Volume XXVI, No. 13 (No. 686)
Friday, December 6, 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. Our newsletter is, as always, attached.
Greetings from NYC and the annual DRI Insurance Conference & Practice Symposium, joined here by my colleagues and editors, Steve Peiper, Lee Siegel and our Canadian correspondent, Heather Sanderson. So, excuse the brevity of this cover note. For CP subscribers present at this conference, do stop by and say hello, if I haven’t seen you yet. There may be a few of you who I won’t recognize by sight, but I would love to meet you.
End of the year rush is on, with mediations, conferences and all kinds of efforts to close files. No rest for the weary or wicked.
Domenica Hart Joins the HF Coverage Team
We are so delighted to welcome to Domenica Hart to the Hurwitz Fine Coverage Team.
She brings both in-house and private practice experience to further strengthen our team.
Domenica earned her J.D. at Elisabeth Haub School of Law at Pace University, graduating Cum Laude. While attending law school, Domenica was a member of and an editor of Pace’s International Law Review. She received the honor of being published in the law review, advancing over many talented co-members. After law school, she served as a judicial law clerk for the Honorable Brian R. Martinotti, while on the bench in both The Chancery Division: Family Part, and the Law Division: Civil Part, at the Superior Court of New Jersey: Bergen County.
Licensed in New Jersey, New York and Connecticut, with a past focus on New Jersey practice, Domenica has nine years of experience as an Insurance Defense Litigator, both as an associate with panel counsel and as a staff attorney for an insurance carrier. After such experience, Domenica spent 12 years working for two carriers as Coverage and Claims Counsel, handling both first-party and third-party claims. Most recently, at Westen World Insurance Company/AIG, Domenica focused on Commercial General Liability and Auto Dealers Coverage.
Domenica lives in Westwood, New Jersey (Bergen County). She is dog mom to Charlie, a three-year-old Dachshund Terrier mix with an equal dose of sweetness and naughtiness. She has been a long-term volunteer with Habitat for Humanity of Bergen County. She serves as a board member of its working board. She is also the chairwoman of Habitat Bergen’s Family Selection Committee, tasked with the role of finding and vetting families for Habitat-built affordable housing. Domenica enjoys traveling with her boyfriend and friends, hosting game nights, going to Broadway musicals, plays and concerts and spending time with her family.
Farage Generates Reviews
We report on an Interesting first party case from the Court of Appeals reported in this issue. See Scott Storm’s cover note, below and his column in the attached issue, along with a special guest commentary from one of the lawyers involved, Howard Kronberg. Steve Peiper also gives you his spin in his column.
Writing an Effective New York Coverage Letter Zoom Program
December 13th at noon, Eastern
Only about 10 openings left
Our December 13, 2024, Zoom program on Writing an Effective New York Coverage Letter is a virtual sellout, we have over 990 registered and we max out at 1,000 virtual seats. We announced the program in the previous issue of CP, four weeks ago. If you haven’t signed up, we can take a few more reservations, but then we will move to a wait list. If there are companies that want to gather folks in a conference room, they will get a preference. Of course, if there are insurers or law firms that have signed up individual registrants and now tell me that they can combine into a conference room, I’d be appreciative. That will allow others to attend. Let me know your pleasure at [email protected].
Coverage Mediator
Give Me a Call – 716-849-8942
Coverage mediation is a thing! Subject matter expertise may be useful. What are the benefits of coverage mediation?
Time and Cost Efficiency
Mediation is generally much faster and more cost-effective than traditional litigation:
- The process can typically be completed within weeks, compared to months or years for court cases.
- It avoids expensive court fees, attorney costs, and other litigation-related expenses.
Control and Flexibility
- Parties have more control over the outcome in mediation.
- They can actively participate in crafting solutions tailored to their specific needs and circumstances.
- There is flexibility to explore creative resolutions that may not be available through court proceedings.
Confidentiality
-
Mediation proceedings are typically confidential, which offers several benefits:
- Parties can discuss sensitive matters openly without fear of public disclosure.
- It avoids the publicity and public record associated with lawsuits and trials.
Relationship Preservation
- The less adversarial nature of mediation can help maintain or improve relationships between parties.
- It fosters open communication and collaboration.
- This can be especially valuable in disputes involving ongoing business relationships.
Risk Mitigation
- Mediation helps alleviate some of the risks associated with litigation.
- It avoids precedent that may provide unfortunate results for parties – or for the industry – in the future.
- It offers a compromise-based approach, reducing the "all-or-nothing" risk of a court decision.
- Even if unsuccessful, the process can provide valuable insights into the strengths and weaknesses of each party's position.
Empowerment and Communication
- Mediation empowers parties in ways that litigation often doesn't.
- Clients have a more active role in the process and outcome.
- It provides a forum for parties to tell their stories and feel heard4.
While mediation isn't suitable for every situation, these advantages make it an attractive option for resolving many insurance coverage disputes efficiently and effectively.
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.
Son Bruised in Football Game, Parent Sues School – 100 Years Ago:
Times Herald
Olean, New York
6 Dec 1924
SUES ACADEMY BECAUSE
SON WAS ALLOWED TO PLAY
FOOTBALL AGAINST WISHES
KANSAS CITY, Mo., Dec. – Alleging that her son, Wendall, 16, was permitted to take part in a football game in 1922, against her expressed wishes, Mrs. Pearl V. Hatch has instituted suit against the Kansas City Military academy, Oswego, Kansas, and Clyde R. Terry, former superintendent of the Institution for $5,000 damages.
Mrs. Hatch asserted in her petition that the boy suffered bruises and sprains in the game. She declared that when he entered the military academy she directed the school authorities not to permit him to take part in any violent exercises, as Wendall was frail.
Peiper on Property (and Potpourri):
Greetings from NYC where we return to the warm embrace of DRI’s annual Insurance Coverage and Practice Symposium. Although I trust others have a bit longer history (you know who you are), this year marks my 15th consecutive (not counting COVID disruptions) trip. This conference stands out among its peers because of the practical and substantive topics that are presented. Kudos to all of the presenters, and this year’s Program Chair Illan Olman and the Vice-Chair Courtney Britt. We know first-hand how much time and effort goes into developing the programs and appreciate the sacrifice.
I do note, unfortunately, I missed a few morning sessions due to a first for me. My plane, which I promptly boarded at 5:45 a.m. this morning, did not take off because it (along with others on the tarmac) became temporarily stuck in the snow. The snow removal crews at BNIA are among the very best at what they do, but even they were overwhelmed (if only temporarily) by today’s issues. We did arrive safely, and for that I am quite grateful. Plus, I was gifted a story for today’s cover note for which I am equally grateful.
That’s it for now. See you again in two weeks.
Steve
Steven E. Peiper
[email protected]
Prisoner’s Hair an Issue? – 100 Years Ago:
Buffalo Post
Buffalo, New York
6 Dec 1924
ALLEGED POISONER TO
WEAR BOB AT TRIAL
MOUNT VERNON, Ill., Dec. 6. (A.P.) - At the resumption Monday of the trial of Lawerence M Hight, deposed clergyman, and Mrs. Elsie Sweetin, for the poisoning of Mrs. Anna Hight and Wilford Sweetin, Mrs. Sweetin probably will satisfy a long felt wish and appear with bobbed hair, with permission to leave the Nashville jail today, she planned to visit a hairdresser.
Objections of her father-in-law, C.C. Sweetin, had prevented her acquiring a bob, Mrs. Sweetin told her attorney, but she said she no longer would respect his wish.
Lee’s Connecticut Chronicles:
Dear Nutmeggers:
On the road, again, really. I know it’s hard to believe. Yesterday was a nice trip from New Haven, Connecticut, across the Sound on the Ferry, out to a very nice appearance in Suffolk Supreme in Riverhead. Then I made a “surprise drop-in” at our Long Island office, before slogging through the traffic to get to Manhattan for the DRI Insurance Conference. If you’re here, well, you’re probably home by now reading this, but stop by and say “Hi” to me, Dan, and Steve.
Back to some well needed CLE credits. My registration is up next month.
Keep keeping safe.
Lee
Lee S. Siegel
[email protected]
“Marry Me. Marry me.” “I can’t, you’re penniless”. “So what, the Czar of Russia was Nicholas”– 100 Years Ago:
The Buffalo Times
Buffalo, New York
6 Dec 1924
Judge Approves Refusal
Of Girl, 16, to Wed Man, 48
NEW YORK, Dec. 6. – “Here, take back your ring, I’ll die before I marry you, I love only Tommy.”
Antoinette Percoco, 16, and as vivid as an Autumn rose, jerked an engagement ring off her finger and flung it at Salvatore Dirgillio, 48, in the New Brighton, S.L., Police Court.
Friendly hand restrained her from tearing off the wedding gown which the matured Dirgillio had given her.
Magistrate William Croak, who had just been told by the girl’s mother that Antoinette was “incorrigible” because she wouldn’t marry the man of her mother’s choice, ruled:
“Case dismissed. She should have a right to choose her own husband.” A smile flashed over Antoinette’s olive features. Then she and Thomas Reno, 19, of Port Richmond, hand in hand, tripped out of court. They plan to marry.
Ruffner’s Road Review:
Dear Readers,
I hope everyone had a great Thanksgiving, enjoyed some good food, and got to spend some time with friends and family. Of course, it was nice to have the weekend conclude with another strong Bills victory on Sunday Night Football.
I have two cases for this week: in the first case, the court held that the insurer met its burden of proof entitling it to summary judgment, setting forth evidentiary facts to establish that the claimants violated a condition precedent to coverage by failing to appear for their duly noticed examinations under oath. Next, in Santos v. Fiktus, the Appellate court reversed the Supreme Court’s ruling, which had granted the defendants' summary judgment motion and dismissed the complaint insofar as it alleged that the plaintiff sustained serious injuries under the 90/180-day category of Insurance Law § 5102(d).
Kyle
Kyle A. Ruffner
[email protected]
Harsh Fines for Drunk Drivers – 100 Years Ago:
The Buffalo Times
Buffalo, New York
6 Dec 1924
Tipsy Autoists
Punished Hard
GENESEO, Dec. 6. – Three of the prisoners who were indicted by the last grand jury and pleaded guilty were arraigned before Judge Lockwood R. Doty Thursday afternoon for sentence.
Roscoe Congdon of Rochester, who was charged with driving an automobile while intoxicated, was sentenced to ten days in the county jail and fined $100.
Fred Mott, who pleaded guilty to harboring an inmate from the Craig colony at Sonyea, received a suspended sentence on his promise to cease making his home a gathering place for Colony inmates.
Burt Lee, who pleaded guilty to a charge of driving an automobile while intoxicated, was sentenced to serve ten days in the county jail and to pay a fine of $100. Lee’s home is in Rochester and he was arrested some time ago by Officer Snyder of this village, while driving an automobile between this village and Warsaw. He claimed that he was drugged not intoxicated.
Ryan’s Federal Reporter:
Hello Loyal Coverage Pointers Subscribers:
While Northtowners in Western New York (myself included) avoided snow fall last weekend that many of you probably saw on Sunday Night Football during the Bills game, our luck ran out last night. I was caught unprepared this morning and while my snowblower got the morning off, my shovel (and myself) did not. Mistakes were made.
This edition, my column outlines a recent Southern District of New York decision finding that the existence of a choice of law provision in a policy says what it means and means what it says, even if regulators in the state of Louisiana say otherwise.
Until next time,
Ryan
Ryan P. Maxwell
[email protected]
Huge Verdicts? – 100 Years Ago:
Buffalo Courier Express
Buffalo, New York
6 Dec 1924
BIG DAMAGE VERDICT
Woman gets $25,000 award for Black Diamond Wreck
A jury in federal court yesterday returned a sealed verdict allowing damages of $25,000 to Barbara Ciechowski of Chicago against the Lehigh Valley railroad for injuries received in the wreck of the Black Diamond Express at Le Roy on May 13, 1922. Hamilton Ward represented the woman.
There are about fifteen similar cases pending against the railroad. Action brought by the Rev. John Humphrey of Chicago resulted in a $3,000 verdict in an Illinois court.
Storm’s SIU:
Hi team:
I have a very interesting Court of Appeals decision for you this edition, Farage v. Associated Ins. Mgt. Corp.
Insurer’s Motion to Dismiss Granted Precluding Replacement Cost Coverage Benefits Where Repair/Replacement Was Not Completed Within the 2-Year Contractual Suit Limitation Period Even Though the Policy Contained a Loss Settlement Condition Requiring Repair/Replacement Within a Reasonable Period of Time.
The case follows on the heels of and must be read with an understanding of the Court of Appeals decision in Executive Plaza v. Peerless Ins. Co., 22 N.Y.3d 511 (2014), which pertains to the recovery of replacement cost coverage benefits.
Encourage courts to read Executive Plaza thoroughly as it is being misinterpreted to the disadvantage of insurers. The holding of Executive Plaza is being misread beyond its intent and context to mean that in all cases, regardless of the policy language, an insured has a reasonable amount of time to complete repairs/replacement in order to recover repair/replacement cost benefits. That is absolutely not what the Court of Appeals said in that case.
Executive Plaza involves a commercial policy which contained two separate time limitations: 1) a two-year limitation to commence suit on the policy, running from the date of the fire; and 2) a loss payment provision saying the insured may recover the cost of replacing damaged property but only if completed within a “reasonable” period of time.
The insurer read the two conditions harmoniously to require the insured to repair or replace the damaged property within a reasonable amount of time but in no event any longer than two years from the date of the fire. However, the insured alleged an ambiguity.
I believe the insurer appropriately read the two provisions harmoniously: "Additionally, in interpreting such provision, the contract must be read as a whole to determine what the parties must have reasonably intended by its terms [citations omitted]". Loblaw, Inc. v. Employers' Liab. Assur. Corp., Ltd., 85 A.D.2d 880, 881 (4th Dept. 1981), affd., 57 N.Y.2d 872 (1982). "Wherever possible, operation, effect and meaning must be given to every sentence, clause and word of an insurance policy, with reasonable effort made to harmonize and give effect to all parts of the contract [citation omitted]." Facet Indus., Inc. v. Wright, 95 A.D.2d 262, 264 (1st Dept. 1983). "‘[W]here two seemingly conflicting contract provisions reasonably can be reconciled, a court is required to do so and to give both effect [citation omitted]’". Long Island Lighting Co. v. Allianz Underwriters Ins. Co., 301 A.D.2d 23, 30 (1st Dept. 2002).
The insurer in Executive Plaza rendered payment for the actual cash value of the property damage, and the insured indicated it would be seeking additional payments for replacement cost coverage. Repairs were completed more than two years after the loss, at which point the insured brought an action demanding payment for replacement costs under the policy. The court found in favor of the insured under the unique facts and policy language presented in that case.
This was a federal case in which the following question was certified to the Court of Appeals by the Second Circuit:
If a fire insurance policy contains:
(1) a provision allowing reimbursement of replacement costs only after the property was replaced and requiring the property to be replaced "as soon as reasonably possible after the loss"; and
(2) a provision requiring an insured to bring suit within two years after the loss;
"is an insured covered for replacement costs if the insured property cannot reasonably be replaced within two years?"
The Court of Appeals accepted certification and answered the question "yes".
That decision only applies to policies requiring both:
-
that the property be replaced “as soon as reasonably possible after the loss”; and
- suit be commenced within two years of the date of the loss.
It does not mandate that a specific time limitation in a policy in which repair or replacement must occur to recover replacement costs benefits is to be disregarded and substituted with the language “a reasonable period of time”.
The Court of Appeals’ analysis and everything said in the Executive Plaza decision must be read in the light of its effort to interpret those two allegedly conflicting provisions, which is said to have created ambiguity in that case. Indeed, the Court said, “there is nothing inherently unreasonable about a two-year period of limitation.”
The Executive Plaza court held it was not fair to the insured to impose a two-year suit limitation when the replacement cost benefits provisions allowed for repair/replacement within a “reasonable” amount of time.
Again, the holding in Executive Plaza does not apply to every replacement cost coverage claim. It is limited to those policies which contain a two-year contractual suit limitation condition and a loss settlement condition which states that repair/replacement must be made within a “reasonable” period of time.
Tell your friends, family members, adversaries and judges -- shout it from the roof tops. Executive Plaza is being misconstrued and overapplied!
Good discussion. Let’s talk again in two weeks. Go Bills!
Scott
Scott D. Storm
[email protected]
Nobody Ever Invited Me to One of These – 100 Years Ago:
Buffalo Courier Express
Buffalo, New York
6 Dec 1924
PARK OWNERS WAR
ON PETTING PARTIES
Chicago, Ill., Dec. 5 (A.P.). – Amusement park owners in convention here have declared war on petting parties. J. H. Smith of Cleveland, declared “that no more shall the village vamp and the roadhouse shiek and the gangs of rowdies and the group of flighty girls indulge in rowdyism in the amusement park. The petting parties and necking must stop.”
Fleming’s Finest:
Hi Coverage Pointers Subscribers:
This week’s case from the Kansas Supreme Court is more of a fun procedural read involving a tortfeasor’s assignment of rights to sue their insurer for bad faith. The tortfeasor insured struck and killed the plaintiff’s husband while he was cycling. The tortfeasor insured assigned their rights to sue their insurer for bad faith in allegedly failing to defend and settle in the wrongful death action, and the insurer argued that there was no subject matter jurisdiction for the plaintiff to then assert the bad faith claim in a garnishment action against it. On appeal, the Court determined that the argument was not actually about subject matter jurisdiction, and the insurer was attempting to raise legal defenses for the first time on appeal. I enjoyed reading the opinion and hope you do as well.
See you in a fortnight,
Kate
Katherine A. Fleming
[email protected]
Women Populate the Lobbies – 100 Years Ago:
The Herald Statesman
Yonkers, New York
6 Dec 1924
WOMEN LOBBYISTS NOW
NUMEROUS IN CAPITAL
Washington, Dec. 5. – Women lobbyists will be more active in politics during the present and coming sessions of Congress than they ever have been before, a poll of the various women of organizations engaged in political activities showed today.
According to officials of several of the organizations which have headquarters in the National Capital – and there are more than a score of them – there are a dozen bills they believe that will benefit the women of the nation in particular and they are determined to have them enacted.
Among them are:
Child labor amendment to the Constitution
Establishment of a Federal Department of Education
Entry into the World Court.
Uniform marriage and divorce law.
Appropriation of funds for reestablishment of the interdepartmental social hygiene board.
Fess vocational home economic bill.
Fess-capper bill for compulsory physical education in public schools.
Granting of suffrage to residents of the District of Columbia
Laws permitting women to serve on juries in States where no such laws now exist.
First in importance, according to Mrs. Arthur C. Watkins, secretary of the Women’s Joint Congressional Committee, known better, perhaps, as the “Woman’s Lobby,” is the child labor amendment. This act has passed both branches of Congress and ratification by the several States in now awaited.
Gestwick’s Garden State Gazette:
Dear Readers:
What a Bills game. The shovel pass from Amari Cooper to Josh Allen was a play for the ages. Congratulations to those of you who have Josh Allen on your fantasy teams. I hear he was credited with both a passing touchdown and a receiving touchdown on that single play. What’s more, he also had a rushing touchdown at a different point in the game, becoming the first quarterback in NFL history to have a passing touchdown, receiving touchdown, and rushing touchdown in the same game. Josh Allen is (rightly) atop our Christmas tree:
I have another COVID-19 case for you this week. In this one, the insured alleged in its pleadings that surfaces that become infected with COVID-19 molecules are fundamentally altered, as they turn into “vectors for disease.” The carrier moved to dismiss on the pleadings, arguing that the insured’s claim arose out of the governmental shutdown orders, and not any direct physical loss to property. Read on to find out the result.
See you in two weeks.
Evan
Evan D. Gestwick
[email protected]
Equal Pay for Men and Women Teachers? Nah – 100 Years Ago:
The Buffalo Times
Buffalo, New York
6 Dec. 1924
Buffalo Teachers Oppose
Equal Pay Law Repeal
Buffalo school forces may be expected to carry their opposition to any repeal of the state equal pay law for men and women teachers to legislative floors, and probably will be supported by Rochester and Syracuse school forces. It was admitted locally that the opposition of these three cities to the repeal would not be treated lightly by the legislature.
The repeal of the equal pay law was demanded in a resolution adopted yesterday at the fifth annual meeting of associated school boards and trustees of New York State.
Vigorously Defend Law.
The school boards of Buffalo and Rochester, where the equal pay principle was in effect before the law was passed, put up a vigorous defense of the law during the debate, but when it came to voting, declined to vote either way. Syracuse voted against the repeal.
The Bufalo board of education was represented at the meeting by Mrs. William F. Felton, chairman of the board, and by James Storer, secretary of the board. Superintendent E.C. Hartwell was also present.
School board members who were not present are awaiting the arrival of the Buffalo delegation to obtain first-hand information of what took place at the meeting, and will plan their future action accordingly.
The question was raised whether repeal of the equal pay law would result in a slash in the compensation received by Buffalo teachers. It is thought that the legislature might feel called upon to reduce the amount of money appropriated for teachers’ salaries.
30 Boards Failed to Vote.
The proposal to recommend repeal of the law, after three hours fierce debate, was carried on a roll call of education boards, with 26 voting in favor of the repeal, six against it, and about 30 not voting at all.
The most arduous advocates of the law were women delegates although there was a number of men who also supported it. When it came to voting, a number of women changed over and voted for the repeal.
The law was characterized as “unfair, unreasonable and substantially impossible” because it is a mandatory law for the entire state and does not cover conditions which might come up in different localities by J. Ward Russell of Glens Falls, president of the association, who surrendered the chair to take the floor in favor of the proposal to repeal the law.
O’Shea Rides the Circuits:
Hey Readers,
The gem of Genesee County avoided significant snowfall this past weekend, however, as I write that is no longer the case. With the first true snow in the books, the holiday season has officially started. That includes a gluttony of holiday movies upon which I am subjected to watch by my wife. Admittedly, I do enjoy some.
No write up this week as I defer to my erudite colleagues. However, expect a few cases in the next edition for a holiday treat.
Until Next Time,
Ryan
Ryan P. O’Shea
[email protected]
Hydrants Surviving Errant Motorists – 100 Years Ago:
Press and Sun-Bulletin
Binghamton, New York
6 Dec 1924
AUTOMOBILE DRIVERS
GET MORE CAREFUL
IN HITTING HYDRANTS
A decrease in the number of careless automobile drivers is indicated by the falling off in the number of fire hydrants broken this year.
So far this year 17 hydrants have been broken, six of the accidents occurring in the last two months.
For the same period in 1922 23 hydrants were damaged and in 1923 27 hydrants. In all cases where the driver of the machine could be discovered an effort was made to collect the cost of repairs. In cases where the hydrant was completely smashed, it costs between $60 and $75 to replace it.
Rob Reaches the Threshold:
Dear Readers,
I hope you all had a wonderful Thanksgiving holiday. As we are now in December, mother nature has reminded us in the WNY area that we, in fact, live in WNY. After a very tame climate for November, the area has been walloped with a few snowstorms over the last week. This proud new homeowner spent almost two hours shoveling snow this morning (might be time to become a snowbird already).
For this installment, we review a rare Third Department case with some really nice analysis, wherein both parties' submissions are analyzed, and multiple categories of the Insurance Law Section 5102(d) are discussed.
I hope you all enjoy the read.
Rob
Robert J. Caggiano
[email protected]
Hair Raising Teachers Flourish – 100 Years Ago:
Times Herald
Olean, New York
6 Dec 1924
Oswego Orders
Teachers to Allow
Their Hair to Grow
Oswego, N.Y. Dec. 7 – All teachers in the public schools with bobbed hair must let it grow.
That’s the decree promulgated today by Superintendent Frederick Leighton following a council of war by the Board of Education. A formal resolution to that effect was not adopted, but it was the sense of the superintendent and the members of the department that something of that kind should be adopted.
About 50 per cent of the teachers particularly the younger ones, have bobbed hair and the amount of “fixing: that it requires in class taking up time that might be put to better use was commented upon.
LaBarbera’s Lower Court Library:
Dear Readers:
Last winter I was a little disappointed in the lack of Lake Effect snow I experienced after moving into a little town south of Buffalo. This year, I can tell already I will not be disappointed. A few hours after Thanksgiving, it was a winter wonderland. It was the puppy’s first time enjoying the snow. The snow stood higher than her, but she was not deterred. As she ran laps in our backyard, she ate the snow she was kicking up from underneath her.
This week I have a Kings County decision, discussing the duty to defend an additional insured, irrespective of the eventual outcome of the underlying action.
Until next time…
Isabelle
Isabelle H. LaBarbera
[email protected]
Number, Please – 100 Years Ago:
Times Herald
Olean, New York
6 Dec 1924
DIAL TELEPHONES
The news that the New York Telephone Company will install in its new building in Olean apparatus permitting the installation of dial telephones in offices and homes in the city is something that will cause great satisfaction to those who have had experience with the dial system.
Briefly, in the new system the exchange operator is eliminated. On the base of one’s telephone is a dial with a pointer. On the dials are printed numbers from 0 to 9. Should a party wish Number 368, for instance, he would turn the pointer successively to the numbers 3, 6 and 8 on the dial, take off the receiver – and the connection is made automatically, and he finds he has the party he wants on the line!
Lexi’s Legislative Lowdown:
Dear Readers,
I hope everyone enjoyed the holiday. I successfully hosted my family for Thanksgiving last week, and I am looking forward to hosting more family events in the future!
This week’s column addresses one of the many bills signed by Governor Kathy Hochul in November. A full list of the bills passed can be found here: 2024 Signed Bills.
Thanks for reading,
Lexi
Lexi R. Horton
[email protected]
Advice for the Lovelorn – 100 Years Ago:
The Brooklyn Daily Times
Brooklyn, New York
6 Dec 1924
Hates School, Likes Boys
Dear Miss Chester:
I read your columns every night and see that your answers are very good in helping many girls, so I take the liberty to put a perplexing question to you.
I am a girl of 16 and very much in love with boys and enjoyment. I am in my second grade in high school and find time to prepare my lessons, but still have a little time at evening for enjoyment and the boys.
My parents are very much against this and do not wish me to be out after 10 o’clock, which I consider very early. They do not want me to be out with boys, for they consider me too young. My girl friends are all between 16 and 17. They all attend business. I lately have had a hatred for school, but will gladly continue to go and prepare my lessons if you could tell me how I could induce my parents to allow me out late on Sunday nights, if not on week days.
They will not allow me to leave school so I must continue, but please tell me how I can induce them to let me go out with boys and allow me to stay out later.
A Love-Sick Girl
Why Not Compromise?
My Dear Love-Sick Girl:
Perhaps your parents know you better even than you know yourself. I think that they are quite right in seeing that you stay in school and that you do not make a practice of evening parties. But, after all, I do think they might allow you to have a party at least one evening a week, at a time when you are not occupied with your homework. I think, too that they might compromise on 11 o’clock instead of 10, but how to induce them to do this is really your own problem to solve. Perhaps if you are very sweet about it and promise to be in on time, to study hard and not to be so “very much in love with boys and enjoyment” they may capitulate.
Susan Chester
Editor’s Note: From May 1924 through 1937, Susan Chester answered letters from girls and women about love and romance issues for the Brooklyn Daily Times and the Brooklyn Eagle.
North of the Border:
This week’s edition finds me in New York City at DRI’s 2024 Insurance Coverage and Practice Symposium. Wonderful to be with longstanding friends and meeting new ones, who do what I do. The food, noise, lights and crowds mean that New York is like no other place in the world. It has to be experienced. But, after three days, I know that I will be ready to head back to the great white north. Until next time.
Heather
Heather A. Sanderson, K.C.
Sanderson Law
Calgary, Alberta, Canada
[email protected]
Headlines from this week’s issue, attached:
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
- Failure to Secure Proper AI Coverage Leads to Damage Claim Where Purported AI Has to Dig Into Its Own Pocket
- Primary Carrier Cannot End its Duty to Defend by Offering Policy Limits
PEIPER on PROPERTY (and POTPOURRI)
Steven E. Peiper
[email protected]
- Failure to Demonstrate Diligent Efforts to Repair Covered Loss Within Two Years Will Not Overcome Untimely Lawsuit
LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel
[email protected]
- Proximate Cause Defense Against Good Samaritan Denied
RUFFNER’S ROAD REVIEW
Kyle A. Ruffner
[email protected]
- Insurer Entitled to Summary Judgment Due to Claimants Violation of Condition Precedent to Coverage
- Appellate Reverses Supreme Court Decision that the Plaintiff Did Not Sustain Serious Injuries Under Insurance Law § 5102(d)
RYAN’S FEDERAL REPORTER
Ryan P. Maxwell
[email protected]
- A Choice of Law Provision in an Insurance Policy Trumps Statute Voiding Such Clauses in Insured’s Home State
STORM’S SIU
Scott D. Storm
[email protected]
- Insurer’s Motion to Dismiss Granted Precluding Replacement Cost Coverage Benefits Where Repair/Replacement Was Not Completed Within the 2-Year Contractual Suit Limitation Period Even Though the Policy Contained a Loss Settlement Condition Requiring Repair/Replacement Within a Reasonable Period of Time
FLEMING’S FINEST
Katherine A. Fleming
[email protected]
- Subject Matter Jurisdiction is Not the Same as Whether a Party is Entitled to the Relief Sought as a Matter of Law
GESTWICK’S GARDEN STATE GAZETTE
Evan D. Gestwick
[email protected]
- Even if COVID Molecules Actually Adhere to Surfaces, Still No Coverage Because There is Still No Direct Physical Loss
O’SHEA RIDES the CIRCUITS
Ryan P. O’Shea
[email protected]
- Nothing this week see you in two . . .
ROB REACHES the THRESHOLD
Robert J. Caggiano
[email protected]
- Third Department Unanimously Modifies Grant of Defendants’ Summary Judgment Motion Fully Dismissing Complaint to the Extent Plaintiff’s Serious Injury Claim Under Only the ‘90/180’ Category of Insurance Law §5102(d) Now Survives
LABARBERA’S LOWER COURT LIBRARY
Isabelle H. LaBarbera
[email protected]
- Court Found Tenant Satisfied Obligations under the Lease, While Tenant’s Insurer Breached Obligation to Defend Landlord and Agent, Pursuant to Additional Insured Endorsement of the Policy
LEXI’S LEGISLATIVE LOWDOWN
Lexi R. Horton
[email protected]
- Legislation that Requires Installation of Smoke Detectors in Common Places of Multiple Dwellings
NORTH of the BORDER
Heather A. Sanderson, K.C.
Sanderson Law
Calgary, Alberta, Canada
[email protected]
- The Duty to Defend Will Only be Nullified by an Exclusion, That When Read Narrowly, Applies to the Alleged Act or Mechanism That Produced the Otherwise Covered Injury or Damage.
All the best. Stay safe.
Dan
Hurwitz Fine P.C. is a full-service law firm providing legal services throughout the State of New York and providing insurance coverage advice and counsel in Connecticut and New Jersey.
In addition, Dan D. Kohane is a Foreign Legal Consultant, Permit No. 0119144, 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
Domenica D. Hart
Ryan P. Maxwell
Kyle A. Ruffner
Katherine A. Fleming
Evan D. Gestwick
Ryan P. O’Shea
Isabelle H. LaBarbera
Lexi R. Horton
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]
Ryan P. O’Shea
[email protected]
Kyle A. Ruffner
[email protected]
APPELLATE TEAM
Jody E. Briandi, Team Leader
[email protected]
Topical Index
Peiper on Property and Potpourri
Lee’s Connecticut Chronicles
Ruffner’s Road Review
Ryan’s Federal Reporter
Gestwick’s Garden State Gazette
LaBarbera’s Lower Court Library
Lexi’s Legislative Lowdown
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
12/05/24 99 Wall Development, Inc. v. Consigli & Associates, LLC
Appellate Division, First Department
Failure to Secure Proper AI Coverage Leads to Damage Claim Where Purported AI Has to Dig Into Its Own Pocket
This is a property damage action brought by plaintiff property owner 99 Wall Development, Inc. (“99-Wall”) for water damage in its building that occurred during a construction project. 99-Wall sued construction project manager Consigli, electrical subcontractor HIG, and plumbing contractor D-Plumbing, alleging that each was responsible for the water damage.
The record establishes that HIG failed to procure the additional insured endorsements required in the parties' subcontractor agreement. The subcontract required HIG to name Consigli as an additional insured using an "ISO Additional Insured Endorsement . . . or an endorsement providing equivalent or broader coverage to the additional insureds." This endorsement requires the insurer to defend an additional insured if there is any causal relationship between the alleged harm and the named insured's work, regardless of whether there is any allegation of negligence by the named insured, or on the part of the indemnitee. The broad duty to defend owed to the additional insured under the endorsement required by the subcontract applies whether the additional insured was negligent and proximately caused the claimed loss, or not.
Instead, HIG obtained insurance which limits liability to that "which the additional insured [Consigli] is entitled to be indemnified by the 'Named Insured' [HIG] pursuant to the 'written contract [the HIG subcontract].'"
Consigli has demonstrated that, because HIG obtained this non-conforming insurance, it was obligated to cover the cost of defending itself in this litigation until HIG's insurer ultimately took over its defense. We note that HIG's insurer threatened in correspondence that there would be no additional insured coverage afforded under its non-compliant additional insured endorsement if, and to the extent, negligence on Consigli's part was found to have proximately caused the water damage loss claimed by plaintiff.
Damages on this breach of contract crossclaim include any past defense costs incurred by Consigli before HIG's insurer assumed its defense that would have been covered by insurance compliant with the subcontract.
As for Consigli's cross-claim for contractual indemnification of its defense costs in this litigation, although the indemnification language was broad, as it required HIG to indemnify Consigli for damages caused by an act occurring in, arising out of, or resulting from, HIG's performance of its work, the evidence in the record nonetheless raised triable issues as to whether Consigli, as indemnitee, was the sole proximate cause of the claim of loss in question, warranting denial of its motion for summary judgment pending a jury's apportionment of liability.
11/26/24 Country-Wide Insurance Co. v. Zurich American Ins. Co.
Appellate Division, First Department
Primary Carrier Cannot End Its Duty to Defend by Offering Policy Limits
Country-Wide as the primary insurer, had the corresponding primary duty to defend the insureds in the underlying actions It is an auto insurer, and it is well established both that Insurance Department Regulations (11 NYCRR) § 60-1.1(b) requires it to pay the defense costs until the case has ended.
Country-Wide cannot avoid its duty by simply tendering its policy limits. Irrespective of the Insurance Department's regulations, plaintiff would still be required to provide a defense in this action, as its policy limits were not actually exhausted in the underlying cases until they were finally settled in 2022.
Editor’s Note: That is well-established law.
PEIPER on PROPERTY (and POTPOURRI)
Steven E. Peiper
[email protected]
11/26/24 Farage v. Associated Ins. Mgt. Corp.
Court of Appeals
Failure to Demonstrate Diligent Efforts to Repair Covered Loss Within Two Years Will Not Overcome Untimely Lawsuit
The claim at issue arose from an August 4, 2014, fire loss at plaintiff’s multi-unit apartment building on Staten Island. Coverage was confirmed by Tower almost immediately after the loss. However, we are advised that restoration of the property was not fully completed until July of 2020, nearly six years later. At that time, the plaintiff submitted an itemized list of repairs, and the costs associated therewith. The carrier denied coverage in September of 2020 due to the extensive delays in effectuating repairs.
Apparently while the carrier was assessing its coverage obligations, plaintiff also commenced the current lawsuit on the six-year anniversary of the fire loss; August 4, 2020.
Plaintiff’s complaint asserted that the insurer’s “bad faith conduct” delayed the project’s completion for several years. As part of its pleading, the plaintiff asserted, specifically, that the insurer refused vendor invoices for initial remediation work which prevented plaintiff from obtaining additional financing for the project. In addition, a “succession” of claims adjusters impacted the efficiency of the adjustment which further delayed the restoration of the premises. Finally, the plaintiff asserted that restoration work could not begin until the property was inspected by the carrier’s retained expert engineer.
The insurer immediately moved to dismiss on the basis that the lawsuit was prohibited by application of the two-year suit limitation clause in the policy. In response, the plaintiff argued that the suit limitation clause should not be applicable here because the fire was substantial, the damage substantial, and, as noted above, the time to repair even without delays allegedly occasioned by the insurer would have taken years. Plaintiff’s staked their argument on an earlier Court of Appeal’s decision, Executive Plaza, where it was determined that a suit limitation defense was inapplicable where full repairs to the damaged premises were not possible within a two-year time frame. The trial court granted the insurer’s application for dismissal, and the Appellate Division, Second Department, thereafter affirmed. In reaching its conclusion, the Appellate Division distinguished Executive Plaza because the plaintiff here made no argument that it tried to repair the property within the first two years of the reported loss.
Parenthetically, the Appellate Division also dismissed a negligence claim against plaintiff’s broker because it was not that the policy did not provide replacement cost coverage, but rather that coverage was lost due to the independent choices and inactions of plaintiff.
In affirming dismissal of the action, the majority opinion from the Court of Appeals reiterated that suit limitation clauses are “generally enforceable.” The Court, however, also cautioned that any suit limitation clause must be read “in view of the circumstances of each particular case.” The decision went on to state that, unlike Executive Plaza, where the insured demonstrated efforts to replace the damaged building promptly, but ultimately outside of the two-year suit limitation window, here the insured failed to adduce any evidence of prompt and diligent efforts at a rebuild. Indeed, there was utterly no evidence presented of any effort to rebuild during the initial years following the loss.
In a rather long dissent, Judge Rivera, joined by Judges Wilson and Halligan, would have reinstated plaintiff’s claims because the defendant carrier did not “utterly refute any contention that plaintiff's property could not reasonably be replaced within the two-year contractual limitation period.” When distilled down, the dissent holds that plaintiff’s assertions of delay occasioned by the defendant insurer, as set forth in the Complaint, were sufficient to defeat any motion to dismiss on suit limitation grounds.
LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel
[email protected]
11/25/24 Paula Azab v. Liberty Mutual Insurance Company
Superior Court of Connecticut, Waterbury
Proximate Cause Defense Against Good Samaritan Denied
Azab was killed while trying to render aid to injured motorists, and his estate sought uninsured motorist benefits. He was a passenger in a motor vehicle operated by the plaintiff traveling on Interstate 84 in Southington. While traveling in the right lane, the plaintiff and the plaintiff's decedent witnessed an unknown operator speed past them on their right and then strike several other vehicles ahead of them, subsequently strike the median, and come to a stop on the left side of the highway. As they reached the scene of the accident, the plaintiff's decedent instructed the plaintiff to pull over, after which he exited the vehicle to render assistance to the unknown operator as well as the others involved in the accident. While crossing the roadway to render assistance, he was struck by a third vehicle, resulting in fatal injuries.
The Estate settled the claim against the fatal driver and brought an uninsured motorist claim against their insurer, Liberty, arguing that the unknown third vehicle was uninsured. Liberty denied the claim, arguing that there was no causation between the unknown vehicle and the fatal accident.
The court disagreed, distinguishing Liberty’s case law. “[T]he test of proximate cause is whether the defendant's conduct is a substantial factor in bringing about the plaintiff's injuries...,” wrote the court. It held that a jury could easily find that the acts of the unknown vehicle were a substantial factor in Azab’s death without speculation or conjecture.
Significant to the court was that the fatal accident was close in time to the alleged negligent acts of the third party. “In the present case, there is no similar lapse in time to render the unknown operator's conduct attenuated or inconsequential so that a trier of fact would have to resort to conjecture. In fact, the complaint indicates a rather short period of time between the original accident to plaintiff's decedent being struck by the third vehicle.” However, the court declined to find proximate cause as a matter of law and deferred to the finder of fact.
RUFFNER’S ROAD REVIEW
Kyle A. Ruffner
[email protected]
11/26/24 State Farm Fire & Cas. Co. v. 3 Star Acupuncture, et al.
Supreme Court of the State of New York, New York County
Entitled to Summary Judgment Due to Claimants Violation of Condition Precedent to Coverage
The insured vehicle was allegedly involved in an accident, where the driver claimed he had made a U-Turn and the driver behind him struck the vehicle in the rear. There were two passengers in the insured vehicle at the time of the collision. No injuries were reported to police and the incident report noted the collision was minor, causing minimal damage to the vehicles. State Farm questioned the legitimacy of the claim and sought examinations under oath of the claimants based on several factors, including the lack of contact information and inability to confirm Social Security numbers of the claimants, claims submitted under the same policy with different occupants after the accident, and prior claims history of the claimants. However, all parties failed to attend their examinations under oath.
State Farm moved for summary judgment in this declaratory judgment action, arguing they provided sufficient evidence to establish the accident was intentionally caused, that the claimants failure to appear for EUOs constituted a violation of the No-Fault Regulations and a breach of conditions precedent to coverage, and that there were material misrepresentations made in the submission of the claim. In opposition, defendants argued summary judgment is premature, that the motion was based upon evidence not in admissible form, and that plaintiff has otherwise failed to meet its burden on this motion.
The court held that, while a motion for summary judgment is premature when the opponent to the motion can point to information in the exclusive possession of a movant or third-party which is necessary to mount an opposition to the motion, the defendants did not point to specific information which would enable them to defeat State Farm's motion. Instead, the defendants generally claimed that they are entitled to depositions and entire files. However, the court stated that this case had been pending for three years, and delay and a general lack of due diligence in seeking discovery militates against a finding that summary judgment is premature.
In contrast, State Farm met its burden of setting forth evidentiary facts to establish that the claimants violated a condition precedent to coverage by failing to appear for their duly noticed examinations under oath. The evidence which State Farm relied upon was in admissible form and established a violation of the No-Fault Insurance Regulations. Therefore, the court granted State Farm’s motion in its entirety, as there was no triable issue of fact.
11/13/24 Jose Santos v. Richard Fiktus, et al
Appellate Division, Second Department
Appellate Reverses Supreme Court Decision That the Plaintiff Did Not Sustain Serious Injuries Under Insurance Law § 5102(d)
The plaintiff commenced this action to recover damages for personal injuries that he allegedly sustained in a motor vehicle accident. The defendants moved for summary judgment dismissing the complaint on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d). The Supreme Court granted the defendants' summary judgment motion and dismissed the complaint insofar as it alleged that the plaintiff sustained serious injuries under the 90/180-day category of Insurance Law § 5102(d) and to his left knee and left shoulder within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The plaintiff appeals.
On appeal, the Appellate Division disagreed and concluded that the Supreme Court should not have granted the branches of the defendants' motion for summary judgment dismissing so much of the complaint as alleged that the plaintiff sustained serious injuries under the 90/180-day category and to his left knee and left shoulder under the permanent consequential limitation of use and significant limitation of use categories of Insurance Law § 5102(d). In contrast, the court properly determined that the plaintiff raised triable issues of fact as to whether he sustained serious injuries to the cervical and lumbar regions of his spine under the permanent consequential limitation of use and significant limitation of use categories. Therefore, it was unnecessary to determine whether the plaintiff's other alleged injuries met the "no fault" threshold.
The defendants contended, as an alternative ground for affirmance of the lower court, that they were entitled to summary judgment because the plaintiff's injuries were not caused by the accident. However, the court determined the defendants failed to establish a prima facie case that the plaintiff's injuries were not caused by the accident. Since the defendants failed to meet their burden with respect to causation, it was not necessary to determine whether the submissions by the plaintiff in opposition were sufficient to raise a triable issue of fact.
RYAN’S FEDERAL REPORTER
Ryan P. Maxwell
[email protected]
12/04/24 My Investments LLC et al. v. Starr Surplus Lines Ins. Co.
United States District Court, Southern District of New York
A Choice of Law Provision in an Insurance Policy Trumps Statute Voiding Such Clauses in Insured’s Home State
Plaintiff MY Investments, LLC, comprised of members domiciled in Louisiana, sued its insurance company, Starr Surplus Lines Ins. Co. for allegedly failing to cover hurricane damage sustained by certain hotels in Louisiana owned by Plaintiffs. The Starr Policy included a choice of law and choice of forum clause requiring both that “[a]ny suit, action or proceeding against [Starr] must be brought solely and exclusively in New York state court or a federal district court sitting within the State of New York,” and further that “[t]he laws of the State of New York shall solely and exclusively be used and applied in any such suit, action, or proceeding, without regard to choice of law or conflict of law principles.”
Attempting to recover millions of dollars in alleged property damage from Hurricane Ida, which the plaintiffs claimed Starr was responsible for but refused to pay, plaintiffs filed suit in the United States District Court for the Eastern District of Louisiana. Starr successfully moved to transfer venue to the Southern District of New York and shortly thereafter, plaintiffs filed a motion for partial summary judgment on the choice of law issue. The sole issue considered by the court was whether New York or Louisiana Law applied to the dispute.
Finding for Starr, the SDNY found that while New York law generally resolves choice-of-law disputes by way of a conflict of laws analysis, here, “the typical conflict of laws analysis is unnecessary for two independent reasons.” First, the express choice of law provision in the policy—insuring property worth more than $250,000—obviated that analysis under NY General Obligations Law §5-1401, since that statute indicates that “‘[t]he parties to any contract, agreement or undertaking’ involving a transaction worth more than $250,000 ‘may agree that the law of this state shall govern their rights and duties in whole or in part, whether or not such contract, agreement or undertaking bears a reasonable relation to this state.’” Second, even were NY General Obligations Law §5-1401 inapplicable, the SDNY noted that the New York Court of Appeals has found that courts must apply a choice-of-law provision anyway, since a failure to do so “‘would contravene the primary purpose of including a choice-of-law provision in a contract—namely, to avoid a conflict-of-laws analysis’ and would ‘interfere with, and ignore, the parties’ intent, contrary to the basic tenets of contract interpretation.’”
While the plaintiffs argued that a provision in the “Louisiana Insurance Code renders the Policy's New York choice of law clause void ab initio, [and] the clause ‘should be treated as though it never existed,’” it conceded that New York conflict of laws analysis must be applied. While plaintiffs argued that the Louisiana Insurance Code “governed the formation of the Policy,” rather than its interpretation, the SDNY relied upon First Department caselaw indicating that “‘t]he question of whether a ... clause is void ab initio is an interpretive dispute about the correct construction of the [insurance] policy’ that, like all questions of contractual interpretation, must be decided in accordance with law.’” The SDNY was thus unwilling to separate the issue from any other contract interpretation questions to be resolved under the applicable choice-of-law rules.
Accordingly, finding for Starr, this case will be considered under New York law as it moves forward.
STORM’S SIU
Scott D. Storm
[email protected]
11/26/24 Farage v. Associated Ins. Mgt. Corp.
Court of Appeals of New York
Insurer’s Motion to Dismiss Granted Precluding Replacement Cost Coverage Benefits Where Repair/Replacement Was Not Completed Within the 2-Year Contractual Suit Limitation Period Even Though the Policy Contained a Loss Settlement Condition Requiring Repair/Replacement Within a Reasonable Period of Time
The insured filed suit against the insurer for breach of contract and bad faith arising out of the insurer's denial of replacement cost benefits for the repairs to an apartment building that was destroyed in a fire.
On August 4, 2014, plaintiff's multi-unit apartment building was damaged. The policy with Tower Ins. Co. of N.Y., provides that an insured “may not bring a legal action against” the insurer under the policy unless: “a. There has been full compliance with all of the terms of this insurance;” and “b. The action is brought within 2 years after the date on which the direct physical loss or damage occurred.” The Loss Settlement portion of the policy provides: “We will not pay on a replacement cost basis for any loss or damage: “(i) Until the lost or damaged property is actually repaired or replaced;” and “(ii) Unless the repairs or replacement are made as soon as reasonably possible after the loss or damage.”
In July 2020, restoration of the property was completed, and plaintiff submitted an itemized invoice to Tower. On September 1, 2020, plaintiff's claim was denied. On August 4, 2020—six years after the fire, and four years after the expiration of the contractual limitation period—plaintiff commenced the instant action, seeking the full replacement value of the property and coverage for lost business income and damaged personal property.
The insurer made a CPLR R. 3211(a)(1) and (7) motion to dismiss as the plaintiff failed to set forth the necessary pleading requirements to satisfy a cause of action under the holding in Executive Plaza v. Peerless Ins. Co., 22 N.Y.3d 511 (2014). This case involves the same provisions at issue in Executive Plaza. “It is undisputed that plaintiff's insurance policy is identical in all relevant respects to the one in Executive Plaza.”
The issue in this case is whether plaintiff, in response to a motion to dismiss, raised an issue as to whether she could reasonably replace her damaged property within the contract's two-year suit limitation period. The court concluded under the facts and circumstances here that she did not.
The Court of Appeals again confirmed,
Suit limitation provisions that specify a “reasonable” period, shorter than the statute of limitations, within which an action must be commenced are generally enforceable [citations omitted]. We have held that “there is nothing inherently unreasonable about a two-year period of limitation”…[citing to Executive Plaza].
The Court held that, “On this motion to dismiss, the Tower/AmTrust defendants met their burden of establishing, by reference to the contract's two-year suit limitation provision, that the action was time-barred because plaintiff did not commence it within two years of the fire, utterly refuting plaintiff's factual allegations (see Goshen, 98 N.Y.2d at 326…).”
In cases where the Executive Plaza decision applies (to wit: where a policy has seemingly conflicting conditions, to wit: 1. a two-year suit limitation provision and 2. a loss payment condition precedent requiring complete replacement of the damaged property within a “reasonable period of time”), the Court of Appeals has said that “a plaintiff seeking to nullify a suit limitation provision must demonstrate that the damaged property could not reasonably be replaced within the limitation period”.
In Farage, the complaint merely alleged that given the massive structural damage caused by the fire, the restoration of plaintiff's property would have been a multi-year process under even the best of circumstances, together with a conclusory statement that the suit limitation provision was unreasonable. The Court said that the allegations were not logically inconsistent with the replacement of the property within the two-year limitation period. The plaintiff failed to allege specific actions that she took to complete the repairs within two years; she did not provide any details regarding the extent of the damage, other than that the damage was “massive,” and the fire set off four alarms, or why complete restoration within two years was an impossibility. These “bare bones” allegations are said by the Court to stand in stark contrast to the plaintiff's factual assertions in Executive Plaza.
Furthermore, the Farage Court stated that the “Plaintiff's attribution of the lengthy restoration to Tower/AmTrust's conduct does not provide the requisite specificity as to whether the property could be reasonably restored within two years.” The Farage Court found that the plaintiff made patently conclusory allegations that the insurer’s conduct delayed the restoration, offering no factual specificity as to the length of the resultant delay. “[P]laintiff failed to sufficiently allege that Tower/AmTrust's conduct made it impossible for her to reasonably complete restoration within two years of the fire.” “But critically, plaintiff is silent as to when any of this contact allegedly occurred or what information she relayed to defendants regarding the circumstances giving rise to the impossibility of timely restoration.”
There is a dissent by one Judge, in which two other Judges concur, which notes that on a motion to dismiss, courts are required to construe pleadings “liberally,” accepting the facts as alleged in the complaint as true, affording plaintiffs the benefit of every possible favorable inference.” “Even ‘inartfully drafted’ allegations must survive dismissal so long as ‘the facts as alleged fit within any cognizable legal theory’ upon which the pleader might be entitled to prevail.” The dissent believes allegations were plainly sufficient to survive a CPLR R. 3211(a)(7) motion to dismiss.
The dissent also concluded that CPLR R. 3211(a)(1) did not afford relief here (“a defense founded upon documentary evidence”). “[S]uch motion may be appropriately granted only where the documentary evidence utterly refutes plaintiff's factual allegations, conclusively establishing a defense as a matter of law.” “Indeed, dismissal under CPLR R. 3211(a)(1) is warranted only when the moving party has shown that what the pleader claims to be a material fact ‘is not a fact at all’ and the matter is beyond ‘significant dispute’”. The dissent believed nothing in the insurance contract “conclusively establish[ed] a defense as a matter of law…nor was it beyond ‘significant dispute’ that the material facts alleged were ‘not ... fact[s] at all’”. It said that the “Defendants did not ‘utterly refute[ ]’ that plaintiff's property could not reasonably be replaced within the insurance policy's two-year limitations period…Plaintiff's factual allegations that the massive structural damage to the property would take years to repair and that defendants’ obstructionist tactics led to month-long delays of her restoration efforts, negate application of the contractual limitations bar.”
Caveat: Please be certain to read my commentary in the “Dear Coverage Pointers” section above to learn how the Executive Plaza decision is increasingly being misinterpreted and misapplied.
Editor’s Note: My friend, Howard Kronberg, an agent/broker E&O lawyer extraordinaire was involved in this appeal and I asked him to add his commentary on that part of the decision. Howard S. Kronberg is a partner in the Westchester Office of Kaufman Dolowich. Prior to joining KD, he and his E&O team were principals at Keidel & Cunnigham, LLP who had specialized in Broker/Agent E&O defense for many decades in that, and their prior iteration of Lustig & Brown, LLP. Mr. Kronberg has been in this niche area for almost 40 years.
“The decision is significant in the world of Insurance Broker and Agent E&O law as well. Ms. Farage also sued her insurance brokers for failing to procure and/or advise to procure higher limits. The high court automatically dismissed, even in the absence of a formal motion by the brokers, all claims against them with the dismissal of the claims against Tower. Counsel for the Brokers simply argued, (in an affirmation supporting Tower’s CPLR 3211 motion) the “Stands-in-the-Shoes” doctrine applies. That long-standing doctrine says that if the Insured loses coverage, though no fault of the broker and unrelated to the claims against the brokers, then the prima facie element of causation is negated as a matter of law and with it all claims against the brokers. Since Tower won, dismissal against the Brokers was automatic. The high court affirmed what the Supreme Court and First Department held as to the brokers, citing well established law like U.S. Pack Network Corp. v Travelers Prop. Cas., 42 A.D.3d 330 (1st Dept. 2007); Kinns v. Schulz, 131 A.D.2d 957, 959 (3rd Dept. 1987) and Milgrim v. Royal & Sun Alliance Ins. Co., 75 A.D.3d 587 (2nd Dept. 2010).”
FLEMING’S FINEST
Katherine A. Fleming
[email protected]
11/27/24 Nicholson v. Mercer
Kansas Supreme Court
Subject Matter Jurisdiction Is Not the Same as Whether a Party Is Entitled to the Relief Sought as a Matter of Law
Nicholson’s husband was riding his bicycle when Mercer struck him with a car. Mercer was insured by Key Insurance Company. Key provided Mercer with counsel but effectively took no other action to defend Mercer. Nicholson tried to settle for the policy limit, but Key requested multiple extensions. Only after Nicholson filed a wrongful death suit did Key offer to settle for the $25,000 policy limit. Instead, the parties negotiated a pre-judgment assignment to Nicholson of Mercer’s rights to sue Key for bad faith due to its alleged failure to defend and settle in exchange for Nicholson agreeing not to execute any judgment against Mercer and Mercer waiving her right to a jury trial. Mercer did not present a defense at trial in the wrongful death action, and the court denied Key’s motion to intervene. Nicholson won a $3 million verdict.
Nicholson asserted Mercer’s bad faith claim against Key in a garnishment action. At the bench trial, Key presented a defense on the merits, claiming no bad faith. Key made no motion to dismiss or dispositive motions arguing garnishment was not available under the statue due to the assignment of rights. The district court ruled against Key on the merits, found the insurer’s actions were in bad faith, and ordered garnishment in the approximate amount of the $3 million judgment.
On appeal, Key raised subject matter jurisdiction as a defense for the first time, asserting that garnishment is statutorily impossible following an assignment of rights. The court of appeals rejected the argument.
The Kansas Supreme Court agreed for different reasons and affirmed the lower courts’ decisions. The Court noted that subject matter jurisdiction may be raised at any time, and if a district court lacks jurisdiction, an appellate court does not acquire jurisdiction over the subject matter on appeal. However, Key’s arguments did not actually have to do with subject matter jurisdiction, and Key was asking the Court to consider legal defenses raised for the first time on appeal. Key argued that due to the unique nature of assignment of rights, Mercer’s assignment of rights to Nicholson deprived Mercer of any contractual rights under the insurance contract, so Key no longer owed anything to Mercer. Therefore, Key asserted that it could not owe anything to Nicolson, and any liability it would have to Nicholson would only be recovered directly. Key’s argument was not about jurisdiction but instead about whether or not Nicholson could obtain the relief sought as a matter of law. Unfortunately for Key, it never made its statutory arguments to the district court. The Court held that the district court has jurisdiction to hear the garnishment action on the merits and affirmed the appellate court as right for the wrong reasons.
GESTWICK’S GARDEN STATE GAZETTE
Evan D. Gestwick
[email protected]
11/26/24 Burlington Stores, Inc. v. Zurich Am. Ins. Co.
United States District Court, District of New Jersey
Even if COVID Molecules Actually Adhere to Surfaces, Still No Coverage Because There Is Still No Direct Physical Loss
Like many businesses, Burlington was forced to shut down in light of the New Jersey Governor’s mandatory shutdown orders during the pandemic. Also like many businesses, Burlington made a claim against its commercial property carrier for lost business income.
By now, most know the general rule that is applied to this set of facts: to prevail on a claim for lost business income (or property damage), the insured must establish a “direct physical loss” to property. Courts define “direct physical loss” as a “detrimental alteration,” “damage or harm to the physical condition of a thing,” or “a distinct, demonstrable, and physical alteration” of its structure. See AC Ocean Walk, LLC v. Am. Guar. & Liab. Ins. Co., quoting Farm Bureau Mut. Ins. Co. of Am. v. Earthsoils, Inc., 812 N.W.2d 873, 876 (Minn. Ct. App. 2012); see also Port Auth. of N.Y. & N.J. v. Affiliated FM Ins. Co., 311 F.3d 226, 235 (3rd Cir. 2002).
One may recall an article I wrote at the beginning of this year, where I discussed the AC OceanWalk case. In that case, the Court held that AC OceanWalk’s claim of lost business income was not covered under the business interruption part of its policy, as the loss of use resulted from the governmental shutdown order, rather than any presence of the coronavirus itself.
In this case, at the conclusion of briefing on the issues, the Court ordered the parties to submit supplemental briefing on the AC OceanWalk case (the decision of which was still pending at the time). In supplemental briefing, Zurich submitted that the instant case was indistinguishable from AC OceanWalk, contending that here, Burlington’s claim arose out of the adverse economic effects of having to shut down its stores in light of the governmental shutdown orders, rather than any direct physical loss of property. Zurich noted that Burlington’s stores were closed only due to the orders, and not due to any actual infection of COVID-19, and were re-opened as soon as the shutdown orders were lifted. Burlington noted that when water droplets are expelled from a person infected with COVID-19, they land on and adhere to surfaces, rendering said surfaces “vectors of disease” incapable of being used for their intended purpose.
The Court rejected Burlington’s argument, reasoning that even if a surface were actually infected with COVID-19 molecules, the surface would remain physically unaltered; the surface still retains its shape, form, consistency, size, texture, color, and material make-up. Although Burlington pled that once COVID-19 molecules adhere to a surface, the surface becomes known as a “fomity—” a regular surface that is transformed into a “vector of disease—” the Court granted Zurich’s motion to dismiss on the pleadings.
Editor’s Note: There have been plenty of COVID cases that have held that mere hypothetical or contingent allegations that surfaces within a store could become infected with COVID molecules are insufficient to allege a direct physical loss. Burlington’s allegations appear no different. But the Court took its opinion one step further, by noting that even if Burlington’s stores in fact became infected with COVID molecules that adhered to Burlington’s property, this still does not qualify as a direct physical loss (like many other cases).
O’SHEA RIDES the CIRCUITS
Ryan P. O’Shea
[email protected]
Nothing this week, see you in two . . .
ROB REACHES the THRESHOLD
Robert J. Caggiano
[email protected]
11/27/24 Williams v. Ithaca Dispatch, Inc., et al
Appellate Division, Third Department
Third Department Unanimously Modifies Grant of Defendants’ Summary Judgment Motion Fully Dismissing Complaint to the Extent Plaintiff’s Serious Injury Claim Under Only the ‘90/180’ Category of Insurance Law §5102(d) Now Survives
By way of background, this matter stems from a three-vehicle motor vehicle accident on Interstate 86 in Chemung County, New York, on November 24, 2015. Plaintiff Raquel Williams was a front-seated passenger in a taxicab owned by Defendant Ithaca Dispatch, Inc., operated by Defendant R.T. VonRapacki, Jr. The taxicab first rearended another vehicle and then was rearended itself by a vehicle operated by Defendant John I. Heath.
As a result of these collisions, Plaintiff alleged injuries to her cervical, thoracic, and lumbar spine – as well as her head. She alleged these injuries were ‘serious’ pursuant to the permanent loss of use, permanent consequential limitation of use, significant limitation of use, and ‘90/180’ day categories of § 5102(d). At the trial court level, Defendants collectively moved for summary judgment seeking to dismiss the complaint in its entirety, arguing that Plaintiff did not suffer a serious injury under any of these claimed categories. Supreme Court, Chemung County, granted these motions in full – Plaintiff then appealed.
In a quite substantive decision, the Third Department started its analysis by reviewing the submissions from Defendants in support of their respective motions. Specifically, Defendants submitted Plaintiffs’ deposition testimony, wherein she complained of constant and worsening neck pain, back pain, and migraines, following the accident. Further, Plaintiff testified that she could not return to work for over two months following the accident – and when she did return it was in a somewhat limited fashion. She later stated that she left that employment due to a claimed inability to stand for long periods. However, Plaintiff did concede during the deposition that in the six months following the accident she was generally able to care for herself and her daughter, but did receive occasional help with various households tasks from a friend.
Next, the Third Department also noted Defendants submission of an IME report from Dr. Sherry Leitch, who examined the Plaintiff in December 2019. Based on this examination, Dr. Leitch concluded Plaintiff did not have any abnormal findings beyond decreased sensations in her right ankle, right hand, and leg, and a positive Tinel’s reverse Phalen’s sign in the right arm. Dr. Leitch also reviewed substantial medical records of the Plaintiff, noting a long preexisting history of complaints and treatment for neck pain, mid-back pain, and headaches. Lastly, Dr. Leitch reviewed imaging of her head, neck, and back. The imaging of the head, neck, and thoracic spine showed no signs of trauma. Although the image of the lumbar spine showed a small disc protrusion, Dr. Leitch opined that such a finding is common in MRIs and did not relate it to the accident of record.
Following the analysis of Defendants’ submissions, the Third Department concluded that the foregoing was insufficient to satisfy Defendants’ prima facie burden as to the ‘90/180’ day category. Specifically, Dr. Leitch’s report failed to adequately address Plaintiff’s conditions or limitations within the first 180 days following the accident. Due to this fatal omission, Plaintiff’s claim for serious injury under the ‘90/180’ day category must survive. However, Defendants’ submissions were in fact sufficient to meet the prima facie burden for the other claimed § 5102(d) categories of serious injury, and therefore the burden shifted to the Plaintiff to raise a triable issue of fact to defeat summary judgment.
The Third Department highlighted, as relevant here, where a defendant comes forward with proof that a plaintiff suffers from preexisting conditions, the plaintiff must provide objective medical evidence distinguishing the preexisting condition(s) from the injuries being claimed from the subject accident. In this case, Plaintiff denied any recollection that her conditions existed prior to the accident. Further, although an affidavit from her treating physician did state the accident was an “activating and aggravating cause” to plaintiff suffering head pain and anxiety following the accident, the affidavit failed to provide any detail as to the resolution of any prior symptoms and how the symptoms after the accident were distinct in any way. Based on this, the Third Department found Plaintiff’s submissions insufficient to meet the requisite burden to rebut Defendants’ evidence that she suffers from preexisting conditions.
As to the remaining claims, Plaintiff’s opposition similarly lacked objective medical evidence establishing a serious injury. Notably, her own physician affidavit also opined that any future head pain would not be related to the accident of record – which is fatal to her claims the head injury is permanent in nature or a significant limitation. For the orthopedic injuries to her spine, her submissions in opposition also contained a medical examination report from 2016, where the provider found her capable of performing full employment, all activities of daily living, with no causally related restrictions. Further, her other records submitted in opposition were devoid of an opinion as to how her spine conditions were in any way distinct from the symptoms she had before the accident. Lastly, Plaintiff’s reliance upon the lumbar spine imaging finding of a disc protrusion was insufficient to establish whether the injury was permanent in nature or causally related to the accident.
Accordingly, the Third Department unanimously modified, on the law, without costs, the decision from Supreme Court, Chemung Court, as to reverse the dismissal of Plaintiff’s ’90/180’ day category claim of serious injury under § 5102(d) only. The decision, as so modified, was otherwise affirmed in full.
LABARBERA’S LOWER COURT LIBRARY
Isabelle H. LaBarbera
[email protected]
11/19/24 AIX Specialty Ins. Co. v. Penn Burgers LLC
New York State Supreme Court, Kings County
Court Found Tenant Satisfied Obligations Under the Lease, While Tenant’s Insurer Breached Obligation to Defend Landlord and Agent, Pursuant to Additional Insured Endorsement of the Policy
AIX Specialty Insurance Company (“AIX”), 797 Pennsylvania LLC (“797 Penn”) and Renaissance Realty Group LLC (“Renaissance Realty”), commenced an action against Penn Burgers LLC (“Penn Burgers”) and Utica First Insurance Company (“Utica First”). Plaintiffs sought a declaration that the Utica First policy provides coverage for certain claims of personal injuries sustained by Audrey Minter (the “Claimant”), on or around October 9, 2015. Plaintiffs sought a declaration that Utica First had a duty to defend and indemnify Plaintiffs in the underlying personal injury action.
Plaintiffs alternatively plead a claim for breach of contract against Penn Burgers, pursuant to a lease agreement, requiring Penn Burgers to name 797 Penn and Renaissance Realty as additional insureds under their insurance policies.
Penn Burgers filed a motion to dismiss the complaint, alleging that the doctrine of res judicata barred the Third and Fourth causes of action, asserted against Penn Burgers for failure to obtain proper insurance and a declaration that Penn Burgers had an obligation to defend and indemnify the plaintiffs in the underlying action. Penn Burgers alleges that the issues were determined by Hon. Robin Sheares in the underlying personal injury action.
AIX, 797 Penn, Renaissance Realty moved for summary judgment, on all causes of action.
The court pointed to the underlying action docket, which indicated that the cross claims between 797 Penn and Penn Burgers was never severed, and never resolved. As such, the court considered the issues regarding contractual liabilities, because they had not been “actually litigated, squarely addressed, and specifically decided” in the underlying action.
The court begins the discussion by stating, based on the Utica First policy, 797 Penn is an additional insured, pursuant to the Additional Insured Endorsement, Lessor of Premises contained within the Utica First policy. The Endorsement expressly provides that 797 Penn is an “insured” under the policy, and provides additional insured protection for acts, “for which ‘you’ are legally liable.” Based on the endorsement, the court found that both 797 Penn and Renaissance Realty, as an agent, are both additional insureds under the Utica First policy. As such, the court ruled that Penn Burgers did not breach the requirement to name the plaintiffs as an additional insured.
After finding that 797 Penn and Renaissance Realty were covered as additional insureds under the Utica First policy, the court touches on an insurer’s duty to defend in New York, being broader than that duty to indemnify.
The court found that Utica First did not meet its prima facie burden of showing that the allegations as plead were not potentially within the language of the insurance policy. Although the underlying court, at trial, directed a verdict and dismissed the action against both 797 Penn and Penn Burgers, the court determined it cannot apply hindsight when determining whether the duty to defend arose based on the allegations in the complaint.
As such, the court found that Utica First had a duty to defend 797 Penn and Renaissance Realty, despite the fact that both parties were found to not be the proximate cause of the Claimant’s injuries.
The Court granted Penn Burgers motion to dismiss and dismissed the complaint against Penn Burgers in its entirety. In addition, the court granted plaintiffs motion for summary judgment, to the extent that the court found that Utica First had a duty to defend 797 Penn and Renaissance Realty. In granting the motion for summary judgment, the court declared that 797 Penn and Renaissance Realty were additional insureds under the Utica First policy, and as such, Utica First had a duty to defend 797 Penn and Renaissance and reimburse AIX for the reasonable costs of its defense of the foregoing plaintiffs in the underlying matter.
LEXI’S LEGISLATIVE LOWDOWN
Lexi R. Horton
[email protected]
12/06/24 New York State Assembly Bill A5730B
New York State Assembly
Legislation That Requires Installation of Smoke Detectors in Common Places of Multiple Dwellings
On November 22, 2024, Governor Kathy Hochul signed Bill A5730B. This bill will require the installation of smoke detectors in common areas of certain dwellings.
Smoke detectors will be required in every one- or two-family dwelling or any dwelling accommodation located in a building owned as a condominium or cooperative in the state. The smoke detector must be installed in an area that is clearly audible in each bedroom or other room used for sleeping.
NORTH of the BORDER
Heather A. Sanderson, K.C.
Sanderson Law
Calgary, Alberta, Canada
[email protected]
11/13/24 City of Thunder Bay v. Great American Insurance Company
Ontario Court of Appeal
The Duty to Defend Will Only Be Nullified by an Exclusion, That When Read Narrowly, Applies to the Alleged Act or Mechanism That Produced the Otherwise Covered Injury or Damage
Early in 2019, the City of Thunder Bay Ontario learned that Lloyds, who had insured the City since January 1, 2017, was not renewing their insurance coverage on its January 1 anniversary date, as it was no longer going to underwrite Ontario municipalities. The City’s broker, AON, approached Great American Insurance Company (GAIC) to take on the business. GAIC was interested – it already insured several American municipalities and was interested in entering the Ontario market. But with strict conditions. It would stay away from anything to do with lead.
That was because GAIC was fully aware of what happened in Flint, Michigan in 2015. To reduce costs, the source of Flint’s potable water supply was changed from the Detroit Water and Sewerage Department (sourced from Lake Huron and the Detroit River) to the Flint River. At the same time, city officials failed to apply corrosion inhibitors to the water, which resulted in lead from aging pipes leaching into the water supply, exposing around 100,000 residents to elevated lead levels. Between 6,000 to 14,000 children were exposed to drinking water with high levels of lead. Children are particularly at risk from the long-term effects of lead poisoning, which can include a reduction in IQ, increased issues with mental and physical health, and an increased chance of Alzheimer's disease.
As of 2015/2016, GAIC had started to include lead exclusion clauses in all of its American public entity policies. It sought to do the same for those municipalities in Ontario for whom it was prepared to provide coverage. And so GAIC agreed to underwrite the City of Thunder on certain terms and conditions that included the following lead exclusion:
With this lead exclusion in place, GAIC went on risk for the City of Thunder Bay, Ontario, as of January 1, 2020.
In 2018, the City of Thunder Bay began adding a small amount of sodium hydroxide into the water supply to reduce the amount of lead seeping in from old lead pipes, which were estimated to be servicing between 7,500 and 8,000 homes. According to the City’s website, sodium hydroxide raises the pH of the water to a level that minimizes the corrosion of lead pipes. Raising the pH is one of the most effective methods (so says the City) to reduce lead corrosion and minimizing lead levels in drinking water. However, beware of unintended consequences. Sodium hydroxide ate through copper pipes caused pinhole leaks in domestic water systems. Over time, city residents experienced various degrees of flooding. The chemical was removed from the water supply sometime in 2020, and other measures were put in place for those with known lead water service pipes.
After the sodium hydroxide was added, complaints began to surface of pinhole leaks in people's pipes. Over time, hundreds of homeowners and businesses began to experience flooding and said the chemical in the water was to blame. The City was named as a defendant in three separate class actions claiming property damage that occurred between 2015 and 2020 arising from the addition of sodium hydroxide to the water supply. These actions were tendered to Lloyds and GAIC. Lloyds was prepared to defend the actions on a time on risk basis with GAIC. However, GAIC refused to defend on the basis that part b(ii) of the lead exclusion nullified the duty to defend:
GAIC argued that this part of the exclusion “… unambiguously applies to all claims advanced in the Actions. The Actions clearly relate to the City’s efforts to treat the effects of lead”…” […the City’s…] liability arises because of the City’s mishandling of its effort to address lead in the water supply, which is the core conduct the exclusion bars from coverage.”
The City (and Lloyds) disagreed stating that part b(ii) of the exclusion is aimed at situations where, instead of demanding that the insured perform the remediation or pay to have someone else perform it, the claimant seeks compensation for remediation which the claimant has already performed or will have to perform.
In reply GAIC stated “[t]he exclusion broadly excludes coverage for any “claim…for damages…because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying, or neutralizing, or in any way responding to or assessing the effects of lead in any form.” There is no basis for inserting additional words requiring it to be the claimant’s efforts in remediating or monitoring lead. It does not matter who did the neutralizing, treating, responding, etc., because the exclusion broadly precludes coverage for any liability “in any way related to” a claim for damages from responding to the effects of lead, in any form.”
As no agreement could be found, cross duty to defend applications were filed by the City, Lloyds and GAIC.
Trial /Application-Level Decision
The trial judge’s meticulous reasons for judgment are worthy of a careful read as she accurately set out the Canadian law on the duty to defend, which is premised upon the pleadings rule, as well as the principles upon which insurance contracts are to be interpreted. Faced with the competing interpretations of b(ii) of the lead exclusion, the trial judge, not surprisingly, found the clause to be ambiguous: “A literal reading of the policy suggests the possibility that the exclusion may be interpreted as broadly as GAIC argues so that it operates as a basket clause of sorts to exclude any claim that is in any way related to the effects of lead. Also plausible, when the exclusion is read as a whole, is the City’s interpretation. The wording of (b)(ii) is unclear and easily lends to these two interpretations.”
Having found the clause to be ambiguous, the Court moved on to consider the reasonable expectations of the parties as to the meaning of that exclusion at the time the policy incepted.
The Court held that GAIC’s interpretation was overly broad because if GAIC’s argument was upheld, liabilities arising from the use and operation of a truck used to determine the presence of lead pipes would be within the reach of the exclusion. An overly broad interpretation greatly reduced the commercial usefulness of the policy, creating an unrealistic result that could not be within the expectations of the parties when the policy incepted. Accordingly, the Court held that clause b(ii) does not exclude claims for property damage that are incidental to treating the presence of lead, in circumstances when lead was not the cause of the damage.
The Court then moved on to consider the alleged source of liability according to the pleadings in each of the three class actions to determine whether that alleged liability was excluded from coverage. In each action, it was alleged that plumbing systems were damaged as a result of the introduction of sodium hydroxide into the water system. True, sodium hydroxide was added to respond to elevated levels of lead. However, the allegations in the three actions stated that the City was negligent in its efforts to remediate of the effects of lead. In each case, that negligence allegedly arose out of the addition of that particular chemical to the water system and its side effect of corroding copper pipes. These actions are directed to that decision – the decision to remediate the presence of lead by introducing sodium hydroxide. On this basis, the Court held that the actions do not allege that the City was negligent in treating, neutralizing or otherwise responding to the effects of lead.
This is the fine line that the trial /application Court drew between coverage and exclusion meeting the “mere possibility of coverage standard” that determines the duty to defend in Canada. GAIC was therefore ordered to defend.
The Appeal Level Decision
GAIC appealed this decision to the Ontario Court of Appeal. That Court held that GAIC’s burden is to show that part b (ii) of the lead exclusion clearly and unambiguously applies. The Court of Appeal agreed with the trial / application judge that the clause is ambiguous and therefore GAIC failed to discharge its burden. GAIC’s duty to defend is triggered.
The trial court’s analysis, endorsed by the Court of Appeal, demonstrates that words that restrict coverage will be interpreted strictly against exclusion and in favour of coverage. In view of this decision and the decision of the same court in Hemlow Estate, 2021 ONCA 908, (leave to appeal to the Supreme Court of Canada refused) demonstrate that the duty to defend will only be nullified by an exclusion that when read narrowly, not broadly and expansively, applies to the alleged act or mechanism that produced the otherwise covered injury or damage.
© Hurwitz Fine P.C. 2024
All rights reserved