Coverage Pointers - Volume XXIV, No. 15

Volume XXIV, No. 15 (No. 636)
Friday, January 6, 2023
A Biweekly Electronic Newsletter

 

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

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

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

 

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

 

Dear Coverage Pointers Subscribers:

Do you have a situation? We love situations. Our newsletter is attached.

Happy New Year and your first 2023 issue!  Your editor sends his regards from Scottsdale.  We survived the Blizzard of ’22, the worst snowstorm that I’ve ever experienced (and I’ve been in Buffalo almost 47 years).  We had 35 inches of snow on our back porch, three-foot drifts on our street, several days of a driving ban, and much, much more (and we had it easier than many).  Some 40 storm-related deaths will forever mark this storm as one of the worst in Buffalo’s history.

You can understand why we escaped to Scottsdale, Arizona for a long-anticipated (and storm-delayed) vacation.  Arizona is a beautiful state.  I knew we’d be on Mountain Time. What I did not know is that the state subscribes to a different calendar system than the rest of the nation.  On my hike today, I noted this sign:

 

.

 

On a more serious note,

We’re huge Bills fans here in Buffalo, and the Damar Hamlin collapse during the Bengals game was a stunning and tragic recognition of the fragility of life.  Every day is a gift.

We lost another good friend this week, my law school classmate, Justice Frederick Marshall, who succumbed to cancer.  A wonderful guy, a second-generation State Supreme Court judge, the brother of a judge, the former minority leader of the Erie County legislature, a fabulous trombone player, and a great Lebanese cook. Justice Marshall presided, with his storied excellence, over the civil trial which followed the 2009 Flight 3407 Continental Airline crash in Buffalo.  A fine judge, and as one of his colleagues posted, to me, even a better human being,

When Chris and I were getting married 14 years ago, we asked Fred to perform our New York wedding, a couple of days before Justice Erin Peradotto administered our symbolic Canadian wedding at Crescent Dreams.  As he battled for life in his final days, we chatted about two weeks ago, and he was forever upbeat.  Again, a reminder to live each day with joy and optimism.

 

Rest in peace, my friend.

 

 

Registration is around the corner for 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.

 

Training and More Training:

Schedule your in-house training for 2023.  Need a topic?  Here are 160 or so coverage topics from which to choose.

 

Need a mediator?

 

Coverage mediation is a thing!  Subject matter expertise may be useful.

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

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

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

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

Try mediation.

 

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:

This is not a note about weather or football.  I’ll leave that my fellow writers.  Instead, not knowing what to say about the emotional toll of both issues, I’ll stick to insurance law. 

We scratch our heads this week at the Fourth Department’s decision involving Phoenix Insurance Company.  We understand the Court’s concern about whether rain water standing on a roof continues to be rain water.  Or, as the Court openly considered, does it become surface water?  Some other type of water?

We might also understand how a Court could find a question of fact on the dominant and efficient cause of loss of a water claim.

We do not understand how water, which never enters a drain, can be deemed to have backed up in said drain.  In fact, most courts that have dealt with this issue have fairly consistently held that water which fails to ever enter a clogged drain does not back up within it.  The Fourth Department held differently, and in what appears to be a departure from the status quo, posited that a reasonable expectation of the policyholder would be to construe the term drain backup as including water which, in fact, never entered the drain. 

We suspect this decision will become a bit of an anomaly as we move forward, but it is certainly noteworthy for anyone practicing in first party coverage.

The Appellate Division, Fourth Department’s decision involving New York Central Mutual draws a much more insurer friendly line.  In that decision, the Court held that under the four corners of the policy recoverable depreciation cannot be released as “Replacement Cost” until there is actual cost to the insured.  That means estimates will not suffice to trigger release of a holdback.  The insured must show actual loss of money and the completed work. 

That’s it for this week.  Here’s hoping for interesting things to write about/talk about next week.  Stay safe until then.  

Steve
Steven E. Peiper
[email protected]

 

Political Warfare – 100 Years Ago:

The Brooklyn Daily Eagle
Brooklyn, New York
06 Jan 1923

WOMEN PROTEST
LOWER PAY FOR
MISS PATTERSON

Democrats Give Woman Assistant
Prosecutor $1,000 Less
Then G. O. P. Paid to Miss
McCormick.

          Democratic women are protesting against what they regard as the failure of their own party to give women as fair a deal in politics as they do Republicans. The particular kick centers on the treatment accorded Miss May Patterson, the woman District Attorney Charles J. Dodd appointed to the position of Deputy Assistant formerly held by Miss Helen McCormick under the Republican regime. Miss Patterson was shuffled to the bottom of the list of assistants and deputies, and under the present arrangement receives more than $1,000 less a year than her predecessor, although she is given the same work to do, namely, hearing complaints.

          What emphasizes the alleged discrimination is the fact that Miss Patterson expected to have an assignment where she would appear in court and get the opportunity to try cases, a privilege that Miss McCormick had not received. So that while the women expected more from the Democrats, they really got less. And the job and salary Miss McCormick got has been given to a man.

          “The woman always pays,” was the crisp comment of Miss Sarah Stephenson, one of the other women lawyers of the borough, when she learned what had happened. The situation has aroused considerable indignant talk among the women and some of them have carried the protest direct to Mr. Dodd. To one of these he said that after a while he hoped to give Miss Patterson some court work.

 

Wilewicz’ Wide-World of Coverage:    

Dear Readers,

Happy New Year! Here, I am very happy to close the book on 2022. There was just too much, and it was just too heavy. Our household closed the tumultuous year with the storm of a lifetime, as you may have heard. We did not have power or heat for the four days surrounding Christmas. It was a very cold and dark holiday. We tried to make the best of it and got the opportunity to exercise the survival skills we learned during the eight-day outage resulting from Hurricane Sandy. But it was quite the relief to heat back up again and get to reading under artificial- and not candle-light.

Now, this week in the Wide Word of Coverage, we bring you the latest year-end decision from the Second Circuit. In Hunt Construction v. Berkley Assurance, the court briefly addressed triggers of coverage for claims-made-and-reported policies, as well as coverage for Professional Claims. They also briefly talked about potential breaches of the covenant of good faith in insurance contracts – in short, where the breach of contract claim is duplicative of the alleged bad faith claim, the bad faith claim will always, summarily, be dismissed.

Until next time, cheers to 2023!

Agnes
Agnes A. Wilewicz
[email protected]

 

Heinous Hitler – 100 Years Ago:

The Buffalo News
Buffalo, New York
06 Jan 1923

GERMANY NEEDS KLAN,

OPINION OF HITLER

Bavarian Grey Shirts’ Leader
Sends Invitation to
Touring “Wizard.”

By Cable to the Buffalo Evening News and Chicago Daily News (Copyright)

BY GEORGE WITTE.
 

          BERLIN, Jan. 6. —Edward Young Clarke, one of the high officers of the Ku Klux Klan, will be invited by Adolph Hitler, head of the Bavarian “grey shirts,” to visit him in Munich when the “wizard” arrives in Europe, it is announced from Hitler’s headquarters today.

          “What we need in Germany is a powerful organization such as the Klan is in the United States,” Hitler is quoted as saying. “Where the authorities fail or are too weak to act in cases of sedition or other unpatriotic and unmanly behavior there should be an invisible power that will make up for the official shortcomings. From what we have been hearing from the United States it strikes me that the Klan is the right remedy to apply to German conditions.”

          Other nationalists, anti-socialist and antisemitic organizations in Germany are equally eager to have Clarke talk over with them the question of starting a Klan here. Government officials are saying that Clarke will receive permission to visit Germany if he applies for a passport visa but that his doings will be closely watched.

          “If the stories in the newspapers of the Klan outrages are true,” said a high police official, “it will be necessary for us to keep an eye on all Klan representatives coming to Germany.

 

Barnas on Bad Faith:

Hello again:

Happy New Year.  I hope everyone enjoyed the holiday season with friends and family.  It was a bit of a different Christmas here in Buffalo, as the blizzard and driving bans disrupted Christmas Eve and Christmas Day.  Our thoughts and prayers remain with those who lost their lives and loved ones as a result of the storm.  The entire city is also thinking of and praying for Damar Hamlin, as he remains in critical condition following his collapse on the field during Monday Night Football in Cincinnati.  Anyone who has ever read this note knows how much I love sports, but the game felt so insignificant hearing that medical personnel were performing CPR and seeing the looks on the faces of the players and staff.  The outpouring of support for Damar and the financial contributions to his charity have been inspiring.

Not much going on the last two weeks in bad faith case law.  I have a short decision from the District Court of New Jersey in my column this week where a motion to dismiss a bad faith claim was denied.  Check it out if you are so inclined.

Brian
Brian D. Barnas
[email protected]

 

Odd Occurrences – 100 Years Ago:

The Buffalo News
Buffalo, New York
06 Jan 1923

PREPARED FOR BURIAL
ONCE, NOW SHE IS DEAD

          MIDDLETOWN, N. Y., Jan. 6.—Mrs. Minerva Toode, 61 years of age, who has just died at the home of her sister, Mrs. Mary L. Yakle, in Burnside, narrowly escaped premature burial years ago. She was pronounced dead and prepared for the grave. Her body was taken to a church and while the services were in progress she opened her eyes, and after being removed from the coffin revived sufficiently within an hour to walk home with her sister, Mrs. Yakle.

          Mrs. Toode, who has for some years been a widow, a housekeeper in a Sullivan County home, came to the home of her sister a few days ago to spend the holidays, and was to return to Bloomingburg yesterday. While seated in a rocking chair awaiting dinner, she suddenly gave a lurch forward and died.

 

Kyle's Construction Column:

Dear Readers,

I hope everyone had a Merry Christmas and Happy New Year. Like many others in Buffalo, I spent most of the time around Christmas in my apartment downtown due to the snow and driving ban that followed. Luckily, we were still able to get out and visit with family the following week and enjoy the New Year’s festivities downtown.

In this week’s case, the plaintiff is a paving company and subcontractor that was sued for allegedly defective work. The plaintiff sought insurance coverage from its insurer and brought suit when the insurer declined to provide a defense.

Until next time,

Kyle
Kyle A. Ruffner
[email protected]

 

Prohibition Problems – 100 Years Ago:

Buffalo Truth
Buffalo, New York
06 Jan 1923

Drunks in Buffalo’s
City Court

          The Deputy Chief of Police says: — “we cannot enforce the liquor laws—and we are not going to.”

          He is followed by Judge Keeler. “A police officer has no jurisdiction where interpretation of the law is wanted, that is a matter for the courts, however, I am not in favor of the prohibitory laws.”

          The success of the XVIII amendment is in the exact ratio to the thoroughness with which the law is enforced. All the benefits that arise as a result of sobriety gain their peak only when the law is enforced when broken and respected without being broken.

          The easiest job a policeman can have in the way of an arrest, is a drunk. A drunk is as a rule harmless. He has neither the ability nor the cunning of a high grade criminal.

 

Fleming’s Finest:

Hi Coverage Pointers Subscribers:

Hope everyone had a safe and healthy couple of weeks. Our thoughts are with Damar Hamlin, the Bills, and those affected by the winter storm. We were fortunate there was no bad weather in Massachusetts and happy to get together again to celebrate.

This week’s case from the Ohio Supreme Court considered whether computer software could experience direct physical loss or damage in a ransomware attack.

Happy New Year,

Kate
Katherine A. Fleming
[email protected]

 

No Peeking – 100 Years Ago:

Arizona Republic
Phoenix, Arizona
06 Jan 1923

‘Peeping Toms’ See
Eight Lady Godivas
In Full Dishabille

          CHICAGO, Jan. 5—Five detectives making their rounds in the loop found 40 men clamoring for a chance to look into the stereopticon view boxes of a penny arcade.  Lieut. John McCarthy edged to the front and invested a penny.

          He found himself watching ordinary stereopticon pictures.

          McCarthy moved on and tried a 5-cent peep box and discovered he was watching dancing girls in a room of an adjoining building.

          A 50-cent placard on another slot machine caught his eye.

          The lieutenant took one look and rung for one dozen patrol wagons. Eight nude dancing girls in the room connected with the 50-cent machine were arrested and police rounded up 40 men in the crowd outside, charging them with being “inmates of a disorderly house.”

          Rose Zindra, a fortune teller, was arrested as keeper.

 

Ryan’s Capital Roundup:

Hello Loyal Coverage Pointers Subscribers:

Happy New Year! Welcome to the first week of 2023. A fresh start, although my pile seems the same size as last year. Cheers!

Keep your thoughts and prayers with Bills’ safety, Damar Hamlin, his family, friends, teammates, coaches, and all those impacted by his sudden cardiac event. Thank you to all medical providers and first responders involved for not only acting with immediacy, but accuracy when time was of the essence for that young man.

I have an update on the package of workers’ compensation bills that we wrote about in the last issue of Coverage Pointers. I also have outlined a new change to the excess and surplus lines due diligence requirements for brokers.

Until next time,

Ryan
Ryan P. Maxwell
[email protected]

 

Dodging Death – 100 Years Ago:

Buffalo Courier
Buffalo, New York
06 Jan 1923

PILOT SLIGHTLY
INJURED AFTER
10,000-FOOT FALL

          Salt Lake City, Jan. 5. —Pilot Henry G. Boonstra of the western division of the United States aerial mail service fell about 10,000 feet with his airplane near Wanship, Utah, yesterday afternoon and escaped with only slight injuries, according to announcement by air mail officials here today.

          A few weeks ago, Boonstra met with a similar mishap and was not hurt.

 

Dishing Out Serious Injury Threshold:

Dear Readers,

Happy New Year!!! I was thankful to be able to spend new years with family and friends this year. I wish everyone a Happy and Healthy New Year!

I have two cases for this issue. The first is from the Fourth Department and addresses plaintiff’s failure to raise a triable issue of fact on several Serious Injury Threshold grounds. The second is from the Second Department and addresses defendant’s expert neurologist failing to support his findings by objective testing.

Enjoy,

Michael
Michael J. Dischley
[email protected]  

 

Potatoes, Potatoes, Potatoes – 100 Years Ago:

Arizona Republic
Phoenix, Arizona
06 Jan 1923

CARLOAD

of Burbank Stockton, Calif., Spuds. Positively the best Carload of Potatoes ever to come to Phoenix.

$2.25 Per 100 lbs.

Colorado Spuds, $2.00 Per 100 lbs.

Arizona Flagstaff Spuds

$1.75 Per 100 lbs.

Washington Rome Beauty Apples

Wonderful Cookers, Per Box $2.25

Extra help to wait on you

Mequire Fruit Market

Wetzler’s Arcade Market, First and Washington

 

Lee’s Connecticut Chronicles:

Lee
Lee S. Siegel
[email protected]

 

Remembering – 100 Years Ago:

The Buffalo Enquirer
Buffalo, New York
06 Jan 1923

TODAY’S ANNIVERSARY

          Today is the fourth anniversary of the death of Theodore Roosevelt.

          The mail the other day brought a request from the Woman’s Roosevelt Memorial association to observe the day by touching “upon the phases of his character which appeal to American Youth.” It “has become the work of the association to use the lessons of his life to inculcate in the school children of the country the sturdy Americanism of Theodore Roosevelt.”

          The memory of no other American has had the benefit of so much propaganda to make it glorious. If there is system as well as spontaneity in the glorification of Roosevelt’s memory, however, it is not decried. In his life was so much of worthy example and inspiration that it cannot be told too much.

 

Rauh’s Ramblings:

Hello Readers,

Happy 2023 – I hope everyone had a nice holiday and for those in the Western New York area, I hope you were able to stay safe during the blizzard!  As mentioned by most of the other CP contributors, we continue to pray for Damar Hamlin and as of the writing of this headnote, it does appear he has woken up and seems to be neurologically intact, which is wonderful news!

This week, I have a case regarding the assignment of a life insurance policy to a trust and whether failure to comply with the policy provisions regarding written assignments can render the assignment ineffective – please read my summary to see how the Second Circuit ruled on this issue.

Until next time,                  

Patty
Patricia A. Rauh
[email protected]

 

Strike, You’re Out – 100 Years Ago:

The Buffalo Enquirer
Buffalo, New York
06 Jan 1923

ONE AFTER ANOTHER

          Another metropolitan baseball fan is seeking to collect damages from the Giants. Not so long ago a fan was ejected on the ground that he proved disorderly in persistently moving. He claimed he moved about because he was annoyed by the smoking of other fans. His suit brought him a verdict of $750. Another baseball admirer has similar claims, being ejected because when he picked up a foul ball in his seat he tossed it to another spectator, thereby incurring the displeasure of park employees. Consequently, the employees had to chase the ball all over the stand which was exasperating. The complainant was given his money back and told to beat it.

 

Storm’s SIU:

I hope you had wonderful holidays.  I am returning from vacation today so check back next issue for several interesting cases. 

Scott
Scott D. Storm
[email protected]

 

Oh, Buffalo… – 100 Years Ago:

The Buffalo Times
Buffalo, New York
06 Jan 1923

PREPARING FOR
POSSIBLE STORM

Snow May Develop into Blizzard
Before End of Day.

          Hurried preparations were being made this morning by the International Railway Company and the city to keep the streets open for transportation, with the outlook indicating another heavy snowfall.

          The street railway company was getting their plows ready for use and additional spectators were placed on several important lines in an endeavor to maintain their schedules.

          Street Commissioner William F. Schwartz was organizing a gang of snow-shovelers and hiring extra men to help out in a case of an emergency.

          Mayor Schwab’s emergency order enabling passenger motor buses to operate here without violating the law is still in force.

          At 10 o’clock, weather conditions were strikingly similar to those of two weeks ago, when the city experienced the worst storm of the season and one of the worst traffic tie-ups in the history of the city. A high wind blew the falling snow around in circles, while the prospects indicated still heavier fall of snow.

          The temperature was hovering a little below the freezing point with the outlook of promising for quite a drop.

 

Gestwick’s Greatest:

Hello from Beautiful Cancun, Mexico!

I hope everyone had a very nice New Years and Christmas, for those who celebrate. I am on vacation in Cancun this week with my mom, my sister, and their respective significant others! This trip is my law school graduation gift from my mom. She is the best! I will tell you all about it in the next edition.

The New York State trial level courts were about as quiet as the beachfront in the early morning these last two weeks, in terms of coverage decisions. Might have something to do with the holidays. However, I look forward to bringing to you all sorts of developments in the year to come. See you in two weeks!

Until next time,

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

 

Wicked Woman – 100 Years Ago:

Daily News
New York, New York
06 Jan 1923

EVIL SPIRITS PAL
GOES TO PRISON
FOR FOURTH TIME

          Mrs. Rosa Santora, conjurer of evil spirits, was found guilty of grand larceny yesterday in Judge Mulqueen’s Court of General Sessions, in extorting more than $2,000 from Eddie Stoppielo, 246 Mott Street, truck driver and sweetheart of Katie Diodati, the price of dispelling the dark spirits hovering menacingly over the affianced pair.

          Eddie and Katie testified to receiving a threatening letter containing a lock of hair, a pinch of mystic powder and words warning them that evil spirits might at any time cause Eddie to drop dead and Katie to walk Broadway nude, without herself being conscious of it.

Denies Everything

          Mrs. Santora, hatred and terror in her dark eyes, denied everything, with Italian maledictions on the District Attorney.

          The couple had taken the ominous note to Marie Aquaro, Katie’s stepmother. She recommended Rosa as an evil spirit dispeller.

          Rosa accepted the commission, bled Eddie of his savings, made him borrow $500, draw in advance on his wages, and pawn all his jewelry—to a total of $2,500. Still Eddie feared for his life, and Katie had no idea how many times she had shocked Broadway.

 

On the Road with O’Shea:

Hey Everyone,

I hope your holidays went well and for those in Buffalo, I give you utmost respect for enduring the storm. I also wish to extend my sympathies and prayers to Damar Hamlin, his family, and his friends.

This week I reviewed a case from the First Department where the court found an ambiguity between the auto policy and an endorsement. While the Court reached the right decision, it could have simply looked to 11 NYCRR 60-1.1 for the answer. There also could have been a potential estoppel argument raised.

Happy New Year,

Ryan
Ryan P. O’Shea
[email protected]

 

Funeral – 100 Years Ago:

The Chat
Brooklyn, New York
06 Jan 1923

FANS PAY LAST TRIBUTE TO
FAMOUS BASEBALL PLAYER

Hundreds Attend Requiem
Mass Sung Thursday At
Good Counsel Church

Prominent Men Pallbearers
Remains of “Wee Willie” Keeler Laid
At Rest in Floral Covered Grave
In Calvary Cemetery

          Several hundred baseball fans, including many who took delight in applauding his efforts in the heyday of his career, paid tribute to William H. Keeler, known better as “Wee Willie,” at his home, 1010 Gates Avenue, Wednesday night, and at the mass of requiem celebrated by the Rev. John McGowan, in the Church of Our Lady of Good Counsel, Putnam Avenue, Thursday morning.

          It was a silent tribute, but one marked with deep feeling for the demise of a great baseball player, whose last years in life, were decidedly humble. “Wee Willie” Keeler passed away last Sunday night at his home. His remans are now resting in Calvary Cemetery.

          The love of a fan for a player who was “clean” in the greatest of American sports, was evidenced by the large crowd that attended the funeral services conducted by Brooklyn Lodge, No. 22, B. P. O. E., of which Keeler was a member. The impressive service of the Elks was conducted by Thomas S. Burne. Following the singing of hymns and prayers.

 

North of the Border:

We are back at it after a relaxing and quiet holiday break, ready to handle what comes our way:

 

 

Interesting case this week on how the relief from forfeiture provisions of the provincial and territorial insurance acts apply to a liability policy.

Take care,

Heather
Heather A. Sanderson
[email protected]

 

Bring Religion Back – 100 Years Ago:

The Brooklyn Daily Eagle
Brooklyn, New York
06 Jan 1923

BRANDS KU KLUX
AS INSULT TO U.S.

Rabbi Lyons Blames Churches
For Rise of Religious Hatred

          In a bitter attack on the Ku Klux Klan last night, Rabbi Alexander Lyons of the Eighth Avenue Temple blamed the denominational divisions for the failure of the churches and synagogues to eliminate race prejudice and religious hatred. Dr. Lyons spoke at the Friday night services in the temple, at 8^th Ave. and Garfield pl.

          “The churches in American life have been too eager to grow in numerical extensiveness instead of spiritual intensiveness,” he said. “They have been propagandizing their specific groups and churches when our crying need has been such character and conduct as compels mutual respect and helpfulness.

          “Let all good men and women who believe in the high ideals of Americanism combine and cooperate to eradicate the cowardice and lawlessness of Ku-Kluxism and every other form of un-Americanism, so that such seemly outbursts will never again dare to rear their deformed and dangerous heads.

          “The Ku Klux Klan is one of the most disgraceful insults ever offered to the American people. It is a conceited assumption on the part of its organizers and constituents that the American people do not know what is right, or knowing, do not care; or caring, are without the power to have the right respected. It is the usurpation of majority rule by minority presumption. It is an endeavor to uphold law by lawlessness, and finally is cowardice parading as patriotism.

 

Headlines from this week’s issue, attached:

 

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

• Excess Carrier Follow Form Policy Invokes Anti-Subrogation Rules

• Timely Disclaim Based Employee Exclusion Stands to Deny Coverage.  Initial Tender was the DJ, and Disclaimer was the Motion to Dismiss

• Reinsurer for Umbrella Policies Not Liable to Umbrella Carrier for its Payment of Defense Costs when Umbrella Carrier was Not Responsible for Defense Costs

   

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

• Back Up Exception to Water Exclusion Applies Even Though There was No Back Up, Court also Confounded by when Rain Ceases to be Rain.  Thousands Flee as a Result

• With Proof of Actual Costs, Claims for Recoverable Depreciation Holdback were Unsupported

• Owner was Entitled to Contractual “Contribution” for any Percentage of Loss Attributable to Third-Party Defendant/Employer’s Negligence

 

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

• Plaintiff Failed to Raise Triable Issue of Fact on Several Serious Injury Threshold Grounds

• Defendant Expert Failed to Identify the Objective Tests that were Performed to Arrive at his Diagnosis

 

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

• Second Circuit Holds that Set of Construction Claims Were a Single Claim, Under Claims-Made-and-Reported Policies

   

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

• Heightened Standard of Factual Particularity Does Not Apply to Bad Faith Claim

   

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

• EUO is Not a Substitute for Proof of Loss

   

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

• Court Holds Insurer Owed a Duty to Defend Where Expert Report and Complaint Raised the Possibility that Damage was Alleged Beyond Insured’s Own Work

 

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

• New Law Limits Collateral Estoppel Effect of Workers’ Compensation Decisions to The Existence of An Employer Employee Relationship

• New Law Simplifies the Excess Line Insurance Placement Affidavit Requirements

   

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

• Question of Whether Failure to Comply with Provisions of a Life Insurance Policy Requiring Written Notice of Assignment Can Render an Assignment Ineffective Remains Unresolved by New York Courts and Needs to be Determined by the New York Court of Appeals

 

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

• I hope you had wonderful holidays.  I am returning from vacation today so check back next issue for several interesting cases. 

 

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

• When Insurance Policy Covers “Physical Damage,” There Must be Direct Physical Loss or Physical Damage of Covered Media Containing Computer Software for the Software to be Covered under the Policy

 

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

• The state courts were about as quiet as the Cancun seaside this week – see you in two weeks!

 

ON the ROAD with O’SHEA
Ryan P. O’Shea (Admission Pending)
[email protected]

• Auto Policy Terms Found Ambiguous Where It Covers Permissive Users, But Then Endorsement Limits Coverage to Drivers Listed in a Schedule

 

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

• Relief from Forfeiture of Insurance Coverage will not be Granted when an Insured’s Late Notice of a Claim Deprived a Liability Insurer of its Right to Control the Insured’s Defence to Covered Claims, as the Breach is too Prejudicial to the Insurer

 

 

From our home to yours, from our office, to yours, we wish you the happiest of New Years, blessed with health, prosperity, and good cheer.  Live every day to the fullest for each one is a gift.

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

Eric T. Boron

Robert P. Louttit

Ryan P. Maxwell

Patricia A. Rauh

Diane F. Bosse

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
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
On the Road with O’Shea
North of the Border

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

01/05/23       Starr Indemnity v. Zurich American Insurance Company
Appellate Division, First Department
Excess Carrier Follow Form Policy Invokes Anti-Subrogation Rules

On "top" of the primary policy, ZDG was issued several excess liability policies by the plaintiffs, including, as relevant to this appeal, a Starr Indemnity and Liability Co. policy and Navigators Insurance Co. policy. ZDG subcontracted with nonparty Western to install a curtainwall façade for the project. This lawsuit stems from an accident at the project site that allegedly injured two Western employees.

The primary policy's contractual liability and employer's liability exclusions contain an exception for liability for damages "[a]ssumed in a contract or agreement that is an 'insured contract.'" As Western is a named insured under the primary policy, and agreed to indemnify ZDG and others, claims on behalf of Gotham and ZDG under the primary policy against Western are barred by the anti-subrogation rule

 

11/29/22       South West Marine & Gen. Ins. Co. v. Falls Lake Nat. Ins. Co.
Appellate Division, First Department
Timely Disclaim Based Employee Exclusion Stands to Deny Coverage.  Initial Tender was the DJ, and Disclaimer was the Motion to Dismiss

The language in defendant insurer's policy, which excludes coverage for bodily injury to any employee of any insured, pertains to claims against plaintiff Teller Owner, LLC in the underlying action. South West and its insured have not provided a valid excuse for their failure to use reasonable diligence in providing Falls Lake with their tender, which they mailed to an incorrect address and which defendant never received, Accordingly, this declaratory action was the initial tender, to which defendant timely disclaimed based on the employee exclusion in its motion to dismiss.
 

12/23/22       Utica Mutual Insurance Co. v. American Re-Insurance Co.
Appellate Division, Fourth Department
Reinsurer for Umbrella Policies Not Liable to Umbrella Carrier for its Payment of Defense Costs when Umbrella Carrier was Not Responsible for Defense Costs

Utica issued primary and umbrella policies to Burnham Corp, covering the period 1977 to 1984. Plaintiff obtained from American Re, reinsurance coverage for the same period related to the umbrella policies. Burnham was sued by individuals who were allegedly injured by exposure to equipment that was manufactured by Burnham and that contained asbestos (underlying actions).

Utica paid defense costs and losses under the primary policies and, when it allegedly exhausted the primary policies, it began to pay claims under the umbrella policies. Plaintiff sought reimbursement from American Re for defense costs under the reinsurance policies, but it refused to pay, contending that Utica was not obligated under the umbrella policies to pay such costs and that the reinsurance contracts thus were not triggered.

Utica commenced this action, asserting a cause of action for breach of contract. In 2016, the parties entered a settlement as to certain sums American Re allegedly owed to plaintiff under the reinsurance policies. As part of that settlement, Utica retained its claim to what the parties denominate loss interest, i.e., interest on the payment made under the settlement, which was allegedly untimely.

American Re established that its interpretation of the umbrella policies—i.e., that those policies did not cover defense costs in the underlying actions inasmuch as those costs were covered by the primary insurance policies. The umbrella policies here provided that, "[w]ith respect to any occurrence not covered by the policies listed in the schedule of underlying insurance or any other insurance collectible by the insured, but covered by the terms and conditions of this policy (including damages wholly or partly within the amount of the retained limit), the company shall: (a) defend any suit against the insured".

The claims for loss of interest remain for further determination.

 

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

Property

12/23/22       Mezzalingua v. The Travelers Indemn. Co.
Appellate Division, Fourth Department
Back Up Exception to Water Exclusion Applies Even Though There was No Back Up, Court also Confounded by when Rain Ceases to be Rain.  Thousands Flee as a Result

Plaintiff retained Marsh USA to assist with the purchase of property insurance for its facility.  Coverage was obtained from The Phoenix Insurance Company which is a wholly owned subsidiary of Travelers Insurance.  In October of 2016, plaintiff retained Campany to perform roofing work at the premises.  During that same month, the interior of the building sustained damage due to several water leaks.  Plaintiff submitted a claim to Phoenix/Travelers, and the same was denied.  Resultingly, plaintiff commenced the instant lawsuit against Phoenix/Travelers, Marsh and Campany. 

Marsh moved for summary judgment on the basis that its only obligation was to procure the type of insurance sought by plaintiff.  It argued that it did just that, and that, as such, its duties to plaintiff were met.  Because there was no “special relationship” between Marsh and plaintiff, the Court ruled that Marsh procured coverage in satisfaction of its obligations.

The Court found a question of fact on Campany’s motion for summary judgment which sought to dismiss plaintiff’s allegations of negligence against it.  From the opinion, it is clear that both plaintiff and Campany produced expert reports which were diametrically different. As such, the Court ruled that a question of fact existed.

Travelers moved to dismiss on the basis that the party issuing the policy was actually Phoenix, and, as such, it was only Phoenix who had a potential contractual duty to plaintiff.  The Court disagreed, noting that Travelers failed to “establish as a matter of law that [it] did not ‘exercise complete dominion and control over Phoenix’.” 

Finally, with regard to Phoenix’s motion, the Appellate Division first addressed the argument that coverage was excluded by operation of the policy’s water exclusion.  Under this particular policy, coverage was excluded for damage caused by “water or sewer that backs up or overflows or is otherwise discharged from … a drain.”  The exclusion, however, contained an exception which revived coverage where the back up was in a drawing within the building and was not otherwise caused by another provision of the water exclusion. 

The Court noted that the parties agreed that the loss occurred when water was caused to pond/pool on the roof due to a clogged roof drain.  The weight of the water eventually breached the seals of the EPDM roofing membrane.  The question, rightly posed by the Appellate Division, was whether the pooled water was caused by a back up of an interior roof drain. 

Travelers argued that the exception did not apply because the water formed on the roof from rainwater.  There was no evidence that it backed up through the roof drain, nor did it overflow.  The Court disagreed and appeared to have held that a common speech understanding of the exception meant that it applied to the circumstances here; water backed up/overflowed a drain even though it never entered it.  Accordingly, plaintiff was awarded summary judgment dismissing the application of the water exclusion.

Phoenix also argued that coverage was nevertheless extinguished by the rainwater limitation in the policy.  That provision removed coverage for interior loss caused by rainwater unless the building’s roof or walls first sustained a covered cause of loss which permitted the water to access the interior of the building. 

In assessing Phoenix’s argument, the Appellate Division conceded that the water that fell from the sky onto the roof was rainwater.  After it landed on the roof, the Court was not as certain.  It appears, as an initial matter, a question of fact existed as to when (or if) rainwater transformed into some other form of water.  Even if rain on the roof was still considered to be rain, the Court found a further question of fact as to whether the rain (and resulting pooling) was the dominant and efficient cause of loss.  Here, the Court surmised that there were multiple options for the dominant and efficient cause of loss including the water pooling on the roof, the backup of the roof drains, and defective workmanship (presumably by Campany).  As such, summary judgment was inappropriate.

As a final point, the Court did reverse the trial court’s decision which apparently declared the defective workmanship exclusion was inapplicable to this claim.  Neither plaintiff, nor Phoenix, raised that issue on the summary judgment motions, and the Court agreed it was error for the trial court to issue a decision on an issue that had not been previously raised or briefed. 

 

12/23/22       Hall v. New York Central Mutual Ins. Co.
Appellate Division, Fourth Department
With Proof of Actual Costs, Claims for Recoverable Depreciation Holdback were Unsupported

Plaintiff commenced this lawsuit after a dispute arose regarding Replacement Cost payments.  There appears to have been no dispute that plaintiff sustained a covered cause of loss, and that as part of the adjustment process NYCM and plaintiff reached an agreement on the Actual Cash Value of the claim.  In addition, the parties also appear to have agreed on the estimated Replacement Cost which is, in effect, the amount necessary to repair/replace/restore the property. 

The dispute arose when plaintiff apparently sought release of some Replacement Costs funds for repairs that had not yet been made.  NYCM, not surprisingly, refused to extend the RC holdback for these portions of the claim.  In addition, plaintiffs sought RC payments for upgraded insulation and to partially finish a basement which was unimproved at the time of the loss. 

In affirming NYCM’s position, the Appellate Division noted that an insured is only entitled to “actual cash value … until such repairs or replacements were complete.”  In addition, the Court referenced the long-accepted rule that an insured is only entitled replacements of “like kind and qualify for like use.”  To trigger replacement cost coverage, the insured must show replacement and costs.  Here, because the insured had incurred no “costs” prior to the request for recoverable depreciation (i.e., the difference between the RC and ACV estimates), NYCM’s refusal to extend the benefit was justified.

 

Potpourri

12/22/22       Itara v. Masaryk Towers Corp.
Appellate Division, First Department
Owner was Entitled to Contractual “Contribution” for any Percentage of Loss Attributable to Third-Party Defendant/Employer’s Negligence

Plaintiff was employed, and acting within the scope of his employment, with Centennial when he sustained injury.  In the subsequent lawsuit against the owner of the property, Masaryk commenced a third-party action seeking contractual indemnification against Centennial. Centennial moved to dismiss on the basis that Masaryk sought to be indemnified for its own negligence.

The Court noted that General Obligations Law § 5-322.1 does not prohibit Masaryk’s claims for indemnity so long as they are “proportional [to Centennial’s] fault for the accident.”  In essence, the Court affirmed the rule that a party may seek partial indemnity (i.e., contractual contribution) for any exposure that was attributable to the percentage of negligence assigned to the third-party defendant. 

 

Peiper’s Point – This result usually comes about by the application of the so-called “fullest extent of the law savings language.”  By way of reminder, however, the language of the indemnity agreement controls regardless of whether “fullest extent” type language is used.  If the contract contemplated indemnity for the employer’s responsibility, or specifically stated that the party seeking indemnity would not be entitled to recovery for losses attributable to its own apportioned negligence, the protections of § 5-322.1 are not triggered.

 

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

12/23/22       Shanieka Wright v. Jeremiah Wilson and Barry Wilson
Appellate Division, First Department
Plaintiff Failed to Raise Triable Issue of Fact on Several Serious Injury Threshold Grounds

Appeal from an order of the Supreme Court, Erie County (Paul Wojtaszek, J.), entered July 13, 2021. The order, among other things, granted in part and denied in part the motion of defendants for summary judgment on the issue of serious injury and denied those parts of the cross motion of plaintiff for summary judgment on the issue of serious injury.

Plaintiff commenced this action to recover damages for injuries that she allegedly sustained in a rear-end motor vehicle collision. Plaintiff alleges that, as a result of the accident, she sustained serious injuries under the permanent consequential limitation of use, significant limitation of use, and 90/180-day categories of Insurance Law § 5102 (d). Defendants moved for summary judgment dismissing the complaint on the ground that plaintiff had not sustained a serious injury within the meaning of Insurance Law § 5102 (d). Plaintiff cross-moved for partial summary judgment on, inter alia, the issue of serious injury. Supreme Court, inter alia, granted that part of defendants' motion for summary judgment dismissing plaintiff's claims under the permanent consequential limitation of use and 90/180-day categories, denied that part of defendants' motion with respect to the significant limitation of use category, and denied those parts of plaintiff's cross motion with respect to the three aforementioned categories of serious injury. Plaintiff appeals and the Appellate Court affirmed.

The Appellate Court concluded that, contrary to plaintiff's contentions on appeal, the court properly denied those parts of her cross motion with respect to the three categories of serious injury in question, and properly granted defendants' motion insofar as it sought summary judgment dismissing plaintiff's claims under the permanent consequential limitation of use and 90/180-day categories. With respect to the 90/180-day category, we conclude that defendants met their initial burden on the motion. "To qualify as a serious injury under the 90/180[-day] category, there must be objective evidence of a medically determined injury or impairment of a non-permanent nature . . . as well as evidence that plaintiff's activities were curtailed to a great extent". Here, defendants properly relied on plaintiff's deposition testimony, which established that her typical daily activities had not been significantly curtailed during the relevant time frame. In opposition, the Appellate Court found that plaintiff did not raise an issue of fact.

With respect to the permanent consequential limitation of use category, a plaintiff must "submit objective proof of a permanent injury" to establish a qualifying serious injury. We conclude that defendants met their initial burden on the motion with respect to that category "by submitting evidence that plaintiff sustained only . . . temporary [muscle] strain[s], rather than any significant injury to h[er] nervous system [left shoulder] or spine, as a result of the accident". The Appellate Court further concluded that plaintiff failed to raise an issue of fact in opposition with respect to that category.

With respect to the significant limitation of use category, "[w]hether a limitation of use . . . is significant or consequential . . . relates to medical significance and involves a comparative determination of the degree or qualitative nature of an injury based on the normal function, purpose and use of the body part". The Appellate Court concluded that plaintiff did not satisfy her initial burden on the cross motion with respect to that category, inasmuch as her own submissions raise triable issues of fact whether, inter alia, she sustained merely "minor, mild or slight limitation[s] of use" with respect to her left shoulder and cervical and lumbar spine.

Based on the forgoing, the Order so appealed from is unanimously affirmed without costs.
 

12/21/22       Rosa Isabel Mesias v. Sajib Modak
Appellate Division, Second Department
Defendant Expert Failed to Identify the Objective Tests that were Performed to Arrive at his Diagnosis

In an action to recover damages for personal injuries, the plaintiff Ricardo A. Tigua appeals from an order of the Supreme Court, Queens County (Allan B. Weiss, J.), entered May 28, 2020. The order granted the defendant's motion for summary judgment dismissing the complaint insofar as asserted by the plaintiff Ricardo A. Tigua on the ground that he did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident.

The plaintiffs commenced this action to recover damages for personal injuries that they allegedly sustained in a motor vehicle accident that occurred on October 1, 2017. The defendant thereafter moved for summary judgment dismissing the complaint insofar as asserted by the plaintiff Ricardo A. Tigua on the ground that he did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the accident. The Supreme Court granted the motion, and Tigua appeals.

The Appellate Court found that defendant failed to meet his prima facie burden of showing that Tigua did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the accident. The defendant failed to submit competent medical evidence establishing, prima facie, that Tigua did not sustain a serious injury to his wrists under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d). Although the defendant's neurologist concluded that Tigua did not suffer from median neuropathy or carpal tunnel syndrome in his wrists, the neurologist failed to identify the objective tests that were performed to arrive at this conclusion. It is therefore unnecessary to determine whether the papers submitted by Tigua in opposition to the motion were sufficient to raise a triable issue of fact.

Accordingly, the Appellate Court found that the Supreme Court should have denied the defendant's motion for summary judgment dismissing the complaint insofar as asserted by Tigua.

 

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

 

12/21/22       Hunt Construction Group, Inc. v. Berkley Assurance Company
United States Court of Appeals, Second Circuit
Second Circuit Holds that Set of Construction Claims Were a Single Claim, Under Claims-Made-and-Reported Policies

Hunt Construction Group sued its carrier Berkley Assurance for breach of contract and the implied covenant of good faith and fair dealing after Berkley refused to defend Hunt against a series of professional liability claims. At issue was a set of claims stemming from a construction project in Austin (the “Fairmont Austin Project”), the contracts for which required Hunt to report – during the policy period – any “Professional Claims” made against it during that period. The policies were claims-made-and-reported policies in July 2016-2017 and July 2017-2018.

In December 2018, Hunt reported to Berkley that its parent company had been sued the month prior in connection with the Fairmont Austin Project. It also later reported a related and largely duplicative arbitration demand made in April 2019. Both the lawsuit and arbitration demand (“the Fairmont Austin Claim”) referenced a February 2017 letter, titled “Notice of Claims,” that Hunt had received but not reported to Berkley during the relevant 2016–2017 policy period. Berkley ultimately rejected Hunt’s claim for defense coverage of the lawsuit and arbitration demand. It reasoned that the February 2017 letter had constituted a Professional Claim under the policy, and that, consequently, the Fairmont Austin Claim and the February 2017 letter were a single claim that had been untimely reported.

Hunt contended this denial was improper for three reasons: (1) the February 2017 letter was not a “Professional Claim” and thus did not have to be reported during the 2016–2017 policy period; (2) even if the February 2017 letter was a Professional Claim, Berkley had waived the requirement that the claim be reported during the 2016–2017 policy period; and (3) the reference to professional liability incurred after February 2017 in the later reported lawsuit and arbitration demand required Berkley to defend Hunt against all allegations made in the Fairmont Austin Claim.

With regard to the breach of contract claim there, the Court found that the Fairmont Austin Claim was a single claim and thus barred from coverage. The Court wrote: “The policies treat as a single claim all those “arising out of one or more acts, errors, omissions, . . . or a series thereof, that are related (either causally or logically).” Moreover, all claims “treated as a single Claim . . . shall be considered first made on the date the earliest such claim . . . was first made.” We find this language unambiguous and therefore consider whether the grievances contained in the February 2017 letter and the Fairmont Austin Claim arose out of related acts, errors, or omissions. We conclude that they do: both claims arose out of Hunt’s alleged mismanagement, resulting in significant delays.”

Second, Hunt also contested Berkley’s refusal to defend it against a suit seeking more than $37 million in allegedly outstanding payments related to a construction project in Houston (“Houston Methodist Claim”). There, under the relevant insurance policy, Berkley had a duty to defend Hunt against any “Professional Claim aris[ing] out of any actual or alleged negligent act, error or omission in the rendering of or failure to render Professional Services.”

Rendering the policy language clear and unambiguous, the Court found that it should give this policy plain and ordinary meaning in its interpretation. It wrote: ““To ‘arise out of’ means ‘to originate from a specified source,’ . . . and generally indicates a causal connection.” Phillips v. Audio Active Ltd., 494 F.3d 378, 389 (2d Cir. 2007) (citations omitted) (quoting Webster’s Third New International Dictionary 117 (1981)). Here, the specified source is Hunt’s refusal to pay its subcontractor. There is a causal connection between the failure to pay and the claim, but the same is not true for any alleged negligence. Negligence may have caused Hunt to incur extra costs, but it did not cause Hunt to refuse to pay them. There is no allegation that the failed payments resulted from negligence. Furthermore, payment of subcontractors is not within the policy’s definition of “Professional Services.””

With regard to the breach of the implied covenant of good faith and fair dealing, the Court found that duplicative of the breach of contract claims. That is, a breach of the implied covenant is a breach of an “implied obligation” within the contract. Therefore, as here, “[a] claim for breach of the implied covenant will be dismissed as redundant where the conduct allegedly violating the implied covenant is also the predicate for breach of covenant of an express provision of the underlying contract.” Ultimately, there was nothing new nor any conduct that could be seen as a breach. It was all sounding in breach of contract, as above.

 

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

12/29/22       Estevez v. Kingstone Insurance Co.
United States District Court, District of New Jersey
Heightened Standard of Factual Particularity Does Not Apply to Bad Faith Claim

Kingstone issued an insurance policy covering Plaintiff’s property located at 2 Bayberry Drive, Saddle River, New Jersey.  On July 8, 2021, the property sustained damage resulting from severed weather, including hail.  Plaintiff retained a roofing company to inspect the loss and draft a damage report and obtained a hail report.  Plaintiff submitted a claim for the damage to Kingstone.  Kingstone denied the claim, and Plaintiff filed suit in state court alleging breach of contract and bad faith.  The case was removed, and Kingstone filed a motion to dismiss the bad faith claim.

The motion to dismiss was denied.  In New Jersey, an insurance company owes a duty of good faith to its insured in processing a first party claim, and bad faith may be shown by providing no debatable reasons existed for the denial of benefits.  Plaintiff pled that the property was covered by Kingston, a severe storm caused damage to the roof of the house, the damage was reported promptly, Plaintiff provided a roof inspection report ad hailstorm report to Kingston, and Kingston improperly denied coverage.  The court found this was sufficient to plead a factually plausible claim and noted that a bad faith claim is not subject to a heightened standard of factual particularity.  The court concluded that Plaintiff had plausibly pled that Kingston denied the claim without a debatable reason for doing so and denied the motion to dismiss.

 

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

12/27/22       50 Waterville Street Trust, LLC v. Vermont Mut. Ins. Co.
United States District Court, District of Connecticut
EUO is Not a Substitute for Proof of Loss

Because the insured failed to satisfy the proof of loss condition, the carrier was not obligated to pay a property damage claim under the policy, a federal court ruled. The insured owned a residential income property and insured it under a business owners policy with Vermont Mutual. Following an eviction of the tenant, the insured found evidence of a water loss and repairs (apparently poorly done and needing additional remediation measures).

The insured evicted the tenant in October 2019 and made the insurance claim in November 2019. Of note, the local water company highlighted months previously excess water use at the premises and a issued a $9,000 water bill (that’s very a lot in Connecticut for a residential property). Nevertheless, the insured failed to investigate. The property damage alleged a furnace failure, causing frozen pipes to burst, damaging multiple rooms and mold throughout the house. Vermont in May 2020 asked for a sworn proof of loss, but one was not provided until June 2022, during the litigation. Instead, the insured provided an ‘assessment’ prepared by its public adjuster, which the court described as nothing more than a list, which was in response to repeated letter demands for the proof of loss and appropriate warnings about the potential forfeiture of coverage for failing to provide one.

The policy, as most do, requires that the insured provide proof of loss within 60 days of the carrier’s request. The insured claimed that it substantially complied with the conditions precedent to coverage by sitting for an EUO, providing the ‘assessment’, and submitting the proof of loss (albeit very, very late).

The court disagreed and granted the carrier summary judgment on the breach of contract claim. Sidestepping whether the policy made timely compliance with the proof of loss as an express condition of coverage, the court found that the policy’s two-year suit limitations provision defeated coverage. The court wrote:

[T]he loss must have occurred before October 23, 2019—the date on which Plaintiff first discovered the property damage. It follows that the latest that Plaintiff could have brought this action under the policy, and therefore the latest that Plaintiff could have conceivably submitted its proof of loss, is October of 2021—which is well before the submission of the June 6, 2022, proof of loss. Therefore, Plaintiff cannot rely upon the June 6, 2022, proof of loss form to satisfy the proof of loss condition precedent to coverage.

The court went on to find that the EUO and ‘assessment’ were no substitute for a proof of loss, finding them “inadequate.” The court also disposed of the insured’s bad faith claims.

 

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

12/15/22       B & W Paving & Landscape v. Emplrs. Mut. Cas. Co.
United States District Court for the District of Connecticut
Court Holds Insurer Owed a Duty to Defend Where Expert Report and Complaint Raised the Possibility that Damage was Alleged Beyond Insured’s Own Work

Plaintiff B & W Paving and Landscaping was a paving company that was insured by Defendant Employers Mutual Casualty Co. for work done as a subcontractor for the Whiting Turner Contracting Company (WT). WT contracted with the United Illuminating Company (UI) to act as general contractor and construction manager for the construction of UI’s new central facility. WT subcontracted with Cherry Hill for the installation of base materials as well as with Plaintiff for asphalt paving.

UI sued WT for defective and incomplete work and WT filed a third-party complaint against its subcontractors, including Plaintiff. The counts against the Plaintiff in the underlying action concerned any liability that WT may have to UI for allegations that Plaintiff improperly installed asphalt for the parking lots and alleged that any loss sustained by UI was proximately caused by the active or primary negligence of the Plaintiff. WT retained an expert who found that thinner asphalt paving layers at the UI sites likely contributed to the detrimental intrusion of water into the underlying granular base resulting in reduction in structure strength and opined that the deficient paving thickness in some degree contributed to the detrimental effects on the base and the pavement structure deficiencies.

After the suit was filed, the insurer declined the Plaintiff’s request for defense, claiming there was no coverage for the claims made in WT’s third-party complaint. The parties agreed that for coverage purposes “property damage” from defective construction work by the insured only included damage caused to other, non-defective property, and did not extend to repairing or replacing the insured’s defective work. The dispute in this case was whether the extrinsic fact of the expert’s conclusions in connection with the underlying complaint triggered a defense.

First, the parties disagreed about whether the court could consider the expert report. The court noted that other courts have relied on analogous evidence when considering the duty to defend. For example, in determining whether an insurer had access to sufficient extrinsic information that a defendant in an underlying suit was an employee of the insured, such that the duty to defend would be triggered, a Connecticut court held that extrinsic information indicated that the defendant was an employee, and therefore an insured under the policy. The court did not require that this information be externally validated or that its credibility be otherwise assessed. Therefore, the court determined that the relevant fact in this case was not the truth of the expert’s conclusion that defects in the Plaintiff’s work caused damage to another subcontractor’s work. Rather, it was sufficient that an expert was able to reach such a conclusion, thereby creating the possibility of coverage.

The court noted that this broad approach to extrinsic evidence was consistent with the fact that the duty to defend depends on the possibility of liability, not the certainty of liability. The Defendant argued that because the underlying complaint did not specify Plaintiff’s work damaged another subcontractor’s work, and only alleged broad property damage caused by the Plaintiff. However, the court held that the underlying complaint in conjunction with the expert opinion triggered the Defendant’s duty to defend. The fact that the underlying complaint did not specifically identify damage to non-defective work did not mean that such damage fell outside the scope of the complaint.

Further, the Defendant argued that it did not have a duty to defend because policy exclusions applied. The first exclusion for “property damage” excluded coverage for property damage that directly or consequentially occurred from the faulty workmanship of the insured, and the second exclusion for “your work” excluded coverage for damage caused by the insured to the insured’s own work. However, the court agreed with the Plaintiff that the expert report referred to damage caused to other work after the conclusion of Plaintiff’s work, and therefore the Defendant did not meet its burden to show there was no possibility that the exclusions were applicable. Therefore, the court held that the expert report and the complaint raised the possibility of coverage, as any uncertainty about whether a claim falls within the scope of an exclusion works in favor of providing a defense to an insured. As such, the court granted Plaintiff’s motion for summary judgment.

 

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

12/30/22       Limitation On Collateral Estoppel Effect of WCB Decisions
Office of the Governor
New Law Limits Collateral Estoppel Effect of Workers’ Compensation Decisions to The Existence of An Employer Employee Relationship

Last issue, we wrote about Assembly Bill No. A10349 (same as S9149), which was part of a package of workers’ compensation bills delivered to the governor the week before Christmas. As I predicted, the majority of the bills in this workers’ compensation package were vetoed on fiscal grounds. However, this particular bill passed, becoming Chapter 835 of the Laws of 2022.

The new law added a new Section 118-a to New York’s Workers’ Compensation Law, while also amending the existing Section 11. Both amendments have the effect of negating any collateral estoppel effect arising from a finding or decision of the workers' compensation board (“WCB”), judge or other arbiter in any other action or proceeding arising out of the same occurrence, other than the determination of the existence of an employer employee relationship. Section 11 now contains two subsections, 1. and 2., with subsection 1. including what were previously alternative remedies under the Workers’ Compensation Law, while subsection 2. Simply adds the above limitation on any collateral estoppel effect.

In essence, a WCB decision finding, for example, that an employee’s injury was caused by something other than work (e.g., a traffic accident; a fall down the stairs at home) no longer precludes an injured employee from arguing that his injury occurred on the job in a subsequent lawsuit. However, a WCB finding that an employer employee relationship existed or did not exist will remain binding upon the injured party.

This change took effect immediately.

12/30/22       Simplification of Excess Line Insurance Placement Affidavit
Office of the Governor
New Law Simplifies the Excess Line Insurance Placement Affidavit Requirements

The Governor has signed what became Chapter 833 of the Laws of 2022, which simplifies the excess line insurance placement affidavit requirements. In signing the new law, the Governor recognized in her approval memorandum “the bill's intent to address challenges in completing the excess line insurance placement affidavit.” There’s a catch, however, which will require a Chapter Amendment in the coming months:

The bill required a technical amendment to also ensure the date of declination requirement remained on the form. I have reached an agreement with the Legislature to make this change in order to protect consumers who rely on this insurance market. Further, the Department of Financial Services has agreed to continue to address challenges brokers face and to modernize the required forms.

This new law reduces the number of data elements that a broker is required to collect and report for each of three declining licensed insurers. The insurer name, NAIC number and the reason the broker believed the licensed insurer would consider underwriting the risk would still be recorded in an affidavit. The name of the insurer representative who declined the risk and their affiliation with the insurer, as well as the reason the risk was declined would no longer be recorded in the affidavit. No other due diligence requirement remains.

 

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

12/29/22       Brettler v. Allianz Life Ins. Co. of North America
U.S. Court of Appeals, Second Circuit
Question of Whether Failure to Comply with Provisions of a Life Insurance Policy Requiring Written Notice of Assignment Can Render an Assignment Ineffective Remains Unresolved by New York Courts and Needs to be Determined by the New York Court of Appeals

In April 2008, Defendant, Allianz Life Insurance Company of North America (“Allianz”) issued an $8 million life insurance policy (the “Policy”) to Dora Zupnick (the “Insured”).  The Policy was owned by the Zupnick Family Trust (the “Trust”). The Policy contained the following provision:

You may assign or transfer all or specific ownership rights of this policy. An assignment will be effective upon Notice. We will record your assignment. We will not be responsible for its validity or effect, nor will we be liable for actions taken on payments made before we receive and record the assignment.

Under the Policy, the Policy owner is “solely entitled to exercise all rights of this policy until the death of the insured”.  The Policy also contained a provision under which a 61-day grace period begins if the Policy owner fails to pay their monthly premium.  The grace period provision requires the payment of three months of premiums by the end of the grace period for the policy to remain in force.

In 2012, the Trust sold the Policy to Miryam Muschel (“Muschel”).  The Trust notified Allianz, using an Allianz Service Request form, that the ownership of the Policy had been assigned from the Trust to Muschel.  Plaintiff, Brettler, the Trustee of the Trust signed the “Owner’s Signature” portion of the Service Request Form and faxed the form to Allianz.

In May 2013, Morschel decided she no longer wanted to own the Policy, so the Trust resumed payment of the premiums, on the understanding with Muschel that the Trust would eventually reacquire the Policy.  It is undisputed, however, that Allianz was not notified of any assignment from Muschel back to the Trust until this complaint was filed.

On May 4, 2013, Allianz sent Muschel a grace period notice stating that $117,810.90 in premium payments on the Policy was due to Allianz by June 8,2013, the end of the grace period.  On or about June 7, 2013, the Trust sent Allianz a check for the amount due to be drawn out of a Chase bank account.  On June 25, 2013, Allianz informed the Trust that Chase Bank had not honored the check for payment, but later notified Allianz that the check should have been honored, but it wasn’t due to a bank error.  Although the Trust offered a replacement check to Allianz, Allianz considered the Policy as lapsed.

On May 24, 2016, Muschel and the Trust entered into a formal agreement (the “Purchase Agreement”), under which Muschel assigned the Policy to the Trust.  However, Allianz was not made aware of the assignment of the Policy back to the Trust until this complaint was filed.

In September 2016, Brettler filed suit in his capacity as trustee against Allianz seeking a declaratory judgment that the Policy remained in full force and effect.  The complaint alleged that the Trust was the owner and beneficiary of the Policy.  Brettler argued that although Allianz considered the Policy to have lapsed, it was nonetheless still in effect because the premiums were paid before Allianz declared the Policy lapsed, and that Allianz’s grace period notice was inadequate under NYS law because it was untimely, provided an incorrect due date, and misstated the amount due.

Allianz moved for dismissal on several grounds including that the court lacked subject matter jurisdiction on the basis that since the Trust did not own the Policy, it did not have standing to sue; that Brettler failed to state a plausible cause of action; and that the action was time barred under NY statutes of limitations.  The district court granted Allianz’s motion to dismiss and Brettler appealed.

On appeal, Brettler argued that the district court erred in concluding that the Trust was not the owner of the Policy at the time the complaint was filed.  Allianz argued that the Policy was not properly assigned to the Trust because the Trust failed to provide Allianz with written notice of the assignment.

The Second Circuit ultimately determined that “Allianz’s assertion that failure to comply with a provision in a life insurance policy requiring written notice of an assignment renders the assignment ineffective is likely a question best answered by the NY Court of Appeals since there is no binding precedent on the issue.”  However, the Second Circuit also noted that there were several issues left unresolved by the district court that could potentially dispose of this matter without the need for certification.  The Second Circuit decided that instead of immediately certifying, it would remand the case back to district court to consider: (1) whether the complaint plausibly alleged that the action was timely; and (2) whether the Policy was, in fact, assignable on May 24, 2016 (when the purported assignment took place).

On remand, the district court concluded that “plaintiff has plausibly alleged (1) that the action is timely, and (2) the Policy was assignable on May 24, 2016.  The Second Circuit then reinstated the appeal in September 2022 and determined that they agree with the district court’s assessment of the alternative grounds for dismissal.  The remaining issue is whether failure to comply with the provisions of a life insurance policy requiring written notice of assignment can, under New York law, render an assignment ineffective remains unresolved by the NYS courts, and in particular, the Court of Appeals.  Therefore, the Second Circuit certified this question to the Court of Appeals.

 

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

I hope you had wonderful holidays.  I am returning from vacation today so check back next issue for several interesting cases. 

 

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

 

12/27/22       EMOI Servs., L.L.C. v. Owners Ins. Co.
Supreme Court of Ohio
When Insurance Policy Covers “Physical Damage,” There Must be Direct Physical Loss or Physical Damage of Covered Media Containing Computer Software for the Software to be Covered under the Policy

EMOI Services, LLC (“EMOI”) is a computer-software company that uses software it has developed, along with outside software, to provide medical offices with service and support for setting appointments, record keeping, and billing. On September 12, 2019, EMOI became the target of a ransomware attack when an unknown party, i.e., a “hacker,” illegally gained access to EMOI’s computer systems and encrypted files needed for using its software and database systems. As a result of the attack, when a file was opened, a ransom note appeared notifying the user that the files were encrypted and therefore unavailable but that the files could be restored to normal by a decryption key the hacker would provide in exchange for the payment of three bitcoins—approximately $35,000 at the time. After looking into the timing and financial feasibility of recovering the files through the assistance of a third-party company, EMOI decided to pay the ransom. Upon payment, EMOI received an email from the hacker with a link to download a program that would decrypt the files. A majority of the system files were returned to normal following the decryption process. An automated phone system, however, remained encrypted because the decryption key had not worked on the separate server that attended to that system. There was no hardware or equipment damage as a result of the ransomware attack. Following the attack, EMOI upgraded its software systems and took other steps to protect its systems from future attacks.

At the time of the ransomware attack, EMOI was insured under a businessowners insurance policy issued by Owners Insurance Co. (“Owners”). EMOI’s general manager contacted Owners to file an insurance claim within a day of the attack, but Owners determined that the policy did not cover the payment of the ransom and the costs associated with investigating and remediating the attack as well as upgrading EMOI’s security systems.

EMOI filed a lawsuit against Owners, alleging that Owners breached the insurance policy contract by denying coverage and that Owners denied coverage in bad faith. Owners filed a motion for summary judgment on the claims and on its counterclaim. The trial court granted summary judgment to Owners, explaining that the evidence showed that the software and database systems were not damaged by the encryption, but rather EMOI was prevented from accessing or using those systems because of the encryption. The trial court thought that it was a data compromise situation as opposed to physical damage to electronic equipment, and the policy’s data compromise endorsement expressly excluded coverage for such ransomware attacks.

The appellate court reversed, determining that the language of the electronic-equipment endorsement potentially applied to EMOI’s claim if EMOI could prove that its media, i.e., its software, was in fact damaged by the encryption.

The Ohio Supreme Court considered whether a businessowners property policy that requires “direct physical loss of or damage to” property covered losses from a ransomware attack. The Court found that the language in the electronic-equipment endorsement was clear and unambiguous in its requirement that there be direct physical loss of, or direct physical damage to, electronic equipment or media before the endorsement is applicable. Since software is an intangible item that cannot experience direct physical loss or direct physical damage, the endorsement did not apply in this case.

EMOI argued that software can be damaged even though it is nonphysical, and that the policy covered damage even if there had been no damage to hardware. EMOI also argued software could be media under the electronic-equipment endorsement, but the court found that covered media needed to have a physical existence. Thus, there needed to be physical damage to the media containing the computer software for it to be covered under the policy. Computer software cannot experience “direct physical loss or physical damage” because it does not have a physical existence. As a result, the court reinstated the trial court’s grant of summary judgment in favor of Owners.

 

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

The state courts were about as quiet as the Cancun seaside this week – see you in two weeks!

 

ON the ROAD with O’SHEA
Ryan P. O’Shea (Admission Pending)
[email protected]

 

12/29/22       Prime. Prop. & Cas. Ins. Inc. v. Imperio Transp. Corp
Appellate Division, First Department
Right Decision for Wrong Reason: Auto Policy Terms Found Ambiguous Where It Covers Permissive Users, But Then Endorsement Limits Coverage to Drivers Listed in a Schedule. Insurance Regulations Ignored.

Plaintiff, Prime Property, brought a declaratory judgment action against defendant, Progressive, regarding a bodily injury involving Prime Property’s insured Imperio. Prime Property sought to disclaim coverage on the fact the vehicle was being driven by Imperio’s employee, who was not a named driver in the Prime Property’s commercial auto policy. Essentially, Prime Property’s theory was the policy cannot cover a loss where no coverage existed in the first place.

However, the First Department disagreed, but not for any regulatory reason. Instead of looking to 11 NYCRR 60-1.1, which mandates coverage for permissive users of vehicles, the Court looked to contrasting terms within the policy. Namely, Section II of the policy that provided coverage for all users with permission. Yet, the policy’s Schedule Driver Endorsement limited to drivers listed in the endorsement’s schedule. The Appellate Division found these terms to be contradictory and ambiguous by being open to two different interpretations. Accordingly, the Court found there was coverage under the Prime Property policy and denied the plaintiff’s motion for summary judgment.

While the Court may have reached the correct ruling, it is surprising there is no mention of minimum coverage required by regulations. A key point when facing a similar issue and facts, is to look too 11 NYCRR 60-1.1 for the minimum mandatory requirements. Insurers cannot limit this coverage. Specifically, 60-1.1(c)(2) mandates auto policies to contain a provision insuring as an “insured” any other person using the motor vehicle with the permission of the named insured. Here, Imperio’s employee used the vehicle with the Imperio’s permission and thus, the Prime Property’s policy must contain and provide coverage for the employee’s use.

Another issue not mentioned is equitable estoppel. Notably, Prime Property admitted it did not timely disclaim coverage as required under New York Insurance Law § 3420. Generally, where an insurer undertakes the defense of its insured without timely disclaiming coverage or under a reservation of rights, the insurer can be estopped from denying coverage if that delay resulted in prejudice to the insured. The prejudice is usually the inability of the insured to handle its own defense. In this case estoppel likely could have been argued. Prime Property failed to timely disclaim coverage despite defending Imperio in the underlying action. Nevertheless, the Court reached the right decision, and a win is win.

 

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

12/29/22       Searles v. Economical Insurance, 2022 ONSC 7217,
Ontario Superior Court of Justice (trial level)
Relief from Forfeiture of Insurance Coverage will not be Granted when an Insured’s Late Notice of a Claim Deprived a Liability Insurer of its Right to Control the Insured’s Defence to Covered Claims, as the Breach is too Prejudicial to the Insurer

There are a few truths in the world of insurance: A liability insurer defends against covered liability for property damage and bodily injury; a liability insurer requires prompt notice of a claim to assess coverage and then, if there is coverage, that insurer will defend and potentially indemnify. Late notice of a potentially covered claim is a problem. Most of the time. Late notice can result in a denial of a defence (or indemnity) against an otherwise covered claim since it can deprive an insurer of its inherent right to control and direct the defence.

The Insurance Acts of very province and territory in Canada contain a relief from forfeiture provision which permits the Courts to exercise its equitable jurisdiction to relieve against a denial for breach of a condition that results in a denial a defence or the policy proceeds. But that jurisdiction will only be exercised where leniency in respect of strict compliance with the condition will not result in prejudice to the insurer: Falk Bros. Industries Ltd. v. Elance Steel Fabricating Co., [1989] 2 S.C.R. 778, at p. 783.

In addition to the power to relieve against forfeiture under the Insurance Acts, Canadian courts have inherent equitable jurisdiction under the acts that establish the superior courts in each province and territory to relieve against forfeiture generally – not just in the insurance context. 

The Ontario Court of Appeal held in Monk v. Farmers' Mutual Insurance Company (Lindsay), 2019 ONCA 616 and in its previous decision, Kozel v. The Personal Insurance Company, 2014 ONCA 130, that:

• Relief from forfeiture under the insurance acts is available where there are instances of imperfect compliance with terms of a policy after a loss;

• Relief from forfeiture under the Courts’ inherent jurisdiction generally applies where the breach of the policy occurred before the loss took place;

• Both remedies (relief from forfeiture under the insurance acts and under the Court’s inherent jurisdiction) stipulate that relief from forfeiture is not available where the breach consists of non-compliance with a condition precedent to coverage.

• However, a court should find that an insured’s breach “constitutes noncompliance with a condition precedent only in rare cases where the breach is substantial and prejudices the insurer. In all other instances, the breach will be deemed imperfect compliance, and relief against forfeiture will be available.”: Kozel, at paras. 33 and 50;

• Where relief from forfeiture is available, an insured “must still make three showings – that his or her conduct was reasonable, that the breach was not grave, and that there is a disparity between the value of the property forfeited and the damage caused by the breach – in order to prevail”: at paras. 51 and 59. This three-element test often is referred to as the “Saskatchewan River” or “Liscumb” test, from two of the cases in which it was articulated, Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., 1994 CanLII 100 (SCC), [1994] 2 S.C.R. 490 and Liscumb v. Provenzano (1985), 1985 CanLII 2051 (ON SC), 51 O.R. (2d) 129, at p. 137, affirmed (1986), 1986 CanLII 2595 (ON CA), 55 O.R. (2d) 404n (C.A.).

The last point has resulted in dozens of reported cases as to whether relief from forfeiture should be granted. The three-element test for relief from forfeiture requires a court to consider and balance all three elements to determine whether equitable relief should be granted.  With that said, an insured who fails to demonstrate the first element -that its conduct was reasonable -- will face great difficulty in establishing relief from forfeiture.

In assessing the second element - gravity of the breach -- a court looks at both the nature of the breach itself and the impact of that breach on the contractual rights of the other party.  The focus on impact is an inquiry as to whether the insurer has been prejudiced. In a liability situation, the insurer may be prejudiced by an inability to exercise its right to direct and control the applicants’ defence; retain counsel of its choice; effect an early settlement, potentially avoiding unnecessary legal expenses; secure the testimony of witnesses; and participate in pre-trial discovery.

The third element - the disparity between the value of the property forfeited and the damage caused by the breach – awkwardly applies to liability policies. Nonetheless, this factor requires a court to conduct a kind of proportionality analysis which, in an insurance case, involves comparing the disparity between the loss of coverage and the extent of the damage caused by the insured’s breach. That circles back to the gravity of the breach.

On December 29, 2022, in a case styled Searles v. Economical Insurance Company, the Ontario Superior Court of Justice applied these principles to a situation where the insureds gave notice seven years following the issuance of an action against them and concluded that relief from forfeiture of the coverage available under the liability portion of a homeowners’ policy was not available. 

The insureds, a married couple living in Kingston, Ontario, who at the material time held a homeowners’ policy, were sued by the purchasers of their former home who alleged that the property had been defectively renovated resulting in the formation and proliferation of black mould. It was alleged that the renovations were performed or managed by the insureds. The insureds retained counsel. The litigation progressed for seven years through to the pre-trial stage where the pre-trial conference judge suggested that the insureds may have insurance coverage for this claim.

Thereafter the insureds ‘promptly’ reported the existence of the action and the insurer equally promptly denied, stating that if the matter had been reported at the time the insureds were served or knew about the claim, there would have been coverage for most of the claims. However, seven years of litigation had ensued which deprived the insurer of the right to control the defence and for that reason, coverage was denied based on a breach of the co-operation condition requiring that the insureds give prompt notice and to immediately provide all written documents regarding a claim including legal documents. The insureds managed to settle the action a few months following the denial. They then sued the insurer stating that they were entitled to relief from forfeiture of their coverage.

The court declared that the insureds were in breach of the policy – even though ‘prompt’ was not defined in the policy, a delay of seven years is not ‘prompt’ by any measure. The insurer agreed that the breach was ‘imperfect compliance’ with a condition and the insureds were entitled to apply for relief from forfeiture. The Court held that if the insureds were successful, they could claim 100% of their legal expenses as well as the full settlement amount, including 100% of their pre-tender expenses.

As for the three elements set out above, the insurer agreed with the insureds that their failure to give notice was inadvertent and their conduct was reasonable. The Court held that the breach was grave as the insurer was deprived of its right to select counsel, retain its preferred adjusters and experts, inspect the property in a comparable condition, pursue legal avenues against a party who had been released, determine if amendments to the pleading should be agreed to and reserve its right to indemnify against claims that were not covered. As for the disparity, the insureds were looking at about $100,000 in legal costs. In contrast, the insurers were deprived of the right to control that expense. As to whether the insurer would have made different litigation management decisions, the Court held:

In the circumstances of this case, considering the nature of the allegations made in the action, it is not reasonable, after such a lengthy delay, to require a party affected by prejudice, as outlined above, to show precisely how it might have acted differently at every juncture. … It is axiomatic that the litigation priorities of an insurance company may be different from those of its insured, explaining why liability insurance provides the insurer the right to defend covered claims. In the circumstances of this case, the limited evidence filed on this application about the availability of documents, pictures, reports, and transcripts is not sufficient to address the above.

In conclusion, the Court held that “…When I assess all the evidence and weigh all three factors, for the reasons outlined above, I arrive at the conclusion that the applicants have not met their onus of establishing that they are entitled to relief from forfeiture…”.

This determination would be very difficult to appeal. As the Ontario Court of Appeal held in Monk:

The power to grant relief from forfeiture is a discretionary one. An appellate court is not at liberty to substitute its own discretion for that already exercised by the judge of first instance. Appellate interference requires the appellant to demonstrate that the judge below: exercised his or her discretion on a wrong principle of law; failed to take into consideration a major element of the case; disregarded, misapprehended, or failed to appreciate relevant evidence; or made a finding or drew an inference not reasonably supported by the evidence.

There is no indication on the face of the decision in this case that there would be grounds for appeal. The Searle decision is a great example of the type of prejudice that can uphold a denial of a liability claim based upon a breach of the co-operation condition requiring prompt notice.

 

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