Wednesday, September 30, 2009

Coinsurance Recovery Action Against New York State Insurance Fund Must Be Brought in New York Court of Claims

CGL – COINSURANCE CONTRIBUTION – SUIT AGAINST STATE INSURANCE FUND
Twin City Fire Ins. Co. v. State Ins. Fund
(1st Dept., decided 9/24/2009)

The New York State Court of Claims is the exclusive forum for civil litigation seeking damages against the State of New York or certain other State-related entities such as the New York State Thruway Authority, the City University of New York and the New York State Power Authority (claims for the appropriation of real property only).  Plaintiff's denomination of this action as being one for declaratory relief notwithstanding, the Court of Claims is also the forum in which a commercial general liability insurer must sue the New York State Insurance Fund for recovery of coinsurance contribution of defense and indemnification costs for a mutual insured, holds the First Department in this case.

Thursday, September 17, 2009

Action Against Property Insurers Dismissed Based on Finding of No Collapse

COMMERCIAL PROPERTY – COLLAPSE – NO ABRUPTNESS – WEAR & TEAR EXCLUSION – DETERIORATION EXCLUSION – EXPERT OPINION FROM AN ARCHITECT
Rapp B. Props., LLC v. RLI Ins. Co.
(1st Dept., decided 9/15/2009)

Plaintiff sought payment from their commercial property insurers for damage to its building's south wall as a result of collapse, an allegedly covered peril, which occurred "[o]n or about July 19, 2005 and continuing thereafter."  The complaint cited damage consisting of "severe cracking, bulging, splaying and displacement of the exterior brick facade."  The insurers disclaimed coverage on the ground that the damage was "due to wear & tear and gradual deterioration not collapse."  The policy's additional coverage provisions defined collapse as respects buildings as follows:
a.  Collapse means an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its intended purpose;
b.  A building or any part of a building that is in danger of falling down or caving in is not considered to be in a state of collapse;
c.  A part of a building that is standing is not considered to be in a state of collapse even if it has separated from another part of the building;
d. A building that is standing or any part of a building that is standing is not considered to be in a state of collapse even if it shows evidence of cracking, bulging, sagging, bending, leaning, settling, shrinkage or expansion.
Plaintiff sued its insurers and two entities that had installed an outdoor sign that allegedly contributed to the failure of the building's south wall.  New York Supreme denied the parties' respective motions for summary judgment and all parties appealed.

In MODIFYING the order to grant the insurers' motion for summary judgment dismissing plaintiff's complaint against them, the First Department held:
The interpretation of an unambiguous provision of an insurance contract is a question of law for the court (White v Continental Cas. Co., 9 NY3d 264, 267 [2007]. Accordingly, regardless of the cause or causes of the damage, it was error for the court to deny the insurers' motion, because there was no collapse within the meaning of the policies. Michael H. Rappaport, plaintiff's managing member, testified that the building and its south wall were still standing three months after the damage was observed in July 2005. Standing alone, Rappaport's testimony suffices to belie any claim that the wall's collapse was "abrupt" within the meaning of the additional coverage provisions. John Paul Murray, plaintiff's architect, observed displacement of brick masonry units and opined that there was an "imminent risk that the wall would completely collapse." In light of subparagraph b above, which excludes imminent collapse from the definition, Murray's affidavit does not bring the occurrence within the coverage of the policies. In Rector St. Food Enters., Ltd. v Fire & Cas. Ins. Co. of Conn. (35 AD3d 177 [2006]), this Court held that a building that was "shown to have had two-to-three-inch-wide cracks in its facade and was sinking, out of plumb, and leaning" did not meet a materially identical definition of collapse. Rappaport's affidavit is also unavailing insofar as he claims to have discovered that bricks had fallen from the inside of the wall where it was covered by sheetrock and tile. As noted above, the wall was still standing. Tellingly, Rappaport describes the condition as hidden "decay," a phenomenon which, by definition, does not occur abruptly.  
The appellate court did affirm that part of the lower court's order that had denied the outdoor sign installer defendant's motion for summary judgment.  The First Department held that the plaintiff's architect's opinion that the tension created by tightly stretching the sign against its fasteners contributed to the failure of the south wall created a triable question of fact regarding the sign defendants' alleged negligence, precluding summary judgment to the sign defendants.  In rejecting those defendants' argument that the plaintiff's architect was not qualified to offer an opinion regarding the sign and the tension its attachment created on the south wall, the appellate court held:
The profession of architecture involves "the application of the art, science, and aesthetics of design and construction of buildings ... including their components and appurtenances ... wherein the safeguarding of life, health, property and public welfare is concerned" (Education Law § 7301).

Twenty-One Floors of Wet -- New York Supreme Dismisses Subrogation Action Based on Anti-Subrogation Rule

BUILDER'S RISK – SUBROGATION – ANTISUBROGATION RULE – INSURABLE INTEREST
St. Paul Fire & Mar. Ins. Co. v. FD Sprinkler, Inc.
(Sup. Ct., New York Co., decided 8/31/2009)

St. Paul issued a builders risk policy to Chelsea 27th Streets Apartments, LLC for construction at 800 Sixth Avenue, New York, New York.  Subcontractors FD Sprinkler, Inc. and Woodworks Construction Company were named as additional insureds on that policy by the following provision:
All subcontractors as Additional Insureds, ATIMA. St. Paul does not waive its rights of subrogation. The insured is not permitted to release from liability any such subcontractor after a loss.
ATIMA is an underwriting acronym meaning "as their interests may appear". 

On December 24, 2003, a sprinkler head on the 21st floor accidently discharged, causing extensive water damage all all the way down to the lobby.  The door to a temporary bathroom had swung open and struck the sprinkler head, causing it to discharge.  FD Sprinkler has installed the sprinkler head, and Woodworks had framed and constructed the temporary bathroom.  St. Paul paid Chelsea $714,438 for the damages and commenced this subrogation action against FD Sprinkler, Woodworks and others to recover its payment.

FD Sprinkler and Woodworks moved for summary judgment dismissing the complaint on the ground that the antisubrogation rule barred St. Paul's action against them.   St. Paul opposed the motion by arguing that although FD Sprinkler and Woodworks were additional insureds on the policy, they were not insureds for the damages at issue, and therefore, were not protected by the antisubrogation rule. St. Paul asserted that these subcontractors enjoyed only limited property insurance protection under the policy, in that they were only covered for property damage "ATIMA", or to the extent of their respective financial interests in the insured property.

In GRANTING FD Sprinkler's and Woodworks' motions, New York County Supreme Court Justice Doris Ling-Cohan ruled that each had an insurable interest in the damaged property, and thus were insured under Chelsea's builder's risk policy with St. Paul because their trade subcontracts provided that “[a]ny Work performed by others that is damaged by this Subcontractor or its employees or agents shall be the sole responsibility of this Subcontractor to replace at no additional cost[.]”  Based on this finding, the court held that the antisubrogation rule applied to preclude this action against FD Sprinkler and Woodworks.

Monday, September 14, 2009

New York Supreme Dismisses CPLR Article 78 Mandamus Proceeding Against NYS Insurance Department, NICB, State Farm, AutoOne and General Assurance

NO-FAULT – MANDAMUS RELIEF – CPLR ARTICLE 78
Matter of Okslen Acupuncture P.C. v. Dinallo
(Sup. Ct., New York Co., decided 6/26/2009)

In one man's crusade to invalidate the New York State special investigation units of State Farm, AutoOne and General Assurance Company and otherwise squelch certain investigations of no-fault providers, losses and claims suspected to be fraudulent, this is another battle lost.

Regarded by some as my no-fault nemesis, Brooklyn attorney Ray Zuppa began this campaign in June 2008 by filing a class action "bad faith" action in New York State Supreme Court, New York County, seeking only declaratory relief.  After reading the entire 225-page complaint, I called it "a mess" -- endearing me henceforth to its author -- and predicted its dismissal on motion.  I was only partly correct.

Instead of seeking dismissal of that action in state court, State Farm and two law firm defendants removed it to federal court pursuant to the Class Action Fairness Act of 2005 ("CAFA"), and then all plaintiffs except Okslen Acupuncture P.C.voluntarily discontinued their action against all defendants. Okslen then voluntarily dismissed its action against the two removing law firm defendants, leaving State Farm as the sole removing defendant.  Zuppa then filed a motion on behalf of Okslen to remand the action back to the more familiar environs of state court, which the federal court denied.  Following that decision, Zuppa discontinued the class  action against State Farm reportedly because he was unfamiliar with federal court procedure

Bowed but not broken, Zuppa returned to state court and commenced this special proceeding for mandamus relief against the New York State Insurance Department, the National Insurance Crime Bureau (NICB), State Farm, AutoOne and General Assurance Company pursuant to CPLR Article 78, which is entitled "Proceeding Against Body or Officer".  The chest-thumping Zuppa unprophetically self-proclaimed:
Ray Zuppa, the modern day gladiator, is relentless in his pursuit to fight the evil in the world of insurance. His latest advancement is an earthshattering [sic] Article 78 proceeding sure to set the world of No-Fault aflame. Please LexisNexis, skip the nomination process and just give this man the Person of the Year award.
Unrealized seismologic and incendiary predictions aside, in the Article 78 special proceeding the Petitioners asked that the court:
  • order the Superintendent of Insurance to "thoroughly audit and investigate the claims practices of [the Carriers]...and take all appropriate action to remedy any and all infirmities, deficiencies and misconduct" and to publish such findings;
  • order NICB and certain agents to cease all investigative activities until NICB is licenced under New York General Business Law §70; and 
  • order the Carriers "to take all action necessary" to insure that all investigators who are members of Special Investigative Units be qualified under 11 NYCRR 86.6 and to provide a list of all non qualified investigators, and to order State Farm to conduct its investigations in a certain manner and conduct its medical examinations "purely on the application of medical science to the patient being examined and not as a pretext to deny a claim for which the decision to deny has already been made and to document its decisions."
The Superintendent of Insurance moved to dismiss the petition as against him on the grounds that under CPLR Article 78 mandamus may not be used to compel him to take discretionary enforcement action.  Then insurer respondents jointly cross-moved to dismiss the petition as against them pursuant to CPLR Rule 3211(a)(3) on the ground that the petitioners lacked legal capacity to sue them and pursuant to CPLR Rule 3211(a)(7) on the ground that the petition failed to state a cause of action against them.  NICB also cross-moved to dismiss the petition as against it pursuant to CPLR Rule 3211(a)(2) on the ground that the court lacked subject matter jurisdiction over the claim asserted against NICB, and pursuant to CPLR Rule 3211(a)(3) on the ground that petitioners lacked legal capacity to sue and pursuant to CPLR Rule 3211(a)(7), and also on the ground that the petition failed to state a cause of action against NICB.

In GRANTING the respondents' motions to dismiss the petition in its entirety, New York County Supreme Court Justice Lewis Bart Stone ruled:
►  CPLR Article 78 relief was not available against NICB because it is not not a governmental body and no petitioner is a member or employee of NICB or is otherwise subjected by governmental mandate to employment or regulation by NICB;

►  similarly, "the limited exception of the availability of CPLR Article 78 review of decisions of certain non-governmental bodies is wholly unavailable to review Petitioners' claims against the Carriers as the Carriers are business entities and petitioners are not shareholders, or have any special relationship with the Petitioners[;] [t]heir relationship is commercial"; and

►  mandamus relief is not available against the Superintendent for discretionary functions, including the Insurance Department's roles in investigating and auditing insurance companies; "as the Superintendent's power to act against any carriers for its claim settlement practices is at the discretion of the Superintendent, mandamus will not lie."

Saturday, September 12, 2009

Insureds Allowed to Continue Suit Against Neighbors Even After Receiving Insurance Payment for Garage Crushed by Neighbor's Tree

HOMEOWNERS – ACTUAL CASH VALUE – SUIT AGAINST TORTFEASOR
Hopper v. McCollum
(2nd Dept., decided 8/25/2009)

If insureds collect payment from their homeowners insurer for damage to their garage crushed by their neighbor's rotted tree, can they then also sue their neighbor for damages?  Yes, says the Appellate Division, Second Department.

Plaintiffs' garage was damaged when portions of an allegedly decayed and fractured tree located on their neighbor's adjacent property fell onto it. Plaintiffs made a claim under their homeowners' insurance policy and were paid the policy limit, defined as the actual cash value of the loss under a policy provision entitled "Other Structures Protection."  Plaintiffs then commenced this action against their neighbor.  The defendant moved to dismiss the complaint pursuant to CPLR 3211(a)(5) on the ground that the plaintiffs had received payment through their homeowners' insurance policy and were not entitled to any additional recovery from her.  Putnam Supreme converted the motion to dismiss into one for summary judgment and granted the motion.

In REVERSING the motion court's decision and reinstating plaintiffs' complaint, the Second Department held:
Contrary to the defendant's contention, the plaintiffs are not precluded from maintaining this action against the defendant simply because they received payment from their insurance carrier (see generally Fisher v Qualico Contr. Corp., 98 NY2d 534, 538; Spectra Audio Research, Inc. v Chon, 62 AD3d 561; Corsa v Pacific Indem. Co., 52 AD3d 450, 451; Winkelmann v Hockins, 204 AD2d 623, 623-624). If the trier of facts in this matter finds the defendant liable and awards damages to the plaintiffs, then the plaintiffs' receipt of the insurance payment may be relevant as a possible setoff against the damages award (see CPLR 4545[c]; Fisher v Qualico Contr. Corp., 98 NY2d at 539-540). 
Although the court's decision mentions that plaintiffs received the policy limit from their homeowners insurer, it also states that "the plaintiffs could have sought additional reimbursement from their insurance carrier if they submitted proof that they repaired, rebuilt, or replaced the garage within 180 days of payment, [which] they did not do[.]"  I'm not sure which is true, but it probably does not matter to the holding.  If the actual cash value of the plaintiffs' garage exceeded the limit of their "Other Structures Protection" coverage, they could sue for their uninsured loss.  The decision does not indicate why the plaintiffs' homeowners insurer did not join as a co-plaintiff to recover its payment or whether it had commenced a separate subrogation action against plaintiffs' neighbor. 

What if the plaintiffs were unsuccessful in their claim of negligence against their neighbor?  Would that finding collaterally estop their homeowners insurer from pursuing its subrogation claim?  It shouldn't.  Proceeding as a subrogee is different than suing as an assignee, and only assignees should be collaterally estopped by a finding on the merits against their assignors.  Moreover, to the extent that plaintiffs such as the ones in this case either are subject to a setoff against a damages award for payments they had received from their insurer or can be said not to be able to recover for those insurance payments in the first place, the insurer's subrogation interest is not at issue in an insured's separate tort action to recover the insured's uninsured loss. 

Motion to Withdraw as Retained Defense Counsel Due to Liability Insurer's Subsequent Disclaimer Is Denied

CGL – DUTY TO DEFEND – WITHDRAWING AS RETAINED DEFENSE COUNSEL – DECLARATORY JUDGMENT ACTION
Iacobellis v. A-1 Tool Rental, Inc.
(2nd Dept., decided 9/8/2009)

It has long been the rule in New York that once a liability insurer retains counsel to defend its insured, only a declaratory judgment relieving the insurer of that defense or the insured's consent will enable retained counsel to withdraw.

James River Insurance Company retained Wilson Elser Moskowitz Edelman & Dicker, LLP to defend its insureds in this personal injury action.  After James River subsequently issued a letter disclaiming coverage and denying that it had a duty to defend its insureds, Wilson Elser moved for leave to withdraw as attorneys of record for them. Kings Supreme granted Wilson Elser's motion. 

In REVERSING the order allowing Wilson Elser to withdraw as defense counsel, the Second Department reiterated New York's long-standing rule:
The motion of Wilson Elser was a "poor vehicle" to test the propriety of the disclaimer of coverage and withdrawal of defense by James River (Brothers v Burt, 27 NY2d 905, 906; see Seye v Sibbio, 33 AD3d 608; Garcia v Zito, 242 AD2d 258; Pryer v DeMatteis Orgs., 259 AD2d 476). An action seeking a declaratory judgment respecting the rights of the insured entities vis-à-vis their insurance carrier pursuant to the subject insurance policy is the appropriate means of resolving the issue of coverage, as it will afford the insured entities an opportunity to adequately litigate James River's disclaimer (see Seye v Sibbio, 33 AD3d 608; Garcia v Zito, 242 AD2d 258; Pryer v DeMatteis Orgs., 259 AD2d 476; Laura Accessories v A.P.A. Warehouses, 140 AD2d 182; Monaghan v Meade, 91 AD2d 1014).
So what is a liability insurer to do if it receives a summons and complaint that appears to trigger a defense obligation and an answer is due in days?  If plaintiff's counsel won't grant an extension?  If there are unanswered coverage questions that warrant inquiry or investigation?

If the insured does not have its own counsel to protect against a default, the liability insurer risks not being able to contest the insured's alleged liability and plaintiff's damages if it does not retain counsel to defend its insured and a default judgment is taken while the insurer is investigating coverage.

In New York, if, however, the insurer retains defense counsel who puts in an appearance and becomes the "attorney of record" for the insured, only a declaratory judgment in a separate DJ action relieving the insurer of that defense or the insured's consent will enable retained counsel subsequently to withdraw.  The insurer may not withdraw its defense by simply instructing retained counsel to make a motion to withdraw.

Monday, September 7, 2009

How Best To Use this Blog

Unless you've been a reader of this blog since its inception in April 2008, you may have missed a few of the 538 or so posts before this one.  If that's the case, and you would like to find content related to why you found your way here in the first place, there are several ways to do so.

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Court Again Rules that Graves Amendment Creates Conflict in Joint Defense Representation of Driver & Rental Car Company

AUTO – RENTAL VEHICLE – GRAVES AMENDMENT – RETAINED DEFENSE COUNSEL – CONFLICT OF INTEREST
Meigel v. Schulman
(Sup. Ct., Kings Co., decided 8/12/2009)

Kings County Supreme Court Justice Wayne Saitta has done it again.  As he did in Graca v. Krasnik, Justice Saitta not only denied the car lessor's motion for summary judgment, but ordered that separate defense counsel be provided for the renter who was driving the rental car at the time of the accident.

For all actions commenced on or after August 10, 2005, the "Graves Amendment" has provided vehicle lessors with a statutory basis for dismissing vicarious liability claims in motor vehicle accident lawsuits.  This amendment to the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users ("SAFETEA") provides in relevant part that:
[a]n 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).  49 U.S.C. § 30106(a). 
Micki Schulman rented a vehicle from ELRAC, Inc., d/b/a Enterprise Rent-A-Car and was involved in an accident with the plaintiff.  Plaintiff commenced a personal injury action against Schulman and ELRAC.  Prior to discovery, both defendants moved to dismiss plaintiff's complaint against ELRAC based on the Graves Amendment.   On the motion, Justice Saitta sua sponte (of its own accord) raised the issue of whether defendants' counsel had a conflict in representing both defendants while seeking to dismiss the complaint against only one of them.

Defense counsel argued that there was no conflict in one attorney representing both defendants because: (1) the Graves Amendment applied to preclude ELRAC from being held vicariously liable for Schulman's allegedly negligent driving; (2) Schulman submitted an affidavit asserting that that were no problems with the rental vehicle; (3) because the leasing agreement between the defendants required Schulman to indemnify ELRAC for any loss over $25,000, including attorneys' fees, it was in Schulman's best interest to have the case dismissed against ELRAC; and (4) there had been full disclosure of the potential for conflicts and the defendants both consented to the joint representation.  Plaintiff opposed defendants' motion based on the fact that he had not had an opportunity to conduct discovery as to whether ELRAC properly maintained and serviced the vehicle (direct negligence of the vehicle's owner being an exception to the Graves Amendment's liability exemption).

In rejecting defense counsel's argument that there was no conflict in representing both defendants and denying their motion with leave to renew after the appointment of separate defense counsel and completion of discovery, Justice Saitta held:
There is an inherent conflict of interest in representing two named defendants where, if the case against one defendant (owner/lessor) is dismissed pursuant to the Graves Amendment, the other defendant (driver) is left bearing full liability for the claims alleged in Plaintiff's complaint. The driver has no independent advocate to oppose the motion which would result in the driver shouldering full liability.

The conflict remains despite the provision in the lease that requires the driver, SCHULMAN, to reimburse ELRAC for any loss they suffer arising from her use of the vehicle.  Such a lease provision is enforceable, but not as to losses resulting from ELRAC's own negligence. This means that if ELRAC's motion to dismiss pursuant to the Graves Amendment was denied on the grounds that they were negligent in maintaining the vehicle, and ELRAC was found liable to the Plaintiff because of that negligence, ELRAC could not seek indemnification from Schulman for that percentage of the damages caused by its negligence. 

Further, such an indemnification provision is enforceable only to the extent that the losses that exceed the minimum primary coverage ELRAC was required to provide pursuant to VTL §370. Elrac v Ward, 96 NY2d 58, 724 NYS2d 692 (Ct of Ap 2001); Haight v Estate of DePamphilis, 5 AD3d 547, 772 NYS2d 833 (2nd Dept. 2004). Thus ELRAC may only seek reimbursement for any losses that exceeded the $25,000 in coverage they were required to provide Schulman. 

There is an inherent conflict in an attorney representing both the driver and the leasing company where there is a possibility that the leasing company may have been negligent. If ELRAC was negligent then the driver would be entitled to contribution from ELRAC and ELRAC could not seek indemnification for such contribution based on its own negligence. 

In this case, counsel has produced an affidavit from SCHULMAN stating that there was nothing wrong with the vehicle, which counsel argues shows that there is no question as to negligence by ELRAC, and thus no conflict.  However, this line of reasoning conflates the issue of whether ELRAC was negligent with whether an attorney representing both ELRAC and the driver can vigorously investigate, on the driver's behalf, whether ELRAC was negligent. 

It is difficult to imagine an attorney, who represented only the driver, agreeing that ELRAC was not negligent based on the fact that the driver, who is not an expert, thought there was nothing from with the car. It is even more difficult to imagine an attorney who represented only the driver, procuring such an affidavit from their client. An independent counsel would almost certainly at a minimum insist on conducting discovery of ELRAC's maintenance and service records before conceding that ELRAC was not negligent. 

There is also a need for separate counsel to evaluate whether there is a basis to argue that the Graves Amendment is not applicable in a given case, either on constitutional grounds or because the company is not a leasing company within the meaning of the act. While it is true that if ELRAC was held vicariously liable, the driver may be liable to reimburse ELRAC for its losses and attorneys fees that exceeded $25,000. However there many be situations in which counsel would conclude that having the leasing company remain in the case, if there is a legal basis for doing so, may increase the chances of a favorable settlement that outweigh the risk of having to reimburse the leasing company and pay additional legal fees. A client is entitled to the undivided loyalty of counsel, even for such strategic decisions. 

Lastly, Plaintiff is entitled to conduct discovery as to the maintenance of the vehicle, before having to answer the summary judgment motion, as such information is both material and within ELRAC's sole control. Therefore summary judgment would be premature at this time.
To read most posts about New York cases involving the Graves Amendment, click here.  

Friday, September 4, 2009

Testimony of Re-Peer Review Doctor Not Limited to Rationale of Original Peer Review Report

NO-FAULT – TESTIMONY OF RE-PEER REVIEW DOCTOR – GENERALLY ACCEPTED STANDARDS OF MEDICAL PRACTICE – MEDICAL NECESSITY
Prime Psychological Servs., P.C. a/a/o James Gajadhar v. Progressive Cas. Ins. Co.
(NYC Civil Ct., Richmond Co., decided 8/5/2009)

In the words of New York City Civil Court, Richmond County, Judge Katherine Levine, "[t]his case was submitted to the court to determine whether a re-peer doctor's testimony must exactly replicate what is contained in a peer review report generated by another doctor, and whether the re-peer doctor can opine that certain services are contrary to generally accepted standards when the peer review report does not explicitly set forth that conclusion."  In the opinion of Judge Levine, the answers to these questions are no, the re-peer doctor's testimony must not exactly replicate the original peer review's contents, and yes, the re-peer doctor may add his opinion that the billed services were contrary to generally accepted medical standards.

Progressive denied payment of plaintiff provider's bills for psychological testing , a diagnostic interview, individual psychotherapy and other services it provided to the assignor based on a peer review report of Dr. Moses Weksler dated February 9, 2007, which found that the psychological services were not medically necessary.  Since Dr. Weksler was unavailable to testify when the suit reached trial, Progressive presented as its expert witness, Dr. Robert Daley, who conducted a re-peer review by reading the peer review report of Dr. Weksler and reviewing the records listed on the original peer review report.  While both doctors reached the same conclusion that the five psychological services provided to the assignor were not medically necessary, and specified at length as to the fallacies of the tests, Dr. Daley added that the services at issue were not in accordance with generally accepted medical procedures.

At trial, Dr. Daley testified that he agreed with Dr. Weksler's opinion that the tests were not medically necessary and basically reiterated all the points made by Weksler in the peer review report.  He testified that the five tests at issue were utilized for screening a large number of persons and that they did not add to the diagnostic formulation and treatment. He then opined that the use of the tests deviated from the generally accepted procedures in psychology since a psychologist should first determine whether someone is suffering from a disease through an interview, not testing. The standard of care also incorporated the precept that the tests should only be performed if specific questions arose about the diagnosis or if the doctor could not develop a diagnosis.

Counsel for plaintiff objected to Dr. Daley's testimony about generally accepted medical procedure because Dr. Weksler made no such finding in his report. Plaintiff contended that the breadth of Daley's testimony was  limited to the rationale contained in the peer review report and that both the re-peer doctor and the court were bound by what was written in the peer review report and that the court was limited to adducing "whether the original rationale was correct."

Progressive contended that a re-peer doctor who testifies on medical necessity may refer to the generally accepted medical practice even though the peer review report by the original doctor "does not explicitly state that point" because once an expert is qualified as an expert, his testimony is governed by CPLR 3101(d), which only mandates that an expert disclose "in reasonable detail" the subject matter on which he is going to testify. Furthermore, Progressive asserted that even if a medical expert testifying at trial about medical necessity does not directly state whether the services were rendered in accordance with the generally accepted medical practice, a court can infer from the testimony whether the generally accepted medical practice was followed.

In overruling plaintiff's objection to Dr. Daley's testimony about generally accepted standards of psychological practice and procedures, Judge Levine held:
Although there have been few decisions elucidating defendant's exact burden of proof to establish that the services were medically unnecessary, Nir. v. Allstate Insurance Co., 7 Misc 3d 544, 546 (Civil Ct, Kings Co. 2005), at the minimum, a defendant must "establish a factual basis and medical rationale for the lack of medical necessity of plaintiff's services." Id. See also, CityWide Social Work, supra, A.B. Medical Services, supra. The New York courts "explicitly or implicitly look to generally accepted practice in determining medical necessity. Citywide Social Work , supra at 613.

Generally accepted practice "is that range of practice that the profession will follow in the diagnosis and treatment of patients in light of the standards and values that define its calling." CityWide, supra at 616. Millennium Radiology, P.C. v. New York Cent. Mut., NY Slip Op 50877U, 23 Misc 3d 1121A (Civil Ct., Richmond Co. 2009) . The doctor must submit "objective testimony or evidence to establish that his opinion is what is generally accepted in the medical profession." Williamsbridge Radiology & Open Imaging v. Travelers Indemnity Co., 2007 NY Slip Op. 50224U, 14 Misc 3d 1231A (Civil Ct., Kings Co. 2007).
"A peer review's medical rationale is insufficient if it is unsupported by or controverted by evidence of medical standards." Nir supra, 7 Misc 3d at 547. Thus, in order to carry the insurer's burden of proof that the services were not medically necessary, the insurer's expert must show that the services provided were inconsistent with generally accepted medical/professional standards. Citywide Soc. Work & Psychological Servs., PLLC v. Allstate Ins. Co., 2008 NY Slip Op 51601U, 20 Misc 3d 1124A (Sup. Ct., Nassau County 2008). Ultimate Medical Supplies v. Lancer Insurance Co., 7 Misc 3d 1002(A), 2004 NY Slip Op 51860(U) (Civil Ct., Kings Co. 2004). "Although peer review, or general acceptance in the relevant scientific community, is not always a sine qua non for admissibility of an expert's theory, see Kumho Tire Co. v. Carmichael, 526 U.S. 137, 151, 119 S. Ct. 1167, 143 L. Ed. 2d 238 (1999) ,the absence of such review or acceptance is often indicative of the unreliability of an expert's opinion." Seneca Meadows, Inc. v. ECI Liquidating, Inc., 427 F. Supp. 2d 279, 304, (W.D.NY 2006). 

In the instant matter it is clear that the re-peer doctor, by explicitly mentioning the term "generally accepted medical standard," bolstered the original peer report's conclusion that there was no medical necessity for the five psychological tests performed on the assignor. Defendant claims that the original doctor, in sum and substance, gave the same rationale for lack of medical necessity as was testified to by the second doctor since he mentioned the same factors and rationale albeit without using the talismanic phrase "generally accepted medical standards."

CPLR 3101(d)(1) provides that: Upon request, each party shall identify each person whom the party expects to call as an expert witness at trial and shall disclose in reasonable detail the subject matter on which each expert is expected to testify, the substance of the facts and opinions on which each expert is expected to testify, the qualifications of each expert witness and a summary of the grounds for each expert's opinion.

CPLR 3101(d)(1) "does not require a party to respond to a demand for expert witness information 'at any specific time nor does it mandate that a party be precluded from proffering expert testimony merely because of noncompliance with the statute', unless there is evidence of intentional or willful failure to disclose and a showing of prejudice by the opposing party" Shopsin v. Siben & Siben, 289 AD2d 220, 221 (2d Dep't 2001); Cutsogeorge v Hertz Corp., 264 AD2d 752, 753-754 (2d Dep't 1999). In LaMasa v. Bachman, 56 AD3d 340 (1st Dept. 2008), the First Department upheld the lower court's refusal to preclude the testimony of plaintiff's experts concerning the seriousness of the injury plaintiff sustained in an automobile accident, despite the discrepancies that existed between some of their testimony and their reports, since "defendant did not show a willful attempt to deceive or prejudice, and such discrepancies, which defendant was free to raise on cross-examination, go only to the weight, not the admissibility, of the testimony" Id. At 341.See, Hageman v Jacobson, 202 AD2d 160, 161 (1st Dep't 1994);; Dollas v Grace & Co., 225 AD2d 319, 321 (1st Dept. 1996). 

Plaintiff cites Dilon Medical Supply Corp. v. NY Central Mutual Ins., 2007 NY Slip Op. 52454U, 18 Misc 3d 128A (App. Term, 2d Dept. 2007), for the proposition that the re-peer doctor's reasoning as to why he, as opposed to the original doctor, believes the tests were not medically necessary is completely irrelevant. In Dilon, supra, as in the instant matter, the doctor who wrote the peer review report was unavailable, hence causing the defendant's to call a re peer doctor. Plaintiff sought to preclude the re-peer doctor from testifying. The Appellate Term found that the issue before it was whether the rationale for the conclusion in the peer review report, upon which the defendant based its denial was correct. "Since the defendant sought to call a medical expert witness, who was available for cross-examination, and his testimony as to the lack of medical necessity...would be limited to the basis for the denials as set forth in the original peer review reports, the expert witness should have been permitted to testify." Id . See. Spruce Med. & Diagnostic, P.C. v. Lumbermen's Mut. Cas. Co., 2007 NY Slip Op 51104U, 15 Misc 3d 143A (App. Term, 1st Dept. 2007) (court denies motion to preclude re-peer doctor from testifying since defendant's expert witness "would be subject to full cross-examination and his testimony as to lack of medical necessity would be limited to the basis for denial set forth in the original peer review report").

In SK Medical Services, P.C. v. New York Central Mutual Ins. Co., 12 Misc 3d 686 (Civil Ct., Richmond Co. 2006), Judge Sweeney further amplified upon the interplay between the disclosure of the peer review report and the subsequent testimony of a re peer doctor. The court found that there was no reason to deny the testimony of the re-peer doctor since defendant had issued a timely denial of claim which asserted lack of medical necessity as a defense and which contained the information called for in the prescribed denial of claim form. 

Furthermore, the qualification of a witness as an expert presumes that he is knowledgeable about and may testify about the generally accepted medical standards. Olivier v. Robert L. Yeager Mental Health Ctr., 398 F.3d 183, 190 (2d Cir. NY 2005). The requirement that the plaintiff introduce expert medical testimony is imposed in part because "without expert assistance a jury will often have no understanding of what constitutes reasonable behavior in a complex and technical profession such as medicine." Id at 190 citing Sitts v. United States, 811 F.2d 736, 740 (2d Cir. 1987). See, Paul v. Boschenstein, 105 AD2d 248, 249(2d Dep't 1984).For that reason "expert testimony has been held to be admissible not only to explain highly technical medical or surgical questions (e.g., Meiselman v Crown Hgts. Hosp., 285 NY 389), but has also been found appropriate to clarify a wide range of issues calling for the application] of accepted professional standards." Selkowitz v. County of Nassau, 45 NY2d 97, 102 (1978). 

Moreover, the expert should be possessed of the requisite skill, training, education, knowledge or experience from which it can be assumed that the information imparted or the opinion rendered is reliable." Matott v. Ward, 48 NY2d 455, 459(1979); McCormick, Evidence [2d ed], § 13. In order for a court to credit the testimony of a qualified expert, it must be convinced that the expert exhibit "a degree of confidence in his conclusions sufficient to satisfy accepted standards of reliability. Matott, supra at 459-60. 

Since the sine qua non of an expert's testimony is to opine how accepted professional standards apply to the case at hand, this court will not preclude Dr. Daley from testifying that the five psychological tests rendered were inconsistent with generally accepted medical procedures. The basis for this conclusion - that a psychologist should first obtain a diagnosis from an interview and that only if he is unsuccessful in this endeavor or has questions about the diagnosis should he consider utilizing these tests - was first set forth in the peer review report albeit without an explicit reference to the generally accepted standards. Furthermore, Dr. Weksler cited to two authoritative reports or treatises to back up his opinion and also mentioned that in order for a procedure to be medically necessity, it must be in accordance with generally accepted standards of medical practice. 

Finally, plaintiff cannot validly argue that it was subjected to surprise or prejudice by the re-peer doctor since his testimony basically dovetailed what was contained in the peer review report which had previously been provided to plaintiff. Dr. Daley did not postulate a new theory during his testimony which surprised plaintiff and he was subjected to cross-examination.  Plaintiff could have reasonably expected that once it agreed to the qualifications of an expert, said witness might refer to a generally accepted medical standard.

In light of the above, the court finds that defendant has sustained its burden of proving lack of medical necessity for the five tests and that plaintiff has not rebutted this testimony by producing its own witness or treatises proving that the tests were medically necessary.
Dr. Daley did not rebut the presumption of medical necessity that attached to the initial psychiatric diagnostic interview, two sessions of psychotherapy and explanation and interpretation of results to the primary physician which totaled $438.09. The trial stipulation indicated that Progressive has already made a partial payment to plaintiff of $314.68. As such, the court awarded judgment to plaintiff in the amount of $123.41 plus interest from the date of the summons and complaint plus costs and attorneys' fees.

Thursday, September 3, 2009

New York Supreme Dismisses All Claims for Coverage Against Employer's CGL Insurer Following Insured's Confession of Judgment in Favor of Owner

CGL – BLANKET ADDITIONAL INSURED ENDORSEMENT – EMPLOYEE INJURY EXCLUSION – CONTRACTUAL LIABILITY EXCLUSION – CERTIFICATE OF INSURANCE – FILING AND PRE-APPROVAL OF POLICY PROVISIONS
Cipriani USA, Inc. v. Utica First Ins. Co.
(Sup. Ct., New York Co., decided 8/18/2009)

For those involved in construction accident, contractor-subcontractor, CGL and additional insured coverage matters, this decision is worth reading from beginning to end.  New York County Supreme Court Justice Carol Edmead does an excellent job outlining the parties' arguments and analyzing the salient coverage issues.

Cipriani hired Indigo Blue Group, Utica First's named insured under a CGL policy, to perform work at Cipriani's premises pursuant to a contract, dated June 11, 2003.  In October 2003 an employee of Indigo was injured during that work and sued Cipriani, which in turn impleaded Indigo for contractual indemnification.  In February 2004, Utica First issued separate letters to Indigo and Cipriani, denying coverage to each based on various policy exclusions.  In October of 2007, Indigo consented to the settlement of the underlying lawsuit for $75,000 and to judgment over in Cirpiani's favor for contractual indemnification in the amount of $88,462.64, which included attorneys' fees.  Indigo then assigned and transferred all rights, title and interest to Cipriani for all claims, demands and causes of action which Indigo had against Utica First, Gary G. Emmanual Brokerage, Inc. and Morstan Agency, Inc. in consideration of Cipriani's payment of the settlement.  Cipriani then brought this action against Utica First, the agent and the broker for payment of Indigo's confession of judgment.

Utica First moved pursuant to CPLR 3211(a)(1) [documentary evidence] and (7) [fails to state cause of action] to dismiss the complaint and all cross claims against it and requested that since there were no question of material fact, the court treat the motion as one for summary judgment pursuant to CPLR 3211(c) and declare, pursuant to CPLR § 3001, that Utica First had no obligation to defend or indemnify either Cipriani or Indigo in relation to the underlying action.

In GRANTING Utica First's motion and declaring that it was not obligated to defend or indemnify either Cipriani or Indigo in relation to the underlying action, Justice Edmead held:
►  Utica First had made an adequate showing of documentary evidence to merit relief under CPLR 3211(a)(1);

►  by virtue of Indigo's post-confession of judgment assignment of its rights against Utica First and its agent and broker, Cipriani did have legal standing to maintain this action;

►  the policy's blanket additional insured provision was not triggered and did not afford independent liability coverage to Cipriani because the contract between Cipriani and Indigo explicitly did "not require the Contractor to include the Owner, Architect or other persons or entities as additional insureds on the Contractor's Liability insurance"; contract language that merely requires the purchase of insurance will not be read as also requiring that a contracting party be named as an additional insured;

►  even if Cipriani were deemed an additional insured, the policy's employee injury exclusion and contractual liability exclusion unambiguously applied to negate liability coverage in favor of Cipriani and Indigo;

►  the employee injury exclusion in Indigo's policy with Utica First is not against public policy;

►  the certificate of insurance issued to Cipriani did not raise a question of fact because "a certificate of insurance purporting to afford a party coverage, which on its face states that it is issued for informational purposes only, cannot by itself establish coverage";

►  the indemnity clause in Indigo’s contract with Cipriani likewise did not create coverage under Indigo's policy with Utica First; 

►  Utica First's alleged failure to file its employee injury exclusion with the New York State Insurance Department for approval did not create an issue of fact because "the failure of plaintiff to file an endorsement with the Insurance Department for approval 'does not, by itself, void the policy clause, but rather carries its own penalties for non-filing. Further, such clause is void only if the substantive provisions of the clause are inconsistent with other statutes or regulations' (National Union Fire Ins. Co. of Pittsburgh, Pa. v Ambassador Group, 157 AD2d 293,556 NYS2d 549 [lst Dept 1990]). Here, there is no showing that the Exclusions are inconsistent with other statutes or regulations"; and

►  there was no indication that additional discovery would raise an issue as to Utica First's liability under the policy.

Wednesday, September 2, 2009

My Words Used Against Me

Not yet, but it's inevitable.  Although I've been blogging for just over 16 months, I resign myself to the inevitability that someday, somewhere, someone will try to use my words against me.  Or worse yet, against my client.  Blogging is like diamonds.  Once imprinted onto cyberspace, it's forever.

Long Island attorneys Jonathan Dachs and his father, Norman Dachs, have been prolific legal writers for over 35 years.  Since before Al Gore invented the Internet.  When newspapers, journals, periodicals, and looseleaf services printed on acidic paper were how lawyers received updates on new statutes, regulations and case decisions.

Back on August 19th, I posted about the Baldwin v. Garage Management Corp. decisions, which involved an interpretation of New York Vehicle & Traffic Law § 1210, the "key in the ignition law".  I ended that post with an observation of the plaintiffs' request for sanctions against the successfully moving defendants for having made what plaintiffs characterized was a frivolous motion.

An avid reader as well as writer of all things auto insurance coverage-like, Jonathan Dachs, the lawyer who successfully defended the Baldwin case, commented on and explained the plaintiffs' request for sanctions:
I was the successful attorney for the Defendant in the Baldwin case -- a very interesting case, and one that I did not, in fact, think I would win. With respect to your comment regarding the Plaintiffs' motion for sanctions, that motion was even more interesting to you than you know. As a prolific blogger, writer and commentator, you should be interested to learn that the actual basis for the cross-motion for sanctions was Plaintiffs' counsel's (erroneous) contention that the affirmation in support of our motion "relied upon out-dated and/or inapplicable law which defense counsel himself has previously stated has no application to the issues before this court" -- referring to an article that we had written ten years earlier in the New York Law Journal. As specifically stated by Plaintiffs' counsel, "... defense counsel has written extensively about the change in the common law and the enactment of VTL 1210(a). Defense counsel then cites numerous cases, some of which he has lectured to his Law Journal readers are no longer controlling...." In my Opposition/Reply papers, I pointed out that, in fact, there was absolutely nothing in the 10-year-old Law Journal article that in any way contradicted or defeated the arguments made in support of our motion, and that counsel had completely misconstrued that article. At oral argument, I made further arguments concerning the chilling effect of what Plaintiffs' counsel was trying to do. The Judge wisely rejected the request for sanctions. Plaintiffs' appellate counsel wisely did not pursue that issue on the appeal.

I am sure you already know the risks we take when we place our words, thoughts and opinions "out there." With all of this in mind, your recently created "disclaimer" is particularly pertinent.

Jonathan A. Dachs
Shayne, Dachs, Corker, Sauer & Dachs
(A big fan of this blog)
Chilling effect, indeed.  But I never found your articles to have a lecturing tone, Jonathan.  And thanks for the props. 

Bloggers being sued for their blog content is nothing new.  The notion that a motion for sanctions could be made against me or my client for things I have said in this blawg, however, is new, at least to me. Finding words printed on yellowed acidic paper is possible, but not easy.  Finding words e-printed in cyberspace takes no effort at all. 

With Jonathan's experience in mind, will I change what I write or not write at all?  No.  In a risk-reward analysis, I still think the rewards of legal writing and commentary, for oneself and others, outweigh the risks.  Until the first motion for sanctions is granted, that is.