Coverage Pointers - Volume XXII, No. 7

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

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

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

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

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

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

NEWSLETTER EDITOR
Dan D. Kohane [email protected]

ASSOCIATE EDITOR
Agnes A. Wilewicz [email protected]
 

ASSISTANT EDITOR
John R. Ewell [email protected]

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

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

Michael F. Perley
Jennifer A. Ehman
Agnieszka A. Wilewicz
Lee S. Siegel
Brian F. Mark
Diane L. Bucci
Brian D. Barnas
John R. Ewell
Eric T. Boron
Marina A. Barci
Ryan P. Maxwell
Charles J. Englert
Cara A. Cox
Diane F. Bosse
Joel R. Appelbaum

FIRE, FIRST-PARTY AND SUBROGATION TEAM

Steven E. Peiper, Team Leader [email protected]

Michael F. Perley
Eric T. Boron
Brian D. Barnas

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

Marina A. Barci

APPELLATE TEAM

Jody E. Briandi, Team Leader [email protected]

Diane F. Bosse Topical Index

 Kohane’s Coverage Corner

Peiper on Property and Potpourri

Dishing out Serious Injury Threshold

 Wilewicz’s Wide World of Coverage

 Jen’s Gems Barnas on Bad Faith

 John’s Jersey Journal

 Lee’s Connecticut Chronicles Off the Mark

 Boron’s Benchmarks

 Barci’s Basics (on No Fault)

 Ryan’s Capital Roundup CJ on CVA and USDC(NY)

 Bucci On “B”

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

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

09/16/20         Mele v. Motor Vehicle Accident Indemnification Corp. Appellate Division, Second Department
Question of Fact as to Whether MVAIC Applicant was New York State Resident, Necessitating Hearing

Mele sought leave pursuant to Insurance Law § 5218 to commence an action against the Motor Vehicle Accident Indemnification Corporation (“MVAIC”) in connection with an alleged hit and run accident in Brooklyn. MVAIC contended that the petitioner failed to establish that he was a "qualified person" pursuant to Article 52 of the Insurance Law because he failed to submit any objective proof that he was a New York State resident at the time of the alleged accident.

A petitioner seeking leave of court to commence an action against MVAIC has the initial burden of demonstrating that he or she is a "qualified person" within the meaning of Insurance Law § 5202 and making an evidentiary showing that he or she has satisfied certain other statutory requirements.

Here, there are triable issues of fact as to whether the petitioner is a resident of New York, and, therefore, whether he is a "qualified person".

PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
[email protected]

09/16/20         Rochdale Ins. Co. v. Fairview Nursing Care Center, Inc. Appellate Division, Second Department
Insurance Company Failure is an Insufficient Reason to Vacate Default

Plaintiff’s subrogor sustained a loss due to the alleged negligence of Fairview. After paying the loss, Rochdale commenced the instant subrogation action by service of a Summons and Complaint. When Fairview failed to answer timely, Rochdale moved for a default judgment and was granted the same on December 26, 2018.

Defendant moved to vacate the default citing its insurance company’s delay in processing the claim. The only proof provided was by way of an attorney affidavit from defendant’s attorney. The Court affirmed the lower decision by noting that counsel’s bare allegation that the carrier was responsible for defendant’s failure to appear was insufficient.

Peiper’s Point – Just an observation, nothing more, but most courts normally don’t lend a sympathetic ear to an argument that is principally “the insurance company screwed up.”

09/16/20         Pavilion Park Slope Cinemas 9, LLC v. Pro Century Corp. Appellate Division, Second Department
Day Demand is Not One Size Fits All; Only the Serving Party is Entitled to Relief

Plaintiff was served by Pro Century with a 90-day demand to resume prosecution of its case. When the period expired, Pro Century moved to dismiss. As part of its application, Pro Century established that the demand was properly mailed and received by plaintiff’s counsel. In response, plaintiff’s attorney argued the delay was caused by law office failure. However, as the claims were “conclusory and unsubstantiated,” the Appellate Division affirmed the trial court’s decision to dismiss the claims against Pro Century.

Notably, however, the other co-defendants who did not serve a 90-day demand were not able to avail themselves of the Order. The 90-day clock only began to run in favor of the requesting party, Pro Century.

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

09/08/20         Armstrong v. Marmolejos Supreme Court, New York County
Plaintiff’s Expert Chiropractor Failure to Rebut Defendant Expert Findings Fatal to Defendant’s Motion for Summary Judgment

This matter stems from a motor vehicle incident which occurred on December 11, 2016, when plaintiff, a bicyclist allegedly sustained serious injuries as a result of an automobile accident with defendant’s vehicle.

Defendant alleged that plaintiff has failed to demonstrate the existence of a “serious injury” as defined under Section 5102(d) of the Insurance Law as the injuries alleged are not causally related to the underlying accident and is a result of degenerative changes. Defendant submitted the Independent Medical Examination Report of Dr. Arnold T. Berman and Dr. Stephen W. Lastig. In his June 20, 2019 report, Dr. Berman opined that plaintiff “did not sustain any permanent injuries and has no functional loss or disability as a result of the accident on 12/11/2016”. Dr. Berman found that plaintiff had a normal range of motion in the cervical spine, thoraco-lumbar spine, bilateral shoulders, bilateral hips, and bilateral knees. Dr. Berman noted that plaintiff has no residuals and no aggravation to multilevel discogenic disease in the lumbar spine and no aggravation to a prior total left hip replacement. In his October 12, 2019, independent radiology report Dr. Lastig opined that plaintiff suffers from degenerative disc disease and degenerative spondylosis and found no findings in the knee causally related to the underlying accident. Thus, defendant made prima facie showing of entitlement to summary judgment on the issue of serious injury and the burden shifted to plaintiff

In opposition, plaintiff failed to address defendant’s claims of degenerative injuries. Plaintiff attached chiropractor progress reports of Dr. Mark Heyligers who does not conclude that plaintiff’s condition is causally related to the accident and in addition to not providing plaintiff’s ranges of motion or the normal ranges of motion, the reports do not address defendant’s claims of degeneration. Here, plaintiff’s physicians do not address degeneration and plaintiff’s opposition has failed to raise an issue of fact as to defendant’s assertion that plaintiff has not suffered a serious injury as a result of the accident.

Thus, defendant has satisfied their burden and defendant’s motion for summary judgment on the issue of “serious injury” as defined by Insurance Law § 5102(d) is granted.

WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz

06/25/20         Carmine Greene v. Westfield Insurance Company United States Court of Appeals, Seventh Circuit
Seventh Circuit Finds No Coverage for Class Action Stemming from Wood Recycling Plant’s Pollution, Where Claims were Known by the Insured Prior to Policy Inception, and Damages were Expected or Intended by the Insured

VIM Recycling (VIM) began operating a wood recycling plant in Elkhart, Indiana, in 2000. Soon after, neighboring residents began complaining of considerable pollution emanating from the site, including smoke, dust, and odors in the air and seeping into the ground. In 2009, a group of 1,025 neighbors started a class action lawsuit against VIM, and protracted litigation ensued. The first lawsuit sought injunctive relief and damages under various Federal laws, including the Resource Conservation and Recovery Act. While that matter was litigated and eventually dismissed, during that time VIM never notified its insurance carrier, Westfield, about the claims or the suit. Thereafter, in 2010, the same plaintiffs filed a nearly identical suit in Indiana state court. VIM did seek coverage from Westfield for that claim. Two weeks after VIM gave notice to its carrier, Westfield first learned of the earlier lawsuit.

Westfield investigated the claims and ultimately determined that there was no coverage for them, in part based upon the insured’s late notice but also based on various policy exclusions. They thus started a declaratory judgment action in Federal Court, against VIM and the neighbors, to confirm their coverage position. The carrier won the case primarily because of the insured VIM’s late notice in notifying them of the claims and suits for which they sought coverage.

Meanwhile, the underlying state court action began to fall apart. While VIM’s lawyers were initially successful in winning dismissal of the claims, without Westfield’s involvement, VIM’s counsel withdrew from the case and VIM never retained another attorney. VIM’s failure to defend itself in the suit ultimately resulted in a default judgment totaling $50.56 million, plus $273,000 litigation costs. But after securing the judgment, the neighbors found that they would be unable to recover much from VIM, so they filed suit directly against Westfield. They instituted proceedings to “garnish” or recover money pursuant to Federal

Rule of Civil Procedure 69, which permits recovery of a money judgment that one party owes another. They sought to garnish Westfield’s indemnity obligation to VIM as per its insurance policies, in order to satisfy the default.

However, two exclusions in Westfield’s policies barred recovery for anyone. First, each of Westfield’s policies contained exclusions for “known claims”, specifically stating that they did not cover losses “if a listed insured or authorized employee knew prior to the policy period, that the bodily injury or property damage occurred” and that “any continuation, change or resumption” of the property damage or bodily injuries “during or after the policy period will be deemed to have been known prior to the policy period.”. Similarly, the policies also precluded coverage for claims that were expected or intended from the standpoint of the insured. In this case, the evidence was clear. VIM knew about the neighbor’s claims and complaints before Westfield’s policies even incepted. The neighbors themselves, seeking damages that began as early as 2003, asserted that they had notified VIM of the problems very shortly after the plant opened. As such, the exclusions undoubtedly applied.

JEN’S GEMS
Jennifer A. Ehman
[email protected]

Crunch time for me; see you in a couple of weeks.

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

09/04/20         Fortune v. First Protective Ins. Co. District Court of Appeal of Florida, Second District
Payment of Appraisal Award after Statutory Cure Period was Insufficient to Cure Bad Faith Allegations in Civil Remedy Notice as a Matter of Law

The insureds purchased a homeowner’s property policy from First Protective. The insured property was damaged by Hurricane Irma on September 10, 2017. A claim was filed. First Protective investigated the loss and determined that the amount of the loss was $3,013.20. The insureds disagreed and presented First Protective with their public adjuster’s estimate.

First Protective then invoked the appraisal process on December 2, 2017. On January 8, 2018, the insureds filed a Civil Remedy Notice alleging statutory bad faith violations. One of the allegations was that First Protective made a lowball offer and flagrantly breached its duty of settle claims in good faith. First Protective generally denied the allegations. It claimed that it did not owe any insurance proceeds to the insureds, it had not committed any acts of bad faith, and that it had appropriately sought appraisal to resolve the dispute as to the amount of the loss.

On June 1, 2018 an appraisal award in the total amount of $121,516.55 was entered. On Jul 17, 2018, First Protective paid the net amount owed. This bad faith action was filed on October 25, 2018. First Protective filed a motion to dismiss or, in the alternative, for summary judgment. It argued that it fully cured any alleged bad faith during the cure period by complying with the appraisal process.

A Florida statute provides that an insurer commits bad faith by not attempting in good faith to settle claims when, under all the circumstances, it could and should have done so, had it acted fairly and honestly toward its insured and with due regard for her or his interests. As a condition precedent to filing an action pursuant to the statute, a plaintiff must give the Florida Department of Financial Services and the insurer sixty days’ written notice of a violation. The insurer may cure the violation within sixty days if the damages are paid or the circumstances giving rise to the violation are corrected. An insured is not prevented from sending a CRN prior to a determination of liability of damages.
 

The court concluded that the insurer’s invocation of the appraisal process and payment of the appraisal award after the cure period expired did not cure, as a matter of law, an alleged violation for failing to attempt to settle claims in good faith. The court below improperly had concluded that the invocation of the appraisal process by First Protective and the payment of the award after the cure period cured the alleged bad faith. The case was remanded for further proceedings on the bad faith claim. The court expressed no opinion on the factual issue of whether First Protective acted in bad faith.

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

Nothing to Report from the Coverage B World.

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

08/13/20         Optical Services USA v. Franklin
Mutual Ins. Co. Superior Court of New Jersey
New Jersey Trial Court Denies Insurer's Motion to Dismiss Covid Business Interruption Claim Saying Insurer Did Not Rule Out Possibility of Direct Physical Loss. Claim Allowed to Move Forward to Discovery

Franklin Mutual Insurance Company (“FMI”) issued a business owners policy to plaintiff, Optical Services. FMI issued the business owners policy to the plaintiff, Stong OD Ewing NJ, LLC (“Stong OD”). Optical Services and Stong OD filed separate claims seeking loss of business income caused by the closure mandated by Governor Murphy’s March 21, 2020 Executive Order Number 107 suspending the operation of non-essential retail businesses on the account of the Covid-19 pandemic. Plaintiffs closed their businesses on March 20, 2020 and have not reopened to date. Plaintiffs allege that Executive Order Number 107 mandated the closure of their businesses. FMI issued letters dated April 6, 2020 and April 14, 2020 to Optical Services USA/JC1 and Stong OD denying their claims for business income and related expenses.

Both policies contained the BU04010110 Business Owners Policy Form. The plaintiffs allege that the – the plaintiffs allege that Optical Services and Stong OD Ewing NJ, LLC purchased business interruption insurance from insurers to protect their business from an – an unanticipated crisis. The plaintiffs further allege that the policies issued by FMI provide coverage for loss of income resulting from a necessary interruption of plaintiffs’ businesses caused by direct covered losses and temporary closures required by orders of a civil authority.

Plaintiffs filed for Declaratory Judgment on June 25, 2020. On July 15, 2020, FMI filed a pre-answer motion to dismiss.

Notwithstanding the lack of discovery, the defendant argued three points. The first legal argument is that the Court should dismiss the complaint for failure to state a legally cognizable claim. The second legal argument is that the plaintiffs did not sustain direct physical loss or direct physical damage to or destruction of covered property precluding coverage for business income or extra expenses under the FMI policy. Lastly, the defendant argues that the plaintiff’s occupancy of their respective properties was not prohibited by civil authorities because of a loss at a local premises not owned or occupied by the plaintiffs precluding civil authority coverage under the FMI policies.

The plaintiffs argued that they state claims for coverage under the policies because they suffered a direct covered loss and were forced to close their business by order of a civil authority. Plaintiffs further alleged that they state claims for loss of income coverage because they suffered a direct covered loss under the policy, and they state claims for civil coverage because the closure order prohibited the plaintiffs from accessing their business.

The Court reasoned as follows:

Naturally, each of the respective arguments advanced by the parties requires a fact-sensitive analysis wherein the respective parties have failed to present a sufficient record before this Court for a legal determination of their respective positions.

There has been no discovery produced to the Court for consideration, no affidavits, no certifications, or sworn testimony derived from depositions. In fact, discovery has not been undertaken by the parties with respect to the declaratory relief sought in the Complaint. Notwithstanding these deficiencies, the Court will endeavor to address the legal arguments advanced by the respective parties on the extremely limited record provided to the Court.

The defendant, FMI, conceded that the plaintiffs’ business operations were interrupted by an executive order based on the risk of the Covid-19 virus transmission throughout the State of New Jersey.
 

The issue before the Court is the interpretation of a direct covered loss under the policy and whether or not there was physical damage to the plaintiffs’ business. The plaintiffs argued that the loss of physical functionality and the use of their business constitutes a covered loss under the policies. The plaintiffs argued that Governor Murphy’s executive order prohibited access to the plaintiffs’ premises.

FMI argued that the plaintiffs failed to state a claim for civil authority coverage because the complaint does not allege that property damage occurred elsewhere leading to the loss of access to plaintiffs’ business. The defendant acknowledged in its moving papers that presumably the plaintiffs will argue that while their properties were not physically damaged, they sustained a physical loss by operation of the Governor’s executive order. FMI argues that the plaintiffs’ loss of use of their respective properties does not constitute a direct physical loss and therefore is not a direct covered loss defined by the policies.

The Court ruled that FMI did not provided the Court with any controlling legal authority to support their version of the interpretation of the defined terms in the policy.

The defendant argued that there is a plain meaning of “direct physical loss” and the closure of the plaintiffs’ business does not qualify for purposes of coverage. The Court found this to be a blanket statement unsupported by any common law in the State of New Jersey or by a blanket review of the policy language.

Moreover, there has been no discovery taken in this matter which would provide guidance to the Court. Therefore, the Court held: “Plaintiff[s] should be permitted to engage in issue-oriented discovery and also be permitted to amend [their] complaint accordingly prior to an adjudication on the merits of any policy language.”

In Wakefern Food Corp. v. Liberty Mutual Fire Insurance Company, 406 N.J.Super. 524 (App. Div. 2019), the Court held: “Since the term “physical” can mean more than material alteration or damage, it is incumbent on the insurer to clearly and specifically rule out coverage in the circumstances where it was not to be provided.” The Court found such argument compelling for purposes of surviving a Motion to Dismiss in the absence of any complete record for disposition.

The Court further noted that:

There is an interesting argument made before this Court that physical damage occurs where a policy holder loses functionality of their property and by operation of civil authority such as the entry of an executive order results in a change to the property.
 

The plaintiffs are offering in advancing in a novel theory of insurance coverage in this matter that warrants a denial of the Motion to Dismiss at this early stage of the litigation. As such, this Court must afford the plaintiffs an opportunity to engage in issue- oriented discovery with FMI in order to fully establish the record with respect to direct covered losses and to amend the Complaint accordingly if required.

The New Jersey Superior Court denied the insured’s motion to dismiss, allowing discovery to proceed forward.

Author’s Note: Oral decision. If you would like a copy of the transcript, please let me know.

09/02/20         Titley v. Hanover Ins. Co. and Massachusetts Bay Ins. Co. United States District Court, District of New Jersey
In First-Party Claim for Damage after Pipe Freeze Up, New Jersey Federal Court Finds Question of Fact whether Insured Acted Reasonably to Maintain Heat

Richard Titley (“Plaintiff”) obtained a homeowner’s insurance policy with Massachusetts Bay Company (“Mass Bay”) providing coverage on an “all risks” basis. The policy contained the following exclusion:

We do not insure, however, for loss:

2. Caused by:

a. Freezing of a plumbing, heating, air conditioning or automatic fire protective sprinkler system or of a household appliance, or by discharge, leakage or overflow from within the system or appliance caused by freezing. This exclusion applies only while the dwelling is vacant, unoccupied or being constructed, unless you have used reasonable care to:

1. Maintain heat in the building; or
2. Shut off the water supply and drain the system and appliances of water.
    

Around March 1, 2017, Plaintiff left his home to temporarily live with his son in Texas while Plaintiff underwent a double knee replacement. Upon departure, Plaintiff set his thermostat to 60 degrees. Plaintiff’s water supply was never shut off. Plaintiff kept a key with his neighbor and notified local police he would be away for a period of time. Plaintiff did not hire or otherwise request anyone to check on his house in his absence.
 

Plaintiff’s mail was forwarded to his son’s home while he was away. Plaintiff never received express notice that his gas supply was turned off but did receive and pay eight monthly gas bills from South Jersey Gas.

Plaintiff did not return to New Jersey until nearly a year later. Before Plaintiff entered his home, he fell exiting the car which transported him from the airport. Id. As a result of the fall, 911 was dispatched and emergency responders transported Plaintiff to a hospital in an ambulance. At this time, the responders opened the door to Plaintiff’s property and discovered major flooding and water damage.

Plaintiff filed an insurance claim immediately. After inspection, it was clear the damage was caused by radiator pipes freezing and bursting as a result of no heat being supplied to the house. Plaintiff discovered that his gas was turned off by South Jersey Gas and/or a municipal contractor in connection with sidewalk repairs.

Mass Bay denied Plaintiff’s claim stating that “since your loss is the direct result of the gas line being locked out and freezing, we must take the position that your claim does not fall within the terms of your policy.”

Plaintiff asserted Mass Bay breached the insurance policy contract by denying the claim. Specifically, Plaintiff argued he exercised reasonable care in maintaining heat to the property enough to fall within the exclusion to coverage provision. Mass Bay argued that Plaintiff’s actions were unreasonable as a matter of law and therefore the denial did not breach the policy guarantees.

The policy precludes coverage from damage resulting from frozen pipes unless the insurer uses reasonable care to maintain heat. Thus, the issue is whether a jury could find on this record that Plaintiff used reasonable care to maintain heat in his home during his prolonged absence.

The Court found that a jury could very well find that Plaintiff acted reasonably and found it difficult to believe a jury would find otherwise. It was undisputed that Plaintiff left the house with the thermostat set at 60 degrees, left spare keys with neighbors, and notified the police he was leaving. While Plaintiff received notice before he left that some municipal repairs “could” result in a gas outage, the Court found nothing in the record suggesting Plaintiff had any reason to know that the interruption was certain, or even likely, to happen.

Mass Bay’s reliance on Plaintiff’s gas bills did not alter the Court’s conclusion. Mass Bay argued that Plaintiff’s gas bills showed no usage of gas, and he received those bills while staying with his son. Thus, Mass Bay contended that Plaintiff should have known that no heat was being maintained. The Court rejected this argument. Rather than paying for his actual usage, Plaintiff agreed to a billing plan that spread out his utility costs over the entire year in equal installments. Thus, each bill reflected that Plaintiff owed payment to South Jersey Gas, rather than reflecting that Plaintiff owed nothing. Plaintiff argued the bills obscured – or at least called into question – whether there actually no gas was being supplied to the house for months in a row.
 

Therefore, the Court denied the carrier’s motion for summary judgment on the breach of contract claim.

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

09/09/20         Nash Street, LLC v. Main Street America Assurance Co. Supreme Court of Connecticut
Court Finds a Duty to Defend Uncertain Claims, Encourages Declaratory Judgment Actions

In a case of first impression, the Connecticut Supreme Court held that an insurer must afford a defense where coverage is “uncertain.”

So, who had Connecticut doing its best Washington State impression on their 2020 bingo card of disasters? Well, certainly not this observer. Perhaps motivated to increase work for coverage lawyers and encourage the filing of declaratory actions ala Illinois, the Court did an “ole,” sidestepping entirely the issue of whether the carrier correctly denied coverage. A disturbingly unanimous court held that the issue of coverage was, somehow, immaterial in a coverage case. Instead, the Court, relying on Washington state precedent (always dangerous), held that when no Connecticut appellate authority has interpreted particular policy language, but courts in other jurisdictions have interpreted the same language in a manner that could result in coverage, the legal uncertainty as to how a court might interpret the language may give rise to a duty to defend. Citing, among others,  American Best Food, Inc. v. Alea London, Ltd., 168 Wn. 2d 398, 229 P.3d 693 (Wash. 2010) (insurer had duty to defend when cases from other jurisdictions suggested that exclusion did not apply, and there was no controlling case from Washington courts).

Let’s talk a little bit about uncertainty. We are, or at least should be, familiar with factual uncertainty. A factual uncertainty exists when it is unclear from the four corners of a complaint whether the allegations fall within coverage. Because the duty to defend is broader than the duty to indemnify, just the possibility of coverage triggers the duty. When the facts are disputed, say for example was it an excluded assault or a covered self-defense, the duty to defend is triggered because the carrier is not entitled to resolve factual uncertainties on its own.

Here, the Court’s troubling illustration of factual uncertainty posited that where a complaint is silent on a date of loss essentially all of the insured’s carriers, from time immemorial, have a duty to defend until a court determines when the injury occurred. Still, the duty to defend will last only until the factual ambiguity is resolved.
 

A legal uncertainty, the Court wrote, arises when it is unclear how a court might interpret policy language. “Legal uncertainty can arise in at least two ways. First, as this court has recognized, ambiguous policy language can give rise to the duty to defend… Second, a duty to defend may arise if there is a question as to whether ‘‘the cases governing the insurance policy [will] be read to impose coverage in a given situation…”.

Here, it is the Court’s extension of the duty to defend to legal uncertainty that makes news. Extending the scope of the duty to defend, the Court found legal uncertainty mandates a defense obligation when there is either an ambiguity in a policy or a split of authority in other jurisdictions as to the meaning of a particular policy provision, and Connecticut law is silent on the issue. Unlike factual uncertainty, legal issues of contract interpretation are the province of judges.

Underlying discovery is unnecessary to resolve whether the complaint falls within or without coverage. Still, the Court held that an insurer cannot avoid a duty to defend until the legal uncertainty of coverage is resolved. This holding ignores

that, from the carrier’s perspective, there is no legal uncertainty. The carrier is interpreting its policy as providing no coverage, something done hundreds of times a day, and is not weighing facts over which it has no control. Inherently, in every disputed coverage case, there remains legal uncertainty until the trial court rules and the appellate court affirms the correctness of an insurer’s decision not to defend.

Returning to the case at hand, let’s put these legal issues in context. The plaintiff, Nash St., owned a home in Milford that was damaged by both hurricanes Sandy and Irene. Unlucky. A contractor, New Beginnings, was retained to renovate the house. A subcontractor was retained to lift the house and to do concrete work on the foundation. While the subcontractor was lifting the house, it shifted off and collapsed. At the time of the collapse, the only work being performed was the lifting. New Beginnings and/or its subcontractor caused the collapse by failing to ensure that the cribbing was secure. The house sustained extensive physical damage.

Nash St. sued New Beginnings, which tendered the complaint to its carrier, Main Street, which declined to defend. Nash St. was awarded $558,007.16 when New Beginnings defaulted and then commenced a direct action against Main Street in an effort to collect the unsatisfied judgment. On cross-summary judgment motions, both sides agreed that there were no disputed facts, only contract interpretation issues. Main Street argued that the CGL policy’s business risk exclusions, commonly the j(5) and (6) exclusions precluded coverage.

Under exclusion k (5), the policy excludes coverage for property damage to ‘‘[t]hat particular part of real property on which you or any contractor or

The parties disputed the interpretation of the phrase “that particular part.” Main Street argued that the entire house was being lifted and, therefore, in this context any damage from the collapse of the structure was excluded. Nash St argued, I believe unpersuasively, that New Beginnings was only working on the foundation under the house, and not the house itself, at the time of the collapse. The trial court agreed with me, and Main Street, and granted the insurer summary judgment. The Court summarized that decision:

The court stated that the parties agreed that the only issue was whether exclusions k (5) or (6) ‘‘preclude[d] coverage for the property damage to the entire house that occurred as a result of the [house's] shifting [off of] the cribbing and collapsing at the time that grading and foundation work was being performed.’’ The court concluded that exclusions k (5) and (6) were clear and unambiguous, and ‘‘‘that particular part of real property’’’ on which New Beginnings or the subcontractor was performing operations was the entire house. As such, the court concluded that these exclusions precluded coverage, and, thus, the defendant had no duty to defend or to indemnify New Beginnings.

Nash St. appealed. The Supreme Court framed the issue in a way that avoided a legal interpretation of the meaning of these standard exclusions:

[W]e are mindful that our inquiry is not whether exclusions k (5) and (6) preclude coverage; nor does this case require us to determine conclusively what those exclusions mean. The only question we must answer is whether there was any possibility of coverage at the time New Beginnings tendered defense to the defendant.

Instead of deciding whether Main Street was correct that there was no coverage or it was wrong and it owed the underlying judgment—which was the risk the carrier took in denying coverage and allowing its insured to default, the Court asked whether it was possible that there was coverage at the time the complaint was tendered.

[B]ecause the plaintiff alleged damage to “the house and the renovation work therein,’’ we must consider whether legal uncertainty existed regarding the coverage issue in dispute. That is, was it possible, at the time New Beginnings tendered defense to the defendant, that this court, if presented with the issue, could construe ‘‘that particular part’’ in exclusions k (5) and (6) to mean that any portion of the alleged damage would fall outside the scope of the exclusions?
 

Now, it’s been a long time since I took Evidence in law school, but I strongly recall Professor Kessler (the now retired Richard J. Cardali Distinguished Professor of Trial Advocacy at Hofstra University School of Law) saying, you can’t ask a witness if something is possible because “anything is possible.” The Supreme Court must have been absent that day, because it launched into an analysis as to whether it was possible if faced with this question might it have sided with the insured’s contract interpretation. Oddly, there was nothing hypothetical here, the Court was in fact faced with making this decision, just in a direct-action setting and not in a declaratory judgment setting. The Court could have resolved the coverage issues both for the instant parties and to settle Connecticut law. A simple result, Main Street’s interpretation was right, and it wins, or its interpretation was wrong, and it pays.

But no, after weighing cases from various jurisdictions, the Court concluded that if asked the question it might have gone one way or the other. That lack of certainty in how it would rule in this case, the Court determined, triggered Main Street’s duty to defend. “Because such an uncertainty works in favor of providing a defense to an insured, exclusions k (5) and (6) did not relieve the defendant of its duty to defend New Beginnings.” Because it breached the duty to defend, under Connecticut law, Main Street may not subsequently argue that these exclusions absolved it of its duty to indemnify. The Court remanded the case to the trial court for determination of Main Street’s non-exclusionary defenses that were not considered below.

Here’s the big takeaway: although the Court gives lip service to the notion that Connecticut law does not require an insurer to always defend and bring a declaratory judgment action (see footnote 4), well, it does just that. “Although our case law does not require it, the prudent, if not ordinary, course would have been for the [insurer] to defend its insured under a reservation of rights and separately pursue a declaratory judgment action to resolve the legal uncertainty at issue.”

Today, as the Court suggests, vigilant Connecticut insurers, in the absence of black letter, controlling precedent, must defend their insureds and commence a coverage action, or risk waiving their defenses to coverage.

OFF THE MARK
Brian F. Mark
[email protected]

9/04/20           Burlington Ins. Co. v. Shelter Structures, Inc.
United States District Court for the Eastern District of Pennsylvania
U.S. District Court Finds Claims of Faulty Workmanship Against Insured do not Constitute an “Occurrence”

This declaratory-judgment action arises out of an underlying construction defect action related to the construction of a hangar to store an airship. The underlying plaintiff, Sceye Sarl (“Sceye”), contracted with Shelter Structures (“Shelter”) to design and construct the Hangar, which was to comply with all applicable codes and standards, including being able to withstand wind speeds of up to 115 miles per hour.

The underlying plaintiff alleged that the hangar “failed in winds far below the design requirements of the applicable building code.” It collapsed and destroyed the airship stored within. The underlying complaint sought damages due to breach of contract and negligence and alleged that the hangar had both design and construction defects.

At the time of the collapse, Shelter had a CGL insurance policy with Burlington Insurance Company (“Burlington”). When Sceye commenced the underlying suit, Shelter sought to have Burlington defend and indemnify it against Sceye's claims. Burlington denied coverage and filed this action seeking a declaration that it had no duty to defend or indemnify Shelter.

After determining that Pennsylvania law governed, the Court examined Burlington’s coverage obligations relative to the underlying action. The policy issued by Burlington provides that Burlington will defend Shelter against suit and pay damages arising from "bodily injury" and "property damage" caused by an "occurrence." The contract defines an "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful condition."

Under Pennsylvania law, claims for faulty workmanship are not covered by occurrence-based provisions like this one because the term "accident" "implies a degree of fortuity that is not present in a claim for faulty workmanship."

Shelter argued that the windstorm should be considered an occurrence under the policy. However, the Court pointed out that the underlying complaint did not allege a windstorm. It alleged that the hangar "failed in winds far below the design requirements of the applicable building code" and that "the actual wind forces were less than half of what the [h]angar should have been constructed to resist." The Court held, that based solely on the underlying complaint, the failure of the hangar was the foreseeable result of the allegedly faulty workmanship, which is not an occurrence under Pennsylvania law.
 

Shelter had also argued that where third-party property is damaged, faulty workmanship may be considered an occurrence. The Court clarified that Pennsylvania case law has merely held that faulty workmanship does not preclude the finding of an occurrence when third-party property is damaged. An underlying complaint must still allege that the damage was caused by "an unexpected and undesirable event" that "falls within the definition of the term 'occurrence' under the [policy]" for there to be a duty to defend.

Finally, Shelter argued that because it was merely the seller of a structure "engineered, manufactured, and erected by others," and not the actual manufacturer and builder of the hangar, the failures of the subcontractors should be considered an occurrence under the policy. The Court rejected such an argument, pointing out that if it were to accept this argument, it would swallow the occurrence requirement and render the policy language mere surplusage.

Because the underlying complaint did not allege an occurrence, the Court held that Burlington had no duty to defend or indemnify Shelter in the underlying action.

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

09/04/20        Martinez v. GEICO et al. Supreme Court of Alaska
Auto Insurance Policy – Supreme Court Affirms Superior Court’s Judgment for Insurer – No independent Duty of Insurer to Third Party

In November 2011, Joshua Martinez was driving a pickup truck when he lost control and crashed into a cabin, injuring the cabin owner Charles Burnett and causing property damage, including a spill of heating fuel. Burnett owner asked Martinez’ insurance company GEICO to pay Burnett to do the cleanup himself, but GEICO refused because Burnett did not have the qualifications required by the Alaska DEC. Cleanup of the spill of heating fuel stalled for over a year while the effects of the spill on the property and Burnett’s health allegedly worsened. Burnett sued the Martinezes and GEICO in September 2012, while his property was still awaiting cleanup.

In March 2014, after the property cleanup was completed, Martinez and his father, the truck's owner, settled with Burnett for the maximum limits of the insurance policy, with Burnett reserving his claims for the delayed property cleanup against GEICO. The parties agreed to dismiss with prejudice “all claims that were or could have been asserted” by Burnett against the Martinezes.

In September 2014, the superior (trial) court granted summary judgment to GEICO on Burnett’s remaining claims, finding GEICO owed Burnett “no actionable duty”, because, as the trial court opined, “GEICO’s duties run to its insureds, the Martinezes, not to Burnett.”. GEICO had argued to the superior court that a liability insurer owes no duty of good faith and fair dealing to a third- party claimant, contending that as a matter of law it owed Burnett no duty to act reasonably in handling the property cleanup.
 

In early 2017, the Supreme Court of Alaska reversed the trial court’s grant of summary judgment to GEICO, holding GEICO “may owe Burnett an independent duty” (as defined by Restatement (Second) of Torts, Section 323 – “Negligent Performance of Undertaking to Render Services”.   The Alaska Supreme Court remanded the case to superior court for an evidentiary hearing or trial at which Burnett was to have an opportunity to try to establish that “independent duty” as a factual matter.

In April 2018, the superior court held an evidentiary hearing to decide whether GEICO had assumed a duty to Burnett owner independent of the duty GEICO owed its insureds. The superior court found there was no such duty. Burnett’s appeal of that ruling brings us to the September 4, 2020 opinion issued by Supreme Court.

The Alaska Supreme Court held that the superior court did not clearly err in its findings of fact about the existence of an independent duty (that Burnett had not shown there to be any independent duty owed to him by GEICO) and that superior court did not violate Burnett’s due process rights. The Alaska Supreme Court further concluded that the Martinezes were no longer parties to the case at the time they sought to renew their participation in it, and their arguments that they were entitled to either joinder or intervention were waived for lack of briefing. In sum, the Supreme Court affirmed the superior court's judgment.

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

09/09/20         United States of America v. Kogan
United States District Court, Southern District of New York Fraudulent No-Fault Insurance Scheme Lands Provider in Prison

Although this is not really a no-fault case, the defendant was incarcerated for fraud related to a no-fault insurance scheme, so I thought it would be interesting to include. The defendant’s claim here is that he should get a compassionate release for home arrest due to heightened risks related to COVID-19, which the Court denied. The defendant found himself jailed for concurrent terms of 50 months after he plead guilty to two counts of health care fraud in 2016 and one count of insurance fraud in 2017.

In the no-fault insurance scheme, which took place between approximately March 2014 and June 2016, an acupuncturist set up two professional corporations at the request of the defendant. The defendant actually controlled the businesses and paid the acupuncturist a salary from a portion of the proceeds (keeping the rest himself), but the businesses were registered in the acupuncturist’s name only. The defendant also coached the acupuncturist how to lie about his involvement in the practices during an “Examination Under Oath” in which she was questioned by representatives of an insurer. The defendant had been accused of fraudulent no-fault insurance schemes in the past by several of the major no-fault insurers, and had entered into settlement agreements with two of the largest (Geico and Liberty Mutual) to resolve their claims against him.

Pursuant to one of the settlement agreements, he had agreed not to submit any future billing — under his name, or under the name of any entity in which he had direct or indirect ownership or control — without giving advance notice to the insurer. A total of $293,851 was paid by Geico and Liberty Mutual for services performed by the acupuncturist’s companies. Had the insurers known the truth — that the acupuncture clinics were in fact controlled by the defendant despite being registered in the acupuncturist’s name — they would not have paid the claims due to the fraudulent incorporation of the companies.

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

Legislative List

09/09/20         Proposed Bill Would Provide Civil Action for Deprivation of Rights Under Color of Law
New York State Assembly
Assembly Bill No. 10978 Would Allow for Damages and Reasonable Fees Associated with Deprivation of Rights Under Color of Law

On September 9, the New York Assembly’s Rules Committee introduced, on behalf of Assemblymember Pamela J. Hunter, a bill that seeks to end the defense of qualified immunity for law enforcement for the deprivation of an individual’s rights, as well as provide a state cause of action that may be brought by injured individuals and the Attorney General.

Citing more than five decades of “extraordinary leeway” in the performance of law enforcement duties, the Sponsor Memorandum for this bill notes that “qualified immunity has far too often given the police the ability to brutalize and harm our communities, particularly communities of color, even during the most routine encounters.” Specifically, its noted that qualified immunity has been extended to law enforcement by the U.S. Supreme Court and further expanded thereafter. Assemblymember Hunter calls on New York legislators to “join our colleagues in Colorado, who became the first state to eliminate qualified immunity this month,” and “be part of the national movement to stop these killings and erase this stain on society's record.”

If signed into law, a new section 79-Q of the Civil Rights Law would be created, which would hold liable any person or public entity that deprives an individual of their rights while acting under color of law. A prevailing plaintiff that catalyzes change in a defendant’s conduct would be afforded reasonable attorney’s fees and costs; however, a defendant would be entitled to defense costs and fees should any such action be found frivolous. Additionally, the Attorney General would be empowered to bring a civil action for relief on behalf of the state and the injured party. If the Attorney General prevails, the court is required to order any award of damages to the injured party.
 

With respect to indemnity for any such damages, a public entity would be required to indemnify its public employees for any liability incurred by the employee and for any judgment entered against the employee for claims arising under this section. However, such public entity would be prohibited from indemnifying a public employee if the person was convicted of a criminal violation for the conduct from which the claim arises.

Most importantly, the newly proposed §79-Q of the Civil Rights Law would provide that qualified immunity or a defendant's good faith but erroneous belief in the lawfulness of their conduct shall not be a defense.

From the Filings Cabinet
09/08/20         Cyber Bullying Coverage Impermissibly Broad Department of Financial Services
Cyberbullying Coverage Expenses Must be Limited to Acts of Violence or Threatened Acts of Violence

On September 8, DFS disapproved a Family Cyber Protection filing for, among other reasons, exceeding the permitted scope of coverage for cyberbullying.

Specifically, in its disposition, DFS advised that “it is this Department’s position that cyberbullying coverage expenses can only be for the acts of violence or threatened acts of violence.” DFS had noted in its objections to the filing that “cyberbullying in and of itself is not always an act or threatened act of violence.” Providing an example, DFS indicated that “we do not consider ‘harassment’ as an act of violence or threatened act of violence; and so, cannot be covered.”

Given the above, the carrier was directed to amend the filing’s definitions of cyber bullying “to make it clear that the act is an actual or threatened violent act.” DFS also took issue with the coverage trigger included, providing that “due to the nature of this coverage, the coverages being provided on a ‘discovery’ basis as opposed to an ‘occurrence’ basis may not be acceptable” and requested that the carrier “demonstrate that the coverage being provided are on an ‘occurrence’ basis.”

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

09/14/20         Kathleen Reno v. Wheatland-Chili Central School et al.
Supreme Court, Monroe County
To Assert a Claim under the Theory of Premises Liability After Injury by a Third Party the Defendant Must Have Had the Opportunity to Control the Third Party who Caused Plaintiff’s Alleged Injury

Plaintiff brought an action under the CVA against both Wheatland-Chili Central School District (WCCSD) and Churchville-Chili Central School District (CCCSD) alleging that she was abused by a teacher employed by both districts, however plaintiff was only a student at WCCSD and the abuse occurred on property owned by defendants. Plaintiff asserted causes of action against both defendants sounding in: Negligence based on the failure to supervise the teacher and plaintiff and the failure to protect plaintiff from a known danger, negligent hiring, negligent training and supervision, and negligent retention. Defendant CCCSD moved to dismiss all causes of action against it, as it owed no duty to plaintiff.

Plaintiff’s causes of action against CCCSD rely on CCCSD owing plaintiff a duty of care based upon a theory of premises liability and in loco parentis. The court held that CCCSD could not be held liable under a theory of premises liability, as it had no control over Raftery when he was not on CCCSD property. In order to assert a viable claim under a theory of premises liability for injury by a third party the court holds the defendant must have the opportunity to control the conduct of the third party.

Additionally, the court holds that plaintiff’s reliance on the theory of in loco parentis is also misguided. Plaintiff, being a student of WCCSD was never owed a higher duty by CCCSD. Even if the abuse had occurred on CCCSD property, the theory of in loco parentis would still not provide plaintiff grounds to assert a claim because it is a duty owed only by a school to its students, not students of a neighboring district.

Plaintiff also moved to amend her complaint to include a cause of action against both WCCSD and CCCSD for failure to report the claims abuse pursuant to Social Services Law § 413. The court rejects this proposed amendment because Social Services Law § 413 only requires the reporting of abuse by a person legally responsible for a child, as defined by the statute. A teacher is not defined by the statute as a person legally responsible for a child, therefore the trigger to report under Social Services Law § 413 was never triggered.

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

Heather Sanderson Sanderson Law (Alberta, Canada)

[email protected]

Cara’s Cross Border-Connection: Heather
07/04/20         Hector Chiasson et al. v. Intact Ins. Co., 2020 NBCA 37 New Brunswick Court of Appeal
How Unintentional Translation Mistakes Created Intended Coverage

The town of Lamèque, New Brunswick, is on the picturesque Acadian Peninsula, surrounded by the Gulf of St. Lawrence. In July of 2016, Lamèque was the home of Hector Chiasson, his wife Anna Chaisson and their teenage son Jean- François Chaisson. The Chaissons are, like most of their neighbours, a French speaking family.

Intact Insurance issued a homeowners’ policy to the Chaissons which named Hector and Anna Chaisson as named insureds. Their teenage son, Jean- François was an additional insured under the Intact policy as he was living in his parents’ household.

On the Canada Day long weekend in July of 2016, Jean-François and three of his friends were celebrating their high school graduation some 10 hours away by car at the “The Beach Club” in Pointe-Calumet, Quebec. Pointe Calumet is on the north shore of the St. Lawrence, near the western tip of the Island of Montreal. The Beach Club is a top North American destination for electronic music (top 40, mix of EDM and hip hop). It has a capacity of more 10,000 and features artists every weekend.

Aerial shot of the Beach Club

While leaving the Beach Club, Jean-François and his friends found themselves in an altercation with James Bohn, an American fellow who at the time was residing in Minneapolis, Minnesota. No criminal charges ensued and therefore there was no convictions arising from the incident. However, Bohn sued Jean-François, as well as his three friends, their parents, and their insurers in the Quebec Superior Court. Quebec permits direct action against insurers which is why the insurers were included.  The action alleged assault and intentional infliction of bodily harm. Intact refused to defend Jean-François as it stated that the allegations of liability are excluded. Intact agreed to defend his parents.

Jean-François, together with his parents applied in the New Brunswick Court of Queen’s Bench for an Order directing that Intact defend Jean-François. In an unreported judgment, the application judge dismissed the Chaissons’ application, holding that Intact did not have a duty to defend Jean-François. The Chaissons appealed to the New Brunswick Court of Appeal.

As is usual in these cases, the Court of Appeal analyzed the allegations against the policy wording. However, in this case, the New Brunswick Insurance Act requires all policies to be written in both of Canada’s official languages, English and French. Any inconsistencies between the two versions must be resolved in favour of the insured.

The Court of Appeal held that “there are glaring inconsistencies between the two versions of the policy”. The English version of the coverage agreement limited coverage to accident injuries to someone or their property. The French version did not mention property damage and did not limit the coverage to accidental injuries. As a result, the French version offered broader coverage for bodily injury. The coverage for defence costs and indemnity payment was identical and applied to unintentional injury permitting the Court of Appeal to conclude that unless excluded “…Intact provides personal liability protection to their insured if sued for bodily injury or property damage anywhere in the world but that Intact is only liable for defence costs and compensatory damages if the injury or damage was unintended.”

Intact relied upon an intentional acts exclusion that in the English policy excluded claims arising from bodily injury or property damage caused by either an intentional act, a criminal act or a criminal failure to act. As for the French version, the Court of Appeal stated “To say the French version of this exclusion is very poorly drafted is an understatement. It creates both an absurdity and a significant ambiguity. The first part of the exclusion eliminated all coverage for bodily injury or property caused by any person insured by the policy whether intended or not. Then, it created a separate category of exclusion (unnecessary given the preamble to the exclusion) for damages caused by the criminal acts or failures to act of those insured. The Court of Appeal concluded: “This absurdity/ambiguity must be interpreted against its author-Intact.”
 

The Court concluded that the true construction of the policy meant that Jean- François was covered for damages caused by his intentional acts unless those intentional acts constitute criminal acts. As there was a possibility of coverage in this case, Intact was obliged to defend him. Intact was ordered to pay a total of $5,000 in costs for the proceedings on appeal and before the application judge.

Given the legislation in New Brunswick mandating that coverage be issued in both languages, the result would likely have been the same if the insureds were English speaking. However, as they were French speaking the errors in the French translation were material.

Watch those translations. They can create unintended coverage.

Cara’s Cross-Border Connection
Back to School: Colleges and Universities Take on Carriers College students are “back”. However, many students will not be able to experience higher education like those prior to COVID-19. When the fall semester began, schools needed to make choices of in-person classes, online classes, or a mix of the two. At the start of this semester, it appears most colleges and universities in the United States had opted for remote learning, while approximately 20% of colleges and universities were offering mostly in- person classes, and 16% were offering a mixed experience.¹ Some institutions are permitting students on campus, but only at partial capacity, like the State University of New York at Buffalo², which elected a hybrid approach with housing and dining having remained open but having capped in-person classes to 25% capacity.³

Despite the obvious changes to dorms and classroom experience, a student’s bill generally reflects the pre-pandemic experience, such as technology fees, student activity fees, and laboratory fees. However, two items may stand out compared to others: tuition and room and board fees. Depending on the college or university, tuition and/or room and board appear to be the largest source of revenue. This is especially true for out-of-state students; whose tuition is typically more than in-state students and may have elected to not travel across state lines this semester.

However, what is a college or university do when they lose their two largest sources of income? Is there a claim for such losses? For the institutions that preemptively elected to have an entirely remote experience for students this fall, it is unlikely they have a covered claim given the lack of any property damage on campus, which this Column discussed at length previously. Conversely, the institutions that chose to carry on with business as usual or change their operations, are now incurring additional costs associated with that choice.
 

For colleges or universities that have permitted in-person classes, there have been a surge of cases with the influx of students arriving to campus.⁴ In response to increased cases on campus, institutions are either switching entirely to remote learning, like Colorado College⁵, or implementing a quarantine protocol, like the University of Tennessee at Knoxville.⁶

Regardless, all these decisions have financial costs, such as reduced “rental” income due to limited capacity or reducing multi-person dorm rooms to 1-person quarantine/isolation rooms; alternative housing for students who are removed from dorms because their dorm rooms are being utilized for quarantine; sanitizing and disinfecting costs; enforcing quarantine protocols, like hiring police officers to guard quarantined dorms; or large events like sporting events or concerts.

As colleges and universities are feeling the financial losses, business interruption claims are being made and lawsuits are being filed against carriers who have denied coverage. For example, the University of Saint Thomas (“UST”), a private university in Texas, filed a complaint against American Home Assurance Company. UST argues the “physical presence of the virus on UST’s campus have caused direct physical loss and damage to covered properties. UST has and will continue to sustain direct physical loss and damage covered by the Policy, including but not limited to, business interruption, extra expense, interruption, by civil authority, limitations on ingress and egress, and expenses to reduce loss.” However, the issue of whether or not the risk of COVID-19 was a foreseeable risk may affect coverage. For instance, another college that has filed a complaint against its carrier is Benedictine College. Benedictine College is located in Kansas and shut down its campus in March but welcomed back their largest incoming freshman class last month in order to provide students an in- person experience, including athletics.⁷

The other question that will likely be debated is whether or not colleges and universities mitigated the damage. Take UST, which arguably is on end of the mitigation spectrum. UST eventually shut down its campus after confirmed cases of the virus appeared on campus this past March, and to date, UST remains closed and operates exclusively on a remote basis. Conversely, Benedictine College opened its doors to students last month to begin the fall semester.

However, like Dr. Fauci warned in May would happen8, Benedictine College saw a rise in cases as soon as students returned to campus and county health officials issued an order to quarantine the entire campus. However, Benedictine College pushed back when county and eventually the County and College arrived at a compromise.⁹

Although we have seen a handful of cases related to business interruption claims having been dismissed already, cases where colleges and universities experienced positive cases on campus either this past spring or this fall may not be as quickly determined given the various approaches taken by colleges and universities, which will likely affect whether coverage is provided.

1 https://www.npr.org/2020/09/16/913500758/as-campuses-become-covid-hotspots-colleges- strain-under-financial-pressures
2 Considered to be the “flagship” of the State University of New York system, with over 30,000 students enrolled as of 2019, https://admissions.buffalo.edu/experience/about-ub.php
3 https://www.bizjournals.com/buffalo/news/2020/08/18/college-reopening-plans.html
4 https://www.nytimes.com/2020/09/09/business/colleges-coronavirus-dormitories-quarantine.html
5 https://www.denverpost.com/2020/09/01/colorado-college-covid-remote-learning/
6 https://www.insidehighered.com/news/2020/09/10/covid-19-roundup-colleges-seek-quarantine- space-looking-ahead-spring-instruction
7 https://www.kq2.com/content/news/Benedictine-College-to-open-for-fall-semester- 570250631.html
8 https://www.washingtonpost.com/politics/2020/05/12/fauci-testimony-senate-coronavirus/
9 https://www.insidehighered.com/news/2020/09/08/county-health-officials-pressure-local- colleges-covid-19-policies-and-campuses-push