New York Insurance Coverage Law Update

State Attorney General’s Letter Was A “Demand” That Precluded Coverage For Subsequent Federal Prosecution

Edward Weaver, the former chief executive officer of Multivend, LLC, sued Axis Surplus Insurance Company for breach of contract, challenging its refusal to provide coverage to him under Multivend’s directors and officers liability insurance policy for his criminal prosecution by the United States Department of Justice. The federal district court ruled that the policy excluded coverage for defense of the action because it related to a claim first made prior to the policy’s “Pending and Prior Claims Date.” Weaver appealed, arguing that the district court erred in finding that a letter that Multivend received from the Securities Division of the Maryland Attorney General’s Office was a “demand” within the meaning of the policy. The Court of Appeals for the Second Circuit affirmed, finding that, under  New York law, the letter was not just a “mere request for information” but, rather, was a “demand” because it set forth the Securities Division’s request for documents under a claim of right and put Multivend on notice of legal consequences for failure to comply. [Weaver v. Axis Surplus Ins. Co., No. 14-4180-cv (2d Cir. March 7, 2016).]

No-Fault Law Does Not Authorize Payment For OBS Facility Fees, New York’s Top Court Rules

A medical doctor billed no-fault insurance carriers for his professional services through Metropolitan Medical and Surgical P.C. and separately billed them for facility fees associated with his office-based surgery (“OBS”) services through Avanguard Medical Group, PLLC, a limited liability corporation he owned. According to Avanguard, the OBS facility fees were a charge for the use of the physical location and equipment and also included payment for technicians and medical assistants who helped with the surgical procedures. The insurers paid the doctor’s professional fees, but declined reimbursement for the facility fees which exceeded $1.3 million. The insurers sought a declaratory judgment that they were not legally obligated under New York Insurance Law § 5102 to reimburse Avanguard for the OBS facility fees. New York’s highest court, the Court of Appeals, agreed with the insurers. The Court ruled that these fees were not expressly permitted by the no-fault law or its payment schedules and that permitting Avanguard and other OBS centers to collect facility fees would undermine the purpose of the no-fault law “to contain costs by subjecting service charges to statutory ceilings and regulatory-fixed rates.” [Government Employees Ins. Co. v. Avanguard Medical Group, PLLC, 2016 N.Y. Slip Op. 02473 (N.Y. March 31, 2016).]

Appellate Court Finds No Coverage For Insured’s Own Work Product

Eurotech Construction Corp. was sued and then sued its insurer for a defense and indemnity for the underlying action. The appellate court held that Eurotech was not covered because the claims asserted against Eurotech in the underlying action arose from damage to its own work product – the installation of allegedly defective fire stops and its alleged failure to install wooden sub-flooring – and that there were no allegations in any of the underlying pleadings that Eurotech had caused damage aside from or beyond its own work. The court explained that damage to the insured’s own work or product did not constitute “property damage” caused by an “occurrence” within the meaning of Eurotech’s policy. [Eurotech Construction Corp. v. QBE Ins. Corp., 2016 N.Y. Slip Op. 02031 (1st Dep’t March 22, 2016).]

Insurer Did Not Prove Prejudice By Late Notice, Appellate Court Concludes

A passenger in a vehicle was injured when the vehicle was hit from behind.  The passenger sought supplemental un-insured/underinsured motorist (“SUM”) coverage under her mother’s automobile insurance policy.  The insurer disclaimed coverage on the ground that the passenger failed to provide timely notice, and the passenger sued. The court held that the insurer failed to demonstrate that it was prejudiced by the untimely notice. The insurer argued that it was prejudiced because it did not have an opportunity to inspect the damage to the vehicles.  However, the court opined that the “vehicles would have been repaired in the time between the accident” and when the passenger was “required to give notice” and, therefore, the insurer failed to establish it would have had the opportunity to inspect if provided with timely notice.  The court also rejected the insurer’s argument that it suffered prejudice because it was unable to conduct an EUO or IME before the passenger underwent surgery, reasoning that the insurer “fail[ed] to establish that the postsurgery ex-aminations” and medical records “will not yield the information sought.”  [Slocum v. Progressive Northwestern Ins. Co., 2016 N.Y. Slip Op. 02182 (4th Dep’t March 25, 2016).]