Author Archives: Cheryl D. Fuchs

Third Circuit Explores Duty to Defend in Faulty Workmanship Case

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In general, a commercial general liability policy will not cover claims for faulty workmanship, which is not deemed an occurrence.  However, if the actual faulty work is attributable to a sub-contractor and not the insured, should the insured be entitled to a defense?  The Third Circuit, affirming the Eastern District of Pennsylvania, answered this question with a resounding “no.”

In Lenick Construction, Inc. v. Selective Way Insur. Co., Lenick Construction, Inc. sought a declaration that Selective Way Insur. Co. owed a duty to defend it in a property damage claim by a condominium association and various entities, referred to collectively as “Westrum.”  Westrum was the general contractor in the construction of a 92-unit development.  Westrum retained Lenick for carpentry services, including installing windows and doors that were selected and provided by the real estate developer.  Some units suffered property damage due to leaks, which were reportedly attributable to Lenick’s installation of the windows and doors.  Lenick argued they were entitled to a defense without reservation because their work product itself was not defective.  Instead, they argued, (1) they did not work on some areas that were allegedly damaged, (2) the damages arose from the work of other subcontractors, and (3) defects in the windows or doors themselves caused the damages.

However, the Third Circuit, and the Eastern District of Pennsylvania before it, disagreed.  Pennsylvania is a strict four corners state, and, as a result, the allegations in the complaint control coverage.  In analyzing the complaint, the Third Circuit recognized the complaint alleged Lenick should be liable for their own faulty work.  In other words, regardless of any liability defenses, the allegations themselves pertain solely to Lenick’s own liability for failure to perform services under the contract.  Because the complaint did not contain any allegations that would otherwise be subject to coverage, including any claim as to product defect, the Third Circuit held Lenick was not entitled to coverage.

Although the duty to defend is extremely broad, if there is no possibility of coverage for the actual claims alleged, then the duty to defend is not triggered.  We caution, however, that the results of this case may have been different in states that do not have strict four corner rules.  In New York, for instance, extrinsic evidence may be used to trigger coverage.

Thanks to Christopher Soverow for his contribution to this post.

PA Court Heard Interlocutory Appeal on Public Policy of Attorney/Client Privilege

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Pennsylvania Courts generally do not hear interlocutory appeals.  Rather, a litigant must wait for the case to conclude to file all appeals.  However, the court found an exception in  Knopick v. Boyle & Boyle Litigation.

There, plaintiff sued an attorney and his firm for commingling client funds with firm accounts to pay firm expenses.  During discovery, Knopick noticed the deposition of a former employee of Boyle Litigation, and subpoenaed certain items from him.  Included in this list were emails between the former employee and Boyle Litigation that would provide evidence supportive of Knopick’s claim.  Boyle’s attorney represented the former employee at the deposition, and argued the emails sought were protected from disclosure by Pennsylvania’s attorney-client privilege and refused to produce them.

Knopick filed and succeeded on a motion to compel Boyle to produce the emails , and Boyle appealed t.  Knopick sought to quash the appeal, arguing the order was interlocutory and, thus, unreviewable.  Ordinarily, the Superior Court will not provide “interim supervision” of discovery practice at the trial court level.  However, the court found the collateral order exception to the general rule to be applicable.  Rule 313(b) defines collateral order as one that is separable from the main cause of action and involves a party’s right that is too important to deny review.  The discovery order  was separable from Knopick’s underlying claims.  Additionally, because the issue of attorney-client privilege was one that implicated public policy, the right at stake was too great to deny review.  As such, the appeal proceeded.  However, it was all for naught since because the court determined that the emails at the center of the dispute were not privileged after all.

This case serves as a reminder that though interlocutory appeals are usually impermissible in Pennsylvania, on occasion, where it is separable or a matter of public policy, the Superior Court may hear the appeal.

Thanks to Robert Turchick for his contribution to this post.

Decision Highlights Importance of Timely Disclaimer Requirement, Even for Out-of-State Insurers

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The First Department recently avoided the opportunity to apply the Court of Appeals’ decision in Carlson v American Intl. Group, Inc., 30 N.Y.3d 288 (2017) and instead remanded to the motion court for a determination as to whether the insured had a “substantial business presence” in New York.  Nonetheless, the decision in Vista Engineering Corp. v. Everest Indemnity Ins. Co.,highlights the need for all insurers, including those located out of state, to be aware of New York Insurance Law’s disclaimer requirements.

In Vista, the underlying defendant, East Coast Painting, entered into a subcontract with Vista Engineering to perform work at the Queensboro Plaza subway station.  The agreement required East Coast to name Vista as an additional insured, which East Coast did in its policy with Everest.  In 2011, an East Coast employee sustained injuries while working at the site and Vista sought a defense from Everest.  Everest disclaimed coverage pursuant to the “Action Over” exclusion that barred coverage for injuries to employees of East Coast.  The parties did not dispute that the exclusion would bar coverage; rather, the dispute related to the timeliness of Everest’s disclaimer, which was issued almost two months after receiving notice of the claim.  New York Insurance Law section 3240(d)(2) requires that insurers provide notice of a disclaimer “as soon as is reasonable possible.”

Notably, section 3240 applies only to policies “issued or delivered” in New York.  Everest argued that, because it was a New Jersey insurer who issued a policy to East Cost, a New Jersey company, that the policy was not “issued or delivered” in New York.  While the case was pending, the Court of Appeals issued their decision in Carlson.  The Court held that the applicability of Insurance Law § 3420(d)(2) depends on (1) a policy covering risks located in New York, and (2) the insured being located in New York.  The Court further held that a company was “located in” New York if it had a “substantial business presence” there.  Therefore, under Carlson, if an out-of-state insurer issued a policy covering risks located in New York to a company with a substantial business presence in New York, the disclaimer requirements of Insurance Law § 3420(d) will apply.

The court found that the first prong of the Carlson test was present, but remanded as to the second prong “[b]ecause the Carlson Court did not set forth a specific definition of substantial business presence.”  The dissent, however, argued that the record “conclusively established” that both East Coast and Vista’s presence in New York was “substantial.”  Specifically, the court looked to the fact that the project was to be performed in New York and that Vista derived substantial income from work in New York.  As a result, the dissent took the position that a remand for this determination was unnecessary.  This was especially true in light of the legislature’s intent that a company “doing business in New York and purporting to cover risks in New York” should not be able to evade the Insurance Law.  Given the dissent’s strong language, and the majority’s hinting that the “the current record does contain some indicia that East Coast had a substantial business presence in New York,” the decision serves as a warning for all insurers, including those located out of state, to make sure their disclaimers abide by the Insurance Law’s timely disclaimer requirement.

Thanks to Doug Giombarrese for his contribution to this post.

 

NJ Court Finds Death Certificate Inadmissible Hearsay Without Medical Examiner Testimony

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In Quail v. Shop-Rite Supermarkets, Inc., plaintiff alleged his wife died as a result of blunt trauma from a cash register station that fell on her leg.  After the accident, plaintiff’s wife told Shop-Rite she was fine, not in need of medical attention.  Four days later, however, she was transported to the hospital where she died.  The following day, a Certificate of Death was issued.  It stated the cause of death was complications of blunt trauma to the right leg.  Plaintiff sought to forego calling the Examiner who issued the Certificate to the witness stand.  Instead, plaintiff sought to rely on the Certificate only.

The Appellate Division upheld the trial court’s dismissal of plaintiff’s case on Summary Judgment because plaintiff had no medical expert on the issue of medical causation.  The Court held that the Certificate, by itself, was inadmissible hearsay despite Rules of Evidence expressly deeming the Certificate to be admissible.  The Court reasoned that despite these Rules, the Certificate, by itself, was inadmissible without the Examiner being called to the witness stand to explain his findings.

This case serves as a reminder to attorneys to ensure that evidence is admitted properly at trial, and if not, motions to dismiss should be filed.

Thanks to Michael Noblett for his contribution to this post.

Tired Drivers Can Face Punitive Damages in PA

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A Pennsylvania Court of Common Pleas found that a driver knowingly operating a motor vehicle while fatigued was sufficient to support the award of punitive damages.

In Livingston v. Greyhound Lines, Inc., Anderson was operating a Greyhound bus in the early morning when she rear-ended a tractor trailer.  Multiple people were injured and sued Greyhound.  The evidence produced during trial revealed Anderson was behind schedule and, thus, drove over the speed limit throughout the night leading up to the morning of the accident.  Further evidence produced revealed that Anderson knew she was too tired to drive safely and appreciated the risk to her passengers.

At trial  the jury awarded punitive damages.  Greyhound appealed and argued the plaintiffs failed to establish Anderson objectively knew her actions were placing the passengers in a high degree of risk  or that she consciously elected to disregard such risk.  The court found that the evidence indicated driver fatigue was the number one cause of the accident, and there was sufficient evidence for a jury to find that Anderson intentionally disregarded the safety of her passengers, while driving tired.  Consequently, the court concluded the award of punitive damages was justified.

Accordingly, this case reveals that operating a motor vehicle while tired, could, under certain circumstances result in the award of punitive damages.

Thanks to Colleen Hayes for her contribution to this post.

Vacant Two-Family Home not “Commercial” for Purposes of NJ Sidewalk Liability

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In Vega v. Muthapandi, plaintiff alleged to have fallen due to snow on a sidewalk abutting a two-family house.  The defendant had recently purchased that two-family house which was vacant at the time of purchase.  The defendant was not residing in the house at the time of the fall, but neither was he renting out any portion of it.  The roof had also collapsed before plaintiff’s accident rendering the house uninhabitable.

The defendant moved for summary judgment, arguing that the house was not commercial.  In New Jersey, only “commercial” property owners are liable for failing to maintain an adjacent sidewalk.  The trial court agreed with the defendant and dismissed the complaint.

On appeal, plaintiff argued the property was commercial because the defendant did not actually intend to move into the property or, at the very least, there was a question of fact over what his intentions were.  Specifically, plaintiff argued that if defendant intended to rent out both units, then the house was commercial.

According to the Appellate Division, defendant was not liable because the property was vacant and uninhabitable.  Therefore, the reasons behind holding commercial property owners liable for sidewalk injuries were not present.  Those reasons include the ability to carry liability insurance and the implied invitation of the public to the commercial enterprise which requires the commercial owner to provide safe ingress and egress.

The problem for defendant in this case was that he did not reside in the house at the time of the accident.  The case law relative to residential v. commercial generally requires the owner to reside in the property to be deemed residential.  The Appellate Division crafted a simple explanation for finding that defendant had no liability.  Simply put, the property was vacant and no business was being conducted there.  Accordingly, it was not “commercial.”

Thanks to Michael Noblett for his contribution to this post.

 

 

 

 

New Jersey Court Finds Attorney Made Material Misrepresentation, Denying Coverage

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The New Jersey Appellate Division ruled that a legal malpractice insurer does not owe coverage to its insured for a legal malpractice suit related to its representation of a defunct investment firm sued for securities fraud.  In Ironshore Indemnity, Inc. v. Pappas & Wolf, LLC, the court determined that, in examining the totality of the circumstances, the law firm made material misrepresentations on its renewal application for insurance.  Specifically, the firm stated that it was not aware of any circumstance that could result in a professional liability claim against the firm.  However, partner Hercules Pappas admitted in a deposition several months prior that he was concerned about getting sued.  His attorneys, however, argued that he was not concerned about legal malpractice claims specifically, and instead was merely concerned in general about facing a lawsuit.

The Appellate Division examined New Jersey’s “subjective standard” in considering a challenge to an insured’s prior knowledge representation.  While the standard examines an individual’s state of mind, the court noted that, under New Jersey law, subjective intent may not be controlling when there are undisputed facts which reveal otherwise.  This prevents a court from “ignoring reality” by viewing the totality of the circumstances, and not isolated statements from the insured.

In examining the totality of the circumstances, the court found that Pappas knew of the potential relevant claims by his former client, Carr Miller Capital.  To that end, Pappas was aware of the legal issues facing to the investment firm, and testified that he was concerned about claims against him as an attorney because “things happened, lawsuits get filed and people get sued.”  Therefore the court held that Pappas made a material misrepresentation on its renewal application, which justified Ironshore’s denial of coverage.  The case provides an interesting insight to how New Jersey courts will examine the totality of the circumstances in a denial of coverage case.  While an insured may testify they are not aware of certain facts, a court will not hesitate to look at other factors when determining if they made a material representation.

Thanks to Douglas Giombarrese for his contribution to this post.

Court Rules that Reasonableness Under Insurance Law 3420 Can Be a Question of Law for the Court.

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On May 10, 2018, the Eastern District of New York handed down a total victory to Northfield Insurance Company on the insurer’s motion for summary judgment, in Northfield Insurance Company v Queens Palace Inc., issuer of a commercial general liability policy to Queen’s Palace, a nightclub, initiated the federal declaratory judgment action seeking a ruling that it had no coverage obligations to its insured or any other party in connection with the underlying wrongful death action brought by the estate of a Queen’s Palace patron tragically murdered outside of the nightclub by several of its patrons.

Northfield issued a total disclaimer of coverage premised only upon the policy’s Assault and Battery Exclusion barring coverage for bodily injury arising out of any act of assault or batter “committed by any person.”  The Court easily agreed with the substance of the disclaimer, even in light of the stringency of the duty to defend imposed upon insurer’s under New York law, where even a “reasonable possibility” of coverage is sufficient to trigger the duty, and the burden on an insurer relying on an exclusion to disclaim coverage to show there is only one reasonable interpretation of the allegations: that the exclusion applied.

Thus, the insured and other defendants were left with one other argument: that Northfield’s disclaimer was too late, pursuant to N.Y. Ins. Law § 3420.  Section 3420 imposes a duty on any insurer, in any matter involving bodily injury or death, to provide any disclaimer or denial of coverage “as soon as is reasonably possible.”  Defendants argued they did not receive written notice, and submitted “return to sender” envelopes as evidence that Northfield was aware its disclaimer was not received.

The Court ruled that the envelopes were not admissible evidence, and therefore could not impact the summary judgment motion.  In favor of Northfield, the Court did consider the testimony submitted via affidavit from the Northfield adjuster about the dates she mailed out the disclaimers.  But, as the Court noted, “the question of whether a disclaimer has been issued with reasonable promptness is in most cases a question of fact.”  A question of fact would preclude granting the motion for summary judgment.  The disclaimer was mailed out 19 days following Northfield’s receipt of notice of the claim.  So – and significantly – the Court ruled that 19 days could be deemed reasonable as a matter of law, thus rendering Northfield’s disclaimer proper as a matter of law.

The question of what constitutes “as soon as is reasonably possible” is understandably vexing to insurers, particularly in matters necessitating more complicated investigation and analysis than was necessary for Northfield here.  The Northfield Court’s ruling is a helpful example of the Court’s applying a reasoned and practical approach to deciding what is “reasonable,” and represents excellent precedent on summary judgment motions where defendant’s attempt to argue the “reasonableness” question of fact alone is sufficient to preclude such a motion.

Thanks to Vivian Turetsky for her contribution to this post.

 

 

 

 

 

 

 

 

 

Pennsylvania Superior Court Holds That Liability Can Be Apportioned Between Reckless and Negligent Defendants  

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In Straw v. Kirk, Thomas Straw was driving his Pontiac Vibe with his wife and two sons.  He was forced to stop the car on the road after the hood latch failed, allowing the hood to open and block his view.  Kirk Fair was driving his employer’s Ford F-250 behind the Straws.  Fair, who was driving under the influence, was not able to avoid the Staws’ car and slammed into it at over sixty miles per hour.  One of the Straws’ sons was killed in the accident, and the survivors suffered serious injuries.  They filed a ten-count complaint against Fair, alleging, among other things, that Fair was recklessly driving and endangering others.

Fair filed a cross claim against Thomas Straw based on a post-accident interview he gave to investigators of the crash in which he stated that he had been aware of the faulty hood latch but determined to drive his car anyways.  The cross claim alleged that, as a result of his own contributory negligence, Thomas Straw was directly liable to his wife, his surviving son, and his deceased son’s estate.  Thomas Straw argued that a defendant cannot assert contributory negligence where the defendant was reckless.  The trial court granted summary judgment on the cross claim in favor of Thomas Straw, dismissing it because contributory negligence cannot be weighed against or applied to a defendant’s reckless conduct.

The Superior vacated the trial court’s judgment and remanded the case.  The Uniform Contribution Among Tortfeasors Act (UCATA) in Pennsylvania permits apportionment wherever recovery is allowed against more than one party.  These broad terms do not limit themselves to negligent conduct, but rather, leave the door open for apportionment between reckless and negligent defendants.  Because Thomas Straw could potentially be assigned a percentage of fault if found negligent, the case was remanded to the trial court so that a jury could determine if he breached a duty he owed to his passengers.

Thanks to Robert Turchick for his contribution to this post.

Discovering Bad Faith

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Insurance Companies have a duty to act in good faith towards their insureds and endeavor to avoid potential bad faith claims.

In Berg v. Nationwide Mutual Insurance Company, Inc., the Pennsylvania Superior Court addressed a ten-year bad-faith suit arising from the repair of an insured’s car following an accident.  Plaintiff was involved in a car accident in 1996, and pursuant to the policy, her insurer was required to either pay for the loss or repair the car.  The insurer initially declared the vehicle totaled, and at the time of the accident, the car was valued at $25,000.  The insurer subsequently decided to repair the vehicle ten days later.  It took four months to repair the car, but plaintiff complained that the car was no longer crashworthy.  Once plaintiff completed her lease agreement for the car two years later, the insurer opted to declare the vehicle totaled, which resulted in the insurer paying far more in costs than if they had initially replaced the car.

The plaintiff sued in part for bad faith arguing that the insurer failed to inspect the repair work before the car was returned after repiar, and discovery violations based on the insurer’s failure to disclose an unredacted privilege log taht contained information about the repairs.

Addressing the first bad faith issue, the Court found that an insurer has no duty to inspect a car after repair to ensure the quality of repairs, absent an affirmative agreement to undertake that action.  The Court reasoned that at most, the insurer was negligent in failing to inspect the repairs, which did not rise to the level of bad faith.  With regards to the second bad faith issue, the Court found that a bad faith claim cannot be based on an insurer’s discovery practices, absent the use of discovery to conduct an improper investigation.  The Court recognized that bad faith is occasioned by the insurers duty as a fiduciary to the insured under the insurance policy, not as an adversary in a legal proceeding initiated by the insured.

This case provides an important takeaway that the duty of good faith between an insurer and an insured is separate from the duties between the two in an adversarial proceeding.  When plaintiff initiated the lawsuit against her insurer, the duties of the insurance company towards her shifted.  Adversaries in a legal proceeding do not have a fiduciary duty to act in the best interests of their opponent.  For that reason, a purported discovery violation was not a ground upon which a bad faith claim can be “discovered.”

Thanks for Malik Pickett for his contribution to this post.