Volume XXIV, No. 3 (No. 625) Friday, July 22, 2022
A Biweekly Electronic Newsletter
Hurwitz Fine P.C.
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As a public service, Hurwitz Fine P.C. is pleased to present its biweekly newsletter, providing summaries of and access to the latest insurance law decisions from the New York and Connecticut appellate courts and Canadian appellate courts. The primary purpose of this newsletter is to provide timely educational information and commentary for our clients and subscribers.
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advice in the Province of Ontario on matters of New York State and federal law.
NEWSLETTER EDITOR Dan D. Kohane [email protected]
ASSOCIATE EDITOR Agnes A. Wilewicz [email protected]
ASSISTANT EDITOR Patricia A. Rauh [email protected]
INSURANCE COVERAGE/EXTRA CONTRACTUAL LIABILITY TEAM Dan D. Kohane, Chair
Steven E. Peiper, Co-Chair
Michael F. Perley Agnieszka A. Wilewicz Lee S. Siegel Brian F. Mark Scott D. Storm Thomas Casella Brian D. Barnas Ryan P. Maxwell Patricia A. Rauh Diane F. Bosse Joel R. Appelbaum Kyle A. Ruffner Katherine A. Fleming
FIRE, FIRST PARTY AND SUBROGATION TEAM Steven E. Peiper, Team Leader [email protected]
Michael F. Perley Scott D. Storm Brian D. Barnas
NO-FAULT/UM/SUM TEAM Dan D. Kohane [email protected]
Alice A. Trueman
APPELLATE TEAM Jody E. Briandi, Team Leader [email protected]
Diane F. Bosse
Kohane’s Coverage Corner Peiper on Property and Potpourri Dishing Out Serious Injury Threshold Wilewicz’s Wide World of Coverage Barnas on Bad Faith
Lee’s Connecticut Chronicles Kyle’s Construction Column Ryan’s Capital Roundup Rauh’s Ramblings
Storm’s SIU Examen Fleming’s Finest
North of the Border
KOHANE’S COVERAGE CORNER Dan D. Kohane [email protected]
Appellate Division, Second Department
Determination on Framed Issue Hearing Upheld. Hit-and-Run Vehicle Identified So No UM Coverage
On April 6, 2018, Essence McQueen (“Essence”) was driving her vehicle with her father, Melvin McQueen (“Melvin), in the back seat when her vehicle was struck in the rear by a hit-and-run driver. Essence followed the offending vehicle, called 911, and provided the police with the license plate number and a description of the vehicle.
Melvin filed a demand for arbitration of his claim for uninsured motorist benefits under a policy of insurance issued by the petitioner, USAA, to Essence. USAA commenced this proceeding pursuant to CPLR 7503(c), among other things, to permanently stay the arbitration and to add GEICO and Jerlena Palmer as additional respondents. The parties stipulated to add GEICO and Palmer as additional respondents and to stay the arbitration pending the outcome of a framed-issue hearing to determine whether Palmer's vehicle was the offending vehicle involved in the subject accident.
Matter of USAA General Indemnity Co. v. McQueen
After the framed-issue hearing, the Supreme Court determined that the offending vehicle was owned by Palmer and insured by GEICO and granted that branch of the petition which was to permanently stay arbitration. GEICO and Palmer appeal.
At the framed-issue hearing, Essence testified, among other things, to the license plate number she observed on the offending vehicle, as well as to the make and model of that vehicle. While testifying, Palmer confirmed that her vehicle was the same make and model as the offending vehicle, and that she lived in the vicinity of the accident. Palmer also identified a photograph that was admitted into evidence as her vehicle, which showed that the license plate number, insofar as it was visible in that photograph, corresponded to the same numbers and letters that were observed by Essence. Finally, Palmer also testified that her vehicle was insured by GEICO.
Not surprisingly, based on that testimony, the Second Department agreed that there was sufficient proof that GEICO insured the vehicle involved in the accident.
07/20/22 Rodriguez v. Mercury Casualty Company
Appellate Division, Second Department
Failure to Produce Instructive Written Underwriting Guidelines Defeats Claim for Rescission Based on Misrepresentations
Rodriguez was allegedly injured in a hit-and-run motor vehicle accident on March 1, 2015. The vehicle was insured by Mercury Casualty Company (“Mercury”). This action was to recover damages under an uninsured motorist’s endorsement to the policy in connection with the subject accident. Following discovery,
Mercury moved for summary judgment dismissing the complaint on the grounds that it had no obligation to provide the plaintiff with benefits under the "fraud or misrepresentation" provision of the insurance policy. Mercury argued that Rodriguez had made a material misrepresentation on her application for insurance by falsely stating that she resided in New Rochelle and that the subject vehicle would be garaged in that location, when in fact the plaintiff resided and kept the vehicle in Brooklyn.
No misrepresentation shall be deemed material unless knowledge by the insurer of the facts misrepresented would have led to a refusal by the insurer to make such contract. To establish materiality as a matter of law the insurer must present documentation concerning its underwriting practices, such as underwriting manuals, bulletins, or rules pertaining to similar risks, that show that it would not have issued the same policy if the correct information had been disclosed in the application.
Mercury failed to demonstrate the materiality of the misrepresentation complained of, as a matter of law. Although Mercury submitted an affidavit of an underwriting supervisor who stated that it would have issued the plaintiff a different policy with a higher premium had the plaintiff disclosed her Brooklyn address, the
underwriting guidelines submitted by Mercury do not state that it does not insure vehicles kept in Brooklyn or that policies insuring vehicles kept in Brooklyn are assessed a higher premium than those garaged in New Rochelle.
Editor’s Note: A harsh result but the case law has been consistent that written underwriting guidelines must be submitted to establish a right to rescind.
07/08/22 D’Angelo v. Philadelphia Indemnity Insurance Company Appellate Division, Fourth Department
Section 3420(d)(2) Does Not Apply to Require Prompt Disclaimer if Vehicle or Driver are Not Within Grant of Coverage
A win for the good guys.
D’Angelo was operating her personal auto while working for her employer. She was injured in a car accident and sought Supplemental Uninsured/Underinsured (SUM) benefits under her employer’s policy.
By symbol, for SUM coverage the policy only covered the employer’s “owned autos”. While the carrier did not disclaim within 30 days, the court agreed that a prompt disclaimer was unnecessary if the vehicle was not covered by the policy in the first instance. The court determined that defendant's disclaimer was based on a lack of coverage rather than a policy exclusion and that timely disclaimer pursuant to Insurance Law § 3420 (d) was not needed.
Editor’s Note: An HF victory on this one, the Kohane-Maxwell team.
07/08/22 All American Insurance Company v. Wilson
Appellate Division, Fourth Department
Failure to Submit Certified Policy Dooms Application to Stay SUM Arbitration
Wilson was hurt when the car she was in was hit but another. Wilson was driving a car rented by someone else from a car dealership. She received the full amount of the other vehicle’s liability limits and then filed a SUM claim
All American disclaimed coverage on the ground that Wilson did not qualify as an insured under the policy’s SUM endorsement. Wilson demanded arbitration with respect to her claim for SUM coverage. All American commenced this proceeding under CPLR article 75 seeking a permanent stay of arbitration or, alternatively, a temporary stay of arbitration pending a framed-issue hearing
The Fourth Department found that the petition to stay arbitration was not supported by evidence in admissible. Petitioner attached to the petition what it purported to be the commercial garage policy issued to the car dealership that contained the SUM endorsement at issue in this proceeding. However, the policy that petitioner attached to the petition was not certified or otherwise authenticated and was therefore not in admissible form.
The affirmation of petitioner's attorney does not render the policy admissible, since the relevant portion of the affirmation is not based on the attorney's personal knowledge. All American attempted to cure that evidentiary defect in its reply by attaching a certified copy of a policy issued by petitioner to the car dealership, but that policy differs from the policy that had been attached to the Under the circumstances of this case, the court did not consider the evidence submitted by petitioner for the first time in reply.
Editor’s Note – A harsh result, but the right one If you want the court to consider a policy, make certain it’s certified or affirmed by someone with personal knowledge.
PEIPER on PROPERTY (and POTPOURRI) Steven E. Peiper [email protected]
Shut out this week. See you in two.
DISHING OUT SERIOUS INJURY THRESHOLD Michael J. Dischley [email protected]
07/08/22 Tully v. Kenmore-Tonawanda Union Free School District Appellate Division, Fourth Department
Plaintiff Failed to Raise a Triable Issue of Fact in Opposition to Defendant Motion
Appeal and cross appeal from an order of the Supreme Court, Erie County (Diane Y. Devlin, J.), entered April 28, 2021. The order denied in part and granted in part the motion for summary judgment of defendants Kenmore-Tonawanda Union Free School District and Anthony Ramunno.
Plaintiff commenced this action seeking to recover damages for injuries she allegedly sustained while riding in a school bus operated by Kenmore-Tonawanda Union Free School District and Anthony Ramunno (defendants) and defendant Kenmore-Tonawanda Department of Transportation when the bus drove over a large bump in the road, thereby causing plaintiff to be lifted out of her seat and strike her head on a bar above the emergency exit door. Plaintiff appeals and defendants cross-appeal from an order that granted those parts of defendants' motion for summary judgment dismissing the amended complaint, as amplified by the bill of particulars, with respect to the significant disfigurement, permanent consequential limitation of use (PCLU), and 90/180-day categories of serious injury against them and denied defendants' motion with respect to the significant limitation of use (SLU) category (see Insurance Law § 5102 [d]). The Appellate Division agreed with defendants that Supreme Court erred in failing to grant the motion in its entirety, and the Appellate Division therefore modified the order accordingly.
The Appellate Division initially noted that the Court properly granted the motion with respect to the significant disfigurement category because plaintiff, in opposition to the motion, abandoned any claim under that category.
The Appellate Division further rejected plaintiff's contention on her appeal that the court erred in granting the motion with respect to the PCLU category. To satisfy the serious injury threshold under Insurance Law § 5102, a plaintiff must present "objective proof of . . . injury"; "subjective complaints alone are not sufficient". Thus, with respect to the PCLU category specifically, "a plaintiff must 'submit objective proof of a permanent injury' to establish a qualifying serious injury". "[A] 'minor, mild or slight limitation of use [is] classified as insignificant within the meaning of the [no-fault] statute' ".
Here, the Appellate Division concluded that defendants met their initial burden with respect to the PCLU category by submitting, inter alia, plaintiff's medical records and the affirmed independent medical examination (IME) reports of a neurologist and a neuropsychologist, who each examined plaintiff on behalf of defendants and opined that there was no objective medical evidence of a serious injury. The IME neurologist concluded that there was no convincing evidence that plaintiff sustained a concussion because, among other things, all imaging studies of her brain, including multiple MRIs, had been normal and it could not be said within a reasonable degree of medical certainty that plaintiff exhibited symptoms that would lead to the conclusion that she sustained a concussion. Importantly, the IME neurologist noted that neuropsychological testing conducted five months after the bus incident by plaintiff's own clinical neuropsychologist revealed a "largely normal cognitive examination" of a patient with "average intellectual reasoning" and "cognitive functioning . . . within normal limits," and with none of the weaknesses on the exam representing "a clinically significant cognitive deficit." The IME neuropsychologist likewise concluded that, in the aggregate, his neuropsychological evaluation supported and expanded upon the conclusions of plaintiff's clinical neuropsychologist insofar as plaintiff did not have, nor would she be expected to have, any causally related cognitive deficits due to the incident and, instead, had significant affective disorder underlying her various subjective mental and physical complaints. Although plaintiff asserts that defendants' own submissions raise a triable issue of fact because the IME neurologist ostensibly diagnosed her with post-traumatic headaches and occipital neuralgia related to the incident, that assertion lacks merit since the IME neurologist specified that such assessment was based upon plaintiff's subjective complaints only, which is insufficient to raise a triable issue of fact. Additionally, defendants' submissions demonstrated that any post-traumatic concussive symptoms experienced by plaintiff following the incident, such as headaches, had not "in any way incapacitated [her] or interfered with [her] ability to work or engage in activities at home".
The burden thus shifted to plaintiff, who failed to submit objective proof of a permanent consequential injury. Contrary to plaintiff's contention, the Appellate
Division concluded that the affirmation of her treating neurologist, which consists of a recitation of the treatment he provided to plaintiff based on her subjective reports of headaches and related symptoms followed by a conclusory opinion that plaintiff sustained significant and consequential limitations, "is insufficient to raise an issue of fact because it fails to address the absence of objective findings on the . . . MRI scans, [and] relies upon subjective complaints of . . . headaches".
The Appellate Division also rejected plaintiff's contention on her appeal that the court erred in granting the motion with respect to the 90/180-day category. To recover under that category, a person must sustain "a medically determined injury or impairment of a non-permanent nature which prevents the injured person from performing substantially all of the material acts which constitute such person's usual and customary daily activities for not less than  days during the  days immediately following the occurrence of the injury or impairment" (Insurance Law § 5102 [d]). Thus, "[t]o qualify as a serious injury under the 90/180[-day] category, there must be objective evidence of a medically determined injury or impairment of a non-permanent nature . . . as well as evidence that plaintiff's activities were curtailed to a great extent".
Here, even assuming, arguendo, that the cervical MRI performed three months after the incident showing, inter alia, a disc herniation/protrusion at C4-5 and small posterior disc bulges mildly effacing the thecal sac at C6-7 constituted objective evidence of a medically determined injury or impairment of a non-permanent nature, defendants nonetheless met their initial burden by establishing that plaintiff's activities were not curtailed to a great extent during the applicable period. Plaintiff went to work after the incident, did not seek medical treatment for a week, and thereafter did not miss any time from work or school during the six months following the incident. The purported restrictions mentioned in defendants' moving papers and now relied upon by plaintiff on appeal do not raise a triable issue of fact regarding whether plaintiff was prevented from performing substantially all her daily activities. While plaintiff testified that she had a slight lifting restriction at her job at a pizzeria following the incident, she acknowledged that she did not submit any medical documentation to her employer for any restriction at work and, in any event, plaintiff maintained her full work schedule, and her claimed restriction of no longer being able to lift sauce buckets and cheese bins constitutes, at most, "some slight curtailment" of her daily activities, which is insufficient to raise a triable issue under the 90/180-day category). Additionally, "[a]lthough there was evidence that [plaintiff] could not [or was told not to] participate in some activities, such as gym class [, bowling,] and [softball], that is insufficient to [raise a triable issue of fact whether] she 'was unable to perform substantially all of the material acts that constituted her usual and customary daily activities' ".
The burden thus shifted to plaintiff, and the Appellate Division concluded that she failed to meet that burden since her treating neurologist's "conclusory recitation of statutory language was insufficient to raise a triable issue of fact".
Defendants contend on their cross appeal that the court erred in denying the motion, without explanation, insofar as it sought summary judgment dismissing the amended complaint with respect to the SLU category. The Appellate Division agreed.
With respect to plaintiff's alleged head and cognitive injuries, defendants met their initial burden on the SLU category for the same reasons discussed above regarding the PCLU category. Defendants submitted, inter alia, plaintiff's medical records and the reports of the IME neurologist and IME neuropsychologist, who opined that there was no objective medical evidence of serious injury related to plaintiff's subjective complaints of headaches and cognitive dysfunction. In particular, the IME neurologist concluded that there was no convincing evidence that plaintiff sustained a concussion and noted that the examination of plaintiff's clinical neuropsychologist revealed normal cognitive function, while the IME neuropsychologist likewise concluded that plaintiff had no causally related cognitive deficits due to the incident. Moreover, defendants' submissions established that, regardless, any post-incident limitations were insignificant within the meaning of the statute.
With respect to plaintiff's spinal complaints, defendants also met their initial burden. Specifically, defendants submitted the report of the IME neurologist who, after reviewing plaintiff's medical records and examining her, opined that plaintiff did not sustain any significant cervical injury because of the incident. The IME neurologist noted that, during her early medical appointments following the incident, plaintiff made no complaints of neck pain and her examination one week after the incident showed no pain or abnormalities related to the neck or cervical spine. The IME neurologist also noted that plaintiff was frequently found to have a normal objective cervical exam. With respect to the cervical MRI showing, in relevant part, a disc herniation/protrusion at C4-5 and small posterior disc bulges mildly effacing the thecal sac at C6-7, the IME neurologist opined that such abnormalities could not be attributed within a reasonable degree of medical certainty to the incident. In addition, defendants also submitted plaintiff's testimony in which she testified that she went to work immediately after the incident and that she continued with her daily activities after the incident.
Inasmuch as defendants met their initial burden of showing that plaintiff did not sustain a serious injury under the SLU category because of the incident, the burden shifted to plaintiff to raise a triable issue of fact. Plaintiff failed to meet that burden. The affirmation of plaintiff's treating neurologist, "which merely repeats plaintiff['s] subjective complaints . . . and consists of conclusory assertions tailored to meet the statutory requirements [,] . . . is insufficient to establish serious injury". Moreover, the records of plaintiff's orthopedist, who began seeing plaintiff over four years after the incident, are likewise insufficient to raise a triable issue of fact. While the orthopedist noted that plaintiff's cervical range of motion was limited in extension and rotation, "the records upon which plaintiff relies fail to 'recite the
tests used to ascertain the degree of plaintiff's loss of range of motion' ". Moreover, as defendants correctly contend, the orthopedist did not offer any opinion as to the cause of plaintiff's cervical spine complaints, i.e., he did not relate any range of motion loss to the incident.
Accordingly, the Appellate Court held that the order so appealed from is unanimously modified on the law by granting the motion in its entirety and dismissing the amended complaint against defendants Kenmore-Tonawanda Union Free School District and Anthony Ramunno, and as modified the order is affirmed without costs.
WILEWICZ’S WIDE WORLD of COVERAGE Agnes A. Wilewicz [email protected]
06/22/22 Tessa Knox, et al. v. Ironshore Indemnity Inc.
United States Court of Appeals, Second Circuit
Second Circuit Holds that Exclusion for Prior Acts and Related Wrongful Acts Precluded Coverage Where it was Clear and Unambiguous that the Actions at Issue began Before a Certain Date
In and around 2005, male sales employees of clothing retailer Varvatos (but not its female sales employees) were required to wear Varvatos clothing at work and were entitled to obtain $12,000 in Varvatos clothes annually (a taxable benefit). Varatos was insured at the time by Ironshore Indemnity. In 2015, Varvatos also began to offer its female sales employees a discount at a related store if they purchased clothing out of their personal funds (a non-taxable benefit). Based on these and other facts, when employees later sued the company, they were ultimately awarded a judgment of $2,862,407.41 and, because Varvatos filed for bankruptcy and only satisfied $193,145.53 of that judgment, on appeal they then sought the balance from Varvatos’s insurer, Ironshore.
On that appeal, Appellants maintained that the judgment was covered by Varvatos’s insurance policy with Ironshore and that Ironshore’s reservation of rights did not preclude coverage. In response, Ironshore argued that the policy’s exclusion of certain prior acts from coverage barred the claims.
At issue was the language of Varvatos’s insurance policy, which contained a “Prior Acts Exclusion.” This stated: “In consideration of the premium charged, it is hereby understood and agreed that the Insurer shall not be liable to make any payment for Loss in connection with any Claim for any Wrongful Act which occurred prior to April 30, 2012. Loss arising out of the same Wrongful Act or Related Wrongful Acts shall be deemed to arise from the first such Wrongful Act.” “Related Wrongful Acts,” in turn, were defined as: “Wrongful Acts which are the same, related or continuous, or Wrongful Acts which arise from a common nucleus of facts. Claims can allege Related Wrongful Acts regardless of whether
such Claims involve/ the same or different claimants, Insureds or legal causes of action.”
Under New York law, which the parties agreed governed the interpretation of the insurance policy, “[w]henever an insurer wishes to exclude certain coverage from its policy obligations, it must do so in clear and unmistakable language.” Indeed, New York courts will enforce a policy exclusion only where the exclusion “ha[s] a definite and precise meaning, unattended by danger of misconception . . . and concerning which there is no reasonable basis for a difference of opinion.”
Here, the lower court found that the Prior Acts Exclusion unambiguously excluded coverage for the underlying judgment against Varvatos because Varvatos instituted the discriminatory clothing allowance prior to April 30, 2012, and maintained it after that date. The same policy both before and after that date was plainly “the same, related or continuous,” under any reasonable interpretation of that phrase. Varvatos’s introduction of the discount offer to female employees in 2015 did not alter this conclusion because, as the parties acknowledged, nothing changed about the allowance provided to male employees and, as Appellants successfully argued in the district court, the discount offered to female employees was not comparable in value to the male clothing allowance. Ironshore had therefore met its burden to demonstrate that there is “no reasonable basis,” to conclude that that discount somehow transformed Varvatos’s discriminatory policy into something not “the same [as], related [to] or continuous [with],” or that did not “arise from a common nucleus of facts” with, the male clothing allowance on its own.
Accordingly, held the Second Circuit, the complaint failed to state a claim under § 3420 because the policy at issue excluded coverage for the judgment against Varvatos.
BARNAS on BAD FAITH Brian D. Barnas [email protected]
07/12/22 Brown v. Erie Insurance Company
Appellate Division, Fourth Department
Duty of Good Faith and Fair Dealing Claim Dismissed as Duplicative of Breach of Contract Without Leave to Amend
Plaintiff commenced an action against Erie seeking SUM benefits. The complaint contained a cause of action for breach of contract and alleged breach of the implied covenant of good faith and fair dealing. Erie moved to dismiss the allegation of breach of the implied covenant.
The Fourth Department reversed the trial court and granted Erie’s motion. The allegations in the plaintiff’s complaint that Erie violated its duty of good faith and fair dealing were predicated solely upon the claim that Erie failed or refused to
pay the full amount of SUM coverage under the policy. As such, the court concluded that the claim was duplicative of the breach of contract cause of action and granted the motion to dismiss.
The court also denied the plaintiff’s cross-motion for leave to amend the breach of the implied duty of good faith and fair dealing claim. The court found that the proposed amendment was palpably insufficient or devoid of merit. The gravamen of the amended complaint was that Erie, during arbitration, unreasonably delayed the adjudication of the plaintiff’s claim by failing to promptly provide a full copy of the policy until after the completion of an EUO and a request by defendant for medical examinations of the plaintiff, thereby causing the continuation of an arbitration.
The court rejected this claim, agreeing with Erie that it was not industry practice for the full policy to be produced in arbitration. The court also noted that the plaintiff would have been required to participate in an EUO and undergo a medical examination regardless of any delay in producing the policy or whether the claim was arbitrated or litigated. In addition, the record showed that Erie continued to investigate the claim while asserting its rights under the policy, and it was the plaintiff who had contemplated opting out of the arbitration not Erie. Thus, the plaintiff’s allegation that the termination of arbitration constituted bad faith was contradicted by her own conduct.
LEE’S CONNECTICUT CHRONICLES Lee S. Siegel [email protected]
07/08/22 Custer v. New London County Mut. Ins. Co. Superior Court of Connecticut (Hartford)
Negligent Breach of Insurance Contract Claim Allowed to Stand
Joyce and Dennis Custer sued New London County Mutual Insurance Company for denying coverage for their roof damage claim. The Custers claim that their West Granby property was damaged by hail and wind, but that New London “wrongfully and without excuse” denied their claim. In four counts, the Custers allege that New London negligently failed to properly investigate and adjust the loss, breach of contract by wrongfully failing, refusing or neglecting to perform its contractual obligations, breach of the implied covenant of good faith and fair dealing, and for unfair insurance/trade practices in violation of the Connecticut Unfair Insurance Practices Act (CUIPA), and unfair or deceptive practices that violate the Connecticut Unfair Trade Practices Act.
New London, for its part, denied the claims, asserting denials that the roof was beyond its useful life, and that any damage to the roof was caused by wear and tear and age. It also asserted that the claim is excluded because the roofing materials were twenty to twenty-five years old, and the design subjected them to
excessive deterioration and delamination from heat and humidity [Ed. Note: I didn’t know that this was an exclusion in the HO-3].
New London moved for summary judgment but only succeeded on the common law bad faith count. First, the court held that an insurance company can negligently breach an insurance contract. New London argued that the Custers’ negligence count was barred by the economic loss doctrine. But the insureds contended that the economic loss doctrine is inapplicable because they are not sophisticated commercial parties, and their claim does not involve a commercial loss. The court agreed with the plaintiffs. While the economic loss doctrine bars negligence claims for commercial loses arising out of the defective performance of contracts, including insurance contracts, negligence claims brought by individual policyholder plaintiffs against insurance companies are excepted because the plaintiffs are not sophisticated commercial parties.
The court found conflicting evidence on the cause of the loss, therefore, denying summary judgment on New London’s exclusions. The court also placed the burden of the CUTPA/CUIPA claim on the carrier and not the insured. Recall that, among other things, to establish a claim and insured must plead and then establish that the carrier’s conduct constituted a general business practice. However, the court put the onus on the carrier, finding that the initial burden was on New London to establish that it did not act with a general business practice in denying the storm claim. However, the court did strike the common law bad faith claim, finding that the plaintiffs did not adduce any evidence of bad faith, ill will or a sinister motive (placing the burden on the insureds, where it belongs).
KYLE'S CONSTRUCTION COLUMN Kyle A. Ruffner [email protected]
Colony Ins. Co. v. United Specialty Ins. Co.
07/014/2022 United States District Court for the Central District of California
Prior Damage Exclusion Relieves Insurer from Defending Insured Against Suit Arising from Construction Defect that Existed Prior to Policy Period The underlying action alleged defective construction and negligent workmanship against JMI and other contractors in the construction of the plaintiffs’ residential home. JMI tendered its defense of the Underlying Action to Colony, which agreed to defend under a reservation of rights. However, United declined to defend or indemnify the insured, citing the Prior Damage Exclusion. Colony initiated this action seeking a declaration that United owed a duty to defend JMI and contribute to the defense of JMI.
The United policies provided an exclusion for property damage arising out of any damage, defect, deficiency, inadequacy or dangerous condition which existed prior to the inception of the policy. The property damage under the policy was
deemed to exist as of the earliest date by which any damage occurred. The court asserted that insurance coverage is interpreted broadly to afford the greatest possible protection to the insured and ambiguities are generally construed against the insurer. Exceptions and exclusions must be phrased in clear and unmistakable language. While the insured has the burden to establish that claims fall within the scope of coverage, the insurer must demonstrate a claim is specifically excluded.
The Prior Damage Exclusion unambiguously precluded coverage for property damage arising from any defect, deficiency, inadequacy, or condition that existed prior to the policy period. The court held this is precisely what the Underlying Action alleged – that defective or deficient work by JMI, which could not have been done any later than February 2011, caused property damage. This clearly occurred before the policy incepted in 2018. Colony argued that there was a dispute of fact as to when the damage occurred, contending that the damage was caused by a defect that did not exist until 2018. However, a defect at that time could not have been caused by JMI, therefore, if that was the case JMI would not be liable at all since it would not have caused the damage.
The court held that Colony offered no theory in which the Underlying Action asserted a claim against JMI that would be covered by United’s policies. Therefore, United’s motion for summary judgment was granted and Colony’s motion was denied.
RYAN’S CAPITAL ROUNDUP Ryan P. Maxwell [email protected]
From the Filings Cabinet
7/13/22 Exclusion – Nuclear, Biological, Chemical, and Radioactive Hazards
Department of Financial Services
DFS Rejects Carrier Filing of Endorsement Excluding Coverage for Nuclear, Biological, Chemical, and Radioactive Hazards
Welcome to the return of our “From the Filings Cabinet” segment, where I outline why DFS found occasion to reject one or more recent policy form filings in the last couple weeks. So, without further ado...
An insurer was recently denied approval of a policy endorsement entitled “Exclusion – Nuclear, Biological, Chemical, and Radioactive Hazards.” In describing its intent behind seeking approval of the form, the carrier advised that
“This will be a new mandatory endorsement to be included on all property-related policies / coverage parts as listed at the top of the endorsement. The intent of the exclusion is to clarify that nuclear,
biological, chemical, and radioactive hazards were never meant to be covered by these insurance products. There is no rating impact.”
The proposed endorsement provided as follows:
A. Notwithstanding anything that may be interpreted to the contrary elsewhere in this policy, we will not pay for loss, damage, costs or expense caused directly or indirectly by any of the following. Such loss, damage, costs and expenses are excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.
1. Nuclear Hazard
Including but not limited to nuclear reaction, nuclear detonation (including electromagnetic pulse caused by nuclear detonation), nuclear radiation, radioactive contaminations and all agents, materials, products or substances, whether engineered or naturally occurring, involved therein or released thereby.
Including but not limited to any biological, viral, and/or poisonous or pathogenic agent, material, product or substance, whether engineered or naturally occurring, that induces or is capable of inducing physical distress, illness, or disease.
Including but not limited to any chemical agent, material, product or substance.
Including but not limited to any magnetic, electromagnetic, optical, solar, or ionizing radiation or energy, including all generators and emitters thereof, whether engineered or naturally occurring. For purposes of this exclusion, magnetic or electromagnetic radiation or energy includes, but is not limited to, the following:
a. Electrical charge produced or conducted by a magnetic or electromagnetic field;
Pulse of electromagnetic energy; or
Electromagnetic waves or microwaves.
B. The following exception to the exclusions in paragraph A. above applies:
If fire is a Covered Cause of Loss under this policy and a hazard excluded under paragraph A. results in fire, we will pay for loss or damage caused by that fire, subject to all applicable policy provisions
including any applicable Deductible and Limit of Insurance provisions. Coverage for fire provided under this exception applies only to direct physical loss or damage by fire to Covered Property under this policy.
In rejecting the filing, DFS summarily noted that:
“the Department has not approved any endorsements which could exclude acts which are not ‘certified acts of terrorism.’ In addition, the Department has not approved any exclusions for nuclear, biological, chemical, bio-chemical, radiological, or electromagnetic acts or weapons.”
DFS additionally advised that beyond the above reasons, its rejection of the filing may be warranted for other reasons not specifically indicated in its disposition.
Maxwell’s Minute: I can think of any number of valid reasons that an insurance company would like to clarify that there is no coverage under its policies for catastrophic loss associated with various, large-scale events likely to impact numerous policyholders simultaneously, whether such events qualify as covered losses in the first place. I am also generally aware, however, that it is currently difficult (if not impossible) to obtain approval of any “new” exclusion that would broadly encompass biological hazards (e.g., *cough* viral hazards) while COVID- 19 remains a thing. That’s still a thing, right?
RAUH’S RAMBLINGS Patricia A. Rauh [email protected]
No cases to report this week – see you in two weeks!
STORM’S SIU EXAMEN Scott D. Storm [email protected]
"Headed in the Wrong Direction"
07/12/2022 New York Insurance Association (NYIA), Your NY Connection,
Quarterly Magazine, Second Quarter 2022.
First-Party Property Standard of Proof for Lack of Cooperation.
In thisarticle,Idiscuss how thethird-party liability standard for proving an insured’s lack of cooperation (theThrasherStandard)does not apply when proving lack of cooperation in first-party property claims. Although the insurer is said to have a “heavy burden” to establish non-cooperation in third-party claims, it has repeatedly been held that the burden of proof is far less stringent for property insurers. New York courts and litigants have been increasingly misapplying the “Thrasher standard” to first-party property losses, gradually blurring the disparity between the two standards, resulting in a reduction of
dispositivemotionsinfavorofinsurers. Inthisarticle,weprovidepracticaladvice as to what the actual standard is for proving lack of cooperation in first-party property claims.
FLEMING’S FINEST Katherine A. Fleming [email protected]
07/06/2022 Vermont Mutual Insurance Company v. Poirier. Massachusetts Supreme Judicial Court
Attorney’s Fees Not Damages Because Of Bodily Injury and Not Costs Taxed Against Insured.
Paul and Jane Poirier operated a cleaning business, doing business as Servpro of Fitchburg-Leominster (Servpro). Vermont Mutual Insurance Company (Vermont Mutual) issued an insurance policy for the business. In June 1999, Douglas and Phyllis Maston hired Servpro to clean up a sewage spill in their basement. Servpro workers removed contaminated material, cleaned the basement, and applied disinfectants. Although they warned Phyllis to stay out of the basement while they applied the products, they did not warn her that being in the basement could be dangerous until the disinfectants dried. Phyllis continued cleaning the basement in the days following the application of the disinfectants. Shortly after, she developed ongoing respiratory problems, which her doctors determined was caused by exposure to chemicals that were used in Servpro's cleaning products.
The Mastons sued the Poiriers for breach of contract, negligence, and violations of G. L. c. 93A based on breaches of the warranty of merchantability and the warranty of fitness for a particular purpose. Shortly before trial, the Mastons waived their contract and negligence claims and proceeded to a bench trial on the c. 93A claims alone. The trial judge found that Servpro had committed an unfair or deceptive act by committing a breach of the implied warranty of merchantability although he did not find that it had acted knowingly or willfully and therefore did not award multiple damages. Based on Phyllis's injuries, he found damages for diminished earning capacity, medical expenses, and pain and suffering totaling $267,248.67, and loss of consortium damages for Douglas Maston totaling $5,000. Having established a violation of G. L. c. 93A, § 2, the judge also imposed liability for costs and attorney's fees. Applying the lodestar method, the judge found that the Mastons were entitled to $215,328.00 in fees and $15,447.61 in costs. The Appeals Court affirmed both the substantive findings and the award of attorney's fees and costs and imposed further appellate attorney's fees of $21,600 and appellate costs of $1,970,35. See Maston v. Poirier, 81 Mass. App. Ct. 1131 (2012).
In July 2012, Vermont Mutual paid the Mastons $696,669.48, which represented all the Poiriers' liability in the underlying action except for attorney's fees and
interest thereon. Vermont Mutual sought a declaration that the policy did not cover attorney’s fees in the underlying judgment.
The policy included a "Businessowners Liability Coverage Form," which if Vermont Mutual would "pay those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury,' 'property damage,' 'personal injury' or 'advertising injury' to which this insurance applies." The policy also provided: "No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under Coverage Extension -- Supplementary Payments." The Supplementary Payments provision itself states: "In addition to the Limit of Insurance we will pay, with respect to any claim we investigate or settle, or any 'suit' against an insured we defend," certain expenses related to the claim or suit covered by the policy. Among these expenses are "[a]ll costs taxed against the insured in the 'suit.'"
General Laws c. 93A, § 2, outlaws "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce." Section 9 provides a private right of action for any person "injured" by a violation of § 2. Attorney's fees expended to pursue a c. 93A claim reflect the cost of suing to recover the c. 93A relief requested. While damages compensate for injury, awards of attorney’s fees serve to deter misconduct and recognize the public benefit of bringing the misconduct to light.
There was no dispute that the attorney’s fees were sums the Poiriers became legally obligated to pay, and there was no dispute that attorney’s fees are not bodily injury. The disagreement was whether the insureds were liable for the attorney’s fees “as damages because of” Phyllis’s bodily injury. Since damages and attorney’s fees are conceptually different, and the policy only provided for the recovery of damages, the attorney’s fees awarded pursuant to G. L. c. 93A were not recoverable as damages under the policy. The SJC also concluded that the attorney’s fees were not covered by the "Coverage Extension -- Supplementary Payments" provision, which included "[a]ll costs taxed against the insured in the 'suit.'" The word 'costs,' as applied to proceedings in court, ordinarily means only legal or taxable costs, and does not include attorneys' fees.
NORTH of the BORDER Heather A. Sanderson [email protected]
07/07/2022 Evelyn Martens v. Manitoba Public Insurance Corp. 2022 CanLII 58766 (SCC)
Supreme Court of Canada
Crown corporations administering no-fault auto benefits in Canada do not administer social welfare schemes; rather, they are insurance schemes. Those corporations are therefore held to the same standard of good faith as any other insurer.
On July 7, 2022, the Supreme Court of Canada denied leave to appeal the December 14, 2021 decision of the Manitoba Court of Appeal in Evelyn Martens v. Manitoba Public Insurance Corporation. That is the end of the road for Evelyn Martens’ 24-year odyssey against the Manitoba Public Insurance Corporation (MPI) – the last third of which was consumed by a bad faith lawsuit against MPI. According to the trial judge, it all began on December 4, 1998, in a raging Manitoba blizzard. Evelyn Martens was a front seat passenger in a vehicle that was T-boned in a major Winnipeg intersection. The crash left her with a shattered hip, broken femur, and fractured ribs. She was temporarily paralyzed from the waist down and spent almost a year in hospital. However, Evelyn’s mental injury was the most severe and disabling of her injuries – she experienced severe PTSD which would overcome her in waves.
At the time of the crash, Evelyn was a resident of Manitoba and a passenger in an uninsured vehicle. Any financial recovery she could achieve for her injuries was limited to Autopac – the common name for Manitoba’s no-fault regime that has been in place since March 1, 1994.1
MPI is the Crown-owned company that administers Autopac. The benefits available under Autopac and the bureaucracy to distribute those benefits is set out in exquisite detail in The Manitoba Public Insurance Corporation Act, C.C.S.M. c. P215 and its regulations. Under Autopac, those injured in motor vehicle collisions apply for scheduled benefits for all aspects of their claim which is paid by MPI, regardless of who is at fault for the collision.2 Those who are employed by MPI are statutorily immune from liability for their decisions and actions if they
are carried out in good faith.
Evelyn argued in this action that MPI denied the benefits to which she was entitled
by reason of bad faith on the part of those very administrators.
According to the trial judge – Evelyn’s claim was a typical claim through to 2003. MPI was extending benefits to pay for therapy and income replacement in view of Evelyn’s total disability. Around that time, a treating physician issued a report stating that Evelyn could try to return to some level of work. Evelyn did just that and told her case worker that she was working. The case worker did not report this to her superiors, nor did she properly log that information in Evelyn’s file.
A tipster called the MPI fraud hotline and reported that Evelyn was working and still collecting benefits. MPI did a cursory review, then contacted the RCMP who
The fact that the vehicle was uninsured was irrelevant – Evelyn Martens could only
claim financial compensation under Autopac as she was a Manitoba resident injured in a
collision in Manitoba. 2
An accident victim who is resident in Manitoba at the time of the accident, and any
dependent of the victim, is entitled to compensation if the accident occurs in Canada or the
United States. Where a vehicle registered in Manitoba is involved in a collision in Manitoba the
owner, driver, and all passengers, are deemed to be residents of Manitoba.
referred the matter to the Crown for prosecution. Evelyn was charged with fraud under the Criminal Code and. Evelyn was acquitted following a trial.
MPI did not fully accept that acquittal and benefits did not resume following the acquittal. The superior to the case worker asked in an email to the case worker if there was any ‘wiggle room’ in the decision to acquit and if there was a ‘plausible plan’ to continue to deny.
For the next several years, Evelyn argued, MPI looked for that ‘wiggle room’. Counsel for MPI later told the bad faith trial court, that this was not MPI’s finest hour.
In 2012, with the help of counsel, Evelyn reached a settlement of her benefits owed since the fraud charge laid and was paid $348,248.27. Thereafter, she launched this bad faith suit.
The Supreme Court of Canada said in Fidler v. Sun Life Assurance Company of Canada that the duty of good faith also requires an insurer to deal with its insured’s claim fairly. The duty to act fairly applies both to the way the insurer investigates and assesses the claim and to the decision whether to pay the claim. In deciding whether to refuse payment of a claim from its insured, an insurer must assess the merits of the claim in a balanced and reasonable manner. It must not deny coverage or delay payment to take advantage of the insured’s economic vulnerability or to gain bargaining leverage in negotiating a settlement. A decision by an insurer to refuse payment should be based upon a reasonable interpretation of its obligations under the policy. This duty of fairness, however, does not require that an insurer necessarily be correct in deciding to dispute its obligation to pay a claim. Mere denial of a claim that ultimately succeeds is not an act of bad faith.
What constitutes bad faith will depend on the circumstances in each case. A court considering whether the duty has been breached will look at the conduct of the insurer throughout the claims process to determine whether considering the circumstances, as they then existed, the insurer acted fairly and promptly in responding to the claim. In other words, lawyers will continue to be challenged to predict the outcome in a case where bad faith and/or fraud is in play with very little assistance from case law.
The trial judge in the bad faith lawsuit found that MPI had acted in bad faith and awarded Evelyn a close equivalent of her benefit settlement in punitive and exemplary damages - nearly $350,000 in punitive and mental distress damages. The trial judge wrote, "This amount is the only manner the court has to deter MPI from treating another claimant in the manner it treated Evelyn for not living up to its legislative mandate,"
MPI appealed to the Manitoba Court of Appeal stating that MPI is not an insurer; it is not held to the same good faith standard as an insurer; that it administers a
social welfare programme; that its decisions are those of an administrative board and its only subject to a review for correctness; that even if it is subject to a standard of good faith, that standard was not breached; that for all of these reasons, the award of damages against it should be reversed.
The Court of Appeal reversed the trial judge and vacated the award, but not for the reasons advocated by MPI.
Firstly, the Court of Appeal held that MPI administers insurance and not a social welfare programme. MPI must administer Autopac according to a high standard of commercial morality equivalent to good faith.
The Court of Appeal then determined that the trial record was sufficiently extensive that a new trial was not required. That Court then dived into the 95-page trial judgment and the documentary record to determine if the trial judge erred in finding bad faith. That court found several factual errors and on that basis the Court of Appeal could not sustain the finding of bad faith.
The Court of Appeal was then free to determine if there are ancillary grounds for a bad faith finding. After a lengthy review of the evidence, the Court of Appel held:
... we are unable to conclude that MPI breached its duty to act in good faith. In other words, we are not persuaded that there was no reasonable basis in law or fact to deny the plaintiff benefits and that MPI knew or ought tohaveknownthattobethecase. Norareweconvincedthatthehandling of the claim was “overwhelmingly inadequate” ...
Mistakes were made but, in our view, the trial judge’s finding of bad faith was based on his theory that all MPI’s actions were in furtherance of ...[the]... desire to seek “wiggle room” and a “plausible plan” to unfairly deny the plaintiff’s benefits. MPI’s employees reviewed the plaintiff’s file over a number of years and madedecisionsaccordingly. Asfoundbythetrialjudge,thesewere“goodpeople trying to do their best” (at para 201). ...[a critical decision]... was a “close call” and the retroactive payment provided to the plaintiff was more than she was arguably entitled to, as it did not deduct the income she earned in 2000-2002.
On that basis, the trial award was vacated. However, as a saving grace to Evelyn, no costs were awarded against her, as there was mixed success on the appeal.
Evelyn asked the Supreme Court of Canada to grant leave to hear an appeal to overturn the decision of the Manitoba Court of Appeal. That court declined to do so. That means that the finding of the Manitoba Court of Appeal that MPI administers insurance and is subject to the liabilities of an insurer stands. In addition to having direct bearing on the no-fault insurance schemes of Quebec, Saskatchewan and now, British Columbia, one must believe that this decision will
have bearing on the operation of captive insurers and reciprocals in Canada who also administer what must be described as insurance.
Dear Coverage Pointers Subscribers:
Do you have a situation? We do love situations.
I am on my way to Seattle for the Annual Meeting of the Federation of Defense & Corporate Counsel. Expect great educational programming, wonderful fellowship and success in the most important event ever scheduled in FDCC history, the great paella “iron chef” cook off. As advertised in the brochure (raising money for our charitable foundation):
This is the event we have all been waiting for. The FDCC Cooks is taking it to a new level. We are having an iron chef style Paella Cook Off. Join us while Past President Dan Kohane and Sean Griffin and their sous chefs go head-to-head in bringing you the best paella they can put together. There will be heavy appetizers and cocktails and plenty of laughs and trash talking before our esteemed panel of judges crown the winner. Here’s one of my recent offerings
Stay tuned for results.
Just returned from the Annual Symposium sponsored by the National Foundation for Judicial Excellence. Tremendous program, entitled “State Courts at the Forefront – Law at the Time of Change.” The NFJE is a wonderful industry, corporate and defense counsel funded program designed to educate state court appellate judges on cutting issues of interest to the defense community. The NFJE deserves the support of every insurance company, corporation and defense lawyer looking for a balanced judiciary to support the rule of law. www.nfje.net
You will a couple of cases in my column where a win was turned into a loss by parties who failed to authenticate documents properly when submitting motions to the court. Be forewarned. Read these cases and don’t make the same mistakes.
Expert Witness and Mediation Services:
If you are looking for an expert witness or a mediator to help resolve coverage or risk transfer issues, feel free to reach out. For insurers battling with each other over coverage issues and justifiable concerned about developing precedent that may work against them in their next case, mediation is an excellent alternative.
Need a mediator?
Hey coverage lawyers and claims professionals. Have you and a friend, adversary, or lawyer for whom who have respect reached a stalemate on a coverage dispute? Look, we know each other. We know that. We don’t want to litigate every coverage disagreement. Why? Because the position we oppose today may be the one we advocate tomorrow. Face it. We all understand that.
Let me help mediate your disagreement to see if there is some mutual agreement, we can reach that will not box us into a corner. Reach to me. I will be pleased to mediate your dispute.
My partners, Mike Perley and Ann Evanko, are also available to help resolve other challenges.
You don’t want adverse precedent that will bite you next time you might have a slightly different view on coverage issues. You don’t want to spend tens of thousands of dollars to litigate a coverage issue before a motion judge or appellate justice that know as much about insurance coverage as you do about nuclear physics. For those in the Western District of New York, I am certified by the Court and on the WDNY Mediation Panel as are Mike and Ann
My good friend, Jean Lawler, a wonderful mediator from Los Angeles, and I, recently published a piece on how good mediators prepare for the process.
Training, Training and More Training:
Schedule your in-house training for 2022. Need a topic? Here are 160 or so coverage topics from which to choose.
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:
- Employment & Business Pointers aims to provide our clients and subscribers with timely information and practical, business-oriented solutions to the latest employment and general business law developments. Contact Joseph S. Brown [email protected] to subscribe.
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 Brian F. Mark 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 Chris Potenza at [email protected] to subscribe.
Peiper on Property and Potpourri:
We start this week by recognizing the growing celebrity of our own Brian Webb. As reported in this week’s Serious Injury Column, Brian successfully shepherded his argument through the appellate process where he achieved the rarest of unicorns. In the Tully decision, Mr. Webb obtained a reversal of the trial court, and resultingly a complete dismissal on plaintiff’s claim for failure to present even a question of fact on the issue of threshold.
The reality is that over the last twelve months, Brian has won several Serious Injury motions both at the trial court and appellate court levels. Indeed, I am confident that Brian has had more success in the last calendar year than some (most?) have over the course of their career. As the saying goes, once is a fluke, twice is a coincidence, three times is a trend.
Give him a call the next time you’re looking for auto defense counsel, you’ll be glad you did.
Although we’re reluctant to break up the good vibes, we do wish to offer our thoughts on the Appellate Division’s decision in Brown v. Erie Ins. Co. reviewed in Brian Barnas’ column this week. While the Court, it seems, reached the correct result in rejecting plaintiff’s attempts to manufacture a bad faith claim, we are mildly frustrated with the court’s logic.
The Brown case comes from the SUM arena. That, by its nature, is a first party case. Thus, we would submit it is covered by first party case law governing the concept of first party bad faith. The standard for first party bad faith is entirely different than the standard for third party bad faith.
Here, the court, rightly, references the bellwether cases of NYU and Rocanova, but as its decision progresses it regrettably introduces the concept of a “gross disregard of the insured’s interests- that is, a deliberate or reckless failure to place on equal footing the interests of the insured with the insurer’s own interests.” That is the Pavia standard for third party bad faith claims, and it has no application in a first party bad faith dispute.
Think about a first party claim. By its nature, the insured and the insurer are at odds over the resolution of the claim. The insured has an incentive to maximize his, her, or its recovery. The insurance company, on the other hand, has an incentive to pay only what is actually owed by the black letter terms of the policy. There is tension between the two, and, as such, NY law (as well as courts from around the country) recognize the lack of mutual interest. Third party claims, however, have the insurer and the insured united in minimizing their damage to the insured. Under those circumstances, when aligned in interest (i.e., defeating the claimant), the insurer has an obligation to consider the interests of its insured.
No such duty exists in a first party insurance dispute. While a carrier must, as an insurer, surely act with honesty and integrity in conducting a claim evaluation it is not obligated to consider how its decision would impact the insured in the same manner as it is in the third party context.
If you’re handling a case where bad faith is involved, think about the duties and the interests of the parties. Is it first party, or is it a third party claim? You must first answer this threshold question, before you can move on to the next step of developing the strategy for the case. Failure to diagnose the interests, and thus the appropriate standard, leads to confusion, inconsistent decisions, and unhappy clients.
That’s it for now. See you in two weeks.
P.S. - All the best to our Editor in his blood feud paella cookoff. We’ll be eager to hear the results.
Steven E. Peiper
Comp Coverage No Longer Issued to Architects – 100 Years Ago:
The Brooklyn Daily Eagle
Brooklyn, New York
22 July 1922
NO LONGER ISSUED
Amended Workmen’s Compensation
Law Requires Insurance
Certificate from Building
Contractor Before Work Starts
According to the requirements of an amendment to the Workingmen’s Compensation Law which went into effect July 1, 1922, building permits will no longer be issued to architects, as has been the custom in the past.
Heretofore, when an architect filed plans for the construction of a new building or alteration of an old one, a permit was issued to him upon the approval of the plans filed. Now he files the plans as before, but is notified of the approval only, then the contractor or person duly authorized to do the work files a certificate showing he has insurance under the Workmen’s Compensation Law. Upon the filing of this certificate a permit to begin work is issued.
Should there be a number of contractors on the work, each and every one is required to file a certificate separately, unless the general contractor holds insurance to cover all sub-contractors.
Wilewicz’ Wide-World of Coverage:
Busy few weeks here, as not only are courts continuing to ramp up activities, but at my house we are undergoing a transformation. We are spending the summer repainting nearly every room in the house and remodeling generally, changing things around and moving/rearranging rooms. It was long overdue and the work in progress has been quite a change indeed. Hopefully, we can have everything finished before the Fall gets here again, but for the time being we are on track.
Now, this week in the Wide World of Coverage, we bring you a quickie from our own Second Circuit. In Knox v. Ironshore Indemnity, the Court addressed a policy’s “prior acts exclusion” in tandem with the definition of “related wrongful acts.” In its holding, the Court wrote that because the language of the policy was clear and unambiguous, the decision was simple and indeed it is a very short read. Take a look at the attached summary, with link to the Court’s page on the decision.
Until next time, stay cool!
Agnes A. Wilewicz
Dummy Drivers– 100 Years Ago:
Olean, New York
22 July 1922
WOMAN DRIVER PROSTRATED
AFTER RUNNING OVER DUMMY
PLACED IN ROAD BY BOYS
BUFFALO, N. Y., July 22—After the Tonawanda police received from half dozen flustered motorists last night reports that they had run down pedestrians on the Niagara River Road, a motorcycle policeman was sent out to investigate. He found three boys placing a “dummy” in the roadway and preparing to repeat the prank. They were arrested and will be given a hearing today. One woman driver was prostrated when told by the boys that “the man ran over by her machine was dead.” She was taken to a hospital.
Barnas on Bad Faith:
I have an interesting decision in more ways than one from the Fourth Department on a SUM bad faith claim in my column today. Steve’s note above has some commentary on this issue as well that I certainly agree with. I’ll choose to focus my commentary on the third full paragraph of the Memorandum Opinion and the issues I have with it.
The court starts that paragraph with the following sentence: “In the context of insurance contracts specifically, the implied covenant of good faith and fair dealing includes a duty on the part of the insurer to investigate in good faith and pay covered claims” with a citation to Bi-Economy. The next sentence states that “breach of that duty can result in recoverable consequential damages, which may exceed the limits of the policy. That is a fair enough recitation of the holding of Bi-Economy. After that is where the court starts to lose me. The next sentence is a citation to the Pavia standard for bad faith: a gross disregard of the insured’s interests – that is, a deliberate or reckless failure to place on equal footing the interests of the insured with the insurer’s own interests.
What we see here is a mixing of standards that is all too common in New York good faith and fair dealing case law. Consequential damages are contract damages. They are damages within the contemplation of the parties as a probable result of the breach at the time of or prior to contacting. According to the court, these are available based upon a breach of an insurer’s good faith duty to investigate and pay covered claims. This sounds like an obligation under a first party policy. However, the court is using the Pavia standard to determine if consequential damages are available to the insured. Pavia is the standard for third party bad faith claims, which are undoubtedly tort claims related to the insurer’s obligation to defend and resolve claims against the insured rather than its obligation to pay the insured. If the court is considering whether the insurer breached a duty to investigate and pay covered claims to the insured, it should be using the more strenuous standard for first party bad faith articulated in New York University and Rocanova as opposed to the Pavia standard. Pavia is particularly inapplicable in a SUM claim such as this one where the insured’s interests are not aligned with the insured’s interests.
Ultimately, I think the court gets this one right, concluding that the good faith and fair dealing claim was duplicative of the breach of contract claim and denying the insured’s application for leave to renew. However, I would respectfully submit that the way the court got there was through a misapplication of New York bad faith law that is becoming all too common.
If you agree, or particularly if you have a different take, drop me a note with your thoughts.
Stay Cool and see you in two weeks.
Brian D. Barnas
Babying the Bottle– 100 Years Ago:
Buffalo Morning Express and Illustrated Buffalo Express
Buffalo, New York
22 July 1922
BOTTLE BUT NO BABY
David wheeled perambulator
and liquor, police claim.
New York, July 21. —David Ferber wheeled his baby carriage down Fourth Street today and had so many men looking under the top to see what it contained that the police got suspicious. They looked in, took David to the police station, and there told the lieutenant that while Ferber had a carriage and a bottle, he had no baby.
He was selling liquor out of the bottle at 50 cents a lick, they declared, so he was taken to court and held on $1,000 bail for the grand jury on a charge of violating the prohibition law.
Kyle's Construction Column:
Since the NBA and NHL playoffs ended about a month ago, I’ve been on a bit of a furlough from obsessively watching sports almost every night. While I did my best to distract myself with other hobbies - running, reading, watching Netflix etc. didn’t get the job done and I couldn’t possibly resist tuning in to the British Open and MLB Allstar festivities this week. Both were invigorating – especially the Home Run Derby. Apparently, I’m so old that I had no idea they changed the format from the ten out max to a three-minute time limit for unlimited swings. I know I’m late to the party here (time limit started in 2015!?) but I very much endorse the change. Big improvement. Speaking of baseball, I look forward to taking the field this week for a big softball tilt against Rupp.
The case this week involves a dispute between insurers regarding whether a second insurer of a mutual insured owed a duty to contribute to the defense the insured.
Until next time,
Kyle A. Ruffner
Night Owl Fight Club– 100 Years Ago:
The Buffalo Times
Buffalo, New York
22 July 1922
WESTFIELD, July 22. —Westfield’s police force, Officer L. J. Starkweather, was arrested last night for breaking the peace on the charge of beating his wife. The first time he beat her he was arraigned before Judge Newbury, and it cost him $10. Upon his release thinking perhaps that the sport was inexpensive he was home and repeated the beating.
About this time his son appeared and turned the tables and beat the guardian out of peace. Once more he was placed in the clutches of the law and was placed under the observation of Dr. Foster and Dr. Stuart. Disposition has not yet been made.
Starkweather has said that the reason there was so much disobedience to the law in the daytime was because he slept during the day. His wife has withdrawn all charges against him.
Hi Coverage Pointers Subscribers:
Time is flying by, leaving us with only a few more weeks of firm softball. This week, we face a formidable opponent, so Team HF will be either in tears or living large by the time you read this. In other news, I have been debating whether the new Persuasion film, playing fast and loose with Jane Austen’s Persuasion, is so bad it’s good. While definitely not the next Clueless (as if!), based loosely on Austen’s Emma, it gave us some laughs in addition to the cringes.
This week’s case comes from the Massachusetts Supreme Judicial Court. The SJC considered whether "sums that the insured becomes legally obligated to pay as damages because of 'bodily injury’" included liability for attorney’s fees under G. L. c. 93A, § 9 (4), in an action for breach of warranty resulting in bodily injury.
Catch you later,
Katherine A. Fleming
Expensive 7th Inning Stretch– 100 Years Ago:
The New York Times
New York, New York
22 July 1922
PENNANT RACES SETTLED
Revenue Officer in St. Louis Appoints
Force for World’s Series
ST. LOUIS, July 21. —Optimistic that the world series will be played here, Percy Alexander, chief of the field forces of the local Internal Revenue office, today appointed two deputies to “take charge of the Government’s interests in the series.” Alexander expressed confidence that either the Browns or Cardinals, perhaps both, would come out on top.
Ryan’s Capital Roundup:
Hello Loyal Coverage Pointers Subscribers:
We are the proud new owners of a NordicTrack treadmill and boy does it change the game for working parents. Have thirty minutes the spare? How about a trek to Mt. Everest basecamp? It’s unreal. Here is to be hoping that I continue making time in my days for even a short hike uphill…both ways.
Today’s column is a bit different. Given the time of year, the Albany insurance beat is tough. But “From the Filings Cabinet” returns with a quick blurb about a recent DFS form filing rejection regarding a proposed exclusion for nuclear, biological, chemical, and radioactive hazards. Spoiler alert: DFS’ rejection is as simple as if it had said “not today, just because.” But is it that simple?
Until next time,
Ryan P. Maxwell
Lying Will Turn Your Tongue Black– 100 Years Ago:
The Owensboro Messenger
22 July 1922
Value of Lie-Detecting
Machine Court Issue
Washington, July 21. —The Supreme Court of the United States will get an opportunity to rule on the value of the sphygmomanometer, or the lie-detecting machine.
Chief Justice McCoy, of the District Supreme Court, today refused to admit as evidence the lie-detecting machine in a murder case. He said to be used as evidence such an instrument would have to have universal use, such as is had by the telegraph or telephone. That the machine may be recognized eventually he admitted but added it hardly would be during his life.
The case is that of James A. Frye, a negro, charged with the murder of another negro. Frye confessed, but later insisted that his confession was the result of a deal with the real murderers, who promised him a great reward in money and that they would then obtain his release. He has not obtained neither his release nor the money, he testified, and therefore he retracted his confession. The sphygmomanometer showed that Frye’s story, admitted being very questionable, was true nevertheless, that is, if the lie-detecting machine is worthwhile. Frye’s attorneys said they wished to take the case to the Supreme Court after first going to the court of appeals.
Dishing Out Serious Injury Threshold:
I hope everyone is having a great summer so far. We have been having great weather downstate and I have been able to spend some quality time with friends and family on the water.
The case selected for this issue was a decision was a decision obtained by our own Anastasia McCarthy and Brian Webb in the 4th Department. Here, defendants were able to establish that plaintiff did not meet the necessary Significant Limitation of Use threshold and plaintiff failed to raise a triable issue of fact.
Michael J. Dischley
Women Take Arms– 100 Years Ago:
Buffalo Evening News
Buffalo, New York
22 July 1922
WOMAN ATTACHE TO
U. S. EMBASSY ON WAY
SAN FRANCISCO, July 22. —The first woman attaché every assigned to an American embassy in the Orient, Maud Miles of Erie, Pa., cleared the Golden Gate today when the Pacific mail liner President Lincoln left for the Far East. Miss Miles’ appointment to the Tokyo embassy came in recognition of her efficiency when she was secretary to the advisory committee at the Washington conference on limitation or armaments.
Lee’s Connecticut Chronicles:
Dear Nutmeg Newsies:
I’m not only an insurance coverage lawyer, I’m also a client (I may be really dating myself with this reference). Last Friday we trekked down the Bronx to take in the Yankees/Red Sox game. While the game turned out to be an extra inning thriller, the real excitement was when our car was delivered by the parking attendant with the front end scratched and dinged. The car seemingly lost a battle with a concrete barrier. Kudos to Nationwide for making the claim process easy. Now, it’s a waiting game for the replacement parts. The body shop said that many customers are waiting two to three months for repairs. Luckily, it’s only cosmetic damage. Well, that's the news from Connecticut, where all the women are strong, all the men are good-looking, and all the children are above average.
Stay cool (it’s hot out there) and keep keeping safe.
Lee S. Siegel
Mental capacity went up in smoke– 100 Years Ago:
22 July 1922
NO DIVORCE FOR
DR. AND MRS. LEE
(Special to The Courant)
New London, July 21.
Mrs. Adelene Palmer Lee of this city is denied a divorce from Dr. Harry M. Lee, surgeon at the Lawrence Hospital here, by decree of Judge James H. Webb filed in the superior court today. The judge finds her complaints of “intolerable cruelty” based on “mere words which came to arguments and disputes.” Counter charges to the effect that Mrs. Lee was mentally incapacitated through excessive cigarette smoking Judge Webb finds unfounded, although the testimony that she smoked cigarettes was offered during the sensational trial. No disposition is made of the 7-year-old child, Adelene.
It is another hot and sunny day in Buffalo and although I am not complaining about the heat, I am certainly thankful I have air conditioning! I think I will spend this evening outside with my son so he can swim in his little pool and play on his new splash pad, while I try to water the flowers, I have neglected for almost a week and hope they come back to life.
I have no notable life insurance cases to report on this week, but I will hopefully have something for you next time. I hope you all have a great rest of the week and stay cool!
Until next time,
Patricia A. Rauh
Bathing Suit Walk Continues– 100 Years Ago:
The Standard Union
Brooklyn, New York
22 July 1922
ROCKAWAY BATHERS WIN
IN COURT TEST CASE
The right of residents of the Rockaways to continue their old custom of walking to and from the beach and their homes without covering their bathing costumes was upheld in the case of Dr. and Mrs. Charles Goldberg, 340 Beach Seventieth Street, Rockaway Beach, yesterday before Magistrate Doyle in Far Rockaway court.
Storm’s SIU Examen:
Instead of case summaries this edition, I am excited to share with you my article "Headed in the Wrong Direction" featured on the front page and published in the Second Quarter 2022 issue of the New York Insurance Association’s (NYIA) quarterly magazine Your NY Connection. To read this edition of NYIA's Your NY Connection, click here. To read the full article, click here.
In this article I analyze the burden of proof for 1st-party property lack of cooperation coverage defenses. The courts and litigants have often incorrectly been citing to the 3rd-party liability "Thrasher standard", which is different and more onerous than the 1st-party property standard. This article considers the differences between the two standards and clarifies what the correct burden of proof is for 1st-party property claims. Courts are already inclined to rule against insurance companies as the deep pocket. 1st-party property insurers shouldn't make it even more difficult on themselves in litigation by citing to the wrong burden of proof when denying coverage for a claim due to the insured's failure to cooperate.
Check back next edition for more cases in the usual format.
Say “hello” to the newest member of the Storm household, Henry the terror (3 lbs., 6 oz., 11 weeks). Having kids in college and high school I forgot how much energy puppies, like toddlers, have. Keeping us busy…
Scott D. Storm
Fines Raising More than Altitude – 100 Years Ago:
Buffalo Evening News
Buffalo, New York
22 July 1922
Flying Cops Will
Enforce Sky Law
NEW YORK, July 22. —Flying cops with orders to arrest violators of air highway regulations in full flight, were on the job here today. Use force, if necessary, orders to the aerial traffic police read. If planes over New York City fly below the sky limit, a member of the flying finest will take the air after the malefactor and drive him down for summons.
North of the Border:
As I write this, I’m getting ready to drive from Calgary to Seattle to attend the FDCC Annual Meeting. Extremely excited for the conversation and fellowship with great friends and the top-notch CLE that always causes me to look at the same old through different lenses. I will be speaking on the ability of virtual law firms like mine to expand their operations beyond borders and compete with brick-and-mortar international law firm in this post-Covid world.
My column this week is about the end of an exceedingly long bad faith odyssey for a Manitoba plaintiff and what it may mean for captives and reciprocals operating in Canada.
Heather A. Sanderson
Dating Debacle – 100 Years Ago:
Montreal, Quebec, Canada
22 July 1922
Two Montreal Men Arrested
Toronto, July 21. —Two neatly dressed young men from Montreal who, it is alleged by the police, placed bogus matrimonial advertisements in the personal columns of the press for the promotion of a get-rich-quick game, were arrested this afternoon on charges of fraud. The men held by the police are William Hunt and John D. Mahoney. They were captured while sitting in the rest room of the Y. M. C. A., opening their mail. The police charged both men with placing the following advertisement in daily papers: “Nice young gentleman would like to meet young lady or widow of means: object matrimony if both suited.”
One young woman who answered the advertisement told the police that one of the young men obtained $500 and a diamond ring from her on a promise to arrange a marriage, and a statement that he was heir to considerable estate.
Headlines from this week’s issue, attached:
KOHANE’S COVERAGE CORNER
Dan D. Kohane
- Determination on Framed Issue Hearing Upheld. Hit-and-Run Vehicle Identified So No UM Coverage.
- Failure to Produce Instructive Written Underwriting Guidelines Defeats Claim for Rescission Based on Misrepresentations
- Section 3420(d)(2) Does Not Apply to Require Prompt Disclaimer if Vehicle or Driver are Not Within Grant of Coverage
- Failure to Submit Certified Policy Dooms Application to Stay SUM Arbitration
PEIPER on PROPERTY (and POTPOURRI)
Steven E. Peiper
- Shut out this week. See you in two.
DISHING OUT SERIOUS INJURY THRESHOLD
Michael J. Dischley
- Plaintiff Failed to Raise a Triable Issue of Fact in Opposition to Defendant Motion.
WILEWICZ’S WIDE WORLD of COVERAGE
Agnes A. Wilewicz
- Second Circuit Holds that Exclusion for Prior Acts and Related Wrongful Acts Precluded Coverage Where it was Clear and Unambiguous that the Actions at Issue began Before a Certain Date
BARNAS on BAD FAITH
Brian D. Barnas
- Duty of Good Faith and Fair Dealing Claim Dismissed as Duplicative of Breach of Contract Without Leave to Amend
LEE’S CONNECTICUT CHRONICLES
Lee S. Siegel
- Negligent Breach of Insurance Contract Claim Allowed to Stand
KYLE'S CONSTRUCTION COLUMN
Kyle A. Ruffner
- Prior Damage Exclusion Relieves Insurer from Defending Insured Against Suit Arising from Construction Defect that Existed Prior to Policy Period
RYAN’S CAPITAL ROUNDUP
Ryan P. Maxwell
- DFS Rejects Carrier Filing of Endorsement Excluding Coverage for Nuclear, Biological, Chemical, and Radioactive Hazards
Patricia A. Rauh
- No cases to report this week – see you in two weeks!
STORM’S SIU EXAMEN
Scott D. Storm
- "Headed in the Wrong Direction"
- First-Party Property Standard of Proof for Lack of Cooperation Coverage Defenses.
- First-Party Property Standard of Proof for Lack of Cooperation.
Katherine A. Fleming
- Attorney’s Fees Not Damages Because Of Bodily Injury and Not Costs Taxed Against Insured.
NORTH of the BORDER
Heather A. Sanderson
- Crown corporations administering no-fault auto benefits in Canada do not administer social welfare schemes; rather, they are insurance schemes. Those corporations are therefore held to the same standard of good faith as any other insurer.