Never Lie or Conceal Potential Claims From Insurer
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Post 4823
Plaintiff CMGK, LLC, doing business as Massage Envy, appealed from an order granting summary-judgment to defendant Certain Underwriters at Lloyd’s, London Subscribing to Policy Number ME10XXXX, and dismissing with prejudice plaintiff’s claims. Plaintiff sought coverage under a Sexual Acts Liability Endorsement of a claims-made-and-reported policy issued by Lloyd’s to plaintiff. The court found plaintiff was not entitled to coverage and granted the motion.
In CMGK, LLC d/b/a Massage Envy v. Certain Underwriters At Lloyd’s, London Subscribing To Policy Number ME10XXXX, No. A-1836-22, Superior Court of New Jersey, Appellate Division (June 13, 2024) the appeal was considered based on the facts established by the motions.
FACTS
CMGK operated a Massage Envy Spa franchise located in Mays Landing. Emad Gus Khalifa was the sole member of plaintiff and was familiar with its operations. In 2013, plaintiff hired April Pippin as a general manager to assist Khalifa with the day-to-day management of the facility. Pippin and Khalifa performed management functions for plaintiff.
The Application for Insurance
Khalifa executed on behalf of plaintiff an application for the policy at issue. “This Claims Made policy applies only to those claims arising from covered incidents which occur on or after the stated retroactive date. In addition, the claim must first be made and reported to the company during the policy period or applicable extended reporting period.” (Emphasis in the policy).
The Policy
Defendant issued its Specified Medical Professions Professional Liability Insurance Policy to plaintiff for the policy period March 9, 2018, to March 9, 2019, and subject to a Retroactive Date of March 9, 2014. The policy included a Sexual Acts Liability Endorsement.
The Sexual Acts Liability Endorsement. Prior to the effective date of the policy, the Insured represented that it had no knowledge of a Sexual Act or any fact, circumstance, situation or incident involving a Sexual Act which may result in a Claim under this policy.
In 2016, plaintiff hired Steffon Davis as a massage therapist. According to plaintiff’s client M.N., Davis sexually assaulted her during a massage he performed on her on September 23, 2017. Two days later, M.N. reported the alleged assault to Pippin. On September 26, 2017, M.N. went to the Township of Hamilton police station and told a police officer about the incident. According to the officer, M.N. told her “[Davis had] placed his finger between her vagina lips and cupped her breast during a massage.”
M.N. eventually sued. On September 5, 2018, plaintiff tendered the suit to defendant for coverage who refused to defend or indemnify the Plaintiff who sued Lloyd’s claiming Lloyd’s had breached the policy and seeking a judgment declaring M.N.’s claims fell within the coverage provided by Lloyd’s.
Finding the language of the prior-knowledge clause to be “clear and unambiguous,” the trial court rejected plaintiff’s attempt to interpret it in a manner where an honest belief in the futility of a claim negates actual knowledge of allegations of wrongdoing. The court found the police decision not to file criminal charges does not support a reasonable belief that M.N. would not file a civil lawsuit.
Khalifa’s assumption or hope, purportedly based on the officer’s decision not to file a criminal complaint or M.N.’s decision not to file a civil complaint sooner, that M.N. wouldn’t file a claim is not enough to defeat summary judgment. Adopting plaintiff’s interpretation of the policy language would have the effect of rendering meaningless the prior-knowledge clause. To avoid the application of the clause, an insured could simply assert it did not believe – in the face of all evidence to the contrary – a claim might be filed.
The reasonableness of excluding claims based on prior conduct that the insured could reasonably have foreseen might serve as the basis for a future claim was apparent to the appellate court as it would be to anyone involved in the business of insurance. The Appellate Division, therefore, affirmed the order granting defendant’s summary-judgment motion.
ZALMA OPINION
An application for insurance is a request to an insurer to make an offer of insurance. The insurer relies on the good faith of the proposed insured to accurately respond to all the inquires including any information available to the insured at the time the application is presented, of any acts that could result in a claim. Such an act, sexual abuse of a customer by a massage therapist, known to the insured but not yet grown into an actual suit must be disclosed to allow the insurer to make a well reasoned decision to offer to insure the proposed insured.
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Jury’s Findings Interpreting Insurance Contract Affirmed
Post 5105
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Madelaine Chocolate Novelties, Inc. (“Madelaine Chocolate”) appealed the district court’s judgment following a jury verdict in favor of Great Northern Insurance Company (“Great Northern”) concerning storm-surge damage caused by “Superstorm Sandy” to Madelaine Chocolate’s production facilities.
In Madelaine Chocolate Novelties, Inc., d.b.a. The Madelaine Chocolate Company v. Great Northern Insurance Company, No. 23-212, United States Court of Appeals, Second Circuit (June 20, 2025) affirmed the trial court ruling in favor of the insurer.
BACKGROUND
Great Northern refused to pay the full claim amount and paid Madelaine Chocolate only about $4 million. In disclaiming coverage, Great Northern invoked the Policy’s flood-exclusion provision, which excludes, in relevant part, “loss or damage caused by ....
Failure to Name a Party as an Additional Insured Defeats Claim
Post 5104
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Contract Interpretation is Based on the Clear and Unambiguous Language of the Policy
In Associated Industries Insurance Company, Inc. v. Sentinel Insurance Company, Ltd., No. 23-CV-10400 (MMG), United States District Court, S.D. New York (June 16, 2025) an insurance coverage dispute arising from a personal injury action in New York State Supreme Court.
The underlying action, Eduardo Molina v. Venchi 2, LLC, et al., concerned injuries allegedly resulting from a construction accident at premises owned by Central Area Equities Associates LLC (CAEA) and leased by Venchi 2 LLC with the USDC required to determine who was entitled to a defense from which insurer.
KEY POINTS
Parties Involved:
CAEA is insured by Associated Industries Insurance Company, Inc. ...
Exclusion Establishes that There is No Duty to Defend Off Site Injuries
Post 5103
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Attack by Vicious Dog Excluded
In Foremost Insurance Company, Grand Rapids, Michigan v. Michael B. Steele and Sarah Brown and Kevin Lee Price, Civil Action No. 3:24-CV-00684, United States District Court, M.D. Pennsylvania (June 16, 2025)
Foremost Insurance Company (“Foremost”) sued Michael B. Steele (“Steele”), Sarah Brown (“Brown”), and Kevin Lee Price (“Price”) (collectively, “Defendants”). Foremost sought declaratory relief in the form of a declaration that
1. it owes no insurance coverage to Steele and has no duty to defend or indemnify Steele in an underlying tort action and
2. defense counsel that Foremost has assigned to Steele in the underlying action may withdraw his appearance.
Presently before the Court are two ...
ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional
See the full video at https://lnkd.in/gK_P4-BK and at https://lnkd.in/g2Q7BHBu, and at https://zalma.com/blog and at https://lnkd.in/gjyMWHff.
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:
Health Care Fraud Trial Results in Murder for Hire of Witness
To Avoid Conviction for Insurance Fraud Defendants Murder Witness
In United States of America v. Louis Age, Jr.; Stanton Guillory; Louis Age, III; Ronald Wilson, Jr., No. 22-30656, United States Court of Appeals, Fifth Circuit (April 25, 2025) the Fifth Circuit dealt with the ...
Professional Health Care Services Exclusion Effective
Post 5073
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This opinion is the recommendation of a Magistrate Judge to the District Court Judge and involves Travelers Casualty Insurance Company and its duty to defend the New Mexico Bone and Joint Institute (NMBJI) and its physicians in a medical negligence lawsuit brought by Tervon Dorsey.
In Travelers Casualty Insurance Company Of America v. New Mexico Bone And Joint Institute, P.C.; American Foundation Of Lower Extremity Surgery And Research, Inc., a New Mexico Corporation; Riley Rampton, DPM; Loren K. Spencer, DPM; Tervon Dorsey, individually; Kimberly Dorsey, individually; and Kate Ferlic as Guardian Ad Litem for K.D. and J.D., minors, No. 2:24-cv-0027 MV/DLM, United States District Court, D. New Mexico (May 8, 2025) the Magistrate Judge Recommended:
Insurance Coverage Dispute:
Travelers issued a Commercial General Liability ...
A Heads I Win, Tails You Lose Story
Post 5062
Posted on April 30, 2025 by Barry Zalma
"This is a Fictionalized True Crime Story of Insurance Fraud that explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is designed to help everyone to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime."
Immigrant Criminals Attempt to Profit From Insurance Fraud
People who commit insurance fraud as a profession do so because it is easy. It requires no capital investment. The risk is low and the profits are high. The ease with which large amounts of money can be made from insurance fraud removes whatever moral hesitation might stop the perpetrator from committing the crime.
The temptation to do everything outside the law was the downfall of the brothers Karamazov. The brothers had escaped prison in the old Soviet Union by immigrating to the United...
