Coverage Pointers - Volume XXIII, No. 22

Volume XXIII, No. 22 (No. 617)
Friday, April 15, 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
© 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 tohis 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:

Happy Easter and Passover.

Do you have a situation?  Everyone seems to have one these days.  Have no fear, we LOVE situations. 

Risk Transfer Training – Limited Zoom Seating Available:

A picture containing text, person, person, suit

Description automatically generated


Because you are a Coverage Pointers subscriber, you are the first to hear about this program.  Register early.

About a year ago, my good friend, and lawyer extraordinaire, John Trimble, from Lewis Wagner in Indianapolis, and I did a series of online training programs, on a CGL 101 primer.  We had a wonderful audience, and reprised the program several times, with hundreds of attendees.

We asked our audience about other topics of interests, and the overwhelming request was a program about risk transfer.  How does a claim professional or lawyer properly respond to a tender request from another insurer or a party, seeking additional insured status under a policy or trade contract indemnity?  How does one properly evaluate a tender from an owner, a general contractor, a landlord, etc.?

So, we decided to offer an online program (via Zoom) on just that issue and we’ve scheduled it for Thursday, May 19th.  Are you interested?  No cost, of course, and the program will last about 90 minutes, and will give you the tools to properly respond to tenders.

Here’s the information.  Interested?  Contact John at [email protected] or me at [email protected].  We are limiting the audience to 50 (that’s our plan) and first come, first serve. Here’s the information:

He or she who hesitates may lose the opportunity for this training program.  We will be releasing this invitation on social media on Monday, so contact us now to save a seat at the table.


Glad to be Home:
I had a wonderful time in San Antonio, at the PLRB Claims Conference, followed by a trip to Tulsa, to see my good friends, John and Carolyn Woodard, and then to see my daughter in Oklahoma City.  Traveling again is superb although it’s still a little unsettling to be in airports and airplanes.  On Sunday we travel to wine country in Napa for the annual meeting of the Association of Defense Trial Attorneys, the ADTA.


Comprehensive Insurance Disclosure Act Training Now Available
We have already conduced eight 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:


A picture containing text, outdoor

Description automatically generated


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.



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.  

  • 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:

To appropriate a quote from former Minnesota Vikings/Arizona Cardinal coach Dennis Green, “it is what we thought it would be.”  Throughout the Spring of 2020, this firm and others opined that COVID-19 business interruption claims would not fly in New York.  Our reasoning was set squarely on long established precedent which held that loss of income coverage is conditioned on the insured property sustaining a direct physical loss. That means, in simplest of terms, that the insured property had to have undergone a tangible change due to a Covered Cause of Loss.  Regardless of how insidious the virus was, or would become, we reasoned that it did not physically change or alter the structural components of the insured building.  As such, coverage could not be triggered. 

In a first decision by a New York State Appellate Court, our interpretation of existing legal precedent on this issue was proven correct.  There are no “Easter Eggs” in the opinion. The First Department rather unequivocally struck down any argument that virus infiltration was categorically not direct physical loss. The decision follows multiple opinions from around the country and is in line with at least two existing decisions from the Second Circuit.  While there remain other COVID-19 arguments still winding their way through lower courts, this signals the death knell for the vast majority of claims.

That’s all we have this week.  See you in two more.

Steven E. Peiper

[email protected]


Russians and Allies Reach an Agreement – A Century Ago:


The Buffalo Enquirer
Buffalo, New York
15 April 1922


Genoa, April 15.—The Allied and Russian delegates to the Genoa economic conference this afternoon reached a complete agreement on the liquidation of Russia’s old debts.

The Soviet delegates agreed to recognize as valid all of Russia’s debts contracted previous to the war.

This is a victory for Premier Lloyd George of Great Britain, who hopes to make successful conclusion of the debt transactions the preliminary to recognition of Russia and finally to an agreement whereby all European nations will pledge themselves to refrain from attacking each other for a period of at least 10 years.


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

Gone fishing.

Agnes (and Evan)
Agnes A. Wilewicz

[email protected]

Buffalo to Build City Hall:

The Buffalo Enquirer
Buffalo, New York
15 April 1922


Council and Commission Cannot

Agree on Civic Center Designers.

Council members, representatives of the City Planning committee and a number of architects held a conference in Mayor Schwab’s office this morning to talk over arrangements for hiring one or more architects to design plans and specifications for the proposed new city hall and other buildings on the proposed new city hall and other buildings on the proposed civic center west of Niagara square.

Various suggestions as to the value of competition on plans, engaging a group of architects somewhat after the school board plan, hiring an out-of-town expert or creating a new position of city architect on a salary basis were advanced but after two hours of discussion the upshot of the conference was adjourned for two weeks so the councilmen and Mayor can think things over.

Editor Note: Ground was broken for City Hall in Buffalo on September 16, 1929 and was completed for occupancy on November 10, 1931.  The monument in front of the building commemorates the assassination of President William McKinley at the Pan American exposition held in Buffalo, and was dedicated in 1907, six years after he was mortally shot on September 6, 1901


See the source image


Barnas on Bad Faith:

Hello again:

We have a bit of a callback in my column today.  On October 25, 2019, the Eleventh Circuit decided the Cawthorn decision under Florida law and held that a consent judgment was insufficient to establish causation as required for a bad faith cause of action.  You can find my write up on the decision here.

This week in my column, you will find the McNamara case where the Eleventh Circuit declined to follow its previous decision in Cawthorn.  It held that Cawthorn misapplied Florida law and that a consent judgment can qualify as an excess judgment required to establish a bad faith cause of action.  The court reasoned that the excess judgment requirement required a judgment that exceeds the available coverage.  It does not matter if that judgment is entered on consent or if it follows a verdict.  Cawthorn essentially created an excess verdict requirement, which the Eleventh Circuit deemed was inconsistent with prior Florida law.

The district court in McNamara had dismissed bad faith claims against Geico because the excess judgments against the insureds were entered on consent.  Thus, it found that the consent judgment requirement was not satisfied.  The Eleventh Circuit found that an excess judgment that satisfied the causation element of a bad faith claim existed, and it remanded the case back to the district court for further proceedings.


Brian D. Barnas

[email protected]

Deporting Aliens, 100 Year Ago:


Yonkers Statesman
Yonkers, New York
15 April 1922


Aliens who violate the prohibition law would be deported, under a bill passed by the lower house of Congress.

Bootlegging, one of the nation’s basic industries, thus would be handed over to the Simon-pure 100 per cent Americans.

It opens the way to a ludicrous monopoly, one that might be a stimulant to the Americanization movement.

Picture the army of bootleggers flocking to naturalization night schools, seriously learning to answer questions about the Constitution while mixing wood alcohol and prune juice under their desks.

Naturalization papers might have to be shown as membership cards in the Bootleggers’ Union.


Off the Mark (featuring Kyle A. Ruffner):

Dear Readers,

The weather has finally turned the corner.  In fact, I went for a quick bike ride with my youngest after work yesterday.  It’s been a while since we were able to do that, and we are looking forward to many more.  My family trip to Disney celebrating my mother’s 70th birthday gets started tomorrow.  Our kids are already packed and are looking forward to spending time with their younger cousins at the parks and, of course, the hotel pool. 

There were no recent noteworthy construction defect decisions to report on this edition.  I’m sure we will have an interesting case or two to write about next time.

Here's a brief update from Kyle:

My girlfriend and I have the pleasure of house sitting and dog sitting her father's two beagles for the next couple of weeks. They are a lot of fun but are certainly keeping us on our toes and also serving as our alarm clock, as we can count on them to start howling at 7 am sharp. Glad it is finally starting to feel like spring - I hope everyone has a happy Easter!

Until next time …       

Brian (and Kyle)
Brian F. Mark

[email protected]

Daylight Savings Time – One Hundred Years Ago:

Yonkers Statesman
Yonkers, New York
15 April 1922


Daylight-saving is as old as clocks, according to a scientist quoted in the Monthly Evening Sky Map for April. It was rumored long ago, about the time hour glasses became curios instead of time recorders, that clocks go faster at night than in the daytime. Therefore, the person who rises by his faithful old alarm clock is really rising a little earlier than he knows.

This rumor has now been proved, though not explained, by means of very marvelous instruments. Still, not so much daylight has really been saved by this nocturnal speediness of clocks. In the first place, people are forever regulating them and resetting them. In the second place—and perhaps this is really the important point—the gain amounts to such a small segment of time, even as time is counted by human beings, that it would take a good many years of such savings to amount to anything. This scientific truth, however, might well explain the hitherto inexplicable fact that the whole great army of human beings who must rise by the clock every day are always and invariably certain that it cannot be as late as the clock says it is.

Fleming’s Finest:         

Hi CP Subscribers:

It has been an action-packed week. Highlights included seeing the Eternal Flame at Chestnut Ridge, commencing a detailed paint-by-number project, participating in the remote attorney admissions ceremony, and going for sunny runs in the park. I am looking forward to celebrating Easter with my family and eating a butter lamb cake (a giant lamb made of ice cream)!

This week, I can offer you a case from the Supreme Court of Montana. The case considered whether the insured’s conduct fell within the scope of the policy’s coverage. The insured surreptitiously filmed a minor in the shower, but the policy contained a sexual misconduct exclusion. The Montana Supreme Court held that Appellants’ claims for invasion of privacy and emotional distress were beyond the scope of coverage, so the insurer did not have a duty to defend.

Happy Easter and Passover to those who celebrate!

Katherine A. Fleming

[email protected]

Will the New York Governor Resign, a Century Ago?


The Evening World
New York, New York
15 April 1922


Rumor He Had Been Offered Guarantee

From $150,000 to $250,000 a Year.

ALBANY, April 15— “Mere rumor. There is nothing in it.” This is what Gov. Miller said to his private secretary, William McCarthy, when told that a New York newspaper carried a story to the effect that the Chief Executive had been asked to design and accept a membership in a New York law firm with a guarantee of from $150,000 to $250,000 a year.

It is very well known among the Republican leaders here that Gov. Miller, so far from resigning, is being so hard pressed to run again that he can hardly refuse. At any rate the leadership of his party in the State is accorded to him and it is said that if he does not accept the gubernatorial nomination in September, he will name the man who gets it.

Editor’s Note: He did not resign and, in fact, ran for re-election at the conclusion of his term at the end of 1922. He lost to Al Smith, the same man he defeated in the 1920 election.  Governor Miller, from Cortland, New York, went on to serve as general counsel to U.S. Steel and died at age 84, in NYC.  He is buried in the Cortland Rural Cemetery.

Ryan’s Capital Roundup:

Hello Loyal Coverage Pointers Subscribers:

My oldest is nearing his fifth birthday, and I cannot even fathom where the time has gone. I ran into a classmate of mine from law school (as happens often in downtown Buffalo) who remembered that my son was born the spring semester of my 1L year. Life was much different then but my new normal—the parenting normal—is fantastic. It is different. It is challenging. It is complicated. It is worth every minute I spend with my kids. Although the pandemic made strange times for a child to grow up, my kids do not know any different. And now they are starting to experience things. This past weekend? First stop at the movies, for Sonic 2. Mesmerizing for a child that has streamed movies at home his entire life. And the popcorn….

This edition of Ryan’s Capital Roundup outlines a bill that passed the Senate last week easing the diligent effort requirements held of certain excess lines insurance brokers prior to placing risks with the excess lines insurance market.

Until next time,

Ryan P. Maxwell

[email protected]

Lathers Settle:

The Buffalo Commercial
Buffalo, New York
15 April 1922



SYRACUSE, April 15—The open shop for lathers declared by the local Builders’ Exchange April 1 when the union refused to accept a wage cut of five cents an hour, ended today when a compromise of the wage dispute which has been going on since the first of the month was affected.

By it the lathers agree to accept 95 cents an hour instead of $1, the wage paid last year. The wage is for metal lath, that for wood has not yet been settled but an agreement is assured by both sides.

CJ on CVA and USDC(NY):

Hello all,

After six days on the market the Englert’s have sold their first home. It has been a real challenge preparing our house to put on the market, and even more of a challenge keeping it clean during all the showings with two young ones about. It is a bit bittersweet realizing that we will be leaving the home that we were married in and brought our two boys back to. But, on the flip side of that coin, it will be nice to have a new home to make more memories in (especially with the extra space). Now the next step is to actually begin packing for our move in mid-June!

This edition brings us an interesting case from the Eastern District. Plaintiffs had purchased an excess liability policy from AXIS which included an exclusion for liability for injuries to employees, the court ruled that AXIS was not required to disclaim coverage in the “reasonable time” prescribed by N.Y. Ins. Law 3420(d)(2) as there was no coverage under the policy in the first instance.

Until Next Time,

Charles J. Englert, III


Women Running for Election:

The Buffalo Commercial
Buffalo, New York
15 April 1922



By the Associated Press.

            HARRISBURG, Pa., April 15.—More than fifty Pennsylvania women are aspirants for political office in the state this yar.  They have announced themselves as candidates for party nominations at the primary next month by filing nominating petitions in the state bureau of elections, and in several cases, they are expected to wage strong campaigns.

            Four women are candidates for congress, but the state house of representatives apparently has the popular appeal as most of the petitions filed were for seats in that body.  Only one woman filed nominations papers for the state senate.

Dishing Out Serious Injury Threshold:

Dear Readers,

Happy Easter and Happy Passover to those who celebrate! To everyone, I hope you are prepared for another significant holiday on the calendar, Tax Day.  Whatever you are celebrating, I hope you get to enjoy time with your friends and family, especially with the warm weather starting to come around.

I selected one decision for this issue. This Appellate Division, Second Department, matter pertaining to defendant’s expert being unable to allege that the plaintiff’s injury was not caused by the subject accident. As such, the defendant burden never shifted to plaintiff to explain causation and/or any gap in treatment. 


Michael J. Dischley

[email protected]  


Doing Business in China?  Who Would Believe It?:

The Seattle Star
Seattle, Washington
15 April 1922

Sees Hope for U.S.

Business in China

            Expressing his confidence in the future development of China and the hope for the immediate stimulation of American business in that country, J. B. Powell, editor of the Weekly Review, and honorary secretary of the American Chamber of Commerce of China, at Shanghai, Friday addressed members of the foreign trade bureau of the Chamber of Commerce and the China club at an informal luncheon at the Rainer club.  Powell said he expects congress to pass the China trade act. 

Lee’s Connecticut Chronicles:

Dear Nutmeg Newsies,

I come to you this edition from 30,000 feet above the Florida coastline. I’m heading towards West Palm Beach to spend Passover with my family, all of whom long ago relocated from New York to Florida. I’m sans kinder this trip (way to combine three languages into one sentence!), as they are respectively away at school or working. I’m definitely heading into a new era of the childrearing experience. I’m looking forward to catching up on my tan, although matzah bloat and time on the beach don’t necessarily go well together.

But at least it will be better than getting hit by a runaway kettle corn machine. That’s what happened to Michael Kling. Read all about his search to impose liability insurance coverage on the operator in this edition of the Connecticut Chronicles.

Happiest of holidays to all and, please, keep keeping safe.

Lee S. Siegel

[email protected]

Here’s an Idea – Carry Auto Insurance:

The Daily Times
Davenport, Iowa
15 April 1922



            In 1920 there were 8,500,00 automobiles in use in the United States.  In 1921 the number probably exceeded 9,000,000.  The Pittsburgh Post says:  “In 1919 there was an average of fifty-four automobile smashups every house of the twenty-four.  Every thirty-five minutes someone is killed in a motor crash.”

            No one should purchase or drive a car without careful thought as to the amount and kind of insurance needed to protect himself adequately.  For that go to a skilled and experienced insurance man, ask his advice—and follow it.  The cover that may be granted by various kinds of policies is well standardized, and there are many excellent companies, but the knowledge of what the cover should be, and the proper drawing of the declarations and endorsements to make it effective, require skill, experience and care.  Every automobile policy must be drawn up separately.  It cannot be cut like a yard of cloth from a bolt.  It is the title deed to your insurance protection, and ignorance or carelessness on the part of a broker or agent may give you a clouded title or none.  

Rauh’s Ramblings:

Hello all!

As we approach the end of our firm’s fiscal year, I think it is safe to say that all of us at H&F have been extremely busy!  Aside from work, I am also very busy at home preparing for my son’s 4th birthday on April 18th!  This year, he requested a Spiderman-themed birthday party.  I will be attempting to make him a special Spiderman cake using a recipe I found on Pinterest – here’s to hoping my cake turns out somewhat similar to the picture I will be using as a reference. I splurged on a cake decorating kit so now I feel like an official cake artist!  Wish me luck!   

I hope everyone has a wonderful (and hopefully warm and sunny) weekend.

Until next time,         

Patricia A. Rauh

[email protected]


Get Life Insurance or Be Poor:

The Dayton Herald
Dayton, Ohio
15 April 1922

Ninety Per Cent of business
Men Reach Decline Without
Amassing Competence.

            “Ninety per cent of the men engaged in business fail to reach old age with a competence," declared John L. Shuff. Cincinnati, president of the National Life Underwriters’ association, speaking before the Dayton branch at the Shrine club, Friday noon.

            He also pointed out that seven-eighths of the money left by married men in America is derived from life insurance. Shuff explained during his talk that he was not trying to sell the association, or any one life insurance company, but the principle of insurance.

            “My mission and my aim are to sell the insurance agent and the public the soul of insurance—not any company, but insurance.”  In speaking of the selling of loans against policies he sounded a warning by showing that some Ohio insurance salesmen are selling more loans against policies than they are new insurance.


Storm’s SIU Examen:

Hi everyone:

Two interesting cases this week

  • In litigation over a coverage denial of a 1st-party property fire claim for fraud, court dismisses causes of action for declaratory judgment and breach of the covenant of good faith and fair dealing (as redundant to the breach of contract cause of action); attorneys’ fees; and punitive damages. 

  • State Farm's motion to dismiss is granted on claims for breach of contract, breach of covenant of good-faith, and consequential losses all due to the 2-year suit limitation condition; and GBL § 349, negligence and gross-negligence claims are also dismissed with prejudice.

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

I hope you have an awesome two weeks until we write again!

Scott D. Storm

[email protected]

Drive Safely and Auto Insurance Premiums Will Drop:


Saskatoon, Saskatchewan, Canada
15 April 1922

Will Come Down When

Drivers Display Care

New York Insurance Expert Has Been

Conducting Experiments and Investigating

Methods Tending to Cut Rates


            NEW YORK, March 31.—When the motoring public shows a concerted movement toward greater care in driving, then will automobile insurance premiums come down.

            That is the message, smacking of advice, from A. B. Roome, New York insurance expert who has been investigating methods tending to reduce auto insurance rates.

            Until that “minimum of carelessness” in driving is attained, Roome says, lower rates will have to be achieved by other means.  Such are:

            1.         Making the motorist stand a fixed portion of the loss.

            2.         Requiring a bill of sale with each purchase.

            3.         Federal registration for the life of the car.

            4.         Vigorous and prompt enforcement of traffic and theft laws.

            5.         Installation of approved theft devices.

            “The most promising means we have found to lower insurance rates is making the assured a co-insurer of his care,” says Roome.  “That is, making him stand a fixed portion of the loss.  This increased the care taken by the owner.

            “On the co-insurance basis the reduction in premiums is about 75 percent, where theft, fire and collision insurance also are taken out.  On the theft insurance alone, the reduction is 20 percent.

            “But as this form of policy is only optional with the companies, insurance brokers in their desire for business have not been pressing it.  It should be made mandatory on all companies.

            “Theft devices are useful only in that they delay the get-away.  There are 75 such devices which have been approved by the Underwriters’ laboratories in Chicago and for use of which a reduction of 15 percent is made in premiums.

            “But after all, the quickest reduction in rates would come with the elimination of carelessness on the part of the car owner.”

North of the Border:

It’s mid-April and we are still gripped by winter – a massive blizzard has decided upon southern Manitoba. Here in southern Alberta, we have had a dusting of snow every day this week and the windchills yesterday were in the -20C range. Nonetheless, my tulips have broken ground. It is almost magical to see them every year. Particularly, this year.

My column this week discusses a fascinating Alberta Court of Appeal case on the interpretation of insurance contracts and news that the Supreme Court of Canada refused leave to appeal in the MDS case. Enjoy!  Happy holidays to all those who are celebrating the trifecta of Ramadan, Passover and Easter!

Heather A. Sanderson

[email protected]


Headlines from this week’s issue, attached:

Dan D. Kohane

[email protected]

  • Master Arbitrator’s Award Set Aside as “Irrational”
  • Where the Policy Provided that Coverage would Not be Available if the Accident Occurred in a Premises Containing More than Two Units, Coverage Did Not Exist for a Three-Unit Building
  • Release Bars SUM Arbitration


Steven E. Peiper

[email protected]

  • No First Party Coverage for Vandalism Caused by Tenant under “Dishonest or Criminal Acts” Exclusion
  • COVID-19 Lawsuit Dismissed where Plaintiff Did Not Identify any Physical Change, Transformation, or Difference to Property


Michael J. Dischley
[email protected]

  • Defendant Expert Unable to Allege Injury Not Caused by Subject Accident as such Burden Never Shifted Regarding Causation and/or Gap in Treatment


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

[email protected]

  • Gone fishing.

Brian D. Barnas

[email protected]

  • Eleventh Circuit Reverses Prior Decision in Cawthorn and Holds Consent Judgment Satisfies Requirement for Excess Judgment to Prove Bad Faith Claim under Florida Law

Lee S. Siegel

[email protected]

  • Auto Exclusion Bars Coverage for Runaway Kettle Corn Machine

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

  • No interesting construction defect decisions this edition.  Be sure to check back in two weeks.


Ryan P. Maxwell

[email protected]

  • Bill Would Ease Diligent Effort Requirement for Licensed Excess Brokers Placing Insurance with Unaffiliated Wholesale Excess Insurance Brokers 


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

  • Where Coverage Would Not Be Afforded in The First Instance, Insurance Law 3420(d)(2)’s Reasonable Time to Disclaim Does Not Apply


Patricia A. Rauh

[email protected]

  • Wal-Mart Breached its Fiduciary Duty Pursuant to its Statutory Obligations Under ERISA by Mishandling Assets in its Employee Benefit Plan


Scott D. Storm

[email protected]

  • In Litigation Over a Coverage Denial of a 1st-Party Property Fire Claim for Fraud, Court Dismisses Causes of Action for Declaratory Judgment and Breach of the Covenant of Good Faith and Fair Dealing (as Redundant to the Breach of Contract Cause of Action); Attorneys’ Fees; and Punitive Damages


  • State Farm's Motion to Dismiss is Granted on Claims for Breach of Contract, Breach of Covenant of Good-Faith, and Consequential Losses All Due to the 2-Year Suit Limitation Condition; and GBL § 349, Negligence and Gross-Negligence Claims are also Dismissed with Prejudice


    Katherine A. Fleming

    [email protected]

  • Insurer Had No Duty to Defend Insured Based on Sexual Misconduct Exclusion in Policy Where Insured Hid Cameras in Shower


Heather A. Sanderson

[email protected]

  • The Alberta Court of Appeal Affirms that Ambiguities in the Interpretation of Insurance Policies will be Resolved by Looking at the Reasonable Expectations of the Parties Tempered by What Makes Commercial Sense in the Case at Hand
  • Striking a Blow to Ongoing COVID-19 Business Interruption Claims, the Supreme Court of Canada Refused Leave to Appeal in MDS. Therefore, in a Commercial Property All-Risk Policy, Loss of Use is Not “physical damage” as it is Not a “distinct, demonstrable, physical alteration of the property”.


All the best,



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.

Dan D. Kohane

[email protected]

Agnes A. Wilewicz

[email protected]

Patricia A. Rauh

[email protected]

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)


Steven E. Peiper, Team Leader
[email protected]

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


Dan D. Kohane
[email protected]

Alice A. Trueman


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


Dan D. Kohane
[email protected]

04/13/22       Advanced Orthopaedics v. Country-Wide Insurance Company
Appellate Division, Second Department
Master Arbitrator’s Award Set Aside as “Irrational”

This case involved a judicial challenge to a Master Arbitration award, under No Fault.

A master arbitrator's determination of the law need not be correct: mere errors of law are insufficient to set aside the award of a master arbitrator.  If the master arbitrator vacates the arbitrator's award based upon an alleged error of 'a rule of substantive law,' the determination of the master arbitrator must be upheld unless it is irrational"

Here, the court found that the master arbitrator’s award was irrational. The master arbitrator's determination that a denial of liability based upon a failure to appear at an examination under oath constitutes a defense of lack of coverage, which is not subject to preclusion, is irrational. It allowed the insurer to avoid the regulations which required that its initial request for an examination under oath is sent more than 30 days after receipt of the claim, was a nullity.

04/12/22       Tower Insurance Company v. Richardson
Appellate Division, First Department
Where the Policy Provided that Coverage would Not be Available if the Accident Occurred in a Premises Containing More than Two Units, Coverage Did Not Exist for a Three-Unit Building

Plaintiff Tower Insurance Company was properly granted summary judgment declaring it has no obligation to defend or indemnify defendant Richardson in the underlying personal injury action, as the Tower Policy does not cover bodily injury claims stemming from accidents occurring at the premises if it contains more than two family units. As Richardson's premises was undisputedly a three-family dwelling, it was not covered under the insurance policy issued by Tower. Estoppel cannot be used to create coverage where none exists.

Editor’s note:  Kudos to Tom Dillon, incorrectly named as Tom Dillion.

04/05/22       Nationwide Affinity Insurance Company v. Ortiz
Appellate Division, First Department
Release Bars SUM Arbitration

In November 2015, Ortiz was involved in a motor vehicle accident; the other vehicle involved in the accident was insured by Nationwide under a policy that provided for bodily injury limits of $100,000/$300,000, as well as supplementary uninsured/underinsured motorist (SUM) coverage. Ortiz and Nationwide eventually entered into a general release in which Ortiz waived any and all claims as to SUM coverage in return for a $500 settlement payment from Nationwide.

Approximately a year later, Ortiz filed a demand for arbitration, seeking to recover underinsured motorist benefits in connection with the November 2015 accident.

On a motion to stay, Supreme Court correctly found that the general release signed by Ortiz applied to her demand for arbitration. The general release unambiguously and unequivocally waived Ortiz's claims to any further recovery, stating that the release was in "full satisfaction" and "settlement" of a "disputed claim," and that Nationwide was "forever discharge[d]" and "release[d]" from any and all further claims. Ortiz's mere assertion that a dispute existed as to the scope of the release does not create an arbitrable


Steven E. Peiper
[email protected]

04/14/22       Daire v. Sterling Insurance Company
Appellate Division, Third Department
No First Party Coverage for Vandalism Caused by Tenant under “Dishonest or Criminal Acts” Exclusion

Daire leased their single-family residence to Carol Sweet. After evicting Sweet in 2019, Daire discovered that there was significant damage to the property and, accordingly, submitted a claim for approximately $63,000 to defendant and HBE Group, Inc., with whom plaintiffs had an insurance policy that provided coverage for, as relevant here, criminal vandalism.

Sterling denied the claim, finding that the conduct underlying the claim fell under an exclusion for dishonest or criminal acts by anyone to whom plaintiffs entrusted the property (hereinafter the entrustment exclusion). This lawsuit ensued.

In support of its motion for summary judgment, the insurer proffered, among other things, an attorney affirmation by its counsel, Peter Knych, with exhibits, including the policy at issue. Knych explained that plaintiffs had sought coverage under the peril of vandalism but that such coverage, as is standard in this kind of insurance policy, does not extend to acts of property destruction caused by someone to whom the property had been entrusted by the landlord. The insurer also proffered plaintiff Edward

Daire's deposition testimony, as well as the police report he filed, both of which revealed his belief that the property damage resulted from the tenant to whom the property had been entrusted. Daire opined that the property damage was committed by Sweet's daughter out of "spite" and "to hurt [him]"; he described the damage as the bathroom plumbing and kitchen appliances having been "ripped" from the walls.

Based on the foregoing, Supreme Court properly found that defendant met its initial burden by producing the insurance policy, which expressly excluded criminal and dishonest acts, such as property damage, done by individuals to whom the insureds entrusted the property. Daire's testimony established that the property damage was intentionally committed by either Sweet or her daughter, both "whose status [was] . . . accepted by the assured as the result of a consensual relationship between the parties," such that the entrustment exclusion applies to both individuals

Plaintiffs did not offer any additional proof, but, in their memorandum of law, they argued that the evidence proffered by defendant did not resolve the issue of whether vandalism constituted a "dishonest and criminal act" subject to the policy's exclusion.

The court found that “[i]n common speech, . . . vandalism is malicious damage to property" and "[c]onduct is malicious for these purposes when it reflects such a conscious and deliberate disregard of the interests of others that it may be called willful or wanton".

04/07/22       Consolidated Restaurant Operations v. Westport Insurance Corp.
Appellate Division, First Department
COVID-19 Lawsuit Dismissed where Plaintiff Did Not Identify any Physical Change, Transformation, or Difference to Property

Beginning in early February into March 2020, plaintiff, the owner and operator of numerous restaurants both in the United States and abroad, took initial steps to protect its customers by implementing enhanced cleaning procedures, and by installing hand sanitizer stations and physical partitions. By mid-March, however, plaintiff was forced to suspend its indoor dining operations as a result of various executive closure orders in New York and elsewhere. In some states plaintiff was allowed to continue providing its customers with takeout, drive through and/or delivery services. It is unrefuted that plaintiff suffered tens of millions of dollars in revenue loss because of sharply curtailed operations.

Plaintiff had purchased commercial all risk property insurance from Westport with business interruption coverage.  The policy had a $50 million per occurrence limit, and it insured all risks of direct physical loss or damage to insured property while on insured location(s).

Plaintiff filed a claim in April 2020, claiming that it had suffered direct physical loss or damage to its property because the actual or threatened presence of the virus in and on its property eliminated the functionality of the restaurants.  Westport denied coverage in July 2020, stating that there was no physical loss or damage to the property.  Westport also denied coverage based on a contaminant exclusion that contained the term virus.  Plaintiff filed a lawsuit against Westport, and Westport moved to dismiss.

Initially, Plaintiff argued that the term “physical loss or damage to property” was ambiguous because the word physical was undefined.  The court rejected this argument.  The First Department had previously held that a claim for loss of use was not covered under a policy providing coverage for direct physical loss or damage to property.  The term requires a physical change or damage to the property in some tangible way.  The Plaintiff’s complaint only made conclusory assertions that its property was altered by the coronavirus.  This was insufficient to survive dismissal.

The court relied on a series of federal court decisions applying New York law, as well as other federal court decisions around the country, holding that conclusory assertions that COVID-19 caused physical damage to property fail to state a basis for coverage.  The court also cited New York trial level court decision finding that the meaning of “physical” requires some tangible alteration to the property.

Plaintiff failed to identify any physical change, transformation, or difference in its property.  The pleading did not identify a single item Plaintiff had to replace, change, or that was damaged.  In fact, Plaintiff was able to provide takeout and drive through services, which indicated the property was still useable and operable.  Plaintiff was also denied leave to amend.

Finally, Plaintiff argued that there was coverage for a virus-related claim because the policy did not contain a specific virus exclusion.  The court rejected this argument, as exclusions subtract coverage rather than grant it.  Having concluded that there was no coverage in the first instance, the court did not address the applicability of any exclusions.

Michael J. Dischley

[email protected]

12/05/19       Marion P. Williams v. Ismail Nairwattie
Appellate Division, Second Department
Defendant Expert Unable to Allege Injury Not Caused by Subject Accident as such Burden Never Shifted Regarding Causation and/or Gap in Treatment

In an action to recover damages for personal injuries, the plaintiff appeals from an order of the Supreme Court, Queens County (Maureen A. Healy, J.), entered September 19, 2019. The order granted the defendants' motion for summary judgment dismissing the complaint on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident.

The plaintiff commenced this action to recover damages for personal injuries that she allegedly sustained in a motor vehicle accident on July 6, 2015. The defendants moved for summary judgment dismissing the complaint on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the accident. In an order entered September 19, 2019, the Supreme Court granted the defendants' motion, and the plaintiff appeals.

The Appellate Court found that defendants met their prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the accident. The defendants submitted competent medical evidence establishing, prima facie, that the alleged injury to the lumbar region of the plaintiff's spine did not constitute a serious injury under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d). In opposition, however, the Appellate Court found that the plaintiff raised a triable issue of fact as to whether she sustained a serious injury to the lumbar region of her spine under the permanent consequential limitation of use and significant limitation of use categories of Insurance Law § 5102(d).

Since the defendants failed to establish, prima facie, that the alleged injury to the lumbar region of the plaintiff's spine was not caused by the accident, the burden never shifted to the plaintiff to raise a triable issue of fact regarding causation, or to explain any gap in treatment.

Accordingly, the Appellate Court found that the Supreme Court should have denied the defendants' motion for summary judgment dismissing the complaint.

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

[email protected]

Gone fishing.

Brian D. Barnas

[email protected]

04/05/22       McNamara v. GEICO
United States Court of Appeals, Eleventh Circuit
Eleventh Circuit Reverses Prior Decision in Cawthorn and Holds Consent Judgment Satisfies Requirement for Excess Judgment to Prove Bad Faith Claim under Florida Law

McNamara was driving Warren’s vehicle when she negligently changed lanes and caused a collision that seriously injured Bennett.  Warren was insured by a Geico policy with bodily injury coverage up to $100,000 per person.  Bennett and Geico asserted that they made offers to settle within the policy limits, but the parties never reached a deal.  Bennett eventually sued Warren and McNamara in state court.

Plaintiff eventually entered into consent judgments with Warren and McNamara for $474,000 and $4,740,000 respectively.  The judgments were conditioned upon Warren and McNamara agreeing to the entry of final judgment in those amounts and on Geico confirming that it would not assert that accepting the proposals breached the policy.  Geico permitted Warrant and McNamara to accept the proposals.  Warren and McNamara then sued Geico for bad faith, seeking to recover the excess amounts of the final judgments.

The district court, relying on an unpublished Eleventh Circuit decision in Cawthorn, dismissed the bad faith claim.  In Cawthorn, the Eleventh Circuit had held (1) that to prove causation in an insurer-bad-faith case, a plaintiff must show that the insured suffered an excess judgment, i.e., a final judgment that exceeds all available insurance coverage, and (2) that the excess judgment must result from a verdict.  Thus, it concluded that a consent judgment not preceded by a verdict cannot constitute an excess judgment as a matter of law.  Following Cawthorn, the court below found that the consent judgments against Warren and McNamara were not qualifying excess judgments, and, therefore, they could not prove causation in their bad faith action.

The Eleventh Circuit reversed and held that Cawthorn misinterpreted Florida law.  The court ruled that a consent judgment can qualify for excess judgment status.  The court reviewed Florida law on excess judgments, and it concluded that it does not matter whether an excess judgment results from a stipulated settlement or verdict.  The court reasoned that the excess judgment requirement requires only a judgment that exceeds the available coverage.  It does not matter if that judgment is entered on consent or if it follows a verdict.  The court reviewed the unpublished Cawthorn decision, and expressly stated that it declined to follow the decision because it incorrectly analyzed Florida bad faith law.

Lee S. Siegel

[email protected]

04/12/22       Kling v. Hartford Cas. Ins. Co.
Appellate Court of Connecticut
Auto Exclusion Bars Coverage for Runaway Kettle Corn Machine

Michael Kling was runover by a kettle corn machine, suffering a broken femur among other injuries. Kling was walking in New Haven when a trailer carrying a kettle corn machine broke loose from the pickup truck towing it. Kling sued the vehicle operator and business owner, Elm City Kettle Corn Company, under a variety of negligence theories. The Hartford, Elm City’s business liability insurer, denied coverage and the driver and Elm City defaulted. Kling sued The Hartford under Connecticut’s direct-action statute, seeking to recover his $500,000 default judgment. 

Kling argued that The Hartford improperly denied a defense under the insured’s CGL policy, and as a result must pay the judgment. The plaintiff claims that The Hartford has a duty to defend because (1) the policy is ambiguous and, thus, must be construed in favor of coverage and (2) the allegations in the plaintiff's complaint have a clear possibility of falling within the coverage provided under the policy. Based on the policy language and the underlying complaint, the Appellate Court was not persuaded.

Although the court did not reference the policy form, we assume it was construing the standard CG 00 01 form’s exclusion for bodily injury arising from the use, operation, or maintenance of an automobile. The insurance policy defines “auto” as including trailers that are “designed for travel on public roads, including any attached machinery or equipment.” The trailer and attached equipment, the court held, certainly fall within that definition of “auto,” meaning that the auto exclusion applies to bar coverage for any injuries that arose out of the use of that trailer and equipment.

Connecticut interprets the phrase “arising out of,” as the phrase is used in auto exclusions, exceedingly broadly to preclude coverage for claims whenever a plaintiff's injuries are related—even slightly—to the use of an automobile. See New London County Mutual Ins. Co. v. Nantes, 303 Conn. 737, 753–54, 36 A.3d 224 (2012); Hogle v. Hogle, 167 Conn. 572, 577, 356 A.2d 172 (1975). In Hogle, the Supreme Court denied coverage under a homeowner’s policy’s auto exclusion where a dog jumped from the back seat to the front, distracting the driver and causing an accident. The Court held that because the driver's use of a car was at least in some way connected “with the accident or the creation of a condition that caused the accident,” there was no coverage for the passenger's injuries under the auto exclusion, and the insurer thus did not have a duty to defend.

Here, the Appellate Court found that there was no question of fact or law that the accident arose from the operation of an auto. The plaintiff argued that the court should have applied the factual or legal uncertainty doctrine, as set forth recently in Nash Street LLC v. Main Street America, in order to find that there was a breach of the duty to defend. The court wrote that the underlying allegations did not create any factual uncertainty that the accident arose out of the use of an auto and that there was no legal uncertainty that the trailer attached to the pickup truck meets the definition of an auto.

[Ed. Note: The opinion does not reference automobile coverage for the pickup truck, trailer, or driver which is compulsory coverage in Connecticut. We surmise that the truck had minimal limits that were insufficient to compensate plaintiff for his injuries.]

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

No interesting construction defect decisions this edition.  Be sure to check back in two weeks.

Ryan P. Maxwell
[email protected] 

04/04/22       Bill to Ease Excess Lines Diligent Effort Requirement
New York State Senate
Bill Would Ease Diligent Effort Requirement for Licensed Excess Brokers Placing Insurance with Unaffiliated Wholesale Excess Insurance Brokers 

Last Monday, the Senate passed a bill (Bill No. S08128) that, if signed into law, would permit a waiver of the diligent effort requirement of licensed excess line brokers in limited circumstances for certain insurance coverage to be placed with unauthorized insurers where a retail producing insurance broker seeks to place commercial lines insurance through an unaffiliated wholesale excess line insurance broker. The bill was delivered to the Assembly and currently resides in the Assembly’s Insurance Committee.

As you know (and as the Sponsor Memorandum tells us):

“The excess line market exists as a matter of public policy to insure risks which New York admitted insurers choose not to underwrite because the risks are distressed, unique, volatile, or involve new businesses or coverages without loss history. The legislature reasoned that New York businesses could not operate without a secondary market to insure risks that are rejected by licensed insurers. The excess line market is of vital importance to New York and nimble processing is essential to effectively serve consumer needs.”

Believe it or not, all risks are not created equal. Excess lines insurers exist to insure risks admitted carriers will not.

Currently, the law requires brokers to attempt placing coverage with a licensed insurer before turning to excess lines—a diligent effort. Such an effort is made after three licensed insurers have rejected a risk. This bill would exempt certain commercial policies placed by retail brokers through unaffiliated wholesale excess brokers from the diligent effort requirement. However, a diligent effort would still apply to all personal lines policies, as well as commercial lines policies not placed through an unaffiliated wholesale excess line broker.

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

03/24/22       ROMCO Structural Systems Corp. v. Axis Insurance Co.
United States District Court, Eastern District of New York
Where Coverage Would Not Be Afforded in The First Instance, Insurance Law 3420(d)(2)’s Reasonable Time to Disclaim Does Not Apply

Plaintiff brought this action against its excess liability insurer alleging that defendant’s disclaimer of coverage for claims related to an injury of plaintiff’s employee was improper under New York Insurance Law and a breach of its insurance contract. Plaintiff’s employee fell from an elevated height while working on a construction project. In the employee’s state court complaint, he alleges that he was employed by plaintiff and sought recovery against various entities involved in the construction project. Plaintiff was bought into the state court suit by third party complaint, which sought damages based upon contribution, indemnity, and breach of contract with two of the contractors initially sued by plaintiff’s employee.

Defendant’s policy issue to plaintiff contains two pertinent provisions. First, the policy provides “It is agreed that…this insurance does not apply to any liability or damages arising out of any actual alleged injury to an employee or temporary worker of any insured arising out of or in the course of employment by any insured…This exclusion applies whether an insured may be liable as an employer or in any other capacity and to any obligation to share damages with or repay someone else who must pay damages because of injury.” The second provides that, “Excess coverage for employers’ liability is not applicable in situations where an employee is subject to New York Workers Compensation Law, because employers’ liability coverage is unlimited in nature in New York State.” Evidence submitted in this matter shows that plaintiff’s insurance broker went through the process of obtaining quotes for an excess liability policy with and without labor law coverage and then specifically selected the policy without labor law coverage and with a labor law exclusion. After binding the policy at issue, plaintiff’s broker asked about purchasing specific labor law coverage and was told by defendant that they would have to cancel plaintiff’s current policy. No such cancelation was never requested.

After receiving correspondence from the third-party plaintiffs purporting that plaintiff’s excess policy would be impacted by any result in the state court matter, defendant, out of an abundance of caution and without any claim being made by its insured, disclaimed coverage under the excess liability policy.

Plaintiff moved for summary judgment alleging that, defendant did not disclaim coverage under the policy pursuant to N.Y. Ins. Law § 3420(d)(2) and that the language of the policy is ambiguous.

N.Y. Insurance Law § 3420(d)(2) says, “If under a liability policy issued or delivered in this state, an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of…[an] accident occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured…” Any unreasonable delay in disclaiming coverage would estop the insurer from raising a defense to coverage later on. However, the court here reasoned that the timing requirements of N.Y. Ins. Law 3420(d)(2) only apply where there is coverage under the subject policy in the first instance. In determining what is covered under the policy in the first instance, the court looks at the whole policy, not just what is included in the insuring agreement. The court reasoned that as the policy at issue included an endorsement excluding coverage for employee or worker bodily injury which reads, in relevant part, “This insurance does not apply to any liability or damages arising out of any actual or alleged injury to an employee…arising out of and in the course of employment by any insured. This exclusion applies whether an insured may be liable as an employer or in any other capacity and to any obligation to share damages with or repay someone else who must pay damages because of the injury.” As this court found the defendant insurance policy unambiguously did not include coverage for bodily injury claims by ROMCO employees and there was no duty to disclaim, there was no triable issue of fact regarding whether the time AXIS took to disclaim was reasonable. Because the policy itself unambiguously said the insurance would not apply to an injury like Mr. Rojas’, AXIS had no duty to disclaim as a matter of law.

The court further held that even if the language of the policy was ambiguous, the evidence in the record proves that plaintiffs affirmatively sought a policy of insurance that did not include coverage for injuries suffered by plaintiff’s employees in the scope of their employment.


Patricia A. Rauh

[email protected]

04/12/22       Chelf v. Prudential Insurance Co., et al
U.S. Court of Appeals, Sixth Circuit
Wal-Mart Breached its Fiduciary Duty Pursuant to its Statutory Obligations Under ERISA by Mishandling Assets in its Employee Benefit Plan

Elmer Chelf (“Decedent”) was a former full-time, hourly employee at Wal-Mart and while employed there, he purchased a basic life insurance policy, as well as short-term and long-term disability insurance, and the premiums were deducted from his paycheck each pay period.  Decedent had also purchased $25,000 in optional term life insurance through Prudential, and that premium was also deducted from his paycheck.

In 2014, the Decedent went out of work on short-term disability.  In the Spring of 2015, the Decedent was approved for long-term disability benefits after his short-term benefits had maxed out.  Under the plan documents, the Decedent was not required to pay premiums for his short- or long-term disability benefits while he was receiving those benefits.  However, Wal-Mart continued to charge the Decedent those premiums.

In April 2016, the Decedent died of natural causes.  His widow, Ruth Mae Chelf (“Plaintiff”) filed a claim with Prudential for the benefits due to her under the Decedent’s policies.  Prudential approved the claim for basic life insurance benefits but denied her claim for the optional life insurance benefits that Decedent had elected.  The Plaintiff submitted a claim with Wal-Mart and the plan administrator, which was denied, along with her voluntary appeal.  Wal-Mart subsequently upheld the denial of Plaintiff’s appeal and she filed suit against Wal-Mart and Prudential.

Plaintiff contends that Wal-Mart incorrected treated the Decedent’s life insurance coverage as terminated prior to his death and did not inform him that the policy had been terminated.  She claims that under the life insurance policy and Wal-Mart’s Summary Plan Description (“SPD”), conversion to an individual life insurance policy should have been automatic because the Decedent died within 30 days of his insurance coverage terminating.

In her lawsuit, Plaintiff alleged violations of ERISA against Wal-Mart, as well as a cause of action for breach of fiduciary duty under 29 U.S.C. § 1132(a)(3), alleging that: (1) Wal-Mart failed to disclose to Decedent that he had a right to convert his optional life insurance; (2) Wal-Mart failed to timely remit and to apply Decedent’s optional life insurance premium payments; (3) Wal-Mart failed to correctly advise Decedent concerning the actual optional life insurance premiums due, if any; (4) failed to apply Decedent’s unpaid time off to any past due optional life insurance premiums; (5) failed to advise Mr. Chelf that he could apply his unpaid time off to any outstanding optional life premiums paid; (6) failed to comply with ERISA’s regulatory requirements, as well as the plan requirements, concerning Decedent’s optional life insurance coverage; and (7) failed to convey complete and accurate information material to Decedent’s circumstances.

Plaintiff contends that she and Decedent reasonably relied on Wal-Mart’s material misrepresentations and omissions in the court of their decision-making about Decedent’s benefits.

Wal-Mart filed a motion to dismiss.  The district court granted the motion and dismissed Plaintiff’s breach of fiduciary duty claim with prejudice.  The District Court determined that Plaintiff’s allegations fell outside the scope of ERISA’s fiduciary requirements or administrative functions.  Plaintiff appealed to the Sixth Circuit.

The Sixth Circuit stated that Plaintiff’s claims against Wal-Mart can be divided into two categories – the failure to disclose allegations and the mishandling of Plan assets allegations.

In regard to the mishandling of the assets allegations, the Court reversed the district court’s decision that said the allegations fell outside the scope of the requirements of ERISA.  On the contrary, the Court found that Wal-Mart was undeniably a fiduciary as it exercised control over the plan’s assets and had discretionary authority over the administration of the plan.  Further, by failing to correct the errors alleged in the Complaint, Wal-Mart did indeed mishandle the plan’s assets and breached its fiduciary duty pursuant to its statutory obligations under ERISA.

In regard to the allegations involving failure to disclose, the Court said that the Plaintiff sought to impose liability on Wal-Mart for its failure to disclose information that is not required to be disclosed under ERISA.  The Plaintiff pointed to another Sixth Circuit case titled Sprague v. Gen. Motors Corp., 133 F.3d 388 (6th Cir. 1998) where the Court had recognized a breach of fiduciary duty under three conditions, none of which the Court found present in this current case.  First, the Plaintiff alleges that Wal-Mart made material misrepresentations and omissions concerning the plan terms or the Decedent’s rights.  However, the Court stated that unlike Sprague, the Plaintiff’s Complaint does not provide any allegations suggesting that Wal-Mart omitted information or provided a misleading statement in response to one of the Decedent’s inquiries.  Next, Plaintiff contends that the failure to advise Decedent of his conversion rights exists independently because it arises under the language of the Plan itself.  However, the Court agreed with Wal-Mart’s argument that since the Plan language was not in the record during the District Court proceedings, it should not be considered at the Sixth Circuit either – in other words, Plaintiff should have amended her complaint to include the Plan language and how it allegedly created a separate and independent duty.

Additionally, the Court ruled that Plaintiff did not allege the terms of the life insurance policy that required Wal-Mart to provide Decedent with notice of his rights to convert, nor did she allege that the Plan or SPD had any such requirement that would have given rise to such an independent duty.  However, the Court acknowledged that in the ERISA context, it can be difficult for plaintiffs to access the plan and its provisions so plaintiffs do not need to necessarily identify the specific language of every plan provision to survive a motion to dismiss, but a plaintiff must allege sufficient facts to allow an inference that she has a plausible claim, which the Plaintiff here failed to do.

The Court affirmed in part, reversed in part, and remanded for further proceedings consistent with their opinion.


Scott D. Storm

[email protected]


03/31/22       Converse v. State Farm Fire and Casualty Company
United States District Court Northern District of New York
In Litigation Over a Coverage Denial of a 1st-Party Property Fire Claim for Fraud, Court Dismisses Causes of Action for Declaratory Judgment and Breach of the Covenant of Good Faith and Fair Dealing (as Redundant to the Breach of Contract Cause of Action); Attorneys’ Fees; and Punitive Damages

Plaintiffs contend that State Farm violated the contract to insure rental property that burned.  The Complaint raises three causes of action. Count One alleges breach of contract. Count Two seeks a declaratory judgment. Count Three alleges a breach of the covenant of good faith and fair dealing. Plaintiffs seek compensatory and punitive damages, along with attorneys’ fees.

State Farm made a motion to dismiss Counts Two and Three, as well as any claim for punitive damages or attorneys’ fees all of which were granted.

Declaratory Judgment and Attorneys’ Fees:

The Court grants the portion of the motion seeking dismissal of Plaintiffs' declaratory judgment claim. Plaintiffs cannot maintain a claim for declaratory judgment when they have an appropriate remedy in a breach-of-contract claim.

Plaintiffs do not respond to that portion of Defendant's motion that seeks dismissal of any claim to attorneys’ fees. Courts have found that a failure to offer any argument opposing a motion to dismiss is tantamount to abandoning those claims. Federal courts disfavor awarding fees to the prevailing party unless "unusual circumstances" exist. 

Good Faith and Fair Dealing:

The grants that part of the motion to dismiss a claim for breach of the covenant of good faith and fair dealing. "Under New York law, parties to an express contract are bound by an implied duty of good faith, but breach of that duty is a breach of the underlying contract."  "New York law . . . does not recognize a separate cause of action for breach of the implied covenant of good faith and fair dealing when a breach of contract claim, based upon the same facts, is also pled."  Thus, "when a complaint alleges both a breach of contract and a breach of the implied covenant of good faith and fair dealing based on the same facts, the latter claim should be dismissed as redundant." 

The Court finds that the breach-of-contract claim, and the good-faith-and-fair-dealing claim are based on the same set of facts. In their contract claim, as shown above, Plaintiffs allege that they suffered a loss that the insurance contract covered, they made a claim, and that Defendant denied that claim without reason. Their good-faith-and-fair-dealing claim likewise alleges that Defendant denied a valid claim. That claim also adds facts about the length of time it took the Defendant to deny the claim and the improper basis for the denial. This is a complaint about the claims process and the decision to deny the claim. Both claims rely on the same set of facts.

There is no private cause of action under N.Y. Ins. Law ¶ 2601(a).  Plaintiffs availed themselves of the protections of the New York Department of Financial Services, for the alleged violations of N.Y. Ins. Law § 2601 by Defendant in processing of the claim through a complaint form. The New York Department of Financial Services declined to take any action. 

Plaintiffs also point to a consumer claim they filed with the State of New York about Defendant's conduct, and allege that Defendant made untrue allegations in responding to the claim. While Plaintiffs may claim that Defendant harmed them by repeating allegations that Plaintiffs misrepresented facts about the claim, Plaintiffs also admit that they initiated the process that led to the investigation and that no private right of action exists for such a complaint. The documents they include indicate that Defendant merely repeated the results of their claims investigation to the State. Plaintiffs do not contend they suffered any measurable harm as a result of Defendant's response. Thus, even if these allegations represented some version of facts unnecessary to the contract claim, Plaintiffs have not alleged any conduct in this respect that harmed them.

Punitive Damages:

The Court granted the motion dismissing the claim for punitive damages.  The only claim that remains here is a contract claim. In New York, "punitive damages are not recoverable for an ordinary breach of contract as their purpose is not to remedy private wrongs but to vindicate public rights."  Still "where the breach of contract also involves a fraud evincing a ‘high degree of moral turpitude' and demonstrating ‘such wanton dishonesty as to imply a criminal indifference to civil obligations', punitive damages are recoverable if the conduct was ‘aimed at the public generally." A party may obtain punitive damages "where the conduct constituting, accompanying, or associated with the breach of contract is first actionable as an independent tort for which compensatory damages are ordinarily available, and is sufficiently egregious under the Walker standard to warrant the additional imposition of exemplary damages."

Plaintiffs here have alleged that Defendant breached the contract. They have also alleged that Defendant waited nearly ten months to deny their claim, did so for improper reasons, and may have told a State agency some of the facts the Defendant alleged led to denying the claim. None of that conduct is the sort of egregious conduct aimed at the public that would permit punitive damages on a contract claim.

03/24/22       Ciobanu v. State Farm Fire and Casualty Company
United States District Court, E.D. New York
State Farm's Motion to Dismiss is Granted on Claims for Breach of Contract, Breach of Covenant of Good-Faith, and Consequential Losses All Due to the 2-Year Suit Limitation Condition; and GBL § 349, Negligence and Gross-Negligence Claims are also Dismissed with Prejudice

Ciobanu sued State Farm in December 2020 seeking compensation for damage to her home caused in January 2018 by a burst pipe.  Ciobanu's insurance policy provides that any lawsuit against State Farm must be brought within two years of the event causing loss or damage. Because Ms. Ciobanu brought suit after that window had closed, her claims for breach of contract, breach of the covenant of good faith, and consequential losses are time-barred. Accordingly, her complaint is dismissed. 

The policy provides that "[n]o action shall be brought unless there has been compliance with the policy provisions and the action is started within two years after the occurrence causing loss or damage."  Ciobanu asserts that her losses exceed the amount that State Farm has paid and brings "causes of action" for (i) breach of contract, (ii) "consequential losses," (iii) breach of the covenant of good faith and fair dealing, (iv) a violation of New York General Business Law § 349, (v) negligence, and (vi) gross negligence.   She filed her lawsuit two years and eleven months after the pipe burst.

Ciobanu argues that principles of New York contract law and the doctrine of equitable estoppel nevertheless permit her to bring her claims.

State Farm's motion to dismiss is granted. Ciobanu's claims for breach of contract, breach of covenant of good-faith, and "consequential losses" are time-barred. Her Section 349 claim is dismissed because she does not plausibly allege that State Farm engaged in materially misleading conduct.  Because Ciobanu's claims sound in contract, not tort, her negligence and gross-negligence claims are dismissed with prejudice. As the complaint has been dismissed, the court declines to rule on State Farm's request to preclude Ciobanu from recovering punitive damages or attorney's fees.

Fed. R. Civ. P. 12(b)(6) Standard:

Under Fed. R. Civ. P. 12(b)(6), a defendant may move to dismiss a complaint based on "failure to state a claim upon which relief can be granted." To avoid dismissal on that basis, a complaint must plead "enough facts to state a claim to relief that is plausible on its face."  "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." It requires a plaintiff to allege sufficient facts to enable the court to "draw the reasonable inference that the defendant is liable for the misconduct alleged." In evaluating a motion to dismiss under Rule 12(b)(6), the court must accept all facts alleged in the complaint as true. But it need not adopt "threadbare recitals of the elements of a cause of action" that are "supported by mere conclusory statements." 

Equitable Estoppel Standard:

Where, as here, a plaintiff seeks to invoke equitable estoppel, that claim must also satisfy the heightened pleading requirements of Fed. R. Civ. P. 9(b). Under Rule 9(b), a plaintiff must plead with "particularity" that the defendant knew that it made false statements and that it intended the plaintiff to rely on those false statements. A plaintiff may do so "through allegations of a motive to deceive and access to accurate information."  These allegations must be backed by a showing of "facts giving rise to a strong inference of fraudulent intent."  Additionally, a plaintiff must allege "the time, place, speaker and sometimes even the content of the alleged misrepresentation." 

The Policy's Two-Year Limitation on Suit Bars the Contract Claims:

Because Ciobanu brought suit eleven months after the contractual limitations period expired, the Policy's limitations provision precludes breach-of-contract, "consequential losses," and breach-of-covenant-of-good-faith claims.

Statutes of limitations promote an important "societal interest" by "`giving repose to human affairs.'"  In New York, the statute of limitations sets six years as the outside limit for bringing a breach-of-contract claim. See N.Y. C.P.L.R. § 213. However, parties to a contract may "prescribe" "a shorter time. . . by written agreement," N.Y. C.P.L.R. § 201. A provision "specifying a shorter, but reasonable, period within which to commence an action is enforceable."  New York's courts have enforced "contractual limitations periods" as short as six months.  This rule applies to insurance policies. Moreover, a contractual limitations period may apply to any claim arising under the contract, including the implied covenant of good faith and fair dealing, when it is drafted to do so. 

New York's courts have recognized two exceptions to the rule permitting parties to enforce contractual limitations periods. Where a condition precedent prevents a party from bringing suit to enforce a covered claim before the contractual limitations period has elapsed, the limitations period is deemed "unreasonable" and will not be enforced.  Moreover, under the doctrine of equitable estoppel, limitations periods may be disregarded. To invoke that doctrine, a plaintiff must show that it was "induced by the defendant's fraud, misrepresentations or deception to refrain from filing a timely action." The plaintiff's reliance on the defendant's misrepresentations must be "reasonable." 

These rules preclude Ciobanu's contract-based claims. As courts interpreting comparable provisions have found, this language bars all contractual claims brought to enforce an insurance contract after the limitations period has expired. 

As contract claims, Ciobanu's first three "causes of action" are all subject to this limitation. The first claim, which alleges that State Farm has paid only a fraction of what it promised under the Policy, is a simple breach-of-contract claim.  Her third cause of action, alleging a breach of the covenant of good faith and fair dealing implicit in insurance contracts also arises under the contract.  And her second "cause of action," for "consequential losses," is not a cause of action at all, but rather a remedy available for the alleged breach of the covenant of good faith and fair dealing. 

Ciobanu argues that the Policy's limitations provision should be disregarded because the Policy contains a condition precedent to recovery.  To set aside a contractual limitations period based on a condition precedent, the plaintiff must identify a "condition precedent that made it impossible to bring suit within the time provided by the contract." 

Ciobanu's impossibility argument relies on the Policy's Loss Settlement provision.  Because the limitations provision itself makes compliance with the Policy a condition for bringing suit, a policyholder may not sue to recover additional costs until she has repaired or replaced her property.  And since it may be impossible to complete repairs or replacement until after the end of the limitations period, a claim for additional costs may not ripen until the time to sue has already expired. Thus, Ciobanu argues that the repair-or-replace requirement constitutes a condition precedent that invalidates the limitations provision.

This argument does not persuade. It disregards the Loss Settlement provision's language limiting coverage of additional costs to those claimed within two years. This language appears to function not as a suit-limitations provision, but a substantive limit on the Policy's scope of coverage. By limiting the Policy's coverage to costs claimed within two years, this language aligns coverage with the limitations period and distinguishes this Policy from those contemplated in the cases on which Ciobanu relies. 

Moreover, Ciobanu has not explained why the repair-or-replace condition could "not be met within that two-year period."  Ciobanu's complaint contains no allegations concerning the status of any repairs, whether State Farm delayed their completion, and whether completing repairs within the two-year window was actually impossible. Finally, she has not explained why the Policy prevented her from suing State Farm within the limitations period to compel it to make those payments in a timely manner. The complaint thus fails to identify any condition precedent that prevented Ms. Ciobanu from complying with the limitations provision.

Ciobanu's argument, that equitable estoppel bars State Farm from asserting the contractual-limitations defense, fails. To estop State Farm from asserting this defense, Ciobanu must show State Farm "induced her by fraud, misrepresentations or deception to refrain from filing a timely action." But Ms. Ciobanu identifies no "fraud, misrepresentations or deception" in her Complaint. While she variously alleges that State Farm failed and refuses to pay, refused to accept proof, "delayed payment," pressured her to settle, and failed to conduct a "fair and reasonable" investigation, it is not clear how any of these actions are fraudulent or deceptive. Ciobanu fails to plead equitable estoppel.

Failure to State a Claim under General Business Law § 349:

Section 349 of New York General Business Law prohibits "deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state." To state a claim under this section, Ciobanu must allege that State Farm has engaged in (1) consumer-oriented conduct that is (2) materially misleading and that (3) she suffered injury as a result of the allegedly deceptive act or practice.  To be "materially misleading," the allegedly deceptive act or practice must involve "a representation or omission likely to mislead a reasonable consumer acting reasonably under the circumstances."  The inquiry is "objective," and a court may decide whether conduct is materially misleading as a matter of law.

Ciobanu's Section 349 claim fails because she does not plausibly allege that State Farm engaged in any "representation or omission likely to mislead a reasonable consumer."  While Ciobanu alleges that State Farm "undervalued. . . replacement costs," placed "economic pressure" on her to settle her claim, and compelled her to retain her own claims adjustor, Ciobanu does not "allege why these acts were deceptive," and "mere conclusory statements," that this conduct was "deceptive" do not make it so.

The Negligence and Gross-Negligence Claims Are Dismissed with Prejudice:

Ciobanu's negligence and gross-negligence claims fail because her allegations do not sound in tort law. While tort law vindicates the "range of legal duty which is due from every man to his fellow," contract claims enforce those obligations that would not exist but for the contracting parties' agreement.  Thus, the law distinguishes between those duties that give rise to tort liability and the obligations that a contract imposes, and one may not substitute for another. 

Ciobanu identifies no such independent duty. While Ms. Ciobanu makes certain allegations against State Farm that it owed her a duty, the only source of these obligations that Ciobanu identifies is the insurance contract. Since these obligations would not be owed absent a contractual agreement, Ms. Ciobanu cannot bring claims in tort to enforce them.  Nor do allegations that State Farm negligently performed its contractual duties salvage her claim. In New York, "claims based on negligent or grossly negligent performance of a contract are not cognizable." And while insurers may assume duties that can give rise to tort liability under certain circumstances, these circumstances are not present here. 

Since the complaint is dismissed in its entirety, the Court does not reach State Farm's motion concerning punitive damages or attorney's fees.


Katherine A. Fleming

[email protected]

04/05/22       R.S. v. United Servs. Auto. Ass’n
Supreme Court of Montana
Insurer Had No Duty to Defend Insured Based on Sexual Misconduct Exclusion in Policy Where Insured Hid Cameras in Shower

R.S. and D.S. appealed from an order denying their motion for summary judgment and granting summary judgment to United Services Automobile Association (“USAA”). R.S. and D.S. argued USAA violated its duty to defend one of its policyholders, Shawn Conrad (“Conrad”), against whom R.S. and D.S. had obtained a judgment.

R.S. is a minor. At Conrad’s home, she took a shower and discovered hidden cameras that Conrad had placed to film her in the shower. Her mother, D.S., reported the matter to law enforcement, and the federal government charged Conrad with child sexual exploitation and possession of child pornography. Conrad pleaded guilty to the possession of child pornography and was incarcerated.

Appellants subsequently filed a civil suit against Conrad, alleging Conrad invaded R.S.’s privacy and negligently or intentionally inflicting emotional distress on both R.S. and D.S. Appellants secured a $500,000 judgment against Conrad, but Conrad lacked sufficient assets to satisfy the judgment. However, Conrad had a homeowners insurance policy with USAA that included some personal liability coverage. In the civil case, USAA declined to defend Conrad against the invasion of privacy and emotional distress claims. USAA noted that Conrad’s policy described coverage for any “occurrence” that led to “bodily injury.” The policy defined an “occurrence” as “an accident,” and the clause defining “bodily injury” excluded “mental injuries such as [] emotional distress.” USAA explained that its denial was based in part on the fact that Conrad’s conduct of surreptitiously filming the child was intentional and, thus, was not an “accident” or “occurrence” and that the emotional distress claims would not count as “bodily injury.” Additionally, the policy contained a sexual misconduct exclusion that excluded personal liability and medical payments coverage for bodily injury “arising out of any actual, alleged, or threatened: (1) sexual misconduct; or (2) sexual harassment; or (3) sexual molestation.” USAA noted this exclusion would eliminate its duty to defend against injuries in the case.

As part of the $500,000 consent judgment, Conrad assigned any claims he might have against USAA to Appellants. Appellants sued USAA to collect on the judgment and alleged that USAA had violated its duty to defend Conrad in the earlier lawsuit.  Appellants argued that since Conrad did not intend for the camera to be discovered, he did not intend their resulting emotional distress, making it an “accident” and, thus, a covered “occurrence.” They noted that their amended complaint described physical symptoms resulting from the emotional distress, which would count as bodily injury. They also argued that it was ambiguous whether the phrase “arising out of sexual misconduct” would apply to Conrad’s situation and that considering this ambiguity, USAA had a duty to appear in his defense.

On appeal, the Montana Supreme Court concluded that the sexual misconduct exclusion in the policy resolved the question and eliminated the need to address Appellants’ other arguments since the clause was not ambiguous. From the viewpoint of a consumer with average intelligence not trained in the law or insurance business, sexual misconduct unambiguously encompasses an act like Conrad’s surreptitious filming. Moreover, the mother’s emotional distress arose out of the sexual misconduct rather than learning from R.S. about the sexual misconduct, so all the injuries satisfied the “arising out of” requirement of the sexual misconduct exclusion. As the factual allegations in the civil case fell squarely within the exclusion, USAA had no duty to defend Conrad.


Heather A. Sanderson

[email protected]

04/01/22       Builders Capital (2014) Ltd. and 1053011 Alberta Ltd. v. Aviva Insurance Company of Canada, 2022 ABCA 120
The Alberta Court of Appeal Affirms that Ambiguities in the Interpretation of Insurance Policies will be Resolved by Looking at the Reasonable Expectations of the Parties Tempered by What Makes Commercial Sense in the Case at Hand

The Alberta Court of Appeal issued a decision on April 1, 2022, as to the meaning of “mortgagee” under a homeowners’ policy. Of interest from a legal perspective is the method employed by that Court to resolve ambiguity in an insurance policy. Of general interest is the underlying story that is hinted at but not explained in the judgment.  The trial decision in this case is not reported. There are no news stories that I can find that tell us what happened.

What we do know is that in May of 2014, Jakub Lesnik and Alicja Opach sought out a $1.7 million dollar loan (that is what the Alberta Court of Appeal called it). The loan was to build a home in the Municipal District of Foothills 31. This MD reaches to the southern edge of the sprawling City of Calgary and is all about prairie intersected with rivers and creeks with a 180-degree panorama of the foothills of the Canadian Rockies. $1.7 million would build far more than a log cabin on the prairie.

1053011 Alberta Ltd. agreed to the loan. This numbered company changed its name to Builders Capital (2014) Ltd. Today, its website says that it is a mortgage investment company. The security for the loan was a mortgage on the property, a promissory note, and a personal guarantee by Jacek (“Jack”) Opach.  Before any funds were advanced, Builders Capital received a homeowners’ policy issued by Security National Insurance Company to which was endorsed a standard Insurance Bureau of Canada Mortgage clause listing Builders Capital as the mortgagee. The mortgage was registered against the title. A year later, the loan amount was increased to $2.1 million. Again, this was not a log cabin.

The Security National policy was replaced by another homeowners policy issued by the Mutual Fire Insurance Company of British Columbia who insured the property for one year with Lesnik and the two Opachs as named insureds and Builders Capital as the mortgagee. That policy expired.

About the time the Mutual Fire policy was expiring, Lesnick and Alicja Opach told Builders Capital that they were going to re-finance with the Royal Bank of Canada. But and this is an important “BUT”, that never happened.

On March 8, 2016, Aviva Insurance Company issued a homeowners’ policy which only named the two Opachs as the named insureds. Aviva was told that that the mortgagee was the Royal Bank of Canada.

Mutual Fire did not notify Builders Capital that their policy had expired. Builders Capital was not told that they were no longer listed on the homeowners’ policy as the mortgagee.

Then on May 4, 2016, the broker for the two Opachs asked Aviva to have Builders Capital be listed as the second mortgagee. Aviva outright refused. The Court of Appeal judgment says: “[Aviva]… further advised the broker that the Aviva Policy would be cancelled if Builders Capital was added as a second mortgage holder, and that the Insureds would be given the opportunity to “remarket the risk” or obtain alternate insurance coverage if Builders Capital was added as a second mortgage holder. In response, the broker advised the respondent that the Insureds would either cancel the Aviva Policy or do nothing, depending on whether Builders Capital was added as a second mortgage holder…”

Snippets from the unreported trial judgment that are re-produced in the Court of Appeal judgment states that Aviva would have nothing to do with Builders Capital who they regarded as a non-traditional lender – a mortgage company that they do not deal with. Then there is this statement from the trial judgment:

“When the owners, through their broker, could have advised Aviva that Builders was the only mortgagee on the property, they failed to do so. In fact, when the broker was asked, "He … [who was he? Jacek Opach?] …has the one mortgage with RBC", the broker answered, "Yeah", allowing Aviva to continue to believe that RBC was the first and only mortgagee.”

The Opachs did nothing.  Aviva did nothing.

What did the broker know? Was the broker told that RBC had taken over the financing? It is also apparent that Aviva did not check the title to the property.

Builders Capital was not told that the Aviva policy was issued and that it listed RBC as the mortgagor.

And … of course … the property was substantially damaged by fire on May 18, 2016.

On August 5, 2016, following an investigation, Aviva declared the policy to be void ab initio (from the very beginning) due to misrepresentations committed by the Opachs including a misrepresentation as to the identity of their mortgage lender.

Three months later, Builders Capital sued Aviva for the policy proceeds on the basis that they are actual mortgagee under the mortgage clause. Aviva defended stating that Builders’ Capital is not party to the Aviva Policy.  Inexplicably, Builders Capital did not sue Mutual Fire. No one third parties the broker. Did the broker owe a duty of care to Builders’ Capital? Did the broker know that RBC did not have a financial interest in the property?

Those tantalizing questions were not before the Court of Appeal. Rather, the sole question before them was “Who is the mortgagee under the Aviva Policy?”

The Court held that as Mortgagee is capitalized throughout the mortgage clause it refers to a specific mortgagee rather than a generic mortgagee.  But could ‘mortagee’ include another unidentified mortgagee who is protected against the act, neglect or omission of the mortgagor (which, of course the foundation of the covenant between Aviva and any mortgagee)?

A separate and distinct contract is formed between the insurer and the mortgagee when a mortgagee insures its interest in a property through the agency of the mortgagor by way of the Standard Mortgage Clause. This two-contract theory was adopted by the Supreme Court of Canada to reflect what insurers and mortgagees reasonably understood the qualifying language of the Standard Mortgage Clause to say: “... that the mortgagee’s insurance was dependent for its validity solely upon the course of action of the insurance company and the mortgagee, and thus unaffected by any act or neglect of the mortgagor of which the mortgagee is ignorant. However, in this case, Aviva never intended to enter into another contract with Builders Capital. In the context of this case, at the time the Aviva policy was issued, Builders Capital had no expectation of coverage as they did not know about the change in insurer, and they did not enter into a contract with Aviva. In these circumstances, it does not make commercial sense to interpret mortgagee as a generic mortgagee.  Builders Capital could have sued Mutual Fire but did not. Builders Capital was not without a remedy.

This decision affirms that Canadian courts will look to reasonable expectations of the parties to an insurance policy when resolving ambiguity but, in all cases, those expectations will be tempered with judgment as to whether the interpretation advocated makes commercial sense.


03/31/22       MDS Inc. v. Factory Mutual Ins. Company, COB FM Global, 2022 CanLII 23899 (S.C.C.)
Supreme Court of Canada
Striking a Blow to Ongoing COVID-19 Business Interruption Claims, the Supreme Court of Canada Refused Leave to Appeal in MDS. Therefore, in a Commercial Property All-Risk Policy, Loss of Use is Not “physical damage” as it is Not a “distinct, demonstrable, physical alteration of the property”

This long running legal saga arising from the unexpected shut down in May 2009 of the Chalk River, Ontario nuclear reactor has now ended. On March 31, 2022, the Supreme Court of Canada refused leave to appeal from the September 3, 2021, decision of the Ontario Court of Appeal in this case. As a result, at the present time, in Canada, “loss of use” is not physical damage under a commercial all-risk policy as it is not a “distinct, demonstrable, physical alteration of the property.” 

For a discussion of the March 2020 trial decision in this case, see Volume XXI, No. 26 (No. 565) Friday, June 12, 2020, of this newsletter. For a discussion of the Court of Appeal decision, see Volume XXIII, No. 9, Friday, October 15, 2021, of this newsletter.

Newsletter Sign Up