Second Circuit Reaffirms Privity Requirement In Additional Insured Endorsement (NY)

It is easy for claims professionals, contractors, and others to look no further than an underlying contract when determining whether a tendering party qualifies as an additional insured.  After all, when the promise to procure additional insured coverage is memorialized in a written contract, parties may expect the coverage to follow.

Of course, the experienced professional knows that insurance policy language determines additional insured status, not an underlying contract.  But it is important to carefully parse policy language as well, because even judges are capable of struggling with the application of clear policy language.  One additional endorsement that often causes confusion in the construction, legal, and insurance industries is the additional insured endorsement requiring contractual privity.

The Second Circuit recently addressed that issue in Cincinnati Insurance Company v. Harleysville Insurance Company.   There, the injured claimant was the employee of a sub-subcontractor on a construction project who was injured while performing his job duties.  After suit was filed, the general contractor’s insurer claimed its insured was an additional insured under the sub-subcontractors policy because the sub-subcontractor’s contract required it to name the general contractor as an additional insured.

Like many policies, the sub-subcontractor’s policy contained a blanket additional insured endorsement.  However, that endorsement conferred additional insured status on a third party “when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy.”  When the issue was presented to the trial court, it ruled that the general contractor was an additional insured because the underlying contract required that party to be named as an additional insured, but the Second Circuit reversed.

Relying on relatively recent New York precedent, the Second Circuit reasoned that when interpreting the intention of parties to an insurance contract, courts are confined to the four corners of the policy, not extrinsic evidence such as underlying contracts.  Because the policy required privity between the insured and purported additional insured, the general contractor was not an additional insured.

Cincinnati should serve as a reminder to always start with policy language when analyzing rights and obligations under a policy.  Even then, words are to be afforded their actual meaning. We expect this decision to widely cited going forward, to support the privity requirement in assessing AI status.  Thank you to Michael Gauvin for his contribution to this post.  Please email Brian Gibbons with any questions.

 

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.

If You Appear for a “Reasonably Requested” IME, “Nationwide is on Your Side” (PA)

On October 6, 2017, the Superior Court of Pennsylvania affirmed an order entered in the Court of Common Pleas of Jefferson County, compelling Gene Moore  to submit to an independent medical examination at the request of Nationwide Mutual Insurance Company.  The case stems from a motor vehicle accident involving Moore and Amy Shiock.  Shiock was driving a motor vehicle insured through Nationwide, while Moore was riding his bicycle with no such policy.

Following the accident, Moore submitted his medical expenses to Nationwide which were subsequently paid.  Moore also received two months of treatment from Keystone Physical Therapy until he reached his treatment plateau.  Approximately one month after his release from treatment, Moore reported to Pottstown Memorial Medical Center complaining of back pain.  During treatment, Moore indicated to his medical providers that moving furniture triggered his back pain.

Moore attempted to submit his Pottstown Memorial Medical Center medical bills to Nationwide as being related to the motor vehicle accident.  Prior to deciding, Nationwide requested Moore undergo an IME, which he declined.  Thus, Nationwide filed a petition to compel an IME based on the language in the insurance policy which requires injured persons seeking benefits to submit to medical examinations as often as “reasonably requested.”  The trial court ruled in favor of Nationwide basing its decision on the petition, its exhibits, and the statutory language of 75 Pa.C.S. § 1796.

Moore filed a timely appeal arguing: (1) he was not a party to the insurance contract and therefore could not be compelled to submit to an IME; and (2) the policy provision relied upon to compel the IME is void against public policy, as it does not comply with the statutory “good cause” requirement of 75 Pa.C.S. § 1796.  The Superior Court found no issue with the trial courts statutory interpretation or its finding of good cause.  Moore claimed that the trial court specifically relied on Fleming v. CNA Ins. Co. (Pa. Super. Ct. 1991) which was patently false.  The trial court used a multitude of factors including the policy language and 75 Pa.C.S. § 1796 to make its decision.  Further, because the trial court’s decision did not rest upon an interpretation of the Nationwide policy, the court did not need to examine Moore’s claim that the Nationwide policy violates public policy.

Thus, the Superior Court affirmed the trial court’s ruling that Moore was required to submit to an IME under the policy.  It makes sense that a claimant to an insurance policy will necessarily have to comply with the directives of that insurer in order to substantiate his/her claim.   The Court’s decision is consistent with that logic.  Thanks to Garrett Gittler for his contribution to this post.  Please email Brian Gibbons with any questions.

No Commercial General Liability Coverage For Breach of Contract

In a recent New York appellate decision, the court considered whether an insurer must provide coverage to a purported additional insured for a claim involving breach of contract.  In J.W. Mays, Inc. v. Liberty Mut. Ins. Co., the Appellate Division, upheld the lower court’s dismissal in favor of the insurer.  J.W. Mays, Inc., the owner of a mall, hired Liberty Mutual’s insured, D. Owens Electric, Inc. for several construction projects, including work on the mall’s roof. Owens, the general contractor, subcontracted the roofing work to another party, which Mays alleged performed defective work.  Mays terminated the work and allegedly failed to follow the terms of payment under the contracts.  Owens filed an underlying lawsuit against Mays for breach of contract and unjust enrichment, and to foreclose on mechanic’s liens.  Mays then commenced the instant coverage action seeking a declaration that Liberty and Owens’ umbrella insurance carrier were obligated to defend it in the underlying action filed by Owens, as Owens had named Mays as an additional insured on its insurance policies pursuant to the terms of the construction contracts.

The Appellate Division held that, in keeping with the general rule, commercial general liability policies do not provide coverage for breach of contract.  Rather, they provide coverage for bodily injury, property damage, or personal and advertising injury.  That general rule was applicable to the instant action where coverage for additional insureds under the Liberty policy, as well as the umbrella policy, was only triggered with respect to liability from bodily injury, property damage, or personal and advertising injury caused in whole or in part by the acts or omissions of the purported additional insured or those acting on its behalf.  The court explained that to hold otherwise would essentially turn an insurance carrier into a surety for the performance of its insured’s work.  Here, Owens’ complaint against Mays sounded in breach of contract, and there were no claims for bodily injury, property damage, or personal and advertising injury.  Accordingly, the Second Department held that the insurer was not obligated to defend or indemnify Mays in Owens’ action.

This case serves as a reminder that the basic rules of insurance coverage under commercial general liability policies are as applicable as ever, and insurers should always verify the nature of the claims for which insurance coverage is sought.

Thanks to Rebecca Rose for her contribution to this post.

 

 

 

 

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.

 

 

Who’s Behind the Wheel? Unlisted Resident Driver Exclusion Applies (PA)

On September 18, 2017, the Superior Court of Pennsylvania affirmed summary judgement in favor of Safe Auto Insurance Company (“Safe Auto”) in Safe Auto v Oriental Guillermo.  The case stems from a two-car motor vehicle accident in Allentown, Pennsylvania on April 29, 2013.  Rachel Dixon  was driving a car that her boyfriend, Rene Oriental-Guillermo (“Oriental-Guillermo”) owned, and Priscila Jimenez was a passenger in the other vehicle.  Guillermo insured his car through Safe Auto, which had an Unlisted Resident Driver Exclusion, which excluded from coverage those individuals who lived with Oriental-Guillermo, but were not related to him and whom he did not specifically list on the policy.  Here, Dixon lived with Oriental-Guillermo, but was not related to him and was not listed as a driver on his policy.

On May 13, 2015, Safe Auto filed a declaratory judgment action to enforce the Exclusion, and Safe Auto’s a motion for summary judgement was granted by the trial court.  The trial court enforced the Exclusion and held that Safe Auto had no duty to defend or indemnify Dixon.  Priscila Jimenez and Luis Jimenez timely appealed arguing that: (1) the Exclusion does not apply to the facts of the case; and (2) the Exclusion is unenforceable because it violates the Motor Vehicle Financial Responsibility Law, 75 Pa.C.S. 7501 et seq. (“MVFRL”) and public policy of the Commonwealth of Pennsylvania.

The court held that the policy language was unambiguous, and further stated that there is no dispute that Dixon lived with Oriental-Guillermo, is unrelated to him, and he did not list her as an additional driver on the policy.  Thus, the trial court properly found that the exclusion applied and Safe Auto was not obligated to defend Dixon.

Next, the court considered whether the Exclusion violated the public policy expressed in the MVFRL.  Appellants specifically argued that the Exclusion contravenes the MVFRL’s requirement that an owner of a motor vehicle ensure that all drivers of his vehicle are covered by insurance.  The court held that this argument supports the trial courts interpretation of the exception because it places the onus on the owner of the vehicle to ensure that everyone who drives his car have insurance.  There is no provision in the MVFRL that suggests the legislature intended to shift the risk to insurance companies to insure unidentified individuals who live with the insured, but are not related to the insured.

Finally, the court held that the Exclusion does not violate public policy.  Appellants argued that the Exclusion is contrary to the MVFRL by analogizing it to a Named Driver Only Exclusion.  This type of policy allows a policyholder to exclude certain individuals from his or her policy.  But the court ruled that the legislature placed the burden on the insured to make sure that individuals who drive the insured’s vehicle have insurance — the insurance company does not bear that burden.  Thus, the court affirmed the trial court ruling and concluded that Safe Auto was entitled to Summary Judgment. Thanks to Garrett Gittler for his contribution to this post.  Please email Brian Gibbons with any questions.

Lakers Toss Airball in Text Message Coverage Case

It is pretty much a given that anywhere you go, everyone is always on their phones. At sports stadiums, teams encourage fan interaction with fan social media posts.  Stores send text message alerts of special promotions, and doctors’ offices and salons now confirm appointments by text.  But all of these new uses for phone communication carry potential implications for insurers and their insureds under the Telephone Consumer Protection Act (TCPA) which is meant to prevent unsolicited telephone communication with consumers. In fact, many insurance policies now carry specific TCPA exclusion endorsements or exclusions otherwise relating to privacy invasion.

The 9th Circuit recently had to grapple with determining whether an invasion-of privacy exclusion applied to exclude coverage for TCPA claims in the case of L.A. Lakers v. Federal Ins. Co.  In November 2012, Lakers fan David Emanuel sued the Lakers, alleging that he used his phone to put a personal message on the scoreboard during a game at Staples Center, but subsequently began receiving texts from an autodialer. Emanuel’s case was dismissed with prejudice on the grounds that he implicitly consented to receiving a confirmation text from the Lakers when he submitted his original message. The Lakers then settled with Emanuel after he appealed to the Ninth Circuit.

The Lakers then sued its insurer, Federal, for refusing in bad faith to defend or indemnify the Lakers in the Emanuel litigation.  The insurer moved to dismiss, arguing that the policy’s invasion-of-privacy exclusion precluded coverage because a TCPA violation allegation is, in effect, a claim for a privacy breach. The trial court agreed with the insurer and dismissed the Laker’s complaint, holding that TCPA claims fall within the directors-and-officers policy’s invasion-of-privacy exclusion, and that the team was therefore not entitled to coverage.

The Lakers appealed to the 9th Circuit, and a 2-1 circuit panel upheld the trial court judge’s decision for Federal, finding that because a TCPA claim is “inherently an invasion of privacy claim,” the lower court properly concluded that the underlying suit against the Lakers was excluded from coverage. Thus, the Court held, the insurer did not breach the policy, or the implied covenant of good faith and fair dealing, in declining to defend against or cover the underlying lawsuit.

Thanks to Jorgelina Foglietta for her contribution to this post and please write to Mike Bono for more information.

 

A Trailer, by Any Other Name is not a Warehouse

Word to the wise: if you want coverage for inventory stored in a warehouse, use an actual warehouse.

In LaptopPlaza Inc. v. Starr Indemnity & Liability Co., the insured, LaptopPlaza Inc., sought coverage for the alleged theft of $711,000 worth of laptops housed in a trailer located on their premises.  Starr Indemnity issued a policy that provided coverage by endorsement for “goods and merchandise…while temporarily detained in warehouses.”  Because the goods were stored in a trailer that was stationary on their property, LaptopPlaza argued the trailer met the definition of a warehouse as per Black’s Law Dictionary and Merriam-Webster’s Collegiate Dictionary.

The Second Circuit, however, rejected this argument. Instead, the Court focused on the ordinary usage of the terms, noting a trailer “is not a building” and “is designed for the transportation, and not the storage, of merchandise.”  Further, the Court observed the trailer should not be considered a warehouse since it “abutted a warehouse but was not permanently attached to it….”

In the end, when interpreting undefined terms in a policy, courts will not reinvent the English language, and will reject strained interpretations of ordinary words. Thus, a trailer, which is designed for transportation, is not transformed into a warehouse simply because it is parked.

Thanks to Chris Soverow for his contribution to this post.

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.

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.