Drohan & Drohan llp Back to Table of Contents Home Page Insurance Update Vol. 1 No. 2 / February, 2000 For Drohan & Drohan LLP Corporate Insurance Clients Quick reference summary report of recent New York Trial Court and Appellate decisions involving insurance coverage, civil procedure and negligence.

Insurance Law Agency relationship exists between broker and insurer despite lack of contract Insurer not permitted to disclaim although insured refused to allow insurer to make settlement offer. Oral settlement unenforceable Labor Law Court strictly construes exclusionary language Issue of Fact as to whether Labor Law 240(1) violated Section 240(1) violated where plaintiff fell against falling machinery Product Liability Snapple not liable under strict product liability standards.

Insurance Law Agency The Guardian Life Insurance Company of America v. Chemical Bank, February 22, 2000, Court of Appeals). This case provides a good exposition of when an agency relationship exists between a broker for an insurance company. Plaintiff sued for over $253,000 in damages, representing payment by Chemical for checks fraudulently presented by an insurance broker, Jerome Rutberg, while he was associated with Baer Insurance Agency in Pennsylvania. Baer, had been a “general agent” of Guardian until 1979. Although the agency relationship was not renewed in writing, Guardian continued to do business with Baer. During the relevant time period, Rutberg requested various checks in the name of certain policyholders, and then proceeded to forge the policyholder’s signatures in order to cash the checks. In granting summary judgment to Chemical Bank, the Court held that Rutberg was an agent under UCC 3-405(1)(c). The Court based its finding on certain facts including the fact that Rutberg had an ongoing business relationship whereby he was responsible for the processing of policy loans and dividend withdrawals. Rutberg was given authority to verify the identity of the policyholder, to ellicit from the policyholder and Guardian information necessary to process the request, to take receipt of the check and deliver the check to the policyholder. Business had been conducted in this manner between for over ten years. The Court noted that Guardian was in the better position to prevent fraud in this case. In granting defendant summary judgment, the Court also noted that there need not be a formal agency agreement in order to find a party the agent of another. With regard to the transactions undertaken by Rutberg, he was an agent of Guardian. An insurance broker can act as agent for both the policyholder and insurer if doing so does not create a conflict. Disclaimer for lack of cooperation NYC Housing Authority v. Housing Authority Risk Retention Group, Inc. (February 2, 2000, Second Circuit). This Appeal resulted after the defendant/insurer disclaimed coverage for plaintiff in a negligence action entitled Sanchez v. NYCHA, which arose after Mr. Sanchez was shot at a NYCHA building in Brooklyn, New York. Prior to trial in the negligence action HARRG offered plaintiff, through counsel retained to represent the NYCHA, a one million dollar settlement. The NYCHA’s Assistant Corporation Counsel objected strongly to the settlement offer, and wrote to HARRG that under New York law there was no liability. Plaintiff had to identify his assailant, and she believed that since Sanchez could not identify the individual who shot him, there was no liability. Plaintiff in the negligence action refused the settlement. HARRG then sought to offer plaintiff 2.5 million dollars in settlement. Before the offer was made to plaintiff, NYCHA’s Assistant Corporation Counsel ordered its outside counsel not to make the offer. In addition NYCHA wrote a letter to HARRG reiterating its position not to permit the offer of settlement. HARRG immediately sent a disclaimer letter stating “due to your obstructive conduct this is to advise that [HARRG] must hereby disclaim any and all coverage obligations to you in this matter.” The following day a verdict for $5.5 million dollars was rendered. The NYCHA appealed the verdict and also requested that HARRG rescind its disclaimer. When HARRG refused to rescind its disclaimer NYCHA commenced an action in the District Court. While the appeal in the negligence action was pending, the Appellate Division Second Department issued a decision holding that circumstantial evidence was sufficient to prove that an assailant was not a resident of a housing development. The NYCHA, therefore, had no basis for the appeal of the verdict, which was subsequently upheld by the Second Dept. The District Court also upheld HAARG’s disclaimer. The Second Circuit reversed. In reversing, the Court held that defendant/insurer did not satisfy the requirements of Thrasher v. United States Liability Ins. Co., 278 N.Y.S.2d 793 (1967), which held that In order to disclaim coverage on the ground of an insured’s lack of cooperation, the carrier must demonstrate that (1) it acted diligently in seeking to bring about the insured’s cooperation, (2) that the efforts employed by the insurer were reasonably calculated to obtain the insured’s cooperation, and (3) that the attitude of the insured, after his cooperation was sought, was one of willful and avowed obstruction. The Court held that since there was no evidence that HARRG had tried to gain its insured’s cooperation, the Thrasher requirements were not satisfied. Oral settlement unenforceable Rodriguez v. National Union Fire Insurance Co., (February 15, 2000, Civ. Ct., Bx Cty.) Court held oral settlement entered into after death of claimant was unenforceable. Accident occurred in 1991. In October of 1992, plaintiff’s counsel received an offer of settlement from York Claims Adjustment Service on behalf of defendant. Although the claimant had died prior to the offer of settlement, this fact was not divulged to the claims adjuster. Releases were forwarded to plaintiff’s counsel but were not returned for over a year due to a dispute between family members as to who would be the administrator. Eventually, the Release form was signed by the Bronx County Public Administrator. York first received notice of the claimant’s demise upon receiving the Release. Defendant then refused to honor the settlement. The Court, granted defendant’s motion for summary judgment. Plaintiff asserted that defendants were estopped from denying the oral settlement because of technical noncompliance with a writing requirement. The Court held this principle did not apply, as plaintiff’s counsel did not act in “good faith” in failing to inform defendant about the demise of his client. Labor Law Exclusionary language strictly construed Daro Designs of N.Y. Ltd v. Leatherland, February 17, 2000, Civ. Ct., NY Cty), The rendered judgment in favor of defendant, insurer. Plaintiff was an insured under a jeweler’s block policy and sought to recover for a loss suffered when jewelry owned by plaintiff was stolen from a parked car. The insurer argued that the circumstances under which the theft occurred fell within an exclusion providing that coverage would not apply to property in an automobile, motorcycle or other vehicle unless “at the time the loss or damage occurs, there is actually in, or upon such vehicle, the Assured, or a permanent employee of the Assured, or a person whose sole duty it is to attend the vehicle, .......” Testimony showed that an employee of the plaintiff had left the automobile parked in front of the New Jersey Department of Motor Vehicles while he obtained new license plates. As he was exiting the DMV office, the employee saw a man attempting to open the trunk. The employee grappled with the third party and was thrown to the ground. While on the ground the employee saw the third party take the jewelry case. The Court held that the employee was not in or around the vehicle. The Court refused to follow a case on point which provided for a broader definition of the words “in or upon”, and chose instead to use the narrower, definitions used by the First Department in Cordova, Inc. v. Lloyd’s Underwriters, 228 A.D.2d 179, 643 N.Y.S.2d 543 (1996). Finding that the employee was not in the vehicle at the time of the theft, the Court held that the exclusion applied. Issue of fact as to Labor Law 240(1) Mariani v. New Style Waste Removal Corp. (February 15, 2000, App. Div., Sec. Dept.), Order denying partial summary judgment affirmed. The issue was whether Labor Law Section 240(1) was violated, where plaintiff fell from a ten-foot high retaining wall. Plaintiff was attempting to store building materials at the time of his fall. There were no ladders, scaffolding or other safety devices available. Plaintiff held, however, that while plaintiff had been ordered to clean the work site, he was not directed to store the materials atop the wall or to climb the wall. Justice Miller dissented, noting that plaintiff’s work involved a risk related to heights and 240(1) should apply. 240(1) violated in machinery fall In Mattesi v. Tishman Speyer Properties, February 3, 2000, Sup. Ct., NY Cty.). Plaintiff was injured while hoisting a piece of heavy machinery with a rope connected to a pulley. At the time he was working with two other employees. The rope broke, causing the heavy machinery to fall to the ground. Plaintiff was stated to have “crashed” into the machinery with the other employees falling into him. In a second accident a little over two months later, plaintiff was injured again when he fell while ascending a 12-foot A frame ladder. In holding that Section 240(1) applied to the first accident, the Court sided with cases from the third department, holding that plaintiff’s accident involves the very devices required by the labor law. The rope and pulley were inadequate, and section 240 applies in cases where such devices are defective. The Court denied summary judgment as to the second accident. Plaintiff was the only witness to his accident, and defendant should have the opportunity to confront plaintiff with regard to his fall. Summary judgment was granted in favor of defendants as to plaintiff’s 241(6) claim, as plaintiff failed to delineate a violation of the industrial code section that imposes specific rather than a general duty. Product Liability Strict liability standards not met Bedell v. Snapple Beverage Corp., (February 15, 2000, Sup. Ct., Nassau Cty.) Court granted summary judgment in favor of Snapple Beverage Corporation, the Quaker Oats Company and Snapple Distributors of Long Island, holding that there was no evidence that the defective bottle was manufactured or bottled by Snapple or Quaker Oats. Plaintiff alleged that while drinking a Snapple peach flavored iced tea he discovered live insect larvae or maggots on the top. The Court noted that while the proof required for strict product liability is somewhat relaxed, a prima facie case cannot be established unless it is shown that a product is defective when it left the hands of the manufacturer and was not reasonably safe. In addition, there was no link between the place of purchase, the distributor and Snapple sufficient to show a chain of distribution. The Court also dismissed plaintiff’s causes of action against Snapple and Quaker Oats for intentional infliction of emotional distress and punitive damages. The Court held that plaintiff had failed to show any conduct which could be classified as extreme or outrageous sufficient to support either cause of action. No duty was owed by either of these defendants to plaintiff as they did not manufacture or bottle the ice tea.

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