Coverage Pointers - Volume XXVI No. 17


Volume XXVI, No. 17 (No. 690)
Friday, January 31, 2025
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.

HF Coverage Pointers header

Dear Coverage Pointers Subscribers:

Do you have a situation? We love situations.

Our third issue of 2025, there being three alternating Fridays in the month.  Between our cover note and the attached issue, we present over 15,000 words for your reading and dancing pleasure.  Where else can you get that much information about insurance at even twice the price of a subscription?

We welcome our newest columnist, Domenica Hart, and her offering under the heading Domenica’s Diary on Bad Faith.  We’re delighted to have her join our editorial staff.

I am completing five weeks in Scottsdale, a working vacation.  Other than the unfortunate AFC Championship game, it was a splendid time to be in warmer weather.  Back to the snow and cold on Saturday.

IMG_0765.jpg   A person and person standing on a bridge

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Imputing Negligence and Risk Transfer

You all realize that wherever you go, there are Coverage Pointers subscribers.

As I was coming out of an excellent breakfast restaurant in Scottsdale a couple of weeks ago, I had the good fortune of serendipity and met Julian D. Ehrlich, who is national managing director, construction claims, at Aon Global Risk Consulting and a CP subscriber.  He alerted me to an article he penned for the New York Law Journal, which appeared in New York Journal Online on January 29 and the in Outside Counsel column of the January 30 printed edition on page 4.

He discusses the very timely and interesting (and heavily debated) topic of whether the claimant’s negligence can be imputed to his or her employer to establish additional insured status.  In a well-reasoned article and after reviewing recent case law, including a December 12, 2024, decision out of the First Department in Vargas (reported in Labor Law Pointers) and others, which allow a claimant’s culpability to be impute to the employer for liability purposes, the author posits that:

Thus, if workers' comparative negligence can be imputed to their employers for liability purposes, then those same worker's acts and omissions should be relevant to determining whether the employer was the proximate cause of the injury for AI coverage.

I’m not sure whether I agree with Mr. Ehrlich’s conclusion, but I surely appreciate his scholarship.  It is rare that an employee’s conduct has no role in an accident.  If he or she is even the slightest bit at fault in causing the accident, that conduct would trigger AI coverage in almost every case involving an employee accident. I would posit that Burlington, and cases that follow, would look to the employer’s involvement in causation rather than the employee who is bringing the lawsuit. 

Time will tell.

Mediation Practice

Over the last four or five years, an increasing number of requests for services have been made for mediation.  For many years, we have represented a variety of clients in commercial mediation disputes, from risk transfer/Labor Law, to personal injury actions of all styles and shapes, in all kinds of commercial disputes.  I have been asked, on many occasions, to serve as a mediator in inter-company disputes as well as in matters pending in courts throughout the country.

I was delighted to learn of my recent addition to the New York Court ADR/Mediation panel for the Ninth Judicial District, covering Westchester, Putnam, Dutchess, Rockland, and Orange Counties. This appointment complements my existing roles on ADR panels for Bronx, Kings, Richmond, Nassau, and Erie Counties, as well as the United States District Court for the Western District of New York.
I am available for both court-annexed and private mediations.
Areas of Expertise:

I specialize in mediating:

  • Commercial cases;

  • Personal injury cases, both simple and complex;

  • Risk transfer challenges in construction and premises cases;

  • Insurance coverage disputes, third party and first party.


For insurers, with my 45 years of insurance coverage and trial experience, I have particular affection for inter-company coverage and risk transfer mediations where insurers rather resolve disputes quickly and efficiently rather than risk creating adverse precedent after years of expensive litigation.
If you need assistance resolving civil cases in these areas, I’d be happy to help.

Feel free to reach out:

Let’s work together to find effective resolutions for your legal matters!

 

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.

 

Some Issues Never Disappear – 100 Years Ago:

The Ithaca Journal
Ithaca, New York
31 Jan 1925

Checking Human Smuggling

In its efforts to check the flock of “bootleg” immigrants, the United States is to have the assistance of the Mexican government. This is the announcement of Acting Secretary of Labor E.J. Henning, after a series of conferences with the newly inaugurated President of Mexico, Elias Plutarco Calles, relating to the especially perplexing problem confronting immigration authorities on our southern boundary.

There is much reason for satisfaction in the outcome of this conference, in view of the large increase in immigration, through Mexico that has been noted as immigration restrictions became tighter. Unable to gain entry to the United States under the regular quota, foreigners in increasing number have entered Mexico with no object of partaking of Mexican prosperity under the more orderly regime of recent years, but with the single intent of stealing their way into the more prosperous and favored land farther north.

And they have been successful in carrying out this intent. Just as smuggles liquor has continued to pour in along our northern boundary, smuggled immigrants have continued to find entrance along the Mexican border, despite the best efforts of our officials.

Although it is the opinion of Immigration Commissioner Curran that we are getting immigrants of a quality twice as good under the new law as under the old, no one can vouch for the quality of immigrants who enter thus stealthily and illegally. Nor can there be much more accuracy in estimates as to their number, than in estimates as to the volume of the other bootleg article.

 

Peiper on Property (and Potpourri):

Dear Readers:

Staying busy. Interesting case for you this week, of course. See you in two.

Steve
Steven E. Peiper

[email protected]

 

Juror Predisposition – 100 Years Ago:

Daily News
New York, New York
31 Jan 1925

JUROR ORDERED TO EXPLAIN
CHARGE AFTER RUM TRIAL

As result of statements made from the witness stand under oath by Everett H. McLeod, a juror in the recent trials growing out of the $50,000,000 rum running scandal at Weehawken, N.J., Judge Charles M. Egan in Jersey City yesterday ordered that Louis Hackman, of 91 Claremont av., Jersey City, another juror, be requested to appear before him either today or tomorrow.

In his testimony, Mcleod said that Hackman told him he had heard a member of the jury, who was deaf, say he had made up his mind not to convict police officials.

At the opening of the hearing, Judge Egan said he did not have the right to inquire into the deliberations of the jury unless there was something to indicate that corrupt influences have been at work.

Col. George T. Vickers, special prosecutor in the liquor cases, said: “If it can be shown that a juror at any time during the trial of a case, before the case went to the jury, expressed a predetermination to find a verdict regardless of the evidence, that would be as much a matter for inquiry as I corruption has been attempted.”

 

Lee’s Connecticut Chronicles:

Dear Newsies:

I am recuperating after being sick all of last week. That said, I have an interesting case for you involving a light bulb, a marijuana plant (or 998 of them), and a business income claim. Read on to learn the details.

In the meantime, keep keeping safe.

Lee
Lee S. Siegel

[email protected]

 

Worth About $450,000 Today – 100 Years Ago:

Buffalo Courier Express
Buffalo, New York
31 Jan 1925

WIDOW WINS
NEW VERDICT
OF $25,000

Previous award of $20,000
for death of husband was
set aside.

A jury in Justice O’Malley’s court yesterday afternoon reported a verdict of $25,000 in favor of Mrs. Caroline Wilks, who lives in Grote street near Hertel avenue, and against the New York Telephone company and the Federal Telephone & Telegraph company. It was the second trial of the suit. On the former trial $20,000 damages were awarded. This verdict was upset by the higher courts because of a legal error.

Mrs. Wilks, a widow with two young children, sued for damages for the death of her husband, Joseph, 26 years old, who was killed on November 20, 1918. He stepped into the yard at the rear of his home, No. 172 Elmwood avenue, and was electrocuted when a falling wire struck his neck.

 

Ruffner’s Road Review:

Dear Readers,

I have unfortunately been out sick the past few days and, therefore, do not have any auto decisions to report this week.

Until next time,

Kyle
Kyle A. Ruffner

[email protected]

 

A “Disorderly House” Verdict – 100 Years Ago:

The Buffalo News
Buffalo, New York
31 Jan 1925

WOMAN MUST STAY IN JAIL

Lizzie Mitchell cannot be free on bail pending decision by the appellate division on her appeal from a conviction in County court on a charge of operating a disorderly house at 178 Elm street, according to Justice Crosby’s ruling in Supreme court. She was sentenced to two months in the penitentiary and fined $300.

 

Ryan’s Federal Reporter:

Hello Loyal Coverage Pointers Subscribers:

My basement renovation has commenced and we’re already over budget. Amazing how fast that happens. It will look great once it’s done, but it won’t be done until it’s done. Cheers to living under construction.

This edition, I have summarized a decision out of the Southern District of New York relative to a contractor injury exclusion. The Court applies logic and reasoning with the best of ‘em.

Until next time…

Ryan
Ryan P. Maxwell

[email protected]

 

“2 Down” – 100 Years Ago:

The Buffalo News
Buffalo, New York
31 Jan 1925

Crossword Puzzle Used in
U. of B. History Examination

Eight of 122 Students Never Worked One Before, But
Emerged Triumphant.

Eight students in History 101 at the University of Buffalo admitted to Dr. Augustus H. Shearer that they had never delved into the elusive mysteries of the crossword puzzle covering the period of the hundred years war.

In spite of this handicap, these eight and the 114 others in the class managed to solve the enigma with almost complete success.

The design strikes out into the open fields of originality and has the general appearance of having been conceived when the 100 years’ war was at its height. However, it was almost impossible to build a perfect interlocker in view of the fact that the idea was to exclude all terms that did not have a direct bearing on the period under discussion.

Dr. Shearer said that the practice will not be continued. It was introduced into the latest examination because of the general interest.

 

Storm’s SIU:

Hi Team:

Let’s not talk about football. 

Writing to you from my lounge chair recovering from a knee replacement two weeks ago.  Thus, my lack of an article in the last edition of Coverage Pointers

One interesting case for you this week:

  • Denial of Insured’s 1st-Party Property Claim Due to 82-day Delay in Reporting is Upheld as a Matter of Law.  The Insured’s Representative’s Self-Serving and Uncorroborated Assertions of Providing the Agent With Notice Earlier is Insufficient to Defeat Summary Judgment.

This is a good reminder that there is a HUGE difference between the law pertaining to 1st party property v. 3rd party liability claims with respect to a late notice defense.  New York has a very favorable body of case law for insurers with respect to 1st -party property claims, as the AMVS, Inc. v. Mt. Hawley case summarized this week demonstrates.  An insurer does not need to prove prejudice with respect to 1st party property claims.  Delays of little as 10 to 53 days have been found unreasonable as a matter of law, discharging insurers’ coverage obligations.  Justifiable excuses for the insured’s late notice are few and far between. 

However, case law deciding late notice issues in 3rd-party liability cases is onerous for insurers and vastly different due to Insurance Law § 3420[c][2][A][ii].  The statute provides shifting burdens of proof regarding prejudice based upon the amount of time which had elapsed.  It states in pertinent part:

(A) In any action in which an insurer alleges that it was prejudiced as a result of a failure to provide timely notice, the burden of proof shall be on: (i) the insurer to prove that it has been prejudiced, if the notice was provided within two years of the time required under the policy; or (ii) the insured, injured person or other claimant to prove that the insurer has not been prejudiced, if the notice was provided more than two years after the time required under the policy.

For an example of a case applying the statute in a 3rd-party liability case see Dan’s discussion of 244 Madison Realty Corp. v. Utica First Insurance Company in the December 20, 2024, edition of Coverage Pointers.  Ryan Maxwell also discusses that case on LinkedIn

3rd-party coverage denials based on late notice are also subject to the timeliness requirements of Insurance Law § 3420(d)(2), whereas first-party property denials are not. 

The law is dramatically different between 1st party property and 3rd party liability claims pertaining to a late notice coverage defense.  It is crucial for insurers to be aware of the distinction.  Tell your friends, family and neighbors. 

I look forward to talking with you again in two weeks. 

Scott
Scott D. Storm

[email protected]

 

Too Many Wild Women – 100 Years Ago:

Buffalo Courier
Buffalo, New York
31 Jan 1925

COZY CORNER CONFIDENCES
By Mrs. Martha Wheeler

The Wild Women.

Dear Mrs. Wheeler:

I’d like to post my opinion of all girls, rich or poor. I know a few of each class so I consider myself an able judge. I don’t believe there is a decent acting of speaking girl in Buffalo, I mean girls who like to go out for a good time.

All girls, good or bad, claim the men spoil them, make them what they are.

It isn’t the men, it’s a certain lot of -well, for the lack of a better name, we’ll call them flappers, vamps. Just as soon as these vamps come in contact with a decent girl or man they try to make her or him, as the case may be, as rotten as themselves. Who can say I’m not right?

About a week ago I was waiting for a street car at midnight. Two boy friends, who love the females as much as I, and myself. Two young lads with three wild women came out of a nearby building, possibly from a dance hall. One of the girls grabbed the smaller of the boys around the waist and started dancing with him (please remember this was in the middle of the street). As if that wasn’t enough she suddenly threw her arms about him and started kissing him.

Now just a few lines for that good sport whose letter was printed in Friday’s paper. I supposed she’s trying to kid herself along (a girl who’ll take a mild drink, who’ll dance, sing, swim, take auto rides, who doesn’t mind a kiss, etc.), I heartily despise her.

No, I’m no old man: I’m only nineteen.  J.C.

 

Fleming’s Finest:

Hi Coverage Pointers Subscribers:

The courts have been pretty quiet this past fortnight, so I have something a little different to offer this edition. This week’s case from the Nevada Supreme Court looks at priority of claims against an insurer’s assets when the insurer becomes insolvent. A private insurer with a subrogation claim sought a higher priority under the relevant statute’s priority schedule, and the court discussed the statute’s language and purpose. I found it an interesting read and hope that you enjoy it.

Catch you later. Enjoy the Super Bowl.

Kate
Katherine A. Fleming

[email protected]

 

Vaccines Might Help … – 100 Years Ago:

Daily News
New York, New York
31 Jan 1925

Children’s Disease Toll
Too High, Doctor Warns.

Harford, Conn., Jan. 30. – Declaring that 12,000 children died of Diphtheria during 1923 and 20,000 from measles and whooping cough, usually considered a trivial disease, Dr. Frederick L. Hoffman told the Connecticut Nursing association today that mortality from maladies of infancy is appalling.

The number of deaths has been greatly reduced, he said, but the figures are still too high and can be lowered by a proper understanding of the services of the visiting nurse.

 

Gestwick’s Garden State Gazette:

Dear Readers:

I’m getting tired of saying “next year the Bills will win it all.” When is “next year,” anyway? I’ve been saying that for the last five or so years and “next year” clearly has not arrived yet.

Anyway, I have two cases for you this week. One is from the New York Appellate Division (yes, I know, I’m supposed to write about New Jersey, but this one *kind of* involves New Jersey). The other, a “real” New Jersey case, examines whether an assignee of rights under an insurance policy is bound by the policy’s arbitration clause. Read on to find out the answers!

Until next time.

Evan
Evan D. Gestwick

[email protected]

 

Banning Those Who Disagree with the President – 100 Years Ago:

The Buffalo News
Buffalo, New York
31 Jan 1925

PRESIDENT APPROVES
BANNING INSURGENTS

WASHINGTON, Jan. 30. – President Coolidge approves the course of Republican leaders of the house in excluding from the party caucus all members except those who remained regular as to party organization during the campaign.

Such action is believed by the President to be the only means whereby the party can carry out its pledges.

 

O’Shea Rides the Circuits:

Hey Readers,

I will not address the Buffalo in the room. Aside from that disappointment, the Ottawa Senators are now firmly in the NHL Playoff race. Hopefully Linus Ullmark is back tending the goal soon and then we can really make a push.

This week I have a couple of cases. One involves the failure to meet the federal pleading standard. The other involves the recovery of interest on claim settlement funds based upon an independent contractual promise.

Until Next Time,

Ryan
Ryan P. O’Shea

[email protected]

 

Gas Prices Skyrocketing – 100 Years Ago:

The Buffalo News
Buffalo, New York
31 Jan 1925

THIRD GASOLINE INCREASE
ORDERED BY STANDARD OIL

 

NEW YORK,  Jan. 30. – For the third time this year, the Standard Oil company of New York tomorrow will increase the price of tank wagon gasoline one cent a gallon in New York and New England to 19 1/3 cents. This is an increase of 4 cents since January 1.

 

Rob Reaches the Threshold: 

Dear Readers,

The dream is dead. The last time I wrote to you; the Bills were riding high heading into a matchup at home against Baltimore. Fast forward two weeks - not only are the Bills now out of the Playoffs, they, yet again, lose in heartbreaking fashion to Kansas City. To make matters worse, America now has to sit thru another Chiefs/Eagles Superbowl. As a born and raised Giants fan from Staten Island, who is now also a member of Bills Mafia, I HATE IT. I will now gladly be pivoting this column towards all things New York Knicks, New York Yankees, and all things Golf. 

In better news, we now have some cases to report on for Serious Injury this time around. Please enjoy the analysis of a Second Department case examining the standard on summary judgment motion practice specific to the 90/180-day category of insurance Law Section 5102(d). 

Hope you all enjoy the read. 

Rob
Robert J. Caggiano

[email protected]

 

Election Fraud – 100 Years Ago:

Times Union
Brooklyn, New York
31 Jan 1925

ELECTIONS CLERK JAILED
AS BALLOT TAMPERER

George Rosken, tally clerk in the Twenty-third Election District of the Eighth Assembly District, Manhattan, who has been indicted for perjury in connection with the tampering of ballots in the contest between Congressman Nathan D. Perlman, Republican, and Dr. William I. Stirovich, Democrat, was remanded to the Tombs Prison to-day in default of $2,000 bail by General Sessions Judge Talley.

 

LaBarbera’s Lower Court Library:

Dear Readers:

I saw some colleagues the other day exchanging phones and looking at photos. I heard the words “cute” and “sweet.”  Without thinking, I interrupted and blurted out my request that I see the photos of the dogs they were exchanging. Well, they were actually looking at pictures of their babies. Needless to say, if anyone has any photos of their dogs they would like to share, feel free to pass them along. I will surely enjoy them.

This week I am reporting on a Kings County decision, involving a material misrepresentation on an application of an insurance policy regarding number of units at the insured property. The decision should not come as a shock to all of you, as it  does not differ from long-standing principals on this topic. The interesting part of this case comes down to the procedural posture. The insurer was able to successfully obtain a dismissal, and ultimately a rescission of the policy, on a pre-answer motion to dismiss. 

Until next time …

Isabelle
Isabelle H. LaBarbera

[email protected]

 

Chubb’s Insurance – 100 Years Ago:

The Brooklyn Daily Times
Brooklyn, New York
31 Jan 1925

MRS. HELEN CHUBB
LEAVES $1,000,000
TO HER HUSBAND

Will of Insurance Man’s Wife
Filed in Nassau – Was
Flower Show Patron

Mineola, Jan. 31. – The will of Helen Low Chubb, wife of Percy C. Chubb, of the insurance firm of Chubb & Son, Manhattan, was filed for probate in the Surrogate’s office here this morning. The entire estate is left to her husband and is thought to be valued at over $1,000,000.

A clause of the will provided that if her husband predeceases her $400,000 of her estate was to be used as a trust fund for her sister, Edith Low Bush, and then go to her sister's children. The residue was to have been given to her husband’s brother, Henden Chubb.

When Mrs. Chubb, who died at Aswan, Egypt, December 27, 1924, resided at her country place, Ratting Springs, Glen Cove. She was an ardent devotee of flower culture and was a frequent winner at flower shows all over the country. She was the daughter of Daniel and Martha Westervelt Low, of 109 West Fifty-third street, Manhattan.

 

Lexi’s Legislative Lowdown:

Dear Readers,

Last weekend two of my closest friends got married. A highlight was when they played the Bills Shout song for a crowd of hopeful Bills fans. Luckily the wedding was before the tragic loss on Sunday.

This week we discuss an assembly bill that would prevent liability carriers who issue policies to rental property owners from excluding coverage for damages caused by exposure to lead-based paint.

Thanks for reading,

Lexi
Lexi R. Horton

[email protected]

 

Plea to Ban Toy Guns – 100 Years Ago:

The Brooklyn Daily Times
Brooklyn, New York
31 Jan 1925

Justice O’Keefe, Who Holds Boy
For Death of Playmate, Issues
Urgent Plea for Ban ON Toy Guns

Justice George J. O’Keefe, in the Children’s court yesterday, after holding 11-year-old Victor Reuben, 2 Oceanview avenue, Coney Island, who accidentally shot and killed his chum, George Marcus, 10506 Oceanview Avenue, in $500 bail on a charge of juvenile delinquency, at the request of the newspaper representatives issued a statement condemning the possession of firearms by minors.

The Statement follows:

“I cannot let this opportunity pass without again repeating and emphasizing what I have said time and again, in season and out of season, in public and in private, and not I alone, but the District Attorney and my associates when I was in Special Sessions and now that I am here, concerning the great danger, the terrible evil, the disastrous consequences that follow in the possession of firearms by young children.”

 

Domenica’s Diary on Bad Faith:

Hello Coverage Pointers Subscribers,

My greetings to you all from New Jersey. I feel honored to be a part of this longstanding, brilliant newsletter. I look forward to bringing you interesting bad faith cases and lighter notes.

I have a good decision, out last week, from the District Court for the Southern District of New York which reminds all of us how seriously New York considers “within a reasonable time.” From the perspective of a former Claims Counsel, who dealt with coverage nationally, draconian or not, New York’s “timeliness” considerations, both from the insured and carrier, deserves extra care. 

Domenica
Domenica D. Hart

[email protected]

 

Canadian Border Restrictions – 100 Years Ago:

The Lethbridge Herald
Lethbridge, Alberta, Canada
31 Jan 1925

ABOLISH SENATE
IS PROPOSAL OF
TRADES BODY TO
OTTAWA CABINET

Delegation Headed By Tom
Moore Submits Proposals
To Premier King

PROTEST AGAINST U.S.
QUOTA RESTRICTIONS

OTTAWA. Jan. 31. – (Can. Press.) – Abolition of the senate, establishment of unemployed insurance and old age pensions, and a request that Canada ask the United States government to remove the discrimination between Canadian-born and other Canadian citizens in the quota restrictions, were among the legislative proposals submitted to the prime minister and cabinet this afternoon by a deputation from the Trades and Labor Congress of Canada.

              

North of the Border:

This week, I'm in Toronto participating in a two-day strategic planning meeting with the Canadian Defence Lawyers (CDL) board. The board members are not only incredibly talented professionals but also genuinely exceptional individuals.  It is a pleasure to be in their company.

This week’s column discusses an important decision on the follow settlement clause found in reinsurance contracts.  Until next time.

Heather
Heather A. Sanderson
Sanderson Law
Calgary, Alberta, Canada

[email protected]

 

Headlines from this week’s issue, attached:

KOHANE’S COVERAGE CORNER
Dan D. Kohane

[email protected]

  • A Disclaimer Directed to the Named Insured Is Not a Disclaimer Directed to an Additional Insured and Results in 3420(d)(2) Waivers of Exclusions

 

PEIPER on PROPERTY (and POTPOURRI)
Steven E. Peiper

[email protected]

  • Review of Claims File for Depo Prep Results in Waiver of Material Prepared in Anticipation of Litigation Exemption

 

LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel

[email protected]

  • Marijuana Business Income Claim Goes Up in Smoke
  • Notice of Cancellation Subject to Mailbox Rule
  • Insurer Bad Faith Not Protected by Litigation Privilege

 

RUFFNER’S ROAD REVIEW
Kyle A. Ruffner

[email protected]

  • Out Sick This Week. See You in Two.

 

RYAN’S FEDERAL REPORTER
Ryan P. Maxwell

[email protected]

  • Language Matters in Exclusions. Southern District of New York Reminds Us That “Any Insured” Language Is Broader Than “The Insured”

 

STORM’S SIU
Scott D. Storm

[email protected]

  • Denial of Insured’s 1st-Party Property Claim Due to 82-Day Delay in Reporting Is Upheld as a Matter of Law.  The Insured’s Representative’s Self-Serving and Uncorroborated Assertions of Providing the Agent With Notice Earlier Is Insufficient to Defeat Summary Judgment

 

FLEMING’S FINEST
Katherine A. Fleming

[email protected]

  • Private Insurance Company With Subrogation Claim Not Among the High-Priority Claimants to Recover From an Insolvent Insurer

 

GESTWICK’S GARDEN STATE GAZETTE
Evan D. Gestwick

[email protected]

  • An Employer’s Right to Reimbursement of Workers’ Compensation Benefits is Governed by the Law of the State In Which Benefits Were Paid
  • Insurer Cannot Restrict Insured’s Post-Loss Ability to Assign Rights to the Policy

 

O’SHEA RIDES the CIRCUITS
Ryan P. O’Shea

[email protected]

  • Failure to Plead Specific Facts and Timely Amend Complaint Proves Fatal to Complaint Regarding Property Damage to 18 Insured Properties
  • Standalone Promise to Pay Interest in Homeowners Policy Creates Private Cause of Action Under Florida Case Law

 

ROB REACHES the THRESHOLD
Robert J. Caggiano

[email protected]

  • Second Department Reverses Order Granting Plaintiff’s Summary Judgment Motion, Finding That Plaintiff Failed to Establish Serious Injury under 90/180 Category

 

LABARBERA’S LOWER COURT LIBRARY
Isabelle H. LaBarbera

[email protected]

  • Pre-Answer Motion to Dismiss Granted Based on Material Misrepresentation on Application for Insurance Regarding Number of Units and Illegal Basement Unit

 

LEXI’S LEGISLATIVE LOWDOWN
Lexi R. Horton

[email protected]

  • Proposed Legislation to Prohibit the Exclusion for Coverage for Losses or Damages Caused by Exposure to Lead-Based Paint

 

DOMENICA’S DIARY on BAD FAITH
Domenica D. Hart

[email protected]

  • No Proof of Bad Faith: 82-Day Delay of Loss Notice Is “Unreasonable” and Is a Reasonable Basis for Denial in Itself

     

    NORTH of the BORDER
    Heather A. Sanderson, K.C.
    Sanderson Law
    Calgary, Alberta, Canada

    [email protected]

  • A Follow Settlements Clause in a Reinsurance Contract Requires a Reinsurer to Honour its Portion of Reinsurance Where the Claim as Recognized by the Lead Insurer Falls Within Coverage "As a Matter Of Law" and the Lead Insurer Took All "Proper And Businesslike Steps” to Resolve the Claim

 

That’s all she wrote.  See you in two, just in time for Valentine’s Day.

By the way, it’s Valentine’s Day not Valentines Day.

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

Victoria S. Heist

 

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

Michael F. Perley

Scott D. Storm

 

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

Kohane’s Coverage Corner

Peiper on Property and Potpourri
Lee’s Connecticut Chronicles

Ruffner’s Road Review

Ryan’s Federal Reporter

Storm’s SIU

Fleming’s Finest

Gestwick’s Garden State Gazette

O’Shea Rides the Circuits

Rob Reaches the Threshold

LaBarbera’s Lower Court Library

Lexi’s Legislative Lowdown

Domenica’s Diary on Bad Faith

North of the Border

 

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

01/23/25       New York Marine, et al. v. Rockingham Insurance Company
Appellate Division, First Department
A Disclaimer Directed to the Named Insured Is Not a Disclaimer Directed to an Additional Insured and Results in 3420(d)(2) Waivers of Exclusions

Stateside and Astra, who qualify as additional insureds on a policy issued by Rockingham, established that they submitted a tender letter to Rockingham, but that Rockingham failed to timely disclaim coverage as to plaintiffs, as required by Insurance Law § 3420(d).

The denial letter Rockingham sent to its named insured, disclaiming coverage solely as to that named insured, did not constitute notice to plaintiff additional insureds. The notice was not sufficiently definite as to apprise plaintiffs (the additional insureds) that defendant was also denying coverage to them based on certain policy exclusions.

The Court also upheld sanctions against Rockingham for its failures in the discovery process.

 

PEIPER on PROPERTY (and POTPOURRI)
Steven E. Peiper

[email protected]

01/23/25       Allied World National Assurance Co. v. AIG Specialty Ins. Co.
Appellate Division, First Department
Review of Claims File for Depo Prep Results in Waiver of Material Prepared in Anticipation of Litigation Exemption

Defendant Ironshore moved to strike the Note of Issue to conduct additional discovery, including requests for production of the claims files from Allied World and Endurance.  Ironshore also sought a deposition of Ironshore’s retained, and disclosed, expert. 

In affirming the trial court’s ruling, the Appellate Division rejected Ironshore’s requests for additional discovery from Allied World.  Essentially, the court held that Ironshore waited too long, and as such was too close to the deadline to close discovery, before it requested depositions and additional document disclosure. 

With regard to the discovery sought against Endurance, however, the Court stuck a more balanced tone.  With regard to the timeliness of the request, the Appellate Division found that Endurance’s own delay caused the time crunch.  In addition to the timeliness objection, Ironshore also argued that Endurance owed unredacted portions of the claims file because the witness had reviewed the entire file in preparation for a deposition.  It is long understood that review of the entire file waives the conditional privilege for material prepared in anticipation of litigation. 

The court clarified, however, that privileges of attorney work product and/or attorney-client privilege are not waived by mere review of the materials in preparation for deposition.  Nevertheless, the party asserting the privilege must establish its applicability to protect the items from production.  The Court remanded the matter to the trial court for in camera proceedings consistent with its ruling.

 

LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel

[email protected]

01/18/25       Theraplant, LLC v. Nat'l Fire & Marine Ins. Co.
United States District Court, Connecticut
Marijuana Business Income Claim Goes Up in Smoke

The district court granted National Fire summary judgment, finding that the insured did not suffer an actual business income loss due to a necessary suspension of operations, following smoke damage to the insured’s marijuana plants.

Theraplant is in the cannabis business. Its Watertown, Connecticut plant suffered fire damage when a light bulb burst causing a fire in Flowering Room 2. The insured destroyed 998 marijuana plants that had suffered smoke damage. The Flowering Room was offline for about two months, undergoing repairs. National Fire paid almost $500,000 for damage to the building and equipment, but it denied the insured’s $1.3 million business income claim. This lawsuit followed.

Like most BI provisions, National Fire agreed to pay “for the actual loss of Business or Rental Income you sustain due to the necessary "suspension" of your "operations" during the "period of restoration." The "suspension" must be caused by the direct physical loss of or damage to Covered Property under this policy…” The insurer argued that there was no causal link between the actual loss of income and the necessary suspension of operations at the cannabis plant. The court agreed that the evidence failed to support a business income loss.

Theraplant has not put forward any evidence that it would have used Flowering Room 2 for another income-generating purpose had the repairs not been ongoing between February and April 2020. No evidence supports a finding that the room, equipped only for the flowering stage, could be used for another stage of cultivation. Nor has Theraplant put forward evidence that the ongoing repairs delayed the transfer of plants from one flowering room to another. The parties agree that a lengthy delay would have caused a drop in Theraplant's income, but Theraplant can point to no evidence of a delay…. Theraplant fails to explain how the suspension itself caused the business income loss. Plaintiff simply assumes the existence of a causal relationship, but the Court cannot do the same.

The court acknowledged the insured’s loss of product but found that fact alone did not permit a business income recovery. Noting that the purpose of the coverage is to insure against loss arising from the inability to continue normal operations, the court pointed out that business income coverage does not insure for the loss of profit due to damaged inventory. “Business interruption insurance does not exist to help the insured recover for damaged or destroyed property. See Nw. States Portland Cement Co. v. Hartford Fire Ins. Co., 360 F.2d 531, 533 (8th Cir. 1966).”

 

01/03/25       DiRenzo v. State Farm Fire & Cas. Ins. Co.
Superior Court of Connecticut, New Britain
Notice of Cancellation Subject to Mailbox Rule

The court found that there is a genuine issue of fact as to whether the insured received notice of cancellation of her auto insurance policy, denying State Farm summary judgment.

In December 2022, plaintiff was involved in a motor vehicle accident, but State Farm refused to pay for repairs, claiming that the policy had been cancelled for non-payment. State Farm claimed it cancelled to policy by sending a notice of cancellation in October 2022, memorialized by a certificate of mailing. In support of summary judgment, State Farm also submitted a ledger showing non-payment and an employee’s affidavit. In opposition, the insured averred that she had not received the notice of cancellation, evidence of post-accident payments, and claim correspondence from State Farm in regard to the accident which did not refer to the cancellation.

Cancellation of an auto policy for non-payment is governed by CGS § 38a-3434(a), which provides in part that where cancellation is for non-payment of premium notice “shall be given.” The statute also indicates that notice is to be “delivered or sent” to the insured.

In reviewing the law, the court struggled with whether the insured could defeat cancellation by claiming non-receipt. Some case law provides that a denial of receipt, by itself, is insufficient to defeat presumption of receipt under the mailbox rule. However, the court fund that “denial of receipt alone could be sufficient evidence to overcome the presumption of receipt established by the mailbox rule.” The court denied the motions, referring ultimate conclusion of cancellation to the trier of fact.

 

01/21/25       Bouazza v. GEICO General Ins. Co.
Appellate Court of Connecticut
Insurer Bad Faith Not Protected by Litigation Privilege

The Appellate Court reversed, reinstating the plaintiff’s bad faith claims which had been improperly dismissed on the basis of the litigation privilege.

This matter arises from the plaintiff's UIM claim against GEICO. In 2017, she was injured in a car accident, collecting the tortfeasor’s $20,000 per person limit. She then made a claim for UIM benefits to GEICO under her $100,000 policy. Two years later, plaintiff sued GEICO and made an offer of judgment for $50,000, which was rejected. At trial, the jury awarded plaintiff $2.262 million. On post-trial motion, the court reduced the verdict to $79,000 in accordance with the express terms of the UIM policy and statute.

The court had bifurcated the plaintiff’s bad faith claim and then later granted GEICO’s motion to dismiss, finding that GEICO was immune from suit under the litigation privilege. The trial court held that all the bases for the bad faith claim arose from GEICO’s conduct in negotiating a settlement of the UIM claim “in the course of and related to a judicial proceeding.”

On appeal, the insured argued that the trial court overlooked GEICO’s pre-litigation conduct, plus she argued that GEICO’s abuse of process trumped the immunity defense. The court agreed that some of the conduct complained of occurred outside the course of the litigation and, therefore, was not subject to the litigation privilege. Claims that GEICO refused to adjust the claim promptly and appropriately did not necessarily involve litigation conduct. Accordingly, the court reversed and remanded the case to the trial court for further proceedings.

 

RUFFNER’S ROAD REVIEW
Kyle A. Ruffner

[email protected]

Out sick this week. See you in two.

 

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

01/29/25       Am. Eur. Ins. Co. v. Eire Concrete Inc.
Southern District of New York
Language Matters in Exclusions. Southern District of New York Reminds Us That “Any Insured” Language Is Broader Than “The Insured”

In a tale as old as time, the Southern District of New York was asked to determine whether coverage was available for a construction worker injured on a construction site. American European Insurance Company (“AEIC”) insured a subcontractor at the project, Eire Concrete Inc., and provided additional insured coverage to ARA Construction Corp., the project’s general contractor. The policy contained an exclusion for bodily injury to any contractor or any employee of any contractor or its employee performing services of any kind or nature whatsoever.

An employee of another contractor on site that had also contracted with ARA, Nu-Way, was injured following an alleged worksite fall on some incomplete dried cement and/or construction material or debris.

Finding the exclusion applicable, the SDNY dispelled various arguments involving the lack of contractual privity between Eire and Nu-way, as well as the intended scope of the employee injury exclusion and its interplay with a separation of insureds provision.

Relative to the scope of the exclusion, the SDNY made clear that it cannot rewrite the exclusion. While similar exclusions may have their origins in avoiding overlaps with coverage under workers’ compensation system, the exclusion must be interpreted according to its language, which is much broader than simply precluding coverage for what would otherwise be covered by the employer’s workers’ compensation policy. Specifically, the SDNY noted that this exclusion applies equally to all insureds, regardless of who employed the claimant, on account of its use of “any contractor,” rather than simply those contractors that might have been engaged by “the insured” looking for coverage. In other words, the use of “any contractor” and its employees (regardless of who hired them) was meant to supersede the application of a separation of insureds provision, which applies in the context of exclusions limiting their application to “the insured.”

Maxwell’s Minute: This case has a great discussion about the difference in interpretation between “the insured” and “any insured,” so please email me if you would like a copy of the decision. I will note that the case did not actually hinge upon that question, but rather a very similar question involving the language “any contractor”. Since the court did not see language indicating that such contractor must have contracted with Eire, it concluded ultimately that contractor injuries were excluded for all insureds, regardless of who hired them, on account of the plain meaning of the words it confronted.

 

STORM’S SIU
Scott D. Storm

[email protected]

01/23/25       AMVS, Inc. d/b/a Super 8 Motel v. Mt. Hawley Ins. Co.
United States District Court, S.D. New York
Denial of Insured’s 1st-Party Property Claim Due to 82-Day Delay in Reporting Is Upheld as a Matter of Law.  The Insured’s Representative’s Self-Serving and Uncorroborated Assertions of Providing the Agent With Notice Earlier Is Insufficient to Defeat Summary Judgment

Mt. Hawley issued a commercial property insurance policy to AMVS, a Texas-based hotel operator, covering a Super 8 Motel in Harlingen, Texas. 

The Policy has a condition that, in the event of loss or damage to covered property, AMVS must "[g]ive prompt notice of the loss or damage."  In addition, a Windstorm or Hail Loss Reporting Limitation Addendum to the Policy provided:

Regardless of anything to the contrary in this policy to which this endorsement is attached, the following limitations apply in reference to reporting of claims under this policy:

With respect to loss or damage caused by windstorm or hail, including any named storm, you must give us prompt notice of the loss or damage and include a description of the property involved, and as soon as possible give us a description of how, when and where the loss or damage occurred. In no event may a claim be filed with us later than one year after the date of the loss or damage that is the subject of the claim.

A choice-of-law provision in the Policy stated that all matters including questions relating to the validity, interpretation, performance and enforcement of the policy are to be determined in accordance with N.Y. the law. 

A windstorm allegedly damaged the property on October 22, 2021. Nearly three months later, on January 12, 2022, AMVS, through its attorney, reported a claim under the policy.  However, AMVS’s corporate representative Jhaveri maintains that he reported the loss to his insurance agent "way ahead" of January 12, 2022, but has "no records" of it. 

Mt. Hawley determined that the only covered damage attributable to the windstorm was twenty-six detached shingles on the roof. AMVS alleged, however, that the windstorm caused irreparable damage to the Property's roof and envelope, resulting in damages in the amount of $652,667.20.

Mt. Hawley denied the claim on June 23, 2022, concluding that the damage to twenty-six shingles would not exceed the applicable $25,000 policy deductible, and noted in the letter that AMVS did not timely notify Mt. Hawley of the Claim pursuant to the Loss Conditions. 

AMVS sued seeking damages for the breach of contract, and recovery of attorneys' fees for the violation of the Texas Insurance Code.  Mt. Hawley’s motion for summary judgment is granted.

AMVS argued in response that it complied with the prompt notice condition, which it construes to allow for reporting up to one year from a wind-related loss.  AMVS also maintained that Jhaveri's deposition testimony that he notified an insurance agent about the loss before January 12, 2022, created an issue of fact.  Lastly, AMVS asserted a claim for attorney's fees, contending that Mt. Hawley exhibited bad faith by denying its claim. 

In considering the choice of law issue, the Court concluded that New York law applied.  Section 5-1401 of New York's General Obligations Law provides that the parties to a contract involving at least $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."  Section 5-1401 applies to the policy at issue here, which has a per occurrence loss limit of $3,880,000. 

In citing other decisions, the Court recognized that under New York law, compliance with a notice-of-occurrence provision in an insurance policy is a condition precedent to an insurer's liability under the policy.  Where the policy holder does not comply with this condition precedent, the failure to do so as a matter of law vitiates the contract, regardless of prejudice.

Notice must be given within a reasonable time in view of all of the facts and circumstances. "When considering the reasonableness of a delay, `courts have found relatively short periods to be unreasonable as a matter of law", citing cases including American Home Assur. Co. v. Republic Ins. Co., 984 F.2d 76, 78 (2d Cir. 1993) (collecting cases that hold delays ranging from 10 to 53 days unreasonable as a matter of law, thereby discharging the insurer's coverage obligations).

"A notice obligation is triggered when the circumstances known to the insured . . . would have suggested to a reasonable person the possibility of a claim [citation omitted]”.  AMVS' corporate representative Vijay Jhaveri was present at the Property during the windstorm, and he observed damage to the Property.  As such, the Court found the possibility of a claim was clear on date of loss, triggering the policy's notice obligation. 

AMVS argued that the Windstorm or Hail Loss Reporting Limitation Addendum to the policy created a longer acceptable notice period [quoted above].  AMVS argued it "expressly allows for hail/wind losses to be reported up to one (1) year from the date of loss.".

Interpreting the contract giving words and phrases their plain meaning and construing it to give full meaning and effect to all of its provisions, the Court found that AMVS' interpretation of the addendum failed because it rendered the prior sentence, requiring that AMVS "must give" Mt. Hawley "prompt notice of the loss or damage" and provide a description of the loss "as soon as possible", meaningless.  Conversely, the Court said that Mt. Hawley gives meaning to both parts of the addendum, arguing that the provision mandates prompt notice in relation to when a claim is discovered, and further provides that "wind and hail claims reported more than one year after the reported loss are untimely regardless of the circumstances surrounding the delay. In other words, the Addendum imposes two independent requirements: (1) AMVS must give prompt notice to Mt. Hawley, within a reasonable time from when it should have become aware of the possibility of a claim; and (2) AMVS must file a claim within one year of the date of loss or damage, regardless of when AMVS might discover its claim.  "This accords with the word ‘limitations,' in plural form, in the first sentence of the Addendum, rendering both limits independently enforceable. It is the only reasonable interpretation that follows from the plain language of the Policy and does not render one of its two clauses superfluous." 

AMVS also alleged that Jhaveri's testimony created an issue of fact as to when they reported the loss, arguing that "[w]hile the exact timing is unclear, Mr. Jhaveri testified that he notified Plaintiff's insurance agent of the loss ‘way ahead' of the written notice of loss subsequently provided by Plaintiff's counsel on January 12, 2022.  Mt. Hawley argues that this self-serving, uncorroborated testimony fails to raise a genuine issue of fact sufficient to defeat summary judgment.

A court generally cannot grant summary judgment based on its assessment of the credibility of the evidence presented.  Nevertheless, AMVS is still required to offer some hard evidence showing that its version of the events is not wholly fanciful.  The vague testimony in which Jhaveri acknowledges that he has "no records" of calling the insurance agent is a self-serving statement and insufficient to defeat a motion for summary judgment.  As the non-moving party, AMVS may not defeat summary judgment by simply showing that there is some metaphysical doubt as to the material facts.

"’Because New York courts have repeatedly held notice delays of less than two months to be unreasonable as a matter of law,’ and because AMVS fails to show any excuse to justify its 82-day delay in reporting the claim to Mt. Hawley, the Court concludes that AMVS' notice was untimely”. 

AMVS sought to recover its legal expenses.   AMVS based its request for attorneys' fees on the Texas Insurance Code. As this action is governed by New York law, AMVS' claim for fees under Texas law was deemed unavailing.

Under New York law, AMVS was said to have failed to overcome the strong presumption against finding that an insurer denied coverage in bad faith. AMVS' untimely notice constituted a reasonable basis for denial.

 

FLEMING’S FINEST
Katherine A. Fleming

[email protected]

01/16/25       Protective Ins. Co. v. State, Comm’r of Ins.
Nevada Supreme Court
Private Insurance Company With Subrogation Claim Not Among the High-Priority Claimants to Recover From an Insolvent Insurer

Zeljkovich, the driver of a tractor trailer collided with Matthews. Zeljkovich had automobile liability insurance coverage with Spirit Commercial Auto Risk Retention Group, and Matthews had insurance through Protective Insurance Company. Matthews sued Zeljkovich in Virginia, where the accident occurred, for negligence. Spirit began defending Zeljkovich and negotiated a settlement with Matthews. Before the settlement was finalized, Spirit became insolvent and was placed into receivership and liquidation. Since Spirit was in receivership, Matthews sought UM/UIM coverage from his insurer. Protective settled and paid Matthews. Protective asserted that it acquired subrogation rights from Matthews against Spirit’s estate. In Nevada, claimants to an insolvent insurer’s estate are subject to a mandatory process in which a receiver caps and prioritizes claims against the insurer’s limited remaining assets according to the priority schedule in the statute. Spirit’s Special Deputy Receiver notified Protective that its claim would fall within the residual prioritization category and could go unpaid due to insufficient funds. Protective argued its claim should be higher on the priority schedule because it had not been indemnified. The district court affirmed the Special Deputy Receiver’s decision.

On appeal, the court noted the issue with Protective’s argument was that it would give it more rights as the subrogee than the subrogor under the statute. The statute excluded from that class any loss for which indemnification is provided to the claimant, and Protective had indemnified the underlying claimant. Since the underlying claimant would be excluded from that class, Protective’s subrogation claim also must be excluded. The court also rejected Protective’s argument that because the statute included some statutory guaranty associations’ subrogation claims, then it must include UM/UIM private insurer subrogation claims.

The court reasoned that from a public policy perspective, a private insurer with a subrogation claim is not among the class of litigants the statute seeks to protect. When an insurance company goes under, it may not have sufficient assets to cover all claims. For individual claimants, the inability to recover may mean anything from the loss of their home or ruinous liability to a shortage of money for emergency situations. The statute seeks to prioritize those who most immediately and urgently needs to recover from their insurer because not everyone can be paid. Accordingly, the statute prioritizes policyholders and the persons who sustain bodily injuries or property damage because they are often least able to absorb a loss. Similarly, the statute prioritizes statutory insurance guaranty associations to protect policyholders if their insurers become insolvent. If an insurance company fails, then the statutory guaranty organizations pay the policyholders of the failed company, so they must remain solvent to fulfil their consumer protection duties. As a private insurance company, the court noted that Protective is not among the vulnerable, high-priority claimants under what is a consumer protection statute, and allowing the insurer to recover would risk decreasing the amount that policyholders could recover, harming consumers. As a result, the court affirmed the district court’s decision that Protective’s claim properly fell within the residual category.

 

GESTWICK’S GARDEN STATE GAZETTE
Evan D. Gestwick

[email protected]

01/29/25       Gomez-Jimenez, et al. v. Wilson et al.
New York Appellate Division, Second Department
An Employer’s Right to Reimbursement of Workers’ Compensation Benefits Is Governed by the Law of the State in Which Benefits Were Paid

The plaintiff, a resident of New Jersey, was injured in a car accident in Brooklyn, New York, while driving a vehicle owned by his employer. The plaintiff sued the driver of the car that struck his (in New York Supreme Court), in addition to filing for (and eventually receiving) workers’ compensation benefits from his New Jersey employer.

After the plaintiff received his workers’ compensation benefits, the defendant’s auto carrier tendered its $25,000 policy limit to settle the case. Plaintiff’s employer’s carrier placed a subrogation lien on the settlement to cover the plaintiff’s worker’s compensation claim. The plaintiff’s motion to vacate the lien was denied by the New York trial court, and this appeal followed.

The law of the land in New York is in the title of this article—the right of an employer to be reimbursed for workers’ compensation benefits paid to an employee are governed by the law of the State in which the benefits were paid. Here, the plaintiff’s workers' compensation benefits were paid in New Jersey. So, New Jersey law governs the rights of the plaintiff’s employer to recover the benefits that were previously paid.

The Appellate Division properly denied the plaintiff’s motion to vacate the lien asserted by his employer.

 

01/29/25       Edwards v. Certain Underwriters at Lloyd’s London
United States District Court, District of New Jersey
Insurer Cannot Restrict Insured’s Post-Loss Ability to Assign Rights to the Policy

The plaintiff sued the City of Trenton in the underlying action, asserting violations of the Fourth and Sixth Amendments. Plaintiff and the City executed a settlement agreement and entered a consent judgment, wherein the City would be liable to the Plaintiff for $5,000,000. Of that $5 million, the City was to pay $500,000 to the Plaintiff and assign to the Plaintiff all of its rights against its insurance carrier, allowing the Plaintiff to pursue recovery directly against the carrier for the remaining $4,500,000.

After the Plaintiff moved the Court to approve the settlement and enter the consent judgment, Underwriters moved to intervene in the action. To intervene in an action, a party must show that it has sufficient present interest in the litigation. Underwriters claimed that its economic interest in mitigating the underlying judgment it may later be called upon to reimburse was sufficient to allow it to intervene. The Court disagreed, holding that Underwriters’ interest is contingent (and not yet a present interest) because it depended entirely on whether coverage was available under its own policy (a point Underwriters wasn’t yet ready to concede).

Underwriters then moved to compel the Plaintiff to arbitrate the coverage dispute (and the effectiveness of the assignment of rights). The Plaintiff opposed the motion, maintaining that the policy’s arbitration clause had no effect, since the Plaintiff was not a party to the policy, and because the underlying claims were outside the scope of the policy’s arbitration clause.

The Federal Arbitration Act permits courts to compel arbitration upon a determination that: (1) there is a valid agreement to arbitrate between the parties; and (2) the merits-based dispute falls within the scope of that agreement. The Court here noted that, under these facts, the assignment of the policy must be valid in order to for the arbitration agreement to have any effect.

The Court held that the City’s assignment of the policy to the Plaintiff was valid because it occurred post-loss. The Court noted that, in most U.S. jurisdictions, provisions prohibiting the post-loss assignment of an insurance policy, or requiring the carrier’s consent to do so, are void. Since the City assigned its rights under the policy to the Plaintiff only after the loss had already occurred, the Court found that the assignment was valid.

Turning back to the arbitration clause itself, the Court noted that the clause was valid as applied to the City. Since, given the valid assignment, the Plaintiff simply “stands in” for the City under the policy, the Court rules that the arbitration clause was valid against the City as well.

In the end, the Court ruled that because the assignment from the City to the Plaintiff was valid, the Plaintiff is privy to the policy just as the City would have been. In other words, the policy served as a valid, binding agreement between the Plaintiff and Underwriters, although the amount owed by Underwriters remains to be determined at arbitration.

Editor’s Note: This one was hot off the press; it’s not available online as of yet. A copy is available upon request.

 

O’SHEA RIDES the CIRCUITS
Ryan P. O’Shea

[email protected]

01/27/25       Spinosa v. Foremost Ins. Co. Grand Rapids Mich.
United States Court of Appeals, Fifth Circuit
Failure to Plead Specific Facts and Timely Amend Complaint Proves Fatal to Complaint Regarding Property Damage to 18 Insured Properties

Spinosa commenced an action asserting breach of contract and bad faith under Louisiana law based on Foremost’s alleged failure to investigate and pay claims for hurricane damage. Spinosa sought recovery for 19 properties. The district court dismissed claims on 18 of the properties for failure to state a claim and denied leave to amend. The 19th property was transferred to another court since it was located in a different jurisdiction from the deciding court.

Spinosa appealed and the Court of Appeals affirmed the dismissal. Under Louisiana law, a claim for breach of an insurance policy requires citing a specific policy provision. The court noted that the federal pleading standard applied but nonetheless held Spinosa’s complaint made generic conclusory allegations that a hurricane damaged his properties. In essence, Spinosa failed to plead facts which ultimately proved fatal due to the heightened pleading standard at the federal level.

On the leave to amend issue, Spinosa declined to amend his complaint within 21 days of receipt of Foremost’s motion to dismiss. Instead, he filed his opposition 144 days later, nor did Spinosa file a motion for leave to amend. Further, Spinosa did not include a proposed amended complaint in his opposition and only argued that his opposition should be construed as requesting an amendment. Due to the above deficiencies, the appellate court found no abuse of discretion occurred in the denial of the leave to amend.

 

01/16/25       Safont v. State Farm Fla. Ins. Co.
United States Court of Appeals, Eleventh Circuit
Standalone Promise to Pay Interest in Homeowners Policy Creates Private Cause of Action Under Florida Case Law

The Barbato’s sued State Farm for breach of contract after State Farm paid the Barbatos’ claim without interest. In 2018, the Barbatos’ home was damaged by Hurricane Irma, and they received an appraisal resulting in State Farm paying the claim. However, State Farm failed to include interest in the payment.

Within the Barbatos’ policy was a Loss Payment provision that provided “"interest will be paid in accordance with Section 627.70131(5) of the Florida Insurance Code.” The district court dismissed the amended claim complaint with prejudice because it felt recovery was barred under  Florida Statute § 627.70131(5)(a). An appeal followed.

Review was limited to whether the Barbatos’ claim was barred under §5(a)’s limitation since that statute was the basis of the underlying decision. The statute of interest provides:

“Any payment of an initial or supplemental claim ... made 90 days after the insurer receives notice of the claim or made more than 15 days after there are no longer factors beyond the control of the insurer which reasonably prevented such payment, whichever is later, bears interest at the rate set forth in s.55.03. Interest begins to accrue from the date the insurer receives notice of the claim. The provisions of this subsection may not be waived, voided, or nullified by the terms of the insurance policy ... However, failure to comply with this subsection does not form the sole basis for a private cause of action.”

The district court relied heavily on the emphasized “no private cause of action” language to dims the claim. It also relied upon a Florida State Court case with nearly identical facts as the reasoning for its position. But in that state court case, on appeal, found that §5 is broad enough to create a sole private cause of action if the policy contains a standalone, independent obligation to pay interest. (Taylor v State Farm Florida Ins. Co., 388 So 3d 307 [Fla Dist Ct App 2024])

On appeal in our case, State Farm acknowledged that the Loss Payment in the present matter and Taylor were identical. Since the amended complaint alleged a violation of the Loss Payment Provision, a standalone obligation to pay interest, Taylor applied to create a private right of action.

The appellate court explained that while the policy states interest will be paid in accordance with §5(a), under Taylor’s reasoning that language is merely a reference to the manner in which the obligation will be performed. The citation to the statute does not nullify State Farm’s promise to pay interest. Due to Taylor’s reasoning and being an intermediate state appellate decision, the Eleventh Circuit held it was bound to apply its reasoning.

All of State Farm’s arguments in opposition were rebuked. First, State Farm advised it sought rehearing of Taylor. That rehearing was granted, and State Farm fared no better. Second, State Farm moved to stay the Barbatos’ appeal after Taylor was decided or provide a limited remand regarding the stay of appeal. State Farm’s abstention argument was rejected because only State Farm is a defendant in both cases, Taylor is not a certified class action, and the Barbatos were not and had never been parties in the Taylor matter. Finally, State Farm pointed to a 2011 Florida appellate decision for the proposition it created a conflict in Florida appellate authority. This was rejected as Taylor distinguished the contrasting authority and Taylor is the only Florida appellate decision that addressed the issue on appeal.

Editor’s Note: Why is the case captioned as Safont instead of Barbato? It is because Sandra Safont brought the action individually, and on behalf of all others similarly situated, which included the Barbatos . Hence as named parties. That is why State Farm sought abstention and attempted to place the Barbatos in the same class as those in Taylor. Ms. Taylor also brought her action on behalf of all those similarly situated but the Barbatos were not named in that matter.

 

ROB REACHES the THRESHOLD
Robert J. Caggiano

[email protected]

01/22/25       Irving, et al. v. Limberis
Appellate Division, Second Department
Second Department Reverses Order Granting Plaintiff’s Summary Judgment Motion, Finding That Plaintiff Failed to Establish Serious Injury Under 90/180 Category

Irvin’s vehicle collied with one owned and operated by Limberis on February 11, 2020, in Queens, New York. As a result, the Plaintiff alleged injuries to her neck, back, head, left shoulder, both knees, and both feet. Plaintiff’s husband asserted derivative claims. Plaintiff claimed her injuries qualified as serious under multiple categories of Insurance Law § 5102(d), including the 90/180 day category.

Prior to depositions being taken or an IME being conducted, Plaintiffs moved for summary judgment on the issue of serious injury. The trial court granted the Plaintiffs’ motion on this issue. Defendant appealed.

The Second Department reserved on the ground that the motion was premature, reasoning that neither depositions nor an IME had been conducted. In the Court’s words, "[A] party should be afforded a reasonable opportunity to conduct discovery prior to the determination of a motion for summary judgment.”

The Second Department also found that Plaintiffs failed to establish, prima facie, that Plaintiff Irving sustained a serious injury under the 90/180 category of § 5102(d). Plaintiff Irving did not submit any medical evidence showing that she was unable to perform substantially all of her daily activities for fewer than 90 of the first 180 days after the subject accident. The medical provider that attested to Plaintiff Irving’s medical condition saw Plaintiff Irving over a year after the accident and failed to opine on the 90/180 issue. The Court also found that Plaintiff Irving’s own statements to the physician regarding her ability to perform activities during the first three months post-accident were insufficient. The physician’s report also failed to meet Plaintiff’s prima facie burden that her injuries were proximately caused by the subject accident.

Accordingly, the Second Department reversed the trial court’s order which found that Plaintiff Irvin sustained a serious injury within the meaning of Insurance Law § 5102(d), that her injuries were proximately caused by the subject accident.

 

LABARBERA’S LOWER COURT LIBRARY
Isabelle H. LaBarbera

[email protected]

01/22/25       Khair v. Hyundai Mar. & Fire Ins. Co., Ltd.
New York State Supreme Court, Kings County
Pre-Answer Motion to Dismiss Granted Based on Material Misrepresentation on Application for Insurance Regarding Number of Units and Illegal Basement Unit

Abul Khair and Monoara Begum (the “Insureds”) owned a property located at 183 Minna Street, Brooklyn, New York (the “Premises”). The Insureds purchased an insurance policy from Hyundai Marine & Fire Insurance Co., Ltd (“HMFIC”).

On December 16, 2022, a fire erupted at the Premises, resulting in the Insureds submitting a claim to HMFIC. HMFIC denied coverage, on March 8, 2023, and rescinded the homeowner’s policy issued to the Insureds. Following the rescission, the Insureds commenced an action, seeking damages resulting from the fire loss. The Insureds’ alleged that HMFIC inspected the Premises, and knew the use, layout, type, occupancy and condition. As such the Insureds assert that HMFIC

HMFIC filed a pre-answer motion to dismiss pursuant to CPLR 3211(a)(1) and (7).

In support of the motion, HMFIC attached various documents, testimony, and evidence. HMFIC attached the Insureds’ October 26, 2021, application for insurance, signed by the Insured, describing the Premises as a three-family house.

Under the HMFIC “Eligibility Criteria/Material Information” on the application, Abul Khair confirmed that the Premises did not have “illegal rental units, including basement unit,” and was not a “boarding or rooming house.” In addition, HMFIC offered the underwriting guidelines, which identify that HMFIC is unable to issue policies with any “unusual or potentially hazardous condition that may increase exposure to loss – refer to underwriter.” HMFIC offered testimony from an underwriter identifying that the investigation revealed that the house was configured with seven dwelling units, resulting in a house with illegal basement units mimicking a boarding house situation. The underwriter further testified that illegal dwelling units are prohibited, in part, because without proper building permits and inspections, illegal units have egress problems, contain hazardous conditions that overtax infrastructure, lack of proper smoke detectors, thus greatly increasing the possibility of a loss.

HMFIC attached the FDNY’s incident report and complaint to the New York City Department of Buildings (“DOB”). The report identifies that there were no smoke detectors in the basement where the fire started. Further, the report identifies a  DOB complaint, identifying an illegal conversation at the Premises. The DOB records confirm that there were six violations for illegal construction and quality of life violations. Multiple violations cited that the Premises were converted, maintained, and/or occupied with three or more additional dwelling units than legally authorized by the DOB records.

HMFIC attaches their Cause and Origin report, and photographs of the manufacture dates on the basement wall board/sheetrock, and wall studs, dated September 2020 and January 2020, respectively. The report summarizes that the basement was converted into a fourth apartment, with four bedrooms. The report summarizes an interview with Khair, purportedly stating the basement was rented to a tenant, on a monthly basis. The report further identifies that three additional individuals resided in the basement, and paid rent.

HMFIC included an affidavit of its field adjuster, who inspected the property on December 28, 2022, and observed at least one additional living unit in the basement of the house, including, “living areas, a kitchen, a refrigerator, a gas stove, a bathroom, beds, and an egress door.”

Based on all of the evidence submitted, HMFIC argued that by stating the Premises were occupied by only three families, and included an unfinished basement, the Insureds made a material misrepresentation. As such, HMFIC argued that the policy is void ab initio. HMFIC further argued that the Insureds violated the concealment or fraud condition contained in the policy, which acts as a separate basis to disclaim coverage. Lastly, by accepting the premium refund check, there was an accord and satisfaction argument raised, by HMFIC. HMFIC argued that by cashing the premium refund check, the Insureds were unable to challenge the decision to rescind the policy.

In opposition, the Insureds identify that the Premises is a legal three-family owner-occupied house. The Insureds argue that the basement was not a separate dwelling or apartment unit. Plaintiffs attempt to argue that the underwriting guidelines do not specifically reference HMFIC’s refusal to insure a building with illegal rental unit, and therefore HMFIC cannot show that the misrepresentation is material. The Insureds argue that an illegal basement unit does not fall under the category of “boarding and rooming homes” which are ineligible to receive coverage. Lastly, the Insureds assert that the application questions were ambiguous.

As a procedural matter, the Insureds contend that HMFIC does not offer sufficient documentary evidence to warrant a dismissal under CPLR 3211(a)(1). Further, the Insureds allege that they have plead facts to fit within a cognizable legal theory, and thus the portion of the motion under CPLR 3211(a)(7) must be denied.

The Court identified that under CPLR 3211(a)(7), the Court’s analysis is limited to whether the pleading states a cause of action, not whether there is evidentiary support to the complaint. Further under CPLR 3211(a)(1), a complaint will only be dismissed if there is documentary evidence that “utterly refutes the factual allegations of the complaint and conclusively establishes a defense to the claims as a matter of law.” The Court recognized that affidavits, deposition testimony and letters are not considered documentary evidence under CPLR 3211(a)(1).

The Court analyzes the well-standing principles of New York Insurance law. First, identifying that to establish the right to rescind, an insurer must demonstrate that the insured made a material misrepresentation in acquiring the policy. A misrepresentation is a false statement as to past or present fact, made to induce an insurance contract. Further, a misrepresentation is material if the insurer would not have issued the policy had it known the facts misrepresented.

The Court notes that the issue of materiality is generally a question of fact for the jury. However, an insurer may establish materiality as a matter of law, if the insurer presents documentation concerning underwriting practices, such as underwriting manuals, bulletins, or rules pertaining to similar risks, which show it would not have issued the same policy if the correct information had been disclosed in the application.

The Court iterates that under New York law, the number of dwelling units contained in a building is determined by its structural configuration and the number of self-contained dwelling units. Under New York law, a self-contained unit has its own kitchen, bathroom, living space and separate entrance.

The Court found that it undisputed that the Insureds reside on the first floor, and that the second floor contains two apartments. The Court identified that HMFIC proffered evidence establishing that the basement contained an additional dwelling unit, with a living area, kitchen, bathroom, beds, and an egress door.

The Court wrote “Plaintiffs’ contention that because the Premises is legally designed as a three-family home, there was no reason to indicate anything other than three families on the application is without merit.” The First Department has rejected similar arguments, finding the only reasonable interpretation of the question ‘# Families’ is that it seeks the number of separate dwelling units in the building. The Court found that the illegality of the additional apartment was unavailing for the purposes of the analysis.

The Court further next moved to HMFIC’s argument that there was a material misrepresentation in the application, where the Insureds identified that there were no illegal basement apartments. The Court stated that based on the totality of the evidence presented, it would be illogical to conclude that the Premises did not contain a basement unit or had proper permits.

The Court, when viewing the evidence, identified that the Insureds set forth no more than conclusory statements, belied by the record. Even the estimate submitted by the Insureds confirmed that the basement contained four bedrooms, a kitchen, dining room, and a bathroom.

Upon consideration of the papers submitted, the Court found that the Insureds made a material misrepresentation concerning the existence of illegal rental units or basement unit within the Premises. As such, the Court found that the insurance policy was void ab initio, and HMFIC denial of coverage does not constitute a breach of contract. As such, the Court granted the motion to dismiss.

 

LEXI’S LEGISLATIVE LOWDOWN
Lexi R. Horton

[email protected]

01/31/25        New York Assembly Bill A1067
Proposed Legislation to Prohibit the Exclusion for Coverage for Losses or Damages Caused by Exposure to Lead-Based Paint

Bill A1067 was introduced in the start of the 2025-2026 legislative session. The Bill seeks to prohibit liability policies issued to rental property owners from excluding coverage for losses or damages caused by exposure to lead-based paint.

The Bill reads as follows:

Section 1. The insurance law is amended by adding a new section 3463 to read as follows:

§  3463. Exclusion for lead hazards prohibited. No insurer licensed or permitted by the superintendent to provide liability coverage to rental property owners shall exclude, after twenty-six months following the effective date of this section, coverage for losses or damages caused by exposure to lead-based paint. The department shall not permit, authorize or approve any exclusion for injury or damage resulting from exposure to lead-based paint, except as specifically provided for in law, that was not in effect as of the effective date of this section, and all previously approved exclusions shall terminate on or before twenty-six months following the effective date of this section.

§ 2. This act shall take effect immediately.

 

DOMENICA’S DIARY on BAD FAITH
Domenica D. Hart

[email protected]

01/23/25       Amvs, Inc. v. Mt. Hawley Ins. Co.
Southern District of New York
No Proof of Bad Faith: 82-Day Delay of Loss Notice Is Unreasonable and Is a Reasonable Basis for Denial in Itself

Mt. Hawley, an Illinois-based insurer, issued a commercial property insurance policy to AMVS, a Texas-based hotel operator. The Policy covered a Super 8 Motel for Special Causes of Loss. The policy imposed a condition that, in the event of loss or damage to their covered property, AMVS must give Mt. Hawley “prompt notice”  of the loss or damage.  The policy also provided an addendum with further limitations in reporting a claim of loss or damage caused by a windstorm or hailstorm.  In addition to “prompt notice”, AMVS must give a description of the property involved and as soon as possible give us a description of how, when and where the loss or damage occurred.  In no event may a claim be filed with Mt. Hawley later than one year after the date of the loss or damage. 

The subject claim involved a windstorm that damaged the Property's roof, stucco, windows, and interior on October 22, 2021. On January 14, 2022, Mt. Hawley acknowledged receipt of the claim. AMVS’s principal claimed that he reported the loss to his insurance agent "way ahead" of January 12, 2022, but he had no records of the same.  Mt. Hawley's engineer submitted a report in April 2022 concluding that the only covered damage attributable to the windstorm was twenty-six detached shingles on the roof. Mt. Hawley denied the claim in June 2022 for 2 reasons: (1)   the damage to twenty-six shingles would not exceed the $25,000 Policy deductible and (2) AMVS did not timely notify Mt. Hawley of this Claim pursuant to the Loss Conditions set forth in the Policy; Mt. Hawley’s notice was nearly three months after the loss.

The choice-of-law provision in the Policy set forth the State of New York for all coverage disputes. AMVS filed an action in December 2022, alleging breach of contract based on Mt. Hawley's refusal to pay the damages, and failure to promptly pay the claim in violation of the Texas Insurance Code.  They also sought Bad Faith, seeking to recover its expenses from bringing this Action.  After answering the complaint, Mt. Hawley moved for summary judgment in August 2024, arguing that AMVS' late notice of the loss defeats the breach of contract claim, and that AMVS cannot sustain its prompt payment claim under New York law.  AMVS rebutted in part that it complied with the prompt notice condition, which AMVS construed to allow reporting up to one year from a wind-related loss.

The Court, rejecting AMVS’ contention that Texas law governs first-party disputes, applied New York Law to the case. The court interpreted the addendum to impose two independent requirements:" (1) AMVS must give prompt notice to Mt. Hawley—within a reasonable time from when it should have become aware of 'the possibility of a claim; and (2) AMVS must file a claim within one year of the date of loss or damage, regardless of when AMVS might discover its claim. The court found AMVS’s  assertion of having given “way back” notice to the agent, without proof, was insufficient.  AMVS’s 82-day delay, the Court found that unreasonable and AMVS’s notice was untimely.  The Court cited to other cases in considering the reasonableness of a delay.  Citing First  and Second Department cases, courts have found relatively short periods to be unreasonable as a matter of law, referencing delays ranging from 10 to 53 days as unreasonable,  thereby discharging the insurer's coverage obligations. 

With regard to the bad faith claim, AMVS based its argument on Mt. Hawley's conclusion that only minimal damage was attributable to the windstorm, ignoring the untimely notice referenced in the claim decision letter. The Court found AMVS' untimely notice constituted a reasonable basis for denial in itself.  AMVS failed to demonstrate that Mt. Hawley denied the claim in bad faith. Mt Hawley’s summary judgment motion was granted. 

Editor’s Note: Like a few others this issue, a copy of this order is unavailable via any free platform. A copy is available upon request.

 

NORTH of the BORDER
Heather A. Sanderson, K.C.
Sanderson Law
Calgary, Alberta, Canada

[email protected]

01/16/25     Wiener Städtische Versicherung AG Vienna Ins. Grp. v. Infrassure Ltd
Ontario Court of Appeal
A Follow Settlements Clause in a Reinsurance Contract Requires a Reinsurer to Honour Its Portion of Reinsurance Where the Claim as Recognized by the Lead Insurer Falls Within Coverage "As a Matter of Law" and the Lead Insurer Took All "Proper And Businesslike Steps” to Resolve the Claim

The Ontario Court of Appeal released the first Canadian decision on the interpretation of the ‘follow settlements clause’ in a reinsurance contract[1] and, as well the duties and obligations of a retrocedent and a retrocessionnaire under a retrocession agreement.[2]

Only a really big loss will engage insurance at that level. That really big loss occurred at the Vale Canada mine site in Sudbury, Ontario. That loss began February 6, 2011, when approximately 300 to 400 tons of molten material leaked out of "tap holes" in one of the two flash furnaces at Vale Canada's smelter in Sudbury, Ontario. The molten material severed cooling water lines and set off steam explosions. The flash furnace was shut down for 26 weeks, resulting in a significant loss of Vale Canada's production capacity of finished nickel.

The claim was promptly reported to Vale’s primary property insurer, Zurich Canada. A steering committee formed by Zurich and Zurich’s reinsurers was struck to deal with the physical damage together with the loss of production. The members of the Steering Committee each hired lawyers, adjusters, and forensic accountants. In January of 2012, Vale Canada presented the steering committee with a business interruption claim of $484 million.  In July of 2013 that claim was reduced to $254 million using different methodology.

In December 2014, Zurich settled Vale’s claim at $140 million.

Zurich held significant reinsurance. One its reinsurers was Wiener Städtische Versicherung AG Vienna Insurance Group, which is referred to in this case as “VIG”. The attachment point of its reinsurance (the dollar value where the re-insurance would ‘kick in’) was US$50 million/C$63.465. VIG had, in turn, entered into a retrocession agreement with Infrassure Ltd. under which VIG ceded 99.89% of the risk and the associated premium to Infrassure.  In March 2015, VIG honoured its reinsurance contract with Zurich by paying Zurich $8.433 million for its share of the settlement.

VIG asked Infrassure to reimburse 99.89% of the amount that it paid to Zurich under the follow settlements clause of the retrocession agreement.  Infrassure refused stating that the follow settlements clause was not part of the retrocession agreement. That refusal triggered legal proceedings in multiple jurisdictions which culminated in a 13-day trial in Ontario. The trial judge found that Infrassure was obligated to indemnify VIG as claimed. Infrassure appealed. In a decision released January 16, 2025, the Ontario Court of Appeal upheld the trial judgment.

Infrassure argued that the trial judge mis-interpreted its retrocession agreement with VIG; that its “Claims Agreement Right” under a subscription agreement qualified its obligation under the follow settlements clause of the retrocession agreement, such that it had no obligation to contribute to a settlement to which it had not agreed.

The retrocession agreement between VIG and Infrassure consisted of a 15-page "Risk Details Form", setting out the terms and conditions of the contract and a 7-page "Contract Administration and Advisory Details Form", addressing various matters relating to the administration of the Risk Details Form. Together, these two forms were called the "Slip” and are standard London market forms containing standard London market clauses and terminology.

The key contract details were in the “Risk Details Form” which described the parties, the risks covered, limits on coverage and cancellation rights. It also contained the Follow Settlements Clause and the "Claims Co-operation Clause".  The terms and conditions of the Retrocession Agreement would follow in all respects the terms and conditions of the Primary Policy. This meant, amongst other things, that the risks insured under the Retrocession Agreement were co-extensive or "back-to-back" with those under the Primary Policy unless any express term states otherwise.

The Claims Co-Operation Clause mandated that VIG keep Infrassure fully informed of any developments regarding the claim. VIG was further required to cooperate with Infrassure, or any persons designated by Infrassure, in the investigation, adjustment and settlement of such claims. However, the Claims Co-operation Clause did not require VIG to secure Infrassure's approval of any settlement reached under either the Primary Policy, or VIG's reinsurance policy with Zurich.

The Contract Administration and Advisory Details Form included a subscription agreement which identified Infrassure as the "Slip Leader" and, as such, as a "Claims Agreement Party". It also contained a section entitled "Basis of Claims Agreement" which provided that reinsurers under the Retrocession Agreement agreed on how claims were to be managed. This section stated that "Non-Bureau/Overseas Reinsurers" were to "agree each for their own proportion".

Infrassure argued at trial and at the Court of Appeal that these provisions in the subscription agreement are an "express term that provides otherwise" and therefore qualify or limit Infrassure's obligation under the Follow Settlements Clause to be bound by settlements reached under the Primary Policy. For this reason, amongst others, it claimed the right not to participate in any settlement to which it has not agreed.

In fact, Infrassure did not agree with the settlement that Zurich reached with Vale. Infrassure was a full participant in the settlement negotiations but walked out when Infrassure became convinced that Zurich was not paying appropriate regard to coverage issues and other issues that in Infrassure’s view, severely augmented the quantum.

The trial judge held that the wording in the subscription agreement relied upon by Infrassure was general and that it “does not purport to give rights that would override a clear obligation in the Risk Details Form to follow settlements under the Local Policy between Zurich and Vale.” In support of this conclusion, the trial judge relied upon evidence of the negotiation of Zurich’s reinsurance in which Infrassure had participated.  Zurich was clear during that negotiation that it would only accept reinsurers who agreed to be bound by settlements it reached with Vale.  The trial judge relied upon that evidence as context for the follow settlement clause in the retrocession agreement.

On appeal, Infrassure argued that it was improper to use this extrinsic evidence to interpret the contract. The Court of Appeal rejected that argument stating “… the evidence was admissible as part of the factual matrix, relevant to understanding the Retrocession Agreement's genesis, purpose and commercial context. This is not a case where the trial judge used the evidence to overwhelm the words of the agreement or deviate from the text to create a new agreement.”

The Court of Appeal agreed with the trial judge’s conclusions on the structure of the policy which leant further support to the trial judge’s interpretation of the retrocession agreement. On this basis, the Court of Appeal found that the trial judge reasonably found that there were no "express terms to the contrary" that qualified or limited Infrassure's obligation to follow settlements reached by Zurich under the Primary Policy. 

The Court of Appeal then reviewed the trial judge’s examination of the obligation of a reinsurer to follow the settlements entered into by the reinsured under a local or primary policy.  Is that obligation absolute or is it qualified?

The trial judge accepted a number of UK cases that held that Infrassure's obligation to follow the settlement is not absolute. The trial judge held that regardless of the language used, a reinsurer is only required to follow settlements reached by the lead insurer where:

  1. the claim as recognized by the lead insurer falls within coverage "as a matter of law"; and

  2. in settling the claim, the lead insurer must have proceeded in good faith and have taken all "proper and businesslike steps".

The Court of Appeal agreed with the trial judge’s view that these two conditions (the "Scor Conditions") fairly balance the competing interests at stake since a reinsurer that has agreed to follow settlements should not be entitled to require the lead insurer to prove every element of the insured's underlying claim, provided that the settlement by the lead insurer falls within the bounds of coverage and is entered into on the basis of proper and businesslike steps.

The trial judge determined that both Scor Conditions were met in this case. The first requirement — that the claim falls within coverage "as a matter of law" — is met if the claim as accepted by the insurer is "arguably" covered under the policy, even if the claim might well have failed if the matter had proceeded to trial.

In this case, the trial judge considered whether two exclusions in the policy applied so as to limit the claim under the Primary Policy.  One of the exclusions was dependent upon the evidence as to the cause of the explosion and where it occurred. VIG and Infrassure each offered evidence at trial on this issue.  The trial judge considered the evidence to be inconclusive on the key issues of where the explosion originated, as well as its cause. In view of the uncertainty, an exception to the exclusion arguably applied. The trial judge then reviewed a coverage opinion provided by Blaney McMurtry LLP, Zurich's coverage counsel that was prepared a year prior to the settlement. That opinion concluded that this exclusion would not apply because Vale would be able to tender evidence that the damage to the refractory lining was from an insured peril external to the furnace, bringing the claim within the exception to this particular exclusion.

Infrassure pointed to another exclusion that was dependent upon proof that oxidation had occurred. Once again, the trial judge held that the evidence on that point was also inconclusive and therefore there was no basis to apply the exclusion.  This determination was also consistent with the Blaney coverage opinion.

Thus, on this basis, the trial judge concluded that the settlement was within coverage "as a matter of law”.  As VIG proved that it paid Zurich and as the trial judge had concluded that the settlement was arguably covered as a matter of law under the Primary Policy, VIG had established the first of the Scor conditions. The Court of Appeal held that the trial judge did commit a palpable and overriding error in reaching that conclusion.  In fact, the Court of Appeal accepted English authority stating that “…it is well understood that many insurance settlements require good faith compromises on liability and quantum. Yet insurers would be reluctant to make such compromises if they understood that a reinsurer who had promised to follow the settlement could nevertheless thereafter insist that the insurer re-prove the original insured's claim. Not only would this incentivize litigation over settlement, to the detriment of both insureds and insurers who might otherwise have reasonably settled the issues in dispute, it would also tend to increase needless duplication of claims procedures by insurers and their reinsurers. The ‘arguability’ standard leaves scope for insurers to reasonably and efficiently settle claims, while also protecting reinsurers from being required to contribute to a settlement that clearly falls outside the bounds of the coverage that has been agreed to.”

The second Scor Condition is to show that the settlement was achieved in a proper and businesslike manner. Infrassure argued that Zurich entered into a rushed settlement without properly investigating and adjusting Vale Canada's claim. The trial judge rejected that argument. The trial judge pointed to the mediation brief that Blaney’s prepared for Zurich which enumerated Vale’s positions, the evidence supporting those positions, Zurich’s reply and the evidence in support. It was clear that Zurich had turned its mind to the prospects of success and the risks of failure and on this basis, the second of the Scor conditions was met as Infrassure did not meet its burden to show that Zurich failed to act in a proper and businesslike manner when it agreed to the settlement.

Infrassure then argued that VIG had an obligation to Infrassure not to follow Zurich’s settlement when it knew that its “fronting insurer”, Infrassure did not approve.  The retrocession agreement required Infrassure to follow settlements reached by Zurich. However, it imposed no obligation on VIG to follow positions taken by Infrassure. Moreover, VIG was required under its reinsurance contract with Zurich to follow Zurich's settlements under the Primary Policy, rather than positions taken by Infrassure, who was a stranger to the reinsurance contract.  The reinsurance contract is wholly independent of the retrocession agreement.

Accordingly, Infrassure’s action was dismissed by the Court of Appeal; Infrassure must reimburse VIG for 99.89% of the amount it paid to Zurich under the reinsurance contract plus pre-judgment interest. Infrassure was directed to pay VIG $150,000 in court costs for the appeal which is in addition to the unstated amount of costs that Infrassure was ordered to pay VIG for the trial.


[1]     A contract of reinsurance involves one party (the reinsurer) agreeing to indemnify another party (the reinsured) against loss or liability that arises by reason of a risk that the reinsured has assumed under a separate insurance contract: See Hill v. Mercantile and General Reinsurance Co. Plc., [1996] 1 WLR 1239 (U.K. H. L.), at 1251 ("Hill v. Mercantile").

[2]     A retrocession agreement is one whereby a reinsurer cedes some or all of the risk that it has assumed to a further reinsurer. Such "reinsurance of reinsurance" is termed a retrocession agreement in order to distinguish it from a traditional contract of reinsurance. The reinsurer ceding the risk (in this case, VIG) is called the "retrocedant", while the further reinsurer who assumes the risk ceded (in this case, Infrassure) is termed the "retrocessionaire".

 

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