Coverage Pointers - Volume XXIV, No. 21

Volume XXIV, No. 21 (No. 642)
Friday, March 31, 2023
A Biweekly Electronic Newsletter

 

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

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

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

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

 

 H&F's Coverage Pointers.

 

Dear Coverage Pointers Subscribers:

Do you have a situation? We love situations.

From your friends at Coverage Pointers, a special welcome to our new subscribers who attended our risk transfer presentation at the PLRB Claims Conference in Orlando. For those who enjoyed the claims training, other programs are available, Need a topic?  Here are 160 or so coverage topics from which to choose.

This being your first edition of Coverage Pointers, we’ll give you the two-minute tour.  You are reading, what we affectionately call the “cover page”.  It is our opening introduction to the issue which is attached in .pdf format.  Past issues of our newsletter can be found on our website, www.hurwitzfine.com, as you can find issues of our other publications

What our 13 column editors do in this cover note is offer an introduction to their column, and perhaps a personal greeting.  I also intersperse what we call our “100 Years Ago” stories, bringing you news from a century before the issue before you, for your entertainment pleasure.

Here’s a good start – a discussion about New York’s most notorious section of our state Insurance Law, an understand of which is critical for those crafting New York coverage letters.

 

New York Insurance Law Section 3420(d)(2)

For those who are unfamiliar with New York insurance protocols, there’s a fascinating case out of the Third Department, reported in my column.  But before I reference it, and because it will make little sense to those without New York experience, I introduce the statute that governs New York disclaimers, Insurance Law Section 3420(d)(2). It provides:

(2) If under a liability policy issued or delivered in this state, an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant.

Sounds innocuous. It isn’t.  It requires that for policies issued or delivered in New York (and sometimes, policies issued in other states), an insurer that is denying coverage based on a policy exclusion or breach of policy condition must send out a disclaimer or coverage letter as soon as is reasonably possible and advise, not on the insured, but the injured party or other who may have claims or cross-claims against an insured.

There are mountains of cases that have interpreted this statute.  The failure to comply with the statute can lead to a loss of an insurer’s right to rely upon policy exclusions.  And the use of reservation of rights letters, in lieu of full or partial disclaimer letters, will not protect the insurer from a failure to comply.

This week’s issue demonstrates the impact of the statute. It provides some counseling points to those who are writing coverage letters in New York. It is a March 23, 2023, decision out of the Third Department and reported and linked in my column.

In Bahnuk v. Countryway Insurance, Bahnuk was an EMT.  He was injured when responding to a call at a residence and sued Williams, the property owner.  Countryway was asked to defend and indemnify Williams under a homeowners policy and it disclaimed, in a 12-page letter sent only to Williams, relying on, among other grounds, a policy argument that the property did not meet the definition of “residence premises” or “insured location”. It also advised the insured that it was denying coverage based on a “business pursuits” exclusion.

What insurers “usually” do is send a carbon copy of the disclaimer letter to the plaintiff or his or her attorney to satisfy the requirement to notify the injured party of the reason for the disclaimer.  Countryway did not do that (and there is no specific requirement that the injured party receive the same letter, only that the injured party is given notice of the reason for the denial of coverage.)

Instead, the insurer wrote a separate letter to the injured party’s attorney, stating:

This will acknowledge receipt of your letter to Pauline Wiliams, dated December 7, 2012, which was received by our office on March 20, 2013. We are also in receipt of a copy of the suit that was filed against Pauline Williams in the Supreme Court of New York, County of Broome. As you may already be aware, we provided Pauline Williams with a Homeowner's policy, policy number H0271831, with effective dates of June 12, 2011, to June 12, 2012. Please be advised that there is no coverage available for the above referenced date of loss under Pauline William's Homeowners policy with Countryway insurance Company. The premises at 42 Tremont Avenue does not meet the definition of an "insured location” within the meaning of the policy.  As such, we are denying your claim in its entirety.

Clearly, the carrier did not discuss the “business pursuits” or “residence premises” exclusion in its letter to the injured party’s lawyer and waived those grounds for denial:

Although defendant provided a detailed explanation to Williams as to its grounds for disclaiming coverage, no such detail was provided to plaintiff. Defendant made no mention at all in its letters to plaintiff of any policy exclusions concerning injuries arising out of a business conducted on the property or of the property's purported failure to meet the definition of "residence premises," thereby waiving its right to rely on such exclusions.

That is the impact of not notifying the injured party of disclaimer grounds.

More interesting, and perhaps challenging, was the court’s reaction to the one ground that the carrier tried to preserve, the issue of “insured location” which was mentioned in the letter:

As for the exclusion based on the property not qualifying as an "insured location," while defendant did reference this exclusion in its first letter to Williams, it failed to provide any additional information as to why the property did not satisfy that definition. In that regard, we note that, pursuant to the policy, the term "insured location" carries eight distinct definitions. In the absence of a more detailed explanation, plaintiff could not have been expected to know from the language in the letter why coverage was being disclaimed under this broad term.

Now, that, to some of us, was a surprising decision,  Indeed the carrier did raise “insured location” but gave no specific reason why the property was not an “insured location”.  It would have been helpful, no doubt, had the insurer included the definition of “insured location” in its denial letter and underscored WHY it was not an insured location.

The solution, here, would have been to copy the injured party’s lawyer on the multi-page disclaimer letter which had greater detail.

Now the second part of the opinion tosses a bone back to the insurer.  As the court reported:

In the absence of a defense provided by defendant, Williams proceeded with her own attorney. During the course of the litigation between plaintiff and Williams, the parties there agreed that Williams would sign a confession of judgment for $100,000 — the limit of Williams' policy with defendant — in exchange for plaintiff's agreement not to execute the judgment against Williams but, instead, to pursue a claim against defendant under Insurance Law § 3420 (a) (2).

That section allows a plaintiff, who becomes a judgment creditor, to bring a direct action against an insurer to enforce a judgment under the policy. The lower court found, and the Third Department agreed, that there was a “triable issue of fact with respect to whether the confessed judgment was the product of collusion between plaintiff and Williams.”

The question was whether the negotiations between plaintiff and Williams in the underlying litigation amounted to “fraud, misrepresentation, or other misconduct practiced on the court” so as to render the judgment a nullity:

On the one hand, it is true that, as defendant argues, Williams sought to avoid risk by agreeing to a confession of judgment in the precise amount of her insurance policy limit in exchange for an assurance that plaintiff would not seek to enforce the judgment against her, and this resolution occurred without any meaningful discovery having been undertaken. On the other hand, however, an agreement to cap damages in the amount of a policy limit is not unheard of in personal injury matters and does not necessarily mean that something untoward took place in the negotiations. Further, recognizing that plaintiff, as a consequence of his injuries, underwent a surgery and multiple hospitalizations and missed approximately 30 weeks of work, incurring a Workers' Compensation lien in excess of $60,000, it cannot be said that the agreed-upon amount of $100,000 was per se unreasonable. In addition, it is noted that the resolution was apparently negotiated by the lawyers for plaintiff and Williams and discussed with Supreme Court. Finally, unlike the cases relied upon by defendant, there is no indication, for example, that plaintiff and Williams were related to each other or that Williams was promised a portion of plaintiff's potential recovery against defendant, circumstances that have led to findings that an agreement between the insured and the injured party was offensive to a “sense of justice and propriety".

The lower court had held that there was a question of fact as to whether the Confession of Judgment was executed “in order to shift the potential liability from Williams to Countryway and the “circumstances … show there is some possibility that the settlement … may have been reached to pass liability from the insured to the insurance carrier”.

Query, is there any question about that?  Does that make the judgment unenforceable?

Need a mediator?

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

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

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

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

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

Try mediation.

Newsletters:      

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

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

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

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

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

Peiper on Property (and Potpourri):

Pardon the quick note today. I’m traveling back from Richmond, Virginia after a successful coverage mediation.

We have a lot to offer in this week’s column. Take a moment to check out the ensuing loss case Ewald reviewed in the Property portion.  The concept of what constitutes ensuing loss, and how the ensuing loss exception applies is tackled in a well-reasoned opinion from the Fourth Department.

In addition, take a moment to review the two Section 5-321 cases reviewed by the Second Department (there is a third, issued just today, in Dan’s column as well).  We’re not sure what is going on just yet, but the First Department appears to be embracing a move away from the accepted interpretation of the General Obligations Law.  This is a note departure from virtually every decision in this issue that has been authored over the last decade.  We do not see a need for an “insurance procurement” clause in Section 5-321, but after reading this issue you’ll certainly see that the First Department does. 

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

Steve

Steven E. Peiper

[email protected]

A Penny for Your Libelous Speech – 100 Years Ago:

The Buffalo News

Buffalo, New York

31 Mar 1923

Fines Voliva One Cent for Libel

            CHICAGO, March 31— William Glynn Voliva, overseer of Zion was fined one cent today by Judge Jacob H. Hopkins, here following conviction on charges of criminal libel. The charge was brought by Rev. George Nelson pastor of an independent church at Zion. He claimed Voliva had called him an “old goat” and other names. “I have no sympathy for either of these men and I have no intention of forcing the state to go through a new trial” the Court said in handing down the decision.

 

Dishing Out Serious Injury Threshold:

Dear Readers,

Hope everyone was able to enjoy St. Patrick’s Day. I’m looking forward to the warmer weather and getting out and enjoying Spring.  

I have a Fourth Department case to discuss this issue. This case deals with plaintiff’s expert successfully raising a triable issue of fact following findings of lack of causally related injuries by defendant experts. 

Enjoy,

Michael

Michael J. Dischley

[email protected]  

 

Moral Duty v Due Process. Mayor Argues for the Former – 100 Years Ago:

The Buffalo Commercial

Buffalo, New York

31 Mar 1923

Schwab Urges Cure Be Made Compulsory

            Compulsory treatment for drug addicts will be sought at once, Mayor Schwab announced today following a conference with conference with Edward C. Meyer, chairman of the hospital commission, Police Chief Burfeind and George Wolts, Chief Judge of city court.

Admitting the number of drug users in Buffalo is alarming and that evil threatens the moral structure of this city,  the mayor said, “this emergency legislation would be asked for in, an effort to cure permanently.”

Mayor Schwab said he wants the city through its police department and medical authorities to have the power to hold drug addicts at the city hospital for sixty days or longer until they are cured of the habit. He would have the city given authority to have them taken to the hospital without city court trial, although they would be arrested.

Under present condition Mayor Schwab stated that it was useless to send drug users to the city hospital as they could not be held, and in the short time they stayed were never cured.

 

Wilewicz’ Wide-World of Coverage:    

Spring is springing around here (finally) and travel season is also finally (!) in full swing. Indeed, this week the Wide World of Coverage comes to you on the heels of a jaunt to Phoenix for the ABA’s Insurance Coverage Litigation Midyear Conference. The program, as always, was excellent and the networking opportunities bar none. Next February, this conference will be moving to California for the first time in decades. If you are interested in that or have any questions about the ABA or TIPS (the Tort Trial and Insurance Practice Section), drop me a line. My email is below. Next, we are gearing up for some overseas personal travel, but more on that upon our return.

This week, the Second Circuit was fairly quiet and there’s nothing new to report on the coverage front. But, by next edition we will also scour the other Circuit Courts around the country and see what other gems of coverage law we can find.

Until then!

Agnes

Agnes A. Wilewicz

[email protected]

 

The Past Parallels the Present: Legislative Bloat – 100 Years Ago:

Buffalo Inquirer

Buffalo, New York

31 Mar 1923

The Ax for This

          A bill to create a public amusement commission, one of its duties being to regulate dancing, provides that the members shall serve without pay. That is one way to begin the creation of soft snaps. The members would serve without pay at the start but soon a would come along a bill to pay them good salaries. That is always the finish of such a beginning.  If there is anything that does not need a state commission it is the regulation of dancing.

 

Barnas on Bad Faith:

Buffalo’s weather in March always has me dreaming of better weather in Florida.  I, unfortunately, was not able to make it down to Florida this winter for a vacation, but this issue’s edition of Barnas on Bad Faith is full of Florida content.

Florida recently enacted significant tort reform legislation that will impact bad faith claims.  According to the Governor’s office, the bill modifies the bad faith framework to clarify that negligence alone does not demonstrate bad faith and to require a claimant to act in good faith regarding furnishing information and attempting to settle the insurance claim. Additionally, the bill allows an insurer to limit their bad faith liability when there are multiple claimants in a single action by paying the total policy amount before negotiations for a settlement begin.

Per our friend Frank Ramos from Clarke Silverglate, the bill makes the following changes to the bad faith law:

  • Allows an insurer to avoid third-party bad faith liability if the insurer tenders the policy limits or the amount demanded by the claimant within 90 days after receiving actual notice of the claim.

  • Failure of an insurer to tender within 90 days is not bad faith and is inadmissible in a bad faith action. 

  • If the insurer fails to tender within 90 days, any applicable statute of limitations is extended by 90 days. 

  • Clarifies that negligence alone is not enough to demonstrate bad faith.

  • Requires a claimant to act in good faith concerning furnishing information, making demands, setting deadlines, and attempting to settle the insurance claim.

  • The trier of fact may consider whether the insured, the third-party claimant, or their representative did not act in good faith and, if so, reasonably reduce the damages awarded against the insurer.

  • Allows an insurer, when there are multiple claimants in a single action, to limit the insurer's bad faith liability by paying the total amount of the policy limits at the outset.

  • If two or more third-party claimants have competing claims arising out of a single occurrence, which in total may exceed the insured’s available policy limits, the law provides that the insurer does not commit bad faith by failing to pay all or any portion of the available limits to one or more of the third-party claimants if, within 90 days after receiving notice of the competing claims, the insurer must either:

    • File an interpleader action; or

    • Pursuant to binding arbitration agreed to by the parties, make the entire amount of the policy limits available for payment to the competing third-party claimants before a qualified arbitrator selected by the insurer and the third-party claimants at the insurer’s expense.

      Thank you to Frank Ramos for the summary.  Be sure to drop him a note on LinkedIn, at [email protected], or call him at 305-347-1544 if you would like a copy of his comprehensive memo on the new Florida tort law.

      I have a case in my column this week that would be interesting to consider under the changes to the law.  The Eleventh Circuit reversed summary judgment granted by the district court and concluded there was an issue of fact on a bad faith case where it found the insurer delayed approximately one month in tendering the policy limits and delayed in providing insurance information following a serious automobile accident.  In that decision, the court specifically rejected the insurer’s argument that it had not acted in bad faith because it had acted negligently.  It also declined to consider plaintiff’s attorney’s failures to respond to the attempts of the insurer to contact her.  Might the result have been different if the new changes to the law applied?  An interesting thought.

 

Brian

Brian D. Barnas

[email protected]

 

If it’s Good for the Geese, it’s Good for You Too: Being Prepared – 100 Years Ago:

Star-Gazette

Elmira, New York

31 Mar 1923

Nature Says: “Insure”

           Nature knows the laws of insurance. The animals change their fur for the seasons. Vegetation adapts itself to times and climate. Nature is always prepared.

          It is our business to see that business is prepared – prepared to meet losses, accidents, or fires. Wisdom always says "insure." We are at the service of the wise man and our advice is at the service of all men. May we see you today about a North America Policy?

 

 

Lee’s Connecticut Chronicles:

Nothing this week.

Lee

Lee S. Siegel

[email protected]

 

War Department Insists on Spending More Than Needed – 100 Years Ago:

Buffalo Morning Express

Buffalo, New York

31 Mar 1923

Bridge Prospects.

            If the United States War Department will approve plans and if the money can be raised, there will be within a few years a vehicle bridge across the Niagara river from the vicinity of Hampshire street these are two "ifs" that cannot be dismissed lightly. The War Department still views navigable streams, apparently, through the eyes of masters of full-rigged sailing vessels. Hence there may be insistence on a structure so far above the water that the cost of building would be prohibitive Detroit started out blithely to raise from $10,000,000 to $15,000,000 for a high-level bridge. The actual cash gathered was $300,000, or just about enough to pay for the preliminary work. The Express, however, has more confidence in Buffalo. If $3,000,000 or $6,000,000 is required Buffalo starts to raise that amount, we will get it. Moreover, there is hardly a doubt that traffic on a bridge here would be equal to traffic on a Detroit-river bridge. Prospects of profits thus would be better because, the capital charges would be one half, and possibly, a quarter, of the charges at Detroit.

 

 

Kyle's Construction Column:

Quiet this week.

Kyle

Kyle A. Ruffner
[email protected]

 

The Gary Indiana 55: An Entire Town Convicted – 100 Years Ago:

Buffalo Inquirer

Buffalo, New York

31 Mar 1923

By: United Press

Mayor and Others Guilty

Government Wins Fight for Conviction of Liquor Law Violation in Indiana

            Indianapolis, Ind., March 31. All but seven of the sixty-two residents of Gary Indiana on trial for alleged conspiracy to violate prohibition laws, were found guilty in the United States District Court here today.

            Roswell Johnson, Mayor of Gary, and other high officials of the city were among those found guilty. The jury returned a verdict shortly after ten o’clock. The decision was reached after deliberating throughout the night.

           The verdict marks a victory for the government in the greatest liquor fraud conspiracy ever brought to trial since the enactment of the prohibition amendment. The indictments were returned by the federal grand, jury after exhaustive investigation of conditions into the Calumet Steel district of Northern Indiana, containing a large foreign population.

         Sensational evidence was introduced at the trial in an effort to show, a huge conspiracy to shake down alleged violators of the liquor laws by judges and high officials, including even the mayor of the city.

         Those acquitted were minor defendants, all of the principal ones having been found guilty. Other officials found guilty include Sheriff William Olds, former Sheriff William Barnes, prosecutor Dwight Kinder, former prosecutor Clyde Hunter, City Judge William Dunn and a number of policemen, constables, and other officers of the law.

           

Ryan’s Capital Roundup:

Hello Loyal Coverage Pointers Subscribers:

My oldest son earned his first stripe on his white belt in karate this past week and it was a proud moment. This month, he’ll have another opportunity to put his hard work to the test, with an opportunity to belt up. My youngest even joined me as a spectator recently and was captivated by the organized chaos that is martial arts, which I’m finding more and more requires focus, commitment, and dedication. As a parent, the lessons are even rubbing off on me and I’m on the sidelines.

Although my column does not delve into too much caselaw, a federal judge this week provided commentary on an area of New York law that needs more attention. As you know, since 2017, under Burlington Ins. Co. v. NYCTA, the language “caused, in whole or in part, by” requires a purported additional insured to establish that the named insured was a proximate cause of plaintiff’s injury in order to trigger coverage. However, the First Department in Indian Harbor Insurance Co. v. Alma Tower LLC has seemingly blurred the lines as to what Burlington requires in the duty to defend context. Specifically, Indian Harbor seemingly found that the third-party allegations of a purported additional insured may alone be sufficient to establish a reasonable possibility of coverage by simply alleging that the named insured was a proximate cause of an accident. This conclusion seems to provide greater power to the purported additional insured than that held by a named insured, since the named insured is unable to craft the injured plaintiff’s complaint.

The Honorable Frederic Block pinpointed this issue:

The principal New York cases addressing the issue were concisely summarized by Judge Hurley in Axis Construction Corp. v. Travelers Indemnity Co. of America, 2021 WL 3912563 (E.D.N.Y. Sept. 1, 2021):

In each [case], an employer's insurer had to defend an additional insured in an underlying personal injury action brought by an employee in which the additional insured's third-party complaint alleged the employer created the condition proximately causing the employee's injury. Where that third-party complaint did not allege the employer created the condition, however, the employer's insurer had no duty to defend the additional insured.

Id. at *7. This dichotomy accords with the general rule that the duty to defend “depends on the facts which are pleaded, not the conclusory assertions.” Allstate Ins. Co. v. Mugavero, 79 N.Y.2d 153, 162 (1992).

It also assuages a concern that the cited cases do not address. It makes sense to consider even the most dubious allegations of the underlying complaint because “a complaint subject to defeat because of debatable theories must nevertheless be defended by the insured.” Fitzpatrick [v. Am. Honda Motor Co., 78 N.Y.2d 61, 66 (1991)] (alterations and internal quotation marks omitted). Moreover, the insured has no control over what the tort plaintiff will allege. By contrast, a potential additional insured is obviously not calling upon the insurer to defeat its own third-party complaint and has complete control over what is alleged in it, as well as an incentive to make allegations that trigger coverage. [Emphasis added].

In sum, the Court's responsibility is to consider anything that can shed light on the issues that might arise in litigating Posiko's claims, but not AG Green's third-party claims. To that end, the Court will consider the allegations of Posiko's complaint and bill of particulars, facts taken from depositions, and the non-conclusory allegation of the third-party complaint. The Court limits its consideration to items of which Travelers had actual knowledge.

In summary, and according to Judge Block, self-serving, conclusory allegations alone are not “actual facts” under Fitzpatrick. I believe His Honor has a point. Now back to our originally scheduled programming…

For this installment of Ryan’s Capital Roundup, I discuss a bill that passed the Senate this week, which would waive the written exam requirements for independent adjusters under certain circumstances. Short and sweet, but it is definitely worth your time (and time is money).

Until next time,

Ryan

Ryan P. Maxwell

[email protected]

 

Wrongful Death of Child Awards $132,000. Adjusted for Inflation – 100 Years Ago:

The Chat

Brooklyn, New York

31 Mar 1923

Gets $7,500 Verdict.

         A Jury in Justice Strongs part of the Supreme Court Wednesday awarded a verdict for $7,500 to Theodore Verhey, of crescent street, for the death of his son, Gerard, on July 12, 1921. Gerard, who was 5 years old, was crossing the street in front of his home when he was run over and instantly killed by one of the garbage carts of the City of New York. William V. Burke, counsel for the father, claimed the garbage cart turned suddenly out of McKinley avenue into Crescent street, and that the driver was negligent in not seeing the boy, and did not know that the accident had happened until by-standers shouted to him to stop.

Rauh’s Ramblings:

Hello Readers!

I hope you are all having a good week.  This will likely be my second last write up for a while as I prepare to go out on maternity leave and welcome my second son into the world in mid-April!  I plan to be back in late summer and will be sure to find some new and interesting life insurance/ERISA cases for you. 

This week, I have a case from the Seventh Circuit where a life insurance company denied benefits and rescinded the insured’s policy when it was discovered that the insured did not disclose his terminal cancer diagnosis.  The parties disputed whether the insured’s omission constituted a material misrepresentation – read my case summary to find out how the court ruled.

Until next time!                        

Patty

Patricia A. Rauh

[email protected]

 

Plaintiff is Awarded $95,000 in Personal Injury Suit. Adjusted for Inflation – 100 Years Ago:

The Daily Item

Port Chester, New York

31 Mar 1923

Druggist Gets Big Verdict for Injuries.

          White Plains March 30th— Frank Aloise a druggist of White Plains will have to pay Junes- Gray twenty years old of - Kent Mills Putnam County $5376 which amount according to the plaintiff’s attorney J. Ambrose Goodwin, was the verdict that a Putnam County Jury handed down thin week before Supreme Court Justice Young. On May 7th last year Gray was standing behind a truck at the intersection of Math Street and Central Avenue White Plains when he was struck from the rear by the defendant's automobile it was alleged. It was claimed that he has sustained permanent injuries to one of his legs.

Storm’s SIU:

Hi Everyone,

I’m away attending the New York State Chapter of Special Investigation Units (NYSSIU) meeting in Saratoga Springs.  It’s an awesome organization.  You should join!  More case digests in two weeks. 

Scott

Scott D. Storm

[email protected]

 

A Tale of Disparate Sentences; A Shameful Return Home or Six Months in the Pen – 100 Years Ago:

The Buffalo Inquirer

Buffalo, New York

31 Mar 1923

Woman Promises to Return to Family.

          Corning, March 31. Mrs. Joseph Vang of Corning, who was arrested with Otto Shaffer of Corning in Elmira was placed on probation by Recorder Gardner in that city on her promise to return home to live wither husband and care for her two sons, two and four years old. The husband made an appeal that she be allowed to return to look after the children.

         Shaffer, however, was sentenced to the Monroe county penitentiary for six months after he had been found with Mrs. Vang, who left town ten days ago. The arrests followed when Mr. Vang followed the couple to Elmira and found them keeping company.

 

Buffalo Men Get Busted for Bootlegging – 100 Years Ago:

The Buffalo Inquirer

Buffalo, New York

31 Mar 1923

Seize Liquor, Hold Two Buffalo Men at Erie

          Erie, Pa., March 31. State police made another large haul of liquor and beer yesterday when they seized an automobile at North East and arrested the two occupants. The men gave their names as Gilbert Smith, sixteen. Nineteenth street, Buffalo, and Louis Wolport, No. 403 North Oak Street, Buffalo. In the car were sixty quarts of liquor and 383 bottles of beer, believed to have been consigned from Buffalo to this city. It was the second largest catch made by the state police since they inaugurated their campaign to halt the flow of liquor from Buffalo to Erie. Both were turned over to Prohibition Group head Young. He laid information against them before United States Commissioner Orson J. Graham and both are being held on a charge of transportation and possession of liquor.

 

Fleming’s Finest:

Dear Coverage Pointers Subscribers:

Just like the Café du Monde chicory coffee I tried recently; this week’s case comes from Louisiana.

The Louisiana Supreme Court held that there was no direct physical loss of or damage to property caused by COVID-19. The decision should come as no surprise if you have been following the pattern across the United States.

Until next time,

Kate

Katherine A. Fleming

[email protected]

 

HOLD-UP at the Wayne Hotel! Owner Blames the Cold for His Failure to Report –  100 Years Ago:

The Buffalo News

Buffalo, New York

31 Mar 1923

Deny Accommodations--Hold Up Hotelkeeper

Niagara Falls Makes Belated Report of Robbery — Police Seek

Woman Guest

          Niagara Falls, March 31— Two men both believed to be foreigners late last night held up Georg Minehan proprietor of the Wayne Hotel 384 Second Street and a point of run robbed him of $890 after he had refused to give them accommodations for the night. Such was the report Minehan made to police at one o’clock this morning many hours after the alleged robbery. A woman who had stopped at the hotel for the past week and who is known to have made a telephone call from there late yesterday presumably to the pair who carried out the robbery has disappeared. She is sought by the police as having some connection with the alleged hold-up Minehan made re-explanation for his failure to report the theft until one this morning other than to state that It was “too cold to go out.” The woman sought in the case left the hotel this morning.

 

Gestwick’s Greatest:

Dear Readers:

I made some delicious veal alfredo this week. That meal was inspired by my family’s interesting decision to celebrate St. Patrick’s Day at a German restaurant (we’re an odd bunch), where I had veal with mushrooms and gravy, and a side of my favorite, späetzle.

This week I have a case that discusses the importance of appearing for one’s EUO in the context of a no-fault claim, as well as the importance of the no-fault insurer following the regulations that come along with it. Following conflicting accounts of the accident, State Farm decided to notice an EUO for its insured after they made a claim for no-fault benefits under the policy. When the insured failed to appear for said EUO, State Farm denied no-fault benefits on the grounds of a breach of policy conditions and commenced a declaratory judgment action seeking confirmation that it was not obligated to pay the benefits. State Farm eventually moved for a default judgment against the non-answering defendants, including its insured. The answering defendants (the medical providers who allegedly rendered treatment to State Farm’s insured) opposed the motion, contending that State Farm failed to comply with 11 NYCRR 65-3.8, which establishes a 30-day window for denying no-fault claims, and 11 NYCRR 65-3.2(c) and 3.5, which establish the parameters a no-fault insurer must follow when requesting an EUO in connection with a no-fault claim. Finding that State Farm obeyed such requirements, the court granted State Farm’s motion against the non-answering defendants but gave the appearing defendants an extension of time to answer.

I also have a bonus case, this one from the Appellate Division. There, the defendant attempted to enforce a declaration that was rendered in the related declaratory judgment action, to wit, that the plaintiff’s injuries did not arise from being struck by the defendant’s van. The court refused to apply the doctrine of res judicata, on the ground that the parties in this personal injury action did not assert claims against one another in the declaratory judgment, which is one of the requirements in order for the doctrine to apply.

That’s all for this week. Until next time, stay safe, stay warm, and stay happy.

 Evan

 Evan D. Gestwick

 [email protected]

 

Arrange This! Husband Sues Father-in-Law for Stealing His Bride – 100 Years Ago:

Buffalo Courier

Buffalo, New York

30 Mar 1923

SUES DAD-IN-LAW FOR $25,000 AND WANTS HIS WIFE 

           New York, March 30—Joseph Fadden had a pretty daughter and he let it be known, as he tried to arrange her marriage at various time with the neighborhood pharmacist, lawyer, and tailor, that $10,000 would go with her.

          But before any of the three could muster up the courage to carry away the girl and marry her Harry I. Molden appeared and eloped with her. As soon as Mr. Fadden learned of the marriage he locked up his daughter and proceeded to alienate her affections charged today in suit for $25,000.

          Molden admitted in his complaint that he was what the diplomats call persona non grata with the girl's father, but he claims that even a father hasn't the right to take away the clothes of his legally married daughter and keep her under lock and key.

 

On the Road with O’Shea:

Readers,

I love spring in Western New York. The wind, the rain, the snow, the ice, and the expected but unwanted temperature drops. Sarcasm aside, I hope everyone enjoyed St. Patrick’s Day weekend.

This week I have two appellate decisions. The first is from the First Department and concerns the breadth of the well-known auto exclusion and its application. The second is from the Fourth Department and raises the interesting question of when prejudgment interest in No-Fault cases begins to accrue. The Fourth Department’s decision leads to some further things to consider when moving for summary judgment in those cases.

Till next time

Ryan

Ryan P. O’Shea
[email protected]

 

Journalist Maligns NY Governor, While Simultaneously Equating the Consumption of Alcohol to Murder – 100 Years Ago:

Buffalo Courier

Buffalo, New York

30 Mar 1923

ASKING THE IMPOSSIBLE        

          Governor "Al" Smith of New York is asking his legislature to petition congress to "amend" the Volstead act, by allowing the sale of light wines and beer. That's simply foolish.

          That wouldn't be "amending" the Volstead act. It would be repealing it. This country voted that the sale of intoxicating liquors as a beverage should stop. Light wines and beer are intoxicating. If they were not, they could be sold, even under the Volstead act.

          They are not so intoxicating as some other kinds of booze, that's all. And there would be no support for Governor Smith's propaganda if these liquors were not intoxicating. That's the plain truth of the matter.

           If this country ever gets to a point where public opinion will consent to a return to the days when light wines and beers could be legally sold, the prohibition amendment will no longer hold good.

          Governor Smith might as well ask that the law against murder should be "amended" by allowing each citizen the privilege of killing off his wife's relatives. Or he might suggest that the law against stealing should be "amended" by allowing any man to embezzle not over $10,000 a year.

          Stealing is stealing whether big or little. Murder is murder. And it makes mighty little difference to the morals of a community whether its citizens are allowed to get drunk on beer or on whisky.

          The prohibition law is better enforced in Indiana, today, than in some of our neighboring states. And it is no happen-chance coincidence that the savings accounts in Indiana have shown a bigger increase, since prohibition, than in any state of this section where the enforcement laws are not so strictly carried out and respected.

 

North of the Border:

As I write this, the sun is pouring in through the window and I can almost hear the snow melt. Although I do fall for the trap of expecting that the beginning of spring, according to the calendar, will coincide with the start of the Canadian spring … I am, today, at this moment, tempted to say, out loud, that spring is here. We will see.

My column this week discusses a case where the issue was whether gross rental coverage is indemnity coverage. Definitely a topic for insurance nerds. If you have gotten this far in the cover note to the newsletter, then I am speaking to a kindred spirit.

Cheers!

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]

  • No.  No.  No.  Court Confuses General Obligations §5-321 with General Obligations Law §5-322.1.  Thousands Flee. [N.B. Two more questions regarding 5-321 in Peiper on Property]
  • Classic Risk Transfer “Stuff”.  Contractual and Common Law Indemnity Claims Not Resolvable on Summary Judgment.  Allegations Sufficient to Trigger Additional Insured Defense by Subcontractor’s Insurer

  • This is a Strange One.  Disclaimer that Made Reference to Specific Exclusion was Not, in Court’s Opinion, Detailed Enough to be Effective (on that issue, “Thousands Flee”).  Entry of Consent Judgment which Led to Direct Action May be Collusive

  • To Prove the Right to Rescission, there Must be Proof, Not Conclusory Affidavits, and Underwriting Guidelines. Establishing that Policy Would Not Have been Issued.  Continued Acceptance of Premiums After Carrier Knew of Ground for Rescission, May Constitute Waiver

 

PEIPER on PROPERTY (and POTPOURRI)

Steven E. Peiper

[email protected]

Property

  • Water Damage Resulting After the Failure of a Contractor’s Work Product is Ensuing Loss and Thus Covered Under Plaintiffs’ Homeowners Policy

  • Water Damage Caused by Ground Water that Flows/Seeps Through Foundation is Excluded
  • Where Co-Defendant Does Not Assert Cross-Claim, Res Judicata Does Not Protect the Issue from being Relitigated in a Subsequent Action

Potpourri

  • Court Interposes a Requirement for an Insurance Procurement Clause into 5-321 Analysis

  • Section 5-321 Does Not Prohibit a Tenant from Being Indemnified by Landlord

 

DISHING OUT SERIOUS INJURY THRESHOLD
Michael J. Dischley

[email protected]

  • Plaintiff’s Experts Successfully Contended Defendant Allegation as to Causation

WILEWICZ’S WIDE WORLD of COVERAGE:

Agnes A. Wilewicz

[email protected]

  • Check back next time for the very latest from the Circuit Courts

BARNAS on BAD FAITH

Brian D. Barnas

[email protected]

  • Summary Judgment Dismissing Bad Faith Claim Reversed by Appellate Court

LEE’S CONNECTICUT CHRONICLES

Lee S. Siegel

[email protected]

  • Nothing this week.

KYLE'S CONSTRUCTION COLUMN
Kyle A. Ruffner

[email protected]

  • Complaint Did Not Contain Allegations of Property Damage Where Only Damage Was to the Insured’s Defective Product

RYAN’S CAPITAL ROUNDUP
Ryan P. Maxwell

[email protected]

  • Senate Passes Bill That Would Waive Written Exams For Independent Insurance Adjuster Licensing Under Certain Circumstances

RAUH’S RAMBLINGS

Patricia A. Rauh

[email protected]

  • Insured Made Material Misrepresentation When he Failed to Disclose his Terminal Cancer Diagnosis

STORM’S SIU

Scott D. Storm

[email protected]

  • More Case Digests Next Edition

FLEMING’S FINEST

Katherine A. Fleming

[email protected]

  • COVID-19 Does Not Cause Direct Physical Loss Of Or Damage To Property

 

GESTWICK’S GREATEST

Evan D. Gestwick

[email protected]

  • No-Fault Claimants Are Required to Appear for EUO, As Long As No-Fault Carrier Had a “Good Reason” for Demanding the EUO

  • Doctrine of Res Judicata Does Not Bar Claims in the Personal Injury Action Where the Parties Did Not Assert Claims Against Each Other in the Declaratory Judgment Action

ON the ROAD with O’SHEA

Ryan P. O’Shea

[email protected]

  • Truck’s Liftgate Does Not Lift Or Lower Workers, Exception Auto Exclusion Does Not Apply

  • Prejudgment Interest in No-Fault Cases Run From Date Finding Claimant Suffered A Serious Injury

 

NORTH of the BORDER

Heather A. Sanderson

Sanderson Law, Calgary, Alberta

[email protected]

 

  • The Presence of a Condition Requiring an Insured Landlord to Mitigate a Loss of Rental Income is Evidence that Gross Rental Coverage is Indemnity Coverage as Opposed to an Agreement to Pay a Stipulated Amount Upon the Happening of an Event

Careful, April Fool’s Day is right around the corner.

Hope you enjoy our little publication.  Stay well.

 

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

Barnas on Bad Faith

Lee’s Connecticut Chronicles

Kyle’s Construction Column

Ryan’s Capital Roundup

Rauh’s Ramblings

Storm’s SIU

Fleming’s Finest

Gestwick’s Greatest

On the Road with O’Shea

North of the Border

KOHANE’S COVERAGE CORNER
Dan D. Kohane

[email protected]

 

03/30/23       Carson v. JAD Realty, LLC

Appellate Division, First Department

No.  No.  No.  Court Confuses General Obligations §5-321 with General Obligations Law §5-322.1.  Thousands Flee.

Look, I don’t care how many times I’ve said it, I will say it again and blanch every time I see courts or attorneys confuse the two.

General Obligations Law §5-322.1 prohibits, in a construction contract, a party from being indemnify for its own negligence.  Why? Because that’s what the statute says:

A covenant, promise, agreement  … in connection with or collateral to a contract or agreement relative to the construction, alteration, repair or maintenance of a building … purporting to indemnify or hold harmless the promisee against liability for damage arising out of bodily injury to persons or damage to property contributed to, caused by or resulting from the negligence of the promisee, his agents or employees, or indemnitee, whether such negligence be in whole or in part, is against public policy and is void and unenforceable …; 

General Obligations Law 5-21, entitled “Agreements Exempting Lessors from Liability for Negligence Void and Unenforceable, is different.  It prohibits a landlord from exempting itself from negligence to the injured person:

§ 5-321. Every covenant, agreement or understanding in or in connection with or collateral to any lease of real property exempting the lessor from liability for damages for injuries to person or property caused by or resulting from the negligence of the lessor, his agents, servants or employees, in the operation or maintenance of the demised premises or the real property containing the demised premises shall be deemed to be void as against public policy and wholly unenforceable.

Do you see the word “indemnify” or “insurance” in that section?  You don’t?  Either do I.

There is nothing in that statute that prohibits a landlord from passing its own negligence to the tenant through indemnity agreements and courts have held that agreements, particularly those supported by insurance, are fully enforceable.

In this case, the court denied the landlord’s motion for summary judgment against the plaintiff, finding a question of fact on “storm in progress”. No problem with that.  But then held:

JAD's motion for summary judgment on its cross claim for full contractual indemnification was correctly denied. The broad indemnification provisions in paragraphs 48 and 66 of the rider ran afoul of General Obligations Law § 5-321, as they purport to indemnify JAD for its own negligence.

Coincidentally, The court may have rendered the correct decision, by the way, on the facts because “recovery on JAD's cross claim is governed by the indemnity provision in paragraph 8 of the lease, which provides for indemnification of "liabilities . . . for which Owner shall not be reimbursed by insurance." Because JAD maintained its own liability insurance, the court correctly determined that JAD was entitled to reimbursement of only out-of-pocket expenses incurred as a result of Casa Pizza's breach of the insurance procurement provision.

Editor’s Note:  Don’t blame the appellant’s lawyers.  They made the point to the Appellate Division, starting at page 16 of the appellate brief.

By the way, see Steve’s column for ANOTHER case where the First Department melds the two sections into one.

03/29/23       Meadowbrook Pointe Develop. Corp. v. F & G Concrete, et al

Appellate Division, Second Department

Classic Risk Transfer “Stuff”.  Contractual and Common Law Indemnity Claims Not Resolvable on Summary Judgment.  Allegations Sufficient to Trigger Additional Insured Defense by Subcontractor’s Insurer

There were two related actions which involve a dispute as to issues of indemnification and the duty to defend relating to an underlying personal injury action entitled Rose v Meadowbrook Pointe Development Corp. in a condo complex. Rose allegedly slipped and fell in the parking garage of a condominium complex owned by Meadowbrook. Beechwood was the general contractor. Total Community was the property manager and Meadowbrook Pointe Homeowners Association, Inc. (“MPHA” was the homeowners association), all sued in the underlying actions.

In February 2018, F & G Concrete (“F & G”), a mason and concrete subcontractor was brought into the lawsuits as was Merchants Mutual Insurance Co. (“Merchants”), F & G's liability insurance carrier. The complaints blamed F & G's for negligent construction of the concrete slab which was alleged to be the proximate cause of the injuries alleged in the underlying action, and asserted, among other things, causes of action sounding in breach of contract for failure to procure additional insured coverage, and common-law and contractual indemnification. There was also a claim that Merchants owed additional insured (“AI”) coverage to Meadowbrook and others pursuant to a contractual agreement between Meadowbrook, Beechwood, and F & G.

'A provision in a construction contract cannot be interpreted as requiring the procurement of additional insured coverage unless such a requirement is expressly and specifically stated. In addition, contract language that merely requires the purchase of insurance will not be read as also requiring that a contracting party be named as an additional.  Summary judgment dismissing a cause of action alleging failure to procure additional insured coverage is warranted where the movant demonstrates, prima facie, that it procured the requisite insurance.

Here, F & G demonstrated it procured the requisite insurance. 'In order to establish a claim for common-law indemnification, a party must prove not only that it was not negligent, but also that the proposed indemnitor's actual negligence contributed to the accident'" ,  That wasn’t done here

Here, F & G's submissions failed to eliminate triable issues of fact as to whether it was contractually obligated to indemnify Meadowbrook, Beechwood, the property manager, and the homeowners association in the underlying action (see id. at 689).

Merchants demonstrated, prima facie, that the property manager was not an additional insured on the liability policy that it issued to F & G by establishing that there was no agreement between F & G and the property manager requiring the former to include the latter as an additional insured under its liability insurance policy,  However, Merchants failed to demonstrate, prima facie, that Meadowbrook, Beechwood, and the homeowners association are not additional insureds under the liability policy it issued to F & G, or that it owed no duty to defend or indemnify those plaintiffs in the underlying action. Merchants failed to demonstrate, prima facie, that the alleged accident at issue in the underlying action was not proximately caused by negligent construction of the garage concrete slab by F & G, since it merely pointed to gaps in the plaintiffs' proof.

Further, Meadowbrook and Beechwood, in moving for summary judgment declaring that Merchants owed a duty to defend and indemnify them in the underlying action as additional insureds on the subject liability insurance policy, demonstrated, prima facie, that they are additional insureds under the policy.

 

03/23/23       Bahnuk v. Countryway Insurance Company

Appellate Division, Third Department

This is a Strange One.  Disclaimer that Made Reference to Specific Exclusion was Not, in Court’s Opinion, Detailed Enough to be Effective (on that issue, “Thousands Flee”).  Entry of Consent Judgment which Led to Direct Action May be Collusive.

Bahnuk, an emergency medical technician, was responding to a call at a residence in the City of Binghamton when he allegedly fell and suffered injuries. As a result, he sued Williams, the property owner, and then sent a copy of the complaint to Countryway, her homeowners carrier. Countryway disclaimed, and made reference to policy exclusions indicating that the property was not a  "residence premises" or "insured location" and relied upon a business pursuits exclusion.

Williams proceeded with her own attorney. During the course of the litigation between plaintiff and Williams, the parties there agreed that Williams would sign a confession of judgment for $100,000 — the limit of Williams' policy with defendant — in exchange for plaintiff's agreement not to execute the judgment against Williams but, instead, to pursue a claim against Williams under Insurance Law § 3420 (a) (2), the direct action statute.

Bahnuk then commenced this action against Countryway, seeking satisfaction of the $100,000 judgment.

When an insurer seeks to disclaim coverage for bodily injury arising out of an accident, it must provide written notice of the disclaimer to both its insured and the injured party, and the notice must indicate with "a high degree of specificity . . . the ground or grounds on which the disclaimer is predicated”. Absent such specific notice, a claimant might have difficulty assessing whether the insurer will be able to disclaim successfully and this uncertainty could prejudice the claimant's ability to ultimately obtain recovery.

Although Countryway defendant provided a detailed explanation to Williams as to its grounds for disclaiming coverage, no such detail was provided to Bahnuk Defendant made no mention at all in its letters to plaintiff of any policy exclusions concerning injuries arising out of a business conducted on the property or of the property's purported failure to meet the definition of "residence premises," thereby waiving its right to rely on such exclusions. As for the exclusion based on the property not qualifying as an "insured location," while defendant did reference this exclusion in its first letter to Williams, it failed to provide any additional information as to why the property did not satisfy that definition. In that regard, we note that, pursuant to the policy, the term "insured location" carries eight distinct definitions. In the absence of a more detailed explanation, plaintiff could not have been expected to know from the language in the letter why coverage was being disclaimed under this broad term.

Supreme Court also correctly found that there is a triable issue of fact with respect to whether the confessed judgment was the product of collusion between plaintiff and Williams. As a preliminary matter, defendant was not, as plaintiff contends, required to bring a plenary action or vacatur motion in order to attack the validity of the underlying judgment, because "a valid and enforceable judgment is a condition precedent to maintaining an action pursuant to Insurance Law § 3420 (a) (2) . . . [and a] judgment entered through fraud, misrepresentation, or other misconduct practiced on the court is a nullity and is subject to collateral attack.

Nevertheless, a question remains as to whether the negotiations between plaintiff and Williams in the underlying litigation amounted to such misconduct. On the one hand, it is true that, as defendant argues, Williams sought to avoid risk by agreeing to a confession of judgment in the precise amount of her insurance policy limit in exchange for an assurance that Bahnuk would not seek to enforce the judgment against her, and this resolution occurred without any meaningful discovery having been undertaken. On the other hand, however, an agreement to cap damages in the amount of a policy limit is not unheard of in personal injury matters and does not necessarily mean that something untoward took place in the negotiations.

Further, recognizing that Bahnuk, as a consequence of his injuries, underwent a surgery and multiple hospitalizations and missed approximately 30 weeks of work, incurring a Workers' Compensation lien in excess of $60,000, it cannot be said that the agreed-upon amount of $100,000 was per se unreasonable. In addition, it is noted that the resolution was apparently negotiated by the lawyers for Bahnuk and Williams and discussed with Supreme Court. Finally, unlike the cases relied upon by defendant, there is no indication, for example, that Bahnuk and Williams were related to each or that Williams was promised a portion of Bahnuk's potential recovery against defendant, circumstances that have led to findings that an agreement between the insured and the injured party was offensive to a "sense of justice and propriety"  Under these circumstances, Supreme Court appropriately found that a factual question exists regarding the intentions and conduct of Bahnuk and Williams, such that summary judgment was not warranted.

Editor’s Note: We don’t know of any other cases where a citation to the applicable exclusion wasn’t enough to give the insured or the injured party notice of the ground for the disclaimer. Yes, there must be a “high degree of specificity” but we haven’t seen a case that requires more than a citation to the appropriate policy provision. In the cases the court cites, the carrier did not cite the appropriate exclusion and thus was barred from relying upon that exclusion later. As to the entry of the $100,000 judgment, of COURSE it was collusive.  Why else would it have been entered?

 

03/22/23       American Empire Surplus Lines Ins. Co. v. ZNKO Construction Appellate Division, Second Department

To Prove the Right to Rescission, there Must be Proof, Not Conclusory Affidavits, and Underwriting Guidelines. Establishing that Policy Would Not Have been Issued.  Continued Acceptance of Premiums After Carrier Knew of Ground for Rescission, May Constitute Waiver

In November 2017, the plaintiff commenced the instant action, inter alia, for a judgment declaring that three commercial general liability insurance policies issued by it to the defendant ZNKO Construction, Inc. (hereinafter ZNKO), were void ab initio due to material misrepresentations made by ZNKO during the application process.

To establish its right to rescind an insurance policy, an insurer must demonstrate that the insured made a material misrepresentation. A misrepresentation is material if the insurer would not have issued the policy had it known the facts misrepresented.  The issue of materiality is generally a question of fact for the jury.  To establish materiality as a matter of law, the insurer must present documentation concerning its underwriting practices, such as underwriting manuals, bulletins, or rules pertaining to similar risks, which show that it would not have issued the same policy if the correct information had been disclosed in the application

However, conclusory statements by insurance company employees, unsupported by documentary evidence, are insufficient to establish materiality as a matter of law.  Further, the continued acceptance of premiums by an insurer after learning of facts which would allow for rescission of an insurance policy may constitute a waiver of, or estoppel against, the insurer's right to rescind.

Here, the plaintiff and ZNKO failed to establish their prima facie entitlement to judgment as a matter of law. Triable issues of fact exist, inter alia, as to whether the alleged misrepresentations were material, and whether the plaintiff waived its right to rescind by accepting further premiums after learning of facts which would allow for rescission.

 

PEIPER on PROPERTY (and POTPOURRI)

Steven E. Peiper

[email protected]

Property

03/17/23       Ewald v. Erie Insurance Company

Appellate Division, Fourth Department

Water Damage Resulting After the Failure of a Contractor’s Work Product is Ensuing Loss and Thus Covered Under Plaintiffs’ Homeowners Policy

Plaintiff’s home was undergoing a remodeling project involving the completion of

a master bathroom on the second floor of the property.  Towards the end of the project, plumbing lines for the shower failed.  Although the lines were obscured by drywall, it was determined that a junction in the lines failed due to the plumber’s use of improper adhesion materials.  The failure appears to have occurred overnight, and the plaintiffs awoke to significant water damage throughout the house the next morning. 

The line was accessed and capped by another plumber, and a claim was submitted to Erie as the insurer providing homeowners coverage.  Erie denied the tender on the basis of, principally, the faulty workmanship exclusion.  In support of its position, Erie established that the line failed, and the water damage occurred, due to the improper installation of supply lines installed by the plaintiffs’ retained plumber. 

Plaintiffs objected to the Erie denial, and in so doing pointed to the exception to the faulty workmanship exclusion which provided “any ensuing loss not excluded is covered.”  To plaintiffs, the water damage was “ensuing loss” and it was specifically covered by that portion of the policy which applies to water damage caused by the discharge from a plumbing system.

The Appellate Division agreed with the plaintiffs.  The Court noted that while the damage to the plumbing may not have been covered as a result of the faulty workmanship exclusion, the result of the failure was water being discharged through the home which caused further and extensive damage.  As such, the Court ruled that the water damage was “collateral or subsequent damage” and thus within the exception.   

In reaching its conclusion, the Appellate Division rejected the insurer’s argument that the loss was not a covered peril.  The Court noted that the exclusion only applied to the faulty work product and that there was no other exclusion which otherwise would have applied to the property damage.  The only thing properly excluded was the cost of correcting the faulty work product of the plaintiff’s plumber.

 

3/17/23   Advanced Physical Medicine Rehab, PLLC v. Utica National Ins. Co. of Ohio

Appellate Division, Fourth Department

Water Damage Caused by Ground Water that Flows/Seeps Through Foundation is Excluded

Loss to plaintiff’s property in the basement occurred when a sprinkler supply line located outside of the building ruptured.  The water which escaped from the line ultimately entered the building through the foundation and basement walls. 

The Utica First policy, like almost every other policy, contained an exclusion removing coverage for, inter alia, water seeping through or pressing on foundations.  As such, the loss fell within the scope of the exclusion and coverage was forfeited. 

In reaching its conclusion, the Court noted that the water here was ground water and that a different conclusion might have been reached had it been qualified as surface water. 

 

03/29/23       Rosa v. Denair HVAC, Inc.

Appellate Division, Second Department

Where Co-Defendant Does Not Assert Cross-Claim, Res Judicata Does Not Protect the Issue from being Relitigated in a Subsequent Action

Plaintiff commenced this action alleging he was struck by a van being operated by Denair HVAC.  Approximately one year later, Denair’s insurer, Harleysville, commenced a declaratory judgment action therein arguing that the incident actually occurred when Mr. Rosa fell over a manhole cover, and not impact with the Denair van.  Mr. Rosa, despite being named as a defendant in the Complaint, never appeared, and a default was eventually entered against him.

In the subsequent personal injury action, Denair moved for summary judgment on the basis of res judicata. Denair argued that Mr. Rosa’s failure to litigate the issue of the cause of the incident was fully and fairly decided. 

The Appellate Division disagreed. While a party is entitled to res judicata protections when the claims were litigated against each other by the same parties, that did not occur in the Harleysville action.  Here, because Denair did not assert any claims against Rosa, nor Rosa assert claims against Denair, in the earlier Declaratory Judgment Action, Mr. Rosa was free to litigate his claims without impact of the earlier default.

 

03/23/23       Bessios v. Regent Associates, Inc.

Appellate Division, First Department

Court Interposes a Requirement for an Insurance Procurement Clause into 5-321 Analysis

Plaintiff sustained injury when she tripped and fell on the sidewalk in front of 1439 West 182nd Street.  At the time of the incident, the premises were owned by Regent.  Regent leased the premises to St. Nicholas, who, in turn, subleased it to 1439 St. Nicholas.  Eventually, 1439 St. Nicholas assigned its rights and obligations under the sublease to Seonmi. 

Regent moved for summary judgment pursuant to the indemnification clause found within the primary lease which provided “[a]rticle 13 of the master lease requires Regent to be indemnified for all claims ‘provided however that the same shall not arise from the willful acts of Landlord during the term of this Lease’."   The First Department found that this language is plainly violative of General Obligations Law § 5-321, but noted that a lessor could, in fact, be indemnified for its own negligence so long as there was a sufficient insurance procurement clause which evidenced that the parties intended to address risks via insurance.  In reaching this conclusion, the Appellate Division cited two Court of Appeals decisions that suggest the GOL’s protections are circumvented when the parties agree to manage risk via a third-party insurance contract.

With this in mind, the Court reviewed the insurance procurement clauses at issue.  The sublease, which was assigned to Seonmi, incorporated all of the provisions of the prime lease.  However, with respect to insurance, the lease provided that the original lessor (Regent) or lessee (St. Nicholas) would purchase insurance for the entire premises.  That clause, however, did not say when the coverage will be purchased or by whom.  As such, the Court found there was uncertainty over what duties, if any, were included in the insurance clause.

Because the Court was unable to discern any obligation for Seonmi to procure insurance to cover the indemnity obligations purportedly running in favor of Regent, the Court ruled that the indemnity clause was “void and unenforceable under General Obligations Law § 5-321.

Peiper’s Point – Eh, we’re not so sure about this one.  There are dozens of cases issued by Appellate Courts over the last decade that have moved away from the concept that Section 5-321 interpretations turn on the existence of insurance procurement. It will be interesting to watch to see if this seeming departure from the status quo continues.   

 

05/21/23       Mirza v. Boulevard Retail LLC

Appellate Division, First Department

Section 5-321 Does Not Prohibit a Tenant from Being Indemnified by Landlord

Boulevard leased a portion of its building to Banana Republic.  In 2017, both Boulevard and Banana Republic were advised the building’s cooling towers were discharging into other occupied units at the building.  In 2018, Banana Republic negotiated the end of the lease by paying, in effect, a $7,500,000 termination fee.  In that agreement, however, Boulevard agreed it would indemnify Banana Republic for any loss, claim or damage arising out of the HVAC issues.

Thereafter, plaintiff commenced a lawsuit alleging injury due to exposure to vapor plumes that were allegedly caused by the HVAC units.  Banana Republic cross-claimed for indemnification from Boulevard. Boulevard opposed Banana Republic’s indemnity claim by pointing to General Obligations Law § 5-321.

The First Department ruled that the clause was clear and unambiguous, and, on its face, provided for indemnity running in favor of Banana Republic.  The Court also noted that “both parties are sophisticated business entities” and that Boulevard Retail carried “applicable insurance.”  Accordingly, in the Court’s view, there was no public policy argument supporting the voiding of the duly negotiated contractual indemnity term. 

In addition, the Court ruled that Section 5-321 is specifically not implicated because it applies only where the landlord is seeking indemnity from the tenant.  Here, the clause runs the other way, providing protection for the tenant from the landlord. 

 

DISHING OUT SERIOUS INJURY THRESHOLD
Michael J. Dischley

[email protected]

 

03/24/23       Gilbert v. Lauren E. Daniels, et al

Appellate Division, Fourth Department

Plaintiff’s Experts Successfully Contended Defendant Allegation as to Causation

Appeal from an order and judgment of the Supreme Court, Erie County (Donna M. Siwek, J.), entered January 11, 2022. The order and judgment granted the motion of defendants for summary judgment and dismissed the amended complaint.

Memorandum: In this action to recover damages for injuries allegedly sustained in an automobile accident, plaintiff appeals from an order and judgment that granted defendants' motion for summary judgment dismissing the amended complaint on the ground that plaintiff did not sustain a serious injury within the meaning of Insurance Law§ 5102 (d).

Initially, we note that plaintiff does not challenge on appeal Supreme Court's conclusion that defendants met their initial burden on the motion with respect to causation and every applicable category of serious injury, and plaintiff therefore has abandoned any issue with respect thereto. We agree with plaintiff, however, that in response to defendants' submissions, she met her burden of "coming forward with evidence indicating a serious injury causally related to the accident".

We conclude that plaintiff submitted evidence raising triable issues of material fact on the issue of serious injury based on the submissions of her experts, who concluded that there was objective evidence of injury to plaintiff's head, neck, and back.

Further, we conclude that plaintiff's experts raised a triable issue of fact on the issue of causation. With respect to plaintiff's head injury, the expert neurologist reviewed the post-accident MRI of the brain and concluded that the abnormal findings were caused by the accident. Further, with respect to the injuries to plaintiff's neck and back, plaintiff's expert chiropractor specifically "address[ed] the manner in which plaintiff's physical injuries were causally related to the accident in light of [her] past medical history". In particular, the expert explained that he reviewed the MRI films of each body part taken before and after the accident and concluded that changes evidenced by the post-accident MRI were traumatically aggravated, exacerbated, and caused and contributed to by the subject accident. We note that the court erred in concluding that there was no evidentiary value to the chiropractor's comparison of the pre- and post-accident MRI reports; contrary to the court's assertion, a chiropractor is "competent to render an opinion based on CT or MRI film studies".

Ultimately, this case presents a classic battle of the experts, and "conflicting expert opinions may not be resolved on a motion for summary judgment".

As such, the order and judgment so appealed from is unanimously reversed on the law without costs, the motion is denied, and the amended complaint is reinstated.

 

WILEWICZ’S WIDE WORLD of COVERAGE

Agnes A. Wilewicz

[email protected]

Check back next time for the very latest from the Circuit Courts around the country.

BARNAS on BAD FAITH

Brian D. Barnas

[email protected]

 

03/14/23       Ilias v. USAA General Indemnity Company

United State Court of Appeals, Eleventh Circuit

Summary Judgment Dismissing Bad Faith Claim Reversed by Appellate Court

The case arises out of a July 29, 2017, auto accident.  Dunbar was driving his van on a divided highway in Pasco County, Florida.  Dunbar lost control of the van and struck Brignoni’s SUV.  The collision caused the van to veer toward the center median, launch into oncoming traffic, and land directly on top of Ilias’ Honda Pilot.  Ilias suffered catastrophic injuries.  Dunbar was also hospitalized, but he was able to leave later that day.  Brignoni sustained some back and neck pain, but she was able to go home immediately after the accident.

Dunbar was insured by USAA with a policy providing liability limits of $10,000 per person and $20,000 per accident.  By August 8, 2017, Ilias’ attorney had advised USAA Ilias had suffered a torn aorta, right knee fracture, several leg fractures, and had spent ten days in the ICU.  Brignoni’s daughter told USAA that Brignoni went home and had some neck and back pain.  USAA then spoke to Dunbar and advised him of the potential for excess exposure.

Ilias retained new counsel on August 10, 2017.  Counsel requested a sworn statement from USAA about Dunbar’s coverage and the identity of any other known insurer.  USAA’s adjuster responded a few days later, but he did not provide the name of any other insurer or indicate whether USAA was aware of any other coverage.  USAA received the police report on August 14, which concluded that Dunbar was solely at fault.  USAA’s adjuster determined USAA would accept liability, but he did not convey this to Ilias’ counsel or consider tendering the policy.  USAA’s assigned adjuster retired on August 30, 2017.  By that time the policy limit had not been tendered.

After a new adjuster was assigned, the policy limits were tendered in September.  It is disputed whether a coverage disclosure was also mailed.  Ilias’ counsel did not respond to the tender.  Instead, a personal injury action was filed against Dunbar in Pasco County Circuit Court.  After the suit was filed, Ilias’ counsel told USAA the lawsuit was filed so she could depose Dunbar and Brignoni to rule out additional coverage.  However, nothing in the record suggested the adjuster asked Dunbar if he had additional coverage after this call, and multiple subsequent letters from USAA’s Senor Litigation Manager dd not reference the potential additional coverage issue.

Dubbar was eventually deposed, and it was confirmed that he had no additional coverage to satisfy an excess judgement.  The case did not settle.  After Dunbar conceded liability, a trial on damages was held and Ilias obtained judgment against Dunbar in the amount of $5,230,559.44.  Ilias then commenced a bad faith action against USAA in Florida court, which was removed.

The Eleventh Circuit reversed the judgment of the district court and held there was an issue of fact as to whether USAA’s handling of the claim amounted to bad faith.  First, the court concluded that USAA unduly delayed in initiating settlement negotiations.  USAA was aware of the grievous nature of the injuries by early August and determined Dunbar was responsible.  The court found that USAA arguably should have tendered the limits by the middle of August when it knew Dunbar was at fault, but the limits were not tendered until the middle of September.  USAA’s argument that delay in communications about the claim was attributable to Ilias’ attorney was rejected because, in Florida, the focus of a bad faith inquiry is on the actions of the insurer.

USAA also argued any delay in tendering was justified because there were multiple claims.  Specifically, it argued that if it settled with Ilias, then Dunbar would have been potentially exposed to a claim by Brignoni.  The court rejected this argument, reasoning that Brignoni’s claims were not that serious and that she never sought treatment for her injuries.  The court also reasoned that USAA’s corporate representative did not cite multiple claims as a reason for delay in tendering at her deposition, and the potential other claim did not stop the limits from being tendered one month later.

USAA also argued that even if it had delayed, it was due to negligence and not bad faith.  However, the court found there was evidence that could support the finding the delay was not caused by negligence.  The court noted that USAA’s adjuster was aware of Dunbar’s liability and the seriousness of the injuries by August 14, 2017, but he did not tender the limits prior to his retirement.  The adjuster testified that he needed additional information, but the court found that the subsequent adjuster tendered the limits based on the same information the prior adjuster had.  The court also noted that the adjuster assigned in September mistook Ilias’ injuries initially.  Thus, the court held that a reasonable jury could conclude that a fundamental failure to apprehend the nature of Ilias’ claim, combined with the  intentional refusal to tender the policy limit for weeks, was sufficient evidence of USAA's failure to act “diligently, and with the same haste and precision as if it were in the insured's shoes.

The court also concluded that USAA failed to provide information needed to settle the case.  The court concluded USAA did not inform Ilias’ counsel whether Dunbar had additional insurance coverage in response to requests.  There was no evidence in the record that USAA provided Ilias with confirmation that Dunbar did not have additional coverage or asked Dunbar if he did.  The court found that a jury could conclude USAA’s actions in providing information about potential other coverage did not show the same care and diligence to avoid an excess judgment as a reasonable person would in Dunbar’s shoes.

Finally, the court found there was an issue of fact regarding whether USAA’s conduct caused the excess judgment.  Ilias’s counsel testified that she could not accept USAA’s offer without knowing whether there was additional coverage, and that she would have advised Dunbar to accept the limits if she had confirmation of no additional coverage when the tender was made.

 

LEE’S CONNECTICUT CHRONICLES

Lee S. Siegel

[email protected]

Nothing this week.

KYLE'S CONSTRUCTION COLUMN

Kyle A. Ruffner

[email protected]

 

03/17/23       Starline Windows Inc. v. Ins. Co. of Pennsylvania

United States District Court for the Southern District of California

Complaint Did Not Contain Allegations of Property Damage Where Only Damage Was to the Insured’s Defective Product

Bosa Development California, Inc. was the developer and general contractor for The Grande at Santa Fe Place, a 39-story condominium tower in San Diego, California. In 2003, Starline subcontracted with Bosa to furnish and install a window-wall system, which included insulated glass units (IGUs) and issued a 10-year limited warranty for the windows. Starline then subcontracted with Star Team to install the window system. Beginning in March 2014, Starline became aware that numerous homeowners at Grande North had served notices of claims alleging failure and migration of PIB sealant within the IGUs. The claims did not involve physical injury to any property other than the IGUs Starline contracted to furnish and install at Grande North.

Bosa had purchased a primary owner-controlled insurance program (OCIP) policy from Liberty Mutual Fire Insurance Company, to cover itself and its subcontractors during construction of Grande North, and also purchased an excess policy from the Insurance Company of the State of Pennsylvania (ICSOP). In July 2014, Starline executed a Repair Agreement with Bosa under which Starline agreed to replace certain IGUs at Grande North in accordance with the Starline warranty. Starline tendered defense and indemnity of the homeowners’ claims to ICSOP, claiming it incurred damages such as alleged costs to remove and replace IGUs at Grande North. ICSOP filed a motion for summary judgment contending it did not owe a duty to indemnify Starline for the amounts Starline alleges it incurred to replace IGUs because the claims did not involve property damage, Starline did not qualify as an Additional Insured under the OCIP policy, and Starline is no longer legally obligated to pay the damages incurred to replace the defective IGUs.

ICSOP first argued that the Window claims do not involve property damage under the policy because the migrating PIB did not cause damage to anything other than the IGUs supplied by Starline. The court explained that under California law, incorporation of a defective component or product into a larger structure does not constitute property damage unless and until the defective components causes injury to tangible property in at least some other part of the system. Liability policies are not designed to provide contractors and developers with coverage against claims that their work is defective. The court determined that because the only damage at issue was to Starline’s defective product that it supplied there was no coverage under the policy because the allegations in the complaint were insufficient to constitute property damage. Further, the court rejected Starline’s argument that coverage was available under a policy provision providing coverage for “work” of subcontractors such as Starline and Star Team. Starline admitted that the Window claims did not arise out of Star Team’s installation of the window system and held that their claims indisputably arose out of a defect in the products that Starline supplied. Accordingly, the court held that the Window claims did not involve “property damage” and no coverage was available under the OCIP policy.

Because the court held that the damage did not constitute “property damage” under the policy, the court also determined it was not necessary to decide whether Starline’s position as a supplier or subcontractor or whether the OCIP policy provides coverage for such a role. Therefore, the court also held it need to decide the issue of whether Starline is legally obligated to pay damages it allegedly incurred to replace the IGUs. Lastly, the court disagreed with ICSOP’s contention that Starline is barred from seeking declaratory relief in this action but held that to the extent Starline seeks such relief, the policy does not provide coverage for the window claims. As such, ICSOP’s motion for summary judgment was granted.

 

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

 

Legislative List

3/28/23  Written Exams For Independent Insurance Adjusters

New York State Senate

Senate Passes Bill That Would Waive Written Exams For Independent Insurance Adjuster Licensing Under Certain Circumstances

On Tuesday, the New York State Senate passed a bill (S01468) concerning the requirements for licensure of independent insurance adjusters. If it becomes law, New York would now permit a waiver of the requirement for each independent adjuster applicant to pass a written exam so long as the applicant holds a claims certification issued by a national or state-based claims association meeting certain minimum standards.

According to the Sponsor Memorandum,

“With the increase of natural disasters impacting New York State, it is critical that the insurance industry and consumers have access to qualified independent adjusters. Independent adjusters are adjustors who work on behalf of insurance companies to handle claims for consumers. Many independent adjusters do business in multiple states and the process of seeking upwards of 20 different state licenses is a barrier to entry that ultimately hurts consumers. This legislation would streamline the licensing process for individuals who have completed a certification course offered by a nationally recognized claims association. These certification courses approved by the Department of Financial Services hold participants to the highest standards. This bill will help attract and retain the highest quality adjusters to do business in New York.”

To accomplish this, Insurance Law §2108(f)(1) would be amended to include the following language, in addition to its current language:

“The exam requirement shall be waived for individuals holding a claims certification issued by a national or state-based claims association with a certification program that consists of at least forty hours of pre-exam coursework, a proctored exam of sufficient length to adequately determine the competency of the individual, and twenty-four hours of continuing education required for certification renewals on a biennial basis, subject to the approval of the superintendent.”

The bill has been delivered to the Assembly for consideration, where it was referred to insurance and currently resides.

 

RAUH’S RAMBLINGS

Patricia A. Rauh

[email protected]

 

03/23/23       Meier v. Pacific Life Insurance Co.

U.S. Court of Appeals, Seventh Circuit

Insured Made Material Misrepresentation When He Failed to Disclose his Terminal Cancer Diagnosis

In 2018, Ron and Lorrie Meier purchased a life insurance policy for Ron through Pacific Life Insurance Company (“Pacific Life”).  Prior to purchasing the Pacific Life policy, the Meier’s had considered purchasing a policy through Lincoln Financial Group, who sent a nurse to examine Ron and assess his overall health.  The nurse’s findings were recorded on two forms – a “Medical Supplement” and the “Examiner’s Report”.

On June 18, 2018, when Ron ultimately decided to purchase the Pacific Life policy instead, he sent them copies of the Medical Supplement and Examiner’s Report that had previously been submitted to Lincoln Financial.  A month later, on July 26, 2018, Ron completed his application for a Pacific Life policy.  Ron agreed to several terms and conditions, including a provision requiring him to update Pacific Life “in writing of any changes” to his health.  Pacific Life accepted Ron’s application on July 30, 2018, and began the underwriting process.

A week later, on August 6, 2018, Ron learned that he had stage IV lung cancer and immediately began treatment.  However, he never informed Pacific Life of his diagnosis.  On September 6, 2018, Pacific Life delivered the policy to Ron for his review and he signed the Policy Delivery Receipt on September 7th, confirming his receipt and execution of the policy.

Approximately one year later, Ron died of lung cancer and his wife, Lorrie filed a claim with Pacific Life.  After learning that Ron had been diagnosed with – but failed to disclose – terminal cancer before the policy’s issue date, Pacific Life rejected Lorrie’s claim.  Pursuant to the Illinois Insurance Code, Pacific Life rescinded the policy and returned the premiums to Lorrie.  She responded by bringing suit against Pacific Life seeking to enforce the policy.  The district court granted summary judgment to Pacific Life and affirmed rescission of the contract, concluding that Ron’s failure to disclose his cancer diagnoses amounted to a material misrepresentation. Lorrie appealed the district court’s decision to the Seventh Circuit Court of Appeals.

The parties disputed whether Ron’s failure to disclose his cancer diagnoses amounted to a misrepresentation, and the Seventh Circuit concluded that it was.  The policy was clear and unambiguous in stating that Ron must inform Pacific Life in writing of any changes to his health.  Ron knowingly and voluntarily agreed to these terms when he signed the application.  Further, Ron’s health did change in a substantial way that likely would have impacted Pacific Life’s underwriting analysis had they been informed of his diagnosis.  Like the district court, the Seventh Circuit concluded that Ron violated the plain terms of the policy by failing to inform Pacific Life about his cancer diagnosis and his omission amounted to a misrepresentation.

The parties also disputed whether Ron’s omission was material.  The Seventh Circuit held that a terminal cancer diagnoses substantially increases the chances of a person’s death such that a life insurance company would either reject that application or, at the very least, reconsider its premiums and therefore, Ron’s diagnosis was material and no reasonable jury would conclude otherwise.  The Seventh Circuit upheld the district court’s ruling granting summary judgment to Pacific Life.

 

STORM’S SIU

Scott D. Storm

[email protected]

I’m away attending the New York State Chapter of Special Investigation Units (NYSSIU) meeting in Saratoga Springs.  It’s an awesome organization.  You should join!  More case digests in two weeks. 

 

FLEMING’S FINEST

Katherine A. Fleming

[email protected]

 

03/17/23       Cajun Conti LLC v. Certain Underwriters at Lloyd’s London

Supreme Court of Louisiana

COVID-19 Does Not Cause Direct Physical Loss Of Or Damage To Property

Oceana Grill is a restaurant in the French Quarter of New Orleans. During normal operations before the COVID-19 pandemic, the restaurant could accommodate 500 guests at any one time. On March 16, 2020, responding to the emerging COVID-19 virus, an emergency proclamation was issued by the mayor of New Orleans prohibiting most public and private social gatherings. Restaurant operations were limited to take-out and delivery services, and Oceana Grill closed to all but those services. Oceana Grill complied with government-imposed capacity restrictions and social distancing requirements when it reopened, and it incurred expenses to sanitize the space. Due to the capacity limitations and incidental expenses, the restaurant could not generate pre-COVID19 income.

The owners of the restaurant maintained an all-risks commercial insurance policy with loss of business income coverage through Certain Underwriters at Lloyd’s, London. They sought a declaratory judgment that the “policy provides business income coverage from the contamination of the insured premises by COVID-19.” Lloyd’s sought summary judgment and argued that there was no coverage under the policy because COVID-19 does not cause direct physical loss of or damage to property. The trial court denied summary judgment, and the matter proceeded to trial. Following a three-day bench trial, the trial court denied declaratory relief without providing reasons.

The court of appeal reversed, finding the policy ambiguous and reasoning that direct physical loss could mean loss of use of the property. Because the COVID-19 virus prevented the full use of the property due to capacity limitations, coverage was triggered.

The Louisiana Supreme Court found the plain, ordinary and generally prevailing meaning of “direct physical loss of or damage to property” requires the insured’s property sustain a physical, meaning tangible or corporeal, loss or damage. The loss or damage must also be direct, not indirect. Applying these meanings to the facts and arguments presented, COVID-19 did not cause direct physical loss of or damage to Oceana’s property. While the restaurant did increase its cleaning practices during the pandemic, the property remained physically intact and functional, needing only to be sanitized. The Court reasoned that loss of use alone is not “physical loss.” Otherwise, the modifier “physical” before “loss” would be superfluous. While government restrictions on dining capacity and public health guidance regarding social distancing reduced Oceana’s in-person dining capacity and restricted its use, again, Oceana’s property was not physically lost in any tangible or corporeal sense. Even when in-person dining was prohibited, Oceana’s kitchen continued to provide take-out and delivery service, and the restaurant’s physical structure was neither lost nor changed. The Court found the appellate court erred by focusing on the loss of use rather than on whether a direct physical loss occurred. The Court found that Oceana did not suffer a direct physical loss and also that the policy language was not ambiguous.

The Court also noted that numerous state supreme courts have reached a similar result when analyzing comparable policy language. To date, no state supreme court that has addressed this issue has decided the presence of COVID-19 constitutes a physical loss of or damage to property.

 

GESTWICK’S GREATEST

Evan D. Gestwick

[email protected]

 

03/29/23       Rosa v. Denair HVAC, Inc.

Appellate Division, Second Department

Doctrine of Res Judicata Does Not Bar Claims in the Personal Injury Action Where the Parties Did Not Assert Claims Against Each Other in the Declaratory Judgment Action

In this case, the plaintiff asserted that, while riding an electric skateboard, he was struck by a van owned by the defendant. Subsequently, the insurer of the van, Harleysville, commenced a separate declaratory judgment action against both the plaintiff and the defendant in this case, after learning of facts suggesting that the plaintiff was not struck by the van, but instead hit a manhole cover and fell off the skateboard on his own.

In the declaratory judgment action, Harleysville moved for a default judgment declaring, in relevant part, that Rosa’s injuries did not arise from the use or operation of the insured van, after Rosa failed to appear in that action. Harleysville’s motion was granted in the declaratory judgment action with this very declaration.

After Harleysville’s motion in the declaratory judgment was granted, insofar as it was declared that Rosa’s injuries did not arise from being struck by the insured van, Denair moved to dismiss this action on the grounds of res judicata. The doctrine of res judicata maintains that once a valid, final judgment is rendered, all other claims arising from the same event are barred, even if those claims are based on different theories or seek a different remedy. However, for the doctrine of res judicata to apply, the parties litigating the claim(s) to which the doctrine is to be applied must be the same parties as the ones involved in the rendering of the previous judgment. In other words, the doctrine applies only when a claim between the parties has been previously brought to a final conclusion.

In the declaratory judgment action, Harleysville asserted its claim that Rosa’s injuries did not arise out of the operation of the van against Rosa and Denair, both of whom are also parties in the present action. However, in the declaratory judgment action, Rosa and Denair were both defendants and did not assert any claims against one another, unlike in this action, where Rosa asserts claims directly against Denair. It was this key distinction that caused the Court to hold that the doctrine of res judicata did not apply to bar Rosa’s claims against Denair on the grounds that it was declared in the declaratory judgment action that Rosa’s injuries did not arise out of the operation of the van—the key distinction being that there, unlike here, the parties did not assert any claims against each other.

Declaratory judgment actions are routinely brought in the wake of personal injury actions to declare the rights and remedies of the parties, especially their respective insurance carriers. This case is important because it illustrates that any declaration rendered in the declaratory judgment action may not impact the determination of liability in the underlying personal injury action where the parties to the personal injury action did not assert claims against one another in the declaratory judgment action, since, if they did not, the doctrine of res judicata will not apply.

 

 

03/20/23   State Farm Mut. Auto. Ins. Co. v. Access Med. Diagnostic Solutions et al.

New York State Supreme Court, County of New York

No-Fault Claimants Are Required to Appear for EUO, As Long as No-Fault Carrier Had a “Good Reason” for Demanding the EUO 

The Claimant was struck by a State Farm-insured vehicle while walking on the side of the road. As a result of the accident, the Claimant reported that he suffered injuries from the accident for which he sought and received medical treatment from the various medical providers, who are defendants in this action. Those medical provider defendants submitted thousands of dollars in medical payments to State Farm for payment following the accident.

Given the conflicts between narratives of the event supplied by the no-fault claimant, State Farm’s insured, and an eye witness, State Farm believed that the claimant’s injuries did not arise from the accident, or that the claimant’s treatment by the defendant-medical providers was not causally related to the accident. Accordingly, State Farm exercised its right, under New York State’s no-fault regulations, to conduct an Examination Under Oath (EUO) of the claimant.

The claimant failed to appear for his EUO on two separate occasions. Accordingly, State Farm denied all of the no-fault claims submitted by the claimant, as well as those submitted by the claimant’s medical providers, and brought this action to confirm the propriety thereof.

11 NYCRR 65-1.1 requires a no-fault claimant to comply with the terms and conditions in the no-fault policy, just as the named insured under that policy is required to do. Indeed, the regulation goes on to provide that the no-fault claimant’s failure to appear for a requested EUO may be a breach of the policy conditions, and thus, may result in a denial of no-fault benefits. However, 11 NYCRR 65-3.2(c) requires insurers to have “good reasons” to demand verification of the facts underlying a claim. In the context of requesting an EUO, the insurer’s belief must be based on objective standards, and its decision to request an EUO must be met with specific, objective justification. 11 NYCRR 65-3.5(e). In the context of the denial of no-fault benefits, the no-fault carrier must establish that it timely requested the EUO in accordance with 11 NYCRR 65-3.5, which requires that the no-fault insurer first forward to claimants “the verification forms it will require prior to payment of the initial claim,” within 10 business days after receiving the completed no-fault benefits application. After receiving said forms, the insurer has an additional 15 business days to request “any additional verification.” 11 NYCRR 65-3.5(b). As long as the EUO was requested within 15 days of receiving this verification, the no-fault insurer’s EUO request is timely.

In this case, the Court found that State Farm’s request of the EUO of the claimant was objectively justified, given the conflicting accounts of how the accident occurred. The Court also found that State Farm’s request of the EUO was timely, since it noticed the first EUO on the very same day it receives the above-referenced verification forms.

This opinion is important to no-fault carriers as it not only restates the importance of following the procedure set forth in the New York State Insurance Law regulations, but it also spells out that procedure itself.

 

ON the ROAD with O’SHEA

Ryan P. O’Shea

[email protected]

 

03/23/23       Transel El. & Elec., Inc. v First Specialty Ins. Co.

Appellate Division, First Department

Truck’s Liftgate Does Not Lift or Lower Workers, Exception Auto Exclusion Does Not Apply

Transel was issued a commercial package insurance policy, which included commercial general liability coverage, by First Specialty. Transel was sued in an underlying personal injury action where the plaintiff claimant was injured when unloading material from a truck’s shipping trailer or liftgate. Appropriately, First Specialty disclaimed coverage under the commercial liability’s “auto exclusion.”

The “auto exclusion” in question contains the typical broad language. Specifically, that the exclusion applies to bodily injuries arising out of the ownership, maintenance or use of any auto, with use encompassing loading or unloading. It also contained the exception for use of mobile equipment, which was defined as “cherry pickers and similar devices mounted on an automobile or truck chassis and used to raise or lower workers.” The policy defined auto to include automobiles or trucks owned or operated by any insured.

Transel’s position was that claimant’s injury was caused by the defective liftgate, which Transel argued was outside of the broad exclusion. In the alternative, Transel argued the exception to the exclusion applied because the liftgate qualified as mobile equipment. The trial court denied Transel’s motion for summary judgment and granted First Specialty’s cross-motion for summary terminating First Specialty’s duties to defend and indemnify Transel in the underlying action. Transel appealed.

The First Department affirmed the trial court’s finding. In rejecting Transel’s first argument, the Appellate Division found the claimant was clearly unloading material from the trailer or liftgate, even if the liftgate were defective it does not remove the conduct from the ambit of the exclusion, the process of unloading. As for Transel’s exception argument, the Appellate Division also rejected it. The First Department reasoned that a liftgate is not similar to a cherry picker and is not used to raise or lower workers and thus, the truck, not mobile equipment, caused the claimant’s injuries.

This case shows the broadness of the typical auto exclusion typically found within commercial general liability policies. There is an exception, but it has limited application especially, where policy definitions limit what qualifies as mobile equipment.

 

03/17/23       Sabine v. State of New York

Appellate Division, Fourth Department

Prejudgment Interest in No-Fault Cases Run from Date Finding Claimant Suffered a Serious Injury

In this Appellate decision claimant seeks recovery from the State for injuries suffered in a motor vehicle accident involving a vehicle owned by the State and driven by one of its employees. Sabine filed a partial motion for summary judgment on the issue of liability alone. After initially denying the motion, the Court of Claims granted Sabine’s motion for leave to renew on the issue of negligence and granted Sabine’s renewed motion, finding the State negligent. Subsequent to the finding of liability, a bench trial ensued where the court determined Sabine suffered a serious injury within the meaning of Insurance Law § 5102(d).

Sabine appealed from the favorable judgment on the issue of prejudgment interest. Sabine argued that interest should have accrued from the date of finding liability. While noting that Sabine may have failed to preserve the issue, his contention fell within a narrow exception to the rule of preservation. The exception applies where a question of law appearing on the face of the record may be raised for the first time on appeal inasmuch that it could not have been avoided by the opposing party if brought to the party’s attention in a timely manner. The contention must represent a purely legal issue that cannot be obviated or cured by factual showings or legal countersteps in a trial court.

Despite finding the narrow exception applied, the Fourth Department rejected Sabine’s contention. The court reasoned that the Legislature’s passage of the No-Fault Law modified the unfettered common law right to sue for injuries sustained in automobile accidents. Accordingly, a party cannot be liable for noneconomic loss until there is a finding that a claimant suffered a serious injury under the No-Fault statute.

The court further reasoned that Sabine sought a liability determination prior to receiving a decision on whether he suffered a serious injury under the No-Fault statute (Article 51 of the New York Insurance Law). Thus, the State’s obligation to pay damages did not begin at the finding of negligence, but rather began once the trial court found Sabine suffered a serious injury. Therefore, the calculation of prejudgment interest started accruing from the date of the decision determining that Sabine suffered a serious injury.

This decision is particularly interesting as it relates to all those seeking an answer to the question when does prejudgment interest begin to accrue in No-Fault cases. This decision provides thar answer. The answer is after there is a finding the claimant suffered a serious injury. Thus, when moving for summary judgment it would be wise to move for a finding on the issues of both liability and serious injury. Or in the alternative move on serious injury to have prejudgment interest begin accruing prior to a finding of liability.

 

NORTH of the BORDER

Heather A. Sanderson

Sanderson Law, Calgary, Alberta

[email protected]

 

03/03/23       Shelter Canadian Properties Limited v.  Aviva Insurance Company of Canada, 2023 ABCA 74

The Presence of a Condition Requiring an Insured Landlord to Mitigate a Loss of Rental Income is Evidence that Gross Rental Coverage is Indemnity Coverage as Opposed to an Agreement to Pay a Stipulated Amount Upon the Happening of an Event

The Fort McMurray wildfire of May 2016 was epic. It remains the costliest natural disaster that Canada has experienced to date. 

In late April of 2016 a fire started in the forest north of the City of Fort McMurray.  Fort Mac (as it is known) is the service centre for the Athabasca oilsands that lie north of the City. As the fire moved closer to the City, a series of evacuation orders were issued for outlying areas beginning May 1, 2016, but by May 3, 2016, a change in wind direction meant that the entire City fell under an evacuation order. About 60,000 residents were forced to leave with no notice. The fire burned into the City and most properties that weren’t burned suffered smoke damage.  The evacuation order was lifted June 2, 2016, and damage assessment began.

Fort Mac is a very isolated location. A significant issue during the reconstruction was finding alternative accommodation for displaced residents and the workers who were brought to the area for the re-build. The lack of readily available accommodation that was experienced post June 2, 2016, and the boon to those properties that remained habitable post fire, is the backdrop for the dispute between Shelter Canadian Properties Limited and its insurers which was heard by the Alberta Court of Appeal in September 2022. The judgment in the case was released March 3, 2023.

At the time of the fire, a group of insureds (which I will refer to as Shelter) owned 13 multi-unit rental complexes in Fort Mac. Shelter was insured under a subscription commercial policy issued by several London Market subscribers that were led by Aviva. The policy provided coverage for loss of rental income if any property was lost or damaged by an insured peril. Fire and smoke damage were insured perils. The evacuation order was in place from May 1, 2016, to June 2, 2016. Following remediation for smoke damage, tenants were allowed to return to Shelter’s properties on various dates throughout June and July of 2016. The insurers paid Shelter for the remediation of the smoke damage but denied the claim for rental loss. The insurers argued that Shelter fully mitigated its loss of rental income and therefore did not sustain a loss payable under the policy. In the circumstances, a payment of loss of rental income as demanded would be a windfall.

The first issue before the Court of Appeal was whether the policy was in fact an indemnity policy. The Court of Appeal found that the policy demanded a calculation of the actual loss that Shelter suffered and therefore it was an indemnity policy. That conclusion was reinforced by the presence of clause mandating that Shelter mitigate its loss. As a result, the policy was not, as Shelter contended, a policy that paid an amount to be calculated upon the happening of an insured peril. 

Shelter was able to mitigate the loss of rents due to the retention of security deposits from those tenants who did not return after the fire; by agreeing to short term rentals of available space to other tenants (i.e.., displaced Fort Mac residents and contractors who were working on the reconstruction of the City; and, through increases in rental rates after the fire driven by demand and lack of available accommodation.  As a result of these things, Shelter earned more rental income after the fire than in the five months of 2016 that preceded the fire. On that basis the Court of Appeal reversed a trial award in favour of Shelter and declared that no loss of rental income had occurred, meaning that nothing was payable under the policy.

There is an interesting fact driven analysis in the case as to whether the insurers were estopped from arguing that the policy only responded to actual loss. The Court of Appeal held that throughout Shelter was calculating its loss based upon its own interpretation of the policy and did not rely upon the insurer’s conduct during the adjustment phase. As a result, Shelter did not rely upon any representations that the insurers may have made. As Shelter failed to prove detrimental reliance, a necessary element of estoppel, the insurers were not estopped. The insurers were entitled to maintain their denial of coverage for loss of rental income.

 

© Hurwitz Fine P.C. 2023
All rights reserved

 

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