Insurance

Designated Counties Exclusion Leads to Coverage Denial in Product Liability Claim

John C. Lane

Colleen Lorito worked at a Home Depot store in Freeport, New York, in Nassau County. She suffered a severe hand injury while working with a cutting machine designed to cut pre-made window blinds to meet the specifications of Home Depot’s customers. The blinds and cutting machines were marketed by Richland Window Coverings, LLC, doing business as Nien Made (America), headquartered in California. When Colleen and her husband filed a product-liability lawsuit against Richland in Nassau County, Richland’s insurer, Admiral Insurance Company, disclaimed coverage. Richland sued Admiral in its home state of New Jersey for a declaratory judgment that it owed coverage. On appeal, the New Jersey Supreme Court sided with Admiral. Here’s why.

The Admiral policy contains a “Designated New York Counties” Exclusion, listing the five counties that make up New York City, two nearby upstate counties, and the counties of Long Island – Nassau and Sussex. There would be no coverage for Richland for any liability “arising out of, related to, caused by, or in any way connected with . . . [any] operations or activities performed by [Richland]” in any of the designated counties. Admiral asserted that Richland’s activities at the Freeport Home Depot, in Nassau County, triggered the Exclusion, denying coverage to Richland for Colleen’s accident claim.

(Why all those counties? Five of those nine counties are actually defendants’ venues – especially Nassau and Suffolk.)

Richland argued before the New Jersey courts that it sold blinds and cutting machines to Home Depot, not to any specific store location. The Supreme Court looked beyond the four corners of the complaint to review all background facts, to determine that Colleen’s injuries were “connected with” and “related to” Richland’s operations and activities at the Home Depot in Nassau County. The allegations of the complaint alone were insufficient to answer the coverage question.

The Court gleaned from the record that Richland sells Nien Made window covering products to national retailers such as Home Depot. It also provides the cutting machines to cut the blinds to customers’ specifications, and a user manual for the retailers’ employees to learn how to use the cutting machines. Its representatives visit the stores, train employees on the machines and answer questions about the blinds and machines. They maintain and repair the machines, and replace cutting blades as needed, on site. All those activities occurred at the Freeport Home Depot store where Colleen was injured.

The Supreme Court found that Richland was more than a distant marketer. Its activities in Nassau County were sufficient to conclude that Colleen’s injuries were “connected with” and “related to” Richland’s operations and activities in Nassau County. The Exclusion was upheld, and Richland was denied liability coverage for Colleen’s Nassau County lawsuit.

For insurance-law purists, neither the Supreme Court nor the Appellate Division, below, explained why New Jersey insurance law governed the outcome. True, Admiral is a New Jersey-based insurer. But Richland is headquartered in California, where the policy was presumably delivered. Colleen is a New York resident, where she sustained her injury. A choice-of-law discussion is absent from the Supreme Court’s opinion. Nor is there any discussion of the purpose or enforceability of the Exclusion.

For insureds, you may be well advised to review your policies when issued, unless you have absolute confidence in your insurance broker to do so on your behalf. Here, Colleen’s lawsuit will proceed, but Richland will not have the benefit – or comfort – of coverage under the Admiral policy. That matters.

Drastic Insurance Disclosure Rules Take Aim at New York Lawsuit Defendants

John C. Lane

Even with some softening amendments taking effect February 24, 2022, New York’s 2021 Comprehensive Insurance Disclosure Act brings sweeping and burdensome new insurance disclosure demands for persons and companies named in lawsuits in New York state courts. Here’s what New York defendants and their insurers need to know.

The New Law and the New Requirements

  • Time of Insurance Disclosure
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Not later than 90 days after answering a complaint, the defendant must provide to the plaintiff “proof of the existence and contents of any insurance agreement” in the form of the insurance policy in place at the time of the loss.

But if the plaintiff agrees in writing, the defendant need only produce a copy of a declaration page. A plaintiff who agrees to accept a declaration page in lieu of the policy may later revoke that agreement and shall then be provided a full copy of the insurance policy.

  • Policies to be Disclosed

The insurance information and documentation provided, whether in the form of the policy or the declaration page, shall include “all primary, excess and umbrella policies, contracts or agreements, and self-insurance programs insofar as such documents relate to the claim being litigated.” [emphasis ours].

  • Additional Disclosures

The insurance disclosure must also provide the following:

a. The name and email address of an assigned individual responsible for adjusting the claim at issue; and

b. The total limits available under any policy, after taking into account erosion and any other offsets.

  • Reasonable Efforts

Defendant must make reasonable efforts to update the information given to any party, at the time of filing of the note of issue [the pleading that places the case on the trial calendar], when entering into any court settlement conference or voluntary mediation, at the time the case is called for trial, and for 60 days after entry of final judgment in the case, including all appeals.

  • Affidavits of Defendant and Defense Counsel

Unfortunately, one challenging provision in the original bill was not amended. Newly added Section 3122-b of the Civil Practice Law and Rules mandates that any insurance information provided must be accompanied by both an affidavit of the defendant [emphasis ours] and an affidavit or affirmation of the defendant’s attorney –

stating that the information is accurate and complete, and that “reasonable efforts” have

been undertaken to ensure that this information remains accurate and complete.

Under this provision defendants in New York lawsuits will need to appoint an individual with knowledge of the defendant’s insurance program to be able to execute such an affidavit. More problematic is the statute’s requirement that defense counsel also provide similar affidavits or affirmations, ignoring the fact that defense counsel learn about the insurance coverage from their clients, and not from personal knowledge.

  • Some Improvements Over the Original Bill

The amendments did provide some improvements. The time to serve insurance disclosure was extended from 60 to 90 days after the answer is filed. It is now clearly stated that disclosure of an insurance policy does not render it admissible in evidence at trial. Also clear is that such disclosure does not constitute an admission that an alleged injury is covered by the policy, obviously more helpful to the insurer than the insured defendant.

The original law required that these detailed insurance disclosures be made in all pending cases, not just in new lawsuits. The amendments remove the requirement from already pending lawsuits.

Going Forward

Navigating these new requirements will be challenging, and questions will abound. How far into excess coverage layers must defendants provide insurance disclosure? Why should layers of excess coverage have to be disclosed if they far exceed the value of the claim? Should defendants produce only declarations pages in the first instance? What if the affidavit of accuracy and completeness are not provided? Or, what if it turns out that the coverage disclosed is inaccurate?

These and many other issues, both legal and operational, will be faced under the new law. We would be pleased to discuss these new requirements and assist you to work through them.