Ask Tim

Insurance Dept. Opinions: Late Notice of Claims, No-Fault Insurance

The New York Insurance Department’s Office of General Counsel issued the following advisory legal opinions in May and June:

• When an injured insured is unable to return to work due to injuries arising from an automobile accident; the insured’s employer hires another person to fill the insured’s vacant position during the insured’s period of disability; and the insured cannot immediately resume her employment when she is medically cleared to return to work, the insured may recover lost wages for the period after she is medically cleared but before she actually resumes work.
• An entity need not obtain an independent adjuster’s license in New York if it only issues checks to providers on behalf of an insurer when the insurer funds the checking account and makes all decisions on the underlying claims.
• The changes to New York law with regard to late notice of claims apply to policies issued in New York but delivered outside the state and to claims-made policies. The law applies only to liability insurance policies, but insurers may include the prejudice rules in other types of policies. 
• An employee of an insurer that is adjusting a claimant’s first-party no-fault claim may not share non-public personal health information about that claimant with an employee of an affiliate insurer that is adjusting the claimant’s third-party BI claim.
• New York Insurance Law and regulations do not permit an insurer to require a corporate assignee of no-fault benefits to designate an individual of the insurer’s choice to submit to an examination under oath.

The OGC issued two other opinions pertaining to the legality of a proposed annuity contract and the applicability of a specific regulation to health care providers and accident and health insurers. All opinions issued since 2000 are available for download from the department’s Web site.

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Order in the Court: Late Notice to an Excess Insurer

The IIABNY Research Department frequently gets questions about denials of coverage for late notice. Questions of timely notice are complicated enough when the policy is a primary general liability form. It gets even trickier when the policy is a commercial umbrella or excess policy.

Roy Mura’s Coverage Counsel blog reported a New York appellate court decision handed down two weeks ago that shows just how careful an insured (and, by extension, that insured’s agent) must be when it comes to giving prompt notice. To quote Roy:

When an excess liability insurance policy requires notice of how, when and where an occurrence took place, the names and addresses of injured parties and witnesses, and the nature and location of any injuries or damage, letters, faxes or emails providing anything less will not satisfy the notice requirement.  So says the First Department in this decision.

In this particular case, paid claims had shrunk the primary policy’s $2 million aggregate limit for the 2001-02 policy term to $800,000 with three claims still open in 2006. Foreseeing exhaustion of its limits, the primary insurer notified the excess insurer of the open claims. Almost immediately, the excess insurer denied coverage due to the late notice. When the primary insurer sued, the trial court denied the excess insurer’s motion to have the case dismissed. The New York Supreme Court’s Appellate Division, First Department, reversed the trial court’s decision. The court said that the excess insurer had not received the required information (“how, when and where the occurrence took place; the names and addresses of injured parties and witnesses; and the nature and location of any injury or damage”) in a timely fashion. Therefore, the insurer was within its rights to deny coverage.

In this case, it was an insurance company that lost in court. However, it could very easily be an insured who loses the next one, and it’s not a stretch to imagine the insured seeking recovery from the agent or broker on the account. The lesson: In the event of a loss, notify all insurers whose coverage may become involved and comply with the notice requirements in the policies.

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Should My Client Be An Additional Insured On Someone Else's Policy?

Question from an IIABNY member: I received an interesting question from an insured.  The insured is a not-for-profit organization composed of smaller organizations.  Our insured requires its members to list it as an additional insured on their policies.  A certificate from each member is on file with our insured.

Oft times outside groups seek to use a member's facilities, and the members require that the user list the member as an additional insured on the user's policy.  Our insured asked me whether it should also be listed on the user's certificate of insurance.  My thought would be that that would be addressed by having our insured listed on the member's policy as an additional insured. 

Since we are dealing with certificates - the biggest E&O exposure of all time - I thought I would run this by you for your feedback.

IIABNY response: For ease of discussion, I’m going to assume that all three parties (user, member and your insured) have modern versions of the ISO CGL policy. A key condition of that policy states:

4. Other Insurance.

If other valid and collectible insurance is available to the insured for a loss we cover under Coverages A or B of this Coverage Part, our obligations are limited as follows:…

b. Excess Insurance

(1) This insurance is excess over: …

(b) Any other primary insurance available to you covering liability for damages arising out of the premises or operations, or the products and completed operations, for which you have been added as an additional insured by attachment of an endorsement.

Therefore, our layers of coverage will look something like this:

Since the user is adding the member and your insured as additional insureds by endorsement, the member’s policy automatically becomes excess over the user’s policy. The same applies with your insured’s policy, since your insured is an additional insured by endorsement on the member's policy. Naming your insured as an additional insured on the user’s policy essentially makes your insured's coverage one step further removed from a given claim. The only potential downside I can see is that this requirement, all other things being equal, might make the member’s facilities less attractive to potential users. I don’t know how significant the difference will be, however. If the facilities are perfect for a particular group and the group’s insurer is willing to go along with the requirement, the requirement likely will not be much of an impediment.

That's my interpretation. Does anyone have a different view? Leave a comment!

When the Insured is His Own Landlord

A member called today with this question, which I get from time to time. His client owns a building in his own name and leases it to a corporation, which he also owns. The question is, what is the best way to cover both the individual and the corporation for their interests in the property and liability exposures.

There are a couple of ways to do this. You can write one package policy naming both the individual and entity as named insureds. This policy would provide coverage on both the building and the contents. However, the underwriter may be unwilling to do this. When an individual is a named insured, the liability insurance picks up coverage for every business that person has ever operated. The underwriter may not want that exposure.

Another alternative is to add the building owner as additional insured under the corporation's GL coverage. That is a perfectly acceptable way to arrange coverage; I imagine that a great many policies are written this way. However, the two insureds will share the liability limits. If the policy carries a limit of $1,000,000 each occurrence, that $1,000,000 applies collectively to the two insureds. That may not be enough to cover judgments against the two of them.

The best way to avoid that situation is to insure the two separately. Write a package policy covering the building owner and a separate policy covering the corporation. True, there is an extra premium cost for this, but now each insured has its own liability limits. The net effect is to give the client more coverage.

I'm curious as to how most agents handle this. What do you do in situations like this? Post your answers in the comments section.    

N.Y. Courts Chime In on the Scaffolding Law

New York appellate courts have issued a flurry of decisions in recent days interpreting Labor Law Sections 240 and 241, also known as the Scaffolding Law.

• A determination of liability against a project owner under Section 240 is not the equivalent of a finding that its contractor was negligent. So said the Supreme Court Appellate Division’s 1st Department in a ruling issued Oct. 28. A worker fell from a scaffold that shifted as he was working. No one had locked the scaffold’s wheels, nor had anyone given the worker safety devices. The worker successfully sued the project owner for violations of 240. The owner then sought indemnification under its contract with the worker’s employer. The contract required the employer to indemnify the owner for losses only to the extent that the employer wholly or partly caused them. The court held that a grant of indemnification was premature because no court had found the employer negligent yet.

• The same court ruled that a contractor owed indemnification to the City of New York and the Metropolitan Museum of Art for liability resulting from a fatal accident. The contractor’s worker fell to his death while re-caulking and sealing glass skylights on the museum roof. The contractor had safety cables to tie off its workers but had not installed them at the time of accident; OSHA subsequently concluded that the employer had committed serious safety violations. Court records show that the city and museum had no prior notice of unsafe practices, and the worker’s survivors did not claim that the city and museum had been negligent. The court held that the city and museum are entitled to indemnification because there was no evidence of negligence on their part.

• New York’s highest court threw out a claim under Section 240, saying that the injury was unrelated to the hazard that required a safety device. The injured worker was standing on a ladder at the time of the injury. However, two unconnected pipes protruding from a wall caused the injury. The court said that the pipes were “usual and ordinary dangers at a construction site…to which the extraordinary protections of Labor Law 240(1) do not extend.”

Episode #9 -- The Late Notice Reform Law

In episode #9, I discuss the new law that reforms insurers' ability to deny liability claims on the grounds of late notice by the insured or claimant.

• The law applies only to bodily injury and property damage liability claims

• For the first time, New York law defines the rights and responsibilities of insurers, insureds and claimants with regard to claim reporting.

• If the insurer receives the notice within two years of the time the policy requires, it has the burden of proving that the late notice prejudiced its interests. After two years, the insured or claimant must prove that the late notice did not prejudice the insurer's interests.

• The law defines "prejudice" as when "the failure to timely provide notice materially impairs the ability of the insurer to investigate or timely defend the claim."

• More information on the IIABNY Web site in the Research section under New and Notable and Market Conduct Rules & Regulations.

• Closing song:

“I’m Gonna Procrastinate” by Rob Balder
Used with permission
www.thefump.com
Licensed under a Creative Commons Attribution-Noncommercial-Share Alike 3.0 License

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Order in the Court: Labor Law; “I Didn’t Mean to Hurt You When I Threw the Trashcan”

New York appellate courts have handed down two decisions in recent weeks regarding Labor Law Sections 240 and 241, also known as the “Scaffolding Law.” One was bad news for a worker; the other was bad news for a general contractor. In a separate liability case, a court ordered an insurer to cover injuries caused by a thrown trashcan.

New York’s highest court, the Court of Appeals, ruled on Sept. 9 that an injured worker was not automatically entitled to damages under the Labor Law. The worker claimed that planks fell on him after they had been placed over open doors as a makeshift shelf to enable others to install an air conditioner over the doorway. The court held that the facts were in dispute as to whether the planks had been adequately secured for the task and whether the worker negligently jostled the doors after he was told not to enter the doorway area.

A lower appellate court ruled on Sept. 2 that a subcontractor had no obligation to indemnify a general contractor for a Labor Law suit. Both contractors were targets of a lawsuit initiated by a worker who fell from a scaffold. The GC sought indemnification from the sub, but the court ruled that the sub had proven that it did not have authority to control the work that led to the worker’s injury. Moreover, the court said that the indemnification agreement between the two contractors was flawed and therefore illegitimate.

The same court rejected an insurer’s attempt to deny liability coverage under a Homeowners policy for injuries the insureds’ son caused during a food fight at his junior high school. Apparently caught up in the excitement of projectile produce, the boy tossed a garbage can in the air. Said trashcan landed on and injured a teacher’s aide. The aide sued the boy and his parents for her injuries. Their insurer denied coverage, arguing that the injuries did not result from an “occurrence” (as the policy defined the term) and citing the policy’s exclusion of coverage for “bodily injury that either was expected or intended by the insured or was the result of willful and malicious acts of the insured.” The court disagreed, saying that the aide’s lawsuit alleged that the boy was negligent and therefore the incident met the definition of “occurrence.” The court also said that, while the aide’s injury may have been the unintended result of the boy’s shot putting of a refuse receptacle, the insureds produced evidence that he did not intend to cause the injury. Because of this, the court concluded that his act was not a willful and malicious one.

Are Employees Brandishing Defibrillators Covered?

Question from an IIABNY member:

Insured is an office risk – buying an automatic external defibrillator and will be training the employees on CPR.  If something goes wrong, would the BOP cover it?

Answer:

I found the following in the International Risk Management Institute’s Commercial Liability Insurance manual in the section where it discusses the “Who Is An Insured” provisions in the CGL policy:

A related question in connection with the professional health care services limitation involves circumstances in which an ordinary employee (not a health care professional) renders "medical" treatment to a co-worker or another person—performs CPR, administers first aid or drugs, sets a broken bone, etc. Does the employee have coverage as an insured for any bodily injury or personal injury that might result from his or her "treatment" of the sick or injured person? The issue actually involves two questions: (1) Does the professional health care services limitation apply to such an employee? and (2) Do the circumstances of the injury trigger insured status for the employee in the first place?

The answer to the first question is no—the limitation on insured status should not apply. "Professional health care services" can reasonably be interpreted to mean "services provided by a health care professional." In this sense, only a health care professional can render, or fail to render, professional health care services. A layman is not subject to the limitation, even if he renders services to another that should only properly be undertaken by a health care professional.

The answer to the second question depends on the nature of the employee's job. The employee is an insured "for acts within the scope of [his or her] employment" or (by virtue of language added in connection with leased workers but applicable to any employee) "while performing duties related to the conduct of your business." The scope of one's employment may or may not specifically include providing assistance to a sick or injured person; on the other hand, rendering first aid or emergency medical treatment to an injured co-worker, customer, or visitor might very well constitute a "duty related to the conduct of [the employer's] business." In such a case, the employee would be functioning as an insured.

Unlike the CGL, the BOP has a professional liability exclusion, but I fall back on the second paragraph above – “professional health care services” means “services provided by a health care professional.” The answer would be different if the insured is a medical office, but I assume that it’s similar to an insurance office staffed with people like me who know enough to be dangerous. Since no one in their right mind would describe me as a trained medical professional, I am insured for liability if I injure someone while treating them with our office defibrillator (yes, we have one and the Red Cross showed us how to use it.)

Late Notice: N.Y. Courts Hold Insureds' Feet To The Fire

The New York Insurance Department continues to work on draft legislation that would require insurers to show that their interests have been prejudiced before they can deny claims for late notice (see "Late Notice Legislation" in this link). In the mean time, the New York courts continue to wrestle with lawsuits over late notice denials. Hurwitz & Fine's Coverage Pointers newsletter last week reported on three such cases.

• An insured has an obligation to notify the insurer when he knows that an accident has occurred and that a claim is possible. In this case, a client of the insured's sub-tenant fell down steps on the premises and later died. One of the insured's employees learned of the death and heard that one of the deceased's relatives was taking photographs of the scene and exploring "the possibility of a claim." The estate served papers on the insured four months after the accident, and the insured gave first notice to its insurer five weeks after that. The insurer, upon learning of the visit from the relative with the camera, denied the claim three weeks later. The court, finding that the insured did not have a reasonable basis for believing that the estate would not file a claim, ruled that the notice was late and the insurer's denial was proper.
• A construction company's delay of more than one year in providing notice of an accident, when it knew of the potential claim at the time of the accident, was judged unreasonable by the same court.
• In a third case, the same court ruled against an insurer for taking an unexplained 60 days to deny a claim for late notice. The insured promptly notified its broker of the accident, but the broker failed to notify the insurer for 18 months. Once the broker finally provided notice, the insurer took two months to deny coverage. The court ruled that the insurer's unjustified delay violated N.Y. Insurance Law Sect. 3420(d), and the insurer lost the right to deny for late notice.

The message of the first two cases is clear: Insureds must have a reasonable basis for believing that they do not need to report claims. It will be interesting to see how this will change if/when the legislature enacts the new law.

Welcome to "Ask Tim"

Here it is, episode #1 of "Ask Tim," the new video podcast from IIABNY. Every day, I get insurance technical questions from IIABNY members all over New York. I've come to believe that, if one member asks the question, ten more are wondering the same thing. This "vid-cast" is a way to share some of those questions and answers with all of you. I'll try to pick out some of the more complicated questions, as well as some of the most common ones.

This episode leans toward the complicated side. Every so often, someone asks what the advantages and disadvantages are of being named an additional insured on a contractor's General Liability policy versus having the contractor buy an Owners and Contractors Protective Liability policy. In this episode, I look at the factors your clients need to consider when presented with this choice. Warning: This podcast contains explicit and excessive use of the phrase, "on the other hand."

I look forward to receiving your comments. Come back often for new episodes!

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