Defrauded Insurer Allowed to Keep Premium in Rescission Action

Typically, an insurance company that rescinds a policy must return the premium to policyholder.  Indeed, a number of courts have found that insurers waived the rights to rescission when premium was not returned.

Recently, however, a federal court in Rhode Island held that no premium return was owed where the insured’s false representations caused damage to the insurer that could not be satisfied simply by rescission.

In PHL Variable Ins. Co. v. P. Bowie 2008 Irrevocable Trust, an insurance broker submitted an application from Peter Bowie to PHL for a life insurance policy on Bowie’s life. Bowie’s application represented that he was a self-employed real estate investor with a net worth of $7.5 million and an earned income of $250,000 per year, and he applied for a policy with $5 million limits  policy. A letter from Bowie’s lawyer accompanying the application stated the policy would be placed into a trust.

It was later revealed that Bowie was not a wealthy investor, but a retired city employee, used car dealer, and blackjack dealer.  In order to pay the premium, Bowie’s broker and attorney secured a deal with a financing company in exchange for a security interest in the policy.

This plan was directly contrary to the multiple representations in the application documents that Bowie himself would pay the premiums and that there was no plan for any third party to obtain an interest in the Policy.

When PHI discovered it was the victim of this elaborate fraud, it filed a declaratory judgment action, seeking rescission.  It also sought to retain the premium paid by the Trust as an “offset” against the damages it had suffered in connection with the policy, including the costs of underwriting, issuance, investigation of the fraud, and the like.  It also stated it stood ready and willing to return the premium, which it tendered to the court.  In fact, during discovery, the defendants agreed to rescind the policy, but demanded the premium be returned.

Briefly, both the lower and appellate court found that there was compelling evidence that the defendants committed fraud in applying for coverage.  Recognizing that rescission is an equitable remedy, the court found that insurer could keep the premium because, for among other reasons, the defendants had unclean hands.

It will be interesting to see whether other jurisdictions also adopt the same reasoning.  But it seems like in cases of clear fraud, an insurer ought to consider seeking the same relief granted here.  If you would like more information, please write to Mike Bono.

 

 

NFL’s Insurers Win Home Field Advantage in NY

The NFL has been sued by over 4,000 former players who allege that they suffered brain injuries during their careers, claiming that the NFL negligently failed to protect their players against such long-term injuries. These claims have spawned insurance coverage litigation in New York involving 187 policies that were issued between 1968-2012. Many of the insurers have taken the position that their policies do not provide coverage for the claims and that the alleged injuries do not fall within their policy’s period of coverage.

Meanwhile, the NFL filed suit in California, believing that state was a more favorable venue for the coverage litigation. The NFL argued that all of the insurers owe defense and indemnity for the players’ claims because the injuries continued through multiple policy periods and should be treated as occurring during each period.

The NFL argued that California was the best forum for the litigation because California has greater contacts with the parties. For example, three teams play in California:  the San Francisco 49ers, Oakland Raiders and San Diego Chargers.  Further, the NFL raised an issue well known to fans  — only one team, the Buffalo Bills, plays in New York.  Despite their names, the New York Giants and New York Jets play in New Jersey.

The Court nevertheless ruled that the insurers’ lawsuits in New York should take precedence over the California litigation because the NFL is headquartered in New York and most of the insurers are headquartered on the East Coast.

Thanks to Mendel Simon for his contribution to this post.  If you would like more information, please write to Mike Bono.

NJ Court: Water Slides Are Obviously Dangerous

With temperatures rising and summer around the corner, area waterparks are sure to see a high volume of guests looking to beat the heat. While most visitors enjoy their day, leaving with at worst a sunburn, unfortunately some depart with injuries, turning guests into litigants. Such was the case at New Jersey’s Six Flags Great Adventure, and the Appellate Division recently (and timely) decided in Morgan v. Great Adventure that Great Adventure was not liable for plaintiff’s injury where no duty to warn, by statute or otherwise, existed where the risks associated with using a water slide are open and obvious.

Plaintiff Lisha Morgan waited in line for an hour with her daughter and granddaughter to ride the “Big Bambu,” a popular water slide which propels a multi-person raft through the twists and turns, splashing into the pool below. As plaintiff ascended the stairs to the top of the slide, she observed the posted warning signs regarding height and personal health. She was instructed as to the proper sitting position by the attendant and followed the instructions. As the raft neared the end of the slide, plaintiff alleges that it went briefly airborne. Instead of landing squarely in the pool, the raft struck the edge of the slide causing plaintiff’s foot to become pinned between the raft and her body. She suffered a fracture of her fifth metatarsal (the long outer bone connecting the fifth toe to the foot).

Plaintiff argued that Great Adventure was negligent in the design, manufacture, operation and maintenance of the slide, had failed to warn against the risks associated with using the slide, and violated New Jersey’s Products Liability Act. In affirming the lower court’s dismissal of plaintiff’s complaint, the Appellate Division held that where Great Adventure did not manufacture or design the water slide, the Products Liability Act was inapplicable, which, by extension, rendered the park immune from liability based upon a failure to warn. Recognizing that plaintiff’s exclusive remedy was under the Products Liability Act, the Court went even further to articulate that Great Adventure also had no duty to warn plaintiff of the risk of injury. From a legal perspective, Great Adventure did not know or have reason to know that plaintiff would be injured, nor did it overtly facilitate the injury. Practically speaking, the court found that plaintiff, like any reasonable person, was, or should have been, aware of the open, obvious and inherent risks of using the water slide.

In this case, plaintiff assumed the risk of using the slide through no negligence of the park. While this surely will not be the last lawsuit of its kind, in ruling for Great Adventure, the court highlighted the open and obvious nature of amusement rides and the inherent risks that accompany them.

Thanks to Emily Kidder for her contribution to this post.  If you would like more information please write to Mike Bono.

 

Loss that Occurs Outside of Policy Period Trips Up Insured (NY)

In Jericho Atrium Associates v. Travelers Property Cas. Co. of America, the Appellate Division, Second Department, recently dealt with the interesting issue as to whether a loss that takes place outside of the policy period is covered despite the fact that the loss was caused by the insured’s conduct during the policy period.  The insured owned a commercial building that was insured under a liability policy issued by Travelers Property Casualty Company.  The insured sold the building, and requested that Travelers remove the premises from coverage under the policy.  Travelers complied, but only 10 days later someone slipped and fell on the premises suffering alleged injury.  That individual then sued the insured and the new owner.  Travelers disclaimed coverage, and the insured commenced a third-party action against Travelers seeking a declaration that Travelers owed coverage for the lawsuit.

The insured argued that there was coverage because the injured claimant alleged that the accident was caused by a dangerous condition that existed on the premises when the insured still owned the property, when it was still insured by Travelers.  The trial court found in favor of the insured, declaring that the insured was entitled to coverage under Traveler’s policy.

But the Second Department reversed the trial court, and ruled that Travelers did not have a duty to defend or indemnify the insured.    The Court rejected the insured’s argument, holding that “[s]ince the policy predicates coverage upon the sustaining of bodily injury during the policy period, it is immaterial that the negligent acts which allegedly caused the occurrence took place while the policy covering the premises was still in effect.”  Accordingly, the Court ruled that the occurrence did not take place during the policy period.

Thanks to Steve Kaye for his contribution to this post.  If you would like more information, please write to Mike Bono.

 

 

 

 

Documents Prepared By In House Attorney/Adjuster Privileged (PA)

The attorney-client privilege is constantly under attack during discovery, but a recent decision in Pennsylvania is favorable for protecting materials prepared by an in-house attorney who was also acting as a claims adjuster.

In Walter v. Travelers Personal Insurance, plaintiff was injured when he was run over by a tow truck. He filed a claim with Travelers, his insurer, but no benefits had been paid approximately five years later. Walker then instituted a bad faith claim against Travelers. During the litigation, plaintiff requested documents including emails, letters and an uninsured motorist worksheet prepared by Travelers’ in-house attorney. Travelers refused to produce these materials, citing to attorney-client privilege.

Judge Martin Carlson of the Middle District of Pennsylvania performed an in-camera review of the documents and determined that the documents were properly withheld as privileged. Plaintiff’s counsel argued that the attorney was acting in a dual-role as attorney and claims adjuster. However, Judge Carlson ruled that all of the documents were created while counsel was serving the client “in an attorney-client capacity, and not in some other function… such as a claims adjuster.” Thus, the documents were not discoverable to the plaintiff.

Thanks to Remy Cahn for her contribution to this post.  If you would like more information, please write to Mike Bono.

Concurrent Clause Exclusion Basis For Insured’s Bad Faith Claim.

The Pennsylvania Middle District Court recently held that concurrent clause exclusion provisions in insurance policies are unenforceable under Pennsylvania law.  In Donahue v. State Farm, the plaintiff purchased homeowner’s insurance through State Farm Fire & Casualty Company.  The policy insured the plaintiff’s home and provided a variety of coverage for the plaintiff’s dwelling and personal property.  Additionally, the policy included numerous exclusions.  One exclusion was the “Water Damage” exclusion.  Essentially this exclusion barred coverage for any loss resulting from water or sewage overflow or back-up.  As the insured wanted coverage for such potential losses, a “Back-Up Of Sewer” endorsement was added to the policy.

Subsequently, the plaintiff’s sewer backed-up and caused damage to the plaintiff’s property.  The plaintiff made a claim for coverage.  State Farm denied coverage claiming that the property damage was caused by flood waters, for which coverage was excluded under the policy.

In response to the denial of coverage, the plaintiff instituted a bad faith action against State Farm.  State Farm filed a motion to dismiss.  Ultimately, the Court concluded that the plaintiff had adequately pled a bad faith cause of action.  In reaching its determination, the Court noted that State Farm had based its denial of coverage on concurrent causes.  The Court stated, under Pennsylvania law, “concurrent clause exclusion provisions are unenforceable in the presence of an affirmative grant of coverage.”  Thus, the plaintiff was able to proceed with his bad faith claim against State Farm.

Thanks to Colleen Hayes for her contribution to this post.

 

Watch Where You Walk: Not All Falls Produce Valid Labor Law 240(1) Claims.

In Carey v. Five Brothers, Inc., Carey, a subcontractor supervisor, delivered work equipment to his crew construction a new supermarket.  When returning to his truck, plaintiff fell partially through an open manhole atop a 10-foot-deep precast drainage vault.  The drainage vault had a metal collar for the manhole cover, which had been dislodged.  There was no information regarding when, how, or by whom the cover was dislodged.  In addition, there was snow on the ground where Carey was injured.  Plaintiff sued various parties for violations of New York Labor Law Labor Law §§ 240(1), 241(6), and 200.  All parties moved for summary judgment, but the lower court found issues of fact.  On appeal, the Second Department held, that it was error for the lower court to deny those branches of the defendants motions that sought dismiss of the Labor Law § 240(1) claims.  In making its ruling, the Second Department noted that although Carey’s injuries were allegedly the result of a fall, the injuries did not arise in the context of the “special hazards” against which the statute is designed to protect, namely, “the exceptionally dangerous conditions posed by elevation differentials at work sites.”  Similarly, the court dismissed the Labor Law § 241(6) claims because none of the regulations that the plaintiff were applicable to the facts.  Importantly, the Second Department upheld the position that not all falls from heights fall within the ambit of Labor Law 240(1).

However, the Second Department let plaintiff’s Labor Law § 200 claims remain, stating that the defendants failed to establish prima facie that they neither created nor had constructive notice of the allegedly dangerous condition presented by the dislodged collar and manhole cover.

Thanks to Lora Gleicher for her contribution to this post.

 

Calling Someone a “Florida Lawyer” is Not Defamatory.

In Sabharwal & Finkel v. Sorrell, the defendant was interviewed about an ongoing lawsuit.  He made several remarks about the plaintiff’s lawyers in that case.  Some of the statements were, “the two-lawyer firm is based in Florida,” they “specialize in restaurant law,” and they are “lawyers working on a contingency basis.”  In its analysis of the statements, the court noted that there are many respected law firms that are based in Florida, that specialize in restaurant law, and that work on a contingency basis.  As such, even if those statements were false, they were not defamatory.  We’re sure our colleagues in Florida were glad to hear that…

When it comes to defamation, statements that may rub someone the wrong way are not defamatory simply because the person allegedly defamed did not like what was said about them.  Rather, “the statement must be made with reference to a matter of significance and importance for that purpose, rather than a more general reflection upon the plaintiff’s character or qualities.”  When defending a defamation action, it is important to look beyond the truth or falsity of the statements, and delve into the context and effect the statements had on the general public.  Oftentimes, a plaintiff will lack the necessary elements to sustain their claim, and a motion to dismiss can be made.

For more information about this post contact cfuchs@wcmlaw.com

 

Uh Oh, Better Check Before You Get Maaco (NJ)

In Lansing v. Liberty Mutual Fire Insurance Company, the Appellate Court upheld an award of counsel fees to Liberty Mutual, but reversed the trial court’s decision to award treble damages.  Lansing had insured his 1984 Oldsmobile with Liberty Mutual.  In September 2007, Lansing filed an insurance claim for $3,812 for damage to his car allegedly caused by vandals.  Lansing left a recorded message for Liberty Mutual advising of the damage and then obtained an estimate and had the repairs performed at a Maaco repair shop.  Liberty Mutual had not approved the bodywork, nor did it have an opportunity to investigate the claim before the repairs were made.

Lansing subsequently submitted the repair bill to Liberty Mutual for reimbursement.  Liberty Mutual denied the claim and questioned Lansing about an earlier claim.  At that juncture, Lansing withdrew the vandalism claim, but several months later, rescinded his withdrawal and filed a complaint against Liberty Mutual seeking approximately $3,000.  Lansing alleged Liberty Mutual breached its obligation under the policy by refusing to pay the Maaco bill and forced him to withdraw his claim.  He also claimed discrimination under the Americans with Disability Act, citing his dyslexic and ADHD.  Liberty Mutual counterclaimed and alleged fraud under the New Jersey Insurance Fraud Prevention Act (FPA) and sent Lansing a letter notifying him of their intention to seek sanctions, costs and attorney’s fees for frivolous litigation.

During discovery, a witness from Maaco testified that Lansing’s car had not been vandalized, but that the vehicle was merely restored.  Liberty Mutual eventually moved for and was granted summary judgment.  The court also determined that Lansing’s ADA claims were frivolous and awarded Liberty Mutual fees in the amount of $52,769 and also trebled that amount to $158,307.  Lansing appealed and the Appellate court affirmed the counsel fee award, but determined that the trial court had not separately addressed the frivolous claims fee award and the FPA fee award when it trebled counsel fees and remanded to matter to the trial court on that specific issue.

Special thanks to Heather Aquino for her contributions to this post.  For more information, please contact Nicole Brown at nbrown@wcmlaw.com.

NY City Unable To Escape Labor Law Liability In Crane Collapse

In the ongoing In re 91st Street Crane Collapse Litigation, the City recently moved for summary judgment under Labor Law § 240(1), arguing that it was neither the title owner of record for the subject premises, nor controlled the construction project at which the crane was operating when it collapsed.  At issue was the City’s complicated deed for the property, in which the City granted the premises to the New York City Educational Construction Fund, subject to the conditions of the disposition agreement entered into between the City and NYCECF and also subject to the provisions of the lease between the same parties.  The conveyance was structured in this way to allow the premises to be developed as a new public school and mixed-use residential/commercial space.

Labor Law § 240(1) places a duty on owners, contractors and their agents.  While the statute is silent on the duties of lessees, case law has construed this statute to apply to lessees who hire contractors and thus have the right to control the work being done.  Here, the City argued that it had simply leased the property to 1765 First Associates through the NYCECF and, as such had no control of the property such that it would be subject to liability under the Labor Law.

The trial court disagreed and in its discussion noted the court’s duty to search for a nexus or link to the party disclaiming ownership when determining whether a party has divested itself of all traces of control and consequently ownership of a subject property.  The court focused on the lease language that indicated the lease would commence once the applicable City agencies had issued the necessary approval of the relevant documents that included the agreement that designated 1765 First Associates as the developer of the property.  The court, therefore, held that a question of fact existed as to the nature of and basis for the City agencies’ approval.  Despite this intricate web of conveyance, the fact that the City reserved the right to render final approval made it easy for the court to find a contractual connection for the City to continue exercising some control over the property, thereby potentially subjecting it to Labor Law liability.

Special thanks to Michael Nunley for his contributions to this post.  For more information, please contact Nicole Brown at nbrown@wcmlaw.com.