Volume XXIV, No. 17 (No. 638)
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 bi-weekly issue is attached for your reading and dancing pleasure.
As usual, special thanks to our crack editorial team and our good friend from Alberta, Heather Sanderson, who brings us coverage news from north of the US border.
I’m back from a holiday in Arizona and that’s why the groundhog, miserable, ungrateful varmint, as predicted six more weeks of winter and initiated that prediction with single digit temperatures. Punishment. Blame me.
It is Friday (or soon to be), somewhere. You all received my note advising that Governor Kathy Hochul vetoed the Grieving Families Act bill the other day. We will see what happens in the coming weeks and months. There will be some modifications we all expect, but what is to come, I do not know.
This week’s issue includes some classics, including a discussion of fee shifting in Declaratory Judgment Actions, the significance of privity requirements in additional insured endorsements, the inability of parties who have agreed to settlements by electronic confirmation to change their minds and undue an agreement, a bad faith claim dismissal from California, a Connecticut Supreme Court decision (applying NY law) affirming no coverage in a COVID-19 business interruption claim, a little No Fault action, both substantive and serious-injury wise, and a few other cases from around the state and nation.
Your feedback is always welcome and appreciated.
We did two video training programs on Thursday, a New York protocol presentation, with close to 60 participants, and a CGL Primer, with John Trimble, that included close to one hundred. We love training and offer it to your companies, on topics aplenty. Schedule your in-house training for 2023. Need a topic? Here are 160 or so coverage topics from which to choose.
Registration is open for the PLRB Claims 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. Already preregistered for our programs are folks from about 22 different insurers.
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:
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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.
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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.
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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:
Six more weeks of Winter, or so sayeth the famous Pennsylvania weather forecaster. While we appreciate that Phil’s colleague in Staten Island has filed a dissenting opinion, we will keep our skis waxed for the six weeks anyway.
The P&P is quiet this week with little to report, although take note of the Guice case reviewed in my column. The First Department confirms that an agreement to settle is just that and cannot be disturbed if the plaintiff changes his or her mind.
That’s it for now. See you next time.
Steve
Steven E. Peiper
[email protected]
Possible Harding Parting – 100 Years Ago:
Press and Sun-Bulletin
Binghamton, New York
03 Feb 1923
Harding Is Made the
Goat of Party’s Sins
by G. O. P. Politicians
President Exhibits Fortitude and Uncomplaining Serenity
Under Intolerable Disloyalty of Those Who
Should Be Most Eager to Support Him
CONDITIONS CALL FOR DYNAMIC PERSONALITY
By: MARK SULLIVAN
(Copyright, 1923, New York Tribune, Inc.)
Washington, Feb. 3—One is conscious of some hesitancy about discussing whether or not Harding will want or will be given by his party a nomination for a second term. The hesitancy arises partly out of a feeling that in the nature of it, in spite of the fact that it is an important public question, it is also in part a thing intimately personal to Harding. You feel as if such discussion is in a sense an invasion of privacy (In point of fact, the elements that will ultimately decide this question actually do include some that are personal, like the health of his wife).
Partly, also, this hesitancy arises out of the fact that the discussion at this time, 15 months ahead of the event, is premature, and the conditions which will determine the event may change fundamentally within that time. To some extent, also, one’s hesitancy is due to the fact that some of the ruthless cold-bloodedness with which the politicians discuss this subject takes little account of generosity, or even of Justice, to Harding.
Wilewicz’ Wide-World of Coverage:
On the road again.
Until next time,
Agnes
Agnes A. Wilewicz
[email protected]
In Sickness or In Health? – 100 Years Ago:
Democrat and Chronicle
Rochester, New York
03 Feb 1923
ROCKEFELLER
KEPT INDOORS
BY BRONCHITIS
Doctors Report Distinguished
Visitor at Ormond
Beach Improved.
Ormond Beach, Fla., Feb 2.—(By the Associated Press)—John D. Rockefeller, Sr., who has been suffering since Wednesday from a slight attack of bronchial trouble was reported to-night at the Rockefeller residence as “much improved.” However, he was confined to his room today for the first time and it was said he would not play golf for several days, and has foregone all other strenuous exercises including his before breakfast walk.
Dr. H. F. Biggar, of Cleveland, Mr. Rockefeller’s private physician, arrived at Ormond Beach this afternoon but it was emphasized that his arrival was no indication that Mr. Rockefeller was feeling worse. Dr. Biggar, who has been attending to Mr. Rockefeller for several years, was asked to come the early part of the week, it was explained, but he was unable to get here until today.
Since his arrival here, Mr. Rockefeller has been playing golf every weekday until Wednesday when he remained away from the rinks because of his bronchial trouble.
Barnas on Bad Faith:
In many jurisdictions, an arguable basis for a denial of coverage is a defense to a bad faith claim. The insurer could not have denied coverage to the insured in bad faith if it had a valid reason for taking its coverage position. In my case this week, the court disagreed with the insurer’s coverage position and found that there was coverage under the policy. Even so, it dismissed the bad faith claim on summary judgment because the court concluded the insurer had an arguable basis for its coverage position. The court noted that the finding of coverage under the policy was not a “slam dunk” and the conclusion that there was coverage was not synonymous with a finding that the insurer acted unreasonable.
Brian
Brian D. Barnas
[email protected]
Epidemic – 100 Years Ago:
The Ithaca Journal
Ithaca, New York
03 Feb 1923
Cause of Influenza is Discovered;
Scientists Isolate the Germ
Schenectady, N. Y., Feb. 3—Hopes of thousands of sufferers from epidemic influenza for a cure or preventative of the disease were raised today by the announcement of the discovery of the cause and the isolation of the germ.
The announcement is made by Dr. Simon W. Flexner, director of the Rockefeller Institute of Medical Research, who attributed the discovery to Dr. Peter K. Olitsky and Dr. Frederick T. Gates, also of the institute.
The isolation will permit experimentation with antidotes and antitoxins. So small is the germ that it must be magnified 1,000 times before it is seen distinctly under the microscope. The germ lodges in the nose and throat during the first 36 hours of influenza infection, then attacks the lungs in such a way as to make them susceptible to other germs in the nose and throat, notably those of pneumonia and bronchitis.
Kyle's Construction Column:
Dear Readers,
Happy Groundhog Day. Sad to see the Bills’ season come to an end. As always, it seemed to fly by. Hopefully the Sabres can keep things interesting and stay in the playoff hunt this year.
This week’s case involves an insurance coverage dispute where the issue was whether an insurer was obligated to defend and indemnify a contractor accused of negligently causing the collapse of a four-story building during renovations.
Kyle
Kyle A. Ruffner
[email protected]
Fraudulent Prescriptions – 100 Years Ago:
The Buffalo News
Buffalo, New York
03 Feb 1923
BOGUS PRESCRIPTION
INTRODUCED IN COURT
Woman Druggist on Trial
Faces Evidence of 400
Spurious Blanks.
Fraudulent prescription blanks by the hundreds were introduced in evidence today at the hearings of four retail druggists accused before Judge Roscoe D. Harper of violating their licenses to sell whiskey.
Miss Lottie Z. Niwicki, who has a drug store at 1114 Broadway, was cited for accepting fraudulent blanks and not keeping proper records. Her prescriptions when sorted out disclosed 400 spurious ones out of a total of 700 blanks. Judge Harper reserved the decision.
Thomas W. DePasquale, druggist, 877 Prospect avenue, showed 35 genuine blanks out of a total of 277. The court reserved its decision in this case also.
The case of Joseph Lojacono, 298 Elk street, was being heard at edition time. Several spurious blanks were found.
Fleming’s Finest:
Hi Coverage Pointers Subscribers:
I’ve been travelling to the court, so thankfully the weather in NYC has been brisk but perfect for walking around town. Following up on the HF women’s forum simulator golf outing, my biggest takeaway was how different everyone’s swing looked (not a criticism). I did not know that everyone has a very unique swing, so it was cool to see videos breaking down our golf swings.
Go Badgers. This week’s case from the Wisconsin Supreme Court considered whether being aware of the risk that something might happen necessarily means that when that thing happens, it is not an "accident." The Wisconsin Supreme Court concluded that prior criminal proceedings for second-degree reckless homicide did not preclude a finding that the acts leading to a death were an accident.
Until next time,
Kate
Katherine A. Fleming
[email protected]
Breaking the Law – 100 Years Ago:
The Buffalo News
Buffalo, New York
03 Feb 1923
Martina Sold to Wrong Fellow.
Antonio Martina, of Fredonia, part owner of the Spera & Martina winery, was fined $150 in Federal court today by Judge Hazel when he pleaded guilty to selling a prohibition agent a pint of brandy.
Ryan’s Capital Roundup:
Hello Loyal Coverage Pointers Subscribers:
Well, I thought this might have been the year. However, the Buffalo Bills will look to next season as they did last season, and the season before that (etc., etc.). Mistakes were made.
This past Saturday, we took our boys to see Disney on Ice and the place was packed. It was a fantastic show, including its latest addition—Moana. Never thought I’d see the Sabre’s home ice on literal fire, but then again, we never thought we’d see a jumbotron fall from the sky…
You ever get that text where your sister-in-law is like, “Hey, do you have a 2-wheel dolly cart?” And reading between the lines, your response is inevitably, “What do you need me to help my brother move?” And the response is usually something like “[a]n elliptical.” And then, piecing the thread together, you come to understand that your Sunday visit with the family now includes bonding time with your brother over an elliptical that happens to currently reside in a stranger’s basement (complete with a finished drywall stairwell) and a long stroll up a hill to your brother’s house, where you will arrive just in time to carry it upstairs at his house to his master bedroom. Mission accomplished. And I have it on good authority that it has been used every day since…for exercise, rather than a drying rack.
This edition of my column includes two pieces. The first is a quick note about the Governor’s veto of the Grieving Families Act and her reasoning. The second is a recently passed chapter amendment involving retail and wholesale excess line insurance broker affidavits.
Until next time,
Ryan
Ryan P. Maxwell
[email protected]
Pea Problems – 100 Years Ago:
The Buffalo Enquirer
Buffalo, New York
03 Feb 1923
Non-Skid Pea at Last!
(Special Telegram to The Enquirer)
East Wallop, O., Feb 3. —All the countryside was gleeful today, the occasion being the announcement by Prof W. A. Wingard that cuttings from his recently perfected brand of non-skidding peas would be ready for planting this spring. They are of the early or June variety.
For a great many years Prof. Wingard had noted room for improvement in the pea. Both he and his guests and friends have been annoyed by the habit peas have of rolling off the knife at the most inappropriate times.
“What we need is a pea that will stay put,” Wingard said. “
Years of hybridization and cross pollination and patient experimentation have resulted in the square pea, which will not roll.
Prof. Wingard says: “The cupidity of the new pea is such that it can easily be used for African golf when the occasion arises, and in a case of raid one can easily eat the dice.”
Dishing Out Serious Injury Threshold:
Dear Readers,
And just like that, January is over. This year is already flying by. Hopefully everyone is getting out and enjoying the winter months because summer will be here before you know it.
I have a couple cases to talk about in this issue, both out of the Second Department. The first case deals with a defendant expert failing to adequately explain belief that limitations during examination were self-imposed. The second case deals with a defendant expert conceding that injuries were caused by the subject accident and plaintiff’s expert raising a triable issue of fact.
Enjoy,
Michael
Michael J. Dischley
[email protected]
Not Guilty – 100 Years Ago:
Chicago Tribune
Chicago, Illinois
20 Dec 1923
Jurors Clear Mrs. Kavanagh
of Murder in Four Minutes
It took a jury only four minutes yesterday to vote “not guilty” for Mrs. Lucille Kavanagh, charged with the murder of her husband, Patrick Henry Kavanagh, secretary of the National Athletic Club, 116 West Madison street.
Mrs. Kavanagh is the thirty-second woman within recent years to be acquitted of the killing of a man.
The jurors accepted, they explained after the verdict, the defense that the fatal shot was fired accidentally during a struggle between Kavanagh and his wife at the club’s headquarters last February.
After Mrs. Kavanagh heard the verdict she turned to her attorney, Ben Short, and shook hands. Then she thanked the jurors, saying:
“I wish to thank you, gentlemen, from the bottom of my heart for the great kindness you have shown me.”
As she leaned over the rail talking, she suddenly lost control of herself and just sobbed.
Just before the judge instructed the jury, Attorney Short presented the defense by giving the jury the woman’s story of her life. Her husband often beat her, she said.
“He grabbed for my purse, where I had the revolver,” Mrs. Kavanagh said. “We jerked the pursed back and forth. Suddenly a shot was heard. I felt a flame across my hand. Smoke came from the shattered bag. Patrick fell to the floor. The first time I knew he had been shot was when he said, “My God! I’ve been shot.”
The lawyers on both sides had waived their closing arguments.
Judge George Kersten handed the foreman four forms of verdict. The last of them was “not guilty.” The jurors retired long enough to sign that form. Then came the scene with the freed woman, and the jurors left the courtroom.
Editor’s Note: Mr. Kavanagh lost his life, at the hands of his abused wife, 100 years ago today.
Lee’s Connecticut Chronicles:
Dear Nutmeg Newsies:
Insufferably busy couple of weeks, including now unexpected trial prep. So, we’ll get right to it. The Connecticut Supreme Court ruled under both New York and Connecticut law that there is no business income coverage for COVID-19. The high court ruled that COVID-19 does not cause direct physical damage, differentiating bacteria and noxious fume type cases, creating a ‘physical event’ test. Please read Coverage Pointers for the details.
Keep keeping safe,
Lee
Lee S. Siegel
[email protected]
Job Ad – 100 Years Ago:
The Buffalo Times
Buffalo, New York
03 Feb 1923
WANTED—Girls over 16 years old to pack hairpins; good wages and steady work. Hairpin Factory, 2969 Main St., at Hertel Ave.
Rauh’s Ramblings:
Hello Readers!
I hope you are all having a great week. The temperatures in Buffalo are falling and it is going to be dangerously cold here the next couple days, which I am not looking forward to. I just hope February goes quickly and March is a little more mild!
The Courts have been slow lately with the life insurance/ERISA cases, so I unfortunately don’t have anything to report on this week. Perhaps in two weeks, I will have better luck!
Until next time & stay warm!
Patty
Patricia A. Rauh
[email protected]
Illegal Stimulant – 100 Years Ago:
The Daily Standard
Kingston, Ontario, Canada
03 Feb 1923
HOCKEY TEAM COACH
ARRESTED FOR GIVING
STIMULANT TO PLAYERS
Woodstock, Feb. 2. —A sensation was caused between the first and second periods of Wednesday night’s senior Northern League game between Port Dover and Woodstock, when Duncan McDonald, the coach of the Port Dover team, was taken into custody by a constable on a charge of having liquor in a public place. He was giving the players a little stimulant from a bottle after the first period when the constable walked into the dressing room and marched him to the police station. He stayed there until after the game, when the manager of the team secured his release on bail. He appeared before Magistrate Ball the case being adjourned for one week. It is said that on the Port Dover line-up there are three returned men who were shell-shocked and gassed in France, and it has become customary for the man in charge to give their boys a little liquor as a stimulant during rest periods.
Before leaving Port Dover, the three players, it is said, secured prescriptions for six ounces of liquor, and it was while in the act of giving one of the players some of this liquor that McDonald was arrested. McDonald is out on bail.
Storm’s SIU:
Hi Friends:
Three interesting cases this week:
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When Does a Causal Connection Exist Between an Injury Complained of and the Alleged Negligent Act to be Entitled to Recover for the Injury? Plaintiff Failed to Meet his Burden of Proof that his Inguinal Hernia was Related to the Loss.
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Insurer’s Motion to Substitute the 3rd-Party Tortfeasor’s Name for its Name at a Trial Over UIM Benefits is Denied. Insurer Feared an Inflated Jury Verdict and Suffering Unfair Prejudice if a Jury was Aware of its Relationship to the Action.
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Question of Fact Whether Coverage for Uninsured Motorist Claim was Precluded. Despite Significant Credibility Issues, Conflicting Evidence Existed Whether Insured Reported the Accident to the Police as Required by the Policy.
A grasshopper walks into a bar. The bartender looks at him and says, “Hey, they named a drink after you!” “Really?” replies the grasshopper. “There’s a drink named Stan?”
Go Sabres!
Scott
Scott D. Storm
[email protected]
Price of Life – 100 Years Ago:
The Buffalo Times
Buffalo, New York
03 Feb 1923
Court Values Life
Of Child at $6,000
Special to The Buffalo TIMES.
NEW YORK, Feb. 3.—The New Jersey Circuit Court awarded Mrs. Catherine Maher, No. 336 Ninth Street, Jersey City, $6,000 damages for the death of her son. Thomas, fifteen, on July 20, 1922.
Mrs. Maher sued the Magnus Metal Company for $25,000 damages, alleging that her son was fatally burned on April 14, 1922, while handling sticks of phosphorus left in a vat on the street.
Gestwick’s Greatest:
Hello Readers:
Well, all good things must come to an end, eventually. The Bills lost to the Cincinnati Bengals, and from the looks of it, rightfully so. Here’s hoping they can get it together for next season.
This week, I will bring to you a case out of the New York State Supreme Court, New York County. This case asks the question whether an insurer who makes a payment to its insurer, after such carrier’s other insurer denied coverage, waives its right to subrogation. The Court began by noting the general rule—that where an insurer voluntarily makes a payment to its insurer, it waives its right to subrogate against any other entity to recover that payment. However, if the payment was made pursuant to a contractual duty to make it, such as where the other potential insurer denies coverage, thus rendering the subrogating insurer obligated to make the payment, the right of subrogation is not waived.
That’s all for next week, see you in two weeks.
Evan
Evan D. Gestwick
[email protected]
Successful Settlement – 100 Years Ago:
The Buffalo News
Buffalo, New York
03 Feb 1923
YOUNG BOY GETS $5000,
RESULT OF BROKEN LEG
Father Sued Batavia, Tree.
Limb Fell on Lad; Leg.
Was Stiffened
BATAVIA, Feb. 3.—Janary Cocco, six years old, through his father, John Cocco, of Ellicott Street, Batavia, yesterday afternoon, was awarded a verdict of $5,000, the full amount of his claim against the city of Batavia, for injuries sustained last February 23, when a limb fell from a tree during a sleet storm and broke his leg. The case was tried in the Supreme court before Justice Edward R. O’Malley.
As a result of his injury, a physician testified that the boy’s ankle was made stiff. It was shown that the limb of the tree had been rotting for some time but that the city had made no offer to remove it. Attempts to settle the claim out of court were rejected by the common council.
On the Road with O’Shea:
Dear Subscribers,
Hope everyone is easing into February as the cold just begins to hit Western New York. On a personal note, I bought a Newfoundland puppy this weekend. That makes a second Newfoundland in a small house.
This week I present two no-fault cases from the Second Department. The first addresses what happens to a provider when the insured does not appear for scheduled EUOs. The second addresses a provider's attempt to get a claim for medical equipment that the carrier already paid for.
Stay warm this week,
Ryan
Ryan P. O’Shea
[email protected]
Problems in Baseball – 100 Years Ago:
The Buffalo Enquirer
Buffalo, New York
03 Feb 1923
SPORT COMMENT
BY EDWARD TRANTER
If anyone imagines that Judge Landis, commissioner of organized baseball, has a soft snap they are sadly mistaken. Collecting $42,500 from baseball moguls, for holding down the job of chief, sounds mighty sweet, but the famous Chicago jurist has found out that this post they hitched him onto is far from being the sinecure it would seem. Just as present baseball troubles are mounting up for Judge Landis to dispose of, most of the complaints he has received are from players who are not satisfied with the terms of the new contracts that have been sent out by club owners. In the past, players have been in a position where they could hold up their clubs, but in the future if there is any dissatisfaction it must be reported to the high commissioner of the national pastime.
Most of the contracts sent out by club owners contain the provision that in the event the terms are not satisfactory, the players may resort to the last court, viz: Judge Landis. And, from what we glean, many are dissatisfied and are filing their complaints with Judge Landis. All of which means the Chicago jurist has plenty of work on his hands.
North of the Border:
My husband and I looked after our two grandsons this past weekend while their parents took a much-deserved weekend in Banff. That meant we had two nights and two days with an eight-month-old and a 2 ½ year-old.
It was fabulous. It was like raising our own children all over again without the stress and fears that we had with them. We went to our local science centre, made cookies, played with wooden trains, and read stories. When the parents returned and the children left, the house felt strangely quiet, but I can truly say that I enjoyed my undisturbed soak in the tub on Sunday night.
There are no coverage decisions worth reporting from Canadian courts so I took the opportunity to set out the Canadian law on when shareholders can claim for diminished value of shares caused by the torts or breach of contract of others.
Heather
Heather A. Sanderson
Sanderson Law, Calgary, Alberta
[email protected]
Headlines from this week’s issue, attached:
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
- Privity AI Endorsement Means What It Says. Questions of Fact on Breadth of Contract Requirements
- Under Mighty Midgets Rule, Insured Cannot Recover Costs of Prosecuting Affirmative Declaratory Judgment Action, Even Where Successful
- Action Dismissed for Lack of Standing is Not Final Adjudication Barring Subsequent Coverage Determination
PEIPER on PROPERTY (and POTPOURRI)
Steven E. Peiper
[email protected]
- E-mail Confirmation of Settlement Between Counsel is Binding
DISHING OUT SERIOUS INJURY THRESHOLD
Michael J. Dischley
- Defendant Failed to Meet Prima Facie Burden due to Defendant Expert Finding Significant Limitations in Range of Motion and Failed to Explain Beliefs that Limitations were Self-Imposed
- Defendant Experts Conceded that Injuries were Caused by Accident and Therefore Plaintiff Experts were able to Raise Triable Issue of Fact as to Significant Limitation of Use and Permanent Consequential Limitation of Use
WILEWICZ’S WIDE WORLD of COVERAGE:
Agnes A. Wilewicz
[email protected]
- On the Road
BARNAS on BAD FAITH
Brian D. Barnas
[email protected]
- Bad Faith Claim Dismissed on Summary Judgment where Insurer had Arguable Basis for Denial of Coverage
LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel
[email protected]
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Connecticut High Court Affirms No Coverage for COVID BI Claims
KYLE'S CONSTRUCTION COLUMN
Kyle A. Ruffner
[email protected]
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Court Holds that Insurer is Obligated to Defend a Contractor accused of Negligently Causing the Collapse of a Building During Renovations
RYAN’S CAPITAL ROUNDUP
Ryan P. Maxwell
[email protected]
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Bill Expanding Scope of Wrongful Death Litigation Vetoed Due to Increased Burden on Judiciary and Insurance Costs
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Chapter Amendments to Recent Excess Line Insurance Placement Affidavit Requirement Law Passes Both Houses
RAUH’S RAMBLINGS
Patricia A. Rauh
[email protected]
- See you in two weeks!
STORM’S SIU
Scott D. Storm
[email protected]
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When Does a Causal Connection Exist Between an Injury Complained of and the Alleged Negligent Act to be Entitled to Recover for the Injury? Plaintiff Failed to Meet his Burden of Proof that his Inguinal Hernia was Related to the Loss
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Insurer’s Motion to Substitute the 3rd-Party Tortfeasor’s Name for its Name at a Trial Over UIM Benefits is Denied. Insurer Feared an Inflated Jury Verdict and Suffering Unfair Prejudice if a Jury was Aware of its Relationship to the Action
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Question of Fact Whether Coverage for Uninsured Motorist Claim was Precluded. Despite Significant Credibility Issues, Conflicting Evidence Existed Whether Insured Reported the Accident to the Police as Required by the Policy
FLEMING’S FINEST
Katherine A. Fleming
[email protected]
- Conviction for Second-Degree Reckless Homicide in Prior Criminal Proceedings Did Not Preclude a Finding that Death was Accidental, and Intentional Acts Exclusion was Thus Inapplicable
GESTWICK’S GREATEST
Evan D. Gestwick
[email protected]
- An Insurer’s Right of Subrogation Remains Available Where Other Potential Insurer Refused to Participate in Defense and/or Indemnification.
ON the ROAD with O’SHEA
Ryan P. O’Shea
[email protected]
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No-Fault Assignor Does Not Appear for EUO, Leaves Assignee Out to Dry
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No-Fault Benefits Already Paid to Another Provider, Assignee Gets Nada
NORTH of the BORDER
Heather A. Sanderson
Sanderson Law, Calgary, Alberta
[email protected]
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Reflective Claims or Claims for Loss of Share Value in Canada
Avoid groundhogs and stay warm.
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
Ryan P. O’Shea
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
Gestwick’s Greatest
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
02/02/23 Arch Specialty Ins. Co. v. Nautilus Ins. Co.
Appellate Division, First Department
Privity AI Endorsement Means What It Says. Questions of Fact on Breadth of Contract Requirements
The additional insured endorsement of the Nautilus policy, issued to its named insured nonparty GSC stated that additional insured coverage would be provided only to "any person(s) or organization(s) when you [GSC] and such person(s) or organization(s) have agreed in a written contract or written agreement that such person(s) or organizations(s) be added as an additional insured on your policy." That language clearly and unambiguously required that the named insured execute a contract with the party seeking coverage as an additional insured. Issues exist here as to whether the signed two-page subcontract between GSC and Bordone incorporated an "invoice requirements" page and whether that page sufficiently required GSC to procure additional insured coverage for Bordone.
02/01/23 Hershfeld v. JM Woodworth Risk Retention Group, Inc.
Appellate Division Second Department
Under Mighty Midgets Rule, Insured Cannot Recover Costs of Prosecuting Affirmative Declaratory Judgment Action, Even Where Successful
On December 11, 2013, the Leones commenced a medical malpractice action against Hershfeld and Medical Offices of Howard Beach, P.C. (hereinafter together the medical providers). The medical providers' insurer, JM Woodworth Risk Retention Group, Inc. (“JMW”), agreed to provide a defense. On January 29, 2016, however, JMW denied the claim and withdrew its defense of the medical malpractice action based on the medical providers' alleged failure to cooperate with counsel.
Not happy with that decision, the medical providers commenced a declaratory judgment action against JMW and the Leones seeking, among other things, a declaration that JMW was obligated to defend and/or indemnify the medical providers in the medical malpractice action. JMW subsequently reaffirmed its coverage of the medical providers in the medical malpractice action, with a full reservation of rights. In January 2019, the medical malpractice action was settled and paid out by JMW.
JMW moved for summary judgment declaring that it is not obligated to reimburse the medical providers for legal expenses that the medical providers had allegedly incurred as a result of JMW declining coverage.
Under the Mighty Midgets rules, since the medical providers' first and second causes of action asserted against JMW for a declaratory judgment amounted to an affirmative action by the insureds to settle their rights, rather than legal steps by an insurer to free itself from its policy obligations, the medical providers are not entitled to an award of legal fees.
Editor’s Note: Had JMW commenced the DJ to free itself from coverage responsibilities, and lost, the medical providers would have been awarded the costs of defending that action.
01/25/23 Lannon v. Everest National Insurance Company
Appellate Division, Second Department
Action Dismissed for Lack of Standing is Not Final Adjudication Barring Subsequent Coverage Determination
On August 19, 2009, the plaintiff was injured in the course of his employment as a carpenter for nonparty McM Homes, Inc. (“McM”), a subcontractor hired by a general contractor, the defendant Bay Creek. Everest had issued a general liability insurance policy to McM that was in effect at the time of the plaintiff's injury.
In March 2010, the plaintiff commenced a personal injury action against Bay Creek, among others. He asserted causes of action to recover damages for negligence and violations of Labor Law §§ 200 and 240(1).
In February 2011, while the personal injury action was still pending, the Lannon commenced an action for a judgment declaring the legal rights amongst several parties, including Everest, alleging that Everest failed to add Bay Creek as an additional insured under the policies covering McM (hereinafter the prior declaratory judgment action). In an order dated June 14, 2012, the Supreme Court, inter alia, granted that branch of Everest's motion which was pursuant to CPLR 3211(a) to dismiss the complaint in the prior declaratory judgment action insofar as asserted against it based upon the plaintiff's lack of standing, noting that the plaintiff had not alleged that he had satisfied the prerequisites of Insurance Law § 3420.
That was the right decision. An injured party has no right to commence a declaratory judgment action against a liability insurer until it has a judgment against the policyholder (or purported policy holder). Once it does, it can bring a direct action against the insurer under the provision of Insurance Law Section 3420(a)(2). That is what happened here.
After obtaining a judgment in the personal injury action against Bay Creek, the plaintiff commenced the instant action for a declaratory judgment alleging, inter alia, that McM was to add Bay Creek as an additional insured. Everest moved, among other things, pursuant to CPLR 3211(a)(5) to dismiss the complaint insofar as asserted against it, arguing, inter alia, that this action was barred by the doctrines of res judicata and collateral estoppel. In an order dated June 4, 2020, the Supreme Court, among other things, granted that branch of Everest's motion, concluding that the instant action was barred by the doctrine of res judicata because of the prior dismissal.
The court had never reached the issue of coverage in the first lawsuit.
So, when Everest asked the court to dismiss this lawsuit based on the determination of lack of standing in the previous lawsuit, the court held that the issues of coverage were never resolved in the first lawsuit, only the issue of standing.
Editor’s Note: IMHO, the court was right. The first lawsuit was dismissed on standing, not on substance. When standing was obtained (after judgment was obtained against the purported insured), the injured party had the right to bring this lawsuit.
PEIPER on PROPERTY (and POTPOURRI)
Steven E. Peiper
[email protected]
01/31/23 Guice v. PPC Residential, LLC
Appellate Division, First Department
E-mail Confirmation of Settlement Between Counsel is Binding
A binding settlement agreement existed between plaintiff and defendants when plaintiff's counsel responded, "Confirmed. Thank you" to RB NY Enterprises Inc.'s insurance carrier's email stating "This email is to confirm we are settled at $85,000". No conditions were attached to the confirmation; the parties prepared the release documents; and plaintiff's counsel forwarded the releases to plaintiff for signature.
The fact that plaintiff became dissatisfied with the settlement amount after receiving additional treatment for a known injury does not constitute sufficient grounds to invalidate the settlement.
DISHING OUT SERIOUS INJURY THRESHOLD
Michael J. Dischley
[email protected]
01/18/23 Matveieva v. Metro. Transportation Authority, et al
Appellate Division, Second Department
Defendant Failed to Meet Prima Facie Burden due to Defendant Expert Finding Significant Limitations in Range of Motion and Failed to Explain Beliefs that Limitations were Self-Imposed.
In an action to recover damages for personal injuries, the plaintiff appeals from an order of the Supreme Court, Kings County (Rosemarie Montalbano, J.), dated February 10, 2021. The order granted the defendants' motion for summary judgment dismissing the complaint on the grounds that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident.
The plaintiff commenced this action to recover damages for personal injuries she allegedly sustained in a motor vehicle accident that occurred on October 22, 2016. The defendants moved for summary judgment dismissing the complaint on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. In an order dated February 10, 2021, the Supreme Court granted the defendants' motion, and the plaintiff appeals.
The defendants failed to meet their prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendants failed to submit competent medical evidence establishing, prima facie, that the plaintiff did not sustain a serious injury to the cervical and lumbar regions of her spine under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d). The defendants' experts found significant limitations in the range of motion of the cervical and lumbar regions of the plaintiff's spine and failed to adequately explain and substantiate, with competent medical evidence, their beliefs that the limitations were self-imposed. Further, the defendants failed to establish, prima facie, that the alleged injuries to the cervical and lumbar regions of the plaintiff's spine were not caused by the subject accident.
Since the defendants failed to meet their prima facie burden, it is unnecessary to determine whether the papers submitted by the plaintiff in opposition were sufficient to raise a triable issue of fact.
Accordingly, the Supreme Court should have denied the defendants' motion for summary judgment dismissing the complaint. As such, the Appellate Court Ordered that the defendants' motion for summary judgment dismissing the complaint is denied.
01/18/23 Martinez v. New York City Transit Authority, et al.
Appellate Division, Second Department
Defendant Experts Conceded that Injuries were Caused by Accident and Therefore Plaintiff Experts were able to Raise Triable Issue of Fact as to Significant Limitation of Use and Permanent Consequential Limitation of Use
In an action to recover damages for personal injuries, the plaintiff appeals from an order of the Supreme Court, Kings County (Katherine Levine, J.), dated December 13, 2019. The order, insofar as appealed from, upon reargument, vacated a determination in an order of the same court dated January 3, 2019, denying the motion of the defendants New Mega Limo Car and Rafael Garcia for summary judgment dismissing the complaint insofar as asserted against them on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident, and thereupon granted that motion.
The plaintiff commenced this action to recover damages for personal injuries that she allegedly sustained in a motor vehicle accident that occurred on January 29, 2015. The defendants New Mega Limo Car and Rafael Garcia (hereinafter together the defendants) moved for summary judgment dismissing the complaint insofar as asserted against them on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the accident. In an order dated January 3, 2019, the Supreme Court denied the motion.
Thereafter, the defendants moved for leave to reargue their prior motion. In an order dated December 13, 2019, the Supreme Court granted the defendants' motion for leave to reargue, and upon reargument, vacated the determination in the order dated January 3, 2019, denying the defendants' prior motion, and thereupon, granted the defendants' prior motion. The plaintiff appeals.
The Appellate Court found that defendants met their prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the accident. The defendants submitted competent medical evidence establishing, prima facie, that the alleged injuries to the cervical and lumbar regions of the plaintiff's spine and the alleged injuries to the plaintiff's right shoulder did not constitute serious injuries under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d). However, in opposition, the plaintiff raised a triable issue of fact as to whether she sustained serious injuries to the cervical and lumbar regions of her spine and to her right shoulder under the permanent consequential limitation of use and significant limitation of use categories of Insurance Law § 5102(d).
Since one of the defendants' experts conceded that the alleged injuries to the cervical and lumbar regions of the plaintiff's spine and to the plaintiff's right shoulder were caused by the accident, the burden never shifted to the plaintiff to raise a triable issue of fact regarding causation, or to explain any gap in treatment.
Accordingly, the Supreme Court should have, upon reargument, adhered to its determination denying the defendants' motion for summary judgment dismissing the complaint insofar as asserted against them.
WILEWICZ’S WIDE WORLD of COVERAGE
Agnes A. Wilewicz
[email protected]
On the road.
BARNAS on BAD FAITH
Brian D. Barnas
[email protected]
01/27/23 Recology, Inc. v. Berkley Regional Insurance Company
United States District Court, Northern District of California
Bad Faith Claim Dismissed on Summary Judgment where Insurer had Arguable Basis for Denial of Coverage
Recology owns and operates a landfill located in Vacaville, California. Recology charges customers to dump waste at the facility. The pricing is based upon the density of the debris and other factors. The price charged for dumping is based in part on the weight of the load dumped by each truck as well as the classification of the waste.
Recology obtained a commercial crime policy from BRIC. The policy is based on the Insurance Services Office, Inc. (“ISO”) Standard Form CR 00 22 (version 05 06). It provides coverage for loss of or damage to money, securities, and other property resulting directly from theft committed by an employee. Theft is defined as the unlawful taking of property to the deprivation of Recology.
Recology submitted two related claims under the policy, alleging that certain employees allowed customers to dump waste at the site, either for no payment or reduced payment to Recology in exchange for kickbacks to the employees. First, Recology claims former employee, Toby Soares, conspired with waste broker, James Lucero, to allow Lucero to dump waste at the site either without paying for it or by paying to dump waste at a reduced cost in return for kickbacks of $50 or $100. Second, Recology claims other former employees engaged in a scheme whereby they allowed customers to similarly dump waste without payment in return for kickbacks ranging from $200 to $600, depending upon the timeframe and size of the load.
Recology provided BRIC with notice of the claims. Recology claimed $1,769,288.22 as a result of the Lucero Scheme and $784,106.73 as a result of the Weighmaster Scheme. BRIC denied coverage for all claims except the amount of kickbacks received by Recology’s former employees. Recology commenced an action against BRIC seeking declaratory relief and alleging breach of contract and breach of the implied covenant of good faith and fair dealing.
First, the court concluded that Recology suffered a loss of its real property directly resulting from theft committed by its former employees. The court found that Recology had not simply lost money or airspace. It had lost its specialized landfill space as a result of the employee schemes. This was within the coverage provided and did not fall within any applicable exclusions.
The court found an issue of fact with respect to the available damages. Recology’s claimed damages amounted to the amount of revenue it claims it lost based upon the loss of the landfill space and unrealized dumping fees. BRIC retained an expert who disputed the fees as calculated by Recology and its methods of calculation. While the court noted that BRIC’s expert made a “rather skimpy” showing, it concluded that Recology failed to establish its entitlement to summary judgment as a matter of law regarding its computation of damages.
The court did however grant BRIC’s motion for summary judgment seeking dismissal of Recology’s good faith and fair dealing claim. BRIC argued that it did not breach the covenant because its denial of coverage for the alleged loss of anticipated revenue was maintained in good faith and on reasonable grounds. BRIC argued that its good faith was demonstrated through several actions, including: (1) it thoroughly investigated the claims, (2) it indemnified Recology for the provable kickbacks, and (3) it stated that it was willing to pay more for the amount of kickbacks that Recology is able to prove.
Recology countered that BRIC fell short of industry standards and breached the covenant of good faith by both failing to thoroughly investigate the claim and by compelling Recology to litigate the issue of coverage despite that a plain reading of the policy should result in coverage. Despite the charging, prosecution, and conviction of the former employees for “grand theft” BRIC had not revisited its coverage determination. Recology averred that BRIC violated its duty of good faith by focusing only on grounds to justify denial of the claim.
The court concluded that BRIC had the better argument. The court found that there was a genuine dispute regarding coverage and the denial was not unreasonable under the circumstances. The court’s acceptance of Recology’s arguments did not mean they were a slam dunk, nor was the court’s finding of coverage synonymous with a finding that BRIC acted unreasonably. Though BRIC's rationale for doing so was difficult to square with its denial position, its actions to compensate Recology for the provable amounts of kickbacks demonstrated some modicum of good faith, particularly since it did so based on some out-of-district case authority.
LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel
[email protected]
01/27/23 Connecticut Dermatology Group, PC v. Twin City Fire Ins. Co. & Hartford Fire Ins. Co. v. Moda, LLC
Supreme Court of Connecticut
Connecticut High Court Affirms No Coverage for COVID BI Claims
In a pair of decisions involving The Hartford, one applying Connecticut and the other New York law, the Connecticut Supreme Court unanimously held that the COVID-19 virus does not cause “direct physical loss of or damage to” property. Accordingly, the Court affirmed the dismissal of the insureds’ business income loss claims.
Similar to the multitude of COVID-19 business income claims, the plaintiffs were insured under identical commercial property policies, affording coverage for loss of business income resulting from the “direct physical loss of or damage to” covered property. The insureds, in response to the Connecticut Governor’s executive orders, suffered business losses from the suspension of their businesses. The insureds also incurred costs to physically modify and clean their premises, to comply with the executive orders. Their claims were denied by The Hartford “because the coronavirus did not cause property damage…” Suit followed.
The trial court granted The Hartford summary judgment, relying on the policies’ standard virus exclusion. The plaintiffs appealed to the Appellate Court, but the Supreme Court granted The Hartford’s motion to transfer the appeal directly to the Supreme Court. On appeal, the insureds argued that the virus exclusion was inapplicable to their claims. The Hartford argued that the trial court correctly applied the exclusion and that, in any event, the claimed losses did not trigger the coverage.
The Supreme Court affirmed on the alternative ground that the insureds’ allegations did not assert covered property damage caused by the virus, thus not reaching the virus exclusion. Relying on a Second Circuit decision, which itself relied on a 2013 Connecticut Supreme Court holding, the Court held that the suspension of business operations during the pandemic is not covered because the loss was not physical and the virus did not tangibly alter the property. The Court noted that its holding was consistent with the “overwhelming majority of federal and state courts construing similar or identical language….” The Court also found support for requiring physical alteration in the broader context of the coverage, looking to the period of restoration.
“We conclude, therefore, that the plain meaning of the term ‘‘direct physical loss of . . . [p]roperty’’ does not include the suspension of business operations on a physically unaltered property in order to prevent the transmission of the coronavirus. Rather, in ordinary usage, the phrase ‘‘direct physical loss of . . . [p]roperty’’ clearly and unambiguously means that there must be some physical, tangible alteration to or deprivation of the property that renders it physically unusable or inaccessible.”
The Court rejected the insureds’ ‘direct physical loss’ claim, in which they argued that the virus physically transformed their businesses into “viral incubators that were imminently dangerous to human beings.” The Court, while admiring the ingenuity of the argument, found that the record was lacking any factual claim of physical transformation. On a similar basis, the Court denied that the insureds’ physical modifications of their businesses qualified as direct physical loss, because they were not repairs in any ordinary sense of the word. Also rejected was the oft-made argument that the insureds suffered a physical loss of use of their businesses because they lost the productive use of their property. “We disagree. Instead, we agree with the multiplicity of courts that have concluded that ‘‘use of property’’ and ‘‘property’’ are not the same thing, and the loss of the former does not necessarily imply the loss of the latter.” The Court reasoned that such a reading would then result in coverage whenever there was a necessary suspension, regardless of whether there was first a direct physical loss.
Significantly, the Court conceded that not all property damage claims must involve tangible alteration. Sometimes property can be rendered physically inaccessible, such as stolen property. Referencing cases in which BI coverage was found for events that rendered premises uninhabitable but not physically altered, the Court held that in those situations “a discrete physical event occurred that created an imminent threat of physical harm to anyone entering the property, thus rendering the property inaccessible or uninhabitable.” Contrasting COVID-19, the Court wrote that the pandemic was not a discrete physical event, nor did the insureds’ properties pose an imminent danger to anyone entering them.
***
In the companion case, the Court applied its reasoning in Connecticut Dermatology to hold that The Hartford owes no business income coverage for COVID-19 under an ocean marine policy, interpreted under New York law. The marine policy protects the insured’s shoes while in transit and storage. “’Insured [p]roperty” includes Fisher's “shoes and related accessories.’” The marine policy also contained a virus exclusion. The trial court found that there was no coverage under the marine policy, under New York law, or the insured’s standard commercial property coverage, under Connecticut law. “With respect to the marine policy, the court reasoned that, “under New York law, the words ‘direct’ and ‘physical’ in an insurance policy limit an insurance company's coverage obligations to physical damage to the property itself.” Fisher therefore could not “succeed on [its argument that it was] entitled to coverage based on loss of access to the property and the fact that [its] inventory became outdated or diminished in value.” The court rejected Fisher's argument that its property had been “‘contaminated’” on the ground that “there [were] no allegations in the counterclaim or evidence in the record indicating that [its] shoes [had] somehow been infected with the ... virus.”
The Supreme Court held that, “New York precedent leads us to the same conclusion with respect to the marine policy that we reached under Connecticut law with respect to the policies at issue in Connecticut Dermatology and in part I of this opinion. New York courts consistently have held that such language does not describe business income losses incurred as a result of COVID-19 related closures “[when] the insured property itself was not alleged or shown to have suffered direct physical loss or physical damage.” 10012 Holdings, Inc. v. Sentinel Ins. Co., Ltd., 21 F.4th 216, 221 (2d Cir. 2021).”
The insureds asked the Supreme Court to ignore every single New York state and federal trial and appellate court finding no coverage and instead apply a food alteration case. In Pepsico, Inc. v. Winterthur International America Ins. Co., 24 A.D. 3d 743, 806 N.Y.S.2d 709 (2005), the New York appellate court found that a drink was physically damaged by the introduction of faulty ingredients. Here, the Supreme Court held that Pepsico was consistent with the ‘physical event’ test and that the physical event that damaged the drinks was the presence of the faulty ingredients. “Thus, the holding in Pepsico, Inc., does not contradict the substantial body of New York precedent interpreting “direct physical loss or direct physical damage to [i]nsured [p]roperty” to require some fault in the physical substance of the insured property. We therefore agree with the trial court that the marine policy plainly and unambiguously does not cover Fisher's losses.”
KYLE'S CONSTRUCTION COLUMN
Kyle A. Ruffner
[email protected]
01/24/23 Capitol Specialty Ins. Corp. v. Dello Russo Enter., LLC
United States District Court for the District of Massachusetts
Court Holds that Insurer is Obligated to Defend a Contractor accused of Negligently Causing the Collapse of a Building During Renovations
The defendants Dello Russo Enterprises, LLC and Michael Dello Russo were insured by the plaintiff Capitol Specialty Insurance Corporation. Capitol sought a declaratory judgment stating that it had no duty to defend or indemnify the defendants in an action against them for property damages claims arising out of the collapse of a building.
Certain Underwriters at Lloyd’s filed a complaint for damages, alleging that a building owned by Peta-Gaye and Michael Prinn collapsed as a result of the actions of one or more of the underlying defendants, including Dello Russo. The complaint alleged that Dello Russo contracted to provide shoring services during the demolition and renovation of the building. Further, the complaint alleged that the defendants performed the demolition work described in the contract, that the shoring of the components of the building to avoid collapse was incomplete or improperly installed, and that the demolition of the components of the building failed to comply with standard industry practices in such a manner as to create a reasonably foreseeable risk of collapse of the building . As a result, the complaint alleged the actions of the defendants led to the collapse and rendered the building unsalvageable.
Under the insurance policy issued by Capitol to Dello Russo, Capitol was obligated to pay those sums that Dello Russo became legally obligated to pay as damages because of property damage to which the insurance applied. The policy only applied to property damage caused by an “occurrence,” defined by the policy as an accident. In addition, the policy excluded coverage for property damage to “that particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the property damage arises out of those operations” or to “that particular part of any property that must be restored, repaired or replaced because your work was incorrectly performed on it.”
Under Massachusetts law, the proper interpretation of an insurance policy is a matter of law to be decided by a court, not a jury. When in doubt, a court must consider what an objectively reasonable insured, reading the relevant policy language, would expect to be covered. Any ambiguities in an insurance policy are to be construed against the insurer and in favor of the insured. The court explained that the duty to defend is triggered when facts alleged in the relevant complaint are reasonably susceptible of an interpretation that states or roughly sketches a claim covered by the policy terms. The relevant facts need only show a “possibility that the liability is within coverage. Here, the court stated that Capitol would have a duty to defend if the claims against Dello Russo alleged (1) property damage (2) caused by an occurrence that (3) does not fall within either of the business risk exceptions.
The policy defined property damage to include “physical injury to tangible property, including all resulting loss of use of that property.” Therefore, the court held the complaint stated a claim based on property damage, as it alleged that as a result of the actions of one or more of the defendants, the building collapsed, rendering the building unsalvageable. With regard to whether the property damage was caused by an occurrence, the court noted that under Massachusetts law, faulty workmanship fails to constitute an accidental occurrence in a commercial general liability policy. However, there is coverage when faulty workmanship causes an accident and there is collateral damage to property other than the insured’s work product. In this case, Dello Russo was not hired to demolish the entire building, rather, the complaint alleges Dello Russo’s faulty workmanship during renovations caused the building to partially collapse. Since the alleged negligence caused an accident, the court held the claims alleged property damage caused by an occurrence.
However, Capitol contended that the policy’s business risk exclusions precluded coverage. These provisions reflected the well-recognized principle that liability coverage does not insure the insured’s work itself, rather, it insures consequential damages stemming therefrom. The complaint alleged that Dello Russo agreed to provide general contractor services for extensive remodeling and renovation of the building. Capitol contended that Dello Russo had control over the entire premises and the “particular part of property” therefore meant the entire project. However, the court reasoned that Dello Russo was not hired to construct, renovate, or demolish an entire building, but was obligated to work only on a particular part of the building, its interior. Therefore, the court held that the words “that particular part” referred only to the building’s interior and the claimed damages to the superstructure did not fall within the exclusionary language of the policy.
Accordingly, the court held that Capitol had a duty to defend Dello Russo against the complaints unless and until it was determined that the only actual damage was to the property on which Dello Russo performed faulty work. In addition, the court rejected Capitol’s request for a declaration that it had no duty to indemnify Dello Russo as untimely. The court held that the duty to indemnify is determined by the facts which are usually established at trial and, therefore, this determination must wait until the underlying action has been resolved. Therefore, Dello Russo’s motion for summary judgment was granted and Capitol’s motion for summary judgment was denied as to the issue of the duty to defend and denied without prejudice as to the issue of the duty to indemnify.
RYAN’S CAPITAL ROUNDUP
Ryan P. Maxwell
[email protected]
Legislative List
01/30/23 Governor Vetoes Grieving Family Act
Office of the Governor
Bill Expanding Scope of Wrongful Death Litigation Vetoed Due to Increased Burden on Judiciary and Insurance Costs
There has been much written and said about the New York Grieving Family Act that was hastily passed by both New York legislative houses at the end of last year’s legislative session. Our firm was no exception (here, here, here, here, here … and elsewhere, I’m sure). The bill, if passed, would have completely overhauled wrongful death claims in New York by permitting recovery for emotional damages and expanding the class of persons who can seek recovery in a death claim.
However, we can definitively say that as of January 30, 2023, the Grieving Family Act has been placed on pause, for now. Although I will not beat a dead horse (our firm wrote about it here, and here already), we can definitively say that absent modifications alleviating some of the concerns, including increased burdens placed upon the judiciary to determine fact issues involving who can make claims as the degree of “closeness” required for a “close family member” and attempting to place value on human lives, as well as increased costs on families, small businesses, and healthcare institutions, including increased insurance premiums to cover ballooning risk were this bill to pass.
Maxwell’s Minute: Again. Click the links in the paragraph above for the blow-by-blow. However, I will note that the Governor, expressing a commitment to delivering justice for New Yorkers and working with stakeholders to find equitable solutions, provided plainly in her Veto Memo that “[t]his bill passed without a serious evaluation of the impact of these massive changes on the economy, small businesses, individuals, and the State's complex health care system.” I know nothing will change, but I will always look to bills passed on the last day of a legislative session with a degree of skepticism. There are invariably bills passed on this day that were, for all intents and purposes, derived in the shadows and vetted by absolutely nobody. The Legislative process should always involve considered judgment and it will never cease to amaze me that bills like this, which have obvious, far-ranging impact on the pockets of New York citizens, small businesses, and healthcare institutions, while also clogging an already strained judiciary with fact issues to resolve at trial, are passed without economic impact studies conducted or even a public debate.
02/01/23 Slight Modification To Excess Line Placement Affidavit
New York State Legislature
Chapter Amendments to Recent Excess Line Insurance Placement Affidavit Requirement Law Passes Both Houses
Pursuant to Chapter 833 of the Laws of 2022, the due diligence requirements for retail and wholesale insurance brokers were relaxed within Insurance Law §2118 so that an excess lines affidavit merely required the name and national association of insurance commissioners code of each authorized insurer declining a particular risk. However, when that law was signed, the Governor negotiated a change with the legislature, per her Approval Memo No. 110:
“I recognize the bill's intent to address challenges in completing the excess line insurance placement affidavit. However, 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 required forms.”
Accordingly, both houses of the New York legislature passed a bill implementing that change (Bill No. S1318). The bill has not yet been delivered to the Governor for consideration.
RAUH’S RAMBLINGS
Patricia A. Rauh
[email protected]
See you in two weeks!
STORM’S SIU
Scott D. Storm
[email protected]
01/13/23 Pasparage v. Progressive Specialty Ins. Co. (Case 1)
United States District Court, W.D. Pennsylvania
When Does a Causal Connection Exist Between an Injury Complained of and the Alleged Negligent Act to be Entitled to Recover for the Injury? Plaintiff Failed to Meet his Burden of Proof that his Inguinal Hernia was Related to the Loss
Pasparage was injured in a car accident caused by a negligent driver. The parties agree that the driver was at fault for the accident. Plaintiff seeks additional recovery under the underinsured motorist ("UIM") provisions of his insurance policy issued by Progressive, which disputes the extent of Plaintiff's injuries caused by the accident. Progressive filed a Motion in Limine seeking to preclude Plaintiff's assertion of a claim for a hernia injury he alleges was caused by the accident. Progressive states that Plaintiff fails to present sufficient evidence connecting the October 4, 2018, accident to the development of a hernia first complained of on March 14, 2019. Plaintiff responds that despite the absence of expert medical testimony relating the hernia to the accident, his medical records confirm that in March 2019 he complained of intermittent left groin pain with an onset that coincided with the accident. Therefore, he argues that he should be permitted to testify about his symptoms and their onset to establish the necessary causal connection.
Pennsylvania common law requires plaintiffs to prove the existence of a causal relationship between the injury complained of and the alleged negligent act to be entitled to recover for the injury. In most circumstances, a plaintiff must prove causation by expert medical testimony. However, there is an exception to this rule where there is an obvious causal relationship between the injury and the alleged negligent act. When an obvious causal relationship exists, expert medical testimony is unnecessary.
An obvious causal relationship is present where the injuries are either an immediate and direct or the natural and probable result of the alleged negligent act. The two must be so closely connected and so readily apparent that a layman could diagnose (except by guessing) the causal connection. Typically, cases with an obvious causal connection share two common characteristics: (1) the plaintiff began exhibiting symptoms immediately after the accident or in a short time thereafter, and (2) the injury complained of was the type one would reasonably expect to result from the accident in question.
Where an injury is delayed or would not reasonably result from the negligent act, courts have declined to find an obvious causal relationship. By contrast, where the injuries were both (a) immediate and direct and (b) a natural and probable result of the alleged negligent act, courts have found an obvious causal connection.
In the instant case, the causal connection between the accident and complaints related to an inguinal hernia five months later is not obvious nor so closely connected that a lay person could diagnose. Thus, expert medical testimony is required to establish within a reasonable degree of medical certainty that the hernia stemmed from the accident at issue. Progressive presents the expert medical opinion of Dr. Randall R. Draper, M.D., who disputes any connection between the accident and Plaintiff's inguinal hernia given the absence of any documented abdominal injuries or tenderness at the time of the accident or at the time Plaintiff followed up with his primary care physician. Dr. Draper further opines that a traumatic inguinal hernia is exceedingly rare and "there are almost always concomitant intraabdominal injuries" that require urgent operative intervention.
Under the circumstances presented, in the absence of any expert medical testimony to connect Plaintiff's hernia to the accident, Plaintiff has failed to meet his burden of proof. Thus, Plaintiff may not present evidence or pursue a claim at trial for his inguinal hernia.
01/13/23 Pasparage v. Progressive Specialty Ins. Co. (Case 2)
United States District Court, W.D. Pennsylvania
Insurer’s Motion to Substitute the 3rd-Party Tortfeasor’s Name for its Name at a Trial Over UIM Benefits is Denied. Insurer Feared an Inflated Jury Verdict and Suffering Unfair Prejudice if a Jury was Aware of its Relationship to the Action
Pasparage was injured in a car accident caused by a negligent driver. The parties agree that the driver was at fault for the accident and his insurer has tendered the full limits of his liability policy. Plaintiff seeks additional recovery under the underinsured motorist ("UIM") provisions of his insurance policy, issued by Progressive. The parties disputed the extent of Plaintiff's injuries that were caused by the accident, and Progressive denied Plaintiff's UIM claim.
Progressive filed a Motion in Limine seeking to preclude references at trial to “Progressive” as the named defendant. Progressive contends it would suffer unfair prejudice if a jury was aware of its relationship to this action. Thus, Progressive requests that the parties use the name of the non-party driver as the defendant. Plaintiff opposes the Motion stating that he does not intend to introduce evidence of Progressive's UIM coverage limits or the amount of the tortfeasor's liability insurance limits. However, Plaintiff argues that Progressive should remain as the named defendant so that the jury understands Progressive's role as an adverse party and the breach of contract claim for UIM benefits.
The United States Court of Appeals for the Third Circuit has held that absent exceptional circumstances not set forth in Progressive's Motion in Limine, parties to a lawsuit shall identify themselves in their pleadings in accordance with Federal Rule of Civil Procedure 10(a). Rule 10(a) illustrates the principle that judicial proceedings, civil as well as criminal, are to be conducted in public. Identifying the parties to the proceeding is an important dimension of publicness. The people have a right to know who is using their courts. In exceptional cases, courts have allowed a party to proceed anonymously, but the fact that a party may suffer economic harm is not enough. Instead, a party must show both (1) a fear of severe harm, and (2) that the fear of severe harm is reasonable. Examples of areas where courts have allowed pseudonyms include cases involving abortion, birth control, transexuality, mental illness, welfare rights of illegitimate children, AIDS, and homosexuality.
In this case, Progressive has identified itself in its pleadings in accordance with Rule 10(a). However, Progressive now seeks to shield its identity from the jury because of a broadly alleged fear of an inflated jury verdict. Progressive fails to provide any binding or persuasive authority permitting it to shield its identity by placing before the jury the name of an individual who is not a party to the UIM policy, not under any obligation pursuant to a policy, and who has no legal obligation with respect to the instant litigation.
The prohibition to introducing evidence of liability insurance set forth in the Pennsylvania Rules of Evidence has no application in an underinsured motorist coverage action where the negligence of the tortfeasor is not at issue. The Pennsylvania rule mirrors Federal Rule of Evidence 411, which provides that "evidence that a person was or was not insured against liability is not admissible to prove whether the person acted negligently. "Regardless of academic argument as to whether a jury is likely to assess greater damages against a deep-pocket insurance company, ... Rule 411 simply is not a mechanism providing for an outright substitution of parties so that the identity of a party as an insurer may be shielded."
Progressive briefly invokes Federal Rule of Evidence 403, which provides that "[t]he court may exclude relevant evidence if its probative value is substantially outweighed by a danger of ... unfair prejudice, confusing the issues, misleading the jury, undue delay, wasting time, or needlessly presenting cumulative evidence." Fed. R. Evid. 403. Like Rule 411, Rule 403 is not a mechanism to permit a party to proceed anonymously or in the name of a non-party and runs counter to the general right of the public to know the identity of those who come before the Court. Absent exceptional circumstances not set forth by Progressive, the requested relief is not warranted.
Finally, the Court notes that any potential prejudice to Progressive proceeding in its own name is offset by the Plaintiff's agreement not to introduce evidence of the UIM policy limits and the amount of the underlying liability payments received.
01/12/23 Smart v. Allstate Ins. Co.
United States District Court, E.D. Pennsylvania
Question of Fact Whether Coverage for Uninsured Motorist Claim was Precluded. Despite Significant Credibility Issues, Conflicting Evidence Existed Whether Insured Reported the Accident to the Police as Required by the Policy
Smart brought this action against Allstate alleging it improperly refused to provide uninsured motorists coverage for injuries he sustained in a hit-and-run accident involving his father's car. Allstate unsuccessfully moved for partial summary judgment.
Smart alleges that while he was a passenger in a Cadillac owned by his father, an unknown vehicle sideswiped the car and sped away. As a result of the collision, Smart alleges that he has suffered injuries. Under the policy, an "uninsured auto" is defined to include:
A hit-and-run motor vehicle which causes bodily injury to an insured person as the result of a motor vehicle accident. The identity of either the operator or owner must be unknown. The accident must be reported to the police or proper governmental authority as soon as practicable. [Allstate] must be notified within 30 days.
The focus of Allstate's Motion is whether Smart did in fact report the accident to the police as required by the policy, and the evidence on this point is conflicting. In a letter to Smart's counsel, Allstate asked her to "[p]lease confirm if the police were ever contacted regarding this hit and run accident and provide me with a copy of the police report." Smart's counsel responded the same day that "there is no police report in this case." Allstate later sent another letter again asking, "[a]s this was a hit and run accident, were the police ever contacted?" Smart's counsel clarified that they were not: "please be advised that the police were not called as the vehicle in which our client was a passenger was sideswiped and the car never stopped."
Allstate attempted to formalize these responses in a Request for Admission that "Plaintiff did not report the subject motor vehicle accident to the police or any other law enforcement/governmental agency." Smart denied the Request for Admission stating: "Accident was reported immediately to Allstate on the date of the accident or shortly thereafter via telephone. This was obviously done so that the car could be repaired as well." Smart later provided an updated response, now expressly stating that he did report the accident to the police: "Denied. The accident was immediately reported to the police by telephone but they would not arrive on scene because no EMS was requested at that time."
In his deposition Smart again stated that he reported the accident to the police in the immediate aftermath: "We pulled over, called the cops. Nobody ever came. And then we sat there for a little longer, nobody ever came, and then we proceeded after a while." When asked for his cell phone number so that Allstate could corroborate his testimony, Smart said he could not recall the carrier or the full number, beyond a 267 area code. Smart's counsel later provided Allstate with a number as “the number that the client recalls" and the carrier Tracfone.
Allstate subpoenaed Tracfone for records of calls or text messages made or received by that number during the relevant time period. Tracfone responded to the subpoena after two motions—one to enforce the subpoena and one for contempt and sanctions, with a no-records certification. In the statement, Tracfone's custodian of records attested that: "After conducting a diligent and thorough search and inquiry, Tracfone is unable to locate any records…”.
Allstate argues that Plaintiff cannot meet the second element of a breach of contract claim—that Allstate breached a duty imposed by a contract, in this case the Policy. As the Allstate policy limits uninsured motorist coverage for hit-and-run accidents to accidents reported to the police (or other proper governmental authority), under Rule 56 Smart must produce evidence that he reported the accident to the police to overcome Allstate's Motion.
Smart alleges in his Amended Complaint that he "fully complied with all of the terms, conditions, and duties required under the Allstate policy," and his deposition testimony that he called the police supports this contention. His counsel's prior statements and the Tracfone no-records certification support Allstate's contention that he did not. Although conflicting evidence would typically preclude summary judgment, Allstate argues that Smart cannot rely on his testimony alone to create a genuine issue of material fact. In support, Allstate cites a non-precedential Third Circuit opinion, affirming grant of summary judgment because "the only evidence in support of plaintiff's claims was his own testimony". However, Rule 56(e) permits a proper summary judgment motion to be opposed by any of the kinds of evidentiary materials listed in Rule 56(c), except the mere pleadings themselves. Rule 56(c) expressly includes depositions, answers to interrogatories, and admissions on file as competent evidence to oppose a motion for summary judgment. This is precisely the evidence that Smart cites. Allstate's argument is, accordingly, not supported by precedent and the text of Rule 56, and Smart has made the sufficient showing of a genuine dispute of material fact necessary to overcome summary judgment.
Allstate appears to argue that the Tracfone statement does not merely conflict with Smart's testimony, it so "negates his contention that he reported the accident to the police" that summary judgment is required. The no-records certification does not undermine Smart's testimony as to require summary judgment. Allstate and Smart offer two competing interpretations of the Tracfone certification. Allstate argues it means Tracfone never had any records of the number, and that the certification so undermines Smart's deposition testimony that summary judgment is warranted. Smart argues the certification means Tracfone no longer has records of the number provided, and therefore his deposition testimony is simply uncorroborated.
Allstate's subpoena, issued in 2022, requested call records from nearly three years prior. Given that cell phone carriers differ in their records retention policies, and giving Smart the benefit of justifiable inferences in his favor to which he is entitled at this stage, his interpretation is not unreasonable. Tracfone's statement that it did not have records pertaining to the number provided by Smart "within its custody or control" may mean that it no longer retained records from 2019 in 2022, not that the number never existed.
Allstate has raised significant credibility issues with respect to Smart's testimony, but their consideration "must be left to the jury."
FLEMING’S FINEST
Katherine A. Fleming
[email protected]
01/26/23 Dostal v. Strand
Supreme Court of Wisconsin
Conviction for Second-Degree Reckless Homicide in Prior Criminal Proceedings Did Not Preclude a Finding that Death was Accidental, and Intentional Acts Exclusion was Thus Inapplicable
Lindsey Dostal and Curtis Strand were in an on-and-off relationship for 17 years. Dostal gave birth to Haeven Dostal on April 3, 2017, and Strand was subsequently adjudicated the father. On July 11, 2017, Haeven passed away as a result of head trauma that occurred while she was in Strand's care. Law enforcement conducted an investigation into Haeven's death, and during the investigation, Strand gave inconsistent accounts of what happened. In a statement given to police on July 10, 2017, Strand said that Haeven fell off of his knee and hit the floor as he attempted to burp her. Strand was interviewed again in November of 2017, at which time he stated that he was warming a bottle, turned around and hit the kitchen island, dropping Haeven to the floor. In both versions of events, Strand put Haeven to bed without seeking medical attention. After a jury trial, at which Dostal was a witness, the jury convicted Strand of second-degree reckless homicide and resisting or obstructing an officer.
After the criminal proceedings, Dostal brought a civil action for negligence and wrongful death against Strand. The complaint alleges that Haeven's "injuries were proximately caused by the negligent acts of . . . Strand, including but not limited to, negligent supervision, failing to properly hold or secure Haeven to prevent her from falling, [and] failing to contact emergency services in a reasonable manner." As to the wrongful death claim, Dostal alleged that she "has sustained damages due to the wrongful death of her daughter, loss of the society and companionship of her child, and has suffered pecuniary loss and will continue to suffer those losses into the future." Strand tendered the matter to State Farm, his homeowner's insurer, seeking defense and indemnification. State Farm moved to intervene, bifurcate liability and coverage proceedings, and stay liability proceedings. The circuit court granted State Farm's motion. State Farm then moved for summary and declaratory judgment, arguing that its policy did not provide coverage for Dostal's claims and that it thus had no duty to defend or indemnify Strand. Specifically, State Farm asserted that there was no "occurrence" (defined as an "accident") triggering coverage. In State Farm's view, the fact that Strand was convicted of second degree reckless homicide, which required that the jury find that Strand created an unreasonable and substantial risk of death or great bodily harm and that he was aware of that risk, precluded the events at issue "from being labeled a mere 'accident.'" State Farm additionally argued that even if there were an "occurrence," coverage remains precluded under a "resident relative" exclusion and an "intentional acts" exclusion. The circuit court agreed with State Farm and granted its motion for summary and declaratory judgment. It concluded that "[t]he criminal recklessness in this case requires more than accidental conduct." With regard to the resident relative exclusion, the circuit court determined that "[t]here are disputed material facts as to whether or not Haeven was a resident under the State Farm policy." Finally, as to the intentional acts exclusion, the circuit court concluded that this exclusion "also operates to bar coverage in this case because Strand's intent can be inferred as a matter of law." Dostal appealed.
On appeal, the appellate court agreed with the circuit court, reasoning that a jury in a criminal trial rejected the argument that Strand's actions were accidental and convicted him of second-degree reckless homicide. In doing so, the jury necessarily found, beyond a reasonable doubt, that Strand was aware that his conduct created an unreasonable and substantial risk of harm to Haeven such that her death did not result from an accident. Accordingly, Strand's conduct did not constitute an occurrence under the Policy. Because the court of appeals concluded that there was no occurrence, it declined to address the resident relative and intentional acts exclusions.
The key question for the Wisconsin Supreme Court was whether being aware of the risk that something might happen necessarily means that when that thing happens, it is not an "accident." State Farm contended that the issue of Strand's fault was actually litigated in a prior action, namely the criminal case against Strand. It asserted that the jury's verdict convicting Strand of second-degree reckless homicide conclusively determined that, because Strand's conduct was reckless although unintentional, Haeven's death could not have been an "accident" for purposes of insurance coverage. Dostal disagreed and argued that none of the elements of second-degree reckless homicide that the jury found would preclude a determination that Haeven's death was an accident.
The Court concluded that whether Strand's conduct was an "accident" was not actually litigated in the prior criminal proceeding because the jury was presented with a question of guilty or not guilty and did not make a determination of what events actually occurred. The court further reasoned that even if one engages in reckless conduct, a resulting injury can still be, in the common parlance of the word, "accidental." Regarding the policy’s intentional acts exclusion, the Court concluded that it could not infer intent to injure as a matter of law because the insured’s intentional act violated the criminal law. Further, intent is not an element of a reckless crime. Thus, if the intentional acts exclusion is to apply, the crime must involve the insured committing an intentional act that carries a substantial risk of injury or death. Following from the determination that the prior criminal proceeding did not preclude a finding that the child’s death was an accident, the Court also concluded that if the conduct was accidental, then the exclusion could not apply.
In sum, the Court concluded that issue preclusion did not bar Dostal from seeking insurance coverage for her claims against Strand because the issue of whether Strand's conduct constituted an "accident" was not actually litigated in the prior criminal proceeding. Further, the Court concluded that there were genuine issues of material fact regarding the application of the resident relative and intentional acts exclusions such that summary judgment was inappropriate. Accordingly, the Court reversed and remanded it to the circuit court.
GESTWICK’S GREATEST
Evan D. Gestwick
[email protected]
01/04/23 ACE Am. Ins. Co. v. Adirondack Ins. Exch.
New York State Supreme Court, County of New York
An Insurer’s Right of Subrogation Remains Available Where Other Potential Insurer Refused to Participate in Defense and/or Indemnification.
After Mr. Breitenbach struck a pedestrian, Mr. Moran, with his vehicle while operating it in the scope of his employment with the Town of Riverhead (the “Town”), Mr. and Mrs. Moran commenced a personal injury against Breitenbach and the Town. At the time of the accident, the Town was insured by ACE American Insurance Company, and the Breitenbachs were insured by Adirondack.
Subsequent to the commencement of the personal injury action, the insurers entered settlement negotiations, which yielded an agreement whereby Adirondack was to pay $750,000 on behalf of Mr. Breitenbach, and ACE was to pay $1,000,000 on behalf of the Town. Mr. Moran, Mr. Breitenbach, and the Town all signed a post-mediation agreement that released each of those parties from pursuing any future claims against one another.
The insuring agreement of the Adirondack policy stated that Adirondack would pay damages, in excess of the retained limit, for bodily injury for which an insured became legally liable due to an occurrence to which the insurance applied. The ‘retained limit’ was defined as the total limit of any underlying insurance. So, the Adirondack policy was meant to pay any judgment in excess of the limits of any other policy that also applied to the same claim. The Adirondack policy also contained an “other insurance” clause, which provided that the coverage provided by the endorsement was excess over any other valid and collectible insurance available to the insured, except for insurance that was specifically written to be excess over this endorsement.
Meanwhile, the ACE policy provided that ACE would indemnify the Town for damages in excess of the $150,000 retained limit for claims for which the insured became liable to pay. The “other insurance” provision provided that if insurance with any other insurer was available to cover a claim, regardless of whether that insurance was written on a primary, excess, or contingent basis, the ACE insurance would be excess over such other insurance, and would not contribute thereto.
In this case, Adirondack had disclaimed coverage to Mr. Breitenbach for the claims asserted in the accident, but agreed to contribute toward the settlement notwithstanding. Only after Adirondack disclaimed coverage, notwithstanding its settlement offer, did ACE make its $1,000,000 settlement offer. ACE then sought to subrogate against Adirondack for said $1,000,000, taking the position that Adirondack bore the ultimate responsibility of providing coverage for the accident.
Adirondack opposed ACE’s subrogation attempt on the ground that any such attempt was waived by ACE’s voluntary payment. Indeed, that is the general rule in New York—as the Court explained, the doctrine of equitable subrogation applies where a party is compelled to pay on the obligations of a third party to protect its own rights, but is waived where the paying party makes the payment voluntarily, instead of to protect its rights. Thus, the question became whether ACE made the payment voluntarily, or to protect its own right.
In holding that ACE had not made the payment voluntarily, the Court found the fact that it had made its payment only after Adirondack had disclaimed its liability to be the most instructive. The Court cited to existing case law in New York that holds that subrogation is a viable theory where the plaintiff provided its insured with a defense or made payments on a policy only after the defendant refused to participate in the defense and denied coverage [United Fire Ins. Co. v. CAN & Transcon. Ins. Co., 300 A.D.2d 1054 (4th Dep’t 2002). The Court’s analysis continued, “critically, in the absence of any other insurer, ACE was indisputably obligated to provide coverage under its own policy.” Since the Court made this finding, it held that ACE, by making the $1,000,000 settlement payment, had not waived its right of subrogation against Adirondack.
Adirondack’s other argument was that ACE waived its right to reimbursement by reason of the signed settlement agreement. The Court found this argument equally unavailing, reasoning that ACE had not signed such an agreement.
Next, the Court turned to its discussion of whether the policies were primary or excess, such that Adirondack would be required to exhaust the umbrella policy limits before ACE became liable for any portion of the $1,000,000 it offered at settlement.
The Court began this discussion by stating that where two or more policies apply to one claim, the extent of coverage is determined by the purpose and risk that each policy was intended to cover. The Court provided that, under this paradigm, umbrella policies are generally seen as a last resort, since the lower premiums typically paid on them reflect a smaller risk to the insurer. See, e.g., Bovis Lend Lease LMB, Inc. v. Great Am. Ins. Co., 53 A.D.3d 140, 145 (1st Dep’t 2008). However, when two excess policies cover the same risk at the same level, the respective policies’ other insurance provisions cancel each other out, and each policy is applied pro rata. Lumbermens Mut. Cas. Co. v. Allstate Ins. Co., 51 N.Y.2d 651, 656 (1980).
However, when both of those policies purport to be excess coverage, the policy that contains the language expressly denying contribution with other applicable policies, thereby manifesting a clear intent to be excess over other excess policies, only becomes liable to pay when the limits of the other policy are exhausted. State Farm Fire & Cas. Co. v. LiMauro, 65 N.Y.2d 369, 375-76 (1985). Applying this standard, the Court noted that the language of the “other insurance” provision in the ACE policy did not clearly manifest a clear intent to be excess over other excess policies, reasoning that the fact that the retention limit of $150,000 and the large premiums, both of which, according to the Court, are indicative of primary policies, evidence the Town’s intent that the ACE policy to serve as its primary policy, notwithstanding the presence of the “other insurance” clause.
ON the ROAD with O’SHEA
Ryan P. O’Shea
[email protected]
12/02/22 Spring Rehab PT, P.C. v. Nationwide Affinity Ins. Co.
Appellate Division, Second Department
No-Fault Assignor Does Not Appear for EUO, Leaves Assignee Out to Dry
Spring Rehab commenced this action seeking recovery of assigned no fault benefits from Nationwide. Nationwide denied the claim due to the insured assignor’s failure to appear for scheduled examinations under oath (EUOs). The Kings County Civil Court granted Spring Rehab summary judgment. Nationwide appealed.
The Second Department reviewed the record and focused on the affidavits submitted by Nationwide to support its summary judgment. The court found the affidavits showed the EUO letters and denial of claims form based on insured’s non-appearance had been timely mailed in accordance with Nationwide’s procedures. Additionally, Nationwide submitted affidavits of the attorneys assigned to conduct the EUOS and certified transcripts of the attorneys’ statements of the insured’s non-appearance. Accordingly, the Second Department reversed the Civil Court decision and granted Nationwide summary judgment, thereby dismissing the complaint.
11/18/22 Longevity Med. Supply, Inc. v. State Farm Mut. Auto. Ins. Co.
Appellate Division, Second Department
No-Fault Benefits Already Paid to Another Provider, Assignee Gets Nada
Longevity is an assignee of first-party no fault benefits seeking recovery from State Farm for medical equipment. Kings County Civil Court dismissed the complaint on summary judgment in favor of State Farm, Longevity appealed.
Upon review of State Farm’s affidavit of its claims specialist and the other documents supported in support of its motion, the Second Department affirmed the Civil Court’s decision. The Appellate Division found State Farm’s papers sufficiently demonstrated it had already paid another provider for the same piece of equipment that served as the basis for the action.
NORTH of the BORDER
Heather A. Sanderson
Sanderson Law, Calgary, Alberta
[email protected]
Reflective Claims or Claims for Loss of Share Value in Canada
There is increasing pressure on D&O policies as of late in view of rather novel arguments for recovery such as greenwashing claims. These claims raise an important issue: When a corporation sustains a loss by reason of the actions of a wrongdoer, can shareholders recover a loss of share value from that wrongdoer? This loss of share value is often called a reflective loss.
The Ontario Court of Appeal discussed the principles underpinning such claims in Tran v. Bloorston Farms Ltd., 2020 ONCA 440. Canadian courts follow the Rule in Foss v. Harbottle, an English Chancery decision from 1843 which has been firmly established to be part of Canadian law by the Supreme Court of Canada: Hercules Managements Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165 (S.C.C.). The rule stipulates that a shareholder of a corporation — even a controlling or sole shareholder — does not have a personal cause of action for a wrong done to the corporation: Hercules Management Ltd., at para. 59; Meditrust Healthcare Inc., at paras. 1,12, and 15. The Hercules decision explained the two reasons for that rule. The corporation is a separate legal entity. The corporation, and not its shareholders, is liable for the corporation's acts and defaults, and the corporation, not its shareholders, acquires causes of action when wrongs are committed against it. Second, the rule avoids a multiplicity of actions; without the rule, a shareholder would always be able to sue on the basis that a wrong done to the corporation, which caused harm to the corporation, indirectly harmed the shareholder.
Therefore, diminished share value does not ground a personal cause of action for the shareholder. The party with the cause of action for the wrong is the corporation. The loss in share value is simply reflective of the loss incurred by the corporation due to the wrong done to it. The loss would be remedied if the corporation took action to recover its loss from the wrongdoer.
With every rule there are exceptions.
The first exception is when the same or overlapping facts constitute actionable wrongs against both the corporation and shareholder. When that occurs, the limit on the rule operates to ensure that the shareholder is not deprived of his or her cause of action, even though the corporation also has a cause of action. Whether the shareholder’s claim can proceed in a particular case will depend on the nature of the wrong done to the shareholder, the nature of the wrong done to the corporation, and their respective causes of action. Some Canadian courts have said that the shareholder's claim must result from an "independent relationship" with the wrongdoer and be for an "independent loss" from that of the corporation to whom the wrong has been done: Walsh v. T.R.A. Co., 2015 NLTD(G) 27, 38 B.L.R. (5th) 256 (N.L. T.D.)
The second exception was adopted into Ontario law by the Tran decision. A shareholder may claim for diminution in share value resulting from a corporation's loss when the wrong done is to the shareholder, who thus has a cause of action, and the corporation has no cause of action. This is known as the second proposition in Johnson, referring to Lord Bingham’s reasons in the House of Lords decision Johnson v. Gore Wood & Co. (2000), [2001] 1 All E.R. 481.
It is a matter of semantics whether the second proposition in Johnson is a "gloss on" the rule in Foss v. Harbottle, an "exception to" the rule, or simply a statement of a circumstance beyond the rule's application. The shareholder is pursuing her own cause of action, not a cause of action that belongs to a separate legal person (the corporation). Moreover, a claim for loss of share value is a claim for damage to the shareholder's property (the shares), not a claim for anything that belongs to the corporation. Shares in a corporation are property of the shareholder, not of the corporation. The ability to sue does not bring with it the ability to recover. A claim for this head of damages is subject to all the same requirements of proof, causation, foreseeability, and quantification as a claim for any head of damages flowing from the wrong that grounds the shareholder's cause of action.
The damages must be reasonably foreseeable. For example, damages for breach of a lease are reasonably foreseeable if "(i) in the 'usual course of things', they arise fairly, reasonably, and naturally as a result of the breach of contract; or (ii) they were within the reasonable contemplation of the parties at the time of contract": Saramia Crescent General Partner Inc. v. Delco Wire and Cable Limited, 2018 ONCA 519 (Ont. C.A.).
An example of the application of the second rule in Johnson is the Tran decision itself. There, an individual Plaintiff owned shares in a company. The company operated a restaurant on leased premises. The Plaintiff, in her personal capacity, signed a contract to lease the premises. Due to the wrongs of the landlord, the restaurant could not operate. The Plaintiff was entitled to recover from the landlord her reasonably foreseeable damages which arose because of the wrongful termination of the lease and the inability of the restaurant to operate. Those damages included the diminution of the value of her shares.
The English Courts have been challenged by the application of the Rule in Foss v. Harbottle. The Courts have been asked to consider when it should be considered whether a loss is reflective - see Primeo v Bank of Bermuda [2021] UKPC 22., where the Privy Council found this should be assessed at the time when the cause of action accrues, as opposed to the time when the claim was brought. The Courts have also been asked to consider the extent to which Foss v. Harbottle applies in cases of fraud (see Breeze v Chief Constable of Norfolk [2022] EWHC 942 (QB)), as well as whether Foss v. Harbottle applies to indirect shareholders (see Broadcasting Investment Group Ltd v Smith [2022] 1 WLR 1). All of these principles were recently discussed in an English Court of Appeal decision, Burnford and ors. v Automobile Association Developments Limited [2022] EWCA Civ 1943.
While Burnford does not create new law, it is a signpost that litigation in this area will be growing as claims arising from the current economic challenges, climate change and climate change adaptation challenge the principle. [1]
[1] Thanks to Stephen Carter at Carter Perry Bailey for these insights.
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