Coverage Pointers - Volume XXVII No. 8

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

09/24/25          In the Matter of GEICO v. Sarmiento
Appellate Division, Second Department
Second Department Gets It Right – UM Coverage Comes From Rental Car Company, Not the Driver’s Own Auto Policy. Thousands Cheer.

This was Article 75 proceeding to stay a claim for uninsured motorist benefits.

Sarmiento was allegedly injured when the rental truck in which he was a passenger was struck by a vehicle that left the location of the accident without providing information. The rental truck was owned by Herc Rentals, Inc. (“Herc”) and insured by the National Union. National Union declined a claim. Sarmiento's personal vehicle was insured by GEICO and a claim for UM benefits was filed against GEICO.

GEICO commenced this proceeding to permanently stay arbitration of Sarmiento's claim for uninsured motorist benefits. National Union opposed the petition, contending that its policy was unavailable for this claim based on the Graves Amendment.

GEICO met its burden of showing the existence of sufficient evidentiary facts to establish a preliminary issue that would justify the stay. GEICO demonstrated that Sarmiento allegedly was injured as a passenger in a truck owned by Herc that had been rented pursuant to a rental contract. GEICO also showed that Herc, as a vehicle rental company, was required under New York law to obtain insurance or file a surety bond for, or self-insure, the truck (see Vehicle and Traffic Law § 370[1], [3]; ELRAC, Inc. v Ward, 96 NY2d 58, 72). That requirement also included an obligation to obtain uninsured motorist coverage.

Sarmiento may seek primary uninsured motorist benefits under that National Union policy rather than under a GEICO policy insuring Sarmiento's own vehicle (see

National Union failed to rebut GEICO's prima facie showing. Although National Union contends that the Graves Amendment applies here to exempt it from liability, the Graves Amendment has a savings clause permitting states, such as New York, to enforce financial responsibility and insurance.

Editor’s Note: No discussion of Second Child, holding that the Graves Amendment’s Savings Clause Doesn’t Apply. Under Second Child, GEICO would have lost this appeal. Second Child is on its way to the Court of Appeals.

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

09/24/25          Home Line Prop. of Islip Terrace, LLC v. Kingstone Ins. Co. 
Appellate Division, Second Department
Court Applies Third-Party Cooperation Standard to a First-Party Dispute, and Thousands Flee as a Result

This matter arises out of a house fire that occurred in 2020 and rendered the insured property a total loss. On April 30, 2021, approximately 18 months after the loss, plaintiff commenced the instant breach of contract claim arguing therein that Kingstone failed to adhere to the terms and conditions of the policy. Kingstone opposed the complaint and asserted that it was plaintiff who breached the terms and conditions by failing to cooperate with Kingstone’s ongoing investigation.

In response to Kingstone’s proffered defense and subsequent summary judgment motion on failure to cooperate, plaintiff responded by cross-moving on the basis that plaintiff’s denial and disclaimer was untimely as a matter of law. The trial court denied all motions on a question of fact.

On appeal, the Second Department first addressed the issue of cooperation. The court held that a carrier cannot meet its burden unless it “acted diligently to bring about the insured’s cooperation,” that it used efforts calculated to obtain such cooperation and that the insured exercised an attitude of “willful and avowed obstruction.” Noting that this burden is a heavy one to carry, the Court noted that the “inference of non-cooperation must be practically compelling.”

The Court ruled that Kingstone’s efforts to secure documents from the insured as part of its investigation did not meet the diligence standard required in the standard laid out in the earlier paragraphs. Likewise, Kingstone also did not demonstrate that it used sufficient effort and diligence to secure the insured’s requested Examination Under Oath.

However, the Court also noted that Kingstone’s alleged delay did not result in Kingstone’s loss of coverage. The Court, categorically, rejected the idea that Insurance Law 3420(d)(2) applied to first party property losses. As such, the Court noted that “delay in giving notice of coverage, even if unreasonable, will not estop the insurer from disclaiming coverage unless the insured has suffered prejudice as a result of the delay.

With both motions being denied, the matter appears headed back to the trial court with further proceedings to be had on whether Kingstone acted with the requisite diligence and, also, whether the delay in disclaiming created prejudice to the plaintiff.

Peiper’s Point – No blood, no foul...right? We would respectfully disagree. While it appears from the decision that Kingstone’s motion was simply denied because they did not reach their burden on the motion, we would respectfully suggest the that the Court employed the wrong standard in reaching its decision. The Court of Appeals, indeed, created the “willful and avowed” obstruction standard in its 1967 landmark Thrasher decision. But, that case is a third-party casualty case. And, all the authority relied on by the Court in the instant case arose from third-party disputes.

The long-accepted standard, in a first-party context, requires an insured to provide full disclosure of all requested material information. Anything less constitutes a breach of the policy conditions precedent to coverage and is an absolute defense to a claim under the insurance policy. In this regard, the property insurer must prove two elements: 1.) the materiality of the request(s); and 2.) lack of full compliance by the insured.

The problem facing Kingstone when it gets back to the trial court is that (a) not only did it lose its summary judgment motion, but also (b) that it very likely has to proceed in the underlying action with a significantly higher burden to successfully defend the claim.

For a deeper dive into this issue, we invite you to take a moment to review my partner, Scott Storm’s, thoughtful article on this very topic. You can find Scott’s work by following this link: https://www.hurwitzfine.com/content/PDF%20Files/Headed%20in%20the%20Wr ong%20Direction%20Article%20%281%29.pdf

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

09/16/25          CSAA Fire & Cas. Ins. Co. v. Yerushalmi
United States District Court, Connecticut
Multiple Denials of Same Claim Are Not a General Business Practice

The District Court dismissed the insured’s CUIPA/CUPTA counter claims, in this declaratory judgment action.

In an underlying state court action, Yerushalmi was sued for allegations of libel, malice, invasion of privacy, and negligent and intentional infliction of emotional distress. CSAA, Yerushalmi’s insurer, brought this DJ action in federal court seeking a ruling that it had no duty to defend of indemnify its insured. Yerushalmi counterclaimed for, among other things, damages under CUIPA and CUTPA. The court held that Connecticut law does not allow a private right of action under CUIPA and that the insured failed to allege that CSAA engaged in a general business practice, which is a predicate element to a CUTPA claim.

CUIPA does not provide a private right of action; instead, a plaintiff may assert a private cause of action based on a substantive violation of CUIPA through CUTPA's enforcement provision, the court wrote citing various Connecticut precedent.

The court struck the CUTPA claim, as insufficiently plead. Yerushalmi provides no specific factual allegations relating to his CUIPA or CUTPA claims. Instead, Counts Four and Five simply incorporate by reference the rest of the counterclaims— which address CSAA's conduct in handling Yerushalmi's specific claim. The counterclaims nowhere allege that CSAA's conduct in processing Yerushalmi's claim amounted to a "general business practice" or provide any information or allegations about CSAA's practices outside of Yerushalmi's case.”

In reaching this decision, the court rejected the argument that the five separate denial letters CSAA sent the insured constituted a general business practice. “Multiple rejections of the same claim do not convert an isolated incident of potential misconduct into a general business practice. Therefore, CSAA's multiple rejections of Yerushalmi's claims do not support the establishment of a general business practice for the purpose of alleging a CUTPA violation,” wrote the court.

09/12/25          Duhaime v Mfrs. & Traders Trust Co.
Superior Court of Connecticut, Litchfield
Court Awards Attorney’s Fees, But Not Punitive Damages, for CUTPA Violation

In this non-insurance case, the court discusses a rare finding of a CUTPA violation and the damages that flow therefrom. Here, a jury found that the defendant, a bank holding the plaintiff’s mortgage, acted deceptively and immorally in charging the plaintiff late fees and extra fees when her monthly payment did not cover the extra charges related to forced place insurance.

The bank acquired the plaintiff’s loan when it bought the predecessor bank. When the bank alleged that it could not confirm that the property was adequately insured, it purchased force place insurance for the property and billed the plaintiff.

M&T later acknowledged that the property had at all times been properly insured. M&T removed all charges except for the late fees. At trial, the jury awarded plaintiff $251.16 in damages for the $161.16 in late charges that M&T had not refunded, and an additional $90 for a fee charged by the bank when it ordered an appraisal. The plaintiff then moved for an award of attorney’s fees in the amount of $233,000.

Under General Statutes § 42-110g(a), "[t]he court may, in its discretion, award punitive damages . . . " and under subsection (d) “the court may award, to the plaintiff, in addition to the relief provided in this section, costs and reasonable attorneys' fees based on the work reasonably performed by an attorney and not on the amount of recovery." The court noted that, “Awarding punitive damages and attorney's fees under CUTPA is discretionary...” A discretionary award of attorney's fees is appropriate when a defendant's conduct both violates the law and is "unscrupulous." The purpose of permitting an award of attorney's fees is to foster the use of private attorneys in vindicating the public goal of ferreting out unfair trade practices in consumer transactions by commercial actors generally. (Citations omitted)

In this case, however, the plaintiff's counsel did not take on the case with the expectation that he would only be compensated through a post-verdict award of attorney's fees. Rather, he had a fee agreement with the plaintiff that obligated her to pay him a $5,000 retainer together with $1,500 quarterly payments from April of 2021 forward ($25,500 through June 30, 2025). That fee agreement also entitled the plaintiff's counsel to one third of any proceeds that the plaintiff received as a result of this lawsuit. ($83.64.) As such, the plaintiff's counsel has already earned payment in excess of $30,000 for his work in connection with this case. The court also noted that the plaintiff herself was a highly compensated and sophisticated consumer.

Given that the bank’s conduct, according to the court, was unlawful but not egregious (and surely because counsel had already been paid), the court reduced the attorney’s fee to $32,000.

The court also refused to award punitive damages. “The totality of the circumstances as set forth above in this opinion are such that this court concludes, in exercising its discretion, that an award of punitive damages is not warranted. The court does not find the offending conduct to be of a nature that requires such an award to be made.”

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

09/16/25          Nationwide General Insurance Company v. Brown, et al.
Supreme Court, County of Nassau
Court Denies Insurer’s Motion to Reargue Summary Judgment Motion, as Insurer Did Not Meet the Standard for Grant of Reargument

This case involved a declaratory judgment action in which plaintiff sought a determination it was not obligated to provide first party coverage, including No Fault benefits, in connection with a motor vehicle collision alleged to have occurred when Nationwide insured’s vehicle, containing two passengers, was stuck by a hit and run vehicle. The allegedly injured parties sought extensive treatment from the Medical Provider defendants, for which Nationwide denied coverage. The insurer then sought a declaration that the alleged loss was not a covered event, asserting the defendants staged or intentionally caused the accident and made material misrepresentation in the presentation of their claims.

The Court granted the insurer’s motion for default with respect to the non-answering defendant; however, the court denied the motion for summary judgment against the defendants who answered or appeared. The insurer moved to reargue on the grounds that the motion should have been granted pursuant to the “law of the case” doctrine”, the court misapprehended the applicable legal standard, and that the evidence demonstrated the alleged misrepresentations and a founded belief the injuries did not arise out of a covered accident.

Pursuant to CPLR 2221(d)(2), a motion for leave to reargue must be based on matter of fact or law allegedly overlooked or misapprehended by the court in determining the prior motion. While the determination to grant leave to reargue lies with the discretion of the court, such a motion is not designed to provide an unsuccessful party with additional opportunities to reargue issues previously decided or to present different arguments. Rather the movant must demonstrate the matters of fact or law that the court misapprehended or overlooked.

The insurer did not meet this standard. First, the summary judgment standard was properly applied, that the plaintiff must demonstrate entitlement to judgment as a matter of law and the absence of any issue of material fact. Further, there was not sufficient proof submitted that the collision was staged or intentional, as the evidence presented did not amount to a sufficient foundation for the belief the accident was intentional. The Court confirmed this as the appropriate standard of proof, as it is well established that the plaintiff must demonstrate, through admissible evidence, that the subject collision was deliberately caused to fraudulently obtain insurance benefits.

In addition, the Court confirmed that the initial Court effectively addressed these arguments in its decision, as the plaintiff did not establish either the fact, or a sufficient foundation for the belief, that the alleged collision was intentional. For example, as held by the Court in the Summary Judgment Decision, most alleged discrepancies in the EUO testimony of the defendants were not material to the claim that the incident was intentional or conclusive of any misrepresentation in the presentation of the claim. As such, the Court agreed that the discrepancies at issue were not sufficient to establish as a matter of law that the defendants made material misrepresentations. Accordingly, the Court denied the insurer’s motion to reargue its summary judgment motion.

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

9/12/25            Scottsdale Ins. Co. v. Acceptance Indemnity Ins. Co.
United States District Court, Southern District of New York
Question of Fact Pertaining to Employer of Injured Plaintiff Raised in Tender Creates Reasonable Possibility of Coverage Triggering Defense

DNA Contracting and Waterproofing contracted with Nautilus Realty Limited Partnership to perform work at a property owned by Nautilus. As part of the agreement, DNA was required to defend, indemnify and name Nautilus as an additional insured under DNA's insurance. DNA subcontracted with OneTeam Restoration, Inc., which then entered into a subcontract with Miranda Contracting Corporation to perform masonry work. Both the subcontract between DNA and OneTeam and the subcontract between OneTeam and Miranda include insurance procurement and indemnification language.

Patricio Cedillo ("Cedillo") commenced an action against Nautilus and non-party Estate NY Estate Services a/k/a Kings and Queens Leasing ("Estates"), alleging that while acting within the scope of his employment with DNA Contract LLC, he was caused to fall from a height and sustain injuries. Cedillo brought claims under the Labor Law and further alleged that the injury was the result of negligence by the named defendants, "and/or each of them, and/or their agents, servants, associates, and/or employees were negligent, careless and reckless[.]"

Nautilus and Estates filed a third-party action against DNA, and shortly thereafter, Cedillo commenced a second action naming OneTeam and Miranda as defendants, followed by a third action against DNA and non-party Skyline Restoration, Inc. ("Skyline"). The second and third actions asserted the same claims of negligence and violations of the New York Labor Law stemming from the accident, and the cases were subsequently consolidated.

It is undisputed that Scottsdale sent a letter to Acceptance, notifying Acceptance of the underlying action and identifying Cedillo as an employee of Miranda (not DNA), while requesting defense, indemnification, and additional insured status on behalf of OneTeam, Nautilus, and DNA under the Acceptance Policy.

Acceptance noticed that “According to the complaint [in the Underlying Action], plaintiff was an employee of DNA Contracting, LLC at the time of the accident. How is Miranda Contracting involved in the case?" Scottsdale responded as follows:

“The allegations is [sic] that plaintiff fell from a second floor balcony while doing façade work. They were utilizing a suspended scaffolding and sidewalk bridge in order to access the scaffolding. They first used a ladder to get on top of sidewalk bridge. They secured themselves with harnesses and lanyards to the suspended scaffolding. Jorge Quezada plaintiff's foreman (DNA employee) alleges that plaintiff was on the job site for 4 months. At the time of the accident, Plaintiff was on the second floor balcony just above the garage and it was time for lunch. Plaintiff unhooked his harness and instead of walking along the sidewalk bridge towards the rear of building to descend the ladder, he jumped from balcony and landed his feet in bushes [*16] falling to his left side.”

Scottsdale further noted that there was a “[q]uestion if plaintiff was an employee of DNA vs. Miranda Contracting, [that Cedillo] "was working with witness and [the witness] thought [Cedillo] was [an] employee of DNA and that he had on a DNA shirt," [and that Scottsdale's] "[i]nsured provided statement that he had [a] contract with DNA for the façade work. That he subcontracted with Miranda Contracting.”

Scottsdale concluded that, "We wanted to place [Acceptance] on notice if it is found that plaintiff was an employee of Miranda."

The court first addressed arguments that the timeliness requirements of Insurance Law 3420(d)(2) had been breached by Acceptance, invalidating its disclaimer. Acceptance correctly noted that Insurance Law 3420(d)(2) had no application to any disclaimer on the basis of the lack of additional insured status for OneTeam, DNA, and Nautilus. However, Acceptance was incorrect in its reliance upon the fact that “there were no allegations in the first Underlying Action that the alleged bodily injuries were in any way caused by Miranda, [and that accordingly] there was no connection, at the time the January 2019 notice was given, between Miranda, Acceptance's named insured, and the underlying loss, that would support additional insured status for OneTeam, DNA, and Nautilus with respect to the personal injury claims.”

Rather, in reliance upon Fitzpatrick v. American Honda Motor Co., 78 N.Y.2d 61, 575 N.E.2d 90, 571 N.Y.S.2d 672 (1991), the SDNY noted that.

“at the time of what Acceptance characterizes as the initial tender, Acceptance was made aware in the tender letter itself that there was a question as to Cedillo's employer, as the tender letter identified Patricio Cedillo as an employee of Miranda, and therefore requested defense and indemnification from Miranda and its insurer for any litigation by Cedillo.”

Thus, “[a]s in Fitzpatrick, Acceptance cannot rely solely on the Underlying Action's complaint to assess its duty to defend Miranda, ignoring the factual uncertainty regarding Cedillo's employer that was made known to Acceptance over the course of its investigation,” triggering the additional insured coverage under the policy for purposes of defense.

While Acceptance further argued that Insurance Law 3420(d)(2) cannot bar application of any exclusions as between Acceptance and Scottsdale because Scottsdale—the insurer that defended their mutual insureds—is not entitled to protections thereunder, the SDNY noted that the insureds themselves are entitled to those protections relative to their interest in coverage for active litigation in the underlying action. "[O]nly the tendering carrier [does] not get the benefit of Section 3420(d) . . . because that section does not apply to claims between insurers." JT Magen v. Hartford Fire Ins. Co., 879 N.Y.S.2d 100, 102 (N.Y. App. Div., 1st Dep't 2009) (discussing Bovis Lend Lease LMB, Inc. v. Royal Surplus Lines Ins. Co., 27 A.D.3d 84, 806 N.Y.S.2d 53 (N.Y. App. Div., 1st Dep't 2005)). The insureds themselves remain fully protected for any and all interest they hold independent of the insurer.

Addressing whether Insurance Law 3420(d)(2) foreclosed reliance upon exclusions as between Acceptance and its additional insureds, the SDNY found that because Scottsdale was unable to establish clear application of the mailbox rule to earlier tenders, the operative tender letter was received by Acceptance on January 20, 2019. The SDNY found that by February 12, 2019, Acceptance had sufficient knowledge of its basis to deny coverage and, by waiting to disclaim coverage until March 11, 2019, failed to do so in a timely manner. Further, the SDNY noted that an unexplained delay of nineteen days between its first notice of claim and beginning an investigation was left unexplained, which exacerbated the delay even further. Thus an “approximately twenty-seven-day delay between February 12, 2019, and March 11, 2019, the date on which Acceptance disclaimed, in conjunction with its unexplained nineteen-day delay in beginning its investigation, [was found] to be unreasonable as a matter of law.”

Maxwell’s Minute: Acceptance relied upon a case that yours truly wound up on the wrong side of. That case, Sw. Marine & Gen. Ins. Co. v. United Specialty Ins. Co., was quite the roller coaster as we won on our initial motion seeking to disclaim on the basis of an employee injury and/or independent contractor exclusion, only to be reversed by the same court on a motion for reconsideration due to a largely unexplained 27-28 day delay in disclaiming coverage on a known ground for disclaimer. As a consolation prize, we were able to convince that court that Insurance Law 3420(d)(2) did not protect our carrier-foe from an otherwise applicable exclusion relative to past defense costs.

That latter issue was part of Acceptance’s argument against Scottsdale here and, I have to tell you, I absolutely abhor the double standard. Specifically, it creates precisely what Insurance Law §3420(d)(2) is meant to protect against—delay. Insurers, unfortunately, cannot settle cases without first obtaining a determination on coverage because, unless they do, they lose the right to obtain contribution from another insurer who failed to abide by Insurance Law §3420(d)(2). While carriers win some on this issue and lose some on this issue, the better path forward for the industry is to have a single rule applicable to everyone. I believe that since Insurance Law §3420(d)(2) isn’t going to be struck down any time soon, it should apply equally between carriers as it does between carrier and its insured, eliminating any potential for a carrier to avoid responsibilities through delay following an untimely disclaimer. But what do I know...

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

Vacationing. More case digests in two weeks.

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

09/18/25          Georgetown Chicken Coop, LLC v. Grange Ins. Co.
Kentucky Supreme Court
Commercial Umbrella Policy Endorsement Unambiguous and Precludes Coverage for Dram Shop Claims

Mr. Bailey, an overserved driver, was in a motor vehicle accident that resulted in his death and the death of five members of the Abbas family. Bailey was served food and alcohol at a restaurant, known as “Roosters,” before leaving and visiting “Horseshoes,” a restaurant, bar, and entertainment venue.

A personal representative of the Abbas family filed suit, alleging dram shop and negligent training claims Georgetown Chicken Coop LLC and other defendants, including the Roosters defendants. The Roosters defendants were insured by Grange Insurance Company under a businessowners policy and commercial umbrella policy. The Roosters defendants filed a third-party petition for declaratory judgment against Grange, arguing that the BOP provided liquor liability coverage (not disputed) and the CUP’s Endorsement CU 47 replacing the liquor liability coverage was ambiguous. The circuit court found the Endorsement was ambiguous and entered an order granting summary judgment in favor of Roosters. Without identifying any specific ambiguous language, the circuit court found CU 47 was ambiguous when it looked at the BOP, the CUP, and CU 47. Though the BOP and the CUP are two separate policies, the circuit court reasoned that the purpose of an umbrella policy is to supplement the underlying policy when the underlying policy is exhausted. The Court of Appeals found the Endorsement was unambiguous, reasoning that the Endorsement replaced the entirety of the paragraphs in the policy that otherwise would have provided coverage. The Roosters defendants moved for discretionary review by the Kentucky Supreme Court.

The Kentucky Supreme Court held that the Endorsement was unambiguous, and the Roosters defendants were not entitled to coverage under the CUP. When an endorsement deletes language from a policy, a court must not consider the deleted language in its interpretation of the remaining agreement. Since the BOP and CUP are separate policies, the Court stated that it only needs to look to the four corners of the CUP. The Roosters defendants argued that the Endorsement only replaced the liquor liability exclusions without affecting the last paragraph that contains exceptions to the exclusions. The Court disagreed, holding the language was unambiguous and precluded coverage under the CUP.

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

09/16/2025 Gilmore v. Philadelphia Indemnity Insurance Company
Superior Court of New Jersey, Law Division: Essex County
One Need Not Be an Attorney to Conduct an Examination Under Oath

Philadelphia Indemnity Insurance Company (“PIIC”) issued an automobile policy to James Gilmore (“Gilmore”). Gilmore submitted a claim to PIIC, alleging that his luxury vehicle insured by the policy was stolen after he parked it in the street outside of his apartment. PIIC took Gilmore’s Examination Under Oath via an attorney, licensed to practice law in the States of New York and Pennsylvania, but not New Jersey.

After Gilmore’s EUO was completed, PIIC disclaimed coverage for the loss, and rescinded Gilmore’s policy, based on violations of the policy’s fraud provision, as well as material misrepresentations made in the policy’s application. This action followed.

After the lawsuit was commenced, Gilmore filed a motion to strike or preclude the use of “EUO-related evidence.” Essentially, Gilmore asked the Court to preclude PIIC from relying on the EUO transcript, on the basis that the attorney retained by PIIC was not licensed to practice law in the State of New Jersey.

PIIC opposed the motion, on the basis that conducting an EUO does not constitute the “practice of law,” and therefore, an attorney need not be admitted to practice law in the State in which the claim originates in order to conduct the EUO. Indeed, PIIC argued that one need not be an attorney anywhere to be permitted to conduct an EUO, such that a non-attorney claims professional is certainly permitted—and indeed, perfectly capable—to do so.

In making its argument, PIIC pointed to the fact that an EUO differs from a deposition in many material ways. First, PIIC explained that a deposition is a factfinding tool, governed by the given State’s rules of civil procedure, as they are considered “court proceedings.” Surely, PIIC argued, one must be a licensed attorney to participate in a deposition within the context of ongoing litigation. On the other hand, an EUO is a claims investigation tool, governed not by the rules of civil procedure, but by the terms and conditions of an insurance policy, and usually occurs outside the context of (and usually, prior to) any resulting litigation. PIIC also pointed to the fact that striking the use of the EUO transcript would serve no pragmatic purpose, since PIIC’s insured—the plaintiff in the suit—would be subject to a deposition in the context of the litigation in any event.

The Court ruled, point blank, that the act of conducting an EUO does not constitute the practice of law, and that the attorney that conducted the EUO on behalf of PIIC did not engage in the unauthorized practice of law by doing so.

Editor’s Note: Let this be a reminder, claims professionals, that you are perfectly capable of conducting an EUO, even if you have never set foot inside a law school! And, should you choose to retain an attorney to conduct the EUO on your company’s behalf, she or he may do so, regardless of his or her bar credentials (with the caveat, of course, that an insurer would do well to retain a firm with at least one lawyer licensed to practice in the Garden State, in case the claim becomes litigated). I was delighted to represent PIIC here, after the EUO was said and done and the claim became litigated.

A copy of this decision, as well as the transcript from oral argument, is available from the over-signed upon request.

09/17/2025 Lavada, Inc. v. Old Republic Gen. Ins. Grp.
United States District Court, District of New Jersey
No “Advertising” Within the Meaning of “Personal and Advertising Injury” Where Offending Conduct Is Only Shown to Two Outside Parties

Lavada was accused of misappropriating a third party’s copyrighted shop drawings in an effort to secure a contract with another party. After that claim went to arbitration, Lavada requested a defense in the arbitration from its general liability insurer, Old Republic. After Old Republic denied a defense and indemnity under the Coverage B—Personal And Advertising Injury portion of its policy, this declaratory judgment action began.

The Coverage B—Personal And Advertising Injury Liability section of Lavada’s policy with Old Republic provided coverage for “personal and advertising injury” resulting from “infringement upon another’s copyright, trade dress or slogan in Lavada’s “advertisement.” The term “advertisement” was defined as “a notice that is broadcast or published to the general public or specific market segments about [Lavada’s] goods, products or services for the purpose of attracting customers or supporters.”

Old Republic denied any obligation to Lavada, on the basis that the claims against it did not arise out of an “advertisement.” Old Republic explained that because Lavada was accused only of using copyrighted shop drawings in the context of securing a contract with a third party, but not in the course of advertising its business to the general public, the allegations did not allege any “advertising” injury.

The Court found that because the claims only alleges that Lavada shared the copyrighted drawings with two other parties—a general contractor, and a third party from which it sought business—the claims did not allege an “advertisement” as defined by the policy and therefore did not trigger coverage under the Old Republic policy.

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

09/18/25          Atl. Bus. Corp. v. RLI Ins. Co.
United States Court of Appeals, Eleventh Circuit
Endorsement Cannot Supersede Delay Warranty in Cargo Policy Where Endorsement Does Specifically Refer to and Assume Excluded Risk

Atlantic’s business consists of transporting blood plasma globally. On June 15, 2021, Atlantic sought to import a plasma shipment from Mexico to New York City. An FDA hold delayed the shipment. The delay caused the plasma to spoil as it was not maintained at the proper temperature. Atlantic insured the shipment through an RLI Marine Cargo Policy. A certificate of insurance, with endorsements was attached to the policy.

Three policy provisions are material to the decision. First is the certificate of insurance, which contained an insuring grant of coverage for goods deterioration/decay of goods, including spoilation, from any cause which may arise during the voyage (“Endorsement”). The second provision is the “Paramount Warranties” which provided the policy’s warranties shall not be modified or superseded by any other provision or endorsement unless such other provision refers specifically to the risk excluded by the warranties and expressly assumes the risk. The final provision is the “Delay Warranty” that excluded loss, damage, or deterioration arising from delay, whether such delay caused by a peril insured against or otherwise.

RLI denied coverage reliant upon the Delay Warranty. Atlantic did not dispute the shipping delay caused the spoilage. Instead, Atlantic argued the Endorsement superseded the Delay Warranty based upon the Endorsement’s “any cause” language. Notably, the words “any cause” when read in isolation could create coverage, but such a reading ignored contractual interpretation. The court reasoned insurance policies are to be read as a whole in harmony. When read as a whole, the Endorsement did not make specific reference to delay nor assumed the risk of a delayed shipment. Thus, the Endorsement failed to meet the Paramount Warranty’s condition and resulted in the application of the Delay Warranty.

Notably, Atlantic asserted the Endorsement does reference delay. Atlantic pointed to the Delay Warranty’s use of the terms “damage or deterioration,” as the risk specifically excluded and which the Endorsement specifically referenced and assumed. However, the court rejected this argument. The court referenced the warranty’s name “Delay Warranty” plainly referred to a shipping delay. Further reasoning noted, the warranty expressly stated, “whether such delay be caused by a peril insured against or otherwise,” identified the warranty excluded losses caused by delay. For these reasons, the court affirmed the district court’s grant of summary judgment in favor of RLI.

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

09/11/25          Penn-Star Ins. Co. v. Long Island Carting Corp., et al.
Supreme Court, Suffolk County
Court Finds Commercial Liability Insurer Has No Obligation to Defend or Indemnify Pursuant to Loading or Unloading Portion of Auto Exclusion in Policy

Penn-Star Insurance Company (“Penn-Star”) commenced a declaratory judgment action, seeking a declaration it had no obligation to defend and indemnify various entities following a construction site accident. At the time of the accident, a truck owned by Long Island Carting Corp. (“LICC”) was lifting dumpsters, emptying them, and putting them on the ground. One of the dumpsters fell prematurely, colliding with a dumpster on the ground, and injuring the claimant.

Penn-Star had issued a commercial general liability insurance policy to LICC. The policy contained an exclusion precluding coverage for bodily injury “arising out of the ownership, maintenance or use by any person or entrustment to others, of any aircraft, “auto”, or watercraft. This exclusion applies even if the claims against any insured allege negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others by that insured, if the “occurrence” which caused the “bodily injury” or “property damage” involved an aircraft, “auto,” or watercraft. Use includes operation and “loading or unloading”.

After receiving notice of the accident, Penn-Star disclaimed coverage. It subsequently provided a courtesy defense to LICC and commenced a declaratory judgment action. Penn-Star subsequently moved for summary judgment.

The Court identified that under New York law, the phrase “arising out of” for insurance purposes, requires only that there be some causal relationship between the injury and the risk for which coverage is provided. Further, in the context of a loading/unloading exclusion, an accident does not arise from the use of an automobile merely because it occurs during the loading or unloading process but rather must be the result of some act or omission related to the use of the vehicle.

Here, the Court held it was undisputed that the plaintiff was injured when a dumpster fell from a truck while the truck was emptying the dumpster. As such, the Court found that Penn-Star has shown that the policy’s auto exclusion bars coverage.

The Court granted Penn-Star’s motion, holding that Penn-Star has no obligation to defend or indemnify the entities in relation to the underlying action.

Editor’s Note: A copy of the decision is available upon request.

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

09/26/25         New York Senate Bill S7344
New York State Senate
Proposed Bill to Establish New York Insurance Underwriting Transparency Act

Senate Bill S7344, which has only been introduced on April 10, 2025, seeks to establish the New York insurance underwriting transparency act which would require homeowner and automobile insurers to explain material changes to insureds in clear and useful language.

The purpose of the Bill is stated as to provide consumers of personal lines policies with clear and useful information explaining the basis for material changes in their policies.

The material changes that would be impacted include nonrenewal or cancellation; an increase of more than 10 percent over the expiring premium; a reduction in coverage; or another adverse or unfavorable change in the terms of coverage or amount of insurance.

The proposed legislation states that written notice must be provided and shall (1) “[b]e sufficiently clear and use language sufficiently specific to enable the insured to identify the basis for the insurer’s decision to make the material change; (2) include a description of the principal factors most heavily weighed by an insurer in making a material change; and (3) provide a point of contact through which the insured may discuss the reason for the change.

The status of Bill S7344 has not changed since its referral to Insurance on April 10, 2025. We will continue to monitor the Bill.

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

09/18/25          Corretto LLC v. Erie Ins. Co.
United States District Court, Southern District of New York
SDNY Finds Bad Faith Cause of Action Duplicative of Breach of Contract

Plaintiff Corretto LLC ("Corretto") owned and operated a café in Greenwich Village in New York. On December 2, 2022, Corretto obtained an insurance policy from Erie Insurance Company ("Erie") which included Income Protection coverage for loss of income sustained due to partial or total interruption of business resulting directly from loss or damage to the property on the premises. Further, the Policy included coverage for any loss, damage, or expenses caused by a failure or disruption of utility service to the property.

On August 10, 2023, New York City officials performed a standard inspection on Corretto's property and found a gas leak that required repair. That day, gas was shut off to the property, and without gas, Corretto could not use its kitchen, prepare food, and have to stop its operations.

Corretto submitted an insurance claim to Erie for the loss. In August 2023, Erie began an investigation, including sending an engineer to the property and demanding information from Corretto.

Corretto brought this ensuing lawsuit against Erie for breach of contract and breach of the implied covenant of good faith and fair dealing after non-payment of the claim. Corretto alleges Erie's failure to pay resulted in the business closing and caused $2,000,000 in damages.

Erie removed the case to the Southern District of New York and filed a motion to dismiss pursuant to FRCP 12(b)(6) for failure to state a claim.

In its motion, Erie contends that Corretto's claims for breach of the implied covenant of good faith and fair dealing is duplicative of its breach of contract claim because they rest on the same factual allegations. The Court agreed with Erie, finding New York law does not recognize a separate cause of action for the breach of the implied covenant of good faith and fair dealing when the breach of contract cause of action is based upon the same facts. Even if the causes of action are based on distinct conduct, if the allegations rest on the same factual allegations and seek identical damages, the claim is duplicative.

The Court found Corretto's factual allegations pertain to Erie's alleged proper investigation of the claim, which are the same allegations as the breach of contract claim. Further, the Court found Corretto did not allege distinct injuries for the loss, as Corretto was seeking compensation for the loss of its business for both causes of action. It does not allege any additional expense incurred by Corretto as a result of Erie's investigation.

Accordingly, the Court granted Erie's motion to dismiss pursuant to FRCP 12(b)(6) to dismiss the claim for breach of the implied covenant of good faith and fair dealing.

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

09/16/25          Gomez v. N.Y.C. Transit Auth.
New York County Supreme Court
Court Sets Aside Jury Verdict Finding No “Permanent Consequential Limitation of Use of a Body Organ or Member” or “Significant Limitation of Use of a Body Function or System”

This case involves personal injuries suffered by plaintiff, Melodie Gomez, in connection with a motor vehicle accident. Plaintiff suffered severe disc herniations which necessitated a spinal fusion with permanent limitations of motion. On the date of loss, plaintiff was 24 years old with a life expectancy of 46 years. At trial plaintiff’s medical experts testified that plaintiff had suffered permanent injuries with 40-50% limitation of lumbar spine and 30% of cervical spine. At trial, the jury awarded $400,000 for future medical expenses and $150,000 for future pain and suffering for 46 years. Plaintiff moved for an Order (1) pursuant to CPLR § 4404 granting additur for past and future pain and suffering; and (2) pursuant to CPLR §§ 4401 and 4404 setting aside the jury verdict finding that the plaintiff did not suffer either a permanent consequential limitation of use of a body organ or member or a significant limitation of use of a body function or system, as defined in the categories provided under Insurance Law § 5102(d), and directing a verdict in favor of the plaintiff as to the said categories, or alternatively, granting a new trial as to those categories.

The Court held that in this case, the jury's verdict finding no “permanent consequential limitation” or “significant limitation” was contrary to the weight of the credible evidence and there was no valid line of reasoning and permissible inferences which could possibly lead rational people to the conclusion reached by the jury. Here, the jury found that the plaintiff sustained a 90/180-day serious injury and awarded the plaintiff $400,000 for future medical expenses and $150,000 for future pain and suffering for a period of 46 years, which covered the entire remainder of her life expectancy. The Court found that the award of lifetime future damages was “grossly inconsistent with the finding of no permanent injury.”

“Where a jury awards future damages for a plaintiff's entire life expectancy, they should have also found permanency. The jury cannot logically award damages for lifetime care and suffering while simultaneously denying that the injuries causing such needs are permanent” (citing to Lee v XXX, 78 Misc. 3d 1236[A], 188  N.Y.S.3d 405, 2023 NY Slip Op 50433[U] [Sup. Ct. Dutchess County 2023]). In Lee, the jury found that the plaintiff satisfied the 90/180 days and significant limitation categories but not the permanent consequential limitation category of under Insurance Law § 5102(d). The Court determined that in this case, since the jury awarded the plaintiff future damages over a period of 46 years, then it should have found permanence, since that is her life expectancy.

The plaintiff's experts provided uncontroverted testimony regarding the permanence of plaintiff’s injuries. Plaintif’s expert, a spinal surgeon, testified that plaintiff suffered a severe disc herniation at L4-5 with significant nerve compression and an annular tear, a disc herniation at L3-4, and a herniation at C4­5 pressing on the cervical cord.

Due to the significance of the injury and ineffectiveness of conservative treatment, a laminectomy with fusion at L4-5 was performed. According to the expert testimony, the fusion he performed permanently restricts the range of motion in the lumbar spine because it is “locked out” and that plaintiff’s injuries are “consequential and permanent” because the fusion cannot be undone. He also opined she has a 40-50% limitation of her lumbar spine and 30% of her cervical spine.

Based on the foregoing, the Court ordered that the jury verdict finding no permanent consequential limitation of use of a body organ or member and significant limitation of use of a body function or system categories of Insurance Law § 5102(d) be set aside, and a that a directed verdict be entered in favor of plaintiff as to those categories.

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.

09/04/25          Kallu v. The Wawanesa Mutual Insurance Company
British Columbia Supreme Court
Insureds Who Are Aware of a Change Material to the Risk and Fail to Disclose That Change at the Time of Their Application for Coverage or on Renewal Are at Risk of Having the Policy Declared Void and Any Claim on That Policy Declined, Even if the Claim Is Otherwise a Covered Loss, and the Change Is Not Causally Connected to the Claim

Parveen and Gunder Kallu lived for some time in Cloverdale, B.C., but by 2015 they were looking for an acreage in southern British Columbia. They found a five acre, ‘fix-er-upper’, near Abbotsford and decided to buy it. They obtained mortgage financing and after making the house on the property livable, the Kallus and their two sons moved in.

There was another building on the property – described as “an outbuilding” about 200 feet from the back of the house. This building is not well described in the case report ...it seems to have been a one-story building, but it had a basement.

The home insurance that was required to complete the mortgage financing was arranged through Wawanesa Insurance Company. The policy offered $426,000 coverage for the home, $63,900 for the outbuilding, $340,800 for personal property/contents and $85,200 for loss of use. The policy contained a statutory condition requiring the insureds to report any material change in the risk that was within the control and knowledge of the insureds.

Parveen Kallu testified that in June of 2017 he completed a form given to him by his insurance broker to remove the outbuilding from the Wawanesa coverage. He said that this was done because the building was leaking and he wanted to reduce the cost of his insurance. But the premium did not reduce.

Wawanesa did not receive that form.

On March 1, 2018, Parveen was home alone when he heard a crackling sound; a fire had started because of a lit candle in the prayer cabinet in his sons’ room; the fire spread quickly and destroyed much of the house before the fire department brought it under control. Wawanesa was notified and within 48 hours an adjuster came to the property.

The adjuster inspected the house and the outbuilding. She found a marijuana grow operation in the basement of the outbuilding. In particular, she found row upon neat row of pots; some of the pots contained leafy green plants, but most of the plants were wilted or dying. There were one or two plants hanging from the ceiling to dry. All in all, there were about 200 plants. The building was electrified, but the electricity was disconnected on the road. The basement was equipped with 1000 W lightbulbs with ballasts. The building was connected to a water source.

Wawanesa does not insure properties with a former or current ‘grow- op’. If they had known that the grow-op was present when the Kallus bought the property they would have denied the application for coverage. If the grow-op had been disclosed on renewal, Wawanesa would have declined the renewal. If the form requesting the removal of the outbuilding from coverage had been received, then Wawanesa would have either investigated or cancelled the policy as removing a previously insured building from a policy is a red flag. With the grow-op information in hand, Wawanesa issued a reservation of rights letter to the Kallus on March 9, 2018. On March 15, 2018, Wawanesa informed the Kallus that their policy was void due to a failure to disclose a material change to risk prior to the yearly renewals in 2016 or 2017. Therefore, there was no coverage for the fire damage to their home. Wawanesa issued the Kallus a refund of the insurance premiums paid since July 2016, the date Wawanesa determined that the policy was voided.

The Kallus filed this action insisting that they were entitled to coverage. The coverage action proceeded to a six-day trial. The judgment states that several witnesses were called.

Before buying the property, and while living in Cloverdale, both Parveen and Gunder Kallu applied for and received licenses to grow medical marijuana – a “personal use production license.” Parveen was authorized to grow 974 plants in Cloverdale. There is no information as to the number of plants that Gunder was licensed to grow. Despite holding these licenses, each of them denied growing marijuana - ever. It seems that these licenses expired.

Each of the Kallus testified at the trial of this action that neither of them had set foot in the outbuilding - ever; they had no knowledge of the grow operation that had been found within days of the fire. The Kallus each denied that the grow operation was theirs; they had no idea who was operating it.

Wawanesa called the selling real estate agent who sold the property to the Kallus. He testified that there was no grow operation in the basement of the outbuilding when he toured the property, only a dry concrete floor with some cardboard boxes. He also did not see the grow-op paraphernalia that was present after the fire. It was his memory that the outbuilding had electricity.

Did the Insureds have Subjective Knowledge of the Material Change in Risk?

The trial judge found as fact that the grow operation in the outbuilding was not in place when the Kallus’ bought the property. Further, he did not believe the Kallus when they said that they did not look inside their own outbuilding between the time they purchased the property until after the house fire. “It strains belief”, he stated, that after investing their life savings into a property, they would not investigate, or seek, to make use of the whole of the property, including an entire building located immediately beside their home. Together with the fact that the Kallus had, or once had, licences to grow marijuana, it “...makes it nearly impossible for me to accept that they had nothing to do with the grow operation on their property.”

The trial judge did not have to make a definitive finding about who started the grow operation, and precisely when it was up and running. However, he stated that given the totality of the evidence entered at trial and in particular the photographs taken by the adjuster after the fire, “...it would not be a stretch for me to find that the timing of the request to remove the outbuilding and the existence of an “operational” grow operation were temporally linked in some manner.”

The critical findings of fact are that the trial judge did not believe the Kallus’ evidence that they did not know that the grow operation existed in their outbuilding. Further, the trial judge did not believe their evidence that the grow operation had been dormant since before they bought the property in 2015. Accordingly, the trial judge found that the Kallus had subjective knowledge of the change in risk.

Did Wawanesa Prove that the Failure to Disclose was Material?

The question of materiality is a question of fact for the court, and the burden of proof is on the insurer. It is a question of fact in each case whether, if the matters misrepresented had been truly disclosed, they would, on a fair consideration of the evidence, have influenced a reasonable insurer to decline a risk or to have stipulated for a higher premium.

Wawanesa’s personal lines underwriter, and, a qualified underwriting expert, both testified as to the nature of risk assessment with respect to grow operations. The trial judge found their testimony to be straightforward and frank. They outlined how Wawanesa, and the insurance industry at large, treats marijuana grow operations generally, and with respect to residential properties like that of the Kallus.

The trial judge accepted their evidence that the existence of a grow operation, even a non-operational one, is information that is material to the risk for a reasonable property insurance insurer. This evidence was not contested. In light of this testimony, the trial judge held that the existence of a grow operation on the property changes the nature of the risk. The pricing of any policy is dictated by the nature of the coverage being sought, and the types of risk that an insurer is prepared to cover in the aggregate. On that basis it was held that the failure to disclose the grow-op constitutes a material non-disclosure.

Material Change & Causation

The Kallus argued that any risk arising from an existing or past grow operation in the outbuilding should have no bearing on coverage for the family home, which was damaged by a fire not caused by, or in any way related to, the outbuilding or its contents.

The British Columbia Court of Appeal in Schellenberg v. Wawanesa Mutual Insurance Company, 2020 BCCA 22 held that there is no requirement for the insurer to prove that the material change in risk is causally connected to the loss in order for an insurer to rely on the material change to void the policy. The trial judge found that Wawanesa proved that the Kallus had knowledge of change that was material to the risk; the change was within the Kallus’ control; and neither Wawanesa nor its broker was promptly notified in writing of the change. However, Wawanesa had one more critical hurdle: Did the Kallus know that the change was material?

Did the Insureds Know that the Change in Risk was ‘Material”?

The trial judge’s reasons are slightly sparse on this point. He states that at trial the insureds did not argue that they did not know that the existence of grow op would be material to an insurer. Rather, they argued that the existence of a grow operation on their property ought not to be considered a material risk, given that it existed in the outbuilding rather than in the house where the fire took place.

The evidence of Wawanesa’s underwriter, and the underwriting expert was to the effect that risks associated with a grow operation are not obviated simply by a short distance between buildings. Accordingly, as the insureds did not argue that they did not know that the existence of a grow op on the insured property would be material information that they needed to impart to Wawanesa, Wawanesa succeeded in proving this critical point.

Disposition

For these reasons, Wawanesa succeeded in proving that they were justified in voiding the policy as of July 31, 2016, on the basis that the Kallus failed to provide written disclosure to either Wawanesa or its agent of a material change in the risk that was within the Kallus’ control and knowledge. Therefore, Wawanesa had no obligation to indemnify the Kallus for the fire damage. The Kallus’ claim was dismissed with costs payable to Wawanesa.

Comment

Reporting material changes promptly and accurately is not merely a procedural formality but a fundamental obligation that ensures fairness and trust between insurers and policyholders.

Diligent reporting of material changes are cornerstones of ethical insurance practice and industry integrity. While it may have appeared more cost-effective for Wawanesa to settle the Schellenberg and Kallu claims, the company chose a path of thorough investigation and litigation.

The decision to contest each of these claims would not have made lightly – but by contesting the claims, Wawanesa demonstrated that transparency and accountability in insurance practices in Canada must mean something as reporting changes in the use and condition of the insured property that are material to the risk underwritten is integral to insurance underwriting – in short, the statutory condition on material change must be enforced. By choosing to litigate rather than settle, Wawanesa has demonstrated that the pursuit of justice and the maintenance of industry integrity are worth defending, even when faced with financial considerations.

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