Wednesday, December 31, 2008

8th Annual Insurance Coverage Best in Show: The Ten Most Significant Decisions of 2008

Randy Maniloff of White & Williams in Philadelphia sent me the "8th Annual Insurance Coverage Best In Show: The Ten Most Significant Decisions Of 2008" article he and Jennifer Wojciechowski of his firm wrote for the December 18, 2008 edition of Mealey's Litigation Report: Insurance. The article also includes their "Special Report: Coverage For Dummies 2008: The Top Ten". Decisions from New York courts made both lists. Randy blogs for the LexisNexis Insurance Law Center.

In the order they were decided, their 10 most significant decisions in this year's round-up are:
D. Jere’ Webb v. Gittlen — Supreme Court of Arizona put the heat on insurance agents, making their E&O policies insurance of last resort. Supreme Court of Florida raised the temperature as well.

Elacqua v. Physicians’ Reciprocal InsurersNew York Appellate Division: Tough medicine for insurer that failed to address an insured’s right to independent counsel. If the decision made it there, it can make it anywhere.

Auto-Owners Insurance Company v. Pozzi Window Company — Supreme Court of Florida was a pane for general contractors seeking coverage under the “subcontractor exception” to the “your work” exclusion.

Metropolitan Life Insurance Company v. GlennUnited States Supreme Court found dual-role ERISA claims administrators/insurers are presumed to have a conflict of interest, but left the impact of such a conflict “painfully opaque.”

Allstate Insurance Company v. Wagner-Ellsworth — Supreme Court of Hannah Montana gave emotional injury a second identity — bodily injury. District of Columbia Court of Appeals did the same.

Indian Harbor Insurance Company v. Valley Forge Insurance GroupFifth Circuit: Valley Forge demonstrated how insurers can save a lot of Washingtons on additional insured claims.

Ulico Casualty Company v. Allied Pilots Association — You can’t create coverage by cliché. Supreme Court of Texas explained what the common refrain about waiver and estoppel really means.

Don’s Building Supply, Inc. v. OneBeacon Insurance Company — Supreme Court of Texas shot down the manifestation trigger for construction defect claims.

Collins Holding Corporation v. Wausau Underwriters Insurance Company — Supreme Court of South Carolina provided a simple solution to the duty to defend conundrum for faux-negligence causes of action.

Whole Enchilada, Inc. v. Travelers Property Casualty CompanyPennsylvania District Court took a bite out of FACTA litigation.
I appreciate Randy allowing me to republish their article here.

Monday, December 29, 2008

A Serious Rant About the Permanent Consequential and Significant Limitation "Serious Injury" Threshold Categories

Vidal v. Maldonado

(Sup. Ct., Bronx Co., decided 12/8/2008)

Okay, maybe "rant" is too harsh a term for the court's critical exposition of the state of the common law on the "serious injury" threshold in New York State. But for those who deal with automobile personal injury claims, this decision is a must read. I first spotted this case over at Eric Turkewitz' New York Personal Injury Law Blog.

Bronx County Supreme Court Justice Paul Victor sets the stage for his discussion of seemingly conflicting New York "serious injury" case law with the following commentary:
The defendants' motions and plaintiffs' responses have become almost assembly line, "cookie cutter" prototypes; and attorneys for defendants (and most plaintiffs) have become expert on how to present or attack a serious injury claim.

Defendants are very adept at providing prima facie proof demonstrating that plaintiff has not suffered a serious injury; proof at the very least sufficient to meet their "initial burden" to present competent evidence that plaintiff has no cause of action. Plaintiffs, too, have become quite conversant with the requirements to defeat defendant's motion.

* * * * *

The enabling legislation for the No-Fault Law itself provides little or no guidance to the bench and bar as to the scope of the terms used. For example, one should reasonably assume that the legislature sought to distinguish "significant limitations of a body function or system" from a "consequential limitation of a body organ or member". However, there appears to be no practical difference. Some courts have held that "consequential" means "significant" (See, e.g. Altman v. Gassman, 202 AD2d 265 [1st Dept. 1994]); and there are abundant cases in which all of the above terms (including body function, system, organ or member) are used interchangeably. The guidelines, conditions and examples provided by the Court of Appeals in a series of decisions, including Toure (cited and discussed, infra ) although very helpful, have not entirely unburdened the trial courts; and these serious injury claims continue to be the cause of incessant motion practice, and an abundant use of judicial resources at both the trial and appellate levels.

You can read the decision itself for Justice Victor's discussion and analysis of the Toure, Brown and Parreno decisions. After again noting that "[t]his legislatively imposed task has caused more than a season of judicial discontent and frustration, [and] has resulted in an extremely difficult and flawed process which results too often in an inconsistent and unfair application of the law", the court denied defendant's motion for summary judgment, even though plaintiff's treating internist had not set forth numeric percentages of any decreased range of motion in plaintiff's cervical and lumbar spine regions. The court found that a "less than normal" qualification of the ROM test findings was sufficient to create a question of fact when coupled with a positive MRI and the treating internist's finding of back spasms.

Presuming the defendant appeals this decision, we'll see what the First Department has to say. There are no bills currently pending in Albany that I found to amend the "serious injury" categories or proof requirements of Insurance Law § 5102(d).

In the End, Auto Physical Damage Subrogation Claim Wins

Allstate Ins. Co. v. Bader

(2nd Dept., decided 12/23/2008)

In this auto physical damage subrogation case, the Second Department reminds:
"A rear-end collision with a stopped vehicle creates a prima facie case of negligence against the operator of the moving vehicle, thereby requiring that operator to rebut the inference of negligence by providing a nonnegligent explanation for the collision" (Kimyagarov v Nixon Taxi Corp., 45 AD3d 736; see Klopchin v Masri, 45 AD3d 737; Nieves v JHH Transp., LLC, 40 AD3d 1060). In opposition to the plaintiff's demonstration of its prima facie entitlement to judgment as a matter of law, the defendants failed to proffer sufficient evidence to raise a triable issue of fact. Accordingly, summary judgment was properly awarded to the plaintiff on the issue of liability.

Second Department Finds No Nonowned Auto Liability Coverage for Accident Involving Rental Vehicle

Elrac, Inc., d/b/a Enterprise Rent-A-Car v. GE Capital Ins. Co.

(2nd Dept., decided 12/23/2008)

While a vehicle Carmelo Mazarese used regularly was being repaired, he rented a vehicle from Enterprise-Rent-A-Car.  The rental agreement listed Mazarese as the only authorized driver and provided that the rental car would be returned in 30 days.

On January 12, 2004, the rental car was involved in a motor vehicle accident. At the time of the accident, the rental car was being operated by Mazarese's cousin, Lisa Martinez, who had borrowed the car from Mazarese with his permission, but who was not an authorized driver under the rental agreement.

A month later, defendant Joseph V. Martinez, the father of the defendant Tess Martinez, the infant passenger (also the daughter of the driver) who was riding in the rental vehicle at the time of the accident, commenced a personal injury action entitled Martinez v Elrac, Inc. in Nassau County Supreme Court against ELRAC, Lisa Martinez, and Mazarese (the theory of liability against Mazarese not being disclosed or apparent). Pursuant to an infant's compromise order entered November 10, 2005, in the underlying action, ELRAC, on behalf of itself and Mazarese (whom it represented in the underlying action) settled that action for the sum of $1.1 million.

ELRAC then commenced this action against, among others, GE Capital Insurance Company, Lisa Matrtinez, and Mazarese for declaratory relief seeking indemnification from GE, which had issued a personal auto policy to Mazarese's mother.

GE's policy contained a nonowned auto clause that provided liability coverage for "[a]ny relative of [the named insured] who resides in your household * * * when using a nonowned auto provided that * * * [t]he relative is using the nonowned auto with the owner's permission and for the purpose the owner intended."  GE's policy defined the term "nonowned auto" as "an auto that is not owned by or registered to the [named insureds] or a resident of your household; and is not furnished or available to [the named insureds] or any resident of your household for regular use." "Use" of an auto was defined as "owning, operating, loading, unloading and maintaining the auto."

The issue in this case persumably was whether the GE policy afforded liability coverage to Mazarese, the renter.  This decision contains no discussion of liability coverage under the GE policy for Martinez, the driver.

In REVERSING the lower court's order granting summary judgment to ELRAC, the Second Department found that the nonowned auto provision of GE's policy did not afford liability coverage for the accident:
The exclusion of coverage under certain conditions for a relative residing with an insured when using a nonowned automobile "was designed to protect the company from being subjected 'to greatly added risk without the payment of additional premiums'" (Sperling v Great Am. Indem. Co., 7 NY2d 442, 448, quoting Vern v Merchants Mut. Cas. Co., 21 Misc 2d 51, 52). The purpose of a provision for a nonowned vehicle not for the regular use of an insured is to provide protection to the insured for the occasional or infrequent use of a vehicle not owned by him or her and is not intended as a substitute for insurance on vehicles furnished for the insured's regular use (see Liberty Mut. Ins. Co. v Sentry Ins., 130 AD2d 629, 630; see Liberty Mut. Ins. Co. v Allstate Ins. Co., 237 AD2d 260; Egle v United Servs. Auto. Assn., 158 AD2d 661; Federal Ins. Co. v Allstate Ins. Co., 111 AD2d 146; but see New York Cent. Mut. Fire Ins. Co. v Jennings, 195 AD2d 541). 

In determining whether a vehicle has been furnished for regular use, the general availability and frequency of use are criteria employed by the factfinder (see Liberty Mut. Ins. Co. v Allstate Ins. Co., 237 AD2d 260, 261; Liberty Mut. Ins. Co. v Sentry Ins., 130 AD2d 629, 630; Egle v United Servs. Auto. Assn., 158 AD2d 661, 662-663; McMahon v Boston Old Colony Ins. Co., 67 AD2d 757, 758; compare Hollander v Nationwide Mut. Ins. Co., 60 AD2d 380). 

In his affidavit, Mazarese asserted, inter alia, that at the time of the accident, he did not own a motor vehicle, but the vehicle he used on a daily basis was a 2004 Mercury Mountaineer that was insured by nonparty Geico Insurance Company (hereinafter Geico).  Mazarese had leased the rental vehicle from Elrac as a replacement vehicle while the Mercury Mountaineer was being repaired by the dealer. According to Mazarese, he used the rental vehicle "on an everyday basis." The rental agreement demonstrated that Mazarese rented the vehicle on November 18, 2003, and he returned it on January 13, 2004, the day after the subject accident. Thus, the rental vehicle clearly was available for Mazarese's regular use for 55 days.  Accordingly, under the circumstances of this case, the rental vehicle did not meet the definition of a nonowned vehicle under the GE policy. 

In addition, contrary to the Supreme Court's determination, Mazarese was not maintaining the rental vehicle at the time of the accident by virtue of his having entrusted the vehicle to the driver. "'Maintenance,' as that term is used in an insurance policy, means performance of work on an intrinsic part of the mechanism of the car and its overall function'" (Guishard v General Sec. Ins. Co., 9 NY3d 900, 902, quoting Farmers Fire Ins. Co. v Kingsbury, 105 AD2d 519, 520, citing 6B Appleman, Insurance Law & Practice, § 4315; see Pennsylvania Millers Mut. Ins. Co. v Manco, 63 NY2d 940, 942). Moreover, such entrustment of the rental vehicle to the driver did not constitute use of the rental vehicle as such term is otherwise defined in the GE policy because Mazarese neither owned, nor was he operating, loading, or unloading the rental vehicle at the time of the accident. Thus, the Supreme Court incorrectly concluded that there was coverage for the subject accident under the GE policy. 
The three reasons GE's policy did not afford liability coverage to/for Mazarese are:  (1) the rental vehicle was available for Mazarese's regular use, thus disqualifying it from being a "nonowned auto" as defined by the GE policy; (2) Mazarese's allowing Martinez to use the rental vehicle was not "maintaining" it; and (3) Mazarese's entrustment of the the rental vehicle to Martinez did not constitute his "use" of it.  

Graves Amendment Held to Apply Despite Rental Car Company's Alleged Failure to Check Renter's Driving Record

Sigaran v. ELRAC, Inc.

(Sup. Ct., Bronx Co., decided 12/23/2008)

Since August 10, 2005, the "Graves Amendment"has provided vehicle lessors and renters with a statutory basis for dismissing vicarious liability claims in motor vehicle accident lawsuits.  In pertinent part, the Graves Amendment provides:
§ 30106. Rented or leased motor vehicle safety responsibility(a) In general. An owner of a motor vehicle that rents or leases the vehicle to a person (or an affiliate of the owner) shall not be liable under the law of any State or political subdivision thereof, by reason of being the owner of the vehicle (or an affiliate of the owner), for harm to persons or property that results or arises out of the use, operation, or possession of the vehicle during the period of the rental or lease, if: (1) the owner (or an affiliate of the owner) is engaged in the trade or business of renting or leasing motor vehicles; and(2) there is no negligence or criminal wrongdoing on the part of the owner (or an affiliate of the owner).
ELRAC rented a car to Fernandez, who was involved in a motor vehicle accident in which the infant plaintiff allegedly was injured.  In an effort to avoid the claim-preclusive impact of the Graves Amendment, the plaintiffs in this case alleged in their complaint that ELRAC (Enterprise Rent-A-Car) negligently entrusted the rental vehicle to Fernandez by failing to check his driving history.  ELRAC answered and then moved to dismiss the plaintiffs' complaint based on the Graves Amendment.

In granting ELRAC's motion, Bronx County Supreme Court Justice Dominic Massaro held:
The Court finds that the terms of the Graves Amendment validly apply here because the statute regulates and protects things in interstate commerce and because it regulates activity that substantially affected interstate commerce. Congress has legitimate authority under the Commerce Clause to regulate liability imposed upon a rental car company and the Graves Amendment constitutionally preempted state laws that imposed vicarious liability on rental car companies (see, Garcia v. Vanguard Car Rental USA, Inc., 540 F.3d 1242 (11th Cir. 2008); Flagler v. Budget Rent a Car Systems, Inc., 538 F. Supp. 2d 557 [ED NY 2008]).[FN3] [FN4][FN5]

Clearly, the Graves Amendment voids Vehicle & Traffic Law §388 to the extent that the Transportation Equity Act applies (see, Hall v. ELRAC, Inc., 52 AD3d 262 [1st Dept. 2008]); Hernandez v. Sanchez, 40 AD3d 446 [1st Dept. 2007]; Graham v. Dunkley, 50 AD3d 55 [2nd Dept. 2008]; Jones v. Bill, 34 AD3d 741 [2nd Dept. 2006], rev'd, 10 NY3d 550 [2008] [reversed on effective date of the amendment]; Williams v. White, 2007 Slip Op 02227 [3rd Dept. 2007]; Castillo v. Bradley, 17 Misc 3d 1107(A) [Sup. Ct. Kings 2008]; Infante v. U-Haul Co. of Fla., 11 Misc 3d 529 [Sup. Ct. Queens 2006]). 

Basing their claim upon the Graves Amendment, Defendants say the complaint against the corporation fails to state a cause of action because the allegations, if true, are barred by the statute. In this regard, Defendants focus their attack upon Plaintiffs' allegation that ELRAC, Inc. was negligent because the corporation knew (or should have known) Fernandez's history of operating vehicles in an unsafe, careless, and reckless manner (see, Complaint ¶¶10 to 12). 

*  *  *  *  *

Construing liberally, as it must, Plaintiffs urge that the Court find that a claim is stated against the corporation because the complaint alleges a cause of action under an exception to the Graves Amendment, i.e., actual negligence (49 U.S.C. § 30106[a][2]). In this regard, by the statute's plain reading, while the Graves Amendment absolves rental car companies of vicarious liability, it does not absolve rental car companies for their own negligence (see generally, Novovic v. Greyhound Lines, Inc., 2008 US Dist. Lexis 94176 [ED NY 2008]) (see also, American Association for Justice, AAJ Annual Convention Reference Materials, 2 Ann 2007 AAJ-CLE 1873 [2007]).

To decide whether ELRAC falls under the "own negligence" exception, the Court must decide whether the corporation was under an obligation to check Fernandez's driving record and whether failure to carry out such duty places this case under the exemption provided by 49 USC §30106(a)(2) ("no negligence or criminal wrongdoing on the part of the owner"). 

*  *  *  *  *

Plaintiffs' allegations are limited to the following: (1) the corporate defendant had a duty to ensure that any vehicle rented by it would be operated in a safe manner; (2) the corporate defendant has a duty to determine whether any drivers to whom it rented vehicles did not have a history of operating vehicles in a careless way, and (3) ELRAC was negligent in renting to Fernandez (Complaint ¶¶ 9 to 11). Beyond that, no specifications were made concerning the nature of Fernandez's driving record that should have alerted ELRAC not to rent to him.

In their answering papers, Plaintiffs generally argue that ELRAC was, in essence, guilty of "negligent entrustment," but cite no basis or any specifics for claiming that ELRAC was under a duty to check Fernandez's driving record. 


At common law, owners could be held liable if they knowingly entrusted their car to an incompetent driver. "One who supplies a chattel for the use of another whom the supplier knows or has reason to know to be likely because of his youth, inexperience, or otherwise, to use it in a manner involving unreasonable risk of physical harm to himself and others may be liable for negligent entrustment" (see, Pacho v. Enterprise Rent-A-Car Co., 572 F.Supp.2d 341 [SD NY 2008]) The Pacho Court found "negligent entrustment" applied to the rental company's failure in that case to properly process the co-defendant's driver's license. However, in this case, no allegations exist that the corporate defendant failed to check Fernandez's license.[FN6] Therefore, the Court must conclude that Plaintiffs failed to state a cause of action that the corporate defendant knew, or should have known, that Fernandez was unlicensed, incompetent, or reckless. Further, Plaintiffs failed to cite any legal authority that ELRAc was under an obligation to check Fernandez's driver's record beyond verifying that he had a valid driver's license (see generally, Vedder v. Cox, 18 Misc 3d 1142 [A] (Sup. Ct. Nassau 2008]).

Based upon the foregoing, the Court finds that Plaintiffs failed to state a cause of action against the corporate Defendant. Likewise, the Court determines that Plaintiffs' did not allege a claim independent of Vehicle & Traffic Law §388.[FN7]
Beyond checking to make sure that a renter has a valid driver's license,a rental car company is not obligated to check the renter's driving history or record, according to this court, in order to qualify for the vicarious liability claim-preclusive protection of the Graves Amendment.

To read most posts about New York cases involving the Graves Amendment, click here.   

Tuesday, December 23, 2008

New York State Insurance Department's Regulatory Agenda Proposed for First Half of 2009

The New York State Insurance Department has just released its proposed regulatory agenda for the first half of 2009. Items of potential interest to property and casualty insurers and producers doing business in New York include (numbering from original; Agency contacts omitted):

1. Adoption of a new part to 11 NYCRR to set forth, in broad terms, the principles to which licensees are expected to adhere in conducting their business in New York.

2. Adoption of a new part to 11 NYCRR to establish requirements regarding disclosure of all sources and amounts of compensation received by licensed insurance producers.

3. Amendment of 11 NYCRR 20 (Brokers and Agents - General)(Regulation 29) to permit the use of internet and out-of-state banks for producer premium accounts.

6. Amendment of 11 NYCRR 151 (Regulation 119) to implement Chapter 11 of the Laws of 2008, effective January 31, 2008, which established a new method for setting workers’ compensation rates in New York. This legislation provides for a new, two-step process for establishing workers’ compensation insurance rates. One component of the rate making process is the Superintendent’s establishment, by regulation, of a loss cost multiplier (LCM). The amendment will also address other pertinent issues.

11. Amendment of 11 NYCRR 65-1, 65-2, 65-3, 65-4 (Regulations Implementing the Comprehensive Motor Vehicle Insurance Reparations Act) (Regulations 68-A, 68-B, 68-C & 68-D) to revise No-fault endorsements and requirements for insurer claim practices and to amend rules related to both the manner in which the organization designated by the Superintendent administers the first party motor vehicle insurance arbitration programs and assesses the costs of these programs to the insurance industry.

12. Amendment of 11 NYCRR 68 (Charges for Professional Health Services) (Regulation 83) to adopt a fee schedule for health services rendered by licensed acupuncturists.

15. Amendment of 11 NYCRR 216 (Unfair Claims Settlement Practices and Claim Cost Control Measures) (Regulation 64) to update the entire regulation to, inter alia, provide notice and time frame requirements for third party claims.

16. Adoption of a new 11 NYCRR 65-5 (Regulation 68-E) and amendment of 11 NYCRR 68 (Regulation 83) to implement Chapter 424 of the laws of 2005 and thus create a process by which a health provider's authority to seek reimbursement for the treatment of No-Fault patients can be suspended or removed under certain circumstances.

18. Adoption of a new part to 11 NYCRR to require authorized property/casualty insurers to establish reserve funds for payment of losses that occur in New York arising out of natural catastrophes.

21. Amendment of 11 NYCRR 68 (Charges for Professional Health Services) (Regulation 83) to adopt the fee schedule that will be implemented by the Workers' Compensation Board for health services rendered by licensed dentists.

27. Amendment of 11 NYCRR 67 (Mandatory Underwriting Inspection Requirements for Private Passenger Automobiles) (Regulation 79) to include additional circumstances under which an insurer may voluntarily waive mandatory inspection of a motor vehicle for physical damage coverage, and to clarify that the use of digital photography and electronic access to inspection report data are permitted.

88. Adoption of a new part to 11 NYCRR to establish minimum standards for form and content of property and casualty insurance advertisements.

89. Adoption of a new part to 11 NYCRR to provide that cancellation notices subject to section 3425 of the Insurance Law should include the date and hour of cancellation, the date of the notice, and, for nonpayment of premium cancellations, a statement informing the consumer that cancellation will not take place if the consumer makes timely payment of the premium.

90. Adoption of a new part to 11 NYCRR to provide rules and guidelines to assure full disclosure of all relevant information within advertisements which describe or solicit the purchase of property and casualty insurance coverage that are published, issued or distributed through various advertising media.

Monday, December 22, 2008

Another Court Rejects Argument that IME Must Be Performed by Physician

Five Boro Psychological Servs., P.C. v. Autoone Ins. Co.

(NYC Civil Ct., Kings Co., decided 12/8/2008)

I mentioned this decision in my December 16th post regarding the Allstate Social Work a/a/o Jocelyn v. Utica Mut. Ins. Co. case.   Same provider attorney.  Same argument.  Same result.

The IME condition found in the prescribed PIP endorsement provides that "[t]he insured shall submit to physical examinations by physicians we select when and as often as we may reasonably require."  Plaintiff provider argued that since New York Education Law defines a physician as only "a person licensed or otherwise authorized...[to] practice medicine", plaintiff's assignor did not violate the policy's IME condition because AutoOne scheduled the IME before a psychologist, rather than a physician.

In rejecting this argument, New York City Civil Court Judge Alice Fisher Rubin held:
The argument raised by plaintiff appears to be one of first impression. This court has researched the issue, having read and written many no fault decisions, and did not find a case addressing the issue of whether a policy which states "physician" means that any other healthcare provider is excluded, and only a physician can conduct the independent medical examination of an EIP. 

This court answers in the negative.

In the case before this court, the insurance company sent verification requesting that the injured party appear before an independent psychologist. The court finds that although the policy states physician, the term itself is not ambiguous where it would or should allow the EIP to circumvent the requirement of an independent examination, to determine whether the services rendered were medically necessary. The assignor was seen by a psychologist and therefore, there is no reason why a verification which requests that he appear before an independent psychologist, should not be held as a valid request when the policy states "physician."
In so ruling, the court relied on the General Provisions of the Workers' Compensation Law, Section 300.2, which addresses independent medical examination, examiners, and entities, and provides:
Independent medical examiner means a physician, surgeon, podiatrist, chiropractor or psychologist who is authorized to conduct independent medical examinations as defined in paragraph (4) of this subdivision[.]
Ultimately, however, Judge Rubin granted summary judgment to plaintiff because AutoOne had not timely requested or scheduled the assignor's IME.

Sunday, December 21, 2008

Winter Storm Losses & Claims

It started snowing here in the Buffalo area early Friday morning and really hasn't quit since for more than a few hours here or there. We in the midst of a lake-effect right now after two general snowfalls on Friday and early this morning.

Seems like a perfect time to provide some links about insurance coverage for winter storm losses.

From a state that knows snow comes Minnesota's Winter Hazard Awareness Info FAQ page.

Missouri and New Hampshire offer us these significantly similar FAQs. They must have a good number of hot tubs in those states, as a "what if my hot tub is damaged..." question made the list.

And from a state known more for its barbecuing than snowfall totals comes Texas' winter ice storm FAQs. Gotta love the "A tree fell on my barbeque pit... Will my policy cover the damage to my barbeque pit?" question.

Washington State's Insurance Commissioner offers these Winter Weather and Insurance Coverage Q&As. Lots of boats up there, apparently. And strong winter winds.

USAA offers these Winter Storm FAQs for insureds, while the most common Homeowners 3--Special Form (HO-3 10/00 edition), can be found here. Under the HO-3, dwelling coverage is all-risk (see page 8 of 22), while contents coverage is a named peril coverage (page 10-11 of 22).

View outside my back door when I started this post. Stay warm and safe everyone.

First Department Affirms Allocation of Remainder of Defense Cost Coverage to Tyco Defendants

Federal Ins. Co. v. Tyco Intl. Ltd.

(1st Dept., decided 12/18/2008)

Federal commenced this interpleader action to resolve competing claims for proceeds of an Executive Protection Policy that Federal had issued on behalf of defendant Tyco International, Ltd. (“Tyco”) and its officers and directors. The remaining claimants -- Tyco, defendant Mark Belnick, and defendant Frank E. Walsh, Jr. -- were seeking reimbursement for defense costs they had incurred in numerous civil and criminal proceedings. 

Federal had paid a total of $20,710,664 out of the $25 million policy limit for Executive Liability and Indemnification coverage to Tyco and Belnick for defense costs.  Federal then moved for an order discharging it after it paid the remaining $4,289,336 of ELI Coverage to defendants as directed, or deposited that amount into court.

Walsh moved for an order granting him partial summary judgment and declaring that he was entitled to receive all of his defense costs, both past and future, from the remaining policy proceeds in connection with about sixteen civil proceedings. The underlying lawsuits included this interpleader action and an action in which Federal sought rescission of the policy.  In addition, Walsh sought a declaration that Federal was obligated to defend him in an underlying ERISA action pursuant to the “Fiduciary Coverage” that the Federal policy provided in addition to its ELI Coverage.  In opposition, Tyco argued that it was entitled to the entire balance of the policy's proceeds after Belnick was paid, and contended that Walsh’s felony conviction for violating New York's Martin Act for not disclosing a $20 million finder's fee he received from Tyco for brokering its acquisition of the CIT Group, Inc., barred him from ELI Coverage. Tyco further argued that, in any event, Walsh lost his  priority for his claims by submitting his invoices to Federal well after Tyco had begun to submit its invoices.

Tyco and Walsh agreed that of the remaining $4,289,336 in policy proceeds, Belnick was entitled first to payment of $987,261 for his defense costs, leaving $3,302,075 in ELI Coverage, which Tyco claimed Walsh was not entitled to, based on a policy exclusion for “fraud”:
based upon, arising from, or in consequence of any deliberately fraudulent act or omission or any willful violation of any statute or regulation by such [insured person], if a judgment or other final adjudication establishes such a deliberately fraudulent act or omission or willful violation.
In granting Walsh's motion, in part, New York Supreme ruled (2007 NY Slip Op 30924[U][Sup. Ct., New York Co., decided 4/23/2007]) that the general principle of “first in time, first in right” does not preclude a court from exercising its equitable power when apportioning insurance proceeds among claimants in an interpleader action, and that full payment to Walsh would reflect the intent of the policy's priority provision to give the claims of Tyco officers and directors priority over those of the company.

The First Department AFFIRMED the order appealed from, holding:
Outside director Walsh's violation of the Martin Act did not bar his recovery of defense costs under the Federal Insurance directors and officers liability insurance obtained by Tyco. Strictly construing the policy exclusions (see Belt Painting Corp. v TIG Ins. Co., 100 NY2d 377, 383 [2003]) and according meaning to each of their terms (see Beal Sav. Bank v Sommer, 8 NY3d 318, 324 [2007]), the motion court correctly interpreted the exclusions of claims "based on, arising from, or in consequence of" a wrongful act, rather than the language of "interrelated" and explicitly "causally connected" wrongful acts contained in the limit on liability section of the coverage provisions, in finding that there are civil claims against Walsh that are not covered and civil claims against him that are covered. Walsh's conduct represents only a portion of the acts for which liability is sought to be imposed and was of a different character from that of most of the wrongs alleged in the actions against the corporation, its executives, its accountants and some of its directors. 

In equitably distributing the policy proceeds, the court correctly found that the policy gives priority to the claims of "insured persons" over those of the insured corporation, properly considered the corporation's access to excess coverage, and properly declined to consider the order in which the insureds submitted their defense bills (see Agricultural Ins. Co. v Matthews, 301 AD2d 257, 260 [2002]).

Wednesday, December 17, 2008

Primary Insurer Found Liable To Excess Insurer For Bad Faith Defense of Mutual Insured

Federal Ins. Co. v. North Amer. Specialty Assur. Co.

(Sup. Ct., New York Co., decided 12/5/2008)

If a primary insurer manipulates the defense of its two named insureds -- an owner under a $1 million OCP policy and the general contractor (GC) under a $1 million CGL policy -- in a way that violates the antisubrogation rule and results in its payment of only $1 million instead of $2 million towards a personal injury action's settlement, can it be held liable to the GC's excess insurer in "bad faith" for the extra $1 million? Yes, says this court.

Galaxy General Contracting entered into a construction contract with NYC Partnership Housing Development Fund Company, Inc., Morningside-117 LLC and Harlem Community Development Corporation. Pursuant to that contract, Galaxy purchased from Commercial Underwriters Insurance Company (which became Allied World Assurance Company (U.S.), Inc.) a $1 million OCP policy for the owners. Galaxy itself was insured under a $1 million primary CGL policy with CUIC, and a $10 million excess policy with Federal.

A subcontractor's employee, Rafael Bermejo, fell from a scaffold and was injured during the construction project. He commenced a personal injury action against the owners and Galaxy, alleging causes of action for negligence and violations of Labor Law §§ 240(1) and 241(6). CUIC initially assigned one law firm to defend both Galaxy and the owners, and a single answer on their behalves was interposed.

Bermejo filed his note of issue and certificate of trial readiness in February 2002. In June 2002, based on its realization that there was a conflict of interest between the owners and Galaxy, CUIC assigned separate counsel to defend Galaxy. In December 2002, the owners' defense counsel moved to amend the owners' answer to assert cross claims against Galaxy for common-law and contractual indemnity and breach of contract, and for summary judgment on their indemnity claims against Galaxy. The motion court granted the owners' motion and granted conditional judgment to them against Galaxy on their indemnity claims.

Galaxy's defense counsel moved to reargue or renew the owners' motion on the ground that the antisubrogation rule barred Galaxy from indemnifying the owners. The court denied that motion, holding that Galaxy should have, but did not, raise the antisubrogation argument in its opposition to the owners' motion. The court found that that Galaxy had no reasonable excuse for failing to raise the antisubrogation issue at the appropriate time. It appears that the orders granting conditional judgment and denying Galaxy's motion to reargue/renew were not appealed.

At a settlement mediation in the Bermejo action, Galaxy's defense counsel offered Galaxy's $1 million CGL policy toward settlement but the owners refused to offer anything, contending that they were passive tortfeasors only. In a letter dated November 18, 2003, Federal memorialized its position that CUIC was required to exhaust the limits of both the CGL and OCP policies before Federal would become obligated to make any payment. According to Federal, irrespective of any indemnity rights that the owners might have over against Galaxy, since CUIC, the insurer of both the CGL and the OCP policies, "was obligated to defend each of its insureds, CUIC was barred by the antisubrogation doctrine from becoming subrogated to the right of any one of its insureds against any of its other insureds."

Bermejo ultimately agreed to settle his action for $3 million. Galaxy was the only defendant that participated in that settlement, and the owners‘ cross claims against Galaxy were not settled. CUIC paid Bermejo the $1 million limit of Galaxy's CGL policy, and Federal paid $2 million under Galaxy's excess policy. Federal agreed with CUIC that a settlement of $3 million was reasonable, that if Bermejo’s case were tried, the jury would find the owners and Galaxy liable under the Labor Law statutes, and that the settlement was without prejudice to Federal’s right to recover from CUIC.

Federal then commenced this action to recover what it asserted was its $1 million overpayment from CUIC. Federal alleged that CUIC manipulated the litigation in the Bermejo action so that the settlement was against Galaxy only. If the $3 million settlement had been against the owners and Galaxy, CUIC would have paid Bermejo $2 million: $1 million on behalf of Galaxy under the CGL policy, and $1 million on behalf of the owners under their OCP policy. Federal’s excess coverage would have applied to the extent of $1 million only. But as the settlement involved Galaxy alone, CUIC only had to pay $1 million and Federal had to pay $2 million in excess coverage.

Federal asserted five causes of action—three against the CUIC defendants (North American Specialty Assurance Company and Allied World Assurance Company (US), Inc.), alone and two against CUIC together with Galaxy's defense counsel in the Bermejo action. In its first cause of action, Federal alleged that CUIC violated the antisubrogation rule in that, as the real party in interest, it claimed in the names of the owners a right of indemnity against Galaxy, its own insured. In its second cause of action, Federal alleged that CUIC acted in bad faith in defending Galaxy against the owners' indemnity claims by failing to raise the antisubrogation rule in opposition to the owners' motion for summary judgment. Had the rule been invoked, Federal claimed, the court in the Bermejo action "would have applied [it] to bar CUIC from becoming subrogated to the rights of some of its insureds...against another of its insureds...and limited any right of indemnity to the amount above the $1,000,000 limit of CUIC's OCP." Federal's third cause of action against CUIC alleged a similar theory of liability, but as Galaxy's subrogee.

Federal's fourth cause of action, against both CUIC and Galaxy's defense counsel, alleged legal malpractice. Without asserting a client relationship with Galaxy's defense counsel or alleging the existence of privity or any allegations of "near privity," Federal claimed merely that CUIC and Galaxy's defense counsel owed Galaxy a duty to defend. Federal further alleged that Galaxy's defense counsel was negligent in opposing the owners' motion for summary judgment on their indemnification claims by failing to assert antisubrogation or to apprise Federal in a timely manner that the owners had asserted such cross claims. According to the complaint, had Galaxy's defense counsel raised the antisubrogation rule, the court would have "limited any right of indemnity to the amount above the $1,000,000 limit of CUIC's OCP." Federal's fifth cause of action, also against CUIC and Galaxy's defense counsel, alleged a similar theory of liability, but as Galaxy's subrogee.

Galaxy's defense counsel moved, pre-answer, pursuant to CPLR 3211 (a)(1), (3) and (7), to dismiss the complaint against it. CUIC cross-moved for similar relief, arguing that Federal suffered no damages, individually or on behalf of Galaxy, and that Federal's complaint failed to state a cause of action for bad faith.

In modifying the motion court's order denying both motions, the First Department dismissed Federal's legal malpractice claims against Galaxy's defense counsel but sustained its direct claim against CUIC for its alleged bad faith failure to defend Galaxy in the Mermejo action. Federal Ins. Co. v North Am. Specialty Ins. Co., 47 AD3d 52 (1st Dept 2007). The case then returned to New York Supreme, and both Federal and CUIC moved for summary judgment.

In granting Federal's cross motion, New York County Supreme Court Justice Charles Ramos first reviewed New York caselaw regarding the antisubrogation rule and then held:
Federal asserts that CUIC conducted itself in the litigation so as to ensure that Galaxy, through Federal's policy, paid what the Owners should have paid. CUIC thus avoided paying from the Owners' policy and saved itself $1 million.

The Appellate Division set forth the state of the law in its opinion sustaining Federal's cause of action for bad faith:
The first cause of action presents a collision of two competing principles: antisubrogation and the right of a party, such as a premises owner, which is only vicariously responsible by virtue of the absolute liability imposed for a violation of Labor Law § 240 (1) (see e.g. Songui v City of New York, 2 AD3d 706 [2003]), to indemnification from the party actually responsible for the accident (see Kelly v City of New York, 32 AD3d 901 [2006]), such as general contractor Galaxy in the instant situation. Even though CUIC issued two separate policies (one to Galaxy and the other to the owners), the antisubrogation rule is applicable (North Star Reins. Corp. v Continental Ins. Co., 82 NY2d 281 [1993], supra). As the Court of Appeals has made clear, "a potential conflict of interest arises where the insurer that issued both policies seeks indemnification against [one of the parties to which it issued a policy]" (id. at 295-296). As relevant here, the Court observed that an insurer could manipulate the litigation in such a way as to "trigger coverage under other insurance policies held by the contractor such as a workers' compensation or excess policy" (id. at 296).

Thus, the antisubrogation rule, if asserted, would have defeated the owners' claims for indemnification from Galaxy. CUIC's exposure, at the time it entered negotiations to settle the Bermejo claim, would have been $2,000,000, not $1,000,000 as was the case after the owners successfully moved for summary judgment on their indemnification claims against Galaxy. Since, however, the conditional award of summary judgment was never appealed or vacated as part of the settlement process, it has res judicata effect and serves to bar any claim that Galaxy has an antisubrogation defense to the owners' indemnification claims (see Allstate Ins. Co. v American Home Assur. Co., 43 AD3d 113 [2007]) or that Federal has an indemnification claim against CUIC based on that nonasserted defense. (Federal Ins. Co . v North American Specialty Ins. Co., 47 AD3d 52, 63 [lst Dept. 2007]).
It is clear that by failing to abide by the antisubrogation rule, CUIC kept the Owners out of the settlement, thus reducing the amount of money that CUIC had to pay Bermejo, and increasing the amount that Federal had to pay Bermejo under the excess policy.

Federal may assert a bad faith claim on its own and as subrogee even though the claim rests on the same allegations as the antisubrogation claim. A primary carrier owes its insured and the excess insurer a duty to exercise good faith in handling a claim (Hartford Acc. and Indem. Co. v Michigan Mut. Ins. Co., 93 AD2d 337, 341 [4th Dept 19831, affd 61 NY2d 569 [19841). A prima facie case of bad faith must include allegations that the insurer deliberately or recklessly failed to place its insured's interests on an equal footing with its own interests (see Pavia v State Farm Mut. Auto. Ins. Co., 82 NY2d 445, 453 [1993]). The complaint and the moving affidavits sufficiently demonstrate bad faith, Federal at 64, insofar as CUIC violated the antisubrogation doctrine by acting against the interests of its insured Galaxy.

The only question left is to determine if CUIC alleges facts sufficient to establish a defense. The defense appears to be that the events that led up to the settlement of the Bermejo Action happened without any active participation by CUIC. This ignores the fact that CUIC, by taking a position contrary to the antisubrogation doctrine, violated its duty to Federal. It is not required, as CUIC suggests, that its failure to abide by its duty was directed by it.

Nor is a defense established by merely appointing independent counsel. When a primary insurer appoints counsel to defend an excess insurer involved ini a suit, the primary insurer is a fiduciary of the excess insurer. Hartford Acc. & Indem. Co. v Michigan Mut. Ins. Co., 93 AD2d 337, 341 (1st Dept 1983) , aff’d, 61 NY2d 569 (1984)(“the primary carrier owes to the excess insurer the same fiduciary obligation which the primary insurer owes to its insured, namely, a duty t o proceed in good faith and in the exercise of honest discretion”). After such appointment has been made, the primary insurer's obligation is not necessarily satisfied. Feliberty v Damon, 72 NY2d 112, 117 (1988) (“when an insured has been sued, the insurer does not satisfy its duty t.o defend merely by designating independent counsel to defend the litigation”). Therefore, although Federal has no claim under the antisubrogation doctrine itself, because of its failure to appeal, the violation of the doctrine is sufficient evidence of bad faith to warrant entry of judgment, absent an affirmative defense, which is neither effectively pled nor proven.

As the record fails to rebut the prima facia case and otherwise does not contain any extrinsic evidence that. would establish a defense, the motion by plaintiff for summary judgment is granted and the cross-motion is denied.
Judgment for Federal for $1 million plus interest, presumably from the date Federal paid that extra million. With that much at stake, a trip for the case back to the First Department seems likely.

Tuesday, December 16, 2008

Court Rejects Argument that IME Must Be Performed by Physician

Allstate Social Work a/a/o Daniel & Sonya Jocelyn v. Utica Mut. Ins. Co.

(NYC Civil Ct., Kings Co., decided 11/5/2008)

The mandatory personal injury protection endorsement provides, in pertinent part, that an "eligible injured person shall submit to medical examination by physicians selected by, or acceptable to, the Company, when, and as often as, the Company may reasonably require." Does this mean that only physicians or medical doctors may perform IMEs? No, says this court.

Using an IME intermediary company, Utica Mutual twice scheduled the plaintiff's assignors for psychological IMEs with Moses Weksler, Ph.D. Plaintiff's assignors no-showed for those IMEs, and Utica denied no-fault benefits on that basis.

Plaintiff provider brought this suit for payment of its denied bills. Among other grounds, plaintiff argued that Utica Mutual had failed to establish that the assignors violated the policy conditions by failing to appear for the psychological IMEs because, under the express unambiguous terms of the insurance contract, the assignors were only obligated to submit to a medical examination by a physician. Plaintiff contended that licensed psychologists like Dr. Weksler are not physicians as the term is defined by the Educational Law, therefore the assignors' failure to appear for the scheduled IMEs was not a violation of the insurance policy and Utica Mutual's denial of plaintiff's claims was improper.

In rejecting that argument and dismissing the complaint, Kings County New York City Civil Court Judge George Silver relied on a 2004 New York State Insurance Department Office of General Counsel opinion letter and ruled:
"Pursuant to Insurance Law § 5103(d) the Legislature empowered the Superintendent of Insurance to promulgate regulations establishing minimum benefit standards for policies of insurance providing coverage for the payment of first-party benefits and to set standards for the payment of first-party benefits by self-insurers. Pursuant to this authority, the Superintendent promulgated Insurance Department Regulation § 65-1.1, which sets forth the basic form of the Mandatory Personal Injury Protection Endorsement' which must be included in every owner's policy of liability insurance issued on a motor vehicle in this state" (Alleviation Supplies, Inc. v. Enter. Rent a Car, 2006 NY Slip Op 26177 [Civ Ct, Kings County]). The mandatory personal injury protection endorsement (hereinafter endorsement) provides, in pertinent part, that the "eligible injured person shall submit to medical examination by physicians selected by, or acceptable to, the Company, when, and as often as, the Company may reasonably require" (11 NYCRR 65-1.1). The appearance of the insured for IMEs at any time is a condition precedent to the insurer's liability on the policy (Stephen Fogel Psychological, P.C. v. Progressive Cas. Ins. Co., 35 AD3d 720 [2d Dept 2006]). The term physician is not defined in the endorsement but the Education Law provides that "only a person licensed or otherwise authorized under this article shall practice medicine or use the title physician'" (Education Law § 6522). Defendant concedes in its reply that a licensed psychologist such as Dr. Weksler is not a physician. The question then is may any health provider perform an IME of an eligible injured person or, as the endorsement appears to require, only a physician?

Though there appears to be no case law addressing the point, in an opinion letter dated March 12, 2004, the State Insurance Department (hereinafter Insurance Department) answered the following question: "When a No-Fault eligible person is being treated by a chiropractor and the person's insurer has requested a medical examination ("IME") of that person in order to evaluate the medical necessity of the chiropractic services performed, must the medical examination be performed by a chiropractor, or may it be performed by a medical doctor?" (2004 Ops Ins Dept No. 04-03-10). In holding that an "insurer's medical examination of an eligible injured person to evaluate the medical necessity of health services provided by a chiropractor may be performed by a medical doctor, and need not be performed by a licensed chiropractor" (id.) the Insurance Department stated "there is no requirement in the regulation that a claim denial must be based upon a medical examination conducted by a health provider of the same specialty area as the treating health provider" (id.). Implicit in the Insurance Department's interpretation, which is entitled to great deference unless it is "irrational or unreasonable" (Matter of John Paterno, Inc. v Curiale, 88 NY2d 328, 333, 668 NE2d 395, 645 NYS2d 424 [1996], quoting Matter of New York Pub. Interest Research Group v New York State Dept. of Ins., 66 NY2d 444, 448, 488 NE2d 466, 497 NYS2d 645 [1985]; cf. Matter of Gaines v New York State Div. of Hous. & Community Renewal, 90 NY2d 545, 548 549, 686 NE2d 1343, 664 NYS2d 249 [1997]), is that an independent medical examination of an eligible injured person may be performed either by a physician, as the term is defined in the Education Law and used in the endorsement, or by any other licensed health provider selected by or acceptable to the insurer. It is for the court or an arbitrator to "consider the qualifications of the health provider performing the IME in determining the validity of a claim denial" (2004 Ops Ins Dept No. 04-03-10). A contrary conclusion would frustrate the core objective of the no-fault scheme by limiting the universe of health providers who could perform IMEs, thereby delaying the processing of no-fault claims (see Stephen Fogel Psychological, P.C. v. Progressive Cas. Ins. Co., 35 AD3d 720 [2d Dept 2006]).
Given his decision on the assignors' IME no-shows, Judge Silver did not reach plaintiff's arguments regarding Utica Mutual's allegedly defective and ineffective EUO requests.

Over at/in No-Fault Paradise, Dave Gottlieb reported another decision in which New York City Civil Court Judge Alice Fisher Rubin, relying on section 300.2(5) of the General Provisions of the New York Workers' Compensation Law, also found that a non-physician (psychologist) could perform a no-fault IME. Five Boro Psychological Services PC v. Autoone Ins. Co., 29347/07 (NYC Civil Ct., Kings Co., decided 10/31/2008).

Monday, December 15, 2008

New York State Insurance Department Consumer Services Insurance Questions e-Form

The advent and prevalence of electronic documents have spawned terms such as email (f/k/a e-mail), e-document, e-copy, e-newsletter, and e-form. The New York State Insurance Department has created and posted its own e-form for "consumer questions about insurance." It is not to be used for either consumer complaints or agent/broker licensing inquiries. The "You are a(n)..." pull-down field does include "producer" and "insurer" as options, so presumably those entities/persons may also use this e-form.

Click on the image to the right to access the e-form.

Suit Brought Two Years & 20 Days After Loss Date Dismissed as Untimely

Dimmick v. New York Prop. Ins. Underwriting Assn.

(2nd Dept., decided 12/9/2008)

Property insurance policies usually contain a suit limitations period shorter than a jurisdiction's statute of limitations for breach of contract.  In New York, for example, property insurers may provide for a two-year suit limitations period for losses due to fire or lightning.  See, New York Insurance Law § 3404(e).  New York courts have repeatedly upheld such provisions as both valid and enforceable.  Absent evidence of waiver or estoppel, suits commenced after the two-year loss anniversary are summarily dismissed.  This is another such case.

Plaintiff sustained a fire loss on July 11, 1999 but, in non-compliance with the policy's suit limitations period, did not commence suit against her insurer, New York Property, until July 31, 2001 -- two years and 20 days after the loss date.  Kings Supreme granted plaintiff's motion to restore the case to the trial calendar (plaintiff presumably having allowed the case to languish and be stricken from the court's calendar) and denied New York Property's CPLR 3211(a)(5) cross motion to dismiss the complaint as time-barred.

In REVERSING that order and dismissing the complaint, the Second Department held:
Parties to a contract may agree to limit the period of time within which an action must be commenced to a shorter period than that provided by the applicable statute of limitations (see CPLR 201; Joseph v Insureco, Inc., 25 AD3d 764, 765; C.D. City v Maryland Cas. Co., 4 AD3d 382, 383; Matter of Incorporated Vil. of Saltaire v Zagata, 280 AD2d 547). Here, the plaintiff failed to comply with the contractual limitations period under the policy. Further, in her papers submitted in opposition to the defendant's motion, inter alia, to dismiss the complaint pursuant to CPLR 3211(a)(5) as time-barred, the plaintiff failed to demonstrate that the defendant engaged in any conduct during the limitations period that induced her to postpone bringing suit (see Halim v State Farm Fire & Cas. Co., 31 AD3d 710, 711; Schachter v Royal Ins. Co. of Am., 21 AD3d 1024; Neary v Nationwide Mut. Fire Ins. Co., 17 AD3d 331; Minichello v Northern Assur. Co. of Am., 304 AD2d 731). Accordingly, the Supreme Court should have granted that branch of the defendant's motion which was pursuant to CPLR 3211(a)(5) to dismiss the complaint as time-barred.

Letter Confirming Defense & Indemnification Coverage Found Not to be Policy Endorsement

GuideOne Specialty Ins. Co. v. Admiral Ins. Co.

(2nd Dept., decided 12/9/2008)

Weingarten Custom Homes (WCH) contracted with Torah Academy for Girls to build an addition to Torah Academy's building.  As required by the contract, Torah Academy was an additional insured under a liability insurance policy issued to WCH and various related companies by Admiral. However, contrary to the provision in the contract that required such coverage to be in the sums of no less than $2,000,000 per person and $5,000,000 per occurrence, WCH's policy with Admiral contained coverage limits of only $1,000,000 per person and occurrence. Torah Academy had secondary and excess coverage under a policy issued to it by the plaintiff, GuideOne.

While working on the project, a construction worker was seriously injured in a fall, and he eventually commenced an action against Torah Academy. In a letter dated October 10, 2005, GuideOne sought assurances from Admiral's claims superintendent that Admiral would provide a "full defense and indemnification" to Torah Academy in the injured worker's personal injury action. The claims superintendent was asked to sign a copy of the letter and return it to counsel. The letter contained, inter alia, the following sentence: "[Admiral] is providing [Torah Academy] with a full defense and indemnification in this matter." Before signing and returning the letter, Admiral's claims superintendent hand-wrote an addition to the sentence, so that it read "[Admiral] is providing [Torah Academy] with a full defense and indemnification in this matter, as it conforms with the contract between [WCH & Torah Academy]" (emphasis added). Following this exchange of letters, the injured worker settled his action against Torah Academy for the sum of $1,225,000. Admiral paid $1,000,000 of that amount, and GuideOne paid $225,000. 

GuideOne then commenced this action against Admiral for recovery of GuideOne's $225,000 contribution toward the underlying settlement.  GuideOne claimed that the letter, as signed by Admiral's claims superintendent, in effect, modified Admiral's policy to provide coverage in the sums of $2,000,000 per person and $5,000,000 per occurrence as required in the contract between WCH and Torah Academy.  In a pre-answer motion, Admiral moved to dismiss the complaint insofar as asserted against it pursuant to CPLR 3211(a)(1) and (7).  Kings Supreme denied the motion with leave to renew upon the completion of discovery.

In REVERSING and granting Admiral's pre-answer motion to dismiss the complaint, the Second Department ruled that the coverage confirming letter Admiral's claim superintendent signed did not constitute a coverage limits amending policy endorsement:
"'[T]o succeed on a motion to dismiss pursuant to CPLR 3211(a)(1), the documentary evidence which forms the basis of the defense must be such that it resolves all factual issues as a matter of law, and conclusively disposes of the plaintiff's claim'" (Ruffino v New York City Tr. Auth., 55 AD3d 817, 817, quoting Morris v Morris, 306 AD2d 449, 451). The policy issued by Admiral expressly provided that its terms could not be "amended or waived [except] by endorsement issued by [Admiral] and made a part of this policy." The letter signed by Admiral's claims superintendent did not purport to be, and did not constitute, such an endorsement (cf. Matter of Government Gen. Empls. Ins. Co. v Constantino, 49 AD3d 736, 737; Matter of State Farm Mut. Auto. Ins. Co. v Russell, 39 AD3d 759, 761). Moreover, inasmuch as the policy is unambiguous with respect to the limits of the coverage afforded, resort to extrinsic evidence was not proper (see Katz v American Mayflower Life Ins. Co. of N.Y., 14 AD3d 195, 200, affd 5 NY3d 561; Del Vecchio v Cohen, 288 AD2d 426, 427-428; Furey v Guardian Life Ins. Co., 261 AD2d 355, 356; cf. Shook v Blue Stores Corp., 30 AD3d 811, 812). Consequently, the documentary evidence submitted by Admiral in support of its motion conclusively established that its policy did not provide coverage beyond its stated limits (see Topel v Reliastar Life Ins. Co. of N.Y., 6 AD3d 608; Randazzo v Gerber Life Ins. Co., 3 AD3d 485, 485-486; cf. Ruffino v New York City Tr. Auth., 55 AD3d 817; Krystal Investigations & Sec. Bur., Inc. v United Parcel Serv., Inc., 35 AD3d 817). Accordingly, the Supreme Court should have granted the appellant's motion to dismiss the complaint insofar as asserted against it pursuant to CPLR 3211(a)(1) and (7).
Although the decision does not identify the other "et al." defendants, GuideOne presumably sued WCH, as well, for its failure to procure the liability insurance limits required by its contract with Torah Academy. 

Sunday, December 14, 2008

Court Finds That Insured Building Did Not "Collapse"

Yat-Saint Chiang v. Public Serv. Mut. Ins. Co.

(Sup. Ct., Queens Co., decided 12/4/2008)

Plaintiff's property was damaged during excavation and construction work being performed at the lot adjoining the plaintiff's property due to a failure to provide proper shoring and/or bracing.  Plaintiff claimed that the lack of underpinning resulted in the cracking and collapse of a third of the width of plaintiff's driveway, as well as the cracking of the foundation and several interior walls and ceilings of plaintiff's building.  Plaintiff submitted a claim under its multi-peril Dwelling Policy with Public Service Mutual for the damages to her property.  PSM disclaimed coverage on the ground that "earth movement" was not a covered peril and that the loss claimed was not a covered loss since it was not a collapse of a building resulting from a named peril.  Plaintiff commenced this action for breach of the insurance contract, and both parties moved for summary judgment.

In granting Public Service Mutual's motion and denying the plaintiff's cross motion, Queens County Supreme Court Justice Allan Weiss initially noted that although Public Service Mutual had disclaimed based in part on the earth movement exclusion in the policy, both parties were seeking summary judgment under the section of the policy entitled "Other Coverages: Collapse".

The "Collapse" section of plaintiff's policy provided, in pertinent part:
We insure for risk of direct physical loss to covered property involving collapse of a building or any part of a building caused only by one or more of the following:
*  *  *  *  *
f.  use of defective material or methods in construction, remodeling, or renovation, if the collapse occurs during the course of the construction, remodeling, or renovation.

Loss to * * * pavement, * * * foundation, [or] retaining wall, * * * is not included under items  * * * f, unless the loss is a direct result of the collapse of a building.

Collapse does not include settling, cracking, shrinking, bulging, or expansion.
In support of its motion, Public Service Mutual asserted that the plaintiff's loss was not covered loss because it did not involve the collapse of a building caused by an enumerated cause, specifically, defective construction on the insured premises.

In opposition plaintiff argued that the policy's "Collapse" provision was ambiguous because: (1) New York courts have found a "substantial impairment of the structural integrity of the building" constitutes a collapse without the need for the building to actually fall down; and (2) the policy did not define where the defective construction, a named cause of a collapse, must take place to trigger coverage.

In ruling in favor of Public Service Mutual and dismissing plaintiff's complaint, Justice Weiss found that there was no coverage under the policy's "Collapse" provision:
The court finds no ambiguity in the term "collapse" in this case inasmuch as the policy specifically defines collapse as not including settling, cracking, shrinkage, bulging or expansion. The plaintiff's building did not "collapse" for purposes of coverage under the additional coverage for collapse provision of the policy. The only damage to the building reported by plaintiff's expert are cracks in the foundation and interior walls (see Graffeo v. U.S. Fidelity & Guaranty Co., 20 AD2d 643 [1964], lv to appeal dismissed 14 NY2d 685 [1964]).

Even deeming the term collapse to be ambiguous and accepting plaintiff's argument that a substantial impairment of the structural integrity of the building can constitute a collapse of a building (see Royal Indem. Co. v. Grunberg, 155 AD2d 187, 188-190 [1990], there is no evidence of such impairment. Nowhere in the plaintiff's expert's report is there any claim that the structural integrity of the building is impaired much less that it is "substantially" impaired. While the plaintiff's expert reports that a portion of the driveway collapsed such a collapse is not the collapse of a building.  In addition, the policy expressly excludes loss to pavement unless caused by the collapse of a building. The damage to the driveway was not the result of the collapse of a building.

Inasmuch as the court has determined that the plaintiff's property did not sustain a collapse, the issue of whether an ambiguity exists as to the location of the construction which causes a collapse is irrelevant.

Certificate of Insurance Is Informational Only and Conveys No Additional Insurance by Itself to Coop Owners

Weintraub v. Utica First Ins. Co.

(Sup. Ct., NY Co., decided 12/9/2008)

In September 2005, Richard and Liane Weintraub contracted with My Home, LLC, an affiliate of My Home, Inc., to renovate their cooperative apartment located at 969 Park Avenue in New York City. The renovations began in January 2006.

My Home, Inc. was insured by Utica First in 2005 and 2006, and procured certificates of insurance for those years from its independent insurance agent, Robert C. Mangi Agency, naming the Weintraubs as additional insureds. 

Plastic surgeon Dr. Pamela Lipkin owned the cooperative unit below the Weintraubs' unit, where she operated a cosmetic surgery medical office.  Lipkin and her corporation sued the Weintraubs, My Home and others for damages to her coop and business allegedly due to the renovation of the Weintraubs' apartment.

Ini February 2008, after extensive motion practice and a trip to the First Department in the underlying action, the Weintraubs and their insurer, AIG, commenced this declaratory judgment action against Utica First, seeking defense and indemnification coverage for the Weintraubs with respect to the Lipkin suit as additional insureds under My Home's CGL policy with Utica First.   Utica moved to dismiss the complaint or for summary judgment, and plaintiffs cross-moved for summary judgment.

In granting Utica First's motion and denying the plaintiffs' cross motion, New York County Supreme Court Justice Walter Tolub held that since the Weintraubs were not actually listed as additional insureds on the Utica First policy, and My Home's contract with the Weintraubs did not required My Home to procure additional insured coverage for the Weintraubs in connection with the renovation project, the blanket additional insured endorsement's coverage was not triggered.  Justice Tolub rejected the plaintiffs' argument that an implied-in-fact contract was formed between My Home and the Weintraubs regarding My Home’s obligation to procure insurance coverage for the Weintraubs with respect to the renovation project.

With respect to the Weintraubs' claim that they were entitled to additional insured coverage from Utica First because the certificates of insurance (COIs) My Home's agent issued listed them as additional insureds, Justice Tolub rejected the plaintiffs' reliance of Third Department case law and instead cited to decisions from the First and Second Departments in ruling that the COIs were informational only and did not themselves afford coverage to the Weintraubs:
Moreover, with respect to the Certificates of Insurance issued by Mangi wherein the Weintraubs were named as additional insureds, each of these Certificates contain therein bold capital letters the following statements:  "THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RlGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW." A virtually identical statement of disclaimer has been held by the Appellate Department, First Department, to be insufficient to establish that the named certificate holder was an additional insured under an insurance policy, where the policy itself made no provision for coverage. Moleon [v Kreisler Borg Flormari General Construction Co., Inc., 304 AD2d 337, 339 (1st Dept 2003)], supra, at 339. See also Alib, Inc. v Atlantice Casualty Insurance Company, 52 AD3d 419 (1st Dept 2008); Glynn v United House of Prayer for All People, 292 AD7d 319, 322 (1st Dept 2002) ; Herbert St. George v W. J. Barney Corp., 270 AD2d 171, 172 (1st Dept 2000). Therefore, the law is well-settled in the First Department that a certificate of insurance issued only for informational purposes confers no rights on the holder, even if it purports to name such holder as an additional insured, when the underlying insurance policy made no provision for coverage.

The handful of cases cited by plaintiffs for a contrary proposition do not bind this Court, as such cases originated from the Appellate Division, Third Department. See e.g., Lenox Realty Inc. v Excelsior Ins. Co., 255 AD2d 644 (3d Dept 1998) (insurer equitably estopped from denying coverage where party for whose benefit the insurance was procured relied on the certificate of insurance to that party‘s detriment); Bucon, Inc. v Pennsylvania Manufacturing Association Ins. Co., 151 AD2d 207, 210 (3d Dept 1989) (”by issuing the certificate of insurance in which plaintiff was named as an additional insured, [insurer] was estopped from denying coverage for plaintiff“).

In accord with the First Department, but in disagreement with the Third Department, the Second Department has ruled that: (1) a certificate of insurance issued only for information purposes and conferred no rights on the holder was insufficient to establish that the plaintiff was insured by the insure; and ( 2 ) even if the insurer might be held liable for the acts of its agent, “the doctrine of [equitable] estoppel may not be invoked to create coverage where none exists under t h e policy,” despite the fact that the agent issued the certificate of insurance that named the plaintiff as an additional insured. American Ref-Fuel Company v Resource Recycling, Inc., 248 AD2d 420, 423-24 (2d Dept 1998).  In so ruling, the Second Department also held that the defendant insurer was “not obligated to defend and indemnify the plaintiff in the underlying action.” Id. at 424.
Judgment for Utica First dismissing this DJ action.

Saturday, December 13, 2008

First Department's Exception to the No-Prejudice Rule in Liability Insurance

I've significantly expanded my original post of December 10th and done an analysis of the First Department's ruling in American Tr. Ins. Co. v Rechev of Brooklyn, Inc.  

 Do the First Department's rulings in that case and others conflict with the Court of Appeals' 2005 decision in Argo Corp. v Greater N.Y. Mut. Ins. Co.?  Read about it here and draw your own conclusions.  

Friday, December 12, 2008

A Higher Authority Rings In

Larry Rogak posted an update on the PIP limit reduction question to his Rogak Report earlier today.  For those of you who may not be members of that Yahoo Group, here's Larry's post:
Dear Readers:
For the past day or so, opinions have been flying back and forth on the question of whether interest and attorney fees reduce available PIP limits.  As you know, my opinion, based on my interpreration of an Insurance Department opinion letter, was that they do -- at least in the case of court and arbitration awards, if not settlements.   Other great legal and claims department minds disagreed with me.
As I told you in an earlier posting, I wrote to the New York State Insurance Department for clarification.  Today, I got a phone call from a very highly placed member of that august body, who agreed to give me an informal verbal opinion right away, with a formal written opinion to come much later.
On the condition that I not mention the name of this highly placed figure (other than to say that his first name is, without a doubt, the most handsome and distinguished name in the English language), I was given permission to share with you the following unofficial Insurance Department opinion:
Neither interest, nor statutory attorney's fees, reduce available PIP limits under any circumstances.
It's not easy to say I was wrong.  So I won't say it.  Instead, I will say that my opinion has been superceded by a higher authority.
I did present my point of view to this highly-placed Insurance Department official, to wit, that reducing PIP limits by the amount of interest payments does not hurt claimants because the 24% interest rate is so generous.   But this official begged to differ.  He said that he did not believe that the intent of the Legislature was for such reduction to take place, especially in light of the fee schedules for medical services, which have not been raised to keep up with free-market rates.
For those of you who believe that my opinion is better than the Insurance Department's, let me say this to you: you are very sagacious.  But let me also say that not even the Courts always agree with the Insurance Department's interpretations, and have overruled them from time to time (most recently in the notorious LMK case).
So for the foreseeable future, until some court rules otherwise, the most official word we have on the subject is that neither attorney fees nor interest reduce PIP limits.
While my own personal opinion did not rule the day, give me credit for one thing: I made the effort to get an authoritative answer for a question that had never been definitively addressed before, and I shared it with all of you at no charge.
Larry Rogak
I didn't know that a highly-placed Insurance Department official shared my first name...

Do Interest & Attorneys' Fees on No-Fault Settlements or Awards Reduce PIP Limits?

Those of you who read The Rogak Report know that Larry posted yesterday about whether attorneys' fees and statutory interest on no-fault awards may be applied to reduce the remaining PIP or APIP limits. Larry reads a June 9, 2003 OGC opinion letter to permit such a reduction. I do not, and emailed Larry a reply for posting on his report. Although Larry pointed out in a later post what I had pointed out to him (and a piscator is a fishmerman or angler, btw), I thought I'd post my reply to Larry's intitial post, so everyone interested in this issue can have as much take on this subject as possible:
Gotta disagree with you on this, Larry.
Circular Letter No. 17 (2006), entitled "Fair claims settlement practices: interest on overdue No-fault claims and claim settlement structure", reminds that 11 NYCRR § 65-3.9(e) and 11 NYCRR § 65-3.9(f) require the separate identification of any interest payment from the principal, and that interest payments are not to be included in ratemaking calculations.

That circular letter also states that "insurers are prohibited from taking credit for interest payments in calculating whether the maximum aggregate policy limits have been reached." Other than its use of the passive voice, this proscription could not be more clear.

Interest on overdue claims is intended to encourage prompt payment of claims and has been characterized as a penalty on recalcitrant insurers. If insurers were permitted to pass along interest penalties to insureds by reducing their PIP or APIP limits, the legislative purpose of the interest penalty would be nullified. Don't like your insured? Is she criticizing your claims handling? Complaining to your supervisor? Get her back. Don't pay her claim, wait to be sued, drag out the litigation, have principal, interest and attorneys' fees eventually awarded against you, and then finally pay, but reduce the remaining PIP limit by the total paid amount. Ha. That'll fix her.

Can't possibly work that way.

The opinion letter does not state that attorneys' fees are compensable "by" no-fault, as in BEL benefits, but from a no-fault insurer "based upon the issuance of an award of benefits to the applicant." Big difference.
Larry and I read the 2003 OGC opinion letter differently. I do not believe that letter can be read to permit the reduction of even attorneys' fees awarded from PIP limits. In my opinion, it speaks only to whether court filing and process server fees are recoverable under Regulation 68 from an no-fault insurer as part of a no-fault award, answering that question in the negative, and pointing out that only attorney fees, and not associated court costs, are recoverable from a no-fault insurer as part of an award. The 2003 OGC opinion letter says nothing about reducing remaining PIP limits by any type of fees or payments.

In the heirarchy of missives that come from the New York State Insurance Department, circular letters are generally regarded as having greater weight than OGC opinion letters. Circular Letter No. 17's statement that "insurers are prohibited from taking credit for interest payments in calculating whether the maximum aggregate policy limits have been reached" seems crystal clear and is not, in my opinion, limited to no-fault settlements, as Larry suggests in his later commentary. But I understand that reasonable minds -- especially ones with considerable knowledge and experience on a subject -- can and do sometimes disagree. I prefer to be neither the Donald nor the Rosie on this.

In yesterday's later post, Larry indicates that he fired off a letter to the Department's OGC for clarification of what Larry thinks is a contradiction between the Department's 2003 OGC opinion letter and 2006 circular letter. I look forward to hearing more from Larry on this interesting and important question. And thanks, as always, for generating thought.

Update ~~ Larry has posted the OGC's unofficial response to his question/opinion. Read it here.