Friday, January 29, 2010

The Dam Project and Its Dam Additional Insured Coverage for the Dam Failure

CGL – ADDITIONAL INSURED – "ONGOING OPERATIONS" – REQUIRED BY WRITTEN CONTRACT DUTY TO DEFEND
Town of Fort Ann v. Liberty Mut. Ins. Co.
(3rd Dept., decided 1/28/2010)

Juvenile title, I know.  Sorry, just couldn't resist. 

Plaintiff Town of Fort Ann retained engineering firm Heynan Teale Engineers and construction company Kubricky Construction Corporation to reconstruct its Hadlock Pond dam in 2004 and 2005.  On July 2, 2005, the reconstructed dam catastrophically failed, releasing a billion-gallon torrent of water that destroyed homes, cars and roadways for hundreds of yards downstream from the spillway. Upstream and downstream property owners brought multiple property damage lawsuits against the Town, which sought liability coverage an an additional insured from Heynan's CGL insurer, Steadfast Insurance Company, and Kubricky's CGL insurer, Liberty Mutual Insurance Company.  Steadfast and Liberty both denied any obligation to the Town asserting, among other things, that the Town did not qualify as an "additional insured" under the terms of their respective policies.

The Town and its CGL insurer commenced this declaratory judgment action for defense and indemnification coverage from Steadfast and Liberty, and breach of contract damages against Kubricky, and, following the completion of discovery, moved for summary judgment.  All defendants cross-moved for summary judgment.  Albany County Supreme Court granted plaintiffs' motion to the extent of finding that Steadfast was obligated to defend the Town in the underlying property damage actions and denied all other motions and cross motions.  All parties appealed.

In MODIFYING the order appealed from to declare that Liberty also had a duty to defend the Town in the underlying property damage actions, the Third Department found that additional insured coverage was triggered under both Kubricky's (Liberty's) and Heynan's (Steadfast's) policies.

Kubricky's policy with Liberty extended additional insured status to an entity when Kubricky's written contract to provide work for the entity required such coverage.  The written contract between Kubricky and the Town required Kubricky to maintain such insurance until the Town accepted the completed project. Liberty argued that the Town's additional insured coverage had ceased since the policy provided that such coverage remained in effect only so long as Kubricky had ongoing operations at the project.

In rejecting Liberty's argument that Kubricky's operations had ended before the dam breached, the Third Department noted that there had yet to be a final inspection of Kubricky's work and held:
The term "ongoing operations" is interpreted broadly in New York (see generally Wausau Underwriters Ins. Co. v Cincinnati Ins. Co., 198 Fed Appx 148, 150 [2d Cir 2006]; Liberty Mut. Fire Ins. Co. v E.E. Cruz & Co., 475 F Supp 2d 400, 411 [SD NY 2007]). Work may be considered as ongoing during a short lapse of time necessary to conduct tests designed to assure proper performance where such testing is an essential element of the work by the insured (see Perez v New York City Hous. Auth., 302 AD2d 222, 222 [2003]; cf. 9A Couch on Insurance 3d § 129:24). While major construction by Kubricky had ended one to two months before the dam's failure, inspection of the project by the engineer, which was required before Kubricky's work was considered completed under the contract, had not yet occurred. In light of the nature of the project, such inspection was not merely a minor after-the-fact detail. We find that the Town adequately established that it was an additional insured for purposes of the broad duty to defend. The exclusions in the policy urged as applicable by Liberty Mutual, which must be construed narrowly, do not vitiate Liberty Mutual's expansive obligation to provide a defense (see generally Automobile Ins. Co. of Hartford v Cook, 7 NY3d 131, 137 [2006]). 
Steadfast's policy with Heynan provided that a client of Heynan would be an additional insured when "required by written contract executed and effective before the performance of 'your work' or 'covered operations.'"  The written contract between Heynan and the Town, which was executed before Heynan's work on the project commenced, stated that "[c]ertificates of insurance will be furnished upon request naming the Town of Fort Ann . . . as additional insured."  The Town did not request the certificate of insurance until well after the dam had failed.  Because the Town had not requested certificates of insurance from Heynan before its work or the dam breach, Steadfast argued that Heynan's written contract with the Town did not require that the Town be named as an additional insured on Heynan's policy.

In rejecting that argument, the Third Department reasoned that an agreement prospectively to provide certificates of additional insured insurance reflected or constituted an agreement to provide AI insurance:
So long as a clear written intent to include an entity as an additional insured is manifested prior to the loss, the fact that certificates of insurance are not issued until after the loss does not compel the conclusion that such entity is not an additional insured (see United States Fid. & Guar. Co. v Shorenstein Realty Servs., LP, 591 F Supp 2d 966, 968-969 [ND Ill 2008]; Atofina Petrochemicals, Inc. v Continental Cas. Co., 49 Tex Sup Ct J 225 185 SW3d 440, 443-444 [2005]; 3 Couch on Insurance 3d § 40:29). Applying rules for construing contracts (see National Abatement Corp. v National Union Fire Ins. Co. of Pittsburgh, Pa., 33 AD3d at 571), we observe that the underlying contract, which had been drafted by Heynan, addresses the full extent of insurance coverage in just one paragraph, three sentences in length. The fact that Heynan agreed in the contract that it was prepared to supply certificates of insurance upon request reflects a clear intent to include the Town as an additional insured in Heynan's work on the dam project. The status of the Town as an additional insured is not made contingent upon the request for a certificate of insurance. We agree with Supreme Court that, under these circumstances, Steadfast Insurance has a duty to defend the Town. 
Credit to the Bay Ridge Volunteer Fire Department for use of its Hadlock Pond dam and damage photos.

Tuesday, January 26, 2010

Paper or Digital? -- Remote Claims Handler's Lack of Knowledge of Home Office's Procedures Found Inadequate to Vacate Default Judgment for Extracontractual Damages

NO-FAULT – VACATING DEFAULT JUDGMENT – PERSONAL KNOWLEDGE OF OFFICE PROCEDURES
Westchester Med. Ctr. v. Philadelphia Indem. Ins. Co.
(2nd Dept., decided 1/5/2010)

There's nothing particularly surprising about this plaintiff and its counsel taking a default judgment on the earliest possible day against a no-fault insurer defendant.  What is surprising is how this insurer attempted to prove an excusable default and meritorious defense to vacate what was, and still is, an extracontractual award. 

Vacating a default judgment requires proof of (1) a reasonable excuse for the default and (2) a meritorious defense to plaintiff's claim.  In REVERSING Nassau Supreme's order that vacated the plaintiff's $19,325.61-plus default judgment against Philadelphia Indemnity Insurance Company (PIIC), the Second Department found that PICC had failed to demonstrate either.

In an attempt to demonstrate an excusable default, PIIC submitted an affidavit of a senior claims examiner employed in PIIC's Texas office, who averred that there was no record of the plaintiff's summons and complaint in PIIC's computer system.  The Second Department found that affidavit to be inadequate since it:
failed to demonstrate any knowledge of the office procedures employed in the handling of a summons and complaint received at the defendant's Pennsylvania office. Thus, that affidavit was insufficient to show that the failure to timely appear and answer was due to a clerical error which caused the summons and complaint to be overlooked (see Montefiore Med. Ctr. v Auto One Ins. Co., 57 AD3d at 959; New York & Presbyt. Hosp. v Allstate Ins. Co., 29 AD3d 968; Kaperonis v Aetna Cas. & Sur. Co., 254 AD2d 334; cf. Hospital for Joint Diseases v Lincoln Gen. Ins. Co., 55 AD3d 543, 544).
For the same reason, the Second Department held that the Texas senior claims examiner's affidavit was legally insufficient to demonstrate a meritorious defense to payment of plaintiff's $19,325.61 hospital bill:
Furthermore, the defendant failed to set forth facts from an individual with personal knowledge sufficient to demonstrate the existence of a meritorious defense. The affidavit of the plaintiff's biller showed that the Forms N-F5 and UB-92 relating to this matter were mailed on April 23, 2008, and signed for by the defendant on April 28, 2008. At that time, according to the defendant's own records, there were still sufficient funds remaining under the policy to pay this bill (see 11 NYCRR 65-3.15; Nyack Hosp. v General Motors Acceptance Corp., 8 NY3d 294). In response, the defendant offered only the same aforementioned affidavit, which also averred that there was no record of the bill in question in the defendant's computer system. This was insufficient for a similar reason; that is, the affiant failed to show any knowledge of the office procedures employed in the handling of billing forms received at the defendant's Pennsylvania office (see St. Barnabas Hosp. v American Tr. Ins. Co., 57 AD3d 517; New York & Presbyt. Hosp. v Allstate Ins. Co., 29 AD3d at 968; see generally New York Hosp. Med. Ctr. of Queens v Insurance Co. of State of Pa., 16 AD3d 391, 392; Peacock v Kalikow, 239 AD2d 188, 190; cf. St. Vincent's Hosp. of Richmond v Government Empls. Ins. Co., 50 AD3d 1123). Accordingly, the defendant's motion to vacate the judgment entered upon its failure to appear or answer should have been denied.
It gets worse.  Not only is PIIC now facing what sounds like an extracontractual award -- the decision implying that PIIC had paid its policy limit sometime after plaintiff submitted its bill -- but the Second Department remitted the action back to Nassau County Supreme Court for a determination of plaintiff's motion to hold PIIC in contempt, which could bring an additional monetary sanction. 

When seeking to vacate a default judgment, go with the paper and establish, through the affidavit of someone with personal knowledge of that paper and its handling procedures, both the reasonable excuse for the default and meritorious defense to plaintiff's claim. Don't rely on what's in, or not in, the computer.  Real world defaults require real world proof for vacatur. 

Monday, January 25, 2010

Unreasonable Care to Maintain Heat in the Dead of an Upstate New York Winter -- Trial Verdict for Insurer on Frozen & Burst Pipes Water Damage Claim

PROPERTY – FROZEN BURST WATER PIPES – VACANCY – REASONABLE CARE TO MAINTAIN HEAT
Landsman v. Dryden Mut. Ins. Co.
(Sup. Ct., Broome Co., decided 12/8/2009)

A "named peril" property insurance policy is one that provides coverage only for direct physical loss or damage caused by perils or "causes of loss" the policy specifically enumerates or lists. 

One, standard covered cause of loss or peril is the plumbing system or appliance freezing peril, which typically provides:
17. Freezing of Plumbing, Heating, Air Conditioning Systems, Automatic Fire Protective Sprinkler Systems or Domestic Appliances - excepting loss or damage on the insured premises while the residence is vacant, unoccupied or being constructed.

We do cover such loss or damage if an insured has used reasonable care to maintain heat in the residence or to shut off all water and to completely drain the system and domestic appliances.
Notice that three things are at work in that one provision:  what's covered, not covered, and covered again.   Direct physical loss or damage caused by the freezing of a plumbing, heating or air conditioning system, automatic fire protective sprinkler system or a domestic appliance is covered UNLESS the residence is vacant, unoccupied or being constructed UNLESS the insured has used reasonable care EITHER to maintain heat in the residence OR to shut off all water AND completely drain the system and domestic appliances.  In other words, an insured residence's vacant, unoccupied or under construction condition will not negate the freezing peril if the insured has used "reasonable care" either to maintain the residence's heat or to drain the residence's plumbing system and appliances. 

In the Buffalo, New York area, where I live, each each winter brings its share of frozen and burst water pipe damage claims to insurers.  The appearance of these claims after the deep freeze and thaw cycles of our Buffalo winters (which are cold, but not as snowy as stereotypically thought), coupled with a sizeable stock of old, poorly insulated dwellings in Western New York, is so predictable that I've developed a ready-reach digest of reported New York cases of what constitutes "reasonable care to maintain heat" for those insurers facing what usually are sizeable claims, due to fact that once they thaw, burst water pipes frequently remain undiscovered for lengthy periods of time in vacant or unoccupied dwellings.  Hence, one can, or at least should, understand the underwriting logic of the exception of freezing coverage for loss or damage to dwellings that are vacant, unoccupied or under construction.

Imagine that you own a one-family farmhouse that you rent in upstate New York (which, growing up in northern New Jersey and then Stony Point, Rockland County, I once thought meant anything north of the Tappan Zee Bridge).  Upstate in bucolic Hancock, New York, to be precise.  In addition to their monthly rent, your tenants are responsible for their own utilities.  In September and October, your tenants fall behind on their rent payments, so you commence a summary eviction proceeding against them in November.  In late January, you receive a voice message from one of your two tenants, complaining that there was a problem with the furnace at the property.

On Sunday, January 30th, you take the two-hour-and-40-minute drive up Route 17 from your home in New York City to the property.  No one is home, but you can see items of personal property within the dwelling when you visit the property on that Sunday and the following day.  Later on Monday, January 31st, you make the long drive back to your home in New York City.  The temperature that day in nearby Monticello, New York, ranged from a low of 5 °F to a high of 32 °F.  The normal temperature ranges for Hancock, New York, on January 31st are 14 °F to 28 °F.

Upon returning home, you find a telephone message waiting for you from New York State Electric and Gas indicating that the power at the property had been turned off for nonpayment.  You try to reach your tenants again by telephone but to no avail.  You call NYSEG and ask that the power to the farmhouse be restored under your name, but NYSEG tells you that since the power had been turned off at the pole, it could not be turned back on without an inspection of the interior of the property.  Having just returned, you decide not to make the long drive back to the property to provide NYSEG access into the house, thinking in part that the warrant of eviction was being processed by the local town court.

The warrant of eviction is issued on February 1st, directing that the "eviction is to occur on the earliest possible date after February 4[th]".  On February 5th, you drive back upstate to the property to inspect it and again find some personal property within the house that you assume belonged to your former tenants.  You show the house to a prospective new tenant, who rents it and takes possession on February 17th.  Once the heat and utilities are restored to the house, however, the new tenants immediately report damaged pipes and leaking from various fixtures in the property.  It becomes clear that the pipes froze sometime between January 31st, when NYSEG turned off the power, and February 17th.

You immediately notify your insurance company of the water damage and make a claim under your policy.   Your insurer retains an independent adjuster, who inspects the damage, and concludes in his reports that the damage was due to freezing pipes.  The adjuster also notes his opinion that it would have been impossible to occupy the premises after the utilities were turned off on January 31st, given the cold temperatures in February, and that the pipes likely froze within a day or two of that termination date.  On May 10th, your property insurer sends a letter denying coverage, citing paragraph 17 of your policy and stating that its "investigation has shown that proper heat was not maintained in this property and was the ultimate cause of the freezing of pipes and water damage[.]"

Being a Manhattan-based attorney who practices real estate litigation, you sue both your insurer and the independent adjuster in New York County Supreme Court.  The venue of your action is changed on motion to Broome County Supreme, and you eventually agree to discontinue your suit against the independent adjuster and the related tortious interference with contract cause of action of your complaint.  The court denies your insurer's motion for summary judgment, but does dismiss your complaint's third cause of action alleging deceptive business acts and practices, leaving only your breach of contract claim to proceed to a non-jury trial against your insurer, which it does on June 8, 2009.

On these facts, Broome County Supreme Court Justice Ferris Lebous found in favor of Dryden Mutual, the insurer, and dismissed plaintiff's complaint:

Friday, January 22, 2010

Grown Daughter Not a "Resident" of Her Parents' Household, Despite Visiting Often and Still Having a Room with Some Belongings There

UM – CPLR ARTICLE 75 PROCEEDING – HOUSEHOLD "RESIDENT"
Matter of State Farm Mut. Auto. Ins. Co. v. Bonifacio
(2nd Dept., decided 1/19/2010)

Respondent lived most of her life at her parents' residence in Yorktown Heights until she graduated from college in 2005. Shortly afterwards, in September of that year, she rented an apartment in Manhattan with two other people. Two months later, the respondent began employment in Manhattan where she worked five days a week, 11 to 12 hours a day. More than two years later, after spending a Sunday afternoon with some friends near her hometown, the respondent was struck by a car while crossing Route 9A in Ardsley.

Respondent made a claim for uninsured motorists (UM) coverage benefits to State Farm, her mother's personal auto insurer.  State Farm denied UM coverage based on its conclusion that she did not qualify as an "insured" for UM coverage purposes because she was no longer a a resident of her parents' household at the time of the accident.  The respondent demanded arbitration of her UM claim, and State Farm commenced this special proceeding for a permanent stay of that arbitration.  After conducting an evidentiary hearing, Westchester Supreme denied State Farm's petition and directed that the parties proceed to arbitration.  State Farm appealed.

In REVERSING the lower court's order, the Second Department ruled that the evidence presented at the hearing established that the respondent did not reside in her mother's household at the time of the accident and, thus, was not a covered person under the subject policy:
A person's status as a resident of an insured's household "requires something more than temporary or physical presence and requires at least some degree of permanence and intention to remain" (Matter of State Farm Mut. Auto. Ins. Co. v Nicoletti, 11 AD3d 702, 702 [internal quotation marks omitted]; see Lindner v Wilkerson, 2 AD3d 500, 501-502; Fennell v New York Cent. Mut. Fire Ins. Co., 305 AD2d 452, 453; Government Empls. Ins. Co. v Paolicelli, 303 AD2d 633, 633; Matter of New York Cent. Mut. Fire Ins. Co. v Bonilla, 269 AD2d 599; New York Cent. Mut. Fire Ins. Co. v Kowalski, 195 AD2d 940, 941; see also Matter of Aetna Cas. & Sur. Co. v Gutstein, 80 NY2d 773, 775; Matter of Aetna Cas. & Sur. Co. v Panetta, 202 AD2d 662). The issue of residency is a question of fact to be determined at a hearing (see Government Empls. Ins. Co. v Paolicelli, 303 AD2d at 633; Matter of American Natl. Prop. & Cas. Co. v Chulack, 265 AD2d 550). Based on the evidence presented here, we disagree with the hearing court's finding that the respondent resided in the household of the petitioner's named insured, the respondent's mother, at the time of the accident.
* * * * * 
Although the respondent testified at the hearing that she visited her parents at the Yorktown residence at least once a month, "most often more," and that her parents maintained a room for her there where she kept some of her personal belongings, the respondent was emancipated from her parents, paid rent at the Manhattan residence, filed her own tax returns, and was no longer a dependent on her parents' tax returns. Evidence that the respondent's driver's license still listed her parents' address as her home address, that she possessed a key to her parents' home and, in 2008, voted in Yorktown Heights, and that she previously opened a bank account at a Chase branch in Yorktown Heights, was insufficient to establish that the respondent was residing at the Yorktown residence of her parents at the time of the accident (see Matter of Aetna Cas. & Sur. Co. v Gutstein, 80 NY2d 773; Matter of Aetna Cas. & Sur. Co. v Panetta, 202 AD2d 662; D'Amico v Pennsylvania Millers Mut. Ins. Co., 72 AD2d 783, affd 52 NY2d 1000; cf. Dutkanych v United States Fid. & Guar. Co., 252 AD2d 537). Moreover, physical presence in the parents' home was insufficient to establish residency, particularly where, as here, the respondent had previously established another legal residence in Manhattan and signed a new one-year lease at that residence only two months before the accident (see Hollander v Nationwide Mut. Ins. Co., 60 AD2d 380, 383; Appleton v Merchants Mut. Ins. Co., 16 AD2d 361; Allstate Ins. Co. v Jahrling, 16 AD2d 501).

Based on the evidence presented, the respondent was not a covered person under the subject policy and, therefore, the petition to permanently stay the arbitration should have been granted.
Factors offered in support of respondent's ultimately unsuccessful argument that she was a resident:
  • her parents kept a room with some of her belongings in their home for her;
  • she visited them once a month or more;
  • her driver's license still listed her parents' address as her home address;
  • she had a key to her parents' home;
  • in the year of the accident, she voted in Yorktown Heights, where her parents lived; and
  • she previously opened a bank account at a Chase branch in Yorktown Heights.
Factors cited by the court for its conclusion that respondent was not a resident:
  • she worked in Manhattan, five days a week, 11-12 hours a day;
  • she had previously established a legal residence in Manhattan;
  • she had just signed a one-year lease for that Manahattan apartment, two months before the accident;
  • she was emancipated from her parents;
  • she paid rent at the Manhattan residence; and
  • she filed her own tax returns and was no longer claimed as a dependent on her parents' tax returns.

SUM Lack of Proof

SUM – CPLR ARTICLE 75 PROCEEDING – CHANGE ENDORSEMENT – OFFICE MAILING PROCEDURE – LACK OF PROOF
Matter of Government Employees Ins. Co. v. Brunner
(2nd Dept., decided 1/19/2010)

GEICO brought this CPLR article 75 special proceeding for a permanent stay of the arbitration of respondent's supplementary uninsured motorists (SUM) coverage claim.  In support of its application, GEICO contended the SUM limits of the policy under which respondent had claimed SUM coverage had been reduced by a policy change endorsement to $25,000/$50,000.   After an evidentiary hearing on the issue, Suffolk Supreme denied GEICO's petition, dismissed the proceeding, and directed the parties to proceed to arbitration.  GEICO appealed.

In AFFIRMING the lower court's judgment, the Second Department agreed that GEICO had failed to prove that the change endorsement was mailed to the policyholder prior to the accident:
The Supreme Court properly concluded that the petitioner failed to meet its burden of proving that an insurance policy endorsement dated October 21, 2005, which purportedly reduced the limits applicable to the uninsured/underinsured motorist endorsement of the relevant policy to the sums of $25,000 per person and $50,000 per accident, was properly mailed to the policy holder prior to the date of the subject accident. The underwriter who testified at the hearing failed to offer "evidence of an office [procedure] geared to insure the likelihood that [the endorsements are] always properly addressed and mailed" (Federal Ins. Co. v Kimbrough, 116 AD2d 692, 692; see Nassau Ins. Co. v Murray, 46 NY2d 828, 829-830; Matter of Transcontinental Ins. Co. v Gibbs, 34 AD3d 488; New York & Presbyt. Hosp. v Allstate Ins. Co., 29 AD3d 547; Lumbermens Mut. Cas. Co. v Gamble, 250 AD2d 540; Matter of Allstate Ins. Co. v Ramirez, 208 AD2d 828, 830; Sea Ins. Co. v Kopsky, 137 AD2d 804; Anzalone v State Farm Mut. Ins. Co., 92 AD2d 238; cf. Kaufmann v Leatherstocking Coop. Ins. Co., 52 AD3d 1010, 1012; Morales v Yaghoobian, 13 AD3d 424, 425; Matter of Metlife Auto & Home v Pennella, 10 AD3d 726).

Wednesday, January 20, 2010

Late Notice Disclaimer Letter Ruled Ineffective Against Insureds to Whom It Was Not Specifically Addressed

CGL – INEFFECTIVE DISCLAIMER – INSURANCE LAW § 3420(D)(2)
Maughn v. RLI Ins. Co.
(2nd Dept., decided 12/22/2009)

New York case law is legion, as they say,  that a liability insurer's non-compliance with New York Insurance Law § 3420(d)(2) can excuse the insured's breach of the policy's notice condition.  Add this decision to that legion. 

RLI Insurance Company insured Fay Neiss, Neiss Management Corp., and 91-01 through 91-11 Church Limited Liability, all at the same mailing address.  Within three weeks of receiving late notice of an accident involving the insureds, RLI Insurance Company sent a disclaimer letter to the insureds' mailing address but specifically addressed only to Neiss Management.  The underlying plaintiff brought this action for a judgment declaring that RLI was obligated to defend and indemnify all three insureds in his underlying personal injury action. The insureds moved and RLI cross-moved for summary judgment.  Kings Supreme granted the insureds' motion and denied RLI's cross motion, and RLI appealed.  

In MODIFYING the order appealed from, the Second Department ruled that RLI was not obligated to defend or indemnify Neiss Management, but it was obligated to defend and indemnify the other two insureds because its disclaimer letter had not been specifically addressed to them, even though it was sent to their address:
On their motion for summary judgment, the defendants Fay Neiss and 91-01 through 91-11 Church Limited Liability (hereinafter Church) met their burden of establishing that the defendant RLI Insurance Company (hereinafter RLI) did not properly disclaim coverage as to them by submitting RLI's disclaimer letter, which was not addressed to them specifically (see Matter of Eveready Ins. Co. v Dabach, 176 AD2d 879). In response, RLI failed to raise a triable issue of fact. Athough actual notice of RLI's disclaimer letter may have been sent to the address at which all of the moving defendants were located, the disclaimer was only addressed to the defendant Neiss Management Corp. (hereinafter Management). That disclaimer, therefore, was ineffective as to Fay Neiss and Church, to whom it was not addressed (see Insurance Law § 3420[d][2]), and the Supreme Court properly granted that branch of the motion which was for summary judgment as to those defendants.

However, the Supreme Court erred in granting that branch of the motion which was for summary judgment in favor of Management, and, in effect, denying that branch of RLI's cross motion which was for summary judgment against Management. In support of its cross motion, RLI submitted, inter alia, the disclaimer letter, which was properly addressed and issued to Management, through its building manager, within three weeks of receiving notice of the accident, and established that the notice provided to it by Management was untimely (see DeFreitas v TIG Ins. Co., 16 AD3d 451; Yarar v Children's Museum of Manhattan, 4 AD3d 420, 421; cf. 875 Forest Ave. Corp. v Aetna Cas. & Sur. Co., 30 NY2d 726). Therefore, RLI met its prima facie burden of establishing its entitlement to judgment as a matter of law against Management. In opposition, Management failed to raise a triable issue of fact.
Takeaway Point:   Make sure liability disclaimer and denial letters are specifically addressed to each and every insured to whom or which coverage is being denied, even if all insureds are related and located at the same mailing address. The insertion of a few more characters, spaces and lines into RLI's disclaimer in this case ostensibly would have saved it the cost of defending and potentially indemnifying two of its three insureds in the underlying personal injury action.

Tuesday, January 19, 2010

Mallela Acquaints a Firm with Strange Bedfellows

NO-FAULT – MALLELA DEFENSE – INDEPENDENT CONTRACTOR DEFENSE – DISCOVERY OF PROVIDERS' CORPORATE STRUCTURE RECORDS
Baker, Sanders, Barshay, Grossman, Fass, Muhlstock & Neuwirth, LLC v. Comprehensive Mental Assessment & Med. Care, P.C.
(Sup. Ct., Nassau Co., decided 1/8/2010)

Wasn't it William Shakespeare who wrote in The Tempest, "Mallela acquaints a man with strange bedfellows"?  Or was that misery? 

In a lengthy decision regarding whether turnabout is indeed fair play, Nassau County Supreme Court Justice Ira Warshawsky ordered the provider PC defendants, former clients of Baker, Sanders, Barshay, Grossman, Fass, Muhlstock & Neuwirth, LLC, now embroiled in cross litigation for fees and alleged legal malpractice damages, to respond to BSBGFM&N's supplemental notice for discovery and inspection of:
(1)  for the period January 2001 through the present, originals, if available, and if not, copies of any and all general ledgers maintained for each defendant;
(2)  for the period of January 2001 through the present, copies of any and all corporate, federal and state tax returns for each defendant;
(3)  for the period of January 2001 through the present originals, or if no originals are available, copies of all bank statements used in connection with the operation of the defendants' businesses;
(4)  for the period of January 2001 through the present, copies of all 1099s or W-2s issued to all employees of, or persons or entities providing services to the defendants;
(5)  for the period of January 2001 through the present, copies of all lease agreements between the defendants and any other person or entities relating to space utilized by the defendants in the operation of their businesses; and
(6)  for the period of January 2001 through the present, copies of all management agreements between the defendants and any other person or entities relating to the operation of their business.
In October, 2007, the defendant PCs commenced an action against BSBGFM&N in Kings County Supreme Court for conversion, breach of contract, and ancillary damages.  In November, 2007, BSBGFM&N commenced an action in Nassau County Supreme Court against the defendant PCs for, among other things, a declaratory judgment, and damages from defendants' alleged breach of contract, quantum merit, retaining lien and tortuous interference with contract.  The actions were consolidated into BSBGFM&N's Nassau County action, with the provider PCs' claims becoming counterclaims.   The court appointed a special referee to supervise the many discovery disputes that arose in the action, and the referee was able to resolve all but the parties' dispute over BSBGFM&N's supplemental demand for discovery and inspection of records relating to the provider PCs' corporate formation and structure.

BSBGFM&N contended that the Mallela defense represented a complete defense to the provider PCs' counterclaims for legal malpractice.  BSBGFM&N asserted that it should be entitled to review documentation that goes to the issue of whether there was a fraudulent corporate structure for the defendant provider PCs, arguing that if it could show that the provider PC defendants were never entitled to no-fault recovery of monies because of their fraudulent corporate structure, then there can be no basis for a legal malpractice claim against BSBGFM&N.  BSBGFM&N also alleged that the defendant provider PCs provided health care services through independent contractors, and therefore, were not entitled to no-fault benefits. According to BSBGFM&N, there could be no legal malpractice claim set forth against it on this basis, as well.

Accusing BSBGFM&N of attempting to "play for another side", the provider PC defendants argued that the "Mallela defense" is available only to insurance carriers as a statutory defense arising out of a claimant's failure to comply with applicable sections of Business Corporation Law, Limited Liability Law and Educational Laws and that there are no reported cases where such a defense against a claim for legal malpractice was deemed valid by a court.  The provider PC defendants further contended that BSBGFM&N's supplemental demands were nothing short of a fishing expedition and that, if permitted, would open a floodgate of baseless inquiries into every expense and disbursement.  Counsel for the provider PC defendants asserted that after "making loud statements of the Defendants' integrity and having made a small fortune off the Defendants' claims for a number of years and signing off on release documents, it is disingenuous and, even improper, for Plaintiff to pursue this frivolous and dilatory demand for voluminous documents to examine Pincusovich Defendants' corporate and financial affairs from 2001 up to date".

After taking briefs from the parties on the discovery dispute, which are outlined in his decision, Justice Warshawsky reviewed the Mallela and independent contractor defenses, found that the records BSBGFM&N sought in its supplemental notice for discovery and inspection were material and necessary to its defense against the provider PCs' legal malpractice claims, and directed the provider PCs to respond to BSBGFM&N's supplemental demand within 35 days of the court's decision.  Justice Warshawsky concluded:
Nothwithstanding the Pincusovich Defendants' argument to the contrary, it is the view of the Court that Baker Sanders has not waived its right to assert the Mallela defense. This Court is in agreement with counsel for the Plaintiff in that the inquiry is not whether certain defenses are available today, i.e., after the execution of the release, but rather whether the defenses were available during the underlying litigation. As discussed, supra, Baker Sanders should be permitted to defend the case within a case scenario, and thus, the requested documentation is material and necessary.

The Court is troubled by the possibility that plaintiff law firm knew or believed that its client was unlawfully collecting benefits under the no-fault laws when it assisted in said collection efforts.  However, the impact of that "fact" on the malpractice case, or even the main action, will be determined at a later time.
A tempest, indeed.

Split Panel Reverses and Grants Summary Judgment to CGL Insurer on Employee Exclusion for Injuries to "Contracted For" Worker

CGL – EMPLOYEE INJURY EXCLUSION – DEFINITION OF "EMPLOYEE" – "CONTRACTED FOR" WORKER
Nautilus Ins. Co. v. Matthew David Events, Ltd.
(1st Dept., decided 1/14/2010)

Bloomberg, LLC and Bloomberg, Inc., hired Matthew David Events, Ltd. to plan, design and manage a corporate party sponsored by Bloomberg.  MDE contracted with United Stage Service, Inc. to perform work, labor and services for the Bloomberg event. Timothy Shea, then an employee of Stage, worked as a stagehand at the event. While working the party, Shea allegedly was injured when he fell off a utility vehicle in which he had been riding.

Two days shy of the 3-year SOL, Shea commenced a personal injury action against Bloomberg, MDE, and others.  The following day, MDE notified Nautilus, its commercial liability insurer, of the accident and lawsuit.  Nautilus immediately disclaimed liability coverage on the grounds that MDE failed to provide timely notice of the claim and that Shea's injury was excluded by the policy's employee injury exclusion, which negated coverage for bodily injury to an "employee" of the insured "arising out of and in the course of: (a)[e]mployment by the insured; or (b)[p]erforming duties related to the conduct of the insured's business."  The policy defined "employee" as including but not limited to, any person or persons "hired by, loaned to, leased to, contracted for, or volunteering services to the insured, whether or not paid by the insured."  Nautilus then commenced this declaratory judgment action to confirm its denial of defense and indemnification coverage to MDE. 

Prior to the commencement of discovery, Nautilus moved for summary judgment and for a declaration that it was not  obligated to defend or indemnify MDE and/or Shea in the underlying action, and to dismiss all counterclaims against it. In opposition, MDE argued that that the language of the employee exclusion was ambiguous since it was not clear whether or not employees of a contractor were included within the scope of the exclusion.  MDE also argued that Nautilus' motion was premature since discovery had not yet commenced and it was necessary to determine the relationship between MDE and Stage.  Nautilus replied that the language of the employee exclusion was clear, and since Shea was an "employee" of MDE at the time of the accident, liability coverage under the policy was precluded.

New York County Supreme Court denied Nautilus' motion and, upon searching the record, granted reverse summary judgment to defendants dismissing the employee exclusion-based cause of action of Nautilus' DJ complaint.  The motion court found that it was not clear whether Shea, as Stage's employee, would be a person "contracted for" by MDE and excluded from coverage.  Because the policy did not define the phrase "contracted for," the motion court concluded that it was susceptible to more than one meaning, noting that, for instance, the phrase could be narrowly defined to include only a temporary worker whom MDE contracted from a temporary employment agency.  Nautilus appealed.  

In a 3-2 split decision, the First Department REVERSED the order appealed from and granted summary judgment to Nautilus, finding that the employee injury exclusion was broad and unambiguous and applied to negate liability coverage to MDE for the underlying personal injury action.  The three-justice majority found:
In this case, Nautilus met its burden of demonstrating that the exclusion provision relied upon by the court to dismiss the third cause of action clearly applies to the underlying action. The policy contained an "Employee Exclusion," which excluded from coverage bodily injury to an "employee" of the insured "arising out of and in the course of: (a)[e]mployment by the insured; or (b)[p]erforming duties related to the conduct of the insured's business." The employee exclusion is very broad. The exclusion defined "employee" as including but not limited to, any person or persons "hired by, loaned to, leased to, contracted for, or volunteering services to the insured, whether or not paid by the insured." Moreover, the exclusion was applicable whether the insured was liable as an employer or in any other capacity and applied to any obligation to share damages with or repay someone else who must pay damages because of the injury. 

We agree with Nautilus that giving the words "contract for" their plain and ordinary meaning, MDE's retention of a subcontractor to perform work for the Bloomberg event at Randalls' Island constituted services for the insured and thus falls within the scope of the employee injury exclusion. Indeed, the "contract for" language of the Employee Exclusion clearly contemplates that a contractor could be retained by a party other than the insured on the insured's behalf, and that an injury to that contractor or its employee would fall within the scope of the exclusion (see U.S. Underwriters Ins. Co. v Beckford, 1998 WL 23754, 1998 US Dist LEXIS 574 [ED NY 1998]). The argument that this language may be interpreted to apply only to persons who contract directly to work for MDE renders the explanatory language that the term "employees" includes those providing "services to the insured, whether or not paid by the insured" a nullity. It is a well settled principle of contract law that a court should not adopt a construction of a contract "which will operate to leave a provision of a contract . . . without force and effect. An interpretation that gives effect to all the terms of an agreement is preferable to one that ignores terms or accords them an unreasonable interpretation" (Ruttenberg v Davidge Data Sys. Corp., 215 AD2d 191, 196 [1995] [internal quotation marks and citations omitted]; see also Consolidated Edison Co. of NY, Inc. v United Coastal Ins. Co., 216 AD2d 137 [1995], lv denied 87 NY2d 808 [1996]).

Writing for the two-justice dissent, Justice Mazzarelli focused on the prepositions used in the policy's definition of "employee" and found that definition and its related exclusion to be ambiguous, opining:
The exclusion invoked by plaintiff is ambiguous because it is eminently reasonable to interpret the definition in the endorsement of the term "employee" as extending only to those who are engaged directly by the insured. Such an interpretation is based on the policy definition which describes "employee[s]" as persons having been "hired by," "loaned to,", "leased to," and "volunteering services to" the insured. The emphasized prepositions strongly suggest the necessity for privity between the insured and the person being employed by it if a claim is to be excluded.
* * * * *
Again, the overall context of the definition of "employee" suggests that the parties intended that only those engaged directly by the insured would be covered by the exclusion. Indeed, this is consistent with the notion that at least one of the purposes of hiring a subcontractor is to insulate oneself from liability. The interpretation urged by plaintiff would defeat this purpose by depriving the insured of coverage for injuries to employees of subcontractors.

In addition, the phrase "a person . . . contracted for . . . the insured" is ambiguous on its face. Indeed, a reasonable person, if he or she could make any sense of the phrase at all, would be confused as to who had contracted with whom. Even if some sensible meaning could be ascribed to the phrase, reasonable people could differ about what it means. One person could, like plaintiff, interpret it as referring to a person who, like Shea, works for a company with which the insured enters into a contract. However, another person could, as Supreme Court did, interpret the phrase as referring to a person furnished directly to the insured pursuant to a contract entered into between the insured and third-party, such as a temporary employment agency. Because the term is reasonably susceptible of more than one interpretation, it is ambiguous (see Chimart Assoc. v Paul, 66 NY2d 570, 573 [1986]).
A reversal with two dissents resulting in a final judgment, as in this case, means an appeal by right to the New York Court of Appeals.  If MDE exercises that right, look for a decision from the Court of Appeals some time later this year. 

Insureds' Deceptive Acts and Practices Claim Against Their Homeowners Insurer Survives Motion to Dismiss. Broad Discovery Ordered.

HOMEOWNERS – INSURED'S OBLIGATION TO PROTECT INSURER'S SUBROGATION RIGHTS – GENERAL BUSINESS LAW § 349 – PUNITIVE DAMAGES – ATTORNEY'S FEES – DISCOVERY
Wilner v. Allstate Ins. Co.
(2nd Dept., decided 1/12/2010)

New York property insurers better sit up and pay attention to this decision.  In combination with the erosion of other longstanding common law rules regarding bad faith and consequential damages, this decision augurs poorly for avoiding expansive claims and expansive discovery in traditional first-party, breach of contract actions. Trouble is now spelled W-I-L-N-E-R.

Allstate insured the Wilners under a Deluxe Plus Homeowners' Policy.  On October 8, 2005, while that policy was in effect, a storm allegedly caused a hillside on the plaintiffs' property in the Village of Roslyn, New York, to collapse, destroyed their retaining wall, felled several trees, and caused other damage.  The Wilners' policy contained a fairly standard provision regarding protecting Allstate's subrogation rights:
When we pay for any loss, an insured person's right to recover from anyone else becomes ours up to the amount we have paid. An insured person must protect these rights and help us enforce them. You may waive your rights to recover against another person for loss involving the property covered by this policy. This waiver must be in writing prior to the date of loss.
The Wilners submitted a claim for coverage to Allstate, which they alleged Allstate deliberately refused timely to decide, forcing them to commence a lawsuit against the Village before the applicable statute of limitations expired in order to protect Allstate's potential subrogation interests.  In September 2007, the Wilners also commenced this lawsuit against Allstate, alleging in three, separate causes of action:
(1)  that Allstate breached the contract by refusing to pay the amounts due to them under their policy of insurance;
(2)  the Allstate breached the contract by refusing to provide them with a defense after the Village instituted criminal proceedings against them for damage to Village property which resulted from the collapse;
(3)  that Allstate violated New York General Business Law § 349 by deliberately refusing to reach a timely coverage decision, thereby compelling the plaintiffs to comply with the policy's provision concerning protecting Allstate's subrogation rights and sue the Village at their own expense; plaintiffs alleged that the Allstate's actions "caused injury to Plaintiffs, and have the potential to harm the public at large" because every Allstate Deluxe Plus Homeowners' Policy contains the provision requiring those insureds to protect Allstate's right to subrogate.  On this case of action plaintiffs sought the recovery of actual and punitive damages and attorney's fees. 
Allstate moved under CPLR 3211(a)(7) to dismiss the second and third causes of action of plaintiffs' complaint, contending that the plaintiffs had failed to allege consumer-oriented conduct, that any act by the defendant was deceptive or misleading in a material way, and that they had been injured as a result of an allegedly deceptive act. In addition, Allstate asserted that the insurance policy did not require an insured to file a lawsuit against anyone, and no reasonable policy holder would conclude that it did.

Plaintiffs opposed Allstate's motion and cross-moved to compel Allstate to provide full, unredacted versions of relevant computer notes, and documents and information pertaining to other claims filed under the Deluxe Plus Homeowners' Policy resulting from the October 2005 storm.

In an order entered October 7, 2008, Nassau County Supreme Court ordered Allstate to:
"produce in camera all property damage claims under the Allstate Deluxe Plus Homeowners Policy for damages resulting from a rain and/or wind storm which occurred on or about October 7, 2005 in Nassau County as well as all claims that resulted in litigation, such documents being limited to property damage claims between October 7, 2005 to January 7, 2007 in Nassau County only."
By order to show cause returnable December 8, 2008, Allstate sought leave to reargue, asserting, among other things, that the order went beyond the scope of the relief sought by the plaintiffs in their cross motion.  Allstate claimed that the plaintiffs sought information regarding claims under the Deluxe Plus Homeowners Policy, while the court's order compelled production of all property damage claims arising from the storm at issue. Allstate claimed that the requirements of the court's October 2008 order were onerous.

In an order entered January 21, 2009, Nassau County Supreme Court granted that branch of Allstate's motion which sought dismissal of the second cause of action. The court denied those branches of the defendant's motion which were pursuant to CPLR 3211(a)(7) to dismiss the third cause of action alleging a violation of General Business Law § 349, and to dismiss the demand for punitive damages and attorney's fees, stating that, "at this stage of the proceedings, it [could not] determine that Plaintiffs' cause of action under [General Business Law] § 349 is insufficient as a matter of law."  The court granted the plaintiffs' cross motion to compel discovery.  Allstate appealed.

In AFFIRMING the denial of Allstate's motion to dismiss plaintiffs' General Business Law § 349 cause of action, Justice Dickerson, writing for the Second Department, noted:
The types of goods and services to which General Business Law § 349 applies is expansive. With regard to matters pertaining to insurance, it has been determined to apply to:

Coverage & Rates (see Gaidon v Guardian Life Ins. Co. of Am., 94 NY2d 330 ["out-of-pocket premium payments [for life insurance policies] would vanish within a stated period of time"]; Monter v Massachusetts Mut. Life Ins. Co., 12 AD3d 651 [allegations of misrepresentations concerning terms of Flexible Premium Variable Life Insurance Policies, and deception concerning marketing thereof]; Beller v William Penn Life Ins. Co. of N.Y., 8 AD3d 310 [plaintiff stated General Business Law § 349 cause of action by alleging that the defendant engaged in deceptive practices by increasing the cost of insurance rates without regard to certain flexible factors which would have required the raise to decrease]; Skibinsky v State Farm Fire & Cas. Co., 6 AD3d 975 [allegations of intentional misrepresentation concerning coverage of a insurance policy provided to plaintiff]; Brenkus v Metropolitan Life Ins. Co., 309 AD2d 1260 [amount of life insurance coverage]; Batas v Prudential Ins. Co. of Am., 281 AD2d 260; Makastchian v Oxford Health Plans, 270 AD2d 25 [allegations of deceptive practices that would cause subscribers to believe that they still had health insurance when coverage had already been cancelled]);

Provision Of Defense Counsel (see Elacqua v Physicians' Reciprocal Insurers, 52 AD3d 886 ["This threat of divided loyalty and conflict of interest between the insurer and the insured is the precise evil sought to be remedied . . . hence the requirement that independent counsel be provided at the expense of the insurer and that the insurer advise the insured of this right. Defendant's failure to inform plaintiffs of this right, together with plaintiffs' showing that undivided and uncompromised conflict-free representation was not provided to them, constitutes harm within the meaning of General Business Law § 349"]);

Claims Procedures (see Shebar v Metropolitan Life Ins. Co., 25 AD3d 858 [allegations that "despite promises to the contrary in its standard-form policy sold to the public, defendant made practice of not investigating claims for long-term disability benefits in good faith, in a timely fashion, and in accordance with acceptable medical standards . . . when the person submitting the claim . . . is relatively young and suffers from a mental illness'"]; Makuch v New York Cent. Mut. Fire Ins. Co., 12 AD3d 1110; Acquista v New York Life Ins. Co., 285 AD2d 73 ["allegation that the insurer makes a practice of inordinately delaying and then denying a claim without reference to its viability, may be said to fall within the parameters of" an unfair or deceptive practice]; Rubinoff v U.S. Capitol Ins. Co., NYLJ, May 10, 1996, at 31, col 3 [automobile insurance company fails to provide timely defense to insured as promised]).
Justice Dickerson then continued his analysis by holding that plaintiffs' complaint adequately stated a cause of action under General Business Law § 349 by alleging:
  • consumer-oriented conduct ("Consequently, any consumer holding this policy, whose loss is potentially attributable to a third party, is required to protect the defendant's rights. Therefore, the conduct complained of has a "broad impact on consumers at large" and is thus consumer-oriented"); 
  • materially misleading acts ("In essence, the plaintiffs are alleging that the defendant purposely failed to reach a decision on the merits of their insurance claim in order to force the plaintiffs to bring a suit against the Village before the statute of limitations expired, because, if they did not do so, the defendant could refuse reimbursement of the claim on the ground that the plaintiffs had failed to protect the defendant's subrogation rights (citation omitted). Presumably, the purpose of this alleged conduct would be to save the defendant money; if the plaintiffs initiate the suit, the plaintiffs have to pay for it, whereas if the defendant initiates its own suit, the cost will fall upon the defendant. Accepting the plaintiffs' allegations as true (citations omitted), the plaintiffs have successfully pleaded conduct on the part of the defendant which was misleading in a material way."); and
  • injury ("Here, the plaintiffs allege that, as a result of the defendant's conduct, they were forced to 'incur the costs and expense of hiring an attorney to prevent forfeiture of coverage for a covered loss.' ... The plaintiffs alleged that they were forced to pay for an attorney, and thus adequately pleaded damages under General Business Law § 349").
In discussing plaintiffs' recoverable damages under General Business Law § 349, Justice Dickerson pointed out that the statute permits the recovery of actual, treble and punitive damages.  With respect to plaintiffs' claim for punitive damages, without citing to and in seeming departure from earlier New York insurance case law precedent, the court held:
"An award of punitive damages is warranted where the conduct of the party being held liable evidences a high degree of moral culpability, or where the conduct is so flagrant as to transcend mere carelessness, or where the conduct constitutes willful or wanton negligence or recklessness'" (Pellegrini v Richmond County Ambulance Serv., Inc., 48 AD3d 436, 437, quoting Buckholz v Maple Garden Apts., LLC, 38 AD3d 584, 585). Initially, it should be noted that the plaintiffs do not seek punitive damages on their breach of contract claim, but only on their claim under General Business Law § 349. Under that claim, they allege that the defendant intentionally did not reach a final decision on their claim, so as to force them to commence a suit against the Village. If that is true, and for purposes of a CPLR 3211(a)(7) motion to dismiss, "all allegations must be accepted as true" (Pacific Carlton Dev. Corp. v 752 Pac., LLC, 62 AD3d at 679; see Leon v Martinez, 84 NY2d at 87), such conduct may be considered to be "so flagrant as to transcend mere carelessness'" (Pellegrini v Richmond County Ambulance Serv., Inc., 48 AD3d at 437, quoting Buckholz v Maple Garden Apts., LLC, 38 AD3d at 585). Consequently, the plaintiffs' claim for punitive damages should not be dismissed.
On plaintiffs' claim for attorney's fees, the Second Department ruled that "[s]ince General Business Law § 349(h) provides that the court has the discretion to award reasonable attorney's fees, the plaintiffs' request for attorney's fees should not be dismissed."

Finally, with respect to the lower court's order compelling Allstate to produce information and materials regarding certain property damage claims, Justice Dickerson agreed with plaintiffs that since Allstate's objections to plaintiffs' discovery demands were not served within 20 days of service as required by CPLR 3122(a), the appellate court's review was limited to determining whether the requested material was privileged under CPLR 3101 or the demand was palpably improper.  Finding neither to be the case, Justice Dickerson concluded:
The defendant states that the information sought is likely to contain privileged information. However, this conclusory statement is insufficient to establish that the information sought is, in fact, privileged. Moreover, there is nothing "palpably improper" about the plaintiffs' demand. Here, the court has already narrowed the plaintiffs' request and ordered the defendant to produce documents relating to 375 claims made in connection with the October 2005 storm.

The defendant argues that it was improper for the court to allow discovery to bolster what is otherwise an insufficient cause of action. However, as discussed above, the cause of action was sufficiently pleaded. The information sought, regarding claims the defendant has handled for other insureds, relates to the plaintiffs' attempt to establish that the defendant has engaged in a pattern of deception, and, thus, the request is proper (see Gillen v Utica First Ins. Co., 41 AD3d 647, 647 [information sought "was relevant to the plaintiff's cause of action alleging a violation of General Business Law § 349"]).
One need not be prescient to predict that this decision will become the model upon which policyholders will construct future General Business Law § 349 causes of action and their associated claims for punitive damages and attorney's fees.  For now, property insurers in New York may wish to consider clarifying what the Second Department apparently believes is an ambiguous standard subrogation protection provision of a homeowners policy.   At a point in time when Allstate had not yet reached its coverage decision, would it have mattered if Allstate had sent a letter to the Wilners advising them that they were not obligated to sue the Village in order to protect Allstate's then only potential subrogation rights?

Monday, January 18, 2010

Four-Month Delay in Providing Notice Is Not "As Soon As Practicable", But Insured Raises Triable Issue of Fact As to Its Good-Faith Belief of Nonliability

CGL – LATE NOTICE – FOUR-MONTH DELAY – GOOD-FAITH BELIEF OF NONLIABILITY
Bauerschmidt & Sons, Inc. v Nova Cas. Co.
(2nd Dept., decided 1/12/2010)

Nova denied liability coverage to plaintiff, its insured, based on the insured's four-month delay in notifying Nova of the underlying incident.  The insured commenced this declaratory judgment action for defense and indemnification coverage, and Nova moved for summary judgment.  Queens Supreme denied Nova's motion, and it appealed.

In AFFIRMING the lower court's denial of Nova's motion, the Second Department held that although Nova had made a prima facie showing of entitlement to judgment as a matter of law based on the plaintiff's approximately four-month delay in notifying Nova of the underlying incident, in opposition, the plaintiff raised a triable issue of fact as to whether its delay was reasonably based on a good-faith belief of nonliability.

The denial of Nova's motion comports with the general rule that "[o]rdinarily, the question of whether the insured had a good faith belief in nonliability, and whether that belief was reasonable, presents an issue of fact and not one of law[.]"

Wednesday, January 13, 2010

Ain't It Tweet -- The New York State Insurance Department and Other Insurance Industry Tweeters


Some of you know that Coverage Counsel tweets @CoverageCounsel.  The New York State Insurance Department recently entered the twittershere and is now tweeting @NYSInsuranceDep.  The Department also has a Facebook page, if FB is your thing. 

I know most of you don't tweet.  Yet.  Google Twitter and the first search result pronounces that "Twitter is without a doubt the best way to share and discover what is happening right now."  I suppose that depends on with whom you ordinarily share what is happening right now.  Coverage Counsel uses Twitter to microblog or republish these posts and case decisions I don't post, and to monitor and retweet insurance industry news. To do so, @CoverageCounsel currently follows these industry tweeters:


@ijournal





@cjournal





@ClaimsMagazine





@NYSInsuranceDep





@mynewmarkets





@ISOnews





@PCIAA





@IIIindustryblog





@ClaimsCoach





@namicnews





@FCSBulletins





@InsWeb





Best way I've found of discovering new tweeters to follow is to look at those I follow follow.  If anyone knows of any other insurance industry tweeters Coverage Counsel should follow, please leave me the Twitter account name in a comment to this post. 

If you're new to Twitter and the idea of making valuable use of multiple tweets seems unattainable or daunting to you, I recommend you download and use a Twitter desktop application or platform such as TweetDeck, Seesmic, or Twhirl to organize those you follow.   Makes it much easier to keep everything straight by organizing your tweets into columns. 

My law firm is now tweeting firm news.  You can follow us @MuraStorm.

Tuesday, January 12, 2010

To Infinity and Beyond, or Actually Before -- Kings Civil Rules that No-Fault Insurer Not Required to Wait 30 Days After Initial IME Letter to Send Second IME Letter

NO-FAULT – TIMING OF FOLLOW-UP VERIFICATION – INSURANCE LAW § 5106(A) – 11 NYCRR § 65-3.6(B)
Perfect Point Acupuncture, P.C. a/a/o Jocelyn Louis v. Auto One Ins. Co.
(NYC Civil Ct., Kings Co., decided 1/6/2010)

Just under two months ago, the Appellate Division, Second Department, held in Infinity Health Products, Ltd. v Eveready Ins. Co., 67 AD3d 862, that a health care provider which ignores the no-fault insurer's verification requests altogether is estopped from claiming that the insurer's early or premature follow-up verification request -- sent on Day 27 in that case -- precludes any defenses from being asserted, including the defense that the provider's action is premature because it did not respond to the insurer's verification requests.

In this case, the plaintiff provider argued that by not waiting 30 days from the mailing of its initial IME request letter to send the second IME letter -- that second letter having been mailed only 17 days after the first -- Auto One violated  11 NYCRR § 65-3.6(b), rendering its subsequent IME no-show-based denial defective.  In rejecting that argument, Kings County New York City Civil Court Judge Peter Sweeney cited Infinity Health Products and held:
The [Infinity Health Products] Court held that "inasmuch as the plaintiff did not respond to either of the verification requests, the 30-day period within which the defendant was required to pay or deny the claim did not commence to run . . . and that . . . plaintiff's action [was therefore] premature" (Id.). The Court further held that "plaintiff was not entitled to summary judgment on the complaint, and the defendant's cross motion for summary judgment dismissing the complaint should have been granted . . .without prejudice to commencement of a new action" (Id. [citations omitted]).

In this Court's view, the holding in Infinity Health Products, Ltd. requires dismissal of the within action, without prejudice to its recommencement. Here, as in Infinity Health Products, Ltd., it would be inequitable to award summary judgment to the plaintiff, whose assignor ignored two verification requests, merely because the defendant did not strictly adhere to the time frames set forth in 11 NYCRR 65-3.6[b] for mailing out second requests for additional verification of a claim . It would be incongruous to conclude that 11 NYCRR 65-3.6[b] mandates a result that would penalize the defendant for its diligent attempts to obtain additional verification of the claims and reward plaintiff whose assignor ignored the requests.

This court recognizes that this case is not on all fours with Infinity Health Products, Ltd.. In Infinity Health Products, Ltd., the defendant sent its second written verification request a mere 3 days before the expiration of a full 30 days after the first verification request had been sent. Here, the second written verification request was sent out 13 days before the expiration of the 30 day period referred to in 11 NYCRR 65-3.6[b]. Under the facts and circumstances of this case, however, this distinction does not warrant a contrary result.

When plaintiff's assignor failed to appear for the IME on September 6, 2009, the re-scheduling letter was mailed to her on the following day. Unlike in Infinity Health Products, Ltd., once plaintiff's assignor failed to appear for the IME, there is no legitimate reason why defendant should have waited a full 30 days from the mailing of the first letter to mail out the re-scheduling letter. Indeed, had defendant waited a full 30 days, it would have had acted in contravention of one of the primary policies underlying the "no-fault law"; which is "to promote the expeditious handling of verification requests and prompt claim resolution" (Infinity Health Products, Ltd., supra, 67 AD3d 862, 2009 NY Slip Op 08585 at 2). Further, the Court notes that when plaintiff's assignor failed to appear for the re-scheduled IME, 30 days had elapsed from the time that the first scheduling letter had been sent to her.
The absurdity of an argument can sometimes cause a court to favor the opposing position.  This "early" or "premature" follow-up verification argument has always seemed counterintuitive and contrary to the spirit of Regulation 68 to me.  Apparently it does to Judge Sweeney, also.

Monday, January 11, 2010

Old Policy, Old Law -- CGL Insurer Not Required to Show Prejudice from Insured's Late Notice

CGL – LATE NOTICE – NO PREJUDICE RULE – GOOD FAITH BELIEF IN NONLIABILITY
Ponok Realty Corp. v. United Natl. Specialty Ins. Co.
(2nd Dept., decided 1/5/2010)

Plaintiff, insured landlord, received notice of its tenant's property damage claim more than one year before it notified its CGL insurer, United National Specialty Insurance Company, of that claim.  UNSIC disclaimed liability coverage based on the plaintiff's late notice, and plaintiff commenced this declaratory judgment action for defense and indemnification coverage, arguing: (1) that UNSIC was required to show that plaintiff's delayed reporting prejudiced UNSIC; and (2) that plaintiff's late notice should be excused because it had a good faith belief in nonliability.  Queens Supreme granted UNSIC's motion for summary judgment and plaintiff appealed.

In affirming Supreme Court's order, the Second Department noted that New York's new "prejudice rule" of New York Insurance Law § 3420(c)(2)(A) applies only to policies issued or delivered in New York State on or after January 17, 2009.  The policy in this case was effective from October 2003 to October 2004:
The plaintiff's argument that the "prejudice" rule articulated in Insurance Law § 3420(c)(2)(A), governs this case is unavailing. A 2008 amendment to Insurance Law § 3420(c)(2)(A) (see L 2008, ch 388, § 4) provides that where "an insurer alleges that it was prejudiced as a result of a failure to provide timely notice, the burden shall be on . . . the insurer to prove that it has been prejudiced" if the notice was provided within two years of the time required under the policy (see Insurance Law § 3420[c][2][A][i]). However, it is clear from section 8 of the act amending Insurance Law § 3420 that the amendments were to "apply to policies issued or delivered in this state on or after [January 17, 2009]" (McKinney's Cons Laws of NY, Book 27, Insurance Law § 3420, 2009 Pocket Part, at 15, Historical and Statutory Notes, L 2008, ch 388, § 8; see generally Matter of Auerbach v Board of Educ. of City School Dist. of City of N.Y., 86 NY2d 198, 204). The insurance policy issued by the defendant to the plaintiff was effective from October 3, 2003, until October 3, 2004. Since the policy was issued before the effective date of the relevant amendment to Insurance Law § 3420, the amended version of that section does not apply to the subject insurance policy.
The Second Department also rejected plaintiff's argument that it gave notice of the tenant's claim to UNSIC "as soon as practicable" and found that although the reasonableness of an insured's asserted good faith belief in nonliability generally is a question of fact for the fact-finder, plaintiff in this case had failed to raise a triable issue of fact as to whether its belief that its tenant would not file a claim was reasonable:
In general, the existence of a good faith belief that the injured party would not seek to hold the insured liable, and the reasonableness of such belief, are questions of fact for the fact-finder (see Genova v Regal Mar. Indus., 309 AD2d at 734; C.C.R. Realty of Dutchess v New York Cent. Mut. Fire Ins. Co., 1 AD3d at 305). The burden of demonstrating the reasonableness of the excuse lies with the insured (see Genova v Regal Mar. Indus., 309 AD2d at 734). Nevertheless, summary judgment may be awarded to the insurer if, construing all inferences in favor of the insured, the evidence establishes, as a matter of law, that the insured's belief in nonliability was unreasonable or in bad faith (see 120 Whitehall Realty Assoc., LLC v Hermitage Ins. Co., 40 AD3d at 721; Genova v Regal Mar. Indus., 309 AD2d at 734).

Here, the defendant established its prima facie entitlement to judgment as a matter of law by demonstrating that it was not notified of the subject property damage claim until more than one year had elapsed since the plaintiff received notice of such claim from its tenant (see Great Canal Realty Corp. v Seneca Ins. Co., Inc., 5 NY3d at 743; Sputnik Rest. Corp. v United Natl. Ins. Co., 62 AD3d at 689; 120 Whitehall Realty Assoc., LLC v Hermitage Ins. Co., 40 AD3d at 721; Genova v Regal Mar. Indus., 309 AD2d at 734). In opposition, the plaintiff failed to raise a triable issue of fact as to whether its belief that its tenant would not file a claim was reasonable. In construing all inferences in favor of the insured, the evidence established, as a matter of law, that the plaintiff's belief in nonliability was unreasonable (see 120 Whitehall Realty Assoc., LLC v Hermitage Ins. Co., 40 AD3d at 721; Genova v Regal Mar. Indus., 309 AD2d at 734). Accordingly, the Supreme Court properly granted the defendant's motion for summary judgment.
If I only had a dollar for every time I've seen an appellate court remit a DJ matter back to the motion court for entry of a judgment. Remember folks, declaratory judgment actions end in judgments, not orders.

Thursday, January 7, 2010

I'm Back

The holidays, trial preparation, and a civil arson trial in federal court in Syracuse that ended yesterday have occupied my blogging time since my last post on Christmas Eve, but I'm now back.  Posts will resume later today.