, among other things, that another defendant, Tri-State, purchased the unapproved test strips from Value and sold them to several distributors including Value, who also sold the strips to other defendants.

Continental provided Value with a defense in the Abbott case, but KB declined to defend.  Continental sued KB seeking reimbursement of defense costs and defense costs going forward.  At the trial court level in the DJ Action, KB argued that Abbott did not allege injuries from advertising but instead, its injuries allegedly arose out of the importation and distribution the lesser strips.  These allegations, it argued, did not satisfy the requisite causal connection between the injury and advertising necessary to qualify as an advertising injury.  KB argued that even if there was an advertising injury, the knowledge exclusions (knowing violation of the rights of another and/or material published with knowledge of falsity) applied because it was impossible for Value to engage in the complex and fraudulent conspiracy alleged by Abbott without acting knowingly.  KB relied on Atl. Mut. Ins. Co. v Terk Tech. Corp., 309 AD2d 22, 32 (1st Dept 2003) (Terk) where the defendant approached a manufacturer to create a knockoff and subsequently marketed the knockoff as an original, it had to be acting intentionally. 

Continental argued advertising injury included trade dress infringement in advertising, and that in discovery, Abbott alleged that Value profited from the purported “importation, purchase, marketing, advertisement, distribution, sale, offer for sale, and/or use in commerce” of the strips.  The requisite publication requirement was established because the defendants advertised their willingness to sell the infringing product on websites, in emails, facsimiles, displays and other media, at least to a market segment.  Continental argued that the complaint alleged a causal connection to at least some of the advertising because Abbott alleged that the advertisement and sales of the strips caused great damage to the goodwill of Abbott’s trademarks.  Continental distinguished Terk because in that case, the court in the infringement action had already determined that Terk acted intentionally and there was no such finding in the Abbott case.

The trial court held that Continental carried its burden of establishing that an advertising injury offense existed and triggered coverage.  The trial court then turned its attention to KB’s burden to establish the application of the knowledge exclusions. Relying in part on Bridge Metal Indus., L.L.C. v. Travelers Indem. Co., 812 F. Supp. 2d 527, 545 (S.D.N.Y. 2011), aff'd sub nom. Bridge Metal Indus., LLC v. Travelers Indem. Co., 559 F. App'x 15 (2d Cir. 2014), the trial court held that KB could not carry its burden of showing that all of the claims fit squarely within the exclusion because there was at least one claim asserted that did not require Abbott to prove intent to succeed.

In few words, the First Department affirmed the trial court holding that there was an alleged advertising injury and the knowledge exclusions did not apply to the duty to defend because there was no evidence conclusively showing that Value's conduct was to intentionally or knowingly advertise Abbott's unapproved products domestically

Note that trial court issued its decision in May 2019, and in September 2019, the Abbott court decided Abbott’s motion for summary judgment against Value, holding that it was strictly liable for trademark infringement, but that Abbott did not establish that it acted willfully under the summary judgment standard.

Brian F. Mark
[email protected]

06/29/20       Skanska United States Bldg. v. M.A.P. Mech. Contrs.
Supreme Court of Michigan
Michigan Supreme Court Distinguishes a Prior Holding and Holds an “Accident” May Include Unintentionally Faulty Subcontractor Work that Damages an Insured’s Work Product

This declaratory-judgment action arises out of an underlying construction defects action related to a renovation project involving a medical center.  The plaintiff, Skanska USA Building Inc. (“Skanska”), served as the construction manager and subcontracted the heating and cooling portion of the project to defendant M.A.P. Mechanical Contractors, Inc. (“MAP”).  MAP obtained a CGL insurance policy from defendant Amerisure Insurance Company (“Amerisure”).  Skanska is an additional named insured on the CGL policy.

In 2009, MAP installed a steam boiler and related piping for the medical center's heating system, which included several expansion joints.  Sometime between December 2011 and February 2012, Skanska determined that MAP had installed some of the expansion joints backward, which had resulted in significant damage to concrete, steel, and the heating system. 

The owner of the medical center sent a demand letter to Skanska seeking payment for all repair and replacement costs.  The next day, Skanska sent a demand letter to MAP, asserting that MAP was responsible for all costs of repair and replacement.  Skanska performed the work of repairing and replacing the damaged property, which cost about $1.4 million. Skanska submitted a claim to Amerisure, seeking coverage as an insured.  Amerisure denied the claim.

Skanska then sued MAP and Amerisure seeking payment for the cost of the repair and replacement work.  Amerisure moved for summary disposition alleging among other things that MAP's defective construction was not a covered "occurrence" within the CGL policy.  The trial court denied Amerisure's motion.

The Amerisure policy only provides coverage for property damage if the property damage was caused by an occurrence.  “Occurrence” is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."  The policy did not define the word "accident."

The trial looked to Michigan case law, which defined "accident" as "anything that begins to be, that happens, or that is a result which is not anticipated and . . . takes place without the insured's foresight or expectation and without design or intentional causation on his part."  Relying on the case law, the trial court concluded that "[d]efective workmanship, standing alone, is not an occurrence within the meaning of a general liability insurance contract; an occurrence exists where the insured's faulty work product damages the property of another."

The trial court held that Skanska and others affected by MAP's negligence did not anticipate backward expansion joints or property damage.  Because no one argued that MAP had purposefully installed the expansion joints backward, the trial court determined that an "occurrence" may have happened, triggering Amerisure's duty of coverage under the insurance policy.  Finally, the trial court cited case law, for the proposition that damage arising out of an insured's defective workmanship that is confined to the insured's own work product cannot be viewed as accidental under the policy.  Because the damage caused by defective installation of the expansion joints by MAP may have gone beyond the scope of the work required by the contract between the plaintiff and the medical center, the court found a question of material fact was in dispute and denied summary disposition to Amerisure.  Amerisure moved for reconsideration, which was denied.

Following further discovery, Amerisure filed a renewed summary disposition motion.  In opposition, Skanska argued that the case law relied on by the trial court did not control because that case had interpreted a prior version (pre-1986) of the standard CGL policy.  The new version of the policy (the one at issue here) provides coverage for defective construction claims as long as a subcontractor completed the defective work.

Skanska further argued that MAP's backward installation of the expansion joints was an accident, which constituted an "occurrence" under the policy.  The trial court again denied summary disposition to both parties.

The trial court reiterated that defective workmanship, standing alone, is not an occurrence within the meaning of a CGL policy and clarified that it did not

determine whether an accident occurred, and therefore did not make a finding about whether there was an "occurrence."  The trial court concluded that it had to follow the subject case law because it had not been overruled.

Both plaintiff and Amerisure filed appeals.  The Court of Appeals reversed the trial court and ordered that summary disposition be granted to Amerisure; applying the case law's definition of "accident," the court reasoned that there was no "occurrence" under the CGL policy because the only damage was to the insured's own work product.  Skanska then appealed to the Supreme Court.

The Supreme Court noted that it has held that an "accident" is "an undefined contingency, a casualty, a happening by chance, something out of the usual course of things, unusual, fortuitous, not anticipated and not naturally to be expected."  Generally, faulty work by a subcontractor may fall within the plain meaning of most of these terms.  It happens by chance, is outside the usual course of things, and is neither anticipated nor naturally to be expected.

The Amerisure policy contains an exclusion precluding coverage for an insured's own work product, but contains an exception for work performed by a subcontractor on the insured's behalf:

l. Damage To Your Work

"Property damage" to "your work" arising out of it or any part of it and included in the "products-completed operations hazard".

This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.

The Court explained that if faulty workmanship by a subcontractor could never constitute an "accident" and therefore never be an "occurrence" triggering coverage in the first place, the subcontractor exception would be meaningless.  In interpreting insurance contracts, courts are required to give effect to every word, phrase, and clause in a contract and avoid an interpretation that would render any part of the contract meaningless.

Amerisure argued that mere unanticipated damage is insufficient as an "accident" must involve a "fortuity," which means something over which the insured has no control.  The Court noted that fortuity is not the only way to show that an incident is an accident and stated that the plain meaning of the word "accident" has a broader meaning than "fortuity."  The Court also found no support for the Court of Appeals' conclusion that "accident" cannot include damage limited to the insured's own work product.

Although the Court of Appeals accepted that an insured can seek coverage for its damage to a third party's property, the policy does not limit the definition of "occurrence" by reference to the owner of the damaged property.  As such, the Court of Appeals failed to recognize that an insured's own defective workmanship is excluded from coverage via the explicit exclusions, not in the initial grant of coverage.

Given the plain meaning of the word "accident," the Court concluded that faulty subcontractor work that was unintended by the insured may constitute an "accident" (and thus an "occurrence") under a CGL policy.

The Court noted that in 1986, the Insurance Services Office (“ISO”) distributed the policy language at issue, reshaping the scope of coverage under CGL policies.  It adopted those changes to expand coverage to include some of those business risks, specifically damage caused by a subcontractor's faulty workmanship (with no carveout based on whose property is damaged).

The Court ultimately held that an "accident" may include unintentionally faulty subcontractor work that damages an insured's work product.  Accordingly, the Court reversed the Court of Appeals' judgment and remanded the case to the Court of Appeals for consideration of any remaining issues.  The Court limited its holding in the case relied on by the trial court and the Court of Appeals to cases involving the pre-1986 CGL policy language.


Eric T. Boron

[email protected]

06/30/20       Reisbeck v. Farmers Ins. Exchange
Supreme Court of Montana
Uninsured Motorist Claim Not Barred by Doctrines of Issue Preclusion or Claim Preclusion 

In a 4-3 split decision the Supreme Court of Montana ruled that the District Court erred in granting summary judgment in favor of Farmers Insurance Exchange (“Farmers”).  The majority ruled that Mr. Reisbeck’s Underinsured Motorist (UIM) insurance claim is not barred by either the doctrine of issue preclusion or the doctrine of claim preclusion.   There was a lengthy dissent written by Justice Rice, joined in by two other justices.

As a matter of background, Mr. Reisbeck sued Mr. King for injuries Mr. Reisbeck suffered as the victim of a rear-end collision.  Mr. King’s liability insurance policy limit with Progressive was $50,000.00.  Mr. Reisbeck had UIM coverage in his policy with Farmers.  The UIM coverage provided, in pertinent part:

[Farmers] will pay all sums which an insured person is legally entitled to recover as damages from the owner or operator of an UNDERinsured motor vehicle because of bodily injury sustained by the insured person.


[Farmers] will pay under this [UIM] coverage only after the limits of liability under any applicable bodily injury liability bonds or policies have been exhausted by payment of judgments or settlements.

(Original emphasis omitted.)

Reisbeck notified Farmers of his lawsuit against King and asserted his UIM coverage may be in play because King’s liability policy limits were only $50,000. Farmers refused to pay Reisbeck anything under his UIM coverage. In September 2017, Reisbeck filed a lawsuit against Farmers to recover UIM benefits.  Reisbeck eventually settled his case with King for the policy limit on King’s liability policy.  Farmers then moved for summary judgment on Reisbeck’s UIM coverage claim in his suit against Farmers.

Farmers argued that because Reisbeck had settled with King, Reisbeck’s UIM claim against Farmers was barred by the doctrines of issue preclusion and claim preclusion. On January 17, 2019, the District Court granted summary judgment in favor of Farmers on Reisbeck’s UIM coverage claim, determining the doctrine of issue preclusion barred Reisbeck from “relitigating the issue of damages.”

Although similar, the doctrines of issue preclusion and claim preclusion are not the same. According to the Supreme Court of Montana, issue preclusion “bars the same parties or their privies from relitigating issues in a second suit that is based upon a different cause of action.” Issue preclusion applies when the following four elements are satisfied:

  1. The issue decided in the prior adjudication is identical to the issue raised in the action in question;

  2. There is a final judgment on the merits in the prior adjudication;

  3. The party against whom preclusion is now asserted was a party or in privity with a party to the prior adjudication; and

  4. The party against whom preclusion is now asserted was afforded a full and fair opportunity to litigate the issue which may be barred.

All elements of issue preclusion must be satisfied for the doctrine to apply.

Claim preclusion, said the Montana Supreme Court “bars a second suit involving the same parties or their privies based on the same cause of action.” Claim preclusion also bars those issues “that could have been litigated in the prior cause of action.” Claim preclusion exists when the following five elements are satisfied:

  1. The parties or their privies are the same;

  2. The subject matter of the present and past actions is the same;

  3. The issues are the same and relate to the same subject matter;

  4. The capacities of the parties are the same to the subject matter and issues between them; and

  5. A final judgment on the merits has been entered.

 All elements of claim preclusion must be satisfied for the doctrine to apply.

The Supreme Court noted that the doctrines share the purposes of “prevent[ing] parties from waging piecemeal, collateral attacks on judgments, thereby upholding the judicial policy that favors a definite end to litigation,” and “conserv[ing] judicial resources and encourag[ing] reliance on adjudication by preventing inconsistent judgments.”

The Montana Supreme Court rejected Farmers’ argument that Reisbeck’s settlement of his underlying tort action against King foreclosed his UIM claim, declaring that Reisbeck’s separate claim for UIM benefits is a contract dispute which the Court recognized as a distinct contractual matter that implicates a different set of facts involving the interpretation of an insurance contract.  The UIM dispute between Reisbeck and Farmers sounds in contract and should be resolved by contract law, ruled the Court.

That a contract claim for UIM benefits is wholly distinct and separate from the underlying third-party tort claim was fatal, in the majority’s eyes, to Farmers’ argument as it pertains to both issue preclusion and claim preclusion in this case. Turning first to Farmers’ issue preclusion argument, the majority wrote that it needed to “look no further than the first element of issue preclusion to conclude that Farmers’ argument fails. Issue preclusion requires that the issue decided in the prior adjudication is identical to the issue raised in the action in question. Farmers argues that the jury’s assessment of damages in the tort action is identical to the issue in the current contract dispute between it and Reisbeck. But such an argument runs directly contrary to our repeated pronouncements, [citing prior Supreme Court of Montana cases], that a UIM claim presents a controversy between an insurer and an insured over the interpretation of an insurance contract and consequently should be resolved by contract law.  Because the jury in the tort action did not resolve the damages issue in that action by application of contract law the damages issue in the tort action cannot be identical to the damages issue in the contract action.

The majority also referenced the express terms of Farmers’ UIM policy with Reisbeck, noting that interpretation of those policy terms provides the basis upon which this dispute is resolved.  The Court declared that even assuming the jury’s damage assessment in the tort action was somehow relevant to Reisbeck’s UIM claim, it would not be dispositive for purposes of Reisbeck’s contract action against Farmers, because Reisbeck’s UIM policy with Farmers provides:

[Farmers] will pay under this [UIM] coverage only after the limits of liability under any applicable bodily injury liability bonds or policies have been exhausted by payment of judgment or settlements.  (Emphasis added.)

The Court went on to find that in the tort action in which the jury’s verdict was vacated, and therefore no judgment was entered, because while Reisbeck’s post-trial motions were still pending he exhausted the limits of King’s liability policy by payment of a settlement. This is precisely what his policy with Farmers required in order for him to make a claim for UIM benefits.

The majority’s analysis of the claim preclusion argument led it to determine it similarly must fail.  Stating that claim preclusion requires that the subject matter of the present and past actions be the same, the decision noted the subject matter of Reisbeck’s personal injury action against King was whether, and to what extent, King was liable to Reisbeck in tort. The subject matter of Reisbeck’s UIM claim against Farmers is whether, and to what extent, Farmers is liable to Reisbeck in contract, pursuant to the terms of his UIM policy. Reisbeck’s current dispute with Farmers “sounds in contract and should be resolved by contract law.” The majority concluded the subject matter of the two actions is not the same, and Reisbeck’s UIM claim is not barred by claim preclusion.

A premise of the lengthy dissent is that the damage issue in this UIM contract case is “exactly the same issue” Reisbeck tried to a jury verdict in the tort case against King. The dissent criticizes the majority opinion for giving “no reason” why the “issue is any different and finds unpersuasive the majority’s view that the UIM case “sounds in contract.” The dissent asserts that “[c]ontract litigation generally may well require resolution of legal issues not addressed in a related tort action, but, here, this particular issue—the determination of damages sustained in the accident—was previously adjudicated by the court in that action.” 


Marina A. Barci
[email protected]

06/25/20       Matter of Findlay v. MTA Bus Co. 
Appellate Division, First Department
Master Arbitrator’s Award Confirming Lower Arbitration Award Correct

Findlay and the MTA were involved in an arbitration wherein Findlay sought lost wages through no-fault benefits from MTA. Findlay testified at both a deposition and the arbitration hearing regarding his lost wage claim. In addition, he submitted numerous no-fault forms and tax forms which contained contradictory evidence regarding his employer, job title and relationship to his employer, as well as the amount of his contractual pay rate, how often he was paid, his last day of work, and how much income he actually received. The arbitrator found that Findlay’s testimony and evidence presented were contradictory and unsupported and denied his claim. A master arbitrator reviewed the award and determined that such credibility determinations were within the arbitrator’s discretion to make and confirmed the award. Subsequently, Findlay petitioned the lower court to vacate the master arbitration award confirming the lower arbitration denying no-fault benefits. The MTA requested that the court confirm the master arbitration award. The Court found that the master arbitrator’s award was based on only the original evidence presented and not irrational. Thus, the award was confirmed and Findlay’s petition denied. The First Department affirmed the lower court’s decision.


Ryan P. Maxwell
[email protected]

Regulatory Wrap-Up

07/06/20       Executive Order No. 202.48 Declines Extension of COVID-19 Related Insurance Moratorium and Premium Deferral
New York State Executive
DFS Emergency Rulemaking Modeled after Executive Order 202.13 Explicitly Permitted to Lapse

On Monday, Governor Andrew Cuomo issued Executive Order No. 202.48 captioned the “Continuing Temporary Suspension and Modification of Laws Relating to the Disaster Emergency,” which continued certain suspensions and modifications of law and directives promulgated by Executive Order 202 and its successors, through August 5, 2020. The order contained numerous exceptions of suspensions and modifications that were not to continue, effectively reverting “such statutes, codes, and regulations” to their original form as of July 7, 2020.

Among the reversions permitted include:

  • Insurance Law and Banking Law provisions suspended by virtue of Executive Order 202.13, which coincide with the expiration of the Superintendent’s emergency regulations;


  • Sections 3216(d)(1)(c) and 4306 (g) of the Insurance Law, and any associated regulatory authority provided by directive in Executive Order 202.14, as the associated emergency regulations are no longer in effect;


As you will recall, the DFS emergency rulemaking in response to Executive Order 202.13 provided certain relief to policyholders who were able to demonstrate financial hardship as a result of  COVID-19, such as:

  • amending 11 NYCRR section 185.7(m)(4) and 11 NYCRR section 187.6(f)(4) to provide that premium remitted by a creditor will be assumed to provide coverage under a credit life or credit unemployment insurance policy for those insured debtors whose payments are not more than three months overdue, regardless of whether the debtor has paid a charge for such three months’ coverage;

  • adding a new Part 229 to 11 NYCRR to provide certain protections to insureds who do not make a timely premium payment to a life insurer, property/casualty insurer, or fraternal benefit society (collectively, “insurer”), such as an extension of a grace period for the payment of premium and fees set forth in a group life insurance policy or certificate, protection from late payment fees, a prohibition against referral to a credit reporting agency or debt collection agency, and an extension of one year to pay overdue premiums or fees; and

  • adding a new Section 405.6 to 3 NYCRR to, among other things, prohibit any PFA from canceling an insurance policy due to an insured’s failure to make a timely installment payment, for a period of at least 60 days, including any contractual grace period, for a property/casualty insurance policy or for a period of at least 90 days, including any contractual grace period, for a life insurance policy, if the insured can demonstrate financial hardship as a result of the COVID-19 pandemic, and subject to the safety and soundness of the PFA

As of July 7, this DFS Consolidated Emergency Measure has expired.

07/02/20       New York Supplements Insurance Licensing Extension
Department of Financial Services
Insurance Producer Licensing Extension Amended to Span an Additional Forty-Five Days

On March 25, 2020, DFS issued Insurance Circular Letter No. 9 (2020) which “suspended the expiration of licenses for all individual producers for 60 days, from March 25, 2020 through May 24, 2020; waived any late fees resulting from, and accruing during, this 60-day period; and suspended the requirement that a monitor be present to complete producer continuing education and pre-licensing course exams online during this 60-day period.” We previously wrote about an extension of the licensing requirements in May. Supplement No. 2 to Insurance Circular Letter No. 9 (2020) is the most recent Supplement and extends that relief through August 7, 2020.

As was previously noted back in May: Do not wait. “At the end of this 30-day period, all licenses that would have expired but for this extension will automatically expire unless the producer has submitted a license renewal application, including completion of all necessary continuing education credits, before that date.” This is not a toll and producers will not be granted additional time.

Maxwell’s Minute: If you have dragged your feet to this point, you have been given another chance. The good news? COVID-19 has spurred innovation in the form of online, proctored testing options. Now, there is no excuse.


Legislative List

07/01/20       Proposed COVID-19 Immunity for Dentists
New York State Assembly
Bill Introduced in New York State Assembly Would Provide COVID-19 Immunity Explicitly for Dentists

On July 1, Assembly Bill No. A10714 was introduced and referred to the health committee. That bill would provide the same liability immunity to dentists for treating patients during the COVID-19 public health emergency as is granted to other health care professionals and to unregistered dentists.

According to the Sponsor Memorandum, despite the provision of emergency and urgent care services to patients pursuant to Executive Order 202.8, “An ambiguity exists as to whether dentists enjoy the same immunity granted to other health care professionals for treating patients during the COVID-19 public health emergency declared by the Governor. Unregistered dentists clearly enjoy such an immunity, but the anomalous potential for registered dentists not to enjoy the same protection exists.” The bill would “make it clear that dentists enjoy the same COVID-19 liability protections as many other designated health care professionals, including dentists who are not registered to practice.”

The bill would amend Part GGG of Chapter 56 of the Laws of 2020 to include those “licensed or otherwise authorized under title 8, article . . . one hundred thirty-three of the education law,” which is captioned “Dentistry, Dental Hygiene, and Registered Dental Assisting.” That article defines the scope of the practice of dentistry, dental hygiene and registered dental assistants.

If passed, this bill would take effect immediately.

Maxwell’s Minute: I would be remiss if I did not provide the following commentary:

Cosmo Kramer:       You think that dentists are so different from me and you? They came to this country just like everybody else, in search of a dream.

Jerry Seinfeld:         Kramer, he's just a dentist.

Cosmo Kramer:       Yeah, and you're an anti-dentite.


07/08/20       Proposed Bill Would Require Officers to Carry Liability Insurance 
New York State Senate
Bill Introduced in New York State Senate would Require Police Officers to Maintain Their Own Liability Insurance

On July 6, Bill No. S08676 was introduced in the New York State Senate which would shift the responsibility for defense and indemnification of officers from the state to the officers themselves and require that those officers procure and maintain liability insurance for that purpose. This bill is an interesting addition to the other proposed law enforcement related bills that we wrote about in the last issue of Coverage Pointers.

This bill would require officers to obtain, provide proof of, and continuously maintain liability insurance that meets certain minimum requirements. Specifically, “[s]uch insurance shall cover claims against such officer for acts or omissions during any period of time that such officer is performing duties within the scope of employment…”.

Notably, however, the bill also requires that “[t]he city, county, town, village, authority or agency shall cover the base rate of the policy required by this section.”


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

06/22/20       Crescent Beach Club LLC v. Indian Harbor Ins. Co.
United States District Court, Eastern District of New York
Broadly-Worded Construction Exclusion Enforced; Although Court turned to New York Labor Law to Determine Whether Subject Work Constituted “Construction Work”, Exclusion Was Not Ambiguous

Crescent Beach Club LLC (Crescent) retained Phil-Mar, Inc. to partially dismantle and repair a pergola at its banquet facility. An employee of Phil-Mar, Mr. Flores, was injured when he fell from atop the pergola as he was dismantling the structure’s frame. Flores sued Crescent in state court seeking recovery for injuries he sustained from his fall (the Flores Action). Crescent then sought defense and indemnity through a commercial general liability policy (the Policy) issued to it by Indian Harbor Insurance Company LLC (Indian Harbor). On February 21, 2017 Crescent’s insurance broker submitted the claim to Indian Harbor and stated that “the claim had nothing to do with a construction project.” Again, on March 3, 2017, a representative from Crescent indicated to Indian Harbor that Flores’s injury occurred while he was performing routine maintenance work. Indian Harbor then issued a reservation of rights, providing a defense to Crescent and reserving the company’s right to disclaim based upon the exclusion for designated ongoing operations, including “construction” (the “exclusion”). The exclusion reads:

This policy does not apply to any ‘bodily injury’, ‘property damage’, ‘personal and advertising injury’, or any other loss, cost, defense fee, expense, injury, damage, claim, dispute or ‘suit’ either arising out of, or related to, any construction, renovation, rehabilitation, demolition, erection, excavation or remedition [sic] of any building and includes planning, site preparation, surveying or other [sic] construction or development of real property. This exclusion, however, shall not apply to routine maintenance activities.

Meanwhile discovery continued in the underlying action and testimony of those involved began to shed light on the scope of work Phil-Mar undertook on behalf of Crescent. By way of deposition testimony, it was found that over half of the pergola was to be disassembled and rebuilt. Additionally, it came to light that Crescent had asked their handyman to undertake the repairs, but the handyman deemed the project was too complex for his skillset, and too ambitious for only one person to take on. Based on the information gained through continued discovery, Indian Harbor, on September 20, 2018, disclaimed coverage under the policy with respect to Mr. Flores’s State Court action, again citing the exclusion.

On September 27, 2018, Crescent initiated this instant action in State Court, which was removed by Indian Harbor to federal court. Both parties then cross-moved for summary judgment and agreed that the sole issue before the court was whether Flores was engaged in work within the meaning of the Construction Exclusion in the Policy when the underlying incident allegedly occurred, or whether he was engaged in “routine maintenance activities” within the meaning of the exception to the Construction Exclusion. Crescent continued to argue that the work performed was “routine maintenance” and therefore not subject to the exclusion.

The Court notes that Crescent brought up the issue of the timeliness of Indian Harbor’s disclaimer in Crescent’s memorandum of law. The Court, analyzing New York Law, finds that N.Y. Ins. Law § 3420(d)(2) allows an insurer to conduct a reasonably prompt, thorough, and diligent investigation of the claim prior to issuing a disclaimer. See Webster ex rel. Webster v. Mount Vernon Fire Ins. Co., 368 F.3d 209, 216-17 (2d Cir. 2004). In line with this caselaw, the court determined that Indian Harbor, having received inconsistent information regarding the project at the heart of the Flores Action was well within its rights to investigate the matter. The court notes that Indian Harbor issued its ROR within one month of receiving the claim, engaged in an active investigation, and then promptly disclaimed coverage one month after the investigation had been completed. As the basis for the disclaimer was not readily apparent before the onset of the delay (i.e. the investigation) and Indian Harbor was able to prove that their investigation was related to, and necessary for, the adjustment of Crescent’s claim, the disclaimer was timely.

The court then moved onto interpreting the construction exclusion. After laying out the standards related to the interpretation of exclusions, i.e. that the insurer must establish hat the exclusions apply in the particular case and are subject to no other reasonable interpretation. Zurich Am. Ins. Co. v. Liberty Mut. Ins. Co., 710 F. App’x 3, 6 (2d Cir. Oct. 5, 2017) (summary order). The court moves on to addressing the issue of ambiguity, first reminding the parties that “the test to determine whether an insurance contract is ambiguous focuses on the reasonable expectations of the average insured upon reading the policy and employing common speech.” Universal Am. Corp. v. National Union Fire Ins. Co. of Pittsburgh, Pa., 25 N.Y.3d 675, 680 (2015). Crescent argues that the lack of defined terms in the exclusion at issue is ambiguous; the court, however, disagrees. The court explains that by looking at an established body of law or industry custom, a possible ambiguity may disappear. To that end, the court relies on New York Industrial Code which defines “construction work” as “[a]ll work of the types performed in the construction, erection, alteration, repair, maintenance, painting or moving of buildings or other structures, whether or not such work is performed in proximate relation to a specific building or other structure and includes, by way of illustration but not by way of limitation, the work of hoisting . . . and the structural installation of wood . . . and other building materials in any form or for any purpose.” The Industrial Code defines “demolition work” as “[t]he work incidental to or associated with the total or partial dismantling or razing of a building or other structure including the removing or dismantling of machinery or other equipment.” The court goes onto rule that as the relevant terms are clearly defined by New York law and is subject to no other reasonable interpretation, the exclusion is deemed unambiguous as a matter of law.

The court then goes on to interpret the exclusion in light of the facts presented. Based upon the evidence submitted the court finds that the work Phil-Mar was contracted to perform on behalf of Crescent went well beyond what is considered “routine maintenance.” Even if the court based its decision solely on the testimony provided by Crescent’s expert, it still would have deemed the exclusion to apply. As the expert’s testimony when taken in whole proved that the work Phil-Mar was contracted to preform was equivalent to replacing more than half of the pergola. Furthermore, the court found that the testimony of Crescents handyman, who claimed that the job was too big and complex for him to complete himself, lends proof to the fact that the exclusion should apply. Crescent attempts to sway the court with caselaw, however it relies on cases that are not analogues, as they do not arise from circumstances which would involve a significant change to the structure, as the instant matter does. Accordingly, the court holds that the exclusion applies, and no Indian Harbor’s disclaimer of coverage is valid.

Moving onto the question of whether or not Indian Harbor can withdraw from Crescent’s defense in the underlying action the court relies on CGS Indus., Inc. v. Charter Oak Fire Ins. Co. While Crescent argues that only when a determination in the Underlying Action stating that the policy exclusion applies is made can Indian Harbor withdraw from Crescent’s defense. However, the court finds that once it is determined with certainty that an exclusion applies, an insurer’s duty to defend ceases to exist. CGS, 720 F.3d 71, 83 (2d Cir. 2013). As the court determined that Crescent’s claims related to the Underlying Action fall outside of coverage by operation of the exclusion for Designated Ongoing Operations, Indian Harbor no longer has an obligation to defend Crescent in the Underlying Action.


Cara A. Cox
[email protected]

Heather Sanderson
Sanderson Law (Alberta, Canada)

[email protected]

Knowing When to Maintain Control vs. Relinquish Control: Split File Protocols and Selecting Independent Counsel

Cara’s Cross Border Connection: Heather

Controlling the Defence of Warring Insureds: Markham (City) v. AIG Insurance Company of Canada, 2020 ONCA 239

Most commercial rental agreements require the party who rents or leases a facility to indemnify the property owner and to add the property owner as an additional named insured under the leasee’s liability policy.  The same holds true for contractors who are obliged to indemnify the property owner where the project is located and to add the property owner as an additional named insured under the contractor's liability policy. In any resulting litigation, it is often the case that the party who rented the facility, or the contractor, is at odds with the property owner on the merits of the claim. In that situation, which insurer defends the property owner? Is it the property owner’s insurer, or the insurer of the party obliged to add the property owner as an additional named insured? How can an insurer defend multiple insureds in the same action who are at cross purposes with each other?  What about where some of the allegations are covered and some aren’t?

A full treatment of this thorny topic is well beyond the scope of a newsletter article. What follows (and, as an introduction to Markham v. AIG) is a very brief run-down of Canadian cases on the topic.

It is settled law in Canada that a liability insurer has the carriage and control of the defence of covered claims: Brockton (Municipality) v. Frank Cowan Co. Ltd., [2002] O.J. No. 20 (C.A.), at para. 49.  That means that an insurer charged with defending its insured has the right to select and instruct defence counsel and the obligation to pay the legal costs of that defence: Brockton, para. 31; 137328 Canada Inc. v. Economical Insurance Co., 2011 ONSC 108, at para. 24.  In PCL Constructors Canada Inc. v. Lumbermens Mutual Casualty Co., [2009] O.J. No. 2664, the court stated at para. 82, that the insurer is entitled to be represented by counsel in which it has confidence given that it is obliged to pay the legal fees and all or part of the judgment against the insured. However, counsel appointed by the insurer is counsel for the insured and must fully protect the insured’s legal interests.  That latter point was also made in the seminal case from the Québec Court of Appeal, Zurich du Canada, cie d'indemnité c. Renaud & Jacob, [1996] R.J.Q. 2160, which was cited in Brockton.

All of this means that there is, almost by definition, tension in this tripartite relationship between the insurer, counsel and the insured. Those tensions can be extreme.  In fact, the divergence of interests may reach the point where the insured demands the right to select and instruct counsel at the insurer’s expense.

In the United States, (as a result of the seminal American case of San Diego Navy Federal Credit Union v. Cumis Insurance Society Inc., 2008 Cal. Rptr. 494 (1984)), counsel selected by the insured at the insurer’s expense are called “Cumis counsel”. In Canada they are simply “independent counsel”. But what is the tipping point? What type of conflict must exist before a Canadian court will direct that an insured is entitled to independent counsel?

As a result of Brockton, Renaud & Jacob and Roman Catholic Episcopal Corp. of St. George's v. Insurance Corp. of Newfoundland (2003), 232 Nfld. & P.E.I.R. 65 (N.L. C.A.), the tipping point is when defence counsel's retainer with the insurer can reasonably be said to conflict with that counsel’s obligation to defend the insured in the civil action. Until that point is reached, the insured's right to a defence and the insurer's right to control that defence can satisfactorily co-exist. A disagreement on tactics and strategy is not a conflict that ousts the insurer’s control: Brocton, Roman Catholic.

Hoang v Vicentini, 2015 ONCA 780, spelled out that a conflict that may result in the appointment of independent counsel exists where (a) the insurer has an obligation to defend; but reserves the right to deny the obligation to indemnify due to the possibility that an exclusion or other coverage issue may be proven and (b) the facts generating the coverage issue upon which the obligation to indemnify has been reserved, are dependent upon the insured’s conduct that is in issue in the action against the insured. That is referred to as a coverage conflict.

Returning to where this discussion started, if the conflict is not a coverage conflict, but arises from the fact that an additional insured is entitled to a defence that conflicts on the merits with the defence of another insured, then the insurer can retain control of the defence of both insureds by putting in place a set of protocols, commonly referred to as “split file protocols”. This process is detailed in the Ontario trial level decision, Her Majesty the Queen in Right of Ontario (HMQ) v. AIG Insurance Company of Canada, 2019 ONSC 2964, where through the imposition of these protocols the insurer “… ensures any potential "party-based" conflict of interest in defence counsel's retainer is avoided by ensuring defence counsel appointed for …[insured #1] … and …[insured #2] … are separately instructed and are free to act in the best interests of each insured …”. (para. 16 – there is a lot of “ensuring” going on in that statement, but it makes the point.)

The issue of whether the conflicts were such that the insurer lost the right to control the defence; whether the imposition of a split file protocol would manage the conflict and whether the protocol was sufficiently robust to allow the insurer the right to control the defence were the principle issues in Markham (City) v. AIG Insurance Company of Canada, 2020 ONCA 239.

The Underlying Litigation

North of Highway 401 in the Greater Toronto Area (locally known as the "GTA”), lies the City of Markham, Ontario.

Golfers know Markham. It is the home of the Angus Glen Golf course, which has hosted a few Canadian Opens, as well as the 2015 Pan-American games.  Markham is also home to the Angus Glen Community Centre, which houses two NHL-sized ice rinks.  The City of Markham, which I will refer to as "the City,” owns that community centre.

On February 2, 2015, a young boy was watching his brother’s pre-game hockey warmup at the community centre, when he was hit in the face with a puck that flew up into the stands from the rink. The boy suffered a broken jaw.

The particular rink where the incident occurred had been rented by the City to the Waxers Minor Hockey Association and the Markham Minor Hockey Association.  Both of those associations are members of Hockey Canada, an association that oversees minor hockey in Canada for those aged 4 to 20.  The boy’s litigation guardian sued the City and Hockey Canada for $150,000 in damages.  The action alleged, amongst other things, that the City and Hockey Canada failed to put in place adequate safety systems for spectators and permitted them to be where it was unsafe and dangerous.  The City and Hockey Canada cross-claimed against each other. The City issued a third-party claim against the Waxers.  The Waxers defended stating that they are not responsible for the arena’s physical structure, layout, design, construction, inspection or maintenance.

The Policies

The City was insured under a CGL policy issued by Lloyd’s.

Hockey Canada was insured under a CGL policy issued by AIG Insurance Company of Canada.  The AIG policy also added the Waxers as an additional named insured.

The rink rental contract between the Waxers and the City mandated that the City was to be added as an additional named insured under the AIG policy with respect to the Waxers’ use of the rink. The rental agreement also stated that the Waxers “…assum[ed] all liabilities and costs for damages caused directly or indirectly by the licensee or invitees while on or using the facility”; and “… assum[ed] the risk of damage and injury while on the premises for the licensee and invitees and hold the licensor harmless and indemnified therefrom.”

The City’s policy with Lloyd's and Hockey Canada’s AIG policy had matching per occurrence limits of $5 million. However, the Lloyd’s policy, which had a $100,000 deductible (the deductible was $50,000 less than the amount claimed), stated that it was excess to any other applicable policy:  “this insurance shall apply only as excess and in no event as contributing insurance and then only after all such other insurance has been exhausted.” The AIG policy had a commonly found “other insurance” wording (if there is other insurance available to an insured, the AIG policy is primary).  AIG accepted that it had an obligation to defend Hockey Canada who was named as a defendant and the Waxers who were named as a third-party defendant.

The additional insured endorsement under the AIG policy stated that the City was added as an additional insured “but only with respect to the operations of the named insured”. AIG admitted that it had an obligation to defend those alleged obligations of the City which, if proven, would fall within the coverage of the AIG policy, but, argued that Lloyd's also had a concurrent obligation to defend those allegations. Further, AIG argued (and no one contested) that Lloyd’s had the sole obligation to defend the allegations pertaining to “occupier liability”, as they were outside the protection afforded by the additional insured endorsement. (Those allegations did not arise out of the operations of the Waxers (or Hockey Canada)).   As a result, so argued AIG, Lloyd’s was obligated by equitable principles to contribute to defence costs.

Therefore, AIG had a commonly encountered problem: It was tasked with defending three separate entities, (the City, Hockey Canada and the Waxers), in the same litigation, who are at war with each other.

AIG put the same split file protocol in place that was found acceptable in HMQ.

The City argued that this procedure provided insufficient protection, as the natural inclination of AIG would be to position the defence such that if liability was to be found, it would be on the basis of the occupier liability issues, as opposed to a breach of the rental contract.  The City advocated for independent counsel who would act at AIG’s expense. AIG replied stating the protocols met the City’s concerns.  Both Lloyd’s and AIG filed competing duty to defend applications.  Those were the applications that eventually went to the Ontario Court of Appeal.

The Trial Judgment

The parallels between HMQ and Markham are quite fascinating.

Markham was argued before the Ontario Superior Court sitting in Newmarket, Ontario on March 1, 2019 and on April 3, 2019; the argument in HMQ v. AIG, proceeded on May 1, 2019, before the same court, sitting in Toronto. The trial judgment in HMQ was released first, on May 15, 2019 and the judgment in Markham was released August 23, 2019. Both cases had almost identical issues, involved the same insurer, the same policy wording, the same “split-file protocol” and, remarkably, the same counsel for both parties (Luciana Amaral, an associate at the law firm of Boghosian + Allen LLP acted for the party opposing AIG in HMQ; David Boghosian of that firm opposed AIG in Markham). One would think that would mean consistent results. But, no. In HMQ the “split file protocol” was found sufficient to manage the party-based conflict and in Markham, at the trial level, the same protocol was found deficient to manage the same type of conflict.

Justice Annette Casullo of the Ontario Superior Court of Justice held in her August 2019 judgment in Markham (2019 ONSC 4977) that the pleadings in the underlying action were such that there was a conflict of interest between the City on one hand and Hockey Canada and the Waxers on the other:  “…AIG would only be liable to indemnify the City to the extent of the Waxers' liability, so its efforts would obviously be to reduce that exposure and play to the uncovered claims' strength, being the occupiers' liability claims.”  Justice Casullo described that conflict as “irremediable”; one that is impossible to cure or put right. Specifically, noting some differences in the evidence that was before the court in the HMQ decision, AIG’s split file protocol provided the City with insufficient protection from conflict. As a result, the City was entitled to appoint and instruct independent counsel – i.e., counsel that is not obligated to report to AIG or take instructions from AIG.  AIG was compelled to pay 100% of the City's defence costs, including costs to defend the claims of occupier liability that were outside the scope of the AIG coverage, as the policy wording did not restrict the obligation to pay defence costs to covered claims. At the close of the litigation, AIG would have the right to pursue Lloyd’s for the costs incurred to defend the allegations that were outside the coverage.   The trial judge did not expressly state that Lloyd’s did not have an obligation to defend the City, but that conclusion could be implied by the result.

A common issue in the HMQ decision and Markham was whether AIG was liable for pre-tender defence costs (costs incurred by the insured before it notified the insurer of its obligation to defend). However, in both Markham and HMQ, the wording of the AIG policy was found to be clear; AIG was not obligated to pay pre-tender defence costs.

The Appeal

AIG appealed to the Ontario Court of Appeal. The appeal was heard February 12, 2020 and the judgment was released on March 31, 2020.

The Court of Appeal agreed with the trial judge that AIG had no obligation to reimburse the City, or Lloyd’s, for the pre-tender defence costs, but disagreed that AIG could not control the defence of the City.

In coming to the latter conclusion, the Court of Appeal held that the occupier liability allegations may be outside the scope of the AIG policy. Therefore, Lloyds had an obligation to defend the alleged failure on the part of the City to “ensure the reasonable safety of spectators through the use of reasonable safety measures, including a net around the rink to prevent hockey pucks from striking spectators” and the failure to “put into place proper and sufficient systems for the safety of spectators” as those allegations fall outside the scope of the additional insured endorsement.  With respect to the remaining claims, i.e., those that are covered by the AIG policy, AIG has a duty to defend and Lloyd's may be an excess insurer.  As the level of risk of AIG and Lloyd’s is not clear at this stage of the proceedings, the fairest and most equitable allocation of defence costs between them was to require AIG and Lloyd’s to pay those costs in equal shares.  Once there is a final determination in the underlying lawsuit, then defence costs may be reallocated according to the level of risk covered by each of the policies.

The City had the right to choose which of its two insurers would defend. The City chose AIG.  However, that choice did not nullify Lloyd’s contractual obligation to fund the City’s defence.

  1. Who Controls the Defence?

The Court of Appeal held that there are clear conflicts in the defence:

  • AIG has an interest in having liability determined on the basis of the City's actions alone, so that AIG is not responsible for paying any damages. This is because its policy only covers the incidents that arise out of the operations of Hockey Canada or the Waxers and because it is also defending Hockey Canada and Waxers in the main action;

  • Lloyd's has an interest in having liability determined on the basis that the claim arose from the operations of Hockey Canada or the Waxers and not from the actions of the City to minimize its exposure to the losses; and

  • The City also has an interest in having liability determined on the basis that the claim arose from the operations of Hockey Canada, or the Waxers so that the City's premiums do not rise and so that they do not have to assume the full $100,000 deductible in the Lloyd's policy.

    The Court of Appeal held that there was evidence that anyone within AIG who violated the “split file protocol” would be disciplined.  (One of the reasons why Justice Casullo in the court below declined to follow HMQ and declared that the proposed “split file protocol” was deficient, was because AIG claims handlers would not face discipline if the protocol was violated. The Court of Appeal stated at para. 111 that “the application judge was mistaken” on that point.)

    Further, the Court of Appeal held that the trial judge erred when she stated that no measures could alleviate the City’s concerns short of entirely removing AIG from the defence.

  1. The Split-File Protocol

AIG provided the Court of Appeal with its seven point “split file protocol”. To that, the Court of Appeal added four points of its own. The resulting 11-point protocol addresses the conflict while protecting the City, Hockey Canada and the Waxers:

  1. The City's defence as an additional insured would be handled and screened internally so that Hockey Canada and Waxers' information is held separately and kept confidential from information in respect of the City claim.

  2. Physical files would be scanned and converted into digital format upon receipt;

  3. A file subject to the "split file" protocol would be digitally marked confidential and would not be accessed by any other handler, including the handler responsible for the defence of another adverse insured party. This is to protect confidential information and avoid any perceived or actual “party-based” conflict of interest between the insured interests;

  4. The handlers for the City’s defence would be different from those handling the Hockey Canada defence. Similarly, the handlers for coverage issues would be different from the handlers for liability issues;

  5. A claims handler in breach of the “split file protocol” would be subject to disciplinary action and could be dismissed if confidential information is disclosed;

  6. AIG agrees to work cooperatively with Lloyd's to agree upon, appoint/instruct, and pay for an independent defence counsel. That counsel will be different from AIG's coverage counsel;

  7. AIG commits to sharing funding costs incurred in the City's defence;

  8. The terms of this proposal must be provided in writing to those involved in managing the defence;

  9. Counsel appointed would be instructed to fully and promptly inform the City and Lloyd's of all steps taken in the defence of the litigation against the City such that each would be in a position to monitor the defence effectively and address any concerns;

  10. Defence counsel must have no discussion about the case with either coverage counsel;

Counsel must provide identical and concurrent reports to the insured and both insurers regarding the defence of the main action.

The Court held that this protocol “…will allow AIG to participate in the defence of the action as set out in the AIG policy, while at the same time, allowing Lloyd’s and the City the opportunity to know of and address concerns in a timely manner.” (para. 115)  The Court of Appeal commented that “[t]here is no reason to believe that appropriate counsel who has an ethical obligation to defend the insured properly, will not conduct the defence in the best interest of the insured.”(para. 109). With respect to the cases to come, the Court of Appeal stated, “In cases such as this where there is a dispute among the insurers and the City, it is incumbent upon all parties to work with one another and to exchange ideas in respect of a proposed protocol. Insurers and sophisticated parties like the City are best placed to determine what systems could work best.”

On June 4, 2020 the City and Lloyd’s filed an Application for Leave to Appeal to the Supreme Court of Canada.


If the Supreme Court of Canada elects to hear this appeal, then this decision may not be the last word on these issues. In the meantime, an insurer can maintain control of a defence of an insured in the face of positional or party-based conflict with (a) a robust split-file protocol and (b) reliance upon the ethical obligation of the counsel appointed by the insurer to present a defence that is in the best legal interests of each of the insureds.

Markham is fully in line with the majority Canadian position: In most cases, properly managed party-based conflicts do not oust the insurer’s right to control the insured’s defence (Brocton, Renaud & Jacob, Roman Catholic, Hoang v. Vicentini.) Further, equitable contribution remains a viable tool to compel concurrent primary insurers with an obligation to defend a common insured to contribute to defence costs.

It is seldom the case that a court will provide litigants with such “hands on” detailed directions to manage a conflict. The Ontario Court of Appeal did so in this case to provide guidance to resolve this case and similar cases to come. That court indirectly indicated that it does not wish to make a habit of creating these protocols and, for that reason, the court was clear that protocols devised by counsel must be founded upon the assumption that all involved will handle their assignments with integrity;  that the protocol devised in this case is not a ‘one size fits all solution’; that imaginative split-file protocol requirements that fit particular and unique scenarios are both encouraged and welcomed so that an insurer tasked with funding the defence of multiple conflicting insureds is able to control that defence.

Marcus Snowden, a friend of mine for more than 20 years, fellow member of Canadian Defence Lawyers, the Defense Research Institute (DRI), The Federation of Defense and Corporate Counsel, as well as the American College of Coverage Counsel, acted for AIG.

Cara’s Cross-Border Connection: Selecting Independent Counsel

In New York, independent counsel is only necessary in cases where the defense attorney’s duty to the insured would require that he or she defeat liability on any ground and his duty would require that he defect liability only upon grounds that would render the insurer liable.[1] However, “where multiple claims present no conflict – for example, where the insurance contract provides liability coverage only for personal injuries and the claim against the insured seeks recovery for property damage as well as for personal injuries – no threat of divided loyalty is present and there is no need for the retention of separate counsel.”[2]

When such a conflict becomes apparent, the insured must be free to choose his or her own counsel whose reasonable fee is to be paid by the insurer.[3]  In the Goldfarb case, a dentist was sued for malpractice.  The claims against him included engaging in sexual activity with a patient, which triggered multiple coverage exclusions.  The Court of Appeals held that since the insurer would only be liable to pay some of the claims asserted against the insured and would not be liable for others, the insured was entitled to choose his own attorney to defend him and the reasonable fee would be paid by the insurer. [4]

Sometimes the policy has an independent counsel provision that addresses the process of selecting independent counsel, minimum qualifications of counsel, and the rates that the carrier will pay. Other policies are silent on independent counsel.

Depending on the language contained in the policy, the insurer may have a right to participate in the selection process of independent counsel.  In New York State Urban Development Corp. v. VSL Corp., 738 F.2d 61 (2d Cir. 1984), the Court held that since the policy language provided that the insurer was obligated to pay counsel fees only if it selected or consented to the insured’s choice of counsel, the insured was entitled to participate in the selection of counsel.  However, if the policy does not contain language permitting the insurer to participate in the selection of counsel, then they may not have that right.[5]

The insurer is only required to pay reasonable and necessary defense costs.[6] The insured in not permitted to dictate to the insurer the hourly rate to be paid. Courts will only require the carrier to pay fees that are customarily charged for the locale, experience of the attorney, and complexity of the case or lack thereof.[7]

[1] Public Service Mut. Ins. Co. v. Goldfarb, 53 N.Y.2d 392, 400-401 (1981). 

[2] Id.

[3] Public Service Mut. Ins. Co. v. Goldfarb, 53 N.Y.2d 392, 402 (1981). 

[4] Id. 

[5] See Cuniff v. Westfield, 829 F.Supp. 55 (E.D.N.Y 1993).

[6] See, e.g., McDaniel v. 162 Columbia Hgts. Hous. Corp., 25 Misc.3d 1024 (Sup. Ct. Kings Co. 2009).

[7] Id.

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