New York Insurance Coverage Update

May 1, 2014 | Insurance Coverage

Appellate Court Affirms Order Requiring Insurers To Produce Investigation Documents Created Before They Denied Coverage

After a steam turbine power generator at Ravenswood Generating Station in Queens, New York, shook violently and was shut down, the operator notified its insurers of the loss. The insurers hired insurance adjusters and attorneys to assist in the investigation and coverage determination. The insurers denied coverage and, after litigation ensued, the operator moved to compel the production of documents the insurers claimed were protected work product and attorney-client privileged communications. The trial court ordered the insurers to produce certain documents that pre-dated their denial, and the appellate court affirmed. The court ruled that documents prepared in the ordinary course of an insurer’s investigation regarding whether to pay or deny a claim were not privileged, and did not become so “merely because [the] investigation was conducted by an attorney.” The appellate court also ruled that the common interest exception to waiver of the attorney-client privilege by disclosure was not applicable because there was no pending or reasonably anticipated litigation in which the insurance companies had a common legal interest. [Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. TransCanada Energy USA, Inc., 2014 N.Y. Slip Op. 01283 (App. Div. 1st Dep’t Feb. 25, 2014).]

No “Personal And Advertising Injury” Coverage For Alleged Violation Of Corporation’s Right Of Privacy

A competitor sued the insured after it hired its employee. The insured sought coverage under the “personal and advertising injury” portions of its insurance policies, which covered the “[o]ral or written publication of material that violates a person’s right of privacy.” The insured contended that the misdeeds alleged in the underlying complaint broadly implicated the competitor’s “right of privacy.” The court rejected that argument, finding that the term “person” could not be construed to include a corporate entity. [Sportsfield Specialties, Inc. v. Twin City Fire Ins. Co., 2014 N.Y. Slip Op. 02646 (App. Div. 3d Dep’t Apr. 17, 2014).]

Insurer Can Rely Upon Peer Review Report To Deny No-Fault Medical Benefits Based Upon Lack Of Medical Necessity

A healthcare provider argued that an automobile insurance company could not lawfully rely upon medical peer reviews as a basis to deny claims for MRI studies, even if the peer reviews indicated that the underlying healthcare services were medically useless or illusory. The trial court dismissed the provider’s complaint, holding that “an insurer can rely upon a peer review report to support a denial of no-fault medical benefits based on lack of medical necessity.” [New York Diagnostic Medical Care, P.C. v. GEICO Casualty Ins. Co., No. 650766/2013 (N.Y. Sup. Ct. N.Y. Co. April 11, 2014).]

Health Department Notification Deemed Prima Facie Evidence That Lead Paint Condition Had Been Abated Before Policy Period

An insured was sued for damages stemming from the claimant’s alleged exposure to lead paint, and it sued its insurers. The court ruled that one insurer was entitled to summary judgment because a notification from the New York City Department of Mental Health and Hygiene was prima facie evidence that the lead paint condition had been abated before the insurer’s policy period. [Karen Manor Assoc. LLC v. Virginia Sur. Co., Inc., 2014 N.Y. Slip Op. 02331 (1st Dep’t April 3, 2014).]

In Hurricane Sandy Case, Court Dismisses Insureds’ Claims For Unfair Settlement Practices, Punitive Damages, And Attorney’s Fees

Claiming that they sustained extensive damage from Hurricane Sandy, car dealers sued their insurers. The court dismissed the dealers’ cause of action under Insurance Law § 2601 for engaging in “unfair claim settlement practices,” finding no private right of action for a violation of that law. The court also dismissed the dealers’ demands for punitive damages because the insurers’ alleged conduct did not involve moral turpitude or wanton dishonesty and/or a pattern of conduct directed at the public generally, and the dealers were not seeking to vindicate a public right. Finally, the court dismissed the claim for attorneys’ fees and costs, explaining that insureds cannot recover their attorneys’ fees and costs to prosecute claims for insurance coverage. [Kings Infiniti Inc. v. Zurich Am. Ins. Co., 43 Misc.3d 1207(A) (N.Y. Sup. Ct. Kings Co. April 3, 2014).]

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