Erie Insurance Exchange, Appellant,v.J.M. Pereira & Sons, Inc., et al., Respondents.BriefN.Y.March 20, 2018m Fox Rothschild UP ATTORNEYS AT LAW 101 Park Avenue, Suite 1700 New York, NY 10178 Tel 212.878.7900 Fax 212.692.0940 www.foxrothschild.com MATTHEW J. SCHENKER. Direct No: 212.905.2308 Email: MSchenker@FoxRothschild.com January 2, 2018 VIA FEDEX OVERNIGHT John P. Asiello Chief Clerk of Court New York Court of Appeals 20 Eagle Street Albany, New York 12207-1095 Re: Erie Insurance Exchange v. J.M. Pereira & Sons APL - 2017-0021 Dear Mr. Asiello: This firm represents Defendant-Respondent, RPC, INC. a/k/a RUBBER POLYMER CORPORATION (“RPC”). This letter is submitted in response to the submission of Plaintiff-Appellant ERIE INSURANCE EXCHANGE (“Erie”) dated December 14, 2017 (the “Erie Submission”) regarding the above-captioned appeal, and pursuant to section 500.11 of the Court of Appeals Rules of Practice. A Pennsylvania Limited Liability Partnership California Colorado Connecticut Delaware District of Columbia Florida Illinois Minnesota Nevada New Jersey . New York Pennsylvania Texas Fox Rothschild UP ATTORNEYS AT LAW John P. Asiello Chief Clerk of Court New York Court of Appeals January 2, 2018 Page 2 PRELIMINARY STATEMENT This appeal involves the construction of an umbrella insurance policy issued by Erie to Defendant-Respondent J.M. PEREIRA & SONS, INC. (“Pereira”). Erie is a Pennsylvania domiciled insurance company and Pereira is a Pennsylvania corporation. (Erie Motion for Leave to Reargue, at 15). Three Pereira employees were tragically injured at a flash fire at a New York building site, and two of the employees died from their injuries. Erie commenced a declaratory judgment action seeking to disclaim coverage under an exclusion to the policy. The Supreme Court denied Erie’s motion for summary judgment, finding that a question of fact existed as to whether one of the exceptions to the exclusion applied. The Appellate Division, Fourth Department, by Memorandum and Order dated June 30, 2017 (the “Order”), upheld the Supreme Court’s decision, finding that a different exception to the exclusion applied, and therefore that the policy 1 A more complete recitation of the factual background can be found in RPC’s brief to the Appellate Division, at 4-9. Fox Rothschild LLP ATTORNEYS AT LAW John P. Asiello Chief Clerk of Court New York Court of Appeals January 2, 2018 Page 3 provides coverage. (Order at *4). The umbrella policy in question is known as the Business Catastrophe Liability Policy (the “BCL Policy”). The “Coverage territory” (R. at 244) of the BCL Policy is defined as “anywhere in the world” (R. at 253) (emphasis added). The BCL Policy provides coverage even “when the ‘underlying insurance” does not provide coverage” (R. at 244) (emphasis added). Exclusion (g) of the BCL Policy excludes bodily injury to an employee arising out of the scope of the employment. (R. at 245). It is undisputed that the injuries at issue took place in the scope of the employees’ employment. However, the BCL policy contains an exception to this exclusion, which states: 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. (R. 245). The issue in this appeal is whether valid “underlying insurance” exists and Fox Rothschild UP ATTORNEYS AT LAW John P. Asiello Chief Clerk of Court New York Court of Appeals January 2, 2018 Page 4 whether the BCL Policy provides coverage for the injuries sustained in New York. The relevant “underlying insurance” policy here is the State Worker’s Insurance Fund policy (the “SWIF Policy”) issued to Pereira. The SWIF Policy is an employer’s liability policy that provides coverage due to an employee’s bodily injury occurring in the course of employment, so long as the employment is “necessary or incidental” to “work” in Pennsylvania. (R. at 268, 263). Erie claims that there is no “valid underlying insurance” because the underlying SWIF policy excludes employer liability coverage outside of Pennsylvania. There are two main problems with Erie’s argument. First, as held by the Appellate Division, Erie wrongfully equates the word “valid” with the word “applicable.” Not only do these words not mean the same thing, but Erie’s interpretation of the term “valid” would render the “unless otherwise directed” language of the exception meaningless. And because the coverage under the BCL Policy is worldwide, the BCL Policy provides for coverage despite the geographic restriction in the SWIF Policy. Second, the BCL Policy is ambiguous and must be construed in favor of the insured. Fox Rothschild up ATTORNEYS AT LAW John P. Asiello Chief Clerk of Court New York Court of Appeals January 2, 2018 Page 5 VALID UNDERLYING INSURANCE EXISTS, AND THE BCL POLICY DIRECTS COVERAGE WORLDWIDE The Appellate Division correctly determined that the SWIF Policy is “valid underlying insurance” even though the injuries did not occur in Pennsylvania. (Order at *4). As held by the Appellate Division, and contrary to Erie’s position, the word “valid” is not synonymous with the word “applicable.” Therefore, the SWIF Policy is valid, even if it does not apply to the injuries at issue. Beyond the fact that Erie misreads the definition of the term “valid,” there is another, more critical, reason why Erie’s reading of the policy cannot be correct. This is because, if “valid” meant “applicable,” the “unless otherwise directed” language of the exception would be rendered meaningless. As stated by the Appellate Division: In our view, the geographic limits of that policy do not affect the policy’s validity but, rather, affects its applicability. Otherwise there would never be a situation where the “unless otherwise directed” language would have meaning. That phrase has meaning only if the underlying insurance has exclusions not found in the BCL policy. m Fox Rothschild UP ATTORNEYS AT LAW John P. Asiello Chief Clerk of Court New York Court of Appeals January 2, 2018 Page 6 (Order at *4, emphasis in original). Stated differently, the “unless otherwise directed” language presumes that the underlying insurance has exclusions not found in the BCL Policy. And because that is the case, “valid” simply cannot mean “applicable.” The Appellate Division’s interpretation of the BCL Policy is consistent with the rule of contract construction consistently set forth by this Court - as well as Pennsylvania courts-that contracts must be construed to give all terms effect.2 See, e.g., Matter of Viking Pump, Inc. 27 N.Y.3d 244, 257, 52 N.E.3d 1144, 1151, 33 N.Y.S.3d 118, 125 (2016) (“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” (quoting Roman Catholic Diocese of Brooklyn v. National Union Fire Ins. Co. of Pittsburgh, Pa., 21 N.Y.3d 139, 148, 969 N.Y.S.2d 808, 991 N.E.2d 666 (2013)); Westview Assoc, v. Guaranty Natl. Ins. Co., 2 The Appellate Division found that there was no conflict between the laws of New York and Pennsylvania with respect to “the applicability of the basic tenets of contract interpretation.” (Order at **2-3). Fox Rothschild LLP ATTORNEYS'AT LAW John P. Asiello Chief Clerk of Court New York Court of Appeals January 2, 2018 Page 7 95 N.Y.2d 334, 339, 717 N.Y.S.2d 75, 77, 740 N.E.2d 220, 222 (2000) (“defendant’s interpretation would render the umbrella policy’s specific exclusions mere surplusage, a result to be avoided.” (citing Bretton v. Mutual of Omaha Ins. Co., 66 N.Y.2d 1020, 499 N.Y.S.2d 397, 489 N.E.2d 1299 (1985)); Smith v. Cassida, 169 A.2d 539, 541 (Pa. 1961) (under Pennsylvania Law, an insurance policy, “like every other contract, [it] must be read in its entirety and the intent gathered from a consideration of the entire instrument.”). It is noteworthy that Erie makes no effort to harmonize the word “valid” with the words “unless otherwise directed by this insurance.” Indeed, Erie cannot state how the “unless otherwise directed” language can be given effect in conjunction with its reading of the term “valid.” Rather, Erie contends that the “unless otherwise directed” language is not relevant, because, in its view, there is no valid underlying insurance. Erie Submission at 16. Erie misses the point. Because that language cannot be mere surplusage, it is relevant to the determination of what “valid” means. Fox Rothschild UP ATTORNEYS AT LAW John P. Asiello Chief Clerk of Court New York Court of Appeals January 2, 2018 Page 8 Erie cites to a Missouri federal court decision, United Fire & Cas. Co. v. Advantage Workers Comp. Ins. Co., 2017 WL 2964723 (W.D. Mo. June 26, 2017), for the proposition that “valid” means “applicable.” Yet the policy at issue in that case does not appear to contain the critical “unless otherwise directed” language that was instrumental in the Appellate Division’s holding. Therefore, the SWIF Policy constitutes “valid underlying insurance.” The BCL Policy goes on to state that “[c]overage provided will follow the provisions, exclusions and limitations of the “underlying insurance” unless otherwise directed by this insurance.” R. at 245. Clearly, the reference to “this insurance” is the BCL Policy itself, so the question becomes whether the BCL Policy directs coverage for an accident in New York. It unquestionably does, since it provides that coverage would be available “when the ‘underlying insurance’ does not provide coverage” and for events or occurrences “anywhere in the world” (except for areas under embargo or trade sanctions). (R. at 244). Indeed, the BCL Policy expressly states that it provides coverage “when the ‘underlying insurance” does not provide coverage.” (R. at 244). m Fox Rothschild LLP ATTORNEYS AT LAW John P. Asiello Chief Clerk of Court New York Court of Appeals January 2, 2018 Page 9 Erie argues that, “when interpreting whether the BCL Policy in any way directed that coverage would not follow the provisions, exclusions, and limitations of the underlying insurance, the [Appellate Division] should not have focused on the grant of coverage...because a conflict will always result.” Erie Submission at 23- 24. This statement is both unsupported and incorrect. The Appellate Division’s analysis does not result in any internal conflict within the BCL Policy. To the extent that Erie is arguing that the Appellate Division’s analysis results in a conflict between the BCL Policy and the SWIF Policy, the whole point in having the “unless otherwise directed” language in the BCL Policy is to deal with conflicts, and resolve them in favor of the BCL Policy. Further, Erie’s claim that “in order for the BCL Policy to have directed otherwise, such act must be in a separate endorsement,” (Erie Submission at 24) is self-serving and wholly without support. There is nothing in the BCL Policy that would alert the insured that such words unequivocally refer to a separate endorsement. m Fox Rothschild LLP ATTORNEYS AT LAW John P. Asiello Chief Clerk of Court New York Court of Appeals January 2, 2018 Page 10 Accordingly, because an exception to the coverage exclusion applies, the decision of the Appellate Division should be upheld. THE BCL POLICY IS AMBIGUOUS AND MUST BE CONSTRUED IN FAVOR OF THE INSURED Under both New York and Pennsylvania law, where an insurance policy is reasonably susceptible to two different interpretations, it must be construed against the insurer as the drafter and in favor of the insured. See Pioneer Tower Owners Assn. v. State Farm Fire & Cas. Co., 12 N.Y.3d 302, 308, 908 N.E.2d 875, 878, 880 N.Y.S.2d 885, 888 (2009) (“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.”); Seaboard Sur. Co. v. Gillette, 4 N.Y.2d 304, 311, 476 N.E.2d 272, 275, 486 N.Y.S.2d 873, 876 (1984) (exclusions or exceptions from policy coverage cannot be given effect unless they are subject to “no other reasonable interpretation”); Butterfield v. Giuntoli, 670 A.2d 646, 652 n.8 (Pa. Super. 1996) (under Pennsylvania law, where an insurance policy is ambiguous and reasonably susceptible to two different interpretations, it must be construed against Fox Rothschild UP ATTORNEYS AT LAW John P. Asiello Chief Clerk of Court New York Court of Appeals January 2, 2018 Page 11 the insurer as the drafter and in favor of the insured, to effectuate the policy’s purpose of payment and/or indemnity to the insured); Williams v. Nationwide Mutual Ins. Co., 750 A.2d 881, 885 (Pa. Super. 2000) (after considering the policy in its entirety, if reasonably intelligent people could differ as to the meaning of the provisions of the policy, it is ambiguous and must be construed in favor of coverage). Here, the “follow form” exclusion under Exclusion (g) of the BCL policy creates an irreconcilable ambiguity with the insured agreement provision providing expansive coverage throughout the world and a duty to defend beyond that created by the underlying insurance. As a result, such an irreconcilable ambiguity must be construed in favor of Pereira. Indeed, the Appellate Division expressly found that the BCL Policy is ambiguous and that Erie had failed its burden of showing that there was “no other reasonable interpretation” of the exception to the exclusion. (Order at *4). Therefore, this Court should deny Erie’s attempt to recuse itself from its obligations by affirming the denial of the motion for summary judgment. Erie’s contention that the Appellate Division “misconstrues the very structure of insurance policies” (Erie Submission at 20), is unsupported hyperbole. If Erie is o Fox Rothschild UP ATTORNEYS AT LAW John P. Asiello Chief Clerk of Court New York Court of Appeals January 2, 2018 Page 12 unhappy with the Appellate Division’s interpretation of the BCL Policy, Erie only has its poor draftsmanship to blame. Erie also resorts to a new argument not raised at the Supreme Court or before the Appellate Division on appeal. Erie argues that the fact that the premium under the SWIF Policy is higher than that of the BCL Policy means that Erie could not have intended to take on the risk of injury to a Pereira employee outside of Pennsylvania. (Erie Submission at 24). Because this argument was raised neither at the Supreme Court nor on appeal, it should be summarily rejected. Bingham v. New York City Transit Authority, 99 N.Y.2d 355, 359, 786 N.E.2d 28, 30, 756 N.Y.S.2d 129, 131 (2003) (refusing to consider argument raised for first time on appeal). Fox Rothschild UP ATTORNEYS AT LAW John P. Asiello Chief Clerk of Court New York Court of Appeals January 2, 2018 Page 13 CONCLUSION For the foregoing reasons, the decision of the Appellate Division should be affirmed. However, RPC respectfully submits that this Court should modify the Appellate Division’s Order to the extent it declined to search the record and grant summary judgment dismissing Erie’s Complaint for declaratory relief. Dated: January 2, 2018 New York, New York Respectfully submitted, Matthew J. Schenker, Esq. Fox Rothschild LLP 101 Park Avenue, Suite 1700 New York, NY 10178 212-905-2308 mschenker@foxrothschild.com Attorneys for RPC, Inc. d/b/a Rubber Polymer Corporation cc: Dan D. Kohane, Esq. Anthony M. Delisio, Esq. Robert D. Hooks, Esq. CORPORATE DISCLOSURE STATEMENT I, the undersigned, counsel of record for RPC, Inc. d/b/a Rubber Polymer Corporation (“RPC”), certify that to the best of my knowledge and belief, RPC has no parent companies, subsidiaries, or affiliates. Matthew J. Schenker, Esq. Fox Rothschild LLP 101 Park Avenue, Suite 1700 New York, NY 10178 212-905-2308 mschenker@foxrothschild.com Attorneys for RPC, Inc. d/b/a Rubber Polymer Corporation WORD COUNT CERTIFICATION I certify that the body of this letter response on behalf of RPC, contains 2,064 words, as counted by Microsoft Word’s word-processing system, including headers, footnotes, and quotations. Matthew J. Schenker, Esq. Fox Rothschild LLP 101 Park Avenue, Suite 1700 New York, NY 10178 212-905-2308 mschenker@foxrothschild.com Attorneys for RPC, Inc. d/b/a Rubber Polymer Corporation STATE OF NEW YORK COURT OF APPEALS ERIE INSURANCE EXCHANGE, Plaintiff-Appellant, AFFIDAVIT OF SERVICE against 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 ANTONIA TAPIA AND GILBERTO VEGA-SANCHEZ, Defendants-Respondents STATE OF NEW YORK ) COUNTY OF NEW YORK ) ss.: Matthew J. Schenker, being duly sworn, deposes and says: I am not a party to this action, am over 18 years of age, and reside in Kings County, New York. 1. 2. On January 2, 2017, 1 served the foregoing letter from Matthew J. Schenker on behalf of RPC, Inc. d/b/a Rubber Polymer Corporation to the addresses below, being the addresses designated for that purpose, via Federal Express Overnight Mail: Dan D. Kohane, Esq. Hurwitz & Fine, P.C. 1300 Liberty Building Buffalo, NY 14202 Attorneys for Plaintiff-Appellant Erie Insurance Exchange ACTIVE\5261 1449.v1-1/2/18 Anthony M. Deliso, Esq. Bisogno & Meyerson, LLP 7018 Fort Hamilton Parkway Brooklyn, NY 11228 Attorneys for Defendants-Respondents Ricardo Vega and Robert Marchese as the Administrators of the Estates of Antonio Tapia and Gilberto Vega-Sanchez Robert D. Hooks, Esq. Woods Oviatt Gilman LLP 2 State Street 700 Crossroads Building Rochester, New York 14614 Attorneys for Defendant-Respondent J.P. Pereira & Sons, Inc. MATTHEW J. SCHENKER Sworn to before me this 2nd Day of January, 2018 rndtlf Notary Public1"' HEATHER E MAXWELLNotary Public -State of NewNO. 0TMA6134614 Qualified in Queens CountyMy Commission Expires Oct 3, 2021 York 2