Coverage

NJ Appellate Division Continues National Trend Rejecting 6 Plaintiffs’ Claims for Business Income Loss as a Result of COVID Mandates

The national trend rejecting pandemic business income loss claims continues. In a consolidated appeal, on June 20, 2022, the New Jersey Appellate Division decided against six companies that sought insurance coverage for business income losses sustained after New Jersey Governor Murphy’s Executive Orders required them to limit or close their businesses in the early days of the COVID pandemic.

The plaintiffs in the respective cases – owners and operators of a gym, a day care, a baked goods store, three restaurants – brought breach of contract and/or sought declaratory judgments against insurers that denied their claims for Covid business income losses as a result of the government orders.

The respective defendant insurers – Selective Fire and Casualty Insurance Company, Markel Insurance Company, Blackboard Insurance Company, Wesco Insurance Company, Amtrust Insurance Company, Philadelphia Indemnity Insurance Company – moved to dismiss with prejudice under Rule 4:6-2(e) arguing that the insurance policies, which the Appellate Division found to all be “essentially identical,” did not cover plaintiffs’ business losses because the suspension of their businesses due to the Executive Orders was not a “‘direct physical loss of or damage to’ their insured premises.”

The Court also rejected plaintiffs’ arguments that the business income losses were covered by the policies’ “Civil Authority” clauses, looking to other courts for persuasive guidance. The Court further rejected plaintiffs’ claims that the lower courts should have given them the opportunity to amend their complaints to add regulatory estoppel claims based on alleged misrepresentations made by the insurance industry about virus exclusion provisions. Noting that the business income losses were not covered under the policies anyway, irrespective of whether the virus exclusions applied, the Court held that any such amendments would have been futile.

Lastly, the Appellate Division agreed with the insurers that the plaintiffs’ claims could be rejected on the basis of the policies’ virus exclusions. Thanks to Abed Bhuyan for his contribution to this post. Please contact Heather Aquino with any questions.Read More

Nazi Art Disputes Still Kicking 80 Years Later (NY)

In 2015, a suit known as Reif v. Nagy was filed in the Manhattan Supreme Court Commercial Division over the rightful ownership of two Egon Schiele paintings that were allegedly stolen by the Nazis. The suit commenced after the two paintings were spotted at a 2015 art show exhibit run by Richard Nagy, a London-based art dealer. The plaintiffs included the heirs of Fritz Grünbaum, a Jewish entertainer who once owned the subject paintings and later died inside a Nazi concentration camp.

A 2018 summary judgment decision concluded that the plaintiffs were the rightful owners to the paintings, reasoning that a signature at Nazi gunpoint by Grünbaum to sign over his art collection was not a valid conveyance. Subsequently in 2019, the Appellate Division, First Department affirmed the decision. In a recent decision, the Court of Appeals rejected Nagy’s request to hear his appeal on the merits, effectively ending the seven-year litigation.

However, a 2011 decision issued by the U.S. District Court of the Southern District of New York reached a different conclusion in Bakalar v. Vavra, a provenance case that involved part of the same Grünbaum collection. The Bakalar Court found the subject artwork was never appropriated by the Nazis, however, based on the doctrine of laches, the possessor of the artwork was the rightful owner, not Grünbaum’s heirs.

As such, two courts reached different conclusions as to whether the Nazis ever appropriated any artwork. Concerns that parties may engage in forum shopping have arisen, given the likelihood of more litigation as other artworks exist from Grünbaum’s collection. In any event, the provenance behind these artworks remain a mystery.

Thanks to Gina Rodriguez for her contribution to this article.  Should you have any questions, please contact Matthew Care.

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New Life For Failing To Waive Contractual Notice Requirement For Life Insurance Policy (NY)

On May 31, 2022, the Eastern District of New York issued a Memorandum & Order in Herman Brettler v. Allianz Life Insurance of North America.

In 2016, Herman Brettler (“Herman”), as trustee of the Zupnick Family Trust 2008 (the “Trust”), commenced an action against Allianz Life Insurance Company of North America (“Allianz”), seeking a declaration that a life insurance policy issued by Allianz (the “Policy”) remained in effect. In 2018, the Eastern District of New York granted Allianz’s motion to dismiss under Rule 12(b)6), finding the previous owner of the Policy failed to provide Allianz with written notice of its assignment to the Trust as the terms of the Policy required, and therefore, the assignment was ineffective and the Trust lacked contractual standing to sue.

On appeal, the Second Circuit acknowledged the question of whether a policy owner’s failure to comply with the written notice requirement renders an assignment ineffective under New York law is a question best answered by the Court of Appeals of New York because the issue lacks binding precedent; however, in hopes of avoiding the need for certification, the Second Circuit remanded to determine whether the claims were time-barred and whether the Policy was in fact assignable on May 24, 2016, when it was allegedly transferred to the Trust.

In sum, the Court in Brettler found (i) the time-bar under New York Insurance Law § 3211(d) did not apply to the declaratory judgment and that Allianz’s position that the death of the insured while the matter was pending transformed the declaratory judgment into an action seeking recovery was unavailing; (ii) the time-bar under C.P.L.R. § 213, not § 214(2) was applicable, meaning, plaintiff had six years, not three years, to bring the action because the wrongs alleged exist under common or decisional law; (iii) it was plausible that Allianz’s grace notice was defective because it may have significantly overstated the amount due to prevent the Policy from lapsing; and (iv) it was sufficiently shown that the Trust attempted to make the premium payments even though, strictly speaking, Allianz’s insistence of extracontractual performance by overstating the amount due to prevent lapse may constitute repudiation of its own terms which would then preclude it from relying on the policyholder’s failure to tender premiums when arguing the policy lapsed.

As this case was not dismissed under either of the issues for which the Second Circuit remanded it, Wade Clark Mulcahy LLP will be keeping an eye on whether it leads to a precedent-setting certification by the Court of Appeals of New York.

Thanks to Richard Dunne for his contribution to this article.  Should you have any questions, please contact Matthew Care.Read More

Gist Of The Action Remains Useful In PA Motion Practice

In Moravia Motorcycle, Inc. v. Allstate Insurance Company, plaintiffs brought the following claims in connection with damage sustained to a motor home: (1) negligent misrepresentation; (2) breach of contract; and (3) bad faith. Allstate moved for summary judgment on Counts I and III. The claim arose from a curious scenario, as the plaintiffs’ motorhome was parked in a lot they owned when a tree branch fell on the roof, causing serious water damage.

In Count I, plaintiffs alleged Allstate was negligent by misrepresenting the status of the policy by, among other things, failing to fully advise as to the actual terms of coverage and failing to inspect the motor home in a workmanlike manner, which led to additional damages associated with mold and electrical issues, and eventually, complete loss of the motor home. Specifically, it was alleged that an adjuster originally verbally indicated the claim was covered, and the plaintiffs thereafter started the repair process on their vehicle at an approved mechanic. In the meantime, Allstate sent a second adjuster and inspector and denied the claim entirely.

Allstate argued plaintiffs’ negligence allegations should be dismissed under the gist of action doctrine, as the duty Allstate owed to plaintiffs arose pursuant to the contractual relationship (Count II) between the parties, not from a separate societal duty as would be necessary in tort. The court agreed and dismissed Count I, stating, “[i]f Allstate wrongly denied coverage, Plaintiffs have a claim for breach of contract.”

In Count III, plaintiffs alleged Allstate engaged in bad faith by stating the loss was covered, only later to inform plaintiffs, without explanation, the loss was in fact not covered. This allegation alone was sufficient to overcome Allstate’s Motion to Dismiss pursuant to Rule 12(b)(6) as to Count III.

This decision highlights the gist of action doctrine as an important tool in the preliminary stages of litigation and the importance of maintaining one, consistent message.

Thanks to Richard Dunne for his contribution to this article.  Should you have any questions, please contact Matthew Care.

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Intrafamily Exclusion In Auto Policy Ruled Unenforceable (NJ)

On May 6, 2022, a New Jersey appellate panel upheld a policyholder’s win in a coverage dispute with Travelers Insurance Company, holding an intrafamily step-down exclusion acted as a “hidden trap” in a family’s auto policy where not reflected in the policy declarations page. Specifically, in Cristina Dela Vega v. The Travelers Insurance Company, et al., (No.: A-2272-19), the Court ruled that Travelers must pay its policy’s full $100,000 limit in bodily injury coverage as this “clearly worded exclusion” still functioned as a “hidden trap” making the provision thereby unenforceable as it would lead a reasonable policyholder to expect different coverage.

In the underlying accident, plaintiff Cristina Dela Vega (“Dela Vega”), was severely injured while riding in a car driven by her husband who collided with another vehicle pulling out a New Jersey parking lot. A Travelers claims adjuster initially offered Dela Vega her policy’s normal bodily injury limit of $100,000, but later revised that to $15,000, saying there had been an “unfortunate mistake” adding that she had never before dealt with an intrafamily exclusion despite her experience as an auto policy adjuster.

Dela Vega then sued in New Jersey Superior Court, seeking coverage up to the policy’s $100,000 declared limit and asserting claims for bad faith, violation of the Consumer Fraud Act and punitive damages. The trial court ordered Travelers to pay Dela Vega $100,000, finding the step-down exclusion to be ambiguous, “patently unfair” and contrary to public policy.

On anticipated appeal, the New Jersey Appellate Court mostly agreed. Even though the exclusion was technically sound, it went against the average policyholder’s “reasonable expectations” of coverage, the panel held, since the declarations page provided for $100,000 in coverage and didn’t say anything about an exclusion. Furthermore, the claims adjuster’s offer of the $100,000 limits four months after the accident was established as proof plaintiff’s expectation of that coverage was objectively reasonable. However, in a partial win, Dela Vega’s bad faith, punitive damages, and commercial claims were discarded as Traveler’s didn’t display any “unconscionable commercial practice” or malice in issuing the policy or trying to enforce the step-down exclusion.

The New Jersey Appellate Court did not go as far to hold that the step-down exclusion itself was contrary to public policy upon finding a violation of the policyholder’s reasonable expectations. However, the court included a footnote that finding the provision to be “troubling” and “concerning” which indicates that such step-down exclusion will likely face ongoing scrutiny from the New Jersey courts.

Thanks to Kendal Hutchings for her contribution to this article.  Should you have any questions, please contact Matthew Care.

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An Arbitrator’s Award In Excess Of Policy Limit Constitutes Grounds For Vacatur (NY)

New York Appellate Court holds once an insurer has paid the full monetary limits set forth in its insurance policy, the insurer’s duties to the policyholder under the policy cease. Accordingly, where an arbitrator’s award directs payment in excess of the monetary limit of a policy of insurance, the Appellate Division, First Department has held that the award is subject to vacatur.

In Allstate Fire And Casualty Insurance Company v. Branch Medical P.C., 2022 WL 1163074 (1^st Dep’t 2022), Petitioner-Respondent Allstate Fire & Casualty Insurance Company (“Allstate”) issued a policy of insurance to an insured that included a $50,000 policy limit for Personal Injury Protection coverage and a $25,000 policy limit for Optional Basic Economic Loss coverage. (the “Policy”). Subsequently, the insured received medical treatment from Respondent-Appellant Branch Medical, P.C. (“Branch Medical”). As such, Branch Medical sought to recoup fees from Allstate and the two parties submitted to arbitration. At the conclusion of the arbitration, the master arbitrator’s award directed payment to Branch Medical in excess of the monetary limit of the Policy. Consequently, Allstate petitioned to have the arbitrator’s award vacated, whereas Branch Medical submitted a cross-motion to confirm the arbitrator’s award. Ultimately, the Civil Court vacated the master arbitrator’s award and denied respondent’s cross-motion, resulting in Branch Medical filing an appeal with the First Department.

Upon review of the appeal, the First Department held the arbitrator’s award directing payment in excess of the monetary limit of the Policy exceeds the arbitrator’s power and constitutes grounds for vacatur of the award. In essence, Allstate’s submissions of evidence—including the testimony of Allstate’s claims adjustor, policy declarations page, and ledgers listing the dates any claims were received and paid—were deemed sufficient to establish the Policy had been exhausted by payments of no-fault benefits to other health care providers and lost wages to the assignor before Allstate was obligated to pay the claim at issue. Although Branch Medical attempted to assert new arguments throughout the appellate process, the Court noted that it would not consider different theories or new questions that were not presented to the Civil Court. Ultimately, the First Department upheld the Civil Court’s Order that granted the petition of Allstate to vacate the master arbitrator’s award and denied respondent’s cross-motion to confirm the arbitration award.

Thanks to Drew Fryhoff for his contribution to this post.  Should you have any questions, please feel free to contact Tom Bracken.

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D&O Policy Language Mandates Advance Of Limits For Criminal Defense Case (PA)

In the insurance coverage case, Dougherty v. Nat39, l Union Fire Ins. Co. of Pittsburgh PA., plaintiff petitioned for a special injunction seeking an advance to cover his criminal defense costs and expenses under a policy issued by defendant to the International Brotherhood of Electrical Workers, Local 98 (“Local 98”). Relevant here, Dougherty was indicted for alleged financial improprieties as an officer of Local 98, with a federal criminal trial commencing in May of 2022. Dougherty argued that a specific provision of a D&O policy provided that the insurer was contractually obligated to advance the policy limits prior to the start of the trial.

Dougherty argued affirmative injunctive relief is necessary because he would be left without the ability to cover defense costs at a “critical juncture” in his federal criminal proceeding, allegedly implicating constitutional rights. He also indicated trial consultants – presumably expensive – are needed to put forth a meaningful defense. Moreover, Dougherty stated he currently owed past fees to his attorneys and was unsure if they would continue with his defense without assurance of payment.  By way of context, an injunction is typically only issued if irreparable harm (among other factors) can be shown.

The Court recognized the need for swift resolution, stating “there is a possibility that the merits . . . will [] be decided by mediation” but that resolution would come too late to prevent irreparable harm given that the federal criminal trial begins May 5, 2022. The Court examined the specific policy language at issue, which provided, in relevant part:

Regardless of whether the defense is so tendered [by Local 98], the Insurer shall advance Defense Costs (excess of the Retention amount) of such claim prior to its final disposition.

The Court acknowledged the word “shall” imposed a duty on the defendant to advance the defense costs because Dougherty presented a “Claim” as defined by the policy, i.e., “a criminal proceeding which is commenced by return of an indictment.”

Defendant opposed the petition by arguing Dougherty failed to provide notice, which was quickly discounted by the Court. Defendant further argued the exclusion pertaining to Dougherty’s knowledge of his wrongful conduct applied; however, the Court deemed this circular because Dougherty is presumed innocent.

This case is unique in that a special injunction was utilized to obtain what amounts to a declaratory judgment.

Thanks to Richard Dunne for his contribution to this article. Should you wish to discuss, please feel free to contact Matthew Care.

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“Other Insurance” Provision Allows Insurer To Cap Limits (PA)

In Meyers v. Travelers Insurance Company, 2022 WL 1028705 (E.D. Pa. 2022), the plaintiff sued one of her auto liability insurers for extensive damages sustained in an automobile accident. This common occurrence led to a rather uncommon insurance coverage issue. The plaintiff recovered funds from her own primary auto insurance, plus two additional uninsured motorist (“UIM”) insurance policies. The fourth insurer, Travelers, argued that the plaintiff’s UIM recovery was capped based on an “Other Insurance” clause in its policy.  By way of context, Travelers insured the vehicle of the plaintiff’s mother.

The plaintiff waived her right to stacking of UIM coverage in the Travelers policy, but not in the other two UIM policies. Thus, the question for the court was: what happens when a car accident a victim is insured under multiple policies of equal priority but has waived stacking in only one of the relevant  policies?

In Pennsylvania, UIM benefits are stacked by default – but an insured may waive this privilege in exchange for a lower premium. Here, Travelers argued that its policy included a waiver of plaintiff’s right to stacked coverage pursuant to an “Other Insurance” provision that capped limits, and this provision therefore limited the plaintiff’s UIM recovery to the single highest applicable coverage limit among the three UIM insurers. The plaintiff argued that this waiver of stacking via the “Other Insurance” clause violated Pennsylvania’s Motor Vehicle Financial Responsibility Law as well as public policy in the Commonwealth. Specifically, the relevant “Other Insurance” language provided:

 The maximum recovery under all policies in the Second priority may equal but not exceed the highest

applicable limit of liability for any one vehicle under any one policy providing coverage to you or any

“family member”.

The Eastern District agreed with the insurer, holding that an insurer may cap an insured’s maximum non-stacked secondary priority UIM policy at the highest liability limit applicable to the other insurance policies. Therefore, the court found that an “Other Insurance” clause was a valid manner by which an insurer could limit the coverage amounts. This is a case with unique facts, but it behooves all interested parties to be aware of the potential to cap limits via “Other Insurance” provisions.

Thanks to Jason Laicha for his contribution to this article.  Should you wish to discuss, please feel free to contact Matthew Care.

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All Risk Insurance Policy Does Not Cover Restaurant From Covid Loss (PA)

In a recent case from the Eastern District of PA, Humans & Res., LLC v. Firstline Nat’l Ins Co., the court granted the defendant’s summary judgment against the plaintiff who sought coverage under an all-risk property policy. Finding that COVID-19 related loss did not fall under an all-risk property policy and did not give rise to the expectation that it would.  The plaintiff in the case owned a BYOB restaurant. The Pennsylvania Governor instituted a stay-at-home order in response to the COVID-19 pandemic. The large establishment was limited to takeout and delivery. In response the plaintiff owner chose not to provide take out and delivery options. The plaintiff argued that since the chose not to offer carryout or delivery, the orders caused the restaurant to lose revenue and suffer business income losses.

The plaintiff filed a declaratory judgment that the business losses it incurred due to the closure orders were covered under the policy. The court found in favor of the defendant finding that the Insurance policy does not cover the losses caused by COVID-19. The plaintiff then cross moved on the grounds that they believed the “all risk policy included coverage for business losses suffered in the event of a business interruption.” The defendant moved to dismiss the claims based on the policy did not extent to pandemic-related closure. Additionally, the policyholder specifically did not request coverage for global pandemic related closure. The court further explained that all-risk policies do not create an objectively reasonable expectation of coverage of all losses, especially where the policy’s coverage is limited by exclusions.

This case is a good example of how a policy language can dictate the outcome even in an all-risk policy. Although mostly related to COVID-19 damages an all-risk policy will still be confined to a general coverage area with limits.

Thanks to Kevin Riley for his contribution to this post.  Should you have any questions, please feel free to contact Tom Bracken.

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Fire Insurance Policies Must Follow The Standard Policy (NY)

The Supreme Court of New York, Niagara County, recently rejected an attempt by a property insurer to rely on an exclusion not included in New York’s standard fire policy. In Niagara BYG Capital, LLC v. Leatherstocking Coop. Ins. Co., the plaintiff property owner hired a company to manage and renovate a multi-family home. The property manager hired several workers to perform certain work at the site, and plaintiff agreed to allow them to live in the home while they performed the work. One of the workers intentionally set fire to the premises and plaintiff sought coverage.

The property insurer denied coverage for the fire, relying on a “Dishonest or Criminal Acts” exclusion in the policy. The insurer claimed that plaintiff knowingly “entrusted” the property to the person who set the fire, thereby triggering the exclusion. However, this exclusion is not contained in the standard fire insurance policy statutorily set forth in New York Insurance Law Section 3404 and provides less favorable coverage than the statutory policy. As such, plaintiff moved for summary judgment on the basis that the defendant’s denial violated the provisions of Insurance Law section 3404.

The court observed that Insurance Law section 3404(b)(1) requires that any policy that insures against fire must incorporate terms and provisions no less favorable to the insured than those contained in the standard policy. It further found that while the standard policy includes several exclusions, it does not include the exclusion upon which the insurer relied in the case. As such, the exclusion impermissibly restricted the coverage mandated by statute by imputing the intentional act of another onto an innocent insured. Accordingly, the court declined to enforce the exclusion and granted plaintiff’s motion.

The takeaway of the Niagara BYG case is that New York fire insurers should be careful to ensure that their policy exclusions should match those in New York’s standard fire policy set forth in Insurance Law section 3404. Exclusions not contained in the standard policy will be rejected by New York courts.

Thank you to Tristan Montague for his contribution to this post. Please contact Andrew Gibbs with any questions.

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