Insurance Circular Letter No. 11 (2019) -- RE: New York State Child Victims Act and Related Insurance

Yesterday the New York State Department of Financial Services issued Circular Letter No. 11 (2019) RE: New York State Child Victims Act and Related Insurance.  If you're wondering why New York's insurance regulator thought it necessary to tell insurance licensees in the state of New York what the DFS "expects" (x4) and "encourages" (x13) its licensees to do with CVA-related insurance claims, read on.  

Insurance Circular Letter No. 11 (2019)

September 12, 2019

TO:	All Authorized Property/Casualty Insurers, Licensed Insurance Producers, Adjusters, and Reinsurers
RE:	New York State Child Victims Act and Related Insurance

STATUTORY AND REGULATORY REFERENCES:   N.Y. Financial Servs. Law; N.Y. Ins. Law §§ 1303, 2110 and 2601; 11 NYCRR Parts 216 (Insurance Regulation 64) and 243 (Insurance Regulation 152); Chapter 11 of the Laws of 2019.

I. Purpose

The purpose of this circular letter is to inform all authorized property/casualty insurers, licensed insurance producers, adjusters, and reinsurers (collectively, “Addressees”) that the Department of Financial Services (“Department”) expects Addressees to cooperate fully with the intent of the Child Victims Act (“CVA”).

II. Discussion

Governor Andrew M. Cuomo signed the CVA into law on February 14, 2019 as Chapter 11 of the Laws of 2019. Among other things, the CVA extended the time for victims of sexual abuse to commence a civil action and reopened previously time-barred legal claims for a one-year window beginning August 14, 2019. Victims may sue or employ alternative dispute resolution methods to pursue legal claims against alleged perpetrators, the organizations that employed the alleged perpetrators at the time of the acts, and other persons or organizations that may have responsibility for the acts or liability for the harm done (collectively, “potential defendants”).

All of the Addressees that issued policies to potential defendants (hereinafter “Insurers”) are therefore on notice that legal claims may arise for which Insurers may have liability under those policies.  Additionally, over time, some Insurers have been acquired by, or merged into, other companies.  In such cases, the successors-in-interest to the Insurers that issued the policies with such exposures may have assumed such liabilities and are similarly on notice.  Addressees who assumed business from such Insurers similarly should assess their exposures and act in good faith to address their liabilities, as should retrocessionaires.

The Department expects Addressees to cooperate fully with the intent of the CVA.  This includes when insurance coverage applies to CVA-related claims.  The CVA highlights the importance of victims’ claims being timely reviewed by courts, alternative dispute resolution entities, or other tribunals, to reach appropriate resolutions and provide remedial benefits to victims.

Accordingly, the Department encourages all Addressees with potential exposure to CVA-related legal claims to act promptly and in utmost good faith and to exercise best practices with their prior and current policyholders, and their respective claimants, including properly performing any and all duties to defend CVA-related claims.

Further, in the case of lost policies, the Department encourages all Addressees with relevant records to act in utmost good faith to preserve and provide any relevant records to policyholders and other entitled persons, whether in connection with any lawful discovery process or otherwise. 

Certain minimum standards set by the New York State Insurance Law (“Insurance Law”) and accompanying regulations that are generally applicable to Insurers are set forth below, the violation of which may result in fines or other disciplinary actions, but this Department encourages Insurers to do more than the minimum required.  Similarly, all other addressees should be mindful of their obligations under the Insurance Law, including without limitation Insurance Law Article 21 and related regulations, and strive to do more than the minimum required.  For example, Section 2110 of the Insurance Law provides that those licensed under Article 21 may have their licenses suspended or revoked, including, without limitation, on the grounds that such licensees intentionally misrepresented the terms of an actual or proposed insurance contract or demonstrated untrustworthiness.

III. Fair Claims Practices

Pursuant to § 216.0 of 11 NYCRR Part 216 (Insurance Regulation 64), Insurers are required to comply with the following principles when handling CVA-related insurance claims:

1. Have as your basic goal the prompt and fair settlement of all claims.
2. Assist the claimant in the processing of a claim.
3. Do not demand verification of facts unless there are good reasons to do so. When verification of facts is necessary, it should be done as expeditiously as possible.
4. Clearly inform the claimant of the insurer's position regarding any disputed matter.
5. Respond promptly, when response is indicated, to all communications from insureds, claimants, attorneys, and any other interested persons.

There are also strict time limits for Insurers to respond to communications from policyholders, to commence investigations, to notify policyholders of coverage decisions, and to respond to inquiries from the Department.  See, e.g., 11 NYCRR § 216.4.

In the case of CVA-related insurance claims, the Department encourages Addressees to act in utmost good faith and to take the initiative to be cooperative so that victims may be compensated, including that Addressees should:

1. act promptly, not extending unnecessarily to the maximum time periods permissible;
2. exert diligence to seek out copies of relevant policies of current and prior policyholders that the addressee knows or has reason to know may be subject to CVA-related legal claims;
3. fairly review such policies, interpreting such contracts so as to resolve any ambiguities in the policyholders’ favor;
4. assess the applicable coverage, including any applicable exclusions or other limitations;
5. affirmatively contact the relevant policyholders with such assessments promptly (even before a claim is filed, whenever possible) to assist policyholders in considering their coverage, such that the addressee and policyholders can cooperate in addressing complaints as they are filed; and
6. perform on its duties to defend policyholders.

IV. Unfair Claims Practices

In addition to the affirmative duties set forth above, Insurance Law § 2601 and Insurance Regulation 64 both prohibit Insurers from engaging in unfair claims settlement practices; the Department may subject an Insurer to disciplinary action if it engages in such actions without just cause and with such frequency as to indicate a general business practice.  See, e.g., Insurance Law § 2601(a); 11 NYCRR Part 216.  Examples of unfair claims practices include, but are not limited to:

1. knowingly misrepresenting to insurance claimants pertinent facts or policy provisions relating to the coverage at issue; and
2. not attempting in good faith to effectuate prompt, fair and equitable settlements of insurance claims submitted in which liability has become reasonably clear.

V. Records

The Department reminds Addressees of their legal obligation to maintain records relevant to policies and related legal claims.  For CVA-related legal claims that were previously time-barred, the Department encourages Addressees and any other parties with potentially relevant records to maintain ALL such records until the full resolution of such legal claims.  Certain minimum records retention requirements are noted below.

Insurance Regulation 152 provides, among other things, that except as otherwise required by law or regulation, each Insurer shall maintain a policy record (the details to reconstruct any policy it issued or an actual copy) until the later of:  (a) six calendar years after the date the policy is no longer in force; or (b) until after the filing of the report on examination in which the record was subject to review.  11 NYCRR § 243.2(b).  For producer Addressees, the Department has previously issued guidance that they should maintain records at least until the expiration of the applicable statute(s) of limitations, and where an action or claim is pending, for such period of time until the matter is resolved.  Office of General Counsel Opinion No. 07-05-13 (May 23, 2007).  For CVA-related claims, the CVA revised the applicable statute of limitations, which has the effect of extending the applicable records retention requirements for producer Addressees.

For potential pending litigation, such as lawsuits being filed or that could be filed due to the CVA’s opening a one‑year window for previously time-barred claims and extending the statutes of limitations, the Department encourages Addressees to keep all relevant records until the later of the above-referenced time periods and the full resolution of all possible claims that could be covered under policies an Insurer issued.  The Department encourages Addressees not to cite the minimum requirements set forth in the Insurance Law and regulations as a basis for destroying potentially relevant records, when they know or have reason to know they have potential liability with respect to CVA-related claims.

Rather, the Department encourages all Addressees to act promptly and in good faith with their prior and current policyholders, and the related claimants, so that victims are appropriately compensated for the harms they have suffered.  Accordingly, Insurers must act in accordance with the principles in Insurance Regulation 64 described above, and all Addressees should act in good faith to work with policyholders to preserve and reconstruct prior records and data.

The Department understands that some policyholders and former policyholders with potential exposures to CVA-related legal claims might not have copies of their policies from the applicable time (years, or even decades, ago).  In such cases, the Department encourages Addressees to act in good faith and apply their best efforts to locate and provide copies of policies to policyholders.  Where no copy is available or can be reconstructed, an Insurer and any other party that was involved in the issuance of a relevant policy (including, but not limited to, the marketing/solicitation/sale/administration of such policy) should provide any other relevant records (such as declaration pages, letters or other correspondence, certificates of insurance, or any other documents describing the relevant coverage).  The Department encourages all Addressees to preserve and produce such records to policyholders when needed.  The Department also encourages Addressees to give due consideration to similar other records that a policyholder may be able to produce as a demonstration of good faith. 

VI. Loss and Loss Expense Reserves

The Department expects all Addressees with exposures to CVA-related legal claims promptly to assess their exposures and adjust their loss and loss expense reserves accordingly pursuant to Insurance Law § 1303 if they have not already done so, as should all reinsurers, and retrocessionaires.  The Department encourages such Addressees to apply appropriate legal, actuarial, and accounting principles and standards to estimate such reserves in good faith, including with the assistance of professionals with specialized expertise when appropriate, and then regularly to update their reserves as claims develop.

VII. Conclusion

The Department expects Addressees to cooperate fully with the intent of the CVA and with any other applicable laws and regulations and encourages Addressees to exceed the minimum standards described in this Circular Letter in dealing with actual and potential CVA-related insurance claims. 

Please direct any questions regarding this circular letter by mail to Child Victims Act Inquiries, c/o Consumer Assistance Unit, New York State Department of Financial Services, One State Street, New York, NY 10004 or by email to cva@dfs.ny.gov.

Very truly yours,

_______________________________
Linda A. Lacewell
Superintendent of Financial Services

<><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><>

The Department divided this circular letter into seven sections:

I.  Purpose
II.  Discussion
III.  Fair Claims Practices
IV.  Unfair Claims Practices
V.  Records
VI.  Loss and Expense Reserves
VII.  Conclusion

My thoughts and observation on each section:

I.  Purpose

The purpose of this circular letter is to inform all authorized property/casualty insurers, licensed insurance producers, adjusters, and reinsurers (collectively, “Addressees”) that the Department of Financial Services (“Department”) expects Addressees to cooperate fully with the intent of the Child Victims Act (“CVA”).

The intent of the CVA, as I understand it, was to revive time-barred claims of sexual abuse victims for money damages.  Not sure how insurance licensees can "cooperate fully" with that intent, unless the Department is suggesting that insurers should cooperate with victims' counsel to ensure the recovery of money damages.  

II.  Discussion

Accordingly, the Department encourages all Addressees with potential exposure to CVA-related legal claims to act promptly and in utmost good faith and to exercise best practices with their prior and current policyholders, and their respective claimants, including properly performing any and all duties to defend CVA-related claims.

How exactly should insurers assess any "potential exposure to CVA-related legal claims"?  Should this be done before insurers actually receive notice of any CVA-related claims?  Read on.  

III.  Fair Claims Practices

This section begins with a reiteration of Regulation 64's preamble.  For CVA-related claims in particular, the Department has added another set of what the Department now says insurers "should" do:  

In the case of CVA-related insurance claims, the Department encourages Addressees to act in utmost good faith and to take the initiative to be cooperative so that victims may be compensated, including that Addressees should:

1. act promptly, not extending unnecessarily to the maximum time periods permissible;
2. exert diligence to seek out copies of relevant policies of current and prior policyholders that the addressee knows or has reason to know may be subject to CVA-related legal claims;
3. fairly review such policies, interpreting such contracts so as to resolve any ambiguities in the policyholders’ favor;
4. assess the applicable coverage, including any applicable exclusions or other limitations;
5. affirmatively contact the relevant policyholders with such assessments promptly (even before a claim is filed, whenever possible) to assist policyholders in considering their coverage, such that the addressee and policyholders can cooperate in addressing complaints as they are filed; and
6. perform on its duties to defend policyholders.

There you have it.  Setting aside the notions that liability insurance protects only accidentally caused injury or harm, the general rule than employers are not liable for the criminal acts of their employees, and that, in some cases, the organizational defendants listed in this circular letter knew nothing about the sexual abuse or molestation, the Department nonetheless wants insurers to "take the initiative to be cooperative" to compensate victims.  Know that if you're an insurer your conduct in handling CVA-related claims will be measured not only by Regulation 64's Preamble, but by the extra set of what the Department says insurers "should" do.  

IV.  Unfair Claims Practices

Nothing new here (not surprisingly).  Conduct that would constitute an unfair claim practice can only be enumerated and prescribed by promulgated regulation. A circular letter is not a regulation.  

V.  Records

Read this section (above) again.  There's a lot here, including the letter's sole use of all caps :

For CVA-related legal claims that were previously time-barred, the Department encourages Addressees and any other parties with potentially relevant records to maintain ALL such records until the full resolution of such legal claims.

The Department again "encourages" insurers "to act promptly and in good faith with their prior and current policyholders, and the related claimants, so that victims are appropriately compensated for the harms they have suffered."  Translation: the Department wants insurers to pay CVA-related claims.  I think that's pretty clear.

On the issue of a "lost policy", the letter states:

The Department understands that some policyholders and former policyholders with potential exposures to CVA-related legal claims might not have copies of their policies from the applicable time (years, or even decades, ago).  In such cases, the Department encourages Addressees to act in good faith and apply their best efforts to locate and provide copies of policies to policyholders.  Where no copy is available or can be reconstructed, an Insurer and any other party that was involved in the issuance of a relevant policy (including, but not limited to, the marketing/solicitation/sale/administration of such policy) should provide any other relevant records (such as declaration pages, letters or other correspondence, certificates of insurance, or any other documents describing the relevant coverage).  The Department encourages all Addressees to preserve and produce such records to policyholders when needed.  The Department also encourages Addressees to give due consideration to similar other records that a policyholder may be able to produce as a demonstration of good faith. 

My next CVA-related post on this blog will be New York's common law on lost policies.

Any insurer that has not already destroyed historical records of policies issued to the "potential defendants" mentioned in this circular letter should consider the shoulds and musts of this circular letter before doing so.

VI.  Loss and Expense Reserves

This section begins:

The Department expects all Addressees with exposures to CVA-related legal claims promptly to assess their exposures and adjust their loss and loss expense reserves accordingly pursuant to Insurance Law § 1303 if they have not already done so[.]

Exposures or "potential exposures" (see Section II above)?  If the later, by what method can an insurer assess its potential exposure to CVA-related claims and reserve accordingly?  By the name or nature of its policyholders?   This section must relate to actual CVA-related legal claims that have already been presented and/or sued, right?

VII.  Conclusion

The Department expects Addressees to cooperate fully with the intent of the CVA and with any other applicable laws and regulations and encourages Addressees to exceed the minimum standards described in this Circular Letter in dealing with actual and potential CVA-related insurance claims. 

Expectation and encouragement.

Words matter, so for those who like word metrics, here's a tally for those who weren't counting:
Encourages -- 13
Legal -- 11
Good faith -- 10
Policies -- 10
Should -- 9
Exposure(s) -- 8
Minimum -- 6
Relevant records -- 6
11 NYCRR Part 216 (Regulation 64) -- 5
Expects -- 4
Intent -- 3
Cooperate -- 3
Settlement -- 3
Requirements -- 3
Unfair -- 3
Utmost good faith -- 3
Must -- 1

So this circular letter is more encouraging than cautionary in tone and substance?  

Property Owner in Name Only Found Not Entitled to Coverage for Fire Loss of Rental Income Property

COMMERCIAL PROPERTY – INSURABLE INTEREST – DE FACTO OWNERSHIP
Porter v. State Farm Fire & Cas. Co.
(WDNY, decided 6/6/2019)

If your name is on the deed and insurance policy but you invested no money in the acquisition,  operation and insuring of rental income property and want nothing to do with its post-loss claim, are you entitled to policy proceeds in the event the property burns down?

Under the facts of this case, the court said no, you (and the real owner) get nothing.

Plaintiff went to a property foreclosure auction in Buffalo, New York, and, as an accommodation to her sister's boyfriend, successfully bid on 254 Strauss Street.  Plaintiff paid the required $500 deposit, but her sister and sister's boyfriend reimbursed her that amount in full and paid the remaining balance of the auction price.  Although the Strauss Street property was placed in plaintiff's name, she did not manage or have any interest in the subject property. Rather, her sister's boyfriend maintained, and leased the subject property, made renovations, paid property taxes on the property and "handled everything" pertaining to evictions.

Plaintiff testified that she had no authority to sell the property, and did not receive any economic benefit from the property. With regard to the property's insurance policy, plaintiff testified that she was not involved in obtaining the policy; rather, her sister's boyfriend obtained the policy providing plaintiff's information as the owner and he paid the premiums on the policy. Plaintiff knew nothing about the basic coverage of the policy insuring the property and only learned of the policy limits when she "started receiving letters after the property was burned down."

As to her receiving any economic benefit from the property, plaintiff explained to the insurance agency salesman, "I told Mike from State Farm I just — they say sign here, I just sign. I don't even read. I don't even know what I be signing, I just sign."  At a second deposition plaintiff testified that any money she would receive from State Farm "will go straight to [her sister's boyfriend] . . . [b]ecause it's his property."  Plaintiff further testified that, although what remained of the subject property was demolished after the fire, she was not aware who paid for the demolition costs.

In GRANTING State Farm's motion for summary judgment, the District Court (Telesca, J.), held:

• Replacement Cost Coverage Claim:  "Plaintiff has repeatedly disclaimed any interest in the subject property and testified unequivocally that she had no plans to replace the property. Accordingly, the 'equitable considerations' the Court considered in Zaitchick are not present in this instance. The Court therefore adopts Judge Schroeder's recommendation that the Court grant summary judgment to Defendant on Plaintiff's claim for replacement cost coverage."


• Debris Removal Coverage:  "It is also undisputed that [the sister's boyfriend] used Plaintiff's auction identification number to bid on the subject property. Although the deed to the subject property lists Plaintiff as the owner, she clearly explained that [the boyfriend] managed and received any benefit from the property in all respects. She was at best an accommodating owner benefitting [the boyfriend] for reasons best known to them. In short, the Demolition Invoice does not create a genuine issue of material fact as to Plaintiff's claim for debris removal coverage. Plaintiff made it very clear in her sworn testimony that "I didn't put any money into the property, [and] I shouldn't get anything from it." She further testified that any payment from the insurance policy would go straight to [the boyfriend] "[b]ecause it's his property."  Accordingly, the demolition costs should be the responsibility of the property owner, which Plaintiff has testified unequivocally is [the sister's boyfriend] . Thus, the responsibility, if any, for the payment of demolition costs is left to be resolved between Plaintiff and [the boyfriend]. Accordingly, the Court declines to adopt Judge Schroeder's recommendation that the Court deny Defendant's motion for partial summary judgment on Plaintiff's claim for debris removal coverage.  

In conclusion, Judge Telesca held:

Based on the above-mentioned information, the Court concludes that Plaintiff's complaint must be dismissed in its entirety. The debt created by the loss of the subject property is not remedied through the insurance policy, based on the understanding as to actual ownership which existed between Plaintiff and Mr. Spencer. Therefore, it is undisputed that Plaintiff is unable to recover under the insurance policy. Her complaint, which alleges that she is entitled to reimbursement under that policy, is inconsistent with her testimony and is hereby dismissed. See Wierzbic v. Cnty. of Erie, No. 13-CV-978S, 2018 WL 550521, at *4 (W.D.N.Y. Jan. 25, 2018); Brandon v. Bd. of Educ. Of Guilderland Cent. Sch. Dist., 487 F. Supp. 1219, 1233 (N.D.N.Y. 1980) (the court may search the record on a motion for summary judgment, and grant relief as it deems proper).

In a decision issued the very following day, the District Court DENIED plaintiff's motion for reconsideration, reiterating:

The evidence shows that Plaintiff clearly and unequivocally claimed no interest in the proceeds of the insurance policy as a result of the fire damage to the property by stating that the insurance proceeds belong to Mr. Spencer, and that she did not want any proceeds paid out to her.  Plaintiff was emphatic that she wanted no financial benefit from the policy, even though she is the named insured, by stating, "I didn't put any money in to the property, [and] I shouldn't get anything from it.".  * * * Plaintiff has failed to articulate a valid basis upon which reconsideration is warranted, and the June 6th Decision and Order dismissing the complaint in its entirety stands.

Plaintiff has filed an appeal to the Second Circuit Court of Appeals. If that appeal is perfected, I'll report the outcome. Scott Storm oversaw the litigation of this matter. Questions about this case may be directed to him or me.

Denial of No-Fault Benefits Based on Biomechanical Injury Causation Analysis Report Upheld in AAA Arbitration & Master Arbitration

AMERICAN ARBITRATION ASSOCIATION – NO-FAULT – BIOMECHANICAL EXPERT OPINION – USE OR OPERATION – CAUSAL RELATIONSHIP – EMG/NCV TESTING 

Matter of Arbitration between Scott A. Croce, DC, PC/Erie County Chiropractic aao [Assignor] and Preferred Mut. Ins. Co.
(Arbitrator Fred Lutzen, dated 3/28/2019)
(Master Arbitrator Marilyn Felenstein, dated 7/15/2019)

Mura & Storm associate Ryan Mura was privileged to represent Preferred Mutual Insurance Company (PMIC) in this American Arbitration Association mandatory no-fault arbitration matter.

PMIC denied payment of the applicant's EMG/NCV testing billing based on the "Biomechanical Injury Causation Analysis" peer review report of expert biomechanist Dr. Jacqueline M. Lewis, Ph.D., which had concluded:

1.  On May 18, 2017, [IP/Assignor] was the driver of a 2011 Buick LaCrosse that was traveling in the Walgreens parking lot (3288 Main Street), in Buffalo, New York, when contact occurred between the rear of a 2001 Ford Focus and the front of her vehicle. 

2.  The subject incident is consistent with a Delta-V of less than 6.4 miles per hour, and more comparable to 2.5 miles per hour with an average acceleration of less than 1.7g, and more comparable to 0.65g for the subject Buick in which [IP/Assignor] was seated. 

3.  The accelerations experienced by [IP/Assignor] were within the limits of human tolerance, and were comparable to those experienced during various daily activities. 

4.  Had the subject incident been sufficient to initiate occupant motion, [IP/Assignor] would have moved primarily forward relative to the subject Buick's interior. 

5.  There is no injury mechanism present in the subject incident to account for [IP/Assignor]'s claimed cervical spine injuries. As such, a causal relationship between the subject incident and the claimed cervical spine injuries cannot be made. 

6.  There is no injury mechanism present in the subject incident to account for [IP/Assignor]'s claimed thoracic spine injury. As such, a causal relationship between the subject incident and the claimed thoracic spine injury cannot be made.  

7.  There is no injury mechanism present in the subject incident to account for [IP/Assignor]'s claimed lumbar spine injuries. As such, a causal relationship between the subject incident and the claimed lumbar spine injuries cannot be made.  

8.  There is no injury mechanism present in the subject incident to account for [IP/Assignor]'s claimed bilateral knee injuries. As such, a causal relationship between the subject incident and the claimed bilateral knee injuries cannot be made.

In finding that PMIC had demonstrated by a preponderance of credible evidence that the assignor's claimed injuries did not arise out of the use or operation of a motor vehicle, AAA No-Fault Arbitrator Fred Lutzen held:

I find that Respondent's expert has sufficient scientific and technical knowledge, and is competent based on her credentials and experience to provide the aforementioned opinion. The report appears to be based on sufficient facts or data, is the product of reliable principles and methods, and Dr. Smith has applied the principles and methods reliably to the facts of this case (see, FRE 702). 

The 14-page report provides an extremely detailed analysis, which includes calculating the IP/Assignor's weight, speed of the vehicle, vehicle damages, and other relevant factors. Dr. Smith concludes that the vehicle was traveling approximately 2.5 mph, and that any impact would have produced acceleration that was comparable to or less than typical activities of daily living. She concludes that the reported injuries were not caused by the accident. 

Applicant's counsel argued that the medical records and reports establish a causal connection between the disputed treatment and the accident. I have reviewed all of the evidence submitted. Without additional evidence, like the IP/Assignor's own statement adequately explaining the injury onset and causality, Dr. Smith's accepted opinion is not sufficiently rebutted.The records alone are not sufficiently persuasive to overcome the extremely detailed, comprehensive, and convincing expert opinion by Dr. Smith. 

I find that the preponderance of credible evidence presented in this case supports that the IP/Assignor's EMG/NCV testing performed on 9/7/17 was unrelated to the accident that occurred on 5/18/17, and that the purported injuries did not arise out of the use or operation of a motor vehicle.

The applicant filed for master arbitration, and AAA No-Fault Master Arbitrator Marilyn Felenstein, in AFFIRMING Arbitrator Lutzen's award, found:

Arbitrator Lutzen, in his award, explained why he reached his conclusion that the claimed injuries could not have been caused by the claimed incident. He refer to the police report and the photographs attached thereto and notes that the police report indicated “no injury reported and no visible injury seen”. He notes the facts of the accident and discusses in detail the report by Dr. Lewis. The arbitrator found Respondent’s expert to be qualified to make the analysis regarding causation and found that Applicant had failed to rebut the expert’s conclusion. 

It is clear that a lower arbitrator has the authority to assess the facts and apply the relevant case law. He had the right to determine what evidence would be considered, including the expert report submitted by Respondent. I have carefully reviewed the parties’ briefs and the record on appeal. The arbitrator’s findings were within the arbitrator’s sound discretion and rational interpretation of the evidence and I find no reversible error within my purview as a Master Arbitrator. Per 11 NYCRR 65-4.5[o][1], the arbitrator shall be the judge of the relevance and materiality of the evidence offered. It would be improper for me, as a Master Arbitrator, to conduct a de novo review of the case and I cannot substitute my interpretation or my view as the weight or credibility of the evidence over that of the lower arbitrator. 

Furthermore, considering that there is case law to support the position that New York courts have specifically held that a biomechanical engineer is qualified to give opinion testimony regarding whether the force of impact in an accident could case the alleged injuries, it cannot be said that the arbitrator’s conclusion was not rational. Plate v. Palisade Film Delivery Corp., 39 AD3d 835 (2nd Dept. 20017). The request for vacatur of the award is denied. 

You can read both awards/decisions for more details.  Any questions about this matter can be directed to Ryan Mura at ryan.mura@muralaw.com.  

Summary Judgment Granted to Insurer Based on Policy's Special Employee Theft Exclusion

COMMERCIAL PROPERTY – EMPLOYEE DISHONESTY COVERAGE – SPECIAL EMPLOYEE THEFT EXCLUSION

Albany Airport HIE, LLC v. The Hanover Ins. Grp., Inc.
(NDNY, decided 8/7/2019)

Plaintiffs owned two hotels in the Albany, New York area. In 2010, plaintiffs entered into a management agreement with Bullock Hospitality LLC ("Bullock Hospitality") to manage both hotels. Tod Hanlon signed the management agreement as the sole member and manager of Bullock Hospitality.

In August 2014 Citizens Insurance Company of America issued a commercial package policy listing eight named insureds, including the two plaintiffs and Bullock Hospitality.  The policy's GOLD FORM BROADENING ENDORSEMENT's Employee Theft section contained this exclusion:

(8)  Special Employee Theft Exclusions 

We will not pay for:  

(a)   Loss resulting from "theft" or any other dishonest act committed by: 

(i) You; or
(ii) Any of your partners or "members"; 

Whether acting alone or in collusion with other persons.

The policy defined "you" and "your" to mean "the Named Insured shown in the Declarations"and "member" to mean "an owner of a limited liability company represented by its membership interest who, if a natural person, may also serve as a `manager.'"

In February 2015, plaintiffs reported to Citizens that their former hotel manager, Tod Hanlon, had stolen over $700,000 from them by depositing checks intended for the hotels into his own bank account.  Based on the fact that the reported loss had resulted from theft by a member (Hanlon) of a named insured (Bullock Hospitality), Citizens denied the plaintiffs' claim.

Plaintiffs sued for coverage and, after discovery was complete, my senior associate, Scott Mancuso, and I drafted and filed a motion for summary judgment on behalf of the defendant insurers.  Although you might think (as I did) that the district judge walking off the bench while I was standing at the podium and making my rebuttal argument (no joke) was a bad sign, the court GRANTED summary judgment to my clients, dismissing the complaint:

It is undisputed Tod Hanlon was a member or sole member of Bullock Hospitality at the time he stole monies from plaintiffs. It is undisputed Bullock Hospitality was a named insured. The policy excludes coverage for theft committed by a named insured or by any partner or member of a named insured. There are no triable issues of material fact regarding the applicability of Special Employee Theft Exclusion 8.a. Plaintiffs seek what the policy simply does not cover—an alleged theft by a member of a named insured.

"[P]arties cannot create ambiguity from whole cloth where none exists, because provisions `are not ambiguous merely because the parties interpret them differently.'" Universal Am. Corp. v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa., 25 N.Y.3d 675, 680 (2015) (quoting Mount Vernon Fire Ins. Co. v. Creative Hous. Ltd., 88 N.Y.2d 347, 352 (1996)). The instant exclusion is not ambiguous. To the extent Ms. Copesky of the PLRB found the exclusion inapplicable, it appears her opinion was based on incorrect or incomplete information. The existence of a conflicting interpretation, based upon incorrect information, does not render the policy "subject to ... other reasonable interpretation." Parks Real Estate Purchasing Grp., 472 F.3d at 42. An interpretation based on incorrect facts cannot be deemed reasonable.

The PLRB opinion is unreasonable in that it found Bullock Hospitality was an "additional insured." Adams Decl., Ex. 6. To the contrary, it is undisputed that Bullock Hospitality was in fact a "named insured." Defs.' SMF ¶ 6. This distinction is key as the relevant policy provision excludes coverage for loss resulting from theft by "you" or "any of your partners or members." As the policy defined "you" and "your" to mean "the named insured," it is significant that Bullock Hospitality was in fact a "named insured" rather than an "additional insured." The PLRB opinion correctly notes that "you" and "your" do not refer to any "additional insureds." Adams Decl., Ex. 6.  

Based on the incorrect premise that Bullock Hospitality was an "additional insured" instead of a "named insured," Ms. Copesky concluded "it appears that Bullock is not likely considered `you' for purposes of the exclusion as they are an additional insured and not the primary named insured." Id. She went on to find that plaintiffs and Bullock Hospitality would not constitute partners within the meaning of the policy, nor would Bullock Hospitality "fall into the other categories for excluding coverage: members, partners, etc." Id. To reiterate, the PLRB's interpretation, in conflict with defendants', does not render the exclusion ambiguous.  

Defendants have carried their burden to show the Special Employee Theft Exclusion applies, that there are no disputed issues of fact, and that they are entitled to judgment as a matter of law. To the extent that plaintiffs urge criticism of Citizens' and Hanover's responsibilities during the underwriting process and their alleged failure to insert policy language to identify, control, or eliminate the resulting risk at the underwriting stage, those arguments have been considered and are found to be without merit.  

Accordingly, defendants' motion for summary judgment dismissing the second cause of action for breach of contract will be granted. Any dispute over whether Hanover issues insurance policies and whether it issued the instant policy is moot as defendants' motion for summary judgment will be granted and the Complaint will be dismissed in its entirety.

As members of PLRB, my clients had requested a coverage opinion of one of PLRB's staff attorneys before making a coverage decision.  The PLRB attorney concluded, based on "incorrect or incomplete information", that the policy's Special Employee Theft Exclusion did not apply to negate employee theft coverage.  In opposition to my client's motion, plaintiffs' counsel argued that the PLRB opinion rendered the Special Employee Theft Exclusion ambiguous, precluding summary judgment.  The court rejected that argument, noting:

"[P]arties cannot create ambiguity from whole cloth where none exists, because provisions `are not ambiguous merely because the parties interpret them differently.' *** The existence of a conflicting interpretation, based upon incorrect information, does not render the policy subject to ... other reasonable interpretation." Parks Real Estate Purchasing Grp., 472 F.3d at 42. An interpretation based on incorrect facts cannot be deemed reasonable.

I love the whole cloth quote.  Have used it before and will likely use it again.

Denial of No-Fault Benefits to Assignee of Rate Evader Upheld in Arbitration

NO-FAULT – RATE EVASION – AAA ARBITRATION DECISION

Matter of Bronx Chiropractic Health Services, PC aao SB and State Farm Fire & Cas. Co.
(AAA Case No. 17-18-1114-9479, issued 8/23/2019)

This morning my office received this AAA award/decision, upholding our client's denial of no-fault benefits based on the assignor's proven rate evasion:

The EUO on the EIP/insured took place on October 29, 2018. The information that was provided based upon the testimony of the insured is that there was no real connection to the state of Maine, the policy under which the car was insured. The EIP's driver's license was NY and she was employed at Columbia Hospital. There was no real nexus between the EIP and Maine. The Respondent therefore provided the affidavit of Christina XXXX and [sic] underwriter for the Respondent. Had the Respondent been aware of the false information the policy would never had been issued. 

Applicant has not submitted any evidence to rebut the contentions made by the Respondent. 

Based upon the facts herein and the evidence provided, I find that Respondent has demonstrated by a preponderance of the evidence as a matter of law that EIP made material misrepresentations as to the facts surrounding the issuance of the policy. 

Applicant's claim is therefore denied.

In this case, the assignor's EUO, which my office conducted, proved to be key in supporting the insurer's rate evasion-based denial of first-party benefits. 

The Archdiocese of New York v. The 32 Insurance Companies and Groups That Issued Policies to the Archdiocese from September 1956 Through December 2000

Litigation over insurance coverage for CVA-revived (Child Victims Act) lawsuits apparently began even before the CVA went into effort on August 14, 2019.  On July 1, 2019, the New York Daily News reported:

The New York Archdiocese has sued its insurance companies to demand legal protection and coverage as it braces for exposure it will face once sex abuse victims begin filing lawsuits next month under New York’s Child Victims Act. 

The complaint by the archdiocese, filed last week in Manhattan Supreme Court, lists more than two dozen insurers as defendants, and claims "the insurers ... intend to dispute, limit and/or deny coverage for claims and lawsuits alleging sexual abuse and physical abuse.” Several of the defendants listed in the complaint are members of the Chubb Group of Insurance Companies.

Thirty-two insurance companies and groups are named as defendants in that New York County, Supreme Court declaratory judgment action, which seeks:

On Count I, the Archdiocese requests that this Court enter a declaratory judgment in favor of the Archdiocese against each of the Insurers;

On Count II, the Archdiocese requests that this Court enter a judgment awarding the payment of damages in an amount equal to the amount owed under the INA Insurance Policies, to be proven at trial, as well as pre- and post-judgment interest; [and]

On Count III, the Archdiocese requests that this Court enter a judgment awarding its attorneys’ fees, costs, and disbursements in connection with INA’s bad faith refusal to defend the Archdiocese against the Norman Suit, in an amount to be proven at trial, as well as pre- and post-judgment interest[.]

The predicate "justiciable controversy" for the Archdiocese's action relates to Chubb Insurance's declination of coverage for "the Norman Suit", which was commenced on April 18, 2019 against the Archdiocese and other religious corporations (a church, a school, and the Catholic School Region of Staten Island).  By letter dated May 14, 2019, Chubb had denied liability coverage under the INA policies to the Archdiocese for the Norman Suit based on (1) lack of an alleged "occurrence"; and (2) punitive damages not being covered.  Chubb also reserved its right to deny coverage based on: (1) possible late notice; and (2) the possible time-barred nature of the Norman Suit:

The INA Policies provide coverage where the insured shall become legally obligated to pay as damages because of "bodily injury" or "personal injury" to which this insurance applies caused by an "occurrence" as those terms are defined by the policies. The INA Policies generally define "occurrence" as an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage "neither expected nor intended" from the standpoint of the insured. 

In the Norman Action, Plaintiff alleges that the Archdiocese "knew and/or reasonably should have known, and/or knowingly condoned, and/or covered up, the inappropriate and unlawful sexual activities of Father Fernando and Monsignor Brennan[.)" Plaintiff alleges that "[a)t about the time" such alleged misconduct was occurring, the Archdiocese and other Defendants "were notified that Father Fernando was engaging in sexually inappropriate conduct with minor children parishioners[.)" Plaintiff further alleges that Defendants "were put on notice of Father Fernando and Monsignor Brennan's improper and inappropriate actions with minors" and that, "[a]t all times material hereto, Defendants[')...actions were willful, wanton, malicious, reckless, and outrageous in their disregard for the rights and safety of Plaintiff, which amount to conduct equivalent to criminality." 

Based on the foregoing, Plaintiff does not allege an "occurrence" under the INA Policies. Rather, Plaintiff alleges that the Archdiocese acted willfully, wantonly, maliciously, recklessly, outrageously and criminally with respect to the alleged abuse perpetrated against Plaintiff, a minor, by Fr. Fernando and Msgr. Brennan. Thus, Plaintiff alleges to have sustained injury that was expected and/or intended from the standpoint of the Archdiocese. These allegations do not give rise to an "occurrence" under the INA Policies. Therefore, Chubb has no defense and indemnification obligations in connection with the Norman Action and denies coverage accordingly. 

Similarly, Plaintiff seeks punitive damages for Defendants' alleged misconduct. Amounts that are punitive in nature do not constitute damages under the INA Policies. Furthermore, in New York, punitive damages are uninsurable as a matter of law. Accordingly, Chubb denies coverage under the INA Policies in connection with Plaintiff's claim for punitive damages in the Norman Action. 

With regard to the Archdiocese notice obligations under the INA Policies, the INA Primary Policies are amended via endorsement to provide that, in the event of an occurrence, written notice shall be given by or on behalf of the insured as soon as practicable after such notice is received by the "Archdiocesan Service Corporation." Plaintiff's complaint alleges that the Archdiocese had knowledge of the alleged abuse by Fr. Fernando, but does not allege or discuss whether such information was ever received by the Archdiocesan Service Corporation. Similarly, Plaintiff alleges that the Archdiocese knew or should have known of the alleged abuse by Msgr. Brennan, but Plaintiff's complaint contains no allegation that such information was ever given to or received by the Archdiocesan Service Corporation. The INA Excess Policies require notice thereunder when the Archdiocese became aware that those policies might be implicated, but Chubb does not currently possess that information. As a result, Chubb is not in a position at this time to assess whether the Archdiocese complied with the notice provisions under the INA Policies. Therefore, Chubb reserves the right to deny coverage if and when Chubb obtains information that demonstrates that the Archdiocese breached the notice provisions of the INA Policies in this matter. 

Finally, it is not apparent from Plaintiff's complaint whether Plaintiff's action may be barred by the current statute of limitations. As noted above, the INA Policies only provide coverage in connection with the insured's legal obligation to pay damages in circumstances specifically defined by the policies. To the extent that an insured settles a claim for which it has no legal liability, no indemnification would be provided under the INA Policies. Chubb reserves its rights accordingly.

The INA policies at issue spanned the period 1971 to 1974, and careful readers will notice that no policy exclusions are cited in Chubb's declination letter as grounds for denying coverage.  Coverage geeks will know the reason Chubb's declination letter did not cite the expected or intended injury exclusion:  it didn't exist in commercial liability policies in the 1970s.  Pre-1986 ISO CGL policies instead incorporated the "expected or intended" aspect into the policies' definition of "occurrence":

“Occurrence” means an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured.

According to Frederick J. Hunt, Jr.'s paper, Homeowners Insurance -- The First Decade, presented at the smoke-filled May 1962 meeting of the Casualty Actuarial Society,

The first true "Homeowners Policy," in the sense that the words are used today, was developed by the Insurance Company of North America. This policy was formally filed with the Insurance Department of Pennsylvania on August 11, 1950 and approved effective September 11, 1950. 

This policy, which was called "Homeowners Policy Multiple Form," was a true multiple line contract providing coverage previously available only under separate policies and described as Fire, Extended Coverage, Theft, Personal Liability, and Medical Payments. Since this was the first real answer to the problem of taking advantage of multiple line opportunities and at the same time coming up with a saleable product, the filing letter submitted with this policy represents a valuable document in any consideration of Homeowners rating.

If anyone has one of those INA policies lying around, please send it to me.  I'll pay the postage (and maybe a reasonable price).  I'm trying to nail down when multi-line homeowners policies began using the expected or intended harm exclusion.

Regardless, interested readers and coverage geeks like me can follow the progress of this DJ action at this NYSCEF docket.  I've set that e-docket to re-open in a Chrome tab one month for now.

09.17.19 Update ~~ Nothing new on the e-docket.  Rolling ahead another month. 

Child Victims Act Actions -- Insurance Coverage Considerations

At midnight tonight (August 14, 2019), New York's Child Victims Act (CVA) takes effect.  The Act's summary states:

Provides that the statute of limitations for criminal prosecution of a sexual offense committed against a child shall not begin to run until the child turns 23 years of age; provides that a civil action for conduct constituting a sexual offense against a child, shall be brought before the child turns 55 years of age; revives previously barred actions related to sexual abuse of children; grants civil trial preference to such actions; eliminates the notice of claim requirements for such actions when the action is brought against a municipality, the state or a school district; requires judicial training relating to child abuse and the establishment of rules relating to civil actions brought for sexual offenses committed against children.

The Buffalo News published a good "What you need to know" review of the new law here.  Give it a read if you're not already conversant with the CVA's provisions.

Some years ago, New York's civil courts went electronic.  Bracing for the expected surge or torrent of CVA-revived suit filings, the New York State Courts Electronic Filing (NYSCEF) website posted this notice earlier today:

By the time you wake up and read this tomorrow, there will likely have been filed thousands of CVA lawsuits in New York's Supreme Court.  But you don't care, because your company (or any of its predecessor companies) never insured any diocese of the Roman Catholic Church, or the Boy Scouts of America, or any local New York school district, right?

Wrong.

The CVA revives previously time-barred civil actions not just against large institutions or organizations, but against anyone or any entity that is alleged to committed, been complicit in or directly or indirectly liable for acts of sexual abuse or molestation.

Like people who had homeowners policies when the alleged acts occurred.  Homeowners policies that most likely afforded occurrence-based liability coverage.  Homeowners policies that may have been issued by companies that no longer exist.  Homeowner policies that may have been lost.  Or destroyed.

Insurers receiving CVA lawsuits will need to make what may be a very difficult coverage review.  Considerations may include:

• Was there a policy in effect at the time of the alleged injury?
• If so, what were its limits and terms and provisions? 
• Was there an "occurrence"?
• Was there "bodily injury"?  
• Did the alleged "bodily injury" occur over more than one policy period and, if so, how does that impact the coverage picture?
• Any exclusions apply?
• Late notice?

Policies dating back to 1963 (2019-[55+1]) may be implicated.  Do you still have records of such policies?  What if you don't but someone says your company (or one of its predecessors) covered one or more of the CVA suit defendants?  Whose burden is it to prove the existence and terms of the lost policy?  And to what quantum of proof?  

Over the next few weeks I'll be surveying New York case decisions addressing these considerations in the context of CVA actions.  Stay tuned.  

The Polar Vortex and Reasonable Care to Maintain Heat

Wasn't it the under-apple-tree-sitting Sir Isaac Newton who first said that what goes down must come up?  (Physics wasn't my thing in high school.)  In addition to being a mathematician, physicist, astronomer, theologian, author and pome fruit lover, I understand that Sir Isaac provided expert cause of loss evaluation services to insurance companies¹ in the late 17th and early 18th centuries.

Had I opened my law office in, let's say, Florida, I wouldn't be getting calls like the one I got yesterday.  With air temperatures having risen back into the guess-I-no-longer-have-an-excuse-not-to-shovel-my-walkway-and-sidewalk range, water that had gone from liquid to solid state in enclosed hollow metal cylinders (aka pipes) is moving back into its liquid state.  And hence, the resulting freezing/water losses.  And associated coverage questions.

Homes that are vacant, unoccupied or under construction are generally not covered for freezing losses unless their owners have used reasonable care to either maintain heat or shut off the home's water supply and drain the pipes.  A typical homeowners policy provision provides:

SECTION I – PERILS INSURED AGAINST

A. Coverage A – Dwelling And Coverage B – Other Structures

     1. We insure against risk of direct physical loss to property described in Coverages A and B.

     2. We do not insure, however, for loss:

          c. Caused by:

     (1) Freezing of a plumbing, heating, air conditioning or automatic fire protective sprinkler system or of a household appliance, or by discharge, leakage or overflow from within the system or appliance caused by freezing. This provision does not apply if you have used reasonable care to:

                    (a) Maintain heat in the building; or
                    (b) Shut off the water supply and drain all systems and appliances of water.

Mom goes into a nursing home, the 'rents are snowbirding in Florida, or the tenants recently moved out.  Or the seasonal home in the Adirondacks is shuttered for the winter.  If the water is not shut off and the pipes drained, what constitutes "reasonable care to maintain heat"?  In a "normal" New York winter?  During the polar vortex?

Is "reasonable care to maintain heat" during winter in New York the same as "reasonable care to maintain heat" during winter in Minnesota?  Probably not, because the care required is "to maintain heat" and the reasonableness of an insured's conduct in that regard is measured and determined by the particular circumstances and conditions in which the vacant or unoccupied home and its plumbing system find themselves.  Maintaining heat to keep water pipes from freezing in a home in Minnesota in the wintertime requires greater care (and more fuel) than doing so in New York.  Right?

(Fun fact:  there are 10 reported state and federal court cases in New York on the question of what constitutes "reasonable care to maintain heat" in a vacant or unoccupied structure but only 1 reported case in Minnesota.  Someone please explain that to me.  I would have bet the under.)

For those dealing with insurance losses or claims from frozen pipes in New York, here's a survey of the 10 reported New York cases, in reverse chronological order:

>> Philadelphia Indem Ins. v. Adirondack Ins.Exch. (Sup. Ct., NY Co., 6/20/18)

Condo unit loss.
Summary judgment to property's insurer.

This was an action to collect on a default judgment Philadelphia, a condominium complex's insurer, had obtained against the owner of a vacant condo unit in which pipes froze and burst, causing water damage to the complex.  Adirondack insured the unit owner.

Adirondack denied liability coverage to its insured because, as she had moved out of and no longer resided in the unit prior to the loss, the premises did not meet the policy's definition of "residence premises" (defined as "the unit where you reside as shown as the `residence premises' in the Declarations").

In granting Adirondack's cross motion for summary judgment and dismissing the complaint, Supreme Court agreed that the unit did not meet the policy's definition of "residence premises" and noted with respect to first-party property coverage:

In any event, even if defendant's policy was in effect at the time of the incident, frozen pipe bursts caused by owner's failure to properly drain and maintain heat are specifically excluded from coverage (Def. Exh. 1 — Policy Form SH 23 25 01 06 at 1, §1(2)(c)). The record shows that Iglupas did not use reasonable care to maintain heat in the building or shut off the water supply, as indicated by the lack of gas usage on the utility bill. Therefore, the relevant policy would not apply to this loss.

>> Stephenson v. Allstate Indem. Co. (3rd Dept., 4/19/18, lv. to appeal denied 9/13/18)

Personal residence/homeowners loss.
Summary judgment to insurer.

I previously blogged about this case here.  Read that post for more details.  As I said in there, in affirming summary judgment to Allstate the Third Department held:

We conclude that decedent failed to use reasonable care, as a matter of law, to maintain heat in the premises while it was unoccupied for three months during the winter heating season, because it is undisputed that she did not arrange for inspection of the premises or take any other action to ensure that adequate levels of heat were actually maintained during that time period[.]

Adequate to do what? Keep the water pipes from freezing.

The facts that supported summary judgment in this case were:

• the Binghamton, NY home was unoccupied for three months during the wintertime;
• the home's water supply had not been shut off;
• the plumbing system had not been drained; 
• the insured had made no arrangements to have the home inspected while she was gone; and
• an expert opined that the home's natural gas consumption was insufficient to maintain a level of heat adequate to prevent freezing of the plumbing system.

>> Read Prop. Grp., LLC v. Hamilton Ins. Co. (EDNY, 3/30/18)

Rental property loss.
Summary judgment to the insurer.

In January 2016 a bathroom pipe froze and burst at one of plaintiff's 362 residential rental properties insured by Hamilton.  The policy's Protective Safeguards--Heat Maintained endorsement required that heat be maintained at an "ambient temperature of not less than 50 degrees Fahrenheit at all times throughout any building identified in the Schedule by use of a gas-fired, coal-fired, electric or similar heating system."  Hamilton's investigation of the reported loss revealed that the water pipes had frozen and burst due to the failure of both furnaces in the house.  Heating bills disclosed in discovery showed zero gas usage for November and December 2015.

In opposition to Hamilton's motion and support of its own cross motion for summary judgment plaintiff argued: (1) that the word "maintain" in the endorsement is undefined and ambiguous; (2) Hamilton's interpretation of the endorsement/exclusion is against public policy; and (3) the undisputed facts showed that plaintiff took reasonable steps to maintain the heat in the premises.

The District Court GRANTED Hamilton's motion for summary judgment, dismissing the complaint, finding:

• that the word "maintain" as used in the policy is not ambiguous ("it is thus plain that any insured reading the first part of the Endorsement—particularly a sophisticated business seeking to insure 362 properties, such as the plaintiff—would understand the following to impose an absolute obligation to ensure that the temperature in the insured premises is always at or above 50 degrees Fahrenheit if the policy is to provide coverage for certain kinds of losses");


• the endorsement is not contrary to public policy ("Moreover, even if it were appropriate to consider abstract notions of fairness rather than the specific policies established by the state legislature, there is nothing fundamentally unfair in enforcing the contract as written. Plaintiff is a sophisticated organization that purchased a policy of insurance to cover 362 properties, some of which were vacant.");


•  plaintiff did not maintain the ambient temperature in the residence at at least 50 degrees Fahrenheit; water does not freeze if the ambient temperature is 50 degrees or higher ("Defendant's evidence that pipes cannot freeze if the temperature in the building is at or above fifty degrees Fahrenheit is undisputed.")

Note that this is not a "reasonable care to maintain heat" but a "maintain an ambient temperature of not less than" case.

>> Brennor v. Metropolitan Prop.  & Cas. Ins. (Sup. Ct., Westchester Co., 5/12/14)

Rental property loss.
Summary judgment to insurer.

Plaintiff owned rental property.  Tenants moved out in February 2009 and plaintiff has the gas and electric utilities account transferred to her.  In March 2009 plaintiff received a letter from the utility company requesting a deposit.  Beginning that month, each gas and electric bills threatened to terminate the service if the deposit is not paid.  Plaintiff never paid the deposit but did pay the monthly utility service charges.  In January 2010, the utility company terminated the gas and electric service to the premises, which caused the pipes to freeze. Metropolitan denied coverage, citing plaintiff's failure to use reasonable care to maintain heat.

In granting Metropolitan's motion for summary judgment, Supreme Court reasoned:

In opposition, plaintiff contends that she did not believe that Con Edison would turn off the gas and electric service because she was paying her monthly bills and Con Edison had not terminated the service for 10 months. Based on this, plaintiff contends that a "jury may deem reasonable [plaintiff's] belief that Con Edison would not turn off the service at any time because of her refusal to pay the security deposit because of Con Edison's course of conduct during the period of close to 10 months."

Plaintiff has failed to raise a triable issue of fact. The subject policy excludes coverage for damage caused by freezing of a plumbing system, unless plaintiff has used reasonable care to maintain heat at the Premises. While it is true that the resolution of whether a party's actions are "reasonable" frequently presents a triable issue of fact, that is not always the case (see, e.g., MacWhinnie v Nugent, 28 AD3d 431, 432 [2d Dept 2006]; Schuster v Amboy Bus Co., Inc., 267 AD2d 448, 449 [2d Dept 1999]). This is not a case where there is an issue as to whether plaintiff knew that the power might be terminated (see McCabe v Allstate Ins. Co., 260 AD2d 850, 852 [3d Dept 1999]) or where there is an issue as to whether plaintiff thought s/he had done everything necessary to restore the power (see Billitier v Merrimack Mut. Fire Ins. Co., 777 F Supp 2d 488, 491 [WDNY 2011]) or where there is an issue as to whether the damage was in fact caused by the freezing of the plumbing system (see Farrell v. American Intern. Ins. Co., 2010 WL 2517240 (Sup Ct, NY County 2010). Here, the question of whether plaintiff used reasonable care to maintain the heat at the Premises does not depend on triable issues of fact. Plaintiff was repeatedly warned that Con Edison would terminate the gas and electric service if she did not pay a certain amount of money. Plaintiff did not contact Con Edison to dispute or even address the amount that was supposedly due. Instead, plaintiff simply did not pay the amount that Con Edison claimed was due, notwithstanding Con Edison's repeated threats to terminate the gas and electric service. As a matter of law, plaintiff failed to use reasonable care to maintain heat at the Premises.

You can file this decision in the no shit, Sherlock, folder.

>> Leone v. State Farm Fire & Cas. Co. (Sup. Ct., Suffolk Co., 9/4/13)

Personal residence/homeowners loss.
Question of fact found; summary judgment to insurer denied.

The insured residence was a home the plaintiffs had purchased more than three years before the loss but had not yet moved into. The insureds claimed that they intended to renovate it and make it their primary residence, sometimes staying overnight in the home during the renovation process.  Mr. Leone testified that they had started the process of moving furniture into the subject property and that they stayed there as much as time permitted. He further testified that the temperature in the house was kept at 65 degrees to 68 degrees and that the heat was always on.

The insureds purchased the home in 2006, insured it with State Farm under a homeowners policy at the end of November 2009, and reported a frozen/burst water pipe loss to State Farm in January 2010, claiming $175,000 in damages.

State Farm retained a licensed engineer (not named Sir Isaac Newton, see Footnote 1 below) to investigate and determine the cause of property damage to the home.  The engineer opined that a shower cap valve had frozen and burst due to a failure to maintain adequate heat within the building during a period of subfreezing weather.  The engineer based his opinion on weather and utility records and his calculations of heating output within the home.

The primary issue in this case was residency, on which Supreme Court ruled there were triable questions of fact.  In denying summary judgment to State Farm and on the issue of whether the insureds had used reasonable care to maintain heat, Supreme Court held:

Finally, a question of fact exists as to whether plaintiffs used reasonable care to maintain heat in the subject property, as both plaintiffs testified that the heat was always on in the house, and Mr. Leone specifically testified that the temperature of the house remained at 65 degrees to 68 degrees at all times.

>> Billitier v. Merrimack Mut. Ins. Co. (WDNY, 4/18/11)

Rental property loss.
Question of fact found; summary judgment to insurer denied.

Tenants of plaintiff vacated the insured property in early December 2007 and disconnected their utility service.  Plaintiff inspected the property within days of his former tenants' departure and discovered that the utilities had been disconnected.  He allegedly called the utility company right away and requested that power be restored.  He testified that a representation of the utility company assured him that power would be restored within "a couple of days" or within "a matter of days," or by "the week of [December] 9th."

On December 12th a service call to restore power was unsuccessfully attempted at the property, but  plaintiff was not present and that keys to the property, which plaintiff had previously provided to the utility company for access, allegedly did not work.  Plaintiff disputed that he had been told he would need to be at the property for power to be restored, and the utility company allegedly did not notify plaintiff that power had not been restored.

Plaintiff testified that in late December and early January, he made about two trips to inspect that Property's exterior to ensure that it remained in good condition for eventual sale or rental to new tenants, and noticed nothing unusual. In mid-January, he accompanied friends on an out-of-town golfing trip, and was unable to visit or inspect the property for approximately two weeks.  On or around January 24, 2008, plaintiff again visited the property, and discovered extensive water damage. While the precise timing of the ruptured pipes at the property is unclear, it was believed to have occurred sometime between plaintiff's physical inspection of the property's interior after his tenants left in or around the first week of December 2007, and his discovery of the water damage on or about January 24, 2008.

In finding triable questions of fact and DENYING summary judgment to Merrimack, the District Court held:

Here, I find that summary judgment would be inappropriate, because resolution of whether Billitier used "reasonable care" under the circumstances presented and within the meaning of the Policy exclusion does depend on triable issues of fact. It would be inappropriate for the Court, on this record, to rule as a matter of law that plaintiff failed to exercise reasonable care to maintain heat at the Property. Assessing whether "reasonable care" was taken necessarily includes a fact-intensive analysis of, among other things, the parties' credibility, the extent of RG & E's representations or instructions to Billitier, Billitier's actions to ensure the provision and continuation of electric service to the Property when it was unoccupied, the reasonableness of Billitier's reliance on RG & E's statements in connection with the request for power restoration, the impact of RG & E's failure to ever notify Billitier that it had been unable to restore service, and the reasonableness of Billitier's decision not to drain the plumbing or provide for an interim heat source, viewed in light of prevailing weather conditions in December 2007, which are alleged to have been unseasonably warm. Resolution of such material questions of fact is best reserved for the jury.

>> Farrell v. American Intl. Ins. Co. (Sup. Ct., Suffolk Co., 5/31/10)

Guest cottage loss.
Question of fact found; summary judgment to insurer denied.

On February 12, 2007, plaintiffs brother-in-law, discovered a burst hot water pipe supplying the washing machine in a vacant and unoccupied guest cottage on plaintiff's property.  The brother-in-law claimed he would be at the cottage frequently because he stored stored machinery and equipment for his business there and had not noticed anything unusual about the temperature in the cottage the day he discovered the burst pipe and water loss.  He also claimed that the thermostat was always set at 55 degrees.

A plumber retained by the plaintiff reported that the water pipe had frozen and burst open "like a clam."  A mechanical engineer hired by the insurer to inspect and opine on the cause of the burst pipe reported that the cottage was in "deplorable condition", had windows missing panes of glass on the first floor, some of which were adjacent to the hot water pipe at issue, and showed signs of exposure to high humidity and low temperatures for far longer than the time between February 12, 2010, and the date of his inspection.  The engineer's analysis of plaintiff's utility bills concluded that "there was literally no heat in the cottage for most of" the six-month period ending in mid-January.

Twenty-eight months after the incident, through her public adjuster, plaintiff submitted a contractor's "Water Damage, Mold Remediation, Building Repair Estimate" for $486,412.84 that included "new cedar shingle siding and gutters, new chandeliers, new windows, new kitchen cabinetry, a refrigerator, dish washer, freestanding range, new gas lines for the entire house, and over $100,000 for water extraction and remediation."  The parties disputed whether the extensive mold growth throughout the cottage was due to the February 2007 burst pipe/water loss or the insured's failure to take appropriate remedial measures.

Supreme Court denied summary judgment to AIIC on its failure to mitigate and mold exclusion coverage defenses.  As to AIIC's defense that the plaintiff failed to use reasonable care to maintain heat in the cottage, in denying summary judgment to AIIC on that ground, as well, the court held:

In this case the plain meaning of the policy provision quoted above required the insured to use "reasonable care" to maintain heat in the premises, in order for coverage to be available in the case of water freezing in a plumbing system. Defendant AIIC has presented a prima facie case that the cottage was vacant or unoccupied for many months before the incident, very little heat was used in the cottage in early 2007, and the temperatures were cold enough to cause freezing. There is also testimony that a frozen pipe that bursts has the appearance, as the pipe allegedly did here, of a "clam" (Plumber Leotta) or a "fishmouth" (Engineer Levine)." 

The burden then shifts to plaintiff to raise a triable issue of fact. Plaintiff's engineer denies that the pipe burst because it froze, because the pipe at issue did not abut an exterior wall and he derides the Mpemba effect as "an old wives tale"(Rosner affidavit, par. 16). Plaintiff's engineer further argues that, based on the utility bills, the heating system continued to function and produce a reasonable amount of heat up until the time it stopped running as a result of water infiltration (Rosner affidavit, par. 18). 

Plaintiff's plumber opines that is "highly unlikely that a freeze up would occur to a pipe adjacent to an interior wall when no other pipe, especially those that are adjacent to exterior walls, froze also" (Zinnia affidavit, par 11). The plumber continues, that "it is much more likely that there was an original leak that occurred unrelated to the temperature" and that when a large quantity of water accumulated in the basement, it caused the heating unit to shut down (Zinnia affidavit, par. 14). 

Mr. Seib insists that he was in and out of the cottage frequently (Seib affidavit par. 5), and never noticed a temperature drop or broken windows (Seib affidavit, par. 15-16). According to Mr. Seib, the temperature in the cottage was maintained at 55 degrees (Seib affidavit, par. 10). Mr. Seib also testified that when he first discovered the water leaking from the pipe, he got his pliers and used them to pinch the copper tubing to reduce the water flow to a trickle (Seib transcript, p. 40). In reviewing heating bills plaintiff testifies that he never saw any indication that gas was not being consumed or that the heat was not being maintained (Farrell affidavit, par. 6). 

On this record, plaintiff has raised a triable issue of fact as to whether he used "reasonable care" to maintain heat in the cottage [McCabe v Allstate Ins. Co., 260 AD2d 850 (3rd Dept. 1999)]. This is a matter for the jury.

You probably saw some videos this past week suggesting that there may be some validity to the Mpemba effect--folks throwing boiling water into the sub-zero air of Michigan or other polar-vortexed places.

>> Landsman v. Dryden Mut. Ins. Co. (Sup. Ct., Broome Co., 12/8/09)

Rental property loss.
Judgment after non-jury trial to insurer.

I previously blogged about this case here.  You can read that post for more details and commentary.

Plaintiff, a New York City attorney, bought and rented a farmhouse to tenants in Hancock, New York, near Binghamton.  The tenants fell behind on their rent and plaintiff commenced eviction proceedings against them in November 2004.  On January 23, 2005, one of the tenants called and left plaintiff a voice message indicating that there was a problem with the furnace.  On January 30, 2005 plaintiff traveled from New York City to check on the property.  He saw some personal property within the property on that day and the next but did not go inside.  Upon returning to New York City on January 31, 2005 he found a telephone message waiting for him from the property's utility company advising that they had turned off the power to the property that day for nonpayment.  Despite that notification, plaintiff did nothing to reestablish power to the property until it was again rented to tenants.  When heat and power were reinstated by the new tenants in mid-February, multiple leaking pipes were discovered.  Plaintiff made a claim for the damage to Dryden Mutual, the property's insurer.

Supreme Court denied Dryden Mutual's motion for summary judgment on the freezing peril defense and the action proceeded to a non-jury trial.  This decision is the court's verdict.  In finding in favor of Dryden Mutual and dismissing the complaint, the court concluded:

The next question is whether defendant properly found that plaintiff did not use "reasonable care to maintain heat in the residence or to shut off all water and to completely drain the system and domestic appliances". Again, the facts elicited at trial answer the question. As noted hereinabove, plaintiff knew on January 31, 2005, in the dead of an upstate New York winter, that there was no heat or electric utility to the Property and did not return to the Property that day or the next. In and of itself, the court finds this knowledge on behalf of plaintiff to be a basis for concluding that plaintiff did not use reasonable care to maintain heat in the Property. Plaintiff's argument that he could not access the Property because Curry and Colwell had until February 4, 2005 to vacate is unpersuasive. As noted above, there was no reasonable basis for plaintiff to believe that Curry and Colwell were in the Property since they had never finalized the settlement agreement and were not present at the Property on either January 30 or 31, 2005. 

Consequently, the court finds that once NYSEG had shut off the heat as of January 31, 2005, plaintiff knew or should have known that he should return to the Property without delay to make sure that the heat and utilities were reinstated or to drain the pipes and other plumbing fixtures. Moreover, the court finds that a reasonable landlord in plaintiff's position would have entered the premises on January 30 or 31, 2005 under the provision of the lease permitting inspections. The court finds that plaintiff's failure to do so is unreasonable when faced with this winter scenario. Quite simply, plaintiff's failure to act in this situation was the equivalent of ignoring the obvious and burying one's head in the sand. Finally, what the court found most telling was plaintiff's own testimony when explaining why he did not return to Hancock after he received the call from NYSEG on January 31, 2005 which was as follows: 

Q: You didn't make arrangements to go have NYSEG turn it [the power] on. 

A: I did. They said no — I said, put it on in my name. 

Q: They said we'll do it if you are there to let us in. And you wouldn't drive up there to let them in. 

A: I was just there. (Trial Transcript, pp 39-40). 

Based on the credible evidence and documentary proof submitted, the court is satisfied that defendant has met their burden of proof that the Property was vacant and unoccupied at the time of this loss and that plaintiff failed to use reasonable care to maintain heat in the residence or to shut off all water and to completely drain the system and domestic appliances.

>> Gallo v. Midstate Mut. Ins. Co. (4th Dept., 11/23/07)

Rental property loss.
Summary judgment to insured.

in AFFIRMING Supreme Court's grant of partial summary judgment on liability to plaintiff and denial of summary judgment to Midstate Mutual, the Fourth Department held:

Inasmuch as it is undisputed that plaintiff's loss was the direct result of the freezing of water pipes in the insured property, the loss is covered by the "Perils Section" of the policy. That section includes the peril of "Freezing of a plumbing ... system" even if the property is vacant, so long as the insured "has used reasonable care to ... maintain heat in the building," and, here, plaintiff established as a matter of law that he used reasonable care to maintain heat in the building. In support of his motion, plaintiff submitted the deposition testimony of his property manager, who testified that, in late December 2004, he restored electric power to the building himself by removing certain tabs in the electric meter. Plaintiff also submitted the deposition testimony of the property manager's rental agent, who testified that, on January 22, 2005, the electricity was on and the furnace blower was operating properly to heat the building. 

In opposition to the motion, defendant submitted Rochester Gas & Electric (RG & E) records indicating that RG & E had "no record of electric service being delivered to [the property] between December 21, 2004 and May 4, 2005." That evidence, however, is insufficient to raise an issue of fact whether plaintiff's property manager took reasonable care to maintain heat in the building at the time the plumbing system froze, between January 22, 2005 and January 24, 2005. We note that defendant's contention that the act of plaintiff's property manager in restoring electricity to the building himself cannot, as a matter of law, constitute reasonable care to maintain heat because such act constitutes theft of services is raised for the first time on appeal and thus is not properly before us (see Ciesinski v Town of Aurora, 202 AD2d 984, 985 [1994]). 

We thus conclude that plaintiff's loss is specifically covered under the policy, and we further conclude that the exclusions relied on by defendant under paragraph 15 of the "Perils Section," "Accidental Discharge or Overflow of Liquids or Steam from a plumbing ... system," do not unambiguously apply in this case (see generally Seaboard Sur. Co., 64 NY2d at 311; Oot v Home Ins. Co. of Ind., 244 AD2d 62, 70-71 [1998]).

And who says crime doesn't pay?

>> McCabe v. Allstate. Ins. Co. (3rd Dept., 4/15/99)

Seasonal/vacation home loss.
Question of fact found; summary judgment to insurer denied.

Plaintiffs, residents of Virginia, owned a vacation home in upstate New York, which suffered substantial damage as the result of frozen pipes in the winter of 1996. In 1991, plaintiffs orally contracted with a heating oil company for automatic fuel oil delivery service. Pursuant to the agreement, the heating oil company made periodic oil deliveries to plaintiffs' home until December 1994, at which time the heating oil company claimed plaintiffs terminated the service. Plaintiffs denied terminating the arrangement. In March 1996, plaintiffs discovered that their home had suffered approximately $43,500 in plumbing and water damage caused by frozen and bursting pipes after the heating system's fuel tank ran dry. Allstate denied coverage and plaintiffs sued both Allstate and the heating oil company.

In affirming Supreme Court's denial of the defendants' motions for summary judgment, the Third Department held:

We next review Allstate's contention that it was entitled to summary judgment due to the following loss exclusion: "Freezing of plumbing, fire protective sprinkler systems, heating or air conditioning systems or household appliances, or discharge, leakage or overflow from within the systems or appliances caused by freezing, while the building structure is vacant, unoccupied or being constructed unless you have used reasonable care to: (a) maintain heat in the building structure; or (b) shut off the water supply and drain the system and appliances." We find plaintiffs' assertion that their house was not "unoccupied" in light of their continuing, albeit seasonal use of the premises, to be unavailing. Inasmuch as plaintiffs' primary residence was in Virginia and they concede that no one resided at or visited the house in Edinburg from September 1995 until March 1996, their claim falls squarely within the exclusion provision. This Court has previously determined that use of the word "unoccupied" in an insurance policy carries its ordinarily accepted meaning and that "[i]t is the regular presence of inhabitants that makes occupancy" (Coutu v Exchange Ins. Co., 174 AD2d 241, 244; see, Page v Nationwide Mut. Fire Ins. Co., 15 AD2d 306, 306-307). 

Therefore, the salient issue is whether plaintiffs took reasonable measures to maintain heat in the structure during their absence. Allstate claims that merely arranging for automatic fuel oil service does not constitute reasonable care within the meaning of the policy exclusion. Additionally, Northville alleges that the contract for fuel delivery was terminated at the end of 1994 which, if true, would establish the lack of reasonable care in this case if no other measures were taken. Plaintiffs, on the other hand, argue that the automatic fuel oil delivery contract remained in effect since they did not request its termination and was sufficient to satisfy their duty of maintaining heat in the house. In light of the question of fact which exists with respect to the status of the fuel oil delivery contract, we conclude that Supreme Court's denial of plaintiffs' and Allstate's respective summary judgment motions was proper.

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For those keeping score, the property insurers batted .500 on their not-reasonable-care-to-maintain-heat defenses in these 10 cases.  Summary judgment was denied as often as it was granted.  If one studies the cases and their facts, their outcomes turned on what the property owners knew about heat within the vacant or unoccupied structures and what they did or did not do to maintain that heat during periods when the state of water within enclosed hollow cylinders can turn from liquid to solid.

If you've made it down this far in this post, you must be interested in this type of loss/claim.  To follow new New York federal and state court decisions on this issue, create your own Google Scholar alert like I did by clicking here.  If my gmail email address auto-populates the form, change it to your preferred email.  Or if you want to follow this issue in all federal and state courts, click here to create your Google Scholar alert.  For why you should be using Google Scholar, read my August 30, 2015 post.

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