Friday, December 23, 2011

"Stage Hand" Exclusion Found to be Ambiguous

Dzielski v. Essex Ins. Co.

(4th Dept., decided 12/23/2011)

We all know that courts construe policy exclusions narrowly and, when they are found to be ambiguous, against the insurer.  But it's seemingly getting tougher and tougher to sustain exclusion-based denials in New York's Fourth Judicial Department.  Is the "clear and unmistakable language ... subject to no other reasonable interpretation" standard of construing policy exclusions ever attainable when a court wants to find coverage?1

The Merriam-Webster dictionary defines the intransitive verb "participate" to mean:

a : to take part
b : to have a part or share in something

The "stage hand" exclusion of the "Restaurant, Bar, Tavern, Night Clubs, Fraternal and Social Clubs Endorsement" of Essex' commercial liability policy negated liability coverage for "bodily injury, ... or any injury, loss or damage arising out of ... [i]njury to any entertainer, stage hand, crew, independent contractor, or spectator, patron or customer who participates in or is a part of any athletic event, demonstration, show, competition or contest[.]"

Plaintiff provided sound equipment to a band that was performing at Essex' insured's nightclub.  After the show, plaintiff was carrying some of his equipment from the nightclub to his truck when he fell from the nightclub's allegedly defective loading dock, sustaining injuries.  Essex denied liability coverage to the nightclub based on the policy's "stage hand" exclusion, and plaintiff obtained a $950,000 default judgment against the insured nightclub in his personal injury action.  Plaintiff then brought this action against Essex to recover that judgment pursuant to New York Insurance Law § 3420(b)(1).  Supreme Court, Erie County (Diane Y. Devlin, J.), granted plaintiffs' motion and denied Essex' cross motion for summary judgment, awarding plaintiffs the entire $950,000 underlying judgment amount, plus interest and costs, even though the Essex policy had a $500,000 per occurrence liability coverage limit.  Essex appealed.

In a 3-2 decision, the three-justice majority of the Appellate Division, Fourth Department, AFFIRMED the judgment appealed from, agreeing with the motion court that the exclusion's language was ambiguous:
It is axiomatic that, "to negate coverage by virtue of an exclusion, an insurer must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case' " (Belt Painting Corp. v TIG Ins. Co., 100 NY2d 377, 383).  We agree with plaintiffs that the language "participates in or is a part of any . . . show" is ambiguous, and that the court properly resolved that ambiguity against the insurer, "particularly [because it is] an exclusionary clause" (Ace Wire & Cable Co. v Aetna Cas. & Sur. Co., 60 NY2d 390, 398). Although, as defendant suggests, the policy language may be read broadly to encompass all persons who performed any tasks in connection with the show, including loading and unloading sound equipment, it may also reasonably be read narrowly to encompass only those persons who actually performed in the show or were injured as a result of activities occurring during the show. It is undisputed that the accident occurred after the show had ended, and we note in particular that the accident was caused by a defect in the premises that was wholly unrelated to the show itself. We thus conclude that the court properly determined that the exclusion does not apply in this case.

We reject defendant's contention that the inclusion of the phrase "arising out of" in the exclusion mandates the broader interpretation espoused by defendant. Even assuming, arguendo, that the phrase "arising out of" is interpreted as "originating from, incident to, or having connection with" (Maroney v New York Cent. Mut. Fire Ins. Co., 5 NY3d 467, 470 [internal quotation marks omitted]), we note that coverage is excluded only if an accident originates from, is incident to or has connection with a person's "participat[ion]" in a "show." Here, it cannot be said that there is no ambiguity concerning whether the accident arose out of plaintiff's participation in a show, which in fact had ended before the accident occurred.
While ruling against Essex on the coverage issue, the majority did at least recognize that a judgment creditor proceeding via Insurance Law § 3420(b)(1) against the judgment debtor's liability insurer may not recover more than the limit of the judgment debtor's liability coverage, which in this case was $500,000 per occurrence, less a $500 deductible.  Consequently, the majority reduced the award against Essex from $950,000 to $499,500, plus interest and costs. 

Justices Fahey and Peradotto dissented, all but guaranteeing an appeal of this case to the New York Court of Appeals.  The dissenting justices concluded that the language "participates in or is a part of any . . . show" is not ambiguous, and that the plaintiff fell squarely within that language:
[P]laintiff was hired by the band to provide sound reinforcement services for the show, and thus there is no question that he "participate[d] in or [wa]s a part of" the show on the night of his accident. The majority's conclusion that such clause may "reasonably be read narrowly to encompass only those persons who actually performed in the show or were injured as a result of activities occurring during the show" is not supported by the plain language of the exclusion. First, if the exclusion was intended to apply only to those persons who "actually performed" in a show, then the language "spectator, patron or customer" in the exclusion would be superfluous. Second, such an interpretation imposes a temporal limitation on the exclusion where no such limitation appears therein. Indeed, if defendant had intended to limit the exclusion in that manner, it could have done so explicitly as it did in other provisions of the policy (see Maroney v New York Cent. Mut. Fire Ins. Co., 5 NY3d 467, 473). For example, the policy's medical payments coverage provision specifically excludes expenses for bodily injury "[t]o a person injured while taking part in athletics" (emphasis added). Similarly, the policy's "combination endorsement" excludes expenses for bodily injury or personal injury to any person "while practicing for or participating in any event or function of a sporting or athletic nature" (emphasis added). Here, by contrast, the absence of such limiting language in the exclusion in question reflects an intent to provide a broad exclusion for all injuries arising from participation in shows or other special events (see Maroney, 5 NY3d at 473).
With respect to the majority's rejection of the broadening effect of the exclusion's "arising out of" language, the dissenters, relying on New York Court of Appeals' case law, noted:
We further conclude that plaintiff's injury "ar[o]se[] out of" his participation in the show within the meaning of the exclusion.  In the insurance context, the phrase "arising out of" has been broadly interpreted to mean "originating from, incident to, or having connection with" (Maroney, 5 NY3d at 472 [internal quotation marks omitted]; see Regal Constr. Corp. v National Union Fire Ins. Co. of Pittsburgh, PA, 15 NY3d 34, 38). Here, plaintiff's accident occurred while he was in the process of removing his sound equipment from the nightclub. The process of packing up and removing sound equipment at the conclusion of a show necessarily "originat[es] from, [is] incident to, or ha[s] connection with" the show (Maroney, 5 NY3d at 472 [internal quotation marks omitted]). The fact that plaintiff's accident was allegedly caused by the defective nature of the loading dock rather than any condition of the show itself does not remove plaintiff's injury from the policy exclusion. "[T]he focus of the inquiry is not on the precise cause of the accident but the general nature of the operation in the course of which the injury was sustained" (Regal Constr. Corp., 15 NY3d at 38). Indeed, "the phrase arising out of' . . . requires only that there be some causal relationship between the injury and the risk for which coverage is provided" (Maroney, 5 NY3d at 472), and such a causal relationship clearly exists here.
With its double dissent, expect this case to head to Albany.   Although the "stage hand" exclusion itself may not be of great interest to most liability insurers doing business in New York, the "participates in" and "arising out of " language of that exclusion, and the New York courts' interpretation of those phrases, should be.

Post Script (July 11, 2012) ~~ On June 5, 2012, the New York Court of Appeals unanimously REVERSED this decision for the reasons given by the dissenting justices at the Fourth Department in a very short memorandum decision that you can read here.

1. Rhetorical coverage question.

Wednesday, December 21, 2011

... and Sometimes the Bar Eats You

Tower Ins. Co. of N.Y. v. NHT Owners LLC

(1st Dept., decided 12/20/2011)

Those of you who read the advance sheets know that Tower Insurance Company has successfully defended many late notice disclaimers, especially in the Appellate Division, First Department, where Tower is headquartered.  Reporting delays of 3 months, 5 months, 5 months, 7 months, 9 months, and 9 months to Tower have been ruled unreasonable as a matter of law, entitling Tower to summary judgment.  Most of the reported case law to date, of course, was decided under New York's "old" no-prejudice rule; under most New York liability policies issued, renewed or modified on and after January 17, 2009, insurers must demonstrate that they were prejudiced by their insureds' delayed reporting in order successfully to disclaim coverage based on such late notice.

In this latest episode of late notice limbo, Tower disclaimed liability coverage to the defendant insureds in this case based on their 62-day delay in notifying Tower of an accident in which an individual fell from a ladder in an elevator at defendants' premises.  The insureds were aware of the accident on the day it occurred.  Supreme Court, New York County (Marcy S. Friedman, J.) granted the defendant insureds' cross motion for summary judgment against Tower in this declaratory judgment action, and Tower appealed.

In unanimously AFFIRMING the order appealed from, with costs, the Appellate Division, First Department, found it unnecessary to reach the issue of whether the insureds' 62-day reporting delay was timely because Tower's 33-day delay in disclaiming was, in the First Department's opinion, untimely as a matter of law:
A liability policy that requires an insured to provide notice of an occurrence to its insurer "as soon as practicable" obligates the insured to give notice of the occurrence within a reasonable period of time (Great Canal Realty Corp. v Seneca Ins. Co., 5 NY3d 742, 743 [2005]). However, we need not reach the question of whether, under all the circumstances, the insureds' notice of claim, 62 days after the occurrence, was timely, where they conducted an inquiry into the underlying accident, and believed there was no liability (see Security Mut. Ins. Co. of N.Y. v Acker-Fitzsimons Corp., 31 NY2d 436, 441 [1972]) because the court properly held that the notice of disclaimer, after a 33-day period, was untimely as a matter of law (see Ins Law § 3420[d]; First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 68-69 [2003]; see e.g. West 16th St. Tenants Corp. v Public Serv. Mut. Ins. Co., 290 AD2d 278 [2002], lv denied 98 NY2d 605 [2002]). The insurer's sole ground for the disclaimer of coverage was the insured's delay in notifying it of the occurrence, which was readily apparent at the time of the notice of claim (see First Fin. Ins. Co., 1 NY3d at 69). 
The New York courts have recognized a number of excuses to an insured's late notice of occurrence:
  • reasonable, good faith belief in non-liability
  • de minimus injury
  • ignorance of coverage
In effect, a liability insurer's untimely disclaimer of coverage can also operate to excuse an insured's late notice.  New York Insurance Law § 3420(d)(2) requires that for bodily injury or death claims arising out of New York accidents, liability insurers must disclaim liability or deny coverage in writing "as soon as is reasonably possible" to the insured and the injured person or any other claimant.

How soon is that?  In this case, 33 days was not as soon as reasonably possible.  But that's not the New York state record.  30 days is.  Where the ground or grounds for the liability insurer's disclaimer are "readily apparent" from the time of the insured's first notice of claim, any delay by the insurer in disclaiming liability or denying coverage will be scrutinized by the New York courts.  Here are the low water marks in New York for what have been found to be untimely disclaimers as a matter of law:

30 daysWest 16th Street Tenants Corp. v. Public Service Mut. Ins. Co., 290 AD2d 278 (1st Dept. 2002)
37 days2833 Third Ave. Realty Assocs. v. Marcus, 12 AD3d 329 (1st Dept. 2004)
41 daysMatter of Nationwide Mut. Ins. Co. v. Steiner, 199 AD2d 507(2nd Dept. 1993)
48 daysFirst Fin. Ins Co. v. Jetco Contr. Corp., 1 NY3d 64 (Ct. Apps. 2003)
60 daysMilbank Housing Dev. Fund v. Royal Indem. Co., 17 AD3d 280 (1st Dept. 2005)

Monday, December 19, 2011

Claim Professionals Cannot be Held Personally Liable

O'Keefe v. Allstate Ins. Co.

(2nd Dept., decided 12/13/2011) 

There's nothing new in this decision, but it sets forth a number of important and useful principles relating to the defense of first-party property coverage disputes:

Personal Liability of Claims Professionals 

Agents of a disclosed principal cannot be held personally liable for the principal's breach of contract.  Supreme Court properly dismissed this action against the Allstate claims professionals who were named as individual defendants in the complaint.  
The Supreme Court properly granted that branch of the defendants' motion which was pursuant to CPLR 3211(a)(7) to dismiss the complaint insofar as asserted against the individual defendants, Mark Malenczak, David Mateer, and Freida Hicks (hereinafter collectively the individual defendants), all employees of the defendant Allstate Insurance Company (hereinafter the insurer), as they cannot, under the circumstances of this case, be held personally liable to the plaintiffs (see Bardi v Farmers Fire Ins. Co., 260 AD2d 783, 787; Schunk v New York Cent. Mut. Fire Ins. Co., 237 AD2d 913, 915; Benatovich v Propis Agency, 224 AD2d 998, 998-999). 
Fraud Cause of Action

If a complaint's fraud cause of action relates directly to its breach of contract cause of action, it must be dismissed.  
With respect to the complaint insofar as asserted against the insurer, the third cause of action sounds in fraud but relates directly to the breach of contract claims, in that it alleges that the insurer's actions were undertaken to avoid paying the plaintiffs the amounts specified in their insurance policy. Accordingly, the third cause of action cannot be sustained (see Pepper v Hezghia, 307 AD2d 959, 960; Schunk v New York Cent. Mut. Fire Ins. Co., 237 AD2d at 913-915; F. Nathanson & Co. v Marinello, 192 AD2d 575; Manshul Constr. Corp. v City of New York, 143 AD2d 333, 336). 
Attorneys' Fees

As a general rule, attorneys' fees are not recoverable in a breach of contract action.  An insured may not recover the expenses incurred in bringing an affirmative action against an insurer to settle the insured's rights under the policy.
Moreover, the Supreme Court properly granted that branch of the motion which was to dismiss so much of the complaint as sought an award of an attorney's fee against the insurer. An "insured may not recover the expenses incurred in bringing an affirmative action against an insurer to settle its rights under the policy" (New York Univ. v Continental Ins. Co., 87 NY2d 308, 324; see Mighty Midgets v Centennial Ins. Co., 47 NY2d 12, 21).
Punitive Damages

Punitive damages are not recoverable unless the complaint alleges facts supporting the contention that the insurer's conduct was egregious or fraudulent, or that it evidenced wanton dishonesty so as to imply a criminal indifference to civil obligations directed at the public generally.  Private breach of contract disputes generally do not warrant punitive damages.
Further, punitive damages are not warranted, as "[t]he insureds failed to set forth any facts or allegations to support their contention that the defendant insurer'[s] conduct was egregious or fraudulent, or that it evidenced wanton dishonesty so as to imply a criminal indifference to civil obligations directed at the public generally. This case is, in effect, simply a private breach of contract dispute between the insurer[ ] and [its] insureds with no greater implications" (Flores-King v Encompass Ins. Co., 29 AD3d 627, 627; see Rocanova v Equitable Life Assur. Socy. of U.S., 83 NY2d 603, 615).

Friday, December 16, 2011

Don't Ask, Don't Tell Me You Have a Good Faith Belief in Nonliability

Fine Line Bldrs. & Remodelers, Inc. v. Atlantic Cas. Ins. Co.

(2nd Dept., decided 12/13/2011) 

Atlantic Casualty disclaimed liability coverage based on its insured's late notice of an accident.  The insured attempted to explain its late notice by claiming that it had a good faith belief in nonliability, one of the judicially recognized excuses for late notice in New York.  The motion court was unpersuaded, granting summary judgment to Atlantic Casualty in this declaratory judgment action.

The Appellate Division, Second Department, AFFIRMED, noting:
The plaintiff's claim that it had a reasonable, good faith belief in nonliability was belied by its failure to inquire into the circumstances of the accident at issue in the underlying action (see Great Canal Realty Corp. v Seneca Ins. Co., Inc., 5 NY3d 742, 743; Security Mut. Ins. Co. of N.Y. v Acker-Fitzsimons Corp., 31 NY2d 436, 441; Hanson v Turner Constr. Co., 70 AD3d 641; York Specialty Food, Inc. v Towers Ins. Co. of N.Y., 47 AD3d 589, 590; St. Nicholas Cathedral of Russian Orthodox Church in N. Am. v Travelers Prop. Cas. Ins. Co., 45 AD3d 411; Felix v Pinewood Bldrs., Inc., 30 AD3d at 461).
Belied:  to show something to be false or wrong.

Insureds who do not inquire into the circumstances of a known accident may not legitimately claim that they had a reasonable, good faith belief in nonliability so as to excuse their late reporting of the accident to their liability insurers.

Coverage Counsel Honored as a LexisNexis Top Insurance Law Blog for 2011

I am pleased to announce that this blog has again been selected as a LexisNexis Top Blog for Insurance Law. The top blogs were nominated by the LexisNexis Insurance Law Community members.

From LexisNexis:

After some very careful review and a great deal of deliberation, the LexisNexis Insurance Law Community has selected its Top Insurance Blogs for 2011.

We’d like to express gratitude to our Community members for your comments and suggestions. All of you submitted many of the new names on the 2011 Top Blogslist and we thank you for infusing fresh talent into our Community. We also want to especially thank the LexisNexis Insurance Law Advisory Board for giving us their input.

These top blogs offer some of the best writing out there. They contain a wealth of information for all segments of the insurance industry, and include timely news items, expert analysis, practice tips, frequent postings and helpful links to other sites and sources.

These sites demonstrate the power of the blogsphere, by providing a collective example of how bloggers can—and do—impact and influence the law and the business of insurance.

Thank you Coverage Counsel readers for your continued support and input.

Here's the full list of the 42 top insurance blogs:
  1. Ask Tim (Tim Dodge, Independent Insurance Agents & Brokers of NY)
  2. Binding Authority (Randy J. Maniloff)
  3. Boston ERISA and Insurance Litigation Blog (Stephen Rosenberg)
  4. Corporate Insurance Blog (Scott Godes)
  5. Coverage Counsel (Mura & Storm)
  6. CyberInquirer (Cozen O’Connor)
  7. Disability Insurance Lawyer Blog (Frankel & Newfield)
  8. Gauntlett on Intellectual Property/Antitrust Insurance (David A. Gauntlett)
  9. GC Capital Ideas (Guy Carpenter)
  10. GlobalTort (Kirk Hartley, Steve Sellick and Tim Greene)
  11. Healthblawg (David Harlow)
  12. Health Care Law Reform (McDermott Will & Emery)
  13. Insurance Claims and Issues (Dennis Wall)
  14. Insurance Class Actions Insider (Wystan Ackerman)
  15. Insurance Coverage Corner (Carlock, Copeland & Stair)
  16. Insurance Coverage Law Blog (Dunn Carney Allen Higgens & Tongue LLP)
  17. Insurance Coverage Law in Massachusetts (Nina Kallen)
  18. Insurance Litigation and Regulatory Law Blog (Barger & Wolen LLP)
  19. Insurance Law Hawaii (Tred R. Eyerly)
  20. InsureReinsure (Edwards Wildman Palmer LLP)
  21. Life, Health and Disability Insurance Blog (Barger & Wolen LLP)
  22. Life Insurance Law Blog (Currin Compliance Services LLC)
  23. Loree Reinsurance and Arbitration Law Forum (Loree & Loree)
  24. National Insurance Law Forum (National Insurance Law Forum)
  25. Nevada Insurance Law Blog (Mills & Associates Law Firm)
  26. No-Fault Defender (Jason Tenenbaum)
  27. North Carolina Insurance Law (George Simpson)
  28. PLUS Blog (Professional Liability Underwriting Society)
  29. Policyholder Perspective (Farella Braun + Martel LLP)
  30. Property Insurance Coverage Law Blog (Merlin Law Group)
  31. Reinsurance Focus (Jorden Burt LLP)
  32. reinsurance girl’s blog (Rein4ce)
  33. Reinsurance Law Blog (Stauffer & Nathan)
  34. Risk Management Monitor (RIMS)
  35. Subrogation & Recovery Law Blog (Cozen O’Connor)
  36. Tennessee Insurance Litigation Blog (Brandon McWherter and Parks T. Chastain)
  37. Terms + Conditions (Insurance Information Institute)
  38. The D&O Diary (Kevin M. LaCroix)
  39. The Insurance and Reinsurance Report (Goldberg & Segalla)
  40. Tort Talk (Dan E. Cummins)
  41. Traub Lieberman Insurance Law Blog (Brian Margolies)
  42. Zalma on Insurance (Barry Zalma)

Thursday, December 15, 2011

New York Appellate Court Holds that Third-Party Diminution in Value Damages Are Recoverable in Addition to Cost of Repairs for Personal Property that Appreciates in Value

Franklin Corp. v Prahler

(4th Dept., decided 11/10/2011) 

Spoiler alert: it could be said that this decision makes new law in New York on the issue of whether third-party diminution of value damages for a motor vehicle are recoverable in addition to the cost of repairs even if the repairs restore the vehicle to its pre-accident condition.  In the opinion of the Appellate Division, Fourth Department, they are if the personal property or vehicle in question is the type that appreciates in value.
Plaintiff owned a 550-hp 2005 Ford GT sportscar1, one of only 4083 ever built.  The MSRP in 2005 for one of these cars was $149,995, but plaintiff claimed the GT "is a rare collector's sports car rapidly appreciating in value."  On May 28, 2005, defendant's 1997 Jeep Cherokee (MSRP $20,460) brushed up against and allegedly damaged2 the plaintiff's GT while it was parked on a street in the Chippewa bar district of downtown Buffalo, New York.

Defendant's personal auto insurer, State Farm, estimated the cost of repairing the damage to plaintiff's GT to be $3,484.35.  Plaintiff sued the defendant in negligence, seeking $52,000 in damages.  Plaintiff claimed that even if the GT were fully repaired, the mere fact that it had been in an accident had diminished its market value by $40,000 because it would no longer be in its "original factory condition."  Plaintiff also claimed that repairing the GT would itself cause the vehicle to lose market value because it would no longer be in its original factory condition.   As of March 2009 when plaintiff's president was deposed, the GT had 2,500 miles on it and had not been repaired.

On the eve of trial, defendant made a motion in limine seeking to preclude plaintiff's two expert appraisers from "giving expert opinion testimony" at the damages trial.3  Defendant also requested that the court charge New York Pattern Jury Instruction (PJI) 2:311, entitled "Damages—Property with Market Value", which states:
If plaintiff's . . . automobile . . . was damaged by the defendant's negligence, you will award to the plaintiff as damages the difference between its market value immediately before and immediately after it was damaged, or the reasonable cost of repairs necessary to restore it to its former condition, whichever is less.

Thus, if the reasonable cost of repairs exceeds the reduction in market value, you will award the amount by which the market value was reduced.  If the reasonable cost of repairs is less than the reduction in market value, you will award to the plaintiff the reasonable cost of repairs required to restore the . . . automobile . . . to its condition immediately before it was damaged.
Plaintiff cross-moved in limine and submitted its own proposed post-trial jury charge based on PJI 1:60:
In this case the plaintiff claims that it has suffered damage to its automobile as a result of the accident caused by the defendant.  Plaintiff further claims that the measure of damages is the difference between the market value of the vehicle immediately prior to the accident and the value after the accident. It is plaintiff's contention that even with repairs to return the vehicle to its pre-loss condition in terms of appearance and function, this particular vehicle is worth less after the accident simply because it was involved in an accident.
Citing Johnson v. Scholz, 276 A.D. 163 (2nd  Dept. 1949), plaintiff also requested that the following jury charges on damages be given: 
Where the repairs do not restore the property to its condition before the accident, the difference in the market value immediately before the accident and after the repairs have been made may be added to the costs of repairs.
When, as in this case, the property damaged is a limited edition collector item[,] the plaintiff may recover the difference in money between the market value of the property before and after the damage. In determining the amount of such loss, you will consider the evidence presented with respect to: witnesses experienced in the trade of the specialized market, testimony as to the market for such property, the distinction in value between two similar collector items where one has been damaged and repaired and one that has never been damaged and repaired, together with all other evidence presented to establish the value of the vehicle and the extent of plaintiff's damage.
The trial court granted defendant's motion in limine and, concluding that the case was controlled by the Second Department's decision in Johnson v. Scholz, ruled that the jury would be instructed that the measure of damages would be either the diminution in value or the reasonable cost of repair, whichever was less.  Recognizing that its ruling would limit the proof and issues at trial,the court ordered that the trial would be stayed pending plaintiff's appeal of its decision to the Appellate Division.

In REVERSING the trial court's decision on defendant's motion in limine, the Appellate Division, Fourth Department, in a unanimous opinion written by Justice Martoche, concluded that the trial court erred in limiting plaintiff's proof at trial with respect to the diminution in value of the GT and thus that plaintiff was entitled to the charges it requested on that issue.

Distinguishing Johnson, the Fourth Department noted that there was no evidence that the automobile in Johnson had appreciated in value from the time of its purchase, as plaintiff contended the GT did in this case.  The Fourth Department likened the GT more to the plaintiff's violin in Schalscha v Third Ave. R.R. Co., a First Department, Appellate Division, decision from 1897, in which the court held that the plaintiff could recover not only the cost to repair the damaged violin but also its after-repair depreciation in value.

In support of its decision, the Fourth Department quoted Restatement of Torts § 928, entitled "Harm [t]o [C]hattels", which provides:
Where a person is entitled to a judgment for harm to chattels not amounting to a total destruction in value, the damages include compensation for 
(a) the difference between the value of the chattel before the harm and the value after the harm or, at the plaintiff's election, the reasonable cost of repair or restoration where feasible, with due allowance for any difference between the original value and the value after repairs, and 
(b) the loss of use.
Noting that a majority of jurisdictions have adopted Restatement of Torts § 928 to conclude that a plaintiff may recover the reduction in value after repairs are made, the Fourth Department reasoned that the trial court was not constrained to charge the jury with New York PJI 2:311, which was based on the holding in Johnson.  While not disagreeing with the holding in Johnson, the Fourth Department seemingly created an exception to the Johnson rule, stating:
Conversely, there can be no doubt that, under a general theory of damages, a plaintiff is entitled to be made whole. The situation presented here is somewhat unusual in that the GT has allegedly increased in value since the time of purchase, unlike most motor vehicles that would have diminished in value from the time of purchase to the time of the accident.  Where a vehicle, like any other piece of personal property, has increased in value and is subsequently damaged by the negligence of the defendant, the plaintiff should be entitled to recover the cost of that diminution in value.  Otherwise, the plaintiff will not be made whole.  In our view, PJI 2:311 was intended to cover the situation in Gass (264 NY at 143-144), where personal property has depreciated from its original market value and is then damaged by the negligence of the defendant.  The plaintiff in such a case will be entitled to recover the costs of repairs or the diminution in value, whichever is less.
If personal property appreciates in market value from the time of its acquisition and is damaged by the negligence of another, the rule of this decision allows for the third-party recovery of both repair costs and proven diminished value IF repairs are actually made.  If, however, like most chattel (personal property), if the property's original market value has depreciated, then its owner will be limited to recover either the reasonable cost of repairs or the property's diminished value, whichever is less. 

The actual impact of this decision to personal auto and liability insurers should be minimal since most personal property depreciates rather than appreciates in market value after acquisition.  It marks, however, what could be considered a "new" rule in New York.  New, at least, to the 20th and 21st centuries. 

Post Script (August 29, 2012) ~~ I tried this case to a jury for the defendant, Justin Prahler.  Verdict returned today.  $0.00 in repair costs.  $0.00 in diminished value.  Huge.

1. The decision says 2000, but Ford built the GT for model years 2005 and 2006 only.

2. Substantial dispute exists between the parties as to whether the GT sustained any damage at all from its contact with the defendant's Jeep. If anything, the damage was cosmetic only.  My office represents the defendant in this action.

3.  The court previously granted plaintiff's motion for partial summary judgment on negligence liability against the defendant.

Wednesday, December 14, 2011

Homeowner Insurer's Failure to Timely Respond to Insured's Proof of Loss or Send 90-Day Delay Letters Does Not Preclude Exclusion-Based Coverage Defenses

Mallory v. Allstate Ins. Co.

(2nd Dept., decided 12/6/2011) 

Section 216.6 (c) of New York Insurance Regulation 64 (Title 11 NYCRR Part 216) requires an insurer, "[w]ithin 15 business days after receipt by the insurer of a properly executed proof of loss and/or receipt of all items, statements and forms which the insurer requested from the claimant," (30 days if the insurer suspects that the claim involves arson) to advise a claimant, or a claimant's representative, in writing, (1) of its acceptance or rejection of the claim, or (2) that it needs more time to determine whether the claim should be accepted or rejected. Thereafter, if the claim remains unsettled, unless the matter is in litigation or arbitration, the insurer must, 90 days from the date of the initial letter setting forth the need for further time to investigate, and every 90 days thereafter, send to the claimant or the claimant's authorized representative a letter setting forth the reasons additional time is needed for investigation.  These letters are sometimes called "delay letters" by property claims representatives.

What if the insurer fails to comply with this regulatory requirement by not responding to the insured's proof of loss or claim submission or sending the 90-day delay letters within the required time period?  Is the insurer precluded from raising and relying on policy exclusions to deny coverage?  No, says the Appellate Division, Second Department.  Again.

Plaintiff commenced this action to recover the proceeds of a fire insurance policy. Allstate asserted several affirmative defenses based on policy exclusions. Plaintiff moved to dismiss Allstate's exclusion-based affirmative defenses on the ground that it was precluded from raising those defenses because of its failure to comply with 11 NYCRR § 216.6(c) in processing the plaintiff's claim.  Supreme Court denied plaintiff's motion and, reaffirming its 2004 decision in De Marinis v Tower Ins. Co. of N.Y., the Appellate Division AFFIRMED:
In De Marinis v Tower Ins. Co. of N.Y. (6 AD3d 484, 486-487), this Court held that a failure to comply with 11 NYCRR 216.6(c) does not preclude an insurance company from relying on a policy exclusion to disclaim coverage. We decline the plaintiff's invitation to overrule De Marinis. Accordingly, the plaintiff did not demonstrate that the defenses were without merit as a matter of law (see CPLR 3211[b]; Galasso, Langione & Botter, LLP v Liotti, 81 AD3d 880, 882). 
The potential consequence of not complying with 216.6(c) is administrative sanction, not defense preclusion.

Editor's Note (02.07.14) ~~  The New York Court of Appeals unanimously AFFIRMED this decision on August 28, 2012, holding:
Under the facts of this case, the Appellate Division correctly determined that an insurer's failure to comply with 11 NYCRR 216.6 (c) in processing a claim does not preclude that insurer from relying upon a policy exclusion to disclaim coverage.

Tuesday, December 13, 2011

Appellate Division, First Department, Holds that Fee Schedule is a Precludable Defense

Mercury Cas. Co. v. Encare, Inc.

(1st Dept., decided 12/13/2011) 

If a New York no-fault insurer does not issue a timely denial of PIP benefits, is it precluded from limiting payment to the amounts prescribed by the New York workers' compensation fee schedule?  In the opinion of the Appellate Division, First Department, the answer is YES, it is precluded from asserting the fee schedule defense.
Nor do we find it significant, in light of the genesis and purposes of the preclusion rule, that Insurance Law § 5108 prohibits a medical provider from seeking fees in excess of the fee schedule. Virtually every application of the preclusion rule involves the compromise of statute, policy provision, or judge-made rule in service of effectuating the important purposes of the No-Fault Law. The expansion of the lack of coverage exception proposed by Mercury would substantially weaken the long-established rule of preclusion.
Jason Tenenbaum, who represented Mercury in this case, offers his observations of this decision here.

Madness.  Simply madness.

Wednesday, December 7, 2011

Why I Haven't Been Blogging

Since mid-November I've been occupied with getting ready for and trying this, this, this, this and this.  Yes, the trial judge really did call my client's intentional acts defense "incomprehensible".  We'll see what the jury thinks.  Deliberations and verdict should come tomorrow.

Update ~~ December 13, 2011

After another day of trying the case against two lawyers, one to my side and one in front of me on the bench, the jury swiftly returned a verdict for the plaintiff.  Final two news stories are here and here.  I guess in the end it didn't matter that I was able to get both plaintiff's experts to concede that they could not definitively say that the largest of the three areas of fire origin was electrical in cause (because they couldn't say that the sections of BX cable they found in the largest area of origin nearly two years after the fire were actually connected to anything and energized at the time of the fire).  And despite plaintiff's expert having offered a new and different theory of fire spread and ignition at trial, the judge refused to let me recall my fire origin and cause expert as a rebuttal witness.

My client is considering an appeal.  The damages trial starts January 17, 2012.