Source: https://www.hurwitzfine.com/news/coverage-pointers-volume-xvii-no-16
Timestamp: 2019-09-19 06:34:33
Document Index: 602741850

Matched Legal Cases: ['§ 3420', '§ 3420', '§ 5102', '§ 5102', '§ 5102', '§ 5102', '§ 5102', '§ 5102', '§ 5102', '§ 5102', '§ 5102', '§ 5102', '§ 5102', '§ 5102', '§ 5102', '§ 627']

Coverage Pointers - Volume XVII, No. 16 | Hurwitz & Fine, P.C.
Coverage Pointers - Volume XVII, No. 16
Volume XVII, No. 16 (No. 446)
Two straight weeks in the office has given me the opportunity to catch up a bit. It’s a lovely experience. Bring on some challenges. We’re waiting. In my column, you’ll find another fatal error by an insurer in failing to deny coverage promptly. Remember, please remember, New York has very strict and strident rules for disclaimer in bodily injury and wrongful death cases.
The general rule is clear – while most civilized jurisdictions liberally use Reservation of Rights letters, New York courts despise them. If you are considering using an ROR letter in New York, please recognize how easily you can lose coverage defenses based on policy exclusions and breaches of policy conditions. Forewarned is forearmed. Call your favorite coverage lawyer for advice when you are thinking about sending out a Reservation of Rights.
Down below, you’ll see a special gift from our Labor Law team, a “sole proximate cause” defense upheld in a case where the plaintiff placed his own ladder improperly. A rare decision, indeed.
Welcome New Coverage Pointers Columnists:
We welcome three new permanent columnists in this issue and do a little shuffling as we continue our service to our readership. Here is our array of columns in the attached issue; the names and columns in red are either new or modified:
Tessa Scott is now our permanent columnist on litigated and arbitrated No Fault decisions, other than those involving Serious Injury. The Serious Injury cases are reported in Rob Hewitt’s Highlights.
Jen Ehman, who follows lower court state court cases and was handling bad faith decisions, has ceded her bad faith duty to Brian Barnas.
Brian Barnas, a newly minted lawyer, will follow bad faith cases on a national basis in his new column, and his inaugural offering is in today’s issue.
Jen Phillips will cover federal district court cases in New York and her first column is in today’s issue.
Peiper’s Perogatives:
With the East Coast buried at the start of this week, we bring you this Edition’s note with signs that spring is not far away. Indeed, pitchers and catchers report (a fact referenced in this column for nearly a decade) on February 17th. Not three weeks away.
The NHL All-Star Game, and Pro-Bowl are both this weekend. This signals the NHL season is 2/3’s over, and NFL season is finally about to wrap up.
Maple sugaring season starts in less than a month. If you’ve never gotten maple syrup right from the tree, you should. The places that sell it, by the way, always have killer pancakes too. Treat yourself, you won’t be disappointed.
Finally, another sign that spring portends is the fact that Potpourri brings you another assumption of the risk golf course case. Being hit with a ball, assumption of the risk. Being hit with a golf cart, assumption of the risk. Slipping and falling on a wet railroad tie, assumption of the risk. Getting cheated by your colleagues at H&F during an annual golf outing…you guessed it…assumption of the risk.
With that, we bid you a Happy Groundhogs Day. See you in two weeks
Labor Law Pointers Extra – Important New Decision:
Dave Adams and his Labor Law team publish Labor Law Pointers, a monthly publication reviewing construction lawsuits involving Sections 200, 240(1) and 241(6) of the New York State Labor Law. Subscribe by contacting Dave at [email protected]. Marc Schulz and Dave wrote the summary of a very significant decision that just came down from the Second Department on a “ladder case”. We wanted you to be the first to know about it so we are including it here:
01/27/16 Scofield v Avante
You Placed It, You Caused It: Second Department Allows for Sole Proximate Cause Defense against Plaintiff Who Sets Placement of Ladder
Plaintiff was injured when he fell from a ladder while doing HVC work on a construction project. He was using an A-frame ladder he had used without incident in four prior rooms. The plaintiff had to work around piles of sheet rock to reach to area where he needed to work. The ladder was not defective, was on firm ground and did not shake or move in any way when he ascended it. He was required to reach three of four feet to his right to complete his task. After working in that manner for a few seconds the ladder tipped and he fell to the ground. Defendant moved for Summary Judgment on the 240(1) claim and the defendants cross-moved for Summary Judgment to have the 240(1) claim dismissed. The trial court granted the defendants’ motions and the plaintiff appealed.
The Second Department affirmed the motion for Summary Judgment of the defendants stating “the injured plaintiff improperly positioned and misused the ladder, which was the sole proximate cause of his injuries”.
Why is this important you may ask? The answer is simple; this is the first time I have seen a court, any court, award Summary Judgment to a defendant when the plaintiff fell because a ladder tipped, shook, shimmied or slipped. They did so specifically because it was the plaintiff who placed the ladder. In countless decisions, the courts have held that when a ladder is improperly placed, even when placed by the plaintiff, that the improper placement is a violation of the statute and thus a proximate cause, precluding any other proximate cause from being the sole proximate cause of the plaintiff’s fall and subsequent injury. Without the ability to have the plaintiff’s actions in placing and misusing the ladder be the sole proximate cause the defendant is without the ability to defend the 240(1) claim.
We have noticed this trend in the Second Department towards holding the plaintiff responsible for the placement of the ladder, and have been carefully watching for this exact scenario to make it to the court. While we do not expect the Second’s view of the sole proximate cause defense in ladder placement cases to make its way across the state quickly, or even make the very short trip to the First Department quickly, we are ever hopeful that this will make its way to the Court of Appeals. We hope to have a decision which holds the plaintiffs responsible for their own actions in placing the ladder improperly causing them to fall. Some of the recent cases in the Second have specifically noted in ladder shift cases as they denied the sole proximate cause argument that it was not the plaintiff who positioned the ladder.
We will continue to monitor, analyze and report on all Labor Law cases coming out of all four departments and the Court of Appeals, stand by as we see what effect this case has across the board.
100 Years Ago: The Nomination of Justice Louis Brandeis
A century ago, President Woodrow Wilson nominated Louis Brandeis to serve on the United States Supreme Court. A man of Jewish decent, he was the first of his faith to be considered for the high court. His controversial nomination took several months to work through the Senate confirmation process.
By all accounts, when he retired in 1939, he was considered one of the most effective Justices ever to serve on the high court. However, the nomination process was contentious. Throughout this note, I will reference some of the news articles of the day.
The Brandeis Nomination:
The Brandeis nomination was bitterly contested, partly because, as Justice William O. Douglas wrote, "Brandeis was a militant crusader for social justice whoever his opponent might be. He was dangerous not only because of his brilliance, his arithmetic, his courage. He was dangerous because he was incorruptible. . . [and] the fears of the Establishment were greater because Brandeis was the first Jew to be named to the Court." The Senate eventually confirmed him by a vote of 47 to 22 on June 1, 1916. Twenty-one Republican Senators and one Democratic Senator (Francis G. Newlands of Nevada) voted against his nomination — and he became one of the most famous and influential figures ever to serve on the high court. His opinions were, according to legal scholars, some of the "greatest defenses" of freedom of speech and the right to privacy ever written by a member of the Supreme Court.
I hope all of you are dealing well with the winter and the snow. Down here on Long Island, we are still digging out of over two feet of snow, but it is quickly melting. It was our only snowstorm of the winter so that is not too bad. Plus my wife had given me a snow blower for the holidays, which really helped. My boys, six and five years old, enjoyed snowball fights, snowmen, and building forts. On the serious injury side, most of the cases this edition are straightforward. However, in one case, the Appellate Division was faced with an argument from the plaintiff that they had demonstrated an issue of fact, because of two different test results on the straight leg test that was found by the plaintiff and defendant’s respective experts. However, while the results differed, both experts had opined that the result they had found was in the normal range and therefore, the Appellate Division found that there was no issue of fact on any issue that mattered to the case. In another case, plaintiff had suffered a severe injury to her spine because of a prior motor vehicle accident. Defendant’s expert attributed plaintiff’s injuries totally to that accident. Plaintiff’s expert opined in a conclusory fashion that the new accident had caused injury, but had no objective medical evidence to back up that conclusory opinion which completely failed to address degeneration. Therefore, the case was dismissed as plaintiff failed to raise an issue of fact.
Next issue will come out close to Valentine’s Day and we will be about halfway through the winter. There is a light at the end of the tunnel.
New York Times Editorializes Against Brandeis (excerpt):
The Supreme Court, by its very nature, must be a conservative body; it is the conservator of our institutions, it protects the people against the errors of their legislative servants, it is the defender of the Constitution itself. To place upon the Supreme Bench judges who hold a different view of the function of the court, to supplant conservatism by radicalism, would be to undo the work of John Marshall and strip the Constitution of its defenses. It would introduce endless confusion where order has reigned; it would tend to give force and effect to any whim or passion of the hour, to crown with success any transitory agitation engaged in by a part of the people, overriding the matured judgment of all the people as expressed in their fundamental law.
Editor’s Note: By the time Justice Brandeis retired in 1939, the New York Times embraced his genius. "The retirement of Justice Brandeis takes from the bench of the Supreme Court one of the great judges of our times," said the Times, declaring that the storm against him "seems almost incredible now" and that in "the respect and affection of the American people he has come to occupy a place like that reserved for Justice Holmes ..." Like Holmes, the Times said, Brandeis "has regarded the Constitution as no iron straitjacket, but a garment that must fit each generation."
As January winds down (already!), we hope that this finds you well, warm, and not worn out. I write to you on my way to the lovely Isle of Long for an appearance in Federal Court in Islip, and it feels very much like a Western New York winter here. Indeed, since our last edition, it seems like most of the country recently got a taste of real Buffalo weather, whereas ours has been comparatively mild of late. I hope that the worst of it is over for everyone. Winter is nearly over, right?
In other news, since I was traveling when we last went to print, I did not get a chance to welcome our newest members of the Coverage Team. Though Brian and Jen have only been with us for a matter of weeks, they have immediately integrated and I very much look forward to continuing to work with them for many years to come. Welcome!
This week in the Wide World, we have a couple of Circuit Court coverage cases with some great sets of facts. Interestingly, both are rescission cases. First, out of the Fourth Circuit we have Evanston v. Agape. There, in a real-world case of the Pretender or Catch Me If You Can, a man posed as his physician friend and for six months treated patients in nursing homes and assisted living facilities. He went so far as to apply for a driver’s license, complete with his own picture, using his doctor friend’s identity, while said doctor was out of the country for a time. He was added by endorsement to his employer’s liability policy, and when it was renewed a couple of months later he submitted an application and was added to the renewal. Let’s just say his employer, and the insurer, were not pleased (and he is now serving out the remainder of his sentence in a Federal pen). Although the carrier sought to rescind the entire policy due to the material misrepresentation, the Eleventh Circuit rejected that. Instead, since everyone around him had been duped, the Court applied an “innocent co-insured doctrine” to rescind the policy as to the fraudster, but keep the coverage in place for everyone else.
Finally, in Gamez v. ACE, from the Eleventh Circuit, we have a weird property case with relatively novel arguments for coverage. There, an insured purchased a rather expensive boat, immediately gave it to his cousin, who kept it at his house for a few months. The cousin then lent the vessel to a guy he had known for a few weeks and his friend “Patchy”. These would-be fishermen went out to sea and “neither [the men] nor the vessel were ever seen or heard from again” (the Court’s words, not mine). Just weird. But, of course, the insured wanted the policy proceeds and sued the insurer when the carrier denied coverage on the basis of material misrepresentations and fraud. Not only had the insured misrepresented his ownership status, but also where the boat was to be kept, his boating experience, and who the operators would be. ACE proved that it would not have written the policy had it known the truth of these things. The insured then tried to argue that, pursuant to the Florida Insurance Law, an insured’s breach of the policy conditions would not be a defense “unless such breach or violation increased the hazard by any means within the control of the insured”. The Court rejected this interpretation. In this case, ACE would never be able to prove what the hazard actually was that caused the loss. Thus, they would never be able to prove that the hazard was or was not within the insured’s control and could never substantiate their case for rescission. Rather, the Eleventh Circuit held that the proper inquiry was whether the “risk” would have been written differently, or not at all. Curious whatever happened to Patchy the Pirate, though.
A Century Ago: Rich People Owning Baseball Teams? Should We Care?
“Wealthy magnates are a menace to baseball,” asserts Bob Hedges, ex-owner of the Browns. “The owners with huge bank rolls can go the limit in purchasing talent. This eventually makes a league top-heavy.”
Is Hedges right—or wrong?
The greatest team ever welded together in American league history was Connie Mack’s Athletics. Connie didn’t pay much more for his stars than the ordinary man pay in one year for cigars.
The Giant club is supposed to be backed by wealth. An unlimited bankroll was at the command of John McGraw in 1915 — and the Giants finished last.
Charlie Comiskey spent more than $100,000 in trying to “buy” a pennant winner. He failed.
The Philly owners are not wealthy, yet they breezed under the wire a winner in 1905—and with a bunch of misfits making up the club.
Hedges is right as to his statement that wealthy magnates can buy star players—but money can’t make ‘em win a pennant.
It was nice to meet you all for the first time last issue. This time, I am happy to bring you the first installment of “Barnas on Bad Faith," coming to you from Supreme Court, New York County. Jen’s Gems will continue to keep you apprised of all insurance developments in New York Supreme Court, and I will be sharing interesting cases regarding bad faith with you in this space moving forward. I hope to cover the topic nearly as well as Jen has done in the past.
With no New York bad faith cases to report on this week, I bring you two bad faith cases, from two jurisdictions, in two different areas of insurance law. The first case, Juneau v. Jones, considers whether an insurance company acted in bad faith in denying the plaintiff’s claim for benefits under an underinsured motorist policy. The court reaches the conclusion that it did not, in large part because of the speculative evidence of damages offered by the plaintiff. The second case, Electric Power Systems International, Inc. v. Zurich American Insurance Company, considers whether an insured stated a bad faith claim against its insurance company based on the insurer's failure to settle. The court reaches the conclusion that the insured stated a claim sufficient to survive a motion to dismiss, and the decision provides an analysis on how a bad faith claim differs from a breach of insurance contract claim.
I look forward to getting to interact with you all during the coming issues of Coverage Pointers. I hope our friends and readers on the east coast are staying warm and safe as they dig out of the remains of Winter Storm Jonas. In addition, as this is our last issue before the Super Bowl, I hope everybody enjoys the big game and all that comes with it.
You’ve Heard About the Rest, Now Hear About the Best:
Federation of Defense & Corporate Counsel 21st Annual Litigation Management College
I hope this Coverage Pointers finds you well! As I have officially become a part of the Coverage Pointers team, I thought it was time to introduce myself (the last Coverage Pointers issue came out on my birthday so I was off the hook). I have been at Hurwitz & Fine for a little over a year and am so happy to have been able to return to my home in Buffalo after three years in Ohio for law school.
I have taken over the reins for the No-Fault portion of the newsletter and will be reporting on recent New York Appellate Court decisions and any arbitration cases that are particularly interesting or noteworthy. This week I bring you a review of bone growth stimulators, another failure to appear for an IME, and statute of limitations. For obvious reasons I was most intrigued by the insufficiency of a peer review opinion as a basis for denial of bone growth treatments. Additionally, you may feel some déjà vu when reading about Life Tree Acupuncture P.C. v Republic W. Ins. Co., as it relates much of the same conclusions as Alfa Med. Supplies, Inc. v Praetorian Ins. Co., which appeared in the last installment of Coverage Pointers.
Brandeis, a Ludicrous Misfit:
LUDICROUS MISFIT.
That’s the Comment of the
Philadelphia “Press”
“We should suppose that Brandeis would be an almost ludicrous misfit on the Supreme bench. We cannot see how he can accustom or accommodate himself to the atmosphere of that court. No doubt it will be repressive and probably the influence of the entire bench will be severe and weighty enough to repress Brandeis within reasonable limits. We hope that the health of the remaining Judges may continue unimpaired. We can hardly conceive of a more dire misfortune of the country than to have a Supreme bench with a majority of its members of the character and caliber of Louis D. Brandeis.
I assume many of our readers are still digging out from the storm over the weekend. Most likely the first time that North Carolina and Washington, DC received more snow than we did here in Buffalo. I always joke that once global warming really sets in there is going to be a run of people moving to Buffalo.
The decision I report on this week in my column makes me glad I have girls. In Unitrin Auto and Home Ins. Co., Judge Whelan in Suffolk County was asked to consider whether the owner of a vehicle and his son were entitled to coverage for an incident in which the son and his friend caused injury to the underlying plaintiff when they struck him in the eye with a cup filled with urine they were in the process of throwing from their moving vehicle. While the son claimed that they intended to pour the contents of the cup on to the underlying plaintiff, they did not intend to hit him in the eye with the cup (“it slipped”), the court disagreed finding that the harm was inherent in the nature of the conduct.
I should send this decision to my brother who has three boys.
Healthier Now than 100 Year Ago: 9 v. 5:
LOSS BY SICKNESS
The average wage-earner in the United States loses nine days every year on account of sickness, much of which is pure cussedness, and therefore preventable, and the annual loss in wages and expense for medical attendance is $750,000,000. These figures are the results of a study in a new field of industrial horror made by the Public Health Service for the Federal Commission on Industrial Relations, and they are just as reliable and just as useful as any statistics you will find anywhere.—Insurance Register.
Editors Note: U.K. employees are world leaders at claiming sick leave, taking more than four times as many days off work than their global colleagues, according to new research by PwC.
The global professional services firm complied data from 2,500 companies across the world, and found that U.K. workers took an average of 9.1 days off sick per year. This was nearly double the 4.9 days U.S. workers took off, and four times as much as their counterparts in Asia-Pacific (2.2 days).
Hello, all - I’m very excited to be joining the Coverage Pointers team this week. And I have to share – it’s the third week in and I still can’t get over what a great group of people I’m working with.
For this week’s issue, a couple of district court cases caught my eye. The first because it reaches the issue of an insurance agent’s potential liability from an interesting procedural position – specifically, a motion to remand the case back to state court due to the lack of diversity (and therefore the lack of jurisdiction). My old boss in the Western District tried to remand me back to state court once while I was clerking….. Well, no, but you see how far I’ll go for a decent segue. In any event, in order to resolve the jurisdictional issue that arose in The Lab, LLC v. Travelers Property Casualty Co. and Nathan Butwin Co, the Southern District of New York discussed the need for specificity in order to state a claim against an insurance agent for breach of the common-law duty to obtain the requested coverage.
A second case out of the Southern District, Clement v. Farmington Casualty et al., also caught by eye, mostly because, well, who doesn’t want to discuss ice dams in roofs right after a blizzard. By the way, may I just say how nice it was to see the news do feature stories on inclement winter weather and have it not be about Buffalo? (Sorry, Downstate.) Clement is a nice reminder to consider the potential duplicative nature of claims when presented with a multi-claim complaint in a coverage dispute.
Highlights of Summaries In this Week’s Issue, Attached:
Nothing Might Mean Something; Failure to Indicate Amount of Required Umbrella Coverage in Trade Contract Does Not Necessarily Mean that No Coverage is to be Provided
Insurer Fails to Explain Late Disclaimer and Thereby Loses Right to Deny Coverage Based on Lack of Cooperation
Defendants Succeeded in Getting the Case Dismissed By Showing Through Medical Evidence That Plaintiff’s Spine Injuries Did Not Constitute A Serious Injury
Summary Judgment Denied Where Plaintiff Raised Issue of Fact in Response to Defendant’s Establishment of a Prima Facie Case for Summary Judgment
Defendant’s Failed To Make a Prima Facie Case for Summary Judgment As They Failed to Address All Injuries Claimed In the Bill of Particulars
Failure to Show Any Objective Medical Evidence Of Injury and Reliance On a Conclusory Medical Report That Did Not Address Established Degenerative Conditions Led to Grant Of Summary Judgment and Dismissal of the Case
Discrepancies Between Plaintiff and Defendant’s Experts As To Test Results Did Not Lead to Issue of Fact Where the Test Results Were Normal In Either Case
Summary Judgment In Favor of Defendants Inappropriate Where Plaintiff Is Able to Create an Issue of Fact In Response to Defendants’ Establishment of a Prima Facie Case
Defendants Entitled To Summary Judgment Where After They Establish A Prima Facie Case of Lack of Serious Injury Plaintiff Fails to Raise An Issue of Fact
Denial Based Generally Accepted Use Must Also Exclude Treatment In Other Circumstances
Defendant Entitled to Request IMEs Prior to Receipt Of Plaintiff’s Claim Forms
Action to Recover First Party No-Fault Benefits from Self-Insured is Subject to Six Year Statute of Limitations
01/28/16 Old Republic Ins. Co. v. United National Insurance Company Appellate Division, First Department
Old Republic Insurance Company (“ORIC”) sought to have United National Insurance Company (“United”) contribute to or reimburse it for $1 million that ORIC pay to settle an underlying lawsuit. The lower court held that while there was a question of fact whether ORIC’s subrogor, STS Steel, was required to be named as an additional insured on an umbrella policy procured by its subcontractor, the subcontract did not specific any particular amount of coverage. Accordingly, the lower court concluded that according to the language in the policy, which provided coverage in the amount of the lesser of $5 million or the amount of the subcontractor's policy, that defendant's coverage obligation was $0.
The First Department found that there was an issue of fact as to the amount of umbrella insurance the subcontractor was required to procure. The subcontract originally called for $5 million in coverage, but STS permitted its subcontractor to proceed with the work while leaving the amount of coverage ambiguous because of the subcontractor's cost concerns.
01/20/16 Batista v. Global Liberty Insurance Company
This was a Direct Action brought against Global Liberty (“Global”) under Insurance Law § 3420(a)(2) to recover the amount of an unsatisfied judgment against the Global’s insured in an underlying personal injury action. Global’s insured failed to answer or appear in the underlying action started by Batista, and a default judgment was entered against him. Approximately one year after receiving the default judgment and nearly three years after learning of the subject claim, Global provided counsel to represent its insured in a hearing to determine the validity of service of the summons and complaint in the underlying action.
After the Supreme Court determined that the defendant's insured was properly served, the defendant issued a letter disclaiming coverage on the basis of the insured's alleged failure to cooperate. Battista contends that the purported disclaimer is invalid because it was untimely served and, in any event, there was no valid basis upon which the defendant could disclaim coverage.
The plaintiff demonstrated her prima facie entitlement to judgment as a matter of law by proffering evidence that a copy of the underlying judgment with notice of entry was served upon the defendant, and that after 30 days the judgment still remained unsatisfied (see Insurance Law § 3420[a][2].
Global failed to establish that its disclaimer was effective. An insurance company has an affirmative obligation to provide written notice of a disclaimer of coverage as soon as is reasonably possible, even where the policyholder's own notice of claim to the insurer is untimely. Where there is a delay in providing the written notice of disclaimer, the burden rests on the insurance company to explain the delay. Under the circumstances of this case, the defendant failed to adequately explain its delay in issuing the disclaimer. The policy had $100,000 limits and so the judgment against Global is so limited.
Editor’s Note: We do not know what excuse was provided by Global for what seems to be an excessive delay in denying coverage. Under the Direct Action statute, when a judgment in entered against an insured, it can be presented to the carrier it believes is on the risk for payment. If not paid within 30 days, a Direct Action can be commenced to challenge the disclaimer, with recovery limited to the amount of the policy.
01/27/16 Nicholas v. Liu
The Appellate Division reversed the order of the lower court which had denied defendants’ motion for summary judgment. The case has little in the way of detail. The Appellate Division held defendants met their prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The moving defendants submitted competent medical evidence establishing, prima facie, that the alleged injuries to the cervical and lumbar regions of the plaintiff's spine did not constitute a serious injury under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d). In opposition, the plaintiff failed to raise a triable issue of fact as to whether his injuries constituted a serious injury under the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d).
01/27/16 Kang v. Sheern, Chan v. Auto Traders of Five Towns, Inc., and Charalambous v. Brown
The Appellate Division reversed the lower court, this time holding that the lower court should have denied summary judgment. Again, the Court gave few details in any of the cases. In each case, the Appellate Division held defendants met their prima facie burden of showing that the appellant did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendants in Kang submitted competent evidence establishing, prima facie, that the alleged injuries to the cervical and lumbar regions of the appellant's spine, as well his right knee, did not constitute serious injuries under the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d). The defendants in Chan submitted competent medical evidence establishing, prima facie, that the alleged injuries to the cervical and lumbar regions of the plaintiff's spine did not constitute serious injuries under either the permanent consequential limitation of use or significant limitation of use categories. In Charalambous, the defendant submitted competent medical evidence establishing, prima facie, that the alleged injuries to the cervical and lumbar regions of the plaintiff's spine, as well as to her left knee, did not constitute serious injuries under either the permanent consequential limitation of use or significant limitation of use categories In opposition, however, the plaintiff in each case raised a triable issue of fact as to whether they sustained a serious injuries to their respective injured areas.
01/27/16 Cregg-Fandaros v. Brokaw
The Appellate Division affirmed the order of the lower court denying defendants summary judgment. It found the defendants failed to meet their prima facie burden of demonstrating that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendants' motion papers failed to adequately address the plaintiff's claim, set forth in the bill of particulars, that she sustained a medically determined injury or impairment of a nonpermanent nature which prevented her from performing substantially all of the material acts which constituted her usual and customary daily activities for not less than 90 days during the 180 days immediately following the subject accident. Since the defendants failed to meet their prima facie burden, it was unnecessary to determine whether the papers submitted by the plaintiff in opposition were sufficient to raise a triable issue of fact.
01/26/16 Mayo v. Kim
The Appellate Division affirmed the grant of summary judgment to defendants. Plaintiff alleged that she suffered serious injury to her cervical and lumbar spine as the result of a motor vehicle accident in October 2010. About a year before the accident, plaintiff was diagnosed with "severe arthritis" in the lumbar spine, and underwent a lumbar discectomy and fusion for which she was still being treated at the time of the accident. Defendant made a prima facie showing that plaintiff did not suffer a serious injury to her lumbar spine as a result of the accident by submitting the expert report of a neurologist, who noted that MRIs taken before and after the accident revealed no changes causally related to the accident and found no limitations in range of motion Defendant's neurologist also found full range of motion in plaintiff's cervical spine, and noted that there was no medical history of treatment of plaintiff's left knee in the period following the accident.
In opposition, the Appellate Division found plaintiff failed to raise an issue of fact. Plaintiff's rehabilitation physician provided only a conclusory opinion that the lumbar spine condition was caused or aggravated by the accident, without addressing the preexisting degenerative conditions documented in plaintiff's own medical records or explaining why her current reported symptoms were not related to the preexisting condition. Plaintiff presented no objective evidence of injury to her cervical spine or of any limitation in use of her cervical spine following the accident. To the extent plaintiff now claimed an injury to her left knee, which was not pleaded in her bill of particulars, she presented only an unaffirmed MRI report of a test performed over two years after the accident that showed an arthritic condition, and provided no evidence of any limitations in use of the knee. Therefore, the case was dismissed.
01/26/16 Orellana v. Roboris Cab. Corp.
The Appellate Division affirmed the adherence to a grant of summary judgment to defendants by the lower court after a motion to reargue holding that plaintiff did not sustain a serious injury to her cervical or lumbar spine within the meaning of Insurance Law § 5102(d). Plaintiff contended that defendants failed to establish prima facie that she did not suffer a serious injury to her cervical or lumbar spine and that the motion court erroneously overlooked inconsistencies in defendants' evidence that, regardless of the sufficiency of her opposition papers, precluded summary judgment in their favor. Defendants submitted affirmed reports by a radiologist, a neurologist and an orthopedic surgeon, who opined that plaintiff had full range of motion in those body parts, and that, as to causation, any injuries were the result of degenerative and atraumatic changes. Contrary to plaintiff's contention, the Appellate Division found the discrepancies in the experts' findings on her straight leg raising test are of no significance, since both experts opined that the results were in the normal range. Therefore, the case was properly dismissed.
01/20/16 Hardinge v. Porter and Koo v. Wilson
The Appellate Division reversed the grant of summary judgment to each of the defendants and reinstated the case. In each case, the Appellate Division found the defendants met their prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. In Hardinge, the defendants submitted competent medical evidence establishing, prima facie, that the alleged injuries to the cervical and lumbar regions of the plaintiff's spine did not constitute serious injuries under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d). In opposition, however, the plaintiff submitted competent medical evidence raising a triable issue of fact as to whether he sustained serious injuries to the cervical and lumbar regions of his spine under the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d). In Koo, the defendant submitted competent medical evidence establishing, prima facie, that the alleged injuries to the cervical and lumbar regions of the plaintiff's spine, as well as to her shoulders, did not constitute serious injuries under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d) and in opposition the plaintiff submitted competent medical evidence which raised a triable issue of fact as to whether she sustained serious injuries to the cervical and lumbar regions of her spine and to both shoulders under the permanent consequential limitation of use or significant limitation of use categories.
01/20/16 Loja v. Koenigsberg
The Appellate Division sustained the grant of summary judgment. It found defendants met their prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendants submitted competent medical evidence establishing, prima facie, that the alleged injury to the plaintiff's left knee did not constitute a serious injury under the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d). In opposition, the plaintiff failed to raise a triable issue of fact, and therefore the case was properly dismissed.
01/15/16 DJO LLC v. Global Liberty Insurance Company of New
A 45 year-old restrained driver allegedly sustained a neck injury. The respondent- insurer denied payment for bone growth stimulator which was prescribed on the date of surgery, citing "high grade compression."
At Respondent's request, a peer review was performed the reviewing doctor noted that, per the medical records, Assignor was a non-smoker. The doctor’s opinion related several healing risk factors, such as smoking that would generally give rise to the use of a bone growth stimulator. He opined that the bone growth stimulator was not medically necessary, stating that he was unable to identify any risk factors for delayed union or non-union. Although there were no risk factors present, he also stated there is always a risk that the bone will not grow together and fuse in a normal period of time.
Although Arbitrator Bargnesi found the peer review opinion compelling in that the injured party demonstrated no risk factors which would normally compel the use of bone growth stimulators, she found that his peer review lacked the requisite factual basis and medical rationale to demonstrate that the bone growth stimulator was not needed in this instance. The opinion conceded that are "no clear-cut rules" with regard to prescribing the stimulator, did not cited any medical literature for the statement that it "is generally thought" that the specific types of patients are more vulnerable to healing problems. Additionally the peer review doctor’s opinion implied that the device is not necessarily used exclusively in situations when a risk factor is present but may be indicated in other circumstances as well.
01/13/16 Life Tree Acupuncture P.C. v Republic W. Ins. Co.
The defendant-insurer demonstrated entitlement to summary judgment dismissing the plaintiff-provider's claim for first-party no-fault benefits by establishing that it timely and properly mailed the notices for independent medical examinations (IMEs) to plaintiff's assignor, and that the assignor failed to appear. Defendant was entitled to request the IMEs prior to its receipt of plaintiff's claim forms and such request complied with the applicable procedures and time-frames set forth in the no-fault regulations
Defendant supported its motion with competent evidence of the assignor's nonappearance in the form of the sworn affidavits of the scheduled examining chiropractor/acupuncturist and an employee of defendant's third-party IME scheduler, setting forth sufficient facts to demonstrate the affiants' personal knowledge of the assignor's repeated failures to appear for the IMEs and the office practices and policies when an assignor fails to appear.
Additionally, plaintiff did not specifically deny the assignor's nonappearance or raise a triable issue regarding same, or as to the mailing or reasonableness of the underlying notices.
01/20/16 Contact Chiropractic, P.C. v New York City Tr. Auth.
The Appellate Division upheld the lower Court’s determination that an action by an injured claimant, or his or her assignee, to recover first-party no-fault benefits from a defendant who is self-insured, is subject to a six-year statute of limitations, since the claim is essentially contractual, as opposed to statutory, in nature.
01/27/16 Peters v Wallis
Repeated References to Lack of Medical Insurance Gives Rise to Mistrial
Defendant appealed after plaintiff was successful in a jury trial venued in Orange County. Defendant first sought to set aside the verdict on the basis that the jury could not have fairly reached its conclusion for liability in light of the weight of the evidence presented at trial. In denying this branch of defendant’s appeal, the Court noted the well-established rule that great deference is given to the jury when determining the credibility of witnesses. Having found a reasonable basis for the jury’s decision, the Court was loath to disturb it.
A mistrial was declared, however, over plaintiff’s counsel’ s repeated references to plaintiff’s lack of medical insurance and the severity of plaintiff’s injuries. In the court’s eyes, the references could have prejudiced the jury’s ability to be fair and impartial.
01/21/16 Oglesby v Barragon
One, Last Minute, Attempt at Service does not Justify Court Directed Service of Process
Plaintiff commenced the instant claim seeking to recover for bodily injuries sustained in a multi-vehicle collision where all of the defendants resided outside of the State of New York. It appears that on the eve of the statute of limitations, plaintiff attempted to serve the defendants via certified mail at an address that was listed on the police report from three years earlier. When service was unsuccessful, plaintiff moved for Court directed alternative service under CPLR 308(5).
The trial court denied the request, and the Appellate Division affirmed because plaintiff failed to show that other forms of service were impracticable. Here, plaintiff made only one attempt at service, and provided no further details of efforts (if any were undertaken) to locate the defendants within, or without, the State. Accordingly, the Court ruled that plaintiff failed to meet its burden which required “competent showings as to actual efforts made to effect service.”
01/20/16 Bryant v Town of Brookhaven
Golf Course Wins Again – Assumption of Risk Includes Slipping on Wet Walking Path
Plaintiff sustained injury when he fell while walking on railroad ties during an early morning round of golf at defendant’s municipal golf course. In support of his negligence allegation, plaintiff argued that the path upon which he was walking was partially obscured by long grass.
In affirming the trial court’s dismissal of the action, the Appellate Division noted that participants assume the risk of injury unless the hazard is concealed or is unreasonably increased. Here, slipping on a wet railroad tie during an early morning round of golf was eminently foreseeable, and thus, there was no basis for plaintiff’s claim.
01/15/16 Evanston Insurance Co. v. Agape Senior Primary Care, Inc.
Fourth Circuit Holds That “Innocent Co-Insured Doctrine” Saves Coverage For Insureds Who Had Nothing To Do With One Insured’s Misrepresentations, While Policy Is Considered Void Ab Initio For Wrongdoer
Evanston Insurance had issued a renewal professional liability insurance policy to Agape Senior Primary Care, a company which employed physicians and nurses for work at various nursing homes and assisted living facilities. All of these medical professionals were listed on the Evanston policy and each individual filled out a separate renewal application for coverage.
Agape used an “integration of services” model that required all patients to be treated by multiple medical professionals. In February 2012, one of those individuals held himself out to be Dr. Arthur Kennedy, a South Carolina board certified physician, who began treating patients. At that time, however, no one knew that “Kennedy” was actually Ernest Osei Addo, not a doctor at all. Addo had stolen the identity of his friend Kennedy, while the actual doctor was out of the country. To complete the ruse, Addo obtained a South Carolina driver’s license with his own photo but Kennedy’s name.
After about six months of “practice”, the deceit was discovered and Addo was arrested. He was later found guilty in federal court and sentenced to two years, following his conviction for aggravated identity theft. However, in the meantime, Addo/Kennedy had filled out an application for the Evanston policy in February. He was added by endorsement and an additional premium was paid. Thereafter, in July 2012, he submitted a renewal application along with all of the other insureds on the policy. Evanston eventually found out about the scheme and indicated that they would not have issued the renewal policy at all had they known about Addo’s identity.
In a declaratory judgment action brought by Evanston against Agate, the district and circuit courts looked at whether the entire renewal policy should be voided as a result of the misrepresentation, or just as to Addo as an insured. Applying the “innocent co-insured doctrine”, both courts agreed that the coverage was only vitiated as to him. In support, the courts cited the fact that Addo had applied for coverage separately and that Agate had no knowledge of the fraud at the time of that application. Further, the renewal policy demonstrated an intent to provide separate coverage for the co-insureds and thus it would be inappropriate to void the entire thing. “Equity cannot demand that the actions of one corrupt applicant, who conned Agape and Evanston alike, deprive the innocent insureds of the benefit of their contract. Agape and its employees separately applied for medical malpractice insurance in good faith, and they would be left without such insurance through no fault of their own. Evanston accepted individual premiums as to each insured and seemingly spread the risk accordingly. Further, and perhaps more important in an equitable determination, [complete] rescission would leave the public essentially unprotected on matters of medical malpractice brought against Agape.”
01/08/16 Eurys Gamez v. ACE American Insurance Company
In Rescission Case, Analysis of the Whether “Risk” Would Have Been Written Differently Is Proper Focus of Inquiry, Not the Actual “Hazard” Or Cause of Loss, Eleventh Circuit Says
In this case, Eurys Gamez purchased a 2008, 32 foot Glasstream boat and trailer, which he insured with ACE American. Upon delivery in 2007, he promptly gave the boat to his cousin, Alfredo Hassun. It is undisputed that Gamez gave Hassun full permission to use the boat and it was thereafter stored at Hassun’s home in Miami. About a month after the purchase, Hassun loaned the boat to a friend, Alexis Suarez, for a fishing trip off the coast of Florida. Hassun had only known Suarez for a few weeks, and admittedly did not know where he lived, whether he had any boating experience, or whether he was even qualified to operate such a large vessel. Notably, Hassun was not acquainted with Suarez’s fishing partner, known only by the apt nickname “Patchy”. Suarez took the boat out in late November 2007, and then disappeared. “Neither he nor the vessel were ever seen or heard from again.”
Gamez, as the named insured, filed a claim with ACE and submitted a sworn proof of loss. After an investigation, ACE notified him that they were rescinding the policy, refunding his premium, and denying the claim on the basis of international material misrepresentations and concealment of material facts in the application. Gamez in turn sued ACE for breach of contract. ACE countered by arguing that the misrepresentations were considerable and indisputably material. They included the fact that though Gamez stated he was the owner of the craft, he was clearly a mere surrogate for Hassun. Further, Gamez had stated that the boat would be kept at his residential address (though he did not even live there) and indeed the boat was kept at Hassun’s. Gamez had also stated that he would be the primary operator and no other additional operators were identified, which also turned out not to be the case. He had further claimed to have had four years of prior boating experience, whereas he did not actually own any of the vessels listed on the application. At trial, an ACE underwriter testified (without contradictory evidence) that these were all material misrepresentations and the policy would not have been written as it was had the insurer known the truth.
With regard to the fraud, the district court instructed the jury: “Thus, to establish its affirmative defense based on fraud, ACE American must prove each of the following elements by a greater weight of the evidence: (1) that Gamez or Hassun falsely misrepresented or concealed a specific, material fact; (2) that Gamez or Hassun knew or should have known that the representation was false; (3) that Gamez or Hassun willfully made the representation or concealment with the intention of defrauding ACE American; (4) that Gamez or Hassun intended to induce ACE American to act on the representation or concealment; and (5) that the representation made was one that would affect the liability of ACE American to pay a certain amount of money. Because not every misstatement qualifies as fraud, where, as here, the express language of an insurance contract prohibits intentional acts of concealment, misrepresentation or fraud, the insurer bears the heavy burden of establishing that the conduct complained of was a willful, intentional misrepresentation of fact.” The jury ultimately found that ACE had established that Gamez intentionally misrepresented facts in his application, and judgement was entered in ACE’s favor.
Upon appeal to the Circuit Court, Gamez argued that the Florida Insurance Law on material misrepresentations (Florida Statute § 627.409(1)(a)-(b) and (2) – click for full, relatively brief statutory language), which is similar those on the books in many states, was limited and thus inapplicable here. Gamez wanted the court to hold that an insured’s breach of the policy conditions would not be a defense “unless such breach or violation increased the hazard by any means within the control of the insured”. In this case, the hazard that constituted the cause of loss was unknown, or lost at sea, as it were. It could not be proven by the insurer one way or another whether it was in the control of the insured. ACE countered that the statute should be interpreted as a whole. In brief, either there was fraud in the inducement (intentional misrepresentation) or, if innocent, it was material enough to have changed the premium or underwriting of the risk. Both scenarios should provide a ground for rescission.
The Eleventh Circuit agreed with ACE. Holding that Gamez was conflating the statutory terms, the Court further noted that focusing on the “increased the hazard” language would provide Gamez an out because ACE would never be able to prove such hazard. Yet Gamez did fraudulently procure the policy in the first instance. Accordingly, the Court noted that the “risk”, not the “hazard” itself, should be the focus of inquiry. Thus, the lower court findings would stand, and Gamez would not be entitled to a new trial.
01/04/16 Unitrin Auto and Home Ins. Co. v. Sullivan
No Coverage for Intentional Act
On July 29, 2005, George Ciminello was injured when he was struck in the eye by a cup filled with urine thrown from a moving vehicle. The involved vehicle was owned by Gerald Sullivan who was the named insured on an auto and home policy issued by plaintiff. Gerald’s son, Brian, was operating the vehicle. Brian’s friend was sitting in the passenger seat when he threw the cup. Apparently, they intended to empty the contents of the cup on to Ciminello as they drove by, but did not intend to hit him in the face with the cup itself, but the cup slipped.
Ciminello brought suit against Gerald and Brian Sullivan and the friend.
The decision recites a large amount of procedural history from the underlying action wherein the claims against Gerald were dismissed along with the negligence causes of action. For our purposes, we will focus on the court’s consideration of the intentional acts exclusion. The Unitrin policy provided that coverage is available if an action is brought against an insured for damages because of bodily injury or property damage caused by an “occurrence” or by an “auto accident”; it defines “occurrence” as “an accident” resulting in bodily injury or property damage. The policy also contained an exclusion for bodily injury which is “expected or intended by one or more of the insureds.” In deciding whether a loss is the result of an accident, it must be determined, from the point of view of the insured, whether the loss was unexpected, unusual, and unforeseen.
In finding that the claim was precluded by the policy, the court began by noting that only intentional claims sounding in intentional tort remained in the underlying action. It then noted that while Ciminello may now argue that the injuries he sustained were the unexpected result of an intentional act and, therefore, within the coverage of the policy, the judge found the argument without merit. Where, as here, the harm to a victim flows directly from and is inherent in the nature of the act allegedly committed by the insured, the harm will be deemed to have been intentionally caused. Since physical harm to Ciminello was intended in the nature of the conduct alleged, whatever physical injuries resulted from that conduct were intended, irrespective of the insured’s subjective intent and not withstanding that the actual injuries were more extensive than he anticipated. Accordingly, the court found the disclaimer appropriate.
Of note in the final paragraph of the decision, the court denied plaintiffs request for permission for the assigned attorney of record in the underlying action to withdraw as counsel. The court found the record devoid of proof of an agreement which would condition the attorney-client relationship on the insurer’s duties.
Note: Nice decision for our office. Thanks, Beth.
01/25/16 Juneau v. Jones
Plaintiff Failed to Show Insurer Acted in Bad Faith by not Paying Benefits in Excess of Amount Received from Underinsured Motorist.
This case arose out of a January 4, 2013 automobile collision. Defendant Leo Jones' vehicle collided with a vehicle owned and operated by one of the Plaintiffs, Christopher Juneau. Plaintiffs filed a lawsuit asking for damages arising out of the accident, including medical expenses, lost wages, property damages, earning capacity impairment, and pain and suffering. When Defendant Jones was dismissed from the lawsuit due to settlement, Defendant State Farm, the insurance carrier for Plaintiffs' uninsured/underinsured motorist insurance coverage, remained a party. Plaintiffs were attempting to recover insurance benefits from State Farm in excess of what was received from Defendant Jones.
Plaintiffs filed an Amended Complaint, adding claims that State Farm handled their claim in bad faith. State Farm moved for summary judgment arguing that Plaintiffs failed to show that State Farm acted in bad faith in denying their claim for underinsured motorist benefits. State Farm argued that because Plaintiffs received $25,000 from Defendant Jones, it did not have to pay on the policy until Plaintiffs could show damages in excess of that amount. State Farm further argued that the only bills and records provided to them showed Plaintiff Christopher Juneau incurred only $7,519.49 in medical bills.
Plaintiffs cross moved for summary judgment, arguing that they carried their burden of proof for showing bad faith. They argued that they provided State Farm with medical records detailing Mr. Juneau’s back problems and pointed to his deposition testimony regarding lost wages and inability to travel.
The court, applying Louisiana law, found in favor of State Farm. The court noted that, to demonstrate satisfactory proof of loss, a claimant must establish the extent of his damages. A bad faith refusal to pay means more than mere bad judgment or negligence; it implies a dishonest purpose or evil intent.
In this case, Plaintiffs only provided State Farm with $7,519.49 worth of medical bills, an amount far less than the $25,000 received from the Jones settlement. Furthermore, Mr. Juneau's doctor stated that he would likely not require surgery as a result of his injuries, and Mr. Juneau’s increased income after the date of the collision called into question whether there was any income loss. Thus, the court determined that there was a good faith basis for State Farm's denial of Plaintiffs' uninsured motorist claim.
Nonetheless, the court stated that State Farm may still be required to pay on the policy. It concluded that the true extent of Plaintiffs' damages was a question of fact better left for the jury.
01/13/16 Electric Power Sys. Int’l, Inc. v. Zurich Am. Ins. Co.
Missouri Court Distinguishes Bad Faith from Breach of Contract Claim
Plaintiff, Electric Power Systems International, Inc. (EPS) was performing labor under a contract it had with Louisville Gas and Electric Company (LGE). When an LGE transformer was damaged, LGE claimed that EPS caused the damage. EPS submitted LGE's claim to its insurer, Defendant Zurich American Insurance Company, who denied coverage based on the commercial general liability insurance policy's exclusions, but it advised EPS to contact Zurich if its understanding of the facts was erroneous. EPS contacted Zurich on at least three separate occasions to correct Zurich’s erroneous understanding of the facts, but Zurich failed to review EPS’ information and continued to deny coverage.
EPS brought an action against Zurich claiming, among other things, that Zurich acted in bad faith when it failed to promptly settle Zurich's claim. EPS also sought punitive damages. Zurich sought to dismiss EPS’ bad faith failure to settle claim, arguing that its denial of coverage was actionable only as a breach of contract action.
The court concluded that EPS stated a valid claim for bad faith failure to settle against Zurich, and it denied the insurer’s motion to dismiss. The court noted that, under Missouri law, a bad faith failure to settle claim sounds in tort and is not an action on the insurance contract. Unlike a breach of contract action, an insurer that acts in bad faith in refusing to settle a claim against its insured within its policy limits may be liable over and above the limit of the policy. The court held that there were facts in the complaint to support the bad faith claim against Zurich including: that EPS demanded that Zurich settle the underlying third-party claim, that Zurich refused to settle the third-party claim within the Policy limits, and that it acted in bad faith in doing so.
01/21/16 The Lab, LLC v. Travelers Property Cas. Co. & Nathan Butwin Co.
Common-Law Duty of Insurance Agent Defined by Scope of Coverage Request
In The Lab, the parties (an insured, insurer, and insurance agent) were in district court based on diversity jurisdiction due to the different state citizenship of each party. The insurer had removed the matter from state court, arguing that the plaintiff had “fraudulently joined” the insurance broker (who, like the plaintiff, was a New York citizen) for the purpose of preventing the case from being moved to federal court. Resolution of the plaintiff’s subsequent motion to remand required the district court to determine whether, under New York law, there was any possibility that the plaintiff could state a claim against the insurance agent for a breach of the common-law duty to obtain requested coverage for their clients. The district court found that the allegation in the complaint, that plaintiff had requested coverage for business interruptions caused by ‘any loss of power’ and ‘any loss of use or occupancy’ at its business premises sufficiently identified a specific type of coverage to render it possible that the agent, who obtained a policy that did not provide such coverage, breached his duty. In so concluding, the district court noted that a potential insured’s requests for the ‘best policy value’ or ‘best available’ coverage would be too general a request for the purpose of liability.
Editor’s Note: Be careful what you ask for. Or are asked for.
11/10/15 Clement v. Farmington Casualty and The Travelers Ind. Co.
Duty to Investigate and the Potential Duplicative Nature of Certain Coverage Claims
In Clement, a coverage dispute and subsequent lawsuit arose after an ice dam formed on the roof of the plaintiffs’ house. The insurer’s engineer inspected the premises and drafted a report to the insurer that the ice damming occurred due to the age of the roof and lack of ice shields. The plaintiffs were unaware of the contents of this report, which also discussed the fact that the leaks were promoting mold growth throughout the house. The insurer then disclaimed coverage, asserting that a “portion” of the loss was not covered, nor was there coverage for the damage caused by normal weathering conditions (wear and tear). As a result, the plaintiff sued the former owners of their home.
Plaintiffs’ later case against the insurer ended up in federal court on diversity jurisdiction, where the district court considered the following claims under New York law: breach of the insurance contract; bad faith; and fraud. The court granted the insurer’s motion for judgment on the pleading for all claims.
There was no dispute that the breach of contract action was barred by the statute of limitations (a two-year contractual limitation, permissible under New York’s civil procedure law), but the plaintiffs argued that the insurer should be equitably estopped from asserting this defense. Specifically, the plaintiffs asserted any delay in bringing the claim was due to the insurer’s affirmative wrongdoing: its misrepresentation regarding the engineer’s mold conclusions in its disclaimer letter and the failure to produce the engineer’s report in response to a subpoena issued in plaintiffs’ action against the former homeowners. The district court rejected this argument based in part on the finding that the language in the disclaimer letter -- that “a portion of the plaintiffs’ losses would not be covered -- was sufficient to trigger plaintiffs’ own duty to investigate any potential claim. Indeed, the district court specifically highlighted that the notice was sufficient to prompt the plaintiffs to pursue a claim against the former homeowners. “That [p]laintiffs chose not to similarly investigate potential claims against the insurance company cannot support application of the equitable estoppel doctrine.”
The district court went on to conclude that the breach of contract and bad faith claims were both in fact premised on the denial of payment pursuant to the insurance policy, rendering the bad faith claim not actionable under New York law. The court found that the plaintiffs’ attempt to frame this claim as one based on the insurer’s alleged assertion that it was denying coverage based on the engineer’s conclusions to be a “distinction … of no real consequence.”
Finally, the district court also dismissed the fraud claim, which was based on the allegation that the insurer concealed the true reason for the mold growth in the plaintiffs’ home to avoid paying under the insurance contract. The district court found that, as framed, the damages alleged (non-payment on the contract) were the same as the damages alleged in the breach of contract claim. As a result, the claim was dismissed as duplicative.
08/06/15 BancInsure Inc. v. Federal Deposit Insurance Corp
Exclusion Bars D&O Coverage in FDIC Suit
The FDIC became the receiver of Columbian Bank in 2008 when it was declared insolvent. The FDIC brought charges of gross negligence and breach of fiduciary duty against the Bank’s former officers and directors. After a settlement in February 2013, the bank’s insurer paid a portion of the settlement amount and then filed a complaint seeking reimbursement. The insurance carrier argued that the “insured v. insured” exclusion in the D&O liability policy barred coverage for the underlying action by the FDIC. The District Court agreed, granted the insurance company summary judgment, and this ruling was affirmed on appeal.
On appeal, various director defendants argued that other provisions in the policy either took priority over or questioned the “insured v. insured” exclusion.
They first pointed to an exception extending coverage to suits brought by shareholders, but the Court ruled that this was not really a shareholder claim, and this argument did not overcome plain language in the policy that included any action by a receiver of the bank within the “insured v. insured” exclusion.
The directors also argued that a regulatory exclusion endorsement had been removed, and that the amended policy therefore included coverage for suits brought by regulatory agencies such as the FDIC. The courts again disagreed arguing that the removal of the regulatory exclusion permits coverage but did not require it since removing an exclusion is not the same as affirmatively providing coverage. The Courts held that whether the claims were covered was a question of law and policy interpretation and properly subject to judicial review and judgment.
This case is actually an appeal from our prior report. It is important to focus on who is the insured and who is covered under a policy. It is equally important to determine what coverage applies to which insureds. In theory, insurance exists to protect an insured from third party claims, and if the claim is essentially “insured v. insured”, then the theoretical justification for insurance ceases to exist. On the other hand, it is worth remembering that the insurance company is likely to bear the burden of proof with respect to the applicability of an exclusion to coverage under a policy.
In this case, the Courts basically held that this was an internal litigation between and among Columbian Bank and its officers and directors, did not involve a third party claim, and the theoretical justification for insurance did not exist and, just as importantly, the exclusion specifically applied.