Coverage Pointers - Volume XXIV, No. 23

Volume XXIV, No. 23 (No. 644)
Friday, April 28, 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.

Risk Transfer – Zoom Presentation – Thursday, June 22, 2023, 1:30 PM Eastern.

Final opportunity to sign up. Practical advice on handling additional insured and contractual liability risk transfer.  John Trimble and I have now scheduled five classes with over 425 people registered.  This is the final class scheduled, and we have 32/100 spaces available for our 90-minute Zoom presentation on Risk Transfer.  Interested?  Send me an email at [email protected].

Today, Friday, I will be joining my good friend, Heather Sanderson, in Toronto for the Canadian Defence Lawyers annual insurance symposium. I am a proud member of that organization.  I’ll be on a panel discussing insurance coverage for abuse cases, comparing the Canadian experience with the issues we face on this side of the border.

I am just back from the Association of Defense Trial Attorneys meeting in Charleston, South Carolina.  What a great meeting and what a great town. On only one occasion, after this event, when my wife Chris and I were walking back to the hotel, was I mistaken for Albert Einstein (a stranger stopped to ask if I taught physics).

Law360 Article on Child Victims Legislation in MD

With the State of Maryland adopting its version of the Child Victims Act, Law360 wrote about the insurance implications of abuse claims, often dating back decades. I was interviewed for the article, spoke about the impact of Child Victim legislation on insurance carriers and self-insured, uninsured, and underinsured institutional defendants, including school districts, who face the potential of extraordinary verdicts that can impact their viability and existence. Click here for the article.

 

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.

   

Liening Tower of Perley:

If I look out my office window, cloud cover is breaking, blue skies have appeared, and the sun will eventually dominate the sky.  Perhaps the same is true for no-fault carriers in New York State based upon the Second Circuit’s Decision in MSP Recovery v. Hereford Insurance Company, in which I was honored to participate. 

For years, organizations like MSP have been a thorn in the side of no-fault carriers seeking double damages for medical payments made by MAOs from whom they have obtained assignments.  The link between the Recovery Claim and the no-fault carriers has always been tenuous at best.  In fact, the no-fault carriers with whom our firm has worked have been surprised, even blindsided, by claims that they owed medical bills, even when the eligible injured person had never made a claim.  The sole basis of these lawsuits rests upon reporting by the no-fault carrier that they have received a general claim from a Medicare beneficiary.  In order to avoid a $1,000.00 per day penalty, the no-fault carriers immediately advised CMS that a potential claim existed.  MSP and others have sought to impose strict liability on no-fault carriers on any payments related to the automobile accident by assembling groups of Medicare beneficiaries, creating a punitive class action in attempting to bludgeon no-fault carriers into a settlement.  Fortunately, the Second Circuit in Hereford has held that their theory of liability is legally insufficient.  Specifically, the Second Circuit noted that the mere filing with CMS is nothing more than notice and does not create a strict liability.  If any of our readers find themselves in this situation, feel free to call me and work through what now should be a very effective defense. 

Mike
Michael F. Perley
[email protected]

 

Kiss Me (Unfaithfully) Through The Phone – 100 Years Ago:

The Buffalo Times
Buffalo, New York
28 Apr 1923

Kisses by ’Phone Amused a Butler

Special to The Buffalo TIMES

New York. April 28.—John Phillips, a coal miner, near Wilkes Barre, Pennsylvania, who was employed as a Butler by Albert H. Atha, wealthy and socially prominent, during 1914-15, testified at New York, in Atha’s suit for divorce, in which Dr. Lawrence Dias, Newark physician, is named correspondent.

Phillips swore he “listened in” the telephone conversation between Mrs. Atha and Dr. Dias in which telephonic kisses often furnished most of the conversation.

“I heard Diaz throwing kisses on the wire to Mrs. Atha” Phillips declared and then “I heard the physician say to her did you get them all?” Then she threw them back at Dr. Dias.

“She threw her kisses back so fast that Dias said to her ‘wait a minute they’re coming so fast that I can’t catch them all.’”

On cross examination Phillips was asked why he had listened in so often. “Because I enjoyed the kisses,” he replied. Atha took the stand and on cross-examination was asked why he had been blind to the alleged indiscretions of his wife with Dias.

“I don’t deny that I was a fool in the whole thing,” he answered. Admitting paying $140 to Ernest Mass, another former butler, who testified for him Wednesday. He said he. Had given small amounts to other witnesses but they were gifts unassociated with the case.

 

Peiper on Property (and Potpourri):

For those of you who have been with us for the long haul, you may recall that this space occasionally looks at what the “National Day” is for that particular publication date.  Having little by way of interesting thought or inspiration on this fine day, I decided to go back to my roots and report on the important things recognized on April 27th. 

As it turns out, there’s quite a lot to discuss.  Recognizing that most of you will read this on Friday, April 28th, let me tell you what you’ve missed out on.   April 27th marks National Gummy Bear Day, National Devil Dog Day, National Prime Rib Day, and, perhaps not coincidentally, National Babe Ruth Day.  Now, I don’t have anything really negative to say about Gummy Bears, and I certainly enjoy a good prime rib on the rarest of occasions. 

It is also National Tell a Story Day, so if you’ll excuse my presumptions, allow me to tell you mine.  I don’t like Devil Dogs. Any of them.  Made by any company.  I never have.  They are, to my taste, dry, cake-like (as opposed to actual cake) substances with a strange, almost (yet not quite) icing interior.  As a rule, I don’t like anything crème filled, but I abhor these creations. 

As a kid growing up, I watched my dad take these in his lunch box almost every day.  Even then, I didn’t understand it.  While there are a lot of things about the man I didn’t understand then, most of them I’ve come to appreciate as I’ve gotten older.  But not the Devil Dog thing.  It may be, quite honestly, his only character flaw in my estimation. 

So, here’s to you Devil Doggers.  I hope you enjoyed your day, though I can’t possibly imagine how or why you even have one.

Steve
Steven E. Peiper
[email protected]

 

Women Organize Sweet Revenge – 100 Years Ago:

The Buffalo News
Buffalo, New York
28 Apr 1923

Women Combine to Bring Sugar Down

More Than 35,000 in Western New York Planning to Use Only Enough for Actual Necessities.

Don’t use sugar except when absolutely necessary is the slogan of Buffalo and Western New York women.

The women of Buffalo are advancing from united protest to concerted action against high prices prevalent in sugar. Not only in Buffalo but all the cities and towns of Western New York a boycott is being planned.

Many clubs affiliated with the Western New York federation of women’s clubs, with a total membership of more than 35,000, are planning action in the form of boycotting all but absolutely necessary purchases of sugar. The interest is even more evident outside the city where the woman fear. The price of sugar will go even higher as the canning season draws near. The movement is a general one Throughout the country and in New York, where the interest has been heightened by the exposure of speculation on the sugar exchange. The women are already on a buyer’s strike.

Many woman’s clubs of Western New York will ask their members to use sugar only when absolutely necessary.

Housewives Join Fight.

Mrs. Edgar C. Neil, head of Housewives’ league one asked about the movement said:  “The Housewives’ league has united with the municipal committee of the Federation of Women’s clubs for effectiveness through combination in fighting the present high prices of sugar. Our efforts will not be confined to a boycott campaign, the effect of which would only be temporary, but will be in the form of an educational campaign for continued individual effort in forcing the prices down and keeping them down.

 

Dishing Out Serious Injury Threshold:

Dear Readers,

Hope everyone is doing well and enjoying Spring.  Don’t forget to start thinking about Mother’s Day, which is fast approaching.

I have a First Department case to discuss this issue. Specifically, this case deals with a plaintiff’s expert who successfully causally relates injuries to the subject accident, despite a pre-existing condition, and successfully explains a gap in treatment.

Enjoy,

Michael
Michael J. Dischley

 

No Facetime, Voice Can Inform on Your Persona – 100 Years Ago:

Buffalo Truth
Buffalo, New York
28 Apr 1923

Your Personality is Reflected in the Telephone Mirror

Your telephone carries more than a voice to the person listening. It carries your personality, reflecting it as accurately as a real mirror reflects your physical appearance.

Every time you talk with a person by telephone you leave an impression either favorable or unfavorable. If you are careful in your choice of words, courteous in your manner, cheerful in the tone of your voice—the telephone reflects a favorable picture.

If you are careless in your delivery; if you talk in “don’t-seem-to-care” monotones; if you hang up the receiver like slamming a door, people are not likely to go out of their way to trade with you or commend your methods of doing business. It’s just as easy to have people say, “I like to do business with that fellow,” as “He doesn’t get any more of my trade.”

Study your telephone talk the tele phone mirror shows your personality by what you say and how it sounds.

 

Wilewicz’ Wide-World of Coverage:    

Gone fishing.

Agnes
Agnes A. Wilewicz
[email protected]

 

Babe’s Blackmail – 100 Years Ago:

 

Press and Sun-Bulletin
Binghamton, New York
28 Apr 1923

 

Babe Ruth’s Lawyers To Compile Evidence Showing Blackmail

 

Boston. April 27—(United Press)—All evidence In the case of Delores’ Dixon, young girl who has confessed her $50,000 suit against Babe Ruth was a “frame-up,” is to be placed before District Attorney Joab Banton, who will decide what steps to take.

Decision to turn the affair over to Banton was reached at a midnight conference of the “home run king” and his attorney, Hyman Bushel, in Boston.

Bushel returned to New York this morning, with the announcement that he would immediately begin compiling the evidence for presentation to Benton.

“We have enough to show that the whole affair was a blackmailing scheme,” Bushel said. “We know the parties behind the girl.”

After the conference in Boston, both Ruth and his lawyer indicated that they felt sympathy for the girl, and that they believed she had been made a tool.

Bushel has in his possession a paper which he claims is a confession signed by Miss Dixon, that all her charges against Ruth were false.

 

Barnas on Bad Faith:

Hello again:

My Blue Jays are off to a cracking 16-9 start this season.  Unfortunately, that already puts us 4.5 games back of first place in the AL East at the time of this writing since the Tampa Bay Rays apparently win every game.  The good news, I guess, is it is a long season.

I have had the chance to get up to the ballpark for a couple games in Toronto so far this year.  The SkyDome opened back in 1989, and while it was impressive at the time, it has felt cavernous and dated for quite a while, especially compared to the series of beautiful ballparks that were built after it in the 1990s and 2000s.  The Jays have finally started much needed renovations to the building.  This year, they unveiled a completely revamped outfield district and all new seats in the 500 level.  It still feels like a massive building, but the addition of new outfield walls and dimensions, new bullpens, bleachers, and plenty of gathering spaces gives it more of a ballpark feel.  I am excited to see what they have planned for the next phase of the renovations.

I have a case from the Eighth Circuit Court of Appeals in my column today.  The court considered whether the policy applied on a per-claim or per-occurrence basis and whether Zurich had acted in bad faith not settling claims against its insured on the ground that the policy limits had been exhausted.

Brian
Brian D. Barnas
[email protected]

 

Like Vampires, Law Makers Hate Daylight – 100 Years Ago:

Press and Sun-Bulletin
Binghamton, New York
28 Apr 1923

 

FOOLISH LAW-MAKERS MAKE FOOL LAWS

Massachusetts and Pennsylvania have passed laws forbidding any city within, the State to adopt daylight saving. This kind of legislation is a splendid example of the asinine ideas that many people have about the functions of law-making.

It is true that two kinds of time are a nuisance, but modern life has produced innumerable other nuisances. If factory workers want to have an extra hour of daylight for baseball or gardening in the afternoon, instead of getting the extra hour of daylight in bed in the morning, there is no reason why they should not adopt daylight saving.

If a city wants to give its residents, the same advantage, it has a perfect right to do so. New York, for instance, with a population about as large as all the rest of the State put together, goes into daylight saving time.

It would be vastly better if the whole State adopted daylight saving. But the farmers have the same right to cut themselves off from an hour of daylight that the city people have to take advantage of it.

As a matter of fact, it’s only in the Spring and Fall that anybody profits by changing the clocks. In the summer even the farmers get an extra hour of daylight, whether they want it or not.

But for a legislature to forbid a city to set its clocks ahead is exactly as idiotic as for a legislature to pass a law forbidding a man to go to bed an hour earlier at night, for that is all that daylight saving really requires him to do. If this keeps up, we’ll have & law passed someday forbidding an American citizen his inalienable right to lie a-bed Sunday morning.

 

Lee’s Connecticut Chronicles:

On the road.

Lee
Lee S. Siegel
[email protected]

 

‘Frat’ Antics Get Girls Suspended – 100 Years Ago:

The Buffalo Times
Buffalo, New York
28 Apr 1923

2 Co-eds Smoke at Dance, Suspended

BALTIMORE, Md., April 28.—Two girl students have been suspended from the University of Maryland by President Albert F. Woods for smoking cigarettes at a “frat” dance in Washington. Inquiry into charges of drinking by certain members of the faculty may be made, it is understood. Dr. Woods, however, denied charges of members of the faculty drinking.

The two suspended girls are said to have engaged an attorney in Rockville, Md., to institute mandamus proceedings for reinstatement. "If this is correct," said Dr. Woods, "The two girls will not be reinstated as long aa I am at the head of the university. While I am here I intend to run it and not permit it to be run by lawyers and outside influences.”

According to Dr. Woods several meetings have been held by the student body of the university since the girls were suspended in regard to revising the rules, which prohibit the co-eds from smoking in the university, on the campus or at any function under the supervision of the university. Fifteen of the 125 students have given their moral support to the girls suspended and the balance are backing the action of the university, said Dr. Wood.

 

Kyle’s Construction Column:

Dear Readers,    

In this week’s case, out of the District Court of Maryland, the plaintiff filed suit against the builder of their home due to alleged defective construction and the use of defective materials and won a default judgment. The plaintiff brought this action against the builder’s insurer to collect the judgment, but the court granted the insurer’s motion for summary judgment, holding there was no coverage for the damages under the policy due to the policy’s “your work” exclusions.

Until next time,

Kyle
Kyle A. Ruffner
[email protected]

 

Jury Nullification Exasperates Judge – 100 Years Ago:

The Standard Union
Brooklyn, New York
28 Apr 1923

DI MARTINE FREED, JUDGE SCORES JURY

“You Are Turning Out a Guilty Man,” Martin Says on Hearing Verdict.

PRIOR CONVICTION REVERSED

Accused Has Dickered for Plea Before Second Trial.

"Gentlemen," said County Judge George W. Martin to the jury after its foreman had announced a verdict of not guilty in the case of Frank Di Martine, charged with robbery in the first degree, "it is a mystery to me how you could have reached such a verdict. You are turning out a guilty man. A murder attended a quarrel over the spoils in this robbery and in this robbery this defendant took part. Your verdict is startling."

Di Martine was on trial during the last two days. He was defended by Samuel S. Liebowitz. Di Martine had been previously convicted by a jury before County Judge J. Grattan MacMahon on the same charge. This verdict was set aside by the Appellate Division, and Justice Jaycox, in a written opinion, criticized Judge MacMahon for an alleged prejudicial charge to the jurors which, it was asserted, wrought an injustice to the defendant. Accordingly, Di Martine was given another trial.

 

Ryan’s Federal Reporter:

In Disney for the day with the kids. Send help.

Ryan
Ryan P. Maxwell
[email protected]

 

Drunkenness and Disorder, Men Get Off Easy – 100 Years Ago:

The Franklin Repository
Chambersburg, Pennsylvania
28 Apr 1923

Path Valley Men Pay for Disorder

On oath of Mrs. Estella Gambler, of Roxbury, Joseph Hogan, and Samuel Gambler, of Fannettsburg, were arrested Wednesday by Constable Klipp and arraigned before Magistrate Miller charged with disorder and drunkenness and an assault on Mr. Gambler on April 18. Fines of $12 each were imposed.

 

Rauh’s Ramblings:

On parental leave.                          

Patty
Patricia A. Rauh
[email protected]

 

Improper Punctuation Creates Confusion – 100 Years Ago:

The Evening Tribune
Hornell, New York
28 Apr 1923

PERIOD PLACED IN WRONG SPOT

Verdict Given Two Men Hurt in Crash  Was $4,750, Not $47.50
 

Through a misunderstanding it was erroneously reported yesterday that the verdict in the cases of Bert Ross and Leon Kiltell of Canisteo, against Mr. and Mrs. Arthur Fionerau, of this city, was but $47.50. The verdict was really $4,750, quite a difference in the plaintiffs’ favor.

Of that amount, Mr. Kiltell, who was the owner and driver of the car, gets $2,500 and Mr. Ross who was a passenger in the car with him gets $2,250.

The cases were tried as one in supreme court at Corning and the verdict was rendered by the jury after deliberation of only an hour and a half.

 

Storm’s SIU:

Hi Everyone:

I am writing from the Kalahari Resort & Convention Center in the Poconos attending the Pennsylvania Insurance Fraud Conference (PA Insurance Fraud Prevention Authority) fulfilling my Pennsylvania continuing legal education credits.   It’s a great organization and event that you should consider being involved in.  Sadly, my kids are too old to come with me and play in the waterpark.  Many fun memories though. 

Three interesting fraud related cases this issue:

• Default Judgment in Rate Evasion Case Where Insured Failed to Subscribe to and Return Her Examination Under Oath Transcript.

• In Claim Denied for Arson and Fraud, Bad Faith Claim Dismissed. 

• Court Refuses to Overturn Conviction of Orthopedic Surgeon in Trip-and-Fall Scheme.

I hope all is most-excellent with you.  Talk to you again in two weeks.

Scott
Scott D. Storm
[email protected]

 

Striving for Tolerance in the face of “Nature” – 100 Years Ago:

Times Union
Brooklyn, New York
28 Apr 1923

Geismar Deplores Intolerance That Bars Both Jew and Negro

The Jewish man is blackballed from Gentile clubs, the Jewish woman is not allowed to stop at the same summer hotel with her Christian sisters, the Negro is a social outcast, not through the fault of man, but because Nature does not recognize equality.

This was the outstanding argument made last night by Assistant District Attorney Alexander H. Geismar when he spoke in Temple Bethlehem, Church Avenue and Marlborough Road.

Judge Geismar came as the guest of the man whom he had advised twenty-six years ago as to his fortune in the ministry, Dr. Samuel J. Levinson, Rabbi of Temple Bethlehem. At that time Judge Geismar was rabbi of Temple Israel of Brooklyn. Despise no man, Judge Geismar told his audience. "There is nothing,” he added, that so impresses us in religion as the gross injustice in nature. If you are young enough you will be led to ask, ‘Is there any Justice?’ and if you are young enough you are liable to have ' your time of unbelief.

"There is no equality in Nature. Take, for instance, the Negro. He is a social outcast ostracized because his skin is black. It seems a gross Injustice.

“And then there is the Jew. Some will say, 'What has he done to suffer this Injustice? Why is it that you, a Jewish woman, who are born in the same street with your Gentile neighbor, cannot stop at the same hotel with her? Why am I, a Jew, blackballed from a Gentile club, because of my race? Is it my fault?”

"The reason is that nature does not recognize equality. According to our ideas of human justice, Nature is most unjust.

"Since we are all subject to that inequality, we must prepare ourselves to think of the old rabbi’s advice. ‘Despise no man.’ Most of us are not responsible for what we are. We are all alike dependent upon nature not the whims of Nature.”

Following the service Judge Geismar was given an informal reception in the Community House.

 

Fleming’s Finest:

Hi Coverage Pointers Subscribers:

Just like Sheriff Buford T. Justice (of Smokey and the Bandit), this week’s case comes from the Lone Star State. The Texas Supreme Court held that an insurance policy does not incorporate by reference the payout limits in an underlying service agreement.

Enjoy,

Kate
Katherine A. Fleming
[email protected]

 

Light Lunch or Snack, Parties Hash-out the Distinctions – 100 Years Ago:

The Standard Union
Brooklyn, New York
28 Apr 1923

Candy Store Forbidden to Serve Light Lunch

What constitutes a “light” lunch was made the basis of a decision yesterday by Justice Lewis in the Supreme Court. On the application of Andreas O. Katis, Justice Lewis enjoined the U. R. S. Candy Stores Inc., from serving light lunch in their store on Jamaica avenue, between Union Hail Street and New York Avenue, Jamaica. Justice Lewis said sale of light lunch was forbidden in a lease from the owners, Marcus Miller and Max Deckinger, to the plaintiff.

“It is undisputed,” Justice Lewis said, that the defendant U.R.S. Candy Stores, Inc., sells cakes, sandwiches, bouillon, tea, and coffee at its soda counter. Was the sale of sandwiches, bouillon, tea, and coffee in violation of plaintiff's lease? Do sandwiches with bouillon, tea or coffee constitute light lunch?

“The Standard Dictionary defines a light lunch to be a light meal eaten between breakfast and dinner. In the matter of Cullman, it was held that a sandwich and a drink of whiskey or other beverage constitutes a meal.

“Bouillon, tea, and coffee are beverages. The sandwich, with tea, bouillon or coffee substituted as the beverage for whiskey (some such substitution being now compulsory) is still a meal or light lunch. It cannot be said that the sale of the articles mentioned does not interfere with the plaintiff’s business. It is a violation the provisions of the lease.”

 

Gestwick’s Greatest:

Well, the warm front is gone and I’m back to being cold. On the bright side, our Buffalo Bandits are back in first place in the NLL East after defeating the Toronto Rock this past weekend. This was the final regular season home game of the season, but they are playoff-bound. Lucky for me, my season tickets get me two free tickets to a playoff game of my choice.

In light of some curious situations, I’ve been facing lately in my practice, I have a case for you about the consequences that can follow if an insured does not show up for their scheduled Examination Under Oath. In general, failure to attend an EUO by an insured, and sometimes, by any other claimant (if the condition says so) is grounds for denial of the claim. Attendance at a properly-requested EUO is a condition precedent to coverage, and failure to abide by it vitiates the claim.

Another interesting one puts an interesting spin on what has become the latest and greatest rule of insurance law; to wit, that there is no coverage for claims resulting from COVID-related shutdowns absent direct physical loss. When COVID first started, many businesses asserted claims for loss of income against their commercial property carriers. These claims were routinely denied by carriers everywhere, on the ground that government-mandated shutdowns do not constitute a “direct physical loss,” as required by the insuring agreement of most commercial property policies. In this case, the insured, after suing its carrier on this very ground, seeks a stay of its case pending the outcome of a different case currently under review by the Court of Appeals. While the Court recognized that staying a case pending the outcome of a case in a Court that has binding authority over the instant action is appropriate, it is only so where the decision from the higher court would have a “significant impact” on the case at bar. In this case, the Court noted that the plaintiff had not even alleged direct physical loss in the operative set of pleadings, and denied the motion to stay on the ground that the Court of Appeals decision would therefore have no impact on the outcome of this case.

That’s all for this time around. I usually end these with “stay safe, stay warm, and stay happy,” but this week, I’ll leave you to decide what temperature you want to be. So, stay safe and stay happy.

Evan
Evan D. Gestwick
[email protected]

 

Superstitions Back Uncle Sam into Corner, Babies Away From Stove – 100 Years Ago:

Yonkers Statesman
Yonkers, New York
28 Apr 1923

The Two Dollar Bill

To keep baby from bumping into the stove when he begins to toddle, tie a squirrel's claw or the small ear-bones of a rat around his neck. This is done in many out-of-the-way sections of our country, says a writer investigating superstitions. It makes you laugh. But—

The $2 bill is becoming so generally shunned as an omen of bad luck that, Uncle Sam is thinking of retiring it from circulation. Few of us have altogether shaken the witch doctor's hokum out of our brains. So much for heredity.

 

On the Road with O’Shea:

Hey Readers,

Hope everybody is gearing up for the weekend, even though it looks to be a soggy one. The Stanley Cup Playoffs are in full swing, and my fingers are crossed that the Oilers survive the first round. The first few games looked a little sketchy, but it seems they have righted the ship. A McDavid-less playoffs is a no-go for me.

This week I have two cases from the Second Department. The first involves a scheme to hustle an insurer for no-fault benefits, too bad intentional collisions are intentional acts. The second involves a decision denying a petition to stay SUM arbitration where the court found the insurer had ample time to investigate the claim but failed to do so.

Later,

Ryan
Ryan P. O’Shea
[email protected]

 

Brothers by Blood, Brothers by Traffic Infraction – 100 Years Ago:

The Herald Statesman
Yonkers, New York
28 Apr 1923

Brothers Fined $25 Each for Speeding

 

Two brothers, Celestino Garcia, of New York city, and Carlos Garcia of Pinecrest-on-Hudson, were fined $25 each by City Judge Charles W. Boote this morning, when they were found guilty of speeding. They were arraigned on summonses issued yesterday by Patrolman John Caulfield of the Traffic Squad, who said that the two men had driven their cars along the Saw Mill River Road, at a speed of 35 miles an hour.

 

Louttit’s Legislative and Regulatory Roundup:

I hope this note finds everyone well. My wife and I are counting down the days to my son’s graduation from High School and then off to Salve Regina University where he will play football and major in Cybersecurity.

Today’s article concerns a bill in New York’s legislature seeking to amend Insurance Law § 3445, which seeks to clarify for homeowners their deductible obligations in the event their home suffers hurricane wind damage. Additional clarity on this issue by this bill should help insureds understand the significant risk they may be exposed to in the event of such windstorms, which routinely affect southern New York State.           

Rob
Robert P. Louttit
[email protected]

 

DWI Turns into a Reeducation – 100 Years Ago:

The Post Star
Glens Falls, New York
28 Apr 1923

Unique Sentence Imposed

PHILADELPHIA, April 27.—After he had pleaded guilty in Municipal court today to driving an automobile while intoxicated, C. Haviland Scott, of Pittman, N.J., was sentenced to remain in the county prison until he had read and studied Bunyan's "Pilgrim's Progress." The Court will then dispose of the case.

 

North of the Border:

When you read this, I will be in Toronto, having dinner with my colleagues with Canadian Defence Lawyers, many of whom I haven’t seen in person since everything shut down in March of 2020.

We are gathering for the April 28 Canadian Defence Lawyers’ (CDL) Insurance Coverage Symposium, one of the flagship events for CDL. I am chairing that event together with fellow FDCC member, Marcus Snowden of Snowden Law LLP, in Toronto. We have a lineup of great speakers on property and casualty topics which includes Dan Kohane, who will appear on a panel discussing the duty of a liability insurer to defend when the insured and the insurer have divergent views as to how the defence should be conducted.

My column this week discusses an interesting auto liability coverage case that teaches a lesson applicable to other liability policies.  Enjoy.

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]

• Issue of Fact Whether Notice Provided by Additional Insured as Soon as Reasonably Proper Under the Circumstances

• A Fiancé or Domestic Partner is Not a Relative Under a Homeowners Policy, so Does Not Get a Defense or Indemnity

   

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

• Second Circuit holds that No-Fault Carrier Section 111 Filing with CMS does not Make it a Primary Payer to Reimburse MAO unless for Medical Payments Never Claimed through No-Fault

 

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

• Nebraska Choice of Law/Forum Clause Enforced to Preclude NY Lawsuit

• Employer/Employee Relationship Determined by WCB is Dispositive in Personal Injury Action

 

DISHING OUT SERIOUS INJURY THRESHOLD
Michael J. Dischley

• Plaintiff’s Expert Causally Relates Injury to the Subject Accident and Plaintiff Explains Gap in Treatment

 

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

• On the road again.

 

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

• Summary Judgment Dismissing Bad Faith Claim Reversed where Court Held that Policy Applied on a Per-Claim Basis and Not Per-Occurrence and thus Policy Limits were Not Exhausted at Time Zurich did Not Settle Claims

 

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

• On the road.

   

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

• Court Holds that Coverage for Damage to Home, Arising Out of Defective Construction, is Precluded Due to the Policy’s “Your Work” Exclusions

 

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

• Another COVID-19 Business Interruption Decision in New York Finds No Direct Physical Loss or Damage to Property

• Attorney’s Subjective Knowledge of Facts that a Reasonable Attorney Would Deem Potential Malpractice Triggered Prior Knowledge Exclusion

   

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

• On parental leave.

 

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

• Default Judgment in Rate Evasion Case Where Insured Failed to Subscribe to and Return Her Examination Under Oath Transcript

• In Claim Denied for Arson and Fraud, Bad Faith Claim Dismissed

• Court Refuses to Overturn Conviction of Orthopedic Surgeon in Trip-and-Fall Scheme

 

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

• An Insurance Policy Does Not Incorporate the Payout Limits in an Underlying Service Agreement

 

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

• Impending New Precedent Only Stays Another Case if it is Likely to Have Significant Impact Thereon

• The Failure to Attend a Properly-Noticed Examination Under Oath Vitiates Coverage

 

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

• No Fault Health Care Providers Do Not Get Paid for Treating Fraudulent Accident Victims

• Insurers Unjustified Failure to Timely Investigate SUM Claim Precludes a Stay of Article 75 SUM Arbitration

 

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

• Proposed Amendment to New York’s Insurance Law 3445

 

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

• Where there are Competing Versions of Evidence that Goes to Both Liability and Coverage and, if Decided One Way, Would Eliminate Coverage, a Liability Insurer is Best Advised to Defend Under a Non-Waiver and Let the Outcome of the Liability Case Determine Coverage

 

Best wishes for a warming spring.

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

Liening Tower of Perley

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

Loutit’s Legislative and Regulatory Roundup

North of the Border

 

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

 

04/27/23       National Interstate Insurance Co. v. Interstate Insurance Co.
Appellate Division, First Department
Issue of Fact Whether Notice Provided by Additional Insured as Soon as Reasonably Proper Under the Circumstances

National Interstate insured New York Crane under a liability insurance policy.  National Interstate and Crane sought a declaration that Crane was entitled to defense and indemnification in an underlying personal injury action as an additional insured on a policy issued by Interstate to Broadway Concrete.  Interstate had disclaimed coverage on the basis that Crane did not provide timely notice.

The First Department concluded that there was an issue of fact as to whether notice was provided as soon as practicable under the circumstances.  The delay in providing notice by Crane was lengthy, but the record raised issues of fact as to when National Interstate and Crane, with due diligence, should have known that Interstate was Broadway Concrete’s insurance carrier, and whether they gave notice to Interstate as soon as reasonably proper under the circumstances. 

The First Department rejected Interstate’s argument that plaintiffs, who possessed a certificate of insurance listing a previous policy issued by Interstate to Broadway Concrete, had sufficient information prior to April 2014 to identify Interstate as Broadway Concrete’s liability insurer or that plaintiffs otherwise failed to act diligently in providing notice.  However, the court also found that plaintiffs failed to establish as a matter of law that notice was provided within a reasonable time.

The court also rejected Interstate’s argument that the wrap up exclusion applied to bar coverage.  While the protections of Insurance Law § 3420(d) may be inapplicable to an insurer’s claim for reimbursement against another insurer, plaintiffs demonstrated that defendant failed to give timely written notice of its disclaimer, based on the wrap-up exclusion, to Crane.  The court also declined to consider Interstate’s argument that Crane’s insurer was the sole real party in interest such that Insurance Law § 3420(d) would be inapplicable.  The court concluded that this argument presented factual issues that were not submitted to the motion court below.

 

04/20/23       Integon National Insurance Company v. Zhou
Appellate Division, First Department
A Fiancé or Domestic Partner is Not a Relative Under a Homeowners Policy, so Does Not Get a Defense or Indemnity

Integon issued a dwelling policy, for a residence co-owned by Zhou and Gao. Lin was injured while working on Zhou and Gao's property and commenced an underlying personal injury action. According to the policy's terms, the policy covered Zhou, who was the sole named insured, as well as her relatives and her spouse. Gao was not named on the policy, and at the time of the accident for which Lin seeks damages, was not married to Zhou, but was either her domestic partner or her fiancé.

Integon established its entitlement to summary judgment as against Lin by submitting evidence that Gao was not covered under Zhou's insurance policy because he was not a named insured and was not a relative of Zhou at the time of the accident. Furthermore, although the term "relative" is not defined in the policy, Gao does not qualify as Zhou's relative under the ordinary definition of that term (Black's Law Dictionary [11th ed 2019], relative ["a person connected with another by blood or affinity"]; relative by affinity ["someone who is related solely as the result of a marriage and not by blood or adoption].

 

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

 

04/19/23       MSP Recovery Claims, Series LLC v. Hereford Ins. Co.
United States Court of Appeals, Second Circuit
Second Circuit Holds that No-Fault Carrier Section 111 Filing with CMS Does Not Make it a Primary Payer to Reimburse MAO Unless for Medical Payments Never Claimed Through No-Fault

Section 111 of the Medicare Secondary Payer Act requires that no-fault carriers advise CMS when a Medicare beneficiary files a claim for payment of medical benefits.  The question before the Second Circuit was whether or not, by filing with CMS, a no-fault carrier automatically becomes “a primary payer” for all medical expenses arising out of the automobile accident even if the claim was not presented to it for payment.  In this case MSP Recovery Claims (“MSP”) commenced a punitive class action lawsuit against Hereford Insurance Company (“Hereford”) making that precise claim.  MSP, which has commenced numerous such actions in New York, had taken assignments from various MAOs and assembled a list of approximately sixty cases for which it claimed Hereford was responsible.  Hereford Insurance moved against the complaint in the Southern District of New York on the grounds that MSP lacks standing under Federal Rule of Procedure 12(b)(1) since MSP’s only allegation of responsibility for Hereford was the application of Section 111.  In opposition to the motion MSP relied on MSP Recovery Claims, Series LLC v. Ace American (974 F 3^rd 1305 (2020)) an 11^th Circuit state case arising out of its home state of Florida.  In that case, the Second Circuit Court in passing appeared to support MSP’s position noting that “at minimum, that Defendants had constructive knowledge that they owed primary payments” (974 F 3^rd 1319). 

The Second Circuit, acknowledging the existence of the position of the 11^th Circuit engaged in detailed statutory construction and ultimately, specifically disagreed with the 11^th Circuit in Ace American noting that the Ace American Court considered the question only in passing. 

The implications of the Second Circuit Decision Hereford for no-fault carriers is significant.  MSP, and similar entities, have relied on the expansive interpretation of Section 111 since they are unable to allege facts that would specifically trigger obligations for no-fault carriers.  In fact, in Hereford and in other cases, no-fault carriers have been able to attack the exemplars alleged by MSP and others on the basis that no claim was ever presented for the medical bills for which MSP is seeking reimbursement.  Whether this results in eliminating these types of claims statewide remains to be seen; however, the strong analysis in Hereford is likely to discourage MSP and others going forward. 

 

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

Potpourri

04/25/23       Breakaway Courier Corp. v. Berkshire Hathaway, Inc.
Appellate Division, First Department
Nebraska Choice of Law/Forum Clause Enforced to Preclude NY Lawsuit

Plaintiff filed this action against, among others, Applied Underwriters Captive Risk Assurance Company (AUCRA).  The relationship between plaintiff and AUCRA was governed by the Reinsurance Participation Agreement (RPA).  The RPA required that all disputes were subject to arbitration in the British Virgin Islands.  Notably, however, AUCRA agreed not to enforce the mandatory arbitration clause for losses involving contracts entered into in New York. 

The RPA also contained a choice of law provision which required that all disputes be governed by the laws of Nebraska and all disputes resolved by the courts of Nebraska.  Because AUCRA could not compel arbitration, and the choice of law/forum clause applied, the matter had to be dismissed accordingly.

 

04/19/23       Velazquez-Guadalupe v. Ideal Bldrs & Constr. Servs, Inc.
Appellate Division, Second Department
Employer/Employee Relationship Determined by WCB is Dispositive in Personal Injury Action

Plaintiff commenced this action after sustaining injury in a building collapse that occurred while he was in the scope of his employment.  Plaintiff’s theories of recovery included violations of Labor Law §§ 240, 241(6) and 200.  As defendants, plaintiff named, inter alia, CDW Carpentry, Inc., who served as a subcontractor on the project.  Upon answering, all co-defendants asserted claims for common law contribution and indemnification against CDW.

At the same time, plaintiff also pursued a workers’ compensation recovery against CDW.  That proceeding ended with a decision from the Workers’ Compensation Board that CDW was the employer of plaintiff at the time of the incident giving rise to his injuries, and, accordingly, ordered that CDW (or its insurer) pay benefits to plaintiff. 

The outcome of this decision was at odds with plaintiff’s earlier allegations in both the Complaint and Bill of Particulars that he was insured by J. United.  Having paid benefits as the employer, CDW moved for summary judgment dismissing all claims and cross-claims against it in the bodily injury action by application of Workers’ Compensation Law § 11.  The cross-claiming defendants opposed the motion with evidence suggesting plaintiff was not employed by CDW, and arguing that they were not collaterally estopped by the decision from the Workers’ Compensation Board because they did not have any opportunity to participate in those proceedings. 

In reversing the question of fact found by the trial court, the Appellate Division started by noting that the 1996 reforms to employer’s liability controlled the answer.  That provision, namely Section 11, provides that an employer may only be liable where (a) there was a grave injury or (b) it had agreed to provide indemnity in a written contract.  The Court went on to state that “controversies regarding the applicability of Workers’ Compensation Law rest within the primary jurisdiction of the Workers’ Compensation Board, including issues as to the existence of an employer-employee relationship.” 

The Second Department then noted that it was not a question of collateral estoppel which controlled, but rather the fact that the protections of Section 11 arise from the Workers’ Compensation Law.  Because the Board determined CDW was the employer, the protections of the statute are triggered.  The only way around that determination would be to proffer evidence of a grave injury or a written contractual indemnification clause.  Here, the cross-claiming defendants could produce no such evidence.    

As to the separate issue of insurance procurement, the Court noted that Section 11 did not shield CDW from claims that it failed to procure insurance for the other defendants. 

 

DISHING OUT SERIOUS INJURY THRESHOLD
Michael J. Dischley

 

04/18/23       Marleny Osorio v. Punjab Enterprise Inc. et al
Appellate Division, First Department
Plaintiff’s Expert Causally Relates Injury to the Subject Accident and Plaintiff Explains Gap in Treatment

Order, Supreme Court, Bronx County (Veronica G. Hummel, J.), entered June 8, 2022, which denied defendants Punjab Enterprises Inc., Eagle Tank Line LLC, and Mahamadou Sylla's (defendants) motion for summary judgment dismissing the complaint based on plaintiff's inability to demonstrate that she sustained a serious injury to her cervical spine and right knee within the meaning of Insurance Law § 5102(d), unanimously modified, on the law, without costs, to grant defendant's motion to dismiss plaintiff's claim for injury to her right knee, and otherwise affirmed.

Plaintiff, who was 17 years old at the time of the accident, alleges she sustained aggravation of a preexisting right knee injury and cervical spine injuries as a result of a motor vehicle accident on April 9, 2015. As for the knee injury, plaintiff's expert failed to explain why the preexisting conditions documented in plaintiff's medical records were not the cause of her symptoms or the extent of any exacerbation caused by the accident.

As to the cervical spine injury, defendants met their prima facie burden by submitting the report of a radiologist who found that plaintiff's post-accident MRI showed only minor degenerative changes which were chronic, and not causally related to the accident, as well as a biomechanical expert who opined that that the low impact of the subject accident would not have caused plaintiff's claimed injuries. They also argued that plaintiff had unexplained gaps in treatment, including over a year between completion of physical therapy and the time she next saw a doctor for her neck condition.

In opposition, plaintiff raised an issue of fact through the affirmed MRI report of her radiologist finding bulging discs impinging on the thecal sac shortly after the accident in 2015, and the opinion of her treating physician that the disc pathology of the 17 year old plaintiff, shown on the post-accident MRI of May 2015, and subsequent cervical discectomy and spinal fusion at the affected levels, were causally related to the accident. Furthermore, although plaintiff never ceased treatment, she provided a reasonable explanation for her brief gap in treatment.

Finally, to the extent that some of the medical records submitted by plaintiff were not in admissible form, it was proper for the motion court to consider them as they were not the sole basis for plaintiff's opposition to summary judgment.

 

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

On the road again, again.

 

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

04/13/23       Fluor Corporation v. Zurich American Insurance Company
United States Court of Appeals, Eighth Circuit
Summary Judgment Dismissing Bad Faith Claim Reversed where Court Held that Policy Applied on a Per-Claim Basis and Not Per-Occurrence and thus Policy Limits were Not Exhausted at Time Zurich did Not Settle Claims

Zurich insured St. Joe and its sole shareholder Fluor from 1981 to 1985.  St. Joe operated a lead smelting plant in Herculaneum, Missouri.  Residents of the town sued Fluor and St. Joe then named Doe Run in the early 2000s, alleging that they had been injured by the plant's release of lead and other toxins.  Zurich agreed to defend the companies and paid $9.87 million in four settlements on behalf of both companies.  Zurich also contributed more than $25 million to a settlement between Doe Run and remaining plaintiffs.  Fluor went to trial, suffered an adverse jury verdict, and thereafter settled the claims for $300 million.

Zurich filed a declaratory judgment action against Fluor, which, in turn, filed a counterclaim alleging bad faith failure to settle.  The district court granted summary judgment to Zurich, concluding that the policy limited Zurich's liability on a per-occurrence basis and that the $3.5 million per-occurrence limit had been exhausted by Zurich's initial settlement payments.  The court concluded that Zurich thus did not act in bad faith when it did not settle the claims against Fluor.  Fluor appealed, arguing that the district court erred in determining that the policy limited Zurich's liability on a per-occurrence and not a per-claim basis, which would have increased Zurich's liability to $21.5 million for the 1981 and 1982 policies.

The Eighth Circuit reversed the decision of the district court and held that the policy applied on a per-claim basis rather than a per-occurrence basis.  Flour had argued below that a determination of the actual limits was unnecessary because it could establish its claim by showing that Zurich failed to settle at a time when it did not believe that the policy limits had been exhausted.  When the district court rejected this argument and proceeded to determine the policy limits, Fluor stipulated that Zurich's settlement payments had exhausted those limits.  Fluor also argued that the court's policy-limits determination prevented Fluor from proving its bad faith failure to settle claim.  The court below agreed that Fluor could not establish its bad faith claim because the policy limits had been exhausted. 

Fluor contended on appeal for the first time that it did not matter whether the policy limits had been exhausted because Zurich's purported failure to timely inform Fluor that the policy limits had been exhausted constituted bad faith. Fluor did not present this argument below and  did not cite any authority regarding an insurance company's duty to provide such notice.  Accordingly, the court declined to consider it.

Judge Colloton penned a lengthy dissent that would have affirmed the ruling of the district court.  Colloton would have held that the liability coverage applied on a per-occurrence basis rather than a per-claim basis, and that the relevant policy limits had been exhausted.  Because the policy limits were exhausted, the duty to settle ended, and Fluor could not establish Zurich acted in bad faith in refusing to settle a claim within the limits of the policy.

 

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

 

On the road.

 

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

 

03/30/23       Salehi v. Builders Mut. Ins. Co.
United States District Court for the District of Maryland
Court Holds that Coverage for Damage to Home, Arising Out of Defective Construction, is Precluded Due to the Policy’s “Your Work” Exclusions

Ellison Custom Homes contracted with Salehi to build a new home, which Salehi moved into in May 2018. On May 29, Ellison filed a complaint to enforce a Mechanic’s Lien and for damages of $131,129.19 that were allegedly outstanding pursuant to the parties’ contract. Salehi sent Ellison a letter threatening suit is Ellison did not complete the work remaining on the home. In November 2018, Salehi then filed a counterclaim against Ellison for breach of contract and breach of warranty, alleging Ellison failed to complete the work in a timely manner, used defective materials and construction techniques in building the home. The Circuit Court for Anne Arundel County ultimately entered a default judgment and awarded damages to the plaintiffs in the amount of $713,612.27 plus attorney fees.

On June 24, 2021 the plaintiffs filed suit in the same court as a direct action for payment of the final judgment entered against Ellison against Builders Mutual Insurance Company. The insurer filed a motion for summary judgment contending that the plaintiffs’ action could not stand because Ellison failed to inform the insurer of the filing of plaintiffs’ lawsuit and because the insurance policy did not cover the damages awarded to the plaintiffs. The plaintiffs responded that Ellison notified the insurer of the claim prior to judgment and therefore the insurer was not prejudiced and, further, that the damages plaintiffs sought were covered by Ellison’s policy with the insurer.

First, the defendant moved for summary judgment on the ground that Ellison failed to notify it of plaintiffs’ claims and this failure constituted actual prejudice because the defendant’s ability to defend against plaintiffs’ claims was hampered by the late notice. An insurer may disclaim coverage under Maryland law only when (1) the insured breached the policy by failing to cooperate with the insurer and (2) the insurer demonstrates that the lack of cooperation or notice resulted in actual prejudice to the insurer. The ultimate consideration is whether the insured’s failure has, in a significant way, precluded or hampered the insurer from presenting a credible defense to the claim. The parties did not dispute that, at the earliest, Ellison notified the defendant of the claims and suit on or around October 30, 2020, well after the plaintiffs threatened to sue Ellison for the alleged defective construction on June 5, 2018 or the plaintiffs filed their counterclaim in Ellison’s Mechanic’s Lien suit on November 2, 2018. Therefore, Ellison had waited almost two years to inform the defendant about the pending lawsuit, breaching its duty to notify the defendant of the claim as soon as practicable. However, to prove actual prejudice, the defendant must show that the failure to notify resulted in actual harm to the defendant. The defendant argued that it was prejudiced because it would have engaged in settlement negotiations and defended Ellison against plaintiffs’ claims had it been notified. However, the court held that a genuine dispute of material fact remained as to whether the defendant suffered actual prejudice as a result of the breach of the notice provision and therefore summary judgment was not appropriate for that issue.

Next, the defendant argued that the damages awarded to the plaintiffs in their suit against Ellison were not covered by the policy. Specifically, the defendant contended that the defective construction claim did not constitute property damage caused by an occurrence and, even if there was coverage, the claims were excluded by the policy’s “your work” exclusions. The policy obligates the defendant to indemnify Ellison for “property damages” to which the insurance applies, meaning damage caused by an “occurrence”. In this case, the plaintiffs’ damages included structural damage to the plaintiffs’ house caused by defective design and moisture damage to the drywall, insulation, and paint caused by defective construction of the chimney. The defendant contended the plaintiff could not recover the cost of correcting damage caused by defective construction because those damages are expected and foreseeable, and do not constitute an “occurrence”. The first category of damages, structural damage to the house, was caused by defective design and construction. The court held it was entirely foreseeable that Ellison would be responsible for making repairs and for paying the cost of corrective damage. Therefore, those damages did not constitute an occurrence. The second category of damages, damages the basement drywall and insulation, were caused by defective construction of the chimney. This was the result of accidental water intrusion into otherwise defect free work, which the court held was property damage caused by an occurrence.

Since coverage was established, the burden shifted to the insurer to prove the exclusion applied. The defendant contended that the policy’s “your work” exclusions precluded coverage for all the damages awarded because the plaintiff’s entire home constitutes work performed by Ellison or on Ellison’s behalf. Plaintiffs argued that the exclusions should be interpreted to only include the specific portion of the home on which Ellison was working at the time the damage occurred, not the entire home. The primary purpose of the exclusions is to prevent general commercial liability policies from insuring against an insured’s own faulty workmanship, which is a normal risk associated with operating a business. The court explained that the vast majority of courts have interpreted the phrase “that particular part” in the exclusions to include the entire project on which the insured was contracted to perform work. In this case, Ellison was contracted to build the plaintiff’s home, and the property damage claimed by the plaintiffs arose from Ellison’s work or operations in constructing the home. Therefore, the court concluded that, for purposes of the policy exclusions, “that particular part” of the property on which Ellison was working extends to the entire home. As such, ,the damage to the house was excluded from coverage because the damage was caused by Ellison’s work. Coverage was also excluded pursuant to the exclusion for damage to plaintiffs’ house requiring replacement or repair that resulted from work incorrectly performed by the insured.

Accordingly, the defendant’s motion for summary judgment was granted and the plaintiffs’ cross motion for summary judgment was denied.

 

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

 

4/20/2023        147 First Realty LLC v. Aspen American Insurance Co.
Second Circuit Court of Appeals
Another COVID-19 Business Interruption Decision in New York Finds No Direct Physical Loss or Damage To Property

In a Summary Order, the Second Circuit Court of Appeals concludes (for the umpteenth time in New York) that “policy provisions establishing coverage for physical loss of or physical damage to the insured's business property, or property within its vicinity, do not extend to claims for losses and expenses resulting from business suspensions in response to COVID-related public health restrictions.”

 

4/18/2023        N. River Ins. Co. v. Leifer et al.
Second Circuit Court of Appeals
Attorney’s Subjective Knowledge of Facts That A Reasonable Attorney Would Deem Potential Malpractice Triggered Prior Knowledge Exclusion

Max D. Leifer and the Law Offices of Max D. Leifer, P.C. was named in an underlying malpractice lawsuit brought by a former client, Andy Lee, after Leifer failed to interpose a timely answer on Lee’s behalf in yet another underlying lawsuit naming Lee as a defendant. A default judgment was subsequently entered against Lee after Leifer failed to cure the default.

In September 2019, Leifer applied for professional-liability insurance with The North River Insurance Company, who approved his application and issued a claims-made insurance policy to Leifer. The Policy excluded “claims based upon ‘facts or circumstances of which [Leifer] had knowledge as of the effective date of [the Policy] and which could reasonably have been expected to give rise to a Claim’ (the ‘Prior Knowledge Exclusion’).”

The Second Circuit identified that the Prior Knowledge Exclusion required it to analyze “subjective knowledge of the insured and then the objective understanding of a reasonable attorney with that knowledge.” In applying this standard, the court found that “Leifer’s own pleadings leave no doubt that, at the time of the Policy’s effective date, (1) Leifer had knowledge of the facts and circumstances giving rise to Lee’s malpractice claim, and (2) a reasonable attorney would have understood that Leifer’s conduct could reasonably have been expected to give rise to a malpractice claim.” Specifically, Leifer admitted that he advised Lee not to file an answer in a state-court action in which Lee was named as a defendant, and later sought leave to interpose a late pleading after the plaintiff moved for a default judgment. But the state court denied Leifer’s request and ultimately entered a default judgment against Lee, citing (among other reasons) Leifer’s failure to file an affidavit from his client, as required under New York’s Civil Practice Law and Rules. (citation omitted). Based on these undisputed facts, which were known to Leifer before the effective date of the Policy, a reasonable attorney would have appreciated that Leifer’s conduct in Lee’s case might have exposed him to a claim for malpractice.”

The Second Circuit goes on to dispell Leifer’s arguments to the contrary, one at a time. First, the court notes that although Leifer argued “that he advised Lee to file an answer, but that Lee never retained him to do so,” this was “contradicted by Leifer’s answer in this case, in which he admitted that he ‘took the position of not entering an Answer.’” Second, Leifer argued “that his decision not to file an answer was justified because Lee had no meritorious defenses,” but this was again “contradicted by Leifer’s own affirmation in opposition to the motion for default judgment in the state-court action against Lee, in which Leifer affirmatively stated that Lee did in fact have a ‘meritorious defense.’” Finally, Leifer argued “that he had no reason to anticipate the malpractice suit since Lee had thanked him for his services,” but the court aptly noted that “[t]he relevant question, however, is not whether Leifer believed that Lee would bring a malpractice claim, but whether a reasonable attorney, based on the facts known to Leifer at the time, could have expected one.” (Emphasis added).

The Second Circuit affirmed the district court’s judgment on the pleadings, finding North River without any coverage obligations owed to Leifer.

Maxwell’s Minute Entry: An interesting practice tip for federal court is articulated by the Second Circuit in footnote 1 of the decision, where the court notes that

“Although Leifer’s answer inexplicably denies the assertion that the state court entered default judgment against Lee, we may still take judicial notice of the fact that the court did enter such a judgment. See Simmons v. Trans Express Inc., 16 F.4th 357, 360 (2d Cir. 2021) (noting that courts may take judicial notice of state-court judgments and filings); see also Staehr v. Hartford Fin. Servs. Grp., Inc., 547 F.3d 406, 426 (2d Cir. 2008) (holding that matters judicially noticed by a court “are not considered matters outside the pleadings”); Hirsch v. Arthur Andersen & Co., 72 F.3d 1085, 1095 (2d Cir. 1995) (recognizing that a court need not accept factual allegations that conflict judicially noticed records).”

The takeaway is that litigants are not required to accept the conclusory assertions of opponents at face value under the federal pleading standard, and, more importantly, that this is especially true where prior court proceedings entirely contradict such assertions. As third-party liability coverage actions routinely involve prior and/or contemporaneous proceedings, it is crucial to understand the positions that have been taken by your opponents before other courts and whether such positions contradict the positions taken in the coverage action itself.

 

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

On parental leave.

 

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

 

03/23/23       State Farm v. Beeharry
Supreme Court, New York County
Default Judgment in Rate Evasion Case Where Insured Failed to Subscribe to and Return Her Examination Under Oath Transcript

State Farm Mutual Automobile Insurance Company moves for an order pursuant to CPLR 3215 granting default judgment against defendant medical providers and the insured who have not appeared in the action or submitted opposition to this motion.

Beeharry purchased an auto insurance policy in May 2021 using a Troy, NY address. In August 2021, she was in an accident in Queens. The police report listed Beeharry as having a Queens address.

Beeharry subsequently submitted a No-Fault claim to Plaintiff, which Plaintiff found questionable because of the discrepancy between the policy address and the address listed for Beeharry on her application for No-Fault benefits, driver's license, police report, and vehicle registration. Plaintiff also alleges that Beeharry submitted claims for medical treatment received in downstate New York, despite purportedly living in Troy.

Plaintiff requested an examination under oath (EUO) from Beeharry to confirm the legitimacy of her claims. Beeharry appeared for her third scheduled EUO in December 2021, at which she testified that, at the time, she lived in Jamaica, Queens and had done so for 12 years; that she never lived outside New York City or at the policy address in Troy; that in May 2021 she was living at a different address in Queens Village taking care of her sick father and that the vehicle is garaged there. She further testified that she acquired the policy via an independent insurance broker — whose name or employer she did not know — and this broker filled out the policy application for her over the phone and provided the Troy address because using it would get her a better rate for the insurance policy. Plaintiff maintains that it further investigated Beeharry's EUO claims and found no evidence regarding her account of the call with the insurance broker.

Plaintiff maintains it requested that Beeharry subscribe to her EUO transcript in an email to her counsel. However, Beeharry allegedly failed to subscribe to and return her transcript to Plaintiff, which accordingly denied her No-Fault claims.

Plaintiff commenced this action on April 14, 2022. It seeks a declaratory judgment that, inter alia, it has no duty to provide No-Fault benefits for any claims submitted by or on behalf of Beeharry because of her purported material misrepresentations made in acquiring her policy and her failure to subscribe to and return her EUO transcript. Plaintiff now moves for default judgment against the Non-Answering Defendants on these causes of action.

A party is entitled to default judgment pursuant to CPLR 3215 where it files proof of service of its Summons and Complaint, proof of the facts constituting its claim, and proof of default. Here, Plaintiff has properly filed its proof of service of the Summons and Complaint on the Non-Answering Defendants and proof of the Non-Answering Defendants' default. Plaintiff also presents facts in support of its claim that Beeharry failed to subscribe to her EUO transcript.

11 NYCRR 65-1.1 requires that a No-Fault claimant fully comply with the terms of coverage in a No-Fault policy as a condition precedent to all claims against an insurer under that policy. A claimant's failure to subscribe to and return an EUO transcript constitutes a breach of a condition precedent to coverage under the applicable No-Fault regulations and warrants denial of claims submitted pursuant to a policy regulated thereunder.  Here, Plaintiff demonstrates that Beeharry failed to subscribe to and return her EUO transcript.

 

03/28/23       Andrews v. The Brethren Mut. Ins. Co.
United States District Court, M.D. Pennsylvania
In Claim Denied for Arson and Fraud, Bad Faith Claim Dismissed

The Brethren Mutual Insurance Company denied Plaintiff’s commercial property claim.   Less than five months after the purchase, the property burned. Brethren Mutual denied the claim on the grounds that the fire had been set intentionally by Andrews or at his direction. Andrews proceeded to file suit against Brethren Mutual, who has since moved for partial summary judgment.

Andrews purchased the Property on August 3, 2017, and insured the property with Brethren Mutual from August 4, 2017, to August 4, 2018. The Policy's coverage limit was $2,865,000. 

On December 14, 2017, a fire occurred at the Property. Brethren Mutual conducted an investigation, during which it worked with two different fire investigators and a private investigator and took examinations under oath of Andrews and his brothers.  On May 17, 2018, Brethren Mutual declined to cover Andrews' claim and voided the Policy, stating that Andrews had violated the Policy's "Concealment, Misrepresentation, or Fraud" condition.

The parties dispute a number of facts. The Court will describe the three most notable disputed facts below.  The parties do not dispute that evidence of a flammable liquid was found in the Property's stairwell following the fire, but they dispute why it was there. Andrews argues that the flammable liquid "was below quantities required for a positive identification," citing the December 14, 2017, Fire Investigation Report conducted by the Pennsylvania State Police (the "PSP Report").  Andrews further claims that this flammable liquid was from a substance called "Goof Off" that had been used in the stairwell as part of an ongoing refurbishment project.

Brethren Mutual's Investigation found that the positive identification of this liquid "was sufficient enough to raise the probability that flammable liquid was present during the fire," and that "this fire was an intentionally set fire with the rapid progression and the way it proceeded up to the roof and then back down."  Therefore, the parties dispute why the flammable liquid was present in the stairwell.

The parties also dispute whether Andrews had a financial motive to intentionally set the fire and cite to competing evidence regarding the Policy's coverage amount and the status of the Property's tenants.

Andrews alleges that, throughout his negotiations with the agent, Brethren Mutual not only approved of the coverage amount, but recommended increasing it.  Brethren Mutual argues that Andrews had a financial motive because the Policy's coverage amount ($2,865,000) was very high relative to the modest purchase price ($45,000).

Brethren Mutual also asserts that Andrews had a financial motive to start the fire because the Property was losing tenants.  Andrews contends that three of his four leasing tenants were still paying rent and remained under lease agreements; only one tenant, a bakery, had been regularly delinquent in paying rent.  According to Andrews, he intended to renovate and make improvements to the Property, which casts doubt on any finding that he intentionally burned it down.  Consequently, the parties dispute what Andrews' intentions were for the Property and whether he was losing tenants.

Andrews initiated this lawsuit and brought two causes of action against Brethren Mutual: (1) insurance bad faith; and (2) breach of contract.  Brethren Mutual moved for partial summary judgment on the bad faith claim.  

In Pennsylvania, to recover for insurance bad faith, a plaintiff must show by clear and convincing evidence that the insurer (1) did not have a reasonable basis for denying benefits under the policy, and (2) knew or recklessly disregarded its lack of reasonable basis in denying the claim. The defendant insurer "can defeat a plaintiff's claim by showing that it had a reasonable basis to deny the claim," and it is not bad faith to "conduct a thorough investigation into a questionable claim." With respect to bad faith claims, summary judgment in favor of an insurer "is appropriate where there is no clear and convincing evidence that [the insurer] knew or recklessly disregarded its lack of a reasonable basis in denying the claim."

As stated above, the parties dispute multiple facts. The inquiry for the Court, then, is whether these disputes are genuine (i.e., whether a reasonable jury could return a verdict for Andrews), and whether these disputed facts are material (i.e., whether they could alter the outcome of Andrews' bad faith claim). The Court finds that while the disputes are genuine, they are not material to the outcome of the claim.

The first disputed fact is why the flammable liquid was in the Property's stairwell. Andrews, citing the PSP Report and his own testimony, ipse dixit, asserts that trace amounts of the liquid were present in the stairwell because "Goof Off" had been used as part of a refurbishment project. Brethren Mutual, citing the findings of the Investigation, contends that the liquid was in the stairwell because Andrews or someone at his direction used it to intentionally set the Property ablaze. The Court finds this dispute to be genuine. A reasonable jury, when considering the PSP Report and Andrews' testimony regarding the refurbishment he was completing on the stairwell, could agree with Andrews that the flammable liquid was in the stairwell for an innocuous reason.

The second disputed fact relates to financial motive and why the Policy's coverage amount was so high relative to the purchase price of the Property. Brethren Mutual, citing to the disparity between the Property's purchase price and the Policy's coverage limit, argues that Andrews possessed the financial motive to set the fire intentionally. Andrews, citing to the testimony of Fryer, states that Brethren Mutual required such high Policy coverage limits after conducting its own due diligence and inspection. The Court also finds this dispute to be genuine. A reasonable jury could agree with Andrews and conclude that the Policy's high coverage amount was calculated and agreed upon at Brethren Mutual's insistence.

The third disputed fact, also relating to financial motive, is whether Andrews was losing tenants at the Property. Brethren Mutual, citing the emptiness of the Property and Andrews' communications with the bakery tenant, states that tenants were leaving the Property en masse. Andrews disagrees, citing to his testimony stating that the bakery tenant was the only tenant not paying rent or complying with the terms of its lease. The Court finds this dispute to be genuine as well. A reasonable jury could agree with Andrews and find that he was not experiencing an exodus of tenants, and that he did in fact plan to improve the Property.

However, a genuine dispute is only half of the equation required for summary judgment analysis. Where genuine disputes exist, they must involve material facts, which is to say facts that could affect the outcome of a claim. And the disputes present in this case do not involve material facts. In order for a fact to affect the outcome of Andrews' bad faith claim, it would have to lead a reasonable jury to conclude that Brethren Mutual did not have a reasonable basis for denying benefits under the Policy, and that it knew or recklessly disregarded its lack of reasonable basis in denying the claim. The law is clear that it is not unreasonable for insurance companies to conduct and rely on investigations when denying claims.

In fact, "if an insurer demonstrates that it conducted a substantial and thorough investigation, and that it relied on this investigation as a basis for deciding to continue or discontinue benefits, then the insurer defeats the bad faith claim." And "a court may enter summary judgment against an insured who fails to demonstrate clear and convincing evidence of a bad faith claim."

Courts have found insurers to have acted in bad faith in scenarios such as the following: (1) insurance company failed to timely investigate and accept a report of insured's claim following damage caused by a defect in the insured property's foundation; (2) a motorist insurer refused to compensate, or even investigate the claim, of an insured motorist after the motorist suffered a serious accident; (3) after conducting no investigation, an insurer terminated the insured's benefits on the grounds that the insured was no longer "totally disabled" based on an incomplete report by the insured's physician; (4) after damage occurred to the insured premises, insurer unreasonably and without justification refused to pay proceeds and withheld a "hold back" payment for two years after the loss.

Brethren Mutual's conduct here does not resemble that of insurers who acted in bad faith. The record indicates that the fire loss took place on December 14, 2017. Brethren Mutual's Investigation—conducted by third party investigators—took place over the next several months, and Andrews was denied coverage on May 17, 2018. The Investigation's findings were supported by photos of the Property, interviews and examinations under oath, and reports of a private investor. The Investigation concluded that the fire had been set intentionally, and there is nothing in the record—certainly nothing clear and convincing—to indicate that it was unreasonable for Brethren Mutual to rely on that supported conclusion.

And it is important to note that an insurance company can make mistakes, behave negligently, or even exercise bad judgment without reaching the very high standard of conduct required for bad faith. Brethren Mutual's conduct does not rise to that level. Even if a reasonable jury could find that the flammable liquid was in the stairwell because of the refurbishment project, that Brethren Mutual required the Policy's coverage limit to be high, and that Andrews was not losing tenants at the Property, that same jury could also find that it was perfectly reasonable for Brethren Mutual to review the Investigation's report, determine that the fire had been set intentionally, and deny Andrews' claim. The evidence available to Brethren Mutual at the time that it denied the claim supported its determination that the fire was intentionally set and that Andrews had a financial motive to set that fire. In sum, Andrews has failed to demonstrate by clear and convincing evidence that Brethren Mutual acted in bad faith. Because the Court has established that no genuine dispute of material fact exists as to Andrews' bad faith claim, and that it was not unreasonable for Brethren Mutual to deny Andrews' claim, summary judgment is granted in favor of Brethren Mutual. Andrews' breach of contract claim survives, and he will have the opportunity to further dispute Brethren Mutual's denial of his insurance claim at trial.

 

04/10/23       United States v. George Constantine., et al
United States District Court, S.D. New York
Court Refuses to Overturn Conviction of Orthopedic Surgeon in Trip-and-Fall Scheme

Having been found guilty by a jury in December 2022 of two counts each of mail and wire fraud and two counts of conspiracy, defendant Andrew Dowd moves this Court for a judgment of acquittal pursuant to Fed. R. Crim. Pro. 29(c). Dowd alleges that the evidence presented at trial was not legally sufficient to permit a rational juror to find beyond a reasonable doubt that Dowd knowingly participated in the charged trip-and-fall scheme.

The Court finds that the evidence, taken in the light most favorable to the Government, was plainly sufficient to permit a rational juror to find beyond a reasonable doubt that Dowd possessed the requisite knowledge for a guilty verdict. Dowd's motion is denied.

Dr. Andrew Dowd is an orthopedic surgeon who has been found by a jury to have participated in an elaborate and extensive fraud scheme. From 2013 to 2018, hundreds of individuals were recruited to serve as alleged "victims" of orchestrated trip-and-fall accidents in order to obtain millions of dollars in personal injury damages from property owners and their insurance carriers. Five defendants who planned and operated the scheme were indicted in April 2019 for conspiracy to commit mail and wire fraud. Defendant Peter Kalkanis managed the conspiracy, while defendants Kerry Gordon, Bryan Duncan, Robert Locust, and Ryan Rainford served as "runners" who identified accident sites, recruited patients, transported them to and from medical and legal appointments, and instructed the patients how to fake injuries. Kalkanis and Gordon pleaded guilty before trial, and Duncan, Locust, and Rainford were each found guilty following a jury trial in May 2019.

Two years later, in August 2021, the Government indicted another set of five defendants in connection with their participation in the scheme: attorneys George Constantine and Marc Elefant were indicted for allegedly filing fraudulent lawsuits on behalf of the recruited individuals to obtain personal injury settlements, while loan provider and owner of an MRI facility Dr. Adrian Alexander, as well as Drs. Sady Ribeiro and Andrew Dowd, were charged with performing unnecessary medical procedures, including surgeries, on the participants in order to inflate the settlement values of the personal injury lawsuits. Defendants Alexander, Ribeiro, and Elefant each pleaded guilty prior to trial, while defendants Constantine and Dowd were tried in December 2022 and found guilty by a jury.

Fed. R. Crim. Pro. 29(c)(2) permits the Court to "set aside the verdict and enter an acquittal" after the jury has returned a guilty verdict. In adjudicating such a request, the Court "must determine whether upon the evidence, giving full play to the right of the jury to determine credibility, weigh the evidence, and draw justifiable inferences of fact, a reasonable mind might fairly conclude guilt beyond a reasonable doubt."  The Court must "view the evidence presented in the light most favorable to the government," and "all permissible inferences must be drawn in the government's favor."  The jury having already found beyond a reasonable doubt that the Government did prove its case, Dowd now faces a "heavy burden" to overturn that conclusion.  The verdict must be upheld if "any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." 

Defendant argues that the Government failed to meet its burden as to one element: that Dowd willfully and knowingly participated in the staged accident scheme, meaning he 1) intended to participate in the scheme and 2) had knowledge of its general scope and purpose as well as its fraudulent nature. As to the knowledge element, the Government was able to prove its case through evidence that Dowd actually knew of the scheme's general scope and purpose and fraudulent nature, or through evidence that Dowd consciously avoided that knowledge.  To prove conscious avoidance, the Government needed to show beyond a reasonable doubt that 1) Dowd subjectively believed there was a high probability that the injuries were false and in service of filing fraudulent lawsuits, and 2) that Dowd took deliberate actions to avoid learning of that fact. 

As far as what the Government was permitted to introduce to prove this element, "circumstantial evidence can be as compelling as direct evidence and a conviction can rest solely on circumstantial evidence."  In particular, since "conspiracy by its very nature is a secretive operation, the elements of a conspiracy may be established through circumstantial evidence." 

The Government presented amply sufficient evidence to permit a rational juror to infer that Dowd intended to participate in a criminal scheme. "The government must first prove the defendant intended to engage in the charged scheme. Here, the prosecution needed to prove beyond a reasonable doubt that plaintiff knew the ... conspiracy existed and that he knowingly and willingly joined in it."  "Once the conspiracy has been shown to exist—as has been conceded—evidence sufficient to link another defendant to it need not be overwhelming, and may be proved entirely by circumstantial evidence." 

Dowd was an essential player in the scheme to defraud insurance companies, regularly communicating with the manager of the scheme — Kalkanis — and coordinating with the runners who delivered patients and paperwork to Dowd. He provided appointments, undertook limited questioning of the patients, supplied medical documentation and performed hundreds of unnecessary surgeries that were crucial to the success of the scheme. Dowd received numerous checks from Kalkanis for his work. He conducted himself in "the manner that thieves would" when it came to patients referred by Kalkanis: he knew patients referred by Kalkanis were coming from runners and he paid patient referral fees to Kalkanis in exchange for the referrals, even though doing so risked his medical license.  He falsified medical reports by reporting having performed certain tests that he did not do. He did not report more than half of what he was paid by Kalkanis to the IRS. Dowd even asked one patient if he "wanted a scar on his knee or if he wanted the full surgery." Finally, the circumstances under which these patients came to and dealt with Dowd bore various suspicious hallmarks of fraudulent claims, detailed further below, and nearly all of the patients referred to Dowd by Kalkanis were claiming injuries that were non-existent. Given that Dowd received $3.2 million in $10,000 checks from a scheme that consisted almost entirely of patients with fake injuries, and behaved in the manner of a doctor who knew the injuries were fake, a reasonable jury was entitled to infer that he intentionally participated in diagnosing and treating patients with fake injuries that were part of the scheme to defraud insurance companies.

The Government also presented sufficient evidence for a rational juror to infer that Dowd knew of the nature of the scheme, either through actual knowledge or conscious avoidance. A rational juror could certainly infer that Dowd, at the very least, subjectively believed there was a high probability that the injuries were false and in service of filing fraudulent lawsuits.

The jury heard testimony from several patients themselves as well as from an orthopedic expert that the nature of Dowd's appointments with these patients were inconsistent with typical orthopedic appointments, and consistently atypical across patients. Each of the patients involved in the scheme met with Dowd only once before surgery, was not physically examined, was not presented with any alternatives to surgery, and was not assessed for risk factors before surgery. The only patient who testified that Dowd offered him an alternative to surgery was not asked by Dowd if he would prefer a less invasive procedure, but rather was asked if he wanted the surgery or only a scar to make it look as though he had surgery.  Sometimes, runners would even sit in on these patients' appointments, and having communicated with the same runners across scores of patients, who were normally brought to Dowd's offices by the carload, Dowd could hardly have mistaken the runners for friends or family members of the patients.

The Government's expert, whom a rational juror could have credited, testified based on his review of Dowd's patient files that Dowd's initial exam notes described these patients' "injuries" in both a consistent and a thoroughly generic manner, and gave diagnoses that had no clinical meaning. The jury saw documents showing that Dowd consistently would order an MRI under the auspices of determining whether surgery was warranted, but would then quickly schedule surgery and receive payment from funding companies for surgery even before reviewing the results of the MRI.

Additional emails and text messages in evidence certainly suggest that Dowd was aware of the purpose of the scheme and his role in it; specifically, to inflate the value of repeated settlements with insurance companies. For example, Kalkanis reminded Dowd in writing that lawyers like Elefant "cannot put numerous cases into suit without your vital reports."  Kalkanis asked Dowd to change his report about a patient to say specific things about that patient's condition that he had not previously written, and Dowd complied.  Dowd even appears to have assisted Kalkanis in finding lawyers to participate in the scheme, saying in a text to Kalkanis: "I have two other attorneys in mind who could also be trusted to keep their word and might be prepared to move quick ... I think we would have more control with Victor."

Even if a juror were inclined to find Dowd did not actually know the nature of the scheme, there was ample evidence from which that juror could conclude that Dowd took deliberate actions to avoid learning of it.

First, the patients that were referred to Dowd through Kalkanis, for a fee which his professional rules did not permit him to accept, were visibly distinct. These patients arrived by the carload, frequently smelling of body odor and substances — alcohol or marijuana — and caused disturbances in the parking lot or Dowd's waiting room.  But Dowd asked no questions as to where these patients were coming from, and to Kalkanis's delight, "offer[ed] no resistance whatsoever. He examines the patient, gets a surgical clearance, and surgery completed within a week's time."

Jurors could also rationally infer from the testimony of the Government's orthopedic expert and from Dowd's extensive experience that Dowd understood the injuries claimed by the patients were inconsistent with trip-and-fall accidents.  Nearly all of the patients referred by Kalkanis purported to have the same injuries (cracking, popping, and clicking sounds, and internal derangement of the right knee) under the same circumstances (a trip and fall at or near a business, sometimes a few on the same date, where there normally were no cameras to record the accident) and experience the same level of pain. By failing to conduct even basic physical exams, Dowd avoided confirming that these patients were not injured at all.  And Dowd's failure to actually review the MRI images taken of these patients' "injuries" before recommending that they have surgery certainly suggests Dowd was affirmatively choosing not to determine whether or not surgery was needed before recommending the patient undergo surgery.

Dowd argues that because there is no evidence that a patient told him directly that his or her accident was staged, no jury could find that Dowd had knowledge of the nature of the scheme, or even that he consciously avoided it. But the law does not require such explicit evidence, for "conspiracy, by its very nature, is characterized by secrecy," and a "mutual understanding ... may be unspoken." It is undisputed that the runners instructed the patients to lie to Dowd about their injuries, but based on the other evidence, a jury could reasonably infer that Dowd was aware of this arrangement, and that its purpose was for Dowd "to be able to say, should he be apprehended, that he did not know," which is precisely the "deliberate avoidance of positive knowledge" that can serve as "the equivalent of knowledge" for a finding of conscious avoidance.  Indeed, multiple patients testified that they were left with the impression that Dowd knew their injuries were fake after seeing him.  One patient stated: "I didn't think I had to lie to the doctor; I didn't think I had to lie to anyone ... because everyone was in on the scam. Everyone."

This evidence is not for the Court to disregard. Based on this evidence, a reasonable jury was certainly entitled to infer that Dowd either knew or consciously avoided knowing the nature and purpose of the scheme alleged in the indictment, and knowingly and intentionally participated in it.

Dowd contends that here, "the evidence viewed in the light most favorable to the prosecution gives equal or nearly equal circumstantial support to a theory of guilt and a theory of innocence," and therefore "a reasonable jury must necessarily entertain a reasonable doubt."  Viewing the aforementioned evidence at trial in the light most favorable to the prosecution, this Court disagrees that the evidence gives "equal or nearly equal circumstantial support" for Dowd's innocence as for his guilt.

More importantly, "if the court concludes that either of the two results, a reasonable doubt or no reasonable doubt, is fairly possible, he court] must let the jury decide the matter."  Because the Court finds it was fairly possible for a rational jury to find no reasonable doubt as to Dowd's guilt, the Court declines to overturn the jury's sound verdict of guilty.

Accordingly, Dowd's motion for a judgment of acquittal is denied.

 

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

 

04/14/23       ExxonMobil Corp. v. Nat. Union Fire Ins. Co.
Supreme Court of Texas
An Insurance Policy Does Not Incorporate the Payout Limits in an Underlying Service Agreement

ExxonMobil Corporation hired Savage Refinery Services to work as an independent contractor at Exxon’s refinery in Baytown, Texas. The parties entered a service agreement under which Savage promised to obtain at least a minimum amount of liability insurance for its employees and to name Exxon as an additional insured. Savage procured five different insurance policies. National Union Fire Insurance Company underwrote two of them—a primary policy for general commercial liability and an umbrella policy. Starr Indemnity & Liability Insurance Company, the other respondent, underwrote a third policy.

A workplace accident occurred at Exxon’s Baytown refinery in which two Savage employees were severely burned. The employees sought compensation for their injuries and later settled with Exxon for a collective amount over $24 million. About $5 million of that settlement money came from some of Savage’s primary-insurance policies under which Exxon was recognized as an “additional insured,” including the primary policy underwritten by National Union, which was exhausted to its limits. Exxon paid the rest of the settlement money out of pocket because National Union and Starr both denied Exxon coverage under their umbrella policies.

Exxon sued both National Union and Starr for breach of contract, asserting that both had wrongfully denied coverage. Multiple summary-judgment motions focused on Exxon’s status as an “insured” under those umbrella policies and whether Exxon’s service agreement with Savage otherwise limited its entitlement to further policy proceeds. The trial court ultimately sided with Exxon, ruling that National Union (but not Starr) was obligated under its umbrella policy to reimburse Exxon for the roughly $20 million it had paid in settling with the two injured employees. National Union appealed and maintained that Exxon was not insured under its umbrella policy. The court of appeals agreed with National Union and reversed because it concluded that the umbrella policy incorporated the primary policy’s limits and that the primary policy in turn incorporated the limits of the underlying service agreement, which required only commercial general liability insurance of a specified minimum amount. For similar reasons, the court affirmed the summary-judgment ruling in favor of Starr.

The Texas Supreme Court considered whether an insurance policy incorporates the payout limits in an underlying service agreement. The terms of a separate contract may be incorporated by reference into an insurance policy if that reference is clearly manifested in the terms of the policy itself; however, the umbrella policy did not say anything at all, even by reference, about the service agreement’s payout limits, there were no limits in the service agreement to adopt, and the primary policy had its own payout limits.

The umbrella policy expressly covered additional insureds, as defined in the primary policy. The primary policy covered anyone Savage agreed to provide insurance based on a contract or agreement. Thus, Exxon was an additional insured under National Union’s primary policy. By incorporating the primary policy for the limited purpose of identifying who is an insured, the umbrella policy also insured Exxon. The umbrella policy disclaimed “broader coverage” than the primary policy offered, preventing Exxon from demanding that National Union pay for losses that the primary policy would not reach, but Exxon only sought the same coverage as the primary policy after the primary policies were exhausted.

Accordingly, the court reversed and remanded, holding that an insurance policy does not incorporate the payout limits in an underlying service agreement based on the rules of contract interpretation and incorporation by reference.

 

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

 

04/14/23       Willaim Vale Hotel, LLC v. Fireman’s Fund Ins. Co.
New York State Supreme Court, County of Kings
Impending New Precedent Only Stays Another Case if it is Likely to Have Significant Impact Thereon

The insured made a claim with its commercial property carrier for lost income it sustained as a result of the government-mandated shutdowns imposed in the wake of the COVID-19 pandemic. The carrier denied this claim on the ground that the insured premises sustained no direct physical loss, and the insured sued.

After the present case went into litigation, the plaintiff-insured sought a stay of the case pending a decision from the New York Court of Appeals in another matter, captioned Consolidated Restaurant Operators Inc. v. Westport Insurance Corp. The question on appeal in that case is whether the actual presence of COVID-19 within a business constitutes “direct physical loss or damage to property,” as required by the insuring agreement in most commercial property policies. The plaintiff-insured submitted that a decision in Consolidated would instruct this Court’s resolution of its claim.

In its decision on the plaintiff’s motion to stay, the Court first recognized that it is appropriate, in some instances, to stay a case pending the resolution of another case by an appellate court having binding or persuasive authority over the instant action. However, the Court noted that this is only so where the other case would have a “significant impact” on the instant action.

In assessing whether Consolidated would have a “significant impact” on this case, the Court noted that the question being examined by the Court of Appeals there has to do with the instance in which COVID-19 is physically in the insured premises. While the plaintiff-insured argued that its second-amended pleading included allegations along these lines, the Court stated that the plaintiff’s first-amended pleading was the operative one at this juncture, and that it did not. Accordingly, the Court concluded that the outcome in Consolidated would have no bearing on the outcome of the instant action, and denied the motion to stay.

 

04/14/23       State Farm Mut. Auto. Ins. Co. v. Equinox Phys. Therapy, P.C.
New York State Supreme Court, County of New York
The Failure to Attend a Properly-Noticed Examination Under Oath Vitiates Coverage

Three claimants sought no-fault benefits from the defendant-insurer, including payment for medical treatments they received from several providers.

During the defendant-insurer’s investigation of the respective claims, it determined that further investigation was necessary in light of a founded belief that the claimant’s injuries for which they sought treatment did not arise from their respective claims. Accordingly, it elected to examine each claimant under oath. Specifically, the insurer scheduled and then sent out notices of each of the three examinations under oath to take place. However, none of the claimants appeared for their respective EUO’s. Since this constitutes a violation of the conditions of the no-fault policy (and most other types of insurance policies), operating as a condition precedent to coverage, the insurer denied coverage.

11 NYCRR 65-3.5 governs potential examinations under oath in the context of claims for no-fault benefits. Subsections (b) and (d) thereof provide that a no-fault insurer has the right to seek additional verification, including an EUO, if, based on objective standards, it believes that such verification is necessary to establish proof of the claim. As the Court noted, “[A]ttendance at a timely and properly-scheduled EUO is a condition precedent to coverage, and a claimant’s failure to appear vitiates coverage.”

In order to withstand a lawsuit arising out of its disclaimer of coverage as a result of the claimants’ failure to attend an EUO, in the no-fault context, an insurer must provide proof that the EUO requests were timely mailed. This means that the EUO requests must be timely mailed within 15 business days of receipt of the verification forms prescribed by 11 NYCRR 65-3.5. However, if the EUO is scheduled and noticed before such verification forms are received by the insurer, this requirement does not apply.

Here, the defendant-insurer issued the EUO notices before it received any of the claimant’s verification forms. Accordingly, the 15-day requirement, discussed above, did not apply. To withstand the lawsuit brought by the claimants, the insurer submitted affidavits of persons with knowledge of the mailing of the EUO letters, and of the claimant’s non-appearance at the EUO’s. Since this is precisely what is required of an insurer in this instance, the Court upheld the defendant-insurer’s disclaimer of coverage as to all three claimants based on their respective failures to attend their EUOs.

 

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

 

04/26/23       Adirondack Insurance Exchange v. Rodriguez
Appellate Division, Second Department
No Fault Health Care Providers Do Not Get Paid for Treating Fraudulent Accident Victims

Two automobile insurance carriers, commenced this action, inter alia, for a judgment declaring that certain collisions involving insured motor vehicles were intentional acts and that they therefore had no duty to pay no-fault claims relating to those collisions. On July 29, 2019, the Supreme Court entered a judgment on default against a number of the defendants, including the insured individuals, and declared, among other things, that the collisions were intentional acts, and the plaintiffs had no duty to pay related no-fault claims.

Thereafter, the carriers moved, inter alia, for summary judgment on the complaint insofar as asserted against the health care providers who allegedly provided medical care to these same individuals.

An intentionally caused or staged vehicular collision is not a covered accident under an insurance policy.   When a collision is intentionally caused, the insurer is not obligated to provide coverage, even to innocent third Here, the insurers demonstrated their that the collisions were intentional. Specifically, the plaintiffs proffered evidence that the insured individuals procured the subject insurance policies fraudulently and that the collisions occurred under similar circumstances. In both collisions, the insured individuals were not in the insured vehicles at the relevant time, the insured vehicles struck a UPS truck while exiting a parking space, the individuals involved in the collisions were all closely interrelated, and all of the individuals allegedly injured in the collisions sought treatment from the same healthcare providers. In opposition, the appellants failed to raise a triable issue of fact.

The insurers met their burden to support their motion with admissible evidence by including affidavits from witnesses personally knowledgeable about material facts.

 

04/19/23       Matter of Government Empls. Ins. Co. v. Eser
Appellate Division, Second Department
Insurers Unjustified Failure to Timely Investigate SUM Claim Precludes a Stay of Article 75 SUM Arbitration

Ms. Eser was involved in auto accident on December 13, 2019, and she provided GEICO with notice on January 6, 2020. On January 10, 2020, Ms. Eser informed GEICO that she would be making a claim for uninsured motorist benefits under her GEICO policy. In doing so, she provided GEICO with medical records and release authorizations to obtain medical records. GEICO issued a series of letters dated January 10^th, January 17^th, and May 29^th all in 2020 that had reason to believe that the other motor vehicle in the accident was insured, and GEICO was investigating the issue.

On letter dated August 28, 2020, GEICO denied Ms. Eser’s SUM claim concluding that she did not suffer a serious injury as defined by Insurance Law § 5102(d) after a review of Ms. Eser’s medical records. Ms. Eser filed for SUM arbitration and GEICO petitioned to stay the Article 75 arbitration. The Supreme Court granted the petition and Ms. Eser appealed.

The Second Department reiterated the standard regarding a failure to timely investigate an insured’s SUM claim. "Where an insurer has ample time to seek discovery of its insured as provided for in an insurance policy, but unjustifiably fails to do so in that time, it is not entitled to a stay of arbitration." However, “where an insurer presents a justifiable excuse for its failure to seek such discovery, a temporary stay of arbitration will be granted in order to allow the insurer to obtain the information sought."

After reciting the standard, the Second Department determined GEICO failed to timely investigate Ms. Eser’s SUM claim despite having ample time to do so, thereby, granting Ms. Eser’s appeal and denying GEICO’s stay of arbitration. Significantly, the court found GEICO had ample time to seek a medical examination and examination under oath but failed to do so.

GEICO’s argument was that in its previous letters it had requested those examinations. However, the court rejected this argument by finding GEICO’s letters merely advised that if it determined the other vehicle was uninsured, then it “may require” Ms. Eser to submit to physical examinations and/or Examination(s) Under Oath. In sum, the Second Department found such language did not actually request Ms. Eser to submit to examination and examination under oath; and GEICO had ample time to conduct such examinations to further investigate the claim prior to its denial and subsequent petition to stay arbitration.

The value of this case is that if you are handling a SUM claim and have doubts about whether an injury is serious or a vehicle is uninsured, make sure you affirmatively state your demands for physical examinations and examinations under oath in a timely manner. GEICO did not issue its SUM denial until three months after advising the insured of its doubts that the other vehicle was uninsured. In reviewing that letter, among the two previous, the Second Department found the “may require” language was advisory only, not a demand or request. Thus, the court is signaling that strong, affirmative language must be used in such situations to avoid an unjustified failure to investigate the claim.

 

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

 

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

 

04/05/23       Pederson v Allstate Insurance Company of Canada
2023 ABKB 198
Where there are Competing Versions of Evidence that Goes to Both Liability and Coverage and, if Decided One Way, Would Eliminate Coverage, a Liability Insurer is Best Advised to Defend Under a Non-Waiver and Let the Outcome of the Liability Case Determine Coverage

It all started on February 17, 2003. On that fine day, while driving in Edmonton, Alberta, Kathryn Pederson was rear-ended.  (Okay, it is likely it wasn’t a fine day – it was February in Alberta.) The offending vehicle sped off after impact. Pederson only got a blurry, fleeting glimpse of the vehicle that hit hers, as she lost her glasses in the collision. Pederson sustained severe injuries. As she did not know who hit her vehicle, she issued a Statement of Claim against the Administrator of the Motor Vehicle Accident Claims Act.

The filing of that action took Pederson down in a long, winding, ten-year, tortuous legal path that resulted in three amendments to the action, multiple contested applications, producing written reasons on several important legal issues. But, perhaps the most fascinating points in this legal drama are those that were decided by the Alberta Court of King’s Bench in this decision rendered April 5, 2023.

Investigation established that the vehicle that rear-ended Pederson was owned by a person whose last name was Danyluk and insured by Allstate under a liability policy with limits of $1 million.  Danyluk told Allstate that the vehicle was stolen prior to this collision and that she did not know who was driving it. Through the investigation that revealed Danyluk’s identity, Allstate knew that there were witnesses that stated that a member of Danyluk’s household, Norton, was driving.

The witnesses contradicted each other telling competing versions of the events leading to the collision that were mutually exclusive. Each version could be attacked based on credibility and reliability.  Facing no clear path on the evidence, Allstate issued a non-waiver, appointed counsel, and defended Danyluk, endorsing the theory that the vehicle was stolen, and Danyluk was not liable.

Pederson’s action against the Administrator of the Motor Vehicle Claims Act went to trial on liability. At that liability trial, the trial judge found that the vehicle that rear-ended Pederson was, indeed, registered to Danyluk; that Norton was driving; that Norton was a member of Danyluk’s household (which under Alberta legislation made Danyluk vicariously liable for Norton’s use and operation of the vehicle); that both Danyluk and Norton had lied throughout, concocting the story that the vehicle had been stolen.

Following the trial, Allstate denied liability under the policy due to the proven lies of Danyluk and Norton, which put both squarely within an exclusion.  Counsel appointed by Allstate to defend Danyluk and Norton withdrew.

The denial meant that Allstate was not obliged to indemnify either Danyluk, or Norton, but remained obliged by statute to pay any judgment that Pederson obtained against Danyluk and Norton up to the minimum liability limits in Alberta which is $200,000. 

Pederson argued in in this proceeding that Allstate was not entitled to take an off-coverage position following the liability trial; that it had multiple indications that the named and un-named insureds were lying, and it failed to investigate; that it is now estopped from asserting the policy breach. Pederson was joined in that argument by her SEF 44 insurer, Economical (in other words, her underinsured protection insurer). If Allstate was estopped, then Allstate would be liable to pay all of Pederson’s damages up to and including the Allstate policy limit of $1 million.

The Court determined that the duty of an insurer to investigate is a duty that it owes to its insured. That duty is not owed to third parties. Allstate’s duty to its insureds was to investigate fairly, in a balanced and reasonable manner.  Allstate was obliged to know the facts revealed by its own files and issues of public notoriety. Allstate was not obliged “go the extra mile to find policy breaches.”

The Court found that Allstate did not have conclusive evidence that Danyluk and Norton were lying. Allstate knew that there was contrary evidence to Danyluk and Norton’s version of events, but that is not full knowledge of the material facts. It is only knowledge that there were competing versions of the events. In view of this, the Court determined that Allstate did not breach any duty it owed to Danyluk and Norton to investigate the claim and, therefore, Pederson cannot complain that Allstate was derelict in its investigative duties. By electing to defend under a non-waiver, Allstate was acknowledging that the claim against its insured could possibly result in coverage, but was not representing that it would forgo all coverage issues and pay the resulting claim.  As a result, by electing to defend, Allstate did not waive its legal right to deny coverage.

The Court then turned to the estoppel argument. The first element of estoppel requires that Pederson prove that she had a legal relationship with Allstate. In this case, Pederson has a statutory right of action against Allstate. The court held “…it is unlikely ….[the statutory right of action constitutes] …. a sufficient legal relationship between Pederson and Allstate to meet the first element of the test for estoppel, but if I am wrong, I will consider the remaining portions of the test.”

As to the remaining elements of estoppel, if Allstate’s election to defend the claim constituted a representation (which it is not) and if Pederson and Allstate were in a legal relationship (they weren’t), then the Court found that Pederson did not rely to her detriment on any express or implied representation by Allstate that it would extend coverage to its insureds for any judgment against them up to and including the policy limits. There was no evidence that Pederson would have conducted the litigation differently if she had known that Allstate might deny coverage.  Prejudice would not be presumed in this case of a third party claiming on an insurance policy to which she is not a party.

Finally, the Court dismissed Pederson’s argument that Allstate acknowledged coverage by overpaying its statutory obligation to reimburse the Accident Fund up to and including $200,000 by including post-judgment interest on top of the statutory amount. The Court concluded that an insurer in Allstate’s position is statutorily obligated to pay post-judgment interest. Allstate did not pay any more than it was required to pay.

For these reasons, Allstate was not estopped from denying coverage.  Pederson’s action against Allstate was dismissed.

Although this is an auto case where the rights of action are largely governed by legislation, this decision has application to other forms of liability insurance.  Where, there are competing versions of evidence that goes to both liability and coverage; and each version of the events is mutually exclusive of the other; a liability insurer is best advised to defend under a non-waiver and ‘let the chips fall where they fall’ before taking a coverage position.  In doing so, it is unlikely that any party claiming against the insurer either through legislation or by assignment, will be able to successfully argue that the liability insurer is estopped from denying coverage. This has significant application to D&O claims where directors are accused of fraud, or other intentional acts that could vitiate coverage.

 

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