Coverage Pointers - Volume XXIV, No. 10

Volume XXIV, No. 10 (No. 631)
Friday, October 28, 2022
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 do love situations. And our goal, is that your situations are resolved smoothly and economically.  We are happiest, if we can help you AVOID situations, so we do our best to offer education al opportunities so that you can avoid having to call a lawyer!

For our new subscribers, remember to read the Coverage Pointers issue, which is attached.  This note provides you with the extras, information about continuing education programs, notes from our editors, overviews of important cases in the issue provided, historical trivia from 100 years ago today, other tidbits to tide you over for your business day.

 

Third Day Added

Thursday, March 2, 2023: 1:30 Eastern, 12:30 Central

 

In 2021, during the heart of the pandemic, my good friend, John Trimble, from Lewis Wagner, Indianapolis, and I, scheduled a Zoom continuing education program which we entitled, Insurance 101 – a Coverage Primer for Claims Professionals and Attorneys.  We have been asked to reprise that presentation, so we scheduled a date in January 2023, which was announced in the most recent issue of Coverage Pointers.  That program audience was filled in 72 hours and then added a second date in February, which is now fully subscribed.

So, we’ve added a third day, March 2, 2023, at 1:30 Eastern Time, 12:30 Central.

This is a great opportunity for newer claims professionals, especially those who may be joining your coverage teams, to get a crash course in liability insurance coverage.  The presenters are two old, and seasoned codgers, who actually love this stuff. 

 

Simply contact John Trimble or me and we’ll reserve a spot.  Early reservations are recommended. 

 

Congratulations go out to Evan Gestwick, Richelle Kloch, and Ryan O’Shea, who passed the New York State Bar Examination on their first attempt.  Tremendous achievement.  Evan and Ryan are part of our coverage team, Richelle, part of our general litigation team.  Following the character and fitness protocols, they will be sworn in as lawyers.

 

Bad Faith – Dangers Lurk and Can be Avoided

A Troubling Lawsuit

Deep breath for the insurance industry, a recent decision has upheld the status quo.  Excess carriers, take heed.  Carrier v. carrier bad faith litigation runs the risk of expanding the scope of bad faith law in New York.  From my perspective, it’s a risky business, one that should be avoided if possible.

It has been about 24 years since a New York state appellate court has upheld a finding of bad faith against any insurer for any reason. My fear -- and my sense -- is that it will be carrier vs carrier bad faith (excess v. primary, for example) that may eventually break that streak.

Look at this decision, from the First Department, just decided on October 18, in Zurich American v. The Insurance Company of the State of Pennsylvania, which is reported in Brian Barnas’ bad faith column in the attached issue of Coverage Pointers.  It is an excess carrier suing a primary carrier for failure to settle:

Applying the Pavia framework, the motion court properly determined that defendant primary insurer did not grossly disregard plaintiff excess insurer's interests in defending against and attempting to settle the underlying action (Pavia v State Farm Mut. Auto. Ins. Co. , 82 NY2d 445, 453 [1993]). An excess insurer will not prevail on a bad faith claim based upon a failure to settle unless it proves that the primary insurer showed a "gross disregard" for the excess insurer's interests by displaying a "deliberate or reckless failure to place on equal footing the interests of its insured [and the excess insurer] with its own interests when considering a settlement offer" (Pavia , 82 NY2d at 453).

The record here does not support plaintiff's claim of bad faith (see id. at 454-455). Given the significant questions relating to causation and damages, the record shows that the excess verdict was objectively improbable, a conclusion that is bolstered by the fact that no one — including plaintiff — expected the verdict to exceed the primary policy limit. Regardless, defendant worked consistently to settle the case in a reasonable manner, making a total of six settlement offers, including four during the trial. Defendant was under no obligation to accept the $900,000 offer even though it fell within the policy limits, as an insurer cannot be compelled to settle a questionable claim simply because an opportunity to do so presents itself (Pavia , 82 NY2d at 454).

From my perspective, the excess carrier was taking an unnecessary risk for the industry, not by complaining about the primary carrier’s conduct (it surely had a right to complain if it thought that the primary was not acting as a fiduciary), but for litigating this case in the appellate courts. Zurich paid $1.4 million, and it believed that the primary carrier should have settled within the primary limits when it could.

However, had Zurich, the future of bad faith would not have been a bright one in NY for insurers. These are the kinds of cases that the parties should move into binding arbitration. Here's a link to the complaint in the bad faith action.

More Continuing Education

 

 

On the national stage, the Federation of Defense & Corporate Counsel (FDCC) is holding its Property Boot Camp and its I-3, the Insurance Industry Institute, at the Sheraton Times Square in midtown Manhattan.  Along with John Trimble from Indianapolis’ Lewis & Wagner, I’ll be presenting on Risk Transfer – Contractual Liability and Additional Insured Coverage.

 

 

And if that’s not enough, don’t forget the PLRB Claim Conference and Expo in Orlando where I will be speaking on Risk Transfer, this time with John Hanlon, Director, Complex Claims and Litigation at Kemper.

OK, one more.

 

Insurance Coverage Basics for Mediation 

Speaking of mediation, on Thursday, October 27, I had the honor and pleasure to be asked to join Tyler C.  Gerking from the San Francisco law firm of Farella Braun + Martel, LLPC in a Zoom presentation sponsored through the American College of Coverage as part of the Will Work for Food program, entitled Insurance Coverage Basics for Mediation.

Insurance lurks underneath the surface of a wide array of disputes and lawsuits.  It often funds defendants’ litigation efforts and settlement payments.  Unbeknownst to plaintiffs, there may be disputes between defendants and their insurers or ticking time-bomb coverage issues waiting to blow up just as the parties agree to settlement negotiations.  Understanding the basics of liability insurance and how it might impact the resolution of disputes is critical for litigators and mediators alike.  This presentation provided an introduction into types of common liability coverages, key insurance law concepts and policy conditions, and insurers’ informational needs and incentives.  We aimed at providing attorneys and neutrals the basic tools to start tackling more nuanced and complex settlement dynamics involving liability insurance.  The program was taped, and we expect the tape to be available next week.  If interested, let me know.  All we ask is that you donate to your local food bank, as this program is under the banner of Will Work for Food, a program that has raised hundreds of thousands of dollars for local food banks.

 

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

Newsletters:      

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

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

   

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

   

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

   

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

 

Peiper on Property and Potpourri:

Lots of good stuff in this issue.  Please take a moment to review the Court of Appeals’ decision involving reformation and the “relation back” doctrine. If you read it closely, drafters of Complaints may wish to proceed a bit more judiciously in how things are pleaded in future lawsuits. 

We also mention the Maternity Wearhouse case discussed in our column this week.  Not so much for the actual decision, but the dicta from the Appellate Division regarding the admissibility of supporting documentation.  The Court noted that unsworn reports of engineers and independent adjusters are not magically put into admissible form by attaching them to an affidavit submitted by a carrier’s employee.  If you have specific items, written by specific people, the better practice is submitting an affidavit directly from them.  A principal affidavit, just like an attorney affidavit, can only introduce evidence of which the affiant has personal knowledge.  To get tripped up.  Take the time to get the right affidavits from the right witnesses. 

That’s about all we have for this week.  Happy Halloween everyone.   

Steve
Steven E. Peiper
[email protected]

 

Work Smarter Not Harder – 100 Years Ago:

Buffalo Morning Express and Illustrated Buffalo Express
Buffalo, New York
28 Oct 1922

ROCKEFELLER, JR.,
COMES OUT FOR
EIGHT HOUR DAY

Twelve-hour day, seven-day week
wrong, oil king’s
son says.

JUSTICE FOR WORKERS

Second time in weeks millionaire
has taken up cudgel for
labor.

By the Associated Press.

New York, Oct 27.—A sweeping statement declaring his personal stand for the eight-hour day in industry and condemning the twelve-hour day and seven-day week as “unnecessary, uneconomic and unjustifiable,” was issued today by John D. Rockefeller, Jr.

The statement appears in the form of an article signed by Mr. Rockefeller in the current issue of the Survey Graphic and follows an arraignment of working conditions in certain oil fields of Wyoming in the same magazine by R. S. Lynd, who spent three months investigating the conditions about which he writes.

The statement today is the second within a week that Mr. Rockefeller had given out on behalf of the laboring man. The previous one, issued last Wednesday, took up the cudgel in the interest of coal miners in Somerset County, Pennsylvania, and particularly those employed by the Consolidation Coal company, of which he is a stockholder.

“I believe that generally speaking the twelve-hour day and the seven-day week should no longer be tolerated in industry, either from the viewpoint of public policy or of industrial efficiency,” Mr. Rockefeller says in his most recent statement. “I believe that both have been proven unnecessary, uneconomic and unjustifiable.”

 

Wilewicz’ Wide-World of Coverage (featuring Ryan O’Shea):

Dear Readers,       

Hurricane season is nearly over (only a month left, technically) and thus far our neck of the woods has been spared some of the more catastrophic meteorology that other parts of the country have faced recently. As a result, things have been comparably quiet on the coverage claims front here, at least on the property damage side.

Notably, this week marks the tenth anniversary, if we can call it that, of Superstorm Sandy. A hurricane that resulted in over $60 billion in damage, few were spared at least some impact. I still recall the power being out on Long Island where we lived, for over a week, with tree limbs barring streets for days, and courts being closed for more than a day (who would have thought!). That year, we celebrated Halloween by having our daughter go door-to-door within the house only, as we raced from room to room pretending to be different people and handing out candy. You should have been there.

Now, this week in the Wide World of Coverage, once more we have our associate-in-waiting Ryan O’Shea writing up the latest in interesting Circuit Court decisions discussing coverage:

Hello all! I am happy to say I passed the July bar exam, and congrats to those who also passed, including Evan Gestwick and Richelle Kloch. I have a short case from the Fourth Circuit concerning a broken pipe and a sinkhole. The Fourth Circuit considered whether a policy endorsement’s language extended past that specific endorsement and on to another. In short, it does not. Hope everyone has a safe and fun Halloween. See you in a few weeks -Ryan O’Shea

Until next time, Happy Halloween!

Agnes
Agnes A. Wilewicz
[email protected]

 

Love and Loss – 100 Years Ago:

The Buffalo Times
Buffalo, New York
28 Oct 1922

DIVORCE ACTION
DRIVES LANCASTER
MAN to SUICIDE

Love Message, Penned to Wife and Protesting
His Love, Found at Brink of Cataract,
Believed to Mark Tragic Death of John E. Leaman.

Romance was eternally in his heart.

He had to be loved and love, and have his love recognized.

When he felt his wife’s love was dead and he could no longer convince her of his affection, he decided to end it all by throwing himself into the Niagara River just above the Falls.
 

But, before he did that, he sat down to tell his wife about it, in a romantic bit of poetry.

That is how Niagara Falls police piece together the story told by a man’s coat, hat and papers found this morning near Goat Island Bridge.
 

Second Love.

With the clothing was a letter telling of a man’s love scorned and his unsatisfied search for fame. And in the envelope which guarded the letter was a newspaper clipping stating that Mrs. Helen Leaman of Lancaster stating divorce from John E. Leaman.

It is believed that a man, probably Leaman, had thrown himself to his death after finding that Mrs. Helen Leaman no longer loved him and wanted to secure a divorce. No trace of the body has been found.

The Letter

The letter, addressed to Mrs. Helen Leaman, No. 155 Queen Street, Lancaster, Pa., reads in part:

“Dearest Helen: May God forgive me for what I am doing, but there is no other way. Your happiness requires that you be free, and this is the only way to make that possible. Please try to understand. It all seems like a dream, but it is too real.

            “Fame, fame is cheaply earned.

            But the price of honor is the sleep of death.

“Now, at last, you will understand that I love you.”

Before John Leaman died, if it was, he whose belongings were found at the Falls, he wanted to be sure his wife would be cared for as far as he could provide. A bankbook on the Union Trust Company of Lancaster, showing a balance of several hundred dollars, was found with his clothes.

 

Liening Tower of Perley:

Greeting from South Carolina where the weather is not noticeably different from WNY.  There is a welcome change of scenery and a slightly slower pace, disturbed, unfortunately by the Second Circuits decision in Aetna Life Ins. Co. v. Guerrerra and Big Y.  “Big Y,” as we Medicare Secondary Payer nerd like to] call it, involved a Connecticut personal injury action settled by Big Y for “nuisance” vale.  Likely a good deal except that it forgot to repay Aetna, an MAO, when it held out its hand.  It resulted in a suit for double damages under the Medicare Secondary Payer Act, not one for actual damages under the MAO’s legislation. 

The liability insurance industry gathered the troops to convince the Second Circuit that MAO’s are not entitled to use the private cause of action, create a split in the Circuits, and appeal to the United States Supreme Court and victory!  Alas, the effort resembled Pickett’s Charge.  The Second Circuit sided with its sister circuits and the private cause of action survives.  You can real all about inside.  At least the sun is shining in SC.

Best,

Mike
Michael F. Perley
[email protected]

 

Should have buckled up – 100 Years Ago:

The Johnson City Staff
Johnson City, Tennessee
28 Oct 1922

SON KILLED BY BROTHER

Moscow, Mississippi, Oct. 28. While Same ,Tone, 70, of Geiger, Ala- barns, was leaning from an automobile driver by one of his sons, to see how far ahead another car driver by another son was, he lost his balance and fell out near here last night. He was run over and instantly killed by another automobile driver by a third son.

Editor’s Note:  Mike wrote about liens; I found an article about leans.

 

Barnas on Bad Faith:

Hello again:

DRI’s Insurance Coverage and Practice Symposium is fast approaching.  The program will run from December 7^th to the 9^th and is once again taking place at the Sheraton Times Square in New York City.  The deadline for early registration was recently extended through November 7^th, so there is still plenty of time to sign up early and save some money off the registration price.  Programming topics include cutting-edge issues such as ESG, PFAS and biometrics, hot topics in bad faith cases, tips from in-house counsel, key takeaways from recent catastrophic loss cases, winning strategies in mediation, and ethical Issues with cybersecurity.  There will also be panel council meetings and other great networking opportunities.  I hope to see you there.

I have an excellent bad faith decision from the First Department in my column this week.  While this case turned out nicely for the existing bad faith case law in New York, make sure you see Dan’s note above for our thoughts on the risks of these type of carrier v. carrier bad faith cases being litigated in the courts.  Congrats again to our friend Kevin Szczepanski on obtaining summary judgment dismissing the bad faith claim on behalf of the primary insurer.

Brian
Brian D. Barnas
[email protected]

 

Chain Smoker Bites the Dust– 100 Years Ago:

The Buffalo Times
Buffalo, New York
28 Oct 1922

Lorenz, 117, Dead.
Was Heavy Smoker

SASKATOON, Sask., Oct. 28.—The death of Henry Lorenz, 117 years old, farmer, of Pleasantdale, Northern Saskatchewan, is reported here. According to family records he was born in Austria, May 9, 1805. Up to a year ago, Lorenz was a heavy smoker, but the increased price of the weed caused him to stop. He did the chores on his farm until a few days before his death.

Editor’s Note:  Maybe, maybe not.  According to Wiki, the source of all truth, the oldest person ever whose age has been independently verified is Jeanne Calment (1875–1997) of France, who lived to the age of 122 years and 164 days. The oldest verified man ever is Jiroemon Kimura (1897–2013) of Japan, who lived to the age of 116 years and 54 days.

The oldest known living person is Lucile Randon of France, aged 118 years, 258 days. The oldest known living man is Juan Vicente Pérez Mora, of Venezuela, aged 113 years, 153 days. The 100 oldest women have, on average, lived several years longer than the 100 oldest men.  Henry Lorenz is not on the list of the top 100.

 

Kyle's Construction Column:

Dear readers,

I am glad to have had one last weekend of warm weather this week, especially good timing on the Bills bye week, and I made sure to take full advantage by getting in a round of golf on both Saturday and Sunday. Looking forward to Halloween festivities and a Sunday Night football game this weekend. Happy Halloween and Go Bills!

This week’s case involves an analysis of a policy’s ensuing loss provision and its application to damage to a hotel building’s roofing system following a windstorm.

Until next time,

Kyle
Kyle A. Ruffner
[email protected]

 

Infidelity – 100 Years Ago:

Times Unions
Brooklyn, New York
28 Oct 1922

HE WINS $600 BALM

Wife Has Suit Pending Now for
Separation.

A jury in Part I of the Queens Supreme Court yesterday awarded a verdict of $600 to Arthur Mihan, of Ridgewood, who brought an action for the alienation of his wife’s affections against John Sauer, of Linden Street, Ridgewood. The jury was out several hours.

Mihan claimed that he had been happily married for nearly ten years until the fall of 1921, when his wife became friendly with Sauer, who lived in the same house.

Sauer said the only relations he had with Mrs. Mihan were over his daughter, Vera. While Mrs. Sauer was ill and for a time after her death, Mrs. Mihan took care of the girl, he said. The child is now living at the home of Mrs. Mihan’s mother.

Since the institution of the alienation suit by Mihan, his wife has started an action against her husband for separation.

 

Fleming’s Finest: 

Dear Coverage Pointers Subscribers:

It has been an action-packed autumn. I recently attended the Mount Holyoke European Alumnae Symposium in the Hague on Building a More Just Society. As someone with a strong interest in public and private international law, I have aways wanted to visit the Hague. It was an exciting opportunity to listen to panelists and to engage in discussion groups in a beautiful city, and it was a pleasure to meet so many engaging attendees.

This week’s case from the Georgia Supreme Court considered whether an individual could take out a life insurance policy on their own life to then sell the policy to a third party. The question was whether the policy was an illegal wagering contract or whether it was legal because the third party did not procure the policy. Under Georgia law, a life-insurance policy taken out by the insured on his own life with the intent to sell the policy to a third party with no insurable interest, but without a third party’s involvement when the policy was procured, is not void as an illegal wagering contract.

Catch you later,

Kate
Katherine A. Fleming
[email protected]

 

Runaway Fiancé? – 100 Years Ago:

Passaic Daily News
Passaic, New Jersey
28 Oct 1922

$2,000 Verdict
For Mrs. Busznick.
Broke Promise

After a deliberation of twenty-five minutes, a jury before Judge Joseph A. Delaney in Circuit Court yesterday afternoon, found that Wasyl Misyl, 40, married, of 137 Lake Avenue, Clifton, had broken an agreement to marry Mrs. Feodora Busznick, 43, a widow, also of Clifton. It awarded her a verdict of $2,000.

Misyl’s wife, to whom, as he testified, he has been married for the past twelve years, was sitting at his side in the courtroom when the jury announced its verdict to Deputy County Clerk Lloyd B. Marsh. Mrs. Busznick was also present. Neither she nor Mr. and Mrs. Misyl, none of whom can understand or speak the English language, knew the effect of the verdict until an explanation was given several moments later by friends. Misyl at first thought the verdict meant that Mrs. Busznick would be required to pay him $2,000, but in this erroneous impression he was soon corrected.

John O. Benson, counsel for Misyl, said he would immediately make application for a rule directing Mrs. Busznick to show cause why the verdict should not be set aside as excessive and contrary to the weight of evidence.

After both sides had rested their cases, Lawyer Benson moved for the direction of a verdict in favor of the defendant, on the ground that the plaintiff had failed to produce any definite proof as to the damages she sustained because of Misyl’s alleged breach of promise to marry her.

Mrs. Busznick claimed she first met Misyl in November 1919; that thereafter he visited her regularly, and that, after having asked her to marry him, and having received her consent, he refused to take her as his wife.

Misyl absolutely denied he ever asked the widow to become his bride. He also denied he courted her. It was his contention that the only relationship between them was a friendly exchange of greetings in a boarding house in which she was then making her home and in which a male friend of his boarded. She always knew of him as a married man, he said.

 

Ryan’s Capital Roundup:

Hello Loyal Coverage Pointers Subscribers!

The Maxwells’ are all geared up for Halloween next week. We’ve got decorations, candy, costumes, and kids. Trick-or-treating was a favorite of mine back in the day, and I look forward once again to living vicariously through my children. Oh, to be young again.

Nothing to report this week in the column. Check back next time.

Ryan
Ryan P. Maxwell
[email protected]

 

Umbrella Insurance – 100 Years Ago:

The Courier-News
Bridgewater, New Jersey
28 Oct 1922

Everything Going Out,
Nothing Coming In.

That’s your situation if you have an automobile accident and have no liability insurance.

You have to pay your hard-earned dollars to a lawyer to protect you.

You have to draw on your bank balance or sell your property to meet the damage award.

And what do you have to show for all this expense when you have finished?

Absolutely nothing!

After your accident you will appreciate the value of an Automobile Policy.

Pay a few dollars for protection today, rather than a much larger sum for damages tomorrow.

 

Dishing Out Serious Injury Threshold:

Dear Readers,

Happy Halloween everyone! I hope everyone can get out for some family time and enjoy the fall weather.

I was able to locate two cases to talk about this issue. The first is from the Third Department and addresses a plaintiff with a pre-existing injury wherein he was unable to prove exacerbation of that previous injury by objective medical evidence.  The second is from the Second Department and contemplates psychological injury that constituted a serious injury within the meaning of Insurance Law § 5102 under the significant limitation and permanent consequential limitation provisions.

Enjoy,

Michael
Michael J. Dischley
[email protected]  

 

Latest and Greatest – 100 Years Ago:

The Buffalo Enquirer
Buffalo, New York
28 Oct 1922

A Big Opportunity!

We are ready to allot exclusive
territory to reliable distributors on

THE HANOVER

The lowest priced automobile in the world complete

—including electric starting and lighting system

F. O. B. $250.00 FACTORY

The Hanover is the latest development in automotive engineering, following the best practices in European small car construction. It weighs but 850 lbs. with an over-all length of 118 inches; runs 50 miles on a gallon of gasoline, 20,000 miles on one set of tires and has a speed range of from three to forty miles an hour on high. It is completely equipped—including electric starting and lighting system, storage battery top, windshield, side curtains, extra wire wheel and pump. And the price is but $250 complete F. O. B. factory. Enclosed detachable delivery body $25.00 extra.

Editor’s Note: The Hanover Motor Car Company was an American automobile manufacturer located in Hanover, Pennsylvania and Buffalo, New York. The company was established in 1921 in Hanover. At this first location, roughly 158 cyclecars were built between 1921 and 1922, after which time production of the cars themselves moved to Buffalo and the Hanover plant continued to produce components and replacement parts. Some sources indicated that approximately 800 Hanover cars were built between 1921 and 1927.

The Hanover car was available either as a two-seater roadster ($345) or as a two-seater delivery truck ($370). All versions had a pressed-steel frame, and were powered by an air-cooled, 76.5 cubic-inch V-Twin motor capable of producing 12.5 horsepower. Final drive was achieved through a two-speed manual transmission (with reverse) coupled to a solid rear axle. Lacking a proper differential, which saved costs, the cars were somewhat notorious for "hopping" around corners. The design was further simplified to a point where it was very easy for the manufacturer to convert the cars from left-hand drive to right-hand drive for export markets. The majority of the vehicles were exported to Japan. The Hanover Motor Company promised fuel economy of approximately 49 miles to the gallon and guaranteed the factory-supplied tires were capable of lasting up to 20,000 miles. The Hanover car had electric headlights but relied on a crank starter. It also had no windows and minimal space for the driver and passenger.

Unfortunately, the cost-saving measures taken in the design of the car meant that by the standards of the mid-1920s it was already outdated. For slightly more money, one could purchase a Ford Model T. Sales slumped in 1927 and the Hanover Motor Company went out of business at the end of that year. Today, very few Hanover cars survive. Most extant vehicles are in museums or private collections.

 

Lee’s Connecticut Chronicles:

It is a time of unspeakable tragedy in Connecticut, yet again involving senseless gun violence. This time, two Bristol, Connecticut police officers were killed in the line of duty, ambushed while responding to a fake domestic violence complaint. According to news reports, when the officers stood at the door, a man hiding in the bushes, dressed in camouflage, opened fire with an AR-15 rifle, firing more than 80 rounds at the officers, killing them both. A third officer, wounded, managed to kill the assailant. While a good guy with a gun killed a bad guy with a gun, two well-trained and experienced good guys with a gun will never come home to their families. This is the same type of gun used to kill 26 people, including 20 children, at the Sandy Hook Elementary School in Connecticut a decade ago. And it is the same type of gun used to kill countless Americans in what has become a daily death count of mass shootings (more than 500 Americans so far in 2022).

Remington, the manufacturer of the Sandy Hook gun paid $73 million to the families of nine of the victims, following an historic ruling from the Connecticut Supreme Court allowing a suit to move forward against a firearm manufacturer. Where the lack of political will and deadlock preserve the status quo—meaning more and more tragedies, just maybe it will be the American tort system that will prevail. Unlike so many other nations, even other western democracies, our tort system serves to not only compensate the injured but also to deter and reform. While our system is not without its flaws—and there are many—it has brought about changes, reforms, and improvements to everyday life both big and small. Check out the American Museum of Tort Law, one of those oddball museums, located in Winsted, Connecticut. You can take an online tour here: https://www.tortmuseum.org/

Maybe it will be the tort lawyers who solve this apparently unsolvable problem.

Keep keeping safe.

Lee
Lee S. Siegel
[email protected]

 

Capen Appointed Chancellor – 100 Years Ago:

The Buffalo Times
Buffalo, New York
28 Oct 1922

CHANCELLOR CAPEN

With ceremonial impressiveness befitting the dignity of the event, Dr. Samuel P. Capen is today inaugurated Chancellor of the University of Buffalo.

To the accomplished scholar, distinguished educator and able executive who becomes the University’s head, THE TIMES proffers the felicitations suitable to the occasion. To the foundation of learning Chancellor Capen represents are tendered congratulations that he is its representative in the high and responsible capacity of which the Chancellorship is both the fact and the symbol.

With more than characteristic warmth of greeting, Buffalo welcomes Chancellor Capen. With all the prestige of a brilliantly successful past, he comes here with the auspices that create the forecast of a great future.

The advent of Chancellor Capen marks the close of one epoch and the beginning of another. The era that is ended made possible the one that has begun.

Founded by the courage, faith and foresight of the educational pioneers of 1846, the University of Buffalo passed through a long period of struggle. As the years went on it became manifest that the growth, though gradual, was sure, and the more solid for the very reason that it was gradual.

Year by year the University of Buffalo widened its orbit of influence and amplified its scope of opportunity. Noble benefactions, the gifts of liberal citizenship, responded to its financial requirements, culminating in the $5,000,000 endowment campaign and its attainment of its goal.

Under these inspiring auguries Chancellor Capen enters upon his work in Buffalo. He brings to it the auspices of his own ripe experience, eminent scholarship, and signal record of success.

 

Rauh’s Ramblings:

Hello readers!

We are just a few days away from Halloween and my 4-year-old could not be more excited!  This year, he decided to dress up as a wizard.  He will have a Halloween parade at pre-school on Monday and then we will take him trick-or-treating later that night.  This year, I waited until the very last minute, so we still don’t have any pumpkins to carve.  Hopefully, we can find a couple somewhere over the weekend.  I am planning to do a Buffalo Bills themed pumpkin and if it turns out somewhat decent, perhaps I will provide a picture next time!

I hope everyone has a great weekend – GO BILLS!

Patty
Patricia A. Rauh
[email protected]

 

Fascist Dictatorship – 100 Years Ago:

Record-Journal
Meriden, Connecticut
28 Oct 1922

Fascisti Seizing
Control Of Some
Italian Cities

London Times Has Dispatch Saying That
In Florence, Pisa and Some Other
Towns The State Authorities Have Been
Deposed By Fascisti

London, Oct. 28—The Times prints a “message from Italy” without naming the source saying:

“The Fascisti at 11:30 (Friday night) began action on several towns. They are now masters of some of the chief towns like Florence, Pisa, and Cremona. Communications between north, south and central Italy have been interrupted.

“Everywhere in these towns they disposed the state authorities and assumed command. It seems there was no resistance and no conflict, except in Cremona, where six Fascisti were shot. Everything is quiet in Milan, where there is a great display of troops.”

Rome, Oct. 27—(By the Associated Press)—The Italian cabinet, headed by Premier Facta, handed their resignations to the king today, it was officially announced this evening.

The announcement had been expected and therefore caused no surprise among the people of Rome. King Victor Emmanuel has requested Premier Facta and his colleagues in the ministry to continue their routine work until a new government has been constituted. Meanwhile, the members of all the political parties express the hope that no disorders will result and that the various factions will permit the crisis to be solved without any undue pressure.

The king, who arrived in Rome tonight, received Signore Facta, who gave the monarch a detail report on the situation, both concerning the cabinet and the frame of mind of the public. He told the king that all measures had been taken to endeavor to prevent any attempt being made against the authority of the state and to repress any disorders that might arise.

           

Storm’s SIU:

Hi everyone:

Two fire cases for you this edition:

• Insurer granted default judgment on its counterclaim against the insured sufficiently stating a cause of action for insurance fraud due to an incendiary homeowners fire.
   

• Insurer sued mortgagee and property preservation company in subrogation action alleging that after foreclosure they were negligent in maintaining the mortgaged property which resulted in a fire also damaging the neighboring property.  Mortgagee and property preservation company were denied summary judgment as a question of fact existed whether they were possessors in physical control of the property. 

Have a most-excellent two weeks until we write again.  Go Bills!

Scott
Scott D. Storm
[email protected]

 

Marriage Not for All – 100 Years Ago:

Norwich Bulletin
Norwich, Connecticut
28 Oct 1922

STATE TEACHERS’ ASSOCIATION
HEARS THESIS ON MARRIAGE

Hartford, Oct. 27.—Inter-marriage of the mentally and physically superior men and women and legal prohibition of marriages between insane, disease ridden, and other persons unfit for human reproduction are two of the most logical solutions to the problems of restoring the world to a basis of sound economic, political, educational, and industrial tranquility, Professor Frederick M. Davenport, of Hamilton College, N. Y., and a senator in the New York legislature, told members of the Connecticut State Teachers’ Association at their fall meeting held in Hartford High School Assembly Hall,

“Each new generation takes over increased and more advanced scientific, educational, and social environments, in no greater capacity than did our primitive ancestors,” and America and the rest of the world as a result are suffering from a brain famine unable to bear the political and economic burden of present times.”

More than 700 teachers in schools located throughout Hartford County attended the general meeting of the morning session. This afternoon J. O. Enleman of Joliet, Illinois, spoke in place of William B. Owen, president of the National Education Association, who sent the word that he would be unable to attend.

Editor’s Note:  Imagine what would happen if that were a topic presented in today’s climate.

 

Gestwick’s Greatest:

Hello readers! Quite a bit has happened in my life in the past two weeks. First, I went to Kansas City with my dad for the Bills vs. Chiefs game. While there, we were lucky enough to meet the parents of Buffalo’s pride and joy, Josh Allen! We ate some delicious barbecue, shared many laughs, and most importantly, saw an exciting Bills victory! Three days following my return to the City of Good Neighbors, I received the exciting news that... drumroll please... I PASSED THE NEW YORK STATE BAR EXAM! This is by far my proudest achievement of my entire life, and I could not have done it without the tremendous support of my family, friends, and colleagues. Barring any unforeseen circumstances, I will be a fully licensed attorney in New York State come January 2023.

This week, I bring to you a bad faith case from the New York County Supreme Court. Sometimes, when a plaintiff sues an insurance company for breach of contract arising out of an allegedly wrongful denial of an insurance claim, the plaintiff will include one cause of action for breach of contract, and another cause of action for breach of the implied covenant of good faith and fair dealing (a/k/a “bad faith”). The general rule in New York is that if the bad faith cause of action is based on the same facts as the breach of contract cause of action, the former should be dismissed as duplicative of the breach of contract claim. The counterpart to this rule, then, is that if the bad faith claim is based on other or different facts, or if it seeks a different or additional kind of damages, then both causes of action will stand. This case falls into the second category. Here, the plaintiff sued their insurance company for a declaration that the insurer had a duty to defend it in the underlying action, that the insurer must indemnify it if it were to be found liable in the underlying action, breach of contract, and breach of the implied duty of good faith and fair dealing. Although the breach of contract claim and the bad faith claim were based on essentially the same facts, the breach of contract claim demanded only compensatory damages, but the bad faith claim also demanded consequential damages as well as legal fees. Because the bad faith claim asked for different or additional relief outside of what the breach of contract claim asked for, the Court denied the defendant’s motion to dismiss the breach of contract claim.

Evan
Evan D. Gestwick – Admission Pending
[email protected]

 

Just For Men – 100 Years Ago:

Buffalo Morning Express and Illustrated Buffalo Express
Buffalo, New York
28 Oct 1922

HEADS OF HAIR TONIC
COMPANY ARE INDICTED

Cleveland, O., Pct. 27 (A.P.).—Louis and Abraham Auerbach of Cleveland, declared by the government to be former heads of the million-dollar hair tonic company, located here, were indicted with four other Cleveland men by the federal grand jury late today, charged with conspiracy to violate the national prohibition law in connection with an alleged $1,000,000 alcohol-running plot here.

 

North of the Border:

I suppose we all must experience real illness in our lives but speaking from the point of view of one who is never sick, it is a rude shock when it happens.

While in Philadelphia for the FDCC Board Meeting ahead of the CCS, I developed a mild sinus issue and then, suddenly, I lost my voice. I couldn’t speak above a whisper. I could feel the walls starting to cave-in so to speak and I therefore got the earliest flight home. After receiving a prescription for antibiotics, I spent five consecutive days sleeping. My voice returned on the sixth day, and I am now back to work.

Take that Vitamin C. I’m back to wearing a mask in public.

My column this week discusses a really interesting decision on the “worked performed” issues in a liability policy.  Enjoy.

Heather
Heather A. Sanderson
[email protected]

 

Joy Ride not so Joyful– 100 Years Ago:

The Buffalo News
Buffalo, New York
28 Oct 1922

Trip of Four Boys and Maid
to Hollywood Ends Abruptly

Start From Hornell in “Borrowed” Car and Wind Up
at Warren—Two Desertions at Cuba.

HORNELL, Oct. 28.—The lure of Hollywood was so strong for four boys and a girl of this city that they set out from here in a stolen automobile to make the overland journey to California. The trip was to be financed by one of the lads, who is said to have raised $40 on a check to which he is alleged to have forged his mother’s name.

All went well until they reached Cuba, N. Y. There two of the lads abandoned the party because they objected to the presence of the girl. Lulu Vincent, 18 years old, member of a prominent Hornell family, Lulu insisted that she would go through with the journey, as she had every hope of getting into the movies, once they reached Hollywood.

The youths who quit the expedition returned to Hornell. They told where the others could be apprehended. Police put a stop to the trip at Warren, Pa, Police Chief Bailey of Hornell today went to Warren to bring back the girl and the boys, Leo King, 17 years old, and Edward Carroll, 14 years old.

The boys are said to have been planning the trip for several weeks. They, according to police, tried out several automobiles for the journey without permission from the owners, but it was not until they got hold of a car owned by William R. Geary that they found a machine they thought could meet the endurance test.

 

Headlines from this week’s issue, attached:

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

• Non-schedule Workers Compensation Awards End at Death.  Once Dead, You are No Longer Disabled.  Who Would Have Thunk?
• In a Rather Dense Decision, Court Upholds Employee Exclusion
• An Additional Insured Endorsement that Provides Coverage for “Owners When Required by Written Contract” Does Not Provide Coverage to a Tenant.  An Owner is an Owner is an Owner.
• Specific Language Denying Coverage to Non-Named Joint Venturer Trumps More General Language in Policy
• As Vehicle that Struck Pedestrian was Identified, MVAIC Does Not Provide Uninsured Motorist Benefits

 

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

• Plaintiff’s Attempted Claim for Reformation Did Not Relate Back to Initial Complaint Asserting Breach of Contract

• Carrier Meets Burden of Establishing the Application of Sewer Back Up Exclusion

• Joinder of Subro Claim and Related Tort Claim is Appropriate

 

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

• Plaintiff Failed to Prove, by Objective Medical Evidence, Exacerbation of a Preexisting Injury

• Court Found that Plaintiff Sustained Psychological Injury Constituting Serious Injury Within the Meaning of Insurance Law § 5102

 

WILEWICZ’S WIDE WORLD of COVERAGE (featuring Ryan O’Shea)
Agnes A. Wilewicz
[email protected]

• “Underground Property Extension” Covers Endorsement Only, Not the Entire Policy

   

LIENING TOWER OF PERLEY
Michael F. Perley
[email protected]

• MAO’s Private Cause of Action for Double Damages under Medicare Secondary Payer Act Survives Challenge

 

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

• Bad Faith Claim Dismissed where All Parties did not Expect Excess Verdict and Primary Insurer made Efforts to Settle

 

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

• Nothing to note this week.  Enjoy the beautiful fall weather.

 

KYLE'S CONSTRUCTION COLUMN
Kyle A. Ruffner
[email protected]

• There was no Coverage under the Policy for Repairs to the Hotel’s Roof under the Ensuing Los Provision, as the Damage was Caused by Faulty Workmanship

   

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

• Nothing to report this week out of Albany. Check back next time.

   

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

• Southern Farm Complied with North Carolina’s Notice Requirement Before Plaintiff’s Life Insurance Policy was Canceled for Non-Payment

 

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

• Insurer Granted Default Judgment on its Counterclaim Against the Insured Sufficiently Stating a Cause of Action for Insurance Fraud Due to an Incendiary Homeowners Fire

• Insurer Sued Mortgagee and Property Preservation Company in Subrogation Action Alleging that After Foreclosure They Were Negligent in Maintaining the Mortgaged Property Which Resulted in a Fire Also Damaging the Neighboring Property.  Mortgagee and Property Preservation Company Were Denied Summary Judgment as a Question of Fact Existed Whether They Were Possessors in Physical Control of the Property

 

FLEMING’S FINEST
Katherine A. Fleming
[email protected]

• Life-Insurance Policy Taken Out by Insured on His Own Life with The Intent to Sell Policy to Third Party with No Insurable Interest Not Void as Illegal Wagering Contract

GESTWICK’S GREATEST
Evan D. Gestwick – Admission Pending
[email protected]

• Where a bad faith cause of action asks for different or additional relief apart from the breach of contract claim, neither claim will be dismissed as duplicative

 

NORTH of the BORDER
Heather A. Sanderson
[email protected]

• Cumulative, Repetitive Work of a Similar Nature, Like Installing Roof tiles or Lifts of Dirt to Create an Embankment, Does Not Mean that Each Box of Tile, or Each Lift Placement, is a “Particular Part” in a Work Performed Exclusion to a Liability Policy
   

Remember, the actual Coverage Pointers issue is attached.  This is just a taste of things provided.

 

We love your feedback, so write often. And, Happy Halloween. 

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
Scott D. Storm
Thomas Casella
Brian D. Barnas
Ryan P. Maxwell
Patricia A. Rauh
Diane F. Bosse
Joel R. Appelbaum
Kyle A. Ruffner
Katherine A. Fleming
Evan D. Gestwick – Admission Pending
Ryan P. O’Shea – Admission Pending

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

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

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

Alice A. Trueman

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

Diane F. Bosse

Topical Index
Kohane’s Coverage Corner
Peiper on Property and Potpourri
Dishing Out Serious Injury Threshold
Wilewicz’s Wide World of Coverage
Liening Tower or Perley
Barnas on Bad Faith
Lee’s Connecticut Chronicles
Kyle’s Construction Column
Ryan’s Capital Roundup
Rauh’s Ramblings
Storm’s SIU
Fleming’s Finest
Gestwick’s Greatest
North of the Border

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

10/27/22       Green v. Dutchess County BOCES
Court of Appeals
Non-schedule Workers Compensation Awards End at Death.  Once Dead, You are No Longer Disabled.  Who Would Have Thunk?

As a general rule, this newsletter does not report on workers’ compensation decisions unless they are significant or unusual.  This one fits the category

It is well settled that some categories of workers' compensation benefits may pass, in certain circumstances, to the beneficiaries of injured employees who die from causes unrelated to the work injury. The Court of Appeals determined in this case, that unaccrued portions of a non-schedule award under Workers' Compensation Law § 15 (3) (w) do not. The statute does not provide for any unaccrued portion of a non-schedule award to remain payable following an injured employee's death.

Watson sustained an injury in a work-related accident, was classified as having a non-schedule permanent partial disability and received an award in the amount of $500 per week. Pursuant to statutory caps imposed on the period for which non-schedule awards may be paid, Watson was to receive this amount for no longer than 350 weeks. Watson passed away due to unrelated causes after 311.2 weeks. Claimant, Watson's minor son, sought accrued unpaid amounts of his father's award, as well as benefits for the 38.8 weeks that remained before Watson's award would have reached the statutory durational cap.

There is no dispute that, pursuant to WCL § 33, claimant was entitled to the accrued, unpaid portion of the award which his father should have received during his lifetime, in the amount of 311.2 weeks at $500 per week. For the following reasons, however, claimant is not entitled to $500 per week for an additional 38.8 weeks.

Under WCL § 15 (4), where an injured employee dies "from causes other than the injury," an award "made to a claimant under subdivision three" may pass, as relevant here, to "a surviving child . . . under the age of eighteen years." The referenced section, WCL § 15 (3), provides for two categories of awards for injuries resulting in permanent partial disability. A "schedule loss of use" (SLU) award, provided for in section 15 (3) (a)-(u), is designed to "compensate for loss of earning power, rather than the time that an employee actually loses from work or the injury itself. A nonschedule award, in contrast, seeks to reimburse a claimant for earnings lost due to injury.

Schedule and nonschedule awards are calculated differently, reflecting the different purposes they serve. Nonschedule awards require fact-specific, individual calculations based on the impairment of wage-earning capacity. These awards are measured at "sixty-six and two-thirds percent of the difference between the injured employee's average weekly wages and his or her wage-earning capacity thereafter in the same employment or otherwise," and are paid out over a period of time that "shall not exceed" maximum weekly amounts established by 2007 amendments to the statute (WCL § 15 [3] [w]). Nonschedule awards require "a causal link between the claimant's disability and reduced earning capacity" (. The statutory language provides that nonschedule awards are "payable during the continuance of such permanent partial disability," but "subject to reconsideration of the degree of such impairment by the board." Schedule awards, on the other hand, are set at "sixty-six and two-thirds per centum of the average weekly wages," and "shall be paid to the employee" for a fixed, statutorily enumerated period (WCL § 15 [3] [a]—[u]).

As this language shows, contrary to the Appellate Division's description of a nonschedule award as "established, set and fixed at the time of classification" (183 AD3d at 29), the statute clearly provides for the opposite—a nonschedule award is, by its terms, subject to reduction and suspension. Indeed, as we have previously held, a nonschedule award does "not entitle [claimant] to weekly compensation benefits at a specific rate . . . over a set period," because "the rate and duration of benefits awarded by the Board may change from one period to the next" (Burns, 9 NY3d at 217).

Historical amendments to the statute show an understanding of this key.

 

10/26/22       Gem-Quality Corporation v. Colony Insurance Company
Appellate Division, Second Department
In a Rather Dense Decision, Court Upholds Employee Exclusion

Gem-Quality, a contractor, allegedly entered into a contract with the New York City Housing Authority (“NYCHA)” to perform construction work at an NYCHA public housing development (“project”). NYCHA allegedly retained Jay Shapiro & Associates, Inc. (“JS & A”, to act as construction manager for the project. In its contract with NYCHA, the Gem-Quality agreed to defend and indemnify NYCHA for all claims arising from work performed by the plaintiff at the project.

On March 27, 2018, a Gem-Quality employee, Stuto was injured while performing work at the project as an employee of the plaintiff. Stuto sued the NYCHA (“underlying action”). NYCHA sent a demand to the Gem-Quality to defend and indemnify NYCHA in the underlying action. Gem-Quality passed the demand to its CGL Insurer Peleus Insurance Company. Peleus denied coverage based upon an exclusion in an endorsement to the subject policy for "bodily injury" arising out of "[a]ll work, activities, or operations performed by the named insured's employee."

So, in the usual fashion, NYCHA commenced a third-party action against the Gem-Quality and JS & A, asserting causes of action to recover damages for breach of contract and for contractual and common-law indemnification and contribution. JS & A sent the Gem-Quality a letter stating that, in the event JS & A incurred any costs or expenses by reason of the causes of action asserted by Stuto against NYCHA, JS & A would demand that the plaintiff defend and indemnify it.

Gem-Quality then commenced this action against Peleus, and Colony Insurance Company, to recover damages for breach of the subject policy and for a judgment declaring that the insurer defendants are obligated to defend and indemnify the plaintiff, as well as NYCHA and JS & A as additional insureds under the policy.

The duty to defend is broader than the duty to indemnify. A duty to defend is triggered by the allegations contained in the underlying complaint.  Unambiguous provisions of an insurance contract must be given their plain and ordinary meaning. The insurer has the burden of proving the applicability of an exclusion and policy exclusions are to be strictly and narrowly construed and are not to be extended by interpretation or implication.

Here, in support of their motion, the insurer defendants submitted an affirmation of counsel, the amended complaint in this action, the subject policy, the complaint in the underlying action, and the third-party complaint in the related third-party action. The subject policy includes a contractual liability exclusion, which, as is relevant, excludes from coverage "bodily injury" for which "the insured" is obligated to pay damages by reason of the assumption of liability in a contract. The subject policy also includes an employer's liability exclusion, which, as is relevant, excludes coverage for "bodily injury" to an "'employee' of the insured arising out of and in the course of" employment by the insured. The amended complaint alleged that Stuto was allegedly injured "while performing work as an employee of [the plaintiff]." However, both the contractual liability exclusion and the employer's liability exclusion contain an exception for liability assumed by the insured under an "insured contract."

Accepting as true the allegations in the amended complaint and according to the plaintiff the benefit of every possible favorable inference, the amended complaint sufficiently alleged that the plaintiff's contract with NYCHA falls within the subject policy's definition of an "insured contract."

Contrary to the insurer defendants' contention, they failed to demonstrate that the "DESIGNATED ONGOING OPERATIONS AND PRODUCTS-COMPLETED OPERATIONS HAZARD" exclusion, found in an endorsement to the subject policy, unambiguously excludes from coverage either liability assumed by the insured under an insured contract or an obligation of the insured to indemnify another because of bodily injury arising out of work performed by the named insured's employee. The endorsement only expressly and clearly excludes coverage for damages for bodily injury sought by way of a direct claim by the injured party against the insured.

However, Stuto did not assert any causes of action against the plaintiff or JS & A in the underlying action. Therefore, the insurer defendants established their entitlement to a declaration that they are not obligated to defend and indemnify the plaintiff and JS & A in the underlying action.

The insurer defendants satisfied their burden of demonstrating that NYCHA was not entitled to coverage as an additional insured under the subject policy. The plain meaning of the "DESIGNATED ONGOING OPERATIONS AND PRODUCTS-COMPLETED OPERATIONS HAZARD" exclusion in the endorsement to the subject policy is that there is no coverage under the subject policy for damages for bodily injury arising from work performed by the plaintiff's employee.  Stuto asserted causes of action against NYCHA in the underlying action for bodily injury arising from work that Stuto performed as the plaintiff's employee. The subject policy was not rendered ambiguous because of an apparent conflict between the employer's liability exclusion and the exclusion in the endorsement. Policy exclusions are to be read seriatim and, if any one exclusion applies, there is no coverage since no one exclusion can be regarded as inconsistent with another. Thus, "the separate and distinct" employer's liability exclusion does not render the subject policy "ambiguous so as to require that it be construed in the insured's favor. Accordingly, the insurer defendants established their entitlement to a declaration that they are not obligated to defend and indemnify NYCHA in the underlying action and the related third-party action.

 

10/29/22       Arch Specialty Insurance Co. v. RLI Insurance Co.
Appellate Division, Second Department
An Additional Insured Endorsement that Provides Coverage for “Owners When Required by Written Contract” Does Not Provide Coverage to a Tenant.  An Owner is an Owner is an Owner.

Portillo allegedly was injured while working on a project at premises leased by nonparty Triangle. JKT Construction (“JKT”), served as the general contractor on the project. Portillo commenced actions to recover damages for personal injuries against, among others, Triangle.

Triangle a commercial general liability insurance policy with Arch and JKT had a commercial general liability insurance policy with RLI.

JKT's commercial general liability insurance policy with RLI (hereinafter the RLI policy) contained an endorsement entitled "Additional Insureds — Owners, Lessees or Contractors" which included as an additional insured "the person or organization shown in the Schedule." The endorsement's schedule listed only "Owners where required by written contract, signed prior to a loss." Arch, on behalf of Triangle, tendered to RLI a claim for a defense and indemnification in the underlying consolidated action on the ground that Triangle Court was an additional insured under the RLI policy.  RLI denied Arch's tender on the ground that Triangle Court was not an owner.

Triangle Court was not an additional insured under the RLI policy. Whether a third party is an additional insured under a policy is determined 'from the intention of the parties to the policy, as determined from the four corners of the policy itself.

Triangle Court, as a lessee of the premises where the accident occurred and not actually an owner, is therefore not an additional insured under the RLI policy.

 

10/18/22       Zurich American Ins. Co. v. Ace American Ins. Co.
Appellate Division, First Department
Specific Language Denying Coverage to Non-Named Joint Venturer Trumps More General Language in Policy

The underlying lawsuits involve allegations that TPC, TPBC, and Legacy are liable for their own negligence and that of their contractors after improperly secured rebar cages or beams struck an employee of nonparty B&R Rebar Consultants/Rebar Steel Corp., A Joint Venture (RJV). The RJV employee was allegedly struck while unloading a trailer owned by TPC, and by beams or cages that had been loaded onto the trailer by RJV employees.

B&R Rebar Consultants, one of RJV's joint venturers, obtained auto coverage for itself and RJV, and that policy was previously found to provide primary coverage to TPC, TPBC, and Legacy.

The rebar contractor at the site was RJV, and although Utica issued a commercial auto policy to Rebar Steel Corp., one of the joint venturers, that policy did not name, describe, or otherwise refer to RJV itself as an insured in the policy/ In any event, Utica's policy contains an extension that precludes coverage with respect to conduct of any joint venture not shown in the declarations of named insureds in Utica's policy, and RJV is not listed in the declarations.

 In addition, the prefatory language of the extension states that the broadening coverage is limited to the auto coverage part. Zurich's interpretation of the prefatory language would improperly render the later specific joint venture language meaningless or mere surplusage. To the extent the language of the extension is conflicting, the more specific joint venture language would control.

 

10/18/22       Nakamura v. Motor Vehicle Accident Indemnification Corp.
Appellate Division, First Department
As Vehicle that Struck Pedestrian was Identified, MVAIC Does Not Provide Uninsured Motorist Benefits

Petitioner moved for leave to sue MVIAC pursuant to § 5218 of the Insurance Law and to bring an action for relief sought in petitioner's proposed verified complaint. Petitioner alleged that she was a pedestrian when she was struck by an uninsured 2012 Volkswagen with a Minnesota state license plate number, owned and operated by Quyang Pang (Pang).

In support of the petition, petitioner proffered, among other things, a police accident report pertaining to the incident, as well as a sworn Notice of Intention to Make a Claim. Both documents identified Pang as the owner and operator of the vehicle and identified the vehicle by its license plate number, year and make. Since there was an identified owner and operator of the offending vehicle, the court correctly denied petitioner leave to sue MVAIC directly pursuant to § 5218 of the Insurance Law

 

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

10/27/22       34-06 73, LLC v. Seneca Ins. Co.
Court of Appeals
Plaintiff’s Attempted Claim for Reformation Did Not Relate Back to Initial Complaint Asserting Breach of Contract

Plaintiff commenced this action after sustaining a fire loss at one of its insured premises.  Seneca denied the claim on the basis that plaintiff failed to maintain adequate and appropriate protective safeguards (namely, an active sprinkler system) in violation of a Protective Safeguard Endorsement found on the policy.

A few weeks prior to the fire, Seneca inspected the property and advised that plaintiff did not have a working sprinkler system. Nevertheless, there was no indication that Seneca moved to cancel the policy after its inspection and request for additional work.  Plaintiff, seizing on this, argued that Seneca waived the PSE requirement.  The trial court found triable issues on waiver, and on whether the system was actually operational at the time of the fire.

At trial, however, testimony was adduced from Seneca’s underwriting representative that the inclusion of the PSE might have been a mistake.  Further, plaintiff’s own principal testified that he instructed the broker to not procure a policy with a sprinkler requirement.  As such, plaintiff moved at the completion of trial testimony to amend its Complaint to assert a claim for reformation.  Seneca opposed arguing that the claim was time-barred and futile.  In addition, Seneca noted that it would be prejudiced by the inclusion of a new theory of recovery at the completion of trial.

The court recognized that the reformation claim would be time-barred if it did not relate back to the original Complaint.  Here, however, the trial court concluded that the reformation issues were “part of the whole thrust of the complaint originally.”  At the conclusion of trial, the jury rejected plaintiff’s waiver theory and thus would have enforced the PSE as written.  However, the jury also concluded that the policy should be reformed so as to remove the PSE.  The result of that portion of the verdict, of course, reinvigorated plaintiff’s claim for coverage.

On appeal, the Appellate Division affirmed the trial court’s ruling on the amendment/reformation issue.  In so holding, the Court advised that the PSE was “at the heart” of the litigation from the outset and that the same evidence supporting plaintiff’s waiver arguments also supported reformation.  Further, the Appellate Division rejected Seneca’s arguments of prejudice because Seneca had possession of the underwriting file since the risks inception and withheld its production in this litigation until nearly five years after the initial Complaint was served.

The Court of Appeals granted leave to appeal, and eventually overturned both the trial court and the Appellate Division rulings.  Core to its opinion was the Court’s reasoning that “relation back” only applies where the initial pleading gives some notice of the “transactions, occurrences or series of transactions or occurrences, to be proved pursuant to the amended pleading.”  Under this construct, the Court noted that only a review of the initiating Complaint was relevant for determining if the newly proposed claim relates to the original pleading.  As a result, the status of discovery or trial testimony should not have factored into the lower courts decisions. 

In this case, the Complaint not only alleges the existence of a valid and controlling contract (ie., the policy) but further alleges that plaintiff fully complied with all of the terms and conditions thereof.  With no alternative theory advanced in the Complaint, plaintiff could not now say that their claims that the contract was fully complied with put Seneca on notice that, potentially, the contract should be reformed due to a mutual mistake in underwriting.  Again, plaintiff’s original pleading asserts the exact opposite. 

The Court further noted that plaintiff’s explanation for the delay was not sufficient to overcome the lack of notice pleaded in the Complaint.  Indeed, plaintiff submitted testimony from its principal that he advised the broker the policy should not be written with a PSE.  This was before the policy was issued.  As such, if reformation was a real issue for plaintiff at the time of the pleading, they could have/should have asserted it in the initial Complaint. 

The matter was remanded to the trial court for entry of an order dismissing the reformation cause of action and, presumably, entering the trial verdict enforcing the PSE.

 

10/20/22       Maternity Warehouse, Inc. v. Starr Indemnity & Liability Co.
Appellate Division, First Department
Carrier Meets Burden of Establishing the Application of Sewer Back Up Exclusion

Plaintiff submitted a claim for damage associated with a 2018 water leak.  Upon completion of Starr’s investigation, it was learned that the damage was occasioned out of a plugged sewer line which caused a first-floor toilet to overflow.  Starr invoked the policy’s exclusion for sewer back up but invoked the $2,000 limited coverage extension in favor of plaintiff.  Plaintiff challenged on the basis that the water loss was not caused by the sewer back up.

On summary judgment, Starr produced an affidavit from a plumber hired by plaintiff in June of 2018 to remove the obstruction in the sewer pipe.  At that time, there was no complaint by the plaintiff of additional leaking or a broken pipe.  Starr also produced an affidavit of the claims adjuster outlining the investigation and the basis for Starr’s denial. 

In opposition, plaintiff produced an affidavit of a different plumber who allegedly repaired a broken line approximately four months later. However, there was no evidence that the leak in June of 2018 continued until the broken pipe was discovered four months later.  On the Record before the court, it was held that Starr had met its burden and the trial court’s decision was affirmed.   

 

10/26/22       Calle v. 2118 Flatbush Ave. Realty, LLC
Appellate Division, Second Department
Joinder of Subro Claim and Related Tort Claim is Appropriate

Plaintiff was a second-floor tenant of a property located at 2116 Flatbush.  In April of 2017, her property was damaged in a fire that originated at the neighboring premises, 2118 Flatbush.  Plaintiff commenced this action against 2116 Flatbush, Union Mutual Fire Insurance Company and 2118 Flatbush.

A few months after this action was commenced, Union Mutual, as subrogree of 2116 Flatbush, commenced a lawsuit against 2118 Flatbush.  Union Mutual then moved to join its action with Calle’s action for purposes of both discovery and trial.  The trial court joined the matter for discovery, but denied the request to join for purposes of trial.

Because the two actions involved common questions of law and fact, the Appellate Court ruled that the trials should also be joined.  Doing so avoided the possibility of inconsistent results, and to the extent the disclosure of insurance is prejudicial the Court ruled it can be ameliorated by an instruction to the jury.   Finally, a joint trial is appropriate where, as here, a party is a defendant in one action and a plaintiff in the other (ie., Union Mutual).                                  

 

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

10/13/22       David J. Lemieux v. Alton E. Horn et al.
Appellate Division, Third Department
Plaintiff Failed to Prove, by Objective Medical Evidence, Exacerbation of a Preexisting Injury

Appeals from an order of the Supreme Court (Jeffrey A. Tait, J.), entered June 29, 2021 in Broome County, which, among other things, granted defendants' cross motion for summary judgment dismissing the complaint, and (2) from an order of said court, entered February 17, 2022 in Broome County, which, upon re-argument, adhered to its prior decision.

On November 3, 2016, in the City of Binghamton, Broome County, the 2011 Toyota Highlander plaintiff was driving was rear-ended by a 1998 Kenworth tractor trailer driven by defendant Alton E. Horn and owned by defendant Say Co Trucking, LLC. Plaintiff commenced this action to recover for serious injuries, within the meaning of Insurance Law § 5102 (d), that he allegedly sustained as a result of the accident. Following joinder of issue and discovery, plaintiff moved for partial summary judgment on the issue of defendants' negligence. Defendants cross-moved for summary judgment dismissing the complaint, arguing that plaintiff could not recover because he had not sustained a serious injury in the November 2016 accident as defined by Insurance Law § 5102. Although the Supreme Court determined that Horn was at fault in the accident and granted plaintiff's motion for partial summary judgment as to liability, it further determined that plaintiff had not sustained a serious injury as required and, as a result, also granted defendants' cross motion for summary judgment dismissing the complaint. Plaintiff appeals from that order, as well as a subsequent order in which Supreme Court granted his motion for re-argument and, upon re-argument, adhered to its original decision.

Upon review, the Appellate Court affirmed the decision. "Under New York's no-fault system of automobile insurance, a person injured in a motor vehicle accident may only recover damages if he or she sustained a serious injury". A serious injury, as is relevant here, "includes a 'personal injury which results in' a 'permanent consequential limitation of use of a body organ or member; significant limitation of use of a body function or system; or a medically determined injury or impairment of a non-permanent nature which prevents the injured person from performing substantially all of the material acts which constitute such person's usual and customary daily activities for not less than [90] days during the [180] days immediately following the occurrence of the injury or impairment'". The permanent consequential limitation and/or significant limitation of use categories require "objective, quantitative evidence with respect to diminished range of motion or a qualitative assessment comparing the plaintiff's present limitations to the normal function, purpose and use of the affected body organ, member, function or system," and the proof must show those limitations to be "more than mild, minor or slight". Objective evidence, such as medically imposed limitations upon a plaintiff's daily activities, is also required to support a claim under the 90/180-day category, and self-serving assertions on that score will not suffice.

With those standards in mind, defendants, as the parties seeking summary judgment dismissing the complaint, were obliged to initially "establish, through competent medical evidence, that plaintiff did not sustain a serious injury caused by the accident". Plaintiff claimed that he had sustained a serious injury to his lumbar spine in the November 2016 accident. Defendants established via plaintiff's medical records, however, that he had been diagnosed with degenerative changes to his lumbar spine in 2002 and had long complained of lower back pain and radiculopathy that required medical treatment. Indeed, plaintiff's medical records show that he was undergoing treatment at the time of the November 2016 accident for what the records described as "debilitating" and "severe" back and radiating leg pain, including physical therapy to address difficulties walking and performing his usual activities that arose following a May 2016 golf injury. In addition, the records showed that plaintiff had undergone several MRIs of his lumbar spine over the years, and that a February 2017 MRI conducted after the November 2016 accident found him to have "essentially stable" degenerative changes as compared to an MRI conducted in August 2016, before the accident.

In addition to those medical records, defendants further produced the affidavit of Thomas R. Haher, an orthopedic surgeon who reviewed plaintiff's medical records and radiological studies. Haher opined that, in light of plaintiff's documented lumbar spine problems prior to the accident and the fact that the August 2016 and February 2017 MRIs showed neither any "significant change" in his condition nor "any new or exacerbated injury to his lumbar spine," the medical proof reflected that "the subject accident did not cause or exacerbate plaintiff's pre-existing low back conditions." Notwithstanding plaintiff's suggestion to the contrary, we agree with Supreme Court that Haher's opinion and the "documented history of extensive preexisting conditions and injuries that . . . produced the same types of symptoms" plaintiff attributed to the November 2016 accident satisfied defendants' initial burden.

Therefore, the Appellate Court found that the burden accordingly shifted to plaintiff to raise a triable issue of fact regarding the existence of a serious injury via "objective medical evidence distinguishing his preexisting condition from the injuries claimed to have been caused by the November 2016 accident". Plaintiff endeavored to do so through his testimony as to how his daily activities were impaired after the November 2016 accident, and additionally pointed to medical records reflecting that he had back pain after the accident that required medical treatment and, in June 2017, decompression surgery on his lumbar spine. He further provided the report of Ali E. Guy, a physical medicine and rehabilitation specialist who recited how he had reviewed plaintiff's medical records and conducted a March 2021 physical examination of plaintiff. Guy then opined, in conclusory fashion, that plaintiff's "prior preexisting conditions" were "pushed . . . over the edge" by the accident and necessitated the surgery.

However, the Appellate Court noted that plaintiff did not provide was objective medical evidence distinguishing his preexisting back condition from its purported exacerbation in the November 2016 accident — such as, for example, proof tying the diminished ranges of motion observed by Guy in March 2021 to the November 2016 accident rather than plaintiff's prior degenerative back problems — or demonstrating a causal link between any exacerbation and the self-reported limitations on plaintiff's activities for purposes of his 90/180-day claim.

Thus, the Appellate Court found that, as plaintiff failed to raise a material issue of fact as to whether any exacerbation of his preexisting condition caused by the November 2016 accident constituted a serious injury, the Supreme Court properly granted defendants' cross motion for summary judgment dismissing the complaint.

 

10/26/22       Nino Lee v. WC Contracting Services, Inc., et al.
Appellate Division, Second Department
Court Found that Plaintiff Sustained Psychological Injury Constituting Serious Injury Within the Meaning of Insurance Law § 5102

In an action to recover damages for personal injuries, the defendants WC Contracting Services, Inc., and Carpio Gonzalo appeal from an order of the Supreme Court, Kings County (Bruce M. Balter, J.), dated November 27, 2020. The order, insofar as appealed from, denied that branch of those defendants' motion which was for summary judgment dismissing so much of the complaint as alleged that the plaintiff sustained a psychological injury that constituted a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident insofar as asserted against them.

The plaintiff commenced this action to recover damages for personal injuries she allegedly sustained in a motor vehicle accident that occurred on February 26, 2016. The defendants WC Contracting Services, Inc., and Carpio Gonzalo (hereinafter together the defendants) moved for summary judgment dismissing the complaint insofar as asserted against them on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the accident. In an order dated November 27, 2020, the Supreme Court, inter alia, denied that branch of the defendants' motion which was for summary judgment dismissing so much of the complaint as alleged that the plaintiff sustained a psychological injury that constituted a serious injury within the meaning of Insurance Law § 5102(d) as a result of the accident insofar as asserted against them. The defendants appeal.

On appeal, the plaintiff does not challenge the Supreme Court's determination that the defendants met their prima facie burden of showing that the plaintiff did not sustain a psychological injury that constituted a serious injury within the meaning of Insurance Law § 5102(d) as a result of the accident. However, contrary to the defendants' contention, the Appellate Court found that plaintiff raised a triable issue of fact as to whether she sustained a psychological injury that constituted a serious injury within the meaning of Insurance Law § 5102(d) as a result of the accident.

Accordingly, the Supreme Court properly denied that branch of the defendants' motion which was for summary judgment dismissing so much of the complaint as alleged that the plaintiff sustained a psychological injury that constituted a serious injury within the meaning of Insurance Law § 5102(d) as a result of the accident insofar as asserted against them.

 

WILEWICZ’S WIDE WORLD of COVERAGE (featuring Ryan O’Shea)
Agnes A. Wilewicz
[email protected]

10/11/22        Blissful Enterprises, Inc. v. Cincinnati Insurance Company
United States Court of Appeals, Fourth Circuit
“Underground Property Extension” Covers Endorsement Only, Not the Entire Policy

Plaintiff, Blissful, owned and operated a hotel in Maryland insured by defendant Cincinnati Insurance Company. In 2016, Plaintiff’s employees discovered a large hole next to the hotel. Plaintiff characterized the loss as a sinkhole and claimed underground pipes forming part of hotel’s storm-water drainage system may have been damaged. Cincinnati in turn sent a reservation of rights letter to Plaintiff explaining it might have covered the damages but would not cover the cost of filing the hole. The main policy excluded underground pipes from coverage, and losses caused by or resulting from collapse. However, Plaintiff had purchased a Hotel Commercial Property Endorsement, which included an Underground Property Extension. This extension added coverage for underground pipes connected to the property. The extension also contained a collapse extension for loss if unseen decay caused the loss.

Plaintiff proceeded to retain an engineer to investigate the damage. The engineer summarized his findings to Cincinnati: that a metal pipe failed and caused the hole. Plaintiff then consulted a construction company to quote the cost of repair. After the receipt of the quoted amount, $335,484, Cincinnati chose to investigate. Cincinnati contacted Plaintiff’s engineer to determine whether hole met the policy’s definition of a “sinkhole.” The engineer could not do so. He did opine that a pipe had become so corroded that it sheared off and caused the subsequent collapse. Cincinnati determined that the loss/hole did not meet the policy’s definition of a “sinkhole” and thereafter disclaimed coverage for the entire loss.

An declaratory judgment action ensued and Cincinnati received a grant of summary judgment. However, Plaintiff appealed, with its focus on the Hotel Commercial Property Endorsement, citing the Underground Coverage Extension and the Collapse extension contained within the endorsement. The district court granted Cincinnati summary judgment, which the Fourth Circuit affirmed.

In affirming, the Court was quick to note a “rust, decay, or corrosion” exclusion applied, and the crux of Plaintiff’s is that while the policy excluded loss for collapse, the Collapse extension covered the loss for unseen decay because the Underground Coverage Extension amended the policy to cover losses for underground pipes. The Court noted the Underground Policy Extension included the underground pipes “[f]or this Coverage Extension.” It reasoned the drafters used this language to limit the coverage inclusion of underground pipes to that specific extension only. It held the inclusion of underground pipes in the Underground Coverage Extension does not extend to the Collapse Extension. Further, it determined the misreading of the extension would extend coverage for underground pipes to the entire policy, by contravening the text of the Underground Coverage Extension.

In defending this interpretation, the Court explained this finding does not render the Underground Pipe Extension illusory. It stated Cincinnati identified various instances where the extension would be triggered even where though the losses caused by collapse and hidden decay are not covered. The lesson learned is where coverage is extended one must be wary of how far it extends.

 

LIENING TOWER OF PERLEY
Michael F. Perley
[email protected]

10/26/22 Aetna Life Insurance Company v. Big Y Foods, Inc., et al.
United States Court of Appeals, Second Circuit
MAO’s Private Cause of Action for Double Damages under Medicare Secondary Payer Act Survives Challenge

When Big Y Foods settled the personal injury claim of Nellina Guerrerra for what it considered “nuisance value,” it ignored the efforts by Aetna Life Insurance Company, a Medicare Advantage Organization, to recover the sums it paid for her medical services; as it turns out, to its peril.  Aetna then sued Ms. Guerrerra, her attorneys and Big Y, the real target, under the Medicare Secondary Payer Act (42 U.S.C. §1395y(b) seeking recovery under its “private cause of action” set forth un 42 U.S.C. 1395y(b)(3)(A).  Under that provision Aetna, if successful, would be entitled to double damages.  Significantly, Aetna did NOT seek recovery under its own enabling legislation 42 U.S.C. 1395w-22(a)(4) which provides for collection of only the amount paid. 

At the District Court and in the Second Circuit, Big Y mounted several arguments that were rapidly dismissed out of hand in both courts.  First, that it was not truly a “primary payer” because it was not negligent, notwithstanding explicit statutory language to the contrary; that the settlement was not for reimbursement of medical expenses; and that is satisfied its obligation by paying Ms. Guerrerra.

The real issue on appeal extensively briefed and identified by the Court was whether the private cause of action was available to MAOs in light of the explicit authority granted to them in their own statute.  Previously, the Third Circuit in In Re Avandia Mktg, Sales Practices & Prods. Liab. Litig. (685 F. 3d 353 (23012) found that MAOs have available the private cause of action based, in part on its interpretation that the MAO statute and accompanying regulations did not explicitly authorize MAOs to sue.  Later, the Eleventh Circuit, apparently convinced that MAOs could suer under their statute, found MAO’s were entitled to use the private cause of action because nothing in 1395w-22(a)(4) indicated made their collection provision exclusive. (Humana Med. Plan Inc. v. W. Heritage Ins, Co., 862 F. 3d 1229 (2012). 

There was hope that the Aetna appeal could convince the Second Circuit to disagree with the Third and Eleventh Circuits and preclude MAOs from using the private cause of action.  It was not to be.  Although Judge Nardini’s concurring opinion expresses some doubt, the decision is unanimous. 

In the end, there are several lessons; first, the private cause action appears alive, well and available to MAOs for the foreseeable future; second, and defendant, or its insurer, must account for the interest of Medicare or MAOs when paying any judgment or settlement, unless recovery of medical expenses is specifically precluded by statute (e.g., NY no-fault law); and, third, for insurers who are, after all, financial services institutions, to be mindful of Wille Sutton’s (apocryphal?) answer to the question of why he robs banks – it’s where the money is.

 

BARNAS on BAD FAITH
Brian D. Barnas

[email protected]

10/01/22       Zurich American Ins. Co. v. The Ins. Co. of the State of PA
Appellate Division, First Department
Bad Faith Claim Dismissed where All Parties did not Expect Excess Verdict and Primary Insurer made Efforts to Settle

Zurich brought a bad faith failure to settle claim against ISOP.  In the underlying action, the plaintiff sought damages in excess of $8 million against Skanska and Skanska employee Boeschl for an accident that occurred when she was crossing a street and was hit by an excavator.  ISOP was the primary carrier for Skanska and Zurich was the excess carrier.

Zurich alleged that ISOP had multiple opportunities to settle the case within the $2 million policy limits but never offered more than $500,000.  During trial, ISOP made several attempts to settle, gradually increasing its offer from $125,000 to $500,000. 

Zurich received daily reports during trial and did not question defense or settlement strategy until the evening before summation when it demanded ISOP increase its offer from $400,000 or propose a high low.  Zurich responded immediately by increasing its offer to $500,000 and proposing a high low of $250,000 to $1.25 million.  In response, the plaintiff dropped her demand from $2.5 million to $900,000, and defense counsel inferred she may be willing to go even lower.  The jury verdict in excess of the primary policy limits was clearly unexpected by both parties.

The trial court granted summary judgment in favor of ISOP, and the First Department affirmed.  Given the significant questions relating to causation and damages, the record shows that the excess verdict was objectively improbable, a conclusion that is bolstered by the fact that no one — including plaintiff — expected the verdict to exceed the primary policy limit. Regardless, ISOP worked consistently to settle the case in a reasonable manner, making a total of six settlement offers, including four during the trial. ISOP was under no obligation to accept the $900,000 offer despite the fact that it fell within the policy limits, as an insurer cannot be compelled to settle a questionable claim simply because an opportunity to do so presents itself.

Author’s Note: A link to the trial court’s decision that provides additional factual background to the appellate decision can be found here.

 

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

Nothing to note this week.  Enjoy the beautiful fall weather.

 

KYLE'S CONSTRUCTION COLUMN
Kyle A. Ruffner
[email protected]

10/21/2022   Bethany Boardwalk Grp. LLC v. Everest Sec. Ins. Co.
United States Court of Appeals for the Fourth Circuit
There was no Coverage under the Policy for Repairs to the Hotel’s Roof under the Ensuing Los Provision, as the Damage was Caused by Faulty Workmanship

Bethany initiated this action seeking a declaratory judgment that Everest Insurance was obligated to provide coverage under the Policy for roofing and other damages sustained to Bethany’s hotel during a windstorm. When the hotel was constructed, CCS Roofing installed a thermoplastic polyolefin (“TPO”) roofing system manufactured by Firestone Building Products. The TPO roofing system consisted of polyiso insulation boards topped off with a TPO membrane that completed the roofing system.

Everest issued a policy of insurance to Bethany, providing that the insurer will pay for direct physical loss of or damage to Covered Property at the premises resulting from any Covered Cause of Loss. The Causes of Loss Form identified exclusions that precluded insurance coverage under the policy, including an ensuing loss provision which provided that if an excluded cause of loss results in a Covered Cause of Loss, the insurer will pay for the loss or damage caused by that Covered Cause of Loss.

A windstorm caused damage to the roof of Bethany’s hotel building, causing the TPO membrane to peel back. This exposed the polyiso boards and allowed rainwater to infiltrate the building, which damaged the drywall and carpeting in a hotel room and the ceiling of the hotel’s restaurant. After Bethany submitted a claim to Everest, Everest had the building inspected by an engineer to assess the cause of the damages. The engineer’s report concluded the damages were mainly caused by improper installation of the TOP roof system and concluded the polyiso insulation boards had been improperly glued together, which rendered the roof susceptible to wind pressure. As a result, Everest denied Bethany’s claim because the damage was the result of faulty workmanship and improper installation, which are excluded under the policy.

Bethany initiated this action against Everest seeking a declaration that the Policy covered all damages and losses sustained by Bethany as a direct or consequential result of the windstorm. The district court denied Everest’s motion for summary judgment, holding the policy required Everest to cover the costs to repair the hotel’s interior water damage, as these losses were caused by the windstorm, a Covered Cause of Loss. However, the court held the Policy did not require Everest to cover the costs of repairing the building’s roof because the damages were caused by faulty workmanship, an excluded cause of loss. Bethany requested the court to reconsider its Coverage Ruling, claiming that Everest should pay for repairs to any portion of the roof that had been properly installed but damaged during the windstorm, including the non-defective portion of the roof, the TPO membrane.

Specifically, Bethany relied on the ensuing loss clause and maintained that the Policy covered all damages sustained as a result of the windstorm, including damages to the roof. Even if the policy did not cover the entire roof, Bethany contended the policy covered the cost of repairing the TPO membrane, which had been properly installed but was damaged by the windstorm. Bethany claimed the policy’s ensuing loss provision provides coverage when, despite the exclusions, a separate, independent and subsequent Covered Cause of Loss causes or contributes to the loss. Bethany maintained that because the policy language does not limit the degree to which the covered cause of loss must contribute to the claimed damages, the fact that a covered cause of loss contributed concurrently with an excluded cause of loss is sufficient to provide coverage for all damages to the building that resulted from the windstorm.

The Court of Appeals agreed with the district court that state courts are split between two approaches for interpreting an ensuing loss clause. Under the majority approach, the ensuing loss clause does not cover damages resulting in part from a defect with the very risk raised by the flawed construction occurs. Rather, the damages must result from an independent or fortuitous intervening cause. Under the minority approach, an ensuing loss provision provides coverage for damages cause by a covered cause of loss even when an excluded cause of loss contributes to the damages, but not for the costs of repairing the excluded cause of loss. The district court held that the result in this case is the same under both approaches. There is no coverage under the policy for repairs to the building’s roof as, but for the defective installation, the roof should have withstood the wind. Therefore, the very risk implicated by the faulty workmanship had actually occurred. In addition, because the improper adhesion of the polyiso boards was faulty workmanship, the roof repairs would not be covered under the minority approach. In contrast, the water damage to the hotel was caused by the rain that occurred during the windstorm. Because water damage was not a risk implicated by the faulty workmanship on the building roof and the windstorm was an independent and fortuitous intervening cause, there is coverage under the policy for all other damages caused by the windstorm under both approaches.

Bethany contended on appeal that the district court erred in its decision by denying Bethany’s motion to reconsider the coverage ruling and by denying Bethany’s request for leave to amend its complaint. However, the court held that the district court did not abuse its discretion in either its denial of Bethany’s motion to reconsider or its ruling that Bethany’s proposed amendments were futile. Therefore, the court affirmed the rulings made by the district court in its coverage ruling and final decision.

 

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

Nothing to report this week out of Albany. Check back next time.

 

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

10/26/22       Whitmire v. Southern Farm Bureau Life Ins. Co.
U.S. Court of Appeals, Fourth Circuit
Southern Farm Complied with North Carolina’s Notice Requirement Before Plaintiff’s Life Insurance Policy was Canceled for Non-Payment

On May 23, 2005, Southern Farm Bureau Life Insurance Company (“Southern Farm”) issued a term life insurance policy to Susan Whitmire (“Mrs. Whitmire”), which named her husband (“Mr. Whitmire”) as the primary beneficiary.  The policy was payable either annually or semiannually, and had a grace period of 31 days, which specified that the policy would lapse if “any premium due remains unpaid at the end of the grace period.”

The policy payments were typically paid on time, usually by Mr. Whitmire, who would mail a check to Southern Farm.  In May 2016, Mrs. Whitmire filed a change-of-address with the Post Office, indicating that she had moved to a new address in Rock Hill, South Carolina.  Southern Farm received a notification from the Post Office informing of the address change, so they sent two notices to Mrs. Whitmire in June 2016 – one to her former address in Goldsboro, North Carolina, and another to her new address in Rock Hill, South Carolina.  Southern Farm did not receive a response to either letter.

In November 2016, Southern Farm sent its semiannual bill to Mrs. Whitmire at her South Carolina address, informing her that payment was due by November 23, 2016.  However, the bill was not paid.  Southern Farm sent Mrs. Whitmire a “Notice of Lapse” on December 28, 2016, indicating that the grace period had run and the policy had lapsed.  The notice also offered to keep Mrs. Whitmire’s policy in effect if she paid the premium by January 22, 2017.  However, the payment was never made.  Therefore, Southern Farm sent another letter to Mrs. Whitmire in South Carolina indicating that the policy had lapsed, but inviting her to submit a reinstatement application.

On March 10, 2017, Mrs. Whitmire died and her husband contacted Southern Farm to file a claim for the life insurance policy.  On April 27, 2017, Mr. Whitmire received a letter from Southern Farm denying the claim for benefits on the basis that the policy had lapsed due to nonpayment.  Mr. Whitmire sued Southern Farm in federal district court, seeking the policy’s coverage amount, as well as excess damages for alleged unfair and deceptive trade practices on the part of Southern Farm.  He argued that Southern Farm had not complied with a statutory notice requirement prior to canceling the insurance policy for nonpayment and he was therefore entitled to the policy’s benefits.  The parties filed cross-motions for summary judgment, and the district court granted summary judgment to Southern Farm.  Mr. Whitmire appealed that finding.

Section 58-58-120 of the North Carolina General Statutes provides that:

“[n]o life insurance corporation doing business in this State shall, within one year after the default in payment of any premium . . . declare forfeited or lapsed any policy . . . unless a written or printed notice stating the amount of such premium, . . . the place where it shall be paid, and the person to whom the same is payable has been duly addressed and mailed, postage paid, to the person whose life is insured . . . at his or her last known post-office address in this State.”

The title of this Statute is “An Act to Prevent the Forfeiture of a Life Policy Without Notice.”  The Court reasoned that the purpose of this Statute is to ensure that life insurance companies doing business in North Carolina provide their insureds with notice before canceling their policies for nonpayment.  According to case law, the Court stated that even when the language of a statute is plain, the title of an act should be considered in ascertaining the intent of the legislature.

The Court stated that Southern Farm complied with the requirements of the Statute.  They sent Mrs. Whitmore the November 2016 semiannual bill on November 7, 2016, which informed her that she had a premium payment due on November 23, 2016, in the amount of $1,062.20.  Further, on December 28, 2016, fifty-one days after the mailing of the relevant notice, Southern Farm sent a letter to Ms. Whitmore informing her that her policy had lapsed due to nonpayment – meaning that the policy remained in effect for more than 30 days after the notice’s mailing.

Nevertheless, Mr. Whitmire argued that Southern Farm failed to comply with the Statute’s requirement that the notice be mailed “to the person whose life is insured…at his or her last known post-office address in this State.” (emphasis added).  He argued that Southern Farm was required to send the notice to Mrs. Whitmire at her last known address in North Carolina, even though it was undisputed that she was no longer living there and had moved out of state.  The Court disagreed with Mr. Whitmire’s argument and stated that even if you apply an ”inflexibly literal reading of the statute – deciding that only a notice mailed to a North Carolina address can comply with the statute – would contravene the North Carolina General Assembly’s purpose, which must ultimately control our interpretation.”  Had the notice only been sent to the North Carolina address, where Mrs. Whitmore undeniably no longer resided, then she would not have received notice at all from Southern Farm.  Accordingly, the Fourth Circuit affirmed the district court’s ruling granting summary judgment to Southern Farm.

 

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

09/30/22       McCullough v. Metlife Auto & Home
United States District Court, Middle District of Pennsylvania
Insurer Granted Default Judgment on its Counterclaim Against the Insured Sufficiently Stating a Cause of Action for Insurance Fraud Due to an Incendiary Homeowners Fire

Plaintiff filed a complaint in Pennsylvania state court against MetLife Auto & Home seeking to force it to pay Plaintiff on a homeowners fire claim.  MetLife removed this action to federal court and filed an answer with a counterclaim against Plaintiff asserting a violation of Pennsylvania state law for insurance fraud. Plaintiff failed to respond to the counterclaim and default was subsequently entered by the Clerk of Court.  MetLife now files this motion for default judgment which is granted.

Generally, the entry of a default judgment is disfavored, and a court is required to exercise sound judicial discretion in deciding whether to enter default judgment.  The Court finds that default judgment is appropriate given the circumstances.  However, a finding that default judgment is warranted is not the end of the inquiry and the Court must consider whether the "unchallenged facts constitute a legitimate cause of action."  Although defaulting parties do not concede conclusions of law, "the factual allegations of the complaint, except those relating to the amount of damages, will be taken as true."   The Court will therefore consider whether the allegations in the counterclaim, taken as true, adequately state a claim against Plaintiff.

The facts alleged in the amended complaint, which the Court must accept as true for the purposes of determining whether MetLife has stated a claim, are as follows.

Plaintiff purchased an insurance policy with MetLife.  Thereafter a foreclosure judgment was entered against Plaintiff, and she was served with a notice of sheriff's sale.  A fire occurred at the Property.  The fire was not sudden and accidental but was, instead, intentionally set with two distinct points of origin.

Prior to the fire, Plaintiff removed important documents from the Property and placed them in her vehicle.  After the fire, newly purchased gas cans were discovered at the home with some cans having their caps removed and residual gasoline in the cans.  Plaintiff thereafter submitted a claim to Defendant for the alleged loss that resulted from the fire.  In doing so, Plaintiff "knowingly presented false, incomplete and/or misleading information concerning the claim and the cause of the fire" and "committed fraud during the investigation." Those facts were material to Plaintiff's insurance claim.

With regard to whether those facts set forth a claim for insurance fraud, Pennsylvania law provides that an individual commits insurance fraud if she "[k]nowingly and with the intent to defraud any insurer or self-insured, presents or causes to be presented to any insurer or self-insured any statement forming a part of, or in support of, a claim that contains any false, incomplete or misleading information concerning any fact or thing material to the claim." Although this is set forth in a criminal statute, that statute further provides that "[a]n insurer damaged as a result of a violation of this section may sue . . . to recover compensatory damages, which may include reasonable investigation expenses, costs of suit and attorney fees."

Here, the allegations sufficiently state a cause of action for insurance fraud. The allegations establish that Plaintiff knowingly made false statements on her insurance claim regarding the cause of the fire that destroyed the Property. Those statements were made with the intent to defraud MetLife and obtain an insurance payout to which Plaintiff was not entitled. These statements were also undoubtedly material, as they "would influence the decision of the issuing insurer to" pay out the insurance policy.  Because the facts sufficiently demonstrate that Plaintiff knowingly and with the intent to defraud submitted material, false information to MetLife regarding Plaintiff's insurance claim, MetLife has adequately stated a claim for insurance fraud, and is entitled to default judgment.

Because MetLife has adequately stated a claim against Plaintiff, the only remaining consideration is the amount of damages to which MetLife is entitled. However, based on the available information, the Court cannot accurately assess damages. The Court will therefore defer any ruling on damages pending further briefing of the issue.

 

10/4/22         State Farm Fire & Casualty v. PNC Bank, National Assoc.  
United States District Court, Eastern District of Pennsylvania
Insurer Sued Mortgagee and Property Preservation Company in Subrogation Action Alleging that After Foreclosure They Were Negligent in Maintaining the Mortgaged Property Which Resulted in a Fire Also Damaging the Neighboring Property.  Mortgagee and Property Preservation Company Were Denied Summary Judgment as a Question of Fact Existed Whether They Were Possessors in Physical Control of the Property

Property subrogation matter arising out of a fire that occurred to two residential properties.  The fire originated at 148 Washington Street causing damage to 150 Washington Street.  State Farm provided insurance coverage to Drauschak, the owner of 150 Washington Street. PNC was the mortgagee of the 148 Washington Street property and had contracted with IMS to undertake maintenance and security measures at the property.  At the time of the fire, the mortgage at 148 Washington Street was in default.  PNC obtained a foreclosure judgment on the property but did not proceed with a foreclosure sale. State Farm now seeks reimbursement of the funds it paid Drauschak. State Farm filed suit against PNC, asserting that it was the responsible party due to its failure to secure the property following a foreclosure. PNC then filed a third-party claim against IMS asserting that its negligence led to the property damage at the 150 Washington Street property.  PNC and IMS seek summary judgment against State Farm which was denied.

PNC contracted with IMS to perform "certain real estate property inspection and real estate property preservation services."  Pursuant to the Agreement IMS was responsible for securing the property.  The Agreement delegated from PNC to IMS such tasks as performing reoccurring inspections, winterization, and lawn maintenance; changing locks; and providing reports about the property's condition to PNC.  PNC classifies IMS as the property manager and alleges the property damage was caused by its negligence.

The record reveals conflicting information about the condition of the property in the 15 months between PNC's foreclosure and the fire.  There had been various reports and testimony of squatters, individuals trying to steal copper pipes, and doors being open despite IMS claims to have secured the doors and that it "winterized" the property.   Other issues included personal items strewn about the house, human feces found and "unsafe hoarding issues."  Two months after IMS's last inspection report, the fire broke out at 148 Washington property, causing damage to 150 Washington Street. The fire investigation conducted by the Pennsylvania State Police Fire Marshal concluded that the fire originated in the attic of the 148 Washington property, but the fire "was ruled to be undetermined in nature."  Plaintiff filed this suit against PNC, alleging that 148 Washington Street was in PNC's "care, custody, and control" and that PNC's failure to properly secure and maintain the property had caused the damage to 150 Washington Street.

Both PNC and IMS filed motions for summary judgment seeking dismissal of State Farm's claims asserting that they neither owned nor possessed the property, and therefore had no duty to maintain it. State Farm disagrees and argues that PNC and IMS had a duty to properly protect the property and failed to do so, creating a fire hazard to neighboring properties.  Furthermore, Defendants claim that "there is no evidence as to who, if anyone for that matter, actually started the fire" nor is there any evidence that the property was not "properly secured." Accordingly, PNC and IMS contend that "a jury would have to speculate as to whether they were negligent in failing to have the property secured, had a duty to secure the property, and whether the fire resulted from an unsecured entrance to the property."

State Farm has presented sufficient evidence to withstand summary judgment on the issue of Defendants' negligence, as a reasonable jury could conclude that Defendants owed a duty to maintain the property, Defendants breached their duty, and that Defendants' conduct was a substantial factor in bringing about the damage to the 150 Washington Street property.

The Pennsylvania Supreme Court has held in another case that a property owner can reasonably be expected to know that the visible conditions of vacant property in a state of disrepair may attract, for various purposes, children or adults, who, having entered the property, might act, either negligently or intentionally, in a manner that would cause a fire.  Therefore, the Supreme Court has held that, "when one negligently maintains property so as to create a fire hazard to an adjoining property and fire harm results, we refuse to conclude, as a matter of law, that the negligent conduct in maintaining the fire hazard was an insignificant cause. This issue is therefore one for the jury to consider." 

In this case PNC and IMS did not own the property at 148 Washington Street, and for that reason they argue that this precedent is inapplicable to the present case. Specifically, PNC claims that it was "neither the possessor of land nor property owner of 148 Washington Street" and therefore "its obligation was limited to securing the premises and performing periodic inspections."  As to IMS, it claims that it was merely contracted by PNC "to maintain the property at PNC's direction" and that it otherwise had "no obligation to keep the property secure."  We are not persuaded that these distinctions make a difference.  As Plaintiff points out, nothing in the text of the precedent decisions explicitly establishes property ownership as a prerequisite for liability in these circumstances.  Rather, "a possessor of land is subject to liability to others outside of the land for physical harm caused by the disrepair of a structure if the exercise of reasonable care would have made it reasonably safe by repair or otherwise."  We accept this proposition and conclude that where a property was negligently maintained in such a manner that caused harm to a neighboring property, the court intended to broadly impose liability on "possessors" as well as "owners."

The mere fact that PNC was a mortgagee of the property at 148 Washington Street does not necessarily amount to a possessory interest that would render PNC responsible for the property's maintenance, security, and repair. In Pennsylvania, a "possessor" of property is generally defined as a party who is "in occupation of the land with the intent to control it," or "in occupation of the land with intent to control it if no other party has done so subsequently," or if neither of those alternatives apply, "if it is entitled to immediate occupation."  These questions of control are for a jury to decide based upon its factual findings.

In our view, the evidence could be construed to demonstrate that PNC exercised "physical control" over the property with an intent to exclude others from its occupation.  Thus, the evidence before us demonstrates that there exists a triable issue of fact as to whether PNC truly "possessed" the property at 148 Washington Street at the time of the fire.

Defendants raise a question as to whether it makes a difference who started the fire. We do not think that should be a consideration here. The Pennsylvania Supreme Court has instructed that conclusive evidence as to the physical force that started the fire is not determinative to the question of the possessor's liability.  The condition of the landowner's property was such that third persons might avail themselves of the opportunity to commit a tort or a crime. Whether or not the landowner should have realized that such a situation had been created is a question for the jury to decide.

We find that the facts in the record raise a genuine dispute for the jury on the issue of breach and causation.  The question of whether Defendants owed a duty to Plaintiff, and if so, whether that duty was breached, as well as the question of whether Defendants' conduct was a "substantial cause" of the damage to the property at 150 Washington Street, are inquiries that cannot be resolved as a matter of law at this stage. 

 

FLEMING’S FINEST
Katherine A. Fleming
[email protected]

10/25/22       Crum v. Jackson Nat’l Life Ins. Co.
Life-Insurance Policy Taken Out By Insured On His Own Life With The Intent To Sell Policy To Third Party With No Insurable Interest Not Void As Illegal Wagering Contract

In 1999, Kelly Couch applied for a $500,000 life-insurance policy from Jackson National Life Insurance Company. When he applied, Couch told Jackson that he was healthy, but that was not true. In fact, Couch knew that he was HIV-positive, which, in 1999, meant that he had a greatly diminished life expectancy. He bought the policy with the intent to sell it on the secondary “viatical settlement” market. Such settlements were common in the 1980s and 1990s for people who were HIV-positive, but some people who already had HIV worked with insurance brokers to market policies they procured fraudulently after having received an HIV diagnosis. Eight months later, Couch did just that: a brokerage agency that specialized in viatical settlements connected Couch with Sterling Crum, who bought Couch’s insurance policy knowing that Couch was HIV-positive and likely had only a few years left to live.

Couch died in 2005, and years later, Crum made a claim to Jackson for the death benefit under Couch’s policy. Jackson denied the claim and filed a declaratory-judgment action in the U.S. District Court for the Northern District of Georgia, seeking a declaration that the policy was void ab initio under Georgia law as an illegal human-life wagering contract and that laches barred Crum’s claim. The district court agreed with Jackson that the policy was an illegal wagering contract because Couch bought the policy intending to sell it to someone without an insurable interest. On appeal to the Eleventh Circuit, Crum argued that the district court erred in declaring the policy void ab initio based on Couch’s unilateral intent to sell the policy after he bought it. In Crum’s view, Georgia law requires the knowing and direct involvement of an identified third-party beneficiary at the time of the initial procurement of the policy to find a policy void ab initio as an illegal wager on a human life. The Eleventh Circuit certified two questions to the Georgia Supreme Court:

1. When an insured has purchased a life insurance policy with the intent to sell the policy to a third party with no insurable interest, must either the subsequent purchaser or an intermediary[] be complicit in the procurement of the policy before the latter can be deemed to be an illegal wagering contract and thus void ab initio?

2. If the answer to the above question is neither an absolute “Yes” or “No,” but instead is a response that a life insurance policy can sometimes be deemed to constitute an unlawful wagering contract even without the complicity of the described third party, then we respectively [sic] seek further guidance as to the circumstances that determine when the policy is void ab initio and when it is not.

Under the “insurable interest” rule, if someone wants to take out a life insurance policy on another person’s life, that person needs to have an interest in that life beyond the payout that would result in the end. As a general rule, the law disapproves of gambling on human life in which the parties have no interest except the possibility of gain or loss when the event occurs. Thus, a valid life insurance policy needs some reasonable ground to expect some benefit or advantage from the continuance of the life of the assured, or the contract is a mere wager by which the party taking the policy is directly interested in the early death of the assured. The concept that a party needs an interest in the life insured is central to modern insurance, and the statutory requirement of insurable interest in Georgia was intended to prevent wagering on human lives.

Nothing in the language of the applicable statute prohibited procuring a policy with the unilateral intent to sell it to someone without an insurable interest. The statute allows a person taking out a policy on his own life to designate as a beneficiary “whomsoever such individual pleases, regardless of whether the beneficiary designated has an insurable interest” even though the person taking out such a policy would necessarily have an “intent” to designate that beneficiary at the time he or she took out the policy. On the other hand, if a life-insurance policy is procured or caused to be procured upon another individual, the person to whom the benefits under the contract are payable must have an insurable interest in the individual insured, or the policy is void.

The court noted the relevant question is not the insured’s subjective intent for procuring the policy but rather who procured the policy and whether or not that person meets the insurable interest requirements. The court concluded that under Georgia law, a life-insurance policy taken out by the insured on his own life with the intent to sell the policy to a third party with no insurable interest, but without a third party’s involvement when the policy was procured, is not void as an illegal wagering contract.

 

GESTWICK’S GREATEST
Evan D. Gestwick – Admission Pending
[email protected]

10/20/22       Phase I Group, Inc. v. The Burlington Ins. Co.
Supreme Court of the State of New York, New York County
Where a Bad Faith Cause of Action Asks for Different or Additional Relief Apart from the Breach of Contract Claim, Neither Claim will be Dismissed as Duplicative

The plaintiff, Phase I, sued the defendant, The Burlington Insurance Company, for declining to defend and/or indemnify it in an underlying action arising out of a construction accident. In its complaint, Phase I listed four separate causes of action against The Burlington: (1) a declaration that The Burlington had a duty to defend Phase I in the underlying action; (2) a declaration that The Burlington would be required to indemnify Phase I if it were found liable in the underlying action; (3) breach of contract; and (4) breach of the implied covenant of good faith and fair dealing (a/k/a “bad faith”).

Once this suit was initiated, The Burlington moved to dismiss Phase I’s fourth cause of action for bad faith on the ground that it was duplicative of its third cause of action for breach of contract. The Burlington based this argument on the fact that the bad faith cause of action is premised on substantially the same facts as the breach of contract claim. In its opposition, Phase I argued that it alleged distinct facts that relate only to the bad faith cause of action; specifically, Phase I maintained that it alleged that The Burlington acted in bad faith by denying coverage based on its own improper application of the policy provision regarding its duty to defend Phase I in an underlying action, which was not part of the breach of contract allegations. Additionally, as part of its bad faith cause of action, Phase I alleged that The Burlington breached the policy’s obligation to defend Phase I in the underlying action and to participate in settlement negotiations and mediation. Phase I’s proceeded to argue that this failure on behalf of The Burlington resulted in Phase I’s potential exposure to a judgment in excess of the policy limits. In addition to compensatory damages, Phase I’s bad faith cause of action also sought consequential damages and legal fees it incurred as a result of having to defend itself in the underlying action.

When assessing whether to dismiss a bad faith cause of action as duplicative of a breach of contract cause of action, the general rule is this: where a bad faith claim “arises from the same facts and seeks the same damages as a breach of contract claim,” the bad faith claim should be dismissed. Mill Financial, LLC v. Gillett, 122 A.D.3d 98, 104 (1st Dept 2014). However, where the two claims seek different categories and/or types of damages, neither should be dismissed as duplicative of the other. E. Ramapo Cent. School Dist. V. NY Schools Ins. Reciprocal, 199 A.D.3d 881, 885 (2d Dep’t 2021).

Here, Court held that the bad faith claim should not be dismissed as duplicative of the breach of contract cause of action. The Court reasoned that Phase I’s bad faith cause of action included the additional allegations that The Burlington improperly applied the policy in denying the claim and breached the policy obligations to participate in the settlement and mediation of the underlying action, and therefore, was based on facts outside of those of the breach of contract action. The Court went on to state that because Phase I pled for consequential and compensatory damages and legal fees in the bad faith claim, while the breach of contract claim pled only for compensatory damages, the bad faith claim should not be dismissed.

The above string of cases contain an interesting contradiction. The Mill Financial opinion states that the bad faith claim should be dismissed where it “arises from the same facts and seeks the same damages as a breach of contract claim,” [Emphasis Added], while the E. Ramapo variation of the rule seems to suggest that pleading two different types of damages is sufficient to avoid dismissal, even if both causes of action are based on the same set of facts. Even though the Court here notes that the bad faith cause of action is based on different facts, this decision seems to agree with the E. Ramapo variation of the rule; in fact, the Phase I Group opinion goes to far as to provide “dismissal is appropriate only where the claim seeks the same damages.” [Emphasis Added].

We will be following this development closely.

 

NORTH of the BORDER
Heather A. Sanderson
[email protected]

10/17/22       Kelly Panteluk Construction Ltd. v. Lloyd’s, 2022 SKKB 227
Saskatchewan Court of King’s Bench (trial level)
Cumulative, Repetitive Work of a Similar Nature, Like Installing Roof tiles or Lifts of Dirt to Create an Embankment, Does Not Mean that Each Box of Tile, or Each Lift Placement, is a “Particular Part” in a Work Performed Exclusion to a Liability Policy

The Canadian Pacific Railway (CPR) obtained the contract to ship potash (used in fertilizers) from K+S’s Bethune potash mine near Moose Jaw, Saskatchewan to K&S’s storage facility in Port Moody, British Columbia. There, the potash would be loaded onto ships for international markets.

The mine can produce two million metric tonnes of potash a year. That’s a lot of railcars. However, to discharge that contract, the CPR had to build 30 km (about 18.5 miles) of track across the rural Saskatchewan prairie, the Qu'Appelle Valley, and the Qu'Appelle River. The crossing over the river included a four-kilometre (2.5 mile) embankment. When the line opened in the spring of 2017, CPR declared that this rail line was the most significant engineering project it had undertaken since the mid-1980’s.

However, it seems that no significant engineering project can complete with a claim. This one was no exception.

Kelly Panteluk Construction Ltd. (KPCL), based in Regina, Saskatchewan is a well known western Canadian dirt mover. Under contract with CPR, KPCL, acting as general contractor and performing much of the dirt moving itself, built the earthen embankment to support the rail line crossing the Qu’Appelle Valley. The embankment collapsed. CPR issued a $41 million lawsuit against KPCL and several other entities as result of the collapse and the ensuing delays

KPCL held a Course of Construction Wrap-Up Policy issued by Lloyds and tendered CPR’s lawsuit to Lloyd’s for a defense.

You would be correct to assume that a project of this magnitude would have an All-Risk Course of Construction (COC) /Builder’s Risk Policy as well as a liability / wrap-up policy. In fact, KPCL’s contract with CPR mandated KPCL to obtain an all-risk COC. But it didn’t. Instead, it just had the wrap-up policy. The untold story is how between CPR and KPCL that massive error in risk management occurred.

Lloyd’s denied a defence citing an exclusion for property damage to ongoing work (which applied only to the particular part out of which the damage arises).

KPCL sued Lloyd’s and brought this application for summary judgment. The language used by the trial judge in his written reasons suggests a lack of familiarity with insurance but the four-corner / duty to defend analysis that he used was impeccable. It is apparent that he listened patiently to the theory of the collapse espoused by KPCL:

• The collapse was caused by the placement of a last lift; that this last lift was improperly placed, initiating the failure and was ‘the particular part’ to which the exclusion applied.

 

• Therefore, so argued KPCL, the damage to the remaining elements of the embankment is covered.

 

The trial judge pointed out that this theory is not voiced anywhere in CPR’s pleading and the allegations in the pleading control the duty to defend.

In addition, the trial judge stated that the pleadings do not support KPCL’s argument that the embankment was composed of component parts. Of significance is the trial judge’s statement that “Dividing indistinguishable, identical repetitive works … [in this case, lifts] into separate component parts (whether the last tile on a roof or the last fill on an embankment) defies a reasonable interpretation of the exclusion clause.”  His full statement on this important point is below:

[79]       Aside from the pleading not alleging that the last lift of fill was the reason for the embankment failure, I find that successive and repetitive works of an identical nature (one must assume that building this embankment would have taken innumerable layers of fill) cannot be separated into particular or component parts. Implementing the interpretation in Progressive Homes, an insured might reasonably argue for example, that improperly installed slate tiles under a roofing contract are a “particular part” of the building’s construction so that the insurance would cover all repairs to the collapsed building except the defective roof. What KPCL is attempting to argue is that even the defective roof should be covered because the installation of each individual package of slate tile was a particular part of its work and the roof collapsed only after the last package of slate tile was installed.

[80]       Dividing indistinguishable, identical repetitive works into separate component parts (whether the last tile on a roof or the last fill on an embankment) defies a reasonable interpretation of the exclusion clause.

The trial judge agreed with Lloyd’s that it did not owe a duty to defend and directed KPCL to pay Lloyd’s court costs associated with this application.

Anyone dealing with a ‘work performed’ exclusion in Canada must give this decision a close read for in addition to the analysis of what is “a particular part”, the trial judge provided useful analysis of “is performing operations” and what elements are within and without the project.

 

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