Coverage Pointers - Volume XXVII No. 7

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, New Jersey, 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.

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

09/10/25          M.J v. City of New York
Appellate Division, Second Department
Injuries Which Occurred to a Student from Falling on the Steps of a School Bus Because of Alleged Negligence on the Part of the District in Not Supervising the Students, Does Not Arise Out of the Use and Operation of the Bus, So No Serious Injury Required

The plaintiff, individually and as mother and natural guardian of the infant, commenced this action, inter alia, to recover damages for personal injuries that the infant plaintiff allegedly sustained when the infant plaintiff fell while boarding a school bus. The defendants City of New York, New York City Department of Education, and Fortuna Bus Company, Inc. moved for summary judgment dismissing the complaint insofar as asserted against them on the ground that the infant plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d).

Contrary to the defendants' contention, the plaintiffs were not required to plead that the infant plaintiff sustained a "serious injury" within the meaning of Insurance Law § 5102(d), since the accident did not arise out of the "use or operation" of the school. This proximate cause requirement is not established merely because injuries occurred while entering or exiting a vehicle, rather "the motor vehicle itself [must] be the instrumentality which produces the injuries".

Here,), the plaintiffs do not allege negligence arising from the "use or operation" of the school bus (Insurance Law § 5104[a]), but rather that the defendants were negligent in supervising the infant plaintiff as she climbed the stairs of the school bus, which, under the circumstances, is no different than if the infant plaintiff had been injured on stairs while leaving the school.

The infant plaintiff's school bus coordinator testified at her deposition that typically she would hold a child's hand while the child ascended the steps and pass the child's hand directly to a bus matron located at the top of the steps, but on the date of the infant plaintiff's accident, when the bus coordinator let go of the infant plaintiff's hand, the infant plaintiff fell. The infant plaintiff's bus matron testified at her deposition that she was buckling another child into a seat and was not present at the front of the bus to receive the infant plaintiff.

As the "use or operation" of the school bus was not a proximate cause of the infant plaintiff's injuries (Insurance Law § 5104[a]), but rather the alleged negligence of the defendants in failing to supervise the infant plaintiff.

Editor’s Note: Not every injury in or around a motor vehicle arises from the use or operation of that vehicle.

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

On the road, teaching the masses. See you in two.

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

09/09/25          Deer v. National General Ins. Group, et al.
Supreme Court of Connecticut
Insurance Brokers Owe No Duty to Notify Insureds of Impending Cancellations

In a case familiar to the readers of this column, the Connecticut Supreme Court, in a 4-2 decision, found that an insurance broker has no obligation to inform an insured that its homeowners policy was in jeopardy of non-renewing.

The insured homeowners obtained a policy of insurance from National General through its broker, the Trahan Agency. National General, following an inspection, determined that the home was missing exterior siding, representing an unreasonable hazard. National General advised the broker that if the siding was not fixed, it would non-renew the policy. The broker claimed that it advised the insured of this, the insured denied any contact from the broker.

When the siding remained unrepaired, National General issued a notice of non-renewal, and the policy expired at its conclusion. A few weeks later the insureds suffered a catastrophic fire, resulting in a total loss.

The insureds claimed that they never received the notice of non-renewal or notice of the original inspection, both of which was sent to the broker. The homeowners sued National General and the broker. We represented National General, winning summary judgment that it timely and appropriately non-renewed the policy. Summary judgment was affirmed by the Appellate Court of Connecticut, holding that there is no actual notice requirement under Connecticut law.

The Supreme Court denied cert as to National General but agreed to hear the case against the broker. After a spirited argument, a divided court affirmed judgment for the broker. The Appellate Court, the Supreme Court wrote, correctly concluded that the broker did not owe the insureds a duty to provide them with notice of the carrier’s impending nonrenewal of their homeowners insurance policy.

The general rule in Connecticut is that an insurance broker owes no legal duty to the insured after the broker has successfully procured the requested insurance policy, and a broker is entitled to rely on the insurer to adhere to its statutory and contractual obligations to provide notice of nonrenewal to the insured. An exception to the general rule arises, however, when a broker agrees or gives some affirmative assurance that it will assist in the renewal of an insurance policy for the insured.

Here, the agency relationship between the insureds and the broker terminated after the defendants procured the policy, as there was no evidence that the defendants had agreed or represented that they would assist in maintaining or renewing the plaintiffs’ insurance coverage after the issuance of the policy, and there was no evidence that the broker had continued to act on the insureds’ behalf or affirmatively sought to extend the coverage by collecting the necessary information to secure a renewal of the plaintiffs’ policy.

Moreover, the plaintiffs could not prevail on their claim that a duty should be imposed on the defendants in view of the long-standing, continued, and ongoing relationship between the plaintiffs and the defendants because, although the plaintiffs did have a long-standing relationship with the defendants for many years, that relationship was interrupted for two years prior to the procurement of the policy at issue, as the plaintiffs had utilized another insurance broker during that timeframe, and, in any event, such a long-standing relationship, by itself, is insufficient to create a duty in the absence of evidence that the defendants, through their conduct or communications, had undertaken an additional duty to assist the plaintiffs with their renewals.

Ed. Note: Congratulations to Cara Joyce, of Morrison Mahoney who represented the brokers, for a hard fought and tumultuous win. Cara and I were both on this case from Day 1, up against an impassioned opponent, with heart rendering facts. At the end of the day, good lawyering prevailed.

RUFFNER’S ROAD REVIEW
Kyle A. Ruffner
[email protected]

08/27/25       In the Matter of Fill Rx NY, Inc. v. LM Gen. Ins. Co.
Appellate Division, Second Department
Petition to Vacate Arbitration Award Denied, as Award Had Evidentiary Support and Rational Basis

The petitioner, Fill Rx NY, Inc. commenced this proceeding pursuant to CPLR article 75 to vacate an award of a master arbitrator, which confirmed the lower arbitration award. The arbitration award arose out of a no-fault proceeding commenced by Fill Rx against the insurer LM General to recover in the sum of $4,151.53 for pharmaceutical products provided to the assignor after a motor vehicle accident. The arbitrator denied the provider’s claim in its entirety based on the insurer’s defense that the limits of the no-fault coverage under its insurance policy had been exhausted.

Fill Rx appealed the January 2023 arbitration award to a master arbitrator, contending that the award was irrational, arbitrary and capricious, and incorrect as a matter of law. The master arbitrator confirmed the award and, by order dated October 4, 2023, the Supreme Court denied the provider’s petition to vacate the master arbitration award. The provider appealed.

However, the appellate court noted that, consistent with the public policy in favor of arbitration, the grounds specified in CPLR 7511 for vacating or modifying a no-fault arbitration award are few in number and narrowly applied'" (Matter of Allstate Ins. Co. v. Westchester Med. Group, M.D., 125 AD3d 649, 650, quoting Matter of Mercury Cas. Co. v. Healthmakers Med. Group, P.C., 67 AD3d 1017, 1017; see Matter of Singh v. Allstate Ins. Co., 137 AD3d 1046, 1047). It is not the court to decide whether the master arbitrator erred in applying applicable law.

Here, the court held that Fill Rx failed to demonstrate any ground for vacating the March 2023 master arbitration award. The determination of the master arbitrator had evidentiary support and a rational basis (see 11 NYCRR 65-4.10[a][2]).

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

On family leave.

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

08/05/25         Accelerant Specialty Ins. Co. v. Big Apple Designers, Inc.
United States District Court, E.D. New York
Material Misrepresentation in the Application and Whether the Modifying Clause "In Connection with This or Any Other Property" in an Application Question Applies to All Four Listed Crimes (Fraud, Bribery, Arson, and Arson-Related Crime) or Just to Arson-Related Crime

Accelerant seeks a declaratory judgment against Big Apple that the insurance policies are invalid and do not create a duty to defend or indemnify in several personal injury actions. Big Apple filed a motion for judgment on the pleadings which was denied.

Big Apple submitted an insurance application to Accelerant in which it was asked:

DURING THE LAST FIVE YEARS (TEN IN RI), HAS ANY APPLICANT BEEN INDICTED FOR OR CONVICTED OF ANY DEGREE OF THE CRIME OF FRAUD, BRIBERY, ARSON OR ANY OTHER ARSON-RELATED CRIME IN CONNECTION WITH THIS OR ANY OTHER PROPERTY?

(In RI, this question must be answered by any applicant for property insurance. Failure to disclose the existence of an arson conviction is a misdemeanor punishable by a sentence of up to one year of imprisonment).

Big Apple answered that question in the negative.

Approximately five months earlier, Big Apple and certain of its controllers and owners were indicted for insurance fraud, conspiracy, and falsification of business records. The Fraud Indictment alleged that Big Apple underreported employee payrolls by making direct cash payments to its employees, thereby reducing Big Apple's insurance premium payments to the New York State Insurance Fund. Accelerant had issued a Commercial General Liability policy and a Commercial Excess Liability policy to Big Apple. Accelerant alleged that Big Apple's failure to disclose the Indictment in the insurance application was a material misrepresentation.

Big Apple had been named or added as a defendant in twelve personal injury actions where each plaintiff alleged that they were injured during the course of their employment at various construction projects. Accelerant issued a disclaimer to Big Apple claiming that the insurance policies were void ab initio based on Big Apple's alleged material misrepresentation on its insurance application. Accelerant commenced this DJ action alleging breach of contract due to material misrepresentations in the application and for rescission of the Policies. The parties disagree on the interpretive principles that govern insurance applications. Big Apple contends that insurance applications are subject to similar interpretive standards as insurance policies, and therefore ambiguities in the language of an application must be construed against Accelerant and in Big Apple's favor. Accelerant responds that insurance applications are interpreted using the same canons of construction that generally apply to any written instrument or statute.

The Court held that Big Apple has the better argument. New York law is clear that an insurer is held to a strict standard when it is endeavoring to avoid payment on its insurance contract because of answers to inquiries or declarations which it has framed and that rule applies to questions on insurance applications. Thus, an answer to an ambiguous question on an application for insurance cannot be the basis of a claim of misrepresentation by the insurance company against its insured where a reasonable person in the insured's position could rationally have interpreted the question as he or she did.

In regard to question 8 of the Application the parties' principal dispute centers around the effect of the final modifying clause "in connection with this or any other property." Whether the clause modifies all four of the preceding crimes—"fraud, bribery, arson or any other arson-related crime" — or if it modifies only "arson-related crime."

To determine whether a "modifier at the beginning or end of a series of terms modifies all the terms," courts have applied two contradictory rules: the last antecedent rule or the series qualifier canon.

The most obvious method in which a writer indicates whether a modifier that follows a list of nouns or phrases is intended to modify the entire list, or only the immediate antecedent, is by punctuation. When there is no comma, the subsequent modifier is ordinarily understood to apply only to its last antecedent. In other words, under the rule of the last antecedent, a limiting clause or phrase should ordinarily be read as modifying only the noun or phrase that it immediately follows. But when a comma is included, the modifier is generally understood to apply to the entire series.

However, those conventions are not an absolute and can be overcome by other indicia of meaning. Although Question 8 does not separate the clause "in connection with this or any other property" with a comma from the listed crimes, Question 8 bears sufficient contrary indicia of meaning such that a reasonable person in the insured's position could rationally have interpreted the clause to modify all of the preceding crimes. Indeed, Question 8 is immediately followed by a parenthetical that states, "[i]n RI, this question must be answered by any applicant for property insurance. Failure to disclose the existence of an arson conviction is a misdemeanor . . .". A reasonable person in the insured's position could rationally have interpreted this parenthetical to suggest that Question 8 sought disclosure of property-related crimes.

Applying the "series-qualifier canon," the Supreme Court has observed that "when there is a straightforward, parallel construction that involves all nouns or verbs in a series, a modifier at the end of the list normally applies to the entire series." Application of the series-qualifier canon in such circumstances does not conflict with the "rule of the last antecedent." Here, the modifying clause follows "any degree of the crime of fraud, bribery, arson or any other arson-related crime," which is an integrated list of crimes. Accordingly, the clause "in connection with this or any of other property" would apply to all crimes delineated in Question 8.

Furthermore, Accelerant has failed to identify any reason why Question 8 would apply the "in connection with this or any other property" clause to "arson-related crime" alone. In other words, it has not provided an argument as to why it would take a more restrictive approach in its consideration of the crime of arson versus the crimes of fraud and bribery. The series qualifier canon generally prevails when, as is true here, there is no reason consistent with any discernible purpose of the text to apply the limiting phrase to the last antecedent alone. There is no discernable reason why the limiting clause would modify "arson-related crime" without also modifying "arson," as the two categories are, by definition, "related." Because there is no interpretive canon by which a modifying clause applies to only the two nearest antecedents in a list, the most natural reading of Question 8 is that the "in connection with this or any other property" clause modifies all four of the listed crimes. The Court agreed with Big Apple that Question 8 plainly requires disclosure of an indictment or conviction for a listed offense only if that offense was "in connection with this or any other property." Since ambiguous questions in an insurance application are construed against the insurer, Big Apple's interpretation would remain controlling.

Nonetheless, the Court agreed with Accelerant that its complaint still alleges a plausible claim even if Big Apple's interpretation of the insurance application is correct. Big Apple assumes that "property" is limited to real property, i.e. Big Apple's premises and job locations. According to Big Apple, its use of cash payments to mask its payroll, and thereby decrease its insurance premiums, was not in connection with any of its real properties

However, the Court said that it cannot conclude at this stage that Question 8 was limited to frauds "in connection with . . . [real] property." Question 8 fails to define the terms "this or any other property." Nor does the rest of the application shed light on that question. Although Question 8 might refer to the "premises" being insured (here, "all job locations" operated by Big Apple), the Application does not equate, or even link, the terms "premises" and "property." Property is an extraordinarily broad concept, and encompasses interests far removed from real property. Thus, Big Apple's unreported cash payments to its workers—the basis of the Fraud Indictment—may satisfy the "in connection with . . . property" qualifier as used in Question 8.

The Court said that at this stage it is unable to determine whether Big Apple truthfully answered Question 8 by nondisclosure of the Fraud Indictment. Whether the Fraud Indictment was a "fraud in connection with this or any other property" must be understood in light of the "customs, practices, usages and terminology as generally understood in the particular trade or business." Moreover, discovery may reveal "extrinsic evidence," which the court may use to "ascertain the meaning intended by the parties during the formation of the contract."

08/29/25          eBooks’ Web Com, LLC v. The Hanover Ins. Co.
United States District Court, E.D. Pennsylvania
Appraisal Is Premature When There are Outstanding Disputes Concerning Coverage, Not Merely Disputes About the Value of the Loss

eBooks’ suffered a fire damaging its book inventory. The policy with Hanover contained an appraisal clause for resolving disagreements about the amount of loss. Plaintiff determined its loss to be worth $16,041,394.10, while Defendant paid $4,254,771.10. Plaintiff demanded appraisal, which Defendant refused.

The parties dispute: whether actual cash value or replacement cost value provisions apply to older books in Plaintiff's inventory; whether the policy covers Plaintiff's affiliated entities; and the accuracy of financial data Plaintiff submitted with its claim.

The Court held that the dispute over whether actual cash value or replacement cost value provisions apply to older books is a matter of insurance policy interpretation raising legal questions about the meaning of the policy, not merely factual questions about the dollar value of the loss. The dispute about whether Plaintiff can claim losses based on sales and income of affiliated entities raises coverage issues that are unsuitable for appraisal. The dispute about the accuracy of Plaintiff's financial data is appropriate for appraisal because assessing data accuracy and determining how much weight to assign to it are factual questions intertwined with calculating the amount of loss.

Appraisal is limited to determining the amount of loss, while all other issues are reserved for settlement by negotiation or litigation. The court found that "the more efficient practice" is to resolve such disputes before conducting an appraisal. As such, the court denied Plaintiff's Motion to Compel Appraisal without prejudice. The court indicated that the parties may resolve their coverage and policy interpretation issues through negotiation or motions practice before the court.

09/02/25          Arizona Beverages USA LLC v. Hanover Ins. Co.
United States Court of Appeals, Second Circuit
Policy’s Extra Expense Provision Included Audit Expenses the Insured Incurred During the Restoration Period After a Power Surge Caused a Breakdown in its Computer Systems

Hanover appeals from a grant of summary judgment in favor of Arizona Beverages as to Arizona's claim for breach of contract. Hanover argues that the district court incorrectly interpreted various terms in Arizona's insurance policy to expand the policy's coverage to include audit expenses that Arizona incurred after a power surge caused a breakdown in its computer systems.

The "Equipment Breakdown Coverage Part" of the policy includes an "Extra Expense" provision, which states that Hanover will "cover only the extra expenses that are necessary during the ‘restoration period' that [Arizona] would not have incurred if there had been no direct physical loss or damage to property caused by or resulting from an ‘accident' or ‘electronic circuitry impairment' to ‘covered equipment.'" The policy elsewhere defines "restoration period" as "[t]he time it should reasonably take to resume [Arizona's] ‘business' to a similar level of service starting from the date of a physical loss of or damage to property at a ‘covered location' that is caused by a covered peril" and "ending on the date . . . the property should be rebuilt, repaired, or replaced" or "business is resumed at a new permanent location." Separately, the policy provides for a maximum coverage amount of $250,000 for "Data Restoration," i.e., the "necessary cost to research, replace[,] and restore lost ‘data,'" which in turn is defined as "information or instructions stored in digital code capable of being processed by machinery".

Arizona experienced a power surge that damaged multiple disc drives and caused the failure of Arizona's accounting system. As a result, Arizona was unable to access its computer systems to see account balances, receivables, inventory, and order information. Arizona also suffered the loss of its financial data. That loss of financial data jeopardized a credit agreement that Arizona maintained with JP Morgan Chase, which required Arizona to submit to annual audits of its financial position to avoid default.

Days after the power surge, Arizona's independent auditor, Deloitte & Touche LLP reached out to Arizona to begin its annual audit. But as a result of the power surge and loss of financial data for that year, Arizona could not provide Deloitte with the information it typically used to complete an annual audit. To make up for the lack of information, Deloitte had to change its normal auditing procedures, resulting in an additional 2,200 hours of work above what Deloitte originally had quoted Arizona, and costing Arizona an extra $450,000. Arizona also incurred $86,455 in overtime pay for its employees to assist Deloitte with the audit. And because Deloitte was unable to complete the audit by the deadline, Arizona was forced to spend $16,188.25 to extend that deadline in order to avoid default on its line of credit with Chase.

Arizona submitted a claim for the cost of the additional work performed by Deloitte, the overtime paid to Arizona employees, and the cost of the extensions, which totaled $552,573.25. Hanover refused to reimburse Arizona for these expenses and instead reimbursed based upon the policy's stated maximum $250,000 amount for "data restoration" in connection with other expenses that Arizona incurred in attempting to recover its lost data.

Arizona filed this suit for breach of contract, seeking to recover the Audit Expenses under the policy's Extra Expense provision. The district court granted summary judgment in favor of Arizona, concluding that the Audit Expenses were covered under the policy's Extra Expense provision because they were incurred during the "restoration period," when Arizona's "usual business operations" were interrupted as a result of the power surge. The district court determined that the restoration period began on the date of the power surge and extended to the date that Deloitte completed its audit. The Court of Appeals affirmed.

Hanover argued that the district court erred in concluding that the "restoration period" ended when Deloitte completed its audit. The Court disagreed. Hanover asserted that the "restoration period" should have ended when Arizona's "covered equipment" was "repair[ed], replace[d], or rebuilds[t]," i.e., when Arizona replaced its damaged computer hardware and regained software functionality. But the Court said that the plain language of the Extra Expense provision does not tie the end of the restoration period to the repair, replacement, or rebuilding of "covered equipment." Instead, the policy defines the "restoration period" as "[t]he time it should reasonably take to resume . . . ‘business' to a similar level of service starting from the date of a physical loss of or damage to property . . . and ending on the date: 1) the property should be rebuilt, repaired, or replaced; or 2) business is resumed at a new permanent location." While "covered equipment" is a defined term in the policy that would likely exclude Arizona's financial data, the standalone term "property" is not. The Court found that Hanover's argument that "[r]pear or replacement of ‘covered equipment,' not ‘data,' was the terminus date for the ‘restoration period,'" therefore finds no support in the text of the policy.

The Court said that Hanover did not dispute that the lost financial data constituted Arizona's "property" under the ordinary meaning of that term. Nor did Hanover supply any convincing reason to question the district court's conclusion that Deloitte's "enhanced Audit procedures constituted a reasonable form of ‘repairing, replacing, or rebuilding' the lost data." That process involved "analyzed[ing] additional types and forms of data" to "create[] a functional simulacrum of the lost data" sufficient to allow Deloitte to complete its audit, which was necessary for Arizona to "resume . . . ‘business' to a similar level of service”. Although Arizona's financial data could not be recovered in its original form, Deloitte's enhanced procedures effectively recreated, through resort to alternative sources, the constellation of information necessary to complete its audit — thereby "replacing" the lost data for purposes of the audit.

Hanover insisted that the policy's inclusion of bespoke provisions covering data loss demonstrates that the restoration period cannot be tied to Deloitte's efforts to recreate Arizona's lost financial data. But the Court responded that nothing in the plain language of the policy provides that the Data Restoration provision is the exclusive vehicle for policyholders to seek recovery for damages associated with lost data. And to the extent that the policy's inclusion of specific terms addressing data loss introduces ambiguity into whether the Extra Expense provision covers the cost of replacing Arizona's financial data, New York law requires the court to interpret "any ambiguities . . . against the insurer and in favor of the insured." The Court held that since Hanover failed to demonstrate that the standalone term "property," as used in the definition of "restoration period," excludes Arizona's financial data, it was required to construe any structural ambiguity in the policy to find that such data are included.

Having concluded that Arizona incurred the Audit Expenses during the policy's restoration period, the court agreed with the district court that those expenses are covered under the Extra Expense provision. Under that provision, Hanover was required to cover "extra expenses that are necessary during the ‘restoration period' that . . . would not have [been] incurred if there had been no direct physical loss or damage to property caused by . . . ‘electronic circuitry impairment' to ‘covered equipment.'" Arizona incurred the costs of Deloitte's enhanced audit and paid overtime to employees assisting Deloitte with its audit only because of the power surge that resulted in the failure of Arizona's account operating system and the loss of its financial data. And without such data, Deloitte was unable to complete its annual audit by the deadline, which in turn required Arizona to pay to extend that deadline to avoid defaulting on its credit agreement with Chase. Avoiding default clearly makes these expenses "necessary," and they undoubtedly were only incurred because of the damage caused by the power surge. The Court agreed with the district court that the full amount of the Audit Expenses is covered under the policy's Extra Expense provision.

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

09/02/25          Johnson v. State Farm Mut. Auto. Ins. Co.
Montana Supreme Court
Damages for Which a Premium Was Not Paid to Assume the Risk of Recovery Are Not Subject to the Made Whole Doctrine

Johnson was in a motor vehicle accident with Vanmeter. The Johnsons were insured by State Farm Mut. Auto. Ins. Co. (“State Farm”), which paid benefits to the Johnsons for almost all claimed property losses. After paying on the Johnsons’ property loss, State Farm asserted its right to subrogation from Vanmeter, the at-fault driver, and her insurance company, GEICO Inder. Co. (“GEICO”) for the amount paid to the Johnsons. GEICO reimbursed State Farm for its payments to the Johnsons.

The Johnsons sued Vanmeter, State Farm, and State Farm Fire and Casualty Co., alleging that State Farm violated the made whole doctrine when it asserted subrogation and collected the property insurance payments from GEICO before the Johnsons were made whole as to all their property losses. The Johnsons also asserted a cause of action for common law conversion, alleging that State Farm usurped their cause of action by collecting before the Johnsons could file their suit. The District Court dismissed the made whole claims for lack of standing, finding that the Johnsons had not sufficiently alleged the amount of their outstanding property damage claims to demonstrate that State Farm’s collection would prevent GEICO from making them whole. The District Court dismissed the conversion claim because the Johnsons lacked standing. The Johnsons filed a third amended complaint explaining that they had settled their claims against Vanmeter. That settlement included a payment from GEICO for the property damage that was not covered by State Farm, but the Johnsons had to pay attorney fees for the recovery subject to a contingency fee agreement. The Third Amended Complaint clarified that the Johnsons’ made whole claims were limited to “attorney fees associated with recovering . . . losses from the automobile accident tortfeasor,” and that they only sought “credit for the made whole analysis on property damage for amounts that were not covered under the State Farm policy. State Farm moved to dismiss the Third Amended Complaint, and the District Court granted the motion. It held that the Johnsons still lacked standing to bring their made whole claims because, having settled for less than GEICO’s property damage limit and having been barred from recovering attorney fees from GEICO, they could not prove that State Farm’s collection on its subrogation rights had caused the Johnsons’ inability to recover their attorney fees. It held that the logic underlying its previous dismissal of the conversion claims still applied.

The Montana Supreme Court considered (1) whether the Johnsons pled sufficient facts to demonstrate that State Farm’s subrogation caused a made whole injury; and (2) whether the Johnsons’ conversion claim was preempted by statute. The Court agreed with the result but disagreed with the District Court’s reasoning because it focused on the amount of money available for recovery from the third party rather than the allocation of the amount actually recovered. The Court’s precedent does not permit an insurer to subrogate before an insured has been made whole as to all the damages for which the insurer has been paid to assume the risk of loss; however, after the insured has been made whole as to all the damages for which the insurer has been paid a premium, the insurer may seek subrogation as to any “discrete, readily-ascertainable” damages for which the insurer had not been paid to assume the risk of loss, regardless of whether the insured has been made whole as to those uncovered damages. The Johnsons attributed the fees and costs incurred in recovering the additional amount that was not covered by State Farm as concrete loss to State Farm’s subrogation. However, the Johnsons did not pay a premium to State Farm to assume the risk of recovering those discrete damages from a third party, so they were not subject to the made whole doctrine. Accordingly, the Court affirmed the dismissal of the complaint because State Farm did not prematurely subrogate with respect to a category of damages it had been paid a premium to bear the risk of recovering. The Court further affirmed the dismissal of the conversion claims for lack of standing.

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

09/10/25          Laszlo v. State Farm Fire & Cas. Co.
United States District Court, District of New Jersey
Court Finds Policy Provision Unambiguous, But Finds Issue of Fact in Battle of the Experts

The Laszlos noticed water pooling on the bathroom floor within their home, and hired a plumber to mend the issue. The plumber opened up the wall behind the bathroom vanity to discover a cracked pipe with a golf ball-sized hole that leaked water any time the kitchen sink, bathroom faucets, or washing machine ran. The plumber removed the broken pipe to discover, behind the pipe, tree roots, widespread water damage, and mold.

The Laszlos then submitted a claim with State Farm, their homeowners insurer, seeking coverage for the plumber’s invoice, as well as that of the remediation and restoration company they were forced to hire. State Farm sent a field investigator to inspect the damage, who opined that the damage was caused by normal wear and tear to the pipe, and was the result of continuous and repeated seepage and/or leakage from said pipe.

The State Farm policy contained a property exclusion for seepage or leakage of water “that occurs or develops over a period of time,” and is either continuous, repeating, gradual, intermittent, slow, or trickling from a plumbing system or other plumbing fixture. Because the State Farm field investigator opined that the water damage was the result of continuous and repeated seepage and/or leakage from the pipe, State Farm disclaimed coverage on this basis.

After State Farm denied coverage, the Laszlos hired a public adjuster (Mr. Bledsoe), who contested State Farm’s disclaimer on the Laszlos’ behalf. Mr. Bledsoe argued that the golf ball-sized hole in the pipe indicated that the loss was abrupt and sudden, rather than occurring or developing gradually over a period of time. State Farm eventually moved for summary judgment on the issue of whether the above policy exclusion barred coverage for the loss. The Laszlos opposed on the basis that the phrase “over a period of time” was ambiguous, since, according to them, virtually everything occurs over a period of time, even if only seconds.

In evaluating the Laszlos’ ambiguity argument, the Court noted that, although admittedly not defined by the policy, the term “period” means “the completion of a cycle, a series of events, or a single action,” or, alternatively, “a portion of time determined by some recurring phenomenon.” The Court noted further that “time” means “the measured or measurable period during which an action, process, or condition exists or continues.” Putting these two definitions together, the Court concluded that the phrase “period of time,” as it is used in the policy, must reference an interval of time over which some events occur as part of a series. Thus, as the Court noted, the phrase does not include single, isolated events.

The effect of this preliminary ruling by the Court is that, if the loss was determined to be the result of a single, abrupt, isolated event, the loss would fall outside of the exclusion; however, if the loss was determined to have occurred gradually, such that there was a series of individual instances of water leakage, the loss would fall within the exclusion.

The Court then evaluated the available evidence under this framework. In so doing, the Court noted that the available evidence included testimony from the Laszlos’ plumber, who opined that the water leak occurred suddenly. However, State Farm’s field investigator opined that the water leak occurred vis-à-vis seepage and/or leakage over a period of time.

Because, in this Court’s view, a reasonable factfinder could reasonably credit the testimony of either the Laszlos’ plumber or State Farm’s field investigator, the Court found a question of fact as to the true case of the water damage, and denied State Farm’s motion for summary judgment.

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

08/20/25          Leitch v. White
United States Court of Appeals, Sixth Circuit
A Side-by-Side ATV Does Not Qualify as an Auto for Purposes of No-Fault Coverage

Leitch and White met while vacationing at the Silver Lake Sand Dunes in Michigan. White brought his Polaris RZR 1000 Turbo (a side-by-side ATV type vehicle) to transverse sand dunes. The RZR is registered as an ATV in New York State with a New York license plate. White offered Leitch a ride in the RZR, which Lietch accepted. During the ride, the RZR “nose-dived” over a hill onto the ground, rolled to its side, and then stabilized on all four tires. After the accident, Leitch told White she could not feel her legs from the waist down. Leitch underwent immediate spinal surgery and now walks with a cane.

Leitch then submitted a No-Fault claim to her insurer, LM General Ins. Co. (“LM”). The policy defined an “auto accident” as a loss that involves the operation or use of an “auto.” The policy defined “auto” as a motor vehicle operated or designed for use on public roads. Since the policy incorporated Michigan’s No-Fault statute, the court also looked to the No-Fault statute’s definition of “motor vehicle,” which is a vehicle operated or designed for operation on a public highway. LM denied coverage as the loss did not involve an “auto” and thus, did not qualify as an “auto accident.”

The Sixth Circuit found the RZR lacked several safety features for the operation on public roads. The features the RZR lacked are turn signals, horn, outside mirrors, differential gears, and windshield wipers. The RZR also possessed a “half-windshield.” Michigan precedent holds the lack of the aforementioned safety features placed the RZR below the features necessary for driving on public roads. Notably, Polaris’s website classified the RZR as an “off-road” vehicle. Additional evidence included the fitment of sand-dune tires, which White stated were unsuitable for driving on roads. For these reasons, the RZR failed to qualify as a vehicle designed for use on public roads.

The court further noted there was no evidence in the record that White ever operated the RZR on public roads. White stated he operated the RZR weekly at his New York property and on trails. Further, White transported the RZR by trailer over public roads. Leitch then claimed the dunes constituted a public highway but raised the argument for the first time on appeal and thus, was deemed forfeited. Next, Leitch argued the registration, licensing, and insuring of the RZR denoted its use on public roads. Yet, Michigan precedent holds mere registration alone is irrelevant to determining the definition of “motor vehicle.” A final argument raised by Leitch pointed to White’s testimony regarding the operation of a “utility vehicle” used by White on public roads. However, the “utility vehicle” was not the RZR.

As to the No-Fault state, the court reiterated its analysis that the RZR was not designed for use on a public road. On this point, Leitch argued the lower court improperly dismissed expert testimony. The expert in question stated the RZR could qualify as a “motor vehicle” under the statute. Yet, the court noted expert witnesses cannot offer legal conclusions on the ultimate question of liability. The expert testimony attempted to define the statutory definition of “motor vehicle” and answer the ultimate question of liability as to whether the accident arose out of the use of a “motor vehicle” as defined in the statute. Since this form of expert testimony is impermissible, the Sixth Circuit found the lower court did not abuse its discretion in excluding the testimony.

Thus, the Sixth Circuit affirmed the lower court’s grant of summary judgment awarded to LM.

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

08/15/25          Ecker Window Corp. v. Indian Harbor Ins. Co.
Supreme Court, New York County
Court Finds Insurer, as Subrogee, Has Right to Enforce Arbitration Provision in Subcontract

Ecker Window Corp (“Ecker”) filed a petition under CPLR § 7503, seeking to permanently stay arbitration commenced by Indian Harbor Insurance Company (“Indian Harbor”). Indian Harbor and Suffolk Construction Co. (“Suffolk”) filed a cross-petition for an order joining Suffolk as a necessary party, and to compel arbitration.

The petitions arise out of a large construction project in Manhattan. Suffolk, acting as general contractor, retained Ecker to perform certain construction work pursuant to a subcontract (the “Subcontract”). The Subcontract contained a provision, whereby Ecker, “agrees...to become a party to and be bound by any arbitration....in the event such proceedings involve any of the rights or obligations of the Subcontractor under this Subcontract. In any dispute resolution process involving Contractor’s surety, if any, Contractor’s surety shall have and shall be entitled to raise any and all defenses available to Contractor under this Subcontract...”

After there were delays at the construction site, Suffolk issued a notice of default to Ecker, and filed a claim with its insurance carrier, Indian Harbor. Indian Harbor paid $14.5 million for Suffolk’s claim. Suffolk and Indian Harbor subsequently filed a demand for arbitration with the American Arbitration Association against Ecker.

The Court first looked to CPLR §1001, which requires that a party, who might be inequitably affected by a judgment, shall be joined as a necessary party to the action. Here, both Suffolk and Indian Harbor brought the arbitration demand against Ecker. As such, the Court found that Suffolk was a necessary party to the action and granted its joinder motion.

Next, the Court turned to the issue of whether the Subcontract constitutes a valid arbitration agreement, and if so, whether Indian Harbor, as subrogee, may enforce the provisions. The Court found that the plain, clear and unequivocal language of the Subcontract requires that Ecker consent to mediation, for any disputes, exceeding $50,000.00, which arise out of the Subcontract.

The Court addressed First Department and Court of Appeals case law, which holds that “A subrogee acquires all of the rights, defenses, and remedies of the subrogee and is subject to any defenses or claims which may be raised against the subrogee.” The Court identified that there is no dispute that Suffolk and Ecker must arbitrate the issues regarding their performance of the Subcontract. Accordingly, Indian Harbor, as subrogee of Suffolk, must likewise arbitrate issues regarding Suffolk’s and Ecker’s performance under the Subcontract.

As such, the Court denied Ecker’s motion to stay arbitration. In turn, the Court granted Suffolk and Indian Harbor’s cross-motion to compel arbitration.

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

09/12/25          New York Senate Bill S7997
New York State Senate
Bill to Enact the Construction Laborer Insurance Protection Act

Bill S7997, which has only been introduced and referred to Insurance on May 15, 2025, seeks to Enact the “construction laborer insurance protection act (CLIPA).”

The CLIPA would require every policy or contract of insurance issued to an owner, contractor or subcontractor performing the work of erection, demolition, repairing, altering, painting, or cleaning of a building, structure or edifice to provide coverage for bodily injury and death to workers.

The proposed Bill provides:

Section 1. This act shall be known and may be cited as the "Construction Laborer Insurance Protection Act (CLIPA)".

§ 2.Section 3420 of the insurance law is amended by adding a new subsection (k) to read as follows:

(k) Notwithstanding any other law, regulation or rule to the contrary, every policy or contract of insurance issued to an owner, contractor or subcontractor performing the work of erection, demolition, repairing, altering, painting, or cleaning of a building, structure or edifice shall provide coverage for bodily injury and death and shall not exclude or limit from coverage any activities protected by article ten of the labor law or exclude or limit such coverage to any person protected by article ten of the labor law.

§ 3.This act shall take effect on the ninetieth day after it shall have become a law.

***

Bill S7997 has not moved since it’s referral to Insurance on May 15, 2025. We will continue to monitor the Bill.

VICTORIA’S VISION ON BAD FAITH
Victoria S. Heist
[email protected]

09/09/25         Esparza v. Allstate Fire and Casualty Insurance Company 
United States District Court, District of Arizona
Arizona Court Finds No Bad Faith by Insurer in Handling ALE Claim

In this case, Plaintiffs Victor and Sylvia Esparaza filed suit against Allstate Fire and Casualty Insurance Company ("Allstate") for breach of contract, bad faith, and unfair settlement practices. Allstate moved for summary judgment on all grounds. Allstate issued Deluxe Homeowner's Policy to the Esparza’ which included an Additional Living Expense ("ALE") provision for loss under Coverage A Dwelling Protection and Coverage C Personal Property Protection Coverage. The ALE provision covers the reasonable increase in living expenses necessary to maintain your normal standard of living when a direct physical loss that Allstate covers makes your residence uninhabitable. The ALE provision is applicable for the least of (1) the time it takes to repair or replace the property; (2) the time for the household residents to settle if they are relocating; or (3) twelve months.

In January 2022, the Esparza sustained a slab leak at their home, which was reported to Allstate. Allstate then coordinated with a vendor to provide temporary housing for the Esparza’ under the ALE provision of their policy because there was no hot water available in their home due to the loss.

The Esparzas were moved into temporary housing units in Phoenix. On February 1, 2022, the Esparzas requested to move housing units due to the lack of water at their hotel, a leak at the hotel, and because they were locked out of their rooms by the hotel. The Esparzas were then moved to a new hotel and on February 3-4, 2022, the Esparzas requested new housing because elevators at the hotel made it difficult for one of their family members to get to the room. The Esparzas moved to another hotel, and the Esparzas requested new housing due to construction and noise near their hotel. They were moved to another hotel on February 18, 2022. On February 18, 2022, the Esparzas requested new housing due to the smell at the hotel. At that point, Allstate approved Mrs. Esparaza's request to book her own hotel, so long as she uploaded invoices.

The vendor working with Allstate told Allstate they were working with the Esparzas to get them into housing by performing a walk-through at the properties prior to arranging the lease agreements. Allstate told the vendor the Esparzas needed to find housing, or they can get the cash value of the ALE provision. The Esparzas rejected the additional housing arrangements proposed by the vendor and were issued a payment of more than $4,000 for six weeks of rent.

The parties dispute the reimbursement of total expenses under the ALE provision of the Policy. In their complaint, the Esparzas allege Allstate acted in dishonest, malicious, and oppressive conduct, which included Allstate yelling at the Esparzas and calling them liars, causing the police to be called on them, threatened to close their claim, and referred their claim to the Special Investigation Union and subrogation.

In its decision, the Court discussed the standard of bad faith under Arizona law, stating to show bad faith, the plaintiff must show (1) the absence of a reasonable basis for denying the benefits of the policy; (2) the insurance company's knowledge or reckless disregard of a lack of reasonable basis for denying the claim; (3) the insurer acted intentionally and dealt unfairly or dishonestly with the insured's claim or failed to give equal consideration to the insured's interest.

First, the Court found the Esparzas' claim that Allstate yelled at them and called them liars insufficient to establish bad faith because it is solely based on their testimony without any other evidence. Second, the Court found the Esparzas' claim that Allstate caused the police to be called on Plaintiffs insufficient to establish bad faith because the actions of the hotel employees were not directed by Allstate. Third, the Court found the Plaintiffs failed to establish bad faith as to their claim that Allstate allegedly causing delays to the repairs to Plaintiff's Property. The Court held the Plaintiffs only submitted inadmissible hearsay to support their claim, and the Allstate claims professional told the Esparzas they would work with the tradespeople to coordinate the repairs and would not involve Plaintiffs in those conversations.

Fourth, the Court found the Esparaza's failed to establish Allstate acted in bad faith by not taking their calls, because Allstate responded to each of the Esparzas' twenty complaints in the record, and it is insufficient to establish bad faith by stating Plaintiffs were not always able to speak to their assigned claims professional on evenings and weekends. Fifth, the Court found the Plaintiffs did not present evidence besides their own testimony to establish that Allstate threatened to close Plaintiffs’ claims. Finally, while Allstate referred the claim to the Special Investigations Unit, the Court found the referral was not proven to be made to harm or derive financial advantage. Thus, the Court found the Plaintiffs did not establish bad faith and granted Allstate's motion for summary judgment.

SHIM’S SERIOUS INJURY SEGMENT
Stephen M. Shimshi
[email protected]

08/25/25          Jacobs v. Blackwell
Supreme Court, Kings County
Defendant’s Threshold Motion on the Basis of Insurance Law § 5102(D) Denied Due to Insufficient IME Repor

This case involves personal injuries suffered by plaintiff, Kharil Jacobs, in connection with a motor vehicle accident that occurred on May 8, 2021, at approximately 11:33 p.m. Plaintiff was operating his vehicle, a 2018 Honda, on Furman Avenue at or near its intersection with East 241st Street, Bronx, New York 10470. Defendant, Shawn Blackwell, was operating his vehicle, a 2009 Ford owned by Jack Oh Taxi Corp. Defendant’s vehicle struck the rear of plaintiff’s vehicle at or near the aforementioned intersection. On November 11, 2021, plaintiff commenced this action to recover for personal injuries suffered in connection with the accident. Defendants answered on April 25, 2022, and May 3, 2022, respectively. Plaintiff’s Verified Bill of Particulars alleged the following injuries: a disc herniation at the C3-C4 intervertebral disc space with radiculopathy that necessitated steroidal injections; disc bulges at the C4-C5, C5- C6 intervertebral disc spaces with radiculopathy; a disc herniation at the L5-S1 intervertebral disc space with radiculopathy that necessitated steroidal injections; and disc bulges at the L3-L4, L4-L5 intervertebral disc spaces with radiculopathy. Plaintiff also alleged injury under the 90/180 category of serious injury.

Plaintiff field the Note of Issue on April 11, 2025. Defendant Jack Oh Taxi Corp. moved for summary judgment on the basis that plaintiff did not suffer a serious injury in accordance with the threshold requirements of Insurance Law § 5102(d). In support of its motion, defendant proffered an affirmed report prepared by Dr. Howard A. Kiernan, an orthopedic surgeon, who conducted plaintiff’s IME on January 19, 2023 (over one (1) year after the subject accident). Dr. Kiernan performed a straight leg raise test of the plaintiff and indicated that it was negative without radiculopathy. However, he did not indicate any numerical findings of plaintiff's range of motion, compare it to what was normal or indicate what deficits, if any, were present. Dr. Kiernan also offered no opinion regarding the plaintiff's condition during the first six (6) months after the subject accident. No additional medical evidence was submitted in support of the motion.

Based on the foregoing, the Court held that Defendant Jack Oh Taxi Corp. failed to establish that plaintiff did not suffer a serious injury as set forth in Insurance Law § 5102 (Shirman v Lawal, 69 AD3d 838, 839 [2d Dept 2010], citing Walker v Public Adm'r of Suffolk County, 60 AD3d 757, 757 [2d Dept 2009]). The Court based its decision on the fact that the IME report failed to: (1) address plaintiff’s lumbar spine injuries; and (2) offer an opinion on plaintiff’s condition during the first six (6) months after the accident.

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

The content of this column also appears in the “Liability & Insurance,” a monthly newsletter focusing on Canadian coverage and published by Heather Sanderson. Contact her for a subscription.

07/21/25          Smitten Baby Products Inc. v. Lloyd’s Underwriters et al
Ontario Superior Court of Justice (Trial)
On Policy Grounds Insurance Investigators Retained by the Insurer to Investigate the Circumstances of a Loss, Do Not Owe a Duty of Care to Protect the Insured That Allegedly Sustained That Loss From Pure Economic Loss

Smitten Baby Products, (SBP), a manufacturer and wholesaler of baby clothing and products, had a warehouse in Stratford, Ontario. On October 18, 2018, water began pooling on the top of boxes holding SBP stock. Rainwater had entered from the roof. SBP was insured under a subscription property policy led by Lloyds’. The incident was reported. ClaimsPro, a national adjusting firm, was appointed by Lloyds’ to adjust the loss. Within a day or so, someone from ClaimPro visited the warehouse and concluded that the incident was due to seepage and leakage and that the damage caused by the rainwater was not a covered loss. Nonetheless, the Claims Pro representative told a principal of SBP that FirstOnSite Restoration Limited (FOS) was being retained to investigate the circumstances.

SBP asserted in a subsequent Statement of Claim that two representatives of FOS came to the warehouse four days after the discovery of the rainwater; made a cursory investigation; described the incident as seepage at the time of the inspection and would not do an inventory of the damage until ClaimsPro told them to. Despite these assertions, FOS identified the source of the rainwater ingress: A displaced tarpaulin covering a wall under renovation.

SBP provided a proof of loss on January 15, 2019 (three months post loss) totaling $54,088.22 and despite the earlier assertion that there was no coverage, SBP was paid $57,318.51 on March 27, 2019.

Despite being paid slightly more than claimed three months after delivering the proof of loss, SBP alleged that the insurers and the insurers representatives and investigators took too long to determine coverage and to quantify the damages arising from the incident. During the six months that SBP waited for payment, SBP allegedly sustained $950,000 in economic loss due to the cost of hiring its own investigators, offering late-shipment discounts to clients, loss of credit, loss of customers and their goodwill, interest on loans, overdraw fees, and eventual loss of the business.

As a result, SBP sued each of the subscribing insurers, Claims Pro, and FOS (amongst others). FOS brought an application to have the action against it dismissed with costs alleging that SBP did not have a cause of action against it.

The issue before the court in this application was whether the pleading filed by SBP disclosed a cause of action against FOS.

Did FOS Owe SBP a Duty of Care to Prevent Pure Economic Loss?

Pure economic loss is economic loss that is unconnected to a physical or mental injury or to physical damage to property. Canadian common law has been slow to protect pure economic interests and tort law provides no general protection against the negligent or intentional infliction of pure economic loss. Although there is no automatic bar to the recovery for pure economic loss in tort, the Supreme Court of Canada has limited recovery to three situations, one of which is negligent misrepresentation or performance of a service. SBP was obliged to assert the material facts that will support that cause of action, but, in this application, the court held that it failed to do so, as there was no actionable misrepresentation nor was there negligent performance of a service.

Negligent Misrepresentation

The Court held that taking the pleading a face value (which it must), FOS is not alleged to have committed a negligent misrepresentation upon which SBP relied. It is not alleged that FOS undertook to do something that would induce SBP to rely on FOS for that thing or service. In fact, SBP went ahead and retained its own restoration company to do an inventory of the damage. Therefore, the pleading does not make out a proximate relationship with FOS that falls within the category of negligent misrepresentation.

Negligent Performance of a Service

The Court further determined that the weight of authority in Canada, New Zealand, England, and the United States, is that insurance investigators retained by insurers to investigate losses do not owe a duty of care to the insured. Nonetheless, does SBP allege a novel duty of care that ought to be recognized? The Court held that “I am satisfied that ...[SBP]... has pleaded facts that, if proved, could establish foreseeability of harm. FOS could foresee that it would create a risk of harm to ...[SBP]... if it investigated and reported carelessly to ClaimsPro and the insurers” as SBP was sufficiently proximate to FOS. That establishes a prima facia duty of care. However, policy considerations militate against recognizing that duty of care and imposing civil liability upon FOS.

The Court reasoned that recognizing the proposed duty of care would distort the legal relationships amongst the insured, the insurer, and the investigators resulting in serious, negative effects for all. FOS cannot have a greater duty to SBP than it owes to the insurers with whom it is acting under contract.

SBP’s Cause of Action is Stricken

The Court held that SBP’s alleged cause of action against FOS should be stricken:

I find that any prima facie duty of care owed by FOS to Smitten Baby should not be recognized on policy grounds. I conclude that it is plain and obvious that FOS does not owe a duty of care to Smitten Baby for its investigation and report. For that reason, I would strike out the statement of claim as against FOS on the ground that it discloses no reasonable cause of action.

Further, even if the duty of care was recognized, SBP has not plead material facts which if proven to be true would establish that the alleged breach of a duty of care on the part of FOS caused the damages complained of on a ‘but for” basis.

As FOS was successful in having the pleading against it dismissed, it is entitled to costs to be assessed that are payable by SBP.