COVID-19 Resource Center

June 30, 2020

CAT Subro Claims Against Utilities: Attorney Davolos Demonstrates How to Seize the Upper Hand by Early Elimination of Affirmative Defenses

Not all property damage losses associated with natural disasters, such as hurricanes or other catastrophes, are attributable to an “act of God.”  Rather, many so-called “CAT” property damage claims are the result of human preparation for or response to a catastrophe and offer valuable subrogation opportunities.  With Hurricane Season upon us (June 1 – November 30), it is a good time for carriers and subrogation professionals to think about subrogation cases arising from these catastrophes, i.e., “CAT Subro.”  In the aftermath of a catastrophe, it is easy for frontline insurance professionals and adjusters to overlook valuable subrogation opportunities.  Early referral to competent subrogation counsel is essential to identify viable CAT Subro claims.

The largest recent catastrophe to hit the eleven state cluster in the Northeastern United States was so-called Superstorm Sandy (“Sandy”). Some estimates indicate that Sandy caused between $60-70 billion in damages. The New York City Metro area was impacted as follows:

"On October 29, 2012, Superstorm Sandy struck the New York metropolitan region, causing unprecedented damage to homes, businesses, infrastructure and an economy still recovering from the effects of a housing crisis and major recession. As many as 300,000 housing units were damaged or destroyed; 2 million utility customers lost power; and the region’s infrastructure was crippled, with more than 2,000 miles of roads affected or closed and public transportation systems facing long-term disruptions. Most critically, 60 New Yorkers died as a result of the storm."

Report from the New York State Governor’s Office of Storm Recovery, October 29, 2014, at pg. 1 (emphasis supplied).

According to the above quote, as many as 300,000 housing units were damaged or destroyed around the time that Sandy struck the New York metropolitan region and as many as 2 million utility customers lost power. This put a tremendous strain on the resources of property insurance carriers to promptly adjust and pay a vast number of large claims in a short period of time. Likewise, utilities scrambled to maintain and restore electric service during and after the storm. However, in the scramble to respond to or prevent outages, utility companies on Long Island, and elsewhere, caused significant property damage. This damage was entirely avoidable and caused, not by Sandy, but by the negligent acts of utilities.

In 2013-2016, attorney Philip A. Davolos III, a partner in Cipriani & Werner’s Scranton office, had the privilege of representing Allstate Insurance in a successful subrogation suit related to Sandy. In that matter styled, Allstate a/s/o Dooling v. Long Island Power Authority, et al., 14-CV-0444 (E.D.N.Y.), Allstate sought to recover for damage to a home that it insured in Hampton Bays, Suffolk County, New York. Initially, before the matter was referred to Mr. Davolos, Allstate was considering closing its file and abandoning its subrogation claim. As will be made clear, Allstate benefited tremendously from referring the matter to counsel for review and analysis rather than simply closing its file.

Following a careful investigation and thorough review by counsel, it was determined that the Long Island Power Authority (“LIPA”), and/or those acting on its behalf, caused the fire that damaged the subject property. Moreover, it was determined that Allstate’s claims against LIPA were viable, but subject to multiple legal obstacles.  

The simplified general factual background of the matter is as follows:

On October 28, 2012, Sandy made landfall on Long Island, New York. Several trees were downed in the vicinity of the subject property. Power outages were widespread throughout Long Island. The power was out for multiple days at the subject property and the surrounding area. A LIPA tree crew responded to the vicinity of the subject property and cleared multiple downed trees, including a tree that impacted the overhead distribution lines that served the subject property.

Within three days of the original outage, LIPA restored power to the subject property and surrounding area. The subject property caught on fire shortly after the power was restored. The insured was visiting family in New Jersey and did not witness the fire. LIPA responded to the fire and shut off the power, before Allstate was on the scene. It was alleged in the litigation that LIPA negligently restored power and did not follow its own “make safe” procedures prior to restoring power to the subject property.  

When preparing to file suit on behalf of Allstate against LIPA, it was important to evaluate the multiple potential obstacles to litigating with municipal, i.e., government owned, utilities in New York. The first such obstacles are the notice requirement and the truncated statute of limitations applicable to such entities. The second is the limitations of liability that such entities attempt to impose by way of Tariff provisions. Third, it is common for electric utilities in general to improperly allege spoliation as an affirmative defense following remediation of a fire loss scene. These are the three primary reasons that Allstate initially considered abandoning its subrogation claim before review by counsel.

Not surprisingly, LIPA raised all three of these affirmative defenses in response to the complaint filed by Allstate. In an effort to streamline the issues in dispute and advance the matter expeditiously, Mr. Davolos filed a motion to strike these affirmative defenses pursuant to FRCP 12(f) on behalf of Allstate. Typically a motion to strike may only be granted after discovery and a hearing on the merits. However, under the most egregious circumstances, such as those presented in this case, the court may strike those defenses so legally insufficient that it is beyond cavil that defendants could not prevail upon them.

The Court granted the most important portions of motion to strike.1 First, the Court struck LIPA’s Tariff-based affirmative defense, because it was inapplicable to Allstate’s claims. The Tariff provision in question, known as “Leaf No. 27,”  states in part the following: “[LIPA] will not be liable … [f]or interrupted, irregular, defective or failed service if the causes are beyond [LIPA’s] control or are due to ordinary negligence of its employees or agents.” However, the Court determined that the limitation of liability in Leaf No. 27 did not apply to the claims brought by Allstate, because Allstate sought damages for the negligent supply of electricity. Leaf No. 27 only addresses “interrupted, irregular, defective, or failed service.” However, the Court did not stop there.  It went on to hold that, even if Leaf No. 27 did cover the supply of electricity, then it would be invalid as prohibited by Section 281.1 of the PSC’s regulations, which prohibit any such limitation of liability.

Second, the Court granted the motion to strike spoliation of evidence as an affirmative defense. Simply, the Court granted this aspect of the motion because spoliation is not an affirmative defense, but rather a potential discovery issue. The proper remedies for spoliation of evidence, if any are demonstrated to be necessary, would not be to bar recovery by Allstate, but to exclude evidence or admit negative evidence.

Finally, the Court granted that portion of the motion to strike related to the satisfaction of the notice requirements applicable to government entities that provide utility service such as LIPA. In order to maintain a claim against LIPA or any municipal utility in New York, one must comply with the notice of claim requirements of Section 50-e of the General Municipal Law. This law requires that a notice of claim must be served on the offending entity within ninety days of accrual of a claim. Failure to provide timely notice and comply with the notice requirements will extinguish an otherwise valid claim.2 Here, Allstate satisfied this requirement and received an acknowledgement letter from LIPA that its notice of claim was timely and proper. Thus, it was impossible for LIPA to raise failure to comply with the notice requirements as an affirmative defense.3

Subrogating parties rarely and too seldom utilize the motion to strike that is available in federal litigation. Early and aggressive elimination of affirmative defenses reduces the issues that remain in dispute. Eliminating affirmative defenses limits the time and resources that must be expended on discovery related to same. Moreover, this strategy of elimination of affirmative defenses at the outset of litigation through motion practice, positions matters for earlier resolution and recovery, because it limits or eliminates issues on which defendants hope to file dispositive motions. This is a tool that should be utilized by subrogating parties in federal litigation whenever possible.

 Cipriani & Werner, P.C. is well-equipped to evaluate and pursue subrogation claims in a myriad of areas, including CAT Subrogation.  As hurricanes begin to threaten our shores, we stand ready to aggressively work with insurance carriers to diligently prepare to subrogate what could well be significant claims arising from the damage caused by the hurricanes themselves, as well as the claims stemming from the preparation for and response to these natural disasters.

For more information about our subrogation practice, please contact Philip A. Davolos, III in our Scranton office at pdavolos@c-wlaw.com or (570) 892-7202.

 

 

 

Sources

1 A copy of the Court’s opinion granting the motion to strike certain of LIPA’s defenses, is attached to this article. Allstate Ins. Co. v. Long Island Power Authority, 14-CV-0444, NYLJ 1202719533249 (E.D.N.Y., Decided February 27, 2015)

2See, e.g., McShane v Town of Hempstead, 66 AD3d 652 (2d Dept 2009) (citing General Municipal Law § 50-e [1] [a]; § 50-i [1]; Public Authorities Law § 1020-y [3]). 

3 The statute of limitations to bring a claim against LIPA and similar entities is truncated to one year and ninety days after accrual of the action. N.Y. Pub. Auth. Law § 1020-y.  Suit was brought against LIPA within the time permitted by the statute.