POLICIES DID NOT REQUIRE THE INSURER TO DEFEND THE INSURED, BUT DID REQUIRE THE INSURER TO PAY THE INSURED’S DEFENSE COSTS (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Friedman, determined that the terms of the policies at issue did not obligate the insurer to defend the insured, but do require the insurer to pay the insured’s defense costs. The opinion is too fact-specific and too comprehensive to fairly summarize here:

In this insurance coverage action brought by a putative additional insured, the liability insurance policies at issue do not impose on the insurers a duty to defend the insured in a covered action. The policies do, however, require the insurers to reimburse the insured for defense costs incurred in an action “in which damages . . . to which this insurance applies are alleged.” The ultimate factual determination in the underlying personal injury actions was that the loss was actually outside the scope of the additional insured coverage. This determination, while it means that the insurers have no duty to indemnify the putative additional insured for its liability to pay damages, is not conclusive of a different question posed to us, which is whether the putative additional insured is entitled reimbursement of its defense costs. * * *

Under the terms of the … policy, the timing of the Port Authority’s demand for reimbursement does not defeat its claim for reimbursement of its defense costs through the time its liability was adjudicated in the underlying actions. … [The] policy entitles the insured to coverage of the costs it incurred in defending “any . . . suit’ to which this policy applies,” and the policy defines the term “suit” to mean an action “in which damages because of bodily injury’ . . . to which this insurance applies are alleged” … . … [U]ntil the jury rendered the verdict adverse to the Port Authority, each of the underlying actions remained a ” suit’ to which th[e] … policy applie[d]” … . Port Auth. of N.Y. & N.J. v Brickman Group Ltd., LLC, 2019 NY Slip Op 08958, First Dept 12-12-19

 


QUESTION OF FACT WHETHER THERE EXISTED A SPECIAL RELATIONSHIP BETWEEN PLAINTIFFS AND DEFENDANT INSURANCE BROKER SUCH THAT THE BROKER COULD BE LIABLE FOR THE FAILURE TO PROCURE ADEQUATE COVERAGE FOR A DEMOLITION PROJECT (FIRST DEPT).

The First Department, reversing Supreme Court, determined there is a question of fact whether a special relationship existed between plaintiffs and defendant insurance broker, thereby making the broker liable for the failure to procure adequate coverage for a demolition contract:

Issues of fact exist as to whether a special relationship arose between plaintiff STB Investments Corporation and its managing agent plaintiff 303 West 42nd Street Realty Co. (plaintiffs), on the one hand, and defendant insurance broker, on the other, that imposed on defendant a duty to advise plaintiffs as to insurance coverage that would have included the loss arising from plaintiffs’ demolition project … . Plaintiffs contend that the special relationship arose from an interaction with defendant in which they relied on defendant’s expertise as to coverage. There is evidence that plaintiffs’ property manager, who allegedly had never before purchased insurance for a demolition project, requested that defendant obtain adequate coverage for that particular risk, and that defendant agreed to do so, reviewed the demolition contract as part of its efforts, and discussed with plaintiffs the demolition contractor’s coverage in the larger context of determining the appropriate level of coverage to obtain for plaintiffs … . STB Invs. Corp. v Sterling & Sterling, Inc., 2019 NY Slip Op 08606, First Dept 12-3-19

 


SUPREME COURT PROPERLY DETERMINED THE COLLATERAL SUPPORTING A POSTED BAIL BOND WAS INSUFFICIENT TO ENSURE THE ACCUSED’S RETURN TO COURT, APPELLATE DIVISION REVERSED (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Feinman, reversing the Appellate Division, determined that Supreme Court did not abuse its discretion when it reviewed the collateral for a bail bond which had been posted by an insurer and found the collateral insufficient:

“Following the posting of a bail bond,” CPL 520.30 (1) permits a court to “conduct an inquiry for the purpose of determining,” among other things, “the value and sufficiency of any security offered[] and whether any feature of the undertaking contravenes public policy.” The statute also allows inquiry “into other matters appropriate to the determination, which include but are not limited to” six enumerated factors (CPL 520.30 [1]). For instance, the court has broad discretion to examine “[t]he background, character and reputation of any person who has indemnified or agreed to indemnify an obligor upon the bond” (CPL 520.30 [1] [d]) and the source of any property that will be used as indemnification as well as “whether any such money or property constitutes the fruits of criminal or unlawful conduct” … . * * *

The insurance company … has a financial incentive in obtaining a defendant’s release on bail so that it may retain its premium. This incentive is separate from the insurance company’s interest in securing the defendant’s return to court to avoid forfeiting its pledged security. The court, on the other hand, is concerned only with the defendant’s continued appearances.

Supreme Court … correctly interpreted the statute and did not abuse its discretion when it disapproved the insurance company bail bond package on public policy grounds, specifically that the limited collateral pledged failed to adequately ensure [the accused’s] return to court … . People ex rel. Prieston v Nassau County Sheriff’s Dept., 2019 NY Slip Op 08447, CtApp 11-21-19

 


PUBLIC HEALTH LAW 230 DOES NOT CREATE A PRIVATE RIGHT OF ACTION FOR MALICIOUS REPORTING OF INSURANCE FRAUD BY A PHYSICIAN TO THE OFFICE OF PROFESSIONAL MEDICAL CONDUCT (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Stein, determined that Public Health Law 230 (11) (b) does not create a private right of action. Plaintiff surgeon provided medical care to four patients injured in an automobile accident and submitted claims for payment to the defendant insurer. The insurer fully or partially denied the claims and then filed complaints against plaintiff with the Office of Professional Medical Conduct (OPMC) alleging insurance fraud. The OPMC declined to discipline plaintiff. Plaintiff then sued defendant insurer for bad-faith and malicious reporting in violation of Public Health Law 230 (11) (b). The Court of Appeals noted a split of authority in the 1st and 2nd Departments re: whether a violation of this statute give rise to a private right of action:

Public Health Law § 230 (11) (b) does not expressly create a cause of action authorizing licensees to commence civil litigation against a complainant that files an allegedly bad-faith and/or malicious report with OPMC (compare Public Health Law § 230 [10] [j] [creating an express right to commence a CPLR article 78 proceeding in certain instances]). Consequently, “recovery may be had . . . only if a legislative intent to create such a right of action is fairly implied in the statutory provision[] and [its] legislative history” … . …

We have consistently identified three “essential factors” to be considered in determining whether a private right of action can be fairly implied from the statutory text and legislative history: “(1) whether the plaintiff is one of the class for whose particular benefit the statute was enacted; (2) whether recognition of a private right of action would promote the legislative purpose; and (3) whether creation of such a right would be consistent with the legislative scheme”… . Critically, all three factors must be satisfied before an implied private right of action will be recognized … . Applying these factors here, we conclude that the legislature did not intend to create a right of action under Public Health Law § 230 (11) (b). Haar v Nationwide Mut. Fire Ins. Co., 2019 NY Slip Op 08445, CtApp 11-21-19

 


THREE AND A HALF MONTH DELAY IN NOTIFYING THE INSURER OF THE LAWSUIT VIOLATED THE POLICY PROVISION REQUIRING NOTICE AS SOON AS PRACTICABLE; THE DISCLAIMER MAILED 29 DAYS AFTER NOTICE OF THE SUIT WAS RECEIVED BY THE INSURER WAS TIMELY AND PRECLUDED SUIT AGAINST THE INSURER (SECOND DEPT).

The Second Department, reversing Supreme Court, determined defendant did not timely notify the insurer of the action and the insurer’s disclaimer on that ground was timely. Plaintiff alleged she was sexually assaulted by defendant Braun, an employee of defendant APS. Braun received the summons and complaint on October 31, 2008. Braun was deemed an agent of his employer APS. The insurer was not notified of the suit until February 12, 2009. The disclaimer was mailed on March 16, 2009. The claim was settled with the defendants for more than $3 million. Plaintiff then sued the insurer:

Braun’s receipt of the October 31, 2008, letter with the summons and complaint was within the scope of his employment as an officer of APS, and, as an insured under the policies, he had a duty to notify the insurers of the claim … . Moreover, given that the plaintiff, and not APS, was the victim of Braun’s conduct, there is no adversity to negate the imputation of Braun’s knowledge to the corporation [i.e., the adverse interest exception did not apply]. …

Since APS had knowledge of the claim against it as of October 31, 2008, but did not give notice to the insurers until February 12, 2009, it failed to provide notice as soon as practicable, in violation of the policy conditions … . …

Here, the insurers timely disclaimed coverage following a thorough and diligent investigation. Contrary to the plaintiff’s contention, the insurers did not have all the information they needed to disclaim coverage on February 12, 2009, and they properly commenced an investigation to determine the specifics surrounding the incident and to verify when APS first acquired knowledge of the claim … . Issuance of the disclaimers 29 days after the insurers’ receipt of notice was therefore reasonable as a matter of law under the circumstances. Plotkin v Republic-Franklin Ins. Co., 2019 NY Slip Op 08233, Second Dept 11-13-19

 


INSURER’S ACCIDENT INVESTIGATION REPORT IS PRIVILEGED AND NOT DISCOVERABLE (FIRST DEPT).

The First Department, reversing Supreme Court, determined that an insurer’s accident investigation report is privileged and not discoverable:

Documents in an insurer’s claim file, including an accident investigation report, that were prepared for litigation against its insured are immune from disclosure (see CPLR 3101[d][2] … ). Although documents in a first-party insurance action prepared in an insurer’s ordinary course of business in investigating whether to accept or reject coverage are discoverable (see CPLR 3101[g] … ), there is no indication that such documents are being protected here. In the absence of any demonstration of hardship by plaintiff, the insurer’s accident investigation report remains privileged … . Dabo v One Hudson Yards Owner, LLC, 2019 NY Slip Op 07751, First Dept 10-29-19

 


PLAINTIFF’S ACTION WAS NOT TIME-BARRED BECAUSE THE SIX-MONTH LIMITATION PERIOD IN THE SUBCONTRACT EXPIRED BEFORE SUIT COULD BE BROUGHT; THE TERMS OF THE ONE-YEAR LIMITATION PERIOD IN THE LABOR AND MATERIAL BOND CONFLICTED WITH THE REQUIREMENTS OF THE STATE FINANCE LAW; THE STATE FINANCE LAW CONTROLS (THIRD DEPT).

The Third Department, reversing Supreme Court, determined plaintiff-subcontractor’s breach of contract action against the general contractor and the insurance company (Liberty Mutual) which issued the labor and material payment bond for the construction work should not have been dismissed, and plaintiff was entitled to summary judgment on its action against the general contractor. The Third Department held that the six-month statute of limitations in the subcontract and the one-year statute of limitations in the bond did not render the actions time-barred:

“A ‘limitation period’ that expires before suit can be brought is not really a limitation period at all, but simply a nullification of the claim” … . The conflict in the subcontractor agreement between the limitation period and the payment provisions had the effect of nullifying plaintiff’s breach of contract claim; thus, the six-month limitation period is unreasonable and unenforceable, and Supreme Court should not have dismissed plaintiff’s complaint as time-barred … . * * *

State Finance Law § 137 (4) (b) sets forth a later accrual date than the payment bond, providing that “no action on a payment bond furnished pursuant to [State Finance Law § 137] shall be commenced after the expiration of one year from the date on which the public improvement has been completed and accepted by the public owner” (emphasis added). The provisions of State Finance Law § 137 govern bonds furnished pursuant to that statute, and, although parties may agree to expand the statute’s protections, they may not limit them … . As the accrual date set forth in the first part of the contractual limitation provision conflicts with State Finance Law § 137 (4) (b), the second part of the provision must be given effect, and the bond agreement must be deemed to be amended to provide for the accrual date set forth in the statute … . The record does not reveal the date on which the project was accepted … for this purpose. Accordingly, there are issues of fact as to when plaintiff’s cause of action against Liberty Mutual accrued and whether it is time-barred, and summary judgment dismissing the complaint against Liberty should not have been granted … . Digesare Mech., Inc. v U.W. Marx, Inc., 2019 NY Slip Op 07668, Third Dept 10-24-19

 


THE INSURED, WHO WAS SEEKING UNINSURED MOTORIST BENEFITS, DID NOT TIMELY NOTIFY HER INSURER OF THE TRAFFIC ACCIDENT; THEREFORE THE INSURER’S PETITION TO PERMANENTLY STAY ARBITRATION SHOULD HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the insurer’s petition to permanently stay arbitration in this rear-end collision should have been granted. The insured sought to recover uninsured motorist benefits but did not timely notify the insurer of the accident:

The respondent, Irina Ostapenko, allegedly was injured when the vehicle she was driving was struck in the rear by another vehicle that then left the scene. The vehicle Ostapenko was driving was insured by the petitioner. Ostapenko filed a request for uninsured motorist arbitration. The petitioner commenced this proceeding, inter alia, to permanently stay arbitration. In an order … , the Supreme Court, among other things, in effect, denied that branch of the petition which was to permanently stay arbitration. The petitioner appeals.

The Supreme Court should have granted that branch of the petition which was to permanently stay arbitration. The subject insurance policy required the insured or someone acting on the insured’s behalf to report the collision within 24 hours or as soon as reasonably possible to a “police, peace or judicial officer or to the Commissioner of Motor Vehicles.” Ostapenko’s failure to comply with this requirement in the absence of a valid excuse vitiates coverage … . Matter of Progressive Direct Ins. Co. v Ostapenko, 2019 NY Slip Op 07586, Second Dept 10-23-19

 


STAY IMPOSED BY A SOUTH CAROLINA COURT AS PART OF THE LIQUIDATION OF A SOUTH CAROLINA MEDICAL MALPRACTICE INSURANCE CARRIER WAS NOT ENTITLED TO FULL FAITH AND CREDIT IN A NEW YORK ACTION AGAINST DEFENDANTS INSURED BY THE INSOLVENT CARRIER (SECOND DEPT).

The Second Department, in a full-fledged opinion by Justice Duffy, determined that the stay imposed by a South Carolina court after the medical malpractice carrier, Oceanus, was declared insolvent and dissolved was not entitled to full faith and credit in the New York actions against parties insured by Oceanus. Oceanus was not a party to the New York actions, and due process trumped the Uniform Insurers Liquidation Act (UILA). The opinion is comprehensive and the reasoning cannot be fairly summarized here:

Notwithstanding the goals of the UILA, for the reasons set forth herein, the principles of due process and the right of the plaintiffs to seek redress in the courts in New York for wrongs they allege occurred in New York mandate that the South Carolina order is not entitled to full faith and credit or comity by the courts in New York in this and the related actions. Hala v Orange Regional Med. Ctr., 2019 NY Slip Op 07387, Second Dept 10-16-19

 


MASTER ARBITRATOR’S AWARD SHOULD NOT HAVE BEEN VACATED, REVIEW POWERS OF MASTER ARBITRATOR AND COURT EXPLAINED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined that the master arbitrator’s award in this no-fault insurance, fraudulent incorporation case should not have been vacated:

“[A]n arbitrator’s rulings, unlike a trial court’s, are largely unreviewable” … . A court reviewing the award of a master arbitrator is limited to the grounds set forth in CPLR article 75, which include, in this compulsory arbitration, the question of whether the determination had evidentiary support, was rational, or had a plausible basis … . Notably, the master arbitrator’s review power is broader than that of the courts’ because it includes the power to review for errors of law … . In contrast, the courts “generally will not vacate an arbitrator’s award where the error claimed is the incorrect application of a rule of substantive law, unless it is so irrational as to require vacatur” … .

Here, since Country-Wide submitted evidence tending to support its fraudulent incorporation defense, it cannot be said that the determination of the master arbitrator affirming the original arbitrator’s award lacked evidentiary support. Nor can it be said that the determination to affirm the original arbitrator, who supported her determination with reasons based on the evidence, lacked a rational basis. Thus, even if it was an error of law to conclude that Country-Wide proved its defense as a matter of law … . Matter of Acuhealth Acupuncture, P.C. v Country-Wide Ins. Co., 2019 NY Slip Op 07246, Second Dept 10-9-19

 

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