Erie Insurance Exchange, Appellant,v.J.M. Pereira & Sons, Inc., et al., Respondents.BriefN.Y.March 20, 2018CORPORATE DISCLOSURE STATEMENT I, the undersigned counsel of record for J.M. Pereira & Sons, Inc., certify that to the best of my knowledge and belief, J.M. Pereira & Sons, Inc. has no parent companies, subsidiaries or affiliates. Dated: Rochester, New York December 29, 2017 Respectfully submitted Robert D. Hooks, Esq. Woods Oviatt Gilman LLP Attorneys for Respondent 2 State Street 700 Crossroads Building Rochester, New York 14614 (585) 987-2800 rhooks@woodsoviatt.com {5728315: } 700 Crossroads Building 2 State Street, Rochester, New York 14614 P 585.987.2800 F 585.454.3968 1900 Main Place Tower Buffalo, New York 14202 P 716.248.3200 F 716.854.5100 m Writer's Direct Dial Number: 585.987.2836 Writer's Direct Fax Number: 585.987.2936 Email: rhooks@woodsoviatt.com ATTORNEYS woodsoviatt.com December 29, 2017 Mr. John P. Asiello, Clerk New York Court of Appeals 20 Eagle Street Albany, New York 12207-1095 Re: Erie Insurance Exchange v. J.M. Pereira & Sons, Inc. Apl-2017-00201 Dear Mr. Asiello: We are the attorneys for Defendant-Respondent, J.M. Pereira & Sons, Inc. (“JMP”). We respond to the submission by Plaintiff-Appellant Erie Insurance Exchange (“Erie”) dated December 14, 2017 regarding the captioned appeal (“Erie Submission”). The Erie Submission notes that the appeal presents a narrow issue of the construction of an exception to an exclusion of a Pennsylvania umbrella insurance policy. (Indeed, it is likely that this appeal will affect only these litigants and will have no state-wide effect.) The majority decision correctly holds that there is coverage for the death of two of JMP’s employees and the injury to a third The art of representing people®{5708360: } employee resulting from a flash fire in a New York building site while applying a rubber compound manufactured by Defendant, RPC, Inc. As described in the Erie Submission, the underlying policy issued to the insured, JMP, by the State Workers’ Insurance Fund of Pennsylvania (“SWIF”) limited its coverage to “work in the State of Pennsylvania.” However, under Section 1 of the “Business Catastrophe Liability Policy” (“BCL”), Erie agreed to provide coverage within the “Coverage territory” (R. 244) defined as “ anywhere in the world” (R. 253) and even “ when the ‘underlying insurance’ does not provide coverage” (R. 244). (Emphasis added.) Further, while the BCL excluded coverage for employer’s liability regarding claims for “bodily injury”, an exception to the exclusion provided: This exclusion does not apply to the extent that valid “underlying insurance” for the employer’s liability risks described above exists or would have existed but for the exhaustion of underlying limits for “‘bodily injury.” Coverage provided will follow the provisions, exclusions and limitations of the “underlying insurance” unless otherwise directed by this insurance. (Emphasis added by the Court, Slip Op. 3) (R. 245). At issue is Erie’s claim that there was no “valid” underlying insurance since the underlying SWIF policy excluded employer liability coverage outside of Pennsylvania. In short, both Erie and the dissent in the court below equated the word valid with the word “applicable” underlying insurance in support of the The art of representing people®2{5708360: } argument that because the BCL policy was supposed to follow the form of the SWIF policy, it too excluded coverage for injuries in New York. By contrast, the majority in the court below properly concluded that the word “valid” underlying insurance is not synonymous with the word “applicable” underlying insurance and hence JMP was not precluded from coverage due to the geographic restriction in the SWIF policy. In addition, it held that while the second sentence of the exception (above) is a “follow the form” clause “which is designed to match the coverage provided by the underlying policy” citing Highrise Hoisting & Scaffolding, Inc, v. Liberty Ins. Underwriters, Inc., 116 A.D.3d 647, 648 (1st Dep’t 2014), even if it were to accept the dissent’s premise that the word “valid” means applicable, the follow the form clause provides that “Coverage provided will follow the provisions, exclusions and limitations of the ‘underlying insurance’ unless otherwise directed by this insurance.” In short, the dissent constructed the phrase “valid ‘underlying insurance’44 as the equivalent of “applicable underlying insurance” and since the SWIF policy excluded coverage in New York, under the follow the form clause of the umbrella policy it too excluded employer liability coverage in New York. However, the word “valid” is not synonymous with the word “applicable.” As the majority noted, the dissent “is interpreting the word ‘valid’ to mean ‘applicable’ “when the geographic limit in the SWIF policy did not affect the validity of the policy, but 3 The art of representing people•{5708360: } merely its applicability. (Slip Op. at 4). Again, the follow the form language of the paragraph provides that the BCL umbrella policy will follow the form of the underlying SWIF policy “unless directed by this insurance.” The words “this insurance” is a reference to the BCL policy, which elsewhere provides that coverage would be available “when the ‘underlying insurance’ does not provide coverage” (R. 244) and for events or occurrences “anywhere in the world” (except for areas under embargo or trade sanctions). Neither the words “valid underlying insurance” or the words “unless otherwise directed by this insurance” are defined in the BCL policy, nor have they been construed in any reported decision. However, “[ijnsurance contracts must be interpreted according to common speech and consistent with the reasonable expectations of the average insured.” Cragg v. Allstate Ins. Co.. 17 N.Y.3d 118, 122 (2011). The briefs of both parties in the court below cited to general rules of construction, while the majority and dissent undertook a sui generis analysis of the policy’s language. The majority noted that “the fact that we and our dissenting colleague interpret the policy differently establishes, at the very least, that the policy is ambiguous. . . .” (Slip. Op. 4). In Pioneer Tower Owners Assn, v. State Farm Fire & Cas, Co., 12 N.Y.3d 302 (2009), this Court addressed a similar dilemma in the construction of an 4 The art of representing people®{5708360: } exclusion in an insurance policy (there, the phrase “earth movement”). This Court held: We conclude that both plaintiffs and defendant’s readings of the clauses are reasonable. Our precedents require us to adopt the readings that narrow the exclusions and result in coverage. 12 N.Y.3d at 308. This Court cited to Seaboard Sur. Co. v. Gillette. 64 N.Y.2d 204 (1984) which held that “Any such exclusions or exception from policy coverage must be specific and clear in order to be enforced. They are not to be extended by interpretation or implication, but are to be accorded a strict and narrow construction,” and, most significant, the exclusions cannot be given effect unless “they are subject to no other reasonable interpretation.” 12 N.Y.3d at 307. Accord, Cragg, supra (“To the extent that there is any ambiguity in an exclusionary clause, we construe the provision in favor of the insured.” 17 N.Y.3d at 122). Thus, the majority’s construction narrowing the exclusion to provide coverage is consistent with the precepts and rules of contract construction consistently enunciated by this Court. Here, rather than treating the word “valid” as surplus verbiage, the majority properly sought to harmonize it in context with the words “unless otherwise directed by this insurance.” (Slip Op. 4). This latter qualifying language must be accorded significance, and compelled the majority to look for clarity in its meaning by examining the entire BCL policy, including the provision affording coverage “when the ‘underlying insurance’ does not provide 5 The art of representing people®(5708360: } coverage” and in examining the policy’s definition of “Coverage territory” as meaning “anywhere in the world” (except for areas under embargo or trade sanction). By comparison, neither Erie or the dissent made any effort to harmonize the word “valid” with the words “unless otherwise directed by this insurance.” As such, the majority was correct to reject the dissent’s assertion that in order for the exception to the BCL’s employer liability exclusion to apply, there first had to be coverage in New York under the SWIF policy. Further, while Erie and the dissent treated the qualifying words “unless directed by this insurance” as surplusage, the majority could not and did not. This Court recently cautioned that “our cases in the insurance context confirm that even modest variations on the face of a written agreement can alter the meaning of a critical term.” Global Reinsurance Corp. v. Century Indem. Co.. 2017 N.Y. LEXIS 3723, *13 (Ct. App. December 14, 2017), and that a court should not “disregard the precise terminology that the parties used” and, should not assume intent based on “its own familiar notions of economic efficiency.” Id. Here, the majority cited to Matter of Viking Pump. Inc. 27 N.Y.3d 244 (2016) at Slip Op. 4 which held that “we must construe the policy in a way that affords a fair meaning to all of the language employed by the parties in the contract and leaves no provision without force and effect” and that “surplusage is a result to be The art of representing people®6{5708360: } avoided.” 27 N.Y.3d at 257. Additionally, Viking Pump held that “ambiguities in an insurance policy are to be construed against the insurer.” 27 N.Y.3d at 258. Thus, the “follow the form” clause in Exclusion (g) may not be divided, separated, parsed and interpreted in isolation from the qualifying language “unless otherwise directed this insurance” as Erie would have this Court do. Here, Erie and the dissenting opinion failed to apply the most fundamental precept of insurance policy construction that all its terms be given full force and effect, that there be no surplus words left following their construction, that a court not second- guess the parties’ own terminology, and that words in a policy can and will “alter the meaning of a critical term.” Global Reinsurance. Id. A court should not read the terms of an agreement in insolation but “as a whole”. Global Reinsurance. Id. And a court should not “substitute its own notations of fairness and equity.” Global Reinsurance, 2107 N.Y. LEXIS 3723, *12. Erie’s Submission at p. 19 cites to a Missouri federal court decision, United Fire & Cas. Co. v. Advantage Workers Comp. Ins. Co.. 2017 U.S. Dist. LEXIS 167472 (W. D. Mo. 2017) which it contends conclusively supports its analysis of the phrase in question. The issue in that decision, however, was whether there was a bad faith failure to settle a claim within policy limits. There was nothing in that decision that pertained to a difference between the underlying policy and the The art of representing people®7{5708360: } excess policy, or the phrase “unless otherwise directed by this insurance” which is not even mentioned in that decision. Far more relevant is the decision in Home Ins. Co. v. American Home Products Com., 902 F.2d 1111 (2d Cir. 1989) applying New York law. In Home Ins. Co., an Illinois jury awarded punitive damages on a product liability cause of action. The primary and first-tier excess policies were provided by Liberty. The third-tier excess carrier, Home Insurance, commenced a declaratory action in Southern District of New York regarding its obligation. After obtaining a decision on certification to the New York Court of Appeals that indemnity for punitive damages was against public policy (Home Ins, v. American Home Prod. Corp., 75 N.Y.2d 196 (1990), the Second Circuit then considered the claim by the insured for indemnity for post-judgment interest and defense costs against Home Insurance as the excess carrier. The apt legal principal was described as follows: Initially, we note that the Home policy is a “following form” agreement, subjecting Home to the “terms, conditions and exclusions” of the Liberty excess policy. As the plain language of the Home policy makes clear, however, the Home policy follows the terms of the Liberty excess policy only to the extent that the Liberty policy is consistent with the Home policy. The Home policy states that it is “subject to the same warranties, terms and conditions {except as otherwise provided herein) as are contained in . . . the Underlying Coverage. . . .” (Emphasis added [by the Court]). Thus although both policies must be looked to in determining the scope of Home’s liability, the Home policy controls Home’s 8 The art of representing people•{5708360: } obligations if there is any conflict between the two insuring agreements. 902 F.2d at 1113. (Emphasis by the Court.) The Second Circuit’s review of the policies showed that Home’s excess policy was more restrictive than Liberty’s and, thus, Home was held not liable for the interest or defense cost claims. Thus, the critical phrase “except as otherwise provided herein” was held to control the excess carrier’s obligations, notwithstanding a “follow the form” clause. By comparison, Erie contends the BCL policy’s usage of the nearly identical phrase “unless otherwise directed by this insurance” requires that there be an endorsement to the BCL policy. That argument is unsupported anywhere in the law. The principle that a conflict can exist between an underlying policy and an excess or umbrella policy notwithstanding a following form clause was also noted in the treatise, Barry R. Ostragerÿ Handbook on Insurance Coverage Disputes (817- 18) (11th ed, Aspen L & Bus. 2002): A following form excess policy often incorporates by reference the terms and conditions of the underlying policy. It is well settled that the obligations of following form excess insurers are defined by the language of the underlying policies, except to the extent that there is a conflict between the two policies, in which case the wording of the excess policy will control. 9 The art of representing people®{5708360: } Cited in Lexington Ins. Co. v. Western Pennsylvania Hospital 318 F.Supp.2d 270, 274 fn. 3 (W.D. Pa. 2004). The author is now a Justice of the Commercial Part of the Supreme Court, New York County. Erie’s Submission (at 16) suggests that the majority’s reading of “valid” results in an interpretation that would always impose liability on the excess carrier. However, Erie’s liability is simply the product of the qualifying language Erie elected to insert after its following form provision: “Coverage provided will follow the provisions, exclusions and limitations of the ‘underlying insurance’ unless otherwise directed by this insurance.” Erie also argues that the majority’s decision would thwart Erie’s attempt to shield itself from liability through the “follow the form” clause and create a boomerang effect in which excluded geographical coverage is unintentionally returned. (Erie Submission at 20). Again, this so-called boomerang effect Erie fears is simply the product of poor draftsmanship, resulting in the court below having to wrestle with what the qualifying words “unless otherwise directed by this insurance” mean, and ruling against its author due to its ambiguity. According to Erie, any effort on the part of the majority to ascertain what the words “unless otherwise directed by this insurance” and whether the BCL policy “otherwise directs” coverage (e.g., such as by examining the definition of “Coverage territory”) violates an unwritten “no jumping back” rule. (Erie 10 The art of representing people•{5708360: } Submission at 23). The implication is that this no jumping back rule supersedes the cardinal rules of contract construction laid out by this court in Matter of Viking Pump, Inc., infra, meaning the words “unless otherwise directed by this insurance” should be viewed as surplusage. Erie further contends (Erie Submission at 21-22) that the BCL is “standalone coverage with an isolated pocket of follow-form coverage provided via an exception to an exclusion.” (Erie Submission at 21) and that the majority construed the “otherwise directed” clause too broadly because an injury in a “coverage territory” is not a covered loss, and “in order for the BCL policy to have “directed otherwise” such act must have been done in a separate endorsement to the policy.” (Erie Submission at 24). Again, Erie is bound by the language it drafted. There is nothing in the words “unless otherwise directed by this insurance” that would alert the insured that such words referred to a separate endorsement. The words “unless otherwise directed by this insurance” are synonymous with the words “elsewhere in the policy.” Thus, if it would violate the no jumping back rule to look elsewhere in the policy for the meaning of the words “unless otherwise directed by this insurance” then Erie has indeed created an ambiguity of its doing and assured that its words are rendered meaningless. In contrast, the majority applied the cardinal rules of 11 The art of representing people•{5708360: } construction enunciated by this Court to properly construe the qualifying words “unless otherwise directed by this insurance” in Exclusion (g) to provide coverage. CONCLUSION JPM respectfully submits that decision of the majority should be affirmed, although this Court should modify the Fourth Department’s Memorandum and Order to the extent it elected not to search the record and grant summary judgment dismissing Appellant’s Complaint for declaratory relief. JPM further consents to allowing this Court to rely on the briefs submitted to the Fourth Department and submits that further oral or written argument is unnecessary. Respectfully submitted, WOQEjS OVIATT GILMAN LLP Robert D. Hooks, Esq. 12 The art of representing people®{5708360: } WORD COUNT CERTIFICATION I certify that this Letter Response on behalf of Respondent, J.M. Pereira & Sons, Inc. contains 2,645 words, as counted by Microsoft Word’s word-processing system, including headers, footnotes and quotations. Dated: Rochester, New York December 29, 2017 Respectfully submitted iZ Robert D. Hooks, Esq. Woods Oviatt Gilman LLP Attorneys for Respondent 2 State Street 700 Crossroads Building Rochester, New York 14614 (585) 987-2800 rhooks@woodsoviatt.com {5728315: } STATE OF NEW YORK COURT OF APPEALS ERIE INSURANCE EXCHANGE, Plaintiff-Appellant, AFFIDAVIT OF SERVICE vs. APL-2017-00201 J.M. PEREIRA & SONS, INC., RPC, INC. a/k/a RUBBER POLYMER CORPORATION, RICARDO VEGA, and ROBERT MARCHESE, as the Administrator of the Estates of ANTONIO TAPIA AND GILBERTO VEGA-SANCHEZ, Defendants-Respondents. STATE OF NEW YORK COUNTY OF MONROE ) )ss.: The undersigned being duly sworn, deposes and says: Deponent is not a party to this action, is over 18 years of age, and resides at Macedon, New York. 1. 2. On December 29, 2017 deponent served the within Letter Submission for Respondent, J.M. Pereira & Sons, Inc. upon: Dan D. Kohane, Esq. Hurwitz & Fine, P .C. Attorneys for Appellant Erie Insurance Exchange 1300 Liberty Building Buffalo, New York 14202 Adam G. Silverstein, Esq. Fox Rothschild LLP Attorneys for Defendant-Respondent RPC, Inc. a/k/a Rubber Polymer Corporation 2700 Kelly Road, Suite 300 Warrington, Pennsylvania 18976 {5735760: } Anthony M. Deliso, Esq. Bisogno & Meyerson, LLP Attorneys for Defendants-Respondents Ricardo Vega and Robert Marchese as the Administrators of the Estates of Antonio Tapia and Gilberto Vega- Sanchez 7018 Fort Hamilton Parkway Brooklyn, New York 11228 the address designated by said attorneys for that purpose, by depositing a true copy of same, enclosed in a prepaid properly addressed wrapper, in an official depository under the exclusive care and custody of Federal Express via Priority Overrent Mail. Virgjnr)a A. Trioli Sworn to before me this 29th day of December, 2017 Notary Public BONNIES. BROOKSNotary PuMic, state of New YorkQualified in Monroe County . No. 01BR6136698Commission Expires Nov. 14, 20oc/ 2{5735760: }