Coverage Pointers - Volume XXVI No. 7

Volume XXVI, No. 7 (No. 680)
Friday, September 13, 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.  Even on Friday the 13^th.  Call if you have one:  716-849-8942.

For our new subscribers, the 680^th edition of Coverage Pointers is attached.  Don’t forget to read it, not just this cover note.  If you have a quiet moment and you want to read the 679 previous issues, they are all available on our website.

On August 20^th, we presented a Risk Transfer Primer.  We have had a number of requests for access to the taped presentation.  Here you go

 

 

The late summer and early fall are a great time of the year in Western New York and Southern Ontario.  It’s a balmy 81 degrees here and temps are supposed to be in the eighties this weekend.  The only problem with September is that it comes after August (when the appellate courts aren’t particularly busy with oral arguments).  Accordingly, there are sparce pickings for coverage reviews.  We review every appellate decision in the State of New York and many from New Jersey, Connecticut and points east and west,  After I wrote that, I checked to see that in the attached issue, we have 29 pages of judicial opinion and summary.. Don’t think the small number of cases reviewed in this decision reflects any lack of effort on the part of our crack editorial staff.  But they cannot make wine out of water.

I watched the debate, the other night, to see if anything came out of it about which I could report to you in this apolitical newsletter.  The best I could do is tell you that there was an article in the December 18, 1909, Harrisburg (PA) Telegraphs about a trend to eat dog meat in Paris, France, because of the high price of more “traditional” dinners.  Not a lot of articles on cats.  Blech.

Spent the afternoon in a mediation, as a mediator in a Kings County Supreme Court personal injury action.  Resolved in, third one in three weeks.  I’m doing a lot of mediations in Kings, the Bronx and other downstate counties (as well as upstate counties).

 

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

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.

 

I Guess it Mattered that She was Pretty – 100 Years Ago:

The Buffalo Enquirer
Buffalo, New York
13 Sept 1924

Pretty Chicago Girl
Attempts to Shoot
Well-Known Doctor

Chicago, Sept. 13. – Dr. Alexander Weiner was alive today because a pistol in the hands of pretty miss Rosalie O’Reilly was a prisoner at the Psychopathic hospital while police were investigating her attempt to shoot the physician. Carrying an automatic pistol and an assortment of poisons hidden in her handbag. Miss O’Reilly entered the office of Dr. Weiner and tried to shoot him, because, he said, Dr. Weiner had treated her mother three years ago and her mother has died.

Twice she thrust the weapon almost against his face and pulled the trigger and twice the trigger clicked harmlessly although there were several steel-jacketed bullets in the pistol

“I mean to torture you- not to kill you, Dr. Weiner,” she said. “See what I have here?”

She opened her handbag and displayed a strange assortment of poisons – mercury, a peculiar blue paste, a hypodermis needle and a vial containing a drug.

“you’re going to suffer, Dr. Weiner.”

When the attempt failed the girl fled hysterically but was captured after a wild chase.

According to George O’Reilly, father of the girl, his daughter had been brooding ever since her mother’s death.

Editor’s Note:  After she was found to be sane, Dr. Weiner, on September 27^th, refused to prosecute her and the charges were dropped.

 

Peiper on Property (and Potpourri):

Nothing to report this week.  I am thrilled to be on my way to Rochester for the U.S. District Court, Western District of New York, Annual Dinner where my Partner, Mike Perley, is being honored with the Robert J. Jackson Award for Distinguished Service.

Steve
Steven E. Peiper
[email protected]

 

No More Cocktails in France – 100 Years Ago:

The Buffalo News
Buffalo, New York
13 Sept 1924

ELITE BAN “COCKTAILS”
FROM FRENCH LANGUAGE

PARIS, Sept. 13. – France registered official disapproval of cocktails yesterday by forbidding the word being used in the famous dictionary which is in the process of revision by that hieratic group of savants, the French academy.

Not only was the word “cocktail” flatly barred from the French language, but the attempt of Marel Boulenger to have it inserted disguised as “coquetele” also met with flat failure. When, in the course of years, the academicians reach “whiskey” and “whiskey-soda” undoubtedly they will share the same fate of being condemned as drinks “American, not French in origin.”

 

Barnas on Bad Faith:

Hello again:

In the case in my column this week, the Tenth Circuit considered when a bad faith claim accrues under Utah law.  The Utah Supreme Court had not decided the issue, so the Tenth Circuit had to predict how the court would rule.  It relied upon dicta from a 1992 appellate decision in Utah to hold that a bad faith claim accrues upon final disposition of the third party’s claim against the insured.  In this case, the judgment against the insured was final in 2018.  The bad faith action was commenced in 2020.  Accordingly, the bad faith claim was timely under Utah’s four-year statute of limitations.

Bills Dolphins tonight.  Squish the Fish.

Brian
Brian D. Barnas
[email protected]

 

Leopold and Loeb Decision Used for Clemency – 100 Years Ago:

The Buffalo Enquirer
Buffalo, New York
13 Sept 1924

USES LOEB VERDICT TO DEMAND
GRANT BOY’S LIFE BE SPARED

Chicago, Sept. 13. – Public interest here is being focused on a slight nineteen-year-old boy with prematurely white hair, who sits in “death row” in the county jail under sentence to hand on October 17. The boy is Bernard Grant, from “back o’ the yards” Chicago, who was forced to give up school at the age of fourteen to help support his family, and who can’t see why Nathan Leopold and Richard Loeb, millionaires’ sons, escaped the death penalty to a confessed murder, while he is sentenced to hang on what his attorney terms very flimsy evidence.

Attorney Thomas L. Swanson is preparing to go before Governor Small with a request for commutation of sentence. Swanson said he would point to the Leopold-Loeb case as the latest precedent of a Chicago court against hanging boys under twenty-one years old.

“If this boy Grant hangs it will convince many people that we really have one law for the rich and one law for the poor,” Swanson said today, “This boy was convicted on very flimsy evidence which has been largely repudiated since the trial and our vain appeal to the supreme court.

“In December of 1922 two boys held up a clerk in a chain grocery store. Patrolman Ralph S. Souder, who was in the back of the store, came out and was ordered to hold up his hands. This he did but he attempted to seize then fun pointed by one of the boys and was shot and killed.

“A little later Walter Krauser and Bernard Grant were arrested, Krauser pleaded guilty to the murder. Grant denied having been with Krauser. But Krauser’s confession implicated Grant. Grant stood trial.

The clerk of the store testified Grant looked something like the boy who was with Krauser.

“The jury returned a verdict of guilty and ordered a sentence of death. Since then, Krauser has made a statement denying Grant was with him.

Grant’s hair has turned white. “I don’t want to die,” the boy said. “I didn’t have a hand in this. I’m innocent.”

Editor’s Note:  Before the governor could act on the reprieve, Grant was stabbed to death in jail by his alleged accomplice in the murder of the police officer.

 

Lee’s Connecticut Chronicles:

Dear Nutmeggers:

I’ve been getting around, and my trainer is none-too-happy. Let me tell you why. In recent weeks I’ve driven separate trips from New Haven, Connecticut to: Albany Supreme (where I ate lunch next to RFK, Jr.), the federal court house in Albany, dropped off my daughter in Manhattan, appeared in the Bronx and Brooklyn, attended a fantasy football draft in Westchester, visited my mother-in-law in Rhode Island (almost), and made the trek to the Land of the Blue Martini (if you know, you know), not to mention work-a-day visits to the Connecticut courts and law offices. Let’s just say, I’m now way overdue for an oil change—and the car needs servicing too! Now, I’m looking forward to staying put, at least for a few days.

This edition, the Connecticut courts did not give us much to work with. We discuss a topic oft-addressed in this space – what is the pleading standard for a CUTPA/CUIPA bad faith claim. Ryan O’Shea and I had the pleasure of representing AmGuard in winning the dismissal of bad faith and negligence claims in a breach of contract case involving a denial because the insured property was not the insured’s residence premises.

Until next time, keep keeping safe.

Lee
Lee S. Siegel
[email protected]

 

Movies Folks are Drunk and Disorderly – 100 Years Ago:

The Buffalo News
Buffalo, New York
13 Sept 1924

MOVIE FOLKS FACING
DISORDERLY CHARGE

LOS ANGELES, Calif., Sept. 13. – Mr. and Mrs. Jack Sherill, hosts at the Laurel canyon “birthday party” raided by Hollywood police several days ago, are charged with disturbing the peace, committing a public nuisance and maintaining a disorderly house, in complaints issued by the city prosecutor’s office.

          Twenty-three men and women, members of the motion picture colony, were caught in the raid, but all but two were released with apologies, and there were reports that the arresting officers were to be made defendants in damage suits charging false arrest. The two not released, Sherrill, a former motion picture director, with his brother, W. L. Sherrill, were accused to having been about to bring several bottles of liquor into a hitherto “dry” birthday celebration and were held for trial on charges of possessing and transporting liquor.

 

Kyle's Noteworthy No-Fault:

Dear Readers,

I have two no-fault cases this week, both successful declaratory judgment actions brought by Liberty Mutual. In the first, the insurer succeeded in obtaining a declaration it was not obligated to reimburse no-fault benefits to the provider due to the claimant’s failure to attend EUOs, which were timely noticed by the insurer during its claim investigation. In the second case, the court again held in favor of the insurer, declaring it had no obligation to pay the bills submitted due to the insured’s failure to comply with post-EUO document requests, although the court determined the insurer did not sufficiently establish its material misrepresentation defense.

Looking forward to spending some time away in Toronto this weekend for my first anniversary. Can’t believe it’s been a year already since getting married!

Go Bills,

Kyle
Kyle A. Ruffner
[email protected]

 

Beer Not Turnips – 100 Years Ago:

The Buffalo News
Buffalo, New York
13 Sept 1924

CAR OF ALE, BILLED
AS TURNIPS, SEIZED

NIAGARA FALLS, N.Y., Sept. 13. – Customs inspector James O’Connor last evening seized a car containing 900 cases of bottled ale beer at the north end yards. The shipment was from Caledonia, Ont., and billed to a firm in New York City. The car was labeled turnips.

 

Ryan’s Federal Reporter:

Hello Loyal Coverage Pointers Subscribers:

My Fall 2024 NCAA Div. I/II broadcast schedule kicks off this Friday at 6pm on ESPN+ as I will have play-by-play duties for Niagara University WVB as it hosts Youngstown State University in Lewiston, New York. Niagara will also host Bucknell on Saturday at 3:30pm, which will also be available on ESPN+. I’ll be shifting gears for this second match to provide a little color commentary and look forward to diving into some X’s and O’s on the broadcast. Then next week, I’ll head to the University at Buffalo’s Alumni Arena to call their match against Niagara at 6pm on Wednesday, September 18^th (also streaming and on-demand on ESPN+). There is nothing quite like NCAA volleyball, and I’m giddy just thinking about it. Chills.

This edition, my column showcases a well-reasoned decision involving New York’s operative act standard in the Assault and Battery Exclusion context (and a similar Firearms Exclusion). Additionally, I’ve got an interesting decision involving New York’s anti-subrogation rule and the potential viability of an insurer’s counterclaim.

Until next time,

Ryan
Ryan P. Maxwell
[email protected]

 

Object Matrimony – 100 Years Ago:

The Buffalo Times
Buffalo, New York
15 Sept 1923

MARRY – Business girl 27, worth $73,000. Widow 48, $36,000. Girl 19, $40,000. Write for descriptions and photos. Katherine, Box 223, Los Angeles, Calif.

 

Storm’s SIU:

Hi Team:

Happy end of summer.  Exciting times as football begins, and baseball playoffs become imminent.

Two cases this week.  The first pertains to rescission of a liability policy, which was overturned as the insurer is said to have failed to prove the misrepresentation was material. I disagree.  While written underwriting guidelines, manuals and procedures may be compelling, they are not always necessary for a court to rule in favor of an insurer as a matter of law.  Some courts have done so based simply on an underwriter’s testimony.  Indeed, some courts have ruled in favor of insurers based simply upon common sense.

The second case review involves federal practice, for those of us who enjoy it.  This case provides a good review of federal interpleader, including abstention grounds and whether funds actually need to be deposited into court. 

Let’s talk again in two weeks.  See you then!

Scott
Scott D. Storm
[email protected]

 

Women’s Rights to be Cops – 100 Years Ago:

The Buffalo Commercial
Buffalo, New York
15 Sept 1923

FAVOR POLICEWOMEN

League of Nation’s Assembly Adopt Resolution Urged By British Representative

GENEVA, Sept. 15., (A.P.) – Resolutions favoring employment of women in police systems throughout the world and recommending other measures, including investigation by experts, to stamp out the white slave traffic were adopted by the League of Nations assembly today after a remarkable discourse before the delegates by Dame Edith Lyttleton, British representative.

Dame Lyttleton declared that the women were not pressing for the employment of members of their sex as police because of a desire to do the same thing as men, but because they knew women in such positions could exercise a great preventive influence.    

 

Fleming’s Finest:

Hi Coverage Pointers Subscribers:

Hope you enjoyed the Paralympics and the return of football. This week’s case comes from the South Dakota Supreme Court. Additional loss payees sought to recover under the policy after the insured started a fire at the insured premises. The court determined that the policy language restricted the additional loss payees’ ability to recover.

See you in a fortnight,

Kate
Katherine A. Fleming
[email protected]

 

Proms No Longer at Home – 100 Years Ago:

The Buffalo Times
Buffalo, New York
15 Sept 1923

High School Proms
Barred from Homes

SALAMANCA, Sept. 15 – High school affairs will be held in the high school this year, and not in private residences, as permitted last year, Prof. H. M. Eaton, principal of the high school announced yesterday. This decision has been made in order that supervision may be exercised. It has been explained that some social affairs have been given by students in private homes and called school events but were not so authorized.

At some of them facts of vandalism were committed, it is claimed. With affairs in the school building authorities will be able to protect the building and grounds from such acts, it is believed. A new room has just been made available in the Mayle Street school to take care of the over-crowded conditions.

The room was formerly used as a public library and later an office. The room will contain fifth and sixth grade pupils.

 

Gestwick’s Garden State Gazette:

Dear Readers:

One win in the books for the good guys (a/k/a the Buffalo Bills). I had the pleasure of attending Dan Kohane’s land of blue martinis this past Saturday, and to follow it up, the Bills’ home opener. The construction of the new stadium (which is going up right next to the current stadium) was clearly visible from my seat, which had me thinking between plays about all the risk transfer scenarios that could go on over there. I’m beginning to think my brain is irreparably broken.

The case I have for you has to do with the explosion of a bidet attachment on a toilet causing hundreds of thousands of dollars in water damage. I could make a sophomoric joke, but this being a family setting, I will leave it to you.

See you in two weeks.

Evan
Evan D. Gestwick
[email protected]

 

“Dope Movie” Praised – 100 Years Ago:

The Buffalo Times
Buffalo, New York
15 Sept 1923

Doctors Praise
Dope Picture

Mrs. Wallace Reid’s dope picture, which will begin a week’s showing in Buffalo tomorrow at the Palace Theater, was shown last night after the regular show to an invited audience of city officials, physicians, educators and social workers. Those who witnessed the advance showing last night could well understand why prominent authorities have given it their approval. The picture will be shown at the Palace Theater all next week, starting Sunday.

https://en.wikipedia.org/wiki/Human_Wreckage

 

O’Shea Rides the Circuits:

Hello Readers,

As WNY braces for another episodic delusion on the Bills’ Super Bowl chances, I remain steadfast as a Bills purist. Three things in life are certain: birth, death, and a Bills letdown. But the optimist in me hopes I’m wrong. In other news, I thank Lee for the shoutout on the Ramos matter. There is nothing like dealing with a split in authority and having the court agree with you.

This week I have a case from the Eighth Circuit regarding Iowa law and a homeowner’s policy. Basically, a massive wind and thunderstorm called a derecho damaged the risk. After battling over claim valuation, the insureds missed critical deadlines. Several issues were involved from conditions to bad faith to consequential damages.

Until next time,

Ryan
Ryan P. O’Shea
[email protected]

 

Mack Hillis – Debut for Yankees Starting a Nine Game Major League Career – 100 Years Ago:

The Boston Globe
Boston, Massachusetts
17 June 1961

Malcolm D. Hillis
Cambridge Patrolman

Funeral services for Cambridge patrolman Malcolm D. Hillis, 60, of 154 Magazinet., who died yesterday morning at Cambridge City Hospital, will be held Monday at 9 a.m., in Blessed Sacrament Church, Cambridge.

In the early 1920’s, Mr. Hillis played baseball with the New York Yankees and Pittsburgh Pirates.

He was a graduate of Rindge Tech, where he starred in baseball and football.

Mr. Hillis served with the Cambridge police for 22 years. Four months age he received a department commendation for saving the lives of several persons at a fire.

Mr. Hillis leaves his wife, Rose (Guiney); a daughter, Joanne, 16; four brothers and three sisters.

Editor’s note: Malcolm David "Mack" Hillis (July 23, 1901 – June 16, 1961) was a Major League Baseball second baseman. Hillis played for the New York Yankees in 1924 and the Pittsburgh Pirates in 1928. He had nine career hits in 37 at bats over12 games.  His debut for the Yankees, for which he played in only one game, 100 years ago today.  He came back to the Major Leagues in 1928, playing in 11 games for the Pirates before retiring,

 

Rob Reaches the Threshold: 

Dear Readers,

Since our last installment, our firm has done our annual fantasy football draft. This year, I have the privilege of joining this esteemed league as a comanager with one of our partners - and boy did I create a stir because our perennially bad team laid the smackdown Week 1, and currently sit atop the standings. It's early, but of course we need to stoke the fires a bit ... . In more personal news, by the time of our next installment, I will be a happily married man. My fiancée and I are beyond excited for what will be a magical day in just over a week's time. 

The Appellate Division remains barren as we wind down summer with regard to cases on Serious Injury Threshold - thus nothing this time. 

Please enjoy the articles from my colleagues.

Rob
Robert J. Caggiano
[email protected]

 

Chewing Too Loudly – 100 Years Ago:

The Buffalo Times
Buffalo, New York
15 Sept 1923

NOISY GUM CHEWER FINED

BRIGHTON, Mo., Sept. 15. – Because he made too much noise chewing gum at a moving picture show, Maurice Thompson of Guilford was hauled before the court here and fined $10 and costs.

Editor’s Note:  $10 in 1924 would be the equivalent of $190 today.  Lotta moolah for chewing too loudly.

 

LaBarbera’s Lower Court Library:

Dear Readers:

As the air gets crisper, we are enjoying the last few weeks of warm weather here in Buffalo. It is perfect dog walking weather. Since I mentioned dogs, probably important to mention that we now have two. The puppy absolutely loves having another pooch to snuggle up with. She also loves all of the bones she gets to steal from him when he turns his head.

This week I have another New York County declaratory judgment action dealing with the additional insured requirements under a commercial general liability policy, and the applicable contractual language.

Until Next Time…

Isabelle
Isabelle H. LaBarbera
[email protected]

 

Dictatorial Governor – 100 Years Ago:

The Ithaca Journal
Ithaca, New York
15 Sept 1923

Oklahoma Governor
Assumes All Powers
Of Military Dictator

Oklahoma City, Okla., Sept 15. – (By the Associated Press). – The mailed fist will descend upon whomsoever opposes Governor J. C. Walton in his war of floggings. Assuming all the powers of a military dictator, the executive made it more plain today that martial law and state troops will be the answer to any opposition to his will.

Members of the state legislature, if they attempt to convene themselves in extraordinary session to consider the governor’s act, will go to jail.

State newspapers that raise their voice against the executive will be muzzled by a censorship. Counties considered by the governor to be hostile to his course of action will be occupied by troops.

This is the plan of the campaign outlined by Governor Walton and he promised today that he spoke no idle threats.

 

Lexi’s Legislative Lowdown:

Dear Readers,

I hope everyone had a great week! I am looking forward to a weekend of apple picking and baking!

This week’s column relates to an Assembly Bill that was reintroduced and delivered to the Senate in May. If passed, it would prohibit insurers from excluding coverage related to lead based paint for liability coverage provided to rental property owners.

This Bill previously died in the Senate. I will be interested to see what happens this time!

Thanks for reading!

Lexi
Lexi R. Horton
[email protected]

 

Amazing Achievements – 100 Years Ago:

The Calgary Albertan
Calgary, Alberta, Canada
13 Sept 1924

VOICES FROM
EVERY PART
OF U. STATES

General Pershing Was Heard Delivering Messages From Washington to Every Part of U.S.

TWO-WAY CONVERSATION WASHINGTON TO COAST

Many Different Defence Day Conversations: Pershing Went on the Retired List Yesterday

New of the most remarkable engineering achievement ever accomplished in the world of radio was received by The Calgary Albertan last night over its radio, when conversations between General John J. Pershing of the United States army and other generals located at many points between Washington and San Francisco were heard here. Nineteen broadcasting stations, 17,000 miles of telephone lines and millions of dollars of equipment were used to achieve the giant Defense Day stunt, while 12,000,000 people simultaneously heard Pershing talk in Washington and the next minute heard a general’s voice from San Francisco.

 

North of the Border:

It's currently raining—actually, it's pouring, and has been for hours. This is a much-needed occurrence in drought-affected Southern Alberta, but the shift from the bright blue skies we've enjoyed to these overcast, chilly conditions can be mentally challenging. The gray skies do help to concentrate on work, especially with the return to school bringing a renewed focus on tasks, as we now race to close out files by year-end. It's great to be back!

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]

• In Claims Made Policy, Claim Was Not Timely Reported to Insurer.  A Claim Is to Be, Even Though the Suit Was Not Commenced

 

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

• Nothing to report this week. See you in two.

 

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

• Tenth Circuit Concludes Bad Faith Claim Accrues Upon Final Disposition of Third Party’s Claim Against the Insured Predicting How the Utah Supreme Court Would Decide

   

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

• Mere Recitation of Unfair Settlement Practice Insufficient to Avoid Dismissal

   

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

• Court Declares Claimant Violated Condition Precedent to Coverage and Upheld Insurer’s Denials

• Insurer Failed to Establish Material Misrepresentation, but Court Deemed Denials Valid Due to Insured’s Failure to Cooperate With Investigation

 

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

• Allegations of Bodily Injury Arising From Assault and a Firearm Are Excluded Under Broad Exclusions for Those Things

• Anti-Subrogation Rule Renders Insurer’s Counterclaim Nonviable

   

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

• Rescission of Liability Policy Overturned as Insurer Failed to Prove the Misrepresentation was Material

• In Federal Interpleader Action, the Court Holds in Abeyance Defendants' Motion to Dismiss on Abstention Grounds to Allow Further Briefing, While Ordering Insurer to Perfect Jurisdiction by Moving to Deposit the Funds into the Court Registry

 

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

• Additional Loss Payee Unable To Recover Under Policy Where Insured LLC’s Principal Intentionally Started Fire

 

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

• Where an Issue of Fact Exists as to the Availability of Coverage, a Bad Faith Claim Will Not Stand

 

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

• Insureds Breach of Condition Precedent and Insurer’s Payment of Appraisal Amounts, as Well as the RCV Costs Incurred Within Two-Year Deadline Doom Insureds’ Suit

 

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

• Nothing from me this time around. I'll be back to hopefully discuss Serious Injury Threshold in two weeks. In the meantime, please enjoy the wonderful articles from my colleagues!

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

• Summary Judgment Denial Based on Question of Fact Regarding Whether Contract Required Additional Insured Coverage on Primary and Non-Contributory Basis

 

LEXI’S LEGISLATIVE LOWDOWN
Lexi R. Horton
[email protected]

• Proposed Act to Amend Insurance Law § 3462 to Include a Prohibition on the Exclusion of Lead Hazards

 

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

• Sexual Harassment, Which is a Form of Sexual Violence, Which in Turn is a Form of Sexual Behaviour, is Included in a Definition of Sexual Misconduct, Which Includes “Immoral and Sexual Behaviour" Thereby Triggering an Exclusion for Sexual Misconduct in an EPL/D&O Policy

 

Enjoy the waning days of summer,  We are.

All the best..

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

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
[email protected]

 

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

LaBarbera’s Lower Court Library

Lexi’s Legislative Lowdown

North of the Border

 

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

09/11/24       Cross Country Staffing, Inc. v. Allied World Assurance
Appellate Division, Second Department
In Claims Made Policy, Claim Was Not Timely Reported to Insurer.  A Claim Is to Be, Even Though the Suit Was Not Commenced

In 2011, Nightingale Nurses, LLC, Managuas, as a nurse. Nightingale subcontracted with Cross Country Staffing, Inc. (“Cross Country”) to provide, among others, Managuas, to work as a nurse at Huntington Hospital. According to an affidavit sworn to by Nightingale's chief operating officer, List, in December 2012, Cross Country notified Nightingale by telephone that Managuas had been named as a defendant in an “underlying medical malpractice action”). List also acknowledged receiving an email in December 2012 in which Cross Country indicated that Huntington Hospital had received a summons and complaint in connection with the underlying medical malpractice action that named Managuas as a defendant in that action. 

Nightingale did not notify its insurance carrier, Allied World, of the underlying medical malpractice action at this time.

In or around August 2015, Nightingale first received a copy of the summons and complaint in the underlying medical malpractice action. Thereafter, Nightingale promptly notified Allied of the underlying medical malpractice action. In September 2015, Cross Country formally demanded that Nightingale indemnify and defend it in connection with the underlying medical malpractice action. In a letter dated December 24, 2015, Allied disclaimed coverage on the ground that the notice was not timely under the provisions of Nightingale's insurance policy with Allied that covered the period between July 1, 2012, and July 1, 2013 (hereinafter the 2012 policy).

In May 2016, Huntington Hospital, and others commenced a third-party action in the underlying medical malpractice action against, among others, Nightingale (the “third-party action”). Upon receipt of the pleadings in the third-party action, Nightingale immediately notified Allied and requested coverage under the insurance contract covering the period encompassing July 1, 2015, to July 1, 2016. In a letter dated July 6, 2016, Allied disclaimed coverage in connection with the third-party action.

Nightingale commenced a declaratory judgment action declaring that Allied was obligated to defend and indemnify it and its employee Managuas in the underlying medical malpractice action and in the third-party action. Thereafter, Nightingale moved for summary judgment on the complaint against Allied. In an order dated May 8, 2020, the Supreme Court, among other things, denied Nightingale's motion. Nightingale appeals.

Where an insurance policy requires that notice of an occurrence be given 'as soon as practicable,' notice must be given within a reasonable time in view of all of the circumstances. The insured's failure to satisfy the notice requirement constitutes a failure to comply with a condition precedent which, as a matter of law, vitiates the contract

In support of its motion for summary judgment on the complaint in Action No. 2 insofar as asserted against Allied, Nightingale submitted, inter alia, a copy of the 2012 policy. Pursuant to the 2012 policy, Allied agreed to provide coverage to Nightingale for losses "as a result of a Claim alleging a Medical Professional Incident," as long as, among other things, "notice of such Claim is given to [Allied]" "as soon as practicable." The policy defined a "claim" as "a suit or other written demand seeking monetary damages otherwise covered by this Policy." The policy also stated that "[a]ll Related Claims . . . shall be deemed to be a single Claim and shall be deemed to have been first made on the earliest of" the date of the earliest claim or the date of the first written notice. It is undisputed that the 2012 policy was renewed by Nightingale and Allied several times and was in effect during 2016.

Given the plain language of the 2012 policy, Nightingale's contention that it was only required to notify Allied of the underlying medical malpractice action upon receipt of a copy of the summons and complaint in the underlying medical malpractice action is without merit. "[C]ourts should be extremely reluctant to interpret an agreement as impliedly stating something which the parties have neglected to specifically include". Here, the plain language of the 2012 policy did not limit Nightingale's obligation to report a claim to Allied only upon Nightingale's receipt of the pleadings in the underlying medical malpractice action.

Moreover, Nightingale acknowledged that it first learned of the underlying medical malpractice action in December 2012, when Cross Country notified List by telephone that Managuas had been named as a defendant in the underlying medical malpractice action, and by email in December 2012 in which Cross Country indicated that Huntington Hospital had received a summons and complaint in connection with the underlying medical malpractice action that named Managuas as a defendant in that action. Despite this knowledge, Nightingale admitted that it did not notify Allied about the underlying medical malpractice action until August 2015, when Nightingale first received a copy of the summons and complaint in that action. Given these undisputed facts, contrary to Nightingale's contention, Nightingale failed to establish, prima facie, that it timely notified Allied of the underlying medical malpractice action when it first notified Allied of that action in August 2015. Therefore, Nightingale failed to establish, prima facie, that Allied was obligated to provide coverage for Nightingale in connection with the underlying medical malpractice action and the third-party action.

Editor’s Note:  This was not a “late notice” case, per se, where prejudice was required to establish a lack of coverage This was a “claims made” policy where the issue was whether or not the claim was first made during the policy period which also required timely notice.

                                        

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

Nothing to report this week. See you in two.

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

09/04/24       Jenkins v. Prime Insurance Co.
United States Court of Appeals, Tenth Circuit
Tenth Circuit Concludes Bad Faith Claim Accrues Upon Final Disposition of Third Party’s Claim Against the Insured Predicting How the Utah Supreme Court Would Decide

CLJ Healthcare had liability insurance with Prime.  The amount of indemnity provided by the policy was reduced by the amount spent on defense costs.  CLJ’s policy was triggered when a woman died after getting liposuction surgery.  The woman’s father sued CLJ for malpractice, and CLJ submitted the claim to Prime.

Prime offered $50,000 to settle stating that such was the policy limit.  The underlying plaintiff countered with a demand for $100,000, which he asserted was the actual policy limit.  At the time of the counter, Prime had spent $11,000 on litigation, so it offered the remaining $39,000.  Negotiations collapsed and Prime eventually spent the entire $50,000 on defense.  Prime withdrew its defense of CLJ and requested a release.  Prime then obtained a declaratory judgment on default against CLJ declaring the policy limit was $50,000.  A judgment of $60 million was later obtained against CLJ.

CLJ commenced this action.  CLJ alleged that Prime breached the contract by only paying $50,000 rather than the $100,000 limit.  The court concluded that the default judgment in the declaratory judgment action precluded CLJ from relitigating the amount of the policy limit.

CLJ also sued prime for bad faith in rejecting the settlement demand of $100,000 without telling CLJ of its right to contribute.  Prime argued that the bad faith claim was time barred.  Under Utah law, bad faith can either be based on the insurance contract or the insurer’s fiduciary duty.  If the insurance company’s wrongdoing precedes the third party’s suit, then the bad faith claim is contractual.  If the insurer’s breach came after the third party had sued, then the bad faith claims rests on tort principles.

CLJ based its bad faith claim on tort.  It argued that Prime acted in bad faith by failing to tell CLJ how much coverage was available and failing to tell CLJ that it could contribute to a settlement.

The applicable statute of limitations in Utah was four years.  The bad faith action commenced on March 10, 2020.  However, the Utah Supreme Court had not decided when a bad faith cause of action accrues.  Predicting what the Utah Supreme Court would decide based upon a 1992 Utah Court of Appeals opinion, the Tenth Circuit concluded that a bad faith claim accrues only once there is a final disposition of the third party’s claim against the insured.

In this case, the excess judgment became final in 2018.  Accordingly, the action was timely commenced in 2020.

 

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

08/30/24       Ramos v. AmGuard Ins. Co.
United States District Court, District of Connecticut
Mere Recitation of Unfair Settlement Practice Insufficient to Avoid Dismissal

The court granted AmGuard’s motion for judgment on the pleadings, dismissing the insured’s cause of action for statutory bad faith, holding that boilerplate allegations mimicking the statute are inadequate. The court also found that the cause of action for negligence was duplicative of the breach of contract action.

Ramos, an AmGuard homeowner insured, suffered a fire. AmGuard denied coverage, finding that the insured property was not Ramos’ residence premises. Ramos sued for breach of contract, negligence, and CUTPA/CUIPA liability. AmGuard filed a post-answer motion for judgment on the pleadings dismissing the negligence and bad faith counts.

AmGuard argued that Ramos failed to allege that AmGuard engaged in proscribed conduct with sufficient frequency to indicate general business practice and that Mr. Ramos was not subjected to said conduct. The court agreed with AmGuard, finding that Ramos merely recited the unfair business practices under the statute without alleging specific conduct by AmGuard. “Mr. Ramos, however, has not set forth the factual allegations necessary to assess any of these factors—in other words, assess the similarity between the conduct that Mr. Ramos's alleges that he faced and the conduct by the alleged victims in the cases Mr. Ramos includes in his Complaint.”

The court also found that the cause of action for negligence failed to allege a tort duty violated by AmGuard and was redundant of the breach of contract cause of action.

Editor’s Note: Together with associate Ryan O’Shea, I am pleased to have represented AmGuard in obtaining this result.

 

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

08/26/24       Mutual Ins. Co. et al. v. Michael Bharath, et al
Supreme Court, New York County
Court Declares Claimant Violated Condition Precedent to Coverage and Upheld Insurer’s Denials

This declaratory judgment action arose out of a motor vehicle accident involving a vehicle insured by Liberty Mutual and LM General Insurance Company. The claimants injured in the subject accident sought treatment from the medical provider defendants and submitted bills to the insurers for reimbursement under vehicle’s no-fault policy. The insurer requested the claimants attend EUOs and the claimants failed to appear. Therefore, the insurer denied the bills submitted by the provider due to the claimants’ violation of a condition precedent to coverage and commenced this action for a declaratory judgment that it had no obligation to reimburse the providers.

11 NYCRR § 65-1.1 requires a claimant to fully comply with the terms of coverage in a No-Fault policy as a condition precedent to all claims submitted to an insurer. The insurer must establish that it requested EUOs in accordance with the procedures and time frames in the No-Fault regulations: i.e. the request for an EUO must be made within 15 days of the receipt of an NF-3 form such as a medical provider claim, but may also be made before the insurer receives an NF-3. In this case, the court determined that the insurers set forth their prima facie case for summary judgment by submitting documentation of the EUO requests sent to the claimants and proof of their failure to appear. They further submitted copies of claimants' NF-2 applications for No-Fault benefits and NF-3 claim forms. In response, the court held that the providers failed to show the existence of any material of fact in their opposition, as the record shows that Plaintiffs either requested EUOs prior to receiving NF-3 forms or within 15 days of receipt. Plaintiffs' denial of the Answering Defendants' No-Fault claims was therefore proper and summary judgment in their favor was granted.

Therefore, the court held in favor of the insurers, declaring that the claimants breached a condition precedent to coverage under the no-fault regulations and the subject policy, and that the denials of all claims for no-fault benefits arising from the alleged occurrence were valid.

 

08/27/24       Lib. Mut. Ins. Co. et al. v. Samantha Galloway et al.
Supreme Court, New York County
Insurer Failed to Establish Material Misrepresentation, but Court Deemed Denials Valid Due to Insured’s Failure to Cooperate With Investigation

The subject claim arose out of a motor vehicle accident, where the claimant was operating the insured vehicle. The insurer sought to deny the bills submitted by the claimants due to misrepresentation of her residence at the time of the insured’s policy application. The plaintiff insurer moved to renew its default motion against all non-answering defendants in this declaratory judgment action after its prior motion for default was denied without prejudice on the basis that the insurer failed to present sufficient proof of material misrepresentations in the application for insurance. The court had determined that the affidavit of the insurer’s investigator contained hearsay and the EUO transcript was not attached.

First, the court held that the insurer properly filed proof of service of its Summons and Complaint and proof of default. Insurance Law § 3105 permits an insurer to deny coverage based upon an insured's misrepresentation in their application where such misrepresentation is material. A misrepresentation is material when the insurer would have refused to offer the policy had it known about the misrepresented facts (Insurance Law § 3105[b]; Kiss Constr. NY, Inc. v Rutgers Cas. Ins. Co., 61 AD3d 412, 413-414 [1st Dept 2009]). Further, the insurer argued it was entitled to deny all claims arising out of the accident because of the insured’s failure to cooperate with its investigation by not providing a response to post-EUO demands. 11 NYCRR 65-1.1 requires a claimant to fully comply with the terms of coverage in a No-Fault policy as a condition precedent to all claims against an insurance company under such policy. An insurer may deny coverage based upon a claimant's failure to comply with a condition precedent to coverage under the applicable policy.

In support of its renewed motion, the insurer submitted the insured’s EUO transcript, post-EUO document requests with an affirmation that Claimant did not respond to them, and an underwriter affirmation detailing the difference in policy premiums between the addresses given by Claimant in addition to its investigator affidavit. The court determined that the EUO did not conclusively support the argument that the insured misrepresented her address at the time of application, as it merely indicates that she split time between her father's home in North Carolina and her mother's residence in Brooklyn. However, the court concluded there was sufficient evidence to support the insurers’ position that the insured claimant did not cooperate with the investigation by failing to respond to post-EUO document demands.

Therefore, the court held that the insurer established its entitlement to default judgment against the non-answering defendants based on Claimant's failure to comply with a condition precedent to coverage. Accordingly, the no-fault denials stemming from the alleged occurrence were deemed valid.

 

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

09/10/24       Mt. Hawley Ins. Co. v. Persaud USA Property Holdings LLC
United States District Court, SDNY
Allegations of Bodily Injury Arising From Assault and a Firearm Are Excluded Under Broad Exclusions for Those Things

Persaud USA Property Holdings (“Persaud”) leased part of a strip mall in Florida to a store named Sammy's Discount Food and Deli (“Sammy's”). An incident allegedly occurred at Sammy's on June 6, 2020, resulting in a lawsuit. The underlying plaintiff alleged that, after leaving a house party, he witnessed a man named Jerry Joseph shoot at another person, after which Joseph struck Moss with his firearm. Moss contends that Joseph shot at him as he fled, and that Joseph allegedly “stalked” Moss into Sammy's and, while in the store, shot Moss, with the bullet tearing through Moss's right hip. Moss asserted three causes of action against Persaud, each alleging premises liability, including negligent security and training, failure to warn, and failure to maintain the property in a safe condition.

At the time of the June 6, 2020, shooting, Persaud was insured by Mt. Hawley Insurance Company (“Mt. Hawley”). The Mt. Hawley policy contained two (extremely) relevant exclusions. The first precluded coverage for injury “arising out of the ownership, rental, maintenance, use or misuse of any firearms.” The second precluded coverage for any claim or lawsuit “arising from an assault and/or battery regardless of culpability or intent; or a physical altercation; or any act, failure to act, error or omission to prevent or suppress an assault and/or battery or physical altercation.” Continuing, that second exclusion notes that it “applies whether an insured, an insured's employee, a patron or any other person commits” the assault and expressly includes various causes of action within its purview, including, among other things, any alleged “negligent hiring, placement, training or supervision, or allegations of any act, error, or omission arising out of or relating to an assault and/or battery or physical altercation” or “failure to provide proper security or safe premises to any person injured in an assault and/or battery or physical altercation.”

Relying upon decades old caselaw on the subject, the SDNY had no issue finding for Mt. Hawley. Specifically, the court notes that

“The plain terms of the Assault Exclusion relieve Mt. Hawley of any duty to defend or indemnify Persaud in that action. Under the Assault Exclusion, the Policy “does not apply to any claim, ‘suit’, cost, expense and/or cause of action arising from ... [a]n assault ... or ... [a]ny act, failure to act, error or omission to prevent or suppress an assault and/or battery or physical altercation.” []. The Assault Exclusion proceeds to make clear that Mt. Hawley is “under no duty to defend any insured in any ‘suit’ alleging a cause of action, claim, ‘suit’, cost or expense excluded by the above and/or alleging an assault and/or battery or physical altercation."

While the insured focused on the “absence of causes of action in the Florida Case alleging Persaud utilized a firearm or committed an assault,” the SDNY rightly found that “[t]his is irrelevant.” The test in New York under the exclusion’s broad “arising from” trigger is “whether ‘but for’ the operative act of the assault, there could be no cause of action, regardless of the legal theory pleaded.” While the insured’s argument that “the damages alleged in the Florida Suit are far too attenuated from the alleged negligence of Persaud to have been proximately caused by any action or inaction on the part of Persaud,” the SDNY recognized this for what it was—a tort defense.

Largely relying on the above, the SDNY easily found that the Firearms Exclusion precluded coverage for the same or similar reasons. There is no construction of the underlying complaint that omits the fact that any injury “resulted from the ‘use or misuse of a[] firearm.” Since, “but for the act of Joseph using a firearm to shoot Moss causing him bodily injury, there would be no cause of action in the Florida Case against Persaud,” squarely falling within the exclusion.

Grasping at straws, the insured finally argued that Mt. Hawley’s disclaimer was late under New York Insurance Law §3420(d)(2), resulting in a waiver of the above exclusions. It wasn’t. Section 3420(d)(2) has no bearing upon coverage for Florida accidents, as it only applies to New York ones.

Maxwell’s Minute: This was a well-reasoned decision and worth a read if you have time. Send me an email if you’d like a copy of the full decision.

 

09/09/24       Mavis Discount Tire Inc. v. Main Street America Assurance Co.
United States District Court, SDNY
Anti-Subrogation Rule Renders Insurer’s Counterclaim Nonviable

While I do not intend to go into any detail on this one, I simply could not pass up writing about the sound reasoning in this decision.

A purported additional insured, Mavis, files a declaratory judgment action against the insurer it claims that status from, Main Street, in order to confirm Mavis’ additional insured status. Main Street files a counterclaim against Mavis indicating that even were that the case, Main Street is entitled to “recoup the monies back” due to the purported additional insured’s own responsibility for the underlying incident.

I cannot argue with the court’s logic:

Although the Court cannot decide at this stage whether Mavis is an additional insured of Main Street, which is critical to determining whether subrogation may occur, Main Street's counterclaim is dependent on finding that Mavis is its additional insured. . . . In other words, the only way Main Street's counterclaim survives against Plaintiffs is if Plaintiffs recover a judgment from Main Street and the only way Plaintiffs can recover a judgment against Main Street is if the Court determines that Plaintiffs are an additional insured of Main Street. However, if the Court concludes that Plaintiffs are an additional insured of Main Street, then the anti-subrogation rule will be triggered, barring Main Street's counterclaim.

Maxwell’s Minute: Checkmate.

 

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

08/27/24       Travelers Cas. Ins. Co. of Am. v. BRB Construction Corp., et al.
United States District Court, S.D. New York
Rescission of Liability Policy Overturned as Insurer Failed to Prove the Misrepresentation Was Material. 

Travelers commenced the instant action against BJB and the Town of Mount Kisco seeking declaratory judgment, rescission of the insurance policies it issued to BJB, and reimbursement of defense costs.

BJB through its insurance agent Ovation applied for insurance coverage with Travelers Casualty.  BJB's Travelers application was processed through a program called Select Accounts, which allows brokers/agents to apply for Travelers' commercial liability, property, workers compensation, and commercial automobile insurance policies.

The Ineligible Operations List provides that "risks with the following operations should not be written as Contractors Pacsm accounts," including (1) "elevator or escalator inspections, installations, servicing or repair," (2) "drywall and plastering," (3) "debris removal," (4) "general contractors," and (5) "metal erection — any type other than purely decorative." In its application, BJB represented that it was not performing any of the operations included on the Ineligible Operations List. BJB's application also represented that BJB should be classified as a contractor for "driveways, sidewalks, or parking areas."

Despite these representations, at the time of its application with Travelers, BJB "had performed debris removal, drywall and plastering, and service and repair operations, and had served as the general contractor for a number of elevator installations." BJB also performed subcontracted work in excess of 25 percent of total receipts, drywall and plastering, and debris removal during the policy periods. Moreover, Begley testified that the work BJB was doing at the time of its application was not limited to driveways, sidewalks, and parking areas. While Begley did not discuss, ask, or tell anyone about making this representation on his application, Begley testified he knew that BJB's application classified the nature of BJB's work as driveways, sidewalks, and parking areas. In the separate Contractors Supplemental Application, BJB represented that it performed 100% of its work as a general contractor.  Based on BJB's application, Travelers issued a businessowners package policy for general liability and property coverage to BJB.

BJB and the Town entered into a construction contract for BJB to serve as general contractor for an elevator installation project. Kivanc Yoruk, an employee of BJB, served as the project manager for the project.  He was injured during the elevator installation project.  Following his injury, Yoruk filed a claim against BJB, who immediately notified Ovation.

The Town requested it be deemed an additional insured under BJB's insurance policy with Travelers.  During its investigation of Yoruk's claim, Travelers learned that Yoruk was working pursuant to a contract between BJB and the Town to install a new elevator shaft, which Travelers argues is an ineligible operation under the Policies. Travelers argues that had it known during the application process or at any time prior to Yoruk's claim that BJB was performing ineligible operations, it would not have issued the Policies. Travelers sent a notice of rescission to BJB in accordance with New York Insurance Law § 3105.

"New York law entitles an insurer to rescind an insurance policy—and the policy is deemed void ab initio—"`if it was issued in reliance on material misrepresentations.'"  "The insurer bears the burden of establishing both that there has been a misrepresentation, and that the misrepresentation was material." 

New York Insurance Law defines a "misrepresentation" as a false "statement as to past or present fact, made to the insurer by . . . the applicant for insurance . . . at or before the making of the insurance contract as an inducement to the making thereof." N.Y. Ins. Law § 3105(a).

Plaintiff argues BJB made false statements in its application when it represented that (1) "BJB was not performing any of the operations identified in Travelers' Ineligible Operations for Contractors [List] and (2) BJB should be classified as a contractor for `driveways, sidewalks, or parking areas.'"  In response, the Town argues that (1) Plaintiff fails to identify where on the Ineligible Operations List subcontracting elevator work is specifically excluded and (2) neither the application or the Policies state that coverage is limited to "driveways, sidewalks, and parking areas."

BJB's Travelers application directly asks whether the applicant meets the eligibility requirements by not performing any operations on the Ineligible Operations List. The application included the Ineligible Operations List. BJB admits that its application represented that BJB was not performing any of the operations included on the Ineligible Operations List. BJB further admits that at the time of its application with Travelers, it "had performed debris removal, drywall and plastering, and service and repair operations, and had served as the general contractor for a number of elevator installations." Debris removal, drywall and plastering, general contractors, subcontracted work, and elevator installations, servicing, or repair are all included on the Ineligible Operations List. Finally, BJB admits that its President signed each page of Ineligible Operations List. Accordingly, BJB's application made false affirmative statements.

As a threshold matter, the Court is unpersuaded that the 83 operations on the Ineligible Operations List are ambiguous. Neither BJB nor the Town provide alternative interpretations of the terms on the list. And merely because a term is broad does not make it ambiguous. Rather, "ambiguity only exists if a specific contractual term is susceptible to multiple readings." 

The Court finds that the application question inquiring whether BJB performed operations on the Ineligible Operations List is unambiguous. Because BJB admits that at the time of its application it performed operations on the list, BJB made a misrepresentation on its application.

Having determined that BJB made a misrepresentation, the Court now determines whether the misrepresentation was material.  "A misrepresentation is material if the insurer would not have issued the policy had it known the facts misrepresented."  "To establish materiality as a matter of law, the insurer must present documentation concerning its underwriting practices, such as underwriting manuals, bulletins, or rules pertaining to similar risks, that show that it would not have issued the same policy if the correct information had been disclosed in the application."  "Conclusory statements by insurance company employees, unsupported by documentary evidence, are insufficient." 

Generally, materiality is a question of fact for the jury.  "However, where the evidence concerning the materiality is clear and substantially uncontradicted, the matter is one of law for the court to determine." 

In an attempt to satisfy its burden, Plaintiff submits (1) a declaration from Steve Ditota, one of Travelers’ underwriters; (2) its Ineligible Operations list; and (3) BJB's application. Ditota's conclusory assertion that Travelers would not have issued the Policies to BJB if it had answered the application questions accurately, without supporting documentary evidence, is insufficient to satisfy Plaintiff's burden. Plaintiff fails to provide the requisite documentary evidence, as none of these documents constitute underwriting guidelines, policies, or rules. The application merely asks whether the applicant meets the eligibility requirements and references the Ineligible Operations List. The Ineligible Operations List simply states "risks with the following operations should not be written as Contractors Pacsm accounts," without any additional information. On their own, these documents "provide no useful information to the Court about the underwriter's decision-making process for granting a policy." 

Because Plaintiff does not provide any documentary evidence to prove its underwriting policies, Plaintiff fails to establish that BJB's misrepresentations were material.  The Court thus denies Plaintiff's motion for summary judgment.

 

08/08/24       Indemnity Ins. Co. of N. Am. v. Tintsman, et al  
United States District Court, W.D. Pennsylvania
In Federal Interpleader Action, the Court Holds in Abeyance Defendants' Motion to Dismiss on Abstention Grounds to Allow Further Briefing, While Ordering Insurer to Perfect Jurisdiction by Moving to Deposit the Funds into the Court Registry

This interpleader action was initiated by Indemnity against Defendants stemming from a motor vehicle accident.  Indemnity seeks permission to deposit its commercial liability insurance policy proceeds into the Court Registry, seeks to enjoin and restrain the Defendants from instituting or prosecuting any claims related to the accident and asks the Court to appoint a special master to resolve the claims related to the accident under the Federal Interpleader Act, 28 U.S.C. § 1335 ("§ 1335").

Presently before the Court is a motion to dismiss for lack of subject matter jurisdiction under Fed. R. Civ. P. 12(b)(1) by Defendants Estep and Kemp. Defendants Tinstman, Westfield Insurance, and Enviroserve, Inc. join in the motion.  The Court denies in part and holds in abeyance in part Defendants' motion to dismiss as follows: the motion to dismiss is denied on the basis of abstention under Younger v. Harris and held in abeyance pending supplemental briefing to consider whether the abstention principals derived from Colorado River Water Conservation Dist. v. United States or Brillhart v. Excess Ins. Co. of Am.  applies.

This action stems from a four-vehicle accident. Kumar was a commercial driver for Shera Express, Inc. and was operating a tractor trailer.  The Tinstmans and Estep were traveling along the same route, ahead of Kumar. The Tinstmans approached a construction zone wherein the left lane was closed, and traffic had slowed or stopped.  Estep, who was traveling behind the Tinstmans, also slowed or stopped.  Kumar came upon Estep's vehicle and failed to stop before striking Estep's vehicle, which in turn collided with the Tinstmans' vehicle.  The collision resulted in the Tinstmans' deaths, bodily injuries to Estep and property damage to Kemp.

The Tinstman estates filed a lawsuit alleging several claims against Indemnity's insureds, Shera Express, Inc. and others.  Nathan Tinstman asserted several negligence claims and wrongful death and survival action claims against these defendants.  Estep and Kemp filed crossclaims in the State Court Action including claims of bodily injury and property damage. 

Indemnity issued a commercial automobile liability policy to Shera Express, Inc. The Policy has a liability limit of $1 million per accident or occurrence. Indemnity filed this interpleader action pursuant to § 1335(a) indicating it does not contest the issue of liability on its own behalf and seeks to deposit the $1 million policy limit into the Court Registry so that Claimants/Defendants may assert and prove their claims thereto. Indemnity seeks to restrain or enjoin the Defendants from prosecuting any action against Indemnity, and any effort to collect any judgments rendered in any such suits and to appoint a special master to settle the claims asserted by the Claimants/Defendants against it.

Defendants now move to dismiss Indemnity's claims under Fed. R. Civ. P. 12(b)(1) and argue that the Court should abstain from hearing this case pursuant to the Colorado River and Younger abstention doctrines.

Interpleader under § 1335 can be invoked where a party "is exposed to multiple claims relating to a single obligation, and wishes to obtain an adjudication of those claims in a single proceeding[.]" District courts, pursuant to the power granted to them by Congress, may grant injunctive relief, including exercising injunctive authority over state courts, in furtherance of § 1335.  In an interpleader action, the plaintiff is a stakeholder that "fears the prospect of multiple liability" but admits liability to at least one, if not all, claimants.  The interpleader device therefore allows a stakeholder to "file suit, deposit the property with the court, and withdraw from the proceedings."  "The result is that `[t]he competing claimants are left to litigate between themselves,' while the stakeholder is discharged from any further liability with respect to the subject of the dispute." 

As a preliminary matter, the Court must address whether it has jurisdiction to hear this interpleader action under § 1335. As set forth above, the Court has original jurisdiction over interpleader actions under § 1335 when (1) there is minimal diversity of citizenship between two or more adverse claimants as defined in 28 U.S.C. § 1332; (2) the amount in controversy exceeds $500; (3) the action was brought in a federal court where one or more claimants reside; and (4) "plaintiff has deposited such money or property" in the court registry. See 28 U.S.C. §§ 1335, 1397.

The court found the first three requirements met.  While failure to deposit all funds associated with an interpleader action is a jurisdictional defect, it is one "which [can] be cured" and it is proper for a court to allow a plaintiff to perfect jurisdiction by moving to deposit the funds into the registry.  Where a local rule prevents an interpleader plaintiff from depositing funds in the registry without a court order, courts "routinely impose a condition precedent on maintaining jurisdiction that requires the assets be deposited within a certain number of days following a court order."  Therefore, Indemnity should be permitted to perfect jurisdiction by moving to deposit the funds into the Court's Registry consistent with the following Order.

Turning to the substance of Defendants' motion, they argue that this Court should abstain from considering this case under the abstention principles set forth in Colorado River. Indemnity responds that Defendants have not met their burden of showing abstention under Colorado River is appropriate.

In considering abstention in § 1335 cases, while district courts have a "virtually unflagging obligation" to exercise jurisdiction granted to them by Congress, several abstention doctrines have been created that allow courts to decline considering cases over which they have jurisdiction.  Under Colorado River, a court should abstain from considering a federal case in deference to a state court proceeding where there is a parallel ongoing state court proceeding.  The court must undergo a two-part inquiry to determine if abstention is appropriate: first, whether there is a parallel state proceeding that raises "substantially identical claims [and] nearly identical allegations and issues[,]" and second, if the proceedings are sufficiently parallel, courts determine whether "extraordinary circumstances" merit abstaining. 

The Court of Appeals for the Third Circuit declined to apply the narrow "exceptional circumstances" test for abstention promulgated in Colorado River to § 1335 cases. NYLife, 72 F.3d at 382. In so doing, it held that the "discretionary standard enunciated in Brillhart governs a district court's decision to dismiss an action commenced under the interpleader statute during the pendency of parallel state court proceedings." 

Pursuant to NYLife and Brillhart, in determining whether abstention is proper in a § 1335 case, the court must consider the following factors: "the avoidance of needless duplicative litigation," the "purpose of the interpleader statute" in "determining where the competing claims that expose the stakeholder to multiple lawsuits and liability `can be better settled,'" what forum safeguards "the stakeholder more effectively while providing the claimants with the more efficient, convenient, and expeditious vehicle to settle their dispute to the fund," and assuring "that procedural fencing, forum shopping or gamesmanship is not rewarded." 

At this juncture, given that the parties have not briefed Brillhart's "discretionary standard" for abstention, it would be premature for the Court to determine as a matter of law whether abstention is appropriate in this case. Therefore, the Court will allow the parties to submit supplemental briefing as to whether the Court should apply the abstention principals set forth in Colorado River or Brillhart, and additionally, the parties should make any arguments with respect to abstention under Brillhart. This motion will be held in administrative abeyance on this issue until such time that the supplemental briefing is ripe.

Defendants next argue that the Court should abstain from considering this case under Younger abstention. Under Younger, a federal court cannot enjoin ongoing state court criminal proceedings absent extraordinary circumstances.  The Supreme Court has broadened Younger abstention to apply to "two other types of state-level proceedings: quasi-criminal civil enforcement actions and civil lawsuits with orders that are uniquely in furtherance of a state court's ability to perform its judicial functions."  There are no state court criminal, quasi-criminal or civil lawsuits with orders uniquely in furtherance of a state court's ability to perform its judicial functions at issue in this matter, as the state court action involves personal injury and property damages claims and therefore Younger abstention is inappropriate here. 

 

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

09/04/24       Acuity Ins. Co. v. A Maxon Co., LLC
South Dakota Supreme Court
Additional Loss Payees Unable to Recover Under Policy Where Insured LLC’s Principal Intentionally Started Fire

 A fire damaged a malt beverage store owned by A Maxon Company, LLC (AMC). The Weatherspoons, the original owner operators of the store, were listed as additional loss payees under the insurance policy issued by Acuity. The Weatherspoons argued that the policy allowed them to make their own claim for coverage if the insured did not. Acuity argued that the Weatherspoons’ rights were only equal to the rights of the policyholder, and even if both made a claim, it would be denied under the exclusion for dishonest or criminal acts. The trial court granted Acuity summary judgment, determining the terms of the policy prevented the Weatherspoons from recovering damages unless AMC successfully asserted a claim for coverage. The jury decided that AMC principal, Mr. Maxon, had intentionally started the blaze, so coverage was excluded. The Weatherspoons appealed.

On appeal, the Court agreed that the policy language restricted the Weatherspoons’ ability to collect to the extent AMC could collect. Since the jury found that the AMC principal intentionally started the fire, AMC was precluded from receiving loss benefits. As a result, the Weatherspoons were not able to recover under the policy.

 

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

09/09/24       Zeqa v. The Hanover Insurance Company
United States District Court, District of New Jersey
Where an Issue of Fact Exists as to the Availability of Coverage, a Bad Faith Claim Will Not Stand

Zeqa purchased a home in Lincoln Park, New Jersey, as well as a homeowners policy with Hanover. Zeqa’s pre-purchase inspection report revealed pre-existing water damage throughout the home. Zeqa proceeded with the sale, and did nothing about the damage.

After Zeqa moved into his new home, the town water authority came by for its annual flushing of a nearby fire hydrant. Soon, a flush of a different kind happened, as the fire hydrant activity caused an increase in the water pressure within Zeqa’s home, particularly in the water lines feeding Zeqa’s bidet attachments to his toilets. The bidet attachments’ water lines ruptured, causing water damage to both stories throughout Zeqa’s home.

During the adjustment process of the claim, a dispute arose as to the degree of necessary repairs. Hanover initially assigned its own remediation company. However, it was unable to perform any work due to the power being shut off in the house. As a result, Zeqa unilaterally fired this company and brought in his own, who completed the remediation.

Hanover contested the bills from Zeqa’s own remediation company, principally on the ground that they exceeded the scope of necessary repairs. However, Hanover made a handful of payments to Zeqa, for direct physical loss caused by the water damage, as well as loss of personal property and additional living expenses. Hanover also offered Zeqa an additional check for “emergency water mitigation,” which was rejected as inadequate.

Zeqa brought this suit against Hanover, alleging that it acted in bad faith in refusing additional payments for the remediation services. In New Jersey, a cause of action for bad faith arises under the duty of good faith and fair dealing, which is implicit in all contracts. A carrier is said to breach this duty when it acts in bad faith. A carrier acts in bad faith when the plaintiff shows the absence of a reasonable basis for denying benefits, and that the carrier knew or recklessly disregarded the fact that it had no reasonable basis to deny the claim. New Jersey case law has dubbed this the “fairly debatable standard,” under which a carrier is said to act in bad faith where it acts without reasonable basis for denying a claim.

Given the issue regarding the degree of necessary repairs, the extent of Hanover’s payment obligation was less than clear. As this Court noted, where there is a dispute as to the entitlement of insurance benefits to a degree that would preclude an award of summary judgment, there is typically a fairly debatable reason for refusing to pay insurance benefits. It then follows that, where the coverage issues cannot be resolved on summary judgment, a claim of bad faith cannot stand.

Here, the Court found that the fairly debatable dispute as to Zeqa’s entitlement to additional insurance proceeds was two-fold: (1) Zeqa’s home may have had pre-existing damage unrelated to the present loss, as evidenced by Zeqa’s pre-purchase home inspection report; and (2) Zeqa’s remediation company gutted most of the building before any expert could determine whether the extent of the company’s repairs was truly necessary. As such, the Court granted summary judgment to Hanover on Zeqa’s bad faith claim.

In the same motion, the Court also heard a dispute over whether Zeqa could have his public adjuster testify as an expert witness at the time of trial. Under the federal rules of civil procedure, an expert witness must meet three criteria: (1) the expert must be qualified to testify as an expert on the subject matter; (2) their testimony must be about some scientific, technical, or specialized skill; and (3) their testimony must be helpful to the trier of fact in understanding the evidence offered or determining a fact in issue. Case law examining these criteria has held that the admission of expert testimony must be done liberally.

Hanover contested the use of Zeqa’s public adjuster as an expert witness on two grounds. First, Hanover challenged the public adjuster’s status as an expert. The public adjuster has been such since 1990, and had investigated “hundreds” of claims throughout his career. In considering whether the public adjuster was worthy of giving expert testimony, the Court noted that the public adjuster does not have to be an engineer; rather, all that is important is that the public adjuster possess knowledge of the subject matter greater than that of the average layperson. The Court sided with Zeqa on this point.

However, Hanover also contested Zeqa’s status as an expert witness on the ground that his testimony would be unreliable and unhelpful to the jury. Hanover explained that, at the time the public adjuster first visited the home, Zeqa’s contractor had already started remediation, and had gutted a substantial portion of the structure. As such, the public adjuster never had the opportunity to inspect that portion. As a result, the public adjuster admitted in his deposition that he was unable to determine the extent of the damage to the portion of the building that had already been gutted, or whether that portion actually needed to be gutted in the first place. As a result, the Court agreed to allow the public adjuster to testify, but forbade him from testifying on matters of causation, cost of repairs, or necessity of repair.

 

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

09/06/24       Henderson v. State Farm Fire and Cas. Co.
United States Court of Appeals, Eighth Circuit
Insureds’ Breach of Condition Precedent and Insurer’s Payment of Appraisal Amounts, as Well as the RCV Costs Incurred Within Two-Year Deadline Doom Insureds’ Suit

In this case, the Eighth Circuit ran through a gauntlet of issues under a Homeowners’ policy. The insureds owned a home in Iowa when a derecho, yes a derecho, damaged the insured risk. As with most policies, the insureds’ policy with State Farm provided Actual Cash Value (“ACV”) minus the deductible of a covered loss. In certain situations, they could also have received the cost of repairs in excess of the ACV up to the policy’s Replacement Cost Value (“RCV”).

The policy contained an appraisal clause, a one-year suit limitation clause that ran from the date of loss, and an RCV condition that repairs be made within two years from the date of loss with notice to State Farm within thirty days after completion.

The loss occurred on August 10, 2020, and State Farm inspected the risk in September. State Farm’s adjuster determined there was minor damage. In October the insureds sent State Farm additional photos of the damage, which increased the ACV. The insureds then retained a roofing contractor who advised the insureds they needed a new roof. The parties disagreed as to whether the roof needed replacement from Fall 2020 into Summer 2021. On August 2, 2021, the Insureds requested an appraisal and extension to file suit. On August 9^th, the insureds filed a state suit for breach of contract, bad faith, and declaratory, as well as injunctive relief.

The appraiser determined the roof needed to be replaced and State Farm promptly paid the balance, while it advised the insureds the repair needed to be completed by August 10, 2022, with supporting documentation. State Farm also advised that the insureds must notify it within 30 days of the completed repairs. State Farm removed the action and the insureds’ respective depositions revealed they did not repair the siding.

The Court of Appeals found the district court had proper jurisdiction to grant State Farm summary judgment because the claim would have exceeded $75,000.00. The insureds sought a remaining $35,000.00 in property damage and under Iowa law, punitive damages are recoverable for bad faith claims, which the insureds sought in their complaint.

In dismissing the breach of contract claim based upon the policy’s complete repair provision, the court discussed substantial compliance, impossibility, and waiver. On substantial compliance, the court noted that between the August 10, 2022, deadline and the grant of State Farm’s summary judgment, the insureds submitted a single contract for repair. And the insureds did not dispute State Farm paid a portion of the RCV based on the untimely submission. Since the insureds did not complete the repairs nor notify State Farm of the completion from the deadline to the district court’s grant of summary judgment, the insureds could not show substantial compliance.

As for impossibility, the insureds argued State Farm’s delay in making a substantial payment constituted an anticipatory breach and rendered the repairs impossible. But State Farm never denied liability, instead the disagreement involved the amount owed. Notably, State Farm paid the full ACV after the appraiser’s determination in March 2022, which left several months for the repairs to be completed. The court also rejected the insured’s reliance on an Iowa Insurance Commission bulletin noting a shortage of contractors in 2021, because there was no evidence that the shortage affected the insured’s ability to make repairs in 2022.

Much like New York, Iowa finds waiver is the voluntary or intentional relinquishment of a known right. It can be shown through affirmative acts or inferred from conduct that supports a waiver was intended. State Farm did not waive the two-year deadline by making a payment for RCV in September 2022. That is because each time State Farm made a payment it continually advised the insureds of the deadline. Although State Farm suggested it would consider paying repairs or sums incurred before the deadline, it did not state it would make payments after the deadline. The RCV payment was also based on the late contract submission, with the contracted date before the August 10, 2022, deadline.

A peripheral issue was prejudice. Iowa law finds a presumption of prejudice to insurers if an insured breaches a condition precedent. Because the insureds failed to show waiver or an excused breach, the presumption applied and the insureds never argued that State Farm was not prejudiced. On the insureds’ side, they provided no evidence or precedent that a non-performing party can be excused for performance of a condition precedent to a contract. The court also noted the purpose of completed repairs in RCV provisions is to prevent insureds from profiting from a loss.

On those issues, the court affirmed the grant of summary based upon the insureds’ breach of the policy’s conditions. Next, the Circuit Court addressed whether State Farm breached the contract for failing to timely adjust the loss. In Iowa, consequential damages are generally not recoverable for breach of an insurance contract. A failure to show the insureds and State Farm, at the time of contract formation, any special circumstances that the parties contemplated additional recoverable damages was fatal to the insureds. As the funds owed were already paid, the insured could not substantiate the damages element for their breach of contract claim.

To step on Mr. Barnas’s toes, the bad faith claim was also dismissed. The insureds took issue with State Farm’s adjustment method, which included the use of an out-of-state adjuster who reviewed pictures and materials submitted by the physical inspector. But the insureds failed to show the process was unreasonable and failed to show that Iowa imposes a duty to have the same person physically inspect and adjust the claim. Regarding the valuation dispute, the fact that State Farm valued the claim lower, without more, did not show bad faith.

Iowa’s bad faith statute also includes an unfair claims settlement portion, that finds an unfair practice where insureds are required to litigate amounts owed under a policy but offered substantially less. Iowa Code § 507B.4(3)(j)(7). But that conduct needs to be performed with such frequency to indicate a general business practice. Iowa Code §507B.4(3)(j). Notably, §507B.4 does not create a private cause of action, which the insureds conceded. Thus, a violation is relevant to a bad-faith inquiry only. Because the insureds failed to show §507B.4(3)(j)(7) was violated, they did not and could not establish a general business practice.

The insureds also contended State Farm violated a “line-of-sight rule.” An Iowa regulation that requires insurers to replace as much of an item to ensure uniform appearance where the damaged items cannot be replaced with matched quality, color or size.

This argument was also rejected. When informed the siding could not be found at one source, State Farm found another that potentially carried the same siding. But the insureds’ contractor never verified nor contacted the needed siding was at the State Farm suggested vendor. In addition, State Farm advised the contractor to replace the siding and shingles, and after completion to provide photographs to determine if it was mismatched. The contractor never did so. For the roof, State Farm was entitled to a third-party opinion whether the shingles were a match and need not solely rely on the insureds’ contractor’s opinion. Based upon the evidence, the State Farm complied with the line-of-sight rule.

Another issue was the contractors’ notice to State Farm of a building code that applies to new construction and repairs to roofs. That code requires new construction, alterations, additions, or repairs to conform to the requirements of a new structure, without requiring the existing structure to comply with the code. Based upon that language, State Farm possessed a reasonable belief the roof decking did not need to be replaced. For the above reasons, the dismissal of the insureds’ claims was affirmed.

Editor’s Note:  A derecho is a widespread, long-lived windstorm that is associated with a band of rapidly moving showers or thunderstorms. As a lifelong New York state resident, I never heard of a derecho. Apparently, it causes tornado-like damage in certain cases.

 

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

Nothing from me this time around. I'll be back to hopefully discuss Serious Injury Threshold in two weeks. In the meantime, please enjoy the wonderful articles from my colleagues!

 

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

08/23/24       Structure Tone LLC v. Selective Way Ins. Co.
New York State Supreme Court, New York County
Summary Judgment Denial Based on Question of Fact Regarding Whether Contract Required Additional Insured Coverage on Primary and Non-Contributory Basis

Structure Tone, LLC, Successor by Merger to Structure Tone, Inc (“Structure Tone”) commenced a declaratory judgment action against Selective Way Insurance Company (“Selective”) after Selective denied Structure Tone’s tender for additional insured status. Structure Tone tendered their defense to Selective, after a lawsuit was commenced against them. In the underlying action, the claimant alleged he was injured by a door installed by Structure Tone’s subcontractor, Patella.

Selective denied Structure Tone’s tender on the basis there was no reason to conclude that the claimant’s injury in the underlying action was caused by an act or omission of Patella, Selective’s Named Insured.  After the denial, Structure Tone commenced a declaratory judgment action, seeking a determination that Structure Tone is an additional insured under the Selective primary and umbrella policies, that Selective owes coverage on a primary and non-contributory basis, and for reimbursement in the amount of past defense costs in the underlying action.

Structure Tone moved for summary judgment, seeking a declaration that Selective owes a primary and non-contributory additional insured defense to Structure Tone, and additional non-party entities. In support of the motion, Structure Tone submitted contracts between Structure Tone and Patella, a screenshot from Structure Tone’s website, and the Selective policies.

In relevant part, the Selective policy contained an “Additional Insured – Owners, Lessees or Contractors – Automatic Status When Required In Construction Agreement With You” endorsement. The endorsement stated that coverage under the Selective policy “shall be excess with respect to [additional insureds]; any other valid and collectible insurance that person or organization has shall be primary with respect to this insurance, unless coverage is required to be primary and/or noncontributory in the contract or agreement [with any additional insured].” Therefore, based on the policy language, the Selective policy would only be primary and non-contributory if required under the contract between Patella and Structure Tone.

Based on the evidence submitted, the court denied the motion for summary judgment, finding that there were issues of fact regarding the existence and extent of coverage for Structure Tone under the Selective policies.

The court first turned to the two contracts between Structure Tone and Patella, only one of which was in force at the time of Patella’s work on the project. The contract, dated March 17, 2015, required that Patella shall “purchase, maintain and provide insurance with coverages, types and limits specified at www.certfocus.com.” The contract document contained certain requirements for Patella’s procurement of insurance, but did not specify that the insurance must be primary and non-contributory.

The website screenshot produced by Structure Tone was the only evidence submitted which indicated that the Patella’s insurance is required to be primary and non-contributory. The screenshot dated December 1, 2016, provided that the insurance acquired must be primary and non-contributory. Importantly, there was no evidence submitted that the information on the website was in effect on March 17, 2015, the date of execution of the Structure Tone and Patella agreement.

As such, based on the language of the applicable Additional Insured Endorsement, and evidence submitted, the Court found that there was a question of fact regarding whether the contract with Patella actually required additional insured coverage to be primary and/or non-contributory, and therefore, the court could not declare that Structure Tone was entitled to primary and non-contributory defense from Selective in the underlying action.

 

LEXI’S LEGISLATIVE LOWDOWN
Lexi R. Horton
[email protected]

09/11/24       New York Assembly Bill A1687
Proposed Act to Amend Insurance Law § 3462 to Include a Prohibition on the Exclusion of Lead Hazards

On May 7, 2024, the Assembly passed, for a second time, a proposed amendment to Insurance Law § 3462 to prohibit insurance companies from excluding coverage for losses or damages caused by exposure to lead-based paint. It provides that no insurer licensed or permitted by the superintendent to provide liability coverage to rental property owners shall exclude coverage for losses or damages caused by exposure to lead based paint.

The Bill was delivered to the Senate, and it referred to as Senate Bill 88. Previously, January 3, 2024, the bill died in the Senate and was returned to the Assembly.

The Amendment reads as follows:

   § 3462. Exclusion for lead hazards prohibited. No insurer licensed or permitted by the superintendent to provide liability coverage to rental property owners shall exclude, after twenty-six months following the effective date of this section, coverage for losses or damages caused by exposure to lead-based paint. The department shall not permit, authorize or approve any exclusion for injury or damage resulting from exposure to lead-based paint, except as specifically provided for in law, that was not in effect as of the effective date of this section, and all previously approved exclusions shall terminate on or before twenty-six months following the effective date of this section.

 

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

07/29/24       Crandall University v. AIG Insurance Company of Canada
New Brunswick Court of King's Bench
Sexual Harassment, Which Is a Form of Sexual Violence, Which in Turn is a Form of Sexual Behaviour, Is Included in a Definition of Sexual Misconduct, Which Includes “Immoral and Sexual Behaviour" Thereby Triggering an Exclusion for Sexual Misconduct in an EPL/D&O Policy

Moncton, New Brunswick, a city of about 80,000, located in the geographic centre of Atlantic Canada, is known for being a transportation hub and the home of seven post-secondary educational institutions, three of which grant degrees: Mount Allison University; the French language Université de Moncton and Crandall University.

Until 1970, Crandall University was known as Atlantic Baptist University and before that, Atlantic Baptist College. Since its founding in 1949, Crandall has been and remains a Christian educational institution that gradually branched out from its liberal arts foundation to offer its 1,400 student body degrees at the bachelors and master’s level in Science, Business Administration, Education and Management.

In 2015, Crandall hired a leading Canadian theologian, John G. Stackhouse, Jr., as the inaugural Samuel J. Mikolaski Professor of Religious Studies and that university's first Dean of Faculty Development. At the time, Stackhouse (then in his late 50’s), was an acclaimed author and theologian in the areas of general theology, ethics and the history of Christianity. Stackhouse was a ‘go-to’ for mainstream media looking for commentary in his areas of expertise. He was a captivating speaker with personal charisma which resulted in him being called upon to speak at conferences throughout the United States and Europe in addition to Canada. During his career, he had given expert testimony to the Canada Revenue Agency, the Manitoba Human Rights Commission, and the British Columbia Supreme Court. Crandall University was thrilled to attract him to their ranks from a position as a tenured professor at Regent College in Vancouver where he had been for 17 years.

In March of 2023, eight years after Stackhouse was hired by Crandall, an Instagram profile called "dobettercrandall" appeared online and posted a number of accounts of what it alleged were incidents of harassment, many associated with one professor in particular.  The following month, Crandall hired noted labour lawyer, Joël Michaud, K.C., and his firm to conduct a workplace investigation. That investigation concluded in November of 2023 with a report to Crandall’s Board of Governors. A summary of that report was posted on the University website. Concurrent with its posting, Crandall fired John Stackhouse who had been put on a leave of absence as of the end of July 2023 because of the investigative findings at that time.

Upon being terminated, Stackhouse and his wife sued Crandall claiming the university damaged their reputations by publishing the findings of a "flawed" investigation. The pleading claims that Crandall placed Stackhouse in a false light in the public eye, that Crandall intruded upon his seclusion, wrongfully publicized the investigation and committed breach of confidence. Stackhouse also claims Crandall wrongfully terminated his employment, alleging his termination letter lacked detail surrounding the specific behaviour by him that allegedly constituted sexual harassment.

Crandall defended stating that prior to March 2023, they were aware that Stackhouse had used inappropriate and offensive language with female students.  Stackhouse was spoken to, and he vowed to change his behaviour.  The Defence relates that the Michaud investigation demonstrated that Stackhouse’s behaviour did not change. Crandall’s defence goes on to say that during his investigation, Michaud was approached by a student who shared 78 "concerning" emails sent to her by Stackhouse, most of which included sexual references.  The Defence does not quote the emails but says they included Stackhouse describing a sexual fantasy of his, as well as him referring to his desire to have a "sleepover" with that student. Crandall notes that when confronted about those emails, Stackhouse admitted they were unbecoming of a professor and a Christian.

In addition, the Defence states that Stackhouse began a romantic relationship with a student while married to someone else and that Stackhouse left his then wife to marry the student. The Defence asserts that Crandall maintains that it had just and sufficient cause to terminate Stackhouse's employment, especially given its mission and values as a Christian based university. The Defence also asserts that at the time of his hiring at Crandall, Stackhouse deliberately failed to disclose that he was on a forced leave of absence and was the subject of an investigation into similar misconduct by Regent College.

At the time of the investigation and the firing of Stackhouse, Crandall held a D&O policy issued by AIG with an EPL endorsement. The whole of the coverage was subject to a Sexual Misconduct and Child Abuse Exclusion. That exclusion read, in part, “the Insurer shall not be liable to make any payment for Loss in connection with any Claim(s) (including but not limited to any derivative or representative class actions) made against any Insured(s) alleging, arising out of, based upon or attributable to, or in any way involving, directly or indirectly any Sexual Misconduct…”. "Sexual Misconduct" is defined to mean “… any licentious, immoral or sexual behavior, sexual abuse, sexual assault, or molestation intended to lead to or culminating in any sexual act against individual(s).”

Crandall argued that the exclusion does not apply as the claim arises from an alleged wrongful termination. AIG argued that the claim arises indirectly from Stackhouse’s sexual harassment of a student and therefore there is no duty to defend the Stackhouse action. Crandall brought this application requesting a defence from AIG through counsel of its choosing.

The trial court (also called an application judge) held that sexual harassment is within the definition of ‘sexual misconduct’. The court stated “[t]he plain and ordinary meaning of sexual harassment is a form of sexual violence, a form of sexual behavior. The definition of Sexual Misconduct in the Sexual Misconduct Exclusion includes "immoral and sexual behavior" and therefore includes sexual harassment. Crandall's suggestion that sexual harassment should have been spelled out in the definition of Sexual Misconduct is misguided. The term sexual behaviour is sufficiently broad to include sexual harassment.”

The court went on to find that the claim "aris[es] out of, based upon or attributable to, or in any way involving directly or indirectly any Sexual Misconduct". The court stated “The Claim in this case is the fruit of the investigation launched by Crandall in which it was determined that Dr. Stackhouse sexually harassed a student. This formed the basis for Dr. Stackhouse's termination and gave rise to the Stackhouse Action. Given the broad language in the Sexual Misconduct Exclusion, these foundational elements cannot be divorced from the Claim.

The Court concluded the Claim arises indirectly from Stackhouse’s sexual harassment of a student and is captured by the Sexual Misconduct Exclusion. 

Crandall argued that Stackhouse was terminated for other reasons than sexual harassment and therefore the coverage should apply. The Court stated that the termination letter sent by Crandall only addresses the sexual harassment and the press release issued by Crandall following the termination included a reference to findings of inappropriate or sexually oriented statements or conversations. Further, even if the Claim included other reasons for termination in addition to Sexual Misconduct, the language of the Sexual Misconduct Exclusion specifically excludes direct or indirect claims.

The trial judge held that AIG had no duty to defend Crandall. Stackhouse was ordered to pay $3,000 in court costs to AIG for the failed application.

This trial level decision contains multiple flaws.  The duty to defend is confined to the allegations in the action. There is no discussion as to whether the causes of action plead are dependent on another such that one could succeed while others fail. For example, could Stackhouse lose on wrongful termination and succeed on intrusion on seclusion, which may be a covered claim? The alternative finding, that the termination was indirectly the result of sexual misconduct may not save this determination from being a ground of appeal. Further, the court is prohibited from looking to extraneous documents unless they are explicitly referenced in the pleading. This coverage determination was premised upon the Stackhouse termination letter, the investigation report and the Crandall website postings. There is no discussion as to whether those materials were referenced in the action or whether the parties agreed that they could be analyzed to determine AIG’s duty to defend.

We will see if an appeal is launched. In the meantime, the Stackhouse lawsuit is ongoing and social media is replete with postings by Stackhouse and his wife about their allegedly biased and egregious treatment at the hands of Crandall.

It took no small amount of courage on the part of the Crandall Board of Governors to terminate a professor who was once touted as a leading light that elevated Crandall’s academic star. Value-based termination carries risk as it can demonstrate how far an employee strayed from the corporate values while under that company’s supervision. Regent College in Vancouver went the non-disclosure route when it terminated Stackhouse to avoid that negative publicity. Crandall’s decision to publicly terminate Stackhouse means that the case is being litigated in the courts of New Brunswick and in the court of public opinion.  Time will tell if that decision enhances or detracts from Crandall’s ability to attract talented professors and students.

 

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