Coverage Pointers - Volume XXV No. 26

Volume XXV, No. 26 (No. 673)
Friday, June 7, 2024
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.

 

Welcome to our final issue of Volume 25 of Coverage Pointers.  This issue completes a quarter century of bi-weekly newsletters and we’re delighted that we have been able to provide a service to the insurance and legal communities.  Here is a link to Volume 1, No.1, which was published on July 8, 1999.  Thank you to our editors, our staff and to you, our loyal readers.

In our current newsletter, we take strong issue with an appellate decision holding that an additional insured is entitled to rely upon the insured contract exception to the additional insured exclusion in a CG 00 01 04 13 policy form.  The decision is simply wrong.

Today, Friday, I’m presenting for the NYS Bar Association in a virtual continuing legal education program.

 

NY Liability Insurance Coverage Protocols: What Lawyers and Insurers

NEED to Know About Coverage Letters

 

 

 

New York coverage letters present special problems and challenges for liability insurers, for policyholders and for litigants on all sides of the aisle.  The purpose of this program is to protect insurance companies from inadvertent losses of important policy defenses and to provide guidance to policyholders and litigants alike on how to read, understand and evaluate coverage letters received from liability insurers.

Accordingly, every couple of years, Hurwitz Fine presents this New York coverage tutorial for those who handle New York policies and claims. Failing to follow the rules, which have timeliness and copying requirements can lead to challenges for liability insurers, including a loss of the right to rely upon policy exclusions and breaches of policy conditions, and opportunities for policyholders and litigants.

If you handle New York coverage work or if you represent civil litigants in personal injury or property damage cases, either as a claim professional or as a lawyer, this training is for you.

New York coverage rules differ significantly from those in other states, primarily because of the statutory requirements set forth in Insurance Law §3420(d).  When must a coverage letter be sent?  Who is required to receive a copy?  Are there different standards for bodily injury, wrongful death, and property damage cases?  What is a “courtesy defense”?  Is there “magic language” that needs to be included in the letter?  What happens if you don’t follow the rules? Do the rules only apply to policies issued in New York?

If you, as an insurer, are preparing to write a reservation of rights letter on a New York loss, you may be shooting yourself in the foot, or heart, or wallet. There may be – and often are – very dangerous consequences if one fails to send out a timely, properly copied, coverage letter or if it does not contain a high degree of specificity. If you are the recipient of a coverage letter from an insurer, it requires close review, to confirm compliance with New York rules, in order to evaluate its effectiveness.

Whether you are an insurer, a policyholder, an attorney representing an insured party, or one handling a case on behalf of an injured party, insurance coverage training is a critical resource.

This program is sponsored by the Torts, Insurance and Compensation Law Section and co-sponsored by the Trial Lawyers Section.

Program Presenter:

Dan D. Kohane, Senior Member/Educator, Hurwitz Fine PC, Buffalo, New York

You can still enroll.

Social Inflation

The rise in claims costs and seemingly proliferation of nuclear verdicts known as “social inflation” began prior to the COVID-19 pandemic.  Changing jury attitudes in a post-pandemic politically charged environment has only compounded the issue. Hurwitz Fine litigator, Chris Potenza, explores the root causes of social inflation and addresses strategies to address it in his presentation: “Navigating the New Damages Landscape: Strategies for Combating Aberrational Verdicts in a Post-Covid Politically Charged Environment.”  This program is being presented at the Harmonie Group’s 2024 Northwest Arkansas Transportation Seminar on June 12^th. 

If you are unable to make it to Arkansas, contact Chris to schedule this interactive 30-minute presentation for your team.   

  

 

YOUR INPUT APPRECIATED

For the past few years, in partnership with my colleague, John Trimble from Lewis & Wagner in Indianapolis, we have offered on-line Zoom training programs providing a Primer for CGL coverage, Risk Transfer, Choice of Law and other topics. We have had thousands of participants in these programs and the feedback has been fantastic.

We’re now planning our 2024 training schedule.  Are there topics for which your staff could use interactive Zoom training?  Are you interested in the programs we’ve shared in the past because of new hires?  Let us know.

Just respond here and let me know: [email protected]

 

Need a mediator for an insurance dispute? Coverage mediation is a thing!  Subject matter expertise may be useful.

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

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

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

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

Try mediation.

 

Newsletters:      

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

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

   

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

   

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

   

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

 

Woman Scorned – 100 Years Ago:

The Buffalo Commercial
Buffalo, New York
6 June 1924

“Woman Scorned” is
Bitter in Revenge

Fourteen-year-old Girl Brings Grave Charges
Against Cold-Hearted Youth

          A charge of criminally attacking Lillian Stefaniak, fourteen years old, of 133 Gatchell street, against Casmier Gaczewski of 125 Gatchell street, was today dismissed by Judge Hartzell in City court, following a report by William Gilner, a probation officer, who reported that the charge was apparently brought in a spirit of revenge.

          The probation officer reported that the girl had been running after Gaczewski and sending him suggestive letters and that he had refused to keep company with her.

          In her information she alleged that he dragged her onto the railroad tracks near Shepard street and that when she screamed two men responded to her cries, but they helped Gaczewski. She continued to scream, and two other men came to her rescue. None of these witnesses could be found and Gaczewski denied he was there having left the girl a short time before.

 

Peiper on Property (and Potpourri):

A quick comment on Parisi v. Kingstone Ins. Co. reviewed in both the undersigned and Brian Barnas’ columns this week.  The carrier appears to have denied the risk on the basis of the earth movement and water exclusions.  This is despite the fact that the alleged source of the water was from a refrigerator (i.e., plumbing leak). 

While exclusions in property policies, like any other policy, are to be read ad seriatim, one needs to be aware of the dominant and efficient cause of loss rule in NY too.  That rule, basically, says what would a typical insured believe was the cause of the loss.  Here, we would submit that the leaking fridge, and not the water emanating from it, was the understood cause of loss.  As such, we could surely see how the Court would find coverage was triggered.  

We also review a second case from the Second Department this week which addresses material misrepresentations in the total number of families.  Spoiler alert … don’t lie on your insurance application! 

That’s it for this week.  See you in two more.

Steve
Steven E. Peiper
[email protected]

 

Avoid the Spirits – 100 Years Ago:

The Buffalo Commercial
Buffalo, New York
6 June 1924

Drunken Man Dies
In Fall From Tree

NORTH TONAWANDA, June 6. (Special) – Anthony Bodowski, 45 years old, who was boarding at 32 Eighth avenue was found dead on the sidewalk in front of his boarding place early this morning. Bodowski is said to have been under the influence of liquor when he tried to climb a tree from his bedroom window.

A limb of the tree broke and Bodowski fell several stories to the ground. A crushed breast causing internal hemorrhage is said to have resulted in death. Bodowski has no relatives in North Tonawanda.

 

Barnas on Bad Faith:

Just a short note from me this week.  I have a case from the Second Department where the court dismissed a bad faith claim as duplicative of the breach of contract action.  The court did find that the insured’s first party loss was covered under the policy.

Brian
Brian D. Barnas
[email protected]

 

Insurance Men Debate “Part Time” – 100 Years Ago:

Democrat and Chronicle
Rochester, New York
6 June 1924

INSURANCE MEN TO HEAR
‘PART-TIME’ DISCUSSED

          The part-timer insurance and the new changes in the state highway law, making the owner of an automobile liable for accidents when others are driving his machine, will be discussed at the monthly meeting of the Casualty Insurance Club at the Chamber of Commerce at 6 o’clock to-night.

          A short time ago the club went on record to the effect that “the part-timer in insurance is a menace to the insured and legitimate agent” and agreed to uphold the state insurance commissioners in their attempt to confine the writing of insurance to competent and trustworthy agents and brokers. The commissioners in a recent meeting condemned the practice of licensing agents and brokers who obtain the license for the purpose of incidentally placing insurance in connection with some other business or vocation.

          Charles L. Brown, Jr., of the Travelers Insurance Company, will lead the discussion on the Fearon amendment to the highway law. The part-time subject will be introduced by J.F. Long, of the Aetna companies. Harry Crowley, chairman of the Legislative Committee, will report. Ernest A. Paviour will preside.

 

Lee’s Connecticut Chronicles:

Dear Nutmeggers:

It’s been a quiet couple of weeks as we settle into life on the Shoreline—that’s what we call the beach here in Connecticut. To the surprise of absolutely no one, we’ve already had overnight visits from three of our four kids, with the lone holdout scheduled for a ‘few weeks’ before he heads down to Hilton Head for the summer (he’s working in the pit band of a summer stock theater company).

Meanwhile, just like the symphony in motion of the waves (kudos to poet Wayne Anderson), the cases keep on coming. In this edition, we are proud to report on one of our own – an appellate victory for our client, National General.

The Appellate Court of Connecticut affirmed summary judgment, holding that an insurance company satisfies its notice obligation to an insured by sending a notice by certified mail and that the insurer has no obligation to ensure actual delivery. Here, NatGen non-renewed a homeowners policy for an unacceptable underwriting risk that the insured did not remediate. Sadly, only a few weeks after the policy was non-renewed, there was a total fire loss. Postal records showed three attempts at delivery, but the non-renewal was returned unclaimed. The homeowners argued that they were entitled to actual notice—meaning that NatGen was required to ensure receipt of the certified mail to effectuate the non-renewal. The trial and appellate courts both disagreed, finding that the plain terms of the statute and policy allowed for notice to be sent or delivered. Interpreting sent to require proof of delivery nonsensically renders the language deliver or deliver, a result not countenanced by any rule of construction. Read on for a more fulsome discussion or check out this Insurance Journal article (no, I wasn’t quoted).

And, finally, a reminder that if you are going to be at the DRI Bad Faith conference in Nashville next week, come say “Hi.” I’ll be there with my partner, Brian Barnas. If you see a very tall lawyer next to a shorter lawyer, that’s us (I’m the height challenged one).

Keep on keeping safe.

Lee
Lee S. Siegel
[email protected]

 

How Small is Small? – 100 Years Ago:

Democrat and Chronicle
Rochester, New York
6 June 1924

SMALLEST SHOP OPENS
DOORS IN METROPOLIS
FRONTAGE OF 18 INCHES

          New York, June 5. – The smallest store in New York was opened today by Leon Goldstein, who has to use very small letters to write “expert locksmith, machinist and electrician” over his door.

          Goldstein pays $15 a month for his store, which has a frontage of eighteen inches and is five feet deep. Despite stories of high rents in Manhattan the locksmith, who is 60, decided to go into business for himself. He found low rent, and although he has to stand sideways when working at his key machine, he says he’s satisfied.

 

Kyle's Noteworthy No-Fault:

Dear Readers,

This week’s no-fault case involves a priority of payment dispute between two insurers after a pedestrian was struck by a driver of a rental car owned by Drivo. The pedestrian made a claim upon the Motor Vehicle Accident Indemnification Corporation, who brought this action against Drivo and the driver of the rental vehicle’s insurer for amount paid to the pedestrian. The arbitrator awarded MVAIC the sum of $50,000 against Drivo and $0 against the driver’s insurer and brought this action to confirm the award and direct judgment.

Until next time,

Kyle
Kyle A. Ruffner
[email protected]

 

NYC is Cleanest City – 100 Years Ago:

Times Union
Brooklyn, New York
6 June 1924

New York Cleanest
Of Cities, Expert Says

          One of the reasons for New York City being the premier city of the world, according to Eugene B. Gibney, director of recreational activities of the Department of Education, as given in an address last night before the Ridgewood Community Council at Public School No. 93, Forest avenue and Woodbine street, was the fast that the citizens of the city are the best behaved.

          “New York City,” he said, “is the cleanest, best governed and best living city in the world. All this is due to the keen sense of responsibility felt by the citizen toward their government. New York has comparatively the smallest police force of any metropolis. This is another indication of the wonderful realization of good citizenship shown by New Yorkers.

          “Conditions in the subway, where people stand for such audacious treatment food naturedly is another indication. Gradually, we of New York, are growing above that need for childish restraint expressed so commonly in grown up people. We refuse to interfere with the rights of others and insist on preserving our own.

          “One deplorable condition, however, is arising, due to advanced civilization. We deprive ourselves of our own happiness. Industries are daily springing up that aid us in this. The motion picture gives up canned amusement, but careful thought will show that this is only artificial.”

          The meeting was presided over by James V. Emerick, president of the organization.

 

Ryan’s Federal Reporter:

Hello Loyal Coverage Pointers Subscribers:

My son hit his first double on Tuesday as the leadoff batter in the last inning, sparking a rally for the win. Following a few tough outings at the plate a few weeks ago, I have asked him before each at-bat what his mindset is at the plate. Our scripted answer is “to have fun” and boy did he ever. His eyes lit up as he left the box and rounded first base. Surprisingly, he listened to his first base coach (me) without question (rather refreshingly, I might add) and even stopped on second base like he had done numerous times before. Proud dad moment. Now we need to get him to flush the leather a bit more in the field.

When SCOTUS speaks (about anything New York insurance related), we listen. Today’s column outlines how SCOTUS handled the alleged selective enforcement of New York’s insurance regulations to stifle the Constitutionally protected First Amendment rights of the National Rifle Association by coercing DFS-regulated entities to terminate their business relationships with the NRA in order to punish or suppress the NRA's advocacy.

Ryan
Ryan P. Maxwell
[email protected]

 

Fire Insurance Company Seeks Boy – 100 Years Ago:

The Brooklyn Daily Eagle
Brooklyn, New York
6 June 1924

WANTED – Boy of good education, by large fire insurance company; opportunity for advancement; no previous experience required. Call 11^th floor, 100 William St. Manhattan.

 

Storm’s SIU:

Hi Team:

Sitting here watching the Dodgers lose to the Pirates, ugh (Dodgers’ fan).  I’m headed down to Pittsburgh tomorrow to see them play live and, hopefully, win. 

One looooong case for you this week but a good read:

Insurer’s Motion for a Preliminary Injunction Order is Granted Against Medical Providers Enjoining them from: (1) Pursuing any No-fault Arbitrations Until the Declaratory Judgment is Resolved; and (2) Filing any Additional No-fault Arbitrations and Lawsuits Until the Declaratory Judgment is Resolved.  The Court Declines to Preliminarily Enjoin Defendants from Pursuing No-fault Actions that are Currently Pending in State Court Because the Anti-Injunction Act Precludes that Relief.

You can read more on the related criminal case here: 

https://www.justice.gov/usao-sdny/pr/new-jersey-man-sentenced-10-years-prison-leading-one-largest-no-fault-insurance-frauds 

Thank you, Josh Goldberg, for bringing this article to my attention. 

Have a great two weeks!

Scott
Scott D. Storm
[email protected]

 

Ahh – School Immorality – 100 Years Ago:

The Los Angeles Times
Los Angeles, California
7 June 1924

SCHOOL IMMORALITY SEEN

Superintendent Charges Wild Parties of Pupils at Santa Ana;

Parents Blamed

          SANTA ANA, June 6. – Charges of immorality among pupils of high schools here were made by City Superintendent of Schools Cranston at two mass meetings today attended by parents and faculty members.

          Although some intimation of the disclosures was given by Superintendent Cranston when he announced yesterday that he would conduct the meetings, his frankness and the astounding facts he set forth had the effect of a bombshell. Many parents who attended the meetings, which were conducted at junior and senior high schools, expressed grave concern at the charges.

          The immediate effects of the two meetings were the passage of resolutions indorsing the superintendent’s attitude and recommending further investigation.

          Blame for the asserted laxness in the morals of the pupils, boys and girls, was placed on the shoulders of the parents, who, Cranston declared, have not been able to learn the true facts through their indifference. He said the schools have done all they can to stamp out immorality but can make no headway without the parents’ efforts.

WILD PARTIES ASSERTED

          Without mentioning names but stating that all cases he recited have been found to be true. Superintendent Cranston told of a series of wild parties in which liquor flowed freely and boys and girls mingled without regard for propriety. Principal Nelson of Julia C. Lathrop Junior High School, told of a proposed wild party to Tia Juana of which he said he learned but had broken up by appealing to the invited members. Eight boys and eight girls were to have been at this party, he said. All but two of the youths, he said, were pupils in high schools.

 

Fleming’s Finest:

Hi Coverage Pointers Subscribers:

This week’s case comes from the land of the midnight sun. The Alaska Supreme Court found that a teacher created a genuine issue of material fact regarding the amount of damages attributable to his breach of contract for failing to reimburse his employer’s self-insured healthcare plan.

See you in a fortnight,

Kate
Katherine A. Fleming
[email protected]

 

Wandering Youth – 100 Years Ago:

The Buffalo News
Buffalo, New York
7 June 1924

Boy of 11 Home Again
After 40^th Trip “West”

          WEST HOBOKEN, N. J., June 7. – Willis Sebeck, eleven-year-old would-be adventurer, was again housed at home today after what his father states was his 40^th attempt to go West and see the Indians on western plains.

          The frequency of the trips was shown to be possible when his father explained that Jersey City, adjacent to West Hoboken, had been the terminus of each excursion due to the vigilance of the police there in picking up suspicious travelers.

Editor’s Note ­– I wondered what ever happened to our friend, Willis.  He was institutionalized in an asylum where he appeared to spend the rest of his life.  Sad.

 

Gestwick’s Garden State Gazette:

Summer is finally here, and in full force. Hot and muggy the last few days. Heading up to the Allegany Mountains this weekend for some fresh air and kayaking. Apparently, the New Jersey courts, too, are enjoying the warm air, as there are no noteworthy cases to report on this time around. I’m sure we’ll have plenty to discuss next time around.

See you in two weeks.

Evan
Evan D. Gestwick
[email protected]

 

Busy Civil Docket – 100 Years Ago:

Press and Sun-Bulletin
Binghamton, New York
7 June 1924

Civil Actions Slated
For Jury Trial Here

Twelve Cases Await Disposition in Supreme Court Before
Justice Hill of Norwich, Soon to Hold
Sessions Here

          Twelve Civil actions are scheduled for disposal by jury trial next week in Supreme court after which it is expected that the jury will be dismissed by Justice James P. Hill of Norwich and time devoted to the disposal of a large number of equity cases which are on the calendar. Principal among these cases is 36 in which marital differences form the basis of the suit. Seven are for annulment of marriage, 17 are for divorce and 12 are for separations. It is estimated that the holding of court with a jury has cost Broome county $2,000 a week. It is expected that the majority of these actions will either be brought before Justice Abraham L. Kellogg of Oneonta on June 16 or will be heard by justice Rhodes who will return to this city after next week for the summer.

          The $5,000 damage action brought by Harry Karain, owner of the Belden farm in the Twon of Colesville, against Samuel Brownstein of 9 Winding Way to recover for alleged damages inflicted on his farmhouse is scheduled for trial Monday.

          Karain alleged that Brownstein, while in temporary possession used the property for illegal purposes and marred and injured the walls and floors so that its value dropped from $9,000 to $4,000. The defendant, Mr. Brownstein, who is represented by Mangan $ Mangan, denied that he ever occupied the place. He also denies that he ever used the property for any illegal purpose but exchanged it with the plaintiff for other property in order to clean up a debt which Karain owed him. George E. Zator will appear as Mr. Karain.

 

O’Shea Rides the Circuits:

Hey Readers,

This week I have a case from the Seventh Circuit involving an arbitrator’s award. The insured did not like the award nor attorneys’ fees within the award to the carrier. So, they appealed the award to the Circuit Court, who agreed with the arbitrator’s award of attorney’s fees. In fact, the Circuit Court also wants to award the carrier attorneys’ fees for the insured’s conduct.

See you in two weeks.

Ryan
Ryan P. O’Shea
[email protected]

 

Ford Had a Better Idea – 100 Years Ago:

Press and Sun-Bulletin
Binghamton, New York
7 June 1924

HE CERTAINLY HAS DONE ONE BIG THING

         Henry Ford has placed his name on 10,000,000 moto cars. It is an achievement. Whether it has made him the richest man in the world or not, it has made him one of the most widely known individuals.

          He is recognized as an authority on cheap cars. Fortunately for the country, however, he is not recognized as an authority on history, as an export on the racial qualities of the Hebrew people or as a 100 per cent American patriot in asking for a perpetual lease on Muscle Shoals.

          Congress having very properly turned down his bid for the government plant, Henry Ford is now free to devote his time either to running for president or to turning out another 10,000,000 flivvers.

         

Rob Reaches the Threshold:          

Hello Readers,

By the time you all are enjoying this week’s publication, I will be in the midst of my bachelor party trip out in Scottsdale. I have been beyond excited for this trip, but as fate would have it, there will be potential record-breaking heat for this time of the year out in the desert… To all my friends/family who will be joining on the trip, I both apologize and thank you for your commitment to our friendship. Here’s hoping for some great golf, with some better (inside) activities, with some of the best people I know.

For this article, we review a Decision from the Second Department, which provides a stark reminder to movants for summary judgment that your submissions need to be sufficient to meet your prima facie burden.  

I hope you all enjoy the read. See you all again in two weeks.

Rob
Robert J. Caggiano
[email protected]

 

Drink the Ink – 100 Years Ago:

Lodi News-Sentinel
Lodi, California
7 June 1924

HUMAN WRECK,
INK IMBIBER,
ARRESTED HERE

RUINED MENTALLY AND PHYSICALLY,
MAN STEALS FLUID FROM OFFICES, BANKS

          George T. Cronin was all “inked up” when brought before City Recorder Henry F. Ellis yesterday morning. He was arrested Thursday night on a charge of being intoxicated. Six bottles of writing ink were found in his possession. Two of the bottles were empty. Cronin had imbibed too freely of the writing fluid, and he was so drunk he could hardly walk.

          Cronin related one of the most unusual cases in the history of California police courts. He is the only man known who has become a victim of ink drinking, using what is quick drying ink and which contains alcohol. For two years he has been an ink fiend. He presented a pitiful sight. The ink has ruined him both mentally and physically. The fluid has entered his veins, and his body and face are blue from its effects. His eyes are terribly affected, and he is going blind. He trembles violently and at times is absolutely unable to walk.

          Cronin stated that when he has no money with which to buy ink he helps himself to the fluid at banks, post offices, libraries and other places, using a fountain pen filler to fill a bottle he carries in his pocket. The bottles of ink taken from him Thursday night are now being used for writing purposes in the city offices.

          “I believe this is the first case of its kind on record,” said City Recorder Ellis yesterday after sentencing Cronin to pay a fine of $10 or serve ten days in jail and withheld on his promise to leave Lodi.

          Since prohibition went into effect and liquor has been hard to get by men without money, people have been arrested in Lodi for drinking denatured alcohol, canned heat, hair tonic and perfume, but Cronin is the first ink drinker taken into custody.

         

Goldberg’s Golden Nuggets:

Hi All:

Hello June. It’s this time of year my Fantasy Football league that started back in college convenes to vote on rule changes for the upcoming season. It appears that the option to do away with Kickers is on the ballot. Given the drama caused by Kickers in the NFL this year, I’m OK with the change.

As for this edition of Coverage Pointers, I have two cases that are somewhat outside of the normal wheelhouse. We have an abuse of corporate form lawsuit emanating from a personal injury claim and a cautionary tale of practice before the Workers’ Compensation Board. Sometimes these periphery cases are the ones I like to stash away for rainy days.

Anyway, be well and have a great weekend. A very happy Fathers’ Day to all the dads out there.

Josh
Joshua M. Goldberg
[email protected]

 

The Babe – 100 Years Ago:

The Shreveport Journal
Shreveport, Louisiana
7 June 1924

BABE RUTH GAINS PLACE AMONG A.L.

          CHICAGO, June 7 – (By Associated Press) – Babe Ruth, who in 1921 achieved the honor of pelting out 59 home runs, has landed among the leading batters of the American League after a long chase.

          The Yankee star, threatening to challenge Harry Heilmann of the Tigers for the leadership, today is batting in fifth place, with an average of .367 a gain of 31 points within a week. He continues to swing his bat with the same effectiveness in driving out of the homers, having connected with three the last week, bringing his total up to 14. The figures include the games on Wednesday.

 

LaBarbera’s Lower Court Library:

Hello Again:

It has been a packed week for me. First, my brother and I flew over to Norway to surprise our mom for her birthday. It was a quick four-day trip, but with the amount of excitement (and ice cream), one would guess we were there the entire month. I returned Monday ready to catch up on some sleep. Little did I know I was coming home to a surprise of my own. Sitting on the couch was a four-month-old puppy. Welcome to the family Lola!

This week I am reporting on a New York County decision denying an insured’s motion for summary judgment. The decision is rather brief but reiterates important concepts regarding an insured’s ability to recover attorneys’ fees against an insurer.

Until next time!

Isabelle
Isabelle H. LaBarbera
[email protected]

 

Not a Good Way to Go – 100 Years Ago:

The Long Beach Telegram and The Long Beach Daily News
Long Beach, California
7 June 1924

DRIVES CAR INTO SEA, BEATS
HEAD ON ROCK, TRYING TO DIE

          Paul Weisse, Log Angeles real estate man, was reported “out of danger” at the Santa Monica sanitarium today, following two spectacular attempts at suicide.

          His first attempt to die was when he drove his sport model car from a 40-foot cliff into the ocean a mile and a half north of Santa Monica, off the state highway. He was thrown clear of his car and landed on the surf with only slight injuries. Miss Mildred Scott, 3860 Woodlawn avenue, Los Angeles, dragged him to shore.

          Arriving on shore, Weisse persisted in his efforts at self-destruction by beating his head against a rock. He was overpowered by passing motorists and taken to the Martin sanitarium, Weisse is 33 years old and lives at 1106 Seventieth street.

 

North of the Border:

I’m writing this note shrouded in fog in St. John’s, Newfoundland. I’m here on days off between meetings in Toronto and Halifax. Unfortunately, the icebergs that travel down the east coast of the province are still too far north to be seen on this trip.  We are early for the whale migration. We have seen two puffin colonies and where there are puffins, there are eagles. This is a captivating province with a distinct culture and sense of fun. I will be back.

My article this week concerns the tripartite relationship and whether the insurer may have access to privileged solicitor client information for all purposes including coverage issues.

Until next time.

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

 

Headlines from this week’s issue, attached:

 

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

• A Win for the Good Guys. Statute of Limitations Expiration Leads to Dismissal of Declaratory Judgment Action. What is a Name?  Court Distinguishes Between Statute of Limitations for DJ Acton as Compared to One for Breach of Contract
• Court Overlooks Plain Language of Policy to Provide Additional Insured with Contractual Liability Coverage.  Thousands Flee

 

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

• Inaccurate Designation of Number of Families in Application was a Material Misrepresentation
• Leak from Refrigerator Is Not Subject to Earth Movement & Water Exclusions
• Court Refuses to Grant Access to Substance Abuse/Mental Health Records in Medical Malpractice Claim

 

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

• Bad Faith Claim Dismissed as Duplicative of Breach of Contract in First Party Case

 

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

• Actual Notice of Non-Renewal Not Required

 

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

• Court Upholds Arbitration Award Regarding Priority of Payment Between Insurers

 

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

• NRA Plausibly Alleges that DFS Violated First Amendment by Coercing DFS-Regulated Entities to Terminate Business Ties with NRA

 

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

• Court Grants Enjoinment Against Medical Providers Prohibiting Further Pursuit of No-Fault Arbitrations and Commencement of New No-Fault Arbitrations Until Resolution of Declaratory Judgment Action

 

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

• Genuine Issue of Material Fact Regarding Contract Damages

 

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

• Quiet in the Garden State this Week; See You in Two

 

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

• Circuit Court Upholds Finding of Frivolous Conduct, Issues Order to Show Cause Why Sanctions, Including Attorney’s Fees, Should Not be Imposed.

 

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

• Decision Denying a Motion for Summary Judgment Where the Moving Defendants Failed to Meet the Requisite Burden of Proof Unanimously Affirmed

 

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

• Allegations that Corporation Sought to Undercapitalize Survive Motion to Dismiss
• Technical Hoops Appealing Workers’ Compensation Board Decisions

 

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

• Insured Not Entitled to Recover Attorneys’ Fees, Since Denial of a Summary Judgment Motion is Not Considered an Adjudication on the Merits

 

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

• Insurer Must Institute a Split-File Protocol Ensuring Solicitor-Client Information be Not Used to Inform the Insurer’s Coverage Position When Defending Under Reservation of Rights

 

We cannot let the 80^th anniversary of D-Day go by without a salute to those, whose bravery and sacrifice, opened up Europe to freedom.

 

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

Ryan P. Maxwell

Joshua M. Goldberg

Kyle A. Ruffner

Katherine A. Fleming

Evan D. Gestwick

Ryan P. O’Shea

Isabelle H. LaBarbera

 

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

Michael F. Perley

Scott D. Storm

Brian D. Barnas

 

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

Joshua M. Goldberg

 

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

 

Topical Index

Kohane’s Coverage Corner

Peiper on Property and Potpourri
Barnas on Bad Faith

Lee’s Connecticut Chronicles

Kyle’s Noteworthy No-Fault

Ryan’s Federal Reporter

Storm’s SIU

Fleming’s Finest

Gestwick’s Garden State Gazette

O’Shea Rides the Circuits

Goldberg’s Golden Nuggets

LaBarbera’s Lower Court Library

North of the Border

 

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

06/05/24       Kent Ave. Properties v. Allied World Ins. Co. et al.
Appellate Division, First Department
A Win for the Good Guys. Statute of Limitations Expiration Leads to Dismissal of Declaratory Judgment Action. What Is a Name?  Court Distinguishes Between Statute of Limitations for DJ Action as Compared to One for Breach of Contract

Supreme Court properly dismissed plaintiffs' complaint against Allied as time-barred because plaintiffs commenced this action eight years after Allied's disclaimer of insurance coverage.  When Allied disclaimed in September 2013, plaintiffs "possessed sufficient information . . . to formulate t2021,actual basis for [the] assertion" that the disclaimer was untimely under Insurance Law § 3420(d)(2), and thus, the statute of limitations began to run Accordingly, plaintiffs' action commenced on October 29, 2021 is time-barred under the six-year (CPLR 213[1]) statute of limitations.

The policyholder relied on Ghaly v First Am. Tit. Ins. Co. of N.Y. (228 AD2d 551 [2d Dept 1996]). In that case, the Court held:

A cause of action based on an insurer's alleged breach of a contractual duty to defend accrues only when the underlying litigation brought against the insured has been finally terminated and the insurer can no longer defend the insured even if it chooses to do so (see, Colpan Realty Corp. v Great Am. Ins. Co., 83 Misc 2d 730, 732; Roldan v Allstate Ins. Co., 149 AD2d 20, 29; see also, Ginn v State Farm Mut. Auto. Ins. Co., 417 F2d 119; Boyd Bros. Transp. Co. v Fireman's Fund Ins. Co., 540 F Supp 579, affd 729 F2d 1407 [11th Cir]; Moffat v Metropolitan Cas. Ins. Co., 238 F Supp 165; Kielb v Couch, 374 A2d 79; Employers' Fire Ins. Co. v Continental Ins. Co., 326 So 2d 177; Continental Cas. Co. v Florida Power & Light Co., 222 So 2d 58; Gilbert v American Cas. Co., 219 So 2d 84, cert denied 225 So 2d 920; 2 Dunham, New York Insurance Law § 30.04 [4], at 30-75).

The First Department distinguished that case because:

Plaintiffs do not assert that Allied breached any contractual duty to indemnify or defend under the insurance policy, which precludes application of the six-year (CPLR 213[2]) statute of limitations.

The court then dismissed the case against our client, Scottsdale Insurance Company, since the claims were similarly time-barred.

Editor’s Note: Kudos to Alexandra Rigney of Fleischner Potash for her fine work on the appeal for Allied World.

 

05/29/24       J & Z Mechanical, etc. v. Metropolis HVAC Contractors, Inc.
Appellate Division, Second Department
Court Overlooks Plain Language of Policy to Provide Additional Insured with Contractual Liability Coverage.  Thousands Flee

The Claimant was injured while working on a construction project at a residential building owned by 421 Kent Development, LLC (“421 Kent”). In November 2015, Crutch sued 421 Kent and Wonder Works Construction Corp. (“Wonder Works)”, the alleged construction manager on the project. 421 Kent and Wonder Works thereafter commenced a third-party action against, among others, J & Z Mechanical/Construction Corp. (“J & Z”), seeking contractual indemnification. J & Z had been subcontracted to perform work on the project, and J & Z, in turn, subcontracted all of that work to Metropolis. Wesco Insurance Company (“Wesco”) issued a commercial general liability insurance policy to Metropolis.

J & Z then brought this action, among other things, for a judgment declaring that Wesco was obligated to defend and indemnify J & Z in the underlying third-party action.

The Court held that J & Z was entitled to coverage. In the subcontract between Metropolis and J & Z, those parties agreed that Metropolis would defend and indemnify J & Z against claims attributable to bodily injury arising from Metropolis's negligent acts or omissions and that J & Z would be included in Metropolis's commercial general liability insurance policy as an additional insured.

It is undisputed that J & Z is an additional insured under the policy issued by Wesco to Metropolis in light of this written subcontract.

Now pay attention to this part.

Wesco contended nonetheless that the pending causes of action in the underlying third-party complaint are excluded from coverage under the "Contractual Liability" exclusion, which excludes from coverage "'Bodily Injury' . . . for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement."

Now, if in fact J & Z was an additional insured under an additional insured endorsement in the Wesco policy issued to Metropolis, then it would be entitled to a defense and indemnity as an additional insured.  Plain and simple.  The contractual liability exclusion would be of no moment.

Remember that a contractual liability exclusion removes claims under indemnity agreements, unless the contract is an “insured contract” as defined in the policy.  However, if J & Z qualified as an additional insured, the court would never have to consider whether or not there was an insured contract.

But then the court held that:

However, J & Z demonstrated, prima facie, the applicability of the exception to this exclusion for "insured contract[s]," in which "tort liability of another party to pay for 'bodily injury'" is assumed. Coverage for insured contracts, which was available to the named insured, was also available to J & Z as an additional insured (see generally Pecker Iron Works of N.Y., Inc. v Traveler's Ins. Co., 99 NY2d 391, 393; Mecca Contr., Inc. v Scottsdale Ins. Co., 140 AD3d at 716).

That is simply contrary to policy language.

To the extent that 421 Kent and Crutch were seeking contractual indemnity from J & Z, the contractual indemnity agreement is NOT an “insured contract”.

Under the CG 00 01 policy form, an insured contract, as relevant here, is defined as follows:

f. That part of any other contract or agreement pertaining to your business (including an indemnification of a municipality in connection with work performed for a municipality) under which you assume the tort liability of another party to pay for "bodily injury" or "property damage" to a third person or organization. Tort liability means liability that would be imposed by law in the absence of any contract or agreement.

The words “you” and “your” apply ONLY to the named insured, so the additional insured would not have coverage for “insured contracts” under the standard CGL policy.  If the term “insured” had been substituted for “you,” then the insured contract exception to the contractual liability exclusion would be applicable.

The citation to Pecker Iron Works demonstrates one of the problems with that Court of Appeals decision:

Pecker's claim against Travelers arises from its status as an "additional insured" under the policy, so we begin with that document. It is undisputed that Travelers provided Upfront with primary coverage and that Upfront agreed to make Pecker an additional insured. "Additional insured" is a recognized term in insurance contracts, with an understanding crucial to our conclusion in this case. As cases have recognized, the "well-understood meaning" of the term is "an `entity enjoying the same protection as the named insured'" (Del Bello v. General Accident. Ins. Co., 185 A.D.2d 691, 692, quoting Rubin, Dictionary of Insurance Terms [Barron's 1987]; see also Jefferson Ins. Co. v. Travelers Indemnity Co., 92 N.Y.2d 363, 372; Wong v. New York Times Co., 297 A.D.2d 544, 546).

Pecker Iron Works v. Traveler's Insurance Co., 99 N.Y.2d 391, 393 (N.Y. 2003)

What the court did was, in effect, rewrite the definition of “additional insured” to substitute “insured” for “you,” in order to provide coverage and provide the entity with the same protection as the named insured.

Editor’s Note:  Courts should not rewrite policies.

 

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

Property

06/05/24       Azad v. Kingstone Insurance Company
Appellate Division, Second Department
Inaccurate Designation of Number of Families in Application was a Material Misrepresentation

In May of 2013, plaintiff secured a policy of insurance on a premises located in Elmhurst, New York.  At the time of the application, plaintiff advised that the premises was a two-family dwelling.  That policy was then renewed on an annual basis through 2018 when the premises were damaged in a fire.

However, the premises were not, in fact, a two-family dwelling.  Indeed, the premises had been converted into a seven-family unit with at least twenty-three different occupants at the time of the fire.  Upon learning of this, Kingstone disclaimed coverage and rescinded the policy on material misrepresentation. 

In later moving for summary judgment, the carrier established, obviously, that the two-family designation on the application was incorrect.  And, further, the carrier also established through an affidavit of its chief underwriter that it would not have issued the policy had it been advised the dwelling was converted to a multi-family home.   On this Record, the Appellate Division apparently had little difficulty affirming the trial court’s order of summary judgment rescinding the policy.

 

05/29/24       Parisi v. Kingstone Insurance Company
Appellate Division, Second Department
Leak from Refrigerator Is Not Subject to Earth Movement & Water Exclusions

The plaintiff is the owner of a house in Blue Point. In 2017, a leak from a refrigerator water line saturated a layer of fill earth inside the walls of the subject property, which in turn caused the foundation wall to collapse.  The plaintiff submitted a claim to Kingstone.  Kingstone denied coverage for the foundation damage on the ground that the insurance policy excluded damage caused by earth movement and/or water damage. The plaintiff commenced this action against Kingstone to recover damages for breach of insurance contract and bad faith.

Plaintiff demonstrated that the leak from the refrigerator water line was a covered loss. The subject insurance policy provides coverage for loss caused by the accidental leakage, overflow, or discharge of liquids or steam from a plumbing, heating or air-conditioning system or domestic appliance.  In opposition, Kingstone failed to raise a triable issue of fact as to whether the foundation damage was excluded from coverage under either the earth movement or water damage exclusions of the policy.

Peiper’s Point – We have not seen the policy so I will somewhat temper my thoughts on this one.  Somewhat.  Earth movement?  Water?  I struggle to understand the basis for this coverage position.  The decision, as reviewed by Brian Barnas below, is correct on the bad faith claims, but the carrier might well consider itself fortunate to have been under NY’s first party bad faith rules. 

 

Potpourri

05/30/24       Rosenberg v. Wilson
Appellate Division, First Department
Court Refuses to Grant Access to Substance Abuse/Mental Health Records in Medical Malpractice Claim

Defendants moved for unfettered access to plaintiff’s medical records related to an alleged medical malpractice incident.  Plaintiff was treated by defendants for a hip injury and claimed unnecessary incisions on his person as part of that operation.  As part of the malpractice claim, the defendants sought unrestricted access to all of plaintiff’s medical history.  The Court, on appeal, narrowed the authorizations to only those parts of the body which were claimed to have been injured.  Further, the ruled that defendants failed to show a “compelling need” for the production of alcohol/substance abuse records and mental health records of plaintiff.    

However, while defendants’ motion, on the whole, was denied, the Appellate Court affirmed plaintiff’s requests for sanctions. Although they lost the application, the Court ruled that defendants had “made a good-faith argument they were entitled to broadened disclosure.” 

 

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

05/29/24       Parisi v. Kingstone Insurance Company
Appellate Division, Second Department
Bad Faith Claim Dismissed as Duplicative of Breach of Contract in First Party Case

The plaintiff is the owner of a house in Blue Point. In 2017, a leak from a refrigerator water line saturated a layer of fill earth inside the walls of the subject property, which in turn caused the foundation wall to collapse.  The plaintiff submitted a claim to Kingstone.  Kingstone denied coverage for the foundation damage on the ground that the insurance policy excluded damage caused by earth movement and/or water damage. The plaintiff commenced this action against Kingstone to recover damages for breach of insurance contract and bad faith.

Plaintiff demonstrated that the leak from the refrigerator water line was a covered loss. The subject insurance policy provides coverage for loss caused by the accidental leakage, overflow, or discharge of liquids or steam from a plumbing, heating or air-conditioning system or domestic appliance.  In opposition, Kingstone failed to raise a triable issue of fact as to whether the foundation damage was excluded from coverage under either the earth movement or water damage exclusions of the policy.

However, the Supreme Court should have granted summary judgment dismissing the cause of action alleging bad faith.  The cause of action alleging bad faith is duplicative of the cause of action alleging breach of contract, and there is no separate tort for bad faith refusal to comply with an insurance contract.

 

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

05/28/24       Deer v. Nat’l General Ins. Co.
Appellate Court of Connecticut
Actual Notice of Non-Renewal Not Required

The Appellate Court of Connecticut, in a 47-page decision, affirmed summary judgment for National General, and its sister company Century-National, holding that there is no actual notice requirement for the non-renewal of a homeowners policy. As a result, the insurers had no obligation to indemnify the insureds for their total fire loss.

Century-National issued a homeowners policy to the Deers. A post-issuance inspection revealed that an exterior wall was missing its siding. As this was an unacceptable underwriting hazard, Century-National told the insureds’ agent that it would not renew the policy unless new siding was installed. Several months later, nearing the end of the policy period, the siding had not been repaired and Century-National issued a notice of non-renewal for the expiring policy. The policy expired and a few weeks later the home was a total loss as a result of an accidental fire.

It was not in dispute that the non-renewal was timely sent by certified mail, and otherwise fully complied with Connecticut law. The homeowners claimed that they never saw the certified mail and, also, were unaware of the need to repair the siding. The Deers argued that the non-renewal was ineffective absent actual notice. The undisputed evidence showed that the non-renewal was delivered to the insured’s address, but that no authorized recipient was available, and a notice was left for the Deers. Two subsequent reminders were left at the Deers’ home, but the non-renewal was ultimately marked "unclaimed" and returned to the insurers’ home office.

The insureds claimed that under both the policy and a Connecticut statute governing notice of non-renewal, that coverage may only be non-renewed if the insured received actual notice. The policy provided that:

We may elect not to renew this policy and may do so by letting you know in writing at least 60 days before the expiration date of this policy. The written notice, stating the reasons for nonrenewal, may be delivered to you, or mailed to you at your mailing address shown in the Declarations by registered mail, certified mail or United States Postal Service certificate of mailing.

The Deers argued that the language “letting you know” mandated actual notice of the non-renewal. The court disagreed, finding the insureds’ interpretation flawed, ignoring that the policy provided that notice may be provided through the mail.

It is apparent that, …. the policy provision governing nonrenewal does not require that the plaintiffs receive actual notice of nonrenewal. The policy provides that, if Century-National elects not to renew the policy, it “may do so by letting you know in writing at least 60 days before the expiration date of this policy,” and, further, that such notice “may be delivered to you, or mailed to you at your mailing address ... by registered mail, [or] certified mail ....”

Sending a notice of nonrenewal by certified mail, as Century-National did in the present case, complies with the express terms of the policy. The policy plainly informs the plaintiffs that the written notice “may be delivered to you or mailed to you;” (emphasis added); which, contrary to the plaintiffs’ argument, is fully consistent with an insurer's notice obligation under § 38a-323. See part I A of this opinion. As with the language of § 38a-323, the policy's use of the disjunctive “or” indicates that either method of providing notice is sufficient to comply with the terms of the policy; see Connecticut Ins. Guaranty Assn. v. Drown, 314 Conn. 161, 189, 101 A.3d 200 (2014); and the policy interpretation that the plaintiffs advocate simply ignores the language advising the plaintiffs that the written notice may be mailed to them.

The Deers also argued that the non-renewal did not comply with the Connecticut statute, CGS § 38a-323, which governs the manner in which notice must be given. Again, the Deers claimed an entitlement to actual notice. The court, finding that the statute provides for either mailing or delivery of the notice, unambiguously lacks an actual notice requirement. “[T]he interpretation of § 38a-323(a)(1) advanced by the plaintiffs would render meaningless the language of that provision affording the insurer the option to send the notice and specifying the manner in which it may be sent.”

The court rejected the homeowners’ claim that the legislative history of the statute supports the requirement of actual notice. Having found that the statute was clear and unambiguous, the court refused to consider the legislative history. “We will not consider the legislative history, however, in view of the provision's plain and straightforward language. “Where the language of the statute is clear and unambiguous, it is assumed that the words themselves express the intent of the legislature and there is no need for statutory construction or a review of the legislative history.”” (citations omitted).

Also, the court agreed that the National General was separately entitled to summary judgment. “National General responds that it was entitled to summary judgment because, as the plaintiffs acknowledge, there was no privity of contract between the plaintiffs and National General. We agree with National General.” The court held that even if National General had some involvement with the processing of the claim or affiliation with Century-National, the lack of contractual privity was sufficient to entitle it to summary judgment as there is no legal authority for proposition that an affiliation or involvement that certain other insurance companies had with the underwriter of the insurance policy could form basis for liability under terms of policy.

The court also affirmed summary judgment striking the plaintiffs’ statutory and common law bad faith claims.

Editor’s Note: I was pleased to represent National General in this matter. Hurwitz Fine has an active Connecticut coverage and defense practice. Please reach out to me if we can provide legal assistance here in Connecticut and throughout New England.

 

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

05/23/24       In re MVAIC a/s/o Breckenridge v. Drivo Rent a Car, LLC
Supreme Court, New York County
Court Upholds Arbitration Award Regarding Priority of Payment Between Insurers

Pedestrian Dante Breckinridge was struck in Brooklyn, New York, by a vehicle owned by Drivo. The rental agreement established that Drivo rented the vehicle to Torsha Cupid on June 12, 2021. Drivo had not secured no-fault coverage with respect to that vehicle, even though it did business in New York. After the pedestrian made a claim against Drivo, and learned that Drivo's vehicle was uninsured, he made a claim upon MVAIC for first-party personal injury protection benefits, commonly known as "no-fault" benefits. MVAIC paid the sum of $50,000 to Breckinridge, or for his benefit, to reimburse him for medical expenses and other basic economic loss that he sustained as a result of his injuries. The driver of the vehicle had her own household policy of motor vehicle insurance with Security National Insurance Company (Security), but Security asserted that either Drivo or Drivo's insurance carrier, if any, was the primary entity responsible for paying no-fault benefits to Breckinridge.

Security and Drivo were named as respondents in the arbitration proceeding, but neither appeared at the arbitration hearing. The arbitrator concluded that Drivo did business in New York, that the pedestrian’s loss occurred in New York, and that, as such, Insurance Law § 5107 obligated Drivo to provide coverage sufficient to satisfy the financial security requirements of Vehicle and Traffic Law articles six or eight, and to provide for the payment of first-party, no-fault benefits pursuant to Insurance Law § 5103. The arbitrator thus awarded MVAIC the principal sum of $50,000 against Drivo and $0 against Security. The petitioner, as subrogee of the pedestrian, brought this action pursuant to CPLR 7510 to confirm the arbitration award, and pursuant to CPLR 7514 to direct the entry of judgment thereon.

Pursuant to CPLR 7510, the court "shall confirm an [arbitration] award upon application of a party made within one year after its delivery to him [or her] unless the award is vacated or modified upon a ground specified in section 7511." The award may only be vacated if the court finds that the rights of a party were prejudiced by one of the grounds specified in CPLR 7510. The grounds specified are exclusive and it is well established that an arbitrator’s rulings are largely unreviewable. However, in cases such as this, where arbitration is compulsory (see Insurance Law § 5105), closer judicial scrutiny of the arbitrator's determination is required under CPLR 7511(b)(1)(iii). To be upheld, an award in a compulsory arbitration proceeding must have evidentiary support and cannot be arbitrary and capricious.

Priority of payment is one type of no-fault dispute between insurers that is subject to mandatory arbitration (see Insurance Law § 5105; 11 NYCRR 65-3.12; 11 NYCRR 65-4.11). The arbitration procedures established pursuant to Insurance Law§ 5105 apply to disputes over priority of payment among insurers who are liable for the payment of first-party benefits. The refusal of the owner or insurer of a rental vehicle to pay the claims of an injured claimant when first presented raises a question as to the priority of payments between the rental vehicle's owner or insurer, the driver's own insurer, or other insurers of last resort, such as MVAIC, and any dispute arising from those circumstances must be submitted to mandatory arbitration under Insurance Law § 5105 and 11 NYCRR § 65.10(a)(5) Pursuant to those regulations, AFI has been designated as the exclusive forum for resolution of no-fault related arbitration matters (see 11 NYCRR 65.10).

One of the issues before the arbitrator was whether Drivo was an "insurer" subject to the mandatory arbitration procedures of Insurance Law § 5105 and 11 NYCRR 65-3.12(b). The court determined that the fact that Drivo elected not to participate in the arbitration did not divest the arbitrator of the authority to determine whether Drivo was an "insurer" within the meaning of the subject statute and regulation as an arbitrator may hear and determine a controversy upon the evidence produced, notwithstanding the failure of a party to appear. This proceeding to confirm the arbitration award was timely commenced and Drivo was properly served with the notice of petition, petition, and supporting papers, but did not answer or appear. MVAIC contends that the award was proper in all respects and that no grounds exist for modification or vacatur. By failing to answer or appear in this proceeding, Drivo waived any contention that the award was improper.

Accordingly, the court granted the petition of MVAIC and confirmed the arbitration award, holding MVAIC was entitled to enter a money judgment against Drivo in the principal sum of $50,000 plus statutory interest from the date of the arbitration award.

 

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

05/30/24        National Rifle Association of America v. Vullo
Supreme Court of the United States
NRA Plausibly Alleges that DFS Violated First Amendment by Coercing DFS-Regulated Entities to Terminate Business Ties with NRA

The National Rifle Association (“NRA”) sued former New York Department of Financial Services (“DFS”) Superintendent, Maria Vullo, alleging that Vullo violated the First Amendment by coercing DFS-regulated parties to punish or suppress the NRA's gun-promotion advocacy. While the District Court denied a motion to dismiss the NRA’s First Amendment claim, the Second Circuit held that these alleged actions constituted permissible government speech and legitimate law enforcement, requiring dismissal of the NRA’s claim. SCOTUS granted certiorari on that issue.

While I am not well versed in most First Amendment claim scenarios, investigation of insurance company practices by DFS is not the backdrop of your typical First Amendment claim. And the alleged facts, as summarized in the Syllabus prepared by the Reporter of Decisions, should be hair raising for insurance professionals (at least I think so):

The NRA contracted with DFS-regulated entities—affiliates of Lockton Companies, LLC (Lockton)—to administer insurance policies the NRA offered as a benefit to its members, which Chubb Limited (Chubb) and Lloyd's of London (Lloyd's) would then underwrite. In 2017, Vullo began investigating one of these affinity insurance policies—Carry Guard—on a tip passed along from a gun-control advocacy group. The investigation revealed that Carry Guard insured gun owners from intentional criminal acts in violation of New York law, and that the NRA promoted Carry Guard without the required insurance producer license. Lockton and Chubb subsequently suspended Carry Guard. Vullo then expanded her investigation into the NRA's other affinity insurance programs.

On February 27, 2018, Vullo met with senior executives at Lloyd's, expressed her views in favor of gun control, and told the Lloyd's executives “that DFS was less interested in pursuing” infractions unrelated to any NRA business “so long as Lloyd's ceased providing insurance to gun groups, especially the NRA.” [Citation omitted]. Vullo and Lloyd's struck a deal: Lloyd's “would instruct its syndicates to cease underwriting firearm-related policies and would scale back its NRA-related business,” and “in exchange, DFS would focus its forthcoming affinity-insurance enforcement action solely on those syndicates which served the NRA.” [Citation omitted].

On April 19, 2018, Vullo issued letters entitled, “Guidance on Risk Management Relating to the NRA and Similar Gun Promotion Organizations.” [Citation omitted] (Guidance Letters). In the Guidance Letters, Vullo “encourage[d]” DFS-regulated entities to: (1) “continue evaluating and managing their risks, including reputational risks, that may arise from their dealings with the NRA or similar gun promotion organizations”; (2) “review any relationships they have with the NRA or similar gun promotion organizations”; and (3) “take prompt actions to manag[e] these risks and promote public health and safety.” [Citation omitted].Vullo and Governor Cuomo also issued a joint press release echoing many of the letters’ statements, and “ ‘urg[ing] all insurance companies and banks doing business in New York’ ” to join those “ ‘that have already discontinued their arrangements with the NRA.’ ” [Citation omitted]. DFS subsequently entered into separate consent decrees with Lockton, Chubb, and Lloyd's, in which the insurers admitted violations of New York's insurance law, agreed not to provide any NRA-endorsed insurance programs (even if lawful), and agreed to pay multimillion dollar fines.

Justice Sotomayor delivered the opinion of the Court. Therein, SCOTUS reaffirmed what had previously been established in Bantam Books, Inc. v. Sullivan: “Government officials cannot attempt to coerce private parties in order to punish or suppress views that the government disfavors.” In sum, SCOTUS found that the NRA plausibly alleged that “[a]s superintendent of [DFS], Vullo allegedly pressured regulated entities to help her stifle the NRA's pro-gun advocacy by threatening enforcement actions against those entities that refused to disassociate from the NRA and other gun-promotion advocacy groups,” in violation of the First Amendment.

While “Vullo was free to criticize the NRA and pursue the conceded violations of New York insurance law,” she “could not wield her power, however, to threaten enforcement actions against DFS-regulated entities in order to punish or suppress the NRA's gun-promotion advocacy.” The allegations plausibly alleged this was the case, in a manner sufficient to withstand a threshold motion to dismiss.

Justice Sotomayor also laid bare a procedural nuance involved, in that DFS’s regulatory authority rested over the NRA’s business partners, rather than the NRA itself. Still, “[t]he NRA's allegations, if true, highlight the constitutional concerns with the kind of intermediary strategy that Vullo purportedly adopted to target the NRA's advocacy,” which would “allow[] government officials to ‘expand their regulatory jurisdiction to suppress the speech of organizations that they have no direct control over.’” Such a strategy, SCOTUS posits, “allows government officials to be more effective in their speech-suppression efforts ‘[b]ecause intermediaries will often be less invested in the speaker's message and thus less likely to risk the regulator's ire.’” While “the NRA was not even the directly regulated party, . . .  Vullo allegedly used the power of her office to target gun promotion by going after the NRA's business partners,” and the “[i]nsurers in turn followed Vullo's lead, fearing regulatory hostility.”

Firmly stating the “critical takeaway,” Justice Sotomayor closes by stating “that the First Amendment prohibits government officials from wielding their power selectively to punish or suppress speech, directly or (as alleged here) through private intermediaries.”

Maxwell’s Minute: Who knew that guns, ammo, and insurance was a recipe for property and casualty insurance regulation to take center stage in a SCOTUS decision? In hindsight, it certainly seems the type.

New York does have a long standing public policy against providing insurance for intentional conduct and any insurance product running afoul of that public policy is problematic. For starters, insurance is meant for fortuitous loss, which an intentional loss is not. Here, however, DFS had not only identified this issue in the gun context, but other regulatory issues as well, and that Lloyd’s “could avoid liability for infractions relating to other, similarly situated insurance policies, so long as it aided DFS’s campaign against gun groups.” Interestingly, in a footnote, SCOTUS outlined that “other affinity organizations offered similar insurance policies, including the New York State Bar Association, the New York City Bar, and the New York State Psychological Association, among others,” which DFS was presumably willing to look past in exchange for Lloyd’s assistance in “DFS’s campaign against gun groups” specifically.

 

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

05/16/24       Am. Transit Ins. Co. v. Pierre
United States District Court, E.D. New York
Court Grants Enjoinment Against Medical Providers Prohibiting Further Pursuit of No-Fault Arbitrations and Commencement of New No-Fault Arbitrations Until Resolution of Declaratory Judgment Action

American Transit Insurance Company’s motion is granted enjoining defendants Rutland Medical P.C. and Nexray Medical Imaging, P.C. d/b/a Soul Radiology Medical Imaging from filing additional no-fault arbitrations and lawsuits against American Transit and from prosecuting no-fault arbitrations during the pendency of this action. The Court declines to preliminarily enjoin defendants from pursuing no-fault actions that are currently pending in state court because the Anti-Injunction Act precludes that relief.

A party seeking a preliminary injunction must establish (1) a likelihood of success on the merits, (2) a likelihood of irreparable harm in the absence of preliminary relief, (3) that the balance of equities tips in the party's favor, and (4) that an injunction is in the public interest. Plaintiff has established these factors here.

Plaintiff will likely succeed in demonstrating that defendants are not eligible for no-fault reimbursements and that defendants’ no-fault claims against them are part of a fraudulent scheme. Under New York's no-fault laws and regulations, medical providers cannot receive no-fault benefits if they “fail to meet any applicable New York State or local licensing requirement necessary to perform such healthcare services.” New York prohibits medical providers from paying or accepting kickbacks in exchange for patient referrals, and from ordering tests or treatment not warranted by the condition of the patient. New York also prohibits unlicensed professionals from owning or controlling a medical professional corporation, serving as director or officer of said corporation, entering into any agreement with the corporation's shareholders, or receiving shares or otherwise deriving economic benefit from the corporation's professional services.

Based on the sworn statements of Dr. Weiner and Mr. Pierre, it is likely that plaintiff will demonstrate that Rutland and Nexray were not eligible to receive no-fault reimbursements in New York. Dr. Weiner and Mr. Pierre have pleaded guilty to conspiring to commit health care fraud and bribery, respectively. At his change-of-plea hearing, Mr. Pierre acknowledged that: (i) he is not a licensed medical provider, (ii) he agreed with others to unlawfully own and run medical clinics, including Rutland, (iii) he knew that medical clinics were unable to bill insurance companies for no-fault benefits if they were controlled by non-physicians; (iv) he nevertheless agreed with others to submit bills to insurance companies and falsely represented that the clinics were owned and operated by licensed medical practitioners; (v) he coached medical practitioners to lie during examinations under oath about the ownership, control, and finances of the clinics; (vi) he used his control of the clinics to steer patients to seek MRIs at Nexray, a medical facility over which he also exercised substantial control; (vii) Mr. Pierre agreed with Dr. Weiner that Dr. Weiner would falsely report injuries in MRI reports and that Dr. Weiner would lie about Mr. Pierre's role in Nexray; (viii) Mr. Pierre agreed to pay bribes to hospital employees, 911 dispatchers, and others who would help induce victims to receive medical treatment at Rutland and other clinics; and (ix) Mr. Pierre agreed to bribe medical officers to send patients to Nexray for MRIs.

For his part, in his plea allocution, Dr. Weiner admitted that he made false statements under oath about Mr. Pierre's role in his medical practice, Nexray, to obtain reimbursements from insurance companies. Dr. Weiner stated that he both had an “overall understanding with Mr. Pierre” and “a more specific agreement with the attorney representing him during the examination under oath” that Dr. Weiner would “falsely minimize Mr. Pierre's role in Dr. Weiner's medical practice in order to facilitate claim reimbursement.”  When asked whether he was “saying that the attorney was aware that as a result of Bradley Pierre's role in your medical practice, that it was not lawful to obtain medical reimbursement from the insurance company?” Dr. Weiner replied, “that's fair to say, your Honor.” While Dr. Weiner equivocated as to whether he “understood at the time” that Dr. Pierre's involvement in his practice made Nexray ineligible to obtain no-fault reimbursements, Dr. Weiner's admissions, along with Mr. Pierre's comprehensive allocution, make it likely that plaintiff will succeed in proving that Nexray and Rutland were ineligible to recover no-fault benefits from America Transit.

These sworn statements also make it likely that Mr. Pierre and Dr. Weiner engaged in common law fraud. “Under New York law, the five elements of a fraud claim must be shown by clear and convincing evidence: (1) a material misrepresentation or omission of fact (2) made by defendant with knowledge of its falsity (3) and intent to defraud; (4) reasonable reliance on the part of the plaintiff; and (5) resulting damage to the plaintiff.” Both Mr. Pierre and Dr. Weiner have admitted that they made false representations to insurance companies about Mr. Pierre's role in Nexray. Similarly, Mr. Pierre admitted that he agreed with others to falsely represent that Rutland was owned and operated by licensed medical practitioners, when it was in fact run and owned by Mr. Pierre.  As noted above, Mr. Pierre's role in Rutland and Nexray made those companies ineligible to receive no-fault benefits. These facts support an inference that as a result of American Transit's reasonable reliance on Mr. Pierre and Dr. Weiner's representations, the insurer paid out millions in no-fault benefits to Rutland and Nexray that the companies were not eligible to receive.

Plaintiff has demonstrated that it will likely suffer irreparable harm absent the requested preliminary injunction. “To establish irreparable harm, the movant must demonstrate an injury that is neither remote nor speculative, but actual and imminent and that cannot be remedied by an award of monetary damages.”

Plaintiff has shown that it will likely suffer irreparable harm from defendants’ pursuit of no-fault arbitrations, in the absence of injunctive relief. As set forth above, plaintiff has come forward with strong evidence that defendants’ efforts to collect judgments in no-fault arbitrations are part of a fraudulent scheme. Yet because of the “expedited, simplified” procedures used in “New York's arbitration process for no-fault coverage,” including “limited or non-existent” discovery, the Second Circuit has held that “complex fraud and RICO claims ... cannot be shoehorned into this system.” As a result, plaintiff is not likely to be able to fully litigate its fraud and RICO-based defenses to defendants’ no-fault claims in the context of no-fault arbitrations.

Further, while an insurer like plaintiff that prevails on fraud and RICO claims against a medical provider may generally recoup “the alleged harm suffered from the defendants’ fraudulent claims” at the conclusion of its federal lawsuit, that relief does not supply an adequate remedy here because of the “unlikelihood” that defendants would “be able to satisfy a substantial damage award.” Courts have found defendants unlikely to satisfy a substantial damages award when “plaintiffs alleged that defendants were insolvent, ceased operations, and/or were facing related criminal charges.” Here, both Dr. Weiner and Mr. Pierre have pleaded guilty to federal charges. Dr. Weiner has consented to the forfeiture of $430,000, and Mr. Pierre will likely be required to pay millions of dollars in restitution and forfeiture. Unsurprisingly, in a case filed by Allstate Insurance Company against these same defendants, Judge Garaufis found that, if convicted, the individual defendants “will likely be unable to satisfy an award of compensatory damages in excess of $2,749,000 sought by Allstate.” For similar reasons, the individual defendants are unlikely to be able to pay the more than $3.2 million in compensatory damages being sought in this case.

The corporate defendants are no more likely to be able to pay a substantial damages award. Rutland was controlled by Mr. Pierre, and nominally owned by defendant Dr. Marvin Moy, who is now missing and presumed dead. That company is therefore not likely to be able to generate revenue to cover a substantial damages award. Similarly, Nexray's counsel conceded at oral argument that besides its outstanding uncollected no-fault claims, Nexray does not own additional assets it could use to satisfy a substantial damages award.

In sum, absent a preliminary injunction, plaintiff is likely to suffer irreparable harm from defendants’ pursuit of fraudulent no-fault claims.

While plaintiff will likely suffer irreparable harm in the absence of a preliminary injunction, defendants will suffer only temporary harm from that interim relief. Specifically, although defendants will be delayed in collecting no-fault benefits, they will ultimately be able to recover those benefits if they prevail in this case.

The public interest favors granting the preliminary injunction discussed above. In analyzing the public interest, courts must consider “the public consequences in employing the extraordinary remedy of injunction,” and “ensure that [the] injunction does not cause harm to the public interest.” There is no indication that a preliminary injunction here would harm the public interest. Rather, the public interest would be disserved by permitting defendants to continue to litigate what, as discussed above, are likely fraudulent no-fault claims.

Plaintiff's request for a waiver of Federal Rule of Civil Procedure 65(c)’s security requirement is granted. Rule 65(c) provides that “the court may issue a preliminary injunction or a temporary restraining order only if the movant gives security in an amount that the court considers proper to pay the costs and damages sustained by any party found to have been wrongfully enjoined or restrained.” Fed. R. Civ. P. 65(c). However, an exception to the security requirement applies in “cases involving the enforcement of ‘public interests’ arising out of ‘comprehensive federal health and welfare statutes.’” Courts in this district have consistently held that claims of no-fault insurance fraud implicate the “enforcement of public interests” exception to Rule 65(c)’s security requirement. Defendants have not contested the waiver. Accordingly, Rule 65(c)’s security requirement is waived.

Plaintiff's request for an order preliminarily enjoining Rutland and Nexray from pursuing pending no-fault state court lawsuits against plaintiff is denied. The Anti-Injunction Act provides that “a court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments.” 28 U.S.C. § 2283. “Any doubts as to the propriety of a federal injunction against state court proceedings should be resolved in favor of permitting the state courts to proceed in an orderly fashion to finally determine the controversy.” Courts apply the Anti-Injunction Act not only to requests to stay proceedings in a state court but also to requests that the litigants be enjoined from prosecuting pending state-law claims.

Plaintiff contends that an injunction prohibiting Rutland and Nexray from litigating current state court cases is permissible because such an injunction would be “in aid of” this Court's jurisdiction. The “necessary in aid of the federal court's jurisdiction” exception to the Anti-Injunction Act simply means that an injunction may be issued when “necessary to prevent a state court from so interfering with a federal court's consideration or disposition of a case as to seriously impair the federal court's flexibility and authority to decide that case.” This exception “is generally reserved for state court actions in rem, because the state court's exercise of jurisdiction necessarily impairs, and may defeat, the federal court's jurisdiction over the res.” In contrast, because “an in personam action involves a controversy over liability rather than over possession of a thing ... an in personam action generally does not tend to impair or defeat the jurisdiction of the court in which a prior action for the same cause is pending.”

“The Supreme Court has never held that a district court may enjoin a parallel in personam action under the ‘in aid of jurisdiction’ exception,” ibid., and the Second Circuit has done so only once, when a “district court had before it a class action proceeding so far advanced that it was the virtual equivalent of a res over which the district judge required full control”. Since Baldwin–United Corp. was decided almost forty years ago, the Second Circuit has repeatedly refused to extend its holding to other situations, emphasizing that Baldwin–United Corp presented “exceptional circumstances,” and that the “in aid of jurisdiction” exception “is generally reserved for state court actions in rem.”

Exceptional circumstances here do not establish that state adjudication of no-fault actions against plaintiff would “so interfere with this federal court's consideration or disposition” of plaintiff's federal lawsuit “as to seriously impair the federal court's flexibility and authority to decide this case.” American Transit relies principally on the prospect that state court judgments arising from defendants’ no-fault claims could limit the relief available to plaintiff in this lawsuit by virtue of res judicata. Specifically, plaintiff argues that the in-aid-of-jurisdiction exception to the Anti-Injunction Act applies because “fragmentation of American Transit's dispute with Defendants into individual Civil Court actions would nullify American Transit's efforts to prove fraud at a systemic level, impair a federal declaratory judgment action over which the Court has taken jurisdiction precisely to eliminate such fragmentation, and deprive American Transit of an avenue toward complete relief in any court.” But while it is possible that a state court could decide some issues presented in this case in a manner adverse to plaintiff, the risk of res judicata cannot alone justify the in-aid-of-jurisdiction exception because the possibility that the state court enters judgment first is present wherever state and federal lawsuits present common issues.

If the risk of res judicata from a state court judgment were sufficient to trigger the in-aid-of-jurisdiction exception to the Anti-Injunction Act, the exception would likely swallow the rule. The fact that the exception is almost never invoked in in personam cases demonstrates that “the mere existence of a parallel action in state court does not rise to the level of interference with federal jurisdiction necessary to permit injunctive relief under the ‘necessary in aid of’ exception.”

Because “the necessary-in-aid-of-jurisdiction exception applies (by definition) when necessary to protect the Court's jurisdiction—not when it is desirable, or even necessary, to protect a private party's litigation position,” this Court lacks authority under the Anti-Injunction Act to stay the pending state court proceedings.

https://www.justice.gov/usao-sdny/pr/new-jersey-man-sentenced-10-years-prison-leading-one-largest-no-fault-insurance-frauds 

 

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

05/24/24       Fischer v. Kenai Peninsula Borough School District
Supreme Court of Alaska
Genuine Issue of Material Fact Regarding Contract Damages

A teacher was involved in a car accident caused by a third party and sustained serious injuries. The teacher was covered under his employer’s (the District’s) self-insured healthcare plan (the Plan). He also had an underinsured motorist policy with State Farm. The Plan provides that the District has a right of reimbursement for medical expenses if a covered person receives a separate settlement.

Shortly after the teacher emailed the District Superintendent and the Plan Administrator regarding reimbursement, he received a settlement from the insurer of the other driver involved in the accident for $300,000. The teacher signed a right of recovery form for the Plan, noted the settlement, and shared information regarding his State Farm policy. The District paid for the teacher’s medical expenses through the Plan. The teacher also received $200,000 in from State Farm under his policy. Twice the teacher requested that the District waive its right to reimbursement, but the District never agreed. About two years after the teacher notified the District of his insurance settlements, the District sent the teacher a letter requesting reimbursement and later sued him for breach of contract.

The Superior Court granted summary judgment to the District on the issue of whether the teacher breached the contract to reimburse the District. The District then moved for summary judgment on the amount of damages, providing an affidavit from its Plan Administrator and a claims ledger. The teacher opposed the motion, providing his own affidavit and a self-created spreadsheet in support of his argument that some of the medical costs paid by the District were not associated with the accident. The court granted the District’s motion for summary judgment on contract damages because the teacher failed to immediately reimburse the Plan with the settlement money.

On appeal, the Alaska Supreme Court affirmed, holding the teacher raised a genuine dispute of material fact regarding the amount of damages attributable to his breach of contract. The teacher argued the trial court engaged in impermissible weighing of evidence when it granted summary judgment as to the amount of contract damages he owed. The Supreme Court noted, among other things, the parties submitted two opposing spreadsheets with two opposing affidavits. Since there was an issue of fact about what treatment and medical costs were associated with the accident and what contract damages the District was entitled to, the court reversed and remanded the lower court’s summary judgment order regarding contract damages.

 

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

Nothing noteworthy from the New Jersey courts this time around. I’m sure there will be plenty of new cases to discuss next time around.

 

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

 

06/03/24       Am. Zurich Ins. Co. v. Sun Holdings, Inc.
United States Court of Appeals, Seventh Circuit
Circuit Court Upholds Finding of Frivolous Conduct, Issues Order to Show Cause Why Sanctions, Including Attorney’s Fees, Should Not be Imposed.

Sun Holdings purchased a workers’ compensation policy from American Zurich, where Zurich would pay the claims in full, but Sun was required to reimburse Zurich the first $250,000 for each claim. Sun failed to do so, ignored the bills, and provided no excuse to Zurich. Clearly wanting the money, Zurich invoked the policy’s arbitration clause, which called for arbitration under New York law in Illinois with the commercial rules of the American Arbitration Association.

At arbitration, Sun offered weak excuses as to why it did not pay the reimbursement costs. The arbitrator eventually awarded Zurich the full amount claimed and added almost $175,000 in attorneys’ fees as a sanction for defending frivolously. Sun did not pay the award nor the fees. Sun argued the arbitrators exceeded their authority by awarding attorneys’ fees.

Sun pointed to two lines in the contract. The first ““Each party shall pay its own costs of counsel and witnesses.” The other reads: “The arbitrators shall not limit, expand or modify the terms of this Agreement nor award damages in excess of compensatory damages under this Agreement.” Sun’s position was that the $175,000 in fees was a punitive damage, not compensatory.

The court disagreed. It found the attorneys’ fees were compensatory and designed to place Zurich in the same position it would have been had Sun refrained from frivolous excuses. The court also noted that the American Rule, that each party pays its own lawyers, does not forbid sanctions for frivolous litigation. It noted that both New York law and the AAA rules both allow an award of attorneys’ fees as sanctions. Further, it reasoned that arbitration clauses delegate interpretive power to arbitrators, which requires them to interpret the contract only, not read it correctly. Zurich and Sun’s arbitrators interpreted the contract to embrace the American Rule, thereby permitting attorneys’ fees as sanctions.

The Seventh Circuit admonished Sun who noted Sun’s position ignored the Circuit’s precedent on the interpretation of an arbitrator’s powers. Namely, a party can set aside an arbitration award only if the arbitrator did not interpret the contract, is infected by fraud or corruption, or compels an illegal act. But an arbitration award cannot be set aside where a party disagrees with the arbitrator’s contractual interpretation. Sun was ordered to show cause in 14 days as to why sanctions, including attorneys’ fees, should not be imposed for its frivolous appeal.

 

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

05/22/24       Boxwill v. County of Nassau et al.  
Appellate Division, Second Department
Decision Denying a Motion for Summary Judgment Where the Moving Defendants Failed to Meet the Requisite Burden of Proof Unanimously Affirmed   

Multiple Defendants appealed from an Order of Supreme Court, Nassau County, which denied 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 Second Department unanimously affirmed granting of the motion, albeit on different grounds than what was relied upon by the lower court, finding the evidence presented by the moving Defendants failed to meet the requisite burden of proof for summary judgment. 

By way of background, this matter stems from a motor vehicle accident which occurred on May 30, 2017, where Plaintiff Jamelyn Boxwill’s vehicle came into contact with a vehicle operated by Defendant Michael Caputo. Upon information and belief, at the time of the accident, Defendant Caputo was a police officer acting in his official capacity – thus also sued were Defendants County of Nassau, Incorporated Village of Lake Success, and Lake Success Police Department.  As a result of the accident, Plaintiff alleged numerous injuries, including to her back, left shoulder, neck, and right foot. She alleged these injuries met the serious injury threshold under various categories of Insurance Law § 5102(d).

At the trial level before Supreme Court, Nassau County, Defendants Caputo, Incorporated Village of Lake Success, and Lake Success Police Department, 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 found that although the moving Defendants met their burden of proof, there was submission by Plaintiff that created an issue of fact. Thus, the Defendants’ motion was denied, and this appeal followed.

On review, the Second Department expeditiously affirmed – albeit on different grounds than the Supreme Court, Nassau County. Specifically, the Second Department found that the moving Defendant did not meet their prima facie burden of showing that Plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d). This finding was reached as the moving Defendants’ submissions failed to address Plaintiff’s claims, set forth in her Bill of Particulars, that the subject accident exacerbated preexisting injuries to her right shoulder, cervical spine, and lumbar spine. As the Second Department concluded that the Defendants’ initial burden had not been met, no further analysis was necessary.

Accordingly, the Second Department unanimously affirmed, on different grounds, the lower court’s denial of summary judgment for the moving Defendants. 

 

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

 

06/05/24       Murphy v. Jewell
Appellate Division of the Supreme Court, Second Department
Allegations of Intentional Undercapitalization Survive Motion to Dismiss

Plaintiff was involved in an accident in 2012 with a tractor-trailer owned by Jewell Transport, Inc. Plaintiff alleges that after the loss, Defendant Max Jewell, sole shareholder of Jewell Transport, Inc., sought to wind up the business of Jewell Transport, Inc. and transferred the assets to three other companies Defendant Jewell was the sole owner of. Plaintiff alleges that Defendant Jewell made the transfers in order to undercapitalize Jewell Transport, Inc. and thereby make it judgment proof. Plaintiff commenced the instant action alleging Defendant Jewell engaged in acts that amounted to an abuse of the corporate form and seeks to pierce the corporate veil.

Defendants moved to dismiss the complaint pursuant to CPLR §3211(a)(7) for failure to state a claim and CPLR §3211(a)(5) asserting the statute of limitations has expired. The Appellate Division affirmed the lower court’s denial of Defendants’ motion to dismiss. In doing so, the Appellate Division found that Plaintiff sufficient alleged that Defendant Jewell “dominated Jewell Transport and that he engaged in acts amounting to an abuse of the corporate form to perpetrate a wrong or injustice against the plaintiffs.” Meanwhile, the Appellate Division found that the allegations are not barred by the statute of limitation, noting that while the damages were originally incurred with the 2012 loss, the transactions that make up the lawsuit occurred subsequent to the 2012 loss. The Appellate Division accordingly found that Defendants failed to meet their burden in establishing the lawsuit was time barred.

 

05/30/24       Matter of Persaud v Ash & Peterkin Cent. Lock Co., Inc.
Appellate Division of the Supreme Court, Third Department
Technical Hoops Appealing Workers’ Compensation Board Decisions

This case is more of a cautionary tale for those wanting to take on the Workers’ Compensation Board. If you are seeking to challenge a determination of a Board panel, you must timely file your Notice of Appeal with the Appellate Division. They will wait if you also want to pursue a request for reconsideration and/or full board review. However, if you do not file your Notice of Appeal, you are left at the whim of the Board in its discretion whether to grant reconsideration and/or full board review.

Here, our pro-se litigant learned this the hard way. The pro-se litigant only filed a request for reconsideration and/or full board review of a July 2022 determination. His request was denied in October 2022. Instead of being able to appeal the merits of the July 2022 determination, the pro-se litigant was only able to appeal the October 2022 denial of his request, which comes with a much different scope and standard of review – that is, was the denial of the request for reconsideration and/or full board review ‘arbitrary and capricious or otherwise constituted an abuse of discretion” without any commentary on the merits of the underlying arguments.

My takeaway: the Board is nothing if not a stickler for form over substance. Take caution when appearing and filing at the Board and be sure to cross every ‘t’ and dot every ‘i.’ Something as innocuous as using an outdated form could, and many times has been grounds for denial of a request – an oversight I have made myself.

 

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

05/29/24       State Farm Mut. Auto. Ins. Co. v. Am. Empire Surplus Lines Ins. Co.
Supreme Court, New York County
Insured Not Entitled to Recover Attorneys’ Fees, Since Denial of a Summary Judgment Motion Is Not Considered an Adjudication on the Merits

State Farm Mutual Automobile Insurance Company (“State Farm”) brought a declaratory judgment action, seeking a declaration that it owned neither defense nor indemnification to the insured, Advanced Construction Equipment Corp (“ACE”), in an underlying personal injury action.

Instantly before the Court is ACE’s motion, seeking an Order declaring that ACE is entitled to recover attorneys’ fees, expenses, and interest incurred by ACE in defending the declaratory judgment action brought by State Farm.

Prior to the instant motion before the Court, State Farm had filed a motion for summary judgment, seeking, in part, a declaration that it had no duty to defend or indemnify ACE in the underlying personal injury action. State Farm’s motion was denied. Based on the denial of State Farm’s motion, ACE brought the instant motion. ACE relied on the denial of State Farm’s motion to argue that ACE prevailed against State Farm in the declaratory judgment action.

New York law is clear that recovery of attorneys’ fees is only permitted when authorized by statute, agreement or court rule. If an insurer places the insured in a defensive position by bringing a declaratory judgment action against the insured, an insured is entitled to recover attorneys’ fees expended in defending against the declaratory judgment action, only if the insured prevails on the merits against the insurer.

Importantly, the denial of a motion for summary is not an adjudication on the merits under New York law. Accordingly, the Court denied ACE’s motion as premature, finding that the denial of State Farm’s motion for summary judgment does not render ACE the prevailing party in the declaratory judgment action.

 

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

 

02/27/24       Loblaw Co. Ltd. v. Royal & Sun Alliance Ins. Co. of Canada
Insurer Must Institute a Split-File Protocol Ensuring Solicitor-Client Information is Not Used to Inform the Insurer’s Coverage Position When Defending Under Reservation of Rights

In February 2024 I reviewed the Ontario Court of Appeal’s decision in Loblaw which discusses numerous coverage issues arising from opioid litigation. At the time I said that the numerous points of law in that judgment could found future articles - this is one such article. 

This decision dealt with the issue as to whether an insurer that has issued a reservation of rights regarding the insured’s conduct that is in issue in the litigation is entitled to privileged defence information that could be used by the insurer against the insured to further the coverage argument.

Shoppers Drug Mart Inc. (“SDM”), is a Canadian franchisor for retail pharmacies. SDM stores are ubiquitous in Canada and are found in all ten provinces and in all three territories.  In 2009, SDM acquired a generic drug manufacturer, Sanis Health. One of the generic drugs that Sanis produced was an opioid. In 2014, Loblaw acquired SDM. SDM, Sanis and Loblaw are facing five Canadian class actions for opioid induced bodily injuries and losses.

Royal & Sun Alliance Insurance Company of Canada (“RSA”), AIG Insurance Company of Canada (“AIG”), Aviva Insurance Company of Canada (“Aviva”), Liberty Mutual Insurance Company (“Liberty”), and Zurich Insurance Company Ltd. (“Zurich”) all issued primary CGL insurance policies to one or more of SDM, Sanis and Loblaw (the insureds).

Chubb Insurance Company of Canada (“Chubb”), Certain Underwriters at Lloyd’s as represented by their coverholder Markel Canada Limited (“Markel”), and QBE Syndicate 1886 at Lloyd’s of London (“QBE”), are excess insurers.

Most of the primary and excess insurers had reserved their rights with respect to the allegations of intentional conduct.  Counsel for the insureds told the insurers that as they were taking coverage positions contrary to each other and had issued reservation of rights regarding issues of intentional conduct, a defence reporting agreement was necessary.

Counsel for the insureds stated that only those insurers that agreed to the terms of that agreement would have access to documents and materials that were subject to solicitor client privilege and were otherwise not producible to the class action plaintiffs. Those that agreed to sign had to appoint a designated representative who could receive the privileged information. However, that individual could not share it within the companies.

The DRA also provided that in the event of a development that would require a substantial reserve change or a payment (such as the scheduling of a mediation or an anticipated offer to settle), the insureds would provide a “Reserve Report” to the insurer. It would consist of a liability and damages assessment that could be shared with non-authorized representatives of the insurer provided they have a higher financial authority than the authorized representative. The Reserve Report would be used solely to support a reserve and/or payment request in excess of the authorized representatives’ financial authority and for no other purpose, including the determination of coverage for the claims.

Aviva and Zurich agreed to sign the DRA but all other insurers refused. Markel brought a cross application requesting that it was entitled to a declaration that it was entitled to all of their insureds’ information save for coverage related queries and materials.  The application judge agreed with the insureds that the DRA was required; that its terms were necessary and acceptable. Markel’s application was refused.

The application judge ordered that only those insurers who entered into the DRA would be entitled to associate in the defence of the claims and receive privileged defence Information. The application judge also dismissed Markel’s application. The resolution of this issue was appealed to the Ontario Court of Appeal.

Prior Caselaw that Bears on the Issue

Insured & insurer owe each other a duty of utmost good faith. The insured owes its insurer a duty of cooperation which includes the disclosure of facts material to the risk insured and of developments in the litigation.  The insured is also to give to the insurer “material information concerning significant developments in the litigation.”  This encompasses information in the insured’s possession that might void coverage.

Trial Lawyers Association of British Columbia v Royal & Sun Alliance Insurance Company of Canada, 2021 SCC 47, 463 DLR, at para 35-36,

Canadian Newspapers Co. v Kansa General Insurance Co. (1996), 1996 CanLII 2482 (ON CA), 30 OR (3d) 257 (CA) at paras 36, 44,

Canadian Indemnity v Canadian Johns-Manville Co., 1990 CanLII 78 (SCC), [1990] 2 SCR 549, at para. 58, and Bhasin v Hrynew, 2014 SCC 72, [2014] 3 SCR 494, at para 55.

Insurer has a prima facie right to appoint/instruct counsel.

Brockton (Municipality) v Frank Cowan Co. (2002), 2002 CanLII 7392 (ON CA) 57 O.R. (3d) 447 (CA) at para 31

Zurich of Canada v Renaud & Jacob, 1996 CanLII 5801 (QC CA), [1996] RJQ 2160 (CA) at p 2168

Though paid and appointed by the insurer, counsel appointed by the insurer to defend the insured owes primary duty is to the insured.

Hoang v Vincentini, 2015 ONCA 780, 57 CCLI (5th) 119, at para 14

Parlee v Pembridge Insurance Co., 2005 NBCA 49, 283 NBR (2d) 75, at para 17

An insured is entitled to a conflict-free defence.

Brockton, at paras 41-43

Pope and Talbot Ltd. Re., 2011 BCSC 548, 23 BCLR (5th) 318, at para

An insurer’s right to control the defence is not absolute.

Brockton, at para. 43

Hoang, at para 14

The question is whether counsel’s mandate from the insurer can reasonably be said to conflict with counsel’s mandate to defend the insured in the civil action because of the divergent interests of the insurer and insured.

Brockton, at para 43

The insured bears the onus to establish a reasonable apprehension of conflict.

Markham (City) v AIG Insurance Company of Canada, ONCA 239, 445 DLR (4^th) 405, leave to appeal refused, [2020] SCCA No 170, at para. 93

Brockton, at para 43

An Insurer’s reservation of rights does not automatically put counsel in conflict.

Brockton, at paras 42-43

Markham, at para 92

If the reservation of rights arises because of coverage questions which depend upon an aspect of the insured’s own conduct that is in issue in the underlying litigation, a conflict exists. On the other hand, where the reservation of rights is based on coverage disputes which have nothing to do with the issues being litigated in the underlying action, there is no conflict of interest requiring independent counsel paid for by the insurer.

Brockton, at para. 42-43

Mechanisms short of independent counsel may be sufficient.

Markham, at para 104

Primary and excess insurers are not covering the same risk; rather, they are covering separate and clearly defined layers of risk.

St. Paul Mercury Insurance Company v Lexington Insurance Company, 78 F 3d. 202 (5^th Cir 1996), at footnote 23, quoting from Emscor Mfg. Inc. v. Alliance Ins. Group, 879 SW (2d) 893 at 903 (Tex App 1994, writ denied)

Accepted in Markham, at paras 50-52.

The Application Judge’s Reasons

The DRA struck the right balance between the rights of insurers and insureds.  The reservations of rights were based at least in part on intentional conduct, so the issuance of those reservations does give rise to a reasonable apprehension of conflict.

The duty of the insureds to disclose material facts does not extend to communications related to these facts that are subject to litigation and/or solicitor-client privilege.

“The duty of good faith is a reciprocal one, and an insurer cannot benefit from its conflicted position” [Loblaws, 2024 ONCA 145 at para. 214]

The test is a reasonable apprehension rather than a proven conflict; the Court rejected arguments that there had to be evidence of misuse and that employee codes of conduct mandating compliance were sufficient.

The Ontario Court of Appeal

That court’s analysis began with a discussion of “the right to associate in the defence.”  Quoting from the American Restatement of the Law of Insurance, that court stated the right to associate includes:

1. the right to receive information from the insured and defence counsel, upon request, which is reasonably necessary to assess the insured’s potential liability and to determine whether the defense is being conducted in a manner that is commensurate with that potential liability18, and

   (ii) a reasonable opportunity to be consulted on major decisions in the defense of the action that is consistent with the insurer’s level of engagement with the defense of the action.

   The right to associate is not the right to direct the defence of the action. It is the right to be heard in the course of the defence and to obtain information reasonably necessary to be heard.

   The Court of Appeal then stated at para. 259-260:

   the Non-DRA Insurers seeking to associate have the opportunity to “exercise a voice” and to be “heard.” I accept that the Non-DRA Insurers in this case are in a much more remote position than a primary insurer with a duty to defend and who is instructing counsel. However, I am persuaded by the application judge’s conclusion. In this case, without an effective ethical screen that silos Privileged Defence Information from the Non-DRA Insurers’ coverage teams, the insurers’ input and advice could be tailored to align with the coverage position that the insureds engaged in intentional conduct thereby eliminating the Excess Insurers’ indemnity obligation. In the face of a reservation of rights on intentional conduct in the context of a right to associate defence counsel is put in the position of having conflicting mandates if they have to disclose Privileged Defence Information contrary to the interests of the insured.

   …  Put differently, the Non-DRA appellants have not established that the application judge erred in her findings that a reasonable apprehension of conflict existed in the circumstances …defence counsel is put in the position of having conflicting mandates if they have to disclose Privileged Defence Information contrary to the interests of the insured …Put differently, the Non-DRA appellants have not established that the application judge erred in her findings that a reasonable apprehension of conflict existed in the circumstances.

   Two of the excess insurers, Chubb and QBE did not seek to associate in the defence. Therefore, there was no need for them to sign the DRA.

   The Court of Appeal commented on the ethical screens proposed by all of the insurers. While an ethical screen limited to handlers at the lower level may be appropriate with respect to smaller claims, in cases such as these billion-dollar Class Actions, handlers at the lower level may not have sufficient decision-making authority and may be required to consult individuals higher in the corporate decision-making pyramid. Accordingly, in the context of their appeals, a split-file protocol that reaches farther up that pyramid is justified.

   In holding as it did, the Court of Appeal reinforced that the insured is entitled to a conflict free defence; that solicitor client privilege must be protected as it is integral to the Canadian legal system.

   The Supreme Court of Canada May Have the Last Word

   There are many unanswered questions arising from this decision.  What is the trigger to put a split file protocol in place? How can the apex decision maker within the insurer make an informed decision on coverage and the defence of the claim?

   The insureds, Chubb and QBE have each filed applications for leave to appeal to the Supreme Court of Canada. The lawyers involved believe that leave will be granted. If they are right, within the next year, we should have a significant decision on the tripartite relationship that will impact how the conflict in that relationship will be handled where the coverage issue is dependent upon the conduct of the insured that is in issue in the litigation.

Many thanks to Glen Krueger, Claims Counsel, Lawyer Indemnity Fund, Vancouver, B.C. who presented on this topic at the Canadian Defence Lawyers Annual Conference, May 30, 2024.

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