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


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

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.

Insured’s Word of Cash Payment for Policy Premium Not Good Enough (NJ)

In Wayne Savage v. Progressive Insurance, the plaintiff, Wayne Savage, found out firsthand the value of keeping a receipt. On 12/10/13, Mr. Savage went to Rallye Motors to purchase insurance for his car.  He spoke with a gentleman identified as A.T.  A.T. contacted Progressive, which provided a quote for Mr. Savage in the amount of $2700 to be paid in installments after an initial payment of $593.  Mr. Savage then gave A.T. $593 in cash with the remaining payments to be withdrawn from Mr. Savage’s bank account electronically.  Mr. Savage subsequently received a “welcome package” from Progressive in the mail.  The package contained an application for insurance.  The application stated that the policy term was 12/10/13 to 6/10/14 with a total premium of $2967 to be paid in five installments.  The application also provided that this first payment would be made with funds transferred from Mr. Savage’s bank account.  Mr. Savage read only the first page of the mailing and did not follow through with authorization for the direct funds transfer.

On 1/8/14, Mr. Savage was involved in a car accident.  The police officer that responded to the accident contacted Progressive to ensure that Mr. Savage had coverage.  The officer was informed that Mr. Savage did not have coverage, and the officer subsequently issued Mr. Savage a ticket.  Mr. Savage then filed suit against Progressive under the Consumer Fraud Act based on Progressive’s alleged wrongful rescission of an automobile policy.  Following a bench trial, a verdict was rendered in favor of Progressive.  On appeal Mr. Savage argued that the trial court erred because (1) he made his initial payment to Progressive and (2) Progressive failed to cancel his policy in accordance with N.J.S.A. 17:29C-10.

In regard to his first issue, Mr. Savage argued that his payment to A.T. and his receipt of the “welcome package” was verification that he paid the first installment and had a valid policy.  The court rejected these arguments because Mr. Savage provided no evidence besides his own testimony that he made the payment to A.T as he had not retained his payment receipt.  Second, Mr. Savage admitted that he only read the first page of the “welcome package” and did not read the remaining pages that explicitly stated that the first payment would be transferred from his bank account. On the other hand, Progressive provided testimony that it did not accept cash payments.  Progressive tried to transfer the funds electronically but the transfer was declined by Mr. Savage’s bank.

In turning to Mr. Savage’s last issue, the court held as an initial matter that N.J.S.A. 17:29C-10 did not apply because the issue was one for recession rather than cancellation of a policy.  Thus, the court held that an insurer is within its right to declare a policy void from inception if the initial payment is never received.  However, the court nonetheless stated that had this been a cancellation of a policy, Progressive would have still been incompliance with N.J.S.A. 17:29C-10, which provides in pertinent part that:

“No written notice of cancellation or of intention not to renew sent by an insurer to an insured in accordance with the provisions of an automobile insurance policy shall be effective unless… at the time of the mailing of said notice, by regular mail, the insurer has obtained from the Post Office Department a date stamped proof of mailing showing the name and address of the insured and the insurer has retained a duplicate copy of the mailed notice which is certified to be a true copy.”

Progressive produced evidence that it mailed a recession notice to Mr. Savage on 12/16/13 and that it also retained a duplicate copy. Therefore, it satisfied the requirements of N.J.S.A. 17:29C-10.

Thanks to Marcus Washington for his contribution.

For more information, contact Denise Fontana Ricci at

No Flood Insurance… No Flood Coverage (NJ)

Risk transfer is only available if the transfer occurs before the risk becomes reality. Unfortunately for many, the recognition that there is a risk only comes after reality. Insurance brokers who deal in that risk transfer transaction are uniquely situated to bridge that gap. But exactly what can or should a broker do to ensure that a client understands the risk and purchases the proper insurance? In Satec, Inc. v. The Hanover Group, the plaintiff property owner appreciated the risk too late, but the court did not buy that its broker or insurer was to blame.

Satec, Inc. owned property with a warehouse and business offices in a New Jersey flood zone. It consulted with an independent insurance broker, who obtained a proposal for property coverage from Citizens Insurance, a subsidiary of Hanover Insurance. Along with the proposal, the broker provided a letter with a recommendation that Satec carefully review the limits and, in particular, consider additional coverage. Significantly, the optional coverage included flood and earthquake coverage that was otherwise explicitly excluded from the property coverage in the proposal. Satec accepted the proposal without any additional coverage.

Over the next four years, Satec renewed the policy annually. Before each renewal, the broker sent Satec a letter advising of the availability of flood and earthquake insurance, and Satec opted to renew the policy without this coverage.

Of course, the inevitable happened when Hurricane Irene struck New Jersey. The property flooded with a resulting $2.3 million in damages. Satec filed a claim with Hanover that was denied as explicitly excluded by the policy.

Satec then filed a complaint against Centric, Hanover, and Citizens. Satec alleged, among other things, a breach of contract, negligence, and professional malpractice. Upon the closing of discovery all defendants moved for summary judgment and, after precluding Satec’s expert’s testimony and opinion, the trial court granted the motion as to all defendants. On appeal Satec argued that (1) an insurance broker owes a fiduciary duty to advise the insured and no expert is needed to establish that the defendants breached this duty; (2) Satec’s expert opinion was valid; and (3) Hanover should be vicariously liable for the negligence of the independent broker, Centric.

The appellate court acknowledged that an insurance broker does owe a duty to his principal to exercise diligence in obtaining coverage in the area his principal seeks to be protected. However, expert opinion is generally needed to establish a breach of this duty. Satec’s expert, while he was able to articulate a broker’s duty of care, failed to site any authority or industry standards beyond his personal experience; thus, rendering his opinion inadmissible.

The court was not persuaded that the plaintiff could sustain the broker malpractice claim on the basis of common knowledge. This doctrine applies where “jurors’ common knowledge as lay persons is sufficient to enable them, using ordinary understanding and experience, to determine a defendant’s negligence without the benefit of specialized knowledge of experts.” Rather, the court found that the field of insurance brokerage is beyond the ken of the average juror, and, thus, expert testimony is necessary.

Satec also argued that the insurer should be vicariously liable for the failings of the broker based upon agency principles. Under this theory, it sought to impute any negligence of the broker in failing to properly assess and advise of its flood insurance needs. Significantly, the broker was an independent of the insurer and not an agent. New Jersey has long recognized that an independent broker’s actions are not imputed to an insurer. Basically, when an independent broker is making recommendations to a client, he is acting on behalf of that client, not the insurance companies.

Thanks to Marcus Washington for his contribution.

 For more information, contact Denise Fontana Ricci at


A Policy Limit is a Policy Limit (NJ)

In 2012, Superstorm Sandy caused millions of dollars in damages to residential and commercial property owners on the Jersey Shore.  Five years later, some claims are still making their way through the Courts.  The New Jersey Supreme Court granted certiorari in Oxford Realty Group Cedar v. Travelers Excess and Surplus Lines Company to interpret an insurance policy at issue in one of the Sandy claims involving flood limits coverage and debris removal coverage.

The plaintiff, a Jersey Shore apartment complex located in a flood zone, was insured by Travelers for property coverage with a $1,000,000 limitation for a flood occurrence.  Travelers paid plaintiff’s $1 million claim – the full policy flood limit.  However, plaintiff sought additional coverage for $207,961.28 of storm-related debris removal costs pursuant to the policy’s Property Coverage Form.  Travelers denied this additional claim, and litigation ensued.

The Trial Court granted partial summary judgment in favor of Travelers finding that there was no ambiguity in the flood coverage language or the terms of the debris removal coverage.  While the Court acknowledged that the policy appeared to allow additional debris removal coverage, it concluded that, “the general condition that the debris removal is an additional coverage [that] must yield to the specific term in the Supplemental Coverage Declarations that the [$1,000,000] coverage [which] applies to ‘all losses’ caused by flood.” In a subsequent motion, the Court granted summary judgment in favor of Travelers on the remaining issues and dismissed the action in its entirety.  Plaintiff appealed.

The Appellate Division reversed the Trial Court finding coverage for plaintiff’s storm-related debris removal costs.  The Appellate Division agreed with the Trial Court that the flood coverage and debris removal coverage were unambiguous. However, the panel ultimately concluded that the policy entitled plaintiff to a maximum of $500,000 for debris removal coverage in addition to the $1 million Flood Limits.  It held that the $1 million limitation in the Supplemental Coverage Declarations applied to insured “buildings” rather than insured “occurrences.”  On the other hand, the Court found that debris removal coverage applied to all “Covered Property,” not just plaintiff’s  buildings.  The Court interpreted the policy’s Flood Endorsement to apply “only to loss or damage to covered property caused by flood, meaning Oxford’s building” [Emphasis added].  Therefore, the Appellate Division awarded plaintiff the $207,961.28 for storm-related debris removal costs reversing the Trial Court.  Travelers appealed.

Writing for a majority of the Court, Justice Fernandez-Vina held that the policy’s sublimit for debris removal coverage could not be interpreted as a self-contained policy provision separate and apart from the policy’s $1,000,000 flood limit.  Once the Court decided the terms of the Policy were unambiguous, plaintiff’s reasonable expectations argument failed.  This rule of contract construction is also known as verba fortius accipiuntur contra proferentem roughly translated that every presumption is construed against the drafter.  In upholding the policy’s $1 million flood Limit in favor of  the insurer, the New Jersey Supreme Court took the position that the contra proferentem rule is a “doctrine of last resort” when interpreting terms of a policy of insurance.  “If the language is clear, that is the end of the inquiry.”  In addition, the Court explained that “sophisticated commercial insureds … do not receive the benefit of having contractual ambiguities construed against the insurer.”

Thanks to Ann Marie Murzin for her contribution.

For more information, contact Denise Fontana Ricci at


Property Damage Claim Goes Up In Smoke (NY)

The question of whether the contents of a disclaimer letter could limit an insurer in a later denial of a property damage claim was addressed recently by the Second Department in Swanson v. Allstate.  Therein, the court determined that an insurer does not waive its right to rely on an exclusion in the policy if that exclusion was not cited in the initial disclaimer letter.

 Swanson owned commercial property that was vacant for six months before a fire damaged the building.  Swanson made a claim for loss with its carrier, Allstate.  Allstate’s initial disclaimer letter failed cite to the policy’s “vandalism” exclusion that excluded fire damages if caused by vandalism in a building left vacate for more than 90 consecutive days.  Based upon the town fire investigator’s report, the fire was intentionally set, and the owner had admitted to the vacancy in excess of 90 days. 

A lower court denied Allstate’s summary judgment motion finding that the exclusion was waived under Insurance Law 3420(d) because it was not mentioned in the disclaimer letter.   However, the Second Department reversed finding that Section 3420(d) only applied to claims involving death and bodily injury, and hence, not applicable to a pure property damage claim.

Thanks to Georgia Coats for her contribution.

For more information, contact Denise Fontana Ricci at