Source: https://www.hurwitzfine.com/news/coverage-pointers-volume-xv-no-25-1
Timestamp: 2019-07-21 08:47:54
Document Index: 292006796

Matched Legal Cases: ['§5102', '§5102', '§5102', '§3216', '§5102', '§342', '§240', '§240']

Coverage Pointers - Volume XV, No. 25 | Hurwitz & Fine, P.C.
Coverage Pointers - Volume XV, No. 25
You will excuse the change in organizational protocol in this cover letter. This issue coincides with an auspicious moment in world history, the 70th Anniversary of D-Day. We want to reflect on that day.This letter will not include the usual continuing education reminders and even the Hundred Years Ago stories. My colleagues will pass on their usual cover notes or include them in their columns. Our issue is attached as always. I’m including the “highlights,” usually at the bottom of this letter, in a separate attachment.
06/04/14 Viehl v. Doran Group
A Motion to Withdraw as Counsel is a Poor Vehicle to Test a Disclaimer
My good friends at the Traub Lieberman firm were retained by American Guarantee to defend Didio in a fraud action commenced in August 2008. In November 2011, American Guarantee decided that it would no longer pay defense costs and disclaimed liability.
The law firm then requested of Didio that she personally pay for defense costs and she refused; Traub Lieberman then moved withdraw as counsel. That motion was denied in January 23, 2012. Approximately five months later, Traub Lieberman made a second motion to withdraw as counsel. The new motion judge treated the application as a motion to renew and found that since there was no new evidence presented, the motion would again be denied. The Second Department affirmed.
Since the Court of Appeals decision in Brothers v. Burt in 1970, courts have repeatedly told insurers that they cannot simply stop paying their attorneys but must commence a DJ action to sanction they defense counsel’s withdrawal, once a defense has been undertaken.
Traub Lieberman’s remedy is against American Guarantee.
06/04/14 State Farm Insurance Co. v. Walker-Pinckney
Owner Did Not Rebut Strong Presumption of Permission when He Could Not Explain How Wife’s Set of Keys Ended Up In Ignition
Walker-Pinckney (“”claimant”), insured by State Farm, sustained injuries when the vehicle that she was operating was involved in a collision with a vehicle owned Woodley and insured by Metropolitan. The driver of the Woodley car is unknown. Metropolitan denied liability coverage on the ground that, at the time of the accident, Woodley's vehicle was being operated by an unknown driver without Woodley's express or implied permission.
Walker-Pinckney sought to arbitrate a claim under her State Farm policy, which included an endorsement for supplementary uninsured/underinsured motorist benefits. State Farm then commenced this proceeding, under Article 75, seeking to stay arbitration on the ground that the Woodley vehicle was not uninsured because it was being operated by someone with Woodley’s permission.
Vehicle & Traffic Law Section 388 creates a strong presumption of permission and the mere statement of an owner that the car was being operated without permission does not overcome the presumption. Here, the sole witness at the framed issue hearing to testify in connection with the issue of permissive use was Woodley, the owner of the vehicle. Woodley's testimony established that, at some point, he noticed that the vehicle was "missing," that he reported this to police, and that, less than two days later, he ascertained that the vehicle had been towed to an impoundment lot. When Woodley recovered the vehicle, he saw that it had been seriously damaged, and this was the first time he learned that it had been in accident. Woodley testified that he did not know who was driving the vehicle at the time of the accident, and that he did not give anyone permission to drive the vehicle at that time.
However, Woodley further testified that both he and his wife had a set of keys to the vehicle, and that she was the last one to park the vehicle before Woodley noticed that it was "missing." Moreover, when Woodley recovered the vehicle from the impoundment lot, a set of keys were inside the vehicle. The framed issue hearing concluded without any testimony or other evidence as to the identity of driver of the vehicle at the time of the accident. Furthermore, no evidence was presented with respect to whether Woodley's wife was using or operating the vehicle at the time of the accident, or whether she had given a third party permission to use the vehicle at that time.
Contrary to the determination of the hearing court, under these circumstances, the evidence adduced at the hearing was not sufficient to overcome the presumption of permissive use.
Editor’s Note: Once every couple of months or so, I have this opportunity to remind you of the Article 75 proceeding, properly and timely used by State Farm in this proceeding. State Farm took the position that its uninsured motorists coverage was not applicable because the other car, the Woodley vehicle, was not stolen (and therefore the Metropolitan policy covered the car). The ONLY way it could raise that issue was by commencing a special proceeding, in court, within 20 days of the filing of the demand for arbitration. Had it not done so, it would have waived its right to make that legal argument.
05/29/14 Sirius XM Radio Inc. v, XL Specialty Ins. Co.
Interrelated Wrongful Acts Provisions Unclear
The court found that the subject policy issued by XL is ambiguous with respect to whether its requirement of notice with respect to "any" claim pertains to claims that are related under the provisions for "Interrelated Wrongful Acts." Even assuming that Sirius did have to notify XL of every interrelated claim as soon as practicable, the documentary evidence fails to resolve all factual issues as a matter of law.
XL contended that the documentary evidence demonstrated that Sirius plaintiff knew about the three actions at issue in March, April, and May 2011, and yet did not provide notice to XL until a January 2012 email. The "Prior Notice" exclusion in the U.S. Specialty Insurance Company (“USS”) policy, which provided primary coverage for these actions, provided that USS could deny coverage if plaintiff notified any of its prior insurance companies.
XL's argument that plaintiff did not ask for consent to incur defense expenses fails if the claims are found to be interrelated and treated as a single claim under the policy.
In view of the foregoing issues, Sirius’ contention that XL's disclaimer was untimely cannot be decided at this juncture.
Editor’s Note: For those who want more detail, the underlying court decision is reported as well and these are Directors & Officers Claims. There should be no issues relating to untimely disclaimer as the statute that requires prompt disclaimer, Insurance Law Section 3420(d)(2), applies only to bodily injury and wrongful death claims.
05/29/14 2445 Creston Avenue, LLC v. Gold Star Gift Shop
Since Contractual Indemnity and “Failure to Procure Insurance” Claims are Already Pending in Personal Injury Action Via Cross-Claims, They Cannot and Should Not Be Asserted in Separate DJ Action
In the underlying personal injury action, landlord 2445 and tenant Gold Star were both named as defendants. 2445 asserted cross claims against Gold Star for common law and contractual indemnification. 2445 then commenced this declaratory judgment action, against Gold Star and Leading Insurance, Gold Star's insurer, for indemnification and breach of agreement to procure insurance.
Gold Star moved to dismiss the action against it and the court agreed, finding that the issues in this action were substantially similar to those asserted in the underlying personal injury action and should be resolved there. The action against the insurer, which is different, will continue.
05/29/14 AXA Equitable Life Insurance Company v. Malen
Too Late for DB Carrier to Claim Fraud
In a telephone interview in December 2008 the details of his 20 year medical history that were not disclosed in his application. Thus, as of December 2008, or, at the latest, January 2009, when he reiterated this information in the "Claimant's Statement" received by DMS, plaintiff had knowledge of the facts from which defendant's alleged fraud on his insurance application form could reasonably be inferred.
An action for rescission is based on fraud, must be brought either within six years from the commission of the fraud, or within two years from the discovery of the fraud or from when the fraud could have been discovered with reasonable Therefore the commencement of this action for rescission of the policy in June 1, 2011 was untimely by at least five months.
0/5/28/14 Lehneis v. Neill
Agent Walks from Claim that It Should Have Provided Umbrella Policy; No Duty Existed
On July 7, 2004, the plaintiff's wife was in a motor vehicle accident that gave rise to a personal injury action against the plaintiff, which resulted in an $800,000 settlement paid by the plaintiff. At the time of the accident, the plaintiff had automobile liability insurance coverage of $100,000 per claimant.
The plaintiff commenced this action against her insurance agency that worked with her from 1985 to 2007. It was claimed that the agency was negligent in failing to secure an umbrella policy as requested or advise her that he could have secured that coverage from a different broker.
The plaintiff alleged, inter alia, that the defendants negligently, and in breach of contract, failed to attempt to secure umbrella insurance on his behalf, which he had requested, or to inform him that he could have acquired umbrella insurance from a different broker.
Here, the agency submitted evidence that they informed the plaintiff that they could not provide him with the umbrella insurance policy that he requested and there was no other special relationship that would have led the insured to a different expectation.
Absent a specific request for coverage not already in a client's policy or the existence of a special relationship with the client, an insurance agent or broker has no continuing duty to advise, guide, or direct a client to obtain additional coverage. A special relationship may exist where “there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied on.
05/28/14 Ragins v. Hospitals Insurance Company, Inc.
Excess Carrier Must Pay Post Judgment Interest
Ragins sued the Hospitals Insurance Company (“HIC”), an insurer that issued him an Excess Professional Liability Policy. The plaintiff claimed that HIC breached the excess policy by failing to indemnify him for costs and the remaining amount of unpaid interest arising out of a judgment entered against him in an underlying action.
In a previous appeal, this court had agreed with the defendant that they were only responsible for prejudgment interest on that portion of the underlying judgment which they were obligated to pay under the excess policy, and that the excess policy conclusively established that the defendants had no obligation to pay post-judgment interest or costs.
However, the Court of Appeals reversed that Court's decision and order, concluding that, under the plain language of the primary and excess policies, the "payment [by the Superintendent of the Insurance of the State of New York]; of the primary policy's $1,000,000 liability limit triggered [the defendants']; duty to pay all remaining amounts in connection with the judgment, including interest". We reported on that decision in our 12/20/13 issue.
The Appellate Division found that there were no further issues to decide and sent the matter back to the lower court to determine the amount of interest due from the excess carrier.
05/28/14 Santoro v. GEICO
Failure to Pay SUM Limits May be a Breach of Contract, but Does Not Give Rise to a Claim for Attorneys’ Fees as Consequential Damages
Santoro was hurt in a two-car accident. The insurer of the owner of the other vehicle tendered the policy limit of $25,000 in settlement of the plaintiff's claim. The plaintiff had automobile insurance with the defendant, which included $300,000 in "Supplementary Uninsured/Underinsured Motorist" (hereinafter SUM) coverage. She made a claim for the full policy limit of the SUM coverage, or $275,000 after subtracting the amount received in settlement. GEICO offered the plaintiff $75,000, and refused her demand for payment of the policy limit.
Santoro then commenced this action alleging, inter alia, that the defendant breached the insurance contract by refusing payment of the full policy limit.
The lower court properly adhered to its original determination denying those branches of the defendant's motion claimed a breach of contract. GEICO’s submissions on its motion failed to establish the absence of triable issues of fact as to whether it breached the insurance contract by refusing payment of the full policy limit.
However, the lower court should have granted GEICO’s application to limit the plaintiff's alleged damages to the policy limit of $275,000. While "consequential damages resulting from a breach of the covenant of good faith and fair dealing may be asserted in an insurance contract context, so long as the damages were within the contemplation of the parties as the probable result of a breach at the time of or prior to contracting the only consequential damages asserted by the plaintiff are an attorney's fee and costs and disbursements resulting from this affirmative litigation, which are not recoverable.
Editor’s Note: While the court was correct in limiting the damages to the $275,000, we suggest that the failure to pay the full amount of the claim is not a breach of contract and cannot be. An insurer should have the right to have its day in court to determine the value of an underinsurance claim. The SUM policy provides for that right.
We have a light load this issue with the New York appellate courts issuing a mere four (4) opinions regarding the serious injury threshold of Insurance Law §5102(d). I look forward to visiting our friends at RLI in Atlanta later this month to present on all things "serious injury". As always, if anyone has any questions, or would like to schedule a presentation, I would be happy to spend some time discussing New York State Serious Injury Threshold Law. Enjoy the weather, wear a life jacket and be sure to watch out for motorcycles. Until next time.
05/27/14 Long v. Taida Orchids, Inc.
Defendants' Failure to Object to Inadmissible Medical Report Leads to Modification of Order
Defendants brought a motion for summary judgment to dismiss Plaintiff's lawsuit on the basis that Plaintiff did not sustain a serious injury as a result of the subject matter motor vehicle accident as defined by Insurance Law §5102(d). Defendants provided an expert's report reflecting that Plaintiff's range of motion testing was normal and revealing that Plaintiff had no functional disability. As such, Defendants met their initial burden of establishing that Plaintiff did not sustain a serious injury.
In opposition, the First Department found that Plaintiff did raise a material issue of fact regarding alleged injuries to Plaintiff's cervical spine. Plaintiff submitted the affirmed report of an orthopedist which stated Plaintiff was suffering from cervical radiculopathy and limitations in range of motion, as well as the affirmed report of Plaintiff's radiologist who noted two (2) herniations and mild degenerative changes. Plaintiff also submitted the affirmed report of a chiropractor who found significant, continuing limitations in range of motion over two (2) years of treatment, and opined that Plaintiff's cervical herniations were traumatic in origin and caused by the accident. The lower court initially rejected the chiropractor's report because of the absence of notarization. However, the First Department found that since Defendants did not raise any object to the form of the chiropractor's report based on the absence of notarization, Defendants have waived the technical objection to the admissibility of the report. Further, the First Department points out that courts may consider inadmissible evidence insofar as it is not the sole basis for a plaintiff's opposition to a summary judgment motion. The originally inadmissible chiropractor's report, coupled with the affirmed report of Plaintiff's orthopedist, both demonstrate range of motion limitations which are not "minor" as a matter of law. As such, the First Department found Plaintiff raised a material issue of fact regarding injuries allegedly suffered to Plaintiff's cervical spine and modified the lower court's order.
05/28/14 Abreu v. Metropolitan Transportation Authority
Since Plaintiff Demonstrated Material Issues of Fact in Opposition to Defendants' Summary Judgment Motion, the Lower Court's Order was Upheld
Defendants moved for summary judgment to dismiss Plaintiffs' Complaint. Defendants met their initial prima facie burden showing that Plaintiffs did not sustain serious injuries within the meaning of Insurance Law §5102(d) as a result of the subject matter motor vehicle accident. However, in opposition, Plaintiffs raised triable issues of fact as to whether the alleged injuries constituted serious injuries under the permanent consequential limitation of use and significant limitation of use categories of New York State Insurance Law. Plaintiffs submitted affirmed medical report to rebut Defendants, and, as such, the Second Department affirmed the lower court's denial of Defendants' motion for summary judgment.
06/04/14 Dai Mang Kim v. Hwak Yung Kim
Trial Court's Order Dismissing Plaintiff's Personal Injury Lawsuit Pursuant to C.P.L.R. §3216 Affirmed Due to Counsel's Failure to Submit Medical Evidence Demonstrating a "Serious Injury"
The lower court dismissed Plaintiff's personal injury lawsuit after Plaintiff's counsel failed to comply with the court directive to file a note of issue within ninety (90) days. Plaintiff's counsel moved to vacate the dismissal of the action, which required counsel to demonstrate a justifiable excuse for his failure to comply with the certification order and demonstrate the existence of potentially meritorious cause of action. The Second Department found the Supreme Court properly exercised its discretion in declining to excuse the default based on uncorroborated claims of law office failure proffered by Plaintiff's attorney. Further, the lower court also noted that Plaintiff failed to submit any medical evidence demonstrating that he sustained a serious injury within the meaning of Insurance Law §5102(d) as a result of the subject matter motor vehicle accident, and, as such, could not demonstrate a potentially meritorious cause of action.
06/05/14 Donoso v. Motor Vehicle Accident Indemnity Corporation
Jury Verdict Unanimously Reversed Due to Lack of Doctor's Testimony at Trial
Plaintiff claimed to have suffered permanent consequential and significant limitations of her lumbar spine as a result of a motor vehicle accident. At trial, she testified that she was knocked over by a vehicle and thereafter suffered back pain for which she received physical therapy, injections and eventually, some four (4) years later, underwent surgery.
At trial, Plaintiff did not call any treating physician or medical expert to testify. At the close of evidence, Defendants moved for directive verdict arguing that Plaintiff cannot prove causation without a doctor's testimony. The First Department found Plaintiff presented no evidence of a causal connection between the motor vehicle accident and Plaintiff's lumbar condition. Plaintiff's medical records do not contain an opinion regarding a causal connection, and one (1) of Plaintiff's treating physicians, in the medical records, stated Plaintiff was suffering from "degenerative disc disease of the lumbar spine". The First Department reversed the jury verdict, concluding that Defendant was correct that Plaintiff cannot prove causation without a doctor's testimony, and because there was no rational process by which the fact trier could base a finding in favor of Plaintiff.
05/21/14 Elite Medical Supply of NY, LLC v Allstate Insurance Co.
Peer Review That References a Similar, But Distinct, Device Is Insufficient
Applicant argued that Allstate was barred from denying the claim because its denial was issued more than 30 days after the claim was received. The Arbitrator disagreed noting that, although the bill was received on May 23 and the denial was dated December 4, Allstate had requested verification which was not received until November 26. Neither party explained or justified the long delay between the request and the receipt, resulting in the Arbitrator stating that he would not penalize the insurer absent evidence that the insurer was solely responsible for the delay.
However, on the merits, the Arbitrator awarded in Applicant’s favor as the peer review discussed a TENS unit but made no mention of the multimode stimulator, the item actually prescribed and dispensed. The peer review was also equivocal as it did not state that the three devices prescribed were not reasonable or medically necessary. The Arbitrator found that the rebuttal letter to the peer review detailed the reasons for prescribing the devices and differentiated between the devices in question and other similar but not identical devices, warranting the award.
05/21/14 Elite Medical Supply of NY, LLC v GEICO
Take Note: Peer Reviewers Need to Update Their Authoritative Citations
We have commented on this before so this is just one more case where a peer reviewer relies on authority, in this case 20 years old, to support his position that the prescribed lumbar orthosis was contraindicated because the goal of chiropractic is to restore mobility. Whether or not that may be the case is not the issue at this point. The prescribing chiropractor issued a rebuttal to the peer review in which he cited more recent articles supporting the contrary position.
Although the Arbitrator agreed that the peer review did a better job in documenting the EIP’s minimal findings, he also noted that the peer review failed to state that the prescription of the device in dispute was inconsistent with good and accepted practice and procedure (the magic language). However, the Arbitrator did comment, as he has on other occasions, that the prescription of an expensive, custom-fitted LSO, rather than a generic LSO brace, could be questioned by the carrier when there is conflicting evidence as to whether an in-office trial was performed. Arbitrator Benziger again noted that the No-Fault regulations “balance both the goal of full compensation and cost containment which was also among the Legislature’s objectives.”
See also, AAA Case No. 412013132741, rendered on the same date, where Arbitrator Benziger again commented on a prescription issued one day after the initial consultation, supposedly after a favorable in-office trial, where the alleged trial was not documented in any progress notes. In this case he denied reimbursement as he found the peer review to be persuasive and the rebuttal to lack credibility.
Note: The arbitrators in this Western New York area are all familiar with the standardized prescription forms provided by some providers of DME to the prescribing medical providers. Pre-printed on the forms is language to the effect that an in-office trial of the equipment has proved effective. When the prescription is issued during the initial consultation, this naturally raises questions – or it should.
05/21/14 Greater Rochester Orthopedics, PC v St. Paul Travelers Ins.
Exacerbated Pre-Existing Conditions Are Still Covered Under No-Fault
It is no secret that the aggravation or exacerbation of a pre-existing condition as a result of a motor vehicle accident is covered under no-fault. In this case, the accident occurred in February 2012 and an IME was performed in March 2013. In his report, the IME Doctor stated that the EIP’s “knee complaints show that she has significant degenerative arthritic changes which pre-existed the motor vehicle accident therefore, I fell that the accident may have exacerbated her chronic pre-existing condition of her knees.” A MRI revealed both medial and lateral meniscal tears in the right knee and surgery was performed. The records were clear that prior to the accident there had never been right knee pain or any treatment but that immediately after the accident the EIP had complaints to her knees, and that she continued to report issues with her knees.
Base on the IME, Respondent denied follow-up orthopedic care including the surgery. In an IME addendum following the surgery the expert stated that the tears were “degenerative” but he did not qualify his prior statement regarding exacerbation. The Arbitrator reasoned that while the IME expert found the surgery unnecessary due to pre-existing conditions, he also found exacerbation of the pre-existing conditions. The Arbitrator further noted that the expert ignored any palliative benefits to the treatment rendered as the surgery apparently relieved the pain. Given that prior to the accident the EIP was not receiving any treatment to the knees, the Arbitrator awarded in Applicant’s favor, determining that the treatment rendered was reasonable and necessary.
05/20/14 Kaleida Health v Progressive Casualty Insurance Co.
Denial Based on Lack of Casual Relationship Upheld
In June 2013, while attempting to evade the police, the 27 year-old EIP was injured when the vehicle in which he was a front-seat passenger sideswiped a tree and then hit a large rock. At the hospital, a head CT was normal and he was diagnosed as intoxicated and with a superficial laceration on the left forearm. Two months later, he was airlifted from Lockport Hospital to Buffalo General with complaints of lethargy and decreased loss of consciousness. Per reports, he had had two bottles of Patron and fallen some five feet off a balcony, hitting his head. A few days later he died.
In October a peer review was performed to review the treatment rendered at Buffalo General. The peer reviewer concluded the treatment was not causally related to the motor vehicle accident but rather neurological and metabolic problems commencing with the fall while intoxicated. Respondent denied and the Arbitrator upheld the denial finding the peer review persuasive. The EIP abused alcohol and the August fall which lead to his death was not related to any trauma caused by the June accident.
05/28/14 New York Univ. Hospital-Tisch Institute v GEICO
Just a Reminder: Absent Written Request, Insurers Are Not Required to Provide Copy of Peer Review
Plaintiffs sought to recover no-fault benefits and moved for summary judgment on their first cause of action asserting that defendant’s peer review report was “fatally defective” because it did not satisfy the affirmation requirement of CPLR 2106. As a result, and absent any other medical evidence, plaintiffs argued that defendant failed to raise a triable issue of fact on opposition to the motion. The trial court denied the motion, plaintiffs moved to reargue and, upon reargument, the court granted their motion. Defendant appealed and the court reversed, holding that the 30 days to pay or denied was tolled by defendant’s proper verification requests and that defendant’s denial, 29 days after the receipt of the final verification, was timely. As such, defendant raised a triable issue of fact as to whether it denied plaintiffs’ claim within the 30-day period and was not required to set forth a medical rationale in its denial or, absent written request, furnish a copy of the peer review report.
05/06/14 Allstate Ins. Co. v MD David Mun and Nara Rehab Medical, PC
Do Medical Providers Have a Right to Compel Arbitration of Fraud Claims?
Defendants appealed from an order of the US District Court for the Eastern District of New York which denied their motion to compel arbitration. On appeal, the Court of Appeals for the Second Circuit affirmed, holding that, under New York law, a medical provider cannot elect to arbitrate a lawsuit brought by an insurer to recover payments for allegedly fraudulent no-fault claims.
Defendants billed Allstate approximately $500,000 for electrodiagnostic testing allegedly performed between October 2007 and October 2011 on various EIPs. Allstate, being required to pay or deny within 30 days, relied on defendants’ documentation and timely reimbursed the claims. In August 2012, Allstate commenced an action based on theories of common law fraud, unjust enrichment and RICO, against defendants alleging that they fraudulently billed Allstate for testing that was fabricated or of no diagnostic value. Defendants then moved to compel Allstate to arbitrate pursuant to the Federal Arbitration Act (FAA), the New York Insurance Law, and the arbitration provision in the Allstate policies.
In April 2013, defendants’ motion was denied citing the consensus view in the Eastern District Court that medical providers have a right to arbitrate as-yet unpaid claims, but not claims that were timely paid. Defendants appealed. In its decision affirming the District Court, the Court of Appeals for the Second Circuit provides a detailed review of New York Insurance Law 5106 and the FAA in their analysis as to whether Allstate’s policies, which implement the requirements imposed by New York law, grant the defendants the right to arbitrate the fraud claims. Although the arbitration provision in the Allstate policies allows arbitration if the claimant and Allstate “do not agree regarding any matter relating to the claim,” the Court noted that an arbitrable dispute is one between the insurer and a “person making a claim for first-party benefits.” Defendants already made their claims and were timely paid. Therefore, Allstate’s lawsuit was not a dispute involving a person “making” a claim for first-party benefits and, as such, the arbitration provision does not apply.
Moreover, Section 5106 provides the right to arbitrate only to a “claimant” in a “dispute involving the insurer’s liability to pay first party benefits.” At the time they submitted their claims for payment, defendants were “claimants.” However, when Allstate now seeks to recover for losses caused by defendants’ alleged fraud, defendants are no longer “claimants” and they are not involved in a “dispute involving the insurer’s liability to pay first party benefits.” To the contrary, this dispute involved the medical provider’s liability to the insurer. Thus, Section 5106’s arbitration right applies only to disputes arising from the insurer’s non-payment during the initial 30-day pay or denies period, and not to suits brought later by an insurer to recover for fraud.
The Court further reasoned that no-fault arbitration is an expedited process where discovery is limited or non-existent. In contrast, complex fraud and RICO claims may take years after claimants were reimbursed to discover and cannot be “shoehorned into this system.” To allow providers to elect arbitration would additionally undercut New York’s anti-fraud measures which require insurers to file plans “for the detection, investigation and prevention of fraudulent insurance activities.” To implement these plans, it is necessary for coordination within the insurance company with other units to recover fraudulent payments. The 30-day process does not constrain an insurer from later seeking recovery for fraud, but the right to demand arbitration exists only within the 30-day period for processing claims process. As such, defendants did not have the right to elect arbitration of Allstate’s fraud claims.
Note: Not often do we see no-fault in the federal courts and our thanks go to our colleague, Katherine Fijal, for bringing this excellent and instructive read to our attention [Docket No. 13-1424-cv].
05/29/14 KLMNI, Inc. v 483 Broadway Realty Corp.
Lease Agreement Did Not Prohibit Indemnity for Own Negligence Where Risk was Managed Through Insurance
Broadway Realty incurred fees and expenses in defense of an Americans with Disabilities Act claim. Broadway Realty was named in the ADA suit as a landlord of premises that was leased to the plaintiff. As part of the instant action, Broadway Realty counter-claimed seeking recovery of attorneys’ fees and disbursements under the indemnity provision of the lease.
The lease agreement in question required plaintiff to pay, as extra rent, all attorneys’ fees and disbursements incurred due to “any other appearance…as a witness or otherwise in any action or proceeding.” Plaintiff argued that the clause “any other appearance” only meant it owed indemnification when the Broadway Realty was engaged in a proceeding as a non-party. In denying the claim, the Court interpreted the phrase to apply to any appearance; whether non-party or not.
Moreover, the Court also noted the lease indemnity provision would likewise apply. The broadly worded clause applied to losses occasioned solely out of the acts and/or omissions of Broadway Realty. Because the parties to the agreement required that plaintiff obtain coverage for the Broadway Realty, it followed that the parties intended to manage the risk through insurance. Thus, any argument that Broadway Realty could not be indemnified for its own negligence was misplaced.
05/28/14 Sanabria v Borges
Control of Work Hours, Lack of Fringe Benefits Establish Independent Contractor Status
Plaintiff sustained injury when he was struck by a car operated by defendant Borges. At the time of the incident, Borges was in the course of a delivery for Big City. Big City, it follows, was named as a defendant due to its alleged status as Borges’ employer.
Big City moved to dismiss the claims against it on the basis that Borges was, in fact, an independent contractor. In finding for Big City, the Court noted that Borges maintained his own insurance, made his own hours, was free to engage in supplemental employment, was not on Big City’s payroll and received no fringe benefits from Big City. Further, although not dispositive, the fact that the agreement between Borges and Big City identified Borges as an independent contractor amounted to further evidence of the arrangement between the parties.
05/22/14 Campos v 68 E. 86th Street Owners Corp.
Strict Construction of a Contractual Indemnity Provision Prohibits Owners’ Claim
Campos sustained injury when he fell from a ladder while in the course of his employment with Primacy. Defendant Owners Corp. was the owner of the premises where plaintiff fell, and third-party defendant Rosen was a shareholder in Owners Corp. Rosen, it appears, retained Primacy to perform painting work at an apartment at the premises.
Rosen, who was apparently not negligent, moved to dismiss Owners Corp.’s claim for contractual indemnification, and the instant appeal ensued. The provision at issue provided that Rosen would indemnify Owners Corp. where an injury was caused due to the acts or omissions of Rosen or anyone else “dwelling at or visiting” the premises. Owners Corp argued that at the time of the incident plaintiff was “visiting” the premises, and therefore the indemnity clause was triggered. In denying Owners Corp.’s claim, the Appellate Division noted that a person employed by a contractor, and in the scope of their work, was not a “visitor” as that term was intended to be interpreted. Moreover, to the extent the term “visitor” was unclear, any such ambiguity would be construed against Owners Corp. as the drafter of the agreement.
A discussion of cases interpreting policy language certainly pales in comparison to Dan’s moving piece. However, this week I discuss a case decided by the Supreme Court of Nevada who found that neither a pollution exclusion nor an indoor air quality exclusion precluded coverage for claims arising from carbon monoxide exposure. You will recall that in our last issue, I discussed a case where Century succeeded in an action pending in the Western District of Oklahoma in demonstrating that the indoor air exclusion precluded coverage for bodily injury allegedly due to carbon monoxide poisoning. (Siloam Springs Hotel LLC v. Century Surety Co.).
I have reported in the past on decisions addressing the discoverability of social media, such as Facebook, by defendants against plaintiffs in bodily injury and other litigation. I bring to you today a case from the District Court in North Dakota, where, while directing the plaintiff to attempt to reactivate a closed Facebook account, the court imposed restrictions on the information to be produced from that account.
05/29/14 Century Surety Company v. Casino West, Inc.
Carbon Monoxide Claim Not Excluded
Century issued a commercial general liability policy to Casino West, Inc. Four people died from Carbon Monoxide poisoning while sleeping in a room directly above a pool heater at the Casino West Motel, Century’s insured. After tender by the insured, Century denied coverage, citing the absolute pollution exclusion and the indoor air quality exclusion. Century thereafter commenced a declaratory judgment action seeking the court’s declaration that neither defense nor indemnity were owed. Casino West counterclaimed alleging breach of contract, bad faith and insurance unfair trade practices.
On motions for summary judgment, the Federal District Court denied Century’s motion, determining that the policy exclusions were ambiguous and therefore interpreting same in Casino West’s favor. Century sought review in the Ninth Circuit Court of Appeals, which certified the questions to the Nevada Supreme Court. The court discussed general principles regarding policy interpretation and considered the absolute pollution exclusion in the Casino West insurance policy, which included a building heater exception for bodily injury sustained within a building caused by smoke, fumes, vapor or soot from equipment used to heat that building. Casino West argued that the absolute pollution exclusion only applied to traditional environmental pollution, while Century contended that carbon monoxide is a pollutant under the policy’s terms and that the exception for building heater caused harm demonstrated the breadth of the exclusion.
The court found that the exclusion permitted multiple reasonable interpretations and considered the exclusion’s drafting history which, according to the court, supported the conclusion that the exclusion was designed to apply only to outdoor environmental pollution. Century contended the indoor air quality exclusion was unambiguous, while Casino West argued that the exclusion should be limited to preclude only injuries arising from inherent and continuous air quality issues.
Like the pollution exclusion, the court found the indoor air exclusion ambiguous and, therefore, found that the exclusion did not preclude coverage for the carbon monoxide claims.
5/29/14 Soo Line Railroad Co. v. Admiral Ins. Co., et al
Mailing Notices of Claim and Commencing a Declaratory Judgment Action the Same Date, Without Any Indication of an Insurance Dispute, Does Not Render a Case Ripe for Declaratory Judgment.
The central issue in this case was whether the insured’s, Soo Line Railroad Company (“Soo Line”), declaratory judgment action was ripe for judicial determination. In 2011, the EPA sent Soo Line a letter informing it that the EPA considered Soo Line a potentially responsible party under the Federal Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). Thereafter, Soo Line mailed notices of claims to its insurers. Soo Line’s notices indicated that it was seeking insurance coverage under certain liability insurance policies issued to Soo Line. Soo Line also requested that the insurers indemnify Soo Line for all costs, including defense costs incurred, in responding to the EPA letter. The notice also indicated that Soo Line was seeking coverage for all sums that Soo Line may incur by reason of liability arising from property damage, bodily injury, or personal injury at a lakeshore site in Ashland.
The same date the notices were mailed to the insurers and before they could be received and reviewed by the insurers, Soo Line filed a declaratory judgment action. The Summons and Complaint were not served upon the insurers until after they received the notice of claim. Some insurers filed a declaratory judgment action in Minnesota State Court which was stayed in favor of this action.
Multiple insurers moved for summary judgment in the instant action arguing that the undisputed facts established that this action was not ripe for judicial determination at the time Soo Line filed it and therefore no justiciable controversy was presented. The insurers argued that at the time the declaratory judgment action was filed by Soo Line, there was not a potential dispute over coverage. The Circuit Court granted the summary judgment motion dismissing the action without prejudice.
The Circuit Court reasoned that even though Soo Line provided the insurers with notices and mailed same before filing the Summons and Complaint, the insurers had no opportunity to respond to Soo Line’s notice before the action was filed. Therefore they had no knowledge of the notice and no opportunity to take an adverse position as to insurance coverage.
On appeal, the Court addressed the issue of ripeness by reviewing the Wisconsin Declaratory Judgment Act, which is the act under which the declaratory judgment action was filed. The Court reasoned that a party seeking declaratory relief under the Wisconsin statute does not have to suffer an actual injury or threatened wrong before seeking relief under the Act. However, that party is required to have facts sufficiently developed to allow a conclusive adjudication. Thus, the facts upon which the Court is asked to make a judgment should not be contingent or uncertain. Turning to whether the facts are contingent or uncertain, the Court reasoned that the facts must indicate imminent and inevitable litigation. Thus, in the case of a declaratory judgment action, the facts must be such that the Court would not be issuing a declaratory judgment which ultimately would be a mere advisory opinion.
Here, the Court concluded that this action was not ripe for adjudication because Soo Line filed a declaratory judgment action before there was even a potential for a ripe action. Soo Line, at a minimum, must show that there were potential insurance coverage issues and could not do so. Likewise, the fact that Soo Line placed in the mail a notice of claim to the insurers did not make this case ripe for adjudication. There was nothing that would indicate that mailing a notice of claim would result in any potential insurance coverage issue under the various insurance policies. Thus, based upon rationale a bit different from the Circuit Court, the Court affirmed the Circuit’s Decision granting the insurers’ summary judgment motion on lack of ripeness.
A8745 Construction Transparency Act
This week the Assembly Insurance committee voted on this bill and referred the bill to the Assembly Cods Committee. At this time, this proposed legislation has not been voted on by the Senate Insurance Committee.
As previously reported, this legislation would amend the insurance law enacting the "construction insurance transparency act of 2014" which would require all insurers that issue policies of liability insurance that insure against claims made under the duty imposed by the "scaffold law” to file annual financial statements and detailed claim data with the superintendent of financial services. Per the Sponsor’s memorandum, “this data collection will provide lawmakers with a source of reliable and accessible data that will better enable them to evaluate liability insurance in this area and assist in providing an optimal product to New York citizens.”
The proposed legislation would create Insurance Law §342 which would apply to liability insurers that issue liability policies insuring a contractor or owner of real property located in this state against claims made by an injured worker under Labor Law §240. Every year, an insurer must file with DFS and the public a detailed financial statement which contains at least the following information:
That portion of premiums assessed and attributable to providing this coverage;
Any paid judgments, settlements or losses from this coverage;
The reserves for losses which may be attributable to this coverage;
Incurred but not reported loss estimates which may be attributable to this coverage;
Paid defense and cost containment expenses attributable to any claims made under this coverage;
Case reserves for defense and cost containment experience attributable to claims made under this coverage;
Incurred but not reported defense and cost containment estimates based upon such coverage;
Premium and loss experience identified by policy limits and deductibles;
Number of claims initiated and closed
Number of claims closed with loss payments
Number of open claims at the time the statement is prepared;
Other expenses by category as determined by DFS to reflect the cost to the insurer to provide this coverage;
Investment income realized from that portion of the premium paid for this coverage;
The amount of exposure to the insurer resulting from the provision of such coverage and whether the insurer has limited the amount of coverage provided together with an estimate of the amount which might be required of the insured to purchase further coverage from an out of state excess lines provided;
Amounts spent by insurer for risk management programs or the amount required to be spent by insureds at the insurer’s request;
The insured’s experience and information further subdivided by quality of risk as measured by prior loss experience, contractor payroll ranges, contractor number of employee ranges, risk management participation and other identifiable difference in exposure to loss.
In addition to the above, the data must be separated out so that it can be determined that the claim made or paid is based partially or totally upon Labor Law §240 and not any other provision of the statutory or common law.
DFS will then be responsible for issuing a report summarizing and explaining the information collected each year. The report should contain recommendations to encourage the utilization of risk management programs by contractors to reduce premiums and any other steps that could utilize to reduce premiums.
S4235-B/A1093-C Creation Task Force On Disasters
This proposed legislation passed the Assembly in 2013 and has been advanced to a third reading in the Assembly. The Senate Insurance committee, meanwhile, recently reported this bill to the Senate Finance Committee for consideration.
This Legislation seeks to create a task force to examine how insurers who write policies providing coverage for loss of or damage to real and personal property in New York respond to disasters. The task force would also review the ways state and local agencies and the Department of Homeland Security can assist in insurer’s response as well as whether insured and communities have adequate insurance.
The task force would be comprised of 18 members with the Superintendent of DFS or his designee and the Commissioner of the Department of Homeland Security and Emergency Services and his/her designee comprising two of the members. Four additional members will be appointed by the Governor with eight additional members appointed by the Governor based upon the recommendations of the Assembly speaker and the temporary president of the Senate (4 from each house). The last four will be appointed by the Governor upon the recommendations of the minority leaders of the Senate and Assembly (two from each house).
The appointees must include five insurer representatives who write this type of insurance, and one of the five must write for the National Flood Insurance Program. Five of the appointees must be local officials who respond to disasters and emergencies such as police and fire officials, and these appointments must reflect the geographic diversity of the State, including areas of the state prone to flooding such as the Hudson Valley, Long Island and New York City. Two of the appointments must represent independent and public adjuster organization; two must be from non-profits which have experience with disaster relief and two must be from consumer advocacy groups.
A1002-A/S555-A Allowing Plaintiffs to Recover Directly Against Third-Party Defendants
The Senate Codes committee recently referred this bill to the Rules committee. Likewise, the Assembly Codes Committee recently referred this bill to the Rules committee.
This bill would add section 1405 to the CPLR which would allow a plaintiff, as a judgment creditor against a defendant, to recover and collect an unsatisfied judgment against a third-party defendant or codefendant that is liable for contribution or indemnification. The plaintiff’s judgment against the defendant would need to go unsatisfied for thirty (30) days prior to enforcement. Also, the defendant would need to have a judgment against a co-defendant/third-party defendant for contribution or indemnification before the plaintiff may seek to recover from the co-defendant/third-party defendant.
Additionally, in those instances where the defendant does not have a judgment against a co-defendant or third-party defendant for contribution or indemnification, the plaintiff would be able to take an assignment from the defendant to prosecute the contribution/indemnification action.
This provision would NOT allow direct recovery against a third-party defendant that would have been barred by the workers’ compensation law.
05/23/14 State Farm Mut. Auto. Ins. Co. v. LogistiCare Solutions, LLC
Court Addresses “For A Charge Exclusion” and “Share the Expense” Exception
Elizabeth Mosley registered to become a “volunteer driver” for LogistiCare, agreeing to provide non-emergency medical transportation services for Medicaid patients [“Members”] in exchange for reimbursed mileage expenses. The reimbursement for a particular ride depended on the applicable mileage rate, the miles driven, and the number of members driven. LogistiCare did not allow Mosley to accept payment directly from the “Members”. The vehicle driven by Mosley was insured by State Farm.
As a volunteer driver, while transporting Pearlie Graham, a Member, Mosley was involved in an accident in which Graham was injured. Suit was later filed against Mosley and LogistiCare. Based on the “for a charge” exclusion contained in the insurance policy, State Farm sued in Federal Court seeking a declaration that it has no duty to defend or indemnify Mosley or LogistiCare in the underlying action. The district court granted summary judgment to State Farm concluding that State Farm has a duty to defend but no duty to indemnify. For the following reasons, the United States Court of Appeals for the Fifth Circuit [“Court”] affirmed in part, reversed in part and remanded.
Pursuant to the policy issued to Mosley, State Farm agreed “to pay damages an insured becomes legally liable to pay because of” bodily injury to others . . . caused by an accident that involves a vehicle for which that insured is provided Liability Coverage by this policy.” The policy contained the following exclusion that was the focus of the appeal: “There is no coverage for an insured . . . for damages arising out of the ownership, maintenance, or use of a vehicle while it is being used to carry persons for a charge. This does not apply to the use of a private passenger car on a share-the-expense basis.”
It was State Farm’s position that the “for a charge” exclusion applies whenever a driver receives any money in connection with his use of the vehicle. After analyzing Mississippi law the Court rejected State Farm’s position noting that that the exclusion bars coverage only where the driver receives payment (1) directly from a passenger (as in the case of a taxi service) or (2) from a third party that amounts to more than reimbursement.
The Court also rejected LogisticCare’s position that the “for charge” exclusion was ambiguous stating that a term is not ambiguous just because it has not been specifically defined. “For a charge” is not unusual, technical or otherwise unclear.
In determining whether State Farm had a duty to defend the Court analyzed the complaint and found that the complaint did not allege (1) Graham gave Mosley any payment for transporting her; (2) Mosley was operating a taxi service; or (3) the specific amount of compensation Mosley received for transporting Graham. At best, the complaint suggested that Mosley transported Graham for some business purpose. The Court concluded that the complaint did not demonstrate that Mosley received more than mere reimbursement for her services and did not sufficiently trigger the “for a charge” exclusion and absolve State Farm of its duty to defend LogistiCare and Mosley.
As to State Farm’s duty to indemnify, under Mississippi law the Court was required to look to the entire record, not just the complaint. In analyzing the record the Court determined that there was nothing in the record to indicate that Graham directly gave Mosley any money for transporting her. It did, however, contain several indications that Mosley intended to receive more than reimbursement through her relationship with LogistiCare. First, Mosley created Mosley’s Transportation for income she received as a driver for LogistiCare. Second, Mosley’s deposition testimony indicated that for the three years she transported Member she was “seeing a little bit of income”. Further, LogistiCare’s plan allowed Mosley to profit from this arrangement and the record made clear that Mosley intended to and did profit from her arrangement with LogistiCare. The Court held that these facts triggered the applicability of the “for a charge” exclusion; however, this did not end the analysis.
Because the “for a charge” exclusion would absolve State Farm of its duty to indemnify, the Court went on to analyze whether the “share-the-expense” exception would nevertheless impose coverage. On that issue, LogistiCare argued that the exception negates the exclusion where the amount provided to the vehicle owner/insured bears a direct relation to the costs of the driver and is not a charge in excess of those costs. LogistiCare took the position that it merely reimbursed Mosley for her services.
The Court disagreed with LogistiCare noting that regardless of the scope of the exception, LogistiCare conceded that the exception does not apply if the insured receives more money than the cost of transportation. Because the exception itself refers only to expenses, the limitation unambiguously does not apply where the insured receive more than reimbursement. As noted above, Mosley received more than her costs; therefore, the “share-the-costs” exception does not apply. The Court held that the exception does not apply and the State Farm did not have a duty to indemnify.
05/29/14 Morello v. AMCO Ins. Co.
No Breach of the Covenant of Good Faith and Fair Dealing Where the Insurer and Insured had a Genuine Dispute as to Value
On March 26, 2008, George Morello, who was quadriplegic, was hit by a drunk driver while crossing a street in his motorized wheelchair. He was released from the hospital the following day with a diagnosis of three fractured ribs and left adrenal lesion. The accident was then reported to Morello’s automobile insurer, AMCO. Between March and November 2008, AMCO tried to arrange a meeting with Morello, which was never arranged, and requested medical authorizations. AMCO also provided a list of items needed to process the claim.
In December 2008, Morello’s newly assigned counsel advised that he was in the process of gathering the medical records, billing statement and documents regarding the property damage. In April 2009, counsel advised AMCO that the tortfeasor’s $15,000 limits had been offered to settle the case and that an underinsured motorist claim would be made. He also advised that he was still gathering records. AMCO in response requested a copy of the release and all pertinent medical records and itemized billing. Six months later the release was faxed to AMCO and the medical records provided.
On March 4, 2010, Morello’s counsel demanded the policy limits of $500,000 plus $5,000 medical pay, which included $209,000 to $297,000 in future medical expenses. The AMCO adjuster assigned to the claim was concerned about these submitted expenses as Morello was quadriplegic. The adjuster requested that a registered nurse employed by AMCO review the records. After the review, the nurse concluded that Morello “would have needed the same care he had prior to this loss with or without it.” She also suggested the adjuster obtain additional medical records.
On April 2, 2010, AMCO advised Morello’s counsel that it was unable to accept or reject the demand as additional documentation was needed including records from Morello’s medical providers for the five prior years. After these records were obtained in July 2010, AMCO attempted to schedule an IME, which could not be arranged until January 2011. The IME physician concluded that “[f]urther medical treatment after three months would be attributed to [Morello’s] preexisting condition.” He found no evidence of brain injury.
Discovery then advanced. When the case could not be resolve at mediation it went before an arbitrator who found in favor of Morello. Damages were determined to be $2,083,879.40; however, the arbitrator only awarded the policy limit. At arbitration there had been, among other things, evidence of traumatic brain injury and post-traumatic stress disorder.
This bad faith action then resulted. Under California law, liability for breach of the implied covenant is “whether the refusal to pay policy limits was unreasonable.” Morello alleged that AMCO failed to timely interview him and respond to policy demand; depose his doctors, caregivers and experts; provide all medical records to the IME physician; retain a neurologist/psychiatrist until shortly before arbitration and only for the limited purpose of opining as to whether or not Morello suffered a concussion; and differentiate between Morello’s condition before and after the accident.
Finding that AMCO did not violate the implied covenant, the court concluded that AMCO’s and Morello’s disparate valuations of the loss reflected a genuine dispute. AMCO immediately upon receipt of notice began requesting medical records and attempted to interview Morello. It also made repeated attempts to schedule the IME and Morello could not identify any specific medical record that AMCO supposedly withheld from the IME doctor. Morello cited no authority that the failure to depose disclosed experts who had not issued reports constituted bad faith. The court then went on to likewise dismiss Morello’s claim of intentional infliction of emotional distress (which was deemed unsupported), negligent infliction of emotional distress, violation of the California Unfair Competition Law and violation of the Unruh Act (disability discrimination).
FOCUS ON THE EVENT OR OCCURRENCE CAUSING THE LOSS
American Guarantee & Liability Insurance Co. v. Abram Law Group, LLC,2014 WL 563618 (11th Circuit, February 14, 2014). In this case, the core allegation concerned a large parcel of land slated for development, and allegations of fraud in failing to note easements and environmental restrictions. The developer sued the law firm and others for malpractice arising from a January 2006 real estate closing for acquisition of the property that included a $7.35 Million loan. The second part of the lawsuit alleged “fraud and conspiracy” concerning an April 2007 closing for a $2.5 Million loan to then develop the parcel.
The law firm’s insurance company, American Guarantee, brought a declaratory judgment action arguing that a “prior acts” exclusion in the policy barred coverage. The District Court decided that the exclusion ruled out coverage for acts or omissions that occurred before May 1, 2006, specifically the January 2006 real estate closing. On appeal, this outcome was essentially affirmed.
The Circuit Court concurred that the acts and omissions giving rise to the malpractice claim from the January 2006 acquisition closing were essentially the same as those forming the basis for the “fraud” claim regarding the April 2007 development loan. In addition, the alleged negligence involved in the closing in January 2006 was a “necessary predicate” to any alleged fraudulent scheme involving the 2007 development loan. The Circuit Court agreed with the lower court that the prior acts exclusion meant there was no coverage for defendants in the underlying lawsuit.
Within the context of this decision are several lessons and points to consider.
First, try to pinpoint and establish the actual occurrence or cause of a loss or chain of loss events. What acts and at what time were things done (or not done) which formed the “necessary predicate” for any later losses or developments?
Second, claim analysis should focus on potential statute of limitations defenses, any other restrictions on time to sue, lack of disclosure of prior claims, or claims arising from acts occurring before the policy effective date. The essential cause of a loss or chain of loss events may not change even if wrapped in slightly different colored paper if it forms the predicate or basis for subsequent loss developments or events.