Cyber Rules About to Get Real.

We have previously reported on NY’s onerous cyber rules. The rules go into effect by month’s end.

Specifically, n August 28, 2017, insurance companies that do business in NY will be obligated to institute policies and procedures that preserve and protect PII of clients, insureds, and other entities in accordance with 23 NYCRR §500 (et seq.). The rationale of the policy was explained by the Superintendent of the DFS:
Consumers must be confident that their sensitive nonpublic information is being protected and handled appropriately by the financial institutions that they are doing business with. DFS designed this groundbreaking proposed regulation on current principles and has built in the flexibility necessary to ensure that institutions can efficiently adapt to continued innovations and work to reduce vulnerabilities in their existing cybersecurity programs. Regulated entities will be held accountable and must annually certify compliance with this regulation by assessing their specific risk profiles and designing programs that vigorously address those risks.

Insurance companies, and other covered entities, are required to perform cybersecurity assessments in accordance with a written policy developed by the covered entity, that includes:
• An evaluation of encryption of data containing PII (both in transit and at-rest);
• The development of a Crisis Response Team (“CRT”) to respond to a breach;
• TFA or MFA;
• Identify and assess internal and external cybersecurity threats;
• Utilize defensive infrastructure in conjunction with appropriate policies and procedures to protect PII;
• Capability of detecting and responding to any intrusion;
• Ability to fulfill the statutorily required breach notification statutes.

Moreover, the regulations require a specific policy that regulates 14 different aspects of the covered entities operations. If this is not enough to develop specific in-house policies, the regulations also require that insurance companies ensure that other entities it does business with and transfers materials containing PII, to maintain and adhere to strict cybersecurity regulations that include a requirement for TFA, encryption, written policies, and periodic assessments of the efficacies and compliance to the policies. The insurance company is required to promulgate a policy for its third-party service providers that complies with the above requirements. If not, the insurance company may be held liable.

Furthermore, we note that this will soon be the policy in all 50 states. It is easier to implement these changes and requirements now as opposed to being forced to implement the policies at a rush and possibly not achieving full compliance.

Special thanks to Matt Care for his contributions to this post.

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

Residential/Commercial Property Owner Gets By On Sidewalk Liability (NJ)

New Jersey distinguishes between commercial and residential property to determine the responsibility of an owner to those using public sidewalks. A purely residential property owner owes no duty to maintain a sidewalk unless a repair is negligently made.  On the other hand, a commercial property owner has a duty to take reasonable care to prevent foreseeable harm.  The gray area is where a residential property is not owner occupied but is used for commercial purposes.

The Appellate Division recently considered the proof required to establish that a property owner of a three family home was liable for a slip and fall on an uneven sidewalk. In Perez v. Fernandez, the three family home was not owner occupied but the owner’s parents lived in one unit and managed the other two.  In a footnote, the court made an assumption that the property was commercial in nature because it was not owner occupied despite the family member’s occupancy.  Once this assumption was made, the court evaluated the duty under the commercial property standard.

Despite this classification, the court seemed to scrutinize plaintiff’s proofs giving the defense the benefit of the doubt. In part this may be due to the plaintiffs’ development of the case.  The plaintiff, Frictiana Perez fell on the sidewalk near ongoing construction in the street. Initially they took an alternative approach and had two engineering reports prepared. One pointed to the construction activities that may have caused damage to the sidewalk, and the other faulted the abutting property owner.

During discovery, the plaintiffs served the liability expert report identifying the construction contractors the responsible party. After the close of discovery, plaintiff’s counsel said the report had been served by mistake.  Plaintiff then served the second expert report concluding that the displaced sidewalk caused plaintiff’s fall and placed the liability on the defendant homeowner for negligent maintenance.  The Court barred the late served report, granted the defendants’ motion for summary judgment, and then denied plaintiffs’ motion for reconsideration.

In affirming the trial court’s dismissal in favor of the defendants, the Court explained: “[P]laintiffs needed to show that defendants had breached their duty owed to those walking on the sidewalk abutting their property.” It is well established that “commercial property owners would be liable for injuries on the sidewalks abutting their property that are caused by their negligent failure to maintain the sidewalk in reasonably good condition.” In its analysis, the Court held that the Fernandez family’s duty was to prevent “foreseeable harm.”  In other words, plaintiffs must prove that the defendants had actual or constructive notice of the dangerous condition that caused the injury, in this case, the displaced sidewalk.

Without an expert report, the Court ruled that the plaintiffs could not meet this burden. The  defendants denied any awareness of the raised sidewalk slab.  The Court found no evidence that the defendants should have known about the problem with the sidewalk.  “To make such a showing, plaintiffs needed evidence of how the slab was damaged and how long the slab was damaged. In the absence of expert testimony, there was no competent evidence to show defendants were negligent.”

The appellate court held that the trial court properly granted summary judgment to the defendants. Specifically, plaintiffs could not establish negligence as a matter of law without an expert to testify how and when the sidewalk had been damaged.  In a questionable liability case that lacks proof of the defendants’ actual notice of a hazardous or defective condition, the lack of an expert report confirming the defendants’ constructive notice of the condition may be the hook a motion judge needs to dismiss a complaint.

Thanks to Ann Marie Murzin for her contribution.

For more information, contact Denise Fontana Ricci at dricci@wcmlaw.com.

 

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

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

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

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

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

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

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

Thanks to Marcus Washington for his contribution.

For more information, contact Denise Fontana Ricci at dricci@wcmlaw.com.

Additur: Lowest Possible Verdict Standard Applies (NJ)

 

Additur is a legal mechanism, seldom seen in some jurisdictions, wherein a court may correct a damages verdict, if the court feels 1) the verdict rendered constitutes a manifest injustice, 2) the verdict can be corrected without disturbing the liability verdict. Appellate-plaintiff attempted to use this mechanism in the Orientale v. Jennings case, wherein a jury trial resulted in a $200 award for pain and suffering on behalf of the plaintiff.

Following a motor vehicle accident, plaintiff settled with the negligent driver for $100,000 and subsequently filed suit against her own insurer, defendant Allstate New Jersey Insurance Company, under the UIM provision of her policy.  A damages trial was conducted to determine the extent of plaintiff’s injuries. The jury awarded no money on the loss of consortium claim. Although the jury found that plaintiff had suffered permanent injury, they awarded $200 in damages.

Plaintiffs sought a new trial and filed a motion for an additur. The trial judge determined that the $200 award constituted a miscarriage of justice and that additur was appropriate. The judge determined that the lowest verdict that a reasonable jury could have reached based on the proofs of the case was $47,500. Apparently, this increased award was not enough for the plaintiff, who then filed an appeal arguing that the trial court applied the wrong standard for additur. Plaintiffs argued that the trial court should not have made the award calculations based on the lowest value that a reasonable jury could find, but rather that it should have issued an award based on what a reasonable jury would find.

The appellate court determined that the principles that applied to additur included a presumption that the jury verdict was correct and deference should be given to the award. The trial record underlying an additur motion must be viewed in the light most favorable to the defendant and the judge should not sit as a decisive juror and should not overturn a damages award falling within a wide acceptable range. The court’s role in assessing a jury verdict is to assure that compensatory damages awarded to a plaintiff encompasses no more than the amount that will make the plaintiff whole. The appellate court thereby determined that the trial court properly applied the standard of “the lowest verdict that a reasonable jury could have reached based on the proof[s].” The appellate court affirmed the trial court decision.  Thanks to Steve Kim for his contribution to this post.  Please email Brian Gibbons with any questions.

Release Bars Dumbbell Injury at Health Club (NJ)

In Pulice v. Green Brook Sports & Fitness, New Jersey’s Appellate Division addressed whether plaintiff’s signed waiver released a health club from liability for injuries she suffered while exercising at the club.

When plaintiff first joined the health club, she signed a waiver and release stating: “Members and member’s guests shall hold the club harmless from any cost, claim, injury, damage or liability incurred at the club . . . Members shall be responsible for any property damage or personal injury caused them, their family or their guests.” Soon after, plaintiff was injured at the health club when a ten-pound dumbbell fell on her face as her trainer (whom she hired through the health club) was handing it to her to perform an exercise.

Plaintiff later sued the health club alleging negligence. Plaintiff opposed the health club’s motion for summary judgment, arguing that the waiver and release was ambiguous and therefore the defendant was not shielded from liability. The trial court ruled in favor of the health club—holding that the waiver and release was not ambiguous because it clearly stated that the health club members were responsible for personal injuries that were sustained at the club. The trial court also recognized the “positive social value” in allowing health clubs to limit their liability in respect of patrons who wish to assume the risk of participation in activities that could cause an injury.

On appeal, the Appellate Division affirmed the trial court’s decision granting summary judgment in favor of the health club. The Appellate Division found that the trial court’s decision was sound because plaintiff’s injury was the result of exercising with weights and that there was an inherent risk of being seriously injured while engaging in strenuous physical exercise.

Thanks to Ken Eng for his contribution to this post and please write to Mike Bono for more information.

 “Possession” is not Synonymous with “Mortgagee in Possession.”

In New Jersey, banks are commonly sued as a result of accidents occurring on properties subject to mortgage foreclosure actions, especially those properties that have been vacated and abandoned by the debtor-homeowner.  A bank is generally not liable for such accidents if it is not the legal owner of a property it forecloses upon.  The bank becomes the legal owner once it receives title to the property subsequent to a foreclosure sale which, in New Jersey, involves a public auction hosted by the County Sheriff.    However, New Jersey Courts have held that a “mortgagee in possession”, despite not having legal title, may be liable for premises liability actions, as well as other actions.  Much confusion has ensued as to what is and what is not a “mortgagee in possession” since the Courts have repeatedly held that it is a legal issue to be decided on a case by case basis.

In Woodlands Community Association, Inc. v. Nationstar Mortgage, LLC the court provided clarity and laid out the analytical framework relative to this issue.  Adam Mitchell purchased a condominium unit in 2007 with the proceeds from a bank.  He executed a mortgage encumbering the unit.  The mortgage was assigned to Nationstar.  Mitchel eventually defaulted and then vacated the unit.   He also owed the Association unpaid monthly assessment fees.

Subsequent to his default and abandonment, Nationstar replaced the locks on the unit and winterized it.  Nationstar had the only set of keys.   The Association sued Nationstar for unpaid monthly assessment fees.  The trial court granted summary judgment in favor of the Association, holding that Nationstar was a mortgagee in possession due to its exclusive control of the unit.

The Appellate Division reversed, counseling that use of the word “possession” in the designation “mortgagee in possession” is somewhat misleading.  Rather, dominion and control are more descriptive of a mortgagee in possession, not actual possession.  Since Nationstar was not occupying or using the unit, was not collecting rents or otherwise profiting from the unit, and was not making repairs to the unit, the Appellate Division held that it was not a mortgagee in possession.  Acts such as changing locks and winterizing the unit are “minimal efforts taken … to secure [the bank’s] interest in the mortgaged property …”.  Stated another way, the bank was merely protecting the value of its security interest by preventing break-ins, vandalism, and water loss.

While the issue is one to be decided on a case by case basis, defense attorneys who represent banks in these types of cases should keep the above analysis in mind since it may be possible to escape from liability on summary judgment.

Thanks to Michael Noblett for his contribution to this post.

 

 

 

 

NJ Court Upholds Dismissal Letting Sleeping Dogs Lie

Holiday gatherings bring together family, friends, pets, and joy… until someone gets hurt. Then the specter of social host liability raises its head.  Unlike businesses which have a duty to invitees to make their premises reasonably safe, social hosts are required only to warn guests who might not appreciate the existence of a dangerous condition or discover a latent defect in the home.

In Parella v. Compeau, a Christmas dinner guest filed suit against her host for injuries sustained when she tripped over a dog lying in the hallway, near the threshold of the dining room.  The plaintiff argued that, since she was a social guest, the host had a duty to warn her of dangerous conditions in the home – even sleeping dogs.  She claimed that the defendants knew that the dog was lounging in the hallway and that allowing a dog to lie in front of a doorway posed a tripping hazard.

In response, the defendants argued that the plaintiff was aware of the presence of the dog in the home, and that the dog did not constitute a dangerous condition based on the size of the dog and its location in the hallway, which made him easily seen and avoided. The trial court agreed, and granted summary judgment on behalf of the defendants.

The Appellate Court upheld the dismissal, noting that the presence of the dog was open and obvious.  The mere presence of a dog sleeping in a hallway did not create an unreasonable risk of harm or a dangerous condition, triggering defendants’ legal duty to warn guests walking in their home.  The judges were particularly dismissive of plaintiff’s contention that the dog was below eye level.

Thanks to Heather Aquino Obregon for her contribution.

For more information, contact Denise Fontana Ricci at dricci@wcmlaw.com

 

Plain Language Rule Still Governs Interpretation of Coverage Exclusion (NJ)

The appellate court interpreted an “insured vs. insured” exclusion in a directors and officers liability policy in Michael Abboud v. National Union Fire Insurance Company of Pittsburgh. Generally, such exclusions bar coverage for claims by one insured director or officer against another. Plaintiff Abboud sought indemnity and a defense in connection with counterclaims made against him by fellow officers of Monarch, a company which operates and leases PET/CT equipment. Defendant National Union Fire Insurance Company of Pittsburgh (NUFIC) denied coverage based on the “insured vs. insured” exclusion. Abboud filed a declaratory judgment action against National Union which ended in summary judgment dismissal and a subsequent appeal.

In the underlying litigation, plaintiff Abboud sued four members of the board of managers of Monarch. Abboud alleged the four member-managers tried to remove him from Monarch’s board of managers and his position as its chief executive office. Monarch and the individual defendants asserted various counterclaims against Abboud, alleging that he engaged in self-dealing and exploited Monarch’s opportunities for his personal gain or that of his other companies.

Defendants in Abboud’s underlying suit obtained an acknowledgement of partial coverage from National Union, subject to a reservation of rights, under the Employment Practices Liability (EPL) section of Monarch’s multi-coverage policy which also included a D&O liability section. By contrast, Abboud did not notify National Union of the counterclaims against him until 8 months after suit was initiated. Abboud attempted to excuse his late notice because Monarch and National Union had delayed responding to his requests for information about coverage.

Abboud subsequently filed his declaratory judgment action, expressly invoking and quoting the policy’s D&O section, Abboud sought indemnity and defense costs for the counterclaims in the underlying lawsuit.  National Union denied its policy provided indemnity or defense costs coverage for the counterclaims.  National Union filed a motion for summary judgment, contending the insured vs. insured exclusion within the D&O section precluded coverage. The trial court granted summary judgment in favor of National Union, finding that the insured vs. insured exclusion plainly barred Abboud’s claim for coverage.

The appellate court reviewed the language of the insurance policy and found that there was nothing ambiguous, convoluted, or opaque about the exclusions in the D&O section. The exclusion disallows coverage when the claim is raised by either an executive of the company or the company itself. Abboud sought to avoid the plain interpretation of this provision contending it violates his reasonable expectations and claiming that the exclusion applies only in cases of collusion between the individual insureds.

The appellate court found that insurance contracts should be construed to reflect the reasonable expectations of the insured in the face of ambiguous language and phrasing, and in exceptional circumstances when the literal meaning of the policy is plain. The appellate court found no exceptional circumstances in Abboud’s claim, stating that the record is devoid of competent evidence of Abboud’s expectations of coverage or proof that such expectations would be objectively reasonable. As such, the appellate court affirmed the trial court’s holding.  Thanks to Steve Kim for his contribution to this post.  Please email Brian Gibbons with any questions.

 

 

Supermarket Not Liable For Employee’s Harassment of Child Patron (NJ)

In Judy Doe v. Sake Shoprites, New Jersey’s Appellate Division analyzed whether the defendant supermarket was vicariously liable for negligently retaining employees who sexually harassed a young girl at the supermarket.

Six-year old Judy Doe and her mother entered a supermarket in the late evening. Unknown to Judy and her mother, supermarket employee J.B. followed them and watched Judy’s movements. When Judy was alone, J.B. approached her , left her shirt, and photographed Judy’s legs and stomach. Judy’s mother soon found Judy crying and shaking. Subsequently, Judy’s mother reported J.B.’s actions to supermarket crew chief A.Z. and the supermarket’s manager. The manager then suspended J.B. because he was “warned earlier about taking pictures of customers.” The supermarket contacted the police, who executed a search warrant of J.B.’s home and discovered several photos of other young female customers.

Plaintiff later sued the supermarket alleging negligent hiring and retention. Plaintiffs opposed the supermarket’s motion for summary judgment, arguing that the supermarket was liable—under a theory of vicarious liability—for the intentional acts of J.B. Specifically, plaintiff argued that the supermarket negligently retained J.B. despite notice that J.B. previously took photographs of customers, and that this known behavior would foreseeably cause customer harm.

The Appellate Division was unpersuaded by plaintiff’s arguments, holding that the evidence of prior notice was insufficient to prove the supermarket was negligent in keeping J.B. employed as a member of its staff. The court found that “taking pictures of customers” was too speculative to prove the supermarket had knowledge that J.B. engaged in similar harmful behavior. Further, the court reasoned that the ages of the customers and the nature of the pictures were not specified in the manager’s statement. Although J.B. was previously warned about taking pictures of customers, the supermarket did not know where or when the photographs were taken, whether they were of young girls, or whether J.B. manipulated the clothing of any juvenile female to expose skin.

This case demonstrates that New Jersey courts require “competent evidential material” beyond mere speculation in order to find an employer vicariously liable for negligent retention of its employees. Such proof may turn on an employee’s employment history, the foreseeability of future wrongful conduct, and the nature of an employee’s past wrongful activity.

Thanks to Ken Eng for his contribution to this post and please write to Mike Bono if you would like more information.

Defense Of “Abusive Acts” Not Covered Under CGL Policy

In a recent New Jersey case regarding allegations of a board of education’s knowledge of a teacher’s inappropriate conduct involving students, the United States District Court for the District of New Jersey held that the board’s commercial general liability insurer properly disclaimed coverage as its policy excluded coverage for “abusive acts.”

In Montville Township Board of Education v Zurich American Insurance Co., Jason Fennes was a teacher at Montville Township Board from September 1998 to June 30, 2010.  Shortly after he resigned from Montville, he began working for Cedar Hill Prep.  In March 2012, while working as a teacher at Cedar Hill, Fennes was arrested for sexually abusing a Montville student in 2005.  At that time, Montville notified Zurich American Insurance Company, its commercial general liability carrier, of a potential claim, and Zurich issued a general reservation of rights.  In August 2012, a six year old student at Cedar Hill, “Child M,” and her parents sued Fennes and Cedar Hill, alleging that Fennes sexually abused her in February 2012.  In January 2015, Child M filed a third amended complaint naming Montville as a defendant, alleging that Montville knew about, or was on notice of, Fennes’ sexual abuse of students at Montville, and that it failed to report Fennes to the authorities, as required by law.  Child M also alleged that Montville entered into an agreement with Fennes in 2010 in which it agreed to limit the information it would pass along to potential employers in exchange for Fennes’ resignation.  Finally, Child M alleged that but for Montville’s failure to report and provide information about Fennes to prospective employers like Cedar Hill, Child M would not have been sexually abused by Fennes.  Cedar Hill filed a cross-claim against Montville for contribution and indemnification based on these allegations.

The Zurich policy, which was effective July 1, 2011, contained a CGL Part, which provided an exclusion for bodily injury “arising out of or relating in any way to an ‘abusive act’” or “any loss, cost or expense arising out of or relating in any way to an ‘abusive act.’”  An “abusive act” was defined as “any act or series of acts of actual or threatened abuse or molestation done to any person, including any act or series of acts of actual or threatened sexual abuse or molestation done to any person by anyone who causes or attempts to cause the person to engage in a sexual act: a. without the consent of or by threatening the person … b. if that person is incapable of appraising the nature of the conduct or us physically incapable of declining participation in or communicating unwillingness to engage in the sexual act …”.  The Zurich policy also contained an Abusive Act Coverage Part (the “AA Coverage Part”), which provided insurance for “loss because of ‘injury’ resulting from an ‘abusive act.’”  However, the AA Coverage Part excluded coverage for any “‘abusive act’ of which any insured, other than the insured actually committing the ‘abusive act’, has knowledge prior to the effective date of this Coverage Part.”  Zurich disclaimed any duty to defend or indemnify Montville under the CGL and AA Coverage Parts, as Child M’s bodily injury arose out of or related to “abusive acts” per the terms of the CGL Part and its exclusion, and as Child M alleged that Montville knew about Fennes’ abusive acts but failed to report them, bringing the allegations within the exclusion of the AA Coverage Part.  Montville filed an insurance coverage action against Zurich following Zurich’s disclaimer of coverage.

After Montville and Zurich filed cross-motions for summary judgment, the United States Court for the District of New Jersey granted Zurich’s motion and denied Montville’s motion, holding that the CGL Part’s “abusive acts” exclusion was not only clear and unambiguous, but that it was broad and expansive, as it excluded coverage for bodily injury “arising out of or relating in any way to an ‘abusive act’” and therefore barred coverage under the CGL Part.  It did not matter that the abuse to Child M occurred after Fennes’ employment by Montville to a child who was not a Montville student, as the definition of “abusive act” broadly included “any act or series of acts of actual or threatened sexual abuse or molestation done to any person by anyone.”  While the Court did not go into a detailed analysis of the AA Coverage Part, it did outline the substantial evidence to support the allegations that Montville knew about Fennes’ abusive acts, and found that Montville “virtually knew” that Fennes would continue to abuse students at other schools when it agreed not to disclose his past abusive acts to potential employers in exchange for his resignation.

This case serves as a useful reminder that insurance carriers can protect themselves from certain claims when their policies of insurance are clear, unambiguous, and broad reaching.

Thanks to Rebecca Rose for her contribution to this post.