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On dissent.

ALBANY, NT. -- Insurance cases are being brought to the forefront at the New York Court of Appeals, ranging from a three million dollar malpractice case to personal injury cases, with three out of five including a dissent.

It happens coincidental that there are five insurances cases at once, one of which was for a broker rather than an insurance company. In the insurance realm, contracts, definitions, and explanations are important. There are more dissents today than there were ten years ago, but sources say the reason is Chief Judge Lipman feels that dissent is good because it opens the issues and the determinations of the court.

The opinion of K2 Investment Group, LLC v. American Guarantee & Liability Insurance Co., written by Judge Robert Smith, is a nearly three million dollar case which was just granted reargument by the Court in September. K2 Investment Group and ATAS Management Group loaned the large sum to real estate company Goldan, LLC, owned by New York attorney Jeffrey Daniels, who failed to repay the loans and declared bankruptcy in 2009. K2 and ATAS subsequently sued Goldan on claims of legal malpractice, as well as alleging Goldan breached personal guarantees of the loans.

The malpractice insurance company for Goldan, American Guarantee & Liability Company, disclaimed coverage over Daniels as he had declared bankruptcy. American Guarantee once again disclaimed coverage when Daniels forwarded a settlement offer of $450,000; when Daniels neglected to appear in the malpractice action, the Court awarded K2 $2,404,378, and ATAS $688,716 and discontinued their personal guarantee claims against Daniels.

In turn, Daniels turned his claims (including a claim of bad faith) against American Guarantee. As assignees of Daniels' rights under the malpractice policy, K2 and ATAS brought forth the action to recover the amount of the default judgment and the alleged bad faith of American Guarantee, who refused to defend or indemnify Daniels

The Supreme Court dismissed the claims of bad faith, but granted summary judgment to the plaintiffs to enforce default judgment. In a 3-2 decision the Appellate Division, First Department affirmed the action, stating policy exclusions "are patently inapplicable" to the claim of legal malpractice.

The dissent written by Judge Victoria Graffeo called into question whether the exclusions applied or not. "It is apparent that American Guarantee must satisfy the judgment that was entered against its policyholder." Graffeo said assuming Daniels was insured against the malpractice claim made against him, "American Guarantee should not now be allowed to avoid satisfying the judgment on the ground that the claim in the underlying lawsuit actually fell under a policy exclusion."

The Court affirmed, saying American Guarantee breached its duty to defend Daniels and therefore lost their right to rely on the policy exclusions. Upon reargument, the Court denied the plaintiff's motion for summary judgment.

In the case of Deborah Voss, et al, v. The Netherlands Insurance Company et al, v. CH Insurance Brokerage Services, Co., Inc., Judge Victoria Graffeo wrote that after acquiring insurance coverage through CH Insurance for a commercial building Voss purchased, the insurance company was not responsible for any promises made by the broker. The policy included a $75,000 business interruption policy from Peerless Insurance Company, which would cover lost business income caused by damage to the property.

CH Insurance reviewed Voss' property to come up with the $75,000 figure, and stated they would annually review the coverage as her businesses grew. In March 2007, the roof of Voss' building breached, causing substantial water damage; after repairs were made by a contractor, the roof partially collapsed again the next month causing more water damage to the building.

Voss testified that Peerless paid her $3,197 for the first incident and $30,000 after the second; CH Insurance recommended reducing her business interruption coverage to $30,000, to which Voss agreed. In February 2008, the roof again partially collapsed, and Voss testified she received no payment from Peerless.

Voss brought the action against CH Insurance claiming negligence and breach of contract, and alleging the broker improperly advised them the $75,000 in business coverage would be adequate, and claimed their losses exceeded two million dollars. The Supreme Court granted the brokers motion to dismiss the suit.

In an affirming 3-1 vote, the Appellate Division, Fourth Department stated CH Insurance did not establish that a special relationship had not existed between themselves and the plaintiffs, and Voss relied on the broker's "expertise and assurance regarding the appropriate level of insurance."

They did, however, rule the case was properly dismissed as the plaintiffs knew the terms and limits of the policy, and even if CH Insurance was negligent in obtaining sufficient coverage, they were not the direct cause of the damages.

The dissent, written by Judge Robert Smith, argued though the broker promised Voss CH Insurance would annually give advice as her business grew, "it is not and could not be claimed [the brokers] promise was legally binding." Furthermore, though she asked for advice from CH Insurance, as it was never followed through the "plaintiffs clearly were not relying on advice from CH Insurance at the time the insurance coverage that plaintiffs now complain of was acquired."

The order was reversed and CH Insurance's motion from summary judgment was denied.

An opinion written by Judge Robert Smith in the case of Executive Plaza, LLC v. Peerless Insurance Company, dealing with a one million dollar fire insurance policy was issued by Peerless, and covered a two-story office building in Island Park which was owned by Executive Plaza.

One provision of the insurance required Executive to repair its damaged property as soon as possible before seeking payment for such costs; another provision requires Executive to bring a lawsuit against Peerless within two years of the damage occurring.

In February 2007, Executive's building was destroyed by fire; they quickly hired an architect and construction company to begin replacing the building. After zoning and a variety of issues facing the construction, the building was finally completed in October 2010.

In February 2009, Executive sued Peerless for the replacement costs, up to the $242,000 under the policy limit, after Peerless previously paid $758,000 to cover the cash value of the property. The U.S. District Court dismissed the case because at the time, the building's construction had not been completed.

After the construction was completed, Executive demanded $242,000 of Peerless, but was rejected, therefore bringing this action against them. When the District Court dismissed the case as time-barred, Executive appealed.

The U.S. Court of Appeals for the Second Circuit poses the question to the New York Court of Appeals whether under the terms of the policy Executive would be "covered for replacement costs if the insured property cannot reasonably be replaced within two years," or if the two-year limitation can be enforced regardless of construction time. As the insured had begun the action on the last day of the limitation period and the insurer argued it was too soon, Judge Smith said it is unreasonable for them to now say a day later would be too late. The question has been answered in the affirmative.

Justice Eugene Pigott wrote an opinion on the case of Country-Wide Insurance Company v. Preferred Trucking Services Corp. In September 2006, Filippo Gallina was injured in a construction accident caused by a truck owned by Preferred and operated by Carlos Arias, a Preferred employee. Both Preferred and Arias were insured by Country-Wide, with a policy requiring them to cooperate while investigating and defending claims.

When Country-Wide began investigating Gallina's claim in February 2007, their repeated efforts to obtain cooperation from Arias and the president of Preferred, Andrew Markos, went ignored, causing the insurer to close their case in May. The followed up with a disclaimer of indemnity in October, and again resumed attempting to contact both Arias and the Markos. Both Markos and Arias expressed interest in cooperation, but ultimately did not return phone calls or attend depositions.

In November 2008, Country-Wide issued a compete disclaimer of coverage based on the lack of cooperation, and stated they would no longer provide a defense. Gallina won a $2.55 million dollar judgment against Arias and Preferred. Country-Wide pursued a judgment which would agree they are not obligated to defend and indemnify Preferred. The Supreme Court stated that they should have realized when Markos failed to respond to any contact that he would not cooperate, yet they still waited four months before issuing a second disclaimer.

The Appellate Division, First Department affirmed, stating Country-Wide should not have disclaimed coverage until they were sure Arias would not cooperate; their diligent work to attain cooperation shows Country-Wide believed Arias and Markos had information relating to the investigation.

Country-Wide argued they were still seeking information in good faith. The order was reversed, and Country-Wide was not obligated to defend and indemnify Preferred Trucking.

In a memorandum from the Court of Appeals, the court states the order of the Appellate Division should be affirmed and answered in the affirmative in regards to the case of QBE Insurance Corporation v. Jinx-Proof Inc., Doing Business as Beauty Bar. A 2007 altercation between customer Vera Hendrix and a security guard employed by Beauty Bar, owned by Jinx-Proof, caused Hendrix to file a personal injury suit against Jinx-Proof and the guard.

Hendrix alleges claims for assault and violation of the Dram Shop Act, as well as negligent hiring and supervision. Jinx-Proof's liability policy from QBE Insurance contained assault and battery exclusion; QBE sent the insured a "reservation of rights" letter in January 2008 notifying Jinx-Proof that they would not be defending nor indemnifying them for the allegations of assault and battery.

Sending another letter to Jinx-Proof in February, QBE informed them they would be defending the matter under the Liquor Liability portion of the policy, and they again did not have coverage for assault and battery claims. The Supreme Court dismissed the claims of negligence and Dram Shop in April 2010, which left the assault and battery claims still pending.

Judge Eugene Piggot wrote a dissent, stating the letters from QBE "do not communicate the requisite unequivocal written notice of the disclaimer, and therefore do not constitute disclaimers of coverage."

The Court ruled that QBE was not responsible for defending Jinx-Proof, and their letters to the company were sufficient and "effective written notices of the disclaimer." The Appellate Division, First Department affirmed with a 4-1 vote.

By Casey O'Brien, Cuyler News
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Title Annotation:COURT SIDE
Author:O'Brien, Casey
Publication:Insurance Advocate
Date:Mar 17, 2014
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