Big Win for Business Interruption Insurance Carriers

Small businesses around the nation have suffered an enormous body blow, as a result of the COVID-19 pandemic. Beginning in mid-March, New York officials shut down all non-essential businesses to mitigate the spread of the coronavirus.

As a result, many small businesses have filed claims under their business interruption insurance policy. However, for most companies, business interruption insurance derives from their property policy. The property policy, in turn, requires that the covered property suffer a "physical loss or damage" before the insurance coverage will apply.  Two recent decisions have addressed the issue of whether COVID-19 sufficiently meets the standard for "physical loss or damage".

On July 1, 2020, a Michigan State Court handed down the first, substantive COVID-19 business interruption coverage decision of its kind. In Gavrilides Management Co. et al. v. Michigan Ins. Co., Judge Joyce Draganchuk sided with an insurance carrier on a threshold motion to dismiss, dismissing the complaint as a matter of law. Judge Draganchuk reasoned, “There has to be something that physically alters the integrity of the property.” 

Up until the Michigan decision, only one other U.S. Judge had ruled on the issue of business-interruption losses caused by COVID-19. In Social Life Magazine v. Sentinel Ins. Co., U.S. District Court Judge Valerie Caproni for the Southern District of New York denied a preliminary injunction requested by a magazine publisher to force its insurers to pay for financial losses caused by a coronavirus closure order.  Judge Caproni reasoned, “It damages lungs. It doesn’t damage printing presses.”

In response to the financial needs of many small business owners, the New York State Assembly introduced a bill (“10226-B”) and its identical companion Senate bill (“8211-A”), which would require certain commercial property insurance policies to cover business interruption during a period of a declared state emergency due to the COVID-19 pandemic. The bill would expressly void any exclusion in such a policy for losses based on a virus-caused disease. These requirements would extend to any policy meeting all of the following criteria:

1.     In force on or after March 7, 2020;

2.     Issued to an insured with fewer than 250 eligible employees (defined as employees working a “normal week of 25 or more hours”); and

3.     Covering business interruption.

The bill was returned to the Insurance Law Committee for review, which cited in its report, “While we recognize and appreciate the interest and need within the business and nonprofit sectors to address the availability of business interruption coverage for pandemics, we believe, unless amended, the bill would present numerous ambiguities in practice, raise potential questions of Constitutional interference with contract issues, and produce an unacceptable level of uncertainty and potential insolvency in insurance markets.” While small business relief is undeniably needed in New York and throughout the nation, the recent decisions in Michigan and New York create precedential case law that COVID-19 is unlikely to sufficiently meet the “physical loss or damage” requirement for coverage to apply.

Callahan & Fusco, LLC Secures Legal Malpractice Victory for Reputable South Florida Law Firm

Callahan & Fusco, LLC recently prevailed on a motion to dismiss a legal malpractice lawsuit in Palm Beach County, Florida circuit court.
 
Our client, a well-regarded South Florida law firm, secured a full defense verdict on behalf of its client. Despite this outstanding result, the law firm’s client sued, alleging negligence in the failure to secure attorney’s fees from offers of judgment which were deemed insufficient to serve as the basis of a fees claim by a circuit court.
 
The Plaintiff argued that he was unable to win a statutory fee claim because our client, despite winning a full defense verdict, was negligent in filing the fees claims. As support for this, Plaintiff attached the fees proposals and claims filed by our clients to the complaint, along with the circuit court order denying the fees claim and ruling the proposals for fees failed because they were ambiguous, contrary to the law which states any proposal seeking entitlement to fees must clearly state the scope of fees and litigation covered by the proposal. The Plaintiff’s Complaint did not allege that there was an appeal of the circuit court’s ruling and a final order; in fact, the evidence in the record showed Plaintiff had specifically instructed our client to not seek an appeal of the circuit court’s fees order.
 
After lengthy briefing and oral argument, the Palm Beach County circuit court agreed with Callahan & Fusco, LLC senior associate Neil W. Blackmon’s argument that Plaintiff had not established “redressable harm” in his pleading because he had pleaded merely the “possibility of negligence”, as opposed to actual negligence. The basis for this ruling was our argument that the Plaintiff attached court orders to his Complaint that were non-final orders that could be, and needed to be, appealed. We argued that the only way “litigational negligence” could be pled in a legal malpractice suit under Florida law is to show that an appellate court upheld the finding of the circuit court and as such, the Plaintiff’s inability to access fees was the result of attorney negligence, not judicial error. Callahan & Fusco, LLC successfully argued that in this case—it was not clear because this was an appealable order.
 
The Court granted the motion to dismiss, with the Judge’s ruling noting that he was particularly persuaded by the argument that Callahan & Fusco, LLC’s client likely would have prevailed on appeal, as the original circuit court judge found ambiguous an order that was quite clear. As such, the appeal mattered; and the Plaintiff had not established harm caused by attorney error in his pleading. This outstanding result ultimately led to the Plaintiff abandoning his pursuit of legal malpractice litigation against our client, a just reward for a law firm that secured a complete defense verdict.

New Jersey Condominium Associations Continue to Fight Palisades

There is an old saying that “bad facts make bad law”. When you practice long enough you realize that the word “bad” is relative. This is certainly true when reviewing the New Jersey Supreme Court’s decision in The Palisades At Fort Lee Condo. Ass'n, Inc. v. 100 Old Palisade, LLC. There, the Court held that the six-year statute of limitations for a condominium association’s construction defect claims against their developer accrue when the association discovers a cause of action may exist. Although this holding appears straight forward, the Court found that the six-year period may begin when the developer is still in control of the association and identifies a possible defect and does not strictly apply to the unit owners’ period of control.

For unit owners that just assumed control of its board of directors from its developer, this decision is troubling. Not only must they learn their new roles in leading the association, they must decide whether they should file suit against the developer so that their claims are not time-barred. For a developer, this ruling incentivizes maintaining a good relationship with its unit owners, addressing concerns and establishing trust that the association has been turned over in a good place so as to avoid immediate litigation. For the developer’s subcontractors that often completed their work several years before the unit owners assumed control of the association, this provides additional finality to their potential exposure to liability and allows their insurance carriers to properly underwrite their policies.

Recently, an unpublished appellate decision came down in a condominium association construction defect case that reaffirmed the Palisades holding, leaving little doubt as to New Jersey’s jurisprudence regarding these types of claims. Riva Pointe at Lincoln Harbor Condominium Association, Inc. v. Tishman Construction Corp, et al dealt with an Association that had an engineering report in 2008 that addressed certain deficiencies in the building. Despite the fact that unit owners were not in control of the building  until 2011 and thus could not bring suit until that time, the Court ultimately held that the association was time-barred from bringing suit in 2015 as their six-year statute of limitations expired in 2014.

The Palisades ruling has been and will understandably continue to be challenged by the community association industry until either the courts reverse the decision, create limited exceptions or legislation is passed that specifically addresses the holding. Until that time it is imperative for the developer and community association to continue to work amicably to resolve their issues to ensure there is a smooth transition.

Florida’s Statutory Scheme is Clear: No Duplicate Benefits in Underinsured Motorist Cases

The question of what protections insurers have in cases involving underinsured or uninsured (UM) motorists has long been a thorny one. An entire body of law has developed around the question, one constantly being reshaped by legislative revision and judicial interpretation. A key question within that area of law: what is the impact to the insurer of other settlement agreements with the underinsured motorist’s liability carrier?

This June, Florida’s Fourth District Court of Appeal visited this question in Liberty Mutual Insurance Co. v. Wolfson, 45 Fla. L. Weekly, June 26, 2020. In Wolfson, an underinsured motorist collided with an insured’s car, causing permanent injuries. The insured filed a claim under his UM policies and the insurers (Liberty Mutual) declined to pay. The insured sued, and in a trial solely on damages, a jury awarded $1.6 million to the insured. The insurers filed a motion to set off settlements which they argued duplicated part of the jury verdict. At an evidentiary hearing on that motion, the insurer was able to demonstrate that one insurer, Nationwide, had paid $100,000 on the claim and another insurer, AIG, had entered a release wherein it waived subrogation rights in exchange for a $480,667.50 payment. The trial court, in the Seventeenth Judicial Circuit in Broward County, denied the insurers’ motion, finding most vitally that no Florida Statute specifically authorizes one UM carrier to obtain a set-off for duplicate benefits paid by another UM carrier.

Liberty Mutual appealed, and the Fourth District Court of Appeal unanimously reversed. The Court held that the Florida Statute §627.727, controlled. That statue reads, in pertinent part:

“The coverage described in this section shall be over and above, but shall not duplicate, the benefits available to an insured under any workers’ compensation law, personal injury protection benefits, disability benefits law, or similar law; under any automobile medical expense coverage; under any motor vehicle liability insurance coverage; or from the owner or operator of the uninsured motor vehicle or any other person or organization jointly or severally liable together with such owner or operator for the accident; and such coverage shall cover the difference, if any, between the sum, of such benefits and the damages sustained, up to the maximum amount of such coverage provided under this section.” (Emphasis in opinion) Florida Statute §627.727(1) (2018).

The Court held that the phrase “similar law” within the text of §627.727(1) clearly contemplated and intended to encompass uninsured and underinsured motorists within the umbrella of §627.727 itself, which is a legislatively-enacted type of insurance coverage. Nehme v. Smithkline Beecham Clinical Labs, Inc., 863 So.2d 201, 205 (Fla. 2003) (“Under the doctrine of noscitur a sociis (a word is known by the company it keeps) one examines the other words used within a string of concepts to derive the legislature’s overall intent.”) Applying that rule in this case, the Court held that §627.727 plainly means that benefits provided under one UM policy cannot duplicate benefits already paid to an insured under another UM policy. The insurer, as a result, was entitled to set off those amounts already paid to the insured from the jury’s verdict. The Court’s message in Wolfson was clear: the Florida Legislature adopted §627.727 as a statutory scheme intended to protect insurers from paying out duplicate benefits in a variety of ways, including underinsured and uninsured motorist cases, and it is not, ultimately, the province of the Court to change or rewrite laws enacted by the legislature.

Drawing a Line in the Snow Regarding A Landlord's Potential Liability for a Commercial Property

Recently, the New Jersey Supreme Court addressed the question of whether the owner of a commercial property owes a duty to clear snow and ice from a demised property to prevent harm to a tenant’s invitees in Shields v. Ramslee Motors, 240 N.J. 479 (2020). Landlords of commercial properties routinely include clauses delegating the responsibility for maintenance and repairs of the demised property to the tenant as part of a lease. The Court made a distinction with a landlord’s non-delegable duty to maintain the adjacent sidewalk to the property with a duty to maintain the demised property itself.

In Shields, the landlord leased the property to a used car dealership where the lease stated the tenant “shall maintain the leased premises” and that the tenant “shall be solely responsible for the maintenance and repair of the land” during the tenancy. The plaintiff in the underlying action delivered a package to the tenant and slipped on accumulated ice and snow in the tenant’s driveway. The tenant settled with plaintiff and was dismissed from the action; the landlord filed for summary judgment. Ultimately, the Court held that the lease created a clear responsibility for the maintenance of the private driveway of the property upon the tenant as the landlord did not retain control and vested ownership, making the tenant the de facto owner, of the property based upon the unambiguous language of the executed lease.

The Court agreed with the landlord’s argument finding that the executed lease specifically provides that “TENANT shall maintain the leased premises” which delegated the duty of snow and ice removal for the driveway to the tenant. The Court defined “maintain” which is “[t]o care for (property) for purposes of operation productivity or appearance; to engage in general repair and upkeep.” Additionally, the Court found that the landlord’s right of re-entry did not create a duty for the landlord to remove any snow and/or ice. While the Court previously found that a landlord possesses a non-delegable duty to maintain the sidewalk, that duty does not extend to the demised property’s the driveway. Moreover, the landlord granted the tenant with exclusive possession thereby making it “‘unfair’… to hold the landlord responsible for ‘a condition of disrepair over which it had relinquished access.’” 

The Court addressed the idea of “control” to see if a different outcome would be reached when deciding the permissibility of delegating the removal of snow: The Court found no change in its analysis. The Court evaluated several factors and found that no relationship between the plaintiff and landlord existed; that it would be unfair to have an out-of-possession landlord responsible for the removal of transient weather build-up; and that no public policy interest is met by requiring the landlord to remove the snow and/or ice from a tenant controlled property. 

From a defense prospective, Shields teaches us the following: first, that it is important for the leases for commercial properties to specifically address the responsibilities of the tenants regarding the maintenance and the upkeep to the demised property; and second, that the landlord is aware that issues with a demised property can be attributed to a landlord if the landlord maintains control, albeit the Court neglects to advise on the amount of control, over the demised property.  Additionally, while Shields addresses only the distinction of liability between a landlord and tenant for the removal of snow and/or ice on the demised property, a court could easily apply the same analysis for any debris or defect on a demised property controlled and maintained by the tenant for tenant’s purposes.

Additionally, You Are Not Insured

Snow Removal Contractor’s Failure to Add Property Owner as an Additional Insured Did Not Cause the Owner Damage

In Michel v. Langel, No. A-4054 (App. Div. May 8, 2020), the New Jersey Appellate Division confirmed that a failure of a snow contractor to name the owner as an additional insured on its insurance policy resulted in no damages to the owner and the contractor’s duty to defend and indemnify did not cover the owner's negligence 

In the winter of 2015, Plaintiff was walking across a parking lot of a Shopping Center when she was struck by a car driven by one of the Defendants. The Appellate Division summarized the facts as follows: “[a]t the time of the accident, there were piles of snow on medians at the end of rows of parking spaces in the parking lot. It was alleged that the piles of snow impeded [the Driver’s] visibility as she made a left-hand turn just before her car struck [Plaintiff].” Plaintiff sued the driver of the vehicle, the owner of the Shopping Center, the Store she was in front of at the moment of the accident, and the Snow Removal Contactor responsible for the area. The Shopping Center and Contractor asserted crossclaims, and the Shopping Center demanded a defense and indemnification from the Contractor.

Depositions revealed that the property manager told the Contractor to plow and pile the snow in the median islands in front of the Store. Thus, the Contractor argued that the decision as to where to place the plowed snow was made by the property manager, who was controlled by the Shopping Center.

Thereafter the Store and Shopping Center moved for partial summary judgment against the Contractor contending that the Contractor breached its contractual agreement to name the Shopping Center as an additional insured and to defend and indemnify the Shopping Center. While the motion was pending the non-binding arbitration pursuant to Rule 4:21A awarded Plaintiff $450,000 in gross damages for a two-level cervical fusion, bilateral labral rotator cuff injury, and right shoulder arthroscopy. No party objected to the award, and a judgment was entered.

Thereafter the partial summary judgment motion was decided, and the trial court found that the Contractor’s failure to name the Shopping Center as an additional insured did not cause the Owner any damages because the insurance policy excluded coverage for the negligence of the additional insured party. Even if the Shopping Center had been named as an additional insured, it would not have been covered for its own negligence. The court noted that nothing in the agreement between the Contractor and Shopping Center prevented the Contractor from obtaining a policy excluding coverage for the negligence of the additional insured.

The Appellate Division reasoned that both the insurance and the indemnification provisions in the contract between the Contractor and the Shopping Center was protecting the Shopping Center from claims arising out of negligent or intentional actions by Contractor and its employees. Those provisions did not protect the Shopping Center from claims arising out of the Shopping Center’s own, independent, negligent acts. (In this case directly or indirectly deciding where to place snow piles). The Appellate Division concluded that the contract was consistent with indemnification provisions, which generally do not protect the party being indemnified from its own negligence.