decisions

Asantewa James v. Tower Ins. Co. of New York,  Kings Co. Index No. 15502/10 (Sup. Ct., Kings, 2011)
 
Mound Cotton obtained summary judgment on behalf of Tower Insurance Company of New York in an action for first-party property coverage following a September 2008 fire at the Insured's Premises.  Tower denied coverage based on the Plaintiff's material misrepresentation in the application for insurance, which incorrectly asserted the Premises was owner occupied.  Plaintiff subsequently commenced an action against Tower and the broker asserting causes of action for breach of contract, fraud and negligence.  According to Plaintiff, she never signed the application that was submitted to Tower by her broker.
 
After conducting written discovery, Tower moved for summary judgment based on the material misrepresentation in the application regarding occupancy.  Plaintiff cross-motion and opposed that motion, on the ground that she could not be held accountable for the misrepresentation in the application because it was made by her broker, without her consent.  She also argued, unsuccessfully, that the misrepresentation was not material; the broker was Tower's agent; and that Tower waived the misrepresentation defense because before the loss it had reinstated coverage after inspecting the Premises and discovering that it was not owner occupied. 
 
After oral argument, the Court awarded Tower summary judgment because it found that the broker was Plaintiff's agent.  Thus, Plaintiff was bound by the broker's material misrepresentation.  Tower was represented by Kevin F. Buckley and Daniel M. O'Connell.
 

Third Circuit Affirms Dismissal of Bad Faith Claims Against Insurer and Awards Costs.

In 3039 B Street Associates v. Lexington Ins. Co., the U.S. District Court for the Eastern District
of Pennsylvania granted summary judgment in favor of Lexington Insurance Company in connection with
a first-party property bad faith claim.  On September 19, 2011, the Third Circuit Court of Appeals
affirmed that decision and awarded Lexington the costs of that appeal.

The case involved water damage that occurred in January 2008 to the insured's
Philadelphia warehouse allegedly caused by a frozen pipe that ruptured.  Based on an exclusion
restricting coverage if the hazard is increased by any means within the control of the insured,
Lexington's adjuster sought certain information from the insured concerning whether heat was
maintained in the building at the time of the loss.  The adjuster also requested documentation that
supported the ownership of personal property within the warehouse that allegedly was damaged. 
Through 2008, the adjuster repeatedly requested documents that would prove ownership of the
personal property and evidence that oil for the heating system was delivered to the premises at
any time between the Fall of 2007 and January 2009.  The insured failed to provide the requested
information and, in opposition to the motion, took the position that the insurer, Lexington, could
have contacted certain non-parties to obtain the needed information, including the caretaker for
the insured’s building.  The insured also demanded that the insurer issue an advance payment
while the claim was being investigated.  Since coverage had not been determined, no advance
was issued.

The investigation continued through February 2009, when the insured sued Lexington for breach
of contract and bad faith under Pennsylvania law.

While the claim remained suspicious, during the course of the litigation additional
information was developed through non-party witnesses that tended to support the insured's
contentions that the oil tank for the premises had been refilled since the Fall of 2007 and
that the insured owned the personal property that allegedly was damaged.  In light of that
information, in July 2009 the insurer concluded its investigation, issued a check to the
insured for the undisputed damage amount, and demanded appraisal to resolve the remaining
disputed damages.  Although coverage was now acknowledged and the issue of the amount of
covered damages was to be determined through appraisal, the insured refused to withdraw
its bad faith claims.

Lexington then moved the Court for summary judgment dismissal of the case, since the
only remaining causes of action were grounded in Lexington's alleged bad faith handling of the
claim.  On May 4, 2010, Judge Robreno issued a 25 - page decision in which he found as a matter
of law that Lexington did not commit bad faith by conducting a long-term investigation into the
claim.  In so ordering, Judge Robreno noted that the insurer was in constant communication with
the insured and the insured "either failed to provide the requested information or provided
deficient and/or conflicting documentation."  The insured’s motion for reconsideration was
substantially denied on August 27, 2010.

On September 19, 2011, the Third Circuit Court of Appeals upheld Judge Robreno’s
decision.  In its decision, the Third Circuit noted that the insured’s claim was “highly
questionable, and … Lexington, through [its independent adjuster] Crawford, conducted a
reasonable investigation.”  The Court held that, under the circumstances, the insurer was not
required to simply take the insured’s caretaker “at his word and immediately [pay] the claim” –
as a matter of law.

Lexington was represented by Philip C. Silverberg, Kevin F.
Buckley, and Daniel M. O'Connell of Mound Cotton.

The lower court’s decision can be found at: 3039 B St. Assocs. v. Lexington Ins. Co., 740
F. Supp. 2d 671 (E.D. Pa. May 3, 2010).  It was also reported in Mealey's Litigation Report:
Insurance Bad Faith, May 13, 2010, 24-1 Mealey's Litig. Rep. Ins. Bad Faith 9 (2010), Volume
24, Issue #1 as well as at 2010 U.S. Dist. LEXIS 43550.  The Third Circuit's decision affirming summary Judgment may be found at 2011 U.S. App. Lexis 19311.

For full decision please click here.
 

MCWG Obtains Summary Judgment for Zurich in Five Star Electric Corp. v. Zurich American Ins. Co.

East 115th Street Realty Corp. v. Focus & Struga Building Corp., Great Am. Ins. Co. et al., 2011 NY Slip Op 05125 (1st Dept., June 14, 2011).
 
This litigation concerned plaintiff's claim for insurance coverage under a builder's risk policy for the collapse of its building that occurred during the course of extensive structural alterations to an existing structure.  The building was a 1920s five-story masonry structure with commercial space on the first floor and tenant space above.  On the standard "ACORD form" application that Plaintiff submitted to obtain its insurance policy, the "No" box was checked next to the question "Any structural alterations contemplated?"  Other documents were also submitted to Great American's underwriter, including a contract for the construction and a construction cost sheet that both referred to structural work; however, the broker later informed Great American's underwriter via e-mail that "there will be no structural changes."  Thereafter Great American issued its builder's risk policy.  Notwithstanding the representations made, the $1.9M in planned renovation work on the building included the removal and replacement of the roof, ceilings, and every floor, including joists, subfloor and finished floors.
 
In the litigation that followed, Great American was awarded summary judgment dismissing the complaint based on the plaintiff's material misrepresentation in the application.  Great American's motion was supported with an affidavit from the underwriter, in which she stated that she would not have issued the policy had she known that structural changes would be made, and a copy of Great American's underwriting guidelines that stated: "structural alterations" are an exposure that "should be avoided." 
 
On appeal, the First Department, Appellate Division, held that the affidavit and underwriting guidelines were sufficient to establish Great American's entitlement to summary judgment.  The lower court's decision was affirmed and costs were awarded to Great American for the appeal. 
 
Great American was represented by Philip C. Silverberg and Kevin F. Buckley of Mound Cotton.

3039 B Street Assoc. v. Lexington Ins. Co., Case 2:10-CV-01740-ER (E.D. Pa. June 21, 2011).
 
In this litigation, the plaintiff made a claim under a first-party property insurance policy issued by Lexington Insurance Company for radiators and other fixtures that were allegedly stolen from plaintiff's warehouse.  Plaintiff admitted that the alleged thief was given the keys to the warehouse and was allowed to enter it unaccompanied; however, plaintiff claimed that the thief was only authorized to remove scrap metal that was lying about -- not radiators and other fixtures.  This version of the facts was disputed by a tenant of the warehouse who, while observing the radiators being removed, called plaintiff to inform him, but was advised that the removal was authorized.
 
Lexington denied the insurance claim based on the policy's fraud provision as well as the exclusion for losses caused by the dishonest acts of an insured, its employee, or anyone "to whom the property may be entrusted."  In the lawsuit that followed, the plaintiff sued for breach of contract and bad faith. United States District Court Judge for the Eastern District of Pennsylvania Eduardo Robreno awarded Lexington summary judgment based on the entrustment exclusion, finding that even if the thief was not an employee, he was entrusted with the property by virtue of being given the key to the building and "unsupervised access."  It was clear to the court that the thief had committed one of the acts described in the exclusion, i.e., dishonesty, conversion, fraud, etc.  The Court also noted that, although there were issues of fact that would preclude it from also dismissing plaintiff's claim based on the Fraud exclusion, there were "very questionable circumstances attendant to the alleged theft."
 
On the issue of bad faith, the Court found those claims to be "frivolous and entirely unsupported by the record.  The Defendant had more than reasonable grounds to act as it did under the circumstances."
 
Lexington was represented by Philip C. Silverberg, Kevin F. Buckley, and Daniel M. O'Connell of Mound Cotton Wollan & Greengrass.
 

Mound Cotton partner Barry Temkin won summary judgment on behalf of a national securities brokerdealer in New York State Supreme Court in a case entitled Thomas Hennessy v. Peter J. Dawson et al.  The litigation, which spanned four years in both federal and state courts, originated from a Ponzi scheme perpetrated by former registered securities representative and current convicted prisoner, Peter Dawson. Dawson stole seven million dollars from over fifty customers by endorsing to himself and companies he controlled proceeds from loans on the plaintiffs’ properties.  While Dawson, the Ponzi scheme perpetrator, never worked for Mound Cotton’s client, the plaintiffs unsuccessfully alleged that the broker dealer was the “successor in interest” to a broker dealer with which Dawson had formerly been affiliated.  Since Dawson left the former firm prior to its transaction with Mound Cotton’s client, and since there was no stock transfer, the successor in interest theory was rejected and the complaint was dismissed. 
 

In Paz v. New Latham Hotel Corp., et. al., No. 102823/05, slip op. (N.Y. Cty., Madden, J., April 5, 2011), the infant plaintiff sued to recover damages for alleged permanent brain injuries resulting from exposure to lead paint while residing in two separate buildings, one of which was owned by MCWG's client, DBPB Holding Corp. ("DBPB").
 
DBPB maintained that the infant plaintiff could not have been injured while residing in its building since no lead hazards existed during the infant's tenancy notwithstanding positive lead paint test results from a private company retained by plaintiff's counsel.  The Supreme Court held that that the plaintiff had presented insufficient evidence "to raise a triable issue of fact as to whether plaintiff's injuries were caused by conditions in [DBPB's] apartment" and that DBPB had submitted sufficient evidence, including documents and deposition testimony, together with the expert affidavit of Dr. Vincent Coluccio, to make out a prima facie showing of entitlement to judgment as a matter of law.
 
The lead testing of the apartment that was performed by plaintiff's expert, Professional Environmental Services, Inc., found only two out of 141 surfaces tested positive for lead, and those two samples came from the metal entrance door to the apartment.  According to Dr. Coluccio, Doctor of Public Health, and an environmental health consultant, the two surfaces that tested positive for lead -- the metallic apartment entrance door and metallic door casing -- were rated '"fair," indicating that 'there was no visible evidence of deteriorated lead-based paint hazards posed by these surfaces." 
 
Since "fair" surfaces are not considered a hazard under HUD Guidelines, the court agreed with and adopted Dr. Coluccio's opinion that testing performed by plaintiff's expert, along with all the other evidence in the case, established that plaintiff's alleged injuries "were not caused by, or contributed to by, any conditions existing in the [DBPB] apartment."  No party submitted any expert affidavit to refute the opinions of Dr. Coluccio, and the court dismissed a footnote in plaintiff's expert, Dr. John F. Rosen's, affidavit that the infant plaintiff was exposed to lead at DBPB's residence as a "vague and conclusory assertion, unsupported by any facts [and] is unavailing."  Defendant DBPB was therefore entitled to judgment as a matter of law dismissing the claim.

DBPB was represtend by John F. Parker of Mound Cotton.
 

Favellato v. Tower Ins. Co. of New York, Index No. 1021/08 (Sup. Ct., Kings Cty., March 30, 2011).  This litigation concerned plaintiffs' claim for damage to the walls of their two-story home that plaintiffs alleged was caused by a February 2006 snowstorm.  Tower denied the claim and plaintiffs sued.  Tower moved for summary judgment on three separate grounds.  First, plaintiffs breached the prompt notice of loss condition because they did not notify Tower of the alleged February loss until August 29, 2006.  Second, Tower's expert determined that the loss was caused by excluded causes of loss, i.e., wear and tear and faulty design.  Third, the evidence did not support plaintiffs' contention that a loss occurred while the policy was in force.  Although plaintiffs opposed the motion with affidavits contending that the loss was not discovered until shortly before it was reported, and affidavits from their "experts" that disputed the conclusions of Tower's expert, Justice Bernadette Bayne agreed with all of Tower's positions and granted it summary judgment.  The Court found as a matter of law that plaintiffs failed to provide "prompt notice" of the alleged loss, that the alleged loss was specifically excluded from coverage by the Policy's exclusions for "wear and tear" and "faulty design," and that plaintiffs failed to introduce any admissible evidence to support their contention that the loss occurred as a result of the February 2006 snowstorm.  Tower was represented by Kevin F. Buckley and Daniel M. O'Connell of Mound Cotton.

Classon Realty Corp. v. Tower Ins. Co. of New York, Index No. 32189/05 (Sup. Ct., Kings Cty., Jan. 20, 2011).  This case involved insurance fraud and arson.  The plaintiff was a shell corporation that was operated solely by its principal, who was a real estate developer and formerly a member of the board of directors of the Empire State Bank.  The arson occurred on January 14, 2005 at plaintiff's two-story commercial building, which was located in Brooklyn, New York. 

By coincidence, Mound Cotton had represented a different insurance company in connection with an arson claim, arising out of a 1990 fire, that was also made by the principal of plaintiff.  In addition, the investigation uncovered another incendiary fire at a property owned by plaintiff's principal in 1996. 

With regard to plaintiff's principal's financial motive to set the fire, several judgments had been entered against him totaling almost a million dollars, but this information was concealed until the time of trial through numerous fraudulent "satisfactions of judgment" that had been filed on his behalf.  Further, an alleged contract of sale for the premises that was allegedly executed shortly before the loss, which plaintiff is principal claimed erased any financial motive for him to set the fire, was proven to be fraudulent.  Indeed, it was discovered that the property at issue had been in the process of foreclosure for over a year at the time of the fire. 

The evidence concerning the opportunity to commit the arson was even more compelling.  Plaintiff's principal testified during his examination under oath that he was not been in New York on the date of the fire; however, his EZ-Pass records proved that he actually entered New York via the George Washington Bridge about one hour before the fire.  During his examination under oath, he also concealed his prior felony conviction for bank fraud. 

After a two-week trial before Justice Debra Silber, in which the plaintiff's principal was cross-examined over a three-day period, the jury unanimously concluded after about one hour -- by a standard of clear and convincing evidence -- that plaintiff intentionally set fire to the insured premises and, thereafter, committed fraud and made material misrepresentations under oath.  Tower was represented at trial by Kevin F. Buckley and Daniel M. O'Connell of Mound Cotton.
 

Decisions: 2010 Highlighted Cases