Coverage Pointers - Volume XXV No. 10

Volume XXV, No. 10 (No. 657)
Friday, October 27, 2023
A Biweekly Electronic Newsletter

 

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

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

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

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

 

 

Dear Coverage Pointers Subscribers:

Do you have a situation? We love situations.  Lots of stuff going on.

 

Additional Insured Coverage, Annotated:

I spent a lot of time examining and annotating a lower court decision on AI coverage, with several editorial comments.  It’s a good read for those who struggle with additional insured coverage and the case is in my column.

I was delighted to speak on a panel at the American College of Coverage Counsel Insurance Law Symposium on October 20 and thanks to the CP subscribers who stopped by to say hello on the topic of "Window Opening Statutes".

Also known as lookback window statutes, Window Opening Statutes, are statutes that open, repeal, or extend a tort action statute of limitations. The panel will discuss their effect on insurance coverage disputes involving coverage for the underlying tort actions. For example, last year, President Biden signed a bill that eliminated the statute of limitations for people who were sexually abused as minors to file federal civil claims. State legislatures have passed similar laws that repeal or extend the statute of limitations for such claims. In 2019, New York State passed a “lookback window” statute, the Child Victims Act, that extended the statute of limitations for survivors of child sexual abuse in criminal and civil cases.

If interested in the PowerPoint, let me know.

 

Motivating Lawyers:

Last week, I had the opportunity to share the stage with our president and managing partner, Jody Briandi, at an FDCC program.  Along with Jody, Evelyn Davis and Stephen Embry, we discussed motivation of lawyers to be engaged in business development and the importance of their accountability to firm management.

The topics covered included:

• How to motivate, engage and incentivize attorneys.

• Training and skill building;

• Role of management, marketing professionals and individual attorneys;

• Changes and challenges in marketing and business development; and

• Tips and trends.

Click here to watch the roundtable.

 

FDCC Insurance Industry Institute (aka the I-3):

Join me at the FDCC’s Insurance Industry Institute November 8-10, 2023, at the Sheraton Times Square Hotel in New York City where I will be moderating a panel which will discuss how to identify a lost policy, the types of claim situations where lost policy issues most frequently arise, and the coverage and legal ramifications associated with lost policies.

The panel will include:

• Dan Kohane (moderator) – Hurwitz Fine P.C.
• Gena Sluga (panelist) – Christian Dichter & Sluga, P.C.
• Bill McGee (panelist) – SVP, Chief Legal Officer and Corporate Secretary – Encova Insurance Co.

Click on Ms. Liberty for information about the rest of the program and registration information.

 

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

 

Need a mediator?

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

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

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

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

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

Try mediation.

 

Newsletters:      

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

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

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

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

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

   

Peiper on Property (and Potpourri):

Summer slowdown extended into fall, or so it seems.  Not much happening on our beat this week other than a decision from the First Department interpreting a subrogation clause.  Check in back in two weeks when, hopefully, we’ll have more to offer. 

Today, October 26^th, is National Financial Crime Fighter Day.  We’re not sure that required recognition, but if you are employed as such…go ahead and enjoy your moment in the sun.  As a public service announcement, the auditing of legal bills is not fighting financial crime.  That’s all.

See you in two weeks.

 

Steve
Steven E. Peiper
[email protected]

 

Wagging About Wigs – 100 Years Ago:

The Watchman and Southron
Sumter, South Carolina
27 Oct 1923

Famine in Wigs as Covers For Bobbed Hair

 

            Paris, Oct. 23.—The re-action against bobbed hair has become so great that every woman who can afford it is buying a wig to conceal her shorn locks.  As a result, there is a famine in wigs.  Factories are working day and night to make enough to meet the demand but are unable to do so.  Prices have tripled during the last six weeks.  Agents of Paris hairdressers are canvassing the province, trying to find wigs that can be re-made and sold here. 

 

Wilewicz’ Wide-World of Coverage:    

Dear Readers,

At the risk of sounding redundant week after week, travel season continues in full swing here. Indeed, this author is just back from a quick jaunt to Nassau, Bahamas for the annual ABA TIPS Leadership Conference. This organizational meeting was jam-packed with training and planning sessions for the upcoming bar year (and the location was not half bad either). As the recently appointed Chair-Elect of the Excess, Surplus Lines, and Reinsurance Committee of TIPS, I’m thrilled to soon be taking over the reins and we are just starting to plan more exciting events in the coming months. Check back soon for more deets!

Now, this week in the Wide World of Coverage, we have a quick one from Mississippi – the Fifth Circuit Court of Appeals, in particular. There, the question was whether uninsured motorist coverage limits could be “stacked” when multiple vehicle policies were involved. The short answer – yes. Check out the write up, with a link to the decision itself, as attached.

Until next time,

 

Agnes
Agnes A. Wilewicz
[email protected]

 

Object Matrimony, If You Don’t Mind a Nash – 100 Years Ago:

Passaic Daily Herald
Passaic, New Jersey
27 Oct 1923

HELP WANTED

 

Some young, ambitious, affectionate, cosmetic member of the weaker sex, who has no objection to a Nash car.  Must have strong temperament to offset my own, who will adhere to a clinging vine from here out.  Applicants must respond either in person or own handwriting.  Object, matrimony.  Signed ELK BACHELOR.

 

Barnas on Bad Faith:

Hello again:

Hopefully the Bills get back on track tonight on Thursday Night Football against Tampa Bay.  Bills Mafia is pretty uneasy these days given the lackluster performances in the last three games.  Nothing like a home game on a short week to get the team back into a flow.

I have two cases in my column this week.  The first is a Ninth Circuit decision where the court affirmed a bad faith jury verdict as being supported by substantial evidence.  The second is a case from close to home in the Western District of New York where the court dismissed claims for bad faith and breach of the covenant of good faith and fair dealing that were included in a declaratory judgment action claiming failure to defend and indemnify.

 

Brian
Brian D. Barnas
[email protected]

 

Canadian Booze or American Booze, Your Choice – 100 Years Ago:

Lansing State Journal
Lansing, Michigan
27 Oct 1923

 

U.S. AND CANADA TO DISCUSS BOOZE

America Will Ask That Liquor
Smuggling be Made
Extraditable Crimes

 

            WASHINGTON, Oct. 27.—(By A.P.)—The week of November 26 has been agreed upon as the date for a conference of Canadian and United States officials on prohibition.

            It was indicated today that the conference would be broader in scope than originally planned.  Treasury officials desire a discussion of the whole border of smuggling and probably will propose that the smuggling of either liquor or narcotics be put in the list of extraditable crimes.

            Canadian officials are believed here to incline also to the view that such a step would result beneficially to both governments.

            Some concern is expressed here however as to the basis upon which the Canadian government could make an agreement with the United States on the prohibition question.  Prohibition in Canada is said to be largely under provincial jurisdiction.  The Canadian central government, however, can approach the subject from the angles of international relations and boundary protection and it is hoped that on that basis a satisfactory arrangement can be made.

 

Lee’s Connecticut Chronicles:

On the road.

 

Lee
Lee S. Siegel
[email protected]

 

Insurance Anyone? – 100 Years Ago:

The Ithaca Journal
Ithaca, New York
27 Oct 1923

 

CARRY INSURANCE WITH CAREY

H.A. Carey Co.

Visible Protection Against Invisible Danager

 

Fires, storms and accidents can never be seen before they come.

But your insurance policy is a concrete, visible safeguard against financial loss from unseen hazards of tomorrow.

Foresight is a gift of the wise.

Insurance is foresight.

We can give you all forms of Property Protection Policies.

 

Carry Insurance With Carey

The H. A. Carey Co.

Telephone 2162

Strand Theater Bldg.

“Insurance that Insures”

 

Kyle's Noteworthy No-Fault:

Dear Readers,

Unfortunately, another disappointing Bills game this week. This makes three uninspiring performances in a row, so hopefully they can get things turned around soon. On a positive note, I hope everyone has a good Halloween!

I have two no-fault cases for you this week. In the first case, the Appellate Division considered an appeal from the Supreme Court, which denied an application to vacate an arbitration award that denied no-fault benefits due to policy exhaustion. In the second case, the insurer brought a motion for summary judgment seeking a declaration that it did not owe no-fault coverage to the claimants on the basis that the incident was staged, and the claimants failed to appear for their examinations under oath.

 

Kyle
Kyle A. Ruffner
[email protected]

 

No Molestation Clause – 100 Years Ago:

Dunkirk Evening Observer
Dunkirk, New York
27 Oct 1923

 

Desert sheiks having agreed, for a fixed sum, to not molest travelers, a motor omnibus line covering 560 miles between Bagdad and Aleppo, has been established.

 

Ryan’s Federal Reporter:

Hello Loyal Coverage Pointers Subscribers:

Buffalo Bills play tonight after a short week. Send help.

Last week, the US Supreme Court granted cert in a Chapter 11 bankruptcy case involving whether an insurer potentially holding financial responsibility over thousands of asbestos claims has Article III standing to challenge a plan of reorganization relative to its bankrupt asbestos industry insured. It’s not every day an insurer wind up there, so here we are.

Until next time,

 

Ryan
Ryan P. Maxwell
[email protected]

 

Where Oh Where? – 100 Years Ago:

Dunkirk Evening Observer
Dunkirk, New York
27 Oct 1923

 

Bride Deserted at Church Wins Divorce

 

            Muncie, Ind.—Asserting that her husband deserted her at the church where they were married and forced her to spend her “honeymoon” alone, Mrs. Leone Lundberg, of this city, has obtained a divorce.

            Mrs. Lundberg has not seen her husband since he bundled her into a car and sent her home a few minutes after they were married, she said.

 

Storm’s SIU:

Hi everyone:

Happy Halloween! 

I had the privilege of being invited to speak last week at American National’s Claims/Litigation Training Conference in Springfield, MO, presenting on "Notable and Super Fun First-Party Property Issues (Practical Pointers to Impress Your Friends and Neighbors)".  Okay, maybe I exaggerated the excitement level of the presentation a little, but just a little.  It was an informative discussion on various property issues, mostly related to fraud investigations.

I have an interesting case for you this week:

• In Arson Case Insured’s Motions in Limine: Relating to the Purchase Price and Sale Price of the Property are Denied; and Relating to a Prior Water Loss, the Expert Testimony of a Fire Investigator, and Replacement Cost Coverage are Granted. 

See you again in two weeks.  Can’t wait …

 

Scott
Scott D. Storm
[email protected]

 

A Rummy – 100 Years Ago:

Times Union
Brooklyn, New York
27 Oct 1923

 

Druggist Jailed For Selling Rum

 

            Paul Fiorentino, owner of a drug store at 1326 Surf avenue, Coney Island, was sentenced to serve six months in the Hudson County, N. J. Penitentiary by Federal Judge Robert A. Inch, yesterday, following conviction on a charge of violating the Volstead Act.

            It was charged that on July 18 two Federal agents purchased a pint of whiskey from Fiorentino in his drug store for $4. Fiorentino was arrested and, when first placed on trial, the jury disagreed.  At the second trial, yesterday, Fiorentino presented a physician’s prescription for the whiskey, signed with the name of Dr. Benjamin Newman, of 523A Gates avenue.  The physician denied issuing the prescription, which had not been produced at Fiorentino’s first trial.

            Judge Inch said he had investigated the case thoroughly and believed that Fiorentino conducted his drug store as a rendezvous for the sporting element, dispensing whiskey.  Judge Inch, in pronouncing sentence, said he wanted to make an example of the man.

 

Fleming’s Finest:

Hi Coverage Pointers subscribers:

As the leaves began to reach peak autumnal foliage this week, I couldn’t help but wonder: Was it finally time to pay $20 to pick the apples myself? Is apple picking ever really worth it?

This week’s case comes from the Ohio Supreme Court. A friend borrowed a car and got into an accident. Since the friend was not an insured under the owner’s policy, the friend’s insurer had to cover the loss.

Catch you later,

 

Kate
Katherine A. Fleming
[email protected]

 

Fake Lawyers – 100 Years Ago:

Times Union
Brooklyn, New York
27 Oct 1923

 

Man Is Charged as Fake Lawyer

 

            Harry Hale, 28, of 328 Lenox avenue, Manhattan, was arraigned before County Judge Haskell yesterday on a charge of grand larceny and held in $2,000 bail to await trial.

            Complainant against Hale was Hugh Cochran, of 186 Eleventh street, who alleged that on October 14 he gave Hale a retaining fee of $100 after he had said he was a lawyer and had promised to appear for him in a lawsuit.  Hales is alleged to have given his office address as 44 Cedar street.  When Cochrane called at the address two days later, he said, he found it was the home of the Mutual Life Insurance Company, the officials of which knew nothing of a “Mr. Hale.”

 

Gestwick’s Greatest:

Dear Readers:

Sadly, my 3.5 year-long run from COVID has come to an end. Alas, I am indeed on the mend. Who else needs to be on the mend, one may wonder. Why, the Bills offensive, of course. Enough said.

This week, I have a case that discusses what happens when two policies insure the same risk at the same level (e.g., excess, umbrella, or primary). The answer is contained in my full write-up, if you’d kindly read on.

That’s all this time around. I won’t be reporting next time around, as I’ll be watching my mom get married in Punta Cana! So, see you in a month.

 

Evan
Evan D. Gestwick
[email protected]

 

Where oh Where? – 100 Years Ago:

Buffalo Courier
Buffalo, New York
27 Oct 1923

 

LEFT AT CHURCH, HUSBAND SEEKS MARITAL SPLIT

            St. Louis, Oct. 26.—Lee Duncan, twenty-five years old, a draughtsman, today filed suit in circuit court to have his marriage annulled, alleging his wife left him at the church.  He charged his wife returned to her mother as soon as the wedding ceremony was performed on September 19, telling him she married him merely to make another man jealous.  Mrs. Duncan could not be reached for a statement.

 

On the Road with O’Shea:

Hey Readers,

Hope everyone is loaded for Halloween with candy, or other liquid indulgences. I will be setting out for a friend’s party as Clark W. Griswold accompanied by my fiancé as a small, Cousin Eddie. Alas, leisure suit Eddie was not the chosen costume, but it was definitely preferred.

This week I have a SUM arbitration case from the Second Department that addresses the shifting burden involving an accident with everybody’s favorite car rental company.

Until Next Month,

 

Ryan
Ryan P. O’Shea
[email protected]

 

No Cover Up Here – 100 Years Ago:

The Brooklyn Daily Eagle
Brooklyn, New York
27 Oct 1923

Santa Barbara Permits Bathing a la Nature

 

Santa Barbara, Cal., Oct. 27—Bathing a la nature on the ocean beach in the evenings and early mornings may become the custom in this city, as it has been discovered that the old ordinance in force in Santa Barbara does not require that bathing suits be worn at night. The law provides that suits must lie worn between the hours of 6 o'clock in the morning and 8 in the evening. It makes no provision for suits the rest of the 24 hours.  It has been known for some time that bathing parties have been held sans suits, but it was not known that the return to ancient customs had legal backing.

 

Louttit’s Legislative and Regulatory Roundup:

Hello All,

I hope everyone is continuing to enjoy the fall. Today’s column discusses a Bill in New York’s Legislature that, if passed, would require the superintendent of financial services to establish standards for hurricane wind deductibles and standards that explain the wind deductible’s triggering event. Such standards should provide further clarity to the consumer of their financial obligation when suffering hurricane property damage.  We will keep an eye on this law and its effect on the insurance industry and New York’s insureds.

 

Rob
Robert P. Louttit
[email protected]

 

The Passing of an Electrical Genius – 100 Years Ago:

The Brooklyn Daily Eagle
Brooklyn, New York
27 Oct 1923

 

Achievements of C. P. Steinmetz, Electrical Genius, Who Just Died

 

            The Achievements of Charles P. Steinmetz, who died yesterday, after a full life of electrical investigation and discovery, total more than 150.  Aside from the 1,000,00-horsepower bolt of lightning he made artificially at Schenectady, his chief inventions include:

            Perfection of the mercury lamp.

            The meridian incandescent lamp.

            Elevator motor appliances, many of them safety devices.

            First plan for transmission of light and power over distances.  He is the father of high-tension transmission, that which makes electrical power a commercial gold mine.

            Control of electrical transmission.

            Smoke elimination processes.

            Energy by-product formula.

            Plan for harnessing Niagara Falls.

            Scores of textbooks, standard throughout the world in the greatest universities and schools.

 

Rob Reaches the Threshold: 

See you in two weeks.

Rob
Robert J. Caggiano
[email protected]

 

Marriage by Contract – 100 Years Ago:

The Buffalo News
Buffalo, New York
27 Oct 1923

DECISION RESERVED ON “CONTRACT MARRIAGE”

 

            Supreme Court Justice Brennan reserved decision on the question of whether the signing of a marriage contract by two persons under legal age, stating that they take one another for man and wife, constitutes a valid marriage.  The problem came up in a suit brought by an attorney against the mother of the girl for money alleged to be due for drawing up the contract and other work incidental to the alleged marriage contract.  The two who are said to have signed the alleged contract are Miss Mary Loray, 17 years old, 388 Monroe Street, and Walter Hubbard, 286 Ellicott Street.

Editor’s note:  Apparently the marriage was solemnized (either then or later) because by 1940, Mary Hubbard was noted in the Buffalo census as a widow.  She was living with her parents and her 16 year old daughter, Esther, who was born in 1924.  Water had been charged with criminal assault on 16-year-old Mary in August 1923 (those charges were eventually dropped). He was 18 and Mary was pregnant.

 

North of the Border:

Dear CP Subscribers:

This edition finds me in San Antonio, Texas attending the 2023 edition of the DRI Annual Meeting. It was wonderful to leave Calgary’s -17C temperatures and snow (we had our first winter storm of the season the day prior to my departure) to reunite with old DRI friends and a smattering of FDCC members. I particularly enjoyed last night’s dinner with colleagues at TexMex restaurant on San Antonio’s riverwalk.

My column reports on an interesting case on material change that dates back six months to May of this year. As usual, enjoy.

 

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

 

Headlines from this week’s issue:

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

• Parties to a Mediation Beware – If You Plan on Pursuing Post-Mediation Claims (for Coverage or Otherwise), Make Certain that it is in the Mediation Settlement Agreement

• Con Ed Proves Contractor Failed to Procure Proper Insurance, Even While Failing to Establish Contractual Indemnity

• Additional Insurance Coverage in Three Party Harmony

 

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

• Waiver of Subrogation Clause Limited, by its Terms, to Only the Specified Work Product

 

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

• Fifth Circuit Finds that Under Mississippi Law a Party May “Stack” Four Uninsured Motorist Coverage Limits for Four Separate Vehicles Covered Under the Auto Policy of the Owner of a Vehicle in Which He Was Injured

 

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

• Ninth Circuit Affirms Jury Finding of Bad Faith and Violation of New Mexico’s Unfair Insurance Practices Act Based on Failure to Investigate Timely and Testimony About Claim Handling Procedures

• Bad Faith and Good Faith and Fair Dealing Claims Dismissed but Leave to Amend Granted on the Good Faith and Fair Dealing Claim

   

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

• Nothing to add this time, see you in two weeks

   

KYLE'S NOTEWORTHY NO-FAULT
Kyle A. Ruffner
[email protected]

• Appellate Division Upholds Supreme Court’s Denial of Application to Vacate Arbitration Award Denying Claim for No-Fault Benefits Due to Policy Exhaustion

• Court Denies State Farm’s Motion for Summary Judgment Seeking Declaration of No Coverage Based on Allegedly Staged Accident and Insured’s Failure to Appear for EUOs

 

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

• Does an Insurer with Financial Responsibility for a Bankruptcy Claim Constitute a Chapter 11 “Party in Interest” Permitted to Object on Collusion Grounds? Cert. Granted

 

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

• In Arson Case Insured’s Motions in Limine: Relating to the Purchase Price and Sale Price of the Property are Denied; and Relating to a Prior Water Loss, the Expert Testimony of a Fire Investigator, and Replacement Cost Coverage are Granted

 

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

• Loss Resulting from Accident Involving Vehicle Borrowed by Owner’s Friend Must be Covered by Friend’s Insurer Because Friend Does Not Qualify as Insured under Owner’s Insurance Policy

 

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

• Where Two or More Policies Insure the Same Risk at the Same Level, They Apply Pro Rata to the Loss
  
   

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

• Shifting Burden Gets Zurich’s Wheels Turning, Renter’s Nonpayment of Supplemental Liability Protection Stalls Petition to Stay SUM Arbitration

 

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

• Deductible/Triggers for Hurricanes and Windstorms

 

ROB REACHES the THRESHOLD
Robert J. Caggiano
[email protected]

• Nothing this time around; see you in two!

 

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

• Insurers Must Establish a Supportable Evidentiary Record of Materiality to Discharge their Onus of Proving a Material Change of Risk

 

Pray for peace in Israel.

 - Dan

 

 

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

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

NEWSLETTER EDITOR
Dan D. Kohane
[email protected]

 

ASSOCIATE EDITOR
Agnes A. Wilewicz
[email protected]

 

COPY EDITOR
Evan D. Gestwick
[email protected]

 

INSURANCE COVERAGE/EXTRA CONTRACTUAL LIABILITY TEAM
Dan D. Kohane, Chair
[email protected]

Steven E. Peiper, Co-Chair
[email protected]

Michael F. Perley

Agnieszka A. Wilewicz

Lee S. Siegel

Brian F. Mark

Scott D. Storm

Brian D. Barnas

Eric T. Boron

Robert P. Louttit

Ryan P. Maxwell

Joshua M. Goldberg

Kyle A. Ruffner

Katherine A. Fleming

Evan D. Gestwick

Ryan P. O’Shea

 

FIRE, FIRST PARTY AND SUBROGATION TEAM
Steven E. Peiper, Team Leader
[email protected]

Michael F. Perley

Scott D. Storm

Brian D. Barnas

 

NO-FAULT/UM/SUM TEAM
Dan D. Kohane
[email protected]

Alice A. Trueman

Joshua M. Goldberg

 

APPELLATE TEAM
Jody E. Briandi, Team Leader
[email protected]

 

Topical Index

Kohane’s Coverage Corner

Peiper on Property and Potpourri

Wilewicz’s Wide World of Coverage

Barnas on Bad Faith

Lee’s Connecticut Chronicles

Kyle’s Noteworthy No-Fault

Ryan’s Federal Reporter

Storm’s SIU

Fleming’s Finest

Gestwick’s Greatest

On the Road with O’Shea

Loutit’s Legislative and Regulatory Roundup

Rob Reaches the Threshold

North of the Border

 

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

10/26/23       Nash v. Walker Memorial Baptist Church, Inc.
Appellate Division, First Department
Parties to a Mediation Beware – If You Plan on Pursuing Post-Mediation Claims (for Coverage or Otherwise), Make Certain that it is in the Mediation Settlement Agreement

The appeal arises out of an agreement in which the parties agreed to settle a personal injury action. In that action, Nash, the plaintiff sought damages after he was injured.  Nash sued Walker, the property owner, alleging that it had been negligent in its duty to maintain the premises; Walker then filed a third-party action against Rosalyn, the tenant and Nash’s employer, seeking contractual indemnification based on the lease between them. Simple enough

During a virtual mediation session, the parties and their insurance carriers reached an agreement concerning the amounts that would be paid to plaintiff. Insurance Company (PIIC) that Walker's insurance carrier, Philadelphia Indemnity Insurance Company (PIIC), reserved its rights against nonparty Munich Re Insurance, Rosalyn's excess liability carrier.

The mediator memorialized these terms in a post-mediation agreement, which also contained language specifying that each party released the others from all claims or liability arising from the matter. Soon after the mediation session concluded, in response to an email from Munich Re's counsel, Walker's counsel confirmed that the settlement resolved all direct claims and third-party claims; the email did not reserve any specific claims. Several other emails among the parties and the court followed, indicating that the matter had been settled. Walker later took the position that PIIC's request to reserve its rights included the third-party claims against Rosalyn.

Supreme Court correctly determined that a binding settlement existed between Walker and Rosalyn and that Walker released its third-party contractual indemnity claim. No party disputes that Walker's counsel had authority to accept the settlement, and that the confirmation email he sent to Munich Re's counsel came from his email account. Counsel's email did not contain any language setting conditions on the settlement or explicitly reserving any specific claims.

 

10/17/23       Lowman v. Consolidated Edison
Appellate Division, First Department
Con Ed Proves Contractor Failed to Procure Proper Insurance, Even While Failing to Establish Contractual Indemnity

Lowman, worked for Nelson as a maintenance employee and was hurt in 2016 when she was hit by a falling freight elevator gate at a Con Ed facility. Four years earlier, Con Ed into a contract with Nelson for janitorial services at that location as well as others. The contract required Nelson to procure commercial general liability insurance naming Con Ed as an additional insurer.

Nelson purchased insurance through Hanover Insurance Group (Hanover) and the policy contained an endorsement naming Con Ed as an additional insurer for injuries with respect to Nelson's work. However, while Con Ed was named as an additional insured for injuries caused by Nelson's negligence, the policy did not cover Con Ed for Con Ed's own negligence or list 30 Worth Street in Yonkers as a covered location.

Based on the conflicting expert affidavits and contradictory deposition testimony, plaintiff failed to demonstrate there was sufficient "circumstantial evidence of elevator door malfunction . . . to permit the inference of negligent maintenance as to some mechanical device controlling the operation of the door over which only the defendant has control" so Con Ed’s motion for summary judgment for contractual indemnity against Nelson was denied

Nelson agreed to indemnify Con Ed as an additional insured for covered injuries caused by its own negligence, the required insurance was never procured, and issues of fact as to Con Ed's negligence preclude summary judgment on the issue of contractual indemnification.

Con Ed met its initial burden by establishing its contract with Nelson contained an insurance procurement clause requiring Nelson to cover Con Ed as an additional insured at the subject location and for its own negligence. Nelson failed to comply with this provision, as it is uncontroverted that neither the subject premises were included in the covered locations nor was Con Ed insured for its own negligence.

Editor’s Note:  Penalty for breach not discussed.  It depends on whether Con Ed was self-insured or had its own policy.

 

10/10/23       Catlin Insurance Company v. Colony Insurance Company
New York County Supreme Court (plenary court)
Additional Insurance Coverage in Three Party Harmony

For the second issue in a row, I am taking the time to analyze a lower court case, this time with a number of interim observations.   The court danced through a number of arguments, and in some cases, stepped on the shoes of its dance partner, concluding that an insurer had an obligation to defend an additional insured, even though it had no obligation to indemnify it. Pardon the lengthy review but for coverage fans, it is the only way to examine this one.

Clarkson owns real property located in Brooklyn. He contracted with McAlpine to perform construction work at the premises.  McAlpine was required to procure and maintain insurance and ensure that any subcontractors did the same, at the same level that McAlpine was required to secure for the owner.

McAlpine hired Kingspan as its subcontractor to perform masonry work on the Project.  The subcontract required Kingspan to purchase and comprehensive general liability and property damage insurance and umbrella liability insurance " Kingspan to include Sandy Clarkson and McAlpine as additional insureds on its commercial liability coverage "for claims caused in whole or in part by the Subcontractor's negligent acts or omissions during the Subcontractor's operations". The subcontract required comprehensive general liability insurance with a $1 million per occurrence limit of liability and a $2 million aggregate per job and umbrella insurance with a limit of not less than $5 million (id. at 19-20). Kingspan also agreed to name McAlpine and the "owner" as additional insurers on a primary and noncontributory basis.  Later, Kingspan assigned the Subcontract to Kingstone.

Kingstone secure a primary policy from Colony with a blanked additional insured endorsement and a primary a non-contributory endorsement as well.  That policy also amended the definition of “insured contract” as follows:

"f. That part of any other contract or agreement pertaining to your business . . . under which you assume the tort liability of another party to pay for 'bodily injury' or 'property damage' to a third person or organization, provided the 'bodily injury' or 'property damage' is caused, in whole or in part, by you or those acting on your behalf. However, such part of a contract or agreement shall only be considered an 'insured contract' to the extent your assumption of tort liability is permitted by law. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement."

Colony issued a follow form excess liability policy to Kingstone, with a $5 million per occurrence limit and a $5 million aggregate limit.

Catlin issued a commercial general liability policy to Clarkson with a $1 million limit per occurrence and a general aggregate limit of $2 million.

Gamez, an employee of a McAlpine subcontractor, Cecere & Sons Inc., commenced a Labor Lawsuit following a construction related injury. He sued Clarkson, the owner, and McAlpine, the GC. They, in turn, brought a third-party action against Kingspan and Kingstone and others for contribution and contractual and common-law indemnification.

The court dismissed the Labor Law §§ 240 (1) and 241 (6) claims and crossclaims against Kingstone. Kingstone had argued that McAlpine had not approved Kingstone's change order to complete infill work on the staircase between the second and third floor until after accident and so the court concluded that Gamez's accident did not arise out of Kingstone's work on the subject staircase to trigger the contractual indemnification provision in the Subcontract.  Appeals are pending.

Clarkson and McAlpine tendered their defense and indemnification under the Colony Primary Policy. Colony rejected the tender by letter because the "Contract does not constitute an insured contract under the terms of the Colony [Primary] Policy".

Interim Editor’s Note:  Whether the contract did or did not constitute and “insured contract” has nothing to do with whether additional insured coverage exists for the owner and GC.  An “insured contract” is an exception to the contractual liability insurance and only determines whether the named insured has coverage for the contractual liability claim.

In response to a second tender to Colony rejected the tender under the Colony Primary Policy and the Colony Excess Policy (together, the Colony Policies) because the coverage sought was outside the scope of both policies.

Interim Editor’s Note: At least Colony is now focusing on the AI provisions, which is the proper thing to do.

Specifically, Colony noted that the terms of the Colony Policies dictated the scope of coverage and not any contractual or other representation made by its insured,

Interim Editor’s Note:  No argument there, the policy dictates coverage not the trade contract.

Kingstone, in connection with the Project (id.). Colony cited the Additional Insured Endorsement, which required coverage only for those persons or organizations with a written contract with Kingstone. Because Kingstone did not contract with Sandy Clarkson, Sandy Clarkson was not considered an additional insured under the Colony Policies

Interim Editor’s Note:  Privity endorsement only requires coverage for the party in privity with the named insured. That would make a lot of sense if this was a privity-based endorsement. Was it?

All persons or organizations as required by written contract with the Named Insured

Does it require a contract with the party who is seeking AI coverage, or does it require coverage for anyone who is supposed to be named as an AI with ANYONE’s contract with the named insured?

Colony denied coverage because Gamez's injuries did not arise from Kingstone's acts or omissions, as the staircase on which Gamez fell was not part of Kingstone's work (id. at 3-4). Last, Colony denied coverage under the "EXCLUSION — INJURY TO INDEPENDENT CONTRACTORS" endorsement on the ground that Gamez was employed by an independent contractor.

Interim Editor’s Note:  Fair Argument.

Clarkson and McAlpine tendered their defense and indemnification under the Colony Policies a third time arguing that Kingstone was contractually obligated to name Sandy Clarkson and McAlpine as additional insureds on the policies because the Prime Contract was made part of the Subcontract. Counsel concluded that Colony had breached its obligation to acknowledge Sandy Clarkson and McAlpine as additional insureds. Additionally, counsel wrote that Gamez's complaint was sufficient to trigger Colony's duty to indemnify, even though no formal finding of fault had been made in the Gamez Action. Counsel further claimed that Colony had waived its right to disclaim coverage based on exclusions in the Colony Policies because Colony failed to timely assert them.

Interim Editor’s Note:  First argument is one supporting vertical exhaustion.  Let us skip the endorsement and go right to indemnity.  The second argument is waiver under 3420(d)(2).

Colony rejected the tender and this action ensued.

Plaintiffs brought this action on April 27, 2022. The complaint asserted a single cause of action for a judgment declaring that (1) the Colony Policies provided additional insured coverage to and Colony must defend and indemnify Sandy Clarkson and McAlpine. Colony served an answer in which it interposed twenty-eight affirmative defenses.

Interim Editor’s Note:  Only twenty-eight?  The two that counted alleged that the owner and GC were not AI’s.  OK, now we have summary judgment motions and cross motions, and the audience waits for the decision.

The insured bears the burden of demonstrating its entitlement to coverage.

Here, plaintiffs have demonstrated that McAlpine is an additional insured under the Colony Primary Policy, and by extension, the Colony Excess Policy. The Additional Insured Endorsement defines "who is insured" as "[a]ll persons or organizations as required by written contract with the Named Insured.

The court finds that it is a privity endorsement. Because Kingstone did not have a written contract with Clarkson, Clarkson does not qualify as an additional insured under the Colony Policies.

Editor’s Note:  Not sure I agree.

Given that the Gamez Action and the third-party complaints in that action have been dismissed as against Kingstone, Colony has demonstrated that it is entitled to a declaration that McAlpine is not entitled to indemnification.

Editor’s Interim Note: OK, Colony has determined that McAlpine is not entitled to indemnification.  So, is it entitled to a defense?  One would think not.

McAlpine is entitled to a defense in the Gamez Action. To avoid its duty to defend, an insurer must show, 'as a matter of law that there is no possible factual or legal basis on which the insurer might eventually be held to be obligated to indemnify the insured under any provision of the insurance policy.  The complaint in the Gamez Action alleged that Clarkson owned the Premises, McAlpine was a general contractor for construction work performed at the Premises, and McAlpine hired various entities to perform that work. The complaint further alleged that Gamez was engaged in performing construction, repair, demolition, or renovation work at the Premises when he tripped and fell, sustaining injuries. Gamez's verified bill of particulars alleged the incident occurred on the staircase between the second and third floors. Contrary to Colony's contention, these allegations suggested a reasonable possibility of coverage, citing to Indian Harbor.

Editor’s Interim Note:  Wait, I thought all claims against Kingstone were dismissed?  How can its carrier still owe a defense to the GC?

That all claims against Kingstone in the Gamez Action have been dismissed does not bear on Colony's duty to defend.  The court cited to a case where the First Department "[t]he fact that the allegations against the subcontractors where debatable and later dismissed by directed verdict is irrelevant to whether the duty to defend arose at the time the complaint was tendered."

Editor’s Interim Note:  So, the argument is that the duty to defend was measured at the time the lawsuit was commenced and that was before the Kingstone claims were dismissed.  We get that.  But why didn’t the duty to defend end when Kingstone was let out of the lawsuit?

Moreover, the Colony Primary Policy stated that it would provide primary insurance to any party with whom Kingstone had a contract.  Consequently, McAlpine is entitled to a declaration that Colony is obligated to provide it with a defense in the Gamez Action on a primary, noncontributory basis over the Catlin Policy, and that Colony is obligated to reimburse plaintiffs for the costs and expenses incurred in defending McAlpine in the Gamez Action within the limits of the Colony Policies.

Editor’s Final Note:  But the contract did not apply to the accident?  Oh well. 

Anyway, seems to me that when the obligation to indemnify ended, as it did in this case, so too did the obligation to defend.  But what do I know?

 

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

10/26/23       AIG Prop. Cas. Co. v. SF Construction Serv’s, Inc.
Appellate Division, First Department
Waiver of Subrogatoin Clause Limited, by its Terms, to Only the Specified Work Product

AIG commenced this action in subrogation seeking recovery of property damage paid due to loss at an insured location.  Defendant, SF, moved for summary judgment therein asserting a waiver of subrogation clause that it maintained barred the entirety of AIG’s action.  The trial court denied the application, and on appeal the trial court’s decision was affirmed by the First Department.

In reaching its conclusion, the Court noted that the waiver clause only applied “claims and damages caused by fire ‘to the extent covered by property insurance obtained pursuant to Section 17.3 [of the agreement] or other property insurance applicable to the Work’.”  As applied to this case, it was held that the clause only applied to loss which was otherwise covered by insurance provided by AIG’s named insured to protect SF’s interests in that particular property.  Here, because coverage procured through AIG was only extended to SF’s work, and the loss exceeded that limited amount of property, the waiver of subrogation clause was inapplicable.   On the flip side, then, AIG was free to seek recovery for damages outside the scope of SF’s work product.

As a final point, the Court also noted that AIG, standing in the shoes if its named insured, was entitled to seek reimbursement of the deductible which would otherwise have been owed on the claim.

 

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

10/17/23       Farmers Direct Property and Cas. Ins. v. Jonathan Elijah Yates
United States Court of Appeals, Fifth Circuit
Fifth Circuit Finds that Under Mississippi Law a Party May “Stack” Four Uninsured Motorist Coverage Limits for Four Separate Vehicles Covered Under the Auto Policy of the Owner of a Vehicle in Which He Was Injured

Jonathan Elijah Yates (“Yates”) was riding as a guest passenger in a vehicle leased by Mitzi and Garry Birks that was being driven around by their grandson, Camron Flynn—whose negligence caused an accident. Flynn was an “underinsured” motorist because his liability coverage did not cover Yates’s total damages. At the time of the accident, the vehicle in question was insured under a personal automobile insurance policy issued by Farmers, which covered four total vehicles belonging to the Birks.

In a resultant coverage action, Farmers Direct Property and Casualty Insurance Company (“Farmers”) lost their motion summary judgment and the trial court ruled in favor of Yates – declaring that under Mississippi law Yates may “stack” four uninsured motorist (“UM”) coverage limits for four separate vehicles covered under the automobile policy of the owner of a vehicle in which Yates was injured. The parties filed an agreed stipulation of facts before the district court, stating that Yates suffered economic and non-economic damages in excess of $450,000 as a result of the single–vehicle accident.

As relevant to the appeal, the policy stated that “[t]he limit of liability shown in the Declarations for ‘each person’ is the most we will pay for all damages . . . due to [bodily injury] to any one person as the result of any one accident . . . is the most we will pay regardless of the number of . . . vehicles shown in the Declarations.” Farmers argued that this provision expressly limited stacking. The district court rejected this argument and found that the provision was void because it improperly imposed a blanket ban on stacking by all insureds in violation of the Mississippi Motor Vehicle Safety Responsibility Law (“MMVSRL”). This law expressly prohibits the limiting of stacking benefits by contract for Class I insureds, which includes the “named insured, and residents of the same household, his spouse and relatives of either, while in a motor vehicle or otherwise.”

Because stacking is mandatory for Class I insureds, the Fifth Circuit wrote, and the provision makes no distinction between Class I insureds and those considered to be Class II insureds because they are only covered because they were in the covered vehicle, the district court properly found the purported anti-stacking provision to be void as a matter of public policy. “The coverage afforded by these policies is mandatory under the statute and may not be cut down by a policy exclusion.” Even if the provision at issue were not void, Farmers in any event failed to include an express anti–stacking provision in compliance with Mississippi case law.

Although under Mississippi law Farmers could have limited the stacking available to insureds like Flynn— who is not a named insured under the policy but used the covered vehicle with the Birds’ consent—here the insurance policy contained no express provision prohibiting stacking of uninsured motorist benefits. “[T]he absence of an express prohibition on stacking allows Brewer to stack the UM benefits of the vehicles insured under the same policy.” Valid anti– stacking provision must expressly state that coverage “shall not be stacked, aggregated, pyramided or otherwise combined.” As such, the Court affirmed the summary judgment decision in favor of the insured.

 

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

10/23/23       Stein v. Farmers Ins. Co. of Az.
United States Court of Appeals, Ninth Circuit
Ninth Circuit Affirms Jury Finding of Bad Faith and Violation of New Mexico’s Unfair Insurance Practices Act Based on Failure to Investigate Timely and Testimony About Claim Handling Practices

In this diversity action, a jury found that Farmers Insurance Company of Arizona (“FICA”) breached its contract, engaged in bad faith, and violated New Mexico’s Unfair Insurance Practices Act (“UIPA”) in handling Barbara Stein’s personal injury claim under her auto insurance policy.  FICA appealed arguing that substantial evidence did not support the jury’s bad faith finding.

The court concluded that substantial evidence supported that FICA engaged in unfounded delay. Immediately after the accident, Stein gave FICA a medical authorization, allowing it to obtain her medical records, but FICA did little to investigate Stein’s injuries for the first five months after the accident.  In April 2019, Stein sent FICA a detailed, twenty-eight-page letter explaining her physical and mental injuries caused by the accident and related medical procedures.  FICA made a partial payment in May 2019 and continued its investigation, but it did not conduct an independent medical examination (“IME”) to determine Stein’s injuries caused by the accident until September 2020—nearly two years after the accident.  Stein’s insurance claims expert testified that FICA’s delay in investigating Stein’s claim and conducting an IME was unfounded.  Based on this evidence, the court concluded the jury could have found that FICA’s delay in investigating was unfounded and in bad faith.

Substantial evidence also supported the finding the FICA failed to conduct an adequate investigation.  The court concluded that FICA improperly excluded Stein’s claimed traumatic brain injuries and PTSD from its coverage determination because it did not hire a doctor qualified to evaluate PTSD or behavioral health.

The court also found that there was substantial evidence to support the UIPA violation.  UIPA is violated when an insurer knowingly and with such frequency as to indicate a general business practice does not attempt in good faith to effectuate prompt, fair, and equitable settlements of an insured’s claims in which liability has become reasonably clear. FICA’s claims adjuster testified that he has worked for FICA for many years and had adjusted thousands of liability claims. He explained that he generally calculates a dollar-value range for claims, and his custom and practice is to start negotiations at the low end of the range. He also testified that sometimes he does not pay out a claim for ten or fifteen years, and he may withhold payment until an insured is ready to settle and sign a release, even if the insured suffers severe injuries like brain damage, the insured believes that FICA’s offer is too low, and the insured is under financial pressure.  The court concluded based on this evidence that a jury could have found a UIPA violation.

 

10/19/23       1555 Jefferson Road LLC v. Travelers Property Casualty Co.
United States District Court, Western District of New York
Bad Faith and Good Faith and Fair Dealing Claims Dismissed but Leave to Amend Granted on the Good Faith and Fair Dealing Claim

This action arose out of Travelers’ alleged failure to defend and indemnify Jefferson Road as an additional insured under one or more insurance policies in connection with a state-court personal injury action (the “Underlying Action”) against Jefferson Road, Sun Chemical Corporation, Sun Environmental Corporation, and Amesbury Truth. The plaintiff in the Underlying Action claims that he sustained injuries in March 2019 while performing work at 1555 Jefferson Road, Rochester, New York pursuant to an agreement between his employer and AmesburyTruth.  Specifically, the plaintiff in the Underlying Action claims that he was injured after being exposed to chemicals as a result of the negligence of Jefferson Road, Sun Environmental Corporation, or AmesburyTruth in failing to provide a safe place to work.

AmesburyTruth later commenced a third-party action against the personal injury plaintiff's employer, alleging that the employer or its subcontractors failed to perform the employer's work in a reasonably safe manner.  Jefferson Road also brought a third-party action, alleging that Schlegel was leasing the premises from Jefferson Road on the date of the alleged accident and owed Jefferson Road certain obligations under the lease agreement. Under that lease agreement, Schlegel agreed to obtain CGL insurance and to name Jefferson Road as an additional insured.  If Schlegel subleased or permitted anyone else to occupy the premises, its obligations under the lease agreement would continue, and the same obligation to procure insurance coverage would apply to any subtenant, assignee, or occupant.  At the time of the alleged accident, AmesburyTruth occupied the premises pursuant to a relationship or other agreement” between Schlegel and AmesburyTruth.

Both Schlegel and AmesburyTruth obtained CGL policies from Travelers which contained endorsements identifying Jefferson Road as an additional insured.  Travelers responded to Jefferson Road’s tender by agreeing to participate in its defense under a complete reservation of rights.  Jefferson Road commenced a declaratory judgment against Travelers asserting claims for breach of contract, breach of the implied duty of good faith and fair dealing, and bad faith.  Travelers moved to dismiss the extra-contractual claims.

The court dismissed the good faith and fair dealing claim because the factual basis and relief sought was the same as the breach of contract claim.  Jefferson Road alleged that Travelers breached both the contract and the implied covenant of good faith and fair dealing the same way: by failing to defend and indemnify Jefferson Road in the Underlying Action. Because the factual basis for both claims is the same, the good faith and fair dealing claim was duplicative and was dismissed.  Even if Jefferson Road had set out a different factual basis for this claim, it would still fail because the relief sought for both claims is the same.  The court also rejected the argument that Jefferson Road should be permitted to plead its good faith fair dealing claim in the alternative.

The bad faith claim was also dismissed.  New York law does not recognize a separate generalized tort claim for bad faith denial of insurance coverage.  Because Jefferson Road did not allege that Travelers violated any legal duty independent of the contract itself, it failed to state a bad faith claim.

However, the court granted Jefferson Road leave to amend its good faith and fair dealing claim.  There are two ways in which a good faith and fair dealing claim can survive a motion to dismiss where the plaintiff also brings a breach of contract claim: (1) if it is based on allegations different from those underlying the breach of contract claim, and the relief sought is not intrinsically tied to the damages that flow from the breach of contract,”  or (2) if it is brought in the alternative to a claim for breach of contract where there is a dispute over the existence, scope, or enforceability of the putative contract. To the extent that Jefferson Road can allege either a distinct factual basis or a dispute over the existence, scope, or enforceability of the policies, it was given leave to amend its complaint to do so. Alternatively, it may allege the facts supporting its assertion that Travelers breached the implied covenant as part of its breach of contract claim. 

Finally, the court granted leave to amend to the extent that Jefferson Road believes it is entitled to attorneys’ fees and costs or punitive damages in this action to request such relief as part of its breach of contract claim or an amended good faith and fair dealing claim.

 

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

Nothing this time around; see you in two!

 

KYLE’S NOTEWORTHY NO-FAULT
Kyle A. Ruffner
[email protected]

10/24/23       In the Matter of New Millennium Pain & Spine Med., P.C. v. Progressive Cas. Ins. Co.
Appellate Division, First Department
Appellate Division Upholds Supreme Court’s Denial of Application to Vacate Arbitration Award Denying Claim for No-Fault Benefits Due to Policy Exhaustion

Generally, a court will not set aside an arbitrator's award for errors of law or fact unless the award is so irrational as to require vacatur. In this case, the medical provider did not dispute that the subject policy was exhausted prior to the underlying arbitration. Rather, the provider argued that its claim for no-fault compensation, which was submitted and denied prior to the exhaustion of the policy, should retain priority of payment.

However, the court determined that the fact that the arbitrator followed First Department precedent in Harmonic Physical Therapy, P.C. v Praetorian Ins. Co. (47 Misc 3d 137[A], 2015 NY Slip Op 50525[U] [App Term, 1st Dept 2015]) rather than Second Department precedent in Alleviation Med. Servs., P.C. v Allstate Ins. Co. (55 Misc 3d 44 [App Term, 2d Dept 2017], aff’d on other grounds 191 A.D.3d 934 [2d Dept 2021]) does not warrant reversal. In Harmonic, the First Department held that claims which are timely denied by an insurer do not hold a place in the priority-of-payment queue ahead of subsequently filed claims that were paid by the insurer, which may exhaust available coverage.

Further, the appellate court pointed out that it has held, in awarding a claim after a policy has been exhausted, an arbitrator exceeded his or her power since an insurer's duties cease upon the insurer's payment of the contractual limit on its no-fault policy (see Matter of DTR Country-Wide Ins. Co. v Refill Rx Pharm., Inc., 212 A.D.3d 481 [1st Dept 2023]. Accordingly, the court upheld the Supreme Court’s denial of the medical provider’s petition to vacate the master arbitration award, upholding the denial of no-fault benefits based on the exhaustion of policy benefits.

 

10/12/23       State Farm Mut. Auto. Ins. Co. v. Surgicore of N.J., LLC et al.
Supreme Court, New York County
Court Denies State Farm’s Motion for Summary Judgment Seeking Declaration of No Coverage Based on Allegedly Staged Accident and Insured’s Failure to Appear for EUOs

The claimants, while in a vehicle covered by a no-fault insurance policy issued by State Farm, were involved in a motor vehicle collision. The claimants and various medical providers acting as their assignees applied for no-fault benefits, which plaintiff denied on the basis that the claimants intentionally caused the collision; that the injuries of claimants did not arise from an insured incident; and that they did not appear for duly scheduled and noticed examinations under oath. In this action, State Farm sought a declaratory judgment that it was not required to pay no-fault benefits to the claimants or medical providers.

With regard to State Farm’s contention that the accident was staged, the court noted that a no-fault insurer seeking a declaration of no coverage on default based on a conclusion that the underlying collision was staged must establish prima facie the "fact or founded belief that the alleged injury does not arise out of an insured incident." Central Gen. Hosp. v Chubb Grp. of Ins. Cos., 90 NY2d 195, 199 (1997). State Farm submitted an affidavit from a claims investigator to support its argument that the accident was not genuine. However, the affidavit, which relied on the examination under oath of one of the claimants, was not admissible because it was not signed, and State Farm did not establish it was ever provided to the claimant for review as required by CPLR 3116(a). Further, key portions of the affidavit were based only on hearsay and were therefore held to be insufficient to support the entry of a summary judgment. Accordingly, the court held that State Farm did not establish prima facie a founded belief that the claimants engaged in no-fault insurance fraud.

Next, the Court explained that a no-fault insurer seeking a declaration of no coverage due to the claimants' failure to appear for EUOs requested under the no-fault policy must demonstrate that the insurer complied with the procedural and timeliness requirements of 11 NYCRR 65-3.5, governing the handling of no-fault claims. To do so, the no-fault insurer must submit an affidavit of a person with personal knowledge that the mailing of the EUO letters occurred and describe the standard office practice or procedure used to ensure that items were properly addressed and mailed.

However, the court determined that State Farm failed to provide sufficient evidence or testimony regarding the mailing of the EUO scheduling letters. The first affidavit provided did not provide any detail as to how the letters were addressed or when and where the letters were transferred to the custody of the United States Postal Service. In the affirmations of State Farm’s attorney, almost four years after the purported letters were mailed, he did not account for how he recalls mailing ten separate letters on seven separate dates four years later. Further, State Farm did not offer any affidavits of service to establish mailing. Accordingly, the court determined that State Farm failed to proffer sufficient evidence that that the EUO were properly mailed letters to the claimants and therefore failed to establish its prima facie case that the claimants failed to appear for their duly scheduled EUO.

Accordingly, the court denied State Farm’s motion for summary judgment.

 

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

10/13/23       Truck Insurance Exchange v. Kaiser Gypsum Co.
United States Supreme Court
Does an Insurer with Financial Responsibility for a Bankruptcy Claim Constitute a Chapter 11 “Party in Interest” Permitted to Object on Collusion Grounds? Cert. Granted

The Bankruptcy Code empowers any “party in interest” to “raise” and “be heard on any issue” in a Chapter 11 proceeding. In this matter, Truck Insurance Exchange (“TIE”) contends that “a Chapter 11 debtor colluded with representatives for asbestos claimants to propose and confirm a plan that includes … fraud-prevention measures only for uninsured asbestos claims-not insured asbestos claims,” amounting to 14,000 covered claims that TIE was financially burdened with. Despite its burden, “the court of appeals refused to adjudicate [TIE's] objections to the fraud and collusion, relying on judge-made limitations engrafted onto the Code.”

Noting a circuit split between the Third, Seventh (and now Fourth) Circuits in its Petition for Writ of Certiorari, TIE contends that the Fourth Circuit Court of Appeals erred in applying:

“the ‘bankruptcy standing’ doctrine, which, along with its sidekick, the ‘insurance neutrality’ rule, bars an insurer from participating in the bankruptcy unless the insurer can show that the plan formally alters the ‘quantum of liability’ under the insurer’s contracts. (Citation omitted). The insurance neutrality rule blocks the insurer from objecting to a plan of reorganization even when, as here, the insurer bears near-exclusive financial responsibility for the claims under that plan.

Judicial application of these doctrines when interpreting 11 U.S.C. §1109(b) results in mayhem, so sayeth TIE, in that “[n]either statutory text or statutory history supports these judge-made limitations.” Shedding light on the split, TIE notes that:

[w]hile the Third Circuit correctly construes Section 1109(b) as the broad grant of participatory rights that it is—allowing participation wherever a party satisfies Article III [standing]—the Fourth Circuit has now joined the Seventh Circuit in rejecting that view and imposing judge-made, prudential limitations on who can be heard and what they can argue in bankruptcy proceedings.

The United States Supreme Court has granted certiorari and will take up the matter. However, an argument date has not yet been scheduled.

Maxwell’s Minute Entry: Its early and I have probably already said too much. But we P&C insurance geeks tend to get excited when the United States Supreme Court weighs in on our state regulated industry. Under the McCarran-Ferguson Act, it’s not every day we get our day in (US Supreme) Court. That said, federally regulated bankruptcy proceedings certainly sound like one way to do it.

 

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

10/12/23       Andrews v. The Brethren Mut. Ins. Co.
United States District Court, M.D. Pennsylvania
In Arson Case Insured’s Motions in Limine: Relating to the Purchase Price and Sale Price of the Property are Denied; and Relating to a Prior Water Loss, the Expert Testimony of a Fire Investigator, and Replacement Cost Coverage are Granted

[Abridged] The Brethren Mutual Insurance Company denied a claim submitted by Plaintiff Andrews. Andrews purchased a commercial property and insured it with Brethren. Less than five months after the purchase, the property burned down. Andrews submitted a claim to Brethren, who investigated and denied the claim on the grounds that the fire had been set intentionally, either by Andrews or at his direction. Andrews proceeded to file suit against Brethren. A trial is set to begin on November 13, 2023. Ahead of trial, Andrews has filed Motions in Limine seeking to exclude evidence relating to: (1) the purchase price of the property; (2) a prior water loss claim filed by Andrews and paid by Brethren; (3) the sale of the property following the fire; (4) limitation of damages; (5) the expert opinion and testimony of Richard Andress; and (6) the type and amounts of insurance coverage Andrews purchased from Brethren.

Motions in limine are "designed to narrow the evidentiary issues for trial and to eliminate unnecessary trial interruptions" A court may decide the motion before trial or defer a decision until during trial. The movant seeking to admit evidence carries the burden of proof to meet the threshold of admissibility under the relevant rule or principle.

The purchase price of the property:

Andrews paid $45,000 to purchase the property. He argues that the purchase price is irrelevant because the property was insured for replacement value; "the amount of coverage was entirely based upon the building make-up, its square footage, and Brethren's internal process and procedures for determining coverage." Brethren argues that the purchase price of the building is relevant, because it shows that Andrews "had a strong financial motive to set fire to the premises."

"Arson is an affirmative defense and therefore the defendant has the burden of proving by a preponderance of the evidence that the fire was of an incendiary origin and that the plaintiff was responsible for it." The insurance company need not present direct evidence that the plaintiff caused the fire; it may meet its burden through circumstantial evidence. An insurer seeking to prove its case via circumstantial evidence generally must show evidence of: "(1) an incendiary fire; (2) a motive by the insured to destroy the property; and (3) circumstantial evidence connecting the insured to the fire." It is well established that financial motive is sufficient to satisfy the second factor. This includes evidence that the insured stood to receive a financial windfall due to the insured value of the property exceeding the purchase price. Andrews' argument that the purchase price is irrelevant because he did not seek a particular coverage type or amount is unavailing. Andrews may argue to the jury that he did not create the financial motive, but there is no question one existed.

Andrews also argues that, even if the purchase price is relevant, it should nevertheless be excluded on the grounds that it is unfairly prejudicial. The Court agrees that the evidence is prejudicial—when a building purchased for $45,000 and insured for $2.8 million burns down, it is likely to raise a few eyebrows—but it does not agree that it is unfairly so. Evidence of high probative value will often be highly prejudicial. This is insufficient to render the prejudice unfair. The Court also notes that Andrews purchased the building just over four months prior to the fire, which is probative of a motive to receive an immediate financial windfall. Finally, evidence of financial motive, no matter how strong, is insufficient on its own for Brethren to prevail, somewhat lessening the prejudicial impact of evidence of the purchase price.

The sale of the property following the fire:

Andrews seeks to exclude evidence that he sold the vacant commercial land for $225,000 after the fire. Brethren argues that evidence of the sale of the property is relevant to Andrews' "motive to set, either directly or indirectly, the fire which is the subject matter of the litigation." The parties' arguments on this issue are not particularly well developed. While it is true that Andrews sold the property for $180,000 more than he paid for it, other factors such as the value of the building as it stood before the fire and the time, materials, and equipment lost in the fire would bear on the financial motive to set fire to the building rather than simply sell it as it was. However, Andrews has not cited any such record evidence or other authority in support of his arguments. Though the Court finds that evidence of the sales price is less probative than that of the purchase price, it does not find that it has no probative value. Further, Brethren specifically argues that Andrews received a financial windfall by "having [Brethren] cover the expenses associated with the demolition and debris removal of the fire-damaged remains and selling the land for exactly five times the amount paid for the structure." To the extent that Brethren is arguing that the property was worth more as a vacant lot and that Andrews fraudulently induced Brethren into paying to clear the land, the evidence of the sales price is not duplicative of the evidence of the purchase price as Andrews suggests. Therefore, the Court will deny Andrews' motion to exclude evidence of the sale of the property.

A prior water loss claim filed by Andrews and paid by Brethren:

Andrews seeks to exclude evidence of a water loss claim—for which Brethren paid Andrews $32,295 in losses—arising out of flooding of an upper floor of the building. He argues that the water loss claim and the related evidence is irrelevant to the fire at issue in the case. He suggests that, by paying the claim after "investigation failed to reveal any evidence that Mr. Andrews was responsible for the flood," "Brethren acknowledged that the water loss claim was legitimate." Brethren argues that Andrews' statements subsequent to the payout for the water loss claim show that the claim was fraudulent and "set into motion a course of conduct." Brethren further argues that Andrews' inconsistent statements regarding the cause of the flooding are admissible for impeachment purposes.

Federal Rule of Evidence 404(b)(2) allows for the admission of "a crime, wrong, or other act" as proof of "motive, opportunity, intent, preparation, plan, knowledge, identity, absence of mistake, or lack of accident." Brethren's argument that admission of the water loss claim "will provide focus to the jury concerning [Andrews'] fraudulent schemes" assumes the conclusion that the water loss claim was fraudulent. Andrews' argument that Brethren would not have paid out a claim it believed was fraudulent is well taken. The question then is whether Brethren has introduced evidence sufficient to show that Brethren got it wrong the first time. The Court finds that it has not.

To the extent that there were statements that are inconsistent they are not enough, on their own, to compel the conclusion that the water loss claim was fraudulent.

To buttress their argument that the water loss claim was fraudulent, Brethren also suggests that Andrews "did not effectuate repairs from the water loss for which he received insurance proceeds." Here, Brethren's argument proves too much. Brethren asks the Court to overlook all of the steps Andrews took, simply because he had not actually repaired the damage yet. Andrews taking these steps, spending time and money on repairs, does not suggest that the claim was fraudulent—it suggests just the opposite.

As the proponent of the evidence, Brethren carries the burden of proof to show that it is admissible. It may be that Brethren could prove by a preponderance of the evidence that the water loss claim was fraudulent. However, the Court finds that Brethren has not done so here and agrees with Andrews that allowing Brethren the opportunity to do so at trial would create an unacceptable danger of confusing the issues; this trial is about the fire loss, not the water loss. The Court is also mindful of the danger posed by allowing Brethren to introduce evidence of the water loss claim if it cannot prove that the claim was fraudulent. The relevance of the water loss claim here is more attenuated; it was a different type of loss, for a substantially smaller dollar amount.  The Court will grant Andrews' Motion in Limine to exclude any evidence of the prior water loss claim.

Limitation of damages:

Andrews asks the Court to require that, if Brethren is found liable, the damages should be for the replacement cost value of $2,865,000, not the actual cash value at the time of the loss or the market value of comparable properties.  As noted by Brethren, "the policy of insurance specifically dictates that an insured is not entitled to replacement cost unless he rebuilds or repairs the [property] subject to certain time limitations." There is no dispute that Andrews did not rebuild or repair the property. Instead, Andrews suggests that he is excused from doing so because "Brethren's denial of coverage and refusal to pay Mr. Andrews replacement costs coverage under the Policy constitutes a waiver of its ability to limit damages to the actual cash value."

In support of his argument that the Court should not enforce the policy condition requiring him to rebuild or replace the property within a certain amount of time. In Burton v. Republic Ins. Co., the Superior Court clarified that an insured is excused from the replacement requirement where: 1) the insurer denied liability; (2) the insureds faced the `unsavory' choice of either accepting actual cash value or expending a large sum in replacement costs without a guarantee of reimbursement; and (3) any payment of replacement value by in the insurer hinged on the insured either expending funds or obtaining a judicial determination of liability.

The Court finds that all three elements are satisfied here. Brethren argues that, even if the Court excuses Andrews from the time limitation, Andrews "must still demonstrate that he would have replaced the property as required."

The Court finds that Brethren advanced only $100,000 and compliance with the requirement to rebuild or repair the building would have required Andrews to spend far more.  Thus, Brethren's denial of coverage "materially contributed" to Andrews' nonperformance.  Nevertheless, Brethren asserts that "the evidence at trial will establish that [Andrews] had no intention of replacing the property and would have only received actual cash value had no coverage dispute arisen." On the limited record before it, the Court is not prepared to preclude Brethren from introducing such evidence. Therefore, the Court will allow Brethren the opportunity to do so prior to ruling on Andrews' Motion.

The expert opinion and testimony of Richard Andress:

Andrews seeks to exclude the expert testimony and report of Russel L. Andress, the fire expert retained by Brethren. During the pendency of this matter, Brethren originally retained Alex Profka as a fire expert. Profka prepared a report regarding his assessment of the cause of the origin of the fire dated February 28, 2020. Profka unfortunately passed away on January 23, 2022. Brethren subsequently retained Andress, who prepared his own report. Andrews argues that Andress' report and testimony should be excluded because "the proffered opinions (1) simply `parrot' the ideas and conclusions of Mr. Profka; (2) are not the product or reliable principles or methods; and (3) are based entirely on unsupported speculation and conjecture and not facts of record."

Federal Rule of Evidence 702 requires that expert testimony is (1) qualified, (2) reliable, and (3) assists the trier of fact. Andrews does not dispute the qualifications of Andress, only that his opinions are not reliable and would not assist the trier of fact. As to the latter, Andrews argues that Andress' opinions would not assist the jury because they "are based entirely on speculation with regard to what may have actually caused the fire and who was responsible for it." Whether the testimony will assist the trier of fact turns on whether it is "`sufficiently tied to the facts of the case,' so that it `fits' the dispute." "This condition goes primarily to relevance." Andress' determination that "an accelerant was poured onto the stairs to enhance the speed and intensity of th[e] fire" is unquestionably relevant to this dispute, as it is an element of Brethren's affirmative defense. Andress need not conclude that Andrews himself caused the fire for his opinion to be relevant. Andrews' arguments that Andress' opinion would not help the jury because "it is based entirely on speculation" are challenges to the reliability of Andress' opinion, not its relevance.

"Rule 702's reliability threshold requires expert testimony to be `based on methods and procedures of science, not on subjective belief and unsupported speculation.'" A pending amendment to Rule 702, scheduled to take effect on December 1, 2023, "clarif[ies] and emphasize[s] that expert testimony may not be admitted unless the proponent demonstrates to the court that it is more likely than to that the proffered testimony meets the admissibility requirements set forth in the rule." The amendment was motivated by the Advisory Committee's "observation that in `a number of federal cases . . . judges did not apply the preponderance standard of admissibility to Rule 702's requirements of sufficiency of basis and reliable application of principles and methods, instead holding that such issues were ones of weight for the jury.'" The Committee emphasized that rulings which have held "the critical questions of the sufficiency of an expert's basis for his testimony, and the application of the expert's methodology, are generally questions of weight and not admissibility" "are an incorrect application of Rules 702 and 104(a)." Thus, the amendment "echoes the existing law on the issue," rather than a change of the Rule 702 standard. Therefore, the Court will take heed of the forthcoming changes so as to avoid the misapplication of Rule 702 identified by the Advisory Committee.

Brethren argues that Andrews "has not identified any fire experts nor has he presented any evidence that the reports of Alex Profka and Russel Andress are in any way deficient or discordant with fire investigation industry standards or protocols." While true, it is Brethren who has the burden to "demonstrate by a preponderance of the evidence that the testimony is the product of reliable principles and methods, and the expert's opinion reflects a reliable application of the principles and methods to the facts of the case." Reliability does not require that the "opinion is supported by the best methodology or unassailable research." An opinion may be reliable "even though the judge thinks that the opinion is incorrect."

Andress' "Determination" includes four distinct opinions: (1) the "fire did originate within the open stairway which leads to the upper levels of the structure;" (2) "the reignition of previously extinguished wood stairs . . . along with the identification of ignitable liquids by accelerate canine Locke indicate that an accelerant was poured onto the stairs to enhance the spread and intensity of this fire;" (3) "[t]he ignition source for this fire is a competent ignition source introduced to the ignitable liquid soaked wood stairs . . . by the human hand;" and (4) "[a]ll reasonable accidental ignition sources were eliminated during [Andress'] investigation."

Profka, the expert originally retained by Brethren, noted in his report that he "conducted the investigation on all dates according to NFPA 921, which included the elimination of accidental causes." Andress' curriculum vitae states that he "use[s] a systematic approach utilizing the Scientific Method as outlined in NFPA 921," and "NFPA 921 qualifies as `a reliable method endorsed by a professional organization.'" However, there is no mention of NFPA 921, or any other standard in his report. Andress' report simply states that his "investigation was completed using the provided photographs, reports, and depositions along with a physical site visit, and interviews." The Court addresses these defects and their impact on the admissibility of each of Andress' opinions in turn.

Origination:

Andress bases his opinion that the fire began in the stairway on "examination of photographs . . . as well as interviews with Deputy Chief Ken Pilkus who was inside the structure during the initial fire attack." He first concludes that "it was clear that this fire began within the structure." He notes that a photograph taken by Pilkus during the fire "shows heavy fire in the common hallway at the stairway" and that post fire photographs "clearly indicate a sustained fire in the stairway which compromised the structural integrity of the stairs above resulting in their collapse." Further, these photographs show evidence of a "clean burn" of the staircase, which, contrasted with the "fire damaged but intact" structures in other areas, revealed "no indications of fire origin except at the staircase." But Andress does not, however, explain why evidence of a clean burn is sufficient to show that the fire started in a certain area.

Accelerant:

The basis for Andress' opinion that "an accelerant was poured onto the stairs to enhance the spread and intensity of this fire" is (1) "the identification of ignitable liquids by accelerant canine Locke," and (2) "the reignition of the previously extinguished wood stairs as witnessed by Deputy Chief Ken Pilkus."

Accelerant Canine:

In his analysis regarding the presence of a liquid accelerant, Andress begins by describing the process in which an accelerant canine, Locke, alerted to the presence of ignitable liquids. He notes that Locke "alert[ed] to the presence of ignitable liquids at the entrance of the staircase on the main level" and" in the debris fields beneath the collapsed staircase." Dauphin County Detective Dennis Woodring, the handler for Locke, then set up a "can test" for Locke in which he arranged cans of debris samples from the areas where Locke alerted along with cans of samples known to be free of ignitable liquids. Andress states that Locke alerted to the samples from the debris field near the stairs, indicating that the samples from the area near the staircase contained ignitable liquids.

Samples from the debris field were subsequently sent to the Pennsylvania State Police Laboratory for testing, where "no common ignitable liquids were identified in the samples." According to Andress, the Police Laboratory report offers three possible reasons for a failure to identify an ignitable liquid: (1) "no ignitable liquid present;" (2) "an ignitable liquid present below quantities required for positive identification;" or (3) "an uncommon ignitable liquid." Andress suggests that the "unknown ignitable liquid was possibly diluted by the vast amounts of water used to extinguish this fire and the delay in recovering these samples." Andress concludes that "[g]iven the alert by [Locke] on the debris as well as during a can test it is reasonable to conclude that an ignitable liquid was present but could not be identified by the laboratory."

In U.S. v. Hebshie, the United States District Court for the District of Massachusetts, granting a petition for habeas corpus and overturning an arson conviction, highlighted the unreliability of accelerant-detection canines:

NPFA 921 circumscribes the use of canines; they are meant simply to be tools to help investigators narrow the search area for ignitable liquids. . .. What investigators refer to as "accelerants" actually represent a wide range of common and frequently benign materials. In addition, such chemicals can be created by the breaking down of materials during a fire, such as decomposing carpet and other adhesives. "Unlike explosive or drug-detecting dogs, these canines are trained to detect substances that are common to our everyday environment. Merely detecting such quantities is of limited evidential value." For these reasons, NFPA 921 requires not just laboratory corroboration, but also comparison samples."

The Hebshie court is not alone: "Most courts have held that uncorroborated canine alerts are novel scientific evidence, not generally accepted in the scientific community of arson investigators." Though Locke's handler did set up comparison samples, NFPA 921, the method Andress purports to apply, requires both comparison samples and laboratory corroboration. Rather than a reliable application of NFPA 921 methods, Andress' conclusion that "it is reasonable to conclude that an ignitable liquid was present" given the alert of Locke is contrary to those methods. Therefore, Andress' reliance on the alert of an accelerant-detecting canine does not pass the smell test.

Reignition:

After firefighters were able to "knock down" the fire on the stairs, it "re-ignited three times." Andress concludes, without explanation, that this "was likely the result of the reignition of vapors from an ignitable liquid on the stairs." Andress does suggest that "[i]gnitable liquids which would have permeated the wood steps are not water soluble and their vapors would continue to ignite when subjected to an ignition source." However, while this may explain how an ignitable liquid would have led to reignition if one was present, it does not establish that one was actually present. In his report, Andress does not consider any alternatives for reignition or explain why a liquid accelerant is the most likely cause. This logical leap, based on only Andress' ipse dixit, is insufficient to meet Rule 702's reliability standard.

Even if the Court were to overlook the deficiencies of Andress' report regarding the presence of an accelerant, it would still exclude his opinion on this issue because his testimony would not "help the trier of fact to understand the evidence or to determine a fact at issue." The parties do not dispute that an accelerant was detected in the stairwell—it is not a "fact at issue." As Andress notes, the Pennsylvania Police Lab was unable to identify the accelerant, and Andress does not offer any additional color, supported by NFPA 921 or any other standard, which would broaden the jury's understanding of the issue.

Ignition Source:

Andress opines that the fire was ignited "by the human hand" and that "[a]ll reasonable accidental ignition sources were eliminated during this investigation." Nowhere in Andress' report prior to the Determination section does Andress explain his basis for his opinion that the fire was intentionally set. To the extent that Andress' opinion that the fire was incendiary is based on Andrews' financial motivations or past insurance claims, "permitting expert testimony on this subject would be merely substituting the expert's judgment for the jury's and would not be helpful to the jury." To the extent that this opinion is based on his elimination of "all reasonable accidental ignition sources," it appears Andress has again applied a methodology rejected by the NFPA.

Andress' elimination of all reasonable accidental ignition sources also does not reflect a reliable application of NFPA 921, or any other standard. Andress notes that the "only known mechanical issue in the building was a problem with the natural gas boiler in the basement" and eliminates this as a cause because "[n]o fire damage was found in the basement and no evidence of a natural gas event was identified." Andress does not explain what evidence he might expect to find following a "natural gas event" or otherwise show how his elimination of this as a cause is in accordance with NFPA 921. Andress also rejects the opinion of Pennsylvania State Fire Marshal Vicki Spencer of a "potential electrical failure as there is no evidence to support an electrical malfunction." Other than noting Andrews was unaware of any electrical issues, Andress does not explain what evidence of a potential electrical malfunction is missing. Andress' failure to show his work here is particularly glaring, as he is not simply offering his own unsupported opinion, but also rejecting the opinion of another. Therefore, Andress' opinions regarding the ignition source must also be excluded.

The Court emphasizes that Andress' conclusions did not factor into its decision to exclude his report and testimony. On the contrary, Andress' conclusions, reached by a "Fire Origin and Cause" investigator with nearly 30 years of experience, appear eminently reasonable. This is precisely why they must be excluded. Further, even if the Court assumes Andress applied the NFPA 921 standard, Andress appears to have reached a number of his conclusions contrary to that standard. Not only does this require the exclusion of those opinions, but it also raises questions about the reliability of the rest of the report. The Court will grant Andrews' Motion to Exclude the Report and Testimony of Fire Expert Russel L. Andress.

The type and amounts of insurance coverage Andrews purchased from Brethren:

Andrews seeks to exclude any evidence that he "sought a certain amount of insurance on the property, or to increase the amount of insurance on the property." The parties agree that, prior to closing on his purchase of the building, Andrews, through insurance agent Eric Fryer, "purchased a replacement cost coverage policy from [Brethren] which insured the building for $2.2 million as well as $240,000 in business income loss coverage." The parties also agree that Brethren, after an inspection of the building, "dictated that the building coverage limit [be] increased to $2,864,434." However, Brethren denies that Andrews did not request the business income loss coverage be increased to $500,000.

Brethren does not oppose Andrews' Motion with "with respect to the issue of the procurement of the policy of insurance and the fashion in which the coverage limit for [the building] was determined." However, Brethren argues that the facts relating to Andrews "purchasing insurance in the first place" and "requesting that the limit for the business personal property [policy] be set at $500,000" "go to the issue of motive." The disagreement between the parties regarding whether Andrews requested business income loss coverage and whether he requested the coverage limit to be increased is a factual issue, which is the province of the jury, and inappropriate for disposition on a motion in limine. Further, the Court agrees with Brethren, that, if Andrews requested that coverage or the subsequent increase, that it is evidence that may prove motive, which is a component of Brethren's arson defense.

Therefore, the Court will grant Andrews' Motion to exclude evidence that Andrews "sought a certain amount of replacement value insurance or asked for an increase in replacement value insurance coverage." The Court notes that the relief sought by Andrews is narrow. The Court does not understand Andrews to be seeking to exclude evidence relating to the business income loss coverage and the circumstances regarding Andrews' initial purchase of either policy. Also, Andrews does not ask the Court to prohibit the introduction of evidence relating to the type or amount of coverage for purposes other than to suggest that Andrews affirmatively sought a certain coverage type or amount. The Court's Order granting Andrews' Motion therefore will only grant the narrow relief requested.

 

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

10/19/23       Acuity v. Progressive Specialty Ins. Co.
Supreme Court of Ohio
Loss Resulting from Accident Involving Vehicle Borrowed by Owner’s Friend Must be Covered by Friend’s Insurer Because Friend Does Not Qualify as Insured under Owner’s Insurance Policy

Ashton Smith borrowed a friend’s car and got into an accident. Smith was a permissive user of the vehicle. Smith was insured by Acuity, and the car’s owner was insured by Progressive Specialty Insurance Company (“Progressive”). Both policies had the same liability limits. Acuity brought an action against Progressive, asserting that its policy only provided coverage in excess over Progressive’s coverage and because the policies had the same limits, there was no excess coverage available. Progressive countered that because Smith was insured under his father’s Acuity policy, Smith was not an “insured person” under Progressive’s policy, so Progressive was not responsible for coverage. The Progressive policy’s definition of “insured person” excluded any person who drives a car covered by the policy but who is insured by another liability policy. In addition, the Progressive policy contained an “excess insurance” provision, which provided that insurance for a vehicle “other than a covered auto, will be excess over any other collectible insurance.” The Acuity policy’s excess-insurance clause provided that insurance for a vehicle the insured did not own would be excess over any other auto liability insurance.

The trial court found Acuity was responsible for providing coverage because Smith did not fall within the definition of “insured person” under the Progressive policy, so no other liability insurance was available. Acuity appealed, and the Eleventh District reversed, holding the definition of “insured person” was an unenforceable “escape clause,” so each insurer was liable in proportion to the amount of insurance provided by its own policy. 

On appeal, the Ohio Supreme Court considered two propositions: (1) Insurers are permitted to contractually define who is covered under a liability-insurance policy; and (2) when a permissive driver is not an insured under the “owner’s liability coverage because the permissive user is covered by his or her own liability coverage, then the owners’ liability coverage is not triggered for the permissive user.” Based on the plain meaning of the Progressive policy language, Smith was not an insured. The Court declined to adopt a broad rule that escape language is generally unenforceable in disputes over allocation of automobile liability coverage. The Court reasoned that its duty was to give effect to the terms to which the parties agreed—not to rewrite contracts to create judicially preferred outcomes. Since Smith was not insured under the Progressive policy, the excess-insurance clause in the Acuity policy did not apply. Thus, Acuity was responsible for providing liability coverage for the accident.

 

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

10/17/23       ACE Am. Ins. Co. v. Adirondack Ins. Exch.
New York State Supreme Court, County of New York
Where Two or More Policies Insure the Same Risk at the Same Level, They Apply Pro Rata to the Loss

ACE’s insured, Town of Riverhead, and Adirondack’s insured, Mr. and Mrs. Breitenbach, were sued in an underlying action alleging bodily injury. A settlement agreement was eventually reached in the underlying action, requiring Adirondack to pay $75,000 on behalf of the Breitenbachs, and ACE to pay $1,000,000 on behalf of Riverhead. ACE now brings this declaratory judgment action seeking contribution from Adirondack for contribution toward the payments it made, alleging that Adirondack was obligated to defend Riverhead and indemnify it on a primary basis, and that ACE was only liable to indemnify Riverhead once the Adirondack limits were exhausted.

As the Court noted, the first question to ask in an analysis like this one is whether the dueling insurers each contracted to cover the same risk on the same level. As provided by the Court, factors considered in this analysis include the purpose each policy was intended to serve, which is determined by the stated coverage and the premiums paid, and the wording of the respective provisions regarding excess coverage. If a Court decides that the dueling insurers contracted to cover the same risk on the same level, neither insurer can argue that the other must bear the entire risk, as both insurers are required to contribute to the settlement or judgment.

The “other insurance” clause in the SCE policy provided as follows:

If insurance with any other Insurer is available to cover a Claim for an Insured for any coverage under this Policy whether on a primary, excess, or contingent basis, the insurance under this Policy is excess of and does not contribute with such other insurance.

In interpreting this provision, the Court noted that an insurance policy purporting to be excess coverage, but which contemplates contribution with other excess policies, or does not negate that possibility, must contribute ratably with like policies, but must be exhausted ahead of other policies which expressly negate contribution with other carriers (citing State Farm Fire & Cas. Co. v. LiMauro) (Emphasis Added).

Finding that the Adirondack policy was a “like policy” to the ACE policy, the Court reasoned that the Adirondack policy was specifically denominated as an “umbrella policy,” noting that other cases hold this as an important consideration. Although the Adirondack policy’s “other insurance” clause did not include any specific language regarding contribution to other excess policies, the Court found that the intent to create a final tier of coverage was nonetheless apparent by its very terms, since it created an obligation to pay damages only in excess of the retained limit—either underlying insurance, or any other insurance that applies to an occurrence that is available to the insured. Lastly, in analyzing the Adirondack policy, the Court noted that the premium paid in exchange therefor—only $258 annually—relative to the amount of coverage--$1,000,000—was indicative that the Adirondack policy was intended to provide a bottom tier of coverage.

Given these findings, the Court answered its first inquiry—whether the two policies insured the same risk on the same level—in the affirmative. The Court then applied the widely-accepted rule of law applicable to this scenario—that, where two or more policies insure the same risk at the same level, the two policies apply pro rata to the settlement or judgment involved.

 

 

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

10/18/23       Matters of Travelers Home & Mar. Ins. Co. v Miller
Appellate Division, Second Department
Shifting Burden Gets Zurich’s Wheels Turning, Renter’s Nonpayment of Supplemental Liability Protection Stalls Petition to Stay SUM Arbitration

This matter stems from Miller’s claim for supplemental underinsured motorist benefits. Miller, insured by Travelers, was involved in a motor vehicle accident on December 2014 with a Bernard Shirley who operated an ELRAC rental vehicle and that was registered to EAN Holdings LLC (both rental car companies). Travelers filed a petition to permanently stay the arbitration because Miller was yet to exhaust the applicable coverage available to him. The exhaustion of available coverage was a condition precedent to recovery under Travelers’ SUM endorsement.

According to Travelers, Shirley was insured by a supplemental liability protection (“SLR”) made available by the rental companies through Zurich Insurance, and thus, Miller needed to pursue a claim through Zurich prior to receiving the SUM coverage available under Travelers’ policy. Miller joined in partial support seeking a determination that Shirley was covered by Zurich on the date of loss and Zurich opposed seeking the denial and dismissal of the petition on the grounds that Shirley was not covered by its policy.

A framed issue hearing was held in July and September 2018, which determined that Shirley was not covered by the Zurich policy. A judgment dated June 16, 2021, denied and dismissed the petition. Miller appealed.

The Second Department affirmed the finding of the trial court in the framed issuing hearing. An insurer seeking to stay the arbitration of an uninsured motorist claim has the burden to establish the offending vehicle was insured at the time of the accident, and when the burden shifts, the opposing party must come forth with evidence to the contrary. The Appellate Division found that while Shirley had paid for SLR coverage from December 5, 2014, through December 8, 2014, but he did not pay for coverage on December 10, 2014, the date of the accident with Miller. Thus, Zurich meets the shifting burden.

Writer’s Note: ELRAC and EAN Holdings are more commonly known as “Enterprise Rent a Car”

 

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

05/17/23       New York Assembly Bill A02866
Deductible/Triggers for Hurricanes and Windstorms

There has been legislation in New York’s Legislature (A02866) which if passed, would amend Insurance Law 3445 as follows:

Provides that the superintendent of financial services shall establish standards for hurricane windstorm deductibles, creating uniformity in the operation of such deductibles with respect to the triggering event.

The above bill, if passed, would hopefully educate insurance consumers on the terms of the catastrophic windstorm deductible in their homeowners and dwelling fire policies. If such standards were set, consumers would be aware of the increased exposure they are assuming for wind-related property damage. Currently, insurers are utilizing a wide variety of windstorm deductible programs in their homeowners and dwelling fire policies.  Windstorm deductibles, which can range from 1% to 7.5%, are usually expressed as a percentage of the homeowners' Coverage A limit (the value of dwelling structure). A 6% deductible on a $500,000 home would result in the policyholder having to pay the first $30,000 for damages sustained to the home during a windstorm. Most policyholders are used to relatively low deductibles expressed as a dollar amount (i.e., $250, $500, $1,000).

Another area of confusion for consumers is understanding what event activates or "triggers" the applicability of their windstorm deductible. Currently, insurers' deductible programs contain a variety of “triggering” events. Since the triggering event will determine whether a windstorm deductible applies to a policyholder's loss, it would be fair and reasonable to both the policyholder and the insurer to understand when this deductible applies. Uniform standards for and notice explaining the operation of catastrophic wind-storm deductibles would promote easier comparison between different insurers' options and provide a clear understanding of the extent of policyholder exposure under these options. The bill has passed New York’s Assembly.

 

ROB REACHES the THRESHOLD
Robert J. Caggiano
[email protected]

Nothing this time around; see you in two!

 

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

05/12/23       Wynward Ins. Grp. v. Smith Bld’g & Dev’ Ltd.
Saskatchewan Court of Appeal
Insurers Must Establish a Supportable Evidentiary Record of Materiality to Discharge their Onus of Proving a Material Change of Risk

Estevan, Saskatchewan is a city of about 12,000 people on Canadian prairies 15 km north of the border of Saskatchewan and North Dakota and about 300 km southeast of Saskatchewan’s capital, Regina.  Originally it was a coal mining town that grew to be a city when coal gave way to oil and gas recovery and hydro power generation diversifying the economy somewhat.

In the spring of 2016, on the main thoroughfare, at the corner of Souris Avenue and Albert Street was the low-slung commercial building pictured below that was sub-leased by Smith Building and Development Ltd. (really Ryan and Tina Smith) to Chris Murphy.

The National Post reports that in one of the storefront windows was the patch for the Heretics Motorcycle Club which used the building as a clubhouse and in the other was a sign for a tattoo parlour, 1818 Ink, that was run by the motorcycle club.  In the back was a shop where motorcycles were stored and repaired.

On the morning of April 13, 2016, to the shock of this sleepy prairie community, that building exploded, and the resulting fire raised it to the ground. The chief of the Estevan Fire Rescue Service, who investigated the origin of the fire, discovered the front window in the portion of the building that had been occupied by the Heretics had been smashed inward and a plastic jerrycan containing an accelerant was found under the collapsed roof. Based on his investigation, the fire chief believed the fire had been caused by arson, but the identity of the perpetrator was unknown. Nothing in the investigation suggested that either the building owners or the tenants set the fire.

The building was insured against fire. The Wynward Insurance Group insured it. The building owners reported the fire, and a senior claims examiner was handed the file.  The application for insurance listed the tenant as an oilfield company. That company sub-leased the premises (with the owners’ permission) to Chris Murphy who was with the Heretics Motorcycle Club.  The claims examiner did not know about the sub-lease. As part of his investigation, the claims examiner performed an internet search which led him to a weblog and two newspaper articles. As a result of this search, he concluded that the Heretics were affiliated with the Hells Angels Motorcycle Club, which the examiner described as a notorious motorcycle club with suspected links to criminality.  This examiner concluded that Wynward should decline to cover the insured building owner’s loss as “(a) the tenancy of “a motorcycle club related to the outlaw biker club ‘Hells Angels’” was a material change in risk (30 May 2016 letter of denial of coverage of loss), and (b) the insured had failed to provide Wynward with the details of the subleases it had entered into with … the Heretics.”

And so, the fight was on.  The insured building owner sued Wynward for the value of the insured property, business interruption losses and assorted costs and expenses. The principal issue at trial was whether there was a material change in risk and, if not, whether the insured was entitled to replacement cost coverage. The trial judge dismissed Wynward’s case. Wynward appealed.

Wynward’s principal witness in its case asserting material change was a member of the RCMP Drug Enforcement Unit who was very familiar with Saskatchewan motorcycle gangs and the Hells Angels and who had formed certain opinions based upon his police experience. Wynward sought to call this officer as a witness to express an opinion about the criminal nature of motorcycle clubs generally, their unspecified involvement in criminal conduct, and the elevated risk those sorts of groups pose as being possible victims or targets of crime such as arson, vandalism, gun violence, etc. This officer could not testify about the nature and structure of the Hells Angels, or any other motorcycle gang, the types of criminal activity they are typically involved in, or the risks that such groups pose, without satisfying the notice requirements where a party proposes to call an expert opinion witness,

If allowed to testify, this officer would provide opinion evidence that went beyond the factual observations he made from monitoring the Heretics and its clubhouse.  However, the notice required to call an expert opinion witness was not given. In view of the procedural unfairness that would ensue if he was allowed to testify without allowing the insured time to call an opposing witness or prepare a cross-examination, the trial judge only allowed this officer to testify regarding his knowledge of the fire in issue but refused to let him testify as to the links between the Heretics, the Hells Angels and “criminality”.

The Court of Appeal agreed with the trial judge that this officer could not provide opinion evidence linking the Heretics to “criminality” and went on to consider whether an error of law occurred in the trial judge’s assessment of the central issue:  Did Wynward prove that there was a material change to the risk when an ‘outlaw motorcycle gang’ became a subtenant in the insured premises?” It was not the mere presence of a motorcycle club that was said to amount to a material change, “but…[whether]…  this particular club with its unsavoury connection is a material change in the risk.”

Citing time worn precedent, the Court of Appeal held that what constitutes a fact material to the risk is one that “if the facts had been truly represented, they would have caused a reasonable insurer to decline the risk or required a higher premium.”

Wynward had insured the building for four years prior to the fire. When Wynward took on the risk, a motorcycle club known as the Reapers were a sub-tenant. Wynward’s underwriting notes indicate that they knew that a motorcycle club was on the premises. The trial judge rightly found that the mere presence of a motorcycle club was not material to the risk. The Reapers were patched over by the Heretics.  Wyward was not informed of that.

Post fire, the claims examiner (who did not access or read the underwriting notes) learned that a motorcycle club on the premises and as stated above concluded based upon his internet query that “(a) the Heretics was a subsidiary of the Hells Angels, (b) “they would have been involved in criminal activities”, and (c) the “Heretics had been involved in selling drugs and that they had been very much involved in large fights”.  The claims examiner did not keep copies of what he had read.  Further there was no evidence that the Heretics were affiliated with or a subsidiary organization of the Hells Angels.  The RCMP officer testified that 5 or 6 known members of the Hells Angels had attended the Heretics’ social events.  That was the sum total of the wholly insufficient evidence proffered to support the affiliation between the two clubs. There was no other evidence to support items (b) and (c).

Due to this evidentiary deficit, the Court of Appeal held that the trial judge was correct to conclude that the insurer had not discharged the onus upon it to establish that the presence of the Heretics on the insured premises and its alleged connection with the Hells Angels created an elevated level of risk that was material to the insurance contract. That evidentiary deficit also ‘cratered’ any argument that had a reasonable underwriter been informed of the situation, that underwriter would have declined the risk or stipulated for a higher premium. Finally, the Court of Appeal held that “a court cannot take judicial notice of the fact that the Hells Angel is a criminal organization, tempting as that might be”). If this is so, it certainly must also be the case that a court cannot take judicial notice of a sublease to a motorcycle club, which may or may not be affiliated with the Hells Angels, is material to the risk in an insurance policy.”

Having lost the material change fight, Wynward turned its attention to whether it must pay the replacement cost of the building as the insured had not, allegedly, rebuilt in a reasonable time.  The Court of Appeal agreed with the trial court that the prompt and emphatic denial eliminated the insured’s requirement to rebuild in a reasonable period of time. On appeal, Wynward argued that as the replacement cost was about $600,000 and the insurance limits were about $400,000 there was no realistic chance that the insured would replace the building and therefore there was no obligation to pay anything other than actual cash value. However, once again, Wynward did not lead evidence that the insured lacked the resources to rebuild and therefore that argument was rejected.

This judgment demonstrates that a denial premised upon material change of the risk must be supported by a strong evidentiary record. Hearsay is not sufficient. Upon learning of the possible connection between the Heretics and the Hells Angels, Wynward ought to have conducted a thorough investigation of the connection and determined if there was a provable case that the Heretics were engaged in illegal drug sales or weapons office at the Estevan property or were likely to do so. The challenge to the requirement to pay replacement cost also fell for the same reason – no provable evidentiary record.

As interesting a fact pattern as this was, this case does not assist in answering the thorny question in Canadian law as to whether an insured must objectively or subjectively know the materiality of the alleged material change.

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