Category Archives: Insurance

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

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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 Savage then gave A.T. $593 in cash with the remaining payments to be withdrawn from Mr.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)

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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)

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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)

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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 .

 

Wrap Up Exclusion Ambiguity Renders Provision Null      

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A federal judge in the District Court of Connecticut issued a decision that should serve as a warning to insurers that policy provisions may be rendered useless if the terms are ambiguous by a “reasonable layperson.”

In Thompson v. National Union Fire Insurance Co. of Pittsburgh, PA., plaintiffs sought insurance coverage from National Union for the $13.5 million judgment awarded against National Union’s insured.  The underlying action involved an explosion at a natural gas power plant in 2010.

National Union disclaimed coverage based upon an endorsement that provided, “[t]his insurance does not apply to…any liability arising out of any project insured under a ‘wrap-up’ or similar rating plan,” arguing that the consolidated insurance program that the project was insured under was plainly the type of “wrap-up” program the endorsement specifically excluded from coverage.  The Court disagreed, holding that “[i]f defendant wanted to exclude coverage for any project that “involves” a wrap-up of is in any way affiliated with a consolidated insurance program, it should have explicitly included such limitations and defined the term “wrap-up.”  The Court found that while “insurance experts and attorneys” could familiarly discuss the meaning of ‘wrap-up’ or ‘rating plan’, the fact that a “reasonable layperson” would not understand the terms or their coverage implications was fatal, and meant that the ambiguity had to be resolved in favor of the insured and against the insurer.

This decision is a reminder that additional definitions, explanations and precision, particularly with respect to exclusions and endorsements, will benefit the insurers and the insureds, and may provide clarity as to questions of coverage.

Thanks to Vivian Turetsky for her contribution to this post.

Homeowners Policy Does Not Cover Home Renovations (PA)

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In Fazio v. State Farm Insurance, the US District Court for the E.D. Pennsylvania recently discussed an insured’s burden to prove a property damage claim falls within a policy’s coverage terms.  In this declaratory judgment action, the Fazios claimed that they suffered “sudden and accidental direct physical damage” to their property caused by wind, snow and ice. The Fazios sought to replace all of the stucco, most of the windows, and the dining room floor of their home.

In response to the initial claim, State Farm assigned an adjustor, who inspected the Property and determined that the policy covered a portion of the claimed loss and made a payment to the of $4,871.05. Shortly thereafter, the Fazios forwarded State Farm additional estimates totaling $85,275. State Farm assigned a specialist, who determined that an expert was necessary to determine the amount of damages attributable to the March 3, 2015 incident. The expert prepared a report of damages and causation, and State Farm issued a supplemental payment of $12,037.38 to the Fazios.

The State Farm policy at issue stated that the policy insures for accidental physical loss to property, but carved out exclusions to property damage arising from wear, deterioration, latent defect, settling, cracking shrinking, bulging, or expansions. Furthermore, the policy specifically stated that if a loss is aggravated or caused by defective design, construction, materials or maintenance, then the loss would not be covered.

While the Fazios contended that the damage was caused by moisture seeping through the stucco and windows into the interior of the home directly after a storm, State Farm’s expert reported that the stucco was installed at the Property in 2002, thirteen (13) years prior to the claimed date of loss on March 3, 2015. The expert concluded that moisture entering through the stucco at penetration points over time caused cracks and streaking.  These damages were not proximately caused by the storm but, rather, by the general condition of the stucco. In fact, planned restoration of the exterior stucco was in place prior to the most recent reported loss. The Fazios did not present any contrary evidence.

Although the Fazios claimed that fog and water on the windows of their home was caused by ice and water damming, the Court challenged the Fazios to provide proof that they were not just “old windows” that “just let the air and moisture in.” Citing the principle that an insurance policy is intended for restoration to pre-loss conditions and not for the opportunity to “remodel a home at the insurer’s expense,” the Court concluded that State Farm had sufficiently proven that it paid the entire amount owed to the Fazios under the terms of its policy and granted summary judgment to State Farm.

Thanks to Sathima Jones for her contribution.

For more information, contact Denise Fontana Ricci at

New Car Stacks UIM Coverage Unless Waived (PA)

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In Pergolese v. The Standard Fire Insurance Co., the Pennsylvania Superior Court was tasked with determining whether an insured was entitled to stacking of underinsured motorist benefits.  At issue was whether an added vehicle to a preexisting insurance policy provided coverage under its general terms or triggered that policy’s after-acquired vehicle provision.  The distinction was significant with respect to whether the insurer was required to obtain a new stacking waiver.

In the early 1990s, the Pergoleses purchased an auto insurance policy from Standard.  That policy contained a continuous after-acquired vehicle provision.  Over the years, the Pergoleses replaced and sometimes reduced the inventory of their vehicles. In May of 1996, the Pergoleses had four vehicles insured under their policy.  The Pergoleses also signed a rejection of stacked UIM in May of 1996 in relation to the policy.   In April of 1998, the Pergoleses contacted their insurance agent and requested insurance coverage for a vehicle that they were purchasing that day but did not yet own.  Their agent provided them with an insurance card for the vehicle and amended the Pergoleses’ auto insurance policy’s declaration page to include the new vehicle in addition to the three that were already covered under the policy.  Standard did not request a new waiver of stacked UIM coverage from the Pergoleses at that time.

In 2001, Mr. Pergolese suffered severe injuries when he was rear ended by a drunken driver.  He submitted a claim to Standard and asserted that he was entitled to stacked benefits. Standard denied the stacked benefits claim, and the Pergoleses filed a declaratory judgment action.  After discovery, the parties filed cross motions for summary judgment.  The court denied Standard’s and granted the Pergoleses’ motion.

The appellate court affirmed relying on its opinion in Bumbarger v. Peerless Indem. Ins. When an insured takes ownership of a vehicle and simultaneously informs his insurer of the new vehicle, the language and purpose of the after-acquired vehicle provision in the policy is never triggered.  An after-acquired vehicle provision merely extends existing coverage to a new vehicle until the insured notifies the insurer that he wishes to insure the new vehicle under his policy with the insurer. The after-acquired vehicle clause extends temporary, stop-gap coverage, thereby protecting the insured until the policy can be amended.  However, once an insured advises its insurer that an new auto is to be added,  the after-acquired vehicle provision is not applicable.  In such event, the Pennsylvania Supreme Court’s holding in Sackett v. Nationwide, 919 A.2d 194 (2007) (“Sacket I”) is controlling.  There the Supreme Court held that the addition of a new vehicle to an existing multi-vehicle policy constitutes a purchase for which the insurer must obtain a new waiver of stacked coverage.

Thanks to Marcus Washington for his contribution.

For more information, contact Denise Fontana Ricci at .

 

Court Spurns Request for Claims Reps’ Personnel Files While Compelling Underwriting Materials in DJ Action (PA)

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Underwriting manuals and files and claims professionals’ personnel files are guarded business records for any insurance company.  These proprietary and confidential documents were the subject of discovery demands in a declaratory judgment action involving denial of defense and indemnity to a law firm in a professional liability action.  In Westport Insurance Corp. v. Hippo Fleming & Pertile Law Offices, the federal court sitting in the Western District of Pennsylvania grappled with whether to compel production these sensitive documents.

The law firm contended that Westport’s coverage denial was made in bad faith and in breach of contract.  To establish its claims, it sought Westport’s underwriting manual and file.   The firm specifically sought information shared between claims and underwriting professionals in connection with an increase in premium tied to the underlying litigation. In opposition, Westport argued that the underwriting materials were irrelevant because there were no claims related to the underwriting of Hippo’s policy.

The court, however, found that although Hippo did not make any specific claims regarding the underwriting of its policy, the bad faith and breach of contract claims supported the discovery sought.  The firm pointed to premium increases imposed by the insurer that were related to the underlying litigation.  Given this allegation, the Court ruled that the underwriting files may be relevant and compelled production.

On the other hand, the Court was not inclined to order the insurer to produce personnel files of three claims adjusters who worked on Hippo’s underlying claim.  Hippo argued the personnel files would help Hippo establish Westport’s corporate policy, standards, training, procedures and relationship with its employees.  The court, however, did not believe Hippo’s reasoning for the request was sufficient to overcome the general privacy concerns when production of personnel files is at issue.  Rather, the court noted that Hippo could obtain the information it needed through other, less invasive means, e.g. depositions of the employees.

In making both of these discovery rulings, the court noted that the case law in both areas (production of underwriting files and personnel files) is murky at best.  Thus, the court reiterated that production of such information will depend on the specific facts and circumstances a on a case by case basis.

Thanks to Erin Connolly for her contribution.

For more information, contact Denise Fontana Ricci at .

Homeowner’s Replacement Cost only for Replacement (PA)

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In Brown v. Everett Cash Mutual Insurance Company, the Pennsylvania Superior Court found no basis for plaintiffs’ breach of contract and bad faith claims against a homeowner’s insurer on a first party claim.  Sabrina Brown and her father, William T. Scott, owned a farmhouse in Carmichaels, Pennsylvania.  Everett issued a homeowners policy to the named insureds, Brown and Scott.  In July 2007, the residence burned to the ground in a fire that qualified as a covered loss under the insurance policy.

In January 2008, Everett issued a check for the actual cash value of the house  as well as four months of living expenses totaling $1,800 based upon documentation provided by its insureds. Everett denied the insureds’ request for additional living expenses under the policy because the residence had not been rebuilt in a reasonable amount of time following the fire.

Under the policy terms, Everett was required to issue the reimbursement checks payable to both Brown and Scott. Scott refused to sign the check, and it expired 180 days after issuance. Everett ultimately reissued another check to Brown and Scott for the same amount.

Brown and her husband filed suit against Everett for breach of contract and bad faith (among other claims).  Specifically, Brown claimed that Everett breached the contract by only paying her the actual cash value of the house instead of the replacement value.  The policy provided that:

When the cost to repair or replace exceeds the lesser of $2,500 or 5% of the limit on the damaged building, we do not pay for more than the actual cash value of the loss until repair or replacement is completed.

Relying on this language, the Court determined that Brown was only entitled to replacement cost if she actually rebuilt the house, which she never did.  Brown argued that she needed the replacement cost money to rebuild the house.  The Court quickly dismissed this disingenuous argument based upon evidence in the record that the house had not been rebuilt due to a dispute between Brown and Scott rather than a lack of money.   Therefore, she was not entitled to the replacement cost.

 

Brown also argued that she was entitled to the full policy limit for additional living costs.  However, Brown provided proof of expenses for  only four months – which Everett had paid.  Thus, the Court held that Everett was not obligated to pay the full policy limits for additional living expenses.

Lastly, Brown argued that Everett acted in bad faith when it failed to issue separate checks to her and Scott.  However, Brown’s policy provided that insurance benefits are made directly to the insureds as they are identified on the Declarations page of the policy – in this case Brown and Scott.  Everett told Brown to have Scott give his written consent to allow two separate checks to be issued, however, Brown failed to do so.  Everett even offered to deposit the funds into court in an interpleader action so that Brown and Scott could determine their entitlement and again, Brown failed to act on this option.  Thus, the Court held that Brown’s bad faith claim lacked merit.

Thanks to Marcus Washington for his contribution.

For more information, contact Denise Fontana Ricci at .

Court of Appeals Examines “Occurrence” Skirmish (NY)

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Some consider insurance coverage law as exciting as watching paint dry on a basement wall.  Others approach the subject matter with enthusiasm, akin to delving into a spirited philosophical argument about the nature of truth, beauty, or excellence.

The understanding of the term “occurrence” in an insurance policy sometimes feels more like philosophy than law.  The subject may involve the exploration of temporal and spatial relationships, the unfortunate event test, and intervening agents and factors.

In Selective Ins Co of America v Rensselaer (COA), the New York’s Court of Appeals recently examined the definition and application of the term “occurrence” used in a police professional liability policy issued to the County of Rensselaer by Selective Insurance Company.   The Policy defined “occurrence” as “an event, including continuous or repeated exposure to substantially the same general harmful conditions, which results in …’personal injury’… by any person or organization arising out of the insured’s law enforcement duties.”  The policy went on to cite four specific examples that were “agreed to constitute one ‘occurrence’.” Of significance, the Policy also contained a deductible of $10,000 per occurrence, inclusive of legal fees and expenses.

In Selective, the County was faced with a class action involving about 800 class members arising out of the County’s policy of strip searching all people entering its jail regardless of the nature of the crimes alleged to have been committed.  The problem was the 2nd Circuit previously declared such policies unconstitutional.  Faced with such bad law, the County and its insurer Selective elected to settle the action for $1,000 per class member and $5,000 for the class representative.

After the settlement funds were paid by Selective, it demanded payment of the Policy’s deductible from the County and argued that the search of each class member was a separate occurrence.  Thus, according to Selective, the County was responsible for the entire indemnity payment of about $800,000 plus associated legal fees.  In response, the County countered that the entire action constituted a single occurrence and refused to pay more than a single $10,000 deductible.

The Court held that the claim of each separate class member constituted a single occurrence.  It emphasized that unambiguous provisions in an insurance policy should be given their plain and ordinary meaning and noted that “a court is not free to alter the contract to reflect its personal notions of fairness and equity.” A good omen for Selective.

The Court of Appeals enforced what it considered the “plain language” of the Selective policy:  the improper strip searches of arrestees over a four-year period constituted separate occurrences under the policy language.  The definition of an “occurrence” in the Policy covered personal injuries to an individual as a result of harmful conditions.  It did not permit the grouping of individuals unless that group was part of an organization.  Each strip search performed over a multi-year period harmed a specific arrestee as an individual and constituted a single occurrence.

The Selective case confirms New York’s reputation as a “pro-insurer” state. The Selective Court’s language should temper a lower court’s urge to re-write a plainly written policy provision.  The Selective decision also highlights the necessity of hammering out before a settlement is reached whether a civil suit involves one or multiple “occurrences,” particularly when a significant policy deductible applies.

If you have any questions, please contact Paul at .