Coverage Pointers - Volume XXIII, No. 21

Volume XXIII, No. 21 (No. 616)
Friday, April 1, 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?  Everyone seems to have one these days.  Have no fear, we LOVE situations.  Even on April Fool’s Day.

I am off to San Antonio and the PLRB Claims Conference; hope to see some of you there.

 

Comedians in Cars Getting Coffee – Legal Fee Claim Slashed:

This one’s a must read.  In my column, you will find a case where the USDC, SDNY, slashed legal fees recoverable in a motion to dismiss a copyright infringement case from just under $1,000,000 to just under $30,000.  It’s a great read and provides precedent to combat the next time independent (CUMIS) counsel seek to pillage an insurer for extraordinary legal feels

 

Diversity and Inclusion in Law Firm Retention:

Hurwitz & Fine, P.C. is proud to be a woman-managed law firm and is strongly committed to diversity and inclusion.  In the Winter 2022 issue of DRI’s In-House Defense Quarterly, my friend Gordon K. Walton, of the Walton Law Group published a great article, entitled How Insurance Companies Can Revamp Their Approved Counsel Lists to Eradicate Racial InjusticeGordon has 30 years of experience in some of the largest and most respected law firms in the country and is a well-respected coverage practitioner and a member of the Federation of Defense & Corporate Counsel.  With DRI’s blessing and his, I am delighted to attach his thoughtful article for your consideration. Times they are a changing and we can all be catalysts for that change. Thanks, Gordon.  Gordon’s contact information is at his website, and can be reached at [email protected] or at 312.523.2106.  

 

April Fools Retirement (Not to be):

Last week, I posted on LinkedIn that as of today, April 1, I was retiring, using the money I received from Nigerian princes and other generous emails, to fund my nest egg.  I had secured in one day, from very generous spam:

  • $10.5 million from Diplomat David who arrived in Atlanta Hartfield airport, if only I would provide him my full address and mobile number on how to reach to your doorstep including your identity proof that will help him for smooth delivery.

  • $1,500,000 in the Missouri lottery, if only I would send my full name, address and phone number for claims to email.

  • Three million Euros to you in the sender’s ongoing charity program. [= US $3,303,900].

  • $7,000,000 to stand as next of kin to a beneficiary in Turkey.

  • $12,500,000 to be deposited in the bank under my custody for you to invest it into any social charitable project in your location or your country.

That was a total of $34,803,900.  As in all April 1 postings, several of my friends and colleagues believed me, but alas, it is all for naught. Sadly, despite my offer to retain counsel for a 25% contingency fee, not a penny was recovered so my retirement has been postponed indefinitely.

 

Comprehensive Insurance Disclosure Act Training Now Available

We have already conduced seven virtual training programs for insurers, to understand the responsibilities and requirements of the newly enacted and amended CIDA statute.  Each training session takes approximately 30-40 minutes, including time for Q&A.  Contact us to schedule:

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RISK TRANSFER TRAINING AT THE PLRB CLAIMS CONFERENCE:

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Contractual Indemnity & Additional Insureds Liability

State Approved CE Credits: DE FL NC OK TX

Tuesday, April 05 — 10:30 - 12:00
Wednesday, April 06 — 3:30 - 5:00
Dan Kohane, JD, Senior Partner, Hurwitz & Fine, P.C., Buffalo, NY

John Hanlon, AIC, SCLA, Complex Claims Unit Manager, Selective Insurance Group, Branchville, NJ

  • Distinguish between an insurer's obligations to those who qualify as additional insureds and those who benefit from contractual indemnity obligations
  • Evaluate how tenders of defense and indemnity should be made under both policy and trade agreement
  • Describe the protocols to consider when tenders are received under both insurance policy and contracts
  • Identify the relevant factors when sending or receiving tenders

 

Expert Witness and Mediation Services:

By the way, if you are looking for an expert witness or a mediator to help resolve coverage or risk transfer issues, feel free to reach out.  For insurers battling with each other over coverage issues and justifiable concerned about developing precedent that may work against them in their next case, mediation is an excellent alternative.

 

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:

    No April Fool’s Jokes here. 

    This week’s note comes to you from the New York State Thruway, as I travel back to home base from a day in Syracuse.  As I sat in what was nearly an abandoned office that must have teemed with activity 24 months ago, I was reminded that sometimes it is helpful to actually sit across the table from someone.  You know, basic human interaction.  While I also found myself remembering how unpleasant a drive across the Thruway can be in rain, in the dark, all in all it was a successful day.

    Not a tremendous amount activity on the first party beat this week.  We do review an interesting decision addressing the intersection of business interruption coverage and the voluntary payer doctrine.  It’s worth the read. 

    Other than that, we bid you adieu for two weeks.  See you then. 

    Steve
    Steven E. Peiper

    [email protected]

     

    The History of April Fool’s Day:

    The Oneonta Star
    Oneonta, New York
    01 April 1922

    WATCH YOUR STEP TODAY

    This is April Fool’s Day When Practical Jokes Are Always in Order—Custom Has Interesting Origin.

    Today is the day of the practical joker, that day when anyone is privileged to play practical jokes upon his friends. So, watch your step, tor Joke lingers in every moment of the day.

    The origin of "April Fool's Day" is lost in the mists of antiquity. By some the custom is traced back to the days of the miracle plays given at Easter time. In the decadent days of these dramas, the actors literally made fools of themselves. A "Feast of Fools” was always held in the early spring by the ancient Romans and for a great many years the Hindus have celebrated the vernal equinox as a saturnalia. The chief amusement at these festivals seems to be that of sending people on fruitless errands and thus fooling them.

    Many trace the origin of the custom back no further than France in the 16th century. France was the first nation to adopt the new calendar making the first of the year on January 1 instead of April 1. Many persons continued to send Year's gifts and felicitations on April 1 Instead of on the new date, and hence subjected themselves to taunts for going on visits that had no meaning.

     

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

    It’s that time of year again – the annual ABA’s Tort Trial and Insurance Practice Section Conference! This time, after a long hiatus, we are back in person and in Baltimore, Maryland. Once again, the section conference features stellar speakers and entertaining events. Check out the link above for more information. As usual, do let me know if you have any interest in attending, just drop me a line!

    This week, our column on Circuit Court cases once more features Evan Gestwick. Check it out!

    Hello again, readers! Although the weather is currently toying with our emotions here in Western New York, we football fans at least have NFL free agency and March Madness to take our minds off of what has been nothing short of absolute misery on the weather front. The Duke Men’s Basketball Team seems on track to give Coach K one last ring, while the Buffalo Bills appear to be in “win-now” mode with the signings of Von Miller, OJ Howard, and the like. Go Bills!
    This week, we have a case in which it is made clear that insureds usually cannot maintain a cause of action against their insurers on the basis of unjust enrichment. The reason for this is because that theory of liability can only be maintained on quasi-contractual theories, which are largely inapplicable in the presence of an actual contract like an insurance policy. In this case, the insurer sought to enforce a policy provision entitling it to audit premiums, and the court held, over the insured’s assertion, that such did not constitute unjust enrichment, because not only was there a valid, written contract at play, but because the insured never even paid the money—therefore, the insurer was not “enriched,” let alone unjustly. ~Evan

    Until next time!

    Agnes (and Evan)
    Agnes A. Wilewicz

    [email protected]

    Watch Your Step Today:

    Daily News

New York, New York
01 April 1922

Hark! The Cuckoo’s Calling Its Mate.

It’s April 1. If your wife calls you at daybreak to inform you the house is afire let it burn. If a man in the street carelessly drops a bloated purse at your feet and walks off—let it lie. Otherwise, you’ll be what the French call “un poisson d’Avril” (April fish); the Scotch a “gowk” (cuckoo), and the Yanks, just a plain April Fool. It’s All Fool’s Day, and the whole world’s looking for victims.

 

Barnas on Bad Faith:

Hello again:

We have finally made it to spring and to April, which is one of the best months on the sports calendar.  The Final Four is this Saturday, and I am having a hard time deciding who to root for.  I think as a Syracuse fan, the answer has to be Kansas by default, given that Duke and UNC are in the ACC and Villanova is a long-time Big East rival.  The ratings should be excellent given that we have four blue blood programs and the added drama of it being Coach K’s last season.  Rock Chalk!

I have a bad faith case from the First Department in my column today that applies Ohio law.  The case arises out of a claim for vandalism damage to the Plaintiff’s property located in Cincinnati, Ohio (the case was brought in New York based on the residence of the insurer).  The insurer denied coverage for the claim based on various exclusions in the policy and sought to rescind the policy based on misrepresentations made by the insured on the application.  After trial, the jury found in the plaintiff’s favor on coverage, but the court below granted a directed verdict in favor of the insurer on the bad faith claim.  The First Department affirmed the grant of the directed verdict.  In so doing, the court found that the insurer had conducted a thorough investigation and that its coverage decision and conduct was not arbitrary or unreasonable.

Brian
Brian D. Barnas

[email protected]

 

In Case You’re Curious, a Century Ago, THIS is why Women Loved Men:

The Brooklyn Daily Eagle
Brooklyn, New York
01 April 1922

MEN GIRLS LOVE

By LAUREL GRAY

Girls marry suave men. Don't stare. It's so. Suave men are calm men, cool men, sure men, positives They meet the fluttering of the feminine heart and the doubts and fears of romantic intercourse with a certain manliness, a strength and sureness which arouses the strongest admiration of the feminine heart and mind. Suave men are never noisy, never agitated— unless it be in the tender passages of lovemaking, and they are as firm as a rock. Suave men are invariably the masters of any situation. Politeness, smoothness courtliness are the essentials of suave men. All big businessmen are suave. All great lovers of our literature are suave. Misuse of the word has brought it into disrepute. Suaveness is not shrewdness. Suaveness is assurance of the right kind. Suave men are amazingly successful with the fair sex.

 

Off the Mark (featuring Kyle A. Ruffner):

            Dear Readers,

It’s been cold and windy all week.  So much for the warmer weather arriving.  The outdoor activities will have to wait a little longer.  My family has been planning a Disney trip to celebrate my mother’s 70th birthday.  It has been difficult coordinating between three families (mine and my two sisters’) and my parents, but everything has been booked.  We leave on April 14th.

Here's Kyle with another interesting construction defect case.  In Lodge at Mt. Vill. Owner Ass’n v. Eighteen Certain Underwriters of Lloyd’s of London Subscribing to Policy Number N16NA04360, the U.S. District Court for the District of Colorado found no duty to defend where the underlying claims were excluded by the policy’s faulty workmanship and wear and tear exclusion.

Nothing exciting happening recently, staying busy and otherwise just hanging out, visiting family, and watching a lot of basketball. Unfortunately had some pretty bad luck with the bracket this year - probably the first time a team I picked to win lost in the first round, but still looking forward to a couple good final four games. Eagerly awaiting some warmer spring weather, as I am sure most in Buffalo are this time of the year, as I am ready to get outside and also golf as soon as possible. ~Kyle

Until next time …

Brian (and Kyle)
Brian F. Mark

[email protected]

 

Japan Bans Booze:

The Buffalo Enquirer
Buffalo, New York
01 April 1922

Arthur Brisbane’s Comment

For the first time in history, Japan passes a law regulating the sale of intoxicating drink. It forbids selling to minors. Failure to pass such law hitherto has not been based on indifference, but on temperance. Drunkenness doesn’t bother the Japanese. In Japan, also, you hear nothing of societies for the prevention of cruelty to children. The good reason is that in Japan nobody is cruel to children.

Raise your arm above a Japanese child as though threatening to strike and the child will laugh. It never heard of a child being struck. Unfortunately, you cannot say the same of the United States. Raise your hand to a child here and it knows too well what it means.

 

Fleming’s Finest:

Hi CP Subscribers:

This week, I entered the final stretch of the law review publication process, so I am looking forward to seeing my piece published in the Buffalo Law Review! The highlight of the week was going to the Sabres game against the Jets.

For this edition, I can offer you a case from the Supreme Court of Ohio involving something called “tube scale.” A third party incorporated the insured’s contaminated product into its glass containers, which then had to be scrapped.  The claims against the insured by the third party were covered under the insured’s commercial umbrella policy because they arose out of an accident that resulted in “property damage” under the policy. For more info, check out the case in the column.

Enjoy the weather!

Kate
Katherine A. Fleming

[email protected]

 

From the Some Things Never Change Department, Skepticism Over Russian Government Promises, 100 Years Ago:

The Buffalo Enquirer
Buffalo, New York
01 April 1922

REASONABLE SKEPTICISM

A STORY FROM Russia that the government will seize and sell gold, silver and jewels of the church “to help feed the starving” is commented upon as though Bolshevism has suddenly gone humane.

Bolshevism may seize and sell whatever may be left of the treasures of the church, but will it be “to feed the starving?” Bolshevism has had the starving a long time without interest or effort in their behalf.

Simultaneously comes this story from Washington: “The battle fleets of Russia are to be strengthened immediately. Leo Trotsky, chief of the Soviet war council, has just issued orders for the rehabilitation of the Russian navy, according to diplomatic reports received at the state department from Moscow. Warships which for months have lain rotting at their piers are to be reconditioned and put into commission. Systematic efforts are to be made to re-enlist the officers of the old czarist navy.”

It seems more likely that if the remaining treasure of the church are to be seized and sold it is to rebuild the navy for Trotsky than “to help feed the starving.”

Bolshevism has remained indifferent to the starving so long it is improbable it is now going to their relief even by the easy process of despoiling the church.

 

Ryan’s Capital Roundup:

Hello Loyal Coverage Pointers Subscribers:

Last week, my wife had one wish for her spring birthday: “Let’s go snowboarding”. My response? That’s a great idea. Only problem? I’ve never been downhill skiing, let alone snowboarding. A lifelong athlete, I was undeterred (the sole caveat being a ski-rental, instead of snowboard, for yours truly). The bunny hill? Nah, child’s play. Give me a real hill. The verdict? Although I fell, a lot, I have no idea how I have waited so long. Skiing, although not easy, is a thrilling experience—one that I’m proud to say I did not ruin for my wife’s birthday. Snowboarding when I shouldn’t have would likely have resulted in another story altogether.

On another note, I chose Villanova this year. I think that was a pretty good choice.

This issue of Ryan’s Capital Round-Up, we outline a few recently passed chapter amendments regarding laws passed in 2021. The first concerns the return of operating reserve balance to the subscribers of a municipal insurance reciprocal and assurances that such returns will not impact the insurer’s ability to handle further obligations thereafter. The second concerns appropriate consent for electronic notifications by property/casualty insurers.

Until next time,

Ryan
Ryan P. Maxwell

[email protected]

 

Tasers Not Yet Invented, Electric Studded Night Sticks, All the Rage:

The Buffalo Times
Buffalo, New York
01 April 1922

Electric Studded Night Sticks for Buffalo Coppers

Police Chief Burfeind Saturday showed Mayor Schwab a patrolman’s club of new design, which has an electric flashlight in one end. The major thought the idea a good one and directed to chief to try it out.

“You might use it to look for that honest man,” said the mayor, referencing to his lantern stunt in searching for Commissioner Meahl’s word of honor anent the defeat of Fred Seames for civil service commissioner.

 

CJ on CVA and USDC(NY):

Hello all,

Last time I checked in I was full of hope and excitement, my bracket was perfected, and spirits were high. I write to you now as a humbler, more grounded individual. My bracket has busted, there is no hope for salvaging even a moral victory as my beloved Bulldogs were bested by the Razorbacks. Even the local NIT hopefuls St. Bonaventure failed to meet their mark.

On to happier topics, ambiguous language in insurance policies! This edition brings us a discussion on what exactly an insurer means by “water lines” and why it can be an ambiguous term.

Additionally, below find a report on what is likely the first CVA case in New York taken to verdict. As pointed out in the write up, it is important to note that no defense was presented, and only the alleged abuser was a named defendant. Two key points that likely contributed to such a high award.

Until Next Time,

CJ
Charles J. Englert, III
      
 

Peace Bridge Bill Signed – a Century Ago:

The Buffalo Times
Buffalo, New York
01 April 1922

MILLER SIGNS BRIDGE BILL

ALBANY, N.Y., April 1. —Governor Miller today signed the Rowe-Gibbs bill, which provides for the incorporation of the Buffalo and Fort Erie Public Bridge Company. The company will be incorporated to construct a bridge across the upper Niagara River, connecting Buffalo and Fort Erie.

Editor’s Note:  Three years later, the International Joint Commission approved the plan for the bridge and the bridge engineer drove the first vehicle over it on March 13, 1927. The bridge was open for traffic on June 1, 1927.

 

Dishing Out Serious Injury Threshold:

Dear Readers,

This March has certainly been full of Madness. I hope everyone is doing well and keeping sane as we get through these early busy months of the year. In the meantime, I’m just looking forward to the warmer months.

I selected two decisions for this issue. The first deals with plaintiff’s counsel failing to raise an issue of fact since no properly affirmed medical reports were submitted. Plaintiff only submitted certified medical records, which may be considered only for limited purposes, such as showing that plaintiff sought treatment after the accident.

The second case deals with plaintiff failing to provide objective evidence that she suffers from anosmia, i.e., loss of smell, as a consequence of the accident. The Court found that plaintiff’s submissions were insufficient to establish such as claim as they were based solely on plaintiff’s subjective complaints of loss of smell.

Enjoy,

              Michael
           Michael J. Dischley

           [email protected]  

 

Radio Becoming Popular:

The Buffalo Times
Buffalo, New York
01 April 1922

THE GROWTH OF RADIO

A good sign that the world is getting sensible again: Invent an improved machine gun or other implement of destruction and you won't get a thousandth part as much attention as by discovering a slight improvement for the wireless.

Boston traffic stands still and becomes deadlocked, watching Samuel Curtis. He appears on the streets, wireless receivers over his ears, carrying his machinery in a small satchel, hearing radio-phone messages collected by the ribs of his open umbrella. The radius is 20 miles.

Before long, no matter where, wireless will keep you in constant touch with home and business. Strap-hanging will be less monotonous, hearing concerts and news bulletins over your pocket radiophone.

 

Lee’s Connecticut Chronicles:

            Dear Nutmeg Newsies:

Welcome to Winter: The Return! It’s been cold these last few days—and it feels even colder after experiencing a nice long week of early spring. My morning dog walks have gone from refreshing back to a chore, but my HOA fines me $50 every time they catch me with my very well behaved and extremely sweet dog off leash. (See inset)

A dog sitting next to a computer

Description automatically generated with medium confidenceIn non-dog news, my son has come and then gone from spring break. The house got very loud, very quickly and then got quiet again even quicker. I’ve decided that I like a loud house, even when I get kicked out of my own living room by a group of boisterous 20-somethings.

On the insurance coverage front, we discuss a controversial new decision from the Connecticut Supreme Court applying the litigation privilege to knock out the insured’s bad faith claims. In Dorfman v. Smith, a 4-1 court found that Liberty Mutual’s admission that it knew it had no basis in an underinsurance suit to oppose liability and that it withheld the existence of a witness and his recorded statement from the insured, were protected litigation conduct immune from a bad faith claim. We think many commentators on both sides of the aisle are going to have trouble with this one. Read on for our deeper treatment.

 

In the meantime, keep keeping safe.

Lee
Lee S. Siegel

[email protected]

 

The Bums Under Ebbets:

 

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The Brooklyn Daily Eagle
Brooklyn, New York
01 April 1922

Ebbets Gets Back Full of Optimism

President Charles H. Ebbets of the Brooklyn Superbas has returned to Brooklyn from the South. He was with the Superbas while they were training at Jacksonville, Fla., and accompanied them on their spring tour as far as New Orleans.

Mr. Ebbets expressed himself as highly pleased with the outlook for this year. He said all of the veterans showed signs of living up to their best performances of the past, while he was much impressed with the quality of second-strong men. He spoke highly of Andy High, the third baseman bought from Memphis: Hank Deberry, a catcher bought from New Orleans; Pitcher Dazzy Vance from New Orleans and Bernard Hunzling, catcher from Memphis.

Mr. Ebbets had long conferences with Edward J. and Steven W. McKeever, his partners in the club, and with Secretary Charles H. Ebbets Jr. about plans for the exhibition series with the New York Yankees at Ebbets Field on April 8, 9 and 10 and about the formal opening of the Superbas home season on April 20. They reported that everything was in shape, except for softness of the ground caused by recent rain.

Editor’s note:  Most baseball aficionados know that the Dodgers is a shortened version of one of the previous team names, the Trolley Dodgers.  What some don’t know is that the Dodgers, when still in Brooklyn, had other names, mostly unofficial. So, in 1921, the team was known as the Robins but still was referenced as the Superbas in some of the baseball stories of the day.  P.S.:  I’m a Brooklyn boy, growing up three blocks from Ebbets Field (although they moved out west when I was four years old, the ballpark remained standing until 1960.  Team names:

  • Brooklyn Dodgers                1911-1957

  • Brooklyn Robins                  1914-1931

  • Brooklyn Superbas              1899-1913

  • Brooklyn Bridegrooms         1888-1898

  • Brooklyn Grooms                 1891-1895

  • Brooklyn Grays                     1885-1887

  • Brooklyn Atlantics                1884-1884

 

Rauh’s Ramblings:

Hi all,

April is almost here, and I cannot believe we are already four months into 2022!  April is my favorite month of the year because it is my son’s birthday, as well as my birthday.  Plus, this will hopefully be the month where we finally start to see warmer temperatures!

This week, I have a case from U.S. District Court for the Southern District of Mississippi.  The case involves a dispute over the rightful beneficiaries of life insurance proceeds.  The plaintiff life insurance company sued the potential beneficiaries in federal court to enforce the arbitration clause in the policy and the defendants argued that the plaintiff did not have standing under Article III of the U.S. Constitution to bring suit.  Read on for more details!

See you in two weeks!

Patty
Patricia A. Rauh

[email protected]

 

Who is the Mother of the Daughter of a Siamese Twin?

Daily News
New York, New York
01 April 1922

SIAMESE TWINS BRING CHINESE PUZZLE TO COURT

Chicago, March 31. —Doctors here today clashed over this question:

Is Frantz Blazek, twelve, the son of Rosa Blazek or of both Siamese twins?

On the question, which will be threshed out in Cook County Probate Court, will depend on the disposition of an estate of $100,000 left by the famous pair, who died here yesterday.

Dr. Benjamin Breakstone stated today that Rosa was the mother of Frantz. He said the twins must be considered as different entities.

Dr. C. W. K. Briggs holds that Frantz is the offspring of both sisters, as they cannot be considered two complete persons.

In case it is decided Rosa is the mother, Frantz will inherit $50,000 and Josefa’s fortune will be sent to her family in Czechoslovakia. In event it is decided Frantz is the son of both, the entire $100,000 will go to him.

Attempts to obtain a court order to conduct a postmortem to establish the parentage of Frantz will be made. This follows the refusal of Frank, a brother of the twins, to allow the sisters to be separated in the interest of science.

 

Storm’s SIU Examen:

Hi Everyone:

I hope to see my SIU friends at the Pennsylvania Insurance Fraud Conference in Hershey, Pennsylvania, March 31st and April 1st.  I’m not presenting this year, just attending the awesome line-up, and acquiring some continuing legal education credits for my Pennsylvania license. 

It was slim pickings this week for decisions of interest to New York and Pennsylvania SIU professionals.  So, I only have one case, from the Third Circuit:

  • Insurer had no duty to indemnify for insured contractor’s unilateral decision to repair storm damage in its effort to meet its contractual obligations with the property owner of a construction project as this does not constitute a "legal obligation to pay...damages" as contemplated in the insuring agreement of the CGL policy. 

This week’s encouraging word: “Whether you think you can or you think you can’t, you’re right”.  ~ Henry Ford

Have a great two weeks! 

Scott
Scott D. Storm

[email protected]

 

Daylight Savings Time was Controversial a Century Ago:

The New York Times
New York, New York
01 April 1922

Miners, Preferring the Dark, Strike Over Daylight Saving

Copyright, 1922, by The New York Times Co. Special Cable to THE NEW YORK TIMES.

PARIS, March 31—Miners of St. Pierre in Palud, near Lyons, spending most of their lives in darkness, cannot see the reason for daylight saving, and accordingly have called a strike in protest.

In answer to the first demand of the miners that application of the law be delayed, the directors responded that the railroad schedule made application imperative. Next day half the men arbitrarily reported for work at the former hours. When the directors tried to force the issue all the men quit work.

The owners are puzzled by the miners’ attitude and feel that they should be happy over the extra hours of daylight. Apparently, however, the men prefer the dark to which they are so accustomed.

 

North of the Border: 

My husband and I had the opportunity to look after our grandson last night while his folks went for dinner. Born April 1, 2020 – he is a pandemic baby who has been completely oblivious to the restrictions of the last two years. It was a treat to have him roaming about the house on his ride-on fire truck, giggling and laughing at our golden retriever who was in hot pursuit. This almost two-year-old lives in the moment – we all need to do more of that.

My column this week discusses another breach of warranty case and potential progress towards a national flood insurance program.

Heather
Heather Sanderson

[email protected]

 

Headlines from this week’s issue, attached:

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

  • Insurance Policy Properly Canceled and Uninsured Motorists Case Can Proceed

  • Exorbitant Legal Fee Claim Crushed by Southern District – This One’s a Must Read

  • Insurance Law Section 3420(d)(2) Does Not Apply to Property Damage Cases. EIFS Exclusion Applicable to Deny Coverage

  • Another Case Holding Tenant’s Carrier Had Obligation to Defend Landlord. Also, Notice by One Insured Doesn’t Provide Excuse for Another Insured’s Failure to Prove it

  • Misrepresenting Existence of Swimming Pool on Property Justified Rescission Where Written Underwriting Guidelines Made It Clear that Policy Would Not Have Been Issued

 

PEIPER on PROPERTY (and POTPOURRI)
Steven E. Peiper

[email protected]

  • Voluntary Payment of Rent During Business Closure was Not Covered by the Terms of the Policy or the Insured’s Commercial Lease

 

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

  • Plaintiff Failed to Submit Properly Affirmed Medical Reports

  • Plaintiff Failed to Provide Objective Evidence of Serious Injury

 

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

[email protected]

  • Insured Unable to Bring Cause of Action for Unjust Enrichment for Audit Premiums Due to the Existence of a Written Contract

 

BARNAS on BAD FAITH
Brian D. Barnas

[email protected]

  • Bad Faith Claim Dismissed Applying Ohio Law

 

LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel

[email protected]

  • Connecticut Finds That Litigation Privilege Bars Bad Faith Claims Where Carrier Deliberately Withheld Evidence From its Insured, Implicitly Rejecting a Continuing Duty of Good Faith

 

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

  • U.S. District Court Finds No Duty to Defend Where Underlying Claims were Excluded by the Faulty Workmanship and Wear and Tear Exclusion.

 

RYAN’S CAPITAL ROUNDUP
Ryan P. Maxwell

[email protected]

  • Chapter Amendments Ensure That Returns of Subscribing Member Operating Reserve Balances Leave Sufficient Surplus Funds

  • Chapter Amendments Create Stronger Requirements for Consent by Insureds to Electronic Notices from Property and Casualty Insurers

 

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

  • Ambiguous Policy Terms Will Be Construed Against the Insurer

  • Jury Awards $25 Million in First CVA Jury Verdict

     

RAUH’S RAMBLINGS
Patricia A. Rauh

[email protected]

  • Plaintiff has Standing Under Article III of the U.S. Constitution to Bring this Suit in Federal Court Based on Defendants’ Refusal to Arbitrate their Dispute Over the Rightful Beneficiaries of Decedent’s Certificates

     

STORM’S SIU EXAMEN
Scott D. Storm

[email protected]

  • Insurer had no Duty to Indemnify for Insured Contractor’s Unilateral Decision to Repair Storm Damage in its Effort to Meet its Contractual Obligations with the Property Owner of a Construction Project as this Does Not Constitute a "Legal Obligation to Pay...Damages" as Contemplated in the Insuring Agreement of the CGL Policy

 

FLEMING’S FINEST
Katherine A. Fleming

[email protected]

  • Claims Against Insured for Contaminated Product Incorporated into Third Party’s Glass Containers Covered as Accident Resulting In “Property Damage”

 

NORTH of the BORDER
Heather Sanderson

[email protected]

  • An Alleged Breach of a Warranty in a Liability Policy will not Void the Policy from the very Beginning if that Warranty is Broader than the Information Disclosed in the Application

  • The Federal Task Force on Flood Insurance and Relocation is Due to Report this Spring. Is this the First Step Towards a National Flood Insurance Program?

 

Have a great day and remember, we love feedback.

Dan

 

 

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

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


NEWSLETTER EDITOR
Dan D. Kohane

[email protected]

ASSOCIATE EDITOR
Agnes A. Wilewicz

[email protected]

ASSISTANT EDITOR
Patricia A. Rauh

[email protected]

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

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

Michael F. Perley
Agnieszka A. Wilewicz
Lee S. Siegel
Brian F. Mark
Diane L. Bucci
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]

03/30/22       Progressive Advanced Insurance Company v. Littlefair
Appellate Division, Second Department
Insurance Policy Properly Canceled and Uninsured Motorists Case Can Proceed

On July 5, 2018, Alyssa Peletier was involved in a motor vehicle accident with Bertrand Littlefair and Eileen O'Connor. Littlefair and O'Connor filed claims with Peletier's insurer, Dairyland Insurance Company (“Dairyland”), which disclaimed coverage on July 27, 2018, on the ground that it had canceled the policy issued to Peletier (“subject policy” prior to the accident. Littlefair and O'Connor thereafter filed demands for arbitration of their claims for uninsured motorist benefits against Littlefair's insurance company, Progressive. On August 10, 2018, Progressive filed a petition, inter alia, to permanently stay arbitration. At the conclusion of a framed-issue hearing to determine whether Peletier's vehicle was insured on the date of the accident, the Supreme Court found that Dairyland did not properly cancel the subject policy and, in effect, granted that branch of the petition which was to permanently stay arbitration. Dairyland appealed.

Dairyland had the right to cancel the policy "for nonpayment of premium at any time by providing at least fifteen (15) days' notice of cancellation." The subject policy further provides that proof of mailing of a notice of cancellation was sufficient proof of notice of cancellation. Contrary to the Supreme Court's finding, Dairyland established that it mailed notice of cancellation to Peletier on May 22, 2018, 15 days prior to the effective date of cancellation of June 6, 2018, and that the subject policy was canceled due to nonpayment of premium.

03/25/22       Charles v. Jerry Seinfeld
United States District Court for the Southern District of New York
Exorbitant Legal Fee Claim Crushed by Southern District – This One’s a Must Read

If you follow me on LinkedIn, you’d have seen this one yesterday.

Reasonable Legal Fees? THERE'S A LIMIT (and it is not, "the sky").

While “[b]oth [the Second Circuit] and the Supreme Court have held that the lodestar—the product of a reasonable hourly rate and the reasonable number of hours required by the case—creates a ‘presumptively reasonable fee’”, that presumption can be overcome. In a copyright fight over Seinfeld's "Comedians in Cars Getting Coffee". Seinfeld's lawyers were charging up to $1550/hour for senior partners, $965 for a sixth-year associate, $650 for a first year associate, $431.50 for a paralegal and had several attorney apparently duplicating work. The lead associate, alone, billed 120 hours to research and draft the initial motion to dismiss; an additional 130 hours to update the motion following the first amended complaint; and a further 37 hours to update it following the second amended complaint. There was a total of $300,000 just to draft the motion papers.

Court awarded $28,750 in fees and $92 in costs in response to a demand of $872,936.66 in fees and $100,918.71 in costs and included the plaintiff's counsel as jointly and severable liable for the costs and fees.

03/24/22       First Mercury Insurance Co. v. Nova Restoration of NY, Inc.,  Appellate Division, First Department.
Insurance Law Section 3420(d)(2) Does Not Apply to Property Damage Cases. EIFS Exclusion Applicable to Deny Coverage
The Condo defendants' cross motions for summary judgment were properly denied on the ground that Insurance Law § 3420(d)(2) is inapplicable. "By its plain terms, section 3420(d)(2) applies only in a particular context: insurance cases involving death and bodily injury claims arising out of a New York accident and brought under a New York liability policy", 590 [2014]). Contrary to the Condo defendants' contention, the underlying claim, which asserts shoddy construction resulting in water damage and growth of mold does not arise out of an "accident" as that term is used in section 3420(d)(2). Further, the Condo defendants failed to demonstrate that either First Mercury or American Empire "clearly manifested an intent to abandon" its reliance on the exterior insulation and finish systems (EIFS) exclusions, given their explicit reservations of rights when agreeing to provide a defense to Nova (id. at 591).

Nor did Supreme Court err in granting summary judgment to First Mercury and American Empire based on their EIFS exclusions. The new, unrebutted evidence, along with the scope of work in the construction contracts, showed that, under the first prong of the exclusion, Nova engaged in the "design, manufacture, construction, fabrication, preparation, installation, application, maintenance or repair, including remodeling, service, correction, or replacement" of EIFS, as well as "the application or use of ... flashings ... in connection" with EIFS, on the outside of the building and rooftop penthouse apartment in question. This "unambiguous provision [] . . . must be given [its] plain and ordinary meaning”.

Further, the evidence showed that, under the second prong of the exclusion, Nova worked on an "exterior component, fixture or feature of any structure" where EIFS "is used on any part of that structure." Whether the term "structure" must refer only to the entire building, or the language is ambiguous and may refer to the penthouse apartment itself, it is evident that the work was performed on an exterior component of both, and EIFS was used on both structures (see White, 9 NY3d at 267-268).

03/24/22       Liberty Mutual Fire Ins. Co. v. Old Republic General Ins. Co.
Appellate Division, First Department
Another Case Holding Tenant’s Carrier Had Obligation to Defend Landlord. Also, Notice by One Insured Doesn’t Provide Excuse for Another Insured’s Failure to Prove it

Under the Travelers policy, 170 Broadway, as property owner, is to be afforded coverage as an additional insured only for its vicarious liability for bodily injury caused by the work of Travelers' named insured, general contractor DeMartino Construction Co., Inc. (“DeMartino”), not for 170 Broadway's independent acts or omissions. In the underlying personal injury action, we determined that 170 Broadway was vicariously liable as a matter of law by operation of the nondelegable duty imposed on landowners under Administrative Code of City of NY § 7-210.

However, there remains a question of fact as to whether [170 Broadway] had actual or constructive notice of the hazardous condition and was thus more than just vicariously liable.  Thus, the court found that 170 Broadway was not entitled to summary judgment on its common-law indemnification claims against DeMartino, as well as McGowan Builders, Inc., Old Republic's named insured, and Colgate Enterprise Corp., PCIC's named insured.

However, as there was "reasonable possibility of coverage," Travelers had a duty to defend the owner. The motion court correctly found issues of fact as to the reasonableness of Liberty Mutual's delay in providing Old Republic and PCIC notice of the occurrence, a condition precedent to coverage. Liberty’s obligation to provide notice was not excused even if Old Republic and PCIC received notice from another insured or another source.

03/23/22       Nabatov v. Union Mutual Fire Insurance Company
Appellate Division, Second Department
Misrepresenting Existence of Swimming Pool on Property Justified Rescission Where Written Underwriting Guidelines Made It Clear that Policy Would Not Have Been Issued

The plaintiff obtained a commercial policy of insurance from the defendant Union Mutual Fire Insurance Company (“Union Mutual”), effective February 7, 2017 (“the 2017 policy”), for two adjacent apartment buildings. On the application for the 2017 policy, the plaintiff represented that there was no swimming pool on the property. Shortly thereafter, Union Mutual informed the plaintiff that "[t]he inspection revealed the presence of a pool on the premises (contrary to the application) which places this risk outside of our underwriting guidelines. This risk should be placed with a market that accepts this exposure immediately." The plaintiff subsequently represented, in a document dated February 22, 2017, that the pool had been removed. The 2017 policy was then reinstated.

A renewal policy was issued effective February 7, 2018 (hereinafter the 2018 policy). In the December 19, 2017, application for the 2018 policy, the plaintiff represented that there was no swimming pool on the property.

On June 16, 2018, within the policy period for the 2018 policy, the subject property was damaged by fire, and the ensuing investigation revealed a swimming pool on the property. The plaintiff admitted the late 1980s, he put the swimming pool in the backyard, and did not remove the pool prior to the June 2018 fire at the property.

Union Mutual then disclaimed coverage for the claim relating to the June 2018 fire, and rescinded the 2017 policy and the 2018 policy, on the ground that the plaintiff had made multiple material misrepresentations concerning the presence of a swimming pool on the property.

To establish its right to rescind an insurance policy, an insurer must demonstrate that the insured made a material misrepresentation. A misrepresentation is material if the insurer would not have issued the policy had it known the facts misrepresented"  To establish materiality as a matter of law, an insurer must present clear and substantially uncontradicted documentation concerning its underwriting practice, such as underwriting manuals, bulletins, or rules pertaining to similar risks, which show that it would not have issued the same policy if the correct information had been disclosed in the application.

Here, Union Mutual established its prima facie entitlement to judgment as a matter of law by demonstrating that the plaintiff made misrepresentations on his application for insurance, and that it would not have issued the 2017 policy and the 2018 policy had the plaintiff disclosed that there was a swimming pool on the property  Union Mutual submitted with its motion for summary judgment an affidavit from its underwriter, along with Union Mutual's Underwriting Guidelines for its New York Landlord/Tenant Property and General Liability Package Program, which provide that swimming pools are an unacceptable risk, and if a potential insured answered "yes" to the question on the application asking if there is a swimming pool on the property, no policy of insurance would issue.

With these undisputed facts, Union Mutual demonstrated as a matter of law that the misrepresentations in the plaintiff's applications for insurance were material. In opposition, the plaintiff failed to raise a triable issue of fact.

A material misrepresentation, even if innocent or unintentional, is sufficient to warrant rescission of an insurance policy.

Editor’s Note:  An “attalawyer” to Jeff Gold!

 

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

03/22/22       CBG Janovic Mgt. Corp. v. Massachusetts Bay Ins. Co.
Appellate Division, First Department
Voluntary Payment of Rent During Business Closure was Not Covered by the Terms of the Policy or the Insured’s Commercial Lease

After a collapse of the ceiling at plaintiff’s place of business, it was undisputed that plaintiff sustained a covered cause of loss.  As such, Mass Bay agreed to, and did, issue payment for the loss of business income during the period of restoration required to repair/replace the ceiling. 

Although plaintiff was not obligated to pay rent under the terms of the lease until the premises was habitable, it appears monthly payments were made despite the ongoing repairs.  Plaintiff’s requests for reimbursement for paid rents was not a covered loss, however, because the policy forbade coverage for rent while the business was shuttered. 

 

DISHING OUT SERIOUS INJURY THRESHOLD
Michael J. Dischley

[email protected]

03/18/22       Angel Rivera v. Jorge Lopez-Reyes
Appellate Division, First Department
Plaintiff Failed to Submit Properly Affirmed Medical Reports

An appeal from an Order from Supreme Court, Bronx County (Veronica G. Hummel, J.), entered December 22, 2020, which granted defendants' motion for summary judgment dismissing the complaint based on plaintiff's inability to demonstrate that he suffered a serious injury within the meaning of Insurance Law § 5102(d), was unanimously affirmed, without costs.

The Appellate Court found that defendants satisfied their prima facie burden of showing that plaintiff did not sustain a serious injury to his cervical spine, lumbar spine, or left shoulder by submitting the reports of their orthopedic surgeon and neurologist, who found that plaintiff had normal range of motion and opined that the alleged injuries had resolved with no permanent or residual effects. Defendants' orthopedic surgeon's finding of slight limitation in range of motion in his lumbar spine did not defeat defendants' prima facie showing.

In opposition, the Appellate Court found that plaintiff failed to raise an issue of fact since he submitted no properly affirmed medical reports, but only certified medical records, which may be considered only for limited purposes, such as showing that plaintiff sought treatment after the accident. The records did not become admissible simply because defendants' experts reviewed them, because the defense experts did not rely on them. Although defendants' orthopedist relied on plaintiff's emergency room records in support of his opinion, those records, if considered, do not support plaintiff's claim of serious injury.

Furthermore, the Appellate Court found that plaintiff's allegation in his bill of particulars that he was confined to bed for approximately one month after the accident, and his testimony that he began working about one month after the accident defeats his 90/180-day claim.

03/18/22       Alyssa K. Strassburg v. Merchants Automotive Group, Inc.
Appellate Division, Fourth Department
Plaintiff Failed to Provide Objective Evidence of Serious Injury

An appeal and cross appeal from an order of the Supreme Court, Niagara County (Frank Caruso, J.), entered September 29, 2020, was unanimously modified on the law by denying those parts of the motion for summary judgment on the issue whether defendant Dennis L. Dady's negligence was the sole proximate cause of the accident and for summary judgment dismissing the first affirmative defense and reinstating that affirmative defense, and as modified the order is affirmed without costs.

Plaintiff commenced this action seeking damages for injuries she sustained when she was struck while walking in a crosswalk by a vehicle operated by Dennis L. Dady (defendant). The vehicle was owned by defendant Merchants Automotive Group, Inc. and leased to defendant's employer, defendant Curt Manufacturing, LLC. Plaintiff moved for summary judgment on the issues of defendants' liability, i.e., negligence and serious injury, and whether defendant's negligence was the sole proximate cause of the accident. Plaintiff also moved for, inter alia, summary judgment dismissing defendants' first affirmative defense of comparative negligence. Supreme Court granted plaintiff's motion with respect to the issues of defendant's negligence and of that negligence being the sole proximate cause of the accident and with respect to the first affirmative defense but denied the motion with respect to the issue of serious injury. Defendants now appeal, and plaintiff cross-appeals.

Notwithstanding the negligence portions of the appeal, the Appellate Court found that the Supreme Court did not err in denying the motion on the issue of serious injury. The Appellate Court concluded that plaintiff did not meet her initial burden of establishing that she sustained a serious injury under the permanent consequential limitation of use and significant limitation of use categories of serious injury because she failed to provide objective evidence that she suffers from anosmia, i.e., loss of smell, because of the accident. Plaintiff's submission of the affirmations of her treating neurologist and the medical reports of the physicians who examined plaintiff on defendants' behalf were insufficient to establish plaintiff's entitlement to judgment as a matter of law with respect to that condition because they were based solely on plaintiff's subjective complaints of loss of smell.

 

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

[email protected]

03/22/22       ASG&C, Inc. v. Arch Specialty Ins. Co.
United States Court of Appeals, Second Circuit
Insured Unable to Bring Cause of Action for Unjust Enrichment for Audit Premiums Due to the Existence of a Written Contract

Under New York law, a plaintiff might bring a cause of action for unjust enrichment against someone who takes something from them, where it would be inequitable and against all good conscience to permit that person to keep what they took. Indeed, the three elements for a cause of action for unjust enrichment in New York are: (1) the defendant was enriched; (2) at the plaintiff’s expense; and (3) it is against equity and good conscience to permit the defendant to retain what is sought to be recovered.

Indeed, this was the very remedy being sought by ASG&C, Inc. In this case. Here, Arch Specialty Insurance Company issued to ASG&C a commercial general liability policy. When that policy expired, Arch wanted to conduct an audit to determine what the new premium should be, should the policy be renewed. The policy provided for this procedure, including that Arch could invoice ASG&C for the expenses associated with the audit process. That being so, upon the conclusion of Arch’s audit, Arch sent ASG&C an invoice for $24,313.62 for the “Audit Premium.” ASG&C, believing they were not obligated to pay this, sued Arch for a declaration that the policy’s provision for Arch’s ability to do this were invalid and unenforceable, and that Arch’s retention of the audit premium would constitute unjust enrichment.

Finding in favor of Arch on both counts, the Second Circuit noted that the existence of a valid and enforceable written contract precludes recovery for events arising out of the same subject matter, citing Clark-Fitzpatrick, Inc. V. Long Island R.R. Co., 70 N.Y.2d 382, 388 (1987). Here, the Court reasoned, the policy is an “express written contract” between the insurer and the insured, so ASG&C is precluded from recovery for unjust enrichment. Even if that were not so, the Court continued, ASG&C never actually paid the invoice; therefore, because Arch never received the money ASG&C implicitly claims was “taken from them,” Arch was not even enriched in the first place.

 

BARNAS on BAD FAITH
Brian D. Barnas

[email protected]

03/29/22       2015 Freeman LLC v. Seneca Specialty Insurance Company
Appellate Division, First Department
Bad Faith Claim Dismissed Applying Ohio Law

Plaintiff commenced an action against Seneca alleging breach of contract and bad faith denial of coverage under Ohio Law after Seneca denied coverage for a vandalism damage claim to Plaintiff’s building located in Cincinnati.  After trial, the jury ruled in Plaintiff’s favor on the insurance coverage claims.  However, Seneca’s motion for a directed verdict was granted dismissing the bad faith denial of insurance coverage claims.


The First Department held that the court below correctly granted the motion for a directed verdict.  The evidence established that inaccurate information about the insured properties had been submitted to defendant prior to its issuance of the policies, and that Seneca had conducted a thorough investigation of the claims before concluding that the misrepresentations were material and denying coverage on that basis. There was no valid line of reasoning and permissible inferences that could have led a rational juror to conclude either that Seneca’s belief that there was no coverage was arbitrary or that Seneca’s conduct was not based on circumstances that furnished a reasonable justification for the denial.

 

LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel

[email protected]

03/29/22       Dorfman v. Smith
Supreme Court of Connecticut
Connecticut Finds That Litigation Privilege Bars Bad Faith Claims Where Carrier Deliberately Withheld Evidence From its Insured, Implicitly Rejecting a Continuing Duty of Good Faith


In a surprising limitation of the common law duty of good faith and fair dealing, the Connecticut Supreme Court, 4-1, found that a carrier that was charged with deliberately withholding relevant evidence and making false representations (through its counsel) to the court, did not act in bad faith. Instead, this alleged conduct was protected by the litigation privilege. The Court held that, “our case law does not support a public policy disfavoring immunity for false pleadings but, to the contrary, manifests, as discussed, a policy in favor of immunizing communications made during and relevant to litigation, even if they are intentionally false and malicious.”

The plaintiff, Tamara Dorfman, was injured in a motor vehicle accident when Joscelyn Smith ran a stop sign. Smith was underinsured and Dorfman made a claim to her UM/UIM carrier, Liberty Mutual. Liberty investigated the claim, concluding that Smith was 100% at fault. Dorfman sued for benefits, but Liberty deliberately withheld from its counsel its file notes concluding that Smith was wholly at fault, and which included the recorded statement and identity of a witness to the collision. The record demonstrated that Liberty knew this information was necessary for its attorneys to prepare accurate pleadings and discovery responses. Liberty, instead, through its counsel denied having sufficient information to admit the plaintiff’s allegations regarding the cause of the collision, asserting the special defense of contributory negligence. Liberty allegedly made these pleadings even though it knew that they were without any basis in fact. Liberty also provided false responses to discovery requests, including that it did not know of the existence of the witness to the collision or whether any recorded statements of witnesses existed. At deposition, Liberty’s corporate designee admitted that Liberty had been aware of the witness to the collision and his recorded statement but failed to disclose that information. Liberty’s witness testified that, ‘‘[t]here was no basis in fact for [the defendant’s] accusation that [the plaintiff] was in any way responsible for causing the accident’’ and that the defendant ‘‘had known that there was nothing [the plaintiff] could have done to avoid the accident....’’

Following the deposition, Dorfman was allowed to amend her complaint to add bad faith causes of action. The Superior Court bifurcated the trial, Liberty withdrew its contributory negligence defense and conceded liability. The jury awarded Dorfman almost $170,000 in underinsurance damages.

Liberty then successfully moved to dismiss the bad faith claims in reliance on the litigation privilege. In dismissing Dorfman’s claims of breach of the implied covenant of good faith and fair dealing and negligent inflection of emotional distress, the trial court concluded that those claims were barred by the litigation privilege because they were predicated on communications and statements made during and related to a judicial proceeding. The court also concluded that the litigation privilege applied to the plaintiff’s allegations regarding Liberty’s purported business practice of responding falsely to discovery requests and dismissed that portion of the CUTPA claim.

The Supreme Court affirmed, recognizing the public policy benefits afforded by the litigation privilege. Citing its own 2021 decision in Scholz v Epstein, 341 Conn. 1, the Court noted: “‘‘[T]he purpose of affording absolute immunity to those who provide information in connection with judicial and quasi-judicial proceedings is that in certain situations the public interest in having people speak freely outweighs the risk that individuals will occasionally abuse the privilege by making false and malicious statements.” The Supreme Court has expanded the immunity to apply to more than just defamation claims. “This expansion is premised on the rationale that, ‘‘because the privilege protects the communication, the nature of the theory [on which the challenge is based] is irrelevant.” Citing MacDermid, Inc. v. Leonetti, 310 Conn. 628. However, the litigation privilege is not without exception, the Court noted. “The litigation privilege does not bar claims for abuse of process, vexatious litigation, and malicious prosecution.”

Connecticut follows an non-exclusive three-part test to determine if an exception to the litigation privilege applies: (1) whether the alleged conduct subverts the underlying purpose of a judicial proceeding in a similar way to how conduct constituting abuse of process and vexatious litigation subverts that underlying purpose; (2) whether the alleged conduct is similar in essential respects to defamatory statements, inasmuch as the privilege bars a defamation action; and (3) whether the alleged conduct may be adequately addressed by other available remedies.

The Court then applied the factors to Dorfman’s allegations. As summarized by the Court, Dorfman asserted that: Liberty falsely responded to the complaint, including by asserting a special defense it knew had no basis in fact, as well as falsely responding to interrogatories and discovery requests. As a result, Liberty ‘‘used intentional misstatements, intentional misrepresentations, intentionally deceptive answers, and violated established rules of conduct in litigation,’’ and ‘‘knowingly and intentionally engaged in dishonest and sinister litigation practices by taking legal positions that were without factual support to further frustrate [the plaintiff’s] ability to receive benefits due [to her] under her contract.’’ By this conduct, Liberty, according to Dorfman, engaged in unfair and deceptive practices, acted maliciously, compelling her to sue, filed false and misleading pleadings and discovery responses, and prolonged the litigation all to reduce her insurance benefits.

The Court, finding no express authority on point, determined that these claims were more akin to a vexatious litigation and abuse of process cause of action than a claim for breach of the covenant of good faith and fair dealing. As a result, it held that the claims were barred by the litigation privilege. While recognizing that a common law bad faith claim speaks to acts that impedes a party’s rights to reasonably expected contractual benefits, the Court held that Dorfman’s claim challenges Liberty’s conduct in defending against her underinsured motorist claim. Despite Liberty’s misconduct, the Court reasoned that it did not amount to an improper use of the judicial system.

Additionally, the Court found that the bad faith claims were also like a defamation claim, which would also be subject to the litigation privilege. “The plaintiff’s claim for breach of the implied covenant of good faith and fair dealing, like a defamation claim, is premised on the communication of false statements during litigation.” The Supreme Court held that there is even immunity in false statements in pleadings and discovery responses, rejecting Dorfman’s argument that Liberty’s misconduct in withholding the truth from its counsel, withholding the existence of a witness and his recorded statement made the bad faith claim actionable. The Court wrote: “The fact that [Liberty] made these misrepresentations to its own attorneys with the intent that the attorneys would then file false pleadings and discovery responses does not change the outcome.” The Court went on to point out that this conduct does not meet Connecticut’s high standard for bad faith.

[b]ad faith in general implies . . . actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one’s rights or duties, but by some interested or sinister motive.... Bad faith means more than mere negligence; it involves a dishonest purpose…. This more complete definition of bad faith demonstrates that this claim is more akin to a claim of fraud, to which our appellate courts have applied the litigation privilege.

(Internal citations omitted.) For the same reasons, the Court affirmed the dismissal of the insured’s negligent infliction of emotional distress claim. Interestingly, while Dorfman argued that her cause of action was akin to a vexatious litigation claim, the Court noted that she did not actual raise such a claim.

The Supreme Court noted that there are other safeguards in place that provide Dorfman relief from Liberty’s conduct. For example, Conn. Gen. Stat. §52-99 provides in relevant part: ‘‘Any allegation or denial made without reasonable cause and found untrue shall subject the party pleading the same to the payment of such reasonable expenses, to be taxed by the court, as may have been necessarily incurred by the other party by reason of such untrue pleading....’’ The Court also noted that Connecticut courts have the inherent authority to sanction parties for litigation misconduct. And the Court again reminded plaintiff that she could have brought a cause of action for vexatious litigation but did not. “Importantly, in the present case, upon a prior action terminating in her favor, the plaintiff could have brought a lawsuit for vexatious litigation.”

The Court also affirmed dismissal of Dorfman’s CUTPA/CUIPA claim. While Dorfman argued that the record established that Liberty has a business practice of withholding information from its attorneys to ensure false pleadings, as well as a business practice of alleging contributory negligence as a special defense in response to every claim, even if it knows the allegation is false, but as the Court noted her complaint did not make this allegation.

[W]e have scoured the plaintiff’s complaint in search of these allegations about the defendant’s business practices to no avail. Although there are allegations that, in the plaintiff’s particular case, the defendant intentionally concealed information and evidence from its attorneys and alleged the special defense of contributory negligence despite knowing this allegation to be false, there are no allegations in the plaintiff’s complaint that this conduct occurred with such frequency as to constitute a general business practice.

Therefore, the insured failed to plead a general business practice, as required by the statute. Moreover, the Court concluded that the CUTPA/CUIPA statutes do not abrogate the litigation privilege. “[T]he litigation privilege bars CUTPA claims, like the claim at issue, premised solely on general allegations of intentionally false discovery responses because these claims merely challenge the making of false statements.”

***

In a spirited and lengthy partial dissent, Justice Ecker called into question the scope of the litigation privilege as applied by the majority. Recognizing the concept of an insurer’s continuing obligation of good faith, the dissent summarized:

The defendant sells automobile liability insurance. It consequently owes its insureds a direct contractual and statutory duty to not act abusively in litigation…. the present context is miles away from that in which the litigation privilege was originally formulated and lies equally distant from the cases in which we have found the privilege applicable to date. The plaintiff is not simply the defendant's adversary; she is its insured. Her lawsuit alleges that the defendant purposely engaged in bad faith insurance claim settlement practices involving both prelitigation and litigation misconduct, in violation of its statutory and common-law duties. The pleadings do not allege merely that the defendant has violated the rules of fair litigation owed to one another by all parties to litigation. Rather, the pleadings allege that the defendant insurer has violated a direct, independent contractual and statutory duty owed specifically to the plaintiff-insured. (Emphasis added.)

Many jurisdictions have expressly recognized a continuing duty of good faith post-commencement of litigation. As the dissent noted, if an insurance company misuses a litigation procedure with the intent of avoiding or delaying the performance of its contractual obligations to an insured, “I see no reason why the litigation privilege should bar a bad faith claim based on that conduct.” The court cited decisions from Arizona, Indiana, Montana, Pennsylvania, and West Virginia. Although these states are considered more favorable to insureds in bad faith cases, the concept was first held by the California Supreme Court in White v. Western Title Ins. Co., 40 Cal.3d 870, 710 P.2d 309 (1985). In White, the court allowed evidence of the carrier’s alleged litigation misconduct as evidence of its bad faith. The court held that an insurer's duty to deal with its insured fairly, and not withhold payment of claims unreasonably and in bad faith, does not terminate with onset of litigation between insurer and insured. The California court distinguished between an allegation of defamation and bad faith. “Defendant's argument ... forces us to draw a careful distinction between a cause of action based squarely on a privileged communication, such as an action for defamation, and one based upon an underlying course of conduct evidenced by the communication;” “plaintiffs do not assert that defendant's communications were defamatory, or done with the intent of causing emotional distress, but instead that they show that defendant was not evaluating and seeking to resolve their claim fairly and in good faith.” Id. at 888.

Justice Ecker went on to state that the majority misread Dorfman’s complaint to only include litigation misconduct. “[C]ontrary to the majority's conclusion, … the operative complaint sufficiently alleges conduct outside of litigation that would support a bad faith claim. Specifically, the operative complaint alleges that the defendant insurer was contractually obligated to pay the plaintiff sums that she was legally entitled to recover from the owner or operator of an uninsured or underinsured motor vehicle for damages resulting from bodily injury, that the defendant knew that it had no valid defense to her claim, and that the defendant nonetheless compelled its insured to resort to litigation and to endure litigation misconduct to obtain payment.”

The dissent, however, agreed that the CUTPA/CUIPA claims failed to adequately plead a general business practice and were properly dismissed.

***

 

 

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

03/18/22       Lodge at Mt. Vill. Owner Ass’n v. Eighteen Certain Underwriters of Lloyd’s of London Subscribing to Policy Number N16NA04360
United States District Court for the District of Colorado
U.S. District Court Finds No Duty to Defend Where Underlying Claims were Excluded by the Faulty Workmanship and Wear and Tear Exclusion

This insurance coverage dispute arises out of an underlying construction defect action related to the maintenance of log siding of condominium buildings.

The Lodge at Mountain Village Owners Association, Inc. (“The Lodge”), an owners’ association that consisted of cabins and multi-unit condominium buildings, retained L&H Painting (“L&H”) to perform maintenance such as staining, finishing, and chinking (sealant) repairs to the log siding.  After noticing deterioration and severe weathering of the siding, The Lodge filed suit against L&H alleging construction defects in connection with L&H’s repair work.  The parties ultimately reached a settlement which provided for a release of all claims. 

The Lodge then filed an insurance claim with Certain Underwriters for loss arising from “evaluation and assessment of log finish and Chinking” at the Lodge.  The claim was denied on the grounds that the policy excluded coverage for faulty material, faulty workmanship, gradual deterioration, and wear and tear.

After the defendants denied the claim, The Lodge sued for breach of contract and bad faith.  In Colorado, a party attempting to recover on a claim for breach of contract must prove (1) the existence of a contract; (2) performance by the plaintiff or some justification for nonperformance; (3) failure to perform by the defendant; and (4) resulting damages.  Although it was not disputed that the water damage to the property stemmed from L&H’s faulty workmanship, the defendants asserted that the policy excluded the cost of making good defective design or specifications, faulty material, or faulty workmanship.  The Court held that in this case, the construction defect was the causal agent of the damage, not a later covered peril, and that the plaintiff provided no evidence from which a reasonably jury could find that it sustained a loss beyond the costs of repairing the faulty workmanship and construction defects caused by L&H.  Therefore, the claimed loss fell within the policy exclusion for defective workmanship and the ensuing loss exception did not restore coverage.

In addition, the plaintiff argued it sustained resulting damage due to water gradually seeping into the property.  However, the court found that gradual deterioration and wear and tear were excluded by the terms of the policy under the policy exclusion for gradual deterioration.  Further, the insurer was relieved from any duty to insured due to the insured’s failure to comply with the notice provision in the policy.  The policy required the plaintiff to report any loss under the policy with full particulars to the Underwriters as soon as practicable.  L&H performed the chinking and sealant work in 2014, began discussing the defective work with L&H in 2015, but did not report the alleged loss to Certain Underwriters until at least 24 months after discovering the damage.  While the plaintiff argued it could not provide notice of the claim until it discovered the damage in 2018 when it conducted destructive testing, the plaintiff was aware of continuous, ongoing leaks from at least 2014.  Therefore, the Court held that it was indisputable as a matter of law that The Lodge did not notify the insurer of the claim within a reasonable time.  Accordingly, the Court dismissed the breach of contract claim against the Defendants.  Since the Court concluded that the insurance company’s denial of coverage was proper, the court held the plaintiff’s bad faith claim also must fail and granted the plaintiff’s motion for summary judgment.

 

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

03/18/22       Return of Outstanding Operating Reserve Balance By Reciprocal Insurers
New York Governor’s Office
Chapter Amendments Ensure That Returns of Subscribing Member Operating Reserve Balances Leave Sufficient Surplus Funds

The Governor has signed a bill into law that amends Chapter 649 of the Laws of 2021 to ensure that the Superintendent of Financial Services may authorize the return of subscribing member operating reserve balances to members of a municipal insurance reciprocal upon such insurer's demonstration that it will retain sufficient surplus to support its obligations and writings. We wrote about the bill that became the newly amended law here.

In signing Chapter 649 into law, Governor Kathy Hochul provided the following caveat to its passage:

This bill would amend the Insurance Law to authorize a municipal reciprocal insurer to return any outstanding subscriber operating reserve balance. I agree with the intent of the bill. To ensure a lender identifies a point of contact for a borrower in an efficient manner, I have reached agreement with the Legislature on a technical modification to ensure that prior to returning subscriber operating reserve balances, municipal insurers must demonstrate that they will retain sufficient surplus to support their obligations.

The amendments within the newly passed Chapter 148 of the Laws of 2022 change New York Insurance Law §6109(a)(3)(C) to allow municipal reciprocal insurers to authorize the return of any outstanding subscriber operating reserve balance only upon certain conditions:

(C) in the case of a municipal reciprocal insurer, authorize the return of any outstanding subscriber operating reserve balance upon the municipal reciprocal insurer's demonstration that it will retain sufficient surplus to support its obligations and writings.

This change took effect retroactively from the date Chapter 649 of the Laws of 2021 was passed, on December 1, 2021.

03/18/22       Electronic Delivery of Property/Casualty Insurance Notices
New York Governor’s Office
Chapter Amendments Create Stronger Requirements for Consent by Insureds to Electronic Notices from Property and Casualty Insurers

The Governor has signed a bill into law that amends Chapter 761 of the Laws of 2021 to define property and casualty insurance, create stronger requirements for sending electronic notices and documents, and authorize notices to be sent electronically across the Insurance Law in cases where mail delivery of notices is currently authorized.

We previously wrote about the bill that became Chapter 761 here. At that time, I noted some issues regarding my reading of the language:

“Maxwell’s Minute: A common theme in insurance coverage litigation under New York’s Insurance Law §3420(d)(2), which imposes draconian penalties following an insurer’s failure to provide prompt notice of a disclaimer to the insured, the injured person any other claimant. There are many pitfalls existing under §3420(d)(2) already. But note that “a property/casualty insurance transaction” is an undefined term under the provisions above. Is an insurance disclaimer “a property/casualty insurance transaction”? Is the injured person or claimant a “party” as defined, and if so, how would one go about obtaining their consent? Although electronic communication makes sense under certain circumstances, I firmly believe that if signed into law, Insurance Law §3458 will result in countless traps for the unwary under §3420. Who wants to test it first? Not me.”

Would you believe that Governor Hochul found some issues as well? Below is her approval memorandum from Chapter 761:

I agree with the intent of the bill. I have reached agreement with the Legislature on a modification that ensures that policyholders must consent to the particular type of notice that will be sent electronically by an insurer.

The newly passed Chapter 161 of the Laws of 2022 provides a definition of “property/casualty insurance,” and provides additional clarification to the original law. Specifically, for the purposes of New York Insurance Law §3458, “property/casualty insurance” is defined to mean:

basic kinds of insurance and non-basic kinds of insurance, as defined in section four thousand one hundred one of this chapter, provided that "property/casualty insurance" shall not include accident and health insurance as defined in paragraph three of subsection (a) of section one thousand one hundred thirteen of this chapter.

So, it includes basic and certain non-basic insurance is all, whatever that means…

Chapter 161 also amends Insurance Law §3458(b) to clarify that “[w]here this chapter requires that notice be mailed or delivered to an address shown in the policy, the notice may be delivered by electronic means to an electronic address not specified in the policy.”

Additionally, stronger requirements for consent are implemented in an entirely new Insurance Law §3458(e)(1), which provides:

Before a notice or document is delivered by electronic means, an insurer shall obtain a party's consent to deliver that kind of notice or document by electronic means. A party's consent to receive one type of notice or document shall not be construed as a blanket consent for every kind of notice and document to be delivered by electronic means. A party's consent shall only apply to the types of notices and documents identified in the clear and conspicuous information statement provided to the consenting party, as required by subparagraph (B) of paragraph two of subsection (d) of this section.

These new requirements are in addition to the previous requirements that now become Insurance Law §3458(e)(2), which we remind you provides:

Any electronic mail being sent by an insurer to a party in connection with the delivery of a cancellation notice, non-renewal notice or conditional renewal notice delivered by electronic means shall include in the subject line and body of the communication clear and conspicuous language alerting the receiving party as to the importance of the communication and the type of notice being delivered by electronic means to such party.

This change took effect retroactively from the date Chapter 761 of the Laws of 2021 was passed, on December 22, 2021.

 

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

 

03/24/22       BRMed Capital, LLC v. Lexington Insurance Co.
United States District Court, Eastern District of New York
Ambiguous Policy Terms Will Be Construed Against the Insurer

On January 9, 2018, pipes from a fire protective system at a vacant building owned by plaintiff burst causing an alleged $1.3 million. Defendant provided vacant property insurance for the building at all relevant times. Defendant argued that the pipe burst was due to plaintiff’s failure to properly maintain heat in the insured premises, while plaintiff argued the freeze up was caused by unusually cold weather and covered by the policy at issue.

The policy provided coverage for the building for direct physical loss, unless such loss is excluded. The policy contained the following relevant exclusions: E(2)(g) is one potentially applicable exclusion. It says that the Defendant “will not pay for loss or damage caused by or resulting from…water…that leaks or flows from plumbing, heating, air conditioning or other equipment (except fire protective systems) caused by or resulting from freezing unless: (1) you do your best to maintain heat in the building or structure; or (2) you drain the equipment and shut off the water supply if heat is not maintained,” and (E)(4) which provides, “[defendant] will not pay for loss or damage caused by or resulting from the following, if such excluded cause of loss is shown in the Declarations, or by endorsement hereto…” One of the causes, listed in subsection (c), is, “Sprinkler leakage, meaning leakage or discharge of any substance from an ‘Automatic Sprinkler System….”

The policy also includes an “Extension of Supplemental Declarations” page, which controls exclusion (E)(4)(c) and includes certain specific protective safeguards (known collectively as the “P-9” safeguards). Among those safeguards is the requirement that: “Heat must be maintained within the premises at a temperature of no less than 55 degrees Fahrenheit or water lines must be completely drained during the policy period.”

Additionally Section I of the policy may apply as a condition on the insured and provides “As a condition of this insurance, you are required to maintain the protective devices or services listed below, if such safeguard is shown as applicable in the Declarations or by endorsement hereto: (1) Automatic Sprinkler System…(4) Heat must be maintained within the premises and monitored at minimum once per day, at a temperature of no less than 55 degrees Fahrenheit…We will not pay for loss or damage to Covered Property if, prior to the loss or damage, you knew of any suspension or impairment in any protective safeguard listed in the Declarations, and failed to notify us of such suspension or impairment.”

After reviewing the policy, the court opined that it “is not a model of draftsmanship,” and that even the defendant’s own agents had difficulty discerning which terms and exclusions applied to this matter. After trudging through the convoluted language, the court concluded that “the P-9 conditions govern this action. Fire protective systems, which would include a sprinkler system, are not part of the E(2)(g) exclusion. The E(4)(c) exclusion only applies insofar as its terms are stated in the Declarations, which only applicably include the P-9 terms. The Section I conditions are limited to those listed in P-9. For these reasons, the parties rightly anchor their arguments in the language of P-9, that both the condition of coverage and exclusionary clause required that, “Heat must be maintained within the premises at a temperature of no less than 55 degrees Fahrenheit or water lines must be completely drained during the policy period.” Based on the record, it was further determined that plaintiff did maintain heat in the building.

Limiting its discussion to the relevant condition contained within Protective Safeguard P-9. First addressing the term “water lines” the court finds this to be ambiguous. P-9, potentially operative through either the exclusion in Section E(4)(c) or the conditions of insurance in Section I, says, “Heat must be maintained within the premises at a temperature of no less than 55 degrees Fahrenheit or water lines must be completely drained during the policy period.” Plaintiff argued “water lines” is an unambiguous term that does not include sprinkler pipes. Defendant, in response, argued that the “plain and ordinary” meaning of water lines is any pipe that water runs through, inclusive of sprinkler pipes. The dispute is material because if “water lines” is inclusive of a sprinkler pipe, then the exclusion/condition would appear to apply, exempting the Defendant from coverage if the Plaintiff did not maintain a temperature of 55 degrees within the premises. Plaintiff did not provide any definition for water lines and instead relied on the context of the term to support its position. Defendant argued the definition, found in the Random House Unabridged Dictionary y as “a pipe, hose, tube, or other line for conveying water” should apply. The court found that defendant did not prove that “water lines” unambiguously included sprinkler lines. While defendant established that the definition of water lines could reasonably include sprinkler lines, that was not the only reasonable definition. Defendant argued that because the term “water lines” was not defined in the policy, the dictionary definition should apply. The court disagreed, reasoning that because other terms, such as automatic sprinkler and fire suppression system were defined and used throughout the policy and the policy, in certain sections, specifically differentiates between “water…that leaks or flows from plumbing” and “fire protective systems,” such use provides context that one could reasonably believe “water lines” and “automatic sprinkler system” or “fire protective system” were to be treated separately. The court found that the term “water lines” was ambiguous.

Plaintiff argued that at the time of contracting the parties intended the term “water lines” to exclude sprinkler lines, however, as a member of plaintiff could not recall specifically reading the P-9 condition at the time of contracting, it did not meet its burden proving its intent that “water lines” excluded sprinkler lines. Defendant argued that at the time of contracting “water lines” was intended to encompass sprinkler lines, but such argument was unconvincing to the court.

Plaintiff was entitled to summary judgment as it proved that the term “water lines” was indeed ambiguous, and pursuant to New York State law, “Where an in insurer attempts to limit liability by use of an ambiguously worded term which is subject to more than one reasonable construction, the courts will construe it strictly against the insurer.” Randolph v. Nationwide Mut. Fire Ins. Co., 662 N.Y.S.2d 650, 651 (1997).

03/30/22       First CVA Case Taken to Verdict
New York State Supreme Court, Erie County
Jury Awards $25 Million in First CVA Jury Verdict

An Erie County jury recently awarded $25 million in the first CVA case taken to verdict to the plaintiff after taking a default judgment against his alleged abuser. Plaintiff alleged that he was abused by a former Scout Leader (who was later twice convicted for sexual offenses) between the ages of 10 and 13. Plaintiff recounted to the jury how his alleged abuser acted like a father figure to him, grooming him for sexual contact, which progress over a period of three years from fondling to oral sex and sodomy. The alleged abuser also photographed plaintiff and other children performing sex acts on each other. Plaintiff originally asked the jury to consider a $15 million verdict, but after only 40 minutes of deliberation a $25 million verdict was reached.

Notably, no defense against these allegations was presented and the only defendant in this case was the abuser himself. While the sum awarded to plaintiff is high, it is likely not indicative of verdicts that will be reached when institutional defendants are parties to these cases, or a vigorous defense is put forward. From the plaintiff’s comments to the Buffalo News, it appears that the exercise of taking this matter to a jury was more of a gesture to prove how heinous these acts were than a way to recover any monetary damages. Based on the circumstances of this verdict, it is likely the outlier and not the norm. While it is impossible to determine what would have transpired had a defense to the allegations been mounted, such a defense would have more likely than not reduced the sum awarded.

 

RAUH’S RAMBLINGS
Patricia A. Rauh

[email protected]

03/25/22       Woodmen of the World Life Ins. Soc. v. Mayo et al.
U.S. District Court, Southern District of Mississippi
Plaintiff has Standing Under Article III of the U.S. Constitution to Bring this Suit in Federal Court Based on Defendants’ Refusal to Arbitrate their Dispute Over the Rightful Beneficiaries of Decedent’s Certificates

Terri Mayo and Grant Mayo, two of the defendants in this case, are a married couple who were the named primary and alternate beneficiary, respectively, on three benefits certificates which had been owned by Terri Mayo’s father, Donald Mowdy (the “decedent”).  Following the decedent’s death on October 19, 2020, Terri Mayo submitted claim forms to plaintiff, Woodmen of the World Life Insurance Society (“Woodmen Life”) for the proceeds from all three certificates.  Other relatives of the decedent and the other defendants herein, namely Melissa Hamrick (“Hamrick”), Carrie Murphy (“Murphy”), and the Conservators of the Person of Betty Mowdy (“Mowdy”), also claimed rights to the certificates, which were valued at approximately $171,000.  Hamrick, Murphy, and Mowdy all accused Terri Mayo of obtaining a change in the designation of beneficiaries by undue influence.

Woodmen Life filed this lawsuit to enforce the arbitration agreement contained in its constitution and laws.  Woodmen Life contends that under Mississippi Law, the decedent was bound by the same arbitration agreement by virtue of his application for membership with Woodmen Life.  The arbitration clause at issue applies when “money or a benefit is payable, but because two or more parties have submitted conflicting claims for the money or benefit payment, Woodmen Life is unable to determine to whom such benefit shall be paid.”

When the dispute regarding the rightful beneficiaries arose in this matter, Woodmen Life attempted to initiate arbitration proceedings, but the defendants did not participate.  All the defendants, except Terri Mayo, instead filed an action in the Chancery Court of Leake County, Mississippi, alleging that Terri Mayo had exercised undue influence over the decedent to have the primary beneficiaries on the certificates changed (the “Leake County lawsuit”).  The plaintiffs in the Leake County lawsuit all alleged that they were the rightful beneficiaries.  Woodmen Life is not a party to the Leake County lawsuit, but the Plaintiffs in the Leake County lawsuit asked Woodmen Life to interplead the funds it admittedly owes into the Chancery Court of Leake County, Mississippi.

Terri Mayo and Grant Mayo filed a motion to dismiss in this federal suit, alleging that Woodmen Life is a mere “stakeholder” regarding the outcome of their dispute, and has no cognizable pecuniary interest in the beneficiary dispute and thus, no standing to bring this lawsuit pursuant to Fed. R. Civ. P. 12(b)(1) and 12(b)(6).  To establish standing under Article III, a plaintiff must show an “injury in fact” that is both “concrete and particularized”.  Second, a plaintiff must show a ”causal connection between the injury and the conduct complained of the other named defendants in this suit did not join in the motion – and the conduct complained of should be traceable to the challenged action of the defendant.  Third, “it must be likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.”

The Court first addressed the defendants’ argument that Woodmen Life lacks standing to compel the defendants into arbitration by way of this federal suit. The Court stated that Article III of the U.S. Constitution limits the jurisdiction of federal courts to actual “cases” and “controversies.” According to defendants, Woodmen Life has not suffered a “concrete particularized actual injury in fact as a result of defendants’ disputes being decided in Chancery Court and, accordingly this ‘dispute’ as plead, cannot be the controversy upon which federal jurisdiction is based in this Court as a matter of law.”  In other words, the dispute is solely between and amongst the defendants, and there is no substantive dispute between Woodmen Life and any defendant.

In its opposition to the motion to dismiss, Woodmen Life argued that it possesses a contractual right to compel arbitration among disputing potential beneficiaries; thus, the defendants’ refusal to arbitrate, by itself, confers standing upon Woodmen Life.  Further, Woodmen Life argued that as the violation of any contractual right gives the victim standing to sue, so too does a party’s violation of another’s contractual right to arbitrate.

The Court held that the first two requirements for standing are met by Woodmen Life.  A concrete and particularized injury is shown and a causal connection between the injury and the action of which plaintiff complains of (the failure to arbitrate) is established here.  About the third element of standing – redressability – the Court found it is also met here and therefore, Woodmen Life does have standing to litigate in federal court.

In regard to the defendants’ contention that this matter is not ripe for review, the Court disagreed.  The Court held that if the threat of litigation is specific and concrete, it can establish a controversy upon which a declaratory judgment can be based.  The Court then denied the defendants’ motion to dismiss.

 

STORM’S SIU EXAMEN
Scott D. Storm

[email protected]

03/21/22       Modular Steel Systems Inc. v. Westfield Insurance Co.
United States Court of Appeals, Third Circuit
Insurer had no Duty to Indemnify for Insured Contractor’s Unilateral Decision to Repair Storm Damage in its Effort to Meet its Contractual Obligations with the Property Owner of a Construction Project as this Does Not Constitute a "Legal Obligation to Pay...Damages" as Contemplated in the Insuring Agreement of the CGL Policy

Modular Steel obtained a CGL policy from Westfield Insurance. The insuring agreement details Westfield's rights and obligations:

We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply. We may, at our discretion, investigate any "occurrence" and settle any claim or "suit" that may result.

The policy goes on to explain that "this insurance applies to ‘bodily injury' and ‘property damage' only if," among other requirements, "the ‘bodily injury' or ‘property damage' is caused by an ‘occurrence.'"  Also relevant is the policy's definition of a "suit": "a civil proceeding in which damages because of ‘bodily injury' or ‘property damage' ... to which this insurance applies are alleged," including "an arbitration proceeding ... or ... any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent."

Modular Steel was hired to provide "prefabricated modular units" as part of the construction of a new hotel. Modular Steel, in turn, subcontracted with Modsets to install, set and weather-tighten the units.  During the construction project, a storm struck, causing water damage to the units.

Modular Steel paid over $100,000 out of pocket to fix the damage, which it claims was "in accordance with its contractual obligations to the owner/developer" of the construction project. There is no allegation that the owner/developer or anyone else pursued any legal action against Modular Steel for any damage caused by the storm. Nonetheless, Modular Steel requested coverage from Westfield under the CGL policy, seeking reimbursement for what it spent to repair the damage. Westfield denied coverage.

Modular Steel filed suit.   Westfield responded with a motion to dismiss for failure to state a claim.

The District Court granted the motion. It reasoned that Westfield's obligation to indemnify or defend was premised on the existence of a "suit" filed against Modular Steel, but no such suit had been filed. Absent a suit, the Court concluded, Westfield had no indemnity obligation and thus did not breach the contract. Modular Steel has now appealed.

Modular Steel's amended complaint does not indicate that Westfield's obligations were triggered under the policy's "plain language." The policy obligates Westfield to "pay those sums that the insured becomes legally obligated to pay as damages."  That wording creates a duty to indemnify in CGL policies, pursuant to which the insurer must "protect the insured from liability to third parties."

Damages are a pecuniary compensation or indemnity, which may be recovered in the courts by any person who has suffered loss, detriment, or injury.  Damages are not the loss itself.  Contrary to Modular Steel's argument, its unilateral decision to fix the storm damage in an effort to meet its contractual obligations for the construction project is simply not a "legal obligation to pay... damages," as contemplated in its liability insurance policy. An insurer's duty to indemnify is determined solely from the language of the complaint against the insured.  The term legally obligated in an insurance contract comprehends the legal obligation which flows from a judgment. Westfield likewise has no duty to defend, because no "’suit' seeking ... damages" was filed against Modular Steel.

Modular Steel relies heavily on the policy's language allowing Westfield to "settle any claim or ‘suit' that may result" from an "occurrence", arguing that it shows that a "suit" need not be filed for coverage to apply. That interpretation of the policy is incorrect. Westfield's right to settle a claim before the claim becomes a lawsuit — which is just that, a discretionary right, not an obligation — does not affect the separate provision governing its obligation to indemnify. That obligation applies only to "sums that Modular Steel becomes legally obligated to pay as damages.

Because Modular Steel did not state a claim on which relief could be granted, we will affirm.

 

FLEMING’S FINEST
Katherine A. Fleming

[email protected]

03/23/21       Motorists Mutual Ins. Co. v. Ironics, Inc.
Supreme Court of Ohio
Claims Against Insured for Contaminated Product Incorporated into Third Party’s Glass Containers Covered as Accident Resulting In “Property Damage”

Defendant-appellee Ironics, Inc. (“Ironics”) buys and sells metal products, including waste generated by steel mills and similar facilities. The case involved a material originally generated as waste by a steel mill in Youngstown that makes tubular products. Ironics obtained the waste product – “tube scale” – in raw form and, after having it processed, resold it to customers. Defendant-appellee Ownes-Brockway Glass Containers, Inc. (“Owens”) manufactures glass containers, and it purchased tube scale from Ironics to use as a coloring agent to make the containers amber or brown. After using the tube scale to make glass containers, however, Owens discovered chrome stones embedded in the containers, which increased the likelihood that the containers would break. Since the stones could not be removed, and the containers could not be restored to use, Owens had to scrap more than 1,850 tons of glass containers. Ironics discovered the tube scale had been contaminated when the materials processor subcontracted the tube scale screening to another company, Foundry Sand Services (“Foundry”). Foundry also processed chrome stones, so tube scale was contaminated when it fell to the ground during the screening process.

Owens asserted claims against Ironics, and Ironics asked plaintiff-appellant Motorists Mutual Insurance Company (“Motorists”), as its insurer, to defend and indemnify it against Owens’s claims. Ironics had a commercial general liability policy (“CGL”) and a commercial umbrella policy (”umbrella policy”) with Motorists. Motorists sought a judicial declaration that it had no obligation to defend or indemnify Ironics under either policy, and the trial court agreed neither policy covered Owens’s claims. The Sixth District Court of Appeals agreed Ironics was not entitled to coverage under the CGL policy; however, the Sixth District held Owens’s claims were covered under the umbrella policy because the parties had stipulated that Ironics was not aware that the tube scale was contaminated at the time it was used by Owens to make the glass containers, and the contaminated tube scale caused physical injury to the containers. On appeal, Motorists argued the incorporation of a defective ingredient into an integrated product or system does not constitute damage to “other property” for the purposes of liability coverage under CGL and umbrella policies.

The Supreme Court rejected Motorists’ argument and found there was property damage since the containers were “tangible property,” and the contaminated tube scale caused “[p]hysical injury to or destruction of” the containers.  While the property included the tube scale, it was the integration that caused the damage, and damage to a multicomponent product is not merely damage to the insured’s own product. Finding the integrated-system rule only applied to tort as opposed to contract claims and does not determine insurance coverage, the Court rejected Motorists’ argument. The exclusion for impaired property also did not apply since the containers could not be restored to use.  Motorists also argued that selling contaminated tub scale is just like performing defective work since the risk of selling a contaminated product is a normal business risk, but the Court rejected that argument because Owens’s claims were based on Ironics supplying Owens with contaminated tube scale that caused Owens’s containers to be unusable. Since the claims arose out of an accident involving property damage, the Court agreed the claims were covered under the umbrella policy.

 

NORTH of the BORDER
Heather Sanderson

[email protected]

03/17/22       Lloyd’s Underwriters v. Doug Jagoe, 2022 NBCA 7
The Court of Appeal of New Brunswick
An Alleged Breach of a Warranty in a Liability Policy will not Void the Policy from the very Beginning if that Warranty is Broader than the Information Disclosed in the Application

Another case dealing with the issue of whether an insurer who issued a commercial liability policy must defend an underlying claim in the face of an alleged breach of warranty was heard by a Canadian appeal court – almost two months after the Ontario Court of Appeal decision in IT Haven Inc. v. Certain Underwriters at Lloyd’s, London (reported in Coverage Pointers, February 4, 2022, Vol. XXIII, No. 17).  However, in this case, the issue was whether the warranty, that was found to be broader than the application for coverage, could impose additional requirements on the insured than were disclosed in the application, and, if so, whether an alleged breach of that warranty vacated the obligation to defend.

According to news reports, on August 15, 2020, Desiree Isaac-Pictou, of Eel River Bar First Nation, aged 20, was in a crowd of spectators watching the Turkey Town Mud Bog race, in Clifton, near Bathurst, in northern New Brunswick.

What was the Turkey Town Mud Bog Race? Different types of lifted vehicles, race along a linear ‘track’ that is, basically, one, long, straight, mud hole.  The vehicle in each category with the fastest times from start to finish wins. Think noise, mud spray, spinning and skidding tires, a crowd, and summer heat and humidity.

However, on August 15, 2020, a vehicle lost control and entered the paying spectator area where Desiree was standing. She ended up having both legs amputated, in addition to a broken back, pelvis and femur.  A screen grab from a news report of the accident shows the proximity of the crowd to the ‘racetrack’, and the big, tired tractor like vehicle that left the track and caused Desiree’s injuries.

A group of people at an outdoor event

Description automatically generated with medium confidence

Desiree commenced a lawsuit against the owner and driver of the vehicle that struck her as well as the event organizers. The action against the event organizers alleges insufficient safety precautions for the spectators.

The event was organized by Doug Jagoe. Six days before the race he applied for a one-day event liability policy that was issued by Lloyd’s.

The application required Jagoe to describe the full safety precautions for spectators. He wrote: “Guard Rails are present each side of the track, spectators are seated at least 20 to 30 feet from track behind a dirt barrier on top of railings…” In completing the application, Jagoe confirmed that he understood that “the information set forth is correct and shall be the basis upon which insurance may be granted.”

The policy included a warranty; a covenant that the policy is only effective if the Insured meets certain criteria. In this case, the warranty required that “all spectator viewing areas will be a minimum of 20 feet from the mud bog track and behind suitable barriers or fencing.”

“Suitable barriers or fencing” was not defined. The facts were that Desiree was more than 36 feet from the track and behind a rope line that extended 75 feet past the finish line.  Lloyds contended that a rope line was not a “suitable barrier”; declared that Jagoe was in breach of the warranty which was a fundamental condition of the policy; that breach released Lloyd’s from both the duty to defend and the duty to indemnify.

Jagoe argued that the covenant was not breached; Lloyd’s was obliged to defend and sued for a declaration as to coverage.

The trial court agreed with Jagoe.  The word “suitable” found in the policy is not defined either by objective criteria or by reference to some authoritative guideline on what constitutes a “suitable” barrier or fence.  Lloyd’s was ordered to defend and pay Jagoe’s court costs.

Lloyds appealed to the New Brunswick Court of Appeal.  The Court of Appeal pointed out that subject to the warranty issue, the claim was covered by the policy. As for the warranty, the Court of Appeal noted that:

  • The warranty was broader than the statement that Jagoe made in the application as to the safety measures present.

  • The warranty was not ambiguous.

  • The Supreme Court of Canada has held that the words in a contract are to be interpreted in light of their factual matrix; the goal is to ascertain the objective intention of the parties, which is inherently a fact-specific exercise: “The overriding concern is to determine ‘the intent of the parties and the scope of their understanding at the time the contract was entered into;

  • The warranty in this case cannot be construed as a requirement to add more safety measures for spectators than was disclosed in the application.At paragraph 31 the Court of Appeal stated:

There can be no question Mr. Jagoe understood his insurer’s primary concern was the safety measures to be in place in the area where the races did occur. Lloyds confirmed this understanding, using different wording, by referring in its warranty to the same measures to be taken along the track. It was not looking to force Mr. Jagoe to alter or extend the precautions he had indicated he would take. It cannot now be argued that Mr. Jagoe ought to have understood Lloyd’s was also referring to additional measures for spectators situated well beyond the racetrack.

The Court of Appeal affirmed the trial court decision and ordered Lloyd’s to defend. Lloyds was ordered to pay the Jagoe’s full legal bill from the inception of the duty to defend application.

Did the emotion of the underlying lawsuit play a role? A 20-year-old athletic woman suffered a life altering injury. A denial would eliminate the potential contribution of the Lloyd’s policy to support her in her altered life. It seems though that Desiree did not focus on this legal turmoil but instead concentrated on recovery of renewal.  According to internet posts, Desiree, who had played basketball and volleyball in the Indigenous Games before her accident, has gone on to train for and play competitive wheelchair basketball. In addition, she has completed a degree at the University of New Brunswick and is hoping for a career in human resources. We can all learn from her story.

The Federal Task Force on Flood Insurance and Relocation is Due to Report this Spring. Is this the First Step Towards a National Flood Insurance Program?

In Coverage Pointers, published, Friday, November 26, 2021 (Volume XXIII, No. 12 (No. 606)), I reported on the epic flooding that occurred in British Columbia over the Remembrance Day weekend, November 14-16, 2021. That flood, which temporarily cut all road and train routes between the City of Vancouver and the rest of Canada, displaced 15,000 people, and killed 1.3 million farm animals.  Some of those displaced have not been able to return to their properties.

In the November 26 article I commented on the lack of flood mapping in Canada meaning that there is no common, publicly available source to determine whether a given property carries a flood risk. Various Canadian insurers have created their own mapping, but, in the residential market, the result is inconsistent mapping and, therefore, inconsistent availability of flood coverage. What is consistent is that most residential property owners in flood zones have no ability to insure against flooding.

Provincial disaster assistance programs offer compensation to a maximum amount that usually significantly less than the average value of a Canadian home, but it is only available for uninsurable losses – not uninsured losses. Those programs will not consider damage caused by surface water flooding that enters property at ground level (whether flood insurance was available to that claimant or not), or damage caused by sewer or watermain backup.

In November 2020, the federal Ministry of Public Safety and Emergency Preparedness struck an interdisciplinary Task Force on Flood Insurance and Relocation. This task force was viewed as the first step toward a National High Risk Residential Flood Insurance Program. The mandate of the Task Force was to look at options to protect homeowners who are at high risk of flooding and do not have adequate insurance protection. Further the Task Force was to examine the viability of a low-cost national flood insurance program.  The purpose of such a program would be buy time for governments to put in place better flood protection measures and to relocate people whose homes cannot be protected. The report of that task force is to be released this spring following two years of work.

On March 14, 2022, the federal Public Safety Minister, Bill Blair, toured the British Columbia communities that were the hardest hit from the November flooding. No details about how the national flood insurance program would be structured were released at a press conference following that tour. Further, Minister Blair’s office would not confirm what the federal government expects its involvement to entail. However, Minister Blair did say that the program is expected to reduce immediate disaster relief costs.

In the meantime, the residents of the southern mainland of British Columbia continue to pick up the pieces of their former lives.  While that work goes on, the Canadian P&C industry is looking at restricting coverage and raising premium in response the increasing severity of weather -related risk induced by climate change.  As reported recently by Deloitte, the requirement to balance consumer need with solvency concerns is a major challenge for the entire market, not just Canadian P&C insurers. The insurance industry must work together with government on this issue.  The pending report of the Task Force on Flood Insurance and Relocation is the first step.

 

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