Spring 2008
Volume 1, Issue 1
1000 Crossroads Building • Two State Street • Rochester, New York 14614
Telephone: (585) 454-2181 www.trevettlaw.com
The Insurance Defense Update
ARTICLES IN THIS
ISSUE Carrier Held Liable for Consequential Damages Incurred By Its Insured
1. Carrier Held Liable for Bi-Economy Market, Inc. v. Harleysville Mutual Ins. Co., 2008 NY Slip Op 01418 (2008)
Consequential Damages
Incurred By Its Insured Bi-Economy Market, Inc.. v.
2. Insurer Responsible for Harleysville Mutual Ins. Co., was
Defense Costs Pursuant to commenced in the Monroe County
Agreement Between Supreme Court, and sought the
Counsel recognition of consequential
damages arising out of an insurance
3. Equitable Subrogation carrier’s breach of business
May Give Insurer Cause interruption coverage. In this
of Action Against action, Bi-Economy Market, Inc.
Negligent Counsel (“Bi-Economy”) was insured under
a business owner’s policy procured
4. Defendant Has the
from Harleysville Insurance
Right to Request Ex Parte
Company of New York
Interview with Plaintiff’s
(“Harleysville”). The policy at issue
Treating Physician
covered Bi-Economy from losses of
5. Baseball Club Found business income arising out of a
Not Liable When a covered event.
Teenager Was Hit by a
Car While Chasing Foul In October 2002, a fire rendered Bi-
Ball Economy’s physical structure and
food inventory a total loss; Bi-
Economy thereafter pursued a fire
loss and business interruption claim
under its policy. A lengthy dispute
between the parties thereafter
developed regarding the value of
Bi-Economy’s total loss.
As a result of lengthy settlement
negotiations to resolve the total loss
issue, Bi-Economy’s operations
were completely shut down and
have not re-opened. Bi-Economy
thereafter, as a result of these
protracted negotiations,
commenced suit against
Harleysville, alleging that its
conduct had tortiously interfered
with Bi-Economy’s business
relations, and that it had negotiated
the claim in bad faith. Bi-Economy
Facsimile: (585) 454-4026
further argued that as a result of
this breach of contract, it was
entitled to an award of
consequential damages over and
above the negotiated amount.
While Bi-Economy argued that
Harleysville’s conduct was
foreseeable, and caused the
plaintiff’s business to flounder
and ultimately fail, Harleysville
argued that consequential
damages were outside of the
scope of the insurance
agreement, and that even if
intended, several policy
provisions excluded coverage for
“consequential loss”. The trial
court agreed with Harleysville’s
position and dismissed Bi-
Economy’s claim for
consequential damages as they
were outside of the scope of the
insurance policy. The Fourth
Department confirmed the lower
court’s determination, but relied
on the policy exclusions as a
basis for denying consequential
damages.
This case was ultimately brought
before the Court of Appeals,
which for the first time
recognized an insured’s right to
recover consequential damages
under a first party claim. The
Court found that there was an
implied covenant of good faith
and fair dealing between the
parties, and that Harleysville had
violated that covenant. As such,
the Court determined the plaintiff
was entitled to an award in excess
of those contemplated by the terms
of the policy. In analyzing whether
Harleysville should have foreseen
that such a breach would have
resulted in Bi-Economy’s loss of
business, it concluded that the loss
of one’s ability to operate a
business was understandable and
foreseeable, and as such resulted in
a breach of Harleysville’s implied
duty. The Court further concluded
that the “purpose of business
interruption insurance is to
indemnify the insured against
losses arising from inability to
continue normal business
operation”, and that is intended to
get the insured “back on its feet as
soon as possible”. The Court
reasoned that Harleysville knew its
actions, which resulted in excessive
delays and an improper denial of
coverage, would undercut the very
intent of the agreement, and thus
determined it could be held liable
for consequential damages arising
from its breach.
 Insurer Responsible for Defense Costs Pursuant to Agreement Between
2 TYPE TITLE HERE Counsel
Wronka v. GEM Community Mgmt., 2008 NY Slip Op 02835 (2d Dept 2008)
The plaintiff had been injured when
he slipped on ice on a walkway
owned by Hillside Village
Condominium Association and
managed by GEM Community
Management. Upon being sued by
plaintiff, Hillside and GEM
C ..
commenced a third-party action
A PP .. C
against both Keller Equipment, the
contractor responsible for snow and
ice removal on the property, and
TREVETT CRISTO
NA
Keller’s insurer, Farm Family
Casualty. Hillside and GEM sought
AWW
O LL II N
contractual indemnification and
A TT LL A
defense costs pursuant to their status
as additional insureds under the
DO
policy issued by Farm Family to
Y SS A
Keller.
ND
AN
For reasons not elaborated upon in the
N EE Y
Second Department’s decision, the
& A
trial court granted Keller summary
O RR N
judgment dismissing the third-party
R &
A TT TT O
A LL ZZ EE R
Equitable Subrogation May Give Insurer Cause of Action Against Negligent
A
Counsel
Kumar v. American Transit Ins. Co. and Hiscock & Barclay, 2008 NY Slip Op 02674 (4th Dept 2008)
SS A
American Transit issued an
insurance policy to Jeffrey Tisack.
Pursuant to its obligations under
that policy, it retained Hiscock &
Barclay to defend Tisack when he
was sued by the Kumars.
However, Hiscock apparently
failed to appear and defend the
insured, resulting in a default
judgment.
Prior to the default, and perhaps
even before initiation of the
lawsuit, it appears that American
Transit had rejected an offer to
settle the claims by the Kumars for
less than the policy limit. Tisack
considered American Transit’s
actions to be in bad faith and,
presumably in exchange for an
agreement not to enforce the
complaint. The trial court had, at
the same time however, directed
that Farm Family pay Hillside and
GEM’s defense costs incurred up
until that time, pursuant to the
terms of the liability insurance
policy. The Appellate Division
reversed this portion of the lower
court’s order, noting that the claims
against Keller had been dismissed,
that it had been determined the
plaintiff’s injuries did not result
from a covered accident and,
therefore, Farm Family could
properly deny coverage under the
policy.
However, the Court then held that
the trial court should have granted
that portion of Hillside and GEM’s
motion which had sought leave to
amend the third-party complaint to
add a cause of action alleging
breach of contract against Farm
Family. The Court also
determined that, upon amendment,
Hillside and GEM were entitled to
summary judgment on that claim.
The contract in this case was an
agreement between Farm Family
and Hillside and GEM to share the
costs of defending the main action.
There had been no formal written
default judgment, assigned his bad
faith claim to the Kumars. The
Kumars then brought suit against
American Transit, which in turn
brought a third-party action against
Hiscock, claiming that if it was
liable on the bad faith claim it was
due to Hiscock’s negligence. The
trial court granted Hiscock’s
motion to dismiss the third-party
complaint and American Transit
appealed.
In a 3-1 decision, the Fourth
Department agreed with the trial
court that American Transit, the
insurer, could not maintain a
malpractice action against the
attorney it hired to defend its
insured because there was no
privity. However, the majority
2
agreement signed by the parties
themselves, but the Court found
that letters exchanged between
the attorneys for each party were
sufficient to demonstrate the
mutual agreement of the parties
and to constitute a binding and
enforceable stipulation.
Thus, while it avoided
responsibility under the liability
policy, the insurer was bound by
its separate agreement to split
the fees incurred in defending
the action, as set forth in
correspondence from its counsel.
While fee-sharing agreements
are often undertaken to the
mutual advantage of various
defendants, it is important to
remember that a party may be
undertaking obligations entirely
separate from, and potentially in
addition to, obligations which
may exist under the terms of the
relevant policy. Additionally,
both counsel and insurers must
remain cognizant of the fact that
an attorney’s correspondence
may be sufficient to bind the
insurer.
found that the third-party complaint
nevertheless “survives the motion
to dismiss based on the principle of
equitable subrogation.” Because
the third-party complaint alleged
that the loss sustained by American
Transit’s insured was the result of
Hiscock’s negligence in failing to
appear and defend the insured, the
Court found it sufficient to
withstand the motion to dismiss.
The Court also held that this claim
was not barred on the ground that
American Transit had not yet made
payment.
 Defendant Has the Right to Request Ex Parte Interview with Plaintiff’s
Treating Physician
Arons v. Jutkowitz, 9 NY3d 393 (2007)
The issue as to whether a
defendant has the right to
request an ex parte interview of
the plaintiff’s treating physician
has come up in a number of
cases recently before the Fourth
Department (Kish v. Graham,
40 AD3d 118 (4th Dept 2007))
and before the Second
Department (Webb v. New
York Methodist Hosp., 35
AD3d 457 (2d Dept 2006) and
Arons v. Jutkowitz, 37 AD3d 94
(2d Dept 2006)). In all three
C ..
cases, the court held that no
A PP .. C
such right existed. All three
panels granted leave to appeal
to the Court of Appeals.
TREVETT CRISTO
NA
AWW
O LL II N
In a consolidated 6-1 decision,
A TT LL A
the Court of Appeals disagreed
with all three decisions of the
appellate division courts and
DO
Y SS A
upheld the defendant’s right to
ND
seek the ex parte interview.
AN
N EE Y
The Court found that there was
& A
O RR N
Baseball Club Found Not Liable When a Teenager Was Hit by a Car While
R &
A TT TT O
Chasing Foul Ball
A LL ZZ EE R
Haymon v. Pettit, 9 NY3d 324 (2007)
A
The plaintiff, a fourteen year-
old teenager who ran into the
street after a foul ball was hit
SS A
in that direction, was hit by a
car. The plaintiff
commenced a lawsuit against
the ball club for his injuries.
The Court of Appeals held
that the club owed no duty to
warn about the risks of
pursuing the ball into the
road, thereby dismissing the
action against the club.
The defendant ball club
offered the incentive of free
tickets to anyone who
retrieved a ball. The Court of
Appeals found that this
incentive did not create a
duty to warn about the
dangers of crossing the street
3
no reason why a nonparty treating
physician should be less available
for an off-the-record interview
than a corporate employee or a
former corporate executive.
Furthermore, the Court found that
Article 31 of the CPLR does not
prohibit these avenues of
“informal discovery” and does not
solely require costlier and more
cumbersome discovery devices. In the three cases before the
Court of Appeals, the plaintiffs
received requests for HIPPA-
The Court makes clear that when
compliant authorizations
approaching the treating
restricted to the medical
physician, defendant’s counsel
condition(s) at issue, prior to
must steer clear of any privileged
the requested interviews, which
information that does not fit under
the plaintiffs’ refused to
the waiver of confidentiality that
provide. Defendants sought
the mere commencement of the
court orders compelling the
tort suit generates. Also, any
interviews, which the Court of
discussion between the physician
Appeals granted. The Court
and defendant’s counsel is
added that it is left to the
entirely voluntary and must be
physician’s discretion whether
limited in scope to the particular
to cooperate with defendant’s
medical condition at issue.
counsel.
to retrieve the ball. The
Court held that the dangers
of crossing the street exist
independent of the ball
club’s promotion. This,
combined with the fact that
the ball club neither
controlled the street nor the
third persons who used the
street, caused the Court to
find that the ball club owed
no such duty. Interesting
to note in this case was that
the plaintiff was a regular
participant in the ball
retrieving practice and was
wearing headphones at the
time of the incident,
thereby rendering him
unable to hear the traffic on
the street.