Volume XXIV, No. 26 (No. 647)
Friday, June 9, 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.
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Dear Coverage Pointers Subscribers:
Do you have a situation? We love situations.
We present the final edition, number 26, of our 24th year of publication of your favorite coverage newsletter, the 647th issue of Coverage Pointers. For those who are new subscribers, past issues of this long-running publication are available on our website.
A special welcome to those who attended the two Risk Transfer presentations during the past week. Welcome to the CP family. The newsletter issue is attached, this is our cover note offering highlights, announcements of educational programming, and our “100 Years Ago” stories.
Grieving Families Act – Received Final Legislative Approval:
The big legislative news, of course, is that both houses of the New York State Legislature passed the 2023 version of the Grieving Families Act. It’s slightly more narrow than last year’s version, vetoed by Governor Hochul but dramatically increases the value of wrongful death verdicts in New York State. What will the Governor do this year? It remains to be seen. If the bill is signed into law, what will be the impact? Read our summary here.
Hurwitz Fine’s Commitment to Diversity Recognized:
We are proud to announce that Hurwitz Fine has achieved Midsize Mansfield Certification! Mansfield Rule Certification is a nationally recognized law firm diversity certification, which measures whether law firms have affirmatively considered at least 30 percent women, attorneys of color, LGBTQ+ and lawyers with disabilities for leadership and governance roles, partner promotions, formal client meeting opportunities, and senior lateral positions. The initiative also includes a commitment by the firm to be transparent in our internal governance, job descriptions and advancement criteria.
We are also proud to announce that our firm went a step further and received Certification “Plus” status, which indicates that we have successfully achieved 30% diverse representation in current leadership roles and pipeline activities. We are the first Buffalo-based law firm to achieve this national certification, which is a significant testament to our diversity commitment.
Insurer’s Celebrate 25 Years of Good Faith Handling:
Here is an anniversary worth noting.
On June 11, 1998, New York’s highest Court upheld a finding of bad faith against an insurer for failing to keep its insured in the loop during settlement negotiations. The case, Smith v. General Accident, 91 N.Y.2d 648 (1998). That was the last time any New York state appellate court upheld a finding of bad faith against an insurer in the State of New York under any policy of insurance.
Business Records Rule:
The admission into evidence of “business records” always presents challenges; in my column there is an interesting case that discusses the nuances of identifying business records in order to allow them into evidence
Training and More Training:
Schedule your in-house training for 2023. Need a topic? Here are 160 or so coverage topics from which to choose.
Need a mediator?
Coverage mediation is a thing! Subject matter expertise may be useful.
Hey coverage lawyers. Hey professionals. Have you and a friend, adversary, or lawyer for whom who have respect reached a stalemate on a coverage dispute? Look, we know each other. We know that. We don’t want to litigate every coverage disagreement. Why? Because the position we oppose today may be the one we advocate tomorrow. Face it. We all understand that.
Let me help mediate your disagreement to see if there is some mutual agreement, we can reach that will not box us into a corner. Reach out to me. I will be pleased to mediate your dispute.
My partners, Mike Perley and Ann Evanko, are also available to help resolve other challenges.
You don’t want adverse precedent that will bite you next time you might have a slightly different view on coverage issues. You don’t want to spend tens of thousands of dollars to litigate a coverage issue before a motion judge or appellate justice that knows as much about insurance coverage as you do about nuclear physics. For those in the Western District of New York, I am certified by the Court and on the WDNY Mediation Panel as are Mike and Ann.
Try mediation.
Newsletters:
We have other firm newsletters to which you can subscribe by simply letting the editor (or me) know, including a new publication, which was created to advise on business and employment law questions:
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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):
Nothing new in the first party world upon which to report.
Having nothing new to discuss this week, we take you back two weeks to my colleague Brian Barnas’ report on Laxminarayan Lodging (reviewed in the 5/25/23 issue). In that case, Mr. Barnas reported on a decision from Judge Hellerstein in the Southern District of New York that addressed three interesting first party issues. First, was Judge Hellerstein’s decision that appraisal was appropriate, and the appraisal process was empowered to answer questions about the applicability of the wear and tear exclusion (among others). Judge Hellerstein then also ruled that the Period of Restoration could possibly be extended because of delay from the insurer in adjusting the loss.
With respect to the Court, we have a bit of a different take on those legal issues and which to voice our concern in this space.
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On Appraisal – the Court appears to be suggesting that the application of traditional coverage defenses to claimed areas of loss is a factual issue and thus within the scope of the appraisal provision. We believe this is contrary to established NY law. In 425 W. Main Street, the Appellate Division, Fourth Department (later affirmed by the Court of Appeals) referenced the possibility of long-term failure (i.e.., wear and tear) as a coverage issue which required disposition before appraisal. The Louati decision, from the Second Department, also required a decision on the predominant causative issue (I.e., burst pipe or some other “non-covered” cause) to precede the appraisal provision.
When causation, as to the event was established, then appraisal is appropriate to determine the extent of the damage. Judge Hellerstein, here, appears to be empowering the appraiser to issue an opinion as to the impact of the wear and tear exclusion (and others). Appraisers should not be deciding the impact or applicability of coverage exclusions under NY law, and we would submit that this decision is not a positive development for insurers.
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On Period of Restoration – this part of the decision, to me at least, is even more troubling. The Court rightly recognizes that established law on this in NY measures the theoretical Period of Restoration as calculated from the moment of the loss. Thus, the rule should be interpreted that the POR is calculated by how long it should take the insured to repair/replace. The Period of Restoration is not impacted by any actual factors, as, again, it is a theoretical calculation that can be (and should be) completed at the moment of the loss.
Judge Hellerstein’s decision, in essence, blurs the line between consequential damage and POR precedent and, in doing so, appears to permit actual considerations (i.e., delay in the adjustment) to impact the calculation of the POR.
If a delay by the carrier can extend the POR, can too a delay from suppliers? We say not, and we say that NY law says not. That is because factors which arise after the POR is theoretically calculated should have no impact. That said, surely this case is problematic from the carrier’s side of the argument.
The Court compounded its mistake in the POR analysis by introducing elements of Bad Faith (in not dismissing the bad faith claim). Judge Hellerstein rightly references the seminal decision of Bi-Economy Food Mrkts in this decision, but the Court does not appear to have applied the rules enunciated in that case accurately.
The Court of Appeals in Bi-Economy specifically stated that it was not overturning NY’s bad faith rules for first party insurance disputes. That rule remains, as enunciated in NYU and Rocanova, bad faith must be pleaded as an independent tort, and demonstrate egregious conduct directed to the insured and also the general public as a whole. No such allegations exist here.
Nevertheless, the court did recognize that consistent with the concept of the duty of good faith and fair dealing, an insurer might still be liable for extracontractual damages in the context of consequential damages if said damages were contemplated at the time of the loss. Thus, as in Bi-Economy, the Court recognized that a carrier might have anticipated that a delay and/or mistake in its coverage analysis could impact the insured’s business operations. If the mistake in the coverage evaluation rose to the level of a breach of the duty of good faith and fair dealing, then consequential damages may have been an appropriate remedy. That is to say, then, that not every mistaken denial or delay will result in consequential damages, but rather only those damages which breach the duty of good faith and fair dealing.
In our opinion, what should have happened in this case is a civil trial to determine the potential application of any of the proffered coverage defenses. The POR, however, should have been kept consistent with the initial estimates, and the business interruption claim measured by the POR.
As part of that trial, the jury could also be asked to determine whether the carrier’s actions were so dilatory to have breached the duty of good faith and fair dealing and, further whether the additional loss in business income should have been anticipated by the insurer at the time the policy was entered into.
Steve
Steven E. Peiper
To Collect Tariffs, Pay Your People – 100 Years Ago:
Buffalo Morning Express
Buffalo, New York
9 JUN 1923
CUSTOMS NOT CHECKED
Creation of deficit by treasury
ordered by President.
Washington, D.C. June 8.—Creation of a deficit by the treasury so that the customs service may continue with a full staff has been authorized by President Harding, it was announced officially today. The President's authorization means that the New York and Boston customs houses will not have to lay off any of their personnel to keep within appropriations.
The treasury had been unable to find a way to maintain the labor personnel in full force without overdrawing its appropriation for that service, but when the President was informed of the situation, he immediately authorized the expenditure of sufficient funds to keep the customs houses in full operation and avoid a serious congestion.
Secretary Mellon estimated that the deficit will amount to probably $60,000. New appropriations will become available on July 1st.
Editor’s Note: Some things never change.
Wilewicz’ Wide-World of Coverage:
Dear Readers,
Our deepest sympathies go out to the people of Canada these days, who are dealing with numerous issues, including these tremendous wildfires. With so many things going on in the world, the last thing we need is more ecological disasters. The smoke has permeated everywhere, and we can only hope for some rain and cooler conditions on the way.
Now, thus far environmental issues have not impeded the busy summer travel season, which is gearing up for a record number of miles logged over here. Recent weeks the Wide World authors have hit up Columbus, Louisville, and once more crisscrossed the Great State of New York a couple of times. Coming weeks will see us again on the road, more often than not. More on that to come.
In terms of the latest from our various Circuit Courts, we have an interesting, albeit greasy one from Mississippi and its Fifth Circuit Court of Appeals. In Gold Coast Commodities v. Crum & Forester Specialty, at issue was whether the alleged intentional dumping of oily and acidic wastewater could be considered an “accident” or “occurrence” under a pollution liability policy. Indeed, the dumping included old restaurant grease, sulfuric acid, and “highly acidic” “extremely hot” wastewater. In short, no. There was no accident. In a clear and well-written opinion, the Fifth Circuit found that since all the allegations (indeed, some of the admissions) sounded in intentional conduct, there was no coverage where the policy only provided coverage for pollution accidents.
Until next time! Stay safe out there.
Agnes
Agnes A. Wilewicz
This Week On Cash Cab: Corporate Warfare Edition – 100 Years Ago:
Buffalo Morning Express
Buffalo, New York
9 JUN 1923
TAXICAB WARFARE
One killed, 30 arrested in
squabble within companies.
Chicago, Ill., June 8 (A.P.)—Thirty men were arrested today in a raid by agents of the state’s attorney in connection internal strife in the Checker Taxi Cab Manufacturing Company and the Checker Taxi Cab Company, which thus far is believed to have caused the killing of one man and the bombing of a house. Several sluggings have occurred. Seven men were arrested yesterday.
Many of the drivers and others are said to be stockholders in the companies. Seven men arrested yesterday are said to have been touring the city seeking out the stockholders and demanding their proxies at the forthcoming election of directors and officers.
Barnas on Bad Faith:
Hello again:
Just a quick note from me today. I am looking forward to the DRI Bad Faith Seminar and the Young Lawyers Seminar in Charlotte next weekend. There is still time to register for both conferences. If you will be in Charlotte, please make sure to say hello!
Brian
Brian D. Barnas
Lots of Hard Lessons Taught at This School – 100 Years Ago:
Buffalo Courier
Buffalo, New York
9 JUN 1923
JAIL AND SCHOOL RUN IN
THE SAME BUILDING, REPORT
Ossining, N.Y., June 8.—Condemnation of Ossining's practice of running a school and a jail in the same building was contained in a report of the State prison commission made public today.
The report pointed out that about 200 children attended the school and were forced to use the entrance through which patrolmen brought in their prisoners, "many of whom are in an intoxicated condition."
"It is safe to say," the report continued, there is not another lockup in the State of New York located in the same building with classrooms for children."
Lee’s Connecticut Chronicles:
Dear Nutmeg Newsies,
Well, another couple of weeks on the road, taking depositions far and wide. Not a lot of time for fun or interesting things. At the end of the month, I’m heading to Italy for the first time. I should have plenty to report on in July.
Until then, keep keeping safe.
Lee
Lee S. Siegel
The Slippery Slope of Beachwear – 100 Years Ago:
The Buffalo Commercial
Buffalo, New York
9 JUN 1923
“STOCKINGLESS FLAPPERS
NOT LADIES” CLAIM
New York, June 9. (A.P.)—Beach Flappers may go stockingless at Coney Island this summer, if they want to, Captain James H. Gillen of the boardwalk police announced resignedly today, “but if they do, they’re not ladies.”
The captain, after ruling all bathing suited promenaders off the newly dedicated promenade of planks, sent an appeal to all bathhouse proprietors to request women to dawn stockings before venturing on the sands. But they must only ‘request’ Capt. Gillen pointed out. For, although there are regulations governing the use of almost all other articles of beach apparel, stockings are not mentioned.
Editor’s Note: Imagine that.
Kyle's Construction Column:
Dear Readers,
This week’s Third Circuit Court of Appeals case involves a declaratory judgment action in which the insurer appealed from the District Court’s order granting summary judgment for the insured. The insurer argued that contrary to the District Court’s holding, the insurance policy at issue did not indemnify the insured for property damage caused by the insured’s own faulty workmanship or failure to perform the contract in a workmanlike manner.
Until next time,
Kyle
Kyle A. Ruffner
[email protected]
Temporary Insanity Leads to High Seas Slaying – 100 Years Ago:
The Buffalo News
Buffalo, New York
9 JUN 1923
CRAZY MAN KILLS THREE ABOARD SHIP
Commander, Wireless Operator, Another Officer,
Victims; Two Others Wounded—Assailant Commits Suicide
.
LISBON, June 9.—The second officer of the steamship Brave Coeur according to a message received here, committed suicide today at Oporto while policemen were endeavoring to arrest him on a charge of killing the commander of the vessel, the wireless operator, and another officer, and wounding a seaman and a passenger while on the high seas about 400 miles off Oporto.
The reason for the crime is not known but it is supposed that the officer became temporarily insane.
The shooting was done with a revolver. After running amuck, the officer took refuge in his cabin and put up a severe struggle with the police. When he found escape impossible, he committed suicide.
Ryan’s Federal Reporter:
Hello Loyal Coverage Pointers Subscribers,
I have entered the next level of baseball parenting and purchased a hitting stick batting trainer for my oldest son. The key to muscle memory and coordination in any sport is repetition, repetition, repetition, and although the goal at this level is not to win (they don’t even keep score), the healthy competition to come has paid many dividends over the years for myself and others and deserves investment of time today. His ball contacts are up, his form is fine, and his enthusiasm for the game is expanding each and every day. Plus, I can use his new bat as a fungo for ground ball drills, which he enjoys as well.
My youngest on the other hand has been working on his volleyball coordination before bed. Don’t tell his mom we’re playing with balls in the house (although I’m sure she already knows).
This week, I have a case from the Southern District of New York addressing what exactly is a “claim” for the purposes of a claims-made insurance policy. The answer, at least under the language at issue, might surprise you.
Until next time,
Ryan
Ryan P. Maxwell
High Flying Predictions – 100 Years Ago:
The Buffalo Courier
Buffalo, New York
9 JUN 1923
Air Flivvers.
When the automobile was new there was almost as little disposition to believe that it would, in two decades, fulfil the prophecy about horseless carriages rushing about the streets, as there now is to believe that flivvering in the air before long will be common. But Georges Barbot’s prediction that “flivvers will be as thick in the air as they are on the ground before long" deserves to be taken seriously.
M. Barbot, who is demonstrating in this country his 243-pound monoplane, built in France by Emil Dewoitine at a cost of $1,500, has good reason for his prediction. In his flight last Monday from Garden City to West Point, he traveled about 125 miles at a cost of fifty-two cents for gasoline and ten cents for oil. This means about sixty-two miles to the gallon of gasoline. Barbot says he has flown 125 miles on a gallon, when wind conditions were such as to permit a considerable amount of gliding.
The cost of operating the air flivver, therefore, has been reduced to a negligible item. Initial cost will be reduced, just as the cost of the automobile has been reduced, when quantity production is attained. Doubtless this will not come about so quickly in machines for the air as in machines for the ground, for the average man will require considerable training before he so loses his attachment for earth as to feel comfortable in the air. But when wings are both reasonably safe and of easy price the new level of transportation will bring us new traffic problems. M. Barbot's "before long'' may yet be some distance off, but air flivvering at two miles for a cent must be reckoned with as a forerunner of common traffic in the air.
Editor’s note: [ˈflivər] NOUN INFORMAL DATED a cheap car or aircraft, especially one in bad condition.
Rauh’s Ramblings:
On parental leave.
Patty
Patricia A. Rauh
Baseball Debut – George Pipgras – 100 Years Ago:
George William Pipgras (December 20, 1899 – October 19, 1986) was an American right-handed starting pitcher and umpire in Major League Baseball. He debuted for the Yankees 100 years ago today coming in for the last three innings of a 13-3 loss to the Indians.
Known as "The Danish Viking", he spent most of his playing career with the New York Yankees, breaking in as a rookie in 1923. He spent the 1925 and 1926 seasons in the minor leagues, and became a starter in the rotation for the first time with the legendary 1927 team. Pipgras lead the American League in wins with a 24–13, 3.38 ERA record for the following year's 1928 repeat champions.
After ending his 11-year career with the Boston Red Sox, he became an AL umpire from 1938 to 1946, and was the umpire behind the plate in one of baseball's most dramatic wins ever: on September 30, 1945, at Sportsman's Park in St. Louis, when Hank Greenberg hit a ninth-inning grand slam, after Pipgras suggested to Greenberg the game should be called on account of darkness. However, Greenberg convinced him he could still see the ball, so the game proceeded. The next pitch was hit over the fence and the Detroit Tigers went on to win the pennant and eventually the 1945 World Series over the Chicago Cubs 4–3 in 7 games.
Pipgras died in Gainesville, Florida at the age of 86. He was survived by his wife, Mattie Mae, who died in 2013 at the age of 99.
Storm’s SIU:
Hi Team:
I have a pair of appraisal cases for you to consider from the United States District Court, Southern District of New York.
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Court Compels Appraisal Finding No Coverage Issues; Period of Liability for Business Income Claim May Include Alleged Delays Caused by Insurer; and Plaintiff's Breach of Contract Claim Can Support Consequential Damages for Breach of the Implied Covenant of Good Faith and Fair Dealing.
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Court Grants Insurer’s Petition to Compel Appraisal Finding, Among Other Things, the Plaintiff is Not Prejudiced by the Two Years and Four Months Between the Property Fire and the Appraisal Demand the Parties Had Engaged in Good Faith Negotiations.
Our firm having been successful on appraisal issues, in my opinion the first digested case is incorrectly decided and contrary to the weight of authority. That court found the issue of damage causation to properly be a subject of appraisal. However, causation (whether a loss and damages are covered under the policy, i.e., were they caused by a covered peril) is a fundamental coverage issue. Among other things, the insurer asserted the application of policy exclusions, which are legal disputes regarding application of the terms of the policy. The court found seemingly obvious coverage issues to be factual questions relating to damages appropriate for appraisal. Read it and decide for yourself.
For comparison, I will post on my LinkedIn page a recent decision where Kyle Ruffner and I were successful in a similar case. Mirzet Kendic v. New York Central Mutual Fire Ins. Co., N.Y. State Supreme Court, County of Oneida. In that case the Court correctly dismissed the Petitioner’s action which sought an order compelling the insurance carrier to submit to appraisal. The Court agreed with N.Y. Central that determining the Petitioner’s actual damages under the policy and whether the proffered exclusions apply are, indeed, legal "scope of coverage questions," which must be resolved in court, not through appraisal.
Have a great two weeks!
Scott
Scott D. Storm
Shake ‘Em Up – Cops Cancel Game – 100 Years Ago:
The Buffalo Enquirer
Buffalo, New York
9 JUN 1923
ROOM RAID
NETS $140 TO COURT
(Special Telegram to The Enquirer.)
Geneva, June 9.—Late Thursday afternoon the local police made a raid on a place situated at the rear of Joseph Gabora's barber shop on Tillman Street and rounded up twelve men participating in a game of craps and haled them before the cadi. Fines collected off the bunch yesterday morning totaled $140. The police had been watching the place for some time, but whenever they attempted a raid, a watchman tipped off the players. The raid yesterday was from the rear alley, and with no warning. Many of the players were Syrians and Greeks, but among them were several native Americans.
Fleming’s Finest:
Hi Coverage Pointers Subscribers:
Once again, I have been outsmarted by a dog. The top of the fridge was previously believed to be a safe space, but the d-o-double-g has taken to jumping onto the stove to steal food when the coast is clear. Impressive. Here’s hoping he does not figure out how to open the oven door…
This week’s case from the Nebraska Supreme Court considered Nebraska’s valued policy statute. In the event of a total loss, Nebraska’s valued policy statute conclusively determines that the true value of the insured property is the amount written in the policy. Since the insureds’ claims of negligent misrepresentation against the broker were premised on proof that their home had a higher value than the amount for which it was insured, their claims failed as a matter of law.
Catch you later,
Kate
Katherine A. Fleming
Lawyer Plays Deputy– 100 Years Ago:
Buffalo Morning Express
Buffalo, New York
9 JUN 1923
LAWYER LEADS CLIENT
IN SEARCH OF MONEY
Attorney John L. George yesterday was deputized by Chief Judge Woltz to take his client, Peter Cosentino, 22 years old, of No. 398 Swan Street, out of court to get $26 which he was charged with sneaking from under the pillow of Leonard Marshall of No. 226 Abby street on May 10th.
The lawyer called a taxicab and drove to Cosentino's home where his aged mother gave him the money. On their return Judge Woltz read the riot act to the lad and placed him on probation with a sentence of six months hanging over his head.
Gestwick’s Greatest:
Dear Readers:
Two weeks ago, I expressed my hope that, in two weeks from then (i.e., today), I would be reporting on a Buffalo Bandits National Lacrosse League Championship. Well, here I am today, reporting on exactly that! Our hometown Buffalo Bandits beat the Colorado Mammoth last weekend in Game 3, the decisive game of the National Lacrosse League Championship Round, to win it all. This was their first league championship since 2008, which I also attended. Coincidence? Probably.
I also saw my first Toronto Blue Jays game at Rogers Centre last week. In the days of COVID, the Blue Jays played a stint at Coca-Cola field, home to their minor league affiliate Buffalo Bisons, just a short walk from our Buffalo Office. I caught a game when they were here, but this was my first time seeing them in their home park.
This week, I have a case about vacating an arbitrator’s award of no-fault benefits. After the claimant was injured in a car accident, he underwent surgery and was thereafter prescribed two medical devices to aid in his recovery. The no-fault carrier denied no-fault benefits on the ground that the surgery and need for devices were not causally related to the accident. The arbitrator awarded $2,021.74 in medical benefits, which was affirmed by a master arbitrator. The no-fault carrier petitioned to vacate the award on the ground of lack of medical necessity. In denying this petition, the Court ruled that no-fault carriers are only entitled to rely upon the reasons for denial given in their original denial letters. Here, because the no-fault carrier originally denied the claim on the ground that there was no causal relationship between the accident and the surgery, the carrier could not now argue that the arbitration award should be vacated due to lack of medical necessity. The moral of the story is to always include every reason upon which the carrier may later wish to rely in the original denial letter.
That’s all for this week. See you in two weeks! Until then, stay safe, stay cool, stay clean (this air quality is killing my sinuses), and stay happy.
Evan
Evan D. Gestwick
Shocking No-one: France Chooses Execution – 100 Years Ago:
Richmond Planet
Richmond, Virginia
9 JUN 1923
FRENCH GOVERNMENT
TO STAMP OUT ALL
CANNIBALISM.
(Preston News Service)
Washington, D.C. June 7.—According to advices received here the French government has decided to stamp out cannibalism in western and Central Africa. It has determined to punish cannibals with death according to the decree issued by the French government. Cases formerly were dealt with according to local native customs, the sentences were frequently mild.
On the Road with O’Shea:
Hey Readers,
The Stanley Cup Finals are upon us, which is undoubtedly my favorite time of the year. Fingers crossed the Florida Panthers hoist the Cup, but it’s not looking good early on. On that note, I would like to extend a compliment to Matthew Tkachuk on his textbook delivery of a body check upon Buffalo’s favorite player, Jack Eichel. But Scott Stevens’s assassination of Paul Kariya is still the all-time best check in NHL playoff history. If you have a spare moment, please take the time to watch that video.
This week I have a quick read of a case on negligence involving a rear-end collision in Kings County. Plaintiff moved for summary judgment and dismissal of culpable conduct defense. Defendant asserted the motion was premature due to lack of discovery. However, the court thought the motion was ripe enough for a grant of summary judgment.
See you in two weeks,
Ryan
Ryan P. O’Shea
[email protected]
Get Your Life Raft Today – 100 Years Ago:
Reno Gazette-Journal
Reno, Nevada
9 JUN 1923
Noah built himself an
ark before the rain
started
How about your ark?
Get your plans now and be sure and get our estimate.
We save you money.
CONRADT BROTHERS
Contractors and Builders
Mill—260 Ralston Street
Phone—1525-W
Residence Phone—1196-M
Louttit’s Legislative and Regulatory Roundup:
Hello All,
I hope everyone is staying safe on this very smokey week.
Today’s column reports on the “Fairness for Victim’s Act”, a bill making its way through New York State’s Legislature. The bill’s intent is to prevent an adverse arbitration ruling against a no-fault claimant from being used as collateral estoppel in other actions. However, passing this into law could mean a multiplication of harassing, meritless suits that carriers will have to defend. We will keep an eye on this as it makes its way through the New York State Legislature.
Rob
Robert P. Louttit
Hazing at Hobart... WNY Youth Punished – 100 Years Ago:
The Buffalo News
Buffalo, New York
9 JUN 1923
Hobart Seniors “Busted” for
Hazing Commencement Eve
Lawrence Loghry, Crack Athlete from Bergen, Genesee, County,
Three Other W.N.Y. Youths Punished.
GENEVA, June 9.—On the eve of graduation from Hobart College commencement day being Monday four members of the senior class yesterday received notice of severe punishment on the part of the college authorities. Lawrence Loghry of Bergen, crack athlete was summarily expelled from college and Wilson Gasper, William Hogan of this city and Arden Babbitt of Canandaigua will have their degrees withheld until September. Theodore G. Knowles a sophomore, who transferred here from Yale last year, was also expelled.
Participation in a hexing party on June 4 is stated as the reason for the drastic action on the part of the college authorities. These and other students are accused of entering the rooms of the students in the dormitories hauling them out and compelling them to furnish amusement of a rough character on the campus and elsewhere. Some of the students were ducked in Seneca lake.
Lloyd Hyde, a Junior, made a desperate fight against going in the lake and nearly succeeded in beating-off his tormentors but at the end was badly beaten up. He ta a popular man in college and there was no special reason for his being hazed. However, he made no complaint but when the affair leaked out to the college authorities an investigation followed with these results.
Editor’s Note: Some things never change. Where did I read that before?
Rob Reaches the Threshold:
Hello Coverage Pointers Readers:
It’s been a long two weeks since our last installment – which was my first appearance in Coverage Pointers – as I have been neck-deep in motion practice, seeking to dismiss a mass tort litigation that seems to never go away (stay tuned for how it plays out!). Just when I start seeing some light (and needed relaxation) at the end of the tunnel, major news broke that caught the attention of both my lawyer and golfer sides – namely that the PGA, DP World Tour, and Saudi Arabia’s Public Investment Fund are partnering to create a new parent corporation to essentially reign over professional golf. The lawyer side of me immediately started thinking about legal ramifications (entity structure, monetary considerations, anti-trust, etc.), whilst the golfer in me hopes this will unify the game and strengthen it for years to come. I look forward to finding out more and more about this major corporate undertaking.
Even though the headlines were a buzz since you last heard from me, there had been crickets from the Appellate Division with anything interesting on Serious Injury Threshold. However, luckily, the First Department saved us at the last minute, affirming summary judgment from an Order from Supreme Court, Bronx County, dismissing a complaint where a plaintiff failed to raise a triable issue of fact on whether he suffered a serious injury. Defendants had met their prima facie burden warranting summary judgment via a rather effective physical IME report and a separate independent radiologist read report. In opposition, Plaintiff’s submissions from his own doctors had many flaws.
In a fun, yet completely irrelevant, point of fact – the underlying accident from which this case stems occurred a few blocks down the street from my beloved Yankee Stadium.
I hope you all enjoy the read.
Rob
Robert J. Caggiano
It’s Gonna Be One Smokey Summer – 100 Years Ago:
The Rich County Reaper
Randolph, Utah
9 JUN 1923
Vacation Season Brings Forest Fires
Recent forest fires in Maryland, Virginia, Pennsylvania, and New Jersey—several of them near Washington, and some of them close to other large centers—have taught the people of this section the lesson which the forest service has long been endeavoring to impress upon the people of the country as a whole.
One of these fires raged over an area of 16 square miles within an alarmingly short distance of the nation’s capital city, and caused a large loss of property in houses, barns, etc., in addition to the loss in timber.
During the coming summer there will be approximately 34,000 of these forest fires, if the annual average of the last six years is maintained. Last year 38,400 such fires were reported to the federal authorities.
The lesson to be learned is not alone of the great loss which they cause, but that almost all of them could be prevented. Fully 80 per cent are the result of carelessness or ignorance, or both. Natural causes are responsible for only about one-tenth.
Editor’s Note: Forest fires? Some things never change.
North of the Border:
The number and severity of Canadian wildland fires is beyond our known experience. As I write this, there are out of control wildland fires in Nova Scotia, New Brunswick, Northern Quebec, Saskatchewan, Alberta, British Columbia, and the Northwest Territories. These fires are at the urban wildland interface and have even burned into the suburbs of Halifax. The smoke from those fires has filled the skies of central Canada, the American Eastern Seaboard, Scandinavia, and Europe.
Both Ottawa and Washington are under a dome of smoke.
Here in Calgary, we are currently under blue skies after almost two solid weeks of smoke, but we know it won’t last.
This is a call to action to address climate change and indicates in stunning fashion that this is an international issue. We can last three days without water – how long can we last without air?
Heather
Heather A. Sanderson
Sanderson Law, Calgary, Alberta
Headlines from this week’s issue, attached:
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
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Unsigned Application of Insurance Offered as a Business Record in Support of a Rescission Motion, Rejected as Hearsay. Late Disclaimer Based on Delayed Investigation Torpedoes Disclaimer. Insurer’s Beware
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Court Looks to “Reasonable Expectations” of the Insured in Interpreting Policy. Thousands Flee
PEIPER on PROPERTY (and POTPOURRI)
Steven E. Peiper
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No news to report this week.
WILEWICZ’S WIDE WORLD of COVERAGE:
Agnes A. Wilewicz
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Fifth Circuit Holds that Intentional Discharge of Oily and Acidic Wastewater Was no Accident or Occurrence Under Pollution Liability Policy, Thus There Was No Coverage for Such Claims
BARNAS on BAD FAITH
Brian D. Barnas
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Reserve Information Discoverable in Bad Faith Action
LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel
-
Pre-judgment Attachment Denied, Insurance Limit Sufficient
KYLE'S CONSTRUCTION COLUMN
Kyle A. Ruffner
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Court Holds Insurance Policy Does Not Provide Indemnity for Property Damage Caused by Faulty Workmanship or Failure to Perform in a Workmanlike Manner
RYAN’S FEDERAL REPORTER
Ryan P. Maxwell
[email protected]
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Court Allows Claim For Coverage to Continue Where Initial “Claim” For Compensation Was Contained In The Underlying Complaint
RAUH’S RAMBLINGS
Patricia A. Rauh
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On parental leave
STORM’S SIU
Scott D. Storm
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Court Compels Appraisal Finding No Coverage Issues; Period of Liability for Business Income Claim May Include Alleged Delays Caused by Insurer; and Plaintiff's Breach of Contract Claim Can Support Consequential Damages for Breach of the Implied Covenant of Good Faith and Fair Dealing
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Court Grants Insurer’s Petition to Compel Appraisal Finding, Among Other Things, the Plaintiff is Not Prejudiced by the Two Years and Four Months Between the Property Fire and the Appraisal Demand the Parties Had Engaged in Good Faith Negotiations
FLEMING’S FINEST
Katherine A. Fleming
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In the Event of a Total Loss, Nebraska’s Valued Policy Statute Conclusively Determines that the True Value of the Insured Property is the Amount Written in the Policy
GESTWICK’S GREATEST
Evan D. Gestwick
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No-Fault Insurer Cannot Rely on Grounds Other Than Those Stated in Denial Form at the Time of Arbitration
ON the ROAD with O’SHEA
Ryan P. O’Shea
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Establishment Of Prima Facie Burden Of Negligence In Rear-End Collision Results In Dismissal Of Culpable Conduct Defense And Grant Of Summary Judgment
LOUTTIT’S LEGISLATIVE and REGULATORY ROUNDUP
Robert P. Louttit
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Fairness for Victims Act is Working its Way Through New York State’s Legislature
ROB REACHES the THRESHOLD
Robert J. Caggiano
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Summary Judgment Dismissing the Complaint Affirmed Based on Plaintiff’s Inability to Raise of a Triable Issue of Fact that He Suffered a Serious Injury Under § 5102(D) Where His Proffered Medical Experts did not Address Degenerative Conditions Seen on Imaging nor Explain Why They were not the Cause of His Injuries
NORTH of the BORDER
Heather A. Sanderson
Sanderson Law, Calgary, Alberta
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An Additional Insured Endorsement that Applies to Bodily Injury or Property Damage Arising out of the Operations of the Insured, Excluding the Acts or Omissions of the Additional Insured, Will Extend a Defence to the Additional Insured, Without Proof that the Insured is in Fact Liable and that the Injury or Damage in Issue was not Caused by the Additional Insured
It is a hazy evening, here in Southern Ontario. It’s cocktail hour somewhere, likely here, as soon as the issue goes out the door. Keep those cards and letters coming in. We love to hear from you.
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
05/30/23 Scottsdale Ins. Company v. Casino Development Group
Appellate Division, First Department
Unsigned Application of Insurance Offered as a Business Record in Support of a Rescission Motion, Rejected as Hearsay. Late Disclaimer Based on Delayed Investigation Torpedoes Disclaimer. Insurer’s Beware
Toll sought additional insured coverage under a Scottsdale policy. Scottsdale apparently denied coverage, seeking a determination that it had no coverage under certain policies based on a “Residential Building Project Exclusion.” Scottsdale also sought to rescind an excess policy.
The Court found that Scottsdale should have conducted a prompter investigation of the facts and circumstances of the project when the contract documented the building project at issue as "residential." Even if this failure to investigate was justified, Scottsdale does not explain when its monitoring counsel had completed his evaluation of the underlying litigation or the necessity of any subsequent delay in disclaiming. Scottsdale thus failed to meet its burden to show that its delay was reasonably related to necessary, prompt, and diligent investigation.
Accordingly, unless the insurance policy is void ab initio under the second cause of action, Scottsdale is required to provide insurance coverage as to an underlying action.
The Court properly denied Scottsdale summary judgment on its second cause of action for a declaration that the commercial excess liability policy is rescinded as void ab intio. Scottdale failed to establish prima facie that Casino made material misrepresentations of fact on its insurance application, as the unsigned application is inadmissible under the best evidence. Scottsdale contends that Casino's unsigned insurance application is admissible based upon the affidavit of its underwriter averring that the document was maintained in the regular course of Scottsdale's business (see CPLR 4518[a]). However, Scottsdale offered no evidence that Casino was the source of the information contained in the application. Since Scottsdale proffered no evidence as to the person relied upon for the completion of the application, the application did not provide the " 'sufficient indicia of reliability'” necessary for the representative of one entity to lay a business records foundation for the records of another.
Editor’s Note: The “business record” rule is a tricky one. Insurers ought to make sure that they are working with signed (actual or electronic) policy applications when seeking rescission or trouble may be afoot.
05/30/23 GreenGate Fresh LLP V. Houston Casualty Company
Appellate Division, First Department
Court Looks to “Reasonable Expectations” of the Insured in Interpreting Policy; Thousands Flee
Given the plain language of the policy and the reasonable expectations of plaintiff, the insured (Cragg v Allstate Indem. Corp., 17 NY3d 118, 122 [2011]), the Court determined that losses suffered by plaintiff in connection with the April 2018 and November 2018 E. Coli outbreaks fell within the scope of coverage under the policy's government determination endorsement.
Contrary to defendant's contention, nothing in the plain language of the endorsement required that governmental authorities specifically identify plaintiff's product as the contaminated product in order for coverage to be triggered.
The determinations of the CDC and FDA implicated plaintiff's product during the April 2018 outbreak by identifying the growing region where plaintiff sourced its romaine lettuce, and during the November 2018 outbreak by calling for the withdrawal and destruction of all romaine lettuce. Furthermore, under the circumstances, the governmental authorities could have reasonably found that there was a "reasonable probability" that consumption of plaintiff's lettuce would result in bodily injury. Indeed, defendant's own expert testified that it was prudent for the insured to withdraw its product from distribution during the outbreaks.
Editor’s Note: The standard for policy interpretation, in New York, does not look at the “reasonable expectations” of a specific insured – a subjective test -- as this court suggests. Even the case cited by the court, the Cragg decision, speaks to an objective, rather than subjective standard:
Insurance contracts must be interpreted according to common speech and consistent with the reasonable expectations of the average insured (see Matter of Mostow v State Farm Ins. Cos., 88 NY2d 321, 326-327 [1996]). To the extent that there is any ambiguity in an exclusionary clause, we construe the provision in favor of the insured.
So too, does the Mostow decision, from New York’s highest Court:
Although the common understanding of the insurance industry and the legal profession may well be that the total per accident coverage is subject to the per-person limits i.e. classic "split limit" coverage the test to determine whether an insurance contract is ambiguous focuses on the reasonable expectations of the average insured upon reading the policy (Buckner v Motor Vehicle Acc. Indem. Corp., 66 N.Y.2d 211, 213-214) and employing common speech (Ace Wire & Cable Co. v Aetna Cas. & Sur. Co., 60 N.Y.2d 390, 398).
Counsel for the carrier argued, understandably, that the “reasonable expectations” of an insured should not and cannot be used to expand coverage where policy language is unambiguous.
PEIPER on PROPERTY (and POTPOURRI)
No news to report this week.
WILEWICZ’S WIDE WORLD of COVERAGE
Agnes A. Wilewicz
05/22/23 Gold Coast Commodities, Inc. v. Crum & Forster Specialty Ins.
United States Court of Appeals, Fifth Circuit
Fifth Circuit Holds that Intentional Discharge of Oily and Acidic Wastewater Was no Accident or Occurrence Under Pollution Liability Policy, Thus There Was No Coverage for Such Claims
Gold Coast Commodities makes animal feed – using saponified poultry and plant fats – at its facility in Rankin County, Mississippi. One of their production processes involves old restaurant grease and sulfuric acid, which leaves Gold Coast with 6,000 gallons of oily, highly acidic, and extremely hot wastewater each week. Upon investigation of the Mississippi Department of Environmental Quality, it turned out that Gold Coast may have been discharging “oily, low-pH wastewater” into the public sewers of the City of Brandon. Following the governmental investigation, truckloads of foamy, dark brown wastewater began regularly appearing at a rarely used dump site in Pelahatchie, Mississippi. When asked about it, Gold Coast said that it typically reused wastewater but then admitted that it was not checking the pH of the waste that it was dumping at the site. Ultimately, the City found that Gold Coast was clearly dumping significant amounts of high-temperature, corrosive, and low-pH wastewater into the public sewers in the area. The City sued Gold Coast for the damage caused, including claims of negligence and intentional conduct.
Two months before the Department’s investigation, Gold Coast had purchased a pollution liability policy with Crum & Forster Specialty. After the City filed suit, Gold Coast requested coverage and notified its carrier of potential liability. Crum & Forster insisted that its policy only covered accidents, and that since the City’s claims sounded in intentional conduct, Gold Coast was not covered.
Analyzing the policy, indeed, it only provided coverage for an “occurrence” or an “accident, including continuous or repeated exposure to substantially the same general harmful conditions”. In this case, under Mississippi law, the alleged actions of the insured, not the resulting damages, decide whether something is an “accident” – an “unanticipated action that takes place without the insured’s foresight”. The Complaint against Gold Coast plainly, clearly, and repeatedly alleged intentional dumping of wastewater into the City sewer systems. Just because the word “negligence” was also included in the Complaint did not convince the Court that there was anything accidental about the alleged actions of Gold Coast. Indeed, since all of the allegations sounded in intentional conduct, it was not entitled to either a defense or indemnification under C&F’s policy.
BARNAS on BAD FAITH
Brian D. Barnas
05/30/23 Travelers Indemnity Company v. Johnson
United States District Court, Northern District of Indiana
Reserve Information Discoverable in Bad Faith Action
In this bad faith action, Johnson contended that Plaintiff’s loss reserves were discoverable as relevant to the bad faith claim. Travelers contended that its statements of loss reserves were generally not discoverable and not relevant as precautionary estimates unrelated to the merits of a claim.
The court found that the reserves were discoverable to the failure to settle bad faith claim. The court noted that evidence of state of mind reflecting dishonest purpose, moral obliquity, furtive design, or ill will was relevant to bad faith. A jury’s decision on the bad faith claim would depend on Traveler’s treatment of the underlying suit was processed, handled, and analyzed. The Court concluded that reserve information was relevant and ordered Travelers to produce reserve information withheld from disclosure.
LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel
05/25/23 Green v. Galeota
Superior Court of Connecticut, Rockville
Pre-judgment Attachment Denied, Insurance Limit Sufficient
It’s a slow insurance coverage week for Connecticut. So, this gives us a chance to talk about a little quirky bit of Connecticut jurisprudence—the Prejudgment Remedy.
First, the background on the law. Connecticut allows plaintiffs to collect from defendants at the beginning of the case rather than waiting for the end. Pursuant to CGS § 52-278a, a plaintiff may attach the assets of a civil defendant prior to the entry of judgment. A prejudgment remedy is available upon a finding that there is probable cause that a judgment in an amount equal to or greater than the prejudgment remedy sought will be entered for the plaintiff, taking into account any defenses, counterclaims, and set-offs. The proofs required to establish probable cause are less than a preponderance, and far less than the absence of a material issue of fact that a court would apply on summary judgment. While the standard for probable cause is low, courts are cautioned that they should determine the appropriateness of such a remedy not only on the basis of the credibility of the witnesses but also must make an “assessment of the legal issues ....” Greenberg, Rhein & Margolis, Inc. v. Norris-Faye Horton Enterprises, Inc., 218 Conn. 162, 166, 588 A.2d 185 (1991). The purpose of a prejudgment remedy, ostensibly, is to secure assets for judgment against dissipation; however, it does not appear that it is a factor weighed by Connecticut courts.
Now, the facts. This is a vicious dog-bite case, causing significant injuries to a five-year-old child, with the mother as a witness seeking bystander damages. Importantly, the defendant conceded liability which is, for all intents and purposes, strict under Connecticut’s dog bite statute. Following the defendant’s admission of liability in his answer, plaintiff sought a $1 million pretrial remedy against his assets. The court held an evidentiary hearing, taking the testimony of the victim’s mother and psychologist, and the introduction of medical records and photographs. The defendant entered his homeowner’s policy into evidence, with a liability limit of $500,000. There was unresolved debate in the opinion as to whether this presented one or two occurrences; however, we professionals know that a bystander claim is derivative and, therefore, not a separate occurrence.
Without belaboring the point, the court concluded that the value of the injuries to both mother and child did not exceed the policy limit. “In the present case, while the attack was a traumatic experience for the plaintiff, the facts do not support a prejudgment remedy of attachment in the amount sought by the plaintiff, or even a lesser amount exceeding the $500,000 of insurance policy coverage available.”
It is interesting to point out that this was a strategic blunder for the plaintiff. First the timing. The defendant answered on November 16, 2022, but the resolution of the attachment hearing took some six months. Discovery and moving the case to the trial probably could have been accomplished in that time period. Second, the plaintiff allowed the court to opine—on the record—as to the value of the claim. Judges, by and large, see cases as having less value than do plaintiff’s lawyers and juries. By permitting the judge to make a factual determination that the case is worth less than limits, the plaintiff’s settlement options are limited and a bad faith finding in the case of an excess judgment practically nonexistent. So, the whole process took time and money, slowed ultimate resolution, and effectively put a cap on the top end. I think that more often than not the fear of the unknown is a plaintiff’s best negotiating tool. Here, counsel surrendered that leverage and got nothing for it.
I’ll add one more point, since this is an insurance coverage newsletter. The opinion does not reference insurance, other than to state the limits. However, an insured should be defended by the carrier at a prejudgment remedy hearing.
KYLE'S CONSTRUCTION COLUMN
Kyle A. Ruffner
05/31/23 American Home Assurance Company v. Superior Well Services, Inc.
United States Court of Appeals for the Third Circuit
Court Holds Insurance Policy Does Not Provide Indemnity for Property Damage Caused by Faulty Workmanship or Failure to Perform in a Workmanlike Manner
The insurance coverage dispute arose from an underlying state law claim brought by U.S. Energy Development Corporation against Superior Well Services. U.S. Energy contracted with Superior for hydraulic fracking services to extract natural gas from well owned by U.S. Energy. However, U.S. Energy advised Superior that it had damaged some of these wells during the fracking process. Superior notified its insurance provider, American Home about the potential claim, which provided Superior with a defense and issued a reservation of rights.
U.S. Energy filed the underlying lawsuit against Superior alleging that it had damaged 97 of its wells. The jury considered whether Superior breached its agreement with U.S. Energy by failing to render services in a reasonably careful and professional manner. The jury found against Superior and specified that Superior failed to perform its contract in a workmanlike manner and this failure was a substantial factor in causing damage to the U.S. Energy wells.
Superior purchased commercial general liability policies from American Home, providing coverage for property damage arising out of an occurrence, defined as an accident. American Home filed this declaratory judgment action seeking a declaration that the policy does not indemnify Superior for any damages that could be awarded to U.S. Energy caused by Superior’s breach of contract. American Home asserts that property damage caused by a failure to perform a contract in a workmanlike manner is not an occurrence under the policy.
The District Court granted summary judgment for Superior and ordered American Home to indemnify Superior for the State Court judgment. The court had held that while the Pennsylvania Supreme Court has held that the term occurrence does not cover faulty workmanship, that language was distinct from the phrasing of the jury’s verdict sheet, which stated Superior failed to perform its contract with U.S. Energy in a workmanlike manner.
The Circuit Court disagreed, holding that it was readily apparent that the damage to U.S. Energy’s wells was not caused by an “occurrence”. The court explained that the Pennsylvania Supreme Court has held that an accident is an unexpected and undesirable event and that the term “unexpected” implies a degree of fortuity that is not present in a claim for faulty workmanship. Although the District Court attempted to distinguish faulty workmanship from failure to perform in a workmanlike manner, poor workmanship is too foreseeable to be considered an accident. The Court held that the phrases faulty workmanship and failure to perform in a workmanlike manner are equivalent in this respect.
Further, the Court rejected the argument that the underground resources and equipment coverage (“UREC”) endorsement eliminated the policy’s occurrence requirement. The endorsement amended the policy to provide additional coverage against risks associated with well servicing operations and with respect to property damage included within the underground resources and equipment hazard arising out of the operations performed by Superior. While the District Court held the endorsement either expands or supersedes the policy definition of occurrence, the Circuit Court held that the endorsement amended but did not elimination the key terms in the underlying policy and therefore does not displace the policy’s occurrence requirement.
Accordingly, the Court held the damage caused by Superior’s failure to perform its contract in a workmanlike manner was not an occurrence under Pennsylvania law and reversed the District Court’s summary judgment order and remanded with instructions to enter a judgment for American Home.
RYAN’S FEDERAL REPORTER
Ryan P. Maxwell
[email protected]
05/25/23 Match Group, LLC v. Beazley Underwriting Ltd.
Southern District of New York
Court Allows Claim for Coverage to Continue Where Initial “Claim” for Compensation was Contained in the Underlying Complaint
Plaintiff, formerly Match.com, L.L.C., obtained a claims-made liability coverage policy through its parent company for itself (and other subsidiaries like Tinder, Inc.) from Beasley Underwriting Ltd. (the “Policy”) for the period beginning August 20, 2015, and ending August 20, 2016 (the “Policy Period”). The Policy defines “Claim” as, among other things, “a written demand received by any Insured for money or services, including the service of a suit or institution or arbitration proceedings [or] a threat or initiation of a suit seeking injunctive relief.” The Policy requires notice of a Claim “no later than (i) the end of the Policy Period, (ii) sixty (60) days after the expiration date of the Policy Period in the case of Claims first made against the Insured during the last sixty (60) days of the Policy Period, [or] (iii) the end of the Optional Extension Period (if applicable).” The self-insured retention under the Policy as applicable here is $1,000,000.
Beasley had issued liability policies for Match since and the two had reached “several explicit and implicit mutual understandings about these policies.” The pair understood that minor matters did not constitute “Claims,” and Match had no obligation to provide Beasley “with notice of such matters -- regardless of whether any of their insurance policies required otherwise -- unless and until the insureds determined that the matters were substantially likely to develop into significant legal proceedings.” Thus, for years, Match “did not notify Defendant of every potential claim, complaint, grievance or other assertion against them. The insureds reported only matters that they determined were substantially likely to develop into significant legal proceedings.” This mutual understanding was discussed during one or more renewal periods and also during regularly scheduled meetings. Beasley does not dispute this understanding but claims that this potential “Claim” was different.
In February 2016, John Mellesmoen’s attorney sent a letter to various executives from Match notifying them of “potential legal claims” against Tinder, Inc. (the “Letter”). Allegedly, Mellesmoen presented one such executive “with product and marketing ideas, for which Mellesmoen was promised compensation,” and further “that Tinder, Inc. later used Mellesmoen's ideas without compensating him . . ..” Match viewed these allegations as frivolous, responding by letter to the effect.
Contemporaneously, Match did not consider the Letter a “Claim” or notify Beasley of same because “the insureds determined it was unlikely that Mellesmoen would initiate a formal claim or lawsuit against any insured.” However, in August 2016, “during the last sixty days of the Policy, the insureds received notice that Mellesmoen had filed a lawsuit (the “Lawsuit”). Following notice of the claim, Beasley requested a call with Match, but allegedly never mentioned late notice. For months, Beasley continued to “investigate whether and to what extent the Policy may cover the Lawsuit,” eventually proposing “that it further defer its coverage decision until a ruling was issued on the underlying defendants’” motion to dismiss. Only following denial of Match’s motion to dismiss did Beasley wind up denying coverage on late notice grounds. The Lawsuit settled in July 2021, with Match incurring $3,315,000 in defense charges. A demand for coverage was issued in September 2021, with Beasley denying same in November 2021, and this action ensued.
Beasley moved to dismiss, arguing that Match’s failure to report its claim during the Policy Period precludes coverage as a matter of law, and further that coverage cannot be, or has not been, created by equitable estoppel.
Although dismissing Match’s implied covenant of good faith and fair dealing theory of recovery, the SDNY found a viable claim for breach of the insurance contract.”
“First, notice of Mellesmoen's claim was timely because the Letter was not a ‘Claim’ that triggered the notice obligation under the Policy. Second, even if the Letter was a ‘Claim,’ the Complaint sufficiently alleges that the notice provision under the policy was modified by the parties' course of dealing.
The court found the definition of “Claim” unambiguously did not encompass the Letter.
“While the Letter is explicitly a ‘threat of a suit,’ it does not seek injunctive relief. Nor is the Letter a demand for money, service of a suit or commencement of arbitration. The Letter merely invites negotiation toward an amicable resolution.” The Court found that the grievance could be resolved without payment of money such as “by providing Mellesmoen recognition, or employment or some other benefit; or by responding with a correction or clarification should Plaintiff ‘disagree with the facts,’ as the Letter invited, and as [Match] did. Consequently, the Letter was not a ‘demand for money.’” The court quickly dispelled cases cited by Beasley as concerning different policy language entirely. Since the first “Claim” under the Policy was the demand for money in the Lawsuit, which Match timely reported, the breach of contract claim survives.
Even if that were not the case, “the breach of contract claim survives because the Complaint sufficiently alleges facts to show that the parties’ agreement was modified by their course of dealing -- specifically, that minor matters did not constitute ‘Claims’ unless and until they appeared likely to ripen into significant legal proceedings.” New York allows parties to modify a contract “by another agreement, by course of performance, or by conduct amounting to a waiver or estoppel.” Here, the Complaint validly alleged that the Policy was modified through course of dealing so that minor matters did not constitute “Claims” until appearing likely to ripen into significant legal proceedings. Accepting the allegations as true for the purposes of the motion, the Court noted that Defendant would have “induce[d] ... significant and substantial reliance on the agreement to modify, albeit oral,” and would thus be “estopped from disputing the modification notwithstanding [New York's statutory requirement of a writing].”
RAUH’S RAMBLINGS
Patricia A. Rauh
On parental leave.
STORM’S SIU
Scott D. Storm
05/10/23 Laxminarayan Lodging, LLC, d/b/a Quality Inn v. First Specialty Ins. Corp.
United States District Court, Southern District of New York
Court Compels Appraisal Finding No Coverage Issues; Period of Liability for Business Income Claim May Include Alleged Delays Caused by Insurer; and Plaintiff's Breach of Contract Claim Can Support Consequential Damages for Breach of the Implied Covenant of Good Faith and Fair Dealing
Plaintiff claims that it suffered losses caused by windstorms June 10, 2020, and July 13, 2020, and issued a demand for appraisal. Defendant paid some of Plaintiffs claim as to the June 10 occurrence and resists appraisal.
The Parties now cross-move for summary judgment, with Plaintiff seeking summary judgment compelling appraisal, and Defendant seeking partial summary judgment limiting the Period of Liability under the policy and dismissing Plaintiff's claims based on an alleged breach of the implied covenant of good faith and fair dealing. The sole issues for resolution are (1) whether the Parties' dispute involves coverage issues, thereby precluding appraisal; (2) whether the liability period for a business income claim may be extended by alleged delays caused by the insurer; and (3) whether Plaintiff's breach of contract claim can support consequential damages for breach of the implied covenant of good faith and fair dealing. For the reasons provided below, Plaintiff's motion for summary judgment is granted, and Defendant's motion for partial summary judgment is denied.
Plaintiff is the owner of a hotel located in Colby, Texas. The Policy was in effect from December 24, 2019, through November 2020 and included an Appraisal clause. On June 10, 2020, a windstorm caused damage to three buildings on the Property, damage to the asphalt shingle roof coverings and water damage to the interior of the buildings. Plaintiff retained a public adjuster, who measured the total damage to the buildings (including emergency mitigation services) to be $715,665.08. Plaintiff was issued a $50,000 advance payment net of the applicable $100,000 deductible. Defendant retained JS Held to conduct an engineering evaluation and determine the cause and extent of the loss to be $166,567 ($16,567 net the $100,000 deductible and $50,000 advance payment), including allocations for emergency services, building repairs, and roof tarps.
On July 13, 2020, another windstorm impacted the Property, and Plaintiff's public adjuster calculated damages from that windstorm as $608,213.68. Defendant stated that inasmuch as the Quality Inn has not provided any evidence of damages attributable solely to the alleged July 13, 2020, occurrence which are separate and independent from the damages claimed by the Quality Inn with respect to the June 10th loss, the Insurers must reject the Proof of Loss attributable to the alleged July 13, 2020, occurrence as unsupported and excessive. Defendant also stated that the emergency repairs and mitigation work performed by Plaintiff prior to Defendant's inspection impermissibly prejudiced Defendant's ability to identify the alleged additional damage attributable to the July 13, 2020, storm.
On August 26, 2021, Plaintiff demanded appraisal to set the amount of loss from the storm losses, and Defendant subsequently refused the appraisal demand. Defendant claimed it had "previously paid its proportionate share of the undisputed damage measure related to the June 10, 2020, loss. Defendant additionally stated that appraisal could not be invoked due to the following coverage issues concerning Plaintiff's claim: (1) whether direct physical loss or damage occurred during the relevant policy period; (2) whether the loss constituted a "prior loss;" (3) whether the loss was barred by the wear and tear exclusion in the Policy; (4) whether the age of the roof restricts the valuation of any damage to actual cash value ("ACV"); (5) whether the cosmetic damage exclusion in the Policy bars coverage for any roof damage; and (6) whether the age of the roof bars any recovery for damage to same.
During the course of this litigation, Plaintiff submitted a business income claim under the Policy. The Policy provides as follows with regard to the Period of Liability applicable to business income claims:
1. The Period of Liability applying to all TIME ELEMENT coverages, except Leasehold interest and as shown below, or if otherwise provided under the TIME ELEMENT coverage extensions, is as follows:
a. For building and equipment, the period of time:
I. starting on the date of physical loss or damage insured by this POLICY to INSURED PROPERTY; and
II. ending 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.
Such period of time is not limited by the Policy expiration date. Plaintiff claims that the Period of Liability extends from the date of the initial loss on June 10, 2020, and remains ongoing due to Defendant's failure to pay the amount claimed.
Appraisal: Defendant argues that appraisal is not appropriate because the Parties' disputes concern the scope of coverage. Indeed, New York law precludes the use of appraisal to resolve disputes between insurers and policyholders where coverage issues exist. It is well-established that the scope of coverage provided by an insurance policy is a purely legal issue that cannot be determined by an appraisal, which is limited to factual disputes over the amount of loss for which an insurer is liable. Plaintiff argues that the alleged "coverage issues" identified by Defendant are in reality nothing more than factual disputes pertaining to causation and the amount of loss. The Court agrees. First, with regard to the issue of "whether direct physical loss or damage occurred during the relevant Policy period," no genuine dispute exists. Defendant conceded that physical loss or damage occurred during the relevant Policy period by assuming partial coverage for the loss. While Defendant correctly notes that assumption of partial coverage does not automatically eliminate the possibility of additional coverage issues, acceptance of coverage does eliminate the possibility that this particular coverage question remains in issue. The dispute about which damage was caused by the June 10 windstorm or by the July 13 windstorm goes to causation.
Turning to the remaining five coverage issues claimed by Defendant, none of them requires the Court to interpret the meaning of the terms of the insurance contract or opine on the scope of coverage. Plaintiff does not dispute that the Policy offers no coverage for damage from "prior loss," "wear and tear," or "cosmetic damage." Similarly, Plaintiff does not dispute that the age of the roofs would affect the amount recoverable and has provided undisputed documentary evidence that the roofs are less than 20 years old. There are no genuine legal disputes regarding the terms of the Policy. All that remains are factual questions relating to damages, and damage issues are appropriate for appraisal. Apportioning damage causation is essentially a factual question to be resolved by making factual judgments about events in the world, not legal analyses of the meaning of the insurance contract. Therefore, the issue of damage causation is properly subject to appraisal.
Finally, Defendant appears to argue that additional coverage issues exist in connection with the appropriate Period of Liability for the business income claim that Plaintiff submitted during the course of this litigation. The Court resolves this dispute below. Because no genuine coverage issues remain, appraisal is warranted.
Period of Liability: Defendant seeks partial summary judgment regarding whether the Period of Liability for which Plaintiff may recover income losses can include delays caused by Defendant's alleged failure to pay amounts owed under the Policy. 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 agree that it is well-established 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." However, Plaintiff contends that the Period of Liability may be extended by delays caused by the insurer. Defendant seeks a declaration that the Period of Liability may not include any alleged delays, including those caused by the insurer.
The Court agrees with Plaintiff. An insurer's delay in paying amounts to repair an insured property may affect the theoretical period needed to repair such property. Several cases from other jurisdictions support the view that a delay in payment may have a direct effect on the timing of an insured's resumption of business." A case cited by defendant holds only that the time to make repairs is a theoretical, not an actual, calculation, but does not dispute the general rule that an insurer's delay can add to the theoretical time-period.
The language of the policy is clear: the Period of Liability "ends when with due diligence and dispatch the building and equipment could be repaired or replaced." The key inquiry for the theoretical calculation is when Plaintiff could have repaired or replaced the relevant property. It follows that any facts affecting the insured's ability to repair the property with due diligence and dispatch are proper considerations for the theoretical calculation. An insurer's delay in payment may affect the calculation when an insured could have repaired or replaced the premises. Whether Defendant's delay in payment actually impacted Plaintiff's ability to repair or replace the Property is a disputed issue of fact. Accordingly, the Court denies Defendant's motion for partial summary judgment.
Covenant of Good Faith and Fair Dealing: It is well-settled 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 has 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. Whether the breach of a covenant of good faith and fair dealing can support a claim for consequential damages is not a question that has to be decided.
05/22/23 Café 52nd Street, Inc. v. Travelers Indemnity Co. of Am.
United States District Court, Southern District of New York
Court Grants Insurer’s Petition to Compel Appraisal Finding, Among Other Things, the Plaintiff is Not Prejudiced by the Two Years and Four Months Between the Property Fire and the Appraisal Demand the Parties Had Engaged in Good Faith Negotiations
Defendant moves to compel Plaintiffs to participate in an appraisal of an insurance claim and to stay this action pending the outcome of the appraisal. Defendant also asks the Court to direct Plaintiffs to appoint an appraiser who is "competent and impartial." Plaintiffs oppose all relief, asserting that Defendant has waived its right to demand an appraisal and that the motion to disqualify Plaintiffs' appraiser is premature.
This action follows a fire at Plaintiffs' restaurant. Plaintiffs submitted a claim seeking to recover a loss of business income and extra expenses, which Defendant denied on July 25, 2022. The parties continue to disagree as to whether Plaintiffs sustained these losses. Plaintiffs subsequently filed this lawsuit on July 22, 2022. Four months later, Defendant sent Plaintiffs a letter requesting an appraisal. Plaintiffs rejected this demand, claiming that Defendant waived the right to do so because it failed to engage in good-faith negotiations. Defendant subsequently moved to compel appraisal, which Plaintiffs oppose for the same reasons.
Plaintiffs' property insurance policy allows for either party to "make written demand for an appraisal of the loss" in the event the parties disagree on the extent or amount of loss or damage. Each party must then select a "competent and impartial appraiser and notify the other of the appraiser selected within 20 days of such demand." If the parties fail to proceed with the appraisal after a written demand, the policy allows either party "to apply to a court having jurisdiction for an order directing [the objecting party] to comply with the demand for the appraisal." Once this order issues, each party will select a "competent and impartial appraiser" within 20 days. The policy is silent on when a party may demand appraisal.
Under N.Y. CPLR § 7601, "[a] special proceeding may be commenced to specifically enforce an agreement that a question of valuation, appraisal or other issue or controversy be determined by a person named or to be selected." Courts can enforce these agreements "as if [they] were an arbitration agreement," except if they are contained in the standard fire policy insurance of the state. Though fire damage underlies Plaintiffs' claim, the appraisal provision invoked in this motion appears to be part of Plaintiffs' general property insurance policy and is enforceable under New York law. "Thus, in a diversity case [such as this], the contractual right to submit a factual dispute to an appraiser…is one that the federal courts are required to enforce…".
"Notwithstanding the policies' silence on a time limit for the appraisal demand, New York recognizes that the right to require an appraisal `is not indefinite as to time but must be exercised within a reasonable period.'" When determining the timeliness of an appraisal demand, courts can consider "(1) whether the appraisal sought is `impractical or impossible' (that is, whether granting an insurer's appraisal demand would result in prejudice to the insured party); (2) whether the parties engaged in good-faith negotiations over valuation of the loss prior to the appraisal demand; and (3) whether an appraisal is desirable or necessary under the circumstances." Underlying this framework is an understanding that "New York public policy favors an appraisal proceeding over a trial on damages, and under New York law, waiver of the right to an appraisal is not lightly inferred."
Plaintiffs have failed to demonstrate that they will be prejudiced by the appraisal process. To the extent Plaintiffs argue that they will be prejudiced by the two years and four months between the property fire and the appraisal demand, this argument is unconvincing. This is a loss of business claim. There are no allegations that business records have become lost because of delays, and the damaged property was not removed, destroyed, or repaired in a way that would render appraisal impractical. Moreover, at least eight months of delay were caused by the Plaintiffs' inaction.
Contrary to Plaintiffs' assertions, the parties have also engaged in good faith negotiations. Defendant issued payments to Plaintiffs for their damage to Business Personal Property claim. Over two weeks in November and December 2020, the parties engaged in a robust back-and-forth to evaluate and determine Plaintiffs' claimed Business Income Losses, the basis for this dispute. Plaintiffs indicated they intended to pursue a Business Income Loss claim and after multiple inquiries from Defendant, formally submitted documentation eight months later in December 2021. Plaintiffs filed this action in July 2022, three days before Defendant formally denied their Business Income Loss claim. In their denial letter, Defendant expressly indicated that it did not waive any rights it may have under the insurance policy and would "carefully consider any new or additional information." Plaintiffs assert that Defendant should have made an appraisal demand before denying the claim, and that the parties had not negotiated in months. Yet by filing this litigation before the formal denial of their claim, Plaintiffs effectively precluded any good-faith negotiations the parties might have had. While "a party's appraisal demand in the midst of negotiations is likely to be timely," an appraisal demand made by Defendant after Plaintiffs decided to conclude good-faith negotiations cannot be found to be untimely.
Having engaged in negotiations for at least a year before Plaintiffs filed this action, the parties have reached a point where "delays and disparity in valuation are most efficiently addressed through the appraisal process." When determining whether appraisal is desirable, courts consider "whether the appraisal is likely to facilitate a speedier resolution of the dispute than would occur in the district court proceeding; the expected expertise of an appraisal panel in making its valuation determinations; and the complexity of the valuation." The "widely differing valuations of lost business income advanced by each party…suggest that determining the valuation of Plaintiffs' loss is highly technical and time consuming." Moreover, because this is a case where only the amount of Plaintiffs' remaining property claim is at issue, New York public policy favors appraisal over a trial on damages. For these reasons, the Court Grants Defendant's motion to compel appraisal.
Plaintiffs' insurance policy provides that, in the event of a court order compelling appraisal, "each party will select a competent and impartial appraiser" and notify each of the other of the appraiser within 20 days. Because this Court must enforce this agreement as an arbitration agreement, N.Y. CPLR § 7601, N.Y. CPLR § 7504 governs whether a Court can appoint an arbitrator. The parties are reminded that "if the [insurance policy's] agreed method [of appointment of an arbitrator] fails or for any reason is not followed," the Court, on application of a party, can appoint an arbitrator. N.Y. CPLR § 7504.
To the extent Defendant makes an application to disqualify the appraiser Plaintiffs identified in their March 31, 2023, letter to Defendant, the Court denies this request without prejudice. The parties are directed to adhere to the insurance policy's provision to select a "competent and impartial appraiser." If either party believes that the insurance policy's method for selecting an arbitrator fails or is not followed, they may make an application to the Court. Pursuant to the insurance policy, each party is Ordered to select a competent and impartial appraiser and notify the other of their selected appraiser within 20 days of this order. The Court Stays this action pending the outcome of the appraisal.
FLEMING’S FINEST
Katherine A. Fleming
05/12/23 Callahan v. Brant
Nebraska Supreme Court
In the Event of a Total Loss, Nebraska’s Valued Policy Statute Conclusively Determines that the True Value of the Insured Property is the Amount Written in the Policy
In 2011, the Callahans purchased a Shelter Mutual Insurance Company (Shelter) homeowners’ insurance policy through a licensed insurance producer, Jeb Brant. Brant exclusively sells Shelter insurance. Before the policy was issued, Brant used a reconstruction cost calculator tool to estimate the cost of rebuilding the Callahans’ home, using information obtained from the Callahans and from the County assessor’s website. Brant prepared a report that estimated reconstruction costs at $250,481 and contained a disclaimer that stated that the estimate was not a guarantee of adequate coverage.
The Callahans disputed that they received a copy of the report, but they subsequently purchased a replacement cost policy insuring their home for $250,481. The Callahans thereafter renewed their Shelter policy annually from 2012 to 2018. Pursuant to a provision in the policy, the coverage amount was automatically increased for inflation during this time. In anticipation of the policy’s 2019 renewal, Michelle met with Brant to discuss the details of the policy. The parties disputed what was said during this meeting. The Callahans claimed that Michelle expressed concern about whether the policy limit was sufficient to replace their home in the event of a total loss and that Brant assured Michelle they were “more than adequately covered.” Brant denied making any such assurance. After this meeting, the Callahans renewed the Shelter policy for 2019 with a policy limit of $267,400 on their home. After the Callahans renewed the policy, Mark and Brant happened to see each other. At this unscheduled meeting, the Callahans claimed that Mark expressed concern to Brant regarding the sufficiency of the policy limit on their home. According to the Callahans, Brant assured Mark that the existing policy limit would be sufficient to rebuild the home in the event of a total loss. Brant disputed making any such statement. In May 2019, the Callahans’ home was totally destroyed by an electrical fire. The Callahans submitted a claim on the policy with Brant’s assistance, and Shelter paid the Callahans all amounts due and owing under the policy. The Callahans alleged that when they subsequently obtained a quote for the cost of rebuilding their home, they learned “the cost to rebuild was substantially higher than the amount of insurance coverage.”
In April 2020, the Callahans sued Shelter and Brant, generally alleging that Brant negligently advised them on the estimated replacement value of their home and negligently misrepresented the adequacy of their policy limits in the event of a total loss. The Callahans alleged they reasonably relied on Brant’s statements and, as a result, sustained damages, and they alleged Shelter was liable for Brant’s misrepresentations under a theory of respondeat superior. Shelter and Brant generally relied on the language of the policy, as well as on Nebraska case law regarding the duty of insureds and insurance agents, to argue that it was the Callahans’ duty to know the value of the property they were insuring and to request the amount of insurance coverage they desired. Shelter and Brant argued that the policy limit on the home was unambiguously stated in the policy and represented the full measure of the Callahans’ damages in the event of a total loss. In opposing summary judgment, the Callahans admitted that they understood the nature and the amount of the coverage they had purchased from Shelter and that they never requested higher policy limits. Nevertheless, they argued that the amount of coverage they purchased was based on Brant’s negligent advice as to the replacement value of their home and on his negligent misrepresentation that the policy limit they had purchased would be sufficient to cover the cost of rebuilding their home in the event of a total loss. The District Court granted summary judgment in favor of Shelter and Brant. The district court noted that even accepting as true the Callahans’ claims that Brant provided false information regarding the replacement value of their property and the adequacy of their policy limit, the Callahans could not have reasonably relied on such information because, under the terms of the policy and under Nebraska law, it was the Callahans’ duty and responsibility to know their coverage needs and to request the amount of coverage they wanted. The court also found the evidence was undisputed that the Callahans never asked Brant to provide them with a higher amount of coverage on their home or to procure any supplemental coverage. The Callahans appealed.
Under Nebraska law, when an insured asks an insurance agent to procure insurance, it is the duty of the insured to advise the insurance agent as to the desired insurance, including the limits of the policy to be issued. An insurance agent does not have a duty to anticipate what coverage an insured should have. The Supreme Court did not need to address whether insureds can create a legal duty to provide correct advice about the value of insured property or the amount of insurance coverage because the Callahans had to prove, among other things, that Brant supplied them with false information about the value of their insured property and that they reasonably relied on that information. The Callahans could not establish that the true value of the home was higher than the amount for which it was insured because Nebraska’s valued policy statute conclusively established the true value of the Callahans’ loss in the event the property is wholly destroyed, and it precluded them from offering evidence that the true value was something other than the amount for which the home was insured. The objectives of the valued policy statute are to prevent overinsurance by requiring the parties to investigate and agree upon a binding determination of value before a policy is issued and to also foreclose disputes and litigation between insurers and insureds over the value of the destroyed property by conclusively fixing its true value as a matter of law and by precluding evidence of a different value except to show fraud or a motive for arson.
The Callahans argued that the valued policy statute did not apply since it precludes an insurer from challenging that the real value of the property is less than the amount for which it was insured, but it does not preclude an insured from challenging that the real value was more than the amount for which it was insured. Second, they argued that the statute did not apply negligent misrepresentation actions.
The Supreme Court disagreed, holding that both the insurer and insured were bound by the valued policy statute and that neither could contend the value of the total loss was something other than what was written in the policy. Further, the Supreme Court held that the statute applied to the Callahans’ misrepresentation claim against Shelter and Brant, and it conclusively established that the true value of the Callahans’ home is $267,400—the amount for which it was insured. The Callahans purchased and paid premiums on $267,400 worth of insurance coverage on their home; after experiencing a total loss, they were paid the full amount of coverage owed under the policy. Accordingly, the Supreme Court agreed with the district court’s decision although for different reasons.
GESTWICK’S GREATEST
Evan D. Gestwick
05/28/23 Am. Trans. Ins. Co. v. Ortho City Serv.’s Inc.
New York State Supreme Court, County of Kings
No-Fault Insurer Cannot Rely on Grounds Other Than Those Stated in Denial Form at the Time of Arbitration
After a car accident, the claimant submitted a claim for no-fault benefits with American Transit. Specifically, as a result of the accident, the claimant was required to undergo arthroscopic surgery to his right shoulder. Following the surgery, the claimant’s medical providers prescribed two medical devices to aid him in the recovery process following the surgery. The claimant submitted a no-fault insurance claim with American Transit to recover his medical expenses.
American Transit denied the claim by the issuance of a NF-10 form; the form typically used by no-fault carriers for the denial of a no-fault insurance claim. American Transit’s NF-10 form indicates that the reason for denial was that the surgery and the subsequent rental of the two medical devices were not causally related to the accident. No-fault arbitration quickly ensued.
The claimant was awarded $2,021.74 in arbitration of his no-fault claim, which was affirmed by a master arbitrator. In the instant case, American Transit seeks to vacate the arbitration award of no-fault benefits. In support of its petition to vacate the arbitration award of no-fault medical benefits, American Transit argued that the surgery and subsequent rental of medical devices were not medically necessary.
While lack of medical necessity is a recognized defense in the instance of no-fault benefits, it is also true that the NF-10 form, or equivalent denial form issued by the no-fault carrier, must list all of the reasons for denial of the no-fault claim. It thus follows that, in the instance of a motion to vacate a previous no-fault arbitration award, the no-fault carrier can only rely upon those reasons for denial stated therein. Thus, the main issue in the instant case was whether American Transit, having previously denied the claimant’s no-fault claim on the ground that the surgery and device rental were not causally-related to the accident—an independent defense to a no-fault claim—could then rely upon the separate defense of lack of medical necessity in connection with the petition.
In holding that it could not, the Court reasoned that, as a matter of law, a no-fault carrier fails to make its case on a petition to vacate a previous arbitration award of no-fault benefits if it relies on any basis other than that relied upon in its original denial of no-fault benefits. Here, American Transit initially denied the claim on the ground that the surgery and devices were not causally related to the accident. In the petition, however, American Transit made no mention of the causal relationship, and instead relied upon the lack of medical necessity as grounds for overturning the arbitration award. Since American Transit did not rely upon the ground of lack of medical necessity in its original denial letter, as the Court held, it could not now rely upon that ground at the time the petition was heard.
Editor’s Note: The moral of the story is that no-fault carriers are limited to the grounds for denial stated in their original no-fault denial letters, should they later petition to overturn an arbitration award of no-fault benefits. The lesson learned here is to craft NF-10 forms, or the equivalent, very carefully, and to be sure to include all reasons for denial of the no-fault claim in the first instance; this way, the no-fault carrier will not be limited in terms of arguments it can raise at the time of the petition to vacate any arbitration award.
ON the ROAD with O’SHEA
Ryan P. O’Shea
05/16/23 Fraser v Perlstein
New York State Supreme Court, County of Kings
Establishment of Prima Facie Burden of Negligence in Rear-End Collision Results in Dismissal of Culpable Conduct Defense and Grant of Summary Judgment
Fraser alleges that while stopped for traffic, a motor vehicle owned by a John Doe and operated by Perlstein, collided with the rear end of her vehicle. After which Fraser brought a personal injury suit. Fraser moved for summary judgment on the issue of negligence and dismissal of the defense of culpable conduct.
The trial court noted that a rear-end collision with a stopped or stopping motor vehicle establishes a prima facie case of negligence on the part of the driver of the colliding vehicle. In support of her motion, Fraser submitted an affidavit, affirming that she was at a complete stop, was struck from behind by a vehicle with a Connecticut Registration number, and that her brake lights were in working order. On this submission, the court found Fraser established a prima facie case of negligence.
Notably, the court recounted that a plaintiff is not required to show a lack of comparative fault if they can show the defendant’s negligence was the proximate cause of the injuries. Perlstein’s opposition compromised of an attorney affirmation. Perlstein’s position was that Fraser’s motion was premature because discovery was not yet completed. The trial court rejected this argument finding that Fraser established her burden, including Perlstein’s negligence being the proximate cause of the motor vehicle accident. The court then granted Fraser’s summary judgment.
LOUTTIT’S LEGISLATIVE and REGULATORY ROUNDUP
Robert P. Louttit
05/26/23 Senate Bill S5591A
Fairness for Victims Act is Working its Way Through New York State’s Legislature
As of May 26, 2023, The “Fairness For Victim’s Act” bill, was amended and sent back to the legislature’s insurance committee, where it had been referred to on March 20, 2023. The bill, if passed, will add a section (d) to New York’s Insurance Law section 5106, “to provide that, with respect to an action for serious personal injury permissible under section 5104, an award or decision by an arbitrator pursuant to a No-Fault proceeding would not constitute a collateral estoppel of the issues arbitrated, but such award or decision may be admissible as relevant evidence by a party to an action.” This is the bill’s “Purpose” according to New York Assembly’s Memorandum:
PURPOSE:
To eliminate the inequities in present law by giving claimants seeking reversal of improper denials of No-Fault benefits prompt resolution of their claims through arbitration.
Proponents of the bill assert that claimant’s attorneys have been reluctant to submit a claims denial to arbitration because an adverse ruling could serve as collateral estoppel to extinguish their client’s third-party claim entirely, substantial reduce damages awards, and disincentivize injured claimants from seeking necessary medical treatment. However, passing this into law could mean a multiplication of harassing, meritless suits that carriers will have to defend. The bill’s language similarly tracks the “Justice For Injured Workers Act,” which was signed into law in 2022, and prevents a party from relying on a workers compensation board, judge or other arbiter’s finding or decision as collateral estoppel to deny a claim in any other action. This legislation was previously introduced in 2017/2018 A.3533; 2019/2020 A.4648; 2021/2022 A.3375 2021-2022:S5532.
We will keep you up to date on its progress through New York State’s Legislature.
ROB REACHES the THRESHOLD
Robert J. Caggiano
06/06/23 Ledesma v. Rodriguez, et al
Appellate Division, First Department
Summary Judgment Dismissing the Complaint Affirmed Based on Plaintiff’s Inability to Raise of a Triable Issue of Fact that He Suffered a Serious Injury Under § 5102(D) Where His Proffered Medical Experts did not Address Degenerative Conditions Seen on Imaging nor Explain Why They were not the Cause of His Injuries
Plaintiff Robert Ledesma sought appeal of Order from Supreme Court, Bronx County, which granted motion for summary judgment dismissing his complaint made by Defendants, Reynaldo Rodriguez and Boranerjiv Liriano (“Defendants”). The motion for summary judgment asserted that Plaintiff had not sustained a “serious injury” pursuant to the provisions of Insurance Law § 5102(d) and § 5104(a). The Appellate Division, First Department, unanimously affirmed, without costs, the Order granting summary judgment and dismissing Plaintiff’s complaint.
The matter stems from a motor vehicle accident which occurred on May 22, 2017. Specifically, a vehicle operated by Defendant Rodriguez, and owned by Defendant Liriano, collided with a vehicle owned and operated by Plaintiff Ledesma at or near the intersection of East 161st Street and Jackson Avenue in the Bronx, New York. Plaintiff alleged serious injury as defined by Insurance Law § 5102(d) under the following categories: permanent consequential limitation of use, significant limitation of a body function or system, and/or “90/180”.
Defendants moved for summary judgment to dismiss Plaintiff’s complaint on the basis that he did not sustain a serious injury pursuant to the requirements of New York’s insurance law. In support of their motion, Defendants submitted Plaintiff’s deposition testimony, a radiological reading report of Plaintiff’s MRIs from an independent consultant, and an orthopedic independent medical examination (“IME”) report based upon an exam of the Plaintiff.
Defendants proffered radiological reports of Plaintiff’s cervical spine, shoulder, and right hip, revealed no evidence of posttraumatic changes causally related to the May 22, 2017, accident. The report did opine, however, to unrelated degenerative findings (bulges and osteophytes) in the cervical spine. Additionally, the orthopedic IME report found no range of motion loss in any claimed injury site – and the physician ultimately concluded that Plaintiff had no further causally related disability to the subject accident. The IME physician explicitly opined that Plaintiff did not sustain a significant or permanent injury as a result of the subject motor vehicle accident.
In opposition, Plaintiff submitted an affirmation of one treating physician, and a report of another treating physician. Notably, in the underlying proceedings in Supreme Court, Bronx County, deficiencies were found with regard to both submissions. First, the affirmation submitted failed to also include the physician medical examination report. Next, the report from another treating physician, which did provide range of motion findings for Plaintiff’s cervical and lumbar spine, failed to relate these findings to normal motion ranges.
On review, the First Department found Defendants to have made a prima facia showing that Plaintiff’s claimed injuries were not causally related to the accident. In reaching said finding, the First Department focused on Defendants’ submitted radiologist report – which opined that findings on imaging were chronic and degenerative in nature. Additionally, it was highlighted that Defendants’ proffered IME report found an absence of range of motion limitations.
In opposition, the First Department found Plaintiff had failed to raise a triable issue of fact to defeat summary judgment. Supporting this finding, the First Department discussed how Plaintiff’s medical experts did not address the degenerative conditions found on imaging, nor did they explain why these conditions were not the cause of his claimed injuries. Further, the First Department noted Plaintiff’s failure to submit admissible evidence of limitations in range of motion contemporaneous with the accident – which “undermines his claim that he sustained a causally related injury.” Notably, the First Department held that since Plaintiff failed to raise a triable issue of fact as to causation, his “90/180” day claim also fails.
Heather A. Sanderson
Sanderson Law, Calgary, Alberta
06/05/23 City of Surrey v. Co-operators General Insurance Company
The British Columbia Supreme Court (Trial Level)
An Additional Insured Endorsement that Applies to Bodily Injury or Property Damage Arising out of the Operations of the Insured, Excluding the Acts or Omissions of the Additional Insured, Will Extend a Defence to the Additional Insured, Without Proof that the Insured is in Fact Liable and that the Injury or Damage in Issue was not Caused by the Additional Insured
Anyone with a gym membership knows that the leg press machine is so popular that you practically need a reservation to snag a few sets on it when you hit the gym for leg day. The leg press machine offers some serious benefits as it targets the quads, glutes, hamstrings, and calves. Mr. Lanki of Kamloops, British Columbia, would likely have agreed … until he was injured when the pin fell out of a leg press machine that he was using at the City of Surrey Recreation and Leisure Centre. He alleges that the pin was not designed for the machine it was placed in. Mr. Lanki sued the Recreation Centre.
The Rec Centre had a service contract on the leg press and other fitness machines with Elk Fitness Repair. The Rec Centre defended the underlying action that Mr. Lanki filed and issued a third-party claim against Elk Fitness. Mr. Lanki then amended his action to include Elk Fitness as a defendant.
Elk Fitness repair had honoured its contractual obligation with the Rec Centre under the service contract by obtaining a CGL policy issued by the Co-operators General Insurance Company which named the Rec Centre as an additional named insured. The Rec Centre tendered the underlying action to Co-operators for a defence.
Co-operators denied any obligation to defend the Rec Centre in the action. The service contract obliged Elk Point to save the Rec Centre harmless from a failure to perform or breach of contract and as Elk Point denies that they placed an improper pin in the leg press, they did not fail to perform, or, otherwise, breach the contract. The additional insured endorsement to the policy stipulated that it applies to liability arising out of the operations of Elk Point but does not apply to any act or omission on part of the Rec Centre. Elk Point alleged that the Rec Centre was liable for the placement of an improper pin in the leg press machine.
The Rec Centre demanded a defence and filed this duty to defend application. Co-operators argued that Elk Point had filed a summary dismissal application to have the action against it dismissed on the merits. Co-operators argued that the duty to defend application should be adjourned until after the hearing of Elk Point’s application: If Elk point is not liable, then there is no obligation to defend the Rec Centre. As Elk Point disputes its liability and as there is a possibility that the Rec Centre is liable for the improper pin, the terms of the additional insured endorsement have not been established and there is no obligation to defend the Rec Centre.
Co-operators was and remains wholly liable to defend the Rec Centre and its argument to the contrary is completely erroneous. The Plaintiff must prove that an improper pin was in the leg press and that caused his injury. Elk Point must prove that it was not liable for the placement of the improper pin. These are issues for the trial. None of that has any bearing on the obligation of Co-operators to defend. Co-operators is obliged to accept the allegations as true and ask itself if the allegations if proven establish a claim within the policy. An allegation that the injury was caused by an improper pin and that Elk Point placed that improper pin engages the additional insured endorsement. Co-operators must offer a defence to the Rec Centre (as well as Elk Point) with separate counsel and separate reporting.
Co-operators’ obligation to defend is separate and apart from its obligation to indemnify. Elk Point’s summary dismissal application has no bearing on the obligation to defend –even if the action against Elk Point is dismissed, Co-operators remains liable to pay the Rec Centre’s defence costs as the pleadings allege covered liability against the Rec Centre.
The trial judge properly held that Co-operators must defend the Rec Centre:
The question regarding whether a duty to defend exists in cases such as this is determined in a review of the pleadings themselves—that is, the pleadings in the Underlying Action. It would potentially create a legal morass if a party who was entitled to a defence under an insurance policy first had to establish (or wait for other parties to bring actions to establish) that the conditions exist for that coverage to operate, when, on the face of the pleadings themselves, the matter falls within the ambit of that coverage.
There is additional Canadian authority that the obligation to fund and direct an insured defence is unaffected by the result in the underlying action - even if there is no obligation to indemnify by reason of an exclusion clause. In that situation the insurer cannot demand all or even of a portion of its defence spend from the insured.
