Volume XXIV, No. 25 (No. 646)
Friday, May 26, 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.
A special welcome to our several new subscribers from LMIC. So you know, this is the cover letter to our newsletter and the Coverage Pointers publication is attached.
We pay tribute to our fallen soldiers who made the ultimate sacrifice for our freedoms.
Grieving Families Act:
As noted in Rob Loutitt’s column below, the Grieving Families Act, 2023 version (which expands dramatically, recovery in wrongful death lawsuits, is starting to move in the New York legislature, as the body moves into the final few weeks of the legislative session. Stay tuned.
Dipping My Toe into Artificial Intelligence (AI):
I often wonder about my intelligence, whether it be natural or artificial. But I do know that there has been a tremendous growth in AI and through ChatGPT, it’s even available to folks like you and me. I asked ChatGPT about Coverage Pointers, and this was its response:
Coverage Pointers is a newsletter published by Hurwitz & Fine, P.C., a law firm in Buffalo, New York, specializing in insurance coverage and defense. The newsletter provides updates and analysis on recent developments in insurance law and related legal issues. It covers a wide range of topics, including liability insurance, property insurance, no-fault insurance, workers' compensation, and general litigation. Coverage Pointers is aimed at insurance professionals, attorneys, and other individuals involved in the insurance industry. It is available online and is published on a regular basis, typically once a month.
The newsletter is known for its in-depth analysis and practical insights into complex insurance coverage issues and is widely regarded as a valuable resource for insurance professionals and attorneys.
It was pretty darn good. We publish on alternating weeks, so the frequency was off, and it hasn’t realized that we dropped both the ampersand and the comma from our firm name, Hurwitz Fine P.C. It didn’t reflect that we have state-wide and Connecticut counsel, but that ain’t bad.
Giving it another challenge, I asked about the difference between contractual indemnity claims and additional insurance. Its answer was, again, mostly on the mark:
Contractual liability and additional insured coverage are both terms used in insurance policies, but they refer to different things.
Contractual liability refers to a legal obligation that one party assumes under a contract with another party. In an insurance policy, contractual liability coverage provides protection to the policyholder for claims arising out of their contractual obligations. For example, if a construction company agrees to indemnify a property owner for any damages caused during a construction project, the company's contractual liability insurance would cover the costs of any resulting claims or lawsuits.
On the other hand, additional insured coverage is a type of insurance endorsement that extends coverage to a third party under the policy. This means that if the third party is named in a claim or lawsuit, they will have coverage under the policy. For example, if a contractor is hired to perform work on a property, the property owner may require the contractor to name them as an additional insured on the contractor's liability policy. This way, if the contractor is sued for damages, the property owner will also have coverage under the policy.
In summary, contractual liability coverage protects the policyholder from claims arising from their contractual obligations, while additional insured coverage extends coverage to a third party under the policy.
Finally, for our new summer clerks, Victoria Heist, Lexi Horton, Noah Neale, and Sara Zaprowski two of whom were superb graduates of our Insurance Law class at the Buffalo Law School, we welcome you to our family. I asked ChatGPT if there is a future in insurance coverage law, and like the Magic Eight Ball, we received a positive response:
Yes, there is a future in insurance coverage law. As the insurance industry continues to evolve and become more complex, there will be a growing need for legal professionals who can assist clients with insurance-related issues. Additionally, with the increasing frequency and severity of natural disasters and other catastrophic events, insurance coverage disputes are likely to become more common. This, in turn, will create more demand for insurance coverage lawyers who can help clients navigate these complex issues.
Pretty cool.
Heather Sanderson Welcomes a Granddaughter:
Congrats to Heather Sanderson, our Canadian correspondent, and her husband Len and the entire Sanderson clan on the birth of their first granddaughter!
Welcome Rob Caggiano to the CP Editorial Staff:
Rob Caggiano has taken over the reins of the Serious Injury Threshold column, a very popular topic for those involved in motor vehicle litigation. Rob is part of our transportation team and brings a fresh perspective to this important topic. Welcome!
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 partnres, Mike Perley and Ann Evanko, are also available to help resolve other challenges.
You don’t want adverse precedent that will bite you next time you might have a slightly different view on coverage issues. You don’t want to spend tens of thousands of dollars to litigate a coverage issue before a motion judge or appellate justice that knows as much about insurance coverage as you do about nuclear physics. For those in the Western District of New York, I am certified by the Court and on the WDNY Mediation Panel as are Mike and Ann.
Try mediation.
Newsletters:
We have other firm newsletters to which you can subscribe by simply letting the editor (or me) know, including a new publication, which was created to advise on business and employment law questions:
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Premises Pointers: This monthly electronic newsletter covers current cases, trends and developments involving premises liability and general litigation. Our attorneys must stay abreast of new cases and trends across New York in both State and Federal Court and will now share their insight and analysis with you. This publication covers a wide range of topics including retail, restaurant, and hospitality liability, slip and fall accidents, snow and ice claims, storm in progress, inadequate/negligent security, inadequate maintenance and negligent repair, service contracts, elevator and escalator accidents, swimming pool and recreational accidents, negligent supervision, assumption of risk, tavern owner and dram shop liability, homeowner liability and toxic exposures (just to name a few!). Please drop a note to Jody Briandi at [email protected] to be added to the mailing list.
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Labor Law Pointers: Hurwitz Fine P.C.’s Labor Law Pointers offers a monthly review and analysis of every New York State Labor Law case decided during the month by the Court of Appeals and all four Departments. This e-mail direct newsletter is published the first Wednesday of each month on four distinct areas – New York Labor Law Sections 240(1), 241(6), 200 and indemnity/risk transfer. Contact Dave Adams at [email protected] to subscribe.
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Products Liability Pointers: Whether the claim is based on a defective design, flawed manufacturing process, or inadequate instructions/warnings, product liability litigation is constantly evolving. Products Liability Pointers examines recent New York State and Federal cases as well as high court decisions from other jurisdictions, keeping our readers up to date with the latest developments and trends, and providing useful practice tips and litigation strategies. This monthly newsletter covers all areas of product liability litigation, including negligence, strict products liability, breach of warranty claims, medical device litigation, toxic and mass torts, regulatory framework, and governmental agencies. Contact Brian F. Mark at [email protected] to subscribe.
- Medical & Nursing Home Liability Pointers. Medical & Nursing Home Liability Pointers provides the latest news, developments, and analysis of recent court decisions impacting the medical and long-term care communities. Contact Chris Potenza at [email protected] to subscribe.
Peiper on Property (and Potpourri):
We start this week with a word of thanks and remembrance for all of those who have served and died in the defense of our Country.
The middle of May brings with it our new group of summer law clerks. All four this year (Sara, Lexi, Victoria, and Noah) come to us from SUNY at Buffalo Law school, and all of them boast excellent credentials. We’re delighted that we have two former students from the Insurance Law class with us, and even more impressed that both have some residual interest in learning a bit more about our little niche of practice. If you have a chance to interact with them, do take a moment to do so.
On to this week’s column and two cases we review below. The first, in the property section, looks at the concept of insurable interest. The Second Department rightly recognized that “ownership” and/or “title” is not the primary factor in insurable interest. Rather, if a party has an economic or pecuniary interest in the property, their insurance rights trigger regardless. Thus, where the insured transfers his or her interest in a property to a solely owned limited liability company, the insurable interest in the same will perdure.
The other decision worth review, Payne, is a bit more troubling. The Third Department took up a discussion on the application of discovery sanctions when a sufficient length of video was not preserved by the defendant. What bothered us, as discussed at further detail in the issue, is the fact that the Court appears to suggest that the defendant, upon receipt of the preservation letter, should have been compelled to retain counsel to explain how much video footage should have been snipped. This, to us, seems a bridge too far. A party, even a prospective defendant, should not have to be compelled to obtain pre-suit representation for something as ministerial as preserving video. Suggesting that the defendant was incorrect for proceeding without counsel, and then using that decision as a justification for the discovery sanction, is a very slippery slope.
That’s it for now. See you in two weeks.
Steve
Steven E. Peiper
The Tale of the Headless Milk Maid – 100 Years Ago:
The Buffalo Times
Buffalo, New York
26 May 1923
Headless Ghost Alarms
DATCHET, England—Three farmers have abandoned their land near here because they say it is haunted by the ghost of a headless woman.
Wilewicz’ Wide-World of Coverage:
Check back next time for the latest Circuit Court decisions from around the country.
Until then,
Agnes
Agnes A. Wilewicz
A Vow is a Vow – 100 Years Ago:
The Buffalo Times
Buffalo, New York
26 May 1923
Read Wedding Vow Is Court Sentence
NEW YORK, May 26. "Go home and read your marriage vows. If they don't change your ways, I will." Magistrate Brown in Bridge Plaza Court, Brooklyn, said this to Frank Hoeg, 24. Hoeg was charged by his wife. Mrs. Marion Hoeg, with disorderly conduct.
According to Mrs. Hoeg's affidavit. Hoeg came home about three o'clock in the morning on May 11th and found his wife in bed with a girl. He woke them, his wife said and ordered the girl to dress and leave the house.
When Mrs. Hoeg protested, he dragged her out of bed by the hair, the affidavit said, and struck her.
The woman withdrew her complaint and Hoeg was discharged.
Barnas on Bad Faith:
Hello again:
I had a fun time this past weekend volunteering as a marshal at the PGA Championship at Oak Hill Country Club in Rochester. I was stationed on hole one for parts of the rounds on Friday, Saturday, and Sunday. Some parts of it were really cool, like working as the fairway spotter on Sunday afternoon and standing greenside for all of the big names to come through on Friday. Some other parts were less cool, like opening ropes for a crosswalk where you could not see anything in the pouring rain and working as crowd enforcement in an over-capacity grandstand. Overall, it was a great championship, and I was happy to spend so much time on the grounds, but next time I think I will just watch as a fan with a cold beer like the majority of folks.
I went back to the well this week for one bad faith case from the United States District Court, Southern District of New York. The decision also discusses appraisal and relevant considerations for the period of restoration. Give it a look if you are so inclined.
Brian
Brian D. Barnas
Buffalo Gets a Small Performance – 100 Years Ago:
The Buffalo Enquirer
Buffalo, New York
26 May 1923
All Buffalo Asked to Greet Midgets
Buffalonians are invited to greet the twenty-five of Rose's Royal troupe when they arrive in Buffalo on Sunday afternoon at 6:30 o'clock. Arrangements have been made by the management of Lowes State theater where the famous little folks will head week's, vaudeville bill, to exhibit the tiny youngsters to curious Buffalonians in their street clothes.
They will arrive over the B. R. & P Lackawanna station, at the foot of Main Street. The troupe will personally meet those who greet them at the depot and will ride in cars to their hotels.
Lee’s Connecticut Chronicles:
Dear Nutmeg Newsies:
As you may have read in Dan’s preamble last edition, I got engaged recently—very recently. What seemed to me to be a Herculean task of picking out the ring and planning a romantic, yet surprise proposal two months in the making, was apparently the easy part. After a brief afterglow, it’s full-on wedding planning season with visits to venues, meetings with photographers, Zooms with DJs, and endless Google images. In the before part, my support circle was small—the jeweler, the insurance agent, and the concierge. Now at least there’s a team of eager helpers. So, I’m keeping my head down and doing a lot of nodding. But, heck, the hard part’s over—I found the girl!
Keep keeping safe,
Lee
Lee S. Siegel
Man Convicted … Not Forgiven – 100 Years Ago:
Buffalo Morning Express
Buffalo, New York
26 May 1923
PUBLIC DECENCY IS OUTRAGED BY PICTURE, VERDICT
Baylinson, secretary of artists’ society, convicted for
exhibiting, Father, Forgive Them.
SHOWN AT THE WALDORF
Painting depicts Bryan, Anderson, and Volstead Rebuking
Jesus Christ at Cana
New York, Mar 25. Abraham S. Baylinson, secretary of the society of independent artists, today was convicted of exhibiting a picture that outraged public decency in the much-criticized painting Father Forgive Them, depicting dry advocates raiding Christ as he turned water into wine at the wedding feast.
Judge Murphy and Hebert in special session voted for conviction with Judge Edwards dissenting. Baylinson, whose society permitted hanging of the picture, was paroled until Monday to decide whether to pay a $100 fine or spend 30 days in the workhouse.
Shown rebuking Christ in the picture were William Jennings Bryan, William H. Anderson, state superintendent of the Anti-Saloon league and former Representative Volstead. It was painted by Francis Kaufman and was exhibited at the Waldorf-Astoria hotel last March.
Today's decision was the second restricting the arts to be returned this week. Previously the producer and cast of God of Vengeance were convicted of promoting a play and will be sentenced Monday.
Kyle's Construction Column:
Dear Readers,
I had a great time attending the PGA Championship this past Friday. I had never been to a golf tournament before, so it was cool to see a round up close. We did have to deal with a little rain, but not as bad as other days of the tournament. While I got to see a lot of great golfers, it would appear I was not able to learn anything, as I proceeded to play my worst round in a long time just a few days later.
This week’s case involves a declaratory judgment action by an insurer seeking a declaration that it did not have a duty to indemnify the insured for claims arising out of faulty roof installation.
Kyle
Kyle A. Ruffner
[email protected]
Admonishment and Probation, Teens Face a Harsh Tongue – 100 Years Ago:
Brooklyn Times Union
Brooklyn, New York
26 May 1923
Judge Reprimands Boy of 19, Now on Strike
Magistrate John Kochendorfer, in the Jamaica Court, yesterday, reprimanded Edward Carey, 19, of 7818 Ninetieth avenue, Richmond Hill, who said he was a striking for refusing to work for $8 a day. Carey and another boy, Harold Schoedel, 17, of 16 Eighty-seventh road, Richmond Hill, were charged with disorderly conduct.
"You're striking, even though you make $8 a day?" queried the Court. Why at your age I earned that amount in one week and was glad I could get it. Eight dollars a day not enough for you! And you're only 19. I don't know what youth is coming to. Why, if I were your father, I would bat you in the face for striking."
The boys are alleged to have hurled stones at passing automobiles In Forest Park. Several missiles hit the automobile of Herman of 8727 138th street, Jamaica. Magistrate Kochendorfer placed the young men on probation for six months with Probation Officer George Campbell.
Ryan’s Federal Reporter:
Hello Loyal Coverage Pointers Subscribers:
My oldest is several games into his inaugural little league baseball campaign and it is, how you say, a work in progress. He has played CF, 1B, Pitcher, and 2B thus far and, overall, my focus over the next few months will be fundamental fielding concepts like “ready position,” and, you know, moving to the ball. We’ll venture a bit into throwing to first and the theoretical concept of a force out versus a tag out. But let’s not get ahead of ourselves. He is better at bat, with a four for four outing, in addition to a pair of two for four games. Batting practice might be in order to learn about stepping with his front foot, keeping his eye on the ball, and the importance of the follow through. Just wait until this kid learns that his bat doesn’t need to stop its progress when it makes contact with the ball.
Baserunning. Let’s just hope he has a good base coach.
This edition, Ryan’s Federal Reporter contains a pair of Second Circuit decisions. The first involves reinsurance and interpretation of obligations thereunder under English law. The second is an interesting decision regarding notice of policy provisions prior to an accident. This second one requires a close eye and a nuanced approach.
Until next time…
Ryan
Ryan P. Maxwell
Cardinal Rule, Don’t Mess with a Ball Player if Married – 100 Years Ago:
The Buffalo News
Buffalo, New York
26 May 1923
Denies Impropriety with Hornsby
SAINT LOUIS, May 26--Miss Jeannette Pennington divorced wife of John A. Hine, today emphatically denied impropriety with Rogers Hornsby of the Saint Louis Cardinals champion batsman last year of the National league. She stated she knew the ball player but had never been in his company prior to her divorce.
Rauh’s Ramblings:
On parental leave.
Patty
Patricia A. Rauh
Find Your White Papers in the Paper – 100 Years Ago:
Brooklyn Life
Brooklyn, New York
26 May 1923
Capital Wanted
Additional working capital required by established company manufacturing the Strong Talking Machine record. Money needed for enlarged facilities to meet increased business. Excellent opportunity for profitable investment. For full particulars and references, address STROUG, RECORD CO, Inc. 206 Fifth Avenue New York, N. Y.
Storm’s SIU:
Check back next edition for more interesting cases.
Scott
Scott D. Storm
Insure It All for No Less Than 80%, Says Salesman – 100 Years Ago:
Brooklyn Life
Brooklyn, New York
26 May 1923
Right Kind of Insurance
In these latter days it is possible to insure against any happening however remote and unlikely. You can insure against rain, slipping on banana peel, against undue losses at bridge, but after all the old-time houses stick largely to the beaten track and insure against what we know will sooner or later overtake even the most careful. Such a house is Stussy Brothers, 172 Montague Street, established in 1895, who are specializing in automobile, fire, and plate glass insurance.
In order that you may better the Co-Insurance or Average clause which is attached to all Fire Insurance policies written on property in New York.
The 80% Co-Insurance or Average Clause.
With this clause is not meant that you can only collect Eighty, per cent of loss you may sustain. It means much more.
In order to be properly insured in this clause, it is necessary that you ascertain the value of the property to be insured, then insure the same for no less than 80% of its actual value. Should you yourself insure the same for loss, you become the same as an insurance company yourself and must stand part of loss yourself.
Particularly at this time of year it is the part of wisdom to insure an automobile. Before leaving for the country and traveling unknown roads knowing that you are insured against accident is a comforting thought. It is a constant wonder not that there are so many automobile accidents but there are so few. Every owner should insure against everything and then he can travel in peace.
As for fire and plate glass the premiums under present methods of inspection are too slight that no one can afford to go uninsured. Anyone can insure you but 'be sure you deal with a house that can and will collect your insurance promptly when the time comes.
You can depend upon Stussy Brothers to treat your interests as their own.
Fleming’s Finest:
Hi Coverage Pointers Subscribers:
Live free or die. This week’s case from the New Hampshire Supreme Court should sound familiar if you have been following the trend across the country regarding coverage for COVID-related losses. The New Hampshire Supreme Court found that the presence of the virus did not render property useless, uninhabitable, or altered. Thus, there was no direct physical loss of or damage to property that would trigger coverage under the policy in that case.
In other news, our firm recently worked on a modular home with Habitat for Humanity. The event was a great way to help the organization, and we got some solid work done. I learned that it is very difficult to hammer upside down, and nail guns are invaluable.
Catch you later,
Kate
Katherine A. Fleming
Asbestos, Good for Roofing, Not for Lungs– 100 Years Ago:
The Daily Item
Port Chester, New York
26 May 1923
Asbestos Shingles
National A and A (Shore expression for asbestos and asphalt) shingles means a roofing proposition that will last for twenty years. Good time of the year right now to have your roof covered with the same or the new job done with these satisfactory asbestos shingles. Flint Kote roofing papers carried here. Frank L. Rockey, 128-130 North Main St. Advertisement
Gestwick’s Greatest:
Hello, Readers!
Well, our Buffalo Bandits are set to face off against the Colorado Mammoth in the NLL Championship series this Saturday at 7:00pm at KeyBank Center in Buffalo. My girlfriend and I will be in attendance. Fun fact: I attended a Bandits game for the first time on my 12th birthday, which happened to be the deciding game of the Championship series, and they won. Let’s see if history repeats itself.
Speaking of birthdays, I am nearly finished with my 26th trip around the sun, officially making me closer to 30 than I am to 20. This trip around has been especially important, since during this trip, I graduated from law school, studied for, and passed the bar, and started my job with Hurwitz Fine.
In the State Courts, we have one case that discussed the priority of insurance coverage. There, Nova had its own policies with both Charter Oak and Travelers. However, each of those policies provided that they were excess over any other available insurance. Nova, being the general contractor on the project, had a subcontract with the subcontractor which provided that the subcontractor was to procure its own liability policy and add Nova as an additional insured on a primary and non-contributory basis. The Court held that, with respect to Nova’s liability, the subcontractor’s policy applied on a primary basis, and that Nova’s own policies were excess. No surprises there.
In another case involving another construction accident, the plaintiff sued its insurer, challenging its rescission of the policy. The insurer rescinded the policy due to misrepresentations made about whether its insured had any other insurance, and whether it had had any other insurance policies cancelled due to nonpayment of premiums. It was revealed that the insured did have another insurance policy, issued by a separate carrier, that was rescinded due to nonpayment of premiums. In response to the question of whether the insured had other available insurance, however, the insured responded “yes,” and responded “no” to the question of cancellation. The plaintiff demanded discovery from its broker regarding the prior insurance policy, and any other insurance policy the broker had ever procured for it. However, the broker did not procure the specific policy at issue for the plaintiff. Moreover, the court ruled that a request for all other insurance policies procured by the same broker was overbroad and irrelevant to the application questions.
That’s all for this week. Hopefully in two weeks, I’ll be reporting on a Bandits championship!
Evan
Evan D. Gestwick
Roga’s Mistress May Strike Out in Court– 100 Years Ago:
Dunkirk Evening Observer
Dunkirk, New York
26 May 1923
National League Batting Champion in Divorce Tangle.
St. Louis, May 26—Roger Hornsby, star second baseman of the St. Louis Cardinals and batting champion of the national league was in a divorce tangle in court of domestic relations here today. John A. Hine, automobile salesman in a petition to set aside a decree of divorce granted his wife in February, substituted a letter signed “Roga” said to be posted at Bradenton Fla., the spring training camp for the Cardinals.
The letter, which was dated early in March, was addressed to Mrs. Jeannette Hine, the man’s wife, the petition asserted.
“I have all the proof in the world that it was Hornsby who wrote this letter to my wife and my attorneys are prepared to submit this proof,” Hine declared.
Hine in his petition to set aside the decree granted his wife, charged it was obtained by fraud. The divorce was granted on charges of non-support.
Further hearing on the case was postponed until June 1.
On the Road with O’Shea:
Hey Readers,
I hope all is well and those who are golf fans enjoyed the PGA Championship at Oak Hill. I was one of the many who visited Oak Hill on Saturday but was one of the unfortunate ones who failed to bring an umbrella. Alas, it was a long, wet day.
This week I have a no-fault case from the Second Department that shows the benefits of following the regulations, as well as the pitfalls of an insured’s failure to meet policy provisions.
Until Next Time,
Ryan
Ryan P. O’Shea
[email protected]
Men’s Place to Stay– 100 Years Ago:
Buffalo Truth
Buffalo, New York
26 May 1923
The Mens Hotel
Cor. Pearl and Genesee Sts.
HAS MADE GOOD BECAUSE IT SATISFIES THOUSANDS OF PATRONS ANNUALLY.
RATES $1.00 Per Night.
ROOMS FOR 350 MEN
Louttit’s Legislative and Regulatory Roundup:
Hello All,
Today’s column notes that the Grieving Families Act is in New York’s Senate and reached the Second Report Calendar on May 24, 2023. Should this bill pass and is signed into law, it will have a profound impact on the insurance industry’s ability to calculate its risk for the purposes of providing liability insurance. The value of a wrongful death suit will be significantly dependent on the size of the decedent’s family. We will continue to track this very important bill.
Rob
Robert P. Louttit
Parental Leave, Parent Fired – 100 Years Ago:
Buffalo Evening News
Buffalo, New York
26 May 1923
Daddy Eager to See New Babe Leaves Post; Fired
ROCKVILLE CENTER, May 26—Eugene Reed, a negro employed as a gateman by the Long Island railroad was advised by telephone at 5 A.M. yesterday that a boy had been born at his home.
Reed waxed impatient when his relief did not appear. He phoned his boss every five minutes. No relief came.
At 11:48 A.M. he lowered his gates and went home. Twenty minutes later a long string of automobiles had accumulated the police arrived to straighten out the tangle.
Reed was fired.
Rob Reaches the Threshold:
Hello Coverage Pointers Readers:
I am excited to introduce myself to you all. My name is Rob Caggiano, Associate Attorney with Hurwitz Fine, and I have seized the opportunity to take over this publication’s column on the Serious Injury Threshold in New York. A little bit about myself: I am from Staten Island, NY, born and bred. During my childhood in the forgotten Borough of NYC, I developed an absolute love for the Yankees, an appreciation for the perfect slice of pizza, and an accent which is a mix of Jersey Shore and The Sopranos. I took these very important traits and shuffled up to Buffalo for my undergraduate and law school studies. While in school, I fell in love with this city and its people. So, I ditched the big city for the laid-back lifestyle, Bills Mafia, a great chicken wing – but doughier pizza (sacrifices were made). I have since developed an obsession with golf – so expect updates on my chase to break 80 or break some clubs . . . there will be no in-between.
For the inaugural edition of “Rob Reaches the Threshold,” please enjoy a case from the Appellate Division, Second Department, where the Court reversed the lower court’s Order and granted summary judgment dismissing a cause of action for a plaintiff’s emotional injury claim from being in the “zone of danger” when her child was struck by a car. Defendants pursued a prudent legal strategy by attacking only one of the two “prongs” of the applicable standard for such a claim – as the facts were averse to obtain summary judgment on the other. Specifically, the Defendants challenged whether Plaintiff’s claimed emotional disturbance was “serious and verifiable,” which NY law requires be established by objective medical evidence. Thus, Defendants produced an expert psychiatrist examination report as prima facie evidence. In opposition, Plaintiff presented her own “treating” psychiatrist’s affirmation. The Supreme Court liked this affirmation – but the Appellate Division, less so.
Read all about it in my first article, and let’s start out on this journey to master NY’s Serious Injury Threshold together. Moving forward, always feel free to reach out with any questions, feedback, or praise (this option is preferred).
Rob
Robert J. Caggiano
President Pushes for 25% Reduction in Work Hours … Steel Industry Unlikely to Budge– 100 Years Ago:
Buffalo Evening News
Buffalo, New York
26 May 1923
HARDING DISAPPOINTED AT 12-HOUR DAY STAND
Favors Eight-Hour Day, Although Realizing
Labor Shortage Exists
WASHINGTON, May 26—The report of the iron and steel institutes committee that it cannot at this time recommend a discontinuance of the 12-hour day in the industry created disappointment at the White House. President Harding believes the eight-hour day ought to be established in this industry though he realizes that at the present time proposition is complicated by a shortage of labor. He charges that alteration of the Immigration laws will break down the restriction barriers and other factors are militating against it.
The American Federation of Labor also commented upon the iron and steel institute's findings, declaring through President Gompers that if there had been any intention of establishing the eight-hour day it would have been done a year ago when there was a surplus of 6,000,000 employees.
“I must believe,” said he, “that the 12-hour workday is an institution in the steel industry never intends to give up.”
North of the Border:
It has been a momentous few days … our oldest daughter safely delivered a baby girl just at the start of the Victoria Day long weekend. Our daughter and son-in-law are slowly adjusting to their new lives as parents. We are thrilled. She is our third grandchild and our first granddaughter. Time stands still when one cradles a newborn. Birth is a miracle.
My column this week discusses a duty to defend an application arising from allegations of intrusion upon seclusion. Enjoy.
Heather
Heather A. Sanderson
Sanderson Law, Calgary, Alberta
Headlines from this week’s issue, attached:
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
- In Recission Action, Question of Fact on Materiality of Misrepresentation
PEIPER on PROPERTY (and POTPOURRI)
Steven E. Peiper
- Acceptance of Premium After Knowledge of Misrepresentation Results in Waiver; Economic Interest is Broader than Ownership for Insurable Interest Test
- Defendant’s Failure to Preserve a Video of the Area Prior to Fall Results in an Adverse Inference Charge
- Without Comparative Negligence, there is No Basis for Contribution Claims. Indemnity is the Sole Remedy
WILEWICZ’S WIDE WORLD of COVERAGE:
Agnes A. Wilewicz
- Like a band of gypsies, we go down the highway.
BARNAS on BAD FAITH
Brian D. Barnas
- Issue of Fact on Consumer Impact in General Business Law Claim even where Decedent did Not Read the Policy Herself
- Bad Faith Allegations Survived Motion for Summary Judgment where Breach of Contract Claim Supported Consequential Damages
LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel
- Subject Matter Waiver Permits Disclosure of Privileged Communications from Insured to Carrier
KYLE'S CONSTRUCTION COLUMN
Kyle A. Ruffner
- Insurer Did Not Owe Coverage for Underlying Action Arising Out of Faulty Roof Installation Under Commercial General Liability Policy, as Loss Did Not Constitute an Occurrence
RYAN’S FEDERAL REPORTER
Ryan P. Maxwell
[email protected]
- Under English Law, Obligations Under Reinsurance Policy Found Co-Extensive with Those of Umbrella Policy
- Waiver and Unrebutted Testimony Results in an Award of Coverage to Non-Resident Homeowner for Fire Loss. Damages TBD
RAUH’S RAMBLINGS
Patricia A. Rauh
- On Parental Leave
STORM’S SIU
Scott D. Storm
- Check Back Next Edition for More Interesting Cases
FLEMING’S FINEST
Katherine A. Fleming
- The Presence of COVID-19 is not Direct Physical Loss of or Damage to Property
GESTWICK’S GREATEST
Evan D. Gestwick
- A Policy Naming as an Additional Insured Another Carrier’s Named Insured is Primary to that Insured’s Own Policy, Where that Policy Provides it is Excess
- Where a Rescission Due to a Material Misrepresentation on an Application for Insurance is Litigated, Discovery Only as to the Misrepresented Issue May be Had
ON the ROAD with O’SHEA
Ryan P. O’Shea
- Insurer Follows Regulations to a “Fault,” Assignee’s Claim Dismissed on Assignor’s Failure to Comply with Policy Conditions
LOUTTIT’S LEGISLATIVE and REGULATORY ROUNDUP
Robert P. Louttit
- The Grieving Families Act Reaches the Second Report Calendar In New York’s State Senate
ROB REACHES the THRESHOLD
Robert J. Caggiano
- Plaintiffs Fail to Raise Triable Issue of Fact to Defeat Summary Judgment Dismissing a “Zone of Danger” Cause of Action Due to Insufficiencies in a Proffered Treating Psychiatrist Affirmation
NORTH of the BORDER
Heather A. Sanderson
Sanderson Law, Calgary, Alberta
- A CGL Insurer is not Obliged to Defend Allegations of Negligence that are Dependent Upon an Intentional Tort. Physical Contact is not Necessary to Engage an Abuse Exclusion
Take a moment, this weekend, to walk through a military cemetery and pay homage to our fallen heroes. They are not here to enjoy this Memorial Day weekend, and we can never pay back that debt.
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
ASSOCIATE EDITOR
Agnes A. Wilewicz
COPY EDITOR
Evan D. Gestwick
INSURANCE COVERAGE/EXTRA CONTRACTUAL LIABILITY TEAM
Dan D. Kohane, Chair
[email protected]
Steven E. Peiper, Co-Chair
Michael F. Perley
Agnieszka A. Wilewicz
Lee S. Siegel
Brian F. Mark
Scott D. Storm
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
Alice A. Trueman
APPELLATE TEAM
Jody E. Briandi, Team Leader
[email protected]
Diane F. Bosse
Topical Index
Kohane’s Coverage Corner
Peiper on Property and Potpourri
Wilewicz’s Wide World of Coverage
Ryan’s Federal Reporter
Gestwick’s Greatest
Loutit’s Legislative and Regulatory Roundup
Rob Reaches the Threshold
KOHANE’S COVERAGE CORNER
Dan D. Kohane
05/17/23 Union Mutual Fire Insurance Co. v. CMN Properties, LLC
Appellate Division, Second Department
In Recission Action, Question of Fact on Materiality of Misrepresentation
The trial court’s denial of the insurer’s summary judgment motion was upheld on appeal because, in the appellate court’s view, triable issues of fact exist precluding pre-trial resolution of the case.
This is declaratory judgment action commenced by the insurer seeking a judgment declaring the insurer was justified in rescinding the commercial insurance policy at issue pursuant to New York Insurance Law § 3105. To establish its right to rescind an insurance policy under that statute, the insurer must demonstrate that the insured made a material misrepresentation. A misrepresentation is material if the insurer would not have issued the policy had the correct information been disclosed. To establish materiality as a matter of law, the insurer must present clear and substantially uncontradicted documentation concerning its underwriting practice, such as underwriting manuals, bulletins, or rules pertaining to similar risks, that shows that the insurer would not have issued the same policy if the correct information had been disclosed in the application for the policy.
Citing that the issue of materiality is generally a question of fact for the jury, the appellate court found that the insurer’s underwriting guidelines presented were not specific enough to meet the insurer’s burden of showing that under the guidelines the insurer would not have issued the policy had it been disclosed on the application that tenants at the risk to be insured were more than 60 days past due on rent owed on the date of the application. Because the underwriting guidelines did not specifically state that policies will not be written on risks where tenants are more than 60 days past due, the insurer’s underwriter’s affidavit in support of the insurer’s motion for summary judgment was found to be conclusory and unable to eliminate triable issues of fact.
PEIPER on PROPERTY (and POTPOURRI)
Steven E. Peiper
Property
05/17/23 Sabharwal v. Hyundai Mar. & Fire Ins. Co., Ltd.
Appellate Division, Second Department
Acceptance of Premium After Knowledge of Misrepresentation Results in Waiver; Economic Interest is Broader than Ownership for Insurable Interest Test
When plaintiff applied for coverage in 2016, he indicated that there had been no judgments filed against him within the last five years and that he had not filed for bankruptcy during that same time period. Both statements appear to have been false. Fast forward two years when the policy covering the 2018-19, policy term was issued, and the water loss which occurred in January of 2019. During the course of the investigation, Hyundai learned of the material misrepresentations and disclaimed coverage.
The insurer also learned that Mr. Sabharwal had transferred ownership of the premises to a limited liability company, Sabharwal Properties, LLC. Mr. Sabharwal was the sole member of the company. Upon learning this information, Hyundai also disclaimed coverage on the basis that the insured lacked an insurable interest at the time of the loss.
The trial court granted Hyundai’s motion for summary judgment, and the Appellate Division subsequently reversed.
With regard to the material misrepresentation question, the Appellate Division appears to confirm that Mr. Sabharwal’s statements on the initial application were incorrect. And, further, that the statements were material to the underwriting process. As such, it appears that the insurer’s basis for denying on a material misrepresentation was quite strong. The issue, however, was evidence submitted that Hyundai renewed the policy, and accepted payment, after learning of the misrepresentations. Having done so, it effectively waived its material misrepresentation defense.
On the insurable interest question, the Second Department reviewed the long-standing rules for what constitutes an interest in property. It is not, alone, simply having title. Rather, as codified at Insurance Law 3401, an insurable interest will be found where the putative insured has “any lawful and substantial economic interest in the safety or preservation of the property from loss, destruction or pecuniary damage.”
Here, Mr. Sabharwal was the sole owner of the limited liability company that he, himself, formed and transferred ownership to. Accordingly, the Appellate Division had no difficulty in finding that Mr. Sabharwal maintained a “substantial economic interest” in the preservation of the property.
Potpourri
05/18/23 Payne v. Sole Di Mare, Inc.
Appellate Division, Third Department
Defendant’s Failure to Preserve a Video of the Area Prior to Fall Results in an Adverse Inference Charge
Plaintiff commenced this action after slipping and sustaining an injury while attending a wedding reception hosted by defendant, Sole. At the time of the incident, plaintiff suggested that he slipped on an oily substance on the floor. Upon inspection, a small tomato was found in the area where he fell and a bartender from Sole surmised plaintiff may have fallen on spilled bruschetta which was being served to guests.
Almost immediately thereafter, plaintiff’s counsel sent a letter to Sole advising them of the possibility of forthcoming litigation and requested that any video surveillance of the incident be preserved in its present form. Sole reacted by preserving approximately 20 seconds of video which recorded the fall and four seconds just prior. The rest of the video was recorded over in accordance with Sole’s ordinary business practice.
Payne moved for spoliation and sought to have Sole’s answer stricken. The Appellate Division noted that there was a clear obligation to preserve the video recordings. And, by not preserving a larger portion of the video which may have shown when/how the potential hazard was created, Sole had prejudiced plaintiff’s case.
In reaching this conclusion, the Court rejected Sole’s argument that it had complied with the request which was limited to the incident. Had plaintiff wanted preservation of a substantial time prior to the incident, his notice letter should have so specified. The Court ruled that notice from plaintiff’s counsel should have prompted Sole to seek its own legal counsel for advisement on how (and how much) video to save.
Although the Court found that loss of the video was substantial because it impacted plaintiff’s ability to explore potential notice issues, it also ruled that the request to strike Sole’s pleading was too extreme of a sanction. The Court, in agreeing with the trial court, ruled that an adverse inference instruction given by the trial court at the time of trial was sufficient to remedy the potential harm done by Sole’s destruction of the video.
Not surprisingly, the Appellate Division also affirmed the trial court’s decision denying Sole’s motion for summary judgment which surmised that plaintiff could not establish sufficient notice.
Peiper’s Point – Thousands Flee? Maybe. We think this particular decision is, at the very least, troubling. Note that the litigation hold letter did not specify to what extent video needed to be preserved. It only requested all video “in connection with” the incident. If plaintiff wanted information preserved from before the fall, we would submit the better rule would have been to have asked for it.
In any event, it is not the ultimate disposition of this case which troubles us the most. It is the fact that the Court appears to suggest that Sole, upon receipt of the preservation letter, should have been compelled to retain counsel to explain how much video footage should have been snipped. This, to us, seems a bridge too far. A party, even a prospective defendant, should not have to be compelled to obtain pre-suit representation for something as ministerial as preserving video. Suggesting that Sole was incorrect for proceeding without counsel, and then using that decision as a justification for the discovery sanction, is a very slippery slope.
05/18/23 Cabral v. Rockefeller Univ.
Appellate Division, First Department
Without Comparative Negligence, there is No Basis for Contribution Claims, as Indemnity is the Sole Remedy
Defendant and Turner Construction Company were held liable for damages under Labor Law § 241(6). In turn, both entities moved to amend their third-party Complaint to assert a cause of action against Northern Tool & Equipment for common law indemnification and contribution. Northern opposed the amended pleading, and this appeal ensued.
The Appellate Division noted that the amendment seeking to assert a cause of action for common law indemnification was appropriate where, as here, Rockefeller and Turner were statutory liable to the plaintiff. The claim for common law contribution was improper, however, because there was no basis for contribution. With no active negligence found against Rockefeller and/or Turner, their respective claims were founded under principles of indemnity only.
WILEWICZ’S WIDE WORLD of COVERAGE
Agnes A. Wilewicz
On the road again, again.
BARNAS on BAD FAITH
Brian D. Barnas
05/25/23 Hobish v. AXA Equitable Life Insurance Company
Appellate Division, First Department
Issue of Fact on Consumer Impact in General Business Law Claim Even Where Decedent did not Read the Policy Herself
This action was a breach of contract claim for benefits due under a life insurance policy. The court concluded that the term "a given class," as it appeared in the policy, was ambiguous since it was susceptible to two or more reasonable interpretations. Contrary to plaintiffs' contention, the court was not required to resolve the ambiguity against defendant insurer, as the extrinsic evidence presented in this case was not conclusory. Nor did the extrinsic evidence only support one party's proposed interpretation, such that the ambiguity could be resolved by the court as a matter of law.
The court also correctly denied defendant summary judgment dismissing plaintiff's General Business Law § 349 (h) cause of action. Contrary to defendant's contention, even if the decedent did not read the policy herself, issues of fact exist as to whether there was consumer impact.
The court also dismissed plaintiffs' claim for compensatory and consequential damages on the breach of contract cause of action in the amount of $1,587,311.99. This amount allegedly represented the value of the death benefit, offset by the surrender payment made to plaintiffs and any charges that would have been deducted during the decedent's life expectancy. Assuming that defendant breached the policy by inequitably raising rates, defendant did not cancel it, and plaintiffs did not elect to terminate the contract and sue for a total breach. Rather, the record establishes that they assessed the financial benefits of maintaining the policy with the higher rates, and then under protest chose to exercise the surrender provisions of the policy. Having been surrendered, the policy was no longer in effect and plaintiffs were no longer entitled to the $2 million death benefit.
To the extent that plaintiffs' General Business Law § 349(h) cause of action also sought the value of the death benefit, offset by the surrender payment and charges, the court dismissed this category of damages for the same reason.
The court also dismissed plaintiffs' claim for "restitutionary" damages of $249,354.62 pursuant to General Business Law § 349 (h), which was too speculative to constitute actual damages under the statute. In any event, the record established that such damages were never realized.
The court also dismissed plaintiffs' claim for punitive damages of $12 million on its General Business Law § 349 (h) cause of action. The statute itself provides for an award of actual damages or fifty dollars, although a court may increase an award up to three times, up to one thousand dollars. The statute only provides for these "limited punitive damages."
05/10/23 Laxminarayan Lodging, LLC v. First Specialty Ins. Co.
United States District Court, Southern District of New York
Bad Faith Allegations Survived Motion for Summary Judgment where Breach of Contract Claim Supported Consequential Damages
First Specialty issued an insurance policy to Laxminarayan Lodging, LLC d/b/a Quality Inn. Quality Inn brought a lawsuit against First Specialty for breach of contract and to compel appraisal based on claimed losses to three buildings at a hotel in Colby, Texas during windstorms that took place on June 10, 2020, and July 13, 2020.
Plaintiff claimed $715,665.08 in damages as a result of the first storm. In response to the initial information provided by Plaintiff concerning the loss, Plaintiff was issued a $50,000 advance payment (the policy had a $100,000 deductible). First Specialty determined that the total amount of the covered damage was $166,567. The scope of repairs included roof repairs to three buildings and minor interior repairs to two of those buildings.
On July 13, 2020, another windstorm impacted the property, and Plaintiff's public adjuster calculated damages from that windstorm as $608,213.68. First Specialty rejected Plaintiff’s Proof of Loss for the July storm, stating that Plaintiff did not provide any evidence of damages attributable solely to the alleged July 13, 2020, occurrence. First Specialty also asserted that emergency repairs and mitigation work performed by Plaintiff prejudiced its ability to identify additional damage attributable to the July storm.
Plaintiff demanded appraisal. First Specialty refused the appraisal demand, claiming that it had paid its proportionate share of the undisputed damage claim and arguing that coverage issues precluded appraisal.
Plaintiff later submitted a business income claim under the policy. Plaintiff asserted that the period of restoration began on the date of the initial loss and was ongoing due to First Specialty’s failure to pay the amount claimed.
First, the court found that coverage issues did not preclude appraisal. It held that the coverage issues identified by First Specialty were nothing more than factual disputes pertaining to causation and amount of the loss.
There was also a dispute as to whether First Specialty’s actions could be considered as part of the period of liability for the business income claim. The relevant Policy language provides that the Period of Liability “start[s] on the date of physical loss or damage insured by this [Policy]; and ... end[s] when with due diligence and dispatch the building and equipment could be repaired or replaced with current materials of like size, kind and quality and made ready for operations; under the same or equivalent physical and operating conditions that existed immediately prior to such physical loss or damage.” The parties agreed that the period of liability is a theoretical calculation reflecting the length of time required with the exercise of due diligence and dispatch to rebuild, repair or replace the damaged premises. The court concluded that an insurer’s delay in paying amounts to repair an insured property may affect the theoretical period needed to repair such property, nothing that “any facts affecting the insured’s ability to repair the property with due diligence and dispatch are proper considerations for the theoretical calculation.”
First Specialty also sought dismissal of Plaintiff’s bad faith allegations in the complaint. The court stated that New York law does not recognize a separate cause of action for breach of the implied covenant of good faith and fair dealing when there is a valid and enforceable contract governing a particular subject matter. However, Plaintiff had not stated a separate cause of action for breach of an implied covenant of good faith and fair dealing. The allegation is used to describe the breach, and not to allege a separate cause of action. Accordingly, the court found that it did not need to determine whether the breach of a covenant of good faith and fair dealing could support a claim for consequential damages.
LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel
05/12/23 Ghio v. Liberty Ins. Underwriters, Inc.
Superior Court of Connecticut, Hartford (Complex)
Subject Matter Waiver Permits Disclosure of Privileged Communications from Insured to Carrier
The Ghios were investors in Back9, which was insured by Liberty under a D&O policy. When the Ghios sued the directors and officers, Liberty defended Back9. However, shortly before trial, Liberty denied any potential for indemnity coverage. Back9 and the Ghios then entered into a $1.9 million consent judgment, with Back9 assigning its rights against Liberty to the Ghios. Pursuant to the judgment, Back9 directed its defense counsel to provide the Ghios with all communication with Liberty regarding coverage.
In the ensuing coverage action, the Ghios sought from Liberty all communications with underlying defense counsel. Back9 reviewed the relevant documents, redacted portions, and instructed Liberty as to which documents to withhold entirely. Liberty complied with the insureds’ instruction and provided the documents and a privilege log to the Ghios. When the Ghios moved for summary judgment, they relied on certain communications between underlying defense counsel and Liberty’s coverage counsel, which had been produced pursuant to the consent judgment. Liberty then took the position that the privilege to all attorney-client communications had been waived by the disclosure and attempted to use the documents to establish that the Ghios’ underlying claim lacked merit. However, Back9 objected to the broad disclosure and intervened.
On appeal, the Connecticut Appellate Court held that, ‘The rule “provides that the voluntary disclosure of the content of a privileged attorney communication constitutes waiver of the privilege as to all other such communications on the same subject.... Under this rule, disclosure of information resulting in the waiver of attorney-client privilege constitutes waiver only as to communications about the matter actually disclosed.’ (emphasis added).
On remand, the trial court, interpreting the appellate decision, applied a five-factor test in determining whether to allow disclosure of certain information. “A disclosure must (1) be made in a state proceeding or to a state office or agency; (2) one that waives the attorney-client privilege; (3) the waiver must be intentional; (4) the disclosed and undisclosed communications concern the same subject matter; and (5) they ought in fairness to be considered together.”
After conducting an extensive and far-reaching discussion of privileged communications, the court found that underlying defense counsel’s evaluation of the Ghios’ settlement demand is relevant not to the issue of the reasonableness of the settlement (that is based on an objective test standard) but is relevant to the claim of the failure to settle in good faith. “The prejudice to Liberty lies in the Ghios’ use of the implication that the “uncertainties of the litigation” counsel settlement at the amount of the Ghios’ demand, without revealing the actual uncertainties involved, including the merits of the case, constitutes a flat rejection of that advice. The insureds are not at this time prejudiced because the Ghios agreed not to satisfy the judgment from their assets.”
Here, the court prized truth seeking and found on balance that the disclosures were necessary in order for Liberty to defend itself against the claims of bad faith failure to settle.
KYLE'S CONSTRUCTION COLUMN
Kyle A. Ruffner
05/11/23 Berkley Spec. Ins. Co. v. Masterforce Const. Corp., et al.
United States Court of Appeals for the Third Circuit
Insurer Did Not Owe Coverage for Underlying Action Arising Out of Faulty Roof Installation Under Commercial General Liability Policy, as Loss Did Not Constitute an Occurrence
The parties to this action disputed whether the insurer, Berkley, had a duty to indemnify Masterforce in the underlying state action arising out of a faulty roof panel installation. Masterforce’s commercial general liability policies with Berkley limited coverage to property damage caused by an occurrence, defined as an “accident”. The District Court determined that the damage to the underlying plaintiff’s property did not constitute an occurrence under the Berkley policy.
The District Court relied on a Supreme Court of Pennsylvania case, in which the court held that the definition of “accident” required to establish an “occurrence under a commercial general liability policy cannot be satisfied by claims based upon faulty workmanship. In that case, a steel corporation contracted for the construction of a coke oven battery and brought suit after the battery failed to meet construction specifications and was damaged due to rain. The court held that such claims simply do not present the degree of fortuity contemplated by the ordinary definition of “accident’ or its common judicial construction. In a similar case, defects in materials and workmanship in the construction and installation of synthetic turf football fields lead to water damage to the turf and the drainage system. There, the Third Circuit held that the water damage was not an occurrence because it was not the result of an accident or unexpected event. Rather, it was an entirely foreseeable result of the failure to properly install the drainage system.
In this case, the defendants claimed there was a distinction between damage to agree upon contractual work product and damage to other property. However, the court held that there was no occurrence because the damages that resulted from either poor workmanship or faulty materials was foreseeable. The court explained this rule was not limited to situations where only the work product itself is damaged. Rather, claims for faulty workmanship are too foreseeable to be considered an accident even if a faulty product damages property other than itself.
Here, the faulty workmanship installing metal roof panels resulted in extensive damage to related components of the roof, which were entirely foreseeable. Therefore, the court held there was no occurrence under the policies at issue. The court affirmed the District Court’s ruling granting Berkley’s motion for judgment on the pleadings and denying the Brandt’s motion for judgment on the pleadings.
RYAN’S FEDERAL REPORTER
Ryan P. Maxwell
[email protected]
5/22/23 ICSOP v. Equitas Ins. Ltd.
Second Circuit Court of Appeals
Under English Law, Obligations Under Reinsurance Policy Found Co-Extensive with Those of Umbrella Policy
In this reinsurance dispute, Insurance Company of the State of Pennsylvania (“ICSOP”) provided umbrella insurance to a predecessor of Dole Food Company for a policy period from October 1968 to October 1971 (the “ICSOP-Dole policy”). Equitas Insurance Limited (“Equitas”) reinsured part of ICSOP's exposure for that period.
In 2009, homeowners in Carson, California, sued Dole for polluting their soil and groundwater, and those claims settled, with $20 million of the settlement allocated to the ICSOP-Dole policy, despite continued accrual of injuries and damages after the effective policy period. Following California law's approach to allocation, known as the “all sums rule,” any insurer whose policy was in effect during any portion of the time continuing harm occurred is jointly and severally liable (up to applicable policy limits) for all property damages or personal injuries caused by a pollutant.
Thereafter, ICSOP sought reinsurance coverage from Equitas for its liability, which was denied on the basis that English law governing the reinsurance policy would not have allocated ICSOP's liability on an all sums basis. Equitas urged that English law would prorate ICSOP's liability based on the number of years it provided coverage to Dole and therefore, that Equitas’ reinsurance obligations were similarly limited. Equitas also argued that ICSOP had deliberately delayed notice of claim, forfeiting any claim for reinsurance.
ICSOP brought this suit, claiming that Equitas was liable for the reinsured portion of ICSOP's settlement liability. Rejecting both of Equitas's arguments for denying coverage, the district court granted summary judgment to ICSOP and this appeal ensued.
Agreeing with the district court, the Second Circuit concluded that under the better reading of English law, Equitas's reinsurance obligations were co-extensive with ICSOP's obligations under the ICSOP-Dole policy. Framing the question, the Second Circuit notes that:
“The question is not whether English law would have allocated ICSOP's liability on an all sums basis; English law does not govern ICSOP's liability. Instead, the question is whether, once ICSOP's liability was properly allocated, as Equitas concedes that it was, English law would then interpret the reinsurance policy as providing co-extensive coverage.”
The Second Circuit found “a strong presumption that facultative reinsurance policies provide back-to-back coverage” under English law, which equalizes the liability of the insured to the liability of the reinsured.
Dispelling Equitas’ attempted end around of the presumption that “the United Kingdom Supreme Court would never apply the back-to-back presumption where, as here, a foreign jurisdiction's law has the effect of avoiding a reinsurance policy's coverage period,” the Second Circuit noted that “the United Kingdom Supreme Court has never limited the presumption in that way, and it has in fact applied a version of the all sums rule in limited instances.”
The Court expressly notes in response to Equitas’ second argument that “English law has never recognized the defense of full repudiation based on late notice of claim where, as here, timely notice is not a condition precedent to coverage.”
05/18/23 Mallek v. Allstate Insurance Company
Second Circuit Court of Appeals
Waiver and Unrebutted Testimony Results in an Award of Coverage to Non-Resident Homeowner for Fire Loss. Damages TBD
Eva Mallek sued Allstate for refusing to pay her insurance claim after a fire destroyed a house she owned (but did not occupy). Allstate denied the claim because, among other reasons, Mallek did not reside at the house as the policy required. The parties cross-moved for summary judgment. In relevant part, the district court denied summary judgment to both parties, “despite concluding that Allstate had not offered any evidence to counter Mallek's sworn testimony that Allstate did not provide her a copy of the Standard Homeowners Policy (containing the residency requirement) before the fire.”
Subsequently, a month before trial, the district court “ordered Allstate to show cause why the court should not vacate the denial of Mallek's summary judgment motion and grant summary judgment to her on the breach of contract claim based on Allstate's failure to rebut her sworn testimony that Allstate failed to deliver a copy of the Standard Homeowners Policy to her before her loss.” In response, Allstate did not proffer evidence establishing delivery of the policy, instead opting to “raise the new legal argument that . . . the policy's incorporation by reference in renewal declarations mailed to Mallek was sufficient to bind her to the policy's terms without actual delivery of the policy.”
The district court rejected this new argument, while also concluding that Allstate waived the argument by failing to raise it previously, granting summary judgment to Mallek and awarding her $358,000 in damages, which was the policy limit.
On appeal, Allstate made two substantive arguments challenging the district court's ruling. First, it argued that the 2015, renewal mailing incorporated the Standard Homeowners Policy by reference, and that was sufficient under New York law to bind Mallek to the policy's terms. Second, Allstate argued that it presented an issue of fact as to whether it notified Mallek of the residency requirement before her loss. The Second Circuit disagreed on both counts.
As to the first, Allstate did not raise an incorporation by reference argument on summary judgment. “By raising this argument for the first time in its response to [an] order to show cause, Allstate effectively sought reconsideration of the denial of its own summary judgment motion” and “[b]ecause a new argument may not be raised in a motion for reconsideration” before the district court, that argument was not properly before” the Second Circuit.
As to the second, “Allstate did not submit any evidence on summary judgment to rebut Mallek's sworn testimony that Allstate did not provide her a copy of the Standard Homeowners Policy prior to her loss.” Even considering Allstate's attempted reconsideration, “it still did not submit any evidence to establish a genuine dispute of material fact.” Merely asserting that it “anticipated that one of its employees would testify at trial that, according to Allstate's business records, the Standard Homeowners Policy was mailed to Mallek in 1996,” was insufficient, since “ Allstate [simply] did not submit an affidavit from its employee to support that assertion . . . .” Allstate submitted a declarations statement for Mallek's 1996 renewal, but that only stated “that Mallek's policy was subject to the Standard Homeowners Policy; it did not establish that the Standard Homeowners Policy was mailed to her with the declarations statement.”
Despite the above, Allstate correctly argued that it was err to award “Mallek the face value of her insurance policy (i.e., $358,000) when she proffered no evidence in support of her damages.” “[U]nder the policy renewal declarations (which Mallek indisputably received), the $358,000 face value of the policy was merely a limit of liability, and Mallek has not submitted evidence with respect to the cost of rebuilding or replacing her destroyed home.”
Ultimately, the Second Circuit vacated judgment solely as to the amount of damages, affirmed the district court’s denial of summary judgment and remanded for further proceedings consistent with its decision.
Maxwell’s Minute: The incorporation by reference argument is an interesting one that I wish the Second Circuit would have sunk its teeth into on the merits. However, per footnote 1 of the decision, although the Second Circuit has “discretion to consider arguments that were waived below,” Allstate provided no persuasive reason why the Second Circuit should exercise its discretion in this case. Waiver simply was not addressed by Allstate on appeal and “[b]ecause we conclude that Allstate waived its incorporation-by-reference argument, we need not and do not express any view as to the merits of the argument.”
There is a body of caselaw in New York standing for the proposition that an insured “cannot seek the benefit of the coverage provided by [an] endorsement without being subject to the limitations of that coverage.” Hirshfeld v. Maryland Cas. Co., 249 A.D.2d 274 (2d Dep’t 1998) (citing cases). Under the circumstances here, the argument would go that Mallek cannot derive benefit from the coverage afforded by the Standard Homeowners Policy form without also being subjected to the limitations contained within that coverage form. Absent consideration of the Standard Homeowners Policy form itself, and its insuring agreement and coverage trigger contained therein, Mallek would not be able to meet her threshold burden as an insured to establish the existence of coverage to begin with.
From experience, these types of defenses from policyholders appear on the rise. The best practice is a good offense, and carriers should ensure that procedures are in place to verify that insureds are on notice and in receipt of all policy forms, terms, and conditions before claims arise.
RAUH’S RAMBLINGS
Patricia A. Rauh
On parental leave.
Scott D. Storm
Check back next edition for more interesting cases.
FLEMING’S FINEST
Katherine A. Fleming
05/11/23 Schleicher & Stebbins Hotels, LLC v. Starr Surplus Lines Ins. Co.
New Hampshire Supreme Court
The Presence of COVID-19 is Not Direct Physical Loss of or Damage to Property
The plaintiffs own and operate twenty-three hotels. Four are located in New Hampshire, eighteen in Massachusetts, and one in New Jersey. The plaintiffs purchased $600 million of insurance coverage from the defendants (the insurance companies) for the policy period from November 1, 2019, to November 1, 2020. Each insurance company accepted a specific share of the risk, as described in the policies at issue. With the exception of certain addenda, the relevant language of the policies is identical. Each policy states, in part, that it “insures against risks of direct physical loss of or damage to property described herein . . . except as hereinafter excluded.” Beginning in March 2020, the governors of New Jersey, Massachusetts, and New Hampshire issued various orders requiring citizens to stay home or in their places of residence unless engaged in a limited number of enumerated activities and orders restricting the operations of the hotels. Each of these orders, as the trial court found, was issued in an attempt to control the spread of COVID-19. For periods of time, pursuant to the governors’ orders, hotels in each of the three states were permitted to provide lodging only to vulnerable populations and to essential workers. Beginning in June 2020, the plaintiffs’ hotels were permitted to reopen with a number of restrictions on their business operations.
In or about March 2020, the plaintiffs, through their insurance broker, provided notice to the defendants that they were submitting claims in connection with losses stemming from COVID-19. In May and June 2020, several defendants sent letters to plaintiffs identifying relevant policy provisions, requesting additional information, and reserving their rights to deny coverage pending the ongoing claim investigation. In June 2020, the plaintiffs filed suit in superior court, seeking a declaratory judgment that they are contractually entitled to insurance coverage for business interruption losses resulting from the COVID-19 pandemic.
Both the business interruption and extension of time element coverage provisions insure against the loss of business income caused by loss, damage or destruction of property. The extension of time element coverage provisions, in certain circumstances, insure against actual losses sustained by the insured when loss or damage to property occurs at the premises of third parties. The plaintiffs moved for partial summary judgment, requesting that the superior court find that, under New Hampshire law, there had been direct physical loss of or damage to property as a result of COVID-19.
The defendants filed a cross-motion for partial summary judgment in which they argued that impacts to the operations of the hotels from COVID-19 do not trigger any provision of the policies without a showing of direct physical loss of or damage to property. The defendants argued that the presence of SARS-CoV-2 within a building does not constitute “direct physical loss of or damage to property.” The trial court granted the defendants leave to take an interlocutory appeal to address two issues addressed in the trial court’s order.
On appeal to the Supreme Court, the plaintiffs argued that they were entitled to coverage under the policies if (1) SARS-CoV-2 was present in the air at their hotels or on the surfaces of property at their hotels, or if SARS-CoV-2 was present on “property away from the Hotels” that “wholly or partially has prevented . . . potential customers from receiving the Hotels’ goods or services”; and (2) the extension of time element coverage provisions were triggered by “loss or damage to property,” and “physical loss” was not required. The trial court did not address whether “physical loss” is required to trigger coverage under the ETEC provisions. Rather, the trial court concluded that the policy language included the kind of damage caused by the spread of SARS-CoV-2.
However, the Supreme Court found that the plain language of the ETEC provisions requires that there be “direct physical loss of or damage to property” for there to be coverage. Coverage under the business interruption provision and the extension of time element coverage provisions of the policies is triggered only by “direct physical loss of or damage to” property. This “physical loss of or damage to property” must occur either at the premises of the insured, or at the premises of certain third parties.
Further, the Supreme Court found that the presence of SARS-CoV-2 on property, whether by aerosolized particles suspended in the air, or by fomites that come to rest on surfaces, does not cause “direct physical loss of or damage to property.” The plaintiffs argued that the presence of SARS-CoV-2 on property, whether by aerosolized particles suspended in the air, or by fomites that come to rest on surfaces, alters property that is safe and usable into property that is dangerous and unusable. The trial court agreed with the plaintiffs that the change to the property was “distinct” because people coming into contact with property exposed to the virus results in a risk of contracting a deadly disease.
The Supreme Court disagreed. The fact that the property could become a vector for transmission of a virus that poses a risk to human health due to the presence of SARS-CoV-2 in the air at the property is not relevant to the question of whether there has been “physical loss of or damage to property,” because the policies insure property, not people. While a “distinct and demonstrable” physical alteration need not necessarily be visible and alterations at microscopic levels might in certain circumstances meet this threshold, the mere adherence of molecules to surfaces does not alter the property in a distinct and demonstrable manner.
The Supreme Court reversed and remanded, holding that the presence of SARS-CoV-2 in the air or on surfaces at a premises, if proven, does not satisfy a requirement under a property insurance policy of “loss or damage” or “direct physical loss of or damage to property.” The Supreme Court’s decision is consistent with the conclusions of an overwhelming majority of federal and state courts construing language similar or identical to the language contained in the policies at issue.
GESTWICK’S GREATEST
Evan D. Gestwick
05/15/23 Charter Oak Fire Ins. Co. v. Zurich Am. Ins. Co.
New York State Supreme Court, County of New York
A Policy Naming as an Additional Insured Another Carrier’s Named Insured is Primary to that Insured’s Own Policy, where that Policy Provides it is Excess
After a crane collapsed in lower Manhattan causing bodily injuries to construction workers, the instant insurance dispute arose. Nova, the general contractor on the project, was insured by Charter Oak and Travelers, while Hatzel & Buehler, the subcontractor, was insured by Zurich. Meanwhile, Nova and Hatzel & Buehler has a subcontract that provided that the latter would procure commercial general liability insurance coverage and name Nova as an additional insured. That subcontract also provided that this would be on a primary and non-contributory basis. The instant insurance dispute centers around a question of priority of the respective insurer’s provided coverage.
In addressing this interesting issue, the Court first noted the general rule of law—that where multiple and overlapping insurance policies raise issues of priority, courts review each of the policies and apply the plain meaning of each to determine the question of priority.
The Court began this analysis by considering the Charter Oak policy, issued to general contractor Nova. The Court noted that this policy provided that it
. . . is excess over any of the other insurance, whether primary, excess, contingent or on any other basis, that is available to the insured when the insured is added as an additional insured under any other policy, including any umbrella or excess policy. When this insurance is excess, we will have no duty . . . to defend the insured against any ‘suit’ if any other insurer has a duty to defend the insured against the ‘suit . . . .’
Meanwhile, the Travelers policy, also issued to general contractor Nova, provided:
This insurance is excess over any valid and collectible other insurance whether such other insurance is stated to be primary, contributing, excess, contingent or otherwise. This provision does not apply to a policy bought specifically to apply in excess of this insurance.
Conversely, as the Court noted, the Zurich policy, issued to subcontractor H&B, provided that it is “ . . . primary to and will not seek contribution from any other insurance available to an additional insured.”
Noting that it went undisputed that Nova was an additional insured under the Zurich policy by reason of the terms of the subcontract, the Court held that the Zurich policy, which clearly provided that it was primary to and non-contributory with any other available insurance, was primary over Nova’s liability policies with Charter Oak and Travelers, which both provided that they were excess over any other available insurance.
This case serves as a reminder to always consider the existence of additional insured status. Even where a policy one insured did not itself procure provides as much, that insured’s own policy will take a backseat and will not step in until the limits of the primary policy have been exhausted. However, it is crucial not to mistake an additional insured provision for anything in the subcontract itself—remember, the provisions of the subcontract have to do with indemnity and/or the failure to procure insurance, which are usually resolved in the underlying action. The terms of the subcontract are only relevant to the separate, distinct insurance coverage action insofar as they determine the application of the respective additional insured endorsement.
Moral of the story: always check for additional insured coverage!
05/18/23 Manhattan Concrete LLC v. Prime Prop. & Cas. Ins. Co.
New York State Supreme Court, County of New York
Where a Rescission Due to a Material Misrepresentation on an Application for Insurance is Litigated, Discovery Only as to the Misrepresented Issue May be Had
Following a construction accident in which two employees were injured, Manhattan Concrete tendered its defense in the underlying lawsuit to its commercial liability carrier, Prime. Prime’s investigation revealed that Manhattan Concrete, when completing its application for its insurance policy, made a misrepresentation in its responses to several of the application questions. After determining that it would not have issued the policy to Manhattan Concrete as it did had it known the truth to those questions, Prime denied coverage for the claim, and rescinded this policy. The instant case ensued.
One of the questions on the application for insurance through Prime asked the applicant whether they had any other policy or policies of insurance that were cancelled due to non-payment of the premium within the preceding three years. The application question also asked whether Manhattan Concrete had any other available insurance, to which Manhattan Concrete responded that it was insured by non-party Colony Insurance Company.
After receiving notice of the claim, Prime, Manhattan Concrete’s current insurer, began an investigation, which revealed that the prior policy issued to Manhattan Concrete had been cancelled due to non-payment of premiums, making both of the above-referenced representations false. Prime determined that it would not have issued its policy to Manhattan Concrete as it did had it known the truth to those answers at the time of the application for the policy. As such, Prime rescinded the policy. Manhattan Concrete began this lawsuit challenging that rescission.
During the course of discovery, Prime demanded discovery from Ovation Risk Planners, Manhattan Concrete’s insurance broker with respect to the Prime policy. Specifically, Prime demanded discovery regarding the prior Colony policy, and any other policy it had ever procured for Manhattan Concrete. Ovation refused to comply with these requests on the ground that they were overbroad and irrelevant. Prime brought a motion to compel.
In opposition to the motion to compel, Ovation showed that it was not Manhattan Concrete’s broker with respect to the Colony policy. The Court ruled that this fact limited Ovation’s burden with respect to discovery about that policy. Ovation also argued that “every other policy” it had ever procured for Manhattan Concrete was not only overbroad, but irrelevant, since those policies would not have been material to the application questions at issue.
Agreeing with Ovation, the Court noted that the specific misrepresentations made on the application for insurance did not “open the door” to every interaction Ovation had ever had with Manhattan Concrete concerning the procurement of insurance in a general sense. The only issue, as the Court ruled, is the procurement of the Colony policy, which, as the Court also noted, Ovation did not procure.
In the end, the Court held that the better course of action would be for the parties to take depositions, wherein Prime would be better able to explore the exact role of Ovation with respect to the procurement of the Colony policy and the alleged misrepresentations.
ON the ROAD with O’SHEA
Ryan P. O’Shea
05/17/23 Quality Health Supply Corp. v. Nationwide Ins.
Appellate Division, Second Department
Insurer Follows Regulations to a “Fault,” Assignee’s Claim Dismissed on Assignor’s Failure to Comply with Policy Conditions
In this no-fault case Quality Health, as the assignee of Nationwide’s insured’s no-fault benefits, commenced an action to recover those very no-fault benefits. Quality sought recovery for the amount of medical services it provided to Nationwide’s insured. Nationwide moved for summary judgment arguing the insured failed to appear at three scheduled examinations under oath (“EUO”) barring coverage. Quality cross-moved for summary judgment. The trial court denied Nationwide’s summary judgment and granted Quality’s cross-motion. Nationwide appealed.
The Second Department set out the applicable standard found within 11 NYCRR 65-3.5(b); 65-3.6(b), which states “Upon receipt of one or more of the prescribed verification forms used to establish proof of claim . . . an insurer has 15 business days within which to request 'any additional verification required by the insurer to establish proof of claim.” 11 NYCRR 65-3.5(b). “At a minimum, if any requested verifications has not been supplied to the insurer 30 calendar days after the original request, the insurer shall, within 10 calendar days, follow up with the party from whom the verification was requested.” 11 NYCRR 65-3.6(b)
The Appellate Division also cited the legal precedent that an insured’s failure to comply with the provision of an insurance policy requiring the insured to submit to an EUO breaches the policy, precluding recovery of the policy’s proceeds.
On this backdrop, the Second Department found Nationwide met each requirement of the regulations establishing its entitlement to summary judgment. Specifically, Nationwide provided evidence by way of (1) letters showing the EUOs were timely and properly mailed; (2) that the insured failed to appear; (3) that it timely and properly followed up pursuant to 11 NYCRR 65-3.6(b); and (4) that it timely and properly issued a disclaimer of the claims following the insured’s failure to appear at the EUOs. Accordingly, the Appellate Division reversed the trial court’s decision.
In short, following the rules and creating a paper trail of doing so does nothing but benefit a carrier. Imagine if Nationwide went through all the trouble of noticing three EUOs, establishing the insured failed to appear at each EUO and issued a valid disclaimer, but failed to meet 11 NYCRR 65-3.6(b). Nationwide would be stuck. The 10 day window is tight but keeping track of that date provided Nationwide with the ability to reverse the trial court’s decision. For those readers who represent policyholders, this is also a lesson in making sure your clients appear for EUOs. Beyond this decision there is support holding the same, a failure to appear at an EUO obligated by an insurance policy bars coverage.
LOUTTIT’S LEGISLATIVE and REGULATORY ROUNDUP
Robert P. Louttit
05/24/23 S06636
New York State Senate
The Grieving Families Act Reaches the Second Report Calendar In New York’s State Senate
The Grieving Families Act is now in the New York State Senate and reached the Second Report Calendar on May 24, 2023. The purpose of the act is to amend the estates, powers and trusts law, in relation to the payment and distribution of damages in wrongful death actions. This bill would permit the families of wrongful death victims to recover compensation for their emotional anguish.
Proponents of the act argue that the current law is outdated and will expand the definition of a family member to reflect societal norms by allowing a greater and deserving category of individuals to recover for the wrongful death of their loved ones (e.g., spouse or domestic partner, children, parents, grandparents, stepparents and siblings). Opponents of the act argue that insurance premiums will significantly increase and exponentially increase the number of plaintiffs in a wrongful death lawsuit.
Of note, forty-seven other states compensate family members for emotional loss. Undoubtedly, the passing of this act into law will affect how plaintiff’s attorneys prosecute their cases and how insurance companies evaluate risk and reserves. We will keep you apprised of the subsequent steps taken by the legislature of this act as it makes its way through New York’s Senate.
ROB REACHES the THRESHOLD
Robert J. Caggiano
05/17/23 A.W., etc., et al v. Palacios et al
Appellate Division, Second Department
Plaintiffs Fail to Raise Triable Issue of Fact to Defeat Summary Judgment Dismissing a “Zone Of Danger” Cause of Action Due to Insufficiencies in a Proffered Treating Psychiatrist Affirmation
Defendants A.T.V. Inc. and Howard Smith sought appeal of Order from Supreme Court, Kings County, which denied Motion for Summary Judgment to dismiss the third cause of action. This cause of action specifically alleged that named adult plaintiff, Betty Wanounou, suffered emotional injuries as a result of being in the “zone of danger” when her son, an infant plaintiff, sustained serious injuries after being struck by a vehicle operated by Defendant Yolanda Palacios. The Appellate Division, Second Department, unanimously reversed on the law, with costs, granting summary judgment dismissing the aforementioned third cause of action.
This matter stems from a Motor Vehicle Accident which occurred on December 9, 2016. Specifically, a vehicle owned by Defendant A.T.V. Inc., and operated by Defendant Smith, collided with Defendant Palacios’ vehicle at a Brooklyn, NY intersection. This collision caused Defendant Palacios’ vehicle to subsequently strike the infant Plaintiff, who was walking on the sidewalk with his mother, Plaintiff Wanounou.
Defendants A.T.V. Inc. and Smith moved for summary judgment to dismiss Plaintiff Wanounou’s claim for emotional damages due to being in the “zone of danger” when her son was struck, arguing that Plaintiff Wanounou failed to sustain a serious injury within the meaning of Insurance Law § 5102(d). In opposition, Plaintiffs argued that the “zone of danger” cause of action is an independent common-law claim not subject to Insurance Law § 5102(d).
As discussed by the Supreme Court, Kings County, in the underlying Order, in order to prevail on an emotional injury claim based on “zone of danger” in New York, a plaintiff must establish that she was threatened with bodily harm as a result of the defendant’s negligence, and suffered emotional distress from viewing the serious physical injury of her son. The emotional disturbance suffered must be “serious and verifiable” – which requires establishment of the emotional injury by objective medical evidence.
Notably, there was no dispute by Defendants when moving for summary judgment as to whether Plaintiff Wanounou was holding her son’s hand at the time he was struck by the car – thus a triable issue of fact existed regarding whether Plaintiff Wanounou was threatened with bodily harm by virtue of her presence within the “zone of danger”. Instead, Defendants argued that Plaintiff Wanounou failed to suffer “serious and verifiable” emotional distress, because she did not sustain an injury sufficient to meet any criteria of the Serious Injury Threshold under Insurance Law § 5102(d), nor had she pursued any medical or psychological treatment necessary to support such a claim.
In support of its motion for summary judgment, Defendants submitted testimony of Plaintiff Wanounou herself denying any limitation in her regular activities since the accident, as well as an independent psychological examination report which proffered that “Ms. Wanounou is currently asymptomatic from a clinical psychological perspective,” and there was “no causal relationship between the motor vehicle accident of 12/9/16 and any clinically significant psychological sequala.” In opposition, Plaintiff presented an affirmation of a board-certified psychiatrist – who only examined her on one occasion about two years after the accident – who diagnosed her with “generalized anxiety disorder” causally related to her experience witnessing her son being struck by the vehicle.
In denying Defendants’ motion, the Supreme Court, Kings County found that the Defendants’ submissions failed to meet its prima facie burden. Interestingly, even in light of this finding, the Supreme Court continued to find that Plaintiff’s submission in opposition of a conflicting psychiatrist report, and identified testimony from her deposition regarding anxiety issues since the accident, presented triable issues of fact precluding summary judgment. Lastly, the Supreme Court wrote that Defendants incorrectly asserted that the serious injury threshold under Insurance Law § 5102(d) applies to a “zone of danger” claim, as the emotional distress being alleged did not stem from the person’s own physical injuries. Rather, the Supreme Court noted that such a claim is governed by the standard put forth by the Court of Appeals in its seminal Bovsun v. Sanperi decision. See 61 N.Y.2d 219 (1984).
In its reversal, the Appellate Division, Second Department, found that the Supreme Court erred in its above-referenced analysis. Notably, the Second Department found that a determination regarding whether Plaintiff Wanounou’s “zone of danger” cause of action is subject to the serious injury threshold or may proceed as a common-law claim subject to the standard in Bovsun is unnecessary – as Defendants established, prima facie, that Plaintiff Wanounou did not suffer an actionable emotional injury. Further, it was found that Plaintiffs failed to raise a triable issue of fact in opposition.
Specifically, the Second Department found that Plaintiff’s conflicting psychiatrist affirmation was insufficient to raise a triable issue of fact, since the diagnosis of “generalized anxiety disorder” was based on symptoms which Plaintiff Wanounou self-reported during a single psychiatric examination conducted nearly two years after the subject accident. Further, Plaintiff’s expert did not observe Plaintiff Wanounou to otherwise suffer any psychotic symptoms.
Heather A. Sanderson
Sanderson Law, Calgary, Alberta
04/18/23 The Estate of Pierre Wüst v. Novex Insurance Company,
2023 NBKB 62, New Brunswick Court of King’s Bench
A CGL Insurer is not Obliged to Defend Allegations of Negligence that are Dependent Upon an Intentional Tort. Physical Contact is not Necessary to Engage an Abuse Exclusion
According to a July 12, 2019, news report filed by the CBC, Pierre Wüst was a quiet, pleasant, registered massage therapist who, until 2017, worked at a clinic in Fredericton, New Brunswick. He was afflicted with multiple sclerosis which ended his therapist career. He stayed on at the clinic doing administrative work until he died in January 2019, at age 59 due to complications from his MS. According to his obituary, Mr. Wüst was predeceased by his wife, and, at the time of his death, he had developed a strong relationship with another lady.
Mr. Wüst enjoyed dancing and cycling until limited by his disease.
Apparently, Mr. Wüst also enjoyed taking videos of semi-dressed and undressed female patients at the clinic. The videos that were discovered by Wüst ’s executor after his death were, according to Fredericton police, likely captured using a pencil-like camera.
The clinic owner was shocked by the discovery of the videos. So were the patients when Fredericton police contacted them. According to news reports, there was no evidence that the videos had been shared on social media.
Two class actions on behalf of female patients representing about 200 individual claims were filed against Mr. Wüst’s estate. The Estate tendered both actions to Novex Insurance Company.
Novex issued a master policy of professional and general liability insurance to the Association of New Brunswick Massage Therapists of which Mr. Wüst was formerly a member. That policy offered miscellaneous malpractice liability coverage (“MML Coverage”) and CGL Coverage.
The MML coverage applied to the rendering of or the failure to render professional services. The standard form CGL coverage applied to defined bodily injury caused by a defined occurrence, excluding intentional injury (expected and intended) and abuse, defined to include any form of sexual abuse. The allegations in the class actions are set out in detail in the judgement. They include the intentional tort of intrusion upon seclusion and negligently installing and using cameras in the treatment rooms, as well as the editing, uploading, collecting and storage of the images. Novex determined that there was no coverage and declined to defend.
Mr. Wüst ’s Estate filed this duty to defend application. The trial judge hearing this application reviewed the allegations in the actions. The Estate argued that Novex did not have a duty to defend the intentional tort but did have an obligation to defend the allegations of negligence. Novex argued that the substance of the claim against the Wüst Estate is intrusion upon seclusion, that is, the intentional, surreptitious making of the recordings/photographs without the knowledge and consent of the patients. It argues that all the claims of damage derive from that intentional act.
Novex further argued that the true nature and substance of the underlying actions as against Mr. Wüst is one of intentionally harmful conduct and all claims alleged in negligence are wholly derivative of that intentional conduct. Further, Novex argued that the recordings made by Mr. Wüst were either consensual or they were not. If consensual, then the plaintiffs have no cause of action and there is no recovery. If they were not consensually taken, then coverage is precluded because it is outside the coverage of the insuring agreements and/or is precluded by the “abuse” exclusion.
The Court held that the substance of the allegations is that Mr. Wüst surreptitiously recorded his female patients in various stages of undress, some minors, stored the images, and later viewed them for his sexual gratification. The allegations of “negligence” are not severable from the intentional tort of intrusion on seclusion; they are not free-standing allegations of negligence and, therefore, they are wholly derivative of the intentional act. The intentional act is not an accident and therefore it is not an occurrence that engages the CGL coverage. In the alternative, if the claims are within the coverage, they are excluded by the intentional act exclusion and/or the abuse exclusion.
The test to determine if the damage and injury is expected or intended is objective, not subjective. The allegations of emotional harm are the natural and probable result of videotaping patients without consent. Further, the alleged absence of consent means that the videotaping was an assault and battery, engaging the abuse exclusion, which applies even in the absence of physical contact. There was no possibility of coverage under the CGL and, therefore, Novex did not have a duty to defend.
The Court dismissed all argument that the videos were taken as part of the rendering of professional services so as to engage the MML coverage: “…it is inconceivable that a patient would consent to the recordings as part of the “professional service” offered by Mr. Wüst”. Even if the allegations are within the coverage agreement, the abuse exclusion in the MML coverage excluded the claim. Again, physical contact is not necessary to engage that exclusion. And, as per the analysis of the CGL, the alleged absence of consent to the recording rendered the videotaping an assault and battery engaging that abuse exclusion.
The Court agreed with Novex that it did not have an obligation to defend the class actions.
This is a thorough common-sense judgment ably argued by Canadian Defence Lawyers member, Jason Mangano, one of the speakers at last month’s Insurance Coverage Symposium. The appeal period has not expired; however, it is difficult to envision a successful appeal from this judgment.
