Category Archives: Insurance

NJ Court Dismisses Complaint against LoJack and Enforces Arbitration Clause

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Plaintiff Tracey Perez disregarded a clear arbitration provision in a contract with defendant Leonard Automotive Enterprises, to his own eventual detriment. In Perez v. Leonard Automotive Enterprises, plaintiff purchased a vehicle with a LoJack Stolen Vehicle System from Toyota. As part of the purchase, plaintiff signed a Retail Installment Sales Contract which contained a privision, to wit, disputes between the parties would be resolved through arbitration.

Sometime after the purchase, the vehicle was stolen and totaled after being involved in a fire. Plaintiff filed a complaint against defendant alleging that it failed to install and activate the LoJack Stolen Vehicle System. Defendant filed a motion to dismiss the complaint seeking to enforce the binding arbitration provision within the contract. Plaintiff opposed the motion with allegations that the arbitration provision was invalid.

The Court determined that the arbitration provision was enforceable and will “pass muster when phrased in plain language that is understandable to the reasonable consumer.” The court pointed out that the arbitration provision was immediately above the signature block on the first page of the contract and would be impossible to miss. Additionally, the court found that the arbitration provision was prefaced with a large warning in bold, capital letters that stated: PLEASE REVIEW – IMPORTANT – AFFECTS YOUR LEGAL RIGHTS.

The arbitration provision was not buried within an obscure document, but clearly and conspicuously set apart from the rest of the contract on its own page with specific directions right above the signature page.  The court found that the consumer should have read the full provision carefully before signing the document. As such, the court dismissed plaintiff’s complaint with prejudice and granted defendant’s motion to compel arbitration. Thanks to Steve Kim for his contribution to this post.  Please email Brian Gibbons with any questions.

 

This and That by Dennis Wade

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When President Trump put forward 10th Circuit Judge Neil Gorsuch for the top court, the media, understandably, took sides, for and against the nomination. The only point of agreement was that Judge Gorsuch is a graceful writer.

In Western World Insurance Company v Markel American Insurance, a garden variety coverage dispute involving apportionment of loss between two insurers who both wrote CGL coverage for the Bricktown Haunted House in Oklahoma City, Judge Gorsuch opened his opinion (and foreshadowed his conclusion) as follows:

Haunted houses may be full of ghosts, goblins, and guillotines, but it’s their more prosaic features that pose the real danger. Tyler Hodges found that out when an evening shift working the ticket booth ended with him plummeting down an elevator shaft. But as these things go, this case no longer involves Mr. Hodges. Years ago he recovered from his injuries, received a settlement, and moved on. This lingering specter of a lawsuit concerns only two insurance companies and who must foot the bill. And at the end of it all, we find, there is no escape for either of them.

In brief, the District Court ruled that Markel properly invoked its “other insurance” escape clause to avoid paying anything toward the defense and indemnity of the Haunted House. Western World (which did defend and indemnify the insured) appealed, contending that Markel’s escape clause was buried in an endorsement modifying the definition of WHO IS AN INSURED, and thus was ambiguous and contrary to Oklahoma’s reasonable expectations doctrine. Judge Gorsuch agreed, yet in his ruling, Judge Gorsuch, gracefully, gave Markel its due:

We must and do readily concede Markel’s complaint that the reasonable expectation doctrine tends to disfavor insurers, that it places a thumb on the scale of the insured seeking coverage. But some ambiguity-resolving rule of decision is necessary. And the Oklahoma Supreme Court has adopted the rule it has because, often enough in its view, “[i]nsurance contracts are contracts of adhesion” forced by insurers on insureds with inferior bargaining power…. Neither may we, obliged to apply state law in this diversity action, rightly do anything other than faithfully follow that state policy direction.

So, it seems, whatever lines are drawn in the confirmation battle, no fault line exists in Judge Gorsuch’s prose. And that’s it for this This and That. If you have any comments about this post, please call or email Dennis.

Insured’s Declaratory Judgment Goes Up In Flames (PA)

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The Eastern District of PA recently awarded summary judgment to an insurer, as well as $25,000 in damages, for an insured’s material misrepresentation in his insurance application in the case Payne v. Allstate Insurance Co..

On December 31, 2009, the insured, Payne, entered into a homeowner’s insurance agreement with Allstate Insurance Company (“Allstate”) to insure his home located in Philadelphia, PA.  As a prerequisite to obtaining the insurance agreement, Payne had to fill out an insurance application.  On the application, Allstate specifically asked Payne whether he used any alternative or supplemental heating source in his home.  Payne answered “no.”

Unsurprisingly, on February 9, 2010, Payne’s home caught fire.  Thereafter, Payne filed a claim with Allstate.  As part of its claim investigation, Allstate requested that Payne submit to an examination under oath.  During the examination, Payne admitted to using kerosene heaters in the home and that the kerosene heaters may have started the fire.  After the examination, Allstate denied Payne’s claim leading to a declaratory judgment action.  Allstate counterclaimed, suing Payne for breach of contract, breach of common law duty of good faith, and insurance fraud.  Both parties filed motions for summary judgment on the issues.

Upon review, the court found that Payne made a material misrepresentation when he failed to disclose that he used kerosene heaters, an alternative or supplemental heating source, on his insurance application.  Specifically, the court stated that the misrepresentation was material because whether Payne used alternative sources of heat was pertinent to the risk at issue in this case: fire.  Because of Payne’s material misrepresentation regarding the use of an alternative heat source in the house, the court granted summary judgment as to Allstate’s claims for breach of contract, breach of common law duty of good faith, and insurance fraud.  The court also awarded Allstate $25,000 in damages.  Likewise, because of Payne’s material misrepresentation, the court dismissed Payne’s breach of contract claim against Allstate with prejudice.

Thanks to Erin Connolly for her contribution.

For more information, contact Denise Fontana Ricci at .

 

Faulty Workmanship Is Not An Occurrence (PA)

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Construction defect claims raise insurance coverage questions when the damages sought are essentially for the work of the insured.  A federal court judge in the Eastern District of Pennsylvania recently ruled that an insurer had no duty to provide coverage or defend its insured, a contractor, for its negligent roof installation.

The case State Farm Fire and Casualty Co. v. Kim’s Asia Construction, stemmed from an underlying lawsuit filed by Powerline Imports, Inc. alleged that the State Farm’s insured, Kim’s Asia Construction negligently installed a new roof that leaked during minor rain storms. Kim’s Asia sought defense and indemnification from State Farm for the claim.

State Farm began defending Kim Asia’s under a reservation of rights but subsequently filed a declaratory judgment action.  State Farm argued that the underlying complaint essentially amounted to a claim of property damage based on faulty workmanship against its insured and that allegations of negligence against the insured did not bring the action within the scope of coverage. The court agreed with State Farm, ruling that State Farm had no duty to defend or indemnify Kim’s Asia under the policy.

The court cited the well-established four corners rule namely that “an insurer’s duties under an insurance policy are triggered by the language of the complaint against the insured.” See Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888, 896 (Pa. 2006). In comparing the four corners of the underlying complaint to the insurance policy, the court held that leaks that arose from the contactor’s negligent installation of the roof were not entitled to defense or indemnity under the policy. Although Kim’s Asia argued that the leaks arose from alternative sources and were based upon claims of negligence, the analysis of the underlying complaint did not contain a causal nexus between the property damage and a fortuitous event, as required by the policy. The court, parsing the language of the complaint, arrived at the conclusion that the only claim alleged within the underlying complaint was faulty workmanship which does not qualify as an occurrence under the policy.

Thanks to Sathima Jones for her contribution.

For more information, contact Denise Fontana Ricci at .

Going to Need a Bigger Boat? Will Cyber Rules Finally Impact Insurers and Their Vendors (Like Lawyers)?

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You might have noticed that cybersecurity issues are a little bit in the news these days. But, we’re not here to talk about Russian spies influencing US presidential elections (although that would be an interesting discussion). Rather, we’re here to talk about boring NY bureaucrats, who have just promulgated (for comment) 23 NYCRR 500, CYBERSECURITY REQUIREMENTS FOR FINANCIAL SERVICES COMPANIES that is set to go into effect on January 1, 2017 (yes, that’s less than 3 months from now). The proposed regulation is currently in its comment period and, if adopted, will apply to insurers who do more than $5,000,000 in gross revenue and are regulated by the NY Department of Financial Services. It will also likely serve as the blueprint for other states across the country. So what does the regulation propose to do?

Basically, to prevent and mitigate a “cybersecurity event”, i.e. an act or attempt, successful or unsuccessful, to gain unauthorized access to, disrupt or misuse an information system, a regulated entity (like an insurance company) is obligated to ensure that non-public information (like names, dates of birth and social security numbers) are protected. To do that, you must:

(1) develop and implement a cybersecurity program that includes penetration testing, vulnerability assessments, an audit trail system, access privilege limitations, application security, risk assessments, a data retention policy, encryption of nonpublic information and an incident response plan;

(2) develop and implement a cybersecurity policy that includes training and monitoring;

(3) have a chief information security officer (and other personnel); and

(4) have a third-party information security policy that will apply to all third-parties doing business with the insurer.

But, you might ask, what does this really mean for me? It means that you’re going to need a bigger boat (to paraphrase Jaws) if you want to stay ahead of this shark and avoid fines and penalties by the NY Department of Financial Services (and also avoid lawsuits where failure to follow the NY regulations will serve as a blueprint for what you were supposed to do and failed to do). Insurers and their vendors (like attorneys) have in their possession voluminous amounts of information (like medical records, discovery responses and transcripts) that include non-public information. Yet, how often is such information being transmitted by insurers to their attorneys (and from attorneys to their insurers) in unsecured ways? How many insurers are capable of downloading and adding to their files information that is sent by attorneys in secured ways (e.g. via Sharefile — which is our preferred data transmission method at WCM)? I think the answer is “not as many as you would hope.” We here at WCM are happy to help work with you as to what you need to do (and to do what we can for you to help ensure compliance). But, there’s a lot of work to be done and not a lot of time to start doing it.

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

Editors Note — Due to public outcry, implementation of the regulations has been delayed to March 1, 2017. The shark remains in the water, but there is not yet blood.

A & B Exclusion Prevails Over Negligence Claim (PA)

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Smart plaintiffs’ attorneys routinely plead negligence against a commercial enterprise for injuries arising out of an assault. The strategy is commonly employed to bring claims, that would otherwise excluded within the realm of the business’s insurance coverage.

In QBE Insurance Corp v. Walters, a café’s insurer sought declaratory judgment that its assault and battery exclusion applied to a claim arising from a shooting in the Jazzland café parking lot. In his underlying complaint, Walters, alleged negligence against Jazzland claiming that the café was located in a high crime neighborhood and that patrons regularly brought firearms into the establishment.  The plaintiff claimed that the café, with knowledge of these facts, was negligent in failing to prevent his injuries.

Jazzland sought defense and indemnity from its insurer, QBE, for the lawsuit. QBE filed a declaratory judgment action, arguing that the policy’s “assault and battery” exclusion barred coverage for the incident. The trial court granted summary judgment to QBE, to which Jazzland and Walters appealed, arguing on appeal that the language of the complaint sounded in negligence as a direct cause of Walters’ injury, thus the assault and battery exclusion was inapplicable to these claims.

The Superior Court of Pennsylvania ruled that the trial court properly granted summary judgment in favor of QBE in the declaratory judgment action and that the assault and battery exclusion barred coverage for Walters’ claim. Notably, the A & B exclusion contained a comprehensive definition of “assault and battery” which placed any negligent conduct on behalf of the insured and their employee’s in connection to an A&B squarely within the realm of the exclusion. Specifically, QBE’s A&B exclusion stated that it applied regardless of degree of culpability with regard to allegations of negligent hiring, training of employees and failure to prevent a claimant’s harm. Furthermore, the definition of A&B under the policy expressly included the negligent employment, investigation, supervision, training and retention of any employees and any insured or employees’ failure to prevent harm.

Based upon the policy’s plain language, the Court found that the exclusion was unambiguous in its intent to exclude any alleged negligence arising out of an assault and battery. Given the Superior Court’s interpretation of the policy at issue, insurers operating in the Commonwealth of Pennsylvania should be advised of the language used in in this case by QBE that encompasses claims that could potentially be disguised as negligence claims.

Thanks to Sathima Jones for her contribution.

For more information, contact Denise Fontana Ricci at .

In a Surprising Change of Pace, the 1st Department Limits Scope of Additional Insured Coverage (NY)

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In a decision that is sure to have substantial reverberations in construction coverage disputes, the First Department, Appellate Division recently ruled that blanket AI endorsements require contractual privity between the named insured and the party seeking additional insured status. In short, the decision upsets the status quo for AI coverage; where coverage is usually triggered as long as the named insured agrees in a contract to name the person/organization as an AI.

The facts surrounding Gilbane are standard fare as coverage disputes go: a construction manager, Gilbane Building Co./TDX Construction Corp. (TDX), was hired by the Dormitory Authority of the State of New York (DASNY) to provide services in connection with the construction of a 15-story building for use by the City of New York. DASNY also contracted with a general contractor to perform work on the project, and the contract required the GC to procure additional insured coverage for TDX and DASNY. The GC’s work caused structural damage to adjacent properties, which required DASNY to incur additional costs.

Thereafter, the GC and architects were sued for the negligent work, and the construction manager was impleaded by the architects. TDX then tendered to Liberty, the GC’s CGL carrier, seeking coverage as an additional insured. Liberty denied the tender, stating that it had not been provided with a contract whereby its named insured entered into a contractual relationship with TDX for additional insured coverage. The Liberty policy contained a relatively standard blanket AI endorsement naming as additional insureds “any person or organization with whom you have agreed to add as an additional insured by written contract…” TDX then commenced a DJ for a declaration that Liberty is obligated to provide defense and indemnification in connection with the underlying action.

The lower court denied Liberty’s summary judgment motion because the AI endorsement “requires only a written contract to which [the GC] is a party,” and the DASNY-GC contract satisfied this requirement. On appeal, the First Department reversed the Supreme Court’s decision, holding that the language in the Liberty AI endorsement “clearly and unambiguously requires that the named insured execute a contract with the party seeking coverage as an additional insured.” Interestingly, the cases cited by Liberty and relied on by the Court were previous decisions in which the AI endorsement granted coverage “when you and such organization have agreed in writing in a contract or agreement.”  TDX argued that this language materially differs from that included in the Liberty policy because it requires contractual privity, whereas the Liberty policy simply requires a written contract, any written contract, where the GC agreed to name TDX as an AI.

The Appellate Division rejected this argument because it “place[s] undue emphasis on the phrase ‘by written contract’ and completely ignore[s] the inclusion of the words ‘with whom’ as the object of the verb phrase ‘you agree’.” After a short grammar lesson, the court held the plain meaning of the Liberty AI endorsement is indistinguishable from the substance of the language in other endorsements. TDX also argued that was obvious from the DASNY-GC contract there was a clear intent for TDX to be named as an AI on the Liberty policy. The court noted that although this may be true, it does not mean “the policy issued by Liberty can be judicially rewritten to cover TDX.”

It’s also worth noting that the decision contains a lengthy dissenting opinion by Justice Kahn. In brief, the dissent would have found coverage for TDX for two reasons: 1) the DASNY-GC is a written contract where the GC agreed to name TDX as an AI, therefore triggering coverage; and 2) viewing the endorsement as ambiguous, all extrinsic evidence supports finding that TDX is an additional insured under the Liberty policy.  Last, the dissent makes a rather foreboding warning that “the majority’s unduly narrow reading of Liberty’s policy provision on additional insureds would upend the established customs and practices of the construction industry and its insurers.” Although the majority claims this dire prediction “rings hollow,” it nevertheless underscores the likelihood of increased coverage disputes pertaining to AI coverage.

Although the decision is recent, its potential effects cannot be understated. Many AI endorsements contain language identical to that in the Liberty policy. It is also commonplace for construction agreements, such as those promulgated by the AIA, to require a plethora of parties/entities as additional insureds.  If the CGL policy contains an AI endorsement similar to Liberty, this now requires that the contractor enter into separate contracts with all of those entities in order for additional insured status to extend.

It would not be surprising to see the Court of Appeals grant certification if TDX decides to appeal, particularly in light of the lengthy dissent. Nevertheless, over the past decade, courts have frequently expanded the scope and breadth of additional insured coverage. The decision in Gilbane may be a sign that there is a ceiling to an insurer’s assumption of risk under a blanket AI endorsement.

Thanks to Dan Beatty for his contribution to this post. If you have any questions about this post, please call or email Brian Gibbons at Brian Gibbons for additional information.

Red Rover is Not Just Kid’s Game Where Experts Are Concerned (NJ)

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Red Rover is a classic child’s team game involving potential switching of allegiances.  It is not a game when an expert switches side in litigation. In Meglino v. Liberty Mutual Insurance Company, the Appellate Division was confronted with exactly what should be divulged to a jury when a Red Rover expert testifies.

Meglino involved a UIM claim in which the insured plaintiff produced the insurer’s IME expert at trial.  The doctor had examined the plaintiff in connection with a PIP claim.  Thereafter, his videotaped deposition was presented to a jury as part of the plaintiff’s case.  However, the trial judge did not allow the jury to hear that the doctor had been retained by the insurer initially.

Recognizing the doctor as a “Red Rover expert,” the court delineated the potential pitfalls if information of initial retention is given to the jury.  “[T]he Red Rover witness may lead the jury to view him as something of a super-expert, whether that is warranted or not, and to assess the testimony less critically than would otherwise be the case.”  Rather, the court indicated that the focus of the jury should be on the expert’s credentials and opinions.  Therefore, the Court was satisfied that the trial judge was within his discretion to prohibit the reference to the prior testimony in the PIP action.

On a second note, the court also affirmed the trial court’s decision allowing the UIM insurer to stand in the shoes of the tortfeasor driver for purposes of trial.  As such, it was entirely proper to instruct the jury that defense counsel represented the tortfeasor rather than the UIM carrier and eliminate all references to insurance coverage that might otherwise distract jurors from a fair evaluation of the evidence.

Thanks to Ann Marie Murzin for her contribution.

For more information, contact Denise Fontana Ricci at .

WCM Obtains Judgment of No Coverage in Bucks County, PA Construction Defect Case.

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Partner Bob Cosgrove and associate Hillary Ladov were awarded a declaration of no coverage in a Buck County, Pennsylvania coverage action arising out of the defective construction of a residential pool.

In the case of Nautilus Insurance Company v. Crystal Clear Pools, Inc., et al., the underlying plaintiff allegedly suffered approximately $200,000 damages due to the failure of Nautilus’s insured to timely and correctly construct a pool, decking, and surrounding landscaping.

Throughout pleadings and motion practice, we maintained that a commercial general liability policy does not afford coverage for faulty workmanship, such as that alleged in the underlying complaint. At the close of the pleadings, we moved for entry of an order declaring that no coverage was provided under the policy for the underlying plaintiff’s damages. The court agreed and held that there was no coverage under the policy.

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

Workers Compensation No Cover For Insurer For Intentional Distress Claim (PA)

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The Pennsylvania Supreme Court recently refused to review a Superior Court ruling that a tort claim for intentional infliction of emotional distress is not barred by the workers’ compensation exclusion in the Pennsylvania workplace injury statute.

In Charlton v. PMA Insurance Group, Plaintiff Matthew Charlton worked for a company called PMA. He was injured in a workplace accident and subsequently suffered physical and emotional injuries. Charlton brought a Workman’s Compensation Claim, and PMA provided physical and psychiatric treatment to Charlton. During this treatment, Charlton revealed childhood sexual abuse. Notes from the original counseling session made their way into the hands of a senior PMA account claims representative, who told Charlton that PMA would no longer pay for “something that happened to you as a child”, and requested that Charlton settle the Workman’s Compensation Claim. Charlton suffered anxiety, humiliation, and fear that his abuse would be disclosed if he failed to settle the claim, and so he filed a claim for intentional infliction of emotional distress against PMA. PMA argued that under the worker’s compensation exclusion, the Worker’s Compensation Act barred any tort action flowing from a work-related injury.

The Pennsylvania Superior Court sided with Charlton, ruling that a tort claim for the intentional infliction of emotional distress should not be barred under the worker’s compensation exclusion. The court agreed that employers are generally immune from tort action. However, the court noted that the claim falls outside the purview of the Worker’s Compensation Act since it alleges injuries arising from Charlton’s prior abuse, not the injuries from the ongoing worker’s compensation claim. By requesting damages for pain and suffering, treatment costs, and future wages, Charlton characterized the claim as one outside the scope of a work-related injury, and thereby outside the scope of any tort exclusions within the Worker’s Compensation Act.

The Supreme Court justices denied allocator, refusing to review the Superior Court’s ruling, and this matter is now expected to go to mediation.

Thanks to Melanie Brother for her contribution.

For more information contact Denise Fontana Ricci at .