Volume XXVIII, No. 10 (No. 735)
Friday, October 23, 2026
A Biweekly Electronic Newsletter
As a public service, Hurwitz Fine P.C. is pleased to present its biweekly newsletter, providing summaries of and access to the latest insurance law decisions from the New York, 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.
In some jurisdictions, newsletters such as this may be considered Attorney Advertising.
If you know of others who may wish to subscribe to this free publication, or if you wish to discontinue your subscription, please advise Dan D. Kohane at [email protected] or call 716-849-8900.
You will find back issues of Coverage Pointers on the firm website listed above.
Dear Coverage Pointers Subscribers:
Do you have a situation? We love situations. We really do.
It’s only two weeks until Election Day. Please PLEASE vote. We need to respect, endorse, and embrace the Rule of Law.
The Land of the Blue Martinis closes shop for the 2026 summer season on Saturday, and I had back to my Buffalo city home. Sniff. Back here in May. My friends know that I live in Canada, on the beach, for six months a year and commute to work, crossing international border, four weekdays out of five. It’s a long commute. About 17 minutes.
I want to start out by congratulating Evan Gestwick on an important win at the Second Department, reported in my column. For those who handle SUM coverage claims (Supplementary Uninsured/Underinsured Motorists coverage), you know that to trigger coverage, one must compare the motor vehicle LIABILITY coverage of the SUM claimant with the motor vehicle liability coverage of the tortfeasors. If the SUM claimants motor vehicle coverage is higher than the motor vehicle liability coverage of the tortfeasor, then SUM coverage is triggered.
In Evan’s case, the motor vehicle liability coverage of the SUM claimant was indeed higher than the motor vehicle liability coverage under the tortfeasor’s auto policy. However, the tortfeasor had a personal umbrella policy (“PUP policy”) and the SUM claimant contended that the coverage under the PUP policy was not “motor vehicle liability coverage” and shouldn’t be considered. The Second Department rejected that argument and included the PUP coverage in the comparison, thus rejecting the claim for SUM coverage.
Evan gets the covered ATTA LAWYER from the HF coverage team.
Happy Halloween or, more accurately, Happy Hallowe’en.
Why the apostrophe? In our Halloween coverage below, we see that the use of the apostrophe was common 100 years ago.
COVERAGE POINTERS UNIVERSITY
CLAIMS FILE DISCOVERY – ATTORNEY CLIENT AND WORK PRODUCT PRIVILEGE PROTECTIONS
Thursday, November 19th
1:00 PM Eastern, Noon Central
Via Zoom
Join Hurwitz Fine New England Insurance Coverage attorneys Barbara O'Donnell and Iryna Dore for a webinar examining available tools to limit the scope of claims file discovery.
Drawing on instructive court decisions and real-world scenarios, this session will explore the line-drawing factors courts apply to distinguish between discoverable materials generated in the ordinary course of an insurer's claims handling responsibilities and materials protected from disclosure by the work product doctrine and/or attorney client privilege.
Barbara and Iryna will discuss strategies to shield claims file materials prepared in anticipation of litigation and preserve applicable privileges, as well as the potential waiver consequences of delegating claim investigation functions to counsel. The program will also examine emerging privilege concerns surrounding the use of artificial intelligence tools, highlighting lessons from early court decisions concerning discovery disputes over AI-generated content prepared for litigation.
Attendees will gain practical guidance on safeguarding sensitive claims file information, navigating discovery disputes, and understanding how evolving technology may impact privilege protections.
Confounding Construction Defect Claims and the World of Work Product Exclusions: Key Takeaways
For those who missed Steve Peiper’s CPU presentation on Work Product Exclusions, here’s a recap blog
Hurwitz Fine is delighted to offer other seminars of interest, outside of the Coverage Pointers University syllabus. Here’s one coming up on Estate Planning:
Estate Planning Strategies for Transferring Real Property
Via Zoom
Oct 23, 2026, 11:00 AM Eastern Time. Noon Central
Description
Transferring real property as part of an estate plan can become more complex when clients own property in multiple states or are considering different strategies for passing property to the next generation. Join Hurwitz Fine Trusts & Estates attorneys Melissa A. Pezzino and Lauren Meksraitis-Elliott for a practical discussion of estate planning strategies for transferring real property.
Drawing on their experience in New York and Florida, Melissa and Lauren will discuss options for transferring property in both states, as well as how trusts can be used to address real property located in other jurisdictions. The program will also examine Transfer on Death deeds and Life Estate deeds in New York, including key differences between these estate planning tools and considerations when determining which approach may be appropriate for a client’s goals.
For those who need to keep up to date on insurance coverage between issues of Coverage Pointers, we’re happy to help. Just follow me on LinkedIn and we’ll keep you up to date. I’m easy to find – my linked in name is (ready for this unusual and unexpected name): Kohane and you can find me here: https://www.linkedin.com/in/kohane/
Need a Mediator or Arbitrator, Give a Call – Now, a NAM Neutral:
I am pleased to announce that I have recently joined NAM (National Arbitration and Mediation) as a Hearing Officer. NAM is one of the nation's leading full-service providers of Alternative Dispute Resolution (ADR) services and as a member of their esteemed panel, I will be available to arbitrate and mediate cases throughout New York State. Reach out to NAM:
A growing percentage of my practice has been as a mediator (and sometimes as an arbitrator) in insurance coverage, commercial, personal injury, and other disputes. My NAM biography can be found here.
Newsletters:
We have other firm newsletters to which you can subscribe by simply letting the editor (or me) know, including a new publication, which was created to advise on business and employment law questions:
- Premises Pointers: This monthly electronic newsletter covers current cases, trends and developments involving premises liability and general litigation. Our attorneys must stay abreast of new cases and trends across New York in both State and Federal Court and will now share their insight and analysis with you. This publication covers a wide range of topics including retail, restaurant and hospitality liability, slip and fall accidents, snow and ice claims, storm in progress, inadequate/negligent security, inadequate maintenance and negligent repair, service contracts, elevator and escalator accidents, swimming pool and recreational accidents, negligent supervision, assumption of risk, tavern owner and dram shop liability, homeowner liability and toxic exposures (just to name a few!). Please drop a note to Jody Briandi at [email protected] to be added to the mailing list.
- Labor Law Pointers: Hurwitz Fine P.C.’s Labor Law Pointers offers a monthly review and analysis of every New York State Labor Law case decided during the month by the Court of Appeals and all four Departments. This e-mail direct newsletter is published the first Wednesday of each month on four distinct areas – New York Labor Law Sections 240(1), 241(6), 200 and indemnity/risk transfer. Contact Dave Adams at [email protected] to subscribe.
- Products Liability Pointers: Whether the claim is based on a defective design, flawed manufacturing process, or inadequate instructions/warnings, product liability litigation is constantly evolving. Products Liability Pointers examines recent New York State and Federal cases as well as high court decisions from other jurisdictions, keeping our readers up to date with the latest developments and trends, and providing useful practice tips and litigation strategies. This monthly newsletter covers all areas of product liability litigation, including negligence, strict products liability, breach of warranty claims, medical device litigation, toxic and mass torts, regulatory framework, and governmental agencies. Contact V. Christopher Potenza at [email protected] to subscribe.
- Medical & Nursing Home Liability Pointers. Medical & Nursing Home Liability Pointers provides the latest news, developments, and analysis of recent court decisions impacting the medical and long-term care communities. Contact Elizabeth Midgley at [email protected] to subscribe.
Good Crystal Ball – 100 Years Ago:
The McCook Daily Gazette
McCook, NE
23 Oct 1926
MAYO PREDICTS
LONGER LIVES
Average Age of 70 Years is.
Confidently Expected
By Famed Surgeon
Dr. Charles H. Mayo, the world’s most famous surgeon, speaking at the North American Interstate Post Graduate assembly in Cleveland, which was been attended this week by some 4,000 eminent American surgeons, including Dr. J.M. Wllis of McCook, predicted that medical science and education will lengthen the average human life from 58 years to 75 years within the next century.
Declaring that within the past 75 years the average length of life has increased from 40 to 58 years, despite the inroads on the average by automobile and industrial accidents, Dr. Mayo said about two more years is all that medical science can hope to lengthen life, and that “the remaining 10 years are the hardest.” “These,” he said, “must be added by the individual through careful preservation of his physical condition.”
Peiper on Property (and Potpourri):
Thanks, again, to all who joined us last week for the start of CPU’s sophomore season. If you have an interest in construction defect, and you’re interested in seeing what we discussed, please drop us a line. We’d be happy to send you a link to the presentation, or, perhaps even better, provide an in-house training for your staff.
And please join us again next month for Barbara and Iryna’s class on protecting your claims file.
We have been spending a lot of time in the classroom lately. Dan has graciously brought me into his long-running Insurance Law Class at the University of Buffalo Law School, and even more graciously shared his teaching responsibilities with me. Today’s class covered a primer, of sorts, on personal auto coverage. Although the class was obviously quite interesting, I mention it today only because a student approached me after class and asked me how I found my way to being a coverage lawyer.
The true answer is that I found my way to this practice the way most of us do. A kind and patient law partner offered me a job at his firm, Sliwa & Lane. Mr. Lane told me I’d be good at it. I did not care, so much, about the topic, only the paycheck at the end of the week, so I readily agreed. It turns out, with his training and tutelage, I actually was pretty good at coverage analysis. And, even more surprisingly, I actually started to like it.
Fast forward a couple of years, and I was offered the opportunity to work with, and learn from, another kind and patient partner when Dan offered the job with Hurwitz Fine. With his mentorship, I dare say I’ve gotten even better at this. And, perhaps as a bigger compliment, Dan’s enthusiasm for what we do every day has even rubbed off (ever so slightly) to the point where I’d say I do actually like this.
So, as a result of two kind, patient, and influential partners, I am lucky enough, now, to be teaching some of the very lessons I have learned to a new generation of law students. I can only hope, like perhaps today’s student, I can inspire as many folks as the guys who have helped me along the way.
That’s almost it, but before we go we need to recognize our own Evan Gestwick’s appellate win in the Erie Insurance matter found in Dan’s column this week. Great win for Evan and the team here at the firm. Please do take some time to read about it.
In addition, the firm manufactured another important decision out of the Court of Appeals which is also found in Dan’s column this week. In Kolli v. Kaleida, for the first time in more than forty years, the Court of Appeals addressed the merits of a Self-Insurance Plan. And, more specifically, whether something called Self Insurance was, actually, self-insurance.
Spoiler alert, and to quote a learned judge from the Court of Appeals, if it walks like a duck, and quacks like a duck….
Special shout out to HF’s own Victoria Heist who was instrumental in that decision.
Ok. Now we’re really done for this issue. See you in two weeks.
Steve
Steven E. Peiper
[email protected]
Scams A’plenty – 100 Years Ago:
The Buffalo News
Buffalo, New York
23 Oct 1926
BRIDE-TO-BE MISSING
$13,574 SAVINGS GONE
CLEVELAND, Ohio, Oct. 22 (AP). – Joseph Tomsa, 40, has asked police to find the woman he was to have married and, if possible, his savings account of $13,574.
Tomsa met the woman two weeks ago, he told police, and after a rapid courtship, they pooled their resources and planned to marry. When they set out for the court house in wedding costumes, he said, the woman declared she had forgotten her pocketbook which contained the money. Tomsa returned to her apartment to get it, but she was gone when he returned to the street corner. After a wait of two hours, he opened the bag and found a wad of old paper.
Lee’s Connecticut Chronicles:
Fall has settled in, bringing cooler mornings, colorful leaves, and the fun that is the (electric) leaf blower. It is a wonderful time of year in New England, although the football portion of the season could use a little less heartbreak. My Indiana Hoosiers’ 19–15 loss to Ohio State supplied an unwelcome reminder that there is a fine line between a satisfying Saturday and an afternoon spent contemplating what might have been. The leaves may be coming down, but my hopes for the Hoosiers remain upright—if somewhat windblown.
In this edition, we turn to another line worth watching: the distinction between breach of contract and bad faith under Connecticut insurance law. This edition features a pair of cases in which plaintiffs attempt to blur that boundary, dressing disputes over contractual performance in the more consequential clothing of bad faith. The governing principle, however, requires more than a disputed denial, an alleged failure to pay, or even negligent claims handling: bad faith involves a dishonest purpose or improper motive, not simply an insurer getting something wrong. As you read this issue’s selections, keep an eye on what allegedly takes the conduct beyond a contract dispute. Much like the difference between a game-winning touchdown and a disappointing step out of bounds, the distinction turns on more than dissatisfaction with the outcome.
Until next time, keep keeping safe.
Lee
Lee S. Siegel
[email protected]
Equal Opportunity Mannequins – 100 Years Ago:
The Buffalo News
Buffalo, New York
23 Oct 1926
FIRST MALE MANNEQUIN
IN A FASHION PARADE
LONDON, Oct. 22. – The first male mannequin made his appearance in a fashion parade at the Regent store yesterday. A new profession seems to be opening with this innovation.
“They are paid at the same rates as the girls for the same amount of work,” said a departmental head.
Ryan’s Federal Reporter:
Hello Loyal Coverage Pointers’ Subscribers:
As a volunteer at the City of Buffalo Animal shelter, I have helped a lot of dogs find their forever homes. This week, I got to introduce a childhood friend to some pups and, fingers crossed, his pup for the foreseeable future. While it is not all sunshine and rainbows within those walls (no shelter is Graceland), it sure is satisfying to help as many as you can find greener grass on the outside.
This issue, my column tackles issues I never thought I’d see. Did an insurer conspire with state judges against the pro se plaintiffs? Did an insurer qualify as a state actor that deprived the pro se plaintiffs of legal rights? Not to spoil the fun, but the answer to both questions was easily no. It was an interesting read, nonetheless.
Until next time…
Ryan
Ryan P. Maxwell
[email protected]
Maybe, Maybe Not – 100 Years Ago:
The Cleveland Press
Cleveland, Ohio
23 Oct 1926
BOOSTS HOME OWNERS
Hoover Says Half of Population Will
Own Theirs by 1930
COLUMBUS, O., Oct. 23 – Fifty per cent of American families will own their home by 1930, is the prediction of Herbert C. Hoover, United States director of commerce, in an address before the Ohio Building Association League convention here.
“There is no greater thing for America today than the extension of home ownership. Nothing will more strengthen our nation, more inspire the fine quality of family life and family tradition,” Hoover said.
Storm’s SIU:
Hi Team:
One interesting case digests this edition:
- Representations About the Number of Families in a Dwelling are Measured by Actual Use, not a Certificate of Occupancy, and Misstatements Justify Rescission Where the Insurer’s Underwriting Guidelines Show It Would Not Have Issued Coverage Under the True Facts. Failure to Read the Application Undermines and Ambiguity Argument.
Still grieving the Dodgers loss to the Brewers. Have a great two weeks!
Go Bills!
Scott
Scott D. Storm
[email protected]
Not a Fool for a Client – 100 Years Ago:
Rochester Journal and the Post Express
Rochester, New York
23 Oct 1926
Appears as Plaintiff,
Lawyer and Witness
And Wins Suit
WATERLOO, Oct. 22.—Clifford L. Beare of East Main Street played a triple role last night when he appeared as plaintiff, attorney, and witness in an action against George Hunt, his next door neighbor, to collect $9.20 on an I. 0. U. given by Hunt to Beare. The case was tried before Justice of the Peace J. Charles Fillingham and a jury and resulted in a verdict for Beare in the full amount claimed.
The suit grew out of an agreement between Beare and Hunt concerning a line fence between their properties. Under the agreement, Beare purchased the posts and wire, Hunt agreeing to reimburse Beare for the cost of the wire. The purchase was made and the fence erected. A dispute arose, Hunt refusing to pay his share on the ground that the fence, as erected, was unsightly and of insufficient strength to be for any value.
Arthur J. Bartlett, police justice-elect, who will take office on January 1, was on the jury.
Fleming’s Finest:
Hi Coverage Pointers Subscribers:
The leaves are popping, and I am looking forward to some cute autumnal activities at a farm with my niece this weekend. Hayrides, costumes, apple cider, and all that jazz.
This edition’s case from the Alabama Supreme Court involved belladonna poisoning from a “pink cocktail” of liquid medication that was accidentally compounded to be one-thousand times stronger than prescribed. The Court concluded that the allegations against the pharmacy fell within the professional services exclusion under the CGL policy, and the pharmacy was contributorily negligent as to the claims against the agency defendants for failure to procure insurance.
See you in a fortnight,
Kate
Katherine A. Fleming
[email protected]
Kissing Banned – 100 Years Ago:
The Tablet
Brooklyn, New York
23 Oct 1926
JAPANESE ERASE KISSES
FROM OSCULATORY FILMS
Tacoma, Oct. 1.- Japanese folks do not like to see kissing in public and. therefore, film stars are not permitted to osculate on the screen.
In six months up to September, reports Ira C. Ulrich, An American film salesman just home from Japan, police censors removed 2,850 kisses from popular films. Only one kiss was permitted by the Princess to her father in "The Thief of Bagdad." More than 500 embraces were eliminated from film stories and the title of more than 2,000 were altered to conform to Japanese morals.
During the period but thirty-seven films were prohibited. Japanese like American films and the majority of them go over without much change.
Gestwick’s Garden State Gazette:
Dear Readers:
As we get settled into our new home, I have noticed crabgrass, clover, dandelions, and the like sprouting in our backyard. I took a break from work yesterday to spray it all down with some weed killer, and now we wait. The exciting adventures of a new homeowner.
More excitingly, the Bills are 5-1, the Sabres are back in action, the Bandits unveiled new uniforms, and I won my first appellate case! Check out Dan Kohane’s column for details.
Unfortunately, the New Jersey courts were quiet this week. See you in two more.
Evan
Evan D. Gestwick
[email protected]
Not a Bad Job – 100 Years Ago:
Buffalo Courier Express
Buffalo, New York
23 Oct 1926
Man Kisses Way
Into Movie Job
Culver City, Cal., Oct. 22 (AP) – Louis Natheaux of Danville, Ill., 28 years old married, kissed his way to a film contract which was signed here today.
Natheaux was used by Cecil B. De Mille to test the lovemaking ability of 32 actresses who sought the role of Mary Magdelene in the King of Kinds. He did the job so thoroughly that he got a contract today and went home to his wife for another kiss.
O’Shea Rides the Circuits:
Hey Readers,
As always, my wife and I have plenty of ideas for Halloween costumes but are undecided on the final choice. I guess that decision can wait until next Friday. On another note, the Ottawa Senators are off to their best start in ages. Last week I reached out to an undisclosed Sabres fan and noted the Sens placement in the standings. However, the ribbing was premature since the Senators suffered a crushing 7-2 defeat shortly thereafter. Lesson learned on that one.
This week I have two related cases involving waiver, estoppel, and recission. The insurer successfully litigated a coverage action; and the insured commenced a parallel breach of contract action against the insurer. The successful coverage action established res judicata in the breach of contract action.
Until Next Time,
Ryan
Ryan P. O’Shea
[email protected]
Push to End Prohibition – 100 Years Ago:
The Buffalo News
Buffalo, New York
23 Oct 1926
RUM REFERENDUM
IS AGAIN UPHELD
ALBANY, Oct 22. (AP) - The electors of the state will be requested to vote upon the prohibition referendum, in accordance with an act of the last legislature, on election day. The court of appeals today affirmed decisions of the lower court which refused to grant an order against the New York City board of elections requiring them to omit the referendum from the ballot.
LaBarbera’s Lower Court Library:
Dear Readers:
Looking forward to this upcoming weekend – packed from start to finish. We kick the weekend off with dinner reservations at Rizzo’s House of Parm and will be ending it celebrating my nephew’s first birthday.
Not too much out of the trial courts these last few weeks, but I was able to find one case discussing exhaustion of limits and priority of payments in relation to no-fault claims.
Until next time…
Isabelle
Isabelle H. LaBarbera
[email protected]
In Favor of Necking – 100 Years Ago:
Rochester Journal and the Post Express
Rochester, New York
23 Oct 1926
DEAR MISS-FAIRFAX:
"I am a young man nineteen years old and have certainly known both the old-fashioned girl and the modern one. In a way, I suppose, I am taking the girl's side of the question, but I am firmly convinced that a good many fellows will agree with me. I wonder how many girls this chap has gone with, who never necked before they met him? I'll wager there are more than a few. As the flapper would have been out of place fifty years ago, the old-fashioned girl certainly is today. I love a girl who necks (or at least used to) but does it stop me from loving her? I should say not. In fact, I think I love her more because she can neck.
Another thing. She will know all about men before she is married, when so many of these old-fashioned girls learn after a fellow has married her, and after so learning, proceeds to wreck what might have been a happy home, if she had necked before she married.
I may not be so eloquent as the other fellow, but do you think it fair the way he has spoken of a necker? I don't. I wonder how many of these so-called gentlemen have started some girl the wrong way and then laughed and told their friends about it to help a girl further down? I have never seen or known a better friend, when you need one bad, than a necker.
“J. V. P.”
I'M afraid you have a misconception of girls. A really nice girl will not "neck,” as you call it, with every Tom, Dick, and Harry. She will save her "necking" for her husband. Would you care to marry a girl who "necked" with everyone? I don't think you would. Just give it a little more consideration.
Lexi’s Legislative Lowdown:
Dear Readers,
Apple picking is on the to-do list this weekend. Hopefully, it will be as sunny as it says it will be and there are still some apples on the trees. More importantly, I am looking forward to apple cider and donuts.
This week we discuss a newly introduced bill focused on regulation of med spas and would require med spas to maintain a bond or liability insurance with a minimum limit of $1 million.
Thank you,
Lexi
Lexi R. Horton
[email protected]
KKK Found Liable – for Legal Fees – 100 Years Ago:
The Tablet
Brooklyn, New York
23 Oct 1926
$4,500 VERDICT AGAINST
KLAN AFFIRMED
Charleston, W. Va., Oct. 12--The State Supreme Court today affirmed verdict of $4,500 against the Ku Klux Klan for attorney's fees for defending the Rev. E. O. Jones and other Klansmen against charges of conspiracy and assault in the Marion County Court. The suit was brought by L. O. Musgrave, an attorney, who declared he was promised $300 for defending each of fifteen Klansmen indicted on charges growing out of an attack on a negro. The minister was pardoned after serving part of a five-year sentence. One man was sentenced to sixty days imprisonment, three were fined and the others dismissed.
Victoria’s Vision on Bad Faith
Dear Readers,
The next couple of weekends are going to be a mix of home projects and Halloween parties. I have to find and dust off ol' reliable (hot dog costume) in preparation for this weekend and next. Though, after all the fun, the clocks turn back and take away the little daylight we have. I always dread this time of year for that reason.
This week I have a case from the Eastern District of Pennsylvania where the court dismissed the insured plaintiff's cause of action for bad faith.
Have a good weekend,
Victoria
Victoria S. Heist
[email protected]
Verdict for Loss of Leg – 100 Years Ago:
The Chat
Brooklyn, New York
23 Oct 1926
Gets $6,500 for Leg
A verdict awarding $6,500 to Miss Elizabeth Haynes, 60, a seamstress, of 103-39 120th street, Richmond Hill, for loss of her left leg was returned Wednesday by a jury before Justic Riegelmann. The action was against Frank Healy, a chiropodist, who made an incision in one of her toe which became infected.
Shim’s Serious Injury Segment
Hi Readers,
We have finally reached the World Series, which begins tomorrow, October 23, 2026, at 8:00 PM EST, with the Tampa Bay Rays at the Milwaukee Brewers. So much for the oversold talking point that "small market teams" cannot compete with "big market teams" like the Dodgers, Yankees, Mets, and Phillies (who, by the way, combined for 0 NLCS/ALCS wins in 2026 with the Mets missing the postseason altogether).
While the World Series alone is exciting, it is also exciting that the "small market" teams have made it to baseball’s last dance. Neither the Rays nor the Brewers have ever won a World Series Championship. It certainly makes for a historic conclusion to the 2026 MLB season. Notably, the Basic Agreement (i.e., baseball’s collective bargaining agreement) is set to expire at the end of the season. The most controversial topic during early labor talks has been the massive payroll gap between the large and small markets teams. The League has maintained that a salary cap is necessary to prevent further alleged competitive imbalance (I beg to differ, so does the 2026 World Series), and the MLB Players Association (MLBPA) has argued that a salary cap is unnecessary and interferes with player compensation. The falls of the mighty Dodgers and Yankees to the lowly Brewers and Rays certainly weakens the League’s bargaining power in the coming months.
I am opposed to a salary cap (even with a salary floor) because it will inevitably – and unjustly – interfere with player salaries. Put simply, the players are the product. So, pay them what they’re worth and reward the high-end on-field product.
(P.S. if you’re interested in this sort of thing, please check out an article I wrote as a 3L for Family Court Review about the MLB international amateur signing process – yet another unresolved issue from the last Basic Agreement.).
In this week’s issue, I have shared an Appellate Division, Second Department, decision wherein the Appellate Division, Second Department, reversed the Order of the Supreme Court, Suffolk County, thereby denying defendant’s summary judgment motion on the basis that the plaintiff did not sustain a “serious injury” within the meaning of Insurance Law § 5102(d).
See you in the next issue! Enjoy the World Series!
Stephen
Stephen M. Shimshi
[email protected]
History of Halloween – 100 Years Ago:
The Evening Sun
Hanover, Pennsylvania
23 Oct 1926
ETHICAL QUESTIONS
Hallowe’en
Sir; Please tell me the origin and history of Hallowe’en. P.C.
(The eve of Vigil of All Saints’ or All Hallows Day, November 1) is a curious mixture of classic mythology, Drudic beliefs and Christian tradition. On November 1, the Romans celebrated a feast in honor of Pomona, the goddess of fruits and seeds, and it was then that the stores laid up in the summer for use winter were opened up--which accounts for the use of apples and, nuts at this time. November was also the date of the great autumn festival to the sun, which the Druids celebrated in thanksgiving for, their harvest, lighting bonfires cooking many delicacies out of doors in honor of Baal. With the advent| of Christianity, these practices were frowned pagan, the church, and in order to supplant them other customs were introduced. October 31 was made the feast of All Souls, and the following day was proclaimed as the feast of All Saints. from which we obtain the "Hallowe'en." The antiquity of the rites followed on this night when witches were supposed to prowl abroad, is described in book written by Vallancey in the fifteenth century. “Peasants go from house to house collecting money, butter, eggs, etc., for the feast: women employed in making griddle cakes, apples and nuts devoured in abundance, nut shells burnt, and from ashes, strange things foretold; maidens glance over the shoulder to see the apparition of their future spouse: picking apples out of the water their mouths: catching apples| with teeth while they swing in circle suspended from a cord, etc."
New England Almanack
Oh! Pleasant exercise of hope and joy!
For mighty were the auxiliars which then stood
Upon our side, we who were strong on live!
Bliss was it in that dawn to be alive,
But to be young was very heaven!
-William Wordsworth
Hello, Readers!
Autumn plods on, and the hills across New England are dressed in the splendor of the season. Some of my colleagues dare to say that this is not the best of the seasons. The harvest, apple cider, hand-made donuts, and the return of football and hockey are among the best of things. Please, go outside and enjoy what this time of year has to offer.
We have two short decisions to report to you today, both from the Massachusetts Superior Court. One deals with the seemingly never-ending Watts line of cases, which has filled the Massachusetts reports for decades. The other deals with a seemingly routine motion to vacate a default.
And, as this issue is our last before Hallowe’en, let me just share in advance that my two-year-old yellow lab is getting fitted with a cape so he can be a superhero assistant to his older siblings as they enjoy the season. Perhaps we can manage a picture next issue.
Seize the day,
Alex
Alexander G. Henlin
[email protected]
Iryna
Iryna N. Dore
[email protected]
Barbara
Barbara A. O’Donnell
[email protected]
Beware! – 100 Years Ago:
Times Herald
Olean, New York
23 Oct 1926
Police Warning
Issued Against
Hallowe’en Jokers
Depredations of youthful Hallowe’en jokers must be stopped; it was indicated at police headquarters today. Removal of gates, steps, and other articles from local residences in violation of city ordinances, it was pointed out and members of the department have been detailed to see that further property damage is stopped. …
North of the Border:
Like many Albertans, I was relieved by the results of last week's referendum. Roughly 75% of voters chose to keep Alberta a province of Canada. That is a clear and decisive answer. With the question settled, the country can turn its attention to the work ahead: reinvigorating the energy sector and building the national infrastructure that will support it for decades to come.
While that work gets underway, we have been enjoying a long, warm fall. The colours have been beautiful and the skies a deep, cloudless blue. Days like these remind me what a privilege it is to live in a province of such abundance and physical beauty.
Heather
Heather A. Sanderson, K.C.
Sanderson Law
Calgary, Alberta, Canada
[email protected]
Headlines from this week’s issue, attached:
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
- Appellate Division Affirms Ruling That SUM Coverage Is Only Triggered Where Tortfeasor’s Bodily Injury Limits Are Less Than SUM Claimant’s Bodily Injury Limits and Umbrella Coverage Is to Be Considered When Calculating Tortfeasor’s Auto Coverage
- High Court Interprets Self-Styled “Self-Insurance Plan” as Providing Broader Coverage to More Than Just the Plan’s Beneficiary, and Accordingly Had to Interact with Other Insurance Policies
- Without the Submission of Written Underwriting Guidelines Demonstrating That Policy Would Not Have Been Issued, Recission of That Policy for Material Misrepresentations Is Difficult
- Failure to Procure Additional Insured Coverage Claim Fails for Lack of Proof
- Claims Against Insurance Brokers and Life Insurance Company for Misrepresentations in Selling Life Policies Dismissed
PEIPER on PROPERTY (and POTPOURRI)
Steven E. Peiper
[email protected]
- No Right of Appeal from a Denial of an Order to Show Cause
LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel
[email protected]
- Carrier Contacting Represented Plaintiff Was Not Bad Faith
- Without an Independent Tort, Insured’s Negligence Claims Fail Against Carrier
- Inconvenience Damages Recognized for MVA
RYAN’S FEDERAL REPORTER
Ryan P. Maxwell
[email protected]
- Insurer Labeled “Co-Conspirator” With California Judges Avoids Both § 1983 and Bivens Liability Following Coverage Denial
STORM’S SIU
Scott D. Storm
[email protected]
- Representations About the Number of Families in a Dwelling Are Measured by Actual Use, not a Certificate of Occupancy, and Misstatements Justify Rescission Where the Insurer’s Underwriting Guidelines Show It Would Not Have Issued Coverage Under the True Facts. Failure to Read the Application Undermines an Ambiguity Argument
FLEMING’S FINEST
Katherine A. Fleming
[email protected]
- Allegations Against Pharmacy Fell Within Professional Services Exclusion in CGL Policy; Pharmacy Contributorily Negligent Regarding Failure to Procure Insurance Claim
GESTWICK’S GARDEN STATE GAZETTE
Evan D. Gestwick
[email protected]
- Nothing from New Jersey this week but check out my reported decision out of the Second Department in Dan’s column!
O’SHEA RIDES the CIRCUITS
Ryan P. O’Shea
[email protected]
- Insured Subject to Res Judicata Barring Re-litigation of Recission; Privity Bars Third-Party from Asserting Breach of Contract Claim; and Lack of Independent Duty Aside from Contractual Obligation Fails to Establish Negligence Pleading
- Material Misrepresentation in Application Resulted in Rescission and Denial of Coverage
LABARBERA’S LOWER COURT LIBRARY
Isabelle H. LaBarbera
[email protected]
- Court Denies Summary Judgment Finding Question of Fact Regarding Exhaustion, Based on Failure to Establish Proper Priority of Payment in Relation to No-Fault Claim
LEXI’S LEGISLATIVE LOWDOWN
Lexi R. Horton
[email protected]
- Proposed Legislation Would Strengthen Oversight of Medical Spas and Require Appearance Enhancement Business Licensees Operating Med Spas to Maintain a Bond or Liability Insurance with a Minimum Limit of $1 Million
VICTORIA’S VISION ON BAD FAITH
Victoria S. Heist
[email protected]
- EDNY Grants Insurer's Motion to Dismiss Bad Faith Cause of Action for Residence Misrepresentation
SHIM’S SERIOUS INJURY SEGMENT
Stephen M. Shimshi
[email protected]
- Appellate Division Finds Plaintiff Did Not Sustain a “Serious Injury” Under Insurance Law § 5102(d)
NEW ENGLAND ALMANACK
Barbara A. O’Donnell
Alex G. Henlin
Iryna N. Dore
- Insured Not Entitled to Choose Independent Defense Counsel When Carrier Revokes Reservation of Rights and Instead Accepts Claim Without Reservation
- Insurer Cannot Vacate Default Judgment When It Had Actual Knowledge of Lawsuit Against Its Insured
NORTH of the BORDER
Heather A. Sanderson, K.C.
Sanderson Law
Calgary, Alberta, Canada
[email protected]
- Trust Funds Are Also Mortgage Funds: Ontario Court of Appeal Rejects Narrow Reading of Fraud Coverage in a Mortgage Broker’s E&O Policy
See you after Election Day, although the issue will be sent out before the last vote is counted.
Dan
Hurwitz Fine P.C. is a full-service law firm providing legal services throughout the State of New York and providing insurance coverage advice and counsel in Connecticut, New Jersey, and across New England.
In addition, Dan D. Kohane is a Foreign Legal Consultant, Permit No. 0119144, issued by the Law Society of Upper Canada, and authorized to provide legal advice in the Province of Ontario on matters of New York State and federal law.
NEWSLETTER EDITOR
Dan D. Kohane
[email protected]
ASSOCIATE EDITOR
Evan D. Gestwick
[email protected]
INSURANCE COVERAGE/EXTRA CONTRACTUAL LIABILITY TEAM
Dan D. Kohane, Chair
[email protected]
Steven E. Peiper, Co-Chair
[email protected]
Michael F. Perley
Agnieszka A. Wilewicz
Lee S. Siegel
Barbara A. O’Donnell
Brian F. Mark
Scott D. Storm
Alexander G. Henlin
Iryna N. Dore
Ryan P. Maxwell
Katherine A. Fleming
Evan D. Gestwick
Ryan P. O’Shea
Isabelle H. LaBarbera
Lexi R. Horton
Victoria S. Heist
FIRE, FIRST PARTY AND SUBROGATION TEAM
Steven E. Peiper, Team Leader
[email protected]
Michael F. Perley
Scott D. Storm
NO-FAULT/UM/SUM TEAM
Jessica L. Deren
Ryan P. O’Shea
[email protected]
APPELLATE TEAM
Jody E. Briandi, Team Leader
[email protected]
Topical Index
Kohane’s Coverage Corner
Peiper on Property and Potpourri
Ryan’s Federal Reporter
Storm’s SIU
Fleming’s Finest
Gestwick’s Garden State Gazette
O’Shea Rides the Circuits
LaBarbera’s Lower Court Library
Lexi’s Legislative Lowdown
Victoria’s Vision on Bad Faith
Shim’s Serious Injury Segment
New England Almanack
North of the Border
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
10/22/26 In the Matter of Erie Insurance Company v. Rodriguez
Appellate Division, Second Department
Appellate Division Affirms Ruling That SUM Coverage Is Only Triggered Where Tortfeasor’s Bodily Injury Limits Are Less Than SUM Claimant’s Bodily Injury Limits and Umbrella Coverage Is to Be Considered When Calculating Tortfeasor’s Auto Coverage
Rodriguez was injured in an automobile accident. The alleged tortfeasor was insured under a policy issued by State Farm, with bodily injury limits of $250,000 per person and $500,000 per accident. The tortfeasor separately held a personal umbrella liability policy in the amount of $1,000,000 per occurrence. State Farm settled with Rodriguez for $1,000,000 and paid the balance of its remaining limit on the umbrella policy to another person injured in the same accident.
Rodriguez had an auto policy with Erie. That policy had a bodily injury liability limit of $1,000,000, and a SUM limit of $500,000. Erie denied Rodriguez’s request for SUM benefits on the basis that the tortfeasor’s liability limits were greater than those held by Rodriguez.
Rodriguez challenged Erie’s denial of his SUM claim, contending that Erie improperly combined the tortfeasor’s $1,000,000 personal umbrella policy limits with their $250,000 auto policy limits in concluding that the tortfeasor’s limits were greater than Rodriguez’s. According to Rodriguez, only the $250,000 limit should have been considered, because that was the only “true auto” policy involved.
The Second Department noted that Insurance Law 3420(f)(2)(A) requires the consideration of “the limits of liability under all bodily injury [ . . . ] insurance policies.” The statute makes no differentiation between auto insurance policies and other types of third-party insurance. The Second Department therefore found that Erie properly combined the tortfeasor’s $1,000,000 personal umbrella policy with the tortfeasor’s $250,000 policy in denying Rodriguez’s SUM claim on the basis that the tortfeasor carried more bodily injury coverage than Rodriguez.
Since the tortfeasor carried greater bodily injury liability limits than Rodriguez, it is against public policy (as well as the SUM statute) for Rodriguez to recover SUM benefits. The Appellate Division noted that he SUM statute “was enacted to allow policyholders to acquire the same level of protection for themselves and their passengers as they purchased to protect themselves against liability to others,” and that, for this reason, “SUM coverage is only triggered where the bodily injury liability insurance limits of the policy covering the tortfeasor’s vehicle are less than the third-party liability limits of the policy under which a party is seeking SUM benefits.”
Editor’s note: An Atta Lawer to our own Evan Gestwick on this victory. This is a very important decision.
SUM coverage is triggered if the liability limits of the SUM insured are greater than the liability limits of the tortfeasor. The insured argued that the court should only consider the auto liability limits of the tortfeasor and not the personal umbrella coverage (arguing that the PUP limits are not motor vehicle limits). The Second Department rejected that argument.
10/22/26 Kolli v. Kaleida Health
Court of Appeals
High Court Interprets Self-Styled “Self-Insurance Plan” as Providing Broader Coverage to More Than Just the Plan’s Beneficiary, and Accordingly Had to Interact With Other Insurance Policies
This matter arises from a claim involving Dr. Venkateswara Kolli that arose from actions that occurred while he was performing services as an on call, per diem physician for Kaleida Health. When the resulting claim matured into lawsuit naming both Dr. Kolli and Kaleida as defendants, Dr. Kolli sought coverage through his professional liability policy as issued by MLMIC. MLMIC, in turn, requested coverage for Dr. Kolli through the Self Insurance Plan maintained by Kaleida.
Kaleida disclaimed any and all coverage to Dr. Kolli on the basis that he was not entitled to insurance under the self-administered and self-funded insurance plan. Its position was based on its interpretation of the per diem employment agreement Dr. Kolli had previously signed with Kaleida which outlined the terms of his engagement. Kaleida also argued that it was Self Insurance, and, as such had no obligation to interact with other coverages which may have been available to Dr. Kolli.
In review, first, of the Self Insurance Plan, the Court ruled that despite its title, the plan provided protection to “physicians such as Dr. Kolli and others against risk.” The Court also noted that the self-styled Plan required timely reporting of claims, contained coverage exclusions, and contained an “other insurance clause.” Accordingly, Kaleida’s argument that its Plan was not insurance was rejected where, as here, “it was not merely a ‘self-insurance mechanism’ for Kaleida to pay its own judgments.”
Having determined that Kaleida was acting as the insurer of Dr. Kolli, the Court moved on to Kaleida’s other proffered defenses. The High Court then rejected Kaleida’s interpretation of the employment agreement it drafted. Kaleida essentially argued that Dr. Kolli’s acceptance of payment for work he performed as a per diem employee, and for which he was explicitly entitled to bill in the employment contract, voided any right the doctor may have had to coverage under the Self Insurance Plan. The Court noted that Kaleida’s interpretation of the employment agreement was incongruent with other clauses in the contract and thus rendered those other clauses meaningless. As a result, the Court affirmed the Appellate Division’s interpretation that the Self Insurance Plan, in conjunction with the employment agreement, only excluded claims arising from Dr. Kolli’s own private practice. Here, because the patient giving rise to the claim was seen through Dr. Kolli’s employment relationship with Kaleida, the Self Insurance Plan provided Dr. Kolli with insurance for any and all exposure he faced.
As a final point, the Court again rejected Kaleida’s argument that it was not obligated to interact with other coverages available to Dr. Kolli because it was “Self-Insurance.” As noted above, the Court rejected this argument when it explained that the Plan, as drafted, acted like traditional insurance for Dr. Kolli and specifically was written to interact with other insurance by operation of the “other insurance” clause found within the Plan. Thus, the Court ruled that the Kaleida Plan, by its terms, was excess to Dr. Kolli’s primary professional liability policy, but nevertheless shared, ratably, with Dr. Kolli’s excess liability policy.
10/21/26 Indian Harbor Insurance Company v. SP&K Construction, Inc.
Appellate Division, Second Department
Without the Submission of Written Underwriting Guidelines Demonstrating That Policy Would Not Have Been Issued, Recission of That Policy for Material Misrepresentations Is Difficult
The plaintiff commenced this action to rescind a commercial general liability insurance policy it issued to the defendants and for a judgment declaring that the insurance policy is void based upon material misrepresentations made by the defendant SP&K Construction, Inc. (“SP&K”), in the application for insurance. The action was commenced after several personal injury actions were commenced by SP&K employees relating to an incident that occurred during a particular construction project. The action proceeded to a nonjury trial, after which the defendants made an application for an award of costs and attorneys’ fees.
To establish its right to rescind an insurance policy, an insurer must demonstrate that the insured made a material misrepresentation. A misrepresentation is material if the insurer would not have issued the policy had it known the facts misrepresented. To establish materiality, the insurer must present documentation concerning its underwriting practices, such as underwriting manuals, bulletins, or rules pertaining to similar risks, that shows that it would not have issued the same policy if the correct information had been disclosed in the application (see Insurance Law § 3105[c].
Here, the lower court properly determined that the plaintiff failed to demonstrate its entitlement to rescission of the insurance policy. The record shows that SP&K misrepresented the scope of its planned work for the construction project and misrepresented its intention to obtain indemnification agreements from its subcontractors. However, the plaintiff’s witness did not identify any underwriting guideline or policy that would have prohibited the issuance of the insurance policy had the actual scope of work been disclosed, or that the guideline for “project specific” policies was applicable.
10/14/26 Hernandez v. Board of Managers of the NOMA Condominium
Appellate Division, Second Department
Failure to Procure Additional Insured Coverage Claim Fails for Lack of Proof
A party seeking summary judgment based on an alleged failure to procure insurance naming that party as an additional insured must demonstrate that a contract provision required that such insurance be procured and that the provision was not complied with. Here, the defendants failed to establish, prima facie, that GMJ did not procure insurance in compliance with the terms of the subcontract. Accordingly, the defendants were not entitled to summary judgment on the third-party cause of action alleging breach of contract for failure to procure insurance, regardless of the sufficiency of GMJ's opposition papers (see
10/13/26 Jacober v. Madan
Appellate Division, First Department
Claims Against Insurance Brokers and Life Insurance Company for Misrepresentations in Selling Life Policies Dismissed
Plaintiffs allege that defendants engaged in deceptive practices to induce plaintiff David Jacober to purchase a $10 million life insurance policy and to use premium financing to acquire that policy. It is claimed that Plaintiffs claimed that David suffered more than $600,000 in damages due to defendants' material misrepresentations, omissions, and deceptive practices.
Plaintiffs commenced this suit alleging three causes of action: violation of General Business Law § 349, fraudulent misrepresentation, and negligent misrepresentation against the Brokers directly and against MassMutual under the doctrine of respondeat superior.
The court dismissed the fraudulent misrepresentation cause of action against the Brokers. The complaint did not state a cause of action, as it did not specify with sufficient particularity which statements came from which "Agents/Brokers," a term the complaint defined to cover Madan, Peysakh, Madan and Associates, Barnum, and Brix. In any event, documentary evidence disclosing and warning of the risks associated with the policy utterly refutes plaintiff's factual allegations and conclusively establishes a defense to the asserted claims as a matter of law.
For the same reasons, the court dismissed the negligent misrepresentation claim.
The court also dismissed the cause of action for a violation of General Business Law § 349. In the complaint, plaintiffs claim that the "Agents/Brokers" allegedly misrepresented the policy and alleged their damages suffered from purchasing the policy. The allegations are "not consumer oriented, but rather . . . a single, private transaction" .Additionally, both the complaint and documentary evidence show that the policy was tailored to select wealthy individuals, which is "not conduct which affects the consuming public at large," nor is it "the 'modest' type of transaction the statute was primarily intended to reach".
Accordingly, plaintiffs cannot establish vicarious liability against MassMutual under the doctrine of respondeat superior in light of the determination that the underlying claims against the Brokers were properly dismissed.
PEIPER on PROPERTY (and POTPOURRI)
Steven E. Peiper
[email protected]
Potpourri
10/20/26 United States Fire Ins. Co. v. Palin
Appellate Division, First Department
No Right of Appeal From a Denial of an Order to Show Cause
This action arises from a declaratory judgment action defendant filed against United States Fire in the State of New Jersey seeking coverage for certain environmental losses. United States Fire then filed an Order to Show Cause in New York County Supreme Court seeking to enjoin Palin from proceeding with the insurance action in New Jersey.
The trial court declined to sign the Order to Show Cause, and United States Fire filed the instant appeal.
The First Department summarily rejected the appeal because there is no right of appeal from the denial of an Order to Show Cause. An Order to Show Cause is nothing more than an ex parte order “that does not decide a motion made on notice.” Thus, because there was no decision on the merits of the claim, there was no appealable paper from which United States Fire could seek appellate review.
LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel
[email protected]
09/17/26 Jones v. Candlewood Vill. Condo. Ass’n
Superior Court of Connecticut, Hartford
Carrier Contacting Represented Plaintiff Was Not Bad Faith
The plaintiff slipped and fell on icy conditions at his condominium. The plaintiff alleged that Guzie Landscaping provided snow and ice removal services, and that Sentry and The Hartford insured it.
Jones alleged that the insurers, knowing that the plaintiff was represented by counsel, violated their duty of good faith when their agent, without identifying herself as their agent, entered the plaintiff's home and questioned him about the incident, intentionally and purposefully bypassing his attorney. The insurers’ agent tried to persuade Jones to settle his claim without his attorney involved. Plaintiff alleged that this conduct was bad faith and violated CUTPA. The carriers moved to strike.
The court held that the count described as “tortious bad faith” amounted to a breach of the implied covenant of good faith. Because this cause of action derives from contract and the plaintiff had no contractual relationship with the insurers, the court dismissed it. “That duty [of good faith], however, does not extend to a third party. . . . A third party claimant . . . is entitled to bring an action against an insurance company, only after judgment."
For the same reason, the court struck the plaintiff’s statutory bad faith claims. “Additionally, regardless of whether a violation of § 38a-832 violates CUIPA, as a third-party claimant, the plaintiff cannot assert a private cause of action for CUIPA violations through CUTPA. Carford v. Empire Fire & Marine Ins. Co., supra, 94 Conn. App. 53 (holding that the right to assert a private cause of action for CUIPA violations through CUTPA does not extend to third parties in the absence of subrogation or a judicial determination of the insured's liability)….” CUIPA's constraints do not impose direct obligations on insurers to third-party claimants.
[Comment: While not actionable bad faith in this jurisdiction, the alleged conduct of the agent was certainly not a best practice.]
10/02/26 United Roofing & Sheet Metal, Inc. v. Ciardello Ins. Agency
Superior Court of Connecticut, Waterbury
Without an Independent Tort, Insured’s Negligence Claims Fail Against Carrier
Tokio Marine relied on the economic loss doctrine to bar the negligence claims, arguing that it bars claims for commercial loss arising out of the defective performance of contracts. Tokio argued that the negligence claims depend on the outcome of the breach-of-contract claim and seek the same damages. The court granted Tokio’s motion because the insurer’s duties arise from the contract of insurance and not from tort.
However, the court allowed the insured’s claim that Tokio fraudulently misrepresented the policy terms, claiming the coverage was equivalent to the expiring coverage. “[T]he court finds that the allegations are sufficient to withstand the motion to strike. Specifically, Tokio had a copy of the Columbia policy, and knew that the plaintiff was seeking an equivalent policy. When Tokio stated to the plaintiff's agent, World, that the policies (should) align, such (mis)representation caused the plaintiff to rely to its detriment because now their claim has been denied and they are damaged to the tune of $1.8 million.”
10/06/26 Sentino v. Kim
Superior Court of Connecticut, Meriden
Inconvenience Damages Recognized for MVA
Although this ruling does not directly concern insurance, Connecticut auto insurers should note that plaintiffs may recover “inconvenience damages” from their insureds. The court declined to strike this claim because the plaintiff alleged specific facts: 109 hours at the repair shop, 6 hours of missed activities, and time spent with insurance adjusters. It found these damages to be reasonably foreseeable consequences of the auto accident. However, the court struck the claim for loss of enjoyment of life because Connecticut does not recognize non-economic damages in property damage cases.
RYAN’S FEDERAL REPORTER
Ryan P. Maxwell
[email protected]
10/19/26 Bernier et al. v. Travelers Property Casualty Ins. Co.
Second Circuit Court of Appeals
Insurer Labeled “Co-Conspirator” With California Judges Avoids Both § 1983 and Bivens Liability Following Coverage Denial
This may have been my favorite read of the year, but I will not spend too much time on it, lest I wind up an alleged “co-conspiratory” myself.
Rejeanne M. Bernier and her adult son, Hans S. Croteau, proceeding pro se, appealed from the District Court’s judgment dismissing their 42 U.S.C. § 1983 and Bivens claims against Travelers Property Casualty Insurance Company (Travelers). Without getting overly technical, the Second Circuit agreed with the District Court’s dismissal on both counts.
First, the Second Circuit found that the plaintiffs’ allegations could not sustain a claim for civil conspiracy. They had alleged that Travelers had weaponized a California state court order labeling them “vexatious litigants” and “file[d] numerous motions to obstruct their’ access to courts, agencies and law enforcement, effectively barring them from pursuing legal rights,” and further that Travelers had conspired with judges to achieve this goal. But the Second Circuit found that merely prevailing in judicial proceedings does not transform Travelers into a state actor or co-conspirator.
Second, the Second Circuit found that while the Supreme Court had recognized an implied private action against federal officers for certain constitutional violations in Bivens v. Six Unknown Named Agents, 403 U.S. 388, 389 (1971), Bivens does not provide a cause of action against private entities.
Maxwell’s Minute: We may not always agree with the decisions that are handed down against us. But do not think for a minute that judges will ever mistake insurance companies for state co-conspirators or actors. Thespians? Maybe.
STORM’S SIU
Scott D. Storm
[email protected]
10/07/26 Alarcon v. Otsego Mutual Fire Insurance Company:
Appellate Division, Second Department
Representations About the Number of Families in a Dwelling Are Measured by Actual Use, Not a Certificate of Occupancy, and Misstatements Justify Rescission Where the Insurer’s Underwriting Guidelines Show it Would Not Have Issued Coverage Under the True Facts. Failure to Read the Application Undermines an Ambiguity Argument
Plaintiff appealed from a Suffolk County Supreme Court order granting Otsego’s motion for summary judgment dismissing the complaint and granting its counterclaim for a declaration that the policies were void ab initio and denying plaintiff’s cross-motion for summary judgment. Order affirmed.
In July 2015, plaintiff Leonila Alarcon purchased a house in Bay Shore. Her broker completed a homeowners insurance application to Otsego Mutual Fire Insurance Company, stating the dwelling had one family. Based on that representation, Otsego issued a homeowners policy naming Alarcon, which was later renewed.
In January 2020, Alarcon submitted a claim for water damage from a broken pipe. During its investigation, Otsego concluded the house actually contained three separate apartment units, each with its own kitchen, bathroom, living/sleeping space, and independent exterior access; Otsego deemed the property a three-family dwelling. Otsego then disclaimed coverage and declared the policy void, asserting a material misrepresentation in the application about the number of families.
Alarcon sued for breach of contract in May 2021; Otsego counterclaimed for a declaratory judgment that the policies were void ab initio based on the misrepresentation.
The primary issue was whether Alarcon (through her broker) made a material misrepresentation—stating the dwelling was one-family when it was in fact configured and used as a three-family—and whether that misrepresentation permitted Otsego to rescind and void the policies ab initio.
An insurer is entitled to rescind if the insured made a material misrepresentation when obtaining the policy; a misrepresentation is material if the insurer did not issue the policy had it known the true facts.
Materiality can be established as a matter of law by documentation of underwriting practices (manuals, bulletins, rules) showing the insurer would not have issued the policy under the true facts.
The number of families is determined by actual use, even if contrary to a certificate of occupancy.
Insurers are held to a strict standard when relying on application answers; ambiguous application questions are construed against the insurer and cannot form the basis of misrepresentation—however, this protection does not apply where the question is unambiguous or where the insured did not read the application.
The court held Otsego established, prima facie, that the property was structurally configured as a three-family dwelling—supported by plaintiff’s own testimony, photographs, and floor plans—and therefore the application’s one-family statement was a misrepresentation. The court reiterated that the number of families is based on actual use. Plaintiff failed to raise a triable issue of fact in opposition.
Otsego’s evidence included an affidavit from its Director of Underwriting and its 2015 Downstate Underwriting Guidelines, showing Otsego did not insure three-family dwellings and would not have issued the policies had the true multi-family configuration been disclosed. This satisfied materiality as a matter of law.
The application question asking for “#FAMILIES” was not ambiguous; moreover, Alarcon admitted she did not read the application before signing, undercutting any claim she was misled by unclear language. Thus, the ambiguity doctrine did not aid her.
The Appellate Division affirmed summary judgment for Otsego: the policies were void ab initio due to a material misrepresentation about the dwelling’s family configuration; Alarcon’s contract claim was dismissed; Otsego’s counterclaim for declaratory relief was granted; the case was remitted to enter a judgment declaring the policies void ab initio.
FLEMING’S FINEST
Katherine A. Fleming
[email protected]
10/09/26 OMS Pharm. Inc., d/b/a The Pharmacy at Midtown v. Nationwide Prop. & Cas. Ins. Co.
Supreme Court of Alabama
Allegations Against Pharmacy Fell Within Professional Services Exclusion in CGL Policy; Pharmacy Contributorily Negligent Regarding Failure to Procure Insurance Claim
Ms. Browne was prescribed a “pink cocktails” of liquid medication to treat stomach pain composed of equal parts phenobarbital, Maalox, and belladonna. OMS Pharmacy, Inc.’s (“OMS”) supplier had discontinued the commercial generic version of the “pink cocktail” about two weeks before receiving Ms. Browne’s prescription, so the pharmacy had entered the formula into its computer system to be able to easily compound future prescriptions for the medication. However, the OMS pharmacy technician who entered the “pink cocktail” formula accidentally entered the belladonna component of the formula in grams instead of milligrams. When OMS’s pharmacy technician compounded the prescription for Ms. Browne, the belladonna contained in the medication was one-thousand times stronger than prescribed. Ms. Browne consumed one tablespoon of the improperly compounded “pink cocktail” and suffered belladonna poisoning.
Ms. Browne sued OMS and Mr. Wright, an Alabama-licensed pharmacist and OMS’s founder, and asserted claims for negligence/wantonness, products-liability, breach of the Alabama Extended Manufacture’s Liability Doctrine, breach of the implied warranty of merchantability, and failure to warn. OMS’s insurer, Nationwide, declined to defend OMS and Wright because the CGL policy did not provide professional liability coverage and contained a professional services exclusion. The policy identified the practice of pharmacy as a profession within the meaning of the term “professional services” and provided that “professional services” included service, treatment, advice, or instruction I the practice of pharmacy. Ms. Browne, OMS, and Wright reached a settlement, and a consent judgment was entered in favor of Browne and against OMS but dismissing the claims against Mr. Wright. While the Browne action was pending, OMS commenced a separate action against Nationwide for breach of contract and bad faith and asserted claims against its insurance agency/its successor for the failure to procure insurance. Ms. Browne intervened in the insurance action to assert a direct action against Nationwide and sought payment of the judgment entered against OMS. The trial court granted Nationwide summary judgment based on the professional services exclusion, and because OMS has received the Nationwide policy that excluded coverage for professional services, OMS’s claims against the agency defendants for failure to procure such coverage was precluded.
On appeal, Ms. Browne argued that her product liability claims did not fall within the scope of the professional services exclusion. However, the Alabama Supreme Court disagreed as the art of compounding medication for Ms. Browne required the use of professional skill and training and was performed solely to fill Ms. Browne’s immediate need for a prescription. The professional services exclusion also contained broad “arising out of” language that encompassed all claims for bodily injury arising from the rendering of professional services regardless of the theory of liability. Accordingly, the Court affirmed the trial court’s order. As for the claims against the agency defendants for failure to procure insurance, OMS previously had a different CGL policy with a professional services exclusion that contained an exception for pharmacological services for retail drug stores. OMS had asked its broker to replace its coverage with like coverage based on the declarations pages. The Court concluded that OMS was contributorily negligent because had Mr. Wright read the coverage exclusions in the policy, he would have discovered the professional services exclusion included the practice of pharmacy. As a result, the Court also affirmed the summary judgment entered in favor of the agency defendants.
GESTWICK’S GARDEN STATE GAZETTE
Evan D. Gestwick
[email protected]
Nothing noteworthy from the New Jersey courts this week, but be sure to check out the New York Appellate Division, Second Department’s decision written in Dan Kohane’s column, argued by yours truly!
See you in two weeks.
O’SHEA RIDES the CIRCUITS
Ryan P. O’Shea
[email protected]
10/15/26 Mich. 32, LLC v. Travelers Ins. Co., et al
United States Court of Appeals, Sixth Circuit
Insured Subject to Res Judicata Barring Re-litigation of Recission; Privity Bars Third-Party From Asserting Breach of Contract Claim; and Lack of Independent Duty Aside From Contractual Obligation Fails to Establish Negligence Pleading
In June 2023, Mich. 32 (“M32”) suffered a fire at a property where it stored, maintained, and operated cryptocurrency mining machines owned by IED. Northfield insured M32 as the sole named insured under a commercial property policy effective at the time of the fire.
Travelers, Northfield’s parent company, directed M32’s managing member not to enter the property to preserve evidence. Travelers retained Doran to remove debris and demolish the building. M32 claimed Doran caused the building’s collapse and allowed thieves to steal the mining machines. In June 2024, Northfield rescinded the policy and denied the claim due to a material misrepresentation.
Travelers and IED were dismissed from the action since neither was a party to the M32 policy. As such, IED could not assert a breach of contract against Travelers and Northfield. Due to the lack of privity, M32 could not maintain a breach of contract claim against Travelers.
M32 and IED’s negligence claims were also dismissed since the Complaint was based upon Travelers’ and Northfield’s violations of duties owed through “undisclosed contracts and agreements.” Since the Complaint failed to alleged duties independent of contractual obligations, M32 and IED could not establish any potential independent duty breached to support a negligence claim.
M32 and IED’s claims against Northfield were barred under res judicata as Northfield previously received a judicial declaration of no coverage that also rescinded the policy as requested by Northfield. The rescission action is discussed below.
10/15/26 Northfield Ins. Co. v. Mich. 32, LLC
United States Court of Appeals, Sixth Circuit
Material Misrepresentation in Application Resulted in Rescission and Denial of Coverage
As discussed above, Northfield insured M32 under a commercial property policy. M32 sustained a fire loss to the property which stored and operated cryptocurrency mining machines. In M32’s policy applications in 2021 and 2022, M32 stated the property was protected by an ADT fire alarm. However, the property lacked a fire alarm.
Northfield rescinded the policy based upon the material misrepresentation regarding the fire alarm system and denied coverage under the Protective Safeguards Endorsement (“PSE”). The PSE required M32 to maintain an automatic fire alarm monitored by a central station, and all excluded overage for failure to comply with the PSE. The policy also barred coverage for intentional material misrepresentations.
The court rejected M32’s waiver and estoppel argument based upon a prior underwriting survey. The survey stated M32’s management policies and procedures provided property loss control. Michigan law provides an insurer lacks a duty to investigate or verify the representations of an insured.
Despite the prior survey, Northfield never waived its right to rescind the policy. The survey never addressed nor discussed a fire alarm. Once Northfield learned of the issue it immediately rescinded the policy and returned the associated premium. Estoppel also did not apply for the same reason, the fire alarm system was never discussed in the survey, so Northfield could not have induced M32 into believing it possessed a policy complaint system.
LABARBERA’S LOWER COURT LIBRARY
Isabelle H. LaBarbera
[email protected]
09/23/26 Stillwater Prop. & Cas. Ins. Co. v Shaw
New York State Supreme Court, New York County
Court Denies Summary Judgment Finding Question of Fact Regarding Exhaustion, Based on Failure to Establish Proper Priority of Payment in Relation to No-Fault Claim
Stillwater Property and Casualty Insurance Company f/k/a Tri-State Consumer Insurance Co. (“Stillwater”) commenced an action against seventeen medical providers, and an insured-claimant, seeking a declaration that Stillwater owed no obligation to pay no-fault claims arising out of a motor vehicle accident, because Stillwater had exhausted the policy limits of $50,000.
Stillwater previously received a default judgment against thirteen medical providers and moved for summary judgment against the remaining four medical-provider defendants. In support of its claims of exhaustion, Stillwater submitted an affidavit from a claims examiner, a declaration page of the insurance policy, and a payment log, reflecting payments totaling $50,000. While the payment log contained dates and amounts of checks, it did not contain the date that Stillwater received the claims/bills for payments from the remaining medical-provider defendant.
The priority of payment of no-fault claims is governed by 11 NYCRR 65-3.15, which provides, “[i]f the insurer pays the $50,000 before receiving claims for services rendered prior in time to those which were paid, the insurer will not be liable to pay such late claims. If the insurer receives claims of a number of providers of services, at the same time, the payments shall be made in the order of rendition of services.”
Based on the above, the Court denied Stillwater’s motion, finding that Stillwater failed to submit proof of compliance with 11 NYCRR 65-3.15. Without knowing the date(s) the defendant medical providers submitted their verified claims/bills, the Court found that Stillwater was unable to sustain its burden on summary judgment.
LEXI’S LEGISLATIVE LOWDOWN
Lexi R. Horton
[email protected]
10/24/26 New York Assembly Bill A11705
New York State Assembly
Proposed Legislation Would Strengthen Oversight of Medical Spas and Require Appearance Enhancement Business Licensees Operating Med Spas to Maintain a Bond or Liability Insurance With a Minimum Limit of $1 Million
Assembly Bill A11705 was introduced on September 2, 2026, and referred to the Assembly Economic Development Committee. The bill would amend General Business Law §§ 400, 404, 405, and 410 to address med spa regulation, inspections, and financial protection.
Of particular interest from an insurance perspective, the proposal would require appearance enhancement business licensees operating med spas to maintain a bond or liability insurance with a minimum limit of $1 million.
The bill would also create a task force to examine, evaluate, and regulate med spas, with participation from the Departments of Health and Education and the Department of Health’s business intelligence and narcotic enforcement bureaus. Joint inspections would address compliance with licensing, controlled-substance, and advertising requirements. In addition, the proposal would require at least one unannounced comprehensive inspection of each med spa every fifteen months.
VICTORIA’S VISION ON BAD FAITH
Victoria S. Heist
[email protected]
10/21/26 Wisseh v. Progressive Direct Ins. Co.
U.S. District Court for the Eastern District of Pennsylvania
EDNY Grants Insurer's Motion to Dismiss Bad Faith Cause of Action for Residence Misrepresentation
Sekle Wisseh submitted a claim to Progressive Direct Insurance Company following a March 2025 automobile accident in Philadelphia. When Wisseh applied for the policy, he represented that he resided in Massachusetts and that his Cadillac Escalade was principally garaged there. During its claim investigation, Progressive obtained information suggesting that Wisseh may actually have lived in Virginia and primarily garaged the vehicle there, including address records, medical records, and claim documents listing a Virginia address. Progressive repeatedly requested documentation concerning Wisseh's residence and sought medical records and other information relevant to its coverage investigation. Wisseh delayed or refused certain requests, threatened litigation, and ultimately failed to appear for a scheduled examination under oath required by the policy. Before Progressive made a final coverage determination, Wisseh filed suit asserting breach of contract and statutory bad faith.
Progressive moved for summary judgment on the bad-faith claim and the court granted the motion. It held that under Pennsylvania law an insured must prove by clear and convincing evidence that the insurer lacked a reasonable basis for its conduct and knowingly or recklessly disregarded that lack of a reasonable basis. The court found that Progressive had legitimate grounds to investigate whether Wisseh misrepresented his residence and the vehicle's garaging location because those facts directly affected underwriting and premiums.
The court further noted that Progressive never denied the claim during the investigation, repeatedly sought information relevant to coverage, and continued efforts to obtain Wisseh's cooperation even after he failed to appear for the examination under oath. Because Progressive's investigation was supported by reasonable coverage concerns and was not conducted in reckless disregard of Wisseh's rights, no reasonable jury could find bad faith. The court therefore entered summary judgment in favor of Progressive on the statutory bad-faith claim.
SHIM’S SERIOUS INJURY SEGMENT
Stephen M. Shimshi
[email protected]
10/21/26 Reyes v. Chapman
Appellate Division, Second Department
Appellate Division Finds Plaintiff Did Not Sustain a “Serious Injury” Under Insurance Law § 5102(d)
The plaintiff, Ruth Reyes ("plaintiff") commenced the subject action against the defendant, Kevin Chapman ("defendant") to recover for personal injuries that she allegedly sustained in connection with a motor vehicle collision involving a vehicle wherein she was a passenger and the defendant's vehicle. Defendant moved for summary judgment to dismiss the complaint on the ground that plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) because of the subject accident. Pursuant to an Order dated April 1, 2025, the Supreme Court, Suffolk County, granted the motion. Plaintiff now appeals.
On appeal, the Supreme Court, Suffolk County, Order was reversed. The Appellate Division, Second Department, found that defendant failed to meet his burden of proof to show that plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the accident (see Toure v Avis Rent A Car Sys., 98 NY2d 345; Gaddy v Eyler, 79 NY2d 955, 956-957). Defendant failed to submit competent medical evidence establishing that plaintiff did not sustain serious injuries to her cervical and lumbar spines and left shoulder under the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d) (see Zennia v Ramsey, 208 AD3d 735, 735; Melika v Caraballo, 187 AD3d 1173, 1173).
The defendant's expert found significant limitations in the range of motion of the plaintiff's left shoulder and the cervical and thoracolumbar regions of her spine. The defendant expert failed to adequately explain and substantiate her opinion that the limitations were voluntary (see Z.H.B. v Sica, 221 AD3d 575, 576; Matveieva v Metropolitan Transp. Auth., 212 AD3d 726). Therefore, the Appellate Division, Second Department, determined that the defendant's submissions failed to eliminate triable issues of fact regarding the plaintiff's claims that she sustained a serious injury under the 90/180-day category of the version of Insurance Law § 5102(d). The defendant also failed to establish that the plaintiff's left shoulder and cervical and lumbar regions of her spine injuries were not causally related to the accident (see Zennia v Ramsey, 208 AD3d at 735; Luigi v Avis Cab Co., Inc., 96 AD3d 809).
Because defendant failed to meet his prima facie burden, it was deemed unnecessary to determine whether the submissions by the plaintiff in opposition were sufficient to raise a triable issue of fact (see Zennia v Ramsey, 208 AD3d at 736; Che Hong Kim v Kossoff, 90 AD3d at 969).
Accordingly, the Appellate Division, Second Department, reversed the Order of the Supreme Court, Suffolk County, on the law, with costs, and the defendant's motion for summary judgment to dismiss the complaint on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of subject accident was denied.
NEW ENGLAND ALMANACK
Barbara A. O’Donnell
[email protected]
Alexander G. Henlin
[email protected]
Iryna N. Dore
[email protected]
08/20/26 Watts Regulator Company v. Fireman’s Fund Insurance Co.
Massachusetts Superior Court, Suffolk County (Business Lit. Session)
Insured Not Entitled to Choose Independent Defense Counsel When Carrier Revokes Reservation of Rights and Instead Accepts Claim Without Reservation
The plaintiff is a valve manufacturer that has long been a defendant in asbestos-exposure cases. The underlying claimants have often filed generalized complaints that do not particularize which product cased their injury or the time of exposure. Due in part to the high number of asbestos personal-injury suits, Watts Regulator disputed its carriers’ coverage obligations and filed suit against them in 2005. That suit settled in 2009, with an agreement that permitted Watts Regulator to control the defense of the claims, with Fireman’s Fund contributing to the costs of that defense.
Fifteen years later, Fireman’s Fund gave due and proper notice that it was terminating its participation in the 2009 agreement. In its termination notice, Fireman’s Fund advised Watts Regulator that it “fully withdr[ew] any and all reservations of rights” and instead would “indemnify Watts for liability with respect to claims FFIC defends on behalf of Watts Regulator, up to and including the stated limits of liability in the FFIC” policy. Accordingly, FFIC asserted its right to appoint defense counsel and repeated that it would not contribute to the costs of defense incurred by firms selected and appointed by Watts Regulator after the effective date of the termination.
When a carrier reserves rights in response to a tendered claim under Massachusetts law, the insured may validly require either that the carrier relinquish its reservation or relinquish its defense of the insured and instead reimburse the insured for its defense costs. The court noted that nothing compels an insurer to maintain its reservation of rights and that, if the reservation is relinquished, the effect is that the carrier waives any issues of coverage and agreed to indemnify the insured from any settlements of judgments up to its limits. In return, the carrier generally acquires the right to control the insured’s defense of those claims, including the authority to choose which counsel will provide the defense and other decisions related to the control of the defense that would ordinarily be vested in a named party to the case.
The only exception is in a case where there is a clear conflict of interest. Watts Regulator suggested that a conflict existed because FFIC sought to defend claims for which Watts Regulator had significant uninsured potential indemnity, or where FFIC had disclaimed indemnity altogether; because other insurers had maintained a reservation of rights and thus FFIC’s selected counsel would be subject to conflicting instructions; and because FFIC required Watts Regulator to give up its right to defend with respect to the other insurers as a condition of FFIC providing a defense.
The court rejected all of Watts Regulator’s defenses out of hand. The fact that liability may exceed the limits of coverage was not sufficient to deprive FFIC of its right and duty to defend through counsel chosen by the carrier, and FFIC was estopped from maintaining its reservation of rights with respect to the universe of accrued claims as to which it had withdrawn the reservation. The court also noted that the fact that there are multiple firms handling the same case did not necessarily give rise to a conflict of interest, and that the attorneys would at all times be ethically bound to act in good faith an in the best interests of Watts Regulator. Finally, the court noted that a non-reserving carrier’s right to control a defense could not be overcome by some other carrier’s decision to reserve rights.
The court found that FFIC’s withdrawal of its reservation of rights did not breach the implied covenant of good faith and fair dealing, and it rejected as a matter of law the suggestion that FFIC’s assertion of its right to control the defense constituted an unfair and deceptive act under Chapter 93A.
Editor’s Note: If you would like a copy of the decision, please contact Alex Henlin at the e-mail address shown above.
09/28/26 Warren v. Suliveras, et al
Massachusetts Superior Court, Suffolk County
Insurer Cannot Vacate Default Judgment When it Had Actual Knowledge of Lawsuit Against Its Insured
Adell Warren and her son Jaheim Clarke were struck from behind by a delivery vehicle driven by John Suliveras on Blue Hill Avenue in Boston on October 30, 2024. She brought suit against Suliveras, his employer (Prime Home Delivery), and the owner of the delivery truck (PHD Leasing). Her attorney sent a copy of the complaint along with a demand under Chapter 93A of the Massachusetts General Laws to Pilgrim Insurance Company on September 17, 2025. The defendants were all served about three weeks later.
On October 24, 2025, the carrier acknowledged receipt of counsel’s correspondence from September 17 and noted that the company was late in responding to the Chapter 93A demand. No party responded to the complaint, and the plaintiff sought a default on May 15, 2026, which duly entered three days later. The plaintiff subsequently asked for an assessment of damages, and counsel served the notice on the carrier and the defendants.
One day before the scheduled hearing, the defendants filed an emergency notice to vacate the default. In support of the motion, the carrier’s claim adjuster provided an affidavit stating that the defendants had never notified the carrier of the lawsuit, that the carrier’s failure to address the default after receiving the May 2026 notice was inadvertent, and that the insurer “had no knowledge of” the litigation prior to receiving the May 2026 default notice.
Vacating a default under Massachusetts law requires the movant to demonstrate “good cause,” which the court determined was lacking. The tortfeasor and the two corporate entities themselves offered no explanation as to why the default should be vacated. More to the point, though, the court found that the carrier had actual knowledge of the lawsuit, as acknowledged by its claim adjuster’s own correspondence in October 2025. Its assertion that it “had no knowledge of” the proceedings was, according to the court, “untrue.”
In the absence of any defense to liability, let alone a meritorious one, the court was not willing to vacate the default. It entered judgment and set a further hearing on the issue of damages, which is to take place at a later date.
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.
09/24/26 2069586 Ontario Inc. v. Sovereign General Insurance Company
Ontario Court of Appeal
Trust Funds Are Also Mortgage Funds: Ontario Court of Appeal Rejects Narrow Reading of Fraud Coverage in a Mortgage Broker’s E&O Policy
A mortgage broker’s obligation to hold client money in trust should not become the reason its fraud insurance fails to respond when that money disappears. That is the central lesson of the September 24, 2026, decision in 2069586 Ontario Inc. v. Sovereign General Insurance Company, 2026 ONCA 655, where the Ontario Court of Appeal held that a mortgage brokerage’s errors and omissions policy covered funds misappropriated while the brokerage was arranging financing.
This decision illustrates the importance of reading mandatory professional liability insurance in its regulatory setting. But the court drew a careful boundary: regulatory requirements inform the interpretation of policy language; they do not authorize courts to rewrite unambiguous restrictions.
A Financing Arrangement Ends in Fraud
In 2016, construction businessman Carmelo Calabrese and two companies he controlled sought financing to purchase a student housing development property. They approached Aztec Financial Corp., a licensed Ontario mortgage brokerage, and its principal, Barbara Romanow.
Aztec introduced them to Community Life Projects Inc. as a potential source of approximately C$6.75 million in mortgage financing. Romanow was also a principal of that company.
As a condition of the proposed financing, Calabrese and his companies had to provide US$350,000—then equivalent to C$459,975—to demonstrate their commitment and financial capacity. Aztec agreed to hold the money in trust and return it 19 days later without interest or deduction. Calabrese expected a financing decision by that date.
The financing did not proceed. When Calabrese’s lawyer investigated, he learned that Romanow had removed most of the money without Calabrese’s knowledge or consent, contrary to the terms on which Aztec held it in trust. Aztec’s bank froze what remained.
The borrowers obtained a default judgment against Aztec, Romanow, and others. After a partial recovery, C$353,520.92 remained unpaid. Calabrese and his companies determined that Aztec was the named insured under a mortgage broker’s errors and omissions insurance policy issued by Sovereign General Insurance Company. In their capacity as a client defrauded by the insured mortgage broker who held their funds in trust, and, relying upon their statutory right of direct of action available to clients defrauded by an insured brokerage, they sued Sovereign for the unpaid balance of their judgment.
Mortgage Brokers Carry Mandatory E&O Coverage
Ontario Regulation 188/08, made under the Mortgage Brokerages, Lenders and Administrators Act, 2006, required licensed mortgage brokerages to maintain regulator-approved E&O insurance with extended fraud coverage, or another approved form of assurance, providing at least C$500,000 per occurrence and C$1 million over a 365-day period. The regulator’s accompanying Guidelines required a direct right of action for injured third parties and written confirmation of compliance from insurers. The purpose was public protection: coverage designed to respond to specified fraud-related losses arising from a brokerage’s mortgage business.
The Coverage Question
Sovereign’s base policy provided coverage for damages that the insured (Aztec) became legally obligated to pay because of a wrongful act arising out of or in connection with the rendering or failure to render professional services. The base policy also contained exclusions addressing fraud, improper personal profit, and the loss of money in an insured’s custody. Standing alone, those exclusions would preclude coverage for this action. However, an endorsement to the policy applicable to mortgage brokers regulated under Ontario legislation, including Aztec, provided specified fraud coverage where an insured became liable to a third party when dishonest conduct caused a failure to advance or secure mortgage funds.
The endorsement’s “Dishonest or Fraudulent Act” provision applies where an insured was legally liable to a third party for a “failure to advance or secure mortgage funds” resulting from dishonest or fraudulent conduct in the business of the licensed mortgage brokerage. The endorsement provided a C$500,000 per-claim limit, corresponding in amount to the Regulation’s minimum per-occurrence requirement. The operative wording reads:
Dishonest or fraud coverage afforded under this endorsement shall apply to claims, in excess of the deductible, for which an Insured is legally liable to a third party for failure to advance or secure mortgage funds as a result of any dishonest or fraudulent act by one or more Insureds acting directly or in collusion with others in the conduct of the business of the Named Insured as a licensed mortgage broker in the Province of Ontario …
…
G. The limit of liability under this section shall be $500,000 per claim
The coverage issue for the court’s determination was whether the borrowers’ money qualified for that protection even though it was held in trust pending financing and was not itself secured by a mortgage.
On the borrowers’ motion for summary judgment, the motion judge characterized the loss as a failure to hold and return trust funds, rather than a failure to advance or secure mortgage funds. Borrowing the definition of a related term from Ontario’s Mortgages Act, he treated mortgage funds as money secured by a mortgage. Because the borrowers’ payment did not meet that description, he granted “boomerang” summary judgment to Sovereign and dismissed the action (2025 ONSC 4468).
The Clients’ Position
The clients argued that the endorsement had to be interpreted against the regulatory framework governing Ontario mortgage brokerages.
That framework required Aztec to maintain E&O insurance with extended fraud coverage. It also contemplated direct recovery by injured third parties. The clients maintained that the existing policy language should be read consistently with those requirements—not that the court should replace the policy with a different contract.
Their money had been delivered to Aztec solely because the proposed mortgage financing required it. Holding it in trust did not eliminate that mortgage-related purpose.
Sovereign’s Position
Sovereign relied on the policy’s exclusions and argued that the fraud endorsement supplied only a narrow exception. The misappropriated money was trust money, not mortgage funds, so the exception did not apply.
The insurer also resisted reliance on the regulatory framework. Among the objections considered on appeal were the absence of a declaration challenging regulatory compliance, the lack of evidence establishing a specific undertaking by Sovereign to comply with the regulatory requirements, and the regulator’s absence from the litigation.
Sovereign further warned that the borrowers’ interpretation would turn professional liability coverage into general fidelity insurance for a broker’s fraudulent conduct.
Why the Court Reversed
The Court began from the presumption that contracting parties intend to comply with the law. Relying on the UK Supreme Court's decision in R&S Pilling t/a Phoenix Engineering v. UK Insurance Ltd., UKSC 16, it held that the presumption applies with particular force where, as here, the contract exists because a regulatory regime requires it, and that only "abundantly clear" language can rebut it.
No such clear language existed here. To the contrary, the endorsement demonstrated an intent to comply: It acknowledged Aztec's status as a regulated brokerage, matched the Regulation's C$500,000 minimum limit, and barred Sovereign from reducing that limit without notifying the regulator. The Court of Appeal rejected the supposed divide between trust funds and mortgage funds. The two descriptions answered different questions: one concerned how the money was held; the other concerned its connection to the mortgage transaction.
The clients had not retained Aztec for an independent trust arrangement. They wanted mortgage financing, and the required payment was part of obtaining it. The money did not lose that connection merely because the brokerage had to hold it in trust.
The Court also gave independent significance to the endorsement’s reference to securing funds. Securing could mean protecting money from loss, which Aztec plainly failed to do. It could also mean obtaining financing, which the brokerage likewise failed to accomplish after dissipating the required payment.
The regulatory context reinforced that reading. Trust requirements sought to prevent misuse of client funds; mandatory fraud insurance addressed the consequences when prevention failed. Sovereign’s interpretation would put those protections at cross-purposes by making the required trust status a reason to deny coverage.
The Court held that the endorsement unambiguously covered the loss. Commercial reasonableness, reasonable expectations and, if necessary, construction against the insurer, reinforced that conclusion rather than supplying its starting point.
The Result—and the Limits
The Court did not send the dispute back for trial. It substituted summary judgment for the clients, declaring Sovereign liable for C$353,520.92 plus applicable interest. It also reversed the costs award against them and awarded their costs of the appeal.
The holding was not unlimited. Not every dollar passing through a brokerage becomes mortgage funds, and not every fraud by a mortgage broker attracts coverage. A sufficient connection must exist between the fraud and a failure to advance or secure money linked to the brokerage’s regulated mortgage business.
For coverage professionals, the practical lesson is contextual rather than categorical. A fund’s legal status does not necessarily determine its commercial character. And where an endorsement implements mandatory coverage, its wording must be read with that purpose in view—without allowing the purpose to displace clear contractual limits.
Application to the Interpretation of Insurance Contracts Generally
The decision applies the Supreme Court of Canada’s framework in Emond v. Trillium Mutual Insurance Co., 2026 SCC 3 for interpreting insurance contracts, emphasizing that policy language must be read as a whole and in its relevant context.
This case emphasizes that an insurance contract must be interpreted holistically in the context of the circumstances that generated that contract. Here, the regulatory context explained the purpose of the endorsement. Read without that context, the endorsement lost much of its meaning; when interpreted considering that context, it “unambiguously grants coverage” (para. 57).
The Court relied on Ontario case law to describe the position of significant financial trust that a mortgage broker occupies. The Court noted the vulnerable position of borrowers who place funds in trust in anticipation of the issuance of a mortgage. The Court also noted that the regulatory scheme recognizes and addresses that vulnerability and permits a direct action by the borrowers in the event that they sustain loss due to fraudulent activity: “Where the mandated fraud endorsement is reasonably capable of an interpretation that affords meaningful protection to the public, the regulatory purpose is a legitimate and important interpretive consideration. It favours constructions which achieve that purpose over those that substantially defeat it.” (para. 72).
The Court stressed that it was not rewriting the contract to comply with the regulatory framework; it was giving the words of the contract an interpretation that was consistent with the regulatory framework.
