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Coverage Pointers - Volume XXIII, No. 18

Volume XXIII, No. 18 (No. 612)
Friday, February 18, 2022
A Biweekly Electronic Newsletter

Hurwitz & Fine, P.C.
1300 Liberty Building
Buffalo, New York 14202
Phone: 716-849-8900
Fax: 716-855-0874

Long Island Office:
575 Broad Hollow Road
Melville, New York 11747
Phone: 631-465-0700
Fax: 631-465-0313

www.hurwitzfine.com
© Hurwitz & Fine, P. C. 2022
All rights reserved
 

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:

Do you have a situation?  Have no fear, we LOVE situations.  Bring them on.

See the source image

Comprehensive Insurance Disclosure Act (CIDA), as amended, passes both houses of the New York State Legislature and is on its way to the Governor

The talk over the last couple of weeks has been all about New York’s Comprehensive Insurance Disclosure Act (“CIDA”) which went into effect on December 31, 2021, and the amendments to that law that have been bouncing around the New York State Legislature since that time.  For those who were not on our daily update email list (because they have been following the trial and tribulations of the amendments very closely) we are pleased to advise that on Thursday, February 17, the amended bill passed both houses of the Legislature and is on its way to the Governor’s desk for a promised signature.  We are confident (although confidence is not quite as good as certainty), that Governor Hochul will sign the amendments into law before March 1.

If that occurs, CIDA will only apply to lawsuits that were commenced in 2022 and required disclosures will need to be made within 90 days of answers (or third-party answers) being filed in actions commenced this year.

We have prepared a summary of the CIDA requirements, which will send to each of you the moment the Governor signs the bill.  We do not feel comfortable sending it out now, since the bill has not yet been signed into law. However, if you want a sneak peak, we can make it available on an individual basis.

I hope to see many of you in San Antonio for the PLRB Claims Conference and Expo.  With my friend John Hanlon, we will be presenting on Risk Transfer – Additional Insured Coverage and Contractual Liability.  It’s been a winner for the past dozen years or so and we hope to make it one again!  Everything you need to know about risk transfer in 90 minutes.

 

Trends in AI Coverage Involving Landlords and Tenants

In my column, you’ll find a couple of cases that demonstrate a broadening of additional insured coverage in cases where a landlord claims AI coverage on a tenant’s policy for injuries that outside of the rented premises, in common areas.  Courts have been more willing to extend additional insured coverage for a common area (sidewalk, parking lot, etc.) when it is being used to access the building where the tenant rents its space.

 

Late Disclaimer case

There have been very few cases since 2009, when the prejudice statute went into effect, that discuss whether or not an insurer has been prejudiced by late notice.  Interesting case in my column where the carrier so claimed but failed to demonstrate that it actually tried to investigate the claim and was stymied because of late notice.  You want to claim prejudice?  Prove you tried to investigate the claim and could not.

 

Need a Mediator?

Hey coverage lawyers.  Hey claims professionals. Have you and a friend, adversary, or lawyer for whom who have respect reached a stalemate on a coverage dispute?  Look, we know each other.  We know that.  We don’t want to litigate every coverage disagreement.  Why?   Because the position we oppose today may be the one we advocate tomorrow.  Face it.  We all understand that.

Let me help mediate your disagreement to see if there is some mutual agreement, we can reach that will not box us into a corner. Reach to me.  I will be pleased to mediate your dispute.

My partners, Mike Perley and Ann Evanko, are also available to help resolve other challenges.

You don’t want adverse precedent that will bite you next time you might have a slightly different view on coverage issues. You don’t want to spend tens of thousands of dollars to litigate a coverage issue before a motion judge or appellate justice that know as much about insurance coverage as you do about nuclear physics.  For those in the Western District of New York, I am certified by the Court and on the WDNY Mediation Panel as are Mike and Ann

Try mediation.

My good friend, Jean Lawler, a wonderful mediator from Los Angeles, and I, recently published a piece on how good mediators prepare for the process

 

Training, Training and More Training:

Schedule your in-house training for 2022.  Need a topic?  Here are 160 or so coverage topics from which to choose.

 

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.

     

    Peiper on Property and Potpourri:

    Insurance can be difficult work.  Lawyers and adjusters alike are often forced to straddle the fine line of what is right, and what is righteous.  So is the conflict created when the black and white language of contract intersects with the human condition of claims.  Are we compelled to follow the stark language of the policy regardless of the circumstances, or are we free to fashion results to a more just end?  Your personal thoughts on this issue likely define on what side of the fence you practice. 

    If you work in this industry long enough, these dilemmas will no doubt pop up.  Someone involved in claims is duty bound to apply the language as written and explain the consequences as part of the “bargained for” scope of the coverage.  To do this work is correct, it is consistent, and it is fair.   

    It is not without strain, however, and we are not alone. 

    The Court of Appeals this week reviewed an interesting decision involving a life insurance policy issued by William Penn.  That policy, as outlined by the Court, contained strict time requirements for the receipt of annual premium payments. When these deadlines expired, so too did the bargained for risk assumed by William Penn.  In deciding the case, the Court grappled with the very issues I mentioned in the foregoing paragraphs. As you’ll see in reviewing the decision, a split court applied the language of the policy as it was compelled to do.  The dissent, however, appears more moved by the unfairness of the legally correct decision.  Both opinions are well crafted, reasoned, and thoughtful.  One (we’d submit the majority) was legally correct, but perhaps neither opinion is wrong.

    That’s it for this week.  See you in two more.    

    Steve
    Steven E. Peiper

    [email protected]

     

    Huge Fire Insurance Lawsuit, 100 Years Ago:

    St. Louis Globe-Democrat
    St. Louis, Missouri
    18 February 1922

    WOMAN FILES 25 SUITS FOR $116,891 FIRE INSURANCE

    Same Number for $289,000 More to Be Instituted Today by Attorneys for Mrs. Paulina Smith.

    ASKS DAMAGES FOR WAREHOUSE

    Companies All Over the World Named by St. Louisan in Actions to Collect for Destroyed Sixth St. Structure.

    Twenty-five suits, for amounts aggregating $116,891.63, not Including $16,500 in attorneys' fees, were filed In the Circuit Court yesterday by Mrs. Faulina Smith, 5164 Washington boulevard, against various Insurance companies of the United States, England, France, and Japan, to secure payment of twenty-five insurance policies. alleged to be due as partial adjustment for damages sustained when a wholesale warehouse owned by the plaintiff and situated at 925-33 North Sixth street. was destroyed by fire on March 1, 1921.

    About the same number of suits will be filed today covering remaining alleged liabilities under insurance policies totaling $282,000, of which $245,000 remains unpaid, according to Thomas T. Fauntleroy and P. H. Cullen of the firm of Abbott, Fauntleroy, Cullen & Edwards, which is representing Mrs. Smith. Deducted from the amount involved in these additional suits will be that included in Policies aggregating approximately $50,000. and now pending in the Circuit Court in Audrain County.

    The wholesale warehouse destroyed by fire on March 1, 1921, was operated under the name of the Joseph Smith Furniture Company. According to the petitions filed yesterday, the damage caused by the fire amounted to $266,360.15 and the building, was valued at $296,660.15.

     

    Wilewicz’ Wide-World of Coverage (featuring Evan D. Gestwick):

    Some winter whiplash this week, as the weather goes from bone-chilling, to defrosting, to rainy Spring-like, to slushy snowy mess here. The touch of warmth this week, however, does indicate that a thaw is likely sooner or later, and despite what the sages in Punxsutawney recently predicted, I am looking forward to the change in seasons for once. I love a good snow day (or month), but the inch-thick sheets of ice surrounding my house, I could do without.

    In other news, do you have an article idea, or a practice point you would like to share with the world? As an Editorial Board member of the ABA’s The Brief magazine (one of the last old-school print periodicals), I’m excited to report that we are currently seeking content for upcoming editions. In particular, we are looking for original manuscripts on emerging and other recent legal developments in tort and insurance law, which is pretty broad! And word count requirements vary, so it does not have to be a very heavy lift, necessarily. As the Author Guidelines note, we also look for “other material of interest to both plaintiffs and defense lawyers who practice and litigate in the areas of tort and insurance law and to insurance professionals.” Have an idea? Want more information? Give me a buzz or drop me a line: [email protected].

    Now, turning to our budding associate-in-training, Evan:

    Hi everyone! It certainly has been a very busy time here. With classes picking up again and being peppered with a whole host of interesting and educational assignments here at Hurwitz & Fine, it’s hard to believe it has already been two weeks since our last edition! Sadly, there was nothing much out of the Second Circuit Court of Appeals this week that I can write to you about – here's hoping that we can get back down to business in another two weeks. Until then, take care, stay warm, and stay safe! ~Evan

    Check back here next time for all of the very latest from the Federal Circuit Courts.

    Until then,

    Agnes (and Evan)
    Agnes A. Wilewicz

    [email protected]

     

    Auto Property Insurance Plan – a Century Ago:

    The Ottawa Journal
    Ottawa, Ontario, Canada
    18 February 1922

    AUTO INSURANCE IS BASED ON NEW PLAN

    Companies Issue Policy to Cover Percentage of Value.

    It has been the common experience of fire insurance companies that depression in trade is accompanied by an increase of losses by fire, it is said. A similar tendency has been observed in the automobile insurance business during the last two years. Since the deflation era set in losses of automobiles by fire, theft and a variety of accidents have exceeded the calculations of the insurance companies, and to such an extent that in some of the neighboring states they have been obliged to change the forms of their policies. Prior to last May autos were insured at fixed values, and as machines purchased during and immediately after the war had been paid for at high prices, the insurance valuations were proportionately hog. With declining values, the owner of a high-priced auto on which he carried insurance was lucky if somebody stole it or it was destroyed by fire. With the amount paid him by the insurance company he could purchase a new car of an even higher grade than the old one. The decline in prices of machines was accompanied by such an increase of claims for losses by theft and fire that the companies last spring decided to discontinue issuing valued policies calling for the payment of a fixed amount in case of loss. It is now based on the actual loss, but not in any event to exceed the amount of insurance carried. This at once removed any incentive to owners to lose their cars.

    Another change in the form of insurance policy is to make it cover only three-fourths the value of the auto in the event of loss in transportation, or by fire, lightning, or theft. It is hoped that the adoption of these forms of policies will lead to the exercise of much greater care by owners and prove much more satisfactory to the insurance companies.

     

    Barnas on Bad Faith:

    The Super Bowl, and with it the football season, has come and gone.  This is usually the time of year where my mind turns to pitchers and catchers reporting and the sights and sounds of spring training.  Alas, we still do not have a collective bargaining agreement, and the MLB lockout seems destined to continue and wipe out some or all of spring training.  I need baseball back in my life, and the lack of an apparent end to this lockout is just making winter seem all the longer.

    I am excited that I will be able to escape the cold weather for a little bit in Houston at DRI’s Insurance Coverage and Claims Institute from March 21-23.  The conference is at the Hyatt Regency Houston, and the hotel block group reservation rate is available through February 21, 2022.  Be sure to make your reservation before that rate expires, and I hope to see you in Houston in a few weeks.

Brian
Brian D. Barnas

[email protected]

 

Insurance for Rain Outs:

Argus-Leader
Sioux Falls, South Dakota
18 February 1922

LEAGUE TEAMS WON’T GAMBLE ON RAINY DAYS

BY BILLY EVANS

Not only are insurance willing to gamble on life and death but they are ever willing, even anxious to gamble on the weather.

Practically every major league club, and a good many of the minors, are insured against weather on all the big days. In speaking of the big days reference is made to Saturday, Sunday, and holidays.

There are any number of blanket policies that are offered which are governed by certain conditions. The rate of insurance varies according to the risk which the company believes that it is assuming.

Only recently the real value of a rain policy to baseball magnates was made apparent. There was launched on the Pacific coast a winter league of baseball in which the four managers were big league stars, Sisler, Hornsby, Cobb and Hellman.

It is understood that these four-star players received $40,000 for their combined service or about $10,000 each. That placed the teams under a big expense at the very start. In order to secure every protection possible a rain insurance was carried on all games played.

When the policies were taken out little thought was given to the action. Usually, the weather in October and November is very pleasant. It so happened that the league failed to strike a popular chord. That was unfortunate.

 

Off the Mark (featuring Kyle A. Ruffner):

Dear Readers,

We had some interesting weather last weekend on Long Island.  On Saturday, the temperature climbed to over 60 degrees.  On Sunday, we were back to the cold and snow.  I did take advantage of the warm weather on Saturday by taking a bike ride with my youngest son.  It wasn’t a long ride, but it certainly felt good to be outside getting some much-needed exercise.

Despite an exhaustive search, I did not come across any interesting or noteworthy construction defect decisions to report on.  Be sure to check back in two weeks.

Until next time …     

Brian (and Kyle)
Brian F. Mark

[email protected]

 

Kennesaw Mountain Landis opts for Baseball Rather than the Federal Bench:

The Daily Messenger
Canandaigua, New York
18 February 1922

Jurist Decides He Can’t Hold Two Jobs

Resignation of Landis Proves Big Surprise to Harding.

BASEBALL JOB PAYS HIM $50,000 YEARLY

Chicago, Feb 18—Judge Kennesaw Mountain Landis, probably the best-known jurist in the United States, resigned his post as judge of the United States District Court today. He will relinquish his judicial office on March 1.

His resignation was forwarded to President Harding in the mail today.

Judge Landis retires from a life position as a United State jurist to devote his entire time to organized baseball of which he is high commissioner.

The judge was 55 years old on November 20 last.

Fifteen months ago, Judge Landis accepted the place of baseball commissioner at an annual salary of $50,000. Protests against his retirement from the bench at that time led him to decide to attempt to administer both his baseball and his judicial duties and as a result his contract with the baseball magnates was revised so that his salary of $7,500 per year was deducted, leaving baseball to pay him an annual stipend of $49,000.

 

Fleming’s Finest:

Hi CP subscribers:

It has been very exciting to see weather above 0°C and less snow because that means I can lace up my trainers and leap over snowbanks on my way to run in the park. I did almost have a little slip and fall the other day on the ice though. Speaking of ice, this week was also very exciting because I went to my first ever hockey game at KeyBank Center, and the Sabres beat the Islanders!

This edition, I can offer you a case from the Texas Supreme Court considering whether an insurer had a duty to defend and indemnify an insured under an automobile-liability insurance policy against claims for damages arising out of an accident involving a student being thrown from a golf cart. The court considered whether a golf cart fell within the definition of a covered auto under the policy. It’s my goal to learn how to golf this year, so now I have a new niche fear. Check out the case in the column to learn more!

Until next time,

Kate
Katherine A. Fleming

[email protected]

 

A Thrilling Burglary, 100 Years Ago:

The Brooklyn Citizen
Brooklyn, New York
18 February 1922

BREAK SHOP WINDOW, STEAL $10,000 GEMS IN THRILLING THEFT

WASHINGTON, Feb 18.—Two negro bandits staged a spectacular robbery of a jewelry store in the heart of the business section here ‘early today.’

They threw a brick through the window of a store a short distance from two police stations, seized $10,000 worth of gems, held a crowd at bay with revolvers and made their escape.

Up until noon the police were unable to find a trace of the men.

Ryan’s Capital Roundup:

Hello Loyal Coverage Pointers Subscribers:

This week I celebrated another birthday and I have officially had my fair share. My wife surprised me with tickets to the Tony Award winning revival of Oklahoma!—a musical that I was in during my high school years (as Random Cowboy No. 2). This version was a bit darker than I remembered it. Or maybe I’m just more cultured now. Unclear. But I thoroughly enjoyed most of it. Most of it….

This week, we provide another update on the Chapter Amendments to the Comprehensive Insurance Disclosure Act. We are drawing near to the March 1 deadline, but with a revised bill repassing both the House and Senate, there is hope (and hope springs eternal). All eyes are on the Governor. Additionally, revisions have been introduced to last year’s dog breed restrictions on insurers pursuant to the new Insurance Law §3421, which precluded insurers from discriminating against insureds due exclusively to the breed of dog owned. The bill clarifies that it also would preclude dog breed specific exclusions.

Until next time,

Ryan
Ryan P. Maxwell

[email protected]

 

It’s Murder She Wrote:

Buffalo Courier
Buffalo, New York
18 February 1922

SEE FOUL PLAY IN MYSTERIOUS DEATH TENDERLOIN QUEEN

Find Fingerprints on Throat of Rose Casey’s Frozen Body.

Camden, N. J., Feb. 17.—The woman whose body, frozen stiff, was found today on the outskirts of Forest Hill Park, was identified tonight as Rose Casey, well known to the police of the tenderloin districts of Philadelphia and Camden. Detectives who made the identification said that she also was known as Rose Klink and that she had been arrested several times in the last few years. She was about forty years old.

The mystery surrounding her death was still unsolved late tonight.

Editor’s Note:  the coroner later concluded that she died of TB and not of foul play.  The fingerprints remained a mystery.

 

CJ on CVA and USDC(NY):

Hello all,

Like many, I have been enjoying the Winter Olympics for the past two weeks. The time difference between Buffalo and Beijing lets me catch most of the action live and having a one-month-old gives me an excuse to be up at 2am some nights to watch cross-county skiing. My favorite part of the Olympics this year has to be the return of the Jamaican Bobsled Team. I’ll keep my comments on the IOC and Russian figure skating to myself, but I think something smells a little fishy there. The movie Cool Runnings was always a staple in the Englert house growing up (I can quote most of it by memory), and I love to see countries giving the largest number of athletes they can the chance at an Olympic medal.

This week I bring to you a case from the Southern District discussing a homeowners policy’s fraud and concealment provision. A little teaser: it is not a good idea to hide the fact that the apartment you are “renting” is your wife’s primary residence.

Until Next Time,

CJ
Charles J. Englert, III

[email protected]

 

Margaret Sanger Banned from Tokyo:

Times Union
Brooklyn, New York
18 February 1922

Mrs. Sanger Predicts War Unless Japan
Adopts Birth Control; Tokio Bars Her

San Francisco; Feb 18.—“If Japan continues its present increase in population and does not resort to birth control, there will be bust on result—war,” was the declaration today of Mrs. Margaret Sanger, president of the American Birth Control League. She has been refused a passport visa by the Japanese Consulate on orders from Tokio.

“If, in barring me from entering Japan, the Japanese Government is signifying its refusal to consider the birth control idea, Japan leaves herself open to the suspicion that she is preparing for war,” he said.

“I was invited by several members of the Japanese government and by the Kaizo group to go to Japan and deliver five lectures on the birth control movement.

“Then with the aid of Baroness Ishmoto, who is in sympathy with my aims, I had planned to establish a series of birth control clinics throughout Japan.”

Mrs. Sanger will continue her trip to the Orient. She hopes to be able to enter Japan merely as a traveler. Failing that, she will continue her trip to China and India, where she has lecture arrangements.

“The militaristic group in Japan,” she said, “is strongly opposed to me and my principles.

“A quota of 100,000,000 as the population for Japan has been set by this group. There are 57,000,000 now, they said that with a population of 100,000,000 they will have the right to speak in world affairs.’

“The ‘right to speak’ as voiced by the militarists can be interpreted but in one way, the power to speak in a way, that with their immense population, will brook no argument.

“If Japan refuses to take to birth control, if she will not accept it as her national policy, I think her plans and intentions are obvious.”

 

Dishing Out Serious Injury Threshold:

Dear Readers,

Hope everyone had a great Valentine’s Day. As we speed through this year, it’s important to make time for those important to us. 

In the Serious Injury Threshold world, it seems like decisions have slowed coming out of the Appellate Courts as there have not been any decisions particularly regarding Serious Injury Threshold matters. Until next time.

Be well,

            Michael
           Michael J. Dischley

           [email protected]  

 

You Think it was Chilly Last Week:

Buffalo Morning Express and Illustrated Buffalo Express
Buffalo, New York
18 February 1922

MERCURY HITS 50 BELOW IN EMPIRE STATE

Extreme cold causes many deaths, crippling of car service.

METROPOLIS IS HARD HIT

Towns throughout state report two degrees below zero to 50 below.

By the Associated Press.

New York, Feb. 17.—The coldest day of the winter in this section tonight was held responsible for several deaths, an explosion and temporary crippling of one of New York's subways, besides a host of minor mishaps.

Two of the deaths occurred in landing operations, when the dynamite house of the Atlas Powder company blew up. Officials pointed out that it was the third explosion to occur in February in the last three years and expressed belief that the extreme cold should be held accountable.

Another death was that of Charles Reed, 70, of Westwood, N. J., who collapsed while buffeting the wind on a street on Lower Manhattan. Falling, he struck his head and was dead before an ambulance could be summoned.

Block signals fail.

With the mercury two degrees below zero in this city and as much as 50 below in the Adirondacks, block signals in one of the tubes connecting Manhattan and Brooklyn failed, and all signals shone red. Obeying orders, no motorman would pass a danger signal without first walking ahead of his train to investigate.

 

Woman Not Impressed with Serving on the City Council:

The New York Times
New York, New York
18 February 1922

Women Councilmen Resign; Would Rather Wash Dishes

THREE OAKS, Mich., Feb. 17.—Declaring they would “rather wash dishes than argue over a paving contract,” and that “politics takes too much of a woman’s time from her duties as housewife,” Mrs. Maude Arnold and Mrs. Helen Ludke, the two women members of the Three Oaks City Council, have resigned.

Each has served one year in the Council.

 

Lee’s Connecticut Chronicles:

Dear Nutmeg Newsies:

Welcome to another exciting edition of what will the weather be today in Connecticut. On Saturday, I came home from yoga in shorts and a pullover. It was 60 degrees. And, yes, yoga. I realized that even as an open-minded individual, I lacked a certain level of flexibility that I need to work on. Yoga has been quite a revelation. Anyway, I wore shorts as I ran my errands around town. Sunday, it snowed four inches. Monday morning, as I write this column, the weather app says the real feel is -3 degrees. This is probably why we won’t get the Super Bowl in Connecticut, ever. That and no stadium. Minor issue.

Those who follow my column regularly will, of course, be clamoring to find out what happened with my trial. Well, after winning two key pretrial motions, the case was now finally set up for resolution and we reached an advantageous settlement on the morning of jury selection. The client was quite pleased. Now, for the opening I did not get to give: “It was midnight, Hunts Point in the Bronx. The calendar had just turned to September 9, 2015, and Denny Santiago was beginning his shift as a delivery driver….”

Oh, and in Connecticut coverage news, you still can’t stack UM/UIM coverages.

Keep keeping safe, we’re almost there.

Lee
Lee S. Siegel

[email protected]

 

Jewish Churches?

The New York Times
New York, New York
18 February 1922

BARS OUT KOSHER BRANDY.

Haynes Contends in Court That Volstead Law Prohibits It.

Special to The New York Times.

WASHINGTON, Feb. 17.—The use of kosher brandy for sacramental purposes by the Jewish Church is prohibited by the Volstead act, according to Federal Prohibition Commissioner Ray A. Haynes in a motion filed today to dismiss the mandamus proceedings begun by Emmanuel Schwartz of Scranton, Pa., in the Supreme Court of the District of Columbia, to compel the issuance of a permit to withdraw fifty-five barrels of brandy, valued at $20,122, from a bonded warehouse in Chicago.

Mr. Haynes declares that wine only is excepted by the law, and that kosher brandy does not form an essential part of Jewish religious ceremonies, although its use is permissible under the church laws.

Mr. Schwartz, who originally secured a permit only to have it cancelled, declared that kosher brandy came under the term “sacramental wines,” and that the refusal of Mr. Haynes to reissue the withdrawal permit was unlawful.

 

Rauh’s Ramblings:

            Hello everyone!

I hope you are having an enjoyable week!  The snow is finally melting in Buffalo and hopefully, Spring is just around the corner.  This winter has seemed unbearably long compared to recent winters, and I hope March brings us some warmer temperatures and sunny days.

Today, I am reporting on a recent case from U.S. District Court for the Northern District of Illinois, which involves parents of a decedent who tried to collect benefits from their deceased son’s AD&D plan provided by his prior employer.  However, because the son’s death was caused by a toxic combination of cocaine and fentanyl, the parties disagreed as to whether the death constituted an accident.  Read on for more details!

See you in two weeks,

Patty
Patricia A. Rauh

[email protected]

 

No Fun in Albuquerque:

The New York Times
New York, New York
18 February 1922

Girls Ban Jazz, Petting, Cigarettes.

ALBUQUERQUE, N. M., Feb. 17.—Four hundred members of the Albuquerque High School Girls’ League have banned jazz dancing, “petting parties” and cigarette smoking. A resolution describes jazz dancing as that by which “is meant dancing that involves unnecessary bodily contact and that might appear vulgar to the onlooker.”

 

Storm’s SIU Examen:

Hi everyone:

Five interesting cases for you this week.  The first on the list has been much anticipated and is of particular importance to first-party property insurers.  I have been advising claims professionals that Executive Order 202.8 does not apply to contractual suit limitations conditions.  The U.S. District Court, Southern District of N.Y., agrees: 

  • COVID-19 Related Executive Order 202.8 Which Tolled Procedural Legal Time Limits That Expired Between 3/20/20 and 11/3/20 (for up to 228 Days) Does NOT Apply to Contractual Suit Limitations Conditions.

  • In Federal Cases Federal Law Applies to the Attorney Work-Product Doctrine and State Law to the Attorney-Client Privilege.

  • During a Deposition an Insurer May Ask Again the Same Questions Previously Asked During an Examination Under Oath or Recorded Statement.

  • No-Fault Insurer Granted Judgment Against Physician on RICO Cause of Action for His Involvement in a Fraudulent Scheme Prescribing Medically Unnecessary Compounded Pain Creams.

This week’s encouraging word: “Try not to become a person of success.  Rather become a person of value.”  ~ Albert Einstein

Don’t give up hope.  Warm weather is only a few months away.  I hope you have an awesome two weeks until the next edition. 

Scott
Scott D. Storm

[email protected]

 

Not a Fair Offer:

Daily News
New York, New York
18 February 1922

WHY DO WE MARRY?” STUMPED JUDGE, HE PLAYS FOR TIME

Casper Palmeri asked a question that even Magistrate Liota couldn’t answer without taking a month to think it over.

The question was: “Why do we get married?”

“Very embarrassing,” said the judge, and adjourned the case.

Casper was up yesterday on charges of striking his wife. He exhibited scars on his hands which, he said, came from her teeth. The judge tried to get Casper to promise he couldn’t strike his wife ever again.

“I will, on condition you’ll get her to promise to do the housework,” said Casper.

“I can’t get her to promise that” the judge replied.

“Then why do we marry?” Casper persisted. The judge will tell why in a month from now.

 

North of the Border:

Canada’s new ‘how to’ guide on how to protest everything that makes you mad seems to be a new national export. Just take your employer’s truck and drive to the national capital, provincial capitals, and key border crossings, honk the horn, and stay put. When you are bored, you can set up a hot tub or play ball hockey.  It took almost three weeks, but finally, massive fines, property seizures and injunctions are dispersing the vehicles in Canadian capitals, Paris, and Brussels.  Anarchy is not a solution to anyone’s problem.  We live in a civil society governed by the rule of law, not mob rule.

My column this week discusses an insurer’s circumstantial arson case that went to the Manitoba Court of Appeal – and, despite the lack of evidence that the fire was incendiary in nature, the insurer’s denial was upheld on the basis that the directing mind of the corporate insured had motive and opportunity. The Court of Appeal had interesting comments on the impact of willfully false statements and the use of polygraph evidence in a civil trial.

If that is too “political” …

A chinook wind blew into southern Alberta at the end of last week and the temperature rose 30 degrees overnight. It feels like spring with temps at the freezing mark. The rise in temperature is lifting everyone’s spirits. The Omicron surge is fading, and my friends and acquaintances are beginning to travel – is some form of normalcy on the horizon?

My column this week discusses an insurer’s circumstantial arson case that went to the Manitoba Court of Appeal – and, despite the lack of evidence that the fire was incendiary in nature, the insurer’s denial was upheld on the basis that the directing mind of the corporate insured had motive and opportunity. The Court of Appeal had interesting comments on the impact of willfully false statements and the use of polygraph evidence in a civil trial.

Heather
Heather Sanderson

[email protected]

 

Headlines from this week’s issue, attached:

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

  • “Prior Notice” Exclusion Interpreted Narrowly

  • Trend, Trend, Trend – Another Landlord Secures Additional Insured Coverage Under Tenant’s Policy – See Next Case, as Well

  • Interesting Decision – Carrier Claim Prejudice from Late Notice of Claim but Failed to Prove that it Tried to Investigate Claim and Was Unsuccessful in Doing So

  • Where Tenant’s Policy Provided Additional Insured Coverage for Use of Premises and Where Tenant Used and was Responsible for Snow and Ice Removal, Tenant’s Carrier had Primary and Non-Contributory Obligation to Defend and Indemnify, Even Where Structural Defect in Parking Lot Alleged

 

PEIPER on PROPERTY (and POTPOURRI)
Steven E. Peiper

[email protected]

  • Exception for Driveway Encroachment Enforceable in Title Policy

  • Failure to Make Annual Premium Payment Resulted in Loss of Coverage

     

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

  • Nothing new regarding Serious Injury Threshold cases this issue.

 

WILEWICZ’S WIDE WORLD of COVERAGE (featuring Evan D. Gestwick)
Agnes A. Wilewicz

[email protected]

  • Nothing new to report from the Circuit Courts

 

BARNAS on BAD FAITH
Brian D. Barnas

[email protected]

  • Subsequent Bad Faith Claim Barred by Res Judicata after UM Claim was Settled

 

LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel

[email protected]

  • Resident Relative Cannot Stack UM/UIM Coverages

 

OFF the MARK (featuring Kyle A. Ruffner)
Brian F. Mark
[email protected]

  • No interesting construction defect cases to report on this edition

 

 

RYAN’S CAPITAL ROUNDUP
Ryan P. Maxwell

[email protected]

  • CIDA Chapter Amendments Stall as Both Houses Remove “Sold or Delivered Within the State of New York” Language, Repasses Legislature and Awaits Governor’s Signature

  • Bill Introduced in Both Houses That Would Amend Ins. Law §3421(1) To Expressly Restrict Homeowners’ Insurers from Excluding Dog Breeds

 

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

[email protected]

  • Mischaracterization of Post Loss Living Arrangements Leads to Claim Denial

     

RAUH’S RAMBLINGS
Patricia A. Rauh

[email protected]

  • Decedent’s Death was Caused by a Toxic Combination of Cocaine and Fentanyl; Court Ruled Decedent’s Death as Non-Accidental and Even if it were an Accident, there is Still No Coverage Due to the Voluntary Use Exclusion

 

STORM’S SIU EXAMEN
Scott D. Storm

[email protected]

  • COVID-19 Related Executive Order 202.8 Which Tolled Procedural Legal Time Limits That Expired Between 3/20/20 and 11/3/20 (for up to 228 Days) Does NOT Apply to Contractual Suit Limitations Conditions.

  • In Federal Cases Federal Law Applies to the Attorney Work-Product Doctrine and State Law to the Attorney-Client Privilege.

  • During a Deposition an Insurer May Ask Again the Same Questions Previously Asked During an Examination Under Oath or Recorded Statement.

  • No-Fault Insurer Granted Judgment Against Physician on RICO Cause of Action for His Involvement in a Fraudulent Scheme Prescribing Medically Unnecessary Compounded Pain Creams.

 

FLEMING’S FINEST
Katherine A. Fleming

[email protected]

  • No Duty to Defend or Indemnify Under Automobile-Liability Insurance Policy for Accident Involving Golf Cart

 

NORTH of the BORDER
Heather Sanderson

[email protected]

  • An Insured’s Failed Polygraph Test Can Be Entered into Evidence in a Civil Claim for Insurance Coverage to Document that the Insurer’s Denial of Coverage was Made in Good Faith. However, the Results of that Test are Not Probative of Wilful Misconduct on the Part of the Insured

  • A Material Statement is Any Wilfully False Statement About the Quality or Condition of the Insured Property Which is the Subject of the Claim that is Capable of Affecting the Mind of the Insurer Regarding that Claim

  • The Insurer Can Rely on that Material Statement to Deny the Claim. In Doing so, the Insurer Need Not Show Actual Prejudice Following the Receipt of the Statement

  • It is Sufficient, that the Fraud or Wilfully False Material Statement Could Affect the Mind of the Insurer Either in the Management of the Claim or in Deciding to Pay it

    Stay well.  Be happy.  Spring is around the corner.

     

    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
Scott D. Storm
Thomas Casella
Brian D. Barnas
Ryan P. Maxwell
Charles J. Englert
Patricia A. Rauh
Diane F. Bosse
Joel R. Appelbaum
Kyle A. Ruffner
Katherine A. Fleming (Admission Pending)

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

Michael F. Perley
Scott D. Storm
Brian D. Barnas

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

Alice A. Trueman

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

Barnas on Bad Faith

Lee’s Connecticut Chronicles

Off the Mark

Ryan’s Capital Roundup

CJ on CVA and USDC(NY)

Rauh’s Ramblings

Storm’s SIU Examen

Fleming’s Finest

North of the Border

 

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

02/17/22       Alvarez v XL Specialty Insurance Company
Appellate Division, First Department
“Prior Notice” Exclusion Interpreted Narrowly

The plaintiffs sought coverage under a policy.  The policy contained an “prior notice” exclusion that spoke to claims made under an earlier policy arising from something called the “Seritage transaction”. Apparently, the claims for which the policyholders sought coverage were for other matters beyond the “Seritage Transaction”.  The court held that exclusions are given a strict and narrow construction and found that the transactions which were factually and legally distinct from the Seritage transaction and were temporally separate, were not excluded.

02/09/22       Utica National Insurance of Texas v. Kassie
Appellate Division, Second Department
Interesting Decision – Carrier Claims Prejudice from Late Notice of Claim but Failed to Prove that it Tried to Investigate Claim and Was Unsuccessful in Doing So

Utica commenced this proceeding pursuant to CPLR article 75, to permanently stay arbitration of a claim for supplemental underinsured motorist (SUM) benefits on the ground that it had validly disclaimed coverage based on the failure of its insured, Angela Kassie, to give timely notice of the claim as required by the subject policy. After a framed-issued hearing to determine whether Utica had validly disclaimed coverage, the Supreme Court granted that branch of the petition which was to permanently stay arbitration. Kassie appeals.

The hearing court's determination that Utica validly disclaimed coverage is not supported by the evidence.  To effectively disclaim coverage based on Kassie's failure to give timely notice of the SUM claim "[a]s soon as practicable," as required by the subject policy, Utica was required to give written notice of disclaimer "as soon as is reasonably possible".  Utica was required to demonstrate that it was prejudiced by the untimely notice of claim

The "timeliness of an insurer's disclaimer is measured from the point in time when the insurer first learns of the grounds for disclaimer,  An insurer who delays in giving written notice of disclaimer bears the burden of justifying the delay

Urtica a first received notice of the SUM claim on May 5, 2017, just less than 23 months after the subject accident. Utica's representative testified at the hearing that, despite the apparent untimeliness of this notice, Utica did not disclaim coverage upon receiving the May 5, 2017, letter because it did not at that time face any specific deadline to take action, so it had not yet been prejudiced by the untimely notice. However, on June 26, 2017, Utica received a letter from Kassie requesting consent to settle with the tortfeasor. Utica was required to respond to the letter requesting consent to settle within 30 days.  Utica's representative testified at the hearing that it disclaimed coverage after receiving the June 26, 2017, letter, since at that point it was prejudiced by the untimeliness of the notice of claim because it could not complete its investigation before the deadline to respond to the June 26, 2017, letter.

However, Utica failed to present any evidence that upon receipt of the notice of claim it began fulfilling its "duty to promptly and diligently investigate the claim".  Thus, Utica cannot reasonably claim that it was prejudiced by the untimely notice of claim based on its receipt over seven weeks later of the request from Kassie for consent to settle. Notably, Utica did not claim that it would have been unable to adequately investigate the SUM claim in time to respond to the request for consent to settle even if it had promptly commenced such an investigation upon receiving the notice of claim.

se circumstances, Utica did not validly disclaim coverage on the ground of untimely notice of the SUM claim.

02/09/22       Alexander's Rego Shopping Center v. Safety Nat. Cas. Co.
Appellate Division, Second Department
Trend, Trend, Trend – Another Landlord Secures Additional Insured Coverage Under Tenant’s Policy – See Next Case, as Well

In December 1996, the Bed Bath & Beyond, Inc. (hereinafter Bed Bath & Beyond), leased third-floor retail and office space at a shopping center in Queens. In April 2012, Ruben Sanchez, an employee of Bed Bath & Beyond, allegedly was injured while using a third-floor freight elevator during the course of his employment.

Sanchez sued the shopping center (“Alexanders”) in March 2017, the Alexanders commenced this action against Bed Bath & Beyond and the defendant Safety National Casualty Corporation (“Safety”).  Safety had issued a commercial general liability insurance policy to Bed Bath & Beyond, seeking, inter alia, a declaration that the Safety National Casualty policy provided the plaintiffs with coverage for the accident, since they are additional insureds on the policy.

Alexanders established, prima facie, that they were entitled to summary judgment on their cause of action for a declaration that Safety National Casualty is obligated to defend and if necessary indemnify them as additional insureds for liability arising out of the ownership, maintenance, or use of the leased premises, which included the elevator in question, which was used by Bed Bath & Beyond in the course of its business to provide it with access to the leased premises.

02/04/21       Technology Insurance Co. v. Main Street America Assur. Co.
Appellate Division, Fourth Department
Where Tenant’s Policy Provided Additional Insured Coverage for Use of Premises and Where Tenant Used and was Responsible for Snow and Ice Removal, Tenant’s Carrier had Primary and Non-Contributory Obligation to Defend and Indemnify, Even Where Structural Defect in Parking Lot Alleged

Technology Insurance Company (“TIC”) issued an insurance policy to Aumick covering certain property Aumick owned. Main Street America Assurance Company (MSAAC) issued a policy to Aumick's tenant, Outling, doing business as Krispie Kuts, who operated a barbershop on the premises. The policy named Aumick as an additional insured.

In February 2014, a patron of Outling's barbershop tripped on a snow-covered hole in the driveway while walking from the shop to his vehicle. The patron commenced a personal injury action against Outling and Aumick (underlying action), and Main Street declined the offer to defend the landlord.

The appellate court found that the tenant’s carrier, MSAAC, had obligations here.

The additional insured endorsement in the policy that defendant issued to Outling provided coverage to Aumick as an additional insured "with respect to liability arising out of the ownership, maintenance or use of that part of the premises leased to [Outling]." The policy further provided that defendant would indemnify the insureds in actions regarding covered incidents, including suits arising from bodily injury. The term " 'arising out of' " means " 'originating from, incident to, or having connection with'. It "requires only that there be some causal relationship between the injury and the risk for which coverage is provided".

Under the lease agreement between Aumick and Outling, Outling was responsible for the removal of snow and ice from the driveway. Plaintiff further submitted the injured patron's deposition testimony that he did not see the hole partly because it was covered with snow. Moreover, based on the record before us, the lease agreement provided Outling with the ability to use the driveway. Indeed, the driveway "was necessarily used for access in and out of [the barbershop] and was thus, by implication, 'part of the . . . premises' that [Outling] was licensed to use under the parties' [lease

Thus, plaintiffs established from the lease agreement that the use of the driveway was included in the scope of the leased premises. Because plaintiffs established that there was a causal relationship between the injury and the risk for which coverage was provided, Aumick is entitled to a defense and indemnification as an additional insured.

The fact that the injury may have been caused by a structural defect in the condition of the driveway inasmuch as the focus of the inquiry here "is not on the precise cause of the accident but the general nature of the operation in the course of which the injury was sustained" .

We further conclude that the court did not err in granting that part of the motion seeking a declaration that defendant's coverage of Aumick in the underlying personal injury action is primary and non-contributory. The patron's damages arose out of the premises for which Aumick was a named additional insured, and thus defendant's policy provides primary coverage to Aumick, and plaintiff's coverage was excess.

 

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

02/16/22       Pierot v. Chicago Title Ins. Co.
Appellate Division, Second Department
Exception for Driveway Encroachment Enforceable in Title Policy

This matter has its origins in the 2001 purchase of a home at the corner of Elizabeth Street and Healy Avenue in Scarsdale, New York.  At that time, plaintiff also obtained title insurance for the property.

The property’s driveway provides access to Healy Avenue.   This driveway, and its ownership/use, became a major dispute with the neighboring properties, and has generated significant litigation.  As such, plaintiff sought coverage from Chicago Title to provide coverage rising fees and costs. 

Chicago Title denied the claim on the basis that the policy was specifically written with an exception for any claims stemming from driveway encroachments north of the property line. 

In holding for the carrier, the Appellate Division noted that the exception was clear and unambiguous and that there the plaintiff, or her counsel, was in possession of the terms of the policy.  Moreover, Chicago Title also demonstrated that despite the ongoing dispute over the private drive, access was still available to the property via Elizabeth Street which is a public roadway. 

02/10/22       Bonem v. William Penn Life Ins. Co. of NY
Court of Appeals
Failure to Make Annual Premium Payment Resulted in Loss of Coverage

Plaintiff sought to recover life insurance benefits payable on a policy of insurance purchased by her late husband.  The policy was purchased in 2002 and issued and delivered to the decedent on January 30, 2002.  The contract provided that the first premium was due on the “Date of Issue,” and was therein identified as January 14, 2002.  As such, decedent made annual payments on or about January 14th over the next sixteen years. 

Decedent did not make the payment on January 14, 2018, and died on February 26, 2018.  When plaintiff’s claim was submitted, William Penn advised that the policy had lapsed for lack of payment and, accordingly, denied the claim. 

The Court of Appeals noted that the policy did provide a grace period of 31 days.  However, the policyholder’s death occurred a mere 12 days after the grace period lapsed.  Compelled to uphold the clear contractual language of the policy, the Court affirmed William Penn’s denial and dismissed plaintiff’s case.

Judge Wilson, joined by Judge Rivera, penned a strong dissenting opinion. The focus of that opinion was on language in the policy which notes that it “would not take effect until it has been delivered and the first premium paid.”  It is uncontroverted that the policy was not delivered, and the first premium paid, until January 31, 2002.  Thus, although the policy says it incepted on January 14, 2002, the language within the policy contracts that inception date.  Under the plaintiff’s interpretation, the annual policy terms ran from January 31st – January 30th

The difference is important.  If the policy incepted on January 31st, and thus the annual policy renewal was due on January 31st, the 31-day grace period would not have expired prior to the policyholder’s death.  In short, if the payment was due on January 31st, the policy was still active, and benefits would be owed. 

While the dissent noted that plaintiff’s interpretation was the better of the two, the Court also noted that it did not matter which of the two plausible interpretations was best.  Where, as here, there were two reasonable interpretations, the dissent noted that there was ambiguity in the language and, as such, it had to be resolved against the drafter William Penn. 

 

DISHING OUT SERIOUS INJURY THRESHOLD
Michael J. Dischley

[email protected]

Nothing new regarding Serious Injury Threshold cases this issue.

 

WILEWICZ’S WIDE WORLD of COVERAGE (featuring Evan Gestwick)
Agnes A. Wilewicz

[email protected]

Nothing new to report from the Circuit Courts.

 

BARNAS on BAD FAITH
Brian D. Barnas

[email protected]

01/31/22       Dotson v. Atlantic Spec. Ins. Co.
United States Court of Appeals, Fifth Circuit
Subsequent Bad Faith Claim Barred by Res Judicata after UM Claim was Settled

In 2015, a pickup truck driven by John Price collided with a tow truck operated by David Dotson.  Dotson's employer owned the tow truck and insured it with Atlantic. State Farm insured Price's truck.

Dotson filed suit in Louisiana state court against Price and State Farm, seeking damages for his injuries from the accident. He later added Atlantic and Progressive Progressive—Dotson's UM Insurer—to the action, asserting claims for UM coverage against both.  After Dotson settled with Price and State Farm, Progressive removed the action to federal court on diversity grounds.

Atlantic maintained that its insurance policy limited UM coverage to $100,000 per accident.  Dotson moved for partial summary judgment on the issue, arguing that the limit was $1,000,000.  The district court agreed with Dotson and granted his motion. 

Shortly after the district court's ruling, Dotson and Atlantic filed a notice of settlement. As part of the settlement agreement, Dotson agreed to release “all claims” against Atlantic that Dotson “ha[d] asserted or was required to assert” in the action. A stipulation of dismissal with prejudice was filed on September 24, 2019.

Nine months later, Dotson filed a new action against Atlantic in state court.  This time, Dotson asserted claims under Louisiana's bad faith statutes.  Atlantic removed the case to federal court and moved for summary judgment arguing that the lawsuit was barred by res judicata.

The court concluded that the bad faith action was barred by res judicata.  The key element at issue was whether the bad faith action arose out of the same transaction or occurrence that was the subject matter of the earlier action.  The court concluded that the two actions brought by Dotson were intertwined and centered around the same set of operative facts, namely, Dotson's damages from the accident, the coverage he was entitled to under Atlantic's policy, and Atlantic's response to Dotson's claim for coverage. Louisiana courts had previously found that similar types of bad faith claims are factually intertwined with the underlying contract claim.  The issue of Atlantic's alleged bad faith in misrepresenting its UM coverage could have been raised in the initial suit, and Dotson did not specifically reserve the right to bring this second suit as part of his settlement agreement with Atlantic.

 

LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel

[email protected]

01/24/22       Sacco v. Allstate Fire Ins. Co.
Superior Court, Judicial District of New Haven
Resident Relative Cannot Stack UM/UIM Coverages

The Superior Court affirmed the statutory prohibition against stacking UM/UIM coverages in Connecticut. Here, the plaintiff, Frank Sacco, Jr., was a resident relative on an auto policy obtained by his father from Allstate. Sacco, separately, owned and insured a motorcycle, obtaining coverage from Progressive. Sacco was injured in a one vehicle accident when he ran off the road avoiding the vehicle of an unknown operator. Sacco argued that, as a resident relative under his father’s Allstate policy, he was entitled to UM/UIM coverage under both policies.

The court found that under amendments to Connecticut’s uninsured/ underinsured motorist statute, the Legislature precluded stacking of coverages under these circumstances. The Allstate policy, tracking the statute, provided that if the insured was occupying an owned but uninsured vehicle under the Allstate policy, that the coverage afforded by the occupied vehicle provides the only potential for compensation. “This court's conclusion is consistent with numerous Connecticut decisions. See e.g., Stott v. Peerless, supra, 137 Conn.App. 373 (resident relative of policyholders not entitled to uninsured/ underinsured motorist coverage under terms of defendant's policy and § 38a-336[d] because plaintiff injured while occupying own, separately insured vehicle, not listed as insured vehicle on defendant's policy); Chuckta v. Travelers Home & Marine Ins. Co., supra, Superior Court, Docket No. CV-19-6107597-S (named insured, listed on insurance policy issued by defendant to plaintiff's parents, not entitled to uninsured/underinsured motorist coverage under terms of parents' policy and § 38a-336[d] because plaintiff injured while occupying own, separately insured vehicle and not listed as insured vehicle under parents' policy)….”

 

OFF the MARK (featuring Kyle A. Ruffner)
Brian F. Mark
[email protected]

No interesting construction defect cases to report on this edition.

 

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

Legislative List
02/14/22       Update on CIDA Chapter Amendments
New York State Legislature
CIDA Chapter Amendments Stall as Both Houses Remove “Sold or Delivered Within the State of New York” Language, Repasses Legislature and Awaits Governor’s Signature

On December 31, 2021, the new “Comprehensive Insurance Disclosure Act” (“CIDA”) set New York’s defense bar and insurance industry ablaze, after it was signed into law by New York Governor, Kathy Hochul. (Chapter 832 of Laws of 2021). The passage of CIDA resulted in significant amendments to CPLR §3101(f) and the addition of a new CPLR §3122-b. In a previous column, I wrote about CIDA extensively as the law exists today (here), and we have also produced a helpful summary of the necessary disclosures (here).

Governor Hochul signed the bill after an agreement was reached to amend the law following significant pushback on its passage. Those long-awaited chapter amendments were recently introduced, providing some concrete insight into what the final version of CIDA may look like in the near future.

The bill passed the Senate at the end of January (Bill No. S7882), one vote short of being unanimous. However, the Assembly laid aside the bill to implement changes to its scope. Specifically, the Bill was modified to remove language limiting the disclosures to those policies “sold or delivered withing the State of New York,” in favor of the generic phrase “insofar as such documents relate to the claim being litigated.” This essentially ensures that all liability policies, not just those policies issued in New York, are encompassed within the CPLR §3101(f)(1) disclosures. The Senate recalled the bill from the Assembly and, following reconsideration of its initial vote, implemented the same language change. In short order, the Senate passed the amended bill as did the Assembly.

Once again, here is our summary of the provisions for you:

  • Dual certifications would still be required from both defense counsel and the insured-defendant;

  • The disclosure requirement would only apply to lawsuits files after 12/31/21 effective date, and not retroactively to pending cases.

  • Disclosures of policies or declarations pages would be required within 90 days after answer is filed, rather than 60 days. Declarations pages may suffice if agreed to by plaintiff, but plaintiff would have option to later request the policies.

  • Disclosure would no longer require the application to be included.

  • Disclosure of contact information for person adjusting the claim would still be required, but only name and email address.

  • TPAs would no longer be required to disclose the name of the person to whom they are reporting.

  • Disclosure would require provision of the total limits available under the policy after accounting for erosion/offsets.

  • The amendments eliminate disclosure of lawsuits that may erode the policy and attorney contact information from such lawsuits.

  • The amendments would eliminate attorney fee disclosure that may have eroded the policy limits.

  • Instead of a broad “ongoing obligation” to ensure disclosures remain accurate and complete, defendants must make reasonable efforts at the time of the filing of the note of issue, entering into negotiations, or mediation to ensure that information is accurate and complete.

  • PIP lawsuits would be expressly excluded.

02/11/22       Bill Introduced To Amend New Dog Breed Insurance Law
New York State Legislature
Bill Introduced in Both Houses That Would Amend Ins. Law §3421(1) To Expressly Restrict Homeowners’ Insurers From Excluding Dog Breeds

Chapter 545 of the Laws of 2021 introduced a new Insurance Law §3421, which precludes homeowners’ insurers from “refus[ing] to issue or renew, cancel, or charge or impose an increased premium or rate for such policy or contract based solely upon harboring or owning any dog of a specific breed or mixture of breeds.” What that Section does not currently prohibit is the “exclusion” of a specific breed or mixture of breeds.

However, and predictably, both houses have introduced bills (A9284 / S8315) that would “fix the glitch,” in the immortal words of the Bobs (Office Space, 1999). Specifically, in addition to the language above, homeowners’ carriers would be prohibited from “exclud[ing], limit[ing], restrict[ing], or reduc[ing] coverage under such policy or contract based solely upon harboring or owning any dog of a specific breed or mixture of breeds.”

 

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

[email protected]

 

02/14/22       John Ruiz v. Liberty Mutual Fire Insurance Company
United States District Court, Southern District of New York
Mischaracterization of Post Loss Living Arrangements Leads to Claim Denial

Plaintiff brings this action against Liberty Mutual Fire Insurance Company (“Liberty Mutual”), asserting that Liberty Mutual breached two homeowner’s insurance policies by failing to pay plaintiff’s water damage claims, specifically his additional living expenses. Plaintiff has been married to Yolanda Brooks-Ruiz (who uses the name Yolanda Brooks professional) since April 2016, his first marriage ended in divorce. Plaintiff’s ex-wife died about seven years after his divorce. With regard to plaintiff’s unique living arrangements the parties agree that after plaintiff and Brooks-Ruiz were married, they generally spent weekdays together at plaintiff’s apartment in East Harlem, Manhattan, along with two of plaintiff’s children. Plaintiff and his children spent weekends at plaintiff’s home at 111 Linden Place in Middletown, New York (the “Middletown Property”). Brooks-Ruiz spent weekends at a home she owned at 7609 Aquatic Drive in Arverne, New York (the “Arverne Property”), which is in the Rockaways, Queens. the Arverne Property is a two-family detached home, with two residences side-by-side. One side is a duplex with three bedrooms, two bathrooms, a garage, and a backyard, and the other side has one bedroom and one bathroom. When she spent time there, Brooks-Ruiz occupied the duplex. Although she regularly rented the one-bedroom residence, she had never rented the duplex out before she allegedly rented it to plaintiff, as described below.

Following flooding at the Middletown Property caused by a burst pipe in January 2017, plaintiff filed a claim with Liberty Mutual pursuant to the 2016 Policy. Plaintiff sought coverage of certain Additional Living Expenses, or “ALE.” After the pipe burst, plaintiff could no longer spend weekends at the Middletown Property, and he instead spent weekends with Brooks-Ruiz in her duplex at the Arverne Property. Plaintiff then made an ALE claim for rent payments he purportedly made to Brooks-Ruiz to reside with her at the Arverne Property. Plaintiff’s public adjuster provided Liberty Mutual with a lease agreement to show that plaintiff was paying Brooks-Ruiz $4,000 per month in rent. In the lease agreement Brooks-Ruiz is styled “Yolanda Brooks”. Plaintiff continued to provide proof of payment to “Yolanda Brooks”. Plaintiff then submitted a second claim following a pipe burst at the Middletown Property in January 2017. Throughout Liberty Mutual’s initial investigation plaintiff maintained that her was not married. Plaintiff’s relationship with Brooks-Ruiz did not come out unit his Examination Under Oath. Following its investigation, Liberty Mutual determined plaintiff violated the Concealment or Fraud Provision of the Policies and informed plaintiff by letter dated March 12, 2019, it would not cover any of plaintiff’s claims relating to the Middletown Property. Before denying plaintiff’s claims, Liberty Mutual ultimately reimbursed plaintiff $43,943.76 in ALE related to the Arverne Property. Liberty Mutual would not have made those payments had Ruiz disclosed that Brooks-Ruiz was his wife.

Liberty Mutual issued plaintiff two homeowner’s insurance policies covering the Middletown Property, one with a policy period of September 13, 2016, to September 13, 2017, and the second with a policy period of September 13, 2017, to September 13, 2018. The policies contained the below “Concealment or Fraud Provision:”

2. Concealment Or Fraud.

We do not provide coverage for the “insured” who, whether before or after a loss, has:

a. Intentionally concealed or misrepresented any material fact or circumstance; or

b. Engaged in fraudulent conduct;

relating to this insurance.

The policies provide the following with regard to additional living expenses:

1. If a loss covered under this Section makes that part of the “residence premises” where you reside not fit to live in, we cover the Additional Living Expense, meaning any necessary increase in living expenses incurred by you so that your household can maintain its normal standard of living. Payment will be for the shortest time required to repair or replace the damage or, if you permanently relocate, the shortest time required for your household to settle elsewhere.

Liberty Mutual contends that plaintiff breached the Concealment or Fraud Provision of the Policies, and therefore the Policies are void. To prove the Policies are void Liberty Mutual must prove fraud by clear and convincing evidence. To establish fraud under New York law, the moving party “must prove a misrepresentation or a material omission of fact which was false and known to be false by the other party, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury.” Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 421 (1996). In the context of an insurance investigation, an insured’s misrepresentation or omission is material as a matter of law if it “might have affected the attitude and action of the insurer” or “may be said to have been calculated either to discourage, mislead or deflect the [insurer]’s investigation in any area that might seem to the [insurer], at that time, a relevant or productive area to investigate.” Fine v. Bellefonte Underwriters Ins. Co., 725 F.2d 179, 184 (2d Cir. 1984). A party claiming fraud must also show “its reliance on an alleged misrepresentation was justifiable or reasonable.” Waterscape Resort LLC v. McGovern, 107 A.D.3d 571, 572 (1st Dep’t 2013). Finally, to sustain a fraud claim, the asserting party must show a causal connection between the “act of deception” and its injury. See Small v. Lorillard Tobacco Co., 94 N.Y.2d 43, 57 (1999).

The Court found that Liberty Mutual has demonstrated as a matter of law that plaintiff violated the Concealment or Fraud Provision. Liberty Mutual proved that if it had known plaintiff was married to Yolanda Brooks-Ruiz is would not have reimbursed plaintiff for rental payments. Liberty Mutual presents clear and convincing evidence that plaintiff concealed his relationship to Brooks-Ruiz from Liberty Mutual and misrepresented his connection to the Arverne Property. Plaintiff put forth unimpressive arguments that he had instructed his public adjuster to inform Liberty Mutual that her was married, and that his public adjuster told plaintiff that he did. Liberty Mutual also proved that plaintiff, through his public adjuster, misrepresented the circumstances surrounding his renting of the Arverne Property and that Liberty Mutual relied on this information when paying plaintiff’s claim. Accordingly, the court granted Liberty Mutual’s motion dismissing the complaint.

 

RAUH’S RAMBLINGS
Patricia A. Rauh

[email protected]

02/14/22       McNinch et al. v. The Guardian Life Ins. Co. of America
U.S. District Court, Northern District of Illinois
Decedent’s Death was Caused by a Toxic Combination of Cocaine and Fentanyl; Court Ruled Decedent’s Death as Non-Accidental and Even if it were an Accident, there is Still No Coverage Due to the Voluntary Use Exclusion

This case involves the death of Jason McNinch (the “Decedent”) who died from a drug overdose caused by the toxic combination of cocaine and fentanyl.  Prior to his death, he worked as an IT manager at the Chicago Museum of Contemporary Art (the “Museum”), where he participated in the Museum’s employee welfare benefit plan (the “Plan”).

The Decedent’s parents, Terance and Peggy McNinch (the “Plaintiffs”), attempted to obtain accidental death benefits from the Plan, which provided basic term life insurance coverage to the Decedent in the amount of $50,000, which was paid to the Plaintiffs in February 2018.  The Plan also provided basic accidental death and dismemberment insurance coverage (“AD&D”) for specifically defined covered losses, including death.  The maximum amount of AD&D coverage was $50,000, subject to certain exclusions, such as the relevant one below:

We won’t pay for any loss caused…

by your voluntary use of a controlled substance, unless: (1) it was prescribed for you by a doctor; and (2) it was used as prescribed.  A controlled substance is anything called a controlled substance in Title II of the Comprehensive Drug Abuse Prevention and Control Act of 1970, as amended from time to time.

The Decedent’s autopsy report concluded that his death occurred “due to combined (cocaine and fentanyl) toxicity”, and his manner of death was listed as an accident.  Both cocaine and fentanyl are Schedule II controlled substances, and there was no evidence that either drug was prescribed to the Decedent.

Plaintiffs timely filed claims for AD&D benefits with Defendant, but the Defendant issued its initial denial on March 14, 2018. In its denial, Defendant cited the voluntary use exclusion (cited above) and indicated that the Decedent’s death was not the direct result of an accident since it was caused by his voluntary use of controlled substances, and there was no evidence to suggest the controlled substances were legally prescribed to him.  Plaintiffs timely appealed the denial of AD&D benefits contending that Defendant based the denial on an “inaccurate analysis of the policy terms, as well as unsupported assumptions as to the facts of this claim.”  Plaintiffs argued that Decedent did not voluntarily take a lethal dose of cocaine mixed with fentanyl and that he was likely unaware that the cocaine had been mixed with fentanyl.  The Defendant denied the Plaintiffs’ appeal and Plaintiffs brought suit pursuant to ERISA, seeking a de novo review of Defendant’s coverage denial.  The parties also cross-moved for judgment under FRCP 52(a).

The Court’s analysis considered whether Decedent’s death constituted an accident triggering AD&D coverage under the Plan.  Because the Plan does not define the word “accident”, courts must construe that word in accordance with common understanding and common speech.  The Court agreed with Defendant’s argument that Decedent’s death was not an accident because the use of illicit narcotics comes with a substantial risk of overdose and death.  The Court further reasoned that Decedent had a prior history of cocaine and heroin use which makes it likely that he knew about the dangers of opiate dependence and usage, particularly when combined with other substances.

Further, the Court reasoned that even if Plaintiffs did show that Decedent’s death was caused by an accident, the voluntary use exclusion would still apply to preclude coverage.  The parties do not dispute that Decedent was not prescribed any controlled substance, nor do they dispute that fentanyl and cocaine constitute controlled substances.  Despite the Plaintiffs’ contention that Decedent did not voluntarily use controlled substances and that he was likely unaware that the cocaine was mixed with fentanyl, the Court disagreed.  The Court again pointed out Decedent’s long history of substance abuse and rehabilitation, and therefore, likely was aware of the strong possibility of cocaine being mixed with fentanyl and the lethal combination of taking both.

Therefore, the Court ruled in favor of the Defendant and found that Plaintiffs were not entitled to coverage under the Plan.

 

STORM’S SIU EXAMEN
Scott D. Storm

[email protected]

11/10/21       Ventilla v. Pacific Indemnity Company
U.S. District Court, S.D. New York
COVID-19 Related Executive Order 202.8 Which Tolled Procedural Legal Time Limits That Expired Between 3/20/20 and 11/3/20 (for up to 228 Days) Does NOT Apply to Contractual Suit Limitations Conditions

U.S. District Court, Southern District of N.Y., confirms that the plain text of the COVID-19-related Executive Order 202.8, issued by then-Governor Andrew Cuomo, tolled only “time limits” as prescribed by the procedural laws of the state, i.e., New York state procedural laws, imposed by “statute, local law, ordinance, order, rule, or regulation.” Nothing in Executive Order 202.8 relates to private agreements between parties. As such the Executive Order does not toll contractual suit limitations conditions in first-party property policies (“Suit Against Us”), which must be enforced according to the plain meaning of the contract. Furthermore, the circumstances surrounding the COVID-19 pandemic do not constitute grounds for the court to equitably toll any contractual suit limitations.

02/04/22       CLA Milton, LLC v. North American Elite Insurance Company
United States District Court, S.D. New York
1st-Party Property Claim Dismissed Due to the Plaintiff’s Failure to Comply with a One-Year Contractual Suit Limitation Condition Which had Been Extended for Six-Months.  No Waiver or Estoppel Existed Due to the Extension

Plaintiff filed a complaint alleging that NAEIC failed to pay its insurance claims related to water damage, resulting in breach of contract and breach of the duty of good faith and fair dealing. NAEIC now moves to dismiss the complaint under Fed. R. Civ. P. 12(b)(6) which is granted.

On approximately 1/4/18, CLA's Milton, Georgia facility experienced substantial water damage and timely notified NAEIC of the commercial property damage. CLA alleges that NAEIC then refused to timely pay for the uncontested damages, despite conceding that the claim was covered under the policy, by delaying the claims adjustment process through May 2020, causing it to suffer significant business losses.

The parties had yet to resolve the claim in January 2019, so they agreed to a six-month time extension of the contractual suit limitation condition which stated that "[n]o suit or action on this [policy] for recovery of any claim shall be sustainable in any court of law unless…commenced within twelve (12) months next after the day of the physical loss or damage giving rise to any claim hereunder." 

NAEIC thereafter paid CLA for the uncontested property damage, allowing CLA to make repairs on the property.  However, due to the delayed payment, CLA continued to incur business interruption losses.  After the business interruption losses were still not paid as of June 2020, CLA filed a lawsuit in Arizona state court on June 5, 2020.  The Arizona state court dismissed the action without prejudice on September 21, 2020, because it determined that Arizona was not the proper forum.  CLA appealed that decision to the Arizona Court of Appeals.  CLA then filed its complaint in the instant case on November 11, 2020, and voluntarily dismissed their appeal in Arizona on approximately November 12, 2020.

NAEIC moves to dismiss the amended complaint based on the contractual limitations provision. While courts cannot ordinarily decide a statute of limitations defense on a motion to dismiss, courts in this district have made an exception where (1) the complaint facially shows noncompliance with the limitations period, and (2) the affirmative defense clearly appears on the face of the pleadings.  Under New York law, courts will enforce a shortened statute of limitations when it is reasonable and agreed to by contract. One-year contractual limitations periods—indeed, even shorter limitations periods of six months—have consistently been held to be reasonable under New York law. This is also true in the specific context of suit limitation provisions in insurance contracts. 

Here, the policy is clear that a one-year suit limitation period applies. Since the water damage occurred on January 4, 2018, a lawsuit would need to be commenced by January 4, 2019. However, the period was extended an additional six months by agreement, so a lawsuit for breach of the policy would need to have been filed by July 4, 2019. However, it is undisputed that CLA did not file a lawsuit until June 5, 2020, in Arizona. The lawsuit thus clearly was initiated beyond the contractual limitations period and is barred on its face.

CLA argues that the suit limitations provision should not be enforced because it is: (1) ambiguous, and (2) expired before suit could be brought. CLA argues that the provision is ambiguous because it lacks specificity as to the event insured against.  Here, the policy is precise that suit must be brought within one year "after the day of the physical loss or damage giving rise to any claim."

CLA's physical loss giving rise to their claim for business losses took place on January 4, 2018.  For purposes of an insurance policy's contractual statute of limitations clause, the time to bring an action commences on the date of the event which gave rise to the claim. While the damages did continue to accumulate well into the future as the property remained unrepaired, there is no reason why CLA could not have sued on the currently outstanding amount at any point within the contractual limitations period.  The alleged continuing damages do not extend the limitations period.  Delay by the insurance carrier in completing its investigation of the claim does not excuse the plaintiff from timely commencing an action.

Additionally, it is relevant that CLA was fully aware of the suit limitations provision and could have negotiated another extension similar to the six-month extension at any time. Their request for a first extension beyond January 4, 2019, shows that they believed their claims accrued on January 4, 2018, so they cannot now argue that their business losses did not accrue on that date. Accordingly, the suit limitations provision is neither ambiguous nor unreasonable and must be enforced.

CLA lastly argues that, even if the suit limitations provision applies, NAEIC waived that provision and is now estopped from enforcing it. Under New York Law, to establish waiver of a suit limitations provision, the plaintiff must offer evidence from which the defendant's intent to relinquish the protection of the contractual limitations period can be reasonably inferred.  To establish estoppel, the plaintiff must present evidence that it was misled or lulled by the defendant into failing to bring its claim in a timely manner.

CLA argues that NAEIC expressly waived the suit limitation provision by agreeing to a six-month extension. They cite no caselaw in support of this argument, and the Court finds no merit to this claim. Simply put, an extension extends the provision, it does not waive it. CLA further argues that NAEIC acted in bad faith and lulled them into sleeping on their rights under the policy by delaying payments and repeatedly assuring them that it was investigating its business loss claim. CLA argues that this conduct now estops NAEIC from enforcing the suit limitations provision. 

In response, NAEIC argues that CLA was clearly not lulled into sleeping on their rights, as they had already negotiated one extension of the suit limitations provision and could have negotiated further extensions or filed suit at any time. The Court agrees with NAEIC. After a full year of working to address their claims, CLA found it prudent to seek an extension of the suit limitations provision, and they have not alleged that their relationship with NAEIC was significantly different in the six months leading up to expiration of the extended provision such that they would not have thought to seek a further extension.

Accordingly, the provision is not waived and NAEIC is not estopped from asserting it. As the provision is enforceable, as explained above, CLA's complaint must be dismissed.

02/03/22       Technology Insurance Company, Inc. v. Philadelphia Indemnity Insurance Company
United States District Court, S.D. New York
In Federal Cases Federal Law Applies to the Attorney Work-Product Doctrine and State Law to the Attorney-Client Privilege

Plaintiff Technology Ins. Co.’s motion to compel the production of "all information" in the claim file of Defendant Philadelphia Indemnity including claims notes, relating to its decision-making process in connection with its disclaimer letter is denied without prejudice.

Plaintiff relies entirely on the New York Appellate Division's decision in Bombard v. Amica Mut. Ins. Co., 11 A.D.3d 647 (2d Dep't 2004),for its blanket assertion that Defendant cannot assert the attorney-client privilege or the attorney work-product doctrine. However, "it is federal law, not state law, that ‘governs the applicability of the work product doctrine in all actions in federal court.'" 

Moreover, on its face, Bombard appears to apply to "reports which aid the insurer in the process of deciding which of two indicated actions to pursue in the regular course of its business" or, in other words, "reports prepared by insurance investigators, adjusters, or attorneys before the decision is made to pay or reject a claim."  Plaintiff has not shown that each of the requested documents falls within that category. Defendant represents that it has served a privilege log that "specifies the materials" over which it claims privilege.

Plaintiff's motion is denied without prejudice to it being renewed on an application identifying the particular documents over which it claims privilege is improperly asserted, citing both federal law (for the attorney work-product doctrine) and state law (for the attorney-client privilege).

01/28/22       Bobbi-Jo Isenberg v. State Farm Fire and Casualty Company
United States District Court, W.D. Pennsylvania
During a Deposition an Insurer May Ask Again the Same Questions Previously Asked During an Examination Under Oath or Recorded Statement

State Farm filed a motion to compel plaintiff's deposition testimony.  State Farm contends that Plaintiff's five and one-half hour deposition was interrupted on numerous occasions by Plaintiff's counsel who "objected" to any question that was asked and answered by Plaintiff during an Examination Under Oath prior to this lawsuit being filed. 

As a result, the Court hereby ORDERS the following:

  1. State Farm will be permitted to depose Plaintiff for two (2) additional hours.

  2. State Farm may ask Plaintiff any questions to which it did not receive answers during the deposition, and Plaintiff shall respond. If there are additional questions State Farm's counsel wishes to pose during these two (2) additional hours which were not asked during the deposition, State Farm may also do so. At the end of two (2) hours, the deposition shall be concluded. This Court finds 7.5 hours total deposition time sufficient to depose Plaintiff in this insurance coverage dispute.

  3. Counsel for Plaintiff may object to any question posed by Defendant during the two (2) additional hours of Plaintiff's deposition in strict accordance with Rule 30(c)(2). However, Plaintiff's counsel may not object to a question on the basis that a question has been asked by State Farm and answered by Plaintiff during: (1) the earlier commencement of the deposition, (2) EUO, or (3) recorded statement.provides: “

  4. Counsel for Plaintiff may only instruct his client "not to answer," a question posed by State Farm's counsel only when Fed. R. Civ. P. 30(c)(2) allows ("A person may instruct a deponent not to answer only when necessary to preserve a privilege, to enforce a limitation ordered by the court, or to present a motion under Rule 30(d)(3).").

  5. This Court will not entertain a Rule 30(d)(3) motion filed by the Plaintiff on the grounds that questions have been previously asked and answered during the pre-litigation proceedings (namely, the EUO and recorded statement) or during the earlier commencement of this deposition.State Farm's counsel may choose to spend some or all of the remaining two (2) hours of deposition time re-asking Plaintiff questions to which it already has the answers. However, this Court will entertain a Rule 30(d)(3) motion filed by the Plaintiff on other grounds.

12/16/21       Government Employees Insurance Company, et al. v. Dr. Rafael Antonio Delacruz-Gomez, M.D, et al
No-Fault Insurer Granted Judgment Against Physician on RICO Cause of Action for His Involvement in a Fraudulent Scheme Prescribing Medically Unnecessary Compounded Pain Creams

GEICO initiated this action alleging that defendants engaged in a fraudulent scheme to exploit New York's no-fault insurance system and submitted more than $548,369.00 in fraudulent pharmaceutical billing to GEICO in violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO").  Defendant Dr. Rafael Antonio Delacruz-Gomez, M.D. never responded to plaintiffs' summons and complaint.  Plaintiffs now move for a default judgment for his role in the alleged fraudulent scheme based on their third cause of action for violation of the civil RICO statute, and on their fifth cause of action for aiding and abetting common law fraud. In this Report and Recommendation, the United States Magistrate Judge recommended that plaintiffs' motion should be granted in part and denied in part.

Plaintiffs allege that the defendants engaged in a fraudulent scheme where doctors (the "prescribing defendants"), in exchange for kickback payments, would prescribe medically unnecessary pain-relieving products to individuals insured by GEICO who had allegedly been involved in car accidents. Defendant Direct Rx would fill the medically unnecessary prescriptions written by the prescribing defendants and charge GEICO inflated rates for the products under the no-fault insurance law. Primarily, the medically unnecessary pain-relieving products were expensive compounded pain creams and ointments. These compounded pain creams and ointments are not generally regulated by the FDA in the same way as most prescription and over-the-counter drugs. A pharmacy is allowed to compound different pain-relieving products for a patient, but only if the compounded drug is tailored to that patient's specific needs, and all other traditional methods of treatment have failed. That was not what happened here.

Instead, the pharmacy defendants produced the compounded pain products in bulk, solicited the prescribing defendants to prescribe those compounded products to individuals without regard for actual patient care, and then charged GEICO inflated rates for the products. The drugs that make up the compounded products prescribed in the fraudulent scheme alleged by plaintiffs are often available over-the-counter for a fraction of the price. In addition, GEICO alleges that the defendants prescribed and supplied patients with various pain patches for which they would also bill GECIO at exorbitant prices, even though other less expensive options were available. GEICO's complaint alleges that the defendants defrauded plaintiffs of at least $548,369.00 through this scheme.

Defendant Delacruz-Gomez is alleged to be one of the prescribing defendants, who prescribed the fraudulent pain-relief products to GEICO's insureds. The complaint alleges that the prescribing defendants created generic examination reports of patients in order to prescribe them the medically unnecessary pain-relief products. These prescriptions were made in order to further the defendants' scheme without any regard to the patients' actual needs. The prescribing defendants' indifference to patient care is shown by the fact that the prescribing defendants often used preprinted pads or labels in order to prescribe the fraudulent pain products to patients, rather than considering each patient's individual needs. Further, plaintiffs allege that the record for the patients treated by the prescribing defendants in this matter did not reflect any health benefit of using the fraudulent pain product.

In order to further the fraudulent scheme and bill GEICO for as much as possible, the prescribing defendants would not give patients the option to fill their prescriptions at a pharmacy of their choosing and would instead send the prescriptions directly to Direct Rx. In fact, sometimes Direct Rx would simply mail the pain products to the patient's home, without them even knowing they were going to receive the products. The prescribing defendants were paid kickbacks or given other financial incentives for their role in prescribing the fraudulent pain products and sending those prescriptions to Direct Rx. New York law prohibits doctors from receiving any benefit from a third party related to services provided and specifically prohibits this kind of collusive relationship between physicians and pharmacies involving compounded prescriptions.

Plaintiffs' complaint alleges defendant Delacruz-Gomez prescribed a fraudulent pain product to a patient without regard to their past treatment and made no mention of the product or whether the patient's condition was improving in the patients follow up examination reports. GEICO alleges that defendant Delacruz-Gomez is personally responsible for $947,356.39 in fraudulent billing to GEICO.

Defendant Delacruz-Gomez failed to answer or otherwise respond to the complaint. As a result, the Clerk of Court noted entry of his default.  

Rule 55 of the Federal Rules of Civil Procedure establishes the two-step process for a plaintiff to obtain a default judgment. After the clerk enters the default of a defendant that "has failed to plead or otherwise defend," the Court may, on a plaintiff's motion, enter a default judgment if the defendant fails to appear or move to set aside the default under Rule 55(c). Fed. R. Civ. P. 55(a), (b)(2). On a motion for a default judgment, the Court deems all the well-pleaded allegations in the pleadings to be admitted.  However, the party in default does not admit conclusions of law.  The Court therefore has the responsibility to ensure that the factual allegations, accepted as true, provide a proper basis for liability and relief.  In evaluating whether the unchallenged facts constitute a legitimate cause of action, the Court is limited to the four corners of the complaint. It is not so restricted in determining damages, which the Court may calculate based on documentary evidence, affidavits, or evidence gleaned from conducting a hearing on damages. Plaintiffs allege that Dr. Delacruz-Gomez's actions violated RICO and New York law.

In order to establish a RICO claim, plaintiffs must show: (1) a violation of the statute 18 U.S.C. § 1962; (2) an injury to business or property; and (3) that the injury was caused by the violation of Section 1962.  To show a clear violation of 18 U.S.C. § 1962, plaintiffs must show conduct of an enterprise through a pattern of racketeering activity. In addition, plaintiff must allege that the injury to business or property occurred by reason of a violation of the criminal RICO statute. 

RICO, by its terms, applies to the acts of any person employed by or associated with any enterprise engaged in acts prohibited by the statute.  A RICO person is "any individual or entity capable of holding a legal or beneficial interest in property." 18 U.S.C. § 1962(c). A RICO enterprise is "an individual, partnership, corporation, association or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4). The Second Circuit requires a clear distinction between RICO persons and the RICO enterprise.  To satisfy this distinction, plaintiffs need only show a formal legal distinction between the individual defendants and the RICO enterprise. 

Here, plaintiffs have adequately alleged that the Defaulting Defendant is a RICO person associated with a distinct RICO enterprise. Plaintiffs' complaint alleges that defendant Direct Rx is an enterprise that engages in interstate commerce. The conduct of Direct Rx's affairs consisted of repeated violations of the federal mail fraud statute by dispensing fraudulent pain medication to patients and submitting fraudulent insurance claims to GEICO through the mail. Plaintiffs allege that the Defaulting Defendant participated in this fraud by using the preprinted labels and stamps provided to him by the pharmacy defendants to prescribe the medically unnecessary pain medications to patients, in exchange for kickbacks or other compensation. Plaintiffs' allegations thus sufficiently allege that Direct Rx was an enterprise engaged in racketeering activity, and the

Defaulting Defendant was involved in that fraudulent scheme.

Racketeering activity is defined by 18 U.S.C. § 1981(1) and refers to specific criminal acts, including mail fraud. Federal mail fraud includes the use of the mails in the execution of any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises.  Plaintiffs allege that defendants engaged in mail fraud by knowingly carrying out a scheme to defraud GEICO by submitting fraudulent charges through the mail. A pattern of racketeering activity requires at least two acts of racketeering activity occurring within 10 years of one another. 18 U.S.C. 1961(5). The acts must be related and either amount to or pose a threat of continuing criminal activity.  Here, GEICO has shown a pattern of racketeering activity because the complaint clearly alleges that the pharmacy defendants submitted hundreds of fraudulent claims through the mail over a period of five years.

Finally, at the pleading stage, the participation element is a relatively low hurdle for plaintiffs to clear.  The word participate makes clear that RICO liability is not limited to those with primary responsibility for the enterprise's affairs, just as the phrase directly or indirectly makes clear that RICO liability is not limited to those with a formal position in the enterprise. 

Plaintiffs allege that the Defaulting Defendant participated in and was essential to the racketeering scheme. The pharmacy defendants needed Delacruz-Gomez and the other prescribing defendants to write the fraudulent prescriptions in order to dispense the pain products and submit the claims to GEICO. Plaintiffs have alleged specific facts which show that the Defaulting Defendant had knowledge of the fraudulent scheme and participated in it by using the stamps and labels provided to him to prescribe the medically unnecessary products to patients, in exchange for illegal kickbacks. Thus, plaintiffs have successfully alleged that the Defaulting Defendant participated in the racketeering scheme.  Accordingly, plaintiffs have properly pled a RICO claim against the Defaulting Defendant.

The elements of aiding and abetting fraud under New York Law are: (1) an underlying fraud; (2) the defendant's actual knowledge of the fraud; and (3) the defendant's substantial assistance to the fraud. 

First, plaintiffs have sufficiently alleged the underlying fraud as discussed above. Next, plaintiffs successfully allege that the Defaulting Defendant had actual knowledge of the underlying fraud and that he provided it assistance. Knowledge can be shown through circumstantial evidence. As evidence of defendant Delacruz-Gomez' knowledge, plaintiffs point to his frequent use of the stamps and labels provided to him by the pharmacy defendants to prescribe products produced by Direct Rx which he knew were not medically necessary.

Plaintiffs further allege that defendant Delacruz-Gomez was only prescribing these products to maximize defendants' profits on the fraudulent scheme. Thus, plaintiffs sufficiently allege that defendant Delacruz-Gomez had actual knowledge of the fraud and substantially assisted defendants' fraud.  Thus, plaintiffs have demonstrated defendant Delacruz-Gomez' liability for aiding and abetting common-law fraud.

Plaintiffs' complaint seeks compensatory and treble damages for their third cause of action (RICO) and compensatory damages and prejudgment interest for their fifth cause of action (aiding and abetting common law fraud). However, the instant motion seeks only compensatory and treble damages for the RICO claim, and interest on the damages owed under the fifth cause of action, but not fraud damages. This is undoubtedly because plaintiffs are aware that they cannot receive both treble damages under RICO and compensatory damages for common law fraud related to the same fraudulent conduct. Thus, plaintiffs should recover treble damages for their RICO claims, but should not recover compensatory damages nor interest for their common law fraud claim.

It is well established that when a party is in default, it is deemed to constitute a concession of all well plead allegations of liability, but it is not considered an admission of damages.  The Court may conduct hearings or make referral when, to enter or effectuate judgment, it needs to determine the amount of damages or establish the truth of any allegation by evidence. Fed. R. Civ. P. 55(b)(2). However, detailed affidavits and other documentary evidence can suffice in lieu of an evidentiary hearing. 

In support of their motion for a default judgment, plaintiffs submit a declaration from Kathly Asmus, a Claims Manager for GEICO which states that plaintiffs' requested damages were ascertained from a tax identification run ("TIN run") which identified each of the payments GEICO made to Direct Rx in relation to the fraudulent scheme. Declaration of Kathy Asmus. Plaintiffs also submit the TIN run itself.  Courts have found that such documentary evidence is sufficient to support a damages award in similar cases, thus no hearing is necessary in this case.  Because the Asmus declaration and TIN run sufficiently support the award of damages sought by the complaint, I find that plaintiffs should be awarded $548,369.00 in RICO damages.

Plaintiffs assert that the Defaulting Defendant is liable to them for the full amount of damages on their RICO claim as defendants in a RICO conspiracy are jointly and severally liable for all of a plaintiff's damages, even those with which an individual was not personally involved. As the plaintiffs' submissions demonstrate that they are entitled to recover $548,369.00 that they paid to Direct Rx as a result of the fraudulent scheme, defendant Delacruz-Gomez is liable for that entire amount.

Plaintiffs also seek treble damages as allowed by statute. See 18 U.S.C. § 1964(c) ("Any person injured…[by violation of Civil RICO]…shall recover threefold the damages he sustains."). Courts have found that an award of treble damages is appropriate in No-Fault billing cases involving RICO fraud claims, even in the context of default.  Here, plaintiffs have established defendant Delacruz-Gomez' liability under RICO; therefore, the Court should award plaintiffs treble damages in the amount of $1,645,107.00.

Plaintiffs may not recover damages under their common law fraud claim in addition to the RICO damages. As plaintiffs should not receive compensatory damages on their fraud claim, they are not entitled to interest on those damages. Furthermore, it would be inappropriate for the Court to award prejudgment interest to a plaintiff who receives treble damages under RICO.

Accordingly, the Court recommended that plaintiffs' motion for a default judgment against Rafael Antonio Delacruz-Gomez should be granted in part and denied in part. Plaintiffs should be granted a default judgment in the amount of $1,645,107.00 against defendant Delacruz-Gomez on plaintiffs' RICO claim. Plaintiffs' motion for damages and interest on their common law fraud claim should be denied.

FLEMING’S FINEST
Katherine A. Fleming

[email protected]

02/11/22       Pharr-San Juan-Alamo Independent School District v. Texas Political Subdivisions Property/Casualty Joint Self Insurance Fund
Supreme Court of Texas
No Duty to Defend Or Indemnify Under Automobile-Liability Insurance Policy for Accident Involving Golf Cart

The Plaintiff mother sued the Pharr-San Juan-Alamo Independent School District and its employee, alleging her daughter was severely injured after being thrown from a golf cart. The Plaintiff alleged her daughter was thrown from the golf cart when a School District employee “recklessly and negligently operated” the golf cart by “suddenly, and without warning, turn[ing] the golf cart abruptly.” The School District had automobile-liability insurance from the Texas Political Subdivisions Property/Casualty Joint Self Insurance Fund and asked the Insurance Fund to provide a defense against the Plaintiff’s claims and to indemnify it. The Insurance Fund sought a declaration that it had no duty to defend the School District. The trial court agreed with the School District, but the court of appeals disagreed. The Supreme Court agreed the Insurance Fund had no duty to defend the School District because “golf cart” did not fall within the meaning of “covered auto” under the policy.

The parties disputed whether the automobile-liability insurance policy required the insurer to defend and indemnify the insured against claims for damages arising from the accident involving the use of a “golf cart.” This particular golf cart was “a normal golf cart you would see at a golf course,” not “street legal,” and was used only on school property. The policy in this case required the Insurance Fund to pay all sums the School District had to legally pay as damages because of bodily injury or property damage to which the insurance applied if those damages were caused by an accident and resulted from the ownership, maintenance, or use of a covered auto. The policy defined auto as “a land motor vehicle . . . designed for travel on public roads but . . . not include[ing] mobile equipment.” Mobile equipment meant certain types of “land vehicles,” including other vehicles not designed for use on public roads. The Insurance Fund asserted the policy did not provide coverage because a golf cart is not designed for travel on public roads and thus is not an “auto” but rather “mobile equipment.”

Applying the “eight corners” rule, considering only the allegations within the underlying lawsuit for personal injuries and the terms of the policy, the Supreme Court did not find the Plaintiff had alleged a claim for which the policy provided coverage. Texas statutes distinguish the term golf cart from terms describing other types of vehicles and devices, such as a “neighborhood electric vehicle.” The statutes use “golf cart” to refer to a vehicle designed “primarily for use on a golf course.” Although a golf cart may be operated on public roads under certain circumstances, they are not designed to be operated on public roads.  Since “covered auto” referred to a vehicle “designed for travel on public roads,” a “golf cart” was not a covered auto under the policy. The allegation that the daughter was thrown from a golf cart did not include an allegation that she was thrown from a “vehicle designed for travel on public roads,” so there was no duty to defend the insured.

Additionally, the facts established in the underlying suit control the duty to indemnify, and since the School District did not conclusively establish that the golf cart was a covered auto, there was also no duty to indemnify.

 

NORTH of the BORDER
Heather Sanderson

[email protected]

01/04/22       Patrick Guilbert et al v. Economical Mutual Insurance, 2022 MBCA 1
The Manitoba Court of Appeal

  • An Insured’s Failed Polygraph Test Can be Entered into Evidence in a Civil Claim for Insurance Coverage to Document that the Insurer’s Denial of Coverage was Made in Good Faith. However, the Results of that Test are Not Probative of Wilful Misconduct on the Part of the Insured

  • A Material Statement is Any Wilfully False Statement About the Quality or Condition of the Insured Property Which is the Subject of the Claim that is Capable of Affecting the Mind of the Insurer Regarding that Claim

  • The Insurer Can Rely on that Material Statement to Deny the Claim. In Doing so, the Insurer Need Not Show Actual Prejudice Following the Receipt of the Statement

  • It is Sufficient, that the Fraud or Wilfully False Material Statement Could Affect the Mind of the Insurer Either in the Management of the Claim or in Deciding to Pay it

    Shortly after 6 p.m. on February 25, 2015, the Home Hardware store in Neepawa, Manitoba, and four apartments above that store, went up in flames.

That store had a long history in the town of about 5,000. The building that housed the store was a cinder block building built after World War II and housed Bell Lumber, then, Beaver Lumber and subsequently Home Hardware.

Patrick and Laurie Guilbert, through their company, Guilbert Enterprises Ltd. took over the Home Hardware store in 2008 signing a dealer agreement with Home Hardware. Guilbert Enterprises owned the building and the business.  The footprint of the business expanded following the purchase, and the building was renovated in the following years. Four residential suites were added to the second story and a garden centre was a feature on the south side of the store.

According to the trial judgment, during its early years, business was good. However, by at least 2014, Guilbert Enterprises was experiencing difficulties. By the time of the fire on February 25, 2015, Enterprises was in financial straits. Stock was depleted, access to Home Hardware credit was restricted, dealer and other accounts were unpaid, and cheques, including payroll cheques bounced. Taxes were unpaid. Home Hardware was insisting on financial and other information from Guilbert Enterprises.

Patrick Guilbert tried to sell the business. Two days before the fire, and following a good look at the business, a prospective purchaser ended purchase talks and advised Patrick Guilbert to assign himself into bankruptcy.

The RCMP investigated the fire and as part of the investigation Patrick Guilbert submitted to a polygraph test. The report of that test stated that Guilbert was not truthful when he denied, on three occasions during the interview, that he set the fire. Despite their investigation and this polygraph report, no charges were laid against anyone, and no one was convicted of any crime in relation to the fire.

At the time of the fire, Economical Insurance Company insured Guilbert Enterprises.  Economical ’s investigation did not conclusively pinpoint the cause of the fire but determined that the circumstantial evidence and the known facts indicated that Patrick Guilbert set the fire. Economical paid out the mortgage holders as they were obliged to do and paid to clean up the premises following the fire. Thereafter, they denied coverage on the basis that Patrick Guilbert, the operating mind of Guilbert Enterprises, deliberately set the fire and on the basis that Guilbert misrepresented facts or failed to provide sufficient information during the investigation of the content of the sworn proof of loss submitted by Guilbert Enterprises, all of which breached the corporate insured’s statutory, contractual, and common law duties.

Guilbert Enterprises sued Economical claiming $3 million under the policy. Economical denied liability to indemnify and counterclaimed for the amounts that they paid out to the mortgage holders and for the debris removal. The insurance claim went to trial.

In a judgment released in April 2019, the trial judge found for Economical stating that Patrick Guilbert had the motive and opportunity to set the fire; that the cause of the fire was undetermined, but consistent with arson; that following the fire, Guilbert deliberately or recklessly misrepresented the financial situation of Guilbert Enterprises to Economical and its adjusters and, therefore, in view of these findings, Guilbert Enterprises’ claim against Economical was dismissed and Economical ‘s counterclaim succeeded, such that Economical received a judgment against Guilbert Enterprises of just over $1 million.

Thereafter, Guilbert Enterprises filed for bankruptcy. Economical received a court order to have the stay of proceedings under the bankruptcy act lifted in respect of its judgment against Guilbert Enterprises. That meant that Economical ‘s judgment was not extinguished by the bankruptcy.

In August of 2021, Guilbert Enterprises argued an application before the Manitoba Court of Appeal for an extension of the time to appeal the trial judgment. In early January 2022, that application was denied.

The application could succeed if there was evidence of a continuous intention to appeal and, there were arguable grounds to appeal.  The Court of Appeal found that that there were no arguable grounds for an appeal.

One of the grounds of appeal, was the fact that the trial judge admitted the polygraph report into evidence. The Court of Appeal agreed with the trial judge that the polygraph report could be used in evidence to rebut the allegation that Economical acted in bad faith during its investigation of the insurance claim; the polygraph was part of the explanation of the steps taken to investigate in good faith.  The trial judge did not use the polygraph to hold Patrick Guilbert responsible for setting the fire.

Of significant interest is the Court of Appeal’s discussion of whether the trial judge used the wrong test regarding the fraudulent misrepresentations that were made during Economical ’s investigation of the sworn proof of loss that Patrick Guilbert submitted on behalf of Guilbert Enterprises, the corporate insured.

Counsel for the insured argued that, while the trial judge applied the test of whether the misrepresentation had “the capacity to affect the mind of [the insurer]”, but that the correct test is whether it “did in fact affect the decision of the [insurer] in that [it] relied on that representation in making a decision.” That argument was roundly rejected. Citing authority from British Columbia, the Manitoba Court of Appeal held that:

  • A material statement is any wilfully false statement about the quality or condition of the insured property which is the subject of the claim that is capable of affecting the mind of the insurer regarding that claim.

  • The insurer can rely on that material statement to deny the claim. In doing so, the insurer need not show actual prejudice following the receipt of the statement.

  • It is sufficient, that the fraud or wilfully false material statement could affect the mind of the insurer either in the management of the claim or in deciding to pay it.

The Court of Appeal concluded that there were no arguable grounds of appeal from the trial judgment and, therefore, the application of the corporate insured for an extension of time to appeal was rejected, with costs payable to Economical. 

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