Is the Independent Medical Exam Landscape about to Change in Pennsylvania?

The Pennsylvania Supreme Court has granted the Third Circuit’s petition for certification of a question of law that has puzzled insurers and their attorneys. The issue is whether an insurer can mandate that claimants undergo an unlimited number of medical exams by a doctor of the carrier’s choosing  — without a court order — before they can receive first-party medical benefits.

Insurance companies such as Allstate have been including contractual provisions in their motor vehicle insurance policies that requires insured to submit to independent medical examinations by a physician selected by the insurer, “when and as often as the insurer may reasonably require,” as a condition precedent to the payment of benefits. The problem is that these provisions may conflict with the Motor Vehicle Financial Responsibility Law (“MVFLR”), 75 Pa.C.S. Section 1796(a), which gives courts the authority to order such examinations.

In Sayles v. Allstate, U.S. District Judge A. Richard Caputo of the Middle District ruled that Allstate’s policy provision conflicted with the state MVFLR because the plain language of Section 1796 prohibits precisely this type of provision. The plaintiff in Sayles argued that Allstate violated the MVFLR because it never petitioned the court to compel the independent medical exam. Allstate argued that the MVFRL does not mandate a court order and it only suggests when a court may order a person to submit to an IME.  But there is no prohibition in the MVFLR that requires court intervention before an insurer requests medical examinations before paying 1st party benefits.

Once the Pennsylvania Supreme Court rules on this question of law, both auto insurers and insurance attorneys will know how to proceed with respect to independent medical examinations, and whether court intervention will be necessary in advance of every such examination.

Insurance Disputes Being Filed More Often in Federal Courts

Lex Machina, a LexisNexis company, announced the release of its first annual Insurance Litigation Report, which encompasses data on more than ninety-three thousand insurance cases pending in federal court since 2009. The Insurance Litigation Report showcases data and tends involving disputes between an insurer and a policyholder, a beneficiary, or another insurer asserting the rights of a policy holder. The report includes analytics from both the broad insurance data set as well as five common insurance types: Automobile, Homeowners, Life, Uninsured/Underinsured, and Business Liability.

The report shows that there has been a major increase in the numbers of filed federal insurance cases in the last several years. The report also confirmed that federal courts are far more likely to rule in favor of insurers than claimants. The two areas that had the biggest jump were automobile claims and homeowner claims. Automobile claims rose by thirty nine percent, uninsured/underinsured motorist claims rose by fifty percent, and homeowner’s claims rose by eighty percent. While claims are going up, insurers tend to be satisfied due to the insurer friendly outcomes in federal courts.

For instance, insurers were victorious in eighty-five percent of duty to indemnify cases and in eighty percent of duty to defend cases. However, if cases went to trial, claimant prevailed more than fifty five percent of the time. We suspect the federal courts offer “incentives” to both plaintiffs and defendants, since plaintiff’s appreciate the expedited nature of federal courts, whereas, insurer-defendants enjoy the “friendly confines” of stricter federal courts and statically more favorable outcomes.  Thanks to Melisa Buchowiec for her contribution to this post.  Please email Brian Gibbons with any questions.

Definition of “Premises” Defines Extent of Coverage (PA)

A Pennsylvania federal court recently decided whether a landlord’s insurer can shift a shopping center’s responsibility in a slip and fall case to a tenant’s insurer, in Liberty Mutual Insurance Co. v. Selective Insurance Co. of America, case number 2:16-cv-00759, U.S. District Court for the Eastern District of Pennsylvania.

In this case, the plaintiff was injured while tripping on an allegedly defective sidewalk outside of Business 21 Publishing LLC, a tenant of Stoney Creek Center.  The plaintiff, an employee of Business 21, ultimately sued Stoney Creek Center and received a confidential settlement.  Stoney Creek Center’s insurer sought reimbursement from Business 21’s insurer for costs associated with defense and settlement of the suit, believing it was an additional insured under its policy.

Business 21 held a liability policy that extended additional insured status to companies that owned and operated the shopping center for claims of bodily injury involving premises owned or used by Business 21.  Stoney Creek Center believed it was an additional insured under Business 21’s policy, taking the position that “premises” included both internal offices and outside common areas.

In deciding whether additional Stoney Creek Center is owed insured status, the court turned its focus on the meaning of the word “premises” as used in the additional insured endorsement of Business 21’s policy.  The judge decided that Business 21’s lease agreement with Stoney Creek Center defines the word “premises” and not the policy.  The judge ruled that the terms of the lease agreement make a clear distinction between Business 21’s internal office space and its right to use the outside common areas, demonstrating that Business 21 intended for “premises” to solely mean its internal offices and not outside common areas such as the walkways and parking lot, thus determining that there was no additional insured coverage owed.

Thanks to Chelsea Rendelman for her contribution to this post.

Insurers Win Battle against Stalled Litigation in Health Insurance Fraud Action (NY)

In State Farm Mutual Automobile Insurance Company v Mittal, No. 16-CV-4948 (FB) (SMG) (E.D.N.Y. June 25, 2018), State Farm alleged that defendants (various health care providers) engaged in a conspiracy to defraud insurance companies by issuing fraudulent bills and medical records.

After suit was filed, a dispute arose as to the order of depositions and it was ultimately decided that the insurer’s deposition would go first and defendants would follow thereafter. The insurer’s deposition went forward as scheduled but the defendants refused to move forward with their scheduled depositions.

Defendants’ attorneys notified State Farm’s counsel that their clients were under investigation by the New York State Attorney General’s office and sought a stay in the matter until the investigation ran its course, and filed a motion to enforce the stay. The Court initially granted the defendants permission to stay the depositions and then issued a decision on their motion.

U.S Magistrate Judge Steven M. Gold, denied defendant’s motion, finding that the circumstances weighed strongly against the issuance of a stay. The U.S. Court of Appeals for the Second Circuit laid out six factors it uses for district courts to exercise their discretion when deciding whether a related criminal action warrants issuance of a stay: 1) The extent to which the issues in the criminal case overlap with those in the civil case; 2) The status of the case, including whether the defendants have been indicted; 3) The private interests of the plaintiff’s in proceeding expeditiously weighed against the prejudice to the plaintiff’s caused by the delay; 4) The private interests of and burden on the defendants; 5) The interests of the courts; and 6) the public interest.

The court decided that the first factor slightly weighed in favor of the defendants due to the overlapping of issues in the potential criminal case and the civil case. The second factor weighed “heavily against issuing a stay.” In the instant case the investigation cited by the defendants was a search warrant not an indictment and no charges had been brought against the defendants. The court also found that the third factor supported denying the stay as there was no gauging how long the criminal investigation would last and “the potential delay could be years, even before an indictment is returned.” The judge also noted that assets that might be available to satisfy a judgment would be moved or depleted while the case was stayed.

The fourth factor slightly favored the stay as the Court acknowledged that the defendants’ concerns about self-incrimination during the deposition was valid however in this situation there was no activity regarding the criminal investigation for around a year and there was no reason to think that criminal prosecution was inevitable.

The fifth factor supported denying the stay as the court has an interest in advancing the docket and avoiding delay.  Lastly, the sixth factor of public interest strongly favored denying the stay. The court stated that this case could affect “hundreds of thousands of dollars of potentially fraudulent claims.” Moreover, the Court stated that defendants had imposed substantial costs on the insurer that undoubtedly had been passed on to consumers in the form of higher premiums.

Overall, the Court found that the defendant health care providers had not met their collective burden is showing that a stay was necessary and appropriate.  Thus, State Farm is now permitted to depose the defendants.  One expected there may be some invocation of 5th Amendment privilege, is the criminal investigation is ongoing. Stay tuned.  Thanks to Jon Avolia for his contribution to this post.  Please contact Brian Gibbons (on Twitter @bgibbons35) with any questions.

Indemnification Necessary Despite Procuring Insurance

A contractor providing insurance to an owner that includes a provision that the policy will be primary may think he has already prevented exposure from any indemnification clause in their contract with the owner as the owner has already been made whole from future liability.  However, the underlying contract language may include additional clauses that render the procuring of liability insurance as a separate and unrelated obligation from the obligation to indemnify and hold harmless.  Thus, owners, even with procured insurance from a contractor, may still seek indemnification, even from the party that provided the original insurance.

According to New York State Department of Transportation v. North Star Painting Company, Inc., 2018 WL 3321495, 2018 N.Y. Slip Op. 05087 (4th Dep’t July 6, 2018) a contractor that procures a policy with a “policy as primary” clause was ruled to have not discharged its duty to provide indemnification, and thus, a conditional order for indemnification of an owner by the contractor who already provided an insuring policy was upheld.

In North Star Painting, Inc., a contractor to the State of New York Department of Transportation agreed to indemnify and hold harmless the State of New York from claims resulting from the work stated in the contract.  However, the contract further required the contractor to procure an owners and contractors protective liability (OPCL) policy to insure the State of New York.  Within the policy procured by the contractor, the coverage under the OCPL policy was to be primary and, further, the insurer would not seek contribution from other insurance available to plaintiff.  As the policy provides primary coverage, one would think that the procuring of insurance has already fulfilled the indemnification obligations of the contractor.

However, such a policy does not prevent an owner from still seeking indemnification when the underlying contract specifically exempts the procuring of insurance from fulfilling or discharging the indemnification requirement.  In North Star Painting, Inc., the  underlying contract included a clause that the indemnification and hold harmless clauses shall not “be deemed limited or discharged by the enumeration or procurement of any insurance for liability for damages imposed by law” upon the contractor.

When complete, clear and unambiguous, a contract must be enforced according to its plain meaning. The Court determined that the clause prevented the procurement of insurance by the contractor as a means to have already fulfilled or discharged their obligation to indemnify the owner.  As such, the Court found that NYSDOT was entitled to the conditional order of contractual and common-law indemnification against the contractor.

As this case demonstrates, there is nuance between the procurement of insurance and indemnification.  Even when one procures insurance for the other party in the contract, and even as per the contract, one may still be potentially separately obligated for indemnification.  Therefore, experienced counsel should be consulted regarding how to diminish or prevent an entity’s additional exposure through indemnification even when an insurance policy has already been procured for the other contracting party.

Thanks to Jonathan J. Pincus for his contribution to this post.

Theft of Human Hair Weaves Legal Analysis

Recently, in an unpublished opinion, a New Jersey appellate court in the case of Beauty Plus Trading Co. Inc. v. National Union Fire Insurance Co. of Pittsburgh, considered whether an insurance policy’s “loading and unloading” provision precluded coverage to an insured for damages arising out of a theft of a shipment of human hair weaves.

The insured received its goods on a Friday evening, but decided not to unload the container of goods until the following Monday.  Instead of unloading, the insured’s staff Beauty Plus Trading Co. Inc. v. National Union Fire Insurance Co. of Pittsburgh cut the container’s seal and left it on the loading bay outside of the warehouse.  The following night, an individual stole the container housing over $283,000 worth of human hair weaves.

The policy contained a “loading and unloading” section which provided coverage for the insured’s goods for 24-hours after the company received a shipment.  In this case, the insured received a shipment at 5:00 p.m. on a Friday evening and the theft took place at 9:00 p.m. the following Saturday night.  According to the policy, the goods were insured until 5:00 p.m. on Saturday.

The insured tried to argue that coverage under the loading and unloading provision should have been extended through the following Monday under the so-called “business day” rule. This rule states that where a party’s time to perform its obligations under an insurance policy expires on a weekend or holiday, it is entitled to push the deadline to fulfill those obligations to the next business day.  Here, the policyholder argued that the rule should have applied because it did not receive the goods for unloading until the end of the day on Friday.  The judge, however, found that the rule was inapplicable. The loading and unloading provision did not require the insured to unload the goods or perform any obligation during the 24-hours of coverage and the insured could leave the goods in the container as it chose to do. The court found that the plain terms of the policy precluded coverage for this loss.

Thanks to Chelsea Rendelman for her contribution to this post

SDNY Dismisses DJ Action for Death Benefits due to ERISA Preemption (NY)

In Saini v Cigna Life Insurance Company of New York, plaintiff’s husband drowned in the pool of the apartment complex where they lived.  Plaintiff sought coverage from CIGNA for benefits under her deceased husband’s group accident policy, which CIGNA had issued to his late employer. However, in investigation of plaintiff’s claim’s, CIGNA’s expert found that plaintiff’s husband suffered a medical event prior to drowning, and “suffered an acute medical event that resulted in a sudden cardiac death prior to being found face down in the water.”

In turn, CIGNA denied plaintiff’s claim citing an exclusion from coverage in the policy that stated, “Benefits will not be paid for any covered injury or covered loss which, directly or indirectly, in whole or in part, is caused by or results from any of the following: Sickness, disease, bodily or mental infirmity, bacterial or viral infection or medical or surgical treatment thereof…”

Plaintiff filed a complaint to include causes of action under declaratory relief and equitable relief under ERISA (Sections 501(a)(1)(B), 501(a)(3)) and damages under New York Law (Section 2601 of the NYSIL and Section 349 of the GBL). CIGNA moved to dismiss plaintiff’s state law claims.

Judge Katherine Polk Failla, United States District Southern District of New York, granted CIGNA’s motion to dismiss the state law claims. First, plaintiff’s claims under NYSIL § 2601 were denied as the law specifically authorizes the New York Superintendent of Financial Services to bring a civil action to recover a money judgment as a penalty for any violation of the New York Insurance Law. Id. § 109(d). Plaintiff’s claims under this section were dismissed as New York Courts have made it clear that § 2601 does not create a private right of action.

Additionally, Judge Failla dismissed plaintiff’s state claims under GBL § 349 as the civil enforcement scheme under ERISA “completely preempts any state-law cause of action that duplicates, supplements, or supplants an ERISA remedy.” In the 2nd Circuit, such a claim is preempted if it is “brought (i) by an individual who at some point in time, could have brought his claim under ERISA § 502(a)(1)(B) and (ii) under circumstances in which ‘there is no other independent legal duty that is implicated by a defendant’s actions.’” The first prong entails a two-part inquiry, under which a court considers (i) whether the plaintiff is the type of party that can bring a claim pursuant to § 502(a)(1)(B), and (ii) “whether the actual claim that the plaintiff asserts can be construed as a colorable claim for benefits pursuant to § 502(a)(1)(B).”  Judge Failla stated that within this framework, ERISA preempts plaintiff’s GBL § 349 claim.

The Court is silent was to whether plaintiff had retained an expert to rebut CIGNA’s determination of a cardiac event, as opposed to accidental drowning, which could have potentially altered the Court’s decision on CIGNA’s coverage determination.  But given the broad language of the exclusion, we suspect the coverage determination would stand, regardless of a potential rebuttal expert’s conclusions.   Thanks to Jonathan Avolio for his contribution to this claim.  Please email Brian Gibbons with any questions.

Employee Thefts Constitute Single Occurrence Under Policy Language (PA)

Link

The Eastern District of Pennsylvania recently ruled that an insurer did not need to pay more than its single occurrence policy limit in connection with a $3 million employee theft claim.  In Wescott Electric Company v. Cincinnati Insurance Company, the Court granted Cincinnati Insurance Company’s (“Cincinnati”) motion to dismiss the claims brought against it for its failure to provide additional coverage.

This lawsuit was initiated by Wescott Electric Company (“Wescott”) after a Wescott employee stole almost $3 million from the company between 2003 and 2013.  During the relevant period, Wescott had four consecutive insurance policies from Cincinnati.  Each policy lasted for three years with the fourth policy beginning in 2013.  Importantly, the employee’s theft was discovered during the policy period of the fourth policy.  As a result, Cincinnati paid Wescott the policy limit of $100,000 for a single “occurrence” of employee theft.

Wescott’s breach of contract claim against Cincinnati was two-fold.  First, Wescott argued that it was entitled to coverage under the 2013 policy as well as under the 2010 policy.  Second, Wescott argued that the employee’s theft constituted more than one “occurrence” under either the 2010 or 2013 policy.  In response, Cincinnati filed a motion to dismiss.  The Court ruled in Cincinnati’s favor, stating that Wescott was only entitled to coverage for a single “occurrence” of employee theft under the 2013 insurance policy.

The Court reached its conclusion in two separate steps.  First, the Court determined that only the 2013 policy provided coverage to Wescott because the theft was not discovered until after the 2010 policy ended.  In reaching its decision, the Court flatly disagreed with Wescott’s request to rewrite its 2010 policy to expand the period of coverage.

By way of background, the four consecutive insurance policies did not contain uniform language.  Specifically, the policies issued in 2004 and 2007 stated that Cincinnati “will pay only for covered loss discovered no later than one year from the end of the policy period.”   These policies ended in 2007 and 2010, respectively, and the employee’s theft was not discovered until 2013.  Thus, neither the 2004 or 2007 policies provided Wescott with coverage.  Significantly, the 2010 and 2013 policies contained more limited discovery language.  These policies stated that Cincinnati’s coverage only applied to losses which were discovered by Wescott during the policy period, rather than one year from the end of the policy period as in the 2004 and 2007 policies.

Essentially, Wescott requested that the Court rewrite the 2010 policy to include the larger, one-year discovery window found in its 2004 and 2007 policies.  Wescott argued that it reasonably expected the 2010 policy to contain the same one-year discovery window as the former policies and was not put on notice of the change.  The Court disagreed with Wescott’s position, finding that its contention was insufficient to rewrite the 2010 policy.  In so finding, the Court emphasized a “Notice to Policyholders” issued by Cincinnati in 2008 that announced the change in discovery-based coverage.

Furthermore, the Court referenced Standard Venetian Blind Company v. American Empire Insurance Company when explaining that because the exclusions in the policy were clearly worded and conspicuously displayed, the insured could not avoid their enforcement simply by arguing that he failed to read or did not understand them.  Applying the case to the instant matter, the Court determined that the Cincinnati discovery period language was far more “conspicuously displayed” than even the language in Standard Venetian.  The Court also pointed out that the discovery period language was the very first paragraph of the “Commercial Crime Coverage Form.”

Second, the Court determined that only one “occurrence” of employee theft had transpired under the 2013 policy.  In reaching its conclusion, the Court mainly relied on the plain meaning of “occurrence” found in the definition section of the “Commercial Crime Coverage Form.”  Specifically, the Court found the language in the definition to be unambiguous and stated that the employee’s “series of acts” in stealing from Wescott qualified as a single “occurrence” because they were “committed” by a single employee both before and during the relevant policy period.  Therefore, the Court concluded that the definition limits the amount of coverage for all thefts occurring during the 2013 policy period to $100,000.

Thanks to Zhanna Dubinsky for her contribution for this post.  Please write to Vito A. Pinto for further information.

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.