Coverage Pointers - Volume XXIII, No. 5

Friday, August 20th, 2021

Volume XXIII, No. 5 (No. 597)
Friday, August 20, 2021
A Biweekly Electronic Newsletter
 

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

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

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

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

 

Dear Coverage Pointers Subscribers:

Do you have a situation?  We love situations.  We love being back in Canada.  This is our inaugural photo from the Land of the Blue Martinis, our first admission to our northern neighbo(u)r in 16 months.  We did have a welcoming cocktail:

Hey, by the way, speaking of Canada, don’t miss Heather Sanderson’s “North of the Border” column in our newsletter and congrats to her on her re-election to the Federation of Defense & Corporate Counsel Board of Directors.  And while I’m at it, kudos to Craig Marvinney on his election to the position of Secretary Treasurer of the FDCC.  He will assume the presidency in two years. I am sure that their position as column editor and subscriber, respectively, played a huge role in their success!  Perhaps not.

 

Return the Traveling Fool …

We returned from a 16-day sojourn down south, attending the Federation of Defense & Corporate Counsel meeting at the Greenbrier in West Virginia (where I joined a COVID-19 Coverage panel) and then the Association of Defense Counsel Annual Meeting in Asheville, North Carolina (where I presented on  “Protective Lives through the Rule of Law”). The transcripts of those remarks, which explains how the Rule of Law permitted me to become the first member of my family to be born in the United States, is available here.

It’s nice to be home.  Wednesday’s CLE presentation, for the New York State Bar Association was entitled “What Every Trial Lawyer Needs to Know about Insurance”.

The courts remain quietish while on summer slowdown.  What can we discuss here?

 

Child Victims Act – The Window has Closed for Child Victims Claims; Now Let the Coverage Litigation Move Forward:

As you may know, the window to commence Child Victims Act cases has shut down, as of Saturday, but the coverage issues remain to be resolved. 

We were fortunate to win, what we believe, is the first late notice CVA case in the state this week, involving the Cattaraugus-Little Valley School District, here in western New York.  Read all about it in C.J.’s column and Lee Siegel and C.J. play important roles in securing summary judgment in favor of our client, Graphic Arts Mutual.

 

We’re Proud of This:  21 Hurwitz & Fine Attorneys Recognized by Best Lawyers in America® and Best Lawyers: Ones to Watch

Hurwitz & Fine is pleased to announce that 21 of the firm’s attorneys across our multiple offices have been selected by their peers for inclusion in the 2022 edition of The Best Lawyers in America©.  In addition, attorney Ann E. Evanko was named the Best Lawyers 2022 Mediation "Lawyer of the Year" in Buffalo. Six Hurwitz & Fine attorneys were included in the inaugural edition of the Best Lawyers: Ones to Watch.

The attorneys named to the 2022 edition of The Best Lawyers in America and the practice areas they were honored for are as follows, in alpha order:

(Year) First year the lawyer was listed in the published practice area.
(*) Lawyers who are listed for the first time in Best Lawyers.
[#] Anniversary for which lawyer is eligible (5, 10, 15, 20, 25, or 30 years).


Six Hurwitz & Fine attorneys were named to the “Ones to Watch” list:


Since it was first published in 1983, Best Lawyers® has become universally regarded as the definitive guide to legal excellence. Best Lawyers lists are compiled based on an exhaustive peer-review evaluation. Almost 108,000 industry leading lawyers are eligible to vote (from around the world), and this year, they received over 13 million evaluations on the legal abilities of other lawyers based on their specific practice areas around the world. For the 2022 Edition of The Best Lawyers in America©, more than 10 million votes were analyzed, which resulted in more than 66,000 leading lawyers being included in the new edition. Lawyers are not required or allowed to pay a fee to be listed; therefore inclusion in Best Lawyers is considered a singular honor.

 

Advance Notice:

Registration Opening Soon

More information: 

Micalann C. Pepe
[email protected]

 

Federation of Defense & Corporate Counsel

Insurance Industry Institute

November 3-5, 2021

Sheraton Times Square,
New York City

(Hotel Reservations Available)

 

Topics include:

Insurance Industry Operations: Challenges and Solutions

Market Resilience

Parametric Insurance

New York Coverage Presentation (your truly presenting)

The New Juror /Nuclear Verdicts

Legislative Update

COVID Fraud Claims

Mass Torts and TPLF

The Value Prospect for DEI

Montrose III: Updates on Exhaustion

Updates on Extracontractual Issues

 

 

 

Happy Birthday Mom:

My mother lived a good long life, passing away just after her 95th birthday.  She would have turned 100 on August 24.  Happy birthday, mom.

 

Newsletters:      

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

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

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

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

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

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

     

    ruMIRNAtions:

    It has been a dreary, rainy couple of days in beautiful Putnam County—a sure sign that summer is almost over. That and the return of Pumpkin Spice in, well, everything.

    With the kids heading back to school soon, many employers are setting dates for their employees to return to the office. A few weeks ago, I discussed the pitfalls and inequity that could arise for BIPoC employees in the “return to office” endeavors. In this edition of Coverage Pointers, I want to speak a little bit about LGBTQ+ rights and how we can make our LGBTQ+ brethren feel supported and heard in the workplace.

    I hope you enjoy the article—I’m off to get a Pumpkin Spice latte…

    Mirna
    Mirna M. Santiago
    [email protected]

     

    Good Idea, but Not Adopted Until the Adoption of the 20th Amendment in 1933:

New-York Tribune
New York, New York
20 Aug 1921

Lawyers Urge Inauguration
Of Presidents in January

          CINCINNATI, Aug. 14.—Advance of the Presidential inauguration from March 4 to the third Monday in January is recommended by a special committee of the American Bar Association, which will report to its convention opening here August 30.  The committee also advises that the Congress elected in November meet on the second Monday of the following January.

          The ground for the proposed changes is that too much time elapses between election and inauguration and convening of Congress.  The report calls attention to a bill of Senator Ashurnt providing for similar alterations.

 

Peiper on Property and Potpourri:

Two weeks, and history repeats itself.  Still nothing on my beat.  I am sure there are decisions just around the corner, but for this beautiful Summer day we’ll just bask in the status quo.

If you have the itch to get out to a conference, in person, we’d encourage you to jump back in at the PLRB Regional Conference September 8th and 9th in Columbus. Ohio is not far from anywhere, and the program is, as always, varied and top notch. I will be speaking on how, once and for all, to interpret work product exclusions. If you’re going already, please stop and say hi. If not, there’s still plenty of time to sign up.

That’s it for this week.   See you in September.

Steve
Steven E. Peiper
[email protected]

 

Editor’s Note:  Steve is with his family at Hershey Park.  I had offered you a KISS on his behalf, before he inserted his letter and removed it.  I have the power of the last edit, so I’m returning it to you:
 

 

Toeing the Line, 100 Years Ago:

Daily News
New York, New York
20 Aug 1921

Boys’ Extra Toes Cut off to
Avoid Nickname.

          Chicago, Aug. 19.—Willie Diekyns, whom nature endowed with twelve toes, couldn’t stand the gaff from the other boys.  He was operated on today and the two extra toes removed.

          “The kids used to call me ‘Ducky’ when I went swimming, and when I wore shoes they called me ‘Big Feet,’” Willie told Dr. Karl Meyer.  “Those toes took up a lot of room.”

 

Wilewicz’ Wide-World of Coverage:

Swamped this week, as we enter these last sunny weeks of summer. See you all in September!

Best,

Agnes
Agnes A. Wilewicz
[email protected]

 

A Rather Fishy Lawyer:

The Buffalo Enquirer
Buffalo, New York
20 Aug 1921

LAWYER GETS PNEUMONIA
FROM FISH HOOK WOUND

(Special Telegram to The Enquirer.)

          Olean, Aug. 20.—As the result of the hook running into his hand while taking a fish from his line at Cuba lake, Hugh A. Cobb, Olean lawyer, is seriously ill at his home here.  Blood poisoning from the wound caused by the fish-hook brought on pneumonia and Mr. Cobb’s condition is reported as very serious.

EDITOR’S NOTE:  Attorney Cobb survived, and kept fishing until his death in 1937.

 

Barnas on Bad Faith:

Hello again:

I am having a hard time believing that it will be September by the time of our next issue.  The summer really has flown by.  I am off to Chicago this weekend to visit a couple of old friends for the first time since the pandemic.  The Bills just happen to be playing a preseason game at Soldier Field on Saturday.  Nobody seems to believe me that I am not going there specifically for this reason; it just happened to work out that way.  I might be a bit of a crazy Bills fan, but I am not in the “traveling specifically for preseason games” level of commitment.  That said, of course we are going to the game.  Draw your own conclusions.  I am looking forward to checking out Soldier Field.

I really enjoyed watching MLB’s Field of Dreams game last week.  Everything about it, from the Kevin Costner opening to the Tim Anderson walk off home run into the corn to beat the Yankees, was perfect.  It prompted me to watch the movie once again this past weekend.  It really is a great baseball movie.  I have it in my triumvirate of all time baseball movies along with The Natural and Major League.  Sincere apologies to Bull Durham, A League of their Own, Eight Men Out, Moneyball, and The Sandlot, which all fall into my second level of excellent baseball movies.

I have another bad faith case from the Southern District of New York in my column this week.  The court dismissed a claim seeking first party coverage for COVID-19 related expenses and losses.  It also dismissed the claim for breach of the implied covenant of good faith and fair dealing as duplicative of the breach of contract claim.

That’s all for now. 

Brian
Brian D. Barnas
[email protected]

 

Hope it is Still for Sale:

The Orlando Sentinel
Orlando, Florida
20 Aug 1921

          ANY PERSON  that has any desire or any intention of purchasing an orange grove in the state of Florida, make inquiries at once in reference to this one.  We have been authorized to sell 190 acres of the finest kind of land of which fifty-seven acres is in grove, mostly all big budded bearing trees, about ten acres of this is in Valencia late, above five acres set to large tangerine trees.  The price of this property including all buildings, team of mules, tools, etc., is $35,000.00’ $10,000.00 cash balance one, two, three and four years at six per cent (6%).  Coggin & McKibben Real Estate Company, office 3 East Pine St., Phillips Theatre Blook, Telephone 1052. 

 

Off the Mark:

Dear Readers,

The kids are enjoying their last camp for the summer and are looking forward to our vacation at the end of the summer.  This summer has been flying by and it seems like we have something going every weekend.  Last weekend we went to a friend’s house for a barbeque and the kids and I spent an entire day in the pool.  This week, my sister and her family are here visiting from South Carolina.  I’m sure there will be some more barbequing involved and maybe a beach day.  Whatever we end up doing, it will be great to see them.

Although there have not been many construction defect decisions lately, this edition of “Off the Mark” brings you two construction defect cases to discuss.  The first decision is from the United States District Court for the Central District of California.  In Bestland, Inc. v. Colony Ins. Co., the Court examined an insurer’s duty to defend where its insured accidentally damaged a neighboring property while constructing a house.  The Court held that the carrier had no duty to defend as the term “accident” does not apply where an intentional act results in unintended harm.  The second case is from the United States Court of Appeals for the Fifth District.  In Kinsale Ins. Co. v. McBride Operating L.L.C., the United States Court of Appeals affirmed the district court’s finding that the j(5) exclusion barred coverage for damages resulting from the construction of a defective well.

Until next time …

Brian
Brian F. Mark
[email protected]

 

Judicial Derision, 100 Years Ago:

The Evening World
New York, New York
20 Aug 1921

SHE IS “HUMAN BUZZ SAW.”
Woman Flings Biscuits at Judge
When Husband Is Fined.

          Mrs. Michael Pontus of Manville, N.J., described by Sheriff Bogart Conkling as a “human buzz saw,” stopped the machinery of Judge Frank Cleary’s court at Somerville, N. J., yesterday afternoon.  She bombarded court officers with biscuits as a protest against a $100 fine imposed upon her husband for selling liquor.

          Pontus was about to pay the fine when his wife drew him back and berated him and the court.  She had brought her luncheon in a paper bag and she hurled the contents about the room.  Her marksmanship was good.  Judge Cleary sent her to the county jail for contempt, but later directed her release after Sheriff Conklin and other officers reported that in removing her she had almost torn the clothing off their backs. 

 

Boron’s Benchmarks:

On vacation.

Eric
Eric T. Boron
[email protected]

 

Insurance Fraud Ain’t New:

The Buffalo Enquirer
Buffalo, New York
20 Aug 2021

Used Unique System In Alleged
Swindle of Insurance Funds

Arthur Ollson, $50-a-Week Clerk,
Said to Have Secured $100,000
Through Forgeries While in
Employ of Metropolitan Life Co.

(By the United Press.)

          New York, August 26.—Arthur E. Ollson, 26, was declared by police today to be the world’s fastest forger.

          This championship was awarded Ollson when it was alleged that, working as a $50-a-week clerk for the Metropolitan Life Insurance Co., he stole $100,000 in less than a month.

          Ollson’s alleged system, described by the police as unique, was said to have been to issue duplicate warrants for loans requisitioned by the company’s clients, and then to check against these after depositing them in banks.  These checks, it was said, were in turn deposited in other banks under various assumed names.  According to the police, Ollson forged the name of C. Fred Johnson, wealthy Shoe manufacturer of Binghamton, N.Y. on one of the warrants.  It was an alleged discrepancy in the signature which led to his arrest.  He was apprehended in Stamford, N. Y., as he was starting on his vacation in an expensive automobile.  More than $90,000 has been recovered.  He has a wife and two children. 

 

Ryan’s Capital Roundup:

Hello Loyal Coverage Pointers Subscribers:

NFL training camp is great, but preseason football just hits different. What’s better? Regular season football. Better than that? Playoffs. Did somebody say Super Bowl? #BillsByABillion

This week, I have provided some more information regarding the final adoption of amendments to 11 NYCRR 25 (Regulation 10) concerning public adjusters. Specifically, changes have been made to regulations concerning compensation for referrals.

Until next time,

Ryan
Ryan P. Maxwell
[email protected]

 

German Government Refuses to Acknowledge it Started WWI:

The Buffalo Enquirer
Buffalo, New York
20 Aug 1921

GERMANY WON’T ADMIT
GUILT IN STARTING WAR

(By the United Press.)

          Berlin, Aug. 20.—Germany may appeal many of the issues contained in the German-American peace treaty to international arbitration.

          The treaty, it was learned, does not contain a declaration of Germany’s guilt in starting the war.  Germany would have flatly refused to sign, had such an admission been included. 

 

CJ on CVA and USDC(NY):

Hello all,

The unending march of time continues and another issue of CP comes direct to your inboxes. Between work, family, and trying to squeeze in some waterskiing, the two weeks between issues seems to get shorter and shorter. While I do not have much to report on the personal front, the CVA world is abuzz.

First in CVA news, the look-back period is closed as of 11:59pm August 13, 2021. Discussing this with my colleagues some questions remain unanswered. One of the most interesting things to think about is whether or not plaintiffs/claimants will be granted leave to amend their complaints to add additional defendants. While this may seem like a workaround to having missed the filing deadline, I would not be surprised to see a considerable amount of leeway is granted in this regard.

Next on the CVA docket is my offering for this issue. Hurwitz & Fine successfully defeated a motion for summary judgement on behalf of our client, Graphic Arts Mutual Insurance Company, seeking a declaration that Graphic Arts owed the Cattaraugus-Little Valley Central School District a defense and indemnity related to a CVA lawsuit brought against the District. Our team pointed out to the court that the District had all of the information necessary to determine a wrongful act had occurred and that the District failed to timely report the same to Utica. We also successfully argued that to disclaim a claim based upon late notice brought under a policy written on a three-year term, beginning prior to January 17, 2009, is not subject to the requirement for a carrier to show it was prejudiced due to the late notice of claim, and that an Abuse or Molestation Coverage form is a separate cover and subject only to its express terms and conditions. As the decision is not yet available online, if you would like a copy please email me.

See you in two weeks,

CJ
Charles J. Englert, III
[email protected]      

 

Canada Cuts of Kids’ Vacations – 100 Years Ago:

Buffalo Evening News
Buffalo, New York
20 Aug 1921

Too Much Play Not
Likely in This Burg

          NIAGARA-ON-THE-LAKE, Ont., Aug. 20.—The public school board here considers the element of time an important factor in child education.  Realizing that too much holidaying cuts off opportunity of many a child to get all the instruction he should, the board announced today it has decided this year to open the public schools on Thursday, September 1, instead of waiting until the day after Labor day, as customary.

 

Dishing Out Serious Injury Threshold:

Dear Readers,

Hope everyone is enjoying their August and is getting some time to enjoy the outdoors and the warm weather as we approach the end of summer.

In the Serious Injury Threshold world, there has been a slowdown in cases being decided in these summer months. However, in Reddick v. Hickey the Appellate Court found that the Supreme Court erred in granting defendant’s motion and, in fact, found that defendant failed to even meet their initial burden.

Be well,

Michael
Michael J. Dischley
[email protected]  

 

Now it is Prescription Marijuana, Then Prescription Beer:

The Buffalo Times
Buffalo, New York
20 Aug 1921

Beer Situation
in a Nutshell

          WASHINGTON, Aug. 19. – Here’s today’s situation on beer as medicine.

          The Treasury Department has ready for promulgation regulations to allow manufacture of beer as medicine.

          A bill forbidding manufacture of beer as medicine is tied up in Congress by a disagreement between House and Senate.  The regulations are held up there until the treasury finds whether the prohibitionary law will be passed.

          If it is not passed before the congressional recess next week the regulations will be issued and medicinal beer will become available. 

 

Bucci on “B”: 

Hello Readers,

How are you all?  I hope well because the beautiful month of September is on the way.  It’s a fantastic month not just because I was born in it. 

I found one case today that addresses the offenses of disparagement of goods, products, or services and use of another’s advertising idea in your advertisement.  Coincidently, I’m coauthoring an article primarily about implied disparagement.  I argue that a derogatory statement is necessary in order to establish disparagement.  This court agreed.  It held that disparagement did not occur because the insured could not identify any derogatory statements regarding goods, products, or services.  Whether that is correct in this case is a question, but either way, the reasoning is sound.  One cannot disparage another’s goods, products, or services without making a disparaging statement, whether written or oral. It’s hard to be right all the time.  Exhausting!

See you next time.  

Diane
Diane L. Bucci
[email protected]

 

Postal Officials Ordered to be Nice to Customers – a Century Ago:

The New York Times
New York, New York
20 Aug 1921

Hays Order Postal Employees
To Treat Public Courteously

Special to The New York Times.

          WASHINGTON, Aug. 19.—Courtesy is a word that must appear in the lexicon of every postal employee under an order just issued by Postmaster General Hays.

          “Proper courtesy,” says the order, “does not retard but expedites business, and the employee who exercises unfailingly courtesy throughout each hour of each day’s work renders more in service than can be measured as ‘hours on duty.’  The department thanks every postal worker for every courteous ‘thank you’ expressed to patrons, and especially for every ‘thank you’ earned from the public by intelligent and courteous service rendered.”

          Employees who serve the public at windows are forbidden to engage in unnecessary conversation, and are told to answer inquiries civilly and to the fullest extent permitted.

 

Lee’s Connecticut Chronicles:

Gone Fishing!

Lee
Lee S. Siegel
[email protected]      

 

Lynching Still Commonplace a Hundred Years Ago:

The Yonkers Herald
Yonkers, New York
20 Aug 1921

20 HURT AS MOB STORMS
JAIL TO TAKE NEGRO

          Knoxville, Tenn., Aug. 20th—More than a score of persons, most of whom were merely spectators drawn by curiosity, are suffering from gun-shot wounds here today as the result of an attempt here last night to storm the Knox County jail and lynch Frank Martin, negro suspect held as the assailant of a young white woman Thursday.  Sheriff’s deputies fired when a crowd attempted to storm the jail and crossed an imaginary deadline which had been drawn by the Sheriff.

          A machine gun company, mobilized two days ago, was on guard at the jail, but did not fire.  Firing came from the deputies and was returned by armed men in the crowd.  One deputy was wounded. 

 

Rauh’s Ramblings:

Dear Readers,

It has been a very busy week for me while I catch up on my workload after being out for two weeks.  I’m sure you can all relate to that stressful feeling when you first check your inbox on Monday morning after being out of the office – way too many emails!! Although I am mostly caught up as far as emails go, I do not have a case to report on this week, but I will definitely have something to report on next time!

I hope everyone is enjoying the last month of summer.  While I do love the sunshine and warmth, the humidity this summer has been too much for me.  I am ready for cooler days and the start of football season!  Take care everyone, see you in two weeks!

Patty
Patricia A. Rauh
[email protected]

         

Juvenile Delinquent Spared the Rod:

The Yonkers Herald
Yonkers, New York
20 Aug 1921

ARRAIGN BOY WHO
SENT FALSE ALARMS

          Emilio Folasco, aged 11, of 67 School street, who admitted to the police on Wednesday last that he had sent five false alarms from Box 126 on School street, was released under a suspended sentence this morning when he pleaded guilty to a charge of juvenile delinquency.  His father appeared in court with him.

          The boy was arrested by Patrolman Frank Sacowicz of the first precinct police after Chief James J. Mulcahey of the fire department had complained of the false alarms.  The police for a time thought the signal was short circuited. 

 

Storm’s SIU Examen:

Hi everyone:

Only one case this time because it has been a busy week, and I’m headed to Cedar Point for a couple days of roller coasters – here I come Millennium Force! 

In the case we will examine, summary judgment was granted to an insurer in Pennsylvania on the interpretation of an exclusion in a homeowner's policy for damage caused by “faulty workmanship” with respect to a first-party property claim.   Among other positive aspects of the case, the plaintiff attempted to rely on the interpretation of a similarly worded exclusion in a CGL policy.  However, the Court recognized that analysis pertaining to a CGL policy had no applicability here. It addresses an entirely different form of coverage and is structured in a different way. 

We see this way too often, that courts incorrectly borrow the interpretation of liability policy language and apply it to first-party policies.  Fortunately, this court knew better.  Make sure your legal counsel is not making this mistake in your motion papers! 

This week’s encouraging word -- “If you have a positive attitude and constantly strive to give your best effort, eventually you will overcome your immediate problems and find you are ready for greater challenges.” ~ Pat Riley

If we are not yet friends on LinkedIn, connect with me!

Talk to you in two weeks,

Scott
Scott D. Storm
[email protected]

 

Scam Artists Even Then:

The Brooklyn Daily Eagle
Brooklyn, New York
20 Aug 1921

BEWARE OF YOUTH WHO
WANTS TO GIVE YOU $10

          A young man is making the rounds of apartment houses in Brooklyn offering gullible housewives $10 bills free.

          His method is to yell up a dumbwaiter shaft of a house where at least one family has gone away for a vacation.  When some neighbor answers the young man explains that he comes from the laundry around the corner and that he has found $10 in the wash of Mrs. Smith which she sent there before going away.  Would the kind neighbor be so good as to keep the $10 until Mrs. Smith returns?  The kind neighbor agrees, and the young many sends a bill up the dumbwaiter.  It turns out to be for $20 instead of $10.  The young man explains that he has no smaller denomination and would she be so good as to send down the change?  She does and only after attempting to use the $20 bill later does she discover that it’s counterfeit.

          Several women have thus been buncoed, although in at least one case the young man was on the verge of discovery when he fled with his $20 bill still in his possession. 

 

Heintzman’s Hideout:

Dear Readers:

Last weekend I finally travelled from Buffalo to my hometown of Waterloo, Ontario. I had not been in Canada since I started at Hurwitz in October 2020. It felt great to be home and see family and friends. On my trips home, I always fret that I do not spend enough time with everyone. This trip, my strategy was visiting my dad and sister until they went to bed (they retire early). Then, once they were peacefully dozing, I visited with my comparatively nocturnal friends. The strategy worked well, however, the family cat, Bella, made it clear she felt neglected. She made me feel very guilty about leaving on Sunday. Hopefully I get home again soon and prioritize visiting Bella.

Only one case this week:  New York County Court dismissed an insurer’s declaratory judgment action seeking additional insured coverage from another insurer where plaintiff in underlying action was an employee of, but not injured by, the putative additional insured.

Nick
Nicholas J. Heintzman
[email protected]

 

Crystal Beach Amusement Park – a Western New York and Southern Ontario Favorite:

Buffalo Evening News
Buffalo, New York
20 Aug 1921

Oh Boy!  Orphans Expecting
Great Time at “News” Outing

Youngsters Will Enjoy All Pleasures of Crystal Beach and
Concessions August 30—Everything Will Be Free

          “For the past four weeks our children have been looking forward to the NEWS outing, wondering when it would come off,” writes Sister M. Anselm, superintendent of the German R. C. Orphan asylum, in accepting the invitation for the youngsters at this institution to take part in the annual orphans’ outing to Crystal Beach to be conducted by the NEWS August 30.

          And that’s the way it is in every institution housing the little unfortunates.  The children know from other years that they are assured of one grand and glorious good time.  It’s an event that will be fresh in their memories until another year rolls around with its orphans’ outing …

 

North of the Border: 

There are almost three dozen out of control wildfires burning in British Columbia. Several hundred others are “under control” and burning. The Globe & Mail reported that the destruction from these fires is four times greater than the 10-year average. The Village of Lytton was destroyed. Others have been partially destroyed. Main highways in the province have closed intermittently. Merritt and Armstrong have been placed on evacuation alert.  Smoke from these fires has wafted across the Rockies and settled over Southern Alberta. For weeks now we have been living in smoke. On Monday, it was particularly bad. We could taste the smoke and see it in the air. Visibility was severely restricted. Then yesterday is started to rain. Joyous rain. It poured. For a day and a half. This morning, the sky was blue. Blessedly blue. But our thoughts are still with British Columbia’s perilous situation. Climate change is real. Out of control wildfires is likely a summer fixture.

These wildfires were the backdrop to our discussions as to whether to replace our aging 2013 Jeep Wrangler with a 2021 Hybrid Jeep. The cost of operating a regular ICE engine and a hybrid are quite evenly balanced. However, we opted for the hybrid as it is the right thing to do. We now plug in our vehicle and it is not because we need the block heater. It is very strange and weird to silently drive to fetch groceries leaving a minimal carbon footprint. 

Heather
Heather Sanderson
[email protected]

 

Headlines from this week’s issue, attached:

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

  • Fraudulent Judgment for No Fault Benefits will Not Enforced

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

  • Waiting for the appellate courts to return to active duty.

 

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

  • Defendant Failed to Meet Prima Facie Burden as Physician who Opined as Expert Found Significant Limitations in Range of Motion

 

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

  • See you in September.

     

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

  • Claim for Breach of the Implied Covenant of Good Faith and Fair Dealing Arising from COVID-19 Claim was Dismissed as Duplicative of Breach of Contract

 

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

  • Gone fishing.

     

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

  • No Implied Disparagement, No Use of Another’s Advertising Idea

 

OFF THE MARK
Brian F. Mark
[email protected]

  • U.S. District Court Finds No “Occurrence” Where Intentional Act Results in Unintended Harm

  • U.S. Court of Appeals Finds j(5) Exclusion applicable to Construction of a Defective Well

 

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

  • On vacation.

 

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

  • Final Adoption of Regulatory Amendment To Reflect Existing Insurance Law Regarding Public Adjuster Referral Compensation

 

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

  • Knowledge of an Inappropriate Relationship Between a Teacher and Student Constitutes Knowledge of a “Wrongful Act” as Defined in an Abuse and Molestation Coverage Part

 

RAUH’S RAMBLINGS
Patricia A. Rauh
[email protected]

  • No Cases to Report on this Week.  Check Back in Two Weeks.

     

ruMIRNAtions
Mirna. M. Santiago
[email protected]

  • Let’s Talk About LGBTQ+ Rights and Inclusion in the Workplace, Shall We?

     

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

  • Summary Judgment for Insurer on the Interpretation of an Exclusion in a Homeowner's Policy for Damage Caused by "Faulty Workmanship" with Respect to 1st-Party Property Claim

     

HEINTZMAN’S HIDEOUT
Nicholas J. Heintzman
[email protected]

  • Court Dismisses Insurer’s Declaratory Judgment Action Seeking Additional Insured Coverage from Another Insurer where Plaintiff in Underlying Action was Employee of, but not Injured by, Putative Additional Insured

 

NORTH OF THE BORDER
Heather Sanderson
[email protected]

  • Starting the Limitation Clock: The Supreme Court of Canada Defines “Discoverability”

 

 

That’s all there is and there is no more.  Stand by for a few more weeks until the courts come roaring back …

Dan

 

 

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

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


NEWSLETTER EDITOR
Dan D. Kohane
[email protected]

ASSOCIATE EDITOR
Agnes A. Wilewicz
[email protected]

ASSISTANT EDITOR
Patricia A. Rauh
[email protected]

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

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

Michael F. Perley
Agnieszka A. Wilewicz
Lee S. Siegel
Brian F. Mark
Diane L. Bucci
Mirna Martinez Santiago
Scott D. Storm
Thomas Casella
Brian D. Barnas
Eric T. Boron
Ryan P. Maxwell
Charles J. Englert
Patricia A. Rauh
Nicholas J. Heintzman
Diane F. Bosse
Joel R. Appelbaum

 

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

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

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

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

Mirna Martinez Santiago
Diane F. Bosse
 

Topical Index

Kohane’s Coverage Corner

Peiper on Property and Potpourri
Dishing out Serious Injury Threshold

Wilewicz’s Wide World of Coverage

Barnas on Bad Faith

Lee’s Connecticut Chronicles

Off the Mark

Boron’s Benchmarks

Bucci on “B”

Ryan’s Capital Roundup

CJ on CVA and USDC(NY)

Rauh’s Ramblings

ruMIRNAtions

Storm’s SIU Examen

Heintzman’s Hideout

North of the Border

 

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

08/18/21       State Farm Mutual Automobile Insurance Co. v. Anikeyeva
Appellate Division, Second Department
Fraudulent Judgment for No Fault Benefits Will Not Enforced
In March 2010, in response to a number of no-fault insurance collection actions commenced against it by Anikeyeva and others, State Farm commenced a lawsuit against those defendant professional corporations (“PC Defendants”), seeking a judgment declaring that the PC Defendants were not entitled to collect no fault benefits because the PC Defendants were illegal formed under New York law.

In November 2010, the PC Defendants’ answers were conditionally stricken because they failed to comply with certain discovery demands.  Later, State Farm’s motion to enter a default judgment against those defendants was granted, declaring In November 2012, the defendants' answer in this action was conditionally stricken unless that that the PC defendants were unlawfully incorporated and were not entitled to collect no-fault benefits. That order was previously affirmed by the Second Department.

In 2013, the defendant Andrey Anikeyeva pleaded guilty to federal charges involving health care fraud and mail fraud resulting from his role in operating acupuncture clinics via professional corporations which were not owned and controlled by a licensed acupuncturist as required by New York law. Anikeyeva was sentenced to a term of imprisonment of 3½ years and ordered to pay restitution in excess of $4 million.

Among the clinics involved in the fraudulent scheme was the defendant New Era Acupuncture, P.C. (hereinafter New Era). In 2017, New Era attempted to enforce against State Farm a 2010 judgment New Era had obtained in a Civil Court action entitled New Era Acupuncture, P.C. v State Farm Mut. Auto. Ins. Co. (hereinafter the O'Neal action/the O'Neal judgment). In response, here, by proffering evidence of the federal prosecution against Anikeyeva, State Farm met its burden of demonstrating that the defendants obtained the O'Neal judgment as part of "'a larger fraudulent scheme” and accordingly, the New Era judgment would not be enforced.

 

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

Again, nothing new to report.

 

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

08/11/21       Gregory Reddick v. Terrence Hickey
Appellate Division, Second Department
Defendant Failed to Meet Prima Facie Burden as Physician who Opined as Expert Found Significant Limitations in Range of Motion

This appeal was from an order of the Supreme Court Supreme Court, Queens County (Allan B. Weiss, J.), entered December 23, 2019, which granted 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 appeals from the judgment.

On May 4, 2016, a vehicle operated by the defendant Terrence Hickey and owned by the defendant Hallen Construction, Inc., allegedly came into contact with a wire cable, causing the wire cable to collapse and strike the plaintiff. The plaintiff commenced this action to recover damages for personal injuries that he allegedly sustained in the accident.

The Appellate Court found that the defendants failed to meet 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 subject accident. Specifically, the defendants failed to submit competent medical evidence establishing, prima facie, that the plaintiff did not sustain a serious injury to the cervical region of his spine under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d), as their expert found significant limitations in the range of motion of this body part. Further, the defendants failed to establish, prima facie, that the alleged injury to the cervical region of the plaintiff's spine was not caused by the subject accident.

Therefore, the Appellate Court found that the defendants failed to meet their prima facie burden, it is unnecessary to determine whether the papers submitted by the plaintiff in opposition were sufficient to raise a triable issue of fact.

Accordingly, the Appellate Court found that the Supreme Court improperly granted the defendants' motion for summary judgment dismissing the complaint.

 

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

 

See you in September.

 

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

07/26/21       Northwell Health, Inc. v. Lexington Ins. Co.
United States District Court, Southern District of New York
Claim for Breach of the Implied Covenant of Good Faith and Fair Dealing Arising from COVID-19 Claim was Dismissed as Duplicative of Breach of Contract

Northwell is a large, New York-based healthcare provider.  It purchased two all-risk commercial insurance policies (the “Policies”) from Lexington and Interstate (the “Insurers”).  The Policies provide “Time Element” coverage for lost earnings from the necessary “suspension” of business activities at an insured location, if the suspension is caused by “direct physical loss of or damage to Covered Property caused by Covered Cause of Loss.  As relevant here, a suspension is defined as “the slowdown or cessation of the Insured's business activities.”

Northwell remained operational during the COVID-19 pandemic.  Northwell claims it faced an enormous number of cases and that some of its facilities were overflowing.  Northwell estimates it cared for over 100,000 COVID-19 patients, and that this care entailed significant new costs, including additional cleaning supplies, janitorial services, and hiring new employees and vendors to sanitize.  Northwell also allegedly sustained significant losses, including the forced cessation of elective surgeries, closing of physician’s practices, and fewer hospital admissions and visits to or uses of Northwell’s other medical facilities.

Northwell submitted a claim to the Insurers for reimbursement of its COVID-19 related costs and losses.  Six months later, the Insurers informed Northwell that the claim was not covered and also denied coverage based on an exclusion to the Policies’ Communicable Diseases coverage.  Northwell asked the Insurers to reconsider, but they declined to do so.  Northwell then filed a lawsuit alleging breach of contract and breach of the covenant of good faith and fair dealing. 

The breach of contract claim was dismissed.  Northwell had identified a litany of possible provisions that authorize reimbursement for its COVID-19-related costs and losses.  However, Northwell's arguments for coverage under each of these provisions were rejected. Specifically, Northwell fails to state a claim for breach of contract to provide Time Element coverage because these provisions require the cost or loss to be caused by direct physical loss or damage.  Northwell also failed to state a claim for breach of contract to provide Interruption by Communicable Disease coverage because Northwell did not plausibly allege that state and local orders regulating the spread of COVID-19 declared uninhabitable and prohibited access to Northwell facilities. Finally, Northwell failed state a claim for breach of contract to provide coverage under the Civil or Military Authority, Decontamination Costs, and Ingress/Egress provisions because these special coverages require the claimed cost or loss to be caused by direct physical loss or damage and because Northwell failed to adequately plead additional, independent requirements for coverage under these provisions.

In addition, even if Northwell was entitled to coverage in the first instance, the Policies contained an endorsement that would have excluded coverage.  Endorsement #003 states that the Insurers will not cover “loss or damage caused by ... actual, alleged or threatened release, discharge, escape or dispersal” of “contaminations or pollutants,” and defines contamination to include disease-causing microorganisms, bacteria, and viruses.  While the court found grouping viruses with environmental contaminants and industrial pollutants unorthodox, Northwell did not cite to any cases construing contamination as not including one of the terms in the contractual definition.

The implied covenant of good faith and fair dealing claim was also dismissed.  Northwell alleged the Insurers violated the standards for good faith and fair dealing set forth in New York Insurance Law § 2601 by offering meritless reasons for the denial of coverage and delaying assessment of Northwell's claim.  Northwell argued the Insurers violated the duty of good faith and fair dealing by offering the same colorable reasons for denying coverage that Insurers advanced on their motion to dismiss.  This argument rehashes Northwell's breach of contract claims, which warranted dismissal of the claim as duplicative.  Northwell plead that the Insurers’ delay supported its bad faith cause of action, but it did not plead any facts that suggested the delay was unreasonable.  Northwell also did not cite any case or law that requires insurers to provide a faster response. The unfair claims settlement statute that Northwell cited addresses how insurance companies must conduct themselves in settling claims against the insured, not in handling claims for reimbursement that the insurance company receives from the insured.

 

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

Gone fishing.

 

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

08/05/21       Lionbridge Technologies, LLC v. Valley Forge Ins. Co.
United States District Court, District of Massachusetts
No Implied Disparagement, No Use of Another’s Advertising Idea

Lionbridge and H.I.G. Middle Market LLC (“HIG”) were sued by TransPerfect Global, Inc. (“TPG”) in an underlying action alleging counts under the “Misappropriation of Trade Secrets under the Defend Trade Secrets Act (acquisition of trade secrets by improper means, unauthorized disclosure of trade secrets, and injunctive relief), 18 U.S.C. § 1836 et seq. (Counts I-III); Violation of the Computer Fraud and Abuse Act (exceeding authorized access and injunctive relief), 18 U.S.C. § 1030(g) (Counts IV and V)(fraud); Misappropriation of Trade Secrets under State Law (Count VI); Unfair Competition and Trade Secrets under State Law (Count VII); Unjust Enrichment (against Lionbridge only) (Count VIII); Breach of Contract (against HIG only) (Count IX); and Fraud (Count X).”  Id. at *2. 

Valley Forge agreed to defend Lionbridge under a reservation of rights but denied additional insured status for HIG.  However, when Lionbridge retained two expensive law firms to defend each company (HIG and Lionbridge) separately, VF argued that it had no obligation to provide a defense to HIG, that it had no obligation to pay for two law firms, and that one firm’s rates were unreasonably high.

Lionbridge argued that the policy’s “[p]ersonal and advertising injury” was triggered for the advertising offenses of (1) “[o]ral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services” and (2) “[t]he use of another's advertising idea in your advertisement.” Id.  “Advertisement” was defined as “a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters.” 

The court issued summary judgment in favor of VF, holding that while the allegations in the complaint need not “specifically and unequivocally make out a claim within the coverage, they must at least be reasonably susceptible of an interpretation that states or roughly sketches” one of those claims.

TPG alleged that HIG was engaged in a scheme to take over both TPG and Lionbridge to become the world’s largest translation service provider.  TPG had two co-founders; one who sought to dissolve and sell TPG at auction, which was approved, and one who sought to purchase TPG during the auction. 

TPG alleged that its cofounder was succeeding in bidding process when HIG engaged in shill bidding to obtain TPG’s confidential information.  Specifically, HIG knew that at each stage of bidding, bidders who were not considered that serious received little information and the more “serious” the bids got at each stage of the bidding process, the more information that the bidder obtained about the company.    

HIG allegedly engaged in shill bidding to drive the price up, and obtaining “critical information about TPG's sales models, marketing strategies, unique cost and pricing structures, compensation models, commission schedules, and customer and vendor relationships and contracts” during the process.  Id. at *2. TPG also alleged that “[d]uring the auction, Lionbridge sales people falsely told TPG's customers that Lionbridge was purchasing TPG” and that they should “contract with Lionbridge directly before the sale; misrepresented the nature of the cofounders lawsuit; [and] introduced doubt regarding the stability of TPG for the purpose of damaging TPG and advantaging Lionbridge.” Id.

According to the court, neither general statements about a business nor statements of opinion were sufficient to carry the burden of satisfying the offense.  The court was unconvinced that allegations even roughly sketched out the offense of Slander, Libel or Disparagement of Good Products or Services,  It held that Libel and Disparagement were not applicable because Lionbridge failed to identify any allegations of written statements or of statements regarding TPG's goods, products or services. Slander, according to the Court, was not at issue because  Lionbridge did not point to any allegations by TPG of harm related to false or misleading statements and the like.  Id at *5. 

As it pertained to the use of another’s advertising idea, according to the Court, coverage was not triggered because the offense was limited to claims specifically involving the taking of a competitor's ideas about advertising to the public at large, and using those idea’s in Lionbridge’s own advertisement.  Id.  According to the court, TPG was alleging that Lionbridge used its confidential information for business, not advertising.  According to the Court, Lionbridge’s position was not supported by Massachusetts law.   While the court addressed some of the obvious exclusions, the decision was fundamentally premised on the absence of a covered offense. 

 

OFF the MARK
Brian F. Mark
[email protected]

07/22/21       Bestland, Inc. v. Colony Ins. Co.
United States District Court, Central District of California
U.S. District Court Finds No “Occurrence” Where Intentional Act Results in Unintended Harm

This declaratory-judgment action arises out of an underlying construction defect action related to the construction of a new house which caused damage to a neighboring property.  The underlying plaintiffs, Leroy E. Graymer and Margaret B. Graymer (“the Graymers”), filed a lawsuit against Bestland, Inc. alleging that while working on a single-family home adjoining their property, Bestland damaged their property.  The damage alleged included building an unpermitted and unapproved cinderblock wall on the Graymer property that destroyed and blocked a water catch basin, which altered hillside water flow.  Bestland described the damage alleged in the underlying suit as arising not from the broader work it did as a general contractor, but specifically from its carpentry work.

At the time of the alleged damage, Bestland was insured under a standard commercial general liability policy issued by Colony Insurance Company (“Colony”). The policy defines an “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”  In its application for insurance, Bestland stated that its primary operation was “subcontractor carpentry.”  Apparently, Bestland started out as a carpentry subcontractor and then became licensed as a general contractor.  Based on Bestland’s description of its business provided in its initial insurance application, the policy’s “Business Description and Classification Limitation” provision described Bestland’s business as “carpentry contractor” and listed “carpentry” as the sole classification.

In examining Colony’s duty to defend, the Court acknowledged the existence of at least some evidence that the misplaced cinderblock walls was related to carpentry work.  As such, it determined that because there was some possibility of liability based on carpentry work given the allegations in the complaint, the classification limitation does not preclude Colony’s duty to defend. 

However, the Court found that the duty to defend was precluded by the lack of an “occurrence.”  Under California law, an act of trespassing or encroaching a neighbor's property does not amount to an occurrence under a general commercial liability policy.  The Court noted that the term “accident” does not apply where an intentional act results in unintended harm.  Although Bestland may have believed it was on the correct property and made a mistake in altering the flow of water, an insured's mistake of fact or law does not transform an intentional act into an accident.  The underlying complaint only alleged that Bestland committed intentional acts resulting in damages to the Graymer property.  Because the acts for which the Graymers seek to impose liability on Bestland were not accidental, Bestland failed to demonstrate any possibility of coverage under the policy.  Accordingly, The Court held that Colony had no duty to defend Bestland in the underlying action.

08/10/21       Kinsale Ins. Co. v. McBride Operating L.L.C.
United States Court of Appeals, Fifth Circuit
U.S. Court of Appeals Finds j(5) Exclusion applicable to Construction of a Defective Well

This declaratory-judgment action arises out of an underlying construction defect action related to the construction of a well.  The underlying complaint against ETOPSI asserted that ETOPSI defectively designed and built a well.  

The Court of Appeals affirmed the district court’s finding that coverage was precluded based on the policy’s j(5) exclusion.  The j(5) exclusion precludes coverage for "'[p]roperty damage' to . . . [t]hat particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the 'property damage' arises out of those operations . . . .".  The Court of Appeals found that the well’s defects, which prevented it from working properly, arose from ETOPSI’s operations – how it designed and oversaw construction of the well.  Accordingly, the Court found the j(5) exclusion to be applicable and bar coverage.

 

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

On vacation.

 

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

Regulatory Wrap-Up

07/30/21       Public Adjuster Referral Compensation Regulation
Department of Financial Services
Final Adoption of Regulatory Amendment to Reflect Existing Insurance Law Regarding Public Adjuster Referral Compensation

Effective October 8, 2021, DFS has adopted new amendments to 11 NYCRR 25 which governs public adjusters. We provided a summary of these changes in a previous Coverage Pointers issue when they were proposed in April (available here). For convenience, I have excerpted our previous write up below:

Last week, a proposed regulation was published in the State Register that would update 11 NYCRR 25 (Insurance Regulation 10) to reflect 2013 amendments to the insurance law with respect to public adjuster compensation from referrals.

Under Ins. Law § 2108(p) and Regulation 10, a public adjuster cannot collect compensation paid by an insured for services rendered unless it comports with a written compensation agreement signed by charged party.  Regulation 10 further prohibits a public adjuster from charging a fee in excess of 12.5 percent of the recovery for services rendered.  DFS, through its predecessor agencies, has advised that compensation from a contractor to a public adjuster for a referral is a fee for services rendered by the public adjuster. OGC Opinion No. 07-06-25 (June 26, 2007).  Although the referral fee is paid indirectly, compensation for a referral is included within a public adjuster’s maximum 12.5 percent fee under Regulation 10 and must be disclosed in the written compensation agreement. DFS contends that because an agent has a duty of undivided loyalty to her principal, a public adjuster owes a duty of undivided loyalty to the insured that hired the adjuster. OGC Opinion No. 97-9 (NILS) (Jan. 28, 1997).

In 2013, DFS’s position was legislatively codified by amending Ins. Law § 2108 and 2110(a). Specifically, the Insurance Law requires that every public adjuster to affirmatively act on behalf and in the best interests of the insured and prohibits a public adjuster from receiving any compensation for referring an insured written disclosure of such compensation, as well as any financial, ownership, or familial relationship interest to the person. This proposed amendment to Regulation 10 merely conforms the Insurance Regulations under Title 10 to existing laws of this state. The amendment also prohibits a public adjuster from receiving any compensation, either directly or indirectly, for a referral to an individual or entity when the public adjuster has a financial or ownership interest, directly or indirectly, in the individual or entity and the individual or entity performs services, work, or repairs, or when the public adjuster is the spouse of the individual having such an interest. Additionally, under this amendment, a public adjuster would be permitted to charge a fee of up to 20 percent on a supplemental claim so long as the aggregate fee charged is less than or equal to 12.5 percent of the full claim payment.

Finally, since Regulation 10 has not been amended since 1986, the amendments would additionally make clarifying changes in the language and statutory/regulatory references utilized to account for the current legal and regulatory landscape encountered in 2021.

During public comment, the public adjuster trade commented that 11 NYCRR § 25.6(e)(4) appeared to prevent any compensation to a public adjuster for a referral to a relevant contractor without the necessary paperwork and signatures. In response, DFS amended the regulation to clarify that the prohibition on the compensation is for the referral, to reflect DFS’ intent with the original wording. The new 11 NYCRR § 25.6(e)(4) providing this clarification provides:

(4) If a public adjuster refers an insured to an individual or entity described in this subdivision subsequent to the written compensation agreement being signed by the party to be charged, then the public adjuster shall not receive any compensation for the referral unless the public adjuster obtains an acknowledged disclosure statement consistent with Form 2 in section 25.13(b) of this Part. The disclosure statement shall be limited to the disclosure of the referral fees, and the party to be charged who signed the original compensation

This was the only section of the proposed amendments to 11 NYCRR 25 that was modified prior to final adoption. A full text version of all changes is available here.

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

08/17/21       Cattaraugus-Little Valley Central School v. Graphic Arts Mut.
Supreme Court, State of New York, Cattaraugus County 
Knowledge of an Inappropriate Relationship Between a Teacher and Student Constitutes Knowledge of a “Wrongful Act” as Defined in an Abuse and Molestation Coverage Part
The H&F Coverage Team represented the insurer on this one.  We believe it is the first CVA “late notice” decision in New York State.

In the February of 2019 Plaintiff (or “District”) was given notice of a potential lawsuit being brought under the CVA by Brittany Jones. Ms. Jones alleges that during the years of 2008 to 2011 she was sexually abused by a District middle school teacher. Plaintiff then notified Defendant, its insurer which issued CGL, Umbrella, School District and Educators Legal Liability (SDELL), and Abuse or Molestation Coverage policies to the Plaintiff. The first package of policies was issued on a one-year term from July 1, 2007, to July 1, 2008 and the second package of policies was issued for a three year period from July 1, 2008 to July 1, 2011.  Defendant began an investigation into this claim and concluded that the District was put on notice of the teacher’s inappropriate behavior as early as 2009, and that the District thoroughly investigated the claims of sexual abuse in February 2011. As a result of the District’s investigation both the State Education Department and local law enforcement agencies were notified, the District did not, however, notify Defendant. Defendant subsequently disclaimed coverage for this claim. Defendants Denial under the CGL part was based upon both late notice and the CGL policy’s Abuse and Molestation Exclusion, Coverage was denied under the School District and Educators Legal Liability coverage part based upon both late notice and the coverage part’s Abuse and Molestation Exclusion, Coverage under the Umbrella policy was disclaimed for the same reasons. Graphic Arts disclaimed coverage under the claims made Abuse and Molestation part based upon late notice of claim. Both Plaintiff and Defendant agree that the only coverage part which may provide any coverage for this claim is the Abuse or Molestation Coverage Part. Ms. Jones then initiated her lawsuit against the District, and Graphic Arts reaffirmed its disclaimer. 

The District, not agreeing with Graphic Arts’ conclusion, initiated this declaratory judgment action on June 26, 2019, seeking a declaration that Graphic Arts is required to defend and indemnify the District and reimburse the District for all costs and fees incurred in defending the District in the action brought by Ms. Jones. At the close of fact discovery Graphic Arts moved for summary judgment, seeking a declaration that the District’s late notice of this claim bar coverage under any coverage part issued to the District.

The Court concurred with the parties in that the only applicable coverage parts are Abuse or Molestation Liability Coverage form and the Umbrella coverage provided the Abuse or Molestation coverage was exhausted. The Abuse or Molestation form includes the following notice provision:

"You must see to it that we are notified as soon as practicable (and within 60 days of any notice to you, unless it shall be shown that it was not reasonably possible to give such notice within 60 days of notice to you, and that such notice was given as soon as reasonably possible) of any 'wrongful act' which may result in a claim...."

“Wrongful act” is defined in the Abuse or Molestation form, included "a. any act of actual or threatened abuse or molestation (including sexual misconduct or sexual molestation) … b. The negligent (1) Employment; (2) Investigation; (3) Supervision; (4) reporting to the property authorities, or failure to report...." The Court then explained that a delay in notifying an insurer of a potential claim is justified when and insured has a reasonable belief in nonliability as measured by whether a reasonable person could envision liability. The District contends that it did not provide notice to Graphic Arts in 2011 because there was no concrete evidence of a sexual relationship between Ms. Jones and the teacher, and neither Ms. Jones nor her mother threatened a lawsuit. Therefore, the District did not believe a claim was reasonably likely to be made. The District contends that it would not have been liable because the events between Ms. Jones and the teacher took place off school property, so it had no duty to notify Graphic Arts. The District also claims that the statute of limitations on Ms. Jones' claims expired in 2016, and were only revived by the Child Victim's Act. As soon as the District was notified of a claim under the Child Victim's Act, it notified Graphic Arts. Last, the District argues that even if notice was required in 2011, there was no prejudice to Graphic Arts since the District investigated the claims and preserved its investigation, which contained contemporaneous notes.

The facts are undisputed that in 2009, the middle school principal issued the alleged abuser a formal counseling memorandum regarding allowing Jones, a high school student, to be alone in Retchless' room without any educational purpose. In 2011, as a result of its investigation, the District placed the alleged abuser on administrative leave because it suspected her was having an inappropriate relationship with Jones. The District representatives believed that Ms. Jones and this teacher were engaged in a sexual relationship. The middle school principal who investigated Ms. Jones’s allegations in 2011 even testified that the teacher could be prosecuted for what he did because a teacher could not take advantage of students. Knowing these facts and circumstances, it would have suggested to a reasonable insured the potential or possibility of a claim either based on a "wrongful act" as defined in the policy or possibly based on negligent employment or retention of the teacher.

The District also argued that Graphic Arts was required to prove it was prejudiced by the late notice of this claim. The Court disagreed. New York enacted a late notice "prejudice" requirement, which was applicable to policies issued after January 17, 2009. (2008 Sess. Laws of NY Ch. 388 (S.8610)). The policies at issue were for three years. The policies were in effect from July 1, 2008, to July 1, 2011. Therefore, the "prejudice" requirement is inapplicable. The District also argues that the “prejudicial notice” endorsement included with the CGL policy applies equally to the Abuse and Molestation coverage.  The Abuse and Molestation coverage, however, did not contain a "prejudicial notice" provision. The Graphic Arts' "Prejudicial Notice" endorsement to the District's policy specifically stated that it applied to the School District and Educators Legal Liability Coverage Part and the Commercial General Liability Coverage Part. It was inapplicable to the Abuse and Molestation coverage. Therefore, the Court does not need to address whether Graphic Arts was prejudiced by the District's delay in providing notice.

The Court therefore granted Graphic Arts’ motion seeking a declaration that there is no coverage based on the District’s failure to provide timely notice.

 

RAUH’S RAMBLINGS
Patricia A. Rauh
[email protected]

No cases to report on this week.  Check back in two weeks.

 

ruMIRNAtions
Mirna M. Santiago
[email protected]

Let’s Talk About LGBTQ+ Rights and Inclusion in the Workplace, Shall We?

Many of us in the diversity, equity and inclusion (DEI) space focus on moving the needle on “visible” diversity (race, color, gender) in the workplace. That’s the “easy” part—you can see someone’s race, color and gender—but it’s harder to increase LGBTQ+ diversity, particularly for applicants/employees who are gender non-conforming. It’s not something that is usually asked on employment applications (albeit I do see more applications that have an “other” option to the gender question, but it should really be “non-binary”). As a result, a lot of LGBTQ+ employees feel invisible and underrepresented. Indeed, 5.1% of US women identify as LGBTQ+, as do 3.9% of men. But representation of LGBTQ+ people in corporate leadership is much lower than that 9%. https://www.mckinsey.com/featured-insights/diversity-and-inclusion/how-the-lgbtq-plus-community-fares-in-the-workplace

Research shows that stress increases when a person experiences “onlyness” for their protected classification. Employees who face onlyness face tremendous pressure to perform. Id. For LGBTQ+ workers, add to the onlyness the fear of outing themselves and most LGBTQ+ employees also feel like they have to be “invisible” or hide their personal lives in order to succeed professionally. Id.

In my DEI work, I always urge all employees to bring their authentic selves to work. I believe that the more we show up as fully ourselves, the more we can normalize whatever and whoever we are. For instance, I speak of the fact that as a Black woman, I no longer straighten my hair. I wear my ‘fro and curls and kinks proudly. By doing so, it takes some steam out of the perception and bias that only straight hair is acceptable or professional enough to wear at work. As a Latina and Honduran, I have reclaimed the original pronunciation of my name (it’s Mirna—Mih-rr-nah—NOT Myrna—Murnah) and have started correcting people when they persist in anglicizing my name. Trust me, that is hard; most of us want to please people, even if it costs us a piece of ourselves.

So it is no surprise that LGBTQ+ people who are out of the closet, are happier, view their workplaces more favorably and have more supportive managers. Id. Employers who are serious about retention and inclusion for all employees, must also get serious about creating a safe space for their LGBTQ+ employees to express themselves. Having a compartmentalized life (in the closet at work) has been described as “death by a thousand tiny cuts”. https://www.carriermanagement.com/news/2020/11/04/213363.htm

How can any company drive LGBTQ+ inclusion? Like for all protected classifications, employers should attempt to make the “onlyness” feeling rare from the inception. “Proactively highlighting the company’s support for the LGBTQ+ community can help ensure that prospective employees feel safe. Companies can reduce the “only” experience during recruitment by broadening their pool of diverse candidates and proactively providing them with feedback after their interviews. They can adopt blind resume-screening—removing names, gender signifiers, and affinity-group affiliations—to reduce the role of unconscious bias in hiring decisions. They can also strengthen employee-resource groups by offering dedicated resources for LGBTQ+ employees, particularly LGBTQ+ women and trans employees who are at times overlooked in LGBTQ+ employee-resource groups.” https://www.mckinsey.com/featured-insights/diversity-and-inclusion/how-the-lgbtq-plus-community-fares-in-the-workplace    

It also helps if HR, along with a DEI professional, take periodic looks at the company policies to make sure that all employees are being afforded equal and equitable opportunities and address situations as they arise. In 2020 at the IICF Inclusion in Insurance Forum, retired US Navy Commander Zoe Dunning described this proactive approach to driving belonging and inclusion in the following manner:

She likened it to the Black Lives Matter movement, where many people respond by saying that all lives matter. “All lives do matter. No one’s debating that. But the analogy that I’ve heard that I like to say a lot is, if you’re a lifeguard and you’re at a swimming pool, everyone’s life matters…If you have someone drowning on one end of the pool, that’s where you’re going to take time and energy. Who’s struggling? Who is drowning? Who needs attention? Who in our society has got weights literally pulling them down in the pool?”

https://www.carriermanagement.com/news/2020/11/04/213363.ht

Let us all make sure that we are creating an inviting, welcoming workplace for all of us to thrive in.

 

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

08/04/21       Jones v. Allstate Property and Casualty Ins. Co.
United States District Court, Eastern District of Pennsylvania 
Summary Judgment for Insurer on the Interpretation of an Exclusion in a Homeowner's Policy for Damage Caused by "Faulty Workmanship" with Respect to 1st-Party Property Claim

Plaintiff hired PaveWise to repair cracks in his driveway and seal the cracks with oil base sealer.  During the work, the spray sealer applicator allegedly broke and sealant sprayed the surfaces of Plaintiff's home, fence, garage, and hardscaping.  PaveWise attempted to clean the mess but made the stains worse.   Plaintiff then hired a second company, Ugly Shingles, to clean the property, which ultimately proved unsuccessful.  The owner of Ugly Shingles testified that the inability to remove the stains resulted from PaveWise's earlier attempt to clean the stain with gasoline.  Plaintiff sought coverage for the loss from Allstate under the HO policy.

The policy covers "sudden and accidental direct physical loss[es] to the property…except as limited or excluded in the policy."  One such exclusion applies when the damage to the property was caused by faulty workmanship:

We do not cover loss to the property . . . consisting of or caused by the following:

10. Planning, Construction or Maintenance, meaning faulty, inadequate or defective:

a) planning, zoning, development, surveying, siting;

b) design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction;

c) materials used in repair, construction, renovation or remodeling; or

d) maintenance

of property whether on or off the residence premises by any person or organization.

Allstate denied coverage because the policy covers only sudden and accidental direct physical loss to property, also citing a list of policy exclusions, including "faulty workmanship".  Plaintiff sent three letters seeking clarification and asking Allstate to identify the particular exclusion on which they were relying.  Twice Allstate responded by repeating the same lengthy exclusion language but finally identified "defective construction and workmanship" as the applicable exclusion, adding that "the exclusion…also includes a number of other terms, which we rely upon." 

Allstate moved for summary judgment, arguing that the property is not a "structure" covered by the policy, that the property did not sustain any direct physical loss and that the faulty workmanship exclusion bars coverage.

The Court started by reciting the rules of construction of insurance contracts.  The task of interpreting a contract is generally performed by a court, rather than by a jury. When interpreting insurance policies, the court must ascertain the parties’ intentions as manifested by the written terms in the policy.  Courts must consider the insurance contract in its entirety rather than considering individual terms. When the policy language is clear and unambiguous, a court must give effect to that language.  If, however, policy language is ambiguous, the contract must be construed in favor of the insured and against the insurer. Contract language is ambiguous if it is "reasonably susceptible of different constructions and capable of being understood in more than one sense.  The insured must, in the first instance, establish that his/her claims fall within the coverage of the insurance policy.  An insurer seeking to bar coverage under an exclusion then bears the burden of establishing that the exclusion applies as an affirmative defense. 

The Court disagreed with Allstate that the driveway and fence were not “structures”; and that the damage caused by the sealant was not a direct physical loss.  Without any authority, Allstate argued that a structure must "rise from the ground and necessitate support below ground".  The Court said that a hardened surface combining various materials was previously constructed at the property giving rise to a need for repairs. And it is difficult to conceive how a fence could be categorized as anything other than some type of structure. Allstate's proposed definition was therefore determined to be both artificial and overly restrictive and conflicts with its own website, which describes an in-ground pool as a structure that would be covered by the policy. 

The Court also disagreed with Allstate's argument that physical loss must "leave the property unusable".   Policies that insure against "direct physical loss" cover tangible damage and do not require the property to be "uninhabitable."  Such a definition would make other provisions of the policy meaningless. Reference to a thesaurus shows that "loss" is a synonym for "damage," "injury," and "harm."  The line of cases upon which Allstate relied, addressing whether business losses sustained from the COVID-19 pandemic constitute physical damage, had no relevance. At the very least, the Court said, the meaning of "physical loss" is ambiguous.

In regard to faulty workmanship exclusion, the Court concluded that it applies as a matter of law.  The exclusion applies when losses to the covered property are caused by "faulty, inadequate or defective" "workmanship" or "repair." Courts have found that similar "faulty workmanship" exclusions are unambiguous.  The term can be interpreted according to its "plain, ordinary meaning," under which "faulty or defective workmanship” is “the faulty or defective execution of making or doing something." "A job that is defectively executed is one that is performed negligently." The "very essence of ‘workmanship'" includes "the quality and manner in which a service is completed."  Plaintiff hired a company to seal cracks in the driveway. By leaving adjacent structures and areas permanently stained with the sealant constitutes "faulty" or "defective" "workmanship," "repair," and "renovation." Such terms applied equally to PaveWise's ineffectual attempts to eradicate the stains.

Plaintiff argued that because the damage was not to the driveway - the property being worked on - but rather to other property like the fence and hardscaping, the faulty workmanship exclusion does not apply. In support of this argument, Plaintiff looks to a line of cases discussing the coverage afforded by CGL policies. In a liability context a court had stated that the claim was covered because the "accident" that occurred was to "persons or property other than the insured's product."  Plaintiff seized upon that language as authority for the distinction he seeks to draw between the driveway and adjacent areas.

The Court held that, simply stated, the liability decision construing a CGL policy had no applicability here. It addresses an entirely different form of coverage, structured in a different way. Irrespective of the language it used as part of its discussion, it reached the somewhat obvious conclusion that when a manufacturer has purchased a CGL policy, and consumers assert a defect in the manufacturer's product causing damage to the consumers' property, at a minimum the carrier has a duty to defend. It shed no light on this case, involving a homeowner's policy where Allstate has agreed to insure against a variety of risks, but explicitly excluded the risk of damage caused by faulty workmanship.

Plaintiff further argued that the damage is not the result of faulty workmanship, but rather the result of an active product malfunction. Specifically, that the sealant nozzle malfunctioned and it is this malfunction, not the workmanship of the PaveWise employees, that caused the damage in question, contending that the overspray was the result of a "sudden and accidental break of the nozzle" in the sprayer used to apply the sealant.  However, the Court found the objective and undisputed evidence of record to refute Plaintiff's theory.  In photographs of the site the overspray is not confined to a limited area, as would be the case with an unexpected equipment malfunction. Rather, they show overspray over the entire length of the driveway, including the siding, foundation, fence, retaining wall, and driveway pavers, as well as the garage door at the top of the driveway. Even assuming that at some point during the job the sprayer malfunctioned in some way, PaveWise's actions still constitute faulty workmanship because the photos establish that PaveWise necessarily continued to apply the sealant even though it was spraying beyond the driveway.

Finally, Allstate had also offered uncontradicted evidence that the ineffectual cleaning of the stains by PaveWise rendered the stains permanent. Courts have held that defective cleaning is considered faulty maintenance. Regardless of whether one categorizes the cleaning process as workmanship or maintenance, PaveWise's efforts worsened the damage.

 

HEINTZMAN’S HIDEOUT
Nicholas J. Heintzman
[email protected]

08/06/21       Gemini Insurance Company v. Certain Underwriters at Lloyd's
New York Supreme Court, New York County
Court Dismisses Insurer’s Declaratory Judgment Action Seeking Additional Insured Coverage from Another Insurer where Plaintiff in Underlying Action was Employee of, but not Injured by, Putative Additional Insured

Plaintiff, Gemini Insurance, insured a general contractor, CM and Associates Construction Management (“CMA”), and project owner Aventis—72 LLC (“Aventis”). Defendant, Certain Underwriters at Lloyd’s London (“Underwriters”), insured subcontractor Source Construction Contracting Inc. (“Source”). In the Underlying Action, a Source employee (“underlying plaintiff”) sued CMA and Aventis, alleging he suffered bodily injury while working at an Aventis project. Gemini commenced a declaratory-judgment action against Underwriters, seeking a judgment that, pursuant to the Underwriters-Source insurance policy, CMA and Aventis were additional insureds on the policy.

The Source policy required that additional insureds are entities who “have agreed in writing in a contract or agreement” with Source that they must be “added as an additional insurance on Source’s policy.” Since CMA and Aventis required Source to procure commercial general liability insurance listing them as additional insureds, the requirement was met. However, the Source policy also provided that those entities are additional insureds only with respect to “liability for bodily injury caused by [Source’s] acts or omissions or the acts or omissions of those acting on [Source’s] behalf.” Since nothing in the underlying pleadings alleged that underlying plaintiff’s injuries were caused by Source, the Court held that there was no additional insured coverage. That the underlying plaintiff was injured while performing project work for Source did not mean that acts or omissions by Source caused the underlying plaintiff’s injuries. Thus, additional insured coverage was unavailable, and Gemini’s declaratory-judgment action was dismissed.

 

NORTH OF THE BORDER
Heather Sanderson
[email protected]

Grant Thornton LLP v. Province of New Brunswick, 2021 SCC 31
Supreme Court of Canada
Starting the Limitation Clock: The Supreme Court of Canada Defines “Discoverability”

On July 29, 2021, the Supreme Court of Canada issued a very important decision that impacts the commencement of limitation periods in Canadian civil litigation. Although this is not strictly a coverage case, it directly impacts the claims that generate coverage disputes under liability policies of all stripes.  Let’s have a look.

The Facts

In 2008 Atcon Holdings Inc., a New Brunswick-based provider of construction, energy, industrial and waste management services, was having difficulties meeting its financial obligations. The company sought loans from the Bank of Nova Scotia, but it needed loan guarantees from the Province to obtain them.  New Brunswick issued $50 million in loan guarantees conditional upon Atcon undergoing an external review of its assets by Grant Thornton LLP, a well-known firm of auditors and accountants. Grant Thornton delivered its opinion on June 18, 2009.  The report was unqualified and stated that under generally accepted accounting principles (GAP) Atcon’s financial statements did not contain any material misstatements.

Relying upon Grant Thornton’s work, New Brunswick issued the loan guarantees enabling Atcon to borrow the money from the Bank.  Four months after receipt of the loan guarantees, Atcon ran out of working capital. The Bank placed Atcon in receivership and called upon New Brunswick to pay out the loan guarantees. New Brunswick honoured the guarantees.

After the payout of the loan guarantees, New Brunswick hired another auditing firm to conduct the same review undertaken by Grant Thornton.  That firm found in a report that New Brunswick received in draft on February 4, 2011, that: (a) there were material misstatements in Atcon’s financial statements that Grant Thornton did not report and, (b) that the Grant Thornton audit was not conducted using GAP.

On June 23, 2014, New Brunswick commenced a civil claim. Grant Thornton defended stating amongst other things that New Brunswick’s claim was filed outside the two-year limitation for civil claims and was statute-barred.

Issue

In New Brunswick a claimant has two years from the day a civil claim is discovered to commence a legal action. Failure to do so is a complete defence for those whom the claimant alleges are liable.  The same requirement can be found in the limitation legislation of most of Canada’s provinces and territories.

Until this decision was issued, there was a patchwork of Canadian case law on when a claim is “discoverable”. The decisions range from a requirement for suspicion to a perfected claim. The issue in this case was: When did New Brunswick “discover” it had a claim against Grant Thornton?  The Court decided New Brunswick discovered its claim against Grant Thornton when it received the second report in February 2011. At that point, New Brunswick had actual or constructive knowledge of the material facts to draw a plausible inference of liability.  In reaching that conclusion, the Court dismissed New Brunswick’s argument that it did not discover its claim at that point as it did not know whether Grant Thornton had breached the principles of GAP. In other words, the Supreme Court of Canada rejected New Brunswick’s argument that a claim is discovered when all elements of a claim in negligence are known. In doing so, the Court rejected New Brunswick’s assertion that until they knew that Grant Thornton’s audit was conducted contrary to GAP the claim was not discoverable as it did not have enough knowledge in February of 2011 to know that it had a perfected negligence claim against Grant Thornton.

  1. Actual or Constructive Knowledge of Potential Liability

The Court held that the standard to be applied in determining whether a claimant has the requisite degree of knowledge to discover a claim, thereby triggering the limitation period, is whether the claimant has actual or constructive knowledge of the material facts upon which a plausible inference of liability on the part of another can be drawn.

In this case, on February 4, 2011, New Brunswick ought to have known, that a loss occurred, and that the loss was caused in whole, or in part, by conduct for which Grant Thornton had been retained to detect. This was sufficient to draw a plausible inference that Grant Thornton had been negligent. Since New Brunswick did not bring its claim until June 23, 2014, more than two years later, its claim was statute‑barred.

A plausible inference of liability must be plausible - something more than speculation on one hand and a perfected claim on the other. The inference from this description is that a plausible inference is an arguable case.

2. What are Material Facts?

Most provincial and territorial limitation acts stipulate the categories of material facts that must be discovered.

In New Brunswick a claim is discovered when the plaintiff has actual or constructive knowledge that: (a) the injury, loss or damage occurred; (b) the injury loss or damage was caused by or contributed to by an act or omission; and (c) the act or omission was that of the defendant.

In assessing the claimant’s state of knowledge, both direct and circumstantial evidence can be used. A claimant will have constructive knowledge when the evidence shows that the claimant ought to have discovered the material facts by exercising reasonable diligence.

In this case, New Brunswick had actual or constructive knowledge of the material facts in February of 2011. At that time, it knew that a loss occurred, and that the loss was caused or contributed to by an act or omission of Grant Thornton.  New Brunswick knew that there was a plausible inference of liability on the part of Grant Thornton: That entity’s act or omission was issuing its report with respect to the company’s financial statements, despite those statements not being prepared in accordance with the GAP principles and not fairly representing, in all material respects, the company’s financial position. This act or omission caused or contributed to New Brunswick’s loss because the province executed the $50 million in loan guarantees in reliance upon Grant Thornton’s representations. Nothing more was needed to draw a plausible inference of liability. New Brunswick’s claim was therefore statute‑barred.

Concluding Thoughts

Ontario, Alberta, and Saskatchewan have limitation acts that bear close resemblance to New Brunswick’s legislation. The governing standard of “plausible inference of liability” test will have the greatest application in those provinces.  However, all other provinces and territories have varying degrees of “discoverability” in their limitation statutes. This decision has national application.

Judges: Moldaver J. (Karakatsanis, Côté, Brown, Rowe, Martin and Kasirer JJ. 

concurring)

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