Volume XXV, No. 13 (No. 660)
Friday, December 8, 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.
Happy Chanukah. As we send out this newsletter on Thursday evening, the candles for the first night are flickering brightly (my maternal grandparents on their wedding day, looking on). Let’s hope and pray for peace in the new year.
That Jews are concerned about displaying their Chanukah lights because of fear of anti-Semitic retribution is sad, beyond belief.
Kudos Galore:
Firm President Jody Briandi Receives Diversity Award from Buffalo Business First
Each year, the honorees of the annual IDEA (Inclusion Diversity Equity Awareness) Awards stand out as champions of diversity and inclusion in their workplaces and in the community.
This year, 25 individuals will be celebrated for that vital work in Western New York. They were chosen from about 65 nominations and will be honored at a dinner in February.
While diversity represents demographic differences such as race, religion, gender, sexual orientation and disability, inclusion means a feeling of belonging and how well employees are valued, respected, accepted and encouraged to participate in an organization.
Firm President and Managing Partner Jody Briandi was among the winners and only of two private practice attorneys to be so honored.
The fifth annual awards are presented by Buffalo Business First, along with platinum sponsors, M&T Bank and Phillips Lytle LLP.
Associate pending admission Tabitha Salonen was honored by her acceptance into the WNY Women’s Foundation’s “Ready, Set, Lead!” program as an aspiring leader. When asked to comment, she told us, “I consider myself to be extremely fortunate to have the opportunity to be surrounded by such uplifting and inspiring leaders in my community. I'm looking forward to challenging myself and learning from an incredible group of women.”
Summer Associate Sara Zaprowski gets a huge round of applause. She took home the honors of Best Advocate and Best Cross-Examination following her trial technique final examination and competition over the weekend. Great work, Sara!!
DRI Insurance Coverage & Practice Symposium:
Steve, Lee, Brian Barnas and I attended the DRI Insurance Claims conference in NYC last week. It was great meeting so many of our friends and colleagues there (and so many CP subscribers). Thanks for taking the time to say “hello”. A few random thoughts from the ICP Symposium:
- Present and Accounted for!
I had to laugh aloud when one of my partners, attending the meeting, relayed an encounter he had with someone at his dinner table. A lawyer from another jurisdiction asked if “Dan is still working, or does he spend all of his time lecturing, writing, etc.” Perception being important, perhaps there are some who wonder! To set the record straight (and my partners and associates will undoubtedly agree), I am still working as a coverage lawyer, full-time (sometimes, that equates to 24/7), still writing coverage opinions, still providing coverage counsel, still litigating declaratory judgment actions, still serving as an expert witness, still mediating cases, still taking calls during the day, in the evening, and on weekends, still doing all I have been doing for the past 43 years, 9 months and 26 days (that’s 16,005 days, but who’s counting), since I was sworn in as a lawyer and still doing it at the same place I’ve been since I started here as a law clerk some 46 years, four months and 24 days ago.
- Artificial Intellience Program
One of the most interesting programs was on Artificial Intelligence, presented by Meghan E. Ruesch, Lewis Wagner, LLC, Indianapolis, IN and Melissa Fernandez, Travelers, Hartford, CT. During the presentation, I asked CHAT GPT to create an ad for our firm. Here it is, and I continue to be in awe with the AI concept.
**Hurwitz Fine P.C.: Your Trusted Legal Partner**
? **Visit us at www.hurwitzfine.com**
Are you seeking legal excellence and unwavering commitment? Look no further than Hurwitz Fine P.C. Established in 1977, we've been at the forefront of providing top-tier legal services, with a focus on insurance law and beyond.
✨ **Why Choose Hurwitz Fine?**
? *Insurance Expertise:* Navigate the complexities of insurance law with confidence. Our attorneys specialize in comprehensive coverage analysis, offering strategic insights for your peace of mind.
⚖️ *Litigation Prowess:* When legal disputes arise, trust in our vigorous defense strategies. We've earned a stellar reputation for our adept handling of diverse cases, from personal injury claims to professional liability matters.
? *Regulatory Guidance:* Stay compliant in a dynamic legal landscape. Our experts provide tailored advice to ensure your operations align with state and federal regulations, fostering a culture of transparency and legality.
? *Knowledge Sharing:* We don't just practice law; we contribute to its evolution. Engage with us through seminars, publications, and educational initiatives, where we share insights to elevate the industry's collective expertise.
**Our Commitment: Your Success**
At Hurwitz Fine P.C., we go beyond legal representation; we partner with you in navigating challenges and achieving your goals. With a rich history and a forward-thinking approach, we're shaping the trajectory of legal practice.
Visit us online at www.hurwitzfine.com to explore our services and learn more about how we can serve your legal needs.**
Published:
Being released this month, and I am proud to be a chapter co-author along with my good friend, the Dean Emeritus of the University at Buffalo Law School, Aviva Abramovsky.
This thoroughly revised second edition of the Research Handbook on International Insurance Law and Regulation provides an updated assessment of the insurance industry in an international context, featuring 30 chapters, of which half are new for this edition, written by expert academics and practicing lawyers.
Produced in association with Lloyd’s of London, chapters provide in-depth studies on key areas including judicial interpretation of insurance contract clauses and transnational regulatory recognition, as well as overviews on important international jurisdictions such as the EU, Japan and the US. This comprehensive second edition critically analyzes how insurance law and regulation have responded to the growth in sophisticated technology, the burgeoning climate crisis, and the development of new insurance structures.
This Research Handbook will appeal to legal students and academics, particularly those with an interest in commercial law, finance and banking law, and insurance law. This book will also be beneficial for policymakers and private practice lawyers working in the commercial legal sector.
https://lnkd.in/gARGMFji
Chapter 16.
Enforcement: a survey of the approaches taken to insurance regulatory enforcement in the United States of America and in the United Kingdom
Aviva Abramovsky, Dan D. Kohane, Farhaz Khan KC and Paul Bonner Hughes
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 Coverage Mediator?
It’s a good way to try to resolve disputes between and among carriers or policyholders and insurers.
So many cases are stymied because of ongoing coverage disputes. As a coverage mediator, perhaps I can help mediate your disagreement to see if there is some mutual agreement, we can reach that will not box you into a corner and create adverse precedent.
My partners, Mike Perley and Ann Evanko, are also available to help resolve other challenges.
Try mediation. [email protected]
Newsletters:
We have other firm newsletters to which you can subscribe by simply letting the editor (or me) know, including a new publication, which was created to advise on business and employment law questions:
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Premises Pointers: This monthly electronic newsletter covers current cases, trends and developments involving premises liability and general litigation. Our attorneys must stay abreast of new cases and trends across New York in both State and Federal Court and will now share their insight and analysis with you. This publication covers a wide range of topics including retail, restaurant and hospitality liability, slip and fall accidents, snow and ice claims, storm in progress, inadequate/negligent security, inadequate maintenance and negligent repair, service contracts, elevator and escalator accidents, swimming pool and recreational accidents, negligent supervision, assumption of risk, tavern owner and dram shop liability, homeowner liability and toxic exposures (just to name a few!). Please drop a note to Jody Briandi at [email protected] to be added to the mailing list.
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Labor Law Pointers: Hurwitz Fine P.C.’s Labor Law Pointers offers a monthly review and analysis of every New York State Labor Law case decided during the month by the Court of Appeals and all four Departments. This e-mail direct newsletter is published the first Wednesday of each month on four distinct areas – New York Labor Law Sections 240(1), 241(6), 200 and indemnity/risk transfer. Contact Dave Adams at [email protected] to subscribe.
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Products Liability Pointers: Whether the claim is based on a defective design, flawed manufacturing process, or inadequate instructions/warnings, product liability litigation is constantly evolving. Products Liability Pointers examines recent New York State and Federal cases as well as high court decisions from other jurisdictions, keeping our readers up to date with the latest developments and trends, and providing useful practice tips and litigation strategies. This monthly newsletter covers all areas of product liability litigation, including negligence, strict products liability, breach of warranty claims, medical device litigation, toxic and mass torts, regulatory framework and governmental agencies. Contact Brian F. Mark at [email protected] to subscribe.
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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 Elizabeth Midgley at [email protected] to subscribe.
Peiper on Property (and Potpourri):
It is nice to be back in the office after a full two weeks of travelling hither and yon. Our expedition ended with a trip to the DRI Coverage Symposium in New York City. It was an excellent two days of programing and catching up with old friends from around the country (and making a few new ones along the way). We echo Dan’s thoughts from above about our friend and colleague, Meghan Ruesch’s AI presentation. Good job with an interesting, ever-evolving topic.
That’s it for today. See you in two weeks.
PS As hard as it is to believe, as you read this you have exactly 17 days until Christmas. Get to it if you haven’t already!
Steve
Steven E. Peiper
Just Imagine, an Airline Flight Where You Might Sleep – 100 Years Ago:
Sun Herald
Biloxi, Mississippi
08 Dec 1923
AERIAL SLEEPERS ARE PREDICTED
New York, Dec. 7.—Aerial sleepers, in which passengers will slumber peacefully as they ravel from one city to another between dusk and dawn, will provide the deluxe transportation of the not far distant future, the American Society of Mechanical Engineers contention was told by Archibald and Donald Black, mechanical engineers of Garden City, N. Y.
Berths for airplanes have not been designed because there has been no demand for them as yet, they said. But the rapid development of commercial flying ultimately will necessitate their construction, they added.
Possibly within the next ten years, they said, at least fifty airplanes will fly to and from New York and Chicago. While immediate competition will be limited to the carriage of mail and packages, the engineers declared the airplanes ultimately would compete with railroad trains in passenger service.
In immediate prospect, the Blacks reported, was a night message carrying system in connection with telegraphic night letters. An airplane carrying only 450 pounds of mail, less than one-fourth its capacity, could carry a night letter between New York and Chicago at a cost of .01188 cents.
Wilewicz’ Wide-World of Coverage:
Gone ice fishing. Back in two weeks.
Agnes
Agnes A. Wilewicz
The End of Communism in Russia? – 100 Years Ago:
The Buffalo News
Buffalo, New York
08 Dec 1923
COMMUNISM DEAD IN
RUSSIA, SAYS HASKELL
NEW YORK, Dec. 8. —Asserting that Communism in Russia was dead, Colonel William N. Haskell, head of the American Relief administration, told members of the American Chamber of Commerce of the Near East at a dinner that the country was rapidly returning to old systems of trade.
“There is more order in Russia today than there is in New York,” he declared. “They don’t shoot bank messengers in the back or throw ash cans through store windows to steal furs.”
Barnas on Bad Faith:
Hello again:
The Sabres are hurtling towards last place in the conference, the Bills probably need to win out to make the playoffs, Syracuse basketball already has three losses, everyone on Tottenham is hurt, and the Yankees just traded for Juan Soto. I am not enjoying the world of sports lately. It is going to be a long winter for me. Maybe this is the year I finally try to take up skiing again. My previous attempts have not gone well, but I fear that I am in desperate need of a new hobby. Any other suggestions appreciated.
Despite these misfortunes, I had a great time at DRI last week in New York City. It was nice to see some old faces and finally put some faces to familiar names.
I have a case from the Eastern District of Pennsylvania this week where the court granted AXIS’ motion for summary judgment seeking dismissal of a bad faith claim. The court found an issue of fact as to whether the prior knowledge exclusion applied, but there was sufficient evidence for dismissal of the bad faith claim.
Brian
Brian D. Barnas
Postal Piracy – 100 Years Ago:
St. Louis Post-Dispatch
St. Louis, Missouri
08 Dec 1923
Many Letters Get Mail Clerk a New Address
William T. McGee, 56, Who Wrote Often,
Object Matrimony, Is in Jail on Charge of Theft of Stamps.
All women who have been writing letters to William T. McGee, object matrimony, are hereby notified that his address until further notice will be the St. Louis jail. He is there because, it is alleged, he has been stealing stamps to carry on his very extensive correspondence.
McGee is a railway mall clerk. He is 56 years old and has been a clerk for 23 years. His run was on the Louisville & Nashville Railroad between St. Louis and Nashville, Tenn. His layover was longest in Nashville, and he called that home, but he had a room also at 1825 Market Street here, so that he could get letters at both ends of the line.
He has one wife, but she doesn't appreciate him and is suing for divorce. So, as a forward-looking man, he has been making a general canvass, advertising in all the known matrimonial agencies and answering all advertisements of lonely women.
There are an awful lot of lonely women and a man who undertakes to correspond with all comers needs a lot of stamps, especially if, as McGee did, you enclosed a stamped envelope for reply. On some of the letters that passed through McGee's hands in the mail car were stamps that had not been cancelled. He pulled them off and put them on his love letters and on the return envelopes.
After a while it was noticed that a good many letters were arriving at St. Louis and Nashville without stamps. Investigation showed that they were handled on McGee's run. He was watched and it was discovered that his correspondence was heavy.
Finally, when post office inspectors thought they had the goods on him, they arrested him. In his hands they found bundles of matrimonial papers and many love letters from women to whom he had written.
The penalty may be a fine up to $500 or imprisonment for up to five years or both.
Lee’s Connecticut Chronicles:
Dear Nutmeg Newsies:
Only time for a quick “hello” this edition, as I get ready to head up to Buffalo for our firm’s annual holiday party. This is the first time that the new Mrs. Siegel will be joining – last year she had the convenient excuse of a conflicting work engagement in Miami Beach. Not so lucky this year!
We’ll be missing the start of Hanukah, but with the kids off in different parts of the world, we’ll have to regroup at the end of December to celebrate.
Wishing you all a very special and peaceful Festival of Lights.
Lee
Lee S. Siegel
Buy Insurance, or Else – 100 Years Ago:
Vancouver Daily World
Vancouver, British Columbia, Canada
08 Dec 1923
It Can Happen
“I fell on your premises, due to your negligence, in keeping them legally safe. I will collect damages from you and the amount will be limited only to the extent of my injuries. I hope you carry Public Liability Insurance—if you don’t, then you will pay me many more times as much as such a premium would cost, and your bank account will suffer accordingly.”
Bell & Mitchell
LIMITED
Insurance Brokers
Main Floor, Rogers Bldg.
Kyle's Noteworthy No-Fault:
Dear Readers,
Another disappointing loss for the Bills last week. While they showed signs of life in a hard-fought game against a tough Eagles team, we now have quite an uphill battle to make it into the playoffs – my fantasy team fits itself in a rather similar position the last couple weeks, on the outside looking in.
This week’s no-fault claim involves a dispute over the denial of no-fault benefits by the insurer, on the basis of policy exhaustion and lack of medical necessity, and the medical provider’s argument that the insurer failed to establish the timely and proper mailing of the coverage denials.
Kyle
Kyle A. Ruffner
[email protected]
Probably More Taxi Insurance Then Than Now – 100 Years Ago:
Star-Gazette
Elmira, New York
08 Dec 1923
WOODRUFF’S
SAFETY FIRST
TAXI
PHONE 178
Day and Night Service
The only taxi that safeguards patrons with Liability Insurance. Careful, sober drivers only. Phone 178.
Ryan’s Federal Reporter:
Hello Loyal Coverage Pointers Subscribers:
This past Saturday, I put my play-by-play broadcasting hat back on for Niagara University Women’s Basketball on ESPN+, where the Purple Eagles played host to their first ever Big South Conference Opponent, the Radford University Highlanders. Niagara University lead the country in forced turnovers per game and several other defensive categories last year and have made four quarters of full-court pressure a staple at their games. After bursting to a 10-point first half lead, the Highlanders found some answers in the 3rd Quarter, forcing a back-and-forth 4th Quarter that any college basketball fan would appreciate. I’ll leave the final score off for those of you that might be interested in putting that ESPN+ subscription to use here.
In this edition of Ryan’s Federal Reporter, I have outlined a Second Circuit opinion discussing the limits of New York’s lien law and the penalties for ignoring the requirements for holding a lien.
Until Next Time,
Ryan
Ryan P. Maxwell
Mandatory Auto Insurance? – 100 Years Ago:
The South Bend Tribune
South Bend, Indiana
08 Dec 1923
COMPULSORY INSURANCE.
Lawyers, members of the legislature and men whose interests are in the automobile industry should note with care the work which will be done in 1924 by the commission appointed by Gov. Gifford Pinchot, of Pennsylvania, to investigate compulsory liability insurance. The last legislature authorized such a commission. The seven members will study the question, draft a report and perhaps specimen legislation and make their return to the assembly in 1925.
Compulsory liability insurance for drivers of motor cars will be a Pressing question in Indiana when the legislature meets. It will be before the public in a number of other states in 1925. The fact that in the United States are between 13,000,00 and 14,000,000 automobiles has so altered the situation with regard to compensating persons injured there is little doubt that the majority of states will soon compel drivers to carry liability insurance, just as they compel them to take out driving licenses.
This does not mean that the states will go into the insurance business, though they should supervise such business in private hands and prevent fraud and unjust increase of rates. It means, rather, that the states will recognize that the day has passed when ownership of an automobile signified the possession of money or property sufficient to satisfy a court judgment. The states will acknowledge in the end that probably a majority of drivers have not the means to satisfy judgments.
Storm’s SIU:
Happy December Everyone—
One interesting case for you this edition. In this federal case the court granted the insurer’s motion to amend its answer to include a defense of breach of the “Concealment or Fraud” condition when discovery revealed the damage to the Plaintiff’s elevators and roof pre-existed the alleged loss due to hurricane Sally. The parties were well beyond the deadline to amend the pleadings, discovery had concluded, and the Plaintiff opposed the motion on futility and prejudice grounds. However, the Court found that good cause existed to modify its scheduling order, that Defendants had adequately pleaded their proposed affirmative defense, and that any prejudice arising from the prospect of additional discovery was insufficient to warrant denial of leave to amend. It’s a good read.
Now back to Christmas shopping. Have an awesome two weeks!
Scott
Scott D. Storm
Predictions for the Future – 100 Years Ago:
The Bangor Daily News
Bangor, Maine
08 Dec 1923
Samuel Insull Says: —
“Tremendous changes are coming in America with the development of Power.”
“Fifty years from now Power will be so cheap and accessible that man will be independent of his surroundings.
“The day of the private power plant is over.”
“A vast system of central generating plants will place Power at the disposal of the small village and the isolated farmstead as well as the great city.”
“Power will make the comforts and luxuries which are today inseparable from the large city available to every home in the country.:”
“Electricity will perform all the mechanical processes of industry and most of the domestic services.”
“Electricity spells the knell of drudgery.”
Fleming’s Finest:
Hi Coverage Pointers Subscribers:
The Holiday Season is upon us. Best of luck with celebrations and gift selection.
This week’s case comes from the Illinois Supreme Court and considers whether a provision in an automobile insurance policy that limits UM coverage to insureds occupying an insured automobile violates section 143a of the Illinois Insurance Code (215 ILCS 5/143a (West 2020)) and is unenforceable as a matter of public policy. A child was injured in an alleged hit-and-run while riding a bicycle, and the insurer argued there was no UM coverage available since the child was not occupying a vehicle at the time of the accident. Since the purpose of UM coverage is to place the insured in the same position as if the at-fault party carried the requisite liability insurance, the court determined the insurer could not condition UM coverage on occupancy of a vehicle.
Catch you later,
Kate
Katherine A. Fleming
Radio Coverage in My High School Alma Mater – 100 Years Ago:
The Brooklyn Daily Eagle
Brooklyn, New York
08 Dec 1923
RADIO IN THE SCHOOLS
A remarkable demonstration of the use of radio in schools occurred at the Brooklyn Technical High School on Thursday noon.
To more than 500 of the school’s upper-class students in history, civics and economics the radio brought home, made vital, alive and intimate, President Coolidge’s message. His voice, by means of a specially constructed super-heterodyne circuit and loud-speaking amplifier, was distinctly and clearly heard in every corner of the auditorium. The boys sat silent and absorbed throughout the delivery of the long communication to Congress.
For these youths, who must, as part of their course, study the message, radio reproduced not only the bar words; it created something like the very atmosphere of the occasion—the inflection of the President’s voice, the silences, murmurs of restlessness and applause of the gallery which greeted various portions of the address. What a contract with the old method of classroom study by analysis of the newspaper reprinting of the message! Such use of radio clearly establishes its value, along with that of motion pictures and other modern methods of disseminating knowledge.
Gestwick’s Greatest:
Dear Readers:
The Holidays are upon us. My apartment is fully decorated, but my gift purchasing is nowhere near complete. I’ll be spending some time on Amazon this evening.
This week, I have a case that awarded the insureds attorney’s fees incurred in defending themselves against a declaratory judgment action, where only a declaration as to indemnity (not defense) was sought by the carrier. The general rule is that an insured is entitled to cover said defense costs where it prevails in a declaratory judgment action. Most often, declaratory judgment actions seek declarations regarding both defense and indemnity obligations. This one, though, sought only the latter. Also, this case was dismissed, without prejudice, as premature, and only because not enough facts had been brought out in the underlying action to which it relates. Is that “prevailing,” as required to be entitled to defense costs? Food for thought.
Stay safe, stay happy, stay warm. See you in two.
Evan
Evan D. Gestwick
The Right to Arm Bears (or is it Bear Arms? – 100 Years Ago:
The Buffalo Commercial
Buffalo, New York
08 Dec 1923
THE RIGHT TO CARRY FIREARMS
County Judge Noonan’s order revoking all permits to carry concealed firearms and subsequent developments have caused much loose talk for which there is no basis in either federal or state constitutions or in the statutes. The question as to whether a citizen enjoys the legal or constitutional right to carry firearms has led to all manner of conclusions and there is a disposition in some quarters to believe that citizens who possess pistols are protected by the Constitution.
Nothing could be more erroneous than this belief. The authority for this statement is the attitude of the United States Supreme Court, which not once but several times has passed upon the question squarely and has held that the right to bear arms is not granted by the Constitution. Generally speaking, the proponents of the claim base their arguments on the Second Amendment to the Constitution, which says: “A well-regulated militia, being necessary to the security of a free state, the right of the people to keep and bear arms shall not be infringed.” This portion of the so-called bill of rights has been construed by the highest court of the land several times and has been held as not granting individuals the right to carry firearms.
The statutes which authorize the issue of permits to carry concealed weapons merely confer a privilege upon the holder of such permits, and since it is only a privilege it can be taken away at any time and without much formality. It seems then that Judge Noonan’s revocation order was sufficient to cancel all the permits. If the order was not personal notice, it was sufficient to put a person upon notice. The only excuse for non-compliance with the order is ignorance of it.
On the Road with O’Shea:
Hi Everybody,
Hope everyone is sitting tight for another brutal winter of Buffalo sports. It is not looking good on either the Bills or Sabres fronts. With all due respect while I am a Bills fan, I am apathetic at this point in the season. As for the Sabres, well no comment is the best comment.
This week I have a case from the Second Department dealing with the issue of ownership of a motor vehicle in an auto accident. The alleged owner tried to avoid the bodily injury allegations, as well as crossclaims for indemnity and contribution from his co-defendants. Alas, he did not do so and raised more issues of fact.
See you in two weeks,
Ryan
Ryan P. O’Shea
[email protected]
Judge Decries Jury Verdict – 100 Years Ago:
The Buffalo Commercial
Buffalo, New York
08 Dec 1923
Judge Berates Jurors
Who Freed Prisoner
Noonan Says He Doesn’t Know What
Further Evidence of Guilt They Could Ask
A jury in county court this morning returned a verdict of not guilty in the case of Anthony Richignito, alias Tony Rich, 827 Niagara Street, on trial charged with the illegal possession of a revolver. Rich was alleged to be the last member of the Vogel burglar gang rounded up by the police last spring. Judge Noonan criticized the jurors following their report.
II don’t know what confidence you have in these police officers, and I don’t know what further evidence you could want for than the testimony of these four officers.”
The court officers in question were Detective-Sergeants Michael Murphy, John Murphy, Frank O’Neil and William E. (Stormy) Jordan, since dismissed from the police department.
Rich was remanded to mail to answer charges of conspiracy in connection with the theft of $15,000 worth of jewelry in Buffalo and vicinity recently.
Louttit’s Legislative and Regulatory Roundup:
In an all-day mediation. Check back in two weeks.
Rob
Robert P. Louttit
Men Killed, Ice Delayed – 100 Years Ago:
The Buffalo News
Buffalo, New York
08 Dec 1923
Kills Steward, Waiter When
Cracked Ice Order Delayed
Chicago Café Patron Probably Fatally Wounded When
He Gives Police Battle—Diners Flee in Terror.
CHICAGO, Dec. 8—Two men were shot and instantly killed, and a detective sergeant wounded slightly early today by a man identified by the police as John Sheehy, alias George Thomas, alias John Shea, when he became impatient because the crush of business incident to the opening of a new $100,000 Japanese room at the Rendezvous Inn, caused an order of cracked ice to be delayed.
Sheehy was shot twice and probably fatally wounded by the companion of the detective he shot.
Henry Bing, a waiter, and Leopold Guth, steward of the café, were the men killed.
Hundreds of diners and dancers were thrown into a panic by the shooting. Police reserves were summoned to restore order when excited patrons stormed the doors and windows in attempts to leave.
According to witnesses questioned by the police, Sheehy, accompanied by two women, was intoxicated and became angered when Bing refused to bring him the ice he demanded. When he went to the service bar to get it himself, Guth attempted to remonstrate and Sheehy displayed a revolver, firing at Guth when the latter grasped a bottle.
As policemen entered the café, Sheehy shot Bing and exchanged shots with them. He continued shooting until he was seriously wounded, and his pistol was emptied.
At a hospital, surgeons said he would die.
Rob Reaches the Threshold:
Hello Readers,
I hope you all enjoyed Thanksgiving and are having a nice start to the holiday season. It is an exciting time as Christmas approaches - including Hurwitz Fine's annual holiday party coming up this weekend. In other news, the Yankees fan in me is very happy to report that, hopefully by the time of this publication, Juan Soto will be roaming the outfield in the Bronx for years to come.
The Appellate Division must be still working off some of its Thanksgiving meal, because, unfortunately, I do not have anything new to report on Serious Injury Threshold this time around. We will try again in two weeks.
I hope you all enjoy the wonderful articles from my colleagues.
Happy Holidays,
Rob
Robert J. Caggiano
Hitler on Hunger Strike, After Putsch – 100 Years Ago:
St. Tammany Farmer
Covington, Louisiana
08 Dec 1923
Hitler Goes on Hunger Strike.
Munich. —Adolf Hitler, the Bavarian fascist leader, who was arrested after the failure of the recent nationalistic “putsch” here is reported to have gone on a hunger strike in the jail at Stadelheim.
North of the Border:
It seems that everyone is pedaling as fast they can in the run up to year end. I am only figurately pedaling as my right lower leg remains in an air cast. But that aside, I have to say that I had an interesting week. I was interviewed in my capacity as President of Canadian Defence Lawyers for a CTV news national television article – that doesn’t happen every day.
My article this week is an interesting, precedent setting case on the standard of care of lowly telephone agents.
Best,
Heather
Heather A. Sanderson
Sanderson Law, Calgary, Alberta
Headlines from this week’s issue, attached:
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
- To Prove a Right to Rescind a Policy Based on Material Misrepresentations, Insurer Must Demonstrate Written Underwriting Guidelines that it Would Have Not Issued the Policy or Written it with High Premiums
- Second Excess Layer Insurance Company Wins on Late Notice - Irrebuttable Presumption of Prejudice. Pandemic Delay Extends Time to Disclaim, by a Bit
- When Insured Failed to Respond to Agent’s Request to Purchase Prior to Fire, Agent and Carrier are Free from Liability
PEIPER on PROPERTY (and POTPOURRI)
Steven E. Peiper
[email protected]
- Waiver of Subrogation Clause Not Triggered by Payment Only from Liability Policies
- Idle Speculation from Plaintiff is Insufficient to Create an Issue of Fact on Summary Judgment
WILEWICZ’S WIDE WORLD of COVERAGE
Agnes A. Wilewicz
[email protected]
- Gone ice fishing. Back in two weeks.
BARNAS on BAD FAITH
Brian D. Barnas
[email protected]
- Insurer had Reasonable Basis to Deny Coverage Based on Prior Knowledge Exclusion Warranting Summary Judgment on Bad Faith Claim
LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel
[email protected]
- HO Policy’s Auto Exclusion Precludes Coverage for Underage Drinking
KYLE'S NOTEWORTHY NO-FAULT
Kyle A. Ruffner
[email protected]
- Court Grants Plaintiff Medical Provider’s Motion for Summary Judgment as the Insurer Failed to Establish its defense of Policy Exhaustion and Failed to Establish Timely Mailing of Denials
RYAN’S FEDERAL REPORTER
Ryan P. Maxwell
[email protected]
- Mechanic’s Lien Found Void Due to Willful Exaggeration, Warranting an Award of Attorneys’ Fees
STORM’S SIU
Scott D. Storm
[email protected]
- Court Grants Insurer’s Motion to Amend Answer to Include Defense of Breach of the Concealment or Fraud Condition When Discovery Reveals the Damage to the Plaintiff’s Elevators and Roof Pre-Existed the Alleged Loss Due to Hurricane Sally
FLEMING’S FINEST
Katherine A. Fleming
[email protected]
- Provision of Auto Policy Limiting UM Coverage to Insureds Occupying an Insured Automobile Violates Illinois Insurance Law and is Unenforceable as a Matter of Public Policy
GESTWICK’S GREATEST
Evan D. Gestwick
[email protected]
- Court Awards an Insured Attorney's Fees Where Only a Declaration as to Indemnity was Sought
ON the ROAD with O’SHEA
Ryan P. O’Shea
[email protected]
- Defendant’s Submission of Police Report Identifying Defendant as Owner of Motor Vehicle Creates Issue of Fact Where Defendant Denied Ownership
LOUTTIT’S LEGISLATIVE and REGULATORY ROUNDUP
Robert P. Louttit
[email protected]
- In mediation. Check back in two weeks.
ROB REACHES the THRESHOLD
Robert J. Caggiano
[email protected]
- There have been no cases to report on since the last issue. Check back in two weeks
NORTH of the BORDER
Heather A. Sanderson
Sanderson Law, Calgary, Alberta
[email protected]
- The Standard of Care for Telephone Agents of Insurers Who Place New Business, or Additional Property on Existing Policies, Includes a Requirement to Clarify Ambiguous Information Received and, Explain the Consequences to the Intended Coverage if that Information Flags a Potential Exclusion
All the best from our homes to yours.
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
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
Ryan’s Federal Reporter
Gestwick’s Greatest
Loutit’s Legislative and Regulatory Roundup
Rob Reaches the Threshold
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
12/06/23 Ruiz v. First Investors Life Insurance Company
Appellate Division, Second Department
To Prove a Right to Rescind a Policy Based on Material Misrepresentations, Insurer Must Demonstrate Written Underwriting Guidelines that it Would Have Not Issued the Policy or Written it with High Premiums
In November 2013, the plaintiff's decedent obtained a term life insurance policy from First Investors in the amount of $250,000, naming the plaintiff, his wife, as the primary beneficiary. Only eight months later, in July 2014, the decedent died of "Hypertensive Heart Disease Complicating Obesity," and his wife, Donna Ruiz, submitted a claim for payment of the insurance proceeds.
First Investors disclaimed coverage and rescinded the subject policy on the ground that the decedent had made material misrepresentations regarding his heart conditions on his application for insurance by failing to disclose that he had been diagnosed and treated in June 2013 for a systolic heart murmur and concentric left ventricular hypertrophy.
Thereafter, Donna Ruiz, individually and as the administrator of the decedent's estate, commenced this action, inter alia, to recover damages for breach of contract. In its answer, First Investors asserted a counterclaim for rescission.
To establish the right to rescind an insurance policy, an insurer must show that its insured made a material misrepresentation of fact when he or she secured the policy (see Insurance Law § 3105[b][1]; To establish materiality as a matter of law, an insurer must present clear and substantially uncontradicted documentation concerning its underwriting practice, such as underwriting manuals, bulletins, or rules pertaining to similar risks, which show that it would not have issued the same policy if the correct information had been disclosed in the application. Conclusory statements by insurance company employees, unsupported by documentary evidence, are insufficient to establish materiality as a matter of law.
Here, First Investors failed to demonstrate the materiality of the misrepresentations as a matter of law. Although the chief underwriter testified at his deposition that the defendant would not have issued the subject policy to the decedent at the same premium rate had he disclosed the extent of his heart conditions, the underwriting guidelines submitted by the defendant do not state that the heart conditions which the decedent failed to disclose must be assessed at a higher premiums.
11/30/23 American Emp. Surplus Ins. Co. v. Commerce & Ind. Ins. Co.
Appellate Division First Department
Second Excess Layer Insurance Company Wins on Late Notice - Irrebuttable Presumption of Prejudice. Pandemic Delay Extends Time to Disclaim, by a Bit
The motion court correctly found that defendant second excess insurers Commerce and National Union are not required to provide coverage under the second excess insurance policies in connection with the underlying personal injury action brought by Mayorquin. Plaintiff failed to timely notify Commerce of Mayorquin’s. Mayorquin was injured in April 2014 and filed suit that same year, but notice was not provided to Commerce until April 2020 – six years later.
Plaintiff believed since 2014 that Mayorquin had a 99% likelihood of success on his claim, and plaintiff’s initial jury verdict estimations were not significantly below the $4 million necessary to implicate the second excess policies. Plaintiff acknowledged that these numbers could go up, and Mayorquin’s 2016 and 2019 settlement demands far exceeded $4 million. Under these circumstances, plaintiff could not have reasonably believed that the second excess policies were so unlikely to be implicated that it was not necessary to notify the second excess insurers.
To the extent plaintiff claims that it was not aware of the Commerce policy until March 2020, this claim is not supported by the record. Even if plaintiff was not aware of the second excess policies, the insureds certainly were, and it was their duty to notify the second excess insurers. Because notice was not provided to Commerce until after a determination of liability on Mayorquin’s claim had already been made, Insurance Law § 3420(c)(2)(B)’s irrebuttable presumption of prejudice applies.
National Union timely disclaimed coverage with respect to the Mayorquin claim (see generally Insurance Law § 3420[d][2], Continental Cas. Co. v Stradford, 11 NY3d 443, 449 [2008]). We find that only 28 (not 40) days passed between when National 3 Union was notified of the Mayorquin claim (on April 21, 2020) and when it disclaimed coverage (on May 19, 2020). Although notice was attempted on April 9, 2020, that notice was invalid because it did not include the correct policy number. Regardless of whether the disclaimer was made in 28 or 40 days, the timing was reasonable under the circumstances.
Courts have routinely upheld time periods in the one-month range. Although a lengthy investigation was not necessary to determine that coverage should be disclaimed, the subject notice of claim was sent in April 2020 – during the height of the Covid-19 pandemic; some leeway is appropriate given the disruptions caused thereby. Commerce and National Union’s coverage disclaimers were also sufficiently broad to cover subsequent crossclaims in the Mayorquin action.
11/29/23 Ewart v. Allstate Insurance Company
Appellate Division, Second Department
When Insured Failed to Respond to Agent’s Request to Purchase Prior to Fire, Agent and Carrier are Free from Liability
On May 1, 2017, the plaintiff contacted the Darcey, who was an independent agent for the defendant Allstate for the purpose of purchasing a landlord insurance policy to cover certain property located in Smithtown. Darcey subsequently provided quotes for landlord insurance to the plaintiff and then left for vacation without binding coverage in place.
The plaintiff did not select a policy and made no payment. Although the plaintiff knew that further actions were required to secure coverage, he believed that Darcey would complete them after he returned from vacation. On May 14, 2017, before Darcey returned, a fire damaged the property. The plaintiff tendered a claim to Allstate, which disclaimed coverage on the basis that no policy was in force on the date of the loss.
The plaintiff commenced this action, inter alia, to recover damages for breach of contract and negligence in failing to procure a landlord insurance policy for the property against, among others, Allstate, and Darcey.
Generally, insurance agents "have no continuing duty to advise, guide, or direct a client to obtain additional coverage". However, an insurance agent or broker "may be held liable under theories of breach of contract or negligence for failing to procure insurance upon a showing by the insured that the agent or broker failed to discharge the duties imposed by the agreement to obtain insurance either by proof that it breached the agreement or because it failed to exercise due care in the transaction" Here, the defendants ]established, prima facie, that Darcey and the plaintiff did not reach an agreement, as they did not discuss the amount of coverage or the cost of a landlord insurance policy, among other things.
An insurance agent or broker has "a common-law duty to obtain requested coverage for a client within a reasonable amount of time, or to inform the client of the inability to do so" Here, the defendants established, prima facie, that Darcey communicated multiple quotes to the plaintiff and that the plaintiff's failure to respond demonstrated a "lack of initiative or personal indifference" that resulted in a failure to obtain coverage.
PEIPER on PROPERTY (and POTPOURRI)
Steven E. Peiper
[email protected]
12/05/23 Shah v. 20 E. 64th Street, LLC
Appellate Division, First Department
Waiver of Subrogation Clause Not Triggered by Payment Only from Liability Policies
Plaintiff’s premises were damaged when excavation at a neighboring premises owned by 64th Street caused the plaintiff’s foundation to move. Plaintiff commenced an action against 64th Street who, in turn, sought common law and contractual indemnification against subcontractor, Tri-Star and Tri-Star’s subcontractor, Urban. We are advised in the opinion that Tri-Star retained Urban to perform the excavation, but the contract omitted a monitoring obligation of Urban.
Prior to trial, 64th Street was awarded conditional summary judgment against both Tri-Star and Urban. At the conclusion of trial which resulted in an apportionment of liability of 40% against Urban and 60% against Tri-Star, 64th Street filed a post-trial motion seeking to conform the indemnity award consistent with the jury verdict.
Urban opposed the motion, arguing that 64th Street was precluded from making the motion under CPLR 4405 and 4406, respectively. Section 4405 extinguishes a post-trial motion after an appeal is undertaken. Section 4406 limits a party to only one post-trial motion. Here, however, the pending application is not a post-trial motion to set aside a verdict, but rather only seeks to trigger the court’s recognition of its prior conditional indemnity award.
The Appellate Division also rejected Urban’s waiver of subrogation argument which posited that the indemnity provision should have been blocked if the loss was paid by insurance. As aptly pointed out by the Court, however, the waiver provision only applied if the loss was paid by property insurance. Here, 64th Street’s exposure was assumed by the CGL and Commercial Umbrella policies, respectively, and thus fell outside of the scope of the clause at issue.
11/28/23 Richard v. Ventura
Appellate Division, First Department
Idle Speculation from Plaintiff is Insufficient to Create an Issue of Fact on Summary Judgment
Plaintiff commenced this action after sustaining injuries in a two-vehicle collision. Plaintiff sued not only the driver of the livery in which he was riding, but also the offending vehicle which rear-ended the taxi. On summary judgment, the taxi driver was to establish that the collision was, indeed, caused by a rear-end collision and was not the fault of the driver. Plaintiff argued that summary judgment was not appropriate because questions of fact existed as to whether the cab driver could have taken steps after the collision to avoid colliding with a guard rail.
In affirming the summary judgment decision of the trial court, the Appellate Division stated that defendant had met its burden of establishing a lack of negligence. In reaching its conclusion, the Court noted that plaintiff’s suggestions of what plaintiff could have done to avoid the second collision (with the guardrail) was unduly speculative and, accordingly, must be rejected as a matter of law.
WILEWICZ’S WIDE WORLD of COVERAGE
Agnes A. Wilewicz
[email protected]
Gone ice fishing. Back in two weeks.
BARNAS on BAD FAITH
Brian D. Barnas
[email protected]
11/28/23 Cantaloupe, Inc. v. AXIS Insurance Company
United States District Court, Eastern District of Pennsylvania
Insurer had Reasonable Basis to Deny Coverage Based on Prior Knowledge Exclusion Warranting Summary Judgment on Bad Faith Claim
Cantaloupe is an electronic payment technology company that focuses on the self-serve retail market. Cantaloupe noticed irregularities with the company’s Q3 financial statement in May 2018. The EVP of sales declined to sign off on the statement. Shortly thereafter, Cantaloupe proceeded with a supplemental public stock offering that resulted in approximately $70 million gross proceeds to the company. The EVP send an email in June 2019 to the CEO stating that he had been effectively removed from his position in response to his refusal to sign the Q3 disclosure.
Cantaloupe started a formal investigation into the email, which expanded into evaluating the claims about revenue reporting and financial statements. The CFO of Cantaloupe began noticing red flags and sought advice from SEC Counsel. A confidential meeting was held on July 16 between the CFO, Controller, the company’s auditor, and Price Waterhouse Coopers. Thereafter, there were discussions about conducting a full formal investigation.
At the same time, Cantaloupe retained an insurance broker to advise the company on D&O coverage. The broker recommended purchasing D&O coverage with limits $20 million higher than Cantaloupe had at the time... Axis agreed and issued $5 million in excess coverage to be added to the $15 million in underlying insurance. Cantaloupe did not agree to stricter terms initially demanded by Axis, leading Axis to instead include an inverted warranty, or prior knowledge exclusion (“PKE”), as part of the policy. The PKE became part of the insurance package.
After Cantaloupe and Axis agreed on the new D&O policy, the concerns about irregularities persisted. An email and presentation to the Audit Committee was prepared summarizing their concerns with Cantaloupe's internal controls and how the company was handling the internal investigation regarding the issues raised. The email to the Audit Committee addressed a potential SEC investigation and expressed concerns about revenue being accurately reported. Cantaloupe disclosed to investors in an 8-K filing that there was an internal investigation of accounting issues and financial reporting on September 11, 2018. That same day, the CEO, CFO, and the company itself were sued in the first of three securities class action lawsuits. Those suits were eventually settled for an aggregate of approximately $15 million. Cantaloupe's other insurers, which did not have the same PKE provision, paid approximately $12.7 million of the settlements, and Cantaloupe itself paid approximately $2.6 million. Excess carrier Axis declined to provide coverage because of the PKE. Shareholder derivative demands then began in October 2018, alleging many of the same issues. Those claims eventually settled for $500,000; Axis again declined coverage, invoking the PKE. Finally, the SEC began an investigation in February 2019 and Hudson Executive Capital, a major shareholder of Cantaloupe stock, sued the company; Axis again declined coverage.
On the breach of contract claim, the court found an issue of fact whether the PKE applied. While it was clear that Cantaloupe knew that the circumstances could lead to a claim against the company, Cantaloupe officials repeatedly stated they did not believe the issues were material and thought the issues were an irregular occurrence. There was a genuine dispute regarding Cantaloupe's subjective knowledge at the time of accepting the D&O policy with the exclusion effective July 27, 2018.
However, the court granted summary judgment dismissing the bad faith claim against Axis. Cantaloupe pointed to only one piece of evidence supporting its allegation of bad faith. In an October 17, 2018, email, a vice president in the department handling D&O Insurance claims at Axis vividly wrote that she looked at Cantaloupe's claim and called it a “DISASTER.” The Axis employee then wrote, in full, with some animations: “They [Cantaloupe] launched an internal investigation into accounting issues and delayed filing their 10-K. They had a 15-day extension which they MISSED and got a notice from NASDAQ of lack of compliance (they have until Nov. 1 to issue a plan). HOWEVER, they announced this mess on September 11, and we bound this sh!t NEW on 7/27. We did not get a warranty, but we added a prior knowledge exclusion (which I will look at now). Buckle up.” Axis argued in response that it conducted a detailed investigation, which was based in part on the fact the 8-K filing to investors being done only 46 days after Cantaloupe doubled its existing coverage.
The court found that Axis had a reasonable basis to deny the claim based on the PKE based on the facts of the claim. It also found no evidence that Axis knew or recklessly disregarded a lack of a reasonable basis to deny the claim. Even the email relied upon by Cantaloupe suggested that Axis would investigate the claim and review whether the PKE applied.
LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel
[email protected]
12/5/23 Liberty Ins. Corp. v. Johnson
Appellate Court of Connecticut
HO Policy’s Auto Exclusion Precludes Coverage for Underage Drinking
The Appellate Court affirmed summary judgment for Liberty, finding that the auto exclusion in the insured’s homeowners policy precluded coverage for claims for negligently permitting underage drinking that resulted in an auto accident.
Aaron, the minor son of Ted and Kim Johnson, was drunk and crashed Ted’s Audi A4 into a tree at 1:33 a.m., severely injuring his passenger, Jordan Torres. Torres sued the Johnsons, alleging that he and Aaron went to the Johnsons’ Glastonbury house where Aaron consumed alcohol and was visibly intoxicated. The complaint asserted that the parents were negligent in permitting their minor son to have access to and consume alcohol, allowing him to leave home and operate a motor vehicle despite his intoxication, that they failed to take reasonable efforts to prevent possession and/or consumption of alcohol by Aaron, and failure to supervise.
The Johnsons tendered the complaint to Liberty which provided the family with auto, homeowners, and umbrella coverage. Liberty denied coverage, commenced this DJ, successfully obtaining a finding of no coverage based on the HO policy’s auto exclusion. The appellate court affirmed.
There was no auto coverage because the Johnsons removed the Audi from the policy only days prior to the accident. The Johnsons did not contest that aspect of the trial court’s decision. However, they argued that some of the negligence claims were separate and apart from the automobile accident and thus triggered coverage under the HO policy. The Johnsons argued that, because “there are one or more covered claims, the[y] are entitled to a defense in the [Torres action] ... [and questions of fact remain] as to whether they are entitled to indemnity under the applicable policies.”
The appellate court did not agree because the motor vehicle accident was the operative event giving rise to Torres’ injuries. Accordingly, the HO Policy’s auto exclusion precluded coverage entirely. “Although some of the allegations in the negligence counts against the defendants in the Torres action concern conduct by the defendants that occurred at their home in Glastonbury, those counts clearly and unambiguously state that the injuries and damages complained of were sustained “[a]s a result of the collision ....”” Since the injuries arose from, were connected with, flowed from, and were incident to the use of the vehicle, the exclusion applied.
The court summarily rejected arguments that the exclusion was ambiguous and that the trial court’s interpretation of the policy defeated the insureds’ reasonable expectations of coverage. There was also no duty owed under the umbrella coverage because the exception to the auto exclusion (“unless liability is covered by an underlying policy or other valid and collectible insurance”) was not applicable in the absence of any coverage for the Audi.
KYLE’S NOTEWORTHY NO-FAULT
Kyle A. Ruffner
[email protected]
11/14/23 Barakat, P.T., P.C., A/A/O Hermenegildo, Montas v. Liberty Mutual Fire Ins. Co.
Civil Court of the City of New York, Kings County
Court Grants Plaintiff Medical Provider’s Motion for Summary Judgment As the Insurer Failed to Establish its defense of Policy Exhaustion and Failed to Establish Timely Mailing of Denials
Under the no-fault system, payments of benefits must be made as the loss is incurred. An insurer must pay benefits directly to the applicant or, upon assignment by the applicant, pay benefits directly to providers of health care services. In addition, an insurer is required to either pay or deny a claim for no-fault automobile insurance benefits within 30 days from the date an applicant supplies proof of claim. An insurer must pay or deny only a verified claim within 30 calendar days of receipt and is not obligated to pay any claim until it has been verified. Once claims have been verified they are subject to the priority of payment regulation, 11 NYCRR 65-3.15. Alleviation Med. Servs., P.C. v. Allstate Ins. Co., 191 A.D.3d 934 (2d Dept., 2021). Applying the holding in Alleviation, the court explained that fully verified claims are payable in the order they are received. The court determined defendant's argument that it need not pay the claim at issue because defendant paid other claims after it had denied the instant claim, which subsequent payments exhausted the available coverage, lacked merit. Consequently, the court held that Liberty failed to establish its policy exhaustion defense and, therefore, did not establish its entitlement to summary judgment dismissing the complaint.
Further, the court held that the insurer failed to establish the timely and proper mailing of coverage denials, as the denials contained materials errors such as the incorrect amount bill by the provider, the incorrect amount in dispute, and the wrong date of service in the denial. The court stated that it has been well established that a proper denial of a claim for no-fault benefits must include the information called for in the prescribed denial of claim form and must promptly apprise the claimant with a high degree of specificity of the ground or grounds on which the disclaimer is predicated. However, a timely denial of a no-fault insurance medical claim alone does not avoid preclusion where said denial is factually insufficient, conclusory, vague, or otherwise involves a defense which has no merit as a matter of law. St. Barnabas Hosp. v. Allstate Ins. Co., 66 A.D.3d 996 (2d Dept., 2009). Therefore, the court determined that the evidence provided by the insurer was insufficient to establish proper mailing of denials.
Lastly, the insurer failed to establish that its post IME cut off defense of medical necessity applied for all causes of action. The opinion of a doctor conducting an IME and issuing a report that no further treatment or testing is needed is nothing more than an expert's prediction that the claimant has fully recovered or received the maximum therapeutic benefit from the treatment and does not presently need any additional treatment. As such, the court stated that an IME cut-off is not a complete defense to an action because, while an IME can demonstrate a lack of medical necessity for future treatment, it cannot conclusively demonstrate that any future treatment would not be medically necessary. Rather, the IME shifts the burden to the plaintiff to demonstrate, by a preponderance of the evidence, that the treatment at issue was medically necessary. Therefore, the court determined that there is no reason why claims for medical treatment that are submitted after an IME cutoff has been issued should be treated any different than claims submitted prior to the IME. A timely submitted claim for medical services rendered after an IME cutoff is presumed to be medically necessary, and the timely submission of a post-IME cutoff claim shift the burden to the insurer to establish a basis and medical rationale for its determination that the treatment was unnecessary.
Accordingly, the court granted the plaintiff’s motion for summary judgment and denied defendant’s motion for summary judgment, holding that the plaintiff established that the bills were timely and properly submitted to Defendant, Defendant admitted that it received them and did not issue payment. Plaintiff further established that Defendant's denials lacked merit as a matter of law.
RYAN’S FEDERAL REPORTER
Ryan P. Maxwell
[email protected]
11/29/23 Baring Industries, Inc. v. 3 BP Property Owner LLC, et al
Second Circuit Court of Appeals
Mechanic’s Lien Found Void Due to Willful Exaggeration, Warranting an Award of Attorneys’ Fees
Baring Industries, Inc. (“Baring”) appealed a decision granting partial summary judgment, which had dismissed Baring’s claim seeking foreclosure on an underlying lien and judgment on the bond that discharged the lien, as well as 3 BP Property Owner LLC’s (“3 BP”) counterclaim for willful exaggeration of the lien. 3 BP and Westchester Fire Insurance Company (collectively, “Appellees”) also sought a declaration that the lien was void, and 3 BP later filed a supplemental motion for attorneys’ fees and costs in the amount of $516,406.15. Baring itself had moved for summary judgment seeking foreclosure on its lien and for judgment on the bond that discharged the lien, and dismissing 3 BP’s counterclaims. Agreeing with the Appellee’s, the Southern District of New York found that Baring willfully exaggerated the entire value of the lien, entitling 3 BP to a declaration that the lien was void and subsequently granted 3 BP’s request for attorneys’ fees and costs.
Baring, a “commercial food service equipment contractor,” supplied and delivered kitchen equipment to DaDong Catering LLC (“DaDong”), a tenant in one of 3 BP’s buildings, in connection with DaDong’s restaurant construction project. After Baring delivered that equipment, DaDong allegedly failed to pay a contract balance of $320,356.94 and Baring filed a mechanic’s lien against 3 BP’s property. Baring maintains that the labor, services, and equipment provided to DaDong were properly lienable as “permanent improvements” to the property. The Second Circuit disagreed.
Describing the scope and purpose of the type of lien in question the Second Circuit advised that:
Under New York Lien Law, a contractor, subcontractor, or other person “who performs labor or furnishes materials for the improvement of real property with the consent or at the request of the owner thereof” can file a lien against the real property under certain circumstances. N.Y. Lien Law § 3. In considering claims arising out of a lien, New York state courts “[a]fford[] the Lien Law [a] liberal construction,” In re Old Post Rd. Assocs., LLC, 112 N.Y.S.3d 254, 256 (App. Div. 2d Dep’t 2019), to effectuate the Lien Law’s purpose to “provide security for laborers and materialmen” and to “provide notice and a degree of certainty to subsequent purchasers,” In re Niagara Venture, 566 N.E.2d 648, 652 (N.Y. 1990). However, “liens provide a limited remedy and are generally used to recover the fair value of that which, because of its use, is now physically or logically unrecoverable.” In re P.T. & L. Constr. Co., Inc., 399 N.Y.S.2d 712, 713 (App. Div. 3d Dep’t 1977). Because liens impact the property owner’s interest in real property, it is important to ensure that they are not abused.
The penalty for willful exaggeration of a lien is to render it null and void, N.Y. Lien Law §39, entitling the owner or contractor themselves to seek damages from the willful exaggerator. N.Y. Lien Law §39-a. And here, the Second Circuit could “discern no error in the district court’s conclusion that the undisputed facts establish as a matter of law that Baring’s work did not result in any permanent improvements to 3 BP’s property.”
The Second Circuit identified that the types of items supplied, warehoused, and delivered to DaDong by Baring were “plainly not permanent improvements, nor did Baring’s services in connection with their delivery and installation result in permanent improvements.” Rather, items such as refrigerators, ovens, carts, tables, counters, ice machines, ranges, kettles, rice cookers, shelves, cabinets, hoods, fire suppression systems, microwave ovens, and fish tanks were “considered trade fixtures—not permanent improvements—[since] they [were] ‘installed by a tenant during its lease term to carry on its business.’” In fact,
“the record is undisputed that the equipment was installed by Baring, on behalf of DaDong, during the term of DaDong’s lease with 3 BP, for the sole purpose of furthering DaDong’s restaurant business. DaDong was not reimbursed for the costs of procuring and installing the equipment, and had the right to remove the equipment from the premises at the end of the lease.”
The SDNY was thus correct in “concluding that the installation of the kitchen equipment was a ‘usual temporary change [] made by a tenant to suit his views, to be in turn torn out to give way to like changes at the hands of his successor.’”
The record was equally undisputed “that the equipment could be removed—and was removed—without harming the property,” including items in one of four categories:
(1) items that had built-in wheels.
(2) items that were otherwise freestanding and could be removed.
(3) items that could be picked up, even if they were not freestanding; and
(4) items that could be detached from the walls and which Baring’s own Vice President admitted “could be removed without damaging the property.
There was also an absence of evidence indicating that “Baring altered any structure whatsoever in the course of installing the equipment,” and the absence of a need to “demolish, erect, or alter any structure” suggests that Baring made no permanent improvement.
Although willful exaggeration is normally determined at trial of a foreclosure action, “an exception exists where there is ‘conclusive’ evidence of willful or deliberate exaggeration.” There was evidence that Baring was completely unaware of what constituted the $320,356.94 lien amount, nor attempted to verify its accuracy. There was also evidence that despite knowledge “that a lien can be filed in New York only in connection with a permanent improvement,” Baring filed the lien without considering whether the standard had been met. Thus, “[u]nder these circumstances—and in light of the plainly non-permanent character of the trade fixtures at issue—the district court did not err in determining that the record “conclusively” establishes that the full amount of the lien was willfully exaggerated, and that Baring failed to adduce evidence suggesting to the contrary.”
This not only voided the lien entirely, but also entitled Appellee’s to an award of attorneys’ fees.
STORM’S SIU
Scott D. Storm
United States District Court, S.D. New York.
Court Grants Insurer’s Motion to Amend Answer to Include Defense of Breach of the Concealment or Fraud Condition When Discovery Reveals the Damage to the Plaintiff’s Elevators and Roof Pre-Existed the Alleged Loss Due to Hurricane Sally
[Abridged] Summerwind brings a breach of contract claim against Mt. Hawley Insurance and Syndicate 1458 at Lloyd's of London in this coverage dispute over damage to Plaintiff's property purportedly caused by Hurricane Sally in September 2020. Defendants answered the Complaint in September 2021, and the Court-ordered deadline to amend pleadings expired in December that same year. Discovery concluded on February 1, 2023. Defendants have now moved for leave to amend their Answer to add a new affirmative defense premised on Plaintiff's fraudulent conduct, urging that evidence uncovered in discovery revealed Plaintiff's scheme to defraud Defendants and that such fraud voids the subject insurance policy. Plaintiff opposes the motion on futility and prejudice grounds. The Court finds that good cause exists to modify its scheduling order, that Defendants have adequately pleaded their proposed affirmative defense, and that any prejudice arising from the prospect of additional discovery is insufficient to warrant denial of leave to amend.
In November 2020, Plaintiff sent Mt. Hawley an estimate of over four million dollars of repairs for damages purportedly caused by the hurricane. On December 11, 2020, Mt. Hawley's engineer determined that there was no wind damage to the subject property in excess of the Policy's deductible and thus Mt. Hawley denied coverage. The next month, Plaintiff's public adjuster countered that he had documented extensive storm-created damage to the property's roofs, and that Plaintiff had also incurred over $500,000 in emergency elevator repairs due to the “considerable storm damages.” But in March 2021, after its engineer reinspected the property, Mt. Hawley reaffirmed its denial.
In their motion for leave to amend, Defendants contend that they uncovered evidence in discovery revealing Plaintiff's fraudulent scheme to recover repair costs for damage incurred before Hurricane Sally to the subject property's roofs and elevators. Specifically, Defendants point to minutes from a July 2020 condominium board meeting indicating that Plaintiff's property manager was instructed to solicit bids to replace both the elevators and roofs two months before the hurricane. In a July 2020 email to Cavinder Elevator Company, the property manager disclosed that the subject property's elevators were “declining considerably and were past their life expectancy” because they had taken “a significant hit when Hurricane Ivan hit back in 2004.” Defendants urge that the property manager’s position there stands in “stark contrast” with her deposition testimony, in which she described only “minor” problems with the elevators before Hurricane Sally, and expressly denied that there was any need to modernize the elevators before that storm. Next, Defendants learned that in October 2020 (after Hurricane Sally), The property manager emailed Cavinder to ask him to change the dates on the July 2020 elevators bids to October 2020. In that email, the property manager wrote: “Can you send that for the inn but change the date to today. Trying to push it under hurricane claim.” Cavinder replied that same day, attaching the pre-storm bids, but now with the post-storm dates, for all three Summerwind buildings. Then, on November 17, 2020, the property manager forwarded the updated elevator replacement bids to the public adjuster to include in the estimate submitted to Mt. Hawley.
Defendants explain that they repeatedly requested production of the Cavinder elevator bids generated for Plaintiff before Hurricane Sally, and that they rescheduled Cavinder's deposition multiple times so that he could bring those documents with him. But at his January 2023 deposition, Cavinder ultimately testified that documentation of the July 2020 bids did not exist. Defendants thus argue that the “mysterious disappearance of Cavinder's pre-storm bid” forms the “final piece of this fraudulent plan” concerning the elevator repairs. Finally, Defendants contend that the absence of any pre-storm bids for the subject property's roofs similarly suggests fraud on Plaintiff's part, in light of the July 2020 condominium board meeting minutes instructing the property manager to solicit bids to replace the roofs as well.
As a result, Defendants request leave to add an affirmative defense premised on Plaintiff's purported fraudulent misrepresentation and concealment “regarding major components of this insurance claim and the condition of Plaintiff's Property prior to the reported date of loss.” Defendants argue that Plaintiff's conduct voids the Policy altogether, pursuant to its “Concealment, Misrepresentation or Fraud” provision:
The period of “liberal” amendment ends if the district court issues a scheduling order setting a date after which no amendment will be permitted. The court may modify the schedule on a showing of good cause if it cannot reasonably be met despite the diligence of the party seeking the extension. Here, Defendants first sought leave to amend their Answer when they submitted their pre-motion letter to this Court on March 7, 2023—over a year after the December 2021 deadline for such amendment and slightly more than a month after the close of discovery on February 1, 2023. To be sure, such delay can justify denial of leave. But, here, the Court finds that Defendants have acted with sufficient diligence to excuse their tardiness.
As they explained in their motion, Defendants lacked any basis in the earlier stages of this litigation to assert a fraud-based affirmative defense. Only when the board meeting minutes and email communications between the property manager and Cavinder surfaced during discovery and when Cavinder finally confirmed at his January 2023 deposition that he could not produce any pre-Hurricane Sally elevator bid—despite his and The property manager's prior representations that such a bid existed—did Defendants have any reason to suspect fraudulent conduct on Plaintiff's part. Moreover, according to Defendants, Mt. Hawley contends that it tried to reach Cavinder's counsel after Cavinder's deposition to ask how the pre-hurricane bid, which presumably had been transmitted via email, was unrecoverable through metadata. But Cavinder's counsel supposedly never returned Mt. Hawley's call, and the discovery period expired.
Plainly, this is not a case where the party seeking tardy amendment has simply rested on information it knew or should have known before the amendment deadline. Rather, Defendants had unearthed only through discovery the factual bases upon which they could in good faith assert their proposed fraud defense. Accordingly, the Court finds that Defendants have demonstrated the requisite good cause for allowing amendment after the deadline set forth in the Court's scheduling order.
Moreover, the Court finds that permitting amendment in this case would be neither futile nor unduly prejudicial to Plaintiff. The non-movant bears the burden of establishing the futility of a proposed amendment. Leave to amend to add an affirmative defense may be denied on futility grounds if the defense would not withstand a motion to strike pursuant to Federal Rule of Civil Procedure 12(f), which applies the same standard governing Rule 12(b)(6) motions to dismiss.
Affirmative defenses sounding in fraud must also meet the heightened pleading standards of Federal Rule of Civil Procedure 9(b). Specifically, “Rule 9(b) requires that ‘a party must state with particularity the circumstances constituting fraud’ although ‘malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.’” Stated differently, in addition to meeting Rule 12’s facial plausibility standard, Defendants must overcome two additional hurdles imposed by Rule 9— “the first goes to the pleading of the circumstances of the fraud, the second to the pleading of Plaintiff's mental state.” As to the circumstances of fraud, Defendants must (1) specify the purportedly fraudulent statement, (2) identify the speaker, (3) state where and when the statement was made, and (4) explain why the statement is fraudulent. And as to Plaintiff's mental state, Defendants must allege facts “that give rise to a strong inference of fraudulent intent.”
As discussed above, Defendants’ motion to add an affirmative defense is based on Plaintiff's alleged fraudulent conduct, which Defendants contend warrants vitiation of the Policy. Plaintiff argues that the Proposed Amendment is futile because, according to Plaintiff, Defendants have failed to “specify the statements it claims were false or misleading,” to “give particulars as to the respect in which the statements were fraudulent,” and to “state when and where the statements were made.” These arguments are unpersuasive.
In their proposed defense, Defendants accuse Plaintiff of claiming “that its elevators and roofs were damaged by the storm beyond repair when, in fact, Plaintiff was already in the process of replacing the elevators and roofs before the storm because they were deteriorated and beyond their useful lives.” They claim that Plaintiff's property manager “specifically instructed” the elevator company to “doctor” the pre-storm elevator replacement bid “to create the appearance it was generated after the hurricane,” and then submitted that “doctored bid” to Mt. Hawley during the claim investigation to inflate the estimated repair costs for covered damage. Finally, they allege that Plaintiff's property manager testified falsely during her deposition that the elevators were not experiencing any major problems before the hurricane, and that the pre-hurricane solicitation of elevator bids was purely for budgetary reasons. Notwithstanding Plaintiff's bare contention to the contrary, these factual allegations clearly set forth the “who, what, when, where, and how of the alleged fraud,” which, when taken as true, give rise to the requisite strong inference of Plaintiff's intent to defraud Defendants.
Next, Plaintiff urges that Defendants have failed to adduce sufficient evidence to meet the clear-and-convincing standard for their fraud defense. By predicating the bulk of their futility arguments on the evidentiary sufficiency of Defendants’ affirmative defense, both parties appear to be inviting this Court to assess Defendants’ motion under a summary judgment standard. The Court declines to do so.
Ordinarily, “consideration of the evidentiary basis for a proposed amendment is inappropriate,” given that the futility inquiry in the context of motions to amend “generally proceeds according to the standard applicable under Rule 12(b)(6).” “In the less common case where the Court is asked to review a proposed amendment with the benefit of a full discovery record,” however, a Court may properly consider “whether the proposed amended complaint would be subject to dismissal under Rule 56 of the Federal Rules of Civil Procedure for lack of a genuine issue of material fact.” But a court is not required to do so. The Court finds that the present circumstances do not warrant review of Defendants’ Proposed Amendment under a summary judgment standard. First, the Court lacks the benefit of full summary judgment briefing on the issue. Second, Plaintiff has urged that allowing the amendment will “necessitate reopening of discovery.” And while the Court takes no position on the validity of Plaintiff's contention, which Defendants dispute, the prospect of additional discovery further weighs against prematurely subjecting Defendants’ amendment to a summary judgment inquiry.
To that end, the Court finds Plaintiff's purported need for additional discovery in this matter insufficient to warrant denial of Defendants’ motion. Of course, prejudice may arise when amendment “will require the opponent to expend significant additional resources to conduct discovery and prepare for trial.” But “prejudice alone is insufficient to justify a denial of leave to amend; rather, the necessary showing is undue prejudice to the opposing party.” And “the fact that the opposing party will have to undertake additional discovery, standing alone, does not suffice to warrant denial of a motion to amend a pleading.”
Here, it is unclear what additional discovery Plaintiff would require responding to Defendants’ allegations respecting Plaintiff's own conduct. But, to the extent more discovery is necessary, it appears that such discovery would be limited in scope and time. Moreover, “this is not a case where the amendment came on the eve of trial and would result in new problems of proof.” The Court has yet to set a trial date, and, as mentioned above, neither party has filed a motion for summary judgment. Accordingly, the Court finds that Plaintiff has not shown undue prejudice that it will suffer from the Proposed Amendment.
FLEMING’S FINEST
Katherine A. Fleming
[email protected]
11/30/23 Galarza v. Direct Auto. Ins. Co.
Illinois Supreme Court
Provision of Auto Policy Limiting UM Coverage to Insureds Occupying an Insured Automobile Violates Illinois Insurance Law and is Unenforceable as a Matter of Public Policy
Fredy Guiracocha and Cristopher Guiracocha, a minor by next best friend of his father, Fredy, filed an uninsured motorist (UM) claim against Direct Auto Insurance Company (Direct Auto) after 14-year-old Cristopher was allegedly struck by a vehicle in a hit-and-run while riding his bicycle. The Guaracha’s asserted Fredy was the named insured under the automobile insurance policy issued by Direct Auto, so UM coverage applied to Cristopher based on his status as a “relative” under the policy. Direct Auto denied coverage because Cristopher was a pedestrian and not an occupant of a covered vehicle at the time of the accident. The circuit court agreed that the insurance policy as written did not provide UM coverage for Cristopher’s injuries because he was riding a bicycle. The appellate court sided with the Guiracochas and reversed and remanded, finding Direct Auto’s arguments were contrary to section 143a of the Illinois Insurance Code and its underlying public policy of ensuring coverage for policyholders injured by uninsured motorists.
The Illinois Supreme Court affirmed the appellate court’s judgment and reversed the circuit court’s decision. The Court reasoned that an insurance company could not deny UM coverage to an individual who qualified as an insured for liability coverage under the policy, citing precedent that section 143a requires coverage for insured persons regardless of the motor vehicle the uninsured motorist is driving and regardless of the vehicle in which the insured person is located when injured. Instead of asking whether the injured person occupied a vehicle at the time of the accident, the Court determined the proper injury should be whether the person’s injuries resulted out of the ownership, maintenance, or use of a motor vehicle. Accordingly, Cristopher was entitled to UM coverage for the hit-and-run by an uninsured motor vehicle because he qualified as a relative under his father’s Direct Auto policy.
GESTWICK’S GREATEST
Evan D. Gestwick
[email protected]
11/27/23 Utica Mut. Ins. Co. v. Crystal Curtain Wall System Corp. et al.
New York State Supreme Court, County of New York
Court Awards an Insured Attorney’s Fees Where Only a Declaration as to Indemnity was Sought
A mixed-use building in Manhattan sustained severe water damage, including mold conditions, following water infiltration as a result of a significant rain event. The building and its tenants brought suit against Crystal Curtain Wall System Corporation and Crystal Window and Door Systems (collectively, the “Crystal Entities”), seeking, among other things, reimbursement for the cost to repair or replace a curtain wall they had installed prior to the rain event. Utica, insurer to the Crystal Entities under a primary CGL policy, denied coverage for the third-party property damage claim, asserting, among other things, that: (1) the loss did not constitute an “occurrence” under its policy; (2) the loss was excluded under the policy’s “your work” exclusion; and (3) the loss was excluded under the policy’s “your product” exclusion. This declaratory judgment action followed.
Critically, in this declaratory judgment action, Utica does not seek any determination as to its duty to defend the Crystal Entities in the underlying third-party property damage case. Instead, it only seeks a determination that it owes the Crystal Entities no duty to indemnify them against any settlement or judgment therein. Utica took the position that the loss giving rise to the underlying action did not constitute an “occurrence” because, according to Utica, its policy did not insure against faulty workmanship in its insured’s work product, but only against faulty workmanship in the work product creating legal liability for either bodily injury or property damage to something other than the work product itself. For similar reasons, Utica also contended that the policy’s “your work” and “your product” exclusions applied.
The defendants’ motion to dismiss asked the Court to dismiss the declaratory judgment action on the court that no actual controversy over which the Court could rule existed, arguing that Utica’s entitlement to the declaration it seeks turned on several unresolved factual questions, likely to be resolved in the underlying action at some future point. Utica conceded that this was true with respect to all but one of their requested declarations—that no coverage existed for the repair or replacement to the curtain wall. The Court held that determination of the above coverage issue begs the question of whether the damage to the curtain wall, necessitating its repair or replacement for which the underlying plaintiffs attempt to hold the Crystal Entities liable, arose from the Crystal Entities’ design and/or installation of the wall (either by the Crystal Entities themselves or their subcontractors), or instead from other defective work on other components, effectuated by other parties. Specifically, the Court noted that the record of the declaratory judgment action did not, at least at the time this motion was heard, answer this question, nor did it establish whether either the “your product” or “your work” exclusions applied.
Under New York law, a declaratory judgment action is premature, and thus subject to dismissal, where the issues of coverage hinge on facts that will be decided, but have not yet been decided, in the underlying action to which it relates. However, courts do have discretion to stay (i.e., “pause”) a declaratory judgment action, instead of dismissing it completely, when it is not ripe, but likely to ripen in the future. Utica urged the Court to stay, and not dismiss, the case, since the facts needed to resolve the coverage issues would likely be elucidated in the underlying action before its conclusion. However, because Utica’s three positions, outlined above, rested on facts that had yet to be proven in the underlying action, and since the underlying action itself was slow-moving in terms of fact discovery, the Court dismissed Utica’s declaratory judgment action, without prejudice, allowing it to bring the same declaratory judgment action again once such facts are elucidated.
The Crystal Entities’ motion also sought reimbursement for attorney’s fees incurred in connection with defending themselves against the declaratory judgment action. Generally, in New York, an insured is only entitled to attorney’s fees in a declaratory judgment action when it is “cast in a defensive posture” by the legal steps taken by the carrier to rid itself of its policy obligations, and the insured prevails. Under this rule, the Court noted that Utica initiated this declaratory judgment action against its own insureds, thereby casting them in a defensive posture. Noting that it had already decided to dismiss Utica’s case as premature (which was without prejudice, and likely not “on the merits”), the Court ruled that the Crystal Entities “prevailed” with respect to the rule on defense costs, awarding same to the Crystal Entities.
Editor’s Note: Your typical declaratory judgment action brought by an insurer against its insured seeks declarations in its favor as to both defense and indemnity. This time, however, Utica only sought a declaration as to the latter, in apparent acceptance of the former. The Court specifically noted that it did not find any precedent answering the question of whether, in this circumstance, the insured was still entitled to its defense costs, nor was any cited. The Court found, quite simply, that “no logical reason” exists why the outcome should change where the carrier seeks only a declaration as to indemnity, but not defense. The Court also made reference to the language from one of the leading cases in this area (U.S. Underwriters v. City Club Hotel), which provides that an insured is entitled to recover costs incurred in defending itself from the declaratory judgment action where it prevails against the insured’s efforts to “free itself from its policy obligations.” Noting that this language encompasses more than just the duty to defend, the Court ostensibly held that an insured can still recover defense costs even if the declaratory judgment action only had to do with indemnity.
Also, not for nothing, Utica’s case wasn’t dismissed due to a finding that there was coverage. It was only dismissed as premature, and without prejudice to bring it again after more facts were brought out. Did the Crystal Entities “prevail” as required for their entitlement to defense costs? I’m in the “not yet” camp, especially since Utica can bring this action again.
ON the ROAD with O’SHEA
Ryan P. O’Shea
[email protected]
11/29/23 Hernandez-Martinez v Shiao S. Wang, et al.
Appellate Division, Second Department
Defendant’s Submission of Police Report Identifying Defendant as Owner of Motor Vehicle Creates Issue of Fact Where Defendant Denied Ownership
In this bodily injury action Hernandez-Martinez was a passenger in a car operated by defendant Acela Hernandez and owned by co-defendant Emilia Hernandez (the “Hernandezes”) that was involved in an accident with a silver sedan with New Jersey plates. The silver sedan left the scene of the accident. A police report was prepared and purportedly contained the silver sedan’s license plate number. That number corresponded to an automobile owned by Defendant Wang.
In the Hernandezes’ answer, they asserted crossclaims against Wang for contribution and indemnification. Wang then moved for summary judgment dismissing the complaint and all crossclaims. Wang supported his motion with a photograph, provided by plaintiff, allegedly depicting the license plate of the silver sedan, the certified police report identifying Wang as the sedan’s owner, and his own affidavit providing that he did not own or operate the sedan and had not used the identified license plate since 2005, when he gave the car bearing the plate to his sister who subsequently registered the car in New York under her own name. The trial court denied Wang’s summary judgment.
Wang appealed but the Second Department affirmed the trial court’s denial. The Appellate Division rebutted Wang’s argument that plaintiff’s evidence consisted of only hearsay because it was Wang’s burden to prove was not the owner of the silver sedan. In attempting to meet his burden, Wang submitted only his affidavit and other evidence that supported plaintiff’s allegations. For this reason, the Second Department found an issue of fact.
Author’s Note: Silver Sedan, Silver Bullet Band, there is a Bob Segar joke somewhere out there waiting to happen.
LOUTTIT’S LEGISLATIVE and REGULATORY ROUNDUP
Robert P. Louttit
[email protected]
In mediation. Check back in two weeks.
ROB REACHES the THRESHOLD
Robert J. Caggiano
[email protected]
There have been no cases to report on since the last issue. Check back in two weeks.
NORTH of the BORDER
Heather A. Sanderson
Sanderson Law
Calgary, Alberta
[email protected]
11/23/23 O'Brien v. Security National Insurance Company
2023 NSSC 376
Nova Scotia Supreme Court (trial level)
The Standard of Care for Telephone Agents of Insurers Who Place New Business, or Additional Property on Existing Policies, includes a Requirement to Clarify Ambiguous Information Received and, Explain the Consequences to the Intended Coverage if that Information Flags a Potential Exclusion
When it comes to real estate and tony addresses, Toronto has the Bridle Path. In Vancouver, it’s Shaughnessy. In Montreal it is Westmount.
In Halifax, you’ll find the multi-millionaires along an exclusive strip of waterfront properties on the Northwest Arm of Bedford Basin– a picturesque inlet that branches off from the main harbour. Dr. David O’Brien, an orthopedic surgeon, and his wife Sarah, a teacher, jointly owned a home on Oakland Drive, just a block from that strip of waterfront. In the fall of 2018, a house that they admired across the street from them was put on the market. That house was over a century old and had many of the original interior finishes. The O’Briens decided to buy it as they had often admired it. But concurrently carrying two mortgages on million-dollar homes was a financial stressor …. Eventually they would move into the new to them house, but it needed renovations before they could do so. As the closing date of the purchase approached, they decided to see if they could rent the newly purchased home. But in the meantime, they needed insurance coverage.
The O’Briens insured their existing house and a cabin with Security National Insurance Company, part of the TD Group. A day or so prior to closing, Sarah O’Brien called a telephone agent at TD to add the newly purchased home to their existing policy. The conversation between them was recorded (for training and quality control purposes). All questions asked were answered but the answers were vague. The agent wanted to know whether the new house would be vacant. Sarah said that they would be at the new house daily while living across the street. The agent did not press her to clarify her answers; did not explain how vacancy was defined in the policy; did not explain the consequences of leaving the house vacant.
After taking possession, the O’Briens moved a few pieces of furniture and rugs into the newly acquired house. Dr. O’Brien was there almost daily as he found it easier to do his medical dictation there rather than contending with the noise of a family.
Within a few weeks following closing and after the new property was added to the Security National policy an owner-occupied dwelling, a water pipe in the new property froze and burst. The water damage was extensive even though it was caught within a few hours of the event. Security National /TD investigated and declared that the damage was not covered as the property was vacant.
This denial was a significant financial stressor for the O’Briens. They had no choice but to contest the denial. The result was an application for summary judgment based upon the transcripts of the call placing coverage in late November 2018, the affidavits of the O’Briens, and the telephone adjuster and a contractor who did the emergency remediation of the damage. Cross examinations occurred on each affidavit.
The 100-page judgment of the Court hearing the application was released on November 23, 2023, after a two-day hearing that occurred in June 2023. The Court stated:
Although the O’Briens spent time in the [new] property, treating it as an extension of their existing home – a ‘man shed’ or a ‘garage kind of thing’ – they did not live there. They lived in their home … [across the street] The property was vacant, and coverage for the water damage is excluded under the policy.”
That finding meant that there was no coverage – at all – for the water loss.
However, the court also found that the property was vacant because the TD agent did not probe the information that was received at the time coverage was placed; and did not clearly explain what vacancy meant and the impact it would have on desired coverage. In doing so, the Court found that the agent did not adhere to TD’s own internal processes and procedures and breached the standard of care of a telephone agent.
The Court held that the agent “did not tell [the homeowners] about the [policy’s] vacancy exclusions as required by [TD Insurance’s] Homeowner Quoting Procedure.” The agent did not believe this needed to be done because the homeowners said they planned to take up residence in the new home. Second, Sarah O’Brien was ambiguous about their plans to move in. And yet, “without asking any clarifying questions whatsoever, [the agent] proceeded to place coverage for the property as an owner-occupied dwelling.”
As for causation, the Court held that “I find that it is more likely than not that but for … [the TD agent’s] … negligence, the O’Briens would have taken the necessary steps to ensure that they had full coverage over the Property at the time of the loss. They would not have left the Property vacant.”
The O’Briens received a judgment for approximately a quarter of million dollars for agreed upon water damage repairs, court costs, interest, and disbursements.
This highly detailed analysis is unusual and precedent setting. It spotlights the need for training and supervision of telephone agents who must conduct thorough, probing telephone adjusting interviews and adhere to underwriting procedures. If the information flags a potential exclusion, then the impact of that exclusion must be explained.
A negligence argument such as this is a pathway to overcoming a denial. In the age of frequent and severe NatCats, a failure to explain how sewer backup coverage can be eliminated in the event of the entry of surface water, or a failure to explain sub-limits and deductibles, could result in a requirement to indemnify against uninsured loss. It will be interesting to see how this case is treated in subsequent litigation.
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