Steven Plitt, Expert Witness Steven Plitt, Expert Witness
Insurance Bad Faith Claim Handling Expert Serving Clients Nationwide

September 2016 Archives

Ordinance Or Law Coverage Must Pertain To The Claimed Loss For Coverage Attachment

The New York Court in St. George Tower v. Insurance Co. of Greater New York, 139 A.D.3d 200, 30 N.Y.S.3d 60 (N.Y.A.D. 1st Dept. 2016), was called upon to consider whether an insurance policy's ordinance or law endorsement provided coverage where a water loss claim resulted in the discovery that the concrete slabs at the insured property were structurally compromised. The structurally compromised concrete slabs were discovered during an inspection that was conducted by an architect retained on behalf of the insured who was assessing what needed to be done following a flood loss and flood insurance claim. Once the structurally compromised concrete slabs were discovered, the insured made the replacement of the concrete slabs part of the flood claim. The parties agreed that the condition of the concrete slabs was unrelated to the flooding event. Nevertheless, the insured argued that the policy's Ordinance or Law Coverage Endorsement provided coverage for the discovery of the problem slabs. The insured argued that the increased cost of construction coverage portion of the endorsement applied to cover the cost to reconstruct or remodel an "undamaged" portion of the structure, the endorsement, therefore, extended coverage to any increased costs that were due to the enforcement of a law or ordinance.

Two Wrongs Don't Make It Right

In an interesting case, the New York Appellate Court found that an insured could not sue the insurance broker for delaying in presenting a claim to the insurance company when the insured also delayed submission of the claim to the agent. In Rockland Exposition, Inc. v. Marshall & Sterling Enterprises, Inc., 138 A.D.3d 1085, 31 N.Y.S.3d 139 (N.Y.A.D. 2016), the New York Appellate Court held that the insured's delay of 52 days in notifying the insurance broker of the lawsuit that needed to be submitted to the insurance company precluded the insured from bringing a suit against the broker for liability for the broker's delay in providing notice to the insurer. The Court found that the insured's delay in providing notice to the broker was the precipitating breach of the insurance policy's requirement that the insured provide notice "as soon as practicable" and was the proximate cause of the insured's loss of coverage. In this case, the Court, in essence, held that two wrongs did not make it right.

The Fourth Circuit Court Of Appeals Finds That Late Notice Must Deprive The Insurance Company Of Its Ability To Exercise Its Meaningful Contractual Rights In Order To Establish Prejudice

The United States Fourth Circuit Court of Appeals, interpreting Maryland law, recently clarified the meaning and scope of "prejudice" under Maryland law. St. Paul Mercury Ins. Co. v. American Bank Holdings, Inc., 819 F.3d 728 (4th Cir. 2016). In this case, the corporate insured failed to notify the insurer of a lawsuit until a default judgment had been entered more than 18 months after the service of process. The corporate insured was required to notify the insurer of the claim "as soon as practicable." After being served with the summons and complaint, various corporate screw ups prevented the papers from being forwarded to the insured's legal department from its statutory agent. The insurance company alleged that it was prejudiced by the late notice. The Fourth Circuit found that while prejudice is an element of any late notice defense under Maryland law, prejudice is established when the insured's late notice precludes the insurer from exercising "meaningful contractual rights" under its policy which would be necessary in order to prove actual prejudice. Under the facts presented an 18-month delay after default had been entered denied the insurance company of the opportunity to participate in the selection of counsel, to speak with counsel, and to discuss credible defense strategies.

Can Speculation Fuel a Defense Obligation Under the Insurance Policy? The Montana Supreme Court Says That it Cannot.

Recently the Montana Supreme Court held that a duty to defend cannot be based on pure speculation regarding unpleaded claims. In Fire Ins. Exchange v. Weitzel, 2016 MT 113, 371 P.3d 457 (Mont. 2016), the elder abuse complaint framed 19 causes of action all of which sought economic damages only. The trial court found that while the complaint contained no cause of action for false imprisonment, facts within the complaint supported such a claim including an allegation that the insured had changed the locks on the plaintiff's house and told the plaintiff, an elderly individual, that he could not open the doors "for anyone." As a result, the trial court found that the Estate potentially sought damages for false imprisonment even though there was no specific cause of action alleging false imprisonment by name. The Montana Supreme Court reverse, however. The High Court found that although a complaint does not expressly have to allege a covered cause of action in order to trigger a defense obligation, the complaint must at least contain facts that would support a covered claim. While the complaint in question contained multiple causes of action, all of the causes of action sounded in economic loss. There were no factual allegations that the insured had restrained the elderly person against his will or in any type of unlawful manner. Even the allegation that the locks had been changed and the elder victim had been told not to open the door for anyone did not suggest, according to the Court, that the insured had prevented the elder person from voluntarily leaving his home. The High Court refused the elder victim's invitation to consider hypothetical facts in determining whether a duty to defend existed. In doing so, the Court found that an insurer's duty to defend could not be triggered by speculating about extrinsic facts and unpled claims regarding potential liability.

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