INSURANCE LAW UPDATE

THE FOLLOWING IS A SUMMARY OF RECENTLY DECIDED CASES WHICH
MAY BE RELEVANT WITH RESPECT TO PARTICULAR CLAIMS.

CASES OF SIGNIFICANCE TO THE INSURANCE INDUSTRY

1. Green v. Monmouth University – New Jersey Appellate Division, Published – Is an educational institution entitled to charitable immunity when it contracts with a private, for-profit company to book a concert at which someone is injured?

2. Lechler v. 303 Sunset Avenue Condominium Association – New Jersey Appellate Division, Published - Does a condominium association have a legal duty when it did not create the hazard that caused an accident, but rather removed a safety device which could have prevented the accident from happening?

3. Waldeier v. Piper 1 Townhouse Condominium Association – New Jersey Appellate Division, Unpublished2 - When is a sidewalk public, triggering residential sidewalk immunity to an abutting condominium association, and when is a sidewalk part of an association’s common elements, imposing a duty of reasonable care on the association?

4. Quiles v. Hector – New Jersey Appellate Division, Unpublished - Does a commercial landlord have a duty to remove snow and ice during a snowfall?

5. Migliaro v. Fidelity National Indemnity Insurance Company – U.S. 3rd Circuit Court of Appeals - When an insurance carrier does not issue a formal claim denial to its insured, but rather asks the insured for additional documentation, can an insured’s filing of a lawsuit act as an admission that the insured understood the carrier’s communication to be a denial for statute of limitations purposes?

6. Air Master & Cooling, Inc. v. Selective Insurance Company of America – New Jersey Appellate Division, Published - Should a “continuous trigger”theory be adopted in determining which liability policies must defend and indemnify a construction contractor, and if so, how does the court arrive at a date of “manifestation” after which additional policies would not be triggered?

7. Satec, Inc. v. The Hanover Insurance Group, New Jersey Appellate Division, Published – Is expert testimony required by a plaintiff alleging that an insurance agent failed to advise plaintiff that flood insurance was recommended for a property that subsequently sustained flood damage?

8. Ixcoy v. Mohosin, New Jersey Appellate Division, Unpublished – Is an owner-occupied, three-unit house a commercial or residential property f or purposes of the owner’s duty with respect to an accident occurring on an abutting public sidewalk?

9. Trends/Issues to Consider in the Law

CHARITABLE IMMUNITY

Green v. Monmouth University

Plaintiff alleged to have fallen on unsafe stairs at Monmouth University’s activity center while attending a concert. Monmouth had an exclusive booking agreement with Concerts East, Inc., which acted as Monmouth’s agent for live music shows at the activity center.

Concert East could book concerts according to Monmouth’s policies and subject to Monmouth’s prior written approval. Concert East could retain proceeds from concerts, subject to a $10,000.00 rental fee to Monmouth, and split with Monmouth any artist merchandise commissions and any facility fee added to ticket prices. Concert East assigned its rights to Thoroughbred Management, Inc., which entered into an event license agreement with Monmouth to use the activity center for the concert. Plaintiff purchased her ticket online through Ticketmaster.

The trial court dismissed plaintiff’s complaint, finding that Monmouth was entitled to the protection of the New Jersey Charitable Immunity Act.

On appeal by plaintiff, the appellate court found that Monmouth was a non-profit corporation organized exclusively for educational purposes. Plaintiff argued that Monmouth was not promoting its educational purposes at the time of her injury because the concert was not an educational event.

The appellate court held that providing concerts open to the public was one of Monmouth’s stated educational purposes. The court further held that a non-profit corporation organized for educational purposes could provide an educational experience that was “recreational” in nature. The court found that Monmouth’s educational purpose was served by the concert, as it was a cultural and educational experience. The court further found that Monmouth was entitled to immunity even though it rented out its facility for a concert to a for-profit entity.

NEGLIGENCE – INJURY ON CONDOMINIUM ASSOCIATION PROPERTY

Lechler v. 303 Sunset Avenue Condominium Association

Plaintiff, who was a condominium unit owner in the Sunset Avenue Condominium Association, lost his balance while walking down the condominium building’s exterior stairway. The stairway had previously contained a handrail, but it had been removed prior to plaintiff’s accident.

The association’s property manager testified that it may have been part of the property management company’s responsibility to make safety recommendations to the association. Plaintiff’s expert testified that building codes in effect at the time of the condominium building’s construction required a center handrail on the stairway, and that its removal constituted a hazardous condition and was a substantial contributing factor to plaintiff’s fall.

At trial the court granted the condominium association’s motion for a directed verdict, ruling that plaintiff was a licensee who was aware of the hazard of the missing handrail, and further ruling that there was a lack of proof that the condominium association was aware that it needed to replace the handrail.

On appeal, the appellate court reversed the directed verdict in favor of the condominium association. The court ruled that plaintiff’s status as a licensee was not relevant to the outcome. Instead, the court found that the association had a statutory duty to both invitees and licensees to maintain the common elements of the building, including the stairway.

NEGLIGENCE – INJURY ON PUBLIC SIDEWALK ABUTTING
CONDOMINIUM ASSOCIATION PROPERTY

Waldeier v. Piper 1 Townhouse Condominium Association

Plaintiff was riding her bicycle on a public sidewalk abutting property controlled by a condominium association, when she hit a defect in the sidewalk and fell from her bicycle. The trial court granted a motion for summary judgment filed by the condominium association on the basis that the association was entitled to residential sidewalk immunity, and had no duty with respect to an injury on an abutting public sidewalk.

On appeal plaintiff argued that the sidewalk was a common element of the association, and therefore the association was responsible for maintenance of the sidewalk. Plaintiff also argued that the trial court erred in finding that the association was primarily residential, when only three of the owners lived in their units.

The appellate court affirmed the trial court’s grant of summary judgment, ruling that the part-time or vacation occupancy of some of the units did not change the residential character of the association. The court noted that the master deed restricted units to residential use, and that the association had no retail or commercial establishments.

The court further found plaintiff’s evidence in support of her argument that the sidewalk was a common element of the association to be circumstantial, noting that the sidewalks continued unbroken past the association’s property, and further noting that there was no evidence the association could exclude the public from use of the sidewalk.

NEGLIGENCE – DUTY OF COMMERCIAL PROPERTY OWNER TO
REMOVE SNOW DURING SNOW EVENT

Quiles v. Hector

While delivering pizza to a tenant in an apartment complex during a snow event, plaintiff slipped and fell on a snow-covered portion of the sidewalk. Plaintiff filed suit against the landlord of the apartment complex, and the trial court granted the landlord’s motion for summary judgment.

The appellate court affirmed the grant of summary judgment. The court held that commercial landlords owe a duty to remove snow and ice from public sidewalks within a reasonable period of time, but the reasonable period of time to act did not begin until after the precipitation stops. Therefore, the failure of the landlord to clear snow and ice while it was still snowing was not unreasonable as a matter of law. The court further noted that local snow and ice removal ordinances could be indications of what a reasonable period of time for removal would be, although municipal ordinances do not create tort duties as a matter of law.

FIRST-PARTY INSURANCE CLAIM – DENIAL OF CLAIM AND
STATUTE OF LIMITATIONS

Migliaro v. Fidelity National Indemnity Insurance Company

Plaintiff had a standard flood insurance policy on his property, which sustained damage in Hurricane Sandy. The adjuster retained by plaintiff’s insurance carrier, Fidelity National, recommended over $90,000 for the damage, which Fidelity accepted and paid. Thereafter, plaintiff submitted a proof of loss claiming additional damages of over $236,000. Fidelity responded with a letter rejecting plaintiff’s proof of loss. The letter explicitly stated that it was not a denial of plaintiff’s claim, and invited plaintiff to submit any additional documentation for consideration.

However, rather than submitting additional documentation or filing another proof of loss, plaintiff filed a lawsuit against Fidelity. Fidelity moved for summary judgment, arguing that plaintiff’s claim which was filed two years after his receipt of the rejection of the proof of loss was untimely pursuant to the one-year statute of limitations under the Standard Flood Insurance Policy. Plaintiff argued that Fidelity’s rejection letter explicitly stated that it was not a denial of his claim, and therefore that his lawsuit should not be barred under the one-year statute of limitations.

The district court granted Fidelity’s motion for summary judgment, which the Court of Appeals affirmed. The court rejected Fidelity’s argument that a rejection of the proof of loss per se constituted a denial of the claim. However, the court held that a rejection of a proof of loss could be a denial of a claim if treated as such by the policyholder by the filing of a legal action. The court ruled that because a private cause of action could only challenge the denial of a claim, plaintiff’s filing of a lawsuit meant that he considered Fidelity’s rejection of his proof of loss as a denial of his claim.

INSURANCE COVERAGE – MANIFESTATION DATE FOR
CONSTRUCTION DEFECT CLAIMS

Air Master & Cooling, Inc. v. Selective Insurance Company of America

Air Master was a contractor that performed work on a 101-unit condominium building in Montclair. Air Master’s work involved installing condenser units on rails on the building’s roof, and also HVAC devices within each individual unit. Air Master performed its work between November 2005 and April 2008. In early 2008, some of the unit owners began to notice water infiltration in their windows, ceilings and other portions of their individual units. Some of these complaints were documented in local newspaper articles in early 2008.

On April 29, 2010 an expert consultant retained by the condominium association performed a moisture survey of the roof and found 111 spots on the roof that had been damaged by water infiltration. The consultant concluded that it was impossible to determine when the water infiltration occurred.

The general contractor was sued by the condominium association and individual unit owners for construction defects. The general contractor filed third-party complaints against subcontractors, including Air Master. Air Master then sought defense and indemnity from the insurers that covered it under a succession of CGL policies.

Air Master was insured by Penn National Insurance Company from June 22, 2004 - June 22, 2009. Air Master was insured by Selective from June 22, 2009 – June 22, 2012. Finally, Air Master was insured by Harleysville from June 22, 2012 – June 22, 2015. Selective and Harleysville disclaimed coverage, on the basis that the property damage had already manifested before their policy periods began. Penn National defended Air Master pursuant to a reservation of rights.

The court began its analysis by citing the New Jersey Supreme Court case of Owens-Illinois, Inc. v. United Insurance Co., in which the Court adopted a “continuous-trigger” theory for bodily injury arising out of long-term exposure to asbestos. The Court held that all liability policies are triggered from the date a plaintiff is first exposed to asbestos, through the date of “manifestation,” or when a plaintiff reasonably could have been diagnosed with an asbestos-related disease.

The court in Air Master applied the “continuous-trigger” theory to claims for third-party, progressive property damage in construction defect cases.

The court rejected Air Master’s argument that the manifestation date for a continuous trigger should be delayed until it first appears, or reasonably could be known, that the damage is “attributable” to the conduct of a specific insured. The court found that this theory would be unworkable in practice, since it would require extensive collateral discovery to determine which defects were attributable to the work of particular insureds.

The court held that it was appropriate to use a date of manifestation that was common to all parties – regardless of which contractor or subcontractor may have been “at fault” for the occurrence.

The court cited to the case of Winding Hills Condominium Association, Inc. v. North American Specialty Insurance Co., an Appellate Division case from 2000, to determine a manifestation date. Our law firm represented one of the carriers for the Winding Hills Condominium Association in that matter.

Winding Hills involved a construction defect claim in a multi-unit condominium project. In November 1989, the condominium association retained an engineering consultant, Trinity Dynamics, to evaluate the project’s buildings in connection with a review of capital reserve funding. In the course of that undertaking, Trinity discovered structural deficiencies within two of the buildings, which it reported to the association. The association then retained Trinity in 1990 to undertake an expert analysis to determine the extent and cause of the deficiencies. Trinity delivered an expert report in 1991. That report delineated how deficiencies in the project’s on-site drainage system had led to structural failures in the building’s foundations. The report theorized that the problems could have stemmed from improper backfill, subsurface soil erosion, or underground springs. The association then hired an engineering company, Becht, to remediate the foundation problem. Becht issued a report to the association in June 1993, reporting further structural distress caused primarily by water infiltration.

The court, in Winding Hills, fixed the date of manifestation for insurance coverage purposes as of January 1991, when Trinity’s expert report was issued. The court found that the expert report had delineated the “essential” nature of the harm. The court in Air Master interpreted “essential” to mean the revelation of the inherent nature and scope of the injury. The court held that manifestation cannot be merely tentative, but that it also must not be required to be definitive or comprehensive.

Under the facts of the present case, the court found that the sparse record presented on appeal provided an insufficient basis to resolve the manifestation question. The court declined to rely on newspaper articles, in which several unit owners reported water infiltration into their units, in setting the date of manifestation. The court indicated that relying on the newspaper articles would be similar to a reliance on the initial evaluation by Trinity Dynamics in Winding Hills, which the court in that case had rejected as having been too tentative in setting a date of manifestation.

Air Master urged the court to find that the April 2010 expert report addressing roof leaks set the date of manifestation, which the court did not address. The court did indicate that depositions of persons with knowledge of which information was known at which times about construction defects, and whether information had emerged or could reasonably have been known before or after Selective’s policy period began in June 2009, may be appropriate to determine a manifestation date. The court remanded to the trial court so the parties could undertake further discovery.

INSURANCE COVERAGE – EXPERT TESTIMONY IN PROFESSIONAL
NEGLIGENCE CLAIM AGAINST INSURANCE AGENT

Satec, Inc. v. The Hanover Insurance Group

Plaintiff, Satec, Inc., engaged an insurance agency to place coverage for a warehouse and business office in Union County. Satec was advised by the agency that flood insurance was not included in its insurance program. Satec ultimately purchased a Business Owners Policy from Hanover through the agency, which excluded damage caused by flood. Satec renewed the policy annually and about 5 years later, Satec’s property was flooded due to Hurricane Irene. Satec sustained approximately $2.3 million in damages.

Satec made a claim with Hanover, which Hanover denied because the damage was caused by overflow from the Rahway River.

Satec filed suit against Hanover as well as the insurance agency. The trial court granted motions for summary judgment filed by Hanover and the agency, finding that the opinion of plaintiff’s expert was a “net opinion,” and that plaintiff’s claim was one in which expert testimony was required.

The appellate division affirmed the trial court’s decision. The court found that an insurance agent owes a duty to its principal to exercise diligence in obtaining coverage in the area in which the principal seeks to be protected. The court also noted that an agent owes a fiduciary duty to its principal.

Satec had retained an expert, Stanley Hladik, who wrote a report in which he opined that, based upon deviation from accepted standards, the agency negligently failed to procure flood insurance on behalf of Satec. The court found that Hladik could point to no objective standards in reaching the opinion that the agency breached a duty of care, and that it was a “net opinion” for Hladik to rely solely on his own personal opinion in reaching his conclusion that the agency should have performed a “physical loop” of the premises to determine the presence of potential risks and to ascertain the property’s flood zone status and advise Satec accordingly.

The court also held that plaintiff’s claim that the agency breached its duty of care required expert testimony, and without such testimony, summary judgment was appropriately granted by the trial court.

Finally, plaintiff argued that the agency was the “agent” of Hanover, and that Hanover was therefore vicariously liable for negligence by the agency. The court found that insurance agents are not agents of the insurance carriers for which they place coverage. Rather, an insurance agency is only an agent for its own client, the insured.

NEGLIGENCE – DISTINCTION BETWEEN RESIDENTIAL
AND COMMERCIAL PROPERTY

Ixcoy v. Mohosin

Defendants were owners of a three-family house located in Paterson. Defendants resided on the first floor, and performed all maintenance to the property. The second and third floors of the house were rented to tenants continuously from the time of purchase through the time of plaintiff’s accident.

Plaintiff slipped and fell on snow on an abutting public sidewalk, and filed suit. The trial court granted defendants’ motion for summary judgment, finding that the property was residential, and therefore defendants owed no duty to clear snow from the sidewalk.

The appellate court analyzed the case under Grijalbo v. Floro, an Appellate Division opinion from 2013, to determine whether the property was commercial or residential. The court found that Grijalbo required a court to consider several factors in making this decision, including (1) the nature of ownership of the property, including whether the property is owned for investment or business purposes (2) the predominant use of the property, including the amount of space occupied by the owner on a steady or temporary basis to determine whether the property is utilized in whole or in substantial part as a place of residence (3) whether the property has the capacity to generate income, including a comparison between the carrying costs with the amount of rent charged to determine if the owner is realizing a profit and (4) any other relevant factor when applying commonly accepted definitions of commercial and residential property.

The court found that with mixed-use property, such as an owner occupied home, use has generally been a relevant consideration when resolving the residential-commercial distinction. The theme emerging from relevant decision in such matters is whether a property’s predominant use has the capacity to generate income, regardless of whether an actual profit is obtained through its use.

The court found that the trial court failed to address whether the property’s predominant use was as an income-producing property which preponderated the defendants’ residency. Further, the court found that the trial court’s review of 3 years of defendants’ income tax returns was insufficient as a reliable indicator of defendants’ realization of profits, and that further discovery or review was required by the trial court as to that issue.

Finally, the court noted that cost-sharing by a commercial owner has been found to be important in finding a duty to provide a remedy to innocent third parties, and that in order to evaluate whether defendants’ possess the ability to share in those costs, revenue produced by the property is a salient consideration.

The court reversed and remanded for further proceedings.

TRENDS/ISSUES TO CONSIDER IN THE LAW COURTS CONTINUE TO REJECT EXPERT
TESTIMONY THAT RECITES COMPLEX OPINIONS OF NON-TESTIFYING EXPERTS

In 2015, the New Jersey Appellate Division decided the seminal case of James v. Ruiz. In a lengthy and detailed opinion, the court set forth a bright line rule that experts testifying at trial may not testify to complex opinions of non-testifying experts. The issue in James was testimony by expert orthopedic surgeons at trial as to the contents of MRI reports. The court held that an MRI report contains complex opinions of the radiologists who performed the MRI, and that experts at trial cannot testify as to the contents of an MRI report. Rather, a testifying expert at trial must review the actual MRI films in order to testify as to the results of an MRI.
Although James involved MRIs, pursuant to the court’s reasoning it would also be broadened to include x-rays and opinions in medical records as to diagnoses of treating physicians.

The Model Civil Jury Charges have since been amended to include language from the James opinion.

More recently, in January 2018 the New Jersey Supreme Court decided the case of Hayes v. Delamotte, in which the Supreme Court affirmed James, and arguably broadened its holding. The Court in Hayes found that defense counsel’s questioning of a defense orthopedic expert at trial, wherein defense counsel asked the expert if a non-testifying doctor had “indicated” that there was a problem at a particular level of plaintiff’s spine, impermissibly sought to establish the substance of the non-testifying doctor’s diagnosis. The Court held that the trial court had erred in permitting this testimony.

The lesson is that it is crucial that experts retained to testify at trial are able to stand “on their own feet,” without relying on the conclusions of treating physicians or other non-testifying experts, unless those physicians or experts are called to testify at trial.

Although medical records from treatment providers may contain favorable opinions and conclusions, especially in the case of a “doctor shopping” plaintiff who repeatedly switches doctors to seek a favorable diagnosis, in order to admit their opinions and conclusions at trial they must be called to testify in court.