New York Insurance Coverage Law Update

Appellate Court Upholds Jury Decision Finding Health Care Provider’s Fraudulent Incorporation

The Appellate Term, Second Department, upheld a jury verdict finding that a health care provider was ineligible to recover $18 million in no-fault insurance benefits because it was fraudulently incorporated. The appellate court found “ample evidence” that the provider failed to comply with New York State’s requirement that professional corporations be owned and controlled solely by licensed professionals, explaining that the insurance carriers had demonstrated that non-physicians had control over the hiring of office employees, management of the offices, and administration of the billing; manipulated the provider’s financial accounts; and permitted excessive charges for various rentals. [Andrew Carothers, M.D., P.C. v. Progressive Ins. Co., 2013 N.Y. Slip Op. 23232 (App. Term 2d Dep’t July 5, 2013).]

No Coverage Where Insured Failed to Establish that Terrace’s Decay Was “Hidden”

The owner of an apartment building sought coverage for a terrace that collapsed. The owner’s multi-peril policy covered direct physical loss caused by “hidden decay.” The court held that coverage was unavailable because signs of decay had been “plainly visible.” [6 Montague LLC v. New Hampshire Ins. Co., 2013 N.Y. Slip Op. 31748(U) (Sup. Ct. N.Y. Co. July 30, 2013).]

Water Exclusion Endorsement Precluded Coverage for Damage to Building

After an underground water supply line to a commercial building ruptured and the water washed away soil adjacent to the building, a section of the building’s concrete block foundation wall fell inward, permitting water, mud, and debris to enter the basement. The court found that coverage for the loss was excluded by the policy’s “Water Exclusion Endorsement.” [Harleysville Ins. Co. of N.Y. v Potamianos Props., LLC, 2013 N.Y. Slip Op. 05154 (App.Div. 4th Dep’t July 5, 2013).]

Relative’s Policy Did Not Provide SUM Benefits for Claimant Where Policy Did Not Cover Claimant’s Car

Maria Avelar was in a car accident in her own car and filed a claim for supplementary uninsured/underinsured (“SUM”) motorist benefits under a policy issued by GEICO to a relative with whom Ms. Avelar lived. Although Ms. Avelar was an “insured” under the policy, her car was not covered. The court held that Ms. Avelar could not obtain SUM benefits because the policy excluded compensation for bodily injuries sustained by an insured while occupying a motor vehicle he or she owned that was not covered under the policy. [Matter of Government Employees Ins. Co. v. Avelar, 2013 N.Y. Slip Op. 05317 (App. Div. 2d Dep’t July 17, 2013).]

Policy’s Employee Exclusion Barred Coverage in Construction Case

After a contractor’s employee sued to recover for personal injuries sustained while working on a construction project, the owner and property manager tendered their defense to the contractor’s insurer. The court upheld the insurer’s disclaimer, reasoning that the policy excluded coverage for damages arising out of bodily injury sustained by an employee of “any insured” in the course of employment. The court also found that the additional exclusions in the blanket additional insured endorsement did not alter the policy’s exclusions. [Soho Plaza Corp. v. Birnbaum, 2013 N.Y. Slip Op. 05058 (App.Div. 2d Dep’t July 3, 2013).]

Insurer that Defended Under a Disclaimer Is Not Estopped from Asserting Additional Grounds for Non-Coverage

Angel Williams sued Emery G. Bulluck, Jr., for negligence. Bulluck’s insurer disclaimed coverage but provided a defense. Williams and Bulluck settled and then sued the insurer. Following depositions, the insurer sought to amend its answer to add affirmative defenses not raised in the disclaimer. The Appellate Division, Fourth Department, held that the insurer was not estopped from asserting the additional grounds, explaining that Bulluck could not prove that he detrimentally relied upon coverage because the insurer had provided a defense and expressly reserved its right to assert further grounds for non-coverage in its disclaimer. [Williams v. New York Cent. Mut. Fire Ins. Co., 2013 N.Y. Slip Op. 05156 (App.Div. 4th Dep’t July 5, 2013).]