New York Insurance Coverage Law Update

“Vertical Exhaustion” Of Primary Policies Triggered Excess, But Excess Policies’ Prior Insurance Provision Limited Insured’s Recovery, Second Circuit Holds 

Olin Corporation, a chemical manufacturer, contended that an excess insurer that had issued three consecutive annual policies had to indemnify it for environmental con-tamination that had taken place over a number of years at several manufacturing sites. The excess insurer argued that, under “horizontal exhaustion,” Olin’s primary policies had not been exhausted and, therefore, its excess policies had not been triggered. The United States Court of Appeals for the Second Circuit disagreed, reasoning that the New York Court of Appeals’ decision in In re Viking Pump, Inc., 52 N.E.3d 1144 (N.Y. 2016), dictated “vertical exhaustion” because the excess insurer’s policies called for an “all sums” allocation.  As such, the excess insurer’s policies were triggered. The Second Circuit also ruled, however, that the excess insurer’s policies’ prior insurance provision applied to any other excess policy issued within the same layer, and not just a prior policy it had issued, thereby reducing the limits of its policies by those of any prior policies covering the same loss. As a result, the Second Circuit concluded, Olin could not recover multiple times for a single loss by pursuing multiple insurers within the same layer of coverage. [Olin Corp. v. OneBeacon Am. Ins. Co., No. 15-2047(L) (2d Cir. July 18, 2017).]

Loss From Spoofed Email Was Covered As Computer Fraud, District Court Decides 

An employee in the accounts payable department of Medidata Solutions, Inc., received a phone call from a person who identified himself as a Medidata attorney and advised her to process a wire transfer to him. After the employee received an email that she believed to be from Medidata’s president authorizing the wire transfer, she logged onto the online system of Medidata’s bank and wired $4,770,226 to the bank account to which she had been instructed to send the money.  Medidata later learned that it had been defrauded, and that the company’s president had not sent the email approving the transfer.  Medidata sought coverage under the computer fraud section of its insurance policy.  Its insurer denied the claim on the basis that there had been no “computer fraud”, defined as “fraudulent entry of [d]ata into Medidata’s computer system.”  Medidata sued and moved for summary judgment.  The United States District Court for the Southern District of New York granted Medidata’s motion.  The district court reasoned that the fraud on Medidata had been achieved by entry into Medidata’s email system with a spoofed email armed with a computer code that masked the thief’s true identity.  The thief’s computer code also changed data from Medidata’s president’s true email address to achieve the email spoof.  The district court also found that the Medidata employee had initiated the transfer as a direct result of the thief sending a spoofed email posing as Medidata’s president.  Accordingly, the district court concluded, Medidata had demonstrated that its losses had been a direct result of “computer fraud.”  [Medidata Sol., Inc. v. Federal Ins. Co., No. 15-CV-907 (ALC) (S.D.N.Y. July 21, 2017).]

Employer’s Liability Exclusion Did Not Bar Coverage, Second Circuit Says 

An employee of Universal Photonics, Inc. (“UPI”), sued Hastings Development, LLC, a subsidiary of UPI, alleging that he had been injured while operating Hastings’ machine in Hastings’ building. Hastings tendered the action to its commercial general liability insurer, which disclaimed based upon the policy’s employer’s liability exclusion for bodily injury to “an employee of the Named Insured.” Hastings was one of the named insureds on the policy.  The court held the exclusion did not apply under the circumstances because a reasonable reading of the exclusion was that it applies where the bodily injury is to an employee of the Named Insured seeking coverage, and the bodily injury was not to Hastings’ employee.  [Hastings Dev., LLC v. Evanston Ins. Co., No. 15-3816 (2d Cir. July 10, 2017).]

MVAIC Had No Obligation To Pay Health Care Provider Without Proof That Its Assignor Was A New York Resident 

A health care provider sued the Motor Vehicle Accident Indemnification Corp-oration (“MVAIC”) to recover assigned first party no-fault benefits.  MVAIC argued that it was not liable to the provider because it had not received proof that the provider’s assignor was a New York resident at the time of the accident, and also had not received proof that the provider’s assignor had exhausted his remedies against any other available insurance coverage. The court dismissed the health care provider’s complaint, explaining that proof that the claimant was a resident of New York is a condition precedent to no-fault benefits from MVAIC and the health care provider did not demonstrate the unavailability of other insurance coverage. [Advanced Chiropractic of N.Y., P.C. v MVAIC, 2017 N.Y. Slip Op. 50955(U) (App. Term 2d Dep’t July 21, 2017).]