Spring 09 Newsletter

SPRING 2009 Volume 1 Issue 4

1000 Crossroads Building Telephone: (585) 454-2181

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Two State Street www.trevettlaw.com

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Rochester, New York 14614 Facsimile: (585) 454-4026

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INSURANCE DEFENSE UPDATE

ARTICLES IN THIS ISSUE 

Delay of Insurer in disclaiming coverage is excusable when investigating Insured’s Late Notice of Claim

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Insurer must demonstrate prejudice to disclaim coverage of SUM benefits when put on notice by no fault filing

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Insurer’s 62 day delay in disclaiming coverage was unreasonable

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Overreaching Construction Indemnification Provisions Risky

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State Liable for Department of Corrections Imposition of post release supervision

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Policy Exclusions for Construction work does not preclude recovery for building damage on adjacent lot

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Recovery under Labor Law §241(6) Expanded

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Presumption Against Suicide does not preclude a jury a finding of suicide

Delay in Disclaiming Coverage by Insurer is Excusable When Investigating Insured`s Late Notice of Claim In GMAC Insurance Company v. Rockie Jones, 61 A.D.3d 1358 (4th Dept, 2009), the Fourth Department addressed the issues of late notice of claim and whether a lengthy delay by the insurer to investigate a loss is excusable. Respondent Rockie Jones was injured when his vehicle collided with another owned by Jesse Willoughby on July 3, 2006. At that time, respondent was insured by petitioner GMAC with Uninsured Motorist coverage of $25,000 per person and Mr. Willoughby was insured by Nova Casualty Company (Nova). Nova was first put on notice of the accident on January 8, 2008 in a correspondence from Jones’ attorney. In response, on January 14, 2008, the insurer promptly sent a letter asserting that it would provide coverage at the time but reserved its right to disclaim pending an investigation. Thereafter, Nova commenced its investigation and attempted to contact Mr. Willoughby to ascertain the facts concerning the underlying accident and his reasoning for his failure to notify the insurer of the claim. Despite sending correspondence to his last known address and to family members, physically attempting to contact Willoughby at his last four known addresses, numerous telephone calls to known numbers, speaking with neighbors, attempting to locate a copy of the police report and conversing with opposing counsel, Nova was not able to obtain additional information concerning its insured. Accordingly, the insurer disclaimed coverage for lack of cooperation. Respondent Jones then filed for uninsured motorist benefits alleging that Nova’s disclaimer effectively caused the Willoughby vehicle to be uninsured. Contrary to petitioner’s contentions, Nova’s investigation efforts were well documented and the 44 days it took to disclaim coverage was reasonable. The Appellate Division held that a delay in notifying the insured of a disclaimer may be excused when the insurer conducts an investigation into the issues affecting its decision whether to disclaim coverage.

Where Insurer is put on Notice of Accident from No Fault Filing, It must Demonstrate Prejudice in Order to Disclaim on Late Notification of Supplemental Uninsured Motorist Filing In Bhatt v. Nationwide Mutual Insurance Company, 61 A.D.3d 1406 (4th Dept, 2009), the Appellate Division held that an insurer must establish that it was prejudiced as a result of the insured’s late notification of her claim for Supplemental Uninsured Motorist insurance (SUM). Plaintiff insured Sukeerti Bhatt commenced an action seeking to recover SUM benefits under an automobile insurance policy issued to her by National Mutual Insurance. Under the SUM endorsement, plaintiff was required to give defendant notice of a claim “[a]s soon as practicable.” Plaintiff promptly notified defendant of the motor vehicle accident, which occurred on May 22, 2000, and she filed a claim for no-fault benefits on July 20, 2000. On April 7, 2003, plaintiff gave defendant notice of her claim under the SUM endorsement. Defendant disclaimed coverage on the ground that plaintiff failed to provide timely notice of the SUM claim. In affirming the lower court’s decision to deny the defendant’s summary judgment motion dismissing the complaint, the Fourth Department relied on precedent set by the Court of Appeals in Rekemeyer v. State Farm Mutual Auto Insurance Co., 4 N.Y.3d 468 (2005). In quoting Reckemeyer, the Court followed the principle “[W]here an insured previously gives timely notice of the accident, the carrier must establish that it is prejudiced by a late notice of SUM claim before it may properly disclaim coverage.” Id at 496. In applying this rule to the current matter, the Appellate Division found that it was clear the plaintiff timely notified the defendant of the accident and, within a reasonable time thereafter, filed a claim for no fault benefits. Nationwide Mutual failed to prove that it was prejudiced in any manner by the plaintiff’s delay in providing notice of the SUM claim.

Insurer’s 62 day Delay in Disclaiming Coverage was Unreasonable

Overreaching Contractual Indemnification Provision is Risky Contractual indemnification provisions are commonly used by contractors to limit their exposure to risk. Often, general contractors use broad-form indemnification provisions which require a subcontractor to indemnify the general contractor for losses that are solely the result of the general contractor’s negligence and/or intentional acts. In an attempt to hedge their bet, general contractors will sometimes rely on qualifying language such as “to the fullest extent permitted by law” to salvage what might otherwise be an unenforceable provision.

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Plaintiff Crocodile Bar, Inc. commenced this action seeking a declaration that defendant Dryden Mutual Insurance Company (Dryden) is obligated to defend and indemnify it in three underlying personal injury actions. Crocodile Bar, Inc. v. Dryden Mutual Insurance Company, 61 A.D.3d 1361 (4th Dept, 2009). At issue in this matter was whether the insurer provided a timely disclaimer of coverage. “[A] timely disclaimer [of coverage] pursuant to Insurance Law §3420(d) is required where a claim falls within the coverage terms but is denied based on a policy exclusion.” Similarly, the Fourth Department held that, based upon New York statutory and common law, once an insurer has sufficient knowledge of the facts entitling it to disclaim, it must do so in writing within a reasonable period. In this matter Dryden’s adjusters were aware on the day they received the notice of claim that it was not timely. However, the insurer failed to establish that its 62 day delay in disclaiming coverage was reasonable and necessary to the completion of “diligent” investigations. Therefore, defendant’s disclaimer was invalidated.

TCSA

Statutes and case law reject indemnification provisions which purport to make a party to a contract liable for another’s negligence. Specifically, Section 5-322.1 of the New York General Obligations Law renders void and unenforceable agreements exempting contractors from liability for their own negligence. In interpreting Section 5-322.1, the Court of Appeals has struck down contractual indemnification provisions that contemplate a complete rather than partial shifting of liability from the general contractor to the subcontractor, regardless of whether the relevant contractual provision contains the language “to the fullest extent permitted by law.” Itri Brick & Concrete Corp. v. Aetna Casualty & Surety Company, 89 N.Y.2d 786, 658 N.Y.S.2d 903 (1997). However, the Itri Brick Court did not answer the question of whether Section 5-322.1 precluded a negligent contractor from enforcing a partial indemnification provision that did not purport to indemnify the contractor for its own negligence. A recent decision of the New York Court of Appeals answers this question and demonstrates the risk of broad form indemnity provisions. Brooks v. Judlau Contracting, Inc.¸ 11 N.Y.3d 204 (2008). The Brooks Court held that New York General Obligations Law '5-322.1 does not preclude a general contractor from enforcing a contractual indemnification provision against its subcontractor when the general contractor was found to be partially at fault “so long as the indemnification provision does not purport to indemnify the general contractor for its own negligence.” Critical to the Court’s decision was the fact that the contractual indemnification provision at issue was not a broad form indemnification, seeking to indemnify the contractor for its own negligence. Had it been, the Judlau Court would likely not have upheld the provision. Thus, by pursuing indemnification that was limited to the extent losses were caused by the negligence of the subcontractor, the general contractor was able to secure partial indemnification from the subcontractor and pass the Court’s scrutiny.

State Liable for Department of Corrections’ Administrative Imposition of Post-Release Supervision

In Donald v. New York State, 115414, New York’s Court of Claims granted Mr. Donald’s motion for summary judgment on his wrongful confinement claim and ordered a trial to determine damages.

In a lengthy written decision by Judge Frank P. Milano, Judge Milano held that the DOC made a “particularly troublesome” usurpation of the discretion vested only in sentencing courts in New York when the agency imposed the period of post-release supervision.

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While serving time under a determinate sentence, which did not include post-release supervision, the New York State Department of Corrections (the “DOC”) administratively added a three-year period of mandatory post-release supervision onto his sentence. After being released from incarceration, Mr. Donald violated the terms of his postrelease supervision and was incarcerated again. Upon his release in 2008, Mr. Donald had been incarcerated for at least 676 days, solely as a result of his violation of the terms of his administratively imposed post-release supervision.

“The singular role given the judiciary in sentencing persons convicted of a crime recognizes that the government’s awesome power to restrict liberty, to imprison, must be strictly circumscribed and subject to the faithful and correct application of law,” Judge Milano wrote. Judge Milano’s decision also broadens the definition of “wrongful confinement”, ruling that merely being on post-release supervision constitutes a type of confinement and, thus, is actionable in and of itself. The ruling follows two precedential-setting Court of Appeals decisions handed down in the last year. In Garner v. New York State Department of Correctional Services, 10 N.Y.3d 358 (2008), the Court of Appeals rejected the practice of the DOC adding post-release supervision terms to sentences even though the law may mandate such post-release supervision period. This ruling prompted a record examination to determine how many prisoners have been wrongfully confined as a result of the DOC’s imposition of post-release supervision.

Court of Appeals Determines that Policy Exclusions for “Earth Movement” and “Settling or Cracking” Did Not Unambiguously Exclude Recovery for Damage to Building that Resulted from an Excavation on an Adjacent Lot. In Pioneer Tower Owners Ass'n v State Farm Fire & Cas. Co. (12 NY3d 302 [April 30, 2009], the owner of a condominium apartment building claimed that a number of cracks, separations and open joints were caused by work that was in progress on the lot next door. He submitted a claim for the damage to State Farm Fire & Casualty Company, which had insured the building against “accidental direct physical loss.” State Farm disclaimed coverage, relying on the “earth movement” exclusion in its policy. State Farm argued that the literal language of the exclusions describes what happened here, because the loss was caused by the movement of earth, and specifically by its “sinking” and “shifting” beneath plaintiff's building. And, the settling or cracking exclusion applies, in State Farm’s view, because the loss consisted of cracking that was directly and immediately caused by the settling of the building. Plaintiff's own engineer's report stated “that the left wing of the building had settled.” The Court asserted, “[t]his case is a close one, but we cannot say that the event that caused plaintiff's loss was unambiguously excluded from the coverage of this policy.”

Court of Appeals expands Recovery under Labor Law § 241(6) and Abrogates Previous Rulings

On May 12, 2009, the Court of Appeals rendered an opinion, in Misicki v Caradonna, WL 1286012 [NY, 2009]), that abrogated Phillips v City of New York (228 A.D.2d 570 [2d Dept 1996]; Thompson v Ludovico (246 AD2d 642 [2d Dept 1998]; Anarumo v Slattery Assoc. (298 AD2d 339 [2d Dept 2002]; Hassett v Celtic Holdings, 7 AD3d 364 [1st Dept 2004]; and Fairchild v Servidone Constr. Corp. (288 AD2d 665 [3d Dept 2001]).

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Traditionally, the Court of Appeals has distinguished between Industrial Code provisions that merely reiterate the common-law standard of care and those that mandate compliance with concrete specifications. Only the latter impose a non-delegable duty on an owner or general contractor who does not actually control the injured party's work, giving rise to a Labor Law § 241(6) claim. In Ross v Curtis-Palmer Hydro-Elec. Co (81 NY2d 494, 504 [1993]), the Court of Appeals held that a regulation that imposed a “duty to provide materials and equipment of such kind and quality as a reasonable and prudent person experienced in construction operations would require in order to provide safe working conditions” was too general to create a non-delegable duty. In Misicki, the Court interpreted section 23-9.2(a) of the Industrial Code, which provides, in pertinent part, “[a]ll power-operated equipment shall be maintained in good repair and in proper operating condition at all times. Sufficient inspections of adequate frequency shall be made of such equipment to insure such maintenance. Upon discovery, any structural defect or unsafe condition in such equipment shall be corrected by necessary repairs or replacement.” Focusing on the third sentence of section 23-9.2(a), the Court held that it imposed an affirmative duty on employers to “correct[ ] by necessary repairs or replacement,” “any structural defect or unsafe condition” in equipment or machinery “[u]pon discovery,” or actual notice of the structural defect or unsafe condition. As a result, the Court, contrary to previous appellate rulings, concluded that the third sentence of section 23-9.2(a) “mandates a distinct standard of conduct, rather than a general reiteration of common-law principles, and is precisely the type of ‘concrete specification’ that Ross requires.” Thus, an employee who claims to have suffered injuries proximately caused by a previously identified and unremedied structural defect or unsafe condition affecting an item of power-operated heavy equipment or machinery has stated a cause of action under Labor Law § 241(6) based on an alleged violation of 12 NYCRR 239.2(a).

Presumption Against Suicide is Merely a Rule or Guide.

In reversing the First Department, the Court of Appeals held that the presumption against suicide is merely “a rule or guide” for the jury in coming to a conclusion on the evidence (Green v William Penn Life Ins. Co. of New York, 12 NY3d 342 [NY, May 5, 2009]). Thus, where the evidence leaves open two possible findings, it is the jury's business to resolve the doubt, and courts, when there is legally sufficient evidence, should not remove the ultimate determination from the trier of fact.

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