Coverage Pointers - Volume XXV No. 25

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

05/15/24  State Farm Fire and Casualty Company v. Russo
Appellate Division, Second Department
Lots to Unpack in This One. Court Dismissed, as Premature, Declaratory Judgment Action on Duty to Indemnify in an Assault/Negligence Claim (On This Issue, Thousands Flee. Court Did Find That Insurer Had No Duty to Advise Insured of Right to Independent Counsel.

In August 2018, J.P., as the parent and natural guardian of the infant, M.P., commenced an action against Eichle and others to recover damages for personal injuries M.P. allegedly sustained during an incident that occurred on January 1, 2018, at Eichle's residence the (“underlying action”). The amended complaint in action alleged, among other things, that M.P. was injured as a result of Eichle's negligence in serving alcoholic beverages to her houseguest, Russo, who assaulted M.P.

Additionally, the amended complaint alleged that M.P. was injured as a result of Eichle's negligence in failing to properly maintain a certain sidewalk adjacent to her residence by keeping it free from snow and ice.

Eichle subsequently commenced a third-party action against Russo alleging, among other things, that any injuries allegedly sustained by M.P. were solely the result of Russo's negligence or the result of an assault by Russo.

Russo was an insured under his parents’ State Farm homeowners policy. State Farm initially agreed to provide a defense to Russo, but subsequently commenced this action against Russo, among others, seeking a declaration that it was not obligated to defend or indemnify Russo in the third-party action, on the ground that the injuries in the underlying action did not result from an "occurrence" for which the subject policy afforded coverage and that Russo's conduct was also barred by exclusions in the subject policy.

Russo interposed an answer in which he asserted, inter alia, five counterclaims, alleging breach of duty to defend, breach of duty to indemnify, "conflict of interest," and bad faith, and seeking recovery of attorneys' fees. Competing motions to dismiss were filed.

The appellate court found that State Farm failed to demonstrate, prima facie, that the incident at issue did not constitute an "occurrence" within the meaning of the subject policy or that the subject policy exclusions preclude coverage for the incident.

For the same reasons, the Appellate Court refused to dismiss Russo's first and second counterclaims, alleging breach of duty to defend and breach of duty to indemnify, respectively, as well as the fifth counterclaim, seeking recovery of attorneys' fees incurred in defending against this action.

However, the Court held in favor of State Farm's motion which were for summary judgment dismissing Russo's third counterclaim, alleging conflict of interest predicated on State Farm's alleged affirmative obligation to advise Russo of his right to retain independent counsel, and Russo's fourth counterclaim, alleging bad faith.

State Farm did not have an affirmative duty to advise Russo of the right to retain independent counsel (with no discussion of Elacqua). Further, the fourth counterclaim, alleging bad faith, is duplicative of the first and second counterclaims, alleging breach of the duty to defend and breach of the duty to indemnify, respectively, and there is no separate tort for bad faith refusal to comply with an insurance contract.

However, the Court held that the Declaratory Judgment Action should be dismissed, as premature. As State Farm failed to establish that there was no possible factual or legal basis on which it may eventually be liable under the policy, the declaration sought by State Farm cannot be granted in advance of the trial of the underlying action, and the court determined that this action was premature.

Editor’s Note: There are hundreds (thousands) of Declaratory Judgment Actions pending where an insurer seeks a determination that it has no duty to indemnify. Are they all premature? On the obligation to notify the insured of his right to independent counsel due to the possibility of a conflict of interest (intentional v. negligent), the court held that there was no such obligation but interesting, the Elacqua decision was not discussed,

Here's the problem with dismissal. We all know that the issue of intentional v. negligence cannot be resolved in the underlying lawsuit, or if it is, it will not be binding on the insurer. Who will prove up intentional conduct when they want insurance to pay the claim? Not the plaintiff and not the defense counsel (who cannot throw the client under the bus to remove coverage. So, then what happens? Guess what. A judgment against the insured and a subsequent direct action.

05/14/24  Greenwich Insurance Company v. The City of New York
Appellate Division, First Department
First Department Rejects Recoupment Claims, Even Though Preserved by Carrier

Greenwich reserved its right to recoup defense costs of the City of New York, a purported additional insured, when it was ordered to defend the City of New York in litigation. In the underlying claim, it was later determined, according to Greenwich, that the City’s liability was not caused in whole or in party by the acts or omissions of Triumph, Greenwich’s named insured. As the Court “has twice previously held that it is obligated to defend defendants, and as those decision is” law of the case,” and as the duty of an insurer to provide a defense is "exceedingly broad" and is triggered where, as here, the allegations in the underlying actions suggest a reasonable possibility of coverage, the court refused to permit the recoupment claim to go forward.

Editor’s Note: There remains a split in authority on whether recoupment of defense costs, in New York, will be countenanced. One of these days, it will make it up to the state Court of Appeals.

05/14/24  Harleysville Insurance Company v. United Fire Protection, Inc.
Appellate Division, First Department
Insurer Agreed to Defend Purported Additional Insured Based on Allegations in Complaint. As to the Issue of Indemnity, Resolving That Question Was Premature, As Underlying Action Was Still Pending, Court Could Not (And Should Not) Resolve the Question of Whether an Injury “Was Caused in Whole or In Part by the Acts or Omissions” of the Named Insured, so as to Establish Additional Insured Coverage

The lower court found that Everest Ins. Co. was required to indemnify CCM. Although Everest concedes that it must defend CCM, "the duty to defend is broader than the duty to indemnify," because only the latter "is determined by the actual basis for the insured's liability to a third person and is not measured by the allegations of the pleadings".

(In the underlying action, there had been no determination whether the plaintiff's injury was "caused, in whole or in part, by" the acts or omissions of the named insured or of those acting on its behalf. Therefore, any declaration of the duty to indemnify was premature ["It is after the resolution of that action where the extent of plaintiff's indemnification obligations can be fully determined"]).

Plaintiffs argue that "[w]here . . . there has been no determination of negligence in the underlying action . . . the motion court was required to resolve the issue" That exception applies only when the underlying action has already been terminated.

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

05/16/24 Timperio v. Bronx-Lebanon Hospital Court of Appeals
GUEST COLUMN: Death Connected to Workplace Shooting is Subject to Workers’ Compensation Benefits, and Exclusivity Protections Under Section 11 Of WCL

The New York Court of Appeals reversed the Appellate Division, Third Department, and ruled that a first-year resident at Bronx-Lebanon Hospital, who was shot and injured by a former hospital employee, was covered by Workers’ Compensation thus barring any personal injury claims against the Hospital.

Plaintiff was working on a nonpublic floor of the hospital in June 2017 when he was shot by Henry Bello, a former Hospital employee, who carried out a workplace shooting using an AR-15 rifle. A claim for Workers’ Compensation benefits was filed on behalf of plaintiff. In the meantime, plaintiff filed a negligence lawsuit against the Hospital to recover for his injuries.

In 2022, the Appellate Division, Third Department reversed a finding by the Workers’ Compensation Board that plaintiff was eligible for Workers’ Compensation benefits, which meant that the exclusivity provisions of the Workers’ Compensation Law would not apply thereby permitting plaintiff to sue his employer, the Hospital.

The Court of Appeals reversed the Appellate Division, reinstating the Workers’ Compensation Board’s determination. The Court of Appeals held that plaintiff was eligible for Workers’ Compensation benefits thus barring his claims against the Hospital.

Shout out to Caryn Lilling & Katherine Herr Solomon of Mauro Lilling Naparty, LLP who handled the case on behalf of Bronx-Lebanon Hospital and who prepared this summary. Great win!

When it was sued by the plaintiff, JDS commenced a third-party action seeking contractual indemnification against RCI Plumbing. Although issues of fact prevented the Court from awarding contractual indemnification to JDS, the Court noted that the subject indemnification clauses did contain “fullest extent permitted by law” language which meant that even if JDS is found negligent it is still entitled to pursue indemnity for the percentages of liability not directly attributable to its own acts or omissions.

05/14/24       Noel v. 33 E. 95th Realty, LLC
Appellate Division, First Department
Third-Party Complaint Seeking Common Law Indemnification Fails to Adequately Plead Grave Injury

Defendant commenced a third-party action against Champion Elevator Corp. Within the pleading, defendant incorporated the plaintiff’s underlying Complaint and Bill of Particulars which outlined the claimed injuries. Nevertheless, because the Third-Party Complaint did not sufficiently allege that the injury to plaintiff’s arm constituted a permanent and total loss of use under Section 11 of the Worker’s Compensation Law, a Cause of Action was not properly asserted.

05/09/24       Caras v. George Comfort & Sons, Inc.
Appellate Division, First Department
In Contractual Indemnity Claim, Merely Furnishing the Situs of the Accident is Insufficient to Demonstrate the Incident Arose From Contractor’s Work

The facts are brief in this decision, but they are worth highlighting, nevertheless. Plaintiff sustained injury when he tripped over debris that was on a lift he was entering. Defendant then sought summary judgment on a contractual indemnity claim against the lift company.

In denying the motion, the Court noted that the purported indemnitee needed to demonstrate that the incident was “originating from, incident to, or having connection with” the third-party defendant’s work. In reaching its conclusion, the Appellate Division referenced the Worth Constr. Co, Inc. v. Admiral Ins. Co. decision which established that merely providing the situs of the accident was insufficient to demonstrate that the incident arose from it. Rather, there must be something more to establish connectivity. Here, those concepts are applied to indemnity clauses and dismissal of the indemnity claim was affirmed as a result.

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

05/15/24  Davin v. Plymouth Rock Assurance Co. of New York
Appellate Division, Second Department
Plaintiff’s Bad Faith Claim Was Dismissed Based on Release and General Business Law § 349 Claim Was Dismissed Because it Alleged a Private Contractual Dispute

On February 11, 2013, the plaintiff allegedly sustained personal injuries when the vehicle he was operating collided with another vehicle on the Cross Bronx Expressway. The plaintiff's vehicle was insured by MAPFRE under an automobile insurance policy, which included SUM coverage. In November 2019, MAPFRE tendered $200,000 in settlement of the plaintiff's demand for SUM benefits under the policy, and the plaintiff executed a release releasing MAPFRE from claims under the SUM coverage for the injuries the plaintiff suffered in the accident.

In October 2020, the plaintiff commenced this action against Plymouth Rock Assurance Co. of New York, formerly known as MAPFRE, alleging causes of action sounding in bad faith and a violation of General Business Law § 349 arising out of the defendant's processing of the plaintiff's demand for SUM coverage. The complaint alleged the defendant failed to timely honor the plaintiff's SUM claim with the sole purpose of denying the plaintiff's right to the proceeds of the insurance policy, and that said failure was done with the sole purpose of frustrating the plaintiff's entitlement to a contractual benefit. Defendant moved to dismiss.

In support of its motion to dismiss the complaint, the defendant submitted the release executed by the plaintiff, which, by its terms, barred the cause of action alleging bad faith in the processing of the plaintiff's demand for SUM benefits Accordingly, the bad faith cause of action was dismissed.

The court also dismissed the cause of action alleging a violation of General Business Law § 349. The plaintiff failed to state a cause of action alleging a violation of General Business Law § 349, since the action involved a private contract dispute involving coverage under the subject policy, in contrast to deceptive conduct aimed at the public at large.

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

05/16/24       Baldo-Aponte v. Family Cyle Center, Inc.
Superior Court of Connecticut, Waterbury
Rental Car Company Does Not Owe UM Coverage to Renter

The court granted plaintiff’s motion to reconsider, but granted Enterprise summary judgment (again), finding that it did not owe the rental car driver uninsured motorist coverage.

Rey Balado-Aponte, rented a car owned by defendants CAMRAC, LLC and/or Ean Holdings (i.e., Enterprise). Co-defendants, Jessie Alvarado and Keisha Powell, got into an accident. The force of their collision caused their vehicles to hit the parked car rented by Balado-Aponte. Balado-Aponte and the co-plaintiff, Carlos Negron, were seated in the rental car when it was hit. Balado-Aponte and Negron were injured. Suit followed against the drivers, Alvarado (presumably uncovered) failed to appear, and then the plaintiffs added Enterprise making a UM claim.

The Enterprise rental agreement, signed by Balado-Aponte, expressly excluded liability and UM/UIM coverage “except as required by law.” Balado-Aponte declined the optional liability and UM/UIM coverage. Balado-Aponte’s Pennsylvania liability policy did not include underinsured or uninsured motorist coverage. Negron had no insurance.

Enterprise argued that it did not owe the plaintiffs any insurance obligations, as none are required by law or contract, and the plaintiffs declined the optional coverage. The plaintiffs argue that Connecticut law requires the owners of vehicles to maintain liability and UM/UIM coverage.

Connecticut law, CGS § 38a-371, requires all owners of vehicles registered in the state to provide have minimum insurance coverage or self-insurance. The law also requires that each automobile liability insurance policy provide uninsured and underinsured motorist coverage “for the protection of persons insured thereunder who are legally entitled to recover damages ... from owners or operators of uninsured motor vehicles and underinsured motor vehicles  ”

Thus, self-insured or otherwise, Enterprise, as owner of the rental car, was required to have liability and UM/UIM coverage “for the protection of persons insured thereunder.”

Enterprise argued that it was the insured (and self-insurer) but that the rental driver and passenger are not insureds. The Connecticut statutes and regulations, CGS

§ 38a-344-5(d), require that an auto insurance policy provide liability coverage for the named insured and “any other person or organization using the motor vehicle within the scope of his permission from the named insured….” However, there is a rental car exception found in section (c)(11)(B)(ii) which provides that the insurer’s obligation to defend and indemnify does not apply “(ii) while [the auto is] rented to others by the named insured unless to a salesman for use principally in the business of the named insured.”

The Court held that this provision plainly allows insurers to exclude coverage for rented vehicles, which the Enterprise rental agreement did. “Connecticut insurance regulations permit an insurer of a lessor to exclude entirely any liability coverage for customers of the lessor” (quoting Platcow v. Yasuda Fire & Marine Ins. Co. of America, 59 Conn. App. 47, 56 n.16, 755 A.2d 356 (2000).

The plaintiffs argued, unavailingly, that the statutes do not apply to Enterprise as a self-insurer. Further, they argued that, under the Graves Amendment and a 2018 Connecticut Supreme Court decision, Enterprise was not a self-insurer for UM/UIM purposes. See Tannone v. Arnica Mutual Ins. Co., 329 Conn. 665, 189 A.3d 99 (2018). The Tannone Court found that insurance companies can no longer exclude UM/UIM coverage for their insureds if the tortfeasor is driving a self-insured rental car.

However, this does not make the rental car driver and passengers insureds in the first instance or offend the public policy of the UM/UIM system.

[T]o protect properly insured motorists from the negligence of financially irresponsible motorists, our state law expressly provides that every automobile insurance policy must provide its insured with a minimum amount of uninsured and underinsured motorist coverage as provided for in § 14-112 (a).” (Emphasis added.) Tannone v. Arnica Mutual Ins. Co., supra, 329 Conn. 672. “The rationale behind this policy is ‘to reward those who obtain insurance coverage for the benefit of those they might injure.’” Id., 673. The plaintiffs here are not due the reward for the defendants’ insurance coverage.

(Emphasis added). Because the plaintiffs were uninsured (by Enterprise) for liability, they were not insureds for UM/UIM. Belado-Aponte twice declined to pay for uninsured motorist coverage—on his personal insurance and the optional rental insurance. “It does not offend public policy by not rewarding those who chose not to protect themselves. There is no reason to invalidate § 38a-334-5 (c) (11) (B) (ii) or treat the defendants as anything other than self-insurers.”

The court concluded that Connecticut law permits rental car companies to exclude from coverage the drivers and occupants of the vehicles, which Enterprise, the court found, adequately did so in the rental car agreement. Since the plaintiffs were not liability insureds, they were not entitled to UM/UIM benefits (especially having declined such optional coverage).

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

05/07/24       Am. Trans. Ins. Co. v. Long Island Jewish Med. Ctr a/a/o Machare
Supreme Court, Kings County
Court Denies Insurer’s Motion Seeking Discovery in Insurance Law § 5016(c) Action Seeking de Novo Review of No-Fault Claims

This no-fault action arose from an automobile accident in which the insured, Carlos Machare, was injured. The insured sought medical treatment in connection with his injuries from multiple providers including the defendant Medical Center pursuant to the no-fault provisions of the insurance policy. However, American Transit did not pay the no-fault bills submitted by the Medical Center on the ground that such treatment was not necessary and not casually related to the accident. The parties appeared for arbitration and the arbitrator awarded the Medical Center $5,750.8, which was sustained by a master arbitrator. The insurer than commenced this action pursuant to Insurance Law § 5016(c) seeking de novo review of the no-fault claims and filed a motion seeking to vacate the note of issue filed and to compel discovery.

First, the insurer served a HIPPAA authorization on the Medical Center to subpoena all medical records from all physicians that treated Machare. The court explained that the insured was an assignor who assigned all his rights to the defendant: "By virtue of their assignment of no-fault benefits to their providers, eligible injured persons have, divested themselves of their interest in those benefits, and they are not parties to actions commenced by their assignees". Here, where an action has been commenced by an insurer seeking de novo review, the same rule applies, as the insured is a non-party witness over whom the Medical Center does not have control. "[T]he principle that the "assignee `stands in the shoes' of an assignor" should not be construed to mean that it is the burden of the plaintiff hospital to produce at its deposition the nonparty who might possess information concerning [the insurer’s defense], nor to produce records and reports of other persons and companies'". Citing Westchester Medical Center v. State Farm Mutual Automobile Insurance Company, 2009 WL 730506 (Supreme Court Nassau County 2009).

Therefore, the court held that the defendant could not be required to provide HIPAA authorizations and the motion seeking to Compel such authorizations was denied. Likewise, any correspondence with any other facilities could not be disclosed without proper authorizations, which the defendant had no authority to provide. However, the defendant had to provide all information regarding the medical treatment of the insured.

Next, the insurer sought all papers and correspondence regarding the formation of the Medical Center, including ownership agreements purchase agreements, transfer agreements, certificates of incorporation, annual reports, and filing receipts. Courts have held that an insurer does not need to submit no-fault payments to a medical facility that has fraudulently incorporated. However, payments can only be withheld if the insurer had good cause to believe such fraud existed. Therefore, the court held that in order to seek discovery in this regard it must show a basis to believe the facility has engaged in some wrongdoing. In this case there were no allegations of any impropriety which would necessitate the production of the information sought by the insurer.

Therefore, the court denied the motion seeking evidence regarding the formation of the Medical Center. The court also denied the motion seeking to vacate the Note of Issue.

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

5/16/24         Allied World Surplus Lines Ins. Co. v. Elamex USA, Corp. et al.
United States District Court, S.D.N.Y.
Case Transferred to Western District of Texas as First-Filed Rule Did Not Apply and Balance of Convenience Otherwise Favored Transfer

This matter arose from a Notice of Claim letter sent to Defendants Elamex USA, Corp. (“Elamex”) and Mount Franklin Foods LLC (“Mount Franklin,” and with Elamex, “Defendants”), by Mars Incorporated (“Mars”) arising out of a product recall by Mars. Allied World provided insurance coverage to Elamex as a named insured and Mount Franklin as an additional insured under a Product Contamination Policy, (“the Policy”), in effect for the period of December 1, 2021, to December 1, 2022. The Policy covers losses caused by an incident of “Accidental Contamination,” “Malicious Contamination,” or “Product Extortion,” as those terms are defined in the Policy, which are first discovered and reported to Allied World during the policy period or within sixty days thereafter. Allied World sought rescission of the policy on account of information obtained during its investigation into Mars’ Notice of Claim.

Specifically, In their application for the Policy, submitted on October 29, 2021, Defendants answered “No” to Question 67, which asked whether “the Applicant, its principal(s), partner(s), officer(s), director(s) or manager(s) have knowledge or information of any current situation or circumstance which might lead to a claim under the proposed insurance.” However, Allied World apparently discovered that Mount Franklin managers were alerted to several incidents of metal non- conformance or metal contamination during its manufacture of food products for Mars, which would have been encompassed within Question 67’s purview. These instances of metal non-conformance or metal contamination resulted in a voluntary recall by Mars on May 13, 2022, due to the possible presence of metal fragments in these products manufactured by Mount Franklin, which was the subject of the Notice of Claim. Mars sought amounts in excess of the Policy’s limit of liability for such a claim. On November 10, 2023, Allied World notified Defendants that it was rescinding the Policy, while also asserting various exclusions.

Allied World filed the complaint in this action on Monday, November 13, 2023, the first business day after notifying Defendants of the rescission of the Policy. However, on January 18, 2024, Elamex and Mount Franklin filed a competing coverage action against Allied World in the United States District Court for the Western District of Texas, wherein Elamex and Mount Franklin asserted two causes of action: (1) breach of contract; and (2) common law bad faith denial of coverage. The Elamex and Mount Franklin coverage action alleged that for a month after tendering its claims to Allied World, Elamex and Mount Franklin received and responded to various requests for documents and information from Plaintiff's claims adjuster, and despite complying with every request, and without any advance notice, Allied World denied coverage for Elamex and Mount Franklin's claim.

The Defendants moved to transfer Allied World’s action to the Western District of Texas. “For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.” 28 U.S.C. § 1404(a). This required the S.D.N.Y. to conduct a two-part inquiry, into whether the action could have been brought in the Western District of Texas in the first place (the court easily found in the affirmative), and whether such a transfer is warranted for convenience and in the interest of justice.

The court first addressed the timing involved in the filing of Allied World’s action, as compared to the Defendants Western District of Texas action. The “first-filed rule” instructs “that where there are two competing lawsuits, the first suit should have priority, absent the showing of balance of convenience or special circumstances giving priority to the second.” Here, however, the court found that the presumption in favor of the first-filed action does not apply here.

Specifically, the court found that Allied World “has filed an improper anticipatory declaratory judgment action and that Plaintiff has engaged in manipulative and deceptive behavior.” Continuing, the court notes that the first cause of action, which sought a declaration “that [Allied World” is not liable on Defendants’ claim for coverage of the loss arising out of the Recall,” improperly “seeks only a declaration regarding Plaintiff's obligations to pay damages already accrued.” The court noted that the “declaratory judgment Plaintiff seeks would not ‘serve a useful purpose’ and is not necessary to ‘finalize the controversy and offer relief from uncertainty,’ because Plaintiff's ‘requested declaration goes only to liability for past damages, not the avoidance of (nonspeculative) future damages.’” The S.D.N.Y. further notes that “there is every reason to conclude that Plaintiff's proposed remedy ‘is being used merely for procedural fencing or a race to res judicata.’” The weighing factors considered by courts under the circumstances, the S.D.N.Y. had sharp words for Allied World:

A declaratory judgment may be appropriate, in effect, to quiet a claim creating uncertainty when the party with that potential claim fails to assert it.   But this case does not fall into that category. Defendants did not fail to assert a claim. Plaintiff refrained from taking the action, a declination of coverage, that would give rise to a claim by Defendants, and then filed this lawsuit as a gambit ostensibly to prevent Defendants from asserting their own claim. In other words, Plaintiff sought to use the DJA as an artifice to decide—as the party in breach—both the time and the place where its liability would be determined. . .. There is no preexisting state-court action, so that factor is irrelevant, and judicial economy has no “special relevance” where the dispute between the parties can be as easily adjudicated in Texas as here. . .. As to whether a “better or more effective remedy” lies elsewhere, Plaintiff “is entitled to the same remedy—a declaration of nonliability—whether it presents its claims as the plaintiff in a declaratory judgment action or as a defendant in an action for breach of contract.”

Finding inspiration from a past decision of the S.D.N.Y., the court advised that.

[T]o allow the instant case for declaratory judgment to proceed would, in effect, allow the insurer to pick the forum for litigation, not the insured, in the vast majority of cases. If an insurer may deny coverage through the initiation of a lawsuit, as Plaintiff did here, and if the injurer also is able to bring a declaratory action on a claim that it is not liable for already accrued claims, then the insurer will be able to beat the insured to the courthouse in every case and invoke the general presumption in favor of the first-filed action. The effect would be that any insurer in breach could deprive its counterparty of the prerogative to choose whether, when, and where to sue. The result ineluctably would be an unseemly race to the courthouse.

As for the second cause of action raised by Allied World, which sought a declaration that “the policy is rescinded and void ab initio,” the S.D.N.Y easily found it “no less improper or manipulative.” The court found that this second cause of action also “bespeaks not an effort to quiet a claim creating uncertainty, but an artifice and device to defeat the choice of the party who has suffered a breach to choose the time and the place where it will sue.”

Here, the court cut through Allied World’s argument with a scalpel of sorts:

even if the second cause of action were not entirely backward- looking, the relief it seeks is not properly obtained through a declaratory judgment. A declaratory judgment “declares the rights and other legal relations of a[n] interested party.”. . . It does not alter those rights. But while Plaintiff frames his request as seeking a declaration of existing rights—that the Policy is void ab initio—the request in reality is for an order that would alter the relationship between the parties and not declare that relationship. Although the cases sometimes use the language “void ab initio,” a claim of material misrepresentation under N.Y. Insurance Law § 3105 gives rise to the conclusion that the Policy is voidable, not void. The insurer, confronted with a misrepresentation, may still affirm or ratify the Policy. . . . An insurer's claim for relief from the contractual obligations imposed by the policy is waived if the insurer “fails to act within a reasonable amount of time after learning of the misrepresentation.” . . . The insurer may sue for an order of rescission, but until that relief is granted, the Policy creates legal obligations.

While the court recognized that “for a declaratory judgment action to be anticipatory, it must be filed in response to a direct threat of litigation that gives specific warnings as to deadlines and subsequent legal action,” it noted here that Allied World’s “action is an improper declaratory judgment filed preemptively to deprive the natural plaintiff of its choice of forum    The insured never had the opportunity to threaten litigation and did not incur continuing losses.   

Defendants. . . did not have a right to sue because [Allied World] declined coverage essentially at the same time that it filed the instant lawsuit.” Continuing its firm rebuke of Allied World’s posture, the S.D.N.Y. noted that “[a]t the very least, [Allied World’s] conduct was manipulative and deceptive. If given weight here, the treatment of [Allied World’s] lawsuit as the first-filed action would  permit the insurer in everycase to choose not only when it could be sued but where the suit against it for breach of contract would be litigated.”

Given the above, the S.D.N.Y. had no problem finding that the Western District of Texas was the more convenient forum to resolve the issues confronted.

Maxwell’s Minute: Ouch. I understand the issues involved and the court’s reasoning. I just have a hard time believing that anything done by Allied World here was “manipulative and deceptive” in the least. The course of action taken by Allied World here seems reasonable, even if it did not withstand challenge under the Second Circuit’s transfer of venue caselaw. Specifically, I’d say the conduct is reasonable for at least a few reasons: 1) insurers are constantly bombarded with arguments that their conduct was delayed and untimely. That a decision was made to rescind the policy within a month of first learning about the misrepresentation is commendable; 2) the timing of Allied World’s filing appears more indicative of a coverage attorney’s standard operating procedure than it is of forum shopping. There are plenty of scenarios where a coverage action should be filed quickly to obtain judicial verification that rescission was proper, most of which would not result in a transfer of venue. This one did and that’s okay. But “manipulative and deceptive” may be a bridge too far; and 3) the Southern District of New York was an appropriate venue to resolve this matter. Were the Defendants inclined to litigate there, without transferring the case, they certainly could have.

Again, I recognize and can appreciate the court’s analysis of the issues. And maybe Allied World did not agree to a transfer of venue when it should have, when confronted with the caselaw on the topic (courts do hate to issue decisions that are seemingly unnecessary to issue). I just take issue with the language used to characterize the insurer’s conduct as something that it likely was not.

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

04/30/24 Tan v. Allstate
United States District Court, E.D. Pennsylvania.
The Computation of Time Subsection of the Statutory Construction Act of 1972, 1 Pa. Cons. Stat. § 1908, Governs How the One-Year Limitation Provision in a Fire Insurance Policy Is Computed.Because the Filing Deadline Fell on a Sunday, the Last Day to File Was the Following Monday.

The issue in this action for breach of a fire insurance contract is whether the computation of time subsection of the Statutory Construction Act of 1972, 1 Pa. Cons. Stat. § 1908, governs how the one-year limitation provision in the contract is computed. We hold that it does.

Plaintiff Yoke Tiong Tan claims that Allstate denied coverage for fire damage to his home in breach of the parties' standard fire insurance contract. Moving for judgment on the pleadings, Allstate contends that the action is time-barred by the policy's contractual limitation provision because Tan filed his lawsuit one day late. Tan contends that because the filing deadline fell on a Sunday, the last day to file was the following Monday.

Tan does not challenge the validity of the contractual limitation period. He argues that applying the computation of time provision in the Statutory Construction Act extended the limitation period to the date he filed his action.

The one-year limitation period specified in the insurance contract is mandated by statute. Section 636 of the Pennsylvania Insurance Company Law of 1921 requires the inclusion of a one-year limitation clause in fire insurance policies. Pennsylvania's one-year limitation clause "represents a legislative determination of a reasonable period within which suits must be brought, a careful balancing of the interests of both insurers and insureds." Even though the one-year limitation is part of the insurance contract, it is a creature of statute. So, we look to the computation of time provisions in the Statutory Construction Act to calculate the last day to file an action.

The computation of time subsection reads:

When any period of time is referred to in any statute, such period in all cases, except as otherwise provided in section 1909 of this title (relating to publication for successive weeks) and section 1910 of this title (relating to computation of months) shall be so computed as to exclude the first and include the last day of such period. Whenever the last day of any such period shall fall on Saturday or Sunday, or on any day made a legal holiday by the laws of this Commonwealth or of the United States, such day shall be omitted from the computation.

1 Pa. Cons. Stat. § 1908.

Here, the fire occurred on July 2, 2022. The last day of the limitation period fell on a Sunday, July 2, 2023. Omitting that day from the computation, the last day to file the action was July 3, 2023—the day Tan filed this action. Therefore, because Tan filed this action within the statutorily prescribed time, we shall deny the motion for judgment on the pleadings.

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

05/10/24 Eastman v. State Farm Mut. Auto. Ins. Co.
Louisiana Supreme Court
JNOV Improper Where There Was Conflicting, Credible Evidence on Liability and Damages in Three-Car Collision

Burns, Eastman, and Peterson were involved in a three-car consecutive rear-end collision. Peterson started the chain by rear-ending Eastman’s car in start and stop traffic, and Eastman then hit Burns’s car. Eastman and his wife sued Peterson and her insurer, State Farm, for Eastman’s injuries, alleging Peterson was solely liable for the accident. Peterson and State Farm contended Eastman was comparatively at fault because he impacted Burns’s vehicle before being rear ended by Peterson. Thus, Eastman’s first impact with Burns’s car created a sudden emergency or hazard for Peterson, impairing her ability to avoid the collision with Eastman’s vehicle. There was also a dispute as to the severity of Eastman’s injuries.

At trial, the parties presented conflicting testimony about liability. Eastman testified that when Burns’s vehicle abruptly braked in front of him, he stopped his vehicle without hitting Burns’s car, but he saw Peterson’s vehicle approach without slowing in the rearview mirror. However, Burns testified that he felt like he was hit twice. Peterson claimed Eastman’s sudden stop created a hazard as she was trying to maneuver her vehicle into another lane. The jury found both Peterson and Eastman comparatively liable for the accident. Eastman filed a motion for JNOV or a new trial because the evidence strongly and overwhelmingly favored a finding of sole liability on the part of Peterson. The motion further sought increased damages, including future damages. The trial judge granted the JNOV.

On appeal, the Louisiana Supreme Court found the trial court erred in granting Eastman’s JNOV because conflicting, credible testimony was given as to whether Eastman collided with the vehicle ahead of him prior to being impacted from behind by Peterson. Faced with plausible, competing versions of the accident in question, the jury could have reasonably concluded Eastman impacted Burns prior to being impacted from behind by Peterson and that his negligence in colliding with Burns created a hazard contributing to Peterson’s inability to avoid the accident. Ultimately, the lower courts improperly reweighed the evidence, made credibility determinations as to the witness testimony, and ultimately substituted their judgment for that of the jury. The Supreme Court also found the trial court erred in granting the JNOV as to the severity and causes of Eastman’s damages. Accordingly, the Supreme Court reversed the court of appeal, vacated the judgment of the trial court, and reinstated the jury’s verdict.

GESTWICK’S GARDEN STATE GAZETTE
Evan D. Gestwick
[email protected]

05/13/24       Ahmed v. Am. Sec. Ins. Co.
Superior Court of New Jersey, Appellate Division
Question of Fact Created by Repair Estimate Opining as to Causation and Damages

Ahmed was insured under a homeowners policy with the defendant. During a period of heavy rain and wind, a tree fell on his home, causing damage to the roof, vinyl siding, concrete masonry wall, and more. The insured made a property damage claim for repair costs—his sixth of that year. Notably, the damages at issue in all of the prior claims had already been repaired.

The insured gave the carrier an itemized invoice from a contractor he retained, evidencing payment of $34,246 for the interior repairs. The carrier’s retained forensic investigator, however, opined that the damage here was not causally related to the tree falling, noting the five prior claims. The forensic investigator specifically mentioned in his report the presence of “historical and overlapping damage.” The carrier’s independent adjuster and forensic investigator determined that the damages that were casually related to the tree falling on the house were worth $8,703.65.

At the lower court, the carrier moved for summary judgment on the basis that there was no question of fact that the most to which the insured was entitled was $8,000, given the question of causation. The lower court agreed, granting summary judgment to the carrier, and holding that payment of $8,703.65 was proper. This appeal followed.

On appeal, the Court noted that, although the forensic engineer disputed that the interior damage was causally related to the tree’s impact, he acknowledged the “punctured roof and windows provide[d] openings for rainwater to penetrate the living space,” and “the displaced tree limb and branches impacted the house’s south elevation, south-facing slope, and the [concrete masonry] wall.” The Court compared this opinion to that offered by the insured’s contractor, which listed a total of 13 items repaired due to “damage caused by trees.” This, the Appellate Division held, created an issue of material fact, precluding summary judgment. The Court also noted that the carrier did not eliminate all issues of material fact with respect to which damages were incurred in connection with prior claims, which had already been paid, versus which damages were caused by the present claim.

05/14/24       Goyco v. Progressive Ins. Co.
Supreme Court of New Jersey Court Finds No PIP Coverage for Injuries Sustained While Using Low-Speed Electric Scooter

Goyco was riding a low-speed electric scooter (LSES) when he was struck by an automobile. He sought personal injury protection (PIP) benefits from his personal automobile insurance carrier, Progressive, who denied his claim on the ground that the LSES did not qualify as an auto, and that Goyco was not a pedestrian at the time of the accident. This action followed.

New Jersey’s PIP statute, also known as the “No-Fault Statute,” provides that no- fault benefits are available in one of two situations: (1) when the insured is occupying, entering, exiting, or using an “automobile;” or (2) when the insured is injured as a “pedestrian.” The question on appeal was whether Goyco fell into either of these categories, entitling him to PIP benefits.

The Supreme Court focused its analysis on whether Goyco was a pedestrian at the time of the accident. The No-Fault Statute defines “pedestrian” as any person not occupying, entering, or exiting a vehicle that is propelled by other than muscular power and designed primarily for use on highways, rails, and tracks. Removing the double negative as it exists in the statute, a pedestrian is one who is occupying, entering, or exiting a vehicle that is propelled by muscular power only, and is not designed for use on highways, rails, and tracks.

The first step in determining whether Goyco was a pedestrian is to determine whether he was occupying, entering, or exiting a “vehicle” at all. In other words, the first question is whether the LSES was a “vehicle.” “Vehicle” is not defined by the No-Fault Statute. Goyco urged the Court to apply a definition from a different chapter of the same title under which the No-Fault Statute falls, which includes bicyclists as “pedestrians.” The Court ultimately rejected this argument, opting instead to apply the common definitions provided by Black’s Law Dictionary, the New Oxford American Dictionary, and others—each of which essentially defines a “vehicle” as a vessel that transports people and/or cargo. The Court agreed that because an LSES is meant to transport people, and sometimes small amounts of cargo, the LSES qualifies as a “vehicle” for purposes of the No-Fault Statute.

The second inquiry to determine whether Goyco was a “pedestrian” is whether or not the LSES is propelled by muscular power. Noting that, at the time of the accident, the LSES’ electric motor was in use, and that in generally, Goyco’s LSES was not designed to be propelled by muscular power, the Court held that it was “propelled by other than muscular power.” This alone takes Goyco out of pedestrian status under the No-Fault Statute.

The Court nevertheless analyzed the third element of “pedestrian,” which is whether the LSES is designed for use principally on highways, rails, or tracks. The Court noted that, although its maximum speed was only 15.5 MPH, it had a headlight, brake light, and speedometer, and concluded that it is designed primarily for use on highways.

Since the Court determined that the LSES was propelled by means other than muscular power and was designed principally for use on highways, the Court held that Goyco was not a “pedestrian” within the meaning of the No-Fault Statute.

Editor’s Note: The Court did not spend much time analyzing whether Goyco may have fallen into the first category – occupying, entering, or exiting an “automobile.” Unlike the term “vehicle,” which is undefined by the No-Fault Statute, the term “automobile” is defined as a “private passenger automobile of a private passenger or station wagon type . . . and a motor vehicle with a pickup body, a delivery sedan, a van, or a panel truck or a camper type vehicle . . ..” This definition does not appear to encompass a motorized scooter.

O’SHEA RIDES the CIRCUITS
Ryan P. O’Shea
[email protected]

05/20/24  Dexon Computer Inc. v. Travelers Property Casualty Co. Of Am.
United States Court of Appeals, Eighth Circuit
Insurer Owes Duty to Defend Where it Learns Of Extrinsic Facts That Implicate Coverage

Dexon is a reseller of computer networking products. Dexon sources new and used brand name products from many different suppliers, including Cisco, Hewlett Packard, Juniper, and Dell; subjects the products to quality control measures; and resells them to its customers. In July 2020, Cisco Systems, Inc. and Cisco Technologies, Inc. (together, Cisco), sued Dexon in the Northern District of California (the Cisco Action). Cisco’s complaint included claims of federal trademark infringement and counterfeiting in violation of the Lanham Act.

The complaint recited alleged trademark infringements between 2006 and 2010 that were the basis of a previous suit dismissed with prejudice in 2011, and then alleged some thirty-five acts of infringement between 2015 and 2020. For each act, the complaint named the recipient of the allegedly counterfeit Cisco product, the number of allegedly counterfeit products Dexon sold to the recipient on that occasion, the product code associated with each product, and the date of the transaction.

Dexon tendered a defense of the Cisco Action to Travelers under the claims made liability policy Dexon purchased from Travelers for the policy period from May 18, 2020, to May 18, 2021.Travelers denied coverage and a duty to defend the Cisco Action.

Dexon’s policy with Travelers included a Communications and Media Liability coverage for losses caused by a “‘communications and media wrongful act’ committed anywhere in the world.” It defined these wrongful acts to include acts of trademark infringement, provided the wrongful act “was committed on or after the Communications and Media Retroactive Date shown in the CyberFirst Declarations and before the end of the policy period.” The Policy’s Retroactive Date is May 18, 2019. The Policy also includes a “prior acts” or “retroactive date” provision, which reads:

Each “communications and media wrongful act” in a series of “related” “communications and media wrongful acts” will be deemed to have been committed on the date the first “communications and media wrongful act” in that series is committed.

The policy defined “related” to mean “connected, tied or linked by any fact, circumstance, situation, event, transaction, cause or series of related facts, circumstances, situations, events, transactions or causes.”

Travelers’ position was that the acts were “related acts” as defined by the policy and thus were deemed to have been committed on the first date of alleged infringement, 2006. Dexon responded that it provided Travelers with additional information about the suppliers whom Dexon allegedly sourced the counterfeit parts from, that no acts involved the same or related suppliers, and worked with one supplier for twenty years without incident.

In response to the denial, Dexon filed a declaratory judgment action in Minnesota District Court seeking determinations on the duties to defend and indemnify. Travelers moved to dismiss. The district court dismissed Dexon’s bad faith claims but denied that part of the motion related to Travelers duty to defend and indemnify. Travelers attached the Cisco Complaint and the policy to its motion, while Dexon provided its Amended Answer in the Cisco Action, the tender letters, and evidence that Cisco’s prior 2011 lawsuit was dismissed. Travelers appealed the adverse portion of the district court’s decision.

Much like New York law, Minnesota holds an insurer’s duty to defend is broader to indemnify and an insurer must defend all claims if one even arguably falls within the scope of coverage, regardless of the merits of the claim.

The Eighth Circuit affirmed the district court’s decision. The court reasoned that thirteen of the alleged acts of in the Cisco Complaint took place in the policy period. A review of the district decision showed the lower court found Dexon informed Travelers that the products cited in the Cisco Complaint were (1) different products; (2) that had been purchased at different times); (3) from different sources; (4) by different Dexon employees; and (5) sold to different customers. The lower court reasoned that if one of the post-retroactive dates was even arguably unrelated to pre-retroactive dates, then Travelers owes a defense.

Travelers argued on appeal that only the four corners of the Cisco Compliant were to be considered when determining its duty to defend. The Court of Appeals disagreed; it found that position ignored long-standing Minnesota and Eighth Circuit precedent that an insurer must defend a claim if it learns independent knowledge of facts that may place a claim into coverage.

On the single occurrence issue, Travelers argued the “related acts” is broadly defined by the policy. Thus, based upon Cisco’s allegations of a fifteen yearlong infringement scheme the alleged acts were related to the pre retroactive infringement. The court did not buy the argument.

Instead, it found the Cisco Complaint alleged thirty-five individual, detailed, and distinct acts of infringement. It noted Travelers focused too heavily on the alleged fifteen yearlong scheme rather than the individual allegations. The court further reasoned that of course Cisco’s attorneys wished to show a scheme to be entitled to significantly enhanced remedies under the Lanham Act. Indeed, all Dexon needed to show was that a single act fell within the policy period to receive a defense from Travelers.

For the aforementioned reasons, the Eighth Circuit affirmed the district court’s decision to deny Travelers motion to dismiss.

Writer’s Note: After the denial of Travelers motion, Dexon and Travelers agreed to Stipulation for Final Entry of Judgment and for the Dismissal Without Prejudice of Certain Claims Pursuant to FRCP 41. The stipulation entered costs in favor of Dexon related to Travelers duty to defend and withdrew Dexon’s claim for indemnification without prejudice. The stipulation also permitted Travelers to appeal the district court’s decision regarding Travelers duty to defend. So, on appeal the duty to defend was the only issue heard.

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

05/09/24 Peart v. Carreras et al.
Appellate Division, First Department
First Department Unanimously Affirmed, Without Costs, a Decision Granting Summary Judgment in Favor of Defendants Dismissing the Complaint Which Included Claims for Serious Injury to Multiple Body Parts Under Various Categories of Insurance Law § 5102(d).

Plaintiff appealed from an Order of Supreme Court, Bronx County, which granted Defendants’ motion for summary judgment dismissing the complaint on the ground that Plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d). On review, the First Department unanimously affirmed the granting of the motion, finding the evidence presented in opposition failed to raise an issue of fact.

By way of background, this matter stems from a motor vehicle accident which occurred on June 11, 2020, where Plaintiff Dwight Peart’s vehicle came into contact with a vehicle operated by Defendant Andrew Carreras and owned by Defendant URS Midwest Inc. As a result of the accident, Plaintiff alleged numerous injuries, including to his back, left shoulder, and neck. He further alleged these injuries met the serious injury threshold under the following categories of Insurance Law § 5102(d): significant disfigurement, permanent loss of use, permanent consequential limitation of use, significant limitation of use, and “90/180”.

At the trial level before Supreme Court, Bronx County, Defendants moved for summary judgment dismissing the complaint, arguing that Plaintiff had not suffered serious injury pursuant to any claimed category of Insurance Law § 5102(d). The court agreed, and granted Defendants’ motion, prompting appeal by Plaintiff.

On review, the First Department confirmed the lower court’s finding that Defendants met their initial burden on summary judgment. Specifically, Defendants submitted an expert report from a physician who examined the Plaintiff and found normal range of motion in the back, neck, and left shoulder. Additionally, this expert had reviewed MRIs obtained of the Plaintiff, and concluded that no acute injuries were present – but rather that any pathology was degenerative in nature. Defendants also submitted a report from a biomechanical engineering expert who opined that the low impact nature of the subject accident could not have possibly caused the claimed injuries. Lastly, Plaintiff’s deposition testimony was submitted wherein he testified that he ceased treatment within eight months of the accident.

In opposition, Plaintiff failed to raise a triable issue of fact. The only report submitted in opposition was from a pain management provider who examined the Plaintiff once – more than two years after the accident and over a year after he stopped treatment per his testimony. Given that there was no admissible evidence submitted in opposition that was contemporaneous with the accident, nor any explanation offered for the cessation in his treatment, any claim that he had a causally related permanent injury was speculative.

Lastly, the First Department also specifically found that Defendants had met their burden showing Plaintiff did not meet the requirements of the “90/180” category. Plaintiff’s deposition testimony also stated that he was out of work for only six weeks after the accident. He then returned to full-time employment. Overall, the record contained no showing that Plaintiff’s usual activities were curtailed to a great extent within the requisite time period.

Accordingly, the First Department unanimously affirmed the lower court’s granting of summary judgment in favor of the Defendants.

GOLDBERG’S GOLDEN NUGGETS
Joshua M. Goldberg
[email protected]

05/15/24   Gillin v. Spiess
Appellate Division of the Supreme Court, Second Department
Summary Judgment Premature – No Depositions, IMEs or Bill of Particulars

Plaintiff moved for summary judgment on the issues of liability and whether Plaintiff sustained a serious injury within the meaning of Insurance Law §5102(d)…five days after issue was joined and prior to any discovery was exchanged. The Appellate Division affirmed the denial of Plaintiff’s motion as premature noting that there were no depositions, IMEs held, and Plaintiff had not even yet responded to Defendant’s demand for a Bill of Particulars. A review of the record reveals that Plaintiff’s motion was supported by an affidavit which claimed the defendant’s vehicle crossed over a double yellow line causing a head on collision – no police report or other corroborating evidence was submitted to support the affidavit. The lower court concluded that the affidavit was self-serving.

05/22/24   Marshall v. Manuel
Appellate Division of the Supreme Court, Second Department Labor Law Summary Judgment Not Premature

Here, Plaintiff commenced this action alleging violations of Labor Law §§200, 240(1) and 241(6). Plaintiff alleged that she was a “meter installer” with a non-party and that she injured her right pinky finger when the door of a vehicle parked nearby the moving Defendant’s residence. The moving Defendant’s established they had no authority to supervise or control Plaintiff, that they had no knowledge of the alleged defective condition that caused the injury, and that there was no elevated- risk related loss. Essentially, the Defendant’s established that Plaintiff was not in their employ, was not on their property, and that Plaintiff injured her finger in her own minivan’s door.

The Supreme Court granted the Defendants’ motion and on appeal, the Appellate Division affirmed, noting that the summary judgment motion was not premature, finding that Plaintiff failed to show that there were facts or evidence exclusively in Defendants’ control which were essential to opposing the motion. A review of the lower court record does show no discovery had been exchanged but based upon the affidavits submitted in support of the motion, it was clear that the Defendants just owned a nearby property and had no role in the Plaintiff’s doings.

Editor’s Note: These two cases are good examples of when a motion for summary judgment can be premature or its best to file early – in the one instance, we have Plaintiff moving just five days after joinder relying only on an 11-paragraph affidavit that only claims the Defendant’s vehicle swerved over into his lane, without anything more. On the other hand, we have a very descriptive set of affidavits by homeowner defendants who deny any involvement with their plaintiff, including any knowledge of the plaintiff before the suit.

LABARBERA’S LOWER COURT LIBRARY
Isabelle H. LaBarbera
[email protected]

5/10/24 Harleysville Preferred Ins. Co. v. Hudson Ins. Co.
Supreme Court, New York County
No Coverage Under Auto Exclusion, No Recoupment of Past Defense Costs

Plaintiff Harleysville Preferred Insurance Company (“Harleysville”) filed a declaratory judgment action, seeking a declaration that it was not required to defend and indemnify Advance Relocation & Storage, Inc, d/b/a The Advance Group (“Advance”), in a tort action brought by Theresa Gee (“Gee”). Harleysville additionally sought a declaration that Hudson Insurance Company (“Hudson”), was required to reimburse Harleysville for the past defense costs.

In the underlying action, it was alleged that in the course of Advance employees delivering goods, a crate fell from the truck resulting in Gee’s injuries. Gee testified that she did not recall seeing anyone unloading the truck immediately before the incident but saw a stack of plastic crates on the truck’s lift gate prior to the accident.

The Harleysville policy, issued to Molloy Bros. Trucking, contained an Aircraft, Auto Or Watercraft exclusion, which precluded coverage for damages arising out of the “loading and unloading” of any auto. In juxtaposition, the Hudson policy, issued to Molloy Bros. Trucking stated that the Hudson policy provided coverage for damages caused by an accident resulting from ownership, maintenance or use of a covered auto.

In Harleysville’s motion for summary judgment, it argued the auto exclusion precludes coverage under the policy, because Gee was injured during the unloading of the truck. Harleysville relied on Country-Wide Ins. Co. v Excelsior Ins. Co. (147 AD3d 407 [1st Dept 2017]), where the court found that even if the unloading of the truck was not the but for cause, the auto exclusion still precluded coverage because the worker was injured in the course of unloading the truck.

Hudson relied on Tishman Constr. Corp. v Zurich Am. Ins. Co. (204 AD3d 623 [1st Dept 2022]) in opposition. In Tishman, an employee was injured after he finished loading/unloading goods from a truck. While he was walking away, he fell into a hole in the ground. The court found that “an accident does not arise from the use of an automobile merely because it occurs during the loading or unloading process, but rather must be the result of some act or omission related to the use of the vehicle.”

In deciding Harleysville’s motion, the Court stated that the phrase “arising out of” means originating from, incident to, or having connection with. As a result, it found the Auto exclusion in the Harleysville policy precluded coverage for the underlying action. Even though the crates were not being physically removed from the truck at the time of Gee’s injuries, the damages occurred during the process of loading and unloading crates.

However, the Court denied the portion of Harleysville motion seeking reimbursement of past defense costs from Hudson. The Court acknowledged the split in authority between the First and Second Appellate Division on the issue.

The Second Department finds that recoupment of past defense costs requires an express provision in the policy, allowing an insurer to recover past defense costs. In the alternative, the First Department allows insurers to recoup costs after a finding of no coverage, based solely on a reservation of rights.

Harleysville did not produce any evidence of a reservation of rights to recoup defense costs. The language within the Harleysville policy did not expressly allow the recoupment of past defense costs. Accordingly, based on either the First Department or the Second Department’s interpretation, the Court found that Harleysville was not entitled to recoup past costs.

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

05/22/23       Constr. Distrib. & Supply Co. Inc. et al. v. Cont’l Cas. Co. o/a CNA Ins.
The Ontario Courts Are Adamant That the CGL Pollution Exclusion Does Not Apply Unless the Pollution Risk is Inherent to the Business Insured

In a short 10 paragraph judgment (from an unreported trial decision) that was released on May 22, 2204, the Ontario Court of Appeal firmly stated that the CGL pollution exclusion does not apply to incidental pollution risks.

The scanty facts supplemented by internet sleuthing reveal that some time ago, Highland Furniture occupied a bay in a retail commercial /industrial strip mall on Dundas Street East in the City of Mississauga, Ontario. (When one drives west on the 401, Mississauga is indistinguishable from Toronto, but proudly calls itself its own city.)

A pool and hot tub chemical supply vendor – Discounter’s Pool and Spa Warehouse – occupied the retail bay beside that of Highland Furniture. Chlorine is a mainstay for Discounter’s. One can imagine that furniture and chlorine would not be friends.

Apparently, a liquid chlorine spill migrated into Highland’s retail bay from Discounter’s retail bay. Highland (likely its property insurer) sued Discounter’s. Discounters tendered the action to its insurer, CNA. CNA pointed to the pollution exclusion in the CGL policy and denied a duty to defend.

Discounters brought an application demanding a defence. The trial judge granted that application. CNA appealed. The Court of Appeal stated:

The claim in this case is essentially a claim for damages arising out of the respondents’ alleged negligence in the course of conducting their regular business – the very sort of claim that the respondents were entitled to think would be covered by the policy, unless their regular business activities included an inherent risk of pollution. In this case, while liquid chlorine can cause damage if spilled, its storage for the purpose of resale does not comprise an inherent risk of pollution nor, more importantly, does Highland Furniture’s claim, Furniture’s claim, upon which the coverage assessment is to be based, plead the existence of such a risk.

In the circumstances, the application judge correctly found that there was at least a “mere possibility” that the claim against the respondents was covered by the policy.

This decision is in line with its previous decision in Hemlow Estate v. Co- operators General Insurance Company, 2021 ONSC 664, aff’d 2021 ONCA 908 [written up in the June 10, 2022 edition of this newsletter] and is not a surprise. CNA was ordered to pay $15,000 of court costs to its insured, Discounter’s.