Western District of Pennsylvania Denies Reformation of Service Contract’s Indemnity and Insurance Provisions (PA)
In the recent case captioned Complaint of Borghese Lane, LLC, No. 2:18-CV-00533-MJH, 2023 WL 3060705 (W.D. Pa. Apr. 24, 2023), the District Court for the Western District of Pennsylvania granted a motion for partial summary judgment in favor of a party which claimed it had suffered a breach of contract to the extent that it was not named as an additional insured on its contract partner’s insurance policies. The court’s opinion contains a helpful overview of Pennsylvania law concerning reformation of contracts that pertain to contractual insurance and indemnification requirements.
In brief, the matter at issue in Borghese arose out of a service contract entered into by ITS (a marine and industrial services company) and McKees Rocks (a harbor services company). The contract concerned a barge mooring area on the Ohio River in Western Pennsylvania,
The contract contained an indemnity provision whereby McKees Rocks was to indemnify ITS for claims arising out of McKees Rocks’ services at the mooring area. Additionally, the contract contained an insurance provision whereby McKees Rocks was to name ITS as an additional insured on its policies.
However, McKees Rocks did not name ITS as an additional insured on its policies; McKees Rocks also refused to defend and indemnify ITS. McKees Rocks claimed that the obligations imposed on it by the contract were done so in error and that those obligations should have been imposed on a third party, Borghese (a marine transport and towing company), for the benefit of ITS and McKees Rocks.
ITS moved for partial summary judgment against McKees Rocks on the issue of breach of contract and contractual indemnity. In response, McKees Rocks sought reformation of the contract and argued that it is not bound by the terms of the indemnity and insurance provisions as drafted because the contract was the result of a mutual mistake of the parties.
The court disposed of McKees Rocks’ reformation argument because the evidence presented demonstrated that while McKees Rocks retained Borghese to perform certain functions, McKees Rocks itself was responsible for management of the mooring area. The court looked to testimony about the extensive drafting process, including rounds of negotiations, that preceded the execution of the final contract. Thus, the court found no mutual mistake and, on that basis, denied McKees Rocks’ request for reformation. The court then disposed of McKees Rocks’ substantive argument regarding indemnity and insurance because, with no reformation of the contract, McKees Rocks breached the contract by failing to name ITS as an additional insured on its policies.Thank you to Jason Laicha for his contribution to this post. Should you have any questions, contact Matthew Care. Read More
Your Neighbor’s Point of View Can Help Overcome Motion for Summary Judgment (NY)
When a defendant obtains a summary judgment against a plaintiff, the fight does not end there. While the discretion ultimately remains with the court, a summary judgment may be reversed on appeal if the opposing party submits evidence that raise a triable issue of material fact.
For example, in Abramson v Janowski’s Hamburgers Inc. 2023 NY Slip Op 02293 (2d Dep’t May 3, 2023), plaintiff allegedly was injured when she tripped and fell over a crack in a sidewalk located across the street from the defendants’ wholesale and retail hamburger products business. The hamburger defendants used their loading dock and driveway across the street from the sidewalk crack that allegedly caused the accident.
Plaintiff subsequently commenced a lawsuit against the defendants alleging the defendants were negligent in that the defective sidewalk condition was caused and created by trucks that drove onto the sidewalk while making deliveries to the defendants’ premises.
Thereafter, the defendants moved to dismiss the complaint as asserted against them. The lower court granted the defendants’ motion and the plaintiff appealed.
Thereafter, the second department reversed the lower court’s decision to grant the defendant’s summary judgment motions. Although as a general proposition, liability for a dangerous condition on real property must be predicated upon ownership, occupancy, control or special use of the property, liability can also be imposed upon a party that creates the dangerous or defective condition.
Here, the plaintiff submitted deposition testimony of an individual that resided next door to the defendants’ premises for nearly 56 years. The neighbor testified he lived on that street for many years and witnessed drivers of 18-wheel tractor-trailers make deliveries to the defendants and while doing so, maneuvered into the driveway and frequently drove onto the sidewalk across the street. As such, the neighbor witnessed employees of the burger companies direct the truck drivers onto the sidewalk to use their loading dock.
Accordingly, the neighbor’s testimony was sufficient to raise a triable issue of fact as to whether the actions of the defendants caused or created the hazardous sidewalk condition that allegedly caused the plaintiff’s accident. Therefore, the defendants’ motion for summary judgment was reversed and denied.Thank you to Lauren Howard for her contribution to this post. Should you have any questions, please contact Matthew Care. Read More
Why Appealing Pro Se Can Be An Appeal Killer (NY)
In Wells Fargo Bank, N.A. v. Kim Davis, et al., Index No. 500310/14, 2019-12927, pro se appellant Kim Davis made one critical mistake in her appeal on this matter, and that was not retaining an attorney. After Davis defaulted on her mortgage in 2010, Wells Fargo Bank began foreclosure proceedings on Davis’s property in 2014. When Davis never answered, Wells Fargo moved for default in 2015 which Davis failed to oppose (referred to in the decision as Motion No. 1). After her default, Davis made several motions in succession: a motion to dismiss for improper service and lack of standing (No. 2), followed by a motion to renew and reargue (No. 3) when that motion was denied, a motion to vacate the default (No. 4), a motion to direct the holding of a hearing by referee (No. 5), and another motion to dismiss the complaint (No. 6). This would be followed by a motion by Wells Fargo to confirm the referee’s report and for a judgment of foreclosure and sale (No. 7).
Lacking an attorney, things did not go well for Davis. The Appellate Division affirmed the decision denying Motion 1 outright as she failed to oppose it, waiving her right to appeal it. As to Motion 2, they affirmed the denial of her motion to dismiss for lack of standing given her failure to vacate her default which automatically waived the defense of lack of standing. The denials of both Motions 3 AND 6 were affirmed because Davis forgot to include the motion papers for both in the appeal appendix, meaning they could not be adequately reviewed. Motion 4 was affirmed as properly denied because Davis failed to demonstrate a reasonable excuse for her default or her failure to oppose Motion 1. As to Motion 5, the denial was affirmed as the Appellate Division found Davis’s contentions that the referee’s reports were based on unproduced business records were unfounded and even if a hearing was not held, she still had the chance to submit records to the referee. Lastly, while no mention was made regarding Motion 7, Wells Fargo’s motion to confirm the report, it can likely be assumed the decision granting it was affirmed.
The vast majority of Davis’s issues in this matter appear to be oversights that likely could have been avoided if she had retained an attorney who knows how to deal with these matters. The moral of the story: when facing legal troubles, talk to an attorney – that’s why we’re here.Thank you to Patrick Argento for his contribution to this article. Should you have any questions, please contact Matthew Care.Read More
PA Commonwealth Court Unanimously Rejects Lead Paint Claims Brought Under a Novel Public Nuisance Theory
On May 5, 2023 in a lawsuit entitled Atlantic Richfield Company, et al. v. The County of Montgomery, Pennsylvania, No. 1338 C.D. 2021 (Pa. Comm. Ct. 2023), an unanimous en banc panel for the Pennsylvania Commonwealth Court ordered the dismissal of a suit filed by Montgomery County seeking to hold paint manufacturers liable for lead paint in residential structures under a novel theory of public nuisance.
Specifically, Montgomery County, Pennsylvania (“Montgomery County”) filed a complaint against various paint manufacturers seeking a declaratory judgment that lead paint is a public nuisance under the common law as well as the Lead Certification Act (Certification Act), Act of July 6, 1995, P.L. 291, No. 44, 35 P.S. §§ 5901-5916. In doing so, Montgomery County pursued a novel legal theory that lead paint is a public nuisance under the Lead Certification Act, which regulates activities involving lead-based paint, but does not outright identify lead paint to be a public nuisance. Despite this, Montgomery County argued that the statute nonetheless makes the connection through its language, calling lead poisoning a public health threat and that its citizens have a common right to be free from the detrimental effects of exposure to lead paints/pigments in, on, and around private homes / residences throughout the county.
In appealing the trial court’s dismissal of the paint manufacturers’ preliminary objections, the manufacturers argued that the County’s proposed interpretation of the Certification Act was contrary to its plain language and legislative intent and that even if proven, Montgomery County had failed to establish proximate causation under Pennsylvania tort law. Ultimately, the Commonwealth Court agreed and reversed the trial court, thereby dismissing the lawsuit. The Commonwealth Court unanimously rejected Montgomery County’s argument that lead paint constitutes a public nuisance under the Certification Act and determined that even if so, the Act does not empower a Pennsylvania county to sue paint manufacturers for creating a public nuisance.
In approaching the merits of the common law public nuisance claims, the Commonwealth Court determined that the existence of lead paint in one dwelling was not necessarily transitory in nature where the surrounding community members would also be impacted as necessary to constitute a public nuisance. Furthermore, such a finding would be in contrast to Pennsylvania precedent related to lead paint claims. Pennsylvania courts have declined to apply market share liability theory to lead paint claims. Instead, Pennsylvania law requires that such claims be made on a property-by-property basis proving that lead paint or pigment manufactured by a particular identified defendant is present and causing harm at a particular property. In dismissing the claims against the manufacturers, the Commonwealth Court acknowledged that Montgomery County’s allegations were essentially a products liability claim raised improperly under the guise of a public nuisance action.
Through this precedential ruling in Atlantic Richfield Company, the Pennsylvania Commonwealth Court shut down Montgomery County’s attempt to pave a novel avenue for fellow political subdivisions to combat exposure risks related to lead paint injuries its residents. Yet, had Montgomery County been successful, shifting risk to the paint manufacturers through any subsequent lawsuits could have rewarded irresponsible landlords for failing to follow existing laws and subjecting vulnerable communities to substandard housing.Thanks to Kendal Hutchings for her contribution to this article. Should you have any questions, contact Matthew Care.Read More
New York Federal Court Finds that Business Pursuits and Rental Exclusions Preclude Coverage for Bodily Injury Claims Against a Multi-Family Investment Property Owner (NY)
In MIC General Insurance Corp. v. Cabrera, 20 Civ. 4855, 2021 WL 5909975 (S.D.N.Y. Dec. 10, 2021), the Southern District of New York recently awarded summary judgment to an insurer based upon several exclusions in a policy issued to the owner of an investment property. The owner rented the two-family home to a total of twenty people and his tax returns reflected substantial income and tax deductions relating to the property. The owner also certified that the property was “rented” when applying for insurance and generally took care of repairs and maintenance himself.
One of the tenants was injured in a slip and fall accident on the property and sued the owner in New York state court, alleging that the owner negligently failed to remove ice from a sidewalk on the property. The insurer disclaimed coverage on several grounds, including that the Business Pursuits Exclusion and Rental Exclusion applied under the circumstances. However, the insurer sought declaratory judgment but provide a courtesy defense to the owner until the coverage issues were resolved.
The insurer moved for summary judgment on the exclusions. In evaluating the Business Pursuits Exclusion, the Court noted that the insurer must show that: 1) that the owner ran the premises as a business; 2) that he had a duty to keep the sidewalk safe for tenants to walk on the property which arose from the nature of the business; and 3) that the tenant’s injury resulted from the owner’s failure to carry out that duty.
As to the first element, the court observed that whether an activity is a business pursuit within the exclusion under New York law depends on whether the insured “regularly engaged in a particular activity with a view toward earning a livelihood or making a profit.” To constitute a business, there must be two elements: “first, continuity, and secondly, the profit motive” (citations omitted). The court found that the insurer satisfied the first element as the owner earned income from renting the property and took care of the maintenance himself.
As for the other elements, the court found that “[u]nder New York law, by virtue of renting out the [property] for profit, owed his tenants the duty…to keep common areas such as sidewalks reasonably safe.” Since the court further found that the tenant’s injury resulted from the owner’s failure to satisfy that duty, the Business Pursuits Exclusion applied to exclude coverage.
The rental exclusion in the policy precluded coverage for bodily injury that arose “out of the rental or holding for rental of any part of the” property.” The exclusion contained an exception where the property was “in part for use only as a residence, unless a single-family unit is intended for use by the occupying family to lodge more than two roomers or boarders.” The court evaluated whether the “unless” clause was triggered, finding that the 19 people that lived at the property, other than the injured tenant, were “roomers.” As such, the court found that the “unless” clause was triggered, and the Rental Exclusion also applied to preclude coverage.
The takeaway from this case is that insurers of residential investment properties may have grounds to exclude coverage where their policies contain business pursuits and/or rental exclusions under the appropriate circumstances. It is also important for insurers to fully understand the circumstances of each risk and to tailor their policies accordingly.
Thank you to John Diffley for his contribution to this article. Please contact Andrew Gibbs with any questions.Read More
Volunteer or Employee: Who Is Protected by New York Labor Law? (NY)
To fall under the class of those protected by the New York Labor Law, a plaintiff must establish that he or she was permitted or “suffered” to work on a building or structure and that they were hired by the owner, contractor, or their agent. Volunteers are generally not entitled to Labor Law protection but what is the difference between an employee and volunteer under the statute?
In Garcia v. 13 W. 38, LLC, 73 Misc. 3d 434 (N.Y. Sup. Ct. 2021), a New York trial court recently evaluated this question. Plaintiff in that case was hired by an elevator mechanic employed by Uplift Elevator Corp., to assist him in wiring an elevator. Plaintiff was injured when the mechanic accidentally activated the elevator while plaintiff was standing on top of the elevator cab.
Discovery revealed that although plaintiff was compensated for his work and given an Uplift Elevator t-shirt to wear, this was done solely by the mechanic. The mechanic had no authority to hire plaintiff and was acting without his employer’s knowledge or authority in doing so. Defendants moved to dismiss the Complaint on the grounds that the Labor Law did not apply to plaintiff under the circumstances.
Based on these facts, the court held that plaintiff had no reasonable basis to believe he was employed by Uplift Elevator and that no employment relationship existed with any owner, contractor, or agent on the job. The court noted that “the fact that plaintiff gained admittance to the worksite does not indicate he was ‘suffered’ to work.” The court found that since no contractual relationship existed between Uplift Elevator and plaintiff, he was considered a volunteer and trespasser with no authority to work on the premises. Accordingly, the court found that he was not entitled to Labor Law protection and dismissed the Complaint.
The takeaway from Garcia is that New York Labor Law will not apply in cases involving workplace injuries to volunteers or those not contractually authorized to perform the work.
Thank you to Gabriella Scarmato for her contribution to this post. Please contact Andrew Gibbs with any questions.Read More
When Does the Homeowner’s Exemption Apply in a Labor Law Case? (NY)
In Capuzzi v. Fuller, 2021 NY Slip Op 07335 (3d Dep’t, December 23, 2021), the Third Department recently addressed whether a homeowner was entitled to the homeowner’s exemption in a New York Labor Law lawsuit. Plaintiff in that case alleged that he was hired to perform construction at defendant’s home and sustained injuries in a fall while installing floor joists. Plaintiff sued the homeowner for negligence and violations of Labor Law § 200, 240 (1) and 241 (6).
Defendant moved for summary judgment on the basis of the homeowner’s exemption, arguing that although he visited the construction site and observed the progress of the work, he did not supervise, control, or direct the plaintiff’s work. In opposition, plaintiff alleged that he discussed “work orders, logistics, materials and the architectural drawings” with the defendant. The trial court denied the motion.
The Third Department outlined the exemption by noting that “[A]lthough both Labor Law § 240 (1) and § 241 impose nondelegable duties upon contractors, owners and their agents to comply with certain safety practices for the protection of workers engaged in various construction-related activities, the Legislature has carved out an exemption for the owners of one and two-family dwellings who contract for but do not direct or control the work.”
Based upon the facts of the case, the court reversed the decision of the trial court and found that plaintiff could not demonstrate that the defendant “directed or controlled the manner of plaintiff’s work”, and that the §241 and 240 claims should have been dismissed. The court also held that the Labor Law § 200 claim should have been dismissed as the defendant did not control the “manner or means in which plaintiff was to install the floor joists.”
Capuzzi serves as a reminder that: 1) New York homeowners could have potential Labor Law liability if they are directly involved in supervising and controlling construction work in their homes; and 2) the homeowner’s exemption should be pursued in cases where such involvement or control does not exist.
Thank you to Corey Morgenstern for his contribution to this post. Please contact Andrew Gibbs with any questions.Read More
NFT’S and Their Implications On the Fine Art Space (NY)
On March 11, 2021, Christie’s auction house sold a nonfungible token (“NFT”) by the digital artist Beeple for $69 Million. Prior to this sale, the most Beeple had ever sold his work for was approximately $100.
In simple terms, an “NFT” is a unique unit of data stored on a “blockchain,” which is a public database reflecting a history of transactions. An NFT can represent an image, an electronic deed to a piece of property, or a digital ticket for a particular seat at a concert or other event. These data are so unique that they are deemed “non-fungible” or irreplicable, unlike U.S. Dollars and even cryptocurrencies such as Bitcoin and Ether. For example, you can trade one dollar for the same value of another dollar, but the original Mona Lisa cannot be traded for the value of a print of it sold online.
The purpose and benefit of an NFT varies depending on if one is an artist or buyer. Artists may be interested in NFTs not only as an alternative market for their work, but also for the ability to receive royalties each time their work (in NFT form) changes ownership. For buyers and collectors, NFTs function like any other fine art investment: despite prints and replicas, there is only one, true original of each NFT. As such, the value of an NFT is subject to change over time, for better or worse.
While NFTs offer new opportunities for content creators and owners alike, they also present novel legal issues in the intellectual property space. For example, a single NFT may include various copyrightable elements, such as a video clip and accompanying music. In this respect, already complicated copyright actions will, quite literally, involve several more layers of legal analysis and implications.
As such, understanding the basics of the NFT marketplace is vital for fine art insurers and insureds, in anticipation of both coverage and litigation issues.
Thank you to Alexandra Deplas for her contribution to this post. Please contact Andrew Gibbs with any questions.Read More
Overserved: Creative Pleading Cannot Overcome Dram Shop Social Host Bar (PA)
On December 17, 2021, the Superior Court of Pennsylvania held in Klar v. Dairy Farmers of America, Inc., et al., 2021 PA. Super. 252 (2021), that an employer without a liquor license who provides alcohol and food at a company event in exchange for an all-inclusive fee, classifies as a social host and could not be bound by the Pennsylvania Dram Shop Act, as an “any other person” under 47 P.S. §4-493(1), which ultimately limits a Pennsylvania employer’s exposure when fostering social gatherings where an intoxicated employee may find trouble on their way home.
In Klar, David Klar (“Plaintiff”) was seriously injured around 5:45PM, when a vehicle driven by Roger Williams (“Williams”), who had a BAC of .23, swerved into Plaintiff’s lane causing a head on collision. At the time of the accident, Williams had been traveling from an event organized by his employer, Dairy Farmers of America, Inc. (“DFA”), at the Tanglewood Golf Course in Mercer County. Prior to the event, DFA encouraged all its employees to participate in a golf outing in exchange for a mandatory, all-inclusive fee which included golf costs, food, and alcohol. As a result of the collision, Plaintiff, in pertinent part, alleged that DFA was negligent and negligent per se for violating the Dram Shop Act by providing Williams’ alcohol when DFA knew or should have known Williams was intoxicated and/or was a habitual drunkard being that DFA had previously been aware of Williams’ history of alcohol-related driving offenses before the event.
In response, DFA filed a motion for judgment on the pleadings alleging that DFA was a social host rather than a license holder under the Pennsylvania Liquor Code, 47 P.S. §§ 1-101-10-1001, thereby was not bound by the Dram Shop Act under 47 P.S. §4-493(1). The trial court agreed granting DFA’s motion which Plaintiff appealed to the Superior Court arguing that DFA was bound by the Dram Shop Act classifying as “any other person” per 47 P.S. §4-493(1).
On review, the Superior Court disagreed, and held Plaintiff could not be successful in his claims because DFA did not qualify as a licensee under the Liquor Code nor could classify as “any other person” per 47 P.S. §4-493(1) of the Dram Shop Act. The court explained their rationale by pointing to Manning v. Andy, 310 A.2d 75 (Pa. 1973) which held that a violation of the Liquor Code could not form the basis for a cause of action against a non-licensee for the purposes of Dram Shop liability. Instead, the Superior Court held rather classified as a “social host” where from serving a social guest alcohol cannot be casually linked to negligence. Therefore, DFA was entitled to judgment on the pleadings for both claims.
While employers in such a context have ordinarily been classified as social hosts, the Superior Court’s division in Klar clarifies the Dram Shop Act’s scope, thereby limiting an employer’s exposure when providing alcohol at work functions. This case further shows that sometimes Courts will look at the essence of the claim instead of creative pleading that would otherwise allow a case proceed past the pleadings stage.
Thanks to Kendal Hutchings for her contribution to this article. Should you have any questions, please contact Matthew Care.Read More
Of New York Choice-of-Law and Forum Selection Clauses: New York Appellate Division Holds That Sophisticated Parties Should Read State Laws (NY)
In North Am. Elite Ins. Co. v. Space Needle, Inc., Case No. 2021-01400, 2021 WL 5702283 (N.Y. App. Div. 1st Dep’t Dec. 2, 2021), a five-judge panel unanimously affirmed an Order of the Supreme Court, New York County, denying North American Elite Insurance Company’s (“Elite”) preliminary injunction against litigating its insurance coverage action in a forum outside of New York––even though both parties agreed to the exclusive jurisdiction of the New York State courts.
In a broad sense, the issue presented was whether choice-of-law and forum selection clauses in insurance contracts can survive state statutes that explicitly prohibit such clauses. Specifically at issue in Space Needle was whether Elite was required to comply with the Washington Insurance Code’s express provision indicating that no insurance contract delivered or issued for delivery in the State of Washington can include a condition, stipulation or agreement that requires the insurance contract to be construed by the laws of any other state or country. The five-judge appellate panel considered a recent, similar case involving a New York choice-of-law and forum provision in a Washington State insurance policy, Berkley Assur. Co. v. MacDonald-Miller Facility Solutions, Inc., No. 19-CV-7627 (JPO), 2019 WL 6841419 (S.D.N.Y. Dec. 16, 2019). In Berkley, the Southern District of New York held that, under a New York choice-of-law analysis––an analysis which must be implemented at the outset––the law chosen by the contracting parties is valid, and therefore, the Berkley court stated that the forum selection clause is not presumed void. However, the court in Space Needle observed one difference between the clause at issue in MacDonald-Miller and the clause at issue in Space Needle: The former clause is permissive while the latter is mandatory. All five judges agreed that a close reading of the Washington statute indicates that it prohibits mandatory choice-of-law and/or venue clauses; and, additionally, that a sophisticated party like Elite should have known the choice-of-law and forum selection clause in the insurance contract would be void per Washington State law.
Hence, the decision signals that insurers should rethink and perhaps reword New York choice-of-law and forum selection clauses in states with prohibitive choice-of-law and/or venue statutes. Wade Clark Mulcahy LLP will continue to monitor this significant development.
Thanks to Richard Dunne for his contribution to this article. Should you have any questions, please contact Matthew Care.Read More