Coverage Pointers - Volume XXIV, No. 22

Volume XXIV, No. 22 (No. 643)
Friday, April 14, 2023
A Biweekly Electronic Newsletter

 

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

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

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

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

 

Dear Coverage Pointers Subscribers:

Do you have a situation? We love situations. Remember, the full issue of Coverage Pointers is attached to this cover note.

Risk Transfer Program – June 1, 2023. Register now while Zoom seats are available.

Back by popular demand, is our Risk Transfer primer.  Everything and anything you need to know about contractual liability and additional insured coverage. How do you tackle tenders?   John Trimble and I produced this program last year for over 400 claims professionals and attorneys.  This year, our first day’s offering was a sell-out, so we’re offering a second date, Thursday, June 1, 2023 , at 1:30 Eastern.  This will be a 90-minute presentation which will include plenty of opportunities for Q&A.  Bring your toughest risk transfer questions but you must preregister because space is limited. Just drop me a note at [email protected]

Column Shuffling

We do that every so often.  Ryan Maxwell is now covering all NY Federal Courts (District and Second Circuit).  Agnes Wilewicz will cover other Federal Circuit Courts and a new columnist, Rob Louttit, takes over the legislative and regulatory beat.  Patty Rauh is on maternity leave for a few months. Blessings to her and her new addition.

Congratulations to Edward Hayes for a Decade of Service to the New York State Liquidation Bureau (and many years of service to the industry):

I want to take a moment to extend my public congratulations to my old and dear friend, Ed Hayes, Deputy General Counsel at the New York Liquidation Bureau, as he celebrates his 10^th anniversary with the organization.  Ed has been a thought leader in and for the insurance industry, having started his career with Aetna, back in 1988, and after a year with Travelers, served as Senior Vice President and General Counsel for Empire Insurance Company from 1999 to 2009.  It was when he worked with Empire, so many moons ago, when Ed and I started working together and it’s been truly an honor and pleasure to have done so since.  Ed then went on to Tower Insurance Company, where he served as VP Claims, Litigation Management.  In April 2013, he became Deputy General Counsel at the Liquidation Bureau, where he has done a stellar job.

Ed cares about the insurance industry and it is reflected in everything he does.  Congrats, my friend.
 

Silliest Case of the Year, So Far: Nine Years of Litigation for Uneventfully Descending a Ladder:

This one’s too outrageous to let slip by without a comment.

Nine years ago, in 2014, an eight-year-old boy descended a ladder (5-7 feet) without incident when a roller-coaster stopped short of the finish line because of a malfunction.  He, through his parents, then sued the amusement park for emotional distress.  Nine years of litigation, full discovery, motion practice, dismissal, three years of appeals and finally the Second Department affirmed the dismissal, on April 12.  NINE years of litigation for an eight-year-old by going down a ladder:  The case, J.G. v. L.I. Adventureland:

In June 2014, the infant plaintiff was riding a roller coaster at an amusement park owned by the defendants when it descended a hill and came to an unexpected stop approximately five to seven feet above the ground. After 15 minutes of standstill, the infant plaintiff exited the roller coaster by a ladder. The infant plaintiff, by her father and natural guardian, and her father suing derivatively, commenced this action alleging, inter alia, that the infant plaintiff suffered emotional injuries as a result of the incident. The defendants moved for summary judgment dismissing the complaint on the grounds, among others, that they did not create the alleged dangerous condition nor have actual or constructive notice of it. In the order appealed from, the Supreme Court granted the motion. The plaintiffs appeal, contending that the defendants failed to establish that they lacked constructive notice. We affirm.

"To constitute constructive notice, a defect must be visible and apparent, and it must exist for a sufficient length of time prior to the accident to permit [a] defendant's employees to discover and remedy it" (Gordon v American Museum of Natural History, 67 NY2d 836, 837). "A party, however, who has actual knowledge of an ongoing and recurring dangerous condition can be charged with constructive notice of each specific reoccurrence of that condition"…c(citations omitted).

Contrary to the plaintiffs' contention, the defendants demonstrated that they did not have constructive notice of any alleged dangerous condition on the subject roller coaster. The defendants submitted evidence that they inspected the roller coaster on the day of the incident, did not find any defects, did not receive any complaints about the roller coaster prior to the incident, and operated the roller coaster without any problems before the incident occurred …Further, contrary to the plaintiffs' contention, a general awareness that the roller coaster had stopped at times in previous years is legally insufficient to constitute notice of the particular condition that caused the subject incident  …In opposition, the plaintiffs failed to raise a triable issue of fact.

New York Insurance Association Article – Kohane and Maxwell as Toons!

Speaking of the outrageous, Ryan Maxwell and I do an annual article for the NYIA publication on the “worst” decisions in NY from the previous year.  I thought you’d get a kick out of the cover and page 18 and Ryan on page 16. Our thanks to NYI’s Stacey Orlando and her delightful and creative cartoonish talent!

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

Need a mediator?

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

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

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

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

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

Try mediation.

Newsletters:      

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

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

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

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

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

 

Peiper on Property (and Potpourri):

After a fairly uneventful couple of weeks, we’re left with a sparse column this week.  We do review an interesting decision won by our own Scott Kagan involving the economic loss doctrine.  If you have no idea what the economic loss doctrine is, take a moment to review our column this week.  Even if you’re lying to yourself and you think you know what it is, take a moment to review the case anyway.  If the particulars of economic loss didn’t already grab your attention, the claim was about wine production so there’s that.  

Other than that, we also point you to the O’Shea case (coincidentally covered by Ryan O’Shea) involving review of SUM arbitration awards.  The rules governing SUM claims can be different, and the standard for judicial review of compulsory SUM arbitrations has some quirks to it.  Take a moment to review it for a brief, but interesting, read. 

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

Steve
Steven E. Peiper
[email protected]

 

Clothes Lined for Six-Grand – 100 Years Ago:

The Buffalo News
Buffalo, New York
14 Apr 1923

Wins $6000 Verdict.

SALAMANCA April 14— One of the largest verdicts given In years in court in Cattaraugus County was returned yesterday in Supreme Court at Little Valley, Fred Boser receiving an award of $6000 against the Postal Telegraph company for injuries to his head, neck, and back when he ran into one of the company's guide wires on a pole at Olean.

 

Dishing Out Serious Injury Threshold:

Dear Readers,

Happy Easter and Happy Passover to those who celebrate. I was fortunate enough to spend some quality time with family and enjoy the beautiful weather over the weekend. Hopefully, the warm weather continues and can enjoy some more time outside.

I have a Second Department case to discuss this issue. Specifically, this case deals with plaintiff’s expert filing to address the findings of defendant experts opining that the plaintiff’s injuries were degenerative in nature.

Enjoy,

Michael
Michael J. Dischley 

 

Area Hospital in Hot Water! – 100 Years Ago:

Buffalo Courier
Buffalo, New York
14 Apr 1923

Verdict Against Hospital.
 

A verdict against Buffalo General hospital for $750 and in favor of Margaret Philips, No. 152 West Avenue, was reported by a jury yesterday in supreme court before Justice O’Malley. Mrs. Philips suffered a severe burn when a hot water bottle was placed on her left hip while convalescing after an operation.

 

Wilewicz’ Wide-World of Coverage:    

Travel season is truly upon us, and the calendar is completely filling up with plans for this spring and summer. Not only do we have more ABA conferences and meetings on the horizon, but numerous concerts, family visits, and other events will ensure that the coming months will make up for some time lost during lockdowns. To that end, however, do continue to be careful out there; I can personally attest that covid is still out there.

Now, we are doing some reassigning here in CP. As below, and as Dan mentioned above, Ryan Maxwell will be taking over a portion of the Federal Courts beat, with coverage on coverage (as it were) of the New York State District Courts (the trial level) plus the Second Circuit (the appellate level). In the Wide World of Coverage here, you will continue to see Federal Circuit Court decisions from across the country. Indeed, this week we have two decisions of interest:

In Southern-Owners Ins. Co. v. Tasman Service, out of the Eleventh Circuit Court of Appeals (Florida law), the Court addressed whether the terms “similar coverage” in a CGL policy was potentially ambiguous. In a well-reasoned decision discussing the language, the Court ultimately found no ambiguity. While any ambiguity in a contract is construed against the drafter, this only applies where there are multiple reasonable interpretation of a term or phrase. Where there is really only one reasonable interpretation, no ambiguity exists, and the plain meaning of the terms will be applied.

And from the Third Circuit, we have Hemphill v. Landmark American Ins. Co. (Pennsylvania law), discussing whether or not an insured should be entitled to a defense of a subsequent and similar, but admittedly different, claim down the road, where the carrier provided a defense before. There, the insured argued that the reasonable expectations doctrine applied to provide him with coverage, but the Court disagreed. That doctrine has very limited applications, as detailed in the attached summary, which has a link to the full text of the decision.

Until next time, Bon Voyage!

Agnes
Agnes A. Wilewicz
[email protected]

 

Diva Ball Player Holds Fans and Team Directors Hostage – 100 Years Ago:

The Buffalo Times
Buffalo, New York
14 Apr 1923

Pressure Being Brought to Bear With The Directors
Flashy Outfielder, Apparently Great Favorite, Anxious to Get Into Uniform, But Will Not Pay Fine of $50 Per Day For Not Training
 

CINCINNATI, Ohio, April 14. Despite the fact that the directors of the Cincinnati National League Baseball Club insisted they would not recede from their position, there remained among local fans today the hope that the Eddie Roush controversy would be settled, and very shortly. Rumors that pressure was being brought to bear upon the directors to get the holdout outfielder into line, coupled with the fact that Roush still remained in Cincinnati after announcing he would depart yesterday to negotiate a contract with an outlaw league, led to the belief that a compromise was imminent and possibly might be affected today.

Virtually the only barrier remaining was the matter of a fine of $50 a day, imposed by the club, for each day the player had absented himself from the training camp, the holdout having receded from his original demand for a salary of $25,000 a year and agreed to sign for $16,000.

The club's proposal contract called for a salary of $15,000 for the season.

 

Barnas on Bad Faith:

Hello again:

We are finally getting some spring weather, and I am hoping to hit the golf course for the first time this season this upcoming weekend.  The Sabres will unfortunately miss the playoffs for the twelfth year in a row after their Tuesday loss in New Jersey, but I am left feeling optimistic about their future for the first time in a long time after their best season since 2011-2012.  Hopefully, next year marks a return to the playoffs for the first time in over a decade.

I have a case from Louisiana in my column this week.  The insurer received a first party claim and paid the amount its adjuster concluded the claim was worth.  The insured then invoked the appraisal process, and the appraiser came back with an award approximately three times what the insured’s investigation valued the claim at.  The insured commenced a lawsuit alleging breach of contract and bad faith.  The court denied a motion for summary judgment seeking dismissal of the bad faith claim, finding that the difference between the size of the award and the amount of the original evaluation raised an issue of fact regarding good faith.

Brian
Brian D. Barnas
[email protected]

 

School Yard Insults Now Outlawed in Western Conference – 100 Years Ago:

The Buffalo Morning Express
Buffalo, New York
14 Apr 1923

THE GOLDEN RULE IN BASEBALL  IS GOING TO BE GIVEN TRIAL

Western conference games are to be conducted under a code of sportsmanship.

FREAK DELIVERY CUT OUT

Batting records are like babies’  blocks—set up to be knocked down again.

 

Chicago Ill., April 13. – A golden rule in baseball will prevail for the first time with the opening in the Western Conference championship season today. The games will be conducted this season under a code of “sportsmanship and courtesy instead of rowdyism.”

Calling a pitcher, a “big tramp,” “big bum,” or similar names in an attempt to rattle him, will be regarded as unsportsmanlike and will not be tolerated either from the players or spectators, according to a code of sportsmanship for college baseball announced by Major John L. Griffith, commissioner of athletics on the Western Conference.

The code provides that there shall be no remark or action by a player or spectator that reflects directly or indirectly upon the opponent, umpire, or spectator.

No freak delivery, such as the spit ball or shine ball will be allowed this season.

 

Lee’s Connecticut Chronicles:

Dear Nutmeg Newsies:

It is 82° today here in Connecticut, although my car said 91°. It feels hot. On my front passenger seat were the hat and gloves I wore on Sunday for a walk along the Long Island Sound. You blink and you’ve missed spring. And it seems that Florida got all its May showers out of the way already looking forward to the whole when rainwater becomes ground water and flood water debate, as there are undoubtedly thousands of property damage and business income claims in our future.

The traveling continues. Last month we hit Indianapolis and Berlin, Germany. This month our stops are more mundane, including Erie, Pa, and Buffalo, Rochester, and Syracuse, New York. Hail to all the road warriors out there. Zoom is great, but nothing replaces sitting next to your client as you prepare them for deposition. So, now I’m off to depo prep immersion. 

Keep keeping safe. 

Lee
Lee S. Siegel
[email protected]

 

Priest on Priest Violence … Insanity, Maybe Not – 100 Years Ago :

Times Herald
Olean, New York
14 Apr 1923

 

PRIEST PERSISTS IN HIS DESIRE TO BE SENT TO JAIL

Rev. Dillion Held for Shooting of Superior Resents Intimations He Was Insane.

(By The Associated Press)

 

KALAMAZOO, Mich., April 14.—Rev. Father Charles Dillon, who Is held for the shooting to death of his superior, Rev. Father Henry O'Neill, Parish priest of St.  Augustine’s Catholic church will be arraigned in circuit court here Monday. Postponement was granted late yesterday by Judge George V. Weimer upon request of William Fitzgerald, attorney for Father Dillon, after the priest waived examination in justice court.

Father Dillon persists in his to be sent to state's prison and intimations that he may have been insane when he shot Father O’Neil as he sat the dinner table Thursday evening. There was no Indication today that a sanity inquiry would be asked by his attorney nor was it apparent what defense, if any, would be offered in the Carthusian father's behalf.

 

Kyle's Construction Column:

Hope everyone had a great Easter (and Dyngus Day)! Happy to finally see some warmer spring weather and to have golf season on the way.

This week’s case is from the Fourth Department and involves an insured’s claim for water damage to their home. The court agreed with the insured that the ensuing loss exception to the faulty workmanship exclusion in the policy applied as a covered loss arose from an excluded peril and there was collateral or subsequent damage beyond the faulty workmanship.

Until next time,

Kyle
Kyle A. Ruffner
[email protected]

 

Towns People to Be Liable: Up Snow Creek Without a Shovel – 100 Years Ago:

The Buffalo News
Buffalo, New York
14 Apr 1923

OPPOSITION TO SNOW REMOVAL LAW GROWS

Bridgeburg Folk Seem to Shun Responsibility.

 

BRIDGEBURG, Ont., April 14.—Much opposition has developed to the proposed by law which Alderman Charles S. Frankland will Introduce in the Bridgeburg council on Monday evening to amend existing regulations covering the removal of snow.

Under the law as it exists at the present time all snow in the municipality is cleared by a municipal snowplow and the expense is borne by the town. Likewise in all cases of accidents, the municipality alone is liable.

Under the amendment, persons will be compelled to remove snow themselves and likewise will be responsible for any accidents that might occur.

Many property owners object to this latter clause.

 

Ryan’s Federal Reporter:

Hello Loyal Coverage Pointers Subscribers:

Having covered the Albany beat for the last three years, it was time for a change.

Introducing, “Ryan’s Federal Reporter,” my new column that will take a dive into recent federal court decisions in New York, including trial level decisions in our district courts and the Second Circuit Court of Appeals. I look forward to covering the nuances of federal insurance law litigation in New York, which has its advantages. However, it also has countless pitfalls for the unwary. You’ve been warned and won’t want to miss it. Must read stuff if I must say so myself. And I did.

For the first edition, I have a pair of district court decisions concerning No-Fault insurance fraud matters. The first discusses the standards for obtaining a preliminary injunction over a medical provider who, despite defaulting in a matter accusing it of fraud, had continued to file new no-fault claims without remorse. The second discusses counterclaims filed by no-fault medical providers for insurer no-fault claims handling practices, generally, and whether they sufficiently supported a private cause of action.

Until next time,

Ryan
Ryan P. Maxwell
[email protected]

 

Untangling Europe’s Telephony Problem – 100 Years Ago:

The Buffalo News
Buffalo, New York
14 Apr 1923

EUROPE DESIRES U.S. TELEPHONE SYSTEM

Nearly 64 Per Cent. of World’s Phones Are in U.S.

 

Special from Dow Jones & Co. to the Buffalo Evening News.

NEW YORK, April 14.—When the American army arrived in France they found the French telephone system in vogue. When they left France, the American system was the envy of the allies, and it is understood even the enemy admired it.

Undoubtedly from that time dates the desire of Europe to improve its sadly depleted telephone systems. The British government through its post office is much improved. The government has spent millions on it in the last few years and plans to spend more.

It would not be surprising if France and Italy and other countries permit American co-operation to perfect their decadent system. It is understood that an American company is negotiating with several countries to put the American system in force.

The United States with over 14,000,000 telephones has approximately 64 per cent of the world’s telephones. There are somewhat less than 13 instruments sin use per 100 population, an increase of 37.9 per cent since January 1, 1914.

There are approximately 53,000,000 miles of telephone wire in operation in the world, of which 35,000,000 are in the United States, Germany comes in next with over 5,000,000 then comes Great Britain with 3,500,000, Canada has nearly 2,500,000.

Europe has a long way to go before it reaches the efficiency of the United States in the art of communication, but with assistance from the American engineers and the use of our system, the next decade may see an important advance in telephony in very part of the world.

 

Rauh’s Ramblings:

On maternity leave.              

Patty
Patricia A. Rauh
[email protected]

 

Police Claim That The ‘Herb’ Gives Addicts Super Strength—Accidently Creates Source Material for The Incredible Hulk – 100 Years Ago:

El Paso Herald
El Paso, Texas
14 Apr 1923

El Paso Police

The marihuana fiend is the worst of all dope addicts. Capt. S. C. Houston, member of the police department since 1917, is the authority for the statement, and supports it with a number of ugly scars.

Two of the scars are bullet wounds, one through his lung and one through his abdomen, received early in 1921 when two apparently harmless men suddenly drew pistols and instantly killed police Capt. Harry Phoenix and wounded Capt. Houston. The assailants escaped.

 

Attacked With Knives.

In 1917 and 1918 Capt. Houston was assigned to the Santa Fe bridge, and there came in contact with an unusual number of the marihuana addicts. A number of times, he related, he has been rushed by addicts armed with knives.

“The man under Influence of marihuana becomes treacherous and crafty,” Capt.   Houston asserted. “The weed seems to make him bloodthirsty, to lose the distinction between right and wrong. I have seen a man weighing 100 pounds match five or six men while he was under influence of the dope.”

Capt. Houston was born in Logansport, Ind., in 1878. He joined the army at the outbreak of war with Spain, served in Cuba, and later served in the Philippine islands from 1903 to 1905. He became a policeman at Lawton, Okla., after he was discharged.

 

Storm’s SIU:

Hi team: 

Busy this week making case law for us to report on later – two appellate briefs.  Check back next edition for more interesting cases. 

Scott
Scott D. Storm
[email protected]

 

Federal DMV… No Thanks, Imagine the Lives – Mass. Proposes Insurance on Drivers – 100 Years Ago:

The Eugene Guard
Eugene, Oregon
14 Apr 1923

Law for Automobiles

***

A Pennsylvania senator has introduced a bill to prohibit the sale of automobiles in that state that are geared for a speed of faster than 35 miles per hour. The purpose is laudable, but it is by no means certain the results would be all the author imagines. It might make for more recklessness than it curbed. The law that will be truly protective must have for its object the preventing of unqualified persons from operating automobiles. Is it impossible to draft such a measure?

 

Fleming’s Finest:

Hi Coverage Pointers Subscribers:

Depending on where you are, Spring may or may not have truly arrived. We enjoyed the beautiful weather over the weekend and took the dog golfing (he chases and retrieves the balls). If you wait too long before swinging, the crowd (dog) gets restless.

I mention golf because of the Masters (where the weather was most definitely not warm and sunny) and because this week’s case from the Supreme Court of North Dakota involved slander based on an incident that occurred during a golf tournament at a country club. The court held that a party who was not an insured could not invoke theories of waiver and estoppel to create personal coverage under an insurance policy to which he was not a party and had no right to enforce.

Catch you later,

Kate
Katherine A. Fleming
[email protected]

 

A Very Good Year for Men with an Odd Number of Arms – 100 Years Ago:

The Buffalo Commercial

Buffalo, New York

14 Apr 1923

513 ONE-ARMED MEN GET AUTO LICENSES

HARRISBURGH, Pa., April 14. (A.P.)—There are more one-arm automobile drivers in Pennsylvania this year than in 1922. The state highway department reported today that in the first three months of this year 513 special operator's licenses were issued to persons with one arm as compared with 426 during the same period in 1922.

The department report also showed a large increase in the registration of all motor vehicles for the same period this year as compared to last year.

 

Gestwick’s Greatest:

Dear Readers:

While the Buffalo Sabres were eliminated from playoff contention last night, the Buffalo Bandits remain strong in second place in the East with one game in hand over the first-pace Toronto Rock. In other news, our hometown minor league baseball team, the Buffalo Bisons, started play recently, just in time for the weather to start warming up. It’s supposed to be 74 degrees here on Friday!

This week, I have a case that discusses the duty to place an excess carrier on timely notice of a claim. There, American issued primary and excess policies to the general contractor and first subcontractor. Another carrier, Commercial, also issued excess policies to the general contractor and first subcontractor. While American set reserves in excess of its policies’ limits for the loss, it did not notify Commercial of the claim until after the underlying plaintiff already won on summary judgment in the underlying case. Commercial disclaimed coverage for the loss on the basis of untimely notice, arguing that the irrebuttable presumption of prejudice barred coverage. While the Court agreed with Commercial on the point of the irrebuttable presumption, the Court noted that even if the irrebuttable presumption did not apply, as American urged it did not, prejudice still would have been found since there were multiple valuations performed which implicated damages beyond the first layer of excess coverage.

That’s all for this week. Until next time, stay safe, and stay happy. No need to stay warm this time around, as Mother Nature is doing that for us.

Evan
Evan D. Gestwick
[email protected]

 

Don’t Take a Chance -- Insure Now! – 100 Years Ago:

Daily Gazette-Martinez
Martinez, California
14 Apr 1923

MISCELLANEOUS

 

AUTO ACCIDENTS are common. Why take a chance for trouble when you can get Liability Insurance in the Travelers of Hartford, Connecticut, at an average cost of $1.00 to $1.50 a month? Prices reduced March 15. First class protection at minimum cost Edson D. Hale, 724 Main Street, Insurance a Specialty.

 

On the Road with O’Shea:

Hi All,

Hope everybody is doing well. As I write I have two newfoundland dogs staring, or is it glaring, at me. Is this a subtle suggestion that they want to hit the road for a walk. Or do they simply want to smell the chicken wings in the smoker. I’m guessing the latter.

For this week’s edition I have a quick read from the Second Department addressing the standard to vacate an arbitrator’s award in the context of SUM arbitration. In a twist the petitioner appears to be a distant relative.

Cheers,

Ryan
Ryan P. O’Shea
[email protected]

 

Moron Is a Light-Handed Insult — Judge Insults His Victims via Light Sentence – 100 Years Ago:

The Buffalo Times
Buffalo, New York
14 Apr 1923

 

Chicago Moron Faced 85 Accusing Women

 

Special to The Buffalo TIMES.

CHICAGO. April 14.—Irvin Schoeffer, 22 years old, a moron; faced 85 women accusers in court when he appeared. All the women charged Schoeffer had tried to molest them.

Judge Jacobs sent the youth to an institution.

 

Louttit’s Legislative and Regulatory Roundup:

Dear Readers,

My name is Rob Louttit and I have taken over Coverage Pointer’s legislative and

regulatory column. By way of background, I have been a practicing attorney for more than twenty years, more than ten of which have been in insurance coverage litigation. 

This week’s article concerns a bill introduced in New York’s legislature to permit insurers, subject to certain exceptions, to provide insurance coverage for punitive damages. It has been the law in New York for almost 45 years that punitive damages are uninsurable. The bill is currently in the Committee on Insurance. However, if passed and signed into law, it will be interesting see which insurers will have an appetite to write this risk and the premium costs incurred by the insured’s seeking this coverage in order to protect themselves from the adverse financial and business consequences of punitive damages awards.

That is all for this week. Looking forward to updating our readers on other legislative news in the future! 

Rob
Robert P. Louttit
[email protected]

 

Golf Tips: How to Temper Your Temper and More! – 100 Years Ago:

Buffalo News
Buffalo, New York
14 Apr 1923

 

State Health Doctor Gives Golfers Advice
Eat Moderately, Keep Your Temper, And Don’t Rush Says Nicoll.

 

April 14—Anybody who can afford to play golf can afford to pay for an annual scientific medical examination and ought to do it, according to Dr. Matthias Nicoll, deputy state health commissioner and enthusiastic golfer mindful of the hazards of the game.  Dr. Nicoll undertook today to lay down a “few rules for elderly golfers which all of them will resent.  Here they are:

1. If your physician advises against golf, don’t play.

2. Don’t rush between holes. You won’t hold anyone up if you walk steadily at a moderate pace, and your game won’t suffer thereby.

3. Choose fairly level courses if possible and take hills slowly.

4. Take time to digest a light lunch. Heavy eating has nothing to recommend if except sociability.

5. Don’t continue the game if you feel dizzy, weak, or otherwise unfit.

6. Don’t lose your temper. It won’t help your game, your health, or the work of your caddy.

7. After your game and shower, protect yourself from drafts and winds.

8. If you must play in the rain, change into dry clothes after a shower and get a hard rubdown immediately after you come in.

9. During the offseason, a moderate amount of indoor golf is a valuable form of exercise and will keep you hopeful for an early spring.

 

North of the Border:

April sunshine and moderate temperatures won their battle with the snow …. Despite the occasional dusting of overnight snow, spring has arrived. Life is returning to the Prairies.

Spring is such a wonderful season. It remains a mystery to me how my perennials can survive the deep cold and snow and come back year after year. I’m just grateful that they do.

My column this week discusses a decision of the Ontario Court of Appeal that held that an insurer’s duty to defend under a policy that is subject to a retention is not triggered until the retention is exhausted. Until then, no duty to defend exists, even though there would be coverage under that policy for amounts in excess of the retention if and when the retention exhausts.

Heather
Heather A. Sanderson
Sanderson Law, Calgary, Alberta
[email protected]

 

Headlines from this week’s issue:

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

• One Need Not be Enrolled in Wrap-Up Policy for Wrap-Up Exclusion to Apply
• Question of Fact as to Timeliness of Disclaimer

 

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

• Subrogation Claim Based Upon Negligence Theory Dismissed by Economic Loss Doctrine

 

DISHING OUT SERIOUS INJURY THRESHOLD
Michael J. Dischley

• Plaintiff’s Expert Fails to Address Defendant Expert Opinion as to Plaintiff’s Degenerative Injury

 

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

• Eleventh Circuit Court of Appeals Finds that the Terms “Similar Coverage” are Unambiguous in CGL Policy and Thus Apply When Other Insurance Covers Similar Types of Risks, even if it Does Not Provide Similar Policy Limits (FL Law)

• Third Circuit Determines that Insured is Not Entitled to Coverage Based upon the Carrier’s Earlier Defense of Him in a Similar but Unrelated Suit (PA law)

 

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

• Summary Judgment Denied on Bad Faith Claim Due to Difference Between Amount Paid and Appraisal Award

   

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

• Virus Exclusion Defeats COVID-19 Claims

• COVID-19 Orders Suspended Suit Limitations Provision

• Advancement of Defense Costs Satisfied By Reimbursement to the Insured

   

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

• Court Holds the Ensuing Loss Exception to the Faulty Workmanship Exclusion Applied, as there was Collateral Damage to Separate Property

 

RYAN’S FEDERAL REPORTER
Ryan P. Maxwell
[email protected]

• Preliminary Injunction Enjoins Defaulted Medical Provider From Filing Further No-Fault Litigation During Litigation of Insurance Fraud Matter

• Counterclaims Dismissed Where No-Fault Medical Providers Impermissibly Sought to Act As Private Attorneys General

   

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

• On maternity leave

 

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

• See you in two weeks.

 

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

• No Ability To Create Coverage Through Waiver And Estoppel For Party Who Was Not An Insured And Had No Right To Enforce The Insurance Contract

 

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

• Where Valuation Suggests Damages Beyond Primary Limits, Excess Carrier Must be Notified of the Claim

 

ON the ROAD with O’SHEA
Ryan P. O’Shea
[email protected]

• O’Shea on O’Shea in a SUM Claim

 

LOUTTIT’S LEGISLATIVE and REGULATORY ROUNDUP
Robert P. Louttit
[email protected]

• The Assembly Introduced a Bill to Amend New York Insurance Law to Permit Certain Liability Policies to Provide Coverage For Punitive Damages and Civil Penalties

 

NORTH of the BORDER
Heather A. Sanderson
Sanderson Law, Calgary, Alberta
[email protected]

• The Ontario Court of Appeal has Held that an Insurer’s Duty to defend under a Liability Policy that is Subject to a Self-Insured Retention Does Not Arise until that Retention is Exhausted.

 

That’s all for now and there is no more, until April 28^th.

 

Dan

 

 

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

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

NEWSLETTER EDITOR
Dan D. Kohane
[email protected]

 

ASSOCIATE EDITOR
Agnes A. Wilewicz
[email protected]

 

COPY EDITOR
Evan D. Gestwick
[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 Federal Reporter

Rauh’s Ramblings

Storm’s SIU

Fleming’s Finest

Gestwick’s Greatest

On the Road with O’Shea

Loutitt’s Legislative and Regulatory Roundup

North of the Border

 

 

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

 

04/11/23       Skanska USA Building Inc. v. Harleysville Insurance Company
Appellate Division, First Department
One Need Not be Enrolled in Wrap-Up Policy for Wrap-Up Exclusion to Apply.  Question of Fact as to Timeliness of Disclaimer

A “wrap-up exclusion” in the Harleysville policy applied to preclude coverage to the plaintiff, an additional insured, in the underlying action. The exclusion provides that coverage "does not apply to 'bodily injury' . . . arising out of . . . your ongoing operations . . . when a consolidated (wrap-up) insurance program has been provided by the prime contractor/project manager or owner of the construction project in which you are involved." The policy defines "you" and "your" as "the Named Insured shown in the Declarations, and any other person or organization qualifying as a Named Insured under this policy." Thus, "you" and "your" refers to Fred Geller Electrical, Inc. (Geller), the named insured on the policy.

Because the underlying accident arose out of Geller's ongoing operations, and it is undisputed that a wrap-up insurance program had been provided for the construction project, the wrap-up exclusion was triggered, precluding coverage. Contrary to plaintiff's contention, Geller need not have actually enrolled in the wrap-up insurance program in order for the exclusion to apply.

However, a triable issue of fact exists as to whether defendant timely disclaimed coverage (see Insurance Law § 3420[d][2]). The timeliness of a disclaimer "generally presents a question of fact unless the basis for denying coverage was or should have been readily apparent before the onset of the delay". Plaintiff failed to show that the existence of the wrap-up insurance program was readily apparent to defendants. In any event, the insurers raised issues of fact regarding the necessity of an investigation and the reasonableness of the delay in denying coverage.

 

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

Potpourri

04/13/23       Cincinnati Ins. Co. v. Emerson Climate Tech, Inc.
Appellate Division, Third Department
Subrogation Claim Based Upon Negligence Theory Dismissed by Economic Loss Doctrine

Plaintiff brought this action in subrogation after it paid over $500,000 in damages related to the degradation of wine produced by its named insured.  The decision advises that Cincinnati’s insured, Owera, was required to keep wine product under 68 degrees during the course of production.  This was accomplished by operation of a glycol process chiller which was affixed to the tanks in which the wine was being fermented. 

When the chiller stopped operation due to a fire of a compressor, the temperature rose and, presumably, the quality of the wine was compromised.  This “damage” resulted in the wine being sold at a discounted price, and the difference between what was paid and what should have been paid was assumed by the policy issued by Cincinnati.

In subrogation, Cincinnati asserted a strict products liability claim against Emerson Climate Technologies who designed, manufactured and sold the compressor.  Emerson moved to dismiss the claims in January of 2022, and Co-Defendants Legacy and J&M (distributors of the chiller) filed similar motions in the following months.  All motions were granted by the trial court.

In affirming the trial court, the Appellate Division noted the “economic loss doctrine” prohibits a traditional tort claim sounding in strict products liability or negligence where “only economic loss” is claimed.  Under those circumstances, the aggrieved party may only avail itself of damages permitted under the contract of sale.  The loss of value of the wine was the only damage, and it was caused by the chiller’s “failure to perform.”  Thus, Cincinnati’s attempt to prosecute claims for negligence, alone, was barred and its action dismissed accordingly.

Peiper’s Point - Special recognition to our own Scott Kagen who successfully represented Legacy in this matter.  Well done, Scott. 

 

DISHING OUT SERIOUS INJURY THRESHOLD
Michael J. Dischley

 

04/05/23       Eric Barnes v. Roldan Paukar, et al.
Appellate Division, Second Department
Plaintiff’s Expert Fails to Address Defendant Expert Opinion as to Plaintiff’s Degenerative Injury

In an action to recover damages for personal injuries, the plaintiff appeals from an order of the Supreme Court, Suffolk County (Joseph A. Santorelli, J.), dated July 23, 2020. The order granted the defendants' motion for summary judgment dismissing the complaint on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident.

The plaintiff commenced this action to recover damages for personal injuries that he allegedly sustained in a motor vehicle accident. The defendants moved for summary judgment dismissing the complaint on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. In an order dated July 23, 2020, the Supreme Court granted the motion. The plaintiff appeals.

The defendants met their prima facie burden of demonstrating that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendants submitted competent medical evidence establishing, prima facie, that the alleged injuries to the cervical and lumbar regions of the plaintiff's spine and the plaintiff's left shoulder were degenerative in nature and not caused by the accident.

In opposition, the plaintiff failed to raise a triable issue of fact. The plaintiff's experts failed to address the findings of the defendants' radiologist that the alleged injuries to the cervical and lumbar regions of the plaintiff's spine and the plaintiff's left shoulder were degenerative in nature.

The plaintiff's remaining contentions are without merit. As such, the Order was affirmed without costs.

 

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

03/30/23       Southern-Owners Insurance Company v. Tasman Service LLC
United States Court of Appeals, Eleventh Circuit
Eleventh Circuit Court of Appeals Finds that the Terms “Similar Coverage” are Unambiguous in CGL Policy and Thus Apply When Other Insurance Covers Similar Types of Risks, even if it Does Not Provide Similar Policy Limits (FL Law)

Tasman purchased a commercial general liability policy from Southern-Owners, which excluded coverage for bodily injury and property damage arising out of the use of an automobile. Tasman also purchased a commercial general liability plus endorsement, which expanded coverage to include bodily injury and property damage arising out of the use of an automobile that Tasman does not own and is used in its business. The endorsement policy stated that coverage applied so long as Tasman “do[es] not have any other insurance available to [it] which affords the same or similar coverage.”

The policy limit was $1 million. In August 2016, Tasman employee Kasey Mitchell collided head-on with Baumgartner while driving a U-Haul truck leased to Tasman, causing Baumgartner to sustain severe and permanent injuries. At the time of the accident, Mitchell was insured under a GEICO insurance policy, which provided coverage for bodily injury and property damage arising out of her use of an automobile. The GEICO policy limit per occurrence was $20,000 for bodily injury, or $10,000 per person, and $25,000 for property damage. The U-Haul lease agreement also afforded Tasman and any authorized driver with “the minimum limits required by the . . . compulsory insurance law of the jurisdiction in which the accident occurs,” which in Florida was $20,000 for bodily injury, or $10,000 per person, and $10,000 for property damage.

When litigation ensued on the coverage determination, at issue was whether the policy language relative to “similar coverage” was potentially ambiguous. Ultimately, the Circuit Court said it was not. Considering Florida case law in detail, it ruled that it was actually unambiguous as a matter of law. While ambiguous policy provisions must be construed against the drafted, this only applies where there are terms that are subject to more than one reasonable interpretation. Here, there was only one reasonable interpretation. Thus, there was no ambiguity.

 

04/05/23       Carl Hemphill v. Landmark American Insurance Company
United States Court of Appeals, Third Circuit
Third Circuit Determines that Insured is Not Entitled to Coverage Based upon the Carrier’s Earlier Defense of Him in a Similar but Unrelated Suit (PA law)

Insured Carl Hemphill and MJC Labor provide temporary employee placement and visa application processing services to workers from Mexico and Central America. They had a miscellaneous professional liability policy with Landmark, covering claims “arising out of negligent acts, errors, or omissions” “in the rendering or failure to render … permanent and/or temporary placement services”.

In May 2018, former MJC client Jose Castillo filed an action against Hemphill (the Castillo Lawsuit), alleging violations of federal human trafficking, wage-and-hour, and unfair trade practices laws, as well as claims for breach of contract and unjust enrichment. Castillo alleged that he signed an employment contract with one of Hemphill’s companies providing a specific start date, hours of employment, wages, and job duties. He was issued an H-2B work visa in March 2015 and expected to leave for the United States immediately, but Hemphill delayed his employment for more than a month. When Castillo eventually arrived in the U.S., Hemphill and his wife confiscated his passport; housed him in conditions he described as “filthy,” overcrowded, and vermin-infested; 2 assigned him tasks outside the scope of his employment contract; and considerably underpaid him. In July, after Hemphill sent Castillo a series of hostile and threatening text messages when he did not report to work, Castillo contracted the National Human Trafficking Hotline and was connected with his current counsel. Hemphill then reported Castillo to the police, who charged him with trespassing and making terroristic threats. Castillo’s lawsuit followed.

Hemphill sought coverage for the Castillo lawsuit under his policy. The carrier denied coverage, including both defense and indemnification, on the grounds that the allegations arose out of intentional acts, rather than negligence. In the subsequent DJ action, Hemphill argued that he had a reasonable expectation of coverage because Landmark had defended him previously in a similar class action suit. However, this argument did not hold water and the Circuit Court ultimately held that he could not benefit from the reasonable expectations doctrine here. That doctrine is applicable in only very limited circumstances, the Court wrote, “to protect non-commercial insureds from policy terms not readily apparent and from insurer deception.” Here, the policy language was unambiguous and clear. There was no reasonable possibility of coverage for the intentional acts and allegations as a result.

 

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

 

04/10/23       Langley v. Allied Trust Ins. Co.
United States District Court, Western District of Louisiana
Summary Judgment Denied on Bad Faith Claim Due to Difference Between Amount Paid and Appraisal Award

Plaintiffs’ residence in Lake Charles, Louisiana was allegedly damaged by Hurricane Laura and Hurricane Delta.  Plaintiffs alleged that the property was insured at all relevant times under a homeowner's insurance policy issued by Allied, and that Allied failed to timely or adequately compensate them for covered losses. Accordingly, they filed suit on October 14, 2021, raising claims of breach of contract and bad faith under Louisiana law. 

Allied filed a motion for summary judgment seeking to dismiss the bad faith claims.  Under Louisiana law, an insured may prevail on a bad faith claim where it shows (1) the insurer received satisfactory proof of loss; (2) the insurer failed to tender payment within 30 days of receiving this proof; and (3) the insurer's failure to pay is “arbitrary, capricious, or without probable cause.  Penalties may also be awarded when an insurer fails to pay within 60 days and that failure is arbitrary, capricious, or without probable cause.

Allied argued that there was no basis for finding bad faith because it remitted the full amount of its independent field adjuster's estimate within 30 days of receiving its report.  After plaintiffs submitted their own adjuster report, Allied invoked appraisal within 30 days and then timely tendered the additional payments decided through that process. As plaintiffs note, however, the RCV of Coverage A damages in the appraisal award was over three times the RCV of Coverage A damages determined by Allied's adjuster—an increase from $48,425.50 to $163,782.65.  As a result of the appraisal process Allied also paid an additional $4,200 under Coverage D, an increase of over 200 percent. 

The court found that the increases between the appraisal award and Allied’s original adjustment raised an issue of fact regarding whether the original adjustment was conducted in good faith and whether Allied could have reasonably relied on the numbers its own retained adjusters supplied.  Accordingly, Allied’s motion for summary judgment on the bad faith claim was denied. 

 

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

 

04/05/23       Kennedy Hodges & Associates Ltd. v. Twin City Fire Ins. Co.
United States District Court, District of Connecticut
Virus Exclusion Defeats COVID-19 Claims

In what has become a ho-hum occurrence, yet another COVID-19 business income case was resolved in favor of the carrier. Here, the court applied the virus exclusion to preclude coverage for a Texas real estate holding company. “The court agrees with Twin City. Even accepting (without so deciding) that the loss of use of a property satisfies the “physical loss” requirement of the Policy, the plain language of the Virus Exclusion clearly shows that Plaintiffs’ claimed losses are excluded from coverage….”

The court also rejected the insured’s theory that the virus exclusion defeated its reasonable expectations of coverage. The crux of the argument was that the exclusion improperly imposed an anti-concurrent causation provision. Normally, a default interpretative rule used by courts provides that where a loss results from two independent causes, one of which is covered by a policy and one of which is not, the policyholder is entitled to insurance benefits. The court held that there is no authority prohibiting insurers from contracting away the default rule and applying an anti-concurrent causation clause.

 

03/31/23       French v. Vocasek
Superior Court of Connecticut, New Haven
COVID-19 Orders Suspended Suit Limitations Provision

French sued Vocasek for negligence following their auto accident. Later, French determined that Vocasek was uninsured and looked to add her UM/UIM carrier, Allstate, to the suit but COVID-19 got in the way. Connecticut Executive Order No. 7G suspended all statutes of limitations. When the courts reopened and new filings allowed, French moved to cite in Allstate, but the carrier moved to dismiss arguing that the attempt was outside the policy’s 3-year suit limitations provision. The court concluded that the Governor’s executive order also impacted private contracts, especially heavily regulated private insurance contracts. The court wrote that, “The ability of the State to limit restrictions imposed by private contracts in the event of an emergency, such as a pandemic, is particularly strong when the party drafting the contract is already subject to state regulatory power.”

Of note, this opinion conflicts with Sultana v. Ahmed, No. CV18-6083866 (N.H.J.D September 1, 2022) (Order No. 112.20), which, on an unopposed motion, granted the carrier summary judgment without an opinion.

 

03/29/23       Connecticut Mun. Elec. Energy Coop. v. Nat'l Union Fire Ins.
United States District Court, District of Connecticut
Advancement of Defense Costs Satisfied by Reimbursement to the Insured

AIG, the court held, satisfied its obligations under a D&O policy to “advance” defense fees by reimbursing the insured’s payment of fees on behalf of its directors and officers.

Following a finding of coverage, CMEEC then moved for a declaration that AIG is obligated to advance fees directly to the indemnified insureds’ defense counsel on CMEEC's behalf and may not force CMEEC to pay defense costs first and then have AIG review invoices and reimburse at its discretion. In each grant of D&O coverage, the following provision appears: “The Insurer shall, in accordance with and subject to Clause 5 of this Coverage Section, advance Defense Costs of such Claim prior to its final disposition.”

CMEEC argued that the D&O policy's advancement provision requires the insurer to make contemporaneous advancement payments as costs are incurred. However, the court held that CMEEC did not show that AIG’s prompt reimbursement of reasonable defenses to it was inconsistent with the insurer’s obligations. “Apart from what National Union's obligation is, CMEEC still has an obligation to indemnify its officers and directors. As such, the appropriate understanding of National Union's advancement obligation is that National Union is required to contemporaneously advance defense costs to CMEEC in reimbursement of the bills CMEEC is paying for the insureds’ criminal defense prior to final disposition of these criminal cases.”

The court also affirmed AIG’s rights to review legal bills for reasonableness and necessity. “But if a bill from defense counsel is in fact not “reasonable or necessary,” it is not a “Loss” under the Policy (Policy at 12, 30), and National Union would have no obligation to reimburse CMEEC.”

 

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

 

03/17/23       Ewald v. Erie Ins. Co. of NY
Supreme Court of New York, Appellate Division, Fourth Department
Court Holds the Ensuing Loss Exception to the Faulty Workmanship Exclusion Applied, as there was Collateral Damage to Separate Property

The insureds owned a two-story house covered by an all-risk homeowner’s insurance policy issued by the insurer. The insureds hired contractors to perform a remodeling project of a bathroom in the home, including construction of a walk-in shower. After the contractors had stopped working, the insureds noticed significant amounts of water flowing through the house, causing extensive water damage. An inspection revealed the loss was due to the failure of a connection between different types of plumbing behind the renovated shower due to the contractor’s use of incorrect adhesion materials and methods.

As a result of the investigation, the insurer denied plaintiff’s insurance claim in its entirety based on policy exclusions, including the faulty workmanship exclusion. The insureds commenced this action seeking a declaration that the insurer breached the insurance contract because, contrary to the reasoning in the coverage denial, the plaintiffs argue that the ensuing loss exception to the faulty workmanship exclusion applied to provide coverage for the loss. The supreme court denied the plaintiff’s motion, and, on appeal, the plaintiffs contend that the damage is covered under the ensuing loss exception to the faulty workmanship exclusion.

The court explained that, although the insurer has the burden of proving the applicability of an exclusion, it is the insured’s burden to establish the existence of coverage. Therefore, where the existence of coverage depends on the applicability of an exception to the exclusion, the insured has the duty of demonstrating that it has been satisfied. In this case, the ensuing loss provision of the policy provides coverage when, as a result of an excluded peril, a covered peril arises and causes damage. Courts have sought to assure that the exception does not supersede the exclusion by disallowing coverage for ensuing loss directly related to the original excluded risk. Therefore, the ensuing loss exception at least requires a new loss to property that is of a kind not excluded by the policy.

In this case, the plaintiffs established that they sustained direct physical loss to property insured under the policy in the form of extensive water damage to their house for which the defendant would be obligated to pay unless the loss was excluded elsewhere under the policy. In seeking to establish coverage, the plaintiffs relied on the ensuing loss exception to the faulty workmanship exclusion, which provides that any ensuing loss not excluded is covered. The record establishes that the contractors performed defective work on the plumbing system, which resulted in the discharge of water from the plumbing that travelled throughout the house and caused extensive water damage. The court held that the ensuing loss exception applied to provide coverage for the water damage throughout the house, because the excluded peril of faulty workmanship resulted in collateral and subsequent damage to property wholly separate from the defective property itself. In other words, plaintiffs’ claim was covered under the ensuing loss exception because, as a result of an excluded peril of faulty workmanship, a covered peril of water damage arose and caused other harm to separate property. The plaintiffs did not seek coverage for fixing or repairing the defective plumbing, but rather for the extensive damage that ensued elsewhere in the house as a result of the discharge of water from the plumbing system. As such, the court concluded that the plaintiffs’ claim for water damage was covered under the policy.

 

RYAN’S FEDERAL REPORTER
Ryan P. Maxwell
[email protected]

03/31/23       GEICO v. Tenenbaum
United States District Court, Eastern District of New York
Preliminary Injunction Enjoins Defaulted Medical Provider from Filing Further No-Fault Litigation During Litigation of Insurance Fraud Matter

In this suit (which is one of many related suits), GEICO seeks relief from various defendants for hundreds of thousands of dollars in no-fault insurance claims that it alleges were fraudulently submitted by or on behalf of a medical provider.

This decision involves a motion for an injunctive order because “both LCC and its purported owner, Tenenbaum, are currently in default in this action ... but, nonetheless, ... LCC is still actively pursuing collection on the fraudulent claims against GEICO.” The collections are proceeding before the American Arbitration Association (“AAA”).

“In order to justify a preliminary injunction [under Fed. R. Civ. P. Rule 65], a movant must demonstrate (1) irreparable harm absent injunctive relief; and (2) either a likelihood of success on the merits, or a serious question going to the merits to make them a fair ground for trial, with a balance of hardships tipping decidedly in the plaintiff's favor....” The court stressed that “[t]he showing of irreparable harm is [p]erhaps the single most important prerequisite for the issuance of a preliminary injunction, and the moving party must show that injury is likely before the other requirements for an injunction will be considered.”

Notably, the court found that “the question of whether a federal district court has the power to stay and enjoin private arbitration proceedings when there is a valid agreement to arbitrate is an open one in the Second Circuit.” However, other courts in the district had “consistently concluded that they have the authority to stay and enjoin no-fault collection arbitrations in similar cases, notwithstanding the Federal Arbitration Act,” and this court concurred.

Finding the requested relief warranted, the court concluded that irreparable harm occurs where “an insurer is required to waste time defending numerous no-fault actions when those same proceedings could be resolved globally in a single, pending declaratory judgment action.” Additionally, the court found that “money damages are unlikely to provide adequate compensation because the record suggests that [medical provider] is structured to be judgment proof.” It was also determined that GEICO has established “a likelihood of success on the merits by detailing ‘a complicated scheme of alleged fraudulent activity,’ . . . supported by multiple specific examples of alleged fraud.” Due to the medical provider’s default, GEICO was found with “a strong likelihood of success on the merits.”

Finally, in its discretion under Fed. R. Civ. P. Rule 65, the court waived any bond requirement because “the preliminary injunction will not prejudice defendant LCC and this case involves the enforcement of public interests . . ..”

 

03/29/23       GEICO v. Landow
United States District Court, Eastern District of New York
Counterclaims Dismissed Where No-Fault Medical Providers Impermissibly Sought to Act as Private Attorneys General

This matter involves several defendants who are medical providers that “treat patients based on the patients’ representation that they have been injured in motor vehicle accidents” under Article 51 of the Insurance Law (New York State No-Fault).

In this action, GEICO alleges that the defendants perpetrated a scheme that defrauded GEICO in violation of RICO by submitting thousands of fraudulent bills for no-fault insurance charges, as well as common law fraud and unjust enrichment. In response, the medical provider defendants filed counterclaims, of which GEICO moved to dismiss several.

New York no-fault law requires that available benefits be paid “as the loss is incurred” and designates those benefits as “overdue if not paid within thirty days after the claimant supplies proof of the fact and amount of loss sustained.” Regulations were also promulgated, which include certain “claim practices principles” such as the “basic goal [is] the prompt and fair payment to all automobile accident victims.”

Two specific provisions of the claim practices principles are at issue in the first counterclaim at issue: (1) that “insurance carriers [ ] assist the applicant in the processing of a claim,” and “not treat the applicant as an adversary,” and (2) that insurance carriers should not “demand verification of facts unless there are good reasons to do so.” The medical provider defendants allege that GEICO has “been often found to violate these principles” and lists “dozens” of determinations by AAA arbitrators that have found “that GEICO's [examination under oath (“EUO”)] demands and Post-EUO verification requests are improper within the context of the claims verification process.” It is further alleged that “GEICO treats ‘each and every medical provider’ who submits a claim as an adversary and demand significant, burdensome verification of each and every claim submitted by a medical provider, in violation of the NY Insurance Law and corresponding regulations.” It is further alleged that GEICO pursued “a ‘plan’ and ‘policy’ . . .  over several years, to ‘coerce medical providers to walk away from their receivables’ through a combination of verification of claim requests made only for pretextual reasons, preparing investigative files on each and every medical provider by making excessive and oppressive verification requests and initiating affirmative litigation.”

In their second counterclaim, it is alleged that GEICO has “subjected [the medical provider defendants] to ‘countless EUOs’ while failing to maintain objective standards for their use of EUO requests, effectively using these EUO requests as (1) ‘a means to create an artificial delay of [the medical providers] statutory time to determine claims,’ . . .  (2) a mechanism for creating investigative files on each and every medical provider submitting claims . . . , (3) ‘a means to intimidate’ . . . , and (4) a means to prepare affirmative litigation and coerce the [medical provider defendants] into walking away from outstanding and future claims, . . . all in violation of [the regulatory] requirement that they make EUO requests based on “the application of objective standards [so] that there is a specific objective justification supporting the use of such examination.” (id. ¶ 617.)

The court found both counterclaims deficient under the federal pleading standards, as mere conclusory recitations of the no-fault statutory and regulatory provisions cited. However, more interestingly for our purposes, was the court’s discussion of the lack of a private cause of action on the grounds cited by the providers altogether.

“As a general matter, there is no express or implied private right of action available to an insured party seeking to challenge an insurer's overall compliance with the New York Insurance Law or its corresponding regulations.” Although a right of action may be implied under certain circumstances, those circumstances are not met here. Specifically, courts looking at this issue will ask:

(1)whether the plaintiff is one of the class for whose particular benefit the statute was enacted;

(2)whether recognition of a private right of action would promote the legislative purpose; and

(3)whether creation of such a right would be consistent with the legislative scheme.

“Here, although the putative counterclaimants are members of a class for whose particular benefit the statute was enacted (medical providers), the New York Court of Appeals has been clear in its position that ‘the statutory scheme evinces the legislature’s intent that DFS be the primary enforcer of the Insurance Law and corresponding regulations.’”

The court cites limited circumstances where a private right of action has been implied in the insurance law, including in the context of New York’s “prompt pay law” and, more similar to the issues here, “no-fault regulations with regard to [the party’s] own specifically pleaded insurance claims.” However, “there is no indication that the regulatory framework provides an opportunity for private litigants to bring general claims for declarations that the insurers are ‘bad actors,’ or consistent violators of the insurance regulations, nor that such an opportunity would be consistent with the regulatory scheme.” In distinguishing the caselaw cited by the medical provider defendants, the court separates claims involving broad violations of the regulations, generally, and specific violations in the context of a particular claim:

“[The cases cited involve] narrow questions about whether the insurers violated the applicable regulations with regard to a specific claim or set of claims, which would otherwise have been better left to the insurance commissioner, were properly before the court when they were specifically raised in defense by the medical provider and sufficiently adjunct to alleged breaches of policy contracts.

These cases reflect the well-settled conclusion that enactment of the legislative framework in question did not preempt the longstanding tradition of common law breach of contract claims, and thus that such claims may still be brought.  They also reflect a willingness by New York State courts to adjudicate individual claims under this regulation.  But no such specific claims have been brought here.  And there is no evidence the legislature contemplated a scheme whereby individual defendant could act as enforcers of the legislative framework vis-à-vis insurers’ general practices.”

Accordingly, the court found no private right of action was alleged in the counterclaims, which served as an independent basis for dismissal.

 

 

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

On maternity leave.

 

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

Busy this week making case law for us to report on later – two appellate briefs.  Check back next edition for more interesting cases. 

 

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

 

03/31/23       Secura Supreme Ins. Co. v. Differding
North Dakota Supreme Court
No Ability to Create Coverage Through Waiver and Estoppel for Party who Was not an Insured and Had no Right to Enforce the Insurance Contract

Aaron Greterman sued Oxbow Golf and Country Club, Inc., some of its board members, both in their official and individual capacities, as well as an individual named David Campbell. Greterman claimed slander based on an incident that occurred during a golf tournament at the country club. His initial complaint did not name Scott Differding, who was an Oxbow board member. Secura Supreme Insurance Company insured Oxbow under a commercial general liability policy (“the CGL policy”). The CGL policy’s coverage extends to the directors, “but only with respect to their duties as . . . officers or directors.” Secura issued a letter to the Oxbow Board of Directors stating it would provide a defense, but Secura specifically reserved its right to deny coverage based on certain provisions in the CGL policy. The letter advised the board members that “[i]f you have coverage available to you under any other insurance policy, it is suggested that you report this matter to the other company so as not to invalidate the coverage.”

Greterman later amended his complaint. The amended complaint listed Differding both individually and in his official capacity as an Oxbow board member. Secura retained an attorney to represent Oxbow and the board members. The representation was not limited to the board members’ official capacities. The case proceeded to trial. On the eighth day of trial, Secura issued another reservation of rights letter. This letter was addressed to both the Oxbow Board of Directors as well as the individual board members. It is similar to the first letter and sets out the same reservations. The jury returned a special verdict on the tenth day of trial finding Greterman was slandered and attributing fault to the defendants in various percentages. The district court entered judgment against Oxbow for $432,257.82 and against Differding individually for $540,320.18, including post-judgment interest against both. Secura satisfied the judgment against Oxbow. Nationwide Insurance, which insured Differding under a homeowner’s policy, satisfied the judgment against him.

Secura brought this action seeking a declaratory judgment that it is not obligated to indemnify Differding for his individual liability. Secura sought an alternative declaration that if it was liable, Cincinnati Insurance Company, which provided Oxbow with an officer’s and director’s insurance policy, is responsible for any amounts in excess of the $1 million CGL policy limit. Differding and Nationwide counterclaimed arguing Secura was barred from denying coverage based on waiver and estoppel. The parties filed cross-motions for summary judgment. The district court ruled in favor of Differding, Nationwide, and the Cincinnati Insurance Company, holding that Secura provided Differding’s defense, did not properly reserve its right to deny coverage to Differding, waived its right to deny coverage, and was equitably estopped from denying coverage.

On appeal, the North Dakota Supreme Court reversed, holding that Differding could not invoke waiver and estoppel to create personal coverage under an insurance policy to which he was not a party and had no right to enforce. Waiver and estoppel cannot be used to create coverage. Differding asked the court to adopt an exception to the general rule for cases where an insurance company has provided a defense without reserving its right to deny coverage; however, the court did not need to address the argument because Differding was not an insured in the first place and had no right to enforce the contract.

 

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

 

04/05/23       Am. Emp. Surplus Lines Ins. Co. v. Comm. & Ind. Ins. Co. et al.
Supreme Court of the State of New York, County of New York
Where Valuation Suggests Damages Beyond Primary Limits, Excess Carrier Must be Notified of the Claim

The owner of a construction site in the Bronx contracted with Advanced Carpentry Construction in connection with the project. Advanced then subcontracted with M&A. American Empire Surplus Lines Insurance Company issued commercial general liability policies to both Advanced and M&A in connection with the work being performed, each with limits of $1,000,000 per occurrence. American also issued excess policies to Advanced and M&A, also with limits of $1,000,000 each. Commercial & Industry Insurance Company also issued excess policies to both Advanced and M&A, both with limits of $10,000,000 per occurrence. The underlying plaintiff, an employee of the company with which M&A sub-subcontracted for a portion of the work, was awarded summary judgment in the underlying action in excess of the limits of the policies issued by American. American then brought this declaratory judgment action, seeking a declaration that the policies issued by Commercial sit above those issued by American, that Commercial is obligated to defend and indemnify Advanced and M&A with respect to the underlying action, and that Commercial must reimburse American for past defense costs.

Commercial disclaimed coverage for the underlying action on the grounds that it was given untimely notice of the occurrence and of the underlying action. Commercial proved that it did not receive its first notice of the claim until after the underlying plaintiff already secured a summary judgment ruling in his favor on the issue of liability in the underlying action. As a result, Commercial contended that it was prejudiced by this untimely notice, as is required by Insurance Law 3420(a)(5). Specifically, Commercial argued that the irrebuttable presumption of prejudice applied to this case, since the insured’s liability was determined prior to the giving of notice.

New York Insurance Law 3420(c)(2)(B) provides:

. . . an irrebuttable presumption of prejudice shall apply if, prior to notice, the insured’s liability has been determined by a court of competent jurisdiction or by binding arbitration; or if the insured has resolved the claim or suit by settlement or other compromise.

The Court agreed with Commercial in that the irrebuttable presumption of prejudice applied in this instance, since Commercial was not given notice until after liability was already determined in the underlying action. However, the Court also noted that, even if the irrebuttable presumption did not apply, in which case Insurance Law 3420(a)(5) would control, Commercial would still be deemed to have been prejudiced by the late notice, since there were multiple valuations of damages performed in the underlying action that implied that damages reasonably could be in excess of primary policy limits, thereby implicating Commercial’s policies. Additionally, the Court noted that American had set reserves in excess of the limits of its policy for the claim well before providing Commercial with any sort of notice, as an additional reason why notice was untimely in this instance.

The key takeaway from this case is this: as soon as it becomes reasonably clear that damages are going to exceed primary policy limits, and implicate an excess policy, the excess carrier needs to be placed on notice. Waiting until a judgment is rendered, even if it is only on liability and not on damages, is much too late.

 

ON the ROAD with O’SHEA
Ryan P. O’Shea
[email protected]

 

04/12/23        O’Shea v. Allstate Ins. Co.
Appellate Division, Second Department
O’Shea on O’Shea in a SUM Claim

In this minimalist decision from the Second Department, the court addresses the standard to vacate an arbitration award under Article 75 of the CPLR.

Ms. O’Shea sought supplementary underinsured motorist (SUM) benefits from Allstate. Allstate denied her claim and Ms. O’Shea filed for SUM arbitration under Article 75 and the arbitrator agreed to deny her SUM benefits. Ms. O’Shea then filed a petition to vacate the arbitrator’s denial. The Supreme Court denied her petition and confirmed the arbitration award. Ms. O’Shea appealed.

The Second Department simply announced the standard that to be upheld, an award in a compulsory arbitration proceeding there must have been evidentiary support and cannot be arbitrary and capricious. Without listing the evidence, the Second Department affirmed the Supreme Court’s decision finding it properly denied the petition to vacate the arbitration award and confirmed the arbitration award denying SUM benefits.

 

LOUTTIT’S LEGISLATIVE and REGULATORY ROUNDUP
Robert P. Louttit
[email protected]

 

01/22/23 Legislative List
The Assembly Introduced a Bill to Amend New York Insurance Law to Permit Certain Liability Policies to Provide Coverage for Punitive Damages and Civil Penalties

On January 11, 2023, the New York Legislature introduced bill number A654. The purpose of the bill is to allow insurance coverage for punitive damages. If it becomes law, New York Insurers would be permitted to sell insurance that would cover an insurer for claims of punitive damages, which, in 1979, New Yor’s Court of Appeals determined that such damages are not insurable as they are designed to punish the wrongdoer and deter misbehavior. See Hartford v. Village of Hempstead (48 N.Y. 2d 218).

According to the Sponsor Memorandum,

“This policy set by the judiciary over thirty-five years ago has not been reconsidered despite the national trend. This legislation seeks to fix an antiquated policy and align New York State with the rest of the nation.

Today, insurance producers and insurers sell punitive damage insurance on a regular yet selective basis in almost every state. They do so because insureds desire to protect themselves from the adverse financial and business consequences of punitive damages awards, particularly when those awards arise out of strict liability or vicarious liability.”

To accomplish this, Insurance Law §3422 would be amended by adding a new section 3422 to read as follows:

§3422

Punitive damages and civil penalties coverage.

1. An insurer may provide, and an insured may purchase insurance against an award of punitive damages, or civil penalties, or other non-compensatory damages in any liability insurance policy except in a policy of personal lines insurance issued to a natural person for non-business purposes, or a commercial automobile liability insurance policy.

2. Coverage may provide protection for vicarious liability resulting from the conduct of another, or when assessed against a party directly for gross negligence or reckless conduct.Coverage shall not apply where liability results from action that was intended to cause the resulting harm, damage or injury.Coverage shall apply only when expressly provided for by the insurance policy.

3. This section shall apply prospectively to insurance policies with effective dates on or after the effective dates of this section.

The bill was referred to the Committee on Insurance where it currently resides.

 

NORTH of the BORDER
Heather A. Sanderson
Sanderson Law, Calgary, Alberta
[email protected]

 

03/15/23       His Majesty the King in Right of Ontario v. St. Paul Fire & Marine Insurance Company

2023 ONCA 173, Ontario Court of Appeal

The Ontario Court of Appeal has Held that an Insurer’s Duty to Defend Under a Liability Policy that is Subject to a Self-Insured Retention Does Not Arise until that Retention is Exhausted.

The Ontario Court of Appeal released its decision in the appeal from the November 25, 2021, decision of Justice Jasmine T. Akbarali on March 15, 2023. This decision is full of useful nuggets for the coverage lawyer.

On June 29, 2017, a proposed $300,000,000 class action claim was commenced against the Province of Ontario arising from delays in the operation of Ontario’s bail release system. In this underlying action the representative plaintiff sought damages based on alleged negligence, breach of fiduciary duties, and breaches of the Canadian Charter of Rights and Freedoms, on behalf of persons who, between January 1, 2000, and “the present”, were arrested and then detained for more than 24 hours prior to receiving a bail hearing.

Section 503(1) of the Canadian Criminal Code, R.S.C. 1985, c. C-46 requires an arresting officer to:

“cause the [arrested] person to be taken before a justice to be dealt with according to law” without unreasonable delay, and in any event “within a period of 24 hours”, unless a justice is not available within that period, in which case the appearance is to occur “as soon as possible”. If this section is not complied with, the detention has not been administered according to law.”

The claims that were made in the underlying action were punctuated by pleadings that Ontario intentionally under-resourced the bail system and pursued policies that would increase the number of persons in remand, knowing that this would result in unnecessary detention, causing significant harm to class members, including loss of income and employment, dislocation from family and friends, and physical and psychological harms.

St. Paul issued two liability policies to Ontario. The first policy was a ‘first dollar’ manuscript policy, titled Comprehensive General and Road Liability Policy, that covered occurrences up to $20 million; the second was a policy offering $15 million per occurrence over a retention of $5 million (described as the Ultimate Net Loss).

Ontario retained its Crown Law Office – Civil, a branch of the Ministry of the Attorney General, to defend the underlying action and kept St. Paul apprised of the progress of the litigation. In its Statement of Defence Ontario resisted liability, in part on the basis that its policy decisions are not justiciable or actionable. Two years after the claim was filed, the class action was denied certification.[1] By then, Ontario had expended $300,000 in legal costs. Concurrent with the denial of certification, St. Paul advised that there was no insurance coverage for the claim.

The applications judge who heard this matter at first instance agreed with St. Paul that there was no duty to defend under the policies in issue.

The duty to defend under liability policies in common law Canada is determined by a “possibility of coverage test”. The question is whether there is any possibility, based upon a reasonable reading of the policy, that a claim falls within the liability coverage such that there could be coverage.  If the answer is “yes”, then that insurer has a duty to defend the insured against that claim.  Under this pleadings rule, a court may look only to the provisions of the policy and to the pleadings in the underlying action to determine whether the insurer has a duty to defend the insured.  This rule, which ordinarily prevents courts from considering other “extrinsic evidence”, is intended to encourage expedition and to discourage factual findings that could prejudice the underlying action.  However, there is an exception to the pleadings rule that permits courts to consider extrinsic evidence that is explicitly referred to in the pleadings in the underlying action. 

In this case it was argued on appeal that the applications judge erred in applying the extrinsic evidence rule. The Court of Appeal held that several reports critical of Ontario’s bail release system that the application judge considered fall within the extrinsic evidence exception, since they were referred to in the pleadings in the underlying action. Moreover, the application judge cited these documents without making factual findings, while listing multiple passages from the pleadings that supported her characterization of the true nature of the underlying claim. The Court concluded, “she used this extrinsic evidence without violating the pleadings rule, and without creating any of the mischief the pleadings rule is intended to prevent.”

Ontario argued that the “neither expected nor intended from the standpoint of the Insured” phrase in the intentional bodily injury exclusion nullifies the coverage that Ontario bought and paid for. The Court of Appeal disagreed stating that there is a distinction between “the intention to cause injury itself … and the intention to commit the act that causes the injury”. Construed reasonably, the policy provides coverage for the fortuitous, unintended or unexpected consequences of covered intentional acts.

To my mind the most important aspect of this decision lies in its finding with respect to Ontario’s second liability policy. In reasoning that is too detailed to summarize here, the Court of Appeal held that the Applications Judge failed to appreciate that the second liability policy was independent of the other policy.  The second policy contained different definitions, coverages and exclusions. The Court of Appeal found that the claims would be covered under the second policy if it had been triggered. However, the Court of Appeal held that:

…under the Second Policy, Ontario must bear the costs of what it is obligated to pay as the result of the underlying action, including defence costs, up to $5,000,000, before the duty to defend arises …”

In this case the duty to defend had not been triggered as only $300,000 was expended on the defence.  Until the retention is exhausted, no duty to defend exists, even though there would be coverage under that policy for amounts in excess of the retention if and when the retention exhausts.

On this basis, even though the Applications Judge erred in considering the coverage offered under the second policy, that Court was correct in its conclusion that St. Paul was not obligated to defend Ontario under either policy.