Wednesday, August 26, 2015

Intoxication, Stabilization, and Necessary Emergency Health Services

In July 2010, the New York State legislature passed a law -- Chapter 303 of the Laws of 2010 -- amending the mandatory PIP endorsement's intoxication exclusion by requiring New York no-fault insurers to pay for "necessary emergency health services rendered in a general hospital" to persons injured as a result of operating a motor vehicle while in an intoxicated condition or while the person's ability to operate the vehicle is impaired by the use of a drug.  That law took effect on January 26, 2011 and earlier that month I blogged here about that new law taking effect.  

Yesterday one of my no-fault insurer clients asked me a question about what qualify as necessary emergency health services that eventually led me back to my January 2011 posting for an answer.  The question was this:  
Question:  The named insured driver did not seek or receive any emergency services at the time of a motor vehicle accident. He claimed he was told by the police that he refused treatment at the scene. He was instead arrested, and taken to the police station, fingerprinted, charged with driving while intoxicated, and released to home. The insured claimed he did not recall any conversation with the police or ambulance crew, nor did he recall the accident.  Three days after the accident he went via ambulance  from his home to the emergency room of a local hospital, where he was diagnosed with and treated for a mild concussion and multiple soft tissue injuries before being released back to home.  The injuries relate to the motor vehicle accident.  Are the ambulance and ER bills considered necessary emergency health services?
Answer:  No.
As I pointed out in my January 2011 posting, the then-New York State Insurance Department in its Circular Letter No. 4 (2011) said:
For the purposes of compliance with Chapter 303, the Department interprets “necessary emergency health services” to mean services rendered to a person by or under the supervision of a physician, paramedic, or emergency medical technician to treat the onset of sudden pain or injury and to stabilize the person, provided the person is transported directly from the scene of the motor vehicle accident to the general hospital.  Pursuant to this interpretation, once the sudden pain or injury is treated and the person is stabilized, (generally in the emergency room) the no-fault insurance coverage ceases.  In order to facilitate timely payment, a hospital should specify what portion of the bill consists of “necessary emergency health services.”  If the hospital does not specify what portion consists of “necessary emergency health services,” then a no-fault insurer may request this information.  (Bolding, underlining and highlighting added.)   
If the insurer could prove that the claimant’s injuries were sustained “as a result of operating a motor vehicle while in an intoxicated condition”, the ambulance and ER bills could be denied as not being “necessary emergency health services” because: (1) the services were not “to stabilize” the person; and (2) there was no transport from the accident scene to the hospital.  

This question made me curious to know whether the question of what constitute "necessary emergency health services" has come up and been decided in any reported New York court cases or in any New York no-fault arbitrations conducted under the auspices of the American Arbitration Association.  So off to Google Scholar (New York state court cases) and the AAA's No-Fault Award Service page I went.  

What I found surprised me.  Somewhat.  

The term "necessary emergency health services" does not appear in any reported New York state or federal court decisions.  Not before or after January 2011.  Not at all.  

The term does, however, appear in 15 AAA New York no-fault arbitration decisions or awards, all decided since Chapter 303 of the Laws of 2010 went into effect.  Digested in chronological order (oldest to newest), here are those awards:

     (Arbitrator Kent L. Benzinger, Esq., dated 11/27/11)

Although Geico submitted ER records listing "an ETOH level of 232" for the assignor, the arbitrator concluded that Geico failed to carry its burden of proving that: (1) the assignor was intoxicated at the time of the accident; and (2) such intoxication was the proximate cause of the assignor's injuries.  The arbitrator noted that the assignor's vehicle was rear ended in the accident and assignor was not charged with DWI:
In the instant case, the hospital record contains a diagnosis of “ETOH intoxication” and the handwritten notation of ETOH level of 232. However, the record contains no information as to how and when the blood was obtained or even the units of measurement of the final level.  Although ETOH in this country is usually measured in mg/dl or milligrams per deciliter which would convert to a BAC of .232 – far above the legal limit - this arbitrator will not speculate as to the method of collection of blood, the procedures taken, or the units of measurements. The hospital record does not contain any lab sheets noting CBC blood tests, values or interpretation. 
In addition, the record contains no evidence that any claimed intoxication was the proximate cause of the accident. The Assignor claims his vehicle was rear-ended which is also noted in the police accident report. Through a reference key accompanying the MV104a police accident report, the police officer did not list intoxication as a contributing factor as to the accident in boxes 21 and 22 pertaining to the Eligible Injured Party. The police report also does not list any VTL or criminal charges for intoxication. Finally, the Respondent/Carrier has failed to rebut Assignor’s claims and has not submitted evidence of any convictions or even pending charges for Driving While Intoxicated or alcohol involvement. 
The billing at issue was not for "necessary emergency health services" (NEHS).  The term appeared in the arbitrator's quotation of Insurance Law § 5103(b)(2).  Award to the applicant.

     (Arbitrator Sandra Adelson, Esq., dated 11/13/13)

Geico denied payment to applicant hospital "because the patient was operating the motor vehicle in an intoxicated condition.”  Award to the applicant based on the arbitrator's conclusion that
[t]he evidence specifically noted that the arbitration record did not definitively establish that the patient was injured as a result of operating the vehicle while in an intoxicated condition. The police report indicated that the patient was unable to speak. There was no basis to ascertain if the patient was injured as a result of operating the vehicle while in an intoxicated condition. The police report documentation that the patient was not able to speak supports the foregoing proposition.  Additionally, the patient did not plead to intoxication. Furthermore, a review of the hospital records indicates that the patient was receiving emergency care at applicant hospital. The applicable law states that “that an insurer shall not exclude such person from coverage with respect to necessary emergency health services rendered in a general hospital.”
The assignor has plead guilty to operating a vehicle ability impaired by alcohol, not to DWI.

     (Arbitrator Paul Israelson, Esq., dated 5/22/13)

Although applicant's claim totaled $21,687.50, at the outset the arbitrator noted:
[P]ursuant to 11 NYCRR 65-1.1(1)(g), in the event the respondent has demonstrated that the injured person was intoxicated at the time of the subject automobile accident then the applicant would be entitled to payment for only “necessary emergency health services”.
At to the “necessary emergency health services” provided by the applicant to the injured person, the applicant has provided an invoice for emergency room services totaling $6,332.28. The respondent has not provided any evidence to rebut the applicant’s assertion that the cost of the emergency room services totaled $6,332.28, therefore, that is the amount the applicant should receive for providing “necessary emergency health services” to the injured person in the event the respondent has demonstrated that the injured person was intoxicated at the time of the subject automobile accident.
In sharp and irreconcilable contrast to what Arbitrator Benzinger (above) concluded what not sufficient evidence of intoxication, Arbitrator Israelson found:  
Concerning whether or not the injured person was intoxicated at the time of the subject automobile accident, the respondent has produced the applicant’s 8/31/11 emergency room record bearing a handwritten note: “Alcohol Intox” in the section entitled, “IMPRESSION”. As well, the respondent has produced the applicant’s 8/31/11 Consultation Report, where it states on page two, under the section entitled “ASSESSMENT”, “EtOH intoxication.” In light of this evidence, it is clear that the applicant concluded that the injured person was intoxicated while in their emergency room. In that the police report for the subject automobile accident states that the accident took place on 8/31/11 at 10:22 pm and the applicant’s emergency room records note 8/31/11 at 10:55 pm as the date and time for the “IMPRESSION” “Alcohol Intox”, I conclude that this evidence demonstrates that the injured person was intoxicated at the time of the subject automobile accident.
Award to applicant for $6,322.28.

     (Arbitrator Vincent Esposito, Esq., dated 6/18/13)

Applicant sought payment of fee schedule-reduced billings totaling $9,685.89.  Geico timely requested verification by asking the applicant to specify which of the services billed were for "stabilization" purposes and which of the services were not.  Applicant did not respond.  On that basis, the arbitrator dismissed the claim without prejudice:
The respondent has submitted proof to show that the injured party was operating a vehicle while intoxicated. In spite of this, the No Fault Law section 5103 provides that a respondent would still be responsible for “necessary emergency health services.” This has commonly been referred to as stabilization. The respondent, in a timely manner, asked the applicant to specify which of the services were for stabilization purposes and which of the services were not. The applicant has not replied. The Insurance Department of the State of New York by Circular Letter #4 dated January 12, 2011 discusses this situation. The letter provides in part that if the hospital does not specify what portion consists of “necessary emergency health services” than a No Fault insurer may request this information. It is thus clear that the verification requests were proper. Since they have not been complied with, this proceeding is premature because until all verification is supplied a respondent is under no duty to pay or deny a claim.
     (Arbitrator Pamela H. Hirschhorn, Esq., dated 10/9/13)

Geico denied payment of applicant hospital's billing because “No-Fault benefits are excluded to Operators under the influence of drugs.”  Applicant argued that NEHS are not excluded even if the assignor was intoxicated and that intoxication was the proximate cause of the assignor's injuries.  After applicant filed for arbitration, Geico sent the hospital's billing
out for review to its claims support services.  It appears that the claims support representative had no medical qualifications or professional coding certification as evidenced by the letter issued by this service in July, 2013. The claim’s representative indicated that the injured person was “stabilized” in the emergency room at some point prior to discharge and that the allowable fee is $2,069.19. However, respondent failed to submit any peer review or competent medical proof in support of this determination. Respondent’s claims representative’s determination does not constitute prima facie proof that the services were billed in excess of fee schedule. See, Cornell Medical, PC v. Mercury Casualty Co., 24 Misc.3d 58, 884 NYS2d 558 (App. Term 2d, 11th & 13th Dists. 2009). This arbitrator further notes that pursuant to the circular letter issued by the Insurance Department of the State of New York on January 12, 2011, if the hospital bill does not specify what portion consists of “necessary emergency health services,” then a no-fault insurer’s remedy is to request that information from the hospital that rendered the services. See, Circular Letter no. 4, No-Fault Intoxication Coverage: Chapter 303 of the Laws of 2010, State of New York Insurance Department (January 12, 2011). It is clear from a review of the record that respondent failed to issue any requests for additional verification upon receipt of the within billing. See, 11 NYCRR 65-3.5 (b); 11 NYCRR 65-3.6 (b). For all the foregoing reasons, respondent failed to establish prima facie, that the fees charged by applicant are not in accordance with fee schedule.
Award to applicant for its claimed amount of $5,429.19.

     (Arbitrator Walter P. Higgins, Esq., dated 10/22/13)

In dispute were applicant hospital’s bills in the amount of $25,295.80, amended to the DRG rate of
$14,633.79, for hospital services provided to assignor.  The assignor was involved in an automobile accident on 11/17/11 when the vehicle he was driving struck a pole. He either walked one block to his home or drove his vehicle the one block to his home, and then lost consciousness. About 10 or 12 hours later, either he left a message with his estranged wife who called one of his friends to check on him, or he called the friend. The friend then took him to Glen Cove Hospital where he was transferred to the applicant hospital. He sustained small right sided rib fractures, right second metacarpal fracture, jaw and three tooth fractures as well as facial lacerations, and was admitted to the hospital.

Allstate's timely denial of payment stated "With the exception of the rendition of necessary emergency medical services by a general hospital, No-Fault coverage does not apply to a personal injury sustained by any person as a result of operating a motor vehicle while in an intoxicated condition or while his/her ability to operate such a vehicle is impaired by the use of a drug.”  In awarding payment of the amended amount to the applicant, the arbitrator concluded:  
Under Section 5103(b)(2), effective 1/26/11, ten months prior to this accident, payment is authorized for emergency health services rendered in a general hospital as defined under the New York Public Health Law § 2801(10). I find that Applicant meets the definition of a general hospital as set forth in Public Health Law § 2801(10). Thus, Respondent is responsible for “necessary emergency health services”. The bill does not distinguish between “necessary emergency health services” and services it provided on a non-emergency basis, if any. In that situation, Respondent’s remedy is to request the information from the hospital that rendered the services through the verification process. See Circular Letter No. 4, No-Fault Intoxication Coverage, New York State Insurance Department, 1/12/11. Respondent failed to issue any request for additional verification to determine if any of the services rendered were performed on a non-emergency basis. Respondent instead just denied the entire claim. Since no evidence has been submitted by Respondent that any of the services were rendered on a non-emergency basis, the denial cannot be sustained.
Even though the arbitrator knew of and cited to Circular Letter No. 4 (2011), Allstate's counsel apparently didn't subscribe to this blog or didn't find and review my January 2011 blog posting on the new law or that attorney could instead have argued that the billings were not for NEHS because, under Circular Letter No. 4 (2011), the assignor was not "transported directly from the scene of the motor vehicle accident to the general hospital".  No verification needed to draw that conclusion.

     (Arbitrator Timothy McNamara, Esq., dated 10/23/13)

Award to applicant for its billed/claimed amount of $416.68.  Although Geico provided the arbitrator with "a timely denial together with proof that the eligible injured party was intoxicated at the time of the happening of the accident", 
As can be seen [in Insurance Law § 5103(b)(2)], there is exception for emergency room treatments which compel an insurer to make payment for emergency room services notwithstanding the fact that the eligible injured party was intoxicated. 
Scratching my head to figure out why Geico denied and defended this one.

     (Arbitrator Michelle C. Entin, Esq., dated 1/10/14)
     (Arbitrator Michelle C. Entin, Esq., dated 1/10/14)

Geico's denial of the bills at issue stated that assignor was operating her motor vehicle in an intoxicated condition. Geico contended that the assignor lost control of her vehicle on ice and struck a telephone pole. A copy of the police report was submitted. The hospital records provided indicate a blood alcohol level of 220 mg/dl. Geico also submitted a causality review report by Tatiana Sharahy, M.D., which noted that the blood alcohol level was above the legal limit and which stated that the assignor was stabilized in the emergency room from a hemodynamic point of view.  In finding for the applicant, the arbitrator concluded:
Based upon the facts of this matter, inasmuch as the services at issue were rendered in the context of emergency urgent care, I find that Applicant is entitled to reimbursement for same as the services are found to be authorized for payment as per the Regulations, irrespective of the intoxication of the Assignor. Finally, as to the notation on the denial regarding billing subject to PPO rates, Respondent submits no evidence of same and accordingly this basis for denial is found to be unsubstantiated.
      (Arbitrator Paul Israelson, Esq., dated 4/17/14)

Liberty proved that the assignor's ability to operate a motor vehicle was impaired by the use of a drug (cocaine or an opiate) at the time of the accident and that that impairment was the proximate cause of the accident and assignor's injuries.  Most likely because the claim in dispute was for dates of service at the hospital starting one date after the accident and over a period of another 15 days, the award/decision does not discuss NEHS.  Claim DENIED.  

      (Arbitrator Kenneth C. Rybacki, Jr., Esq., dated 5/2/14)

The record contained an uncertified copy of a police accident report indicating that the assignor was arrested for driving while intoxicated, although citation to the law violated is not referenced in the report.  Geico requested from the applicant a copy of its ER records and a toxicology report. Geico indicated in the request that if no toxicology test was done, then Geico required written guidelines employed by the applicant regarding blood alcohol levels. If such a document did not exist, Geico required a statement from the attending physician as to why no such test was ordered.

The hospital submitted the entirety of its ER records to Geico, which received those records on 2/4/13. The records indicated that no toxicology test was done. Those records also contained the observations of the attending physicians and nurses as to their observations of the assignor. A letter sent to the respondent with the record indicated that what was sent was the entirety of the assignor’s record and that no toxicology test was performed.  Geico requested nothing more from the applicant and did not pay or deny its claim within 30 days of receiving the ER records.  For that reason, the arbitrator found in favor of the applicant.  

      (Arbitrator Teresa Girolamo, Esq., dated 5/27/14)

Upon receipt of applicant's billing for services rendered one day after the assignor's accident, Geico sent out verification letters that stated the following:
We are in receipt of your bill for treatment rendered relating to the above referenced claim. We are in possession of the police report which confirms that the claimant was charged with “Driving While Intoxicated” which emanated from the motor vehicle accident on August 19, 2012. This claim is delayed pending outcome of the criminal charges lodged against the claimant.
Not surprisingly, the arbitrator found that "the letters generated to Applicant did not toll the Respondent’s time to pay or deny this claim."  Can't just wait for related DWI criminal charges to be resolved.  Award for applicant.  

      (Arbitrator Mary Anne Theiss, Esq., dated 6/23/14)

No proof of intoxication or proximate ("contributing") cause.  Plus, the billing was for emergency room services and
based on Insurance Law §5103, provides that No-Fault coverage shall not be provided in a personal injury sustained by any person as a result of operating a motor vehicle while in an intoxicated condition. Effective January 26, 2011, §5013(b)(2) indicates that payment is authorized for emergency health service rendered in a general hospital, as defined under the New York Public Health Law, §2801(10). This provides that the Respondent is responsible for "necessary emergency health services." Additionally, see Circular Letter No. 4, No-Fault Intoxication Coverage New York State Insurance Department, 1-12-11.
Award to applicant for the claimed amount.  

      (Arbitrator Stephen Czuchman, Esq., dated 8/14/14)

Allstate delayed payment of applicant's ER billing based on not having received an NF-2 from the assignor.  
However, it is well-settled that an insurer must accept a hospital facility form NF-5 submitted on behalf of a provider of health services in lieu of a NF-2 (See, 11 NYCRR § 65-3.5(g)) and may not delay a hospital claim for the patient’s NF-2. Nyack Hosp. v. Encompass Ins. Co., 23 AD3D (2d Dept 2005). Accordingly, I find it was improper for respondent to delay the claim for a NF-2. With respect to the intoxication defense, pursuant to a 2011 Insurance Department Circular Letter, as of 1/26/11, no-fault insurers are prohibited from excluding from coverage necessary emergency health services rendered in a general hospital, including emergency health services like those at issue here. New York Department of Insurance, Circular Letter No. 4. 01-12-11. For the foregoing reasons, based on a fair preponderance of the credible evidence, I find denial of this claim is overdue. 
      (Arbitrator Lester R. Hill, Esq., dated 9/26/14)

At issue in this arbitration was whether what medical services which were provided to the intoxicated EIP to stabilize the EIP’s condition.

The EIP was involved in a motor vehicle accident on September 11, 2011. The EIP was transported to the applicant's facility from the scene of the accident and was hospitalized through September 20, 2011. The EIP pled guilty to Vehicular Assault in the First Degree and Driving while Intoxicated. The arbitrator found, based upon the toxicology reports contained in the hospital record of the applicant, that the EIP was in fact driving while intoxicated at the time this motor vehicle accident.

Allstate sought verification of the claim by asking the applicant to advise which portion the hospital bill was for NEHS.  A doctor from the applicant sent a letter advising Allstate that the EIP was transferred from the ICU unit to the hospital floor on the third day of the admission and that in the doctor's opinion the first two days of the hospital admission were for NEHS.

The applicant's one-page bill for the entire 10-day hospitalization totaled $20,924.79. When the EIP arrived at the emergency room he was unconscious and was subsequently treated for multiple fractures and a cerebral hemorrhage. The hospital bill did not delineate what services were provided, with the appropriate CPT codes, and on which dates in the hospital admission the services were provided to enable Allstate or the arbitrator to determine the appropriate reimbursement for the "necessary emergency health services".

For this reason, the arbitrator continued this case for eight weeks for the applicant to provide a breakdown of the emergency medical services that were provided in the first two dates of the admission (pursuant to the applicant's doctor's letter), the CPT codes for those procedures, and the DRG rate for those services.

Despite the arbitrator's directive, the applicant made no post-hearing submission. Without such a
submission, the arbitrator lacked information to determine what medical services were provided to the EIP that were to be reimbursed pursuant to Insurance Law 5103 for “necessary emergency
health services”.  For that reason, the arbitrator dismissed applicant's claim without prejudice.  

Monday, August 24, 2015

Wind or Water? -- A Superstorm Sandy Loss

HOMEOWNERS – PROPERTY – FLOOD – WATER DAMAGE EXCLUSION – WIND – ANTI-CONCURRENT CAUSATION CLAUSE    
Clarke v. Travco Ins. Co.
(S.D.N.Y., decided 8/7/2015)

During Superstorm Sandy, water flooded the lower level of the plaintiff's house to a height of approximately four feet.  Further, a wooden dock from another property, approximately fifteen feet by ten feet in size, entered the property and came to rest within the lower level of the house, causing damage to the house.  Plaintiff asserted that the dock was pushed into the property by wind, causing significant structural damage, while defendant Travco Insurance Company argued that the dock was transported by water.

Plaintiff's policy with Travco contained the following exclusion:
1.  We do not cover any direct or indirect loss or damage caused by, resulting from, contributing to or aggravated by any of these excluded perils. Loss from any of these perils is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss. 
These exclusions apply whether or not the loss event:
(a) Results in widespread damage;
(b) Affects a substantial area; or
(c) Occurs gradually or suddenly.
These exclusions also apply whether or not the loss event arises from:
(a) Any acts of nature;
(b) Any human action or inaction;
(c) The forces of animals, plants or other living or dead organisms; or
(d) Any other natural or artificial process.
* * *
c. Water Damage, meaning:
(1) Flood, surface water, ground water, storm surge, waves, wave wash, tidal water, tsunami, seiche, overflow of a body of water, or spray from any of these, whether or not a result of precipitation or driven by wind;
(2) any water or water borne material that enters through or backs up from a sewer or drain, or which overflows from a sump, sump pump or related equipment, as a direct or indirect result of flood;
(3) any water or water borne material located below the surface of the ground including water or water borne material:
1. Which exerts pressure on, seeps, leaks or flows into:
a. Any part of the dwelling or other structures;
b. The foundation of the dwelling or other structures;
c. Any paved surface located on the "residence premises"; or
d. Any spa, hot tub, or swimming pool.
2. Which causes earth movement; or
(4) any overflow, release, migration or discharge of water in any manner from a dam, levee, dike, hurricane barrier or any water or flood control device.
Direct loss by fire, explosion or theft resulting from water damage will be covered.
After discovery was complete, Travco moved for summary judgment.  In GRANTING that motion and dismissing plaintiff's complaint, the District Court for the Southern District of New York first ruled that the report and testimony of plaintiff's professional engineer was inadmissible as expert testimony because his conclusion that the dock was wind-driven was "based on data, a methodology, or studies that are simply inadequate to support the conclusions reached." Secondly, after outlining the insurance policy interpretation principles that are used in New York, the District Court concluded that "[i]t is clear, by the plain and unambiguous language of the policy, that the damage does fall within the [water damage] exclusion, and therefore Plaintiff cannot prevail on his claim":
The facts of this case are essentially undisputed. A dock, floating on top of water, was pushed by wind into the lower level of Plaintiff's house, causing damage to the Property. Plaintiff seeks to differentiate damage to the Property caused by dock from damage caused by flood waters and avers that the damage done by the dock was caused solely by wind and therefore falls outside the provision excluding water damage from coverage under the Policy. (See Pl.'s Opp'n at 3, 4-5.) The Court is skeptical that this sort of differentiation is truly possible or supported by the record before it but, even if it is, the distinction does not defeat the provision of the Policy excluding coverage for water damage. 
The exclusion provision sets forth that the Policy does not cover "any direct or indirect loss or damage caused by, resulting from, contributing to or aggravated by any of these excluded perils." (Sipple Decl. Ex. B at TP 000010 (emphasis added).) The Policy then goes on to include an anti-concurrent causation clause which states that "[l]oss from any of these perils is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss." (Id. (emphasis added).) One of the "excluded perils" in the Policy is "Water Damage," which is defined in part as "flood, surface water, ground water, storm surge, waves, wave wash, tidal water, tsunami, seiche, overflow of a body of water, or spray from any of these, whether or not a result of precipitation or driven by wind." (Id. at TP 000011 (emphasis added).) These terms have a definite and precise meaning when read within the context of the agreement as a whole, in particular when read in conjunction with the various clauses regarding exclusions from the Policy. There is no ambiguity in the relevant portions of the Policy. 
The Policy unambiguously excludes any damage "caused by" or "aggravated by" the types of water described in the exclusion provision, regardless of any other contributing causes and whether or not it was "driven by wind." While it appears possible that the dock may have been driven into the Property by wind, as Plaintiff asserts, it is clear from the record that the dock was driven into the house because it had been floating on, and was also driven by, water. (Aboulafia Decl. Ex. 4 (Transcript of Deposition of Peter Svoboda, October 2, 2014 ("Svoboda Dep.")) at 80:20-81:14.) Even Costa—whose testimony was proffered by Plaintiff to rebut the claim that the damage involved water, as opposed to wind—testified to this in his deposition: 
Q: As you sit here today, based on what you observed is it your belief that this dock was actually lifted up into the air and blown into the house, or that it was pushed by the wind on top of water into the house?. . . .
A: Pushed on top of the water into the house. 
(Costa Dep. at 42:9-17; see also id. at 41:17-21, 45:9-46:9.) There is no dispute that water was involved in the dock's movement. Even if wind were the main cause, it is indisputable that the water upon which the dock was resting at least indirectly caused or aggravated the damage to Plaintiff's property. Further, the language of the anti-concurrent causation clause means that "where a loss results from multiple contributing causes, coverage is excluded if the insurer can demonstrate that any of the concurrent or contributing causes are excluded by the policy." ABI Asset Corp. v. Twin City Fire Ins. Co., No. 96-CV-2067 (AGS), 1997 WL 724568, at *2 (S.D.N.Y. Nov. 19, 1997) (emphasis in original). Ultimately, it is clear that even if wind was a contributing cause and/or the dock was in some way "driven by wind," the exclusion still applies and thus bars Plaintiff from recovering under the Policy for the damage to his property. 
Plaintiff has failed to identify any genuinely disputed issues of material fact as to whether the policy exclusion applies in this matter, which is the crux of the Plaintiff's entire claim. The unambiguous language of the policy exclusion for water damage clearly excludes the damage caused to Plaintiff's property as a matter of law, and a reasonable jury could not return a verdict in Plaintiff's favor. Thus, Defendant's motion for summary judgment is granted.
Water.  No coverage.  

Friday, August 21, 2015

A Day Late and Some Dollars Short

NO-FAULT – LATE NOTICE – WRITTEN NOTICE OF ACCIDENT  
Great Health Care Chiropractic, P.C. v Elrac, Inc.
(App. Term, 2nd Dept., decided 8/5/2015)

Think late notice doesn't apply to no-fault claims?  Think again.

The prescribed New York mandatory personal injury protection endorsement found at 11 NYCRR § 65-1.1 sets forth this condition precedent to coverage:
Notice. In the event of an accident, written notice setting forth details sufficient to identify the eligible injured person, along with reasonably obtainable information regarding the time, place and circumstances of the accident, shall be given by, or on behalf of, each eligible injured person, to the Company, or any of the Company's authorized agents, as soon as reasonably practicable, but in no event more than 30 days after the date of the accident, unless the eligible injured person submits written proof providing clear and reasonable justification for the failure to comply with such time limitation. 
Pursuant to 11 NYCRR § 65-2.4 essentially the same notice condition applies to self-insurers, such as the defendant Elrac, Inc., in this case.

Elrac denied payment to plaintiff assignor based on having received from assignor's attorney first notice of the accident in the form of a completed NF-2 on July 7, 2010, 31 days after the June 6, 2010 accident date.  In opposition to Elrac's cross motion for summary judgment, plaintiff submitted an affidavit by Dr. Jean Claude Compas, who stated that he had personally mailed, by certified mail, the NF-2 to Elrac on July 6, 2010, the 30th day following the accident date.  He alleged, with regard to mailing, that he personally takes all envelopes in the office to the post office and presents them to the clerk to be weighed and to determine the correct postage, and that he purchases the postage at that point. Plaintiff also submitted a "Track & Confirm" search result indicating that the envelope had been delivered to Elrac, but did not submit the certified mail receipt indicating the date on which the envelope had been brought to the post office.

In reply papers in further support of its cross motion, Elrac submitted a photocopy of the envelope bearing a certified mail number which matches the certified mail number alleged by Dr. Compas to be the certified mail number under which the NF-2 had been mailed. Both the postage and the postmark were dated July 7, 2010 (Day 31).

In AFFIRMING Queens County NYC Civil Court's order denying plaintiff's motion and granting Elrac's cross motion for summary judgment, the Appellate Term, Second Department for the 2nd, 11th, and 13th Judicial Districts, held:
In its brief, plaintiff concedes "the fact that the envelope was postmarked by the Post Office on July 7," but argues that it was mailed on July 6, 2010. However, this is not a case where a mailing was timely because the envelope was timely dropped into a mail box, even though it was not delivered to the post office and postmarked until a date beyond the prescribed time period (see CPLR 2103 [b] [2]; [f] [1]; Kresch v Saul, 29 AD3d 863 [2006]). Rather, plaintiff's own affidavit establishes that the NF-2 and notice of injury were delivered directly to a clerk at the post office for postage and mailing. Both the postage and the postmark are dated July 7, 2010, conclusively establishing that the documents were not mailed until that date. Therefore, they were not submitted to defendant within the time frame required by 11 NYCRR 65-2.4 (b).
Plaintiff also argues that defendant failed to prove that it had timely denied the bills. However, defendant submitted an affidavit by an employee of its third-party administrator, which affidavit sufficiently established the timely mailing of the denial of claim forms (see St. Vincent's Hosp. of Richmond v Government Empls. Ins. Co., 50 AD3d 1123 [2008]; Delta Diagnostic Radiology, P.C. v Chubb Group of Ins., 17 Misc 3d 16 [App Term, 2d & 11th Jud Dists 2007]). Furthermore, the denial of claim forms advised plaintiff that the late notice of claim would "be excused should the applicant or the assignee provide reasonable justification for the failure to give timely notice." Defendant has established that no such justification was provided. Thus, we reject plaintiff's argument, based upon Infinity Health Prods., Ltd. v Eveready Ins. Co. (67 AD3d 862 [2009]), that, even if the submission of the notice of the accident was untimely by one day, such untimeliness is de minimis and should be excused. Consequently, as defendant timely denied the bills on the ground that there was a failure to comply with a condition precedent to coverage (see 11 NYCRR 65-2.4 [a], [b]), plaintiff's motion for summary judgment was properly denied and defendant's cross motion for summary judgment was properly granted.
So much for Dr. Compas' affidavit of having personally taken and presented the NF-2 mailing to the post office on July 6, 2010.  Draw your own conclusions.

Thursday, August 20, 2015

Excess to Infinity

EMPLOYERS LIABILITY – COMMERCIAL UMBRELLA – UNLIMITED COVERAGE EXHAUSTION OF PRIMARY POLICY LIMIT – SCHEDULE OF UNDERLYING INSURANCE  
Tully Construction Co., Inc. v. Illinois National Ins. Co.
(2nd Dept., decided 8/19/2015)


At what point is excess to unlimited coverage triggered?  

Tully Construction Company obtained a New York workers compensation/employers liability (WCEL) from Zurich American Insurance Company and a commercial umbrella liability insurance policy from Illinois National Insurance Company.  The umbrella policy required Tully to exhaust all insurance available before the excess coverage provided by the umbrella policy would be triggered. The umbrella policy also explicitly stated that, despite the listing of any limits of underlying insurance in the Schedule of Underlying Insurance, if the actual insurance available to Tully exceeded the amounts listed in the schedule, the umbrella policy would not be triggered until those greater amounts were met and exceeded. In underlying personal injury actions, the parties settled for $9,000,000, with Zurich paying $6,500,000 and Illinois paying $2,500,000.  This declaratory judgment action ensued, with Illinois seeking reimbursement from Zurich of Illinois' $2,500,000 settlement payment.

In AFFIRMING the Supreme Court's order granting summary judgment to Illinois and ordering Zurich to reimburse Illinois, the Appellate Division, Second Department, held:
The WCEL policy contained a New York Limit of Liability Endorsement which provided that in cases of bodily injury to an employee arising out of and in the course of employment that is subject to and is compensable under the Workers' Compensation Law, Zurich could not limit its liability and, as such, the policy was unlimited in those cases (see generally Oneida Ltd. v Utica Mut. Ins. Co., 263 AD2d 825 [New York recognizes no liability limits in Workers' Compensation and Employer's Liability policies]). 
In light of the unlimited nature of the WCEL policy, the Supreme Court properly concluded that the limits of the underlying insurance policies were never met and, as such, the excess coverage provided by the umbrella policy was never triggered (see Merchants Mut. Ins. Co. v New York State Ins. Fund, 85 AD3d 1686). 
Contrary to the plaintiffs' contention, under the circumstances of this case, the Supreme Court properly concluded that apportionment of liability pursuant to Hawthorne v South Bronx Community Corp. (78 NY2d 433) was not applicable, since this case involves a coverage dispute between a primary insurer and an excess insurer (see Liberty Mut. Ins. Co. v Insurance Co. of State of Pa., 43 AD3d 666; see also National Union Fire Ins. Co. of Pittsburgh, Pa. v State Ins. Fund, 222 AD2d 369; B.K. Gen. Contrs. v Michigan Mut. Ins. Co., 204 AD2d 584; Aetna Cas. & Sur. Co. v Lumbermens Mut. Cas. Co., 136 AD2d 246).
Sorry Buzz.  No excess umbrella liability coverage for you.  

Monday, August 17, 2015

Suing for Bad Faith in Bad Faith Warrants Sanctions

NO-FAULT – PRIVITY – BAD FAITH – INDIVIDUAL LIABILITY – FRIVOLOUS ACTION  
Hunter v. Hereford Ins. Co.
(NYC Civ. Ct., Queens Co., decided 8/14/2015)

Even with today's pervasive lawyer advertising, can't and don't lawyers still get to pick their clients?  If so, what happened in this case?

Mary Hunter was involved in motor vehicle accident with Hereford Insurance Company's insured, Herman Charles.  Unimpressed with the unserious nature of Hunter's claimed bodily injuries, Hereford's claim examiner, Sherri Gordon, offered Hunter $3,000 to settle her BI claim.  An indignant but undaunted Hunter both complained as a "third-party insurance claimant" to the New York State Department of Financial Services' Customer Assistance Unit and sued not the adverse driver Herman, but his insurer Hereford and Hereford's claims examiner Gordon personally for $21,500, the amount to which Hunter alleged she was "entitled to for injuries...incurred as a result of the accident caused by defendant's insured." Hunter's complaint in this action purported to assert causes of action sounding in unfair claims practices and insurer bad faith.

Hereford moved to dismiss the action: (1) against Hereford for Hunter's failure to state a cause of action, or in the alternative on the ground that Hunter lacked standing to file the action for lack of privity of contract; (2) against its claim examiner Sheri Gordon on the ground as an agent of a disclosed principal she could not be held personally liable; (3) for failure to state a cause of action for unfair claims practices; and (4) for costs and sanctions against plaintiff for filing a frivolous action.

In GRANTING Hereford's motion in all respects, New York City Civil Court Judge Cheree A. Buggs first dismissed the action against Hereford's claims examiner based on the well-settled law of New York that "...[u]nless the agent has assumed authority and responsibility, as if he were acting on his own account, then the duty which the agent fails to perform is a duty owing to his principal and not to the third party, to whom he has assumed no obligation[.]"  Finding that Hunter had presented no argument or evidence that Gordon in any way assumed the "authority and responsibility" New York case law requires in order to make her personally liable, the court dismissed Hunter's complaint as to Gordon.

Judge Buggs next distinguished and rejected as authority the two cases Hunter's attorney cited --  Bi-Economy Market v Harleysville, 10 NY3d 187 (2008), and Pavia v State Mut. Auto Ins. Co., 82 NY2d 455 (1993) -- in opposition to Hereford's motion to dismiss and in support of the complaint's cause of action for unfair claim practices.  The court reasoned:
New York State Insurance Law §2601 prohibits unfair claim settlement practices; however, that statute regards oversight by the New York State Department of Financial Services (NYSDFS) of insurance companies which might be engaging in such practices, and provides for penalties which NYSDFS might impose. The statute makes no provision for an insured to have a cause of action against his or her insurance company under that section of law. In New York University v Continental Insurance Co. (87 NY2d 308 [1995]), the Court of Appeals found that §2601 "...does not give rise to a private cause of action," and that in absence of such a private cause of action, the statute "...cannot be construed to impose a tort duty of care flowing to the insured separate and apart from the insurance contract." (Id. At 317.) It follows that if the insured has no private cause of action for unfair claim settlement practices, there is also no such cause of action for a third party. 
Further, any cause of action against an insurer for "bad faith" would sound in contract; the common law duty of good faith is one that arises from the insurance contract. (See Gordon v Nationwide Mut. Ins . Co., 30 NY2d 427 [1972], cert denied 410 US 931 [1973].) Hunter, as a third party, has no privity with Hereford, and therefore would not be able to bring such an action. New York case law is consistent that in absence of privity, a cause of action may not be maintained for breach of contract (Plaisir v Royal Home Sales, 81 AD3d 799 [2d Dept 2011]; CDJ Builders Corp v Hudson Group Construction, 67 AD3d 720 [2009]; Grinnell v Ultimate Realty, LLC, 38 AD3d 600 [2007]; M. Paladino, Inc. v Lucchese & Son Contracting Corp., 247 AD2d 515 [1998]). Hereford owed no duty to Hunter.
Movant Hunter's opposing papers state that she brought this action based on a letter from an NYSDFS Customer Assistance Unit Examiner stating that Hunter's claim involved "a question of fact as to the level of the injury, and degree of liability held by the insurance company" and that "[s]uch issues are best determined by a court of competent jurisdiction." [FN1] In no way could that letter be construed to indicate that Hunter had a cause of action against the insurance company for not settling the case to her liking; and in any event, it would not be the place of NYSDFS to tell an individual whether or not she has a cause of action against an insurance company. In fact, the appropriate action would have been for Hunter to bring an action against the policyholder, Herman Charles, since any issues of fact regarding liability and damages would have been between the parties involved in the accident, not between the insurance company and the person who alleges she was injured. 
Based on the foregoing, the Court grants the motion to dismiss the action against both Hereford Insurance Company and its agent, Sheri Gordon. The case is dismissed against Hereford for failure to state a cause of action and for lack of privity; it is dismissed against Gordon, as she was acting as an agent for her employer, Hereford.
Finally, the court granted Hereford's motion for sanctions and costs "to the extent of setting this matter down for a hearing ... to determine whether Hunter's bringing this action, which according to opposition papers, was based on a letter from a NYSDFS Examiner not intended to dispense legal advice, was frivolous, and therefore a basis for sanctions and/or costs", noting:  
In further consideration of sanctions and/or costs, the opposition papers misquote both case law and the NYSDFS letter, and cite cases which in no way support the argument that a third-party has a cause of action for unfair claims practices.
Bad choice of client?  Or bad choice of lawyer?  

Sunday, August 16, 2015

Storm Sewers, Sumps Pumps and Insurance Coverage

Six to eight inches of rain fell in my neighborhood this past Friday night.  It was all the talk of our neighborhood block party last night, with many of my neighbors recounting the inches of standing water in their basements the morning before.  When I drove out of my neighborhood to go fishing yesterday morning at 6:30, I could see water bubbling up from the storm sewers at the end of my street.  Clearly the storm sewers were not capable of handling the torrential water volume.  Luckily, our basement stayed dry, probably because our house sits up a bit higher than most.  Many of my neighbors were not so fortunate.

Municipal Liability

Tricky.  The law in New York concerning a municipality's liability to a property owner for the failure of its storm sewer system to control surface water runoff is summarized nicely in American Ins. Co. v. City of Jamestown, 914 F. Supp. 2d 377 (WDNY 2012):
In general, a municipality in New York owes no common law duty of care to control surface water runoff, to keep streams free of obstructions, or to provide flood protection. See e.g., O'Donnell v. City of Syracuse, 184 N.Y. 1, 10-11, 76 N.E. 738 (1906); Cashin v. City of New Rochelle, 256 N.Y. 190, 195, 176 N.E. 138 (1931); Office Park Corp. v. County of Onondaga, 64 A.D.2d 252, 258, 409 N.Y.S.2d 854 (4th Dep't 1978). If a municipality builds a storm water drainage system or sewer, it is ordinarily immune from liability if the drainage system is inadequate. See Seifert v. Brooklyn, 101 N.Y. 136, 145-46, 4 N.E. 321 (1886); Carbonaro v. Town of North Hempstead, 97 A.D.3d 624, 948 N.Y.S.2d 645 (2d Dep't 2012); but see, Klebe v. Tri-Municipal Sewer Com'n, 160 A.D.2d 677, 679, 553 N.Y.S.2d 455 (2d Dep't 1990) (municipal immunity for an exercise of policy or operational judgment is ordinarily qualified immunity).
If the municipality learns of an inadequacy in its storm water drainage system, it may be legally-bound to exercise reasonable care timely to address the inadequacy, however. Seifert v. Brooklyn, supra. A municipality may also face liability where a drainage system is negligently constructed, Smith v. City of New York, 66 N.Y. 295, 296 (1876), or where the municipality breaches the duty to "exercise ... a reasonable degree of watchfulness" in the inspection and maintenance of a drainage system. McCarthy v. City of Syracuse, 46 N.Y. 194, 198 (1871); Fireman's Fund Ins. Co. v. County of Nassau, 66 A.D.3d 823, 824, 887 N.Y.S.2d 242 (2d Dep't 2009).
* * * * * 
The New York legislature, in N.Y. Gen. Mun. Law § 50-e(4), has clarified the authority of municipalities to limit their duty of care in derogation of the common law by specifically allowing municipalities to require prior written notice of certain potential problems. See generally, Gorman v. Town of Huntington, 12 N.Y.3d 275, 277, 879 N.Y.S.2d 379, 907 N.E.2d 292 (2009) (quoting Poirier v. City of Schenectady, 85 N.Y.2d 310, 313, 624 N.Y.S.2d 555, 648 N.E.2d 1318 (1995)); Barry v. Niagara Frontier Transit System, 35 N.Y.2d 629, 633, 364 N.Y.S.2d 823, 324 N.E.2d 312 (1974). A municipality is authorized by § 50-e(4) to adopt a local law or charter provision requiring that the municipality be given prior written notice of a dangerous or obstructed condition and a reasonable amount of time to address the condition before the municipality will incur liability for negligent malfeasance. Poirier v. City of Schenectady, 85 N.Y.2d 310, 313, 624 N.Y.S.2d 555, 648 N.E.2d 1318 (1995); Amabile v. City of Buffalo, 93 N.Y.2d 471, 473, 693 N.Y.S.2d 77, 715 N.E.2d 104 (1999) ("Prior notification laws are a valid exercise of legislative authority."); see White v. Village of Hempstead, 819 N.Y.S.2d 463, 13 Misc.3d 471, 474-77 (Sup.Ct. Nassau Co.2006) (N.Y. Const. Art. IX, § 2(c) and N.Y. Mun. Home Rule Law § 10 authorize municipalities to adopt prior notification requirements).
* * * * * 
There are two exceptions to New York municipal prior notification laws. First, if a municipality created a dangerous or obstructed condition by an act of affirmative negligence, it may not avoid liability by requiring compliance with a legislative prior notification requirement. Amabile v. City of Buffalo, 93 N.Y.2d at 474, 693 N.Y.S.2d 77, 715 N.E.2d 104; Poirier v. City of Schenectady, 85 N.Y.2d at 314-15, 624 N.Y.S.2d 555, 648 N.E.2d 1318. Affirmative negligence usually requires an act that "immediately results in a dangerous [or obstructed] condition." Oboler v. City of New York, 8 N.Y.3d 888, 889, 832 N.Y.S.2d 871, 864 N.E.2d 1270 (2007) (quoted in San Marco v. Village/Town of Mt. Kisco, 16 N.Y.3d 111, 116, 919 N.Y.S.2d 459, 944 N.E.2d 1098 (2010)). A reasonably watchful municipality recognizes its own actions that immediately result in danger or a risk of obstruction and is duty bound to take reasonable steps to avert the danger or risk, even in the absence of compliance with a prior written notice requirement. Id. A municipality's passive negligence is insufficient to satisfy this exception to a prior notification requirement. Monteleone v. Inc. Vil. of Floral Park, 74 N.Y.2d 917, 919, 550 N.Y.S.2d 257, 549 N.E.2d 459 (1989).
Second, a municipal prior notification requirement will not apply where a dangerous or obstructed condition was created by a municipality's special use of property. Amabile v. City of Buffalo, 93 N.Y.2d at 474, 693 N.Y.S.2d 77, 715 N.E.2d 104. The special use must confer a special benefit upon the municipality. Oboler v. City of New York, 8 N.Y.3d at 890, 832 N.Y.S.2d 871, 864 N.E.2d 1270. For example, a missing manhole cover on a street may be within the special use exception of a prior notification requirement. See Ocasio v. City of Middletown, 148 A.D.2d 431, 432, 538 N.Y.S.2d 586 (1st Dep't 1989). 
Chance that my neighbors with flooded basements or their homeowers insurers as their subrogees will be able to make a successful claim against the Town of Pendleton for damages, especially if there was no prior notice of any inadequacy of the storm sewer system?  Slim to none. 

Insurance Coverage

It should go without saying that when it comes to any insurance coverage analysis or evaluation, policy language controls.  So find and read your policy.  

Many if not most homeowners insure their homes under insurance policies that utilize as their main policy form the Insurance Services Office's copyrighted HO-3 endorsement.  While there are many editions of that policy endorsement, the October 2000 edition of that endorsement provides the following with respect to dwelling (Coverage A) and personal property (Coverage C) coverage for water damage from backed up storm sewers or failed sump pumps:
SECTION I – PROPERTY COVERAGES
A. Coverage A – Dwelling
1. We cover:
a. The dwelling on the "residence premises" shown in the Declarations, including structures attached to the dwelling[.]
C. Coverage C – Personal Property
1. Covered Property
We cover personal property owned or used by an "insured" while it is anywhere in the world. 
SECTION I – PERILS INSURED AGAINST
A. Coverage A – Dwelling And Coverage B – Other Structures
1. We insure against risk of direct physical loss to property described in Coverages A and B.
2. We do not insure, however, for loss:
a. Excluded under Section I – Exclusions;
c. Caused by:
(5) Mold, fungus or wet rot. However, we do insure for loss caused by mold, fungus or wet rot that is hidden within the walls or ceilings or beneath the floors or above the ceilings of a structure if such loss results from the accidental discharge or overflow of water or steam from within:
(a) A plumbing, heating, air conditioning or automatic fire protective sprinkler system, or a household appliance, on the "residence premises"; or
(b) A storm drain, or water, steam or sewer pipes, off the "residence premises".
For purposes of this provision, a plumbing system or household appliance does not include a sump, sump pump or related equipment or a roof drain, gutter, downspout or similar fixtures or equipment[.]
B. Coverage C – Personal Property
We insure for direct physical loss to the property described in Coverage C caused by any of the following perils unless the loss is excluded in Section I – Exclusions.
12. Accidental Discharge Or Overflow Of Water or Steam
a. This peril means accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning or automatic fire protective sprinkler system or from within a household appliance.
b. This peril does not include loss:
(1) To the system or appliance from which the water or steam escaped;
(2) Caused by or resulting from freezing except as provided in Peril Insured Against 14. Freezing;
(3) On the "residence premises" caused by accidental discharge or overflow which occurs off the "residence premises"; or
(4) Caused by mold, fungus or wet rot unless hidden within the walls or ceilings or beneath the floors or above the ceilings of a structure.
c. In this peril, a plumbing system or household appliance does not include a sump, sump pump or related equipment or a roof drain, gutter, downspout or similar fixtures or equipment.
d. Section I – Exclusion A.3. Water Damage, Paragraphs a. and c. that apply to surface water and water below the surface of the ground do not apply to loss by water covered under this peril.
SECTION I – EXCLUSIONS
A. We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area.
3. Water Damage
Water Damage means:
a. Flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, whether or not driven by wind;
b. Water or water-borne material which backs up through sewers or drains or which overflows or is discharged from a sump, sump pump or related equipment; or
c. Water or water-borne material below the surface of the ground, including water which exerts pressure on or seeps or leaks through a building, sidewalk, driveway, foundation, swimming pool or other structure;
caused by or resulting from human or animal forces or any act of nature.
Direct loss by fire, explosion or theft resulting from water damage is covered.
The HO-3 specifically excludes water that overflows from sumps, sump pumps, or related equipment or water that backs-up through sewers or drains. However this is how many losses occur.  Sump pumps fail or are unable to handle the flow of water during a severe storm or flood, and sewers or drains may back-up due to a stoppage in the flow. Overflows are excluded for sumps because that is a common cause of loss; the sump cannot handle the volume of water it receives. If the drain backs up and overflows because of heavy rainstorms, the HO-3 excludes coverage for the resulting water damage.

To provide coverage for such damage, there is the Water Back-up and Sump Discharge or Overflow endorsement, HO 04 95. This endorsement typically provides $5,000 of coverage for back up through a sewer or drain or overflow or discharge of a sump, sump pump or related equipment, even if the equipment suffers a mechanical breakdown. For example, if the sump pump motor burns out and the basement floods, there is $5,000 of coverage for that damage. The coverage is for water or waterborne material, so coverage is provided for damage caused by items floating in the water.

Sump Pump Malfunction

Even before the HO-3 excluded coverage for water damage from a backup through or failed sump pump, the New York courts upheld denials of coverage.  In Goodman v. Broome County Co-Operative Fire Ins. Co. (135 A.D.2d 906 [3rd Dept. 1987]), the Appellate Division, Third Department rejected the insureds' argument that the "accidental discharge or overflow of liquids or steam from a plumbing * * * system" peril provided coverage for water damage to the insureds' basement that occurred when a sump pump the insureds had installed in their basement to remove any water that seeped through the foundation walls malfunctioned.

Instead, the court agreed with the insurer that the policy's exclusion of coverage for loss caused by "water below the surface of the ground, including water which exerts pressure on, or seeps or leaks through or into a building * * * foundation * * * or other structure" applied to negate coverage. The court agree that it was evident that the water originated from a natural seepage through the basement walls and reasoned:
Even accepting plaintiffs' premise that the sump pump was part of the plumbing system, the water did not emanate from an "accidental discharge or overflow" from that mechanical device as required by paragraph 15 of the policy. Nor is there any inconsistency between the coverage and exclusion provisions recited above, for both confirm that coverage is not available for damage occasioned by the continuous seepage of water from natural sources. 
Backup of Sewers or Drains

You wouldn't be the first if you are confused over what coverage is and is not provided under the typical homeowners policy for water backup losses.  When two or more provisions of an insurance policy when read together are unclear, courts may find that creates an ambiguity.  Ambiguities are construed against the drafter -- the person or entity that drafted the language -- and often result in a finding or award of coverage.

Such was the case, in a sense, in Pichel v. Dryden Mut. Ins. Co. (117 AD3d 1267 [3rd Dept. 2014]).  Pichel owed a four-building apartment complex, which was covered by an insurance policy issued by Dryden Mutual.  While the policy was in effect, two of the buildings sustained substantial water damage when waste water entered the first-floor apartments through, among other things, toilets, bathtubs and condensation drains. Dryden Mutual denied coverage on the basis that the loss fell within multiple exclusions in the policy, including the policy's "Water Damage" exclusion, which applies to a loss caused by "water which backs up through sewers or drains." Pichel contended in response that the loss was covered because it was "caused by the accidental leakage, overflow or discharge of liquids or steam from a plumbing ... system[.]"

In MODIFYING the lower court's order that had granted summary judgment to Pichel and denied Dryden Mutual's cross motion for summary judgment, the Appellate Division, Third Department, held that when the water backup exclusion and accidental leakage/overflow provision "are read together, an ambiguity exists in the insurance policy as to losses resulting from a backup and/or overflow from sewers, drains and/or plumbing systems."  Specifically, the appellate court agreed with the lower court's resolution of the perceived ambiguity by ruling that the policy's "backs up through sewers or drains" exclusion applied only to backups that originated off the insured premises:
In our view, when the exclusion and coverage provisions at issue here are read together, an ambiguity exists in the insurance policy as to losses resulting from a backup and/or overflow from sewers, drains and/or plumbing systems. Although the resolution of this ambiguity appears to be an issue of first impression in this state, Supreme Court's analysis — that a plumbing system, as referenced in the coverage provision, includes drains that are on the insured's property — is consistent with decisions in other jurisdictions that have interpreted the interplay of competing provisions similar to those in question here (see Hallsted v Blue Mtn. Convalescent Ctr., Inc., 23 Wash App 349, 351-352, 595 P2d 574, 575 [1979], review denied 92 Wash 2d 1023 [1979]; Jackson v American Mut. Fire Ins. Co., 299 F Supp 151, 156 [MD NC 1968], affd 410 F2d 395 [4th Cir 1969]; Cheetham v Southern Oak Ins. Co., 114 So 3d 257, 262-263 [Fla 2013], review denied 129 So 3d 1069 [2013]; Kozlowski v Penn Mut. Ins. Co., 295 Pa Super 141, 146, 441 A2d 388 [1982]; Haines v United Sec. Ins. Co., 43 Colo App 276, 277-278 [1979]). In short, these cases stand for the proposition that water damage caused by a backup/overflow that originates from a pipe or clogged drain located within the insured's property line comes from the insured's plumbing system and is covered by the policy; conversely, if the cause of the backup/overflow is from outside the insured's property boundaries — such as a clogged municipal sewer that forces water from outside the insured's plumbing system to overflow — the sewer or drain exclusion is applicable (see also Cantanucci v Reliance Ins. Co., 43 AD2d 622, 622-623 [1973], affd 35 NY2d 890 [1974] [loss from ruptured sewer line buried below insured's foundation wall was covered loss as sewer pipe was part of plumbing system]; compare Newlo Realty Co. v U.S. Fid. & Guar. Corp., 213 AD2d 295, 295 [1995] [an exclusion provision applied to blocked bathroom sink drain]).
Significantly, defendant has failed to establish that its interpretation — that the loss is excluded from coverage so long as water backs up through a sewer or drain, regardless of where the sewer or drain is located — is the only fair interpretation of the two provisions (see Pioneer Tower Owners Assn. v State Farm Fire & Cas. Co., 12 NY3d 302, 307 [2009]; Essex Ins. Co. v Grande Stone Quarry, LLC, 82 AD3d 1326, 1329 [2011]; Villanueva v Preferred Mut. Ins. Co., 48 AD3d 1015, 1017 [2008]; Cantanucci v Reliance Ins. Co., 43 AD2d at 622-623). Further, defendant's interpretation of the exclusion provision essentially renders meaningless the coverage for "overflow" of liquids from a plumbing system as provided in the coverage provision (see generally Cragg v Allstate Indem. Corp., 17 NY3d at 122; County of Columbia v Continental Ins. Co., 83 NY2d at 628).[2] On the other hand, plaintiff's interpretation, as adopted by Supreme Court, accords full effect to both the exclusion and coverage provisions and is consistent with the above delineated case law of other jurisdictions. Accordingly, Supreme Court correctly resolved the ambiguity in plaintiff's favor and denied defendant's cross motion for summary judgment on this ground.
It is important to bear in mind that the policy endorsement at issue in Pichel was not an HO-3.  It was an Underwriters Ratings Board form that did not contain any reference to a sump or sump pump in its backup of sewers or drains exclusion.

Thursday, August 13, 2015

Only Causal Link Between Named Insured's Acts or Omissions and Injury Required for Additional Insured Coverage to Apply

CGL – SCOPE OF ADDITIONAL INSURED COVERAGE – CAUSED BY NAMED INSURED'S ACTS OR OMISSIONS – CAUSAL LINK – ANTISUBROGATION RULE  
Burlington Ins. Co. v. NYC Transit Auth.
(1st Dept., decided 8/11/2015)

If a CGL policy provides additional insured coverage "only with respect to liability for bodily injury ... caused, in whole or in part, by [the named insured's] acts or omissions ... [i]n the performance of [the named insured's] ongoing operations", must the named insured have been negligent or otherwise at fault for causing the bodily injury for such additional insured coverage to apply?

Breaking Solution's policy with Burlington Insurance Company provided that certain entities were additional insureds "only with respect to liability for bodily injury ... caused, in whole or in part, by [the named insured's] acts or omissions ... [i]n the performance of [the named insured's] ongoing operations[.]"

The question addressed by the First Department, Appellate Division, in this case was whether this "acts and omissions" language of the additional insured provision provides additional insured coverage where there is a causal link between the named insured's conduct and the injury, regardless of whether the named insured was negligent or otherwise at fault for causing the accident.  In REVERSING Supreme Court's orders granting Burlington's motion to amend its DJ complaint to assert a contractual indemnification claim against the putative additional insureds --  defendants New York City Transit Authority (NYCTA) and Metropolitan Transit Authority (MTA) -- and then granting Burlington summary judgment on its contractual indemnification claim against the NYCTA, the First Department held:
This Court's most recent precedents have construed additional insured endorsements containing substantially the same "acts and omissions" language as do the endorsements at issue here as providing additional insured coverage where there is a causal link between the named insured's conduct and the injury, regardless of whether the named insured was negligent or otherwise at fault for causing the accident. Adhering to these precedents, we hold that defendants were entitled to coverage as additional insureds in the underlying action under the subject insurance policy. Given that the policy covers defendants for this loss, the anti-subrogation rule bars Burlington from recovering, as subrogee of the City of New York, contractual indemnification from defendant NYCTA, under the lease agreement between the City and NYCTA, for the amounts Burlington has paid to defend and settle the underlying action on behalf of the City.
NYCTA and MTA engaged Breaking Solutions to supply concrete-breaking excavation machines and personnel to operate the machines under NYCTA's direction.  An explosion occurred in a Brooklyn subway tunnel that was being excavated by a Breaking Solutions machine. The explosion occurred when the excavator came into contact with an energized electrical cable buried below the concrete. It is undisputed that it had been NYCTA's responsibility to identify and mark or protect hazards in advance, so as to enable the excavator operator to avoid them, and to shut off power to electrical cables in the work area. An employee of NYCTA was injured in that explosion and sued. In the course of discovery in that action, it emerged that, while the Breaking Solutions excavator had caused the explosion by disturbing the buried cable, there had not been any negligence or other fault on the part of the Breaking Solutions employee who operated the excavator.  NYCTA's internal documents essentially admitted that it was at fault for the incident.

On that basis Burlington, which had defended and indemnified the City of New York in the personal injury action, sought contractual indemnification from NYCTA as the City's subrogee.  Among other grounds, NYCTA argued that because it qualified for additional insured coverage under Breaking Solutions' policy with Burlington, the antisubrogation rule applied to bar Burlington's claims against it.  Based on its finding that the "caused, in whole or part, by [the named insured's] acts or omission" language of the Burlington policy required only a casual link between the named insured's acts or omissions and the injury, rather than proof of the named insured's negligence or fault, the First Department reversed the lower court's orders and granted summary judgment to NYCTA and MTA, dismissing Burlington's complaint.

Monday, August 10, 2015

Estoppel by Delay

PROFESSIONAL LIABILITY  – LATE NOTICE UNTIMELY DISCLAIMER – ESTOPPEL
B&R Consol., LLC v Zurich Am. Ins. Co.
(2nd Dept., decided 9/24/2014)

At my firm's biennial coverage seminar last September I spent a good deal of time talking about Insurance Law § 3420(d)(2) untimely disclaimer/denial case law.  But 3420(d)(2) applies only to coverage declinations regarding accidentally caused death or bodily injury.

No accident?  No death or bodily injury?  No risk of a disclaimer or denial being invalidated as untimely, right?  No, not right.  Liability insurers' coverage disclaimers and denial can be found to be untimely and therefore unenforceable even if 3420(d)(2) does not apply.  How?  Estoppel.

As applied to liability insurers as in this case, estoppel is an equitable doctrine deriving from common law rather than statute.  It essentially provides that an insurer may not take or change its position on coverage if either its delay in doing so or previous words or conduct caused prejudice to its insured's legal position.  I advise my firm's insurer clients that reservation of rights (ROR) letters protect against the application of estoppel.  Or, I should say, are supposed to protect against invalidation of disclaimers and denials by estoppel.

Zurich insured a then lawyer, Frederick Powell, who misappropriated funds intended for his client, B&R Consolidated, LLC.  An amended complaint filed and served on Powell alleged that he had breached his fiduciary duty and duty of loyalty to B&R.  Powell notified Zurich of the lawsuit 51 days after receiving the summons and complaint.  Zurich assigned defense counsel and issued a reservation of rights letter to Powell 18 days after it first received notice of the claim and underlying lawsuit.  The reservation of rights letter reserved Zurich's right to disclaim coverage based upon certain policy exclusions and Powell's failure to give timely notice of the commencement of the action against him.

Approximately five months later, Zurich issued a full disclaimer of coverage based on Powell's asserted failure to give timely notice of the commencement of the underlying action. Zurich also advised Powell that it reserved the right to deny coverage on all other grounds set forth in its earlier ROR letter, and that it would no longer provide a defense or indemnify him in the underlying action. After obtaining on motion a judgment against Powell in the principal amount of $585,056.18, B&R commenced this Insurance Law § 3420(b) action against Zurich.

Supreme Court denied Zurich's and granted B&R's cross motion for summary judgment.  In AFFIRMING that order, the Appellate Division, Second Department, held first that Zurich could be held liable to B&R under Insurance Law § 3420(b) even though it did not issue the professional liability policy in question because there was an apparent agency relationship between Zurich and defendant American Guarantee and Liability Insurance Company given that: (1) Zurich's logo was on documents created and distributed by American Guarantee; (2) Zurich's claims counsel was assigned to handle Powell's case; (3) assigned counsel was required to follow Zurich's guidelines and to submit bills to Zurich; and (4) Powell was contacted by Zurich's Customer Care Center regarding the claim and was directed to file his claim on Zurich's website.

In upholding Supreme Court's finding that American Guarantee was estopped from relying upon its late notice defense because its disclaimer to Powell was untimely, the Appellate Division reasoned:
Where, as here, the matter does not involve death or bodily injury, the untimely disclaimer by an insurer does not automatically estop the insurer from disclaiming on the basis of late notice unless there has been a showing of prejudice to the insured due to the delay (see Only Natural, Inc. v Realm Natl. Ins. Co., 37 AD3d 436 [2007]; United States Fid. & Guar. Co. v Weiri, 265 AD2d 321 [1999]; Esseks, Hefter & Angel v Government Empls. Ins. Co., 215 AD2d 430 [1995]). Although the court did not make a determination that Powell was prejudiced by the defendants' approximate five-month delay in disclaiming coverage, based upon this record, B&R made a sufficient showing of prejudice to Powell due to the defendants' late disclaimer such that the defendants are estopped from disclaiming coverage (cf. Legum v Allstate Ins. Co., 33 AD3d 670 [2006]). Moreover, the purported reason for the disclaimer of coverage was evident on the face of the original complaint, and did not require any additional investigation by the insurer (see Uptown Whole Foods v Liberty Mut. Fire Ins. Co., 302 AD2d 592, 593 [2003]). The defendants failed to rebut this showing.
The appellate court did not explain or indicate what B&R's "sufficient showing of prejudice to Powell" consisted of, and neither had the lower court's decision.  In fact, the lower court did not even rule on B&R's argument of estoppel by delay.  Was the prejudice American Guarantee's sudden withdrawal of defense counsel?  

So what to do about the advice that ROR letters protect against estoppel?