The Last Domino Falls: New Jersey Is Now Officially “Continuous Trigger” on CD Cases.

It was a long time in the making (or preventing), but New Jersey is now officially a continuous trigger jurisdiction when it comes to construction defect litigation and CGL policies.

In the case of Air Master v. Selective Insurance, the appellate court was faced with a “typical” NJ construction defect case, i.e. a large condominium complex which years after completion experienced water infiltration and resulting damages.

The case’s key facts are:

• Air Master’s work was conducted between November 2005 and April 2008;

• Water damage (allegedly resulting from the work) was noticed as soon as February 2008;
• But, it was not until April 2010 that an “expert” documented the water issues;

• Penn National insured Air Master from November 2005 to April 2008;

• Selective insured Air Master from June 2009 until June 2012; and

• Harleysville insured Air Master from June 2012 to June 2015.

The Superior Court, in an approved for publication decision, was effectively asked to determine whether Selective’s policy obligations were limited to “property damage” that occurred during its policy periods. In a 29 page opinion, the Superior Court held that:

(1) a “continuous trigger” theory of insurance coverage may be applied in this State to third-party liability claims involving progressive damage to property caused by an insured’s allegedly defective construction work.

(2) the “last pull” of that trigger — for purposes of ascertaining the temporal end point of a covered occurrence — happens when the essential nature and scope of the property damage first becomes known, or when one would have sufficient reason to know if it.

(3) the “last pull” of the trigger does not occur until there is expert or other proof that “attributes” the property damage to faulty conduct by the insured.

So, what does all of this mean? The bad news (especially for Selective in the case at bar) is that insurers will no longer able to argue that, in the absence of evidence of “property damage” during the policy period, there is no coverage — so, earlier in time insurers are likely to bear more risk. But, the good news is that the “trigger” ends (it seems) when there is actual or constructive notice of the “property damage” — which means that later in time insurers should be able to limit coverage…if they can establish notice of the problems.

The last domino has finally fallen, but a new game is about to begin.

For more information about this post please e-mail Bob Cosgrove.

Pennsylvania Court Upholds Unlisted Resident Driver Exclusion As Valid Basis To Disclaim Coverage

The Pennsylvania Superior Court recently upheld a policy’s Unlisted Resident Driver Exclusion.  Specifically, in Safe Auto v. Rene Oriental-Guillermo, the underlying plaintiff was involved in a motor vehicle accident.  Following the accident, the underlying plaintiff sued, among others, the driver of the other car, Dixon, as well as the owner of the other car, Dixon’s boyfriend, Oriental-Guillermo.  Safe Auto insured Oriental-Guillermo.  The Safe Auto policy had an Unlisted Resident Driver Exclusion, which specifically excluded from coverage those individuals who lived with the policyholder, but were not related to the policyholder and whom the policyholder did not specifically list on the policy.  Based on this exclusion, Safe Auto denied coverage, as Dixon was living with Oriental-Guillermo, but was neither related to him nor specifically listed on the policy.

On appeal, the Pennsylvania Superior Court concluded that the Unlisted Resident Driver Exclusion was unambiguous.  The Court also concluded that the Unlisted Resident Driver Exclusion did not violate Pennsylvania Motor Vehicle Financial Responsibility Law (“MVFRL”) nor was it void against public policy.  As such, the Superior Court ultimately concluded the Unlisted Resident Driver Exclusion provided a valid basis to deny coverage.

Often times drivers will attempt to seek coverage under a policy based on a public policy argument that an insurance company must insure every individual who uses an insured’s vehicle unless the insured specifically asked the insurance company not to provide coverage for that driver.  This can lead to unintentional coverage being provided under policies.  However, as this case illustrates, with the inclusion of the Unlisted Resident Driver Exclusion (or a similarly worded exclusion), an insurer can limit the scope of coverage provided under its policies, and limit the potential drivers who may seek coverage under a policy.

Thanks to Colleen Hayes for her contribution to this post.

 

 

Getting What You Need in PA Bad Faith Law.

Yesterday, in the case of Matthew Rancosky, et al. v. Washington National Insurance, et al., the Pennsylvania Supreme Court ruled on what qualifies as insurer bad faith. In Rancosky, the decedent plaintiff purchased a cancer insurance policy as a supplement to her health insurance. Unfortunately, some 11 years after first purchasing this insurance, she was diagnosed with cancer. She battled cancer on and off for several years, but ultimately the insurer denied any additional benefits because of a mistake made by plaintiff’s physician as to when her disability began. The insurer, despite having access to forms, never sought to rectify or clarify the mistake although it had access to the information and was advised of the mistake’s existence.

An §8371 PA bad faith claim was ultimately brought. The trial court found for the insurer, but the appellate court found for the plaintiff. The question before the PA Supreme Court was whether under the Terletsky standard, a PA bad faith claim still turns on evidence that (1) the defendant did not have a reasonable basis for denying benefits under the policy, and (2) that the defendant knew or recklessly disregarded its lack of a reasonable basis in denying the claim.

The Supreme Court has answered that question in the affirmative. In answering that question, the Supreme Court made a few interesting observations. First, the Court noted that the first prong of the Terletsky test is an “objective inquiry into whether a reasonable insurer would have denied payment of the claim under the facts and circumstances presented.”

Second, in respect of the second prong of the Terletsky test (and the part of the opinion that will no doubt generate the most public comment), the Court held that “proof of an insurer’s motive of self-interest or ill-will, while potentially probative of the second prong, is not a mandatory prerequisite to bad faith recovery.” In other words, to prove the “reckless disregard” requirement, the insured need not prove almost intentional insurer misconduct.

Third, and perhaps most significantly, and almost as an aside, the PA Supreme Court also noted that “mere negligence is insufficient for a finding of bad faith under Section 8371.” This part of the opinion runs contrary to some recent federal case law that suggests that a bad faith claim can sound in mere negligence.

To us, the decision is good news for the insurance world. While it might have been nice to have the PA Supreme Court hold that intentional misconduct is a condition precedent to a bad faith claim, reconfirmation of the Terletsky standard and a repudiation of the idea that mere negligence can give rise to a bad faith claim are good, solid developments. As the Rolling Stones sang, you can’t always get what you want, but if you try sometimes, you might find, you get what you need.

For more information about this post please e-mail Bob Cosgrove.

Policy Limit Conundrum or Creative Lawyering? (PA)

Though courts strictly interpret insurance policies with an eye towards finding coverage whenever possible, they will enforce clear and unambiguous policy terms. In Good v. Frankie & Eddie’s Hanover Inn, LLP and RCA Ins. Group on Behalf of State Nat’l Ins. Co., the issue before the Superior Court of Pennsylvania was the interpretation of the limit of coverage offered under a liquor liability coverage part in connection with a wrongful death/survival action.

The insured tavern had served alcohol to a driver who subsequently drove under the influence and crashed into the deceased motorcycle operator. The tavern’s insurance policy included a Liquor Liability Coverage Form, which provided coverage with an “Aggregate Limit” and an “Each Common Cause Limit.”  The form expressly defined the each common cause limit as “the most we will pay for all ‘injury’ sustained by one or more persons or organizations as the result of the selling, serving or furnishing of any alcoholic beverage to any one person.”  The policy’s declarations page did not include this latter term but expressed the applicable liquor liability limits as $500,000 for “Each Occurrence” and $1 million “Aggregate.” The plaintiff took the position that the term “each common cause limit” was ambiguous and not parallel to the declarations page’s “occurrence” language.

During the pendency of the litigation against the tavern, the parties reached a settlement agreement whereby the insurer agreed to pay its $500,000 limit on behalf of its insured with the understanding that a declaratory action would proceed to resolve the limit of coverage issue.

As a result of cross-motions filed by the parties, the trial court found that the policy terms unambiguously expressed the intent of the contracting parties that there would be separate liquor liability limits for Each Common Cause, i.e. claims arising from alcoholic beverage service to one person, and for the Aggregate of all claims made involving service to more than one person. Per the clear terms of the policy, there had to be a distinction between the two limits, and the declarations page, while using different terminology, provided for this in the $500,000 per occurrence limit and the $1 million aggregate limit.

The plaintiff made creative arguments to subvert the clear policy language that the court and appellate court roundly rejected. For example, she argued that the “occurrence” limit simply did not apply because this term was not defined in the liquor liability coverage part.  Alternatively, she argued that “occurrence” is ambiguous without definition and should be read to provide $500,000 per each category of damages (i.e. wrongful death and survival actions).  Finally, she claimed that the phrases “Each Occurrence” and “Each Common Cause” were not interchangeable within the insurance industry.

In affirming the lower court, the appellate court held “the only reasonable conclusion, consistent with the intention of the parties and the reasonable expectations of the insureds, is to apply the “Each Occurrence Limit” as the “Each Common Clause Limit.”

Thanks to Lauren Berenbaum for her contribution.

For more information, contact Denise Fontana Ricci at dricci@wcmlaw.com.

 

No Unreasonable Delay Where Insurer Conducted Reasonable Investigation

Insurer’s and their coverage counsel are well-aware that N.Y. § 3420 requires insurers to deny coverage or disclaim liability in any matter involving bodily injury or death must “as soon as is reasonably possible.”  The lack of precision in the statute creates pressure for an insurer conducting an investigation, and some degree of vulnerability as any insured may challenge a disclaimer as untimely.

To that point, a recent decision from the SDNY, Netherlands Ins. Co. v. United Specialty Ins. Co., is a positive development in a line of New York cases finding that as long as there is no evidence of dilatory tactics, forty, fifty and even sixty days are a reasonable length of time for conducting an investigation into a claim and providing a response to tender.

Netherlands concerned additional insured coverage following a construction site accident.  The underlying action, brought in New York Supreme, Bronx County, concerned injury to a subcontractor – later determined to be an employee of USI’s named insured – when the elevated platform he was working on collapsed.  Netherlands Insurance provided a CGL policy to the general vontractor at the site and together as plaintiffs in the SDNY action they sought a declaration that USI owed defense and indemnity to the general contractor premised upon an allegation of untimely disclaimer.

The Netherlands Court granted summary judgment in favor of USI, holding that it had disclaimed coverage within a reasonable time pursuant to § 3420, and that it had not waived its right to disclaim on the basis of an endorsement it had not referenced in its initial disclaimer.  The Court noted the timeline: Netherlands Insurance tendered to USI’s insured via a letter dated September 3, 2013, but postmarked October 29, 2013.   USI received the tender from their insured on November 26, 2013.  On December 27, 2013 USI denied coverage based on an Employee and Workers Compensation Exclusion.  The Court held that this time was more than reasonable, particularly given that the underlying complaint contained no allegations that the injured party was an employee of USI’s named insured, and therefore denial based upon the Employee Exclusion necessitated investigation.

Following its denial of coverage, USI raised as an affirmative defense an additional endorsement it had not previously relied on, the Specifically Covered Operations Endorsement.  Plaintiffs argued that reliance on that endorsement had been waived, but the Court disagreed, holding succinctly that “where the issue is the existence or nonexistence of coverage (e.g., the insuring clause and exclusions), the doctrine of waiver is simply inapplicable” because the endorsement “defines the scope of coverage in the first instance.”

Thus, while Netherlands does not provide a bright-line rule for an insurer’s response time, it does provide additional comfort in a reasonable, common-sense approach to review of an insurer’s timeline for investigation and provision of its substantive response.

Thanks to Vivian Turetsky for her contribution to this post.

Risk Transfer 101 – Contractual Additional Insured Terms (NJ)

Contractual risk transfer terms usually include indemnification and insurance clauses in tandem. A party agrees to indemnify another and, for good measure, agrees name the other in its insurance policy as an additional insured. New Jersey courts have recognized that this type of risk transfer will supersede any potential workers compensation bar to joining an employer in an action for injuries by a worker against a third party.

In Finnegan v. Inductotherm v. Greentree Food Management Inc. v. The Dunhour Insurance Agency, the full gamut of risk transfer issues played out.  The plaintiff cafeteria worker was injured in a slip and fall at work.  Greentree, the plaintiff’s employer, provided cafeteria services to Inductotherm, the building owner.

In addition to her worker’s compensation claim, the plaintiff sued Inductotherm. In turn, Inductothem brought a third-party action for breach of contract against the plaintiff’s employer, Greentree citing insurance terms requiring it to be named an additional insured.  (Curiously, there was no indemnification term.)  Greentree then filed a fourth party action against its insurance broker for professional malpractice for failing to obtain the appropriate coverage for Inductotherm.

At some point, Inductotherm settled with the plaintiff and pursued its defense and indemnification claims against Greentree.  After the trial court dismissed its claims, it turned to the appellate division.

Although the contract did not include an express indemnification term, it indisputably required the plaintiff’s employer to name it as an additional insured on its commercial general liability insurance policy. The parties did not contest that there was no such endorsement in the policy.  Thus, there really was no question as to breach of the contractual term.

Rather, the appellate division framed the question as to whether this breach resulted in damages to Inductotherm, i.e. if it had been named as an additional insured, would the policy have provided coverage for this particular claim. If so, it would have been entitled to defense and indemnification from the insurer. As a breaching party to the contract, the employer would be liable for these damages.

This ultimate question could not be answered on the basis of the record. As the court noted many additional insured endorsements contain terms that define or limit the scope of the coverage.  Without evidence of what sort of endorsement would have been provided, the appellate court could not render an opinion as to whether or what damages might be attributed to the breach of contract.  Given this, the matter was remanded for further development on these issues as well as the revival of what had been a dismissed claim as to the insurance broker.

Thanks to Ann Marie Murzin for her contribution.

For more information, contact Denise Fontana Ricci at dricci@wcmlaw.com.

 

1st Party Replacement Cost Reimbursement Must Wait For Completion of All Repairs (NJ)

The adjustment of a first party claim for property damage resulted in a curious dispute between the homeowner and its insurer. In Hall v. Cumberland Insurance, the dispute arose out of windstorm damage to plaintiff’s home.  The homeowner submitted a claim to Cumberland, and both retained independent adjusters to estimate the repair costs.  Both adjusters agreed that the roof needed replacement and portions of the home’s interior repaired.

Despite a dispute between the adjusters as to the replacement cost of the repairs, Hall agreed to the value placed by his insurer. Cumberland then deducted from the replacement cost depreciation and deductible.  The plaintiff signed a proof of loss, and his insurer issued a check for the balance.

Trouble came after the plaintiff had his roof repaired. At that point, he sought reimbursement for the replacement cost for just that component of his damages.  Based upon its policy language that would allow for such a payment but only after the actual repairs were complete for the damaged building, Cumberland declined.  Rather than completing all repairs and then seeking replacement cost reimbursement, the plaintiff filed suit.

The Court found that the homeowner’s policy was clear. The insurer was not required to make piecemeal payments each time a component of the home was repaired. Inasmuch as the plaintiff sought payment only for a portion of the adjusted repairs, the insurer had no obligation to make any further payment.

Both the lower court and appellate court took issue with the plaintiff’s lack of diligence in the litigation in general – missing deadlines and even failing to file opposition to Cumberland’s summary judgment motion. Only after the motion was granted did the plaintiff seek reconsideration.  This dilatory attitude after a premature turn to the courts over a dispute that was at best a total of $5,000 likely had an impact on the ultimate outcome of the decision.

Thanks to Sathima Jones for her contribution.

For more information, contact Denise Fontana Ricci at dricci@wcmlaw.com.

Failure to Call, as Trial Witness, Attorney Present at EUO results in award to Insured-Plaintiff (NY)

In Pierre J. Renelique MD, P.C. v Travelers Ins. Co., Kings County Civil Court recently examined whether a defendant-insurer owed first party benefits to a claimant, after the insurer disclaimed coverage due to a claimant’s failure to appear for an EUO.

The Court found that here, the defendant-insurer failed to prove that plaintiff’s assignor failed to attend the scheduled Examination Under Oath EUO.

At a bench trial in Kings County, the insurer-defendant contended that the assignor of the plaintiff, failed to attend any of the several scheduled Examinations Under Oath impeding their ability to investigate the matter.  In order to establish this defense, the defendant must have shown that not only were the EUO requests timely made to the assignor, but that the assignor failed to appear.  Each of these elements must be met by someone with personal knowledge.

Defendant produced as a witness, an attorney who oversaw EUO scheduling and the EUO process for the firm representing the defendant in this matter.  The attorney testified as to the office procedure regarding the scheduling of EUO’s and the procedure followed when an assignor failed to appear for an EUO.  The attorney testified that she mailed out each EUO request to the assignor according to office procedure and she based the requests upon attorney affirmations that the assignor failed to appear for the EUO.  The Court credited her testimony regarding the preparation and mailing of the letters scheduling the EUO but found that the witness had no personal knowledge of the assignor’s actual failure to appear.  Despite the fact that she testified that she reviewed affirmations from attorneys at the EUO who swore that assignor failed to appear, the Court found this failed to meet the threshold for personal knowledge.  Accordingly, Judgment was awarded in favor of the plaintiff.

The Court’s ruling demonstrates importance of laying a complete and proper foundation for establishing all the elements of the defense.  Had the defense called someone present at the EUO’s, or perhaps, produced a certified transcript of the EUO, documenting the assignor’s failure to appear, the insurer may have prevailed.  Thanks to Patrick Burns for his contribution to this post.  Please email Brian Gibbons with any questions.

Cyber Rules About to Get Real.

We have previously reported on NY’s onerous cyber rules. The rules go into effect by month’s end.

Specifically, n August 28, 2017, insurance companies that do business in NY will be obligated to institute policies and procedures that preserve and protect PII of clients, insureds, and other entities in accordance with 23 NYCRR §500 (et seq.). The rationale of the policy was explained by the Superintendent of the DFS:
Consumers must be confident that their sensitive nonpublic information is being protected and handled appropriately by the financial institutions that they are doing business with. DFS designed this groundbreaking proposed regulation on current principles and has built in the flexibility necessary to ensure that institutions can efficiently adapt to continued innovations and work to reduce vulnerabilities in their existing cybersecurity programs. Regulated entities will be held accountable and must annually certify compliance with this regulation by assessing their specific risk profiles and designing programs that vigorously address those risks.

Insurance companies, and other covered entities, are required to perform cybersecurity assessments in accordance with a written policy developed by the covered entity, that includes:
• An evaluation of encryption of data containing PII (both in transit and at-rest);
• The development of a Crisis Response Team (“CRT”) to respond to a breach;
• TFA or MFA;
• Identify and assess internal and external cybersecurity threats;
• Utilize defensive infrastructure in conjunction with appropriate policies and procedures to protect PII;
• Capability of detecting and responding to any intrusion;
• Ability to fulfill the statutorily required breach notification statutes.

Moreover, the regulations require a specific policy that regulates 14 different aspects of the covered entities operations. If this is not enough to develop specific in-house policies, the regulations also require that insurance companies ensure that other entities it does business with and transfers materials containing PII, to maintain and adhere to strict cybersecurity regulations that include a requirement for TFA, encryption, written policies, and periodic assessments of the efficacies and compliance to the policies. The insurance company is required to promulgate a policy for its third-party service providers that complies with the above requirements. If not, the insurance company may be held liable.

Furthermore, we note that this will soon be the policy in all 50 states. It is easier to implement these changes and requirements now as opposed to being forced to implement the policies at a rush and possibly not achieving full compliance.

Special thanks to Matt Care for his contributions to this post.

For more information about this post please e-mail Bob Cosgrove.

Unlicensed Use of Product Trademarks is not Personal and Advertising Injury

The Fifth Circuit recently ruled that the duty to defend “personal and advertising injury” did not extend to the unlicensed use of a product and trademarks.

In Laney Chiropractic v. Nationwide, Laney sued its insurer for a declaration of coverage after Nationwide refused to defend Laney against allegations of federal trademark infringement, false advertising, deceptive business practice, breach of contract and unfair competition arising out of Laney’s use of soft tissue massage techniques.  Nationwide had determined that the lawsuit lacked an advertising, trade dress or slogan claim and refused to cover the defense.

The Fifth Circuit reached its conclusion by reasoning that “[w]hen an insured is accused of using another’s product, they are generally not using another’s ‘advertising idea … because without more, taking and then advertising another’s product is different from taking another’s ‘advertising idea’. The court also did not accept that the false-advertising allegation that Laney’s website mimicked underlying plaintiff’s style of doing business constituted a trade dress claim. The court said trade dress protection is not designed for “patent-like rights” in innovative product designs, and “protects the distinctive look of the product, not the functional product itself.”

As creative an insured can be in seeking coverage, the underlying claim governs an insurer’s duty to defend.

Thanks to Hillary Ladov for her contribution to this post.