Volume XXVI, No. 3 (No. 676)
Friday, July 19, 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. This week’s issue is attached.
We are in the annual summer slump. Most New York appellate courts rest their tired bones in July and August, so the number of reported decisions drop dramatically. However, we still provide them to you. We hate to leave you disappointed. So, you’ll find a dozen or so decisions.
Congrats to Ryan O’Shea, on his nuptials last weekend. He is currently on his honeymoon and decided that spending time with his new bride was more important than submitting his Coverage Pointers column. OK, I’ll forgive him, this time,
In our mot recent issue I reminded you of August 20th Risk Transfer primer. The registrations have come flooding in. Over 250 more have signed up since our last issue, so we are approaching 850 registered, and we have room for 1,000. Sign up now before it’s too late. For those who have signed up, I expect to send out the links on Monday afternoon. Trimble and I figured we’re failures is we end up with fewer than 900! Ha. Spread the word to others in your organization or otherwise, who may find the program valuable. By the way, we did have one insurer ask us to put on this presentation for 120 of their claim professionals but we moved that program to another time, so as to leave more spots open here [so, technically John, if you’re listening we have over 950 lined up for this educational offering].
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].
Welcome to Lexi Horton the newest member of the HF Coverage Team!
: 
We are delighted to welcome Lexi Horton as an attorney on our coverage team.
Leix earned her Juris Doctor from the University at Buffalo School of Law, graduating summa cum laude and in the top five percent of her class. She received her undergraduate degree from the State University of New York at Geneseo, graduating cum laude with a Bachelor of Science in Psychology. In other words, she’s pretty darn smart.
While in law school, Ms. Horton participated in the Pro Bono Scholars program. Through this program, she was able to take the bar exam early, in February, and spend her last semester of law school interning full-time with the Legal Aid Society of Rochester. Ms. Horton spent her time with Legal Aid representing clients in Family Court. Lexi gained practical experience as an intern with the Monroe County District Attorney’s Office where she was responsible for handling town court cases. Ms. Horton was also a student attorney with the Family Violence and Women’s Rights Clinic where she handled cases in Family Court.
She was a research assistant to former Dean Abramovsky, where she was tasked with research and writing on Insurance Law. Not: Lexi also received the highest grade in the Insurance Law course and the professor there, Kohane and Peiper, noted that for some reason. Prior to joining Hurwitz Fine as an associate attorney, Ms. Horton worked as a law clerk at the firm.
By the way, I invited her up to the cottage for dinner on Saturday. She declined because she was running a 15-mile race. I’m not sure if I can drive 15 miles.
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.
Looking for a good summer reads, just finishing listening to these two on Audible. Both great reads.
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The Women tells the story of the heroic, and often forgotten, women who served as nurses during the Vietnam War
- James reimagines the Adventures of Huckleberry Finn from the enslaved James’ point of view
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:
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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.
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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.
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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.
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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.
One Game Wonder – 100 Years Ago:
A One Game Wonder—Bob Lawrence’s Debut
One Hundred Years Ago Today
Robert (Bob) Lawrence appeared in one Major League game in his lifetime, pitching for the Chicago White Sox, one hundred years ago today. In his one and only year of professional baseball, Bob Lawrence pitched for a pair of minor-league teams before hurling one and only one inning for the 1924 Chicago White Sox. After spending a month back in the minors, Lawrence finished the year playing semipro ball in Brooklyn. He declined to sign a White Sox contract offered for the following season, content with a job he already had.
As he pursued what became a lifelong career in the tobacco industry, Lawrence played semipro baseball in the New York City area for the next half-dozen years. Fading from public view once his playing days were over, Lawrence passed away at the age of 83.
Lawrence appeared in the second game of a July 19 doubleheader against the Athletics at Shibe Park. Down 7–4 going into the bottom of the eighth inning, Evers inserted Lawrence in place of righty Dixie Leverett, after he’d worked five innings in relief of starter Sarge Connally. 28 Lawrence walked leadoff hitter Harry Riconda, who advanced to third on Cy Perkins’ one-out groundout. The Athletics starting pitcher Dennis Burns then singled to right field to drive in Riconda, for the first RBI of his career. Lawrence, identified as R. A. in the Chicago Tribune game summary, struck out Jimmy Dykes to end the inning. 29 The White Sox failed to score in the ninth, losing by a final score of 8–4. A week later, Lawrence was back in Montreal, sent back for seasoning according to the local press.
Peiper on Property (and Potpourri):
A brief, but to the point, note this week. There is much softball to be played, and without extra time to warm up, I will undoubtedly subject myself to further injury and ridicule.
We’re just back from the annual IADC annual meeting in downtown Vancouver, British Columbia. If you’ve never made the trip, it is a worthy destination. Great, walkable city with very good food and craft beer options. Can’t give it high enough praise. Something for everyone can be found, and often only a short walk or rented bike ride away.
Special thanks to Kendall Harrison who just completed his term as chair of the Insurance/Re-Insurance Committee, and then promptly got himself elected to the Board. And some much-deserved recognition to Bill Bulfer who will be taking up the reigns of the committee for the foreseeable future. If you ever need counsel in Wisconsin or North Carolina, respectively, you’ll not find two better people to work with.
That’s about all we have time to discuss today. The courts remain fairly quiet, although I hear there might be some good stuff coming for the next issue. Until then…
Steve
Steven E. Peiper
[email protected]
Stopping Smallpox – 100 Years Ago:
The Buffalo News
Buffalo, New York
19 July 1924
SPREAD OF SMALLPOX
ALARMS DR. CUMMING
Surgeon General warns of
Grave Danger Unless People are Vaccinated
WASHINGTON, July 19. – Apprehension over the growing number of smallpox cases throughout the country was expressed today by surgeon General Cumming of the public health service, who said the presence of the disease in 35 states threatened serious consequences unless state health officers exercise the greatest vigilance in vaccination and re-vaccination
Dr. Cumming is particularly alarmed that the disease has spread so widely in the spring and summer months. If it is not checked, he fears a more serious situation next winter, during the season when it usually is most prevalent.
Warnings have been sent to all state health officers, to the American Railway association and to the American Automobile association urging that the greatest care be exercised to prevent a spread of the disease.
“There is grave danger of outbreaks all over the country,” Dr. Cumming said today, “unless people are vaccinated.”
Figures on smallpox cases for the week ending on June 21, compiled by the health service, show 35 states reporting 895 cases as compared with 371 cases for the corresponding week a year ago, For the same week 100 cities reported 345 cases as against 83 for the corresponding week in 1923.
Barnas on Bad Faith:
I recently got back from a weekend in Lake Placid with my friends. We played some mostly bad golf and enjoyed the town. My favorite thing about Lake Placid was visiting the rink from the 1980 Olympics. It was cool to sit in the same arena where probably the greatest moment in United States sporting history took place. They have redone the seats in the lower level, but they still have the old wooden benches up in the mezzanine. The entire Olympic complex is cool, but the visit to the rink is what stuck with me most.
See you all in two weeks.
Brian
Brian D. Barnas
[email protected]
Thievery Ain’t New – 100 Years Ago:
The Buffalo News
Buffalo, New York
19 July 1924
SMALL BOY WORKS NEW
SHORT CHANGE SCHEME
Runs from Store With Twenty
Dollar Bills and Disappears
LE ROY, July 19. – A small boy, a purchase of candy and a $20 bill resulted in James P. Tountas, who conducts an ice cream and confectionary store in the Muller building at 5 Main Street, being out $10 on an impromptu change game. After making his purchase and receiving change for the $20 bill, the lad discovered he had money without breaking the larger bill.
George Tountas, a brother of the proprietor, waited upon him and while he was preparing to give the lad $20 again, he picked it up together with $10 of the change and dashed out of the store. He had disappeared when the clerk reached the door. The theft was reported to the police, but the boy has not been located.
Lee’s Connecticut Chronicles:
Dear Nutmeg Newsies:
Thinking of talking to your opponent’s experts in Connecticut – look at today’s column and draw your own conclusions. The high court speaks!
Hope you are enjoying the summer.
Lee
Lee S. Siegel
[email protected]
Buffalo Was Huge -- 100 Years Ago:
Buffalo Courier Express
Buffalo, New York
19 July 1924
BUFFALO TWELFTH IN SIZE
JULY 1ST, U.S. ESTIMATES;
POPULATION IS 545,273
Eleven cities grow into 100,000 class during year- Rochester passes Jersey City – Nations total 112,078,611.
Kyle's Noteworthy No-Fault:
Dear Readers,
I hope everyone has been enjoying the nice weather we’ve had lately. This past weekend I finally was able to get in a couple rounds of golf – I played in a tournament Friday afternoon at Chestnut Hill for Lutheran Charities and also on Sunday morning. I’ve been a bit rusty this year but still had a good time. Looking forward to the first softball game in a few weeks this Thursday as well!
This week’s No-Fault case involves an insurer’s petition to vacate an arbitration award to a medical provider for No-Fault benefits on the basis that the treatment at issue was not medically necessary. The court denied the insurer’s petition, upholding the arbitrator’s decision that the claimant sufficiently established there was a reasonable basis to perform the services at issue.
Kyle
Kyle A. Ruffner
[email protected]
Judicial Flogging – 100 Years Ago:
Daily News
New York, New York
19 July 1924
COURT WOULD FLOG
RUNAWAY FATHER
“You should be hanged. The law is too good to you. It is too bad that you are not in Delaware, where the judge could give you a good horsewhipping.” County Judge William F. Bleakley in White Plains yesterday said this to Recca Santora, Mount Vernon, who pleaded guilty to abandoning his wife and five children, running off with a woman, married and mother of four children. Santora received a sentence of two years and a fine of $1,000.
Ryan’s Federal Reporter:
Hello Loyal Coverage Pointers’ Subscribers:
After a washout last week following some heavy rains, I am looking forward to some lawyers’ league softball this afternoon. Would be nice to touch ‘em all at some point. But I’ll take a single or two.
This edition of my column contains a Second Circuit decision concerning the binding nature of appraisal awards under New York law. There is a high bar, to say the least.
Until next time,
Ryan
Ryan P. Maxwell
[email protected]
A Date with the Policy – 100 Years Ago:
Daily News
New York, New York
19 July 1924
BENNY KEEPS A DATE – BUT,
ALAS, SO DID THE POLICE
Benjamin Nichols of 116 East 121st., admits he’s a bashful fellow, and so he does his wooing by mail.
Yesterday a letter was found by a woman in the women’s rest room at the railroad station, 125th St. and Park Ave. The noted invited any pretty girl to meet the writer in Mount Morris park. Part of the note said:
“To any pretty girl who finds this: I am very bashful, but when I’m alone I’m a wonder. Meet me in Mount Morris park at 9 o’clock tonight. I’ll bring lots of dough. I’ll wear a white carnation.”
Well, a girl found it. At 9 P.M. Bennie appeared with the white carnation. A girl came up to him. His heart fluttered. He held her hand.
Sitting on a bench, however, he got a little rough. Two policemen leaped on him and the girl, who was a policewoman Clark, showed frightened Bennie her badge. He was arraigned under the mashing laws.
Storm’s SIU:
Hi Team:
Busy vacationing in Europe. More informative cases in two weeks.
Until then,
Scott
Scott D. Storm
[email protected]
Why Are They In Old Aged Homes at 71? – 100 Years Ago:
Buffalo Courier Express
Buffalo, New York
19 July 1924
Fight over Damsel of 70 is
Fatal to One of Her Lovers
Man of 71 is dead and his alleged assailant, 75,
in jail following fracas in home for aged.
San Francisco, Cal., July 18 (A.P.) – Hugh McCloskey, 71 years old, is dead and Henry Mueller, 75 is in the city prison today with a manslaughter charged filed against him as the result of a long-standing rivalry between the two men for the favor of a 70-year-old woman, which culminated in a quarrel on Wednesday. All the principals are inmates of the city and county relief home here.
According to the attendants at the home, McCluskey resented Mueller’s attentions to the woman. When the pair met on the stairs on Wednesday, McCluskey is declared to have threatened Mueller with his crutch. Mueller parried with his cane and in a struggle, McCloskey tumbled down the stairs, suffering injuries from which he died yesterday.
Fleming’s Finest:
Hi Coverage Pointers’ Subscribers:
I hope that you have been able to enjoy some time outside these past two weeks even during the heat wave.
This week’s case includes four questions that were certified to the Arizona Supreme Court regarding the use of an auto under an auto policy, including whether use includes loading and unloading, maintenance of the premises, and managerial functions.
Stay cool and see you in a fortnight,
Kate
Katherine A. Fleming
[email protected]
Americanizing the Chines and Japanese – 100 Years Ago:
Press and Sun-Bulletin
Binghamton, New York
19 July 1924
CIVILIZING THE FAR EAST
We people of the West, that is to say of Europe and America, who live under what men call the Western Civilization, never tire in our efforts of one sort and another to “civilize: the East.
We are full of projects to Westernize China and Japan and the rest of the peoples of the orient.
There are no more earnest, honest, and faithful people on earth than missionaries.
Almost to the last man and last woman they are animated by the highest ideals, the noblest purposes. They are the most sacrificing of people.
But many missionaries and many of us at home who are engaged in the upkeep of missionary projects have, perhaps, a too exalted idea of this Western world all that their due but we shall have to admit that not one of them so nearly spoke for all times as did the Chinese philosopher, Confucius.
Confucius gave the world the Golden rule. He gave the world a sane and kindly and honest philosophy of living.
The East is unhurried while the West is happiest when rushing the most furiously.
Gestwick’s Garden State Gazette:
Dear Readers:
I hope everyone enjoyed their Fourth. I know I sure did. We’re enjoying some cooler, more mild temperatures here in Buffalo this week. Hoping to get in a round of golf with my dad on Saturday. It’ll only be my fourth time out this year. The three scorecards I’ve turned in this season suggest that I’ve played, well, only three times this season! Let’s see if we can turn it around.
I’ve got a fun one for you this week. The franchisees of a Dunkin’ Donuts in New Jersey were sued by a drive-thru customer after an employee spilled hot tea on her. The proprietors sought coverage for the lawsuit under the customer’s auto insurance policy, contending that they were loading the vehicle at the time of the injury, and therefore qualify as users (and thus, insureds). The Court agreed with them, holding that the delivery of the tea through the customer’s window was an integral part of the loading/unloading process, constituted use of the vehicle, and entitled the proprietors to additional insured status.
That’s all I have for you this week. See you in two.
Evan
Evan D. Gestwick
[email protected]
Lincoln’s Magician – 100 Years Ago:
Macon Chronicle-Herald
Macon, Missouri
19 July 1924
Death of Magician
Recalls War Tales
Lincoln Knew Him and Put Him
Through Trick That Made Houdini Famous
LOS ANGELES, July 19 – Another of the frail links connecting the present generation with the stirring days of the Civil War was broken here in the death of Horatio G. Cooke friend of President Lincoln and who claimed to have witnessed the assassination of Lincoln.
Known professionally as Major Harry Cooke, “the American wizard” Cooke was the organizer and honorary perpetual president of the Los Angeles Society of Magicians, following forty years of experience as an entertainer and exposer of fraudulent methods used by fake “mediums.”
It was his skill as a magician which first brought Cooke to the personal attention of the subsequently martyred President. Cooke’s reputation for deftness with a rope had spread among his army companions when he was summoned to the office of the Secretary of War in connection with his duties. While Cooke was there. President Lincoln entered and remarked:
“well lad, I am informed that you are rather tricky!”
Cooke, feeling that he was being reprimanded, protested his innocence of any wrongdoing.
“I thought we would make an investigation,” was the President’s comment. Then, to Cooke’s surprise, a fifty-foot clothesline was produced, and he was tied up by two generals and a Senator and commanded to release himself. Cooke thus learned that knowledge of his faculty in the tricks which subsequently made Houdini famous and gone broadcast.
O’Shea Rides the Circuits:
Honeymooning. See you in two weeks.
Ryan
Ryan P. O’Shea
[email protected]
Assassination Attempts are Not New – 100 Years Ago:
Chronicle
Adelaide, South Australia, Australia
19 July 1924
ZAGHLUL PASHA
ATTEMPTED ASSASSINATION
Cairo, July 12. Zaghlulu Pasha, Premier of Egypt, was slightly wounded in the right chest at the railway-station by a trousered young effendi, with a revolver, when he was starting for Alexandria to attend the Royal reception tomorrow. The assailant, who was with difficulty protected from the enraged mob, was arrested, and put on board the train, which hurriedly steamed out of the station.
The would-be assassin is a student named Abdel Latif, a native of Abdel Khadir. He arrived in Cairo in June from Germany. He was injured by the crowd, who tried to storm the railway carriage. Where he was protected by the police, in order to lynch him. Zaghlul is now in a private hospital, but the bulletins concerning his condition are reassuring.
Rob Reaches the Threshold:
Dear Readers,
First off, I hope you all had a wonderful and safe 4th of July Holiday. Second, I’d like to provide an update since our last article, where I told you all I was planning on attending the Savannah Bananas opener in Buffalo. Spoiler – IT WAS FREAKIN’ AWESOME! Full disclosure: I have been both a lover and player of baseball since I could walk, so I may be a bit biased. However, I can wholeheartedly report that the Bananas game was a nonstop four hours of fun and entertainment that everyone should try and experience. It was made even better by the fact that it was a sold-out crowd at Sahlen Field in Buffalo, a strong 17,000 in attendance. I hope they make a stop in town for years to come.
After nothing to report last go-around, I am happy to bring you an analysis of an interesting decision from the Second Department. As you’ll read, the Second Department may have reached the same conclusion, but it dove into its own analysis of an underlying motion for summary judgment which wholly differed than the rationale used in the underlying decision.
I hope you all enjoy the read.
Rob
Robert J. Caggiano
[email protected]
Convention Debates Alcohol – 100 Years Ago:
Press and Sun-Bulletin
Binghamton, New York
19 July 1924
Prohibition Caused
Real Cleavage in
Democratic Ranks
Principal Fight in Convention Was Not Based on Religion as Shown By Delegates’ Enthusiasm for Walsh as Vice Presidential Candidate
THIRD PARTY MUST BE RECKONED WITH
BY MARK SULLIVAN
Washington, July 19 – It has been said, and will continue to be said, that the principal fight in the New York Democratic convention was a religious one and that there is a cleavage in the Democratic party based on religion.
But how explain these two facts:
First, the convention refused through more than 100 ballots to nominate Governor Smith of New York for president. That convention would not have nominated Smith for president or for any other office if it had lasted a year. Smith is a Catholic. This is frequently given as the reason the convention would not nominate him, and as proof of a religious cleavage.
LaBarbera’s Lower Court Library:
Dear Readers,
My sister recently moved to a little beach town outside of Boston, Massachusetts. I am planning to head over in a few weeks to help her decorate. This means I finally have an excuse to peruse Facebook Market. According to my boyfriend, our house has reached maximum capacity for wicker furniture. But who knows … I might ‘forget’ to pack a few of the items I found.
This week I am reporting on a case in New York County, where an insurer’s motion for summary judgment was granted based on two policy exclusions precluding coverage for bodily injuries related to any work being performed on an exterior insulation and finish system.
Until Next Time…
Isabelle
Isabelle H. LaBarbera
[email protected]
Love that Dirty Water – 100 Years Ago:
The Buffalo Commercial
Buffalo, New York
19 July 1924
Musty Water Taste
Entirely Harmless
Schwartz Says It Is Caused By Lake
Vegetable Growths; Won’t Last Long
Commissioner Schwartz today accounted for the “bad taste” in the water by issuing the following statement after many complaints had been registered at the bureau of water.
“Each summer about this time when the water begins to get warm a musty or marshy taste is occasionally noticed in the water which is due vegetable growths in the lake and tunnels. This condition will last but a short time and there is nothing that can be done to prevent it. The taste is perceptible in the warm tap water but if it is cooled the objectionable taste will be eliminated.
“The water supply at the present time is in excellent condition. The bureau of water laboratory has not had a positive test for B Coli in treated water at any time during the last two months; the turbidity is practically zero. Therefore, while the taste may be rather unpleasant, it is perfectly safe from a bacteriological standpoint.
North of the Border:
I’m looking forward to joining my FDCC colleagues in Toronto next week for the FDCC Annual Meeting. By then, most of the initial cleanup from the brutal storm that hit Toronto on the morning of July 16 ought to be complete.
Over just a few hours a series of rainstorms dumped a few months’ worth of rain – 100 mm – about 4 inches – which submerged stretches of highway, halted subway services, and flooded commercial and residential buildings across Toronto and beyond.
The subway level of Union Station, the transportation hub in downtown Toronto, was flooded. Power was out to the financial district. The result is a significant CAT situation that will impact commercial lines (flooded businesses on the subway concourses, business interruption claims) and personal lines (flooded cars, basements and storage lockers, food spoilage). The Insurance Bureau of Canada is expecting insured losses to be over $1 billion.
This storm front is exceedingly similar to the one that walloped the city with over $1 billion in losses nearly 11 years ago to the date. Commentators are calling on governments at all levels to fortify municipal infrastructure against our changing climate. But where do you start and more importantly, who is going to pay for it?
My column this week discusses a twist on an intriguing cyber coverage issue.
Best,
Heather
Heather A. Sanderson
Sanderson Law, Calgary, Alberta
[email protected]
Headlines from this week’s issue, attached:
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
- County Does Not Qualify as Omnibus Insured Under Auto Policy. County Not Liable for Acts of Contractor (That Wasn’t Negligent, Anyway)
- Issues of Fact on Timeliness of Disclaimer
PEIPER on PROPERTY (and POTPOURRI)
Steven E. Peiper
[email protected]
- Question of When the Insured Was Aware of Circumstances for a Claim Precludes Summary Judgment on Notice Issue
BARNAS on BAD FAITH
Brian D. Barnas
[email protected]
- Self-Insured Car Rental Company Not Subject to Duty of Good Faith and Fair Dealing Absent an Insurance Contract
LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel
[email protected]
- Court Refuses to Strike Boilerplate Affirmative Defenses
- No Rule Prohibits Ex Parte Communications with Opposing Expert
KYLE'S NOTEWORTHY NO-FAULT
Kyle A. Ruffner
[email protected]
- Court Denies Insurers Petition to Vacate Arbitration Award on the Grounds of Lack of Medical Necessity of Services
RYAN’S FEDERAL REPORTER
Ryan P. Maxwell
[email protected]
- Court Upholds Ultimate Appraisal Award of $5,016 For Mold Damage Despite Insured’s Appraisal Estimate of $731,317.03
STORM’S SIU
Scott D. Storm
[email protected]
- Busy vacationing in Europe. More informative cases in two weeks.
FLEMING’S FINEST
Katherine A. Fleming
[email protected]
- Arizona Supreme Court Answers Questions About “Use” of an Auto Under Auto Insurance Policy
GESTWICK’S GARDEN STATE GAZETTE
Evan D. Gestwick
[email protected]
- America Runs on Additional Insured Status: Dunkin’ Donuts Held an Additional Insured under Drive-Thru Customer’s Auto Policy Pursuant to Loading/Unloading Doctrine; Thousands Flee
O’SHEA RIDES the CIRCUITS
Ryan P. O’Shea
[email protected]
- Honeymooning. See you in two weeks.
ROB REACHES the THRESHOLD
Robert J. Caggiano
[email protected]
- Second Department Interestingly Affirmed, on Different Grounds, a Decision Denying Summary Judgment for Defendants Where the Court Found the Prima Facie Burden Was Not Met to Show Plaintiff Did Not Sustain Serious Injury Under Multiple Categories of Insurance Law § 5102
LABARBERA’S LOWER COURT LIBRARY
Isabelle H. LaBarbera
[email protected]
- Insurer Granted Summary Judgment for Work “Related to” EIFS Repair, Based on Express Exclusions Within Policy
NORTH of the BORDER
Heather A. Sanderson, K.C.
Sanderson Law
Calgary, Alberta, Canada
[email protected]
- A Cyber Insurer that has Paid a First Party Claim to its Insured Who Sustained a Ransomware Attack, May Seek Discretionary Restitution from the Sentencing Court in the Threat Actor’s Criminal Trial. Where a Mistake is Made in Awarding or Calculating the Restitution to be Provided, the Insurer May Have the Right Seek “Generous” Restitution on the Basis of Relief from Forfeiture in Respect of Proceeds Seized from the Threat Actor that Perpetrated the Attack
That’s all for now. Next week to the FDCC Annual Meeting in Toronto. Look forward to seeing many friends there and the rest of you on August 20!
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
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COPY EDITOR
Evan D. Gestwick
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INSURANCE COVERAGE/EXTRA CONTRACTUAL LIABILITY TEAM
Dan D. Kohane, Chair
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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
Kyle A. Ruffner
Katherine A. Fleming
Evan D. Gestwick
Ryan P. O’Shea
Isabelle H. LaBarbera
Lexi R. Horton
FIRE, FIRST PARTY AND SUBROGATION TEAM
Steven E. Peiper, Team Leader
[email protected]
Michael F. Perley
Scott D. Storm
Brian D. Barnas
NO-FAULT/UM/SUM TEAM
Dan D. Kohane
[email protected]
Kyle A. Ruffner
APPELLATE TEAM
Jody E. Briandi, Team Leader
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Topical Index
Peiper on Property and Potpourri
Barnas on Bad Faith
Ryan’s Federal Reporter
Gestwick’s Garden State Gazette
LaBarbera’s Lower Court Library
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
07/10/24 County of Nassau v. Progressive Casualty Insurance Co.
Appellate Division, Second Department
County Does Not Qualify as Omnibus Insured Under Auto Policy. County Not Liable for Acts of Contractor (That Wasn’t Negligent, Anyway)
Nassau County sought a defense in an underlying personal injury case called Ralha v Nassau County. Progressive issued a policy to Global Equipment Leasing, Ltd. (“Global”). The County alleged that it was vicariously liable for acts or omissions of any person otherwise covered under the policy pursuant to the definition of insured in section A (3) of Part I of the policy (the “omnibus provisions”). It also claimed untimely disclaimer and statutory waiver.
Progressive established its prima facie entitlement to judgment as a matter of law by demonstrating that, under the circumstances of this case, the County was not an insured as defined by the insurance policy the defendant issued to Global. In opposition, The County did not adduce evidence showing that it qualified as an insured under the policy. The Graves Amendment (see 49 USC § 30106) provides that the owner of a leased or rented motor vehicle cannot be held liable for personal injuries resulting from the use of such vehicle if the owner (1) is engaged in the trade or business of renting or leasing motor vehicles, and (2) engaged in no negligence or criminal wrongdoing contributing to the accident (see id. § 30106[a]; Here, Global leased the truck at issue to Tri State Paving, LLC (“Tri State”), and it was not alleged in the underlying action that any negligence on the part of Tri State contributed to the accident. Further, the defendant was not required to provide the plaintiff with a disclaimer, as the plaintiff's claim falls outside of the scope of coverage. In this case, "requiring payment of a claim upon failure to timely disclaim would create coverage where it never existed."
The County’s contention that it qualified as an insured under the policy as a person using the truck with permission under the policy, raised for the first time on appeal, is not properly before this Court.
07/03/24 Union Mutual Fire Insurance Co. v. 831 Quincy Street, LLC
Appellate Division, Second Department
Issues of Fact on Timeliness of Disclaimer
Union Mutual commenced this action, inter alia, for a judgment declaring that it is not obligated to defend or indemnify its insured, 831 Quincy Street, LLC in an underlying personal injury action. Contreras, the plaintiff in the underlying action, cross-moved, inter alia, for summary judgment declaring that the plaintiff is obligated to defend and indemnify 831 Quincy in the underlying action on the ground, among others, that the plaintiff failed] to timely disclaim or deny coverage.
Insurance Law § 3420(d)(2) requires an insurer to provide its insured and any other claimant with written notice of its disclaimer or denial of coverage as soon as is reasonably possible when a claim falls within the coverage terms but is denied based on a policy. An effective disclaimer notice must detail with "'a high degree of specificity . . . the ground or grounds on which the disclaimer is predicated'". Thus, any ground for disclaimer that is not specifically asserted in its notice is waived.
The Second Department that questions of fact on both sides preclude a decision by summary judgment, so the question of “reasonableness of delay” will be for a fact finder to determine.
PEIPER on PROPERTY (and POTPOURRI)
Steven E. Peiper
[email protected]
07/11/24 Vyaire Holding Co. v. Westchester Surplus Lines Ins. Co.
Appellate Division, First Department
Question of When the Insured Was Aware of Circumstances for a Claim Precludes Summary Judgment on Notice Issue
Plaintiff maintained a series of policies with defendant, Westchester. Of particular importance here, one policy term expired on March 7, 2019, and a second policy incepted on that same date. Each policy was triggered only where “an insured event” was discovered during the policy period and reported within thirty days after the discovery of the event.
In February of 2018, Vyaire learned of reports that one of its products was potentially causing aluminum poisoning during certain transfusion activities. Throughout the remainder of 2018, Vyaire conducted its own testing to determine if, in fact, the reports were true and one of its products was causing elevated aluminum levels. As of February 6, 2019, the insured believed it had isolated the issue and that a simple warning label on the product would be sufficient to allay any issues associated with its use.
By March 5, 2019, Vyaire had learned that several hospitals in the United Kingdom had suspended use of the product. At roughly that same time, the insured also learned that multiple European countries were contemplating regulatory actions. At that same time, Vyaire made the decision to suspend use of the product in Europe. And, on March 6, 2019, it notified the US FDA that it was about to initiate a suspension of the products in Europe. Notice was ultimately provided to Westchester on March 12, 2019.
As an initial matter, the Appellate Court concluded that the 2019/20 policy term was inapplicable because Vyaire had been certainly aware of the claim prior to the expiration of the 2018/19 policy.
The question then became whether, or more specifically when, Vyaire should have been aware that an “insured event” had occurred. Because it was unclear if Vyaire had a reasonable belief that product recall event was going to occur more than thirty days from March 12, 2019, the court found a question of fact and denied both sides motion for summary judgment.
BARNAS on BAD FAITH
Brian D. Barnas
[email protected]
07/09/24 Haskell v. EAN Holdings, LLC
United States District Court, District of South Carolina
Self-Insured Car Rental Company Not Subject to Duty of Good Faith and Fair Dealing Absent an Insurance Contract
Haskell rented a vehicle from Enterprise. He did not have personal auto liability insurance coverage and declined Enterprise’s offer of coverage when he rented the vehicle. The vehicle Haskell rented was owned by EAN, which self-insured the vehicle. EAN and Enterprise are corporate affiliates.
The rental agreement provided that it did not extend liability coverage except to the extent required by the motor vehicle responsibility laws of the applicable state minimum financial responsibility amounts. South Carolina law requires $25,000 per person and $50,000 per accident. Self-insured rental car companies must provide minimum liability minutes.
On February 24, 2018, Haskell was involved in a violent collision that resulted in the death of three occupants of the struck vehicle. Haskell was suspected of driving under the influence and was traveling in excess of 100 miles per hour at the time of the collision. Haskell died as a result of his injuries. Enterprise paid the entire amount of the minimum financial responsibility limits to the estates of the decedents.
One of the decedent’s estates commenced a wrongful death action against the Haskell estate. Enterprise declined to provide a defense because it had paid the entire amount of the available coverage. Haskell’s estate went into default, and the state court awarded $5 million in damages. The Haskell estate signed its rights under the contract with the rental company to the wrongful death plaintiff, which commenced an action alleging breach of contract and bad faith.
The court dismissed the bad faith claim on summary judgment. It held that a self-insured rental car company is not an insurance company and is not subject to a bad faith claim. While the obligation of a self-insured car rental company to provide minimum liability insurance to uninsured renters substitutes for an insurance policy, it does not create a contract of insurance. A self-insured rental car company’s obligation begins and ends with the duty to provide payment up to the state’s minimum financial responsibility limits. It does not carry the additional obligation imposed on an insurance company to provide a defense to its insured and negotiate settlements that protect the renter from an excess liability beyond the minimum limits. The court reasoned that ruling otherwise would provide an uninsured driver who elected not to purchase insurance coverage at the time of the rental with the benefits of an insured who paid premium and was issued an insurance contract.
The breach of contract claim was also dismissed on summary judgment. The rental car agreement did not require Enterprise to do anything beyond paying the minimum limits required by state law.
LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel
[email protected]
07/12/24 Salgado v. USLI
United States District Court, Connecticut
Court Refuses to Strike Boilerplate Affirmative Defenses
Demonstrating the different pleadings standards between Connecticut state and federal court, the federal court refused to dismiss USLI’s boilerplate affirmative defenses. Here, Salgado won a judgment against USLI’s insured but when the carrier refused to pay, Salgado brought a direct action against the carrier in state court. USLI removed to federal court and raised 10 affirmative defenses. The plaintiff moved to strike five of the defenses – waiver, estoppel, laches, unclean hands, and the “policy terms and conditions.” Salgado argued that USLI asserted no factual support for any of the defenses. This argument likely would have carried the day in state court, which requires factual pleading.
The district court applied a three-pronged test for a motion to strike under FRCP 12(f): (1) there is no question of fact that might allow the defense to succeed; (2) there is no substantial question of law that might allow the defense to succeed; and (3) the plaintiff would be prejudiced by the inclusion of the defense. Ruling for USLI, the court held that the plaintiff failed to meet any prong of the test and noted that Second Circuit caselaw strongly disfavors disturbing the pleadings.
07/12/24 Epright v. Liberty Mut. Ins. Co.
Supreme Court of Connecticut
No Rule Prohibits Ex Parte Communications With Opposing Expert
The Supreme Court weighed in on the question of whether the plaintiff’s attorney crossed an ethical line in coopting Liberty’s expert in this UIM case. The trial court ruled that the line had been crossed, striking the expert and sanctioning plaintiff’s counsel. The Appellate Court reversed and now the Supreme Court agreed with the Appellate Court.
The facts are interesting. Pursuant to Practice Book § 13-4, Liberty Mutual identified Dr. Depuy as an expert witness, reporting that Depuy would testify, on the basis of his review of Epright's medical records, that the medical treatment Epright received with respect to her left shoulder was not related to the motor vehicle accident. Liberty Mutual supplemented the disclosure with an addendum reporting that Depuy would also testify that Epright did not complain of shoulder pain until several months after the accident.
The plaintiff deposed Depuy. Depuy testified that he reviewed all of Epright's medical records and found no indication that Epright complained of shoulder pain until well after the accident. Depuy concluded that Epright's shoulder injury was unrelated to the accident. Counsel asked Depuy whether it would change his opinion if Depuy learned that Epright in fact had been complaining of shoulder pain since the date of the accident, to which Depuy responded that such information might change his opinion. Depuy denied having been provided with Epright's deposition transcript.
Subsequently, without informing Liberty Mutual, another of plaintiff’s attorneys contacted Depuy's office to have Depuy examine Epright, for a fee. Plaintiff filed a detailed expert disclosure, indicating that Epright intended to call Depuy as her own expert witness. The disclosure stated that Depuy was expected to testify, inter alia, that the injuries to Epright's shoulder were the direct result of the motor vehicle accident. Depuy examined Epright, and issued a report opining that Epright's shoulder injury was in fact causally related to the accident.
Liberty Mutual cried foul, filing a motion for an injunction and disgorgement of fees. Liberty Mutual sought to enjoin Depuy from testifying, to prohibit any use of Depuy's medical examination report at trial, and to require Depuy to disgorge all sums of money Liberty Mutual had paid him for his expert services in the underlying action. Epright objected, arguing that neither Connecticut caselaw nor the rules of practice prohibit a plaintiff from contacting the defendant's disclosed expert witness or calling the witness as the plaintiff's own expert.
The trial court disqualified Depuy, concluding that the plaintiff engaging in ex parte communications with Depuy “constitutes a clear violation of Practice Book § 13-4.” The court reasoned that § 13-4, which governs expert witness discovery, does not explicitly allow ex parte contact with an opposing party's expert witness. Consequently, the court concluded that the rules of practice “do not authorize [counsel to make], and thus implicitly forbid counsel from making, ex parte contact with the opposing party's disclosed expert.” The trial court also ordered plaintiff’s to reimburse Liberty Mutual for its payments to Depuy.
Plaintiff appealed, arguing that the trial court abused or improperly exercised its discretion in ordering sanctions. The Appellate Court agreed and reversed the order granting sanctions, concluding that Practice Book § 13-4 does not clearly prohibit ex parte communications between an attorney and an opposing party's disclosed expert witness. See Epright v. Liberty Mutual Ins. Co., 212 Conn. App. 637, 639–40, 662, 276 A.3d 1022 (2022). This appeal followed.
The Supreme Court agreed with the Appellate Court. “Our review of the language of Practice Book § 13-4 similarly reveals that the text itself does not contain an explicit prohibition on ex parte communications with an expert witness disclosed by an opposing party.” The Court also noted that the rules of professional conduct do not limit an attorney’s contact with an expert witness. The Court also compared contact with a disclosed expert witness with the limitations prohibiting contact with a consulting expert, in order to find that there is no clear prohibition.
Communication with a disclosed expert is treated differently for good reason. Permitting a party to take a deposition of an opposing party's disclosed expert and to review the materials obtained, created, and relied on by that expert in arriving at his or her opinion is necessary because the disclosed expert will testify at trial and be subject to cross-examination. If this were not so, parties would be unduly hampered in their trial preparation and ability to effectively cross-examine the expert. We acknowledge that the rule does provide a way to take a deposition to satisfy those concerns, but it does not follow therefrom, as Liberty Mutual suggests, that the rule clearly prohibits all communication outside of a deposition.
While finding for the plaintiff, the Court struck a cautionary note. “Still, we pause here to make it clear that we do not express any approval of the firm's conduct in this case, and we do not opine on whether ex parte communication with an opposing party's expert should or should not be permissible.”
KYLE’S NOTEWORTHY NO-FAULT
Kyle A. Ruffner
[email protected]
06/28/24 Am. Trans. Ins. Co. v. Excell Clinical Lab a/a/o Veloz
Civil Court of the City of New York, New York County
Court Denies Insurers Petition to Vacate Arbitration Award on the Grounds of Lack of Medical Necessity of Services
In the underlying arbitration, the medical provider was awarded No-Fault benefits arising from a motor vehicle accident, which was upheld by a master arbitrator. The insurer sought to vacate the award pursuant to CPLR 7511(b), arguing based on a peer review report the disputed services were not medically necessary and that it was the burden of the provider to establish medical necessity of the services. The insurer further asserted that the provider’s failure to meet this burden meant the arbitrator’s decisions were not “final and definite.”
The court disagreed with the insurer’s view of how the evidentiary burden shifts between the petitioner and respondent. While the alleged framework would apply to a trial determining a motion to summary judgment, the court clarified that "when determining an issue of medical necessity, a No-Fault hearing arbitrator is not required to apply the well-settled case law holding that the health service provider must submit expert opinion evidence which meaningfully refers to and either discusses or rebuts the conclusions of the insurer's expert witness".
Judicial review of arbitration awards is extremely limited and vacatur of an award pursuant to CPLR 7511(b)(iii) is warranted only if it violates a strong public policy, is irrational, or clearly exceeds a specifically enumerated limitation on the arbitrator's power. However, the insurer did not allege a violation of strong public policy or that the award clearly exceeded a specifically enumerated limit. The Court therefore did not find either arbitrator's reasoning to be irrational, as it indicated a close examination of the application materials and a finding that an MRI report established a reasonable basis to perform the services at issue. Further, the court held that the award was sufficiently final and definite, as the controversy was clearly resolved and noting in the award would lead to parties to a new controversy.
Accordingly, the court denied the petition to vacate the arbitration award.
RYAN’S FEDERAL REPORTER
Ryan P. Maxwell
[email protected]
07/12/24 Zarour v. Pacific Indemnity Company
Second Circuit Court of Appeals
Court Upholds Ultimate Appraisal Award of $5,016 for Mold Damage Despite Insured’s Appraisal Estimate of $731,317.03
The Zarours commenced this lawsuit against their insurer, Pacific Indemnity Company, in connection with damage caused to their home by Superstorm Sandy in October 2012. The Zarours alleged breach of contract, breach of the implied covenant of good faith and fair dealing, and bad faith on the part of Pacific for its failure to cover damage caused to their home.
In July 2015, the district court dismissed the Zarours’ demands for consequential and punitive damages, as well as their claim for breach of the implied covenant, and also granted Pacific’s motion for an appraisal, staying the case pending that appraisal. Following an initial appraisal in 2016 (the “2016 Appraisal”), the district court ordered a second appraisal in 2017 (the “2017 Order”) on the issue of mold damage, which ultimately occurred in 2022 (the “2022 Appraisal”). The district court subsequently granted Pacific’s motion to confirm the appraisal award in the total amount of $115,507, consisting of (1) the award issued by the appraisal panel in the amount of $110,490.20 based on the 2016 Appraisal and (2) the award issued by the appraisal panel in the amount of $5,016.80 based on the 2022 Appraisal to cover the additional cost of mold damage to the home. After confirming the appraisal awards, the district court dismissed the case.
The Zarours disagreed, arguing on appeal that the district court erred in confirming the 2022 Appraisal award for mold damage because: (1) the disparity between the appraisal award and the Zarours’ appraiser’s estimate raises an inference of bias or bad faith; (2) the appraisal panel did not properly investigate the presence of mold as instructed in the 2017 Order; and (3) the district court did not provide the Zarours with an opportunity to contest the appraisal award in a factual hearing.
Upholding the 2022 Appraisal, the Second Circuit noted that New York law allows courts to order an appraisal to “determine the actual cash value, the replacement cost, the extent of the loss or damage and the amount of the loss or damage which shall be determined as specified in the policy” and provides that the appraisal “shall proceed pursuant to the terms of the applicable appraisal clause of the insurance policy and not as an arbitration.” N.Y. Ins. Law § 3408(c). Such an appraisal determination should be upheld in the absence of fraud, bias, or bad faith, which must be established by “clear and convincing” evidence.
Given this standard, the Second Circuit had no problem finding for Pacific Indemnity Company. Specifically, it found that “[t]he Zarours provided no evidence—let alone clear and convincing evidence—that the 2022 Appraisal was the result of fraud, bias, or bad faith.”
The Zarours had primarily argued that “the disparity between the appraisal award of $5,016.80 for mold damage and the Zarours’ appraiser’s estimate of $731,317.03 ‘leads to a conclusion that the signed appraisal must have been a product of bias, corruption or partiality.’” However, they cited a case that concerned an arbitration based on an appraisal rather than the appraisal itself. And even applying the standard from the case cited, the Second Circuit noted that a “final award may be set aside if the appraisal utilized for calculating damages is ‘enormously disproportioned to the case proved,’” rather than “merely in relation to one appraiser’s estimate.” Otherwise, there would be perverse incentive for selecting an appraiser that would vastly inflate/deflate appraisal value.
The Second Circuit found that the Zarours’ appraiser was not certified, had assumed mold was present without any actual investigation, declined to remove wind-driven rain damage as directed by the district court relative to the 2022 Appraisal, and had actually modelled his estimate on one generated by none other than Mr. Zarour himself. This finding was capped off by the fact that the neutral umpire hired a mold specialist to assist in reviewing the parties’ submissions.
While the Zarours contend that the appraisers used suspect methods for the appraisal, it was clear that the parties followed the appraisal procedure precisely as laid out by the policy. Equally unavailing was the Zarours argument that the award failed to comply with the 2017 Order, since that order permitted the “appraisal panel to reopen the appraisal to determine if, and to what extent, plaintiffs have suffered losses under the Policy due to mold damage,” which occurred and resulted in the 2022 Appraisal. Finally, while the Zarours contend that they should have been permitted a factual hearing, the Second Circuit found that an appraisal award is final, absent fraud, bias, or bad faith—lest the procedure be rendered meaningless.
STORM’S SIU
Scott D. Storm
[email protected]
Busy vacationing in Europe. More informative cases in two weeks.
FLEMING’S FINEST
Katherine A. Fleming
[email protected]
07/10/24 Staker & Parson Cos., Inc. v. Scottsdale Ins. Co.
Arizona Supreme Court
Arizona Supreme Court Answers Questions About “Use” of an Auto Under Auto Insurance Policy
The United States District Court for the District of Utah certified four questions to the Arizona Supreme Court:
1. Under Arizona law, is an additionally named insured on a commercial automobile liability insurance policy “using” an independent contractor’s covered vehicle when that vehicle is being operated by an employee of the independent contractor to transport the additionally named insured’s cargo and the additionally named insured does not have active or actual control over the vehicle’s operation or the independent contractor’s employee?
2. Under Arizona law, is an additionally named insured on a commercial automobile liability insurance policy “using” an independent contractor’s covered vehicle when that vehicle is being operated by an employee of the independent contractor to transport the additionally named insured’s cargo over private roads that are owned and maintained by the additionally named insured, regardless of whether the additionally named insured has active or actual control over the vehicle’s operations of the independent contractor’s employee?
3. Under Arizona law, can the managerial functions of an additionally named insured on a commercial automobile liability insurance policy, such as establishing safety training procedures for independent contractors operating vehicles on the additionally named insured’s property, constitute a “use” of an independent contractor’s covered vehicle?
4. If the answer to any of Questions (1) through (3) above is “yes,” under Arizona law, is there a sufficient causal link between the additionally named insured’s “use” of the covered vehicle and theories of liability for personal injuries sustained by the independent contractor’s employee to trigger an insurer’s duty to defend the additionally named insured when the employee stopped and exited the vehicle and was injured when attempting to dislodge an obstruction that became lodged in the vehicle’s dual tires while it was being operated on the additionally named insured’s private roads?
An accident occurred at a pit mine operated by Staker. Staker entered into a Haul and Materials Agreement with BDR Transport, who was to transport rock material between processing areas located within the pit mine site. BDR was required to procure certain insurance coverages and name Staker as an additional insured. A BDR employee hauled rock in a BDR tractor and trailer, and a rock became lodged between the trailer’s dual set of tires. The employee tried to dislodge the rock with a hammer, and the tires exploded, seriously injuring him. The employee sued Staker, BDR, and certain agents, alleging negligence in improper loading of the trailer, improper maintenance of the private road, and failure to devise and implement safety training and techniques. Staker tendered to Scottsdale Insurance Company (SIC). SIC issued a commercial auto policy to BDR in accordance with the haul agreement, naming Staker as an AI. However, SIC denied coverage, asserting Staker did not qualify as an insured under the policy because it was not using the vehicle at the time of the accident. Staker sued SIC for a determination of its obligation to provide and pay for Staker’s defense.
The Arizona Supreme Court answered the first question in the affirmative because “use” includes loading and unloading an additionally named insured’s cargo, and such loading and unloading does not require the additionally named insured’s “active or actual control over the vehicle’s operation.” Arizona law provides that “loading and unloading” a vehicle constitutes the “use” of that vehicle under Arizona auto insurance policies. The Court concluded that loading and unloading is a continuous process that includes the transportation of the cargo being loaded and unloaded. The Court clarified that “use” is not confined to either control or the loading and unloading process, but rather, “use” is a broad concept. The Court defined “use” as the permissive user taking some action that involves the inherent nature of the particular vehicle as intended.
For the second question, the Court concluded that “use” does not arise independently from the injured party’s use of a vehicle over private roads owned and maintained by the additional named insured. Since the theory of negligence was based on the maintenance of the private road, it did not arise from the ownership, maintenance, or “use” if a covered vehicle.
Similarly, the Court determined that the failure to provide safety training—managerial functions—for dealing with rocks stuck between tires did not constitute “use” of a covered vehicle. The Court reasoned that shifting the burden of training to the auto insurer would disincentivize worksite training if there were coverage for accidents no matter how tenuously linked to the covered vehicle. Concluding that managerial functions are not the “use” of a covered auto also does not run afoul of the legislature’s intent to compensate individuals injured by the use of a motor vehicle because the employee was still able to pursue his claim that he received inadequate training.
Finally, the Court answered the fourth question by providing Arizona law on causation in the context of automobile insurance policies. Arizona law requires a causal relationship between an injury and the ownership, maintenance, or use of a motor vehicle. Since causation is a question of fact, the Court left the question of a causal link to the trier of fact.
GESTWICK’S GARDEN STATE GAZETTE
Evan D. Gestwick
[email protected]
07/09/24 Bridgewater Donuts, LLC et al. v. GEICO Indem. Co.
Superior Court of New Jersey, Appellate Division
America Runs on Additional Insured Status: Dunkin’ Donuts Held an Additional Insured under Drive-Thru Customer’s Auto Policy Pursuant to Loading/Unloading Doctrine; Thousands Flee
The plaintiffs in this case owned and operated a Dunkin’ Donuts. The plaintiffs were sued by a drive-thru customer after one of its drive-thru workers spilled hot tea on a customer when passing it through her window. The plaintiffs demanded a defense under the customer’s auto policy and were denied. This suit followed.
The plaintiffs’ theory behind their supposed additional insured status was that their employee was in the process of loading the (single) cup of tea into the customer’s vehicle when the injury occurred. New Jersey law requires every owner of every automobile to maintain auto liability insurance, insuring against loss arising out of the use of their automobile. See N.J.S.A. 39:6A-3. New Jersey case law interprets this requirement very broadly, for the public policy reason of ensuring that injured victims are fairly compensated for their injuries. New Jersey courts hold that, implicit in this requirement is the requirement to provide coverage to all persons who participate in the loading and/or unloading of the automobile, such that the loader/unloader is a “user” of the vehicle.
The key to determining whether someone was involved in “loading/unloading” activities when the loss occurs is whether the act or omission resulting in the injury was necessary to carry out the loading or unloading process. New Jersey courts have held that even acts or omissions taken while preparing to load or unload a vehicle are necessary to carry out the loading or unloading function, and therefore, constitute “use” under the statute. The critical question New Jersey courts consider on this issue is whether the user’s actions were an “integral part” of the loading or unloading process.
The Court held that the plaintiffs were an additional insured under the customer’s auto policy. The Court reasoned that the drive-thru window was made available by the plaintiffs to its customers, to allow them to purchase items while remaining in their cars. Loading a hot cup of tea into a drive-thru customer’s vehicle, the Court reasoned, is therefore an integral part of the expected transaction.
Editor’s Note: An integral part of the expected transaction? Sure. But that’s not what the cases examine, necessarily. Rather, the cases examine whether the act causing the injury was an integral part of the loading or unloading process. Either way, under the existing case law, as crazy as this result may seem, I think the Court reached the right outcome.
But let’s change the facts. Let’s say someone throws a rock through someone else’s car window, and bonks them on the head, and the bonkee (that’s a legal term) sues (forget about the intentional acts/assault & battery exclusion for a second). Is the bonker (another legal term) an additional insured under the bonkee’s auto policy? Was the bonker loading the rock into the vehicle? The Court here does not discuss what “loading” means, other than to say that those engaged in the loading of a vehicle are “users” of the vehicle and therefore are insureds under its policy, and that the act causing the injury must bear a nexus to the loading of the vehicle.
Let’s change the facts again. This time, Company A put some plastic bands around some cardboard boxes before the boxes were loaded onto a freight truck. After the boxes were loaded onto the truck, a worker climbed up into the trailer, pulling on one of the bands to hoist himself up. The band snapped, and the worker fell and got hurt. Is Company A an insured under the truck’s policy? The same Court that decided this case said no, because the banding of the boxes happened before the boxes were loaded into the truck. Interesting stuff.
O’SHEA RIDES the CIRCUITS
Ryan P. O’Shea
[email protected]
Honeymooning. See you in two weeks.
ROB REACHES the THRESHOLD
Robert J. Caggiano
[email protected]
07/03/24 Moon v. Ramirez et al
Appellate Division, Second Department
Second Department Interestingly Affirmed, on Different Grounds, a Decision Denying Summary Judgment for Defendants Where the Court Found the Prima Facie Burden Was Not Met to Show Plaintiff Did Not Sustain Serious Injury Under Multiple Categories of Insurance Law § 5102.
Defendants appealed from an Order of Supreme Court, Queens County, which denied a motion for summary judgment seeking to dismiss the complaint on the grounds that Plaintiff did not sustain serious injury pursuant to Insurance Law § 5102(d). Importantly, in denying Defendants’ Motion, the Supreme Court found that Defendants’ failed to establish their prima facie burden that Plaintiff did not sustain a serious injury under the 90/180 category of §5102(d). On review, the Second Department unanimously affirmed denial of the motion, but did so on the grounds that Defendants failed to establish their prima facie burden that Plaintiff did not sustain serious injury under the permanent consequential limitation of use or significant limitation of use categories of § 5102(d).
By way of background, this matter stems from an incident when Plaintiff Yoon Sik Moon was allegedly struck by a motor vehicle owned by Defendant KND Licensing Electrical Contracting Services Corp. and operated by Defendant Paulo O. Ramirez. Plaintiff alleged serious injury, including to the left hip. It was argued that this serious injury qualified under the permanent consequential limitation of use, significant limitation of use, and 90/180 categories of § 5102(d). As noted, Defendants moved for summary judgment arguing Plaintiff failed to sustain a serious injury. In support of their motion, Defendants submitted deposition testimony of the Plaintiff, numerous medical records from treating providers, and an IME expert report.
On review, the Second Department interestingly turned its focus towards the sufficiency of Defendants’ proof in support of the motion as it pertained to the permanent consequential limitation of use or significant limitation of use categories – as opposed to the 90/180 category which was the only one relied upon in the lower court’s denial. Specifically, it was found that Defendants failed to meet their prima facie burden to show that Plaintiff’s left hip injury met the criteria for those two categories – and failed to establish that the injury was not caused by the accident of record. Based on this finding, the Second Department did not even consider whether Defendants established the requisite prima facie burden with regard to the 90/180 category. Likewise, based on the initial findings, the Second Department did not review the sufficiency of Plaintiff’s submissions in opposition.
Accordingly, the Order of the Supreme Court, Queens County, which denied Defendants’ motion for summary judgment was unanimously affirmed, on different grounds.
LABARBERA’S LOWER COURT LIBRARY
Isabelle H. LaBarbera
[email protected]
07/02/24 MDB Dev. Corp. v. State Natl. Ins. Co., Inc.
Supreme Court of the State of New York, New York County
Insurer Granted Summary Judgment for Work “Related to” EIFS Repair, Based on Express Exclusions Within Policy
MDB Development Corp (“MDB”) provided labor, materials, and equipment in connection with a construction project in Brooklyn, New York. After work had been completed, MDB was called back pursuant to a Change Order. The Change Order stated that MDB was to repair 30 feet of exterior insulation and finish system (“EIFS”) along the exterior of a building.
During the course of repairing the EIFS, an employee of the subcontractor was allegedly injured after falling off a ladder. The employee commenced a lawsuit against various parties, including MDB (the “Underlying Action”). After the Underlying Action was filed, MDB filed a claim with its insurer, State National Insurance Company, Inc (“SNIC”). SNIC denied coverage under the commercial general liability policy (the “SNIC Policy”) issued to MDB.
After coverage was denied, MDB filed a lawsuit against SNIC, alleging breach of contract. Currently before the court was SNIC’s motion for summary judgment, seeking an Order that SNIC was not obligated to defend or indemnify MDB in the Underlying Action. SNIC alleged the injuries were precluded from coverage based on express exclusions within the SNIC Policy.
The SNIC Policy contained an exclusion for bodily injuries resulting from “[a]ny work or operations with respect to any exterior component, fixture, or feature of any structure if an ‘exterior insulation and finish system’ was used on any part of that structure.”
An additional exclusion in the SNIC Policy precluded coverage for any bodily injuries “arising out of the design, manufacture, construction, fabrication, preparation, installation, application, maintenance, or repair, including removal, remodeling, service, correction, or replacement of an ‘exterior insulation and finish system.’”
In opposition to the motion, MDB alleged there was an issue of fact regarding whether the underlying plaintiff was performing work directly related to the repair of the EIFS at the time of the alleged injuries.
The Court agreed with SNIC, stating that there was no question of fact that the underlying plaintiff was at the construction project to ultimately repair the EIFS. The court highlighted that if the sole purpose of the construction work was in relation to EIFS, the precise task of the injured party does not change the fact that the injury was “related to” EIFS installation. As such, the court found that the express exclusions within the SNIC Policy precluded coverage.
Here, the Change Order indisputably showed that the alleged injury was related to EIFS repair. Therefore, the court found that SNIC has no obligation to defend or indemnify MDB in relation to the Underlying Action.
NORTH of the BORDER
Heather A. Sanderson, K.C.
Sanderson Law
Calgary, Alberta, Canada
[email protected]
07/12/24 R. v. Travelers Insurance Company of Canada
Ontario Court of Appeal
A Cyber Insurer That Has Paid a First Party Claim to Its Insured Who Sustained a Ransomware Attack, May Seek Discretionary Restitution From the Sentencing Court in the Threat Actor’s Criminal Trial. Where a Mistake Is Made in Awarding or Calculating the Restitution to Be Provided, the Insurer May Have the Right to Seek “Generous” Restitution on the Basis of Relief From Forfeiture in Respect of Proceeds Seized From the Threat Actor That Perpetrated the Attack
To his neighbours and co-workers, Sébastien Vachon-Desjardins was an ordinary, clean cut, mid-thirties, well educated, completely bilingual, polite, IT Specialist, employed by Public Service Canada (i.e., the Canadian Federal Government) in Ottawa. Whenever a Canadian government employee had a computer problem, Sébastien and his co-workers would handle it.
In his personal life, Sébastien seemed to epitomize ‘dull.’ He drove a Toyota Corolla; lived in a white, two-story stucco house in Gatineau, Quebec, across the Ottawa River from the City of Ottawa. Each day he got up at the same time; had a workout at the same time in his home gym; had breakfast; coffee and then headed to work. Before the COVID pandemic that meant walking across the bridge to Ottawa. During lockdown, which meant heading upstairs where he worked in an office kitted out with a computer connected to six screens and two keyboards.
But on a cold and snowy January morning in 2021, a morning that started like all other mornings before it, there was commotion on the street. Sébastien looked out a second story window to see that a Royal Canadian Mounted Police tactical team had deployed to surround his house. They were there to execute a search warrant. As a result of that search, the RCMP seized over 30 devices, which contained a total of 20 terabytes of information. According to court documents, if this data were printed, it would fill an entire hockey arena—a distinctly Canadian unit of measurement. Police also found a huge amount of cash in his home—$640,040—and another $420,940 in his bank accounts. Pictures distributed by the RCMP show piles of stacked $20, $50, and $100 bills as well as his six-monitor, two-keyboard, desk set-up.
In the end, the RCMP seized 719 Bitcoins from Sébastien’s e-wallet. More was found in Monero. At the time this crypto currency was seized, it was worth about $28 million.
This search and seizure proved the RCMP investigation to be correct: Boring, dull, ordinary Sébastien, was, by night, a ransomware pirate.
Sébastien was charged with mischief in relation to computer data, unauthorized use of a computer, extortion, and participation in the activities of a criminal organization.
The criminal organization that Sébastien was a part of was NetWalker. NetWalker was an organized criminal group, based in Russia, which was responsible for providing ransomware-as-a-service (RaaS). Their RaaS model involved developers (i.e., individuals who develop, update, and make the ransomware available) and affiliates (i.e., individuals who rent the ransomware, identify targets, and deploy ransomware). The NetWalker RaaS offered affiliates the ability to rent access to the ransomware in exchange for a portion of the proceeds obtained from extorting targets. The ransomware targeted emergency services, law enforcement, healthcare institutions, educational institutions, and commercial institutions.
In 2019, Sébastien applied to be a NetWalker affiliate (he completed an application on the dark web). He was accepted. By April of 2020, Sébastien was trained on their software, had learned what to say to the targets and when to say it.
By the time Sébastien completed his training, NetWalker was a serious, established organization. It had a hierarchical management, protocols, guidelines, its own IT staff, and a defined business model. NetWalker focused on businesses in certain sectors that had $30 million in annual revenue or more. The initial ransom ask would be 1% of the victim’s annual revenue. They had determined that businesses of that size were more likely to pay the ransom to avoid embarrassment and disruption. This business model worked. By the spring of 2020, just as the COVID pandemic began to cut its swath around the world, Sébastien was ready to deploy the ransomware issued by the most prolific ransomware organization in the world. In exchange for a significant percentage off the top paid to NetWalker, affiliates like Sébastien were able to play in the ‘major league.’
In short order, Sébastien became the most prolific of NetWalker’s 100 or so affiliates. By night, he breached private computer networks and systems, hijacked victims’ data, and held the stolen data for ransom. He distributed stolen data when ransoms were not paid. If and when his victims paid the demanded ransoms in Bitcoin or Monero, Sébastien provided a decryption key that allowed his victims to access their data. He was so good that NetWalker ‘employed’ him to teach online courses to aspiring hackers. From May 2020 to January of 2021, by targeting businesses in Canada, the United States, and elsewhere, Sébastien had secured US$21 million in ransomware payments which was half of NetWalker’s $40 million in worldwide income. His victims included, Michigan State University, the Champaign-Urbana Public Health District in Illinois, the College of Nurses of Ontario, and the Medical School of the University of California at San Francisco, (which paid a $1.1 million US ransom) and The Sick Kids Hospital in Toronto.
When news of his arrest was made known, Sébastien was celebrated on the dark web as the Ransomware King – the French-Canadian Press dubbed him the “Le pirate de Gatineau.”
The case against Sébastien was overwhelming. Sébastien clearly realized that as he fully cooperated with the RCMP and plead guilty at his first opportunity. As he assisted in recovering the extorted funds, he was sentenced in an Ontario court to six years, eight months. Sébastien was also ordered to pay restitution in the amount of C$2,805,829.97 and forfeit the cryptocurrencies and Canadian currency from accounts and safety deposit boxes in Quebec and Ontario to the Crown.
In short order, Sébastien was extradited to the United States where he faced similar charges in federal court. He pled guilty there as well. His cooperation with the Canadian authorities did nothing to reduce his American sentence – 20 years – more than the 15-16 years recommended by the district attorneys.
Travelers Insurance Company of Canada issued cyber insurance policies to two separate Canadian entities, Xpertdoc and Thibert, both of which had fallen victim to Sébastien. Both insureds made successful claims to Travelers under their respective insurance policies. These losses included each insured’s expenditures to negotiate and pay the ransom, acquire, and transfer the demanded Bitcoin, and then rehabilitate their data and systems to a usable state once the decryption key was provided. Travelers paid out more than $250,000 to Xpertdoc and, ultimately, around $1 million to Thibert. Both Xpertdoc and Thibert paid a $10,000 deductible under their respective policies.
Under the Criminal Code, where wrongfully acquired assets have been seized, the sentencing court can make a completely discretionary restitution order. The RCMP gathered information to put to the Court to request a restitution order and presented that information to the Crown Prosecutor, who offered it to the sentencing judge.
The sentencing judge agreed to issue a restitution order and provided what following courts declared to be generous restitution. That order, made at Sébastien’s sentencing, including the amounts that Travelers had paid to Thibert, but not the amount paid to Xpertdoc. It seems that due to an oversight, the Crown Prosecutor did not put the information regarding Travelers’ subrogated claim on Xpertdoc to the sentencing judge and did not provide Travelers with notice of the subsequent forfeiture application (the application made by the Crown to have the remaining amounts seized paid to the Crown) that followed the issuance of the restitution order. It was only after the sentencing and the forfeiture application that Travelers discovered that their claim regarding Xpertdoc had been omitted from the restitution order. Travelers asked for a reconsideration. The sentencing judge declared that he was functus and unable to revise the order.
The Crown opposed Travelers request for restitution stating that sentencing is now complete as neither Sébastien nor the Crown were appealing sentence. Travelers argued that the Crown was holding the amount that Travelers had paid to Xpertdoc on a constructive trust in favour of Travelers. The Crown replied stating that the support costs paid by Travelers under its first party coverage was not recoverable from them – those amounts had been paid under a contract - only the ransom was recoverable.
Travelers brought an unsuccessful application in the Ontario Courts on the civil side requesting relief from forfeiture under the Canadian Criminal Code and restitutionary remedies. That application was denied. Travelers appealed to the Ontario Court of Appeal. That Court held that Travelers had the requisite “interest in property that is forfeited” under s. 462.42(1) of the Criminal Code to support its demand for relief from forfeiture. An “interest in property that is forfeited” has been interpreted to mean “a person who has title or is entitled to possession” of the property in question. An “interest in property that is forfeited” can be by way of a constructive trust imposed because of an unjust enrichment. The Court of Appeal held that Travelers has a valid claim for unjust enrichment supporting a constructive trust over the portion of the proceeds forfeited to the Crown in the amount of Xpertdoc’s claim that was paid out by Travelers as at the time of sentencing. Travelers was entitled to full reimbursement as the sentencing judge had made generous restitution in the original order and if Travelers’ interest had been before that judge, there is every indication that restitution would have been ordered. In other words, the Crown was holding the full amount of Travelers subrogated claim under a constructive trust and it was ordered to disgorge that amount.
As Travelers was successful, the Crown, who opposed Travelers’ application throughout, was held liable to pay court costs to Travelers.
Although Sébastien is no longer operating, threat actors like him are continuing their malicious ransomware attacks on entities throughout the world. Their tactics and operations are only increasing in sophistication. This means that the world of civil claims and the justice systems of various countries will collide as they did in this case.
My good friend, FDCC and Canadian Defence Lawyers member, David Mackenzie, acted for Travelers throughout.
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