Coverage Counsel

"Stage Hand" Exclusion Found to be Ambiguous

noreply@blogger.com (Roy A. Mura) — Sat, 24 Dec 2011 03:24:00 +0000

CGL – "STAGE HAND" EXCLUSION – "ARISING OUT OF" – AMBIGUITY
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.

1. Rhetorical coverage question.

... and Sometimes the Bar Eats You

noreply@blogger.com (Roy A. Mura) — Wed, 21 Dec 2011 15:02:00 +0000

CGL – 62-DAY LATE NOTICE – 33-DAY UNTIMELY DISCLAIMER
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 days	West 16th Street Tenants Corp. v. Public Service Mut. Ins. Co., 290 AD2d 278 (1st Dept. 2002)
37 days	2833 Third Ave. Realty Assocs. v. Marcus, 12 AD3d 329 (1st Dept. 2004)
41 days	Matter of Nationwide Mut. Ins. Co. v. Steiner, 199 AD2d 507(2nd Dept. 1993)
48 days	First Fin. Ins Co. v. Jetco Contr. Corp., 1 NY3d 64 (Ct. Apps. 2003)
60 days	Milbank Housing Dev. Fund v. Royal Indem. Co., 17 AD3d 280 (1st Dept. 2005)

Claim Professionals Cannot be Held Personally Liable

noreply@blogger.com (Roy A. Mura) — Mon, 19 Dec 2011 13:07:00 +0000

HOMEOWNERS – BREACH OF CONTRACT – PUNITIVE DAMAGES – FRAUD – ATTORNEYS' FEES – PERSONAL LIABILITY
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).

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

noreply@blogger.com (Roy A. Mura) — Fri, 16 Dec 2011 14:25:00 +0000

CGL – LATE NOTICE – 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

noreply@blogger.com (Roy A. Mura) — Fri, 16 Dec 2011 13:50:00 +0000

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:

Ask Tim (Tim Dodge, Independent Insurance Agents & Brokers of NY)
Binding Authority (Randy J. Maniloff)
Boston ERISA and Insurance Litigation Blog (Stephen Rosenberg)
Corporate Insurance Blog (Scott Godes)
Coverage Counsel (Mura & Storm)
CyberInquirer (Cozen O’Connor)
Disability Insurance Lawyer Blog (Frankel & Newfield)
Gauntlett on Intellectual Property/Antitrust Insurance (David A. Gauntlett)
GC Capital Ideas (Guy Carpenter)
GlobalTort (Kirk Hartley, Steve Sellick and Tim Greene)
Healthblawg (David Harlow)
Health Care Law Reform (McDermott Will & Emery)
Insurance Claims and Issues (Dennis Wall)
Insurance Class Actions Insider (Wystan Ackerman)
Insurance Coverage Corner (Carlock, Copeland & Stair)
Insurance Coverage Law Blog (Dunn Carney Allen Higgens & Tongue LLP)
Insurance Coverage Law in Massachusetts (Nina Kallen)
Insurance Litigation and Regulatory Law Blog (Barger & Wolen LLP)
Insurance Law Hawaii (Tred R. Eyerly)
InsureReinsure (Edwards Wildman Palmer LLP)
Life, Health and Disability Insurance Blog (Barger & Wolen LLP)
Life Insurance Law Blog (Currin Compliance Services LLC)
Loree Reinsurance and Arbitration Law Forum (Loree & Loree)
National Insurance Law Forum (National Insurance Law Forum)
Nevada Insurance Law Blog (Mills & Associates Law Firm)
No-Fault Defender (Jason Tenenbaum)
North Carolina Insurance Law (George Simpson)
PLUS Blog (Professional Liability Underwriting Society)
Policyholder Perspective (Farella Braun + Martel LLP)
Property Insurance Coverage Law Blog (Merlin Law Group)
Reinsurance Focus (Jorden Burt LLP)
reinsurance girl’s blog (Rein4ce)
Reinsurance Law Blog (Stauffer & Nathan)
Risk Management Monitor (RIMS)
Subrogation & Recovery Law Blog (Cozen O’Connor)
Tennessee Insurance Litigation Blog (Brandon McWherter and Parks T. Chastain)
Terms + Conditions (Insurance Information Institute)
The D&O Diary (Kevin M. LaCroix)
The Insurance and Reinsurance Report (Goldberg & Segalla)
Tort Talk (Dan E. Cummins)
Traub Lieberman Insurance Law Blog (Brian Margolies)
Zalma on Insurance (Barry Zalma)

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

noreply@blogger.com (Roy A. Mura) — Thu, 15 Dec 2011 13:50:00 +0000

PERSONAL AUTO – THIRD-PARTY DIMINISHED VALUE – COST OF REPAIRS – MEASURE OF RECOVERABLE DAMAGES
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, 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.

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.

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

noreply@blogger.com (Roy A. Mura) — Wed, 14 Dec 2011 14:28:00 +0000

PROPERTY – HOMEOWNERS – PROOF OF LOSS – REGULATION 64 – 90-DAY DELAY LETTERS – DEFENSE PRECLUSION
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.

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

noreply@blogger.com (Roy A. Mura) — Wed, 14 Dec 2011 02:03:00 +0000

NO-FAULT – WORKERS' COMPENSATION FEE SCHEDULE – DEFENSE PRECLUSION – UNTIMELY DENIAL – INSURANCE LAW § 5106
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.

Why I Haven't Been Blogging

noreply@blogger.com (Roy A. Mura) — Wed, 07 Dec 2011 13:13:00 +0000

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.

PerSONa Non Grata Not a Household Resident and Therefore Not an Insured Under the Father's Farmowners Policy

noreply@blogger.com (Roy A. Mura) — Fri, 11 Nov 2011 14:11:00 +0000

FARMOWNERS – "HOUSEHOLD" – RESIDENT RELATIVE – INSURED STATUS
Farm Family Cas. Ins. Co. v Nason
(4th Dept., decided 11/10/2011)

If your adult son stayed sometimes on your property in a separate but uninsured trailer and sometimes off premises with his girlfriend, did not reside with other members of your family, and was not welcome in your home, could he be considered a member of your household for purposes of qualifying as an insured under your homeowners or farmowners insurance policy? No, says the Appellate Division, Fourth Department.

Farm Family insured property on which Gerald Nason, Sr., had his home and a dairy business. Under the terms of that policy, Nason's relatives were insureds only if they were residents of his "household." Eric Pommerenck died as the result of injuries that he sustained on farm property owned by Nason while examining a hay elevator that had been offered for sale by Nason's son, Gerald R. Nason, Jr., the defendant in this declaratory judgment. Nason Jr. did not reside exclusively on his father's residence property but also resided at times with his girlfriend at another location. Pommerenck's estate commenced a wrongful death action against, among others, Nason Sr. and Nason Jr., and Farm Family commenced this action seeking a declaration that it owed no duty to defend or indemnify Nason Jr. in the underlying action on the ground that he was not an insured under its policy. Supreme Court, Erie County (Sedita, J.) denied Farm Family's motion for summary judgment and it appealed.

In REVERSING the lower court's order and declaring that Farm Family was not obligated to defend or indemnify Nason Jr. in the underlying wrongful death action, the Appellate Division, Fourth Department, while noting that the undefined term "household" has been characterized as being ambiguous, found that Farm Family has submitted sufficient evidence to support the conclusion that Nason Jr. was not a member of his father's household, and thus did not qualify as an "insured" under his policy with Farm Family at the time of the underlying accident:

"The term household has been characterized as ambiguous or devoid of any fixed meaning in similar contexts . . . and, as such, its interpretation requires an inquiry into the intent of the parties . . . The interpretation must reflect the reasonable expectation and purpose of the ordinary business [person] when making an insurance contract . . . and the meaning which would be given it by the average [person] . . . Moreover, the circumstances particular to each case must be considered in construing the meaning of the term" (General Assur. Co. v Schmitt, 265 AD2d 299, 300 [internal quotation marks omitted]). In addition, "the term should . . . be interpreted in a manner favoring coverage, as should any ambiguous language in an insurance policy" (Rohlin v Nationwide Mut. Ins. Co., 26 AD3d 749, 750).

Here, plaintiff established that Nason did not consider defendant to be a member of his household, nor would he have anticipated that defendant would be afforded coverage under his insurance policy inasmuch as defendant lived separately from Nason, either in a trailer on the subject property or with a girlfriend. The trailer was not listed in the policy as an alternate residence. Furthermore, members of the Nason family testified at their respective depositions that defendant did not reside with the other members of the family and, indeed, was not welcome in the family home. Consequently, plaintiff established as a matter of law that defendant was not a member of Nason's household within the meaning of the policy (see Matter of Hartford Ins. Co. of Midwest v Casella, 278 AD2d 417, 418, lv denied 96 NY2d 710; Walburn v State Farm Fire & Cas. Co., 215 AD2d 837; cf. Korson v Preferred Mut. Ins. Co., 55 AD3d 879, 880-881), and defendants failed to raise a triable issue of fact (see generally Zuckerman v City of New York, 49 NY2d 557, 562).

What Consitutes Prejudice to a Liability Insurer? A Default Judgment Taken Against its Insured Does.

noreply@blogger.com (Roy A. Mura) — Fri, 11 Nov 2011 04:59:00 +0000

AUTO – LATE NOTICE OF SUIT – DEFAULT JUDGMENT AGAINST INSURED – PREJUDICE
Vernet v Eveready Ins. Co.
(2nd Dept., decided 11/1/2011)

Under certain types of New York liability insurance policies issued, renewed or modified on and after January 17, 2009, an insured's late notice of an accident or occurrence or of a related lawsuit must prejudice the insurer before it may decline coverage based on the late notice. New York Insurance Law § 3420(a)(5) now provides that qualifying liability policies issued or delivered in New York State on or after January 17, 2009 must contain a provision

that failure to give any notice required to be given by such policy within the time prescribed therein shall not invalidate any claim made by the insured, injured person or any other claimant, unless the failure to provide timely notice has prejudiced the insurer, except as provided in paragraph four of this subsection.

Although the policy at issue in this case was issued prior to January 17, 2009, its notice of suit condition adopted a prejudice requirement by specifying that the Eveready had no duty to provide coverage "if the failure to comply [with the policy] is prejudicial to [Eveready]."

Plaintiffs were passengers in a livery cab and allegedly sustained personal injuries when the cab was involved in an automobile accident with an individual insured by Eveready. The accident occurred on October 15, 2000, in Brooklyn. On or about October 25, 2000, Eveready learned of the accident and opened a claims file. Thereafter, on May 29, 2001, and September 26, 2001, Eveready received letters from the plaintiffs' counsel informing it of counsel's representation of the plaintiffs. The next correspondence from the plaintiffs' counsel regarding the insured was received by Eveready on August 15, 2005, nearly five years after the accident date. In this correspondence, counsel for plaintiffs informed Eveready that an action had been commenced against, among others, Eveready's insured, on July 9, 2003, and that a default judgment dated November 19, 2004, had been entered in that action in favor of the plaintiffs and against, among others, Eveready's insured. Eveready disclaimed coverage on the ground that its insured had breached the insurance policy by failing to timely notify it of the commencement of an action regarding the accident.

Plaintiffs then commenced this action against Eveready pursuant to New York Insurance Law § 3420(b)(2) to obtain payment of their default judgment against Eveready's insured from Eveready. Supreme Court, Kings County (Bunyan, J.), denied Eveready's original and renewed motions for summary judgment, and Eveready appealed.

In REVERSING the lower court's order and granting summary judgment to Eveready, the Appellate Division, Second Department, held that Eveready's support on its renewed motion for summary judgment demonstrated, as a matter of law, that notice of suit was late and that it had been prejudiced by the insured's (and the injured parties') late notice:

Here, in support of its renewed motion for summary judgment, the defendant presented prima facie proof of untimely notice via the deposition testimony and affidavit of its claims manager. The manager stated that it was not until August 15, 2005, that the defendant first learned that an action had been commenced and a default judgment entered against the insured. Additionally, as to prejudice, the defendant established that, since it was first informed of the commencement of an action against the insured more than two years after the commencement of the action, the delay constituted "late notice as a matter of law" (1700 Broadway Co. v Greater N.Y. Mut. Ins. Co., 54 AD3d 593, 593). The defendant further demonstrated that the failure of the insured to provide notice until after a default judgment had been entered prejudiced it because it lost its right to appear and interpose an answer, thus requiring it to shoulder the burden of moving to vacate the default judgment (see American Tr. Ins. Co. v Rechev of Brooklyn, Inc., 57 AD3d 257, 259).

In opposition, the plaintiffs failed to raise a triable issue of fact. The plaintiffs' contentions amounted to unsupported, speculative, and conclusory allegations, and lacked any probative value in determining whether the defendant received timely notification of the underlying action and default judgment (see generally Paladino v Time Warner Cable of N.Y. City, 16 AD3d 646). Further, no excuse or explanation was ever posited as to the late notice.

What was plaintiffs' counsel thinking? Or not thinking? Having written not once, but twice, to Eveready in 2001 about the accident and plaintiffs' injuries, why didn't counsel provide a copy of the 2003 suit papers to Eveready and make sure it received timely notice of that suit? Did counsel mistakenly believe and decide that it would be better not to tell Eveready of the lawsuit and instead obtain a default judgment against its insured before notifying Eveready of the suit? If that was counsel's strategy, it wasn't a very good one. Unless counsel knew that the insured had passed along copies of the suit papers to Eveready, the better course of handling would have been to provide notice of the suit directly to Eveready and give it an opportunity to defend its insured.

Not a Named Insured? Not Entitled to Coverage.

noreply@blogger.com (Roy A. Mura) — Wed, 09 Nov 2011 20:12:00 +0000

CGL – NAMED INSURED STATUS – REFORMATION – MUTUAL MISTAKE
South Hylan, LLC v CNA Ins. Co.
(2nd Dept., decided 11/1/2011)

A person or entity can be entitled to coverage under a liability policy in one of three ways: (1) as a named insured; (2) as an additional insured; or (3) as an omnibus insured, qualifying as an insured by virtue of a provision in the "Who is an Insured" or other omnibus insured clause of the policy.

Plaintiffs sought defense and indemnification coverage from National Fire Insurance Company of Hartford (NFICH) for an underlying personal injury action. NFICH declined based on the fact that plaintiffs were not named insureds on the policy under which they sought coverage (and presumably were not additional insureds or omnibus insureds either). Plaintiffs commenced this declaratory judgment action and, among other things, sought to reform (re-write) the policy to add themselves as named insureds based on the parties' alleged mutual mistake in procuring and issuing the policy. Supreme Court, Richmond County (Ajello, J.H.O.), denied NFICH's motion and granted plaintiffs' cross motion for summary judgment and NFICH appealed.

In REVERSING the lower court's order, the Appellate Division, Second Department, found that NFICH had demonstrated its prima facie entitlement to summary judgment by establishing that plaintiffs were not named insureds in the subject insurance policy. The appellate court also found that plaintiffs had failed in opposition to NFICH's motion to raise a triable issue of fact as to whether reformation of the subject insurance policy was appropriate because a mutual mistake had been made as to the identity of the actual insureds.

You know what a claim like this one means, don't you? A companion agent E&O claim. Looks like that action is heading to trial next month.

"Pending Adjuster's Review" Doesn't Toll 30-Day Pay or Deny Period for No-Fault Billing

noreply@blogger.com (Roy A. Mura) — Wed, 09 Nov 2011 04:31:00 +0000

NO-FAULT – VERIFICATION – DELAY LETTER – INSURANCE LAW § 5106(A) – 30-DAY PAY OR DENY RULE
NYU-Hospital for Joint Diseases v American Intl. Group, Inc.
(2nd Dept., decided 11/1/2011)

You knew this already. A delay letter stating that payment of the provider's bill was being delayed "pending adjuster's review" and "investigation" does not serve to toll the 30-day pay or deny period of New York Insurance Law § 5106(a) and 11 NYCRR § 65-3.8. Without a timely denial of PIP benefits, the insurer was precluded from asserting that intoxication of the insured was a contributing cause of the accident and injuries. Summary judgment for the plaintiff hospital.

Insured's 6-Month Delay in Notifying His Insurer of Dog-Bite Incident Found Unreasonable as a Matter of Law

noreply@blogger.com (Roy A. Mura) — Tue, 08 Nov 2011 00:19:00 +0000

HOMEOWNERS – LATE NOTICE – DOG-BITE INCIDENT – NO-PREJUDICE RULE – GOOD-FAITH BELIEF IN NONLIABILITY
Zimmerman v Peerless Ins. Co.
(2nd Dept., decided 6/21/2011)

I knew that into an 8-month hole in blogging there would be some back filling. Here's some late notice fill.

On October 31, 2006, while jogging in Eaton's Neck, New York, Arthur Angst allegedly was bitten by Erwin Zimmerman's unleashed dog. Angst and Zimmerman had a brief verbal confrontation, during which Zimmerman saw blood on Angst's hand. Zimmerman offered to pay Angst's medical expenses, but Angst declined, and the two men did not exchange contact information. Zimmerman was aware of an incident several years before, in which his dog had "nipped" a neighbor. Within 48 hours of the incident involving Zimmerman's dog and Angst, the Suffolk County Department of Health requested the dog's vaccination records and informed Zimmerman that the dog would be restricted to Zimmerman's property.

Just over six months later, on May 8, 2008, Zimmerman was served with the summons and complaint in the underlying personal injury action. The next day, for the first time, he notified his insurer, Peerless Insurance Company, of the incident. Zimmerman's insurance policy required that

in case of an ... "occurrence," the "insured" will perform the following duties that apply:

Give written notice to us or our agent as soon as is practical, which sets forth:
(1) The identity of the policy and "insured";
(2) Reasonably available information on the time, place and circumstances of the ... "occurrence"; and
(3) Names and addresses of any claimants or witnesses.

The policy defined an "occurrence" as "an accident ... which results, during the policy period, in: ... 'Bodily injury'" and "bodily injury" was defined, in relevant part, as "bodily harm."

By letter dated May 11, 2008, Peerless disclaimed coverage on the ground that Zimmerman had not complied with the notice provisions of the policy. Zimmerman commenced this action seeking a judgment declaring that Peerless was required to defend and indemnify him in the underlying action. Following discovery, Peerless moved, and Zimmerman cross-moved, for summary judgment. Supreme Court, Suffolk County (Rebolini, J.), denied the motion and cross motion, and both parties appealed.

In REVERSING the order appealed from insofar as Peerless' motion was concerned, the Appellate Division, Second Department, held that while Peerless had established its prima facie entitlement to summary judgment on the issue of the insured's late notice, the insured had not carried his opposing burden of raising a triable issue of fact as to whether there existed a reasonable excuse for his delay in notifying Peerless of the dog-bite incident:

Here, Peerless established its prima facie entitlement to judgment as a matter of law that Zimmerman's failure to notify Peerless for six months was not based on a reasonable or good faith belief in nonliability by demonstrating that Zimmerman knew immediately that his dog allegedly bit Angst and that Angst may have been injured by the bite. Indeed, Zimmerman knew within 48 hours that a complaint had been made about the incident, even if he did not know Angst's identity. In addition, Zimmerman knew of at least one substantiated incident involving his dog prior to the incident with Angst (see Steinberg v Hermitage Ins. Co., 26 AD3d 426, 427 [2006]; C.C.R. Realty of Dutchess v New York Cent. Mut. Fire Ins. Co., 1 AD3d 304, 305 [2003]; 120 Whitehall Realty Assoc., LLC v Hermitage Ins. Corp., 40 AD3d at 721; cf. Courduff's Oakwood Rd. Gardens & Landscaping Co., Inc. v Merchants Mut. Ins. Co., 84 AD3d 717 [2011]; Ponok Realty Corp. v United Natl. Specialty Ins. Co., 69 AD3d at 597; Sputnik Rest. Corp. v United Natl. Ins. Co., 62 AD3d at 689). Consequently, the burden shifted to Zimmerman to raise a triable issue of fact as to whether there existed a reasonable excuse for his delay in notifying Peerless (see Ponok Realty Corp. v United Natl. Specialty Ins. Co., 69 AD3d at 597; Sputnik Rest. Corp. v United Natl. Ins. Co., 62 AD3d at 689). Even construing all inferences in favor of Zimmerman, he failed to raise a triable issue of fact (see Hanson v Turner Constr. Co., 70 AD3d 641, 643 [2010]; 120 Whitehall Realty Assoc., LLC v Hermitage Ins. Corp., 40 AD3d at 721; Steinberg v Hermitage Ins. Inc., 26 AD3d at 427; C.C.R. Realty of Dutchess v New York Cent. Mut. Fire Ins. Co., 1 AD3d at 305). We reject Zimmerman's argument that the policy was ambiguous as to whether he was obligated to give notice of the occurrence before learning of the possible claimant's identity (see Magistro v Buttered Bagel, Inc., 79 AD3d 822 [2010]). Accordingly, the Supreme Court erred in denying Peerless' motion for summary judgment declaring that it is not obligated to defend or indemnify Zimmerman in the underlying action. In light of this determination, the Supreme Court properly denied Zimmerman's cross motion for summary judgment.

Because Zimmerman's policy was issued before January 17, 2009 (see Insurance Law § 3420 [c] [2] [A]), Peerless was not required to demonstrate prejudice from Zimmerman's six-month delay in notification.

Question of Fact on Insured's Good-Faith Belief in Nonliability Staves Off Summary Judgment to Insurer on Insured's 8-Month Delayed Notice of Underlying Incident

noreply@blogger.com (Roy A. Mura) — Mon, 07 Nov 2011 23:49:00 +0000

CGL – LATE NOTICE – GOOD-FAITH BELIEF OF NONLIABILITY
Columbia Univ. Press, Inc. v Travelers Indem. Co. of Am.
(2nd Dept., decided 11/1/2011)

Plaintiff insured's notice of a potentially covered incident was eight months delayed to its commercial liability insurer, Travelers. Travelers disclaimed liability coverage based on the insured's late notice, and the insured commenced this declaratory judgment action. Travelers moved for summary judgment and Supreme Court, New York County (Lefkowitz, J.), denied that motion. Travelers appealed.

In AFFIRMING the order appealed from, the Appellate Division, Second Department, held that although Travelers had made a prima facie showing of its entitlement to summary judgment based on the insured's approximately eight-month delay in notifying Travelers of the underlying incident, in opposition to Travelers' motion, the insured raised a triable issue of fact as to whether its delay was reasonably based on a good-faith belief of nonliability, one of the judicially recognized excuses to late notice. The appellate court's decision reads like a law digest compilation of seminal principles and case law citations on the issue of late notice to a liability insurer and who has to establish what in demonstrating such a coverage defense.

The appellate court also noted that because that policy in question was issued before January 17, 2009, Travelers could disclaim coverage when the insured failed to satisfy the notice condition, without regard to whether Travelers was prejudiced by the insured's failure to satisfy such condition.

Food Odors from Delicatessen Do Not Constitute Pollutants Within the Meaning of the Absolute Pollution Exclusion

noreply@blogger.com (Roy A. Mura) — Mon, 07 Nov 2011 20:37:00 +0000

CGL – ABSOLUTE POLLUTION EXCLUSION – SMOKE, EXHAUST AND ODORS FROM INSURED RESTAURANT'S EXHAUST VENT – POLICY INTERPRETATION
Barney Greengrass, Inc. v. Lumbermens Mut. Cas. Co.
(2nd Cir., US Ct. Apps., decided 11/4/2011)

Noisome odors emanating from an insured's delicatessen do not constitute "pollutants" within the meaning of the absolute pollution exclusion of a commercial general liability policy. Affirming the District Court's order, so holds the United States Court of Appeals for the Second Circuit in this decision.

Plaintiff operated a century-old delicatessen, famously known as The Sturgeon King, on the Upper West Side of Manhattan. A man who lived in an apartment upstairs from the restaurant sued the building owner, a co-op, which in turned impleaded the tenant that controlled the delicatessen, which in turn impleaded the deli, Lumbermens' insured. The upstairs tenant claimed that overpowering food odors that emanated from a commercial kitchen exhaust vent underneath one his windows permeated his living room and rendered it uninhabitable. Plaintiff tendered the fourth-party complaint to Lumbermens for defense and indemnification coverage, but Lumbermens denied coverage based on the policy's pollution exclusion, which negated coverage for

"property damage" ... arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time . . . [a]t or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any insured.

The policy defined “Pollutants” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapors, soot, fumes, acids, alkalis, chemicals and waste,” with “[w]aste includ[ing] materials to be recycled, reconditioned or reclaimed.

Plaintiff commenced this declaratory judgment action for coverage and moved for summary judgment. In granting summary judgment to the insured plaintiff, the United States District Court for the Southern District of New York noted that "while the quality of plaintiff's restaurant smells may be in the nose of the beholder, defendant's 'pollution' argument -- as addressed to the odors here -- is malodorous to this Court." Lumbermens appealed that decision to the United States Second Circuit Court of Appeals.

In AFFIRMING the judgment appealed from, the Second Circuit rejected Lumbermens' argument that the District Court judge misapplied the “common speech” and “reasonable expectations” doctrines in construing the pollution exclusion against Lumbermens:

As an initial matter, the complaint in the underlying action does not allege that the plaintiff, Theodore Bohn, was damaged by a “pollutant” or that the odors emitted from BG’s [Barney Greengrass'] exhaust vent constituted “pollution.” Instead, it alleges that Bohn “stopped using [his] living room because the odors permeating that room had become so overpowering as to make the room entirely unusable,” J.A. 135, and that he was damaged by the co-op board’s failure to address his complaints.

* * * * *

The district court reasoned that “[t]o read ‘pollution’ as encompassing ‘restaurant odors,’ as defendant urges here, would contradict ‘common speech’ and the ‘reasonable expectations of a businessperson,’ who has come to understand standard pollution exclusions as addressing environmental-type harms.” Barney Greengrass, Inc. v. Lumbermens Mut. Cas. Co., No. 09 Civ. 7697 (NRB), 2010 WL 3069560, at *7 (S.D.N.Y. July 27, 2010). On appeal, Lumbermens contends that district court misapplied the “common speech” and “reasonable expectations”doctrines on the ground that “the term ‘fumes’ contained in the Policy’s definition of ‘Pollutant’ is commonly defined as odorous.” Def. Br. 21. There is no dispute, however, that the term “odors” is not included in the policy’s definitions of “pollutants,” and the term “fumes” is undefined. Moreover, the definitional list of “pollutants” set forth in the policy particularizes “irritant or contaminant” by reference to “smoke, vapors, soot, fumes, acids, alkalis, chemicals and waste,” App. 95, terms that connote traditional forms of environmental or industrial pollutants or contaminants. Cf. W. Alliance Ins. Co. v. Gill, 426 Mass. 115, 118 (1997) (“The exclusion should not reflexively be applied to accidents arising during the course of normal business activities simply because they involve a ‘discharge, dispersal, release or escape’ of an ‘irritant or contaminant.’”).

The cases upon which Lumbermens relies are easily distinguishable because the “odors” there constitute traditional environmental pollution to which exclusion clauses typically apply. See, e.g., Town of Harrison v. Nat’l Union Fire Ins. Co. of Pittsburgh, 89 N.Y.2d 308, 314, 316 (1996) (pollution exclusion applied to odors from “dumping of waste materials, contaminants or pollutants”); Tri-Mun. Sewer Comm’n v. Cont’l Ins. Co., 636 N.Y.S.2d 856, 857 (2d Dep’t 1996) (pollution exclusion applied to odors from “sewage treatment plant”). In these circumstances, we conclude that Lumbermens cannot meet its burden of showing that the restaurant odors constitute “pollution” within the meaning of the exclusion, as any ambiguities must be construed against the insurer. See, e.g., Stoney Run Co. v. Prudential-LMI Commercial Ins. Co., 47 F.3d
34, 37 (2d Cir. 1995).

Lumbermens also argued that since under the New York City Administrative Code, restaurant odors in sufficiently detectable quantities could constitute “air contaminants” subject to regulation, such odors could also constitute a "pollutant" within the meaning of the policy's pollution exclusion. In rejecting that argument, the court ruled:

The administrative regulations upon which Lumbermens relies, however, do not pertain in any way to insurance coverage disputes, much less pollution exclusion clauses. Nor does the parties’ dispute here concern administrative liability under the Code. Therefore, Lumbermens’s attempt to apply the principles underlying a New York administrative regulation to the insurance clause here at issue is unavailing.

This is yet another example in which a court has ruled that the so-called absolute pollution exclusion of a commercial general liability policy applies only to traditional forms of environmental or industrial pollutants or contaminants and instances of traditional environmental pollution.

A De Novo Action is Not the Same as a Special Proceeding to Vacate a Master Arbitration Award of New York No-Fault Benefits

noreply@blogger.com (Roy A. Mura) — Mon, 07 Nov 2011 13:00:00 +0000

NO-FAULT – DE NOVO ACTION – INSURANCE LAW § 5106(C)
Allstate Ins. Co. v Nalbandian
(2nd Dept., decided 11/1/2011)

After receiving a no-fault master arbitration award for more than $5,000, Allstate commenced this action for a de novo determination of the defendant's PIP claim pursuant to New York Insurance Law § 5106(c), which provides in pertinent part:

where the amount of such master arbitrator's award is five thousand dollars or greater, exclusive of interest and attorney's fees, the insurer or the claimant may institute a court action to adjudicate the dispute de novo.

De novo means from the beginning, and a de novo action relitigates all issues relevant to the disputed no-fault claim. Believing that Allstate was seeking instead to vacate the master arbitration award, defendant counterclaimed to confirm the award and cross-moved for summary judgment, contending that the master arbitrator's award was not arbitrary and capricious. Supreme Court, Kings County (Schack, J.), granted defendant's cross motion and Allstate appealed.

In REVERSING the lower court's order, the Appellate Division, Second Department, noted the important difference between a special proceeding to vacate an arbitration award and a de novo action to determine one's entitlement to no-fault benefits, finding that the lower court erred in overlooking or misapprehending that difference:

The Supreme Court erred in denying the plaintiff's motion for summary judgment on the complaint solely on the basis that the award of the master arbitrator was not arbitrary and capricious. The plaintiff did not seek to vacate the award of the master arbitrator, and, once the plaintiff properly invoked its right to de novo review, the issue of whether the award was arbitrary and capricious was rendered academic. For the same reason, the Supreme Court also erred in granting the defendant's cross motion to confirm the award of the master arbitrator and for summary judgment dismissing the complaint and on his counterclaims, based on the conclusion that the award was not arbitrary and capricious (see Progressive Ins. Co. v Strough, 55 AD3d 1402; Matter of Capuano v Allstate Ins. Co., 122 AD2d 138; see also Matter of Gerstein v American Tr. Ins. Co., 161 Misc 2d 57).

It's When the Alleged Harm, Not the Alleged Negligence, Occurs that Triggers Coverage Under an Occurrence-Based Business Liability Policy

noreply@blogger.com (Roy A. Mura) — Mon, 07 Nov 2011 04:59:00 +0000

CGL – TRIGGER OF COVERAGE – OCCURRENCE – EMOTIONAL DISTRESS CLAIMS
Empire State Shipping Serv., Ltd. v Hanover Ins. Co.
(1st Dept., decided 11/1/2011)

Interesting trigger of coverage case. The insured plaintiff allegedly mishandled a corpse, but the deceased's mother did not learn of the mishandling of her son's remains until the fall of 2005, more than two years after the plaintiff had cancelled its businessowners insurance policies with Hanover. The mother sued the plaintiff in an underlying action, alleging in several causes of action that plaintiff's negligence cause her to suffer "severe pain and suffering, severe emotional distress and harm, financial or economic loss, including but not limited to, present and future lost wages, and other damages." The plaintiff tendered the complaint to Hanover for coverage presumably based on the fact that its alleged negligence occurred during the period of one or more of its business liability policies with Hanover.

Hanover declined coverage because the complaint alleged harm that occurred well after the plaintiff's policies were cancelled, and the insured commenced this declaratory judgment action. The Supreme Court, Bronx County (Edgar G. Walker, J.) granted Hanover's cross motion for summary judgment, dismissing the complaint.

In unanimously AFFIRMING the motion court's order, the Appellate Division, First Department, held:

The Businessowners Policy provides coverage for "bodily injury" but "only if" it is caused by an "occurrence" and the bodily injury "occurs during the policy period." Supreme Court properly determined that the first and second causes of action in the underlying action, which allege negligent and intentional infliction of emotional distress, do not fall within the scope of "bodily injury" because the earliest that harm is alleged to have occurred is in the fall of 2005, when the plaintiff in the underlying action learned of the alleged mishandling of her son's remains. This was over two years after plaintiff Empire cancelled its policies with defendant, effective June 20, 2003 (see Melfi v Mount Sinai Hosp., 64 AD3d 26 [2009]) .

While we agree with plaintiffs that Supreme Court should not have characterized the only damages alleged in the underlying action as emotional distress, this error was harmless because coverage would not have been triggered in any event. The only causes of action for which this error could have triggered coverage are the third and fifth causes of action for negligence and negligent misrepresentation. It is alleged that the plaintiff in the underlying action "was caused, and shall in the future be caused, to suffer severe pain and suffering, severe emotional distress and harm, financial or economic loss, including but not limited to, present and future lost wages, and other damages." While these causes of action may contain allegations that Empire was negligent during the policy period, there is no allegation that the plaintiff in the underlying action suffered "bodily injury" during the policy period.

A Provider's Timely Proof of Claim Does Not Satisfy the 30-Day Notice of Accident Requirement for New York No-Fault Benefits

noreply@blogger.com (Roy A. Mura) — Fri, 04 Nov 2011 11:23:00 +0000

NO-FAULT – 30-DAY NOTICE OF ACCIDENT REQUIREMENT – 45-DAY PROOF OF CLAIM REQUIREMENT
New York & Presbyt. Hosp. v Country Wide Ins. Co.
(Ct. Apps., decided 10/13/2011)

Can a health care services provider, as assignee of a person injured in a motor vehicle accident, recover no-fault benefits by timely submitting the required proof of claim after the 30-day period for providing written notice of the accident has expired? No, says the New York Court of Appeals.

Joaquin Benitez was injured in a traffic accident on July 19, 2008. He at received medical treatment at New York and Presbyterian Hospital from that date through July 26, 2008. On the date of his discharge, Benitez signed an Assignment of No-Fault Benefits form under which he assigned to Presbyterian "all rights, privileges and remedies to payment for health care services provided by [Presbyterian] to which [Benitez is] entitled under Article 51 (the No-Fault statute) of the Insurance Law." Benitez and Presbyterian also executed a completed NYS Form NF-5 (i.e., a hospital facility form). Neither Benitez nor Presbyterian provided the required written notice of accident to his no-fault insurer, Country Wide Insurance Company, within 30 days of the accident as required by the New York insurance regulations (11 NYCRR 65-1.1).

On August 25, 2008, Presbyterian, as assignee of Benitez, billed Country Wide for the sum of $48,697.63. In billing Country Wide, Presbyterian submitted a number of documents, including the required proof of claim (the NF-5 form). Country Wide received the bill and other documents on August 28, 2008, 40 days after the accident. Country Wide denied Presbyterian's claim on the ground it had not received timely notice of the accident under 11 NYCRR 65-1.1, which requires an "eligible insured person" to give written notice to the insurer "in no event more than 30 days after the date of the accident."

Presbyterian brought this action against Country Wide to compel payment of no-fault benefits in the amount of its bill, plus statutory interest and attorney's fees, alleging it had provided timely notice and proof of claim under 11 NYCRR 65-1.1, which requires an insured person's assignee to submit written proof of claim no later than 45 days after the date health care services are rendered. Presbyterian and Country Wide each moved for summary judgment.

Supreme Court granted Presbyterian summary judgment, ruling that the hospital satisfied its notice obligation by timely submitting the proof of claim. Citing 11 NYCRR 65-3.3 (d), the Appellate Division, Second Department, affirmed (71 AD3d 1009 [2d Dept 2010]), stating "[c]ontrary to the insurer's contention, the hospital's submission of a completed hospital facility form . . . within 45 days after services were rendered satisfied the written notice requirement set forth in 11 NYCRR 65-1.1." The Court of Appeals granted Country Wide leave to appeal.

In REVERSING the Appellate Division's order, the Court of Appeals agreed with Country Wide's argument that the Appellate Division decision eviscerates the 30-day written notice of accident requirement and that the New York no-fault regulations do not contain any language which provides that submission of a proof of claim for health care services within 45 days excuses the failure to give the threshold notice of accident within 30 days of the accident. The Court rejected Presbyterian's argument that its filing of the hospital facility form within 45 days of the date services were rendered constituted both "proof of claim" and timely "notice of accident".

The "notice of accident" and "proof of claim" under 11 NYCRR 65-1.1 are independent conditions precedent to a no-fault insurer's liability (see Hospital for Joint Diseases, 9 NY3d at 317 ["These regulations require an accident victim to submit a notice of claim to the insurer as soon as practicable and no later than 30 days after an accident. Next, the injured party or the assignee (typically a hospital . . .) must submit proof of claim for medical treatment no later than 45 days after services are rendered" (9 NY3d at 317 [emphasis added] [internal citations omitted])]). By ruling that the notice of accident condition was satisfied based on the plain language of 11 NYCRR 65-3.3 (d), the Appellate Division disregarded the separate and distinct nature and purpose of these requirements. Even more troubling, such a construction effectively reads the 30-day written notice of accident requirement out of the no-fault regulations. But nothing in 11 NYCRR 65-3.3 (d) explicitly dispenses with the 30-day notice of accident requirement. Rather, 11 NYCRR 65-3.3 (d) merely provides that a NF-5 form may constitute the written notice required under the notice of accident provision.

In other words, these regulations (read alone or in tandem) cannot be interpreted to mean that a hospital/assignee's timely submission of a proof of claim for health services within 45 days of discharge of the injured person excuses the insured/assignor's failure to give the threshold notice of accident within 30 days of the accident, or that health care service providers are exempt from the written 30-day notice of accident requirement. Neither 11 NYCRR 65-1.1 nor 11 NYCRR 65-3.3 (d) contains such language. That is, while 11 NYCRR 65-3.3 (d) allows a completed hospital facility form to satisfy the written notice of accident requirement, the regulation does not provide (or suggest) that a "proof of claim" in that form filed within 45 days of treatment satisfies the 30-day notice of accident requirement where, as here, the form was submitted to Country Wide after the 30-day period has expired.

New York Insurance Regulation 64 (11 NYCRR Part 216) -- Updated Link

noreply@blogger.com (Roy A. Mura) — Tue, 01 Nov 2011 21:54:00 +0000

Back in March 2010 I posted a link to a single electronic copy of New York's Insurance Regulation 64 (11 NYCRR Part 216), which had resided on the then New York State Insurance Department's website. That link was very, very popular ever since, generating a good deal of hits to this blog.

Unfortunately, the recent transmogrification of the New York State Insurance and Banking Departments into the New York State Department of Financial Services has shattered all of this blog's NYS Insurance Department website links. One would think some money could have been found even in New York's austerity budget for someone to point all old NYSID links to their new NYSDFS counterparts. Would that have been so hard?

I'm working on restoring all broken links to ~~Insurance Department~~ Department of Financial Services web resources and citations on this blog. For starters, I've created and uploaded to the filing cabinet of my own Google Site another single electronic copy of the very popular New York's Insurance Regulation 64 (11 NYCRR Part 216). You can find that electronic copy here or by clicking on its link in the New York Insurance Resources widget a bit down on the right side of this page. I looked everywhere on the Department of Financial Services' new website for the Insurance Department's copy of Regulation 64 but alas, it wasn't there. Imagine that -- no copy of the very regulation that proscribes unfair claims and settlement practices by insurers. Some conspiracy theorists will likely posit that this was deliberate.

In any event, this document now resides on a site that I control, and it claims to be current through October 21, 2011.

First Department Holds that Privacy-Restricted Facebook Content Is Discoverable

noreply@blogger.com (Roy A. Mura) — Tue, 01 Nov 2011 03:59:00 +0000

PERSONAL INJURY ACTION – FACEBOOK CONTENT – DISCOVERY
Patterson v. Turner Constr. Co.
(1st Dept., decided 10/27/2011)

Learned of this decision from one of my Google Scholar email alerts regarding the Romano v. Steelcase decision.

In his personal injury action against the defendant, plaintiff claimed damages for physical and psychological injuries, including the inability to work, anxiety, post-traumatic stress disorder, and the loss of enjoyment of life. Defendant sought discovery of all of plaintiff's Facebook records compiled after the incident alleged in the complaint, including any records previously deleted or archived. When plaintiff declined to produce such records, defendant moved to compel plaintiff to provide an authorization allowing Facebook to release such records. The motion court (New York County Supreme Court Justice Jeffrey K. Oing) granted defendant's motion insofar as ordering plaintiff to sign an authorization for all his Facebook records, but deferred determination on defendant's motion to compel to the extent of directing plaintiff to produce his Facebook records for an in camera review. Plaintiff appealed.

In unanimously REVERSING the order compelling production of all Facebook records, the First Department held:

Although the motion court's in camera review established that at least some of the discovery sought "will result in the disclosure of relevant evidence or is reasonably calculated to lead to the discovery of information bearing on the claims" (Abrams v Pecile, 83 AD3d 527, 528 [2011] [internal quotation marks and citation omitted]), it is possible that not all Facebook communications are related to the events that gave rise to plaintiff's cause of action (see Offenback v L.M. Bowman, Inc., 2011 WL 2491371, *2, 2011 US Dist LEXIS 66432, *5-8 [MD Pa 2011]). Accordingly, we reverse and remand for a more specific identification of plaintiff's Facebook information that is relevant, in that it contradicts or conflicts with plaintiff's alleged restrictions, disabilities, and losses, and other claims.

The postings on plaintiff's online Facebook account, if relevant, are not shielded from discovery merely because plaintiff used the service's privacy settings to restrict access (Romano v Steelcase Inc., 30 Misc 3d 426, 433-434 [2010]), just as relevant matter from a personal diary is discoverable (see Faragiano v Town of Concord, 294 AD2d 893, 894 [2002]).

As I discuss during my social media presentations, Facebook, MySpace and their ilk will no longer produce content of their user's accounts pursuant to civil subpoenas, leaving parties wishing to obtain such content from privacy-protected accounts limited to obtaining such content either from the users directly or from the providers with the user's authorization.

Social Media Content Research in Insurance Underwriting and Claims Functions

noreply@blogger.com (Roy A. Mura) — Tue, 04 Oct 2011 00:50:00 +0000

In the hour and 52 minutes left from 35,452.8 feet in the air on my way to Las Vegas to speak at the International Claims Associations's 102nd Annual Educational Conference, I'll try to finish this post, which I started back in June.

Today in Orlando made 16 times that I've delivered my social media research presentation around the country to insurer claims, underwriting and SIU groups since May 2010. I had a sense that this would be a hot topic for insurers when Jennifer Parys and Wendy Walberg asked me in May 2009 whether I'd be interested in putting a presentation on this subject together and returning the following year to present it at their Rocky Mountain Chapter of the International Association of Special Investigation Units' annual conference in Denver. When I said I'd do it, however, even I didn't anticipate this much interest.

The explosive growth of social media and the number of its personal and commercial users has drawn the attention of insurers interested in determining whether its content can be useful in making responsible underwriting and claims decisions. Which, I suppose, is why my presentation strikes such a chord. Those of you who have seen that presentation, or one of its earlier iterations, know that this area is as dynamic as the ever increasing number and varieties of participants. Not two of the 16 past iterations of this presentation have been the same. Having found some stuff online this evening (thank you Delta for having WiFi on most of your flights), tomorrow's PowerPoint will also be unique.

Although my presentation is laden with tips and techniques for finding, securing and utilizing social media content, its overarching theme is this: understand that the law -- statutory, regulatory, and case-decisional -- on most things cyberspatial is relatively immature, behooving insurers to tred carefully into and through this largely unmarked area. To date, I have told insurers that there is no law -- no law specifically addressing whether and how an insurer may find, secure and utilize social media content relating to an insured or claimant. But the development and appearance of such law is as inevitable as there will be smaller, faster and more powerful devices for pushing what previously was private information into and onto Web 2.0 platforms.

If you work for an insurance company and want a copy of my latest PowerPoint on this subject, send me an email. Sorry, I won't share with others. This was designed for insurers and their service providers. You understand.

Similarly, if you, your company, or your industry organization is interested in having me present the static PPT slides in a more dynamic, interactive way, complete with the technique and resource demonstrations, let me know. I've done both in-person and webinar presentations of this topic.

If any of you is interested in seeing this presentation, you can join me at the NJSIA's 21st Annual Anti-Insurance Fraud Training Seminar in Atlantic City on October 19th (seminar runs from the 17th through the 19th). Or I'll be delivering it on November 3rd at a meeting of the Michigan Council of Professional Investigators in Novi, Michigan -- insurer claim and SIU types will be welcome, I'm told.

In the 4% battery life I've left, let me share with you what I posted recently on the discussion boards of several LinkedIn groups I belong to:

Could Creating a False Profile on Facebook or MySpace Be Considered a Felony under the Computer Fraud & Abuse Act of 1986?

As I was leaving the IASIU conference in San Antonio last week, Elizabeth Somers of Farmers and Blake Cole of Mutual of Omaha alerted me to an interesting article/editorial opinion piece that appeared in the September 14, 2011 online edition of the Wall Street Journal entitled “Should Faking a Name on Facebook Be a Felony?”, written by Orin Kerr, a former federal prosecutor and professor of law at George Washington University School of Law.

In that piece, Kerr suggested that creating a fake profile on Facebook or MySpace could be construed as committing a misdemeanor in violation of the Computer Fraud and Abuse Act of 1986 (CFAA). Kerr reported that the US Senate Judiciary Committee was then considering amending the CFAA to raise the level of its violation to a felony. The 2009 case mentioned in Kerr's article involved Lori Drew, the mother from Missouri who created a fake MySpace profile of a handsome 17-year-old boy and tormented a 13-year-old girl so much that she committed suicide. Drew was charged, prosecuted and convicted in federal court under the CFAA. Her conviction, however, was subsequently overturned. In overturning the conviction, the trial judge held that although an intentional breach of the MySpace terms of service (TOS) could possibly fit the definition of an unauthorized or exceeding authorization access to MySpace computers, rooting a CFAA misdemeanor violation in an individual's conscious violation of a website's TOS rendered the CFAA unconstitutionally void due to vagueness. The judge summed up his opinion by stating that allowing a violation of a website's TOS to constitute an intentional access of a computer without authorization or exceeding authorization would "result in transforming section 1030(a)(2)(C) into an overwhelmingly overbroad enactment that would convert a multitude of otherwise innocent Internet users into misdemeanant criminals." By the way, Kerr knew about that case because he was one of Drew’s attorneys.

Apparently Kerr's suggestion that creating a fake FB or MySpace profile could be considered criminal was troubling enough to US Senators Al Franken and Chuck Grassley that they proposed new language for the bill to exempt those guilty only of TOS violations. You can read about that amendment, and the amendment itself, in the No, Faking Your Name On Facebook Will Not Be A Felony" article that appeared on September 16th on Forbes.com. That article reports that the bill, presumably as amended, will now move forward to be considered by the Senate.

The answer then to this discussion's title/question is no, the mere act of creating a false profile on Facebook or MySpace will not be considered a felony under the CFAA.

There will be more to come. Count on it.

Mandatory Appraisal of Scope or Cause of Loss Disputes Cannot be Compelled

noreply@blogger.com (Roy A. Mura) — Tue, 27 Sep 2011 10:56:00 +0000

Vuksanaj v. Nationwide Mutual Fire Insurance Company

The none of you who has read and memorized my curriculum vitae knows that back in November of 1996, I hosted a seminar for insurance claims professionals entitled "Mandatory Appraisal of Property Insurance Claims in New York -- Historical Background, Legal Pre-requisites, Procedural Guidelines and Practical Advice". That was the Scope seminar -- complete with the halitosis-ridding mini bottle of Scope mouthwash for each attendee, meant to visually imprint what then was only my professional opinion, viz, that disputes between property insurers and their insureds over the scope or extent of a covered loss was not amenable to the appraisal process because such a dispute was inherently one involving a legal question of coverage.

Approximately one year later I was fortunate to obtain for Nationwide Insurance what became the seminal and oft-cited case in New York on this issue: Kawa v. Nationwide Mutual Fire Ins. Co. In Kawa, Erie County Supreme Court Justice Thomas Flaherty agreed with my argument and held that the parties' dispute over whether the policyholder's wind-damaged siding needed to be completely replaced or could be repaired was essentially a coverage dispute rather than one simply involving the amount or value of the loss and was therefore not amenable to the policy's appraisal condition. With few exceptions, Kawa has remained "good law" in New York -- being cited several times since for the same proposition.

In an effort legislatively to overturn Kawa and another reported decision involving the question of whether appraisal could be compelled by legal action -- Fahrenholz v. Security Mut. Ins. Co., 291 876 (4th Dept. 2002) -- a certain New York public adjusting company headquartered in Western New York lobbied for years for the passage of a bill to eliminate CPLR § 7601's then exception of an appraisal under the New York standard fire insurance policy from a special proceeding for specific performance of such a condition. Finally, in 2010, those lobbying efforts paid off, with the passage and enactment of Senate Bill 2088-A (2010), which amended New York Insurance Law §§ 3404 and 3408 and CPLR § 7601. I blogged about those new statutory sections here and here.

With respect to the impact of the statutory changes, in April 2010 I wrote the following:

Scope Disputes: Although the new and amended statutory sections should not disturb the 1997 decision I obtained for Nationwide in Kawa v. Nationwide Mut. Fire Ins. Co., 174 Misc.2d 407 (Sup.Ct., Erie Co., 1997), in which the court held, in effect, that the scope of a covered loss is not amenable to appraisal, some will likely argue that scope disputes, i.e., disagreements over whether certain claimed damages are covered as either having been caused by a covered peril or being excluded by the policy, are now amenable to resolution via a compelled appraisal process. I would disagree with such an argument, especially in light of subsection 3808(c)'s "it shall be limited to a determination of actual cash value and/or replacement cost" language. Scope disputes are coverage disputes, and, in my opinion, this new legislation does not require insurers to surrender disputed coverage issues to resolution in the appraisal process. Although it may be difficult to keep disputed scope issues from being included in a compelled appraisal process, insurers should insist on a detailed appraisal award that sets forth each and every item being awarded so that the insurer may pay only what is covered and reaffirm its declination of coverage for what is not.

It did not take long for there to arise a dispute within which to test the new laws' reach, specifically with respect to whether scope or coverage disputes were now subject to compulsory appraisal in New York. Once again, I was fortunate enough to represent Nationwide Insurance in such a dispute, one that stems from damage to a residential structure caused by a tree that was blown onto the house in a windstorm. The wide disparity between the parties' respective repair damage estimates related mostly to a dispute over how much damage the windstorm and tree actually caused to the house. When Nationwide declined to submit that scope dispute to "mandatory" and binding appraisal, the policyholder brought suit in New York state court. After Nationwide removed that action to federal court, the policyholder moved for partial summary judgment to compel that appraisal pursuant to the recently added subsection (c) of New York Insurance Law § 3408.

The issue was fully briefed and Southern District of New York District Court Judge Cathy Seibel heard oral arguments from me and the policyholder's counsel, Johnathan Lerner of Lerner, Arnold & Winston, LLP, on June 6, 2011. In agreeing with my arguments and denying the plaintiff's motion for partial summary judgment, Judge Seibel delivered her carefully reasoned decision in Vuksanaj v. Nationwide Mut. Fire Ins. Co., from the bench:

The issue raised by the motion is a narrow one. It is whether a dispute regarding the value of damage to an insured property that implicates a determination regarding the cause or source of such damage is appropriate for appraisal under the insurance contract. The plaintiff argues that the term "amount of loss," as that term is used in the appraisal provision, entails more than just the amount of damages, but also includes a determination of the scope of loss; in other words, what caused the loss.

The defendant responds with four arguments:

One, that the plaintiff has not met the appropriate requirements for a "summary judgment" motion;

Two, that the dispute is inherently one regarding whether there was a "accidental direct physical loss," and there is a coverage dispute not amenable to appraisal as matter of law;

Third, that the policy expressly states that appraisers are not to determine coverage issues; and

Fourth, that the plaintiff's home is likely no longer in the same condition as it was after the windstorm, and, therefore, appraisal is not practical.

I do not need to address the first and fourth, because I find the second and third dispositive.

Defendant argues that under the section of the policy entitled, quote, "Perils Insured Against," the policy specifies that it covers only "accidental direct physical loss" to the property, and therefore, according to the defendant, even before engaging in an inquiry concerning the amount of loss and determining whether the amount of loss may be sent to appraisal, it first has to be decided whether there was an accidental direct physical loss so as to trigger coverage.

Defendant argues that because it has not been determined whether the damages in dispute -- in other words, the loss corresponding to the disputed portion of the parties' estimates -- even constitute accidental direct physical loss, appraisal is premature at this juncture.

The parties agree that New York law applies. In New York, the law is clear that the appraisal clause in an insurance contract only applies to disputes as to the amount of loss or damage, not to disputes where the insurer denies coverage or liability altogether. Maimes v. Automobile Insurance Company, 183 N.Y.S. 690, at 691, a case from Monroe County in 1920 that was affirmed by the Fourth Department; Accord Indian Chef v. Fire & Casualty Insurance Company, 2003 Westlaw 329054, at Page 3.

Although there is a split of authority, both within and outside New York, on the subject, the heavy weight of authority supports the defendant's position that this dispute implicates a coverage question under the contract and is, therefore, not suitable for appraisal.

The seminal case on this issue under New York law is Kawa v. Nationwide Mutual Fire Insurance Company, 664 N.Y.S.2d 430, from Erie County Supreme Court in 1997. Although it is only a trial court from a far-flung county, it has become the seminal case, even if not a binding one.

Although plaintiff has done an admirable job in attempting to distinguish it, it seems to me that it is very much on point. In that case, as in this one, the insureds' residence was damaged in a windstorm. After inspecting the residence, the insurer tendered a settlement offer for the cost of repair, which the insureds rejected. They claimed that the insurer was required to replace all of the aluminum siding, which was the most prominent area of damage, with new siding, and that appraisal was the appropriate procedure for resolution of the dispute. The insurer claimed that most of the damage to the aluminum siding was pre-existing, and, therefore, excluded from coverage. The insurer maintained that the issue presented was not an "amount of loss" dispute, but rather a coverage dispute, which was properly resolved by the Court. The Court agreed, saying the following:

"The parties agree that the fundamental question presented is whether their dispute constitutes a question of coverage or a question as to the amount of loss . . . the appraisal clause only applies to a case with an agreement" quote, " 'as to the amount of loss or damage' " -- unquote -- "and not where the insurer denies liability. Based upon the submissions hereon, this Court concludes that defendant contests liability and is not merely disagreeing as to the value of loss. In reaching this conclusion, the Court notes that the . . . affidavit of defendant's claims adjuster . . . clearly raises a question as to liability. She opines that the condition of the house siding she observed was the result of age, wear and tear and/ or poor or improper maintenance, and that the face nailing she observed was the result of prior efforts to repair the aluminum siding, and was not the results of plaintiff's actions during the windstorm." That is from Page 431.

Similarly, Mr . Delillo, who the defendant retained for its final estimate, stated in his affidavit that in his opinion -- and I am quoting -- "almost 57,000" -- that's not a quote -- "of the repairs and costs listed in plaintiff's estimate are for items that were not damaged by or due to the fallen tree." That is from Paragraph 14 of his affidavit.

And the remainder of the difference between the estimates, he notes, is due to a disagreement as to value of the losses covered by the tree. Both sides seem to agree that that difference would be amenable to appraisal. But the biggest chunk of the difference is due to what Mr. Delillo believes is damage that was not caused by the tree.

The Court in Kawa ultimately held that the dispute goes to coverage under the policy, and can only be resolved by analysis and application of the policy. And the same may be said about this case. The dispute here regarding the, quote, "amount of loss" is incidental to the larger question of which damage to the house was caused by the windstorm, a question regarding coverage and liability that must be determined before the case is submitted to appraisal.

Plaintiff argues that the defendant has implicitly consented to her entire claim being covered under the policy by issuing partial payment on the claim, but that argument is untenable.

First, the plaintiff has been unable to cite to any cases where the courts have held that partial payment under similar circumstances constitutes consent to coverage. Second, and more importantly, the defendant's partial payment pertains only to the loss which both parties agree was caused by the windstorm -- that is, the loss that is indisputably covered by the insurance contract -- not the loss that defendant maintains was pre-existing or caused by something else.

Therefore, while the defendant has agreed that the loss caused by the windstorm is covered by the contract, it has not agreed that the remaining damage to the house is covered under the contract. Had the defendant given plaintiff a check for any amount that it maintains corresponds to nonwindstorm damage, that would be a different story, but that is not the case here.

Federal courts, both in New York and elsewhere, have followed the reasoning laid out in the Kawa case. For example, a series of cases in this district stemming from the 9/11 attacks follow the Kawa rule. Zar Realty Management Corp. v. Allianz Insurance Company involved the situation where the insurance company made various payments for damages directly caused by the attacks, but the insureds also claimed for, among other things, the cleanup of lead present in the HVAC system and ductwork of the subject premises. The insurer had the view that that condition pre-existed the attacks. The Court concluded that the essential dispute concerned the scope of defendant' s policy coverage, and not the computation of the amount of loss, and, accordingly, an appraisal was not appropriate to resolve the dispute. That is 2003 Westlaw 1744288, at Page 4, a Southern District case from 2003. See also, Duane Reade, Inc., v. St. Paul Fire & Marine Insurance Company , 261 F.Supp.2d 293, at 296, also from 2003. Courts in other jurisdictions have applied the same rule in similar situations.

Plaintiff cites to a case called Wausau Insurance Company v. Herbert Halperin Distribution Corp., 664 F. Supp. 987, from the District of Maryland in 1987, in support of the argument that the phrase "amount of loss," as used in the appraisal clause here, is not limited to merely cash value, but the case itself does not really support that argument.

First, the language of the appraisal clause there is different from the one in this case, in that the one in the Wausau case provided for an appraisal where the parties failed to agree as to either the cash value or the amount of the loss, which is different from our language. Second, and in any event, the Court in Wausau held that the causation dispute there concerned neither the actual cash value nor the amount of loss, and, therefore, was unsuitable for appraisal; basically, the same law as in Kawa.

In that case, there was a roof collapse, and an inspection revealed that the collapsed areas were rotten and decayed by fungus and mold due to long-term exposure to moisture. The insureds wanted the entire roof replaced because they claimed it was structurally impossible to repair one area alone. The insurer maintained that it was liable only for the immediate and direct damage from the partial collapse, because the remaining damage was caused by the pre-existing fungus and mold that was excluded.

The Court agreed with the insurer and denied the insured's request for appraisal until the coverage dispute regarding which portions of the roof were covered was resolved. It noted in dicta that "If the insurer was disputing that as a factual matter a larger area than that immediately damaged by the occurrence had to be repaired in order to repair the immediate damage itself, that would constitute an 'amount of loss' question," but that was not the case, and, therefore, it was not an appropriate situation for an appraisal. The same applies here.

If the dispute in our case were simply regarding the value of the loss or the cost to replace the loss that both parties agree was caused by the tree, that would be an "amount of loss" question, but the question here is whether the disputed damages were caused by the tree or something else. See also De La Cruz v. Bankers Insurance Company, 237 F. Supp.2d 1370, 1376; Auto-owners Insurance Company v. Kwaiser, 476 N.W.2d 467, at 469 to 70; and Hawkinson Tread Tire Service Company v. Indiana Lumbermen Mutual Insurance Company , 245 S.W.2d 24, at 28.

Plaintiff relies on a few cases that adhere to the minority view that disputes regarding cause of loss are not coverage questions, but rather, valuation questions appropriate for appraisal.

Plaintiff relies heavily on CIGNA Insurance Company v. 23 Didimoi Property Holdings, N. V. , 110 F. Supp. 2d 259, at 268, where the district court in Delaware ruled that a dispute as to the cause of a loss was a matter for the appraiser, not the Court.

In that case, the question was whether a portion of the damage for which the insured sought to be indemnified was caused by a building fire, which was a covered peril under the policy, or by asbestos and microbial agents already present in the building, which were not covered. CIGNA explored the conflicting case law, but ultimately adopted the minority view, holding that, although, quote, "coverage questions, such as whether damage is excluded for reasons beyond fire damage, are legal questions for the Court as this case progresses . . . the Court believes that whether a particular item was damaged as a result of fire or fire-fighting efforts is appropriately reserved for the appraisal process."

CIGNA, however, was decided under Delaware law, and the Court based its holding, at least in part, on the public policy in Delaware "favoring alternate resolution procedures like appraisal." Plaintiff has not shown that the same policy exists under New York law. Indeed, New York courts have made clear that appraisal is not the same as alternative dispute resolution procedures. New York courts have drawn sharp distinctions between appraisal and arbitration, for example, noting that appraisal is not designed to put an end to the controversy between contentious parties, but instead, concerns collateral matters, and leaves the rest of the controversy open for adjudication in the legal forum. That is In re American Insurance Company, 203 N.Y.S. 206, at 208, from the First Department back in 1924. See also, In re Delmar Box Company, 309 N.Y. 60, at 63 to 64 from 1955; and Kawa, 664 N.Y.S.2d, at 431 to 32.

Plaintiff also cites to two New York State trial court decisions in line with CIGNA, but neither of those cases persuade me.

The first is Yeshiva Eitz Chaim, Inc., v. Foremost Insurance Co., New York Supreme Court, Rockland County, 11 February 24, 2009, which Mr. Lerner attached to his affidavit as Exhibit G. That was a windstorm case. The parties disagreed over the extent of the damages that should be included in the calculation in the amount of loss, and the Court held that that term would include not only the cost of repairs, but also the scope of the damage covered under the contract. The Court did not acknowledge the contrary holding in Kawa, which in nearly all cases is the starting point in the discussion. Indeed, it did not cite any case law, and I therefore do not find it persuasive.

Finally, the plaintiff brought to my attention the Kirkpatrick case which it enclosed with its December 24th letter. Kirkpatrick concerned a petition to appoint an umpire, not a motion for summary judgment to compel appraisal. Indeed, the insurer and the insured in Kirkpatrick had already entered into an agreement to submit the dispute to appraisal. Nothing in that case indicates that there was indicated a dispute regarding what caused the loss -- whether, for instance, there was a dispute regarding whether a covered peril or a pre-existing condition caused the loss -- and the Court noted that the insurer had never contested coverage as the defendant does here. The Court in Kirkpatrick distinguished Kawa on those grounds. For the same reasons, Kirkpatrick is distinguishable from our case.

So I conclude that plaintiff cannot overcome the weight of authority, both in New York and elsewhere, holding that a dispute as to what caused the loss goes to coverage under the policy and cannot be resolved by appraisal.

Now, plaintiff's last argument is that if I decline to compel appraisal, I am cutting against the very purpose and objective of insurance. But Kawa and its progeny do not somehow support a wholesale disregard for an insured's position. They merely say that such determinations of coverage should be made by the Court, not by appraisers.

The parties will fight this one out. If the finder of fact -- I do not know if it will be me or a jury -- agrees with the plaintiff that the entirety of the losses claimed are covered under the contract, the plaintiff will then have the opportunity to pursue indemnification for those losses. If the parties cannot agree on the cost, that can be appraised. See Kawa at Page 431.

Finally, the language of the appraisal clause itself supports denial of the plaintiff's motion. As the defendant points out, the appraisal clause here is different than those in the cases I discussed a moment ago, in that it expressly states that appraisers may not determine questions of coverage or issues relating to conditions precedent, such as, for example, whether a particular damage to the subject property was due to "an accidental direct physical loss."

And even if the appraisal. clause did not contain such exclusionary language, the instant dispute would nonetheless be inappropriate for appraisal, as Judge Scheindlin so held in the Secord case, which I have as 2011 Westlaw 814743, where the "introductory appraisal clause" language is identical to that here.

There, the insureds sought indemnification for losses due to a nearby blasting activity. The insured and the insurer agreed that damage due to the blasting was covered under the contract, but the insurer said that sane of the loss that the insureds sought to recoup had pre-existed the blasting and were caused by general wear and tear. The clause there did not expressly state that the appraisers were prohibited from addressing issues regarding coverage and conditions precedent, but it contained nearly identical introductory language as we have here, specifying that "If you and we fail to agree on the amount of loss, either party may make a written demand that each selects an independent appraiser."

Now, that case was decided under Connecticut law, but there was no Connecticut case law on point, and it was decided as a matter of contract interpretation.

Judge Scheindlin, in rejecting the magistrate judge's recommendation, reasoned as follows:

"The insurance company could have included a general arbitration clause in its policy, but it did not. Alternatively, the parties could have expressly authorized the appraisers to decide scope and coverage issues in determining loss amount, but they did not. What the parties did, however, was alert this Court to a legal dispute that must be resolved as a prerequisite to bringing suit. The appraisers will be able to determine the amount of the loss only after this Court separates the losses attributable to the blasting activities (covered) from those attributable to general wear and tear (not covered). To direct the parties to proceed with an appraisal, before the exact contours of insurer liability have been judicially established, would place the proverbial cart before the horse."

That rationale applies with equal force here. So even from a "contract interpretation" standpoint, the plaintiff's claim must fail. Once this Court separates the covered losses from the tree from the noncovered losses, if there be any, the appraisers will be able to determine the dollar value of the loss.

Lastly, the plaintiff argues that the recent amendments to Section 3408 (c) of the New York Insurance Law compel the reference of this dispute to appraisal. The section reads:

"In the event of a covered loss, whenever an insured or insurer fails to proceed with an appraisal upon demand of the other, either party may apply to the Court ... for an order directing the other to comply with such demand. If an appraisal is so ordered, it shall be limited to a determination of actual cash value and/or replacement cost, or the amount of loss which shall be determined as specified in the policy and shall proceed pursuant to the terms of the applicable appraisal clause of the insurance policy and not as an arbitration."

First, that language is clear that the Court retains discretion to order parties to proceed to appraisal. It does not suggest appraisal is somehow mandatory in the circumstances we have here.

Second, as the defendant points out, the statute clearly conditions the submission of a dispute to appraisal on a determination that the loss claimed is covered by the insurance policy. For the reasons discussed above, that has to be determined in this court.

So for the foregoing reasons, the motion to compel appraisal is denied.

I suppose I'd rather live in a "far-flung county" than have my legal arguments reside in such territory. A transcript of Judge Seibel's otherwise unreported decision is here. But now it's a single microfiber in the fabric of the Internet, so New York property insurers may at least know it's out there. If anyone would like to see the memoranda of law from the motion, shoot me an email.

The Just Right Claim File

noreply@blogger.com (Roy A. Mura) — Mon, 26 Sep 2011 22:15:00 +0000

I spoke at the 2011 NAMIC Claims Conference back in February of this year (2011). My topic was "The Just Right Claim File", an exposition of what first- and third-party defense counsel generally consider to be the necessary components of the ideal claim file.

Since I haven't blogged since January 14th, I haven't dropped links to my presentation materials on this site until now. In lieu of the traditional PowerPoint, I experimented with a "Prezi" -- a web-based presentation application and storytelling tool that uses a single, zoomable canvas instead of traditional slides. If you're not currently treating for vertigo, my Prezi is viewable here. Creating my first Prezi took a bit more time than had I simply dumped the text into more static PPT slides, but I like the format and plan on using the application again.

And here's "The Perfect Claim File" instructional movie I ~~found on YouTube~~ created and posted to YouTube for that presentation using another one of my newly found and instantly favorite presentation tools -- xtranormal. Enjoy.

I'm back... and the 2011 LexisNexis Insurance Law Community's Top 50 Insurance Blogs

noreply@blogger.com (Roy A. Mura) — Mon, 26 Sep 2011 22:11:00 +0000

Add blogging to the list of things I miss when I'm no longer doing them. But unlike, let's say, competitive soccer or ice hockey, which my ACLess right knee no longer lets me play, I can take up blogging again. And so I am.

Over the past 8+ months, some of you readers and a number of my fellow bloggers have emailed or tweeted to ask how and where I was and whether I planned a reunion tour. I appreciate knowing that some of you noticed that I was absent. In a way, I'm glad that you missed the new blog content too. I did as well.

The early morning hours during which I once blogged are now occupied with more life-preserving and -enriching pursuits like exercising and greeting (of the extended playful variety) my granddaughter when she arrives at the house to be watched by my wife while my daughter's at work for the day. My PCP reads my blood work and other tests; he doesn't read and presumably doesn't care about my blog. I'm intent, however, on finding and setting a new schedule in which I can make regular deposits here. Perhaps not as frequently as before, but with definite regularity. Those of you like me of an AARP-eligible age know that there's definitely something to be said for regularity.

And so it is with a mild twinge of embarrassment given this year's preceding hiatus that I report that Coverage Counsel has again been nominated as a Top 50 Insurance Law Blog by the LexisNexis Insurance Law Community. You can read about the initial nominees and add your nominations or commendations to the mix by visiting the LexisNexis Insurance Law Community's page here. While you're over there, and if you approve of my resolution to be more regular, register as an Insurance Law Community member and offer your comments on Coverage Counsel and the other nominated blogs. Many thanks.