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DECEMBER 2005
“NON-CUMULATION
CLAUSES” SAVE THE DAY FOR INSURERS WHO ISSUE LIABILITY COVERAGE ON A
YEARLY BASIS
In the recent Court of Appeals case of
Hiraldo v. Allstate Insurance, ---N.E.2d----, 2005 WL 2759234 (N.Y.),
2005 Slip Op. 07830, the plaintiff, Alexandria Hiraldo, first obtained a
judgment of $700,000 against her landlord, whereupon both parties
entered into a stipulation assigning any of the landlord’s rights to
Hiraldo. Then upon such stipulation, Hiraldo sued her landlord’s
insurer on behalf of her infant son, Christopher, alleging that he was
exposed to lead paint throughout the period of the lease. Allstate paid
$300,000 into court, and asserted that the payment discharged its
liability. Ms. Hiraldo disagreed and brought an action to recover the
rest of the landlord’s obligation from Allstate.
Allstate Insurance Company issued a
$300,000 liability policy for a term of one year beginning in February
of 1991. It was subsequently extended the following two years until
1993. Each of the three annual policies provided, “This policy applies
only to losses which occur during the policy period, as shown on the
declarations page.” In spite of this, Ms. Hiraldo sued for the
outstanding $400,000, claiming that since the loss occurred during each
of the three policy periods, and each policy applies “to losses which
occur during the policy period,” Allstate is liable up to its limit for
each policy. Allstate countered by relying on specific policy language,
which stated, “Regardless of the number of…policies involved, all bodily
injury … resulting from one accident or from continuous or repeated
exposure to the same general condition is considered the result of one
loss. ”Based on this “non-cumulation clause” the Supreme Court
granted summary judgment dismissing the plaintiff’s complaint, and the
Appellate Division, 778 N.Y.S.2d 50, affirmed. The Court of Appeals
granted leave to appeal, and also affirmed.
The Court recognized the inherent
unfairness posed to both parties. For the defendant, the Court ceded
that it did not seem right that an insurer that never issued more than
$300,000 in coverage could be liable for $900,000 for a single loss. As
to the plaintiff, the Court recognized that if each of the successive
policies had been written by a different insurance company, presumably
each insurer would be liable up to the limits of its policy. It did not
seem just that the plaintiff should recover less money because one
insurer wrote all the policies. Ultimately the Court gave effect to the
unambiguous language of the “non-cumulation” clause and held that as the
plaintiff’s continued exposure constituted one loss, Allstate can only
be liable for the policy limit of one policy, or $300,000. In support
of its finding, the Court cited a federal case applying New York law and
interpreting identical policy language as fatal to the plaintiff’s claim
(see Bahar v. Allstate Ins. Co., 2004 WL 1782552 [SD NY, Aug. 9, 2004]
).
In stressing the importance of including
such “non-cumulation clauses” in policies where insurers underwrite for
successive years or terms, the Court of Appeals cited Natl. Union Fire
Ins. Co. v. Farmington Cas. Co., 1 Misc.3d 671, 765 N.Y.S.2d 763. In
Natl. Union Fire Ins. Co., it was found that successive policy limits
may be cumulatively applied to a single loss where the policies do not
clearly provide otherwise.
In contemplating the potential impact of
the Natl. Union Fire Ins. Co. decision, one can imagine the staggering
losses insurance companies may face when dealing with “continuous
exposure” cases if policies were issued to a particular insured for a
consecutive number of years. Hiraldo points to one unconditional truth:
the careful insurer will include “non-cumulation clauses” to any policy
where the insured may renew for successive years or terms.
NICHOLAS L. MINEO
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NOVEMBER 2005
Recent Construction of
the Pommells Decision
In
April, 2005 the Court of Appeals issued the Pommells v. Perez, decision
4. N.Y.3d 566, 797 N.Y.S.2d 380 (2005) (see also ‘Summing Up’ dated June
13, 2005) which imposed upon plaintiffs a more exacting interpretation
of the 'serious injury' threshold. Subsequent appellate decisions
indicate the appellate courts intend to conform to this strict
interpretation.
In Clark v. Perry, 801 N.Y.S.2d 645 (4th
Dept. 2005) the Fourth Department upheld the dismissal of a plaintiff’s
case after the defense offered evidence of a pre-existing injury. The
Court held that the plaintiff’s evidence in response to defendant’s
motion to dismiss failed to properly address the issue of causation.
Further, the Court stated that, "in the absence of objective evidence
establishing the aggravation [of the pre-existing injury] as opposed to
[continuing symptoms from] the underlying condition" the plaintiffs
action should be dismissed.
In
Agramonte v. Marvin, ---N.Y.S.2d---, ---A.D.3d--- WL2561465 (1st
Dept. 2005) the First Department affirmed the dismissal of the
plaintiff’s action alleging a serious injury when the plaintiff failed
to explain a significant gap in treatment. The Court noted that the
plaintiff had treated for three months after the accident but then
stopped for two years. The Court held that, "the unexplained gap in
treatment is fatal to plaintiff's claims for serious injury."
In, Montomgery v. Pena, 798 N.Y.S.2d 17, 19 A.D.3d 288 (1st Dept.
2005) the First Department held that it was reversible error to deny
defendant’s motion to dismiss where the defense provided evidence of a
pre-existing injury. In response to the defendant’s motion, the
plaintiff offered a physician’s affidavit noting physical limitations in
the right knee and shoulder. The Court stated that the plaintiff did
not meet his burden of proof because his doctor failed to provide any
objective basis for concluding the plaintiff’s symptoms were the result
of the accident and not the pre-existing injury.
In Farozes v. Kamran, ---N.Y.S.2d ---, ---A.D.3d.--- WL
2438929 (2nd Dept.
2005) the Second Department affirmed the dismissal of the plaintiff's
action alleging a cervical injury where the plaintiff failed to
adequately explain a four year gap in medical treatment following the
accident at issue.
In Maye v. Stearns, 798 N.Y.S.2d 152, 19 A.D.3d 902 (3rd Dept.
2005) the Third Department upheld the dismissal of the plaintiff's claim
where the defense provided evidence of pre-existing injuries not known
to the plaintiff's chiropractor. The Court held that because the
chiropractor failed to address the plaintiffs' pre-existing symptoms
there was an inadequate foundation to support his conclusions on
causation.
The cited cases suggest
that the appellate courts are interpreting Pommells as placing two
additional prerequisites on plaintiffs alleging soft tissue injuries.
First, a plaintiff has the burden to explain a gap in treatment
following a soft tissue injury. Second, a plaintiff’s physician must
provide an objective basis for concluding that a plaintiff’s symptoms
are not solely the result of a pre-existing condition. Further, it is
not enough for a medical provider to summarily state that an accident is
the cause of a plaintiff’s injury when the defense can provide evidence
of a pre-existing condition. This requirement could provide a strong
argument in defense to a negligence action where the plaintiff presents
pre-existing physical complaints.
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SEPTEMBER 2005
THE FEDERAL GOVERNMENT STRIKES OUT
AGAINST STATE VICARIOUS LIABILITY LAWS
Until recently,
§388
of the New York State Vehicle and Traffic Law permitted long term
leasing companies to be held liable for the negligent acts of those
driving their leased vehicles. Section 388 of the VTL provides that "[e]very
owner of a vehicle used or operated in this state shall be liable and
responsible for death or injuries to person or property resulting from
negligence in the use or operation of such vehicle…".
For some time leasing
companies have challenged the constitutionality of this provision of the
VTL. In that regard, they have argued that holding long term lessors
vicariously liable for the acts of their lessees bears no rational basis
for achieving any governmental purpose and is therefore a violation of
the equal protection and due process clauses of both the United States
and New York State constitutions.
In 2004, Ford Motor Credit
Company and Ford Credit Titling Trust Company made such a challenge
before the Appellate Division, Fourth Department. See
Chilberg v. Chilberg, 13 A.D.3d 1089, 788 N.Y.S.2d 533 (4th
Dept., 2004).
In Chilberg, Id.,
the then fifteen year old plaintiff was accidentally run over by the
pick-up truck being driven by her father as she lay in the driveway of
her family's home sunbathing. The vehicle driven by the plaintiff's
father was, at the time of the accident, leased from Ford Motor Credit
Company and Ford Credit Titling Trust Company.
Refusing to agree with
Ford's arguments, the Fourth Department held that "[o]ne legislative
purpose in enacting the statute was to ensure that persons injured by
the negligent operation of a motor vehicle would have recourse to a
financially responsible person...". Id. at p. 1092.
Section 388 of the VTL was
the reigning law until very recently when, on August 10, 2005, President
Bush signed the Transportation Equity Act. This massive transportation
bill contains a provision prohibiting states from holding long term
leasing companies, or car rental companies, vicariously liable.
At first glance, in light of
the general rule that state law is preempted to the extent that it
conflicts with federal law, it appears that this new law brings an end
to New York State's practice of holding leasing companies vicariously
liable. However, some have questioned the constitutionality of this new
law given the application of the McCarran-Ferguson Act and the
limitations imposed on Congress' ability to control interstate
commerce.
The McCarran-Ferguson Act,
enacted in response to the Supreme Court's decision in U.S. v.
South-Eastern Underwriters Assn., 322 U.S. 533, 64 S.Ct. 1162
(1944), provides that "[n]o Act of Congress shall be construed to
invalidate, impair, or supercede any law enacted by any State for the
purpose of regulating the business of insurance…unless such Act
specifically relates to the business of insurance…" See 15
U.S.C.A. §1012(b).
In addition to the above,
some also question whether this new law represents a constitutional
exercise of Congress' authority under the Commerce Clause of the United
States Constitution.
It is well settled that,
under authority granted to it by the Commerce Clause of the United
States Constitution, Congress may regulate the use of the channels of
interstate commerce, the instrumentalities of interstate commerce and
those activities having a substantial relation to interstate commerce.
See U.S. v. Lopez, 514 U.S. 549, 115 S.Ct. 1624 (1995).
However, the Supreme Court has also determined that Congress' authority,
under the Commerce Clause, is not without bounds. As such, in order for
this new law to withstand constitutional scrutiny, it must be shown that
vicarious liability substantially affects interstate commerce.
The Transportation Equity
Act became effective on August 10, 2005. Although it is likely that the
constitutionality of this new federal law will be challenged given the
issues addressed above, for the interim,
§388
of New York's Vehicle and Traffic Law has been preempted. As such,
neither long term leasing companies nor rental companies may be held
vicariously liable for the acts of those driving their leased or rented
vehicles. Whether this will remain the law of the land remains to be
seen at this time.
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AUGUST 2005
THE COURT OF APPEALS CONSIDERS THE ISSUE OF
SHARING DEFENSE COSTS BETWEEN TWO PRIMARY INSURANCE POLICIES
The
Court of Appeals recently dealt with the topic of sharing defense costs
by primary insurance carriers in the case of General Motors
Acceptance Corporation, et al v. Nationwide Insurance Company, 4
N.Y.3d 451, 796 N.Y.S.2d 2 (2005). In the General Motors case,
the Court of Appeals held that where two primary insurance policies
covering the same accident have the same limits, the insurance carriers
must share the defense costs equally.
In General Motors, a lessor leased
an SUV from the plaintiff, General Motors Acceptance Corporation
(GMAC). The lease required the lessor to obtain an automobile insurance
policy and include GMAC as an additional insured under the policy. The
lessor procured a suitable primary insurance policy through the
defendant, Nationwide Insurance Company. The policy provided liability
coverage in the amount of $100,000 per person and $300,000 per
occurrence. In addition to the aforementioned policy, and as additional
security, GMAC independently secured two policies from Fireman's Fund
Insurance Company. The first, a primary policy, provided the same
coverage as the policy procured by the lessor from Nationwide. The
second was an umbrella policy providing $9,000,000 in coverage.
The lessor was
subsequently involved in a motor vehicle accident that produced multiple
lawsuits and threatened the limits of all the policies. Because of the
greater exposure imposed on Fireman's, Nationwide tendered the right to
conduct and control the defense to Fireman's. Fireman's accepted tender
of the defense pursuant to a reservation of rights to pursue collection
of all defense costs from Nationwide. The parties settled, completely
exhausting the Nationwide policy and coming close to exhausting the
Fireman's policies as well. The legal fees incurred by Fireman's in
defending the action exceeded $200,000. Due to the clause in the
Fireman's policy reciting that its primary coverage was deemed to be
"excess" to any other applicable insurance, Fireman's sought full
reimbursement from Nationwide for the defense costs. Nationwide argued
that the defense costs should be shared according to the relative
exposure of both carriers. The instant action ensued. The trial court
awarded Fireman's full reimbursement of defense costs and the Appellate
Division affirmed.
The Court of
Appeals reversed the decisions of the lower courts, holding that the
defense costs should be based on the limits of both primary policies
regardless of the provision in Fireman's primary policy that stated it
should be deemed "excess" to the other. The Court reasoned that since
the limits of the two primary policies were identical, each must bear
50% of the defense costs. The Court further held that the $9,000,000
"excess" policy procured by GMAC from Fireman's did not give Fireman's a
higher obligation with respect to the obligation to defend. The Court
cited the well-known rule that "an insurer's duty to defend is broader
than its duty to indemnify." The Court reasoned that the provision in
the Fireman's policy making its coverage "excess" to the other policies
is only applicable to the obligation to indemnify and not to its duty to
defend.
This decision
begs the question whether the outcome would be different if the limits
of the multiple primary policies were unequal. In cases where the
limits are unequal, the General Motors decision suggests that the
defense costs would be divided in the same proportions as the limits.
Michael M. Chelus
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JULY 2005
THE COURT OF APPEALS
AGAIN CONSIDERS AN INSURER’S RIGHT TO DISCLAIM UPON LATE NOTICE
Under the “no-prejudice” rule, an insured's
failure to provide timely notice of an accident relieves the carrier of
its obligation to perform regardless of whether the carrier can
demonstrate prejudice. The "no-prejudice" rule is actually a limited
exception to traditional contract law, which requires demonstration of a
material breach or prejudice before one can escape his duty to perform
under the contract. Previously, in the case of
In re Brandon (Nationwide Mut. Ins. Co.),
97 N.Y.2d 491, 743
N.Y.S.2d 53 (2002), the Court
of Appeals declined to apply the "no-prejudice" rule where the insured
failed to give her own insurer timely notice of her commencement of
litigation against an alleged tort-feasor. Such notice is necessary to
trigger entitlement to SUM benefits.
In Brandon, the
Court of Appeals found that the insured had violated the terms of the
insurance policy by providing late notice of her SUM claim to the
insurer. However, the insured timely applied for no-fault benefits.
Since the insurer had timely notice of the actual accident and resulting
injuries, the Court of Appeals ruled that the insurer would have to
demonstrate prejudice in order to properly disclaim coverage.
The Court of Appeals has recently revisited the
application of the "no-prejudice" rule in the context of a liability
insurance policy, and this time reached a different result.
In the recent
case of
Argo Corp. v. Greater New York Mut. Ins. Co.,
4 N.Y.3d 332,
827 N.E.2d 762, 794 N.Y.S.2d 704 (2005), the injured claimant in the
underlying action, Igo Maidanek, slipped and fell on a sidewalk adjacent
to an apartment complex managed by Argo Corporation. In February of
2000, Maidanek commenced suit against Argo by serving a summons and
complaint on the Secretary of State. Argo did not notify its insurer,
Greater New York Mutual Insurance Company (GNY), of the lawsuit until
May 2, 2001, which was about three months after Argo received a notice
of entry of the default judgment. GNY then disclaimed coverage on June
4, 2001 on the basis that the notice of the lawsuit and incident was
late and that such notice was a “condition precedent” to coverage under
the policy. Argo, in turn, brought a declaratory action against GNY in
an effort to secure coverage under its policy.
Argo asked the Court of Appeals to apply the
rationale of Brandon to the facts of this case. However, the
Court of Appeals distinguished this case from Brandon in light of
the fact that the insurer did not receive timely notice of either the
lawsuit or the actual accident. The first notice of either did not
occur until some 16 months after service of a summons and complaint upon
the insured. “The rationale of the no-prejudice rule is clearly
applicable to a late notice of lawsuit under a liability insurance
policy. A liability insurer, which has a duty to indemnify and often
also to defend, requires timely notice of lawsuit in order to be able to
take an active, early role in the litigation process and in any
settlement discussions and to set adequate reserves. Late notice of
lawsuit in the liability insurance context is so likely to be
prejudicial to these concerns as to justify the application of the
no-prejudice rule. Argo's delay was unreasonable as a matter of law and
thus, its failure to timely notify GNY vitiates the contract. GNY was
not required to show prejudice before declining coverage for late notice
of lawsuit.”
In an interesting postscript, New York State
Senator John Bonacic recently introduced a bill, which, if passed, would
prevent an insurer from disclaiming on the basis of late notice unless
it could prove “substantial prejudice” as a result of the late notice.
This bill is known as “S1770” and has not yet reached a vote. We will
keep a close eye on this matter and report any movement on the bill.
Michael J. Chmiel
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JUNE 2005
THE COURT OF APPEALS ATTEMPTS TO CURTAIL
NO-FAULT ABUSE
In Pommells v. Perez, 2005 WL
975859 (N.Y., April 28, 2005), the Court of Appeals attempts to clarify
the issues surrounding the question of serious injury. The Pommells
decision consolidates three separate cases, all dealing with plaintiffs
claiming to have suffered soft tissue injuries in car accidents.
In Pommells, following the
accident, the plaintiff remained out of work for six months while he
attended a course of physical therapy. The plaintiff then sought no
further medical treatment for more than three years. However, two years
after the accident, the plaintiff developed a kidney condition resulting
in surgery after which the plaintiff was again out of work for six
months. In opposition to the defendants=
motion for summary judgment, the plaintiff submitted unsworn treating
doctors=
reports indicating a herniated disc and the need for further treatment.
The plaintiff also submitted the report of an orthopedist who concluded
that the plaintiff=s
symptoms were Acausally
related to the history as stated@.
The history included both the car accident and the plaintiff=s
kidney problems.
The Court of Appeals noted that mere
proof of a herniated disc, without additional objective medical evidence
establishing causal significant physical limitations, is not
sufficient. A cessation of treatment is not dispositive as the law
Asurely
does not require a record of needless treatment in order to survive
summary judgment.@
However, a plaintiff who terminates therapeutic measures following the
accident, while claiming a serious injury, must offer some reasonable
explanation for having done so. The plaintiff provided no explanation
for the cessation of treatment. Nor did his doctors explain whether the
claimed symptoms were caused by the accident or the plaintiff=s
intervening kidney problem. As such, the Court of Appeals concluded that
the defendants=
motion for summary judgment was correctly granted.
In Carrasco v. Mendez, discussed
within Pommells, the plaintiff=s
initial treating physician, Dr. Vadim Miloradovich noted that the
plaintiff had traumatic herniations in the cervical and lumbar spine as
a Adirect
result of the car accident@.
Another treating physician, Dr. Emmanuel Lambrakis, noted deficiencies
in range of motion and causally related a permanent severe partial
disability. However, the IME physician concluded that the plaintiff=s
current symptoms were caused by degenerative disc disease. The defendant
also submitted two reports from Dr. Miloradovich, noting that following
the motor vehicle accident the plaintiff=s
symptoms had returned to a baseline of symptoms, which were the product
of a pre-existing degenerative condition. The Court of Appeals, in
affirming the dismissal of the case, noted that the defendant=s
submissions shifted the burden to the plaintiff to come forward with
evidence indicating that the plaintiff sustained a serious injury
causally related to the accident. The defendant presented evidence of a
pre-existing condition causing the plaintiff=s
symptoms and the plaintiff ultimately failed to rebut that evidence
sufficiently to raise an issue of fact. The Court of Appeals held that
the affidavit of Dr. Lambakis submitted by the plaintiff, which causally
related the plaintiff=s
symptoms to the accident, did not sufficiently refute the defendant=s
evidence of a pre-existing degenerative condition. In fact, the
Lambrakis affidavit established that the plaintiff=s
pain and specific losses in range of motion were consistent with the
degenerative condition identified by MRI.
Brown
v. Dunlap, also discussed within the Pommells opinion, dealt with the issue
of a gap in treatment and its bearing on the plaintiff=s
ability to satisfy the serious injury threshold. In Brown, the
plaintiff was diagnosed with bulges and a herniation in the lumbar spine
with limitation of movement, constituting a permanent injury. Once the
plaintiff=s
treating physician concluded that any further treatment would only be
palliative in nature, treatment ceased for two and a half years. The
Court of Appeals concluded that the defendants=
submissions, consisting of the sworn reports of a radiologist, an
orthopedist, a neurosurgeon, a neurologist, and an orthopedic surgeon,
were sufficient to meet their initial burden arguing that although
causally related, the plaintiff=s
injuries were minor at best. However, the Court noted that the plaintiff=s
submissions in opposition, raised material issues of fact as to whether
the plaintiff sustained a permanent or significant injury. The Court of
Appeals excused the gap in treatment noting that
Aa
plaintiff need not incur the additional expense of consultation,
treatment or therapy, merely to establish the seriousness or causal
relation of his injury@.
As such, the Court of Appeals reversed the dismissal of the plaintiff=s
case and reinstated the complaint.
In its treatment of these decisions,
the Court of Appeals generally comments that dismissal is particularly
appropriate where there is a gap in treatment or a pre-existing
condition.
Anthony B. Targia
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MAY 2005
THE COURT OF APPEALS RELAXES THE "NO PREJUDICE" RULE
IN SUM CASES WHERE INSUREDS GIVE TIMELY NOTICE OF ACCIDENT
New
York State=s "no
prejudice" rule allows an insurance company to disclaim coverage for
late notice regardless of whether it suffered prejudice or harm. In
Rekemeyer v. State Farm Mutual Automobile Insurance Company, 2005
W.L. 756620 (2005), the Court of Appeals relaxed this rule by holding
that it did not apply in a supplementary uninsured/under-insured
motorist (SUM) dispute where the insurance company was timely notified
of the accident.
The
plaintiff, in Rekemeyer, was injured in a motor vehicle accident
on May 8, 1998. She immediately notified her insurance company, State
Farm, of the accident and made a claim for no-fault benefits. At the
time of the accident, the plaintiff had been off work for eighteen years
due to a pre-existing back problem. One year later, on April 27, 1999,
the plaintiff sued the other driver. On July 21, 1999, the plaintiff
notified State Farm of the suit. In September of 1999, the plaintiff
discovered that the tort-feasor=s
liability coverage was limited to $50,000.00.
In
October, 1999, the plaintiff underwent surgery on her back which she
alleged was a direct result of the May, 1998 accident. On March
12,2000, the defendant driver offered $45,000.00 to settle the case.
Believing that her injuries were worth more than $50,000.00, the
plaintiff notified State Farm on March 31,2000, almost two years
following the accident, that she would be making a claim for SUM
benefits under her policy. While preserving her rights to pursue SUM
benefits, the plaintiff, on April 10, 2000, settled with the tort-feasor
for $50,000.00. State Farm disclaimed on April 25, 2000 based upon
plaintiff=s
failure to notify it of the SUM claim "as soon as practicable."
The
plaintiff filed a declaratory judgment action against State Farm
alleging that she was entitled to SUM benefits under her policy. State
Farm immediately moved for summary judgment citing plaintiff=s
failure to comply with the notification requirement in her contract.
In a
case of first impression, the Court of Appeals, in its opinion, noted,
"where an insured previously gives timely notice of the accident, the
carrier must establish that it is prejudiced by a late notice of a SUM
claim before it may properly disclaim coverage.@
The Court took into account the plaintiff=s
pre-existing injuries , intervening surgeries and the tort-feasor=s
affirmative defenses regarding liability and concluded that the
plaintiff could not have known the tort-feasor was "underinsured" until
the settlement was reached. The Court of Appeals held that the phrase
"as soon as practicable" in SUM cases meant the insured must give notice
to it=s carrier
with "reasonable promptness@
once that insured knew or reasonably knew the tort-feasor was
underinsured. According to the Court of Appeals, this test should be
done on a case by case basis.
The
Court reasoned that the "no prejudice" rule was created to protect
insurance carriers from fraud and collusion. The rule provides
insurance companies time to investigate claims. In this matter, the
plaintiff gave immediate notice of the accident and State Farm actually
performed an investigation. The Court reasoned that to allow State Farm
to deny coverage in this matter without demonstrating prejudice would
not serve the rule=s
intent. The Court would be providing a windfall to State Farm if it
denied coverage. The case was remanded back to the trial court to
provide State Farm a chance to demonstrate prejudice.
Kevin E. Loftus
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APRIL 2005
AN EMPLOYER THAT FAILS TO SECURE
WORKERS COMPENSATION INSURANCE FOR
ITS EMPLOYEES
IS NOT PROTECTED FROM THIRD-PARTY
LIABILITY PURSUANT TO WORKERS COMPENSATION LAW § 11
The Court of Appeals has recently held
that an employer cannot benefit from Workers' Compensation Law § 11
protections against third-party liability unless it first obtains
workers' compensation insurance for its employees. Boles v. Dormer
Giant, Inc., 2005 WL 405355 (N.Y., February 22, 2005).
In Boles, the plaintiff-worker
was injured while installing siding on a two-story one-family house when
his scaffold collapsed thereby causing him to fall eight feet to the
ground below. In that case, the homeowners had contracted with Dormer
Giant, Inc. to remodel their home which, in turn, subcontracted with the
plaintiff's employer, Personal Touch Home Improvements, Inc., for the
siding installation. As a result of the fall and injuries sustained,
the plaintiff sued Dormer Giant which, subsequently, initiated a
third-party action against Personal Touch. By virtue of the third-party
complaint, Dormer Giant was seeking indemnification and contribution
from Personal Touch for the plaintiff's damages.
At Special Term, the plaintiff moved for
summary judgment under Labor Law § 240(1) against Dormer Giant. At the
same time, Personal Touch cross-moved for summary judgment on the
third-party complaint. In doing so, Personal Touch claimed that Dormer
Giant's indemnification and contribution claim was barred by Workers'
Compensation Law § 11. Dormer Giant opposed on the basis that the
protections provided by Workers' Compensation Law § 11 were inapplicable
to Personal Touch as it had failed to secure workers' compensation for
its employees.
Pursuant to Workers' Compensation Law §
11, an employer cannot be held liable for contribution and
indemnification to any third party for injuries sustained by an employee
while working. One exception to this rule arises when the employee has
suffered a "grave injury" as that term is defined by the statute. Based
on this, the Supreme Court granted Personal Touch's cross-motion thereby
dismissing the third-party complaint against it. Subsequently, the
Second Department agreed with the lower court thereby affirming the
Supreme Court's decision. Leave was granted to appeal to the Court of
Appeals.
The Court of Appeals reversed. In doing
so, the Court analyzed the legislative history of Workers' Compensation
Law § 11 and determined that the protections afforded an employer under
that section against third-party liability were part of an underlying
bargain between business and labor. By virtue of this bargain, workers
were to obtain necessary medical benefits and compensation for work
related injuries while employers would be shielded from tort liability,
except in the case of a "grave injury". However, in this case, as
Personal Touch did not hold up its end of the bargain by failing to
secure workers' compensation for its employees, the Court ruled that it
cannot now benefit from the § 11 protection. The Court noted that to
rule otherwise would discourage other employers from providing the
necessary benefits to their employees as provided by workers'
compensation.
James S. Curtis
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MARCH 2005
FOURTH
DEPARTMENT WEIGHS IN ON DUTY
OWED TO THOSE WHO ARE NOT PARTIES TO A
SERVICE CONTRACT
Generally in New York, where there is no legally recognized duty, one is
not liable to an injured person, however careless one's conduct or
foreseeable the harm. For example, in Pulka v. Edelman, 40
N.Y.2d 781, 390 N.Y.S.2d 393 (1976), the court held that a garage
operator had no duty to protect pedestrians from the negligent conduct
of its patrons. However, in Espinal v. Melville Snow Contractors,
Inc., 98 N.Y.2d 136, 746 N.Y.S.2d 120 (2002), three exceptions are
described by which a party entering into a contract to render services
may be said to have assumed a duty of care to third-parties and thus be
potentially liable in tort. The exceptions are as follows:
1. Where a contracting party, in failing to exercise reasonable care in
the performance of his contractual duties 'launches a force or
instrument of harm';
2. Where the plaintiff detrimentally relies on the continued
performance of the contracting party's duties;
3. Where the contracting party has entirely displaced another party's
duty to safely maintain the premises.
Despite the broad language of these exceptions, the courts have been
reluctant to impose liability in favor of a plaintiff who is not a party
to a contract purportedly breached by the defendant. In Church v.
Callahan Industries, 99 N.Y.2d 104, 752 N.Y.S.2d 254 (2002), the
plaintiff suffered catastrophic spinal injuries at the age of nine when
the vehicle in which he was a passenger veered off the New York State
Thruway and crashed into a ditch. The defendant had contracted with the
Thruway Authority to replace and extend the guardrail system in the area
where the accident occurred. Despite evidence that the guardrail, if
completed pursuant to the contract, may have prevented the vehicle from
crashing into the ditch, the Court found that the defendant owed no duty
to the plaintiff because the defendant had not entirely displaced the
Thruway Authority's duty to maintain a safe premises.
In December of 2004, the Fourth Department had occasion to apply
Church, in the case Gerbino v. Tinseltown USA, 2004 WL
3019093, 2004 N.Y. Slip Op 09789 (4th Dept., 2004).
Plaintiff, Gerbino, was an independent contractor hired by defendant
Tinseltown as a security guard at its movie theater. Co-defendant John
Stewart d/b/a Protect Security had contracted with defendant Tinseltown
to provide overall security for the premises. The plaintiff was injured
while attempting to break up a fight between moviegoers and brought his
action against both Stewart and Tinseltown. The Fourth Department held
that Stewart did not owe a duty to protect the plaintiff. Citing
Church, the Court noted that defendant Stewart did not have a
contractual relationship with the plaintiff and did not acquire a duty
to the plaintiff pursuant to exceptions described in Espinal.
Given the language of the exceptions in Espinal, discussed above,
an argument could be made that the facts in Gerbino satisfy at
least the second or third exceptions. However, the Fourth Department
declined to impose liability, showing an inclination to construe the
exceptions in a narrow fashion.
Scott R. Orndoff
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FEBRUARY 2005
THE WORKER WHO DECIDES TO FOREGO THE
PROTECTION OF SAFETY DEVICES IS NOT ENTITLED TO THE
PROTECTION OF LABOR LAW §240.
The Court of Appeals recently narrowed the scope of Labor Law §240 by
holding that a worker who is provided adequate safety devices and
trained with respect to their use is not entitled to the protections
afforded by Labor Law §240(1). Cahill v. Triborough Bridge & Tunnel
Authority, 2004 WL 2941213 (N.Y., Dec. 21, 2004).
The ruling, one of a long series of cases attempting to interpret the
strict liability provisions of Labor Law §240, provides an implicit
extension of the "recalcitrant worker" defense.
The plaintiff in Cahill, a worker at a construction project at
the Triborough Bridge, attended frequent safety meetings prior to the
accident at issue. The meetings included instruction in the use of
safety lines that were supplied for the use of the workers.
Additionally, several weeks before the accident, a supervisor saw the
plaintiff climbing a structure without using a safety line.
Subsequently, the supervisor admonished the plaintiff to use the safety
line while climbing and working at a height. The plaintiff, for the time
being, complied. However, three weeks later, the plaintiff failed to
use the safety line while climbing at a height of approximately ten to
fifteen feet. He fell and was injured.
The plaintiff sued the owner of the Triborough Bridge on several
theories including an alleged violation of Labor Law §240(1).
Subsequently, the Supreme Court granted the plaintiff's motion for
summary judgment on the issue of liability rejecting the defendant's
argument that the plaintiff was a "recalcitrant worker" who was,
consequently, not entitled to the protections normally afforded by the
law. The Appellate Division, First Department, affirmed but granted
leave to appeal to the Court of Appeals.
The Court of Appeals reversed. The Court held that the jury may
conclude that the plaintiff had adequate safety devices available at the
job site and he was expected to use such safety devices while climbing.
Since the plaintiff chose not to use the safety devices without a "good
reason", the jury could have determined that the plaintiff's decision
not to use the safety line, rather than the violations of the Labor Law,
was the "sole proximate cause" of the accident. In finding a question
of fact, the Court rejected the plaintiff's argument that the
"recalcitrant worker" defense was inapplicable because the safety
instructions took place approximately three weeks before the accident.
This Court of Appeals decision is instructive in the way that claims
should be initially investigated. The carrier should undertake a
thorough early investigation regarding the defendant's safety practices
and meetings as well as the availability of safety devices and the
training of employees in the proper use of such devices. Evidence of
the plaintiff being reprimanded for failing to properly use safety
devices should be collected. The manner in which the plaintiff used
safety devices at the time of the accident should also be documented.
If possible, the carriers should proactively encourage their insureds to
document the instances where their employees were trained and possibly
admonished with respect to the proper use of available safety devices.
Thomas P. Kawalec
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JANUARY 2005
A MULTIPLE FAMILY DWELLING THAT IS BEING CONVERTED
INTO A SINGLE FAMILY DWELLING QUALIFIES FOR
LABOR LAW '240(1)
AND 241 HOMEOWNER=S
EXEMPTION.
In the recent Court of Appeals case of Ivo
Stejskal, et al v. Albert Simmons, III, et al,
3 N.Y.3rd 628, 728 N.Y.S.2d 397 (2004), the plaintiff, Stejskal, was
injured while standing on an A-frame ladder during the course of
performing construction work at a townhouse in Manhattan. Stejskal was
injured when the ladder he was using collapsed.
When the defendants purchased the property in September of 1998, it was
their intent to convert the townhouse back to its original function as a
single family house. When they purchased the house, it consisted of 13
separate dwelling units. On the date of the accident, the building was
registered as a multiple dwelling and, in fact, at least two tenants
remained in the building.
Labor Law '240(1)
and '241(6)
requires that all contractors and owners and their agents
Aexcept owners
of one and two family dwellings who contract for but do not direct or
control the work@
comply with certain safety standards when constructing or renovating
buildings. At issue in the Stejskal case was whether or not the
defendants were entitled to the benefit of the homeowner=s
exemption in accordance with Labor Law
'240(1) and
'241(6).
The trial court agreed with the defendants that they were entitled to
the one and two family exemption in accordance with Labor Law
'240(1) and
'241(6) and the
plaintiff appealed. The Appellate Division, Second Department, 309
A.D.2d 853, 765 N.Y.S.2d 886 (2nd Dept., 2003), affirmed the
trial court=s
decision finding that the owner defendants were entitled to a statutory
homeowner=s
exemption.
The Second Department relied primarily on the case of Khela v. Neiger,
85 N.Y.2d 333, 624 N.Y.S.2d 566 wherein the Court of Appeals held that
an owner who was renovating a multiple dwelling into a two family
dwelling when the plaintiff construction worker was injured was entitled
to the homeowner=s
exemption. In Khela, the Court of Appeals determined that the
owner was entitled to the homeowner=s
exemption since the purpose of the construction was solely connected
with remodeling the building into a residential and single tenant space,
not creating or enhancing commercial usage. Thus, the owner was
entitled to the benefit of the exemption, although at the time of the
accident the building was still a three family dwelling.
In Stejskal, the Court of Appeals affirmed the Second Department=s
decision holding that the evidence unequivocally demonstrated that the
sole purpose of the construction work was to convert what was a multiple
dwelling into a one family dwelling for the owner=s
usage. Thus, the defendant owners were entitled to avail themselves of
the one or two family homeowner=s
exemption provided in Labor Law
'240(1) and
'241.
Jennifer A. Hemming
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