So Far, No Consistent Lineup of Judges for Carriers or Policyholders

August 20, 2018 | Evan H. Krinick | Appeals

After a term of transition for the New York Court of Appeals—with Associate Judge Eugene F. Pigott, Jr., retiring at the end of 2016, Associate Judge Rowan D. Wilson joining in February 2017, Associate Judge Sheila Abdus-Salaam’s death in April 2017, and Associate Judge Paul G. Feinman joining at the end of June 2017—the 2017-2018 term was stable, and productive. The court decided seven significant insurance cases. In four, the court was unanimous. In two of the other cases, the court sided with insurers, while it gave policyholders a win in the remaining case. The court voted to affirm in three cases, reversed in three, and answered a certified question in the other. At this early stage in this court’s history, there does not yet seem to be a consistent lineup of judges on the carrier or the policyholder side.

“Excess Line”

On Oct. 19, the court decided its first insurance case of the term, Excess Line Association of N.Y. v. Waldorf & Associates, 30 N.Y.3d 119 (2017), a unanimous decision by Judge Leslie E. Stein. The issue here was rather straightforward: Did the Excess Line Association of New York (ELANY)—a legislatively created advisory association under the supervision of the New York State Department of Financial Services (DFS)—have the capacity to sue its members to recover fees that it was statutorily authorized to receive and to compel an accounting to determine amounts allegedly owed.

The court held that it did not, ruling that ELANY’s enabling statute did not expressly authorize ELANY to sue for that relief. Instead, the court said, the legislature intended that the DFS would be the primary enforcer of the Insurance Law and corresponding regulations. The statutorily enumerated powers of ELANY related to recordkeeping and education, rather than regulatory enforcement, the court concluded.

“American Economy”

The court’s next insurance decision, American Economy Ins. Co. v. State of New York, 30 N.Y.3d 136 (2017), came down several days after Excess Lines, on Oct. 24. A unanimous decision by Judge Eugene M. Fahey, the case arose in the heavily regulated area of workers’ compensation insurance.

The particular issue involved the Legislature’s 2013 amendment to Workers’ Compensation Law §25-a, which closed the Special Fund for Reopened Cases to new applications. The fund had been established in 1933 to ensure that injured workers with “closed” cases that unexpectedly “reopened” after many years would continue to receive necessary benefits even if the insurance carrier had become insolvent—and to protect insurance carriers and employers from uncertain future liability costs they might incur in these “stale” cases. The fund was financed by assessments on carriers, which passed them on to their insureds through policyholder surcharges.

Insurers challenged the amendment, asserting that it operated retroactively to the extent that it imposed unfunded liability on insurers in connection with future reopened claims made on policies finalized before the amendment’s effective date. The court rejected that position, ruling that even assuming that the amendment had retroactive impact to the extent it imposed unfunded liability costs on insurers under policies finalized before the amendment’s effective date, it was constitutionally permissible. The court reasoned that the closure of the fund did not impair any terms of the insurers’ contracts with their insureds. In the court’s view, the amendment “merely altered the allocation of costs” of reopened cases by removing an avenue for carriers to transfer those cases to the fund and then to pass assessments for the costs of those cases to their insureds.

At most, the court concluded, the insurers’ contracts with their insureds became “less profitable.”

“Global Reinsurance”

The court issued its third unanimous insurance decision on Dec. 14, in response to a question certified to it by the U.S. Court of Appeals for the Second Circuit. Global Reinsurance Corp. of America v. Century Indemnity Co., 30 N.Y.3d 508 (2017), was the first insurance decision by Judge Feinman since he joined the court.

In this case, the Second Circuit asked whether, under the court’s decision in Excess Insurance Co. v. Factory Mutual Insurance, 3 N.Y.3d 577 (2004), a per occurrence liability cap in a reinsurance contract limited the total reinsurance available under the contract to the amount of the cap regardless of whether the underlying policy covered the reinsured’s expenses such as defense costs.

The court answered the certified question in the negative. It explained that reinsurance contracts were governed by the same principles that governed contracts generally and it held that New York law does not impose either a rule, or a presumption, that a limitation on liability clause necessarily caps all obligations owed by a reinsurer without regard for the specific language employed therein. Quoting from Knight-Ridder Broadcasting v. Greenberg, 70 N.Y.2d 151, 160 (1987), the court said that, despite language to the contrary in Essex, that decision was not controlling under the important appellate doctrine that principles of law “are not established by what was said, but by what was decided, and what was said is not evidence of what was decided, unless it relates directly to the question presented for decision.”

“Keyspan”

On March 27, the court issued its fourth unanimous insurance law decision, another by Judge Stein. KeySpan Gas East Corp. v. Munich Reinsurance America, Inc., 31 N.Y.3d 51 (2018), involved so called “long-tail” insurance claims, stemming from environmental contamination caused by manufactured gas plants owned and operated by the Long Island Lighting Company beginning in the late 1880s and early 1990s. LILCO’s successor, KeySpan Gas East Corporation, sought coverage for the costs of remediating the contamination under insurance policies that had been issued between 1953 and 1969.

The insurer sought a declaration that it was not responsible for any portion of the property damage at the sites that had occurred outside of its policy periods, and that the costs should be allocated pro rata over the entire period during which property damage at each site had occurred. For its part, KeySpan argued that the insurer’s pro rata share should not be reduced by factoring in the years in which pollution property damage liability insurance was unavailable—namely, before 1925—and after a “sudden and accidental pollution exclusion” was generally adopted by the insurance industry in or after October 1970.

The court agreed with the insurer and rejected the proposed “unavailability rule.” The court pointed out that the insurer’s policies limited the insurer’s liability to losses and occurrences happening “during the policy period.” It reasoned that applying the unavailability rule to insurance policies that directed pro rata allocation would effectively provide insurance coverage to policyholders for years in which no premiums had been paid and in which insurers had made the choice not to assume or accept premiums for those risks. The court concluded that the average insured would not expect to receive coverage without regard to the number of years for which it had purchased applicable insurance.

Pro-Insurers

The two cases that divided the court, with the majority ruling in favor of insurers, were Gilbane Building Co./TDX Construction v. St. Paul Fire and Marine Ins., 31 N.Y.3d 131 (2018), decided on March 27 (5-2) and Contact Chiropractic v. New York City Transit Authority, 31 N.Y.3d 187 (2018), decided on May 1 (4-3).

Gilbane arose after the construction manager for a New York City project was sued and sought “additional insured” coverage under an insurance policy issued to the project’s general contractor. The policy afforded additional insured coverage to any organization “with whom” the general contractor “agreed to add as an additional insured by written contract.”

The majority of the court, in an opinion by Judge Wilson, ruled that the construction manager was not entitled to additional insured coverage under the policy because there was no contract between the construction manager and the general contractor that required that the general contractor obtain insurance naming the construction manager as an additional insured. According to the majority, the endorsement was clear and unambiguous and consideration of extrinsic evidence was not appropriate.

The dissent, by Judge Stein in an opinion in which Chief Judge Janet DiFiore concurred, argued that the policy language was ambiguous and that the construction manager was entitled to additional insured coverage under the policy because there was a contract—albeit not between the construction manager and general contractor—that required that the construction manager be named an additional insured under the general contractor’s insurance policy.

Judge Fahey wrote the majority opinion in Contact Chiropractic, concluding that the three-year statute of limitations set forth in CPLR 214(2), which applies to actions to recover on a liability created or imposed by statute, applied to a claim for no-fault benefits against a self-insurer. The majority reasoned that the disputed no-fault benefits were not provided by a contract with a private insurer but, rather, that the source of the claim was “wholly statutory.”

Judge Garcia, in a dissenting opinion in which Judges Rivera and Wilson concurred, would have held that an action to recover no-fault benefits—whether from insurers or self-insurers—was subject to a six-year statute of limitations.

Judge Stein concurred with the majority in a brief opinion explaining that the court had not resolved whether no-fault insurers themselves were subject to a three- or six-year statute of limitations.

Pro-Policyholder
Judge Fahey took no part in Carlson v. American International Group, Inc., 30 N.Y.3d 288 (2017), and the remaining six members of the court were equally divided. Judge Wilson wrote the majority opinion (which was his first insurance decision since joining the court), in which Judges Rivera and Feinman concurred, while Judge Garcia wrote the dissent, in which Chief Judge DiFiore and Judge Stein concurred. The court vouched in Appellate Division Justice Randall T. Eng under the procedure in Article VI, Section 2, of the New York State Constitution—and the justice’s vote essentially was determinative.

The majority and dissenting opinions disagreed about, among other things, the application of Insurance Law §3420(a), which allows a limited cause of action on behalf of injured parties directly against insurers of policies “issued or delivered in this state.” Insurance Law §3420 does not define the term “issued or delivered in this state,” and the majority gave it an expansive reading, holding that it encompassed situations where both insureds and risks were located in New York. The minority, concerned that the majority had misinterpreted Section 3420(a) “in a manner that enacts sweeping change across the Insurance Law,” rejected its conclusion. The minority reasoned that the excess insurance policy that was the subject of the case, which had been issued by an insurer from New Jersey and delivered to the insured in Washington and then in Florida, had not been “issued or delivered” in New York as that phrase was ordinarily understood. The implications of the majority’s decision remain to be seen.

Reprinted with permission from the August 21, 2018 issue of the New York Law Journal. © ALM Media Properties, LLC.  Further duplication without permission is prohibited.  All rights reserved.

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