Coverage Pointers - Volume XXV No. 6

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

08/30/23         Giamundo v. Dunn 2nd 
Appellate Division, Second Department
Jury Determination in Underlying Action on Liability Collaterally Estops Relitigation of Liability in Subsequent SUM Claim

In December 2011, while operating a vehicle insured by State Farm, Maria Giamundo was involved in an accident and allegedly sustained serious injuries when her car collided with a car owned by the Robert Earl Dunn (“Dunn”) and driven by the Cleveland Dunn 2nd. Following the accident, Giamundo sought to collect on the supplementary uninsured/underinsured (“SUM”) coverage provided for in her automobile insurance policy.

The policy had been procured through the defendant Karen A. Sauter Insurance Agency, Inc. (“Agency”). State Farm denied Giamundo's claim on the ground that Dunn's vehicle was insured with bodily injury liability limits equal to or exceeding Giamundo's SUM coverage limits.

In or about 2012, Rose A. Smith-Dunn, who was a passenger in Dunn's vehicle at the time of the accident, commenced an action to recover damages for personal injuries against Giamundo, among others (hereinafter the personal injury action). Pursuant to Giamundo's insurance policy, State Farm retained counsel to defend Giamundo in the personal injury action.

In October 2012, Giamundo commenced this action against the Agency and State Farm. The second cause of action alleged that the defendants negligently procured and offered insufficient SUM coverage.

In January 2019, after a bifurcated jury trial in the personal injury action resulted in a verdict finding Giamundo to be 100% culpable for the accident, the defendants served an amended answer which added collateral estoppel as an affirmative defense. Giamundo served an amended complaint which asserted, inter alia, a third cause of action, alleging breach of contract against State Farm and the Agency.

Thereafter, the defendants moved, among other things, for summary judgment dismissing the amended complaint insofar as asserted against them on various grounds, including collateral estoppel arising out of the personal injury action. The defendants contended, inter alia, that the determination in the personal injury action that Giamundo was 100% culpable for the subject accident was decisive in this action because it established that Giamundo was ineligible to obtain SUM benefits in any amount in connection with the subject accident, and, in effect, would be unable to establish damages to support her negligence and breach of contract causes of action.

Giamundo opposed the motion, contending, among other things, that collateral estoppel should not apply because she lacked a full and fair opportunity to litigate in the prior action, as her attorneys in that action, who had been retained by State Farm, settled the matter before the damages trial, which prevented her from appealing the finding of liability.

The doctrine of collateral estoppel "precludes a party from relitigating in a subsequent action or proceeding an issue clearly raised in a prior action or proceeding and decided against that party or those in privity". First, there must be "an identity of issue which has necessarily been decided in the prior action and is decisive of the present action.” Second, the party to be precluded from relitigating an issue must have had a full and fair opportunity to contest the prior determination.

Here, the issue of Giamundo's culpability for the accident was determined in the personal injury action, and the identical issue is decisive with respect to Giamundo's second cause of action. A jury determined that Giamundo was 100% culpable for the subject accident, and her sole culpability for the accident precludes her from obtaining SUM benefits in any amount.

08/30/23         Rafailova v. Leading Insurance Group Insurance Co., Ltd
Appellate Division, Second Department
If You Want to Reserve a Claim Against a Carrier, Say So. Where Plaintiff Released Tenant and its Carriers from Liability Resulting from a Fall in the Building, but Did Not Preserve Rights Against the Same Insurers for Claims Against Landlord, Direct Action Against Carrier Dismissed When Plaintiff Seeks to Enforce Judgment Against Landlord

On June 16, 2012, the plaintiff allegedly sustained personal injuries when she fell in a building owned by 8610 Realty Corp. (“landlord”), and leased and occupied by GNL Pharmacy Corp (“tenant”). The plaintiff commenced an action against both. to recover damages for her personal injuries. The landlord never appeared or interposed an answer in that action, and by order dated August 12, 2013, the Supreme Court granted the plaintiff's motion for a default judgment against it. In 2015, in exchange for a payment of $150,000, the plaintiff signed a release discharging the tenant Leading Insurance Group Insurance Co., Ltd., Leading Insurance Services, Inc., other entities, and their "servants, successors, heirs, executors, administrators, and all other persons, firms, corporations, associations or partnerships, from" all past, present and future claims, demands, damages, actions, third-party actions, causes of action or suits at law or in equity, including claims for contribution and or indemnity, of whatever nature and particularly on account of all injuries, known, both to person and property, which have resulted or may in the future develop from" the plaintiff's fall on June 16, 2012, at the subject property.

Thereafter, the plaintiff sought judgment in her favor against the landlord based upon its failure to appear or interpose an answer in the personal injury action. In July 2018, after an inquest, the Supreme Court entered a judgment in favor of the plaintiff and against the landlord in the sum of $362,878 (hereinafter the judgment). The landlord. thereafter moved to vacate the order dated August 12, 2013, entered upon its default in appearing or interposing an answer, and the judgment, claiming that both the landlord and tenant had been insured under the same general liability policy by Leading Insurance Group Insurance Co., Ltd., and, due to law office error, the law firm assigned by that insurer to represent both insureds in the personal injury action had failed to interpose an answer on behalf of the landlord. The court denied the motion on the ground that the landlord had failed to demonstrate a reasonable excuse for its default in appearing or interposing an answer.

The plaintiff (now a judgment creditor) commenced a direct action against Leading Insurance Services, Inc., and KB Insurance Company, Ltd., (hereinafter together the defendants) among others, inter alia, pursuant to Insurance Law § 3420 to recover the amount of the unsatisfied judgment in her favor and against the landlord directly from the of 8610 Realty Corp.

Generally, a valid release constitutes a complete bar to an action on a claim which is the subject of the release. A release that is complete, clear, and unambiguous on its face must be enforced according to the plain meaning of its terms. Where the release is unambiguous, a court may not look to extrinsic evidence to determine the parties' intent.

Here, the release expressly discharged both Leading Insurance Services, Inc., as well as Leading Insurance Group Insurance Company, Ltd., from any liability for claims resulting from the June 16, 2012, accident. Contrary to the plaintiff's contention, the fact that the release is silent as to 8610 Realty Corp. and silent with regard to the plaintiff's ability to pursue remedies under Insurance Law § 3420 does not remove the instant action from the broad set of all past, present, and future claims against the insurers that are encompassed by the release. If the release was intended to exclude a certain type of claim or action, such as an action pursuant to Insurance Law § 3420, it could have been so provided.

Editor’s Note: As I read this decision, I was predicting that result. Plaintiff had taken a default judgment against the landlord, who failed to appear in the lawsuit. However, since the plaintiff has released the tenant and the insurer (the same insurer that insured the landlord), plaintiff turned judgment debtor could not reach the insurer to get additional policy proceeds. Of course, plaintiff can go after the landlord for other assets if any exists.

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

08/23/23         Henry v. City of New York
Appellate Division, Second Department
Court Dismisses Negligence Claim Against Driver Who Was Stopped at Red Light

Plaintiff allegedly sustained injury when she was involved in a multi-car collision at an intersection in Brooklyn. Apparently, defendant Venuza collided with a NYPD patrol car in the intersection, and the force of the collision then directed Venuza’s vehicle into two others that were stopped at the red light. Plaintiff was a passenger in one of the vehicles stopped at the intersection.

So, of course, the plaintiff filed suit not only against Ms. Venuza but also the NYPD. She also sought damages from the drivers of the two vehicles parked at the red light, including the vehicle in which she was riding as a passenger.

When both moved for summary judgment arguing that they were appropriately stopped and awaiting the light to change, the Supreme Court, Kings County found a question of fact and kept both defendants in the lawsuit. On appeal, the Second Department injected reason into this case and found, as a matter of law, the defendants had met their respective burdens by demonstrating that they, in fact, were not violating any traffic laws by simply abiding by the traffic signal. The claims against both were accordingly dismissed.

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

See you in September.

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

08/28/23         Turner v. CMFG Life Insurance Company
United States Court of Appeals, Eleventh Circuit
Insurer’s Lack of Payment of Claim During 60 Day Demand Period Was Not Bad Faith Per Se under Georgia Law

Turner's wife passed away on November 22, 2019. Four months earlier, she had fallen and hit her head on the corner of her kitchen island, which led to her eventual death. At the time of her death, she was covered by two life insurance policies issued by CMFG, both listing her husband as the beneficiary. Both policies insured Turner against “accidental death,” defined as a death “resulting from an injury, and occurring within 1 year of the date of the accident causing the injury.”

CMFG paid Turner in full under both policies. However, there was a dispute regarding the timing. CMFG received Turner's initial claims forms and his wife's death certificate on April 14, 2020. CMFG's claims examiner reviewed Turner's file on May 14 and requested additional documentation the same day. On May 20, CMFG received 1,044 additional pages of medical records from Turner. On June 5, CMFG sent Turner's file to an outside nurse consultant for review, to determine whether Turner's wife's death was covered by the insurance policies. The nurse returned a report the same day, opining that Turner's wife's death was not caused by an accident, which would render Turner ineligible for any insurance payout.

CMFG did not immediately act on this recommendation. Instead, a claims examiner re-reviewed Turner's file for evidence of a qualifying accident. CMFG also attempted to contact the doctor who had certified Turner's wife's death, to no avail. On August 31, CMFG referred Turner's claims to a medical consulting firm for another opinion. Due to a technical error, Turner's claims were not actually submitted to the consulting firm until September 16, and the report was received one month later. It found that Turner's wife's death was caused by a qualifying accident: her fall and resulting head injury. That same day, CMFG's claims examiner recommended that Turner's claims be paid—Turner's payments were sent on October 30.

In the meantime, on July 17, Turner, frustrated with the pace at which CMFG was processing his claims, sent CMFG two demand letters, one for each policy. The letters cited O.C.G.A. § 33-4-6 and requested that payment be made within sixty days. That did not happen. Turner brought suit alleging that CMFG had exceeded the statutory period in bad faith, entitling him to statutory penalties.

Under § 33-4-6, an insurance company that fails to make a payment on a covered claim within sixty days faces a penalty only if its nonpayment was motivated by bad faith. The court found that Turner failed to raise a genuine dispute of material fact as to whether the claim was not timely paid in bad faith.

Turner argued that CMFG’s failure to respond to his demand letters within sixty days of receipt was evidence of bad faith. However, the record did not support Turner’s argument that CMFG ignored his letters. CMFG's notes indicated employees of CMFG received and responded to calls and emails from Turner and his attorney both before receipt of the letters and during the sixty-day period. Turner also cited no legal authority supporting an inference of bad faith from failure to respond to a demand letter.

The court concluded that having already commenced an investigation into Turner's claims well before receiving his demand letters—an investigation which continued through the entire sixty-day statutory period—CMFG's alleged failure to reply had no logical bearing on whether its nonpayment was conducted in bad faith.

In addition, it was undisputed that CMFG had an expert report indicating the claim was not payable at the time of the demand letter. Despite this, CMFG sought a second opinion. Accordingly, there was a disputed question of fact regarding the merits of the claim and a reasonable ground to contest payment, which precluded a finding of bad faith. The Eleventh Circuit also concluded that the district court properly refused to consider CMFG's alleged violations of the Georgia Unfair Claims Settlement Practices Act as evidence of bad faith.

Ultimately, Turner's position amounted to an argument that failure to pay a claim within the statutory period alone constitutes bad faith per se. The court found that this was an untenable reading of the statute, writing the requirement of bad faith out of the cause of action altogether, conflating it with the separate element of nonpayment. A bad faith refusal is a “frivolous and unfounded refusal” to pay—not merely a refusal for any reason at all.

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

08/15/23         Busch v. Gorbachevskiy
Superior Court of Connecticut, Stamford
Forced-Placed Insurance Is Not a Defense in a Failure to Procure Claim

In a lengthy analysis of the distinction between collateral source recoveries and the failure to mitigate, the trial court concluded that the plaintiff’s recovery from the lender’s forced-placed insurance is not an off-set against any potential recovery from the defendant.

Let’s put this in some context. The plaintiff is a homeowner, suing the defendant agent for the failure to obtain homeowner’s insurance. The plaintiff’s home suffered a catastrophic fire resulting in hundreds of thousands of dollars in damages. The plaintiff claims that it was not until after the fire that he became aware that there was no coverage in place. Fortuitously, the lender maintained a forced-insurance package that applied coverage retroactively, at the plaintiff’s expense and which named the plaintiff as an additional insured. The forced- insurance policy paid almost $6000,000 to repair the structure (although presumably not ALE or EE coverage).

The plaintiff is suing the defendant for failure to procure coverage. The defendant filed a motion in limine to include as trial evidence the forced-place insurance recovery. As the court summarized, the defendant advanced many theories why this is competent evidence, chiefly arguing that it should be a defense to the plaintiff’s claim. The plaintiff opposed, arguing that the recovery is a common law collateral source recovery which is not an off-set under the Connecticut tort reform statute. See CGS § 52-225a et seq.

The court held that the forced-place insurance recovery is not a defense to liability—it is not a mitigation of damages. “The court adheres to the bright-line ruling that damages were fixed as of the date of loss (fire) and that mitigation of damages only pertains to conduct of the plaintiffs after incurring the loss – the extent to which they did or could take reasonable measures to limit their losses. The lender's invocation of its right to obtain force-placed coverage, after the loss, does not come within the scope of mitigation of damages by the plaintiffs. The insurance benefits received by the plaintiffs, as a result of the force-placed coverage, are collateral source benefits, and are not properly subject to characterization as mitigation. Simplistically, the defendants seek to transform the passive receipt of a benefit into an act of mitigation.”

Instead, the court advised the defendants that they could file a post-verdict motion to have the court consider the potential, “if any, impact, of the insurance payments…”

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

08/24/23         Matter of Fill Rx. NY, Inc. v. LM Gen. Ins. Co.
Supreme Court, New York County
Court Upholds Master Arbitrator Award, Denying Petitioners Claim for No Fault Benefits for Reimbursement of Pharmaceutical Products

Petitioner Fill RX NY, Inc., as assignee of Sheila Molina, brought this action to vacate an award of a master arbitrator, which had affirmed an American Arbitration Association (AAA) arbitration award, denying the petitioners claim for no-fault benefits to reimburse the petitioner for drugs and pharmaceutical products furnished to Molina after an automobile accident. The petitioner requested that the court remit the matter to a different arbitrator for reconsideration or enter judgment in its favor and against the respondent in the sum of $4,151.53, along with interest at rate of 2% from the date that it submitted a demand to arbitrate until entry of judgment.

After Molina was injured in a motor vehicle accident with the respondent, the petitioner provided her with pharmaceutical products, totaling $4,151.53. Molina assigned the petitioner her claim to recover no-fault benefits, after which the petitioner made a claim upon the respondent for reimbursement of that sum. The respondent processed the claim and rejected it, asserting that the amount requested was not in accordance with applicable statutory and regulatory fee schedules, and that the limits of coverage under the policy already had been exhausted. The petitioner sought arbitration of the claim before the AAA, arguing that the respondent was not entitled to rely on the exhaustion defense because the subject invoice should have been paid before any of Molina’s other health- care claims that the respondent insurer received subsequent to the petitioner’s claim.

The lower arbitrator concluded that claims timely denied by an insurer do not hold a place in the priority-of-payment queue ahead of subsequently filed claims that were approved and paid by the insurer. The lower arbitrator therefore upheld the insurer’s exhaustion-of-benefits defense and found in favor of the respondent insurer, rejecting the petitioner’s claim for benefits. The petitioner sought review of the award before a master arbitrator. In a March 20, 2023, award, the master arbitrator affirmed the initial arbitration award, holding that the award could not reasonably be considered arbitrary, capricious, or incorrect as a matter of law. Therefore, the petitioner brought this proceeding pursuant to CPLR 7511.

The court explained that the grounds specified in CPLR 7511 for vacatur of an arbitration award are exclusive and it is a well-established rule that an arbitrator’s rulings, unlike a trial court’s, are largely unreviewable. An arbitration award may be vacated pursuant to CPLR 7511(b)(1)(iii) where an arbitrator exceeded his or her power, including where the award violates strong public policy, is irrational, or clearly exceeds a specifically enumerated limitation on the arbitrator’s power. Where, as here, arbitration is compulsory (see Insurance Law § 5105), closer judicial scrutiny of the arbitrator’s determination is required under CPLR 7511(b) than that applicable to consensual arbitrations. To be upheld, an award in a compulsory arbitration proceeding must have evidentiary support and cannot be arbitrary and capricious.

The court concluded that the master arbitrator’s determination was not incorrect as a matter law. As the master arbitrator noted, there is a split in appellate authority on the issue of priority of claims in the face of the potential exhaustion of the limits of a no-fault insurance policy. The First Department has held that claims that are timely denied by an insurer do not hold a place in the priority-of- payment queue ahead of subsequently filed claims that were paid by the insurer, thus exhausting available coverage (see Harmonic Physical Therapy, P.C. v Praetorian Ins. Co., 47 Misc 3d 137[A]). The Second Department has held that fully verified claims are payable in the order they were received, and that there was no merit to an insurer’s contention that it need not pay the denied claim because its payment of subsequent claims had the effect of exhausting the available coverage (see Alleviation Med. Servs., P.C. v Allstate Ins. Co., 55 Misc 3d 44, 45 [App Term, 2d Dept, 2d, 11th, & 13th Jud Dists 2017], affd other grounds 191 AD3d 934 [2d Dept 2021]).

The court held that the rule articulated in Harmonic Physical Therapy expressly has been applied by courts on numerous occasions to permit insurers to invoke the exhaustion defense under circumstances identical to those presented in the instant matter. For example, courts have held that insurers are not precluded from paying other legitimate claims subsequent to the denial of another provider’s claim. See Allstate Fire & Cas. Ins. Co. v Branch Med., P.C., 2022 NY Slip Op 50277[U], *1, 2022 NY Misc LEXIS 1365, *2]. In addition, an insurer may reject a claim submitted by an injured party’s assignee for no-fault benefits where the insurer requested additional verification, by means of an examination under oath, but neither the injured party nor the assignee appeared for the examination. Verified claims are entitled to priority over any unverified claims.

Accordingly, the court held that the master arbitrator’s award was not contrary to law or arbitrary and capricious, and he therefore properly affirmed the lower arbitrator’s award. Therefore, the petition to vacate the master arbitrator’s award was denied.

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

08/29/23         Union Mutual Fire Ins. Co. v. OHR Makif LLC
Southern District of New York
Insurer’s Ground for Rescission was not Waived Absent Requirement to Verify or Investigate Information Provided by the Insured

In November 2017, OHR Makif LLC applied for a commercial insurance policy (the “Policy”) for premises located at 888 Home Street, Bronx, New York 10459 (the “Premises”) from Union Mutual Fire Insurance Company (“UMFI”). Using substantially the same application, OHR renewed its coverage again the following year.

UMFI issued OHR the Policy on November 29, 2017, and approved renewal of the Policy under the same terms the following year. Both applications provided that if certain “unacceptable risks” were on the Premises, UMFI would automatically be entitled to the “issuance of a Notice of Cancellation for Underwriting reasons” as an exercise of its right of recission.

The Underwriting Guidelines defined “unacceptable risk” to include any time an applicant responded “yes” to “any Preliminary Application Question............................... ”

However, in filling out the applications, OHR twice responded “No” to the following question: “Are there any outstanding HPD Class C violations of fire, safety, health, environmental, building or constructions codes at the proposed location? (Or similar violations for risk outside of NYC.)” Thereafter, OHR electronically signed the applications and certified that it had read and understood the provisions thereof and that all information therein was true. Had these questions been answered “No,” UMFI’s automated underwriting system would have rejected the risk and the Policy would not have been issued, let alone renewed.

In September 2018, Ramon Roman sued OHR for injuries allegedly suffered on premises controlled by OHR in early 2018. UMFI was notified and it assigned a defense to OHR in that action.

Isaac Nazar, the sole member of OHR, was deposed on February 6, 2020. Nazar testified that there were outstanding Class C violations on the Premises, and he knew of them at the time of application in 2017. Nazar said his knowledge was based on public New York City Building Department records, which he saw on the internet. By correspondence dated June 9, 2020, UMFI disclaimed coverage by reference to Nazar's statements, returned the Policy premium to OHR, and served notice that the insurance contract had been rescinded, voiding the policy ab initio.

This declaratory judgment action ensued in February 2022. Following discovery, UMFI moved for summary judgment, seeking a declaration that its rescission was valid, and that coverage was unavailable. The SDNY agreed.

Specifically,

“UMFI produced detailed and unambiguous Underwriting Guidelines (which OHR does not contest); those Guidelines are substantiated; and [UMFI’s underwriting] affidavit explaining the code-based reasons for materiality offers even stronger evidence of materiality than in other cases, where courts were not confronted with the automation interface employed [on behalf of UMFI]. This uncontradicted evidence establishes beyond genuine dispute that it would have been impossible to issue OHR the same policy had it answered ‘Yes.’”

In response, OHR was unable to create an ambiguity as to the definition of “Class C violations” in the application. This was first because when an insured party challenges rescission by an insurer, it must actually suggest “more than one meaning” of the relevant term and explain why its conduct reasonably falls within it. However, OHR never actually identified or even plausibly alleged another interpretation of “UHD Class C Violations.” Additionally, under New York law, ambiguity is judged from the standpoint of the reasonable insured party, including any familiarity with trade and customary usage like that used in the commercial real estate industry. And “outstanding Class C Violations” is well known in the commercial real estate industry of New York City and represents a customary usage, referring to violations of Class C as determined by New York City regulators.

Although the SDNY rejected various arguments asserted by OHR outright, its discussion of OHR’s waiver argument is worth a look. OHR argued that UMFI “waived any right it may have had to rescind [OHR's] insurance policy because the information was a matter of public record and it learned of the purported misrepresentations during [an] inspection of the property more than a year and a half before” this lawsuit. In rejecting this argument, the SDNY noted that “it is the burden of the insured to make accurate representations on an application for insurance such that ‘[a]n insurer is not required to verify or investigate information provided by the insured.’” And “[w]hile true that in some instances an insurer would be deemed having waived recission for not correcting an error in an application, those cases in the New York courts concern the special situation when there is sufficient evidence that the insurer had actual knowledge of the truth.” Here, “[t]here is no evidence … suggesting actual knowledge on the part of, or actual notice to, UMFI.”

Thus, it was “irrelevant how long UMFI took to initiate the litigation because New York law is clear that an insurers’ alleged negligence in not making further inquiry is not the equivalent of knowledge such that for UMFI to have waived its recission right for the Policy (which would not have been issued but for OHR's material misrepresentations)  something  more—something  tantamount  to  notice—is

required.” UMFI acted promptly upon learning of Nazar's testimony to retain investigators and ascertain the truth. Accordingly, UMFI did not waive its right to rescind in the event of a material misrepresentation by OHR in is applications for the Policy.

Maxwell’s Minute Entry: Kudos to Hurwitz Fine’s own Brian Barnas on this win! Now, if the softball team could only convince him to hit the batting cages in the off-season, he might very well be unstoppable. Time will tell…

RAUH’S RAMBLINGS
Patricia A. Rauh
[email protected]

On parental leave.

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

07/31/23  Loann T. Phan-Kramer, et al. v. American States Ins. Co.
United States District Court, E.D. Pennsylvania.
Bad Faith Statute Does Not Extend to an Insurer's Conduct During Litigation While Acting as a Legal Adversary. A Distinction Exists Between Conduct as a Legal Adversary and Conduct as an Insurer. Bad Faith Claim Also Dismissed Due to the Two-Year Statute of Limitations. Acts of Bad Faith that Relate to the Initial Denial of Coverage are not Entitled to a Separate Statute of Limitations, Continuing Coverage Denials Relate to the Initial Denial.

[Abridged] Plaintiffs filed suit alleging, among other things, statutory bad faith under 42 Pa. C.S.A. § 8371. Plaintiffs now seek leave to file a second amended complaint to save their bad faith claim from dismissal. But no amendments could save the claim. To the extent it is based on a denial of coverage, the statute of limitations bars the claim. And Pennsylvania's bad faith statute does not extend to an insurer's conduct during litigation while acting as a legal adversary.

On April 15, 2016, an underinsured motorist rear-ended Plaintiff. She suffered a full thickness tear of her rotator cuff, as well as other neck and back injuries. At the time of the accident, American States insured Plaintiff, including underinsured motorist ("UIM") benefits. After suing then settling with the other driver, Plaintiff notified American States of the UIM insurance claim. They sent the American States's adjuster a complete set of all of Mrs. Phan-Kramer's medical records, as well as depositions and expert reports produced in the lawsuit against the other driver.  These  reports  showed  future  losses  between  $322,884.00 and $349,582.00.

On June 28, 2019, the American States's adjuster sent correspondence to Plaintiffs that stated in relevant part: "I have had the opportunity to review the medical records you sent for Loann Kramer. Her injury does not appear to have a value over the underlying limits of $100,000.00; therefore, we will not be making an underinsured motorists bodily injury offer. Please discuss with your client." Less than three weeks after receiving the denial letter, Plaintiffs sued American States for breach of contract and loss of consortium.

Plaintiffs allege that, throughout the course of that litigation, American States's adjusters and in-house legal counsel represented that they were reevaluating Plaintiffs' UIM insurance claim as Plaintiffs presented new treatment records and evidence of work limitations. However, Plaintiffs concluded that American States had not been reevaluating the claim when American States's expert witness issued a report in the litigation on October 28, 2020. The report considered only early records of Mrs. Phan-Kramer's treatment, not any of the evidence of ongoing treatment Plaintiffs had provided throughout the litigation. Plaintiffs also allege that American States exerted influence on its expert to make false conclusions in his report and testimony that would support American State's low valuation of the UIM insurance claim.

Plaintiffs' UIM case proceeded to trial and the jury returned a $480,000.00 verdict in Plaintiffs' favor. The verdict was molded to reflect the $100,000.00 bodily injury liability limits and delay damages of $21,048.36. American States satisfied the verdict.

Plaintiffs have now sued American States again for its handling of the UIM claim and conduct in the previous litigation. After Plaintiffs filed their Complaint, American States removed the case to this Court. Plaintiffs then amended their Complaint as a matter of right to avoid a motion to dismiss. The Amended Complaint asserts three counts: Count I — Bad Faith Pursuant to 42 Pa. C.S.A.

§ 8371; Count II — Breach of Contract/Good Faith and Fair Dealing; and Count III — Loss of Consortium. American States answered Plaintiffs' Amended Complaint and informed Plaintiffs' counsel of its intent to file a motion for judgement on the pleadings.

Plaintiffs' Motion For Leave To File Second Amended Complaint followed. Plaintiffs' Motion seeks to add facts to support their bad faith claim. Specifically, they seek to expound upon Defendant's assurances that the UIM claim would be reevaluated when Plaintiffs presented new evidence, Defendant's refusal to reevaluate Plaintiffs' UIM claim, and Defendant's interactions with its expert and Plaintiffs during litigation.

To survive a motion to dismiss for failure to state a claim on insurance bad faith, Plaintiffs must plead that American States lacked a reasonable basis to deny benefits under the insurance policy and that American States knew of or recklessly disregarded its lack of a reasonable basis. Plaintiffs' proposed amendment seeks to add facts that would support two overarching bases for the bad faith claim: (a) Defendant's continued unjustified denial of the UIM insurance claim; and (b) Defendant's conduct during litigation. Neither basis can survive a motion to dismiss, so amendment is futile.

Plaintiffs' proposed amendment based on the continued denial of Plaintiffs' UIM claim is futile because the statute of limitations bars the claim. The statute of limitations on a bad faith claim under 42 Pa. C.S.A § 8371 is two years. The statute begins to run when the insurer first refuses to pay the claim.

American States first refused to pay Plaintiffs' UIM claim on June 28, 2019, when the insurance adjuster sent Plaintiffs a letter that stated American States "will not be making an underinsured motorists bodily injury offer." Plaintiffs understood this letter to be a denial of coverage—they filed a lawsuit for the denial of their claim less than three weeks after the letter. Plaintiffs also knew the facts giving rise to their argument that the denial was unfounded. They had submitted evidence showing future loss three times greater than the policy limit. The statute, therefore, began to run on June 28, 2019, and expired on June 28, 2021. Plaintiffs did not file this action until March 3, 2022. So, their bad faith claim based on denial of coverage is barred by the statute of limitations.

Plaintiffs' arguments that they did not know of Defendant's denial are unpersuasive. First, the letter is not equivocal. It does not say American States "will not be making an underinsured motorists bodily injury offer at this time." It says American States will not make an offer. A settlement offer is negotiation; a denial letter closes negotiation. Second, the fact that American States made settlement offers to end litigation is distinct from its denial of the insurance claim. Settlement offers during litigation do not admit liability, their purpose is to end litigation. While we all presume that plaintiffs sue insurers because they think they have a good faith basis to do so, the reality is that they also do so because litigation creates pressure to settle, without regard to the merits of the claim. So, when American States made an offer to settle the first lawsuit, that offer did not indicate that the claims handling was still underway. It just showed that American States put a price on avoiding litigation.

Plaintiffs also argue that Defendant's ongoing refusals to reevaluate Plaintiffs' UIM claims were new acts of bad faith, entitled to their own separate statute of limitations. But acts of bad faith that relate to the initial denial of coverage are not entitled to a separate statute of limitations. And continuing coverage denials relate to the initial denial. Therefore, the statute began to run with Defendant's initial coverage denial, and the same statute of limitations continues to apply.

Plaintiffs' proposed amendment based on American States's conduct in the litigation between them is futile because conduct as a legal adversary cannot be the basis for a statutory bad faith claim. Section 8371 provides a remedy for bad faith conduct by an insurer in its capacity as an insurer and not as a legal adversary in a lawsuit filed against it by an insured". A distinction exists between conduct as a legal adversary and conduct as an insurer. Plaintiffs take issue with American States's use of an allegedly biased expert witness, American States withholding information from that expert to influence his report and testimony during litigation, and American States failing to offer a settlement until the eve of trial in the first case. American States did not do any of this as an insurer, though. It acted as a legal adversary. The expert at issue in this case was employed for the purposes of litigation, not claim investigation.

Plaintiffs conflate American States's conduct as a legal adversary with its role as an insurer. American States acted as a legal adversary when it made settlement offers to end litigation and in its use of its expert witness. Any remedy for the alleged misconduct during litigation was sanctions. And nothing that Plaintiffs submitted to American States after its initial claim denial, including during the pendency of the lawsuit, gave American States a basis to reconsider its decision to deny Plaintiffs' UIM claim. Attempts to include facts in support of a bad faith claim at this point are futile.

07/13/23 Liberty Mut. Ins. Co., et al. v. Nordigay Anderson, et al.
Supreme Court, New York County.
An Exception to the 30-Day Preclusion Rule Exists Where the Ground for Denying the Claim is a Lack of Coverage in the First Instance. But the Denial of a No-Fault Claim on the Ground That the Policyholder Made Material Misrepresentations in Obtaining the Policy Does Not Come Within this Preclusion Exception.

[Abridged] In this no-fault-insurance coverage action Liberty Mutual denied the no-fault-benefits claims of the alleged injured person, defendant Nordigay Anderson, and the other defendants, medical-provider-assignees of Anderson's, on the ground that Anderson had materially misrepresented the insured vehicle's garaging address and the identity of the vehicle's operators. Liberty Mutual has brought this action for a judgment declaring that it has no duty to pay those claims.

Liberty Mutual now moves without opposition for default judgment under CPLR 3215 against non-answering defendants. The motion is denied.

No-fault benefits claims must be paid or denied "[w]ithin 30 calendar days after proof of claim is received." (11 NYCRR 65-3.8[c].) Proof of claim "shall include verification of all of the relevant information requested pursuant to section 65-3.5 of this Subpart," such as requests that an injured person or medical-provider- assignee appear for an examination under oath (EUO). (Id. § 65-3.8[a][1].) an insurer's failure to deny a claim within that 30-day period will generally preclude the insurer from asserting a defense against payment of the claim.

An exception to this preclusion rule exists where the ground for denying the claim (or defending against a claim to payment) is a lack of coverage in the first instance. But the denial of a no-fault claim on the ground that the policyholder made material misrepresentations in obtaining the policy does not come within this preclusion exception.

In short, Liberty Mutual may not raise material misrepresentations as a defense to the no-fault claims at issue in this action unless it denied those claims within 30 days after receiving proof of claim.

Liberty Mutual first sought verification from Anderson, in the form of an EUO, by letter dated June 29, 2021. Liberty Mutual conducted that EUO on July 12, 2021. Liberty Mutual later interviewed Anderson's father (the vehicle operator named on the policy) on August 3, 2021; and issued claim denials two days later, on August 5.

Thus, it appears on this record that Liberty Mutual denied the claims at issue within two days after obtaining the additional verification that it sought from Anderson and her father. That chronology, though, does not resolve the crucial question whether the 30-day period to pay or deny ran before Liberty Mutual first sought that verification on June 29. That is, if Liberty Mutual received benefits claims more than 28 calendar days before issuing the EUO request letter on June 29, 2021, the August 5, 2021, denial would be untimely with respect to those claims.

Liberty Mutual has not established on this motion that its denials were timely with respect to each of the defendants against whom it seeks default judgment. At most, Liberty Mutual has submitted a delay letter that it sent on June 4, 2021, to defendant Good Samaritan Hospital Medical Center; and Liberty Mutual's counsel represents in an affirmation that delay letters were also sent "to the medical provider defendants who had submitted NF-3s or bills" as of early June 2021. But a delay letter that does not itself request verification from the recipient will not toll the 30-day pay-or-deny period. On this record, therefore, Liberty Mutual has not established the facts constituting its claims against the non-appearing defendants.

07/25/23 Cadaret Grant & Co. v. Great American Ins. Co.
United States District Court, E.D. New York.
Letter Providing Coverage Counsel's Legal Opinion Protected from Disclosure by the Attorney-Client Privilege. The Question is Whether Counsel is Acting as an Investigator of a Claim (the Job of a Claims Adjuster) or Providing Legal Advice to a Client. For the Work Product Doctrine to Apply, the Material at Issue Must Have Been Prepared by a Party or Their Representative in Anticipation of Litigation. Conversely, Protection Does Not Exist for Documents that are Prepared in the Ordinary Course of Business or That Would Have Been Created in Essentially Similar Form Irrespective of the Litigation.

[Abridged] Plaintiff commenced this action for breach of contract and declaratory judgment seeking coverage under the terms of a Financial Institution Bond issued by Defendant. Presently before the Court is Cadaret's motion to compel the production of documents withheld from discovery by GAIC on the grounds of the attorney-client privilege and the work product doctrine. After the parties submitted a letter outlining their positions, the documents at issue were submitted to this Court for in camera review. The full privilege log was presented to the Court with those documents still at issue highlighted for the Court's convenience. Upon review of the documents at issue, and for the reasons set forth below, the motion to compel GAIC to disclose the documents at issue is granted in part and denied in part. In particular, only the letter dated March 22, 2021, described in the privilege log as a letter "providing coverage counsel's legal opinion" for which attorney-client and work product protection is claims need not be produced. That document is covered by the attorney-client privilege. GAIC fails to sustain its burden of showing that any other document is privileged, and all must therefore be produced.

Cadaret seeks coverage for losses suffered by its clients at the hands of an individual who has pled guilty and accepted civil responsibility with respect to his activity while working as a representative of Cadaret. As a result, Cadaret sustained the losses for which it presently seeks coverage.

Cadaret provided notice to GAIC of a potential loss under the terms of the Bond which arose as a consequence of Cadaret's settlement of several client claims. By letter dated April 22, 2021, GAIC denied covered for Cadaret's claimed losses. This matter commenced approximately eight months later, on December 1, 2021. The documents at issue herein were generated prior to this date.

The individuals whose names appear on the documents are: (1) Timothy Markey ("Markey") a claims adjuster working for GAIC; (2) Michael Graziano, Esq. ("Graziano") an attorney working as outside counsel for GAIC at the law firm of Eckert Seamans ("Eckert"), and (3) John Ellison, Esq. ("Ellison") an attorney working for Cadaret at the law firm of Reed Smith.

The documents at issue reveal that as early as April of 2019, GAIC had retained outside counsel Graziano to discuss claims under the Bond. Thus, in an email dated April 8, 2019, a Senior Financial Product Claims Representative at GAIC wrote to Graziano advising him that Markey had yet to receive a POL from Cadaret. It also advised Graziano that Cadaret had been settling with many defrauded victims, and that he wanted to make sure that Graziano was apprised of the background of this matter prior to GAIC's receipt of the POL's.

The bulk of the documents at issue are emails exchanged between Markey and Graziano between February 27, 2020, and February 12, 2021, which reveal Graziano's involvement in GAIC's investigation of Cadaret's claims. These emails include Markey's transmission of information regarding Cadaret's claims to Graziano and those asking that Graziano draft, for Markey, correspondence to be sent under Markey's name to counsel for Cadaret.

The remaining documents at issue are an email transmitting a draft of GAIC's coverage position, a seventeen-page letter dated March 22, 2021, from Graziano to Markey containing Graziano's legal opinion regarding coverage, and two emails following that letter. The final documents at issue are those stating Graziano's intent to forward the denial of coverage letter to Ellison by the end of the week of April 26, 2021, and an email proposing dates and times for a call with Reed Smith.

GAIC submitted a detailed privilege log. The Log discloses the date of each document and its recipients. It also contains a description of the type and subject matter of each document, as well as the particular privilege claimed. The first twenty documents described in the Log (which were generated prior to GAIC's denial of coverage) claim attorney-client privilege; the last four (consisting of the March 22, 2021, letter from Graziano to Markey and related emails) clam protection under both the attorney-client privilege and the attorney work product doctrine. On June 20, 2023, pursuant to an order of this Court, all documents at issue were provided to this Court for in camera inspection. Upon review of the parties' positions and the documents at issue, and for the reasons set forth below, the Court directs that GAIC produce all documents except for the March 22, 2021, letter from Graziano to Markey.

The law of the State of New York governs the issue of whether or not the attorney- client privilege applies. Federal law applies to the question of whether the work product doctrine applies. Whatever the claim, the burden is on a party claiming the protection of a privilege to provide evidence establishing the essential elements of the privileged relationship.

As to the attorney-client privilege, New York law provides that the party claiming privilege bears the burden of showing: "the existence of an attorney-client relationship, a communication made within the context of that relationship for the purpose of obtaining legal advice, and the intended and actual confidentiality of that communication."

New York courts are often faced with deciding claims of attorney-client privilege in the context of insurance coverage disputes. In particular, such courts have been called upon to decide claims of privilege with respect to documents generated between outside counsel and insurance company claims adjusters. Central to such privilege decisions is the issue of whether outside counsel is performing the role of a claims investigator, or that of an attorney offering legal advice. Documents reflecting claims investigation activities are subject to discovery even if those activities were performed by an attorney.

Where, as here, a court must decide whether documents generated between a claims adjuster and outside counsel are privileged the question is whether counsel is acting as an investigator of a claim (the job of a claims adjuster) or providing legal advice to a client. The latter class of documents is protected by the attorney client privilege; the former is not.

Application of the work product doctrine is governed here by Federal law. That doctrine, codified in Rule 26(b)(3) of the Federal Rules of Civil Procedure is "intended to preserve a zone of privacy in which a lawyer can prepare and develop legal theories and strategy with an eye toward litigation, free from unnecessary intrusion by his adversaries." For the work product doctrine to apply, the material at issue must have been prepared by a party or their representative "in anticipation of litigation". Fed. R. Civ. P. 26(b)(3)(A). Conversely, protection does not exist for "documents that are prepared in the ordinary course of business or that would have been created in essentially similar form irrespective of the litigation."

Like cases involving claims of attorney-client privilege, a number of cases deciding application of the work product doctrine arise in the context of documents that discuss insurance claims. Courts have routinely held that documents created during any part of a factual investigation to arrive at a claim decision are prepared in the ordinary course of an insurer's business and are not protected by the work- product privilege. There may, however, "come a point when an insurance company's activities shift from the regular and ordinary course of business to activities taken in "anticipation of litigation". "An insurer may demonstrate that it had reached this tipping point by presenting specific competent proof that it possessed a resolve to litigate when the documents were created.'"

When deciding questions regarding the prospect of litigation the court must bear in mind that it is the "routine business of insurance companies to investigate and evaluate claims." Such companies may engage counsel on a routine basis, or only in cases involving large claims. The issue is not, however, the size of the potential claim but whether there is a prospect of litigation at the time that the document was generated. Facts relevant to deciding the claim of privilege include the date counsel was engaged and the date the claim was denied.

GAIC claims that the first twenty of the documents highlighted in the Log are protected by the attorney-client privilege. All of these documents are emails exchanged prior to the March 22, 2021, letter explaining denial of coverage under the Bond. Without applying a bright-line approach rooted only in the date that GAIC denied coverage, the Court's review of these documents results in a holding that none of the first twenty documents are protected by the attorney-client privilege.

First, many documents are nothing more than transmittal emails that either refer to requests for information, or the forwarding or downloading of such information. More importantly, while these first twenty documents reflect communications between  GAIC  claims  representative  Markey  and GAIC  outside  counsel Graziano, they demonstrate work performed by Graziano as a claims investigator rather than as legal counsel. They reflect discussions between Markey and Graziano, typically led by Markey, which culminate in typical requests for information regarding Cadaret's claims. Such documents reveal counsel working in an investigatory role.

The Court need not describe in detail the contents of each of the twenty documents for which only the attorney-client privilege is claimed. This is because the Court finds, with respect to all of these documents, that Graziano was acting as a claims investigator and not supplying legal analysis. Therefore, the Court holds that none of the first twenty documents in the privilege log (for which only the attorney-client privilege is claimed) are within the privilege. They must all therefore be produced.

GAIC claims both attorney-client and work product protection for the last four documents listed in the Log. As to these documents, the Court holds that only the letter from Graziano to Markey dated March 22, 2021, falls within the claim of privilege. Unlike the documents above, this document shows Graziano's legal analysis and opinions. It contains legal advice and is therefore primarily legal, rather than investigatory in nature. It is covered by the attorney client privilege. The document preceding this legal opinion is an email that is akin to a cover letter transmitting the legal opinion. It contains no legal analysis and is not privileged. Similarly, the remaining documents, although prepared after the March 22, 2021, letter, are not privileged.

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

08/24/23         Farley v. P&P Construction, Inc.
Supreme Court of Kentucky
Under Kentucky Law, Medical Providers Must Not Delay in Tendering Billings Even Where there has not Been a Determination of Liability.

Daniel Farley was injured while working as a section foreman for P&P Construction Inc. (P&P) when an air hose for a mine pump exploded, causing fractures to his left leg. Farley underwent three surgeries to repair these fractures. Farley’s injury was indisputably work-related, and Kentucky Employers Mutual Insurance (KEMI), P&P’s worker’s compensation carrier, accepted the claim and began paying temporary total disability (TTD) benefits and—with certain exceptions—paying Farley’s medical expenses. Farley also sought treatment at ARH Daniel Boone Clinic (ARH) for “post-traumatic stress disorder and mood disorder.” Since ARH did not timely submit the bills within 45 days of treatment, KEMI rejected them pursuant to Kentucky Revised Statute (KRS) 342.020(4). KRS 342.020(4) states, “[t]he provider of medical services shall submit the statement for services within forty-five (45) days of the day treatment is initiated and every forty-five (45) days thereafter, if appropriate, as long as medical services are rendered.” For the same reason, KEMI also rejected billings from Harlan ARH Hospital/Gram Resources (Gram Resources) for imaging services performed.

Later, Farley filed his initial workers’ compensation claim. The parties negotiated a settlement in which P&P and KEMI provided a lump sum payment to Farley, but P&P and KEMI only remained liable for reasonable, necessary, and work-related medical expenses causally related to the left leg injury. During the proceedings, the ALJ determined the 45-day rule in KRS 342.020(4) did not apply until after an award is made in the claim establishing a work-related injury has occurred. Notably, no party disputed that Farley had suffered a work-related injury, and P&P had already paid, and never objected to paying, the vast majority of Farley’s incurred medical bills prior to the settlement. The worker’s compensation board affirmed the ALJ’s decision and found that the 45-day requirement only applied after a determination of compensability of a claim by an ALJ. P&P appealed to the Kentucky Court of Appeals. The Court of Appeals agreed with P&P, holding that the Board misconstrued the statute based on its plain language.

Farley appealed to the Kentucky Supreme Court, arguing that KRS 342.020 should be read to extend the 45-day deadline for submission of bills until after an award because (i) precedent supported this interpretation, (ii) the Court had “tacitly approved” of the Board's ruling in another decision, and (iii) the Legislature would have amended KRS 342.020 if it had disagreed with the Board’s long- standing posture on the question.

The Court disagreed, noting that the time restriction was unambiguous and required a provider to submit billing statements within 45 days after treatment. The Court reasoned that the plain language of the statute affords no other construction than that the provider “shall” submit the statement for services within forty-five days of treatment, and no language in the statute limits the application of this 45-day rule to a period of time post-award. Rather, the date of treatment triggers the start of the 45-day period for a provider to submit its billing to the employer or insurer.

The Court also disagreed that precedent supported the Board’s ruling that the 45- day requirement only applied post-award, and the Court felt that allowing medical providers to withhold their billings for indefinite period of time from consideration and payment by the employer, its insurer, the ALJ, and even their patients, would upend the statutory and regulatory framework of the workers’ compensation adjudicatory process, the billing processes for providers, and the adjustment processes for obligors. Accordingly, the Court affirmed the appellate court’s decision based on the language of the statute and opined that if the statute requires change, the arguments by the Board or providers regarding the narrow timeframe of the 45-day window for the submission of medical billings must be made to the legislature.

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

08/24/23  Emp.’s Ins. Co. of Wausau v. Harleysville Preferred Ins. Co.
New York State Supreme Court, County of Queens
Bodily Injury Cannot be Said to “Arise Out of Ownership, Maintenance, or Use of a Covered Auto” Absent a Causal Relationship Between the Auto and the Injury

Harleysville issued a commercial business automobile insurance policy to Hellman, the subcontractor retained to perform certain electrical work with respect to a construction project. One of Hellman’s employees had arrived on the scene in a boom truck, where he proceeded to park said truck and remove jersey barrier poles. When finished, the claimant stepped off the truck, and in so doing, stepped on a loose and unsecured rebar, twisting his knee. The claimant initiated an underlying action against Tully, the general contractor, for various violations of the New York State Labor Law. This action followed.

This action was commenced to determine the coverage obligations owed by Harleysville, the commercial auto insurer of Hellman, the subcontractor, to Tully, the general contractor. The trade contract between Tully and Hellman required, in pertinent part, that Hellman procure various types of liability insurance, including a commercial business auto policy, and name Tully as an additional insured thereon. Hellman did so.

The insuring agreement of the Harleysville commercial business automobile policy provided, in pertinent part, that Harleysville would pay all sums an insured legally must pay as damages because of bodily injury or property damage to which the insurance applied, caused by an accident, and resulting from the ownership, maintenance, or use of a covered auto. Harleysville’s main contention was that the claimant’s injuries did not result from the ownership, maintenance, or use of the boom truck as an automobile, since the claimant fell only after it had been parked for ten to twenty minutes prior. In opposition, Wassau argued that Harleysville failed to include this basis for denying coverage in its answer.

In New York, insurance denial letters must promptly apprise the claimant, with a high degree of specificity, of the grounds upon which the disclaimer is based. The effect of failing to include a basis for denying coverage with sufficient specificity, generally, is that such basis is deemed waived. However, crucially, where the carrier’s defense is that the claim falls outside the scope of the policy in the first instance—that is, that the claim falls outside the scope of the insuring agreement, not that the claim falls into an exclusion—such a defense is not waived merely by failing to include it in the disclaimer letter.

Noting the above, the Court took up Harleysville’s argument that the claim fell outside of the scope of liability coverage under its policy. In so considering, the Court noted the four-part test used to determine whether an accident arises from the use or operation of a covered automobile: (1) whether the accident arises out of the inherent nature of the automobile; (2) whether the accident arises within the natural territorial limits of the automobile; (3) whether the actual use, loading, or unloading of the automobile was terminated; and (4) whether the automobile merely contributed to causing the injury, rather than actually producing it.

The Court explained that the use of the motor vehicle must be “closely related” to the injury, and that the injury must result from the intrinsic nature of the motor vehicle. The Court also noted that the vehicle does not necessarily need to be the proximate cause of the injury, but rather, that negligence in the use of the vehicle must be shown, and that such negligence must be a cause of the injury.

In applying the test, the Court noted that the underlying action did not allege negligence with regard to the use of the boom truck, but instead alleged that the accident occurred due to Tully’s negligence in maintaining the loose and unsecured rebar upon which the claimant stepped. The Court continued its analysis by noting that the claimant’s injuries did not occur until after he stepped off the truck, once he was finished removing the jersey barrier poles, and only occurred as a result of stepping off the faulty rebar. The Court concluded that the claimant’s injuries were caused by the faulty rebar, and that the boom truck itself may have contributed to the accident, but did not cause it.

Since there were no allegations that the boom truck itself was used negligently, the Court found no causal relationship between the boom truck and the accident. Accordingly, the Court found no duty to defend or indemnify Tully on the part of Harleysville.

Editor’s Note: Recall that this case started off with an argument that Harleysville could not even rely upon its argument that the accident fell outside of the scope of coverage. Only after the Court found that this argument was unavailing did the Court decide that it was, in fact, the winning argument. While it is fairly well-settled that the coverage defense that the insuring agreement is not triggered in the first instance is not waived by virtue of failing to timely raise it, why not avoid the question altogether by including it in a disclaimer anyway?

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

8/23/23           Matter of Benalcazar v. Motor Veh. Acc. Indem. Corp.
Appellate Division, Second Department
Trial Court Failure to Hold a Hearing on Identity of Purported Hit and Run Results in Finding of Issue of Fact

On August 19, 2016, Petitioner was involved in a motor vehicle accident as a passenger in a livery cab with another vehicle that immediately fled the scene. She was then transported by ambulance to a hospital with a lower back injury. She filed a petition pursuant to Ins. Law Sec. 5218 to commence an action against the Motor Vehicle Indemnification Corporation (“MVAIC”). MVAIC opposed the petition on the grounds that the Petitioner failed to comply with Ins. Law Sec. 5218(b)(5), which requires that “all reasonable” efforts were made to ascertain the identity of the owner and operator of the livery cab. The trial court denied the petition.

On appeal, the Second Department reversed looking to Matter of Quiridumbay v Motor Veh. Acc. Indem. Corp., 176 AD3d 717, 718 (2d Dept. 2019), which held “[i]f the court, after a hearing, is satisfied, inter alia, all reasonable efforts have been made to ascertain the identity of the motor vehicle and of the owner and operator and either the identity of the motor vehicle and the owner and operator cannot be established, then it may issue an order permitting an action against MVAIC.”

The appellate court reasoned the trial court should not have denied and dismissed the petition without first having a hearing. The court found Petitioner had made numerous phone calls and sent a letter to the livery cab operator, JT Trans Inc. (“JT Trans”), but learned that JT Trans did not own any vehicles. Further, Petitioner’s counsel affirmed that he searched the NYS DMV records for police accident reports containing TLC, TC, or livery plates for the date of the accident, but none of the reports pertained to Petitioner’s accident. Counsel also made FOIL requests for police reports and the ambulance call report, as well as a request for vehicles licensed under JT Trans. The received ambulance report confirmed the accident involved a livery cab with the Petitioner being a restrained passenger and transported to the hospital.

Based on these findings, the court determined there were issues of fact as to whether the Petitioner’s efforts to ascertain the owner and operator of the livery cab were reasonable.

8/23/23           Matter of Bullock v. Motor Veh. Acc. Indem. Corp.
Appellate Division, Second Department
Incorrect Information in Police Report and no DMV Records Constitutes “All Reasonable Efforts” to Commence an Action Against MVAIC

On August 4, 2016, Petitioner allegedly suffered personal injuries, when riding a bicycle, he was struck by a motor vehicle that immediately fled the scene. After the accident, a police accident report was created based upon an eyewitness account and surveillance video footage. The police report identified the vehicle as a 2000 Ford with a Virgina license plate owned by an “Antonio Jiminez” with an address in Queens. Petitioner then attempted to serve Jiminez at the address and learned from the process server and the USPS that the address did not exist. Further, the Virgina DMV found no records related to the vehicle with the Virginia plate number. Petitioner, then filed a petition pursuant to Ins. Law Sec. 5218 for leave to commence an action against MVAIC. MVAIC opposed on the grounds the police report identified the owner and operator of the vehicle. The trial court denied the petition.

The Second Department reversed. Much like in Matter of Benalcazar, the Appellate Division detailed that a party may be permitted to commence a cause of action against MVAIC, if after a hearing, the court finds the injured party made all reasonable efforts to ascertain the identity of the owner and operator of the motor vehicle. The court found that the Petitioner met his burden by way of the police report. It reasoned the report contained incorrect information, including a non-existent address for the vehicle owner, and the Virgina DMV has no records regarding the license plate number identified on the vehicle.

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

08/10/23 New Law Enrolls Every NY Driver in Pricier Auto Insurance Coverage. Half Will Get No Benefit
New York Auto Rates Increased this Month Because of Spousal Liability Coverage

As of August 1, 2023, all New York car insurance providers must begin adding supplemental spousal coverage to their plans. With this coverage, if the covered spouse is the driver during an accident where they are responsible, or any other kind of accident where the party at fault has no insurance, or insufficient insurance, the spouse is entitled to the limits of the liability coverage. According to New York’s Department of Financial Services, the costs for such coverage ranges from $20 to $84 annually.

Spousal liability coverage has previously been offered as an option on New York auto policies. But the new law makes the additional coverage an opt-out provision that the insured must affirmatively decline. However, in its current form, the new law does not differentiate between unmarried and married New Yorkers. With that said, roughly half of New York State’s driving population would be mandated coverage which it would not benefit. The law will expire on July 31, 2027, unless a new law is enacted to extend it. We will monitor this new law and its effect on the insurance industry and its consumers.

Editor’s Note: The linked article is available through the Buffalo News, which requires a subscription. If you would like to view the article in full, please reach out for a courtesy copy.

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

Nothing new to report here; see you in two.

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

08/15/23   Insurance Corporation of British Columbia v. Ari

By Providing a Former Employee with Opportunity to Access Policyholder Information, an Insurance Company is Vicariously Liable for the Release of that Identifying Information which that Former Employee Sold to a Vancouver Criminal Gang Member

A curious thing started happening between April 2011 and January 2012 in the Vancouver Metropolitan area. There was a series of firebombings and shootings of homes and vehicles. One of the firebombings was at the home of West Vancouver’s former police chief. They all seemed unconnected.

Investigators spent four years piecing together the mysterious reign of terror, which at first appeared to involve random victims. (Note that if this was a Law and Order episode it would been done and dusted in 60 minutes.)

An email sent in July 2011 drew the connection that concentrated police efforts. That email was sent to the Justice Institute of British Columbia and revealed that there was a connection between the attacks and that Institute.

The Justice Institute of British Columbia is a post-secondary school, located in New Westminster, British Columbia, (all within the Vancouver metropolitan area).

The Institute has three schools, or faculties, leading to four-year bachelor degrees in public safety administration, as well as emergency, and security management studies. All municipal police officers in British Columbia receive their training at the division of the school known as the Police Academy. That Academy also offers advanced police training courses, and training for security and gaming officers. The victimized families had parked their vehicles in the parking lot of the Justice Institute.

The next clue was a bag found at one victim's home with a loaded handgun and a document listing names, addresses and accurate descriptions of attacks that had occurred at other residences. DNA found in the bag matched that of Vincent Cheung, 43, of Langley, who pleaded guilty in B.C. Supreme Court to 18 of 23 counts stemming from the attacks between April 2011 and January 2012. Cheung, who had serious mental health problems as well as being a member of a local criminal gang, said ….“The paranoia got to me from all the drugs, so I got friends to tail me to make sure and see who was tailing me and we tailed them back to the justice institute. That's how I found out they were police."

But how did Cheung get the names and home addresses of those individuals he victimized? He gave the license plate numbers of vehicles in the parking-lot to an employee of the Insurance Corporation of British Columbia (ICBC).

ICBC is a Crown Corporation with a monopoly for automobile insurance in British Columbia. It also manages driver’s licencing for the Province. Therefore, every resident of British Columbia with a driver’s license or automobile insurance is required to provide personal information to ICBC.

Cheung revealed that Candy Rheaume, who he knew from selling street drugs, was employed at ICBC at the time of the firebombings as a claims adjuster. Cheung paid her $25 (and access to drugs) for each lookup relaying names, addresses, driver’s licence numbers, vehicle descriptions and identification numbers, as well as claims histories. Rheaume had no business reason to perform these lookups. Rheaume was fired and plead guilty to one count of unauthorized use of customer’s information.

A class action was initiated against ICBC for damages at common law and under the B.C. Privacy Act arising from the privacy breach. The central issue was whether ICBC was vicariously liable for the damages.

In a judgment rendered August 24, 2022, the British Columbia Supreme Court held that ICBC was vicariously liable on the basis that the attacks were not an unforeseeable intervening event, and that the attacks directly led to the damage claimed. ICBC appealed. The judgment in the appeal was rendered on August 15, 2023.

The Court of Appeal held that the trial judge did not err in finding that the information was private within the meaning of the Privacy Act. Whether a right to privacy has been breached pursuant to the Privacy Act requires consideration of the context, including the nature, incidence, and occasion of the act, the relationship of the parties, and degree of privacy to which a person is entitled. The requirement that the breach of privacy be willful and without claim of right limits the scope of potential liability. Customers had a reasonable expectation that the information they provided ICBC would only be used for legitimate ICBC business purposes, and they otherwise had the right to control use of their personal information. The employee’s conduct in selling some of the information to third parties for a criminal purpose tainted all of her actions in accessing the customers’ files without a legitimate business purpose. That Court also held that The Privacy Act does not require proof of actual damage. The judge’s determination that baseline general damages could be awarded on a class basis, without requiring individualized proof, was not in error.

Further and of significant importance the Court of Appeal found that the trial judge did not err in imposing vicarious liability on ICBC for the privacy breach. ICBC materially created the risk and provided the opportunity for this employee to commit the wrong and the employee’s conduct was sufficiently related to her authorized duties to justify the imposition of vicarious liability. Policy reasons support the imposition of liability. The Court’s reasoning on this point deserves a very close read.