Wednesday, August 14, 2019

The Archdiocese of New York v. The 32 Insurance Companies and Groups That Issued Policies to the Archdiocese from September 1956 Through December 2000

Litigation over insurance coverage for CVA-revived (Child Victims Act) lawsuits apparently began even before the CVA went into effort on August 14, 2019.  On July 1, 2019, the New York Daily News reported:
The New York Archdiocese has sued its insurance companies to demand legal protection and coverage as it braces for exposure it will face once sex abuse victims begin filing lawsuits next month under New York’s Child Victims Act. 
The complaint by the archdiocese, filed last week in Manhattan Supreme Court, lists more than two dozen insurers as defendants, and claims "the insurers ... intend to dispute, limit and/or deny coverage for claims and lawsuits alleging sexual abuse and physical abuse.” Several of the defendants listed in the complaint are members of the Chubb Group of Insurance Companies.
Thirty-two insurance companies and groups are named as defendants in that New York County, Supreme Court declaratory judgment action, which seeks:
On Count I, the Archdiocese requests that this Court enter a declaratory judgment in favor of the Archdiocese against each of the Insurers;
On Count II, the Archdiocese requests that this Court enter a judgment awarding the payment of damages in an amount equal to the amount owed under the INA Insurance Policies, to be proven at trial, as well as pre- and post-judgment interest; [and]
On Count III, the Archdiocese requests that this Court enter a judgment awarding its attorneys’ fees, costs, and disbursements in connection with INA’s bad faith refusal to defend the Archdiocese against the Norman Suit, in an amount to be proven at trial, as well as pre- and post-judgment interest[.]
The predicate "justiciable controversy" for the Archdiocese's action relates to Chubb Insurance's declination of coverage for "the Norman Suit", which was commenced on April 18, 2019 against the Archdiocese and other religious corporations (a church, a school, and the Catholic School Region of Staten Island).  By letter dated May 14, 2019, Chubb had denied liability coverage under the INA policies to the Archdiocese for the Norman Suit based on (1) lack of an alleged "occurrence"; and (2) punitive damages not being covered.  Chubb also reserved its right to deny coverage based on: (1) possible late notice; and (2) the possible time-barred nature of the Norman Suit:
The INA Policies provide coverage where the insured shall become legally obligated to pay as damages because of "bodily injury" or "personal injury" to which this insurance applies caused by an "occurrence" as those terms are defined by the policies. The INA Policies generally define "occurrence" as an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage "neither expected nor intended" from the standpoint of the insured. 
In the Norman Action, Plaintiff alleges that the Archdiocese "knew and/or reasonably should have known, and/or knowingly condoned, and/or covered up, the inappropriate and unlawful sexual activities of Father Fernando and Monsignor Brennan[.)" Plaintiff alleges that "[a)t about the time" such alleged misconduct was occurring, the Archdiocese and other Defendants "were notified that Father Fernando was engaging in sexually inappropriate conduct with minor children parishioners[.)" Plaintiff further alleges that Defendants "were put on notice of Father Fernando and Monsignor Brennan's improper and inappropriate actions with minors" and that, "[a]t all times material hereto, Defendants[')...actions were willful, wanton, malicious, reckless, and outrageous in their disregard for the rights and safety of Plaintiff, which amount to conduct equivalent to criminality." 
Based on the foregoing, Plaintiff does not allege an "occurrence" under the INA Policies. Rather, Plaintiff alleges that the Archdiocese acted willfully, wantonly, maliciously, recklessly, outrageously and criminally with respect to the alleged abuse perpetrated against Plaintiff, a minor, by Fr. Fernando and Msgr. Brennan. Thus, Plaintiff alleges to have sustained injury that was expected and/or intended from the standpoint of the Archdiocese. These allegations do not give rise to an "occurrence" under the INA Policies. Therefore, Chubb has no defense and indemnification obligations in connection with the Norman Action and denies coverage accordingly. 
Similarly, Plaintiff seeks punitive damages for Defendants' alleged misconduct. Amounts that are punitive in nature do not constitute damages under the INA Policies. Furthermore, in New York, punitive damages are uninsurable as a matter of law. Accordingly, Chubb denies coverage under the INA Policies in connection with Plaintiff's claim for punitive damages in the Norman Action. 
With regard to the Archdiocese notice obligations under the INA Policies, the INA Primary Policies are amended via endorsement to provide that, in the event of an occurrence, written notice shall be given by or on behalf of the insured as soon as practicable after such notice is received by the "Archdiocesan Service Corporation." Plaintiff's complaint alleges that the Archdiocese had knowledge of the alleged abuse by Fr. Fernando, but does not allege or discuss whether such information was ever received by the Archdiocesan Service Corporation. Similarly, Plaintiff alleges that the Archdiocese knew or should have known of the alleged abuse by Msgr. Brennan, but Plaintiff's complaint contains no allegation that such information was ever given to or received by the Archdiocesan Service Corporation. The INA Excess Policies require notice thereunder when the Archdiocese became aware that those policies might be implicated, but Chubb does not currently possess that information. As a result, Chubb is not in a position at this time to assess whether the Archdiocese complied with the notice provisions under the INA Policies. Therefore, Chubb reserves the right to deny coverage if and when Chubb obtains information that demonstrates that the Archdiocese breached the notice provisions of the INA Policies in this matter. 
Finally, it is not apparent from Plaintiff's complaint whether Plaintiff's action may be barred by the current statute of limitations. As noted above, the INA Policies only provide coverage in connection with the insured's legal obligation to pay damages in circumstances specifically defined by the policies. To the extent that an insured settles a claim for which it has no legal liability, no indemnification would be provided under the INA Policies. Chubb reserves its rights accordingly.
The INA policies at issue spanned the period 1971 to 1974, and careful readers will notice that no policy exclusions are cited in Chubb's declination letter as grounds for denying coverage.  Coverage geeks will know the reason Chubb's declination letter did not cite the expected or intended injury exclusion:  it didn't exist in commercial liability policies in the 1970s.  Pre-1986 ISO CGL policies instead incorporated the "expected or intended" aspect into the policies' definition of "occurrence":
“Occurrence” means an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured.
According to Frederick J. Hunt, Jr.'s paper, Homeowners Insurance -- The First Decade, presented at the smoke-filled May 1962 meeting of the Casualty Actuarial Society,
The first true "Homeowners Policy," in the sense that the words are used today, was developed by the Insurance Company of North America. This policy was formally filed with the Insurance Department of Pennsylvania on August 11, 1950 and approved effective September 11, 1950. 
This policy, which was called "Homeowners Policy Multiple Form," was a true multiple line contract providing coverage previously available only under separate policies and described as Fire, Extended Coverage, Theft, Personal Liability, and Medical Payments. Since this was the first real answer to the problem of taking advantage of multiple line opportunities and at the same time coming up with a saleable product, the filing letter submitted with this policy represents a valuable document in any consideration of Homeowners rating.
If anyone has one of those INA policies lying around, please send it to me.  I'll pay the postage (and maybe a reasonable price).  I'm trying to nail down when multi-line homeowners policies began using the expected or intended harm exclusion.

Regardless, interested readers and coverage geeks like me can follow the progress of this DJ action at this NYSCEF docket.  I've set that e-docket to re-open in a Chrome tab one month for now.

Tuesday, August 13, 2019

Child Victims Act Actions -- Insurance Coverage Considerations

At midnight tonight (August 14, 2019), New York's Child Victims Act (CVA) takes effect.  The Act's summary states:
Provides that the statute of limitations for criminal prosecution of a sexual offense committed against a child shall not begin to run until the child turns 23 years of age; provides that a civil action for conduct constituting a sexual offense against a child, shall be brought before the child turns 55 years of age; revives previously barred actions related to sexual abuse of children; grants civil trial preference to such actions; eliminates the notice of claim requirements for such actions when the action is brought against a municipality, the state or a school district; requires judicial training relating to child abuse and the establishment of rules relating to civil actions brought for sexual offenses committed against children.
The Buffalo News published a good "What you need to know" review of the new law here.  Give it a read if you're not already conversant with the CVA's provisions.

Some years ago, New York's civil courts went electronic.  Bracing for the expected surge or torrent of CVA-revived suit filings, the New York State Courts Electronic Filing (NYSCEF) website posted this notice earlier today:

By the time you wake up and read this tomorrow, there will likely have been filed thousands of CVA lawsuits in New York's Supreme Court.  But you don't care, because your company (or any of its predecessor companies) never insured any diocese of the Roman Catholic Church, or the Boy Scouts of America, or any local New York school district, right?


The CVA revives previously time-barred civil actions not just against large institutions or organizations, but against anyone or any entity that is alleged to committed, been complicit in or directly or indirectly liable for acts of sexual abuse or molestation.

Like people who had homeowners policies when the alleged acts occurred.  Homeowners policies that most likely afforded occurrence-based liability coverage.  Homeowners policies that may have been issued by companies that no longer exist.  Homeowner policies that may have been lost.  Or destroyed.

Insurers receiving CVA lawsuits will need to make what may be a very difficult coverage review.  Considerations may include:
  • Was there a policy in effect at the time of the alleged injury?
  • If so, what were its limits and terms and provisions? 
  • Was there an "occurrence"?
  • Was there "bodily injury"?  
  • Did the alleged "bodily injury" occur over more than one policy period and, if so, how does that impact the coverage picture?
  • Any exclusions apply?
  • Late notice?
Policies dating back to 1963 (2019-[55+1]) may be implicated.  Do you still have records of such policies?  What if you don't but someone says your company (or one of its predecessors) covered one or more of the CVA suit defendants?  Whose burden is it to prove the existence and terms of the lost policy?  And to what quantum of proof?  

Over the next few weeks I'll be surveying New York case decisions addressing these considerations in the context of CVA actions.  Stay tuned.  

Monday, February 4, 2019

The Polar Vortex and Reasonable Care to Maintain Heat

Wasn't it the under-apple-tree-sitting Sir Isaac Newton who first said that what goes down must come up?  (Physics wasn't my thing in high school.)  In addition to being a mathematician, physicist, astronomer, theologian, author and pome fruit lover, I understand that Sir Isaac provided expert cause of loss evaluation services to insurance companies1 in the late 17th and early 18th centuries.

Had I opened my law office in, let's say, Florida, I wouldn't be getting calls like the one I got yesterday.  With air temperatures having risen back into the guess-I-no-longer-have-an-excuse-not-to-shovel-my-walkway-and-sidewalk range, water that had gone from liquid to solid state in enclosed hollow metal cylinders (aka pipes) is moving back into its liquid state.  And hence, the resulting freezing/water losses.  And associated coverage questions.

Homes that are vacant, unoccupied or under construction are generally not covered for freezing losses unless their owners have used reasonable care to either maintain heat or shut off the home's water supply and drain the pipes.  A typical homeowners policy provision provides:


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:

          c. Caused by:
     (1) Freezing of a plumbing, heating, air conditioning or automatic fire protective sprinkler system or of a household appliance, or by discharge, leakage or overflow from within the system or appliance caused by freezing. This provision does not apply if you have used reasonable care to:
                    (a) Maintain heat in the building; or
                    (b) Shut off the water supply and drain all systems and appliances of water.

Mom goes into a nursing home, the 'rents are snowbirding in Florida, or the tenants recently moved out.  Or the seasonal home in the Adirondacks is shuttered for the winter.  If the water is not shut off and the pipes drained, what constitutes "reasonable care to maintain heat"?  In a "normal" New York winter?  During the polar vortex?

Is "reasonable care to maintain heat" during winter in New York the same as "reasonable care to maintain heat" during winter in Minnesota?  Probably not, because the care required is "to maintain heat" and the reasonableness of an insured's conduct in that regard is measured and determined by the particular circumstances and conditions in which the vacant or unoccupied home and its plumbing system find themselves.  Maintaining heat to keep water pipes from freezing in a home in Minnesota in the wintertime requires greater care (and more fuel) than doing so in New York.  Right?

(Fun fact:  there are 10 reported state and federal court cases in New York on the question of what constitutes "reasonable care to maintain heat" in a vacant or unoccupied structure but only 1 reported case in Minnesota.  Someone please explain that to me.  I would have bet the under.)

For those dealing with insurance losses or claims from frozen pipes in New York, here's a survey of the 10 reported New York cases, in reverse chronological order:

>> Philadelphia Indem Ins. v. Adirondack Ins.Exch. (Sup. Ct., NY Co., 6/20/18)

Condo unit loss.
Summary judgment to property's insurer.

This was an action to collect on a default judgment Philadelphia, a condominium complex's insurer, had obtained against the owner of a vacant condo unit in which pipes froze and burst, causing water damage to the complex.  Adirondack insured the unit owner.

Adirondack denied liability coverage to its insured because, as she had moved out of and no longer resided in the unit prior to the loss, the premises did not meet the policy's definition of "residence premises" (defined as "the unit where you reside as shown as the `residence premises' in the Declarations").

In granting Adirondack's cross motion for summary judgment and dismissing the complaint, Supreme Court agreed that the unit did not meet the policy's definition of "residence premises" and noted with respect to first-party property coverage:
In any event, even if defendant's policy was in effect at the time of the incident, frozen pipe bursts caused by owner's failure to properly drain and maintain heat are specifically excluded from coverage (Def. Exh. 1 — Policy Form SH 23 25 01 06 at 1, §1(2)(c)). The record shows that Iglupas did not use reasonable care to maintain heat in the building or shut off the water supply, as indicated by the lack of gas usage on the utility bill. Therefore, the relevant policy would not apply to this loss.
>> Stephenson v. Allstate Indem. Co. (3rd Dept., 4/19/18, lv. to appeal denied 9/13/18)

Personal residence/homeowners loss.
Summary judgment to insurer.

I previously blogged about this case here.  Read that post for more details.  As I said in there, in affirming summary judgment to Allstate the Third Department held:
We conclude that decedent failed to use reasonable care, as a matter of law, to maintain heat in the premises while it was unoccupied for three months during the winter heating season, because it is undisputed that she did not arrange for inspection of the premises or take any other action to ensure that adequate levels of heat were actually maintained during that time period[.]
Adequate to do what? Keep the water pipes from freezing.

The facts that supported summary judgment in this case were:
  • the Binghamton, NY home was unoccupied for three months during the wintertime;
  • the home's water supply had not been shut off;
  • the plumbing system had not been drained; 
  • the insured had made no arrangements to have the home inspected while she was gone; and
  • an expert opined that the home's natural gas consumption was insufficient to maintain a level of heat adequate to prevent freezing of the plumbing system.

>> Read Prop. Grp., LLC v. Hamilton Ins. Co. (EDNY, 3/30/18)

Rental property loss.
Summary judgment to the insurer.

In January 2016 a bathroom pipe froze and burst at one of plaintiff's 362 residential rental properties insured by Hamilton.  The policy's Protective Safeguards--Heat Maintained endorsement required that heat be maintained at an "ambient temperature of not less than 50 degrees Fahrenheit at all times throughout any building identified in the Schedule by use of a gas-fired, coal-fired, electric or similar heating system."  Hamilton's investigation of the reported loss revealed that the water pipes had frozen and burst due to the failure of both furnaces in the house.  Heating bills disclosed in discovery showed zero gas usage for November and December 2015.

In opposition to Hamilton's motion and support of its own cross motion for summary judgment plaintiff argued: (1) that the word "maintain" in the endorsement is undefined and ambiguous; (2) Hamilton's interpretation of the endorsement/exclusion is against public policy; and (3) the undisputed facts showed that plaintiff took reasonable steps to maintain the heat in the premises.

The District Court GRANTED Hamilton's motion for summary judgment, dismissing the complaint, finding:
  • that the word "maintain" as used in the policy is not ambiguous ("it is thus plain that any insured reading the first part of the Endorsement—particularly a sophisticated business seeking to insure 362 properties, such as the plaintiff—would understand the following to impose an absolute obligation to ensure that the temperature in the insured premises is always at or above 50 degrees Fahrenheit if the policy is to provide coverage for certain kinds of losses");

  • the endorsement is not contrary to public policy ("Moreover, even if it were appropriate to consider abstract notions of fairness rather than the specific policies established by the state legislature, there is nothing fundamentally unfair in enforcing the contract as written. Plaintiff is a sophisticated organization that purchased a policy of insurance to cover 362 properties, some of which were vacant.");

  •  plaintiff did not maintain the ambient temperature in the residence at at least 50 degrees Fahrenheit; water does not freeze if the ambient temperature is 50 degrees or higher ("Defendant's evidence that pipes cannot freeze if the temperature in the building is at or above fifty degrees Fahrenheit is undisputed.")
Note that this is not a "reasonable care to maintain heat" but a "maintain an ambient temperature of not less than" case.

>> Brennor v. Metropolitan Prop.  & Cas. Ins. (Sup. Ct., Westchester Co., 5/12/14)

Rental property loss.
Summary judgment to insurer.

Plaintiff owned rental property.  Tenants moved out in February 2009 and plaintiff has the gas and electric utilities account transferred to her.  In March 2009 plaintiff received a letter from the utility company requesting a deposit.  Beginning that month, each gas and electric bills threatened to terminate the service if the deposit is not paid.  Plaintiff never paid the deposit but did pay the monthly utility service charges.  In January 2010, the utility company terminated the gas and electric service to the premises, which caused the pipes to freeze. Metropolitan denied coverage, citing plaintiff's failure to use reasonable care to maintain heat.

In granting Metropolitan's motion for summary judgment, Supreme Court reasoned:
In opposition, plaintiff contends that she did not believe that Con Edison would turn off the gas and electric service because she was paying her monthly bills and Con Edison had not terminated the service for 10 months. Based on this, plaintiff contends that a "jury may deem reasonable [plaintiff's] belief that Con Edison would not turn off the service at any time because of her refusal to pay the security deposit because of Con Edison's course of conduct during the period of close to 10 months."

Plaintiff has failed to raise a triable issue of fact. The subject policy excludes coverage for damage caused by freezing of a plumbing system, unless plaintiff has used reasonable care to maintain heat at the Premises. While it is true that the resolution of whether a party's actions are "reasonable" frequently presents a triable issue of fact, that is not always the case (see, e.g., MacWhinnie v Nugent, 28 AD3d 431, 432 [2d Dept 2006]; Schuster v Amboy Bus Co., Inc., 267 AD2d 448, 449 [2d Dept 1999]). This is not a case where there is an issue as to whether plaintiff knew that the power might be terminated (see McCabe v Allstate Ins. Co., 260 AD2d 850, 852 [3d Dept 1999]) or where there is an issue as to whether plaintiff thought s/he had done everything necessary to restore the power (see Billitier v Merrimack Mut. Fire Ins. Co., 777 F Supp 2d 488, 491 [WDNY 2011]) or where there is an issue as to whether the damage was in fact caused by the freezing of the plumbing system (see Farrell v. American Intern. Ins. Co., 2010 WL 2517240 (Sup Ct, NY County 2010). Here, the question of whether plaintiff used reasonable care to maintain the heat at the Premises does not depend on triable issues of fact. Plaintiff was repeatedly warned that Con Edison would terminate the gas and electric service if she did not pay a certain amount of money. Plaintiff did not contact Con Edison to dispute or even address the amount that was supposedly due. Instead, plaintiff simply did not pay the amount that Con Edison claimed was due, notwithstanding Con Edison's repeated threats to terminate the gas and electric service. As a matter of law, plaintiff failed to use reasonable care to maintain heat at the Premises.
You can file this decision in the no shit, Sherlock, folder.

>> Leone v. State Farm Fire & Cas. Co. (Sup. Ct., Suffolk Co., 9/4/13)

Personal residence/homeowners loss.
Question of fact found; summary judgment to insurer denied.

The insured residence was a home the plaintiffs had purchased more than three years before the loss but had not yet moved into. The insureds claimed that they intended to renovate it and make it their primary residence, sometimes staying overnight in the home during the renovation process.  Mr. Leone testified that they had started the process of moving furniture into the subject property and that they stayed there as much as time permitted. He further testified that the temperature in the house was kept at 65 degrees to 68 degrees and that the heat was always on.

The insureds purchased the home in 2006, insured it with State Farm under a homeowners policy at the end of November 2009, and reported a frozen/burst water pipe loss to State Farm in January 2010, claiming $175,000 in damages.

State Farm retained a licensed engineer (not named Sir Isaac Newton, see Footnote 1 below) to investigate and determine the cause of property damage to the home.  The engineer opined that a shower cap valve had frozen and burst due to a failure to maintain adequate heat within the building during a period of subfreezing weather.  The engineer based his opinion on weather and utility records and his calculations of heating output within the home.

The primary issue in this case was residency, on which Supreme Court ruled there were triable questions of fact.  In denying summary judgment to State Farm and on the issue of whether the insureds had used reasonable care to maintain heat, Supreme Court held:
Finally, a question of fact exists as to whether plaintiffs used reasonable care to maintain heat in the subject property, as both plaintiffs testified that the heat was always on in the house, and Mr. Leone specifically testified that the temperature of the house remained at 65 degrees to 68 degrees at all times.
>> Billitier v. Merrimack Mut. Ins. Co. (WDNY, 4/18/11)

Rental property loss.
Question of fact found; summary judgment to insurer denied.

Tenants of plaintiff vacated the insured property in early December 2007 and disconnected their utility service.  Plaintiff inspected the property within days of his former tenants' departure and discovered that the utilities had been disconnected.  He allegedly called the utility company right away and requested that power be restored.  He testified that a representation of the utility company assured him that power would be restored within "a couple of days" or within "a matter of days," or by "the week of [December] 9th."

On December 12th a service call to restore power was unsuccessfully attempted at the property, but  plaintiff was not present and that keys to the property, which plaintiff had previously provided to the utility company for access, allegedly did not work.  Plaintiff disputed that he had been told he would need to be at the property for power to be restored, and the utility company allegedly did not notify plaintiff that power had not been restored.

Plaintiff testified that in late December and early January, he made about two trips to inspect that Property's exterior to ensure that it remained in good condition for eventual sale or rental to new tenants, and noticed nothing unusual. In mid-January, he accompanied friends on an out-of-town golfing trip, and was unable to visit or inspect the property for approximately two weeks.  On or around January 24, 2008, plaintiff again visited the property, and discovered extensive water damage. While the precise timing of the ruptured pipes at the property is unclear, it was believed to have occurred sometime between plaintiff's physical inspection of the property's interior after his tenants left in or around the first week of December 2007, and his discovery of the water damage on or about January 24, 2008.

In finding triable questions of fact and DENYING summary judgment to Merrimack, the District Court held:
Here, I find that summary judgment would be inappropriate, because resolution of whether Billitier used "reasonable care" under the circumstances presented and within the meaning of the Policy exclusion does depend on triable issues of fact. It would be inappropriate for the Court, on this record, to rule as a matter of law that plaintiff failed to exercise reasonable care to maintain heat at the Property. Assessing whether "reasonable care" was taken necessarily includes a fact-intensive analysis of, among other things, the parties' credibility, the extent of RG & E's representations or instructions to Billitier, Billitier's actions to ensure the provision and continuation of electric service to the Property when it was unoccupied, the reasonableness of Billitier's reliance on RG & E's statements in connection with the request for power restoration, the impact of RG & E's failure to ever notify Billitier that it had been unable to restore service, and the reasonableness of Billitier's decision not to drain the plumbing or provide for an interim heat source, viewed in light of prevailing weather conditions in December 2007, which are alleged to have been unseasonably warm. Resolution of such material questions of fact is best reserved for the jury.
>> Farrell v. American Intl. Ins. Co. (Sup. Ct., Suffolk Co., 5/31/10)

Guest cottage loss.
Question of fact found; summary judgment to insurer denied.

On February 12, 2007, plaintiffs brother-in-law, discovered a burst hot water pipe supplying the washing machine in a vacant and unoccupied guest cottage on plaintiff's property.  The brother-in-law claimed he would be at the cottage frequently because he stored stored machinery and equipment for his business there and had not noticed anything unusual about the temperature in the cottage the day he discovered the burst pipe and water loss.  He also claimed that the thermostat was always set at 55 degrees.

A plumber retained by the plaintiff reported that the water pipe had frozen and burst open "like a clam."  A mechanical engineer hired by the insurer to inspect and opine on the cause of the burst pipe reported that the cottage was in "deplorable condition", had windows missing panes of glass on the first floor, some of which were adjacent to the hot water pipe at issue, and showed signs of exposure to high humidity and low temperatures for far longer than the time between February 12, 2010, and the date of his inspection.  The engineer's analysis of plaintiff's utility bills concluded that "there was literally no heat in the cottage for most of" the six-month period ending in mid-January.

Twenty-eight months after the incident, through her public adjuster, plaintiff submitted a contractor's "Water Damage, Mold Remediation, Building Repair Estimate" for $486,412.84 that included "new cedar shingle siding and gutters, new chandeliers, new windows, new kitchen cabinetry, a refrigerator, dish washer, freestanding range, new gas lines for the entire house, and over $100,000 for water extraction and remediation."  The parties disputed whether the extensive mold growth throughout the cottage was due to the February 2007 burst pipe/water loss or the insured's failure to take appropriate remedial measures.

Supreme Court denied summary judgment to AIIC on its failure to mitigate and mold exclusion coverage defenses.  As to AIIC's defense that the plaintiff failed to use reasonable care to maintain heat in the cottage, in denying summary judgment to AIIC on that ground, as well, the court held:
In this case the plain meaning of the policy provision quoted above required the insured to use "reasonable care" to maintain heat in the premises, in order for coverage to be available in the case of water freezing in a plumbing system. Defendant AIIC has presented a prima facie case that the cottage was vacant or unoccupied for many months before the incident, very little heat was used in the cottage in early 2007, and the temperatures were cold enough to cause freezing. There is also testimony that a frozen pipe that bursts has the appearance, as the pipe allegedly did here, of a "clam" (Plumber Leotta) or a "fishmouth" (Engineer Levine)." 
The burden then shifts to plaintiff to raise a triable issue of fact. Plaintiff's engineer denies that the pipe burst because it froze, because the pipe at issue did not abut an exterior wall and he derides the Mpemba effect as "an old wives tale"(Rosner affidavit, par. 16). Plaintiff's engineer further argues that, based on the utility bills, the heating system continued to function and produce a reasonable amount of heat up until the time it stopped running as a result of water infiltration (Rosner affidavit, par. 18). 
Plaintiff's plumber opines that is "highly unlikely that a freeze up would occur to a pipe adjacent to an interior wall when no other pipe, especially those that are adjacent to exterior walls, froze also" (Zinnia affidavit, par 11). The plumber continues, that "it is much more likely that there was an original leak that occurred unrelated to the temperature" and that when a large quantity of water accumulated in the basement, it caused the heating unit to shut down (Zinnia affidavit, par. 14). 
Mr. Seib insists that he was in and out of the cottage frequently (Seib affidavit par. 5), and never noticed a temperature drop or broken windows (Seib affidavit, par. 15-16). According to Mr. Seib, the temperature in the cottage was maintained at 55 degrees (Seib affidavit, par. 10). Mr. Seib also testified that when he first discovered the water leaking from the pipe, he got his pliers and used them to pinch the copper tubing to reduce the water flow to a trickle (Seib transcript, p. 40). In reviewing heating bills plaintiff testifies that he never saw any indication that gas was not being consumed or that the heat was not being maintained (Farrell affidavit, par. 6). 
On this record, plaintiff has raised a triable issue of fact as to whether he used "reasonable care" to maintain heat in the cottage [McCabe v Allstate Ins. Co., 260 AD2d 850 (3rd Dept. 1999)]. This is a matter for the jury.
You probably saw some videos this past week suggesting that there may be some validity to the Mpemba effect--folks throwing boiling water into the sub-zero air of Michigan or other polar-vortexed places.

>> Landsman v. Dryden Mut. Ins. Co. (Sup. Ct., Broome Co., 12/8/09)

Rental property loss.
Judgment after non-jury trial to insurer.

I previously blogged about this case here.  You can read that post for more details and commentary.

Plaintiff, a New York City attorney, bought and rented a farmhouse to tenants in Hancock, New York, near Binghamton.  The tenants fell behind on their rent and plaintiff commenced eviction proceedings against them in November 2004.  On January 23, 2005, one of the tenants called and left plaintiff a voice message indicating that there was a problem with the furnace.  On January 30, 2005 plaintiff traveled from New York City to check on the property.  He saw some personal property within the property on that day and the next but did not go inside.  Upon returning to New York City on January 31, 2005 he found a telephone message waiting for him from the property's utility company advising that they had turned off the power to the property that day for nonpayment.  Despite that notification, plaintiff did nothing to reestablish power to the property until it was again rented to tenants.  When heat and power were reinstated by the new tenants in mid-February, multiple leaking pipes were discovered.  Plaintiff made a claim for the damage to Dryden Mutual, the property's insurer.

Supreme Court denied Dryden Mutual's motion for summary judgment on the freezing peril defense and the action proceeded to a non-jury trial.  This decision is the court's verdict.  In finding in favor of Dryden Mutual and dismissing the complaint, the court concluded:
The next question is whether defendant properly found that plaintiff did not use "reasonable care to maintain heat in the residence or to shut off all water and to completely drain the system and domestic appliances". Again, the facts elicited at trial answer the question. As noted hereinabove, plaintiff knew on January 31, 2005, in the dead of an upstate New York winter, that there was no heat or electric utility to the Property and did not return to the Property that day or the next. In and of itself, the court finds this knowledge on behalf of plaintiff to be a basis for concluding that plaintiff did not use reasonable care to maintain heat in the Property. Plaintiff's argument that he could not access the Property because Curry and Colwell had until February 4, 2005 to vacate is unpersuasive. As noted above, there was no reasonable basis for plaintiff to believe that Curry and Colwell were in the Property since they had never finalized the settlement agreement and were not present at the Property on either January 30 or 31, 2005. 
Consequently, the court finds that once NYSEG had shut off the heat as of January 31, 2005, plaintiff knew or should have known that he should return to the Property without delay to make sure that the heat and utilities were reinstated or to drain the pipes and other plumbing fixtures. Moreover, the court finds that a reasonable landlord in plaintiff's position would have entered the premises on January 30 or 31, 2005 under the provision of the lease permitting inspections. The court finds that plaintiff's failure to do so is unreasonable when faced with this winter scenario. Quite simply, plaintiff's failure to act in this situation was the equivalent of ignoring the obvious and burying one's head in the sand. Finally, what the court found most telling was plaintiff's own testimony when explaining why he did not return to Hancock after he received the call from NYSEG on January 31, 2005 which was as follows: 
Q: You didn't make arrangements to go have NYSEG turn it [the power] on. 
A: I did. They said no — I said, put it on in my name. 
Q: They said we'll do it if you are there to let us in. And you wouldn't drive up there to let them in. 
A: I was just there. (Trial Transcript, pp 39-40). 
Based on the credible evidence and documentary proof submitted, the court is satisfied that defendant has met their burden of proof that the Property was vacant and unoccupied at the time of this loss and that plaintiff failed to use reasonable care to maintain heat in the residence or to shut off all water and to completely drain the system and domestic appliances.
>> Gallo v. Midstate Mut. Ins. Co. (4th Dept., 11/23/07)

Rental property loss.
Summary judgment to insured.

in AFFIRMING Supreme Court's grant of partial summary judgment on liability to plaintiff and denial of summary judgment to Midstate Mutual, the Fourth Department held:
Inasmuch as it is undisputed that plaintiff's loss was the direct result of the freezing of water pipes in the insured property, the loss is covered by the "Perils Section" of the policy. That section includes the peril of "Freezing of a plumbing ... system" even if the property is vacant, so long as the insured "has used reasonable care to ... maintain heat in the building," and, here, plaintiff established as a matter of law that he used reasonable care to maintain heat in the building. In support of his motion, plaintiff submitted the deposition testimony of his property manager, who testified that, in late December 2004, he restored electric power to the building himself by removing certain tabs in the electric meter. Plaintiff also submitted the deposition testimony of the property manager's rental agent, who testified that, on January 22, 2005, the electricity was on and the furnace blower was operating properly to heat the building. 
In opposition to the motion, defendant submitted Rochester Gas & Electric (RG & E) records indicating that RG & E had "no record of electric service being delivered to [the property] between December 21, 2004 and May 4, 2005." That evidence, however, is insufficient to raise an issue of fact whether plaintiff's property manager took reasonable care to maintain heat in the building at the time the plumbing system froze, between January 22, 2005 and January 24, 2005. We note that defendant's contention that the act of plaintiff's property manager in restoring electricity to the building himself cannot, as a matter of law, constitute reasonable care to maintain heat because such act constitutes theft of services is raised for the first time on appeal and thus is not properly before us (see Ciesinski v Town of Aurora, 202 AD2d 984, 985 [1994]). 
We thus conclude that plaintiff's loss is specifically covered under the policy, and we further conclude that the exclusions relied on by defendant under paragraph 15 of the "Perils Section," "Accidental Discharge or Overflow of Liquids or Steam from a plumbing ... system," do not unambiguously apply in this case (see generally Seaboard Sur. Co., 64 NY2d at 311; Oot v Home Ins. Co. of Ind., 244 AD2d 62, 70-71 [1998]).
And who says crime doesn't pay?

>> McCabe v. Allstate. Ins. Co. (3rd Dept., 4/15/99)

Seasonal/vacation home loss.
Question of fact found; summary judgment to insurer denied.

Plaintiffs, residents of Virginia, owned a vacation home in upstate New York, which suffered substantial damage as the result of frozen pipes in the winter of 1996. In 1991, plaintiffs orally contracted with a heating oil company for automatic fuel oil delivery service. Pursuant to the agreement, the heating oil company made periodic oil deliveries to plaintiffs' home until December 1994, at which time the heating oil company claimed plaintiffs terminated the service. Plaintiffs denied terminating the arrangement. In March 1996, plaintiffs discovered that their home had suffered approximately $43,500 in plumbing and water damage caused by frozen and bursting pipes after the heating system's fuel tank ran dry. Allstate denied coverage and plaintiffs sued both Allstate and the heating oil company.

In affirming Supreme Court's denial of the defendants' motions for summary judgment, the Third Department held:
We next review Allstate's contention that it was entitled to summary judgment due to the following loss exclusion: "Freezing of plumbing, fire protective sprinkler systems, heating or air conditioning systems or household appliances, or discharge, leakage or overflow from within the systems or appliances caused by freezing, while the building structure is vacant, unoccupied or being constructed unless you have used reasonable care to: (a) maintain heat in the building structure; or (b) shut off the water supply and drain the system and appliances." We find plaintiffs' assertion that their house was not "unoccupied" in light of their continuing, albeit seasonal use of the premises, to be unavailing. Inasmuch as plaintiffs' primary residence was in Virginia and they concede that no one resided at or visited the house in Edinburg from September 1995 until March 1996, their claim falls squarely within the exclusion provision. This Court has previously determined that use of the word "unoccupied" in an insurance policy carries its ordinarily accepted meaning and that "[i]t is the regular presence of inhabitants that makes occupancy" (Coutu v Exchange Ins. Co., 174 AD2d 241, 244; see, Page v Nationwide Mut. Fire Ins. Co., 15 AD2d 306, 306-307). 
Therefore, the salient issue is whether plaintiffs took reasonable measures to maintain heat in the structure during their absence. Allstate claims that merely arranging for automatic fuel oil service does not constitute reasonable care within the meaning of the policy exclusion. Additionally, Northville alleges that the contract for fuel delivery was terminated at the end of 1994 which, if true, would establish the lack of reasonable care in this case if no other measures were taken. Plaintiffs, on the other hand, argue that the automatic fuel oil delivery contract remained in effect since they did not request its termination and was sufficient to satisfy their duty of maintaining heat in the house. In light of the question of fact which exists with respect to the status of the fuel oil delivery contract, we conclude that Supreme Court's denial of plaintiffs' and Allstate's respective summary judgment motions was proper.

For those keeping score, the property insurers batted .500 on their not-reasonable-care-to-maintain-heat defenses in these 10 cases.  Summary judgment was denied as often as it was granted.  If one studies the cases and their facts, their outcomes turned on what the property owners knew about heat within the vacant or unoccupied structures and what they did or did not do to maintain that heat during periods when the state of water within enclosed hollow cylinders can turn from liquid to solid.

If you've made it down this far in this post, you must be interested in this type of loss/claim.  To follow new New York federal and state court decisions on this issue, create your own Google Scholar alert like I did by clicking here.  If my gmail email address auto-populates the form, change it to your preferred email.  Or if you want to follow this issue in all federal and state courts, click here to create your Google Scholar alert.  For why you should be using Google Scholar, read my August 30, 2015 post.

1. According to Wikipedia:

Sunday, January 27, 2019

Not "Dependent Property" -- Denial of Business Income Loss Claim Upheld

Cohen & Slamowitz, LLP v. Zurich Am. Ins. Co.
(2nd Dept., 1/23/2019)

Commercial property policy for the plaintiff, a former debt collections law firm, provided coverage for actual loss of "business income" sustained by the plaintiff "due to the necessary suspension of operations' caused by direct physical loss or damage by a Covered Cause of Loss to dependent property'" at a premises not owned, leased, or operated by the plaintiff. The policy further defined "dependent property" as premises operated by others on whom the plaintiff depended to "[d]eliver materials or services to you, or to others for your account (not including water, communication or power supply services)."  (Underlining added.)

Plaintiff claimed loss of business income from a disruption of its telephone service as a result of severe flooding at it telephone service provider's lower Manhattan switch center during Hurricane Sandy.  (Ironic that a debt collection firm that primarily used the telephone as its method of communicating with alleged debtors would not recognize that the switch center, which provided communication services to plaintiff, did not meet the definition of "dependent property."  Then again, debt collection firms that take no for an answer probably don't stay in business very long.)

If you've read this far, you probably know the outcome.  Summary judgment to Zurich AFFIRMED:
The defendants demonstrated, among other things, that the plaintiff's claimed business income losses resulted from damage to a property operated by a communication service provider, and, therefore, that the cause of loss was a disruption in communication services, not a "Covered Cause of Loss" to "dependent property" under the policy. In opposition, the plaintiff failed to raise a triable issue of fact. Accordingly, we agree with the Supreme Court's determination to grant the defendants' motion for summary judgment dismissing the complaint and for a judgment declaring that the defendants are not obligated to indemnify the plaintiff for its claimed business income losses pursuant to the policy (see Conlon v Allstate Veh. & Prop. Ins. Co., 152 AD3d at 489-491; ABM Mgmt. Corp. v Harleysville Worcester Ins. Co., 112 AD3d at 764-765).

Monday, January 21, 2019

Cause of Action for Consequential Damages Found Allegationally Sufficient and Reinstated

DK Prop., Inc. v. National Union Fire Ins. Co. of Pittsburgh
(1st Dept., 1/17/2019)

Must, at the pleading stage, a claim for consequential damages arising from the insurer's processing of the insured's insurance claim requires a detailed, factual description or explanation for why such damages, which do not directly flow from the breach, are also recoverable?

Answer of the First Department:
No.  A cause of action for consequential damages is sufficiently pled by specifying the types of consequential damages claimed and alleging that such damages were reasonably contemplated by the parties prior to contracting.

The complaint in this case alleged that rather than pay the claim, defendant made unreasonable and increasingly burdensome information demands throughout the three-year period since the property damage occurred. Plaintiff contended that this was a tactic by defendant to make the claim so expensive to pursue that plaintiff would abandon it altogether. Plaintiff contended defendant's investigatory process has taken so long and become so attenuated that the structural damage to the building has worsened. Among the consequential damages alleged were engineering costs, painting, repairs, monitoring equipment, and moisture abatement to address water intrusion, loss of rents, and other expenses attributable to mitigating further damage to the property.

In REVERSING Supreme Court's dismissal of and reinstating the complaint's second, bad faith cause of action, the First Department held:
Here, plaintiff's allegations meet the pleading requirements of the CPLR with respect to consequential damages, whether in connection with the first cause of action or the second cause of action for breach of the covenant of good faith and fair dealing in the context of an insurance contract (id.). Contrary to defendant's claim, there is no heightened pleading standard requiring plaintiff to explain or describe how and why the "specific" categories of consequential damages alleged were reasonable and foreseeable at the time of contract. There is no heightened pleading requirement for consequential damages (Panasia Estates Inc. v Hudson Ins. Co., 68 AD3d 530, 530 [1st Dept 2009], affd 10 NY3d 200 [2008], citing Bi-Economy 10 NY3d at 192). Furthermore, an insured's obligation to "take all reasonable steps to protect the covered property from further damage by a covered cause of loss" supports plaintiff's allegation that some or all the alleged damages were foreseeable (Benjamin Shapiro Realty Co. v Agricultural Ins. Co., 287 AD2d 389, 389-390 [1st Dept 2001]).
As noted by the Court of Appeals in Bi-Economy, a claim for breach of contract and one for bad faith handling of an insurance claim are not necessarily duplicative (id. at 191). The first and second causes of action plead different conduct by defendant and, in any event, defendant did not cross-appeal with respect to Supreme Court's denial of its motion to dismiss the bad faith claim on the basis of duplication.
Nothing else to see here.  Move on.

Copy Compiled from Underwriting Records Ruled Not Best Evidence of the Policy. Judgment for Insurer Reversed and New Trial Ordered.

Pennsylvania Lumbermens Mut. Ins. Co. v. B&F Land Dev. Corp.
(2nd Dept., 1/16/2019)

Fatal accident involving a worker on defendant's property formed the basis of the estate's underlying action for personal injuries and wrongful death.

At the time of the accident, defendant B&F had a CGL policy in force with plaintiff, PLM.  PLM received notice of the death on April 15, 2009, issued a reservation of rights on May 4, 2009, and denied coverage under the policy on June 22, 2009.  PLM's coverage declination was based on: (1) the location of the loss not being a location listed on the policy; (2) the policy's exclusion for bodily injury arising out of B&F's ongoing operations; and (3) late notice.

Two months later, PLM commenced this action against B&F and the executor of the decedent's estate for a judgment declaring that PLM was not obligated to defend or indemnify B&F in the underlying action. B&F defaulted, but the executor answered.

In May 2016, PLM proceeded to a non-jury trial against the executor.  PLM called only one witness, its vice president of claims. Over the executor's objection, and after a voir dire examination, Supreme Court admitted into evidence a copy of the policy which was proffered by PLM. The copy of the policy admitted into evidence, which had been compiled by PLM's claims VP based upon information contained in the underwriting file, did not specify a location for which the policy applied. Moreover, the copy of the policy admitted into evidence provided a different description of an endorsement titled "Exclusion- Designated Ongoing Operations" than a copy of the policy that PLM had produced during discovery. When questioned about the discrepancy, PLM's claims VP did not know which version of the endorsement applied to the policy issued to B&F.  The executor did not call any witnesses and, after the parties submitted posttrial memoranda, Supreme Court issued an order granting PLM's application for a judgment declaring that it was not obligated to defend or indemnify B&F in the underlying action. The executor appealed.

In REVERSING Supreme Court's judgment in favor of PLM and ordering a new trial, the Second Department ruled that Supreme Court's admission of the policy copy over objection at at trial violated New York's "best evidence rule":
The best evidence rule requires the production of an original writing where its contents are in dispute and are sought to be proven (see Schozer v William Penn Life Ins. Co. of N.Y., 84 NY2d 639, 643; Stathis v Estate of Karas, 130 AD3d 1008, 1009; Kliamovich v Kliamovich, 85 AD3d 867, 869). Under an exception to the rule, "secondary evidence of the contents of an unproduced original may be admitted upon threshold factual findings by the trial court that the proponent of the substitute has sufficiently explained the unavailability of the primary evidence and has not procured its loss or destruction in bad faith" (Schozer v William Penn Life Ins. Co. of N.Y., 84 NY2d at 643 [citations omitted]). The proponent of the secondary evidence "has the heavy burden of establishing, preliminarily to the court's satisfaction, that it is a reliable and accurate portrayal of the original" (id. at 645).
Here, PLM failed to offer any explanation as to the unavailability of the primary evidence, i.e., the original policy. PLM also did not establish that the copy of the policy proffered at trial was a "reliable and accurate portrayal of the original" (id.). In that regard, during voir dire examination, Santoro acknowledged that he had compiled the copy of the policy proffered by PLM at trial based upon information contained in the underwriting file, and he could not explain the language discrepancy between that copy of the policy and the copy of the policy produced by PLM during discovery. Consequently, the Supreme Court should not have admitted into evidence the copy of the policy proffered by PLM at trial. The error was not harmless since, without the original policy or an accurate replication, PLM could not establish what locations were covered by the policy, what exclusions to coverage, if any, existed under the terms of the policy, or the insured's responsibilities with respect to providing notice of the claim to PLM (see Stathis v Estate of Karas, 130 AD3d at 1011).
At the retrial, if the "original" policy cannot be found and offered, someone needs to do a better job (1) explaining why the original is not available and (2) establishing that the copy is a reliable and accurate portrayal of the original.    

Monday, July 9, 2018

When 5 + 3 = 1

Dan Tait, Inc. v. Farm Family Cas. Ins. Co.
(Sup. Ct., Albany Co., 7/2/2018)

Over a five-year period, plaintiff's former bookkeeper stole approximately $500,000 from his employer by: (1) making unauthorized purchases with company credit cards; (2) making unauthorized withdrawals from the company's line of credit; and (3) taking company inventory for personal use.  Plaintiff made a claim for employee dishonesty coverage to its commercial package insurer, Farm Family.

Deeming the former bookkeeper's course of dishonest acts committed over multiple policy periods to constitute one "occurrence" under the language of the policy, Farm Family paid $15,000, representing the limit of the employee dishonesty coverage for one policy period.  Plaintiff sued.

Under the subject policy, Farm Family agreed to pay for the direct loss of business property or cash "resulting from dishonest acts committed by [the named insured's] employees acting alone or in collusion with other persons[.]" The policy further provided that "[t]he most [Farm Family] will pay for loss or damage in any one occurrence is [the policy limit of $15,000]" and that "[a]ll loss or damage . . . [c]aused by one or more persons; or. . . [i]nvolving a single act or series of acts . . . is considered one occurrence" under the policy.

The policy also contained what the motion court characterized as "robust anti-stacking language", which provided:
If any loss is covered: (1) Partly by this insurance; and (2) Partly by any prior cancellation or terminated insurance that we or any affiliate had issued to you or any predecessor in interest; the most we will pay is the larger of the amount recoverable under this insurance or the prior insurance. We will pay only for loss or damage you sustain through acts committed or events occurring during the Policy Period. Regardless of the number of years this policy remains in force or the number of premiums paid, no Limit of Insurance cumulates from year to year or period to period.
On the issue of the number of occurrences, Supreme Court rejected plaintiff's asserted reliance on the "unfortunate-event test" and held that the former bookkeeper's series of thefts from plaintiff constituted "one occurrence" under the policy and, therefore, was subject to the $15,000 limit applicable to losses arising from employee dishonesty.

With respect to the anti-stacking issue, Supreme Court rejected plaintiff's argument that the policy was ambiguous and held:
Based on the foregoing, the Court concludes that [plaintiff] cannot recover an amount in excess of $15,000, representing "the larger of the amount recoverable under" any one of the insurance policies that were in effect during the multi-year period in which [the former bookkeeper]'s dishonest acts were committed.
If Supreme Court is right that there are no prior reported decisions of the New York courts that speak directly to the "occurrence" issue, we may see this case head to the Appellate Division, Third Department.  Stay tuned. 

Words Matter -- a Notice of Storage Lien That Lacks the Word "Lien" Is Invalid

Matter of Nissan Motor Acceptance Corp. v All County Towing
(3rd Dept., 5/18/2018)

On December 22, 2015, at the direction of local law enforcement, respondent All County Towing towed a vehicle to its facility. Shortly thereafter, respondent mailed a notice to the vehicle's owner and to petitioner, the vehicle's lienholder, advising that respondent had taken custody of the vehicle as a result of police impound, that storage fees were accruing daily and that once the vehicle was released from police impound it could be retrieved "upon full payment of all charges accrued" as of the date of release.

In April 2016, by order to show cause and petition, petitioner commenced this special proceeding to declare respondent's lien null and void. Upon petitioner's posting of a $10,000 bond, respondent released the vehicle to petitioner, joined issue and asserted, as an affirmative defense, that it had fully complied with the requirements of the Lien Law and was entitled to a lien in the amount of $6,501.51, which included $200 for towing, $5,750 for 115 days of storage, an administrative fee and taxes.

Supreme Court granted the petition to the extent of adjudging that the purported lien for storage was invalid, dismissed the petition to the extent of declaring that respondent had a valid lien for towing and ordered that, upon petitioner paying respondent the $200 charge for towing, the asserted lien would be satisfied, all stays terminated and the bond released. Respondent appealed.

In AFFIRMING Supreme Court's finding that the storage lien was invalid, the Appellate Division, Third Department, held:
As to the merits, we agree with Supreme Court that respondent's purported lien for storage was invalid. Pursuant to Lien Law § 184 (5), where an entity seeks to assert a lien for the storage of a motor vehicle that it has towed and stored at the direction of a law enforcement agency, such entity must "mail by certified mail, return receipt requested, a notice ... to every person who has perfected a security interest in such motor vehicle or who is listed as a lienholder upon the certificate of title ... within [20] days of the first day of storage." Under the statute, which must be strictly construed (see Matter of Ally Fin. Inc. v Oakes Towing Serv., Inc., 130 AD3d 1355, 1356 [2015]; Grant St. Constr., Inc. v Cortland Paving Co., Inc., 55 AD3d 1106, 1107 [2008]; Phillips v Catania, 155 AD2d 866, 866 [1989]), the "notice shall include the name of the [entity] providing storage of the motor vehicle, the amount being claimed for such storage, and [the] address and times at which the motor vehicle may be recovered" (Lien Law § 184 [5]). In addition, "[t]he notice shall also state that the [entity] providing such notice claims a lien on the motor vehicle and that such motor vehicle shall be released upon full payment of all storage charges accrued on the date the motor vehicle is released" (Lien Law § 184 [5]). 
Here, the notice—which was mailed to petitioner by certified mail, return receipt requested—included respondent's name, address and regular business hours, as well as the total amount being claimed for storage. The notice further stated that the vehicle would "be released to the owner thereof, or his or her lawfully designed [sic] representative upon full payment of all charges accrued to the date that the said motor vehicle is released." Fatally, however, the notice did not state, as required, that respondent "claim[ed] a lien" on the vehicle (Lien Law § 184 [5]). The word "lien" does not appear in the notice at all. Moreover, we are not persuaded by respondent's contention that the requirement was satisfied by the language indicating that the vehicle would be released "upon full payment of all charges." Strictly construed, Lien Law § 184 (5) requires that the notice state both that respondent "claims a lien on the motor vehicle and that such motor vehicle shall be released upon full payment of all storage charges accrued on the date the motor vehicle is released" (emphasis added). Accordingly, as the notice failed to state that respondent claimed a lien on the vehicle, Supreme Court properly found that respondent failed to comply with all of the essential statutory requirements of Lien Law § 184 (5) and, thus, that the purported notice of lien was invalid (see Lien Law § 184 [5]; compare Matter of Ally Fin. Inc. v Oakes Towing Serv., Inc., 130 AD3d at 1357).
What a difference a word -- or lack thereof -- can make. 

Sunday, July 8, 2018

Injured Party/Judgment Creditor Who Obtains Assignment of Insureds' Bad Faith Claim After Conclusion of Direct Action May Bring Second Action Against Liability Insurer

Corle v. Allstate Ins. Co.
(4th Dept., 6/8/2018)

Sometimes called New York's direct action statute, New York Insurance Law § 3420(b)(1) states:
(b) Subject to the limitations and conditions of paragraph two of subsection (a) of this section, an action may be maintained by the following persons against the insurer upon any policy or contract of liability insurance that is governed by such paragraph, to recover the amount of a judgment against the insured or his personal representative: 
    (1) any person who, or the personal representative of any person who, has obtained a judgment against the insured or the insured's personal representative, for damages for injury sustained or loss or damage occasioned during the life of the policy or contract[.]
Teeter accidentally shoots Corle, and Corle sues Teeter.  Allstate disclaims coverage to Teeter, asserting that the accidental shooting was not a covered loss under the policy.  Corle proceeds with his personal injury action against Teeter and obtains a judgment of over $350,000 against him.

Corle then sues Allstate as a judgment creditor under Insurance Law § 3420 (a) (2) and (b) (1), and Supreme Court grants Corle's motion for summary judgment, holding that the shooting was a covered loss under Teeter's parents' homeowners insurance policy with Allstate, awarding Corle the policy's $50,000 limit.

This is not that action, however.  This is Corle's second action against Allstate, commenced after the Teeters assigned their rights and claims against Allstate to Corle, who then sued Allstate for disclaiming coverage in bad faith.

Allstate moved to dismiss this action, arguing primarily that Corle should have taken the assignment and included his bad faith claim in his first action under Insurance Law § 3420(b)(1) against Allstate -- that Corle's judgment in that action for $50,000 was res judicata, barring any additional recovery against Allstate.

The Appellate Division, Fourth Department, disagreed:
Contrary to defendant's contention, we conclude that the failure of James [Corle] to litigate the bad faith claim in the earlier Insurance Law § 3420 (a) (2) action does not bar litigation of that claim in the instant action. "Under the doctrine of res judicata, a party may not litigate a claim where a judgment on the merits exists from a prior action between the same parties involving the same subject matter. The rule applies not only to claims actually litigated but also to claims that could have been raised in the prior litigation . . . Additionally, under New York's transactional analysis approach to res judicata, once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy' " (Matter of Hunter, 4 NY3d 260, 269 [2005]; see O'Brien v City of Syracuse, 54 NY2d 353, 357 [1981]).  
Insurance Law § 3420 (b) (1) provides that, "[s]ubject to the limitations and conditions of paragraph two of subsection (a) of this section, . . . any person who . . . has obtained a judgment against the insured or the insured's personal representative[] for damages for injury sustained . . . during the life of the policy or contract" may maintain an action against the insurer "to recover the amount of a judgment against the insured or his personal representative." Such an action may be "maintained against the insurer under the terms of the policy or contract for the amount of such judgment not exceeding the amount of the applicable limit of coverage under such policy or contract" (§ 3420 [a] [2]).  
We conclude that, under Insurance Law § 3420 (a) (2) and (b) (1), an injured party's standing to bring an action against an insurer is limited to recovering only the policy limits of the insured's insurance policy. Contrary to defendant's contention, we conclude that, if an injured party/judgment creditor seeks to recover from the insurer an amount above the insured's policy limits on a theory of liability beyond that created by Insurance Law § 3420 (a) (2), the statute does not confer standing to do so. However, if the insured assigns his or her rights under the insurance contract to the injured party/judgment creditor, then the injured party/judgment creditor may simultaneously bring a direct action against the insurer pursuant to Insurance Law § 3420 (a) (2) along with any other appropriate claim, including a bad faith claim, seeking a judgment in a total amount beyond the insured's policy limits.  
Here, when James [Corle] commenced the prior action pursuant to Insurance Law § 3420 (a) (2) individually and on behalf of [his injured son,] Colin, the Teeters had not yet assigned their rights under the insurance contract to James and Colin. As a result, James did not have standing to bring a bad faith claim against defendant (cf. Bennion v Allstate Ins. Co., 284 AD2d 924, 924-926 [4th Dept 2001]). Thus, because James lacked standing to bring a bad faith claim against defendant at the time he brought the Insurance Law § 3420 (a) (2) action, we conclude that the doctrine of res judicata does not bar this action (see generally Hunter, 4 NY3d at 269; Summer v Marine Midland Bank, 227 AD2d 932, 934 [4th Dept 1996]), and defendant's motion insofar as it sought to dismiss the complaint pursuant to CPLR 3211 (a) (5) was properly denied. 
In so holding, the Fourth Department declined to follow the holding on similar facts of the First Department in a 2010 case:
We recognize that the First Department held otherwise on similar facts in Cirone v Tower Ins. Co. of N.Y. (76 AD3d 883 [1st Dept 2010], lv denied 16 NY3d 708 [2011]).  To the extent that the First Department in Cirone concluded that an injured person/judgment creditor who commenced an action against the insurer pursuant to Insurance Law § 3420 (a) (2) had standing to assert a bad faith settlement practices claim in that action in the absence of an assignment from the insured, we disagree with that conclusion and decline to follow Cirone
The Fourth Department also concluded that. contrary to Allstate's argument, Corle's complaint in this action sufficiently stated a cause of action for insurer bad faith:
We reject defendant's further contention that the court erred in denying its motion insofar as it sought to dismiss the complaint under CPLR 3211 (a) (7), for failure to state a cause of action. Viewing the facts as alleged by plaintiffs in the light most favorable to them and affording plaintiffs all favorable inferences (see generally Whitebox Concentrated Convertible Arbitrage Partners, L.P. v Superior Well Servs., Inc., 20 NY3d 59, 63 [2012]), we conclude that plaintiffs sufficiently stated a cause of action for bad faith against defendant.
With the apparent split in appellate authority on res judicata issue, it remains to be seen whether Allstate will seek leave to appeal this decision to the New York Court of Appeals.

Tuesday, June 26, 2018

May a New York Property Insurer Communicate Directly with Its Insured Who Is Represented by a Public Adjuster?

This was yesterday's question of the day, one I'm asked from time to time.  Each time I get this question I check New York's insurance laws and regulations.  And each time I come to the same conclusion:

There is nothing in New York’s Insurance Law or Regulation 64 (11 NYCRR Part 216) that prohibits an insurer from communicating directly with its insureds who are represented by a licensed public adjuster.  The insured and insurer, after all, are the parties of the first-part and second-part  to the insurance contract.  They should be able to communicate freely with one another.  After all, if a public adjuster is not prohibited from communicating directly with an insurer that is represented by counsel, surely an insurer is not prohibited from communicating directly with its insured who is represented by a public adjuster, right?

Agree or disagree?  Let us know by leaving a comment.

That's Incredible! (as a Matter of Law)

Finley v. Erie and Niagara Ins. Assn.
(4th Dept., 6/15/2018)

Russell Finley's home burned down.  As was its contractual right under the policy, his property insurer, Erie and Niagara Insurance Association, requested a sworn proof of loss and denied coverage when it did not receive that proof of loss within the policy's required 60-day period.  Finley sued and testified during his deposition that he had timely submitted the requested proof of loss.

Anyone involved in litigation knows that credibility ordinarily is a issue of fact for the factfinder(s) at trial.  But are there ever instances in which a court may properly determine credibility as a matter of law?

Yes, reminds the Fourth Department, because motion and appellate courts are not required to shut their eyes "to the patent falsity of a defense."

Erie and Niagara successfully moved for summary judgment on its breach of the policy's proof of loss condition defense, and Finley appealed.  In affirming summary judgment to the insurer, the Appellate Division, Fourth Department, held:
We reject plaintiff's contention that the court erred in granting the motion. "It is well settled that the failure to file sworn proofs of loss within 60 days of the demand therefor constitutes an absolute defense to an action on an insurance policy absent a waiver of the requirement by the insurer or conduct on its part estopping its assertion of the defense' " (Bailey v Charter Oak Fire Ins. Co., 273 AD2d 691, 692 [3d Dept 2000]; see Igbara Realty Corp. v New York Prop. Ins. Underwriting Assn., 63 NY2d 201, 209-210 [1984]; Alexander v New York Cent. Mut., 96 AD3d 1457, 1457 [4th Dept 2012]). Defendant, as the party seeking summary judgment, met its initial burden on the motion by establishing that plaintiff failed to provide a sworn proof of loss within the requisite time (see generally Schunk v New York Cent. Mut. Fire Ins. Co., 237 AD2d 913, 914 [4th Dept 1997]), and that defendant did not waive the requirement. In response, plaintiff failed to raise a triable issue of fact whether he substantially complied with the proof of loss requirement (cf. Delaine v Finger Lakes Fire & Cas. Co., 23 AD3d 1143, 1144 [4th Dept 2005]).  
We reject plaintiff's contention that he raised a triable issue of fact by submitting his deposition testimony in which he averred that he timely submitted the requisite proof of loss to defendant, and that the court made an improper credibility determination in rejecting that testimony and his testimony regarding a lack of knowledge of the cause of the fire. Although "we agree with the general premise that credibility is an issue that should be left to a [factfinder] at trial, there are of course instances where credibility is properly determined as a matter of law'" (Sexstone v Amato, 8 AD3d 1116, 1116 [4th Dept 2004], lv denied 3 NY3d 609 [2004]). Neither this Court nor the motion court is " required to shut its eyes to the patent falsity of a defense' " (id., quoting MRI Broadway Rental v United States Min. Prods. Co., 242 AD2d 440, 443 [1st Dept 1997], affd 92 NY2d 421 [1998]). Here, we conclude that the court properly determined that plaintiff's deposition testimony was "self-serving and incredible on these points, permitting summary judgment in favor of" defendant (Curanovic v New York Cent. Mut. Fire Ins. Co., 307 AD2d 435, 439 [3d Dept 2003]; see Rickert v Travelers Ins. Co., 159 AD2d 758, 759-760 [3d Dept 1990], lv denied 76 NY2d 701 [1990]).
That's a lot of rejecting.  Next time someone tells you credibility is always a fact issue, point them here.  Self-serving testimony and patently false defenses do not triable issues of fact create.

You can watch (and listen) to the oral argument of this appeal to the Fourth Department here.  Perhaps my favorite statement from Justice Troutman at 1:26:33:  "So he complied until he didn't."

Sunday, May 20, 2018

How to Abandon Your Complaint in New York (and Kiss Your $22,000 Subro Claim Goodbye)

Selective Auto. Ins. Co. of NJ a/s/o Pine v. Nesbitt
(1st Dept., 5/17/2018)

New York CPLR § 3215(c) states:
(c) Default not entered within one year.  If the plaintiff fails to take proceedings for the entry of judgment within one year after the default, the court shall not enter judgment but shall dismiss the complaint as abandoned, without costs, upon its own initiative or on motion, unless sufficient cause is shown why the complaint should not be dismissed.  A motion by the defendant under this subdivision does not constitute an appearance in the action.
On March 6, 2014, Selective, as subrogee of its insured, served on defendants a complaint dated February 25, 2012 for $21,705.90 paid in collision damage to its insured's vehicle that was sustained in a July 22, 2011 accident.  Defendants never appeared or answered the complaint and were in default in pleading as of May 14, 2014.  More than a year later, on June 22, 2015, Selective's subrogation counsel wrote to Allstate, the defendants' auto insurer, advising that the defendants had been sued and were in default, and asking that Allstate contact counsel to discuss settlement.  The letter also advised that if counsel did not hear from Allstate and receive defendants' answer to the complaint within 10 days, "we will have no alternative other than to file a default motion."  Counsel wrote again to a different person at Allstate on October 11, 2016, saying nothing about moving or having moved for a default judgment.

By notice of motion dated February 1, 2017, defendants moved for an order pursuant to CPLR § 3215(c) dismissing Selective's complaint as abandoned.  Selective opposed and cross-moved for a default judgment on liability.  Supreme Court DENIED defendants' motion and GRANTED Selective's cross motion.  Defendants (by Allstate) appealed.

In unanimously REVERSING Supreme Court's order and dismissing Selective's complaint, the Appellate Division, First Department, noted:
Under CPLR 3215(c), if a plaintiff fails to seek entry of a judgment within one year after default, the court "shall dismiss the complaint as abandoned ... unless sufficient cause is shown why [it] should not be dismissed." Here, plaintiff failed to show sufficient cause to defeat defendant's dismissal motion because it neither set forth a viable excuse for the delay nor demonstrated a meritorious cause of action (Hoppenfeld, 220 AD2d at 303; Gavalas v Podelson , 297 AD2d 535 [1st Dept 2002]).
Sending "please contact me to discuss settlement" letters to defendants' auto insurer 13 and 29 months after defendants' default and more than one and 17 months after CPLR § 3215(c)'s one-year deadline to take default proceedings does not constitute a "viable excuse for the delay" in moving for a default judgment, at least in the opinion of the First Department.  $22,000 subrogation claim dismissed.

Monday, April 23, 2018

Summary Judgment to Homeowners Insurer on Insured's Failure to Reasonable Care to Maintain Heat Affirmed By Third Department

Stephenson v. Allstate Indem. Co.
(3rd Dept., 4/19/2018)

The insured single-family residence was unoccupied from December 2013 through March 24, 2014, when damages were discovered from  water that had discharged from the plumbing system after a pipe broke when it froze as a result of inadequate heat in the premises.  The home's water supply had not been shut off and the plumbing system had not been drained.  The insured had left her property unoccupied during the winter months without making any arrangements to have it inspected during her absence to ascertain whether the heating system was functioning.

Allstate disclaimed coverage based on several policy exclusions, including one for damage caused by "[f]reezing of plumbing, fire protective sprinkler systems, heating or air conditioning systems or household appliances, or discharge, leakage or overflow from within the systems or appliances caused by freezing, while the building structure is vacant, unoccupied or being constructed unless you have used reasonable care to: (a) maintain heat in the building structure; or (b) shut off the water supply and drain the system and appliances."

The insured sued Allstate for coverage and, after discovery was complete, Allstate moved for summary judgment.  Supreme Court granted Allstate's motion and plaintiff appealed.  Noting that the determinative issue in a freezing exclusion case is whether the insured used reasonable care to maintain heat in the premises, the Third Department AFFIRMED the grant of summary judgment to Allstate:
In support of its motion, defendant submitted plaintiff's deposition testimony and a statement that decedent made to defendant's claims investigator showing that decedent left the property unoccupied during the winter months without making any arrangements to have it inspected during her absence to ascertain whether the heating system was functioning. Defendant also submitted the affidavit of an expert witness showing that consumption of natural gas — the fuel used to heat the premises — from December 7, 2013 through February 6, 2014 was insufficient to maintain a level of heat adequate to prevent freezing of the plumbing system. As defendant met its burden of establishing that the exclusion applied here, the burden shifted to plaintiff to raise a triable issue of fact in this regard.

Plaintiff's proof regarding decedent's arrangements regarding maintenance of the property in her absence was limited to the affidavit of Gerald Whitmarsh, who was responsible for lawn mowing and snow removal. Whitmarsh does not aver that decedent asked him to inspect the interior of the premises to confirm whether it was adequately heated, or that he actually entered the premises during the relevant time. His conclusory allegations that the premises were always heated and that he never noticed that the heat was off — which do not specify when those observations may have been made — are insufficient to rebut defendant's showing that decedent made no arrangements to ensure that the heat continued to work during her absence. Plaintiff's argument that defendant was required to prove the cause of the heating system's failure is misplaced because it fails to address the determinative issue of whether decedent used reasonable care to ensure continued operation of the heating system during her absence. We conclude that decedent failed to use reasonable care, as a matter of law, to maintain heat in the premises while it was unoccupied for three months during the winter heating season, because it is undisputed that she did not arrange for inspection of the premises or take any other action to ensure that adequate levels of heat were actually maintained during that time period (see e.g. Amery Realty Co., Inc. v Finger Lakes Fire & Cas. Co., 96 AD3d 1214, 1216 [2012], lv denied 19 NY3d 812 [2012]; Pazianas v Allstate Ins. Co., 2016 WL 3878185, *5, 2016 US Dist LEXIS 92796, *13-15 [ED Pa 2016]; Jugan v Economy Premier Assur. Co., 2018 WL 1432973, *3-4, 2018 US App LEXIS 7218, *8-14 [3d Cir 2018]). Thus, Supreme Court properly granted defendant's motion. Plaintiff's remaining arguments have been considered and found to lack merit.
Facts supporting summary judgment:
  • home was unoccupied for three months during the wintertime
  • the home's water supply had not been shut off 
  • the plumbing system had not been drained
  • the insured had made no arrangements to have the home inspected while she was gone
  • an expert opined that the home's natural gas consumption was insufficient to maintain a level of heat adequate to prevent freezing of the plumbing system