Semicolon Brings Victory to Insurer at World Trade Center

The Port Authority of NY and NJ owns the land at Ground Zero. Some of that land was under lease to Larry Silverstein when the planes struck on September 11.

The Port Authority had a policy at that time with Lloyd’s. Exclusion “f” in the Lloyd’s policy provided that the policy “does not cover” loss or damage to any property in respect of which any third party “has in force at the time of the loss, pursuant to a lease or other written agreement, valid and collectible insurance in favor of the insured or has otherwise indemnified the Insured against such loss or damage; except that if any person, firm or corporation is required pursuant to a lease or other written agreement to insure any property which would otherwise be covered by this Policy, and for whatever reason such property is not fully insured, then such property will be insured property under this Policy.”

Fact: Larry Silverstein had procured insurance in favor of The Port Authority but it was insufficient to cover the loss. Fact: Silverstein had agreed in a written lease to indemnify the Port Authority.

Based upon the existence of the indemnity agreement, Lloyd’s moved for a declaration that Exclusion “f” was triggered and that the loss or damage to the property leased to Silverstein was not covered under the Lloyd’s policy.

The Port Authority disagreed and pointed to the exception within Exclusion “f” and said that because the Silverstein property was “not fully insured,” the Port Authority property was “insured property under this Policy.”

The court ruled in favor of Lloyd’s and held that the exclusion was triggered because Silverstein had agreed to indemnify The Port Authority. The court rejected The Port Authority’s argument that because the exception was set off by a semicolon, it must be read to modify both the preceding indemnity clause as well as the preceding insurance procurement clause. The court ruled that “as a matter of law, Exclusion f as set forth in the Port Authority Policy removed the Silverstein property from coverage under the Port Authority Insurance as the Port Authority was indemnified with respect to the Silverstein property at the time of the loss…”

Certain Underwriters at Lloyd’s v. The Port Authority of New York and New Jersey. SDNY 05 Civ 5239. Decided 2/22/08.

Failing To Satisfy Condition Precedent Precludes Direct Action Against Insurer

In Guayara v. Hudson Insurance Company, plaintiff sought to enforce an unsatisfied judgment against the defendant’s insured. The Appellate Division, Second Department dismissed the case since plaintiff failed to follow Insurance Law § 3420(a) (2) that allows a direct action against an insurer only thirty-one (31) days after a claimant serves notice of entry of judgment upon the attorney for the insured, or upon the insured and its insurer. In this case, plaintiff merely sent a letter to the broker of the insured, which did not comply with the statutory requirements.

New York Coverage Action Dismissed On the Basis of Pennsylvania’s Sovereign Immunity

Kemper issued a General Contractor’s Pollution Liability Policy to the Pennsylvania DOT (“PennDOT”), which constructed a major highway in that state. The policy was issued in Pennsylvania and obtained through a Pennsylvania retail broker. During the course of the project, serious enviromental damage occurred in Pennsylvania. Of significance, the policy contained forum selection and choice of law provisions designating New York as the appropriate forum and source of substantive law for any dispute.

During post loss coverage negotiations, Kemper filed a declaratory judgment action in New York. PennDOT responded by filing a parallel action in Pennsylvania and eventually moved to dismiss the New York action. The New York court dismissed the declaratory judgment action, recognizing Pennsylvania’s sovereign immunity and the limited conditions under which such immunity could be waived. For example, like many states, Pennsylvania and its state agencies could only be sued in the statutorily created Board of Claims.

In sum, Pennsylania’s sovereign immunity trumped clearly drafted forum selection and choice of law policy provisions. No doubt the court was persuaded that the dispute’s limited contacts with New York and Pennsylvania’s substantial interest in deciding the issues of coverage tipped the scales in favor of Pennsylvania.

Pre-Approved Medical Devices Immune From Personal Injury Liability

In Riegel v. Medtronic, patient Charles Riegel was injured in 1996 when a balloon catheter burst while being inserted to dilate a coronary artery. Prior to this accident, in 1994, this medical device was awarded premarket approval from the Food and Drug Administration. In affirming the dismissal of plaintiff’s state lawsuit, the United States Supreme Court held that medical devices that are approved by the F.D.A. cannot be subject to personal injury lawsuits unless the device was made improperly, in violation of F.D.A. specifications. At the center of this decision was the interpretation of the Medical Device Amendments Act of 1976 that bars states from imposing “any requirement” related to a medical device that is “different from, or in addition to” a federal requirement.

EDPA — PA Law Governs PA Insurance Contract w/ California Based Claim.

In the case of PhotoMedex Inc. v. St. Paul Fire & Marine Ins. Co. , the tort action requiring indemnification originated in California, but the underlying insurance contract was issued in Pennsylvania. The question thus arose — which state’s law governs the Policy’s interpretation? The EDPA ruled that the law most connected to the insurance policy, not the underlying tort, was the one to be applied.

New York Recognizes Claim For Consequential Damages Where Insurer Denies Claim in Bad Faith

New York has traditionally been a hospitable jurisdction for insurers. However, consistent with an alarming trend for the insurance industry , the New York Court of Appeals recently ruled that an insurer may be liable for consequential damages –including the collapse of a business—if it fails to “timely investigate, adjust and pay [a] claim.”

Bi-Economy Market, Inc. v. Harleysville, involved a garden variety fire loss that resulted in the complete loss of a meat market’s inventory along with structural damage. Not unexpectedly, the insured put in a claim for buildings, contents and business interruption loss. The claim appears to have been disputed solely on the issue of the quantum of the loss. The dispute was submitted to alternate dispute resolution that resulted in an award in favor of the insured. However, the insured claimed that the delay and inadequacy of the insurer’s initial payment led to the destruction of its business, which never reopened after the loss. It filed suit against Harleysville seeking, among other things, consequential damages including those associated with the demise of its business.

Breaking new legal ground in New York, the Court of Appeals recognized a cause of action for the bad faith denial of an insurance claim. More significantly, such a failure to act in good faith exposes an insurer to damages in excess of its policy limits, which in Bi-Economy Market included the destruction of the insured’s business. The Court did not explain what acts constituted “bad faith” on the part insurer but inferred that an insurer’s failure to proceed “honestly, adequately, and –most importantly—promptly” could support such a finding.

Under Bi-Economy Market, insurers writing first party coverage in New York are now subject to extra contractual claims for consequential damages where they deny a claim in bad faith. We foresee that allegations of bad faith, particularly in the business interruption arena, will be pressed by those acting on behalf of insureds to force premature and inflated resolutions of first party claims. At WCM, we urge insurers to respond quickly when notified of a first party loss and be prepared to demonstrate that any dispute was the result of a good faith difference of opinion rather than one of indifference or worse.

Landowner Not Vicariously Liable For Negligent Acts Of Independent Contractor

In Stagno v. 143-50 Hoover Owners Corp., et al., plaintiff claimed to have sustained injuries in defendants’ building when a contractor, hired by defendants, closed a balcony door on her hand. In reversing the trial court, the Appellate Division – Second Department held that one who hires an independent contractor is not liable for the independent contractor’s negligent acts because the employer has no right to control the manner in which the work is to be done. Since the plaintiff failed to raise an issue of fact as to whether the defendants exercised any control over the method or manner in which the independent contractor performed its duties, plaintiff’s opposition was insufficient to raise a triable issue of fact as to whether defendants supervised the independent contractor for vicarious liability purposes.

Findings Of Plaintiff’s Own Doctor Subvert His Serious Injury Claim

In Sharma v. Diaz, 2008 NY Slip Op 01130, AD Index 2007-05350, Kings Co. Index 27745/04, a case involving a motor vehicle accident, plaintiff claimed to have sustained neck and lower back injuries, including herniated and bulging discs with radiculopathy. The defendant moved for summary judgment asserting the plaintiff did not sustain a serious injury pursuant New York Insurance Law §5102(d). As part of his motion, the defendant relied upon the findings of plaintiff’s treating physician, who examined the plaintiff within three months of the accident and found that plaintiff possessed full range of motion in the cervical and lumbar regions of his spine. Despite this, the trial court denied defendant’s motion finding that the defendant failed to meet his prima facie burden that the plaintiff did not sustain a serious injury.

In reversing the trial court and granting defendant’s motion for summary judgment, the Appellate Division – Second Department found that the defendant had established his entitlement for summary judgment. Since the plaintiff failed to provide any medical evidence to counter defendant’s motion, the appellate court deemed the aforemention findings of plaintiff’s own treating physician fatal to his claim. Furthermore, the court held that the mere existence of disc herniations and bulges with radiculopathy, without objective evidence demonstrating the extent of physical limitation, insufficient to prove serious injury.

An Interesting Take On Art Theft

Reflecting on the recent Swiss theft of works valued in excess of $160 million, this article addresses some of the issues surrounding art theft, including differing treatment given to subsequent purchasers of stolen works. Probably most disturbing is the now “open secret” that some insurers are more than willing to pay ransoms to thieves to recover stolen pieces to avoid significant payouts on their policies.