Tuesday, December 28, 2010

Federal Appeals Court Rules that "Executed" Means Signed or Fully Performed. Certificate of Insurance Question Certified to New York Court of Appeals.

10 Ellicott Square Court Corp. v. Mountain Valley Indem. Co.

(2nd Cir. US Ct. Apps., decided 12/23/2010)

Plaintiffs were the owner and construction manager for a commercial building in Buffalo, New York.  On August 14, 2003, they contracted with Ellicott Maintenance, Inc., to perform some interior demolition at the building.  The construction agreement required Ellicott Maintenance to procure and maintain $5,000,000 in public liability insurance for any legal liabilities arising out of the demolition project, which was to be primary to the building owner's own liability insurance.  The construction agreement also required that Ellicott Maintenance obtain, prior to the commencement of work, "Certificates of Insurance naming [the plaintiffs] as additional insureds."  Representatives of the plaintiffs and Ellicott Maintenance did not actually sign the agreement until September 12, 2003

At the time Ellicott Maintenance entered into the construction contract with the plaintiffs in August, it had in place a $1 million per occurrence primary CGL policy and a $2 million per occurrence umbrella policy with defendant Mountain Valley Indemnity Company.  The primary policy's blanket additional insured endorsement extended coverage to any “person or organization with whom [Ellicott Maintenance] agreed, because of a written contract[,] to provide insurance such as is afforded under [the primary policy], but only with respect to liability arising out of [Ellicott Maintenance's] operations," and only when “the written contract or agreement [between Ellicott Maintenance and the additional insured] ha[d] been executed...prior to the ‘bodily injury."

The umbrella policy extended coverage to additional insureds with whom Ellicott Maintenance had “agreed in writing prior to any [injury] ... to provide insurance such as is afforded” by the umbrella policy.  Unlike the primary policy, however, the umbrella Policy did not provide that its coverage of additional insureds was effective only if the written agreement between Ellicott Maintenance and any additional insureds had been “executed.”

On August 19, 2003,an entity identified by the court as "Mountain Valley's agent", issued a certificate of insurance (COI) identifying Mountain Valley as the issuer of the primary and umbrella policies, Ellicott Maintenance as the named insured, and the plaintiffs as “additional insured with respect to project: Graystone.”  The COI contained the standard limiting and disclaiming language on its front and rear sides:


DISCLAIMER: The Certificate of Insurance ... does not constitute a contract between the issuing insurer ... and the certificate holder, nor does it affirmatively or negatively amend, extend or alter the coverage afforded by the policies listed thereon.
Ellicott Maintenance began work the day after it received the COI.  On September 9, 2003, three days before the construction agreement was signed, David DelPrince, an employee of a subcontractor hired by Ellicott Maintenance was injured when a roof collapsed at the Graystone site.

Plaintiffs notified Mountain Valley's agent of DelPrince's injury and potential claim by letter dated October 22, 2003, requesting that Mountain Valley defend and indemnify them in any suit brought by DelPrince. Some six months later, by letter dated April 13, 2004, Mountain Valley informed the plaintiffs that it would not defend or indemnify them because, inasmuch as the construction sgreement had not been signed on behalf of the parties before DelPrince was injured, “there was not in existence on the date of loss a written contract executed prior to the bodily injury,” as required by the terms of the primary policy. The letter further stated that even if the plaintiffs qualified as additional insureds under the primary policy as of the date of the accident, Mountain Valley would deny coverage because the plaintiffs had failed to timely notify Mountain Valley of DelPrince's injury and possible claim, as required by the primary policy.

DelPrince filed suit against plaintiffs and Ellicott Maintenance in New York State Supreme Court, Erie County, in October 2004, alleging negligence and violations of the New York Labor Law, and seeking to recover damages for the injuries he sustained.  In late January 2007, plaintiffs commenced this declaratory judgment action, alleging that they were additional insureds under the primary policy and therefore were entitled to coverage from Mountain Valley for the underlying DelPrince suit.  The plaintiffs further alleged that the COI bound Mountain Valley to provide coverage despite the absence of a signed agreement between plaintiffs and Ellicott Maintenance.  Finally, the plaintiffs alleged that Mountain Valley should be precluded from relying on the defense of untimely notice because Mountain Valley's response disclaiming coverage was itself untimely. The plaintiffs later amended their complaint to add a claim alleging entitlement to indemnification and defense as additional insureds under the umbrella policy.

The parties cross-moved for summary judgment and, adopting the September 2009 report and recommendation of the magistrate judge in whole, the District Court granted plaintiffs' motion and denied defendant's in February 2010.  On the question of whether the construction agreement was “executed” prior to DelPrince's injury, the court adopted the magistrate's conclusion that “in light of ‘common speech’ and the reasonable expectations of a businessperson”, and because Mountain Valley, as the drafter of the policy, could have used the term “signed” if it had intended to require a signature, the term “executed” as used in the primary policy should not be interpreted to require the parties' signatures to trigger coverage under that policy.  The District Court also accepted the magistrate judge's analysis as being consistent with the Nassau County Supreme Court's November 2008 decision in Burlington Ins. Co. v Utica First Ins. Co., 22 Misc. 3d 1112A, a decision the Second Department reversed on March 9, 2010, less than three weeks after the District Court's decision in this case.

On the question of whether the plaintiffs were entitled to coverage based on the COI, the magistrate judge had recommended finding that the COI incorporated the terms of the primary and umbrella policies. Relying on Niagara Mohawk Power Corp. v. Skibeck Pipeline Co., 271 A.D.2d 867 (4th Dept. 2000), the magistrate judge found that Mountain Valley's agent, acting within the scope of its authority, “issued the certificate of insurance naming [the plaintiffs] as additional insureds, upon which [the plaintiffs] were entitled to rely, regardless of the absence of a signing of the construction contract at that time.”  The magistrate judge therefore recommended estopping Mountain Valley from denying coverage to the plaintiffs, a recommendation the District Court judge adopted.  Finally, the magistrate judge rejected Mountain Valley's argument that the plaintiffs had not provided timely notice of DelPrince's injury.

Mountain Valley appealed to the United States Court of Appeals for the Second Circuit.   In a unanimous opinion, that court affirmed the District Court's finding that plaintiffs were covered as additional insureds under the umbrella policy but reserved decision on the COI estoppel question of coverage under the primary policy pending the New York Court's of Appeals' answer of this certified question:
In a case brought against an insurer in which a plaintiff seeks a declaration that it is covered under an insurance policy issued by that insurer, does a certificate of insurance by an agent of the insurer that states that the policy is in force but also bears language that the certificate is not evidence of coverage, is for informational purposes only, or other similar disclaimers, estop the insurer from denying coverage under the policy?
Significantly, the Second Circuit agreed with the Second Department's March 2010 decision in Burlington Ins. Co. v Utica First Ins. Co. that "executed" means signed or fully performed:
Because New York law unambiguously requires either the signing of a contract or its full performance for it to be "executed" within the meaning of an insurance policy requiring such prior execution, and because neither occurred here, the Construction Agreement was not executed as of the date of DelPrince's injury.  The district court's finding that it was and its conclusion that for that reason the Primary Policy was in effect at the time of the accident, are therefore in error.
On the question of whether Mountain Valley should nonetheless be estopped from denying coverage to the plaintiffs under the primary policy because Mountain Valley's agent issued, and the plaintiffs relied upon, the COI, however, the Second Circuit noted that New York's intermediate appellate courts are divided on this issue -- the First and Second Departments of the Appellate Division having ruled that informational COIs cannot give rise to an estoppel situation, while the Third and Fourth Departments having held that a certificate of insurance can estop an insurer from denying coverage where the parties intended to provide coverage to the party seeking it if the certificate was issued by an agent within the scope of its authority, and if the party seeking coverage reasonably relied on the certificate of insurance by, for example, beginning construction work.

Because of the "diversity of authority among the Appellate Divisions" on this "significant issue of state law," the Second Circuit reserved decision on the COI estoppel issue and certified the above question to the New York Court of Appeals.

With respect to the umbrella policy, however, the Second Circuit found that since the umbrella policy's additional insured endorsement did not provide that its coverage of additional insureds was effective only if the written agreement between its named insured and any additional insureds had been “executed”, plaintiffs were entitled to coverage under that policy:
Section 3(c) of the Umbrella Policy provides: "Any person or organization with whom or with which you have agreed in writing prior to any loss, `occurrence[,]' or `offense' to provide insurance such as is afforded by this policy is an insured...." Fijal Decl. Ex. K at 8 (§ 3(c)). Pursuant to Section 3(d), "Each person or organization who is an `insured' in the `underlying insurance' is an `insured' under this insurance subject to all the limitations of such `underlying insurance' other than the limits of the underlying insurer's liability." Id. (§ 3(d)).

We conclude that Section 3(c) renders the plaintiffs insureds under the Umbrella Policy. The policy requires no more than an agreement in writing. The New York Court of Appeals "ha[s] long held that a contract may be valid even if it is not signed by the party to be charged, provided its subject matter does not implicate a statute... that imposes such a requirement." Flores v. Lower E. Side Serv. Ctr., Inc., 4 N.Y.3d 363, 368, 828 N.E.2d 593, 596 (2005). "[A]n unsigned contract may be enforceable, provided there is objective evidence establishing that the parties intended to be bound." Id. at 369, 828 N.E.2d at 597.
This case and its certified question will now head to the New York Court of Appeals for an answer.  Depending on how the New York Court of Appeals answers the certified question, the Second Circuit will either affirm or reverse the District Court's finding of additional insured coverage to the plaintiffs under the primary policy.  Regardless of its impact on the outcome of this particular case, however, the New York Court of Appeals' answer of the certified question will likely affect many, many cases in which certificates of insurance have been issued identifying one or more entities as additional insureds without either a corresponding endorsement of the actual listed primary or umbrella policies or the triggering of additional insured coverage under such policies' blanket additional insured endorsements.

Monday, December 27, 2010

Questions of Fact on Insured's Late Notice Preclude Summary Judgment to Insured and Its Broker

International Contrs. Corp. v. Illinois Union Ins. Co.

(3rd Dept., decided 12/16/2010)

When the record is replete with conflicting testimony and documents regarding when, and to what extent, the insured informed its insurance broker of a carbon monoxide poisoning occurrence prior to commencement of the wrongful death actions against it, neither the insured nor broker is entitled to summary judgment.  So held both the Supreme Court and Appellate Division in this case. 

Lack of Standing Defense Waived If Not Raised in Pre-Answer Motion or Answer

Kruger v. State Farm Mut. Auto. Ins. Co.

(3rd Dept., decided 12/23/2010)

State Farm denied no-fault coverage benefits to plaintiff for further chiropractic treatment after an IME found no further treatment to be necessary.  The claimant sued and after conducting discovery, State Farm moved to dismiss the complaint, asserting for the first time that plaintiff had assigned her right to payment for no-fault benefits to her chiropractor and did not have standing to bring this action.  Ulster County Supreme Court (O'Connor, J.) granted State Farm's motion and plaintiff appealed.

In REVERSING the order appealed from and reinstating the complaint, the Appellate Division, Third Department, held that lack of standing is a waivable affirmative defense that must be raised either in a pre-answer motion or the insurer's answer
Defendant asserted that plaintiff lacked standing to maintain this action but, as that defense was not raised in a pre-answer motion to dismiss or in defendant's answer, it was waived and cannot now be advanced (see CPLR 3211 [a] [3], [e]; McHale v Anthony, 70 AD3d 466, 467 [2010]; Todaro v GEICO Gen. Ins. Co., 46 AD3d 1086, 1087 [2007]). Contrary to defendant's contention, the standing issue does not implicate the jurisdiction of Supreme Court such as to render it nonwaivable. Supreme Court is empowered to determine whether defendant is liable to pay no-fault benefits (see Marangiello v Kamak, 64 AD2d 624, 625 [1978]), and whether plaintiff is a proper person to pursue that claim "is an issue separate from the subject matter of the action or proceeding, and does not affect the court's power to entertain the case before it" (Wells Fargo Bank Minn., N.A. v Mastropaolo, 42 AD3d 239, 243 [2007]; see Matter of Renee XX. v John ZZ., 51 AD3d 1090, 1092-1093 [2008]). Accordingly, defendant waived its right to assert lack of standing as an affirmative defense.

Suing the Six-Year-Old -- Holding Children Liable for Their Negligent Acts

A client emailed me this morning to ask whether the parents of six- and eight-year-old children could be held liable under New York law for the kids having negligently started a fire that burned down the insured's barn. 

The parents?  Probably not, I told him, because in New York a parent cannot be held liable for the negligent supervision of his or her children unless one or both of two judicially recognized exceptions to this general rule applies:
  1. if the child has a tendency to engage in vicious conduct and the parent is aware of such tendency; or 
  2. where the parent negligently entrusts a dangerous instrument to his or her child.  
See, Panlilio v. Vergakis, 2008 NY Slip Op 52616 (Sup. Ct., Nassau Co., 2008)(determination of whether an aluminum baseball bat being swung by five-year-old on a playground was a "dangerous instrument" left to the jury). 

The facts of the loss my client described implicated neither exception (kids had not previously shown pyromanic tendencies and parents did not entrust lighter to kids), so I asked whether my client had considered suing the kids directly.  Sue the kids?  Can kids be held liable in New York for injuries or damage they negligently cause?  If they are older than four years of age, yes they can.

Recently, in Menagh v Breitman, 2010 NY Slip Op 32892(U)(Sup. Ct., New York Co., decided 10/1/2010), Justice Paul Wooten of the New York County Supreme Court was called upon to consider whether the 4½-year-old defendant, Juliet Breitman, who had accidentally crashed her training-wheeled bicycle into and knocked down an 87-year-old woman on a Manhattan sidewalk, could be held liable in negligence.  Juliet's attorney made a pre-answer motion to dismiss the action against her, contending that an infant aged four years and nine months is non sui juris, i.e., incapable of negligence as a matter of law.  

After surveying the New York case law on the issue of whether and under what circumstances a child may be considered non sui juris as a matter of law, and noting that "[f]or infants above the age of four, there is no bright line rule, and 'in considering the conduct of an infant in relation to other persons or their property, the infant should be held to a standard of care ... by what is expected of a reasonably prudent child of that age, experience, intelligence and degree of development and capacity'”, Justice Wooten denied Juliet's motion, holding:
Applying the Camardo [v. New York State Rys., 247 N.Y. 111 (1928)]; conflicting  inferences rule and reasonable child standard to the facts presented here, defendant-movant cannot be held non sui juris as a matter of law.  The motion papers and pleadings, do not indicate that defendant-movant‘s mother had any active role in the alleged incident, only that the mother was  “supervising,” a term that is too vague to hold meaning here.  There are no exhibits containing evidence as to the defendant-movant’s lack of intelligence or maturity, nor are there any other mitigating factors apparent in the record that would indicate that another child of similar age and capacity under the circumstances could not have reasonably appreciated the danger of riding a bicycle into an elderly woman.
So can or should a reasonably prudent six- or eight-year-old know not to play with fire in a barn?  Although some might argue that children under the age of 10 cannot fully appreciate the dangers of playing with fire and that behaviors demonstrating a curiosity with fire are natural in young children, I would say yes, a six- or -eight-year-old should know not to play with fire in a barn and if a jury agrees, then my client may be able to hold the kids liable in negligence.  And a jury will probably get to decide that question, as their age should foreclose a non sui juris finding as a matter of law.

Of course, if there's no personal liability insurance to respond to a negligence suit against a minor, what's the point, right?  Executing a money judgment against a six-year-old's Nintendo DS or Lego Ultimate Building Set seems a bit harsh.

Court of Appeals Declines to Disturb SUM Arbitration Award Despite Arbitrator's Refusal to Give Collateral Estoppel Effect to Prior No-Fault Arbitration Award

Matter of Falzone v. New York Cent. Mut. Fire Ins. Co.
(Ct. Apps., decided 10/21/2010)

Falzone arbitrated New York Central Mutual's denial of no-fault benefits and won.  She then arbitrated her related SUM claim against NYCM before a different arbitrator and lost on the ground that her injuries were not caused by the accident.  Contending that the second arbitration decision was inconsistent from the first, and that NYCM was collaterally estopped in the SUM arbitration from relitigating the issue of causation with respect to her injuries, Falzone commenced this CPLR article 75 special proceeding to vacate or modify the SUM arbitration award.  Supreme Erie granted petitioner's motion to vacate the SUM award and NYCM appealed.

In a 3-2 split decision, the Fourth Department, Appellate Division, reversed the order and confirmed the SUM arbitration award, the three-justice majority noting that "[t]he fact that a prior arbitration award is inconsistent with a subsequent award is not an enumerated ground in either subdivision (b) or (c) of CPLR 7511 for vacating or modifying the subsequent award[.]"

In 6-1 split decision, the New York Court of Appeals AFFIRMED the Appellate Division's decision, the six-judge majority holding: 
It is well settled that a court may vacate an arbitration award only if it violates a strong public policy, is irrational, or clearly exceeds a specifically enumerated limitation on the arbitrator's power (see Matter of New York City Tr. Auth. v Transport Workers' Union of Am., Local 100, AFL-CIO, 6 NY3d 332, 336 [2005]; Matter of United Fedn. of Teachers, Local 2, AFT, AFL-CIO v Board of Educ. of City School Dist. of City of N.Y., 1 NY3d 72, 79 [2003]; CPLR 7511 [b] [1] [iii]).  Even where an arbitrator has made an error of law or fact, courts generally may not disturb the arbitrator's decision (see Transport Workers' Union of Am., Local 100, AFL-CIO, 6 NY3d at 336 ["[C]ourts are obligated to give deference to the decision of the arbitrator.  This is true even if the arbitrator misapplied the substantive law in the area of the contract (citations omitted)."]).  Here, petitioner's claim —- that the arbitrator erred in failing to apply collateral estoppel to preclude litigation of the causation issue in the SUM arbitration — falls squarely within the category of claims of legal error courts generally cannot review.

* * * * *

Here, the prior (no-fault) arbitration award involved the same parties, the same accident, the same injuries, and resolution of the same issue (causation) as the subsequent (SUM) arbitration award. Respondent insurer, a party to the prior arbitration, lost on the causation issue. Petitioner, the prevailing party on that issue in the prior arbitration, reasonably argued that collateral estoppel should apply to bar relitigation of the causation issue in the subsequent SUM arbitration. The SUM arbitrator rejected petitioner's argument, had the parties relitigate the causation issue and, contrary to the no-fault arbitrator's determination, found in respondent insurer's favor on the causation issue.

It is not for us to decide whether the SUM arbitrator erred in not applying collateral estoppel (i.e., not giving preclusive effect to the no-fault arbitrator's determination on the issue of causation). Because the SUM arbitration award was not patently irrational or so egregious as to violate public policy, the instant SUM arbitration award (and whether the SUM arbitrator erred or exceeded his authority) is beyond this Court's review powers.
As I observed when posting about the Fourth Department's decision, although some practitioners may regard this decision as standing for the proposition that collateral estoppel no longer attaches to no-fault arbitration awards in New York, the ruling is much more narrow than that.  The Fourth Department's majority reversed the trial judge and confirmed the award not because they believed collateral estoppel could or did not apply to preclude NYCM from relitigating injury causality, but because they (and the dissent) adhered to the rule that collateral estoppel is not a basis on which Supreme Court may, under CPLR 7511, vacate an arbitration award.  On that procedural basis the Court of Appeals agreed and declined to disturb the arbitrator's award. 

Randy Maniloff's Top 10 Insurance Coverage Cases of 2010 & Third Annual Coverage for Dummies

For the past 10 years, coverage attorney Randy Maniloff of the Philadelphia, PA law firm of White & Williams, LLP, has given the insurance industry an annual  top 10 list of insurance coverage court decisions.  His tenth submission, published in Mealey's Litigation Report: Insurance on December 22, 2010 can be found here or by clicking the image below. 

In order of their issuance dates, the 10 cases making this year's list (Google Scholar links added for your ease of reference) are:  

Pharmacists Mutual Insurance Co. v. Myer – Vermont Supreme Court held that an insurer that failed to take action to allocate damages between those that are covered and uncovered was precluded from asserting otherwise applicable coverage defenses.

Medical Protective Co. v. Bubenik – Eighth Circuit Court of Appeals held that an insured that "took the Fifth" in a civil case, because of possible criminal liability, forfeited coverage for lack of cooperation with its insurer.

Gilbane Building Co. v. Empire Steel Erectors LP – Texas District Court rejected ISO's additional insured endorsement that was designed to preclude coverage for an additional insured for its sole negligence.

Travelers Property & Casualty Co. v. Hillerich & Bradsby Co. Inc. – Sixth Circuit Court of Appeals provided a solution for insurers that are confronted with a demand to settle in the face of coverage defenses.

Harleysville Mutual Insurance Co. v. Buzz Off Insect Shield LLC – North Carolina Supreme Court addressed coverage that could be relevant to future "greenwashing" claims (allegations that a company exaggerated the extent that its product is environmentally friendly).

World Harvest Church Inc. v. Guideone Mutual Insurance Co. -- Georgia Supreme Court discussed the consequences for an insurer that issued an ineffective reservation of rights.

Pekin Insurance Co. v. Wilson – Supreme Court of Illinois interpreted the "expected or intended" exclusion to preclude its applicability for an assault and battery claim.

C.R.S.A. § 13-20-808 – Colorado General Assembly overrode Colorado courts to address whether faulty workmanship is an "occurrence."

Flomerfelt v. Cardiello – New Jersey Supreme Court rejected the usually broad interpretation of "arising out of" as used in an insurance policy exclusion.

State Automobile Mutual Insurance Co. v. Flexdar Inc. – Indiana Appeals Court rejected an insured's argument that an insurer's amendment of a policy provision was admissible to interpret the meaning of a prior version.

The Maniloff and Mooney article also includes their third annual Coverage for Dummies et al. special report.  Check it out.  You'll have to Google Scholar those cases on your own. 

Friday, December 24, 2010

The Twelve Days of Riskmas -- A True Love's Risk Management Challenges

With the 12 days of Christmas starting tomorrow, and before lavishing the one you fancy with a partridge in a pear tree, two turtle doves, three French hens, four calling birds, five golden rings, six geese a-laying, seven swans a-swimming, eight maids a-milking, nine ladies dancing, ten lords a-leaping, eleven pipers piping, and twelve drummers drumming all at an estimated grand total cost of $96,831, pause to consider the risk management issues inherent in such generous expressions of devotion and the fact that your true love's consequential increased insurance premium costs from your gifts could equal nearly a half of million dollars.

At the request of Insurance Journal, the very clever folks over at global insurance broker Lockton, Inc. have analyzed and reported on the risk management issues and insurance coverage needs the traditional gifts of the Twelve Days of Christmas would implicate for the recipient.  Read their report by clicking here:

Merry Christmas everyone.


Thursday, December 23, 2010

New York Insurance Law § 5109 Does Not Preempt a No-Fault Insurer's Mallela-Based Recovery Action

Allstate Ins. Co. v. Belt Parkway Imaging, P.C.

(1st Dept., decided 11/30/2010)

While we're talking about Dr. Rabiner's MRI facilities (see post below), defendant providers contended in this case that the New York State Legislature's post-Mallela enactment of Insurance Law § 5109 overruled Mallela or preempts or precludes Mallela-based recovery actions such as this one.  New York County Supreme Court (Eileen Bransten, J.) rejected that argument in denying defendant providers' motion for summary judgment, and the Appellate Division, First Department, AFFIRMED, holding:
"A provider of health care services is not eligible for reimbursement under section 5102(a)(1) of the Insurance Law if the provider fails to meet any applicable New York State or local licensing requirement" (11 NYCRR 65-3.16[a][12]).  Pursuant to this regulation, the Court of Appeals held that "insurance carriers may withhold payment for medical services provided by fraudulently incorporated enterprises" (see State Farm Mut. Auto Ins. Co. v Mallela, 4 NY3d 313, 319, 321 [2005]). Mallela was decided on March 29, 2005.  The Legislature subsequently enacted Insurance Law § 5109, which became effective on August 2, 2005.

There is no indication in § 5109 that the statute overrules Mallela. Nor is there any such indication in its legislative history, which "must be reviewed in light of the existing decisional law which the Legislature is presumed to be familiar with" (Matter of Knight-Ridder Broadcasting v Greenberg, 70 NY2d 151, 157 [1987]).

Section 5109(a) states, "The superintendent, in consultation with the commissioner of health and the commissioner of education, shall by regulation, promulgate standards and procedures for investigating and suspending or removing the authorization for providers of health services to demand or request payment for health services as specified in" Insurance Law § 5102(a)(1). However, the Superintendent of Insurance has issued no regulations pursuant to § 5109(a). Thus, if — as defendants contend — only the Superintendent can take action against fraudulently incorporated health care providers, then no one can take such action.  In light of the fact that "[t]he purpose of the regulations of which [11 NYCRR] 65-3.16(a)(12) is a part was to combat fraud" (Allstate Ins. Co. v Belt Parkway Imaging, P.C., 33 AD3d 407, 409 [2006]), this would be an absurd result, and we reject it (Statutes § 145).

Appeal Outcome of a Mallela-esque Trial

Over in No-Fault Paradise, Dave Barshay reports on the recent appeal outcome of the 2008 trial of 30 consolidated cases of Dr. Herbert Rabiner of Metroscan Imaging, P.C., Belt Parkway Imaging, P.C., Diagnostic Imaging, P.C., and Parkway MRI, P.C. no-fault notoriety.  Those of you who fancy yourselves no-fault dorks (Barshay's moniker) should head over to No-Fault Paradise and read Dave's post and the Appellate Term's December 20th decision

Among the Mallela-esque issues before the Appellate Term was whether a Mallela defense must be proven by clear and convincing evidence, as the trial judge Bernice Daun Siegel had ruled, or a preponderance of the evidence, as defendant State Wide Insurance Company contended.  It is important to note that the Appellate Term did not reach and decide that issue, finding that "the evidence adduced at trial was insufficient to establish,  even by a preponderance of the evidence, that plaintiffs were operated in violation of state licensing requirements."

The Appellate Term also found that the trial court properly determined that because State Wide never issued any denial of claim forms to the providers, the accrual of compound interest (the contested dates of service were before the April 5, 2002 amendment of Regulation 68) was never tolled and commenced from 30 days after the claims were submitted to State Wide for payment.  Over at his No Fault Defender blog, Jason Tenenbaum notes that this decision could cost State Wide millions in compound interest.

Wednesday, December 22, 2010

When Just a Reservation of Rights Letter Won't Do

Encompass Ins. Co. v. Adelis

(Sup. Ct., Nassau Co., decided 11/23/2010)

Immutable Law of New York Insurance Coverage # 47:  Defending a bar fight case under a reservation of rights for two years without disclaiming coverage under a policy that does not define an "occurrence" as an accident will result in being found obligated to indemnify one's pugilistic insured for the injuries he admitted to have intentionally caused.

In January 2006, Encompass's insured James Adelis was involved in an altercation in a bar.  While pleading guilty to the related criminal charge of second degree assault in August 2006, Adelis acknowledged that he had intended to injure the person he hit, Kevin Smith, when he hit him.  In January 2007, Smith sued Adelis and the bar for personal injuries, alternatively alleging intentional tort and negligence causes of action against Adelis.

In February 2007, Encompass notified Adelis by letter that it was reserving its rights to deny liability coverage based on the policy's exclusion for bodily injury or property damage "[i]ntended by, or which may reasonably be expected to result from the intentional or criminal acts or omissions of one or more covered persons."  Encompass then undertook to defend Adelis in Smith's personal injury action for two years before commencing this declaratory judgment action in 2009 and moving for summary judgment.

In DENYING Encompass' motion for summary judgment and instead declaring that Encompass was obligated to defend and indemnify Adelis in the underlying Smith personal injury action, Nassau County Supreme Court Justice Ute Wolff Lally found that Encompass' attempt to deny coverage by commencing this declaratory judgment action after defending Adelis for two years was "woefully late" and precluded by New York Insurance Law § 3420(d): 

A reservation of rights letter does not constitute a disclaimer of coverage, nor does it negate an insurer's obligation to provide a timely rejection. (Painting v National Union Fire Ins. Co. of Pittsburgh, PA, 2009 WL 1370819 (Supreme Court New York County 2009), citing New York Cent. Mut. Fire Ins. Co. v Hildreth,  40 AD3d 602). In fact, "a reservation of rights letter ... has no relevance to the question of timely notice of disclaimer. (NYAT Operating Corp. v GAN National Insurance Company, 46 AD3d 287, 288, lv den., 10 NY3d 715, citing Hartford Ins. Co. v County of Nassau, supra at p. 1029).

*  *  *  *  *

Encompass never disclaimed coverage for James Adelis.  Assuming, arguendo, that its complaint here constituted its disclaimer, it was untimely as a matter of law.  Encompass has been defending James Adelis in the underlying personal injury action for over two year [sic] and that action was commenced over one year after the defendant James Adelis' [sic] pled guilty to assault in the third degree. Thus, Encompass' disclaimer based upon the plaintiff's allegations in the underlying action, the policy exclusion and James Adelis' guilty plea was woefully late: [sic] All of those facts were known to Encompass for virtually the entire time that it defended James Adelis.  Thus, the pivotal question here becomes whether coverage exists under the policy but for the exclusion relied upon by Encompass.  (See Desire v Nationwide Mutual Fire Insurance Company, supra).

The subject policy covers a claim or suit for "personal injury" or "bodily injury" caused by an "occurrence. "  The policy defines an "occurrence" as, inter alia, "(a)n offense including a series of related offenses, committed during the policy period which results in personal injury."  James Adelis' alleged acts for which coverage is sought under the policy fit the description of an "occurrence." Accordingly, coverage for James Adelis' acts exists under the policy's terms, absent the application of an exclusion.  Since Encompass is relegated to rely solely upon the policy's exclusion to defeat James Adelis' claim for coverage, Encompass' failure to timely disclaim results in coverage.
It is important to note that the subject policy did not define an "occurrence", at least with respect to liability coverage for bodily injury and property damage, as an accident.  Had it done so, Encompass may have been able successfully to argue that its failure earlier to disclaim did not violate Insurance Law § 3420(d) because the underlying plaintiff's intentionally caused injuries did not result from a covered "occurrence" in the first instance, regardless of the policy's intentional or criminal acts exclusion. 

It is also important to note that Justice Lally incorrectly quoted the "occurrence" definition for the policy's "personal injury" coverage, which insurance coverage mavens know is defined as and protects against injury arising out of libel, slander, false arrest, wrongful eviction, wrongful detention, wrongful entry, malicious prosecution, false imprisonment, invasion of privacy or defamation of character.  As applicable to bodily injury and property damage coverage, however, the policy defined "occurrence" to mean "[a]n event, or a series of related events resulting from continuous or repeated exposure to the same general conditions, that causes bodily injury or property damage during the policy period[.]"  Thus, without any policy requirement that an "occurrence" be accidental in nature, Adelis' act of intentionally punching Smith qualified as an "occurrence" under the policy because it was an "event ... that cause[d] bodily injury[.]"

New York Court of Appeals Affirms Dismissal of Suit Against Bad Golfer Who Failed to Yell "Fore" Before Shanking Shot that Blinded Friend

Anand v. Kapoor

(Ct. Apps., decided 12/21/2010)

Not a coverage case, but noteworthy coming out of the New York Court of Appeals yesterday.

While playing golf at a nine-hole golf course in Suffolk County, Dr. Anoop Kapoor "shanked" a shot, striking his friend and long-time golfing partner Dr. Azad Anand in the left eye, with the errant ball.  The accident occurred during play on the first hole.  Kapoor's second shot landed in the "rough."  Without waiting for Kapoor to retrieve his ball, Anand went to look for his on the fairway.  Kapoor, meanwhile, found his ball and, without calling "Fore" or giving any other warning to his friends, hit the shot that went in an unintended direction and struck Anand.  Deposition testimony of the three differed as to how far and what angle Anand was from Kapoor when he mis-hit his shot out of the rough.  Anand suffered retinal detachment and permanent loss of vision in the injured eye.

Anand and his wife commenced this personal injury action against Kapoor, asserting that Kapoor's failure to warn of his shot amounted to negligence and proximately caused Anand's injury.  After discovery, Supreme Court granted Kapoor's motion for summary judgment and dismissed the complaint, both for the reason that Anand was not in the foreseeable zone of danger and on assumption of risk grounds.  The Appellate Division, with one Justice dissenting, affirmed.  The same Court granted the Anands' motion for leave to appeal to this Court.

In AFFIRMING the suit's dismissal, the Court of Appeals rejected plaintiffs' contention that defendant's failure to yell "Fore!" before hitting his shot was intentional or reckless conduct or unreasonably increased the risks that a golfer ordinarily appreciates and assumes in playing the game of golf:
A person who chooses to participate in a sport or recreational activity consents to certain risks that "are inherent in and arise out of the nature of the sport generally and flow from such participation" (Morgan v State, 90 NY2d 471, 484 [1997]). A court evaluating the duty of care owed to a plaintiff by a coparticipant in sport must therefore consider the risks that the plaintiff assumed and "how those assumed risks qualified defendant's duty to him" (Turcotte v Fell, 68 NY2d 432, 438 [1986]).  However, a plaintiff "will not be deemed to have assumed the risks of reckless or intentional conduct or concealed or unreasonably increased risks" (Morgan, 90 NY2d at 485 [citations omitted]).

Here, Kapoor's failure to warn of his intent to strike the ball did not amount to intentional or reckless conduct, and did not unreasonably increase the risks inherent in golf to which Anand consented. Rather, the manner in which Anand was injured — being hit without warning by a "shanked" shot while one searches for one's own ball — reflects a commonly appreciated risk of golf (see Rinaldo v McGovern, 78 NY2d 729, 733 [1991]).

Monday, December 20, 2010

'Twas The Risky Night Before Christmas -- How an Insurance Professional Reads the Classic

'Twas the night before Christmas (12:01 a.m. 12/25) and all through the house (single family, joisted masonry, e.c.3, terr. 44, pc5), not a creature was stirring, not even a mouse (thorough pride of ownership and excellent maintenance).

The (flame-retardant) stockings were hung by the (contractor-installed?) chimney with care, in hopes that St. Nicholas soon would be there (check protective safeguard discount -- application lists deadbolt locks and central station alarm system).

The children (ages 4, 8, 14, & 16) were all nestled snug in their beds (check MVR on 16-year-old) while visions of sugar plums danced in their heads (check for drug use; possible malfunctioning furnace/CO poisoning issue).

Ma in her kerchief (scheduled heirloom) and I in my cap (wearing headgear to bed? possible inadequate heating system) had just settled down for a long winter's nap. (Check employment -- is insured sleeping all day?)

When out on the lawn there arose such a clatter (check into condition of premises, housekeeping, etc.), I jumped out of bed to see what was the matter.

Away to the window I flew like a flash, threw back the curtains and tore open the sash (intentional destructive act, no coverage; also, appears insured only wearing a cap in front of uncovered window -- possible emotional distress claim by neighbors).

When what to my wondrous eyes should appear, but a miniature sleigh and eight tiny reindeer. (check if sleigh is rated business use and corporate owned.) With a little old driver so lively and quick, I knew in a moment it must be St. Nick. (Notify life underwriting, order medical on 600-year-old driver).

More rapid than eagles (check MVR for speeding violations) his coursers they came and he whistled and shouted and called them by name (possible aggressive driver).

Now Dasher (turbo equipped?), now Dancer (classic?), now Prancer (check occupation), now Vixen (definitely check occupation), on Comet (possible muscle deer), on Cupid (check credit score), on Donner (4x4) and Blitzen (possible drinking problem?).

To the top of the porch, to the top of the wall (check for structural damage; also look into height exposures), now dash away, dash away, dash away all (old man climbing walls either in great shape or overly medicated).

So up to the housetop his coursers they flew, with a sleigh full of toys and Saint Nicholas, too. (Check for possible retail delivery or livery classification of autos). And then, in a twinkling, I heard on the roof, the prancing and pawing of each little hoof. (Check for shingle damage; also classification of operations—roofing is a prohibited class).

As I drew in my head and was turning around, down the chimney he came with a bound (comp neg for using unusual ingress).

He was dressed all in fur (scheduled items) from his head to his foot, and his clothes were all tarnished with ashes and soot. (Part-time job as firefighter?)

A bundle of toys he had flung on his back. (Check to see if insured has safety committee; check lifting training). His eyes how they twinkled, his dimples how merry, his cheeks were like roses, his nose like a cherry (order updated medical report, possible drinking and/or drug abuse).

The stump of a pipe he held tight in his teeth (ineligible for nonsmoker discount) and the smoke encircled his head like a wreath (check batteries in smoke detectors to make sure operational).

He was chubby and plump a right jolly elf (overweight for height) and I laughed when I saw him in spite of myself. A wink of his eye and a nod of his head soon gave me reason I had nothing to dread (Stranger enters past alarm and insured not worried? Sounds suspicious.)

He spoke not a word, but went straight to his work, and filled all the stocking, then turned with a jerk (review workplace for ergonomic compliance).

And laying his finger aside of his nose (obscene gesture?), and giving a nod, up the chimney he rose. (Check operations, chimney sweeps are prohibited classification, look into GL PD deductible.)

He sprang to his sleigh, to his team gave a whistle, and away they all flew like the down of a thistle (not likely with fat man and sleigh full of toys. Check GVW for proper classification, light/service/local seems unlikely).

And I heard him exclaim as he drove out of sight, "Merry Christmas to all, and to all a good night!" (Check hours of operation; 24-hour service operations prohibited. Also check into seasonal nature of business.)


-- Source Unknown

An Insurer Is Not Required to Deny Coverage Where None Exists

York Restoration Corp. v. Solty's Constr., Inc.

(2nd Dept., decided 12/14/2010)

If a party seeking coverage is neither an insured nor an additional insured under the policy, does New York Insurance Law § 3420(d) apply to require a prompt disclaimer of coverage?  No, reminds the Second Department.

Although Sirius initially disclaimed coverage to York Restoration Corp. based on late notice, in this action Sirius cross-moved for summary judgment on the ground that York was not an additional insured on the date of the accident.  Supreme Court denied Sirius' cross motion and granted summary judgment to York.

In REVERSING the order appealed from, the Appellate Division, Second Department, held:
Sirius correctly contends that York is not entitled to defense and indemnification because it was not a named insured on the date of the accident. The party claiming insurance coverage bears the burden of proving entitlement (see National Abatement Corp. v National Union Fire Ins. Co. of Pittsburgh, Pa., 33 AD3d 570; Tribeca Broadway Assoc. v Mount Vernon Fire Ins. Co., 5 AD3d 198). A party is not entitled to coverage if it is not named as an insured or additional insured on the face of the policy as of the date of the accident for which coverage is sought (see Essex Ins. Co. v Michael Cunningham Carpentry, 74 AD3d 733; Majawalla v Utica First Ins. Co., 71 AD3d 958; National Abatement Corp. v National Union Fire Ins. Co. of Pittsburgh, Pa., 33 AD3d at 571; Tribeca Broadway Assoc. v Mount Vernon Fire Ins. Co., 5 AD3d at 200). 

Here, York was not named as an additional insured under the policy until approximately five weeks after the underlying accident. The accident occurred on October 29, 2004, but the subsequently issued policy change endorsement, naming York as an additional insured, was not effective until December 6, 2004. Therefore, Sirius had no duty to defend and indemnify York (see ADF Constr. Corp. v Home Insulation & Supply, 237 AD2d 915, 916; Tower Ins. Co. of N.Y. v Joselyn Grocery Corp., 2008 NY Slip Op 31745[U]; see also Travelers Ins. Co. v Utica Mut. Ins. Co., 27 AD3d 456).

York's contention that Sirius may not assert that York is not an insured under the policy because Sirius failed to disclaim on that ground is without merit. A disclaimer pursuant to Insurance Law 3420(d) is unnecessary when a claim does not fall within the coverage terms of an insurance policy (see Markevics v Liberty Mut. Ins. Co., 97 NY2d 646, 648; Matter of Worcester Ins. Co. v Bettenhauser, 95 NY2d 185, 188; Siragusa v Granite State Ins. Co., 65 AD3d 1216, 1217). An insurer is not required to deny coverage where none exists (see Hargob Realty Assoc., Inc. v Fireman's Fund Ins. Co., 73 AD3d 856, 858).  Therefore, when a claim is denied because the claimant is not an insured under the policy, there is no statutory obligation to provide prompt notice of the disclaimer (see Hargob Realty Assoc., Inc. v Fireman's Fund Ins. Co., 73 AD3d at 858; Siragusa v Granite State Ins. Co., 65 AD3d at 1217; Matter of Nationwide Ins. Co. v Smaller, 271 AD2d 537, 537-538; Matter of Fireman's Fund Ins. Co. v Freda, 156 AD2d 364, 366). Under the circumstances, the Sirius policy did not provide coverage to York as of the date of the accident. Requiring payment of a claim upon a failure to timely disclaim would create coverage where it never existed (see Matter of Worcester Ins. Co. v Bettenhauser, 95 NY2d at 188).

Summary Judgment Denied to Hospital -- Insurer Permitted to Conduct Discovery on its Intoxication & Felony Act Defenses

Westchester Med. Ctr. v. New York Cent. Mut. Fire Ins. Co.

(Sup. Ct., Nassau Co., decided 12/17/2010)

New York CPLR Rule 3212(f) provides:
(f) Facts unavailable to opposing party.  Should it appear from affidavits submitted in opposition to the motion that facts essential to justify opposition may exist but cannot then be stated, the court may deny the motion or may order a continuance to permit affidavits to be obtained or disclosure to be had and may make such other order as may be just.
After receiving requested verification from plaintiff hospital, NYCM timely denied plaintiff's billing on the grounds that plaintiff's assignor was intoxicated at the time of the accident or was injured while committing an act that would constitute a felony, both excluded conduct under the PIP endorsement of NYCM's policy.  Plaintiff sued and moved for summary judgment.  NYCM opposed that motion and cross-moved for a stay of trial pending the outcome of criminal proceedings against the plaintiff's assignor and for an opportunity to conduct discovery relative to its intoxication-based defenses.

NYCM supported its cross motion with only an affidavit of the office manager of its defense counsel's law firm.  Plaintiff argued in response that NYCM was required but failed to lay bare its proof in support of its coverage defenses.

Finding that NYCM had presented sufficient reason for the court to invoke CPLR 3212(f), Nassau County Supreme Court Justice Daniel Palmieri denied plaintiff's motion and granted NYCM's cross motion to the limited extent of ordering that a preliminary conference be conducted to schedule discovery on its intoxication-based defenses:

The Court finds that there is a basis for applying CPLR 3212(f). This section provides that if it appears from affidavits submitted in opposition that facts essential to justify opposition may exist but cannot then be stated, a court may deny the motion, order a continuance to permit needed disclosure to be undertaken, or "make such other order as may be just."

A party who raises a defense that has not yet been fully developed, but appears to exist, must be able to make some showing that such facts do in fact exist for CPLR 3212(f) to apply; mere hope that discovery may reveal those facts is insufficient. Companion Life Ins. Co. v All State Abstract Co., 35 AD3d 519 (2d Dept. 2006). Nor can mere speculation serve to defeat the motion. Pluhar v Town of Southhampton, 29 AD3d 975 (2d Dept. 2006); Ciccone v Bedford Cent. School Dist., 21 AD3d 437 (2d Dept. 2005). However, denial of the motion on the ground that necessary disclosure is lacking is appropriate if there is some basis in the record for finding that evidence sufficient to defeat the motion may exist, [*3]especially where the facts appear to lie within the knowledge of the opposing party and discovery is in its early stages. See, Adler v City of New York, 52 AD3d 549 (2d Dept. 2008); Baron v Incorporated Vil. of Freeport, 143AD2d 792 (2d Dept. 1988).

The Court finds that this is the case here. There is no direct proof of intoxication submitted, or that such intoxication caused the accident. However, the defendant presents the affidavit of the office manager of defendant's law firm, Christopher Roselli, who states that the police report revealed that plaintiff's assignor, Luis Vargas, was arrested at the accident scene on charges of driving while intoxicated. He further states that he spoke to Orange County Assistant District Attorney Steven Goldberg, who informed him that Vargas was indicted on 34 charges, including two counts of driving while intoxicated. A formal request for a copy of the indictment was made, and the results of that request, a copy of the indictment, is annexed to defendant's reply papers. Among other things, the indictment contains not only a charge of driving while intoxicated, but also of vehicular manslaughter in the first degree, as a passenger in Vargas's vehicle was ejected and killed as a result of his operation of the vehicle under the influence of alcohol. Other felony counts are based on injuries to other passengers. Thus, in addition to allegedly driving while intoxicated, his operation of the vehicle may have resulted in his having been injured while committing a felony.

While the foregoing clearly is in part hearsay, the indictment does verify the key information referred to by Roselli.  For purposes of plaintiff's motion, it is sufficient for the Court to find that evidence sufficient to defeat the motion may exist, and that disclosure should be permitted. See, Westchester Med. Ctr. v Progressive Cas. Ins. Co., 51 AD3d 1014 (2d Dept. 2008). This is especially so where information regarding the alleged intoxication, and its role in causing the injury-producing accident, lies in part within the knowledge of plaintiff's assignor, and this action is in its early stages. The Court understands that Vargas may not be available for a deposition, or may choose to invoke his Fifth Amendment rights, which will of necessity slow discovery here. Further, the criminal case also appears to be in its early stages. However, possible difficulties in moving the present civil case forward is not a reason to prejudice the defendant's ability to defend itself given the factors described in this decision.

The record here also distinguishes this matter from Westchester Med. Ctr. v Government Employees Ins. Co., 77 AD3d 737, supra, as in that case "the defendant failed to submit any evidence whatsoever from which the circumstances of the accident could be ascertained, the nature of the accident is unknown, and, thus, the defendant's evidence... was insufficient by itself to raise a triable issue of fact as to whether the plaintiff's assignor was "injured as a result of operating a motor vehicle while in an intoxicated condition." (Emphasis in original). Here, the nature of the accident is known, and there is some evidence that discovery may reveal that plaintiff's assignor was injured as a result of operating a vehicle in an intoxicated condition.

Accordingly, the plaintiff's motion is denied pursuant to CPLR 3212(f), but may be renewed upon the completion of discovery.

Thursday, December 16, 2010

New Jersey Resident Injured by a Commercial Vehicle in New York Found Not to be a "Qualified Person" Entitled to Hit and Run Benefits from MVAIC

Matter of Thakuri v. Motor Veh. Acc. Indem. Corp.

(Sup. Ct., New York Co., decided 11/18/2010)

Petitioner, a New Jersey resident, made a motion for an order allowing her to commence a personal injury action against the New York Motor Vehicle Accident Indemnification Corporation (MVAIC) for a broken ankle she sustained when she was struck while riding her bicycle in Manhattan by a bus that left the scene of the accident.

In spite of her motion being unopposed, New York County Supreme Court Justice Eileen Rakower DENIED petitioner's application, finding that since New Jersey no-fault law does not afford protection for injuries from being struck by commercial vehicles, petitioner did not meet the definition of a "qualified person" under New York Insurance Law § 5202(b):
Insurance Law §5202(b) states, in relevant part:
"Qualified person" means (i) a resident of this state, other than an insured or the owner of an uninsured motor vehicle and his spouse when a passenger in such vehicle, or his legal representative, or (ii) a resident of another state, territory or federal district of the United States or province of the Dominion of Canada, or foreign country, in which recourse is afforded, to residents of this state, of substantially similar character to that provided for by this article, or his legal representative[.]
On her police accident report, petitioner lists her address as "518 North 5 Street Harrison NJ 07029." On her Notice of Intention to Make a Claim form, pay stub, household affidavit; and hospital records, petitioner lists her address as 17 Davis Street Harrison, NJ. The court in Simon v. Motor Vehicle Acc Indemnification Corp., 83 AD2d 803 (1st Dept. 1981) found:
The record before this Court demonstrates that claimant is not a qualified person.   The no-fault statute in the State of New York applies to commercial vehicles, while the statute in the State of New Jersey only applies to passenger cars. Coverage for injuries sustained while being struck by a commercial van are not covered under New Jersey law.(where a New Jersey resident was struck by a commercial van that left the scene of the accident.)
In the police report, the offending vehicle is described as an "unknown bus." In her MVAIC paperwork, petitioner checks the option for "A Bus or School Bus," next to "the type of vehicle" that hit her.  There is no evidence that the bus involved in the accident was not a commercial vehicle.  Here, as in Simon, petitioner has failed to show that New Jersey would afford reciprocal coverage to a New York driver and, thus, is not considered a "qualified person" for purposes of commencing a lawsuit against MVAIC.

Wednesday, December 15, 2010

Truck Renter's Failure to Produce Copies of Its Internal Policies and Procedures for Investigating Renter's Driving and Criminal History Found an Insufficient Basis to Deny Renter's Motion for Summary Judgment Based on Graves Amendment

Byrne v. Collins

(2nd Dept., decided 10/19/2010)

A Budget franchisee rented a Budget truck to JBG Trucking.  The rental agreement provided that any authorized employee of JBG with a valid driver's license was permitted to operate the vehicle upon presentation of a valid driver's license by the company employee who picks up the vehicle.  Jamie Collins presented a restricted driver's license to the Budget location and, while driving the rented truck, struck and killed the plaintiff's decedent, who was riding a bicycle.  Plaintiff alleged that the Graves Amendment did not apply because the Budget defendants knew or should have known from Collins' presentation of a restricted driver's license that he had a history of drug and/or alcohol related offenses.  In opposition to the Budget defendants' motion to dismiss plaintiff's complaint and for summary judgment, plaintiff argued that the Budget defendants negligently entrusted the rented truck to Collins, and that their negligence precluded application of the Graves Amendment's vicarious liability exemption.

While agreeing that the presentation of a restricted license "does not, in and of itself, compel a motor vehicle rental agent of average ken to scrutinize the renter", Kings County Supreme Court Justice Francois Rivera denied the Budget defendants' motion for summary judgment because they had not submitted their written rental policies and procedures and established that the Budget franchisee followed those policies and procedures in renting the truck to JBG.

The Budget defendants appealed that decision to the Appellate Division, Second Department, and that court REVERSED the lower court's decision, finding that there was no triable issue of fact as to whether or not the Budget defendants possessed any special knowledge concerning a characteristic or condition peculiar to Collins that rendered his use of the truck unreasonably dangerous as required to support plaintiff's negligent entrustment theory of liability.

With respect to the Budgets defendants' failure to submit copies their written rental policies and procedures and demonstrate that the Budget franchisee had followed those procedures, the Second Department further held:
Contrary to the plaintiff's contention, the appellants' failure to provide copies of any internal policies as to investigation of potential renters with restricted licenses constitutes an insufficient basis upon which to deny their motion for summary judgment.  Even if such a policy had been violated, under the circumstances of this case, such violation would not constitute actionable negligence (see Lambert v Bracco, 18 AD3d 619, 620; Newsome v Cservak, 130 AD2d 637, 638).

The first cause of action, which was based on the alleged vicarious liability of the appellants, was barred under the Graves Amendment (49 USC § 30106), as the appellants showed they are "owner[s] . . . engaged in the trade or business of renting or leasing motor vehicles" (49 USC § 30106; see Gluck v Nebgen, 72 AD3d 1023), and should also have been dismissed.

Saturday, December 11, 2010

Scuttlebutt About Town Did Not Trigger Insured's Obligation to Give Notice of Occurrence to His Homeowners Insurer

Nationwide Mut. Fire Ins. Co. v. Maitland

(3rd Dept., decided 12/9/2010)

On January 24, 2007, upon encountering his old high school friend in a bar, Alex Maitland tried to hoist Lisa Turner onto his shoulders but lost his balance and dropped poor Lisa on her head, temporarily rendering her unconscious (Be honest.  Who's thinking "there but for the grace of God go I"?).  According to Maitland, after she came to, Turner was walking around and did not appear to be injured, even refusing to get into an ambulance that had been summoned until Maitland convinced her to do so as a precautionary measure.  Turner was later diagnosed with a head injury and released from the hospital that evening.  The decision does not indicate whether Maitland accompanied Turner to the hospital.

Several months later, in April 2007, Turner was diagnosed with two herniated disks and subsequently underwent surgery.  Although Maitland acknowledged having heard rumors in the summer of 2007 that he might be sued by Turner, he allegedly believed those rumors were simply "scuttlebutt about town," as the information did not come from Turner herself — or anyone with direct knowledge — and he did not learn of Turner's diagnosis of bulging disks until much later.  Maitland also denied any recollection of having received two letters sent in August and September 2007 by the bar's insurer and two letters sent in May and October 2007 by Turner's counsel.

Turner and her husband thereafter commenced a personal injury action against Maitland and others.  After Maitland was served, he notified Nationwide, his insurer, of the action on February 4, 2008, slightly more than a year after the incident.  Nationwide disclaimed coverage on the ground that neither Maitland nor Turner gave prompt notice of the incident.  Nationwide then commenced this action seeking a judgment declaring that it had no duty to defend or indemnify Maitland and his wife in connection with Turner's personal injury action.  Following joinder of issue, Nationwide moved and the Maitlands cross-moved for summary judgment.  Hamilton County Supreme Court (Aulisi, J.) denied both motions, prompting this appeal by Nationwide.

In AFFIRMING Supreme Court's denial of Nationwide's motion for summary judgment, the Third Department agreed that questions of fact existed as to whether there was a reasonable excuse for the insured's and injured party's delays in notifying Nationwide of the accident:
Where, as here, "a policy of liability insurance requires that notice of an occurrence be given 'as soon as practicable,' such notice must be accorded the carrier within a reasonable period of time" (Great Canal Realty Corp. v Seneca Ins. Co., Inc., 5 NY3d 742, 743 [2005] [citation omitted]; see Sorbara Constr. Corp. v AIU Ins. Co., 11 NY3d 805, 806 [2008]).  There may be circumstances that excuse a delay in notifying the insurer, such as the insured's good faith reasonable belief in nonliability (see Great Canal Realty Corp. v Seneca Ins. Co., Inc., 5 NY3d at 743; U.S. Underwriters Ins. Co. v Carson, 49 AD3d 1061, 1063 [2008]; Spa Steel Prods. Co. v Royal Ins., 282 AD2d 864, 865 [2001]).  "The reasonableness of the insured's belief, as well as a failure to conduct further inquiry, generally remains a question of fact for the jury" (Morehouse v Lagas, 274 AD2d 791, 794 [2000] [citations omitted]; see Preferred Mut. Ins. Co. v New York Fire-Shield, Inc., 63 AD3d 1249, 1251 [2009]). Guided by these principles, we find that questions of fact exist as to whether there was a reasonable excuse for Maitland's delay in providing notice.

Here, Maitland stated that he did not believe that Turner had sustained any type of significant injury on the date of the incident, explaining that she was walking after the fall, did not appear to be injured and refused to get into an ambulance until he convinced her to do so as a precautionary measure.  Although Maitland indicated that he heard rumors in the summer of 2007 that he might be sued by Turner, he believed it to be simply "scuttlebutt about town," as the information did not come from Turner herself — or anyone with direct knowledge — and he did not learn of Turner's diagnosis of bulging disks until much later.  Furthermore, while plaintiff submitted two letters that were sent to Maitland in August and September 2007 from the insurer of the bar inquiring as to the incident that caused Turner's injuries, as well as correspondence sent from Turner's counsel in May and October 2007 advising Maitland that Turner was being represented for serious injuries sustained as a result of the January 2007 incident, Maitland stated that he does not recall ever receiving these letters.  Maitland averred that his address is "P.O. Box 789, Lake Pleasant" and that the correspondence, which was addressed to either "Route 8, Lake Pleasant" or "Route 8, Speculator," would likely not have reached his home without the inclusion of his post office box number since "Route 8 is a large expanse of state highway in Lake Pleasant and beyond."  Maitland did mention in a recorded statement to the insurer that he received a letter from "an attorney" in September or October 2007, but there is no evidence as to the contents of that letter or who sent it, and Maitland subsequently averred that he did not recall receiving a letter from Turner's attorney.  In light of these credibility issues and the conflicting inferences that may be drawn from the facts, and mindful of the preference for permitting a jury to decide the question of reasonableness, we find that Supreme Court properly denied plaintiff's summary judgment motion (see North Country Ins. Co. v Jandreau, 50 AD3d 1429, 1431 [2008]; Klersy Bldg. Corp. v Harleysville Worcester Ins. Co., 36 AD3d 1117, 1119 [2007]; Morehouse v Lagas, 274 AD2d at 794; G.L.G. Contr. Corp. v Aetna Cas. & Sur. Co., 215 AD2d 821, 822 [1995]).

Similarly unpersuasive is plaintiff's assertion that Turner's notice to it was untimely as a matter of law. Insurance Law § 3420 (a) (3) affords an injured party an independent right to give notice so as to preserve his or her right to proceed directly against an insurer, notwithstanding the timeliness of the notice given by an insured (see American Tr. Ins. Co. v Sartor, 3 NY3d 71, 76 [2004]; General Acc. Ins. Group v Cirucci, 46 NY2d 862, 863-864 [1979]; U.S. Underwriters Ins. Co. v Carson, 49 AD3d at 1064; Lauritano v American Fid. Fire Ins. Co., 3 AD2d 564, 568 [1957], affd 4 NY2d 1028 [1958]).  "Significantly, the notice required of an injured party to an insurer is measured less rigidly than the notice required of an insured . . . 'since what is reasonably possible for the insured may not be reasonably practical for the injured person'" (GA Ins. Co. of N.Y. v Simmes, 270 AD2d 664, 666 [2000], quoting Jenkins v Burgos, 99 AD2d 217, 221 [1984]; accord U.S. Underwriters Ins. Co. v Carson, 49 AD3d at 1064).  "In each case, the test is one of reasonableness, measured by the diligence exercised by the injured party in light of the prospects afforded to him [or her] under the circumstances" (Jenkins v Burgos, 99 AD2d at 221 [citation omitted]; see GA Ins. Co. of N.Y. v Simmes, 270 AD2d at 666).

Here, within a few weeks of being diagnosed with herniated disks and advised of the need for surgery, Turner retained an attorney. Her attorney promptly engaged the services of a private investigator, but the investigator was unable to locate or speak with Maitland [FN1]. After ascertaining that Turner had a viable claim, Turner's attorney immediately requested in a May 1, 2007 letter, and again in an October 2007 letter, that Maitland provide notice to his insurer and to contact him if he was not insured.  Under these circumstances, the reasonableness of Turner's actions in attempting to provide notice to plaintiff presents a question of fact for the jury to resolve (see U.S. Underwriters Ins. Co. v Carson, 49 AD3d at 1064; Allstate Ins. Co. v Marcone, 29 AD3d 715, 717 [2006], lv dismissed 7 NY3d 841 [2006]; GA Ins. Co. of N.Y. v Simmes, 270 AD2d at 666-667).

Thursday, December 9, 2010

"This is not the first case of a subfloor decaying due to the lack of ventilation."

Bella-Vita LLC v. Tower Ins. Co. of N.Y.

(Sup. Ct., New York Co., decided 12/1/2010)

I'm not an engineer or a builder, but even I know that it's not a good idea to pour four inches of concrete over a wood floor that hovers above an unventilated crawlspace through which a steam pipe runs.

Plaintiff owned a five-story building in lower Manhattan.  While showing the basement of the building to a prospective tenant, plaintiff's building manager discovered that the doorway leading into the basement was sagging.  A small piece of the basement's concrete floor was opened, revealing a rotting wooden floor system beneath the concrete with a steam pipe underneath.  Plaintiff's broker notified Tower, and it sent a licensed professional engineer to inspect.

Following his inspection, the engineer opined that the extreme moisture from the damp and cramped crawl space was causing the wood to rot and deteriorate.  He also believed that the condition had existed for about 15 years.  He rejected the idea that a recent escape of steam from a broken pipe was the cause of the decaying wood.  Based on the engineer's findings, Tower denied coverage to plaintiff for damages to the property, and plaintiff commenced this suit, alleging breach of contract.

In granting Tower's motion for summary judgment, New York County Supreme Court Justice Louis York found:
  • the engineer's findings that the basement's wood joists, beams and subfloor were deteriorating, due “to high levels of moisture within the damp and unventilated crawl space” triggered the policy's exclusion for damages due to “rust, corrosion, fungus, decay, [or] deterioration, hidden or latent defect in property that causes it to damage or destroy itself”;
  • the engineer's finding that the wooden subfloor had been exposed to water seepage in the crawlspace for over 15 years triggered the policy's exclusion for damages due to "[c]ontinuous or repeated seepage or leakage of water that occurs over a period of 14 days or more";
  • "This is not the first case of a subfloor decaying due to the lack of ventilation. * * * [C]onstructing an unventilated crawl space is faulty design, because it is readily apparent that decay will ensue. * * * Given that the policy’s coverage does not include property damage deriving from defective design, Plaintiff is further barred from recovery."; and
  • there was no coverage for a collapse of the insured building since the policy limited the scope of its collapse coverage to include only an “abrupt falling down or caving in of a building ... even if it shows evidence of cracking, bulging, sagging [or] bending.”  "Hence, a building in danger of collapsing is not covered under the policy."  

Tuesday, December 7, 2010

How to Blow Up a $44 Million Personal Injury Award

Smolinski v. Smolinski

(4th Dept., decided 11/19/2010)

Not an insurance coverage case, but interesting nonetheless.

Brothers Thomas and Matthew Smolinski were in a car leased from Ford Motor Credit Company when it was involved in a single-car rollover accident, causing catastrophic injuries to Thomas that rendered him a quadriplegic.  After extensive and contentious litigation that resulted in two mistrials, the case again reached a bifurcated trial on the issue of liability at which the only issue for the jury to decide was whether defendant Matthew or plaintiff Thomas was driving the vehicle at the time of the accident.  The accident occurred in 1999, several years before the August 10, 2005 effective date of the Graves Amendment, so the lessor FMCC stood potentially liable under New York Vehicle & Traffic Law § 388.

After a month-long trial, the jury found that Matthew was driving and returned a verdict of more than $40 million.  The trial court added lost earnings, raising the award to over $44 million.  FMCC appealed, arguing in a 117-page appellate brief that it had been denied a fair trial by reason of erroneous evidentiary rulings by  the trial judge and misconduct by plaintiff's counsel, especially in her summation

After noting that "the conduct of both trial and appellate counsel for plaintiff and Ford Credit often fell short of the level of professionalism expected of officers of the court", the Fourth Department, Appellate Division, ruled that the trial court had erred in denying FMCC's post-trial motion to set aside the verdict and for a new trial.  The Fourth Department agreed with FMCC that in her summation, plaintiff's trial counsel had improperly: 
  • implied that Ford Credit's expert witnesses testified falsely for compensation;
  • repeatedly alleged that Ford Credit engaged in a conspiracy to cover up the facts; and
  • made numerous references to the resources that Ford Credit had as a large corporation.
The appellate court also agreed that the trial judge had erroneously: (1) allowed plaintiff's counsel to elicit extensive but irrelevant trial testimony regarding plaintiff's life before the accident; (2) excluded certain admissions by plaintiff that he was the driver; and (3) permitted a witness to testify to statements made to Matthew by an unidentified individual. 

Monday, December 6, 2010

Special Proceedings to Stay Uninsured Motorist Claim Arbitration Dismissed as Untimely Commenced

Matter of Allstate Ins. Co. v. Raynor

(2nd Dept., decided 11/30/2010)

Twenty days.  That's how long a party has to commence a special proceeding under CPLR 7503(c) to stay an arbitration after receiving a notice of intention to arbitrate.

Allstate waited more than five months after receiving its insured's notice of intention to arbitrate her uninsured motorist coverage claim to commence this special proceeding to stay that arbitration.  In REVERSING the order of Nassau County Supreme Court (Feinman, J.) which had denied the insured's cross motion to dismiss the proceeding as time-barred, the Second Department, Appellate Division, held:
The Supreme Court should have granted the appellant's cross motion to dismiss the proceeding as time-barred, as the proceeding was not commenced within 20 days of the June 12, 2009, notice of intention to arbitrate (see CPLR 7503[c]; Matter of Liberty Mut. Ins. Co. v Zacharoudis, 65 AD3d 1353, 1354; Matter of Goverment Empls. Ins. Co. v Castillo-Gomez, 34 AD3d 477, 478; Matter of CNA [Pough], 99 AD2d 510).
Matter of State Farm Mut. Auto. Ins. Co. v. Urban
(2nd Dept., decided 11/23/2010)

The Second Department reached the same determination in this matter.  As had Allstate in the Raynor matter, State Farm argued unsuccessfully that its subsequent receipt of a "Request for Arbitration" filed with the American Arbitration Association is what triggered the 20-day deadline to commence a special proceeding to stay arbitration pursuant to CPLR 7503(c).  The appellate court disagreed, holding:
"CPLR 7503(c) requires that an application to stay arbitration be made within 20 days after service of a notice of intention to arbitrate" (Matter of Liberty Mut. Ins. Co. v Zacharoudis, 65 AD3d 1353, 1353-1354; see Matter of Fiveco, Inc. v Haber, 11 NY3d 140, 144; Matter of Land of the Free v Unique Sanitation, 93 NY2d 942, 943; Matter of Steck [State Farm Ins. Co.], 89 NY2d 1082, 1084). To be considered a valid notice of the intention to arbitrate, the notice must identify the agreement under which arbitration is sought and the name and address of the person serving the notice in addition to containing the statutory 20-day warning that failure to commence a proceeding to stay arbitration will preclude an objection to arbitration (see CPLR 7503[c]; Matter of Blamowski [Munson Transp.], 91 NY2d 190, 195; State Farm Mut. Auto. Ins. Co. v Szwec, 36 AD2d 863).

The failure to move for a stay of arbitration within the statutory period will generally preclude objections to the arbitration after the expiration of that 20-day period (see Matter of Fiveco, Inc. v Haber, 11 NY3d at 144; Matter of Land of the Free v Unique Sanitation, 93 NY2d at 943; Matter of Steck [State Farm Ins. Co.], 89 NY2d at 1084; Matter of Liberty Mut. Ins. Co. v Zacharoudis, 65 AD3d at 1354; Matter of Hermitage Ins. Co. v Escobar, 61 AD3d 869; Matter of State Farm Ins. Co. v Williams, 50 AD3d 807, 809).

Here, once Urban served his notice of intention to arbitrate upon State Farm on December 26, 2008, the 20-day period for State Farm to move for a stay of the arbitration started to run and the subsequent service of the "Request for Arbitration" filed with the AAA did not reset the 20-day period (see Matter of Government Empls. Ins. Co. v Castillo-Gomez, 34 AD3d 477). Consequently, the Supreme Court should have granted Urban's cross motion, regardless of State Farm's contention that there was insurance coverage for the adverse motor vehicle (see Matter of State Farm Ins. Co. v Williams, 50 AD3d at 809) or the Supreme Court's determination that an issue existed with respect to whether there was contact between Urban's vehicle and the motor vehicle which left the scene (see Matter of AIU Ins. Co. v Orellana, 18 AD3d 652; Matter of Merchants Mut. Ins. Co. v Anemone, 271 AD2d 690). Thus, the proceeding should have been dismissed as time-barred (see Matter of Liberty Mut. Ins. Co. v Zacharoudis, 65 AD3d at 1354; Matter of Hermitage Ins. Co. v Escobar, 61 AD3d at 869).
The Second Department also held that the lower court erred in directing discovery in the event the matter proceeded to arbitration because "a failure to move to stay arbitration within the applicable 20-day time period is a bar to judicial intrusion into the arbitration proceedings[.]"  The court also reasoned that because State Farm had repudiated its liability for Urban's claim in an earlier disclaimer letter, it could not thereafter insist upon adherence to the terms of its policy.

A Minor Factual Discrepancy Does Not a Defective NF-10 Make

Westchester Med. Ctr. v. Nationwide Mut. Ins. Co.

(2nd Dept., decided 11/30/2010)

Plaintiff hospital sued Nationwide for monetary damages as a result of defendant's alleged failure to make timely payments on plaintiff's no- fault insurance claims, specifically $124,996 plus statutory no-fault interest and attorney's fees.  Plaintiff moved for summary judgment and Nationwide opposed the motion.

Nassau County Supreme Court (Karen V. Murphy, J.) denied plaintiff's motion, holding:
To meet its burden and establish its entitlement to judgment as a matter of law, Plaintiff must submit evidence that the prescribed statutory biling forms have been timely mailed and received, and that the defendant failed to pay or deny the claim within the requisite 30-day period (See N.Y. and Presbyterian Hosp. v. Allstate Ins. Co., supra; LMK Psychological Serv., P.C. v. Liberty Mut. Ins., supra, Mount Sinai Hosp. v. Joan Service Corp.,  22 A.D.3d 649, 803 N.Y.S.2d 102 (2d Dept., 2005)).  Plaintiff has failed in meeting its burden.  This Court is satisfied that Defendant did partially deny the claim in a timely fashion by indicating the fees sought were not in accordance with the applicable fee schedules.   This Court does not find that the forms submitted were defective or improperly identified the applicant for benefits.
Plaintiff appealed and the Second Department, Appellate Division, AFFIRMED: 
Here, the plaintiff failed to establish its prima facie entitlement to judgment as a matter of law on its claim for benefits since the evidence demonstrates that the defendant made a partial payment and a partial denial of the claim within 30 days after receipt thereof (see New York & Presbyt. Hosp. v Allstate Ins. Co., 31 AD3d 512; see generally Alvarez v Prospect Hosp., 68 NY2d 320).

Furthermore, under the circumstances of this case, the minor factual discrepancy contained in the defendant's denial of claim form did not invalidate the denial. In addition, the denial was not conclusory or vague, and did not otherwise involve a defense which had no merit as a matter of law (see Nyack Hosp. v State Farm Mut. Auto. Ins. Co., 11 AD3d 664, 665, quoting Amaze Med. Supply v Allstate Ins. Co., 3 Misc 3d 43, 44; cf. New York Univ. Hosp. Rusk Inst. v Hartford Acc. & Indem. Co., 32 AD3d 458, 460; Nyack Hosp. v Metropolitan Prop. & Cas. Ins. Co., 16 AD3d 564).

Since the plaintiff failed to establish its prima facie entitlement to judgment as a matter of law, we need not consider the sufficiency of the defendant's papers in opposition to the motion (see Moore v Stasi, 62 AD3d 764; Marshak v Migliore, 60 AD3d 647). Accordingly, the Supreme Court properly denied the plaintiff's motion for summary judgment on the complaint.
If any readers know exactly what the "minor factual discrepancy" of the NF-10 was, please let us all know in a comment to this post.  Thanks.