New York’s Highest Court Asked By Federal Court: Can Certificates of Insurance Estop An Insurer From Denying Coverage Under a Policy?

By: Louis G. Adolfsen

          Insurance brokers, which may or may not be agents of an insurer, commonly issue certificates of insurance to policyholders, like subcontractors, who then furnish the certificates to third parties, such as owners or contractors, as evidence of insurance or that a particular policy of insurance also covers the third parties.  However, certificates of insurance, on the commonly used ACORD form, generally contain a disclaimer which states:

"This Certificate is issued as a matter of information only and confers no rights upon the certificate holder.  This certificate does not amend, extend or alter the coverage afforded by the policies below."

          Whether a certificate of insurance can bind the insurance company to provide coverage, for example, additional insured coverage to an owner or general contractor, is often a subject of dispute.  This issue arose in an opinion in the case of 10 Ellicott Square Corp. v. Mountain Valley Indemnity Co., 10-0799-CV, which was issued on December 28, 2010 by the United States Court of Appeals for the Second Circuit. The case concerns a certificate of insurance which lists certain Mountain Valley insurance policies and shows 5182 Group and Ten Ellicott as additional insureds on the policies.  The Mountain Valley primary policy required that the construction agreement be executed before the additional insureds could be defended indemnified under the primary policy.  The agreement was not signed until September 12, 2003 which was after a September 9^th roof collapse at the construction site injuring one of the workers of a subcontractor.

The Second Circuit held:

 “…under its terms, the primary policy's additional insured coverage did not become effective prior to the accident in question. We conclude, however, that the plaintiffs nonetheless were covered under the terms of the umbrella policy because that policy did not require "execution" of an underlying written agreement to take effect.”

          The trial court ruled that Mountain Valley was estopped from declining coverage because it had issued a certificate of insurance identifying the owner and the general contractor as additional insureds.  The Second Circuit also observed that the Third and Fourth Departments of New York's Appellate Division have held that a certificate of insurance can estop an insurer from denying coverage but that the Second Department has "declined to conclude that insurer was stopped from denying coverage to a party that was erroneously named on a certificate of insurance."

          To resolve this conflict, the Second Circuit certified a question to the highest court of the State of New York, requesting that the New York Court of Appeals answer the following question:

"In a case brought against an insurer in which a plaintiff seeks a declaration that it is covered under an insurance policy issued by that insurer, does a certificate of insurance issued by an agent of the insurer that states that language is in force but also bears language that the certificate is not evidence of coverage, it is for informational purposes only, or other similar disclaimers, estop the insurer from denying coverage under the policy?"

          The question certified by the Second Circuit to the New York Court of Appeals expressly concludes, without explaining its conclusion, that the certificate of insurance was "issued by an agent of the insurer." In the opinion Judge Sack states that defendant Mountain Valley, "by its agent LRMP, Inc., issued a certificate of insurance evidencing the policies and the status of the plaintiffs as additional insureds, after receipt of which Ellicott Maintenance began the demolition work."

          Judge Sack, writing for the three judge Second Circuit panel, stated that the "insurer has an obligation not to issue false or potentially misleading certificates of insurance -- or to permit an agent to issue them – if it or the agent is aware that parties may rely upon the certificate despite disclaimers to the contrary." 

          Certificates of insurance are generally issued by brokers, but  insurance companies often contend that the brokers are not their agent. If the person issuing the certificate of insurance is an agent, despite any disclaimer in the certificate, arguably, the agent has the power to bind the insurance company.  On the other hand, if the person issuing the certificate is a broker who the insurance company contends is not its agent, then the broker should have no authority to bind when it issues the certificate of insurance.

          We will have to wait until the New York Court of Appeals addresses this important issue to find how it views the subject and whether the facts in this case will be applicable to other cases where brokers who were not "agents" issue the certificate of insurance.

Prepared by Melito & Adolfsen P.C., this publication is only a general summary of the topics discussed here and is not a substitute for legal advice.© 2011, by Melito & Adolfsen P.C.



Common Misunderstandings about the Care Required in Nursing Homes and Assisted Living Facilities in New York State

By: Louis G. Adolfsen

          There are many misunderstandings about the responsibilities of nursing homes and assisted living facilities under the laws of the State of New York.  This paper is intended to touch upon a number of these subjects and highlight the misconceptions on the part of the spouses or children, (who sometimes become plaintiffs in lawsuits), of the residents of such facilities.

“Restraint-Free”

          On Saturday, January 1, 2011, The New York Times published an article, entitled, Giving Alzheimer’s Patients Their Way, Even Chocolate, describing a nursing home In Arizona that allows a resident with Alzheimer’s to do whatever she wants – bathe at 2 a.m., feed a doll she calls her baby, and even eat chocolate whenever she feels like it. Prior to the decision to give the resident more freedom in her schedule and her desires, she was striking other residents and fighting with the staff.  Now she is calm and contented. Does this sound strange? It should not. While perhaps the unlimited chocolate is a bit extreme, giving a resident at a nursing home unfettered freedom is consistent with the law in New York which requires that all facilities caring for the elderly be “restraint-free.”

          What does it mean to be “restraint-free”?  What this means is that residents cannot be confined to the bed or strapped into a wheelchair or any other device without the express orders of a physician chosen by the resident. Even where a resident needs a great deal of care, the nursing home is not allowed to restrain them by putting up rails and keeping them in bed or by making them sit in a wheelchair where they are unable to ambulate or remove themselves from the wheelchair into bed or onto another place to sit.

          Thus, there are many opportunities in a restraint-free facility for a resident of a nursing home to fall and injure themselves.  Such falls are a common circumstance because the residents are allowed to move freely. As for side rails on beds, they are generally only half rails which allow the resident to get up from the bed. In fact even half rails may soon be considered a restraint in New York. Many times in lawsuits the plaintiff will point to the fact that the resident was a fall risk and suggest that a parent should have been restrained in the bed or in the wheelchair.  This is simply not the case.

Differences Between Nursing Homes and Assisted Living Facilities

          In considering the restraint-free rule and related requirements, one should also understand the differences, and similarities, between nursing homes and assisted living facilities.

          A nursing home is a skilled medical facility and is subject to Article 2801-d of the Public Health Law.  Under Article 28, which was passed in the 1970s in reaction to some extremely poor care at a number of nursing homes, residents can recover damages by asserting that the care they received was not reasonable even if they suffer no physical injury. Article 28 of the PHL does not apply to assisted living facilities.

          Fortunately, assisted living facilities are not subject to Article 2801-d of the Public Health Law.  Assisted living facilities also do not provide medical care or sub-acute care provided by nursing homes.  Instead, they provide, as their name implies, “assisted living.” Indeed, assisted living facilities are not allowed to dispense medication nor are they permitted to assist a resident in eating.

Wheelchairs and Walkers    

          Another issue that commonly arises is whether people at assisted living facilities should be using a wheelchair or a walker.  In our understanding of the state requirements, a person who requires a wheelchair all the time would not generally be allowed in an assisted living facility under state guidelines.  A person in that condition would need more care than assisted living facilities are allowed to give.  What our experience has shown is that many residents do have wheelchairs.  For example, a resident who might be able to walk unassisted or walk with the assistance of a walker might use a wheelchair as means of transportation.  Some administrators have advised that residents may take their wheelchair with them on a trip to the supermarket and wheel themselves around putting items in their cart rather than attempting to walk up and down the aisles.  The reason we raise this distinction is there often are claims that a resident of an assisted living facility should not leave the premises unless they are in a wheelchair.  If a person needs a wheelchair to such a degree that they should not leave the facility without it, they are an unlikely candidate under New York State guidelines for residents in an assisted living facility.

          As the foregoing shows, a resident in an assisted living facility is free to come and go and to use a walker or a wheelchair as he or she determines.  What this suggests is that there really are no restraints on a person in an assisted living facility.  There are simply instances where they may need help getting around or doing a particular task such as dressing or cleaning.

 The Public Health Law

          There are significant changes in the law as a result of the Public Health Law. In a “slip and fall” case, and many nursing home cases are just that, the burden of proving negligence is on the plaintiff. However, under the Public Health Law, the burden of proving that the nursing home provided “all reasonable care” to the resident is on the nursing home.  This is extremely problematic. The courts allow an Article 2801-d claim under the Public Health Law where the burden of proof is on the nursing home, even if there is also a claim for negligence where the burden of proof will be on the plaintiff. As to the Public Health Law claim, the burden of proof will be on the defendant nursing home to show that it used “all reasonable care” to prevent the resident from falling even though, if only negligence were claimed, the burden of proof would fall on the plaintiff. The courts have not addressed how they can harmonize these inconsistent burdens of proof. In our view, the courts will, for all intents and purposes, place the burden of proof on the nursing home as to both issues, not simply the PHL claim, even if there is a curative instruction as to the burden of proof being on the plaintiff with regard to the negligence claim.

          Another aspect of Article 2801-d of the Public Health Law is that it permits a recovery of a minimum of 25 percent of the daily average cost at the nursing home.  This is separate and apart for the recovery for pain and suffering on the separate negligence or malpractice claim.

          Another important consideration under Article 2801-d of the Public Health Law is that the court, in its discretion, may award attorney’s fees. Generally speaking, in New York attorney’s fees are not recoverable because the state follows the American rule where such fees are not awarded to plaintiff absent a contract requiring the payment of such fees or a statute like Article 2801-d of the Public Health Law. In our view, it is unlikely that a court would award attorney’s fees simply because of for simply substandard care or a deviation in the standard of care.  To allow recovery of attorney’s fees should require a case of extreme neglect on the part of the nursing home.  Still, this is an important consideration since the award of fees is in the discretion of the trial judge and under New York practice it is difficult to overturn an exercise of discretion on appeal.

          A different issue arises with respect to residents of nursing homes and the use of walkers and wheelchairs.  By state law, In the case of nursing homes, as well as assisted living facilities, claims are often made that someone should have been with the resident at the time they toileted or moved from one place to another in the facility.  While in nursing homes it may be that someone who is a fall risk needs additional care, and they also need sensors on the bed to warn if the resident begins to get up from the bed or wheelchair, the facility remains restraint-free absent a doctor’s order as to that particular resident.  Even warning devices only advise the nursing home after the resident has begun to move or, as the term is used in the industry to “self-transfer.” Thus, there is no basis for suggesting that a resident who is a fall risk can never self-transfer because the fact that the facility is restraint-free means that there will always be an opportunity for the resident to self-transfer.

          One final thought that applies to both nursing homes and assisted living facilities.  There is simply no one-on-one treatment.  Plainly, an assisted living facility is not permitted to provide one-on-one treatment.  There is also no requirement that a nursing home provide such treatment even to a person who is a high risk for falls. Of course, it would be better if one person could have a person standing next to a resident at all times but that is simply not feasible.  There are no state requirements for one-on-one treatment and it is simply not required even though in lawsuits the assertion is often made that someone should have been with the injured resident at the time of the accident. Such care is not required and, think about, who would want a person with them at all times? Certainly, not the chocolate loving resident at the nursing home discussed in the New York Times article we used to introduce this subject.

Prepared by Melito & Adolfsen P.C., this publication is only a general summary of the topics discussed here and is not a substitute for legal advice.© 2011, by Melito & Adolfsen P.C.

Tell Your Insurance Company about any Potential Claim

DON'T TAKE A CHANCE AND NOT GIVE NOTICE OF A POTENTIAL  CLAIM TO YOUR INSURANCE COMPANY - You can Void your Coverage!!! 

         One of the most common experiences faced by  individuals, businesses, attorneys, doctors and other  professionals is whether to give notice to the insurance  company of a potential claim.  There is a general  reluctance on the part of people, even attorneys who  should know better, to give notice of a potential claim.  The most common concern is that giving notice of a  potential claim will result in increased rates. This is  not so. Even in the case of automobile coverage, a claim  will result in a surcharge only if the insurance company  is required to make a payment under the law of most  jurisdictions.  With all types of coverage, the mere  reporting of a potential claim will simply result in a  file being opened and, if no claim results, the file will  thereafter be closed based on the procedure of the  particular insurance company.  

         A recent case illustrates the danger of not giving  notice of a potential claim although it involves a  slightly different aspect of the notice requirements in an  insurance policy.  In Executive Risk Indemnity, Inc. v.  Pepper Hamilton LLP, - - NY3d - -, 2009 NY Slip Op 07453 (October 20, 2009) New York's court of appeals decided a case under the laws of Pennsylvania where the law firm was  located.  In that case, the activities of the law firm's  client had led to some lawsuits against the client.  The  firm had not been sued but it was apprehensive of its  possible malpractice exposure.  It had several insurance  policies providing both primary and excess coverage and  each policy excluded coverage for a category called "prior  knowledge exclusions" which involved acts that the insured  might foresee as producing a claim.  The law firm did not  report its apprehensions of possible malpractice exposure  in applying for coverage.  The New York Court of Appeals  applied Pennsylvania law (based on where the firm was  located) and concluded that the firm was on notice of its possible implication in the wrongdoing and that "a  reasonable attorney with [that] knowledge should have  anticipated the possibility of a lawsuit."  Consequently, two of the insurers were allowed to void the coverage and not pay the claim. 

        We like to tell what we call "cautionary tales" and  advise clients, including law firms, that it is better to  advise the insurance company of the potential for claim  than to try and hope that there won't be a claim when  there is knowledge that there might be one. Even where the  insurance company may be required to show prejudice, such  as where the insured fails to give notice of a claim or  lawsuit, it is never worth the risk of having to explain  why any information, even only a potential claim,  was  held back. Keeping the insurance company on notice of the  potential for a claim has no down side - not advising the  insurance company has potentially serious consequences,  i.e. the loss of the coverage.

Criminal Liability of Businesses for Understaffing

In People v Highgate LTC Managemnt LLC, _____AD 3d_______(3rd Dep't., October 22, 2009), the Court held that  a Limited Liability Company ("LLC") can be criminally liable and lose its license -- for simply being aware of chronic overstaffing -- after its employees were found guilty of falsifying records as to a patient's care.     

This is truly a "cautionary tale" about a Nursing  Home that was held criminally liable for the acts of an employees. The  legal issue is whether that an LLC that owns the  Nursing Home can be criminally liable for the acts of employees. The law  is already established that a corporation can be held criminally liable. But there is more to this case than that....     

An equally important issue not discussed by the Court is that the  Nursing Home itself (or any business - see below) can be held  criminally liable if its employees falsify records. What was the Nursing  Home's crime? The Court did not say that the Nursing Home knew the  employees were falsifying records.  According to the decision, the  Nursing Home "was aware of chronic understaffing resulting in deficiencies in care." This type of knowledge does not seem at all  equivalent to the criminal intent exhibited by the employees who, the  Nursing Home conceded, were acting within the scope of their employment.  Nevertheless, the Nursing Home was criminally convicted, fined $15,000,  and its operations suspended for a year because it knew of "chronic  understaffing."    

This decision should be troubling for any Nursing Home because the mere  knowledge of understaffing can result in criminal  charges if its  employees falsify records as to the care of residents. Unless the decision is reversed by New York's highest Court, which seems unlikely  since an LLC should be treated like a corporation in these  circumstances, we can anticipate more criminal charges against Nursing Homes.     

One more point. This decision is about whether an LLC, like a  corporation, can be held criminally liable when its employees falsify  records and all it was aware of was chromic understaffing. It is not  limited to Nursing Homes.  Any LLC, any corporation, any business for  that matter, presumably, can be criminally liable in these  circumstances. Hospitals are likely candidates and have already been the  targets of civil complaints about understaffing (Remember the case  involving Sidney Zion's daughter and New York Hospital where the interns worked 36 hours or more each shift?). But the same can be said of any business where chronic understaffing, perhaps more common in this  economic climate, allegedly results in employees falsifying records that  relate to care or safety.    

This is why this decision is a "cautionary tale."        

Workers' Comp

CGL vs. WORKERS’ COMP 1B - COVERAGE IN CONSTRUCTION CASES

The question as to the applicability of CGL and/or 1B Coverage in any given case remains a fertile ground for dispute.  The 1B Coverage generally provides liability coverage for bodily injury sustained by an employee, excluding coverage of the employer for contractual indemnity but covering it for common law indemnity or contribution.  The CGL coverage covers the employer for contractual indemnity but excludes coverage for common law indemnity or contribution.

Generally, both common law and contractual claims are asserted against the employer.  While the two policies cover different types of liability, in Labor Law cases a common scenario arises in which both policies apply. Because the Labor Law imposes strict liability on owners and general contractors (“GC”) regardless of fault, such entities are commonly found liable in construction accidents, particularly involving scaffolding claims under Labor Law § 240, even where they are free from fault and have no involvement in the accident or in the work.  In such cases, the owner and GC will commonly pass the entire liability on to the contractor who is at fault by means of a third-party action or a cross-claim.  Furthermore, although New York General Obligations Law (“GOL”) § 5-322.1 prohibits contractual indemnification in the construction context where the party to be indemnified is to any extent negligent, the New York Court of Appeals held in Brown v. Two Exchange Plaza Partners that a finding of absolute liability under the Labor Law will not prevent an owner and GC from obtaining contractual indemnity as long as they are not found to any extent negligent.

In a common situation where an owner and GC are held liable under the Labor Law solely by virtue of their status, the Courts have permitted judgment over in favor of these entities against the responsible contractor.  Furthermore, where a broad-based indemnity agreement runs in favor of the owner and GC, the Courts have held that such liability against the third-party contractor is premised both on principles of common law indemnity as well as contractual indemnity.  In such circumstances, the New York Court of Appeals has held in Hawthorne v. South Bronx Community Corp., that the CGL carrier and the worker’s compensation carrier must share the loss equally, since it falls under each of the policies.

If some percentage of negligence is found against the owner or GC in the action, and even assuming that most of the fault is assessed against the subcontractor, the provisions of GOL § 5-322.1 which prohibit contractual indemnification of a negligent party come into play.  That is, if negligence on the part of the owner and GC completely negates the indemnity contract, then liability against the subcontractor will be premised solely on the principle of common law contribution.  This liability would be covered solely under the worker’s compensation policy since it is excluded under the CGL policy’s employee exclusion.  On the other hand, if  partial contractual indemnity is permitted, i.e., contractual indemnity is allowed except for the portion of the owner or GC’s percentage of negligence, then both the CGL policy and the worker’s compensation policy would be triggered . See , Hawthorne , supra.

The New York Court of Appeals addressed this issue in its recent decision in ITRI Brick & Concrete Corp. v. Aetna Casualty & Surety Co.  In that case, the Court of Appeals held that broad-based indemnity agreements which purport to shift full liability from a GC found partially negligent onto a subcontractor are rendered wholly void under GOL § 5-322.1.  Thus, the Court of Appeals struck down the contractual indemnity claim by a GC found partially negligent, and held that the GC was solely entitled to common law contribution from the subcontractor who employed the plaintiff to the extent of the subcontractor’s negligence. The result of this holding was that the subcontractor’s worker’s compensation carrier was required to pay the entire third-party judgment against the subcontractor.

In ITRI Brick,  the Court of Appeals left open the issue of whether a partial indemnification agreement (i.e., an agreement that expressly provides for contractual indemnification except for any portion of the liability based on negligence) would be enforceable under GOL § 5-322.1.  In so doing, the Court noted that the indemnification agreements at issue in that case did not provide for such partial indemnification and therefore were plainly invalid under the statute in view of the GC’s negligence.  However, the Court of Appeals strongly indicated in dicta that it seemed unlikely that such partial indemnity agreements would be enforceable.  As always, the coverage determination will depend on an interpretation of the precise language used in the indemnity provision.