Coverage Pointers - Volume XXVI No. 2

Volume XXVI, No. 2 (No. 675)
Friday, July 5, 2024
A Biweekly Electronic Newsletter
 

As a public service, Hurwitz Fine P.C. is pleased to present its biweekly newsletter, providing summaries of and access to the latest insurance law decisions from the New York and Connecticut appellate courts and Canadian appellate courts. The primary purpose of this newsletter is to provide timely educational information and commentary for our clients and subscribers.

In some jurisdictions, newsletters such as this may be considered Attorney Advertising.

If you know of others who may wish to subscribe to this free publication, or if you wish to discontinue your subscription, please advise Dan D. Kohane at [email protected] or call 716-849-8900.

You will find back issues of Coverage Pointers on the firm website listed above.

 

 

Dear Coverage Pointers Subscribers:

Do you have a situation? We love situations. Our latest issue of Coverage Pointers is attached.

Happy July 4^th.  Knowing that I will get hundreds of “I’m gone for the weekend” kickback messages, I am sending this one out on Wednesday evening with Friday’s date.  If you want to wait until Friday to read it, I grant you clemency to do so.

Independence Day commemorates the adoption of the Declaration of Independence on July 4, 1776. This document, primarily authored by Thomas Jefferson, declared the thirteen American colonies as independent states, free from British rule. The Declaration of Independence marked the birth of the United States of America and laid the foundation for the country's values and principles, including liberty, democracy, and the pursuit of happiness.

Let’s hope that we never forget the importance of liberty and democracy. In this time of turmoil in our nation let us always remember that in 1776, we declared independence from a dictatorial king in pursuit of a national committed to freedom, individual and collective.  Julu 4^th is not about fireworks, it is truly about freedom.

And a happy belated Canada Day to our friends up north,

Risk Transfer Primer

Last Friday, I sent out a notice for our August 20^th Risk Transfer primer. The registrations have come flooding in.  Almost 600 people have already registered, and we have room for 1,000.  Sign up now before it’s too late.

 

My friend and colleague, John Trimble from the Indianapolis firm Lewis Wagner, and I are once again presenting our highly popular Zoom program – the Risk Transfer Primer.

In this program, we will cover how claim professionals and lawyers should respond to tender requests for additional insured status under policies or trade contract indemnities. We’ll explain how to evaluate tenders from various parties, including owners, general contractors, and landlords.

The interactive presentation offers a systematic approach to handling tenders of defense under additional insured provisions and trade contract indemnity/hold harmless clauses. We’ll discuss the protection of additional insureds, contractual indemnitees, and named insureds, including the insured contract exception to the contractual liability exclusion. Additionally, we’ll review the often-overlooked Supplementary Payments provisions of the CGL policy, and much more!

Join us for this comprehensive and practical training opportunity. It’s a “Lunch and Learn” session, so you can gather in a conference room or eat at your desk. Expect it to last about 75-90 minutes, with time for Q&A. Sorry, we cannot offer CE or CLE credit, but we can provide a valuable continuing education program.

Registration is easy. Simply send an email to me at [email protected] or to John at [email protected].

 

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

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

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

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

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

Try mediation.

 

Newsletters:      

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

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

   

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

   

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

   

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

 

Fewer Lynching Worth Celebrating – 100 Years Ago:

Buffalo Courier
Buffalo, New York
5 July 1924

ONLY FIVE LYNCHINGS IN U.S.
DURING FIRST HALF OF YEAR

          Tuskegee, Ala., July 4 – Only five lynching occurred in the United States in the first six months of this year, the lowest for the first six months of any of the forty years during which the record has been kept it was announced today by the department of records and research of Tuskegee institute. This compares with fifteen lynchings for the same period last year, thirty in 1922 and thirty-six in 1921.

          The five this year were divided as follows: Florida, 2; Georgia, 2; South Carolina, 1.

          All were negroes. The offenses against them were: Two assault, two attempted and one for killing an officer of the law.

          “It is gratifying to note,” said Dr. R. R. Moton, president of Tuskegee, “that the record thus far for the year 1924 is the lowest for the six months of any of the forty years during which the record has been kept.

 

Peiper on Property (and Potpourri):

Happy July 4^th.  Despite all of the frustration and tumult in our country today, we’d respectfully encourage everyone to take a moment this holiday to recognize all of the good that binds us together as a people.  While we could always improve, there is a lot to celebrate about being American. 

Relatedly, happy belated Canada Day (July 1^st) to our friends to the North.  I’m looking very much forward to visiting Vancouver, B.C., over the weekend for the start of the IADC Annual Meeting.  The meeting will be full of great programming and opportunities to connect with colleagues from around the world, but I am also looking very much forward to exploring the city.  I’m told it is beautiful, with abundant things to do outdoors.  If anyone has any suggestions of things to see, please do share them with me. 

That’s it for now.  See you in two weeks.

Steve
Steven E. Peiper
[email protected]

 

Need for Moral Training – 100 Years Ago:

Los Angeles Evening Express
Los Angeles, California
5 July 1924

WOULD TEACH MORALS

          Editor the Express: Teach the children and youths morals. It is a deplorable fact that with the strenuous and busy life of the present age the parents are neglecting to give their children the moral training which they require, and if this is neglected, what can be expected of them as they grow older? Surely teachers cannot be expected to teach morals, with all the other branches that are required of them to teach. One hour in Sunday school is not sufficient for moral training. One hour one day in seven would not advance your child in school very rapidly, and yet many parents seem to think they have done their duty by sending the children to school and to Sunday school. Children as soon as they are able to understand should be taught the Ten Commandments, and the meaning of them and to keep them. Anyone who keeps the Ten Commandments will not deviate from the right way. Each day parents ought to spend a few minutes teaching their children morals.

 

Barnas on Bad Faith:

Hello again:

Happy Fourth of July.  Independence Day is one of my favorite holidays of the year.  I am looking forward to eating hot dogs, watching fireworks, and spending time with family and friends to celebrate our nation’s birthday.  Hopefully the weather is nice, and the company is good wherever you are spending the holiday.  I have a case from the Eastern District of New York this week where the court denied the insured’s motion to amend the answer to include a bad faith counterclaim.  Give it a read if you are so inclined and enjoy your weekend.

Brian
Brian D. Barnas
[email protected]

 

Stop the Wedding, I Want to Get Off – 100 Years Ago:

Daily News
New York, New York
5 July 1924

Printer Pies Wedding With
Shooting Stick

          Vincent Acevedo, a printer living at 71 Pineapple St., Brooklyn, was welcome as the mumps at the wedding of Josephine De Alba, who lives in the same house.

          But Vincent is one of those lads whose gospel is “try, try again,” according to the story told in Adams St.. court, Brooklyn, yesterday. He turned off the gas meter and threw the house into darkness and fired a wild shot at the bride’s father. Acevedo was held in $2,000 bail yesterday for hearing Monday.

 

Lee’s Connecticut Chronicles:

Dear Nutmeggers:

Summer is upon us. Congratulations for making it through the fall chills, the winter snows, and the spring rains to get here. From here on out, it’s nothing but heat and sun and more heat. My town celebrated the 4^th of July last weekend with bands on the beach, a massive cookout, and a spectacular fireworks display. It was a great way to commemorate our country’s freedom from England. But I think too few of us actually reflect on what freedom means, especially freedom from want.

Freedom from want was a Depression-era concept articulated by FDR as part of his Four Freedoms. It refers to the idea that all people should have access to the basic necessities, like food, shelter, and healthcare. Freedom from want talks to our economic security and the greater social welfare, suggesting that every person should have the means and resources necessary to live a dignified and fulfilling life, free from the fear of hunger, homelessness, or the lack of essential services.

In the coming days, as we collectively celebrate with backyard barbeques, replete with red, white, and blue cakes and cookies, and pyrotechnics, I hope you will take a moment to think about the people in your community that are not truly free. When all our neighbors have freedom from want, only then will the promise of Independence Day have been realized.

Happy 4^th of July and keep keeping safe. 

Lee
Lee S. Siegel
[email protected]

 

KKK Alive and Parading in Binghamton – 100 Years Ago:

The Buffalo News
Buffalo, New York
 July 1924

30,000 SEE KU KLUXERS
PARADE IN BINGHAMTON

          BINGHAMTON, July 5. – The parade here yesterday of the Ku Klux Klan, in which had been announced that 50,000 would march, turned out 1540 persons of whom 198 were women. The line of march was heavily policed. There was no disorder.

          Along the route of the parade, which followed the principal streets, more than 30,000 spectators gathered. They alternately cheered and jeered, most of the cheering being in response to demands of a busy clack posted in second-story windows that the Klansmen “vote for Al Smith.” Smith boosters shouted their slogans from one end of the Chenango street to the other, but the marchers made no response. They paraded with eyes looking neither right nor left. Each detachment was flanked by state police.

 

Kyle's Noteworthy No-Fault:

Happy Fourth of July! I Hope everyone has a great holiday and a relaxing weekend.

I have two no-fault cases this week. The first involves a motion for summary judgment by the insurer seeking a declaration that no coverage is owed to any of the defendant medical providers on the basis that the insured failed to attend an EUO, breaching a condition precedent to coverage. Next, I have a case where the insurer brought a declaratory judgment action against the defendant medical providers, asserting that its investigation raised a founded belief that the insured was not injured as alleged, and any treatment was therefore not causally related to the subject accident.

Until next time,

Kyle
Kyle A. Ruffner
[email protected]

 

Chiropractors Seek Legitimacy – 100 Years Ago:

Democrat and Chronicle
Rochester, New York
5 July 1924

CHIROPRACTICS RENEW
DRIVE FOR AMENDMENT
TO LEGALIZE PRACTICE

          Utica, N.Y., July 4 – “There is no law in the state of New York which specifically forbids the practice of chiropractic, nor is there a law which specifically regulates or sanctions such profession,” declared Judge Newton B. Van Derzee, Albany, in discussing the law relating to chiropractic, before about 100 delegates at the opening of the 13^th annual convention of the New York State Chiropractic Society here to-day.

          Judge Van Derzee’s speech marked the renewal by chiropractic of the state, to secure in the next legislature an amendment to the medical practice act, regulating the practice of chiropractic by members of that profession.

          Although Judge Van Derzee made no mention of the recent suit against Dr. Francis Shyne, Utica, president of the Central New York district, he took issue with Justice Ernest I Edgecomb’s ruling in supreme court that Dr. Shyne was guilty of a misdemeanor in practicing chiropractic without a license. In support of this adjustment Judge Van Derzee stated the chiropractic science was unknown when the public health law was enacted.

 

Ryan’s Federal Reporter:

Hello Loyal Coverage Pointers Subscribers:

My son’s last baseball game of the season is tonight. It’s bitter-sweet, because I have watched his growth throughout the season, and he is bummed that it has to come to an end. While it will not be for the championship, it is for the love of the game and my son sure does seem to love it out there on the field. So much so, in fact, that I’ve signed him up for fall ball. Stay tuned come September!

I have nothing for you in my column this time around. For my Federal Report, I’ll simply ask that you have a Happy Fourth of July!

Until next time,

Ryan
Ryan P. Maxwell
[email protected]

 

President Supports Public Education – 100 Years Ago:

Democrat and Chronicle
Rochester, New York
5 July 1924

COOLIDGE SEES
NEED OF GOOD
PUBLIC SCHOOLS

President Advocates Control
Of Education by U.S. Government

          Washington, July 4. (By the Associated Press). – Compulsory education, if necessary controlled and supported by the states under the guidance of the Federal government was advocated to-day by President Coolidge, speaking before 15,000 delegates of the National Education Association at the concluding session of their convention.

          The administration has proposed in the government reorganization plan a Department of Education and Relief to be presided over by a cabinet officer, the president reminded the teachers in reference to their demands for a cabinet member on education. This plan, however, had his endorsement, he added, “bearing in mind that this does not mean any interference with the local control and dignity but is rather an attempt to recognize the importance of educational effort.” Refraining from any discussion of the political situation, Mr. Coolidge emphasized the importance of education to America and landed the teaching profession saying the teachers are entitled to not only to adequate rewards but to the honor of a grateful people.

          “Ignorance,” the President declared, “is the most fruitful source of poverty, vice and crime and it is easy to realize the necessity for removing what is a menace, not only to our social well-being, but to the very existence of the republic.”

          In this connection, he reminded the delegates there were 4,000,000 native illiterates in this country as well as 14,000,000 foreign-born illiterate white persons. Many of the latter are above school age, he said, but nevertheless he insisted they be given the opportunity to read and write the English language “that they may come into more direct contact with the ideals and standards of our political and social life.”

 

Storm’s SIU:

Hi Team:

I hope you had an awesome 4^th of July celebration with family and friends!  I did too, picnicking with family and watching the Orchard Park fireworks show.  Brings back memories of being a young miscreant blowing up stuff with firecrackers.  Hours of fun!

Speaking of fun, I have two festive cases for your reading enjoyment this week:

• The Word "Drain" Encompasses a Sink Drain for Purposes of Coverage Under an Overflow Endorsement and the Court Dismisses Plaintiffs' allegations Sounding in Bad Faith: (1) Breach of the Implied Covenant of Good Faith and Fair Dealing; (2) Bad Faith Insurance Denial; (3) Violation of New York Insurance Law Section 2601; (4) Violation of New York General Business Law Section 349(h); and Demand for Attorneys’ Fees.

• Court Dismisses Complaint due to Breach of the One Year Suit Limitation Condition, as Well as a Bad Faith Cause of Action Pursuant to 42 Pa. C.S.A. § 8371.

See you in two weeks!

Scott
Scott D. Storm
[email protected]

 

Money Hoarders, Beware – 100 Years Ago:

Daily News
New York, New York
5 July 1924

TREASURY OFFICIAL
FINDS $400,000,000
HOARDED IN NATION

          Washington, D.C. – Hoarded money in the United States amounts to more than $400,000,000 and there are 8,000 hoarders that can be classed as misers, with $44,000,000 hidden away, according to estimates prepared by Joseph S. McCoy, United States treasury actuary, for the current issue of the American Bankers’ Association Journal.

          “Those who withhold money from the circulation are children, who save in the toy banks; foreigners, who are afraid to trust their savings out of their possession; dwellers in rural districts, who, from their isolation and distrust, retain possession of their earnings, and genuine misers, who want immediate and continuous possession of their treasure for the pleasure it gives them to see and gloat over it,” says McCoy.

 

Fleming’s Finest:

Hi Coverage Pointers Subscribers:

I missed you last edition while I was in Alaska. Learned a lot about wildlife and plants. Picture snow covered peaks, vast forests, and glaciers.

This week’s case from the Mississippi Supreme Court addresses whether the Mississippi Workers’ Compensation Act allows an insurer to rescind a workers’ compensation policy based on a material misrepresentation. The statute is silent. An interesting read.

Hope you have a good holiday! See you in a fortnight.

Kate
Katherine A. Fleming
[email protected]

 

Oh No!  The First Woman Ambulance Doctor – 100 Years Ago:

The Chat
Brooklyn, New York
5 July 1924

EXPECT EPIDEMIC OF
SICK MEN VERY SOON

AND BECAUSE ST. MARY’S HOSPITAL HAS
FIRST WOMAN AMBULANCE DOCTOR

SHE IS MISS A. SIMONETTI

Started on Her Duties Monday - Miss. Cecelia A. Donnelly
Takes Up Social Service Work

          There are apt to be many sick men in the confines of the Fourth Ward very soon. And it will be all caused by the fact that for the first time in the history of Mary Immaculate Hospital, Jamaica, there is a woman ambulance surgeon connected with the institution. She is Dr. Amelia Simonetti. She lives in Brooklyn and graduated from the Woman’s Medical College of Pennsylvania. Miss Simonetti started her duties on Monday. She will be costumed in the regulation cap of an ambulance surgeon, answer calls day and night and “rides in the bus.”

          Two other new internes have also been added to the staff in the persons of Dr. William Smith and Dr. James Sullivan. Both are graduates of Georgetown University in Washington, D.C. Dr. Smith becomes assistant house surgeon and Dr. Sullivan is house physician.

 

Gestwick’s Garden State Gazette:

Dear Readers:

Congratulations to the Florida Panthers for winning their first Stanley Cup in franchise history. We’ll get there someday here in Buffalo…someday.

Happy Fourth of July, by the way. The Fourth always has me in a pickle, as I have a few favorite patriotic-type articles of clothing I can never decide on. I have a bomb pop popsicle (if you know, you know) tee shirt, and also a tee shirt with the entire Preamble of the U.S. Constitution written on it. I also have several other red, white and blue-themed shirts, including all of my beloved Buffalo Bills gear. The situation is easier for shorts, as I have a clear winner in that department—ones styled after the American Flag. Most years I decide on the bomb pop shirt for the Fourth and save the Constitution shirt for September 17^th—U.S. Constitution Day.

I have an interesting read for you this week, about the step-down provision in a SUM endorsement. The named insured is entitled to the SUM limit shown in the declarations, as long as coverage from the tortfeasor is exhausted first, right? Wrong. Read on to find out why.

May the Fourth be with you,

Evan
Evan D. Gestwick
[email protected]

 

Met Life adopts Five Day Work Week – 100 Years Ago:

The Brooklyn Daily Eagle
Brooklyn, New York
5 July 1924

INSURANCE CO. ADOPTS
5-DAY WEEK TO AUG. 30

         From today until the Saturday before Labor Day 9,000 men and women employees of the Metropolitan Life Insurance Company will work on only five days of the week. President Haley Fiske has authorized closing the offices for all day Saturday during July and August. This new ruling will become effective on July 5 and will continue through to August 30.

 

O’Shea Rides the Circuits:

Hey Everyone,

The vacation season is upon us with Independence Day hitting on Thursday, a four-day weekend is the horizon for many. Personally, I plan on enjoying this Fourth with hots and burgers, with a cool Kolsch.

This week I have an interesting write up on a concurring opinion from the 11^th Circuit. The decision is older a month but provides an interesting standpoint from Judge Newsome on the use of LLMs to interpret the common meaning of legal texts. Forewarning, it’s a longer article this week.

Happy Fourth of July,

Ryan
Ryan P. O’Shea
[email protected]

 

Mussolini a National Hero – 100 Years Ago:

The Colorado Statesman
Denver, Colorado
5 July 1924

          PREMIER MUSSOLINI of Italy, whose speedy downfall had been predicted by his opponents as the result of the abduction and murder of Socialist Matteotti, is today more than ever his country’s national hero. Incidentally he confounded the prophets and set all diplomatic Europe agape by his magnificent gift to the Italian people. In an epochal address before the senate Tuesday, confirmed by an address Wednesday to the Fascisti majority in the lower house he promised to reform the Fascist government and to return to constitutional parliamentary government. He promised this:

          “First, I will cause the institution of parliament to function regularly and nobly as an organ of legislative power, restoring to it its capacity and its prestige.

          “Second, I will regularize under the constitution the situation of the national militia.

          “Third, I will repress the superimposed illegalisms in the organization of the fascist party.”

          Even the Socialists do not doubt Mussolini’s sincerity and good faith. By giving up the dictatorship he is apparently more powerful than ever.

 

Rob Reaches the Threshold: 

Dear Readers,

We now enter the dog days of summer (its already July?!). This time is especially nice traditionally in Western New York. I look forward to upcoming holiday barbeques, some nice relaxation with friends and family, and a night watching the Savannah Bananas. I hope everyone enjoys their 4^th of July holiday.

The appellate divisions apparently took off for the 4^th of July a little early, as there are no cases on Serious Injury Threshold to report on this time around.

Please enjoy the wonderful articles from my colleagues. Everyone have a safe July 4^th Holiday!

Rob
Robert J. Caggiano
[email protected]

 

From Baseball Czar to Reparations Dictator? – 100 Years Ago:

The Pittsburgh Post
Pittsburgh, Pennsylvania
5 July 1924

THE REPARATIONS DICTATOR

          A London dispatch says that the representatives of a number of the allied nations have agreed that when the plan of the reparations experts is put into operation the agent general for reparations and the chairman of the transfer committee should be the same man. In other words, that he should occupy a position of dictatorship similar to that given by true sportsmanship to the umpire of the game. Of course, this problem involving the peace of nations is of vastly more importance than any game in the ordinary sense, but the principle of playing the game strictly in accordance with the rules is the same in all. Upon the basis of true sportsmanship, the reparations question could be settled. In applying the plan provided, the nations concerned should heed the rules of the system as strictly as is required of the players of an athletic game. The authority of the man put in charge of the plan should be respected as implicitly as is that of Judge Landis as the dictator of baseball in America

          Only in that way can the plan of the experts be made to serve its purpose.

 

LaBarbera’s Lower Court Library:

Dear Readers:

In the blink of an eye, June has come and gone. It was, by far, the most eventful month of 2024 so far. Each weekend was packed with events and parties, requiring hours upon hours of travel. I am thankful to have no plans for the Fourth of July. Even though I enjoy all of the experiences, I was happy to sit back, kick my feet up, and soak up the sun all day at home!

This week I am reporting on a New York County Supreme Court decision, granting an insurer’s motion for summary judgment. The court found that the insured’s failure to appear for the properly noticed examination under oath was a violation of the condition precedent to No-Fault coverage, and therefore the insurer was entitled to disclaim coverage for all bills related to the subject accident.

Until next time…

Isabelle
Isabelle H. LaBarbera
[email protected]

 

Shorter Dresses? – 100 Years Ago:

The Standard Union
Brooklyn, New York
5 July 1924

DRESSES WILL BE
SHORTER IN FALL

          Dress manufacturers are reported to be returning from abroad with models which carry the mode of fashion back a few seasons. Paris fashion dictators have apparently reversed the edict for longer skirts and lengths from twelve to fourteen inches from the ground will be the correct thing for fall. Manufacturers are now working on the fall models and retailers will be in the market during June and July to place their orders so that the women of the land will soon have an opportunity to see for themselves how much Paris has decided to cut from the bottom of the dress skirt.

 

North of the Border:

As we all know, the Oilers gave it their all, but, in the end … ran out of gas. What a game. What a post- season.  And in the end, the 2024 Stanley Cup remains in the United States – take some comfort in knowing that 41% of all players on all NHL teams are Canadian.

Time to put the skates away and enjoy summer. Looking forward to July and all that it brings.

My column this week discusses a surprising decision on misrepresentation arising from a commercial insurance submission.

Until next time.

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

 

When Mexico Like the US – 100 Years Ago:

The Buffalo News
Buffalo, New York
5 July 1924

MEXICANS DRINK TOAST
TO PRESIDENT COOLIDGE

          MEXICO CITY, July 5.- Strikingly emphasizing the existing cordiality of relations between Mexico and the United States, President Obregon appeared yesterday in person at the Fourth of July reception held by Ambassador Warren at the United States embassy. He remained for an hour, in the course of which toasts to both President Coolidge and President Obregon were drunk by the entire company.

          Foreign Minister Saenz represented the government at the Independence Day garden fete given by the American colony here, while America’s national holiday is commemorated by all the local newspapers in bulky editions containing historical data about the United States, printed in both Spanish and English, from the time of Washington down to the present.

 

Headlines from this week’s issue, attached:

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

• Discharge of MTBE over a Number of Years Triggered “Sudden and Accidental” Pollution Exclusion

• Coverage Letter Explaining that Coverage Decision was Based on “Currently Known Facts,” which Identified Policy Limitation, was Sufficient

 

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

• Like a hapless batter facing a Grayson Rodriguez fastball, we’re shut out this week.  See you in two more. 

 

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

• Bad Faith Counterclaim Could Not be Added to Answer Based on Lack of Merit

   

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

• No cases to report this time – see you in two weeks.

   

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

• Court Grants Insurer’s Motion for Summary Judgment, Denying No-Fault Benefits for the Claims of All Providers Based on the Insured’s Failure to Appear for EUOs

• Court holds Insurer Entitled to Deny No-Fault Claims Based on Insured’s Violation of Condition Precedent to Coverage and Founded Belief the Insured Was Not Injured as Alleged

 

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

• I’ve got nothing for this edition. The Fourth of July is about as federal as it gets!

 

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

• The Word "Drain" Encompasses a Sink Drain for Purposes of Coverage Under an Overflow Endorsement and the Court Dismisses Plaintiffs' allegations Sounding in Bad Faith: (1) Breach of the Implied Covenant of Good Faith and Fair Dealing; (2) Bad Faith Insurance Denial; (3) Violation of New York Insurance Law Section 2601; (4) Violation of New York General Business Law Section 349(h); and Demand for Attorneys’ Fees

• Court Dismisses Complaint due to Breach of the One Year Suit Limitation Condition, as Well as a Bad Faith Cause of Action Pursuant to 42 Pa. C.S.A. § 8371

 

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

• Mississippi Workers’ Compensation Act Does Not Allow Insurer to Rescind Workers’ Compensation Policy Based on a Material Misrepresentation

 

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

• Court Holds Named Insured Not Entitled to SUM Benefits if Not In, On, Entering, or Exiting Automobile

 

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

• Judge Newsome Looks to LLMs, Provides Insight into Potential Aid in Interpreting Contractual Terms

 

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

• No cases to report this time – I hope you all enjoy your July 4^th Holiday!

 

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

• Statutory Interspousal Exclusion also Precludes Interspousal Uninsured Motorists Benefits

• An Easy One – Failure to Obtain Consent to Settle Violated the SUM Policy and Precludes Recovery of SUM Benefits

 

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

• Failure to Appear for Examination Under Oath Precluded Coverage for No-Fault Benefits

   

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

• Commercial All-Risk Property Insurance Policies that Cover “All Risks of Physical Loss or Damage” Extend to Physical, Tangible Harm to Property and Business Interruption Coverage Consequent on that Loss and Damage; These Policies are Not Triggered by the Possible Presence of the COVID-19 Virus or the Civil Authority Measures to Deal with the COVID-19 Threat

• Pandemic Era Orders Preventing In-Person Dining Do Not Give Rise to Property Damage Payable Under an All-Risk Policy and Therefore Business Interruption Coverage Under Those Policies is Not Engaged

 

All the best from the Land of the Blue Martinis,

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. 000241, issued by the Law Society of Upper Canada, and authorized to provide legal advice in the Province of Ontario on matters of New York State and federal law.

NEWSLETTER EDITOR
Dan D. Kohane
[email protected]

 

ASSOCIATE EDITOR
Agnes A. Wilewicz
[email protected]

 

COPY EDITOR
Evan D. Gestwick
[email protected]

 

INSURANCE COVERAGE/EXTRA CONTRACTUAL LIABILITY TEAM
Dan D. Kohane, Chair
[email protected]

Steven E. Peiper, Co-Chair
[email protected]

Michael F. Perley

Agnieszka A. Wilewicz

Lee S. Siegel

Brian F. Mark

Scott D. Storm

Brian D. Barnas

Ryan P. Maxwell

Joshua M. Goldberg

Kyle A. Ruffner

Katherine A. Fleming

Evan D. Gestwick

Ryan P. O’Shea

Isabelle H. LaBarbera

 

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

Michael F. Perley

Scott D. Storm

Brian D. Barnas

 

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

Joshua M. Goldberg

 

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

 

Topical Index

Kohane’s Coverage Corner

Peiper on Property and Potpourri
Barnas on Bad Faith

Lee’s Connecticut Chronicles

Kyle’s Noteworthy No-Fault

Ryan’s Federal Reporter

Storm’s SIU

Fleming’s Finest

Gestwick’s Garden State Gazette

O’Shea Rides the Circuits

Goldberg’s Golden Nuggets

LaBarbera’s Lower Court Library

North of the Border

 

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

06/26/24       St. Paul Fire and Marine Ins. Co. v. National Union Fire Ins. Co.
Appellate Division, Second Department
Discharge of MTBE Over a Number of Years Triggered “Sudden and Accidental” Pollution Exclusion

In 2007, the New Jersey Department of Environmental Protection commenced an action in a New Jersey state court against, among others, the National Union, and others, to recover damages related to the contamination of New Jersey surface and ground waters with methyl tertiary butyl ether (“MTBE”), a fuel additive that was incorporated into gasoline beginning in the late 1970s (the “NJ action”).

The NJ action was later removed to federal court and transferred by the United States Judicial Panel on Multidistrict Litigation to the United States District Court for the Southern District of New York (hereinafter the SDNY) for coordinated or consolidated pretrial proceedings (MTBE multidistrict litigation “MDL”). In 2014, an action was commenced in a Pennsylvania state court against the defendant, among others, alleging contamination of Pennsylvania waters with MTBE (the “PA action”), and that action was likewise removed to federal court, transferred to the SDNY, and consolidated with the MDL. In 2017, an action was commenced in a Maryland state court against the defendant, among others, alleging contamination of Maryland waters with MTBE (the “MD action”).

In December 2018, the plaintiffs, St. Paul Fire and others commenced this action, for a judgment declaring that they are not obligated to defend or indemnify their insured in the underlying actions under certain liability insurance policies issued by them. Other carriers intervened.

The insurers moved for summary judgment declaring that pollution exclusions in certain insurance policies issued by them apply to the MTBE contamination alleged in the underlying actions and that a "sudden and accidental" exception to a pollution exclusion in one insurance policy issued by them requires the defendant to establish that the pollution was both sudden and accidental in order for the exception to apply.

"Pollution exclusions . . . originated in insurers' efforts to avoid potentially open-ended liability for . . . long-term, gradual discharge of hazardous waste" (id. at 384). "[T]he insurer has the burden of proving the applicability of an exclusion" (which must be "given a strict and narrow construction, with any ambiguity resolved against the insurer".

Here, the defendant takes the position that MTBE cannot be considered a pollutant within the meaning of the pollution exclusions in the subject policies because, during the relevant time period, the defendant did not know that MTBE was harmful, and because the United States EPA had required the defendant to use MTBE as a fuel additive. The legality of the insured’s use of a pollutant does not protect it from being considered a pollutant and even the legal discharge of a substance could trigger the pollution exclusion, Even if MTBE was not a pollutant in the context of its use as a gasoline additive, it was a pollutant in the context of its release into groundwater.

Qualified pollution exclusions are characterized by an exception for pollution where the discharge or release of the pollutant is "sudden and accidental”. The terms "sudden" and "accidental" each "have separate meanings, [both] of which must be established for the exception to nullify the pollution coverage exclusion".  The meaning of sudden in the pollution exclusion exception" has a "temporal quality" which is only met where the discharge occurs "abruptly or within a short time span, of a significant quantity of the pollutant sufficient to have some potentially damaging environmental effect.

The type of pollution alleged, which occurred undetected over many years, was not sudden within the meaning of the applicable law.

Editor’s note:  One interesting comment – not quite explicable under established law 00 was this one:

Furthermore, contrary to the defendant's contention, the plaintiffs and the intervenor-plaintiffs did not waive their right to deny coverage on the ground that the pollution exclusions in the subject policies applied. Where, as here, "the issue is the existence or nonexistence of coverage (e.g., the insuring clause and exclusions), the doctrine of waiver is simply inapplicable”?

That statement does not usually apply to policy exclusions, only the “grant of coverage.”

 

06/25/24       Ace American Insurance Company v. Con Edison Company
Appellate Division, First Department
Coverage Letter Explaining That Coverage Decision Was Based on “Currently Known Facts,” Which Identified Policy Limitation, Was Sufficient

In this declaratory judgment action, the insurer sought a determination that it had no duty to defend Con Ed and should be able to recoup the defense costs incurred to date.  The Supreme Court properly ruled on the motions and cross-motions concerning whether plaintiff insurer has a continuing duty to defend defendants in the underlying personal injury action and a right to recoup its defense expenditures.

The evidence ACE offered went to the merits of the underlying action and needs to be resolved there, not in this action. In any event, ACE did not establish that there is no reasonable possibility that defendants are entitled to coverage as additional insureds under the policy in the underlying action. In contrast, defendants have established that the duty to defend was triggered and that there is no present basis for withdrawing it.

However, the court did not accept Con Ed’s argument that it was entitled to indemnity. ACE’s initial letter conditionally accepting the defense tender did not explicitly use the phrase "reservation of rights." However, the language accepting the tender "based upon the currently known facts," limited to its obligations as an additional insurer, "subject to the terms, conditions, exclusions and endorsements of the Policy," and specifically reciting the additional insured endorsement, was sufficient to have put defendants on notice that the acceptance of the tender was subject to a reservation of the right to later disclaim coverage upon a further investigation showing that there was no basis for the additional insured coverage.

To the extent Con Edison raises issues as to the timeliness of ACE’s disclaimer, this is a "question of fact, dependent on all of the circumstances of [the underlying] case that make it reasonable, or unreasonable, for ACE to investigate coverage.

 

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

Like a hapless batter facing a Grayson Rodriguez fastball, we’re shut out this week.  See you in two more. 

 

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

06/02/24       United Specialty Insurance Co. v LIC Contracting, Inc.
United States District Court, Eastern District of New York
Bad Faith Counterclaim Could Not Be Added to Answer Based on Lack of Merit

In the Fall of 2015, LIC began excavation and construction work at property on Northern Boulevard in Bayside, New York.  The Kims owned the property being worked on and also worked for LIC.  At some point, the adjacent building showed signs of structural damage.  The owner of the adjacent building and the commercial tenant brought suit in state court against LIC, the Kims, and others alleging negligence.  In the state court lawsuit, LIC was found liable for removal of lateral and subjacent support, violation of New York City's Building Code, negligence, and trespass.

United Specialty filed this action seeking a declaratory judgment that it owed no duty to defend or to indemnify LIC in the underlying lawsuit because the policy excludes coverage for losses arising from subsidence.  The state court later tried the issue of damages and awarded $7.3 million.  Two weeks later, LIC requested permission to assert a claim for extra-contractual damages as a result of the underlying verdict.  LIC filed a motion to amend the Answer to include a counterclaim for United Specialty’s alleged breach of its duty of good faith and fair dealing during settlement negotiations in the underlying action.

The court concluded that the proposed counterclaim is essentially devoid of anything beyond conclusory statements and a recitation of the elements of the claim.  The most specific factual allegation contained in the proposed counterclaim was that LIC's ability to settle the underlying suit for an amount that was well within the limits of the policy was impaired due to United Specialty's]acts and omissions  Defendants added that United Specialty breached its policy by: refusing to honor its terms, mishandling the underlying claim and settlement negotiations; and wrongly refusing to indemnify LIC Defendants in connection with the underlying suit.

However, these allegations were conclusory.  Moreover, LIC failed to plausibly allege at least two of the elements of the claim that it lost out on an actual opportunity to settle the case at a time when all serious doubts about the insured's liability were removed, and that United Specialty held exclusive control over the defense.  LIC did not set forth any such allegation in the proposed counterclaim, beyond an undefined reference to its allegedly impaired ability to settle the underlying suit for an amount that was well within the limits of the policy.  The insured's diminished ability to settle is a different thing from the loss of an actual opportunity to settle— that is, an offer.

Furthermore, LIC did not allege that United Specialty had exclusive control over the defense of the lawsuit.  As a consequence, LIC could not maintain a bad-faith claim.  Absent the insurer's having exercised control or exclusive control over any claim against the insured, the insured may not pursue any claim for bad faith denial or coverage or failure to settle independent of its claim for breach of contract.

In addition, the court found that the proposed amendment was untimely, as the request to amend was made four years after the deadline set in the initial scheduling order and there was no good cause shown.

 

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

No cases to report this time – see you in two weeks.

 

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

06/17/24       State Farm Mut. Auto. Ins. Co. v. Anchor Rx Pharm. Inc., et al
Supreme Court, New York County
Court Grants Insurer’s Motion for Summary Judgment, Denying No-Fault Benefits for the Claims of All Providers Based on the Insured’s Failure to Appear for EUOs

In this action, State Farm brought a motion for summary judgment seeking a declaration that it did not have to pay no-fault benefits to the provider defendants due to the insured’s failure to appear at an examination under oath. The insured failure to attend her EUO on a total of five occasions, after which the insurer denied coverage. State Farm argued the insured’s failure to comply with a condition precedent to coverage entitles it to deny all claims retroactively to the date of loss. The provider defendants argued that the no-fault regulation requires an insurer to pay a claim or issue a denial within 30 days of receipt of proof of claim and the failure to do so precludes the insurer from asserting a defense against payment of the claim.

Failure to comply with a condition precedent entitles an insurer to deny all claims retroactively to the date of loss, regardless of whether denials were timely issued. Further, a coverage defense based on failure to appear for an examination under oath applies to any claim and is not determined on a bill-by-bill basis. This is because an insurer cannot be precluded from asserting a defense premised on no coverage. The court explained that although the Court of Appeals has held that failure to deny or pay a claim within 30 days of receipt of proof of the claim precludes an insurer from asserting a defense against payment of the claim, the Court of Appeals has expressly stated that the only exception to preclusion is where an insurer raises lack of coverage as a defense, such as the failure to comply with a condition precedent. The court held that State Farm established, prima facie, that the insured failed to appear for multiple EUOs thereby breaching a condition precedent to coverage.

Therefore, the court determined that State Farm was entitled to deny coverage, and granted its motion for summary judgment, declaring there was no obligation to pay any no-fault benefits to the provider defendants.

 

06/24/24       Hereford Ins. Co. v. ABV Med. Supp.’s Inc.
Supreme Court, New York County
Court Holds Insurer Entitled to Deny No-Fault Claims Based on Insured’s Violation of Condition Precedent to Coverage and Founded Belief the Insured Was Not Injured as Alleged

The insurance company commenced this declaratory judgment action against the defendant medical providers over no-fault claims arising from treatment the insured received after a motor vehicle accident. The insurer asserted that its investigation raised a founded belief that the insured was not injured as alleged and sought a declaration that the insured breached a condition precedent to coverage by failing to appear for examinations under oath on two occasions and that her injuries and any alleged treatment were not causally related to the car accident.

New York’s no-fault law requires the insurance company to provide an accident victim with a request for an EUO within 15 days of receiving notice of a claim. The failure to appear for a properly noticed EUO constitutes a breach of a condition precedent of the insurance contract and precludes coverage altogether. The court held that in this case the insured timely notified the insured of all EUOs. Further, no-fault insurers may disclaim coverage where there is a "founded belief that the alleged injury does not arise out of an insured incident." (Central Gen. Hosp. v Chubb Group of Ins. Cos., 90 NY2d 195, 199 [1997].) The court held that the insurer demonstrated such a founded belief since: (1) St-Surin did not file a police report, (2) she signed MV-104s with different addresses and described different injuries; (3) several of the medical providers were previously investigated for filing false claims, and (4) she has filed at least seven previous claims for injuries.

Accordingly, the court held that because the insurer is entitled to disclaim coverage based upon the insured’s failure to appear at two EUOs and the founded belief that the accident did not occur as she alleges in her notice of claim, the insurer is entitled to a default judgment against the defendant medical providers. Therefore, Hereford was not required to pay any awards or benefits to the defendants arising from the subject accident and no-fault claims.

 

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

I’ve got nothing for this edition. The Fourth of July is about as federal as it gets!

 

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

06/24/24       SJN Properties LLC v. Harleysville Ins. Co.
United States District Court, S.D. New York
The Word "Drain" Encompasses a Sink Drain for Purposes of Coverage Under an Overflow Endorsement and the Court Dismisses Plaintiffs' Allegations Sounding in Bad Faith: (1) Breach of the Implied Covenant of Good Faith and Fair Dealing; (2) Bad Faith Insurance Denial; (3) Violation of New York Insurance Law Section 2601; (4) Violation of New York General Business Law Section 349(h); and Demand for Attorneys’ Fees

SJN Properties LLC operate a medical practice that was damaged when a sink in a unit above the practice was left running over the course of a weekend. Harleysville Insurance Company claims that the policy limited indemnity to $25,000. Currently before the Court are the parties' cross-motions for summary judgment.  The precise issue is whether the word "drain" encompasses a sink drain for purposes of insurance coverage. Because the Court finds that the plain meaning of the word drain includes sink drains, Plaintiffs' motion for summary judgment is denied and Defendant's motion for summary judgment is granted.

The Businessowners Policy provides an exclusion:

We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area.

. . .

(3) Water that backs up or overflows from a sewer, drain or sump.

The Policy also includes Water Exclusion Endorsement BP 0159 (08/08 ed.) which replaces the water exclusion. The Policy thus excludes, inter alia, "[w]ater that backs up or overflows or is otherwise discharged from a sewer, drain, sump, sump pump or related equipment." 

Additionally, the Policy includes the Water Back-Up and Sump Overflow Endorsement BOP 7011 (01/09 ed.), which also changes the Policy by modifying the insurance provided under the Businessowners Coverage Form. It provides that:

A. We will pay for direct physical loss or damage to Covered Property, covered under Section I — Property, caused by or resulting from:

1. Water or waterborne material which backs up through or overflows or is otherwise discharged from a sewer or drain;

. . .

E. With respect to the coverage provided under this endorsement, the Water Exclusion in Section I — Property is replaced by the following exclusion:

Water

(1) Flood, surface water, waves (including tidal wave and tsunami, tides, tidal water, overflow of any body of water, or spray from any of these, all whether or not driven by wind including storm surge;

(2) Mudslide or mudflow; or

(3) Water under the ground surface pressing on, or flowing or seeping through:

(a) Foundations, walls, floors or paved surfaces;

(b) Basements, whether paved or not; or

(c) Doors, windows or other openings.

(4) Waterborne material carried or otherwise moved by any of the water referred to in Paragraph (1) or (3), or material carried or otherwise moved by mudslide or mudflow.

Regarding coverage, the Overflow Exclusion provides that:

C. The most we will pay per location for the coverage provided under this endorsement is $25,000 unless a higher Water Back-Up And Sump Overflow Limit of Insurance is shown in the Declaration as applicable to a specified premises and then such limit applies to the premises so designated.

The coverage provided by the Water Back-Up And Sump Overflow endorsement is subject to the Limits of Insurance of Section I — Property and as such will not increase the Limits of Insurance provided in this policy.

D. We will also pay for your loss of Business Income and your Extra Expense incurred due to a cause of loss described in paragraph A. above. This is not an additional amount of insurance. The Limit of Insurance for Water Back-Up and Sump Overflow Coverage also applies to Business Income and Extra Expense and payment for loss of Business Income and Extra Expense is applied against the Water Back-Up and Sump Overflow Limit of Insurance.

Defendant advised Plaintiffs that the Policy provides limited coverage of $25,000 for damages from water overflow under the Overflow Endorsement. Plaintiffs filed the instant action alleging (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; (3) bad faith insurance denial; (4) violation of New York Insurance Law Section 2601; and (5) violation of New York General Business Law Section 349(h).

The Court first finds that Defendant is entitled to summary judgment on Count I of the Complaint as the Loss is covered by the Overflow Endorsement. The Court next turns to Counts II-V (the "Bad Faith Claims"), dismissing all four.

Both the Water Exclusion Endorsement and the Overflow Endorsement purport to replace language in the Paragraph B Exclusion, with each stating that the endorsement changes the policy and modifies the insurance provided under the Businessowners Coverage Form. However, it is not possible for both the Water Exclusion Endorsement and the Overflow Endorsement to replace the same language at the same time. Plaintiffs argue that the Overflow Endorsement fully supersedes and replaces the Paragraph B Exclusion and the Water Exclusion Endorsement. Defendant does not affirmatively state which Endorsement it believes applies but analyzes the coverage (or lack thereof) as if the Overflow Endorsement controlled. Thus, the parties seemingly agree that the Overflow Endorsement controls.

The effect of the Overflow Endorsement, as relevant here, is to add coverage for sewer and drain backup and to eliminate the exclusion for the same found in the Paragraph B Exclusion. There are two main distinctions in the language between the Paragraph B Exclusion and the Overflow Endorsement: (1) the change from "backs up . . . from" to "backs up through" and (2) the addition of the language "otherwise discharged from."

A court within this Circuit, faced with determining coverage when language identical to that of the Paragraph B Exclusion and Overflow Endorsement was contained in the policy at issue, explained the resulting "policy paradox":

[T]hough the [Overflow Endorsement]—which eliminates the [Paragraph B Exclusion]—was purportedly purchased to expand coverage under the Policy, it simultaneously limits coverage. Specifically, the [Overflow Endorsement] defines the nature of losses subject to the additional coverage as a broader category of potential losses than was originally excluded under the [Paragraph B Exclusion]. In other words, the "addendum" adds coverage that was previously excluded but also limits coverage given its broader applicability. Without the [Overflow Endorsement], for example, "waterborne material" that is "otherwise discharged from" a sewer or drain could conceivably be covered to the full extent of the policy. However, with the [Overflow Endorsement], the same loss becomes subject to a $25,000 limit.

301-375 W. Onondaga St., LLC v. Liberty Mut. Fire Ins. Co., 2020 WL 58673, at *6 (N.D.N.Y. 2020).

The court reasoned that the interplay between the clauses created an ambiguity in the policy. To resolve the ambiguity, the court interpreted the Water Extension — here, the Overflow Endorsement — in the plaintiff's favor and construed it to be no broader than the original Water Exclusion — here, the Paragraph B Exclusion.  Thus, the court found the Water Extension to apply only to the exact same category of losses that were originally excluded in the policy under the Water Exclusion: water that backs up or overflows from a sewer, drain, or sump, and not any of the broader categories of loss that might have otherwise been included in the Water Extension. 

Here, there are three competing provisions. The Water Exclusion Endorsement overlaps with both the Paragraph B Exclusion and the Overflow Endorsement. Like the Paragraph B Exclusion, the Water Exclusion Endorsement uses the language "backs up . . . from" rather than "backs up through." And like the Overflow Endorsement, the Water Exclusion Endorsement includes the language "otherwise discharged from." The Court need not resolve the ambiguity, however, because the Court finds that the term "drain" applies to a sink drain and that the water "overflowed," consistent with all of the Provisions. And as is explained below, the Court applies the Overflow Endorsement, because the Court must construe the Policy in favor of the insured. 

The parties contest whether the word "drain," as used in the Provisions, applies to a sink drain. Plaintiffs argue that it does not, because, according to Plaintiffs, the meaning of the term "drain" should be construed "by the company it keeps." Here, the other words in the Provisions, according to Plaintiffs, relate to "structures or equipment that carries water away from a building that is external in origin," and the definitions of "sewer," "drain," and "sump" all refer to conduits for wastewater.  In contrast, a "sink" is a "stationary basin connected with a drain and usually a water supply for washing and drainage."  Defendant asserts that the word drain unambiguously applies to sink drains.

The Court finds that the term "drain" applies to a sink drain such as the one at issue here. There is nothing about the common understanding of the word "drain" that would exclude a sink drain. The Court declines to find ambiguity in this term where none exists. Accordingly, any of the three Provisions applies to the sink drain at issue.

Plaintiffs next argue that the Loss is covered by the Policy because it only applies to water that "backs up through" and "therefore can only apply to water in reverse flow." Plaintiffs ignore, however, that all three Provisions also apply to water that overflows. Although occasionally disclaiming that the water overflowed, Plaintiffs also acknowledge that "the water is flowing in the right direction, albeit not fast enough to keep the sink from overflowing."  Here, the water clearly and inarguably overflowed the sink. Thus, each of the three Provisions applies to the Loss.

Finally, the Court turns to which of the Provisions applies, finding that the Overflow Endorsement controls. First, both parties apparently agree that the Overflow Endorsement controls. Second, construing the Policy in favor of the insured, the Court also determines that the Overflow Endorsement controls. Were the Paragraph B Exclusion or Water Exclusion Endorsement to apply, Plaintiffs would receive nothing in coverage for the Loss. However, if the Overflow Endorsement applies, Plaintiffs will receive (and have already received) $25,000 for the Loss. Accordingly, the Court holds that the Overflow Endorsement applies, and that the Loss is covered by such, therefore granting Defendant's motion for summary judgment and denying Plaintiffs' motion for summary judgment as to this claim.

The Court next dismisses Plaintiffs' allegations sounding in bad faith: (1) Count II, breach of the implied covenant of good faith and fair dealing; (2) Count III, bad faith insurance denial; (3) Count IV, violation of New York Insurance Law Section 2601; and (4) Count V, violation of New York General Business Law Section 349(h).

Under New York law, parties to a contract "are bound by an implied duty of good faith, but breach of that duty is merely a breach of the underlying contract."  There is no "separate cause of action for breach of the implied covenant of good faith and fair dealing when a breach of contract claim, based on the same facts, is also pled."  Therefore, "when a complaint alleges both a breach of contract and a breach of the implied covenant of good faith and fair dealing based on the same facts, the latter claim should be dismissed as redundant." Here, Plaintiffs' claim for breach of the implied covenant of good faith and fair dealing is duplicative of Plaintiffs' claim for breach of contract. 

"In the first-party context, `New York Law . . . does not recognize . . . an independent cause of action for bad faith denial of insurance coverage.'"  Plaintiffs do not dispute this, only arguing that Defendant's interpretation of the Policy is unreasonable. Accordingly, Plaintiffs' claim for bad faith denial of insurance coverage is dismissed.

Count IV, alleging violation of New York Insurance Law § 2601, is dismissed because New York Insurance Law § 2601 does not provide for a private right of

New York General Business Law Section 349 generally makes unlawful "[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service," N.Y. Gen. Bus. Law § 349(a), and provides for a private right of action, id. § 349(h). To make out a claim, "a plaintiff must allege both a deceptive act or practice directed toward consumers and that such act or practice resulted in actual injury to a plaintiff."

Although the deceptive act or practice must be consumer-oriented, "[p]rivate contract disputes, unique to the parties . . . would not fall within the ambit of the statute."  Not all insurance disputes are private contract disputes, however. Here, Plaintiffs allege that Defendant's actions were consumer-oriented because Defendant routinely misapplies the Provisions, the Policy is a standard form policy that is part of Defendant's usual and customary business practices, and Defendant's alleged misconduct has a broad impact on customers at large.  Defendant only contends that there is no "factual basis to suggest that the conduct complained of was directed at any party other than the Plaintiffs."

The Court need not determine whether Defendant's alleged deceptive act or practice was consumer-oriented, however, because the Court holds that Plaintiffs have not sufficiently demonstrated a deceptive act or practice. The deceptive act or practice alleged here is that Defendant "acted in a materially misleading way" by "interpreting the Policy [in] such a bad faith manner in seeking to avoid its coverage obligations." Because this claim relies on a finding that Defendant misapplied the Provisions, and the Court has found for Defendant regarding the interpretation of the Provisions, the Court must dismiss the claim under GBL § 349.

The Court also dismisses Plaintiffs' claim for attorneys' fees. "[A]n insured may not recover the expenses incurred in bringing an affirmative action against an insurer to settle its rights under the policy."

 

06/26/24       Warren v. State Farm
United States District Court, E.D. Pennsylvania
Court Dismisses Complaint Due to Breach of the One Year Suit Limitation Condition, as Well as a Bad Faith Cause of Action Pursuant to 42 Pa. C.S.A. § 8371

This case concerns an insurance dispute arising from damage to a condominium. Plaintiffs filed suit for (1) breach of contract and (2) bad faith pursuant to 42 Pa. C.S.A. § 8371. At the time, the Property was insured under a Condominium Association Master Policy (the "Greene Countrie Policy") and Plaintiffs' betterments and improvements were insured by State Farm.

An employee of Defendant wrote to Plaintiffs' adjuster stating that the Greene Countrie Policy was the primary policy and that all the units would be rebuilt under it.  There was "significant delay," however, in getting information on the Greene Countrie Policy as to what was being covered under that policy.  The delay, which was not the fault of Plaintiffs, led to the denial of their claims under the State Farm Policy due to the passage of a one-year statute of limitations provision in the State Farm Policy.

Suit limitation clauses in insurance policies are not imposed by statute; rather, they are contractual undertakings between parties to limit the time for bringing suit on the contract.  The limitation provision under the State Farm Policy here sets a time limit of "one year after the date of loss or damage" for commencing suit.

No action will be brought against us unless there has been full compliance with the policy provisions. Any action by any party must be started within one year after the date of loss or damage.

"The law is clear that such a clause, setting time limits upon the commencement of suits to recover on a policy, is valid and will be sustained."  The limitation period runs from "the date of the occurrence of the destructive event or casualty insured against."  Failure to bring a claim within the limitation period in the Policy will result in an "absolute bar" to the claim. 

Here, the SAC alleges that on or about May 14, 2021, Plaintiffs' property "suffered direct physical loss and damage." On May 12, 2023, nearly two years later, Plaintiffs commenced this action by filing a Writ of Summons in the Court of Common Pleas.  Given the valid one-year suit commencement provision contained in the State Farm Policy, it is evident that Plaintiffs instituted this action beyond the limitation period. Accordingly, absent proof of waiver or estoppel, Pennsylvania case law warrants dismissal of the breach of contract claim. Recognizing this legal impediment, Plaintiffs argue that the suit limitation should not be enforced on the basis of estoppel.

"Equitable estoppel is a doctrine that prevents one from doing an act differently than the manner in which another was induced by word or deed to expect."  An insurer will be estopped from raising the suit limitation defense if there is clear and convincing evidence that the insurer induced the insured to justifiably rely, to the insured's detriment, on the insurer's words or conduct reflecting a decision not to invoke the defense.

The insured "must present `reasonable grounds for believing that the time limit would be extended' or the insurer would not strictly enforce the suit limitation provision." Upon review of the facts alleged and viewing them in the light most favorable to Plaintiffs, they have failed to do so.

Plaintiffs do not claim that Defendant made any statement to Plaintiffs that it would not rely on the suit limitation provision, nor did it display any intention through its conduct that it would not enforce the provision. Furthermore, there is no evidence that Defendant ever mentioned the possibility of a settlement of the claim, or even asked Plaintiffs to refrain from bringing suit, as would be required for an estoppel.

In Count II of the SAC, Plaintiffs allege that Defendant's conduct in handling Plaintiffs' insurance claims amount to "bad faith" within the meaning of the Pennsylvania bad faith statute, 42 Pa. C.S. § 8371. In turn, Defendant argues that Count II of the SAC should be dismissed because Plaintiffs fail to state a plausible claim of bad faith. The Court agrees with Defendant.

Plaintiffs argue that SAC specifies that Defendant "falsely represented that Plaintiffs ['] loss was not entitled to benefits due and owing under the Policy, failed to promptly and thoroughly investigate the loss, and failed to objectively evaluate Plaintiffs ['] claims" and that taken together, these establish a plausible claim of bad faith. In turn, Defendant argues that Count II of the SAC should be dismissed because Plaintiffs' claims are "boilerplate and are not remotely specific to any stated activity (or lack thereof) on the part of [Defendant]." The Court agrees with Defendant. Plaintiffs have based their bad faith claim on conclusory allegations that are insufficient to withstand a motion to dismiss.

Here, Plaintiffs allege that Defendant failed to complete a prompt and thorough investigation of Plaintiffs' claim, that Defendant failed to objectively and fairly evaluate Plaintiffs' claim, and that Defendant failed to fairly and adequately advise Plaintiffs as to the status of their claim.  But the SAC is devoid of sufficient allegations as to the timing, methods, procedures, or length of the investigation by which the evaluation was conducted. Therefore, without more, Plaintiffs do not sufficiently allege a bad faith claim and the Count II will be dismissed.

 

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

06/27/24       Am. Comp. Ins. Co. v. Ruiz
Mississippi Supreme Court
Mississippi Workers’ Compensation Act Does Not Allow Insurer to Rescind Workers’ Compensation Policy Based on a Material Misrepresentation

The United States Court of Appeals for the Fifth Circuit asked whether the Mississippi Workers’ Compensation Act (MWCA) allows an insurer to rescind a workers’ compensation policy based on a material misrepresentation. The statute is silent and only provides for cancellation and nonrenewal. The statutory contractor argued the MWCA’s silence means that rescission is not available. The insurer argued that since the legislature did not address rescission, the common law remedy of voiding the policy from inception is available.

When the insurer filed a declaratory judgment action to rescind the policy, the federal district judge made an Erie guess that the MWCA did not permit rescission and dismissed the action. The insurer appealed to the Fifth Circuit, and the appellate court certified the question to the Mississippi Supreme Court. Distinguishable from other types of insurance policies, a workers’ compensation policy is governed exclusively by statute and exists to pay benefits to the insured worker. Here, the employer allegedly made the material misrepresentation—not the injured worker. Because the MWCA makes no provision for an insurer to void a workers’ compensation policy based on a material misrepresentation, and because the MWCA exists to ensure injured workers are compensated, the Supreme Court concluded that the MWCA does not allow insurers to void ab initio a workers’ compensation policy based on an employer’s material misrepresentation.

 

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

06/28/24       Estate of William Massi et al. v. Bette Barr et al.
Superior Court of New Jersey, Appellate Division
Court Holds Named Insured Not Entitled to SUM Benefits if Not In, On, Entering, or Exiting Automobile

William Massi was riding his bicycle in the street, apparently to avoid potholes, a persistent problem in the State of New Jersey. Mr. Barr was operating his truck, travelling in the same direction as Mr. Massi. Mr. Barr’s approach startled Mr. Massi, causing the latter to swerve into a pothole, lose control of his bicycle, and to sustain a nasty fall leaving him almost completely paralyzed.

After settling with Mr. Barr’s insurance carrier, Mr. Massi demanded SUM benefits from his own auto insurer, Allstate. Four years’ worth of back and forth, and some forth and back, culminated in Allstate asserting the step-down provision within its SUM endorsement.

The step-down provision provides, essentially, that the SUM limits shown in the declarations are replaced by the state minimum limits if the insured person is not entering, exiting, or getting into or off of an insured auto at the time of their injury. Since Mr. Massi was operating a bicycle at the time of the accident, Allstate invoked this provision, and maintained that the available SUM limits were only the minimum limits required by New Jersey law ($15,000 for bodily injury/person, $30,000 aggregate), instead of the limits provided in the declarations ($500,000/$500,000).

The Appellate Division upheld the trial court’s ruling that Allstate’s coverage position was correct. The Appellate Division noted that step-down provisions such as this one as routinely enforced by new Jersey courts based on their plain and ordinary meaning, so long as the provision is clear and unambiguous.

Mr. Massi also argued that Allstate should be estopped from relying on the step-down provision, since it waited four years to do so. The Appellate Division held otherwise. Under well-established New Jersey law, the party asserting estoppel must show that it relied to its detriment on representations that were made. Here, this would mean that Mr. Massi had to show that he relied to his detriment on the idea that he would be entitled to up to $500,000 from Allstate. Critically, Mr. Massi did not accept Mr. Barr’s offer until after Allstate had already invoked the step-down clause. That is, at the time Mr. Massi accepted Mr. Barr’s offer, he already knew he would be receiving no more than $15,000 in additional funds from Allstate. As the Appellate Division held, Mr. Massi did not rely on any representation by Allstate that he would be entitled to more money in accepting Mr. Barr’s offer.

Editor’s Note: Right decision. Sympathetic plaintiff, certainly, but it’s good to see the rules of coverage being applied correctly, even despite this.

 

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

05/28/24       Snell v. United Specialty Insurance Company
United States Court of Appeals, Eleventh Circuit
Judge Newsome Looks to LLMs, Provides Insight Into Potential Aid in Interpreting Contractual Terms

Judge Newsom authored an interesting concurrence in this matter. The action involved the interpretation of what the undefined term “landscaping” meant within United’s policy. The essential facts are that Snell operated a landscaping company and was named in a tort action for a bodily injury sustained by a minor who used a ground-level trampoline installed by Snell. His liability policy contained a Special Operations Endorsement that listed Snell’s operations as “Insured performs landscaping.” So, the interpretation issue was whether “landscaping” involved the construction and installation of the offending trampoline.

The majority looked to the policy application, wherein Snell answered “No” to the question of whether he installed playground or recreational equipment. Since a trampoline is recreational equipment, the majority found Snell’s “No” answer dispositive that “landscaping” did not involve the construction of the trampoline (Alabama law incorporates application questions into the policy itself). But Judge Newsome looked for some outside help. ChatGPT to be exact. His concurrence begins:

“Those, like me, who believe that “ordinary meaning” is the foundational rule for the evaluation of legal texts should consider—consider—whether and how AI-powered large language models like OpenAI’s ChatGPT, Google’s Gemini, and Anthropic’s Claude might—might—inform the interpretive analysis.”

Newsome noted the parties’ core dispute was the plain meaning of “landscaping” and that the district court scoured dictionaries to define the term. He himself philosophically debated “what is ‘landscaping’?” Pondering one of life’s mysteries, Newsome considered, “would ChatGPT assist?” His inner monologue answered the thought was absurd. But after sorting through dictionaries and review of the construction photos, he uttered “I wonder what ChatGPT thinks about all this.” A quick query provided an interesting response:

“‘Landscaping’ refers to the process of altering the visible features of an area of land, typically a yard, garden or outdoor space, for aesthetic or practical purposes. This can include activities such as planting trees, shrubs, flowers, or grass, as well as installing paths, fences, water features, and other elements to enhance the appearance and functionality of the outdoor space.”

With his interest piqued, Newsome asked the ultimate question of whether installation of an in-ground trampoline is landscaping. ChatGPT answered in the affirmative, the AI reasoned so because of the modification and function of the yard. Nonetheless, Alabama state law prevented a deeper dive on term interpretation by the majority. But Newsome’s own experience brought him to pose the question, can Large Language Models (“LLMs”) help interpret texts? Previously believing such a thought as absurdity, Newsome now believes there is some value in using the technology.

His revelation is based on first, LLMs train on ordinary language inputs, this means the ordinary meaning of words are how LLMs are taught to use data and capture how people use the terms in everyday life. Second, LLMs “understand” context, as datasets convert the language into certain mathematical terms so the technology can understand context. Third, LLMs are accessible. Fourth, they are mostly transparent; and finally, LLMs are dependable to the extent their creators use surveys and other methods to help determine the overall meaning of a word.

Now the drawbacks. Despite Newsome’s experience, he pointed out the issues with LLMs use in a legal context. The most notable is that LLMs “hallucinate,” making up facts. He pointed directly to the curious case of the non-existent precedent cited in a brief as an example of this. LLMs also do not capture offline speech and may not fully account for an underrepresented populations’ usage of certain terms.

He further notes judges, lawyers, and would-be litigants may try to use the technology to reverse-engineer a preferred answer by manipulating queries; and others may attempt to corrupt the data used by the LLMs themselves to rig the system to render a preferred interpretation. Next is the “robo-judges,” meaning replacement of judges with algorithms. Newsome does not think “robo-judges” are a threat and makes it clear he is not suggesting any judge use an LLM to interpret a word then mechanically apply it to render a judgment.

With the pros and cons discussed, Newsome provided his full interpretation of what place LLMs have in interpreting legal instruments. He believes questions must be clearly posed to help discern how a normal person uses and understands language, not applying particular meaning to particular facts to suggest an answer to a particular question. Thus, its use should be one of generality. Also, one must use multiple query prompts across multiple models, and report the prompts so the results are consistent.

Another thought posed is that a confidence level in LLMs must be built, meaning that there must be confidence in how the LLM responds. Newsome believes that posing the same question multiple times could build such confidence. The temporal nature of when the text was adopted. General contract interpretation looks to when the meaning of when the text was adopted, so LLMs while new and helpful, would need to be stretched to include previous interpretations of the term for specific queries.

In the end, Newsome believes LLMs have promise and no longer strike him as ridiculous to help discover the common, everyday meaning of words and phrases in legal texts.

 

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

No cases to report this time – I hope you all enjoy your July 4^th Holiday!

 

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

 

06/26/24       Government Employees Insurance Company v. Avila
Appellate Division, Second Department
Statutory Interspousal Exclusion Also Precludes Interspousal Uninsured Motorists Benefits

This was a special proceeding to stay a demand for arbitration of Uninsured Motorists benefits.

The respondent, Awilda Avila, allegedly was injured in an accident that occurred in New York when she was a passenger in a vehicle registered to and driven by her spouse, who lost control of the vehicle, causing it to strike a parked vehicle and overturn. After GEICO disclaimed coverage based on a spousal exclusion in its policy, Avila served a demand for arbitration of her claim for uninsured motorist benefits.

GEICO commenced this proceeding pursuant to CPLR article 75, inter alia, to permanently stay arbitration. The Supreme Court, among other things, denied that branch of the petition. GEICO appeals.

Pursuant to Insurance Law § 3420(g)(1), "no policy or contract shall be deemed to insure against any liability of an insured because of death of or injuries to his or her spouse or because of injury to, or destruction of property of his or her spouse unless express provision relating specifically thereto is included in the policy." "'[I]n the absence of an express provision in an insured's policy, a carrier is not required to provide insurance coverage for injuries sustained by an insured's spouse. This provision creates "a statutory presumption that interspousal liability is excluded from coverage unless an express provision relating specifically thereto is included in the policy”, Moreover, here, the language of GEICO's policy provides that its liability coverage does not apply "[t]o any insured for bodily injury to the spouse of that insured." Thus, Avila's uninsured motorist claim was precluded (see Matter of American Mfrs. Mut. Ins. Co. v Barlow, 15 AD3d at 477).

 

06/26/24       Matter of New South Insurance Company v. Gordon
Appellate Division, Second Department
An Easy One – Failure to Obtain Consent to Settle Violated the SUM Policy and Precludes Recovery of SUM Benefits

On December 18, 2018, Steffon G. Gordon allegedly was injured in a motor vehicle accident while a passenger in a vehicle insured by the New South Insurance Company. Gordon subsequently made a demand for arbitration of his claim for supplementary underinsured motorist (“SUM”) benefits from New South  The insurer commenced this proceeding pursuant to CPLR article 75 to permanently stay arbitration of the claim for SUM benefits, arguing that Gordon violated the terms of the insurance policy issued by it by failing to obtain its consent prior to settling a personal injury action against the driver/owner of the other vehicle involved in the accident.

 In opposition, Gordon failed to address that argument, did not dispute that he had settled the personal injury action, and did not dispute that he failed to provide the petitioner with advance notice of the settlement.

The failure to obtain consent disqualifies the insured from availing himself or herself of the pertinent benefits of the policy, unless the insured can demonstrate that the insurer, either by its conduct, silence, or unreasonable delay, waived the requirement of consent or acquiesced in the settlement.  No such proof was offered so the SUM arbitration is permanently stayed.  No benefits.

Editor’s Note:  A reminder that the application to stay arbitration must be made to a court within 20 days of the demand for arbitration, It was here.

 

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

06/17/24       State Farm Mut. Auto. Ins. Co. v. Anchor Rx Pharm., Inc.
Supreme Court of the State of New York, County of New York
Failure to Appear for Examination Under Oath Precluded Coverage for No-Fault Benefits

State Farm Mutual Automobile Insurance Company (“State Farm”) filed a declaratory judgment action seeking a declaration that it does not owe a duty to pay No-Fault benefits following an alleged motor vehicle accident, as a result of Lisa Banch’s failure to appear for an examination under oath(“EUO”). State Farm had previously obtained a default judgment against a variety of medical providers, and Ms. Branch. State Farm subsequently moved for summary judgment against the remainder of appearing provider defendants.

Ms. Branch had an extensive history of prior claims under the State Farm policy, inconsistently reported the accident, and retained an attorney prior to seeking medical treatment. Based on the aforementioned facts, State Farm noticed Ms. Branch for an EUO. Ms. Branch had an opportunity to appear for three noticed EUOs and failed to appear each time. As a result of violating the condition precedent to coverage, State Farm denied coverage.

11 NYCRR 65-3.8 requires an insurer to pay a No-Fault claim or issue a denial within thirty days of receipt of proof of claim. However, failure to deny or pay No-Fault claims within the thirty day period does not preclude a defense based on Claimant’s failure to comply with a condition precedent to coverage. The Court of Appeals has expressly stated that an exception to the thirty day requirement is where an insurer raises lack of coverage as a defense.  Moreover, a coverage defense based on the failure to appear for an EUO applies to all No-Fault claims and bills, it is not determined on a bill-by-bill basis. 

Accordingly, the court granted State Farm’s motion for summary judgment, and declared that State Farm has no duty to pay any No-Fault claims which arose from the subject collision.

 

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

06/27/24       Davies v. AIG Insurance Company of Canada
Ontario Court of Appeal
Commercial All-Risk Property Insurance Policies That Cover “All Risks of Physical Loss or Damage” Extend to Physical, Tangible Harm to Property and Business Interruption Coverage Consequent on That Loss and Damage; These Policies Are Not Triggered by the Possible Presence of the COVID-19 Virus or the Civil Authority Measures to Deal with the COVID-19 Threat

Courts are bound to decide the issue before them. To do that, they must ignore the extraneous facts and issues that brought the issue to the courts.  Sometimes though, the reason why the issue is before the courts lies in those extraneous facts.

Beth Leaper is a family law lawyer who practices in London, Ontario.  She is well known and well respected. In 2015, on the advice of her financial adviser, she began investing in a company that offered syndicated mortgages on a number of development projects in Southern Ontario. These projects were to build student residences and health care facilities. Beth was one of about 1,600 investors who together created a pool of about $43 million that was said to form a first charge on the real property on each development. Each investor could specify that their investment funds should go to a specific project. Leaper had specified that $165,000 of her $300,000 investment should go the development of a student residence in Kingston, Ontario, at 525 Princess Street, not far from Queens University.[1]

Except development approval was not in place.

525 Princess raised $6.387 million from Investors (including Leaper).  In 2015-2016, during the time frame that Leaper invested in this Princess Street project, the investment funds raised through these syndicated mortgages was 263% greater than the purchase price of the real estate to be developed. By January 28, 2016, 525 Princess had a cash balance of approximately $111,000 and had not spent any money on development activity. Notwithstanding that it could not advance the project, 525 Princess managed to pay from the SMI proceeds a $1 million dividend to entities related to the developer, including John Davies.[2]

The 525 Princess Street property was one of seven similar developments, all of which were over leveraged and with similar payouts to entities related to the developer, including John Davies.

These projects had no prospect of success due to, among other things, a lack of equity capital, the significant Initial Costs and the amounts paid to related parties out of the SMI advances, including parties affiliated with John Davies.[3]

John Davies, together with his wife, Judith Davies, were the principals behind about 11 related companies that were the developers of these projects that were, in turn, financed by syndicated mortgages. John and Judith Davies and their companies were sued by the investors of the syndicated mortgages (which group likely included Leader) stating that they were operating a Ponzi scheme.

John and Judith tendered the lawsuit to their directors’ and officers’ insurer, AIG. At first, AIG paid their legal expense. After a while, AIG stopped the payments and denied coverage on the basis that the policy was void for misrepresentation.

 

06/27/24       SIR Corp., US S.I.R., LLC et al. v. Aviva Ins. Co. of Canada
Supreme Court of Canada
Pandemic Era Orders Preventing In-Person Dining Do Not Give Rise to Property Damage Payable Under an All-Risk Policy and Therefore Business Interruption Coverage Under Those Policies Is Not Engaged

In the Volume XXV, No. 14 (No. 661), Friday, December 22, 2023, edition of this newsletter, I reported that the Ontario Court of Appeal had issued a decision on November 22, 2023, that declared that as pandemic era orders preventing in-person restaurant dining were issued to prevent spread of disease and not to thwart property damage that would be insured by an all-risk policy, there was no coverage under a commercial all-risk property policy for food spoilage and lost profits incurred by a Canadian restaurant chain due to the closures.

The insured sought leave to appeal this decision to the Supreme Court of Canada.

On June 27, 2024, the Supreme Court of Canada dismissed that application with costs payable by SIR Corp to Aviva. The decision of the Ontario Court of Appeal on these issues has been left undisturbed.

 

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