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QUESTIONS OF FACT ABOUT WHETHER THE INSURED MADE A SPECIFIC REQUEST TO DEFENDANT INSURANCE-BROKER FOR COVERAGE AND WHETHER THERE WAS A SPECIAL RELATIONSHIP BETWEEN THE INSURED AND THE BROKER; THE BREACH OF CONTRACT CAUSE OF ACTION PROPERLY SURVIVED SUMMARY JUDGMENT; THE NEGLIGENT MISREPRESENTATION CAUSE OF ACTION SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined the defendant insurance-broker’s motion for summary judgment on the breach of contract cause of action was properly denied, and the motion for summary judgment on the negligent misrepresentation cause of action should have been denied. The issues are whether the insured made a specific request for coverage and whether there was a special relationship between the insured and defendant broker:

“An insurance agent or broker has a common-law duty to obtain requested coverage for a client within a reasonable amount of time, or to inform the client of the inability to do so … . Generally, “‘[t]o set forth a case for negligence or breach of contract against an insurance broker, a plaintiff must establish that a specific request was made to the broker for the coverage that was not provided in the policy'” … . “Thus, the duty is defined by the nature of the client’s request” … . However, “[w]here a special relationship develops between the broker and client, . . . the broker may be liable, even in the absence of a specific request, for failing to advise or direct the client to obtain additional coverage” … .

… [T]he defendant insurance broker failed to meet its initial burden of tendering sufficient evidence to demonstrate the absence of triable issues of fact with respect to whether the plaintiff client made a specific request for coverage which was not obtained … . … [T]riable issues of fact exist as to whether a specific interaction took place between the plaintiff and the defendant regarding a question of coverage related to the plaintiff’s renovation work on the insured property that could give rise to a special relationship between the parties … . Copacabana Realty, LLC v A.J. Benet, Inc., 2021 NY Slip Op 05944, Second Dept 11-3-21

 

THE ENDORSEMENT RELIED UPON BY THE DEFENDANT INSURER TO EXCLUDE COVERAGE FOR AN OIL SPILL DID NOT MEET THE STRICT CRITERIA FOR AN EXCLUSION (SECOND DEPT).

The Second Department, reversing Supreme Court, determined defendant insurer was not entitled to summary judgment on the ground the oil spill damage was covered by a policy exclusion. The policy endorsement relied on by defendant did not meet the strict criteria for an exclusion from coverage:

In order “to ‘negate coverage by virtue of an exclusion, an insurer must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case'” … . “[P]olicy exclusions are given a strict and narrow construction, with any ambiguity resolved against the insurer” … . Here, in support of its motion for summary judgment, the defendant did not point to an applicable policy exclusion. Rather, the defendant relied on the ELF [Property Remediation for Escaped Liquid Fuel and Limited Lead and Escaped Liquid Fuel Liability Coverages] endorsement, which provided additional coverage for the remediation of escaped liquid fuel in limited circumstances not present here. Such argument is unavailing. On its face, the ELF endorsement is not an exclusion. While the defendant argues that the existence of the ELF endorsement compels the conclusion that the policy itself excludes coverage for escaped liquid fuel under any circumstances not specified in the endorsement, policy exclusions are “not to be extended by interpretation or implication” … . As such, the defendant failed to meet its initial burden of establishing, prima facie, that an exclusion not subject to any other reasonable interpretation applied in this case … . Mulle v Lexington Ins. Co., 2021 NY Slip Op 05707, Second Dept 10-20-21

 

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ALTHOUGH THE BROKER MAY HAVE REQUESTED THAT PLAINTIFF BE ADDED TO THE INSURANCE POLICY, THE BROKER ALLEGEDLY DID NOT VERIFY THE COVERAGE WAS IN PLACE BEFORE ERRONEOUSLY REPRESENTING TO THE PLAINTIFF THAT IT WAS INSURED; THERE WAS A QUESTION OF FACT WHETHER THE BROKER BREACHED A COMMON-LAW OR CONTRACTUAL DUTY OWED TO PLAINTIFF (SECOND DEPT).

The Second Department determined there were triable issues of fact concerning whether defendant Ovation breached its common-law or contractual duty to procure insurance for plaintiff Concrete. Allegedly, Ovation had represented to Concrete that the insurance had been procured but did not verify that the coverage, to be provided by the insurer, was in place:

In general, “insurance brokers have a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do so” … . A claim of liability for a violation of this duty may sound in either contract or tort … . To state a claim based upon violation of the insurance broker’s common-law duty, the client must demonstrate that the broker failed to discharge its duty either by breaching the agreement with the client by failing to obtain the requested coverage or by failing to exercise due care in obtaining insurance on the client’s behalf … .

Here, the Ovation defendants failed to establish … that Ovation did not breach its common-law or contractual duty to Concrete. Even assuming [there was a request] that Concrete be added to the existing policy … the deposition testimony submitted by the Ovation defendants … demonstrated that Ovation agreed to obtain insurance for Concrete and then represented that it had done so without verifying this fact. … [T]he Ovation defendants failed to establish, … the absence of a triable issue of fact as to whether Ovation undertook a duty to Concrete which it then failed to discharge. Alpha/Omega Concrete Corp. v Ovation Risk Planners, Inc., 2021 NY Slip Op 05113, Second Dept 9-29-21

 

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SUPREME COURT HAD THE AUTHORITY UNDER CPLR 3001 TO ISSUE A DECLARATORY JUDGMENT ON THE PROPER RATE FOR POST-JUDGMENT INTEREST; ANOTHER COURT’S PRIOR DISCUSSION OF THE PROPER INTEREST RATE WAS MERELY ADVISORY (I.E., NOT ON THE MERITS) AND THEREFORE WAS NOT SUBJECT TO THE DOCTRINES OF RES JUDICATA, COLLATERAL ESTOPPEL OR LAW OF THE CASE (SECOND DEPT).

The Second Department, in a full-fledged opinion by Justice Dillon, over an extensive dissent, determined (1) Supreme Court had the power to issue a declaratory judgment in this hybrid proceeding seeking a declaratory judgment on the rate of post-judgment interest; and (2) Supreme Court correctly found that dicta in a prior ruling about the proper post-judgment interest rate (i.e., that the rate should be 9% per year under the CPLR, not 2% per month under the Insurance Law) was merely “advisory” and therefore was not controlling under the doctrines of collateral estoppel, res judicata, or law of the case. Supreme Court’s finding that the Insurance Law interest rate applied was affirmed. Using that rate the original 2001 judgment of $8,842.49 had apparently grown to $229,981.66 as of 2015:

CPLR 3001 uniquely vests the Supreme Court with authority to render declaratory judgments to the exclusion of other courts of the state. … [T]o the extent [respondent] wished to obtain a declaratory judgment governing the rate of interest on its judgment, … with appellate remedies correctly foreclosed, the Supreme Court was the only court where it could seek redress on that issue. * * *

… [T]he Appellate Term’s expression in its decision and order dated August 18, 2017, regarding the applicable rate of interest was not determined on the merits, but was instead merely advisory. * * *

… [Appellant] was unable to establish that there was a determination on the merits in any prior proceeding about the proper rate of interest applicable to the judgment, as to preclude the Supreme Court from considering the issue de novo … . Matter of B.Z. Chiropractic, P.C. v Allstate Ins. Co., 2021 NY Slip Op 04484, Second Dept 7-21-21

 

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THE AMBIGUITY IN THE HOME INSURANCE POLICY WAS NOT CLEARED UP BY EXTRINSIC EVIDENCE AND MUST BE RESOLVED AGAINST THE INSURER; THE INSURER SHOULD NOT HAVE DISCLAIMED COVERAGE FOR WATER DAMAGE CAUSED BY FROZEN PIPES (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined the insurer should not have disclaimed coverage for water damage caused by frozen pipes in plaintiffs’ seasonal home. The case turned on the whether the plaintiffs took “reasonable care” (within the meaning of the policy) to maintain the heat in the house:

… [P]laintiffs established as follows: the home’s heating system was recently installed, was regularly maintained, and had never required repairs; Robert P. McAleavey (plaintiff) winterized the property by setting the internal temperature to approximately 50 degrees in the late fall of 2017; plaintiff checked on the home approximately 15 times during the winter of 2017-2018; during those visits, plaintiff ensured that the temperature was appropriate, that no windows were broken, that the toilets flushed, and that the water ran; and plaintiff last visited the house on January 11 or 12, 2018, at which point the interior temperature was “comfortable.” Although plaintiff was unable to visit the property between mid-January and late February 2018 due to a broken leg and his resulting hospitalization, plaintiffs’ submissions established that, during such period, they had no notice or reason to suspect that anything was wrong with the premises or the heating system. Moreover, plaintiffs’ neighbors and realtor periodically checked on the property’s exterior.

In our view, the term “reasonable care” as used in the policy is ambiguous inasmuch as it is susceptible of at least two reasonable interpretations, at least one of which supports plaintiffs’ contention that they exercised reasonable care, and this ambiguity was not resolved by extrinsic evidence … .

” ‘[U]nder [these] circumstances, the ambiguity must be resolved against the insurer which drafted the contract’ ” … . We thus conclude that plaintiff’s loss is specifically covered under the policy and that the exclusion relied on by defendant does not unambiguously apply in this case … . McAleavey v Chautauqua Patrons Ins. Co., 2021 NY Slip Op 03954, Fourth Dept 6-17-21

 

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THE EXAMINATION UNDER OATH (EUO) WAS SCHEDULED BEFORE THE INSURER RECEIVED A CLAIM FORM; THEREFORE THE INSURER DID NOT HAVE TO DEMONSTRATE COMPLIANCE WITH THE NOTICE REQUIREMENTS OF 11 NYCRR 65-3.5 TO BE ENTITLED TO A DEFAULT DECLARATORY JUDGMENT; THE UNDERLYING TRAFFIC ACCIDENT WAS FOUND TO HAVE BEEN STAGED AND CLAIMANT FAILED TO APPEAR AT SCHEDULED EOU’S (FIRST DEPT).

The First Department noted that where an examination under oath (EUO) is scheduled before the insurance company’s of a claim form, the insurer need not submit the proof of mailing in compliance with 11 NYCRR 65-3.5 to obtain a default declaratory judgment. It was determined the underlying traffic accident was staged and claimant did not appear at scheduled EOU’s:

As to claimant Ronald Marcellus, plaintiff additionally provided sufficient proof that he failed to appear for an examination under oath (EUO) despite receiving proper notice, which vitiates the policy … . Generally, an insurer must provide proof that the EUO requests were timely mailed, within 15 business days of receipt of the prescribed verification forms, in compliance with 11 NYCRR 65-3.5 in order to obtain a default declaratory judgment … . However, that requirement does not apply where, as here, the EUOs are scheduled prior to the insurance company’s receipt of a claim form … . Since Marcellus failed to appear on two or more occasions and the EUO requests were sent prior to plaintiff’s receipt of a claim form, plaintiff did not need to demonstrate compliance for the verification requests under 11 NYCRR 65-3.5. State Farm Mut. Auto. Ins. Co. v Surgicore of Jersey City, LLC, 2021 NY Slip Op 03536, First Dept 6-3-21

 

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DEFENDANT DOCTOR’S FAILURE TO APPEAR FOR THE NO-FAULT EXAMINATION UNDER OATH (EUO) REQUESTED BY THE INSURER JUSTIFIED THE DENIAL OF DEFENDANT’S CLAIMS FOR BENEFITS (FIRST DEPT).

The First Department, reversing Supreme Court, determined the surgeon’s failure to appear for the no-fault examination under oath (EUO) requested by the insurer voided the insurance policy:

Plaintiff sent defendant a timely request for an examination under oath (EUO) with respect to a claim for benefits in the amount of $6,106.56, for shoulder surgery performed by defendant on an individual that was a passenger in a vehicle involved in an accident, covered by a no-fault insurance policy issued by plaintiff. Defendant failed to appear and plaintiff denied all claims for benefits made by defendant.

The failure to appear for an EUO that was requested in a timely fashion by the insurer is a breach of a condition precedent to coverage and voids the policy ab initio … . The coverage defense applies to any claim and is not determined on a bill by bill basis … . The EUO was timely requested as to the second claim for benefits for the shoulder surgery, accordingly, defendant’s failure to appear at that EUO voided the policy ab initio as to all claims, and plaintiff’s cross motion for summary judgment should have been granted in its entirety. Unitrin Advantage Ins. Co. v Dowd, 2021 NY Slip Op 03012, First Dept 5-11-21

 

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THE GENERAL OBLIGATIONS LAW PROHIBITION OF SEEKING REIMBURSEMENT OF MEDICAL COSTS FROM A TORT ACTION SETTLEMENT DOES NOT APPLY TO SELF-FUNDED EMPLOYEE BENEFIT PLANS (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the General Obligations Law prohibition of seeking reimbursement of medical costs out of an insured’s tort action settlement does not apply to self-funded employee benefit plans.

The infant plaintiff was injured in an automobile accident and, after this personal injury action was commenced, sought the Supreme Court’s approval to accept the defendants’ offer to settle his claim for the policy limit of the defendants’ insurance policy of $300,000. The appellant, which is the administrator of the employee benefit plan for the employer of the infant plaintiff’s mother, sought to enforce a subrogation lien in the sum of $108,008.10, for the sums the plan paid for medical bills for the infant plaintiff arising out of the accident, against the settlement proceeds. The appellant contended that New York’s anti-subrogation statute, General Obligations Law § 5-335, was preempted because the employee benefit plan at issue was a self-funded plan governed by the Employment Retirement Income Security Act of 1974 (29 USC § 1001 et seq. ; hereinafter ERISA). …

While General Obligations Law § 5-335 precludes health insurers from seeking reimbursement out of an insured’s tort action settlement, that statute is preempted by ERISA in the instance of self-funded plans, which are not deemed to be insurers or insurance companies … . Here, the appellant established that the employee benefit plan at issue was self-funded, in that it does not purchase an insurance policy from an insurance company in order to satisfy its obligations to plan participants. As such, it was error to hold that the subrogation lien was unenforceable against the infant plaintiff’s settlement proceeds. David v David, 2021 NY Slip Op 02784, Second Dept 5-5-21

 

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QUESTIONS OF FACT ABOUT WHETHER THE INSURER IS ESTOPPED FROM DENYING COVERAGE TO A PARTY LISTED AS AN ADDITIONAL INSURED IN A CERTIFICATE OF INSURANCE (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined there were questions of fact about plaintiff’s reliance on a certificate of insurance and whether the certificate was issued by the carrier or its agent. Although a certificate of insurance is not a contract, the carrier may be estopped from denying coverage if the party named as an additional insured in the certificate relied on the certificate and the certificate was issued by the insurer or its agent:

“It is well established that a certificate of insurance, by itself, does not confer insurance coverage, particularly [where, as here,] the certificate expressly provides that it is issued as a matter of information only and confers no rights upon the certificate holder [and] does not amend, extend or alter the coverage afforded by the policies” … . “A certificate of insurance is only evidence of a carrier’s intent to provide coverage but is not a contract to insure the designated party nor is it conclusive proof, standing alone, that such a contract exists” … .

” ‘Nevertheless, an insurance company that issues a certificate of insurance naming a particular party as an additional insured may be estopped from denying coverage to that party where the party reasonably relies on the certificate of insurance to its detriment’ ” … ” ‘For estoppel based upon the issuance of a certificate of insurance to apply, however, the certificate must have been issued by the insurer itself or by an agent of the insurer’ ” … . County of Erie v Gateway-Longview, Inc., 2021 NY Slip Op 02631, Fourth Dept 4-30-21

 

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THE DEPARTMENT OF FINANCIAL SERVICES’ AMENDMENT TO AN INSURANCE REGULATION DESIGNED TO PROTECT CONSUMERS OF LIFE INSURANCE AND ANNUITY PRODUCTS IS VOID FOR VAGUENESS (THIRD DEPT).

The Third Department, in a full-fledged opinion by Justice Egan, reversing Supreme Court, determined the Department of Financial Services’ (DFS’s) amendment to an Insurance Regulation was void for vagueness:

The amendment was promulgated to address concerns with respect to the growing complexities involved with life insurance and annuity products, the corresponding need for consumers to increasingly rely on the advice of professionals in order to comprehend the widening market of products available and to mitigate abuses with respect to the compensation of agents and brokers (hereinafter collectively referred to as producers [see 11 NYCRR 224.3 (c)]) who have incentive to manipulate consumers into purchasing financial products that result in higher commissions but ultimately fail to meet their needs. * * *

… [W]hile the consumer protection goals underlying promulgation of the amendment are laudable, as written, the amendment fails to provide sufficient concrete, practical guidance for producers to know whether their conduct, on a day-to-day basis, comports with the amendment’s corresponding requirements for making recommendations and compiling and evaluating the relevant suitability information of the consumer … . Although the amendment provides certain examples of what a recommendation does not include (i.e., “general factual information to consumers, such as advertisements, marketing materials, general education information” and “use of . . . interactive tool[s]” (11 NYCRR 224.3 [e] [2]), the remaining definitional language is so broad that it is difficult to discern what statements producers could potentially make that would not be reasonably interpreted by the consumer to constitute advice regarding a potential sales transaction and therefore fall within the purview of the amendment (see 11 NYCRR 224.3 [e] [1], [2]). Matter of Independent Ins. Agents & Brokers of N.Y., Inc. v New York State Dept. of Fin. Servs., 2021 NY Slip Op 02574, Third Dept 4-29-21

 

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