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Coverage Pointers - Volume XXII, No. 21

Volume XXII, No. 21 (No. 586)
Friday, April 02, 2021

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 and Connecticut appellate courts and Canadian appellate courts.  The primary purpose of this newsletter is to provide timely educational information and commentary for our clients and subscribers.  

In some jurisdictions, newsletters such as this may be considered Attorney Advertising.

If you know of others who may wish to subscribe to this free publication, or if you wish to discontinue your subscription, please advise Dan D. Kohane at [email protected] or call 716-849-8900.

You will find back issues of Coverage Pointers on the firm website listed above.

 

Dear Coverage Pointers Subscribers:

Attached you will find Volume XXI, No. 21, our 586th bi-weekly issue of one of your favorite (we hope) insurance coverage newsletters.

Do you have a situation?  We love situations.  People ask:  where can we help you?

Hurwitz & Fine, P. C has lawyers located throughout New York State, in Buffalo, Rochester, Albany, the Hudson Valley, Westchester, NYC Metro and Long Island and in Connecticut.  We have lawyers admitted to practice in Massachusetts and Pennsylvania.  We have professional relationships with lawyers and law firms throughout the rest of the country for referrals.  Just pick up the phone – 716-849-8942, my direct line, and we will be able to help or refer.

Happy Easter.  Happy Passover.  Happy spring.

We have both interesting and troubling cases in this week’s issue.  In my column, you’ll find for coverage purposes, dead people cannot reside in a home, an interesting anti-subrogation case from the First Department, a controversial decision about the proof necessary to reform a policy and a new carrier-friendly, lower court COVID-19 business interruption case.

But the one worth reading most closely, is a Thousands Flee case out of the Fourth Department.  For those who are new subscribers, the phrase Thousands Flee is added to a headline when a decision comes down that is off the rails and dangerous.

In the Zimmerman decision, the court held ordered a liability insurer to turn over documents maintained in its claim file to the underlying plaintiff, in this case, a 16-page private investigator’s report and correspondence between the insurer and the insured.  The court found that the report was prepared to investigate the claim (surely privileged) and in part “for safety purposes”.  This was not a first party claim, but a liability claim and investigatory material which is prepared to assess liability should be privileged,  Period.

You’ll also find a Philadelphia Insurance case in Agnes’ column that should remind you to avoid reservation of rights letters in New York wherever possible.

We also draw your attention to C.J.’s review of a SDNY decision involving the ongoing battle between “the insured” and “an insured”.  It cites to the Endurance America case, precedent we created a few years back.

Finally, check out Mirna Santiago’s column on new guidance regarding diversity and inclusion in the insurance industry.

 

Coverage 101:

With over 225 folks scheduled to take part in our classes on Coverage 101, we know it’s a popular topic.  We are happy to schedule a program for your organization.  My partner in this endeavor is John Trimble, from the Indianapolis law firm of Lewis Wagner.

 

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.

If you are interested in risk transfer training for your claims staff, let us know.

 

New York Coverage Protocol Training::

Another very popular program is one designed to remind, refresh or instruct claims professionals who handle New York insureds, claims and policies, on the special nuances (and traps) that are part of the New York coverage experience.  Does your staff need it? Here’s the way to find out.  Ask your staff these questions:

  1. Are you sending out reservation of rights letter in NY claims? 

  2. Do you know the “30-day” rule?

  3. Are you certain you know who gets copies of coverage position letters in New York?

  4. If the insured fails to respond to 10 letters seeking cooperation, can you successfully deny coverage for lack of cooperation?

  5. If the insured gives you notice of an accident, five years after it occurred, in violation of notice obligations in the policy, is that enough to sustain a late notice disclaimer?

     

If the answer to question “1” was “yes” or the answer to any of the remaining questions were “no”, sign up for NY Protocol training.

 

Newsletters:      

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

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

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

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

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

  • Medical & Nursing Home Liability Pointers.  Medical & Nursing Home Liability Pointers provides the latest news, developments, and analysis of recent court decisions impacting the medical and long-term care communities. Contact Chris Potenza at [email protected]  to subscribe.

     

ruMIRNAtions:

Spring is finally here and I have received my first dose of the Pfizer Covid vaccine. Yay! Until I got that jab and felt a flood of relief, I didn’t realize how stressed I’ve been about this whole Covid-19 thing. My symptoms were limited to a sore arm for two days, so I am bracing for more severe symptoms after the second dose. Either way, I am looking forward to a little more freedom in the months ahead.

Added to my happiness this week is the fact that New York’s Department of Financial Services (formerly known as the Department of Insurance) has at long last decided to tackle diversity (or the lack thereof) in the top ranks of the insurance industry. On March 16, 2021, the Superintendent of Financial Services issued a Circular Letter dedicated to discussing the business case for diversity in the insurance sector, as well as some of the challenges to achieving meaningful diversity and setting forth a limited plan of action for addressing the dearth of diversity in insurance leadership. While the “plan of action” was milquetoast (and limited to collecting and publishing data), the hope is that as DFS delves into the metrics, it will issue more robust recommendations and guidelines in the future.

Mirna
Mirna M. Santiago

[email protected]

 

Black Sox Scandal Investigation Continues:

Buffalo Courier
Buffalo, New York

02 Apr 1921

NATE EVANS HELD IN BALL SCANDAL

BULLETIN

            St. Louis, Mo., April 1.—Nate Evans of New York, said to be the missing link in the 1919 major baseball league scandal, and three other men who, according to the police, are known as professional gamblers in the east and at Florida resorts, were arrested today on charges of being fugitives from justice.

Editor’s Note:   Despite the hoopla, Evan, quite a character in his own right, was not indicted in connection with fixing the World Series. https://sabr.org/bioproj/person/nat-evans/

 

Peiper on Property and Potpourri:

So, I have a situation this week.  No, this is not an April Fool’s Day joke.

Over the past 15 or so years, we’ve spent as much virtual ink as anyone on discovery-related issues.  The law, it seems to us, is well settled in this area. 

If, in a first party context, you have claims materials that are prepared, reviewed, analyzed, etc., before the decision to deny coverage, they are categorically discoverable.  You may still be able to protect items that are privileged (e.g., attorney/client), but said documentation must be purely legal in nature.  Independent commentary on the claims process likely will not be protected.

Now, on the contrary, after a decision to deny coverage has been made, the burden shifts and the presumption is that all work prepared by an insurance company after the denial is subject to the exemption for material prepared in anticipation of litigation.  This shift makes sense.  A decision to accept or deny a claim is part and parcel to an insurance company’s regular course of business; to wit, evaluating coverage and paying claims.  After the decision that a claim is beyond the bargain of the insuring policy, the parties are necessarily adverse and the actions taken by either side are with an understanding that litigation may well occur as a result.

While the “anticipation of litigation” exemption is not automatic, frankly, it should not be hard to establish that a carrier’s actions were undertaken with the concern of litigation post-denial.  It is only those applications that failed to explain what and why a carrier shifted into ligation mode that also failed to secure the protection of this well understood discovery doctrine.

First party litigation, despite clearly defined rules and tests, has still spawned a fair amount of legal decisions.  The parties in a first party dispute are, by their very nature, adverse, and so who decided what, when, are always points worth pursuing.

In the third-party context, however, the rules are far less nuanced.  Since the 1960’s, New York Appellate Courts have almost universally protected a carrier’s third-party litigation file (see Kandel v Tocher, 22 AD2d 513, 256 NYS2d 898 [1st Dept., 1965]; see also Litvinov v Hodson, 74 AD2d 1884, 905 NYS2d 400 [4th Dept., 2010];   Recant v Harwood, 222 AD2d 372, 635 NYS2d 231 [1st Dept., 1995]).  Indeed, with regard to traditional tort claims, the Fourth Department has previously explained that “an insurance company’s file is conditionally exempt from disclosure as material prepared in anticipation of litigation” (Litvinov, 74 AD3d at 1886, 905 NYS2d at 402).  This exemption is only overcome where the party seeking disclosure can establish “substantial need and the inability to obtain the substantial equivalent of the material from another source” (emphasis supplied) (Id.).  The First Department has stated, in even more direct terms, “[t]he contents of an insurer’s claim file which have been prepared for litigation against its insured are immune from disclosure” (Grotallio v Soft Drink Leasing Corp., 97 AD2d 383, 468 NYS2d 4 [1st Dept., 1983]).

Yet, in the Zimmerman v. Jurek case reviewed below, the Appellate Division appears prepared to embark on a journey to a new world of discovery.  In that case, the Court adopts the trial court reasoning that investigative reports prepared in a third-party lawsuit, albeit in pre-litigation, were conducted in the ordinary course of the insured’s business.   This, respectfully, is an analysis for a first-party loss, not a third-party claim.  The files in a third-party claim are always for purposes of litigation.

Want proof, you say?

Consider this from the Appellate Division, Fourth Department:

The files of a liability insurance carrier are deemed to be material prepared for litigation whether the material was prepared before or after suit commences and are protected from disclosure pursuant to CPLR 3101(d)(2). “Whether a claim is accepted or rejected (by the liability carrier) in advance of litigation, or must be resolved in the litigation process, is incidental to the ultimate purpose of protecting the insured from liability for payment under an enforcible (sic) judgment. In consequence, once an accident has arisen there is little or nothing that the insurer or its employees do with respect to an accident report except in contemplation and in preparation for eventual litigation or for a settlement which may avoid the necessity of litigation.” (Kandel v. Tocher, 22 A.D.2d 513, 515, 256 N.Y.S.2d 898; see also, Finegold v. Lewis, 22 A.D.2d 447, 256 N.Y.S.2d 358; Parker v. New York Tel. Co., 24 A.D.2d 1067, 265 N.Y.S.2d 740; Mosier v. Van Der Horst Research Corp., 25 AD2d 938, 270 N.Y.S.2d 3.)

(emphasis supplied) (Lamberson v Village of Allegany, 158 AD2d 943 [1990]).

The Court’s decision in Lamberson was approvingly cited by the Fourth Department as recently as March of 2018 (see Hudson Spec. Ins. Co. v. Haley & Aldrich, Inc., 159 AD3d 1344 [4th Dept., 2018]).

The point is there is no need to even consider whether Jurek’s insurer, SW Marine, was acting under the auspices of anticipation of litigation.  Indeed, for the past 50+ years, the Appellate Courts across this State have held uniformly that is exactly what they are doing.  In Hudson Specialty Ins. Co., the Appellate Division understood that this issue was so self-evident that it did not even require the carrier to produce a privilege log of the materials it refused to provide.  Why?  Because everything absent pleadings and deposition transcripts was prepared for the defense of its insured. 

What is even more troubling is the fact that SW Marine, apparently, has to turn over communications between itself and the insured.  The insured has a contractual obligation to cooperate with the insurance company’s investigation.  Thus, the insured has an obligation to answer questions truthfully and engage in candid exchange of information with her/his/its insurer.  Failure to do so might result in the loss of coverage.

On the other hand, the insurer has a good faith obligation to engage in the defense of its insured.  That includes, where appropriate, engaging in a candid dialogue with the insured to ensure the most vigorous defense possible is secured.

This decision, requiring the disclosure of documentation between the insureds over apparent safety information, puts a decided chill on that relationship not to say the strain it presses on the insurer/insured relationship moving forward.  It is not in line with traditional discovery rules in New York, potentially overturns decades of standing precedent, confuses the distinction between first and third-party claims, and prejudices the defense (and very ability to present a defense) of the alleged tortfeasor.  Be forewarned, and proceed with caution.

Steve
Steven E. Peiper

[email protected]

 

Epidemics are Not New to Us:

The Gazette
Cedar Rapids, Iowa

02 Apr 1921

SERIOUS EPIDEMIC OF DIPHTHERIA IN LETTS

Special to The Gazette.

            MUSCATINE, April 2.—Letts, a small town near here is now in the grip of a diphtheria epidemic of serious proportions.

            Half a dozen cases have been reported to date, and a number of other cases, in which diphtheria is believed to be developing are under observation.  Mrs. Daisy Carnes, county public health nurse, has examined all school children.

            The state board of health is sending a physician to Letts.  He was expected to arrive today and will take a culture of every child’s throat.

 

Wilewicz’ Wide-World of Coverage:

Dear Readers,

Spring has sprung, and yet here in Upstate New York we are experiencing our traditional Spring Whiplash. It was 70 degrees and sunny yesterday, dark and raining today, and tomorrow morning’s forecast is a high of 34 and snow showers. Then, it will be back up to the 60s for the weekend. When we moved Upstate a few years ago from Long Island, we were looking forward to having more distinct and discernible seasons. I had thought that meant three months each of the four seasons. Not all four seasons in the span of one week. Be careful what you wish for, I suppose.

In any event, this week in the Wide World of Coverage, we bring you a lesson in reservations of rights letters in New York, a cautionary tale. In the Second Circuit’s recent Philadelphia Indemnity v. Yeshivat Beth Hillel decision, the carrier did not disclaim coverage per se, but wrote the insured a letter reserving its rights and notifying them that there was a question of coverage and that it may be disclaimed. Without affirmatively calling the letter a disclaimer or using clear language about its intent to deny coverage, the court found the carrier’s letter wanting.

Remember when writing denial letter, you do not have to be profuse in your disclaimer language and you do not have to go above and beyond. But you do need to be clear, at a minimum, the circumstances under which there is no coverage. Calling your letter a Disclaimer, for instance, helps. As does including all relevant policy language, along with a paragraph or two explaining its application to the facts. A disclaimer letter can still disclaim coverage, even if you are assigning a defense to the insured. A “mere” reservation of rights stating that there may not be coverage will likely be rendered an insufficient notice of disclaimer.

Until next time,

Agnes
Agnes A. Wilewicz
[email protected]

 

Yet Another Health Crisis:

Alton Evening Telegraph
Alton, Illinois

02 Apr 1921

SCARLET FEVER HITS MEDORA AND AFFECTS CHURCHES.

Pastor of Baptist Church is First

Quarantined With Epidemic Disease,

The Methodist Pastor

            An epidemic of scarlet fever which made itself felt at Medora a short time ago cut rather a queer caper in that it has affected the churches in the community.  Rev. G.C. Cross, pastor of the Baptist Church has been under quarantine for the past three weeks and was released today, thus freeing the pastor of one church for services Sunday.

            A new angle came up this morning when Rev. S. A. Matthews pastor of the Methodist church was put under quarantine by reason of the illness of eleven year old Ava Matthews who also has scarlet fever.

 

Barnas on Bad Faith:

Check back next time for the latest in sports… and coverage.

Brian
Brian D. Barnas

[email protected]

 

A Hiccup Epidemic as Well?:

Oklahoma Daily Live Stock News
Oklahoma City, Oklahoma

02 Apr 1921

TWO MALADIES HIT NEW YORK

“Hiccups” and Sleep Sickness Baffle Health Offices.

MANY HUNDREDS AFFECTED

Medical Profession at Sea as to Whether Hiccups Are Part of the  Restless Aspect of Sleeping Sickness or a Manifestation of Some New and Independent Germ—There Have Been Hiccup Epidemics for Centuries.

            Besides typhus, New York has been visited by two new and altogether amazing epidemics this year.  One of them is sleeping sickness and the other is that common and heretofore insignificant malady known as “hiccups.”  At least, so they are called, but neither is running true to type, writes Frederic J. Haskin in Chicago News.

            For the sleeping sickness, which is now so prevalent in New York, is not the same as the famous sleeping sickness of Africa, the cause of which is well understood.  Nor is the present epidemic of hiccups in any way related to those gentle attacks occasionally experienced by everyone, more especially since the pocket flask has become so popular.  The new hiccups are singularly malignant and persistent, and are not at all humorous.  They attack their victim every few seconds during the day, and are not always to be suppressed by deep breaths, drinks of water, chunks of bread and other well-known devices.  Sometimes a hiccup spasm lasts for more than an hour, and the hiccup series extends for weeks at a stretch.

 

Off the Mark:

Dear Readers,

The kids are off from school this week.  So far, they have been behaving.  The weather on Long Island has been typical for this time of year, some spring-like days followed by cold, wet, and windy weather.  At least the snow is finally gone.  While I’m not a fan of losing an hour of precious sleep when the clocks change for daylight savings time, I fully enjoy the extra daylight at the end of each day.  A welcome sign that summer is right around the corner.

There were no noteworthy construction defect decisions to report on this edition.  Check back in two weeks.

Until then …

Brian
Brian F. Mark

[email protected]

 

Times Herald
Olean, New York

02 Apr 1921

CARRIED INTO POLICE STATION ON CHARGE OF INTOXICATION—$5

            “With his reservoir filled to overflowing” so that he had to be carried to the police station, Clinton Jones, 25 years old, a laborer of this city, was arrested last night by Officer Scheiterle on a charge of intoxication.  When arraigned before Justice Keating in police court this morning, he pleaded guilty to the offense and was fined $5.

 

Boron’s Benchmarks:

Happy Easter, Happy Passover, Happy Spring, Happy Opening Day, Happy Final Four, and Happy April. So much to be happy about this time of year.  Even hoppy about, too.  May this be the year you win your local Easter egg hunt.  And to those who find holidays to sometimes be overly stressful, there is a sure way to make Easter easier.  Put an “i” where the “t” is.

For 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, I’ve selected for your consideration an Opinion issued on March 24, 2021, by the Supreme Court of North Dakota affirming a declaratory judgment requiring the Pioneer State Mutual Insurance Company personal auto insurance policy issued to Ty Kirby - who while driving his employer’s vehicle collided with another vehicle resulting in a fatality - to nonetheless provide liability insurance coverage to Mr. Kirby for the accident.  The decision turned on whether the policy exclusion set forth in Mr. Kirby’s personal auto insurance policy with Pioneer State Mutual barring coverage for any vehicle “furnished or available for [Mr. Kirby’s] regular use” applied under the facts of the case.  If you’re too busy hunting for Easter eggs to go and read the decision, here’s a one sentence summary.  The North Dakota Supreme Court affirmed the district court’s finding that the regular use exclusion did not apply to bar the liability coverage set forth in Mr. Kirby’s personal auto insurance policy with Pioneer State Mutual.

Have a healthy and hoppy next two weeks, folks.

Eric
Eric T. Boron

[email protected]

 

Syracuse Dean Murdered by Disgruntled Faculty Member:

The Buffalo Times
Buffalo, New York

02 Apr 1921

WHARTON KILLED BY TEACHER, WHO COMMITS SUICIDE

Brooding Over Dismissal at End of Year Believed Prompted Beckwith’s Act.

UNPOPULAR WITH STUDENTS

Murdered Man Evidently Gave His Life in Trying to Prevent Suicide.

            SYRACUSE, April 2.—John Herman Wharton, dean of the College of Business Administration, Syracuse University, was shot and killed by Holmes Beckwith, professor of financial and insurance subjects, in the college this morning.  Beckwith then turned the gun on himself and committed suicide.

            The shooting occurred in the office of the school of administration in the College of Agriculture Building, the new half million dollar structure donated to the university by Mrs. Russell Sage in memory of her father, Joseph Slocum, and named for him.

Removal Had Been Asked.

            Professor Beckwith had been unpopular with the students and petitions had been circulated among the student body asking his removal.

            In a statement issued soon after the shooting.  Chancellor Day declared that it was his belief that Dean Wharton died trying to prevent Professor Beckwith from committing suicide.

            “This was indicated in a note left for Dean Wharton by Professor Beckwith,” said the chancellor, “in which he intimated that he was going to kill himself and referred to alleged unjust treatment of himself based on the fact that he had been dismissed, the dismissal to take effect at the end of the year.  Dean Wharton’s chair, a stout one, was broken.  He evidently leaped from it when Beckwith tried to kill himself, the gun was turned on him and the dean was shot through the head.  Beckwith was shot in the chest.  He also stabbed himself to make death certain.”

 

Ryan’s Capital Roundup:

Hello Loyal Coverage Pointers Subscribers:

There is something about this time of year that is special. Some may think it’s the weather finally turning for the better. Others may think its Dyngus Day (it’s a big deal in Buffalo). Me? It’s the sports stars aligning—March Madness, Opening Day, Draft Day. Spring is a tradition like no other when you’re a sports fan…well, until Fall. That’s Bills Season.

This week’s legislative list includes a recent law enacted to provide additional access to and reduce the premium costs of commercial automobile group fleet policies for for-hire motor vehicles transporting passengers of eight or more. Additionally, under the Regulatory Wrap-up, we outline newly proposed, first of their kind guidelines for insurer navigation of the risks associated with climate change, requiring insurers to look within to ensure financial and operational stability, long term.

Until next time,

Ryan
Ryan P. Maxwell

[email protected]

 

KKK in Texas – 100 Short Years Ago:

The Buffalo Times
Buffalo, New York

02 Apr 1921

SYMBOLS OF THE KLAN BURNED ON VICTIM’S HEAD

Later Release on Main Street of Dallas as Warning to Other Negroes.

KIDNAPPERS HOLD TRIAL

Said to Have Confessed to Being With White Woman in  Room at Hotel

By United Press

            DALLAS, Tex., April 2—Fifteen masked men early today seized Alex Johnson, negro, alleged to have been found in a white woman’s room at a hotel and carried him out of the city.  After horse-whipping and branding onto his forehead the symbols of the Ku Klux Klan, they released him on a main street in Dallas, as a warning to other negroes.

            The symbols “K.K.K.” were painted on the negro’s forehead with acid after he was lashed with a blacksnake.  Upon being released near the hotel in which he alleged offense was committed he was told to tell other employees what had happened to him.

            Fred S. Ball and Paul Jones, two newspapermen, were kidnapped by the masked men, blindfolded, taken along with the crowd in autos and commanded to act as press agents for the affair.

 

CJ on CVA and USDC(NY):

Hello Readers,

As all good things come to an end, so does the Lenten fish fry season. After my very scientific experiment, I’ve deemed the Irishman in Williamsville to have the best fish fry in Western New York. I plan to continue this survey next year, adding more eateries as I go. Stay tuned here for more culinary news, and perhaps I’ll take on the famous beef on weck as my next test?

In coverage news, I bring you a case from the Southern District with two interesting issues. Must a court look at all relevant insurance policies when assessing coverage for a construction accident? And if a policy affords coverage to additional insureds, and one of those insureds breaches the policy conditions, is coverage barred for all insureds? Read on to find out.

See you in two weeks,

CJ
Charles J. Englert, III
[email protected]       

 

For Those Who Want to be Manly Men:

Buffalo Courier
Buffalo, New York

02 Apr 1921

MEN made manly; all wasting, chronic and special diseases, both sexes, skin, nerves, rheumatism, indigestion, kidney and bladder; 37 years’ experience; if you are discouraged, come to me; consultation free and invited; charges moderate. 

Dr. McClellan, 36 West Huron, corner Pearl St.

 

Dishing Out Serious Injury Threshold:

Dear Readers,

Happy Easter and Joyous Passover to all who celebrate. As Winter has come to a close and Spring is upon us, I am eager to get out of the house. Hope everyone gets to enjoy the nice weather and the loosening restrictions but still is safe in the coming months.

In the Serious Injury Threshold world, we have a case from the First Department. The case addresses a plaintiff’s expert who fails to opine as to plaintiff’s documented pre-existing lumbar injuries, which precludes plaintiff from raising a triable issue of fact as to causation.

Be well,

Michael
Michael J. Dischley
[email protected]  

 

Judges’ Pay Doubles:

The Ithaca Journal
Ithaca, New York

02 Apr 1921

Miller Signs Bill to Increase Judge’s Pay

            Albany, N. Y., April 2—County judges, who hold court in a county other than their own, will received $20 a day in the future.  Governor Miller today signed the McGinnies bill, authorizing an increase of from $10 to $20.

 

Bucci on “B”: 

Hi folks.  No Coverage B cases this issue.  Instead, I pretended I was Lee Siegel  and did a Connecticut Chronicles case.  Now I’m not as funny or as smart as Lee, but…well, he’ll be back next issue.  In the meantime, I hope all is well with our friends and colleagues, and their families.  It looks like we might be coming out of the winter just in time for everyone to get vaccinated and be free for the summer.  I’m getting my second on Monday and you know what I’m looking forward to?  Cinco de mayo and fresh margaritas in a real live indoor restaurant! It’s the little things.  

Diane
Diane L. Bucci

[email protected]

 

Ways to Personalize One’s Car:

The Buffalo Times
Buffalo, New York
02 Apr 1921

MONOGRAMS ON AUTO DOORS PROVE POPULAR WITH MOTORISTS

            Nothing adds to the attractiveness of a motor car as having the owner’s monogram or initials neatly painted on the doors of the automobile.  Many of the larger cars in Buffalo bear the initials of the owner neatly done in attractive styles on the doors.  This looks especially attractive on a sedan or closed car but the practice is growing of having the monogram put on touring cars and two passenger automobiles.

            Much of the finer work along this line is done by Chambron, Triepel & Boore, automobile painters.  John T. Triepel is a well-known local artist who has made a specialty of this lettering and his work is distinctive in every instance.

            The other two members of the firm, Anthony J. Chambron and Edward Boore, are experts in automobile painting and they said today that there is no better time than the present spring season to have your automobile improved by a new coat of paint.

            Mr. Chambron was for three and half years employed at the Pierce-Arrow plant and was formerly with Willoughby Co., of Utica, N.Y.  He was also head of Chambron, Inc., in West Utica Street but growing business forced him into larger quarters and the new firm is now located at No. 1750 Main Street.  The telephone number is Oxford 5674.

 

Lee’s Connecticut Chronicles:

Dear Nutmeg Newsies:

This Edition of Coverage Pointers we have a special treat for you—my Connecticut partner, Diane Bucci, is our guest columnist for the Connecticut Chronicles. I wonder what Diane has in store for us.

In other Connecticut news, we just spent another Passover in quarantine. Unlike last year, it was warm, and we were ready for it. With a beautiful 75-degree sunny day, we did a backyard cookout with about a dozen guests. So, it wasn’t brisket and matzah ball soup, but it was community. Maybe instead of setting our sites on next year in Jerusalem, maybe next year we can simply sit around the dining room table without worrying we’re going to get each other sick. That would be nice.

Be smart and stay safe.

Lee
Lee S. Siegel

[email protected]       

 

Heroic Boy Scout:

The Bend Bulletin
Bend, Oregon
02 Apr 1921

BOY SCOUT SAVES TOT FROM DEATH

(By United Press to The Bend Bulletin.)

            NORTH BEND, Ore., April 2.—Jimmy Dingman, boy scout, is a real hero today.  Jimmy plunged into the bay and saved three year old Theresa Bacon from drowning last night.  The tot had fallen through a hole in the wharf.

Editor Note:  I wondered what happened to Theresa Bacon, thereafter (couldn’t find much) and her, Jimmy Dingman.  Jimmy ended up as a minister, perhaps this even was life-altering.  Here is his obit, in 1980:

The World
Coos Bay, Oregon

18 Apr 1980

James Dingman

            Memorial services for the Rev. James Dingman, 73, a former Bay Area resident, have been held in Mesa, Ariz.

            Mr. Dingman was born May 13, 1906, in North Bend and died April 12 in Mesa.

            He attended local schools, and graduated from North Bend High School in 1927.  In August 1928, he married Vera Pratt and moved to Mesa, where he pastored a local church.  In 1954, he founded a children’s home, and he and his wife over the years cared for 770 boys and girls.

            Survivors include his widow, Vera; sons, Jim Jr. and Charles; daughters, Priscilla Getters, and Carol Whitworth, all of Mesa; son, Roland of California; sisters, Lillie Alexander of Winston, Jessie Green of mesa, Albie Decker and Aldie Prowell, both of North Bend; 14 grandchildren and seven great-grandchildren.  

 

Rauh’s Ramblings:

Hi Readers:

The work just keeps coming in lately and we have all been super busy over here!  In my spare time, however, I have been in the process of redecorating my soon-to-be three-year-old’s bedroom.  He said he wanted a “big boy room”, which means taking away the baby animal décor and replacing it with various dinosaurs and trucks.  Putting together his new twin bed has taken much longer than I would like to admit and once it is finally put together, I may never pick up a screwdriver or hammer again!

Unfortunately, I did not find any noteworthy decisions coming out of the Appellate Courts or the Court of Appeals in the past couple weeks pertaining to the life insurance issues I typically discuss.  Check back next issue!

Take care,

Patty
Patricia A. Rauh

[email protected]       

 

A Shocking Verdict:

Akron Beacon Journal
Akron, Ohio

02 Apr 1921

Smile of 13-Year-Old Boy Worth $20,000 Rules “Show Me” State Jury

Kansas City, MO, -- the smile of a 13-year-old boy is worth $20,000, according to a verdict returned here late today by a jury in circuit court.  A jury awarded that amount of damages to James Godfrey a school boy, in a verdict against the Kansas City Light and Power Company.

Godfrey, while attending a picnic in August 2019, climbed a tree and was severely burned by a wire which the company had strung through the tree.  The burns distorted his face muscles and he lost the power to smile.

The jury announced its verdict was based on the loss of smiles.

Editor’s Note:  The matter was appealed to the Supreme Court of Missouri, that confirmed the negligence of the power company on an “attractive nuisance” cause of action but reduced the verdict to $15,000.

 

Storm’s SIU Examen:

Hi Everyone:

Does Executive Order 202.8, “Continuing Temporary Suspension and Modification of Laws Relating to the Disaster Emergency”, create a “toll” or a “suspension” of certain legal time limitations and what is the distinction? In a nut-shell, this Executive Order stayed the time deadlines for, among other things, the commencement and filing of legal actions as prescribed by the procedural laws of the State.  Although there has been dueling commentary analyzing the issue, we are beginning now to see decisional law addressing it.  In this edition of the SIU Examen I have included two recent decisions which both opine that the Executive Order “says what it means and means what it says” – it’s a toll. Although the Federal Court punts on the issue of whether the Governor has the authority to enact a toll, the Court of Claims concludes he does.

I have also included two more case wins for insurers in first-party property pandemic claims – one in Pennsylvania and one in New York.  As recognized by these Judges, nearly every court to address these issues have concluded that loss of use of a premises due to a governmental closure order does not trigger business income coverage.  These decisions agree with the great weight of authority and find that the plaintiffs cannot state a claim due to the clear and unambiguous language of the policies.

This edition’s encouraging word: “Success is not final; failure is not fatal; it is the courage to continue that counts”.  ~ Winston Churchill

If you and I are not yet friends on LinkedIn, please send me a connection request.

I look forward to speaking with you regarding any challenging coverage issues you are evaluating.  Call me anytime at (716) 220-1478.  Talk to you soon!

Scott
Scott D. Storm

[email protected]

 

Headlines from this week’s issue, attached:
 

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

  • Court Permits Claw Back of Privileged Records

  • Split Panel Refuses to Reform Policy without Evidence of Mutual Mistake

  • New York State Court Issues Pre-Answer Dismissal and Summary Judgment on COVID-19 Business Interruption Claim Under Policy That Included Plainly Worded Virus Exclusion

  • Anti-subrogation Bars an Action by One Insured Against Another Only Where the Same Insurer Agrees to Indemnify – Not Just Defend -- Both

  • Failure to Present Contract Documents and Policy Dooms Contract and Policy Defenses on Motion for Summary Judgment

  • If Dead at Policy Inception, Residence Cannot be Established.  Policy Voided

  • First Department Affirms That Insurance Law § 3420(d) Is Not A “Technical Trap” To Create Coverage

 

PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper

[email protected]

  • Indemnity and Insurance Procurement Provisions Specifically Incorporated from the Prime Contract are Enforceable

  • Claim of Attorney Bribe to Non-Party Witnesses Survives Motion to Dismiss

  • Question of Fact on Application of Emergency Doctrine for Jaywalking Pedestrian

  • Defendant’s Insurer Ordered to Disclose Confidential Claims File

 

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

  • Plaintiff Expert Failed to Address Pre-Existing Lumbar Spine Injuries Thereby Precluding Summary Judgment on Lumbar Spine Claims

 

WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz

[email protected]

  • Second Circuit Finds Coverage Letter that was Just a Reservation of Rights, Did not Adequately Disclaim Coverage

 

BARNAS ON BAD FAITH
Brian D. Barnas

[email protected]

  • Check back next time for the latest from the sports desk.

 

LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel

[email protected]

  • Nolo contendere, What Say You Supremes?

  • Nolo contendere.  Please Supremes?

 

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

  • No Coverage B cases here.

 

OFF THE MARK
Brian F. Mark
[email protected]

  • No interesting construction defect cases to report on this edition.  Check back next edition.

 

BORON’S BENCHMARKS
Eric T. Boron

[email protected]

  • Auto Insurance – Regular Use Exclusion Not Applicable

 

RYAN’S CAPITAL ROUNDUP
Ryan P. Maxwell

[email protected]

Legislative List

  • Law Serves as Compromise to Provide Affordable and Accessible Commercial Auto Insurance Meeting New York’s Statutory Minimums

 

Regulatory Wrap-Up

  • Proposed Guidance Outlines Expectations that Insurers Integrate Climate Risks into Governance Frameworks, Risk Management, and Business Strategies

 

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

[email protected]

  • Courts Must Take into Account All Insurance Policies at Issue When Determining Priority of Coverage, and That the Difference Between “The” Insured and “Any” Insured has Substantial Consequences

 

RAUH’S RAMBLINGS
Patricia A. Rauh

[email protected]

  • No noteworthy life insurance/elder law-related cases to report on this week.  Check back next time!

 

ruMIRNAtions
Mirna. M. Santiago

[email protected]

  • Diversity in Corporate Governance of Insurance Companies

 

STORM’S SIU EXAMEN
Scott D. Storm

[email protected]

  • Executive Order 202.8, “Continuing Temporary Suspension and Modification of Laws Relating to the Disaster Emergency”, Creates a “toll” not a “suspension”.  This Federal Court Punts on the Issue of Whether the Governor has the Authority to Enact a Toll

  • Executive Order 202.8, “Continuing Temporary Suspension and Modification of Laws Relating to the Disaster Emergency”, Creates a “toll” not a “suspension” and the Governor has the Authority to Enact a Toll

  • Another Pennsylvania First-Party Property Pandemic Win

  • Another New York First-Party Property Pandemic Win

 

Stay healthy; get vaccinated.  We love your calls and letters.

Dan

 

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 Connecticut.

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


NEWSLETTER EDITOR
Dan D. Kohane

[email protected]

ASSOCIATE EDITOR
Agnes A. Wilewicz

[email protected]

ASSISTANT EDITOR
Patricia A. Rauh

[email protected]

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

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

Michael F. Perley

Agnieszka A. Wilewicz

Lee S. Siegel

Brian F. Mark

Diane L. Bucci

Mirna Martinez Santiago

Scott D. Storm

Brian D. Barnas

Eric T. Boron

Ryan P. Maxwell

Charles J. Englert

Patricia A. Rauh

Diane F. Bosse

Joel R. Appelbaum

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

Michael F. Perley

Scott D. Storm

Eric T. Boron

Brian D. Barnas

NO-FAULT/UM/SUM TEAM
Dan D. Kohane
[email protected]

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

Mirna Martinez Santiago

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

Barnas on Bad Faith

Lee’s Connecticut Chronicles

Off the Mark

Boron’s Benchmarks

Bucci on “B”

Ryan’s Capital Roundup

CJ on CVA and USDC(NY)

Rauh’s Ramblings

ruMIRNAtions

Storm’s SIU Examen

 

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

04/01/21       Enterprise Arch. Sales, Inc., v. Magnetic Builders Group, LLC
Appellate Division, First Department
Court Permits Claw Back of Privileged Records

Counsel inadvertently turned over records that were subject to privilege and promptly tried to claw them back.  Opposing counsel objected, asserting that they were relevant.

Court finds that the relevance of a privileged document to the merits of the litigation does not automatically make it fair game in the event it was inadvertently disclosed. The proper inquiry is whether the act of restoring immunity to an inadvertently disclosed document would be unfair to the party in receipt of the material under the facts of each case. Under the facts of this case, there would be no prejudice by the grant of the protective order.

 

04/01/21       Hilgreen v. Pollard Excavating, Inc.
Appellate Division, Third Department
Split Panel Refuses to Reform Policy without Evidence of Mutual Mistake

In June 2016, plaintiff allegedly sustained personal injuries when he fell while descending an exterior staircase outside of his apartment located in Albany County.  He sued the Pollards who own plaintiff's apartment complex and operate the Homefront Cafe on the lower level of the building/ 196 Main Street. Plaintiff also named defendants Pollard Excavating, Inc. and Pollard Disposal Service Inc., each of which are companies owned and operated by the Pollards.

After the action was commenced, the Pollards sought liability coverage from third-party defendant Central Mutual Insurance Company under an insurance policy issued to Pollard Excavating and sought liability coverage from third-party defendant National Interstate Insurance Company under a policy issued to Pollard Disposal. Both Central Mutual and National Interstate disclaimed coverage on the ground that the Pollards were not named insureds under the respective policies.

Pollards sued the carrier and the insurance agency that procured the policy. The Pollards then sued Central Mutual for reformation of the insurance policy contract between Central Mutual and Pollard Excavating to include the Pollards as insureds.

The party seeking reformation bears the burden to show "by clear and convincing evidence, that the writing in question was executed under mutual mistake or unilateral mistake coupled with fraud and to demonstrate in no uncertain terms, not only that mistake or fraud exists, but exactly what was really agreed upon between the parties

The pleadings failed to contain any factual allegations that Central Mutual agreed to provide coverage to the Pollards in their individual capacities or that any oral agreement was reached by which Central Mutual was obligated to do so. We therefore find that the second amended third-party complaint fails to allege with sufficient particularity that the parties "reached an oral agreement and, unknown to either [party], the signed writing does not express that agreement.  No reformation although two judges dissented, so the case will likely get Court of Appeal review.

 

03/31/21          Mangia Restaurant Corp. v. Utica First Ins. Co.
Queens County Supreme Court
New York State Court Issues Pre-Answer Dismissal and Summary Judgment on COVID-19 Business Interruption Claim Under Policy That Included Plainly Worded Virus Exclusion

In the most recent COVID-19 business interruption decision in New York, a New York State Supreme Court Judge in Queens County provided a detailed analysis in dismissing an insured’s claim for business interruption coverage under an insurance policy that plainly excluded viruses.

Utica First Insurance Company (“Utica First”) issued an insurance policy to Plaintiff, Oveila d/b/a Mangia Restaurant Corp. (“Mangia”), effective December 16, 2019 through December 16, 2020 which covered Mangia’s restaurant.

This matter involved Mangia’s loss of income suffered as a result of the effects of the COVID-19 virus, and various Executive Orders, issued by the Governor of New York State, for the purpose of containing the virus. Mangia asserts that such Executive Orders restricted it "from operating its business in the usual manner causing a loss of income it would otherwise have received in absence of the Orders." In early May 2020, Mangia notified Utica First of its claim, under the policy, for loss of income. Days later, Utica First disclaimed coverage.

On August 17, 2020, Mangia filed suit against Utica First, alleging a breach of contract action for damages, and seeking a declaration that Utica First was required to provide coverage for Mangia’s losses under its “Business Income”, “Civil Authority” and “Extra Expense” coverages.

Prior to answering, Utica First filed a motion to dismiss the complaint, requesting that it be treated as a motion for summary judgment pursuant to CPLR §3211(c). Expressly, Utica First sought a judicial declaration that it has no duty to provide insurance coverage for the above claim, because

  1. the subject insurance policy does not cover such loss;

  2. there was not any physical loss or damage to real property involved in plaintiff's claim, as required by the insurance policy;

  3. any civil authority loss was a result of COVID -19; and

  4. such virus is specifically excluded from coverage in the policy.
     

The court indicates that Utica First’s submission of the insurance policy was documentary evidence that was undisputed authenticity, unambiguous and undeniable. Further, the court notes that although extrinsic evidence of party intent is permissible where a contractual agreement is ambiguous, here “[t]he relevant portions of this insurance policy are clear and unambiguous in their wording.”

The terms of the instant insurance policy state, in pertinent part, that it covers a “loss of income” when “business is necessarily interrupted by loss or damage to real or personal property caused by a peril covered during the policy period." Said policy contains two exclusions in this regard: (1) “We do not cover loss caused by order of any civil authority,” and (2) “We do not pay for loss, cost, or expense caused by; resulting from, or relating to any virus, bacterium, or other microorganism that causes disease, illness, or other physical distress or that is capable of causing disease, illness, or physical distress.” Further, the policy provides that “This exclusion applies to, but is not limited to, any loss, cost, or expense as a result of any denial of access to property because of any virus, bacterium, or other microorganism." Such unequivocal exclusions apply to any contamination by any virus, and any denial of access to property due to any virus.

The court relied upon pre-COVID-19 caselaw in New York, including Roundabout Theatre Co., Inc. v Continental Cas. Co., 302 AD2d 1, 6 [2002] and Newman Meyers Kreines Gross Harris, P.C. v Great Northern Ins. Co., 17 F.Supp.3d 323 [2014], which held that there could be no recovery for lost business income/extra expense" absent a showing of any "direct physical loss or damage," stating that "the language in the policy clearly and unambiguously provides coverage only where the insured's property suffers direct physical damage" Applying those cases, the court provides that “[s]uch policy terms ordinarily connote actual, demonstrable, physical harm of some form to the premises itself, rather than damages merely consequential to a forced closure or business interruption, as claimed herein,” and further that “[a] mere loss of use was insufficient to trigger coverage under such policy terms.”

Further, in the COVID-19 business interruption context, the court notes that other New York courts have held that “actual physical damage is required before business interruption insurance coverage is paid.” (see Sharde Harvey, DDS, PLLC v Sentinel Ins. Co., 2021 WL 1034259, U.S.D.C., S.D.N.Y., March 18, 2021.No. 20-cv-3350 [PGG RWL]; Food for Thought Caterers Corp. v Sentinel Ins. Co., 2021 WL 860345, U.S.D.C., S.D.N.Y., March 6, 2021, No. 20-cv-3418 [JKG]; Alexandre B. Demoura, M.D. v Continental Casualty Co., 2021 WL 848840, U.S.D.C., E.D.N.Y., March 5, 2021, No. 20-cv-2912 [NGG SIL]; 10012 Holdings, Inc. dba Guy Hepner v Sentinel Ins. Co., Ltd., 2020 WL 7360252, U.S.D.C., S.D.N.Y., December 15, 2020, No. 20-cv-4471 [LGS]).

Here, Mangia failed to demonstrate that the alleged "damage" was a result of a covered peril, because it wasn't. The policy contained a specific "virus exclusion," and both sides agree that COVID-19 is a “virus.”

Additionally, the claim that Mangia suffered “actual damage” because the virus germs settled on the fixtures and food at the restaurant, and they were forced to “clean surfaces” of virus contaminants, was found to be without merit. On the contrary, the “direct physical damage or loss” criteria of the subject policy was not triggered by such actions.

Further, Mangia’s claim that COVID-19, a harmful and unwanted substance, entered its premises and made it impossible to use, was not borne out by any proof that COVID-19 was ever found on the premises. Thus, there was no reason to assert that the virus contaminated, or “damaged,” anything at the property, let alone made it uninhabitable. Therefore, any claim for “loss” of the insured property is unavailable to plaintiff. In fact, the court notes that “[e]ven had there been proof that the virus ‘physically attached to the property,’ as alleged, that would not have constituted the direct, physical loss or damage required to trigger the policy coverage, because such presence can be eliminated by ‘routine cleaning and disinfecting,’” citing Tappo of Buffalo, LLC v Erie Ins. Co., 2020 WL 7867553, at *4. Even if the virus had been present on plaintiffs property, any business income losses were caused by the precautionary measures taken by the State to prevent the spread of COVID-19, rather than by direct physical loss of, or damage to, the property.

Rejecting Mangia’s claim that the actions of a "civil authority ... prohibited its access to the premises," the court notes that “[a] limitation of use is not the equivalent of a ‘prohibition of access.’” Therefore, an essential element of the civil authorization coverage had not been demonstrated.

Also, Mangia’s contention that the risk of COVID-19 being physically present in neighboring properties “caused” the State authorities to prohibit access to plaintiff's property, was without merit, since there was no allegation that the potential presence of Covid-19 in neighboring properties directly resulted in the closure of Mangia’s property. Rather, its alleged that the “closure” was the direct result of the risk of Covid-19 at plaintiff's property.

Adopting language verbatim from Michael Cetta, Inc. v Admiral Indem. Co., 2020 WL 7321405, at *6-7, the court supports its grant of summary judgment to Utica First as the majority rule nationwide, as well as under New York law:

"As a result of COVID-19 closure orders throughout the country, many businesses have brought lawsuits claiming entitlement to coverage under provisions materially similar to those at issue in Roundabout Theatre, Newman Meyers, and here. And nearly every court to address the issue has concluded that loss of use of premises due to a governmental closure order does not trigger business income coverage premises on physical loss of property.”

Editor’s note:  Thanks to Ryan Maxwell for the summary and congrats to Audra Zane from Farber Brocks & Zane, L.L.P. for her victory in this case.

 

03/25/21       Goya v. Longwood Housing Development Fund Company
Appellate Division, First Department
Anti-Subrogation Bars an Action by One Insured Against Another Only Where the Same Insurer Agrees to Indemnify – Not Just Defend -- Both

Subcontractor Melcara argues that contractor Longwood's claims for contractual indemnification should have been dismissed under rules of anti-subrogation. It is undisputed that Melcara's insurance carrier is providing Longwood with a defense in this action. Less clear is whether the insurance company has agreed to indemnify Longwood, up to the limits of the policy. Anti-subrogation would bar Longwood's claim for contractual indemnity if both Longwood and Melcara in its capacity as an additional tortfeasor qualify as insureds under the same policy at least up to the limits of the policy.

This rule applies even though Melcara has expressly agreed to indemnify Longwood for the loss.  There is no proof in the record thatx Melcara's insurer has agreed to indemnify Longwood's losses. Contrary to Melcara's argument, merely providing a defense does not necessarily carry with it an agreement to indemnify.

 

03/24/21       Crutch v. 421 Kent Development, LLC
Appellate Division, Second Department
Failure to Present Contract Documents and Policy Dooms Contract and Policy Defenses on Motion for Summary Judgment

Crutch, an HVAC mechanic employed by Metropolis, fell from an elevated platform at the job site. He brought negligence and Labor Law claims against the owner and others and they brought a third-party action against, among others, Centrifugal. Against Centrifugal, the defendants alleged causes of action for, inter alia, contractual indemnification and to recover damages for breach of contract.

Following discovery, Centrifugal moved for summary judgment, seeking dismissal of contractual liability claims. The right to contractual indemnification depends upon the specific language of the contract.  The promise to indemnify should not be found unless it can be clearly implied from the language and purpose of the entire agreement and the surrounding circumstances.  A party that moves for summary judgment dismissing a cause of action for contractual indemnification must make a prima facie showing that it was not contractually obligated to indemnify the party asserting the indemnification claim.

Here there was some language in the subcontract that referred to certain contract documents, including one titled "Subcontractor's Indemnification and Insurance Requirements," which were explicitly incorporated by reference into the Centrifugal contract.  So there was a question of fact here.

A provision in a construction contract cannot be interpreted as requiring the procurement of additional insured coverage unless such a requirement is expressly and specifically stated. In addition, contract language that merely requires the purchase of insurance will not be read as also requiring that a contracting party be named as an additional insured. Centrifugal failed to submit contract documents to eliminate a triable issue of fact as to whether these contract documents contained provisions requiring it to obtain specific liability coverage for the benefit of the defendants and it failed to submit the policy.

 

03/23/21       Integon National Insurance Company v. Zhong Shen Lin
Appellate Division, First Department
If Dead at Policy Inception, Residence Cannot be Established.  Policy Voided

The plain language of the policy and the affidavit submitted established prima facie entitlement to summary judgment because the decedent was not alive when the policy was issued, the policy was issued to a deceased person.  The definition of an insured or that the subject premises constituted a "residence premises" or an "insured location," coverage was void from the outset and the disclaimer was not necessary.

 

03/12/21       Houston Casualty Co. v. Cavan Corporation of NY, Inc.
Appellate Division, First Department
First Department Affirms That Insurance Law § 3420(d) Is Not A “Technical Trap” To Create Coverage

On March 11, 2021, the Appellate Division, First Department reaffirmed law in New York holding that Insurance Law § 3420(d) is not to be used as a “technical trap” to create coverage under an insurance policy. In Houston Cas. Co. v. Cavan Corp. of NY, Inc., et al., Trial Court Index No. 651981/2014, Appellate Division Case No. 2019-5512, New Puck LLC, Puck Residential Associates, LLC, and Kushner Companies, LLC (“Puck/Kushner”), owned a New York City construction project and claimed that they were entitled to coverage as additional insureds under the Houston Casualty policy for a personal injury accident at the project.

Houston Casualty denied the claim, arguing that a construction management for a fee exclusion barred coverage since the insured engaged in construction management activities. In June 2014, Houston Casualty commenced a declaratory judgment action against the named insured, and the parties moved for summary judgment. In June 2015, Puck/Kushner moved to intervene, which the trial court granted. Puck/Kushner filed summary judgment papers arguing that the exclusion did not apply, but the trial court ruled there were questions of fact, denied the motions, and the parties appealed.

On appeal, the First Department ruled for Houston Casualty and enforced the exclusion to bar coverage. Two days after that decision, Puck/Kushner moved for summary judgment, this time arguing that Houston Casualty waived the right to assert the exclusion because it did not timely deny coverage to Puck/Kushner within 30 days pursuant to Insurance Law § 3420 (d). The trial court ruled for Houston Casualty and Puck/Kushner appealed.

At the oral argument, Puck/Kushner argued that Houston Casualty’s disclaimer was untimely because the initial tender – on April 9, 2014 – was only by Kushner Companies, not the other entities, and Houston Casualty only denied coverage to Kushner Companies within 30 days on May 8, 2014. Houston Casualty responded that the denial was to “Kushner Companies and their affiliates,” asserted the exclusion, and was sent within 30 days to Puck/Kushner. Further, Houston Casualty pointed to subsequent filings by Puck/Kushner on their initial motion to intervene where they argued that they needed to intervene to protect their interests as alleged additional insureds because they initially tendered to Houston Casualty on April 9, 2014, Houston Casualty denied coverage to them on May 8, 2014, and Houston Casualty’s declaratory judgment complaint sought a declaration of no coverage against “anyone.

The First Department ruled in favor of Houston Casualty, rejecting all of Puck/Kushner’s arguments. The Court found that Puck/Kushner “are attempting to use Insurance Law § 3420(d) as a ‘technical trap that would allow [them] to obtain more than the coverage contracted for under the policy.’”  Specifically, the Court found that Puck/Kushner’s proposed answer in support of their motion to intervene asserted that Houston Casualty had “wrongfully rejected” their April 2014 tender within 30 days, and that Houston Casualty’s May 2014, disclaimer letter to “Kushner Companies and their affiliates” applied to each of the alleged additional insureds.”

In sum, the First Department refused to allow Puck/Kushner to twist Insurance Law § 3420(d) to create coverage where the exclusion at issue had already been ruled upon in Houston Casualty’s favor.

Editor’s note:  Houston Casualty was represented by Aidan M. McCormack and Cyril E. Smith of DLA Piper, LLP and we congratulate DLA Piper, and thank Mr. McCormack, for this summary.

 

PEIPER on PROPERTY (and POTPOURRI)
Steven E. Peiper

[email protected]

03/25/21       Shala v. Park Regis Apartment Corp.
Appellate Division, First Department
Indemnity and Insurance Procurement Provisions Specifically Incorporated from the Prime Contract are Enforceable

Plaintiff was employed by ASA to perform construction work at a building owned by Park Regis.  Park Regis did not have a contract with ASA, and it appears that ASA was actually retained by non-parties who were lessees at the building.  However, the lessees/ASA contract specifically provided that it incorporated the indemnity and insurance procurement provisions of the Alteration Agreement between Park Regis and the lessees.  In addition, ASA’s project manager acknowledged that he was aware that ASA was bound by the terms of the incorporated Alteration Agreement; including the duty to procure insurance for, and provide indemnity to, Park Regis.

Nevertheless, summary judgment on indemnity was improper because the relevant indemnity provision contains a “negligence trigger.”  Issues of fact exist as to ASA’s potential negligence.
 

03/25/21       The United States Life Ins. Co in NYC v. Horowitz
Appellate Division, First Department

Claim of Attorney Bribe to Non-Party Witnesses Survives Motion to Dismiss

Plaintiff, US Life, commenced the instant action asserting causes of action for fraudulent inducement, conspiracy to commit fraudulent inducement and for violations of Judiciary Law § 487. Defendants moved to dismiss all counts.

With regard to the fraudulent inducement claims, plaintiff pointed to inconsistencies in defendant’s story which were allegedly manifest in a videotaped statement.  However, to prove a claim for fraudulent inducement, US Life needed to demonstrate that there were misrepresentations made, the misrepresentations were false, that the misrepresentations were made to induce reliance from the unsuspecting party, and the target relied upon the knowingly false misrepresentations. Here, the Record before the court established that US Life was aware of the alleged inconsistencies prior to entering into settlement.  As such, it could not claim they were induced by misrepresentations which they knew, or could have known, about prior to resolving the claim.

With respect to the Judiciary Law claim, it was directed at defendant’s counsel.  Section 487 provides a means to impose pecuniary penalties on an attorney who “is guilty of any deceit or collusion…with intent to deceive the court.”  Plaintiff’s allege that counsel bribed a non-party witness with cash and a Rolex watch to provide a favorable statement.  That statement was then allegedly presented to US Life for purposes of bolstering plaintiff’s position in settlement discussions.  This allegation, if true, would certainly give rise to a potential claim, and thus the Court agreed that the claim would survive defendant’s motion.

Further, the Court also noted that because the potential attorney misconduct was “a separate fraud from the subject release,” it was not precluded by the ultimate settlement.  On that basis, the Section 487 claim was permitted to proceed.  

 

03/24/21       Allen v. New York City Transit Authority
Appellate Division, Second Department

Question of Fact on Application of Emergency Doctrine for Jaywalking Pedestrian

Plaintiff was struck by a NYC bus after stepping out from behind an illegally parked vehicle in the opposite lane of travel.  NYC opposed plaintiff’s claims by arguing that it should be exempted from liability by operation of the emergency doctrine.  The trial court denied NYC’s motion, and this appeal ensued.

The Appellate Court reiterated the standard for the “emergency doctrine” noting it applies “when an actor is faced with a sudden and unexpected circumstance which leaves little or no time for thought…[so]…that the actor must make a speedy decision without weighing alternative courses of conduct...”  Here, the court found that the question of the bus driver’s actions should be left to the jury’s deliberations.  While it did not dismiss NYC’s emergency doctrine defense, it reasoned a question of fact existed as to whether the plaintiff’s presence in an unmarked crosswalk should have reasonably been anticipated under these circumstances. 

 

03/19/21       Zimmerman v. Jurek Builders, Inc.
Appellate Division, Fourth Department

Defendant’s Insurer Ordered to Disclose Confidential Claims File;  Thousands Flee.

This decision is only three sentences long, and only advises that Southwest Marine General Insurance company is required “to disclose certain documents.” The Court then adopts the reasoning of the Trial Court’s decision.

What this decision means, however, has much more significant implications.

The dispute in this case was over documents maintained in the claims file of SW Marine.  SW Marine is the insurer for defendant, Jurek Builders.  Plaintiff sought discovery of a 16 page report prepared by an insurance investigator and 2 pages of correspondence exchanged between SW Marine and Jurek prior to the commencement of the instant lawsuit. 

Upon review in camera review, the trial court ruled that the material requested was prepared, in part, to investigate the claim and for “safety purposes.” As such, it was determined that the documents were created in the regular course of business of the insurance company, and not solely for purposes of litigation.  Having concluded the reports were “mixed use” in nature (i.e.., both investigative and for purposes of litigation), the trial court concluded that the documents were not exempt from disclosure. 

Peiper’s Point – We are concerned by this decision.  Admittedly we don’t know what the report in question actually was, but I can’t imagine there is any justifiable reason for its disclosure.  If it was prepared, at all, to assist in the defense of Jurek it is categorically exempt from discovery.  If, however, it was a document related to a coverage investigation by SW Marine, we cannot understand how it would be relevant.  

 

DISHING OUT SERIOUS INJURY THRESHOLD
Michael J. Dischley

[email protected]

03/25/21       Ramon Diaz v. Alejandro Vivar-Martinez
Appellate Division, First Department
Plaintiff Expert Failed to Address Pre-Existing Lumbar Spine Injuries Thereby Precluding Summary Judgment on Lumbar Spine Claims

In an action to recover damages for personal injuries, the plaintiff appeals from an Order of the Supreme Court, Bronx County (John R. Higgitt, J.), entered February 18, 2020, which, granted defendants’ motion for summary judgment.

As for plaintiff’s claims of serious injury to her lumbar and cervical spine, the Appellate Court found that, defendants established prima facie that she did not sustain a serious injury in the accident. Defendants' orthopedic surgeon noted normal ranges of motion in Monica's cervical and lumbar spine and negative findings on various objective tests, and their radiologist opined that the MRI findings in her cervical and lumbar spine represented degenerative changes.

However, in opposition, plaintiff raised a triable issue of fact with respect to Monica's claim of serious injury to her cervical spine, but not to her lumbar spine. The examining doctor's opinion that her cervical spine condition was causally related to the accident, based on the medical record, including the cervical spine MRI taken shortly after the accident and the fact that she underwent cervical spine surgery within three months of the accident, is sufficient to raise a triable issue of fact as to causation. Since defendant's showing did not rely on Monica's own medical records, this showing was sufficient.

The Appellate Court also found that, plaintiff’s medical expert's report is also sufficient to raise a triable issue of fact as to whether Monica sustained a significant or permanent consequential loss of use, as he noted reduced range of motion and muscle spasms in Monica's cervical spine nearly three years after the accident.

However, plaintiffs failed to rebut defendants' prima facie showing with respect to Monica's claim of serious injury to her lumbar spine. In addition to defendants' radiologist noting degenerative changes in her lumbar spine, Monica testified to having a preexisting lumbar spine condition and undergoing an MRI for it shortly before the accident. However, her expert did not address her preexisting lumbar spine condition in his report. Accordingly, plaintiffs' evidence is insufficient to overcome defendants' summary judgment motion with respect to Monica's lumbar spine injury.

Based on the foregoing, the Appellate Court unanimously modified the prior Order finding that plaintiff Monica Diaz's claim of serious injury to her cervical spine under the "significant limitation of use" and "permanent limitation of use" categories, and otherwise affirmed, without costs.

 

WILEWICZ’S WIDE WORLD of COVERAGE
Agnes A. Wilewicz
[email protected]

03/18/21       Philadelphia Indemn. Ins. Co. v. Yeshivat Beth Hillel of Krasna
United States Court of Appeals, Second Circuit
Second Circuit Finds Coverage Letter that was Just a Reservation of Rights, Did not Adequately Disclaim Coverage

Philadelphia Indemnity Insurance Company (“Philadelphia”) insured Yeshivat Beth Hillel (“Yeshivat”), a school in New York. After a pedestrian was struck and severely injured by a school bus carrying students to the school, Yeshivat promptly notified its carrier Philadelphia, about the claim against it. Philadelphia investigated and sent a reservation of rights letter informing Yeshivat that the claim might not be covered. In the letter, they stated only that “there is a question as to whether Philadelphia has a duty … to defend or indemnify you or anyone claiming coverage under your policy”, not that Philadelphia was denying coverage. It also provided that the “claim may qualify as an auto loss which is not covered”. The Court wrote that “The letter otherwise informed Yeshivat that Philadelphia would provide a defense, and it identified only two circumstances in which coverage might be denied under the policy’s exclusion for auto losses, neither of which came to pass.”

In New York, if a carrier seeks to disclaim liability or deny coverage for death or bodily injury arising out of motor vehicle accident, they must do so with “written notice as soon as reasonably possible of such disclaimer of liability or denial of coverage”. The insurer must also “apprise the claimant with a high degree of specificity of the ground or grounds on which the disclaimer is predicated.”

Here, the letter did not call itself a disclaimer and did not expressly state that coverage was being disclaimed. It only stated that it was a reservation of rights and that the claim may be denied, as not covered. Had the insurer used stronger language and called the letter a disclaimer, it may have been a different story. The New York Court of Appeals has held that a disclaimer letter issued to an insured that assigns defense counsel and also contains a reservation of rights is nevertheless a disclaimer under the law.

 

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

Check back next time for the latest from the sports desk.

 

LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel
[email protected]

03/18/21       Allstate Ins. Co. v. Donte Tenn & Tailan Moscaritolo
United States District Court for the District of Connecticut
Nolo contendere,
What Say You Supremes?

Allstate’s insured, Donte Tenn, allegedly struck claimant Moscaritolo with a baseball bat in the head, causing traumatic brain injury, multiple skull fractures, and an intracranial hemorrhage.  Allstate denied coverage for Moscaritolo’s injuries contending that the incident did not involve an occurrence and even if it did, coverage was excluded by the Allstate policy’s intentional or criminal acts exclusion.  

The insured contended that Allstate had a duty to defend because the underlying complaint did not clearly describe intentional or criminal actions.  Moscaritolo alleged that Tenn acted willfully, maliciously, wantonly, but the insured pointed out that he allegedly impulsively swung the bat in response to a perceived threat.  While Moscaritolo alleged Tenn’s acts were willful and the like, his pleadings included causes of action for negligent assault and negligent infliction of emotional distress, alleging both potentially covered and non-covered claims.

“Occurrence,” according to the court, has been defined by Connecticut courts as being characterized by “a lack of intention or necessity, often opposed to design; an unforeseen unplanned event; a sudden event or change occurring without intent or volition and producing an unfortunate result.” Id. at *1 (citing Vermont Mut. Ins. Co. v. Walukiewicz, 290 Conn. 582, 594 (2009).

Because negligence, carelessness and heedlessness were alleged, which acts might not be intentional or criminal, the court held that Allstate could not rule out the possibility of an occurrence, and had a duty to defend.

Allstate then raised a late notice defense to defeat coverage.  However, Allstate would have had to establish that it was prejudiced by the late notice in order to prevail on the late notice defense in Connecticut.  Id. at *2 (citing Arrowood Indem. Co. v. King, 304 Conn. 179, 198 (2012) (“Connecticut requires two conditions to be satisfied before an insurer's duties can be discharged pursuant to the notice provision of a policy: (1) an unexcused, unreasonable delay in notification by the insured; and (2) resulting material prejudice to the insurer.”).  The altercation occurred in October 2016 and Allstate learned of a possible litigation in June 2018, before the case was filed.  The court did not find this to prejudice to Allstate as a result and dismissed this argument.

Allstate argued next that the intentional or criminal acts exclusion precluded coverage for damages “which may reasonably be expected to result from the intentional or criminal acts of the insured person, ... regardless of whether or not such insured person is actually charged with, or convicted of a crime.”  Allstate argued that the exclusion precluded the duty to defend because the claimant alleged that Tenn acted willfully, maliciously, wantonly, and intentionally.  But the court disagreed with Allstate for the same reasons justifying his holding on the occurrence, intentional and negligent acts were alleged. 

Then Allstate argued that the exclusion applied because the insured pled nolo contendere to the criminal assault charge in connection with the bat incident.  This gave the court pause.  While generally treated as a guilty plea, in Connecticut, nolo contendere may not be used in “subsequent civil action[s] or administrative proceeding[s] to establish either an admission of guilt or the fact of criminal conduct.” Id. at *2 (citing Town of Groton v. United Steelworkers of Am., 254 Conn. 35, 49, 51 (2000)).

However, that did not, for the court, answer the question of whether the plea could be used to establish the application of the intentional or criminal acts exclusion.  According to the court, this is unsettled in Connecticut.  Consequently, the court certified the question to the Connecticut Supreme Court for guidance. 

 

03/18/21       Allstate Ins. Co. v. Tenn
United States District Court for the District of Connecticut
Nolo contendere.  Please Supremes?

Having been stumped by Allstate’s nolo contendere argument, the court issued an order certifying the question to the Supreme Court of Connecticut.  It would seem obvious that the exclusion would apply. Tenn was arrested and pled nolo contendere to assault in the first degree. He was sentenced to twelve years of incarceration, with execution suspended after two years, and three years of probation upon release.  Having pulled the underlying docket, I can tell you that the plea was not included in the complaint so presumably, the court looked beyond the four corners of the complaint.

Here, the court explained that while a plea of nolo contendere cannot be used as evidence of a criminal act in a civil or administrative matter, the plea can have collateral consequences such as a loss of parental custody or a violation of existing probation, where the fact of conviction itself violates certain established and legally binding conditions.  Consequently, according to the court, the prohibition of using the plea was not necessarily prohibited for the purposes of the intentional or criminal acts exclusion.

This was apparently not the first time that this question was certified to the Connecticut Supreme Court.  The Second Circuit in Northfield Ins. Co. v. Derma Clinic, Inc., 440 F.3d 86, 93 (2d Cir. 2006) also certified the question as “[W]e think the Supreme Court of Connecticut should decide whether a plea of nolo contendere and the resulting conviction can be used to trigger a criminal acts exclusion in an insurance policy.”

In Allstate Ins. Co. v. Simansky, 45 Conn. Supp. 623, 629 (Conn. Super. Ct. 1998), the court held that the fact of conviction itself triggered the criminal acts exclusion of the policy.  But later, the court in Town of Groton v. United Steelworkers of Am., 254 Conn. 35, 51, 757 A.2d 501, 511 (2000) established that nolo contendere pleas cannot be used to prove underlying criminal conduct in civil actions.  The Second Circuit was not convinced by the Simansky decision because it was based on a case to which “the Supreme Court of Connecticut does not wholly subscribe.”  Northfield, 440 F.3d at 92–93.

The Supreme Court had accepted the certified question in Derma Clinic, but the case settled before the question could be answered by the Court.  Now again, the certified question is, “[w]hether a plea of nolo contendere and the resulting conviction can be used to trigger a criminal acts exclusion in an insurance policy.”

 

BUCCI on “B”
Diane L. Bucci

[email protected]

No Coverage B cases here.

 

OFF the MARK
Brian F. Mark
[email protected]

No interesting construction defect cases to report on this edition.  Check back next edition.

 

BORON’S BENCHMARKS
Eric T. Boron
[email protected]

03/24/21       Pioneer State Mut Ins Co vs Bear Creek Gravel Inc et al
Supreme Court of North Dakota
Auto Insurance – Regular Use Exclusion Not Applicable

On April 24, 2017, Ty Kirby was involved in a motor vehicle accident with Mary Miller. Kirby was driving a 2002 Dodge Ram owned by his employer, Bear Creek Gravel, Inc. Miller died as a result of the collision.

Miller’s heirs sued Kirby, alleging he was negligent in the operation of the company-owned (by Bear Creek Gravel) 2002 Dodge Ram. Kirby’s personal automobile insurer, Pioneer, initiated a declaratory judgment action seeking to deny liability coverage to Kirby for the Millers wrongful death claim.

Kirby’s personal auto policy with Pioneer State Mutual provided Kirby liability insurance coverage even if he was driving a vehicle he did not own. However, the policy excluded coverage for any vehicle “furnished or available for [Kirby’s] regular use.” The Regular Use Exclusion is the basis for Pioneer’s denial of liability coverage for the accident.

In the district court, a bench trial was held and the district court found the Regular Use Exclusion did not apply to the accident because Bear Creek Gravel imposed restrictions on Kirby’s use of its 2002 Dodge Ram. Pioneer was thus ordered to provide Kirby coverage for the April 24, 2017 accident with Miller. Pioneer State Mutual appealed to the Supreme Court of North Dakota.

The North Dakota Supreme Court’s opinion issued last week ruled that whether a vehicle has been provided for regular use is a question of fact. Because the district court had made factual findings during the bench trial as to whether the 2002 Dodge Ram was provided to Kirby by Kirby’s employer for Kirby’s “regular use”, the Supreme Court on the appeal had to determine whether the factual findings of the district court at the bench trial were “clearly erroneous”. Supreme Court noted that a finding of fact is clearly erroneous if it is induced by an erroneous view of the law, if no evidence supports it, or if the reviewing court, on the entire evidence, is left with a definite and firm conviction a mistake has been made.

Supreme Court’s opinion recapped that the district court concluded the 2002 Dodge Ram was not furnished for Kirby’s regular use because several restrictions existed for Kirby’s use of the vehicle. The testimony from Kirby and the owners of his employer Bear Creek Gravel was that the 2002 Dodge Ram was not furnished for Kirby’s use at all times. Kirby himself testified that he needed permission from the owners of his employer to drive the 2002 Dodge Ram, and that he was not allowed to drive the vehicle while off duty.  Kirby did not have his own set of keys to the vehicle and did not use the vehicle on weekends or during the evening. Supreme Court took note of the fact that all of this factual testimony was not disputed. On these undisputed facts the Supreme Court found that the trial court properly drew inferences from the facts presented and made a reasoned finding based on an inference supported by the evidence. Here, evidence and inferences about restrictions on Kirby’s utilization of the vehicle supported the district court’s decision the Regular Use Exclusion did not apply. Therefore, the district court’s decision was held by the Supreme Court to be “not clearly erroneous”, and the judgment of district court was affirmed.  Liability insurance coverage is owed to Kirby for the accident under his personal Pioneer State Mutual auto policy.

 

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

Legislative List

03/25/21       New Law Regarding For-Hire Group Fleet Policies
New York State Executive
Law Serves as Compromise to Provide Affordable and Accessible Commercial Auto Insurance Meeting New York’s Statutory Minimums

Last week, Governor Andrew Cuomo signed into law a bill (Bill No. S895) that relates to group policies for certain motor vehicles engaged in the business of carrying or transporting passengers for hire. Chapter 85 of the Laws of 2021 makes clarifying changes to Chapter 374 of the Laws of 2020, which you may recall established and authorized the sale of group auto insurance policies for commercial vehicles for use by for-hire vehicle associations. The new law amends language within Insurance Law § 3457 to eliminate the mandate that all insurance companies offering automobile insurance to establish and offer group fleet policies.

The law clarifies the definitions of “for-hire motor vehicle group policy” and “sponsoring entity”. More importantly, however, the new law counters premium increases that resulted from the 2019 increase in New York’s minimum liability limits under Vehicle and Traffic Law § 370 for for-hire vehicles with a capacity of eight or more persons to a minimum of $1.5 million.

By permitting insurers to issue group insurance policies covering these vehicles, insureds are able to secure more affordable and accessible commercial automobile insurance. That is because insurers offering such group policies are able to spread the risk among a larger pool of vehicles.

 

Regulatory Wrap-Up

03/25/21       Proposed Climate Change Guidance for Insurers
Department of Financial Services
Proposed Guidance Outlines Expectations that Insurers Integrate Climate Risks into Governance Frameworks, Risk Management, and Business Strategies

Last week, DFS issued proposed detailed guidance for New York domestic insurers related to DFS’ expectations regarding managing financial risks from climate change. Superintendent Linda Lacewell advised that the guidance is meant to “provide[] a blueprint for insurers to manage the complex financial risks of climate change.” DFS has opened a 90-day public comment period to permit interested parties’ input on the guidance.

Recall that we wrote about a circular letter issued by DFS in September 2020 that outlined expectations regarding insurer considerations of the financial risks from climate change into their governance frameworks, risk management processes, and business strategies, and developing their approach to climate-related financial disclosure. (Here is our previous write-up: Volume XXII, No. 8).

This guidance is a first-of-its-kind by any U.S. financial regulator, and time will tell whether others will follow suit. DFS’ guidance is formulated by an ongoing dialogue with the insurance industry and international regulators. Specifically, DFS indicates that the guidance derives from “New York Insurance Law, National Association of Insurance Commissioners manuals, and publications, guidance, and supervisory statements of international regulators and networks, such as the Bank of England Prudential Regulation Authority, the Network for Greening the Financial System, the International Association of Insurance Supervisors, the Sustainable Insurance Forum, and the European Insurance and Occupational Pensions Authority.”

The “Proposed Guidance for New York Domestic Insurers on Managing the Financial Risks from Climate Change” spans seventeen detailed pages in total.

In summary, it sets expectations that insurers will assess climate-related financial risks to its business and proportionally manage those risks with respect to:

  • governance structure:

    • The insurer’s board should understand and be responsible for managing climate risks, which should be reflected in the company’s risk appetite and organizational structure.

  • business models and strategy:

    • Consideration of the current and forward-looking impact of climate-related factors on its business environment in the short-, medium-, and long-term.

  • risk management:

    • This includes embedding climate risks in its risk management framework and analyzing the impact of climate risks on existing risk factors.Climate risks should be considered in the company’s ORSA.

  • scenario analysis:

    • Scenarios should consider physical and transition risks, multiple carbon emissions and temperature pathways, and short-, medium-, and long-time horizons.

  • public disclosure.

    • Disclose its climate risks and consider the TCFD and other initiatives when developing its disclosure approaches.
       

Insurers are to account for the nature, scale and complexity of its business in managing these risks. Further, DFS indicates that it intends to monitor compliance with these expectations as part of its supervisory activities.

The public comment period will close on June 23, 2021. Comments can be provided here: https://www.dfs.ny.gov/industry_guidance/climate_change#public-consultation

Additionally, DFS has scheduled a webinar for the proposed guidance on April 8, 2021 at 11am. DFS indicates that “Interested parties can register for the webinar here with password: ClimChg040821.”

 

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

03/29/21       U.S. Specialty Insurance Co. v. Wesco Insurance Co.
United States District Court, Southern District of New York
Courts Must Consider All Insurance Policies at Issue When Determining Priority of Coverage, and That the Difference Between “The” Insured and “Any” Insured has Substantial Consequences

In a consolidated action to resolve a coverage dispute in connection with an underlying suit for injuries allegedly sustained by a construction worker, U.S. Specialty Insurance Company (“USSIC”) sought summary judgment declaring that Wesco Insurance Company (“Wesco”) is obligated to defend and indemnify three USSIC insureds that were involved in the project and have been named as defendants in the underlying lawsuit. Wesco opposed USSIC’s motion only in part, on the ground that Colony Insurance Company (“Colony”) has a duty to defend one of USSIC’s insureds, 443 Developer LLC (“443 Developer”), on a primary basis.

SGN 443 Greenwich Street Owner LLC (“SGN”) owned a warehouse at 443 Greenwich Street in New York City and hired 443 Developer as the general contractor for a construction project to convert the warehouse into an apartment building. Collaborative Construction Management (“CCM”) was the construction manager for the project. USSIC issued a policy that provides insurance coverage to SNG, 443 Developer, and CCM for the construction project. A series of subcontractors were hired to preform various aspects of the project, including Rockaway Contracting Corp. (“Rockaway”) who was hired to perform drywall and carpentry work. Rockaway then hired a series of subcontractors to perform various aspects of the construction job. Carlos Alberto Gomez-Gomez was employed by one such subcontractor and alleges that he was injured while working on the project. Gomez-Gomez brought an action against various parties seeking recovery for his injuries.

443 Developer required subcontractors “of every tier,” to obtain insurance naming SNG, 443 Developer, and CCM as additional insureds. The subcontract contains an indemnification provision in which Rockaway agreed to defend, indemnify, and hold harmless SNG, 443 Developer, and CCM from claims relating to Rockaway’s subcontractors of any level, the subcontract specified that Rockaway’s insurance would be “primary insurance to the additional insured parties.” Wesco issued a policy to Rockaway that contained several endorsements that provide additional insured coverage to SNG, 443 Developer, and CCM as required by the 443 Developer-Rockaway Subcontract. The Wesco Policy specified that the additional insured coverage “applies on a primary basis” if the underlying contract so requires, that if other primary insurance is available to Rockaway, the Wesco Policy is excess, and that with respect to the additional insureds, where other primary insurance is available, Wesco will contribute on an equal-shares basis.

Colony issued a policy to a Rockaway subcontractor JPB Fabrications (“JBP”). The Rockaway-JPB subcontract requires JPB to include Rockaway and 443 Developer as additional insureds. The Colony Policy specified that the insurance for additional insureds “required by written contract” is “primary.” The Colony Policy also contained an endorsement titled “No Coverage Applies If Contractor Conditions Not Met,” which stated in relevant part: “[a]s a condition precedent to any rights the insured may have under this Policy, the insured must comply with all of the conditions enumerated” in the endorsement. The endorsement further explained that, “[i]f the insured fails to comply,” Colony “will have no obligation to either defend or indemnify the insured for any claims or legal actions brought against any insured,” and specified that “[t]he insured hereby warrants and agrees that any ‘contractor’” has “maintained ‘adequate insurance.”

USSIC argued that (1) SGN, 443 Developer, and CCM are additional insureds under the Wesco Policy, (2) Wesco has a duty defend and indemnify them in the Gomez-Gomez action, and (3) Wesco’s duty is primary to and non-contributory with USSIC’s duty. Wesco opposed USSIC’s motion for summary judgment only on the ground that USSIC overlooks that Colony also has a duty to defend and indemnify 443 Developer and, as such, to share in Wesco’s liability to USSIC for defense costs. Wesco stressed that the court must consider all of the relevant policies at issue to determine priority of coverage and determine which insurer is required to pay defense costs. Wesco also disputes the date on which USSIC tendered the defense and indemnification of its insureds, arguing that the date of tender sets the “start date” for Wesco’s liability for USSIC’s defense costs. The court disagreed, stating that as Wesco had proper notice of the alleged accident from the outset, the duty to defend is triggered by a suit, against an insured.

Agreeing with Wesco’s argument that the court must consider all of the relevant policies at issue, the court then ruled on Wesco’s summary judgment motion against Colony. Colony disputed that Rockaway and 443 Developer are additional insureds and argued that, even if they are additional insureds, Colony was entitled to deny coverage based on breaches of conditions precedent. Colony argued that the Rockaway JPB subcontract did not require JPB to include 443 Developer as an additional insured under the Colony Policy. The subcontract states that “Contractor and Owner shall be named as ‘additional insureds.’” The dispute lies with the term owner, while SNG, not 443 Developer owned the site, the Rockaway-JPB subcontract unambiguously defined the term “Owner” to mean 443 Developer in the contract. The court ruled that as the contract is unambiguous on its face, the meaning must be taken from within the four corners of the document. The court therefore concluded that he Rockaway-JPB subcontract required JPB to include 443 Developer as an additional insured under its policy with Colony.

Wesco and Colony disputed whether Colony was entitled to disclaim coverage to Rockaway and 443 Developer based on JPB’s breach of a condition precedent under the policy. The Contractor Conditions Endorsement of the Colony policy states that, as “a condition precedent” to coverage, “the insured must comply” with certain enumerated conditions. Namely, “the insured . . . warrants and agrees that any ‘contractor,’” defined as a contractor or subcontractor “hired to perform work for the insured or on the insured’s behalf,” has “maintained ‘adequate insurance. Colony argues that because one of JPB’s subcontractors failed to maintain adequate insurance, coverage can be disclaimed to any insured under its policy. Wesco argued that whether a breach by the named insured bars coverage for any insured turns on whether the policy uses the term “the insured,” or broader language such as “any insured.” The Contractor Conditions Endorsement at issue in this matter stated that if “the insured fails to comply,” then Colony “will have no obligation to either defend or indemnify the insured for any claims or legal actions against any insured.” Relying on the reasoning of 233 E. 17th Street, LLC v. L.G.B. Dev., Inc., 78 A.D.3d 930, 913 N.Y.S.2d 110 (2nd Dep’t 2010), the court ruled that “[e]ach individual additional insured must be treated as if it had a separate policy of its own with the insurer” and “there is no evidence that the [additional insured] breached the particular condition precedent upon which [the insurer] relies” to disclaim coverage. The court then ruled that because the endorsement language made clear that a breach by “the” particular insured bars coverage only for that same insured, albeit in the context of an action against any insured. The court then discussed that Colony manipulated the use of “the” and “any” in other parts of the policy, showing that by altering the language it could alter coverage, and that by operation of the endorsement coverage is only disclaimed to the non-compliant insured, granting 443 Developer coverage under the Colony policy.

The court held that Rockaway and 443 Developer are additional insureds under the Colony policy,  Colony has a duty to defend Rockaway on a primary and non-contributory basis, and Colony has a duty to defend 443 Developer on a co-primary basis with Wesco and, therefore, must contribute to USSIC’s defense costs on an equal-shares basis.

 

RAUH’S RAMBLINGS
Patricia A. Rauh

[email protected]

No noteworthy life insurance/elder law-related cases to report on this week.  Check back next time!

 

ruMIRNAtions
Mirna M. Santiago

[email protected]

The New York Superintendent of Financial Services, Linda A. Lacewell, issued Insurance Circular Letter No. 5 on March 16, 2021, which focuses exclusively on Diversity in Corporate Governance of Insurance Companies.

A high-level overview of the Circular Letter is that it speaks to the multiple benefits of diversity in all businesses and sets forth expectations and guidance for increasing diversity, equity and inclusion in New York-regulated insurers, in particular. It further expresses a commitment to increasing the representation of women, people of color and other underrepresented groups on insurance company boards and management teams, and the workforce in general.

The main points of the Circular Letter are as follows:

  • Benefits of diversifying leadership and workforce
    • Diversity is good for companies’ bottom lines. Studies have shown that increasing representation of women and people of color actually increases a company’s profits.
    • Broader customer base. The percentage of non-Latinx white people is shrinking. As the number of people of color increases, so does their buying power. In addition, by not tapping into the needs of women customers, financial services firms miss at least $700 billion in revenue opportunity.
    • More innovation. A diverse team has more tools for attacking a problem. People from different backgrounds and experiences can see the same problem in different ways, which leads to more effective problem-solving and an increase in innovation.
    • Better risk management. A diverse team is not entrenched in one way of thinking and can see risks that homogenous groups may not catch. Studies show that gender and ethnic/racial diversity in leadership reduces litigation risk, likely because those leaders can identify with affected employees and provide support before a situation leads to litigation.
    • Larger talent pool and more satisfied employees. As the demographics change, insurance companies need to learn to attract and hire from that diverse pool of candidates. In return, diverse and inclusive work cultures are associated with reduced instances of discrimination, which leads to more work satisfaction.
    • Makes the industry more resilient. Hiring for diversity is a succession plan for the industry, given that the U.S. Bureau of Labor Statistics has long predicted an impending talent shortage for critical insurance roles.
  • Challenges to DEI in Insurance
    • Diversity information is limited. However, statistics show that while diversity in entry level positions is robust, the numbers drop steeply as they climb up the corporate ladder. For instance, BIPoC made up 24% of the entry level workforce in 2017, but only comprised 8% of the C-suite. Indeed, white men held 66% of all C-suite positions.
    • No clear leadership pipeline. Companies need to realize that leaders “are made, not born and it takes a long time to groom candidates for the C-suite.”
    • No statutory framework for making DEI mandatory at companies. Countries like Belgium, France, Italy and Norway have gender quotas in place to increase representation of women at the top decision-making bodies of their largest publicly traded companies and impose sanctions for non-compliance. The US has no such laws.
       
  • Plan of Action and the Future of DEI in Insurance
    • NAIC formed a Special Executive Committee on Race and Insurance that is charged with researching and analyzing the level of diversity in the insurance industry and making recommendations on steps that regulators and the industry can take to increase diversity.
    • SEC is being urged by the Biden administration to revisit disclosure requirements for public companies and to provide guidance on board diversity.
    • DFS will collect and publish data relating to the diversity of corporate boards and management. “Transparency is a powerful catalyst for change.”
    • Increasing diversity in insurance companies’ leadership should not be a “check the box” exercise. Rather, each “company should assess where it stands, where it wants to go and how it will get there”. 

https://www.dfs.ny.gov/industry_guidance/circular_letters/cl2021_05

 

STORM’S SIU EXAMEN
Scott D. Storm
[email protected]

03/15/21       Lopez-Motherway v. City of Long Beach
United States District Court, Eastern District of New York
Executive Order 202.8, “Continuing Temporary Suspension and Modification of Laws Relating to the Disaster Emergency”, Creates a “toll” not a “Suspension”.  This Federal Court Punts on the Issue of Whether the Governor has the Authority to Enact a Toll

Lopez alleges that the City of Long Beach and several of its police officers violated her constitutional rights during her arrest and ultimately unsuccessful prosecution. Among other federal and state claims, she asserts a malicious prosecution claim under N.Y. law.  In deciding Defendants’ motion to dismiss the court considered whether Executive Order (“EO”) 202.8, “Continuing Temporary Suspension and Modification of Laws Relating to the Disaster Emergency”, creates a “toll” or a “suspension”, there being a significant legal distinction.

A “toll” means that the limitations period “stops running,” only to start again when the tolling period ends, picking up where it left off.  It’s like a “time-out” in a sporting event.  In contrast, a “suspension” “simply extends the expiration date of the limitations period to a later defined date on the calendar without re-starting the statute of limitations clock at the end of that period.

In regard to the state-law malicious prosecution claim, the defendants argued that the claim was time-barred. The limitations period is 1 year and 90 days, the cause of action accruing on the date that the proceeding terminated in favor of the plaintiff (7/31/19).  As such, the limitations period would have expired on 10/29/20, nearly one month before plaintiff commenced this case on 11/20/20. In most circumstances, the analysis would end there.  However, in the middle of the limitations period, the COVID-19 pandemic struck. The governor issued his EO 202.8, purporting to “toll” the statute of limitations effective 3/20/20:

NOW, THEREFORE, I, Andrew M. Cuomo, Governor of the State of New York, by virtue of the authority vested in me by Section 29-a of Article 2-B of the Executive Law to temporarily suspend or modify any statute, local law, ordinance, order, rule, or regulation, or parts thereof, of any agency during a State disaster emergency, if compliance with such statute, local law, ordinance, order, rule, or regulation would prevent, hinder, or delay action necessary to cope with the disaster emergency or if necessary to assist or aid in coping with such disaster, I hereby temporarily suspend or modify, for the period from the date of this Executive Order through April 19, 2020 the following:

In accordance with the directive of the Chief Judge of the State to limit court operations to essential matters during the pendency of the COVID-19 health crisis, any specific time limit for the commencement, filing, or service of any legal action, notice, motion, or other process or proceeding, as prescribed by the procedural laws of the state, including but not limited to the criminal procedure law, the family court act, the civil practice law and rules, the court of claims act, the surrogate's court procedure act, and the uniform court acts, or by any other statute, local law, ordinance, order, rule, or regulation, or part thereof, is hereby tolled from the date of this executive order until April 19, 2020 [italics added].

The governor extended the 4/19/20 deadline in a series of subsequent EOs before setting a final deadline of 11/3/20 in EO no. 202.67 (10/4/20).  Despite this warning, plaintiff waited until 11/20/20 to commence this action.

A legal question exists whether these EOs “tolled” or “suspended” the statute of limitations. This distinction determined the timeliness of plaintiff's claim. If the EO stopped the clock from running (was a toll), the plaintiff had additional time when the clock restarted on 11/3/20. The time period would have been tolled from 3/20/20 (when the EO period began) until 11/3/20 (when the EO period ended) = 228 days.  Between 7/13/19 (date of accrual) until the date the toll started (3/20/20) = 232 days.  The plaintiff had a 1 year 90 day SOL = 455 days.  232 days of her SOL had been exhausted by 3/20/20.  As such, she had 223 days remaining on 11/3/20 (the date the EO period ended) as the deadline to commence her action (someone let me know if my math is wrong).  Making her action timely when she commenced it on 11/20/20.

But if the EO merely stopped the clock from buzzing until 11/3/20 (if it was a suspension), then her time to file simply expired on that date.

As such, the parties wanted the court to decide two issues: (1) whether EO 202.8 imposed a “toll” rather than a “suspension” and, if so, (2) whether the governor had the power to toll the statute of limitations.  Complicating the matter even more, the court noted that both the Supreme Court of the United States and the N.Y. Court of Appeals have described “tolls” as a form of “suspension.”

On the first issue of interpreting the EO, the court said it must begin its analysis with examining the text of the EO.  The plain text of EO 202.8 states that the statute of limitations “is hereby tolled.”  That language differs from past EOs, which “temporarily suspended” the statute of limitations, such as EO No. 52 (10/31/12 addressing Hurricane Sandy). The court concluded that by using “tolled,” EO 202.8 “says what it means and means what it says”.  However, this apparently is dicta as the court then punted.

The court said that it is far less clear whether the governor had the power to toll the statute of limitations. The governor issued EO 202.8 under N.Y. Executive Law § 29-a. That statute gives the governor two important powers. First, it authorizes the governor to “temporarily suspend any statute...if compliance with such provisions would prevent, hinder, or delay action necessary to cope with a disaster or if necessary to assist or aid in coping with such disaster”. Second, it allows “[t]he governor, by executive order, [to] issue any directive during a state disaster emergency declared in...[a] disease outbreak...necessary to cope with the disaster.”  Defendants focused on the first provision, contending that it limited the governor to suspensions.  According to the plaintiff, this second provision allowed the governor to toll the SOL.

The court dodged deciding the issue saying that it need not resolve this conflict. The claim arrived by way of supplemental jurisdiction, and a district court “may decline to exercise supplemental jurisdiction” if a claim “raises a novel or complex issue of State law.” 28 U.S.C. § 1367(c)(1). “[P]rinciples of federalism and comity may dictate that these questions be left for decision by the state courts” – and that is “especially” true “where those questions concern the state's interest in the administration of its government.”  The court said that this case fits comfortably within that framework. While many of the EOs have been highly litigated, this particular one has not. The parties have not cited a single case from the N.Y. Court of Appeals or Appellate Divisions that addresses the governor's power to toll the SOL. Instead, they cite dueling commentary, thought to be too thin a reed to support a decision on this sensitive issue.  Therefore, the court declined to exercise supplemental jurisdiction over the state-law claim for malicious prosecution, dismissing it without prejudice to the plaintiff pursuing it in state court.


02/16/21       Foy v. The State of N.Y.
Court of Claims 
Executive Order 202.8, “Continuing Temporary Suspension and Modification of Laws Relating to the Disaster Emergency”, Creates a “toll” not a “suspension” and the Governor has the Authority to Enact a Toll

In this decision the Court of Claims concluded that the governor could toll the statute of limitations.

The Claimant brought this action seeking to be reinstated to his position as a N.Y. State court officer and for money damages for his alleged wrongful termination on 2/18/20. Defendant moved to dismiss the claim, among other things, on the grounds that the claim was not timely filed or served.

Under Court of Claims Act § 10 the claim for wrongful termination had to be filed and served within 90 days of the accrual date of 2/18/20.  The claim, however, was not filed until 7/21/20, and not served until 11/17/20, nearly nine months after the date of accrual.  The claimant argued, however, that he is  afforded additional time to file and serve his claim by Executive Order (“EO”) 202.8 issued on 3/20/20 by Governor Cuomo in response to the COVID-19 public health emergency. The EO was extended seven times until it ultimately expired on 11/3/20.  The EO was issued pursuant to authority vested in the Governor by Executive Law § 29-a.

The court said that the EO is clear in stating that any specific time limit for the commencement of any legal action is tolled. A toll suspends the running of the applicable period of limitation for a finite time period, in this instance until 11/3/20, and “[t]he period of the toll is excluded from the calculation of the time in which the [claimant] can commence an action.”  The amount of time covered by the original EO and all extensions is 228 days. The number of days between when the claim accrued (2/18/20), and when claimant accomplished service on 11/17/20, is 273 days. Subtracting the period of the toll (228 days) from the period of time between accrual and service (273 days) results in a difference of 45 days. Therefore, on 11/17/20, 45 days remained before the expiration of time to serve and file the claim.

A number of commentators have noted that the authority afforded the governor by Executive Law § 29-a (1) is to “temporarily suspend any statute” and that the statute does not specifically authorize a toll and that a suspension of a period of limitation is fundamentally different from a toll. Unlike a toll, a suspension does not exclude its effective duration from the calculation of the relevant time period. Rather, it simply delays expiration of the time period until the end date of the suspension. Thus, if the EO in question worked a suspension rather than a toll, any time period affected by those orders expired on 11/3/20. As such, the claim here, served on 11/17/20, would be untimely.

However, the court concluded that EO 202.8 provides for a toll, as do EO 202.67 and EO 202.72, the last two executive orders addressed to time limits for the commencement, filing or service of a legal action. Thus, it is clear that a toll, and not a suspension, was intended and the question becomes whether the statute authorizes a toll. The court concluded that it does.

In this regard, the court then examined the legislative intent of the statute ascertained from the words and language used, construing it according to its natural and most obvious sense without resorting to an artificial or forced construction. A statute must be construed as a whole reading the various sections together to determine the legislative intent.  In that regard, consideration must be given to the language in Executive Law § 29-a (2) which provides that “[s]uspensions pursuant to subdivision one of this section shall be subject to the following standards and limits” and in paragraph “d” of subdivision two, which provides that the implementing EO “... may provide for the alteration or modification of the requirements of such statute, local law, ordinance, order, rule or regulation suspended, and may include other terms and conditions”. The language in subdivision two, paragraph “d” makes clear that something other than a straightforward suspension of a statute is authorized. The governor is also permitted to modify the terms and conditions of a statute. Here, EO 202.8, and its successors, can reasonably be characterized as implementing a temporary alteration of the timely filing and service provisions in Court of Claims Act § 10, a modification. As such, the toll was authorized, and the claim is not untimely.


03/18/21       Windber Hospital v. Travelers Property Casualty  Co. of Am. 
United States District Court, Western District of Pennsylvania  
Another Pennsylvania First-Party Property Pandemic Win

Windber asserts that it is entitled to recover "continuing normal operating expenses" under the Policy as a result of losses and damages stemming from orders issued by the government in response to the COVID-19 pandemic. As a result of the pandemic and the Orders, it "has suffered Business Income, Civil Authority and other related losses" covered by the Policy. It brings this action individually and on behalf of a class of similarly situated entities. The court granted Travelers motion for judgment on the pleadings. 

Windber lost the use of its property because of the Orders enacted by the Governor. There is no allegation that Windber's property was uninhabitable. "It did not lose use because the premises suffered physical damage. Thus, Business Income coverage does not apply." Because the claimed loss is not related to the physical condition of the property, the Court found that Windber is not entitled to coverage under the Business Income or Extra Expense provisions of the Policy.

The Court also found that Windber had failed to satisfy the requirements for Civil Authority coverage. There was no damage to any surrounding properties, there was only the Governor's Orders and the COVID-19 pandemic. Further, there was not a complete prohibition on access to Windber's property as a result of damage to a surrounding property.  There was no physical damage at all. Therefore, Windber was not entitled to coverage under the Civil Authority provision of the Policy.

Even if Winder had established an initial right to coverage, the court said that the Virus Exclusion bars Windber's claim for coverage under any and all provisions of the Policy.  The Virus Exclusion of the Policy provides an express exclusion whereby Travelers "will not pay for loss or damage caused directly or indirectly by ... [a]ny virus bacterium, or other microorganism that induces or is capable of inducing physical distress, illness, or disease."  An Endorsement to the Policy provides that the "terms of the exclusion ... or the inapplicability of the exclusion to a particular loss, do not serve to create coverage for any loss that would otherwise be excluded under this Coverage Part or Policy."  The Court found that the Virus Exclusion applied to Windber's claims and, therefore, foreclosed coverage under the Policy. COVID-19 is a "virus...that induces or is capable of inducing physical distress, illness, or disease."  Therefore, any "loss or damage caused directly or indirectly" by COVID-19 is excluded from coverage under the Policy.

03/22/21       Jeffrey M. Dressel, D.D.S., D.C. v. Hartford Ins. Co.
United States District Court, Eastern District of New York
Another New York First-Party Property Pandemic Win

Plaintiff is a dental office with a property insurance policy with Hartford Insurance.  The Policy provided coverage for a loss of business income and for other expenses if there was a suspension of business operations caused by "direct physical loss of or physical damage" to the property. In addition, the Policy provided coverage in the event that a "civil authority" "prohibited by order" access to the premises. Plaintiff alleges that executive orders prohibited it from operating its business. Defendant filed a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), which was granted.

The court agreed with Defendant that the language of the Policy was clear and unambiguous, and required coverage only in the event of some physical harm to property, which was not present here. The Policy stated that, in order for coverage to be required, the loss of business income "must be caused by direct physical loss of or physical damage to property…" The word "physical" appears in this sentence twice, modifying both "loss" and "damage." The plain language of "physical loss of…property" does not mean, as Plaintiff argues, a loss of the ability to run the business. A "physical loss" means that physical property suffered a loss. Plaintiff, however, does not allege that its loss of income was caused by any physical property suffering a loss, in value or otherwise. Similarly, "physical damage to property" can only mean that the physical property suffered some sort of physical damage. 

Plaintiff counters that this interpretation treats the words "loss" and "damage" as if they are the same, rendering the language redundant, and so "loss" must mean something other than structural damage. Plaintiff's interpretation, however, ignores the word "physical" immediately before the word "loss." Moreover, the use of both "physical loss" and "physical damage" in the Policy was not redundant. The word "loss” may refer to “the disappearance or diminution of value."  "Read together with the modifier ‘physical’, the phrase ‘physical loss of or damage to property' in this context plainly covers two scenarios: one where ‘physical loss' occurs—which naturally refers to a situation where the value of the property as a whole ‘disappears' or ‘diminishes'—and one where ‘damage' occurs—that is, where the property is harmed but not destroyed." Thus, "physical loss" and "physical damage" are separate concepts, and the Policy's requiring of one or the other was not redundant.

"Nearly every court to address this issue has concluded that loss of use of a premises due to a governmental closure order does not trigger business income coverage premised on physical loss to property."  This court agrees with the great weight of authority and finds that Plaintiff cannot state a claim for breach of contract or for a declaratory judgment, due to the clear and unambiguous language of the Policy.

Plaintiff's alternative contention, that the presence of the coronavirus constituted damage to the premises, was also unavailing. This does not trigger coverage under the Policy, which clearly required coverage only if there was "physical damage" to physical property. Though the virus has the potential to cause significant harm to people, the court said it was not aware of any scenario in which its presence can cause "physical damage" to property such as a building, or other inanimate objects. The Centers for Disease Control and Prevention advise that when the coronavirus is physically present on a surface, it will "naturally die within hours to days." The presence of the virus at Plaintiff's premises would thus have been short-lived, and it could not constitute "physical damage to property" under the plain language of the Policy. 

Plaintiff also attempts to state a claim pursuant to the Policy's civil authority provision, which provided coverage in the event that access to Plaintiff's premises was "specifically prohibited by order of a civil authority as the direct result of a Covered Cause of Loss to property in the immediate area of the scheduled premises.  Plaintiff alleges that the Governor prohibited access to its premises, thus triggering coverage under this provision of the Policy. Defendant argues that the executive orders treated dental offices as "essential," and thus the executive orders did not prohibit access to or operation of Plaintiff's dental business.

Regardless of whether the Governor prevented access to Plaintiff's premises due to the COVID-19 pandemic, insurance coverage was still not available under the clear and unambiguous language of the Policy. The Policy applied only when a civil authority restricted access "as the direct result of a Covered Cause of Loss to property in the immediate area" of the premises. Plaintiff has not alleged that any executive order issued by the Governor was the "direct result" of a loss to any property in Plaintiff's immediate area.

Again, other courts have likewise rejected claims based on similar language in insurance contracts.  This court agrees that the plain language of the civil authority provision at issue here did not cover the circumstances alleged in the complaint.

 

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